Business Times Magazine Vol 9 2017 by SIX DEGREES MEDIA

EDMUND SOMUAH - THE KINGPIN OF DIGITAL MARKETING Ghana’s growing problem of non-performing loan Opinions: Hannah Ryder, Mats Granryd, Graca Machel, Johann van Niekerk, Mohamed Yahya, Esther Ndumi Ngumbi

2017 / VOL.9 / NO.3

SEAN DRAKE THE POWER OF ENTREPRENEURSHIP

IN NIGERIA, DEFENSE CORRUPTION REPLACES WANING OIL RENTS 56 . ZIMBABWE’S POST-MUGABE FUTURE 50 . DRIVING INDUSTRIALISATION IN AFRICA THROUGH ENTREPRENEURSHIP 24 South Africa............. R29.00 (incl. VAT), Uganda ................... Ush6000.00, Botswana .................30 Pula, Ghana .......................Ghc10.00

Nigeria.......... N500.00, Zimbabwe .............z$3.00 Kenya.................. Ksh220.00 Other Countries ..........US$4.50

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Editor Alfonce Mbizwo alfonce@businesstimesafrica.net West African Editor William Selassy Adjadogo

Alfonce Mbizwo

AFRICA’S ENERGY PROBLEMS ARE SURMOUNTABLE

Business Development Manager Nicholas Ofoe Quarmyne T: 0302 775449 /0244523627 nicholas.quarmyne@thebftonline.com Marketing Executive Gabriel Adu Asare Advertising advert@businesstimesafrica.net Sales and Circulation Ebenezer Sasu ebenezer.sasu@businesstimesafrica.net Graphic Design E. T. Mensah et.mensah@outlook.com T: 020 002 8385

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In 2014, a special report on Africa Energy Outlook showed that two thirds of sub-Saharan Africa’s population, some over 620 million people, do not have access to electricity. As of 2016, an estimated 1.2 billion people – 16 percent of the global population – did not have access to electricity. Over 95 percent of those living without electricity are in countries in sub-Saharan Africa and developing Asia. In this edition, we have several reports on how Africa can move forward. Columnists Carlos Lopes and Aliko Dangote point out that authorities can make it easier, safer, and more financially attractive for private investors to enter power markets to boost competition, thereby spurring innovation and lowering costs. African countries could seek opportunities to share infrastructure and create cross-border power pools, they argue. Renewable energy offers Africa another way to self-reliance, with ‘exceptionally rich portfolio of clean-energy assets, including almost nine terawatts of solar capacity, more than 350 gigawatts of hydropower capacity, and more than 100 GW of wind-power potential.’ This is more than enough to meet the continent’s future demand. Strive Masiyiwa and Richard Branson and Richard Branson make another point; mini-grids -localized electricity networks that supply several users, whether households or businesses. Mini-grids can have a major competitive advantage over grid extension in rural and remote areas, because they can provide electricity more quickly and at much lower cost, they noted. Because mini-grids require less capital investment than grid expansion, it can be easier to secure financing for them, meaning that they can electrify communities that might have to wait years for a grid connection.

AFRICA Ghana Ebenezer Sasu Tel No: +233 (302) 785869/785561/785367, +233 (0)24 6918914, +233 (0)20 8182377, Fax: +233 (302)775449 Email: ebenezer.sasu@businesstimesafrica.net Nigeria Mr Taiwo Adedoyin, Country Director Press House, 3rd Floor, 27 Acme Road, Ogba industrial Estate lkeja, Lagos, Nigeria. T +2349097927115 South Africa Kingsley Ibokette Postnet Suite 621, Private Bag X29 Gallo Manor 2052 T +27(0)11 609 7646 • C+27 78226 9073 kingsley@businesstimesafrica.net Kenya CPA Milcah Odeny P.O.Box 4950, Kisumu - 40103, Kenya T +254 773 837 962 milcah@Businesstimesafrica.net Zimbabwe / Botswana Annah Mudyiwa +263 773 460 208 annah.mudyiwa@businesstimesafrica.net Major Tikiwa Multi media Zimbabwe, 7 Cambridge Avenue, Newlands, Harare T +263 4 776212 / +263 4 788135 • F +263 4796160 EUROPE/INTERNATIONAL Kwesi Asong 34 Waterman Court, 118 Axe Street, Barking Essex, NG 11 7FG T +44 2085079802 • F +44 79858011050 info@businesstimesafrica.net Business Times Magazine is published by Business Times Magazine Group Ltd. Editorial opinions expressed in Business Times Magazine are not necessarily those of the Publisher. The Publisher does not accept responsibility for advertising content. Business Times (Ltd) 2012 all rights reserved. Business Times Magazine is available at newsagents and through subscription. Business Times Magazine is also supplied via controlled circulation to first and business class passengers on selected African airlines and guests in top hotels in the continent.

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2017 / VOL. 9 / NO. 2

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GHANA ECONOMIC FORUM 2017

OPINION 12 Africa’s Defining Challenge 14 How African scholarship can reduce African unemployment 16 Africa’s most notorious insects 18 Time for Africa to fight fuel fraud

SEAN DRAKE THE POWER OF ENTREPRENEURSHIP

64 50 BEHIND THE SCENES, ZIMBABWE POLITICIANS PLOT POST-MUGABE REFORMS

THE TOP 5 PRIORITIES FOR AFRICA

68 REVOLUTIONIZING TRAVEL WITH HANDY

EDMUND SOMUAH… THE KINGPIN OF DIGITAL MARKETING 8 Business Times Africa | 2017

UPFRONT 08 The Imperialist People’s Republic of Africa? 10 Mobile contributes $110bn to sub-Saharan economies

FEATURES 20 Zimbabwe bond note black market booms across borders 24 Driving industrialisation in Africa through entrepreneurship 26 Ghana’s growing non-performing loans? 28 Lessons from UT and Capital banks collapses 36 Africa's last international banks make their stand 40 Tripartite free trade area plods along slowly in Africa 46 Mozambique looks to gas reserves to aid recovery post-Mugabe reforms 54 Mugabe's Successor 56 In Nigeria, defense corruption replaces waning oil rents 58 Nigeria’s scrap metal industry booms 60 How South African business can help government fix the economy 62 The lesser known and scarier facts about unemployment in South Africa

UPFRONT The Imperialist People’s Republic of Africa? By Hannah Ryder BEIJING – A few months ago, a New York Times magazine cover was emblazoned with the question “Is China the World’s New Colonial Power?” The notion that China is a twenty-first-century colonizer is not new: commentators have been batting it around for a decade. But, to anyone who has experienced or even studied colonialism, the claim seems inappropriate, if not insulting.

he colonialism described in Joseph Conrad’s Heart of Darkness, Walter Rodney’s How Europe Underdeveloped Africa, and Franz Fanon’s Black Skin, White Masks was insidious and potent. Yes, there were strong trade and investment relationships, but there was always explicit dominance, exemplified in imposed curricula, curfews, and movement restrictions based on skin color. In the countries that experienced such colonialism – including my home country, Kenya – the effects can be felt to this day. To call China a colonial power is to diminish the true horrors that were faced by the colonized communities, including by my own relatives, who were detained by the British colonial authorities. But, beyond the moral obtuseness of the comparison, this approach simply is not useful. To label China a “colonizer” or “benefactor” does little to help us understand the true nature of its relationship with the African continent, let alone other regions such as the Caribbean. And, given the potentially lopsided power

10 Business Times Africa 2017

dynamics, grasping that relationship is vitally important. I recently worked with the boutique consultancy ChinaAfricaAdvisory to explore in depth how Chinese actors are operating within some key African countries, including by carrying out revealing cross-country comparisons. Three observations stand out. First, we found that Chinese state-owned and private companies, government departments, and non-governmental organizations prefer to do business in African countries that have already formalized their ties with China. This is not the way colonialism usually works, for those still insisting on that comparison. Such formalization often happens through memorandums of understanding, which seem to act as a kind of “gateway” for Chinese actors. For example, Kenya, which has at least 17 such memoranda with Chinese government actors, has attracted a large number of Chinese companies and NGOs for activities like managing special economic zones and spearheading large infrastructure and agricultural projects. Nearby Tanzania and Mozambique each have fewer than ten such agreements, and have attracted less Chinese activity. The second observation is that Chinese actors do not avoid countries with governments that champion their own citizens’ interests (again, not a typical trait of colonizers). For example, in African countries with strong domestic labor laws, Chinese companies are not just willing to engage in infrastructure and other contracted projects; they also tend to hire more local workers, relative to Chinese labor. A recent McKinsey survey of over 1,000 firms in eight African countries found that almost 90% of their employees were locals.

THE IMPERIALIST PEOPLE'S REPUBLIC OF AFRICA?

Hannah Ryder

a former head of policy and partnerships for the United Nations Development Programme in China, is founder and CEO of Development Reimagined.

This can have a powerful impact on the host country. Job creation resulting from construction projects and manufacturing investment is crucial, particularly in countries such as South Africa, Namibia, and St Lucia, where 40% or more of young people are unemployed. The shift toward hiring more local labor is particularly notable, because, as recently as 2015, almost 40% of all Chinese overseas workers were on the African continent. The third insight revealed by our research relates to the true complexity of Chinese investment decisions. Like any investor, Chinese actors in Africa focus on maximizing returns – and that means seeking fast-growing economies. As a recent Johns Hopkins University briefing showed, the Chinese investment destinations of Tanzania, Ghana, and Kenya have been growing at annual rates above 6%. But, unlike many other investors, Chinese actors have proved willing to take economic and political risks. Consider South Africa, which has a “comprehensive strategic partnership” with China. Since at least 2003, South Africa has regularly ranked in the top five African recipients of outward direct investment from China, with Chinese ODI continuing to rise, even as South Africa’s economic growth has declined. Similarly, Angola, the Democratic Republic of Congo, and Zimbabwe – countries with notoriously difficult political environments that typically feature at the bottom of global competitiveness indices – have all been key destinations not just for loans, but also for significant non-financial Chinese investment over the last decade. While China is no colonizer, African and other governments do have a responsibility to ensure that their relationships with China meet their own development

interests and objectives. Given China’s growing global footprint, an ad hoc approach is no longer appropriate. I would suggest four critical steps. • First, each government should prepare an in-depth “China plan” that sets out explicitly what its citizens want from Chinese partnerships. Such plans can also support due diligence – for example, exploring China’s relationships with neighboring or other countries at a similar level of development. • Second, each country should seek out Chinese actors that might help them carry out their China plan. Organizations such as the China-Africa Business Council and others can help facilitate such searches and introductory meetings. • Third, countries should negotiate memorandums of understanding and contracts on the basis of established best practices. In pursuing such negotiations, African countries should be aware that they actually have a great deal of bargaining power vis-à-vis China, even more than many other developing countries. • Finally, governments should enlist the help of domestic entities, such as NGOs, in monitoring and reviewing the outcomes of China’s activities, such as those concerning labor standards or environmental performance. There are still an estimated 389 million Africans living below the poverty line – over half the world’s total. China’s engagement in Africa can help to reduce that number, but only if African countries work to manage their relationships with China strategically, protecting their own interests as they create mutually beneficial arrangements with the Asian giant. Though China is no colonizer, it would be a mistake to assume that its growing global footprint is purely benign. – Project Syndicate 2017 Business Times Africa 11

UPFRONT

Mobile contributes $110bn to sub-Saharan economies By Mats Granryd

ub-Saharan Africa is, and will continue to be, the fastest growing mobile market in the world.? By the end of the decade, there will be more than half a billion mobile subscribers in the region, up from 420 million at the end of 2016. Among the growth drivers is the under-16 age group, which accounts for more than 40 percent of the population in many countries, and women, who are currently 17 percent less likely to have a mobile phone subscription than their male counterparts. Mobile is now also a significant contributor to the subSaharan African economy. In 2016, mobile technologies and services generated $110bn of economic value, equivalent to 7.7 percent of regional GDP. This figure is expected to grow to $142bn, or 8.6 percent of GDP, by 2020. The mobile ecosystem also employed about 3.5 million in the region last year, and contributed $13bn to the public sector through taxes. Here are some of the key trends industry group GSMA has observed: Transforming industries Across Africa, mobile is transforming traditional industries and enabling innovative business models to deliver affordable and sustainable services. Perhaps one of the best examples is mobile money, which has been critical in advancing financial inclusion over the last decade. There are now 140 live mobile money services in 39 countries in subSaharan Africa, accounting for nearly 280 million registered accounts. Today, more than 40 percent of the adult population in seven countries – Gabon, Ghana, Kenya, Namibia, Tanzania, Uganda and Zimbabwe – use mobile money regularly. Utilities are another area where mobile is driving innovation. Mobile-based, pay-as-you-go solar enables access to clean energy solutions, with entrepreneurs partnering with mobile operators to deliver the solution. Growing by nearly 40,000 systems per month, there are now one million home

12 Business Times Africa 2017

systems installed globally. Some 95 per cent are in sub-Saharan Africa, impacting about 4.8 million people. We see similar innovation in sectors such as healthcare, agriculture and others. This is just the beginning as we move forward in Africa’s digital age. Fuelling economies Local mobile operators have invested $37bn in their networks over the past five years, mainly to deploy new 3G/4G mobile broadband networks across the region. Fuelled by growing access to mobile data services and smart devices, the local mobile ecosystem is flourishing, supported by investments from operators and others in mobile-focused start-ups and tech hubs. Seventy-seven tech start-ups across the region raised almost $370m in funding in 2016, up 33 percent from the previous year. However, this continued growth and investment is not a given. The mobile industry faces several challenges, such as high levels of taxation and outdated regulatory frameworks. Positive collaboration is needed between governments and the mobile industry to enable innovation and extend connectivity to all. Connecting everyone Looking beyond the numbers, mobile is positively impacting African society and

helping to achieve the UN Sustainable Development Goals (SDGs) in time for the 2030 deadline. Mobile operators across Africa are working together to deploy mobile-enabled solutions to deliver key services such as health and education, increase women’s access to mobile, create employment opportunities and decrease poverty. Of course, the mobile industry cannot solve the challenges of the SDGs alone – no one can. Governments, industry, humanitarian organisations and individuals must come together to build sustainable partnerships. Having just visited Tanzania and witnessed much of this first-hand, I am struck again by the power of mobile to foster innovation, to fuel economies and to transform lives across Africa.

Mats Granryd

Director General of the GSMA, an organisation representing nearly 800 mobile operators and more than 300 companies in the broader ecosystem. Follow @GSMA and @MatsGranryd on Twitter

UPFRONT

Empowering the other half of Africa’s Economy By Gra�a Machel JOHANNESBURG – Julius Nyerere, the founding president of Tanzania, once said that “unity” will not make Africa rich, but “it can make it difficult for Africa and the African peoples to be disregarded and humiliated.” But, two decades later, Africa remains divided along a key fault line: gender. To realize Nyerere’s vision of a strong, dignified continent, Africa needs a new era of liberation, one that is fueled by the economic empowerment of the continent’s women.

lthough projections by the consultancy McKinsey anticipate that by 2040, Africa will have the world’s largest labor force, with more than 1.1 billion people of working age, more than 60% of Africa’s current population still survive on less than $2 a day. It is obvious that while many Africans have benefited from political emancipation – the legacy of Nyerere’s generation – poverty remains a significant obstacle. Unleashing the employment potential of African women is the best way to overcome it.As it stands, Africa’s women continue to be underrepresented in key industries and executive roles, owing to workplace discrimination and patriarchal expectations at home. Unless barriers to entering the formal economy are removed and women are presented with options that enable them to realize their full potential, Africa’s socioeconomic development will continue to be impeded. But while women are essential to the continent’s progress, they are still too often regarded as being secondary. Women must therefore claim their right to sit where decisions are made, and to shape the policies, plans, and

strategies that will affect their lives and the lives of Africans for generations to come. Studies have shown that if more women had access to male-dominated occupations in Africa, worker productivity would rise by as much as 25%. That would be good for the overall economy, but also for women in general, as it would open up new avenues for social empowerment. When women participate in the job market and engage actively in business or political decision-making, patriarchal power dynamics shift, elevating the social status of women. Economic equality also challenges accepted beliefs, and dispels harmful myths that perpetuate narrow definitions of gender norms. In other words, bringing more women into the workplace leads to an emancipation of mindset – in men and women alike. What Nyerere so eloquently said of Africa as a whole is no less true for its women: unity is the key to realizing our potential. When we come together as generators of wealth, it becomes impossible for us to go unrecognized for our economic contributions and marginalized in our entrepreneurial endeavours. At the Graça Machel Trust, we are joining together with civil-society actors, the private sector, and governments across the continent to lead a new economic liberation movement for women. Divided, we are weak, but together, Africa’s women have the ability to confront and overcome the barriers that have kept us from full participation in our respective economies. There is power in networks. My organization’s approach to economic advancement is to establish and strengthen informal and official networks, through which women can, in time, increase their participation and visibility in key sectors. That is why we are launching the “Women Advancing Africa” initiative, which is part of our ongoing effort to amplify the voices of Africa’s underrepresented and to establish a pan-African women’s movement, in which women can come together to transform the continent.

The inaugural Women Advancing Africa Forum will take place this week in Dar es Salaam, Tanzania, and will convene more than 250 women leaders from across the continent. Under the overarching theme of “Driving Social and Economic Transformation,” the Forum will focus on three strategic goals: promoting financial inclusion, increasing market access, and driving social change. We aim to emerge from the Forum with a common agenda for our participation as full economic actors. It has been just over 20 years since Nyerere encouraged us to work toward African unity. Today, Africa’s women are helping to shape the policies and practices that will bring about economic and social liberation in their respective countries. We have some way to go before African unity is fully realized. But enabling women to become full partners in Africa’s economic future, is among the best ways to ensure that we succeed. - Project Syndicate

By Gra�a Machel

Graça Machel, the founder of the Graça Machel Trust, is a member of the Africa Progress Panel and The Elders. Copyright, 2017. www.project-syndicate.org

2017 Business Times Africa 13

OPINION Africa’s Defining Challenge By Mohamed Yahya ADDIS ABABA – Africa has the youngest population in the world, and it’s growing fast. By 2055, the continent’s youth population (aged 15-24), is expected to be more than double the 2015 total of 226 million. Yet the continent remains stubbornly inhospitable – politically, economically, and socially – to young people. The success of African governments’ efforts to address this will be the single most important factor determining whether the continent prospers or suffers in the coming decades.

business-as-usual approach would risk exposing Africa not only to economic underperformance and a brain drain, but also to criminality, political and social unrest, and even armed conflict. But Africa can thrive if its governments act now to tap the energy and dynamism of the burgeoning youth population. What is needed is a comprehensive policy agenda, comprising demographically informed measures that address political, cultural, and economic exclusion in a synchronized manner. This will be no small feat, not least because of the massive age gap between Africa’s young majority and their leaders: the average age of an African president is 62, while the median age of Africa’s population is 19.5. That is the world’s largest age gap between governors and the governed, and it raises concerns about how well decision-makers understand the needs and aspirations of young people. It does not help that a tradition of gerontocracy prevails in many countries, meaning that young people’s political participation and influence is restricted on cultural grounds. To help overcome this barrier, governments should treat generational inequality with the same sense of 14 Business Times Africa 2017

AFRICA'S DEFINING CHALLENGE

One way to sustain growth and create jobs would be to collaborate on planning and implementing a massive increase in infrastructure investment across Africa.

Mohamed Yahya

Africa Regional Programme Coordinator of the United Nations Development Programme (UNDP).

urgency as other forms of inequality, accelerating efforts to introduce youth quotas for political parties, parliaments, and other decision-making institutions. Much work also remains to be done on the economic front. According to the African Development Bank, 12 million young people entered Africa’s labor force in 2015, but only 3.1 million jobs were created. That means that millions of young people were left without a stake in the economy. In the short and medium term, it will be virtually impossible to create enough jobs to meet the needs of the unemployed and vulnerably employed. Africa does not have a large labor-intensive manufacturing sector to absorb its mushrooming young population. But there are programs that can help. For example, YouthConnekt Africa, launched by the United Nations Development Programme and the government of Rwanda, encourages youth-friendly policies, such as access to finance and skills development, that match the needs of the market in particular countries. Still, given the dearth of opportunities at home, many young Africans view migration as a chance for social mobility. Yet, as the CEO of a major company based in Sub-Saharan Africa recently lamented to me, acquiring work visas for Africans is extremely difficult. In fact, it can be easier to get a work visa for a British citizen than for, say, a Ghanaian with the same skills. Africa’s vision for economic integration, as set out in the African Union’s Agenda 2063, cannot be realized without labor migration that creates African careers paths for young people. It is telling that so many Africans are willing to risk drowning in the Mediterranean Sea, living in appalling detention centers in North Africa, or sleeping in public parks in European cities, rather than remaining in Africa. Yet, contrary to popular belief, young people are not migrating from Africa

exclusively for economic reasons. Rather, they are motivated by the promise of opportunities for genuine self-improvement and the freedom to decide who to be and how to live. That is certainly what led me to leave Africa and head to Europe at a young age. In fact, the desire for self-improvement through migration is a key element of the human story – one that no desert, sea, or artificial barrier has been able to quell. Political and cultural exclusion intensifies it. Given this, any strategy that does not address the broader environment of marginalization is a bridge to nowhere. So far, Africa seems to be sleepwalking into a future of lost opportunity and, potentially, serious instability. And Africa’s international partners have remained preoccupied with containing migration from the continent, rather than addressing its underlying causes. But there may be reason for hope. The fifth European Union-Africa Summit, to be held later this year, will focus squarely on the continent’s young people. Likewise, the African Union’s theme for 2017 is “Harnessing the Demographic Dividend Through Investments in Youth.” One hopes that the growing recognition of the need to create opportunities for young people leads to effective, solidarity-based initiatives that address the barriers to youth empowerment on the continent, instead of erecting barriers to prevent young people from leaving. To paraphrase Martin Luther King, Africa confronts the fierce urgency of now. There is such a thing as being too late. Copyright: Project Syndicate, 2017. www.project-syndicate.org

2017 Business Times Africa 15

OPINION

How African scholarship can reduce African unemployment By Seife Ayele, Samir Khan, and Jim Sumberg

BRIGHTON – With two thirds of Africa’s population under 25 years of age, the continent’s youth may be its biggest competitive advantage. After all, countries’ long-term economic prospects are typically linked to the availability of a young, mobile labor force. A recent report by the Mo Ibrahim Foundation concluded that ten of the world’s 25 fastest-growing economies between 2004 and 2014 were in Africa. And yet, with many millions of young people unemployed in 2015, and many more underemployed, Africa has so far failed to reach its full potential.

he continent’s youth-employment challenge persists for many reasons. For starters, youth-focused policies and interventions are limited across the region. Programs that do exist lack adequate coordination, and often fail to incorporate lessons and feedback. Employment strategies have also tended to be largely theory-based; while well meaning, they can fail to deliver results when put into practice. But in our view, an additional, often overlooked weakness is an academic environment that limits contributions from Africa’s youngest scholars – students just finishing their PhDs – who may in fact hold the keys to putting the continent to work. Experience shows that young African doctoral students produce research that is crucial to addressing the continent’s development challenges. And yet, far too often, these young minds lack the training, access, and support they need to bring their ideas from the field to the policymaking arena. That is why we have joined a global initiative to provide young African researchers an opportunity to engage

16 Business Times Africa 2017

in policy-oriented solutions, through research collaboration and publishing opportunities. Launched in 2016 by The MasterCard Foundation and the Institute of Development Studies (IDS) in the United Kingdom, the Matasa Fellows Network aims to bring together the continent’s young academic talent to help solve Africa’s youth employment challenge. Because that challenge is closely connected to other issues – like migration, conflict, rural development, and gender – policymakers must cast a wide net when considering solutions. Our fellows’ research on these issues poses vital questions to governments and development funders about how to design solutions and implement them in ways that ensure accountability. The first cohort of fellows, who recently published their findings in the IDS Bulletin, included ten African doctoral students working in the social sciences. With coaching and mentorship from IDS staff, the fellows fine-tuned their ideas through peer mentorship and worked to generate policy ideas through inter-

actions with government officials and NGOs professionals. The fellows’ output so far has been remarkable: policy briefs on a diverse range of topics, including youth unemployment in Ghana, livestock production in Kenya, and regional strategies for improving youth-led entrepreneurship. The inaugural Matasa fellows also studied the political dimensions of youth employment and policy processes in Ethiopia; the social and cultural concerns underpinning employment choices across the continent; how mentorship affects entrepreneurship; and how young Africans view illicit industries, like gambling and sex work. Some of the fellows’ research has generated remarkable results –all the more so for being counterintuitive. For example, Kampala-based researcher Nicholas Kilimani’s survey of employment strategies found that, contrary to commonly held assumptions, youth unemployment rates actually rise proportional to educational attainment. Solving the employment crisis will therefore require creative thinking, Kilimani argues. “The

OPINION; AFRICA'S DEFINING CHALLENGE

Seife Ayele

Research fellow at the Institute of DevelopmentStudies at the University of Sussex.

youth employment challenge requires policy action beyond basic education and labor markets,” he writes, “into areas such as credit markets, infrastructure, business regulation, and rural development.” The work of Maurice Sikenyi, who studied Kenya’s Youth Enterprise Development Fund, a government-run microfinancing initiative, is equally innovative. Using primary interviews and secondary data, the University of Minnesota scholar concluded that the fund’s reach and impact was being weakened by corruption, vague eligibility criteria, long wait times for loan processing, and an underappreciation of

Jim Sumberg

Research fellow at the Institute of DevelopmentStudies at the University of Sussex.

the risks young people take when starting their own business. His paper explores how the development program could be strengthened through greater attention to accountability measures and a renewed focus on mentorship. Africa can turn the corner on youth employment. To do so, however, African decision-makers need to engage more deeply with the continent’s youngest, brightest researchers – who often are uniquely positioned to lend key insights – and build new nodes of academic connectivity between the continent’s research, policy, and practice.

Samir Khan

Senior Manager of Research and Policy Communications at The MasterCard Foundation.

One way to sustain growth and create jobs would be to collaborate on planning and implementing a massive increase in infrastructure investment across Africa. 2017 | Business Times Africa 17

OPINION

Africa’s most notorious insects – the bugs that hit agriculture the hardest By Esther Ndumi Ngumbi

Many invasive insect species can be controlled at early stages before they disperse to new environments. It requires better surveillance and monitoring by African countries. 18 Business Times Africa | 2017

he dreaded crop-eating fall armyworm continues to spread across Africa like wildfire. This invasive insect pest, first reported in Africa in early 2016, is in more than 20 African countries including South Sudan and South Africa. It has destroyed many staple crops like maize. Damage to maize alone by this pest could total USD$3 billion in the next 12 months. Crop losses in African countries due to insect pests are estimated at 49% of the expected total crop yield each

year, according to the Centre for Agriculture and Biosciences International. But some crop losses can be even worse, and the effects of the changing climate are expected to increase the damage done by insects. Which are Africa’s top insect pests? The ones named here are just a few of the wide range of insect pests that affect crop production in Africa. But describing the top ones – and the crops they attack – can help focus the minds of researchers, governments and development agencies.

OPINION: A BIG BOND FOR AFRICA

Insects that damage cereal crops Cereals like maize, rice, wheat and sorghum are Africa’s most important food crops. Maize is by far the most widely grown cereal crop – more than 300 million people out of approximately 1 billion people in sub-Saharan Africa depend on it as their main food source. Maize is severely affected by pests. The most significant yield losses are caused by lepidopteran stem borers, Busseola fusca (Fuller) and Chilo partellus Swinhoe (Crambidae). Depending on the country, season, region and maize variety, Chilo partellus can cause (annual) yield losses ranging from 15% to 100%. Production losses of up to USD$450 million to farmers in eastern Africa by Chilo partellus have been reported. Root and tuber crops More than 240 million tons of root and tuber crops, including cassava, sweet potato, potato and yam, are annually produced on 23 million hectares of land in Africa. As many as 500 million to 1 billion Africans consume cassava. While the crop is tolerant of heat and other extremes, it’s vulnerable to insect pests. Bemisia tabaci (Gennadius) is Africa’s main cassava insect pest. Unlike the stem borers, which chew and bore through stems and new maize cobs, these whiteflies feed directly on plants’ sap. They also carry cassava plant diseases. The most important disease they transmit are the Cassava Mosaic virus and Cassava Brown Streak disease. Entire yield losses have been reported and annual economic losses in East and Central Africa have been estimated at US$ 1.9-2.7 billion dollars. Legume crops Legume crops, including cow peas and beans, are an important part of African diets. They provide protein, vitamins and minerals such as calcium and antioxidants. But the production of most legume crops is threatened by several insect pests including bean flies, aphids, thrips, leafhoppers, whitefly and leaf beetles. The legume pod borer is a serious

pest for cowpeas, a crop that is consumed by over 200 million Africans. Yield losses of up to 80% have been reported in Nigeria, Niger and Burkina Faso —- the three major cowpea producing countries. Efforts at control Because of insects’ impact on food security, billions of dollars have gone into research aimed at finding effective control measures. The International Center of Insect Physiology, for example, dedicated over a decade of research in an effort to find ecologically sustainable controls for lepidop-

in crop productivity. The emergence of the fall armyworm in Africa is an example of this. Many invasive insect species can be controlled at early stages before they disperse to new environments. It requires better surveillance and monitoring by African countries. This should include predictive modelling – a process that uses data mining and probability to forecast future outcomes. The process could help determine when the next insect invasions are likely to occur or predict the impact of a changing climate on

teran stem borers. The International Institute of Tropical Agriculture is developing crop varieties that are resistant to insect pests and the plant diseases they spread. There are many more insects that affect African crop production. And minor pests can become a greater threat when weather conditions change or when they develop resistance to chemical pesticides used to control them. Insects can spread into new areas because of trade and climate change. The resulting outbreaks can destabilise food security and the gains made

the distribution of insect pests. It has already been used to help predict the impact of temperature changes on the future distributions of lepidopteran maize stem borers and their natural enemies. Countries could then prepare to reduce the impact of insect invasions. Because insects know no borders, it is important for African countries to work together on combating pests. Esther Ndumi Ngumbi is a Research Fellow, Department of Entomology and Plant Pathology, Auburn University

2017 | Business Times Africa 19

OPINION

Time for Africa to fight fuel fraud By Johann van Niekerk

he smuggling, dilution and adulteration of fuel is a pervasive and persistent threat to the energy sector in many countries around the world, raising the bar for governments and the private sector to do more. Fuel fraud and its damaging effect on the environment and public health due to poorer quality of the remaining product is one of the major energy challenges for many African countries today. When criminals are allowed to run rampant their schemes divert significant revenues headed to the general and economic development funds, thereby having a deleterious effect on citizens who are denied the benefits these funds would otherwise afford. A 2015 briefing paper by the ADB (Asian Development Bank) highlights what a bit of commitment can achieve in eradicating this scourge. A case study on Ghana, for example, indicated that mere awareness of the Ghana Petroleum Product Marking Scheme served as an effective deterrent against fuel fraud within the country. The use of an aggressive public awareness campaign and the enrolment of the major oil companies helped reduce the percentage of retail sites with significant fuel product dilution from 34% to 7% in the first 6 months of the program. This translated into significantly increased tax rev-

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OPINION: AFRICA'S ECONOMIC TRANSFORMATION TO CREATE A THIRD CENTRE OF GLOBAL POWER

Johann van Niekerk Managing director for Authentix, Southern & East Africa

enues and a more than 100% return on investment. While fuel-marking systems have been in use since the 1950s, the ADB papers says that recent developments in marker technologies, coupled with advances in analytical capacity, now provide the technical foundation for extremely accurate and effective fuel-marking programmes. Advanced technology molecular markers and sophisticated management systems can result in timely, actionable intelligence, allowing governments to mitigate tax evasion and subsidy abuse, minimize financial losses, and raise revenues. Modern fuel marking programs also enable higher compliance with modern environmental standards related to air quality and pollution. The Basel, Rotterdam and Stockholm Conventions share the common objective of protecting human health and the environment from hazardous chemicals and wastes. The recent “Triple COPs” meeting in Geneva, the largest gathering yet of 1,300 participants from more than 170 countries of these treaties, called for more varied, specialised and innovative approaches that draw on traditional knowledge and advances in science and technology to reduce the impact of chemicals and waste on the environment, including wastes from internal combustion engines. In particular, the Stockholm Convention, a global treaty to protect human health and the environment from persistent

I believe that Africa will emerge to be the third centre of global power, settled in between the worlds of the East and West. The world needs Africa. It needs its resources, its people, its skills and its insights and Africa is rising to meet those expectations

organic pollutants (POPs), outlines a number of best practices to ensure the effect of internal combustion engines are minimized on the environment. Fuel marking programs should thus not only be designed so that the chemicals used for marking are compliant with these treaties, but the execution of the program must lead to higher quality of the fuel itself for improve environmental fates. In another developing market example, the Serbian government said fuel adulteration was resulting in an annual loss of €40 million, and industry experts estimated the actual loss to be as high as €100 million. According to the ADB, the oil companies in Serbia welcomed the introduction of the marking system, after seeing sales volume increase by 18% for diesel and 14% for gasoline—this during a time when the government expected sales to decline due to poor economic growth and catastrophic flooding throughout most of Serbia. Based on its excise tax collections from when the program started, the government expects a €60 million increase in excise tax collection as a result of fuel-marking. There is little doubt that fuel marking programmes make a difference – and will do so in Africa in the years ahead as more countries implement the right solutions with trusted partners. Authentix, a leading global authentication and information services company that assists in combating illicit trade and managing the

integrity of their global supply chains, has already protected over 1.5 trillion litres of fuel with its innovative marking programmes. These programs ensure the integrity of the entire fuel supply chain, as the safeguards needed in every phase of the process are ensured. This requires marker and analyser technologies that integrate security measures directly into the different types of fuel. Innovation and tailored solutions are crucial and Authentix therefore employs both overt markers for consumers and covert marker that require proprietary devices to be detected by brand or government regulators. This is a robust and secure “lock & key” method for authentication where both the “lock” and the “key” must be known to replicate the solution. In addition, all these technologies are compliant with the most stringent regulations for environmental compliance and best practices within the fuel additives industries. The right solutions will engender the right outcomes and a well-designed fuel marking program will increase the effectiveness of governments and marginalize criminals. With current technology and program design, the solution is affordable, environmentally sound, and effective. The time for action is now, to end the assault on the environment and choke the flow of public funds to organized crime.

2017 | Business Times Africa 21

ZIMBABWE

Zimbabwe bond note black market booms across borders Garikai, 35, shuffles wads of green notes. A sizeable crowd gathers around him. They are astonished. It is their first time seeing Zimbabwe´s bond notes, the disputed currency the Zimbabwean government claims is valued at parity with the US dollar.

ince they were first printed in November 2016, bond notes have fuelled confusion, inflation and wild speculation in the economically troubled southern African nation. Garikai, however, is holding his demonstration in Johannesburg, South Africa, some 2000 kilometres away. There, bond notes are not legal currency but are in high demand from travellers headed across the border to Zimbabwe. Traders like Garikai, who hides his name to protect his trade, are making a mint off of Zimbabwe’s chronic cash shortages. According to Zimbabwe Reserve Bank governor John Mangudya, bond notes are only legal currency in Zimbabwe and not tradeable outside the country´s borders. Currency smuggling rings are not listening, however, and are exporting the currency for profit while squeezing the already cash-strapped economy. “Zimbabweans living in the diaspora in South Africa do not want to stand in long bank queues when they return home. So they stock up on bond notes in exile before boarding buses home,” Garikai explains. Bond notes are a surrogate currency. In theory their value is at par

22 Business Times Africa | 2017

with the US dollar and they are guaranteed by a loan from Egypt’s AFRIMEX bank. However their value has plunged domestically as Zimbabweans have quickly discovered that in practice they are not convertible into dollars. Garikai operates his business at Park Station, the largest foreign bus terminal in Johannesburg. “Three months ago I relocated from Zimbabwe to South Africa when I realised bond notes are the new get-richquick scheme,” he explains. Back home in Zimbabwe, winding bank queues are a menace. Some can stretch for hundreds of metres and many jostle to access the daily limit of $20 in bond note “coins” that banks can dispense. “When I go to Zimbabwe on holiday I don’t want to waste my time in queues, hence I buy smuggled bond notes here in Johannesburg,” says Maidei, 27, a maths teacher in South Africa, clutching her baby as she prepares to board a Greyhound bus. Bond note traders receive boxes of fresh bond notes smuggled from Zimbabwe in plastics, facilitated by international bus drivers. Total arrivals per month can be worth up to $20,000, Garikai claims. He also says the business is aided from on high. “Our facilitators are big

business persons and influential politicians,” he explains. The margins are compelling. For every 1000 bond notes the traders sell in South Africa, customers pay either 15 South African rand or $1.50 in commission. Maidei frowns over the traders’ high fees but says she has no option. “Very few retailers in Zimbabwe´s rural areas accept South African rand. Coupled with the misery of bank queues we have no choice but to buy smuggled bond notes here in South Africa,” she says. Garikai and the four other dealers whom he works with say business is roaring. “We make 45 percent profit every month in rands and real US dollars from trading these smuggled notes,” he says. Speculation rackets on bond notes are not limited to South Africa, according to George Guvamatanga, director of Barclays Bank Zimbabwe. He says smuggled bond notes from Zimbabwe are also selling fast in bus terminals in neighbouring Mozambique and Zambia, where Zimbabwe´s cross border traders do business. “We suspect there are more Zimbabwe bond notes in neighbouring South Africa, Mozambique or Botswana” than inside the country, Mr Guvamatanga says.

ZIMBABWE BOND NOTE BLACK MARKET BOOMS ACROSS BORDERS

“Someone realised there is massive profit in smuggling and selling bond notes outside our borders.” Demand from the Zimbabwean diaspora drives the trade. “There are a lot of Zimbabweans living out of the country. They want the bond notes ahead of their visit to avoid bank queues and daily limits,” the president of the Bankers Association of Zimbabwe, Charity Jinya, confirms. The currency smuggling rackets are causing headaches for Zimbabwe’s central bank governor Mr Mangudya. “There is a lot of indiscipline in this economy. The bank, police and taxmen are acting in close cooperation to fish out money smuggling kingpins,” he has claimed. On hearing this, however, trader Garikai laughs. “I want the cash shortages in Zimbabwe to continue. That way I can be rich again.” - ThisisAfrica

2017 | Business Times Africa 23

ENTREPRENEUR

Edmund Somuah…the kingpin of digital marketing By Obed Attah Yeboah

ocial media is fast growing into an advertising platform for many businesses. However, a lot of these adverts are done unprofessionally, and sometimes, go viral and dent a company’s image. But thanks to the services of digital marketers like Createch Ghana, social media adverts can now be done professionally, and attract good feedback. Let’s read on as the CEO, Edmund Somuah, takes us through how he started and what digital marketing has to offer businesses. Background Edmund Kwame Somuah, born in Nkawkaw, Eastern Region, is the first of four children. He had his Junior High School education at the Infant Better Training (IBT) School in 2002, and went on to the Mpraeso Senior High School (SHS) at Kwahu Mpraeso where he studied Science and completed in 2005. He then gained admission to the Accra Polytechnic (now Accra Technical University) and studied as a Laboratory Technician where he graduated in 2010. From there, he did his national service as a Teacher at Adeiso JHS in the Eastern Region in 2011. After national service, Edmund worked with a waste management company for some years whilst still searching for a job in his area of professional training. That job never came. With his frustration increasing by the minute, he thought of pursuing another short programme that could help him get a job easily.

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Edmund has long been a fun of working with computers, so he decided to choose a course in Database Technology which, he said, would give him knowledge about how to organise data, create programmes, analyse and provide data security. He then enrolled in a six-month programme at IPMC, one of the leading schools in the country in the area of IT training.

There are a lot of people who are now asking questions about what they can do, where they can find information about what is available in the districts in terms of raw materials

EDMUND SOMUAH...THE KINGPIN OF DIGITAL MARKETING

When he completed the programme, he applied to various companies for a job but that one also proved futile. It is said that time and tide waits for no man, so Edmund decided he would rather start something on his own, than to waste time searching for a job which will never come. The birth of Createch Ghana Even though he wanted to start something on his own, he was not sure what would be easy to set up. He communicated his intentions to one of his lecturers who then advised him to start with digital marketing, a type of marketing that professionally manages the social media accounts of businesses. Convinced that it is a good business idea, he began the processes to start. He registered his business with the name Createch Ghana. The services Createch Ghana offersCreatech Ghana sets up social media accounts for its clients, manages them professionally and monitors the online activities of competing firms in order to come up with strategies that will make its clients page better and attractive. “For example, most people with social media accounts just post pictures of the products on social media. But at Createch Ghana, we don’t just post pictures. We create contents that will give customers reasons why they should choose your products, and how others have benefitted using the products. We also add graphics to make the images quality and more attractive to potential customers.” Createch Ghana also creates display ads for its clients, where an image or video of the company and its prod-

ucts pop up when one opens a page online. The company also offers services in graphic designing. Challenges The biggest challenge in this business, Edmund says, is the general lack of understanding and appreciation of how professional social media marketing works. “People generally understand social media as just creating a social media page and be posting images of their products anytime. But that is not how it works. If you get a professional to manage your social media page for you, you will understand and appreciate how impactful it will be on your business.” How education has helped “Without education, it is obvious that I could not be doing this work. I had to be trained for six months to get the knowledge for this business. So, the role education has played in my career cannot be understated. Even apart from my training, I had to personally learn new things from the internet because in this profession you have to keep yourself updated so that you can know new trends and tailor your services to same.” Why should businesses embrace digital marketing? With the prevalence of social media and how it can help spread news faster and wider, Edmund believes businesses do not have any option than to take it seriously and employ the services of experts to manage their social media accounts for them. “Trends are changing and social media has come to stay. Millions of people are signing on every day and businesses must adapt to that trend. So, as a business, when you are con-

tacted by a professional digital marketer, don’t think about the little money you have to pay for them to professionally manage your social media accounts for you because the company’s image is very important. In the end, it is the company which benefits more for leveraging on it.” He thinks start-ups and SMEs in particular, that do not have enough money to advertise in the main stream media, should take this seriously as it can help their products and services become an immediate hit once it is introduced onto the market. Vision Createch Ghana has the vision of becoming one of the leading companies in the digital marketing fraternity, where its reputation would move companies to contact them for business. Advice to the youth “We are in an era where it has become difficult to find jobs. When I completed school, I never found the job I wanted, after searching and applying countless times. But I didn’t give up, I changed my focus and now I have a job. So, I will advise my fellow youth who have graduated from school not to give up if they do not get their preferred jobs. They should rather learn something new that can help them start a business on their own.” Acknowledgement Edmund wants to acknowledge the support of his family throughout his education and entrepreneurial journey; and his friend, Nesta Foli, who has played a very significant role in his profession.

2017 | Business Times Africa 25

AFRICA

Driving industrialisation in Africa through entrepreneurship By Finbarr Toesland

frican governments urgently need to recognise the potential of the continent's entrepreneurs and implement policies to promote entrepreneurship, according to the 2017 African Economic Outlook report. The latest report – produced by the African Development Bank, the UN’s Development Programme and the OECD Development Centre – calls for African governments to continue their adoption of digital technologies that can enhance the provision of public services. It also emphasises that intra-African trade and industrialisation need to be a central tenet of Africa’s economic policy agenda. “Foreign direct investment from large international businesses can serve a lot to disseminate a series of skills and compe26 Business Times Africa | 2017

tencies, but if industrialisation is going to benefit all Africans then we have to address our efforts to improve the standing of small firms and the informal sector,” says Mario Pezzini, director of the OECD Development Centre. While 80 percent of Africans see entrepreneurship as a viable career opportunity, a high number of nascent business owners operate in industries with low productivity. Increasing the competitiveness of smaller companies that have low levels of formal training is vital to the success of industrialisation strategies. Close to 50 percent of African countries have wide-ranging industrialisation plans, but they usually fail to represent the needs of companies with high growth targets, according to the report’s findings.

“Governments should design strategies that remove the existing binding constraints on high-potential entrepreneurs. Capacity to implement policies is also weak, often resulting in conflicting mandates across different government agencies,” the report says. Low commodity prices and a weak global economy dragged down Africa’s growth rates but the continent is expected to prevail against economic headwinds in the medium term, according to the report. Africa’s economy is expected to grow by 3.4 percent in 2017 and 4.3 percent in 2018, up from 2.2 percent in 2016. While inter-African trade is rising steadily, it is growing at a far slower pace than trade between Africa and the rest of the world, which more than quadrupled over the past 20 years. Mr Pezzini believes relieving logistical and infrastructure bottlenecks is key to accelerating trade within the region. Burdensome tariffs and regulatory barriers must come down for intra-African trade to grow uninhibited. “Sub-standard infrastructure massively inflates the price of goods and when you take into account that Africa is mainly producing commodities with little added value, transportation costs impact the price a lot,” he points out. Far-sighted and committed political leaders, alongside an engaged private sector, are required to push forward the ambitious industrialisation strategies. The successful implementation of these schemes will do much to improve Africa’s prospects, the authors write, but there is a great deal of work still to be done. “Many of Africa’s poorest are not seeing the benefits that industrialisation can offer. While industrialisation is taking place across Africa, in many cases it’s not transforming the economy of cities. Africa critically needs coherent local policies if it’s to reach its full potential,” Mr Pezzini concludes. -ThisisAfrica

GHANA

Growing small ideas into blooming businesses

he concept of generating a steady income from gardening and its related activities is lost on many Ghanaians. However, the situation is changing thanks to the Ghana Garden and Flower Movement and its flagship activity, the Ghana Garden and Flower Show. Hitherto, most people in Ghana associated flowers with bridal bouquets and funeral wreaths which suggest in no small measure, the limited appreciation of the potentials of the horticultural industry. Well, for the past five years, the Ghana Garden and Flower Show has been touting the enormous benefits of this industry including income generation and employment creation. Here are some ideas on how anyone thinking about a viable gardening-related business could get started. Think growing media The materials that plants grow in are collectively known as growing media. The most common growing medium in Ghana is black soil, which is a great investment venture because of the huge demand for it. There are other various ingredients that are equally viable for plant growth and can therefore be used to generate revenue which include charcoal, coconut fibre, corn husks and saw dust. The business of producing alternative growth media is a good way to start making some money while you contribute to Ghana’s development. Think growing containers If you’re not the kind who is interested in tending the soil for a living, focusing on selling or distributing growing containers could be a viable venture. They range from ceramic and cement pots to vases which come in different shapes. Going a notch higher, you could learn how to make these growing containers yourself and then gradually introduce others to the art to help grow your nascent start up.

Garden ornaments Like paintings in a building, garden ornaments add spirit to the life of a garden - you don’t miss them when they are not there, but they surely do add a dis¬tinctive pop of colour and soul when they are present. From bird feeders, nest box (bird houses), fountains, garden furniture, landscape lighting to outdoor sculpture, garden orna¬ments come in various shapes and forms. Consult, or better still blog about it This may require a bit of specialist skill; therefore you may need some professional training. The Internet, through social media platforms, has significantly changed the nature of businesses such that you can also now share your interests, tips and technical knowledge with the world on an easyto-create hor¬ticultural-focused blog. You can even commercialise your blog and start earning money from hosting

advertisements and reviewing products such as gar¬dening accessories. There are very few blogs on the horticultural industry in Ghana, so chances are that you will soon build a steady following of horticultural enthusiasts. There you have it! Four brilliant ways to get started in the gardening business. While starting “big” may seem like a great idea, you shouldn’t hastily invest all your resources in one venture and hope for instant and grand suc¬cess. Start right and wise by getting all your background information and strategies for suc¬cess double-checked. When all this background research is done, then by all means go ahead, and live green. “This article is authored by a staff of Stratcomm Africa, initiators of the Ghana Garden and Flower Movement and organizers of the Ghana Garden and Flower Show”

2017 | Business Times Africa 27

GHANA

Ghana’s growing non-performing loans By Jerry Afolabi

here are growing concerns that the rising non-performing loan (NPLs) on the books of some banks in Ghana threatens their existence and depositor’s funds. There is the need for immediate enhanced ways of dealing with these bad loans on the financial of the banks to avert their collapse. The latest Bank of Ghana financial stability report revealed that the non-performing loans has hit GHS6.1 billion over the last year, this represents 70% increase of the 2015 figure of GHS3.6billion. This is a worrying developments that needs immediate attention to protect the integrity and dignity of our banking system. This write up will recommend some of the best ways to deal with this issue. As most economy watchers would agree with me that ‘An economy cannot grow without healthy financial system and the financial system cannot get healthy in a weak economy’ It is then the responsibility of the managers and stakeholders of the economy to ensure that strategic growth policies are implemented for a sound healthy economy to boost private sector development and to guarantee secured efficient public sector growth for the banks to strive. The Ghanaian economy does not need weak fragile banks with limited financial capacity but rather a healthy strong few with huge capital base for

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big ticket transactions and be able to grant long to medium term loans to both local and multinational companies in the country. The central bank should be more interested and concerned about the safety, dignity, confidentiality and integrity of the financial system more than just issuing license to weak financial institutions with small capital capacity to flourish and boost growth in the economy. Causes of Problem Loans First is the inappropriate lending practice at the beginning stage of the loan ie from the application form filling, the requirements, the appraisals process and approval to the disbursement of the loan. Influence from board members, political figures, friends and crones of CEOs affects / influence the governance process of credit. Furthermore, break down in the control environment; deficiencies in managerial and operational processes of credit delivery are other contributing factors of non-performing loans. Need I say more, the internal managerial deficiencies of the borrower is key when it comes to repayment of the loan.ie deterioration in product and services, loss of market share and sometimes insufficient collateral to support the loan. On the other hand, a potential change in economic conditions in

the country is another key contributor to the rising NPLs since it may affect negatively the repayment of the loan/facility. The unstable interest rate, constant appreciation of the major trading currencies against the cedi and the high inflation rate are some critical factors that causes NPL, this affects the operational efficiency of the borrowers business, ability to repay loan and consequently affects the liquidity, profitability and solvency of banks as is the case currently in Ghana. To mention the least,NPLs also makes cost of loans expensive. Recommendations The central bank urgently needs to

GHANA'S GROWING NON-PERFORMING LOANS

Non-Performing Loans reach GHC8 billion in June 2017 - BoG Report

review all its supervision and regulation procedures of the lending activities of all the universals banks in the country to ensure that credit delivery processes and best corporate governance practices are followed to mitigate the upward rise in NPLs. Banks should be more concern about the risk aspects of the loan process and the borrower’s capacity to manage/deal with business downturns rather than the surge in their loan books or the profit associated with the loans. Most credit policies used by banks focus so much on the historic financial data of the borrowers business during the appraisal and

not the external economic factors that can affect the business growth, ie volatile interest rate, depreciation of local currency, loss of market share, deterioration of customer’s product and ‘Act of God. Knowledgeable and skilled individuals with analytical and critical review capacity must be hired as part of the credit team. Most importantly, to have a drastic reduction in the NPLs in the banking system, there must be collaborative work among the major stake holds in our country to ensure full realization of this objective. A holistic and robust legislative reform strategy must be implemented aiming at having a vi-

brant, healthier and a sound banking & financial system. This I must say is long overdue, yet given the constant year on year struggle with the surge in NPLs which is affecting the service delivery and profitability of most banks in Ghana, little has being done. The government and BoG must collectively work to strengthen the economic environment and the major indicators that drive business growth in our country. In this regard, it easier for both local and international companies to sustain and improve their cash flows, borrow for long term, expand their business which will positively impact the economic/business activities in the country. It should be noted that, the continuous surge in NPLs is a worrying concern and impacts negatively on the credibility and integrity of the banking system. Urgent measures must be implemented to avert any collapse of a bank. Non-performing loans create a vicious effect on the security of depositor’s funds which impact negatively on the business of the banks. The Bank of Ghana must collaborate with the universal banks to manage their NPL portfolios. I am very confident that should BoG heed to these recommendations and partner with the stakeholders, the banking system will experience an unprecedented reduction in the NPLs on the books of banks.

2017 | Business Times Africa 29

BANKING

Lessons from UT and Capital banks collapses By Jerry Afolabi

ore financial institutions are being issued universal banking license to operate as banks yet the unbanked population of our country has not seen any significant reduction but rather people losing confidence in the system. In August, two banks paid the price for bad corporate governance. Right now, the panic and fear in the financial sector has made it very uncertain to know what is going to happen next especially when there are reports that some seven more banks are also straggling to meet the minimum operating capital. Again I ask, what would happen to these seven banks when the new minimum capital is announced by the central bank? The collapse of the two banks, UT and Capital Bank was caused mainly by bad corporate governance and huge nonperforming loans on their financials that made it very impossible for them

30 Business Times Africa | 2017

to meet their day to day obligations as they fall due, hence they became INSOLVENT. The writer up would discuss views on what may have caused the failure of the two banks and make some workable recommendations to forestall future happenings. Causes Of Bank Failure • Lack of capital adequacy ie. There is the need for at least a balance in the asset and liability ratios. When a bank is unable to pay its debts as they fall due, even though its assets may be worth more than its liabilities, it is termed ‘Cash Flow Insolvency/ Lack of liquidity’ • Risky loans that go sour; what we call non-performing loans/ impaired loans. • When the liabilities have grown larger than the assets of a bank or the market value of its assets have fallen far below its liabilities, we say the bank is INSOLVENT and must stop/cease operations immediately.

• Poor or bad corporate governance practice in banking/financial institutions. A cursory review of the Board of Directors on the board of most banks/financial institutions revealed that most of the directors lack the adequate and sufficient knowledge in financial/accounting management; what I call board of ‘SQUARE PEGS IN ROUND HOLES’ • Poor/bad adherence to Credit policy and interference in credit delivery by top management/board and at times government for personal interest gains. • Fraudulent practices by both top management and ordinary employees for self-gain. Recommendation To Prevent Bank Failure • First and foremost, there is the need to increase the minimum capital requirement to GHS500million which is almost equivalent to USD120million,

LESSONS FROM UT AND CAPITAL BANKS COLLAPSES

Jerry Afolabi is a financial & Economic expert who believes that ordinary people can do extraordinary things when given opportunity. He is a Change Maker with the ability of easily getting people to get things done for the good of humanity. Email:jelilius@gmail.com

this is very crucial and must be given the needed attention since it is one of the major keys to the success and growth of our economy. Increasing the minimum capital will cause and compel some transformation through Merger & Acquisition in the banking system to consolidate the capital base and promote financial growth. • The Bank of Ghana must and should ensure strict enforcement with sanctions the banking law that says ‘All banks must publish publicly their financial statement at the end of each financial year. UT bank had not published its financial statement since 2015 although it was listed on the Stock Exchange!!!! • The Bank of Ghana and the Governor must and should require all universal banks to insure all Deposit funds going forwards as I proposed to the pervious Governor. This would take care of the risk of depositors losing funds in the

events any happenings.

practice.

• The Bank of Ghana must and should require all universal banks to insure all their NPLs going forwards although it is a basic regulatory requirement to ensure provisions are made for them fully. BoG must ensure strict enforcement with sanctions.

If banks can create money, then I ask how they become insolvent. There is the need for measures to be put in place quickly to forestall any future collapse/ failure of any financial institution to protect and safeguard the integrity/ confidence/dignity of the banking system and ensure safety of depositor’s money. I wish to send a warning to the government that as long as there is destabilization or poor fiscal and monetary management in the country, banks/financial institutions failure may not be forestalled.

• The Bank of Ghana must and should immediately prepare a white paper to remove all ministers/members of parliament and political party’s members from the boards of banks/ financial institutions. Reasons being that their commitment/involvement and participation on these boards are missing, they just enjoy free sitting allowances and other free benefits at the expense of the banks/financial institutions. • The Bank of Ghana must and should ensure strict enforcement with sanctions the adherence of corporate governance codes on banking and best

Government must work hard to restore the economy to a very stable sound economic situation for businesses to grow and expand so that they can pay their debts when they fall due. The right financial environment is key for the private sector to bring economic growth to our country.

2017 | Business Times Africa 31

COVER

SEAN DRAKE

THE POWER OF ENTREPRENEURSHIP

32 Business Times Africa | 2017

SEAN DRAKE: THE POWER OF ENTREPRENEURSHIP

MY JOURNEY FROM NOTHING TO A TOP 30 ENTREPRENEUR

ell, in September 2016, I was that young african that read the Forbes list and was not only inspired to ensure that my businesses continue to make a socio-economic impact but also to empower the next generation of entrepreneurs and Investors through sharing my entrepreneurial journey. So I immediately wrote to my PR executive saying "they need to update this list and add me to it" - to which she responded saying “I am not sure they can make such a change after it has been published ”. With much determination, I went to work with a commitment to become a TOP 30 Entrepreneur in Africa. During the following 6 months, I went on to achieve the following ; In September 2016, I was First invited to be interviewed on CNBC AFRICA and subsequently after the interview I was asked to become a regular expert commentator on matters regarding investments and entrepreneurship and since then I've made over 15 appearances discussing issues from Education, Access to Capital to the role of Young Entrepreneurs and Women on the continent In October 2016 I got an invitation to join the speaking panel to provide thought-leadership and share the perspective of a Young African Entrepreneur and Investor at the Financial Times Private Equity in Africa Annual Summit and FT Sustainable

Investing in Emerging Markets Summit which hosts some of the worlds largest investors in Africa. Following on from that I was asked to become a regular speaker and to contribute in shaping the content and agenda of upcoming summits. In November 2016 and in honour of Global Entrepreneurship Week, I led and rallied up my shareholders and investors to successfully pledge $20m to be invested in social-entrepreneurship in Africa. In January 2017 - I made an appearance as an expert panelist at The Guardian discussing the impact of cashflow and Technology on Entrepreneurship. In February and March 2017 I was featured in the Business Times Africa Magazine published across the South Africa, Nigeria, Ghana, Kenya, Zimbabwe and Botswana - covering the outlook on the African start-up ecosystem and sustainable investing in Africa respectively. In April 2017 I received shareholder and board approval to proceed to work towards an initial public offering of our holding company’s shares on the London Stock Exchange within the next 6 - 18 months which would follow on with a dual continental listing on the Ghana Stock Exchange - enabling us to achieve our goal to be the largest sustainable Investment Firm on the continent by 2022 and making me one of the youngest CEO's of a listed company in Ghana and in the UK.

“With much determination, I went to work with commitment to become a top 30 entrepreneur” Sean Drake

2017 | Business Times Africa 33

SEAN DRAKE: THE POWER OF ENTREPRENEURSHIP

In June 2017, FORBES AFRICA named me as one of the TOP 30 most successful Entrepreneurs under the age of 30, across all sectors and industry and most importantly endorsed The Wealth Project Holdings PLC vision and valuation target of $200m by 2022. HOWEVER, it wasn't always like this ……… With consistently low grades in every class since the age of 5 and always running into trouble both at home and at school - I was deemed a lost cause and a complete failure. In addition to this I had had several failed business and investment attempts from losing most of my friends and my savings (student loan) on the stock market to losing over 80 percent of my Investment firm’s capital during the financial crises of 2008. Ironically, this was exactly the failure I needed to drive my success to establishing a transformative and sustainable solution to our approach to Investments and Education. My failures in Investing in 2008 taught me a very valuable lesson that financial markets and our societies do not operate in isolation. This first-hand experience and understanding led our focus on investments that ultimately make a socio-economic impact. For example In an attempt to recover from losses in 2008 , I made an executive decision to focus on commodities specifically Silver for its industrial use (job creation) as well as its store of wealth and safe haven status and In 2009 I made a bold call to significantly increase our exposure to Silver and in 2010-2011 we saw Precious metals especially Silver reach ALL-TIME highs staging a significant recovery of our investment funds and the integrity of our firm. My failures in academia taught me the true definition of “education” which comes from the latin word “educe” - meaning to draw-out and lead out which in my experience is the exact opposite of what happens in our schools therefore rendering our “formal” education system fundamentally flawed specifically in empowering our young people and women (who represent majority of our population) to solve our most critical socio-economic issues. Whilst there are several attempt to improve the access and quality of education with the use of innovative techenabled solutions they are all fundamentally based on themodel of informative learning - where are students are constantly giving more information or something to study or learn. Whilst this model of learning has served us up until now - It lacks in solving the scale and speed of our continents' challenges sustainability. On the other hand the model of transformative Learning used in our educational programmes which works by 34 Business Times Africa | 2017

SEAN DRAKE: THE POWER OF ENTREPRENEURSHIP

“My failures in investing in 2008 taught me a valuable lesson that financial markets and societies do not operate in isolation.” Sean Drake

of an Africa and in fact a world that draws out and leads out the greatness that lies in our children and their future children through Entrepreneurship. "And if another young african reads my story and is inspired to use Entrepreneurship to express his/her greatness - my job is done!" In honour of my accomplishments so far, I reaffirm my commitment to serving Entrepreneurs and Investors across the continent by sharing tips with them.

AFRICA

taking away what’s in the way of our Entrepreneurs being powerful and effective with the information and knowledge that they already have (effectively drawing and leading it out of them), leaves them producing breakthrough results in their enterprises. In essence, I took my failures in my Professional investments and education and used Entrepreneurship as a vehicle in resolving these personal, continental and universal challenges we face today by establishing The Wealth Project Holdings PLC and aligning and directing investment capital and financial services as a whole to Entrepreneurs and their enterprises that provide transformative and sustainable solutions to our continents socio-economic issues especially education (as it permeates across sectors) via our operational and strategic businesses namely Jislah financial Services and TWP Institute Gh. I shall conclude by acknowledging one of the important things that keeps me going - my family. My gorgeous wife Barbara and my two amazing boys Sean Jr and Leo aged 2 and 6 months respectively. I dream

“If one young african reads (the forbes entrepreneur list) and is inspired enough to start a business it has done its Job.” Chris bishop - chief editor of Forbes Africa.

2017 | Business Times Africa 35

36 Business Times Africa | 2017

BANKING

Africa's last international banks make their stand The rise of Africa’s home-grown financial players has led most international lenders to withdraw from the continent. However, Société Générale and Standard Chartered are not only staying put but marking territory for digital expansion. James King reports.

n June 1, 2017, Barclays sold a 33.7% stake in its African business, Barclays Africa Group Limited (BAGL). The deal reduced the UK lender’s stake in its African offshoot to 14.9% and permitted, in accounting terms, the deconsolidation of BAGL from its parent. More symbolically, it brought to an end Barclays’ operations on the continent after more than 100 years. In scaling down its African operations, Barclays is not alone among international banks. Citi and BNP Paribas have both sold their Egyptian consumer banking units in recent years, while Royal Bank of Scotland completed the sale of its Europe, Middle East and Africa private banking business in 2015, among other examples. But the departure of Barclays is more significant because the number of global banks operating a universal banking model, at scale, across Africa is so small. Today, only Société Générale and Standard Chartered remain. Tougher capital requirements and the need to streamline global businesses are, in large part, responsible for the exodus of international banks from Africa, accompanied by the challenge of

38 Business Times Africa 2017

operating in a region where risk management and compliance issues are a growing concern. “More stringent capital requirements and the need to operate a more efficient capital structure have contributed to some international banks scaling down their presence in Africa. In addition, these banks have been losing market share to local lenders in recent years,” says Francis Mwangi, head of research at Standard Investment Bank in Kenya. Here to stay? So what future, if any, do international banks operating a universal business model have in Africa? Operating conditions across the region have deteriorated in recent years, particularly in the biggest commodity exporting economies. But Standard Chartered and Société Générale insist their futures remain bright, full of ambitious growth plans, the investment needed to pursue them and market knowledge accumulated over many decades. “Our Africa operations represent about 7% of the group’s net banking income. As such, the continent is an important growth driver for our business [and] we are continuing to develop our role on the continent,” says Alexandre Maymat, head of

AFRICA'S LAST INTERNATIONAL BANKS MAKE THEIR STAND

â&#x20AC;&#x153;More stringent capital requirements and the need to operate a more efficient capital structure have contributed to some international banks scaling down their presence in Africa.

2017 | Business Times Africa 39

AFRICA'S LAST INTERNATIONAL BANKS MAKE THEIR STAND

the Africa, Asia, Mediterranean Basin and overseas region at Société Générale. “Between 2014 and 2016, we allocated €4bn in risk-weighted assets to support our revenue growth targets.” In the years following the financial crisis, most banks with a global footprint took stock of their operations. While this has led many to reduce their exposure to some emerging markets, Standard Chartered and Société Générale reached the same conclusion: their history and knowledge of Africa was a core competitive advantage in a continent that is blessed with positive structural growth drivers. “In November 2015, the Africa management team presented an updated strategy to the bank’s board and investors,” says Sunil Kaushal, regional chief executive of Africa and the Middle East at Standard Chartered. “We said that the region’s economy would be under pressure. However, we pointed out that the underlying structural growth rates of the continent were better than many other markets and that it was a good time to invest. We took the longer term, countercyclical view.” Big tickets Nevertheless, the region has been buffeted by a number of economic headwinds in recent years. SubSaharan Africa recorded a growth rate of about 1.3% in 2016 according to the World Bank, its lowest in many years, and the rise of pan-African banks and regionally focused lenders has stoked competition. “Competition in Africa’s banking landscape is growing. We are not the only game in town and we are facing credible competition from the west and southern African banks,” says Mr Kaushal. “But there aren’t many banks with our unique global and local characteristics.” This know-how, as well as the connectivity that comes with a long40 Business Times Africa | 2017

standing global operation, is giving international lenders an edge in Africa. This is particularly evident when it comes to the numerous major infrastructure and energy deals that need to be executed in the coming years. According to the World Bank, Africa needs to spend about $93bn annually in the coming years to bridge its infrastructure funding gap. “There has been a progressive sophistication of banking needs linked to the development of big infrastructure and energy projects. In this respect, we think we have a very significant competitive advantage as a global bank,” says Mr Maymat. These high-value deals are attracting the input of Asian banks accompanying their respective governments and corporates into Africa. “Chinese banks are often complementary in terms of what we do, particularly on infrastructure projects and big-ticket deals. We need the participation of international banks who can bring in additional dollar funding,” says Mr Kaushal. Retail realities While massive infrastructure projects might seem the obvious

target for an international bank, both Standard Chartered and Société Générale are also investing heavily in retail capabilities. That both lenders are pushing hard on this front is indicative of how seriously both banks take their African operations. Like few other regions, Africa is a difficult place to carry out retail banking. Average incomes are low and populations outside urban centres can be difficult to reach. The competition is tough, a mixture of local lenders, telecommunications firms and other players constantly spurring innovations in digital banking. But to their credit, neither global lender is getting left behind. “Through the mobile phone we are experiencing a totally new way of banking in Africa,” says Mr Maymat. “It is addressing the main challenges in African retail banking, including the high costs of running a branch, which can equal that of a branch in France.” Société Générale is in the process of launching its agency banking model, YUP, which it hopes will revolutionise its retail banking proposition. “We plan to develop our agency

AFRICA'S LAST INTERNATIONAL BANKS MAKE THEIR STAND

banking model across eight countries,” says Mr Maymat. “We have about 400 traditional branches in these markets and we plan to supplement them with about 8000 YUP points of contact. It represents a very large investment in these markets. We have 1.2 million clients in these markets and we plan to double that number over the next three years.” Standard Chartered, meanwhile, is trialling a full-service digital bank in Côte d’Ivoire, which it aims to roll out on a commercial basis later in 2017. “This digital bank will enable customers to download an app and input their data, to cover basic knowyour-customer requirements, upload their documents and photographs and then open an account all on their mobile phone. We aim to launch this across Africa in the coming years,” says Mr Kaushal. He adds that Standard Chartered has put Africa front and centre of its global digital banking agenda. As a result, the region is first in line for the group’s latest digital retail products and services.

Risk and reward Despite their bullish outlook, both lenders must still contend with the difficulties of banking on the continent, of which managing risk and compliance standards is only one. For international banks, a balance must be struck between meeting the needs of local and regional operating conditions and the demands of international regulatory standards. In essence, this means managing the costs of implementing an effective risk management framework to reap the rewards of doing business on the continent. “To manage risk you have to recognise and accept that Africa is a high-risk region,” says Mr Kaushal. “Once you accept that, your approach takes that into account in terms of investments in people and technology and so on. We run a tight ship in terms of compliance and controls, both from a regional and global level.” For its part, Société Générale has aligned its risk policies in Africa with that of the group, while aligning its

African risk teams under a centralised body in Paris. “We have also increased our provisioning levels over this period,” says Mr Maymat. Africa’s last remaining international banks are demonstrating that their universal, multi-market models are still generating solid returns. Though the challenges of banking on the continent are likely to increase, putting pressure on both profits and market share, Société Générale and Standard Chartered are in a good position to handle them. Expansion is the likely next step. For Société Générale, this means pushing beyond its core presence across the continent’s French-speaking markets to capitalise on growth opportunities elsewhere. “We have to accompany out clients wherever they go, and this means expanding beyond Francophone Africa,” says Mr Maymat. “This has led us to Mozambique and Ghana. We are also exploring opportunities in Kenya, Uganda, Namibia and Nigeria.”

2017 | Business Times Africa 41

TRADE

Tripartite Free Trade Area plods along slowly in Africa Africa’s Tripartite Free Trade Area would reduce regional tariffs and create a pan-African single market, to aid development and cash in on a growing middle class in the continent. But with member countries often belonging to multiple economic areas, progress is both complex and slow, as Kit Gillet reports.

rade between African countries has long been outstripped by intra-regional trade in other parts of the world – for Africa as a whole, intra-regional trade is between 10% and 13% of total trade. This is far lower than in regions such as the EU, where about 60% of trade is between member states, and the Association of South-east Asian Nations, which has a rate of about 25%. Intra-regional trade in North America is put at about 40%. However, the ratification of the Tripartite Free Trade Area (TFTA) – potentially later in 2017 – could help change that and push the development of more intra-regional trade growth. A pan-regional freetrade zone, the TFTA stretches from Cairo to Cape Town and encompasses 26 African countries. The ratification comes at an important time for the continent, with real gross domestic product (GDP) growth in sub-Saharan Africa in 2016 estimated to be the weakest since the 2008-09 financial crisis, and with concerns emerging over potential global trade tensions following Donald Trump’s election as US president.

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TRIPARTITE FREE TRADE AREA PLODS ALONG SLOWLY IN AFRICA

In June 2015, African leaders officially launched the TFTA, a move that many have described as a potential game changer for the continent.

Political message In June 2015, African leaders officially launched the TFTA, a move that many have described as a potential game changer for the continent, representing a strong political message that the adoption of a single trade regulatory regime and greater economic integration in Africa are feasible. The TFTA will comprise countries from three existing economic blocs: the Common Market for Eastern and Southern Africa (Comesa), established in 1994; the East African Community (EAC), which was revived in 2000; and the Southern African Development Community (SADC), which came into effect in 1993. Some African countries are involved in multiple economic zones. All in all, the TFTA will cover 26 of Africa’s 54 countries and could have a strong impact on the region, with the economies involved estimated to have a combined GDP of $1300bn – more than half of the continent’s GDP – making it equivalent to the 11th largest economy in the world, with a population of about 632 million. The TFTA’s goal is to create a single African market with freer movement of 2017 | Business Times Africa 43

TRIPARTITE FREE TRADE AREA PLODS ALONG SLOWLY IN AFRICA

goods and the progressive elimination of tariffs and other barriers to regional trade. Yet the agreement goes beyond trade liberalisation, and some view it as more of a developmental agreement, with programmes to help industries such as agriculture, chemicals and minerals to modernise, grow and achieve economies of scale. Despite this, several issues still need to be resolved before ratification, with 2017 likely to be a key year for a project that could have a major impact on African trade. Make or break Francis Mangeni, director for trade, customs and monetary affairs at the Comesa Secretariat, says 2017 is “really critical”. One reason is that when the agreement on the TFTA was initially signed in June 2015 there were some outstanding issues left open, chief among them market liberalisation and issues on rules of origin regarding goods. 44 Business Times Africa | 2017

These outstanding issues were supposed to be resolved by June 2016. However, when the deadline passed regional leaders extended it until April 2017. The negotiating parties again failed to meet this deadline, and the EAC postponed ratification to a new deadline of December 2017. “It means that this year is the turning point,” says Mr Mangeni. “If we don't manage to finish these outstanding things, I think the Tripartite area might lose credibility, but on the other hand, if we manage to conclude these outstanding matters then the Tripartite will take off in earnest.” He points out that only three annexes remain to be settled: rules of origin, trade remedies and dispute settlement. However, these are key issues and negotiations have moved slowly. Without a full set of guidelines related to rules of origins – knowing which goods can benefit from tarifffree treatment – it is hard to have a

functioning FTA. However, unlike in other FTAs, which have multiple classes of rules of origin depending on how much of the goods are manufactured or produced incountry, those creating the TFTA went for product-specific rules. “So we have to comb through the entire tariff book – about 7000 tariffs lines – and agree on a rule of origin for each one of them. This is time consuming,” says Mr Mangeni. “Political leaders, and many of us, thought it was going to be very easy; it would just be a matter of merging the three FTAs. Instead, at the technical level things proved complicated. In my own view, we made some strategic mistakes, such as on the rules of origin, which complicated the process.” High costs While improving regional trade and integration within the continent has long been a strategic objective, costs are still far higher in Africa than in other developing regions.

TRIPARTITE FREE TRADE AREA PLODS ALONG SLOWLY IN AFRICA

In a statement for the fourth ChinaWorld Trade Organisation accessions roundtable in December 2015, Anabel Gonzalez, senior director of global practice on trade and competitiveness at the World Bank, said intra-African trade costs are about 50% higher than in east Asia, “and are the highest of intra-regional costs in any developing region”. The result is that Africa has integrated with the rest of the world faster than with itself, she added. “The trick now is for countries to open up to each other,” says David Luke, coordinator of the African Trade Policy Centre at the UN Economic Commission for Africa (Uneca). “The average tariff among African countries is 8%, while average the African tariff to the rest of the world is 2%, so there is clearly scope to bring those tariffs down – and that isn’t even mentioning non-tariff barriers.” Simply removing existing tariffs is likely to have a strong and swift effect on cross-border trade. According to Thembinkosi Mhlongo, deputy executive secretary responsible for regional integration at SADC, intraSADC trade increased substantially following the implementation of the SADC protocol on trade, which laid the foundation for the SADC Free Trade Area in 2008. Trade more than quadrupled between 2000, when implementation of the protocol began, and 2012, when most SADC members removed all remaining tariffs, including on sensitive products. However, Mr Mhlongo says effective trade growth goes beyond the removal of tariff barriers “and requires the creation of integrated markets that address supply-side constraints and attract investment in agro-processing, value-added manufacturing and greater services activities”. One of the main barriers traditionally affecting the ability of those in African countries to trade

cheaply and easily with each other is the poor infrastructure linking many of the countries. Improving road and transportation infrastructure, as well as reducing the costs and time taken to transport across borders, will be particularly important to the success of the TFTA and greater regional trade integration in general. According to Uneca’s Mr Luke, there are many infrastructure projects currently ongoing that are crossborder and that are obviously related to this trade potential. “I think the political momentum is there but one has to be cautious and not oversell,” he adds. Trade breeds success With many countries in Africa overlapping on their principal exports, notably primary commodities and agricultural goods, there is some caution about opening up domestic markets too much to neighbours. At present, the TFTA is limited to liberalising the trade of merchandise, though there is a hope that a liberalisation of services and other areas of trade will come with subsequent free-trade agreements. Intra-African trade could play a strong role in the spreading of learning, technology and processing abilities across the continent. “If you look at other parts of the world, especially in Asia, trade has been fundamental to success there,” says Mr Luke. “I think there is much to learn from that. You have countries such as Malaysia and South Korea that have done so well, and this can be replicated in Africa if the same attention and importance is given to trade.” He believes that intra-African trade shows plenty of promise compared to trade between Africa and the rest of the world, which is largely based on undeveloped commodities. “Just fighting over the proceeds of natural resources, as many countries have

been doing over the past 60 years, isn’t going to change anything,” he says, adding that African countries are beginning to export consumer products ranging from leather goods to clothing, textiles and motor vehicle assembly. Many experts also see the TFTA as an opportunity to push for greater integration in the region when it comes to cross-border supply chains. “The development of more intraregional supply chains will be important,” says Sarah Baynton-Glen, an Africa economist at Standard Chartered Bank. “There has been so much talk over the past few years about the size of the consumer market in Africa, but outside of South Africa there isn’t a huge amount of countries in the region making the most out of exporting elsewhere within the region and developing their manufacturing bases to be able to do so.” However, with about 350 million people in the region (and growing) now classified as middle class, there is a ready market for regional companies targeting the local consumer market. Global trade protectionism The rollout of the TFTA has come at an important time for Africa. Following decades of strong growth, the World Bank predicted in September 2016 that economic growth across the continent would fall to 1.6% for the year, the lowest level in more than two decades. Additionally, concerns are increasing over potential trade tensions caused by the new US administration and other global developments. While Trump-induced protectionism is unlikely to be directed at Africa, the impact could still be felt there. “In 2017 there’s been a lot of focus on Mr Trump and his focus on a more protectionist policy,” says Ms BayntonGlen. While she and her colleagues 2017 | Business Times Africa 45

TO STABILISE GHANA POWER, THE ANSWER IS SIMPLE: MONEY

the African Union formally recognised eight different regional economic communities. TFTA is seen as the first step to rectifying this, but it is not the last. Negotiations for a continental freetrade area (CFTA) began just five days after the TFTA was signed back in June 2015. The CFTA will build on the TFTA and other existing free-trade agreements, with the aim of creating a continent-wide framework agreement for the liberalisation of the services sector as well as common rules on investment and the movement of people. Like the TFTA, CFTA is still a work in process, and much of its success could lie in the final agreement put in place for the TFTA, and then the way in which it is rolled out.

feel it is unlikely Africa will be the direct target of such protectionism, tensions could weaken confidence in emerging market prospects, with subSaharan African economies likely to be hit. “A number of regions might need to start looking a bit more internally in terms of their trade,” says Ms BayntonGlen. “Mr Trump has made more negative rhetoric in terms of emerging markets. If we see a slowdown in global trade in general that would obviously impact on Africa, as the economies broadly across the board are so open and trade very heavily with China and India, for example, so if those economies are affected you would see a knock-on impact on Africa as well.” Also, with the US potentially 46 Business Times Africa | 2017

embarking on a massive spending spree on infrastructure, African countries could find it difficult to get financing for large-scale projects. “The impact could also be felt when it comes to the ability of African countries to borrow money,” adds Ms Baynton-Glen. “If rates do increase in the US then obviously the cost for African governments to borrow will increase as well. There is a risk for access to external financing and cost of external financing.” Going forward In the past, the patchwork of regional economic areas created a confusing mixture of overlapping preferential trade regimes that at times could be incompatible with each other – at the time the TFTA was launched,

Ratifying the TFTA The TFTA will not come into force until 14 of the countries involved ratify it; at present none of the 18 countries that have signed on have gone one step further and ratified the agreement. According to those involved, there seems to be a reluctance to take this step before everything has been finalised, but a delay could set the whole process back. “Countries have been saying they want everything neat and done before they take this step to ratification,” says Comesa’s Mr Mangeni. He adds that if countries continue to want everything to be completed before ratification, it might take another year, “which would be really sad”. However, if they are serious about pushing forward, everything could be done much sooner. “Then other details could be done as ongoing work, as happens in other negotiations,” he says. He is confident that the process will move forward, as are others involved in the free-trade agreement, such as SADC’s Mr Mhlongo. “By the end of the year, we should be [moving on] with the process of implementation of the TFTA,” he says. - The Banker

MOZAMBIQUE

Mozambique looks to gas reserves to aid recovery Mozambique is slowly advancing towards financial stability following a period of scandal and currency depreciation. Now it must find the money, and the partners, to help it exploit its abundant gas reserves, writes Peter Wise.

ozambique suffered a blow to its international reputation in 2016 after the disclosure of hidden public debts equivalent to 10% of national output. The damaging revelation followed close on the heels of the country’s ‘tuna bond’ scandal, in which the bulk of $850m in statebacked loans contracted to finance a fishing fleet were instead used to buy navy patrol vessels. The ensuing debt crisis dented the image of a country that had been seen as one of Africa’s star performers. But it has also acted as a wake-up call for the government and financial authorities who have moved to limit damage to the economy and repair relations with donors and investors. “Some very tough but essential fiscal and monetary measures have been put in place,” says Sérgio Magalhães, chief executive of local lender BiG Mozambique, a subsidiary of Portugal’s Banco de Investimento Global. “This has helped reassure international investors that the problems are being dealt with and that the country is back on the right path to building a more resilient and more sophisticated economy.” Taking action In the second half of 2016, the Mozambique government

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MOZAMBIQUE LOOKS TO GAS RESERVES TO AID RECOVERY

responded to growing public debt and an economic downturn by revising its 2016 budget, lowering revenue projections and rethinking its spending programme. In October, it also initiated talks with private creditors on debt restructuring in what the World Bank described as a “significant move” towards adjusting to “new realties” and tackling the country's debt burden. At the same time, the central bank tightened monetary policy, lifting reference lending rates and increasing minimum reserve requirements. “The main short-term challenge for the Mozambican authorities is

to restore macro-economic stability following the impact of the revelation of hidden debts on external debt levels, [and to promote] capital inflows and economic activity,” says Pedro Ferreira Neto, chief executive of Eaglestone, a sub-Saharan Africafocused financial services group. “If the government can normalise relations with the International Monetary Fund [IMF] and other donors this year, it should lead to the resumption of international aid inflows that will help stabilise the local economy and support development projects.” Following the hidden debts disclosure, the IMF and other donors suspended aid programmes, multi-billion-dollar gas projects were delayed and the metical, the Mozambican currency, fell sharply against the dollar. The government agreed to an independent audit of the loans involved in the hope of sealing a new deal with its donors. The audit results are expected to be published shortly. In January, the country failed to pay a $60m sovereign bond coupon due to a lack of financial capacity. A delicate time Mozambique was already navigating an economic downturn caused by low commodity prices and a regional drought when the undisclosed debts were revealed. Gross domestic product (GDP) growth fell to 3.3% in 2016, down from 6.6% in 2015 and an average of 7.3% in the previous decade, as foreign investment fell by 20% in 2016 and lower exports, public sector consolidation and tighter monetary policy held back growth. The metical depreciated by 36% against the dollar in 2016, accelerating the pace of inflation, which averaged 20%, with food price inflation reaching 32%. The rate of currency depreciation, however, began to slow in October. António Correia, chief executive of Maputo-based Banco Único, says this

was largely due to the central bank taking the right measures at the right time. “It succeeded not just in halting depreciation but in lifting the value of the metical, and this has had a positive impact on inflation,” he says. “Inflation is still very high, but the trend is downward.” Bankers expect only a moderate recovery in 2017 after economic growth fell to a 15-year low in 2016. Even at its nadir, Mozambique’s growth rate was more than double the 1.4% average for sub-Saharan Africa and there are promising signs of a return to robust growth. “The potential for medium-term growth is strong,” says José Reino da Costa, chief executive of local bank Millennium BIM. “Despite recent adverse events, the financial sector has shown the necessary resilience and stability to continue supporting the economy.” Positive signals include currency appreciation and falling inflation. “Foreign reserves at the central bank have recently increased to more comfortable levels and the metical has already appreciated nearly 10% against the dollar and 6% against the South African rand this year,” says Eaglestone head of research Tiago Dionísio. “This should help to gradually rebalance the foreign exchange market and ease inflationary pressures.” Into the headwinds The economy is forecast to expand by about 4.5% this year and 5.5% in 2018, according to the IMF. This reflects what Mr Dinísio describes as “continuing headwinds” arising from the need for fiscal austerity, foreign exchange shortages and high inflation. Annual growth is expected to rise to 6% or higher from 2019 onwards on the back of projected investments in the natural gas sector. The World Bank says half of all output will be generated by natural gas by the mid-2020s, projecting that average GDP growth rates could reach as 2017 | Business Times Africa 49

MOZAMBIQUE LOOKS TO GAS RESERVES TO AID RECOVERY

high as 24% between 2021 and 2025. This positive outlook is lifting hopes for the restoration of international confidence in Mozambique and an upward trend in foreign investment. “Investors are looking beyond the problems that emerged last year and anticipating the positive effects of the measures that have been put in place to deal with them,” says Mr Magalhães at Banco BiG. “Macro numbers such as [economic] growth and inflation are already improving. The action taken by the government and the central bank has given comfort to international investors that the country is gradually returning to the right track.” Another positive sign was the announcement in May of an indefinite ceasefire by Renamo, Mozambique’s opposition party and rebel group. Renamo and Frelimo, the country's ruling party, fought on opposite sides in the 1976-1992 civil war that followed independence from Portugal. Violence has flared sporadically since Renamo challenged the results of the country’s 2014 elections. The opposition group had been renewing a ceasefire agreement every 60 days during peace talks, but in May it announced “a ceasefire without a deadline”. Gas expectations In a country whose natural resources remain largely unexploited, expectations for economic recovery rest to a considerable extent on the natural gas sector, with attention focused on the vast reserves of the Rovuma Basin off the country’s northern coast. Investment decisions on a number of multibillion-dollar megaprojects are in the pipeline. “With the start of coal mining operations in Tete in central Mozambique and the upcoming expansion of gas production, the 50 Business Times Africa | 2017

natural resources sector is set to boom in the next decade,” says Eaglestone’s Mr Ferreira Neto. In March, ExxonMobil agreed to pay Italian energy company Eni $2.8bn for a 25% stake in its Mozambique gas operations. Under the agreement, the US giant will help Eni develop the infrastructure needed to bring some of the world’s largest untapped natural gas resources to market. The deal involves the so-called Area 4 deepwater block controlled by Eni and includes the Coral South liquefied natural gas (LNG) project, which is among the largest of its kind awaiting development anywhere in the world. “This deal offers Mozambique the chance to transform itself from one of the world’s poorest countries into a global LNG exporter,” says Mr Reino da Costa. Independent US company Anadarko operates Area 1, the second of Mozambique’s two primary concession areas. To bring about more deals on the scale of the ExxonMobil-Eni agreement, Mr Magalhães says: “Mozambique needs to find a way to kick-start the process that leads to big oil and gas operators making final investment decisions on megaprojects, because there’s a time to market for international investors and an opportunity cost that is real and quantifiable.” Total government revenue from such projects could exceed $115bn over the next two decades, according to estimates by the International Energy Agency. This is more than 10 times the country’s current annual GDP. But Mr Correia of Banco Único warns that the path to energy-driven prosperity is fraught with risks. “The energy sector can contribute greatly to Mozambique’s success, but it will be a complex process,” he says. “Competition with other countries whose infrastructure building is

"Mozambique needs to find a way to kickstart the process that leads to big oil and gas operators making final investment decisions on megaprojects" - Mr Magalhães

further advanced, renegotiating deals with multi-national companies, structuring finance and defining the assessment criteria for selecting local companies to support big energy projects are among the challenges that need to be met.” The goal that Mozambique is working towards extends beyond a thriving natural gas sector. Mr Magalhães sees energy and mining as the potential basis for “a new economic and social cycle” and “inter-generational nation-building”. The challenge, the country’s bankers say, is to ensure that the imminent energy boom is both sustainable and inclusive, with revenues being channelled into other sectors and vehicles for safeguarding wealth over the long term. - The Banker

ZIMBABWE

Behind the scenes, Zimbabwe politicians plot post-Mugabe reforms

n January, a photograph appeared in Zimbabwe’s media showing Vice President Emmerson Mnangagwa enjoying drinks with a friend. In his hand was a large novelty mug emblazoned with the words: “I‘M THE BOSS.” To supporters of President Robert Mugabe, the inscription bordered on treason. They suspected that Mnangagwa, nicknamed The Crocodile, already saw himself in the shoes of Mugabe, 93 years old, increasingly frail and the only leader the southern African nation has known since it gained independence from Britain in 1980. Those Mugabe supporters are not alone. According to politicians, diplomats and a trove of hundreds of documents from inside Zimbabwe’s Central Intelligence Organization (CIO) reviewed by Reuters, Mnangagwa and other political players have been positioning themselves for the day Mugabe either steps down or dies. Officially, Mugabe is not relinquishing power any time soon. He and his ruling ZANU-PF party are due to contest an election next year against a loose coalition led by his long-time foe, Morgan Tsvangirai. But the intelligence reports, which date from 2009 to this year, say a group of powerful people is already planning to reshape the country in the post-Mugabe era. Key aspects of the transition planning described in the documents were corroborated by interviews with political, diplomatic and intelligence sources in Zimbabwe and South Africa. The documents and sources say Mnangagwa, a

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BEHIND THE SCENES, ZIMBABWE POLITICIANS PLOT POST-MUGABE REFORMS

73-year-old lawyer and long-standing ally of Mugabe, envisages cooperating with Tsvangirai to lead a transitional government for five years with the tacit backing of some of Zimbabwe’s military and Britain. These sources leave open the possibility that the government could be unelected. The aim would be to avoid the chaos that has followed some previous elections. This unity government would pursue a new relationship with thousands of white farmers who were chased off in violent seizures of land approved by Mugabe in the early 2000s. The farmers would be compensated and reintegrated, according to senior politicians, farmers and diplomats. The aim would be to revive the agricultural sector, a linchpin of the nation’s economy that collapsed catastrophically after the land seizures. Mnangagwa feels that reviving the commercial agriculture sector is vital, according to the documents. “Mnangagwa realises he needs the white farmers on the land when he gets into power … he will use the white farmers to resuscitate the agricultural industry, which he reckons is the backbone of the economy,” a Jan. 6, 2016 report reads. Mnangagwa did not respond to repeated requests for comment about the intelligence documents or the photograph of him holding the mug. An aide in his office said questions should be sent to the Ministry of Media, Information and Broadcasting Services. The ministry did not respond to questions. Tsvangirai, a 65-year-old former union leader who enjoys broad popular support, told Reuters in an interview in June he would not rule out a coalition with political opponents, such as Mnangagwa, and wanted white farmers to come back into a “positive role.” Asked about reports in the intelligence documents that potential coalition partners or their intermediaries had held secret meetings, Tsvangirai told Reuters in August: “I’ve never met with Mnangagwa’s people to discuss cooperation or coalition. There was an intention expressed by Mnangagwa’s people for us to meet to discuss various

issues, but that meeting never took place.” According to the intelligence reports, Mugabe got wind of Mnangagwa’s ideas about white farmers earlier this year. “Mugabe is totally against the idea of Mnangagwa being too friendly to the whites,” a report dated Feb. 27 says. “He fears that Mnangagwa will reverse the land reform by giving farms back to the whites.” Mugabe’s office did not respond to requests for comment. A spokesman for the British embassy in Zimbabwe’s capital, Harare, said the UK was not involved in any plan for a coalition to succeed Mugabe. “The UK does not back any party, candidate, faction or coalition in Zimbabwe. It is up to Zimbabweans to choose who they want to govern them through a free and fair election.” The embassy said rumours and leaked intelligence documents were promoting disinformation. The documents cover the gamut of Zimbabwean politics and contain material derogatory of all its major players, including Mugabe. A June 13 report said Mugabe was in “extremely poor health” and had told his wife, Grace, that “his days on earth are fast becoming less and less.” Reuters has not been able to determine the intended recipients of the documents or their exact origin within the CIO. The intelligence agency officially reports to Mugabe but has splintered as opposition to his rule, which has lasted 37 years, has grown, according to two Zimbabwean intelligence agents interviewed by Reuters. The CIO did not respond to requests for comment sent to it through Mugabe’s office. The intelligence reports say that some of Mugabe’s army generals are starting to swallow their disdain for Tsvangirai, who, as a former union leader rather than liberation veteran, has never commanded the respect of the military. The majority of senior military officers “are saying that it is better to clandestinely rally behind Tsvangirai for a change, and have secretly rubbed shoulders with Tsvangirai and cannot see anything wrong with him,” a report dated June 2 this year says. 2017 | Business Times Africa 53

BEHIND THE SCENES, ZIMBABWE POLITICIANS PLOT POST-MUGABE REFORMS

A report dated June 13 this year says: “Top security force officials have been clandestinely meeting with Mnangagwa for the past few days to discuss Mugabe. They all agree that Mugabe is now a security threat due to his ill health.” An army spokesman did not respond to written and telephone requests for comment. ZIMBABWE‘S DECLINE When Mugabe took power after colonial rule ended in 1980, he inherited an economy flush with natural resources, modern commercial farms and a welleducated labour force. Tanzanian President Julius Nyerere told him at the time: “You have inherited a jewel. Keep it that way.” In his early years, Mugabe, a former Marxist guerrilla, won plaudits for improving healthcare and education, promoting economic growth and reconciling with Zimbabwe’s white minority, including farmers. But in 1998 Tsvangirai’s Movement for Democratic Change emerged as a serious threat to ZANU-PF, and Mugabe changed tack. The tipping point came in 2000 when Mugabe approved radical land reforms that encouraged veterans from the fight for liberation to occupy some 4,000 white-owned commercial farms. At least 12 farmers were murdered. Most fled with their title deeds to countries such as South Africa, Britain or Australia. A few remained in Zimbabwe, where they became active in opposition politics. After Mugabe loyalists and inexperienced black farmers took over the land, the economy went into freefall. Before 2000, farming accounted for 40 percent of all exports; a decade later the figure was just 3 percent. GDP almost halved from 1998 to 2008. The central bank began printing money to compensate and hyperinflation took hold. At its height Zimbabweans were buying loaves of bread with Z$100 trillion notes. Mugabe was forced to cede some control in 2009 to a unity government that scrapped the worthless Zimbabwe dollar in favour of the U.S. dollar. Economic growth resumed. But since 54 Business Times Africa | 2017

Mugabe regained outright control in a 2013 election, growth has faded and the central bank has begun issuing “bond notes,” a domestic quasi-currency that is already depreciating. It was against this dismal economic backdrop that potential successors to Mugabe began planning for his departure. THE CROCODILE STIRS According to the intelligence files, Mnangagwa’s overtures to Tsvangirai and white farmers became apparent in early 2015 amid bitter strife within the ZANU-PF party. On one side is Mnangagwa’s faction – dubbed “Team Lacoste” after the crocodile-branded French fashion chain. On the other is G40, a group of young ZANU-PF members who have coalesced around Mugabe’s 52-year-old wife, Grace. In March 2015, the intelligence documents make the first mention of Mnangagwa meeting white farmers, including Charles Taffs, a former president of the Commercial Farmers Union (CFU), the farmers’ professional association. Some of the gatherings were boozy affairs, according to the intelligence reports. “Mnangagwa had a slip of the tongue this week that angered Mugabe and Grace, when he told people who were around that ZANU-PF rigged the elections in 2013, this being said while under the influence of liquor,” a March 19, 2015 report reads. “His drinking problem is worsening these days, being put down to the fact that certain white people, who include Taffs ... have become friendly with Mnangagwa and have spoiled him with gifts of whisky. It is now party after party for Mnangagwa and his friends because he is provided with free whisky, supplied without any hitches and in great quantity.” Mnangagwa and the information ministry did not comment. One of the vice-president’s allies, Christopher Mutsvangwa, rejected the reports about Mnangagwa’s alcohol consumption. Mutsvangwa told Reuters that Mnangagwa is “never a heavy drinker. Indeed, he is very disciplined about

taking alcohol ... I have hardly seen him drinking in recent times.” In an email, Taffs, the former head of the farmers association, told Reuters: “I have met the VP (Mnangagwa) on numerous occasions in my past capacity as president of the CFU, but have never had drinks with him, neither have I ever given him whisky or any other gift.” Taffs rejected claims in the documents about plans for a unity government. “I have never been involved in any plans or discussions for the formation of an unelected coalition government.” MASSACRES The problem for Mnangagwa is that, if he ran for president, it is unlikely he could win an election in his own right, according to political analysts. He holds impeccable credentials from the struggle for liberation, having fought alongside Mugabe against the loathed white-minority government of what was then Rhodesia. However, his reputation suffered in the early 1980s, when Zimbabwe’s army brutally suppressed dissent, mainly in the western province of Matabeleland North. In the so-called Gukurahundi crackdown, the army’s North Koreantrained Fifth Brigade killed an estimated 20,000 people, most of them from the minority Ndebele tribe. Mnangagwa was state security minister at the time. He has denied any involvement in the massacres, and did not offer fresh comment; but in the eyes of many voters he is still too tarnished to be electable. Mnangagwa failed to win a seat in parliamentary elections in 2000 and 2005, but was appointed by Mugabe to unelected seats and became parliamentary speaker in 2000. He has served as vice-president since 2014. Tsvangirai beat Mugabe in the first round of an election in 2008 only to pull out of the second round because of violence. Mnangagwa, according to people in his camp and Western diplomats, sees in Tsvangirai a politician who can deliver broad public support to complement his own connections with powerful political and military interests. Mnangagwa and the Ministry of Media did not respond to requests for

BEHIND THE SCENES, ZIMBABWE POLITICIANS PLOT POST-MUGABE REFORMS

comment. MILITARY MIDDLEMAN Mnangagwa’s supporter Christopher Mutsvangwa heads the Liberation War Veterans Association, whose members include veterans who expelled the white farmers nearly two decades ago. He told Reuters that Tsvangirai could have a role in government if Mnangagwa became president. “Why can’t there be an accommodation with Tsvangirai?” the 62-year-old Mutsvangwa said in an interview in Harare, in answer to a question about whether there could be a coalition government led by Mnangagwa and Tsvangirai. He said a partnership would be unifying in a country with deep political divides. “If they decide to coalesce that’s good because they represent solid historical constituencies.” According to the intelligence reports, Mutsvangwa is a middleman between various parties involved in a possible coalition government. “Mutsvangwa is more than prepared to make sure that Mnangagwa and Tsvangirai strike up a coalition. He says that the country needs no election at this stage, just a change of leadership and structure of government,” a Feb. 22 intelligence report says. When asked about the deal described in the intelligence documents, Mutsvangwa said elections must be held in line with the constitution and that an elite could not rule “bereft of popular legitimacy.” He said it was his duty to work with all political sides, and that he had “reached out” to Tsvangirai and the “post-colonial white diaspora.” He added that as chairman of the war veterans he wanted to ensure a “peer comrade” takes over from Mugabe and that Mnangagwa could naturally aspire to the highest office. In a statement in 2016 the war veterans, many of whom are now nearing retirement, accused Mugabe of being “ideologically bankrupt” and ignoring the plight of Zimbabwe’s masses as the economy imploded. Mutsvangwa said his only aim is

rebuilding the economy and country. For Tsvangirai, a deal with Mnangagwa may be the best shot at the power he has craved for decades. Speaking to Reuters in June, Tsvangirai did not rule out a coalition deal. “For the moment, it’s an electoral contestation but post-that, who knows? What are the two things that are important – stability and legitimacy. That is the only way in which you can move the country forward,” Tsvangirai said. “CHOSEN ONE” Amid all the jockeying for position, one influential figure is Catriona Laing, the British ambassador to Zimbabwe. According to four people with direct knowledge of coalitionrelated discussions about post-Mugabe rebuilding, Laing favours Mnangagwa to succeed Mugabe. In addition, three Harare-based Western diplomats said Laing, a development expert rather than career diplomat, supports the idea of a coalition government, believing such a move is needed to maintain Zimbabwe’s stability. Laing declined to be interviewed, but the British embassy strongly rejected these claims. It said Laing last met Mnangagwa in May 2016 for routine policy discussions. “The ambassador has not met with the VP or anyone connected with him to promote the formation of a coalition government,” said the embassy spokesman. “The UK unambiguously rejects claims that it is pushing for a particular candidate to succeed Mugabe.” Mugabe’s wife, Grace, suspects that the British support Mnangagwa, according to a Nov. 16, 2015 intelligence report. It says: “Grace reckons that the Mnangagwa camp is full of sell-outs who are working with the British to remove her husband from power.” And a report dated March 2, 2016, says: “Laing, whose mouth is ‘too big’, has now been telling other embassies that Mnangagwa is the chosen one to succeed Mugabe.” The documents give no verifiable evidence for that claim and Reuters

could not confirm it. Whether any plan for a coalition comes to fruition remains to be seen. Even with the support of some army generals, Mnangagwa will face significant opposition from the president’s wife, Grace, and the G40 group supporting her in the struggle to assume the seat Mugabe has occupied for nearly four decades. In July, Grace challenged her husband to name his successor, leading Mugabe to tell a political rally he was not stepping down and “not dying.” “I will have an ailment here and there, but bodywise, all my internal organs ... very firm, very strong,” he said, as he leant against a lectern. Grace Mugabe’s G40 faction suffered a setback this month when she was accused of assaulting a 20-year-old South African model with an electric cable in a luxury Johannesburg hotel. Grace Mugabe made no public comment on the incident, but her supporters said the allegations were unsubstantiated. Pretoria granted Grace Mugabe diplomatic immunity, allowing her to avoid prosecution; the Democratic Alliance, South Africa’s main opposition party, is challenging that immunity in court. Some diplomats in Harare say the United States and European Union are opposed to the idea of Britain backing Mnangagwa because they are concerned about being ostracized by ZANU-PF and its G40 faction should events unravel and go against Mnangagwa. The British embassy in Harare said it had taken no steps to influence the succession to Mugabe, and that rumours were spreading disinformation. A spokesman for the U.S. Embassy said it did not back any candidate or party. The European Union ambassador in Harare, Philippe Van Damme, said in an emailed statement that the bloc, including the UK, does not support any political party or faction in Zimbabwe, but does support reforms “no matter who delivers them.”

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ZIMBABWE

Mugabe's Successor By Stephen Chan

efore she landed herself in hot diplomatic water by allegedly attacking a South African model with a power cord, Zimbabwe’s notoriously ill-tempered first lady, Grace Mugabe, joined the clamour for her aged husband Robert to name a successor. Curiously, she also called for a female vice president, stirring up rumours that she’s positioning herself for a presidential bid in 2023, not next year. That may take her name off a growing list of potential successors to one of the world’s oldest presidents. Mugabe still plans to be his ZANUPF party’s presidential candidate in 2018, but were he to win and complete a full term he would be 99 years old. A new potential candidate to succeed him is political veteran Sydney Sekeramayi, seemingly endorsed by the Generation 40 group long associated with Grace. As with his rival presidential hopeful Emmerson Mnangagwa, the septugenarian Sekeramayi does not represent a new generation. What both men stand for is the liberation generation’s last chance to redeem itself after Mugabe, before the “born frees” or “young frees” finally get to build a future their elders seem unable to imagine. At the start of August, Robert Mugabe took a call from an emeritus of another liberation movement: the former South African president, Thabo Mbeki. Rumours abounded that Mbeki semi-officially endorsed Mnangagwa as South Africa’s preferred successor. South Africa needs guaranteed stability on its northern borders. Pretoria can be expected to throw its lot in with the man who out guns the oth-

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ers, and Mnangagwa’s strong historical links with the military make him perhaps the strongest contender. The frenzied speculation over the future of Mugabe’s ZANU-PF was matched only by the almost surreal clumsiness of opposition politics. Attempting by command and fiat to form a coalition of opposition parties, Morgan Tsvangirai only succeeded in alienating his own party lieutenants,

trading away their parliamentary seats as inducements to others to join a new alliance under the banner of his MDC party. Curiously, MDC thugs beat up those party lieutenants who seemed to be protesting against the giving away of their seats. And the alliance did not include such key figures as former ZANU-PF vice president, Joice Mujuru, and former ZANU-PF ministers

MUGABE'S SUCCESSOR

STEPHEN CHAN Professor of World Politics, SOAS, University of London - The Conversation

Simba Makoni and Nkosana Moyo. Despite the efforts at a coalition, the alliance is brittle. The seat-trading exercise has riven Tsvangirai’s reliable base with faultlines, and long-running quarrels between Tsvangirai and his new partners are still only papered over. Still, Tsvangirai is at last attracting the support of key war veterans already at odds with Mugabe. They will lend him and his alliance a

smidgen of liberationist credibility for the first time. Disgrace Most bizarre of all, of course, was the political storm Grace Mugabe stirred up on her visit to Johannesburg, when she allegedly used a power cord to strike a South African model who had been partying with her sons. Grace Mugabe promptly disappeared, and border alerts were issued to stop her absconding from South Africa altogether. Zimbabwe sought to secure her diplomatic immunity. Robert Mugabe arrived early for a regional meeting. After three days, immunity was granted, and she slipped back across the border. The South African leadership had been in two minds about what to do. On the one hand, they were keen to avoid unnecessary diplomatic tension, not just with Zimbabwe but with other African governments who still see Zimbabwe as a complicated but real icon of African nationalism. But on the other hand, this was a chance to improve Mnangagwa’s chances by leaving a Mugabe in public ignominy. Zuma’s former wife and preferred successor, Nkosazana Dlamini-Zuma, said that Grace Mugabe must answer before the law – but if it had come to that, Grace Mugabe’s own sons would have had to testify in the case. The embarrassment and mileage in the cross-examination would have been profound, and even in Zimbabwe, it would have made her permanently unelectable. Grace Mugabe escaped that particular humiliation – but where she previously seemed temporarily reconciled to biding her time, she may

now have no choice. Dollars and disaster Set against a severe economic meltdown, of course, this all looks like soap opera. As things stand, the country’s greatest accomplishment is its pretence of relative normality in a time of deep crisis. Zimbabwe is highly dependent on imports, including for food. There is no liquidity; a parallel market has developed between the US dollar (widely used in cash form) and the Zimbabwean central bank’s bond notes, and the Zimbabwean currency is increasingly at a disadvantage. Despite the introduction of bond notes, more and more electronic money transfers are denominated in dollars. If all those electronic dollars can’t be backed up on demand with physical dollars, that will create a dangerous bubble. As soon as a large company seeks to reclaim its electronic dollar deposits but is given only bond notes, the game will be up. And ultimately, Zimbabwe needs to service its gargantuan debts in dollars: if those dollars run out, prices will rise, raising the prospect of severe food shortages. What will the nonagenarian president say on the campaign trail? Will he really try and convince people he can print bonds faster than they lose value? Can he really keep blaming the West for wrecking his own economy? He may be counting on the fractious, chaotic opposition to fall apart – but the economy could still make retaining legitimacy harder than ever.

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NIGERIA

In Nigeria, defense corruption replaces waning oil rents By Eva Anderson and Hilary Hurd

igeria may be Africa’s top oil producer, but oil revenues have also driven many of Nigeria’s biggest problems including conflict and state corruption. Successive Nigerian leaders, both civilian and military, have built governmental power structures around the country’s main income stream. Over the past five years, however, Nigeria’s oil rents declined dramatically as the price of crude dropped 60 percent between 2014 and 2016. In the same period, the rise of the Boko Haram insurgency in north-eastern Nigeria has led to a notable increase in counterter-

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rorism spending. The defence budgets now makes up close to 20 percent of state spending. The result? Corrupt Nigerian officials have turned their sights on a new sector, siphoning an estimated $15bn of the defence budget for private purposes, including for political campaigns prior to the 2015 elections. Defence, it would seem, is the new oil. In a new report, Weaponising Transparency, Transparency International argues the secret nature of security budgets and spending has made them the easiest and most lucrative to exploit.

Despite Nigeria’s 1999 return to democratic rule, weak accountability across the defence sector has enabled those in power along the entire defence spending chain to misappropriate state funds, from the highest levels down to unit commanders. President Muhammadu Buhari, who has led a significant anti-corruption drive since he won the 2015 elections, still has a budget that includes more than 30 “security votes”. These are opaque slush funds for the executive and state governors worth an estimated £540m ($700m) with no real oversight mechanism.

IN NIGERIA, DEFENSE CORRUPTION REPLACES WANING OIL RENTS

Corrupt Nigerian officials have turned their sights on a new sector, siphoning an estimated $15bn of the defence budget for private purposes, including for political campaigns prior to the 2015 elections. Transparency International identifies five major patterns of defence fraud in Nigeria and their impact on Nigeria’s internal security. This prolific defence corruption has resulted in frontline troops without training – or functioning weapons – to combat a persistent insurgency. Soldiers report that they have no choice but to desert for lack of equipment. Military sources indicate that 83 soldiers died in an October 2016 ambush by Boko Haram because they only had two light armoured tanks. Boko Haram, meanwhile, has capitalised on disintegrating Nigerian units to procure valuable army vehicles. Photographs and video footage suggest these have been key to Boko Haram’s operational success. Prolific use of inflated, or phantom, contracts by corrupt former officials has also resulted in exorbitantly priced non-functioning or unnecessary weapons. In 2014, for example, former National Security Advisor Sambo Dasuki awarded a $500m contract for refurbished helicopters to Triax Company Limited. The CEO at that time, Arthur Eze, was a financier of the People’s Democratic Party (PDP) and a family friend of former president Goodluck Jonathan. The helicopters, however, had limited to no combat utility and have never been deployed. Military sources report that seven top grade, new military helicopters could have purchased for the same cost. Mr Dasuki has since been charged with $68m in illegal transfers. To its credit, the Buhari government has appointed new service chiefs and taken significant steps to identify and prosecute individuals involved in security sector corruption.

Using evidence uncovered by the two ad hoc audit committees established by President Buhari, Nigeria’s main anti-corruption agency has indicted more than 300 individuals and companies for defence sector procurement theft and misappropriation. These include Mr Dasuki, the former chief of defence staff Alex Badeh, and former air chief marshal Adesola Amosu. Furthermore, in May an estimated 20,000 ghost soldiers were removed from the Defence Ministry’s payroll. However, Mr Buhari’s efforts are unlikely to stop defence corruption over the longer-term without holistic reform of the sector and a real international push for transparency. At the moment, the Nigerian defence budget and spending lacks sufficient detail for anyone – including the Ministry of Finance or the National Assembly’s defence-related committees – to oversee and account for defence funds. The bulk of military hardware procurement is not described in the annual budget of the Ministry of Defense. It is paid for using opaque funding and accounting mechanisms. By failing to integrate effective anti-corruption measures into their security engagement policies, international partners are inadvertently diminishing the impact of their military assistance to combat Boko Haram. There are potential avenues to bring about reform. In the same way that many countries joined forces to support global governance standards for the extractive industry through the Extractive Industries Transparency Initiative (EITI), a consensus around responsible defence governance would shed light on Nigeria’s defence budgets.

After all, Nigeria was the first country in the global EITI to support the standard’s implementation with legislation. A defence compact on a similar model has the potential to spur similar legislation. In the meantime, international partners – including the US, Germany, China and the UK – should make major equipment transfers and the repatriation of recovered illicit funds contingent on tangible security spending reform. Without norms of transparency and accountability, the fight against Boko Haram will be harder won.

EVA ANDERSON Barrister and senior legal analyst with Transparency International’s Global Defence and Security Programme

HILARY HURD leads Transparency International’s defence work in the US

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NIGERIA

Nigeria’s scrap metal industry booms By Patrick Egwu Ejike

t the busy Nkpor-Abakpa scrap market in Enugu state, southeastern Nigeria, 33-yearold Samson Ugochukwu stands in front of his shop. He watches as tons of metal and aluminium scrap materials are loaded onto heavy duty trucks destined for Lagos, the commercial capital. There, they will be recycled and processed into finished products. Behind his shop in the market is a parking yard where collected scraps are stockpiled, ready for transportation. The scrap industry in Nigeria is fast becoming a booming venture with traders taking in thousands of naira monthly. Nigeria’s national steel consumption, estimated at 6.8m metric tons annually, is met almost entirely by recycling metal scraps. The business has grown following the Central Bank’s 2015 ban on using foreign exchange to import steel – along with a list of other items – in a bid to kickstart non-oil sectors in Nigeria’s hydrocarbon dependent economy. But so far the domestic iron ore mining and smelting remain largely untapped, while export of scrap metal is prohibited. Scrap traders are filling the supply gap, at a profit. For one ton of metal traders can make between 35,000 naira ($111) and N40,000 naira ($126), while a ton of aluminum sells for around N130,000 naira ($412). “This business provides for me and my family,” says Mr Ugochukwu, who graduated from university five 60 Business Times Africa | 2017

NIGERIA'S SCRAP METAL INDUSTRY BOOMS

years ago but, like many qualified young Nigerians, found it hard to find a job. “When I finished school I moved from one office to the other in search of job, but no luck, until my friend, who was in this business, introduced me to join in. I have no regrets.” His story is not unique. Thousands of others who struggled to enter the formal economy have found a steady source of income in the scrap industry. Today, most of them are no longer looking for white collar jobs. “The industry has helped in reducing unemployment rate in the country,” says Evaristus Anaekwe Nnamdi, the founder and president of Foraminifera Market Research. Nigeria’s unemployment rate rose from 13.3 percent in the second quarter of 2016 to 13.9 percent in the third according to the National Bureau of Statistics (NBS). Youth unemployment is particularly high at 24 percent, up from 21.5 percent. “I make more profit than those who work in a bank,” says 54-yearold Samuel Nwankwo, who has been in the business for more than 25 years. “I feed my family and train my children, who are in school, through this business. I trained myself in the university with this business.” There is some social stigma associated with the scrap business, he says, but traders focus instead on the profits. “It is true that we look dirty, people call us scavengers when we move around to search for metals and aluminum at refuse dump sites. But that’s not the point, the point is the money we make everyday,” he asserts. The government, meanwhile, is still holding out hope that it can kickstart domestic steel production. According to the minister of solid

minerals and steel development, Kayode Fayemi, Nigeria is seeking investment of some $2bn to revive the Ajaokuta steel mill project. Begun in 1979 and intended to have an installed capacity of 5m tons a year, it has never been operational. Steel production is unlikely to displace the scrap industry anytime soon. Some 3bn tons of iron ore deposits around the country have yet to be explored. Indian and Chinese investors tend to be ones backing metals recycling businesses. “Indians are known the world over for anything that has to do with scrap, metals and automobiles and recyclable materials. They are generally good with recycling,” Mr Nnamdi, the market researcher, says. Critics claim government policy towards the industry, including levies, is crippling potential. “[These businesses] need a conducive environment to thrive and attract more investors in the country,” says Stan Ude, an expert who has been working in the scrap industry for over 20 years. And, as with many industries in Nigeria, lack of infrastructure is a binding constraint. “We don’t have many factories for the processing of these materials into finished products,” Mr Uchenna Amadi, the chairman of scrap dealers association, tells This is Africa. “The transportation system for these materials is poor and government agencies are threatening us with too many levies,” he adds. Despite its challenges, Mr Ugochukwu and many others have found a steady business with room to grow. “I want to start my own company one day with my own workers. I know that day will come,” he says. – ThisIsAfrica

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SOUTH AFRICA

How South African business can help government fix the economy By Steven Friedman

hat business is willing to say to itself is as important, as what it says to government. Which is why the document, a contract with society, released by an organisation representing big business, Business Leadership SA’s Contract with South Africa may be setting a new tone not only on how business deals with government but also how major economic actors deal with the economy’s problems. When most commentators are asked how South African business should respond to government, the common response is that it should complain, loudly and in public. This view has no doubt firmed since the March cabinet reshuffle damaged the economy and denouncing “white monopoly capital” became a refrain of the ANC’s patronage faction. Business, as the argument goes, should stand up for itself even if that means offending government. But, while this approach makes great headlines and makes many people feel better, it does little or nothing to advance business interests or fix the economy. Those who want business to shout at government seem to assume that this country has no history. But it does, and it is a history in which business is associated – and not only in the minds of patronage politicians - with the minority privilege which apartheid ensured. No one would use the phrase “white monopoly capital” if it

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did not seem to describe the world in which many black business and professional people feel that they live. This makes the relationship between business and government more difficult than in most other countries. It also means that politicians cannot afford to be seen to be ordered about, by business. After all, what better way to confirm that “white monopoly capital” rules us all than to insist that business people tell politicians off in public? Yelling is not the solution Yelling at government is not helpful to the economy because it keeps alive the myth that its difficulties are caused by government alone. But, as very mainstream figures such as International Monetary Fund deputy MD David Lipton have pointed out, the fault is not government’s alone. Other economic actors, including business, have also contributed to the problem. If businesses want a healthier economy, they need to look at what they can change as well as what the government can fix. This will undermine the “white monopoly capital” claim by showing that businesses are willing to change what they do as well as asking the government and other interests to change. This is precisely what Business Leadership SA’s contract seeks to do. It feels as strongly about the “white monopoly capital” slur as others. It’s chief executive officer, Bonang Mo-

HOW SOUTH AFRICAN BUSINESS CAN HELP GOVERNMENT FIX THE ECONOMY

STEVEN FRIEDMAN Professor of Political Studies, University of Johannesburg

hale, said at the contract’s launch that it hoped to undo the legacy “of the ugly and deceitful white monopoly capital campaign (which) sought to blame business for all the problems that beset this country”. He said the campaign was “dishonest”; it “tried to deflect from the real issues of state capture”. It had severely damaged business’s reputation. All of this is music to the ears of the “give government a proper scolding” school. The key difference is that the organisation seeks to counter the campaign not simply by denouncing it but by taking responsibility for fixing the problems which made the campaign possible in the first place. Problem is not just government The contract recognises that corruption is a two-way process. It vows to root out corruption in the private sector too and wants companies to sign an integrity pledge, to fight corruption. It also commits to fighting economic exclusion by creating jobs, encouraging and empowering senior black leadership, building skills, investing in communities and supporting small businesses. Only after making these commitments does the organisation’s document say something about government. It says it cannot achieve these goals on its own. The government “must also step up” and create the conditions necessary for the country and economy to succeed. This approach is more likely to dispel the “white monopoly capital” campaign than one which yells at the government. While those who coined the slogan will not be impressed, it’s not them to whom businesses are talking. Their audience is the tens of thousands of South Africans who have no axe to grind but want the economy to offer opportunities to more people. The contract recognises the problem that undermines the image of large businesses as arrogant vehicles of power. By showing that they are sensitive to economic exclusion and those who suffer it offers to do some-

thing to solve the problem. Conversation is the key The document also creates opportunities for mending the economy by opening the way to a bargain between government, business and other economic interests. This is the essential route to change because none of the economic interests are strong enough to impose their favoured solution on the others. By spelling out in broad terms a willingness to change, the contract enables politicians and government officials who do want to negotiate change to begin a discussion on the specifics. This promises to restart the conversation between government and business which was beginning to blossom during the later days of Pravin Gordhan (former finance minister) and Mcebisi Jonas (former deputy finance minister) at National Treasury. It also makes negotiation possible by taking the three steps all the parties need to take to create a negotiation climate: it acknowledges that the economy needs to change, spells out what business is willing to do to change it, and what it expects in return. This opens the way for the other parties to do the same – if they do, the negotiations will have effectively begun and a way out of the economy’s dead end will be possible. Business Leadership SA’s contract is hardly guaranteed to succeed. In the past, initiatives which depended on business and other economic interests making changes ran aground because business leaders, like the other negotiators, lacked the muscle to take those they represent with them. It is not at all clear how many businesses are willing to follow Business Leadership SA’s approach. Nor is it clear if government and labour, whose participation is crucial, are willing and able to respond with their own bargaining positions. What is clear is that the economy’s revival depends on the business strategy for change. 2017 | Business Times Africa 63

AFRICA

The lesser known and scarier facts about unemployment in South Africa By Derek Yu

he latest South African jobs statistics continue to reflect a shockingly high unemployment rate which will take some doing to reverse. Concerns about the high levels of youth unemployment and the social upheaval this might cause have been widely expressed. But a deeper analysis of the numbers reveals an even scarier picture of large sections of the population suffering from chronic joblessness and worrying details about the countryâ&#x20AC;&#x2122;s youth unemployment statistics that havenâ&#x20AC;&#x2122;t been sufficiently highlighted. These include the fact that 39% of all unemployed South Africans have never worked before. Among young people this figure is even higher â&#x20AC;&#x201C; at 60.3%. The numbers also highlight that many young people struggle to find their first job. In contrast, the elderly face the problem of long-term unemployment after they lost their jobs. A greater share of them last worked more than 5 years ago. This share was the highest at 47.4% for the 50-65 year-olds. To save the situation the government might have to make certain difficult choices. These could include accepting that certain age groups, above youth age, are unemployable and that what they need are poverty alleviation interventions. The government might then be able to focus on facilitating job opportunities for those aged between 15 and 29 who account for nearly half of total unemployed. Overall unemployment at a glance According to the World Bank the 2016 average unemployment rate for all upper middle-income countries

64 Business Times Africa | 2017

THE LESSER KNOWN AND SCARIER FACTS ABOUT UNEMPLOYMENT IN SOUTH AFRICA

DEREK YU Associate Professor, Economics, University of the Western Cape

was 6.2%. At 25.9% in 2016 and 27.7% in 2017 South Africa’s rate is higher than other African countries also classified by the bank as upper-middle-income countries. These include Botswana at 18.4%, Gabon at 18.5% and Namibia at 25.5%. South Africa’s unemployment rate has been rising steadily for the past nine years. When the rate dropped from a peak of 31.1% in March 2003 to 21.5% in the last quarter of 2008 there was hope that it would drop to a level close to 15% by the end of 2010. The rate has gone up despite policies being adopted that promised to cut joblessness. These included the New Growth Path which was adopted in 2011 and promised to create 5 million jobs and reduce unemployment to 15% by the end of 2020.

But in the intervening six-plus years employment increased by 2.2 million, bringing the number of unemployed to 6.17 million. What’s even more concerning is that the annualised unemployment growth rate of 4.8% is double that of employment growth (2.4%). If these trends persist, achieving the even more ambitious goal set out in the National Development Plan of dropping the unemployment rate to 6% by 2030 is highly questionable. Two extreme groups The numbers suggest the presence of two extreme groups of unemployed in South Africa. The first consists of youth who struggle to find the first job despite actively searching through and answering job advertisement. Most have matric, that is they have completed 12 years of schooling. The second group comprises of the elderly with previous work experience but who have been seeking work mainly via their social networks for more than 3 years. Most have not completed 12 years at school. There’s a third group of unemployed sandwiched between the first two , namely those aged 30 years to 65 years with past work experience but who have been seeking work for shorter duration. The government may need to realistically “accept” the second group (long-term elderly unemployed) as unemployable and focus on poverty alleviation. And the government might want to put more focus on the other two groups of unemployed, particularly young people. The short-term elderly unemployed may require training to have their skills upgraded to better match the skills needs of employers before they stand a better chance of being reabsorbed into the labour market. What must be done? The South African government is not doing enough to address the youth unemployment crisis. Its efforts to create jobs for young people through an employment tax incentive

hasn’t had much of an impact: youth employment has actually dropped since it came into force four years ago. There are lots of obstacles to job creation in South Africa. The most recent global competitiveness report shows that the country’s labour market is hobbled by inefficient hiring and firing practices, little cooperation between employers and employees as well as a poor relationship between pay and productivity. This tempts employers to replace labour (particularly the less skilled and experienced ones) with capital and discourages them from hiring new workers. In both cases, the youth are the most vulnerable. So, what are the other options to more rapidly boost youth employment? A transport subsidy for youth unemployed has been recommended as an alternative policy option. The idea was motivated by the fact that many jobs are in areas which are far away from where poor people live and therefore extremely expensive to get to. The relationship between poverty and unemployment is startling. Data from 2014/2015 show that the poorest 40% of the population accounted for a mere 12.4% of total national income, but accounted for 71.9% of the unemployed. It’s therefore possible that poverty and expensive transport costs are huge barriers to unemployed people finding work. Self-employment is another potential route for young people. But even that number is falling. It’s alarming that between 2008 and 2017 the number of youth employers or self employed workers dropped from 390 000 to 340 000. This suggests that entrepreneurial activities for young people deserve serious attention. This should include government accelerating support in entrepreneurship skills training, access to micro-finance and creating an enabling environment for business development

2017 | Business Times Africa 65

AFRICA

The Top 5 priorities for Africa By Zvikomborero Kapumha Africa’s growth trajectory at the turn of the millennium has been staggering, with the economic momentum infusing a new lease of life to a continent that was in the doldrums for a long time. The economic growth and social development has been unique- anchored and driven by consumer spending, judicious exploration of natural and human resources, infrastructure development and trade. So many quick wins have been realized as a result of better economic performance such as the rising middle class, better infrastructure and services. The remarkable economic thrust has transcended beyond the traditional extractive industries, spanning from telecommunications, banking, and consumer goods to construction. Africa has experienced an average real GDP growth rate of 4.9% between 2000 through 2010, hence there is no debate that Africa is transforming. However, the conundrum remains on how to translate these impressive economic indicators to improved quality of life of the ordinary Africans. Africa is still marred by food insecurities, extreme poverty, diseases, civil unrest, poor infrastructure and low education levels, factors that still prevent Africa to reach its full potential in its transformative agenda. There is need for a deliberate and all stakeholder approach to combat these barriers to sustained growth if Africa is to go full throttle on the growth train. The President of the African Development Bank, Akinwumi Adesina, on 1 September 2015 announced the “High Five”, five top priority areas that underpin and guide the Bank’s Ten Year Plan 66 Business Times Africa | 2017

for Africa. These areas are; Light Up and Power Africa; Feed Africa; Industrialise Africa; Integrate Africa; and Improve the quality of life for the people of Africa. A concerted focus on these key areas will fortify the base, institutional structure and systems of African economies, whilst leveraging its strengths and capabilities in the process. These developmental goals by AfDB stem from the need to bridge the developmental gap by riding the growth train being experienced in other sectors of development in the region. These five areas of development are need-based and will in turn eradicate most of the barriers to opportunities and prospects of equitable and sustainable economic and social prosperity across Africa. Energy Sector The energy and power sector is the single most important subsector of any economy, as it is generally indicative to the level of economic activity in that particular country. Electricity is important for many productive and commercial processes in manufacturing, mining, agriculture, education, services and even domestic usage. The lack of it deters investment, stifles economic and social development and stunts the quality of life of citizens in many ways. Through the adoption of several strategies such as micro-hydro schemes, solar farms and independent power producers in traditional thermal sources, the sector grew by 48% between 2000 and 2010 in Africa. Currently, Africa has a total installed capacity of 147GW of power, equivalent

THE TOP 5 PRIORITIES FOR AFRICA

ZVIKOMBORERO KAPUMHA

to what China installs every one to two years. Of this 147GW, South Africa and Egypt account for over 60%, with the remaining 52 countries sharing the paltry 88GW of power. Most economies have huge power supply deficits, notably Botswana, Swaziland, Namibia and Morocco with over 50% in energy deficits. Power cuts are a common occurrence across Africa, with most businesses and households resorting to diesel generators, LP gas and solar to supplement the supply from the grid. The transmission and distribution infrastructure is creaking, with the need to expand the reach of transmission as well as the quality through reliable equipment and protection mechanisms. The demand for electricity is projected to increase fivefold by 2030, given that the current growth trajectory is maintained, hence the planning and evaluation of efforts in the energy sector must take cognisance of the economic implications of this likely upsurge in demand. There is need for investment in different and sustainable ways to generate, store, transmit and consume electricity since the question of energy in Africa goes beyond the issue of availability but security, affordability and sustainability of power supply. Africa is endowed with immense potential for all forms of renewable energy such as solar, wind, geothermal and hydroelectric power, which must also be exploited judiciously. Food Security Hunger is the clearest manifest of any country in distress and Africa has been haunted by this predicament for a very long period. FAO estimated that in 2010 over 239 million people in sub-Sahara Africa suffered from hunger, which accounts for over 25% of the sub-Saharan population. It is further estimated that Africaâ&#x20AC;&#x2122;s population will hit the 2 billion mark by 2050, which makes the need to boost agriculture production a top priority, since the growth in production of key produce such as cereals is not matching the growth in population. This means the gap between supply and demand keeps growing every year. 2017 | Business Times Africa 67

THE TOP 5 PRIORITIES FOR AFRICA

Any economic growth is meaningless unless it is shared, hence there is need to make intensive efforts to put in place structures and mechanisms that assure food security and nutrition to the needy in Africa. According to the World Bank, agriculture accounts for 32% of Africa’s GDP, supplies 65% of the labour market and generates exports over US$100 billion annually. This is a huge industry with immense potential, not only to stimulate growth and potential in other industries in its value chain, but to provide food security and nutrition to Africa’s population. The structure of agriculture in the continent is such that the largest proportion of farmers are smallholders or subsistence-based, thus it is essential to invest in and improve accessibility to quality inputs, markets for produce, good soils and soil management techniques, innovative finance tools and other resources needed for sustained agricultural production. Industrialization and Beneficiation Africa’s quest to industrialise, post-independence has been slow and uncoordinated with manufacturing, on average contributing around 10% to the GDP, slightly less the same share it did forty years ago. Countries like Zimbabwe have actually experienced a sharp decline in capacity utilisation of key industries resulting in loss of jobs, production and markets. The absence of key industries has resulted in Africa incurring huge import bills as everything from basic goods and supplies such as medicines and clothing to luxuries such as beverages and expensive vehicles that are shipped every day from America, Europe and Asia. With a rising middle class instigating a huge demand on consumer goods, there is a huge market and potential for growth and transformation of Africa’s industrial sector. Africa is endowed with unmatched natural and human resources that include minerals, oil and gas, land, flora and fauna and a very favourable demographic dividend, all factors that 68 Business Times Africa | 2017

are primary to industrialisation. The Democratic Republic of Congo, for example, has an estimated US$24 trillion in untapped mineral deposits of coltan, tantalum, cobalt, diamonds among others being used in all technological devices in the world, but the country has a GDP per capita of just US$700. The beneficiation of minerals into jewellery or cocoa into chocolate is the biggest gap as Africa loses billions every year by not adding value to primary goods it exports raw. Cote d’Ivoire and Ghana produce 53% of cocoa in the world, but the chocolate in Abidjan and Accra are from Switzerland. This sad picture is replicated across the continent, leading to a resource drain and loss of potential revenue. Industrialisation is a clear priority area, not only because of the jobs, production, export receipt it brings to the continent, but more so because of the potential for long-term transformative change and development it brings. Integration and Cooperation Due to globalisation, the value and growth of cross-border flows in goods, services, people, finances, data and communications has increased in an unprecedented manner. In 2012, globally, well over 194 million people moved from one country to another, with US$26 trillion worth of goods, services and finance exchanging hands, and data and communications in the magnitude of 23 megabits/sec being transferred. With these huge figures, the question is what was Africa’s share of cross-border flows? Tiny! Then it follows what is the easiest solution? Integration and cooperation! Intra-Africa trade is still low at US$174 billion which is 11% of the total trade volumes hence this is a low hanging fruit. The recognition of integration and cooperation in Africa as a strategy to improve competitiveness of the market is vital in unlocking the potential to attract investment and trade. Efforts towards infrastructure development, branding, policy frameworks, peace and security must be harmonized to allow market access to some of the least accessible countries in the continent. The barri-

ers to integration in Africa are few and mostly artificial such as civil wars, corruption and thus the common vision and aspirations for a prosperous continent unites us to consolidate efforts to bridge the differences. By prioritising linkages in infrastructure, economies, trade, people and cultures, Africa tends to unravel international support framework for development and huge benefits of long-term growth that is sustainable. Quality of Life The availability of essential services to enhance the livelihood and well-being of people is critical for the social, economic and political development of any nation. Well-being from the perspective of physical health, education, family, wealth, environment and freedom is necessary to bring out the best in citizens, to participate in all sectors of the economy. By most standard indicators available, Africa performs quite poorly in terms of the quality of life, with most citizens lacking access to education, water and sanitation, health care, rights and privileges and safe environments, which has stifled the potential in many people. Despite tremendous progress in access to social services that enhance the quality of life, there is still a drag particularly on the rural population in Africa, which is over 60% of the total population. Half of Africa has no access to drugs and decent health care, a predicament that manifests in the high child mortality rates, disease prevalence rates and low expectation of life. The statistics are shocking and unacceptable, for example to fathom that one child dies of malaria every thirty (30) seconds is incomprehensible. Furthermore, every day, rural communities and the urban poor face the horror of lack of access to water, let alone safe and clean water. In 2008, Zimbabwe had an outbreak of cholera emanating from lack of safe water, which infected 98 592 killing 4 288. Similar outbreaks have been reported in South Africa, Malawi, Botswana,

THE TOP 5 PRIORITIES FOR AFRICA

Mozambique and Zambia. Over 35% of Africans are illiterate, a huge burden on the job market as countries lack skills in critical areas such as Science, Technology, Engineering and Mathematics (STEM). Improving the quality of life is both a means and an end in the economic and social development of a country, as it requires coordinated efforts of all stakeholders and facets of a country. Through targeted investments by both the private and public sectors to the areas of direct influence to quality of life, there are enormous opportunities for growth. Despite having these areas such as health, education and water being low productivity areas, unattractive to investors, the value proposition is in the scale and scope of the impact of the investment. How do we do it? The African Development Bank’s ambitious Ten Year Plan involves a cocktail of measures in the structural reformation of African economic and social systems and the adoption of the “High Five” priority areas as the focus is equally important. The planning of these measures is the easier part, with the execution requiring unimpeded commitment and shared vision from all stakeholders and developmental partners in the public and private sector. There should be haste and tact in ensuring that the growth acceleration of Africa goes to the neediest areas of development. Lighting, feeding, industrializing and integrating Africa all culminate in the improvement of the quality of life of Africans, hence these priority areas are interlinked and inseparable. By lighting up the continent, generating more electricity for the grid, this unlocks the potential of industrial sector, improves agricultural processes in the farms and agro-processing business, integrates Africa through power pools and eases the access to better living. These priority areas are embedded in the socio-economic ecosystem and productive structures of any economy and are a pedestal

for robust, sustainable long term growth and prosperity of the continent. Despite having the highest rate of return and economic growth rates of any investment destination globally, Africa is still not receiving much in terms of foreign direct investment (FDI). Around US$87 billion in capital investment was received in Africa in 2014, a mere 5.1% of global FDI flows, but a 6% increase from the previous year. Furthermore, the disparity was that 68% of the FDI was shared by only five countries, namely Egypt, Angola, Nigeria, Mozambique and Morocco, meaning other countries could be having none of it. Thus the first implementation strategy to the “high five” priority areas, is making Africa an attractive and competitive investment destination. This means removing all the red tapes and barriers to the free flow of capital. The World Bank’s Ease of Doing Business Index is a reflection of the investment climate, and Africa should commit itself to the necessary reforms that will ensure investments are protected, there are fair tax regimes and regulatory frameworks, there is no corruption and economies are market driven. Countries such as Rwanda and Ethiopia have realigned most of their systems and frameworks to world’s best practices, and this has seen improvements in the flow of capital investments in these countries. There should be a clear and homogenous message across Africa, that Africa is open for business. The necessary projects to scale the impact of lighting, industrialising, feeding, integrating and improving the quality of life in Africa are capital intensive. For example, is it estimated that Africa needs over US$ 3.2 trillion in investments in the power generation and transmission industry only by 2040. Hence innovative business models and value propositions are needed to entice relevant partners and investors to achieve this. Public private partnerships remain key for sectors such as water and sanitation, road and rail infrastructure, education and health which are traditionally low productivity areas. Developmental finance from institutions

such as the African Development Bank, World Bank, International Monetary Fund remains relevant to stimulate the necessary growth in these sectors. African business enterprises are unique because most are informal micro, small and medium enterprises (MSMEs) which include smallholder farmers, small traders, craftsmen, vendors and several start-ups. These businesses represent the signature of African entrepreneurship, thus an appealing strategy of tapping into them to achieve the goals of the high five transformative areas, they should be achieved through the empowering and building capacity of these MSMEs. Informal businesses and MSMEs throughout agriculture, manufacturing, mining and trade employ over 80% of Africa’s 1.1 billion population, directly influencing the quality of lives of many people. Policies, strategies and efforts should be channelled towards formalising informal businesses, nurturing start-ups and growing MSMEs so that the scale and scope of improving the quality of life of Africans in enhanced. There is need to redefine what constitutes an African business, who has the greatest access and potential to grow and impact the quality of life, an answer that lies in micro, small and medium enterprises. Conclusion The focus by the African Development Bank on the high five areas is a critical development in the steps to lift Africa from its quagmire. As African economies grow, it should reflect in all sectors and the lives of ordinary people beyond the traditional indicators such as GDP per capita. There are immense opportunities to be tapped and seized by focusing on these five key areas, as these sectors have ripple effects touching other economic sub-sectors. The transformative agenda cannot be complete with a lit, fed, industrialized and integrated Africa enjoying the best quality of life.

2017 | Business Times Africa 69

Revolutionizing travel with handy Stay connected and live like a local anytime, anywhere in the world with handy ‘How can I travel like a local and also stay connected with family and friends or even work while away without spending so much on phone calls and internet data?’ These are usually some of the questions travelers ask themselves while on trips to countries which are not home to them, either for business or leisure. In today’s digital world, connectivity and the ease of mobility are more important than ever for an enriched travel experience, be it for business or leisure. For both tourists and business travelers, there’s always that unquenchable desire to have less expensive and reliable connectivity and information on destinations when exploring new environments. In other words, an advanced world demands an improved travel experience for visitors and travelers all around the world. For most travelers, it’s not about where they will want to travel, but it’s all about how they travel and the experience and memories gathered and created on every trip. To curb the great inconveniences associated with mobility, most travelers turn to Google and other travel guides for information which is usually outdated. Wi-Fi and phone calls are also limited due to how expensive and unreliable they tend to be especially in Africa, where such infrastructure are not advanced enough. This negatively impacts on hospitality as guests 70 Business Times Africa | 2017

will usually not stay for long in locations they cannot enjoy fully. Eventually, this translates to low revenues for the hospitality sectors of countries where travelers face such challenges. The desire to alleviate these pain points of travelers and also find ways for hotels to increase revenue is what brings about the conversation on the inclusion of technology in the hospitality sector. Incorporating technology helps the practicing hotels to among many other things cut utility bills, improve customer service and get great referrals. One of such technologies which is revolutionizing the travel and hospitality sectors is the handy phone, an innovative product of Tink Labs which is located in Hong Kong. Handy is like the normal mobile phone, and is powered by android. This device is placed in hotel rooms as a complementary service for travelers to use during their stay at no extra charges. The handy device works by giving the traveler the opportunity to make unlimited, yet free calls to both local and international numbers and to also have access to unlimited internet data which also comes for free. Gone are the days of going through the hustle of trying to buy a local sim card or struggling with poor and limited internet connectivity while on trips. Handy also provides the traveler the opportunity to have updated informa-

tion on places to see and things to do in their destinations during trips. The hotel with this service is able to stay connected to the guests even when they are out on sight-seeing or shopping by just dialing their room numbers in order to communicate with them. Guests are also able to stay connected with their friends, family and work with the free, fast and reliable internet connectivity the handy device offers. Security is assured as personal information and activities of the user is safe. Tink Labs, the inventor of the handy smartphone, does not keep such data in any central location. After use and prior to checkout, the user is prompted by the handy phone to delete all personal data on the phone. Handy is currently in over 200,000 hotel rooms worldwide and in over 1,000 rooms in hotels in Ghana. Other African countries to have this service includes South Africa, Kenya, Morocco, Nigeria, Ivory Coast and Senegal. There has been reported revenue increase by the partner hotels which use the handy phones. Big hotel brands such as Sheraton and Ritz Carlton use this technology to improve their customer service and promote their hotel offerings and amenities to their guests. Hotels offering handy as a complementary service to guests have also been able to get great referrals on Trip Advisor and other platforms which keep driving sales for them. This technology is the first of its kind in Africa, and Ghana is the first African country it is being launched. Revolutionizing travel in Ghana is of much importance if the country aims to be competitive in hospitality and tourism, both among African countries and the world in general. With the incorporation of technology such as handy in hotel services, hotels are able to know their guests better and give them the best services they have to make them enjoy their stay. With an improvement in the hospitality sector, African nations such as Ghana will stand a better chance of being recognized as best destinations to travel to. Staying competitive and relevant to guests while increasing revenue are among the goals of every hotel, and offering this complementary service to guests is one of the main ways to achieve these goals. Handy is in to stay and is revolutionizing travel and hospitality. Do yourself and your guests a favor by getting them this one service which they need.