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Is China Really Helping Africa?

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The past three decades have seen a marked step change in Africa’s international relations. While geography historically favoured a European focus – especially in North Africa – the continent has shifted its gaze to the East.

China has catapulted from being a relatively small investor in the continent to becoming Africa’s largest economic partner. Africa-China trade is poised to grow 20% year on year making it seem like dragons are the new king of the African jungle.

Investment in Africa has however been structured around Chinese ownership, with roughly 90% of firms either majority controlled or owned outright by Chinese nationals. There are estimated to be over 10,000 Chinese firms in Africa that have created work for several million Africans. This economic stimulus continues to have significant economic impact in communities riddled with historic economic disparities.

Chinese firms have shown remarkable prowess in sectors such as manufacturing, resources, and infrastructure. One of the first famous examples is the Tanzania-Zambia Railway built between 1970 and 1975, for which China provided a zero-interest loan of RMB980 million ($150 million). Sectors including agriculture, banking, insurance, transport and logistics, housing, information communications technology and telecommunications are poised to see significant shifts to Chinese firms. Chinese firms have the benefit of tried-and-tested business models which bear great similarities to the African marketplace.

‘It’s Africa’s Time For Animation’

To ensure the sustainability of the Africa-China partnership, three key concerns need to be addressed: Corruption, personal safety, and language and cultural barriers.

Corruption has thrived in Africa’s current climate of political and economic impunity. Corruption creates and increases poverty and exclusion. While corrupt individuals with deep political ties enjoy a lavish life, millions of Africans are deprived of their basic needs like food, health, education, housing, access to clean water and sanitation. Violence and crime across the continent derail efforts to encourage community building and foreign direct investment. Language and cultural barriers can lead to clashes that lead to misunderstanding and ignorance of local regulations.

If these problems are left unaddressed, the misunderstandings – and potentially serious long-term social issues – could weaken the overall sustainability of the Africa-China relationship.

Chinese aid to Africa has been criticized as being a form of economic colonization. Politically aid has been used to create strong bilateral ties between African countries and China. Proponents highlight the structural benefits brought about by aid; downplaying the benefits to China in the form of profit, resource extraction, and the acquisition of service contracts to Chinese companies. In a nutshell, whichever country offers the greatest economic gains based on China’s growth strategy becomes a target for aid. Currently this strategy is geared towards partnering with resource-rich countries, which often lack the political and economic structures required to efficiently and effectively manage such bilateral trade opportunities.

The key challenge is to ensure that there is an effective political and economic strategy to piggyback off Chinese intervention to ensure broad based economic empowerment.

Private Money Worth Its Weight In Gold

Part of this strategy should include elements like building a middle class in Africa, developing African entrepreneurs, allocating factors of production, industry 4.0, innovative distribution, and public-private partnerships.

The current economic polarization in Africa needs to be addressed by actively creating a middles class. Clan-based economic feudalism needs to be replaced by an educated and economically engaged middle class. Economic empowerment in turn will promote political development leading to healthier international trade relations.

Entrepreneurship, while still in its African infancy, has made significant strides both domestically and internationally. Agriculture, manufacturing, retail, and tourism can act as an employment sponge for basic labour intensive work. While not a cornerstone employment strategy, it will lead to rapid, broad-based job creation, often requiring very basic skill sets. Further vocational training can be provided in these sectors to prevent generational skills gaps.

Effective allocation of factors of production – specifically land ownership – will be critical. It’s a sensitive subject given Africa’s colonial past, however it’s one governments need to address to start an ambitious national agricultural plan. The rapid growth of Africa’s population presents significant opportunities for our poultry and grain sector.

Industry 4.0 will make global manufacturing much more competitive in the future. Traditional industrial economies, such as Germany and the United States, expect the fourth industrial revolution to create many competitive advantages, reversing the trend to relocate manufacturing processes to low-cost countries and create new high-tech opportunities at home. Africa is ideally positioned to leapfrog into Industry 4.0 by adopting best practices seen in developed countries. This will enable African-owned manufacturers to effectively compete with Chinese companies.

Africa is at the tip of an economic renaissance that will see opportunities being created that were considered impossible a few decades ago. But, this requires strong leadership in both politics and business. Citizens in turn will have to hold their political leaders accountable, specifically promoting broad-based economic empowerment, to ensure that the maximum number of people benefit from this growth. – Written by Johan Hanekom

Johan Hanekom

Johan is a globally recognized expert on strategy, innovation, and growth with an emphasis on corporate entrepreneurship. A believer in social entrepreneurship, his paper while at Oxford focused on developing a nation of social entrepreneurs in Africa.

Economy

South Africa’s Informal Sector: Why People Get Stuck In Precarious Jobs

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South Africa has a jobs crisis. In the fourth quarter of 2018, 6.14 million people were out of work, an unemployment rate of 27.1%, which is one of the highest rates in the world, along with sub-Saharan African countries like Lesotho, Mozambique and Namibia.

South Africa’s labour market has another important distinction. Only about three million people who are working – about 18% of all employed (16.53 million) – are in the informal sector. That’s much lower than other developing countries. For example in India and Ethiopia, up to 50% of those with jobs are employed in the informal sector. The figure is as high as 90% in Ghana and Mali.

There are two schools of thought around the role and value of a country’s informal sector. Some argue that it’s an important alternative to the limited opportunities available in the formal sector; a survivalist strategy that allows those without much formal education to work and earn money. In addition, others argue, the informal sector is also an important space for entrepreneurs.

But there are some who disagree, arguing that employment in the informal sector tends to be poorly paid and precarious. A mere 20% of informal sector employees are hired permanently, compared to 70% of those in the formal sector.

Little is known about how many people transition between the two sectors, a phenomenon called “churning”. Addressing this knowledge gap is important for a number of reasons. These include the fact that informal workers may be spending some time in the formal sector, getting valuable skills and work experience to boost their chances at formal employment, with the hope that they eventually settle permanently in the formal sector, which would be good news.

Conversely, knowing whether there’s a high rate of transition from the formal to the informal sector would be cause for concern because it would suggest high rates of retrenchment and fewer formal job opportunities.

The data

We set out to understand “churning” between South Africa’s formal and informal sectors. To do this we analysed data from the country’s National Income Dynamics Study – a study that was conducted four times between 2008 and 2015 by the Southern Africa Labour and Development Research Unit based at the University of Cape Town’s School of Economics.

We found there was a lot of movement between the informal and formal sectors during these years. But there were very few instances of people making successful, lasting transitions from informal to formal sector employment.

This emphasises South Africa’s skills mismatch. The formal sector requires skills that those in the informal sector simply don’t have. More education and support is necessary to bridge this gap.

Our data were drawn from the National Income Dynamics Survey, which is the first national household panel study in South Africa. It examines the living standards of individuals and households over time.

By analysing data from the four waves of the study we were able to make some key findings about churning, and about the informal sector more broadly. These included:

  • Only 8% of those surveyed were inactive (7%) or unemployed (1%) in all four waves – that is, throughout the seven-year period. About 54% were employed in one to three waves, meaning they worked transitorily but not continuously;
  • only 3% worked in the informal sector in all four waves;
  • only 12% always worked in the formal sector during the seven years under review; and,
  • 8% of individuals worked throughout the seven years under review but transitioned between the two sectors.

These results clearly indicate that a high proportion of the labour force participants have been in and out of employment (which is not surprising, given the country’s high unemployment rate), some workers enjoy the privilege of always working in the formal sector, and most importantly, churning between the informal and formal sectors definitely takes place to some extent.

The findings also emphasised how precarious the informal sector is. For instance, 67% of those who started off working in the formal sector in 2008 remained there seven years later. This suggests that for those who initially secured work in the formal sector, retrenchment likelihood is not as high as perhaps anticipated. The retention figure in the informal sector was just 39%. Only 27% of those in the informal sector successfully transitioned to the formal sector.

The country’s many social inequalities were evident in the data. Black women without school leaving certificates aged between 25 and 44 years were most likely to remain in the informal sector. Highly educated white men living in the urban areas of Gauteng and KwaZulu-Natal provinces were most likely to successfully transition from the informal to the formal sector.

Filling the gaps

Given what we’ve learned from this research, how might the government and policy makers deal with those who “churn”?

First, the country’s education system must do more to produce skilled labour in the areas the economy requires. Formal firms could help here, by providing assistance and information on what skills are needed and how to develop these. This implies that strengthening the partnership between industry and universities is important, as this would help those who are able to access higher education.

Those who don’t go on to higher education, or don’t complete their secondary schooling, also need to be helped. The government should more actively provide workshops and specialised assistance to enhance entrepreneurship skills and advise small informal firms on growth strategies. These incentives will assist in their growth, long-term sustainability and successful transition to the formal sector.

In addition, larger, more established formal firms can also play a role by helping to develop and train informal sector workers and providing expert guidance to informal firms. This assistance can be incentivised through tax reductions and the prospects of a larger collective market via the informal sector.

Lastly, the government should continuously alleviate the numerous barriers to the informal economy. These include limited credit and training opportunities, poor infrastructure and the red tape that makes it difficult to start a business.

Moegammad Faeez Nackerdien Lecturer, University of the Western Cape

Derek Yu Associate Professor, Economics, University of the Western Cape

-The Conversation

The Conversation

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Current Affairs

SMMEs Meltdowns Continue Because Of Eskom Power Cuts

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Small medium and micro enterprises (SMMEs) that are feeling the strain from Eskom’s load-shedding are appealing to the South African government to come up with a solution, because they are forced to shut their doors.


South Africa has been experiencing stage 4 load-shedding from the beginning of March. As a result, power cuts are forcing small businesses to shut their doors as swiping facilities and security cameras do not function.

Johannesburg based Gim Bekele, who owns a clothing store in Randburg, says they are losing a significant number of customers as a result of load-shedding.

“When there is load-shedding we are forced to closed the shop because people can’t come in when it is dark. The cameras are not working as well as the cashier machines,” he says.      

“So that means we lose out on a lot of money. On a normal day without load shedding we make above R5,000 but when there is load shedding, it is a struggle to even reach R1,000,” says Bekele.

READ MORE | #Budget2019 | South African government not taking on #Eskom’s debt

Bekele says between the loss of customers and an increase in the monthly expenses he can no longer afford to pay his employees. 

“I had to let go of two employees because I could no longer afford to pay them.  The rent is high, and now we are barely meeting our sales target because of load shedding, how could we continue to pay for their salaries as well?” 

“We can’t even afford a generator at this point,” added Bekele.

Another entrepreneur, Shaodong Zhuang who owns a takeaway shop in Randburg says his stock is compromised.

“I usually sell fresh meat and some of my meat gets spoiled and I have to throw it away,” says Zhuang.

I am basically making a small change. Our government is really not good. The people are suffering heavily because they are not running things properly.

Energy expert Adi Nchabeleng says that small businesses should brace themselves because there won’t be any turn around soon, but they could expect to see some form of solution a year from now.

“It is a delayed reaction that caused this whole advent of load-shedding.  The current executive and the new democratic dispensation inherited the current dispensation of Eskom years ago and they didn’t do anything with any of power stations.  They just used them as they are,” says Nchabeleng.

Nchabeleng says that it is unfortunate that small businesses have to take the heat for poor planning.

“If they do not have enough electricity reserves it means their shops and businesses must be closed. A lot of people are going to be out of jobs… So the impact of load-shedding on businesses is so severe.

“In order for the business to survive, you need to spend R500 ($7,25)-R1,000 ($14,49)daily, just to make sure that the generator has fuel, and I don’t think the government understands the seriousness of this matter,” says Nchabeleng.

“They have not woken up to the reality of what the people go through,” he added.

READ MORE | South Africa’s Eskom Extends Power Cuts, Needs Bailout By April

He advises that in order for small businesses to weather the electricity crises, they need to reduce their expenditure but he does not foresee that as the best solution for employees. 

“The usual expenses that the majority of businesses will choose to cut are their staff. They will say ‘when we have load-shedding we don’t need workers.’ We cannot go for that solution, we need to look at a much more different solution in relation to businesses,” says Nchabeleng.

He believes that the South African government should take responsibility for providing SMMEs with assistance.

“I would suggest that the government compensate the losses incurred by small businesses. This is a direct cost problem; this is not something that happened sporadically. The government knew that there was going to be load-shedding, they knew that there was not going to be enough power available,” says Nchabeleng.

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Economy

Chilling Words From The Man Who Broke The Bank Of England

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The multimillion-dollar circus called Davos rolled into the Swiss ski-resort yet again, in January, in all its big deal bombast and bean counting glory. This year, African debate was scant: the man who broke the Bank of England foretold of a broken world laden with fear and doom; there was scary talk of cyber terrorism; just another day, another Davos, for the World Economic Forum.


If you want an example of how the dash of Davos can descend into self-parody, you should have taken a look at the huge banner draped across the posh Belvedere Hotel throughout the World Economic Forum in the mountain ski-resort.

It was on the main street through Davos where thousands of delegates slip and slide to scores of functions – with at least one or two slipping over every day – along a line of shops taken over by big money corporate sponsors.

Much more money is being made elsewhere in this ski-resort: the people who live here go away for the week and let out their homes for a king’s ransom; $30,000 for the week is nothing unusual.  

READ MORE |World Will Improve Where It Matters Most In 2019

Most people saw an irony in the banner, yet clearly the people who spent a fortune on putting it up there couldn’t have.

“Free trade is great,” says the banner on behalf of Brexit-bound Great Britain.

“Didn’t someone tell them they were about to leave one of the greatest free trade zones in the world?” says one passer-by with a cynical chuckle.   

The crack summed up some of the irony that swirls around when cohorts of bean counters, highly-paid administrators and bosses gather in an Alpine icebox to solve the problems of the world.

The bigwigs weren’t there and this year, there was less buzz and fewer queues outside the briefing rooms.

Donald Trump, who made a big splash at Davos last year, stayed at home trying to figure out his government shutdown. The four ‘Ms’ – May, Modi, Macron and Mnangagwa weren’t there either; at least two of them tied up with fighting fires, from Brexit to economic meltdown, in their own backyards.

 Empty hot seats, at Davos, at a time when the world is crying out for the wisdom of sage leaders.

Instead, it was left to business leaders, like the Australian-born CEO of billion-dollar turnover infrastructure giant Arup, Greg Hodkinson, to cut to the chase.

“We need clear political leadership in this fractured world… otherwise we are going to get easy political leadership preying on people’s fears,” says Hodkinson at one of the first panels of WEF 2019, on infrastructure.

READ MORE | Why The Richest And Most Powerful Go To Davos

Hodkinson, who has worked in infrastructure for 40 years, also said investment in infrastructure could no longer ignore the future, or the deteriorating environment.

 “Carbon should be priced into infrastructure projects and that will act as an economic trigger for private money to come in because not only will it mean more revenue, it will help us put more money into saving the environment,” says Hodkinson.

According to the WEF Global Risks Report for 2018, some of the top risks by impact are posed by the elements: floods and storms; water crisis, plus earthquakes, tsunamis, volcanos and electric storms.

“By 2040, the investment gap in global infrastructure is forecast to reach $18 trillion against a projected requirement of $97 trillion. Against this backdrop, we strongly recommend that businesses develop a climate resilience adaptation strategy and act on it now,” warns Alison Martin, Group Chief Risk Officer, Zurich Insurance Group, in the report.

The money is there, according to Hodkinson, but needs to be channeled with foresight.

“Even if someone is building a car parking garage, I ask what else can they do with it because they won’t need it one day,” says Hodkinson.

“The money is there. Investors sank six trillion dollars into United States junk bonds last year; if investors are prepared to roll the dice on junk bonds, what about infrastructure investment?”

Investors, on this day at Davos, heard that 65% of world infrastructure projects are unbankable without government guarantees. Private money is needed to fill the gaping infrastructure gap, yet negotiations between investor and government officials can prove difficult.

READ MORE | World Bank Sees Global Growth Slowing In 2019

Just ask Heng Swee Keat, the Cambridge-educated finance minister of Singapore, the former Parliamentary Private Secretary to the father of infrastructure on the industrious little island who harnessed private money for public good – the legendary late premier Lee Kuan Yew.

The finance minister warned relationships between public and private sectors could be “lumpy”.

“I remember a man coming to me and saying he was never going to invest in infrastructure in your country again, I asked him ‘why’ and he said, because the last time we invested and made money the government came back to us and asked ‘why are you making so much money’,’’ chuckled Swee Keat.

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