The [African] blog wars

'South Africa safe as usual' - president-in-waiting

2008-10-22T16:34:00.001+02:00

Jacob Zuma, who is tipped to be South Africa’s next president, has assured the US that the country was safe despite recent political uncertainly.

Zuma, who is currently the African National Congress’ president, which is the ruling party in South Africa, met with Secretary of State Condoleezza Rice and President George W. Bush at the White House, rather than country president Kgalema Motlanthe.

Zuma said that the trip was aimed at increasing commercial ties between the largest economies of two continents, adding that not enough had been done in the past to secure trade flows from the US to South Africa.

The United States was assured business would continue as usual and that no policy changes would happen after the country’s former president, Thabo Mbeki, was recalled last month.

Investors in Africa’s largest economy were seeking commitments from Zuma that he would not bow to pressure from his communist and trade union allies to steer South Africa away from the pro-business policies of Mbeki.

In his speech to the Council on Foreign Relations in Washington, the president-in-waiting confirmed that country policy would not change.

“There should be no worry. The situation is going to continue normally. In a sense I am saying: ‘no panic, everything is fine in South Africa’,” said Zuma.

He added that the ANC, as a democratic organisation, took decisions collectively and that the country’s liberal and progressive constitution’s checks and balances would remain in place.

“I have absolutely continued to say that I would change no policies if I became president. I have no authority to do so. That is in the hands of the ANC.”

Zuma said that he was in the USA to push for increased investment and commercial ties with one of South Africa’s key trade partners.

“We believe America, up to now, has not taken advantage of the open economy that we have,” he said.

According to the US Census Bureau, the United States between January and August this year exported US$4.2-billion worth of goods to South Africa and imported goods worth US$7.2-billion.

South Africa's growth projections 'enviable'

2008-10-22T16:33:00.000+02:00

South Africa’s projected 3.7 percent GDP growth for 2008 was “like gold” in the current economic environment.

Lesetja Kganyago, Director General in the Treasury, said that in a climate where the world’s seven richest nations may record zero or negative growth for 2009, South Africa’s growth, while slower than initially predicted, was still enviable.
“A projection from 4 percent to 3.7 percent is like gold,” said Kganyago.

In his budget speech, the country’s finance minister Trevor Manuel had cut growth forecasts, but emphasised that South Africa was still in a relatively comfortable position when compared to other economies.

The medium-term budget policy statement dropped South Africa’s GDP projections in 2009 to just 3 percent from the 4.2 percent expected in February as slower global conditions bite.

GDP was projected to grow by about 3.7 percent for 2008, but to rise to 4.0 percent for 2010 and 4.3 percent for 2011.

Kganyago added: “The prophets of recession [in South Africa] have lost their congregation.”

Kganyago noted that for investors in South Africa that the effect of the current global crises would only be felt next year, but added that “we think we have built the anchors and in the outer two years will be back to 4% and more.”

Rich black people still, well, rich

2008-10-15T10:55:00.001+02:00

While the world is struggling to get to grips with one of the worst financial crises since the Great Depression, South Africa’s growing black middle class was weathering the storm well according to a recent survey.

A TNS Research Surveys report showed that the black middle class of about three million people colloquially known as the “Black Diamonds” was proving resilient to the global financial crisis on the back of spending power that grew by more than a third in 2007.

The survey also found that the spending power of this black class now matched that of the white population, which is of similar size, in South Africa for the first time.

According to Rudo Maponga of TNS Research Surveys, “The most impressive finding is that they have shown resilience to the global and domestic financial decline, increasing their spending power from R180-billion (about $20-billion) in 2007 to R250-billion this year.”

A previous TNS survey had shown that only 10 percent of the black diamonds were affected by the global credit crunch and higher interest rates, which could lead to asset repossessions.

“The black diamonds’ earning power has increased and the majority of them are becoming more financial savvy, which minimises the risk of getting caught up in debt,” said Maponga.

According to the survey, black women in this class accounted for 40 percent of the R120-billion spent annually but South African women.

“Almost half of the women interviewed said they earned over 50 percent of the household income, whilst over 80 percent said they were the main household decision makers when it came to the majority of purchases,” said Maponga.
The survey, which polled 1500 black people in major urban areas, took place in August.

Since 1994 South Africa, the black middle class has expanded at one of the fastest rates in the world, mainly as a result of pro-black policies aimed at expediting black business interests to deal with apartheid imbalances that advantaged the white population and left the black population mostly in poverty.

However, critics believe these black empowerment policies are making business in South Africa inefficient and expensive while not reaching the majority of poor black households. Elitism is also a problem, as many of the now rich businesspeople were not necessarily poor to start with, coming from positions of advantage in the former homelands.

'What global credit crisis?' - South African banks

2008-10-15T10:54:00.000+02:00

South African banks were not coming under significant pressure in the face of the global credit crunch and a worsening local climate, according to a recent survey.

While the Ernst & Young financial sector confidence index slipped to a six-year low of 61 points in the third quarter of 2008, down from 70 in the previous period, eight out of 10 investment banks continued to regard prevailing business conditions as “satisfactory” and four out of 10 retail bankers felt the same.

Despite a more challenging environment, which has seen more consumers become indebted as a result of higher interest rates, South African banks have not suffered the same liquidity difficulties as has been the case for banks in the Unites States and Europe.

The report argues that South African banks had escaped much market turmoil as exchange controls had limited the country’s exposure to risk and because an act limiting irresponsible lending had come into effect in the middle of last year.

The report said investment banks were confident despite weaker business volumes and an expected deterioration in the fourth quarter as economic growth slows. The rand and Africa’s biggest stock exchange were also under pressure.

Africa’s largest economy’s central bank raised its repo rate by 5 percentage points to 12 percent between June 2006 and June 2008 to beat inflation, but also slowing economic activity as spending power dropped.

“After the boom of overall business activity of the second half of 2007, growth halved during the first half of 2008, During Q3, growth slackened further,” the report said.

Tighter monetary policy has slowed consumer spending, and put household budgets under severe strain, as highlighted by contracting retail and new vehicle sales. Credit growth has eased this year and household debt levels dropped in the second quarter from a record high.

A government minister has also come out in support of local banks.

"Were South African banks to come under pressure, the government would intervene strongly to protect them," said ANC Treasurer General Mathews Phosa

South African government to boycott hotels not wanting Fifa to manage them

2008-10-01T12:06:00.004+02:00

South Africa’s government could boycott business with hotels that refuse to give Fifa’s accommodation agency access to their rooms.

Match, Fifa’s accommodation agent, has so far only contracted half of the 60000 rooms it estimated it would need.

The move by government, which could severely hurt hotels as the government sector is a significant revenue spinner, could encourage hoteliers refusing to sign deals to make their rooms available to Match during the 2010 Soccer World Cup.

Otto Stehlik, Protea Hotels group executive chairperson, issued the warning at an investment conference for the hospitality industry presented by the Tourism Business Council of South Africa. Stehlik is also a member of the ministerial advisory Council for the 2010 Soccer World Cup.

Many of South Africa’s largest hotel groups, including Protea Hotels, City Lodge, Southern Sun and Legacy, have met with Fifa over the last two years to negotiate a fair contract.

Stehlik says, “We’ll be making a lot of money”, but believes the country’s image of being able to host such events could be hurt by a small part of the hotel industry that refuses to make their beds available to Match.

The executive attributes this to “ignorance or greed”, however many hotels feel that although the world cup is the world’s biggest sporting event, that there is no reason why Fifa should get a cut of bed revenue.

Hotels have until the end of October to sign a contract with Match, after which government is apparently prepared to impose boycotts against them. This boycott could, according to Federated Hospitality Association of South Africa’s (FEDASA) executive chairperson Brett Dungan, be extended to private enterprises doing business with government.

Stehlik says that those not willing to sign contracts believed they could be more profitable alone, and that this belief could place the World Cup in danger.

Match’s Adam Brown said that the agency did not have enough rooms at reasonable tariffs, and that this would result in spectators choosing not to come to South Africa.

Contingency plans have already included adding guesthouses and lodges to Match’s inventory, and the possibility of including school and university accommodation too. A last resort would be to berth luxury cruise ships in Cape Town, Port Elizabeth, East London and Durban as additional rooms to let.

Stehlik believes there are enough ships available to make up the shortfall if hotel groups don’t come on board, however, this would be unfortunate as it would mean South Africa’s tourism industry would lose potential revenue.

Brown says the deadline for hotels is at the end of October as inventory must be issued between the 162 tour operators making group reservations in various countries.

'We won't pay to stop climate change' - SA consumers

2008-10-01T12:06:00.002+02:00

While South Africans were becoming more concerned about climate change, this wasn’t translating into action given that consumers are reluctant to carry the costs of initiatives to curb greenhouse emissions, a survey from the Human Sciences Research Council (HSRC) highlights.

The 2007 South African Social Attitudes Survey sampled 3164 people, finding that of the 72 percent of respondents who knew what global warming was were all well educated in the causes of climate change. Almost half (44%) were more concerned about the effects of climate change than they were a year ago.

Yet, only 71 percent of participants believed the problem was “very serious” or “somewhat serious”, significantly lower than in other nations.

Compared to other nations, South Africans’ perceptions of the dangers of climate change was significantly lower than the almost 95 percent of Brazilians and about 90 percent of Britons, Canadians and Indians rated global climate change as a “very serious” or “somewhat serious” threat in the 2006 GlobalScan Poll, which included 30 countries.

However, according to HSRC researcher John Seager, there are many other more salient problems pressing South Africans, who see climate change as “a distant threat”.

“When we asked people what the most important challenges facing SA were, the list started with unemployment, HIV/Aids, economic issues and poverty,” said Seager

In the list of challenges, environment was placed at 10.
“If you’re not sure where your next meal is coming from, it’s more pressing than something that will affect future generations,” he added.

The respondents were supportive of government expenditure on developing wind farms (73%) or reducing the cost of energy saving devices (72%). However, they did not believe that the costs of consuming, through increased levies on fuel and electricity, should be increased to encourage reduced consumption. Taxes and levies to fund improved public transport were also out of favour.

Seagre added that although the participants are more aware of the pitfalls of climate change, “greater efforts will be required to increase general awareness and to ‘catch up’ with public opinion in other countries”.

Years of dirt cheap, yet dirty coal electricity may also have made South Africans complacent in the usage of power.

Mozambique alive and ready for commerce

2008-09-25T13:13:00.001+02:00

Mozambique, to the east of South Africa, is a country just waiting for commerce. Travelling north from Maputo on the EN1, it becomes clear that new roads built for transport serve an entirely different purpose.

Jagged footpaths follow the roads for kilometres – almost impervious to the straight roads beside them. And where the paths meet the tar it isn’t uncommon to find little piles of fruit or vegetables for sale, lying on anything from mats to rickety cabinets.

An old lady behind the table signals 5 Metical (about 20 US cents) for the pile of tomatoes. As part of the 5MT transaction, the chosen pile is checked to see if it’s still as good for sale as it was when it was packed out. There are also piles of potatoes, onions and custard apples, an indication that Mozambicans – without plastic pre-packaging – have also embraced bulk retailing.

For a land surrounded by greenery, there is also an astounding amount of nursery stalls.

But it isn’t only in the sale of simple goods on the side of the road that trade is thriving. Where the road breaks deals are still to be made. The ferry may be temporarily out of service for repairs, but a large rowing boat will take passengers and wares across the river. Once across, local fisherman cast nets daily, creating one of the worlds few enclaves where sustainable fishing still thrives. And “sustainable” means catching trawling for consumption on the day of catch. There is little sense in freezing good fish.

Unfortunately, one of the world’s poorest nations is still beside Africa’s richest. The inhibitor to South Africa’s wealth benefiting Mozambique is perhaps the poorly managed border between South African and Mozambique. It doesn’t matter how many trade facilitation agreements are signed between SADC members, until the inefficiency of border posts is dealt with, little progress will be made. Firstly, there should only be one border post with clear signage in English and Portuguese to ease flow and minimise unnecessary duplication costs, and secondly clear channels for types of cargo need to be developed so that cargo trucks, public transport and private transport can be processed separately.

SA MP resignations may hurt soccer World Cup

2008-09-25T13:11:00.000+02:00

In the light of a spate of ministerial resignations following the firing of South Africa’s president last week, the local organising committee (LOC) for the 2010 soccer World Cup would meet urgently to determine how changes would affect preparations.

LOC chairman Irvin Khoza confirmed that the resignations would be discussed at an urgent board meeting next week.

Given the size of the project, all the government ministries are involved in ensuring the success of the soccer World Cup. Currently, various government departments have given 15 guarantees in support of the tournament.

“Right now we are consulting with the ministries. It is important to say that the ministries have not resigned, and the government guarantees were signed by the ministries and not the individuals,” said Khoza.

The LOC would request certainties that the departures of key officials wouldn’t negatively affect any projects that the departments were driving.

Khoza added that the LOC had made Fifa aware of the political changes.
Fifa requires several guarantees from countries wishing to host the event, in the areas of access to the country, safety and security, healthcare services, a supportive financial environment, and transport and communications.

Some of these guarantees give Fifa extensive powers in the host country before, during and after the event. While South Africa would still need to pay to stage the event, goods belonging to the delegation, its commercial affiliates, broadcast rights holders, the media and spectators would have import and export customs duties, taxes, costs waived.

South African Revenue Service (SARS) has also agreed to provide administrative support in handling tax connected to the event, while the treasury has guaranteed unrestricted import and export of all foreign currencies, as well as their conversion into dollars, euro and Swiss francs.

Zimbabwe's road to recovery long, hard

2008-09-17T10:43:00.000+02:00

A power-sharing agreement signed in Zimbabwe between those gunning for power was unlikely to bring quick economic relief according to analysts.

The deal, signed between former President Robert Mugabe and political rival Morgan Tsvangirai would see Tsvangirai filling a new post as prime minister. Mugabe would become president again, and a deputy prime minister position would be filled by Arthur Mutambara, a leader of a splinter party.

The once bread-basket of southern African is little short of a basket case after more than a decade of poor rule by Mugabe’s ZANU-PF party saw the country’s economy shrink by at least 65 percent. Inflation reached 11.2 million percent in June.

The historic deal has been seen by many as an opportunity for Zimbabwe to rebuild itself and reclaim the wealth it once had, but Harare-based economist John Robertson said the economy would continue to struggle for years.

“Despite the deal, this year’s economic shrinkage will be worse. Confidence in the country is low. There has been a lot of skills flight. The change is going to be very, very slow,” Robertson said.

The new government would inherit $4-billion in external debt and domestic debt of $79.9-million, as well as a currency that has already had 13 zeroes removed from it in a vain attempt to prop up the free-falling Zimbabwean dollar.

The three leaders have agreed that “the government will lead the process of developing and implementing an economic recovery strategy and plan.”
However, working together may be difficult.

“It looks like Morgan has been cheated in this deal, they (MDC) don't have anything other than to shuffle papers and that’s it,” said Robertson.

University of Harare Professor Anthony Hawkins added that although foreign assistance could mean a growing economy by the first half of 2009, lost productivity would take years to redevelop.

“Getting back to where we were in the 1990s, it would take us another 10 years and getting back to the 1980s, it would take us another 15 years,” said Hawkins.

The International Monetary Fund has already agreed to hold talks with the new government after ending their relationship with Zimbabwe over un-paid debt in 2006, while the European Union has decided against immediately lifting sanctions, saying they would monitor the situation.

Global credit crunch not making South Africa unattractive

2008-09-17T10:41:00.000+02:00

South Africa was still an attractive investment destination for foreign capital, even though it was not immune to the global turmoil in the markets, said analysts.

According to investment managers Stanlib, South Africa was attractive due to its strong credit rating, relative to its peers, and its relative stability.

Stanlib noted that “recently, most emerging market currencies have come under significant pressure, reflecting an increase in global risk aversion as the global economic slowdown spreads. So far this year the rand is the worst performing emerging market currency.”

A high current account deficit has drawn negative attention to the rand, helping it drop by almost 15 percent against the US dollar since the end of 2007. The currency was currently being traded at levels not seen since 2003, when it was still recovering from a crash in 2001.

However, they added that out of 37 credit rated emerging market economies, only China, Korea, Malaysia, Poland and Chile have better credit ratings than South Africa.

“Thus we are still an attractive and stable investment destination,” said Stanlib.

The country’s National Treasury Director-General Lesetja Kganyago said that South Africa had not managed to escape the effects of the prevailing global market turmoil, which had developed out of reckless lending in the US sub-prime sector.

“The road ahead (for markets) continues to look bumpy. South Africa has not been immune to these developments,” said Kganyago.

Kganyago added that a slowdown in consumer demand was a necessary adjustment, given that although growth was fuelled by this over the past four years, it was also inflationary.

'Local, SADC energy security more sensible'

2008-09-10T11:37:00.000+02:00

South Africa may need to review its energy policies to be more neighbour-centric according to a local chamber.

Cape Town Regional Chamber of Commerce and Industry said that the discoveries of on-shore methane gas in southern Africa meant a “complete reassessment of the country's energy policies” was necessary.

Gerald Wolman, president of the chamber, said that recent gas discoveries could have a far-reaching economic impact on the economy and stability of the southern African region.

South Africa has of the world’s largest coal reserves, and over the past few years companies have prospected for coal-bed methane in about a dozen sites.

Anglo Operations discovered a one trillion cubic feet reservoir of the gas in the Waterberg coal fields, in the north of the country. Just across the border, neighbouring Botswana has a reservoir of about 60-trillion cubic feet.

Wolman said that it would be more sensible for South Africa to be signing energy security deals with Botswana, than with distant countries like Venezuela.

“We should be working with our neighbours because that will produce the best results for the region,” he said.

Methane gas has the potential to generate electricity, or for heating and liquid fuels.

“South Africa has the technology to convert this gas into liquid fuels and Botswana has the gas. [Botswana] is also a stable country and co-operation would be in the best interests of the Nepad deal,” he added.

Botswana and the northern parts of South Africa are often dry for long periods. However, the chamber added that gas power stations where ideal as they had small footprints and did not need water for steam or cooling.

‘Inward-looking world leaders choose war’

2008-09-10T10:40:00.000+02:00

South Africa’s Finance Minister has bemoaned world leaders for risking global peace and security.

Trevor Manuel delivered the message in his capacity as special envoy of United Nation's secretary-general at the financing development summit in New York in the United States. The summit was designed to review progress made on promises world leaders made in 2002 in Monterrey, Mexico.

But Manuel’s direct message stressed that if world leaders continued their inward-looking views on how to deal with peace and security, they were inviting war.

“Cold facts suggest that since Monterrey we have done the opposite of what we said we would do, that we have chosen war instead of peace,” said South Africa’s longest serving minister.

Manuel said that global food, fuel and financial crises were a consequence of collective failure by world leaders to balance the world economy.

The minister added that this would not have been the case if the Monterrey commitments were met, which would have seen richer nations living up to their promises of being more generous with resources, and more open in their trade agreements.

Manuel said that world military expenditure was estimated by the Stockholm Institute at $1.3-trillion for 2007, which was a 3 percent increase on 2006.

“Compare this to the $104 billion that was spent on [official development assistance],” said Manuel.

Manuel added that military expenditure amounted to 2.5 percent of world GDP, while, according to the Secretary-General’s MDG Gap Task Team, official development assistance from DAC members represented only 0.28 percent of their aggregated national income.

Manuel added that aid flows post-Monterrey were moving in the opposite direction of what was promised. Aid flows dropped by 4.7 percent in 2006 and a further 8.4 percent in 2007.

The Monterrey Consensus was adopted by over 50 heads of state, 200 ministers of finance, foreign affairs, development and trade, and was further represented by the UN, IMF and WTP. It focussed on financing development and ensuring international trade with developing countries became more transparent.

South Africa falls off global property 'top 10'

2008-09-03T09:56:00.000+02:00

South Africa was no longer one of the world’s top 10 performing housing markets according to a UK-based property group.

Knight Frank said that according to the latest global house price index, South Africa has moved down to 19th position in the second quarter of 2008. A year earlier it was 7th on the list.

The index shows the southern African nation’s house price growth slipping from 15.5 percent to 3.8 percent over the one year period.

Nick Barnes, the head of international research at Knight Frank, believes the reserve bank’s five basis point hike had “severely” knocked the affordability of the South African housing market.

The bank has raised its prime lending rate by 500 basis points to 15.5 percent since June 2006, when the tightening cycle started. Market commentators are confident the tightening cycle has ended, foreseeing rate cuts as early as next year.

Three years ago South Africa boasted the world’s fastest growing housing market according to Knight Frank, appreciating at a whopping 30 percent annually.
Barnes believes, “South African consumers are highly indebted and it seems likely that prices will fall in the near future.”

Many local property analysts are still bullish that the property market will make a recovery soon, and that any fall-off in prices will be short-lived.

South Africa is not the only country where housing prices have cooled significantly. The United Kingdom’s property market slumped from 14th position to 37th place over the same period, with prices on average down -3.9 percent during the second quarter 2008.

In terms of performance, the United States is near the bottom of the pile, recording an average price fall of -16.8 percent.

Australia becomes SA's top executive export market

2008-09-03T09:53:00.003+02:00

Australia has topped the United Kingdom as the most popular destination for executives leaving South Africa according to Human Capital at Deloitte.

Deloitte said that the average executive turnover for Africa’s powerhouse between August 1 2007 and July 31 2008 increased to 13.5 percent from 10.5 percent during the previous period.

“This statistic extrapolates to South Africa losing up to 50 percent of its executives every four to five years,” Deloitte spokesperson Willem Verwey said.
Australia was actively recruiting South Africans disillusioned by generally poor leadership as its government struggles to deal with incompetence and corruption, and unnecessary political squabbles. The survey found that the manufacturing and finance sectors reported the highest percentage of executives emigrating over the last three years.

Executives gave the following reasons for deciding to emigrate: crime and violence (60%), better employment opportunities (35%), and company transfers (30%).

Other reasons for attrition included early retirement (22%), emigration (15%), retrenchment (11%), and lack of career advancement (11%).

The survey said that during the period salaries were up a healthy 9.3 percent on average.

Verwey said that with inflation above 8.8 percent and recently reaching 13 percent, companies have had to take active steps to ensure their salaries remained competitive. However, higher salaries alone were not enough to keep a significant number of executives from deciding to jump ship.

Nothing beats spending like an American in Africa...

2008-08-27T12:08:00.000+02:00

A frustrated finance minister has lambasted South African consumers for not saving enough while spending like there was no tomorrow.

Finance Minister Trevor Manuel said that South African consumers were heavily indebted, mimicking the pattern of unsustainable American consumption spending.

“They live on debt and are highly leveraged. It is not a basis of stability. If they are borrowing for consumption then there is something wrong in the equation,” said Manuel.

Manual, one of the world’s longest serving and most respected finance ministers, added that price stability of 2 percent was preferable, and was needed to ensure that those relying on a fixed salary were not hit by rampant inflation.

Inflation is currently at 11.6 percent, way above the 3-6 percent band mandate of the reserve bank. The bank has raised its prime lending rate by 500 basis points to 15.5 percent since June 2006, when the tightening cycle started.

However, Manual said that “the response to rate increases is abysmally low,” adding that while a 25 basis point increase in Europe meant an immediate curtailment in spending, this was not the case in South Africa.

He added that up to a 700 basis points increase has been required in the past “before [consumers] bite”.

“People are tying themselves into knots ... if people live on debt we find ourselves with a problem,” he said.

South Africa power crisis costs 1.3$ of GDP

2008-08-27T12:07:00.000+02:00

The South African energy regulator has estimated that the cost of national power shortages during late 2007 and early 2008 to have cost the economy about R50-billion (about $6.4-billion) in lost potential.

The National Energy Regulator of South Africa (Nersa) said that the economic impact of load-shedding had been estimated at R75 per kWh.

Nersa CEO Smunda Mokoena said that “the supply shortage caught South Africa by surprise,” and that an inquiry was necessary to ensure the prolonged stability of power generation and supply.

The knock would wipe off over one percent of the country’s GDP (PPP), which was estimated at about $470-billion for 2007.

The Nersa inquiry found that the country’s national power utility, Eskom, had responded speedily and appropriately to the power supply shortage. However, there have been serious reservations around Eskom’s disclosure or the problems it faced. Eskom had, well into the crisis, broadly suggested that there was no problem, until an investigative programme, Carte Blanche, showed that coal stocks were dangerously low.

The inquiry did, however, identify a potential conflict of of interest between the generator of electricity and the system operator. This effectively undermined the security of the system.

“We are very sceptical that current procurement is being done by Eskom [and] not by government,” said Mokoena.

Mokoena added that procurement of generation capacity, including independent power producers and co-generation facilities, needed to be managed by a professional agent that was independent of Eskom.

“The sooner we establish an independent power procurer the better,” he said.
Africa’s largest utility has a R343-billion ($44-billion), five year expansion programme aimed at beefing up generation and supply.

No smelters in southern Africa possibly good news

2008-08-19T12:09:00.001+02:00

Power supply constraints in South Africa meant that no additional aluminium smelting capacity was likely for at least 10 years, according to BHP Billiton’s chief executive.

“I cannot see any scenario where in the foreseeable future there is going to be any smelter construction in southern Africa,” said Marius Kloppers.

BHP Billiton, which controls the majority of South Africa’s smelters, has had electricity supply cut to 90 percent of normal operating capacity. Earlier this year, the diversified resources giant temporarily cut ties with is financier, Standard Bank, after the bank suggested it cut back on its planned smelter expansion in favour of more sustainable projects that made better use of the power available.

Platinum and gold mining has also suffered power-related setbacks, while Rio Tinto has put its controversial $3-billion smelter at Coega, a government-led development to industrialise around a new deep water port near Port Elizabeth, on hold.

Kloppers added that new power would not be available “for a long time” meaning that the current “capacity curtailment is probably going to continue”.

Commentators have suggested that South Africa’s power problems are not necessarily all negative as they give the country the opportunity to catch up with the efficiency of more developed nations, while encouraging less efficient power projects, like smelters, to reorganise elsewhere. This could help South Africa, which already suffers chronic unemployment, ensure a better between power usage per job ratio.

South African recession unlikely as inflation, rates outlook turns

2008-08-19T11:30:00.001+02:00

South Africa, while experiencing higher inflation than in recent years coupled with slowing growth, was unlikely to dip into recession according to a market analyst.

Investec director Jeremy Gardiner said that although a world trend of slowing GDP is evident in South Africa too, the markets in the first half of 2008 had been quite resilient to bad news, while the outlook for 2009 was more positive.

He said that inflation was expected to ease significantly over the next year, which, with a more positive outlook on interest rates, was expected to bring consumers added relief.

The August Merrill Lynch fund managers’ survey for South Africa forecast that 80 percent of managers believe the next interest rate move would be down after the reserve bank kept rates unchanged at 12 percent last week.

Gardiner added that although “anything that requires a loan to buy is vulnerable” he believed we were already 60 percent of the way through the subprime crisis, which had seen liquidity dry up as banks became reluctant to lend leading to falling asset prices.

He believes that although it may take time for banks to regain the confidence required to lend more freely, this should slowly start improving, which was good news for falling asset prices.

Further reasons to be positive for Gardiner was that food prices had stabilised, and in cases already sharply corrected after retailers failed to cash in on inflation fears by pushing up prices absurdly. Commodities have also experienced a necessary pullback, like oil, which could help free up liquidity as the price of fuel dips.

Australian mining junior awarded dubious license in South Africa

2008-08-14T09:25:00.000+02:00

South Africa has awarded a small Australian mining house access to one of the county’s most treasured bio-diversity hotspots, undermining the country’s ability to drive sustainable economic development.

Mineral Resource Commodities (MRC) has been granted rights to mine a portion of the Xolobeni mineral sands project, on South Africa’s Wild Coast.

The move is disappointing for businesses hoping to cash in on the African giant's sustainable eco-tourism potential in the area. The country’s environmental affairs minister, Marthinus van Schalkwyk, is in hot water over the decision as his department failed to meet the deadline to object to MRC’s request by several months.

The award is embarrassing to government who have been trying to protect South Africa’s natural heritage sites, as well as driving policy to wean the country off mining in favour of more sustainable growth. MRC pushed the application through before two pieces of legislation, which would have scuttled its plans, were passed.

Had the Integrated Coastal Management Bill or the National Environmental Management Second Amendment Bill been enacted, the MRC’s application to mine Xolobeni’s dunes would have been blocked according to opposition Democratic Alliance MP Gareth Morgan.

The Australian stock exchange-listed firm would now have access to the Wild Coast’s pristine beaches in the hope of extracting titanium-related minerals. The company said it would provide basic infrastructure and services. The most likely includes roads to transport minerals to ports as the Wild Coast is largely without infrastructure, and basic housing for some employees.

Construction booming in South Africa

2008-08-13T17:55:00.001+02:00

Liberty Properties, one of South Africa’s largest property groups, has announced a R1.77-billion ($0.25-billion) revamp to one of its most strategic assets - the Sandton City mall.

The construction project would see one of Johannesburg’s premier malls extended between 2008 and 2012 in order to accommodate more shops.

Liberty said the project was currently at tendering stage. Several of South Africa’s biggest construction companies, including Group Five, Aveng and Murray & Roberts were benefiting from an increased infrastructure spend ahead of the 2010 Fifa World Cup. Currently, the construction and infrastructure sector is the fastest growing economic sector.

Several of the country’s top property experts believe the boom will outlast 2010 by several decades based on years of under-spending on infrastructure. Absa’s head of construction and infrastructure at Absa Corporate and Business Bank, Peter Steyn says, “It's not a 2010 story alone - South Africa has been under-spending.”

Styen further noted that while residential properly was experiencing a slowdown as a result of global concerns, the fact that “we are running out of production capacity” bodes well for the sector, especially if the country want to continue supporting growth rates of close to 5 percent.

While the boom has been supported mainly be private spending over the last few years, government’s planned R600-billion infrastructural investments over the medium term will see private business taking the backseat.

Government investments are mainly in the areas of power generation, road infrastructure and water services.

SADC may form FTA

2008-08-13T17:50:00.001+02:00

The 14 countries that make up the Southern Africa Development Community (SADC) are on the verge of signing a free trade area (FTA) into existence.

While this would be eight months after the initial date decided after a trade protocol was signed in September 2000 with an eight-year timeline to create the union, South Africa’s Trade and Industry Minister Mandisi Mpahlwa said it would be launched in Johannesburg this weekend.

The summit meeting would be used to approve the planning required for a customs union between the SADC members with this hope of building a fully-fledged customs union, which could become a major building block of a “United States of Africa”.

Mpahlwa said that since a decision in 1996 in Maseru, Lesotho to work towards union, a study had shown that trade among SADC trade had been 85 percent liberalised, and would be tariff-free by 2012.

However, the minister added, “Regional economic integration is not only about the removal of tariff barriers ... the FTA is not an end in itself, but the beginning of a process we need to embark on to build both our productive and trade capacity, improve the competitiveness of our industries and address the supply side constraints that inhibit us from benefiting from better terms of trade in the region.”

Mpahlwa said that industrial and competition policies would need to be harmonised to facilitate this too.

Eskom to approach WB?

2008-08-13T17:49:00.000+02:00

Africa’s largest power utility, Eskom, could approach the World Bank, or other large banks, to borrow up to $1-billion a year for the next five years.

The move might become necessary after ratings agency Moody’s downgraded the South African power utility, making it more difficult for Eskom to raise capital on financial markets. Eskom has confirmed that it was “rechecking” its funding strategy, which could see it borrowing from World Bank and African Development Bank, as well as from export credit agencies.

Eskom needs to spend billions after rolling blackouts across the country in early 2008 made it clear that the power house was running short of power. Power supply has since stabilised, but the damage has already been done. Blackouts cost Africa’s largest economy billions in lost productivity, unsettling foreign and local investors.

Moody’s downgraded Eskom’s local currency rating to Baa2 from A1 and cut the foreign currency rating to Baa2 from A2. The four notch local currency downgrade was based on Eskom’s aggressive capital investment programme and its inability to recoup costs through higher tariffs, which led to a lower stand-alone credit profile. The result would mean higher tariffs in the future for a country that once boasted the cheapest electricity in the world, unless government agrees to guarantee loans.

South Africa’s treasury has budgeted R60-billion (about $8-billion) over the next three years to help fund Eskom’s R343-billion ($46-billion) 5-year expansion programme.

Entrepreneurship 101: Outsourcing shack building in Africa

2007-01-19T09:53:00.000+02:00

I trust that you have had a good holiday. Mine started with an interesting reminder of the entrepreneurial knack of some South Africans. Near Rustenburg, a city not far from Johannesburg, I drove past a man who was selling a selection of ready-made shacks.

On display was the front wall of a tin dwelling, complete with wooden front door and two small windows. Several of these were stacked next to what I assume were options for sides. Some of the big corrugated iron sheets had gaps big enough to allow a window to fit into, while others were simply big pieces of iron stapled to wooden frames.

What made it interesting was that this business venture was in a way out-sourcing the function of building a house in order to enable people who would otherwise have to build a possibly sub-standard shack time to work. And analysts say specialisation of labour can’t happen in the informal economy.

Another area of interest is that this man was finally opening up the construction industry to the so-called “poor”. Where the South African government’s attempts to build low-cost housing to provide free homes to the poor had failed, this man stepped in. Perhaps government subsidising big construction houses to build sub-standard low-cost housing isn’t the answer and should invest in this man instead.

Kibaki rips Christmas stocking

2006-12-15T09:44:00.000+02:00

‘Tis the season for presents and merrymaking and no one got a better deal than Kenya’s president. Mwai Kibaki’s gift was a 180.7 percent pay rise above what he could ever possibly achieve. It’s wonderful when Santa comes to town.

Kenya’s economy is expected to grow at about 4.9 percent in 2007 according to the International Monetary Fund (IMF) from 3.3 percent in 2006. If the December 2007 election doesn’t mar investment growth, and the 4.9 percent estimate is achieved, Kibaki would have been given a salary that is 180.7 percent above his potential performance.

Perhaps the 75-year-old president-millionaire is worried that he may not win the next election and the little something extra in his Christmas stocking is something of a golden handshake. If this is the case, perhaps he shouldn’t be getting an increase at all as surely a president who has surpassed his mandate, which I assume he must have given his now significantly augmented compensation, would get voted back in?

Don’t get me wrong, I agree that presidents should be remunerated at an acceptable level, especially as CEOs earn increasingly ridiculous packages across the globe, but the danger here is enormous as the vote of confidence (someone has to believe Kibaki is worth the extra cash) can never be met. In a sense then, the pay rise is almost willing the president to fail as the economy is never going to grow anywhere near 185.6 percent. All of a sudden this ‘present’ seems just a little wicked.

Maybe this is why Kibabaki decided on Wednesday to turn down the massive hike, an increase recommended at a meeting he chaired, as "despite the major strides that the economy has made, there are other priority projects in need of urgent funding".

The good news is that this move will probably help to keep other parliamentarians' stockings from tearing when their increases come under review. Kibaki now has the high-ground; he doesn't need the extra money and neither to his MPs. Santa can stay at home.

Millions of Africans now living on $2 a day...

2006-12-08T14:05:00.000+02:00

Millions of Africans live on less than a dollar a day. Depending on what events are happening internationally (wars, sports etc), I generally get at least one report per day saying that food aid needs to be increased to the World’s poorest continent with the greatest irony being that Africans may not even be able to import their own food back once they’ve exported it.

The Southern African Development Community is facing a potential sugar supply crisis, but still Zambia, Zimbabwe, Mozambique and Malawi have said they will not allow Botswana, Lesotho and Namibia and other member states to import from outside the region in order to “protect their industry”. Protect what? You can’t sell sugar you don’t have.

The consequence: you squeeze supply and the price goes up. Perhaps now millions of Africans are living on only $0.95 per day.

Clearly Kenya’s blocking of Ethiopian Airlines has meant prices are higher than they need to be on monopolised routes. Poorly implemented protectionist policies makes African countries more expensive than they need to be.

So the question is how do we make Africa cheaper? How do we make $1 worth $1.05?

We can start by making sure that protectionist policies that operate to protect industries don’t do so at the expense of people within the country. Nigeria’s 120 percent tax on rice imports means that Nigerians are effectively paying almost double what they should be paying.

And moving on to $1.10? Oddly enough I saw part of the answer on my way to work this morning. On two occasions taxis stopped illegally just inside blind corners backing up traffic. Sure the people in the taxis had the convenience of not needing to walk an extra 25m, but convenience costs. Twenty cars had to break and then accelerate unnecessarily. Forty people had their hours of productivity marginally cut, while only two gained.

There are two major consequences to not using infrastructure properly (i.e. in line with what infrastructure was designed for). The first is that the maximum benefit cannot be attained and the second is that maintenance costs are likely to go up.

The other option of course is to build infrastructure and systems that operate more specifically to what is required. Nigeria’s rail expansion to stop congestion in Lagos is just such an example and, if successful, will help increase the potential for productivity. Similarly, the lights that were switched on in Monrovia for the first time in 16 years allows people to work at night and thereby boosts the potential for productivity.

Millions of Africans are now living on between $1.15 and $1.20 per day. If other inefficiencies are removed, like illegal taxes, this can be pushed even higher.

So we’ve had at least a 15 percent increase in ‘income’, which far exceeds Africa’s average growth of around 5 percent. It may even be possible to double this with a little bit of long-term planning.

Millions of Africans live on $2 per day. Well, it’s a start...

Museveni bets on France AND Rwanda losing

2006-12-06T17:28:00.000+02:00

I have been trying to understand the issue between Rwandan President Paul Kagame and France for a while now. Last week Kigali broke ties with Paris after French judge Jean-Louis Bruguiere called for Kagame to be tried for alleged complicity in the death of former president Juvenal Habyarimana, which was thought to have led to the 1994 Rwandan genocide.

While such a major charge against the man who is believed to have brought Rwanda back to some level of stability could have negative spin-offs, it seems odd that Kigali would act in this way given its efforts to reconstruct and reconcile the country as part of its innovative Gacaca process. Surely Kagame could simply subject himself to the Gacaca court, be found not guilty, and move on instead of making all this fuss? All this needless bother only helps to make it look like something is actually amiss. The idea that France calling for a head of state to stand trial ‘is just not cricket’ is quite short-sighted for a continent that is still trying to govern itself after almost 50 years of practise.

Perhaps that’s just where the problem is: Africa needs to show that is can rule. In this light, chasing France out is no more than a show of strong diplomacy and Rwanda, realising that former colonial allies almost always constitute the bulk of trade, will soon welcome the European foe back, albeit only after an official apology by Paris of course. Schools will reopen and the embassy will once again stock Champagne instead of sparkling wine and all the sour grapes will be a thing of the past.

But perhaps not so. While Rwanda is still trying to mend the divides between its own people, its eastern neighbour has sought the opportunity to spin some anti-European sentiment. Ugandan President Yoweri Museveni clearly saw the gap for rhetoric and got up on his perch and said France must leave Kagame alone. In some ways Museveni is right, Rwanda is sovereign and therefore France has no right over it, however, in many other areas he is dreadfully wrong. Saying that Europe (France) is the problem isn’t going to solve anything and may lead to a backlash where everything ‘European’ is destroyed. Surely the self-proclaimed champion of human rights in Africa doesn’t want his people to sit with less infrastructure and fewer opportunities.

The same applies for Rwanda. If Rwandans start seeing France as an enemy and some misguided individuals decide to torch French schools, the Central African nation will suffer. Sure, France would lose a small hold in terms of expanding its culture, but ultimately, Rwandans will find themselves in a position of fewer opportunities for education and fewer opportunities for trade. Diplomacy and rhetoric have their pitfalls

'Maintenance is for people who think too small’– Africa

2006-12-05T10:38:00.000+02:00

My uncle travels widely in Africa, having been involved in the planning of many mobile telecoms installations on the continent, and he always has a story about how governments fail to maintain what they have.

His favourite story is of an airport he once landed at in East Africa. His take on the tale is that rather than maintaining the old airport, a new one was simply built next to the old one, leaving the old one to become a ruin of some-or-other previous era.

Similarly, my uncle tells me of tarred roads, which – almost organically – became gravel roads before retuning to thick forests. How true any of this is I can’t say, but what I can say, knowing that I drive specific lines to miss potholes on my way to work everyday, is that public servants maybe aren’t as enthusiastic about maintenance as the should be.

I remember when I was in New York last year. The Mayor got quite upset that a pothole he drove through yesterday wasn’t fixed today. Perhaps then the enthusiasm needs to come from ‘the top’.

Zambia’s massive road rebuilding plan was nipped in the bud by a European Union donor community, which said that Zambia should look at a programme of road maintenance rather than building new roads unnecessarily.

The government, not jumping for joy at the simpler prospect of just fixing their roads, was left oddly sullen by this. It seems there may be more to this than maintenance being a ‘dirty word’.

It can be that the opportunity of ‘rebuilding’ may make governments feel that they are in fact adding something new to the country, i.e. cementing their purpose, though I doubt we can attribute all this to a simple case of a minority complex. And I think its safe to say that Africa needs 'building', not 're-building'. There's no point in doing things twice.

The more possible reality is that big programmes (think short-tem injection) create many short-term jobs, while propping up growth. The once scramble for Africa by Royals has been replaced with a scramble for the ‘big number’ and the higher the number the better, no matter how sustainable it is.

So while these governments (like many governments around the world) look for some rosy stats for the next election, the sad reality is that without maintenance its all rather in vain. Things fall apart if not looked after making the potential to cement a legacy unlikely.

The EU, although not explicit about this, was probably recognising that maintenance programmes will create long-term sustainable jobs because roads always need fixing, unless, of course, you live in Germany and the concrete is extra thick.
Maintenance, that dirty ‘m’ word and what does my uncle always finish his stories with showing his obvious bias to telecommunications? No state can function without communications and transport. No country has a chance of economic growth without it and you know, as much as I'd like thick forests to cover Africa, I think he's probably right.

Politics gets in way of African ICT Achievers Awards

2006-11-29T14:31:00.000+02:00

On Saturday evening I attended the African ICT Achievers Awards and for the most part was quite glad that we were congratulating ‘Africans’ for putting every effort in to develop the sector. This is especially so when many states have only recently realised the need to provide cheap and accessible telecommunications, which means many of the tools required to create a successful ICT sector are not in place yet.

So seeing Glory Mushinge, a journalist from Zambia dedicated to ensuring more people understood what ICT was about, even if they didn’t necessarily have access, win an award for Excellence in ICT Journalism in Africa was an absolute pleasure. However, I had to grit my teeth when the award for Top Public Sector CIO in Africa went to Kgabo Hlahla of the South Africa Department of Home Affairs (DHA). A website that isn’t exactly user-friendly is a common feature with government sites, however, the reason for the teeth gritting stems from a small device called the telephone; a device quite fundamental to ICT development.

Last week I called several DHA offices. Calls were either not answered, or when they were, were ‘transferred’ to someone who then didn’t answer. Although, auto-answering services and voicemail worked beautifully. This is a serious problem. How can a gentleman who heads a department that can’t even answer phones, quite a basic element to the ICT sector, win the accolade of being Africa’s best chief information officer? ICT use doesn’t appear to be particularly stretched either on the website, which could be used to allow people to make ‘free’ phonecalls to the department over the Internet using VoIP, not to mention providing addresses (with maps) of all the offices in a particular region.

I don’t for a second think that the rest of Africa’s CIO’s have faired this poorly, which brings me to a further problem I had with the African ICT Awards: Only a few countries outside South Africa were represented. If we are going to congratulate ‘Africa’, then we need to make sure that we know what the whole of Africa is up to.

Sticking with the trend of acknowledging South African companies, Sentech and Arivia.com both won awards. The South African signal distributor’s CEO Sebiletso Mokane-Matabane was named Top ICT Business Woman in Africa 2006. While she may have done many other things to deserve the accolade, Sentech reported a net loss of R74mn ($10.3mn) for the year to March from a loss of R68.8mn the previous period, partly because of the company's inability to win market share from competitors in the wireless broadband market. There is nothing notable about this.

Arivia.com won the award for Top ICT Company in Africa, yet their website doesn’t work properly in Firefox, a free webbrowser and Internet Explorer’s biggest challenger. Given that part of the difficulty of developing a vibrant ICT sector in Africa is the cost of software licenses, surely the top company would make sure that its website was at least compatible with open source alternatives?

The final insult, to those who deserved awards, came when South Africa’s Minister of Communications, Ivy Matsepe-Casaburri, won a Nepad special mention award for her work in driving ICT development on the continent. The gentleman sitting next to me was equally bemused by the prospect of this saying: “That’s politics, but perhaps she got it for driving Africa backwards.” There are countries much poorer than South Africa that have made regulatory changes far quicker and more effectively than Matsepe-Cassiburu. Just take a look at Uganda and bear in mind that it took the minister's department 4 years longer than necessary to license the country's Second National Operator (SNO).

As long as we continue to stroke the egos of those who don’t perform, we undermine the effort to congratulate and recognise those who do, which is sad given that there are people out there fully deserving of an African ICT Achievers Award.

Investing in the ‘resource curse’

2006-11-27T12:50:00.000+02:00

The IMF has again cautioned against the ‘resource curse’. The thesis, by Richard Auty, is that resource abundant countries paradoxically grow slower than countries with far fewer resources.

It is widely suspected that the ‘curse’ is largely caused by the effects of over-dependence on resources. Governments, perhaps believing resources will never run dry (in their time), fail to wean economies off these commodities. One of the consequences of this is that in times of high prices, the real exchange rate rises making local industries less competitive, while encouraging borrowing as it becomes relatively cheaper to do so.

The danger though is when prices fall, exchange rates fall and debt repayments soar, and this is after industries have contracted, which dramatically decreases tax revenues. Sure, taxes could be pushed up to compensate, but this wouldn't do much for competitiveness.

Over-dependence is the big issue though. Botswana still gets 70 percent of its export revenues from diamonds, while Burundi, Rwanda and Uganda all earn more than 50 of their export earnings from coffee. Looking west to cotton producing nations, the picture isn’t really any better. And, then, of course, there’s oil, which earns Nigeria 95 percent of its export income. Perhaps part of Chad’s defection to China was because the Asian giant is more likely to be able to buy all of Chad’s oil than Taiwan is.

While earning lots of money from diamonds, coffee, cotton and oil should be encouraged, an economy that makes most of its money in one area, especially in mining, makes for a potentially unstable country, both economically and politically. Governments and militants can't easily steal the resources of a service industry; they can only try to tax it.

The rumours that Uganda’s president was trying to grab oil land shows quite clearly the temptation that goes with controlling what could be the most successful sector by far in the economy. A diversified economy makes it far more difficult to identify a sector for a 'coup' and, consequently, harder for unscrupulous governments to find military allegiance.

It also means that investments cover a broader spectrum of sectors, which, if well managed, effectively hedge against each other making for a more stable economy. This should make it far easier for governments to plan ahead.

Botswana may still find a way off diamonds; given the vast amount of money it spent on education to develop human capital. But perhaps governments can’t always be blamed.

Chris von Zastrow, a coffee specialist working for USAID and EAFCA, hinted at the possibility that much of the volatility in East African coffee markets is because too many farmers don’t see their farms as ‘a business’. They grow coffee one year, make some money, and then abandon their farms until they need money again.

So the bigger question perhaps is how do we get farmers, and indeed the entrepreneurs needed to truly diversify economies, to see their ventures as investments?

Is Nigeria's anti-cybercrime team really the answer?

2006-11-22T14:34:00.000+02:00

Cybercrime is one of the fastest growing criminal activities in the World and it is unfortunate that Nigeria has often managed to keep ahead of the trend and although reports say that Nigeria isn’t taking the problem seriously, it’s clear that this is one area where the West African country does not want to be the world leader.

Even though the success of counter-crime measures may be questionable, Nigerian authorities are working around the clock to implement measures to contain and stop cybercrimes, even if that means removing the hands of the clock temporarily by closing cybercafés at night.

But criminal activity has always intrigued me somewhat. Sure, I get those annoying 419 emails all the time and the ones asking me to be a middle man for online auction sales (what on earth for? online payments can be directed anywhere in the World instantly). In fact, the last one even asked me – after telling me that my skills were in need – to fax my CV to a number in the United States. The fact that the emails keep coming suggests one of two things: a) ultimate desperation or b) that these scams actually work.

So while the desperate scammers, if we can call them that, are probably just copying their ‘scam-gods’, those who came up with the scams are almost certainly very capable and its this latent capacity that is interesting. If Nigeria is to overtake South Africa as Africa’s biggest economy by 2016, then more effort needs to go into making sure that intelligent people help push GDP growth. The sad reality is that it will probably be quite difficult to find these people as it is the ‘desperate’ scammers who are more likely to be caught.

What probably needs to happen in Nigeria then is a structural change to ensure that this capacity isn’t lost to the virtual underworld. If these people aren’t in formal employment because they can earn more through cybercrime, then perhaps the private sector isn’t compensating skills accordingly. Or it could be that the formal sector in Nigeria doesn’t provide enough challenge, thereby boring these people, or that jobs simply aren’t available. Looking at it like this, cybercrime may just be a kind of entrepreneurial venture. If this is the case, pushing support and financing into SMME development may be a far cheaper way to ensure that 419 becomes a number of the past.

Sure, the law undoubtedly has a part to play, especially when the perceived risk factor for a crime is significantly lower than the possible rewards and note I'm also not suggesting that scammers are necessarily unemployed.

Realistically though, scams won’t stop existing, in Nigeria or elsewhere, but perhaps some smart management of this otherwise wasted talent could put Nigeria on top.

Good governance vs Ubuntu

2006-11-17T12:22:00.000+02:00

“Good corporate governance is a source of competitive advantage” (Dave Malcolmson, Head of Nepad Division for the Minister of Foreign Affairs, ASCCI AGM and Conference 2006).

Bang! There was nothing particularly peculiar or lucid about this statement, but I had been thinking about competition from various angles and this statement seemed to bring it all together, somehow.

I started off last week by thinking that if governments were forced to see themselves as a business that their administrations would be run better. However, for this competition is needed, the kind of competition that makes governments miraculously perform 4 to 5 years worth of work in the 6 weeks prior to elections.

For administrations to be ‘scared’, there needs to be spare capacity in the form of strong opposition potential that is all too eager to capitalise on the previous administration’s failures.

True, a general lack of capacity on the continent could sometimes mean that the posts are filled with slightly less capable individuals, and this may work against efforts to encourage officials, but looking at global politics today it is safe to assume that some ‘incapables’ slip through the rug and float to the top from time-to-time anyway. So perhaps capacity isn’t really the problem at all, and besides, competition will help develop capacity.

The next step is that administrations need to be encouraged. Zambia’s president saying that his country is the preferred African destination for FDI gives an incentive for other African administrations to try harder. Because good governance is a source of competitive advantage (i.e. corruption is not efficient), the desire to be number 1 can play an important role in keeping administrations clean, or at least cleaner.

The other reality is that as governments become more and more proud of what they have achieved, they begin to brag about these achievements. Mauritius’s claim to be looking into a low tax competitive economy may be one of many strategies that is already available today, but they are only ‘available’ because governments boasted about them.

The other part of becoming more competitive is that underperforming countries become somewhat embarrassed by their ‘figures’ and tend to try to go on a diet, but only end up shedding a few zeros. Zimbabwe’s cosmetic cover-up hasn’t helped anyone, but it does show that the government is becoming a little uncomfortable with the predicament of trading in billions and trillions for bread. While the negative publicity of the contentment is often unwarranted, embarrassing a few governments might help fill the accountability gap.

’Ubuntu’ certainly has its place, but right now what Africa needs to some hard-faced competition, the kind that will allow the continent to do 100 years worth of work in 5.

‘Right to education’ closes university

2006-11-15T12:46:00.000+02:00

“‘Right to education’ closes university” read the headline in my mind after strike action led to the closure of East Africa’s oldest and possibly most prestigious university. Firstly, I have to question the quality of lecturers at Makerere University in Uganda who would rather see their institution burn (metaphorically of course) than work for less money. Secondly, I have to question the quality of education students, who think violence is an appropriate action in defending their ‘right to education’, have been getting.

Africa’s lack of appropriately skilled graduates has been talked about all over that place so I am going to have a look at this ‘right to education’ stuff.

Lecturers should be the first to agree that this right is important, especially given the amount of tutoring time that has been invested in them. After all, academics probably have more access to knowledge and training than many top government advisors. With this comes a certain responsibility – these lecturers are certainly intelligent and capable individuals, but they didn’t get there alone. While I do not expect lecturers to work for a pittance, I do anticipate that they will make sure that some of what was invested in them is reinvested to create a new and larger intellectual power-house.

The two questions that this poses is whether academics are earning too little and whether students’ right to education is being met, especially at a tertiary level. The 100 percent pay rise request may seem unreasonable, given that inflation has been in single digits for over a decade, however, pay increases are often ‘forgotten’ for several years. The area which may be cause for concern is that lecturers are asking for more than five times annual per capita earnings of $1 800. This seems a little excessive given that good academics should be earning additional income from their extracurricular research activities and effectively prices their services beyond the means of most Ugandans. So much for the ‘right to education’.

As for the students’ ‘rights’, I’m at a loss as to how the country’s educated elite could think hooliganism was acceptable in this case. I’m not saying that well-informed individuals aren’t violent, but I’d expect their actions to at least be well-reasoned and rational given that universities are meant to inculcate these kinds of skills. Making a mess of your university and your city is not likely to encourage lecturers to return to teach. If these scholars applied their teachings and still concluded that this was appropriate, then perhaps lecturers should be asking for less, not more.

Xenophobia, FDI and myths about wealth

2006-11-13T13:46:00.000+02:00

There seems to be a massive misunderstanding as to how exactly wealth is generated with governments trying to mark their non-performance (i.e. their inability to effectively generate wealth rather than redistributing it) by throwing xenophobic tantrums.

Zambia’s opposition leader said that Chinese and Indian traders were taking local jobs and should be sent ‘home’, Chad decided to simply kick the foreigners out, while Tanzania is looking to shut out alien workers.

While this is most certainly not the case for the whole of Africa, it does highlight a worrying trend. Every African government is pushing for FDI to supplement poor levels of public spending, but what doesn’t seem to be anticipated is that large international companies are likely to want to bring in their own support staff, especially in areas that require skilled workers. Why? because this means minimal training is required, bosses know what their employees are capable of and then there’s speaking the same language.

Training is key though and government policy has seldom addressed this adequately. Tanzania’s labour minister inferred that locals were lazy, while his South African counterpart – more critically – noted that productivity was the issue. It is likely that ministers are realising that there is growing discontent by local workers at the expanding local aristocracy, who, like the foreigners, earn a lot more. It is far easier for ministers to blame the foreigners for 'stealing' the wealth, which the locals should somehow have, thereby minimising critique on themselves for implementing poor policies.

Perhaps what needs to change is to understand that foreigners, and the aristocracy who probably benefited from them, did not pick dollar bills out of the ground. Instead of blaming foreign workers for ‘stealing’ wealth, governments need to ask how this wealth was generated.

Part of the answer can be found in Africa’s incredibly skewed Gini coefficient. Africa has massive supplies of unskilled labour, with a relatively small supply of skilled labour. Dealing with this coefficient has very little to do with empowerment and everything to do with decreasing the amount of unskilled labour in favour of skilled labour. This is simple economics: More skilled labour means skilled labour costs less, while less unskilled labour pushes up the price.

As for this apparent trend towards xenophobia, I would hate to see Africa expel those who can in favour of those who can’t because governments, by alienating foreign workers, are also alienating the tiny aristocracies they helped create in the hope of becoming self-sufficient.

Africa's anti-trade reality

2006-11-09T18:27:00.000+02:00

I have often wondered whether Africa really wants to trade. It seems absurd to think that African states wouldn’t be pro-trade, but perhaps the trade problem isn’t as much tariff related as NGOs and African lobby groups would like us to believe. Perhaps it’s that many African states have chosen policies that make it difficult to impossible for their goods and services to even entertain the idea of accessing outside markets. While I’m not disputing the fact that EU and US subsidies are unfair – especially since structural adjustment programmes call for the scrapping of subsidies by African governments in the name of free trade – I am saying that poor links to other states and the outside world make us unlikely benefactors of globalisation.

Gauteng’s - Africa’s most economically active region – premier recently said that "we must trade more with ourselves if we are to trade more effectively with the world". Effectively he said that a lack of infrastructure acts as a barrier to entry for intra-trade and this inhibits our capacity to access global markets. This seems obvious, if you can’t move your goods, you can’t sell ‘em. Simple. But what about areas where ‘economic infrastructure’ is already available?

In 1999 African states met with the aim of opening up their skies and by 2006 all that has been managed is a small task team comprising of airlines that do not necessarily have the best track record in terms of an ‘open sky policy’. South Africa’s state-owned carrier features prominently and has been accused many times of abusing market dominance and its link to the state. I definitely don’t see this carrier leading the way in opening up Africa’s skies, thereby promoting trade.

So while it may be easy to say that big international countries are hampering the growth of goods from African markets, it may be wise to take a step back and question the trade barriers within. There are some goods things happening though. New road links are being negotiated almost daily, rail networks are being expanded and redeveloped, and some of the political barriers are being abolished. These are big steps forward and should be applauded and perhaps after all this development, international trade barriers won't matter all that much.

Focus on Urban, not Rural

2006-11-07T13:50:00.000+02:00

Is rural development really the way to go for Africa, especially ahead of urban development? Both need to happen, but the sensitivity of this issue may mask the fact that a focus on rural development is unsustainable. Why? Well, if we assume that rural communities are undeveloped, then it is unlikely that they will be contributing their ‘fair’ share towards development funds in the country.

I started thinking about this issue again after a speech by Nigerian President Olusegun Obasanjo. He said that African stock exchanges needed to integrate to achieve economies of scale. Sure, ‘integrating’ rural areas through development can help bring economies of scale, but Obasanjo also used the words “fast-track” and “short-cut”. Development in urban areas, even just ‘rural’ shantytowns in cities, seems more of a fast-track solution to me.

The danger though is that when development in rural areas is too heavily subsidised by richer urban areas is that rural inhabitants will become poorer as urban living will need to become increasingly more expensive to compensate. Building 1km of road for 1 000 urban residents, each paying $1 for it, is far more expensive per person than building 1 000km of road for 1 rural dweller paying $1.

Follow China we must (apparently), but the Chinese are actively making rural living more expensive by pushing rural inflation ahead of urban inflation to make it possible for rural dwellers to enter urban living. This, I guess, is much easier to do in an environment when you don’t need to be voted in though. The equation in a ‘democracy’ is: ‘free’ amenities equals votes.

Sure, going back to the road analogy, there are security advantages to developing rural areas, which would undoubtedly benefit urban areas too (especially the potential for increased food security). It also becomes easier to protect rural areas, which will definitely help increase the value of pastoral land. As ground becomes more expensive, it is increasingly necessary for landowners to consider the land as an investment. An unfortunate consequence of this is that poorer landowners may not be able to afford to keep their plots anymore, effectively being pushed off their land by development, but at least healthy payments for land would be more likely, making it easier to enter urban living.

This leads to another consideration. If governments are going to commission roads into the countryside, they need to make sure than the return on investment is justifiable. This means they need to make sure that the land is used productively, i.e. bigger farms, more machinery and fewer jobs. Perhaps when this leads to cheaper food in cities, this gain will make it easier to justify urban areas subsidising rural areas. Increased spending power also enables new opportunities for jobs in the economy, possibly making some space for urban migration.

The bottom line is that rural development can’t just happen. Sacrifices and pain are going to be involved and it’s important that those running for office make the electorate aware of this. There may be some wisdom after all in the adage: No pain, No gain.

Too much independence makes taxi industry unworkable

2006-11-06T16:25:00.000+02:00

Last night on my drive home I saw the spotlights illuminating a small chicken-fenced paddock that was to be one of the project sites for the Gautrain, South Africa’s first high-speed train. (Note that South Africa already has rapid transport, they’re generally called taxis.)

And so, almost 150 years after the Metropolitan Railway started conveying passengers, Johannesburg will get in on the action. The ‘Met’ was the birth of the London Underground, the oldest and biggest underground system in the world.

What I was wondering was whether it’ll take South Africa as long to develop a sustainable transport network as London did. Initially, the underground was massively inconvenient because lines were owned by different firms, making changes clumsy and confusing. Poor planning meant that many lines had to be rerouted later and several stations were simply never opened.

The solution came with the removal of ‘independence’ when financial difficulties made it possible for an American investor to buy out the independent lines and eventually brand the lines as one company, thereby creating a city-wide integrated network, which could then be used to sell the city.

Now while the Gautrain will give South Africa its very own slice of rattling underground, it is unlikely to integrate much while the government is subsiding its inefficiency rather than making it an affordable alternative (much like the Heathrow Express line). Taxis, however, offer the real opportunity (across Africa) to provide a convenient and sustainable service.

There are some serious ‘buts’ though and perhaps some entrepreneurial minds can tackle these more succinctly, but here are some of the ‘buts’.

Firstly, the multitude of independent syndicates running taxis will need to be rationalised down to many less than 10 and will then need to be branded appropriately. ‘Banged-up taxi’ is not a brand.

This has quite a few advantages both socially and economically. Taking it to the extreme, a monopoly can’t incite taxi violence over routes, unless –of course– a boss is silly enough to shoot himself in the foot. Hopefully in this case market forces will prevail and someone (like the American investor) will quickly buy his operating licence and take over the fleet. (Taxi violence is the absurd situation where taxi drivers shoot the drivers of any other form of transport because they somehow believe they have a right to a particular route. Supply and demand fundamentals are never questioned.)

And the operating licence is the next thing. Independent syndicates are difficult to regulate (aka ‘police’). If the risk is real that you may lose your licence if your drivers decide to drive double the speed-limit, because it’s unfair that the Gautrain, at 160km/h, can now out-speed them, then you’ll explain to your drivers that life isn’t fair. Other small offences will quickly fall away too as it becomes possible to fine the operator, who can then take action on the particular driver.

So while I definitely don’t see the Gautrain being the answer to Gauteng’s transport problems, I can see a gem of an opportunity for an entrepreneur who’s willing to buyout all the little syndicates to create a real metropolitan transport solution. This could be sorted out even before the Gautrain's expected launch in 2010.

The next step would be to look at route planning. Inclusively is a lovely ideal, but if there are too many stakeholders it becomes cumbersome and unworkable. Just a look at the EASSy cable shows this clearly. A small group of key players will be able to negotiate with government and possibly set up a company that will build, maintain, and label taxi stops with timetables. Such a company could be something more for entrepreneurs to have a look over and maybe, just maybe, the government will come to the party too.

And maybe, just maybe, the next time I jump on a taxi I’ll know for sure where I’m going and what time I'll arrive.

Nigeria, Egypt & Iran's nuclear exploits

2006-11-03T16:41:00.000+02:00

How different is Nigeria really from Iran? International critics say Iran’s massive oil and gas reserves mean that it does not need nuclear energy (if its oil and gas wealth was efficiently managed and the US lifted sanctions to allow for further investment). Nigeria also has massive oil and gas reserves (producing about 2.3 million bpd) so surely the same argument should apply?

Perhaps the US is just sore at Tehran’s proposed euro-based oil bourse, which is unlikely to help appease the US’s yawning deficit, or has realised that it has created its own ‘problem’ by starving Iran of oil and gas energy investment opportunities and then saying that Iran couldn’t invest in alternatives. I’m more interested in the potential threats posed by Nigeria’s (and Morocco, Egypt and maybe even South Africa’s) nuclear interests though, not being much of a specialist in Middle East affairs.

Nigeria sees nuclear as a method of securing power post-oil. At some point oil will run out and so this move seems wise enough, however, Nigeria can’t even produce enough energy now and has actually gone backwards over the last 7 years, with the Nigerian National Power Authority (NEPA) failing to maintain electricity installations. Failing to maintain old electricity installations may be a little annoying to customers, but failing to maintain a nuclear station may be a little bit more disastrous: Need I say ‘Boom’?

So while there are probably some political hitches in Iran that the US feels it needs to tell the world about, providing help to a nation that has a poor track record of maintaining power installations may not be the best idea either. I am not against Nigeria’s nuclear ambitions; nuclear powers in Africa increase the likelihood of things like aid and diplomacy. I do, however, worry, that in 30 years time, an African country may be labelled with the dreadful title of being Africa’s very own Chernobyl.

While none of the African countries with current nuclear power programmes have been considered hostile (unlike Iran), African states must be aware of the fact that their nuclear ambitions may hurt their own people.

Eastern 'medicine' may further hurt Zimbabwe

2006-11-02T17:06:00.000+02:00

Zimbabwean officials have gone giddy at the prospect of attracting Russian investment in what appears to be a diehard attempt at stalling the inevitable failure of their president’s ‘look east’ policy.

Recently an Indian firm pulled out of a massive steel production deal presumably because although they’d come to manage the state-owned iron and steel works, the government felt it best to retain control even after the government had recognised that their management was to blame for killing productivity at the steel producer.

The bottom line is that although the East has shown interest in helping (1, 2) President Mugabe sustain an unsustainable regime by allowing the president to believe that eventually it’ll work, it won’t. In time, the East is going to want to be paid and, given that Zimbabwe can’t even pay its phonebills at the moment, how is it going to pay for all the infrastructure development and loans for oil? Socialism may sound friendly and altruistic, but it's unlikely the Chinese or Russians are going to be too pleased when Zimbabwe can't pay.

So while China may be able to show how socialism and capitalism can be creatively mixed, perhaps the Russians can show Mugabe a thing-or-two about how nationalism failed the world’s biggest country, leaving its people poor and without food.

Viva la mini price-war

2006-11-01T14:42:00.001+02:00

Perhaps Kulula’s CEO was right when he said that Mango would become rancid (he used the Afrikaans word "vrot"). Try as I may, I have been unable to access the website of South Africa’s newest entrant into the low-cost airline segment. Thankfully, Mango’s call centre (+27 (0) 8611-MANGO) didn’t play me any music, utilising instead the harmonious pulse of an engaged tone.

I did, however, manage to have a look at the website last night - in ‘Matrix-style-slow-motion’ - and was even able to book two return tickets between Johannesburg and Durban at a more than comfortable R338 (about $45) each. I did feel a little betrayed given that just two weeks ago I paid almost double this for the same flight on SAA, but there are enough articles about the ‘dubious’ link between Mango and SAA. I’m not really interested in whether this is fair or how much the tax-payer is supposedly subsidising Mango through state-owned SAA because, if true, this is one of those rare opportunities which may see me benefit from my taxes.

What I am interested in is that it seems the South African low-cost airline sector, which Kulula likes to remind us is already 5 years old, has graduated into the ‘first world’. We’re not used to price-wars in South Africa and although analysts are saying Mango’s prices are unsustainable, Kulula has already started undercutting some of Mango's introductory offers, albeit by only R2 ($0.25).

First world not in terms of quality - the umpteen grammar mistakes on www.flymango.com probably won’t cause planes to fall out the sky - but in terms of ballooning advertising budgets, which are used to prop-up, given that this is a marketing ploy, unsuitable ticket prices. (That is if we believe those who say that cut-throat prices aren’t sustainable and looking at some of the prices of the pioneers of the low-cost industry, these prices aren’t nearly as cut-throat as some may want us to believe.)

While price-wars can result in some players going out of business, which can create a less competitive environment, they can also force enterprises to rethink their profit margins and revenue streams, find ways to increase productivity, and become more efficient. Those who can’t find ways to compete should be left behind as they’re charging their customers too much and perhaps that is what SAA realised when they decided they needed to launch their own low-cost airline in response to the threat from low-cost carriers, which it says can sustainability offer prices 20 percent lower than its rivals. So I say, viva la mini price-war and perhaps, if this war leaves a stink, it’ll encourage some other partly-state-owned enterprises, one in particular, to reconsider the sustainability of their super-profits.

Africa: The world’s only rubbish dump

2006-10-31T16:04:00.000+02:00

The controversy over dumping of toxic waste in Côte d'Ivoire continues, even after an Ivorian minster said the country had “no intention of becoming the world's garbage dump".

But perhaps there’s more to this ‘waste dump saga’ in the form of a sterling business opportunity. I had my windshield replaced on Friday (the consequence of Africa’s rapid growth is that there are lots of trucks filled with building material on the roads) and was flabbergasted when the glass technician told me that we don’t have the technology to recycle the glass, we just throw it away. A few calls to some of South Africa’s big glass recycling firms confirmed that no one seems to be too interested in the glass that protects billions of motorists daily.

While I’m by no means a green, I do get a little annoyed with wastage – especially when its sanctioned by a rather lazy norm. Indolent because it’s been easy to just throw away the broken glass rather than seeking available alternatives or developing new methods. Sure, windshield glass is not easy to recycle because of plastic laminates that are used to make them stronger and heating and radio wires, and recyclers will argue that this makes it unviable, but this isn’t really an excuse.

If Africa does not do something to encourage recycling – either by making it more expensive to dispose of waste than the costs related to recycling or by providing tax incentives to start-up recycling firms with clear cut-off times to become sustainable within – then we have every intention of becoming the world's garbage dump.

The ability to import modern cars and other advanced products is wonderful, but it is equally –if not more– important that Africa imports the mechanisms that have been introduced to manage the waste that these goods bring. Otherwise this irresponsibility may in time earn Africa the title of the ‘world’s only rubbish dump’.

However, this rather gloomy title is unecessary. All that is required is a few visionary businessmen who can find profit where everyone else sees junk.

Botswana’s wee problem

2006-10-31T15:44:00.000+02:00

I have been thinking about Botswana’s wee problem for while now. The country has a well-educated population, but has been unable to attract investment that would utilize this because as a landlocked country with a population of under two million it is a difficult market to develop. Given the skills base that is already in place, this is perhaps one of the few African countries that would be better off with far more people to provide this base with a population to service. This will make it possible to generate wealth and diversify an economy that, although stable, is woefully too dependent on mining.

At the African Business Leaders Forum that I am currently attending, President of Uganda, Yoweri Museveni, said that one of Africa’s bottlenecks to development was that its population, relative to the size of Africa, was too small. He argued that Africa’s population is smaller than India’s, yet India is one tenth of its size and this was a stumbling block to development.

However, the president’s argument is flawed partly in that India had a broad base of skills to draw from first which could then be used to service a large economy. India's massive middle class of over 200 million shows clearly that skills must have been in place. While it is true that high densities make economies of scale easier, the skills base that is needed to provide services is still largely absent on the continent.

I do not think that it is wise to make statements about quantity while forgetting quality. This is not only an argument about economies of scale, but also of the quality of the workforce. Chris Kirubi, a prominent Kenyan business executive who is taking part in the ABLF added that although it is not a case of slowing population growth, leaders needed to make sure that economies could sustain the population and that an uneducated population must not be produced. Africa’s potential is enormous, but we lack implementers he added.

I tend to agree, this continent has unimaginable resources that can be used, as Botswana has shown, to build many high-capacity economies. It’s a pity that Botswana has the problem it currently has, especially given that it took steps to develop in the right order. First skill people, then build a country. The idea that simply growing the population without giving the population any guidance will solve Africa’s development problems is astoundingly short-sighted. While I do not believe that the president has failed to see that increasing the population alone would not be enough to encourage development, it is very easy to think the two are causally related when they are in fact only very distant cousins that have never had any knowledge of one another until just recently.

Perhaps it is just a case of realising that although one needs to build bridges before one can cross a river, one needs to build engineers before the bridge can even be thought of being built