Tag Archives: South Africa

African central banks to close year cautiously

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Over the course of this business week (starts 20 November), central banks of the largest regional economies on the African continent would decide on interest rates. They are likely to keep them unchanged. Even as inflation has been slowing gradually in Nigeria, it remains high. And it is primarily driven by food inflation. Improved agricultural production on the back of a good harvest is expected to moderate prices over time. Besides the authorities are currently marketing a Eurobond that could be as much as $5.5 billion if everything goes well. It is not likely the Central Bank of Nigeria (CBN) would like to be seen making decisions other than ones that are data-dependent. In any case, CBN governor Godwin Emefiele has signalled the benchmark rate would stay pat at 14 percent for the remainder of 2017, with potential cuts next year when inflation would have slowed considerably.

For South Africa, the rand went into a tailspin lately, rising above the psychological 14.0 level for much of the past two weeks, as rumours persist about the desire of the Jacob Zuma-led government to make higher education free, amid well-known financial constraints. With a pliable finance minister at the helm, it is also now widely believed President Zuma has successfully ‘captured’ the Treasury. So even, as annual consumer inflation likely slowed to 4.8 percent in October, from 5.1 percent earlier, it may accelerate in November and December on the back of rand weakness and volatility. The headline would probably be no more than 5 percent by year-end, though; within the 3-6 percent inflation target band of the South African Reserve Bank (SARB). Over a 12-18 month horizon, consumer inflation would probably slow to 3-4 percent, however. Under different circumstances, this could justify a rate cut. However, the November monetary policy committee (MPC) meeting, the last this year and one just weeks before a tense leadership contest in the ruling African National Congress (ANC) party, require the SARB to exercise the utmost restraint. And even as the SARB pretends not to be perturbed by market moves, it does pay attention to the inflationary impact of rand weakness and volatility; and indeed the political noise that tends to be the trigger lately. A balanced outcome would thus be for the benchamark rate to remain unchanged at 6.75 percent.

And for Kenya, ongoing troubles related to a controversial presidential election rerun boycotted by the opposition, mean the Central Bank of Kenya (CBK) would need to continue exercising caution. It has shown much dexterity throughout the impasse thus far, though, as the shilling has remained largely stable. And inflation has been slowing; came out at 5.7 percent in October from 7.1 percent in the prior month. More importantly, inflation expectations suggest the headline would likely come out much lower in coming months; about 4.5 percent in December, say, and plausibly less than zero percent in Q2-2018 due to base effects. Even so, it would be better if it kept its benchmark rate unchanged at 10 percent at this meeting with a view to easing policy when the political situation improves.

Politics, politics, politics
The elective conference of South Africa’s ruling ANC party in December is on everyone’s minds. Mr Zuma’s rhetoric about the preferred candidate by the business community has not been comforting. The president has all but mentioned his deputy, Cyril Ramaphosa, in name when making accusations about the presence of western-backed traitors in the ANC. Judging from his countenance and body language, Mr Zuma is likely to do everything in his power to block Mr Ramaphosa from replacing him. Turns out, though, Mr Ramaphosa is leading in support from the party’s branches, whose delegates to the conference would elect the next party president. Many reckon if Mr Ramaphosa wins, he would move swiftly against Mr Zuma in a bid to replace him as head of state much sooner. Should his rival and Mr Zuma’s ex-wife, Nkosazana Dlamini-Zuma win, however, it is highly probable Mr Zuma would retain his position till it expires in 2019. To further this goal, it is believed Mr Zuma might fire Mr Ramaphosa as deputy president in the coming weeks. Ironically, this could actually boost Mr Ramaphosa’s chances.

In the Nigerian case, all indications suggest President Muhammadu Buhari would be seeking a second term in office; after ill-health hitherto increasingly made it unlikely he would do so. His recent activities point to a full campaign mode. He visited the southeastern part of the country recently; albeit to campaign for his party’s candidate at elections in one of the states there. But that only provided cover for his visit; he seemed reluctant to embrace the region hitherto. He and his aides vehemently deny this, of course. His defence rings hollow in the face of his actions, however. His inner circle is very exclusive. A recently announced ambitious N8.6 trillion budget for next year also has political coloration. Put simply, the political cycle is in full steam. There are thus risks of fiscal slippages as the administration rushes to show it has been doing well. Recently announced plans to appoint more ministers are not necessarily borne out of a desire for efficiency as they are about dishing out patronage. Such behaviour tends to cascade down to lower levels of government, with negative effects for the fiscus.

Leading opposition figure in Kenya, Raila Odinga, who recently returned from an American trip amidst police-induced chaos, has been leading the charge for secession in the western and coastal areas. Political motivations inform the recent ratcheting up of tensions in this regard. Besides, Mr Odinga is advocating the estalishment of a Peoples’ Assembly via a proclamation of parliament, where the ruling Jubilee party, which is averse to the proposal, has a majority. Continued protests and tight security measures have been stifling business activities and would definitely weigh on economic growth in the fourth quarter of this year. A ruling by the Supreme Court on 20 November on petitions about the conduct of the presidential election rerun could either ease or heighten tensions. In the past, the outcome would have been expectedly one that would not cause much disruptions. After a bold landmark ruling cancelling the first poll in August, the court’s judgement could go either way. With such political dynamics about in these key African countries, it makes sense for their central banks to be on guard.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/african-central-banks-close-year-cautiously/

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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/

What next after Zuma fails to shake off corruption charges?

By Rafiq Raji, PhD

A court ruled in mid-October that earlier dropped corruption charges against South African president, Jacob Zuma, in relation to an arms deal almost twenty years ago, could be reinstated. It did not order that they should, though, leaving that to the discretion of the prosecution authorities. Considering how weighty and numerous the charges are, it would be quite bizarre if President Zuma is not subsequently charged to face trial. That would be in an ideal world, however. Only a year ago, a lower court decided that the same charges be reinstated; which Mr Zuma then challenged in the court that recently ruled against him. In some climes, Mr Zuma would have long honourably or dishonourably resigned. After this latest setback, calls have for the umpteenth time been made for him to leave office. It would be out of character for Mr Zuma to yield to those calls, though. There have been at least twelve attempts in court by the opposition Democratic Alliance (DA) party to get the same charges reinstated. After this latest rare defeat for the embattled South African president, the DA has wasted no time in piling on the pressure. If history is a guide, what is more likely is that Mr Zuma would buy as much as time as possible, while he negotiates a soft landing with whoever replaces him as ruling African National Congress (ANC) president in December.

Teflon don
Until the charges were first dropped against Mr Zuma in 2009, after evidence of political interference was found, they represented a major obstacle to his lifelong dream of ruling his country. Having secured the ANC presidency in defiance of the incumbent, Thabo Mbeki, who sacked him as deputy president only four years earlier, the charges of fraud and corruption did not seem to have much utility any longer. But now, 8 years into his 10-year two-term presidency, a court has ruled that “the reasons for discontinuing the prosecution [back then]…do not bear scrutiny”. But would state prosecutor Shaun Abrahams, who is well known for his deference to Mr Zuma, now proceed to charge him? Especially as the DA has given him a 10-day ultimatum? This remains to be seen. In the past, however, Mr Abrahams had been more than willing to do Mr Zuma’s bidding: he brought frivolous charges against former finance minister Pravin Gordhan in 2016, who was feuding with Mr Zuma at the time. Should Mr Abrahams prove to be ballsy, however, Mr Zuma would no doubt stall any potential prosecution for as long as possible. He would also likely be seeking some sort of furtive amnesty deal from any of his potential successors; who except deputy president Cyril Ramaphosa are believed to be mostly his proxies. Incidentally, even those lackeys of his might desire that he leaves the scene after the elective ANC conference in December. Thus, they may use his potential prosecution as leverage. So, the probability that Mr Zuma might leave office in January at the latest is quite high. Even so, it would be short-sighted to think he could not pull some rabbit out of a hat. And if he were perturbed by the unfavourable court judgement, he did not show it: on the day of the verdict, Mr Zuma jetted out to Owerri, a city in southeastern Nigeria to receive a chieftancy title.

More than legal costs
It is believed Mr Zuma’s numerous legal battles have cost taxpayers about R30 million. The broader costs to the economy have been much much more. I recall a conversation with a senior market participant some months ago about how investors might decide to move their money elsewhere should a Zuma lackey succeed to the ANC presidency in December. And if you think about it, why wouldn’t they? They see a president who despite overwhelming evidence of malfeasance against him remains securely in office, a central bank under attack, and a once independent finance ministry now under Mr Zuma’s overbearing influence. But above everything else, it is the political uncertainty on the back of Mr Zuma’s troubles that has been most devastating. A central bank official recently acknowledged the risk of further credit rating downgrades due to the associated policy uncertainty. State-owned South African Airways is a good example of how Mr Zuma’s influence is proving to be costly. The national carrier, which the treasury is perennially bailing out, may have been put in better shape had a harder stance been successfully taken earlier by treasury. With a close associate of Mr Zuma at the helm of the airline, despite repeated calls for her ouster, good money continues to be put to waste instead. To provide a sense of the scale, it was recently suggested Emirati airline, Emirates, which estimated its brand value to be worth US$7.7 billion in 2016, could have easily been acquired with the funds used to bail out the South African national carrier thus far. Little wonder, there is suggestion that should Mr Zuma leave, there could be an incremental pickup in output.

Also published in my BusinessDay Nigeria column (Tuesdays). See link viz. http://www.businessdayonline.com/next-zuma-fails-shake-off-corruption-charges/

What about the 2017 BRICS summit?

By Rafiq Raji, PhD

The BRICS group of five emerging economies (Brazil, Russia, India, China and South Africa) held its 9th summit in the Chinese city of Xiamen this year (3-5 September). Originally just an idea by former Goldman Sachs (an investment bank) executive Jim O’Neill in a 2001 publication dubbed “Building Better Global Economic BRICs”, BRICS countries today constitute almost a quarter of global output. They have not proved to be as inspiring since those heady days, though. Since its first substantive summit in June 2009, only China (GDP: US$11.2 trillion) and India (GDP: US$2.3 trillion) have proved to be consistent good performers, albeit China has since 2015 adjusted to a new normal of below 7 percent growth. India is forecast by the IMF to continue powering on above 7 percent, though; over the next two years, at least, after a 7.1 percent headline in 2016. But that is where the good story ends. Brazil (GDP: $1.8 trillion) only emerged from a 2-year recession (the longest in its history) in the first quarter of 2017. And South Africa (GDP: $0.3 trillion) exited a relatively short-lived one in the quarter afterwards.

Mostly about China
The 2017 meeting was somewhat overshadowed by coincidental negative global geopolitical happenings; top among them being the firing in late August 2017 of an intercontinental ballistic missile (ICBM) over Japan by the communist North Korean regime of Kim Jong-un. China, which consititutes more than 60 percent of BRICS output, was called on by world powers to reign in the North Korean regime, which depends a great deal on it for sustenance. Naturally, the key headline from the final communique was related to the crisis. In any case, BRICS has become a veritable platform for China to project power and influence, as it seeks to have more say in international affairs. (As the second largest economy in the world, China would like the IMF to be more representative of the new global economic order, for instance.) And judging from the paltry US$80 million funding commitment ($76 million for an economic and technological cooperation plan and $4 million for projects by the group’s development bank) China made at this most recent BRICS summit, the group probably serves no greater purpose than that; especially when you consider its US$124 billion funding commitment in May 2017 to its ambitious Belt and Road initiative or so-called new Silk Road plan. (It did pledge $500 million for a South-South cooperation fund, though.) As a counterweight to recent American insularity, China used the occasion to once again make the case for globalisation and climate change; two major global issues the Americans have been reluctant to show leadership on under its current president, Donald Trump. Specifically, Chinese president Xi Jinping posited the group “should push for an open world economy, promote trade liberalization and facilitation, jointly create a new global value chain, and realize a global economic rebalancing”. 

BRICS plus
The 2017 summit had one major distinction though. It was its largest gathering yet, with non-BRICS countries like Guinea, Mexico, Egypt, Thailand, and Tajikistan in attendance as observers. Their presence was informed by a so-called “BRICS-plus” initiative proposed by China, which could see the current 5-member group include more countries, although this was not formalized at the summit. Of course, it is not too difficult to see why Mexico might be interested in more global outreach, as it faces an imminent dissolution of the North American Free Trade Agreement (NAFTA), which if successful would see it lose lucrative market access to America. Considering it is a major campaign promise of President Trump, it is probably only a matter of time before this happens. Mr Trump desires that America get more from NAFTA, which he believes is currently lopsided in favour of neighbours like Mexico. In any case, China indicated it was interested in entering into a free trade agreement with Mexico; in line with a trend where it now increasingly fills the gap left behind by a less-ambitious America. One of the observer African countries, Guinea, got something as well: it secured a US$20 billion loan over about a 20-year period from China in exchange for mining concessions on its bauxite deposits. Structurally, it did not seem like a bad deal, as revenues from projects the loan would fund would be used to service it. They include a planned alumina refinery and two bauxite mine projects. Roads, a power transmission line and a university are other projects earmarked. Still, considering how shrewd the Chinese are, it is not likely the Guineans got the better side of the deal; especially as the Chinese would get to keep any potential gains down the line, often beyond that which could be reasonably valued at the early stages. Like its other international trade and foreign policy initiatives, the ulimate beneficiary of BRICS is China itself.

Also published in my Premium Times Nigeria column. See link viz. http://opinion.premiumtimesng.com/2017/09/08/what-about-the-2017-brics-summit-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/

A critique of Mandela’s legacy

By Rafiq Raji, PhD

Whether in mining or banking, the structure of the South African economy still bears great resemblance to that of the apartheid era. Mostly black miners take trips deep down into the earth via thin shafts, while their mostly white counterparts stay atop or wear clean shirts to offices on well-manicured grounds with vistas still as beautiful as they were when they first fell in love with the country. If the new mining law, now suspended, asks that blacks own in perpetuity, a 30 percent stake in all mines, is that so unreasonable? Maybe the minimum 1 percent of turnover compulsory distribution to host communities requires a rethink; using another variable, like profit, could be problematic, however; because it could be manipulated. It could be made due only after unavoidable business expenses, though. Asking that half of new prospecting rights be black-owned is not unjustifiable either. In any case, what is the alternative? If the status quo is allowed to continue, a more radical approach would be adopted further down the line. The ultra-nationalist Economic Freedom Fighters (EFF) opposition party would nationalise all mines (and banks) if it ever got to power certainly. Of course, the mining companies may not mind buying more time to sweat their assets faster under the current lopsided terms: only about 38 years in gold reserves are believed to be left, albeit there is at least two centuries worth of platinum reserves yet untouched. So on balance, there is much to be gained and lost by both sides.

Best to concede a little more now
Even so, it is probably wiser for the industry not to allow things deteriorate to that extent. So even as their resort to the courts have secured them a quick-win, with mines minister Mosebenzi Zwane suspending the implementation of the new law pending when the courts decide on the matter, they would be better served by making some concessions to the government. It is unfortunate, of course, that someone with President Jacob Zuma’s tainted credibility happens to be the one championing the black cause. Like Zimbabwe’s Robert Mugabe before him, his selfish motive is writ large. Had that person been Nelson Mandela, no one would have the temerity to challenge such a move. Such was President Mandela’s stature and power. With lesser beings now floudering at the helm, many argue Mr Mandela could have done much more. Because now a black South African with that kind of influence is not likely to emerge again in our lifetime. (Just like India is not likely to produce another Mahatma Gandhi.) The conditions that create such mythical figures only occur generations at a time. And rarely is a later champion ever able to fill in the shoes of earlier heroes. So with the benefit of hindsight, Mr Mandela should have paid as much attention to economic freedom as he did the political one. Some might say he was constrained somewhat. This is doubtful. The apartheid regime only caved in because it had no choice. Mr Mandela could have pushed harder.

So as the world marks another Mandela Day (18 July), black South Africans must reflect on the future they want for their country. Their reality is what it is. But if they think deeply, they would see how fortunate they already are. White South Africans can be accommodated, allowed to continue thriving in tandem with a similarly successful black population. The key is to find that optimal policy mix that allows both sides get almost all they want without totally alienating the other. Securing more economic power for blacks does not necessarily have to be an entirely zero-sum game. Without some forceful correction of the country’s currently unjust economic structure, however, whatever progress that is made while it subsists would eventually unravel, when an even more impoverished black majority decides they have had enough. Still, no matter how much economic power black South Africans snatch from their erstwhile oppressors, it would be meaningless if most remain underskilled or as is depressingly still the case for a lot, unskilled. Europeans realised a long time ago that it would be far more profitable to give control of primary resources to their former colonies if they could almost exclusively be the ones to add more value to them and subsequently sell them back at premia that dwarfed whatever value the raw materials ever had. So when it seemed like the colonialists had finally accepted reason by succumbing to agitations for independence those long years ago, they were actually motivated by the realisation that what would replace their repression could be even more lucrative. And without any of the bad press.

Not too late
But this is no secret, or excuse in fact: Asians managed to unshackle themselves regardless, rising to levels that African countries they were hitherto at or below par with now only dream of. Without a doubt, African leaders, past and present, are especially guilty for their countries’ frustratingly floundering evolution. For sure, there were foreign enablers. But principally, Africans are primarily responsible for the story state of their affairs. It would be most saddening if all the suffering that Mr Mandela and his people endured for all those long years turns out to be all for nothing. But that is what it would be if all that the black majority achieves is the expropriation of brick and mortar from their erstwhile oppressors without the skills to maintain and enhance them, and innovate new ones. Zimbabwe is the perfect example of how a senseless economic nationalism is almost a sure step to even more bondage. While that country continues to struggle since the selfishly motivated act by Mr Mugabe, the expelled whites have since found fortune elsewhere. A subsequent reversal by Mr Mugabe after much loss is evidence of the error. To that extent, Mr Mandela had some foresight in making what now seem to be overly generous concessions to the apartheid government. His pragmatism was suitable for his time. A new one is required today.

Also published in my Premium Times Nigeria column (19 Jul 2017). See link viz. http://opinion.premiumtimesng.com/2017/07/19/the-mandela-legacy-the-costs-of-not-pushing-hard-on-economic-freedom-by-rafiq-raji/