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Pharma Dynamics sets its sights on Sub-Saharan market East Africa: the emerging oil and gas boom Doing the right thing for Africa Controlled Distribution UK & RSA Issue 07 \ January 2013

2013

SA’s new dawn?

Business | Entrepreneurship | Innovation | Investment | Lifestyle


4 \ Contents \ January 2013

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CONTENTS Regulars

20

Features 12

6 News and analysis

West Africa’s love affair with “Geisha” brand

Recent developments from Sub-Saharan Africa.

Yuko Takeo reports from Japan on an extraordinary trade in tinned mackerel.

30 Destination: Ghana We look at Africa’s oldest democracy to see what the country has to offer for investors.

19 A turning point for the Marange diamond fields?

Malawi is back on track and open for business “[Pres Banda] wants to build capacity for exports. And in that respect the mission is focusing on promoting trade, investment and tourism.” - Bernard Sande, Malawi High Commissioner to UK

Cali Mackrill looks to see if Zimbabwe’s diamond industry can clean up its act.

Interview

20 Malawi is back on track and open for business

10

Doing the right thing for Africa Colleen Theron discusses compliance and environmental law in Africa and why companies will need to stick to the rules to survive.

Business Life 18 Bright prospects for Botswana’s diamond miners

The Malawi High Commissioner tells us how discovery of Uranium has proved a game changer for his land-locked African country.

24 Pharma Dynamics sets its sights on the Sub-Saharan market Fungayi Chamba talks about potential challenges and opportunities in the SubSaharan African market.

25 East Africa: the emerging oil and gas boom

Andrew Maramwidze reports from Botswana on latest developments in diamond trade.

Mark Kapchanga looks at East Africa and how things will never be the same again.

22 India’s Tata Group

looks to Africa for growth Why India’s Tata Group sees Southern African opportunities around every corner.

Final word 27 Africa cannot leapfrog

a lack of infrastructure

Former BBC correspondent speaks to GTA about the structural challenges Africa faces.

22

India’s Tata Group looks to Africa for growth “We had 50,000 customers a year ago and we crossed a 100,000 in this year.” - Sunil Joshi CEO Neotel

27

Africa cannot leapfrog a lack of infrastructure “Agriculture and services are genuine areas in which African countries have a competitive advantage. Particularly agriculture, which hasn’t been developed at all.” - Martin Plaut

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GatewayToAfrica.com is a multi-platform title for businesses looking to take part in expansion opportunities in Sub-Saharan Africa Editor: Jeremy Kuper Publisher: Gordon Glyn-Jones Art Director: Jackie Lampard Contributors: Mark Kapchanga, Rachael Kirby, Milton Lindsay, Cali Mackrill, Andrew Maramwidze, Yuko Takeo and Zoha Tapia Illustrator: Jackie Lampard Directors: P Atherton, J Durrant, N Durrant and R Phillips

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Business Life Silicon Cape – Cashing in on the best apps Entrepreneur Stuart Minnaar speaks to GTA about his company Studentology. Plus we ask angel investor Haji Chana when and why ideas have the potential to make serious money.

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NEWS AND ANALYSIS:

NEWS IN BRIEF Recent developments from Sub-Saharan Africa

Golden boy Cutifani snaps up Anglo’s top job

Lonmin nominated for worst company in the world Following a recent nomination for the Worst Company in the World of 2012, the new CEO of Lonmin will be under even greater pressure to turn around the company’s reputation and success in the wake of a disastrous year. In 2012, Lonmin was rocked by financial concerns as well as violent unrest among South African workers. CEO of four years, Ian Farmer, stepped aside in August due to poor health, during the deadly strikes at Marikana in which South African police shot dead more than 30 workers, injuring over 100 in total. Later in 2012 the company’s stock levels touched a 13-year low, and the absence of a permanent CEO proved a further worry for investors. Biggest shareholder Xstrata applied pressure on the company for drastic management changes and a firm business strategy with which to move forward.

All change at Amplats Anglo American Platinum Limited has released a trading statement forecasting a significant drop in headline earnings per share. The world’s largest platinum producer – known as Amplats – with 40 per cent of the global supply is in the process of finalising its results for the year 2012, during which time the company suffered a torrent of financial and political knocks. The review is expected to show a 20 per cent decline in profits, with up to 306,000 oz in lost production during the two-month strike last year and a write-down of some projects amounting to $764 million. In light of the announcement regarding the end of year review, shareholders’ interest plummeted by 1.82 per cent. In a second statement released by the company, Amplats proposed to postpone work on two South African mines and sell another, which will lead to a loss of 14,000 jobs.

Anglo American has confirmed AngloGold Ashanti’s chief executive Mark Cutifani as its new CEO, effective April 3. Cutifani was widely predicted to secure the role after Cynthia Carroll stepped aside in October 2012. Mr. Tito Mboweni, Chairman of the Board of Directors, thanked Cutifani for “five years of inspirational leadership, during which time he transformed the business.” Faced with a job hailed as one of the most difficult in the mining industry, Cutifani is optimistic. “I am delighted to have the opportunity to lead Anglo American at this important stage in its journey, to unlock the company’s very considerable value potential.” Commenting on Mr Cutifani’s appointment, Anglo American’s Chairman, Sir John Parker, said: “Mark is a highly respected leader in the global mining industry, with values strongly aligned to those of Anglo American. We look forward to welcoming him as our Chief Executive.” The formal search for his replacement has already begun and AngloGold has stated that both internal and external candidates will be considered.


January 2013 \ News \ 7

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Mixed fortunes for Shoprite on the way up

Rwanda – Moving on up Rwanda maintained its position as one of Sub-Saharan Africa’s leading economies last year, by recording a 7.7 per cent growth in GDP in 2012. This was in the face of a challenging global financial climate. New airlines routes to the country were added in 2012, with SAA and Qatar Airways flights to Kigali and the construction of another international airport will further increase capacity. But, overall as a result of the business friendly environment in the country, Rwanda came third in Sub-Saharan Africa according to the World Bank Doing Business Report, after South Africa and Mauritius. The World Bank Report also placed the country 39th out of 185 in terms of contract enforcement. With new agri-processing plants, and a substantial granite factory in the country, Rwanda appears to be taking the right steps to grow its economy in a sustainable way.

An operational update from South African retail giant Shoprite Holdings revealed its biggest one-day drop in share price in over six years, falling by 5.9 per cent to 188 Rand (US$22) in Johannesburg on January 14. Investors expected a 15 per cent increase in turnover and were disappointed by the figure of 13.8 per cent during the last six months of 2012. Generally, the growing middle class of South Africa makes the country a positive environment for supermarket retailers. However, consumer behaviour proved difficult to predict over the Christmas period as shoppers were burdened with rising debt, heightened living expenses and an increase in unemployment. Shoprite points to its furniture division as the most problematic for growth. A significant divergence exists between sales figures for Shoprite’s South African supermarkets, which grew by 11.5 per cent, and supermarket sales out of the country, which grew by 28.2 per cent. However, Shoprite supermarkets outside of South Africa only account for 11 per cent of the company’s sales. Shoprite has 1497 stores in South Africa compared to 243 in 17 other African countries. Africa’s poor infrastructure and varying regulatory regimes cause difficulties in turning a profit for a number of stores outside of South Africa.

Africa in numbers

US $400 bn

South Africa’s infrastructure program.

US $857 bn FDI

In Africa in 2011 more than double the 2007 level

US $1,855 bn

African economic output in 2011 more than tripled since 2001

Resist East Africa common currency, warns expert The African Development Bank still plans to establish a single monetary unit in the Common Market for Eastern and Southern Africa (COMESA), according to a recent report. The proposal moves forward despite scepticism in light of the Eurozone problems, where the lack of fiscal union between countries led to the sovereign debt crisis. With the Euro as a poor role model, how can COMESA – with varied fiscal regimes, different inflation rates and corruption – hope to successfully implement its own ‘Euro’? The AfDB contends that if fiscal convergence remains its priority, monetary union would form an important “stepping stone” for boosting economic growth and integration.

Gulf states look to invest in Africa A recent report by Reuters indicates that cash-rich Gulf Arab Companies are increasing their investments in Africa. There has been a five-fold increase in trade between Africa and the Middle East in the last decade, currently estimated to be in the region of US$49bn annually. And according to Reuters these investment are increasingly focused on the Sub-Saharan region. “I can see Gulf investors warming up to Africa. Any opportunity there grabs their attention,” said Ahmed Heikal, chairman of Citadel Capital (CCAP.CA), one of the Middle East’s largest private equity firms with $9.5 bn of assets under management. “Africa is becoming more interesting because of the natural resources it has, its demographics and better governance.”


8 \ News \ January 2013

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NEWS AND ANALYSIS:

COSATU’s Cape fruit boycott is madness GTA challenges irresponsible union message by Rachael Kirby Following a disastrous year in 2012, COSATU (Congress of South African Trade Unions) appears to be haplessly stumbling from crisis to crisis, largely of their own making. The organisation has now made outrageous threats to call for an international boycott of exported fruit from South Africa. President of the Cape Chamber of Commerce Michael Bagraim, condemns the proposal as irresponsible, explaining the move would only create space in the market for international competitors that would be impossible to recover. According to Bagraim, alienating customers through implementing a boycott would make regaining their confidence extremely difficult. Customers’

interest in South Africa’s exported produce may have already waned due to persistent strikes and protests in the Western Cape that last year led to the deaths of two farm workers between August and December. 55 to 60 per cent of South Africa’s agricultural exports are produced in the Western Cape and valued at US$1bn a year. Furthermore, explains Bagraim, the significant differences between the agriculture and mining industries should not be overlooked. “If work stops on mines there are huge losses but the gold and the platinum remain in the ground for extraction at a later date. On the farms, however, the fruit rots in the fields and a whole year’s work and investments are lost forever.” Such losses would limit farmers’ ability to invest in that crop the following

Ivory Coast cottons on to success by Rachael Kirby

Things are looking up for the Ivory Coast cotton industry after a decade of political turmoil and economic instability. With a population of 20.2 million, the Ivory Coast was once a model for its religious and ethnic harmony, as well as maintaining a well-balanced economy. Armed rebellion and civil war split the nation in half in 2002, slowing the output of cotton from 400,000 to 120,000 tons per year. 50 per cent of cultivated land in the north is primed for cotton growing, but during the decade of division cotton farmers struggled to access southern ports and roads. This

Image by Antonio Olmedo

year and would be detrimental to the agricultural sector of the Western Cape. Agriculture contributes to around 2 per cent of South African GDP. However, it is estimated 638 000 people are formally employed in the sector, with 8.5 million directly or indirectly dependent upon agriculture. The sector is crucial to job creation, particularly in view of the government’s New Growth Path, a plan to create 5 million new jobs by 2020. combined with decreasing market prices forced many farmers to abandon cotton cultivation in favour of more lucrative alternatives, such as livestock keeping or cashew nut production. Now it is anticipated the nation’s cotton production will rise 47 per cent by 2015 as more farmers return to the cotton fields in a new dawn of political stability, further enticed by attractive market prices. The Ivory Coast government has introduced a fixed-price system to the cotton industry, ensuring the minimum rate is guaranteed to farmers. First-grade cotton is set at 265 francs per kilogram (US$0.53) and 240 francs per kilogram (US$0.48) for second-grade. Furthermore, a state input of over US$14.1m into the industry has brought down the cost of fertilizer and pesticides. Coupled with the fixed-rate system, the government is putting the farmers’ needs first to boost the cotton industry and return it to former levels of profitability.


10 \ Views \ January 2013

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COMMENT: Colleen Theron

Doing the right thing for Africa How companies need to keep their eye on the law. GTA: How are compliance, human rights, sustainability and environmental law interrelated? CT: Environmental law is something that despite having transboundary implications has got very limited boundaries as such. It’s something that is still to be tackled in a lot of countries… to really make sure that you write laws that are practical and can be enforced, and having the resources and systems that sit behind it. As a business, all these things are interrelated. You’ve got to understand compliance, technology and local issues To me two huge issues are still going to be the big challenges for Africa, and those are - how you deal with embedded corruption, and how you deal with human rights and political issues? Whilst people are going to have different views as to whether Africa as a whole is better or worse than it was, you’re still dealing with a continent which has very high risks when it comes to corruption, human rights, trafficking issues and managing the environment. All these things form part of being more sustainable. What sits on top of all of this is a massive need for education, on every level. If you want to apply the principles of being sustainable as a company – integral to that is diversity, and integral to diversity is actually having an understanding and a respect for women. This requires cultural ‘re-education’. Sustainability involves understanding a company’s environmental, social and economic impacts.

GTA: But isn’t development a good thing? CT: Coming at it from an environmental perspective I still think that so much of Africa’s resources are vulnerable to overdevelopment and I think people don’t really understand how to protect them – they’re not going to be there forever. Even if you have strong planning laws, if you can’t or don’t want to enforce them the risks remain that planners will give permission against the laws. For example, houses to be built on the dunes, (if you look at Plettenberg Bay). That’s going to have a direct impact on everybody in the community because of the impact on the sea, wildlife and other natural resources. There are numerous opportunities to develop in Africa; the challenge will be how that development takes place. And at what cost.

An example is where companies often subcontract their office cleaning. They don’t know who comes in to clean their offices at six in the morning, but those women or men could be trafficked. In many cases they’re brought over, promised a good job, and land up having their passports taken away. They never can repay their debts. The construction industry also has potentially huge human rights issues. Look at building malls – who are the labourers? Are they children? Are they under 16?

GTA: So how can business help? CT: Business can help in numerous ways, first of all understanding where they operate and what their products are – this sounds stupid for educated people - but the reality is, for example if you buy chocolate that isn’t Fair Trade… a huge amount comes from trafficked and bonded children in Côte d’Ivoire. So if you have organisations that buy in coffee, chocolate, tea, linked to a lot of these products, can be trafficking and environmental issues. Then there’s the question of companies understanding their supply chains. Very often business will subcontract their services and won’t check who they are subcontracting to. That’s the key issue. Their due diligence might not include checking ethical or labour codes or CSR (corporate social responsibility) codes, or even if they do, they might not audit it.

“Business can help in numerous ways, first of all understanding where they operate and what their products are.” - Colleen Theron environmental lawyer and director, CLT EnviroLaw


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GTA: You’re saying the things they need to worry about are who the sub-contractors are, and what CSR and labour codes they have, from their own corporate governance point of view. CT: I think when company’s talk about CSR, what they tend to do is limit that to thinking, I give money to charity so I’m ok. I’m talking about much more corporate governance and sustainability. It means being ethical and transparent. So broadly speaking for a company that’s really understanding what its own key environmental and social principles are and how they apply these principles wherever they’re working. We are starting to see a trickle of litigation against company’s CSR policies. So what you say and do as a company is becoming increasingly important. Saying one thing in your CSR policy, and doing something different, might lead to litigation

GTA: But surely it’s a huge problem for low-paid African civil servants to challenge these Western companies bringing the forex into the country. It must be very difficult? CT: That’s why it goes right back to companies also understanding the environment where they operate or seek to expand their business. Some developments will happen on the back of host government agreements. Companies have got to look carefully at what those agreements are…what they stipulate in terms of environmental or labour standards as an example. Some of the host government agreements might actually have lower environmental or labour standards.

GTA: So you’re asking people to change their dealings with Africa and do something different, that’s going to cost them lots of money, so why should they do it? I mean no-one’s going to find out presumably? CT: I think that globally there is a change and it will be interesting to see how that plays out in Africa. I think we’ve gone from a stance where business can set up

operations in a place, turn a profit, publish an annual account and be ok, but none of that takes into account a moral licence to operate. And I think that’s where things have shifted, and that will be the challenge, as Africa gets more educated. People become more aware of who they are and what rights they have. What they expect is a growing requirement for transparency. That is the reason why companies may have to change the way they cooperate. Society is shifting. And it might take another 100 years to play out your argument Or it might not. It might take 25 years.

GTA: What about the impact of the US and EU anti-bribery and anti-corruption legislation which can sting you if you’ve got an office in America or the EU? CT: The bribery legislation might be an instigator for better practices in lots of different areas, particularly where companies are starting to be sued in areas where have not been challenged before. They’re going to have to start looking at the way they implement their policies, who they employ and what they do. They must undertake their due diligence before they go into a jurisdiction. And that I think is possibly what will be the big game changer in the end.

GTA: But again the African countries seem fairly powerless… what happens if there is waste created – will that just push the price up for the African people. Who’s going to pay for these higher costs of regulation? CT: This might be changing. Something from the EU side of things that’s very interesting and to do with environmental compliance is the control of the transfrontier shipment of waste. The legislation is starting to bite, particularly for companies that are illegally shipping electrical equipment, to Nigeria and other African and non OECD countries. (see recent case of R v EZEEMO and Others). The UK Environment Agency has successfully prosecuted a criminal ring in the UK for the part they played in attempting to export broken electronics from the UK. From an African point of view the

“Very often business will subcontract and won’t check who they are subcontracting to. That’s the key issue.” challenges are making use of developed countries waste but in a way that is beneficial to them and that there are enough structures in place to ensure that they’re not used as a dumping ground and again this goes to enforcement and resources and education. The cost of ensuring compliance in this case is falling to the developed countries. And I think the reality is you are dealing today with a different kind of regulator. What I mean by this is that there is an increasing awareness by civil society that business should operate ethically and sustainably. Regulators enforce the law if they have the resource, civil society can equally damage a company’s reputation. If you think of all the fracking, the gas, the oil, the pollution of all the rivers and that side of things, for the communities affected, it’s actually about surviving in the environment they are trying to breathe in! Someone is going to have to find money to actually ensure that proper infrastructure is put in place, because in the long-term, that’s the only sustainable way of creating opportunities that last.

GTA: But a lot of these companies just want a quick buck? CT: That’s why I say, I think it does come back to companies being ethical, understanding the principles of ‘ a licence to operate’ and the impact of governments in the host countries and tackling corruption. A quick buck might not be that ‘quick’ anymore if you look at how increasingly shareprices are being affected by stakeholder’s perceptions of companies. An interesting story is one of Mittal Steel. Before Mittal Steel started operating in Liberia, they spent a huge amount of time planning and working with the community. I understand the investment paid off. That’s another example of how environmental and human rights issues can’t be, separated because you are dealing with local communities and the local communities’ needs. You know what people want? They want to work. They want to feel proud of what they do. They want to be in an environment that they enjoy.


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FEATURE:

West Africa’s love affair with “Geisha” brand by Yuko Takeo How the canned mackerel brand, “Geisha” became a household name in Ghana is one of the more unexpected consequences of entrepreneurship in the post-war period. The cans were initially exported to Europe and North America before the second world war by sales representatives from the Japanese trading firm, Kawasho Foods Corporation. At the time, the few recognised Japanese words were “Samurai, Fujiyama, Geisha”. Kawasho Foods representatives picked the still unused “Geisha” as their trademark logo, and the name stuck, eventually finding its way to West Africa by the 1950s. Goichi Fujita, a representative at Kawasho Foods’ Research and Development Group who supervised the export of “Geisha”s in West Africa for over 6 years, refers to those in the company who first expanded the canned goods business to the continent, saying “they would walk around West Africa with these cans in their backpacks, and just sell…The trade we have established today is a product of the efforts of those who came before us”. Shipping approximately 40 million cans of Geisha per annum to Africa today, according to Fujita, the Kawasho Foods Mackerel brand holds approximately 70 per cent of the mackerel shares in Nigeria, and 40-50 per cent in Ghana. Although the efforts of previous generations of entrepreneurs combined with local needs have given Kawasho Foods a high percentage of market share in the region, it is now no longer the sole purveyor of mackerels with rising production costs and new competitors. Additional problems with a recognised brand name and a high percentage of market share are repeated appearances of fake “Geisha”s. “In response”, Fujita said, “we would create posters to raise awareness of the difference between real

Geisha cans and fake Geisha cans…at times I would also accompany local police in order to arrest fake Geisha can makers”. One development Kawasho Foods is considering as a result of a rise in production costs is to move their production base, currently in China, to a more local site in Ghana. With the recent opening of their Accra office, Fujita says “engaging in BOP (bottom of pyramid) business is also of importance to us”. If several production bases are established according to plan, it could create up to 500 new jobs for locals. Looking back to earlier days in the immediate post war period, Fujita reflects, “it was back when $1 was ¥350, and production costs were cheap. The quality of the mackerels was high, there were no competitors, and protein was scarce – there was no reason it wouldn’t sell”. Now however, establishing an advantage in production costs over competitors has become more difficult, and Fujita feels the need for quicker responses on the ground for Japanese companies, especially with

added pressure from South Korean and Chinese businesses. In terms of success, however, he says “it’s important to treat the comments of local people carefully… because ways of thinking are different, what we [as Japanese] may consider ‘natural’ is not necessarily the same thing for Ghanaians… this has impact on business.”


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14 \ Business Life \ January 2013

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BUSINESS LIFE:

Silicon Cape Cashing in on the best apps by Jeremy Kuper and Rachael Kirby Stuart Minnaar is the face behind Studentology, an online marketing company that aims to simplify students’ lives through technological means. Now, this driven entrepreneur has developed a mobile application that could, with the help of investors, completely transform student consumer behaviour.

It has taken Stuart three years to get to the point at which his app is ready to launch. “In year one we were an online marketing company in South Africa only, [providing] info, services and sometimes products to the student market,” he explains. “We were fortunate enough to receive grant funding from two different organisations that didn’t require us to pay them back. Year one was purely online marketing so it didn’t really generate any profits or revenue. And that was getting the market onto an online platform.” Year two saw the release of a Studentology discount card, which enabled the company to analyse its specific market as a consumer. “That ran as a research project for almost a year. The research was to establish whether we can take the student discount card model and integrate it into a mobile app.” “We sold 3500 cards at 90 Rand each [US$10], and the revenue for that year was R350K [around US$40,000] which allowed us to establish a proper product that has a good passive income model.” And indeed, year three saw the further development of the phone app that Minnaar describes as “essentially a mobile payment application for students. It allows the student to walk into the store, access the discount…and pay for whatever they’ve purchased off the app. The entire process essentially connects their phone to the point of sale in the store.” With the business taking up to a 5 per cent profit for every transaction completed using the app, Minnaar is

“The Mamba Mentor group made a decision as to who they’d like to invest in, or which company they’re most interested in. And fortunately for me, I was one of them.” - Stuart Minnaar, Studentology Founder

pushing for it to reach 500,000 South African students. Meanwhile, multimillionaire and possible investor Haji Chana’s eyes are firmly fixed upon the potential for global expansion. The attention of London-based Chana came about as a result of the Silicon Cape Initiative, a non-profit and communitydriven project composed of technological entrepreneurs, developers and investors. “Silicon Cape is the online environment for technology start-ups in the Cape Town area,” explains Minnaar, “and they selected 11 entrepreneurs to go to London for a week and pitch to a panel of investors, specifically, the Mamba [Mentors] group.” The Mamba Mentors are a group of UK-based South African expats who have built successful businesses and can offer financial backing to fellow South African entrepreneurs with bright ideas. “Each entrepreneur got to [present] a three minute pitch to the panel which comprised four Mamba mentors,” recalls Minnaar, “and according to that, the Mamba Mentor group made a decision as


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to who they’d like to invest in, or which company they’re most interested in. And fortunately for me, I was one of them.” For Haji Chana, the Mamba Mentor who left his position as principal at Blackstone Group in 2011 to launch investment and advisory firm HC Capital, good ideas are at the forefront of any venture. “There are three stages,” explains angel investor Chana. “You have an idea stage, you have product stages, and you have a company stage.” “I provide seed capital to young entrepreneurs to take [projects] from idea stage to product stage. Once it becomes an attractive product, that’s where I come in as a private equity investor to take it from product to company.” For Haji Chana, reason to invest in Minnaar’s mobile app is primarily about the market opportunity. “There are two things that interest me. First is the mobile commerce market, which I think is a good market. Next he has found a niche within the mobile market for students, so in terms of if you’re looking at the whole macro-perspective from the whole market opportunity, there was a good fit.” However, there is another monetising potential in Minnaar’s product. The data collected from the student discount card

not only records spending habits, but as Minnaar explains, also provides a pool of information that after three years becomes “a data bank of graduates that we can plug different services into.” “As much as I’m interested in the student market as a focus, I’m more interested in the student market outside the student market,” says Minnaar. “But also the way they use the app. Because that will give us insight into spreading into different markets.” This is where Chana and Minnaar’s interests overlap. The bank of data collected, explains Chana, “can be scalable to all the universities, and that’s what excites me…It validates the idea that we believe we can take the same model to all the universities in South Africa.” “If I do come in on the board of directors, my first mandate will be, I’ll get the funding to make sure that every student in South Africa uses this. Once we get the largest market in South Africa, I want to launch in other countries within the African region, but at the same time I also want to get into partnership in regions from Asia to South America,” says Chana. Chana’s sights for the Studentology app are evidently grand – but the product is still in early stages. Both Chana and Minnaar contend that any funding from the Mamba Mentors would

predominantly ensure Studentology’s capacity for growth. “The working capital,” states Chana, “that’s where the angel investment and seed capital comes in…so the first thing this investment will go into is hiring work force, getting the internal team [in place].” “So what that would mean,” explains Minnaar, “is for us to set up 3 additional offices in the parts of East Africa where there is a big student population, to get more students and venues on board.” “So my costs essentially sit around staff, personnel and office structure: one person in each market to do a bit of analysis around the data. We don’t have big operational costs or the need for equipment and infrastructure. We literally have a server that we have to pay for.” And of course, a further step towards widespread use of the app would comprise of a serious investment in marketing and advertising. “That’s why we’re focusing on the student market,” explains Minnaar. “If you look at the Facebook model, it works quite well if you use one market that’s quite captive, quite uniform on a campus from 8am to 5pm, marketing becomes easier. [Secondly,] the market is very adaptive to new technologies.”


16 \ Feature \ January 2013

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“Just having ideas is not enough. People have ideas every single day. It’s all about execution.” - Haji Chana, Chairman and CEO of HcCapital “Let’s say for argument’s sake we didn’t deal with the student market and we used an open market, and used parents [as a] potential in that market. They’re not that tech savvy, they don’t specifically have smart phones, and the traction to get people on board would be a lot more difficult.” Studentology’s revenue sits in the transactional procedure that occurs with use of the app. “So our projections now – obviously with assistance from Mamba group – our target is to have 100,000 students using the app [in its first year]. The average spend per month of a student is about 250 Rand [US$30] and we take between 3 and 5 per cent profit per transaction.” “What we’ve projected at the end of year one [with this new investment], our turnover should be around R6m [US$696,500]. So year two our end target is to have 500,000 users, which makes it a very profitable business.” With regards to an investment from the Mamba Mentors, Minnaar explains, “we decided on a 45 per cent equity split on a ratchet model. If we hit certain targets or milestones by the end of the year, the company gets 10 per cent back. So there’s a growth model plugged into that to ensure that after 3 years, whatever they’ve invested in could be returned.” On the high-risk nature of angel investments, Chana confesses to being “very picky”. “Angel investments are on a personal level,” he explains. “What’s important is they have to be a good fit…there has to be a good relationship

between myself and the founder.” “Just having ideas is not enough. People have ideas every single day. It’s all about execution… Having capital is just not enough. You [need to] know how you take that capital and optimise that capital and how you execute it.” As his potential “angel”, Chana praises Minnaar’s attributes. “He’s not depending on anyone, he’s making his own fortunes. You have to have that tenacity and persistence.” Still though, there is much to consider before investing. “It’s not just the money,” Chana continues. “Can I mentor him, can I be a strategic investor? In investment terms it’s called smart money. It’s not just writing a cheque...I personally am an entrepreneur as well. I have my own

company, what we do is build ideas within our own company itself.” So what does Haji Chana consider to be the three things somebody needs to get to the final stage? “First the ideas have to be innovative or disruptive. Disrupt an old traditional media. Second thing is, it has the potential to be a large business. And the third thing is, it’s the founder and the team, and I normally like to invest in companies of two people, because it’s better to have two founders, and not one.”

For more information see: siliconcape.com mambamentors.com studentology.co.za


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18 \ Business Life \ January 2013

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BUSINESS LIFE:

Bright prospects for Botwana’s diamond miners by Andrew Maramwidze in Botswana British company, Botswana Diamonds (BOD), are exploring for diamond prospects in east Botswana. The company’s board intends to apply for new prospecting licences and start drilling this year. John Teeling, BOD chairman, said the AIM-listed company has plans to continue exploring this year after spending US$1.25 million in 2012 on operations in Botswana. “This is a very exciting time for us in Botswana,” said Teeling citing that the company has good ground, a large database, coupled with a strong and experienced team. The BOD team has an immense amount of knowledge of Botswana’s diamond area and of the Orapa region having previously established the company African Diamonds. “Our exploration in the east of Botswana is going well. We will drill the 100 per cent owned prospecting license 170/2012 in January/February. We have very clear targets including a 15 hectare anomaly,” said Teeling, adding that the company’s share price does not reflect the value in the company. The prospecting licence covers 249 square kilometres of territory, 30 kilometres from Botswana’s world class Letlhakane diamond mine. BOD decided to mine diamonds in Botswana after finding a kimberlite containing diamonds. “The target in 2013 is one or more diamondiferous kimberlites. More mines will be discovered in Botswana. We have data and the best available technology to

outline targets,” said Teeling.“The drilling will tell the truth. We are optimistic.” Meanwhile data analysis from BOD has identified thirteen targets, of which, six are of high priority. The results are borne out of a year-long technical co-operation agreement between Botswana Diamonds and a major diamond multinational. “We have a joint budget of US$1m for 2013 to explore and to drill up to 40 holes and have applied for 12 prospecting resources and expect to hear [from government] early in 2013,” said Teeling. “Where ground is not available the current licence holders will be approached with the eye towards earning or joint venture arrangements,” he added. Teeling strongly believes Botswana is the best place to find diamonds and one of the most attractive mining countries in the world. “Botswana has the geology to find diamonds. It has five producing mines with prospects for two more. No other country outside of Russia matches this. In addition, Teeling applauds Botswana’s stable condition with no political risk, hinged to certainty of title, good infrastructure, excellent mining skills and services. “It has a good exploration licensing regime and tough but fair fiscal and economic terms. It is a good place for explorers.” The diamond industry has transformed Botswana into a middle-income nation and one of the most dynamic economies in Africa with diamond mining fuelling much of its economic expansion and currently accounts for 70-80 per cent of export earnings.

“We have data and the best available technology to outline targets. The drilling will tell the truth. We are optimistic.” - John Teeling, BOD chairman

Image by Jewels Globe


January 2013 \ Feature \ 19

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FEATURE:

A Turning Point for the Marange Diamond Fields? With Botswana acting as a model for Africa’s diamond trade, could Zimbabwe’s conflicted gem industry follow in its footsteps? by Cali Mackrill As an $8.4 billion annual contributor to the economy, diamonds are one of Africa’s most lucrative natural resources. Since the discovery of its diamond fields, Botswana alone has seen an average GDP growth rate of 7 per cent annually, as well as higher ranking in the Human Development Index and improvements in general infrastructure.

Zimbabwean blood diamonds? But not all diamond discoveries become such success stories, and in many African countries blood diamonds are illegally mined to fund conflicts and illegitimate political parties. This is especially apparent in the Marange diamond fields of Zimbabwe, which are regarded as the world’s biggest diamond find in over a century and have the potential to generate huge income for the country. However, Zimbabwe has yet to reap the benefits as its diamond trade has long been associated with violence and corruption; a recent report by Partnership Africa Canada (PAC) detailed $2 bn worth of blood diamonds smuggled from the Marange fields, as well as abuse of the miners’ human rights.

The Kimberley Process The Kimberley Process (KP) aims to regulate mines in order to stem the flow of blood diamonds. Eli Izhakoff, President of the World Diamond Corporation (WDC) describes the KP as a “framework through which the integrity of the rough diamond chain of distribution can be protected, while at the same time enabling producing countries [to] gain benefit from their natural resources.” Despite this endorsement, the process has been widely criticised following its declaration that Zimbabwe complied with their standards and could legally trade

diamonds on international markets. This confirmation has caused outrage among various non-governmental organisations, with Alan Martin of PAC accusing the KP of deliberately “turning a blind eye to criminality which is becoming increasingly apparent”.

De Beers’ diamond cartel The notorious Marange fields are owned by the Zimbabwe Mining Development Company (ZMDC) which is a government controlled organisation, having taken ownership after South African mining firm De Beers’ exploration rights expired in 2006. De Beers has run a diamond cartel for a majority of the 20th century, restraining the flow of rough diamonds in order to keep prices high and maintain the impression that diamond supply is scarce. They own most of the diamond mines in South Africa, Botswana and Namibia and are part of the reason why these are among the richest countries in Africa.

Processing the rough diamonds Once mined, the rough diamonds are sorted in London by De Beers before being sold to clients to process. After being processed, the cut diamonds can be sold on to retailers at a price increase. This increase can be up to 30 times more per carat than the original rough diamonds. This profit potential suggests that

Africa should be focusing on diamond manufacture as opposed to just exportation of the minerals as raw material. This could enable Africa to eventually compete with India which counts rough diamonds from processing as one of its main imports and last year exported $1.5 bn worth of polished diamonds. Botswana has already taken a step in the direction of diamond manufacture, with De Beers recently agreeing to move sorting operations from London to Gaborone, enabling Botswana to move up the value-chain within the industry.

Could local diamond cutting stop the corruption? So while various political parties, corporations and individuals wrestle over Zimbabwe’s rough diamond revenues, perhaps the solution is in developing Zimbabwe’s industry further, as opposed to ineffectively trying to regulate an already corrupt system. This could also provide more income to fund the extraction process, which is the most expensive part of the diamond value chain and supposedly the most exploitative of workers’ human rights. The increased control over production and sale, as well as higher income from the exportation of processed diamonds, could finally enable Zimbabwe to “benefit from their natural resources” as opposed to being ruined by them.

Zimbabwe has yet to reap the benefits as its diamond trade has long been associated with violence and corruption, a recent report detailed $2 billion worth of blood diamonds smuggled from the Marange fields


20 \ Views \ January 2013

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COMMENT:

Investment prospects

Malawi - back on track and open for business His Excellency Bernard Sande, High Commissioner to the UK for Malawi by Jeremy Kuper In Malawi we have a new president who came to power in April, Mrs Joyce Banda. When she came to power, she inherited a country, which had very serious governance and economic problems. She moved quickly to institute some reforms, starting mainly with the political reforms. She went to parliament and reversed some bad laws which the previous government had enacted – laws to restrict

mainly freedoms, freedom of speech, freedom of the press, human rights. As a result of the fact that the previous government had followed a bad economic policy, two things happened. One, we’re miles off track in the IMF programme. And other development partners followed suit and cut aid. The problem was aggravated by those bad economic policies that the (previous) government was following, including fixing the local currency. Now as a result of that there were serious economic problems, there was a shortage of foreign exchange and serious fuel shortages. President Banda also instituted some sweeping economic reforms in order to ensure micro-economic stability and to transform the economy. Some of the major economic reforms were that the currency was floated, to ensure that its value is determined by the market.

Key sector approach

Image by Heather Walker

Image by Heather Walker

The government has developed an economic programme which identified five focus sectors for development and general investment. These are: agriculture, energy, mining, tourism, and physical infrastructure including ICT. In addition to that, government has prioritised private sector development. And with that there is a two-pronged approach. One, to attract foreign direct investment, and two, the government is working on improving the investment climate. The president is determined to improve the business environment. The future of Malawi lies in exports. She wants to build capacity for exports. And in that respect the mission is focusing on promoting trade, investment and tourism – apart from of course mobilising aid, including humanitarian support.

I think the usual question that an investor would want answered themselves is why should I go to Malawi? I think Malawi has certain characteristics, which I think auger well for private investment, particularly for British investors. First of all, as you know, Malawi was a British colony. The culture in business and commerce is rooted in British tradition. English is the official language. English is the medium of instruction in Malawi schools. There are some schools that do the Cambridge School Certificate of Examination. The legal system is based on English common law. And business in Malawi is dominated by British interests. In addition to that Malawi has historically been a peaceful country. There has never been any civil conflict since independence. Along with the political stability, Malawi is very strong on the rule of law. The judicial system is independent, and directly relevant to business are the commercial courts for arbitration. Government is working on strengthening the commercial court by having more chambers, so that as many commercial cases [as possible] are handled and dispensed with quickly. And Malawi is also a member of the Multilateral Investment Guarantee Agency (MIGA). I think it’s important to mention Malawi is a liberalised free-market economy, with access to regional and international markets. The common market for Eastern and Southern Africa, it’s a member of that, it’s also a member of SADC. It’s a party to the EU Cotonou agreement. And it is a beneficiary of the African Growth and Opportunities Act of the US. Malawi also offers a wide range of highly competitive fiscal and other incentives. GTA: Presumably you or the president would be able to facilitate directly certain aspects of trade, if there are any issues? His Excellency Bernard Sande: If it’s a question of investment incentives, some of them are subject to discussion, negotiation I should say. Since we are open for business, we as government, are ready to listen any concerns about doing business in Malawi. In agriculture the opportunities are there in terms of investing in the actual production, farming, livestock, agri-processing, and agribusiness. Right now Malawi’s major exports are tobacco, sugar, and tea. The tobacco trade is dwindling and this is having an adverse impact on the economy. Government has taken a decision to diversify its [agricultural]


January 2013 \ Views \ 21

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“The future of Malawi lies in exports. She wants to build capacity for exports. And in that respect the mission is focusing on promoting trade, investment and tourism.” Bernard Sande, High Commissioner to the UK for Malawi exports. One of the pillars of that initiative is to bolster the production of what we have come to call special crops.

Energy The government as part of its efforts to improve the business environment, has taken some measures in order to ensure that there is adequate power. We are embarking on one project, a $350m project funded by a grant by the US, to improve power generation and transmission. We’re also connecting with the power from Cahora Bassa hydro, we’re discussing with Mozambique to connect that power. So in the short and medium-term we should have all the power that we need. Government has identified eight sites with the potential to generate hydro-electricity. But there is also big potential to generate thermal power because we have coal, a potential for wind energy because we have a lot of wind from the lake, and of course solar, and an abundance of water. The Chinese are planning to invest in a thermal plant.

Mining Malawi has traditionally not been known to be a mining country, but now there is a lot of international interest in mining prospects in Malawi. First of all, the first major [Uranium] mine was opened by an Australian company called Paladin, in 2008. And the company has identified another site where there are prospects for Uranium in economically exploitable quantities. And

Image by Heather Walker

there are also indications that there could be Uranium in other parts of the country. There is also another company called Global Metals, which is also about to start mining Niobium. There are prospects of gold and tracings of many other minerals such as: heavy mineral sands, coal, iron ore, graphite and phosphate. Bauxite is established, it’s on the highest mountain in the country called Mulanje. GTA: Hasn’t Malawi been fully prospected? His Excellency Bernard Sande: No, but next year there will be an airborne geophysical survey of the country. That should help to determine where in the country particular minerals are. The World Bank has funded that project. It’s a big operation, it’s a big survey. GTA: So mining is taking off, but presumably the Uranium is a game changer? His Excellency Bernard Sande: Yes, actually it’s the Uranium that made the international community, or at least the investors start looking a Malawi. When you have Uranium, I believe you inevitably also have certain minerals, so I think that was as you put it, a game changer.

Tourism GTA: What about tourism, everybody knows Malawi is famous for its lake. His Excellency Bernard Sande: It’s an attractive tourist destination as you know. The lake has long sandy beaches and more than 600 species of fish. There is also a big variety of game including the big five in our game reserves and many different species of birds, apart from the scenic mountains and valleys. And because of the uniqueness of Malawi and the friendliness of the people, that’s why you call it the warm heart of Africa. Now in terms of investment in the tourism sector, naturally you have prospects for holiday resorts and other recreational possibilities, along the lake and in the game reserves. The government has plans to develop a tourist park in some parts. Along the lake you have various possibilities for [new] hotels, casinos, golf

Image by Heather Walker

courses. Government is also concessioning the game reserves. One has already been concessioned and they will operate that for 30 years. The operators have invested in it, by making sure that the game is restocked. They built some lodges within the game reserve and other facilities. If an investor is interested, they could go in there and the government’s role would simply be to promote the country as a tourist destination.

Direct flights GTA: What about the regional connectivity and lack of direct flights? His Excellency Bernard Sande: I think it was just neglected. At some point it used to be very viable, and the direct flights used to help. But you know we are talking to various airlines, because we want direct flights from Europe and some tourists have cited that as one of the things that undermines tourism to Malawi, lack of a direct flight. One of the investment prospects that we have, when it comes to physical infrastructure, is the construction of an airport close to the holiday resorts along the lake. This is up for grabs really in terms of investment because we are looking at a Public Private Partnership (PPP) or whatever arrangement that an investor may find convenient to them, really at the end of the day it depends on the investor, it’s what they want. And when it comes to infrastructure, I’ve talked about these specific projects along the lake, but we’re also talking about roads, water, power, physical infrastructure and telecommunications, if anybody wants to invest. Of course we have a number of mobile phone operators, but there is no harm in having more. It depends on what an investor wants. An investor may decide to go solo, it’s up to them. [If] they decide to partner with government it’s up to them. They may decide to partner with local private investors…because Malawi is open for business


22 \ Business Life \ January 2013

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BUSINESS LIFE:

India’s Tata group looks to Africa for growth Tata one the world’s largest multinationals sees South Africa as the gateway to the continent by Zoha Tapia The $83.3bn Tata Group’s foreign direct investment projects in Africa grew 27 per cent from 2010 to 2011, representing an annual increase of around 20 per cent since 2007. Other Indian business groups – such as the Aditya Birla Group, Vedanta and the Mahindras – have entered the continent

to explore for natural resources, while Tata have diversified into automotive, IT and communications, energy, chemicals and business consultancy sectors. The Tata Group initially entered Africa in 1977, to market Tata Motors vehicles in Zambia. The company set up their headquarters for African operations in Johannesburg in 1994, and in the last 20 years they have invested $576m in

“The market that we chose to address in the consumer side was fixed wireless. So that is going to replace the traditional home phone with a fixed wireless solution for homes and offices. We had 50,000 customers a year ago and we crossed a 100,000 in this year.” - Sunil Joshi, CEO Neotel

different projects across the continent. The slowdown of other international markets has renewed their interest in Africa.

Neotel expanding markets in Africa One of the most strategic areas of Tata’s African business is their South African internet and telecoms subsidiary Neotel, acquired in 2007. According to Neotel’s managing director Sunil Joshi: “In terms of number of customers, our business customers grew 92 per cent year-on-year and our retail customers grew 100 per cent.” “The market that we chose to address in the consumer side was fixed wireless. So that is going to replace the traditional home phone with a fixed wireless solution for homes and offices. We had 50,000 customers [in 2011] and we crossed a 100, 000 [last] year.” Neotel have built 11,000 kms of fibre optic cables across the continent and are in talks with the SA government to allow them to invest in areas where there is no existing infrastructure. Currently the market of fixed communication in South Africa is worth a total of ZAR 44bn (US$5.2bn) and Neotel has five per cent of that market share. Talking about expansion plans Mr Joshi said: “Our capital expenditure for last year was in the range of ZAR 500m. In this fiscal year we have a similar capital expenditure plan. And, 80 per cent of that capital will be used to augment our fibre footprint and 20 per cent of that will be used for automation and growing efficiencies through IT. So we are certainly expanding.” “We are aiming to expand our telepresence footprint to Cape Town and Durban later this year. We have two data centres and they have room for expansion, and as the requirement continues to grow we will continue to expand data centres.”

Tata’s other Southern African operations Tata Motors assembly plants As India’s largest truck and bus maker Tata Motors have increased their production capacity in their assembly plant in Rosslyn, South Africa to export trucks.

Tata’s consultancy arm in Africa Tata Strategic Management Group (TSMG) is planning on making an entry into the South African, Kenyan, Nigerian and Zambian markets though its sister company Tata International, which is based in Johannesburg. Being a consulting firm, there are a lot of opportunities in Africa as more companies look to improve their operational performance, beef up their

supply chain and logistics, improve their sourcing and sharpen organisational effectiveness.

Shipping iron ore under Tata Steel Tata Steel, another major part of the Tata empire, has started shipping iron ore from Mozambique in order to solve the raw material problems faced in its European office – Tata Steel Europe. In Europe, Tata Steel is facing a slowdown in growth as the demand has fallen and input costs have increased.

Tata Power’s joint venture with Exxaro Resources Tata Power has setup a 50:50 joint venture with Exxaro Resources – South Africa’s

second largest coal producer. Their joint venture, Cennergi, will develop power generation projects in South Africa, Botswana and Namibia. Tata Power has also been selected as the preferred bidder for the 139MW Amakhala wind farm project and the 95MW Tsitsikamma wind farm project by the Department of Energy, South Africa.

Exporting coffee from South Africa Tata Global Beverage, which sells Joekels brand of coffee in South Africa, intends to expand within the continent. They have built a soluble coffee-processing factory at Jinja, Uganda to export it to market in East Europe, Scandinavia and China.


Mantis


24 \ Feature \ January 2013

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FEATURE:

Pharma Dynamics sets its sights on the Sub-Saharan market Fungayi Chamba explains some of the challenges involved in expanding a pharma-business into Sub-Saharan Africa. by Cali Mackrill

Opportunities Pharma Dynamics is a South Africanbased pharmaceutical company providing a variety of healthcare services including cardiovascular therapy, female healthcare, central nervous system treatments and overthe-counter (OTC) drugs for retail. They are aware of the “cash upfront” approach to medical aid in Africa, with Chamba explaining “if someone goes to the doctor they pay for the consultation and they pay for the medicine”. Therefore Pharma Dynamics sell their products through local retailers to cater to what Chamba calls the “pay out of pocket” culture. “We’re looking at a handful of countries as we speak, specifically Nigeria, Angola, Mozambique, Zambia and the DRC”, he explains. The business opportunity is obvious if you consider that in South Africa only 16 per cent of total healthcare consists of prepaid health plans, and that figure is much lower in these Sub-Saharan countries, making retail through local distributors and wholesalers a very lucrative option.

Regulation For South Africa’s fastest growing businesses, speed is of the essence. Chamba believes that

Pharma Dynamics prefer to retail in Zambia over the larger Namibia due to Zambia”s quick regulation system, “you can go to market immediately in a country like Zambia which therefore makes it a lot more lucrative from a speed to market perspective even though the numbers are generally not as huge as in Nigeria”. Chamba refers to these regulatory requirements as “hoops to jump through”, which “differ from country to country in terms of the amount of time it takes – [this] would then also impact our decision on which countries to actually prioritise”. This also helps to explain why Pharma Dynamics has grown so quickly.

Challenges Chamba acknowledges that counterfeits and out-of-date drugs are a “huge problem”, blaming the “system and bureaucratic process that have to be followed from a regulation perspective” for taking so long, that “by the time they have been vetted they actually tend to have expired”. This presents the dilemma: “on the one hand, you want to curb counterfeits and you want to make sure that the end users are using bona fide medicine, but you don’t want to make the process so cumbersome that it then defeats the purpose of those drugs”.

“On the one hand, you want to curb counterfeits and you want to make sure that the end users are using bona fide medicine, but you don’t want to make the process so cumbersome that it then defeats the purpose of those drugs” - Fungayi Chamba, Pharma Dynamics

The average shelf life for most medications is 5 years, and Chamba claims that the regulation process can outlast this. A policing unit has been established which “goes around to retail outlets and open markets to ensure that the products on the market are the products that are appearing on their register and that they’re dated [correctly]” Chamba explains, thus solving the problem once it’s happened as opposed to stopping it altogether. Aside from these industry-wide market challenges, Chamba explains that the Sub-Saharan market is a “challenging business environment because there’s lots of price difference between markets”. As an incoming company trying to sell their products outside of their demographic, Pharma Dynamics enlists the help of local distributors who “understand the local environment”. Despite this cross-border element, Pharma Dynamics have not encountered cultural or political challenges. With respect to the need for healthcare, in terms of culture, Chamba thinks there is more “similarity than dissimilarity” because regardless of social or geographic boundaries “health need is a common thread” across society.

Future Prospects Chamba has a positive outlook on the future of Pharma Dynamics, envisaging that eventually these areas of Sub-Saharan Africa will account for a “tidy portion” of its total business and will serve as a reference point for other businesses looking to expand into Sub-Saharan Africa.


www.GatewayToAfrica.com

January 2013 \ Feature \ 25

FEATURE:

East Africa: The emerging oil and gas boom by Mark Kapchanga

made in the Albertine basin in Uganda. Production is expected to start soon with an oil refinery being built in Hoima East Africa has never been known district in the western part of the country. to have natural resources. Unlike its According to recent appraisals, Uganda’s Southern, Northern and Western oil reserves have now shot up by close counterparts, the region’s economy has to 40 per cent. This brings the country’s traditionally relied on agriculture and oil inventory to 3.5 bn barrels. “There tourism. are signs we could hit between eight However, recent discoveries have proved and ten billion barrels of oil soon,” said otherwise. The region is well endowed Ernest Rubondo, the commissioner at the with minerals, including fossil fuels, oil Ministry of Energy in charge of petroleum and gas, as new findings in previously exploration and production. unexplored regions such as Turkana in Uganda has so far invested $1.5 bn in oil Kenya and Songo Songo in Tanzania and gas exploration. This represents about appear to show. a dollar per barrel. This is far cheaper than Though the exact potential of these the world average of between $5 and $10 resources are yet to be established, there of investment a barrel. are signals that they could significantly The discovery of vast reserves of transform East Africa’s economy. natural gas in Songo Songo in Tanzania According to experts, the East African could eclipse Uganda’s lucrative oil deal. region has about 28 prospective basins. The $320m project serves two onshore Petroleum resources discovered in the and three offshore natural gas wells. region are estimated at two bn barrels of Construction and commercial operation oil. There are also three trillion cubic feet of the pipeline started in 2004. Today, of natural gas. the plant generates about 190 megawatts The first East African major oil find was (MW) of electricity for the national grid. This is 45 per cent of the country’s capacity. The natural gas plant “In Africa’s oil exporting continues to propel countries, only a small Tanzania’s economic engine, which has fraction of revenues is used for ages been slugged to fight poverty. It is widely down by erratic and seen that the black gold costly power supplies. The overall electricity has actually become a huge access in the country hurdle to development,” stands at 12 per cent Manz Denga, former CEO with only two per United Bank of America cent of the country’s

population having power. Tanzania’s demand for electricity is forecast to grow by about 50MW a year for the foreseeable future. Recently, the country raised its estimate of recoverable natural gas reserves to 33 trillion cubic feet (TCF) from 28.74 following recent big discoveries offshore. “These discoveries show that


26 \ Feature \ January 2013

Tanzania is becoming a natural gas hub; a new frontier in oil and gas exploration in the region and the world at large,” said George Simbachawene, the Deputy Energy and Minerals Minister. Gas finds off East Africa’s coastline have led to projections the region could become the world’s third-largest exporter of natural gas. With the discovery of methane gas in Rwanda’s Lake Kivu, there are hopes of even more natural resources discoveries in the region. The methane gas discovered in Lake Kivu is being used for electricity generation. Eventually, its usage will be diversified into the manufacture of fertilisers and production of liquid fuel. 
 The lake has recently been found to contain approximately 55 bn cubic metres of dissolved methane gas at a depth of 300 metres. Until 2004, extraction of the gas was done on a small scale. But now negotiations are at advanced stages for massive extraction of the gas, which scientistists have warned could cause thousands of deaths like what happened in Lake Nyos in Cameroon in 1986. On the other hand, the regional economic tiger Kenya has four sedimentary basins. They cover both onshore and offshore areas. The basins had initially been divided into 36 exploration blocks of which 22 were licensed to 12 companies to undertake exploration. Oil discoveries in Kenya are thought by some industry insiders to have more potential than Uganda even. But the new oil and gas discoveries may not automatically be a blessing. Challenges are imminent. The region is faced with insufficient institutional and legal frameworks as well as insufficient human and financial resources. This calls for a natural resources policy to help regulate the vast discoveries. Ugandan President Yoweri Museveni has cautioned that without necessary policy, institutional and legal regimes in place, the region will not enhance sustainability of the otherwise promising sector. “We must make optimal use of these resources to turnaround East Africa. But

“Oil prices and revenues keep soaring but this has failed to bring better living standards for millions of poor” - Manz Denga, former CEO

United Bank of America

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this must be done strategically. Prudent management of oil and gas revenues is critical to translate into better living standards for Africans,” he said. In 2008, the East African Community partner states developed a strategy on regional refineries development. The blueprint addressed development of refineries and other infrastructure required to enhance storage and distribution of petroleum products in the region. Analysts say with robust oil and gas policies in place, the region is likely to avoid the resource curse most of West African nations are facing. “In Africa’s oil exporting countries, only a small fraction of revenues is used to fight poverty. It is widely seen that the black gold has actually become a huge hurdle to development,” said Manz Denga, a Harvard Business School Scholar and former CEO, of United Bank for Africa. Mr Denga argues that at the heart of these resources lie questions of good governance and development. A testimony of why a huge cloud of poverty lies from the Gulf of Guinea to northwestern Sudan poverty. “Oil prices and revenue keep soaring but this has failed to bring better living standards for millions of poor,” he said. According to Oxford University economist Paul Collier the only way to ensure African oil wealth transforms into growth is for “rich countries to apply pressure to ensure that checks and balances are put in place”.

Oil and gas discoveries East Africa Gas

Oil

Songo Songo (natural gas)

Uganda Lake Albert Oil

190MW of electricity

58m deep

Tanzania

Lake Kivu (methane gas)

Kenya Turkana oil

Ngamia 25MW of electricity

100m deep

Border between the Democratic Republic of the Congo and Rwanda

Twiga 30m deep


January 2013 \ Final Word \ 27

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FINAL WORD:

Africa cannot leapfrog a lack of infrastructure - Martin Plaut GTA: Will Sub-Saharan Africa’s growth just collapse like a house of cards? MP: Well I certainly don’t think Africa’s growth is going to collapse. I think that is nonsense. It began as a commodity boom and Africa has done exceptionally well with the commodity boom. But I think it is now internally driven as well. So you have two separate things happening at the same time. In Angola BP are putting in $15bn worth of investment. Now that of course has a massive impact on the Angolan economy and it’s going to be taking off enormously. The same you can say for places like Kenya which has discovered oil recently, or Mozambique which has gas. These are obviously huge growth factors in any of those economies. Having said that of course, we are in a downturn in the general international business cycle, which could last for another five or ten years, in which we don’t have growth.

“Agriculture and services are genuine areas in which African countries have a competitive advantage. Particularly agriculture, which hasn’t been developed at all.” - Martin Plaut

After all, we’ve lived through a decade of growth we could have a decade of slump. So that will have an impact on Africa. But having said all that, those are the external factors. The internal factors I think are now at least as important. And the growth of the middle-class and the growth of things like mobile phones, which everybody refers to, are now internal dynamics. And the fact that African diaspora is beginning to put its own money into African investments I think will generate a growth which will be separate from the business cycle.

GTA: The main structural change in the last 20 years is surely the democratisation of much of the region and the emergence of SA. But how strong are those institutions? MP: Let’s just take those two things separately. Let’s start with Africa and then look at South Africa, I think they’re two different questions. If one looks at Africa and one looks over the longer period to the 1960s from the beginning of independence to now - you go through in a sense three separate periods. The first period was the sort of honeymoon period when there was some growth, there was an investment in the breweries and things like textiles. Then you got the kleptocratic period of Africa where you get people like Sani Abacha in Nigeria, Mobutu Sese Seko in Congo and you get a massive decline in growth and a downward spiral – which is only halted frankly by the intervention of the Washington institutions, the IMF and the World Bank. If you look African economies now in

the macro-economic setting, most of them have relatively low debt of course, because they’ve had debt forgiveness but they have low inflation. Of course we’re talking about a huge continent here, there are many differences, but they’re in a much better position than they were. And they are really, shall we say, primed for growth. I think there is more stability on the economic front, there’s more stability on the political front in Africa than there has been. And of course as you pointed out, there is a huge mineral facility which has always been there and is always attractive, and people are prepared to take huge risks to get it, and always have done. But if you have greater economic and political stability, and as I say, I don’t want to exaggerate it, you are in a better position. So that’s Africa. If one looks at South Africa it’s a very different question. South Africa is I think in a very bad position. I say that not because I wish it to be true, but I think it is the case. The manufacturing and industrialisation, which began in 1920s and 30s has petered out. The impact of Chinese competition is ferocious. The estimation of the African Development bank is that China and India can undercut SA and Mauritius, as the major manufacturing countries in [Sub-Saharan] Africa, by 25 to 30 per cent. I mean absolutely catastrophic. Hundreds of thousands of jobs have been lost in SA in the last five years in manufacturing and I see no way that SA has of coming back from that. They’re not going to find a whole new gold reef. They’re not going to find a bunch of platinum mines. It’s been well explored, everything that’s there has been well exploited. Gas through fracking is going to be developed and that’s a new area. But apart from that, there’s nothing new, so where do you get the jobs to bring down the 40 per cent of unemployment? Plus the welfare budget is frankly at the limits that the government can afford. You just can’t go beyond a certain point. The tax base is too narrow. Plus on top of that you have growing accusations, and proof quite frankly of corruption at the highest level. So is that a good recipe? No.

GTA: Can African governments reach the point where they can harness all of the investments that are coming into their countries to help them diversify and improve their manufacturing base. MP: I don’t see anything in Africa that says manufacturing has a


28 \ Final Word \ January 2013

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to grow. But you can only offer to polish each other’s car so often. It doesn’t produce sufficient jobs and it doesn’t produce anything that you can export. I mean the export areas are still things like tourism and mining and minerals. Agriculture and services are genuine areas in which they have a competitive advantage. Particularly agriculture, which hasn’t been developed at all. If you look at Ethiopia, I don’t know if you’ve seen the number of [international] companies that have invested in Ethiopia…massive areas. It has been at a huge cost, people have been displaced and there’s a huge political price to pay for it.

GTA: Is there a possibility that SA through trade with Africa can revitalise African economies, or is it just another form of colonialism?

Image by kierano

big future. In things like agricultural, shall we say turning paw paws into salads, for example in Ghana, I’ve seen them to fly them out to the UK, it’s happening already. The agricultural boom in places like Ethiopia and Kenya, that has a big future, flying flowers and producing those kind of things. But at the moment I just don’t [see it]. I mean how are you going to compete on the manufacturing level with places like Korea? With their 99 per cent literacy, huge technological advances, massive investment in R&D. I mean frankly Africa isn’t even on the first rung of that ladder. So I don’t see manufacturing, except at a low-level where things like transport costs are important. But anything above that I think is highly unlikely, particularly since African countries have not done the one thing that I think is absolutely vital, which is to remove those tariff barriers between each of the countries and that is a major block.

GTA: You don’t see any real progress being made? MP: In services yes. The service sector has been growing, is growing and will continue

MP: I’ve been to Shoprite Checkers in Uganda, I’ve seen the Ugandan malls they put in there. And they do genuinely help some sectors. So for example, when they put in the mall, then they need to have refrigeration. So they helped a little local company to get a refrigeration industry going. They import most of the goods, but you could say now there’s a service sector that imports refrigeration pumps from Germany, Korea wherever it is and now installs them and runs them and services them. Or take something like Ugandan coffee farmers and get them up to a certain standard, they get them properly packaged and you can now find Ugandan coffee in South Africa. So yes, that is a good example of both a service and an export sector being encouraged by Shoprite Checkers. But if you look at the percentage of these things, if it’s five per cent of all the products that are sold in a Shoprite store in Uganda are from Uganda, I would be surprised.

GTA: But then the hard currency is being exported back to SA. MP: But if Uganda is about to get into the oil production sector they’ll be able to afford it.

GTA: Africa seems to be leapfrogging tech infrastructure problems through mobile phones and ingenuity. How sustainable is this great leap forward? MP: The problem is that everyone remembers the mobile phone, and it’s made a big impact since everyone thought it was impossible and got it wrong, as people get it wrong about most things quite frankly. But you can’t get round having poor roads. You can’t get round

having railways that haven’t been invested in for fifty years. You can’t get round not having sufficient power. Those things are basic and [you] have to put them on the ground. You can’t leapfrog not having electricity and [you have] the idiocy of a place like Nigeria not being able to produce enough electricity for itself when it has vast resources of energy and has bought electricity generation perhaps ten times over. It’s always ended up in somebody’s Swiss bank account. You have to tackle those issues. I don’t think you can overcome them…you can’t leapfrog them.

GTA: Is South Africa’s Black Economic Empowerment (BEE/BBEE) project fundamentally flawed? MP: Yes.

GTA: Is there a way it could be made to work? MP: No, I mean no, precisely for the point that you make. The base of educated Africans to take over the positions and win those positions and fulfil them effectively is far too narrow and the greatest failure of the ANC bar none since 1994 has been the educational situation. Trevor Manuel [ANC’s planning minister] talked about a [hypothetical] young black woman and he pointed out, her only chance of ever escaping poverty, realistically was when she got her pension. She would never get a job. Her education was hopeless, she would never get anywhere. Now in those circumstances, how do you run BEE when you only have a narrow group of people who have the skills and the education. It’s not a question of capacity, there are vast numbers of people who have capacity. It’s not a racist view, it’s the question of do they have the skills and the education…and the answer is no. They [ANC and unions] did a fantastic role in destroying apartheid, but building a new South Africa, that requires different skills.

GTA: So you’re reasonably optimistic for the rest of the continent, but you’re pessimistic about SA. MP: I think that’s fair, but I mean what I would always say about South Africa, is that people have been telling me that it would be hell in a hand-basket since I was born, I’m 62, it’s never gone to hell.



30 \ Destination \ January 2013

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DESTINATION:

Burkina Faso

Ghana

Togo Cote D’Ivoire

Throughout its history, Ghana has been an economic political leader for not only West Africa, but the entire continent as well. In 1957, Ghana became the first SubSaharan nation to gain independence from Europe. However, despite this monumental accomplishment, Ghana, like many other countries in the region, became mired by political upheaval. After decades of coups, democratic elections were held in 1992 and have taken place

every four years since. Ghana is regarded as one of Africa’s premier democracies. It ranked seventh in Mo Ibrahim’s 2012 Index of African Governance and it was the second least failed state in Foreign Policy’s annual Failed State Index. The stablisation of Ghana’s political system has had significant benefits on the country’s economy. For most of the latter-half of the 20th century, the Ghanaian economy was mired by booms and busts caused by the volatility of the international gold and cocoa markets – Ghana’s chief exports. However, the 1990s brought Ghana economic stability, as industry reforms ushered in a period of steady growth for the next two decades. In 2010, Ghana entered the oil industry, after discovering offshore reserves three years prior. While the oil industry is tertiary behind gold and cocoa – it represented 6 per cent of Ghana’s GDP in 2011 – production is expected to grow significantly as global demand continues to increase over the decade.

GHANA

Accra

Ghanaian Economy

Currency: Cedi Population: 24,233,431 GDP based on PPP: $82.6 bn GDP growth 2012 (2011): 14.4% World Rank: 3rd Head of Government: John Dramani Mahama Finance Minister: Dr Kwabena Duffuo Central Bank Governor: Mr. K. B. Amissah-Arthur

Ghanaian Business

Language: English World Bank Doing Business rank: 64 World Economic Forum Global Competitiveness rank: 103 Investment agency: Ghana Investment Promotion Centre (GIPC) Public sector opening hours: 0800 – 1700 Private sector opening hours: 0800 – 1700 Legal system: British Common Law

Getting There

Airlines: British Airlines and Virgin Atlantic Visas: UK – Single entry visa valid for 90 days costing £125 Hotels: £49-179


Gateway to Africa, Issue 7, January 2013  

2013 SA’s new dawn?

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