Interview: Donald Kaberuka, African Development Bank President


The Africa Report: What are Africa’s prospects given the world economic situation?


?Donald Kaberuka: Economic growth for Africa will be at the maximum 4.5%. My colleagues at the IMF are putting the figures at below 4%. We are experiencing a fast-evolving situation and I’m sure that the numbers will be revised in the next three months. But we are concerned about the burst in the commodity bubble – all commodities. We are concerned by the decline in investment and the contraction of the private sector and what that means for macroeconomic balances.?


Which sectors do you think will be worst hit?


?The sectors which will be affected the most will be those which depend on international demand – minerals, oil, soft commodities and tourism. The second sectors which will be affected are those which are beginning to attract significant investment – this is mainly infrastructure, power generation, road construction and so on. But there is something in economics we call the ‘backward loop’ which means that once we have the key sectors of the economy contracting, then they impact on the financial system and a vicious circle begins. So I fear that the contraction of the real sectors of the economy could also affect the stability of the financial system, as companies are no longer able to service their loans and so on.?


What can the AfDB do to help weather the effects of the crisis??


Number one, we need to accelerate resource transfers so that money goes to projects and to countries quickly. President Ellen Johnson Sirleaf said that it is good to have all these resources but that we need to accelerate their transfer. Secondly, it is important to allow trade to continue functioning. Trade finance has dried up and we are putting in place a trade-financing facility for banks and exporting and importing houses to continue financing trade. Thirdly, we need to set up an emergency liquidity facility for institutions which may face a liquidity problem or companies that may wish to terminate projects because there is no liquidity. And fourthly, we should mobilise additional resources by developing quickly the continental markets so we can give fluidity to regions with excess reserves to assist regions with less reserves, for the benefit of both.?


What effect do you think that the financial crisis will have on the stability of African currencies, and how will this affect trade?


Already, the crisis is affecting us through equities, export revenues, and to some extent, currencies. As external revenues decline, our balance of payments position will weaken and, of course, currencies will depreciate. We don’t have enough reserves to defend our currencies if they are under strain. If you take the whole of Africa together, our foreign reserves are less than $400bn. Now that is less than Norway, one country of 4m people. This shows you the limited capacity of African countries to intervene in the markets if our currencies are under strain. So I hope that we can manage.


Back to Finance, The taps of credit run dry

Finance: The taps of credit run dry

Real import growth

As African credit markets begin to dry up, companies and governments anticipate a difficult year ahead


Interview: Haile Gebrselassie, Ethiopian long-distance runner


The Africa Report: How much of Ethiopian athletics’s popularity is due to your success??Haille Gebrselassie


Haile Gebrselassie: People can see how I became successful. Everybody knows what I do outside running and can see the benefits of my businesses: the buildings, schools and everything. And then they think, “Oh, there is a possibility,” and they follow.?


You invest all your money in Ethiopia. Why?


?First of all, Ethiopia is my country. I was born here. I want to die here. And secondly, indirectly, because [when] I invest the money I have won in Europe or America or wherever, people can see what I am doing. Everybody knows that I have an opportunity to invest my money anywhere, but I invest here. But we need to do more, something else, something different, something which is important for many Ethiopians.?


You have built a school in the village where you were born. How has your village changed?


?When I studied, my school was 10 km away. Now the kids in my village, they don’t need to walk 10 km, the maximum is 5 km, which means it’s improving. In the village itself, there has been a lot of change: it is improving and it’s growing. But, the question is, is that enough? My answer is no, not yet. ?You cannot do anything without education, without teaching people, without showing them how to work. If anyone thinks that it is possible without education let him forget it. ?


What have been your best moments in athletics??


My best race was in 2000 in Sydney, between myself and Paul Tergat. We were very close to each other [only 0.09 seconds separated them]. That was the best race I ever ran. And if you ask me how many – maybe 27 world records, two Olympic Games, four world championships another four indoor world championships, and so on – it’s a lot. But my last race [in Berlin] was also one of my biggest achievements: I broke the world marathon record at 2 hours 3 minutes and 59 seconds.?


Do you regret not competing in the marathon in Beijing??


No, not at all. How would it have been possible for me to break the world record in Berlin if I had done that? But one thing I want to do is to win a marathon at the Olympic Games.


?In London??


That is what I’m thinking.?


And do you think you will still be running then??


Why not? Do you think I am old??


Well you are getting faster and faster.


?I am, yes. Look, I am 35 but I feel like 20.


Back to Athletics, Valuing life in Addis Ababa

Interview: Oyama Mabandla, Executive Chairman, Vodacom, South Africa


South Africans are adjusting to the new world prices for their minerals and the sudden reluctance of the banks to extend credit. If life is not going to get easier soon in the manufacturing sector because of Chinese dominance, the service sectors should propel the economy through the worst of it, with telecoms leading the charge


Oyama Mabandla ?is Non-executive Chairman of Vodacom and Executive Chairman of Langa Group, an investment holding company, South Africa


The Africa Report: How did the financial slowdown affect the operations of African companies in 2008, and what are the prospects for 2009??


Oyama Mabandla: In South Africa, we are seeing mergers and acquisitions drying up. You can’t get debt now from banks to do anything. The credit markets are on holiday. Some of the expansion that was under contemplation – that is southern companies going northwards – is slowing down. ?

 SA top 500 performers

Are the banks’ problems due to the global financial slowdown or to the internal dynamics in South Africa??


Both. The slowdown in debt provision has been happening since the latter part of 2007, ending up with the global contagion. Banks are conserving their firepower. This should be a buyers’ market because assets are cheaper, but nobody has the money because banks won’t lend. South African banks are very conservative. And the Africans who were looking to China as an alternative to the West didn’t think that China is also risk-averse. Chinese companies were among the first to leave the Democratic Republic of Congo. ??


Will telecoms fare better than other sectors in the slowdown?


Analysis of the Top 500 companies in Africa 2008

Search our interactive Top 500 ranking

?Indeed. The view is that we make money no matter what. At the lower end people may use our services less, but you’re going to see companies picking up on our other products. We are getting into data services in a big way, investing in new infrastructure.


??Looking at the Top 500 companies, is African manufacturing growing or contracting?


?Our manufacturing sector has eroded with the emergence of China. Our textile industry has been decimated. I’m certainly not seeing new industries strengthening in South Africa. What we’ve seen in South Africa of course is the emergence of ICT, and our banks remain very strong.??


South Africa dominates the Top 500 companies. Do you see any changes in the economic drivers there?


It’s mines and services, financial services, telecommunications services. Sasol – the coal-to-oil plant – is an exception; it’s become stronger in the last ten years. You have a lot of ICT companies in South Africa, such as Datatec. Most of the companies are extractive, and our retail sector – Shoprite, Pick ’n Pay, Spar – is very strong. They’ve grown in the last ten years with forays into Africa and the Middle East.??


With low growth and tighter credit, will the service sectors be squeezed? ?


Absolutely. But people have to eat. Food companies, especially those that have diversified, like Tiger Brands and Shoprite, are doing well, but Woolworths has stumbled. ??


And the banks? ?


Standard Bank is in a pretty strong position, largely because of Chinese investment, and they’re just a very well-run bank. First Rand group have some difficulties; they’ve closed down their international private-equity business. Absa is in robust health, as is Nedbank. Investec bought some toxic assets, but it’s a small bank so it hasn’t caused ructions. If you’re looking at the top four, three of them are in reasonably good health. On the insurance side, Old Mutual is in trouble – their US operation has been decimated and their share price has collapsed – but Sanlam is robust.


??When will commodity prices rise again? ?


With things like platinum, it will depend on the emergence of the North American auto industry from recession. We’re not going to see any recovery within 18 months.

Domestic demand to square the circle


Easing pressures on the African consumer could mitigate the worst of the downturn, as credit dries up and commodity prices recover slowly


Raising finance for expansion or mergers and acquisitons will get much harder for African companies this year. As the Chairman of South Africa’s Vodacom, Oyama Mabandla, told The Africa Report: “The credit markets have gone on holiday.”

Top 500 Companies in Africa

Search our interactive rankings


?This tightening of credit is a direct consequence of the US’s financial meltdown last year; the indirect results of the slowdown, such as falling commodity prices and dwindling foreign investment, will hit African companies more gradually over this year. Both foreign portfolio and direct investment will slow down sharply. Already, portfolio investors and foreign fund managers have pulled out of markets such as Nigeria, South Africa and Uganda. ?


The continent’s non-correlation with world markets works on the way down as well as the way up. Matthew Pearson, head of Africa equity research at Renaissance Capital, explains Ecobank’s recent failure to raise money on the international markets thus: “Why would a fund manager bother with a Togolese-based bank, when he has Morgan Stanley available at a knockdown price?” ?


The news is not all bad. Commodity prices may have tumbled, but if 2008 was an aberration due to speculation following a weakened dollar, some believe that prices should return to levels seen in 2006 by the end of this year. A lot of the money that poured into Africa played on this commodity boom, says Kenyan investor and analyst Aly-Khan Satchu. “We’re going to see a sharp slide in that slam-dunk money…a lot of that money will look for a different type of home. The balance in Africa is moving away from the commodity producers to the consumers.”


?African companies are generally not over-borrowed. Though they may have been criticised for their conservatism about credit, they are probably thankful for it now. They have also benefited from the near ten-year growth spurt in many parts of Africa, which has created a denser web of smaller companies, the supplier network for the titans who make up our Top 500. This stronger, more diversified business ecosystem is being driven by and helping to drive domestic demand, an increasingly important force. Top 500 turnover by sector and country


?Over the last ten years, the service sector has been the beneficiary, as our rankings of Africa’s Top 500 companies makes clear. Although the Western consumer may be in reverse gear, the African consumer will have a great deal of inflation relief from receding oil and food costs, the latter making up half of household spending, freeing discretionary funds for telecoms, travel and retail.?


The construction boom is a vital part of this new domestic demand economy. Though construction may slow as credit tightens, the slack will be taken up by government infrastructure investments and Africans in the diaspora with their own housing projects. This will help those oil-rich countries sitting on comfortable foreign-exchange reserves, such as Nigeria and Algeria, but applies across the board and may even create some jobs.


?It is too early to tell where the bigger players in Africa will try to recoup their losses. The prospect of stagnating domestic demand in more industrialised countries such as Egypt could cause these investors and companies to focus regionally or in Sub-Saharan markets. ?


They will watch and wait, says Tamer Hafez, contributing editor at Business Today Egypt. “I really do believe that for Egyptian companies 2009 will be a year of consolidation and rigorous monitoring of what is happening in the EU and US markets.”?


Not an imaginary slump


?Any company exporting to the West will face a real slump in income, but mostly in the higher-end manufacturing and services sectors. Though there may be less demand for call centres in Morocco and Tunisia, North African fruit and vegetable exports to Europe, for example, should be spared. The textile sector will gain from European companies relocating to the Maghreb to take advantage of the cheaper workforce. Arezki Daoud, editor of the North Africa Journal, says that companies have to be creative if they want to crack the US market: “The survival and the success of the textile industry will depend on the ability of the Moroccans and Tunisians to be aggressive competitors.”


?Looking closer to home may be the answer in East Africa, where cross-border business within regional groupings (such as the East African Community) will seem more attractive. “This is a high-growth, super-growth curve,” says Kenya analyst Satchu. “One’s got to look at it regionally, and the region is the Swahili sphere.” ?


What our rankings show most clearly is the growing diversity of economic activity in several countries. Growth in Africa should outperform other parts of the world, except East Asia. Take Mozambique’s Mozal. A few years ago it was just on the drawing board, but now it ranks high in the continent’s Top 100 companies, a powerful reminder of the recent, rapid and successful diversification of whole economies.?


Constant diversification explains the ever-growing economic weight of Algeria, Egypt, Morocco and South Africa, but it is also becoming an important factor in regionally-important countries like Cameroon, Côte d’Ivoire, Ghana, Kenya and Nigeria. In all cases, the new elements are dynamism, bold investment, smarter management and heightened competition. ?


Despite the political problems, Kenya’s economy has bounced back much faster than expected: both its business and political class appear to be propelled by self-interest in their efforts to shore-up the grand coalition government. Diversification – tea, coffee, light manufacturing, ICT and financial services as well as tourism – was the other secret of Kenya’s resilience. As prices for Kenya’s key commodity exports remain in the doldrums, the ingenuity of its businessmen will be tested again.?


Interview: Oyama Mabandla
Non-executive chairman of
Vodacom, South Africa

The crashing oil price may not be all bad news for Nigeria if it boosts efforts to develop the indigenous and more productive areas of the economy. With its internal market of 140m people, Nigeria offers great economies of scale to companies that can find a way around the still-chronic problems with electricity, water and traffic jams.


?Nigerian companies have already been hit by their own mini-credit crunch. This year will be tough for Nigeria’s stock exchange and financial sector, and many predict a further involuntary consolidation of the banking sector before the end of the year. ?


In contrast to the political plaudits offered to Ghana in the wake of another free election and peaceful transfer of power, investors will be taking a much more critical look. President John Atta Mills’s new government starts the year with two ballooning deficits – the budget and the current account. But there are two bright spots for Ghana’s key exports: financial-system worries have driven up the gold price, and cocoa prices are at a 30-year high, buoyed perhaps by casualties of the slowdown who find solace in increasing their chocolate consumption.

Nigeria/China: Satellite upsets a friendship made in heaven


After an over-enthusiastic first fling China’s commercial overtures ?to Africa’s rising economic giant are running into difficulties in many sectors


Two showpiece contracts of the Nigerian-Chinese relationship have gone spectacularly awry in the last few months but, in time, no doubt these will be put down to teething problems of a new trading partnership that has taken firm root and is beginning to blossom.


?The first bombshell came in October when the Nigerian government suspended and then terminated an $8.3bn contract with the China Railway Construction Company (CRCC) for the modernisation of Nigeria’s dilapidated North-South railway system.


?Fate then intervened on 10 November, when Nigeria’s first-ever communications satellite, NigComSat-1 – which had been launched with much fanfare by China in May 2007 at a cost of $257m – suffered a sudden solar panel failure and electrical breakdown.


Out of orbit


?Nigeria’s prestige and national pride are at stake in the satellite project and so the government of President Umaru Yar’Adua could yet be persuaded to move ahead with the planned launch of two more satellites at a cost of a further $500m. But, cautious as ever, the government has not rushed to approve the disbursing of the appropriate concessionary loan from China Exim Bank.?


The Yar’Adua administration’s wariness of taking on large debts to China is understandable given its concern that the cancelled rail project – which had been forced through by the government of ex-President Olusegun Obasanjo days before the November 2006 China-Africa Summit in Beijing – did not meet basic standards of due diligence.?


The sheer haste with which the rail contract was awarded illustrates the extent to which some Chinese firms – convinced that they had the sustained support of both governments – were ready to risk getting their fingers burned. In earlier negotiations with international finance institutions over the railway project, the IMF is said to have asked for documents the size of a New York telephone directory. But when the CRCC came in, within a fortnight it had negotiated the very same project in its entirety.?


With Nigeria’s banks rather than its government now putting out the welcome mat, the Chinese are busier than ever. Leading the way on the Nigerian side, First Bank has signed a $2.4bn joint venture with China’s Shenzhen Energy Group (CSEG) to build a 3,000 MW power plant and an agreement on a $500m free trade zone in Ogun State. First Bank also has deals with textile manufacturer Yuemei Group and China Construction Bank. Another leading Nigerian bank recently advertised for Mandarin-speaking marketeers to target more Chinese businesses.?


Tricks of the trade


?Ngozi Okonjo-Iweala, the former Nigerian finance minister now at the World Bank, thinks Nigeria can learn some tricks from Chinese businesses. She said: “China knows poverty first hand and has evolved a successful wealth-creation formula that it is willing to share with African nations, Nigeria included.”


?With over 40 companies now wholly-owned or in partnership with Nigerians, China’s business expansion in Nigeria has been spectacular. Its firms have built the multi-billion dollar Sportsmen Hostel of the National Stadium in Abuja, the Nigerian Telecommunications Commission headquarters, an important link road in Lagos and have the contract to repair the Apapa-Oshodi Expressway. China Exim Bank has been involved in financing Nigerian power stations like Omotosho and Geregu. China National Offshore Oil Company has an offshore oil production stake valued at $2.3bn.?


One of the rites of passage for foreign investors in Nigeria is having their expatriates kidnapped. After Chinese construction workers were hijacked recently in Anambra State, analyst Jegede Kayode, told The Africa Report: “The kidnapping doesn’t signify a backlash against Chinese interests; expats are generally being kidnapped daily in that region of Nigeria.” Kayode runs Afrobridge Consulting, which brokers business between Nigeria and China. “In 18 months I have doubled my staff strength both in Nigeria and in Beijing,” he said.?

 2008 headline Chinese deals

Sinoma International Engineering ?
Amount: $1.6bn MOU

?Nigeria’s Dangote Group and China’s Sinoma International
Engineering signed a $1.6bn memorandum of understanding
to install ultra-modern cement manufacturing plants to raise
Dangote’s cement output in Nigeria to 26.5m tonnes a year.
However, in December 2008, the size of the deal was cut back
to $690m, while plans to build new plants elsewhere in Africa
were also temporarily suspended.

Shenzhen Energy Group ?Amount: $2.4bn?
A $2.4bn joint venture between China’s Shenzhen Energy Group
(CSEG) and First Bank to build a 3,000 MW gas-fired power plant.
The location has not been specified.?
Guangdong Xinguang International China-Africa Investment ?
Amount: $500m?

Ogun State Free Trade Zone, a $500m agreement between First Bank
and Guangdong Xinguang International China-Africa Investment.
Chinese firms are also constructing the Lekki Free Trade Zone in
Lagos State.


One of the most high-profile Chinese entrepreneurs in Nigeria is Pamela Wu, who has fully accepted Nigeria’s ‘bring your own infrastructure’ business environment and has thrived in a difficult climate to build up Big Treat Plc, Nigeria’s largest confectionery group. She combines business with rounds of golf at the prestigious Ikeja Golf Club.


?The numbers of Chinese resident in Nigeria are a matter of conjecture, but are thought by analysts to have risen from only 6,000 in 1992 to at least 75,000 now. An official at Nigerian Immigration Services told The Africa Report: “We have heard stories of some Chinese illegals living inside their factories and never coming out, but we are on alert.” And the illegal immigration flows both ways. Guo Kun, China’s consul-general in Lagos recently said his visa section was having a tough time verifying documents because “Nigerian businessmen put forward bogus letters of invitation for business” in China.?


From pak choi ?to pullovers?


Chinese are heavily represented in the retail sector. Etudor Akpan, a manager at a Chinese restaurant in Apapa, Lagos, said: “In the last six months I have sourced workers for at least four new Chinese restaurants opening in Apapa alone. These people mean business here in Nigeria.” At Gatankowa Fairly Used Goods Market in Abule-Egba, a few kilometres outside Lagos, Chinese traders sell used textiles on the road. In the Ojota area of Lagos, there is a Chinatown market built in the traditional Chinese style; it was shut down last year because Nigerian custom officials alleged that the Chinese were smuggling goods into the country, but this was resolved amicably and more such sites are planned across the country.


?At a factory in the Adeniyi-Jones area of Ikeja industrial estate in Lagos, a Chinese manufacturing firm, Amigo Hair Attachment Products, was found to have employed hundreds of Nigerian under-age children in a new sweatshop labour racket. And the Nigerian National Agency for Food and Drug Administration Control recently sealed up a Chinese dairy company in Lagos which had imported the unsafe baby milk that had killed babies in China.

Hard falls for soft beans in Uganda


Uganda’s coffee sector, whose leaders launched a campaign two years ago to arrest a decade-long fluctuation in production, faces yet another test – the ripple effects of the global financial crisis. The price of coffee fell by 30% in the last five months of 2008, with a tonne trading at $1,700 in December. The fall hit farmers hard, coming in a season when Uganda, Africa’s second biggest coffee grower after Ethiopia, registered a 34.1% rise in the volume shipped out.?


Some coffee farmers, like Hassan Kakooza from Masaka, a district on the shores of Lake Victoria, have responded by holding on to their coffee in anticipation of better fortunes early this year. “As of now, I am on standby,” he told The Africa Report.?


Analysts at the Uganda Coffee Development Authority (UCDA) expect the price to fall further before it picks up, in part because the volume of coffee continues to rise. “Some farmers tried to hold on to their coffee,” said UCDA information manager David Kiwanuka, “but prices have continued to go down.”


?“Two years ago we initiated a coffee-production campaign aiming at reviving coffee production to 270,000 tonnes by the year 2015,” said Fred Luzinda Mukasa, UCDA’s head of finance. Production dropped to an all-time low of 120,000 tonnes in 2005/06, but totalled 192,640 tonnes in 2007/08 thanks to the campaign, which focused on research to produce disease- and drought-resistant varieties, easing access to inputs and credit facilities, and mobilising farmers into groups to reduce the number of middlemen.


Back to Commodities, Wobbles in the Supercycle

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