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Wired up to the Nigerian connection Africa’s latest cell-phone revolution Corruption holds Africa back Controlled Distribution UK & RSA Issue 08 \ February 2013

Creating a sustainable Africa

Business | Entrepreneurship | Innovation | Investment | Lifestyle


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CONTENTS Regulars

Business Life

6 News and analysis

14 Kenya’s stock market outshines African peers

Recent developments from Sub-Saharan Africa.

Our man in Nairobi, Washington Gikunju, examines how and why his country’s bourse is doing so well.

30 Destination: Tanzania We examine the economy of East Africa’s up and coming nation Tanzania, which is riding the wave of significant energy discoveries.

Interview 10

David Willers

Business Council for Africa Vice Chairman, and former Chairman of Bonsucro speaks to GTA about the role that the private sector will play in the development of sustainable agricultural codes of practice in Africa.

20

Building links in Nigeria

Bluegrass Digital becomes the latest South African company to take the plunge into Nigeria’s buoyant market.

25 Africa’s latest cell phone revolution GTA examine the expansion into services that is taking place in Africa’s mobile networks that could see mobiles become one of the continent’s key revenue earners.

How African skills shortages drive up costs “I think that if you look at global companies, Africa is the last great emerging market [where] the value is seen as untapped.” - Albert Ellis, CEO of Harvey Nash Recruitment

18 Segway inventor Dean Kamen Speaks to GTA about his latest invention that can filter and clean the dirtiest water for human consumption, utilising Coca-Cola’s distribution network to roll it out across Africa and make water poverty a thing of the past.

22 How African skills

shortages drive up costs Albert Ellis of Harvey Nash, Debbie Thomas from Deloitte and Matimba Mbungela of Vodafone speak to GTA about the challenges and opportunities in recruiting skilled staff for Africa.

Final word 27 Corruption holds Africa back

Features

22

Anti-corruption investigator and best-selling author, Paul Holden, speaks to GTA about how corruption holds African economies back.

25

Africa’s cell-phones revolution “It was an ideal opportunity for us to leverage the powerful assets of MTN to an international audience, and show that the time for Africa had come.” - Sifiso Dabengwa, MTN Group President and CEO

27

Corruption holds Africa back “Corruption has a knock on effect – it’s not just about reallocation of resources and funds – it diverts resources away from economically productive and socially productive facilities.” - Paul Holden, writer

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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 Sub Editor: Brett Petzer Contributors: Rebecca Cooney, Mark Kapchanga, Rachael Kirby, Milton Lindsay, Washington Gikunju, Illustrator: Jackie Lampard Directors: P Atherton, J Durrant, N Durrant and R Phillips

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Creating a sustainable Africa Aldwych International – develops, invests in, and creates green technological solutions for energy production in Africa and globally. They speak exclusively to GTA about their involvement in the massive Lake Turkana wind farm in Kenya.

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NEWS AND ANALYSIS:

NEWS IN BRIEF Recent developments from Sub-Saharan Africa Gold Fields spin-off Sibanye Gold to sink or swim A new spin-off from Gold Fields, Sibanye Gold, has listed locally. Sibanye Gold, a new outfit created by Gold Fields, the world’s fourth largest gold mining company, has listed on the JSE and NY stock exchanges. Sibanye Gold will hold most of Gold Fields’ local South African assets, but uncertainty remains on the market as to whether these shares will do well following a calamitous year for South African gold mining. “Without a doubt everybody is speaking about the risk associated with mining in South Africa,” said Percy Takunda of Imara SP Reid, a Joburg-based brokerage firm. “American asset managers have very strict social mandates that they have to fulfil when they put in the money and many will not touch unionised companies or sectors.”

Why Nigeria sees soya beans as key to economic diversification With a series of multimillion-dollar investments already slated, 2013 seems to be the year that the agriculture sector helps Nigeria take a step towards economic diversification. The latest project is a $20-million soya bean production factory financed by the Nigeria-based company Karma Foods. The factory, which is planned to open by the end of 2013, will be located just a 30-minute drive away from Abuja International Airport. With a 75,000 metric ton processing capacity, the facility will be the largest soya bean processing plant outside of South Africa. And according to a spokesperson from Karma Foods, the company hopes the project will create tens of thousands of jobs along the soya bean supply chain throughout Northern Nigeria.


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SA’s mining and agriculture must change – Dr Ramphele Academic and struggle icon Dr Ramphele cautions South Africa’s private sector. In her former role of chair at Gold Fields, Dr Mamphela Ramphele warned that both mining and agriculture in South Africa were in need of urgent reform, or the unrest which has been witnessed in the last six months is likely to continue. “It’s time to think differently … the mining industry has no option but to make a fresh start [if it hopes to survive],” Ramphele said recently in Cape Town, likening the simmering discontent of workers to “bombs in South Africa waiting to go off.” Ramphele pointed out that South Africa needs high-quality social infrastructure, education and a sound legislative environment to move forward. For its part, the private sector needed to be more responsive to the needs of the local communities where it operates.

Image by Shizhao

The sky is the limit for SunEdison’s new SA venture

Diageo bets on sustainable growth for Nigerian Guinness

SunEdison, a major global manufacturer of solar energy technology has just entered the South African market with two substantial projects in the country. The company announced that it will create a 28MW solar plant in Limpopo’s Blouberg region, costing R1.2bn, and a further R1.4bn plant in Witkop, Polokwane, which will have an output of 30MW. SunEdison’s projects form part of the South African government’s Independent Power Procurement Programme (IPPP) for renewable energy. And these new solar plants will help to supplement the power-hungry commercial, industrial and mining industries in those regions. It is anticipated that SunEdison’s new plants will start producing power for Eskom by next year. The overall IPPP programme aims to produce 3,725 MW of energy from renewable sources by 2016.

Nigerian Guinness has wobble, but insiders keep the faith in local stout. Drinks giant Diageo, makers of Nigerian Guinness, are to invest $372m in Nigerian beer production by November 2013, the company’s president Nick Blazquez has just announced. This new investment should double Diageo’s beer production in Nigeria, which with a population of 160m is Africa’s most populous country. However, this renewed investment by Diageo comes at a time when Guinness’ pre-tax profits were down 15.7 per cent in Nigeria for 2012, compared with the previous year. According to Nick Blazquez the fall in sales was attributable to reduced consumer income as a result of higher electricity and motor fuel prices.

   

South-Sudan seeks pipeline alternatives in route to the sea

South Sudan’s Petroleum and Mining Minister Stephen Dhieu Dau announced that construction on a pipeline from the country’s oil fields will begin later this year. The pipeline will travel over a thousand miles from oilfields in the country’s north through Ethiopia to the Port of Djibouti. The German engineering consulting firm, ILF, has been contracted to carry out the feasibility study for the South Sudan-Ethiopia-Djibouti route. The study is expected to take 6 to 9 months, after which construction can begin. Framework for the pipeline had been established through an Inter-Governmental Agreement (IGA) that the South Sudan government signed with the governments of Ethiopia and Djibouti in September 2012. The South Sudan government expects to sign a similar agreement with the Kenyan government for a pipeline that flows through to the Port of Lamu in south eastern Kenya.

Africa in numbers

$2 trillion

The collective GDP of Africa this is larger than India’s GDP.

1 billion people

The combined population of Africa.

7 African countries Among the 10 fastest growing economies in the world.


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NEWS AND ANALYSIS:

Putting sustainability on the menu Africa’s leading hotel group blazes a trail for sustainability. Accor, Africa’s largest hotel group, is planning to build 35 new hotels in Sub-Saharan Africa by 2020, the company announced. The Accor group already has 116 hotels in 18 countries and increasing urbanisation and demand for rooms of international standard are driving this expansion. In conjunction with these new plans the hotel group has launched a

sustainable development programme called Planet 21, structured into seven pillars. These include: health, nature, carbon, innovation, local development, employment and dialogue. Accor claims that their sustainable objectives are quantifiable, and include an innovative programme to use educational messages to “inform and encourage customers to contribute actively.” Recent examples of this sustainability policy include: tree planting, employee health care schemes, and responsible fishing policies. The company has also

supported 14 reforestation projects in Africa and a total of 1,251,000 trees have been planted. Another aspect of the group’s sustainability programme includes supporting local development schemes, such as buying local produce for their restaurants. An example of this is their sustainable seafood procurement programme in Senegal, which was set up in collaboration with an NGO in the country. As a result of this, Accor has divised a guide to sustainable seafood procurement which is used by all of their hotels.

Zambia’s eco-emeralds Gemfields reaffirms its commitment to ethical emerald mining in Zambia. by Rachael Kirby 2013 Gemstone mining company Gemfields plc, have released a statement that reaffirms the best interests of the Zambian people and

government as its main priority at Kagem emerald mine in Lufwanyama. The AIM-listed mining company took a 75 per cent stake in the bankrupt emerald mine in 2008, turning its fortunes around to contribute more than ZMW687m (US$129.6m) to Zambia’s direct foreign earnings over the past three years alone. “All these earnings have been repatriated back to Zambia, where they have been used to settle old debts inherited from the previous management,” the company states in a news release. The value of rough emerald production worldwide is estimated at US$500m per year, with Kagem now producing around twenty per cent of this figure. Gemfields continues to re-invest around ZMW150 million (US$28.5m) into the mine each year. With a view to becoming the ultimate industry authority, Gemfields has proved itself to be the pioneer of a new approach to gemstone mining that favours strong

ethics and strategic marketing. Its focus – “reliable and ethicallyproduced Zambian emeralds” – advocates a transparent route from the mine to the international market. The company holds claim to the world’s first integrated pipeline to bring emeralds directly from mine to market, meaning that customers are able to trace each gem back to its source. Gemfields champions social and environmental awareness, and believes its fair-trade practices result in conflict-free mines. “Our dedication to preserving the environment, nurturing relationships with local communities and upholding human rights remains paramount to our success,” alleges the company’s website. The Kagem mine employs approximately 650 people, and the workers rank among the highest paid in the Zambian emerald industry. The company pledges not just to sustain, but to increase, the benefit Zambia receives from its gemstone resources.


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COMMENT: David Willers

The private sector is best placed to protect Africa’s environment Harnessing market forces is the most robust way to spread Fairtrade certification across different industries and regions.

by Milton Lindsay and Jeremy Kuper For almost a decade, Africa’s economic rise has been fuelled by the emergence of Eastern demand for the continent’s raw materials. Economic activity has brought a much needed revenue influx to Sub-Saharan Africa, but the patterns of investment – centred largely on mineral extraction – have done little to strengthen the region’s infrastructure and end the continent’s dependency on the export of minerals. However, there are indications, some believe, that the structure of Sub-Saharan Africa’s economy is on the verge of a transformation, with the agricultural sector helping to end this over-reliance on mineral extraction. “Because most of Africa’s [mining] potential is known, and tightly regulated, I think agriculture presents a huge opportunity,” said David Willers, Vice Chairman of the Business Council for Africa. “Africa could definitely become the breadbasket of the world, potentially.” Agriculture has always maintained a significant position in Africa’s economic framework, but the growth of the sector – consisting mainly of the harvesting of commodities like coffee or cotton – has been limited by a number of factors.

Volatile commodity pricing Not only is the value of these products heavily dependent on the extremely volatile world market; the lack of progress is also

compounded by the fact that historically Africa’s commodities have not benefited the majority of the continent’s population and the Pan-African export market is under-developed. In other words, African governments make little or no profit from the commodity beyond its primary harvest. “So often, you have the basic commodity roughly processed and exported to a company overseas, who would do the final beneficiation and convert it into something,” Willers explains. This is because African countries neither had the means to process the resources domestically nor an existing market through which to profit from regional trade. Sugar, used to produce ethanol, is an example of a commodity that can be used to promote an economic model that is more beneficial to African countries, according to Mr Willers.

The sustainability challenge Yet, like any commodity, expanding sugar production inevitably increases the ecological footprint that a country leaves. The challenge, says Mr Willers, is in developing a sustainable way for African countries to harvest sugar and produce ethanol. “How can one ensure that the natural degradation caused by an active [ethanol] operation isn’t going to spoil the African

landscape and atmosphere?” Willers enquires. “We definitely do not want, in Africa, to have Beijing-style pollution issues.” In Africa, however, where most governments lack the resources to enforce strict environmental standards, Mr Willers says that any push for the development of a sustainable sugar industry will have to be market-driven. One of the best examples of a marketdriven effort to set environmental standards for commodity production is the Biofuels Policy and legislation created by the European Union. Throughout the past decade, the EU has developed a series of strict standards for the biofuels that it imports. These standards, which include provisions ranging from how much CO2 an ethanol operation can produce to the amount of land a plantation uses, have had a substantial impact on ethanol production across the globe. EU member states are not permitted to import ethanol from operations that fail to meet strict EU standards. To gain access to this lucrative market, producers are forced to meet those standards.

The Bonsucro standard A key organisation leading the effort to help sugarcane plantations meet the EU’s standards is Bonsucro, a global

“Africa can definitely become the breadbasket of the world, potentially.” - David Willers, Vice Chairman of the Business Council for Africa


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industry body for the sugar industry. In his role as former chairman and CEO of Bonsucro, Willers was instrumental in establishing the first metric standard for measuring the environmental impacts of an ethanol operation back in 2008. This is known as the Bonsucro Production Standard. Three years later, the nonprofit trade organisation gained international recognition when the EU began including the Bonsucro Standard into its own standards for ethanol imports in 2011. Bonsucro’s environmental impact standards address global warming and the measurement of CO2 emmissions, biodiversity and the expansion of land use, and indirect land change. In terms of biodiversity, the emphasis on land use implements standard requirements for new land expansion in line with EU requirements for imports of biofuels. Indirect land change policies aim to ensure that food production is not displaced. “If you push onto land that was grazed by cattle and you plant sugarcane, what happens to the cattle? Do they get pushed onto other previously unexploited land?” Willers asks, thereby highlighting the complex questions raised by the production of biofuels. Any country that wishes to export ethanol to the EU “must demonstrate that ethanol is being produced in a way that does not damage habitats or spoil virgin land – or that is not contributing to a displacement of food production.” Bonsucro has worked primarily with ethanol operations in South America. However, Willers believes that using metric standards like the one established by Bonsucro, “is the way forward for environmental management on a continent like Africa.” “I think the private sector has to take responsibility, so that when investments are made, they are made through the prism of an environmental standard,” says Willers. “That way, right from the start, you can make sure that the plants being opened will meet very tough and rigid environmental standards.” Similar to marketing efforts like Fairtrade labelling on products such as coffee and teas, which demonstrate that means of production have an impact on consumer behavior, Willers believes that the Bonsucro Standard will be attractive to potential ethanol producers in Africa looking to gain access to the European Market. These environmental impact standards are expected to “encourage African governments to tighten up their own

Image by Asadbabil

Image by Mariordo

environmental legislation. I think you’re going to have a very creative partnership between market-led environmental initiatives and government authorities, who can make that happen through laws and legislation.” On a broader scale, Mr Willers says that the African Union also has an interest in pushing African governments across the continent to enact stricter environmental regulations for ethanol production. “The AU is interested in the harmonisation of trade in Africa,” Willers believes.

By encouraging African governments to establish uniform environmental standards for the sugarcane sector, Africa is expected to become more attractive for investment from the EU and other Western markets. The production of biofuels may be controversial, but the key challenge is making better use of the land and ensuring that any ethanol production in Africa does not displace food production, and that it is done in a sustainable way.


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FEATURE:

Creating a sustainable Africa GTA speaks to Aldwych International, a company using sustainable technology to develop Africa’s grid

by Milton Lindsay Erratic and intermittent power supply, found across much of SubSaharan Africa, is one of the most acute infrastructural shortcomings that has contributed to the region’s underperforming economy. In 2011, it was estimated by KPMG that the region, comprised of 49 countries with a total population of nearly 900 million, had an overall power capacity of 68 gigawatts (GW) – equivalent to the power generation capacity of Spain, a country of 40 million. And without South Africa, the region’s capacity falls to just 28 GW. However, while this environment would deter most investors – a decade ago, before Africa emerged as one of the world’s fastest growing markets – the London-based energy company Aldwych International saw an opportunity. In the African market, “We felt there was a niche we could play in to,” said Bob Chestnutt, project manager for Aldwych International. “We were familiar with working with development finance institutions, and we felt that we could bring a project pipeline, and we didn’t need to worry about the fact that we didn’t have money ourselves, because [the organisations] would provide the debt and equity, and we would figure out a way to make a profit.” Aldwych was founded in 2004 by

members of the African project team for the energy company AES, following the company’s decision to withdraw its investments from Sub-Saharan Africa. With early funding from the Dutch development bank FMO, as well as a $250,000 capital grant from the Shell Foundation – the charitable wing of Royal Dutch Shell – Aldwych began bidding on a number of projects across Sub-Saharan Africa. And in the eight years since it was founded, Aldwych has refinanced or fully financed 20 power installations worldwide, for an overall power capacity of 11,000 megawatts and representing $3.75 billion of investment.

Finding a project Aldwych maintains extensive relationships with a number of development finance institutions, including the Pan African Infrastructure Development Fund – the company’s largest shareholder, says Chestnutt. Through these organizations, Aldwych learns about prospective projects. “A lot of the time, a local developer starts a project, then runs out of expertise or money,” Chesnutt explained. “Then they would go to FMO, the Emerging Africa Infrastructure Fund, or another international financial institution, and say ‘we need some help with the project,’ and then the organisation would introduce the developer to Aldwych.”

However, Chestnutt says that Aldwych simply does not have the resources to partake in all the projects that are proposed, “So we look at things like the quality of the project, the quality of the local developer, as well as the country itself.” The political and economic conditions in the country are particularly important when deciding on a project, explains Chestnutt. “Is the country safe? Does the regulatory regime work? Does the electricity work? Can we actually develop a successful project in that country?” The government plays an essential role in making its country more attractive for investment, says Chestnutt. Most critically, a country must have an effective independent regulatory regime to establish clear and transparent regulations

Bob Chestnutt


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for the energy sector. A government must also have strong energy legislation that encourages private sector growth.

Kenya: the positives and negatives of business in Africa Kenya, in Chestnutt’s view, is one of the countries in Sub-Saharan Africa best suited for investment. During the late 1990s, the Kenyan government launched a series of comprehensive bills that worked to liberalise Kenya’s economy and also reduce the widespread corruption and nepotism that riddled other nations in the region. This campaign, which included the establishment of the Kenya AntiCorruption Authority in 1999, made Kenya one of the most appealing countries for investment in Sub-Saharan Africa moving into the 21st century. “Kenya is a clear example of where it is possible to do business, relatively easily, compared to other African countries where governments have not taken the necessary steps to reform their economies” said Chestnutt. Beyond economic conditions, Chestnutt says that Kenya has strong human capital, which makes it much easier for Aldwych to execute one of the main tenets of its business model: involve the local partner as much as possible, unless a particular skill is missing. “Kenya has a highly skilled workforce,” says Chestnutt. “It has very strong universities. You’ve got a great pool of young graduates. So, it’s only when you need, for example, skills for turbine construction – skills that aren’t readily available – that you need to bring people in from overseas.” However, for all its strengths, Kenya also provides an example of what Chestnutt says is perhaps the most difficult aspect of conducting business in Africa: lengthy delays caused by political instability. In 2006, Aldwych become involved in the development of the Rabai diesel power plant located 20 kilometres outside Mombasa, Kenya. During the initial stages of development in 2007, Kenya fell into a widespread political crisis, following the disputed results of the presidential election held in December of that year. The turmoil, which left over a thousand dead and displaced hundreds of thousands more, caused DFIs to suspend their involvement until there was some sort of evidence that stability would return. “There was a period of time when things were looking very shaky,” Mr Chestnutt recalled. “What the DFIs

were waiting for was some indication that democracy would prevail.” Ultimately, Chestnutt says the situation was resolved, the DFIs re-engaged in the project, and it was completed by 2009.

The shift towards renewables Completing a project in the most cost-effective manner possible is one of Aldwych’s most defining qualities. While it will never sacrifice the quality of a development in order to limit expense, when approaching a project, Aldwych will work to ensure that it utilises the strengths of the host country. “The technology used in a particular project is fairly driven by the geography of the site and the natural resources available in the country,” Chestnutt explained. “For example, if a country doesn’t have a good solar profile, or doesn’t have much by way of wind, but does have a lot of coal, then clean coal would be the best option for that country.” After not finding a sensible opportunity to use renewable power for the first five years of business, Aldwych finally found an opportunity to engage in the development of a sustainable power project. In December 2009, the Dutch wind power firm KP&P approached Aldwych about becoming a partner in the development of a wind farm on the shores of Lake Turkana. Located at a point on the shoreline renowned for its constant high winds, Chestnutt says the Lake Turkana Wind

Power Project can transform Kenya’s power grid. The plant will have a potential power generating capacity of 310 MW – 20 per cent of Kenya’s current capacity. Scheduled to go on line by mid 2015, the plant represents the largest single private investment in Kenya’s history, according to the project’s website. For Aldwych, this project represents the beginning of a new emphasis on renewable technology, Chestnutt says, one that shifts in response to market behaviour. “There is a clear preference, from the development financing community, for renewable projects,” Mr Chestnutt said. “It’s easier to push through a renewable project than a thermal project, simply because you have the environmental advantages.”

Is the country safe? Does the regulatory regime work? Does the electricity work? Can we actually develop a successful project in that country?” Image by AdamPG

Bob Chestnutt, project manager for Aldwych International


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BUSINESS LIFE:

Kenya’s stock market outshines African peers Kenya’s Nairobi Securities Exchange has emerged as a new market for intrepid investors, and a source of competition for some of Africa’s perennial economic leaders like Nigeria and Ghana.

“The Nairobi Exchange was ranked as the best performing SubSahara African bourse in 2012 by two London-based market index trackers, MSCI and FTSE.” - Washington Gikunju

by Washington Gikunju in Nairobi Driven by a voracious appetite for stocks from foreign investors, Kenya’s Nairobi Securities Exchange (NSE) is emerging as a haven for frontier market investors, creating strong competition to rival Sub-Saharan economies like oilrich Nigeria. The Nairobi Exchange was ranked as the best performing Sub-Saharan African bourse in 2012 by two London-based market index trackers, MSCI and FTSE. The ranking reflected a strong rebound of the Kenyan stock market in 2012 that has made it attractive to foreign investors in search of higher returns than were available in the developed economies plagued by public debt. According to the MSCI’s annual performance ranking of December 28, 2012, the MSCI Frontier Markets Indices produced the most widely dispersed results for 2012 year-to-date (YTD). The top three single-country Frontier Markets index performers for 2012 YTD were the Kenya, Nigeria and Estonia Indices, which posted returns of 54.16 per cent, 52.82 per cent, and 44.98 per cent respectively.” The MSCI Frontier Markets Africa Index was the top-performing regional Frontier Markets index, delivering a 2012 YTD return of 44.88 per cent. FTSE, another global indices tracker, captured the strong performance of the Kenyan bourse, with its Nairobi Securities Exchange FTSE 15 Index, FTSE 25 Index rising by 39.24 per cent and 38.67 per cent respectively. Both the FTSE NSE Kenya 15 Index and the FTSE NSE Kenya 25 Index outperformed the FTSE ASEA Pan Africa Index (excluding South Africa) and


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Our future won’t be the same without green.


16 \ Business Life \ February 2013

the FTSE All-World Index series. With only 60 listed firms boasting a total market capitalisation of about $15bn, the Nairobi Securities Exchange is small relative to global markets. It is dwarfed even by its main rival in Sub-Saharan Africa (excluding South Africa), the Nigerian bourse, which has 198 listed firms with a total market capitalisation of nearly $60bn. But unlike Nigeria, and many other Sub-Sahara African economies such as Zimbabwe, Botswana and Ghana that are mineral-rich, Kenya’s GDP is dominated by agriculture and services industries. Many of the East Africa’s listed firms posted double-digit profit growth in 2012, but at least 10 of them issued profit warnings, an indication that they expected their performance to be at least 25 per cent worse than in 2011. The Nairobi stock market was helped to a large extent by a sharp drop in Kenya’s inflation rate and a stabilisation of the local currency, the shilling, which had in October 2011 dropped to an alltime low of 107 units to the dollar. With Kenya being a net importing country, the collapse of the currency, and a surge in oil prices driven by the Arab Spring, had fuelled inflation, which peaked at 19.72 per cent in November 2011, but dropped consistently last year to December’s level of 3.20 per cent. Interest rates which had risen sharply as the Central Bank of Kenya increased its policy rate to 18 per cent to tame the inflation rate, also tumbled, rendering stocks more attractive than government securities. Foreign investors, especially those based in Europe, appear to be betting big on the Nairobi bourse. In 2012, the international investors were net buyers of shares worth $232.5 million, having made purchases of about $558 million against sales of $339 million. With Kenya facing a presidential election on March 4, analysts have predicted a looming correction of the stock market, which has so far showed remarkable resilience amid the rising political noise. Some have drawn parallels with a 2007 trend that saw investors turn bullish on the stock market only to burn their fingers when a stalemate over presidential poll results triggered violence that inflicted heavy damage on the economy. The economic growth rate plummeted from a decade high of 7.1 per cent in 2007 to a paltry 1.7 per cent in the following year as businesses

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reported huge losses attributed to the post-election conflict. The intervention of the global community led to the charging of two prominent politicians (who are currently aspiring presidential candidates) with crimes against humanity at the International Criminal Court for their alleged role in the postelection chaos. The political instability in Kenya largely mirrors that in Nigeria, where conflict between religious extremists and moderates has led to hundreds of deaths of both Christians and Muslims. Yet foreign investors appear unfazed by the uncertainties in Africa’s most populous economy. Nigeria’s 160 million consumers’ demand for consumer goods and financial products were the main drivers for its economy in 2012, a welcome sign of continued diversification away from petroleum. Nigeria remains Africa’s top oil producer and a member of the Organisation of Petroleum Exporting Countries (OPEC). Inflows of foreign currency and tight monetary policy helped Nigeria’s naira currency gain 1.8 per cent in 2012 to close the year at 156.20 to the dollar. Another emerging investor favourite is Ghana, which has emerged from a closely fought but peaceful presidential poll with an enhanced reputation as the “Switzerland of Africa,” though uncertainties linger about its currency and a growing budget deficit.

Besides solidifying its credentials as an emerging democracy, Ghana, whose traditional exports are gold and cocoa, has also joined the club of oil producing countries to the tune of 90,000bpd. This is set to grow to 120,000bpd next year, although this may not be enough to prevent a halving of growth rate to 7.8 per cent from 2012’s strong 14.5 per cent. Despite its stability, major disincentives to investment in Ghana remain. Chief among these are the size of its stock market (just 34 listed companies) and the illiquidity of its capital market, with the longest treasury bond tenure being only five years.


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BUSINESS Life:

Segway inventor’s gift of clean water to Africa Segway inventor Dean Kamen provides Africa with clean drinking water with his latest invention by Rebecca Cooney The Slingshot device, which converts even raw sewage or chemical waste into cool, drinkable water, is named for the biblical story of David and Goliath in the hopes that little machine could defeat a giant problem in the developing world. One of the biggest obstacles to development in Africa is water poverty. Nearly one billion people worldwide do not have access to clean water, affecting not only health, but productivity and economic growth. When the Slingshot was trialled in five schools outside Accra, Ghana, for six months in 2011, the results Kamen saw were “unbelievable.” “By March of last year, we’d produced 140,000 litres of pure water in these five schools, we’d supported 1,500 school kids,” he says. “In the schools that we were in, the kids show up; they show up healthy, they show up alert, they’re not sick… Everybody loves this machine, every place we tried it.”

But the machine which made all of this possible started life as a by-product. “Like many things in my life, it was serendipitous,” says Kamen. “We were trying to create a dialysis machine that could be used in people’s homes.” “The problem we had is we’d developed a machine the size of a VCR, but you need 100 gallons of medical grade sterilised water to use it.” “And people don’t have that outside of a hospital – even where you’ve got clean water coming out of the tap, that still isn’t pure enough, and it’s difficult to ship IV bags to places a long way from a hospital. So we came up with this way of sterilising the water in a machine the size of a fridge, which can be beside the bed while you’re dialysing overnight.” “And I thought, why couldn’t this be used to provide water for people all over the world?” The Slingshot works by boiling, evaporating and condensing water, separating it from contaminants and killing bacteria. This technology has been used to purify water for years, but the central innovation of Kamen’s machine is its compact size, which makes it portable enough for use in remote locations. The device is also energy efficient, using less energy than a standard hairdryer to produce enough water for 300 people daily, and can run on electricity or diesel. It can also be connected to another of Kamen’s inventions, the Stirling engine, a generator powered by anything from methane and kerosene to decomposing cow dung, making it perfect for rural

“By March of last year, we’d produced 140,000 litres of pure water in these five schools, we’d supported 1,500 school kids...In the schools that we were in, the kids show up; they show up healthy, they show up alert, they’re not sick… Everybody loves this machine, every place we tried it.” - Dean Kamen, Segway PT


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villages not connected to the electricity grid. However, without an effective method of distribution, Kamen knew he would be unable to reach these remote locations or bring the production of the Slingshot down the cost curve to make it viable. “Each unit cost hundreds of thousands of dollars because we were effectively custom building each one.” “So I approached this little start-up company from down in Atlanta called Coca-Cola,” he jokes. “Because I could only think of one company that has the global reach of this company and its distribution networks.” To his delight, Coca-Cola leapt at the chance. “What made it really exciting to me is the fact that when they came to ’negotiate‘ they said look, we don’t want to negotiate for any commercial rights to this machine. We really believe in your vision, and if Coca-Cola is even perceived to be trying to make money by extorting money from the poorest people in the world to give them clean water, there isn’t enough profit to be made to make it worthwhile.” “But instead, the Coca-Cola company could leverage its incredible distribution system, so at relatively low cost to them, it could get these machines around the world and help make healthy kids and healthy moms and healthy villages.” Coca-Cola’s involvement may be philanthropic, but it could have major implications for local economies. According to the United Nations Development Programme Human Development Report, for every $1 invested in water and sanitation, on average $8 is returned in increased productivity.

“So we came up with this way of sterilising the water in a machine the size of a fridge, which can be beside the bed while you’re dialysing overnight...And I thought, why couldn’t this be used to provide water for people all over the world?” - Dean Kamen, Segway PT

Kamen wryly acknowledges there could be some fringe benefits for Coca-Cola in lifting people out of water poverty: “they’ll become healthy so they can buy Coke’s other products.” The use of Coke’s distribution networks is also an investment, providing African entrepreneurs with an opportunity, as Kamen explains: “In some cases, nobody will make money – where they put them in schools, clinics or where NGOs or governments will essentially give out the water to people at that school, or after disasters.” “But there will be some places where, in a village for example, in order to make it a sustainable situation, a machine can be put there and local entrepreneurs will be able to run old dishwater or any water through the machine, turn it into very high-value potable cool water, so they can sell it at a very low-price and still make a profit… So I think the long term possibility is that in a lot of places around the world, small, individual entrepreneurs will be using these machines to make money

and supply the basic human need for water.” In most developing countries, it is usually women whose time and energy is taken up by walking an average of 6km a day to haul back around 20kg of water for the family, and according to Kamen, it is women who stand to benefit as entrepreneurs. “Coke believe, based on their experience, that women in the developing world tend to be more responsible, more focused and essentially better at taking on the job of becoming an entrepreneur. They have a program within Coke called 5 BY 20, which aims to empower five million women by the year 2020 to be local entrepreneurs and they think one of the best opportunities to become an entrepreneur is in fact through our Slingshot program.” Kamen has high hopes for the future of the Slingshot. “The trials ran very well so Coke said, let’s do the next level of scale up. The plan is to trial in five more countries this year, including South Africa, Mexico, Paraguay and couple of others we haven’t yet figured out. The rest of this year will be just trials, and if things go really well the goal is to scale it up so it can be put all over the world and be a major source of good health for millions of people.” Does he think this could spell the end for water poverty? “I hope so.”


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COMMENT: Nick Durrant

Wired up to the Nigerian connection Nick Durrant, Director of Bluegrass Digital, in conversation with Jeremy Kuper, GTA Editor, about the opportunities, challenges and cultural differences of doing business in Africa.

GTA: Describe your business. Nick Durrant (ND): Bluegrass digital tends to focus on partnering with agencies. We are a digital agency, so we basically develop websites, content management systems, web mobile applications, social media or Facebook applications – broadly we call ourselves a digital production agency. We’re a slightly more technically-led than creatively-led company, so we tend to work with creative companies – for example, ad agencies or communications companies, where they will use us really for our technical skills in implementing a concept. In one instance we worked with JWT (J Walker Thompson) in London and with them we manage (as technical partner) the Lego Duplo account for Eastern Europe. We do all the web development work and implement the content management system for them – it’s fairly technical work. Similarly, we’ll work with maybe an agency in South Africa, one of the big ones, and deliver something like a website for Converse, or an iPad application for Honda cars, for a motor show or an event. Or we work with a communications company in Nigeria, for example, to do work for the Dettol brand and some Standard Bank digital mobile banners [for Nigeria]. So it’s quite a broad range

of work across web-mobile and social platforms essentially. GTA: Tell more about your African ventures. ND: We are in the process of doing a trade mission with Wesgro, a Western Cape Government initiative to try and take companies from the Cape abroad, to Kenya or Ghana, for example, to meet with companies on the ground. The reason companies in East and West Africa, for example, still tend to work with firms outside their countries, is a lack of service delivery on the ground, in terms of running a business and delivering solutions, especially for larger brands. They’ll tend to come to South Africa or go to Europe to find the skills, and there’s a status associated with working with a foreign company. GTA: What’s the difference of doing business in Nigeria compared to Britain or South Africa? ND: I suppose doing business in the UK – and I spent 15 years there – is somewhat more [of] a trust-based environment. A handshake and a nod and you know you’ve done the deal, so to speak. In SA there’s slightly less trust. Going into Africa, it probably just gets worse in terms of doing business, so in terms of

contractual arrangements and making sure you get money up front, those are all important. I know from other companies that have been in there, that that’s what needs to happen. I know of cases, for example, where they almost get the invoice paid before they arrive at the airport. And I think companies recognise that there is a lack of trust in the business world, and that’s the key to trying to get into Africa – we’re not really looking to physically set up shop in the country. I mean Nigeria has a complex business structure, so it’s difficult to do that. Our reach is really going to be through partnerships, with people we meet and trust who are running some form of business on the ground where we can partner. What most people have done is won a client which has then led them to have to set up some infrastructure and generally that client has grown into the neighbouring territory. That’s how a lot of the smaller companies have done it…It’s all about collaboration. GTA: You’re paid in US dollars when you work with Nigeria? ND: Certainly in Nigeria, everything is US dollar-based. I’m involved in a pitch there in Abuja with a client who is one of the largest pension fund administrators in Nigeria, and everything was US dollarbased. From a budget perspective, budgets are generally pretty decent in those parts of the world. People pay for luxury goods, so everything is quite expensive. GTA: What kind of market research have you done for this African project and how does it differ from doing business in SA or the UK? ND: It’s been really talking to businesses. I mean in South Africa a lot of companies – there are a few in Cape Town – have only clients in Africa. In fact there’s one company that has only one client, in Nigeria, and that’s all they service, and they do it from Cape Town, and they fly out there to do the meetings and that sort of thing. There’s a lot of that going on, and they’re now in a position where they almost have to put someone on the ground there and almost set up a satellite office an operation. If you’re getting into business where you need to provide an ongoing service to a client, that is inevitable. But it’s not really a strategy of ours. Our strategy is to work with partners where we can, and then to use them to get African


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business. So the knowledge gathering has been an ongoing process, through talking to business people in the relevant territories, like Nigeria or Ghana or Kenya, and talking to businesses that have been there before. So there’s been quite a bit of discussion and the work we’ve done remotely. We haven’t had to be there on the ground. We’ve done a handful of projects in Nigeria already. The quality of the work we deliver is the same for anyone. We have to work out how we’re going to get more of that work, and grow that African channel.

up large chunks of market – like MTN and Multichoice-DSTV, the TV channels. Those are the types of services that have been established. It’s logical that they’ve moved in, starting in Southern Africa and then moving deeper into Central Africa. Some of the companies have been there for 15-20 years already.

“Our strategy is to work with partners where we can, and then to use them to get African business.” - Nick Durrant, Director of Bluegrass Digital.

GTA: You’re spotting this gap in the market, which possibly exists because of a lack of trust, and because of negative perceptions about doing business in Africa. Are these new frontiers that are just opening up, that have the potential and the money, but just for some reason nobody has done it before? ND: I think we shouldn’t forget that there are plenty of big companies in those territories already - international brands that have been in there for years probably. The Dettol brand is run by Reckitt Reisinger; Unilever are everywhere in Africa. And MTN from South Africa owns a lot of the cellular networks in those territories. The big corporates moved in there years ago, but I think there’s a lot more business for the smaller businesses. In a way it’s growing fast, but in a way these are early days still. There’s still a lack of knowledge, and therefore, fear. People probably think, ‘That’s not our focus, we’ve got enough work in SA or we’ve got enough work in Europe, we don’t need to go there’. But you’ve probably missed [an] opportunity, otherwise because as time goes on, if you don’t get your foot in the door, you’re not going to be able to put your stake in the ground and get some market share – no matter how small. GTA: Do you think South African companies are particularly interested in these African countries, and especially bold in their explorations into Africa? ND: I think South Africa has been slow in getting into Africa. I mean that’s the kind of common consensus, because China, these European companies and so forth have been doing business and setting up infrastructure in many African countries for years. But there certainly are large companies from South Africa that have been fairly forward-thinking, that have moved into those areas, and that have probably taken

I think now it is becoming mainstream, everyone’s jumping on the bandwagon so to speak – they don’t want to miss the train or the boat…What is probably the fastest growing market in the world, paying in dollar-based currency, is attractive to anyone. Nick Durrant is a director of Blue Sky.

Image by Anneli Marinovich


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BUSINESS LIFE:

How African skills shortages drive up costs GTA speaks to top recruiters and organisational change executives focused on Africa about meeting the challenge of the continent’s skills shortage by Jeremy Kuper

Matimba Mbungela Vodafone - Regional Head of Organisation Effectiveness and Change: Africa,Middle East and Asia Pacific GTA: How is a multinational like Vodafone dealing with the challenges of the skills shortage in Africa?

“In some cases, you find people who are in the diaspora who are keen to go back on a permanent basis. But you do find some people who are keen to go back, make a difference for a period and who want to move on after that.” - Matimba

Mbungela,Vodafone - Regional Head of Organisation Effectiveness and Change

Matimba Mbungela: In terms of skills back in Africa, one of the key things that I found, and something that we’ve used very successfully at Vodafone, is to tap into the diaspora. And we had a very successful case study in Ghana. When we bought Ghana Telecom, we managed to attract a number of people who are in different parts of the world who were keen to go back, people who have an interest in being part of the change. So tapping into the diaspora is one of the key things, but obviously that comes with challenges, because often people of the diaspora would have been used to different living conditions, and how you then package what is attractive to them is quite critical. One is the type of role that you get for them. Secondly, it’s obviously the remuneration. But I think the key thing, is also putting [in place] what the career prospects look like for them back in the country - and also, being a multinational, other opportunities inside the group as well.

So in some cases, you find people who are in the diaspora who are keen to go back on a permanent basis. But you do find some people who are keen to go back, make a difference for a period and who want to move on after that. So for them it’s part of another move. The fact that they are of Ghanaian descent, as an example, makes it attractive for them to do that move, to bring that value home first, and then move on to other things. So actually it’s a combination of factors. The other piece is something that I strongly believe in…a global mentorship programme for multinationals. I do a lot of that as well. Mentoring people in different parts of the business, identifying the high potential people, and giving them an opportunity to be mentored by someone who is quite senior in the business, who may not necessarily be in the same location. And in this case I’m talking of locals in Africa who have the potential to do bigger things. One of the things that Vodafone is beginning to be a successful in, is forming project teams that consist of people from different locations across different countries. Often teams in such projects would be working outside of their own home country on something that may not even have immediate relevance in their own home location. This is also an opportunity for one to build an international network while learning how to engage with colleagues from



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diverse backgrounds without having to move from one’s home locations and to see how things are done differently in other markets. At the same time, it’s also an opportunity to impart knowledge to other people outside of the continent and to foster a better understanding of things on the continent.

In Africa skilled staff can cost more

GTA: So you’ve found skilling people up and finding skilled staff for your African business a challenge, but you’re finding solutions to those challenges? Matimba Mbungela: Oh definitely, we’re working through it, I would say that we’re beginning to crack the code on it.

Albert Ellis CEO of Harvey Nash Recruitment GTA: There is a massive skills shortage in the African booming markets….do you see that as a potential market for your company? Albert Ellis: We have actually recently done some quite significant high level recruitment in Africa, in South Africa and West Africa. So we’ve executed from London and these have been pretty big searches, for pretty big packages. So from that point of view we’ve been exposed to global technology companies wanting to expand their presence in Africa. I think that if you look at global companies, Africa is the last great emerging market [where] the value is seen as untapped. You could see Latin America coming on stream. Arguably parts of Asia are mature like Japan and Korea; even China is becoming that way. When you look at Africa, it’s the last great untapped market with almost a

billion people. So the issue Africa has is obviously infrastructure. If you look at Asia the infrastructure is absolutely suburb, by and large, even in a country like Vietnam where we are. Political stability is very good in Asia; it’s not so good in Africa. And the third point is that the appetite for investment in places like Asia - the way the government will help and protect you - is quite hard to beat and that’s why we’ve been drawn to those parts. But if you look at Africa as a continent, it’s got all the wealth and the minerals. There is definitely a sense that Africa’s time will be at some point in the next century, even if the last century was America’s and the current century belongs to China. Africa is going to follow and possibly overlap. We know that China has already identified Africa as one of their key areas. One of the drawbacks to Africa’s market, is that it’s quite a small market for our services. So when you look at executive recruitment, it’s a pretty small market there.

Debbie Thomas Deloitte - Head of Africa Services

“I think that if you look at global companies, Africa is the last great emerging market [where] the value is seen as untapped.” - Albert Ellis,

CEO of Harvey Nash Recruitment

GTA: Would you say recruitment of personnel is still one of the biggest problems in Africa? Debbie Thomas: Skilled recruitment… look to be frank with you, I think that’s a problem everywhere, but I think there’s been more and more focus on Africa and

“Africa has a very good track record in terms of skills development.” - Debbie Thomas,

Deloitte - Head of Africa Services

education and the skilling up of local people. But Africa has a very good track record in terms of the skills development. GTA: I guess it’s still the skills shortage that makes Africa more expensive. Debbie Thomas: That’s your challenge, you know, why would someone go to Africa versus going to India or China? A client of ours had bought an asset in India and as part of the integration of that company into the global organisation they had sent some of their shop stewards from South Africa to India to look at their operations there. And apparently these shop stewards went back and said, we’ve got it so good here in South Africa, and it was very interesting to be able to see a different perspective, which they hadn’t seen before.


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FEATURE:

Beyond M-Pesa Africa’s latest cell-phone revolution Africa’s telecoms sectors remains growth leader.

by Mark Kapchanga Africa’s telecommunications industry is undergoing massive growth that could see it become one of the continent’s key revenue earners. A business environment conducive to growth, coupled with better-quality technology, is propelling the sector forward and broadening its income from the existing voice and message services into data and business solutions. Operators in East Africa and Southern Africa in particular are extending their reach to financial services, and thus

“It was an ideal opportunity for us to leverage the powerful assets of MTN to an international audience, and to show that the time for Africa had come. It meant a lot to us to be part of a unique global movement,” - Sifiso Dabengwa,

MTN Group President and CEO,

benefiting large segments of the unbanked rural population. Kenya’s Safaricom Limited controls about 60 per cent of the country’s mobile services market, supported by its strong network, solid customer care and money transfer service. With its innovative mobile technology, Safaricom has over 19.2 million subscribers. Its mobile money transfer service, known as M-Pesa, allows those without a bank account to transfer funds as quickly and easily as sending a text message. The first to operate on a large scale in the world, the product is a joint venture between mobile phone giant Vodafone and Kenya’s Safaricom. “Once customers have an M-Pesa account, they can use their phones to transfer funds to both M-Pesa users and non-users, pay bills, and purchase mobile airtime credit for a small, flat, per-transaction fee. The affordability of the service has been pivotal in opening the door to formal financial services for Kenya’s poor,” said Bob Collymore, the firm’s Chief Executive Officer. Five years after its launch, the service is now facilitating an average of $320 million in transfers per month, about 10 per cent of Kenya’s gross domestic product. The rapid uptake of M-Pesa is a strong vote of confidence from local users in this new technology. It shows how huge the demand for remittance services is in Africa. In recent months, M-Pesa has begun allowing institutional payments, enabling companies to pay wages and collect bill payments. Experts say the recent launch of M-Shwari, a new banking product for

M-Pesa customers that allows customers to save and borrow money through the phone, could further revolutionise the mobile operations in Kenya. With M-Shwari, one can access emergency loans at affordable rates. But it is the entry of Bharti Airtel in the mobile money transfer business that could give Safaricom a run for its money. The Delhi-based operator says its service will enable clients to carry out a crossnetwork transfer at a lower charge than its competitors. The company retains plans to acquire one of South Africa’s mobile operators after a failed bid in 2009 when it attempted to buy MTN. As at February 2012, Bharti Airtel had more than 246 million customers. Ranked among the top five mobile service providers globally, with operations in 20 countries across Asia and Africa, the company recently overhauled its network in Africa. It upgraded and extended these networks, which include switching, radio, network management, data and consumer-services systems. Airtel Kenya Managing Director Shivan Bhargava


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says the transformation will augment Airtel’s network capacity with the latest technologies from Ericsson. “[The] customer is the pillar of Airtel’s business. The development will enable us to further enrich our customer experience across the continent. It will also allow us to provide Airtel subscribers with the best network possible while meeting the growing volume of mobile data usage,” he said. Having recorded a subpar performance in voice and message, the firm seems to be betting on data, one of the fastest-growing mobile products in Africa. Bharti Airtel has injected about $94 million into the rollout of its 3G network in Kenya. The firm says the funds will be used to expand its network spots from 360 to 550 by May. “The development will help us tap into the growing youthful market, who seem to be huge consumers of mobile data. It will also position Airtel in a market segment that is the next frontier for revenue generation,” Mr Bhargava said. The new technology is anticipated to ease network congestion and dispense fast connections for users of tablets and smartphones, a lucrative and fast-growing market. Studies show that take-up of 3G mobile telecommunications technology is still lagging in most parts of Africa, posing a huge challenge to the 4G rollout, a relatively faster technology that is now being launched in developed countries. An Indian audit firm, Phimetrics, says 3G penetration is still low in Kenya as Orange’s 3G accessibility is at 93.3 per cent, with 1.2-second delay and 1079.2 kilobyte per second throughputs, while Safaricom’s is at 97.2 per cent accessibility with 899.1 kpbs throughputs and 2.2-second delay. For all these improvements, winning the data frontier that is already dominated by telecom giants MTN, Vodacom and Safaricom may not be an easy task. These firms are already running 4G trials in South Africa. Safaricom is also testing the technology. MTN’s strategy of using local talent to run its marketing has been touted as one of the reasons behind its fast expansion in the continent. According to the firm’s chief marketing officer, Santie Botha, MTN operates as a global brand with nine out of ten of its marketing team made up of homegrown talent. The Johannesburg Stock Exchangelisted mobile phone service provider operator has operations in more than 21 countries in Africa and the Middle East. Its subscriber base stands as 183 million with nearly 60 per cent of the

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revenues generated outside South Africa. It operates in: Botswana, Cameroon, Côte d’Ivoire, Nigeria, Republic of Congo, Rwanda, South Africa, Swaziland, Uganda, Zambia, Iran, Afghanistan, Benin, Cyprus, Ghana, Guinea Bissau, Guinea Republic, Liberia, Sudan, Syria and Yemen. Perhaps it was the 2010 FIFA World Cup sponsorship that gave the firm a robust international grip. The deal saw an African company for the first time acquire global rights to the most watched football competition in the world. It enabled MTN to stamp its aspirations as a global brand onto a global event. “It was an ideal opportunity for us to leverage the powerful assets of MTN to an international audience, and to show that the time for Africa had come. It meant a lot to us to be part of a unique global movement,” said MTN Group President and CEO, Sifiso Dabengwa. The sponsorship gave the firm an edge

40% 30%

Bharti Airtel MTN Vodacom Safaricom Ltd.

over its close rival, Vodacom, which has nearly 50 million subscribers in Africa. Also listed on the Johannesburg Stock Exchange, Vodacom is majority-owned by Vodafone, one of the world’s largest mobile communications companies by revenue. The firm has operations in Tanzania, the Democratic Republic of Congo, Mozambique and Lesotho. 

 According to the World Bank, the future of Africa’s telecommunications sector will mainly be shaped by innovation and strategies aimed at beating the competition in an increasingly tough market. “Operators who invest in technology will have an upper hand in this fast-expanding market. More importantly, the pricing of data could play a huge role in amassing market share,” said Ignacio Mas, the Senior Advisor in the Financial Services for the Poor programme at the Bill & Melinda Gates Foundation.

7% 3%

616 million Mobile Phone Subscribers in Africa

40% 30% 7% 3%

616 million Mobile Phone Subscribers in Africa


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FINAL WORD:

Corruption holds Africa back Anti-corruption investigator and author Paul Holden speaks to Gateway about Africa’s future GTA: How does the murky nature of corruption impact on Sub-Saharan Africa’s potential growth? Basically it creates a dysfunctional state that is unable to deliver services to as wide a range of population as possible. Africa has grown a huge amount in the last few years, but it’s largely been driven by primary extraction. For Africa to develop on a sustainable basis it needs to develop an industry that’s downstream from primary extraction – manufacturing – that would be adding value to the raw materials that the country already has. I still can’t wrap my head around the fact that Africa’s a large part of the diamond trade, but the real value is added in Belgium…where the diamonds are cut, where they are presented, where they are made into jewellery. Corruption has a major impact on limiting the willingness of people to engage in long-term investment in bricks and mortar, in developing manufacturing for a downstream capacity. The second thing is that it undermines the ability of the state to deliver basic services to the average person in Africa. And that’s a real developmental challenge. Rather than the creation of a couple of urban elites that benefit a corrupt system, for a long-term sustainable development path you need education. You need a healthy population. That will only come about with an effective state mechanism to provide that, and corruption completely destroys the ability of the state to do it on a fair and equitable basis.

GTA: Why does corruption limit the willingness of people to invest in ‘bricks and mortar’? For any stable development to happen you need really concerted commitment to property rights. Corruption completely destroys that concept. [Think of] Liberia, where there was a huge amount of corruption during Charles Taylor’s regime around timber logging. What often happened was a person would be in favour, and be granted access to facilities…and then a year later would fall out [of favour], lose that access to those logging facilities, lose access to the points, lose their concessions. And that is just disastrous for sustainable development and manufacturing to happen. Corruption – especially when it involves high-level governmental individuals – places a particular burden on the criminal justice system to remain independent, in order to prosecute people for corruption. You need more than just a lack of violence. You need political stability, you need continuity, you need to know that the court system will be free from corruption so you can take investment decisions and business as normal – without that you operate in a vacuum. There’s also the issue, in hard economic terms, of Africa’s dependence upon extraction and the fact that it’s largely facilitated by a very authoritarian set of elites who maintain power by force.

“Corruption has a knock on effect – it’s not just about reallocation of resources and funds – it diverts resources away from economically productive and socially productive facilities.” - Paul Holden, writer

GTA: Is democracy necessary for sustainable development? That’s a complicated issue. Look at China, which is incredibly successful and isn’t democratic in any meaningful way. So to argue that democracy is the only real requisite for development is to simplify matters. What democracy does do is it helps to achieve development and has a number of other side beneficial impacts in terms of respecting human rights. These are not small things. You could say [China] functions well but it comes at a cost that I think is unacceptable. The complete lack of individual freedom at the most basic level to allocate your resources, allocate your time, allocate your labour in any way that you wish. It’s based on the inability to unionise, on a lack of protection of others. The reason China is successful is because they’re basically put in a system that allows for the mass exploitation of cheap labour without protection. That has major social and human consequences; it’s not acceptable. The devil’s advocate argument, the amoral argument, is that everyone benefits to a degree – I don’t think that’s justifiable. You would hope that a democratic system is more likely to be pro-development and provide a whole load of mentally important and social things that you wouldn’t get through a Chinese system. GTA: What impact does corruption have on development in South Africa – especially with regards to the deadly protests in Marikana last year? Two million people every year are engaged in service delivery


28 \ Final Word \ February 2013

protest. That’s a huge section – 5 per cent – of the South African population actively involved in protest to do with service delivery. Huge amounts of studies have been done about this and the thing that always sparks it off, constantly, is corruption. The violence of Marikana needs to be seen in the context of the fact that the police, especially since Zuma’s presidency, have explicitly adopted a militaristic stance.They have adopted a shoot to kill policy. So with delivery protests, they turn violent largely because the police become violent first. There’s been an incredibly brutal response of the police to violence in those communities, and that leads to broader violent protest. South Africa’s credit rating was reduced largely on the back of that violence. That’s a major tangible impact on production. People are angry at corruption; at least with violent protest, it brings credit down. There’s also the very real impact of the diversion of resources away from development. South Africa is not a first world country by any means, but it’s certainly not a poor country, and there’s a huge amount of evidence to suggest that South Africa would be in a much better position from an economic point of view, and not just from a social justice point of view, if funds would be spent in a noncorrupt manner and in the ways they’re supposed to be spent. The best example to my mind is the arms deal. It’s going to cost 70bn Rand when it’s finally paid off [US$7-8bn]. That’s enough to build houses for every single homeless person in South Africa. It’s enough to upgrade South Africa’s entire electricity network. The arms deal is completely unnecessary and wasteful expenditure. It was pursued for corrupt purposes. Corruption has a knock on effect – it’s not just about reallocation of resources and

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funds – it diverts resources away from economically productive and socially productive facilities. GTA: What effect does corruption have on mining? Why was Marikana violent? There’s a direct link between corruption and the failing police system, and [the] response to that which is – the police shouldn’t be able to shoot whoever they want, as in the case of Marikana. The police service has become incredibly ineffective because it is so corrupt. I still think that within the mining sector itself the differential between somebody who is a rock driller and the amount of profit the company still generates [is too large]– let’s not beat around the bush here, they’re not going to be making a hundred pounds profit, they’re still making billions and billions pounds profit. And the directors are still getting paid an absolute fortune. The simple reality is that you still have a community of people, [who] despite working for a very profitable industry contributing a huge amount of tax… have a complete lack of basic services. Would a Marikana miner necessarily be demanding 12,000 rand if they knew that they would have cheap running water? These are things that within the budget should be relatively cheap but it’s not cheap for a very particular reason, and that’s corruption. GTA: How is unionisation going to factor in Africa’s prosperity? Unions are very useful in economic terms for a number of things; primarily they provide a centralised bargaining mechanism, which leads to decisions that are collectively enforced. It provides a degree of contract making and discipline as a result. One of the biggest movements against Robert Mugabe has been

“Corruption has a major impact on limiting the willingness of people to engage in longterm investment in bricks and mortar, in developing, and manufacturing for a downstream capacity.” - Paul Holden, writer and anti-corruption investigator

[formation of] the unions. That could only be good for South Africa. The problem [in Marikana] is the bargaining method excludes a union; the point is they’re not actually allowed to enter into a centralised bargaining mechanism at all. GTA: Where does the future lie for SA? Would you invest in SA if you were in business? I would invest in South Africa but I would maybe wait two years, for the elections. Obviously I’m very pessimistic about the state of corruption and about the state of ANC [African National Congress] governance in South Africa. I’m a pessimist about the ANC. I’m incredibly cynical about the ruling class. That doesn’t mean I’m cynical about South Africa. The thing that really was amazing to me the last time I went back to South Africa was the maturity of single discourse on corruption. It’s very clear to me the ANC is losing electoral support rapidly. Now I don’t particularly like the DA [Democratic Alliance], I completely disagree with their economic philosophy. But they will gain more seats and it will cut into the ANC’s majority, and I think that will lead to better governance. Once that transition takes place, then we’ll have a mature democracy.


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30 \ Destination \ February 2013

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DESTINATION:

Tanzania

Image by Fanny Schertzer

Tanzanian Economy

Currency: Tanzanian shilling Population: 45 million GDP based on PPP: $1,600 GDP growth (2011): 6.4% Head of Government: Jakaya Kikwete Finance Minister: Hon. Mustafa Mkulo Central Bank Governor: Benno Ndullu

Since Tanzania’s struggle for independence in the early 1960s, the former colony of first Germany and later Great Britain has largely been spared from internal strife compared to its neighbours in Southeast Africa. Nevertheless, during most of the four decades following independence, Tanzania had been hard pressed to attract foreign investment, as the country lacked the mineral resources found in many of Sub-Saharan countries. Consequently, Tanzania had been excluded from most lists of Africa’s rising economies. However, since 2007, Tanzania has quietly become one of the region’s strongest economic performers, averaging 6.7 per cent annual growth over the past five years, as the emergence of the gold industry has helped propel Tanzania’s economy. Agriculture has long been Tanzania’s largest economic sector, representing 85

Tanzanian Business

Language: Swahili, English World Bank Doing Business rank: 134 World Economic Forum Global Competitiveness rank: 120 Investment agency: Tanzanian Investment Centre, www.tic.co.tz Public sector opening hours: 0800 – 1700 Private sector opening hours: 0800 – 1700 Legal system: English Common Law

Getting There

Airlines: British Airlines Visas: UK – Single entry visa valid for 90 days costing £85.94 Dar es Salam Hotels: £41-179

Image by Fanny Schertzer

Uganda

Kenya Rwanda

Tanzania Dodoma Democratic Republic of Congo

Zambia

Malawi Mozambique

per cent of its exports in 2011. However, last March, President Jakaya Kikwete’s administration announced the discovery of major offshore natural gas reserves in the Indian Ocean. This discovery – estimated to be a reserve of 33 trillion cubic feet – is expected to bring substantial profits to Tanzania. Despite this discovery, however, Tanzania still faces significant domestic challenges. Much of Tanzania, particularly in rural regions, is extremely poor. According to the US State Department, Tanzania ranked 152nd in the human development index and 199th in GDP, with a per-capita income of just $1,600 at PPP in 2011.



Gateway to Africa February 2013