Business Times Africa Magazine Nov. 2016

ENTREPRENEUR WATCH - YAW BARIMAH Mahama, Nana Ado’s fight to be No.1 Mugabe and his finance ministers-A history of slapdowns Opinions: McCorley, Mzukisi Qobo, Mandla Lionel Isaacs, Donald P. Kaberuka and Acha Leke 2016 / VOL.8 / NO.5

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FROM THE EDITOR

Agriculture matters, walk the talk

I

t is interesting that both Ghana’s presidential hopefuls are slugging it out on who has the best plans to revive a dormant sector that could have profound implications for the future of this west African nation and impact millions of its people. That Ghana is a net importer of staple food is a travesty in itself for a country with about 66 percent of its land area classified as suitable for agriculture. As we note in our feature on Ghana politics, the country imports about $500 million worth of rice per year, and about $1 billion worth of tomatoes and oil and chicken. The country controls about 15 percent of the world cocoa market, which is invariably dominated by its neighbour, Cote D’Ivoire. Agriculture contributes about 40 percent of Ghana’s GDP, accounting for about half of its export earnings and employs over half of its population, formally and informally. In 1992, the share of agriculture to the country’s Gross Domestic Product (GDP) was 23.6 percent, growing to about 41 percent in 1995. But the Ghana Statistical Service reports that the contribution of agriculture to GDP declined from 29.8 percent in 2010 to 22 percent at the end of last year.

A report by the World Bank Group showed that about 21 percent of the Ghanaian population has moved out of agriculture to other more productive economic sectors over the 18-year period between 1992 and 2010. So it goes without saying that agriculture is Ghana's most important economic sector, more so than oil. But prior to 2008, Ghanaian governments had basically ignored the sector for two decades. So the sector needs more than just political lip service. Africa has enjoyed sustained agricultural productivity growth since 2005 and Ghana is late to the party. According to the New Partnership for Africa’s Development (NEPAD), agriculture today accounts for 32% of GDP in Africa and is the sector that offers greatest potential for poverty reduction and job creation, particularly among vulnerable rural populations and urban dwellers with limited job opportunities.

Growth generated by agriculture in sub-Saharan Africa is estimated to be 11 times more effective in reducing poverty than GDP growth in other sectors – a vital multiplier given that 65% of the continent’s labour force is engaged in agriculture. A vibrant, sustainable and resilient agriculture sector is vital for Ghana’s, and indeed the sub-Saharan Africa’s economic future. Ghana’s national economic plan, known as Ghana Vision 2020 launched in 1995, envisions Ghana as the first African nation to become a developed country between 2020 and 2029 and a newly industrialized country between 2030 and 2039 through the integration of science and technology in governmental programmes, including in the agricultural sector. Lofty ambitions but the journey has to start somewhere. Our politicians need to start walking the talk to unlock the potential of this sector.

Alfonce Mbizwo

alfonce@businesstimesafrica.net

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CONTENTS

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2016 / VOL. 8 / NO. 4

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COVER STORY

36

34

UPFRONT 06 Agriculture, walk the talk 08 Briefing OPINION 14 South Africa’s economy will be stuck unless there’s new political alignment

FORWARD LEADERSHIP

UCHE OFODILE

GHANA ECONOMIC FORUM 2016 48

42 STANDARD BANK CIB CHIEF TAKES ON THE UNIVERSAL MODEL The CEO of corporate and investment banking at Standard Bank Group talks about its transformation into an Africafocused universal bank

6 Business Times Africa | 2016

GHANA’S POLITICAL FOES BET ON AGRICULTURE 21 percent of the Ghanaian population has moved out of agriculture to other more productive economic sectors

16 Converting tweets into feet:can Zimbabwe’s social media activism oust Robert Mugabe?

18 Free movement in Africa is desirable, but how to realize it?

20 Africa Still Rising FEATURES 22 South Africa trade minister seeks a more integrated Africa 25 Côte d’Ivoire:Tech hub on the rise 28 Kenya crushing its banks 30 Banks grapple while nimble players eat their lunch 32 When mobile money operators become banks 40 Tanzania, Nigeria and the EU: Free trade discord 48 Mugabe and his finance ministers – A history of slapdowns and denial 50 Beyond the bad news: Mozambique maintains investment pull 53 Ghana's Jobless Generation 65 Tech titans unfazed by Africa’s commodity slump

BRIEFS Africa's financial services sector continues downward trend

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Africa

Total investment, jobs and capex all on the slide, although Kenya and Ghana are improving Figures from greenfield investment monitor fDi Markets show that between January 2011 and May 2016 total investment in the financial services sector into Africa has continued to decline. The number of financial services projects into the continent has decreased significantly from 186 in 2011 to 150 in 2013, and 88 in 2015, the lowest figure recorded since 2007.

The number of jobs and capital expenditure also dropped between 2011 and May 2016. Data shows that 4216 new jobs were created in 2011, with capital expenditure of $2.19bn, which declined to 3964 new jobs and $1.83bn in capital expenditure by 2013.

In 2015 job creation in Africa had fallen to 3074 with a capital expenditure of $1.40bn, marking decreases of 22.66% and 9.95% respectively from the previous year.

Between 2011 and 2016 South Africa attracted the highest number of investments in the continent with 68 FDI projects, followed by Kenya with 67 and Ghana with 62. During this period South Africa also experienced a decline in financial services sector investments in line with the rest of continent, while both Kenya and Ghana reported increases in FDI inflows. The primary investing countries in Africa between 2011 and 2016 were the UK, the United Arab Emirates and Kenya with a total of 82 investing companies and a combined capex of $2.98bn. The downward trend recorded by fDi markets indicates that the slump Africa is experiencing in financial services investments is set to continue during 2016.

Data recorded for quarter one of 2016 shows that Africa only attracted 22 investments, a decrease of 8.33% from the same period in 2015 and the lowest number of investments for a first quarter in nine years. Figures released for April and May further support this analysis, with only 11 projects recorded and continued decline in both job creation and capital expenditure. fDi Markets 8 Business Times Africa 2016

BRICS - Africa trade down Opportunities remain in agriculture and manufacturing Trade between BRICS countries and Africa has decreased 21% year on year in 2015, according to a report by Standard Bank.

However, Standard Bank senior political economist and chief report author Simon Freemantle puts much of this down to decreasing commodity prices. “Sixty percent of the drop was accounted for purely by the reduction in oil price and the remainder of the drop had a lot to do with other base metals,” he says. “If you look at BRICS exports to Africa, they decreased by a very small margin and in fact Chinese exports to Africa grew year on year.” Mr Freemantle expects trade value to increase only once commodity prices go up again. He also sees plenty of opportunity for investment and co-operation between Africa and the BRICS countries, although most of this opportunity will be coming from India, China and South Africa rather than Brazil and Russia.

In addition, he does not expect this boom in co-operation to reach the levels of the few years following the global financial crisis, saying that trade will be “nowhere near the levels that we saw in the 2008 to 2013 period and I don’t think there is anyone expecting

that it will go back to those levels. The heady days of 20% year-on-year BRICS-African trade growth are gone and we’re not going to see those again”.

Alternative routes Despite the years of extensive trade growth being over, there are still opportunities for investment and co-operation in agriculture, manufacturing, infrastructure and the continued trade of commodities. Mr Freemantle predicts this will largely be fuelled by India, China and South Africa as well as some other emerging markets, such as Turkey.

Mr Freemantle also believes investment could replace exports in increasing economic co-operation between Africa and BRICS. “There might be some domestication of the products and services that they’ve typically exported to Africa, as we’ve seen with India and South Africa and in places like Kenya and Tanzania,” he says. “I think that model will start to be replicated in other geographies. I think that’s the sort of future of not quite BRICS-Africa but India, China and South Africa’s engagements with the continent.” – fDi Markets

World

Financial fraud happens every 15 seconds

Jamie Dimon: Brexit could be reversed The chief executive of JPMorgan (JPM) said before the June 23 referendum he thought Brexit would be a "terrible deal for the British economy." Asked by an Italian newspaper how the European Union should now respond to the vote, Dimon said it must work together to address its weaknesses.

"Europeans should say: look, there are rational complaints, we are going to fix them for all of Europeans, not for Britain alone, but for everyone else. Maybe you can even reverse Brexit," he told Il Sole 24 Ore. "If you buy a house but you never had a chance to look at it, and then you see it and you do not like it...this can happen," he said. "There is nothing wrong to change one's mind but this is not my decision to make." Some voters have already said they regret their decision, especially after leading Brexit campaigners back-pedalled on a

number of pledges they made.

Dimon was one of many Wall Street executives who supported Britain staying in the EU. JP Morgan has 16,000 staff in Britain, but may have to move some employees out of the country because of Brexit.

No big bank has announced any job moves yet. And on Thursday, Goldman Sachs (GS), JPMorgan, Morgan Stanley (MS) and Bank of America (BAC) issued a joint statement, promising to work with the U.K. to help London "retain its position as the leading international financial centre." Dimon is not the only one suggesting Britain could still reverse course.

A top London law firm is preparing legal action to ensure U.K. lawmakers debate Brexit. It argues that parliament must give its consent before the government triggers Article 50 of the EU treaty, beginning the formal exit talks. – CNN

Financial criminals will commit a fraud somewhere in the United Kingdom by the time you finish reading this sentence. More than one million incidents of card scams, online and telephone banking and check frauds occurred in the U.K. in the first six months of the year, according to Financial Fraud Action U.K., an industry body funded by banks. That's an increase of 53% over the same period of last year, meaning one such crime is now committed every 15 seconds, the FFA said.

Banks are getting more sophisticated in their fight against criminals -- last year, they managed to stop $7 in $10 of the attempted fraud transactions from happening, the body said. But there is a flip side to their success. "As the banks' systems get more advanced, fraudsters turn their attention elsewhere and sadly this often means tricking people out of their personal details and money," said Katy Worobec, the director of the group. The group said 26% of people admitted providing personal details to people claiming to be from their bank, even though they knew they shouldn't.

Why? According to a survey by the FFA, 43% of people simply felt the person asking for their details seemed genuine, while 38% said they provided the details because they were busy and wanted to get off the phone quickly. The group is launching a new initiative to educate people about financial fraud such as email and phone scams and phishing attempts.

Last year, losses from this kind of fraud in the U.K. totalled 755 million pounds ($980 million). – CNN 2016 Business Times Africa 9

West Africa

Nigeria: funding oil cash calls from debt key for economy Nigeria must get out of paying socalled cash calls to joint ventures with oil and gas companies to stand a chance of pulling its ailing economy out of recession, according to Finance Minister Kemi Adeosun.

The minister said the Nigerian National Petroleum Corporation (NNPC) had spent 110 billion naira ($360 million) on cash calls this month, which dwarfed the country's 41 billion naira income from oil production over the same period.

NNPC also owes several billion in back debt to oil companies from unpaid cash calls, which oil worker unions say is stalling the creation of jobs and investment.

"We are already working to see how we can get out of the cash calls. And that is very fundamental to the economy," Adeosun told a press conference.

"We are working with the Ministry of Petroleum Resources and NNPC ... that's a long-term plan: To allow those joint ventures to borrow money that they need rather than taking money out of the federation account."

Sub-Saharan Africa's largest economy is trying to boost tax revenues and the non-oil income to fund a record $30 billion 2016 budget aimed at reviving the West African country that has been hit by lower oil prices.

Adeosun told Reuters in April the government was thinking of forcing the cash calls, which are for international and local joint venture partners, out of budget funding and into so-called modified carrier arrangements.

Modified carry agreements are loans provided by large international oil companies to the NNPC for investing in oil exploration and production projects. Rtr 10 Business Times Africa 2016

Seth Terkper, Minister for Finance, Ghana

Ghana to issue first domestic dollar bond Ghana plans to issue its first domestic investor only dollar bond this October in efforts to deepen the government's financing streams and bolster the local bond market.

The two-year bond with a target of about $50 million, would be issued through a book-building system to be arranged by Barclays Bank, Stanbic Bank and brokerage firm Strategic African Securities, according to Finance Minister Seth Terkper.

"The goal is to issue a dollar bond to meet some of our dollar commitments in the budget, most of which are related to capital expenditure," Terkper said, adding that the overall objective was to rationalise the local dollar market.

"Our target sources include retention by (dollar-earning) companies whose expenditures are in cedis. There may also be dollars in commercial bank accounts which may not be yielding much and we want to provide a window for the

depositors to invest," he said.

The finance ministry is yet to announce a pricing guide for the bond but a source close to the deal said it could be around 5 percent. Government is also considering the issue of a Diaspora bond that targets Ghanaians abroad, Terkper said.

The West African cocoa, gold and oil producer signed a three-year assistance programme with the International Monetary Fund in April 2015 to restore fiscal balance to an economy dogged by deficits, public debt and high interest rates.

Public debt stood at $27.8 billion representing 65.9 percent of gross domestic product as of July. Ghana issued its fifth Eurobond of $750 million due 2022 this month at a yield of 9.25 percent.

The central bank's monetary policy committee is due to announce a rates decision and analysts polled by Reuters said they expected the bank to hold its benchmark rate at 26 percent. - Rtr

Southern Africa

Zimbabwe to introduce local ‘bond’ currency Zimbabwe will introduce bond notes, a token currency which will circulate within a basket of multiple currencies despite strong objection from the business community and the public.

Announcement of the plans to introduce the notes — described by President Robert Mugabe as a surrogate currency — were met with stiff resistance, sparking demonstrations and panic withdrawals.

Former Vice-President Joice Mujuru has even taken the government to court, arguing that it “cannot introduce a bond note and cause it to masquerade as a form of currency. The law has only two options; either the Zimbabwean dollar or foreign currencies.”

Reserve Bank of Zimbabwe governor John Mangudya insisted that the move was necessary to deal with a shortage of bank notes blamed on a widening trade gap and the smuggling out of physical US dollars, Zimbabwe’s adopted currency since it dumped its inflation-ravaged currency in 2009.

“You do not stop a good policy because a group of people does not like them,” he said.

Mangudya said the bond notes will only be issued as an incentive to exporters. Between May and September, exporters have earned $56 million in incentives, which will be paid out in the form of the token currency, central bank data shows.

But analysts point out the denominations being dolled out -- $2 and $5 bond notes – means that they are meant for public use, and that for all intents and purposes, Zimbabwe has just reintroduced a much hated local currency under disguise.

Fastjet drops Airbus jets for Embraer Africa-focused discount airline Fastjet will switch to a fleet of Embraer SA regional jets from larger Airbus Group SE planes as new Chief Executive Officer Nico Bezuidenhout seeks to stem losses by better matching capacity to demand.

The fledgling carrier also plans to move its headquarters to Johannesburg from London to pare expenses and bring the company closer to its key markets, Bezuidenhout, who took over as CEO last month, said in an interview in the South African city, the base of his former employer South African Airways.

Fastjet will have returned three leased 145-seat Airbus A319 jets by the end of September and plans to sublease two, with a sixth, which it owns, up for sale. The carrier has agreed short-term leases on three Embraer E190s with 108 seats apiece, the first of which is due in Tanzania within two weeks. Bezuidenhout took over after predecessor Ed Winter quit following clashes with investor Stelios Haji-Ioannou, the EasyJet Plc founder, who had demanded cost cuts. The move to Johannesburg will be made in stages

following consultation with the workforce, starting with the commercial department by the end of 2016. It should reduce head-office expenses by as much as 35 percent.

“Right now it’s about stabilisation,’’ Bezuidenhout said. “The right steps are being taken and it’s going in the right direction.”

Based on current projections Fastjet should break even in terms of its cash flow from the fourth quarter of next year, he said. The company, which is yet to report an annual profit and lost 16.9 million pounds ($22 million) in 2015, said in June it remained cash flow negative. It raised 15.2 million pounds in a share sale last month to cover working capital. The shares have dropped 64 percent this year in London.

The initial batch of Embraer planes will be taken on so-called wet-lease terms, including pilots, cabin crew and maintenance staff, so that they can start flying immediately. Bezuidenhout said he plans to replace them, probably with aircraft of the same type, on standard leases and manned

by Fastjet employees by April.

2016 Business Times Africa 11

North Africa

EU-Morocco trade deal annulment should be overturned

The European Union's top court should set aside a judgment invalidating a farm trade accord between the EU and Morocco, an adviser to the court said on Tuesday, offering a potential resolution to a diplomatic clash between the two.

The General Court of the European Union, the EU's second-highest court, ruled in December that the trade deal was void after a suit filed by the Polisario Front, which wants independence

for the disputed territory of Western Sahara.The court held that the EU had failed to examine whether a deal would affect the exploitation of natural resources in the Moroccan-controlled territory. That ruling prompted Morocco to suspend contact with EU institutions for four weeks and the EU to lodge a legal appeal.

Advocate General Melchior Wathelet said on Tuesday that Western Sahara was not part of Morocco so neither

the 2000 EU-Morocco Association Agreement nor the 2012 EU-Morocco Agreement on liberalisation of trade in agricultural and fishery products applied to the territory.

If the trade agreements were declared valid by the European Court of Justice, the EU and Morocco should avoid a repeat of the diplomatic clash at the start of this year.

Opinions by the advocate general are not binding, but EU court judges follow them in the majority of cases.

The EU and Morocco have struck agreements allowing duty-free quotas for agricultural products such as tomatoes and granting access for European vessels to fish in Moroccan waters in return for financial assistance.

The two sides also began negotiations in 2013 to form a deeper and broader free trade agreement.

Morocco has controlled most of Western Sahara since 1975 and claims sovereignty over the sparsely populated stretch of desert to its south, which has offshore fishing as well as phosphate and possibly oil reserves.

But its annexation of the region led to a rebellion by the Polisario Front backed by Morocco's neighbour Algeria. The Front and Morocco have been at loggerheads ever since. – Rtr

Devaluation would boost Egyptian exports by 10 pct Egyptian exports would rise by 10 percent if and when authorities devalue the pound, said Trade and Industry Minister Tarek Kabil.

Pressure has been mounting on the central bank to devalue the currency as Egypt struggles to revive an economy hit by political unrest that has driven away tourists and foreign investors - both major sources of hard currency.

The bank has been responding to the 12 Business Times Africa 2016

crisis by rationing dollars, giving priority to imports of essential goods and to exporters who need to import raw material for manufacturing.

Its policy of keeping the pound artificially strong has seen foreign currency reserves tumble from $36 billion before a mass uprising in 2011 to around $16.5 billion in August. "If and when a devaluation happens it will help trade on both sides, limiting imports and

boosting exports ... We expect it could boost exports by 10 percent," Kabil told a Euromoney conference.

Egypt's trade deficit was 24.6 percent smaller in May compared with a year earlier, the statistics agency said last month.

The trade deficit was 25.2 billion Egyptian pounds ($2.8 billion), down from 33.4 billion in the same month a year earlier. – Rtr

East Africa

Kenyan FDI has record year in 2015 Group. Kenya’s FDI resurgence in 2015 is clearer still when compared with the rest of the continent.

Climbing the rankings

Kenya is now second only to South Africa in the continent’s FDI ranking thanks to its best year since fDi Markets records began.

Greenfield investment monitor fDi Markets reports that Kenya attracted 96 projects in 2015, a 54.84% increase from 2014 and the highest rate of investment since the monitor began recording data in 2003. During 2015, 71 companies invested in Kenya, the highest number of investing companies to date, with a combined capital expenditure of $2.55bn.

Job creation in 2015 also saw a sharp

increase of 163.75% on the previous year, with a particularly strong fourth quarter which increased by 797.02% compared to quarter four of 2014. Figures for 2015 surpass those of 2013, the previous multi-year high in terms of projects won, jobs created and number of investing companies.

Capital expenditure for 2015, however, remained lower than in 2013 because Kenya received several significant multimillion-dollar investments from companies including India’s Delta Corporation, Mauritius-based Liquid Telecom and Nigeria’s Dangote

Between January 2003 and December 2014 Kenya ranked fifth out of 55 African countries for the number of FDI projects recorded. However, it climbed to second place in 2015, with only long-time powerhouse South Africa attracting more investment in Africa. During 2015 Kenya managed to attract 12.44% of the continent’s investment, most of which concerned financial services, business services, communications, software and real estate.

The key investing countries in Kenya during 2015 were the UK and US, contributing 16 FDI projects each, followed by India, accounting for 10 projects and South Africa which invested in seven. Nairobi won the lion’s share of investment, attracting 54.17% of all FDI into Kenya between January 2015 and December 2015, followed by Mombasa with 6.25%.

Data for the first half of 2016 shows a decline in Kenya’s FDI compared with the same time period in 2015. Six companies have so far signalled their interest in future investments in the country, so it remains to be seen whether or not Kenya can sustain its economic growth. - fDi markets

Rwanda's economic growth slows to 5.4 pct in Q2 Rwanda's economy grew by 5.4 percent in the second quarter of the year, down from an expansion of 7.2 percent in the same period last year, the statistics office said on Tuesday.

The country has had a stellar run in recent years, posting faster growth than other East African economies, but it has been curbed by a weakening of the currency this year, after imports surged. Yusuf Murangwa, the director general of the statistics office, attribut-

ed the slower growth to a drop in farm produce exports, a fall in mining output and a 6 percent contraction in the construction sector. "Those three factors are the ones that accumulatively reduced the speed of growth from what we have been seeing around 7 per cent, 6 percent," he told a news conference.

The Rwandan franc has depreciated 7 percent against the dollar this year.

- Rtr

2016 Business Times Africa 13

OPINION South Africa’s economy will be stuck unless there’s new political alignment

By Mzukisi Qobo

Mzukisi Qobo Associate Professor at the Institute for Pan African Thought and Conversation, University of Johannesburg

The fundamental problem confronting South Africa today is a political culture that is defective and out of kilter with the needs of the majority of the people. Innovative thinking about transforming the economy is stunted by political infighting at the top, indecision on crucial policy issues, grid-lock in departments key to the economy, and a president who is out of depth on the economy.

There is thus no alignment of interests between political elites and the public. This is having a damaging effect on the public’s confidence in political leadership. This in turn affects economic performance. Many government departments that form the pivot of an economic cluster, which was set up to co-ordinate policies, suffer from atrophy. The cluster is made up of more than a dozen departments, including the National Treasury, economic development and minerals and energy.

14 Business Times Africa | 2016

Protesters call for the removal of South African President Jacob Zuma. Civil society has a major role to play in South Africa.

The country is clearly in desperate need of a new deal to win back confidence.

The country is clearly in desperate need of a new deal to win back confidence. But this won’t be easy given the intricate connection between the

quality of leadership and the performance of the economy. The economy is likely to remain on a knife edge for some time in view of the possible sov-

OPINION: SOUTH AFRICA'S ECONOMY

The ANC has evolved as a movement that hoisted the banner of liberation for the black majority ereign credit downgrade in December this year.The convoluted manner in which policy is determined by the ruling African National Congress through its opaque national general council and national policy processes do not help to inject confidence.

General elections, which could be a massive wake up call for the governing party, will only take place in 2019.

By then a great deal of damage would have been inflicted on the economy.

The challenges The National Treasury is gradually losing its authority and lacks high level political support. In fact it is seen more as a nuisance than a necessary guardian of public finances. With Finance Minister Pravin Gordhan under threat from the country’s elite police unit, the Hawks, it is difficult to see how the National Treasury can confidently lead economic change.

The Economic Development Department under Ebrahim Patel lacks a distinct mandate. It is difficult to quantify its role and impact on the economy. It was poorly conceived from the beginning and is unlikely to last beyond Zuma’s administration.

One noticeable imprint that the Minister of Mineral Resources Mosebenzi Zwane has had as a cabinet minister has been his threat to set up an inquiry into the banking sector for severing ties with Gupta-linked businesses. What is not known is his impact on his portfolio, the mining sector, which has been bleeding, and directionless since 2012.

In its 2016 analysis of the South African economy the International Monetary Fund (IMF) concluded that the country’s economic vulnerabilities had become heightened. It highlighted poor economic growth and financially weak state owned enterprises as key areas of concern.

The IMF also noted with concern rising government debt and the widening of the current account deficit which shows the country is spending beyond its means. South Africa’s current account deficit is cause for concern. And it’s likely to get worse given the gathering wave for free tertiary education. Public sector wage bargaining, due in less than two years’ time, will put upward pressure on government debt. Sober leadership is required to respond to all these challenges.

Some of the measures proposed by the IMF to turn South Africa’s economy around include structural reforms, for example by ensuring more competition in the economy, inclusive labour market reforms, quality education and training, and improved governance so as to build confidence and boost growth, create jobs, lower inequalities and reduce vulnerabilities.

The reality is that there is nothing in the IMF’s report that has not been counselled to decision-makers before. The core problem is the absence of leadership that is well equipped to manage a complex, modern economy that is plagued by acute socio-economic challenges.

Urgent need for political change The governing African National Congress has reached its limits.

It is incapable of reforming itself. It has ceased to be an agent for economic restructuring and transformation, and has instead become inward-looking, with those at the helm concerned only with extracting value for themselves rather than changing the lives of citizens for the better.

There is a deep yearning among South Africans for change in the political landscape. The results of the recent local government elections

have shown this. They demonstrated that, through competitive democracy, people can claim their power back from unaccountable elites.

This suggests that there is a fertile ground to nurture the emergence of new political formations ready to contest power. These could crystallise in a number of ways: through the merger of existing political parties, through coalitions, or through a further breakup of the governing party.

Another critical force that could ignite change is civil society. But the outcome might be far from perfect.

Civil society is usually a collection of disparate interests and ideological persuasions that are sometimes irreconcilable. As imperfect as it is, there is no better agency than civil society to foreground social change.

And black intellectuals need to play an activist role in society. They can assume the responsibility of pushing for progressive change beyond the ANC era upon which the sun is gradually setting.

Beyond the ANC The ANC has evolved as a movement that hoisted the banner of liberation for the black majority. Its symbols, songs and theory of struggle occupied a place of pride in the minds and hearts of many black South Africans. It has now lost its moral and intellectual ground to define the future and claim the mantle of leadership.

More than ever before, South African politics cries out for moral renewal and transformational leadership. Civil society and intellectuals have an opportunity to shape society differently, and to give birth to ideas that could frame a new social and political order.

Mzukisi Qobo is Associate Professor at the Institute for Pan African Thought and Conversation, University of Johannesburg.

2016 | Business Times Africa 15

OPINION

Converting tweets into feet: can Zimbabwe’s social media activism oust Robert Mugabe?

By Ciara McCorley Protests coordinated on social media have emerged in recent weeks throughout the country addressing national issues Protests against the rule of Zimbabwe’s ageing president, Robert Mugabe, have become commonplace in recent months. In one of the latest incidents on August 24, police used tear gas and water cannons to disperse a “Mugabe Must Go” protest in the capital Harare.

In April, Evan Mawarire, an unknown pastor, inadvertently started a wave of online activism when he started the #ThisFlag movement in a pleading Facebook post. Within hours, copycats had appeared online and the ZANU-PF regime found itself party to an upsurge in online and offline criticism.

Since then social media activism in Zimbabwe has ignited. WhatsApp, a mobile messaging service that is frequently subscribed to in a prepaid form in Zimbabwe, has been widely used as a tool to mobilise. It accounts for 34% of all mobile data use in Zimbabwe. Facebook reports 260,000 daily users, of 890,000 Zimbabweans online, but this only accounts for 3% of mobile broadband usage in the country. Newsday Zimbabwe, an independent news outlet, increased its 16 Business Times Africa | 2016

Ciara McCorley Research Fellow, African development and democracy, University of Sussex

OPINION: CONVERTING TWEETS INTO FEET

Twitter network by 10,000 followers in the past month alone.

The ruling ZANU-PF responded to this upswell by drafting new legislation, the Computer Crime and Cyber Crime Bill, to control online activism.

But it might find it difficult to keep track of services such as WhatsApp, which now operate with end-to-end encryption making them very hard to keep track of.

Social protest Protests coordinated on social media have emerged in recent weeks throughout the country addressing issues from socio-economic governance, to the introduction of bond notes (a cash substitute in the country which no longer has its own currency), corruption, and frustration by graduates at a lack of employment opportunities. When groups do mobilise on Zimbabwe’s streets, protests have increasingly been challenged by riot police using tear gas and water cannons.

These protests are different from previous efforts to challenge the government’s record in Zimbabwe.

Social media mobilisation is more fluid and dynamic than traditional protests, such as trade union strikes, that tend to require the building of solidarity and a common position among workers in an industry. Previous anti-regime protests, such as those by the Movement for Democratic Change, have a traditional leader and grassroots form. It has been easy for the regime to identify and pick off individual leaders such as the opposition figure Morgan Tsvangirai before the 2008 election, leaving movements temporarily rudderless.

The leaderless, issue-driven format of social media protest is different. It works best when organised and executed quickly, and when responding to a crisis. This fluidity makes it difficult for the state to track, but it can also pose difficulties for the social movements, which can quickly lose

momentum as activists lose motivation. The strength of new movements can become their downfall if not managed well.

Legal clampdown Growth of social media has happened in a political environment that has become more and more hostile.

On August 5, all mobile phone operatorssuspended data promotions meaning that internet access became significantly more expensive in Zimbabwe.

Two days later the government announced draft legislation to address so-called cyber-terrorism. The draft law contains provisions that deal with the use of digital platforms to incite violence and to cause civil unrest that could undermine future mobilisation.

Although mobile operators have offered little explanation about why data promotions suddenly stopped, the near-simultaneous introduction of cybercrime legislation smacks of state attempts to curtail freedom of expression.

All this feels familiar. In previous periods of anti-government mobilisation and during elections, ZANU-PF successfully used both state-sponsored violence in combination with legislative tools to quell public protest. In the early 2000s, the government introduced legislation aimed at restricting mobilisation, including the 2003 Access to Information and Protection of Privacy Act to control the press, and the Public Order and 2002 Security Act to monitor and break up public meetings. These tools routinely undermine human rights including freedom of expression and assembly.

In 2012, the government charged six people with treason for organising and attending a lecture to learn lessons from the Arab Spring. Although the charges were later dropped, it is clear that ZANU-PF is sensitive to the impact that free expression could

have on the stability of the regime.

The state of ZANU-PF ZANU-PF faces this upsurge of mobilisation in the midst of a party crisis.

Mugabe is 92-years-old and his party is beset by factionalism with rivals vying for position as his successor. A diverse political opposition is developing, formally rooted in ZANU-PF itself. The former vice president, Joice Mujuru, recently launched Zimbabwe People First partyto challenge ZANU-PF in the upcoming 2018 elections.

In late July, a group of war veterans from Zimbabwe’s liberation struggle, historically a core support base for ZANU-PF, condemned Mugabe’s running of the country. ZANU-PF’s current structure lacks the organisational stability to effectively manage such dynamic threats to the regime.

This situation could bode well for the demise of authoritarianism in Zimbabwe. A majority of the population, around two-thirds, are now “born frees” – Zimbabweans with no memory of the liberation struggle before 1980. Even though the regime regularly uses rhetoric that plays on ZANU-PF’s part in the liberation victory to maintain support, this strategy is losing ground, shown by the groundswell of on and offline protest among Zimbabwe’s disaffected youth. Nonetheless, Mugabe has successfully mobilised ZANU-PF youth league members to counter anti-government protests.

The coming months hold enormous potential for political change in Zimbabwe. ZANU-PF’s hold on power is tenuous and both physical and digital repression may not be enough to quell the tide of discontent rocking the regime. Instead, the power of social media may be an effective tool to undermine the already cracked foundations of ZANU-PF and contribute to the development of a more democratic political framework in Zimbabwe.

2016 | Business Times Africa 17

OPINION

Free movement in Africa is desirable, but how to realize it?

by Mandla Lionel Isaacs

Mandla Lionel Isaacs

Director of Research at the Ministry of Home Affairs in South Africa.

Protests coordinated on social media have emerged in recent weeks throughout the country addressing national issues Free movement is back on the continent’s policy agenda and within its integration discourse. Such discourse has also been buttressed by several encouraging developments over the last year or so, notably the launch in early 2016 of a new Africa Visa Openness Report; the move by several African countries to offer visas on arrival to citizens of AU member states; and the July 2016 launch of the African passport. Underpinning all of these developments, and particularly the launch of the African passport, is the African Union’s Agenda 2063, which calls for visa-free travel by all Africans in Africa by 2018. These are encouraging developments which move us closer to the point when Africans move as freely across the continent as European Union citizens move across Europe, and American citizens move across the United States.

Unfortunately, though, wanting free movement is not enough to make it happen. Regional integration in Africa has long been an extraordi18 Business Times Africa | 2016

narily promising and frustrating policy area. Promising, because most experts and policymakers agree that integration will yield enormous economic and social benefits for African countries and citizens. Frustrating, because despite treaties, agreements and public statements of support by

African leaders over the decades, real progress towards regional and continental common markets in which people, goods, services and capital move freely, has been slow and is incomplete.

Accordingly, I would like to make four suggestions on how to advance

OPINION: FREE MOVEMENT IN AFRICA

progress on free movement in Africa.

Address the reasons why countries impose visa requirements in the first place In general, democratic countries impose visa requirements on citizens of other countries, for two main reasons: risk of overstaying, and security concerns (organized crime, terrorism, persona non grata). Based on my experience in international migration management, I would also add assessment of whether a source country’s citizenship system is secure, identity and travel documents difficult to obtain fraudulently, and whether she is able and willing to identify its citizens in the event that they overstay, commit crime or are involved in an accident or emergency situation. These are the main substantive reasons why countries require visas of other countries, and they are unlikely to lift visa requirements if they are not addressed.

There are two broad ways to address these issues. We can address them on the source country side, by improving the maturity of their civil registration and law enforcement capabilities. Alternatively, we can address them on the destination side, by finding ways to mitigate risks and issues in source countries, such as through sophisticated information sharing to identify high-risk prospective travelers, and trusted traveler programmes.

Free movement should be pursued in the context of trade agreements Free movement encompasses three types of freedoms: visa-free entry for short visits; right of residence, including the ability to work; and the right of establishment, the ability to sell services or establish a business without discrimination based on nationality.

The Abuja Treaty of 1991 envisioned that Africa’s regional economic communities (RECs) would establish common markets which would form the basis of a future continent-wide common market. What is important

here is less the focus on which blocs will integrate first, but rather the link with the common market.

In my view, free movement is too often discussed in isolation, and is unlikely to be solved outside of economic integration more broadly. In other words, where free movement is stalled, it may well be because economic integration is stalled. It is also impractical for countries to draft, agree and ratify complicated agreements on labour mobility with countries with whom they do not have free trade agreements or common market arrangements. For this reason, developments in the Tripartite Free Trade Area (TFTA) and the Continental Free Trade Area (CFTA) negotiations, particularly on the free movement of people are worth following closely.

Look to regions, and even sub-regions, for progress As an example, the Southern African Development Community (SADC), lags behind the Economic Community of West African States (ECOWAS) in freeing movement of people. As of December 2014, ECOWAS had implemented free movement, residence and establishment of ECOWAS citizens, in addition to having previously implemented an ECOWAS passport. TheSADC Protocol on the Facilitation of Movement of Persons has been ratified by only four of the required nine of SADC’s 15 member states, leaving member states to manage movement on their own.

Where progress is stalled at REC level, the free movement agenda need not languish. The history of the Schengen Agreement is instructive here. In the early 1980s, the European Community (EC) was slow to agree a mechanism for liberalizing movement. A subset of neighbouring countries – Belgium, France, Germany, Luxembourg, and the Netherlands – met and formed the Schengen agreement. Other countries joined later as its merits were proven, and eventually the European Union rec-

ognized and absorbed the Schengen Agreement.

So if countries are unable to agree on measures to free movement at REC level because of differing political priorities, differing levels of development, as well as differing levels of maturity of civil registration and immigration management, then perhaps small groups of neighbouring countries should forge ahead and the rest can catch up later.

Quantify the benefits to encourage countries to free movement It has long been argued that economic integration will be of positive benefit to all African countries.

Occasionally these arguments are bolstered with figures, such as how Rwanda has increased tourism since implementing visas on arrival for African visitors. Still, when we talk about free movement, there are costs and risks for countries to consider.

Countries may reasonably worry about how free movement will affect their labour market, housing prices or social spending. In the absence of strong evidence, policymakers may be reluctant to open up while big question marks remain.

There is, therefore, a need for rigorous research on the likely benefits and costs of free movement for African countries, which can be applied to the policy discourse. An institution like the African Development Bank, which routinely conducts independent, rigorous research on African development issues, as it did with the Visa Openness Index Report can play a critical role here. Quantifying the benefits in terms of GDP growth and employment may encourage African leaders to forge ahead, while surfacing the challenges and costs to mitigate and minimize.

Mandla Lionel Isaacs is Director of Research at the Ministry of Home Affairs in South Africa. He is a former strategy consultant at McKinsey & Company’s Johannesburg office.

2016 | Business Times Africa 19

OPINION

Africa Still Rising

By Donald P. Kaberuka and Acha Leke African firms have not yet proved capable of meeting existing domestic demand.

JOHANNESBURG – Is the honeymoon over for African economies?

Less than a decade ago, it seemed that the continent’s economic dreams were beginning to come true, with many countries experiencing impressive GDP growth and development. Now, as the harsh reality of 20 Business Times Africa | 2016

the continent’s vulnerability to challenging external conditions has set in, sustaining that growth has proved difficult.

Encumbered by slowing growth in China, a collapse in commodity prices, and adverse spillover from numerous security crises, Africa’s over-

all annual GDP growth averaged just 3.3% in 2010-2015, barely keeping up with population growth – and down sharply from the 4.9% recorded from 2000 to 2008.

But a deeper look suggests that things may not be as bad as they seem, for two key reasons. First, though

OPINION: AFRICA STILL RISING

average growth has declined, some African economies have thrived in recent years. Indeed, aggregate GDP has been dragged down since 2010 by faltering growth among oil exporters and security-related crises in the Sahel and North Africa; but in the rest of Africa, GDP growth has accelerated, from 4.1% in 2000-2010 to 4.4% in 2010-2015.

Second, Africa is undergoing a profound long-term transformation, characterized by rapid digitization, urbanization, and growth in the working-age population, which will outnumber the labor force of China and India by 2034. That demographic trend could unlock future growth by advancing economic diversification, spurring domestic consumption, and supporting industrialization.

In fact, today’s high-growth countries – including Côte d’Ivoire, Ethiopia, Kenya, and Tanzania – have made substantial progress in reducing their dependence on commodity exports, in favor of trade, investment, and domestic consumption. And many lower-growth countries could head down a similar path.

New research by the McKinsey Global Institute (MGI) shows that spending by Africa’s consumers and businesses already totals $4 trillion.

By 2025, private spending could reach $5.6 trillion – $2.1 trillion by households, and $3.5 trillion by businesses.

This represents a huge opportunity for Africa’s manufacturers. We believe that Africa can almost double its manufacturing output, to nearly $1 trillion, by 2025, with about 75% of that growth tied to production for local markets. The question is whether manufacturers will manage to exploit the growth potential that lies in front of them.

African firms have not yet proved capable of meeting existing domestic demand. Africa still imports about one-third of the food, beverages, and similar processed goods it consumes, whereas the Association of Southeast Asian Nations imports about 20%,

Africa's overall annual GDP growth averaged just 3.3% in 2010-2015 and South America’s Mercosur trade bloc imports just 10%. Africa even imports 15% of the cement it uses, despite having abundant raw materials to make it at home.

To be sure, African business has made great strides in recent years. Today, 400 African companies have annual revenue of more than $1 billion, and 700 have annual revenue of more than $500 million. On the whole, these large companies are growing faster – and generating higher profits – than their global peers.

But there is still a long way to go.

Large African (excluding South African) firms’ average annual revenue of $2 billion is half that of large firms in Brazil, India, Mexico, and Russia. And Africa only has about 60% of the large firms it needs to put it at the same level as the emerging economies.

One key factor limiting firms’ growth is the fragmented nature of the African market, which currently comprises mostly small economies with only limited economic and political linkages. There are eight partly overlapping regional trade zones, none of which includes more than half of Africa’s countries. Only Egypt, Morocco, Nigeria, and South Africa rank in the top 100 of MGI’s Global Connectedness Index.

Beyond excessive trade barriers, Africa suffers from inadequate transport links and limits on the free movement of people. Africans need visas to travel to more than half the countries on their own continent. The recent launch of the African Union passport is a step in the right direction – but it is only one step.

A more integrated market would not only enable African companies to create the economies of scale they need to compete; it would also be far more appealing to institutional investors. Building such a market must therefore be a top priority for African leaders, as they seek to unleash the continent’s economic potential.

Equally important, Africa’s leaders must work to improve the business environment. Though some progress has been made on this front in the last two decades, non-tariff barriers remain high.

Indeed, regulatory issues are still cited as a serious deterrent to investment. Many African businesses – nearly half of companies in Nigeria, and more than one-third in Angola and Egypt – highlight unreliable electricity supplies as a major challenge.

And almost 40% of firms surveyed by the World Bank lament the constraints imposed by competition from informal firms.

Some of these issues could be addressed relatively quickly. Consider the strides Rwanda has made since 2007, when it established a development board to improve its business environment. In less than a decade, that board has led the creation of a “one-stop center” to facilitate investment, has overseen streamlined issuance of construction permits, and has pressed successfully for a fixed fee for property registration, the extension of customs hours, and risk-based customs inspections. As a result, Rwanda’s global ranking for the ease of doing business jumped from 143 in 2008 to 32 in 2014. This success can surely be replicated elsewhere in Africa.

Despite the challenges some African countries face, the continent’s economic potential remains massive, thanks to favorable demographic dynamics, fast-growing cities, burgeoning domestic markets, and a digital revolution. With the right policies, a relentless focus on execution, and a great deal of determination, Africa can still rise.

2016 | Business Times Africa 21

SOUTH AFRICA

South Africa trade minister seeks a more integrated Africa Rob Davies, South Africa's minister of trade and industry, tells Courtney Fingar how the country's renowned reputation in the motor industry and renewable energy is being used to spearhead its FDI policy, and why he has high hopes for greater African integration when it comes to trade.

IMPROVING INVESTMENT PERFORMANCE IS ONE OF THE ELEMENTS IN WHAT WE CALL OUR 'NINE POINT PLAN

22 Business Times Africa | 2016

Q: How do you view the investment competitiveness of South Africa in terms of both weaknesses and strengths?

sions that have had to be taken in order for any investment to actually happen. Now we’ve got sharper tools to be able to smooth the way.

A: Improving investment performance is one of the elements in what we call our 'Nine Point Plan' – which is to confront the challenges that we find ourselves in and see where we deliver a clear value proposition on a sectoral basis.

We’ve seen that foreign investors have responded quite positively so the two areas I would cite would be the motor industry, where we’ve seen a very significant number of original equipment manufacturers investing in the South African motor industry, and newcomers coming in as well from places such as China.

And the other area I would cite is the renewable energy, independent power-producers programme. We have the largest renewable energy programme on the African continent, but also one where there’s a recognition that it’s one of the better designed programmes on a world scale. The broader lessons from this are that the way to boost investment is to develop clear value propositions and market them.

Second, we have our investment promotion agency, which is now called 'Invest South Africa'. It has been upgraded in its scope of work and is overseen by a committee, which is chaired by the president [of South Africa, Jacob Zuma]. Some of the weakness we’ve had is that [there have been] a number of regulatory deci-

Q: How important is trade integration for your FDI positioning?

A: That’s our priority as far as trade is concerned – to promote development integration on the African continent. We’re part of the tripartite process [Southern African Development Community, or SADC, Comesa and the East African Community Free Trade Area] but we’re also supportive of a continental free-trade area. It’s taking longer than is desirable at this point, but we’re doing our best to try to move some of the process further forward. One of the ones that is moving, which is quite relevant to us, is that SACU – the South African Customs Union – and the East African Community are now engaged in serious line-by-line trade negotiations. We are starting the process of trading services, and in SADC we’ve got somewhere.

The infrastructure building programme on the African continent [the Programme of Infrastructure Development Africa – PIDA] is an integral part of [the plans], and it’s making some progress. The north-south corridor programme is making some progress too. All of these are steps we need to take to ensure a greater volume of intra-regional trade, but also intra-regional trade in value-added products.

OPINION: AFRICA STILL RISING

Minister of Trade and Industry Rob Davies

Q: There are many links between South Africa and the UK. What kind of impact do you expect from Brexit in South Africa, if any?

A: I’ll put it in context at this moment in time.

The UK is our eighth largest trading partner, and the second largest in the EU. It’s responsible for about 4% of our total trade.

We don’t see a huge amount of disruption taking place in the trade area. The impact of Brexit is more likely to be felt in the form of whatever

THE IMPACT OF BREXIT IS MORE LIKELY TO BE FELT

impact it has on the overall state of the world economy. The uncertainty it has created and the consequent possible further depression of the world economy – that would be the biggest shockwave that could come our way as a result of Brexit.

We have engaged in very preliminary discussions… On the trade front, we don’t anticipate disruption; we anticipate that we’ll be able to continue to maintain the trade and investment ties we have with the UK. – fDi markets

2016 | Business Times Africa 23

CÔTE D’IVOIRE

Côte d’Ivoire: Tech hub on the rise Following years of political turmoil, Côte d’Ivoire is growing quickly and attracting investment. Now, the government is trying to position the country as west Africa’s technology and start-up hub.

THE NUMBER OF INTERNET SUBSCRIPTIONS HAS INCREASED 40 TIMES BETWEEN 2011 AND 2015 FROM 200,000 TO 8 MILLION.

In July the government, in partnership with the African Development Bank (AfDB), announced the creation of the Ivorian Innovation Fund (FII).

The €200m ($223m) project will be devoted to infrastructure and finance support for start-up businesses, particularly in the technology sector.

The government plans to use the fund to develop business partnerships and training opportunities among the member countries of the West African Economic and Monetary Union (UEMOA).

The money will go some way to addressing the problems facing technology start-ups in Abidjan, Côte d’Ivoire’s capital, including the lack of technical skills and financing. Additionally it could be positive for west African regional integration, prompting the bloc to pull together to develop technological capabilities.

The fund is the most recent initiative designed to enhance the tech and start-up environment in Côte d’Ivoire. In April 2015 the government announced a seven year, €152m euro project to lay thousands of kilometres of fibre optic cables and establish of cyber centres in rural areas. In October 2015, Abidjan hosted the 11th edition of the Africa Telecom People exhibition, where key stakeholders gathered to discuss the future of e-commerce in Africa.

2016 | Business Times Africa 25

COTE D'IVOIRE: TECH HUB ON THE RISE

PRESIDENT ALASSANE OUATTARA’S ADMINISTRATION SEEKS TO MAKE ABIDJAN A BUSINESS HUB THAT CAN COMPETE WITH SENEGAL’S DAKAR AND LAGOS IN NIGERIA Companies are taking note, and beginning to follow the government’s lead. Gemalto, the world leader in digital security, opened its first office in west Africa in Abidjan in early 2015.

Telecommunications company MTN has expanded its operations in Côte d’Ivoire, including a €120m investment to upgrade its network by 2017, while Standard Chartered Bank established its first west Africa office in Abidjan in late 2015.

The Orange telecoms group has also decided to set up its first start-up development programme in Africa in Abidjan. The project will seed and nurture emerging businesses in the sector, according to Orange spokeswoman Vanessa Clarke.

Digital dividends The Ivorian population is seeing benefits from the digital development policy drive. Mobile phone penetration has now surpassed the 100 percent penetration rate, while internet connections have skyrocketed.

The number of internet subscriptions has increased 40 times between 2011 and 2015 from 200,000 to 8 million.

These positive trends are likely to continue as President Alassane Ouattara’s administration seeks to make Abidjan a business hub that can compete with Senegal’s Dakar and Lagos in Nigeria.

However, the country still lags some way behind rivals Senegal and Rwanda – two countries which have implemented successful digital development strategies – on the Global Innovation Index.

Further digital infrastructure improvements, including the development of fibre optic cables and improved 4G access in rural areas, are also in the works.

An additional 5,000 km of fibre optic cables are already scheduled to be installed by the end of 2017.

Côte d’Ivoire is increasingly “the most credible competitor to Nigeria for the status of wcest Africa’s business technology hub”, according to Maja Bovcon, west Africa analyst at Verisk Maplecroft.

Combined with the 2012 investment code, which offers a variety of tax incentives and reductions, and investments in tech infrastructure, it is getting easier and cheaper for companies to set up shop in Abidjan and elsewhere in Côte d’Ivoire.

“Côte d’Ivoire has shown the political will to attract foreign capital and has created a technological and digital hub that benefits the entire region,” explains Christophe Lepoivre, vice president for West and Central Africa for Gemalto.

26 Business Times Africa | 2016

“Abidjan is an excellent location to open an office,” he adds. Provided the forthcoming constitutional referendum and the 2020 elections do not undermine political stability in Côte d’Ivoire, tech-fuelled business looks set to be a cornerstone in rebuilding the country’s image as the ‘economic miracle’ in west Africa. - ThisIsAfrica

KENYA

Kenya crushing its banks Following years of political turmoil, Côte d’Ivoire is growing quickly and attracting investment. Now, the government is trying to position the country as west Africa’s technology and start-up hub.

KENYA'S SEVEN BIGGEST LENDERS (THERE ARE ABOUT 43 IN TOTAL) HOLD 80 PERCENT OF THE BANKING SYSTEM'S CASH

28 Business Times Africa | 2016

The frontier market of Kenya isn't often on U.S. or European investors' radar. It should be. It offers a timely reminder of financial markets' complacency about the risk of populism; and the attractiveness of bashing banks to win votes.

East Africa's most advanced economy has introduced a law setting a cap on commercial lending rates and a floor on deposit payout rates, an instant squeeze on margins that sent shares of Kenyan banks to their lowest in years. Investors were clearly unprepared for a measure designed to make banks poorer -- or less greedy, depending on your point of view -- in the face of what Kenyan President Uhuru Kenyatta described as ordinary citizens' frustrations about the cost of credit and earnings from deposits.

Kenya Crush Bank stocks have plunged since the announcement of a law to cap lending interest rates There's no denying Kenyan banks make rich returns. The country's largest bank by assets, KCB, has a return on equity of 24.7 percent, according to Bloomberg data, while rivals Cooperative Bank and Equity Group are on 24.5 percent and 26.9 percent respectively. That's not just leagues ahead of the 5-7 percent ROE at Europe's biggest banks, it beats the 15-18 percent at South Africa's top lenders. Market concentration may have something to do with it: Kenya's seven biggest lenders (there are about 43 in total) hold 80 percent of the banking system's cash.

But capping interest rates risks damaging the Kenyan economy and stunting credit growth, a danger not lost on officials at the country's central bank and finance ministry, who opposed the measure. If banks stop catering to anyone but the safest credit risk, it may encour-

age shadow banks or dodgy lenders to step in.

If smaller banks find it harder to make ends meet, they may get bought up, making those dominant banks even bigger. And the new loan cap, at 4 percentage points above the base central bank rate, sets a potentially "unreasonable" ceiling for Kenya's risk premium, according to investment firm Cytonn.

So why take such a chance? Well, next year's election and a bank-bashing law may be just the ticket to win votes. Some analysts reckon it's a purely populist move.

Yet the sell-off of Kenyan bank stocks over the past month suggests markets weren't adequately prepared for this risk, with the chorus of credible dissenting voices perhaps lulling investors. And while it's easy to dismiss this as the kind of problem specific to emerging markets, there are echoes of the anti-elite vibe in Europe and the U.S. Championing the banks, in particular, isn't much of a vote winner. The U.S. election has put the restoration of Glass-Steagall back on the table, with Republicans calling for big banks to be broken up. British chancellor Philip Hammond is trying to put a protective arm around the City of London by exploring continued access to Europe's single market, but he's clashing with the crowd-pleasing instincts of the "three Brexiteers", Boris Johnson, Liam Fox and David Davis.

There's still hope that pragmatism will prevail. Calls for a restoration of Glass-Steagall look like posturing, while Moody's reckons that even if the U.K. quit the single market, its finance firms could probably still do plenty of business in the EU. Yet the Kenya experience shows the potential for nasty surprises in a populist age, whether self-harming or not. Don't forget that Brexit itself caught investors on the hop. - Bloomberg

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BANKING

Banks grapple while nimble players eat their lunch

By Brian RICHARDSON There’s an urgent need for strategic review to ensure mobile is at the top of the banks’ strategic agenda

90% OF THE 721 MILLION NEW ACCOUNTS OPENED BETWEEN 2011 AND 2014 WERE OPENED AT FINANCIAL INSTITUTIONS

Financial inclusion is a critical engine of economic development at both macro and micro levels. Technology – and access to mobile phones – could make financial services accessible and available to nearly 4 billion people who are ignored or underserved, without access to formal financial systems – thus depriving people of economic citizenship.

It’s very sad that in 2016, the majority of the world’s population still has no access to formal financial services, despite the known and documented advantages of having banked citizens.

Why accounts count What’s interesting – and often goes unstated and unrecognized – is that 97% of the 3.2 billion account holders keep their accounts with financial institutions – not Mobile Network Operators. According to the World Bank’s Global Findex database, 90% of the 721 million new accounts opened between 2011 and 2014 were opened at financial institutions (Centre for Financial Inclusion, July 2016).

Compare this with the 54 million mobile money accounts opened with Mobile Network Operators (MNOs) over the same period – also not a number to scoff at. Yet banks are ignored

30 Business Times Africa | 2016

when credit is given for efforts at financial inclusion.

The reality is, banks can and do play a leading role in financial inclusion. It’s time they were recognized for their efforts. The Centre for Financial Inclusion report goes on to say banks can “harness innovative technologies to transform banking services for their existing customers and more importantly to reach new ones at scale. There’s a sizeable market opportunity among low-income customers and the ‘missing middle’ of SMEs.” Why, then, despite what’s happening in other parts of the world, is West Africa lagging behind in the financial inclusion challenge – particularly where the banks are concerned?

In Ghana, for example, the last five years have seen mobile money accounts triple to 22%, whilst bank accounts have grown by a dismal 2% to 36% over the same period (CGAP blog, December 2015).

Based on interactions with banks in Ghana, perhaps the technology deployed is too complex. This is an easily fixable factor. Banks today can easily, seamlessly and cost-effectively replace platforms that aren’t meeting expectations. The critical factor for success is top management support and commitment, as well as decision-making skills and prioritization The latest PWC 2016 Ghana Banking Survey,

BANKING

‘How to Win in an Era of Mobile Money’, confirms that banking executives in West Africa are feeling the impact of mobile money on their business. It goes on to relay that the major threats emanate from the potential for telecommunication companies to inject themselves into the consumer banking space. According to the survey, mobile money is threatening payment solutions offered by West African banks – a threat that applies to both bill payment services and point of sale (POS) payment offerings.

and market?

Banks in other parts of Africa are successfully and profitably reaching the unbanked and under-banked segments and benefitting from cost reductions and efficiencies in technology – particularly where mobile is concerned. It’s widely recognised that regulation favours financial inclusion in Ghana, and that it’s one of the most ‘ready’ for digital financial services: 92% of the population has the required IDs for KYC purposes; 95% have basic numeracy skills; 91% own a phone; and there’s 99% awareness Serve or be served of mobile banking. Very few countries It remains to be seen which bank are as fortunate as Ghana to have all is going to proactively grab the opthese basic ingredients in place for portunity. Or are they going to wait success. for someone else to seize it? And the Despite this, penetration rates are most significant question remains: nowhere close to what they are in why isn’t there greater success with other parts of East traditional banks offering and Southern AfriOF ALL mobile money in West Africa. Of all financial ca?

FINANCIAL activity in Ghana, 98% is still in cash A need to overhaul ACTIVITY IN – costing the econBanks have to realise mobile GHANA, 98% IS omy, individuals is the future. It’s here now, and banks milSTILL IN CASH today. It has to be top priorlions each year. A – COSTING THE ity. Or, as has happened in recent article in East Africa, MNOs will beECONOMY, Ghana Business come the dominant player News explained INDIVIDUALS in financial inclusion and how Stephen AbAND BANKS payments – traditionally ban, Group Head the domain of the banks. MILLIONS EACH of Personal BankMNO’s today have extending at Access Bank, YEAR. ed their service offering behas gone as far as yond payments and money to call on staketransfers to offering savings and loans holders at banks to develop a national products. ‘cashless’ strategic plan because of the Once customers are serviced with benefits it yields. In spite of these pronew offerings from MNOs, it’s gophetic plans, it seems to be all talk and ing to be horrendously expensive for very little action. banks to ever get them back. In fact, The dangers of dawdling no amount of money may be enough to reclaim lost customers. There’s an With all the ingredients in place – urgent need for strategic review to enwhat could be holding banks back? sure mobile is at the top of the banks’ In the last 12 years, WIZZIT Internastrategic agenda. All too often, the reational has partnered with banks in son given by banks as to why they ha14 countries (primarily in Africa) and ven’t capitalized on the opportunity is proved that every one of these partner that they have other priorities. What banks is profitable with their mobile can be more important than protectbanking channel. So the business ing and growing your customer base case is proven and in place. Regula-

tion is supportive, the market is ready, skills and technology are available – and there’s awareness. All that’s required is an innovative bank with a committed management team.

Banks cannot and should not go it alone in this space. Banks that are successful in financial inclusion recognise the value of partnerships in expanding access to new customers, making a wider range of products available, and sharing costs and risk.

WIZZIT International has supported this view and sees banks as key drivers in this space.

Banks play a crucial role in enabling growth and progress in the economies in which they operate. At the heart of it all, banks must do real things for real people and work to fuel inclusive economies from the centre, to enrich lives and transform societies.

2016 | Business Times Africa 31

MOBILE MONEY

When mobile money operators become banks

By Richard Annerquaye Abbey There’s an urgent need for strategic review to ensure mobile is at the top of the banks’ strategic agenda

BETWEEN 2012 AND FIRST QUARTER 2016, REGISTERED MOBILE MONEY SUBSCRIBERS INCREASED FROM 3.8 MILLION TO 14.6 MILLION

32 Business Times Africa | 2016

The story goes that the banks showed little interest some years back when the whole mobile money idea was bounced off them, but this year’s Banking Survey by PricewaterhouseCoopers (PwC) indicates that the phenomenon has sent banks into a cold sweat, and they are beginning to adopt an ‘if you can’t beat them, join them,’ approach.

Much as banks consider the Mobile Network Operators (MNOs) as partners due to their ease of deposit mobilisation through use of technology, banks are increasingly worried the MNOs will metamorphose into banks, the survey notes.

The concerns come at a time funds deposited with the banks by mobile money operators, which are referred to as the balance on the float, has increased from GH¢19.6 million in 2012 to GH¢581.3 million in the first quarter of this year. According to respondents of the survey, which mostly included CEOs, Chief Financial Officers and Heads of E-banking of commercial banks, mobile money is evolving into “banking on your phone,” which provides customers with alternatives to traditional banking, a situation which excites customers more and somehow unnerves the banks.

Despite the proliferation of banks over the past decade, financial inclusion among the population has remained relatively low as banks have largely preferred a brick and mortar system which is mostly concentrated in the urban areas. With mobile money, however, customers are drawn to the ease

of access via their mobile phones, not only mobile apps via smartphones, but on feature phones as well via interactive USSD codes.

Coupled with that, there are a good number of merchants dotted at most every corner which makes transactions almost ubiquitous. Currently, there are over five million active mobile money subscribers being served by close to 50, 000 merchants nationwide.

And from the PwC survey, the bank executives fear that the E-Money Issuer (EMI) Guidelines -- issued by the Bank of Ghana last year to regulate the mobile money service -have set the stage for a possible entry into the mainstream banking arena by telecom companies. Judging by the framework for mobile money operations as established by the central bank, respondents of the survey said it is possible for telecom companies engaged in the mobile money space – MTN, Airtel, Vodafone and Tigo, to develop to the point where they can operate mobile money services independently of banks.

“Telcos will at that point become direct competitors to banks instead of partners and service providers to the industry. To curtail this threat, most banks are quickly building the relevant infrastructure that allows them to partner with telcos to jointly deliver mobile money services. Respondents believe there is enough

MOBILE MONEY

opportunity in mobile money for both banks and telcos,” said PwC. Vish Ashiagbor, Country Senior Partner at PwC said the development was one that warrants a careful analysis in order to make a fully informed decision. “With mobile money making such drastic inroads into the banking space, we set out to understand what bank executives are making of the development and how they are planning to win in this era.

“For us, winning in this era does not mean eliminating mobile money but rather being competitive in spite of any threats and due to any opportunities that mobile money presents,” he said.

The banking industry remain relatively bigger but figures being churned out by the mobile money operators year in year out could do a lot of damage to the confidence of the banks in the medium-term. Already with over 30 or so banks, the competition for depositors’ funds is tough and the last thing the competition will want is a player with a stranglehold on the market as the telcos are often seen as. Just last year, mobile money operators recorded a value of transaction of about GH¢35.4billion, an increase of more than 200 percent over the 2014 figure. This transactional value was recorded on the back of more than 260 million transactions in a market that has since seen a new entrant in the form of Vodafone Cash, powered by the namesake mobile operator. The value of mobile money transactions, when put into perspective is just GH¢5.85billion shy of the total deposit liabilities of the 29 banks as at the end of last year, a figure that is likely to be surpassed by the mobile operators this year.

Since the introduction of mobile money to the Ghana market in 2009, it has played a key role in the push for financial inclusion. According to data from the World Bank, in 2010 a relatively

OVER FIVE MILLION ACTIVE MOBILE MONEY SUBSCRIBERS BEING SERVED

BY CLOSE TO 50,000 MERCHANTS NATIONWIDE large segment of the Ghanaian population – 44 percent, was excluded from the financial services sector altogether. During this period, access to formal banking services hovered around 34 percent. By 2015 however, the segment of the population excluded from the financial services system had dropped to 25 percent, the World Bank said, driven primarily by the widespread adoption of

mobile money for financial services.

According to the latest Bank of Ghana report on the mobile money sector, between 2012 and first quarter 2016, registered mobile money subscribers increased from 3.8 million to 14.6 million, while active subscribers shot up from 345,434 to 5.3 million within the period.

After years of partnership and collaboration, any entry by the telcos into full-time banking would be seen as an act of betrayal by the banks. But for the consumer, it is all about ease and comfort and who is serving it does not matter that much.

2016 | Business Times Africa 33

Uche Ofodile is a highly influential business leader with extensive experience in accelerating business growth and profitability in African markets.

COVER STORY

Uche Ofodile’s passion to see young African leaders at their ultimate best Uche Ofodile is passionate about supporting Africa’s next crop of leaders. She is a strong advocate for women empowerment through ‘forward leadership’ and has for the past 10 years been at the forefront in driving business turnarounds for top multi-national companies across Africa. She has taken up some of the most powerful jobs in Africa’s telecommunication industry including CMO and more recently a CEO role in DRC In this interview with Business Times Africa, Uche talks about her career rewarding experience in DRC and her desire to contribute to nurturing and developing talent in Africa.

BT: Welcome back from the DRC. How was the experience as a first time CEO and in DRC? UO:It was by far one of my most exciting career experiences. First of all, it was a completely new experience, I had never worked in a francophone country so I had to try to quickly learn French. It was also my first CEO role. When I first arrived in DRC, I took the opportunity to travel across the country and I was pleasantly surprised at the beauty of the Democratic Republic of Congo. They have the most beautiful landscape.

From the moment I landed in Kinshasa, what was obvious was the energy of the people, they were so vibrant. My immediate thoughts were how can I harness this energy through use of technology? And indeed that was my challenge for the subsequent 2 years. Our strategic focus was to turnaround the commercial

performance, improve the brand perception as well drive a much stronger employee performance and engagement. I believe we were able to achieve all 3 and this eventually led to an in-country acquisition by Orange. Looking back on it, I can honestly say this role was by far the most challenging and probably the most rewarding career experience.

BT: Tell us, in what ways is technology changing the lives of the people in DRC? UO: As a business we were very eager to get people connected, especially online. Internet penetration in DRC is still below 10 percent and this was a big opportunity for us to drive data. Our goal was to find really innovative ways to get people online.

One way we approached this was through partnerships. One of our most successful partnerships was with Facebook to provide people with access. We launched a product that gave new data subscribers free access to Facebook and a number of other sites relevant to our customers and we were also able to do a workshop for some of our external stakeholders including very senior government officials. We were able to bring more people online and we also demonstrated to the government that it is a useful tool to speak directly to their constituents. It was brilliant.

One of the biggest challenges we faced was providing the Congolese with affordable Internet ready devices (a big consideration for 2016 | Business Times Africa 37

FORWARD LEADERSHIP

access) and there were serious challenges on taxation of handsets. This of course made it very difficult. Countries that have been able to address high taxation on devices have seen a significant uptake in internet usage. This is a positive result and one I would like to see replicated across the continent.

BT: What do you say about the industry being largely male dominated and what are the challenges facing women in Technology?

UO: Yes it is true that the tech industry is still largely male dominated, however I think in the last couple of years things are beginning to shift. In Ghana for example 3 out of 5 of the MNOs are run by women. There were none 2 years ago. I see similar trends in other industries as well.

However, it's by no means problem solved. There is still a challenge with the pipeline and the stories about women in senior roles are still too few and far in between and it requires leadership from the top to address and fix it.

I remember on my first day on the job in DRC, I met the management team in the boardroom and I was very surprised to see that they were all men, all of them. 12 people and not one woman! I was determined to change that and over the next few months through internal promotions and external hires, we went from 0 to 40% on the executive team. In the wider business, we focused on identifying talent through a mentorship programme.

Most importantly I tried as much as possible to meet and speak with as many women as possible to talk about the need to articulate their ambitions. We need to be active 38 Business Times Africa | 2016

participants in our careers which means saying what you want and not being afraid. It was only after I said I wanted to become a CEO and started working towards it that it eventually became a reality. It was not easy but it all started with me saying it out loud. I am also a strong advocate for taking careers risks and this includes taking up roles which are more challenging and may even be outside our comfort zones and sometimes country.

BT: Do you believe that organizations should have quota for women or there should be an opportunity that women should put themselves forward?

UO: I see quotas as a necessary evil. Necessary in some organizations to force the change. In my situation for instance I had a mindset that I wanted diversity in the leadership team and within the business because I strongly believe diversity is important to the growth and development of any organization. It is extremely difficult to achieve diversity if the leader does not believe in it. It requires support especially from the top.

BT: Now let’s talk about your other passion. How do you plan to support young people across Africa with the knowledge and experience you have acquired over the years?

UO: Lately I have been doing a lot of writing on my website, www.ucheofodile.com and on my social media pages @ ucheofodile. I am also taking up more speaking engagements. All these are geared towards sharing my experience and spurring others on. I have a great community of over 70,000 people on my platform and these include people

FORWARD LEADERSHIP

FORWARD LEADERSHIP IS ABOUT PULLING PEOPLE UP TO SIT AT THE TABLE AND CONTRIBUTE IN A MEANINGFUL WAY THAT IMPACTS POSITIVELY ON PEOPLE, BUSINESSES AND THE CONTINENT. IT IS ABOUT MAKING PEOPLE UNDERSTAND THE IMPORTANCE OF LOOKING AT THE BIGGER PICTURE.

Leadership, as I keep telling people is not about being the senior person. We can all help pull up those behind us. For instance someone in his first job can serve as a leader on his team and mentor someone who is in senior high school. Such a person can guide them to make better and informed decisions about academic work and career choices.

Forward leadership is about reaching out to young people, helping them to progress and achieve the best of their competencies and more. from several other African countries. Its interesting engaging them and getting varied perspectives on various issues. At present I am looking at other opportunities to nurture the community, grow and deepen the engagement.

Africa is on a path to greatness however we need talent to facilitate this growth. And I am not just talking about formal education, we need young leaders who can think on their feet and take bold decisions that will drive Africa forward. By providing mentorship and guidance we can help nurture and develop talent that will drive the African agenda. I want to be a part of the many that guide our young leaders to greatness. I want to see them driving change and growth.

BT: Having worked in Nigeria, Ghana and DRC, what do you see as forward leadership in Africa UO: For me, forward leadership is about pulling people up to sit at the table and contribute in a meaningful way that impacts positively on people, businesses and the continent. It is about making people understand the importance of looking at the bigger picture. It is also about advancing the needs of businesses and ensuring the welfare and wellbeing of the people that work within the organization. We also have a responsibility to improve the living standards in the communities where we operate.

BT: What is next for Uche Ofodile?

UO: Well, I am spending well deserved time with the family and mulling over a number of opportunities.

After two very complicated business turnarounds over the last eight years, I want to make sure I continue to take on opportunities that stretch me, allow me to have a big impact on businesses and people. I strongly believe that my skills are industry agnostic so what I bring to the table in terms of driving a business can be done across a number of industries not just telecommunications.

UO: In the interim, I am keenly pursuing one of my biggest passions of encouraging and driving leadership among young Africans especially women. I am saying to them, you can do it and therefore put yourself forward. I am telling them do a great job and the rewards will come. I am urging them that no matter how challenging things get at work, never burn bridges because this community of talent is so small. I want to help them navigate this career journey so they can realize their ambitions today and even the ones they don't realize they have.

UO: And the response so far has been great. What’s wonderful is as I share my knowledge, I am learning a lot from them as well. That is pretty exciting to me.

2016 | Business Times Africa 39

TRADE

Tanzania, Nigeria and the EU: Free trade discord From the African Union and the United Nations Economic Commission for Africa (UNECA) to the European Union and African countries’ trade and development ministers, nearly everyone agrees that African economies must industrialise.

MOST AFRICAN COUNTRIES CURRENTLY HAVE DUTY FREE ACCESS TO THE EU SINGLE MARKET FOR THEIR GOODS

40 Business Times Africa | 2016

Yet despite this broad consensus, when it comes down to the specific policies needed there remains widespread disagreement. The recent refusals of Nigeria and Tanzania to sign on to the EU’s proposed free trade deals, or Economic Partnership Agreements (EPAs), are the starkest manifestation of diverging agendas. Nigeria has consistently opposed the EPA for west Africa. However Tanzania’s last minute decision in July to back away from the EPA for the East African Community region stunned European negotiators.

Most African countries currently have duty free access to the EU single market for their goods under several iterations of the Lomé Convention. The new EPAs would, within a decade, give similar tariff-free access for about 80 percent of EU exports into African markets.

Europe has warned that African economies could lose Lomé preferences if EPA deals are not concluded.

So why the reticence?

Part of the answer links back to the drive for industrialisation. Both Nigeria and Tanzania recently adopted ambitious industrialisation plans, and new governments in both countries appear more genuine in their desire to implement them. And in both, policymakers claim the rules and restrictions in the proposed EPAs would undermine these strategies.

The popularity of free trade over the last 30 years has made it standard for donor agencies and trade negotiators from rich countries to press developing countries to adopt free trade.

The EPAs follow on these assumptions.

Nigeria and Tanzania appear to be questioning the prevailing wisdom. Instead, they are looking to the historical record.

Contrary to today’s free trade ethos, many

economic historians point to a basic rule of thumb. In cases as diverse as the UK, Europe, the US, Japan, South Korea and China, today’s rich countries only lowered their trade barriers once domestic manufacturing had become competitive in world markets – not before.

Contrary to the current popularity of the notion of comparative advantage for development – the idea that under free trade countries will benefit by specialising in producing goods they can offer at a lower cost than competitors – historical best practices from today’s rich countries show that it is not a good idea to only focus on agricultural and extractive industries.

These tend to suffer from diminishing returns over time.

Diversifying into manufacturing and services can provide increasing returns. To do so successfully, many industrialised nations intervened aggressively in their economies and trade relations using a variety of industrial policy tools. Many of these have since been discouraged or forbidden by today’s free trade consensus.

Today, industrial policy is still, in many circles, a dirty word. But industrial intervention cannot be fully written off as a failed concept.

Industrial policies in Africa and Latin America in the 1960s and 1970s typically failed because they were applied inappropriately, driven by corruption or were too inwardly focused on small domestic markets, neglecting the need to develop international competitiveness.

By contrast, east Asian countries developed strong institutions that enforced strict rules for industry subsidies and trade protection. These got cut off from them when they failed to meet performance targets. Their industrialisation strategies were internationally oriented.

These examples should tell global policy-

TANZANIA, NIGERIA, AND THE EU

makers more about how industrial policies should be implemented — not if they should be implemented at all. To get industrial policy right, Nigeria and Tanzania need to build new institutions with more independent actors empowered to play an enforcement role – as was done successfully in east Asia.

Of course, the world has changed dramatically since the UK, Europe and the US industrialised in the 19th century. But evolving the policies that worked for the 21st century seems more beneficial than phasing them out altogether.

Protecting new industries The main reason cited by Tanzanian and Nigerian officials for rejecting the EPAs – that they would block industrialisation – are consistent with these historical lessons.

Not only do officials worry that the EPA’s proposed tariff reductions would pose a drain on vital revenues needed for annual budgets, but both countries are concerned that dropping tariffs would destroy local industries – a view supported by research by think tanks such as the Wilson Centre.

“Our experts have established that the way it has been crafted, the EPA will not benefit local industries in east Africa. Instead it will lead to their destruction as developed countries are likely to dominate the market,” Tanzania’s foreign affairs permanent secretary Aziz Mlim stated.

Tanzania also points to a rule in the proposed EPA that would outlaw its use of export taxes on raw materials. This would deny them a standard industrial policy that was used by all of the rich countries to keep raw materials at home and available for use by domestic manufacturers. For example, Tanzania banned exports of mineral sands from gold mining on August 1. This is permitted under World Trade Organisation (WTO) rules, but would not be allowed under the EPA. Rather than exporting the sands – to be processed into tin, copper and silver abroad – Tanzanian president John Magufuli called for processing plants to be built in Tanzania and to further develop markets for copper and silver.

Indeed, a number of EU trade policies are quite clear in their intent to use trade deals such as the EPAs to open up access to raw materials for use by European high-tech manufacturers.

There is also the issue of African regional economic integration. While the EU claims the

EPAs would support the region’s integration, others disagree, including former Tanzanian president Benjamin Mkapa. He fears that locking in old North-South trade flows under the EPAs would undermine recent efforts at building new South-South regional trade ties.

Drawing on data that shows African countries buy more manufactured goods from one another than do others INDUSTRIAL (most of the EAC’s exports to the EU are primary commodities), Mr Mkapa POLICIES IN says that inter-African trade is far more AFRICA AND LATIN important for the region’s aspirations to industrialise. “The EU market plays AMERICA IN THE almost no role in this,” he concludes.

1960S AND 1970S Nigeria’s concerns are similar. President Muhammadu Buhari recently re- TYPICALLY FAILED iterated his belief that EPA rules work BECAUSE THEY against the national industrialisation strategy during a special session of the WERE APPLIED European Parliament in February.

Nigeria does not need an EPA “until INAPPROPRIATELY, it has been adequately industrialised DRIVEN BY and [is] able to trade industrial goods competitively”, Frank Jacobs, president CORRUPTION of the Manufacturers Association of Nigeria, emphasised in a recent interview.

For now, it appears that the impasse is set to continue. Tanzania and Nigeria are determined to take a different approach – using trade protection first, then adopting free trade later. Their next moves will be watched closely.

- ThisIsAfrica 2016 | Business Times Africa 41

TRADE

Standard Bank CIB chief takes on the universal model The CEO of corporate and investment banking at Standard Bank Group talks about its transformation into an Africafocused universal bank, the corporates pushing beyond the commodity rout, and why a savings culture is key to the future of banking in the continent.

For some banks, the motto emblazoned across their logo is a brand strategy. For Standard ‘AFRICA IS OUR Bank, its ‘Africa is our home, we drive her growth’ mantra is more akin to a mission HOME, WE DRIVE statement, and one it is pursuing wholeHER GROWTH’ heartedly.

A bright future

A perhaps less visible, but equally important embodiment of the bank’s fundamental principle is its leaders – including David Munro, CEO of corMANTRA IS MORE porate and investment banking (CIB) The most tangible evidence is the Johanat Standard Bank Group. Mr Munro is nesburg-headquartered lender’s transforAKIN TO A MISSION emphatic that recent years’ well-cited mation from a global emerging markets emerging market headwinds have not investment bank into an Africa-focused STATEMENT, AND irreparably damaged the continent’s universal bank. The sale in 2015 of 60% of its global markets business to Industrial ONE IT IS PURSUING future. “There’s so much momentum and Commercial Bank of China (ICBC) WHOLEHEARTEDLY. and latent capacity in these economies that we feel that the growth story made headlines for making ICBC the first in Africa is not unduly interrupted by Chinese state-owned bank to own signifevents such as China slowing down, icant trading operations in London. But it the US rates lift-off and now Brexit,” he also marked the culmination of a five-year says. While the commodity crisis has reengineering by Standard Bank during fundamentally changed heavyweights such as which it sold most of its non-African emerging Nigeria and Angola, given oil generates more market businesses. The coverage operations it than 90% of their export revenue, it should not has maintained in each region’s major financial overshadow the prospects of markets such as centre are mandated with connecting Africa to Kenya and Mozambique. Mr Munro suggests the world and the world to Africa, where Standkeeping a particularly close eye on the latter. ard Bank is on the ground in 21 countries.

42 Business Times Africa | 2016

STANDARD BANK CHIEF TAKES ON THE UNIVERSAL MODEL

Africa prosper irrespective of the commodity cycle and external pressures, he adds.

Controlled destiny What would help African clients are local currency capital markets. Outside of South Africa and Nigeria, equity and debt capital markets in sub-Saharan Africa are so nascent that investment banking in the region is, by and large, limited to long-term lending kept on banks’ balance sheets. A company needing to raise a relatively large amount of funds typically cannot do so on its local exchange. It must issue a Eurobond (and take on currency risk) or look to its banks.

“Mozambique is a very, very interesting country. Among the most exciting in our portfolio today," he says. That is largely due to the discovery of huge gas reserves off the country’s coast which could make it the world’s third biggest exporter of natural gas, after Russia and Qatar. The bank is working with one of the fields’ operators, Anadarko, which is part of the group planning to inject more than $30bn into the country, a move that could treble Mozambique’s 2016 gross domestic product.

While landmark projects such as this have the potential to single-handedly transform countries, scratching beneath the economic surface uncovers more decisive changes; namely, the response of individual entities making up the corporate community. “You don’t bank the macro; instead, you bank clients in the economy. And their ambitions to grow their businesses, take advantage of technology, innovation and the growth in the economies in which they operate are unbelievable,” says Mr Munro. Their passion, drive, skills and experience – the latter two having drastically improved over the past decade – will create the employment and opportunities that will see

That said, equity, bond and commercial paper-type markets are advancing in Kenya and Nigeria, and even in the likes of Namibia and Botswana. “I’ve been involved in this business for 20 years, and if I look at the development in capital markets over the past five years, the acceleration is incredible,” says Mr Munro. “But while it makes a vast difference to the development of the markets themselves, and is indeed proving to be transformative in some instances, it is small relative to global capital markets.

It is also not yet meeting the needs of each market – and so the potential is quite significant.” In line with its mission statement, part of Standard Bank’s game plan is to bring THE these markets closer to reaching that FINANCIALISATION potential. “Our perspective and role in OF SUB-SAHARAN building local currency capital markets AFRICA, LARGELY is driven by our view that it’s the secret to unlocking the real growth dynamDRIVEN BY THE ic in these countries,” says Mr Munro.

GROWING MIDDLE “If they remain tied to and dependent on foreign capital, they are not in conCLASS’S NEED trol of their own destiny. So for us, the TO ACCESS THE question of local currency capital marFORMAL BANKING kets is a vital piece of delivering on our purpose.”

SECTOR, , HAS

MADE FINANCIAL SERVICES ONE OF THE REGION’S MOST ATTRACTIVE SECTORS FOR INVESTMENT

This is encouraged by moves to build a local buy-side community. The financialisation of sub-Saharan Africa, largely driven by the growing middle class’s need to access the formal banking sector, has made financial services one of the region’s most attractive sectors for investment. Retail and wholesale banking have received the largest levels of capital, but what is more meaningful is the attention thrust on the pension and insurance industries – both from investors and regulators that want to encourage a savings culture and build funding pools.

2016 | Business Times Africa 43

FORWARD LEADERSHIP

“The stimulant in savings is the critical ingredient, much more so than the lending. I don’t really see banks growing significantly because of the need to lend. But the drive to save money from the client base is the real game-changer, for banks and their clients,” says Mr Munro. Long-term savings products to be created by insurance and pension firms will pave the way for more corporates to issue debt and equity on local exchanges and, in turn, diversify the role of the region’s banks.

Suitcase banking Fears over an emerging market crisis coupled with stringent compliance regimes and entity-level issues have prompted some European and American banks to pull back from Africa. Meanwhile, Standard Bank’s polar opposite strategy has given it an edge over its competitors. The bulge brackets still feature prominently on big-ticket deals and those involving multinationals, but it is harder for them to compete for the mid-sized clients that will push the continent forward. What is more, no other bank has an on-the-ground presence in the handful of countries that will determine sub-Saharan Africa’s growth trajectory; that is, South Africa, Nigeria, Ghana, Kenya, Mozambique, Angola, and even Uganda and Zambia.

“It has real scale with good diversification, but we can still get our arms around it. It is still agile enough to maintain a full grasp of it,” says Mr Munro, describing the bank. “And I think one of the big challenges for multinational banks is high geographical dispersion and I don’t feel at this point in time that that is a real challenge for us.”

What does still pose challenges in some markets are questions over governance and political decision making. Many of these countries have witnessed significant improvements in rule of law and democratic processes over the past decade, but in some it is 44 Business Times Africa | 2016

still difficult to do suitcase banking – and often equally difficult to establish or buy locally licensed operations. Yet with a 153-year history in the continent, Standard Bank has proved itself capable of navigating such complex environments.

For Mr Munro, who celebrated his 20th anniversary at Standard Bank earlier in 2016, there are some are parallels between his situation today and when he joined the bank in 1996.

Back then, he worked in its small risk trading division in London. As a chartered accountant by training, he had a unique perspective on what happened in a dealing room, which no doubt helped make him an invaluable part of the bank. Today, he again finds himself in a rare position. At a pivotal point in Africa’s development, he is at the helm of the continent’s biggest investment bank, which he had a key role in creating. After witnessing its expansion into Russia, Latin America and south-east Asia – using London

as a launchpad – he joined the bank’s leadership just as the global financial crisis began to unfold, and became part of the team that fundamentally changed the bank’s business strategy.

It is something he views as an incredible opportunity, and one that the bank clearly made the most of. In revenue terms, Standard Bank’s business outside of South Africa is bigger than that of its home country. “We had the courage to make big decisions to change our game. And looking at it today, having had this footprint and invested so much in our bank and its purpose over the past five years, it is very rewarding and continues to excite me,” says Mr Munro.

“That is a rarity. In financial services and banking, not many people around the world can say we have an incredible opportunity to deliver something remarkable that has a real and lasting impact on the local capital markets and beyond.” - The Banker

2016 | Business Times Africa 45

GHANA

Ghana’s political foes bet on Agriculture 21 percent of the Ghanaian population has moved out of agriculture to other more productive economic sectors over the 18-year period between 1992 and 2010 Ghana’s general elections on December are a high stakes game for the incumbent John Dramani Mahama and the opposition leader, Nana Addo. Mahama wants a second a term to cement his legacy in Ghana politics as only the third man, after Jerry Rawlings and John Kuffor, to successfully contest two elections.

For Addo, the election is to avoid the distinction of becoming a perennial bridesmaid, and the first man to lose three consecutive elections after previous losses to John Atta Mills and Mahama in 2008 and 2012.

With barely two months to the presidential and parliamentary elections in the West African state, promises are being flung in all directions in a last-minute attempt to entice its 15 million voters. This article will focus on one key promise by each candidate, all which focus on the key ag¬riculture sector. Mahama has promised to sup¬ply a minimum of 10 tractors to every district in the country to boost agriculture.

Every district shall host a farming mechanisation centre with the tractors equipped with the full complement of implements such as harvesters. These cost between $6,000-$10,000 per unit. It will cost the central government about GH¢ 50.5 million to supply a minimum of 10 tractors to every one of the 216 districts in the country. This excludes the cost of other components such as cultivators, plows, harvesters and threshers. Such an outlay constitutes about 46 Business Times Africa | 2016

A REPORT BY THE WORLD BANK GROUP SHOWED THAT ABOUT 21 PERCENT OF THE GHANAIAN POPULATION HAS MOVED OUT OF AGRICULTURE TO OTHER MORE PRODUCTIVE ECONOMIC SECTORS OVER THE 18-YEAR PERIOD BETWEEN 1992 AND 2010 14 percent of the amount allocated to the agriculture sector in the 2016 national budget of GH¢355.14 million.

About GH¢302.46 million of this allocation, representing 85.17 percent, is to be spent on the Fertilizer Subsidy programme and the Agricultural Mechanisation Service Centres, among others. Given the enormous demands of the sector, experts have questioned the feasibility of what has become known as the ‘tractor promise’.

It understandable that Mahama would make such a promise given the need to strengthen the agriculture sector to reduce the food import bill of the country. The country imports about $500 million worth of rice per year, and about $1 bil-

GHANA'S POLITICAL FOES BET ON AGRICULTURE

THE COUNTRY IMPORTS ABOUT $500 MILLION WORTH OF RICE PER YEAR, AND ABOUT $1 BILLION WORTH OF TOMATOES AND OIL AND CHICKEN

President Mahama has promised to supply a minimum of 10 tractors to every district in the country to boost agriculture.

THE CONTRIBUTION OF AGRIC TO GDP DECLINED FROM 29.8 PERCENT IN 2010 TO 22 PERCENT AT THE END OF LAST YEAR.

lion worth of tomatoes and oil and chicken.

Indeed, the agricultural sector has been the backbone of the Ghanaian economy , although it is augmented by revenue from gold and other precious metals and recently oil and gas.

The contribution of the sector has declined over the years, as it is beset with lack of inputs and high post-harvest losses as a result of the inability of farmers to transport their produce to major commercial centers due to bad roads.The sector also lacks of post-harvest technological know-how; and insufficient central government support.

In 1992, the share of agriculture to the country’s Gross Domestic Product (GDP) was 23.6 percent, growing to about 41 percent in 1995.

But the Ghana Statistical Service reports that the contribution of agric to GDP declined from 29.8 percent in 2010 to 22 percent at the end of last year. A report by the World Bank Group showed that about 21 percent of the Ghanaian population has moved out of agriculture to other more productive economic sectors over the 18year period between 1992 and 2010.

The major promise of Nana Addo, the candidate of the biggest opposition party, the New Patriotic Party (NPP), is the construction of an irrigation dam in every village of the three northern regions of the country namely: Northern, Upper East and Upper West Regions. This irrigation scheme, he believes, will improve food production in an area seen as the breadbasket of the country.

“As far as this part of our world is concerned, I want to go further and talk about one village one dam, ” Addo said during a campaign tour of the Upper East Regional capital, Bolgatanga.

He said his ‘1 village, 1 dam’ policy will help Ghana become self-sufficient in food production and become a net-exporter of food to the region. Voters are being asked to choose the best proposal.

2016 | Business Times Africa 47

ZIMBABWE

Mugabe and his finance ministers – A history of slapdowns and denial Many inside government know that one does not survive long if they keep pestering the leadership with inconvenient truths A former minister in the government of Zimbabwe’s President Robert Mugabe, Cephas Msipa, tells a story in his book: In Pursuit of Freedom and Justice: A Memoir. It was 1992, and drought-hit Zimbabwe had just a week’s supply of maize left.

Msipa was chairman of the Grain Marketing Board, then the state grain monopoly. For placing an order to import maize, he found himself before President Robert Mugabe and his ministers, accused of trying to cause alarm and despondency.

The Ministers sat in silence as Msipa and Renson Gasela, then GMB head, were berated by Mugabe. It was all a lie, they were told. Our intelligence tells us our grain silos were full.

Sitting there and watching was Bernard Chidzero, then Finance Minister.

Only one warning was to turn Mugabe. “If you don’t give us the money to buy maize, you people will not be in power; there is no way you can remain in power if people have no food to eat,” Msipa recounts in his memoirs. It played on Mugabe’s greatest fear, and it worked. Chidzero was ordered to release the money. Leaving the meeting, Chidzero admitted to Msipa he was aware of how dire the drought situation was. So why had he not said so in the meeting, Msipa asked. Chidzero’s reply: “I cannot be seen to contradict what the President has said.” And that is just how Mugabe loves his Finance Ministers; quiet, obedient, and in denial.

48 Business Times Africa | 2016

Finance Minister Patrick Chinamasa, a surprise pick for the post who has worked hard to confound his critics, has had to find that out many times.

Last year, Chinamasa announced a suspension of bonuses, but was publicly humiliated by Mugabe four days later. Now, just under a week after Chinamasa announced a raft of measures to cut government spending, he has once again been slapped down publicly. On Tuesday, Information Minister Chris Mushowe released a statement saying Cabinet had never approved Chinamasa’s proposals, which include job cuts, a suspension of civil servant bonuses, wage cuts, and a range of other austerity measures. Shocking as it is, nobody really should be shocked. This is how it has always been with Finance Ministers who dare lay out the truth. In 1997, Herbert Murerwa, then Finance Minister, against his warnings, was forced to dole out $50,000 each to over 50,000 war veterans in unplanned gratuities.

The Zimbabwe dollar plunged 72 percent and the stock market crashed 46 percent. Murerwa had warned the payouts would bankrupt the country, to which Mugabe responded: “Who ever heard of a country going bankrupt?” Soon, Murerwa was out of work. In 2000, Simba Makoni was appointed Finance Minister. It did not take him long to fall foul of the “see no evil” culture. The economy was in crisis, he admitted in a 2001 interview. “I would have to be foolish to deny what

is evident to everybody in broad daylight, even in the darkness of night.”

That was strike one. Strike two came when he tried to introduce a broad range of reforms, which included having to devalue the Zimbabwe dollar, which at the time was artificially overvalued. His boss was livid.

“Devaluation is sinister and can only be advocated for by our saboteurs and enemies of this government,” Mugabe said in 2002.

That September, Makoni left his post, and was to later quit ZANU-PF and challenge Mugabe in the 2008 presidential election. After Makoni, Murerwa was reappointed to the post.

Again, it did not take too much time before the President was unhappy with him. Murerwa clashed with Gideon Gono over the central bank chief’s printing of money to fund all sorts of “quasi fiscal activities”; from ploughs, scotch carts to vehicles.

Murerwa wanted government to go lean instead, saying in a 2005 speech that “we must all make sacrifices, with Ministries living within our economy’s means. There will simply be no magic solutions to our challenges.”

Mugabe did not like that either. Murerwa was too “bookish”, he said.

“They have this word they like using; quasi, quasi. But I tell them that this is the expenditure that we need.

We are under sanctions, and there is no room for the type of bookish economics we have at the Ministry of Finance,” Mugabe said. So, Mugabe

MUGABE AND HIS FINANCE MINISTERS Patrick Chinamasa, Finance Minster, Zimbabwe.

Chris Mushohwe Information Minister, Zimbabwe

needed a replacement for Murerwa.

In his previous role as Industry Minister, Samuel Mumbengegwi had threatened businesses, warning he had them “under surveillance” for being “in cahoots” with the opposition.

He had also told a meeting of local industry and international financiers that Zimbabwe did not need their money. “We are doing well without them”, he said. Just the sort of Finance

Minister Mugabe wanted. And so in 2007, Mumbengegwi got the job. He was perhaps the worst of Mugabe’s picks for the role, stumbling around economic terms in budget speeches, butchering the quadrillions in the inflation data, and generally providing free comic relief to the opposition benches. What Chinamasa has suffered is not isolated. Many inside government know that one does not

survive long if they keep pestering the leadership with inconvenient truths.

He is just one in a long list of Finance Ministers that have fallen foul of a culture that rewards lies over truth, and appeasement over logic.

There is a reason why Zimbabwean government Ministers refuse to tell the truth on the economy, preferring instead to live in denial – it is just how their boss wants them.

By thwarting Chinamasa’s austerity measures, Mugabe and his Cabinet invite inevitable questions over their commitment to reforms underpinning the ongoing re-engagement process with international finance institutions. Chinamasa has been doggedly pursuing this re-engagement since his appointment in 2013, but after having been cut off at the knees, it’s hard to see the process as anything other than imperilled.

Zimbabwe owes $1, 8 billion to the World Bank, International Monetary Fund and the African Development Bank who are insisting on full repayment before discussing a new financial package, the first since 1999.

Reserve Bank governor, John Mangudya, in his own monetary policy which came a week after Chinamasa’s doomed announcement, pointed out that “there are some people in this economy who do not want us to pay these arrears.”

“Sometimes I find it a bit difficult that we are being pulled backwards, not by the IMF, World Bank and AfDB, but by Zimbabweans. If it is being smart, colleagues l beg to differ. We are closing ourselves in a hole. We need to be very careful about the clearance of arrears. It is being done for the people of Zimbabwe,” said Mangudya.

“Let us put our heads together, this economy is ours together. We all belong here, if the economy is burning we all burn together. It is suicidal not to pay the arrears, because they will continue to accumulate therefore we are not being clever by doing so.”

- The Source 2016 | Business Times Africa 49

MOZAMBIQUE

Beyond the bad news: Mozambique maintains investment pull A series of worrying headlines regarding Mozambique's bond activity and overall economic performance do not portray a country ripe for investment, but factors such as a huge natural gas discovery mean the mood within Maputo and beyond is one of optimism. James King reports.

For foreign investors looking to enter Mozambique, recent headlines coming out of the country have been worrying. Cooling commodity prices have hit growth prospects hard and caused a massive devaluation of the metical, which was Africa’s worst performing currency in 2015. Pressure on government finances has grown in tandem, as diminished revenues have squeezed Mozambique’s fiscal position and left question marks over the country’s ability to service its debt.

“Mozambique is a small economy and one that is relatively dependent on the export of raw commodities. So any slowdown in the regional or global economy will have a big impact on local conditions,” says Antonio Correia, chief executive of Banco Único.

Fishy business These difficulties have been compounded by ongoing challenges related to Mozambique’s so-called ‘tuna bond’, intended to develop a state tuna fishing fleet but largely 50 Business Times Africa | 2016

Pipeline carrying natural gas from Mozambique to South Africa

MOZAMBIQUE IS NOT A COUNTRY ON THE VERGE OF COLLAPSE

MOZAMBIQUE MAINTAINS INVESTMENT PULL

channelled to fund the purchase of naval in the market before the inevitable upswing “IN LATE JUNE, patrol vessels. In addition, the government’s follows. revelation to the International Monetary THE MOZAMBICAN “The challenge facing Mozambique’s AUTHORITIES Fund (IMF) that it failed to disclose about private sector is that it needs to communi$1.4bn of public sector external debt (equivcate this reality to key investors and deciADMITTED TO alent to about 9% of gross domestic product makers in London, Johannesburg and THE IMF THAT THE sion [GDP]) has seen a number of key donors, inLisbon,” says Mr Magalhães.

SITUATION OF cluding the UK, the US and the World Bank, Persuading investors suspend much-needed disbursements to the THE COUNTRY government.

REQUIRES But before any material change in the “In late June, the Mozambican authorities AN URGENT economy can occur, there is a widespread admitted to the IMF that the situation of the feeling that the government must take IMPLEMENTATION country requires an urgent implementation meaningful steps to address a lack of transof decisive measures to avoid the deterioOF DECISIVE parency in the public finances. This will be ration [of the economy],” says José Reino da MEASURES required to restore investor confidence, as Costa, vice-chairman of the board of direcTO AVOID THE well as key relationships with bilateral dotors at Millennium bin, Mozambique’s largDETERIORATION nors such as the IMF, the UK and the US, est bank.

But the perceptions of Mozambique [OF THE ECONOMY] which provide substantial budgetary support. “The suspension of the support from abroad mask an altogether different reality the IMF to the state budget had a natural in the country. In the capital, Maputo, the influence on the retraction of investors. This mood among private sector leaders remains has led to a major reduction on the foreign buoyant, even if most recognise direct investment. However, it is still expected that the current outlook is far from that economic growth will remain sustainable favourable. Seasoned players in for the current year,” says Mr Reino da Costa. banking and business point to The country’s immediate troubles began the relative youth of the country’s under the last administration when a stateeconomy, while most have grown owned company, Empresa de Mocambicana accustomed to the ups and downs de Atum (Ematum), issued an $850m bond of a fast-growing but volatile ecoto finance a tuna fishing fleet. Instead, about nomic trajectory. $500m of this sum was used to buy naval patrol

“Mozambique is not a vessels. A little over two years later, the bond country on the verge of collapse. has been restructured after Ematum failed to The headlines being generated generate sufficient revenues. outside of the country are more alarmist than the reality on the Naval necessity ground,” says Sergio Magalhães, Though the restructured transaction was acthe executive director of BiG Mocepted by more than 80% of bondholders, it zambique, the local subsidiary of was characterised as a ‘selective default’ by ratPortugal's Banco de Investmento ing agency Standard & Poor’s, while the tuna Global. fishing enterprise has all but collapsed. But

Indeed, some banks and speaking to The Banker, private sector figures businesses are looking at the curin Maputo point to the fact that Mozambique rent downturn as an opportunity has discovered one of the world’s largest offto acquire assets on the cheap. Parshore gas fields but has no naval vessels to proticularly for newer entrants to the vide any form of maritime oversight or securibanking space, with good liquidity ty. However, procuring defence equipment on positions and a lack of bad legacy a budget that is supported by international doassets, the current cycle is seen as a nors is politically sensitive, so while purchasing good chance to stake key positions 2016 | Business Times Africa 51

MOZAMBIQUE MAINTAINS INVESTMENT PULL

the equipment through a government-backed ‘tuna bond’ was deemed to be ill advised, businesses in the country are at least sympathetic to the government’s motives.

This transaction, as well as further undisclosed loans taken by the government and secured around the same time, has contributed to growing public sector debt, which stood at about 85% of GDP by the end of 2015. Most of this – about $9.89bn – is denominated in foreign currencies, with the highest proportion allocated in dollars. As the metical has plunged, servicing this debt has become increasingly difficult. The authorities’ response to these problems has been to initiate several cost-cutting measures, as well as to promote greater transparency of public finances.

Dr Tomas Matola, chief executive of Banco Nacional de Investimento (BNI), Mozambique’s national development bank, says: “The government of Mozambique has designed an austerity plan that consists of cutting the current and unproductive expenditure and creating a financial risks analysis unit, which will be responsible for tracking the government indebtedness, as well as its potential impacts.”

Gas boost in pipeline By most economic indicators, Mozambique’s outlook is deteriorating. Substantial government debt is accompanied by sky-high inflation – at 19% in June – and projected GDP growth of 4.5% in 2016, three percentage points below historical levels according to the IMF. But the discovery of an estimated 5000 billion cubic metres of natural gas off the country’s north coast, in the Romuva basin, looks set to give the economy a boost to dwarf any of these current difficulties. Italy’s Eni and US independent Andarko have both started to develop concessions offshore. The International Energy Agency estimates that total government revenue up to 2040 could reach north of $115bn from these projects. More offshore reserves are still to be discovered and exploited, meaning this figure could rise in the coming years.

Beyond gas, the government is looking to other opportunities in power generation and agriculture, to position the country as a hub for the southern African region. With Zimbabwe’s status as a major food producer diminished, Mozambique is well placed to capitalise on its agricultural potential to fill the void.

“The economic potential here is across all

52 Business Times Africa | 2016

sectors and not just in natural resources. Moving forward, agriculture will be important, given that Mozambique’s population is growing so quickly, as are the populations of many of its neighbours,” says Mr Correia.

Generating potential

BEYOND GAS, THE

Meanwhile, the country’s abundant hydropower potential, GOVERNMENT IS combined with its natural gas LOOKING TO OTHER reserves, is offering the govern- OPPORTUNITIES ment a chance to make Mozambique the region’s dominant IN POWER power generation hub. Among GENERATION AND its neighbours, South Africa is AGRICULTURE, grappling with a power gener- TO POSITION THE ation crisis just as many other fast-growing economies in the COUNTR Y AS Southern African Development A HUB FOR THE Community are struggling to SOUTHERN AFRICAN meet their energy needs.

REGION “We want to develop Mozambique’s hydropower potential, which is about 18 gigawatts, as well as the country’s abundant coal and gas reserves, to supply the domestic market and our neighbours with power,” says Lourenco Sambo, director-general of Mozambique’s investment promotion centre.

Taken together, these opportunities and others underscore the optimism that prevails in Maputo. For the banking sector, the gains are expected to be substantial. Those lenders focused on infrastructure finance, in particular, can expect to benefit. In the case of BNI, its focus on infrastructure development means that its role in the market is expected grow along with its returns. “BNI expects to reach $23m of profit in 2025, and become a true giant in the Mozambican market in the next 10 years,” says Mr Matola.

Though foreign direct investment has stalled over the past year, the opportunities on offer mean it is only a matter of time before investors return. How long that process will take largely depends on the government’s efforts to augment transparency, clean up the public finances and enact the investor-friendly reforms needed to propel the economy forward.

“Today, Mozambique represents an investment opportunity the likes of which the world has not seen for many years,” says Mr Magalhães. – The Banker

GHANA

GHANA’S jobless generation Economists and development economists are increasingly getting worried at the large numbers of young people jamming the job market in search for non-existing jobs

The Biblical warning that idle hands are the devil’s is a youth that could easily become a willing tool workshop is true today, as it was in the olden days. In for destabilizing their country. And this is evident today’s globalised world, youth unemployment has from the fact that the youth have become the become political, as well as an economic challenge. In willing tools for all terrorist attacks and activities fact so threatening is the issue of youth across Africa. joblessness to the political and economIn the first article I quoted UNA YOUTH THAT ic stability of any country that it calls for LACKS EDUCATION, FPA as saying that adolescents continuous evaluation of public policy and youth, who constitute a ENTREPRENEURIAL large part of the populations aimed at redirecting attention to it.

As a development and public policy SKILLS AND INCOME of developing countries, like analyst, I am compelled to once again Ghana have a profound effect SECURITY, IS A draw attention of duty bearers to youth every nation’s common fuYOUTH THAT COULD on joblessness in Ghana and highlight its ture for bad or for worse. The EASILY BECOME A effects can be overwhelmingcurrent and future repercussions for Ghana. Earlier in the year, I did a simiWILLING TOOL FOR ly positive if young people are lar article in this column titled “Youth able to develop their capabiliDESTABILIZING development as a catalyst for economic ties, have access to education, THEIR COUNTRY development”, in which I used a lot of dehealth (including reproductive velopment economics literature to make and sexual health) and find a strong case that any country that fails to develop the opportunities to fulfill the promises of their lives capabilities of its youth faces a bleak future. through decent employment. UNFPA argues that The first article pointed out that a youth that lacks using the youth to transform our economy is poseducation, entrepreneurial skills and income security, sible provided there is heavy investment in young 2016 | Business Times Africa 53

GHANA'S JOBLESS GENERATION

people’s education, health and protection of their rights.

The main losers Young people have been the main losers of the Great Recession caused by the 2008 global financial crisis. Millions have been pushed into highly unstable jobs, condemned to indefinite unemployment, or forced to move abroad in search of better opportunities. I have lost count of the number of unemployed youth or graduate unemployed associations, the number of trained health workers associations who have completed various health training institutions and have been waiting for their main employer-the state (government) to employ them. I have also lost count of the number of demonstrations by youth groups across the country demanding their rights to be employed and to fully participate in economic, social and political life of their country.

The net result is that over the last few weeks Ghana has come under the microscope for what can best be described as human trafficking, rather than organised international migration. This column reported a few weeks ago that due to less opportunities to get jobs at home, droves of Ghanaian youth are leaving the country, even to less friendly countries like Kuwait, Qatar, United Arab Emirates and Saudi Arabia. It is estimated that more than 1000 Ghanaian youth have been languishing under inhumane conditions in these countries after they were promised lucrative jobs. Their hopes of earning good salaries turned into nightmares after they landed in the hands employment sharks.

As Jean Pisani-Ferry of France Stratégie, a French government advisory body, points out, it is “much worse to be young today than it was a quarter-century ago.” Indeed so. The International Labor Organization estimates that, worldwide, 73 million people aged 16-24 were unemployed in 2014. That number has fallen from 76.6 million in 2009, when the impact of the 2008 crisis was still fresh; but the pace of improvement is not exactly encouraging. Simply put, around 45% of the world’s economically active young people are either unemployed or are living in poverty, despite having a job.

And, given inadequate statistical reporting in 54 Business Times Africa | 2016

many poor countries like Ghana, where populations tend to be younger, these figures almost certainly underestimate the severity of youth joblessness.

Global phenomenon

The economic plight of THE young people is a global INTERNATIONAL phenomenon. Arguably the LABOR most worrying aspect of the ORGANIZATION economic environment for young people today is how ESTIMATES THAT, little it has improved since WORLDWIDE, 73 global economic crisis. In MILLION PEOPLE Ghana for instance, a high AGED 16-24 WERE degree of youth marginalization (in education, em- UNEMPLOYED IN ployment, participation and 2014. empowerment) is depriving our economy of its most powerful growth engine-the youth.

In Ghana, as in other African countries, labor markets are skewed in favor of older workers.

Employers are advertising for qualified people

GHANA'S JOBLESS GENERATION

with ten years working experience, in addition to qualifications that are not offered by Ghanaian universities. The hidden condition is that anyone who has been working for ten years, would probably have built his/her own house or bought his/her car and will not overly depend on the new employer for those facilities, unlike a fresh graduate. The questions is, who will first employ the fresh graduates to gain experience before being employed by the current employer?

Nobel laureate and renowned economist, Joseph Stiglitz blames youth joblessness on the pursuit of fiscal austerity, which is reducing government spending on public services and investments that can create employment for the youth. The Ghana government for instance is implementing an IMF programme on fiscal credibility, with a condition on government to freeze public sector employment. The same IMF programme is compelling government to resort to excessive taxation in order to make more revenue. Over the last two years, excessive taxation has made Ghanaian industries

globally uncompetitive, let alone expanding to create more jobs. Campanella (2016) buttresses Stiglitz’s point by arguing that in Africa, youth unemployment is more a consequence of sluggish labor demand perhaps, due to economic downturn.

New technology It is a known fact that youth unemployment is made worse by globalization and new technologies of production. These new technologies and digital platforms are transforming, the nature of work itself, rendering entire sectors and occupations obsolete, while creating completely new industries and job categories. They are causing relocation or outsourcing of jobs to locations where labour is skilled, efficient and cheap.

This explains why in 2015 45% OF THE some 38% of employers world- WORLD’S wide faced trouble finding the ECONOMICALLY right kind of talent – especially among young people, who are ACTIVE YOUNG supposed to possess more up- PEOPLE ARE EITHER dated skills than older workers UNEMPLOYED OR (Campanella, 2016). When and ARE LIVING IN how a country’s labour becomes technologically efficient and POVERTY, DESPITE productive is a matter for public HAVING A JOB. policy. Public policy can direct the course of Ghana’s education from purely academic- based to technology-driven, with emphasis on technical and vocational training. Our tertiary education syllabi should be relevant to our industrial needs, such that the products from our universities and tertiary institutions come out with the employable skills industry is hungry for. The Europeans charted this course during the industrial revolution and are still reaping the fruits of making education relevant to their economic aspirations.

Lately, the East European countries pursued similar policies of restructuring their education to meet their development needs, and the result is their transformed economies over a few decades. The Chinese economy was purely agrarian, few decades ago; but now thanks to quality basic, vocational and technical education, China is the leading exporter of industrial

2016 | Business Times Africa 55

GHANA'S JOBLESS GENERATION

and consumable items. A chunk of China’s exports year on year land in Africa. This explains why Malaysia and South Korea, whose economies were at par with Ghana’s at independence are now several centuries ahead of us.

China, Malaysia, Singapore, South Korea etc have moved from emerging economies to developed economies by third world standards.

Political disaster When the young are idle, economies lose dynamism, innovation falters, and valuable human capital is wasted. But the political consequences can be even more alarming. Albert O. Hirschman’s seminal book Exit, Voice, and Loyalty provides a useful framework to understand how the marginalization of young people leads to mild or extreme political disasters.

When the quality of a political system declines, its members can withdraw (“exit”), improve the situation through direct action (“voice”), or passively accept decay (“loyalty”) (Campanella, 2016).

Exit is the least traumatic way out of the problem – especially for top professionals. In Africa, for example, the legal outflow of skilled people to developed countries has intensified.

Columbia University’s Jagdish Bhagwati argues that this is the inevitable consequence of economic backwardness. The “brain drain” (especially in the health sector) reflects developing countries’ inability to absorb the skills they actually need. According to Serufusa Sekidde, a consultant with Oxford Policy Management, 80% of countries where there are fewer than 22.8 skilled health workers for every 10,000 people are in Africa (Campanella, 2016).

In 2011, the greatest global mobilization since 1968 led to the emergence of peaceful movements like ‘Occupy Wall Street’ , ‘Occupy Ghana’ and the initially peaceful Arab Spring in the Middle East. And now China’s leaders fear that its graduate unemployment rate could fuel another Tiananmen-style unrest. In Ghana, the proliferation of unemployed youth groups and mass actions to demand a stake in the national economy cannot be wished away as mere phenomena. It is a foretaste of events to come unless duty bearers act quickly to address youth joblessness.

What Solutions?

Not surprisingly, youth unemployment tops the global policy agenda today. In 2012, the ILO adopted a Call for Action on Youth Em56 Business Times Africa | 2016

IN 2012, THE ILO ADOPTED A CALL FOR ACTION ON YOUTH EMPLOYMENT, AND THE EU LAUNCHED ITS YOUTH EMPLOYMENT INITIATIVE

ployment, and the EU launched its Youth Employment Initiative. The United Nations has also placed the issue in the 2030 Agenda for Sustainable Development Goals. And I am placing youth joblessness on the 2016 election agenda. It is my desire that all presidential aspirants and parliamentary candidates should tell the electorate how their governments will overcome youth joblessness. The youth should elect a president or MP based on their ability to reverse joblessness and create jobs.

The OECD’s Andreas Schleischer argues that “in the past, IN GHANA, AS IN education was about imparting knowledge. Today, it is about OTHER AFRICAN providing students with the COUNTRIES, LABOR tools to navigate an increasingly MARKETS ARE uncertain world” (Campanella, SKEWED IN FAVOR 2016).

Mary McAleese, a former OF OLDER WORKERS. president of Ireland, empha- EMPLOYERS ARE sizes the need to develop difADVERTISING ferentiated education systems, ranging from Germany’s vo- FOR QUALIFIED cational schools and appren- PEOPLE WITH TEN ticeships to programs that give YEARS WORKING students access to international EXPERIENCE experience. McKinsey’s Mona Mourshed urges private companies to cooperate more with educators to ensure that curricula keep pace with employers’ needs (ibid).

GHANA'S JOBLESS GENERATION

From a labor market perspective, Rolf Dorig, Chairman of Adecco Group, and the Brookings Institution’s Kemal Dervi agree on the importance of guarantee schemes to ensure that young people obtain a job or training and mentoring soon after graduation. To this end, the Bertelsmann Stiftung’s Justine Doody and Daniel Schraad-Tischler argue that governments should end the labor-market dualism that limits young people’s ability to move from temporary work to permanent employment (Campanella, 2016).

Perhaps, most importantly, young people need to be empowered. In graying societies, lowering the minimum voting age to 16 or capping the age of parliamentarians at 65 might be acceptably “soft” ways to dilute the power of older generations.

If one thing is clear, it is that a new social contract between generations is needed to rejuvenate economic dynamism and growth.

Equally important, if the marginalization of young people becomes irreversible, they will exercise exit, voice, and loyalty in ways that are more likely to be destabilizing than inspiring (Campanella, 2016). Ghanaian youth must rise up and fight for their voice to be heard in policy formulation and implementation. They need to fight for empowerment and participation in decision making. They need to vote based on issues that will improve their future prospects.

THE IMF PROGRAMME IS COMPELLING GOVERNMENT TO RESORT TO EXCESSIVE TAXATION IN ORDER TO MAKE MORE REVENUE.

2016 | Business Times Africa 57

ENTREPRENEUR PROFILE

From bar attendant to shoe maker: the story of Yaw Barimah This is an inspiring story of a young man born and bred in a village and couldn’t advance his education to the Senior High level but was determined to survive. How did he do it?

Read his touching story.

Yaw Barimah Agyapong Addo, CEO of Barimah Shoe Industry Ltd, was born in a village called Oboyan, near Abetifi in the Kwahu Ridge, Eastern Region of Ghana, in 1981. He started and completed his basic education at Oboyan L/A. His parents’ marriage did not survive beyond the period Yaw turned three, and so his mother sent him to his grandmother to be taken care of. After sometime of living with his grandmother, he later moved to live with his auntie.

Poverty did not allow Yaw Barimah to continue his education. So after completing the Junior High school at age 17, life became increasingly difficult for him and so with desperation and determination to survive, come what may, he took a bold decision to move to the city. “I decided to go to Accra to find a job because there was no better job in the village. So I first got a job as an attendant in a drinking bar. I worked there for three years.” But Yaw Barimah was still not satisfied with life as he realized there was no future for him in being a bar attendant. So he embarked on a new journey.

An entrepreneur is born Those who have lived in the rural areas would reckon that one common job most young boys engage in is being a cobbler (popularly known as shoe-shine), and Yaw Barimah was one of them. So as he pondered over what better job to do which could give him a secured future, the ‘shoe-shine business, which was only a handto-mouth trade, became a rediscovered treasure for him.

“When I was in the village, I used to be a ‘shoe-shine’ boy. Since I already knew some-

58 Business Times Africa | 2016

FROM BAR ATTENDANT TO SHOE MAKER

thing about that job, I decided to learn more and upgrade my skills from shining shoes to making them. So I began searching for a place that I could find someone who would teach me. Then I came across one elderly man who made shoes, and agreed to teach me the art. The training alone took me about four years.” Then came another hurdle to jump. After graduation, he wanted to establish his own shoe-making shop, but as has always been the case in Accra, finding a place (land) to serve as location for the shop, became a problem.

As if that was not enough, he didn’t have the needed capital to get a kiosk for himself. “I thought that after my graduation, I would get some help from somewhere to set up. But there was no help from anywhere. So 10 years ago, I decided to start the business under a tree with a seed amount of GHC50.” He reckons that the beginning of his entrepreneurial journey was not easy for him as he had to constantly sacrifice some part of a day’s meal (often lunch) just to accrue enough capital for the business.

Sacrifice and challenges With time, that sacrifice paid off as he was able to raise enough money to set up a kiosk at Korle-bu, a suburb of Accra, within one year. But getting into his fifth year, he was evicted from the site as the landlord saw it was time to put up a structure on the land. After he was evicted, Yaw Barimah now needed capital to move to a different location to expand his business. So his next move was to go to the banks to seek a loan for the expansion. But guess how much he was given. Nothing! The banks were not in any position to lend him money.

And even to date, he says, most banks are still not willing to give out loans to small businesses.

“I remember I had an opportunity last year at the Trade Ministry to get a grant of €100,000 from Italy. But they needed a bank guarantee and no bank was ready to provide me that guarantee with the fear that I will not be able to pay back, so I couldn’t get the grant.” His limited education also sometimes affects his confidence level especially when expressing himself in the English language, but Yaw Barimah maintained, he is not sidetracked by this. Beyond the issue of capital, Yaw Barimah has a difficulty in accessing raw materials for his business as he said there is no company in Ghana that produces leather. He is therefore pleading with the government to establish or assist local companies to produce leather so that shoe manufacturers will have easy access to raw materials.

“I want my brand to be a household name such that if you mention ‘Barimah Shoes’, everybody

should be able to associate it with quality and know that it is made in Ghana. I also have the vision of exporting to other countries in and outside the African continent in the next two years.

Words of wisdom Yaw Barimah bemoans the misconception that still lingers in our part of the world that subjects learning a trade as a profession suitable for school dropouts. “If I take my company as an example, even though I employ eight people, I only I ALSO HAVE have one apprentice. THE VISION OF What it means is that EXPORTING TO many young people do not find learning a OTHER COUNTRIES IN AND OUTSIDE trade attractive.

But I want the youth to THE AFRICAN know that learning a CONTINENT IN THE trade is the best way to fight youth unemploy- NEXT TWO YEARS ment. They should not consider it as a profession for school dropouts. I rather think the youth who are educated should spearhead the campaign for everyone to engage in learning a trade so that the country will move forward.” I also want to tell those who have not made it through our educational system that it is not all lost for them. They should study their lives and see what they are good at doing and capitalize on it or learn something new which can help them earn a living.”

2016 | Business Times Africa 59

TECHNOLOGY

Rush to Take Advantage of a Dull iPhone Started Samsung's Battery Crisis Few things motivate Samsung employees like the opportunity to take advantage of weakness at Apple Inc. Earlier this year, managers at the South Korean company began hearing the next iPhone wouldn’t have any eye-popping innovations. The device would look just like the previous two models too.

It sounded like a potential opening for Samsung to leap ahead.

So the top brass at Samsung Electronics Co., including phone chief D.J. Koh, decided to accelerate the launch of a new phone they were confident would dazzle consumers and capitalize on the opportunity, according to people familiar with the matter. They pushed suppliers to meet tighter deadlines, despite loads of new features, another person with direct knowledge said. The Note 7 would have a high-resolution screen that wraps around the edges, iris-recognition security and a more powerful, faster-charging battery. Apple’s taunts that Samsung was a copycat would be silenced for good.

Then it all backfired. Just days after Samsung introduced the Note 7 in August, reports surfaced online that the phone’s batteries were bursting into flame. By the end of the month, there were dozens of fires and Samsung was rushing to understand what went wrong. On September 2, Koh 60 Business Times Africa | 2016

RUSH TO TAKE ADVANTAGE OF A DULL IPHONE STARTED SAMSUNG'S BATTERY CRISIS

held a grim press conference in Seoul where he announced Samsung would replace all 2.5 million phones shipped so far. What was supposed to be triumph had turned into a fiasco.

Samsung drew criticism for the recall too. It announced the plans publicly before working out how millions of consumers in 10 countries would actually get replacements. Then it sent mixed signals about what customers should do. First, Samsung told people to shut off their phones and stop using them. A few days later, it offered a software patch to prevent batteries from overheating, signaling consumers could keep using the phones.

"This is creating an enormous problem for the company -- for its reputation and ability to support its customers when there’s a problem," said David Yoffie, a management professor at Harvard Business School and board member at Intel Corp. and smartphone vendor HTC Corp.

Samsung declined to comment specifically on whether it moved up the Note 7 launch because of its perception of the iPhone. “Timing of any new mobile product launch is determined by the Mobile business division based on the proper completion of the development process and the readiness of the product for the market,” the company said in a statement.

The misstep has set off soul-searching at the Samsung conglomerate and in South Korea, where the company employs hundreds of thousands and is revered for leading the nation’s rise since the Korean War. Samsung’s flagship electronics unit built its reputation on high-quality products and cutting-edge technology, becoming the largest phone maker in the world and a powerful rival to Apple in innovation. One employee, in an online discussion group, called the episode "humiliating."

The crisis is straining a management team that’s been without clear leadership for more than two years. Lee Kun-Hee, the Samsung patriarch who is chairman of both the electronics unit and the broader conglomerate, suffered a heart attack in 2014 and hasn’t been back to the business since.

His son, Jay Y. Lee, is heir apparent, but hasn’t taken his father’s title because Korean culture precludes such a move while the elder Lee is alive. The result is that no one appears to have the kind of authority that, say, Tim Cook wields at Apple to take responsibility and hammer out solutions.

“The battery issue arrived at the worst moment for Samsung and it seems like there was a delay in reacting to this communication crisis,” said Thomas Husson, an analyst at Forrester Research. “This may indeed be due to the change in top manage2016 | Business Times Africa 61

RUSH TO TAKE ADVANTAGE OF A DULL IPHONE STARTED SAMSUNG'S BATTERY CRISIS

Jay Y. Lee, Vice Chairman, Samsung Electronics

ment.” Samsung said in the statement that its focus now is on doing the right thing for customers and that it is working to replace the Note 7s as quickly as possible. “For us at Samsung, to earn consumers’ trust back is very important.”

The roots of the battery crisis can be traced back more than a year, when Samsung was contemplating what features to include in new phones. The Korean company has two primary lines of premium devices, the Galaxy S and the larger Note. When the Note was first unveiled in 2011, it was panned by some critics, who mocked its massive screen.

But it was a surprise hit with customers seeking the added real estate to watch videos, play games and browse the web. Samsung pretty much had the high end of the oversized smartphone market 62 Business Times Africa | 2016

to itself until Apple followed with its larger iPhone 6 Plus in 2014.

The Plus’s debut put pressure on Samsung to defend its turf and it moved up the 2015 introduction of the new Note from September to August, just weeks before Apple unveiled the iPhone 6s. Samsung’s engineers met the deadline, but Apple still grabbed a chunk of market share. In December, the chief of Samsung’s mobile division was replaced.

The 55-year-old Koh, a company veteran who had managed development of several Galaxy phones, took his place on the hot seat.

Koh faced not just intensifying competition with Apple but slower growth as the whole smartphone market became saturated. When Samsung became aware that Apple didn’t plan any major design changes, the Korean executives saw an opportunity. After a select group of top managers got their hands on early versions of the Note, they gushed over the upgrades and praised each other’s work, according to one of the people. If Apple wasn’t going to offer consumers anything exciting, Samsung certainly would.

With Chairman Lee in the hospital, the younger Lee and co-vice chairman G.S. Choi huddled with Koh and executives of other Samsung affiliates, which make semiconductors, glass panels and batteries. They went ahead with a slew of new features that had been on the company’s product road map, including an improved screen and stylus -- and then approved a launch date 10 days earlier than last year, according to one of the people familiar with the matter. Samsung’s unveiling was Aug. 3 this year, compared with Aug. 13 last year.

The battery is a critical component. Smartphone makers have been pushing the boundaries of the technology for years as they try to satisfy ON SEPT. 2, KOH consumer demands for long-lasting devic- HELD A GRIM PRESS es that charge faster. CONFERENCE IN That increases man- SEOUL WHERE ufacturing challenges HE ANNOUNCED and raises the risks of SAMSUNG WOULD defects.

Samsung opted to REPLACE ALL 2.5 give the Note 7 a 3500 MILLION PHONES milliampere hour SHIPPED SO FAR battery compared with 3000 mAh for the previous model. For comparison, the iPhone 7 Plus has a 2900 mAh battery. The main battery supplier for the Note 7 was Samsung SDI Co., a person with knowledge of the matter has said. The company,

RUSH TO TAKE ADVANTAGE OF A DULL IPHONE STARTED SAMSUNG'S BATTERY CRISIS

founded in 1970 and 20 percent owned by Samsung Electronics, makes batteries for other The Galaxy Note 7 and its stylus, the S Pen. phone-makers too, including Samsung has stopped buying batteries for the Apple.

Note 7 from the SDI affiliate.

As the launch date approached, employees at Samsung and suppliers stretched their work hours and made do with less sleep. Though it’s not unusual to have a scramble, suppliers were under more pressure than usual this time around and were pushed harder than by other customers, according to a person with direct knowledge of the matter. One supplier said it was particularly challenging to work with Samsung employees this time, as they repeatedly changed their minds about specs and work flow. Some Samsung workers began sleeping in the office to avoid time lost in commuting, the supplier said. Samsung declined to comment on whether deadlines were moved, reiterating that products are only introduced after proper testing.

Still, by August, it looked like Samsung had made it. The company shipped early models of the Note 7 to wireless operators around the world, including AT&T Inc. in the U.S. and Telstra Corp. in Australia. An executive at one carrier said his team started testing the deiar with the matter. The phone division pointed finvice in May and had the typical amount of time gers at battery maker Samsung SDI, while managto check its capabilities. They focused on antenna ers there argued the problem could be elsewhere, performance and data speeds and didn’t uncover including in the phone design or the battery problem, the executive said. insulation. Samsung said there is SAMSUNG OPTED But when customers started using the phones, no ongoing debate on the issue TO GIVE THE the fires began. The first signs of trouble emerged and that the phone unit has tak- NOTE 7 A 3500 online, as they’re wont to do in this age of social en responsibility.

MILLIAMPERE media. Photos and videos of charred phones were Samsung’s top managers knew posted on the web. “Hey YouTube,” said one man, they needed to move fast. Inter- HOUR BATTERY as he described how his phone had burst into nally, there was a debate about COMPARED WITH flame and showed off the blackened remains. “Be whether to do a full-blown recall 3000 MAH FOR careful out there. Everyone rockin’ the new Note 7, or to take less dramatic steps, like THE PREVIOUS it might catch fire y’all.” a battery replacement program.

Executives at Samsung headquarters in Suwon Then on Sept. 1, an engineer MODEL were in shock. Choi, the co-vice chairman, gathwrote on the company’s internal ered senior managers, demanding to know what online bulletin board. “Please recall all Note7s and went wrong, according to one of the people famil2016 | Business Times Africa 63

RUSH TO TAKE ADVANTAGE OF A DULL IPHONE STARTED SAMSUNG'S BATTERY CRISIS

exchange them with new ones. I don’t have to get my PS,” he said, referring to his profit sharing, or bonus.

“It’s humiliating.”

The post prompted many impassioned responses, mostly in support of the idea. Another worker said Samsung had trained everyone at the company to make no compromises with customers and the company needed a recall to live up to that standard. Then Koh himself weighed in. He apologized to employees and said he would consider their input in taking the appropriate steps. The next day, Koh went public with the full recall.

Samsung engineers rushed to determine the cause of the problem, working through the Harvest Festival holiday last week. The company’s most complete explanations so far have come in reports to government agencies in Korea, China and the U.S. The initial conclusions indicated an error in production that put pressure on plates within the battery cells.

That in turn brought negative and positive poles into contact, triggering excessive heat that caused the battery to explode. The chairman of the U.S. Consumer Product Safety Commission was more explicit when his agency announced an official recall on Thursday.

He said the phone’s battery was slightly too big for its compartment and the tight space pinched the battery, causing a short circuit. “Clearly, they missed something,” said Anthea Lai, an analyst with Bloomberg Intelligence. “They were rushing to beat Apple and they made a mistake.”

As it investigates, Samsung has stopped buying batteries for the Note 7 from the SDI affiliate. It shifted purchases to Amperex Technology Ltd., a unit of Japan’s TDK Corp., according to local media reports.

“After extensive testing and as reported to multiple regulatory agencies, this issue is isolated to the battery cell from one supplier only,” the company said in its statement. “All replacement Galaxy Note 7 devices will have batteries from other suppliers.” A spokesman for Samsung SDI said the company’s stance on the recall is in line with what’s been previously announced by Samsung’s mobile unit and declined to elaborate.

The replacement program is prompting more reflection. The fast response was driven by good intentions. Samsung managers have studied past product recalls, including those at Toyota Motor Corp., and the conclusion seemed clear: Move quickly and dramatically. But Samsung moved so fast it got ahead of regulators who help organize such programs. In the U.S. for example, companies are supposed to notify the Consumer Product Safety Commission within 24 hours of uncovering problems. Instead, Samsung went public on its own and consumers didn’t have clear guidance on how to exchange their phones.

“The official recall process provides a lot of clarity to 64 Business Times Africa | 2016

consumers and there’s someone checking to make sure the fix is a good one that serves the consumers in terms of safety,” said Jerry Beilinson, a technology editor at Consumer Reports.

Samsung, which may pay as much as $2 billion for the recall, said on Sunday it soldstakes in ASML Holding NV, Seagate Technology Plc, Rambus Inc. and Sharp Corp. for a total value of about 1 trillion won ($891 million). While Samsung says Galaxy Note 7 sales will resume in Korea around Sept. 28, it has yet to specify when global sales would resume.

WHILE SAMSUNG The tumult has raised SAYS GALAXY questions about whethNOTE 7 SALES er Samsung’s current management approach WILL RESUME IN is sufficiently robust to KOREA AROUND handle the crisis fallSEPT. 28, IT HAS out. In the wake of the YET TO SPECIFY recall, Samsung said it had nominated the WHEN GLOBAL younger Lee to join the SALES WOULD company’s nine-memRESUME ber board, a move that will give him a more active, and legitimate, role across its businesses. However, the younger Lee, who has kept a low profile inside and outside the company, is still far from having the kind of direct authority his father had. In addition to the corporate strategy office that oversees about 60 Samsung companies, Samsung Electronics has three CEOs. “This is a crisis and a blow to Samsung’s image,” said Kim Sang Jo, economics professor at Hansung University in Seoul. “Clearly there were procedural missteps and the company will have to restore consumer and investor confidence.”

Apple’s iPhone 7 also wasn’t as uninspiring as Samsung may have anticipated. Though it kept the same physical design with modest technology changes, loyalists still lined up at stores around the world on Friday to get the company’s latest gadget. Twenty years ago, in a chapter of Samsung Group history that employees can recite by heart, Chairman Lee grew so frustrated by faulty mobile phones that he piled up thousands of the devices and lit the whole heap ablaze. Never compromise on quality, he exhorted the workers watching, putting Samsung on course to become the top seller of mobile phones in the world.

Today, Samsung phones are ablaze once again, only this time the flames threaten the company’s hard-won image. “The potential damage to reputation is far greater than short-term financial losses,” said Chang Sea Jin, a professor at National University of Singapore. – Bloomberg

TECHONOLOGY

Tech titans unfazed by Africa’s commodity slump The titans of Silicon Valley are undeterred by the economic slump afflicting much of Africa.

UBER’S SCHEDULED RIDES ALLOWS USERS TO RESERVE A CAR UP TO 30 DAYS IN ADVANCE

Facebook, Google, Oracle and Uber Technologies are at the leading edge of turning the world’s frontier markets digital. As the commodity crash buffets the continent’s biggest economies, the interest and investments couldn’t come at a better time. Almost half of foreign direct investment projects in Africa last year were in technology, telecommunications, financial services and consumer products.

The amount dedicated to oil, gas and mining dropped to 6 percent - from almost a quarter in 2005 - according to EY, a consultancy firm.

“There’s been a big shift from an almost exclusive focus on extractive sectors to those such as consumers and renewable energy,” said Michael Lalor, the Johannesburg-based head of EY’s Africa Business Centre. “There’s a growing base of consumer demand as that happens.” African growth has slowed since 2014 as waning demand from China hammered prices of raw materials from oil to copper and coal. Of the three biggest sub-Saharan economies, Nigeria’s is shrinking and South Africa and Angola are barely growing.

2016 | Business Times Africa 65

TECH TITANS UNFAZED BY AFRICA'S COMMODITY SLUMP

Kenya leading Investors have adapted by focusing more on the continent’s young population and rising middle class as harbingers of opportunity. Countries less exposed to commodities are reaping the benefits.

The number of foreign direct investment projects carried out by private-sector companies in Kenya rose to 95 in 2015 from 62 the previous year, the biggest increase among African nations, according to EY. “Kenya is really benefiting in terms of longterm investment,” said Martina Bozadzhieva, an analyst at London-based Frontier Strategy Group, which advises firms looking at emerging markets. “A lot of companies see it as a much more reliable, less vulnerable destination than, say, Nigeria or Angola.”

Investment in West Africa’s Ivory Coast, which the International Monetary Fund said will grow 8.5 percent this year, more than anywhere else on the continent, is also booming. Heineken NV announced a new brewery last year, French retailer Carrefour SA opened its first store in December and Burger King launched its first sub-Saharan restaurant outside of South Africa there the same month. To be sure, the gap between promise and reality has bruised earlier generations of foreign investors in Africa. Heineken Chief Executive Officer Jean-Francois van Boxmeer said he was “praying” for higher oil prices to boost beer sales, while retailer Truworths International pulled out of Nigeria in February, citing red tape and capital controls.

Still, Facebook CEO Mark Zuckerberg just travelled to Kenya and Nigeria on his first visit to sub-Saharan Africa. In Nigeria, where his personal fund in June invested $24 million in Andela, a Lagos-based start-up software developer, he said he was “blown away by talent and entrepreneurs in this country.” In Kenya, he said he wanted to learn how businesses were using mobile money.

Oracle said this month that Africa was a “priority market” in which “cloud technology will undoubtedly drive the next phase of growth for businesses.” Since launching in South Africa in 2013, Uber has entered Nigeria, Ghana, Uganda, Tanzania, Kenya, Morocco and Egypt. Last year CEO Travis Kalanick named the continent as one of his priorities, along with China and India.

‘Middle-class option’ Though only 15 percent of African adults own a smartphone, compared with around two-thirds of Americans, there are still plenty of opportunities. That’s true even in markets suffering economic slumps, according to Alon Lits, who heads Uber in sub-Saharan Africa. “At this stage, it’s probably more of a middle-class option,” Lits said from Johannesburg. “But we’ve seen 66 Business Times Africa | 2016

Mark Zuckerberg, Facebook ,CEO. invested $24 million in Andela, a Lagos-based start-up software developer

a huge increase in smartphone adoption across the continent. We’re seeing consistent growth across all markets.

In a tough environment, if anything, people may look to get rid of one vehicle in the household and look at alternatives, removing the burden of a fixed cost.”

While minerals, oil and gas will continue to attract substantial money from abroad, internet-based industries will be- IN KENYA ROSE come more prominent over the TO 95 IN 2015 next few years, according to AdFROM 62 THE eniyi Adedokun, an economics teacher at McPherson University PREVIOUS YEAR, in southern Nigeria. “Investors THE BIGGEST need to diversify,” he said. “It’ll INCREASE take time, but they are changing AMONG AFRICAN their strategies. They’re focusing on manufacturing and construc- NATIONS tion. And telecommunications is attractive due to the growth of broadband and smartphone penetration.” – Bloomberg

DIGITAL MUSIC

The Music Industry Is Finally Making Money on Streaming Intra-regional trade is critical to Africa’s development, but progress on economic integration has been painfully slow After almost two decades of relentless decline caused by piracy and falling prices, the music business is enjoying a fragile recovery thanks to the growth of paid streaming services like Spotify Ltd. and Apple Music.

Retail spending on recorded music grew 8.1 percent to $3.4 billion in the first half of 2016, according to a draft midyear report from the Recording Industry Association of America that was obtained by Bloomberg News.

That means the U.S. industry is on pace to expand for the second straight year -- the first back-to-back growth since 1998-1999.

The credit goes to streaming -- Internet services that give listeners commercial-free access to millions of songs for a monthly fee -- or for free if they’re willing to hear ads. U.S. streaming revenue grew 57 percent to $1.6 billion in the first half of 2016 and accounted for almost half of industry sales, more than countering shrinking purchases of albums and singles. Subscriptions totaled $1.01 billion, according to the RIAA data.

“We’re starting to see on-demand music streaming as no longer a thing that hipster college kids and young people do,’’ said Larry Miller, a former industry executive who now teaches music business at New York University. The Recording Industry Association didn’t respond to a request for comment. The results can be seen in the financials of large music companies. Vivendi SA’s Universal Music Group reported firsthalf growth, while through nine months ended June 30, sales at Warner Music Group, owned by billionaire Len Blav-

atnik, grew 8.5 percent to $2.41 billion, according to filings. Sony Music Entertainment also reported gains in its latest quarter.

Still Wary The industry is reluctant to declare victory. Annual sales have hovered around $7 billion for six years, down by half from the 1999 peak, according to RIAA data.

Meanwhile the labels are still negotiating new contracts with Google Inc.’s YouTube and Spotify, two of the largest purveyors of free music in the world.

While sales from ad-supported, on-demand streaming grew 24 percent

to $195 million in the first half of 2016, according to the RIAA report, those services aren’t doing enough to convince people to pay for music and and don’t make enough money off their free users, the labels say.

Nor is this the first time new technology has come along to get people to pay online. Apple Inc. co-founder Steve Jobs convinced record labels that iTunes would save the industry from piracy,

only to vaporize album sales by selling singles instead.

Crowded Marketplace Yet Apple is no longer the only player in the market for digital music. Spotify operates a larger paid subscription service and has showed no signs of slowing down since Apple Music began competing in that market. Most of the users for Apple Music are people new to paying music, not former Spotify customers, according to label executives. Meanwhile, purchases of music, whether downloaded or on a CD, continue their steep descent. Physical music sales tumbled 14 percent while downloads also shrank by a double digit percentage.

The arrival of new competitors complicates the outlook, depending on whether they attract new customers or steal from others. Amazon.com Inc., the world’s largest Internet retailer, is investing in a paid music service to help sell other goods on the e-commerce site. It will introduce a standalone music service by the end of the year, people with knowledge of the matter said in June.

Pandora Media Inc., the largest online radio service in the world, will also introduce a paid, on-demand service by year’s end, and aims to convert 10 percent of its 78 million free users into paying customers by 2020.

– Bloomberg 2016 | Business Times Africa 67

SOUTH AFRICA

Mbeki - from ousted president to peacemaker

Adekeye Adebajo

As former South African president Thabo Mbeki continues his troubleshooting role in Sudan, it is worth examining his post-presidency activities since his dramatic "recall" from office in September 2008.

As former South African president ya. Mbeki played an instrumental role in Thabo Mbeki continues his troublebrokering the 2009 agreement by which shooting role in Sudan, it is worth examZimbabwe established a government of ining his post-presidency activities since national unity that eventually led to elechis dramatic "recall" from office in Septions four years later. tember 2008. Mbeki has transformed He also became involved in peace himself from a philosopher-king to a making efforts in Sudan’s five-decade peacemaker and public intellectual. conflicts that have involved disputes At first, he concentrated only on isbetween an often repressive jihadist sues of foreign polgovernment in Khartoum and icy, assiduously subordinate regions such as DarCAPITAL FLIGHT fur, South Sudan, Blue Nile and avoiding domestic FROM THE politics so as not Southern Kordofan. Although to get in the way Mbeki enjoyed the confidence of CONTINENT of his successor, BETWEEN 1970 Khartoum, many in South Sudan Jacob Zuma. He distrust him due to his perceived AND 2008 has subsequently closeness to Sudanese leader AMOUNTED bemoaned "a danOmar al-Bashir. Mbeki has congerous and unacTO BETWEEN tinued to visit the region, consistceptable situation $854BN AND ently pushing for implementation of directionless of agreements on sharing oil rev$1.8-TRILLION enues, the management of assets and unguided national drift". and debt, citizenship issues, bor Mbeki has visited universities, high der security, the holding of a referendum schools, business forums and women’s in Abyei and joint control of disputed groups at home and abroad. He has also areas. talked to African leaders on ways to de He has also pushed for an inclusive velop the continent. He was awarded an national dialogue within Sudan involvhonorary doctorate by Addis Ababa Uniing political parties and civil society. versity in 2010 for his peacemaking efAfter Laurent Gbagbo refused to step forts in Africa, and received the Obafemi down following the loss of a presidential Awolowo Leadership Prize in Nigeria in election to Alassane Ouattara in Ivory 2015. Mbeki has focused on issues such Coast in 2010, Mbeki was sent by the AU as the scourge of corruption and dicto meet the key actors in Abidjan and tatorship in Africa, the "brain drain" of prepare a report. He pushed for a politprofessionals from Africa and the need ical compromise involving direct talks to strengthen African civil society. He between Gbagbo and Ouattara mediathas criticised the stalled implementaed by African leaders, something that the tion of AU projects, Western fears of Chivictorious Ouattara understandably dena’s growing economic presence in Afclined. Gbagbo was eventually removed rica, the EU’s heavy-handed imposition from power by French and UN forces. of unequal trade agreements on Africa, Since 2012, Mbeki has also chaired the the increased deployment of US troops UN Economic Commission for Africa’s in Africa and Nato’s intervention in Libpanel on illicit financial flows. The panel 68 Business Times Africa | 2016

Executive director of the Centre for Conflict Resolution and author of Thabo Mbeki: Africa’s Philosopher-King

noted that capital flight from the continent between 1970 and 2008 amounted to between $854bn and $1.8-trillion.

Mbeki thus argued that the $50bn illicitly leaving Africa annually undermined the continent’s development efforts, particularly as Africa received $25bn in aid annually.

In 2010, the Thabo Mbeki Foundation was established, with Mbeki as its patron. Its goals include promoting the African Renaissance; serving as an intellectual home for a continental African Renaissance movement; becoming a premier African centre for dialogue, research and publication; and ensuring that African voices are heard and respected on African issues. Linked to the foundation is the Thabo Mbeki African Leadership Institute, established at the University of South Africa to train African youth on the political, economic and social renewal of their continent; and to create new thought leaders.

Students from SA, Zimbabwe, Nigeria, Ghana, Ethiopia, the Democratic Republic of Congo, Cameroon and further afield have attended courses at the institute. The institute seeks to achieve its goals through offering courses on leadership, political economy, gender and public policy, as well as convening regular seminars. Although both institutions are playing an active role in promoting debates and training African youth, a grassroots African Renaissance movement seems a distant pipe dream.

The question remains whether these two bodies can be institutionalised and resourced sustainably to ensure their continuation after their patron’s demise: a key challenge for all similar institutions across the continent.

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