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Economy

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

Cash-strapped South African Airways Expands Emirates Code Sharing

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South African Airways (SAA) said on Tuesday that it had signed a deal with Emirates to expand an existing codeshare agreement, in a rare bright spot for the cash-strapped airline.

The state-owned carrier, which has not made a profit since 2011 and survives on government handouts, said the agreement would see the two airlines leverage each other’s route networks, cargo services and flight schedules to boost passenger flows.

South African President Cyril Ramaphosa has been at pains to stabilize ailing firms like SAA, but the extent of their financial difficulties has meant slow progress.

SAA, which hopes to turn a profit by 2021 by cutting jobs and routes, expects to make another large loss this financial year, despite a recent government cash injection of 5 billion rand ($350 million).

“The expansion of our commercial relationship will further strengthen key focus areas of the implementation of our turnaround plan,” SAA Chief Executive Vuyani Jarana said. -Reuters

– Alexander Winning

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Economy

South Africa’s mining and manufacturing sectors show slight growth

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Report shows positive growth in the mining and manufacturing industry as both sectors  show slight figures of recovery in third quarter


South Africa’s mining and manufacturing industry shows slight growth in production and sales, but could decline in the near future.

The October 2018, StatsSA report shows both sectors have had figures of recovery from the start of the first quarter.

The mining production overturned a three-month decline with a 0,5% year-on-year growth in the third quarter, with gold being the lowest contributor.

Senior economist, Elize Kruger from NKC African economics, says despite  growth in the mining sector there is nothing to be excited about.

Protest action that started on gold mines in mid-November added to the pressure that the sector has been under over the past months.

A protected wage strike at Sibanye-Stillwater’s gold operations started when The Association of Mineworkers & Construction Union (AMCU) made a demand of  R1,000 annual increases in wages for mine workers.

The National Union of Mineworkers, Solidarity and United Association of SouthAfrica on  the other hand accepted R700 in the first two years and R825 in the third for most of their members.

The Johanessburg based mine urged striking workers to return to work by December 15, 2018. 

“Novemember and December could be impacted by the strike action that we see in the gold mining industry. The fourth quarter data is likely to remain depressed despite the October numbers,” she says.

Gold is the largest negative contributor at -15,1% thus contributing -2,3%percentage points to the overall figures.

Furthermore, increases in electricity prices that will take effect early 2019, will tighten the pressure on the industry adding to headwins faced on a global scale.

“Alluminum sector is impacted by the US import tarrifs increases and the threat of electricity price increases in the order of 15% ,” says Kruger.

The 15% increase is a strategy put in place by the electricity public utility, Eskom, to settle financial constraints.

The request made to the National Energy Regulator of South  Africa will be effective for three years if approved.

The manufacturing industry grew by 3,0% with eight out of 10 sectors showing positive growth rates over the last three months.

According to Kruger, the strong levels of the rand exchange rate put in a helping hand in the manufacturing production and sales sector.

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Current Affairs

In an African First, a Cannabis Expo…without Cannabis

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Andre Kruger’s stand at Africa’s first ever cannabis exposition displayed an indoor growing tent, complete with state-of-the-art lighting imported from the United States and fittings for a high-tech hydroponic irrigation system.

What it didn’t have, however, was a cannabis plant.

The four-day expo, which opened in South Africa’s capital Pretoria on Thursday, was a stark illustration of the legal grey area the nascent industry occupies in the continent’s most developed economy.

In September, the Constitutional Court decriminalized the use and cultivation of cannabis in private space. But the decision did not legalize its trade or distribution. Even displaying cannabis in public remains legally dubious.

So exhibitors at the expo got creative. Kruger, whose company Sombrero Hydroponics has seen a spike in customer inquiries since September, used two artificial poinsettias as stand-ins.


“People just feel more comfortable now, because they don’t have this added thought in the back of their mind thinking, ‘What if the cops stop at my house?” he said.

“They’re coming out of the closet, in this case the tent.”

Hundreds of expo-goers bought tickets and were already queuing before the event opened, but not everyone agreed with the ground rules.

Cannabis activist Steven Thapelo Khundu handed out cannabis buds from a plastic bag at the expo entrance, encouraging attendees to bring them inside.

“Free Ganga Free! Free Ganga Free!” he shouted as security forcibly removed him.

Under the court decision, lawmakers have two years to amend the country’s cannabis laws, but the industry isn’t waiting.

South Africa recently established a legal framework for licensing growers. The local unit of Canada’s Canopy Growth, which in August received a $4 billion investment pledge from Corona beer maker Constellation Brands, is among the early applicants.

“I don’t think most people realize just how big the cannabis industry is in Africa already, in South Africa already,” said the Cannabis Expo’s co-founder Silas Howarth.

International companies are, for now at least, seeking licenses to produce cannabis for export. But Gerhard Naude, the founder of healthcare company Go Life International, believes a fully legal domestic industry is now only a matter of time.

“I think there will be a few licenses awarded, and very closely regulated. I think in two years we’ll definitely have a license, for the use of medicinal cannabis in any case,” he said.

Itumeleng Tau, who said he’s been growing marijuana for around 20 years, is among a wave of underground cannabis entrepreneurs who are hoping the pending legal changes will allow them to bring their businesses out of the shadows.

The expo was an important first step, he said. But the absence of any actual cannabis was strange.

“It’s something very, very wrong … It’s like we came to a party but there’s no music.” – Reuters

  • Joe Bavier

READ MORE  | Beyond the plumes of smoke the weed economy on a high

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