Digital jump

Kenya: leading in IT innovation

M-Pesa money transfer service has led the way to better, faster business

By Mark Kapchanga

Before 2007, Dickson Rono would rely entirely on Kenya’s slow, cumbersome and expensive banking infrastructure to pay bills and receive payments from clients. Today, thanks to mobile money transfer service M-Pesa, the managing director of Ron TV International, a documentary and filmmaking company in Nairobi, can use his mobile device as a virtual bank. M-Pesa, launched by telecoms operator Safaricom turns even the most basic cellular telephones into mobile banks, and this has revolutionised the way businesses are run in the east African country. “I don’t waste time queuing every end of the month to pay taxes. I just go to my phone, check how much I owe the Kenya Revenue Authority, and then pay the sum through M-Pesa,” says Mr Rono. “As a result, I am saving about two hours every month, translating to 24 hours in a year. This has enabled me to hire two more staff members.”

The innovation has attracted international attention. In February 2015, Microsoft founder Bill Gates heaped praise on the mobile money transfer service, saying M-Pesa is “an innovation that I think would trickle up from developing countries to the rich world”. Indeed, so important has been the M-Pesa innovation that two years after its launch, it already had six million customers, transferring billions of shillings annually. The technology is finding other applications. Using his mobile phone, Mr Rono can also access a loan, known as M-Shwari, a joint service offered by Safaricom and the Commercial Bank of Africa. With M-Shwari, an individual or a business can access affordable emergency loans. Betty Mwangi-Thuo, the general manager for financial services at Safaricom, says the product’s key goal is to change the lives of millions of Kenyans and enterprises. “There is no paperwork for one to borrow or save using this revolutionary banking platform.

This is the kind of product most start-ups and small businesses in Kenya have been yearning for: fast, affordable and user-friendly,” says Ms Mwangi-Thuo. Since its launch in 2012, M-Shwari’s uptake has been massive. Safaricom’s latest statistics on the product show that the average loan size to customers is between Sh1,700 ($17) and Sh2,000 ($20). On the other hand, the average savings amount is between Sh550 ($5.5) and Sh600 ($6). Through M-Shwari, Safaricom is now reaching millions of people who previously could not access banking services in Kenya. According to the Commercial Bank of Africa, M-Shwari has 11 million users, 5.8 million of whom are active. It has extended loans totalling Sh29 billion ($290 million), processing an average of 50,000 loans per day, since its launch. “We expect these figures to rise tremendously in the coming years,” says Ms Mwangi-Thuo.

Its success in transforming business culture, particularly among small businesses and start-ups, has seen M-Pesa widen its reach to offering health insurance among the poor who would otherwise not have access to it. M-Pesa is used by health insurance service provider, Linda Jamii, as its premium collection platform for subscribers who pay an annual premium of Sh12,000 ($120) for medical cover including dental, maternity, optical, in- and out-patient, and funeral expenses. Analysts say internet-driven innovation like this can improve not only access, but also efficiency of healthcare related spending by between 10% and 20%, while reducing drug counterfeiting by about 80% in Africa. Remote diagnostics and telemedicine could address 80% of the health issues of patients in rural clinics, which are mostly understaffed, says Dr Emmanuel Manyasa, an economist and university lecturer.

The internet has already enabled automation and centralisation of patient admissions, health records and supply chains in Kenyan hospitals. These advances have placed Kenya as second only to Senegal in sub-Saharan Africa in iGDP ratings, the measure of the internet’s contribution to a country’s economic income, according to a McKinsey Global Institute study. Senegal is the only African country in the top ten countries with the highest iGDP (3.3%) in the world, ahead of India (3.2%) and below the US (3.8%). Kenya, at 2.9%, ranks higher than China at 2.6%. Morocco is at 2.3%, Mozambique at 1.6%, and Brazil at 1.5%. Currently, Africa’s iGDP stands at $18 billion and is expected to reach $300 billion by 2025, according to the study. “This internet economy has started to pay dividends with an exponential surge seen, for example, in the recent Ease of Doing Business index.

Innovation, coupled with a degree of global fluency, is making Kenya an attractive investment hub,” observes Aly Khan, an economist in Nairobi. Through the internet revolution, Kenya has also become a launching pad for a new generation of digital entrepreneurs. Education institutions use digital tools to deliver rapid gains in access to education, teacher training, and learning outcomes. At Kenyatta University, for example, students who once had few or no textbooks are now able to log on and learn with the world’s best educational content on affordable tablets or e-books. So, what prompted Kenya to become one of Africa’s technology hotspots? Mr Satchu believes Safaricom’s M-Pesa was the game-changer, adding that the regulator (Communications Authority of Kenya) deliberately stepped aside and allowed the M-Pesa economy to develop.

This has been supported further by the government’s commitment to developing a thriving ICT sector. “Kenya has made substantial investments in ICT infrastructure, and developed the supporting policy and legal frameworks to enable rapid growth of the sector,” says Joe Mucheru, the ICT cabinet secretary. These include the Kenya Communications Amendment Act of 2009, the Information and Communications Regulatory Guidelines of 2010 and the Special Economic Zone Policy and Legal Frameworks of 2012. Experts say infrastructure projects like the East African Marine Systems and the Notational Optic Fibre Backbone Infrastructure have upgraded and strengthened broadband and communications systems in Kenya, creating a suitable ground for innovation. Moreover, Kenya has a strong network of public and private sector ICT research and development hubs such as the University of Nairobi’s Fab Lab, Strathmore University’s iLab Africa, and the private but growing iHub, says Professor Ndemo.

IBM and Nokia have also established global research centres in the region. Other global heavyweights that have set up operations in Nairobi in the past three years include General Electric, Google, Visa International, Pepsi, Nestlé, Foton Automobiles, the World Bank’s International Finance Corporation, South Africa’s FirstRand Bank, PricewaterhouseCoopers, advertising agency WPP, Bharti Airtel, Huawei and Procter & Gamble. More multinationals are likely to set up shop in Kenya upon the completion of Konza Technology City, located 60 kilometres south-east of Nairobi. This technology hub will have four main economic sectors: education, life sciences, telecommunications and business process outsourcing, Professor Ndemo says Konza, sometimes referred to as Africa’s “Silicon Savannah”, will significantly stimulate technology spending, investment and growth in Kenya, creating more than 20,000 jobs in the first phase alone.

Konza was initially conceived in 2008 by the Kenyan government to capture the growing global business processing, outsourcing and information technology-enabled services sectors in Kenya. These sectors had produced $110 billion in revenues in 2010. By 2015, the revenues had increased almost three-fold to $300 billion. Though Mr Satchu fears that the Silicon Savannah’s dream may not be as alive as originally envisaged, he argues that “innovation is finding its own home and, yes, there is a process of ‘Uberisation’ going on”. Cabinet secretary in the ministry of industry, investment and trade, Adan Mohamed, says Kenya is cutting down on red tape in procedures related to doing business. “This year we climbed 21 places (from 129 to 108) in the ‘Ease of Doing Business’ 2016 index. We have shown consistent efforts in transforming the local business landscape and leveraging Kenya’s competitive business environment. Contributors to the rise include improvements in starting a business, getting electricity, registering property and getting credit.”

Besides individual country’s efforts to better their business landscape, there has been an ongoing peer-to-peer review of the key reforms needed to boost business. For example, the Ease of Doing Business Initiative (EDBI), launched in August 2010, allows African countries to learn and share information, experiences and good practice. Addressing an EDBI conference held in Nairobi in May 2016, President Uhuru Kenyatta said that African countries need to aggressively fight corruption, oppressive laws, ineffective policies and political interference to improve the business environment. “The key to sustainable industrial growth and job creation lies in the growth of domestic companies and the attraction of local and foreign investors to invest capital and expertise into the economy. To achieve this, we have made improving the overall business climate and supporting selected sectors our top priorities.”

The launch of Huduma Centres, or digital “one-stop shops”—with 32 branches serving more than 35,000 people a day and offering over 44 different public services per centre, from issuance of business permits to tax payments—has been pivotal in this change.

Mark Kapchanga is a senior economics writer for The Standard newspaper in Kenya and a columnist for the Global Times, an English-language newspaper in China. He is pursuing a PhD in investigative business journalism at the University of Nairobi.

Beacon of hope

Democratic Republic of the Congo: tourism

A privately-funded initiative in this central African country is helping to protect a pristine environment

By Helen Grange

The Democratic Republic of Congo (DRC) is home to the second largest rainforest in the world after the Amazon, but commercial logging and farming have also caused it to be one of the most endangered ecosystems in the world. The rapid deforestation of this enormous green lung, spanning approximately 1.5 million square miles, is also a threat to the hundreds of mammalian species living there. Some 39 of them are found nowhere else on earth, including the mountain gorilla, the bonobo—our closest living relative—and the giraffe-like okapi. The unquenchable global thirst for natural resources means that the richly endowed rainforest of the DRC, is, more than ever, a target for traders, legal and illegal. China, in particular, is vigorously invested in logging in the Congo, fetching up to $100,000 for one sizeable tree on the Chinese market, according to Chris Marais, CEO of Leadership for Conservation in Africa (LCA). However, there is an oasis of hope in a tourism development project in the remote north west of Congo, in the Odzala-Kokoua National Park.

One of Africa’s oldest national parks, it covers about 13,600m2 of pristine rainforest, a wilderness of forest, river, marsh and swamp. And quietly leading this exemplary piece of African conservation work is an unlikely figure, a publicity-averse German philanthropist called Sabine Plattner. Ms Plattner, 65, is the wife of Hasso Plattner, the billionaire co-founder of the software company SAP, and a woman impassioned by nature conservation. She lives on a farm in Yzerfontein in South Africa’s Western Cape province, but has been in and out of the Congo over the past 10 years to attend to her project there. To support the introduction of tourism infrastructure to Odzala- Kokoua National Park, which will ultimately enable the park to sustain itself, she has established the Congo Conservation Company (CCC), a private entity. She is also on the board of Cape Town based LCA, her partner organisation in Odzala- Kokoua National Park.

“Before our intervention here in 2007, this part of the Congo was very neglected. There was no means to generate revenue in Odzala-Kokoua, and the village communities around the forest were disillusioned and unmotivated,” says Paul Telfer, the CEO of CCC and Plattner’s business partner. Since then, Ms Plattner and LCA have contracted Africa Parks Network (APN)—a highly regarded, non-profit company that manages and rehabilitates national parks in Africa) to manage Odzala-Kokoua, and with a multimillion- Euro commitment from Ms Plattner’s own resources—to build three luxury lodges in the park, along with an airstrip and a road. Odzalo-Kokoua Park is home to about 15,000 forest elephants as well as mountain gorillas, bongo (antelope) and other remarkable species of primate and mammal. Ms Plattner’s intention is that all the revenue generated from tourism here goes back into the community.

At present there are no logging concessions in Odzala-Kokoau Park, although a suggestion to grant one might be made to the Congolese government, the owner of the logging concessions, if conservation in the area might benefit from it, says the manager of the park, Leon Lamprecht, of APN. “We support Sabine Plattner’s tourism concession here with the maintenance of infrastructure, and the mere fact that the park is well managed by APN creates a tourism product that can sell to tourists. A logging concession, practiced along ecological principles, may enhance sustainability of the park in future, but for now, we are just managing and overseeing general habituation,” he says. Rainforest conservation aside, Ms Plattner is a household name in the local village communities, as she supports—through her Sabine Plattner African Charities organisation—a variety of additional projects including the construction and operations of community centres that provide early childhood development projects, youth projects and basic skills training.

She has been doing this kind of work for decades, starting with disadvantaged young people in South African communities. This kind of selfless, step-by-step approach has forged a meaningful path for the Congo’s conservation efforts as a whole. Fortunately, the Congolese government is supportive of a more conservative logging policy than was practised in the past. “The Congo has a fairly visionary conservation policy, and the minister of forestry and sustainable development of the Congo (Henri Djombo) is working closely with the parks and NGOs, giving them wide latitude to exercise good conservation practices,” says Mr Telfer. Mr Marais says the “conservation commerce” mode—that is, ploughing tourism revenue back into the community which Ms Plattner pioneered in the Congo—is to be replicated in other parks in the country, including Nouabal-Ndoki National Park of almost 4,000km2.

“Odzala- Kokoau has offered a solution for other parks in the Congo, which would otherwise be threatened due to the pressures of market demand, not only for trees but for bushmeat and ivory. Tourism creates revenue, but also increases vigilance which disables poachers and illegal traders,” says Mr Marais. Tourism in the Congo is growing, albeit markedly more slowly than other destinations on the continent. The UN World Tourism Organisation forecasts 4% growth this year in the tourism industry in Africa, with South Africa in the lead, followed by Morocco, Mauritius and Mahe Island in the Seychelles. A survey by global flight search and travel deals platform, Cheapflights.co.za, found that searches to African countries are coming predominantly from the UK and Germany, with 14% and 13% of all searches to the continent respectively.

South Africans are also travelling more into their own continent, the survey found. Mauritius, Tanzania, Mozambique, Madagascar, the Seychelles and Morocco were all within the top ten searched African destinations for South Africans, with Congo being among the least popular destinations along with Uganda. Inbound tourists to Congo in 2014 numbered only 373,000, according to the World Bank data. This is unfortunate. Congo, Africa’s second largest country after Algeria, was a prime tourism destination before the 1990s, when the region was stable. It features spectacular tropical rainforests and wildlife, and boasts two UNESCO World Heritage Sites, Virunga National Park to the north, where nearly half of the world’s gorilla population lives, and the Kahuzi-Biega National Park outside Bukavu in the west. In the east, volcanic peaks rise thousands of meters above the surrounding rainforest.

In the aftermath of the Rwandan genocide, civil wars, poaching and lack of funding to the parks have since taken a heavy toll on Congo’s tourism, but thanks to the commitment of conservationists like Ms Plattner, ecotourists— people seeking authentic local experiences and opportunities to give back to the communities they visit—are still venturing into this part of the world.

Helen Grange is a freelance journalist writing for newspapers and magazines in South Africa and abroad. Her work appears primarily in The Star, Argus, Daily News and Pretoria News. She also writes for Noseweek, Business Day and Financial Mail and edits magazines for various publishers.

Beacon of hope

Democratic Republic of the Congo: tourism

A privately-funded initiative in this central African country is helping to protect a pristine environment

By Helen Grange

The Democratic Republic of Congo (DRC) is home to the second largest rainforest in the world after the Amazon, but commercial logging and farming have also caused it to be one of the most endangered ecosystems in the world. The rapid deforestation of this enormous green lung, spanning approximately 1.5 million square miles, is also a threat to the hundreds of mammalian species living there. Some 39 of them are found nowhere else on earth, including the mountain gorilla, the bonobo—our closest living relative—and the giraffe-like okapi. The unquenchable global thirst for natural resources means that the richly endowed rainforest of the DRC, is, more than ever, a target for traders, legal and illegal. China, in particular, is vigorously invested in logging in the Congo, fetching up to $100,000 for one sizeable tree on the Chinese market, according to Chris Marais, CEO of Leadership for Conservation in Africa (LCA). However, there is an oasis of hope in a tourism development project in the remote north west of Congo, in the Odzala-Kokoua National Park.

One of Africa’s oldest national parks, it covers about 13,600m2 of pristine rainforest, a wilderness of forest, river, marsh and swamp. And quietly leading this exemplary piece of African conservation work is an unlikely figure, a publicity-averse German philanthropist called Sabine Plattner. Ms Plattner, 65, is the wife of Hasso Plattner, the billionaire co-founder of the software company SAP, and a woman impassioned by nature conservation. She lives on a farm in Yzerfontein in South Africa’s Western Cape province, but has been in and out of the Congo over the past 10 years to attend to her project there. To support the introduction of tourism infrastructure to Odzala- Kokoua National Park, which will ultimately enable the park to sustain itself, she has established the Congo Conservation Company (CCC), a private entity. She is also on the board of Cape Town based LCA, her partner organisation in Odzala- Kokoua National Park.

“Before our intervention here in 2007, this part of the Congo was very neglected. There was no means to generate revenue in Odzala-Kokoua, and the village communities around the forest were disillusioned and unmotivated,” says Paul Telfer, the CEO of CCC and Plattner’s business partner. Since then, Ms Plattner and LCA have contracted Africa Parks Network (APN)—a highly regarded, non-profit company that manages and rehabilitates national parks in Africa) to manage Odzala-Kokoua, and with a multimillion- Euro commitment from Ms Plattner’s own resources—to build three luxury lodges in the park, along with an airstrip and a road. Odzalo-Kokoua Park is home to about 15,000 forest elephants as well as mountain gorillas, bongo (antelope) and other remarkable species of primate and mammal. Ms Plattner’s intention is that all the revenue generated from tourism here goes back into the community.

At present there are no logging concessions in Odzala-Kokoau Park, although a suggestion to grant one might be made to the Congolese government, the owner of the logging concessions, if conservation in the area might benefit from it, says the manager of the park, Leon Lamprecht, of APN. “We support Sabine Plattner’s tourism concession here with the maintenance of infrastructure, and the mere fact that the park is well managed by APN creates a tourism product that can sell to tourists. A logging concession, practiced along ecological principles, may enhance sustainability of the park in future, but for now, we are just managing and overseeing general habituation,” he says. Rainforest conservation aside, Ms Plattner is a household name in the local village communities, as she supports—through her Sabine Plattner African Charities organisation—a variety of additional projects including the construction and operations of community centres that provide early childhood development projects, youth projects and basic skills training.

She has been doing this kind of work for decades, starting with disadvantaged young people in South African communities. This kind of selfless, step-by-step approach has forged a meaningful path for the Congo’s conservation efforts as a whole. Fortunately, the Congolese government is supportive of a more conservative logging policy than was practised in the past. “The Congo has a fairly visionary conservation policy, and the minister of forestry and sustainable development of the Congo (Henri Djombo) is working closely with the parks and NGOs, giving them wide latitude to exercise good conservation practices,” says Mr Telfer. Mr Marais says the “conservation commerce” mode—that is, ploughing tourism revenue back into the community which Ms Plattner pioneered in the Congo—is to be replicated in other parks in the country, including Nouabal-Ndoki National Park of almost 4,000km2.

“Odzala- Kokoau has offered a solution for other parks in the Congo, which would otherwise be threatened due to the pressures of market demand, not only for trees but for bushmeat and ivory. Tourism creates revenue, but also increases vigilance which disables poachers and illegal traders,” says Mr Marais. Tourism in the Congo is growing, albeit markedly more slowly than other destinations on the continent. The UN World Tourism Organisation forecasts 4% growth this year in the tourism industry in Africa, with South Africa in the lead, followed by Morocco, Mauritius and Mahe Island in the Seychelles. A survey by global flight search and travel deals platform, Cheapflights.co.za, found that searches to African countries are coming predominantly from the UK and Germany, with 14% and 13% of all searches to the continent respectively.

South Africans are also travelling more into their own continent, the survey found. Mauritius, Tanzania, Mozambique, Madagascar, the Seychelles and Morocco were all within the top ten searched African destinations for South Africans, with Congo being among the least popular destinations along with Uganda. Inbound tourists to Congo in 2014 numbered only 373,000, according to the World Bank data. This is unfortunate. Congo, Africa’s second largest country after Algeria, was a prime tourism destination before the 1990s, when the region was stable. It features spectacular tropical rainforests and wildlife, and boasts two UNESCO World Heritage Sites, Virunga National Park to the north, where nearly half of the world’s gorilla population lives, and the Kahuzi-Biega National Park outside Bukavu in the west. In the east, volcanic peaks rise thousands of meters above the surrounding rainforest.

In the aftermath of the Rwandan genocide, civil wars, poaching and lack of funding to the parks have since taken a heavy toll on Congo’s tourism, but thanks to the commitment of conservationists like Ms Plattner, ecotourists— people seeking authentic local experiences and opportunities to give back to the communities they visit—are still venturing into this part of the world.

Helen Grange is a freelance journalist writing for newspapers and magazines in South Africa and abroad. Her work appears primarily in The Star, Argus, Daily News and Pretoria News. She also writes for Noseweek, Business Day and Financial Mail and edits magazines for various publishers.

Crisis mode

Democratic Republic of the Congo: economy

Slowing growth and growing political uncertainty spell difficult times ahead for this central African country

By François Misser

After five years of robust economic growth registered since the beginning of the decade, the economy of the Democratic Republic of Congo (DRC) has entered a period of deceleration, owing to the fall of oil and copper world prices. This may be amplified by political uncertainty. Economic growth is likely to decelerate in 2016. In April 2016 the Central Bank of the Congo (BCC) announced that the GDP growth rate for 2015 had declined to 6.9%—2.8% below the IMF forecast. This followed a steady GDP growth rate above 7% since the beginning of the decade, with a peak of 9.2% in 2014. The BCC says that the deceleration is mainly due to the fall of base metals’ prices on the world markets. Several indicators show that this trend of a slower growth is likely to continue through 2016, in line with the 3.3% decrease in copper production to 995,805 tons in 2015—a decline that accelerated during the last quarter of 2015 with a 12% fall in production.

This result was mitigated by the 3.6% rise of cobalt production up to 69,328 tons and by a 30.4% increase of the gold production up to 25,516 kg. Diamond output, mainly of artisanal origin, rose by 3% to 17.12 million carats. Production of coltan and cassiterite (a tin-bearing ore) dropped respectively by 18% and 25% while tungsten output increased by 75%. In its annual report for 2015 the Congolese Chamber of Mines noted that producers of tantalum, tin and tungsten face an additional cost in the form of the traceability and due diligence procedures required for conflict minerals—a consequence of the US Dodd & Franck Act. Some 81% of the traceability costs are paid by Congolese companies. The Chamber of Mines says that the crisis is driven by a slowdown in Chinese demand and increased mining production worldwide. “This will have major consequences on employment and on tax revenues in the DRC, where the country’s growth depends heavily on the mining sector,” it warns.

Total state revenues from the extractive sector in the DRC reached $1.77 billion in 2014, according the Extractive Industries Transparency Initiative (EITI). Of this, mining companies paid $1.348 billion as against $421 million reported by the oil industry. The direct contribution of the extractive industries to the state budget was $1.14 billion, accounting for 28% of state revenues in 2014. Mining and oil exports accounted for 95% of total exports from the DRC in 2014. Indications are that the crisis has deepened since the beginning of 2016. By mid-April, about a dozen mining firms had ceased activities in the Congolese copper belt. The Kamoto Copper Company (KCC), a subsidiary of the Anglo-Swiss multinational commodity trading and mining company Glencore that contributed about 15% of the copper national production in 2014, stopped producing last October.

Insiders expect that KCC will remain inactive as long as production costs, estimated at $5,500/ton, remain above world prices ($4,633/ton on the London Metal Exchange on May 17th). Other companies—including the Compagnie Minière du Sud-Katanga (CMSK), the Chinese corporation Cota Mining, Kansuki Mining, the subsidiary of Biko Invest, a company associated with the Israeli businessman and President Joseph Kabila’s close friend Dan Gertle—are now also at a standstill. The May 9th decision by the US company Freeport-MacMoran to sell its 56% stake of the main copper and cobalt mine of the country, Tenke Fungurume, to the China Molybdenum Co. Ltd for $2.65 billion, may have eroded western companies’ confidence in the sector’s viability.

The diamond industry is also in crisis. By mid-May, the diamond mining company Minière de Bakwanga (MIBA), the economic locomotive of the Kasai Oriental province, was paralysed by a strike after management suspended wage payments. The company had encountered cash flow problems due to a decline of output, which fell to 21,000 carats/month in March 2016, the equivalent of 2.6% of the average monthly production in 1990. But the deterioration of the situation at MIBA has older roots than the recent fall in commodity prices: for one thing, MIBA is in debt to the tune of over $350 million. Nevertheless, its future isn’t all gloom. In a letter to the company’s auditor, CEO Jean-Pierre Tshibangu Katshidikaya recently estimated MIBA’s reserves at over 120 million carats of mainly industrial quality, valued at around $2 billion. Certification of these mining deposits will no doubt improve the company’s situation. Even if commodity prices rise in the near future, however, the Congolese mining industry still faces a serious lack of adequate infrastructure. For example, exporting mining products through Maniema is problematic.

Trains can take more than a month to cover the distance between Kindu and Kalemie, because of the shortage of locomotives. These delays often result in late delivery of tin concentrates against three-month LME contracts, and unnecessary penalties as a consequence, says the Congolese Chamber of Mines. Another major cause for concern, both for the mining industry and for the rest of the economy, is the poor supply of energy, according to the Chamber of Mines. In its annual report, the Chamber accused the state-owned electricity supply commission, SNEL, of “inadequate and highly non-transparent management”. This was the major factor inhibiting the development of the mining industry in the four provinces that resulted from the division of the old Katanga Province, it said. “Potential investors in the energy sector do not have the slightest confidence in the existing structure”, it added. “Efforts to circumvent or supplant the existing structures are being thwarted by powerful lobbying from the current players who prefer the monopolistic status quo.” The chamber advocates privatising the sector.

Not all mining sub-sectors are affected in the same way. The gold sector manages its own energy supply; it can afford to use generators because power represents only a fraction of gold’s production costs. That is not the case for the large copper projects, whose dependence on the national operator is almost total, says the Chamber of Mines. Moreover, the gap between the offer and the demand of electricity increased more than five-fold from 94MW to 542MW between 2011 and 2014, says Eric Monga Mumba, chairman of the Federation of Congolese Enterprises in Katanga. The ministry of electricity and water resources anticipates that national demand will grow from 2,595MW in 2015 to 3,617MW in 2020. It hopes to fill the gap, at least partially, with imports from neighbouring Zambia. Meanwhile, oil production is stagnating. In 2015, it stood at 8.24 million barrels, according to the BCC, as against 8,38 million in 2014. In February 2016, output reached 682,000 barrels, as compared to annual production of 8.18 million.

At the same time, year-on year-statistics show that average crude oil spot price decreased by 29.1% between April 2015 and April 2016, from $57.54/barrel to $40.75/barrel. The situation might slightly improve if projections of a price increase to $46/b by the end of this year are confirmed. Statistics from the agricultural export sector show stagnation, at best. A twofold increase in April of the maize flour price on the markets of Katanga is due to insufficient supply. Simultaneous hikes of prices of rice (+12%) and beans (+30%) on the markets of Kinshasa are indications that the country’s chronic food deficit will continue. Meanwhile, the managers’ confidence index declined by 10% in the first quarter of 2016. Unsurprisingly, this trend has had negative consequences on public expenditure, which have contracted markedly. During the first quarter 2006, actual expenditure and revenues were 44% lower than the figures of $8 billion voted by parliament and promulgated by President Joseph Kabila on the 31 December 2015.

At the end of April 2016, a budget deficit of CDF15.15 billion (about $16.32 million) was recorded, rather than the projected surplus of CDF68.19 billion (about $73.49 million). Even assuming that budget targets for the rest of the year are met, public expenditures will be much lower than the projected amount. On May 5th this year, the government cut the targets set in the projected budget by 22%. This is not good news in a country where dividends of the robust growth recorded since the beginning of the decade have been minimal, as shown in a number of human development indicators. The DRC’s poverty index is one of central Africa’s lowest, with a rate of 61.3%. In its last country report the IMF warned that the DRC would achieve none of its Millennium Development Goals by 2015. The IMF has also indicated that a key challenge facing the Congolese economy is its extensive reliance on extractive industries. The organisation says that it is concerned at the DRC’s “heightened political uncertainty”.

The government is accused of using the economic crisis as a pretext for the postponement of the presidential and legislative elections, officially slated for November 2016. At the end of April the governor of North Kivu, Julien Paluku, a supporter of President Joseph Kabila, said that the government could not afford the $1.4 billion needed to finance the electoral process, which represents the equivalent of 17.5% of the national budget for 2016, promulgated at the end of 2015. The electoral commission has warned it will be difficult to hold the elections within the constitutional timeline. And on May 11th, the Constitutional Court ruled that the president can stay in office beyond his mandate, though the constitution forbids him from running for a third term. These measures are not consensual and there are fears that such postponement might again bring violence, as seen in January 2015, when a proposal to allow the president to stay in office longer than his mandated term sparked protests and repression.

François Misser is a Brussels-based journalist. He has covered central Africa since 1981 and European-African relations since 1984 for the BBC, Afrique Asie magazine, African Energy, the Italian monthly magazine Nigrizia, and Germany’s Die Tageszeitung newspaper. He has written books on Rwanda and the DRC. His last book, on the Congo River dams, is La Saga d’Inga.

Tough love

South Africa: drive into Africa

Many assume that South African businesses are a natural fit for other markets on the continent, but experience is showing otherwise

By Peter De Ionno

For South African business, driven in part by a stagnating domestic economy likely to return growth of 0.8% at best in 2016, a bigger future lies north of the Limpopo, where growth in sub-Saharan economies is expected to average 4.5%. The World Bank’s latest South African GDP growth prediction is the lowest since 2009. That too could tumble over the precipice if predicted downgrades by international ratings agencies come to pass, turning the country’s investment paper into junk and prompting the slump into a recession. No wonder then that South African business is spending billions looking for new markets. But Africa is not a single, unitary investment destination. It includes 55 countries, 1.2 billion people speaking 2,000 languages and dialects, and a jigsaw of markets and jurisdictions, each shaped by different histories and cultures with economies regulated by myriad regulations and customs.

South African businesses trekking north must learn to deal with business systems, mainly informal, and legal codes that are not only unfamiliar, but part of countries where the economic landscape can be destabilised by terrorism and ethnic conflict. Analysts have observed that the barriers and obstacles to trade between African countries, particularly at border crossings where ever-longer queues of trucks can be delayed for days on end, are markedly more difficult to surmount than connections to markets in developed countries. Overlaying these new markets with templates based on high-level models such as South Africa’s King Codes on governance, as well as strategies that have historically proven profitable in South Africa— with its unique demographics, wealth and high levels of development concentrated in the top 20%—just won’t work.

While all agree that best practice corporate governance is the only path to ensuring that Africa’s economy grows sustainably and meets the needs of its people, it is honoured more in the breach than in the observance in many parts of the continent. The big South African formal retailers have had varying levels of success with their frontier forays, which have seen them open some 1,500 stores. Shoprite is the frontrunner, having started beyond South Africa in 1995. It now operates more than 320 stores in 14 countries, which last year generated R19 billion ($1.21 billion) in sales, or 16.4% of the group’s turnover. Shoprite founder, Whitey Basson, declined to be interviewed for this article, but his online profile says he was motivated by a desire to win the approval of African leaders by enhancing food security in major African cities. The firm’s first store in Lusaka, Zambia, at first imported all merchandise including fresh produce, arousing local anger. Shoprite had to develop local suppliers of fresh goods where possible.

Now, some 80% of goods on Shoprite’s African shelves come from non-South African sources—another indication of the ease of external connections over intra- African trade, which the Industrial Development Corporation (IDC) says averaged only 10% between 2007 and 2012. An early venture into Egypt failed because of red tape and restrictive legislation, but the greatest impediment to African expansion—as experienced by other retailers too—was the lack of suitable sites for its stores. Shoprite’s solution has been to build its own shopping centres, with its supermarkets as the anchor. Shoprite Holdings is Africa’s largest retailer and is listed on both the Namibian and Zambian stock exchanges in addition to its main listing on the Johannesburg Stock Exchange (JSE). In the 12 months to June last year, Shoprite said it had invested R1.5 billion ($95.9 million) in its African expansion, opening another 30 supermarkets, mostly in Angola and Nigeria. That was more than double its R697 million ($44.57 million) South African expansion budget.

Another South African company, Woolworths, an upmarket retailer, operates more than 65 stores in 11 African countries. It took a knock in 2013, when it pulled out of Nigeria after its stores failed to connect with local customers. The lack of suitable shopping malls also crimped its expansion plans. Later, its R20 billion ($1.28 billion) acquisition of the David Jones department stores in Australia signalled a turn away from Africa. Sales on the continent account for about 5% of its business. Mr Price, a value fashion retailer, has done better, with about 9% of its business coming from its African expansion, notably in Ghana. Much of its success is attributed to its cash-based model in countries where credit financing is relatively undeveloped. Martyn Davies, managing director of Emerging Markets & Africa at Deloitte Frontier Advisory, offers a warning to businesses moving operations into Africa.

Although adherence to the highest standards of corporate governance remains best practice, there are many markets where that ideal may be impossible to achieve and pragmatism trumps all else, he says. Mr Davies, who has advised more than 30 of the JSE’s top 100 listed firms, says the fall of some African countries into states of “ungovernment” means that principles of good governance remain simply that: good ideas that cannot be applied in the face of lawlessness. In Nigeria, the local arm of South African-based telecommunications multinational, MTN Group, is facing the imposition of a record $15.6 billion (R245 billion) fine for failing to disconnect 5.1 million unregistered and improperly-registered SIM cards as required by the regulating Nigerian Communications Commission (NCC).

MTN, Africa’s biggest mobile operator, announced that its 2015 results had taken a 51% hit on its full-year profit, with its headline earnings per share (HEPS) falling to 746 cents as the company set aside R9.29 billion (about $590 million) towards its fine obligations. It would be easy to see this as a spectacular corporate governance failure and an own goal by MTN Nigeria. After all, MTN cannot claim ignorance that its failure to properly register SIM cards would render it liable for a penalty of Naira 200,000 (about $1,000) per unregistered subscriber. In March, two weeks before the Nigerian House of Representatives trebled the original fine imposed after MTN missed a mid-2015 deadline, President Muhammadu Buhari said MTN had cost people their lives, and fuelled the Boko Haram insurgency in north-eastern Nigeria by failing to disconnect the unregistered users.

MTN did not respond to requests for comment. Mr Davies says that MTN had no choice but to accept being penalised for breaching the regulations, although the size of the fine makes the case unique. “In…Nigeria there are a lot of arbitrary impositions on business. Companies like MTN are simply seen as cash cows to be milked.” With the economy in decline, this kind of pressure on business will only increase. He also questions whether anybody can run a business in Nigeria or Angola and maintain the highest standards of corporate governance, while navigating the day-to-day demands of rampant corruption. “Standards of governance must be set by the government of a particular country, but unless they are enforced by strong internal independent institutions they won’t mean very much,” says Mr Davies. The kinds of challenges facing businesses in such countries range from impositions on logistics that can hold to ransom imports of equipment and stock deliveries, to the more personal and visceral, where executives or even their families are caught up in roadblocks and the payment of a bribe means the difference between safe passage and detention, or worse.

Every business should aim to adhere to the highest ethical standards, he says, while upholding the laws in all the jurisdictions in which they operate and maintaining responsible and transparent relations with their customers, suppliers, workers and communities. In some countries, however, this remains impossible. “Most foreign business operators will find that pragmatism is the best policy to deal with difficult local conditions if it becomes a matter of survival”, he suggests. Mr Davies adds that South Africa’s reputation as a beacon of corporate governance based on the adoption of the King Codes—which outline principles of leadership, sustainability and corporate citizenship—as well as high international regard for the JSE and the country’s well-regulated, technically advanced banking sector, is fading. “Issues of state capture point to cracks in our government’s commitment to good governance.

As in other countries, difficult economic times go together with standards slipping,” he says. Pressed to identify the best and worst countries for across-the-board adherence to corporate governance principles, Mr Davies says South Africa still leads the continent, with Botswana, Mauritius, Rwanda and Kenya following. On the downside, he lists Nigeria, Chad, Niger, Sudan, Angola and Congo as countries where the challenges and failures in the application of best practice corporate governance, all too frequently, outweigh the wins.

Peter de Ionno is a Johannesburg-based journalist. He was the deputy editor of Business Report, and has written for The Star, Sunday Times, City Press and contributed to numerous magazines.

Banking on benevolence

Malawi: infrastructure

After fifty years of ‘overlooking’ economic growth, Malawi plans to encourage public-private partnerships to fund infrastructure development

By Collins Mtika

For years, Malawi has banked on the international community for the development of its roads, factories, airports, railway lines, ICT infrastructure, water treatment plants, energy supply and even toilets. Yet despite all the assistance from organisations such as the World Bank and regional body, the Southern African Development Community (SADC), Malawi is now poorer than it was two decades ago, according to the 2016 African Social Development Index. Malawi is an extreme example, but Africa’s infrastructure deficit-estimated at $93 billion per year- is generally regarded as the single greatest obstacle to its economic development. According to the World Bank, for most African states the negative impact of deficient infrastructure is at least as large as that associated with corruption, crime, financial market and red tape constraints. The continent’s infrastructure deficit is a major constraint to doing business, depressing firm productivity by around 40%.

The bank says Africa’s weakest point is its power sector, with all of sub-Saharan Africa generating roughly the same amount of power as Spain. Only 9% of the urban population of Malawi has access to electricity, and that figure drops to 1% in rural areas, according to the National Statistics Office. Across the continent, says the International Energy Agency (IEA), only 290 million out of 915 million people have access to electricity. The number is rising because, while efforts to promote electrification are gaining momentum, they are being outpaced by population growth. Electricity generating capacity remains the greatest stumbling block to business development on the continent. World Bank figures show that the average duration of outages in hours is highest in the Republic of Congo (29.6 in 2009), with a 9.6% concomitant loss in annual sales.

According to the IEA’s Africa Energy Outlook, supply is often unreliable, necessitating widespread and costly use of generators running on petrol or diesel. Meanwhile, electricity tariffs on the continent are, in many cases, among the highest in the world. However, reform programmes are starting to improve efficiency and bring in new capital, according to the report. The organisation predicts that grid-based generation capacity will quadruple by 2040, albeit from a very low base. Between 2000 and 2012, however, Africa increased its generating capacity by 32% as a whole (compared with a global figure of 60,5%), U.S. Energy Information Administration figures show. By 2013 electricity production was 694,000 gigawatt hours, with Egypt and South Africa contributing the bulk. Sub-Saharan Africa is also starting to unlock its renewable energy resources, and half of the projected capacity is expected to come from renewables by 2040.

The African Development Bank (AfDB) is driving an effort involving governments, the private sector, and bilateral and multilateral energy sector initiatives to develop a “Transformative Partnership on Energy for Africa”, a platform for public-private partnerships for innovative financing in Africa’s energy sector. The bank says this will require supporting African countries in strengthening energy policy, regulation and sector governance. “The New Deal will build on and further scale up the bank’s investments in the ‘soft’ infrastructure of national governments and institutions, to enhance energy policies, regulations, incentive systems, sector reforms, corporate governance, and transparency and accountability in the energy sector,” according to the bank. The government of Malawi says the country is undergoing a “silent economic paradigm shift” by trying to move from aid to trade. It aims to do so by shifting the country from its reliance on agricultural production to direct investment in multiple sectors in an attempt to stimulate a more diversified economy. “We want to address the fundamentals of economic growth, which we overlooked for the last 50 years,” President Peter Mutharika said recently.

To this end Malawi is opening up its power sector to independent power producers (IPPs), which will use nuclear, renewables, biomass, liquid fuels and coal to add about 1,550MW to the national grid by 2020. The country’s energy regulator, the Malawi Energy Regulatory Authority (Mera) says Malawi has the potential to produce 745MW to 1,670MW, based on its natural resource base of 21 million metric tons of coal, for thermal power generation, 630,000 metric tons of uranium for nuclear power and 60,000 hectares biomass which can provide an additional 50MW. The government has broken the 53-year-old monopoly of the Electricity Supply Corporation of Malawi (Escom) by offering separate sets of licences for generation, transmission and distribution. So far the country has signed memoranda of understanding with 27 IPPs.

The World Bank says regional integration of infrastructure will also lower the cost of infrastructure by giving smaller countries access to more efficient technologies and a larger scale of production. It cautions that bridging Africa’s infrastructure funding gap will require addressing the following sources of wastage: lack of timely maintenance; inefficient distribution networks; weak revenue collection; under-pricing of services; and low capital budget execution. In other areas of infrastructure development, Africa is keeping pace. The ICT sector, for instance, is closer to developments elsewhere in the world. Mobile phone subscription is extremely high at 71.2 subscribers per 100 people. International Telecommunication Union statistics show that some countries, such as the Seychelles and South Africa, average one-and-a-half phones per hundred people. Although overall Internet usage is low at 18%, some countries have extremely high penetration. Kenya is at 43.4%, up dramatically from 3.1% in 2005.

A 2015 Brookings Institute analysis says the composition of external financing for African infrastructure is changing. Overall financing across the three major external sources tripled between 2004 and 2012. During this period, while the level of Official Development Finance (aid) increased— especially from the World Bank and the AfDB—the dominance of ODF in infrastructure financing declined as private investment surged to over 50% of external financing, and China became a major bilateral source. “Viewed from a sectoral perspective, the distribution of external finance illustrates the preference and criteria of the various sources. The energy sector has had the fastest growth across all external financing sources since 2009: it now attracts 45% of the total external finance. Although private investment is significant and serves a broad range of countries, historically it has been concentrated in the telecommunications (or ICT) sector,” the report says.

Compiled by GGA

Compiled by GGA

Excluding telecom, private finance for other sectors, especially energy, is highly concentrated in a few countries, the report adds. “Official Chinese investments are now expanding beyond the country’s earlier focus on financing for resource-rich economies and is reaching sectors in which it has particular technical expertise—such as hydropower—and those that are not as amenable to the private sector—such as transport (especially road and rail).” While infrastructure investment as an asset class is not as high in Africa as in other parts of the world, it is on the rise. Total private investment in infrastructure in Africa between 2007 and 2014 was $305.7 million. Rwanda received the lion’s share, $86.7 million, while oil-rich South Sudan received $75.8 million, according to the World Bank’s Private Participation in Infrastructure database.

The Brookings report says sub-Saharan countries will have to raise more domestic finance. However, ultimately the quality and sustainability of infrastructure and related services resulting from increased funding will depend on the political will and capabilities of national governments. “It comes down to the broad issue of governance in which sub-Saharan countries, while progressing, still face substantial challenges,” the report concludes.

Collins Mtika is a Malawian independent Investigative Journalist and founder of the Centre for Investigative Journalism in Malawi (CIJM). He works for the Times Media Group which publishes The Daily Times, the Sunday Times and Malawi News, for which he is currently bureau chief for the Northern region.