Best of tar 2014 southern africa by The Africa Report

54 country reports w w w.t hea f r ic a r ep o r t .c om

30 people to watch

in politics, business & culture

Double issue

N ° 6 6 • d e c e m b e r 2 014 - j a N u a r y 2 015

Africa in 2015 China down, Europe out, Africa digs deep

GroUPE jEUNE AFrIqUE INTERNATIONAL EdITION

Algeria 550 DA • Angola 600 Kwanza • Austria 4.90 € • Belgium 4.90 € • Canada 6.95 CAN$ • Denmark 60 DK • Ethiopia 75 Birr • France 4.90 € • Germany 4.90 € • Ghana 7 GH¢ • Italy 4.90 € • Kenya 410 shillings • Liberia $LD 300 • Morocco 50 DH • Netherlands 4.90 € • Nigeria 600 naira Norway 60 NK • Portugal 4.90 € • Sierra Leone LE 9,000 • South Africa 30 rand (tax incl.) • Spain 4.90 € • Switzerland 9.90 FS • Tanzania 6,500 shillings • Tunisia 8 DT • Uganda 9,000 shillings • UK £ 4.50 • United States US$ 6.95 • Zimbabwe US$ 4 • CFA Countries 3,500 F CFA

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frontline | what to watch in 2015

2015 AfricA cup of NAtioNs 17 Jan – 8 feb EQuAtoriAL GuiNEA cafonline.com

iNvEstiNG iN AfricAN MiNiNG iNdAbA 9-12 february Cape Town | south AfricA miningindaba.com

hArvArd busiNEss schooL AfricA busiNEss coNfErENcE 27 feb – 1 March

The hague | NEthErLANds ntaganda faces 18 charges of war crimes and crimes against humanity. icc-cpi.int M

powEr-GEN AfricA 15-17 July Cape Town | south AfricA Conference on electricity provision in africa. powergenafrica.com

cAiNE prizE for AfricAN writiNG July oxford | uK www.caineprize.com

Lima | pEru Bankers and academics discuss global economic governance. 2015lima.gob.pe

22Nd AfricA oiL wEEK November

worLd EcoNoMic foruM oN AfricA 3-5 June Cape Town | south AfricA weforum.org

worLd bANK/ iMf ANNuAL MEEtiNGs 9-11 october

Cape Town | south AfricA globalpacificpartners.com

uN GENErAL AssEMbLy 15-28 september

AfricAcoM November

new YorK | us The world’s presidents and diplomats set out the global agenda. un.org

Cape Town | south AfricA one of africa’s largest technology conferences. africa.comworldseries.com

calendar 2015

icc triAL of coNGoLEsE MiLitAry LEAdEr bosco NtAGANdA 2 June

BosTon | us africabusinessconference.com

AfricA cEo foruM 16-17 March geneva | switzErLANd theafricaceoforum.com

sudAN prEsidENtiAL ELEctioNs 2 April Afdb ANNuAL MEEtiNG 25-29 May aBidjan | côtE d’ivoirE The Board of governors will elect a new president to succeed donald Kaberuka in september. afdb.org

cAr prEsidENtiAL ELEctioNs June

SIA KAMBOU/Afp

ELEctioN buzz the year 2015 will be dominated by elections as hundreds of millions of Africans head to the ballot box to vote for new presidents and governments. in west Africa, Nigeria’s president Goodluck Jonathan’s battle for re-election will take centre stage (see page 20) on 14 february, but voters will also elect leaders in Guinea in June, in togo in July and in côte d’ivoire (pictured) in october. the East of the continent is no less busy, with Ethiopian federal elections in May, presidential and general elections in burundi and somaliland respectively in June, and general elections in tanzania in october. the africa report

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country profiles

southern africa CABINDA

LUANDA

contents

TANZANIA

DEMOCRATIC REPUBLIC OF CONGO

108 PeoPle to watch 110 angola

Huambo

112 botswana

MALAWI

LILONGWE

ZAMBIA LUSAKA

113 lesotho

Nampula

114 madagascar

Blantyre

HARARE

Antananarivo

ZIMBABWE

NAMIBIA WINDHOEK

GABORONE

Atlantic Ocean

PRETORIA

118 namibia

MAPUTO

119 south africa

MBABANE

121 swaziland

SWAZILAND

Kimberley

MASERU

LESOTHO

50% The Southern African Development Community’s 2015 target for women in decisionmaking roles in the private and public sectors

122 zambia

Indian Ocean Durban

124 zimbabwe

Port Elizabeth

CAPE TOWN

300 km

calendar 2015

May Mauritius Parliamentary elections June South Africa World Economic Forum on Africa June South Africa African National Congress National General Council SepteMber Malawi Lake of Stars festival Late 2015 Angola Production restarts at the liquified natural gas plant soUtHern africa 2014 GdP (% of regional total)

soUtHern africa PoPUlation (millions) 357 207

Zimbabwe 2.4% Zambia 4.4% Swaziland 0.7%

22.6% Angola

TOTAL

$581.5bn South Africa

58.7%

2.8% Botswana 0.4% Lesotho 1.9% Madagascar 0.8% Malawi 2.2% Mauritius 1.1% Mozambique 2.1% Namibia

249 577 184 651

2015 the africa report

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117 mozambique

MOZAMBIQUE

Johannesburg

SOUTH AFRICA

116 mauritius

MADAGASCAR

Bulawayo

BOTSWANA

115 malawi

Beira

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2030

2050

SOURCE: UNITED NATIONS

ANGOLA

107

108 Country Profiles

Southern africa

PeoPle to watch South africa

Paul Mashatile Gauteng Province powerhouse

António Mosquito Businessman António Mosquito, once best known for being the local representative of Audi and Volkswagen, has come back into the spotlight by acquiring stakes in construction and media companies in Lisbon, Portugal. He bought a 66.7% stake in construction group Soares da Costa in February through a capital increase of $70m, reportedly entirely subscribed by him. He also acquired 27.5% of media conglomerate Controlinveste in March. Mosquito, who is in his sixties, differs from many of Angola’s most successful businessmen in that he does not hold a political position within the ruling party. Claims abound about whether or which member of Angola’s elite he may represent. He is also said to have business interests in banking, minerals and oil.

STEPHANE DE SAKUTIN/AfP

An empire from Luanda to Lisbon

Zambia

Edgar Lungu Holder of the keys to the succession The death of President Michael Sata on 28 October left Patriotic Front secretary general Edgar Lungu in a position of great influence. Sata sacked his most likely successor, Wynter Kabimba, in August and appointed Lungu as justice minister and party boss in addition to defence minister. But the ruling party’s Bemba majority may not rally around a non-Bemba like Lungu. The months leading up to the presidential polls will test Lungu’s negotiating skills.

Mashatile, 53, was re-elected for the third time as ANC chairman for Gauteng in October. A former ANC Youth League leader, he is not shy about voicing his opinion on issues like urban tolling and the party leadership. He was the lead voice in the Forces of Change camp campaigning for Kgalema Motlanthe to become ANC president in 2012. But Mashatile faces an uphill battle: the ANC lost 10% of the vote in the province during the May 2014 elections. Party leaders blamed President Zuma’s Nkandla scandal and his uninspiring leadership. Mashatile is a member of parliament and is on the powerful national executive committee. He will remain central in the competition for the ANC leadership in 2017.

angola

109

mozambique

Afonso Dhlakama Charismatic campaigner

GIANLUIGI GUERCIA/Afp

Less than two years after being written off as a political force, the leader of opposition movement Renamo is riding high and at the centre of events. On 5 September he returned from the bush fresh from signing a peace deal after Renamo’s ragtag forces bested the army in an 18-month insurgency – provoked by accusations that the ruling Frelimo party was dismantling the 1992 peace accord and re-establishing a de facto one-party state. Dhlakama placed second in 15 October polls and crushed the upstart Movimento Democrático de Moçambique. His supporters regard him as someone who stands up to a ruling party accustomed to running things its own way.

South africa

Mmusi Maimane A preacher man for the opposition’s cause

zimbabwe

Grace Mugabe A fiesty first lady who’s up for a fight The 49-year-old wife of President Robert Mugabe is making a name for herself. Though she tells audiences “Why not? Am I not Zimbabwean?” to the rhetorical question of why should she ascend to the presidency, many people are sceptical. Nevertheless, she is set to become the ruling ZANU-PF Women’s League president, which would catapult her into the party’s politburo. Whether or not she continues her climb, her role may be more to upset the apple cart. The race to succeed President Mugabe has two main contenders: vice-president Joice Mujuru and justice minister Emmerson Mnangagwa. Grace is helping Mnangagwa with her attacks on Mujuru. The scene is set for a rowdy party conference on 17 December 2014. the africa report

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Maimane, 34, is a full-time priest at Liberty Church and director of his own communications training company as well as being leader of the opposition Democratic Alliance (DA) in parliament. He has stepped into the shoes of Lindiwe Mazibuko, who left her mark on parliament with her clear questions and challenges to President Zuma. Maimane’s rise in the DA has been meteoric. He is a deputy federal chair and a former national spokesperson. In March 2011 he was the DA’s unsuccessful mayoral candidate for Johannesburg. Maimane has not impressed the backbenchers with his calm and Obama-like style, but he is the new black face of the DA and has the ear of its leader, Helen Zille.

110 Country Profiles

Southern africa

angola

The oil-barrel blues 200 Km

The country’s trouble liquified natural gas plant should be back online in 2015

he government, run by the Movimento Popular de Libertação de Angola (MPLA), is focused on dealing with lower levels of oil production and a dropping oil price. The opposition has mainly been quiet, but campaigners continue to criticise the cosy relationship between the regime and its business partners. The country’s development needs remain vast, and the government is pouring money into electricity generation and transportation. In a state of the nation address at the opening of parliament in October 2014, President José Eduardo dos Santos dampened expectations about the year ahead, saying that the government was revising its growth estimates downwards for 2014. The creation of a sovereign wealth fund in 2011 has not altered the government’s ability to manage the ups and downs of the oil price. He said Angolans had turned the page of war forever and that Angola’s efforts were “now oriented toward the consolidation of the democratic institutions where, may it truly be said, we are noting great progress”. ‘distorted picture’

Angola’s opposition disagrees and has been largely restrained in its activities since an activist was killed by security forces in November 2013 just hours ahead of countrywide protests in which 292 people were detained by police. In an alternative state of the nation address, União Nacional para a Independência Total de Angola leader Isaías Samakuva said that Dos Santos painted “a distorted picture of the extent of poverty and nature of corruption”. Dos Santos set out a list of ambitious targets that are likely to be missed if the downturn in the oil sector continues.

DEMOCRATIC REPUBLIC OF CONGO

CABINDA

LUANDA

Atlantic Ocean

ANGOLA Lobito Huambo ZAMBIA NAMIBIA

Population: 21.5 million Population growth: 3.1% ■ GDP per capita: $6,127 ■ Life expectancy: 51.9 ■ Adult literacy: 71.14% ■ Inflation: 7.29% ■ Human development index (out of 187 countries): 149 ■ Foreign direct investment: $288m ■ Current account as % of GDP: 4.11% ■ Mobile phone penetration: 61% ■ Key export: Petroleum ■ Last change of leader: 1979 ■ GDP growth (%) ■ ■

5.2

■

to purchase all electricity produced by Biocom for 20 years. Biocom, a $500m venture, is 40% owned by Brazil’s Odebrecht, 40% by Angolan company Damer Industria and 20% by state-run petroleum company Sonangol Holding EP. The power plant, which will produce electricity from sugar cane, should be operational in the first quarter of 2015 with output forecast at 40,000tn of sugar per annum. It is the country’s largest renewable energy project and will use 15% of its sugar to produce ethanol to sell to Sonangol. centralising power

5.9

6.8

3.9

115.3

124.2

131.4

141.8

2012

2013*

2014*

2015*

GDP ($bn)

*Estimation Oct. 2014

Some infrastructure spending will be on hold due to lower government revenue

The government plans to more than quadruple electricity production from 2,062MW to 9,000MW in 2025 through the construction of new dams and rehabilitation of old ones. He said his administration also aims to provide clean water to two-thirds of the population by 2017. Agriculture and education are other priority areas for public investment, but there too campaigners say that corruption is rampant. The government approved a power-purchase agreement in October 2014 between the Companhia de Bioenergia de Angola (Biocom) and state energy company Empresa Nacional de Electricidade, in which it commits

Civil society groups have criticised the deal for the lack of transparency in terms of Biocom’s deciding on its local partner. Damer is jointly owned by vice-president Manuel Vicente, General Manuel Helder Vieira Dias Júnior and General Leopoldino Fragoso do Nascimento. The government is dragging its feet on the organising of local elections, which were due to take place in 2014 but have been postponed. It prefers to centralise power and limit opportunities for oppositionpartiestodevelop localfollowings.As a step towards the polls, the government organised the first post-independence census in mid-2014. With the Angolan civil war just over a decade in the past, the country is likely to miss many of the 2015 targets for the Millennium Development Goals. Under-five mortality dropped to 158 per 1,000 live births in 2011 from 243 in 1990, but that will not be enough to meet that goal. However, the government met the target for reducing hunger in 2013 and reported in October that the number of Angolans living on less than $2 per day fell from 92% in 2000 to 54% in 2014. Oil production in Angola decreased in the first half of 2014 which, combined with uncertainty about future output and declining crude prices, fuelled anxiety about the impact on government revenue, the economy and the potential political fallout in a heavily oil-dependent country.GovernmentrevenuefromJanuary to July 2014 was down by 13% from

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111

growth in exports

In 2013, oil exports accounted for about 97% of total exports and 42% of gross domestic product. Growth in the nonoil economy, driven by the agricultural sector and to a lesser extent manufacturing and services, has remained robust. The government continues to push

Maternal mortality ratio

Deaths per 100,000 live births 1,500 1,250 1,000 750

1,200

source:MMeIG 2012

the same period in 2013, and the price of oil continued to decline toward the end of the year. The government’s gross international reserves, which have been increasing for several years, declined to $28.8bn in August 2014 from a historically high level of $36.6bn reached in September 2013, according to government statistics. The International Monetary Fund (IMF) said the drop in reserves was due in part to a transfer of $5bn from the Oil for Infrastructure Fund to Angola’s sovereign wealth fund. Vice-president Manuel said the Organisation of Petroleum Exporting Countries member planned to increase output to 2m bpd by 2017. This is two years behind an earlier target of 2015 stated on several occasions by petroleum minister José Maria Botelho de Vasconcelos. The industry is eager to see a repeat of Brazil’s pre-salt boom in offshore Angola, given the geological similarities between the two countries. Results of drilling in the Kwanza Basin are expected at the end of the first quarter of 2015 at the earliest, industry sources say.

450

500 250 0 1990

MDG target 300 1995

2000

2005

2010

2015

$10bn

Cost of Angola’s liquefied natural gas project, led by oil giant Chevron for the development of local content in the oil and gas sectors. While Angolanisation appears to be working in terms of the numbers game, analysts say it is not addressing the underlying need for Angolans to develop skills. Due to a lack of technical training, most positions occupiedbyAngolansarelower-skilledjobs. The country’s $10bn liquefied natural gas project, which had been expected to run at full capacity throughout 2014, has been beset by problems. Oil giant Chevron, which has the largest stake in the venture, said in September that it would learn from its experiences after

several electrical fires, pipeline leaks and a worker’s death. It planned to have the project up and running again by 2015. Given the uncertainty surrounding the future of the oil industry and the pressing needs of Angola’s population of 21.5 million, the diversification of the economy away from hydrocarbons appears more urgent than ever. The construction of dams and roads is essential to support industries, and good roads, railway lines and ports too will ensure reliable transport of goods. The government may not meet all of its investment targets in 2015 because it is looking for ways to reduce expenditure. In September 2014, Angola took the decision to cut back fuel subsidies and raise retail fuel prices. The cost of a litre of gasoline rose 25% to K75 ($0.76). Angola spent around 4% of its 2013 budget on fuel subsidies. The health of the banking sector is crucial to domestic industries, and the authorities are still dealing with the impact of the mid-2014 crisis at Banco Espirito Santo Angola, the local subsidiary of a Portuguese bank. A new bank, Banco Economico, has been created from the ashes of the old bank and Sonangol is now the biggest shareholder. While its direction remains uncertain, analysts say the financial sector is stable. The central bank will increase supervision of the sector over the coming year and mergers and acquisitions among the country’s 24 banks are likely. ●

The MPLA Looks To The fuTure wiThouT discussing The succession Most agree that the only person who really knows the succession plans is President José eduardo dos santos himself. although the Movimento Popular de Libertação de Angola (MPLa) will hold its fifth extraordinary congress in December 2014, Dos santos, 72, has told his central committee that leadership issues will be the africa report

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off the agenda until the party’s congress in 2016. Under the slogan ‘MPLa – revitalise the structures to strengthen the Party’, the congress will look to consolidate peace and the rule of law, assess party structures and reaffirm its political and ideological principles of democratic socialism, the party says on its website. government

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officials say the MPLa will make minor adjustments to its structures that could point to which of its members are shifting in time for elections in 2017. talk of the succession continues nonetheless. Vice-president Manuel Vicente is now betterknown in diplomatic circles, especially after attending the UN general assembly

in september 2014. It remains anyone’s guess whether he will assume the presidency after Dos santos, who has so far clocked 35 years in power. although he has no base within the MPLa leadership, some say the president’s son José Filomeno dos santos, who is the director of angola’s sovereign wealth fund, is a possible contender. ●

112 Country Profiles

Southern africa

botswana

Gems still at the heart of things ANGOLA

Khama’s controlling style is under fire as the opposition rallies

uoyed by Botswana’s continuing economic growth, President Ian Khama won a second five-year term in the October 2014 election as the ruling Botswana Democratic Party (BDP) managed to hang onto power. Despite not winning a majority of votes, the BDP took a majority of parliamentary seats. This came in the face of an unprecedented challenge from a three-party opposition alliance, the Umbrella for Democratic Change (UDC), which succeeded in securing 30.1% of the vote and 17 seats in parliament to become the official opposition. The opposition Botswana Congress Party took 20.4% of the votes. The UDC alliance, under the leadership of Duma Boko, increased its appeal by calling for the creation of more jobs, but it was dealt a serious blow when its secretary general, Gomolemo Motswaledi, died in a car accident three months before the polls. Motswaledi had been president of the UDC’s largest constituent, the Botswana Movement for Democracy, which broke away from the BDP in 2010. Although observers were satisfied that the election process was free, oppositionists reported suspicious burglaries of their houses and vehicles in the run-up to the polls, while one newspaper editor was detained. khama makes enemies

The BDP’s tally of elected seats in parliament was reduced by eight to 37 out of 57, but Khama is unlikely to modify his topdown leadership style. He has alienated BDP elders, including two former presidents, as well as parliamentary speaker Margaret Nasha. Both former presidents have been frustrated at Khama’s refusal to accept their advice. His immediate predecessor, Festus Mogae, declared that

ZIMBABWE NAMIBIA

Francistown

BOTSWANA GABORONE 200 km

SOUTH AFRICA

Population: 2 million Population growth: 0.9% ■ GDP per capita: $7,749 ■ Life expectancy: 64.4 ■ Adult literacy: 88.46% (est.) ■ Inflation: 4.76% ■ Human development index (out of 187 countries): 109 ■ Foreign direct investment: $188m ■ Current account as % of GDP: 5.76% ■ Mobile phone penetration: 160% ■ Key export: Diamonds ■ Last change of leader: 2008 ■ GDP growth (%) ■ ■

4.3 ■

5.9

de beers brings a boost

4.4

4.2

GDP ($bn)

14.6

14.8

16.3

17.7

2012

2013*

2014*

2015*

*Estimation Oct. 2014

Diamonds continue to account for threequarters of Botswana’s exports

export diversification has kept the economy vulnerable to fluctuations in demand for diamonds. No real diversification is happening, and the development of coal exports looks to be a long-term prospect. The second major export, beef, has been hit by a foot-and-mouth disease outbreak, which has made exports to Europe impossible for the past two years. Diamond exports were $4.2bn in 2013, accounting for 76% of total exports. A budget surplus is anticipated in 2014/2015, with minerals accounting for 30% of revenue and South African Customs Union receipts 32%.

ZAMBIA

the government disrespects the rule of law. Ketumile Masire, speaking at Motswaledi’s funeral, implicitly endorsed the opposition as a government in waiting. A key pointer to the survival of multiparty democracy will be Khama’s choice of vice-president to succeed Ponatshego Kedikilwe, who is due to retire. ContendersincludefinanceministerKenneth Matambo and foreign affairs minister Phandu Skelemani. An appointment of one of Khama’s inner clique could spark renewed dissidence within the BDP. The International Monetary Fund projects that economic growth will remain strong. It notes that Botswana’s lack of

Diamond-cutting activities have expanded, with Indian firms now involved, stimulating a construction boom in Gaborone’s central business district. This was boosted by De Beers’ move of its global ‘sightholder’ sales to Botswana during 2013. Most of the De Beers’ diamond valuers have relocated to Gaborone from London, despite the continued absence of direct international flights. The government/De Beers 50:50 joint ventureDebswanaDiamondCorporation was forecast to produce some 24m carats in 2014. The company’s mine at Jwaneng – which produces the greatest proportion of gem-quality stones – is expected to last until 2028. Two smaller mines have started production and diamond exploration has soared. London-listed Gem Diamonds commissioned the underground Ghaghoo mine, controversially located in the Central Kalahari Game Reserve, in September 2014. The government hopes to incentivise investors to exploit estimated reserves of 212bn tonnes of bituminous coal for export and domestic and regional thermal powerplants.The300MWSeseintegrated coal and power project of Australia’s African Energy Resources is the first to have been approved, and Botswana and Namibia have jointly committed to build a 1,500km trans-Kalahari railway. This ambitious goal depends on attracting private-sector stakeholders to fund the $9bn estimated cost. ●

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Southern africa

Country 113 Profiles

lesotho

Crunch time for coalition politics Feuding parties agree to hold elections earlier than scheduled to resolve crisis Job creation is vital for a country heavily dependent on workers’ remittances

military plans coup

The strains in this alliance showed up in June 2014, when Thabane suspended parliament against the wishes of other coalition members, especially Metsing. It soon became clear that Metsing had wanted to leave the coalition to form an alliance between his LCD and the DC, and that Thabane wanted to avoid a vote of no confidence. On 31 August, soldiers of the Lesotho Defence Force, led by army chief Lieutenant General Tlali Kamoli, were planning a coup in response to Thabane’s attempt to dismiss Kamoli. The move reflected the state of high tension between Thabane, who was backed by the police, and Metsing, the africa report

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MASERU

LESOTHO

SOUTH AFRICA

Population: 2.1 million Population growth: 1.1% ■ GDP per capita: $1,286 ■ Life expectancy: 49.4 ■ Adult literacy: 79.36% ■ Inflation: 6.47% ■ Human development index (out of 187 countries): 162 ■ Foreign direct investment: $44m ■ Current account as % of GDP: -0.77% ■ Mobile phone penetration: 86% ■ Key export: Diamonds ■ Last change of leader: 1996 ■ GDP growth (%) ■ ■

6 ■

WiDEsprEaD poVErty

4.7

5.7

4.3

2.4

2.3

2.5

2.7

2012

2013*

2014*

2015*

GDP ($bn)

*Estimation Oct. 2014

reshelectionsplannedforFebruary 2015 are intended to resolve the political crisis that overtook Lesotho in late 2014, when Tom Thabane, the prime minister, briefly fled the country amidst talk of coup plotting. But in view of the likelihood that the outcome will be another ill-matched coalition, the prospects of longer-term political reform are not encouraging – unless one of the main contenders for power can emerge with a convincing mandateandawillingnesstotackledeepseated corruption. Cracks in the political system have threatened Lesotho’s stability for years. The country’s most recent elections in June 2012 saw Thabane take over as prime minister from Pakalitha Mosisili – leader of the current main opposition Democratic Congress (DC). Thabane’s All Basotho Convention (ABC) headed an unhappy coalition of five parties that includedtheLesothoCongressforDemocracy (LCD), led by deputy prime minister Mothejoa Metsing, and the Basotho National Party.

paringfornewelections.Theyalsoagreed that South Africa and other countries would send observers – with the backing of troops and police – to help bring the unpredictable security situation under control. For his part, Thabane said that he would run for office again and that he hoped that amendments to the constitution could resolve any future stalemate. Amid signs that Mosisili and Metsing would also run, the stance of the army remained potentially problematic, with Kamoli reluctant to step aside.

30 km

SOUTH AFRICA

supported by Kamoli. Thabane’s supporters maintained that the instability had been instigated by a group around Metsing who hoped to secure immunity from prosecution for corruption. After a flurry of visits by South Africa’s President Jacob Zuma and deputy president Cyril Ramaphosa – with the latter also representing the Southern African Development Community – negotiations gotunderwayinSeptemberbetweenKing Letsie III, political leaders and senior police and army officers. These led to a minimal agreement that parliament would reopen in October for the limited purpose of passing the budget and pre-

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Lesotho’s economy has so far weathered the political turmoil, although the need for job creation has become critical. The International Monetary Fund noted that unemployment is high and poverty widespread, while government revenue remains overly dependent on the Southern African Customs Union. The textile sector, a large contributor to the economy, is back on the rise after a sluggish two years for exports. However, the potential non-renewal of the US African Growth and Opportunity Act at the end of 2015 could pose a problem to the sector as the agreement underpins the flow of Lesotho’s textiles to the US. Operationsintheminingindustryhave continued. Gem Diamonds, the owners of the Letseng mine, said its work continued normally, and Paragon Diamonds expects its new Lemphane diamond mine will make $9m annually when it starts production in 2015. Consultations for a mining and minerals policy have been completed with a view to the government getting more revenue from the sector. Plans have been proposed for a $718,000 diamond centre for the sale, cutting and polishing of stones. The second phase of the Lesotho Highlands Water Project was launched in March 2014, to boost dam capacity from 10bn to 15bn cubic metres by 2023. That includes the construction of the Kobong pumped storage hydroelectric scheme to generate 1,200MW, to be online by 2018. Water and power sold to South Africa are important sources of export revenue. ●

114 Country Profiles

Southern africa

madagascar

A transition to normality The new president has avoided being dragged into his predecessors’ rivalry The return of donor aid and improved oil-sector prospects boost the economy

ravalomanana trouble

Hery has tried to strike a reconciliatory middle ground with the country’s political forces, but Ravalomanana’s camp has been implacable. The former president still faces legal charges but he returned unannounced from his South African exile in October 2014 and was immediately taken into custody. Lalao Ravalomanana, who is Marc’s wife and sought to run against Hery, called for insurrection. A number of crucial issues are yet to be addressed by the new government: the opposition is divided and unstructured; the process of national reconciliation has

Toamasina

MADAGASCAR 300 km

Indian Ocean MAURITIUS REUNION (France)

2.5 ■

2.4

Foreign aid made up about 75% of Madagascar’sbudgetbeforethecoupthat overthrew Ravalomanana in 2009. With the peaceful elections, most donors, including the US, EU, World Bank and IMF restarted their financial aid in 2014. The economy has mostly been driven by the extractive sector, agro-industry, banking and transport. Increased tourist arrivals and economic reforms are expected to boost the economy in 2015. fuel subsidies axed

Population: 22.9 million ■ Population growth: 2.8% ■ GDP per capita: $475 ■ Life expectancy: 64.7 ■ Adult literacy: 64.66% ■ Inflation: 7.34% ■ Human development index (out of 187 countries): 155 ■ Foreign direct investment: $838m ■ Current account as % of GDP: -4.29% ■ Mobile phone penetration: 36% ■ Key export: Cloves ■ Last change of leader: 2014 ■ GDP growth (%) ■

GDP ($bn)

9.9

10.6

11.2

11.8

2012

2013

2014

2015*

*Estimation Oct. 2014

adagascar enters 2015 with the government looking to put the instability of the past behind it. The country elected a new president in January 2014 to end a fraught five-year period of political transition and instability, but former presidentMarcRavalomananaandtransitional leader Andry Rajoelina remain divisive forces. The economy is getting back on its feet, and many threats remain, including the high level of smuggling that developed under the transitional regime. Hery Rajaonarimampianina, finance minister under the transition and a political unknown before that, won 53.5% of the vote to become president, with the support of Rajoelina and businessman Mamy Ravatomanga. Hery, as he is popularly known, has since shown himself to be his own man and bucked his supporters to name another political neophyte, Roger Kolo, as his prime minister in April after several months of delays in the selection process. Rajoelina, who likes the spotlight, was prohibited by international mediators from running for the presidency in 2014 and uncharacteristically took a back seat for much of 2014.

ANTANANARIVO

For data sources, see page xxx

COMOROS

barely begun; and the army remains a volatile force. The new government has not been able to achieve all that was set out in the transition, and the municipal elections planned for October 2014 were postponed without a date decided. The government is desperate to get the economy back on track after it nosedived during the crisis. The challenge is stark: the International Monetary Fund (IMF) estimates that 90% of the population lives on less than $2 per day. Smuggling of rosewood and other protected resources skyrocketed during the period of political instability and it will take time for the state to reimpose its surveillance role.

In July 2014, the government decided to end fuel subsidies, which account for 1.5% of gross domestic product (GDP), and return to market-determined prices for petroleum products at the pump. The adjustment is likely to take a year. Mitigating mechanisms such as cash transfers and subsidies for public transport will be put in place to limit the impact on the poorest households. Another item on the government’s economic agenda is the floundering state electricity and water utility Jirama. Blackouts and water shortages are a daily occurrence and a severe constraint to economic development. The company hasrackeduplargedebtsbecauseoftheft, low tariffs, corruption and poor management. The World Bank committed $80m to help turnthe utility aroundin July 2014. NationalcarrierAirMadagascarisequally inefficient, with flight cancellation a daily occurrence. It is banned from European airspace for safety reasons. Resumingessentialpublicinvestments and social spending is another priority. Madagascar’s fiscal base is one of the lowest in the world at just 10.4% of GDP. Thecountryisthereforelookingintoways to increase revenue and tax collection. The nascent oil and gas industry also received a confidence boost in May 2014 when Madagascar Oil announced that its Tsimororo heavy oil field was commercially viable. Other companies will be watching the next steps closely. The government intends to issue more oil and gas exploration permits in addition to licences to explore for uranium, bauxite, coal and other metals. ●

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Southern africa

Country 115 Profiles

malawi

With victory comes a poisoned chalice Donors continue to withhold aid that was dropped after the Cashgate scandal

Lake Malawi

Agricultural output is growing, but the economy is poorly diversified

cashgate fallout

Mutharika inherited a series of problems from Banda. Her efforts to woo donor support had involved a major devaluation of the kwacha, which sent commodity prices soaring. However, revelations of a major corruption scandal in 2013 meant that the donor funds that had just started trickling in were again withheld. The so-called Cashgate affair resulted in the arrest of at least 70 people to answer theft, fraud, corruption and money-laundering charges. Donors the africa report

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MALAWI LILONGWE

MOZAMBIQUE

Blantyre

150 km

Population: 16.4 million Population growth: 2.8% ■ GDP per capita: $250 ■ Life expectancy: 55.3 ■ Adult literacy: 65.79% ■ Inflation: 19.57% ■ Human development index (out of 187 countries): 174 ■ Foreign direct investment: $118m ■ Current account as % of GDP: -5.99% ■ Mobile phone penetration: 32% ■ Key export: Tobacco ■ Last change of leader: 2014 ■ GDP growth (%) ■ ■

1.9 ■

5.2

plus ça change…

5.7

4.4

5.0

2014*

2015*

GDP ($bn)

4.2

3.8

2012*

2013*

*Estimation Oct. 2014

eter Mutharika’s narrow victory in the hotly contested elections of 20 May 2014 may turn out to have been the easy part in a country so troubled by corruption and food insecurity. Without the restoration of donor support – and the severe strings attached – the economy will continue along the troubled path that had begun under the rule of his brother, the late Bingu wa Mutharika, from which it hardly recovered during the two-year rule of Joyce Banda, who had promised radical change. The 75-year-old Washington State University constitutional law professor scraped through the elections with only 36.4% of the votes. His Democratic Progressive Party took 49 seats in the 193-member parliament, leaving independents and other parties holding the rest. He has found a useful ally in the United Democratic Front of Atupele Austin Muluzi, with its 14 seats. In October, Mutharika held talks with some opposition parties in order to build a wider base of support for the government’s programme. The opposition has started a debate about the decentralisation of power and is calling for Malawi to implement a policy of federalism.

government has more than doubled fees for drivers’ licences, vehicle certificates and fines for traffic offences. Mutharika complained that donors have not been clear about what would lead to the resumption of aid. Key donor countries and agencies adopted a waitand-see attitude. The group that includes the World Bank, African Development Bank, the EU, the UK and Norway will only rethink the decision to freeze the budget if the government strengthens public finance control systems. The government planned to agree a new programme with the International Monetary Fund before the end of 2014.

TANZANIA

ZAMBIA

reacted by pulling the plug on earmarked budgetary support of $150m. Mutharika and finance minister Goodall Gondwe have very little fiscal space to manoeuvre because of domestic liabilities amounting to 67% of total expenditure. The 2014/2015 budget deficit stood at 14%, the inflation rate exceeded 25% in 2014, with interest rates higher still. Most observers expected the Mutharika administration to raise taxes, but it was clear that he did not want to expend his shaky political capital so soon after a narrow election. Mutharika has looked for other ways to shore up the tattered public finances. For instance, his

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Western donors will want to know if the new Mutharika is different, or – more importantly – better than Bingu, who so firmly resisted undertaking economic reforms. There have been few signs of radical reform and the current cabinet and team of advisers comprise almost all the politicians and technocrats who worked with Bingu. Mutharika does not have the luxury of time as he tries to improve relations with donors. With 120,000 civil servants demanding a 50% salary increase that the government can ill afford, newspapers have reported on critical shortages, such as of drugs in public hospitals. One of the few glimmers in the gloom comes from forecasts of continuing economic growth at above 6% in 2014 and 2015. The agricultural sector managed 6% growth in 2013, with tobacco sales up more than 100% on the previous year. For 2014, there were early forecasts of a revival in maize, rice and pulses thanks to favourable weather and the farm input loan scheme. The country’s 2002 food crisis demonstrated that Malawi’s agricultural advances can be fragile. The government’s economic priorities for 2015 include agricultural diversification and attracting investment for the Nsanje inland port. Landlocked Malawi said it will not got to war but would also not negotiate in its dispute with Tanzania about the borders of Lake Malawi. ●

116 Country Profiles

Southern africa

mauritius

High income, here we come Lacklustre growth in Europe has affected investment flows, export demand and the number of tourists from France in particular, a major source of visitors. Tourism is a key source of foreign currency and employment, contributing about 8% to gross domestic product. Another key challenge is the renegotiation of a double taxation avoidance agreement with India. The agreement, which has been a key driver of the country’s financial services sector over the past three decades, is likely to be amended as the Indian government is currently losing a lot of tax revenue because of it. The treaty encourages investors to route money through Mauritius to benefit from its low tax environment, where foreigners pay an effective 3% on profits and 0% on dividends and capital gains.

Though it will not reach high-income status by 2020, Mauritius is on its way New political coalitions will not change much in government policy

new left coalition

Some of the more left-wing parties formed their own new coalition in 2014. It includestheMauritianSocialDemocratic Party(MSDP)ledbyXavier-LucDuval.He stepped down as finance minister in June 2014 after falling out with Ramgoolam over electoral reform, ending the coalition between his party and the Labour Party. The MSDP joined forces with the

Indian Ocean

MAURITIUS

Indian Ocean

10 km

Population: 1.2 million Population growth: 0.4% ■ GDP per capita: $9,715 ■ Life expectancy: 73.6 ■ Adult literacy: 90.62% ■ Inflation: 3.74% ■ Human development index (out of 187 countries): 63 ■ Foreign direct investment: $259m ■ Current account as % of GDP: -9.23% ■ Mobile phone penetration: 123% ■ Key export: Tuna ■ Last change of leader: 2012 ■ GDP growth (%) ■ ■

3.2

3.3

3.9

11.4

11.9

12.7

13.6

2012

2013

2014*

2015*

3.2

■

investment flows to africa

GDP ($bn)

*Estimation Oct. 2014

olls suggest that the new coalition of Prime Minister Navin Ramgoolam’s Labour Party and Paul Bérenger’s Mouvement Militant Mauricien(MMM)isguaranteed to dominate the next elections, which are expected to take place early in 2015. While it is likely to push through electoral reforms ahead of the elections, including granting the president more power and making it more difficult for small parties to win parliamentary seats, no significant change in economic policy is expected. All of the three main parties encourage business and investment through low taxes in order to finance social spending. Ramgoolam plans to take over from Kailash Purryag as president following the elections, while Bérenger would become prime minister, a role he also filled from 2003 to 2005. Bérenger, who said at a press conference in September that the coalition will focus on accelerating the transition of Mauritius to a high-income country, is also expected to appoint a number of his senior MMM members as ministers. The coalition should be able to push through economic programmesandeliminatethevoiceofsmaller and more left-wing parties. One area where Ramgoolam and Bérenger would seek more activity is in the formation of public-private partnerships for power, transportation and water projects.

PORT-LOUIS

Mouvement Socialiste Militant, led by Pravind Jugnauth, and the Mouvement Libérateur,anew partythatwaslaunched by Ivan Collendavelloo. For the Labour Party/MMM coalition, winning the election should be the easy part.Diversifyingtheeconomyandaccelerating growth will prove much harder, a 2014 working paper from the International Monetary Fund indicated. To reach its target of becoming a high-income country by 2020, it will need to achieve an average growth rate of nearly 6% over the next five years. One of Mauritius’s key challenges is its strong economic ties to Europe.

Mauritius has already made significant progress in diversifying its reliance on investment flows to India, with 54.4% of all investment flows channelled through the country targeting Africa in 2013, according to statistics from the Mauritian Financial Services Commission. This is up from 40% in 2010. In addition to positioning Mauritius as an investment hub into Africa, the government is also encouraging direct investment by local firms into the continent. It established the Mauritius-Africa Fundinearly2014toprovideequityfunding for investment in African projects, freight subsidies on exports to countries excluding South Africa and Madagascar, and subsidies on credit guarantee insurance for exports. A number of Mauritian firms are already active abroad and looking to further expand their footprints, whether throughpartnershipsorphysicallysetting up shop or acquiring assets in new countries. AfrAsia Bank, for example, expanded to Zimbabwe in 2012. CIEL Textile, one of the island’s biggest groups, said in 2013 it will invest Rs600m ($18.8m) in four new plants in Asia in the next five years, building two in India, one in Bangladesh and one in China. ●

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Southern africa

Country 117 Profiles

mozambique

New man, same party, fresh challenges MALAWI

Nampula

frelimo moves forward

Frelimo leaders have recognised that they must have a closer dialogue with Renamo to ensure political stability. This is a rebuke for the policies of President Armando Guebuza, who will step down in January 2015 after two terms. Guebuza, who continues as party president, will remain influential although Nyusi will begin to consolidate power and establish priorities and direction for his new administration. But Nyusi’s presidency the africa report

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ZIMBABWE

MADAGASCAR

Beira Indian Ocean

SOUTH AFRICA

MAPUTO 300 km

SWAZ.

coal sector losses

Population: 25.8 million ■ Population growth: 2.5% ■ GDP per capita: $626 ■ Life expectancy: 50.3 ■ Adult literacy: 58.77% ■ Inflation: 4.6% ■ Human development index (out of 187 countries): 178 ■ Foreign direct investment: $5,935m ■ Current account as % of GDP: -48.43% ■ Mobile phone penetration: 48% ■ Key export: Aluminium ■ Last change of leader: 2005 ■ GDP growth (%)

■

7.2 ■

7.1

8.3

8.2

GDP ($bn)

14.3

15.3

16.6

18.6

2012

2013

2014*

2015*

*Estimation Oct. 2014

MOZAMBIQUE

ZAMBIA

Miners are having problems, and gas is the next resource frontier anaging resource wealth from the energy sector and a more politically divided country in the aftermath of a rebellion by the Resistência Nacional de Moçambicana (Renamo) party will dominate events in 2015. Filipe Nyusi, the defence minister and ruling Frente de Libertação de Moçambique (Frelimo)’s candidate in the October 2014 vote, won 57.1% of the vote while Renamo was resurgent,takingnearlytwiceitspercentage in the 2009 elections. He will take over from President Guebuza in January 2015. Implementation of the peace agreement, under which Renamo forces are to disarm and be integrated into the police and army, will likely carry on for much of the year. Although peace will return, the implementation, monitored by international observers, will be fraught. Renamo will almost certainly hold back arms and men and retain a military option, as it has done since 1992. Frelimo, too, may balk at depoliticising state institutions. The opposition Movimento Democrático de Moçambique led by Daviz Simango failed to make advances, scoring less than 7% of the vote, down from 8.5% in 2009. It has a young, urban and well-educated following but has yet to shake up the national political landscape.

domestic use of gas to promote industrial development as part of a gas master plan, developed with World Bank assistance, and which would account for 25% of all production under new petroleum legislation passed in August 2014. As well as imposing local content requirements, the law requires the state to publish energy contracts, but it includes the right to exclude sensitive information.

TANZANIA

President-elect Nyusi promises continuity rather than change

represents continuity more than change. As a new and relatively weak political figure, his presidency could see a strengthening of the party over the executive. The economy is set to grow strongly in 2015. Growth will be backed by massive foreign investment in the energy sector, which will eventually make the country a significant exporter of coal and liquefied natural gas (LNG). Development of the first plants is now under way. A projected 2018/2019 start date for LNG production is increasingly distant as investors struggle with limited infrastructure and difficult operating conditions. The government is encouraging the

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The troubled coal sector, where miners are struggling to become profitable, highlights the country’s weak infrastructure. Rio Tinto wrote off most of its $3.7bn in coal investments in 2013. Brazil’s Vale is now seeking partners to reduce exposure to risk. Some relief will come for Vale in 2015 when it will begin operating its own rail line, lessening dependence on the state-owned port and rail company, and easing transport bottlenecks. Themanagementofresourcewealthby weak state institutions will be a growing risk. The government recognises that it needs assistance from Western donors, the World Bank and International Monetary Fund for this. These problems underline the economy’sdualism:under-performingtraditionalsectorsanddynamicmega-projects that employ relatively few people. Structural reforms to improve competitiveness and promote labour-intensive privatesector growth – the need for which is reflected in declining global ranking in the World Bank’s Doing Business survey – are a low priority for the government. Fiscal priorities, otherwise, remain focused on the social sector, including social subsidies, health and education. The sector accounted for 68.3% of spending in 2014. Growing domestic revenue independence will support the government’s assertive nationalism of recent years, which has seen donor influence curtailed. Foreign assistance accounted for 33.5% of state spending in the 2014 budget, down 17% year-on-year, due to both donor austerity and fatigue with declining standards of governance and democratic pluralism. ●

118 Country Profiles

Southern africa

namibia

SWAPO’s clean sweep 300 km

The ruling SWAPO party holds onto its monopoly of power and policy Uranium and energy projects feature prominently in the investment prospectus

MAJORITY hOld

Under constitutional amendments approved in August 2014, Geingob will appoint Namibia’s first vice-president after taking office in March 2015. This could be someone from outside SWAPO in an attempt to strengthen national unity. Parliament was enlarged from 78 to 104 members to reflect population growth, but SWAPO was unlikely to lose its two-thirds majority. The Rally for Democracy and Progress (RDP),foundedin2007andledbyformer SWAPO member Hidipo Hamutenya, is expected to be the largest opposition

Walvis Bay WINDHOEK

widened in 2013/2014 after rapid growth in imports, Namibia’s overall balance of payments remained in surplus because of investment inflows. Foreign debt is set to stay relatively low. However, the economy remains narrowly based and is always vulnerable to external shocks and commodity price fluctuations. Some protection is afforded by Namibia’s rather diversified export mix, including diamonds, uranium, refined zinc and other minerals, fish, beef and manufactures.

ZAMBIA

BOTSWANA

NAMIBIA Atlantic Ocean

SOUTH AFRICA

Population: 2.3 million Population growth: 1.9% ■ GDP per capita: $5,466 ■ Life expectancy: 64.5 ■ Adult literacy: 81.94% ■ Inflation: 5.9% ■ Human development index (out of 187 countries): 127 ■ Foreign direct investment: $699m ■ Current account as % of GDP: -7.02% ■ Mobile phone penetration: 110% ■ Key export: Diamonds ■ Last change of leader: 2005 ■ GDP growth (%) ■

dEVElOPMENT BOOM

■

5.0 ■

4.5

4.3

13.1

12.3

12.0

13.1

2012*

2013*

2014*

2015*

GDP ($bn)

*Estimation Oct. 2014

age Geingob, the incumbent prime minister and ruling South West African People’s Organisation (SWAP O) vice-president, was firmly confident of election as Namibia’s first non-northern and non-Oshiwambo president on 29 November 2014. Geingob will stick tohispredecessor’spro-businesspolicies, despite demands by the SWAPO Youth League – which will have more representatives in the new parliament – for faster land redistribution and curbs on foreign, but not Chinese, ownership of mines. To be representative of the party, however, Geingob’s cabinet will try to blend experience with youth. Thanks to additional support from his own Damara community of west-central Namibia, Geingob was on track to surpass the 75% share of the vote gained by outgoing head of state, Hifikepunye Pohamba, in the last elections in 2009, after receiving endorsement from Justus Garoëb, leader of the Damara-based United Democratic Front opposition party. Geingob was also expected to pick up votes from Namibia’s second-largest ethnic group, the Ovaherero.

ANGOLA

in parliament. The RDP calls for strong anti-corruption policies to fight poverty. The November elections were set to have a more level playing field. The Electoral Commission of Namibia, which the Supreme Court criticised for its management of the 2009 elections, has been reconstituted as an independent agency. New provisions for electoral courts and tribunals should also improve the integrity of the polling. Economic growth could rise much higher as a result of increased diamond production, robust construction activities and expanded spending on infrastructure. Although the current account deficit

The principal aims of the current national development plan are to improve transport capacity and to diversify the economy through processing of natural resources. Geingob ally and trade minister Calle Schlettwein declared in 2014 that a diversified economy producing value-added and finished goods is the solution to the country’s persistent problems of high unemployment, unequal income distribution and poverty. A construction boom has been led by the development of three new mines – uranium at Husab, gold at Otjikoto and copper at Tschudi, together representing more than $2.5bn of foreign direct investment – along with the expansion of the harbour at Walvis Bay. The$2.5bnKuduoffshoregas-to-power project could provide a further economic boost. Tullow was set to take a final investment decision on building gas facilities and pipelines to an 800MW power plant at Oranjemund, but in November it announced that it wants to sell its stake in the project. Namibia Power had appointed Shanghai Electric and Siemens as preferred contractors in 2014. The economic bonanza promised by the development of a number of easily accessible uranium deposits remains largely on track, despite a slump in demand on the global market. The $2.2bn open-pit mine at Husab, 90% owned by China General Nuclear Power Group, is one of the largest mining projects in southern Africa, with targeted production of 6,800tn of uranium oxide per year, mostly destined for China. ●

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Southern africa

Country 119 Profiles

south africa

Problems rumble below the surface calm 300 km BOTSWANA

The overall economy may be sluggish, but there is growth in some sectors

strikes and factions

Beyond the cosy corridors of power, the SouthAfricaneconomyisstruggling,with gross domestic product (GDP) growth at a minimal level. The government has not achievedmuchinsectorssuchashousing provision and service delivery. Labour relations across mining, manufacturing and commercial agriculture are as tense as they have ever been since 1994. The Association of Mineworkers and Construction Union led a costly five-month strike in the platinum sector during 2014, eventually securing a 13% annual wage increaseforitslowest-paidmembers.The National Education, Health and Allied the africa report

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Johannesburg

NAMIBIA

Atl. Ocean

PRETORIA

SWAZ.

LESOTHO

SOUTH AFRICA

Durban

Cape Town

Indian Ocean

Population: 52.8 million Population growth: 0.8% ■ GDP per capita: $6,354 ■ Life expectancy: 56.9 ■ Adult literacy: 92.9% ■ Inflation: 6.3% ■ Human development index (out of 187 countries): 118 ■ Foreign direct investment: $8,188m ■ Current account as % of GDP: -5.74% ■ Mobile phone penetration: 147% ■ Key export: Gold ■ Last change of leader: 2009 ■ GDP growth (%) ■ ■

2.5

■

1.9

2.3 1.4

GDP ($bn)

382.3 2012

350.8

341.2

352.5

2013*

2014*

2015*

*Estimation Oct. 2014

he governing African National Congress (ANC) remains comfortably entrenched in power, although opposition from the political left is strengthening. Political life during 2015 will remain heavily influenced by the party’s internal dynamics. In 2017, the ANC will elect a new party president to replace Jacob Zuma and lead it into the general election in 2019. Zuma is ever more deeply mired in embarrassing legal wrangles and is fighting what seems a losing battle – at least in terms of public opinion – against the country’s feisty public protector, Thuli Madonsela, over the public money spent on his private residence at Nkandla. Calls for Zuma to resign have been coming thick and fast, particularly from the opposition Democratic Alliance (DA) and the newcomers in the Economic Freedom Fighters (EFF). Zuma’s control over the ANC remains firm, and he can continue to bat away these calls with ease. There are several possible candidates to replace him waiting in the ANC’s wings, but none have yet dared reveal themselves.

ZIMBABWE MOZ.

Oppositionists will continue to call for President Zuma’s resignation

Workers’ Union, the main public-sector union, wants tangible rewards for its support of the government in the factional fights plaguing the Congress of South African Trade Unions (Cosatu) and will react angrily to any lower wage offer from the government. The ANC will hold a National General Council (NGC) in mid-2015. At the last NGC, back in 2010, much of the debate was about whether to nationalise mines. Partly in response to the strong showing in the 2014 elections by the EFF – it took 6.4% of the national vote – the issue will resurface, though probably couched in terms of increasing black

d e c e m b e r 2 014 - j a n ua r y 2 015

ownership rather than boosting state control. Another topic will be whether to reduce the number of provinces from the current nine. Many in national ministries dismiss provincial government as expensive and incompetent. Provincial governments provide patronage opportunities, and there will be resistance to proposals for restructuring. a woman next?

The NGC will no doubt reveal the rifts within the party. Particularly illuminating will be another item Zuma wants on the agenda: whether the next president should be a woman. The two obvious candidates are Zuma’s ex-wife and chair of the AU Commission, Nkosazana Dlamini-Zuma, and ANC chairperson and National Assembly speaker Baleka Mbete. Dlamini-Zuma’s AU term expires in 2016, leaving her the option of returning to South Africa to contest the presidency. But Cyril Ramaphosa, the deputy president of the ANC and thus the official heir apparent, may have other ideas. The DA intends to push for corruption charges against Zuma to be reinstated. But for as long as he is president, he will retain a formidable influence over the intelligence agencies, the National Prosecuting Authority and the justice department, which could also help him craft a strategy to stay out of court once he is no longer president. Cosatu turns 30 in 2015, but it may have little to celebrate. Its 15th national conference will likely feature a bruising leadership battle between pro- and antiZuma factions, the latter drawn from the National Union of Metalworkers of South Africa (NUMSA), the union federation’s largest affiliate. SouthAfricanrealGDPgrowthfell0.6% during the first quarter of 2014 due to the platinum miners’ strike and a weakening in manufacturing output. Then it rose 0.6% during the second quarter, thus saving the country from its first recession since 2009. A plethora of government economic plans have concluded over the years that growth of at least 5% is needed to make a dent in the unem-

120 Country Profiles

Southern africa

south africa Problems rumble below the surface calm

keeping the lights on

The main upside to the country’s feeble growth story is that it is keeping the lights on. The country’s energy parastatal Eskom has predicted that electricity supply will be highly constrained over the next five years. But if South Africa were enjoying higher economic growth, the pressure on the grid and the likelihood of debilitating electricity blackouts would be even higher. The government authorised Eskom to raise an additional $4.5bn in debt and promised an equity injection in September. The Medupi coal-fired power station in Limpopo Province was beset by endless costly delays but is scheduled to pro-

Party division in the National Assembly (% of total votes and number of seats)

African National Congress (ANC)

62.2%

Democratic Alliance (DA)

22.2%

249

Economic Freedom Fighters (EFF)

6.4%

25 27 10 Inkatha Freedom Party (IFP) 2.4%

R270bn

Source: Parliament of the rePublic of South africa webSite

ployment figures, but clearly South Africa is far from reaching this level. Barring major new strike action at the mines, mining output will be higher in 2015 than in 2014, largely because so much platinum production was lost during the 2014 strike. Such an increase will betemperedbytheplatinumprice,which dropped about 17% from July to October 2014. Gold is set to continue its decline in output, with sinking prices too – it recorded a 27% drop in price from January to October 2014. Prospects for agriculture and the service sector are brighter, though South African consumers will remain under severe pressure, reining in their spending capacity, which in turn limits the country’s growth.

Others

5.9%

of China-South African trade in 2013, up from R205bn in 2012

duce 4,800MW of electricity once fully operational,adding11.4%tothecountry’s currently installed capacity of 42,000MW. It will consume 40,000tn of coal a year to do so, rendering South Africa’s electricity generation among the most polluting on the planet. Its first production was set to hit the grid in December. A major area of innovation in the economy in 2015 will be renewable energy. A number of new projects, mainly in solar and wind, will come on stream during the year, though a new problem has cropped up, namely that Eskom is struggling to connect them all to the national grid.

A widening current account deficit is partly driven by the rising cost of imports butalsobyaworryingdeclineindomestic manufacturing output and exports. This is fuelling domestic inflation, which exceeded the Reserve Bank’s 6% target during the second half of 2014. Average annual inflation in 2014 was expected to be around 6%, perhaps dropping to 5.5% during 2015. The winding down of the quantitative easing programme in the US reduced global liquidity, cooled investor appetite for riskier investment destinations, like South Africa, and weakened the rand against the US dollar. China is South Africa’s single largest trading partner, with bilateral trade climbing from R205bn ($24.2bn) in 2012 to R270bn in 2013, but the trade is skewed heavily in China’s favour. The two governments have formed a joint working group to attempt to achieve a more equitable balance. South African business continues to expand its presence across Africa, particularly in retail, telecommunications, mining and engineering services. Meanwhile President Zuma has requested Russian support for South Africa’s peacekeeping efforts in Africa, including its participation in the AU’s standby force. The country will maintain its military deploymenttoeasternDemocraticRepublic of Congo, where its soldiers are teamed with troops from Tanzania and Malawi in a UN-backed intervention force. ●

the man in the red beret: outspoken, but never dull Julius MaleMa’s chant to President Zuma during a national assembly debate in august that he must “pay back the money” has already entered popular culture. a dance remix of the chant was released within hours of the debate about spending on Zuma’s private residence in nkandla. some of Malema’s ardent detractors, of whom there

are many, admitted that the eFF leader had dramatically made his point despite the anc’s best efforts to prevent him from doing so. Malema will keep pushing for an answer on nkandla from Zuma during 2015. Whether he will make much headway in pushing for eFF policies, which include the Zimbabwe-style confiscation of white-

owned land without compensation or the nationalisation of south africa’s banks and mines, is another question entirely. a large majority of south africans still prefer the anc’s moderate approach, requiring willing buyers and willing sellers in the first instance and black economic empowerment rather than takeovers in the the africa report

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second. however, Malema’s dynamism and concerns about corruption within the ruling party have begun to erode its support base. Malema’s tax and legal troubles should subside somewhat during 2015, thanks to generous financial contributions from mystery donors. in the meantime, his political profile is likely to remain sky high. ● •

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Southern africa

Country 121 Profiles

swaziland

Stuck in a right royal rut SOUTH AFRICA

Obama’s withdrawal of AGOA benefits will hurt the sugar and textile industries

MBABANE

SWAZILAND

blackballed by baRack

The crackdown on political opponents and the failure to meet regional and international demands for democratisation have come at a high cost. The R2.4bn ($225m) loan that South Africa promised in 2011 has still not seen the light of day. In June, President Barack Obama announced Swaziland’s removal from the African Growth and Opportunity Act (AGOA), which offers incentives for building free markets and is set to take effect from January 2015. This will especially hurt the textile and sugar sectors. He cited the use of “security forces and arbitrary arrests to stifle peaceful demonstrations, and the lack of legal recognition for labour and employer •

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Population: 1.2 million Population growth: 1.5% ■ GDP per capita: $3,475 ■ Life expectancy: 49 ■ Adult literacy: 87.47% ■ Inflation: 5.81% ■ Human development index (out of 187 countries): 148 ■ Foreign direct investment: $67m ■ Current account as % of GDP: 0.8% ■ Mobile phone penetration: 71% ■ Key export: Raw sugar ■ Last change of leader: 1986 ■ GDP growth (%)

■

2.8

2.1

2.0

4.1

3.8

4.0

2012*

2013*

2014*

2015*

1.9 ■

GDP ($bn)

federations” as reasons. The labour ministry confirmed in October that it did not legally recognise several of the country’s major unions and business federations. While Mswati II and his everexpanding royal clan – including 15 official wives – enjoy a life of utmost comfort and luxury, the World Bank estimates that 63% of Swazis live in poverty despite the country’s relatively high gross domestic product (GDP) per capita of $3,475. Widely criticised for profiting privately from his public role, Mswati III won a spot on Forbes’ list of Africa’s five richest kings in June, with a personal fortune estimated at more than $50m.

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World Bank figures also show that Swaziland has the world’s highest HIV rate, 26.5%, and a high incidence of tuberculosis. Life expectancy plummeted to 49 years in 2012 from 59 in the early 1990s. The latest health statistics report that there are only 1,619 hospital and health centre beds available to cater for the needs of the 1.2 million population. In 2013, it was estimated that more than 60% of Swaziland’s budget came from Southern Africa Customs Union (SACU) receipts, mainly paid out of South Africa’s annual contribution to the union of around R48bn. However, SACU revenue has declined sharply in recent years, and there have been reports that Pretoria is considering an exit from the union, which could cripple the Swazi economy. youth unemployment

*Estimation Oct. 2014

olitical repression, widespread poverty and a faltering economy were major headlines in 2014 and will remain the main challenges in 2015. King Mswati III, Africa’s last absolute monarch, has ruled the Southern African kingdom with an iron fist since 1986, smothering every political threat that puts his rule at risk. In July, the courts handed journalist Bheki Makhubu and human rights lawyer Thulani Maseko two-year prison sentences for publishing news articles criticising the country’s judiciary. As The Africa Report went to press, high-profile political prisoners included People’s UnitedDemocraticMovement(Pudemo) president Mario Masuku and secretary general of the Swaziland Youth Congress Maxwell Dlamini. Both were arrested in 2014 and face up to 25 years in jail if convicted of sedition charges. Pudemo, like all other opposition groups, has been listed as a terrorist organisation under the Suppression of Terrorism Act introduced in 2008.

the africa report

MOZAMBIQUE

30 km

All political criticism is routinely treated as sedition or terrorism

An International Monetary Fund team’s visit in July led to the warning that increased fiscal and external imbalances, low private investment, high government expenditure and possible declines in SACU revenue posed risks to the economy. Furthermore, Swaziland’s exports are likely to bear the brunt of economic stagnation in South Africa, its major trade partner. After slipping three positions to 123rd in the latest World Bank’s Doing Business ranking, the government needs to bolster business confidence and tackle the scourge of unemployment.Thelasttimeyouthunemployment was measured, in 2010, it was 52.4%. The IMF also recommends a series of public-sector reforms, including a review of public-sector hiring and salaries, which represent nearly 15% of GDP. Agriculture, the mainstay of the economy,holdsthemostpromisefortheyear ahead. The government, with the EU and other donors, is drafting a 10-year agricultural investment plan to create a shift from subsistence farming, which engages 75% of the population, to commercial farming. The government developed a draft land policy in 2009, and parliament has not yet approved it. Investors say improving land management is crucial to attracting more companies. ●

122 Country Profiles

Southern africa

zambia

Sata’s uncertain legacy A return to normality should follow the convoluted succession process

Most PF members judged Lungu to be less divisive than Kabimba, and Lungu’s backers supported him for the position of secretary general although it remained unclear whether they would support him for PF presidency. Some of his key supporters, like sports minister Chishimba Kambwili and former defence minister Geoffrey Bwalya Mwamba, were discreetly eyeing the PF presidency themselves. Other candidates potentially include Sata’s son Mulenga and his nephew Miles Sampa, although the former’s open campaigning even before the burial alienated PF members. Lungu’s main strength was the support of the influential Bemba power brokers around the man seen as king-maker, finance minister Alexander Chikwanda. Kabimba had been under fire for his

ZAMBIA LUSAKA

NAM. BOTSWANA

MOZAMBIQUE ZIMBABWE

200 km

Population: 14.5 million Population growth: 3.2% ■ GDP per capita: $1,705 ■ Life expectancy: 58.1 ■ Adult literacy: 63.38% ■ Inflation: 8% ■ Human development index (out of 187 countries): 141 ■ Foreign direct investment: $1,811m ■ Current account as % of GDP: 1.9% ■ Mobile phone penetration: 72% ■ Key export: Cathodes ■ Last change of leader: 2014 ■ GDP growth (%) ■ ■

6.8 ■

ering its campaign promises as it fends off the challenge from Hakainde Hichilema’s United Party for National Development (UPND). One of the most important topics on the government agenda is the longdelayed constitutional revision. The opposition complains that the process has been opaque and that the PF has failed to deliver a revision process driven by the Zambian people. The government’s 2011-2015 national development plan also comes to an end next year, so it is discussing priority economic sectors and areas for infrastructure development. mining for votes

7.2

6.7

6.5

24.9

26.8

25.6

28.9

2012

2013

2014*

2015*

GDP ($bn)

*Estimation Oct. 2014

lungu’s competitors

Ndola ANGOLA

MALAWI

The economy is on a roll thanks to heavy infrastructure spending tough baptism awaits the late President Michael Chilufya Sata’s successor after presidential elections due in January 2015. There will be intense pressure to resolve the political disputes that have affected economic policy-making despite the economy’s strong recent growth. Different factions within the ruling Patriotic Front (PF) began to jostle roughly within days of Sata’s death on 28 October. There was an appearance of solidarity with Sata’s own belated choice of Edgar Lungu, despite a failed attempt by acting president Guy Scott to remove him from the party leadership, but there was no shortage of other candidates for the presidential ticket. Sata’s appointment of Lungu as PF secretary general in late August had already been contentious in thatithadentailedtheremovaloftheman previously seen as the most likely successor, justice minister Wynter Kabimba.

TANZANIA

DEMOCRATIC REPUBLIC OF CONGO

policy interventions, which had resulted in inconsistency in key decisions affecting mines and the financial sector. Analysts suggested that Kabimba’s departure could alienate PF voters in non-Bemba regions, although this could be offset by the planned investment of some $5bn in road and energy projects in ruralareas. InSeptember’sparliamentary by-elections, the PF took seats in remote districts in Eastern, North Western and Western Provinces from the Movement for Multiparty Democracy, the weakened former ruling party. In the year ahead, the PF will be torn between ensuring party unity and deliv-

Among the issues dividing the PF has been the relationship between the government and big investors in the mining sector. Kabimba, at times with the connivance of the late president, often adopted radical and sometimes statist policy positions, and on occasion Sata acted to stop or even reverse some of Chikwanda’s decisions. On the other hand, the group around Chikwanda has been accused of being too cosy with the mining companies. Should the PF struggle with the succession and show signs of falling apart, the UPND and Hichilema would be best placed to take advantage. In February 2014, the UPND won the Mvula local government seat in Chililabombwe, its very first ward seat in the urban Copperbelt. The victory was attributed to a refusal by PF supporters to cast their votes in protest at the lack of so-called benefits for supporting the ruling party. After Kabimba’s dismissal in August, Sata made an impromptu trip to meet Copperbelt party officials in an effort to rebuild PF unity in the most crucial province in the country (see box). After Sata’s demise, central bank governor Michael Gondwe was quick to give assurances about the fundamental strength and resilience of the Zambian economy and to note that the slide in the kwacha in the first half of 2014 had been overcome – although he warned that financial markets might be unsettled by events. However, the financial sector

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123

chinese bad for kwacha

Chinese businesses were widely blamed for the depreciation of the kwacha when they externalised large quantities of foreignexchangethroughtheBankofChina, but government measures have begun to yield results. In the course of 2014, the kwacha showed signs of stabilising.

Electrical output (MW) Forecast maximum demand Forecast shortfall 2,595 2,389

3,500 3,000 2,500 2,000

1,579 1,592

1,500

1,179

1,000 500 0

3,029

547 ND

2008

2010

2015

753

2020

2025

$5.2bn

foreign direct investment over the past three years

Despite a flow of foreign direct investment totalling $5.2bn in the past three years, investors have been complaining that the investment climate is too unstable. This sentiment was aggravated by a bitter stand-off between the Zambia Revenue Authority and the mining companies over prolonged delays in value-added-tax refunds. The government withholds them until companies present evidence of the destination of their production. Key mines on the Copperbelt, like Vedanta’s Konkola Copper Mines and Glencore’s Mopani Copper Mines, con-

source: Zesco

remained well capitalised and the prospects for 2015 and beyond were bright. The economic focus for government in 2015 will be to apply the brakes to its recent increase in spending in an effort to contain the mounting budget deficit and help stabilise the economy. Since coming to power, the PF has focused on front-loading expenditure into key infrastructure projects, especially roads and energy developments. Growth will be seen across the board in the agriculture, mining, manufacturing, construction and energy sectors. Zambia’s economy may continue to grow at a rapid pace but fiscal and exchange-rate fluctuations present a constant risk. According to the medium-term expenditure plan, Zambia will keep inflation relatively low in the single digits and cut its fiscal deficit. In June, the government reduced its 2014 budget deficit forecast to 5.2% of GDP, from 6.6% projected previously. Higher salaries for public sector workers and fuel and maize subsidies are some of the reasons for the budget deficit.

tinue to face industrial unrest. However, there is expansion elsewhere. Total copper output rose from 697,900tn in 2012 to 765,037tn in 2013 and will grow further as First Quantum presses ahead with its $2bn Sentinel copper project at Kalumbila, North Western Province. However, analysts predict that the copper price will continue its downwardtrend in 2015 after dropping from $7,400/tn in January 2014 to $6,600/tn in October. Electric power output is increasing as new projects come on stream, albeit more slowly than planned. After completing the 360MW Kariba North hydropower scheme, Zambia is now seeking to raise $280m from the World Bank to repair structural weaknesses in the Kariba Dam, which is vital to energy security in both Zambia and Zimbabwe. Both countries are also touting the construction of the 1,600MW Batoka Gorge project. Thanks to good weather and targeted inputs for farmers, agriculture, too, has been performing well. There was a surplus of 500,000tn of maize held over as a strategic reserve from a record crop of 3.3m tonnes in the 2013/14 season. The telecoms sector could receive a big boost in 2015 if the government follows through with plans to award a licence to a new mobile operator. Airtel is the current market leader in terms of numbers of subscribers, followed by MTN and Zamtel. ●

Copperbelt – Zambia’s restless politiCal heartland The resTive CopperbelT provinCe remains the nerve centre of Zambian politics. With the highest number of registered voters in the country, it is the power base for the ruling patriotic Front (pF), but there is growing discontent about the government’s relationship with investors. The province is at the centre of a power struggle the africa report

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within the pF. supporters of dismissed justice minister Wynter Kabimba, who are particularly numerous on the Copperbelt, have been purged from the pF and have faced harassment. The former ruling party, Movement for Multiparty Democracy, lost control of the Copperbelt when residents perceived them to be too cosy with the mining

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companies. Michael sata expressed radical opinions before becoming president, and the government is now working on a major mining tax overhaul (see page 84). party sources blame poor performance of the pF’s parliamentarians for its failure to satisfy supporters on the Copperbelt. Mining firms are widely seen as not doing enough to

stimulate the economy. infrastructure in most Copperbelt towns remains in poor condition. The companies say high costs at the older mines have hurt their profits. The popular perception is that they have been cheating, and residents say the government has done little to safeguard the country’s interests. ●

124 Country Profiles

Southern africa

zimbabwe Potential lenders are wholly unimpressed with Mugabe’s economic management

ZAMBIA

The fractious political parties are looking for a new generation to start afresh

budget balancing

In September 2014, the administration was still making appeals to the International Monetary Fund (IMF) for a loan, only to meet a steely insistence that Harare pays off existing arrears. As of June, the country’s external debt overhang was $9.9bn, although finance minister Patrick Chinamasa projected that foreign debt would fall to $7.2bn by the end of the year. The IMF completed a staff-monitored programme in 2014 and started discus-

HARARE

ZIMBABWE Bulawayo

BOTSWANA

MOZAMB.

SOUTH AFRICA

200 km

Indian Ocean

Population: 14.1 million Population growth: 2.8% ■ GDP per capita: $1,036 ■ Life expectancy: 59.9 ■ Adult literacy: 86.5% ■ Inflation: 0.29% ■ Human development index (out of 187 countries): 156 ■ Foreign direct investment: $400m ■ Current account as % of GDP: -28.07% ■ Mobile phone penetration: 96% ■ Key export: Tobacco ■ Last change of leader: 1980 ■ GDP growth (%) ■ ■

10.6 ■

3.3

3.1

3.2

12.5

13.2

13.7

14.4

2012

2013*

2014*

2015*

GDP ($bn)

with Russian arms conglomerate Rostec and its banking arm Vnesheconombank. Althoughexplorationhasyettobeginat the Darwendale site just north of Harare and it is still far from clear as to whether the investment will include a smelter or refinery, Zimbabwe’s mines minister Walter Chidhakwa claimed the mine wouldproduce250,000ozofplatinumper year within three years and that output would peak at 800,000oz in 2023. If true, that would make it by far the country’s biggest platinum mine. The respective shareholdingsandotheraspectsofthearrangements are shrouded in secrecy, but Russia’s trade minister Denis Manturov revealed that his country was planning to supply military hardware, helicopters and trucks to Zimbabwe. Moscow may also be asked to go into other ventures in agriculture and manufacturing. looking east

*Estimation Oct. 2014

he year 2015 is unlikely to hold major improvements to the weak Zimbabwean economy. With institutional and commercial lenders increasingly refusing to bail out his administration, which has proved unable to repay past debts and unwilling to implement deep cuts in public spending, President Robert Mugabe could be looking at ever more desperate stop-gap solutions. A stark lack of options means that more of these could be along the lines of the latest deal to set up a joint venture with a Russian consortium – which has been promised huge quantities of platinum in return for supplies of military hardware. Mugabe’s Zimbabwe African National Union-Patriotic Front (ZANU-PF) government – its legitimacy in the wakeof the disputed July 2013 polls still questioned by opposition parties – has abandoned its post-electoral charm offensive in favour of using force to crush dissent. After Mugabe turned a deaf ear to repeated calls for fresh elections by opposition leaderandformerprimeministerMorgan Tsvangirai,theMovementforDemocratic Change’s (MDC) Thokozani Khupe described the situation succinctly: “While they may have rigged the election, they cannot rig the economy.”

MALAWI

Desperation leads to Russian roulette

sions about a new one for 2015. Its focus will be on balancing the budget. Effortstore-engagewiththeWestseem doomed. Mugabe told the UN General Assembly in September that the US and the EU wanted “regime change” through “a diabolical, illegal policy of interference”. This outburst ended earlier quiet efforts of deputy foreign affairs minister Christopher Mutsvangwa to try to conciliate the US and Britain. As if on cue, Russia’s foreign minister Sergei Lavrov turned up in Harare for the signing on 16 September 2014 of a rapidly stitchedtogether deal to set up a $3bn joint venture operation, Great Dyke Investments,

Not all of the agriculture sectors have recovered from Zimbabwe’s recent economic difficulties. However, tobacco and maize are bright spots. Tobacco production dropped to 45m kg in 2008 but skyrocketed to 205.5m kg in 2014. Analysts expect record production in 2015. Before the Russian intervention, Mugabe’s ‘Look East’ policy had taken him in August to Beijing to meet China’s President Xi Jinping and request a $4bn economic rescue package, only to return almost entirely empty handed. There is a backlog of outstanding public and private debts to China. The latest Chinese offer to finance a coal mine, a power station and a dam is set to be structured as a countertrade deal, with revenue from the mine being used to repay the loan. The government has also been pleading with South African institutions to help fund collapsing public utilities. In September, finance minister Chinamasa told a visiting delegation that Zimbabwe was unfairly portrayed as a high-risk countryandthatitneededtoindustrialise tohelpstoptheflowofeconomicrefugees into South Africa. The closure of at least 700 companies in 2014 indeed put many more thousands of Zimbabweans out of

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work, belying Mugabe’s 2013 election promise that he would create more than 2m new jobs. Potential investors complain that the poor business environment is exacerbated by empowerment policies that compel foreign-owned businesses to cede at least 51% of their shares to black Zimbabweans. Indigenisation minister Francis Nhema promised a review of the policy in order to fit with the country’s new economic blueprint, the Zimbabwe Agenda for Sustainable Socio-Economic Transformation. Another positive spot in the post-electoral economic climate has been the recovery of tourism, which has struggled in recent years but rebounded a little once the 2013 elections were over. In the third quarter of 2014, the government was estimating growth of 3.1% for the year, sharply down from its earlier forecast of 6.1%. This may be over-optimistic. The African Development Bank listed the main economic challenges as the lack and high cost of capital, power shortages, infrastructure deficits and corruption. Former government chief economist John Masimba Manyanya says the country needs strong public revenue accountability mechanisms and financial governance systems. liquidity crunch

The financial sector and newish Reserve Bank of Zimbabwe governor John Mangudya have some difficult moments ahead. In late 2014 the government was operationalising an agency to buy up

Maize production trends 2009-2013 2,500,000 2,000,000 1,500,000 1,000,000 area (ha) production (tn)

500,000 0 2009

2010

2011

Source: Zimbabwe Food Security outlook, world Food Programme, 2014

125

2012 2013

$9.9bn

Zimbabwe’s ballooning external debt overhang as of June 2014 bad debts, estimated to be higher than two-thirds of certain bank portfolios. The banking sector suffered from a liquidity crunch and there had been no interbank lending market after the abandonment of the Zimbabwe dollar in 2009. The African Export-Import Bank introduced a $100m interbank facility in 2014. Mugabe has called for more value addition on the country’s products, including diamonds, so that more jobs can be created. Chinamasa has complained, as did his predecessor, that the majority of revenue from diamond sales has not found its way into state coffers. In agriculture, farmers say government has

reneged on its promises to pay for maize deliveries. New farmers also struggle to find financing as they lack collateral. Meanwhile, a new wave of land invasions has hit the southern region, where many people argue that ZANU-PF’s chaotic land grabs that began in 2000 only benefitted Mugabe and his political associates. Infighting in both ZANU-PF and the MDC has tested the strength of both parties’ internal democracies. In ZANUPF, the entry of Robert’s wife Grace Mugabe into politics (see box) may alter the balance between the two camps led by justice minister Emmerson Mnangagwa and vice-president Joice Mujuru, rather to the disadvantage of the latter. However, many in the party believe that neither faction would dare to criticise Grace as long as her husband is still in office because he is the only individual with sufficient authority to prevent the party from falling apart. Tsvangirai has been severely challenged by the 2014 departure of his former secretary general Tendai Biti to form what he calls the MDC Renewal Team, which plans an inaugural congress in March 2015 to create a larger coalition of opposition forces ahead of the next elections. Tsvangirai says the way forward is a united front that does not exclude anyone. He demands that key democratic reforms – such as security sector re-alignment and the changing of electoral laws – be implemented before any future elections. ●

A ZANU-PF dyNAsty iN the mAkiNg The Zimbabwe african National Union-Patriotic Front (ZaNU-PF) congress set for December 2014 was expected to resolve at least two of the puzzles facing Zimbabwe in 2015. it would show how much resolve President Robert mugabe has to cling to power beyond his 91st year and, more revealingly, whether the africa report

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he wants to bequeath a dynasty now that his 49-year-old wife Grace has entered the political fray by being endorsed as the next leader of the ruling party’s women’s league. Grace is not just a lover of expensive high fashion and shopping trips around the world – as so often portrayed in foreign

d e c e m b e r 2 014 - j a n ua r y 2 015

media – but something of a street fighter. “my fist may be small but i shall fill it with stones,” she said in her acceptance speech at the women’s league conference in april 2014. “i am a bouncer […] i am a force to be reckoned with.” She has long been determined to demonstrate that she can match the

ruthlessness of other ZaNU-PF cadres, boasting that when she forced the former owners out of their 1,000ha iron mask Farm at mazowe in 2002 she “led by example”. in September 2014, her daughter bona seized a seed maize farm in Goromonzi without following acquisition procedures. ●

top 200 banks

southern africa weatherIng the storm The financial health of the South African consumer is under increased scrutiny as banks worry about debt defaults, slowing growth and revenue prospects

t has been a torrid year for South Africa’s African Bank (#41), which has built its fortunes on issuing unsecured loans to mainly low-income consumers. In May, it wrote off R8bn ($750m) in bad loans, triggering a credit rating downgrade to junk by Moody’s and speculation that a second rights issue, at a steep discount, will be needed to rescue the bank. The group raised R5.2bn in equity funding in December following a R9.1bn bad debt write-off for the year ended September 2013. A small bank in the South African sector with a relatively unique business model, African Bank’s troubles are not a reflection of the industry as a whole in Southern Africa. Angola and Mozambique, both buoyed by inflows of capital linked to the oil and gas sector, remain solid – though Luanda has been shaken

161.3 1 637 96.7 1 001

3 Barclays Africa Group

s. africa

91.4 1 226

4 FirstRand Group

s. africa

82.8 1 493

5 Nedbank Group

s. africa

71.4

853

12 First National Bank S. Africa*

S. Africa

718

24 Banco Angolano de Invest.

angola

10.6

123

28 Banco de Fomento Angola

angola

8.9

244

6.9 6.3

168 120

2013 resULts From toP 200 BanKs ranKIng; * In ItAlIcS 2012 reSultS

strikes could pose a risk for the banking sector, as it could reduce the ability of companies and workers to service their debts. Protracted strikes could also lead to job losses. The banking sector’s fortunes in both the country and the region are closelytied to that of the South African economy. In June, Fitch downgraded the outlook on the credit ratings of the country’s four biggest banks to negative from stable, following a similar downgrade of the country’s sovereign rating.

85 620 500 67 108 289

BARCLAYS AFRICA GROUP (ex-ABSA) (South Africa)

57 628 082 57 022 420

FIRSTRAND BANKING GROUP (South Africa)

55 156 214

NEDBANK GROUP (South Africa)

4 436 287

BANCO BIC (Angola)

2 578 540

BANCO ANGOLANO DE INVESTIMENTOS (Angola)

2 511 134 1 567 281

FIRST NATIONAL BANK SOUTH AFRICA (South Africa) N/A

SOUTHERN AFRICA’S BIGGEST BANKS AND THEIR LENDING Total 333 628 747 US $

profits ($m)

s. africa s. africa

bank name

Angola 32 Banco Bic* 36 The Mauritius Commercial Bank mauritius

STANDARD BANK OF SOUTH AFRICA (South Africa)

BANCO DE FOMENTO ANGOLA (Angola)

1 Standard Bank Group 2 Standard Bank of South Africa

by news of a near $6bn guarantee the state has had to set aside for Banco Espírito Santo Angola to underwrite nonperforming loans. It has, however, highlighted the risk posed to banks by the financial health of South Africa’s households and raised questions about the quality of its competitors’ loan books. The World Bank cut its forecast for the country’s growth to 2%, from an earlier forecast of 2.7%, after a record fivemonth-long strike by platinum miners saw the economy contract by 0.6% in the second quarter, the first period of negative growth since 2009’s recession. Two weeks after 80,000 platinum miners returned to work in June, more than 200,000 workers in the metals and engineering sector downed tools in a dispute over pay. The South African Reserve Bank (SARB) warned that protracted labour

STANDARD BANK GROUP (South Africa)

THE MAURITIUS COMMERCIAL BANK (Mauritius)

country

total assets ($bn)

rank in top 200

top 10 southern african banks

source: jeune afrique top 200 banks

106

households under pressure “The revision of the outlook to negative reflects the four banks’ concentration to South Africa, a high proportion of liquid assets invested in government securities and a weakening operating environment,” Fitch said. In addition to slowing growth, unemployment and inflation have risen, promptingtheSARBtoraisethecountry’s benchmark interest rate from historic lows in January for the first time in more than five years. This has placed indebted households under even more pressure. While the level of household debt as a proportion of after-tax income has declined to 75% from 2008’s peak of 83%, it remains at historically high levels and of concern to analysts, given households’ relatively low income levels. “So far, the economic slowdown has really only affected the unsecured segment of the market. We are worried that other areas in the retail banking side may also be vulnerable,” said Jaap Meijer, executive director at Arqaam Capital. Most banks, including Barclays Africa Group (BAG, #3), which saw big writedowns in its home loan book in recent years, have tightened their lend- ● ● ●

the afric a report

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top 200 banks

ing criteria to reduce the risk of bigger-than-expected impairments. Graeme Korner, director at Korner Perspective, said that while consumers’ disposable income is under pressure a big spike in impairments is not expected. “The big four banks [Standard Bank (#1), First National Bank (#12), ABSA (now Barclays Africa Group, BAG, #3) and Nedbank (#5) have gotten much better at managing their debt books.” ●●●

MInDInG Costs While the country’s banks, with the possible exception of African Bank, remain adequately capitalised, the state of the economy means that revenue growth could be limited, analysts said. The focus is likely to be on cost, and leveraging the massive investments made into information technology systems in recent years to streamline processes and improve efficiencies. Increased competition in the sector and attention from the country’s antitrust authorities mean there is little scope to increase bank fees, one way to grow non-interest revenue. “It is a very tough environment to grow the top line. The local banking scene is very competitive,” said Korner. For revenue growth, “the banks really have to operate outside of South Africa’s borders”.

Standard Bank, which trades on the continentasStanbicBank,hasthebiggest footprint, with operations in 17 African countries outside South Africa. BAG, with operations in 10 countries north of the Limpopo, is also well-placed to benefit from the higher growth prospects and low banking penetration rates outside South Africa (see box). FirstRand (#4) and Nedbank face a tougher battle. While FirstRand has set aside R10bn for acquisitions on the continent, it has walked away from three potential deals in the past three years, saying it won’t overpay for assets. It aims to expand into Nigeria this year and says it will start building a banking operation from scratch in Ghana after talks to acquire Merchant Bank Ghana failed last year. “Building a greenfields bank in Ghana will be a long hard slog,” Korner said. FirstRand will continue to build its investment banking footprint on the continent, doing much of the work in South Africa. Nedbank, which bought a stake in Banco Unico in Mozambique earlier this

year, is expected to decide by December if it will convert a $285m loan it made to Ecobank in 2011 into an equity stake of around 11%. It has the option to increase the stake to 20%. Ecobank has operations in 33 countries on the continent, including in key markets like Nigeria and Kenya. Analysts remain concerned over Ecobank’s corporate governance regime after Nigeria’s Securities and Exchange Commission (SEC) made recommendations to improve procedures in January. The SEC report, which followed a complaint by a former Ecobank finance director that the group planned to sell assets at below market value, led the Public Investment Corporation, Ecobank’s biggest shareholder, to call for the resignation of then-CEO Thierry Tanoh. He was ousted by the board in March. “We think Nedbank would go for the equity stake and probably would like to get control of the group eventually,” said Arqaam Capital’s Meijer. ● Jana Marais in Johannesburg

profIle nadine hutton/bloomberG via GettY imaGes

108

barclays africa Group Making african business a priority a Year after barclays sold the bulk of its african operations to absa, its south african subsidiary, the combined Barclays Africa Group (BAG, #3) has been outperforming its rivals on the Johannesburg securities exchange (Jse). following two years of underperformance, driven in part by higher-than-expected credit write-downs in its home loan book and a loss in market share from its retail and

business banking divisions, operational improvements and its expanded african footprint have boosted investor confidence. “baG has scored a few own goals in the past few years, but they’ve got some good talent and it seems that, operationally, they’re getting on top of things. management looks a lot more confident,” said Graeme Korner of Korner perspective. the africa acquisition is already contributing

to earnings, and the group is targeting up to 25% of its revenue to come from operations outside south africa by 2016. in 2013, it contributed an estimated 4% to banking revenue, with disclosure expected to be more detailed this year. for barclays, growing its african business is a priority. When the bank announced plans to cut 19,000 jobs over the next three years in may, it said its african operations the afric a report

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won’t be affected. baG will continue to hire staff across its operations in 11 countries on the continent, including Ghana, Kenya, Zambia, mauritius and tanzania, as it sees an increase in capitalraising efforts and mergers and acquisitions, it said. in July, baG’s investment bank was ranked second on the continent after morgan stanley for equity issuance for the year, according to data from bloomberg. ● J. M.

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country focus Angola

Presidents Dos Santos and Zuma are not always in step

Diplomatic dancing President Santos left the diplomatic footwork at the UN General Assembly in September to deputy Manuel Vicente. Leader of his country’s delegation, vice-president Vicente made the case for Angola’s election to the Security Council by setting out an increasingly ambitious foreign policy By Zoe Eisenstein and Patrick Smith

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hefourhorsemenoftheapocalypse seemed to be galloping towards delegates in New York in September for the UN General Assembly. Top of the agenda was climate change and the devastation it could cause to Africa and other developing regions, then the growth of terrorism and religious intolerance and finally the most serious public heath emergency for half a century – the spread of the Ebola virus in West and Central Africa. At the special summit on climate change on 23 September, Angola’s vice-president

country focus | angol a

DEMOCRATIC REPUBLIC OF CONGO

CABINDA

200 Km

LUANDA

Atlantic Ocean

ANGOLA Lobito Huambo ZAMBIA NAMIBIA

ANGOLA IN NUMBERS PoPulation

21.47 million

urban PoPulation (% of total)

42%

life exPectancy at birth

51 (2012)

fDi (current US$)

-$4.3bn

GDP (current US$)

$121.7bn

GDP Growth (annual %)

4.1%

$32.8bn

internet users (per 100 people)

19.1

mobile cellular subscriPtions (per 100 people)

GOvERNMENt SpENdING Expenditure (% of GDP)

Current expenditure Capital expenditure * Projected

60 50 40 30 20 10 0

2003 04 05 06 07 08 09 10 11 12 13 14* 15*

AngolAn AuthorItIeS And IMF StAFF eStIMAteS

total reserves (includes gold, current US$)

Source: World BAnk 2013

inflation, consumer Prices (annual %) 8.8%

pUBLIc SERvIcES/OIL 9 8 7 6

Spending in health and education and oil subsidies (% of GDP) Health and education Oil subsidies

5 4 3 2 1 0

2004 05

Source: IMF

Manuel Vicente spelt out the stakes: “We are at a unique moment of opportunity to safeguard the global climate system on which sustainable development and sustained economic growth depend.” Angola has its own vulnerabilities to climate change. The government has set up an emergency programme to rehouse some 48,000 families displaced by a combination of desertification and torrential rains. At the same time, Vicente insisted the government is committed to protecting the tropical Mayombe Forest. A few days later, at a meeting organised by the Angolan embassy in New York, Vicente called on US companies to broaden their investment in Angola. Until now, the bulk of foreign investment has beenin oil and gas, but higher production levels in North America means the US has cut back sharply on its oil imports. Now Angola sells less than 15% of its oil to the US and 40% to China. As Angola seeks to widen its commercial networks, it is also extending its diplomatic reach. Vicente’s speech to the General Assembly on 29 September carefully set out Luanda’s position on pressing security matters: “Religious fundamentalism in some African countries is taking violent proportions such that it poses a threat to regional security, with serious consequences for peace, stability and development.” Beyond the rhetoric, Angola is contributing troops and logistics to the UN’s peacekeeping mission in Central African Republic (CAR), a country torn apart by fighting between the separatist Muslim militia Seleka and hardliners in the predominantly Christian national army. Angola’s engagement in CAR is all the more significant in the wake of the collapse of a military bid last year by its southern and more powerful neighbour, South Africa, to prop up the failing government of François Bozizé.

fraternal links to Raúl Castro’s government in Cuba: “Angola reiterates the need to end the economic and financial embargo imposed on Cuba,” Vicente told the General Assembly, “which limits the right of the Cuban people to development and is a clear violation of the principles and rules of international law.” As if to reinforce his point, that week a team of Cuban doctors and nurses arrived in West Africa ready to work alongside US and European medics to fight Ebola. Angola’s eyes are also turning northwards. As Africa’s second-largest oil producer and its fifth-largest economy, it has weight militarily and politically. Its experience in the oil and gas sectors has paved the way for more influence in the Gulf of Guinea. It has one of the fastest-growing economies in Africa but remains well behind South Africa and Nigeria. Relations between Angola and Nigeria are particularly strong. This dates back to the anti-colonial struggle and Nigeria’s support for the Movimento Popular de Libertação de Angola (MPLA), now the ruling party, when it was caught in Cold War rivalries. “I think Angola is really putDecades of greed have mined the heart out of the Mayombe Forest near the border with DRC

at odds with pretoria

CAR is not the only country where Angola and South Africa – which are both members of the Southern African Development Community (SADC) – have pursued different, if not openly adversarial, policies. Angola, which has issues with theDemocraticRepublicofCongo(DRC) over migration, maritime borders and oil fields, has been far less indulgent towards President Joseph Kabila’s government in Kinshasa than has South Africa. Of course, Angola and South Africa still share many policy aims, for example, the africa report

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angol a | country focus

ting a foot forward to be a major player in Africa. I think that’s commendable,” says Nigeria’s ambassador to Angola, Folorunso Olukayode Otukoya. regional policing

Aside from its new operations in CAR, Angola is one of the eight member states intheLuanda-basedGulfofGuineaCommission (GCC) and currently chairs the International Conference on the Great Lakes Region. Both organisations focus on regional security. “People here know how to fight a war with their eyes closed. We have experience with conflict resolution,” says an Angolan executive who requests anonymity. Speaking in September after meeting Said Djinnit, the special envoy of the UN secretary general for the Great Lakes, Angola’s foreign minister Georges Chikoti said the GCC hoped to combat rebels and establish peace. Chikoti says the failure of the Forces Démocratiques de Libération du Rwanda rebel group in DRC to disarm has caused an impasse. This would, he explains, “oblige countries to improve coordination to assert order, with recourse to force if necessary”. A well-connected Angolan executive, who asks not to be named, describes the complexities: “If you support one of the

[warring] parties, you will be exposed in September that the company planned to resume mining there after a series of to the others. I think Angola is playing political crises and coups. In addition, quite an intelligent role – there is a lot of action on the diplomatic and military two Angolan companies, Mombaka and side. It isn’t really public.” Grupo António Mosquito, have an 89.99% Angola’s willingness to help in peaceshare in Banco Equador in São Tomé e Príncipe. Angola has been politically and keeping has won international plaudits. In April, France rolled out the red carpet commercially influential in São Tomé’s for President José Eduardo dos Santos oil and gas sectors. on a state visit. The following month Although Angola has proved to be a US secretary of state John Kerry was in more assertive partner than many of China’s African allies, the infrastructureLuanda commending the “significant leadership” of President Dos Santos and foreign minisThe US praised Angola’s ter Chikoti. Although these diplomacy, then offered it meetingsplayedupAngola’s diplomatic role, both coun$600m to buy Boeing planes tries were eager to bolster for-resources deals developed in Angola commercial ties. The US offered Angola $600m to buy Boeing planes. have been repeated across the continent. It helps that China is the biggest single Angola is more diplomatically actcustomer for Angola’s oil. “This model ive in the Gulf of Guinea group than in of infrastructure for resources in Africa SADC, where it has hit some problems was pioneered in Angola. You take that of political culture. “Angola struggles in model and use it in other countries in English-speaking southern countries,” West Africa that are desperate for infrasays a Luanda-based businessman. “I don’tthinkithasthesamepoweraswhen structure,” says another Luanda-based it goes north, where its army has been.” businessman. Angola’s military, which was jockeying At the same time, Angola has found for influence in Guinea-Bissau, paved the ways to use its membership of SADC to way for business there. Bauxite Angola boost its bargaining strength with Brazil chairman Bernardo Campos announced and Portugal, although Angolan officials can find it tricky or even irksome to adapt to the more structured and regulated business culture in Southern Africa.

Olivier POleT/rePOrTerS-reA

a hard nut to crack

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Angola’s complicated relations with South Africa partly go back to the latter’s support for the União Nacional para a Independência Total de Angola rebels during the Angolan civil war and old tensions between the MPLA and South Africa’s governing African National Congress(ANC)party,whichhadbasesinAngola during the anti-apartheid struggle. “Angola doesn’t really gel with South Africa. Here you have a post-war, postsocialistmilitaryelitealliancethatrunsthe country, that controls everything,” says a long-standing Angola resident and businessman. “Where the military has gone makes it easier to go and do business,” he adds.ThosestrategiesmayworkinCentral and West Africa, but Angola has to find different ways to work in Southern Africa. “You can’t go into Mozambique, as it depends on South Africa,” argues one Angolan bank board member. “Namibia is a wonderful partner for us, but we have done all we can do. We don’t really have anywhere else to go except for the

country focus | angol a

Gulf of Guinea where there is oil and a high potential for returns,” he explains. ForAngolanswithmoney,SouthAfrica is a place to send their children to school or a location for medical services, holidays and shopping. But for entrepreneurs there is much less interest in South Africa as a business destination. South Africa has big competitive advantages over Angola: a developed though sometimes creaking infrastructure, a substantive manufacturing sector and comparatively cheap labour. It is English-speaking and a member of the Commonwealth, which eases business relationships. a shift in governance

No matter how fast Angola’s economy grows, it is many years away from rivalling South Africa. Many of its economic planning officials are now looking at different development models, in which the state plays a stronger role. Although South Africa’s ANC talks about the need for a ‘developmental state strategy’, Angola maybecloserinputtingthatintopractice. There is admiration, expressed through gritted teeth in Luanda, for the ‘authoritarian developmentalism’ of Rwanda’s President Paul Kagame. But many in the country’s capital say that such a shift in Angola’s style of governance will require a thoroughgoing political reappraisal and reordering to focus the country’s resources and administrative elite on a more determinedly developmental path. This means making the oil and gas industry more efficient and tying in its operations to produce more local manufacturing and industrial developments and less business for the international trading companies. It would also require a wholesale revival of the agricultural and processing businesses that had proved so profitable under Portuguese colonialism. How far and how fast such plans are implemented will depend on capital and the somewhat paranoiac approach to political risk of the ruling class. Yet as Angola’s leadership sees on its constant foraystoAsia,thebiggestriskliesinfailing torestructuretheeconomyfromanarrow dependence on hydrocarbon exports. Beyond the lofty economic targets, there is a critical political imperative: to address the simmering resentment of the youth facing unemployment and public service failures. Failures on that front could have severe consequences, as shown in several crises breaking out both to the south and north of Angola. ●

Plans in the pipeline include developing agriculture and telecoms

John Warden/Getty ImaGes

Angola seeks to use oil to break away from oil While the country’s oil industry is slowing down it will finance the diversification of the economy

everal speed bumps are up requested anonymity. “Of course he gets technical advice from others, but ahead for Angola’s economic chieftains: firstly, the reshaping it’s not clear to what extent he really of the economy to manage the slowtakes it on board,” he concludes. ing down of the oil industry and the Elsewhere, finance minister rapid development of the agricultural Armando Manuel has won plaudits and services sectors; secondly, the with his enforcement of greater financial discipline. Spending is keeping government has to find the finance closer to the budget, although lower to keep up the pace of infrastructure revenue will mean some departments and social investment; and lastly, it will have to cut spending. must tackle vast economic inequalAfter this year’s dip, the IMF forecasts ities, which are among the widest in the oil industry will grow by 2.25% per the developing world. year over the next five years and big A forecast from the International investments in areas such as farming Monetary Fund (IMF) in September that Angola’s economic growth will slow to 3.9% Finance minister Armando this year, compared to Manuel has won plaudits for 6.8% in 2013, sounded enforcing financial discipline an alarm. The main reason for this is that oil revenue fell 14% between January and and telecoms will reduce Angola’s deMay after production cuts caused by pendence on oil and create jobs. Those unscheduled maintenanceandrepairs. plans will still critically need oil to pay Some in the oil industry are critical for the wider development: “Growth of Francisco de Lemos José Maria, the prospects over the longer term […] chief executive of national oil company should be firmed up during 2015, as Sonangol. “He is a finance guy, and so ongoing pre-salt prospecting should I’m not sure he always understands help to determine the amount of commercially viable oil reserves,” the IMF the technical aspects of the industry,” Z. E. explained in September. ● says a senior Angolan executive who the africa report

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country focus | angol a

ConsumErs

Legislation enacted in 2010 bans the import of cars that are more than three years old, and in March this year the government introduced a list of approved cars for import – those not on the list require the support of a recognised business guaranteeing maintenance. However, the grey market, supported by some government entities that continue to procure vehicles through unofficial third parties, still makes up a large portion of imports.

Nowhere to go but up for Angola’s car-loving classes Angola’s oil-backed economic growth has stimulated the emergence of a middle class and a buoyant consumer culture, reflected in automobile sales

GREY-CAR GRAVEYARD

According to transport ministry adviser Luís Moita Santos, of 121,000 vehicles imported in 2013 around 90,000 entered via the grey market. He says the goal is for concessionaires to control half the market next year and 80% of it by 2017. “It’s a problem because you don’t get the guarantee of after-sales technical support. Lots of the cars [from the grey market] aren’t tropicalised or adapted to the conditions in Angola. After a year or 18 months, many of them have problems and that’s why you see a lot of broken-down cars. It’s bad for the economy,” explains Santos. Investors in other sectors are also cashing in on money from the middle classes. New malls are planned in While some fill the tanks of their Luanda, several supermarkets have opened and smartphones are increasluxury, imported cars, others wait ingly popular. Despite a strong appetite to fill their jerry cans for spending, this disposable income mentos de Transportes Rodoviários shows is concentrated in Luanda and the that overall sales by official dealers have coast, and is shared by a relatively risen sharply – by almost 90% between small population. Angola’s human 2011and2014,basedonJanuary-Mayfigindicators are still poor and Angola ures. There has been a shift in the types of ranked 149th of 187 countries on the cars being purchased, with the 2014 UN Development Promarket previously dominated gramme’s (UNDP) Human by 4x4 vehicles that could cope Development Index. with the potholed roads that UNDP deputy country dirwere one legacy of the civil war. ector Olaf Juergensen says “The middle class is now the government is trying to solve a lot of development isgrowing and the market has sues at once. “It has money, completely changed,” says Vehicle sales but capacity is the problem,” Renault’s general director in by ofﬁcial dealers have he explains. Observers warn Angola, José Almeida. “The soared by 90% that the middle-class spending equivalent of the European A, between 2011 spree could be threatened if B, C market is starting to grow and 2014 – [that means] cars that cost up it is based solely on oil. Howto $20,000 in Angola. There has Source: ASSociAção doS ever, one senior Angolan govconceSSionárioS de ernment official shrugs off the been an exponential growth of equipAmentoS de that market in recent years,” he trAnSporteS rodoviárioS suggestion that a potential continues. While the appetite economic downturn could dent the growth of a middle class: “There for very expensive cars remains strong is nowhere for us to go but up. The An– there is a Porsche showroom in central Luanda and luxury 4x4s are a common golan middle class is here to stay.” ● Zoe Eisenstein sight – demand has not grown as quickly. Photo12/AlAmy

sabela Pereira is a 34-year-old administrative assistant at a bank in Luanda. She has a child and lives with her sister and mother in the Miramar District. Pereira bought her first car four years ago but sold it and is now saving up to buy a Kia Sportage. She says it will cost around $28,000. She sounds embarrassed when asked if she is middle-class. “I don’t really know if I’m middle-class. Yes, maybe I am,” she admits, giggling. “I don’t want to be rich, but things here have changed. I have a better salary now and more opportunities.” Most Angolans remain poor but car sales, which provide a good barometer of consumer prosperity, have been thriving. Renault is boasting growing sales. The French manufacturer entered the Angolan market in 2005 through local concessionaire Teixeira Duarte Automóveis (TDA), which represents several other brands. TDA sold 168 Renault vehicles in 2006, more than 500 in 2011 and is set to sell more than 3,000 this year, with sales spurred on by the introduction of entrylevel models sold under the Dacia brand. Information from industry body Associação dos Concessionários de Equipa-

90%

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country focus | angol a

opinion

Ricardo Soares de Oliveira Associate professor of politics at the University of Oxford

Can Angola’s elite transform itself?

ven in the times of ‘Africa rising’, few of the continent’s states have exuded the selfconfidence of Angola. Some economists may find the authoritarian, state-led development strategies of Ethiopia or Rwanda more admirable, but it is Angola that has posted a tenfold increase in its gross domestic product since the end of the civil war in 2002, making it sub-Saharan Africa’s third-largest economy and about three times the size of Kenya’s in 2013. Armed with oil money and the 2002 victory against the União Nacional para a Independência Total de Angola rebels, whose leader Jonas Savimbi had enjoyed support from the US and apartheid South Africa, the Movimento Popular de Libertação de Angola (MPLA) regime has rebuilt war-torn Angola with minimal input from Western governments and NGOs. Luanda’s skyline changed beyond recognition as the elite sought to create an African Dubai that fit its ambitions. In a remarkable post-colonial reversal of fortune,Angola’soligarchshavebecomePortugal’slargest foreign investors. But although Angolan decisionmakers bluster about their country’s emerging-power status, in reality it is rather brittle. Some of the accomplishments are real. Although at a staggering cost, Angola’s infrastructure has been partly rebuilt. Technocrats were empowered to stabilise the economy, build up the country’s hardcurrency reserves and make Angola more presentable for some forms of foreign direct investment. The MPLA’s style of governance after the war, while politically intolerant, has at least placed large-scale violence out of the picture. These are impressive achievements. However, four major challenges prevent Angola from advancing much further and may even imperil the progress of the past few years. First, Angola remains one of the world’s most oil-dependent economies: oil accounts for 97% of export revenue. This makes Angola extremely vulnerable to the vagaries of the oil price. The MPLA regime has made impressive promises to diversify the economy, but its record does not stand

much scrutiny. Agricultural investment consumes an estimated 1% of the country’s budget, much of it on big agribusiness projects, but it has failed to produce many jobs or crops. Industrialisation has been slow and chaotic. Factories lacking electrical supply have been built and operated by foreigners through turnkey contracts. Their meagre and expensive output is uncompetitive in local, let alone foreign, markets. Beyond the rhetoric, the Angolan oligarchs around the presidency, the party and the military show very little interest in investing in productive sectors. They prefer to put their money in foreign real estate and investment portfolios, not local industry and agriculture.

These challenges call for an unequivocal break with business as usual Angola’s second major challenge is the training of its people and the lowering of the country’s dependence on expatriates. The reconstruction of the country is the product of a foreign labour force of Portuguese, Chinese, Brazilians and those of many other nationalities. While critically important for the government’s development strategy, these expats are incurring the resentment of the rising Angolan middle classes, who see them as obstacles to social mobility. At the same time, the quality of Angola’s education system is, with rare exceptions, so poor that local university graduates are consistently sidelined in the job market. A leading MPLA cadre who did not wish to be named describes this tension as a “time bomb” that can only be defused by strong investment in Angolan social capabilities. Third, Angolan society is changing at a dizzying pace. For the first decade after the end of a war that, in different guises, had lasted more than 40 years, Angolans were simply happy to be alive. The ruling party was able to shape the country as it pleased with minimal opposition from the masses. Over the past three years, Angolan society has reawakened, and people are increasingly rejecting the status quo. Foreign media have homed in on rappers’ social crithe africa report

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zebedee

reading the coffee grounds: will Dos Santos choose his eldest son, now in charge of the country’s sovereign wealth fund; vice-president Manuel Vicente, formerly the chief executive of Sonangol; or anas-yet-unnameddauphin? What do the MPLA and the armed forces think? This obsessive speculation is entirely justified. Dos Santos has spent the past 35 years carefully centralising discretionary power, if need be by undermininghisowngovernment and political party.

ticism and a number of small yet persistent demonstrations by critics of the regime. The dissatisfaction runs much deeper. Though the peace years have spawned a middle class of sorts, the vast majority of Angolans have seen no benefits from the country’s oil boom. Social indicators remain some of the worst in the world. The elite, meanwhile, has only grown richer. Angolans above a certain age still compare the present favourably to the war years. Yet those below 25, about 70% of the population, yearn for the material success of the elite. This is something they are confronted with in the garish media and in the streets, but it remains out of reach. The young will not stay quiet for long, and their mobilisation will have serious consequences for Angola. The final challenge is President José Eduardo dos Santos’s succession. Observers have devoted years to the africa report

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If he cannot protect his interests and those of his closest family and allies, he will simply stay on until he dies. Dos Santos is a shrewd, micromanaging political player who moves with the times, but his centrality to the system has only grown stronger. The more open character of the postwar economy is entirely dependent on his personal role as umpire and guarantor rather than the work of formal institutions or the rule of law.Itcanallbereversedovernight. According to the World Bank, Angola remains one of the world’s most complicated business environments. A foreign investor who requested anonymity notes: “The palace, not the courts, is our ultimate guarantee of stability.” WhetherDosSantoswill go quietly and whether Angola’s elite can operate a successful transition are the key questions for the coming years. These challenges are of the utmost seriousness. They call not for ‘governance improvements’ or some such piecemeal tinkering with the system but for an entirely different approach to the running of the country that unequivocally breaks with business as usual. The paradox of the Dos Santos-dominated, MPLArun political and economic order is that those called upon to tackle the challenges at this critical juncture are the same social groups – the same individuals – who have long held the reins of power, benefited from the status quo and allowed these problems to fester. That raises the biggest political question of all: can this elite transform itself? ● Ricardo Soares de Oliveira is the author of the forthcoming Magnificent and Beggar Land: Angola Since the Civil War (Hurst).

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country focus | angol a

Infrastructure

Luanda’s costly new airport raises questions While there is a pressing need for greater flight capacity, the ruling party’s flagship project is causing rumblings of discontent amid claims that party cadres will profit

arlier this year, Angola’s transport minister Augusto da Silva Tomás told a meeting of the Business Council for International Understanding in Chicago about ambitious plans to improve railways, roads, ports and airports. He said that Angola was open for investments and economic cooperation with the rest of the world, “especially with the North American market”. Construction of a new Chinese-built airport south-east of Luanda in Bengo Province is key to Angola’s development programme, with the airport mooted as a regional hub that could rival Johannesburg. National Angolan carrier TAAG and Emirates signed a 10-year management deal in September, which will see Emirates take over management of the airline and appoint a new CEO, as part of an effort to boost services across the continent. “We have today in construction, around 40km from the capital Luanda, could the MPLa have gone a bridge too far with its ambitious infrastructure plans?

a big and modern international airremotely realistic. I think the future of port which will be one of the biggest this airport really depends on the conin Africa. It has the capacity to receive struction of access infrastructure,” he aircraft such as the Boeing 787 Dreamsaid on condition of anonymity. liner and will be able to receive around A highway and express rail link are 15 million passengers annually, with two possible options to connect the airport to the capital. The cost of the new a completion date scheduled for midairport is estimated by several sources 2017,” said Tomás. at around $3bn. A Chinese credit line With the Aeroporto Internacional Quatro de Fevereiro in Luanda is financing the probursting at the seams despite ject, though details renovation and expansion, of this are scarce. there is a clear need for The new airport will land deals more capacity. If two be able to process Not everyone is a large jumbo jets around 15 million fan of the project. Some leave around the passengers per year analysts argue that a new same time, with Source: AngolAn MiniStry of trAnSport airport should not have been around 600 people in the departure hall, the airport creaks. a priority, with expansion of the existCustoms officials also struggle to handle ing airport still possible. Others say so many passengers. Slots at the airport that the airport is another example of remain very tight. a badly thought-out project that will It seems unlikely that the new airhelp a small elite in the ruling Movimento Popular de Libertação de Angola port will open any time soon. An An(MPLA) to enrich itself. Locals say that golan engineer who visited the wellconcealed site last year says construction MPLA cadres and allies of President had stopped and that the opening date José Eduardo dos Santos have bought will not be met. “I don’t think 2017 is the land around the airport. “This is classic stuff, and it happens all over the world,” explained a businessman who wished to remain nameless. “You choose a new airport site, buy all the land around it and when the airport opens people are forced to rent it off you. It is a great money spinner, and the Angolans are great at this kind of thing,” the source said. Despite continued claims of corruption, large-scale investments made since the end of the civil war in the rehabilitation and expansion of roads, railways, ports and airports are having a positive impact on private-sector productivity. The newly refurbished airport in Luena opened for operations in August and the one in Uíge reopened in September. Infrastructure is also a buzzword in government circles. The ruling elite is seeking to keep a lid on discontent among the country’s largely poor population of 20 million. With elections in 2017, there is much more at stake than access to a half-built new airport for the ruling MPLA. ● Honoré Banda

15m

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n o v e m b e r 2 014

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country focus | angol a

interview

Ari de Carvalho

Chief executive, Banco BAI Micro Finanças

We must adapt to the Angolan reality the microfinance bank Banco BAI Micro Finanças (BMF) celebrated its 10th birthday in August. with BAi a 90% shareholder, it has a client base of more than 40,000 TAR: How has BMF progressed? Is the bank profitable? ARI de CARvAlHo: We have grown in terms of the numbers of customers and deposits, and we have more branch offices than ever before. We now have a wide reach, which allows us to attract customers who weren’t previously in the banking system. We have had great success in the provinces with projects for agriculture, coffee growers and women bringing consumer goods to market. We didn’t have positive results last year for a variety of reasons. The operational costs in Angola are still very high. We also need to train our personnel to analyse customers from the informal sector more effectively. How can you bring down costs? We can’t afford to have traditional bank branches. A branch office might cost $200,000, $300,000 or more to set up, so we might go for a smaller branch with fewer frills.Ourapproachwithcustomers is more one-to-one, and we need to maintain that. The challenge is how to take away the operating cost from that. The government brought in new legislation a couple of years ago. It said new microfinance operators would be allowed to come onto the market without the same burdens as traditional banks. It allows you to set up an office without as many associated costs. This will

faCebook

help new players, and the sector will continue to grow. We need more operators in the market. I don’t see them as competition.Asmorepeoplecomeinto the market, the more you spread the risk and have more coverage. Angola has a population of 20 million. If around 50-60% operate on the informal market, you have a huge market with a lot of potential. How would you describe your customers? Most don’t keep proper accounts. They don’t often have structured business practices, and many are not licensed. They can be very sensitive to changes in the market such as a currency devalu-

You are looking at a highmaintenance customer, so you need to be there in person ation or if it rains and the market is closed […] You are looking at a high-maintenance customer, so you need to be there in person. How does the Angolan market differ from other countries? The costs are higher – certainly in Luanda and Benguela. There is the history of war, and people are still learning about the financial sector. Financial education is key. Even now, people see the bank as a place just to deposit your money.

You still have a big entrepreneurial class who are in the informal sector and are under-served by Angolan banks. What are your plans going forward? How will these help profitability? The central bank will introduce mobile banking, like in Kenya, in the next year or two. Angola is still very much a cash-based society, and I think there are more Angolans with mobile phones than bank accounts. If you have electronic banking via cellphones, this will help to reduce operational costs and be more inclusive. You have the oil sector, but you also have a growing non-oil sector and around it there is this informal market, mostly concentrated on consumer goods. We have tested some models in this sector and understand better how to act in that market. The challenge for us is to make the bank profitable and get a return to our shareholders. Youneedtoadapt thetraditional microfinance model to the Angolan reality. We had a long war, people moved around a lot and we don’t have that sense of community you have in a lot of African countries where families lived in one place forever [...] You can’t bring a little book from overseas and say this is how you should do it in Angola. ● Interview by Zoe Eisenstein

the africa report

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n° 65

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n o v e m b e r 2 014

country focus | angol a

the exhuming of the May 1977 events could force contemporary Angolans to question their loyalty

SIPHIWE SIBEKO/REutERS

HiStory

The ruling party grapples with the skeletons of its past Lara Pawson’s book In the Name of the People examines a crisis in the MPLA’s history to explore its relationship to the issues of race, class and governance

ara Pawson’s In the Name of the People, published in April, is an unnerving and fascinating journey into one of the most horrifying episodes of Angolan history. In the book, we learn how Pawson, a leftish journalist whose sympathies tilted at one time towards the then Marxist Movimento Popular de Libertação de Angola (MPLA), becomes disillusioned as she discovers the difference between the rhetoric and the reality. The mainstream narrative of Angola’s recent history has well-known villains. The Portuguese colonised the country for five centuries until 1975. The South Africans invaded the country to protect their own interests. Rebel figures like Jonas Savimbi were allies of the South Africans and were ruthless in bumping off real and imagined rivals. On 27 May 1977, however, there was a failed insurrection within the ruling MPLA led by Nito Alves, a former guerrilla leader. The government of President Agostinho Neto, with the help of Cuban forces, suppressed the rebellion with unprecedented savagery. Thousands are said to have been killed, and others

Pawson’s, in Portugal – about the events of 27 May. Angolans have rushed out to buy them. The MPLA might not be interested in any soul-searching, but citizens are trying to understand what it all meant. Pawson’s book is part of that effort. In Luanda, Pawson met several people who were involved in the events of 1977. Surprisingly, figures who had then been hardcore supporters of President Neto agreed to see her. One was Fernando Costa Andrade, a former editor of the state-owned Jornal de Angola, who wrote strident editorials calling for the annihilation of the insurrectionists. A frail and elderly man, Andrade tried to justify the repression and told Pawson that only 2,000 people might have been killed. Andrade died soon after talking to her. It is almost as if there is a section within the MPLA that thinks the old taboo should finally be dealt with in public. frank opinions

Another surprise in Pawson’s book is João de Melo, a pro-MPLA journalist and member of parliament. He admitted that Neto’s suppression of his rivals was excessive. Melo was also willing to delve into the highly controversial issues of race and class. Part of Nito Alves’s criticism of Neto was that he was surrounded by mixed-race and white figures. Alves said famously that there would only be racial equality in Angola when whites and blacks are sweeping the streets side by

were thrown into prison. And so began a cultura do medo (culture of fear) in urban Angola. One theme attesting to the supposed glorious roots of the Angolan revolution was that Neto was a poet – his supporters place him amongst the African philosopher kings like Léopold Sédar Senghor and Julius It is as if a section within Nyerere. His links to one of the MPLA thinks the old taboo the bloodiest events in recent African history are cershould finally be dealt with tainly not convenient. The side. Melo did not dismiss this argument MPLA decided it was just not going to outright but instead said he is ready to talk about the event and that everything consider the complex legacy of race and would be forgotten. class in Angola. This has not happened, despite the fact that some of the MPLA’s leftist supporters Some elderly MPLA figures are wary helped its strategy. Pawson met Michael of the new, emerging elite. Melo told Wolfers, a British journalist who worked Pawson that one way of understanding in Luanda. Wolfers witnessed the events the MPLA is to remember that it had inherited three strands of authoritarianism: of 1977 and wrote an account of them from traditional African society, from the that Pawson reproduces in her book. Portuguese colonial establishment and Wolfers was dismissive of the putschists, echoing the MPLA line and saying they from its Marxist-Leninist past. Pawson wastrulysurprisedbythefranknessofthis were immature extremists. MPLAleader,asweremanyAngolanswho Not many Angolans would agree with have seized this opportunity to debate that. In the past few years, a number their troubled history. ● Sousa Jamba of books have been published – like the africa report

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n o v e m b e r 2 014

The bigger picture We have come a long way since 1838. Today, the MCB Group is a leader in financial services in Africa. At the heart of Mauritius, a fast-growing financial hub ideally placed between three continents, we are a trustworthy partner that will help you go places. Together, let’s look at the bigger picture. • Investment Banking • Corporate Finance & Advisory • Consulting Contact us: financingsolutions@mcb.mu

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country focus

Mauritius tourism plays a crucial role in the economy with a drive towards wooing high-net-worth visitors

Holger leue/Corbis

Missing The sweeT spoT T

Despite government hopes of Mauritius becoming a high-income country by the end of the decade, analysts fear the downturn in the key sugar and tourism industries, sparked by the European economic crisis, mean it will miss its 2020 target. Meanwhile, the financial sector remains under pressure due to concerns over the future of a crucial tax treaty

by Jana Marais in port louis

the afric a report

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finance special

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s e p t e m b e r 2 0 14

he year 2020 looms closer, with Mauritius’s stated ambition of becoming a high-income country by this date looking increasingly out of reach. As Mauritius transitions from an economy dependent almost exclusively on agriculture in the 1960s to one with strong textiles, finance and tourism sectors, it is still on course to be the richest non-resource-dependent country in Africa by 2025, according to estimates from local analysts. However, with doubts over the role Mauritius’s financial sector will play in India, ● ● ●

country focus

mauritius

the country’s African ties are becoming ever more important. Politicians and businessmen say there is much to be done to address challenges from a changing international policy environment and to strengthen the infrastructure and human resources bases of Mauritius’s long-term economic growth. “If you look back over the medium term, the Mauritian economy has performed very well. But the feeling now is that all the low-hanging fruit has been picked. We’ve done quite a bit of business facilitation and so on. There are now difficult issues that need to be tackled,” Xavier-Luc Duval, the leader of the Mauritian Social Democratic Party, who resigned as finance minister in June, tells The Africa Report. The government organised a wideranging debate on its Vision 2020 programme back in 1997, with working groups on agriculture, tourism, industry, science and employment, among other topics. With just a little more than five years to prepare a new vision for the island’s development, policy makers are thinking about what areas of the economy could raise per capita gross domestic product (GDP) from $9,300 in 2013 to $12,746, the current World Bank high-income threshold. ●●●

PORT-LOUIS Indian Ocean

MAURITIUS

Indian Ocean

10 km

mauritius in numBers PoPulation gDP (current us$)

$11.94 billion

gDP growth (annual %)

3.2%

inflation

3.5%

Bank caPital to assets ratio (%) 8.1% (2012) foreign Direct investment $360.93 million (2012) stocks traDeD, turnover ratio (%) 4% Bank non-Performing loans to total 4.1% gross loans (%) total reserves (includes gold, current $3.49 billion us$)

World bank 2013 (2012); stock exchange of mauritius; trading economics

1.296 million

annual gDP growth 10

Mauritius Sub-Saharan Africa (developing only)

source: World bank

2 0 2004 05

Bank cash holDings 30 000 25 000 20 000

Excess cash holdings Bank cash balance Required cash balance

15 000 10 000 5 000 0

Jan Nov Aug Jun Apr Jan Nov Sep Jun 07 07 08 09 10 11 11 12 13

13 sources: mauritius authorities & imf staff calculations

off target In July financial services company MCB Group echoed International Monetary Fund (IMF) analysis that the Mauritian economy is growing too slowly to meet the 2020 target. The IMF predicts real GDP growth of 3.7% this year and says that the economy would need to grow by a rate of about 5% per year for the country to reach high-income status by 2020. At current rates of growth, MCB says that Mauritius will become a high-income country by 2025 if growth maintains an average of 3.3%. In 2013, Mauritius ranked 20th out of 189 countries in the World Bank’s Doing Business ranking, making it the topranking African economy. Nonetheless, MCB’s researchers warn that the government has not implemented reforms rapidly enough and that public investment has been slow to materialise. While many of the country’s institutions, including its judiciary and Board of Investment, are strong, reform is needed to address shortcomings at others, Duval says. “I’m talking about the fight against poverty, the National Empowerment Foundation. I’m talking about having water all around

the clock, about the Central Electricity Board, about increasing productivity in the civil sector. There are many shortcomings that need to be addressed that will push us through to become a highincome country,” he explains. While national elections, due by 5 May 2015, may lead to a change in power, economic policy is not expected to change much,saysMCBGroup’schiefstrategyofficer Gilbert Gnany. “All the main parties have more or less the same economic policies. Even when you see a change in coalition partners, there is no disruption in terms of economic policy. There are minor differences, for example on social spending, but no one is challenging the 15% tax rate. No one is challenging the 0% on dividends or capital gains. It’s a given,” he explains. A July IMF report says that growth rates could rise “with strong pro-active policies including improving investment and savings rates, improving the efficiency of social spending and public enterprise reforms, investment in education and education reforms, labour market reforms and further measures to reduce bottlenecks and increase productivity.” While a coalition that involves some of the four main parties is likely to win the next national elections (see page 60), a new party will face a crucial first test

the afric a report

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finance special

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s e p t e m b e r 2 0 14

mauritius

country focus

tim cocks/reuters

However, the treaty is being renegotiated amid concerns in Delhi that Indian companies are using Mauritius for ‘round-tripping’ of funds. This involves Indian companies moving money through Mauritius in order to avoid paying capital gains tax in India. Talks to renegotiate some of the terms of the DTAA are ongoing, and the Mauritian authorities maintain that there are strict regulations in place to ensure transparency and prevent abuse by shell companies. While bankers and government officials have downplayed the risk to the Mauritian economy should the deal be cancelled, Prime Minister Navin Ramgoolam has been trying to woo Delhi. He attended the swearing-in ceremony of Prime Minister Narendra Modi in May and met with him to discuss the treaty.

in shifting the political debate. Roshni Mooneeram, an academic who officially launched the political party Ensam in July, says a focus on general economic indicators fails to capture the unhappiness in the country. “We have seen a number of examples of unsustainable and even destructive sectoral development, for example the IRS [integrated resort schemes] with its gated developments, tourist enclaves and the impact these have on small businesses such as restaurants, which are closing in the north. When will we accept that a large portion of our educated youth wish to leave Mauritius to never come back, the growing population of old people who have to queue for bad health care, that the cost of living has become prohibitive and that we still have 8,000 families living under the poverty line?” she asks. finding a niche Each of the country’s major economic sectors has its own challenges. With a drastic drop in the portion of investment flows to India being routed through Mauritius – historically a major driver of its financial sector – the country is looking to Africa for new business. However, competition is strong. South Africa’s major banks have experience and a major footprint on the rest of the continent, the afric a report

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finance special

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low sugar prices triggered by oversupply in europe have driven mauritian firms to look elsewhere

fdi foothold “I don’t think it [negotiations regarding the treaty] is a major issue, but it will be good to have certainty sooner rather than later. Uncertainty isn’t good for investors,” Gnany says. With or without the treaty, Mauritius is already losing traction as the preferred channel for India-destined investments. Singapore overtook Mauritius last year as the biggest source of foreign direct investment into India, accounting for nearly a quarter of India’s total, according to data from India’s Department of Industrial Policy and Promotion. Flows through Singapore increased by 160% to $6bn, while those from Mauritius nearly halved to $4.9bn, down from $9.5bn the previous year. Over the past few years, the finance sector has turned to Africa, and that pivot has already shown itself to be successful. “If you look at our proximity to the

while Morocco, with a traditional focus on Francophone Africa, is extending its trade and commercial interests and trying to lure stock exchange listings from south of the Sahara. MCB’s Gnany says the Mauritian financial sector can be competitive in a few niche areas, for example by using its relationships and India’s knowledge of its legal and tax system to capture a part of investment flows between AsiaandAfrica.“We’resosmall, singapore overtook mauritius we can’t do everything. Today, as the biggest source of foreign large Indian companies are indirect investment into india vesting in Africa, using Mauritius to set up a structure to incontinent, the fact that we’re bilingual vest in the continent. They’re used to and the ease of doing business here, it it. It was the other way around before, with money flowing from elsewhere via makes us an ideal place to launch a venMauritius into India,” Gnany explains. ture into Africa,” former finance minister Duval says. A double-taxation avoidance agreement (DTAA) with India, signed in 1983, Jacques Nel, an economist at NKC InplayedakeyroleindevelopingtheMauridependent Economists, agrees: “With a tian financial sector. It encouraged insubstantialnetworkofinvestmentprotection treaties and double-taxation avoidvestors to route money through the Indian Ocean island to benefit from its low ance agreements, and a highly sophistictax environment, where foreign companated banking system in place, Mauritius ies pay an effective 3% tax rate on profits is in a prime position to cement its role as and 0% on dividends and capital gains. an investment hub into Africa.” Statistics

s e p t e m b e r 2 0 14

country focus

mauritius

from the Mauritian Financial Services Commission show Africa is the main recipient of investment flows channelled through Mauritius, with 54.4% of all flows last year targeting the continent, up from 40% in 2010. InordertoencourageMauritianinvestment and closer trade ties with Africa, the government announced subsidies for freight costs and credit guarantee insurance for exports in the 2014 budget. It also announced the establishment of the Rs500m ($16m) Africa Fund. Over the next five years, it will provide equity financing for companies investing in African projects. tourism lynchpin Enterprise Mauritius, which is tasked with finding markets for the country’s exports, is targeting a number of African countries in order to reduce the country’s dependence on Europe. The country’s banks,textileandtourismfirmsareslowly expanding their footprints in countries like Bangladesh, Kenya and Zimbabwe. Closer collaboration with Madagascar, where investment has been hampered by a five-year political crisis, offers growth and investment opportunities for both countries. A model similar to the ‘growth triangle’ that Singapore established with Indonesia and Malaysia in the late 1980s - where Singapore brought management skills and technology to the table and Indonesia’s Riau Islands and the Malaysian state Johore offered land and low-cost la-

bour - may also help attract major investproduced similar results in the first half ments and job creation in both countries. of 2014 and recorded a loss of $5.1m. The Mauritian tourism sector, a key pilThe manufacturing sector has faced its laroftheeconomy,recordedlowergrowth own challenges. Despite some progress rates than those recorded in other Indian (see page 64), the Bank of Mauritius Ocean islands, including the Seychelles, reported that the sector accounted for Maldives and Sri Lanka. The downturn 23.6% of GDP in 1990 and fell to 16.7% in Europe has reduced arrivals from that in 2012. Last year, when talking about the region, but marketing efforts have led need to look beyond 2020, central bank governor Rundheersing Bheenick called to an uptick in visitors from China. As a for a more innovative private sector. To result, the government reported a 2.4% support research and development carise in tourism revenue for the first half of this year to $735m. The DTAA is not the only the 2014 budget subsidised international agreement that foreign freight costs in order to could negatively impact busihelp boost trade ties with africa ness in Mauritius. Ahead of the United States-Africa summit in pacity, the government announced its Washington DC in August, textile produbacking for the creation of the Internacers and other members of the Mauritius Export Association expressed concerns tional Institute of Technology Research that they could soon be disqualified from Academy in July. The Mauritius Research duty-free benefits of the African Growth Council and the Indian Institute of Techand Opportunity Act because of the level nology will support the new institute. of the country’s development. With low sugar prices due to overocean economy supply in Europe, Mauritian companies The government is focused on building are looking elsewhere for growth. Despite what it calls the ‘ocean economy’, which reportingalossof$7.7mforthefirsthalfof it hopes will contribute 17% to GDP by the year, in July Omnicane announced its 2020, up from 10.8% in 2012. “In a very intention to invest $250m in a sugar-cane short period of time, we’ve been able to plantation in Ghana that is set to yield get those working in port development, tourism and fisheries to come together 100,000tn per annum. Terra Mauricia so we can adopt an integrated approach towards all ocean-related activities,” says conservation is key to government Milan Meetarbhan, ambassador of Maurplans to harness the economic itius to the United Nations. potential of its ocean territories The University of Mauritius has already established a faculty of ocean studies to help build capacity, and laws that will enable the government to issue oil and gas exploration licences should be in place by next year. “For small islands, the ocean economy is an opportunity to expand economic space. We have very limited land, and while there are continuous efforts to diversify the economy, there is only so much we can do [...] To really take advantage of this, we mustn’t just have the right economic policies and laws in place, but also make sure we have the right policies with respect to conservation,” Meetarbhan concludes. Dev Chamroo, chief executive of Enterprise Mauritius, is optimistic: “We thought sugar was going to die out. It emerged into a cane industry. We moved from exporting raw sugar to producing two of the world’s best rums. If you look at all the initiatives that government has initiated since independence - none of them have fallen or died.” ● reinhard dirscherl/getty images

the afric a report

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finance special

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s e p t e m b e r 2 0 14

STRUCTURED AND CORPORATE FINANCE

Their achievements are our business USD24.6 million

Undisclosed

USD38.3 million

USD70 million

Undisclosed

Advised Sapmer, a leading French seafood producer, on its private placement of perpetual bonds.

Financed the expansion of MODE, a leading provider of nano credit through mobile phones in 18 African countries, from its start-up phase.

Advised ENL, one of the largest Mauritian conglomerates, on its private placement of fixed and variable rate notes.

Financed the winning bidder for the supply of petroleum products to Kenya.

Financing the construction of petroleum storage facilities in Beira and Matola, Republic of Mozambique, as part of a syndicate of banks.

2014 Mauritius

2014 Mauritius/Kenya

2014 Mauritius

2014 Kenya

2014 Mozambique

USD150 million

USD40.8 million

USD40 million

USD90 million

Financed the Kuwait-based traderâ&#x20AC;&#x2122;s supply of petroleum products to the State of Mozambique.

Advised MCB on its public issue of subordinated notes in local currency and their listing on the Mauritius Stock Exchange.

Arranged a syndicated debt facility and acted as facility agent for the acquisition of fishing vessels.

Advised New Mauritius Hotels, a leading hotel group, on its issue of a multi-currency bond.

Structured and financed the construction of a beach resort comprising 236 luxury residential units and a 5-star hotel and spa.

2013 Kuwait

2013 Mauritius

2012/13 Mauritius

USD68 million

USD35 million

Structured and financed the construction of a 40,000 m2 shopping mall.

Arranged and financed the construction of a 4-star resort comprising an hotel of 110 rooms managed by Constance Hotels and Resorts.

2011 Mauritius

2011 Maldives

For all your financing requirements, please contact us on (+230) 202 5608 or email corporatefinance@mcbgroup.mu

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country focus

mauritius

people to watch

Bruisers, Bankers and Business leaders While the country’s politicians have their eyes set on elections slated for 2015, its executives and athletes are looking further afield, to the rest of Africa and beyond

la sentinelle ltd

or the past 50 years, four families have dominated Mauritian politics, with sons taking over from their fathers. Roshni Mooneeram, an academic, and her newly launched political party Ensam – which means “together” in Creole – want to change this. The domination of politics by a handful of families has led tocomplacency amongst politicians and citizens, Mooneeram says. She argues that Ensam will contribute to a healthier political culture that is more forward looking in order to build a much more prosperous and successful country. Predicting election outcomes in Mauritius is not easy, as coalitions – often subject to change – are generally needed to win. Four main parties dominate the political field: the Labour Party, led by Prime Minister Navin Ramgoolam; the Militant Social Movement (MSM), led by Pravind Jugnauth; the Mauritian Militant Movement (MMM), led since 1976 by Paul Bérenger (1), who became the country’s first non-Hindu prime minister in 2003 and currently serves as the opposition leader in parliament; and the smaller Mauritian Social Democratic Party (MSDP), led by Xavier-Luc Duval (2). Duval and the MSDP formed part of Ramgoolam’s ruling alliance until he stepped down as finance minister in June after a dispute over proposed electoral and constitutional reforms. The MSDP says constitutional reform should be subject to a referendum. Ramgoolam and Bérenger are busy negotiating a partnership for the next elections, which should take place before 5 May 2015. A winning coalition could bring Bérenger back into a senior government role. The Labour Party’s Arvin Boolell, currently foreign affairs minister, might be a candidate for deputy prime minister. Jugnauth’s legal troubles

la sentinelle ltd

may also be over by the time elections are held, which could pave the way for a MSM comeback. The party quit the ruling alliance in 2011 due to corruption investigations into the 2010 purchase by the government of the MedPoint clinic for Rs144m ($4.7m). Jugnauth was finance minister at the time and his sister and brother-in-law were shareholders in the company. A court ruling on the case is expected in September. With the economic policy unlikely to change drastically no matter who is in power, businesses are focusing their efforts on diversifying operations and expanding their footprints, particularly in Africa. While Mauritian companies are lookingabroad,KenPoonoosamy,managing director at the Board of Investment, wants to lure investors to the country and diversifytheeconomy.Poonoosamy,who hasbeeninvolvedinmarketingMauritius as a global business hub since 2005, is promoting a range of sectors, including agriculture, seafood, logistics, renewable energy, manufacturing and film-making. Dev Chamroo, chief executive of export promotion body Enterprise Mauritius, is on a charm offensive to find new markets. Given the small size of the economy, the aim is not to become an exporter to the world but to find the most attractive markets, with recent surveys covering Angola, Brazil, Malawi, Zimbabwe, Turkey, Egypt and Zambia. Jean-Pierre Dalais, appointed executive director of the CIEL Group in January, is seeking investment opportunities in the Indian Ocean region. CIEL, one of the biggest conglomerates in Mauritius, bought a controlling stake in banking group BNI Madagascar in partnership with First Immo in June. CIEL’s finance arm is probing investments in Kenya, while its textile business is targeting Bangladesh, China and India. Mauritius’s athletes have also been enjoying success overseas. Shalinee Valaydon (3) was crowned African weightlifting champion and Mauritian sportswoman of the year in 2013, while Fabrice Michel Bauluck, was named sportsman of the year for the second year in a row. Bauluck won the WAKO Kickboxing World Championship in the under-54kg category in October 2013. However, it was James Kennedy St Pierre who brought home the only medal from the Commonwealth Games this August. He won silver in the under-81kg boxing division. ●

the afric a report

Jana Marais in port louis

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finance special

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s e p t e m b e r 2 0 14

Advertorial

First solar plant in Mauritius helps keep the lights on Sarako has built the first solar plant in Mauritius in record time, adding installed generation capacity of 15.2 megawatt (MW) to the countryʼs constrained grid within a year after project planning started. The plant, which delivered its first power in February, is a partnership between Sarako and German energy group Tauber-Solar. The photovoltaic (PV) project, which saw 60 800 solar modules constructed on about 18 hectares, was built in five months by Germanyʼs ConEcon Group. In August, Sarako won a bid in Burundi to build two 10 MW plants. Sarako plans to have the countryʼs first solar farm operational early next year, CEO Sham Seetaram said Mauritius is luring renewable energy players and is investing nearly $130-million to add 60 MW capacity to its Saint Louis power plant, which burns heavy fuel oil, to avoid a shortage of electricity supply by the end of 2015. Should the Saint Louis project run late, a supply gap of 36 MW is forecast for end-2015 as existing generators are decommissioned and two independent power projects reach their end of life, according to African Development Bank (ADB) data. The Sarako project is therefore not only adding muchneeded capacity to the Mauritian grid, but will also help the country achieve its target of 35% of its energy to come from renewable sources by 2025, up from 20% in 2010.

DIFCOM: S.G.; PHOTO: SARAKO

Wind farms with a total installed capacity of 40 MW and solar farms with a capacity of 25 MW are expected to be commissioned by January 2015, according to Invest Mauritius. The country is also targeting energy efficiency gains of 10% by 2025 and investment in waste-to-energy projects. It currently produces 425 000 tons of waste

annually, growing at 2% per year. In 2013, peak demand was 466 MW, while the effective generating capacity was 489 MW, leaving a reserve margin of 43 MW. Electricity demand in the country is increasing annually by 12 MW to 18 MW, according to the ADB. The state-owned Central Electricity Board (CEB) produces around 40% of the countryʼs total power from hydro, heavy fuel oil and gas turbines for peak periods. It also has the sole responsibility for transmission and distribution of electricity in Mauritius. Independent power producers (IPPs), mainly sugar producers using bagasse as a fuel source during the crop season and coal during the rest of the year, supply the remainder. The country is focusing research and development efforts on deep ocean water applications, exploit deep sea water currents for cooling and other uses; geothermal energy, which taps into the potential of heat generated by the earth; and offshore wind farms, which demonstrate potential for large-scale developments in the waters of both Mauritius and Rodrigues, according to Invest Mauritius. The Sarako project, which is located in the Bambous region about 15 kilometres southwest of Port Louis, included the construction of a special solar park substation and a 4.2 kilometre power line. Located on steep slopes and a volcanic subsurface, 22 000 holes had to be bored for the substructure and stabilised with drymix. The contractors also had to factor in the islandʼs location in a cyclone zone, where wind speeds can reach 280 km/h during the summer months. It will generate about 24 gigawatt hours of electricity and conserve 15 000 tons of carbon dioxide emissions per year, Sarako said.

Parc solaire à Maurice

SARAKO / SOLAR ENERGY 72201 Module GB 1 Ground FloorEbene, Mauritius www.sarako.mu

country focus

mauritius

interview

cader sayed-Hossen

minister of trade and industry, mauritius

we should reintroduce planning

fabien Dubessay

Through a strategy of liberalisation, deregulation and internationalisation, since 2006 the tiny island nation has grown by more than 3% while the West has languished in recession. Now it’s time to look to the next decade

The upscaling has been the result of a joint effort by the private sector realising that it has to go upmarket in its production system, facilitated by the government when we introduce classes and training schemes, etc. – and when we introduce incentives for the private sector.

TAR: Was the upskilling and upgrading in technology in the agribusiness and textile sectors led by the private sector, or was it a purely government-driven initiative? CADER SAYEDHOSSEN: I would say it happened in a very natural way. You know, Mauritius has never been a statedriven economy. It has always been private-sector driven and, of course, there have been periods in our history where there has been a conflict between government and the private sector. It is the job of the private sector to look after business, to produce and to make profit and it is [the government’s] job to tax that profit and run society. We try to make life as easy as possiblefortheprivatesectorwhile keeping in consideration something that is very important to us – that is social protection. Our social security system extends a very broad net to vulnerable people, widows, the handicapped, the elderly, accident victims, etc. In order to do these things we need revenue, and to have revenue we need the private sector to produce that revenue so that we can tax it.

Do you have a big planning department similar to those of the developmental states of Ethiopia and Rwanda? We were a developmental state for about 25 years, until 2005/2006 when we introduced the reforms. When the reforms were introduced, we also stopped economic planning. But I’m personally of the view that we should reintroduce economic planning because economic planning gives a hol-

Absolutely, I think it’s a brilliant system. We do that in Mauritius, I do that, at least, in my ministry. I meet regularly with industry representatives two or three times a month and I have an open-door policy with most of the institutions in the private sector. If they need to see me at just a few hours’ notice they see me within just a few hours. But regularly we sit down with industry and with academia. We should maybe also start doing it with students. Do you think there is a clash between those countries that believe in an open market philosophy and those that want to be in a developmental state mode? There could be a clash. I know that there is a school of thought that tells you that an open market will ultimately bring prosperity for all, in the sense that the market is always right. I don’t share that view at all. I think that at a given moment in the history of economic development of a country, there are probably certain industries whichneedtobeprotected,maybe not for a long while. But I think it is fundamentally unfair to tell a building industry in an African country which is only five years old to compete with another which is maybe 50 years old and has a market base maybe 200 times bigger. I think there is a fine balance to find between free-market access and the protection of your [indigenous] industries. ●

“there is a fine balance to find between free-market access and the protection of your industries” istic view of an economic system, in terms of where it is today and where you want to take it in five or 10 years’ time. But I don’t think we should go beyond 10 years. So we don’t have economic planning as you described, but I really think we should reintroduce it. Do you like Singapore’s idea of having teachers, industry and government representatives get together to discuss what kind of syllabus is needed for the industries of the future? the afric a report

interview by nicholas norbrook

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Mauritius looks beyond beaches to lure visitors Mauritius is on track to achieve its target of 1 million tourists this year as it lures increasing numbers of visitors from China and the UK. The number of tourists from China has jumped 86% in the first six months to 31 938, while tourists from the UK increased by 10.5% to 47 142, data from Statistics Mauritius shows. France remains the biggest source of tourist arrivals, accounting for 24% of the 490 697 arrivals over the period. Other big markets include India, Germany and South Africa. The Mauritius Tourism Promotion Authority (MTPA) is working hard to build awareness of the country as a multi-faceted destination in new markets in Asia and the Middle East. As part of the diversification strategy, it aims to attract 80 000 Chinese tourists this year, up from 15 133 in 2011. “There is a lot of competition from countries wanting to attract Chinese visitors. Weʼve been able to move quite fast,” said Dr Karl Mootoosamy, the director of the MTPA. An estimated 3% of the Mauritian population is from Chinese origin, offering a rich cultural history and tourism industry workers who can speak Mandarin.

DIFCOM: SG/CDS - PHOTOS: FOTOLIA

This year, the MTPA marketing activities, through road shows, trade fairs and hosting tour operators, have centred on China, Japan, Kuwait, Qatar and Russia. Southern China Airlines launched a weekly flight from Shenzhen to Mauritius in june 2014. Dr. Mootoosamy said the country wants to continue attracting high-end visitors. In addition to building awareness in new markets, the MTPA is selling Mauritius as more than just a beach holiday.

“WE HAVE IDENTIFIED A NUMBER OF DIFFERENT INTERNATIONAL

GOLF TOURNAMENTS; WEʼRE HOSTING ANNUAL CONVENTIONS.

WEʼRE

DEVELOPING OUR INLAND ACTIVITIES AND SPORTS

EVENTS, SUCH AS MARATHONS.

THIS

YEAR, OUR FOCUS IS

ON SPORTS, SUCH AS GOLF AND KITE SURFING, AND ECOTOURISM,”

Dr. Mootoosamy said. “The fact is that Mauritius offers so many things beyond just the beach,” he said. A broader offering will also help Mauritius to address the challenges around seasonality, with beach-going visitors preferring the hot summer months. Wedding groups, honeymooners and families will remain a key selling point for the MTPA, but there is a need to attract younger people and develop nontraditional markets, he said. Italyʼs Costa Cruises will resume operations in the Indian Ocean as from January 2015, bringing tourists to experience Mauritius, Madagascar, the Seychelles and Reunion Island. The planned two-week trips are expected to bring 20 000 visitors to Mauritius next year, a number that is forecast to rise to 100 000 by 2025. The MTPA also sees potential in developing Mauritius into a hub for tourists heading to Southern and East Africa. “We want to be the transit point for visitors coming from Asia, spending time here before moving on to for example Kenya or South Africa,” Dr. Karl Mootoosamy said. Next on the MTPAʼs agenda is making inroads into the North American market, an area the MTPA will focus on in 2015/16, he said. Tourism currently contributes about 7% to gross domestic product (GDP), and is a major foreign exchange earner for Mauritius.

Mauritius Tourism Promotion Authority 5th Floor, Victoria House, Saint Louis Street, Port-Louis, Mauritius Tel: (230) 210 1545 - Fax : (230) 2125142 www.tourism-mauritius.mu - www.mtpa.mu

country focus

mauritius

Manufacturing MAde in MAuritius No longer satisfied with merely canning tuna and spinning yarn, entrepreneurs are producing high-end goods ranging from watch parts to complex medical devices

local advantages The country already had some skilled labour in the jewellery sector thanks to its history as a diamond polishing centre, and the Mavros family knew the country as a holiday destination. “It is quite dynamic and flexible enough to operate a global luxury brand. We never came here for tax reasons. There are some sensible policies in place to encourage investment, and the political and economic environment is relatively stable,” Mavros explains. It also helps that the company can import a lot of its raw materials duty free and hire craftsmen from Zimbabwe. “We don’t design everyday wedding bands, so we require highly skilled craftsmen we’ve trained ourselves. It’s relatively easy to get work permits if you follow the process and ensure skills transfer

takes place to a local craftsman,” Mavros tells The Africa Report. In addition to jewellery manufacturing and diamond polishing, producers have found competitive niches in areas such as medical devices, high-end tools and watch parts for international brands. Natec Medical established operations in Mauritius in 2000 after also considering Mexico, India and China. “The country offers a lot of opportunities for entrepreneurs,” says Miroslav Secerov, vice-president of marketing and sales at Natec. Low taxes, a stable and business-friendly environment, and its geographic location near fast-growing India counted in its favour, says Secerov. At the third quarter of 2013, around 20% of people were employed in the manufacturing sector

However, challenges remain. Lack of access to sufficiently skilled labour, limited research and development, and infrastructure gaps are some of the factors contributing to the cost of production. “Getting the right skills can be a bit more complicated. It is easier to get people in textiles, information technology and banking. But people are educated, and it is not difficult to train them to follow processes and systems and so on. The challenge is when you’re looking at creating or designing new products,” argues Secerov. state support The government is trying to address such problems and launched a $3.4m fund this year to finance research and innovation. All Mauritian companies are eligible to apply for a grant of up to $170,000 per project. Mauritius has also made much progress in protecting intellectual property, patents and brands, which is crucial for companies investing in research and innovation, Secerov says. Other support measures that are in place include an investment tax credit scheme for high-tech manufacturing. The LEMS Forex programme also provides interest rate relief, government funding for export promotion and a fast-track system for work permits for exportoriented enterprises. Nonetheless, connectivity remains a challenge for exporters. This year, Mauritius will invest Rs3.2bn to improve the port at Port Louis by deepening the navigation channel, extending the quay and upgrading the multi-purpose terminal. ● Jana Marais in port louis

patrick mavros

s the textile industry moved up the value chain, the Mauritian manufacturing sector has recorded significant growth in output of highvalue-added products. Exports of jewellery and related goods increased by an annualised rate of nearly 12% between 2008 and 2013, according to MCB Group data. Shipments of manufactured goods, excluding agro-products, textiles and garments, were up 36% from 2009 to Rs8.3bn ($270m) in 2013. Luxury jewellery brand Patrick Mavros, with a home base in Zimbabwe, established a workshop and design studio in Mauritius in 2006 after considering a number of countries in the region. Forbes Mavros, who is in charge of the brand’s Mauritian operations, explains: “We’ve decided to come here because it is a user-friendly environment for investors. Particularly coming from Zimbabwe, where we were going through significant economic turmoil at the time with hyperinflation, for us Mauritius was the Switzerland of Africa.”

source : invest mauritius 2014

a friendly tax environment and government support is helping broaden the country’s economic base the afric a report

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Kross Border benefits as Mauritius lures “business with substance” the Mauritian government’s attempts to diversify the economy from its reliance on sugar started to bear fruit. 21 years later, its financial services industry is well established, and the island is positioning itself as a hub for investment into Africa. Kross Border, which originally formed part of KPMG Mauritius but was spun off and rebranded in 2003 to comply with the Sarbanes-Oxley Act, has shared in the Mauritian success story: its staff complement has doubled to 120, and revenue jumped 82% over the past five years in US dollar terms. “We are increasingly seeing business with substance coming here, and I think it is a trend that will continue,” said Jaye Jingree, managing director of Kross Border and one of its founders. An increasing number of Australian mining companies, for example, are establishing offices in Mauritius to manage investments in Africa. Setting up a base in Mauritius offers a stable environment and helps to manage the time difference between the continent and Australia, said Jingree. Gone are the early days of working from 9 to 4 – with global clients to serve, office hours and weekends are no longer set in stone. “We are focused on our service delivery. We respond fairly rapidly to clients, and we’re available 24/7. This, along with the long-term relationships we have with our clients and a low turnover of staff help to give us a competitive advantage. Many of our employees have been with us from the start, and it gives clients some comfort to deal with the same people over many years,” said Jingree. Kross Border currently manages 650 structures, including multinational companies, high net worth individuals, investors, fund managers and financial institutions. The firm has a branch in Singapore and is looking to set up offices in London, Hong Kong and Mumbai. ADVERTORIAL

It has representatives in a number of countries around the world and is affiliated with Russell Bedford International, a global network of independent firms of accountants, auditors, tax advisers and business consultants Kross Border’s main service offerings include fund administration, tax advisory and compliance, asset protection, company formation, re-domiciliation and statutory compliance, accounting and payroll, ship and yacht registration, trade support, fiduciary services and occupation and permanent residence permits.

M. GEORGES CHUNG PRESIDENT

Mauritius has double taxation treaties with 37 countries, with many more under negotiation or awaiting ratification, offering investors greater opportunities to plan their investments. It also has investment promotion and protection agreements in place with 22 countries, including China, Singapore, India, South Africa, Germany, the UK and Switzerland. With uncertainty surrounding the future of a doubletaxation agreement with India, a big business driver for the Mauritian ﬁnancial services sector, there is a major focus on Africa. “At the moment, everyone is focused on Africa. It is a difﬁcult market to enter – you’re dealing with different countries, different languages. There are many challenges. Mauritius offers a stable platform from where to do business,” Jingree said. Clients are particularly interested in East and West Africa, with investments going into mining, oil & gas, agri-business, infrastructure development and trading, he said. “Mauritius has been a very important point for Indian companies to channel foreign direct investment through Mauritius. Now we’re seeing companies from across the globe using Mauritius as a hub for investment worldwide.”

M. JAYE C.JINGREE MANAGING DIRECTOR

Kross Border

St Louis Business Centre, Cnr Desroches & St Louis Streets, Port Louis, Mauritius www.krossborder.com

DIFCOM/CDS - PHOTOS : DR.

Back in 1993 when Kross Border was established,

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mauritius

vertical integration is helping mauritian textile firms to grow despite stiff competition from china

Ed Harris/rEutErs

textiles tailored for groWth After years of job cuts and factory closures, Mauritian garment and textiles industry leaders are dreaming big and seeking to make the country into a marketing centre and fashion hub

hile the domestic textiles industry has been declining, many of Mauritius’s largest companies are continuing to grow thanks to vertical integration that allows them to control value chains. They have been investing in technology and training, moving to higher-end production and shifting manufacturing operations to cheaper destinations. Gilbert Gnany, chief strategy officer at financial services company MCB Group, explains: “In textiles today, we can’t compete with China. It is not a question of producing like we used to. More and more you will see the marketing arm staying in Mauritius, while part of the production may be done in Bangladesh or Madagascar.” Companies like CIEL Textile, one of the island’s largest groups, have expanded abroad. Of its 16 production facilities, seven are in Mauritius, five are in Madagascar, while three are in India and one is in Bangladesh. Chief executive Harold Mayer announced last year that the group will invest Rs600m ($19m) in four new plants in Asia over the next five years. Others, like Compagnie Mauricienne de Textile (CMT), have focused on local production. CMT, which started in 1986 with 30 employees doing mainly basic

today. Exports declined slightly from Rs26.6bn in 2000 to Rs24.9bn last year, while employment in the sector fell from 81,000 people in 2000 to around 43,000 in 2013, according to Statistics Mauritius. Dev Chamroo, chief executive of export promotion body Enterprise Mauritius, expects new investment in the textiles sector, including spinning plants and increased dyeing, knitting and finishing capacity. He says that local firms will set up factories elsewhere in Africa. “There is a lot of manpower in Africa, and it is fast building its infrastructure. But those two are not enough: you need marketing, you need access to technology, you need fast access to raw material. We have 43 years of experience – our people know where to source fabrics, where to source trims, where to get accessories, where to get equipment, who are the clients to look at – so we would like to play the same role as Hong Kong does as a marketing destination,” Chamroo says.

cut, make and trim work, is now a fully integrated producer. It has seven procatwalk ambitions duction sites that also handle design, The country’s financial services sector could also provide funding to the textile knitting, dyeing and sewing. CMT emsector to help strengthen linkages. Tianli ploys 10,000 people and plans to inSpinning, one of the island’s largest supcrease exports from its current level of pliers of yarn, launched a programme 60m garments per year. last year to encourage farmers in MadThe world has changed since investors agascar to grow cotton for its Mauritian from Hong Kong kickstarted the Maurimill, where it is investing tian textiles industry in the Rs2bn to double capacity. 1980s. They were looking Around 60% of exports from Mauritius The government is workfor a new export base head to the Eurozone ing to turn Mauribecause the World tius into a fashion Trade Organisahub. Chamroo tion’s Multifibre % explains: “There Agreement are some great (MFA), which imposedquotas African designon exports from ers, but they’ve developing taken residcountr ies to ence in Paris, the developed New York and source : african economic outlook 2014 world, constrained elsewhere. There is shipments from their factories. After a lot of capacity building going on in two decades of rapid growth, the MauriMauritius and South Africa, and fashion and design schools in countries like tian industry reached a peak in 2000, Senegal and Ethiopia. We are trying to when the rising cost of labour made it see whether we can establish a hub increasingly difficult to compete with where we are using the best African Chinese exports. designers to produce African designs The end of the MFA in 2005 did not help either, and the number of factories and garments for the world.” ● Jana marais in port louis declined from 660 then to around 240

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Mauritius

Where your dreams come trueâ&#x20AC;Ś

Mauritius Tourism Promotion Authority 5th Floor, Victoria House, Saint Louis Street, Port-Louis, Mauritius Tel : (230) 210 1545 - Fax : (230) 2125142 www.tourism-mauritius.mu www.mtpa.mu

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FUTURE OF AFRICA

ARE THE

country focus

mauritius

finance Building a Banking huB The financial services sector is forging new partnerships and adapting its product offerings to help investors expand their activities throughout Africa

source: thomson reuters 2014

Mauritius was the fourth most popular target of M&A deals in sub-Saharan Africa in the ﬁrst half of 2014.

$408m

fabien dubessay/maXppp

auritius is positioning itself to become an Africa-focused financial support centre, modelling itself on the role Singapore is playing in Southeast Asia. The country is well established in the sector. It has a wide network of tax and investment protection treaties with African countries and it is a member of the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA). “Africa is the big opportunity over the next five to 10 years – everyone knows the macro story. The question has changed from why to invest in Africa, to how to do it. Our role will be to help clients manage risk and structure deals,” says James Benoit, chief executive of AfrAsia Bank. Aisha Timol, the chief executive of the Mauritius Bankers Association, says more Mauritian banks are partnering with African banks on major projects in the field of infrastructure, mining and telecommunications. “Some of our banks are also providing banking solutions and services to African banks,” Timol explains. A Mauritian bank is running the credit card system of a group in West Africa, utilising its spare information technology capacity. Local banks are also working in collaboration with South African banks, which have a major presence on the continent but face challenges such as exchange controls. MCB Group, one of Mauritius’s largest financial insti-

the mauritius

The bank had to restructure its operations and cut down on its branch network. With finance contributing around 9% to gross domestic product and Mauritius rapidly losing market share to Singapore in facilitating financial flows to India, the government is also supporting the industry. It set aside Rs50m ($1.6m) in this year’s budget to help promote Mauritius as an international financial centre and is focusing on strengthening the regulatory framework. Compliance with international regulations has been a major focus for the industry, Timol says. The Basel III standards are the new international norm for banks in Mauritius, with higher capital and liquidity ratios to be introduced in a phased manner.

central bank has tutions, is already earning helped financial nearly 50% of its profits firms comply with from outside the domestic international market. “While we have a trading places banking rules commercial presence in The Stock Exchange of the Indian Ocean islands Mauritius (SEM) is also and Mozambique, we can’t have a flag positioning itself as a platform for in 40 countries. But we also do a lot of African ventures. Since 2009, nearly financing from here, for example trade $2bn has been raised by issuers on finance. The European banks closed the SEM, of which $1.4bn was raised their lines after the [financial] crisis, by foreign issuers listed in Mauritius. “Our multi-currency listing and trading so we financed a lot of oil imports, for platform today allows African issuers example,” says Gilbert Gnany, chief to list and trade their securities in US strategy officer at MCB Group. dollars, euros, British pounds or South African rand at very competitive costs sights set overseas With limited room for domestic expanand ensures the settlement of the unsion, most of the country’s 23 banks derlying transactions in these four inare looking abroad for growth. AfrAsia, ternational currencies,” explains SEM which was founded in 2007, recently chief executive Sunil Benimadhu. increased its shareholding in its ZimThe SEM, with a market capitalisation of around $7.5bn, is also discussbabwean venture and will continue to look for opportunities in SADC and ing the idea of remote membership COMESA, Benoit says. The group is in to attract foreign brokers and partitalks to bring in a major international cipants. Benimadhu argues: “This will constitute an important step towards shareholder to strengthen its balance sheet. “Then a lot more activity across a better integration of our securities the continent will follow,” says Benoit. market with the international finanAfrAsia has been struggling in Zimbcial markets.” ● Jana Marais in port louis abwe, where the economy is sluggish. the afric a report

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frontline

soul

The battle for South Africa’s With the ruling African National Congress certain of victory in the coming national elections, attention turns to the countervailing forces within the party, and to voters who differ sharply over their country’s future political direction

uch is the power that the African National Congress (ANC) has assumed over the life of South Africa in the past 20 years that the announcement of its candidate lists on 11 March was seen by the country’s political cognoscenti as being as important as the results of the national elections on 7 May. In part, this is the downside of an electoral system – proportional representation – in which members of parliament (MPs)areselectedbytheirparty’snational

executive committees, not by the parliamentary constituencies they are meant to represent.SowhenANCsecretarygeneral Gwede Mantashe told journalists “We are comfortable with the list […] We looked through it carefully,” everyone got the message. The party’s apparatchiks had selected the country’s new political elite. President Jacob Zuma was number one, of course. Cyril Ramaphosa was number two and almost certain to be deputy-president, if not heir apparent. Malusi Gigaba, minister of public enterprises and director of elections, was

number three. Equally important were the absences. Two historic foes who had been openly critical of Zuma’s leadership – Tokyo Sexwale and Mathews Phosa – had become unpersons, with a cloud of uncertainty hanging over their political and business futures. Amoreamenableadieuwasnegotiated by two other party elders – deputy-president Kgalema Motlanthe and planning minister Trevor Manuel – who declined nominations. Both were sterling representatives of the original rule-regulated ●●● and mass-based ANC.

radu sigheTi/reuTers

By Gregory Mthembu-Salter, Crystal Orderson and Patrick Smith in Cape Town

frontline | The baT Tle for SouTh africa’S Soul

Both also had their problems with Zuma’s leadership. Indeed, Motlanthe challenged him somewhat halfheartedly for the party leadership at the ANC’s Mangaung conference in 2012, but both maintained party discipline and an outward show of respect for the chief. Manuel was right on target, however, when he made a perceptive aside about Zuma to a journalist: “He knows what he doesn’t know.” He also admitted to a more general political

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frustration last year: “Our government has run out of excuses […] we cannot continue to blame apartheid for our failings as a state. The time for change, for a ruthless focus on implementation, has come.” Their retirement from parliament prompted a special session to bid them farewell, drawing praise from across the house. A few weeks earlier both men had attendedthelaunchofBusaniNgcaweni’s history of the ANC and spoke frankly

about the direction of the party. Motlanthe took another swipe at political patronage: “We have to draw lessons from our history. We must create the future from wisdom and how we will deal with the problems. The ANC has never been about a free ride.” And then Manuel, who had taken to the international stage with alacrity and may return to it, offered a more direct critique: “We choose to lock out certain information. Part of our problem is that

interview

Keep calm and carry on – our goal is the abolition of poverty by 2030 Confident of victory in the May elections, top policy-makers in the African National Congress are focusing on the National Development Plan. Collins Chabane is the man who has to make it work

attling with stubborn economic realities is for the ruling African National Congress (ANC) a more demanding job than taking on its political opponents in this year’s election. Rising unemployment and service delivery protests hit the party far harder than the Democratic Alliance opposition party. The ANC’s answer is the National Development Plan (NDP). Full of grand aims and a few platitudes, it is more a political doctrine to unite the party behind a strategy for the future than a practical guide to fixing an economy that remains riven with inequality despite some of the impressive progress made since 1994 (see page 26). The man who has to make the plan work is Collins Chabane, minister in the presidency for monitoring, evaluation and administration. One of his jobs is to tell President Jacob Zuma whether ministers are living up to their performance contracts.

But Chabane, although he is a close ally of President Zuma, is far from the tough-talking chief of staff figure that could push around other ministers. With a degree in electrical engineering and a management diploma earned in Tanzania, he is more interested in talking policy and ideas. Sitting at his room in the president’s offices in parliament in Cape Town, Chabane bangs the drum for the ANC record: “This is the 20th anniversary of our democracy. Any nation that went through the changes that we did must have milestones to celebrate their achievements.”

pillars of the plan

For Chabane, building support for the NDP is essential to keeping up political momentum. Its core pillars are higher quality education and training for all, more jobs and investment in manufacturing, and the end of poverty and a dramatic narrowing of inequality.

Championed by Zuma and led by planning minister Trevor Manuel and ANC deputy chairman Cyril Ramaphosa, the plan was launched in 2011 and adopted at the ANC’s policy conference the following year. Manuel said the plan’s goal should be to ensure that no South African lives below the poverty line in 2030. The NDP’s biggest detractor is the National Union of Metalworkers of South Africa (NUMSA), which dismisses the plan as a rerun of former president Thabo Mbeki’s neo-liberal Growth, Employment and Redistribution (GEAR) strategy. On its website NUMSA writes: “The NDP fails to tackle the foundations of South Africa’s colonial economy [and] promises wholly unrealistic and unachievable goals, like its father – GEAR.” Chabane replies: “If the unions say they are not happy about [the plan…] we’re not saying it’s a bible. It’s something that has been drafted by people after

consultations. People from labour will say ‘We can’t support a policy like this because ideologically we don’t agree with it.’ We have a buy-in from the majority of people, so we’re going to move ahead.” Iraj Abedian, a leading economist and chief executive of Pan-African Capital Holdings, backs the NDP. He says that its implementation is urgent: “I am focusing on the next generation […] it all depends on decisions we make today.” Jobs will be the measure of the plan’s success. South Africa has

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The baT Tle for SouTh africa’S Soul | frontline

we continue to worship the rich and the powerful and ignore and despise the poor. We must confront future generations of the country as well […] it is not how many millionaires we create but how many millions of Africans we lift out of poverty.” famous five survive

Herman Verwey/City Press/Gallo imaGes/Getty imaGes

There was also a more awkward postscript to the ANC’s list of MPs: at least five of those on the list were embroiled

in corruption scandals or had damning findings made against them by public protector Thuli Madonsela. The ‘famous five’ includes Dina Pule, sacked as communications minister after she was found by the public protector to have awarded contracts to companies linked to her partner, to have lied to parliament and to have misused state funds. Theinterestandcontroversygenerated by the ANC’s list of MP candidates reinforce the sense among its loyalists that

come a long way since 1994 when the economy was growing at 1% and government debt was 49% of gross domestic product. But the country’s unemployment rate is the highest of more than 40 emerging markets tracked by Bloomberg. Some 4.5 million people are registered as jobless, with young people the most affected by unemployment. Chabane and his ANC colleagues argue that the youth tax incentive scheme – a tax rebate to employers for hiring young people – will cut the africa report

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from engineer to minister 1960 Born in Limpopo Province 1979 Founder member of Azanian Students Organisation 1980 Joins the African National Congress 1990-1998 Provincial secretary for Northern Province 2009 Made minister in the Presidency

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the party has moved from a liberation movement with well-defined ideals and moral standards to an electoral and political patronage machine whose dynamics are shaped overwhelmingly by personal interests. Tom Lodge, a political scientist and author of several books on the ANC, points to signs of the party’s changing character in an article entitled ‘Neo-patrimonial politics in the ANC’. They include “factionalism [and] the emergence of internal rival groups constituted by ● ● ●

Some educationists argue that class and race still massively influence educational standards despite heavy state investment in free schooling: “The schooling system is characterised by low rates of curriculum coverage and an exceedingly weak correlation between increased expenditures and improved education outcomes,” says Nicholas Spaull, a researcher at Stellenbosch University. Abedian shares these concerns: “We’re spending 20% of the budget on education, so money is education headaches not the issue. Are we getting value Education remains the centrepiece for it? Are we proud of the places of the government’s policy, says that our kids are getting, and are Chabane, but getting rid of the they getting the capabilities that effects of the old racist would allow them to participate in government under which blacks, the economy? This is not financial Indians and coloureds received but about non-material and inferior education is taking longer non-financial investments we are than anticipated: “We have brought making in our future generations.” together 11 education systems But Chabane insists the into one. Over time we should be investments are producing results: able to overcome the challenges.” “We’ve got the highest access Education gets a major share to education in rural areas, in urban of the national budget: R286.5bn areas and in informal settlements. ($26.6bn) in the 2016/2017 fiscal We are focusing on early childhood year, but about 60% of that goes development. We’re putting to salaries. “Assessments over the systems in place.” With his the past two years show we background in monitoring and are beginning to turn the corner,” evaluation, Chabane will be one insists Chabane. According of the first to see if the grand plan to the South African Democratic is really working. On that, much Teachers’ Union, five million – including the future of his party students had access to free and the younger generation education in 2007, and this year of South Africans – will depend. ● the number reached 8.8 million. Interview by crystal orderson the jobless queues. The party claims that in January alone 56,000 jobs were created through the scheme. But that has to be set against the million or so jobs the country has lost since Zuma was elected in 2009. NUMSA’s Basil Cele mocked the scheme in an email to The Africa Report: “Have you ever heard of anything as ridiculous, subsidising employers for something they should do anyway, providing jobs for young people?”

frontline | The baT Tle for SouTh africa’S Soul

personal loyalty rather than shared ideological beliefs”. Added to this, Lodge explains that officials seek political legitimacy through appeals to solidarity rather than the quality of government performance. The massive growth of ANC membership in KwaZulu-Natal since Zuma became party president and the lauding of him as a ‘100% Zulu boy’ runs contrary to the established principles of the original ANC, which guarded against the building of ethnic constituencies within the party. ●●●

Under apartheid, the reason for that was that the National Party went to great lengths to divide its opponents along ethnic and racial lines. Post-apartheid and with the ANC in government, there are different risks to this factionalism and ethnic favouritism that undermines accountability and wider policy aims such as a fairer redistribution of wealth. first family businesses

Among the most visible signs of these changes within the ANC has been the ac-

quisition of business interests by leading politicians and their families, especially the rapid expansion of the presidential family’s business concerns since Zuma’s accession to the presidency in 2009. By March2010,membersoftheZumafamily held 134 company directorships. Of the companies in Zuma’s official declaration of interests, 83 were registered after he became ANC president, reported the Johannesburg weekly Mail & Guardian. This extends well beyond the presidential circle, according to Lodge: ● ● ●

The ANC takes on all comers

e is the face on the election posters of the ruling African National Congress (ANC), but other political and domestic commitments have held back President Jacob Zuma from doing much campaigning. Zuma’s absence from the stump also reflects hesitancy within the ruling party about what to do with the man his staff call ‘Number One’. While Zuma’s dominance of the ANC remains as entrenched as ever, popular sentiment towards him has shifted because of a succession of corruption scandals. Even so, most forecasts give the ANC about 60% of the popular vote, about 5% down on its 2009 result. The opposition Congress of the People (COPE) is in trouble. Headed by former ANC defence minister and Free State premier Mosiuoa Lekota, it won 1.3m votes and 7.6% of the total in the 2009 elections. In local elections in 2011, COPE won just 3% of the vote. Many will revert to their old political home, the ANC. The Economic Freedom Fighters’ rallies have been drawing huge crowds, where leader Julius Malema’s promises of huge wage increases and land confiscation gets loud approval. Malema is set to get the party onto the ballot in

ZIMBABWE

WESTERN CAPE: DA vs ANC

MOZAMBIQUE

This is the only province where the ANC has not been able to win outright. With DA leader Helen Zille at the helm of the province, the ANC has deployed the big names to campaign in the province.

Limpopo BOTSWANA

North West

Gauteng

Mpumalanga SWAZILAND

NAMIBIA

Free State

Atlantic Ocean

Northern Cape

KwaZulu Natal Indian Ocean

LESOTHO

Eastern Cape Western Cape

ANC

all nine provinces. Analysts are predicting 5-10% of the vote for the new arrival. The Democratic Alliance (DA) won 16.7% of the vote in 2009. DA activists were talking about 30% this time but were slapped down by party president Helen Zille, who has more modest hopes in the wake of the DA’s disastrous flirtation with Mamphela Ramphele and her party Agang South Africa. After the fall out, Agang may be

EASTERN CAPE: ANC vs COPE/DA 300 km

GAUTENG : ANC vs DA

Economic heartland of country. DA Gauteng's charismatic premier candidate Mmusi Maimane will certainly attract the undecided votes, so too the party's campaign against the e-toll road system.

lucky to get 1%. The DA will do less well in Gauteng than it had hoped. More promising for the party is the Eastern Cape’s Nelson Mandela Metropolitan Municipality. Support for the Inkatha Freedom Party (IFP), led by 86-year-old

In the home of the late President Nelson Mandela and several ANC stalwarts the party has had to work hard to fend off the growth of the DA and COPE. The DA grew by 34.7% with over 1 million people voting for the party in 2009. COPE also made a good showing. All eyes will be on the province to see whether people will return the ruling party with an overwhelming majority.

Mangosuthu Buthelezi, was 4.5% of the vote in 2009. It is likely to drop to around 2% in the May polls. The ANC will share the lost votes with the National Freedom Party, an IFP breakaway party. ●

the africa report

C. O. and P. S.

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frontline

Rogan WaRd/ReuteRs

“The ANC’s mobilisation of public support relies increasingly on patronclient relations.” Although Zuma, unlike his aloof predecessor, has cultivated a persona as a man of the people who is always willing to listen to requests and concerns. There are reports of long queues of citizens waiting to see him at Mahlamba Ndlopfu, the presidential residence at Pretoria. These patron-client relations exist alongsideamoderndemocraticstatewith an independent judiciary and media. But the danger is that the shift to patronage politics and the dominance of personal interests within the ruling party could undermine South Africa’s governance. And certainly, some party apparatchiks are working hard to undermine the authority of independent institutions such as the public protector’s office or even the Constitutional Court. ●●●

provincial springboards

Further down the hierarchy, this pattern is repeated with intense competition among ANC cadres to control provincial structures and local municipalities, which make decisions about tenders and contracts. On the back of these financial powers,politicalcareerscanbelaunched.

Desperate to work, South Africans contend with higher unemployment than in 1994

And it goes beyond the ANC. Julius Malema, the firebrand former leader of the ANC Youth League, used his ties with the Limpopo provincial government to build a business and then a political platform: after he was sacked from the ANC, Malema’s founded the Economic Freedom Fighters (EFF). So high are the stakes now that the competition for government jobs and even posts within the ANC has become brutally intense. “The ANC leadership increasingly reinforces its authority and demonstrates its power through displays of ostentation and elaborate security procedures,” writes Lodge. A symbol of this is the R206m ($19.3m) security upgrade to Zuma’s homestead at Nkandla, but it also revealed a gross miscalculation by the presidency. Initially the security project at Zuma’s private house was pushed throughasaperquisiteofoffice,underlining the aura of presidential inviolability. When journalists and MPs saw the details – which included the curious addition of items such as a swimming pool, an amphitheatre and houses for the president’s relatives – the stage was set for a

political confrontation. Parallel investigations were launched: public protector Madonsela’s draft report was reputedly highly critical and a probe by the Joint Standing Committee on Intelligence found companies had been awarded contracts without security clearance. They personally exonerated Zuma of any wrongdoing, however. ‘Nkandlagate’ rumbles on and will doubtless influence some voters in the elections. There are clearly forces within the ruling party that revel in the move towards patronage politics and are happy to jettison the ideological policies and practices of the old liberation movement. Yet there are countervailing groups that wantstrongandindependentinstitutions in South Africa, precisely as a bulwark against the tendencies towards personal rule and clientism. Some are younger activists with much broader agendas. Paul Mashatile, who led the Forces for Change movement in Gauteng, is characterisic of the younger generation: “When there were challenges in the ANC, the party is able to self-correct. Some say that the ANC has fallen. It is not true. It is in our DNA to renew the ANC continuously. The renewal of the ANC is part of our history.” ButsomeareadherentsoftheoldANC, which they saw as a disciplined and accountable organisation. That is the ANC of Mandela, Walter Sisulu, Oliver Tambo and Albert Luthuli. Others are more sceptical of romanticising the past, arguing that some of the criminal tendencies within today’s ANC have their roots in the deals that helped finance the liberation struggle, remembering the less scrupulous operatives who managed to earn money for the cause and enrich themselves at the same time. the struggle aura fades

Martin Plaut, the co-author of Who Rules South Africa?, argues the new elite of the party “shows that the ANC is going back to its roots as a centrist Christian Democrat party” and is likely to end up squeezed somewhere between a leftist and trade-union-backed party and a more right-wing party. Plaut also cites what he calls the “30year rule”: liberation movements that win independence for their countries lose their mass support and the popular imagination within 30 years, and can no longer hold onto power democratically. “The ANC under Jacob Zuma has died a natural death,” said Mpho ● ● ● the africa report

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frontline | The baT Tle for SouTh africa’S Soul

● ● ● Ramakatsa, national coordinator of the EFF, addressing a recent rally. “You threaten the interests of Zuma, Cyril Ramaphosa, Khulubuse [Zuma] [...] because the ANC we have today protects the interests of owners of means of production.” IstheANCheadingtowardsthe30-year point? Its internal battles and victories have mirrored the wider changes in the country’s politics. After 102 years of existence and the last 20 in power, the ANC has established a political hegemony in South Africa equivalent to that of the Indian National Congress, which celebrates 120 years of existence next year.

a little bit of punishment

The comparison is apposite. Those parties were born out of revolutionary change and were powered by mass popular support. And in return they promised a future of freedom, equity and modernisation. Indeed, Mandela’s inaugural speech in May 1994 was one of the most eloquent expressions of political aims: “We have, at last, achieved our political emancipation. We pledge ourselves to liberate all our people from the continuing bondage of poverty, deprivation, suffering, gender and other discrimination [...] We enter in a covenant that we shall build the society in which all South Africans, both black and white, will be able to walk tall assured of their inalienable right to human dignity – a rainbow nation at peace with itself and the world.” Even loyal ANC supporters admit the record in power has fallen short of such lofty aims but see no reason to believe the ANC will follow its Indian counterpart into opposition any time soon. And despite the plans by the radical National Union of Metalworkers of South Africa to break away from the ANC-aligned Congress of South African Trade Unions, this realignment could take many more years. Fanie du Toit, the director of the Institute for Justice and Reconciliation, concurs with the gradualist assessment: “I don’t think we are at the point where we have a viable alternative for most people in their minds. So they will do one of two things. They will vote for the devil they know or they will stay away. So there will be a little bit, but not too much, punishment for the ANC.” What happens to the ruling party after the elections depends as much on which group wins the battles within it as what happens in the swirling pool of radical politics outside. ●

The real impact of 20 years of the ANC 2012

Under-ﬁves mortality rate

South African population

(per 1000 live births)

2012

51,189,307

1994

59 38,283,223

1994

Children not enrolled in either primary or secondary school

GDP per capita (US$)

2012

7,508

2011

7,943

2010

7,266

2009

5,758

2008

5,598

2007

5,930

2006

5,468

412,052 371,504 323,358

1994 98

2005

5,234

2004

4,695

2003

3,648

2002

2,440

2001

2,638

2000

3,020

1999

3,103

1998

3,205

1997

3,636

1996

3,593

1995

3,863

1994

3,547

362,741

318,071

243,770

216,501 99 2002 06

Access to water

656,487

People aged 15 to 49 with HIV

(% of population)

2011

2010

3009

2008

2007

2006

2005

2004

(% of population)

3.1 10.8

1994 1998

16.2

17.2

2002

2006

17.9

17.6

2010

2012

Access to sanitation facilities (% of population)

1994

1998

2002

2006

2011

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

Unemployment (as a % of the total labour force)

30 25 20 15 1994 95

99 2000 01

the africa report

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business StellenboSch mafia

Under fire from the Economic Freedom Fighters and others, the Afrikaner stronghold’s billionaire power brokers argue that they are committed to black economic empowerment. The new faces at the table may look the part, but are they being served the choicest slice of the pie?

By Jana Marais in Stellenbosch

he city where all the country’s prime ministers between 1919 and 1978 went to school – including apartheid architect H.F. Verwoerd – and home to some of the country’s richest and most powerful businessmen, Stellenbosch has become a focal point for firebrand politician Julius Malema to attack the country’s lack of economic transformation. His argument is easy to sell: white households still earn on average six times morethanblackones,whileunemployment among blacks is nearly sixtimeshigherthanamongwhites. In Stellenbosch, home town of Johann Rupert, South Africa’s richest person, an estimated 28% of the population is food insecure. Its university, under fire for a lack of transformation at student and staff level, still has buildings honouring Verwoerd. Nestled between mountains and vineyards about 52km from Cape Town, Stellenbosch is the second-oldest town in the country. A popular tourist destination thanks to its location and historic centre, the student town also hosts a number of big corporate offices. Malema,leaderoftheEconomic Freedom Fighters, says dismantling the “Stellenbosch mafia” and sharing the means of production

is needed if South Africans ever want to obtain “economic freedom”. This so-called mafia has top African National Congress (ANC) leaders in their pockets and controls everything from the judiciary to the banks, mines and stores, he told a rally in Khayelitsha, an impoverished township near Cape Town, in March. bee commitment

While it is true that they control a substantial portion of the economy, it is unfair to say Stellenbosch’s power brokers have not been committed to black economic empowerment (BEE), says Ajay Lalu, managing director at consultancy firm Black Lite. Stellenbosch is home to many wealthy business owners. Magnates linked to the city include Rupert (Remgro and Richemont), Jannie Mouton (PS G Group), Chr isto Wies e (ShopRite, Pepkor, Brait, Tradehold and Invicta Holdings), Koos Bekker (Naspers), ● ● ●

EntrEprEnEur MagazinE, Ed O’rilEy; daniEllE KaralliS/FOtO24/gallO iMagES/gEtty; rayMOnd prEStOn//Sunday tiMES/gallO iMagES/gEtty; naSiEF ManiE/FOtO24/gallO iMagES/gEtty

christo Wiese Billionaire Wiese, 73, is the mastermind behind ShopRite and Pepkor, two of the country’s most successful food and clothing retailers, respectively. Today, ShopRite is Africa’s largest food retailer, with stores in 17 African countries. In 2009, officials at London City Airport confiscated cash of more than £670,000 ($1.1m) when Wiese boarded a flight to Luxembourg. He won a court bid to have the money returned in 2012.

companies & markets

MADEMEN Zitulele ‘KK’ Combi His debating skills earned him the nickname KK, after Zambia’s former president Kenneth Kaunda. Combi, 62, started as an insurance salesman in Gugulethu, a township outside Cape Town. He saved enough money to establish a cafe and a petrol station. His major breakthrough came in 1995 when he started Master Currency, a business he sold to Bidvest in 1998.

Jannie Mouton In August 1995, Jannie Mouton, then 48, was fired from his job as managing director of SMK, a stockbroking firm he co-founded in 1982. This led to the establishment of PSG Group, which Mouton – also known as the Boer Warren Buffett – built into one of the most successful investment firms in South Africa. PSG holds stakes in Pioneer Foods, Distell, Capitec Bank and Curro Holdings.

Jay Naidoo A former general secretary of the Congress of South African Trade Unions and minister in Nelson Mandela’s first cabinet, he founded J&J Group with his friend Jayendra Naidoo in 2000. A well-known labour and anti-apartheid activist, Naidoo, 59, has returned to full-time voluntary work. He serves on the boards of the Global Alliance for Improved Nutrition and the Mo Ibrahim Foundation.

business | companies & markets

Gideon Mendel/Corbis

G.T. Ferreira and Paul Harris (FirstRand and Rand Merchant Bank), Markus Jooste (Steinhoff) and Michiel Le Roux (Capitec). Critics of the ANC government say that BEE has only benefited those with political allies. Brait, a holding company with investments in food and retail businesses, had politically connected empowerment partners. BEE firm Sitogo Holdings sold its share in Brait in 2010, netting around R70m ($6.3m) in profit toshareholders.Amongthesewere people close to President Jacob Zuma, including Sandile Zungu and Vivian Reddy.

●●●

boardroom shuffle

A closer look at board composition andshareholdingrevealshowinterconnected Stellenbosch’s business elite is – though many of these relationships can be traced back to Johannesburg, where people like Mouton, Ferreira and Jooste spent most of their careers before moving to the winelands. Jooste is the chief executive of furniture manufacturer Steinhoff. He sits on the board of PSG, a company founded by Mouton that is one of the country’s top four investment firms.Steinhoffalsoacquireda20% stake in PSG from Christo Wiese’s investment group Titan in 2011. In addition, Jooste served on the board of Capitec, PSG’s biggest investment. Wiese, who owns a small stake in Steinhoff, sat on the Steinhoff board along with

Mouton and increased his stake in the company in September. Rupert’s Remgro, a diversified conglomerate with interests in banking, retail, healthcare and insurance, is implementing an Africa-focused expansion. “If you look at Remgro and their shareholding relationship with Kagiso TisoHoldings,forexample,itsends a very clear signal that they’re doing something from an empowerment perspective. The one criticism that I could lay at their door is that they have been quite selective in which assets they decide to empower. It is never at holding company level,” Lalu says. This means empowerment shareholders have often been left out of the growth achieved outside South Africa and it shows a compliance mentality rather than a strategic approach to empowerment, he explains. Retailers like Pepkor and ShopRite have been under less pressure to focus on empowerment due in part to their limited reliance on governmentbusiness.Nonetheless, Pepkor sold a 7.5% stake in 2004 to the equity fund of the J&J Group, the investment firm co-founded by former ANC stalwart Jay Naidoo, and Medu Capital, founded by charteredaccountantsErnestJanuary and Nhlanganiso Mkwanazi. Both these empowerment funds have grown significantly over the past 10 years, with J&J now holding stakes in companies including Rand Merchant Bank, Areva,

ShopRite has been criticised for having only two black board members and for its low minimum wages

Unemployment in South Africa is almost

6 times higher among black people than white people

Source: World Bank

Macquarie and Bombardier. Medu Capital, with more than R1.5bn under management, partners with establishedbusinesses thatrequire equity risk capital or empowerment partners. Other success stories include RMB’s Makalani Holdings, run by bankers Sydney Mhlarhi and Vusi Mahlangu. Their investment firm Tamela was established to hold a minority stake in Makalani and has since grown to include stakes in companies like PPC, AON and Daimler Fleet Management. And, increasingly, deals are done simply because it makes business sense, such as Remgro’s R500m investment in the Pembani Remgro Infrastucture Fund in partnership with MTN’s chairman and former CEO Phuthuma Nhleko, who is credited with building the telecommunications company into an emerging markets behemoth. the combi effect

Transformationatboardandmanagement level remains problematic.AtRemgro,18ofthe22topand senior managers are white males. Shoprite has only two black board members – one female – out of 14. All eight executive directors are white males. The retailer has also been under fire from trade unions for the low proportion of full-time employees and the low minimum wage of around $205 per month. The partnership between PSG and businessman ‘KK’ Combi has changed the Stellenbosch crowd. For PSG’s Mouton, ‘KK’ Combi’s integrity and business focus were thedecidingfactorswhenthecompanyneededanewempowerment partner in 2005. Combi, a successful black entrepreneur who shies away from the limelight, first established a relationship with PSG through Master Currency, the foreign-exchange trading business he founded. Combi established Thembeka Capitalin2007topartnerwithPSG, raised R36m by selling shares at R30 to around 500 investors and moved his office to Stellenbosch – “something I never thought in my life I would do,” Combi tells The Africa Report. The result was arguably one of the most ● ● ●

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business | companies & markets

successful empowerment partnerships in the country, resulting in Thembeka doing a number of lucrative deals with PSG, including investing in Capitec Bank, Pioneer Foods and Curro Holdings. Combi, with board seats on all four companies, is also much more than a minority shareholder with no say, which is so often the criticism levied against the beneficiaries of BEE deals. He played a crucial role in negotiations with government and the competition authorities when Pioneer was facing a R4.5bn fine for its role in a bread cartel, which could have sunk the company. It finally settled on a fine of R500m in 2010.

●●●

Growing the ecosystem

Home to Mxit and new venture capital funds, the South African city is becoming a centre of innovation

ith its world-class university and close proximity to Cape Town, Stellenbosch is well-placed to become South Africa’s Silicon Valley. The success of Mxit, an innovative mobile-messaging service deveoped by engineer Herman Heunis, has played a crucial role in marketingthetownasahubforinnovative start-ups and investors. Stellenbosch’s student community played a crucial role in Mxit’s early success. “Stellenbosch is almost like an accelerated incubation chamber,” Heunis tells The Africa Report. Stellenbosch University, one of Africa’s leading academic institutions, had more than 28,000 students in 2013. For Michael Jordaan, former chief executive of First National Bank and founder of MonteGray Capital, which was established in Stellenbosch in January, the lifestyle, entrepreneurial culture and select corporate representation made the town the ideal place to start a venture capital fund. “Stellenbosch aims to lead in innovation, and we invest in entrepreneurs who challenge convention. Of course, we in South Africa have a long way to go to make entrepreneurship far more attractive than a formal career. The

big deals all done

Thembeka announced in September its structures will be unwound to unlock value for shareholders, with Thembeka shares to be swapped for more liquid PSG shares. The transaction is valued at R165.85 per share, a 453% increase in seven years. Some of the shares remain restricted and will be transferred to a trust to fund bursaries for black students to obtain a private high-school education. Combi will remain on the PSG and other boards. “The intention is for us to stay together and look for deals together. The BEE landscape has changed. All the lucrative big dealshavebeendone,” he explains. Combi admits that Stellenbosch is not for everyone. “People from the north [Gauteng, the more conventionalbaseforblackinvestment firms] find it difficult to settle in the Cape for various reasons. Some say it is too slow, but I can tell you one thing: it has never been slow for me. Others say the political set-up in the Western Cape is different,” Combi says. The Western Cape is the only province that is not governed by the ANC. “Of course it is different. It dependsontheperson,ifyoucanfind it easy to criss-cross between racial lines. I find it very easy. I was born in the Western Cape, and I claim my right to be here.” He laughs: “If you think, eight years ago nobody would ever have dreamt there could be a black member of the Stellenbosch mafia.” ●

28,000 Students enrolled at Stellenbosch University in 2013 Source: StellenboSch univerSity

ecosystem is growing though, and I am very encouraged by some of the start-ups we get to evaluate,” explains Jordaan, who also owns a wine farm in the area. Other challenges include limited access to skills and softwaredevelopment resources. The Afrikaans-dominant town is still seen as a largely white enclave, making it difficult to attract black talent. The CodeX project – an apprenticeship scheme set up by Jordaan and four others – is one initiative to equip young people, including black students, with programming skills. “If they work hard they will almost certainly find jobs […] or have great skills to start a business,” Jordaan says. More Stellenbosch success stories are needed to attract international funders and the establishment of technology labs, such as Naspers’s MIH Media Lab, which aims to promote research in new media technology. “There is no lack of brilliance, innovations,disruptivenessinStellenbosch,” says Heunis, “but to get recognised is difficult at first. Start-ups that sign huge contracts with serious international players will play an important role, and I think this will happen very soon,” he concludes. ● J. M.

Vineyards and start-ups: could this be a new Silicon Valley?

peter titmuss/alamy

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“Especially in Africa, Western Union specializes in channeling much needed remittances into the communities/villages/families that, upon receipt of the remittances, are then ﬁnancially empowered to grow economically by sending children to school, purchasing groceries, supplies and equipment from community based retailers and investing in small businesses – thus improving their living standards” Richard Malcolm, Regional Vice-President – Southern & East Africa Western Union

■ As a leading global payments services

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Union’s Mobile Money Transfer services. This provides consumers with the choice to use their mobile phones to direct Western Union remittances into their accounts and receive funds no matter where they are,

to families at home to a small business in a developing market purchasing materials from the other side of the world – Western Union offers premium solutions for all their customers.

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SOUTH AFRICA IN AFRICA

AKINTUNDE AKINLEYE/REUTERS

Your

hinterland is there The idea of the African continent as South Africa’s hinterland was reborn in a new form under the African National Congress. Reversing apartheid’s legacy, the country has strived to be a continental peacekeeper, while its banks, retailers, telecoms, food and mining companies have struck out for expansion in the fastgrowing economies of its African neighbours By Gregory Mthembu-Salter in Cape Town

THE AFRICA REPORT

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n Cape Town’s tranquil Company’s Garden, where in 1652 Dutch captain Jan van Riebeeck ordered vegetables to be grown to feed the tiny white colony, there is an ageing copper statue. Dressed in a crumpled suit and much spattered by birds, a larger-than-life figure of Cecil Rhodes, the notorious 19th-century diamond magnate and imperialist, is pointing north. Beneath Rhodes’ feet lies the inscription “Your hinterland is there.” By “your”, Rhodes had meant white people in general and the British state in particular. In that sense, ● ● ●

92.15

60 15 Africa 9

13.19 7.73

3 5 West Africa

3.24

1.75

1 10 SADC

9.67

6 2

Three pioneering single malt Scotch whiskies. Three gold medals at the IWSC last year.

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Exports 96.43

4.27

2007

2008

2009

2010

2011

GDP growth rates (%) 6

5.3

5 4

2.8 2.9

South Africa Sub-Saharan Africa 5.7 5.1 5

3.1

2.6

2 1 0 -1 -2

-1.5 2009

2010

2011

2012*

2013*

* projections

SOURCE: IMF

Imports

SOURCE: DEPARTMENT OF TRADE AND INDUSTRY, SOUTH AFRICA

South Africa trade ($bn)

100 World 80

● ● ● Rhodes’s dream is dead, but it seems Dlamini-Zuma has started the idea that Africa is South Africa’s to do so.” hinterland lives on in South Africa, The many bi-national commissions established between South Africa and given new life since 1994 by the ruling African National Congress (ANC). other African states during Thabo Mbeki’s presidency (1999-2008) have Painfully aware that apartheid South Africa visited destruction yielded fewer economic dividends than South Africa had hoped. But the and destabilisation on its African neighbours, backing rebel groups that promotion of South African investfought bloody civil wars in Mozamment in the continent by the statebique and Angola, the ANC has been owned Industrial Development Cordetermined to reverse this legacy. The poration and Development Bank of post-1994 South African government Southern Africa has generated posithas, with varying degrees of success, ive results. Some 22% of foreign direct sponsored peace talks across the continent, Companies are being lured from Madagascar, Burnorth by higher growth rates undi and the Democratic Republic of than South Africa’s own Congo (DRC) to Côte d’Ivoire and Sudan. The government has deployed the investment between 1994 and 2004 in South African National Defence Force the Southern African Development as peacekeepers across the continCommunity came from South Africa. ent, both to assist South Africa’s dipBetween 2002 and 2010, South lomatic efforts and as part of United Africa’s total trade with Africa rose Nations missions. South Africa was 17%, with imports rising 25% and exports 15%. In 2011, South Africa exports instrumental in the transition from the Organisation of African Unity to the rest of Africa reached $13.2bn, to the African Union (AU) in 2002 according to the Department of Trade and the continent’s adoption of an and Industry (see graph above left). economic blueprint called the New South African companies, based in a Partnership for Africa’s Development. market which, by its size and financial sophistication, has been more exposed BAD BLOOD to the global downturn than the rest of Then, in 2012, after a bitter and acthe continent, are being lured north by rimonious process, former South higher growth rates (see graph above). African cabinet minister Nkosazana In September, agribusiness firm Tiger Dlamini-Zuma was elected as chairBrands made its third acquisition in person of the AU. According to the Nigerian market, buying a 63.5% Adekeye Adebajo, director of Cape stake in Dangote Flour Mills, owned Town’s Centre for Conflict Resolby billionaire Aliko Dangote. In 2011 ution, “There had been an underit bought biscuit manufacturer Deli standing that none of the big five Foods Nigeria and a 49% share in the countries in Africa would present food and beverage interests of UAC candidates. South Africa broke with of Nigeria Plc. that and caused a lot of bad blood. South African winemakers are also This needs to be healed urgently. But targeting the growing African market THE AFRICA REPORT

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SOUTH AFRICA IN AFRICA | COUNTRY FOCUS

The continental implantation of major South African players in four sectors South African presence

702

(number of supermarkets) * includes U-Save stores

Standard Bank

(number of branches) * including customer service points/service centres

BANK

45.6m

24.5m

MTN

(number of mobile phone subscribers, September 2012)

Nigeria

Cameroon

Sudan and South Sudan

7m 1

BANK

7.2m

98*

Uganda 2 2.56m Benin

BANK

Kenya 21

Guinea-Bissau

2.3m

Tanzania

1.1m Liberia

BANK

755,000

BANK

Malawi

Côte d'Ivoire 11.3m

3.2m

Rwanda

Guinea

6.5m

(tons of own cane)

7.1m

174

DRC

0.6m

Illovo Sugar

360,000

Zambia

BANK

2.3m 23

3.5m

BANK

19*

Ghana

BANK

47*

900,000 and held their first showcase in Lagos in October. Although 60% of wine in Nigeria is imported from Europe, South African wine represents 22% of the total volume and grew by 12% for the 12 months to March 2012, according to the Wines of South Africa industry lobby. These days, South African retailers are ubiquitous in Africa’s larger cities, from Joshua Doore furnishers to fast food outlets like Nando’s, Steers and Debonairs Pizza, and Shoprite, Checkers and Spar supermarkets. Far more than they do back in South Africa, these stores enjoy a reputation across •

N° 46

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South Africa

Namibia BANK

THE AFRICA REPORT

Mauritius

Angola

BANK

Madagascar

1.7m Republic of Congo

BANK

Lesotho BANK

Botswana Swaziland

Mozambique

the continent for quality, albeit with a steep price tag attached. Some are also helping to push up the quality of local produce. Shoprite, which declined to comment to The Africa Report, runs a division called Freshmark, tasked with sourcing fresh fruit and vegetables from 354 local suppliers in 11 African countries. Small-scale farmers in countries like Ghana and Zambia are pushing food safety standards up to international levels as a result. In telecoms, South Africa’s MTN is the continent’s biggest mobile operator, with a massive 126 million subscribers on the continent in September 2012, of whom

D E C E M B E R 2 012- J A N UA R Y 2 013

Zimbabwe 1

1.6m

BANK

535,000

BANK

SOURCE: SHOPRITE; STANDARD BANK; MTN; ILLOVO SUGAR

309

BANK

Shoprite

45.6 million are in Nigeria, its biggest market. MTN is helping to roll out telecoms innovation on the continent, for example working with the Grameen Foundation on a mobile-money incubator project in Uganda and launching a mobile newspaper in Nigeria in September. Vodacom, which is majority owned by UK-based Vodafone, counts 50 million subscribers in Africa as a whole, of whom an estimated 20 million are in South Africa. Africa’s five biggest banks are South African, and all of them finance African projects, though only Standard Bank has an extensive footprint on the

COUNTRY FOCUS | SOUTH AFRICA IN AFRICA

continent. Others are looking to expand and consolidate their operations (see page 62). Investment houses have also been steadily building up their assets. Investec Asset Management, a South Africa-based firm with $100bn under management, has been working in the rest of Africa since 2005. “We now have $3.8bn of our clients’ money there,” says Investec investment principal Richard Honey. “It is exciting but tough. It takes time to build a network,

but we are very excited by what is going on on the continent.” Honey is based in Zimbabwe, but most of the group’s Africa business is done from South Africa. “We mostly fly in, but we fly in a lot,” he says. South African mining houses are active all over Africa, but the risk-averse Johannesburg Stock Exchange cannot really compete with other bourses, particularly those in Australia and Canada, as a source of mining capital. Since

China’s Jinchuan Group bought Johannesburg-based copper and cobalt miner Metorex in 2011, there is not a single South African mining company remaining in production in the DRC. However, Randgold Resources is expected to pour its first gold at Kibali, in Orientale Province, during 2013. Outside South Africa, Randgold also has mines in Mali and Côte d’Ivoire. AngloGold Ashanti, another major South African gold miner, has operations in Ghana, Mali, Namibia and Tanzania, but is still dithering about how to proceed at the Mongbwalu project in the DRC. Even at mines where the ownership is not South African, the skilled personnel on site often is. The flights between Johannesburg and Ndola in Zambia’s Copperbelt and Lubumbashi in nextdoor Katanga in DRC are filled with tough-looking, Afrikaans-speaking men who work in the mines there. SHIFTING PUBLIC IMAGE

BRICS has not proved to be a ring-a-roses for South Africa

SOUTH AFRICA IS THE ODD BRIC OUT CHINA FACILITATED South Africa’s ascension into the BRICS group – the major emerging economies made up of Brazil, Russia, India and China – in April 2011. At the time, there was much grand talk about South Africa being a gateway for investors seeking opportunities on the continent. Andrea Menezes, the chief executive of South African Standard Bank’s Brazilian subsidiary, says: “As an investment bank, we are reaching out to Brazilian companies and focusing them on Africa. We are doing the Brazil-Africa relationship.” But this may not be a position that South Africa can exploit for long, according to Rand Merchant Bank country analyst Lucy Corkin. Recent macroeconomic improvements and growth in African countries mean that “foreign investors are more prepared to set up shop directly on the continent, bypassing South Africa’s role as the middle man.” BRIC competitors are proving more of a threat than South Africa might like. Aside from a World Trade Organisation spat over frozen chicken imports from Brazil, South African manufacturers are ruing the arrival of China. Chinese imports to Africa increased tenfold over a decade, from $4.1bn in 2001 to $53.3bn in 2011. A study by East Anglia University in the UK found that South African exports to Africa would have been 10% higher had it not been for Chinese competition. Politically, this has become a sensitive subject. South African trade minister Rob Davies handed over a list of complaints to his Chinese counterparts on a visit to Beijing in October. At a meeting of African heads of state in Beijing in July, President Jacob Zuma employed strong language about an unequal and unsustainable trade relationship based on the supply of raw materials. ● Nicholas Norbrook

LAN HONGGUANG/XINHUA/SIPA USA

South African soft power is spearheaded by DStv, a satellite TV network operated by MultiChoice that was launched in 1995 and broadcasts all over Africa. Among the most popular South African offerings is Generations, a Johannesburg-based soap opera featuring the dastardly dealings of a bunch of wealthy advertising and media executives. South Africa’s hapless national team, nicknamed Bafana Bafana, failed to qualify for the 2012 Africa Cup of Nations and will only compete at the 2013 tournament kicking off in January because South Africa has stepped in as host (see page 97). The country has good form. The 2010 FIFA World Cup is widely acknowledged as a South African and African triumph. The positive publicity the tournament generated was invaluable for a nation such as South Africa, whose evolving reputation on the continent is proving complex and contradictory. Nelson Mandela remains an icon, and while the country is rightly acknowledged for its peaceful transition to democracy, free press, economic infrastructure and quality of life, South Africans are also commonly accused by other Africans of arrogance, xenophobia and the possession of a violent streak. But the FIFA World Cup showed another side of South Africa, in which other Africans are not only tolerated but welcomed. ●

THE AFRICA REPORT

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ArcelorMittal South Africa

COUNTRY FOCUS | SOUTH AFRICA IN AFRICA

PEOPLE TO WATCH

South Africans with continental clout Diplomats, chief executives, soldiers and cultural personalities lead a new charge to extend South Africa’s interests across the African continent

he arrival of South Africa’s Nkosazana Dlamini-Zuma as chair of the African Union Commission in October marks a new diplomatic ascendancy for the Rainbow Nation in Africa, but South African businesspeople were already engaged in a wave of corporate expansion. The newly appointed group chief executive of mobile phone company Vodacom, Mohamed Shameel Joosub (1), will join their ranks to vie for an African footprint to match MTN’s. Joosub returned to South Africa in September to take up the role after two years as chief executive of Vodafone,Vodacom’sparentcompany,in Spain. In Africa, Vodacom operates in the Democratic Republic of Congo (DRC), Lesotho, Mozambique and Tanzania. Its subsidiary Gateway Communications is Africa’s largest provider of terrestrial and interconnection services, and has a presence in 14 countries. Vodacom will face tricky decisions in the company’s other African markets, particularly to resolve a shareholder dispute in the DRC. As head of the world’s largest commodities company, Glencore, Swissbased South African Ivan Glasenberg oversees investments spread across the continent. As the process to win approval for a mega-merger with miner

Xstrata rumbles on, Glencore has kept busy with oil exploration in Equatorial Guinea, copper in Zambia and the DRC, and a new off-take agreement for iron ore from Bellzone’s mine in Guinea. As part of efforts to save the merger, Glasenberg is pitted to lead the new ‘Glenstrata’. South African parastatals are also getting in on the regional act. Tshepo Lucky Montana, group chief executive of the Passenger Rail Agency of South Africa, is in charge of the most ambitious rail upgrade since the end of apartheid, which is set to transform rail travel in the Southern African Development Community. There is already a service running between South Africa and Maputo, and feasibility studies are underway on more routes including the Trans-Kalahari between Namibia, Botswana and South Africa and a new corridor to Swaziland. Montana is close to transport minister Ben Martins and ANC heavyweight Jeff Radebe.

Eskom chief executive Brian Dames will shepherd the state-owned energy company as it moves into securing electricityfromoutsideofSouthAfrica.Facing anger for rising tariffs, the South African cabinet approved a treaty to develop the Grand Inga dam in the DRC in August. Eskom already has subsidiaries in Mali, Senegal, Mauritania and Uganda. Dames hastalkedaboutplanstodevelopa‘supergrid’ across Southern Africa by 2030. The military is also on the march. South African peacekeepers are at work under United Nations mandates in the DRC and Sudan. The South African National Defence Force (SANDF) is led by Lieutenant General Solly Shoke (2), a veteran of the anti-apartheid struggle who received his basic military training in Angola and the Soviet Union in the 1970s. SANDF leaders believe they are playing a key role in bringing peace and stability to the continent, but Shoke has also overseen a bolstering of security in Lesotho, Mozambique, Zimbabwe and Swaziland to combat cross-border crime. With South Africans dreaming of football glory when the country hosts the Africa Cup of Nations in January and February 2013 (see page 97), the rest of the continent will watch the tournament with the support of SuperSport commentator Thomas Sipho Mlambo (3). Nicknamed ‘Big Daddy’, he is one of the youngest sports commentators on the continent and is set to give viewers blowby-blow accounts of the action as the main anchor. ● Crystal Orderson in Johannesburg

THE AFRICA REPORT

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COUNTRY FOCUS | SOUTH AFRICA IN AFRICA

INTERVIEW

NOSIZWE NOKWE-MACAMO Chief executive, PetroSA

Going further into the downstream PETROSA

TAR: PetroSA’s profit rose $1.4bn in the year to March 2012 – a 54% increase on 2010-11. Where has that growth come from? NOSIZWE NOKWEMACAMO: We operate a gas-to-liquid (GTL) plant in Mossel Bay, but our gas reserve is dwindling. To mitigate this risk, we’ve built up a cash chest. A lot of the $1.4bn is from interest that we got on the cash that we have in the bank. Now we can start spending that cash on capital expansion projects. In about three or four years, we should see the returns of that capital investment coming to the fore. In 2012-2013 the main excitement will be the Ikhwezi [gas project], off the south coast of South Africa. In December, we’ll start the first well, and after that there is a series of five wells we’re going to be drilling. The other big excitement for the next two years is that we’re changing our business model, and we’re going further into the downstream. We’ve always been a wholesaler, but now we’re taking it to the next stage – we’re going into primary distribution in the downstream. We’re not only going to sell to other oil companies and other wholesale off-takers, we’re looking at manufacturers and other state-ownedentities.We’realsolookingat selling product into neighbouring countries, like Botswana and the Democratic Republic of Congo. [In South Africa] our mandate from the shareholders is that by 2025 we should be having 25% of the [downstream] market share. Do you hope to find enough gas from Ikhwezi to keep your GTL plant going?

South Africa’s national oil company is eyeing new gas finds in Mozambique and entering into prospecting partnerships in the Democratic Republic of Congo and Ghana’s Jubilee oil field

We are starting first with the indigenous gas, but in the medium term we would like to bring in liquefied natural gas (LNG). That requires a lot of infrastructure, and to make it economically viable we need to have other significant off-takers. We’ve already agreed a memorandum of understanding (MOU) with Eskom. WhatarethemainaspectsofyourMOU with Mozambique’s Petromoc? We have an agreement with Petromoc where we’ll jointly supply into Mozambique and the neighbouring countries, and look at other opportunities along the supply chain. We will look at building a GTL plant in Mozambique for them to produce their own petrol and diesel. We’ve also got a component where we exchange skills, where they can come here for training. Remember, there’s also a lot of expertise that they have that we don’t have – especially in downstream.

are old, the hardware is pretty dated and there are a lot of reliability issues. This is not my opinion, this is based on a Solomon Associates study. The third point is that in 2017, we’ll see new ‘green’ fuel requirements in South Africa. That will mean that a whole lot of capital has to be spent on these refineries to bring them up to the point that they can actually meet these new specifications. The facts point to our needing a new refinery. PetroSA signed an agreement with state-owned Congolaise des Hydrocarbures in October. Where are you going to be prospecting?

“We’re looking at manufacturers and other state-owned entities”

There has been criticism of the project to build a refinery at Coega, that it’s in the wrong place and won’t improve South Africa’s fuel security. Last year we in South Africa imported about 120,000 barrels per day. That deficit is going to grow. We supply the rest of Southern Africa but in the past year or two [that] has become increasingly difficult because we need to worry about South Africa first. When we look at sub-Saharan Africa, there is a shortage of refineries. [They]

First we’re going to supply them with liquid fuel, and then we’ll jointly look at opportunities in upstream exploration. There are some blocks that we’ll be interested in exploring together. We don’t want to go where there is fighting. You also entered Ghana’s Jubilee field by buying Sabre Oil and Gas. How will this investment proceed? We are working with Tullow in the Jubilee field – we’re a minority partner, Tullow is the operator. We’ve got different percentages in different wells, but it’s less than 5%. ●

THE AFRICA REPORT

Interview by Greg Mthembu-Salter in Cape Town

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N° 46

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www.olamgroup.com

COUNTRY FOCUS | SOUTH AFRICA IN AFRICA

BANKING

Big Four make big push in Africa South Africa’s largest banks have decided the time is right to seek profits elsewhere in Africa. Each brings its own strategy and appetite for risk to its continental expansion

outh Africa’s banking titans – collectively referred to as the Big Four – have for some time eyed Africa as the next great frontier in which to grow. While they all agree Africa is the place to be, they started their expansions at different times and in vastly different ways. While the pickings may look attractive, there is no guarantee of easy money. Standard Bank began the charge in 1988 by acquiring a bank in South Africa’s landlocked neighbour, Swaziland. It continued to expand rapidly to the point where it now operates in 18 countries and derives 10% of its revenue and operating profit from the continent. Following the downscaling of its ambitious emerging-markets growth plan in 2011, the bank chose to focus on the African continent as its key area for growth. To enable this, on 31 October it promoted Peter Schlebusch to chief executive of personal and business banking of the group, with a specific focus to drive the Africa expansion. “Peter’s task will be to drive our existing strategy, so that the continent’s share [outside of South Africa] rises to 25% of revenues and operating profits in the next five years,” says Ben Kruger, deputy chief executive of Standard Bank. FIRST MOVERS

“They certainly have the first-mover advantage in terms of South African banks,” says Macquarie First South Securities analyst Charles Russell. “While [Standard Bank] prefer to grow organically, they tend to front-load the growth by acquiring small operators and then building out – like they did in Nigeria,” says Russell. The bank bought IBTC Chartered Bank in Nigeria in 2007, then quickly built 200 branches. Standard Bank’s executives are quick to point out they will not be throwing more money at the opportunity. “We’ve spent time to ensure that each entity is adequately capitalised,” says

NADINE HUTTON/BLOOMBERG VIA GETTY IMAGES

Kruger. “Capital has been allocated in Zambia and Mozambique, and we are currently raising capital in Kenya. After that, we don’t expect allocating any further capital – the businesses will be generating enough cash to fund the growth going forward.” Other banks have been more cautious. ABSA – which has banking operations in justtwocountries:MozambiqueandTanzania – is negotiating to take control of the operations of parent company Barclays, which is present in eight countries on the continent. “This will add significant scale, as those operations are more profitable than Standard Bank’s entire Africa operation,” says Russell. The deal is awaiting regulatory approval. If approved, the Barclays operations will then fall under and report to ABSA, though the banks will retain the Barclays name. In September, FirstRand’s investment banking arm, RMB, struck out on its

Standard Bank headline earnings growth 1st half 2012

Rest of Africa franchise

84%

Group

11%

ABSA is negotiating to take control of the continental operations of its parent company, Barclays

own by applying for a licence to operate in Nigeria as a means to exploit increased trade flows between the two countries. “While FirstRand are not instantly recognisable in the nine countries they operate in, they have proven to be extremely innovative,” says Russell. “They also take a cautious approach to expansion, buying banks that enhance returns on equity, and elect to grow with the bank at a natural rate.” The last of the Big Four out of the blocks has been Nedbank, which has a presence in four countries. In March 2012, the bank acquired the right to a 20% stake in Togo-based Ecobank, a bank with operations in 36 African countries. It is not just the Big Four that see the potential in the continent – smaller operators like Blue Financial Services have been getting involved, too. The group has operations in 12 African countries with more than 1,000 points of distribution for their microfinance products. “At the moment, we are making sure each trading entity [in each country] is properly capitalised,” says CEO Johan Meiring. Is he worried about competing with the larger players? “We’ll position Blue differently to the main street banks, but Africa is a big market and there is space for everyone.” ●

THE AFRICA REPORT

Warren Dick in Johannesburg

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COUNTRY FOCUS | SOUTH AFRICA IN AFRICA

JEAN-CLAUDE COUTAUSSE/FEDEPHOTO

Business analysts estimate Africa’s consumer-focused industries will grow by $410bn by 2020

MALLS

South African shopping trolleys roll out across the continent Construction companies and retailers have focused their expansion plans on Africa’s booming economies, particularly those in the south

ason McCormick’s father built his property empire by constructing malls in black communities during apartheid. “He went where angels fear to tread and fought against political resistance to take shopping to the people, rather than the people having to drive 100km to the nearest white town,” says McCormick. McCormick Property Development already has 52 malls spread throughout South Africa and is deep in the planning phase of four large developments in Southern Africa, representing an investment of $1bn. McCormick is developing two malls in Mozambique (one in Matola and one in the coal mining town of Tete), the Luanda Mall in the Angolan capital and the Mall of Zimbabwe in Harare. Property developers and construction companies are following South Africa’s retail expansion into Africa in search of

burgeoning middle classes. In a November report on the rise of the African consumer, consultants McKinsey & Company estimated consumer-focused industries would grow by $410bn across the continent by 2020, with 45% of the growth coming from apparel, consumer goods and food. It pointed to the gradual formalisation of the retail space, led by South African retailers such as Shoprite, Massmart and Woolworths. Shoprite has operated outside South Africa for over 20 years but only 10.9% of its total sales come from outside its home market, according to Mike McLeod, a retail analyst at Avior Research. “It takes a long time to gain traction,” he says, adding that it is happening. Shoprite’s supermarket sales growth in the rest of Africa was 19.7% in the 2012 financial year, compared to 12.9% in South Africa. The retailer announced plans to open 21

supermarkets in Angola and nine in NIgeria in 2013, plus distribution centres in each. Other retailers, such as Pick n Pay, are racing to catch up abroad. In 2011 it increased its shareholding to 49% in Zimbabwean retailer TM Supermarkets. Massmart, which was purchased in a $2.4bntakeoverfromUSgiantWalmartin March 2012, is still a way off a full African expansion effort and is mainly present through its Game stores in East Africa. RINGING TILLS

Pick n Pay is one of the anchor clients of the 65,000m2 Mall of Zimbabwe, alongside Shoprite and Woolworths. Using the same model they employ in South Africa, they are partnering with a local landowner West Group, owned by entrepreneur Ken Sharpe. Mike Van Blerk, chief executive of West Properties Group, the Zimbabwean arm of the joint venture, says the mall is a “first of its type in Zimbabwe” and will have an entertainment centre. The consortium will award construction contracts in 2013. The mall – the first phase of which should cost $75m – will open in October 2014. South African construction firms are already winning new contracts. Group Five, in partnership with a local firm, won most of the construction work on the $157m Levy Junction business park in Lusaka. But South African constructors face stiff competition. McCormick says it is looking “very seriously” at Portuguese construction companies scouting for contracts in Angola. “The same goes for tenants. Our hope is to actually bring in a lot of European retailers too,” he says. European and US chains are already testing the waters in South Africa. Clothing store Gap is entering the market, following the UK’s Topshop, which opened its first South Africa store in November after Spain’s Zara arrived in late 2011. ● Gemma Ware

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COUNTRY FOCUS Mozambique

MARIO MACILAU

Will resource wealth bring “more for everyone” or just benefit the elite?

Move on up

There is a now a clear opportunity to use Mozambique’s massive gas and coal wealth to fund a yawning infrastructure gap. This is turn will help bring development to the furthest reaches of the country. The government has created a new development bank and is taking a tougher line with multinational companies in order to reach its goals By Nicholas Norbrook

THE AFRICA REPORT

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N ° 47

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or all Mozambique’s explosive growth and impressive hydrocarbon discoveries, inequality remains stubborn. “No Mozambican can feel proud to open their car door and see a hungry person looking for something to eat in the rubbish.” The phrase carries all the weight of a former president of Brazil who successfully reduced poverty. Luiz Inácio ‘Lula’ da Silva spoke to businesspeople on a tour of the country in late November organised by Graça Machel, the former wife of Mozambique’s liberation-era president, Samora Machel, himself a

TANZANIA MALAWI

MOZAMBIQUE

ZAMBIA

Nampula ZIMBABWE

Beira

MADAGASCAR

Indian Ocean SOUTH AFRICA

MAPUTO 300 km

SWAZ.

REAL GDP 14 12

% change from previous year

Proj.

MOZAMBIQUE

10 8 6 4 2 0

Frontier economies*

Sub-Saharan Africa

2001 02 03 04 05 06 07 08 09 10 11 12 13

*Angola, Ghana, Kenya, Mauritius, Mozambique, Senegal, Tanzania, Uganda, Zambia and Zimbabwe

INFRASTRUCTURE OVERDRIVE Brazilian construction giant Odebrecht is turning the Nacala airbase into an international airport. Miguel Peres, Odebrecht head of Southeastern Africa, announced the company received annual revenue of $150m in Mozambique in 2012, with predictions that it will hit $1bn by 2020. Tenders will soon be issued for Maputo airport’s runway and apron modernisation, with China’s AFECC already building a $36m domestic terminal. China Road and Bridge Corporation is building the ring road in the capital, as well as a 3km bridge across Maputo Bay to Catembe – set to become a high-end zone – for $725m. South Africa’s Transnet and Grindrod have partnered with Mozambique’s CFM and Dubai Port World to run integrated port and rail services in the Maputo Development Port – with Grindrod saying they are now planning an expansion to a 7.3m tn coal terminal by 2013, potentially expanding to 20m tn by 2018. Mirroring the fall-and-rise dynamic of Mozambique’s post-colonial history, the national electricity producer Hidroeléctrica de Cahora Bassa has repaired the damage done by apartheid South Africa, paid off its Portuguese legacy and welcomed in new Portuguese investors Redes Energéticas Nacionais. It is now firmly in expansion mode, poised to supply exploding demand in Southern Africa.

great friend of o povo (the people). For writer Joseph Hanlon, this was a clear attack on President Armando Guebuza. Graça Machel is part of a political camp within the ruling Frente de Libertação de Moçambique (Frelimo) party that has been pushing for more inclusive growth. PresidentGuebuzaisunmoved.Speaking in Xai-Xai in November 2012, he said “only the lazy believe we cannot end poverty”, arguing that farmers and fishermen need to work harder. He will not be troubled by the voices of disgruntled insiders or hectoring outsiders, especially now that he has launched a development bank, the remodelled Banco Nacional de Investimento, eight years after donors stopped a previous incarnation. A rise in popularity of the Movimento Democrático de Moçambique (MDM) may worry Guebuza more, especially if the Beira mayor and newly confirmed MDM flag bearer David Simango can articulate the inequality message beyond his Sofala power base. The new development bank, based on Brazil’s Banco Nacional de Desenvolvimento Econômico e Social, is headed by former Bank of Mozambique governor Adriano Maleiane. It goes hand in hand with other ‘strong government’ measures of recent times, from the unusual forcing of Anadarko and Eni to share infrastructure in January 2013, to the renegotiation of old ‘megaproject’ contracts like the Mozal aluminium smelter and Vale and Rio Tinto’s initial mining deals. SUSTAINED BOOM

And foreigners seem to be putting their faith in Mozambique. It may be apocryphal that Portuguese taxi drivers are plying routes in Mozambique’s capital to escape recession back home, but other more structured Portuguese economic interests certainly are in town, from Visabeira, a communications conglomerate, to Millennium BCP, which owns the largest bank. The attractions are obvious. Mozambique is undergoing a sustained boom. The International Monetary Fund (IMF) revised growth estimates for 2012 upwards to 7.4% and agreed with the government’s predictions of 8.4% growth in 2013. The country groans with coal, gas and agricultural potential, all situated across the Indian Ocean from resource-hungry Asian markets. The energy revolution is most promising. The government will auction off 12 new blocks in the first months of 2013

BENEDICTE KURZEN/THE NEW YORK TIMES-REDUX-REA

COUNTRY FOCUS | MOZAMBIQUE

SOURCE: IMF

that are adjacent to the world-class finds uncovered in the Rovuma Basin by Italy’s Eni and US firm Anadarko. Given the bruising fight to buy Cove Energy, which ownedasmallstakeinaprovenblock,the government expects a lively and lucrative bidding round. Companies estimate that a total of 130 trillion cubic feet (tcf) of gas reserves can be found beneath the waves, another figure that could be revised upwards. Qatar’s reserves, by comparison, are around 900tcf. Oil majors appear confident that reserves will be found elsewhere too. In a farm-in agreement with Malaysia’s Petronas in September 2012, France’s Total acquiredshares intwo blocks in thesouth of the Rovuma Basin. Jacques Marraud des Grottes, Total’s senior vice-president for Africa, believes they “might equal the gas potential of the northern part”. Meanwhile, the first shipments of coal from Vale’s mines in Tete Province left the new minerals terminal at Beira port bound for Asian markets in February 2012. India’s Jindal Steel & Power expects its first coal exports of 1.3m tn to leave in January 2013 and plans to ramp up its exports to 10m tn per year by 2017. The resource boom is attracting money into infrastructure (see sidebar), with countries from the BRICS grouping – Brazil, Russia, India, China and South Africa – doing the heavy lifting. China-Mozambique trade in 2012 was more than $1.1bn. There is scepticism, however, about how fast the infrastructure outlay can match export aspirations, something which contributed to the THE AFRICA REPORT

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MOZAMBIQUE | COUNTRY FOCUS

One of Vale’s coal mines under construction in Tete Province. The Brazilian company’s first shipments left for Asian markets in February 2012

downfall of Rio Tinto CEO Tom Albanese. Though Maputo is not in the grip of a middle-class boom, there is a strong rise in consumer-driven businesses such as banking, telecoms and retail. Keen to reap the dividends, shareholders in Millennium bim bank agreed to increase its equity base from MT1.5bn ($51m) to MT4.5bn in 2011. Vodacom Mozambique is ploughing $16m into an upgraded 3G network to keep pace with customer demand for mobile internet. But the IMF resident representative in Mozambique, Victor Lledó, believes that growth is not being shared equally, and that agriculture is key. Reforming

land tenure laws is critical, he argues. Specifically, the unregulated secondary market in land-lease rights needs to be addressed, which would allow farmers to move beyond subsistence. “It is also important to leverage the fiscal contributions of megaprojects so that you can increase public investment in infrastructure,” says Lledó. “Mozambique is well placed to commercialise and export agricultural goods, but secondary, tertiary and feeder roads are in a terrible state, and the ports are weak.” PITFALLS AND TEMPTATIONS

The energy sector brings its own thorny issues, including corporate mispricing and transfer pricing – the accounting trick whereby companies extract profit without having to declare it locally. They will be major battlegrounds in drafting energy laws. “One of the areas we have told the government would be important for them to revisit, and which gives a lot of margin for transfer pricing, is some of their bilateral tax agreements,” says Lledó. Avoiding the ‘Dutch disease’ – a strengthened currency that harms other exports – is also a priority. Mozambique’s central bank has shown it has the ability to squeeze out inflation – bringing it down to under 7.5% in 2012 from 16% in 2010. It has never had to deal with the volatility that the natural resource sector will bring into the economy. Nor have Mozambican officials had to deal with the level of temptation now on offer. The country became a compliant member of the Extractive Industries

Transparency Initiative in October 2012, a welcome step. However, a report from the Centro de Integridade Pública (CIP) anti-corruption watchdog says: “The links between technical managers and politicians are most blatant in the public Empresa Nacional de Hidrocarbonetos and in the Ministry of Mineral Resources.” Mozambique should directly bind gas and mining projects into the national economy, says Tyler Biggs, a consultant with aid agency USAID. This will require serious engagement with the education system, however, as “even in urban centres, only 50% of the population has any level of education, and just 0.43% completed university.” Without it, inclusive growth will remain elusive. Critical to this dynamic is the ability of Mozambican officials to extract technology transfers from investors and to stimulate job growth. Indonesia signed a deal with the government to help to transfer science and technology expertise in September 2011, as did Malaysia in August 2012. Japanese and Vietnamese experts are helping in the rice sector. In Beluluane, China Tong Jian Investment Company is opening up a $200m car assembly factory. India’s promise to build a coal institute is yet to materialise. Blessed with vast natural wealth, Mozambique would benefit from the efforts of reform-minded leaders to channel this productively. The risks of oil money entrenching a parasitic elite remain high. The eventual winners in this scenario, as in Nigeria, would be foreigners, not Mozambicans. ●

WHO WILL BE THE NEXT PRESIDENT OF MOZAMBIQUE?

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enough support during key party polls in September. To some, it was a signal that not all Frente de Libertação de Moçambique (Frelimo) ‘camaradas’ are comfortable in Guebuza’s camp. A potential Trojan horse is former prime minister Luisa Diogo, who enjoys the support of the anti-Guebuza faction in Frelimo, particularly former president Joaquim Chissano. Bad blood between Diogo and Guebuza makes her an

F E B R UA R Y 2 013

Guebuza has kept quiet on succession

IISS

IN THE ABSENCE of a clear signal from the ruling party, succession battles are set to intensify. President Armando Guebuza is expected to step down after his second term ends in 2014. With the cash from coal and gas resources due to start flowing over the next decade, the battle to control them is underway. Several frontrunners have fallen by the wayside, including Guebuza’s everloyal prime minister Aires Ali, who failed to garner

unlikely choice for puppet president if he remains party chief. The former World Bank economist confounded expectations that she would shuffle off to an ambassadorship to lick

her wounds after her poor showing in internal party polls. She is down, but not necessarily out, burnishing her business credentials and biding her time. ● Jinty Jackson in Maputo

Mozambique is seen as a land of growing prospects for long term investors. The investment opportunities have developed out of strong GDP growth over the past 10 years, the recent signiﬁcant natural gas discoveries in Rovuma the large coal reserves in Tete basin and the need for new power generation resources.

ith a relatively diversiﬁed economy, Mozambique presents investment opportunities across various sectors from resources to energy which requires substantial infrastructure development to support the LNG and power generation related projects. It is estimated that Mozambique will need to invest US$5-billion in the next ﬁve years alone to upgrade its infrastructure in order to realize the economic growth potential of its coal and gas reserves.

and private partnerships for the production, transport and delivering of electricity, following a succesffuly implemented South African model.

The exploitation of these new reserves is set to position Mozambique as a developed economy and given its projected growth trajectory, Standard Bank Mozambique, which has a 120 year history in the country, is well positioned to assist with the requirements of global investors courting the potential opportunities.

Standard Bank Mozambique has identiﬁed the oil and gas, energy and infrastructure sectors as central to growth in the country, and believes that providing a variety of funding mechanisms and banking services to these high-growth sectors is essential to realising Mozambique’s growth potential.

As Mozambique witnesses the establishments of projects that require huge consumption of electricity, the country needs to invest in alternative sources for generation of power for the efﬁcient and qualitative distribution of energy. Standard Bank Mozambique has seen a move towards public

The growth in the production of power, natural resources such as oil, gas, coal and other mineral resources is one of the most prominent trends that will continue to drive Africa’s economic and commercial regeneration in general, and Mozambique in particular.

Standard Bank Mozambique, backed up by the 19-country footprint of Standard Bank Group in Africa with its specialized expertise in key development sectors, provides a gateway for investors wishing to enter Mozambique and plays a key role in building investor conﬁdence in Mozambique’s economic future. ■

André du Plessis André de Plessis is the Head of Corporate and Investment Banking, Standard Bank Mozambique. André joined Standard Bank Mozambique recently from Standard Bank’s head ofﬁce in South Africa. He has worked for the Group in various senior roles for 16 years.

Meet André du Plessis in Maputo for deep understanding on how Standard Bank can move you forward into these opportunities.

www.standardbank.co.mz

At Standard Bank he led the Rest of Africa unit as the Chief Operating Ofﬁcer (COO) of the Corporate and Investment Bank and was also responsible for operations for other business units in retail banking. He has a passion for the Bank’s strategy to be the number one Corporate and Investment Bank, in, for and across Africa and transferred to Mozambique to contribute to Standard Bank’s growth in this very exciting market. André is a Chartered Accountant(CA), and an alumni of Deloitte and Touche. He has also worked in the Power and Electricity industry for ABB, and in the Telecoms industry for Plessey in Malaysia prior to joining Standard Bank. Get in touch with Standard Bank and André’s team: Praça 25 de Junho, 1 - Maputo – Moçambique +258 21 35 25 25 - Andre.duplessis4@standardbank.co.mz

DIFCOM/FC - Photos : DR

ADVERTORIAL

Standard Bank Mozambique: The investor’s gateway to a land of opportunities

COUNTRY FOCUS | MOZAMBIQUE

GIULIO NAPOLITANO/FAO; JINTY JACKSON/AFP; STR/REUTERS

Moçambique had looked set to wrest official opposition status from Renamo’s grasp at the next elections. In the meantime, the threat to stability casts a pall over the frenzy of investment in coal, gas and infrastructure. One of the figures at the epicentre of that frenzy, José Eduardo Dai, is making a name for himself as a dealmaker between government and big mining interests. Dai helped found the new Mozambican chamber of mines this year and emerged as the head of Mozambican operations for one of the world’s largest aluminium producers, Eurasian Natural Resources Corporation (ENRC). With a dozen coal concessions, ENRC is set to become one of the biggest players in the country’s coal sector in the next few years. A member of the first lady’s extended family, Dai has smoothed the way for the Kazakh giant to build a major rail link to the coast in order to get the coal to port. FAVOURITISM

PEOPLE TO WATCH

Family relations, business barons and top negotiators As President Armando Guebuza prepares to step down in 2014, intermediaries, businessmen and members of the presidential family find new positions of influence

he unassuming governor of Tete Province, Alberto Vaquina (1), seemed as surprised as anyone when President Armando Guebuza picked him to replace Aires Ali as prime minister during a dramatic cabinet reshuffle in October. Ruling party members generally welcomed the move, but Vaquina has struggled under the heavy mantle of his predecessor. His ability to push through a new probity law – forcing lawmakers to choose between parliamentary and corporate positions – will be a key test of his abilities in 2013. Agriculture minister Jos é Pacheco ’s (2) star appears to be rising within the ruling party, the Frente de Libertação de Moçambique (Frelimo). As far as further aspirations go, members of the public point out that he was interior minister during violent

Elsewhere in business, the meteoric rise of Celso Correia is generating controversy. Still in his 30s, he is already chairman of the country’s secondlargest commercial bank, BCI. In April his firm Insitec made $16.5m by selling off shares in the country’s biggest building firm, CETA, which it acquired a year earlier for an undisclosed amount. With a contract to construct another hydroelectric dam on the Zambezi River, there could soon be no shortage of work for the building company. Correia, an indoor football champion turned corporate mogul, is often seen as a frontman for Guebuza’s business interests. Murmurs of favouritism became audible when Correia won a coveted position on the Frelimo central committee in September as part of a group of young guns. Among

bread riots in 2010. President Guebuza handed Pacheco a challenge when he selected him to head negotiations with the belligerent Resistência Nacional Moçambicana (Renamo) opposition party in December. The bellicose Renamo leader Afonso Dhlakama (3) has been rattling his sabre from a remote militCorreia is often seen as ary camp, and this presents a major headache for a frontman for Guebuza’s Guebuza’s government. business interests Frelimo’s usual response has been either to ignore that group is Valentina Guebuza, the him or pay him off, but that may not work as easily this time. Dhlakama is president’s daughter and head of fambanking on the fear his antics generily firm Focus 21. Her elevation to the ate amongst ordinary Mozambicans central committee as a representative of former combatants fanned specuto claim a bigger stake. His activities are also distracting attention from his lation that a dynastic succession is in closest political rival, Daviz Simango, the offing. ● whose Movimento Democrático de Jinty Jackson in Maputo THE AFRICA REPORT

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GAS Countdown to lift-off begins Government must draw a deep breath before releasing the regulatory framework for exploiting its gas deposits, as it stands on the threshold of significant wealth

he recent bonanza of gas discoveries in Mozambique has the attention of the international oil and gas industry, but most of the country’s acreage is still unexplored. There will be a new licensing round next year. At the moment the focus is on blocks off the coast of Cabo Delgado Province, with an estimated 150 trillion cubic feet (tcf ) of gas waiting offshore. “The Rovuma Basin is where there are big reserves with potential for more gas,” the minister of natural resources Esperança Bias told The Africa Report. Returns on investment look strong. Luca Bertelli, vice-president for exploration of Italy’s Eni – its Mamba field discovery was the largest in the firm’s history – told reporters that test wells drilled in the Rovuma Basin were extremely productive because of the area’s geology. “This means that this huge resource base can be exploited with a limited number of producing wells that will make the upstream project highly efficient,” said Bertelli. USbased Anadarko, the other major player in the sector, is thinking off cashing in on outside interest to help fund its development programme. LEGAL FRAMEWORK

Investors are keen to see the shape the final regulatory framework will take, especially regarding what happens to gas once it is onshore. A new law is expected in early 2013, with liquefied natural gas (LNG) at the centre of negotiations. “We are planning the construction of the LNG plant in the area

ANADARKO

of Palma because of the proximity to the offshore. Anadarko and the state will lead the consortium,” says Bias. The government is juggling the need to keep strategic control over natural resources and to collect revenues to reinvest in development with the desires of companies that have to answer to their investors. IN THE MONEY

Managing expectations is critical. Revenue will not arrive before 2018, but royalties could reach $5.2bn per year by 2026, assuming that the Rovuma discoveries are fully exploited. Income tax revenue from megaprojects could reach $7bn per year according to ICF, the consultancy that drew up a draft Gas Master Plan. Ensuring that revenue arrives untouched and in full to the central bank will be critical. Jenik Radon of Columbia University helped negotiate Georgia’s section of gas pipeline from Azerbaijan and Turkey, and now advises African

$70bn World Bank estimate of potential investment the gas projects will bring to Mozambique

Test wells in the Rovuma basin showed that the area was highly productive, opening the way for an efficient upstream operation

governments on energy legislation. He believes that getting the legal framework and the governance structures around it is critical to avoid the traditional ‘resource curse’ – the twin afflictions of Dutch disease and entrenched corruption. “My principle is very simple: the person who issues the permit should not be the one who enforces regulation, and the person who enforces regulation should not be the one who collects the money,” says Radon. Apart from the separation of powers among ministries and regulators in the energy sector, Radon believes there is a need to put very simple self-enacting laws in place until the sophistication of Mozambique’s legal sector catches up. “It’s the enforcement of laws that is difficult. [Oil major] BP had 845 violations in two states before the Deepwater Horizon spill. But if your law is simple – three spills in a month and you lose your licence – it will force management to build the structures in their companies that will help avoid it.” Given that one of the great gems of Mozambique’s tourism potential – Quirimbas National Park, which includes the breathtaking Quirimbas archipelago – is less than 100km away, there are serious economic stakes riding on the ability of the government to force companies to comply. ● Pietro Musili and Nicholas Norbrook

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COUNTRY FOCUS | MOZAMBIQUE

Beira port is the main gateway for coal exports

MINING

Poor infrastructure slows coal exports

BRIC countries need coking coal and Mozambique has it aplenty, but only a massive investment in the rail and port infrastructure will enable it to meet the demand

hough massive gas discoveries will bring future riches, miners hope that coal will be king for today. Indian, Brazilian and Chinese investors are keen to secure supplies for their respective countries’ industrial transformations, especially the high-quality coking coal vital for steelmakers. Activity is centred around Tete Province’s two sub-basins of Moatize and Muchana-Vusi, with 4.2bn tn of estimated reserves. With exports starting in 2012, the government predicts they will reach 40m tn per year in the next five years and eventually 100m tn per year. Even if there were not question marks about coal price volatility cooling demand, mining majors will not hit these figures without continued investment in infrastructure. Mozambique’s civil war, which ended in 1992, did not spare the hard logistical structures necessary for the massive export of minerals. DREDGING

Port capacity is a problem, despite improvements in recent years. Emergency dredging has helped Beira port to regain its 8.5m draft, allowing ships with capacity of 60,000tn to berth. But a lack of cranes, tractors, tugs and other port equipment is hampering operations, according to a study by the United States government aid agency USAID. The newly established Beira port coal terminal should reach full capacity of 20m tn per year in 2015. Built at a cost of $200m and inaugurated in June 2012, it currently transports 6m

tn per year. Brazil’s Vale and Australia’s Riversdale signed an agreement for the port giving Vale 68% of capacity and Riversdale 32%. Railway infrastructure also lags behind the optimism. In September, Vale shipped 95 trainloads of coal, each with 40 wagons carrying 63tn from Tete to Beira port down the Sena line. This is the highest volume so far, but was only 240,000tn, equivalent to a rate of 3m tn per year and far short of the hopedfor capacity. A statement from Portos e Caminhos de Ferro de Moçambique (CFM) in June 2012 claimed that its Sena line upgrades were on track: “This is the first phase of a rehabilitation of this infrastructure to be undertaken by CFM to ensure that the line is able to carry 12m tn per year by 2013 and 20m tn within three years.” The Benga mine is a joint venture between Anglo-Australian company Rio Tinto (65%) and India’s Tata Steel (35%). It exported its first shipment

40 mtpa

Coal exports will hit 40m tn per annum in the next ﬁve years

of hard coking coal in June 2012. Rio is working on the Sena line alongside the government. Meanwhile, Vale is progressing with the construction of the railway for the Nacala corridor that will bring coal from Tete Province to the port of Nacala, which can take larger bulk carriers. The railway passes through Malawi, and contractors have begun construction of Vale’s coal terminal at Nacala. GOING FOR GOLD

Despite the huge discoveries of coal that are set to be an engine of economic growth for the country, most of the acreage of Mozambique is still unexplored. While the government has granted 110 licences to 45 companies in Tete Province, it recently awarded 148 prospection licences in Niassa Province on the border with Tanzania, where miners hope for gold and diamond finds. The government is discussing a new mining law in parliament. The draft drawn up by the ministry of natural resources’ mining department shortens the time requirements for exploration and licences. It also includes new rules for transferring mining titles and rights. It is unclear if and how the new law will affect the tax regime. What is certain is that the government is now imposing new minority stakeholders on projects, including 10% participation for the country’s private-sector players in mining ventures. ● Pietro Musili and Nicholas Norbrook

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GIANLUIGI GUERCIA/AFP

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COUNTRY FOCUS | MOZAMBIQUE

AGRIBUSINESS

Grant Taylor, managing director of ECA, hopes the model will be replicated throughout Mozambique and perhaps the region. He says the major constraint remains management staff. “There are graduates coming out of one or two agricultural colleges, but the level is still basic, and they would rather try to get a job in the city than get their hands dirty in the fields,” explains Taylor. CONTROVERSY

Only larger farms can afford dedicated packers

Smallholders and industrial farmers stake their claim The government seeks to encourage both small and large agricultural enterprises, but smallholders worry that foreign investors will shake up the sector

alk into any Maputo grocery store and you will see rows of Thai rice for sale, despite ideal local growing conditions. The agriculture sector contributes around a quarter of gross domestic product and grew at 5.1% in 2011, according to the Banco de Moçambique. Around 80% of the population is employed in farming, with 98% of farms rain fed. Demand from mining boom towns in Tete Province is a real opportunity. Those who seize it can use it as a springboard to build up capacity before targeting markets in Zambia, South Africa and Malawi. Barriers to expansion are legion. The main roads are being overhauled, but to reach them farmers face dirt tracks quickly impassable in rain. Villages are slowly being connected to the grid, but the national electricity company is often unwilling to place pylons where there are few clients to pay back the costs. There is a single company that offers a cold chain to a port. Other key roadblocks are a lack of finance and know-how. AgDevCo, a ‘patient capital’ and not-for-profit organisation

funded by the Rockefeller and Hewlett foundations, is trying to play a catalytic role to bring seed capital and expertise to agribusiness ventures. FARMERS’ TRUST

The Empresa de Comercialização Agrícola (ECA) in Manica Province, funded by AgDevCo, is one such company. From a warehouse hub, it finances and distributes inputs for smallholder farmers. It then provides basic processing and access to markets post-harvest. SABMiller and the World Food Programme are two of its clients. TheECAhasbrokenevenonitssecond growingseasonandhasdoubleditsnumbers to 2,200 farmers, moving on to new crops such as groundnuts. “It’s not because we have some magic formula,” says Chris Isaac, AgDevCo executive director for business development. “It’s just because ECA has done all of the basic things well: it has established a relationship of trust with the farmers, it has demonstrated an ability to deliver the inputs on time, to offer the farmers a fair price and to pay them on time.”

BENOIT MARQUET/AFP

At the other end of the spectrum, industrial-scale farming is on the rise. The government has embarked on an ambitious attempt to emulate Brazil’s success in turning around the agricultural fortunes of the Cerrado zone. A triangular partnership with Japan and Brazil called the ProSavana programme is set to replicate the experience in northern Mozambique. It is a controversial idea, with some Mozambicans fearful of an influx of highly competitive Brazilian agribusiness companies. The Uniao Nacional de Camponeses (National Peasants’ Union) put out a statement in October to say it is “extremely concerned that ProSavana requires millions of hectares of land along the Nacala Corridor, when the local reality shows that such vast areas of land are not available and are currently used by peasants practising shifting cultivation”. Isaac agrees that there is under-utilised land, but he warns that “the model where investors think they can just come in, buy large areas of land for large-scale commercial farming and not have to think about the relationship with the community is simply not going to work. It’s not practical. It’s not realistic.” Agriculture minister José Pacheco took to the airwaves in late December 2012, using a radio programme to deny that smallholder farmers would lose their land. He said that on the contrary they would be helped by the programme. ● Nicholas Norbrook

97% of production comes from some 3.2m farms subsistence farms averaging THE AFRICA REPORT

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business | finance

Zimbabwe

Policies to encourage banks both large and small The new central bank governor is seeking a balance between indigenisation and foreign investment, and $100m revives the interbank market

everal factors seem to augur a return to normality for Zimbabwe’s strained financial markets. At the end of March the government appointed a new central banker with experience in commercial finance. In June, it appeared to make some compromises on indigenisation. Meanwhile, Afreximbank has agreed to underwrite loans from smaller indigenous banks in an attempt to ease the credit crisis. John Mangudya, a commercial banker first and foremost, took over at the the Reserve Bank of Zimbabwe (RBZ) on 1 May. Oppositionists and some business leaders had criticised his predecessor, Gideon Gono, as a banker for the top echelons of the ruling Zimbabwe African National Union-PatrioticFront(ZANU-PF)elite. MangudyaworkedattheRBZasan economist from 1986 to 1996 and was the chief executive of Zimbabwe’s largest bank, CBZ Holdings, when he received the call from President Robert Mugabe. finding a balance

Mangudya may already be winning some of the arguments, for example on the application of local ownership laws in the banking sector. In his initial statement, Mangudya said the government needed to find the right balance “between the need to promote indigenisation and the need for foreign direct investment”. Indigenisation minister Francis Nhema sounded conciliatory after a raucous ZANU-PF politburo punch-up over the matter on 4 June. He suggested that the government’s treatment of com-

JEKESAI NIJIKIZANA/Afp

John mangudya, who took over as central bank governor in may, extols the virtues of discipline

paniesoutsidethenaturalresource sectors, where it is pushing for a minimum of 51% local ownership, would be different. Speaking at the SAPES Trust, Nhema said: “If you look at banks, they have their own employee share-ownership schemes. In some cases it’s 10%, in some cases 15% […]. That qualifies in the indigenisation and empowerment process.” Beleaguered local banks have been finding it hard to maintain adequate funds following the dollarisation of the economy in 2009. Though the policy saved the economy from hyperinflation, it stranded Zimbabwean banks that had little in the way of foreign holdings. The liquidity crunch’s latest victims are Tetrad Investment Bank,

According to ﬁgures released by the World Bank in April 2014, private sector credit growth in Zimbabwe crept up only 1.5%, hitting

US$3.6 bn

which faces suits from its creditors over debts it has not serviced, and Capital Bank, which lost its banking licence in early June. Late June is the deadline for meeting the $100m capital requirement that the RBZ set two years ago. This could lead more local banks to flounder. Zimbabwe’s five foreign-owned banks – Ecobank, BancABC, Barclays, Standard Chartered and Standard Bank – have been able to get finance from their parent companies. After about a decade of financial insecurity, many Zimbabweans took their business to these banks, worsening the prospects for smaller indigenous banks. This contributed to the collapse of the interbank market, where financial institutions lend money to each other. That, in turn, has badly affected the flow of credit to Zimbabwe’s economy. The larger banks are more risk averse. “They get the deposits,butthesedepositsdonotget into the economy,” explains JeanLouis Ekra, president of Afreximbank, a financial institution set up in 1993 by African governments andfinanciers.“Inanormalsystem like Europe or America, or Africa the africa report

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hannibal where the system is working, the role of the central bank is to get the money from the banks that have these excess deposits and lend it to those who need it.” This is not happening in Zimbabwe, hence the complaints about lack of loans from manufacturers and farmers. Afreximbank is now playing a major role in resolving the crisis by providing a guarantee to the banks that have the deposits so that they are willing to lend to those banks that need it. “But only after looking at the transactions that the smaller banks want to finance, and packaging it,” says Ekra. Afreximbank made the proposal last year, but national elections got in the way of discussions. Now Afreximbank has made a $100m commitment to the interbank facility, and all sides are discussing the final details. cool and confident

The more risk averse argue that the deals Afreximbank is underwriting will take a great deal of oversight. Ekra is sanguine: “We have always done structured trade finance at Afreximbank where we know all the counterparties in a deal. That’s why in Zimbabwe we have actually never lost money, which is not the case in several other African countries.” Where smaller banks seek to finance deals outside of Afreximbank’s speciality of trade they will have to look for other sources of finance. Foreigninvestorsarenotlikelyto pump money into local banks just yet, but are targeting the consumer goods and natural resources sectors. South African entrepreneur Andrew Robinson announced in early June that, backed by a group of private equity funds, he was looking to invest some $100m into Zimbabwe. Writing in South Africa’s Business Day, Robinson bases his optimism about Zimbabwe not just on its mineral deposits but also on its people: “While its human and physical capital have been degraded over the past 20 years, I have seen a rising corps of sensible, educated and ideologically pragmatic businesspeople,bureaucratsandpoliticians coming through.” ● Nicholas Norbrook in Kigali

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A vision for the continent The AfricAn DevelopmenT BAnk (AfDB) annual general meetings concluded with a flourish in kigali on 23 may. The previous day, the AfDB and the people’s Bank of china announced the creation of the $2bn Africa Growing Together fund, which is set to begin financing projects before the end of 2014. Diplomats, bankers and finance ministers professed to be more than a little impressed with the free wireless internet access on the conference buses. one delegate glanced at the state-of-the-art submachine guns carried by the omnipresent and unsmiling rwandan army guards, complete with bulging night-vision scopes, and confessed: “i don’t even know what that model is. it looks like the latest model all right.”

Lopes calls for fight against theft and laziness one of The key Themes running through the conference was the need for African countries to hold onto their wealth, both by preventing money from being lost through corruption and capital flight, and also by better utilising the cash that they have accumulated through the sale of oil and minerals. others suggested that Africa need not look far away to meet its financing needs. “if you add up our pension funds, our lazy banks, the stealing happening through multinational transfer pricing […] there are around a trillion dollars in funds that could be mobilised for development,” opined United nations economic commission for Africa executive secretary carlos lopes.

African policy-makers on a manufacturing mission hAnniBAl Also noTiceD The emphAsis on structural transformation of the continent’s economy, away from the export of raw materials and towards the development of a functioning manufacturing sector. To this effect, the AfDB brought over experts from shenzhen University. shenzhen was one of the sites of china’s post-1980s export miracle. professor Tao yitao, who is the director of the china center for special economic Zone research, told attendees: “shenzhen was an experiment for china’s reform and opening, which convinced the leadership of the possibility of the socialist/market system.” it was no doubt music to the ears of certain Bretton Woods devotees in attendance.

The AfDB succession guessing game BUT The reAl shoW in ToWn was the game of guess the next AfDB president. With incumbent Donald kaberuka heading for the exit at the côte d’ivoire summit in 2015, it was also time to reflect on his two terms. some insiders grumbled of political battles, nepotism and a looming budget problem. however, the majority saluted the manner in which kaberuka helped Africa weather a financial crisis and the dynamic refocusing of the bank on infrastructure and the private sector. ●

dossier insurance

Ripe for growth The predicted rise in sub-Saharan Africans earning $5,000 or above represents an opportunity and a challenge for South African insurers looking to widen their footprint on the continent By Jana Marais in Johannesburg

outh Africa’s major life insurers – Old Mutual, which is headquartered in London but earns about 70% of its operating profit in South Africa, Sanlam, Liberty and MMI Holdings – see the rest of Africa as a major growth opportunity, says Willem Loots, an analyst at Fitch Ratings. “Insurance penetration in South Africa is one of the highest in the world. The economy is growing slowly and consumer disposable income is under pressure, making it difficult

to grow premiums. The big four life insurers are looking to the rest of Africa as the main source for growth. While the contribution to profit from these ventures is small at this stage, they are profitable as a group. Looking forward, the rest of the continent will become a bigger contributor to local insurers’ bottom lines,” he explains. Old Mutual, with operations in eight African countries including South Africa, aims to earn 15% of its operating profit from its nonSouth African operations on the continent by 2015, up from 10%

128m

households earning over $5,000 a year by 2020 (known as discretionary income)

in 2013. Last year, it made acquisitions in Nigeria, Ghana and Kenya, which it sees as the key growth markets on the continent. Old Mutual added Faulu Kenya, Ghana’s Provident Life Assurance Company and Oceanic’s Life Insurance and General Insurance businesses in Nigeria to the group. “There is an improved regulatory environment, institutional capacity is improving and profitability is becoming attractive – and all this is happening against the background of the African growth story, with a promised demographic dithe africa report

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Thomas mukoya/ReuTeRs

vidend, rising income levels and fast-growing economies,” says Johannes !Gawaxab, managing director of Old Mutual Africa. growing client base

By 2020, 128m African households will earn $5,000 a year or more, up from 85m in 2008, according to a 2010 study from consulting firm McKinsey. “This is a great and compelling opportunity for us,” !Gawaxab says. A number of countries on the continent are attractive thanks to high economic growth rates the africa report

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– particularly if compared with South Africa – and low insurance penetration rates, says Margaret Dawes, CEO for the rest of Africa at Sanlam Emerging Markets, which operates in 10 African countries outside South Africa. “We see many markets as being attractive. While we’ve historically been in English-speaking countries, we are committed to expanding to Mozambique and Angola in the near term,” explains Dawes. The group prefers to buy shares in existing operations or find local partners, she says.

Solutions through innovation: Safaricom’s M-PESA is a collection platform for Linda Jamii health insurance

While the growth potential is great, many challenges remain. Building efficient distribution channels, educating consumers about insurance and other financial products, developing affordable offerings and finding ways to collect premiums are some of the main obstacles, says WJ De Vries, an insurance analyst at Avior Research. “Typically we see insurers benefiting from a bancassurance model, where they go into a partnership with a bank and sell their insurance products through the

dossier | insurance

bank’s branch network. This makes distribution easier, lowering acquisition costs, and it is also easier to collect premiums as customers already have some banking service. The products are simple, featuring few exclusions, ensuring accessibility to all in order to reach scale,” De Vries explains. Insurers are also partnering with telecommunications operators as a way to collect premiums by taking a portion of the airtime customers load on their phones. In Kenya, Safaricom’s M-PESA is used as a premium collection platform for Linda Jamii, a microinsurance medical cover product. An annual subscription is payable and premiums can be paid in instalments. Partial benefits can be accessed as soon as a minimum amount of KSh6,000 ($69) is saved. Mobile operators have also started to offer free insurance products as a way to build consumer loyalty. In Ghana, Airtel, MicroEnsure and Enterprise Life launched a product in January offering free life, accidental permanent disability and hospital cover. The cover increases as customers spend more on airtime, with a minimum of ¢5 ($1.90) a month required to qualify for the product. game changer

Partnering with mobile operators is seen as a way to penetrate the informal market, which remains largely untapped. Finding a way to offer simple and affordable products, and to build an effective distribution and payment collection system to service customers outside formal employment, will be a “game-changer”, asserts !Gawaxab. Innovation is also driving growth in the agricultural microinsurance sector. In Kenya, the Kilimo Salama intiative, which means “safe farming” in Swahili, first piloted weather-related insurance for crop farmers in partnership with companies including UAP Insurance and Swiss Re Corporate Solutions in 2008. Last year, it insured 185,000 farmers in Kenya and Rwanda and is tar-

Sanlam Group: contribution to net operating proﬁt 2003 - R1,968 million Namibia Other international 1% 1%

2013 - R5,429 million Other international 6% India/Malaysia 7% Rest of Africa 3% Botswana 4% Namibia 6%

South Africa traditional 98%

geting one million clients in East Africa by 2015, indicating the huge growth potential in the sector. In Zambia, South African agricultural group NWK Agri-Services has partnered with MicroEnsure, Focus General Insurance and African Life Assurance, a Sanlam subsidiary, to offer lifeand weather-related insurance products to NWK’s contract farmers. The aim is to increase farmer loyalty and the amount of land dedicated to cotton farming. Building consumer trust is an ongoing challenge in many markets, says Dawes. In Zimbabwe, hyperinflation in 2008 and 2009 created a lot of distrust in savings products. Fly-by-night insurance companies across the continent have also made people wary of insurance products, she says. “We try to instil trust by paying out claims as quickly as possible, with a targeted turnaround time of 12-48 hours,” explains Dawes. Regulatory and cultural differences also pose challenges, and local market knowledge is essential to develop the right products. “South African insurers aren’t going into these markets with zero competition. Locally established insurers are in most territories already, with well-developed local expertise and an understanding of the market. They find when they enter new markets that they do have to mind the competition,” Fitch’s Loots says. Building scale is one of the biggest challenges. Insurers like Sanlam and Old Mutual have been

South Africa entry-level 10%

South Africa traditional 64%

expanding through acquisitions and organic growth. !Gawaxab says that potential targets are not easy to find, however, and where available, come at significant premiums. expanding footprints

R54bn

Funds under management by Old Mutual Africa in 2013, spread over seven countries not including South Africa

Despite the challenges, investors are keen to see companies expand their footprints. Releasing its 2013 results in February, Liberty, which serves mainly institutional clients in Southern and East Africa, assured shareholders it “remains committed to a West African acquisition”. While its earnings grew 28% last year, its African insurance business outside of South Africa remains tiny, contributing only 1.5% to headline earnings. “Building a life insurance business organically from scratch will take years and years before shareholders see value. The first challenge is to acquire something with scale. Then you have to address education levels of consumers and a lack of, for example, actuarial and financial skills. IT [information technology] platforms, business processes – these are all things we have to take from South Africa,” says !Gawaxab. The race is on to build an African insurance giant, and !Gawaxab sees two factors that will be key in shaping the future. “The first is the demographic shift: we need to understand and anticipate the changing needs of changing demographics. Secondly, if you can harness technology, that will be a real differentiator.” ●

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dossier mining

A new land The rise and rise of global commodity prices is over, but it’s not all gloom and doom in the mining sector. What we can expect in the coming year is a geographical shift in both the African countries offering the best investment environment and the global players looking to profit By Honoré Banda in Lusaka

rognosticators could be forgiven for taking a gloomy view of the mining sector. The global economy’s tentative recovery appears to be stalling. Chinese growth is slowing, Europe and Japan look headed for recession and the US faces an uncertain futurewithout the stimulating effects of the Federal Reserve’s ultra-loose monetary policy. Taken in sum, it makes for grim reading. Mining generates close to one third of the African continent’s gross domestic product, so if demand for natural resources falls, the negative effects will be widethe africa report

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spread. Tax receipts will fall, government spending will be curbed and jobs will suffer. It could also spell the postponement of undeveloped mining projects that will no longer be profitable with lower mineral prices. That is at least how the conventional thinking goes. The reality is more nuanced. For one thing, the value of some minerals has improvedduringthepastfewmonths. While iron ore prices plummeted, dropping more than 40% since the start of the year and jeopardising a host of high-cost West African mines, prices for aluminium, zinc and nickel rose. Burundi is of inn° 66

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Coal prices are down, but companies like Vale take a longer term, cyclical view

the commodity cycle is supposed to ensure that they lock in huge profits when global demand rises. Rather than a commoditycentric approach, the view they take is to look at whether their individual assets across the world – their mines and processing plants – continue to meet required performance thresholds. In this analysis, what matters more are things like tax and royalty rates, security and infrastructure. In taking the temperature of the continent’s mining sector, executives pay closest heed to its politics. investor-friendly

teresttoinvestorsforitslargenickel reserves.Burundi’sMusongatiMiningisstartingpreliminaryworkson depositstherebutneedstoaddress the country’s weak transportation and electricity infrastructure. The consultants at EY argue that high energy prices and competition for water resources will be obstacles to greater mining growth in many African countries in 2015. copper still compels

Although copper prices fell around 8% between the end of 2013 and October 2014, the prospect of global supply shortfalls means many chief executives remain the africa report

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Iron ore prices plummeted by

40% during 2014

Marcelo coelho/vale

scape committed to seeing through investments in countries like the Democratic Republic of Congo (DRC) and Zambia. “The outlook for copper demand remains compelling as emerging economies transition to consumption-led growth,” said US-based Citibank in a recent report. Drilling down deeper, a host of other factors come into play. Major international mining companies like Anglo American, Rio Tinto, Vale and Glencore tend to pay little heed to short-term price volatility, even over a threeto four-year period. Instead, their strategy of investing throughout

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One need only look at the contrast in investor sentiment in Côte d’Ivoire and South Africa. The West African country’s fledgling mining sector is dwarfed by South Africa, still one of the world’s largest precious metals producers. More exploration spending is heading in the direction of Côte d’Ivoire for its more favourable fiscal terms and a government that is seen, at least by company bosses, to encourage foreign investment in mining rather than raising the rents on it. Other countries with governments interested in attracting new investment, like Ethiopia, are host to more exploration efforts. The country has substantial reserves of potash, platinum and gold, and the government plans to triple revenue from the sector from its current level of $600m over the next decade. On the other hand, the country attracting the lion’s share of new spending on the continent is the DRC,longreputedforitscorruption and inefficiency. Its unparalleled store of riches, estimated to be at least twice as large as South Africa’s reserves, come with major political risks. Uncertainty lingers ahead of 2016’s presidential elections, while long-running tensions in the east andeventhecopper-miningheartlandofKatangacontinuetosimmer (see page 74). But the DRC’s copper mines, neglected under successive ● ● ●

dossier | mining

Marc SHOUL/PaNOS-rEa

Botswana has benefited from sightholder sales moving to Gaborone

Global non-ferrous metals prices and exploration budgets,*2004-2014** 4

24 Estimated global non-ferrous exploration budget (left axis, $bn)

SNL annual indexed metals price (right axis, 1996=1)

Source: SNL MetaLS & MiNiNg

8 1 4 0

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

*The SNL Indexed Metals Price measures the relative change of precious and base metals prices, weighted by the percentage of overall exploration spending for each metal as a proxy of the relative importance of each in the industry at a given time. **Relative prices for 2014 are based on the average through September. ● ● ● governments, hold deposits of unparalleled quality. Glencore, the Swiss-based commodities and mining giant, controls some of the country’s oldest mines, once run by state-owned Gécamines but subsequently sold on to smaller players like Dan Gertler’s Fleurette Group. Glencore has spent hundreds of millions of dollars renovating ageing infrastructure, boosting production nearly 50% this year alone. By the end of 2014, Glencore expects to be producing 200,000tn per year from its flagship Mutanda mine. Paul Gait, an analyst at Sanford C. Bernstein, said in a research note in November that the continent’s copper production would

accelerate in the coming months, with Glencore best placed to cash in. Gait argues that copper prices will rise as supply dwindles, benefiting lower-cost producers like Glencore, whose DRC mines hold ores extractable at better margins than those in copper producing areas in places like Chile and Peru. The late-October death of Zambia’s President Michael Sata could have big implications for the country’scopperminingindustry.Under Sata, Zambia raised royalties and withheld tax rebates owed to some of the mining firms operating in the country, including India’s Vedanta and Glencore (see page 84). Investors will be watching closely to see how the elections to decide the africa report

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on a presidential successor unfold and whether the new leader will roll back some of Sata’s policies. Of course, the picture remains bleak for commodities like iron ore and oil, while coal prices also weakened considerably since the beginning of the year. Tanzania and Botswana are two countries that are seeking to use their coal assets to boost domestic electricity production in the years ahead. But even as some projects have suffered, investors have sensed buying opportunities. London Mining, the beleaguered Londonlisted iron ore company that sold its prized Marampa mine in Sierra Leone to mining mogul Frank Timis after it went into administrationinOctober,isacaseinpoint. india’s appetite

And while the appetite of some Chinese investors for African resources has cooled, the more pro-business policies of India’s new premier, Narendra Modi, have encouraged the other Asian giants to seek out cheap raw materials to help stoke the next phase of economic growth. For months, Rio Tinto sought in vain for a buyer for its Mozambique coal assets. It largely wrote off the coal mines, acquired as part of a disastrous $3.9bn deal by then chiefexecutiveTomAlbanese,after struggling to find a profitable way to extract and ship the coal. The Indian government-backed International Coal Ventures snapped the mines up in October for $50m, a deal that some industry insiders say could portend other similar transactions. In October, Canada’s African Barrick Gold chief executive Brad Gordon said the company will be on the lookout for a transformational African deal in 2015. “When prices are low, that’s the time to buy,” says one Londonbased investment banker who requested anonymity. He says that private venture capitalists like former Xstrata chief executive Mick Davis, and state-backed Indian and Japanese firms, will be the most likely to buy. “Mick is on the hunt, but he’ll have some competition. The Indians have deep pockets, too,” says the banker. ● n° 66

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Experience the Progress.

www.liebherr.com info.lex@liebherr.com www.facebook.com/LiebherrConstruction

The Group

dossier | mininG

gécamines workers say their pay is in arrears and the company can’t pay its bills

Democratic republic of congo

Copper’s reputation tarnished

Between the infrastructure deficit, revisions to the mining code, instability and Gécamines’ dodgy deals, copper is losing some of its conductivity with investors

he year 2013 was a record breaker for the Democratic Republic of Congo (DRC), which produced an estimated 913,000tn of copper, a third more than in 2012 and its highest level for many years. The government had predicted that copper output would be even higher in 2014, topping 1m tonnes, but a chronic and debilitating shortage of electricity has put paid to that. Annual copper output for 2014 looks like it may be less than 900,000tn. Investors are also worried about long-delayed changes to the mining code and militia activity in Katanga Province. The electricity crisis is immensely frustrating to international mining companies operating in Katanga, all of whom were promised adequate power by the Société Nationale d’Electricité (SNEL) when they invested. Tired of endless arguments with SNEL, the big companies went to prime minister Augustin Matata Ponyo to voice their concerns. In January 2014, he told companies that SNEL would ration

power and that companies would have to restrain their expansion programmes. He wants a much higher contribution from mining to the national fiscus and has identified the ongoing power shortage as a major obstacle to achieving this. goodwill, no action

After their meetings with Matata Ponyo, some senior mining company executives reported that SNEL suddenly became more responsive but conceded that it has not made any discernible difference yet to the electricity supply. “The fact remains,” one executive who requested anonymity tells The Africa Report, “that SNEL oversold its capacity and ability to deliver”. A senior adviser on electricity in Matata Ponyo’s office agreed that “there is goodwill now, but still no action”. The government has been trying to get more out of the sector in different ways. This year, it pressured all of the big mining companies to contribute to a new fund that President Joseph Kabila

The price of tin hit $24,000/tn in April, then fell to

20,000 $/tn in October Source: LMe

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established to fund economic and social development in Katanga. Reluctantly, the companies paid up several million dollars, though their executives say privately that they have no idea what will happen to the money. The big mining companies have also stepped up their efforts to bail out SNEL in the hope of improving their power supply, including the repair and rehabilitation of some Katangan power stations. Kamoto Copper Company (KCC), which is majority-owned by Swiss commodities trading giant Glencore, has been donating large volumes of lubricant to SNEL to assist in the maintenance of power stations and was recently asked by SNEL officials for more. When KCC investigated, it discovered that the same officials had sold the donated lubricants. Ivanhoe Mines, which holds a 95% stake in the Kamoa deposit located 25km from Kolwezi, is working with SNEL to rehabilitate dams in the region. The company claims Kamoa is Africa’s largest highest-grade copper ● ● ●

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GWENN DUBOURTHOUMIEU

dossier | mining

● ● ● deposit and plans to produce 300,000tn per year when the project takes off. That will only happen once the electricity supply is in place. In March 2014, Ivanhoe and SNEL signed a financing deal for the rehabilitation of the Mwadingusha and Koni dams. They should produce 113MW, 100MW of which will go to Ivanhoe. The partners will have to work on another dam to get the remaining 100MW that the company requires for the mine’s second phase.

royalty increase

A core element of Prime Minister Matata Ponyo’s strategy for boosting revenue from mining is a steep increase in royalties as part of a proposed revision to the 12-year-old mining code. Mining companies are strongly opposed to the royalty increase, proposals to increase the compulsory stake for state-owned companies in new mining ventures, and plans to reduce the amount of time before mining contracts can be reviewed. Negotiations between the government and mining companies on these issues have dragged on fruitlessly for more than a year, and the two sides appear no closer to an agreement. A major part of the problem is an as-yet-unfulfilled promise made by Kabila in October 2013 to announce a new government. The failure of

the new government to materialise has increasingly paralysed the existing administration, with ministers – including mines minister Martin Kabwelulu – refusing to take major decisions until the matter is settled. The troubled state-owned Générale des Carrières et des Mines (Gécamines), which once operated all the major copper and cobalt mines in Katanga, is without a permanent chief executive after President Kabila sacked Ahmed Kalej Nkand in late July for “gross negligence”. An audit found that Kalej was importing faulty mining equipment from South Africa for an inflated price and failing to inform the Gécamines board. Amid rumours that Albert Yuma Mulimbi, the chairman of the Gécamines board and a close Kabila confidant, is running the show at Gécamines, acting chief executive Jacques Kamenga Tshimwanga is putting on a brave face. In August, Tshimwanga announced a new turnaround strategy, which is scheduled to run until December 2015 and is intended to boost the company’s copper production to around 1,600tn a month or 19,200tn per year. Tshimwanga said that copper production at Gécamines had fallen to 500tn per month during the first half of 2014 but risen to 1,200tn by September. Gécamines had earlier claimed that its pro-

duction in 2013 was around 38,000tn, so either Tshimwanga is underestimating the company’s output or its official figures for 2013 are inflated. Ma n y G é c a m i n e s w o rkers, meanwhile, have reported that their salaries are up to four months in arrears and say that SNEL has begun cutting the company’s power supply because of unpaid bills. In a bid to raise funds, Gécamines sold its remaining 40% in the Kipoi copper and cobalt mine to Tiger Resources for $111m in late October. Kipoi, situated 75km north-west of the Katangan provincial capital Lubumbashi, produces just more than 2,000tn of copper cathode a month.

DRC’s copper output in 2014 fell at least 10% short of the government’s

tonne target Source: MiniStry for MineS

gertler’s secret loan

Kolwezi in Katanga Province has huge copper deposits but lacks good infrastructure; Ivanhoe is working with SNEL to re-open two dams

Baptiste de Ville d’aVray

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In January 2014, Gécamines bought out minority shareholders in the Deziwa and Ecaille C cobalt and copper mines, giving it 100% control. Gécamines’ shortage of funds, however, has meant that it has been unable to invest significantly in either mine. Production there is languishing. At the time that Gécamines acquired full control of the two mines, Yuma claimed the funds had been supplied by international banks, but it subsequently emerged that controversial Israeli mining mogul Dan Gertler lent the company the money – $196m. Gertler’s loan did not appear on Gecamines’ balance sheet, prompting investor concern that the company might have other off-the-books debts. The uncertainty appears to have dented Gécamines’ ability to raise funds from capital markets. Before he was sacked, Kalej had also talked about a deal between Gécamines and Netherlands-based commodity trader Trafigura. The two were to process copper tailings from the Gécamines mine at Lupoto to produce 3,000tn of copper concentrate per month, but nothing has been mentioned about plans for the project since his sacking. International copper prices edged lower during the second half of 2014, partly on concerns about Chinese demand but ● ● ●

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dossier | mining

● ● ● also in anticipation of rising global production in 2015. Some analysts predict a global copper surplus of 350,000tn next year. Most of the increased copper production is expected to come from Chile and Peru, but higher mine output is also anticipated from Toronto-listed First Quantum Minerals at its Sentinel mine in Zambia, and Glencore’s Mutanda mine and KCC in the DRC.

Smuggling is still the fate of most artisanally mined gold from dRC

rebels recede

Amid the gloom, a more encouraging development for Katangan copper mines is that the threat to their operations from secessionist rebels appears to be receding. During the first half of 2014, several attacks by the Bakata Katanga militia, which wants independence for Katanga, were recorded near Lubumbashi, Likasi and Kolwezi. During the second half of 2014, however, Bakata Katanga raids were concentrated – as previously – in northern Katanga, and particularly around Pweto, Manono and Mitwaba, a reassuringly long way from the province’s copper mines. The impact of these raids has been devastating, with hundreds of thousands of people fleeing their homes and fields. It has created a humanitarian crisis that has received weak news coverage. The insecurity, which is caused not only by Bakata Katanga but also by heavy-handed counterinsurgency operations conducted by the DRC’s armed forces, also hit tin and tantalum mining operations in the north of the province. These mines have also been badly affected by a drop in the international tin price. Tin hit $24,000 per tonne on the London Metal Exchange (LME) in April and then slumped to around $20,000 per tonne by late October. The fall in the LME price has forced mining companies buying from artisanal diggers in northern Katanga to reduce the amount they pay them for tin ore. Unsurprisingly, the news has been poorly received by diggers and has prompted concerns of renewed unrest at the mines. ● Gregory Mthembu-Salter

LIONEL HEALING/Afp

Gold

Randgold leads resurgence Officially recorded gold exports from DRC are rising fast, but artisanal mines resist certification

fficially recorded gold production in the DRC is rising fast after decades in the doldrums, thanks to Toronto-listed Banro and South Africa’s Randgold. Banro began production at its Twangiza mine in South Kivu Province in 2011, creatingthefirstindustriallypoured gold in the country since the early 1990s. Banro is targeting 120,000oz (3.4tn)peryearatTwangiza,though technicaldifficultieshavesofarkept output below that target. Randgold poured its first gold at the Kibali mine in Orientale Province in September 2013 and has said it is targeting 550,000oz in 2014.ChiefexecutiveMarkBristow promises to ramp this up soon, aiming to produce 650,000oz per year over the next 10 years. Until 2011, the country’s official annual gold exports were typically just a few hundred kilogrammes, a fraction of the 10-15tn that experts reckon are mined every year by artisanal diggers all over eastern DRC. Mines minister Martin Kabwelulu now forecasts that officially recorded gold exports could reach 18tn in 2014, almost all of it from Banro and Randgold.

Official gold exports may hit

tonnes in 2014 Source: MiniStry for MineS

the africa report

Most artisanal gold production in the DRC is still smuggled. Government policy is for all artisanal gold mines to be validated by special teams that check on the mines’ conflict links and environmental and labour standards. Validated mines are eligible for certificates issued by the International Conference on the Great Lakes Region (ICGLR), and Congolese law states that only gold with ICGLR certificates can be exported legally. The problem is that very little artisanallyproduced goldhasbeen validated – in Orientale Province, none has – leaving buyers trying to comply with the law with a severe supply problem. One registered gold buyer in Bunia, Orientale Province, says he suspended operations after the “complete failure” of the authorities to act on detailed information he gave them about smugglers. “I was losing $20,000 a month,” the buyer tells The Africa Report, “and all the while the authorities were promising and promising. Finally, I realised I was being had and pulled the plug.” Smugglers, meanwhile, continue to operate as before. ● Gregory Mthembu-Salter

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dossier | mining

SOUTH AFRICA

The Gauteng resolution on local ownership has led to accusations, including from the opposition Democratic Alliance (DA), that the ANC’s economic policy is ‘turning Zimbabwean’. In neighbouring Zimbabwe, indigenisation legislation requires a minimum 51% shareholding for black Zimbabweans.

Hungry for more

After losing support in elections, Gauteng ANC has passed an indigenisation resolution that targets the mining industry. How it will fare depends on the bigger political picture

hile firebrand oppositionist Julius Malema has been calling for the nationalisation of South Africa’s mines, ruling-party officials and local mining bosses are now demanding more action on local ownership. A resolution passed in October by the Gauteng provincial conference of the ruling African National Congress (ANC) states that, by 2030, 49% of the province’s key industries, and especially its mines, must be owned by black South Africans. ANC provincial chairperson Paul Mashatile said the aim was to “break down monopoly capital, ensuring new entrants particularly from Africans and blacks in general, creating black industrialists.” Pressure for change is coming from local business leaders too. Bridgette Radebe, president of the South African Mining Development Association, told a parliamentary committee in August that

the government must fight transfer pricing (by which multinationals artificially lower the price of exports to avoid tax) and encourage more local ownership. She said local joint-venture partners are hurt by transfer pricing. The finance ministry estimates that the state may be losing billions of dollars each year due to the practice. The debate on transfer pricing could lead the government to reform its tax laws. Radebe also wants the government to force companies torespect the 2004 Mining Charter. Through this, companies agreed to raise the ownership share by historically disadvantaged South Africans to 26%bytheendof2014,atargetthat will not be met. Radebe said she had asked President Jacob Zuma not to sign the Minerals and Petroleum Resources Development Act Amendment Bill until parliament can close loopholes that benefit international mining firms.

nothing like zim

The ANC government has long claimed that predictions the country would end up like Zimbabwe are both racist and wrong. In mid-October,land-reformminister Gugile Nkwinti stated at a meeting with farmers that the law did not allow South Africa to implement a Zimbabwe-style land redistribution programme. “Farmers say it’s unconstitutional, and they are right,” said Nkwinti. “That is the beauty of our country. Our country is a constitutional democracy.” The ANC has come under pressure in Gauteng since the country’s general elections earlier this year revealed a steep decline in support and a strong showing for Malema’s Economic Freedom Fighters (EFF). The ANC won 54% of the vote in Gauteng in the 2014 elections, down from 65% in 2009, while the EFF took 6%. The DA won 21% in 2009, and 31% ● ● ●

JessIe Duarte, Cyril Ramaphosa and Paul Mashatile singing from the same song sheet at the Gauteng provincial conference in October

Simphiwe Nkwali/SuNday TimeS/Gallo imaGeS/GeTTy imaGeS

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dossier | mining

● ● ● in 2014. The EFF demands nationalisation of South Africa’s mines and banking sector, while the DA opposes any further compulsory increases in black ownership of the economy.

tension with zuma

Relations between the Gauteng ANC and President Zuma are frosty. In December 2012, Gauteng was one of the few provinces to oppose Zuma’s continued presidency of the party at the ANC’s national conference in Mangaung. The tension reduces the likelihood that the party’s leadership will take up Gauteng’s resolution, though a further battering for the ANC in the province in 2016’s local elections could change that.

Already, in September, Gauteng premier David Makhura– who was appointed by Zuma – told a meeting of residents that “it is time to adopt unorthodox methods because the orthodox methods have not been working.” The Gauteng Province indigenisation resolution is sure to betakentotheANC’s2017national conference, which will also see the election of a new ANC president to lead the party into the 2019 general elections. If ANC deputy president and former mining magnate Cyril Ramaphosaiselected,theGauteng ANC resolution is unlikely to find much favour. However, Ramaphosa’s standing wasdented by the Marikana massacre of 2012, when dozens of striking miners at Lon-

49%

Target for proportion of Gauteng province firms to be owned by black South Africans by 2030

Source: gauteng anc

min’s platinum mine were gunned down by the police. Ramaphosa was the director of Lonmin’s black economic empowerment partner at the time, and apparently pushed for stronger police intervention before it happened. If the mood at the ANC’s national conference swings away from Ramaphosa and towards a candidate from the left, it could be a different story for Gauteng’s proposal. Within the mining community, reactionstotheGautengresolution are mixed. Foreign-owned mining executives privately expressed strong hostility but declined to comment in public. Black South African entrants to the sector have been openly more positive. ● Gregory Mthembu-Salter

Zimplats will invest €100m updating its Ngwarati smelter in 2015/16

Calm returns to Zimbabwe A cabinet reshuffle has calmed the nerves of investors, who plan new and expansion projects

he political temperature in Zimbabwe – scaldingly hot for investors in the country in recent years – has shown no sign of abating. The battle that pitches President Robert Mugabe’s wife Grace against vice-president Joice Mujuru is just the latest instalment in the drawn out succession struggle. But in the mining sector, the government still has a few indigenisation plans to rule on before the companies involved will plough in more money. Recent years have seen the mining industry the target of both scorching rhetoric and legal action. The 2010 indigenisation law called on international companies to transfer a 51% stake to local investors. In 2012, the largest platinum miner in the country, Implats, finally agreed to what it called the “minimum requirements” of the policy. The International Monetary Fund, which in July re-opened its office in Zimbabwe, says the clarification of black

Philimon Bulawayo/ReuteRs

$3bn Work is already under way to build a Russian platinum mine outside Harare Source: BloomBerg

economic empowerment laws is necessary before any resumption of bilateral lending. Since incendiary indigenisation minister Saviour Kasukuwere was replaced in a cabinet reshuffle in September 2013 and Patrick Chinamasa became finance minister, relations with the large mining houses have improved. Enough, indeed, for the prospect of fresh investment: South African miner AquariusPlatinumhasannounced a $40m expansion programme for 2015. It will involve investing in the Mimosa mine, which it owns with Implats, to prolong its lifespan for 20 years. Mimosa Mining says revenue was up 4% in the quarter ending September 2014, reaching the africa report

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$82m, with both production and head grade up 1% to 655,034tn and 3.64g/tn, respectively. Meanwhile,Toronto-listedCaledonia Mining said in November that it is planning a $70m investment in its Zimbabwe subsidiary Blanket mine over the next five years. Caledonia will use the funds to expand an existing gold mine and improve mine-related infrastructure. A $3bn Russian platinum project also broke ground in September some 50km northwest of the capital. So will we see a further influx of cash in the mining sector? Much depends on the squabbles at the top, but the wind may be turning. ● Nicholas Norbrook

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dossier | mining

insiders say 20% royalties would cause Konkola to shut

Zambia

Copperbelt under pressure The Zambian government and mining companies are at loggerheads over plans to increase mine royalties, while the people complain they are seeing no benefits

he Zambian government plans to revise the tax system and raise royalties to triple revenue from the mining sector by 2017 and prevent tax evasion. Some mining firms have already frozen their activities over tax disputes, and others say the new reforms will lead to the closing of mines. For their part, residents from the Copperbelt say that mining has not led to an improvement in infrastructure and services. In the 2015 national budget, finance minister Alexander Chikwanda proposed to redesign the fiscal regime by replacing the current two-tier system with a simplified structure resulting in an increase of mineral royalty to 8% for underground mining operations and 20% for opencast mining. The government would then eliminate the 30% corporate income tax for mining firms. Treasury sources say thenewtaxformulawouldhelpthe government to recoup some of the nearly $2bn it believes is lost from the mining sector each year. The proposal is part of a plan to treble revenuecollectionfromthemining sector to $1.5bn by 2017. The gov-

ernment’s three-year push would allow it to fund key infrastructure projects and invest in measures to reduce poverty. “The moving away from corporate income tax to a tax based on turnover simply shows that the Zambia Revenue Authority (ZRA) andgovernmentagenciesresponsible for tax administration do not have the capacity to monitor what isbeingmined,producedandsold, [or] the price of the metal, including the cost structure of the various mines,” says Lubinda Habazoka, a senior lecturer in business at The Copperbelt University. Zambian officials say the Australian model of targeting production instead of profits is a way to reduce ‘revenue leakages’ in a sector riddled with tax avoidance and transfer pricing, through which multinationals artificially reduce the price of their exports to pay less tax. The industry predicts vast losses if the government follows through onitsplan.Aminingexecutivewho requested anonymity says: “At 6%, all mines have been struggling, maybe except Kansanshi. It has been tough, so, at 20%, Zambia will

effectively become the highest cost in terms of tax in the whole world. At this level of taxation, Lumwana, Lubambe and Konkola Copper Mines will definitely shut.” Opinion is split amongst actors in the sector. Wylbur Simuusa, mines chairman for the ruling Patriotic Front (PF), says: “We are not doing anything outside the book. This is our campaign promise to thepeopleofZambia,andtheCopperbelt in particular, to ensure that they feel the benefits of mining.”

Mining accounts for

breathing space

The Mineworkers Union of Zambia (MUZ) says that while the proof the country’s posed tax regime is a positive move export earnings, designed to ensure increased revbut only enue, there is a need to ensure that it does not scare away investors. “The cries of Zambians are that they need to see benefits, and one of GDP way of doing that is by allowing government to collect meaningsource: Zambia chamber of mines ful revenues,” says MUZ general secretary Joseph Chewe. “On the other hand, the investors must be given a breathing space. They need to sustain operations and make profits. What is needed ● ● ●

9.7%

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dossier | mining

is transparency in our extractive industry so that we create a win-win situation for Zambia and the investors.” Despite accounting for almost 80% of the country’s export earnings, mining contributes just 9.7% to the country’s gross domestic product, according to official statistics. Since coming into power in 2011, the PF has twice changed the mining fiscal regime. In 2012, Zambia doubled the mineral royaltyto6%.Nonetheless,thefinance ministry says that mining revenue collection in the past two years has averaged only 41% of its target. Mining officials say that the government’s plans are punitive and lacktransparency.Therelationship between government and key investors in the mining sector has hit rock bottom as miners continue to resist attempts to increase revenue collection and raise reporting standards. The 2014 Millennium DevelopmentGoalsReportsingled out Zambian copper as one of the four African resources most exploited by illicit financial flows. ●●●

squaring up

Since July 2014, the ZRA has delayed paying about $600m in value-added tax (VAT) refunds, mostly to mining companies. The ZRA says most exporters have not complied with a rule requiring import documents from the countries that receive Zambia’s exports.

In October, Glencore’s Mopani Copper Mines suspended part of an $800m plan to boost copper output by more than 50% because it is owed more than $200m in VAT refunds. Glencore has already retrenched 150 workers and placed its Sable zinc mine under care and maintenance, a measure in which a mine is temporarily closed. According to industry sources, Zambia risks losing as much as $2.5bn in foreign direct investment as a result of the mooted mineral royalty as well as ongoing VAT disputes. The country’s largest copper miner, First Quantum Minerals, says it has delayed investment projects worth $1.5bn due to uncertainty over the mining tax regime. Mines minister Christopher Yaluma says mining companies need to be “straightforward and not try to bend rules” in presenting their problems to government; nor will“blackmail”betolerated.There are growing fears that as many as 6,000 mine workers could be laid off if the government implements the new tax regime in 2015. The mining sector has grown rapidly. Since 2000, an estimated $12bn has been pumped into the sector, lifting copper output to 790,000tn in 2013, according to finance ministry figures, and creating more than 150,000 jobs. Chinese demand for Zambian copper has underpinned the country’s strong economic growth, which has aver-

aged around 6% over the past eight years. However, the growth of the mining sector, both in the Copperbelt andin Solwezi,North-Western Province, has not translated into an improvement in the lives of ordinary people. From its inception, the governing PF party has counted the restive Copperbelt as its political bedrock.

1.5

better before

$bn

The government aims to treble revenues from the mining sector by 2017 source: Zambia Treasury DeparTmenT

Finance minister Chikwanda announced the new fiscal measures in his October budget address

eddie mwanaLeza

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“Whatever comparison you make, the Copperbelt is much worse off under the current investors than it was during the time of ZCCM,” says Alliance for Democracy and Development president Charles Milupi.ZambiaConsolidatedCopper Mines (ZCCM) was a mining conglomerate that managed copper mines under the statist policies of President Kenneth Kaunda. Most infrastructure on the Copperbelt, including schools, hospitals, roads and social amenities, is in a serious state of dilapidation. “We are told that we are now producing more copper than ever before, but look at even the road that leads to the mines – it’s in a total mess,” says former miner Victor Kanguya in Chingola, the headquarters of Konkola Copper Mines. He also laments the poor state of the road that leads to Nchanga South Hospital. Copperbelt roads are currently undergoing rehabilitation due to late President Michael Sata’s planned $5bn investment to build more than 8,000km of roads. The government remains sensitive to the charge that things are not changing fast enough. ClareAllenson,fromthepolitical risk consultancy Eurasia Group, says the government is unlikely to make a complete about-face. “Ultimately, parliament is likely to pass a version of the proposed mining fiscal regime – albeit potentially softened – given public interest in seeing higher earnings from the sector.” Meanwhile, the discontent is widespread. Bwalya Matipa, a resident of Kitwe, explains: “Nothing much has changed in terms of the way investors behave towards our land. They are still enjoying while we suffer.” ● Christopher Mwambazi in Lusaka

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dossier | transport

AviAtion

Struggling SAA begs for bailout Fighting a low rand and high fuel costs with its ninth turnaround plan in 13 years, South African Airways urgently needs a cash injection

outh African Airways’ (SAA) executives are caught between their continental ambition and lack of cash. Technically insolvent, SAA is reliant on a R5bn ($443m) government guarantee to operate while discussions about a cash injection continue with the treasury. The size of the bailout required has not been disclosed, but an announcement is expected at the end of March. Monwabisi Kalawe, who took over as chief executive in June 2013 following a purge of board members and executives in the latter half of 2012, says the board is investigating several countries in West Africa as a potential host as it tries to compete with Middle Eastern carriers. “They have been successful in absorbing air traffic to the Middle East and then distributing it. This is a risk for an airline situated at the bottom of Africa. Setting up a hub in West Africa is our attempt to mitigate that risk,” Kalawe says. SAA has shortlisted Nigeria, Ghana and Senegal for its hub. It expects it will take a year or longer to finalise negotiations, but this will require an additional capital injection from the treasury. smoother transit

SAA is also lobbying to scrap transit visas, which would make Johannesburg more attractive to passengers travelling toother parts of the continent. “What we want to

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SAA’s West African hub would allow it to compete with Middle Eastern carriers

35% Fuel cost’s contribution to SAA’s operating expenses. Bosses want new widebody and fuel-efficient planes

see is SAA being the flight of choice on the continent,” Kalawe says. Most pressing, however, is stabilising SAA’s finances. Its results for the financial year ended March 2013 were delayed by five months as talks continued over the bailout. Despite passenger numbers growing by 8% and the savings realised as a result of its ‘Gaining Altitude’ turnaround strategy, a 13% decline in the rand against the United States dollar contributed about R700m to its after-tax loss of R1.2bn. The rand has declined by more than 30% since then, raising fears about the losses it will suffer in the current financial year. “The impact of the weakening rand is severe,” says Wolf Meyer, SAA’s chief financial officer. Increasing its technical operations on the continent will grow dollar-based revenue and act as a natural hedge, Meyer explains. Even without the challenge of a weakening rand, turning around the airline and reaching the breakeven point by 2017/2018, as envisionedbytheturnaroundplan,will be no easy feat. Gaining Altitude is the ninth turnaround plan in 13

years. The company has not made detailed targets from the latest plan public, so it is impossible to gauge whether the plan is working. fuel cost imperative

Political interference has been rife. Crucial to the plan is upgrading the fleet to more fuel-efficient planes, yet public enterprises minister Malusi Gigaba forced the board to withdraw a July 2013 request for proposals for 23 new wide-body, long-haul planes saying it lacked “crucial elements of industrialisation and localisation, which are vital to South Africa’s policies”. New planes will cut SAA’s fuel costs, which are currently 35% of operating expenses. Considering not a single SAA long-haul route is profitable and that plane purchases typically have a lead time of five years, finalising the contract speedily is of great importance. There is no date for finalising the new request. “We are grappling with this new requirement for industrialisation and benefiting South Africa,” Kalawe explains. Gigaba also instructed the board that no job cuts will be allowed as part of SAA’s plans, as the “social and political cost is very high”. ● Jana Marais in Johannesburg

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