Category Archives: Finance

South Africa: Gigaba’s first test

By Rafiq Raji, PhD

Malusi Gigaba, the sometimes colourfully dapper – his unique wardrobe include suits with such ‘interesting’ colours like green and purple – South African finance minister, presents his first budget statement on 25 October. It is not the big one; that won’t be due until next year. But the mid-term budget would be a good first test of his 7-month stewardship thus far. Economists polled by Reuters put the likely revenue shortfall in the current fiscal year to be announced by Mr Gigaba at R40 billion (US$3 billion). (It could be up to R55 billion, some suggest.) I did not provide a shortfall forecast but the fiscal deficit projections I expect the finance minister to announce are as follows: 3.3 percent of GDP for the 2017/18 fiscal year, 3.1 percent for 2018/19, 2.8 percent for 2019/20 and 2.6 percent for 2020/21. Of course, if growth were to improve, they would be a little lower. However, there is not much to suggest that the needed structural reforms to spur growth would be implemented anytime soon.

Show me the money
Ahead of Mr Gigaba’s speech, several allegations have emerged he might be following a meticulous script written by his controversial principal, Jacob Zuma, the president of South Africa. Lately, he has made some moves that deserve commendation, though. Dudu Myeni, a Zuma acolyte and perhaps much more, would finally leave her post as chairperson of loss-making and highly indebted national airline, South African Airways (SAA), in early November. Even this supposedly laudable move is being viewed with suspicion. There have been suggestions that the R5 billion (US$374 million) that is needed by end-October to ensure SAA remains solvent could be funded from the coffers of the Public Investment Corporation (PIC), the manager of public workers’ retirement funds. Additionally, as much as US$7 billion in total might be drained from the PIC to sustain ailing state-owned enterprises (SOEs). These suggestions have been met with vehement opposition by labour unions and others. To allay such fears, Mr Gigaba has provided assurances that the PIC’s funds would not be put to such use and has ordered an investigation into alleged irregularities at the PIC. Such moves might still not be enough. Earlier, Julius Malema, the firebrand opposition Economic Freedom Fighters (EFF) party “commander-in-chief”, accused Mr Gigaba of being the architect of the now infamous phrase: “state capture”; which implies the domineering influence of a few private actors in collusion with public officials over state resources. Mr Malema analogizes the finance minister’s assurances to a rat saying one’s cheese is safe with it. Curiously, PIC chief, Daniel Matjila, who earlier asserted machinations were afoot to see his back at the investment firm because he won’t let go off “the keys to the big safe”, somehow got a clean bill of health from the PIC board in late September; after an internal audit about whether he allocated funds improperly. Interestingly, Mr Matjila now says he has not entirely ruled out providing some funds for SAA. But should public workers’ hard-earned pensions be used to revive something so intractably failing? Surely not.

Game of thrones
Hitherto loud political noise have recently become even louder, after President Zuma lost a court case that if he had won, would have enabled him escape his day in court for myriad corruption charges. Regardless of recent directives by the prosecution authorities that he make representations to them before end-November, it is not likely he would be prosecuted (if at all) before he secures a deal to leave office relatively unscathed (see my earlier column on 17 October 2017: “What next after Zuma fails to shake off corruption charges?” for broader views on this). More pertinent is that plans are likely at an advanced stage to remove Mr Ramaphosa as deputy president. The speculations have been fuelled even more by frantic denials from the president’s office. But in Mr Zuma’s case, when there have been speculations in the past, they tend to happen eventually; that is, even after many denials. Besides, a recent surprise cabinet reshuffle that saw the exit of Blade Nzimande, an ardent Zuma critic and leader of the South African Communist Party (one of the ruling African National Congress (ANC) tripartite alliance partners) suggests Mr Ramaphosa’s axing is only a matter of time. Turns out the wait may not be too long. Just this past weekend, reports emerged that Mr Ramaphosa might be arrested and charged with treason as early as November. The reason the president would want Mr Ramaphosa out of his government is not too difficult to discern. Should his deputy win the elective ANC presidential elections in December, Mr Zuma’s likely premature retirement may be very cold indeed.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/south-africa-gigabas-first-test/

Advertisements

Bank of Uganda should seize the day

By Rafiq Raji, PhD

Recent political developments in Uganda are sobering, but not surprising. Yoweri Museveni, the Ugandan president, is pushing through parliament, legislation that would allow him stay in power another 5 years, and perhaps for life. He has already been in power for 31 years. There are indications some citizens may no longer be passive about such autocratic tendencies: contentions about the controversial law seeking to remove age limits on contestants for the presidency caused a brawl during at least two recent sittings of the Ugandan legislature. Security operatives, allegedly from President Museveni’s special forces, were immediately deployed to eject the erring lawmakers. Of course, a downside is that instead of the security agencies putting more time to closing the many unsolved murder cases in the country, they are busy going after perceived enemies of the president. Never mind the bizarre mandate they recently added to their primary remit: policing indecent dressing and pornography. There could not be greater evidence of misplaced priorities. More likely is it, though, that the authorities seek to distract the populace from more pressing problems. Be that as it may, there have been some positive happenings on the back of having a relatively secure political leadership.

Bright future
The authorities recently agreed terms with a consortium to build a much desired crude oil refinery; after a number of failed talks with previously interested investors. Their persistence has clearly paid off, though. Because not only have they agreed what seem like quite good terms, the investors are of great standing. The consortium, which includes American industrial giant, General Electric, would build and operate the country’s first refinery, hopefully processing a greater part of the country’s recoverable oil reserves of 1.4-1.7 billion barrels; a feat that has largely eluded other African oil producers. So even as Mr Museveni’s longrunning rule deserves much criticism, it is highly unlikely the refinery feat would have been achieved if his position were not so secure. A fragile political leadership could have easily succumbed to pressure from global industry giants who harped about the weak economic case of the project. Earlier botched negotiations were with Russia’s RT Global Resources (which then put the project at about US$2.5 billion) and a subsequent one with South Korea’s SK Engineering. It is not all done yet, though. A project framework agreement is yet to be signed, but is expected to be endorsed soon. Better still, this new agreement involves regional neighbours, Kenya and Tanzania, which have committed to 2.5 percent and 8 percent stakes respectively. Additionally, construction has started on the US$3.5 billion joint crude oil pipeline with Tanzania, expected to be completed by 2020, about the same time first oil is expected. An ambitious Uganda now envisages membership of the oil producing countries’ cartel, OPEC, then. If all goes according to plan, growth could be in the high single-digits in just half a decade from now, when as the International Monetary Fund (IMF) estimates, the crude oil economy could account for at least 4 percent of output; albeit it is not likely to match pre-global financial crisis growth of above 10 percent. Growth would likely still be decent in the short to medium term, though, about 5.7 percent in 2018, the IMF reckons, from an estimated 5 percent in 2017.

Last chance
I made a call to my clients for an additional interest rate cut by the central bank in August, after one by a 100 basis points to 10 percent in June. The Bank of Uganda (BoU) thought otherwise and kept its benchmark rate unchanged. I am reiterating my call for at least a 100 basis point rate cut to 9 percent. With inflation slowing, and likely to slow further, I think the monetary policy committee (MPC) has a chance to ease policy at its October meeting; lest it misses the chance to do so for the remainder of the year. At 5.3 percent, annual consumer inflation was largely unchanged in September; only a basis point higher than the earlier month’s headline of 5.2 percent. But this was still great progress from a year-to-date high of 7.3 percent in May. That said, prices accelerated quite significantly on a monthly basis in September, by 1 percent, after barely 0.2 percent in August. The increased price pressure is likely fleeting, though. Monthly core inflation last month was just 0.1 percent, from zero percent earlier; pushing annual core inflation by about the same pace to 4.2 percent from 4.1 percent in August, well within the authorities’ 5 percent target. My forecasts put annual consumer inflation at about 4 percent by year-end. The committee should seize the day.

Also published in my BusinessDay Nigeria column (Tuesdays). See link viz. http://www.businessdayonline.com/bank-uganda-seize-day/

Blue economy: Nigeria could learn from Seychelles

By Rafiq Raji, PhD

Some years ago, at an investor event in London, a prominent Africa-focused portfolio manager wondered if anyone knew where he could get research on Seychelles. The firm I used to work for at the time had perhaps the most comprehensive African macroeconomic research coverage, including such countries as Sierra Leone, The Gambia and so on; which I incidentally covered at the time, but no, we did not cover Seychelles. The reason was not farfetched. It is a small country, even by African standards. When you think of Seychelles, the thought that immediately comes to mind are its beaches and other tourist attractions. Turns out, its economy is also well-run. Of course, I had since moved on to other things. But just recently, a contact wondered if my budding research firm, Macroafricaintel, had any report on the country. I wondered what spurred the sudden interest. She graciously explained her curiosity was aroused by such innovative solutions coming from the country like the proposed US$15 million blue bond, the proceeds from which would be used to fund the development of sustainable fisheries. Just so you know how impressive it is, it earned the 2017 Ocean Innovation Challenge award at The Economist World Ocean Summit earlier in the year. In 2016, Seychelles also struck a “debt-for-adaptation” deal with the Paris Club in partnership with The Nature Conservancy (TNC), an American non-profit environmental organisationIn exchange for promising to protect at least 30 percent of the country’s waters by 2020, authorities got debt relief to the tune of US$21.6 million. Authorities would thus now be able to disburse about US$280 thousand per year from the interest savings to train fishermen, do research and so on. Unsurprisingly, other African countries with similar endowments like Mauritius, Madagascar, Mozambique, Tanzania, and the Comoro Islands are now looking to develop similar initiatives, according to The Economist, a British newspaper. But if they hope to succeed, they must first start with a blue economy roadmap like Seychelles did. What is a blue economy, though? Seychelles’ finance, trade and the blue economy minister, Jean-Paul Adam, defines it “as all those economic activities that directly or indirectly take place in the ocean, use outputs from the ocean, and put goods and services into ocean activities.” With tourism and fisheries accounting for 11 percent of its workforce and 33 percent of its GDP, the Seycehellois government clearly has good reason to take its blue economy seriously.

Collaborate to secure waters
For a very long time, fishing boats from Europe and elsewhere have prowled the continent’s waters with impunity, pillaging them for fish and everything else in between. Oceana, an American non-profit organisation dedicated to protecting and restoring the world’s oceans, released a report in September that put illegal fishing costs to West African countries at about US$2.3 billion per annum. It reports 19 vessels from Italy, Spain, Portugal and Greece illegally spent about 31,000 hours on Gambian waters between April 2012 and August 2015. Perhaps in response, The Gambia has decided to do something about it, announcing ongoing negotiations with at least three private firms to police its waters and stem the pillaging of their marine life. Greater collaboration between African countries, especially West African ones, would help a great deal, though. And surely for an industry with an estimated output of US$1 trillion per year, it should not be too difficult for African governments to be enthused about doing so. There are already some initiatives in this regard. The African Charter on Maritime Security, Safety and Development in Africa (“Lome Charter”), adopted at the African Union (AU) extraordinary summit on maritime security and safety and development in Africa in October 2016, builds on earlier collaboration mechanisms like the 2009 Djibouti Code of Conduct2013 Yaounde Code of Conduct and 2050 Africa’s Integrated Maritime Strategy adopted in 2014. The Lome Charter is a huge step as it formalizes what is referred to as a “blue economy”, defining it as “sustainable economic development of oceans using such technics as regional development to integrate the use of seas and oceans, coasts, lakes, rivers, and underground water for economic purposes, including, but without being limited to fisheries, mining, energy, aquaculture and maritime transport, while protecting the sea to improve social wellbeing”. 

Make blue economy part of diversification agenda 
One is not aware of a robust government policy on fishing in Nigeria. The Economic Recovery and Growth Plan, the most recent 4-year strategic plan of the government, espouses the need to diversify the economy but does not elaborately consider how the blue economy would be tapped in this regard. It mentions fisheries as part of its agricultural policy, though, but does not spell out specific initiatives. Maritime policy in Nigeria is more focused on shipping and security via two principal agencies: the Nigerian Ports Authority (NPA) and Nigerian Maritime Administration and Safety Agency (NIMASA). Their utility is seen primarily through the lens of the revenue they generate for the government through these activiities. Deep-seated corruption at the agencies means the government has been perennially short-changed, though. Even so, they could be doing so much more. And like the Seychellois example shows, an ambitious blue economy agenda need not weigh significantly on the government’s finances: it could be self-funding if creativity is applied. In the Nigerian case, however, any potential gains would require some initial investment by the government to resuscitate the country’s polluted coasts and waters, especially in the Niger Delta region. Nigeria’s blue economy could offer so much more than oil.

Also published in my Premium Times Nigeria column. See link viz. http://opinion.premiumtimesng.com/2017/09/15/a-blue-economy-what-nigeria-could-learn-from-seychelles-by-rafiq-raji/

Nigerian banks should embrace Islamic finance

By Rafiq Raji, PhD

Say you are approached by a banker, who then makes you a home acquisition proposal that converts your rent payments into equity, and thus enable you own your home after a predetermined period. Naturally, you would be excited. How likely is it then that as a non-Muslim, you would balk at the proposal when it comes to light that what you were just now giddy about is actually Islamic finance? Very little; not if you were rational, at least. Of course, it could be more palatable to your sensibilities if it is called “non-interest banking”; which is just as well. Try imagining, though, how many homeowners there could have been by now if Nigerian banks adopted such an approach to financing home ownership. If Islamic finance is to thrive and become attractive to all and sundry in Nigeria, however, conventional commercial banks would have to embrace it. At the moment, only one – Stanbic IBTC Bank (2016 total assets of 1.1 trillion naira) – has an Islamic banking window or subsidiary. There is one fully-fledged Islamic bank, though; that is Jaiz Bank (2016 total assets of 68 billion naira). Clearly, the former would have unmatched scale and network advantages that could be easily transferred to its non-interest banking arm; efficiency, for instance. Hence why Islamic finance stands a better chance in Nigeria (and elsewhere, for that matter) if other conventional banks open their own Islamic windows.

CBN steps up
In late August 2017, the Central Bank of Nigeria (CBN) introduced two liquidity management instruments for non-interest financial institutions (NIFIs); a “Funding for Liquidity Facility (FfLF)” and “Intra-day Facility (IDF)”. Hitherto, there were three discretionary liquidity management instruments for NIFIs; namely a “CBN Safe-Custody Account (CSCA)”, “CBN Non-Interest Note (CNIN)”, and “CBN Non-Interest Asset Backed Securities (CNI-ABS)”. So how are the recently introduced ones any different or useful? Well, conventional banks are typically able to place their surplus with each other during the course of a business day or overnight and vice versa when short. This enables them manage their clearing operations, for instance. Depending on the circumstances, like when the interbank market is tight, banks could go to the CBN for such transactions. In both cases, Islamic banks and windows are excluded because they are barred from earning or paying interest. So hitherto, all an Islamic bank or window could do was to place its surplus funds with the CBN either as a CSCA or CNIN. But these are discretionary. These new instruments would thus provide tremendous relief for NIFIs. To access them, the CBN requires they either are in clearing with a temporary debit balance and/or have a liquidity problem. This is the primary distinguishing criteria; aside placing collateral with the CBN that is at least 1.1 times the transaction value. In a February 2017 report, the IMF mentioned the lack of such sharp liquidity instruments as a key risk to the financial systems of countries where there are Islamic banks. Needless to say, the CBN’s recent move is a welcome development.

Keep your customer
More Nigerian banks would be wise to have Islamic banking windows. That way, they are able to keep all the business of their sometimes affluent Muslim customers, while still availing them of conventional banking services. Global banks already do this for their Middle Eastern customers. Of course, there is the oft-cited refrain about technical capacity. This does not necessarily apply to traditional Islamic finance products. Problems have mostly arisen with so-called hybrid and exotic products for which compliance with the strict Islamic law criteria can sometimes be fuzzy or inconclusive because of their sheer complexity. Such is the complication that it is sometimes difficult to distinguish them from conventional banking products. It does not help of course that the evolutionary nature of Islamic finance also means legal clarity and certainty have been somewhat elusive. There is some level of standardization with traditional or so-called plain-vanilla products, however. Take the standard savings account from an Islamic bank. Instead of the quite meagre fixed interest rate a customer currently gets from a conventional bank, there is an opportunity to partake in a potentially higher return. How so? An Islamic bank pools its customers’ deposits and invests them in Shariah-compliant investments (like shares of companies that are involved in ethical businesses; so a brewer or tobacco producer would not qualify, for instance). There is a downside, though. The customer also shares in potential losses. This is in accordance with the Islamic finance principles of risk sharing and that investments be in real economic activities. In both instances, the CBN-approved sharing formula is a 70:30 ratio, with the bank getting the larger share. Statutorily, returns are shared monthly.

Potential challenges
A conventional bank looking to open an Islamic window must be mindful of some potential pitfalls, though. Customers might be sceptical about whether it is truly able to separate its Islamic banking arm from its interest-earning entities. A commingling of funds would be antithetical to the whole scheme. There is also the possibility of regulatory arbitrage, where the bank potentially transfers risk between the two arms, depending on which is favourable. The CBN seems well-geared to handle such potential abuses.

Also published in my Premium Times Nigeria column. See link viz. http://opinion.premiumtimesng.com/2017/08/31/nigerian-banks-should-embrace-islamic-finance-by-rafiq-raji/

On the African prospects of Islamic finance

By Rafiq Raji, PhD

I attended an Islamic finance roundtable event in Lagos recently. It was organised by S&P Global Ratings, one of the three leading global credit rating agencies. There is increasing interest in Islamic finance in African countries, whether in the form of a sukuk (Islamic bond which makes returns from an underlying revenue-generating asset as opposed to scheduled and fixed interest payments in conventional bonds) or commercial banking products that avoid the payment of interest, which Muslims are barred from earning. African sukuk issuances have yet to impress, though; about US$2 billion (since 2014 mostly), according to S&P Global Ratings. (17 African sovereigns issued US$46 billion in conventional debt in 2015.) Over the past two years, annual global sukuk issuance was about US$65 billion on average and end-2016 Islamic finance industry assets are estimated at about US$2.1 trillion. There has been a decline in the volume of global issuances lately, though; low crude oil prices are one reason why. Even so, there are significant prospects for more sukuk issuances by African sovereigns and sub-sovereigns. A sign that Islamic finance may eventually become mainstream is that corporate entities are beginning to seriously consider it as a source of financing. The Lagos-based Africa Finance Corporation (AFC) issued a 3-year US$150 million sukuk in early 2017, for instance.

Entrenched ways
Curiously, Muslims have not warmed up to Islamic banking as was probably envisaged, though. Most have gotten used to conventional banking, especially as they have over time devised personalized mechanisms for abiding by their religious principles while still availing themselves of conventional commercial banking services: For example, when paid interest on their savings account deposits, they would either ask that the interest portion be removed or alternatively, they maintain it as a permanent balance in their accounts. The motivation is rational. To forgo conventional banks for the few Islamic ones that have only recently begun to spring up in a few African countries could be costly. Conventional commercial banks have more heft to provide a more diversified bouquet of banking services than the still budding Islamic ones. To become more commonplace, Islamic banking professionals have to find ways to make their services appealing to non-Muslims. Patronage of an Islamic bank does not require that you believe in Islam. It is simply a type of banking that insists that if you must earn a return, it should be from actual assets and not just financial transactions. Call it ethical banking, if that is more palatable to your religious sensibilities. Such sentiments seem to have been overcome in the Islamic capital market sector, however. Non-Islamic entities and countries have issued sukuk, for instance. Still, Islamic law does underpin the industry.

Standardize now
A lack of standardization is becoming a problem, though. To be clear, Islam is clear on what the rules are or should be. Varied and unusually dynamic interpretations of sharia (Islamic law) on what is compliant or not have been problematic, however. The controversial case of Dana Gas, an Abu Dhabi-listed gas company, may be the crisis the industry needs to finally put things in order. To avoid parting with more cash than it agreed to, Dana Gas is seeking to restructure two sukuk issues worth US$700 million into more supposedly Islamic-compliant ones. The reason is obviously not religious but financial. It is the classic case of trying to use religion to escape fulfilling an obligation. Still, Dana Gas is simply latching on to what seems like a “dynamic” Sharia interpretation culture in Islamic finance. To be fair, prominent Islamic finance sharia advisors have been forceful about what a dangerous precedent the Dana Gas case would set if it wins the case it filed with an English court, which may not be heard before December 2017 (according to The Economist, a British newspaper), two months after the sukuk issues would have matured. Put simply, the problem is human, not religious. It is a classic case of an attempt to breach a contract after agreeing to its terms. Bear in mind the sukuk issues in question were issued some 10 years ago. That is a long time for anyone or entity to suddenly develop a phony sense of religiosity. There could not be a greater need for standardization. A global authority on Islamic finance needs to be instituted without delay, a point made at the S&P Global Ratings Lagos event (and in recent features by The Economist and African Banker magazine). The Malaysian model, which is more liberal and advanced than the Middle Eastern variants, is touted as befitting. The current artificial ambiguity is a needless constraint.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/african-prospects-islamic-finance/

Why are most African airlines floundering?

By Rafiq Raji, PhD

The state-owned airline of Africa’s most advanced economy, South African Airways, is about to be bailed out by the state with about US$1 billion. Again. In July, not only did the state provide cash support to the almost bankrupt airline after an international bank insisted that its loan be serviced, it had to provide about 20 billion rand in guarantees. It would probably not be the last time. Even more saddening is the proposal that the pension fund of public workers may be used to pay almost half of the proposed US$1 billion bailout. Almost everytime credit rating agencies issue a review on the sovereign now, the deplorable state of the airline’s finances is mentioned. Only breath of fresh air is perhaps, finally, it has new management that probably knows its onions. Time will tell. Up north to the east, Kenyan Airways, another state-owned airline (partially though, as the Kenyan government only has a 29.8 percent stake), which incidentally has an international airline of repute, Air France KLM, as a shareholder (26.73 percent stake), would restructure its finances imminently, after failing to recover from a souring of the Kenyan tourism sector by terrorist attacks some five years ago. The restructuring plan seeks primarily to convert the debt it owes 11 local banks into equity via a special purpose vehicle, which would make them the largest shareholder afterwards (according to Reuters).

Bright spot
Some African countries have simply given up on the idea of a national airline, after earlier initiatives either went bankrupt or simply collapsed out of sheer incompetence. But there is a bright spot. Ethiopian Airlines made more money (US$273m net profit) than all African airlines combined (US$800m net loss) in 2016; a point happily made by African Business, a prestigious African publication, and BBC, the premier British broadcaster, in recent features. It begs the question, though: what makes it possible for Ethiopian Airlines to do so well at the same time that its supposed contemporaries are floundering? Tewolde Gebremariam, chief executive of the Ethiopian national carrier puts it rather well in a recent BBC interview: lack of government interference, private sector expertise and cost management. They seem simple, not so? Not really. Even when private sector experts are allowed to run a state-owned enterprise, African governments loathe being ignored.

The discipline of the Ethiopian government provides many lessons. It does not fund its airline in anyway. Ethiopian Airlines is completely run from its own finances. It does get support from where it matters though: America. The US Exim Bank guarantees most of its aircraft purchases, Mr Gebremariam tells the BBC. With that kind of backing, top global banks like JP Morgan Chase, Citi, Barclays and HSBC are all too eager to offer it accommodative financing. Today, a lot of Africans increasingly do not mind a stop at Bole International Airport in Addis Ababa en route their final international destinations and indeed on the return journey back home. Mr Gebremariam made sure to point out to the BBC that at least 2,000 Chinese pass through Bole en route various African countries in the morning and vice versa in the evenings, every blessed day. And anyone who has travelled on the airline would attest to their efficiency. The quality is mid-range, though.

Hands off
Amidst the many floundering African airlines, Nigerian authorities desire to establish a national carrier. The motivation is nostalgic, in part. National pride is also a factor. Many agree that unless the motive is profit, it would suffer the unflattering fate of its predecessors. Thankfully, the authorities plan for it to be private-sector driven. The government has also appointed Lufthansa, a highly-regarded German airline, to advise it. But would the authorities be able to hands off like the Ethiopians seem to be able to do rather well? History suggests this is doubtful. It certainly does not help that Nigeria has a bad reputation when it comes to contracts. The experience of Richard Branson’s Virgin Group in the mid- to late-2000s with its Nigerian airline venture, Virgin Nigeria, in which it had a 49 percent stake, is instructive. Mr Branson was left dumbfounded when a new administration began to question the validity of Virgin’s contracts with the preceding one. What was the gripe? The authorities did not think it was appropriate for Virgin Nigeria to operate from the international terminal of the country’s main airport. To Mr Branson’s dismay, “heavies” were sent to “smash up” his airline’s lounge “with sledgehammers” to ensure compliance. The African aviation sector is not for the faint-hearted.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/african-airlines-floundering/

Who should decide a central bank’s mandate?

By Rafiq Raji, PhD

Stop feeding me your English from London…mfana wami [my boy]”. Not my words. They are Jacob Zuma’s, the South African president, in the week just past. In his now often drily way, President Zuma was responding to a question from the youngish and pioneer black leader of the mostly white Democratic Alliance (DA) opposition party, Mmusi Maimane. They regularly spar when the embattled president visits parliament to answer questions. In those words, though, is the deep-seated resentment of the country’s colonialist past harboured by most black South Africans. It was thus a scathing rebuke of Mr Maimane, who not only speaks English quite well but is also married to a white woman, from a very traditional Zulu man. Of course, the refrain came handy for the wily Mr Zuma in response to what he clearly considered an annoying question. (He deploys similar tactics when trying to hide his embarrassment from what are oft-repeated allegations of malfeasance, irregularities in governance or just plain public sector incompetence.) In those words, the discerning would likely muse, is also evidence of some ironic admiration of the English. A declining power these days, there is much to love and hate about England. Incidentally, the modern-day central bank, the South African Reserve Bank (SARB) no less, is modelled after the English one. Mr Zuma would certainly not mind if the SARB took on one more characteristic of its English counterpart: state-ownership (albeit it was once privately-owned, hence the SARB’s structure).

That the SARB is still privately-owned is a sore point for a lot of black South Africans. And unlike other leading central banks which over time have expanded their mandates to suit the times, that of the SARB has not been similarly evolving. So it is not totally farfetched if some want its nationalisation and/or a change of its mandate. Were such a call to come from Nelson Mandela, the deceased father of the nation, there would not be the slightest controversy. Amongst his comrades, that is. That it didn’t whilst he had the power to do so is a taint on his legacy, it is argued in some quarters. In any case, the ultra-leftist Economic Freedom Fighters (EFF) party has left no one in any doubt, that should it seize power, the SARB would almost certainly be state-owned. To be fair, the ruling African National Congress (ANC) has similar goals, albeit over a longer time horizon. But with Mr Zuma now trying to ensure he would still be able to wield enough clout come an all-important leadership conference of his party in December, the ANC, which he leads till then, has put its foot on the gas pedal. For it is doubtful Mr Zuma gives a hoot about whether the SARB is privately- or publicly-owned; insofar as he can control it for his own ends. At least, so goes the narrative by his traducers.

Sneaky surprise
There is much evidence to suggest Mr Zuma’s critics are not entirely being mischievous. He faces myriad corruption allegations, for instance. And it cannot soon be forgotten how little he thought of the Treasury when he appointed a neophyte, Des van Rooyen to its charge, in place of a widely-acknowledged competent predecessor, Nhlanhla Nene. And even as he eventually succumbed to pressure to appoint someone more capable, Mr Zuma did get his way in the end. A pliant replacement, Malusi Gigaba, was made to the stubbornly effective Pravin Gordhan in late-March. The always dapper Mr Gigaba makes a good first impression. Scratch the surface a little? Some investors are not impressed. It is probably too early to tell. Even so, he has the uneviable record of being the trigger for a credit ratings downgrade to junk status of his dear country by two major agencies. Mr Zuma ultimately gets credit for that though.

Against this backdrop, try imagining the uproar in the markets when anti-corruption czar, Busisiwe Mkhwebane, another Zuma acolyte and former government spy, recently made recommendations that not only should the mandate of the SARB to protect the value of the rand be expunged but that the bank’s price stability focus be changed to one seeking “balanced and sustainable economic growth…while ensuring that the socio-economic well-being of the citizens are protected”. It is arguably an overreach on her part. Incidentally, her office benefits from the goodwill of her predecessor, Thuli Madonsela, whose quiet effectiveness helped establish the quite far-reaching powers of her office. Of course, it would not require much rumination to see how Mr Zuma may be behind Ms Mkhwebane’s actions. One would certainly be foolish to think it was not a well-thought move. Congress of South African Trade Unions (COSATU), a tripartite alliance partner of the ruling ANC, and hitherto estranged with Mr Zuma, was unequivocal in its support of Ms Mkhwebane’s proposals. Officially, the ANC opposes the move though. So does the parliament it controls.

Not your call
More importantly, the SARB has announced plans to challenge the proposals in court. To be clear, the advocacy here is not that the SARB is just right as it is. It is not. It should be state-owned for instance. But as it is probably South Africa’s only surviving bastion of institutional excellence and independence, even the slightest perception of interference in its affairs would be greatly injurious to the economy at this time. Besides, should a change be contemplated, it certainly should not emanate from the good offices of Ms Mkhwebane.

Also published in my BusinessDay Nigeria column (Tuesdays). See link viz. http://www.businessdayonline.com/decide-central-banks-mandate/