Africa News blog

from Global News Journal:

UN tells Mbeki he got it wrong on Ivory Coast

• UN peacekeeper in Ivory Coast in April 2011. REUTERS/Thierry Gouegnon

This week U.N. Secretary-General Ban Ki-moon's chief of staff, Vijay Nambiar, defended the United Nations' record on Ivory Coast.  In a highly unusual public rebuttal, Nambiar told former South African President and African Union mediator for the Ivory Coast conflict, Thabo Mbeki, that it was he -- not the international community -- who got it wrong in the world's top cocoa producer.

In April, Ivory Coast's long-time President Laurent Gbagbo was ousted from power by forces loyal to his rival Alassane Ouattara, who won the second round of a U.N.-certified election in November 2010, with the aid of French and U.N. troops. According to Mbeki -- who has also attempted to mediate in conflicts in Sudan and Zimbabwe -- there never should have been an election last fall in the country that was once the economic powerhouse of West Africa.

Mbeki wrote in an article published by Foreign Policy magazine at the end of April: "The objective reality is that the Ivorian presidential elections should not have been held when they were held. It was perfectly foreseeable that they would further entrench the very conflict it was suggested they would end."

Ivory Coast was split in two by the 2002-3 civil war and the failure to disarm the northern rebels meant the country held an election last year with two rival armies in place, leading to a new outbreak of hostilities when Gbagbo rejected the internationally-accepted election results.

The solution to the conflict, Mbeki wrote, was not to insist that Ouattara take office as president, as the United Nations, France and others did at the time, but a political solution that would have satisfied everybody in the francophone nation. "The African Union understood that a lasting solution of the Ivorian crisis necessitated a negotiated agreement between the two belligerent Ivorian factions, focused on the interdependent issues of democracy, peace, national reconciliation and unity."

The United Nations took nearly four months to come up with a public response to Mbeki. It finally appeared this week in an article in Foreign Policy by Nambiar entitled "Dear President Mbeki: The United Nations Helped Save the Ivory Coast." In his rebuttal, Nambiar vehemently rejects the idea that that the world should have pushed Ouattara to negotiate a power-sharing deal with election-loser Gbagbo.

from Global Investing:

Can domestic demand boost African markets? Duet’s Salami talks to Reuters Television

Direct and indirect foreign investors fled from Africa as the credit crisis sparked a flight to safety, or at least familiarity, but Ayo Salami, manager of the Duet Victoire Africa Index fund believes domestic demand can step in to underpin growth.

Africa reforms matter

African governments have been hit hard by a withdrawal of investor money from the continent and need to make sure they remember reforms and avoid high inflation in their attempts to protect their economies, says Razia Khan, head of Africa research at Standard Chartered Bank in London.

Africa gets 3 percent of the world’s cross-border flows, but BIS end-2008 data shows the region suffered the world’s largest decline in cross-border financing due to the global financial crisis, Khan told a breakfast audience of politicians, bankers, investors and journalists in London today.

Africa needs the economic environment that will lure investors back in, she says.

“Financial markets in Africa have not shown signs yet of a significant recovery. “Maybe there is going to be some longer-term support for commodity prices, but governments have to guard against a deterioration of the fundamentals that have been in place to support growth,” she says.

Across sub-Saharan Africa, South Africa will withstand the global recession better than other countries, she adds.

“African growth is still likely to be positive, but macro-economic stability is more of a risk in some countries than in others.”

Are Nigerian banks set to boom?

Few investors dispute the view that Nigeria’s banks look cheap at the moment, with most of the major players trading at a discount to book value and with earnings multiples way below consumer stocks such as Guinness Nigeria.   Nor is anybody arguing against the long-term logic of the financial sector’s potential growth in an oil-rich country of 140 million people but only 23 million bank accounts.   A new central bank head with a background in risk management is also making all the right noises about improving the sector’s notoriously murky financial disclosure – part of the reason the shares crashed so spectacularly in the latter half of 2008.   Furthermore, Lamido Sanusi’s stated desire to relax limits on foreign ownership has breathed new life into the view that another wave of consolidation, this time involving major global players, sits around the corner.   Does all this sound – like so many other Nigerian promises of easy money – too good to be true, or are its banks set on a long-term trajectory that will ultimately see them realise the dream of making Lagos a financial hub to rival Johannesburg?

Zuma’s balancing act

South African President Jacob Zuma has a tough balancing act to perform as he begins his term in office.

 On the one hand, Zuma is anxious to assure investors that there will be continuity in the economic policies that have secured the country’s status as the regional powerhouse.

On the other, he has to address the increasingly vocal demands of his allies in the labour movement, whose support propelled him first to the leadership of the ruling ANC and then to the country’s top government job after April 22 elections.

But what the unions want – increased social spending to cushion their members against the ravages to the global recession that has now also landed in South Africa – would mean veering away from the prudent fiscal stance that has ironically cushioned the country from the worst of the world crisis.

Investors are also keen to see whether Zuma bows to pressure not to renew the contract of central bank Governor Tito Mboweni, loved by financial markets but vilified by unions that say a pre-occupation with inflation targeting has seen the Reserve Bank maintain a tight monetary policy at the expense of economic growth, impoverishing millions.

Sovereign risk in South Africa

Recent events in South Africa have sent some conflicting signals to investors about sovereign risks. On the one hand there was some regulatory flip-flopping over the Vodacom listing given objections from the union organisation COSATU, which raised questions about the influence of unions in Jacob Zuma’s administration. On the other hand the sovereign issuing some $1.5 billion was highly successful and oversubscribed.

With Zuma recently elected on a platform of change for his domestic audience and continuation of old policies when speaking to investors, there is a raft of new ministers and new ministries and quite a bit of policy uncertainty. No foreign investor will deny South Africa’s need to address serious social problems of inequality, housing, jobs and education through a more developmental state agenda.

However investors I speak to simply want to see that this is not at the expense of the productive sectors of the economy. This agenda will naturally involve the ANC’s allies: COSATU and SACP (communist party).  As such, the process of governing will be a noisy affair for investors. I put the Vodacom incident down to such noise.

However I believe the new Zuma administration will find itself heavily constrained by the need to raise funds for its agenda and so keep investors onside as the government’s borrowing requirement balloons. Add state owned enterprises engaging in very necessary investment, and a current account deficit and you arrive at a funding requirement north of  500 billion rand for the next two years.

This will act as a strong rationalising influence though a backup overdraft in the form of an IMF flexible credit lending facility would be a benefit.  It also should not be forgotten that there is still a strong business influence in the cabinet and the ANC from the likes of Cyril Ramaphosa and Tokyo Sexwale.  Most investors buy the case of policy not shifting sharply to the left, though a lot of questions have been planted in the minds of investors.

Keeping the different factions in his cabinet in line will be key for Zuma’s success, especially with two new hurdles looming: the Bharti/MTN and the Xstrata/Anglo American mergers. Both are sensitive and likely to be jumped on by unions.  The inflation-targeting debate is also being reopened locally — a topic foreign investors love to discuss.

It is now up to Zuma and his team to deliver on prudent macro-policy as well as his developmental state priorities in order to sustain the current goodwill from investors.  It is still early days for his administration. We hope not to be disappointed — for South Africa’s sake as much as anyone elses.

How will the Zuma team do?

Thousands of South Africans danced, cheered and sang hymns to celebrate President Jacob Zuma’s swearing in. Zuma, they said, as a man of the people, would give them houses and electricity, fight AIDS and crime, and ensure prosperity even as South Africa is on the brink of its first recession in 17 years.

But appointments to key ministries have raised questions over how well the new government will function.

Economic policy is seen intact after largely expected changes at finance-related ministries, but appointments to some other key sectors, including mining, energy and telecommunications left more doubts.

Siphiwe Nyanda, the newly appointed minister of communications, has been a military man, yet outside the African National Congress (ANC) and defence he is something of a mystery. He now takes over communications, a crucial ministry with oversight of Telkom, Africa’s biggest telecoms firm.

Dipuo Peters qualified in social work, but has been chosen to lead the energy ministry and help tackle the country’s power shortages that have led to a five-day shutdown of South Africa’s mining industry and crippled the country’s investor-friendly image.

“It appears this is South Africa’s tradition to appoint a minister who has no technical qualifications whatsoever,” said independent analyst Andrew Kenny.

Barbara Hogan, who has led the health ministry for the past six months, has been moved to oversee the public enterprise department, also in charge of sorting out structural problems at state-owned utility Eskom, which now supplies some 95 percent of the country’s power.

from Global Investing:

Terminal problems

If Nigerian banks appear to have suffered disproportionately in the global financial crisis, maybe they have Heathrow Terminal 5 to blame.

Nigerian banks were advertising their services on billboards in Terminal 5 last year, and travelling investors felt it showed the banks were rashly trying to keep up with international investment banks in aiming for a global profile, causing many to sell, a banker specialising in Africa told journalists this morning over breakfast.

"Those adverts were a sign to sell Nigerian banks," Luca del Conte, executive director in treasury and capital markets at Medicapital Bank said.

"We have about 100 institutional investors, and of 50 funds that we speak to actively, more than half mentioned this.  Once capital markets started shaking, funds did not ask any more questions, they just sold."

Medicapital says the banking sector represents over 60 percent of market capitalisation on the Nigerian Stock Exchange, but daily volumes on the exchange have dwindled to $10-15 million a day, suffering also from a fall in the oil price, compared with $100 million a year ago.

Africa back to the old ways?

The overthrow of Madagascar’s leader may have had nothing to do with events elsewhere in Africa, but after four violent changes of power within eight months the question is bound to arise as to whether the continent is returning to old ways.

Three years without coups between 2005 and last year had appeared to some, including foreign investors, to have indicated a fundamental change from the first turbulent decades after independence. This spate of violent overthrows could now be another reason for investors to tread more warily again, particularly as Africa feels the impact of the global financial crisis.

“Although I don’t think these instances of instability in Africa are related to each other or part of a pattern, I think there’s no doubt external constituents and businesspeople around the world will assume there is a pattern,” said Tom Cargill, Africa Programme Coordinator at London thinktank Chatham House.

The fact that coup makers have succeeded without being forced to step down or even face major censure could also embolden those who might be tempted to take power in bigger countries, where falling growth is encouraging disaffection.

“Look at … other African countries, so-called pivotal states: Nigeria is in a terrible state, so is Egypt, so is Kenya, all these so-called big countries,” said Hussein Solomon, a political science professor at the University of Pretoria.

Although there can be a tendency to group very diverse African states together, the picture is far from uniform – Ghana’s presidential election two months ago was one of Africa’s closest, but avoided major violence, reassuring investors despite an acute fiscal crisis.

But social pressures are growing across Africa as a result of the world economic crisis.

A tale of two Africas

Good news and bad news for Africa from the latest take on global risks from the World Economic Forum. Not much danger for most of the continent, it says, from an asset bubble burst. That’s the good. The bad, of course, is that this is because there are not many financial assets to bubble. In fact, it deems the overall exposure even to economic risks is small because African economies are not particularly tied in to global markets.

Actually, the report shows that there are two Africas. Mapped by their susceptibility for economic and asset bubble trouble, most African countries are bunched together in a low risk range. But another, smaller cluster, including Nigeria and South Africa, finds itself in much more peril and shares space on the WEF risk map with Western and Eastern Europe.

Good news, in a contradictory sort of way.