Connect with us

Focus

No Fracking Way

mm

Published

on

Fracking in the Karoo

It was a career defining moment that will live with lawyer Derek Light for the rest of his life: listening as Judge Gerald Bloem in the Grahamstown High Court, in South Africa’s Eastern Cape province, ruled that fracking in the Karoo region was unlawful. It was the punch Light had been waiting years to throw and it sent a battered and bruised government back to the drawing board.

“[The feeling] was overwhelming. You are viewed as a bunch of country people just making a noise. So when you go in a court, on an aspect that is nationally important and it’s got complex legal issues, and the court finds for you, you’re vindicated,” says Light.

This January marked the ninth anniversary when this quiet, unassuming, small-town lawyer and a handful of farmers challenged multi-million-dollar oil corporations and the South African government to stop hydraulic fracturing in their backyards.

“I always say to people I’m not a banner-waving green extremist, I’m a lawyer. What we want is a lawful process and our rights not to be unlawfully hinged… [we] are not just a bunch of country idiots behaving in an unreasonable fashion,” says Light.

Derek Light Fracking

Derek Light (Photo by Jay Caboz)

For Light, it has meant years slogging through snail-paced proceedings and stockpiling mountains of paperwork from his offices in Graaff-Reinet, situated in the heart of the Karoo.

“When they change a law in parliament in line with what you called for, then you start getting ticks on the box and saying the last eight years have been worth it,” he says.

This was all because of three areas of concern the farmers had with the fracking regulations.

“The obvious issue farmers had was with the potential impact of the environment that shale gas development, that hydraulic fracturing, might have. The second was that the legislation was inadequate to cater for such a development, so we were concerned there was a lack of legislation and regulation. Then thirdly, and this is interconnected, we were concerned that there was a lack of knowledge on the process, a lack of knowledge on the receiving environment and therefore an inability to determine the potential impact,” says Light.

READ MORE: The Fracking Future Fades

Light and the 400 Karoo landowners won their court case on October 17 because government failed to follow its own law. The Department of Mineral Resources (DMR) went beyond their authority and published fracking regulations relating to environmental and water usage matters, when it did not have the power to do so, the court found.

“It will mean the ministers of mineral resources, environmental affairs and water affairs will have to go back and do their job properly,” says Light.

It also means another vital lifeline for anti-fracking farmer Doug Stern, who has been farming sheep near Graaff-Reinet for the past 45 years, and was the first to lay the case against government.

“Derek doesn’t get the accolades he deserves. That man has virtually singlehandedly handled this anti-fracking campaign in my view. He’s been backed by strong businessmen, but he’s been able to gather a very strong team to supply him with information that he can use very effectively. Thanks to him largely we’ve been able to keep these cowboys at bay and protect the environment,” says Stern.

“We found so many loopholes in the regulations that government put forward that we felt we had to fight it. It was a significant victory that sends government back to the drawing board and forces them to relook at their regulations. In that time we are buying time and hoping that research into renewable energy will advance at a rapid rate.”

Doug Stern farmer fracking

Doug Stern (Photo by Jay Caboz)

Stern, who is also the president of Agri Eastern Cape, a private association representing more than 3,000 farm owners in the province, was one of the initial farmers to stand up against fracking in 2009.

“Who knows what damage would be done if we had allowed them to do exploratory drilling? If you look at the statistics, at the animal stock numbers of South Africa, a third of those are found in this province. We are an agriculture province through and through. If we start allowing industries like mining to impact on our environment we stand to lose a lot of our animal producing country, which will then impact again on our food security.”

Stern is one of the few farmers in the area to have seen the impact of fracking firsthand. He went to Pennsylvania, United States, as a guest of anti-fracking groups.

“My experiences in America were horrifying and I knew we couldn’t allow this to happen in this country. We had to make sure that they weren’t granted any exploratory lisenses.”

This is not the first time Light has stepped into the ring. In 2011, he and the farmers raised concerns and convinced government to place a moratorium on fracking in the Karoo. This led to government setting up a multi-disciplinary task team to investigate the potential impacts and benefits of hydraulic fracturing.

The report identified significant gaps in research before regulations of exploration of shale gas could proceed. Light and the farmers then called for a full Strategic Environmental Assessment (SEA) before any further exploration could begin. Farmers claimed there were too many unknowns around the impact of fracking on Karoo’s highly sensitive aquifer system from which boreholes are part of their primary water resource.

Nevertheless, government, in August 2012, chose to lift the moratorium and allow exploration of shale gas, but that they would not allow hydraulic fracturing to take place unless it was properly regulated.

“Government was concerned that if it did not allow the process to proceed, it could be a lost opportunity,” says Light.

“The sad part of the policy decision was that they took a decision notwithstanding the fact that they were uninformed, which we joined issue with. We welcomed the fact that they wanted to revisit the legislation, but we joined issue with the decision that they continued to proceed under circumstances under where they couldn’t take an informed decision.”

It would take government another three years, until June 2015, to submit the next round of regulations. By this time, an important amendment was made to South African law in June 2013, under the Mineral and Petroleum Resources Development Act No. 28 of 2002 (MPRDA) and in line with the National Environmental Management Act of 2008. This amendment allowed Light and the farmers to win their case with the DMR, which they say overstepped its authority.

“Unfortunately it was an attempt by the minister to publish regulations that were all encompassing, it dealt with exploration and production and all other potential impacts to do with fracking,” says Light.

To make matters worse, when the DMR published its regulations, it did so without an SEA from the Department of Environmental Affairs. This joint operation produced a 165-page document detailing the uncertainties of fracking and took two years to complete.

“A team of 200 specialists authored work, peer reviewed by 19 international specialists… In each chapter, the scientists made a list of scientific unknowns which the science militated against proper decision making,” says Light.

READ MORE: I Want A Fracking Future

Light says one of the recommendations of this report was that at least 52% of the areas in question could not be fracked because of their sensitivity and more importantly that no water was be used in the Karoo because it was a limited resource.

“Also, what was said to be a massive economic benefit bringing 400,000 jobs to the country, the report said otherwise. It said fewer than 3,000 jobs would be created and of that only 900 locally,” says Light.

In the meantime, the government, through the Department of Science and Technology, also commissioned a report to determine South Africa’s technical readiness to support a shale gas industry. This was published in 2016 in partnership with the Academy of Science of South Africa and concluded, “much needs to be done to put in place a clear legislative environment and a rigorous regulatory and monitoring structure which will ensure that operators, in using their exploration and production lisences, apply best-practice technologies that are fully compliant with the rules and regulations governing the industry.”

“The good news is that there is research being done. It is clear that the initial reserves, which were stated by the oil companies and their advisors, and therefore government, have been overstated. Therefore the cost of producing shale gas, particularly in the context of the Karoo geology, is not viable,” says Light.

Karoo fracking

The Karoo (Photo by Jay Caboz)

While the fight for the Karoo is well underway, the fight for national regulation is just about to begin. It is ironic that while research, millions of dollars and time have been spent to protect the Karoo from fracking, it may proceed in any case on a national level.

This is because while there is a moratorium over the Karoo, this does not apply to the rest of the country. Beyond these borders, farmers now face similar cases where applications have been lodged by oil and gas companies for petroleum and gas exploration in the KwaZulu-Natal, Free State, Gauteng and North West provinces.

Although the applications do not specify fracking, Light is concerned with the rising number of applications.

“Which is what we predicted would happen. If there was shale gas in this country, and if they did allow shale gas development on well-field situations on large reserves, it would cover probably 60% of this land’s surface,” says Light.

Sungu Sungu Gas, in 2015, placed bids to explore in KwaZulu-Natal and Free State in an area 565,000ha and was halted in 2016 in the Pietermaritzburg High Court on the grounds it did not consult land owners adequately. In July 2017, it withdrew its exploration application completely.

In May 2017, the Pietermaritzburg High Court ordered Rhino Oil and Gas Exploration South Africa to stop all exploration in an 8,000km2 area after it was found that the Petroleum Agency of South Africa (PASA) had flouted the procedure process. This is just a small part of their applications, which stretch across five provinces and 78,876km2.

“What the general public and government must realize is that agriculture is the cornerstone of their food security program and we can’t jeopardize that in any way whatsoever… Even the politicians have to eat. Everybody has to eat,” says Stern.

READ MORE: Power For The People By The People

Meanwhile, back in the Karoo, Mosebenzi Zwane, the former minister of DMR, told Reuters they are studying the court order.

“We remain committed [to shale gas exploration]. We will study the outcome of the court and decide where we go,” says Zwane. “We are talking about first fracking licenses being granted in 2019 if all goes well.”

The rematch could begin later this year, as the DMR was granted leave to appeal at the Supreme Court of Appeal and have filed notice to appeal.

If unsuccessful, the government could face the arduous task of drafting new regulations in line with the High Court ruling, again.

“What we have fought for since 2009 is to achieve a better legislative framework with better regulation. That process is not complete and we will continue to ensure that if shale gas development ever occurs, then it occurs lawfully and it occurs with proper regulation in force,” says Light.

“You need stamina. It’s a long process,” he says with a smile.

One thing that living in the Karoo has taught Light is how to box smart and wait for the right moment to deliver a stunning right hook.

Karoo fracking

The Karoo (Photo by Jay Caboz)

A Fracking Fight Since 2009

It started in 2009, when Econometrix, South Africa’s largest independent macroeconomic consulting firm, believed there was 485 trillion cubic feet of natural gas. The government and energy companies took this as gospel to support their case to open up the Karoo for fracking.

They pegged the Karoo as the $100-billion answer to Africa’s energy crisis, saying there would be enough gas to make it the world’s fifth largest resource – enough to fuel the country’s economy for up to 30 years and create thousands of jobs.

No one really knows how much shale gas there actually is. Researchers have only begun to explore its potential and exploration can take up to five years to conclude.

Continue Reading
Advertisement
Comments

Focus

Lifting The Heavy Veil On Wedding Costs

Published

on

With pockets as deep as gold mines, how far are couples willing to go to have the picture-perfect luxe wedding?


The lagoons overlook the snow-white beaches with its swaying coconut trees, embraced by the turquoise waters of the sea in the island nation of Mauritius. It’s a scene straight out of a movie, with a couple cavorting in the distance.

Over 100 guests from South Africa have also gathered on these sands for the weekend wedding of businessman Lebo Gunguluza and his long-term girlfriend Lebo Mokoena. 

The total cost of this union: almost $300,000. 

“I didn’t mind exceeding the budget, because you only do this once,” says new bride Mokoena.

The couple flew over 30 guests and provided them with five-star accommodation at the LUX* Grand Gaube.  Part of the guest contingency included the behind-the-scenes crew for the wedding, as well as the speakers who had to spend four to seven days in Mauritius to prep up.

“We did not want to have a local wedding because we wanted our guests and family to have a different experience. We also wanted our family members who did not have passports and have never flown out of the country to experience a different country,” Gunguluza says.

Snow-white beaches of Mauritius. Picture: Supplied

The weekend celebrations started on a Friday last September with a cocktail meet-and-greet party. Belly dancers who were dressed in floral red and yellow danced the evening away with guests, with a local band taking them to the all-white party on Saturday.

This was just a build-up to the romantic wedding reception with shades of blush, ivory, and gold which was to take place on Sunday at 4PM.

“Every time I think about that day, I want to do it again,” the new bride says.

The couple chose not to have bridesmaids and groomsmen and the guests were encouraged to dress in black and white.

“I didn’t have bridesmaids because it makes you choose between your friends. I felt that if you got an invite to our wedding, you were worthy enough. So, we wanted everyone to be bridesmaids and groomsmen. I think we made it intimate and everybody felt like they were VIPs,” says Mokoena.

Everything fit perfectly as the bride’s two white wedding dresses were designed by Antherline Couture.

For the ceremony, she wore a white ball gown with a diamanté top heavily embellished with beads; while the groom looked dapper in a white tuxedo jacket designed by Master Suit SA.  

The color white was indeed conspicuous.

“I have always felt that white is pure and because I was signing my life away, I felt I needed to be pure, hence I said my husband needed to wear white as well,” she adds.

The lavish white wedding was organized by renowned wedding planner Precious Tumisho Thamaga who ditched her seven-year career in Public Relations & Marketing to become an event planner.

Thamaga organizes events and weddings for affluent clients such as the Gunguluzas.

“They are busy people and they don’t have time to do the administration and the back and forth of vetting in suppliers,” Thamaga says, as she takes over the pain of wedding planning.

Lebo Mokoena and Lebo Gunguluza (middle) with wedding guests in Mauritius. Picture: Supplied

While working in the corporate world, she had attended many weddings that she felt were put together in a way that created a disconnect between the guests and the wedding couple.

“So I saw an opportunity in the fact that there were not a lot of wedding planners that were black,”  Thamaga says. 

She decided to focus on corporate clients in order to turn her passion into a profitable business.

“A lot of people did not expect a black person to be professional and take the business seriously.

“It was not just a hobby or someone helping out a family. It was an actual business and I made sure that I got taken seriously from the onset,” Thamaga says.

In order for Precious Celebrations (the name of her company) to prosper, she had to have a business strategy in place.

“I made sure that I put a lot of time and effort and strategized properly what it was that I wanted to actually focus on, and find a niche [in]. I believed that would separate me from somebody that was already in the industry,” Thamaga says.

However, her job is not always alluring.


Lebo Mokoena and Lebo Gunguluza’s wedding in Mauritius. Picture: Supplied

“When I started in the industry there weren’t so many wedding planners and now it is a different story and everyone thinks it is easy-peasy and it is glamorous,” she says. 

Planning a luxurious wedding takes eight to 12 months and can cost anywhere between R300,000 ($20,813) to R4.5 million ($312,203).

The most expensive wedding Thamaga planned was for a public figure she cannot disclose the name of. 

“It was a destination wedding and the experience from when the guests arrived to the wedding day was memorable. When they arrived, we had a cocktail party and we had activities like canoeing and on Sunday we had an all-white party. [This is] so that people don’t depart on Sunday and may leave on Monday.” 

Only the affluent sign up.

“The smallest wedding that I have had to plan had 80 people and it cost R2 million ($138,000),”  Thamaga says.

She has turned away some clients in the past because their budget was insufficient for the type of wedding they envisioned. 

Thamaga organizes 26 weddings, on average, annually, from countries such as Mauritius, Zimbabwe, Swaziland, Botswana and now she plans on taking her bespoke company global.

One of the unique aspects of her business is that she has maintained a good relationship with the suppliers she has in each country, and has kept her expenses to a minimum.

“The wedding planning-event planning industry is quite lucrative if you do it right. I am not the type that would have too much inventory because I want to feel like the inventory belongs to me; that would limit my creativity,” she says.

“I make sure that I don’t have a lot of expenses, I have coordinators that I have worked with for years and they have full-time jobs.”

Thamaga’s greatest challenge so far was whether or not to outsource other wedding planners when her business was increasing.

“It can be a bit daunting to realize that your business is growing,” she says.

But she opted to remain boutique.

“I had to decide that it is not about the money. I am building an empire where I want a legacy and an ongoing relationship with my clients.” 

She involves her clients every step of the way to bring their vision to an unforgettable reality, and believes that weddings are expensive because of the growing aspirations of the young.

“It is not just in South Africa, it is worldwide,” she says.

Despite the tangible costs of conducting these dream events, the wedding industry in South Africa is largely unregistered as it is a fluid market where services and costs are difficult to track and document accurately.

Fred Elu Eboka, a Nigerian designer who dresses delegates as well as the rich and famous. Picture: Supplied

Africans, no doubt, spend millions per year on costs associated with marital ceremonies. This is the reality of the unregistered wedding industry. Despite the recession and slow economic growth, the wedding industry continues to attract many entrepreneurs to its lucrative opportunities.

As, people never stop getting married.

The Marriages and Divorces report released by Statistics South Africa last May shows an upward trend in civil marriages. Civil marriages increased by 0.6%, from 138,627 marriages registered in 2015 to 139,512 in 2016.

A wedding dress is an important part of a celebration and the bridal couture market continues to show growth.

Wise Guy Reports Database Global Wedding Dress Market Insights, forecast to 2025, states: “The wedding market demand grows continually, and the wedding garments market has notable increase every year. In this case, the competition is also very intense among companies. The involved companies should seize the opportunities to expand the gold mine.”

A previous client of Thamaga’s has spent R200,000 ($13,876) on two wedding dresses and this is nothing for Fred Elu Eboka, a Nigerian designer who dresses delegates as well as the rich and famous. 

He moved to South Africa in 1992 at a time when African designs were not being celebrated globally. 

Twenty years ago, Eboka sold wedding dresses for R15,000 ($1,041) a piece, and now sells for R250,000 ($17,344) a piece, depending on the design. 

“A designer of my caliber in South Africa is undersold because there are people in the United States selling wedding gowns for $250 and I am here selling them for maybe $80, it just doesn’t make sense. It shows that our economy is really bad because a designer of my caliber should be operating on the same level as them, or very close,” Eboka says.

He is a luxury designer. 

“When you think of luxury, it is not just the product, it is not just the textile – it is the whole experience from when you drive in, to when you sit down and have the designer talk to you and learn about your life. The whole artistic process contributes to the cost value of the gown.”

He says that the reason wedding gowns are expensive is because they are meant to be timeless pieces.

“Traditionally, wedding gowns are classical couture. It is not like the normal evening dress that you wear to look beautiful on one night. A wedding dress is like training for the Olympics. You train for them for the rest of your life,” he says.

Eboka also says when designing a wedding gown, you need to take time to know the client, family and their fancies in order to meet the clients’ need.

The material of the wedding gown is usually expensive because he sources the textiles from across the world, and he takes two to three months to create a gown, depending on the embellishments.

Fred Elu Eboka, a Nigerian designer who dresses delegates as well as the rich and famous. Picture: Supplied 

“My designs have a lot of artistry,” he says.

Eboka is a wealthy man but he still believes that the industry is not as lucrative as it could be.

“But we do well, without being arrogant about it… You have to be fully aware of the industry and have the intellectual capacity to understand the potential of the market,” he says.

Pictures are an important element of a wedding because they capture the moment for life.

International award-winning photographer Daniel West meets his clients in a restaurant so he can get to know them better and learn the history of their relationship.

“We, as photographers, need to click with each couple, it is actually vital because we are going to be in their space from the beginning to end.

“So, when we do not gel, we are going to find ourselves in an awkward situation on the day because we, as photographers, are also problem-solvers. We don’t just take pictures on the day,” West says.

His packages start from R18,000 ($1,248) to R60,000 ($4,163) and he says it is because the couple is paying for the quality of the work. His packages include waterproof genuine leather-bound photo albums that he says last a lifetime, as well as 500 images that are both edited and unedited. He also arranges the location for the photoshoots.

“It is more than about taking pictures on the day, anybody can take pictures but the work that I do has more of a boutique feel,” he says.

“You pay to have something like this on the table that will last you a lifetime,” West says.

He does not only take pictures on the day but the photoshoots can take up to three months.

“Each couple that I take pictures of has a different story and that is where I draw my inspiration.”

West says that it takes a while for the business to get to a point that is profitable because photographic equipment is expensive.

“In the beginning, it is unfortunately not lucrative because you have to look into getting the equipment that is up to standard, however, it took me about seven years where I could get to a point that I could make a business out of it,” West says.

International award-winning photographer Daniel West with his clients. Picture: Supplied

His annual turnover before expenses is R800,000 ($55,502) and he has about 25 clients a year.

He believes that the industry is regarded as valuable in South Africa and it is growing because people are becoming more enlightened about the photography industry. And social media has become an important motivator driving this industry.

“It is vital to have a good photographer for your wedding, because you as a bride are not quite educated of what is out there and what is not [in terms of photography].”

A good photographer needs to have foresight.

“The quality and charisma of your photographer is really one of the most important things you pay for because if something were to go wrong on your wedding, like rain, what does your photographer do? Do they stand back or make a plan?” he says.

Other luxe services associated with weddings include limos and chauffeur services, and florists, live music bands and gourmet caterers flown from around the world. The more money you are willing to throw, the more sparkling the champagne, crystal and caviar on the beach

Continue Reading

Focus

Why Science Matters So Much In The Era Of Fake News And Fallacies

Published

on

By

Democracy and social progress die without science and fact-based knowledge. Science and facts are the foundational basis for rational and logical disputation and the possibility of reaching some truths.

Fake news, on the other hand, is a calculated assault on democratic freedoms.

The power of the notion of fake news and of its practitioners is demonstrated by how we have all quickly come to accept that there is a category of news called fake news. By doing so, we are running the real risk of being complicit in its legitimisation. My point is: if it’s fake then it’s not news. There is news, and then there is fake stuff, dodgy facts, distortions and lies.

So what’s the connection between science, knowledge and facts?

What makes good science

Science is one important means of producing knowledge and getting to what approximates the truth. Good science results from rigorous processes. Part of the rigour in science and knowledge creation is the peer review process, which is a means of ensuring not only the correctness of facts, but also transparency.

Science must generally also meet the test of replicability. These days data used in scientific experiments often also has to be preserved so it can be assessed or analysed if results are disputed. Ethical norms also govern scientific experiments to prevent harm.

Science is not the absolute truth. Scientific findings are the beginning, not the end, of the quest for truth. Empirical data used in science that can be verified forms a sound basis for robust discussion, debate and decision-making. Science brings a degree of rationality that creates a higher probability that the best interest of society or the public interest will be taken into account in, for example, decision-making.

Science, then, is the habit of exercising the mind to help think through especially difficult and complex phenomena.

This makes science important in the exercise of democracy. This isn’t possible without facts and information that enable – or aid – voters to make an informed choice in elections, for example, or help the making of sound policies that best promote the public interest. Science also enables discerning members of the public to make sense of their worlds and the world.

So-called fake news

Fake news, on other hand, is a set of at worst, manufactured or concocted facts that are a perversion of reality. It is the direct antithesis of science.

But fake news isn’t new. It’s as old as news itself and has a variety of aims, including propaganda and spin doctoring. It can be argued that the growth of spin doctoring in the 1990s is the precursor to the exponential growth of fakery. It has also been enabled by the decline of content that enriches public discourse in the context of commercialisation and concentration of media since the 1980s.

These developments led to a decline in the influence of public interest media or media that strikes the balance between commercial enterprise and the public good. And this has led to the reduction in the kind of news and media content that focuses on science.

Science journalism and investigative journalism, in particular, have seriously declined. This has meant that the ability to shine a light on the dark areas of lack of knowledge, superstition, and myths has seriously been diminished.

Specialist reporting is now confined to the content-rich ghettos of those who are highly educated or interested.

Another reason for the growth of fake news and its increasing influence is the loss of confidence in public institutions, including media institutions and the profession of journalism. Fakery has risen to fill the vacuum, driven by individuals and political organisations who position themselves as messiahs with instant solutions to multiple social crises. In their discourse knowledge institutions, science, facts, evidence, experts and reason or rationality are thrown out of the window as the sophistry of the elite.

The role of social media

Digital technologies and social media have made it much easier to produce and disseminate fake news. It is a paradox: unprecedented scientific advances and technologies are enabling us to transcend traditional constraints of distribution and literally place information at people’s fingertips. Yet these same technologies seem to facilitate more fake news and information that doesn’t necessarily advance the public good.

In addition, social media largely exists outside the professional norms of fact checking and the use of evidence to support assertions, arguments and positions taken in relation to social phenomena.

Fact checking and peer review are more important than ever because of the reality that false information now flows freely. This can be extremely harmful, particularly in public health campaigns.

The attraction of fake news is its apparent simplicity. It has a ring of truth around its claims, even when these are outlandish, and its ability to seem to resonate with what people think are their life-worlds or everyday life. Its ability to reinforce stereotypes, including prejudices, makes a bad situation even worse.

Science, facts and knowledge will save humanity

Science journalism and investigative journalism which seek to pursue the truth rather than just the reporting of events, are critically important in this age of fake news and fallacies.

It is not an exaggeration to say that the sustainability of the idea of humanity and the environment in the broadest sense of the word depends on science – or the respect for facts, evidence and experts.

Science that allows the public to have a nuanced understanding of life is important to building inclusive, open societies that enable public participation in decision making and progressive social agendas. Science disseminated in ways that are understood by the public and resonate with their life-worlds is important for building trust in reformed institutions and creating new forms of social cohesion in diverse societies.

Tawana Kupe; Vice-Chancellor and Principal of the University, University of Pretoria

The Conversation

The Conversation

Continue Reading

Focus

Entrepreneurship Funds In Africa: Distinguishing The Good From The Bad

Published

on

By

Entrepreneurs have a pivotal role to play in Africa’s unemployment crisis. Today over a third of the continent’s young workforce (those aged 15-35) are unemployed. Another third are in vulnerable employment. By 2035, Africa will contribute more people to the workforce each year than the rest of the world combined. By 2050 it will be home to 1.25 billion people working aged.

To absorb these new entrants, Africa needs to create over 18 million new jobs each year. Governments need to put in place policies that drive economic growth and competitiveness. These in turn, will enable the growth of small and medium-sized enterprises (SMEs). This is important because they currently play a significant role in low-income countries, representing nearly 80% of jobs. They are also responsible for 90% of new ones created each year.

The challenge for countries is how to support the growth of SMEs. Various African governments have experimented with ways to help address the US$140 billion funding gap for startups and SMEs. For example, one approach has been to set up entrepreneurship funds.

Based on my experience of watching their performance over the past 18 years, I would issue some words of caution. Some entrepreneurship support models work better than others. And how they are set up – particularly the governance structures put in place to manage them – is key to their success, or failure.

Funding gap

Access to financing is consistently listed as the biggest obstacle to business for SME’s in African countries. They often face double digit interest rates from local banks. And venture capital penetration is still extremely low. Top end 2018 estimates put it at about $725 million for the whole continent.

To tackle the problem, African countries continue to start new entrepreneurship funds. In July 2017 Ghana launched the National Entrepreneurship and Innovation Plan. The aim is to provide integrated national support for start-ups and small businesses.

Almost a year later, Rwanda secured a $30 million loan from the African Development Bank for the establishment of the Rwandan Innovation Fund. This will focus on investments in tech-enabled SMEs.

As new funds are started, African countries must look to the successes and failures of both global and regional funds to replicate best practices and avoid common pitfalls. African governments should explore replicating models similar to Small Enterprise Assistance Funds and the USAID backed enterprise funds. Both include robust investment selection criteria for funds.

In doing so, African government-backed entrepreneurship funds would operate as fund-of-funds – where a fund invests in another private equity or venture fund rather than directly in businesses themselves – as do many development finance institutions globally such as the UK’s CDC or FMO of the Netherlands.

The what and the how

The fund of funds structure creates an arm’s length relationship between the government agency that houses the entrepreneurship fund and the businesses that eventually receive investment. In between, sits a professional fund manager that earns the majority of its income from making good investments, growing companies and exiting them after a period of five to seven years. In this way, there are natural disincentives for corruption and market-based selection criteria for the entrepreneurs who receive investment.

How the fund managers are selected also matters. To ensure true investment independence from the government, fund managers and board members must be chosen in a transparent and competitive process. And once selected, representatives of the government entrepreneurship fund agency can sit on the investment committee for oversight purposes but should respect the fund managers’ independent decision-making.

There are examples of funds being set up without the necessary independent, accountable fund managers. One is the YouWin program in Nigeria. Created in 2016, it was set up to help youth entrepreneurs grow businesses. But senior civil servants handed out awards to friends and relatives.

Government supported fund managers through the FoF model can also catalyse additional investment. By operating in markets and sectors often ignored by traditional private equity funds, Small Enterprise Assistance Funds and enterprise funds have mobilized additional capital for investment-starved companies. African government-backed entrepreneurship funds could do the same by participating in blended finance deals with development finance institutions, social-impact investment funds, local banks and other market players to back growing firms.

Measuring success

While not actively managing the funds’ portfolio investments, governments have a key role to play in guiding the funds priorities. Priorities may vary by country and given Africa’s growing rates of unemployment, funds should prioritise job creation by evaluating investment on key performance indicators. These would include the number of jobs created per dollar invested, indirect jobs created per dollar invested, and average salary of job. In addition to job creation, governments can direct funds to focus on specific sectors either in need of increased capital or high-growth areas in local economies.

Beyond establishing investment criteria, government-backed funds should prioritise rigorous measurement of investment results and long-term data tracking to inform future investment decisions. The UK British Bank regional growth fund found the cost per job created varied considerably by project from £4,000 to over £200,000. It concluded that a better allocation of funds could have led to thousands more jobs created for the same resources.

Data driven investments can not only lead to a better results, but further curtail issues around potential mismanagement of funds.

Tackling Africa’s job creation challenge requires innovative thinking and initiatives that support private sector-led growth. Looking to the model of Small Enterprise Assistance Funds and enterprise funds, African governments can spur local ecosystems and drive new private capital to regions today seen as unfriendly or too risky to outside investors.

Properly structured investments today could yield much larger dividends tomorrow.

-Aubrey Hruby; Senior Fellow, Africa Center, Georgetown University

The Conversation

The Conversation

Continue Reading

Trending