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Zuma's targets: jobs and services

After his overwhelming victory in the April elections, Jacob Zuma has chosen a cabinet that balances pragmatists and technocrats with radicals and loyalists but it will need to act quickly on the main issues to meet voter expectations

 


 

Appointing a cabinet of pro-market technocrats, communists, trade unionists, black millionaires and right-wing Afrikaners in the middle of a global economic catastrophe requires optimism and confidence in one’s leadership abilities. New President Jacob Zuma, who has come back from the political and legal brink to give the African National Congress (ANC) its fourth overwhelming electoral victory, has established himself as a far shrewder political operator than his many critics had suspected.

 

The daunting challenge facing the new cabinet is the full force of the global recession which has already pushed South Africa’s economy downwards after its best growth performance for over four decades. Despite this, voters expect the ANC to create jobs, cut widespread violent crime and expand the social provisions that have made South Africa one of the more generous states in the developing world. Zuma will be under less political pressure than before the election. The time for the left to extract firm commitments in exchange for electoral help is over. The ANC’s good showing suggests that it remains a broadly-based organisation. Maintaining the ANC’s occupation of the political centre makes good sense to the new man in charge.

The man and his allies

 

Profiles of Zuma's new
team incluidng Tokyo Sexwale,
Siphiwe Nyanda and
Zwelinzima Vavi.
Read more. 

 

 

Despite his social agility – bantering with the shack dwellers of KwaZulu-Natal or company bosses in Sandton – Zuma’s real persona remains as enigmatic as that of his predecessor. Getting his political education from some of the sharpest activists in the movement, Zuma knows how to balance people and politics. Too much has been made of his antipathy to the regime of Zimbabwean President Robert Mugabe, which pleased British Premier Gordon Brown so much. Zuma’s promise of a big political tent and tolerance of dissent won media plaudits but will be tested when the government faces its first crisis.

 

Room under the big tent

 

Zuma’s cabinet choices signal policy continuity rather than a big shift leftwards. To accommodate the range of views and interests, Zuma has increased the size of the government to 34 ministers and 28 deputy ministers. The ANC’s take of just over 65% of the votes with 77% voter turnout suggests people are more satisfied with the government’s performance than many commentators had thought.

 

Like his predecessors, Zuma has a plan to overhaul government: “I’m confident the new structures of government will enable the state machinery to speed up service delivery”, he said just after his inauguration on 9 May. “We reiterate that we will not tolerate laziness and incompetence and that we will emphasise excellence and achievement from the cabinet and public service.”

 

The engine room of the Zuma cabinet is the new Planning Commission, which is headed by former finance minister Trevor Manuel and based in the presidency. Manuel is in the strange position of being both very popular in the party – he came third in the ANC’s internal elections – and respected as a technocrat by the markets. Knowing that he is seen by the left as a ‘capitalist-roader’, Manuel has played his relationship with Zuma carefully.

 

Both seemed satisfied with the outcome. Zuma has got the presidential powers over policy and the ministers that he wanted. Manuel has won an important new post – he is effectively prime minister – and a leading role in shaping the country’s economic development after more than a decade as finance minister.?

 

Manuel’s record in finance and the impressive team he built there means that the Planning Commission is unlikely to be hamstrung by bureaucracy or patronage. Moving into Manuel’s old job is Pravin Gordhan, whose tenure at the national tax authority sharply increased revenues and corporate accountability.?

 

Powers of persuasion

 

?The third element of this trio is the new vice-president Kgalema Motlanthe, who had been interim President since Thabo Mbeki’s ousting last September. Although Motlanthe had wanted to leave government for a party or research post, Zuma prevailed upon him to stay. Unlike in many countries, the vice-presidency can be an important job in South Africa, as Mbeki proved during Nelson Mandela’s time at the helm.?

 

What the election means

 

How the parties will settle.
Read more.

Zuma’s allies in the South African Communist Party (SACP) and the trade unions had to be rewarded. The SACP wanted its secretary-general, Blade Nzimande, to be foreign minister. But Nzimande is better qualified for the education portfolio – he was an excellent chair of the parliamentary education portfolio committee – and Zuma has made him minister of higher education and training, in charge of the colleges and universities which have thrived in the post-apartheid era, unlike primary and secondary schools. ANC ultra-loyalist Angie Motshekga, minister of basic education, will have to handle a very troubled portfolio.?

 

The appointment of Rob Davies, an effective and conscientious MP, to the trade and industry portfolio has been applauded. As a liberal SACP member, Davies is not a natural free-trader, but his scepticism is shared by many in South African business. The other SACP appointee, Jeremy Cronin, also a hard-working MP, gets the deputy transport portfolio, also without causing jitters. ?

 

The trade unions drew up a shopping list of positions they wanted and have pronounced themselves satisfied with the result. Both Gordhan and the new minister for economic development, Ebrahim Patel, are former trade unionists, although neither are firebrand radicals. Trade unionists have good track records as ministers in ANC governments; some are already joking that if Zwelinzima Vavi, the general secretary of the Congress of South African Trade Unions, gets too critical of the Zuma government, he will be offered a powerful post within it.?

 

Still balancing, Zuma managed to keep his ex-wife, Nkosazana Dlamini-Zuma, by appointing her to his cabinet (after she switched loyalties away from former President Mbeki) and posting her to home affairs, possibly the toughest portfolio, with its history of corruption and inefficiency.

 

?The other main cabinet appointments – Zuma’s business backer Tokyo Sexwale to the ministry of human settlements (the renamed housing ministry), old intelligence comrade Lindiwe Sisulu to defence, ministerial survivor Jeff Radebe to justice – are equally even-handed.

 

?The idea of appointing a right-wing Afrikaner – Pieter Mulder, leader of the Freedom Front Plus – to deputy minister of agriculture looks either inspired or crazy. Mulder will have to tackle two of the toughest issues: the painfully slow process of land redistribution from whites to the black majority and the growing number of killings of white farmers.?

 

Even with a strong and diverse cabinet team, many risks will confront the Zuma era, the most important of which is that the slowdown in econmic performance will heighten social divisions. This raises questions about whether Gordhan, with Zuma’s blessing, might cave into trade union pressure and begin to encroach upon the Reserve Bank’s independence. ?

 

Old wine, Zuma’s bottles

 

?The most probable outcome is that there will be more Mbeki-style centrism, incremental reform, patchily administered, with pockets of real progress balanced by areas of retrogression. ?

 

The government will dress up existing programmes in new language and expand temporary public-works-type employment, but overall, public expenditure will absorb roughly the same share of GDP as before. There will be a more affable and not so racially-edgy leadership, but it will be even less predisposed than its predecessors to check venal behaviour within the party and within the public service. It will be even less attentive to human rights than Mbeki’s administration, certainly with respect to the rights of suspected criminals and prisoners. Zuma’s tough line on crime is one vein in his discourse on which he enjoys approval across the spectrum. ?

 

President Zuma and his centrist allies interpret the outcome of the election as public satisfaction. If the choice is between disappointing the left but maintaining policy continuity, or alienating businesses and the middle classes through significant and sudden policy shifts, Jacob Zuma will opt for the former course.

 

 

Zuma's targets: jobs and services

After his overwhelming victory in the April elections, Jacob Zuma has chosen a cabinet that balances pragmatists and technocrats with radicals and loyalists but it will need to act quickly on the main issues to meet voter expectations


Appointing a cabinet of pro-market technocrats, communists, trade unionists, black millionaires and right-wing Afrikaners in the middle of a global economic catastrophe requires optimism and confidence in one’s leadership abilities. New President Jacob Zuma, who has come back from the political and legal brink to give the African National Congress (ANC) its fourth overwhelming electoral victory, has established himself as a far shrewder political operator than his many critics had suspected.

The daunting challenge facing the new cabinet is the full force of the global recession which has already pushed South Africa’s economy downwards after its best growth performance for over four decades. Despite this, voters expect the ANC to create jobs, cut widespread violent crime and expand the social provisions that have made South Africa one of the more generous states in the developing world. Zuma will be under less political pressure than before the election. The time for the left to extract firm commitments in exchange for electoral help is over. The ANC’s good showing suggests that it remains a broadly-based organisation. Maintaining the ANC’s occupation of the political centre makes good sense to the new man in charge.

The man and his allies

Profiles of Zuma's new
team incluidng Tokyo Sexwale,
Siphiwe Nyanda and
Zwelinzima Vavi.
Read more.

Despite his social agility – bantering with the shack dwellers of KwaZulu-Natal or company bosses in Sandton – Zuma’s real persona remains as enigmatic as that of his predecessor. Getting his political education from some of the sharpest activists in the movement, Zuma knows how to balance people and politics. Too much has been made of his antipathy to the regime of Zimbabwean President Robert Mugabe, which pleased British Premier Gordon Brown so much. Zuma’s promise of a big political tent and tolerance of dissent won media plaudits but will be tested when the government faces its first crisis.

Room under the big tent

Zuma’s cabinet choices signal policy continuity rather than a big shift leftwards. To accommodate the range of views and interests, Zuma has increased the size of the government to 34 ministers and 28 deputy ministers. The ANC’s take of just over 65% of the votes with 77% voter turnout suggests people are more satisfied with the government’s performance than many commentators had thought.

Like his predecessors, Zuma has a plan to overhaul government: “I’m confident the new structures of government will enable the state machinery to speed up service delivery”, he said just after his inauguration on 9 May. “We reiterate that we will not tolerate laziness and incompetence and that we will emphasise excellence and achievement from the cabinet and public service.”

The engine room of the Zuma cabinet is the new Planning Commission, which is headed by former finance minister Trevor Manuel and based in the presidency. Manuel is in the strange position of being both very popular in the party – he came third in the ANC’s internal elections – and respected as a technocrat by the markets. Knowing that he is seen by the left as a ‘capitalist-roader’, Manuel has played his relationship with Zuma carefully.

Both seemed satisfied with the outcome. Zuma has got the presidential powers over policy and the ministers that he wanted. Manuel has won an important new post – he is effectively prime minister – and a leading role in shaping the country’s economic development after more than a decade as finance minister.


Manuel’s record in finance and the impressive team he built there means that the Planning Commission is unlikely to be hamstrung by bureaucracy or patronage. Moving into Manuel’s old job is Pravin Gordhan, whose tenure at the national tax authority sharply increased revenues and corporate accountability.


Powers of persuasion


The third element of this trio is the new vice-president Kgalema Motlanthe, who had been interim President since Thabo Mbeki’s ousting last September. Although Motlanthe had wanted to leave government for a party or research post, Zuma prevailed upon him to stay. Unlike in many countries, the vice-presidency can be an important job in South Africa, as Mbeki proved during Nelson Mandela’s time at the helm.


What the election means

How the parties will settle.
Read more.

Zuma’s allies in the South African Communist Party (SACP) and the trade unions had to be rewarded. The SACP wanted its secretary-general, Blade Nzimande, to be foreign minister. But Nzimande is better qualified for the education portfolio – he was an excellent chair of the parliamentary education portfolio committee – and Zuma has made him minister of higher education and training, in charge of the colleges and universities which have thrived in the post-apartheid era, unlike primary and secondary schools. ANC ultra-loyalist Angie Motshekga, minister of basic education, will have to handle a very troubled portfolio.


The appointment of Rob Davies, an effective and conscientious MP, to the trade and industry portfolio has been applauded. As a liberal SACP member, Davies is not a natural free-trader, but his scepticism is shared by many in South African business. The other SACP appointee, Jeremy Cronin, also a hard-working MP, gets the deputy transport portfolio, also without causing jitters. 


The trade unions drew up a shopping list of positions they wanted and have pronounced themselves satisfied with the result. Both Gordhan and the new minister for economic development, Ebrahim Patel, are former trade unionists, although neither are firebrand radicals. Trade unionists have good track records as ministers in ANC governments; some are already joking that if Zwelinzima Vavi, the general secretary of the Congress of South African Trade Unions, gets too critical of the Zuma government, he will be offered a powerful post within it.


Still balancing, Zuma managed to keep his ex-wife, Nkosazana Dlamini-Zuma, by appointing her to his cabinet (after she switched loyalties away from former President Mbeki) and posting her to home affairs, possibly the toughest portfolio, with its history of corruption and inefficiency.


The other main cabinet appointments – Zuma’s business backer Tokyo Sexwale to the ministry of human settlements (the renamed housing ministry), old intelligence comrade Lindiwe Sisulu to defence, ministerial survivor Jeff Radebe to justice – are equally even-handed.


The idea of appointing a right-wing Afrikaner – Pieter Mulder, leader of the Freedom Front Plus – to deputy minister of agriculture looks either inspired or crazy. Mulder will have to tackle two of the toughest issues: the painfully slow process of land redistribution from whites to the black majority and the growing number of killings of white farmers.


Even with a strong and diverse cabinet team, many risks will confront the Zuma era, the most important of which is that the slowdown in econmic performance will heighten social divisions. This raises questions about whether Gordhan, with Zuma’s blessing, might cave into trade union pressure and begin to encroach upon the Reserve Bank’s independence. 


Old wine, Zuma’s bottles


The most probable outcome is that there will be more Mbeki-style centrism, incremental reform, patchily administered, with pockets of real progress balanced by areas of retrogression. 


The government will dress up existing programmes in new language and expand temporary public-works-type employment, but overall, public expenditure will absorb roughly the same share of GDP as before. There will be a more affable and not so racially-edgy leadership, but it will be even less predisposed than its predecessors to check venal behaviour within the party and within the public service. It will be even less attentive to human rights than Mbeki’s administration, certainly with respect to the rights of suspected criminals and prisoners. Zuma’s tough line on crime is one vein in his discourse on which he enjoys approval across the spectrum. 


President Zuma and his centrist allies interpret the outcome of the election as public satisfaction. If the choice is between disappointing the left but maintaining policy continuity, or alienating businesses and the middle classes through significant and sudden policy shifts, Jacob Zuma will opt for the former course.

 

Valentine Rugwabiza: African trade needs to be freer

Valentine RugwabizaAfrican trade needs to be freer, ?not more restricted, says Valentine Rugwabiza, deputy director-general of the World Trade Organisation

 

Has the financial crisis set back hopes for a new multilateral trade agreement?

 

?Protectionism is a real threat. At a time of crisis, there is a temptation to close borders... But we have also learned that it is a self-defeating strategy. It doesn’t help us get out of a recession or depression – it rather deepens and prolongs it. So far, countries have resisted protectionist pressures, with really few exceptions.??

 

Why multilateral trade deals are better?

 

The World Trade Organisation doesn’t have the capacity to prevent countries from entering into bilateral agreements. There are distortions that cannot be removed through bilateral agreements. None of the bilateral agreements are targeting agriculture subsidies.?Distortions are never on the menu of bilateral agreements, that’s why they move so fast. Bilateral agreements cannot substitute for a multilateral agreement. The coverage is not as large, and the impact in terms of development is not as large. All bilateral agreements imply discrimination against those that are outside the bilateral agreements.??

 

Will Africa’s leaders succeed at trade talks??

 

African countries are well organised at the WTO and they’ve made their case forcefully and convincingly. Technically, the issues have been solved. There is an agreed formula for tariff peaks and for addressing tariff escalation (which limit Africa’s market access in developed markets) that will also provide flexibility for some African countries to protect certain industries at infant level. About 80% of the work has been done. What is interesting is that at the WTO you don’t always have a division between the North and the South. Sometimes you have countries of the North and the South building alliances. The challenge is on the political level: the key players need to show that they’re serious when they talk of commitment to poor countries’ development.  

 

Back to Africa & the crisis, A way out of the tunnel

 

Opening corridors from north to south


Zambia’s infrastructure and its cross-border connections will be a key focus of the North-South Corridor, on which donors pledged to spend $1.2bn at a conference in Lusaka in early April. Key projects are the upgrading of 4,000 km of roads, 600 km of railways and a speed-up in the generation of some 35,000 MW of power capacity through the Southern African Power Pool.


 

Following his government’s pledge of $150m, British trade and development minister Gareth Thomas told The Africa Report: “This pioneering initiative will make a difference to millions of people… enabling them to travel more easily, have better access to food, goods and services, and compete in the global market.”


 

One of the first projects will be the opening of a pilot ‘one-stop border post’ at Chirundu, on the Zambia-Zimbabwe border, to try to halve the current ten-day waiting time for trucks. Following the building of a new bridge over the Zambezi River, the two governments have passed legislation for a single operating procedure, so that documentation will soon only need to be submitted once.


 

Zambia has equally important cross-border trade with Democratic Republic of Congo and Tanzania, both of which can expect some benefits, as their own internal road and rail systems could do with serious rehabilitation.

 

Back to Infrastructure, No time for the builders to clock off

 

The long view: Mexico's war on drugs

The long arm of the cartels

 

After seizing leadership of the cocaine trade between Colombia and the US, Mexican cartels seem to have all the weaponry and information they need for many years of successful business

 

Nobody knows who is really who in Mexico. Governors, judges, intelligence officials and policemen of every rank have been found guilty of corruption in the past few years, most of them bought by the gangs who smuggle cocaine into the United States.

 

?“Nationwide, every time we recruit policemen, we know that some of them are narco-agents trying to infiltrate the system, and that some others are, soon or later, going to collaborate with the narcos, either because they accept their money or because of pressure on their families”, says an interior ministry official who does not want to be named.?

 

Life in the police is a vicious circle. An honest policeman is under threat. A dishonest one is not any luckier; if he joins one of the four main drug cartels, he will become a target for the other three. A young policeman can earn 5,000 pesos ($366) a month, but the gangs will promise him ten times that plus a brand new automobile. But as his family’s standard of living rises, his life expectancy falls.?

 

The law running scared?

 

The war between the cartels has already killed more than 7,000 people this year, 160 of them by decapitation. The violence reaches into the US itself, with cartel-backed kidnappings on the rise in Arizona and other southern states. In January, a police commanding officer’s head was dropped off in front of the police station just outside Ciudad Juarez, the twin city of El Paso in Texas, with a message saying “for the Sinaloa Cartel."

 

?In Culiacán, the capital of Sinaloa State, cradle of the narco-dynasties, fewer and fewer people want to join the police. Bodies are picked up in the streets every day, making mortuaries the fastest-growing businesses in this dusty city. In February, in the Caribbean seaside resort of Cancun, the head of the local police, Francisco Velasco, nicknamed ‘The Viking’, was arrested on charges of murdering a retired army general.?

 

Corruption is taken for granted in Mexico, but President Felipe Calderón says “the same phenomenon of corruption of the authorities is happening” on the other side of the Rio Grande. And so Mexicans were pleased to hear US President Barack Obama say during his first visit to the country that the US “could not pretend this is Mexico’s responsibility alone”.

 

?Formerly acting as subcontractors and considered as such by Colombia’s Pablo Escobar and his colleagues, the Mexican cartels are now the masters of the game. They control the entry points to the US along a 3,200km border. The cocaine may still come from Colombia, but the Colombians are now only the suppliers.?

 

Calderon’s ‘cancer’?

 

The Gulf, Sinaloa, Juarez and Tijuana cartels are well-supplied with weapons, from traditional ‘macheta’ (to decapitate opponents) to automatic rifles, rocket launchers and even anti-aircraft machine guns, like the one seized in mid-April in Sonora State, just a few weeks after the US said it would pay for Blackhawk helicopters to tackle the cartels under the three-year, $1.4bn Merida Initiative.

 

?Thanks to inside agents, the narco-gangs are generally one move ahead. When he was elected president in 2006, Calderón launched an aggressive offensive against the drug barons, sending 36,000 troops and policemen into the most conflict-ridden areas. The government claims to make regular arrests of the heads of the cartels and to be delivering fatal blows to the trade, but this does not seem to have weakened them.

 

?The drug traffic is like “a cancer”, says Calderón. And in spite of the measures taken by the authorities, no significant change has been seen in drug availability on the US side of the border: the price of cocaine has been stable, which means supplies are still getting through. ?

 

Ghana: World Bank lecture spoils the party mood

 

Ghana fiscal and current account balancesThe World Bank found itself at the centre of local politics in January with the leaking of a letter from its country director, Ishac Diwan, to newly inaugurated President John Atta Mills, warning him of the “difficult financial situation Ghana finds itself it.” Diwan’s letter argued that Ghana’s fiscal and trade deficits were dangerously high and told Mills that the Bank had “grave concerns” about Ghana’s financial position.?

 

Tackling the twin deficits should be an urgent priority, in the view of the Bank, “to avoid a socially painful financial crisis”. The letter also pointed out that the outgoing New Patriotic Party (NPP) government under President John Kufuor had used the proceeds of the country’s $750m eurobond floated in September 2007 to finance current expenditure, something it had pledged not to do.?

 

Diwan’s letter immediately became a political weapon. The incoming government said it illustrated the extent of the Kufuor government’s mismanagement and lack of accountability. But the Kufuor team furiously dismissed it as an “utter misrepresentation of the NPP’s record”. Indeed, some NPP hardliners demanded Diwan’s immediate recall to Washington for “conduct unbecoming”.?

 

It is a fact that the fiscal deficit rose to 14% of GDP and the trade deficit spiralled to 17% under the Kufuor government. Now the Bank calculates that several politically unpalatable remedial measures will be required, such as a three-year freeze on public-sector wages, the ending of subsidies on electricity and a freeze in infrastructure projects. All of that will be anathema to the more than 4m people who voted for President Mills. 

 

Back to Ghana, The economic battle comes to parliament 

 

Editorial: The New Discontents of Globalisation

 

Almost daily, despatches from the battlegrounds of globalisation tell more tales of tragedy and devastation. Cold statistics hardly convey the enormity of the meltdown. The crisis is costing millions of jobs in North America and Europe, and tens of millions of jobs in China, but no one knows how many jobs have gone so far in Africa. They should ask the copper miners of the Democratic Republic of Congo and Zambia, the platinum miners of South Africa and the diamond miners of Botswana. ?

 

Africa’s urban economies are visibly slowing; the destruction is worsening in the rural economies where shrinking markets and tumbling earnings are a matter of life and death. Yet in this crisis of economic globalisation, Africa’s concerns have been sidelined and its recent successes in growth and investment are at risk. ??

 

The culprits are the West’s financial sophisticates, sheer greed and poor regulation, as Nobel laureate Joseph Stiglitz predicted they would be. Tanzania’s President Jakaya Kikwete asked, half in jest, what would have been the response of the IMF and the World Bank if an African country’s financial system – and not that of the US – had started the credit crunch? No doubt that benighted country would have been thrown into receivership. ?

 

There was a momentary shock in March when the managing director of the IMF, Dominique Strauss-Kahn, announced in Dar es Salaam that “the model had failed” and that the leaders of the advanced economies could no longer say to Africa and the rest of the developing world “follow us, we know how to do it”.

 

?He was not predicting the end of capitalism, he told The Africa Report, but signalling the need for urgent running repairs to the current model. “Capitalism lurches from crisis to crisis,” he added, paraphrasing Karl Marx, “but the memories of this crisis may remain for decades.” ?

 

Where does this leave Africa? Firstly, along with other developing regions, it is asking the West to reform its own financial system, to improve its regulatory capacity and to admit that the idea of self-correcting markets is a fallacy. ??

 

Developing states are also demanding that the rich world drop its nationalist and protectionist instincts on trade. Now is the time for rich countries to make concessions at the World Trade Organisation on tariff barriers and end their ruinous farm subsidies. ?

 

And the rich world’s pledges to poor countries made in 2005 at the G8 summit in Gleneagles – of a doubling of international aid to the world’s poorest countries to $60bn a year by 2010 – have to be kept. That is less than the US government has spent on bailing out Citicorp, or Britain will spend on the rescue package for the Royal Bank of Scotland. There should be no question of rich countries using their own financial crisis as a pretext for cutting capital flows to Africa.

 

?Instead, the crisis calls for ingenuity, both in the West and in Africa. The international financial institutions and their commercial associates should develop innovative ways to finance the big infrastructure projects – water, roads and power – that Africa so clearly needs. Such funding and projects would help both Africa and the embattled construction industry.?

 

Yet more ingenuity will be required to address the geopolitical fallout. Few, even within the portals of the IMF and World Bank, believe that the world will return to an economic and financial system that plays by the old rules. Already the IMF, the World Bank and the UN are trying to remake themselves, but more radical changes will be necessary to reflect the emerging multipolar world. By Patrick Smith

 

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

 

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.

 

The Obama administration's objectives for Africa

 

In order to improve relations with the continent, the new US presidential team will have to tackle some difficult conflicts

 

The Obama administration needs to address several short-term goals for Africa, then assure a long-term focus that will leave a lasting legacy.?

 

In the short term, it will need to revamp US policy in the Horn of Africa, and specifically toward Somalia. It is essential that a new diplomatic strategy be devised, including for Middle EasternUS trade with Sub-Saharan Africa countries and the UN as well as Somalia’s neighbours, to manage the potential chaos following Ethiopian troop withdrawal from Somalia and to prevent the radical, anti-Western Al Shabaab movement taking full power.

 

?Secondly, it must address the continuing crisis in Darfur. There, it will need to assess the practicality of harsher sanctions or a no-fly zone, perhaps using the consideration of these steps as a bargaining chip with the regime in Khartoum, in order to start a new peace process. Much more support will need to be provided directly to the UN/AU peacekeeping force there.?

 

Preserving gains

 

?Finally, the crisis in the [Democratic Republic of] Congo requires stronger US support for the UN peace process, including support for a much larger and stronger UN peacekeeping operation there.

 

For the longer term, the Obama administration needs first to consolidate and preserve the gains of the Bush administration, e.g:

 

  • the bipartisan support for a vigorous HIV/AIDS programme already authorised for $48bn over the next five years;?

  • the support of well-governed regimes under the Millennium Challenge Account;?

  • special trade advantages for Africa under the African Growth and Opportunity Act; ?

  • generally higher aid levels leading to a doubling of aid by 2010.

 

?Secondly, it must go beyond these objectives: through broadening the HIV/AIDS programme to include more support for health infrastructure, adding substantial assistance for agriculture and further measures to contain the consequences of climate change.?

 

It must also help strengthen Africa’s weak trade capacity in order to be able to ultimately remove Africa’s special preferences. This requires a new strategy with Africa in the Doha round, that aims for the World Trade Organisation to treat Africa as a single trading entity – not divided between middle-income and least-developed countries. Additional aims should be building Africa’s manufacturing and other competitive processes, and discouraging the European Partnership Agreements and similar bilateral trade agreements which divide Africa and reduce the potential for sub-regional trading blocs. ?

 

A legacy in the making ?

 

Finally, the Obama administration should make its greatest single legacy the improvement of African governance, transparency and democracy. This is where President Obama has great credibility, allowing him to address these often-sensitive issues directly with African leaders and societies. These objectives will require strong public and political support, aggressive prosecution and urging similar prosecution by our Western allies of multinational firms that bribe African officials, and substantial support to building the institutions of accountability such as the judiciary, parliaments, a free press and civil society.?

 

The African Union, weakened in recent years by peacekeeping problems in Darfur and Somalia, and losing erstwhile strong leadership from Nigeria and South Africa, will need to be encouraged and supported to play a stronger role in support of democracy and peace, as envisioned in its charter. Subregional organisations, such as the Southern African Development Community and Economic Community of West African States, should be similarly encouraged and supported.?

 

With high priority crises elsewhere, the Obama administration can only accomplish these objectives, and avoid Africa falling to the back of the line, by:

 

  • empowering the assistant secretary of state for african affairs through high level backing by the secretary of state and the president so that it is known that he/she speaks with the full authority and backing of those high level officials.??

  • providing the Africa bureaus at the State Department and US Agency for International Development with substantially increased personnel so that they can carry out complex peace negotiations in Sudan, Somalia and Congo, and advance a broader development and trade agenda. At present staffing levels, this will be impossible.
 

Africa’s vulnerability in the crisis

Kwesi Botchwey

The global economic crisis could not be happening at a worse time for Africa, says Kwesi Botchwey...

Read more... 

Kenya: The long dark night for business

 

Through a combination of listening ?to the private sector, astute interventions and considerable good luck, Kenya’s new power-sharing government has managed to restore the country’s economic lead in the region

 

Ahigh-profile joint manoeuvre made by President Mwai Kibaki and prime minister Raila Odinga in August helped to move Kenya into its economic recovery phase following the election-related killings in January and February. It showed how the country’s recently-formed coalition government could work in harmony, despite considerable scepticism about how long it could hold together. Their joint moves also showed the speed with which things could be done at the highest levels of government when its leaders put their minds to it.?

 

The date was 11 August and the new grand coalition government was setting about a process of breaking several short-term and long-term bottlenecks affecting business in the country, and the focus of its two key leaders was to get the economy growing again.?East African GDP

 

In Nairobi, President Kibaki called an extraordinary meeting of ministers and top civil servants handling the security, transport, trade, roads and immigration portfolios. The ministers did not form a specific cabinet subcommittee nor was the meeting a regular ‘let-us-review-affairs’ discussion.

 

?As Kibaki was meeting with the ministers, Prime Minister Raila Odinga flew to Mombasa, the country’s nerve-centre of trade, upon which much of East and Central Africa depends, to deliver what would be a hard-hitting speech against the ‘business-as-usual’ approach of the Kenya Ports Authority (KPA).

 

?Inefficiency, mismanagement, corruption and a lack of investment have long been the norm at Mombasa’s port. But all these factors became much more obvious than usual during the post-election violence which rocked the country, when key trade routes in the hinterland and to neighbouring countries were blocked. Even once the road and rail routes had been reopened, the port showed itself unable to process cargo fast enough, causing knock-on effects for trade in Uganda, Rwanda, Burundi, eastern Democratic Republic of Congo and southern Sudan.?

 

Odinga told his listeners that the port was “the linchpin” of Kenya’s infrastructure and then tore into its management. “The port is failing us all,” he said. “Its lapses pose a severe bottleneck on our country’s business activity. There are complaints galore, from Kenyans and neighbours, about virtually every area of the operations.”?

 

While the managers of Mombasa port were still absorbing Odinga’s tough words, in Nairobi, Kibaki was announcing a slew of measures aimed at shaking up not only the port but also the country’s border-points and the roads used by its transporters.?Key among these measures was one to turn all border-points into 24-hour service areas; another to reduce road-blocks along the main trade routes to one-third of what they are; and finally, orders to the KPA and the national tax authority to take a fresh look at their customs rules and to remove duplications and other obstacles to doing business efficiently.?

 

Only four days earlier, Odinga had received an action plan that followed earlier discussions that he and 15 cabinet ministers had had with Kenya’s business community. The plan, which included all the measures that the government then announced on 11 August, had followed a major roundtable meeting between the government and the private sector held in late July, in what was the first-ever structured dialogue between the two key elements guiding the Kenyan economy.?

 

In the past, discussions between the government and private sector had been determined by specific events such the budget-making process, which generally focused on tax issues. The July meeting was the first where captains of industry, merchants, bankers, big farmers and others were able to meet top government officials and thrash out issues that they have regularly raised with government, or else in public, but on which they had usually seen only limited action taken.?

 

Keeping calm amid crisis

 

Managers were at a loss on
what to do. Read more. 

The roundtable meeting was also an acknowledgement by government that it did not have all the answers and that Kenya’s new situation was uncharted – with its first coalition government in place – and that all forms of help were welcome.?

 

The immediate backdrop of those discussions was the rising costs of living and doing business, driven by high global oil prices and equally high global food prices. These cost rises had already begun to hit when protests against the disputed presidential election results broke out in January. What had been political protests quickly spread throughout the country, with the sole exception of two provinces, and took on the ethnic dimension that began to suggest to some onlookers that the country was heading towards civil war.

 

Empty beds and empty tables

 

?As soon as the violence was reported in Coast Province, hotel managers along Kenya’s beaches quickly found that what had promised to be a good season (even better, they hoped, than the record one of early 2007) was turning bad. From hotels having above 80% of beds occupied, they saw their daily occupancy reduced to below 40% and even lower. This all happened during the peak season, which usually begins before Christmas and continues until March.?

 

The Kenya Private Sector Alliance (KPSA) – an umbrella group of business associations – projected in mid-January that if Kenyan leaders did not stop the violence then, Kenyans were likely to lose as many as 400,000 jobs in the first half of 2008, and businesses could lose as much as KSh266bn ($3.4bn). Even once the violence had subsided in the wake of the country’s historic peace deal, the World Bank and the African Development Bank were warning of the regional ramifications of an economic recession in Kenya.?

 

As things turned out, the damage was far less than feared, although serious enough. The KPSA showed The Africa Report preliminary figures indicating the loss of 100,000 jobs and estimating the cost of the post-election violence to business at more than KSh50bn ($640m).

 

?Following the government’s interventions, by October, the KPSA was sounding more positive. “We have seen a recovery from the low experienced during the post-election violence. However, we do have to continue to rebuild the tourist trade for the Coast and continue to overcome the delayed or missed plantings by farmers,” said KPSA chairman Steve Smith. Some of the strategies that firms had adopted to overcome their losses include generating “more export business and improving the business cycle in Kenya”, Smith said.?

 

Providing positive projections

 

?In 2007, when the government made projections for economic growth in 2008, it gave the figure of 7%. Different ministries have since revised that projection downwards; the planning ministry has been suggesting 3.5-4.5% and the finance ministry 4.5-6.0%. An IMF team that visited Kenya in July, however, still managed to project economic growth of 7.2%.

 

?Players in the tourism industry, which is one of Kenya’s top foreign exchange earners, have also begun to share optimism that the recovery will be quicker than expected. The Kenya Tourist Board has already begun to look forward to the main high season of 2010 (December 2009 to March 2010) when it hopes that the Coast could see a return to the record numbers of 2007. The board’s managing director, Achieng Ongong’a, said he was confident that the recovery would be much quicker than the last time tourists avoided Kenya as it went through one of its earlier bouts of violence, breaking out ahead of the 1997 elections.?

Profile: Kencall,
Outsourcing Specialist

 

Ongong’a said it took the tourism industry seven years to recover from that time of trouble, which directly affected the Likoni area of the southern Coast. Things have been different this time, he said. For example, all players in the industry are now speaking with one voice and working together, unlike after the 1997 violence. The government has also been funding a KSh600m marketing programme aimed at helping the industry recover, something that did not happen after the events of 1997.?

 

Tourism at the Coast is much more sensitive to effects of negative publicity than other attractions in Kenya. An estimated 65% of foreign tourists coming to Kenya go to the Coast during its peak season, while August and September serve as another important season for the industry.?

 

KPSA chairman Steve Smith said that for now the government has been taking the right measures to help the economy recover, despite the poor global outlook. “The impact of inflation and higher material cost has been a lot for all to deal with, but progress is being made. The government is listening and we feel it is moving forward with the needed changes,” Smith told The Africa Report.

 

Profile: Zine El Abidine Ben Ali, President of Tunisia

On 7 November 2008, President Zine el Abidine Ben Ali, at 72 years old, began his 22nd year in power, and is readying himself to win his fifth - and final- five-year mandate in the 2009 presidential elections.

 

A previous career in the army led to the post of head of the military security services (1964-1974), and then head of national security (1977-1980). Ben Ali was promoted to minister of the interior, then made prime minister in October 1987. He deposed President Habib Bourguiba, whose senility brought chaos to the end of his reign. Once head of state in November 1987, Ben Ali followed a reformist but prudent path, to avoid, in his words, "any slip-ups".

 

In politics, a mix of openness and authoritarianism has characterised his method in the democratic transition. On one hand, the presence in parliament of representatives of the 'moderate' opposition has been permitted, allowing them at present 20% of the seats, regardless of their election results. This does not prevent them being labelled as symbolic. The radical opposition and human rights defenders often complain of police harassment. The Islamist movement, created in 1981, turned out to have the largest popular support in the country after the ruling party in the parliamentary elections in 1989 - and since then has been outlawed.

 

As a sign of potential openness, for the 2009 presidential elections, any citizen can run, but on the conditions of having gained the support of at least 30 MPs or mayors, and not being over 75 years old. In fact, because of the weakness of the opposition and the monopoly held by the presidential party, these conditions are impossible to meet. The constitution, exceptionally, has been amended to allow the heads of legal opposition parties, even 'radical' ones, to become candidates.

 

Ben Ali has nevertheless drawn some lessons from two recent events that prove all is not well with Tunisia's youth. First, at the end of 2006, a small Salafist (hard-line Islamist) group, even though quickly neutralised, revealed the existence of a minority of youths who were drawn into violent protest. Then during the first quarter of 2008, in the mining region of Gafsa, in the south, several towns and villages were the theatre of conflict between the forces of order and young unemployed demonstrators. In response, the president shook up his ministerial team, bringing youth into the government and into his ruling party, the Rassemblement Constitutionnel Démocratique.

 

On the economic front, and despite the preoccupations caused by an unemployment rate of 14%, even higher among young graduates, the success of the Tunisian economy has been recognised by international bodies and ratings agencies. Ben Ali has been a liberal reformer with a taste for free entreprise, spending a large part of his time on economic development, particularly to attract foreign investment. The economic growth rate has been around 5% a year over the last 15 years. And for several years, Tunisia has been in the top 50 of the Davos competitiveness report, at 36th place in the 2008/09 edition.

 

Tunisia was also the first country of the south Mediterranean to sign a partnership agreement with the EU in 1995. This undertook to progressively reduce tariff barriers between the two, which culminated in the free trade zone agreement which came into force from 1 January 2008.

 

The only problem is that an open economy in which 80% of trade is with the EU makes Tunisia a hostage to the fortunes of Europe. If recession hits the EU in the wake of the financial crisis, it will no doubt have an impact on Tunisia, and may well aggravate unemployment. Another challenge for Ben Ali.

 
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