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After the ‘rising’ – now reform and realism

The new year started with a host of commodity price crashes, runs on currencies and warnings about mounting debts.

Bankers' bets, based on glossy analytical reports about Africa's lion economies and a doubling of its gross domestic product by 2025, were discreetly torn up last year. In their place are downbeat prognoses about Africa's position in a much harsher global economic and political climate (AC Vol 56 No 1,  HYPERLINK "http://www.africa-confidential.com/article/id/11408/New_ideas%2c_harder_times_and_a_few_surprises" New ideas, harder times and a few surprises).

For the irrepressible optimists, this year's hard times will concentrate minds. Take Nigeria, where President  HYPERLINK "http://www.africa-confidential.com/whos-who-profile/id/2606/Muhammadu_Buhari" Muhammadu Buhari's government says it is determined to combat the falling oil prices with an expansionist or Keynesian programme of capital investment and to restructure the economy to end its chronic dependence on oil exports.

It would certainly help if Nigeria's top industrialist,  HYPERLINK "http://www.africa-confidential.com/whos-who-profile/id/2622/Aliko_Dangote" Aliko Dangote, has as much success with his oil refining and petrochemical businesses as he has with cement production. Thanks to Dangote's astute financial calculations and political diplomacy, he has made Nigeria a net exporter of cement. He plans to do the same with petroleum products and petrochemicals, if he can hold his nerve. The value of his investments have already fallen by over 20% on the Nigerian Stock Exchange.

Business people and oppositionists chant similar mantras about restructuring in South Africa and Angola, and there is more interest in the dirigiste model of economic restructuring developed by Ethiopia, Morocco and Rwanda, and the more market-led developments in Kenya.

World Bank economists reckon that the downward trajectory started in 2014, when average GDP growth in Africa fell to 4.6% and its latest report notes a further slowing to 3.4%. For this year, the Bank offers a modicum of optimism with a forecast rise to 4.2%.*

Five developments fuel the gloomier outlook for Africa. Firstly, China's economic rebalancing and slowdown. By some measures, China is already the world's biggest economy and for Africa, it is certainly the most influential one by dint of the more than US$200 billion annual trade account with the continent's 55 economies. As agile as any Western spin doctors, Chinese officials went to great lengths at last December's Forum for China-Africa Cooperation to promote a new package of $60 bn. worth of investment and loans to Africa, as they explained some of the consequences of their country's economic restructuring. As trade between China and Africa slows in the short term, Beijing's officials made much of the prospects for cooperation on big industrial projects on the continent. That, though, is very much a medium-term prospect.

Secondly, the commodity price crash cannot all be blamed on China and it is not blighting all Africa's exports. For example, export earnings from cocoa, coffee and tea look set to hold up in both the increasingly lucrative specialist markets and in the traditional bulk purchase markets. In other areas, the commodity news is undeniably grim: the millions of extra barrels of oil on the international market seem destined to push down prices further, short of a spectacular political shock such as the collapse of the monarchy in Saudi Arabia. With United States' and European sanctions lifted against Venezuela, Iran and perhaps Russia, the prospects are for yet more and cheaper oil.

Mining companies are laying off workers across Africa: at least 50,000 people in South Africa and tens of thousands in Congo-Kinshasa and Zambia. Here, the forecast demand for copper, cobalt and iron ore is more complicated because of the long lead-time to develop a mine. More optimistic analysts argue that India – now the fastest growing big economy in Asia – could replace China as the most important metals buyer for Africa.

Again, that is more of a medium-term prospect. Just as international oil companies are cancelling exploration and production operations in Africa and elsewhere, big mining projects, such as the Simandou iron ore project in Guinea, will struggle to raise finance (AC Vol 56 No 22,  HYPERLINK "http://www.africa-confidential.com/article/id/11291/Cond%c3%a9_consolidates_as_opposition_regroups" Condé consolidates as opposition regroups).

Thirdly, the Western-dominated financial sector will impose tougher terms on African borrowers and raising finance for big capital projects will get harder still. With a stronger dollar and higher domestic interest rates, more cautious financiers are returning to the US markets. Not only will African countries have to pay higher interest rates on fresh sovereign bond issues, the costs of servicing existing debts are likely to rise sharply. Already, the vulture funds of Wall Street are eagerly surveying the market for bargains.

Fourthly, the political and security climate is scaring off Africa's many short-term investors and fair-weather friends. More liquid equity and money markets such as South Africa's have lost billions in value over the past year, partly because of self-inflicted wounds but also due to growing corporate nervousness about the reality behind those Panglossian reports about Africa's fast growing middle classes.

More robust responses from governments and institutions such as the African Development Bank to counter to some of the nonsensical swings in international sentiment on Africa could help. So could much better data and statistics, as well as an African ratings agency that can evaluate political risk with inside knowledge, rather than long-range speculative assessments.

Although Africa's security crises are most serious in the Horn, the Sahel and Libya, few foreign assessments make those distinctions. Accordingly, the tourism and service industries have been heavily hit by the wave of Islamist attacks over the past couple of years and the growing sense of threat across the region. In places such as Kenya's Coast Province, this reinforces a cycle of economic and political insecurity when terror attacks close down tourist facilities, weakening local economies and exacerbating grievances.

Fifthly, the extreme weather – longer droughts and heavier flooding – associated with climate change is doing increasingly serious damage to agriculture in Africa as well as worsening social conditions more generally. Despite the celebrations around the climate change treaty in Paris in December, there were few guarantees of new money to enable African economies to adapt to global warming. However, some of the bolder sustainable energy projects in Africa – such as solar power in West Africa and the 'green energy corridor' in East Africa – point the way to new economic strategies which could give the commodity-dependent countries a much needed boost.

How are African governments likely to react to the tougher conditions?

Some politically vulnerable governments are planning more social protection schemes while others are looking for ways to pull in more foreign investment. We hear that Nigeria's new Trade and Investment Minister, Okechukwu Enelamah, wants to cut through the country's business bureaucracy (AC Vol 56 No 23,  HYPERLINK "http://www.africa-confidential.com/article/id/11334/Buhari_resets_the_clock" Buhari resets the clock). Currently, Nigeria is 169th out of 189 countries surveyed by the World Bank's 'Ease of Doing Business' ratings.

Central bankers, too, will look much harder at the viability of the commercial banking sectors as bad debts grow, in some cases due to mounting payment arrears on state contracts. State treasuries will face their own problems in coping with rising foreign debt burdens, made heavier by a stronger dollar and rising interest rates. The IMF warns of a decline in the competitiveness of Africa's economies and poor performance of its manufacturers, hit by unreliable power, poor transport links and again, bureaucracy.

The IMF believes inadequate infrastructure, despite falling transport cost, high wages and over-valued exchange rates are partly to blame. It adds that most governments lack the financial buffers that they had in 2009 to weather that financial crisis. Then, substantial reserves and modest deficits allowed governments to introduce projects and programmes – counter-cyclical spending – to protect the poorest. This time, those buffers don't exist.

The IMF also reckons that oil producers such as Angola and Nigeria will have to make 'sharp fiscal adjustments' and will see growth levels sharply down (see Chart). It also predicts growth of more than 6% for several countries, such as Kenya, Ethiopia, Tanzania, Mozambique, Rwanda, Côte d'Ivoire, Congo-Kinshasa and Chad.

* Global Economic Prospects, Spillovers and Weak Growth, the World Bank, Washington, 2016.

Source: Africa Confidential 2016

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Business

Gambling Authority tender dangles as a jittery lottery quandary

30th November 2020
SEFALANA MD: CHANDRA CHAUHAN

Lucrative and highly anticipated national lottery tender that saw several Batswana businessmen partnering to form a gambling consortium to pit against their South African counterparts, culminates into a big power gamble.

WeekendPost has had a chance to watch lottery showcase even before the anticipated and impending national lottery set-up launches. A lot has been a big gamble from the bidding process which is now set for the courts next year January following a marathon legal brawl involving the interest of the gambling fraternity in Botswana and South Africa.

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The uncertainty of getting the next meal in Botswana

30th November 2020
uncertainty of getting the next meal

Households representing more than half of Botswana’s population-mostly residing in rural areas- do not know where their next meal will come from, but neither do they take into consideration the quality and/or quantity of the food they consume.

This is according to the latest Prevalence of Food Insecurity in Botswana report which was done for the 2018/19 period and represents the state of food insecurity data even to this time.
The Prevalence of Food Insecurity was released by Statistics Botswana and it released results with findings that the results show that at national level 50.8 percent of the population in Botswana was affected by moderate to severe food insecurity in 2018/19, while 22.2 percent of the population was affected by severe food insecurity only.

According to the report, this translates to 27 percent of the population being food secure that is to say having adequate access to food in both quality and quantity. According to Statistician General, Burton Mguni, when explaining how the food data was compiled, Food and Agriculture Organization of the United Nations (FAO), is custodian of the “Prevalence of Undernourishment (PoU)” and “Prevalence of moderate or severe food insecurity in the population based on the Food Insecurity Experience Scale (FIES)” SDG indicators, for leading FIES data analysis and the resultant capacity building.

“The FIES measures the extent of food insecurity at the household or individual level. The indicator provides internationally comparable estimates of the proportion of the population facing moderate to severe difficulties in accessing food. The FIES consists of eight brief questions regarding access to adequate food, and the questions are answered directly with a yes/no response. It (FIES) complements the existing food and nutrition security indicators such as Prevalence of Undernourishment.

According to the FIES, with increasing severity, the quantity of food consumed decreases as portion sizes are reduced and meals are skipped. At its most severe level, people are forced to go without eating for a day or more. The scale further reveals that the household’s experience of food insecurity may be characterized by uncertainty and anxiety regarding food access and compromising the quality of the diet and having a less balanced and more monotonous diet,” says Mguni.

The 50.8 percent of the population in Botswana which was affected by moderate to severe food insecurity are characterized as people experiencing moderate food insecurity and face uncertainties about their ability to obtain food. These people have been forced to compromise on the quality and/or quantity of the food they consume according to the report on food insecurity.

Those who experience severe food insecurity, the 22.2 percent of the population, are people who have typically run out of food and, at worst, gone a day (or days) without eating. According to the statistics, rural area population experienced moderate to severe food insecurity at 65 percent while urban villages were at 46.60 percent and cities/town were at 31.70 percent. Those experiencing the most extreme and severe insecurity were at rural areas making 33.10 percent while urban villages and towns were at 11.90 percent and 17.50 respectively.

According to a paper compiled by Sirak Bahta, Francis Wanyoike, Hikuepi Katjiuongua and Davis Marumo and published in December 2017, titled ‘Characterization of food security and consumption patterns among smallholder livestock farmers in Botswana,’ over 70 percent of Botswana’s population reside in rural areas, and majority (70%) relies on traditional/subsistence agriculture for their livelihoods.

The study set out to characterize the food security situation and food consumption patterns among livestock keepers in Botswana. “Despite the policy change, challenges still remain in ensuring that all persons and households have access to food at all times. For example, during an analysis of the impacts of rising international food prices for Botswana, BIDPA reported that food prices tended to be highest in the rural areas already disadvantaged by relatively low levels of income and high rates of unemployment,” said the study.

According to the paper, about 9 percent of households were found to be food insecure and this category of households included 6 percent of households that ranked poorly and 3 percent that were on the borderline according to the World Food Programme’s (WFP) definition of food security.

Media reports state that the World Bank has warned that disruption to production and supply chains could ‘spark a food security crisis’ in Africa, forecasting a fall in farm production of up to 7 percent, if there are restrictions to trade, and a 25 percent decline in food imports.

Food security in Botswana or food production was also attacked by the locust pandemic which swept out this country’s vegetation and plants. The locust is said to have contributed to 25 percent loss in production.

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Solid demand for diamonds towards the ‘gift’ season

30th November 2020
Diamonds

Global lockdown have been a thorn in diamonds having shiny sales, but a lot of optimism shows with the easing of Covid-19 restrictions, the precious stones will be bought with high volumes towards festive season. The diamond market is however warned of the resurgence of Covid-19 in key markets presents ongoing risks amid the presence and optimist about the new Covid-29 vaccines.

The latest findings published as De Beers Group’s latest Diamond Insight ‘Flash’ Report, which looks at the impact of the pandemic on relationships and engagements, has revealed that in the US that more couples than ever are buying diamond engagement rings. Bridal sales is mostly the primary source of diamond jewellery demand in recent months, De Beers said.

According to De Beers, interviews with independent jewellers around the US revealed that the rate of couples getting engaged has increased compared with the period when Covid-19 first had an impact in the US in the spring.

“In addition, despite challenging economic times, consumers were spending more than ever on diamond engagement rings – often upgrading in colour, cut and clarity, rather than size. Several jewellers speculated that with consumers spending less on elaborate weddings and/or honeymoons in the current environment, they had more to spend on choosing the perfect ring,” said De Beers.

According to De Beers, a national survey of 360 US women in serious relationships, undertaken in late October in collaboration with engagement and wedding website, The Knot. This survey is said to have found that the majority of respondents (54%) were thinking more about their engagement ring than the wedding itself (32%) or the honeymoon (15%), supporting jewellers’ hypothesis that engagement ring sales were benefiting from reduced wedding and travel budgets in light of Covid-19 restrictions.

When it came to researching engagement rings, online was by far the predominant channel for gaining ideas/inspiration at 86% of consumers surveyed, with 85% saying they had saved examples of styles they liked, according to De Beers. According to the survey, only a uarter of respondents said they had looked in-store at a physical location for design inspiration.

“For many couples, the pandemic has brought them even closer together, in some instances speeding up the path to engagement after forming a deeper connection while experiencing lockdown and its associated ups and downs as a partnership. Engagement rings are taking on even greater symbolism in this environment, with retailers reporting couples are prepared to invest more than usual, particularly due to budget reductions in other areas,” De Beers CEO Cleaver said.

According to De Beers Group, its Diamond Insight Flash Report series is focused on understanding the US consumer perspective in light of Covid-19 and monitoring how it evolves as the crisis evolves. Also, the company said, it is augmenting its existing research programme with additional consumer, retailer and supply chain touch-basis to understand the pain points and the opportunities for stakeholders across the diamond pipeline.

Demand for diamonds is as hard and resilient as the precious stone itself. De Beers pocketed US$ 450 million in its recently held ninth rough diamond sales cycle, and the company says it is more flexible approach to rough diamond sales during the ninth sales cycle of 2020, with the Sight event extended beyond its normal week-long duration.

“Steady demand for De Beers Group’s rough diamonds continued in the ninth sales cycle of the year, reflecting stable consumer demand for diamond jewellery at the retail level in the US and China, and expectations for reasonable demand to continue throughout the holiday season. However, the resurgence of Covid-19 infections in several consumer markets presents ongoing risks,” said De Beers CEO Bruce Cleaver recently.

High expectations are on diamonds being a sentimental gift for holiday season or as the most fetished gift. However the ninth cycle was lower than the eighth which registered US$ 467 million. For the last year period which corresponds with the current one, De Beers managed to raise US$ 400.

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