It was an eventful rainy Thursday afternoon. Workers left their desks to watch the action through their office windows. It was one of the many marches against state capture. On this day, civil society organizations were picketing outside the office of global consultancy McKinsey, right opposite the FORBES AFRICA headquarters in Sandton, South Africa.
McKinsey is one of the many companies, in the country, implicated in alleged corrupt dealings between state-owned power utility Eskom and consultancy firm Trillian. McKinsey and Trillian stood to earn more than $490 million from Eskom.
It has been a year of drama in corporate South Africa. As strange as it may sound, a lot of South Africa’s protests, like this, have one family as the common cause.
Weak-kneed politicians allegedly allowed members of the Indian-born Gupta family to wield undue influence. This influence has gone from meddling with the state’s top jobs to conniving with private and public companies to act in their favor.
Another company in hot water is Bell Pottinger, a British public-relations firm connected to the Guptas by a $130,000-a-month contract. It was stripped of its membership in the Public Relations and Communications Association (PRCA) in the UK, after it was found that the PR agency deliberately fanned racial tensions, with creations like &#8216;white monopoly capital&#8217;, in South Africa, in favor of Zuma, while it worked for the Gupta-owned Oakbay Capital.
“We took this decision because we were not satisfied by the explanations given. We have never passed down such a damning indictment,” says Nicholas Dunn-McAfee, Head of Public Affairs, Policy and Research at PRCA.
<a href="http://www.forbesafrica.com/billionaires/2017/12/08/south-african-billionaires-fortune-plunges-2-billion-day-amid-accounting-scandal/" target="_blank" rel="noopener">READ MORE: South African Billionaire&#8217;s Fortune Plunges More Than $2 Billion In A Day Amid Accounting Scandal</a>
It gets worse.
For years KPMG South Africa has said it stands for integrity. Instead, the tax, advisory and auditing firm now stands alleged of giving advice so that money can be taken to Dubai to avoid tax payments. They also turned a blind eye to several conflicts of interest while auditing 36 Gupta-linked companies and compiled the so-called South African Revenue Services (SARS) rogue spy unit report which was used as part of the smear campaign against former Finance Minister, Pravin Gordhan.
There are consequences.
For KPMG, for example, pressure has been piling. The firm withdrew all its findings in the ‘rogue unit’ report; senior executives, including CEO Trevor Hoole, resigned; and it has been dumped by major clients, among them, Sasfin Bank, Sygnia Asset Management, the energy investment company Hulisani, and the University of the Witwatersrand.
Like the protesters in Sandton, Magda Wierzycka, Chief Executive Officer at Sygnia Group, an asset management company, says all involved should be held accountable, stripped of their licenses, fined and even jailed.
“There are no excuses. They did what they did for money. They were not ignorant of what they were doing,” she says.
Opposition political parties, rights groups and private citizens are playing their part to make sure unethical companies are punished. The problem is corporate misgovernance affects the whole country.
<div id="attachment_34798" style="width: 310px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-34798" class=" wp-image-34798" src="https://www.forbesafrica.com/wp-content/uploads/2017/12/Alastair-Macduff-Chairman-and-Chief-Executive-Officer-of-the-Turnaround-Management-Association-Southern-Africa.-copy-200x300.jpg" alt="" width="300" height="451" />Alastair Macduff, the Chairman and Chief Executive Officer of the Turnaround Management Association Southern Africa. (Photo supplied)</div>
South Africa was downgraded to junk status and went into a recession. At the time of writing this article, $1 was equivalent to R14.16 at its worst, it went to about R17 to the dollar. It means business confidence is at an all-time low.
“Businesses are feeling the impact of low investor confidence, weakening exchange rates and high fiscal uncertainty,” says Alastair Macduff, Chairman and Chief Executive Officer of the Turnaround Management Association Southern Africa.
“Restoring investor, business and consumer confidence will require a concerted effort to address these pressing issues – and address them in the best interests of the country as a whole,” he says.
Wierzycka agrees.
“In a funny way, what has happened to KPMG and McKinsey is actually very positive… Positive in terms of waking corporate South Africa to what is happening and to the fact that they can no longer sit on the fence and stay silent,” she says.
According to Wierzycka, South Africa’s corporate sector is suffering from a moral crisis.
“The dilemma is, do you change providers based on the fact of they are implicated in state capture even when it’s inconvenient to do so?”
<div id="attachment_34795" style="width: 510px" class="wp-caption aligncenter"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-34795" class=" wp-image-34795" src="https://www.forbesafrica.com/wp-content/uploads/2017/12/Mckinsey-strike-501-300x200.jpg" alt="" width="500" height="333" />People protests against corruption outside the McKinsey office in Sandton, Johannesburg. (Photo by Motlabana Monnakgotla)</div>
Wierzycka has lived it. She offered Bianca Goodson, former Trillian CEO turned whistle-blower, a job. This after Goodson’s new employer, Sage, accepted her resignation after she told them she was blowing the whistle on her previous employer. Goodson provided documented evidence that the Gupta-linked firm swindled hundreds of millions from state-owned enterprises Transnet and Eskom. Wierzycka called Goodson, and all whistle-blowers, heroes.
“When I heard what Sage did, I was actually breathless. The true heroes of the story of South Africa are the belittled whistle-blowers… Bianca took tremendous risks in disclosing the information she disclosed on Trillian, McKinsey, Eskom and a number of others. It seemed a completely natural thing to reach out to her, if anything else, to reassure her that she is not alone in this fight. When I did, I met a lady who is incredibly competent. So let’s be clear, I gave her a job, not because she is a Trillian whistle-blower but because I encountered a woman of tremendous bravery with a strong moral compass and qualifications that are arms long,” says Wierzycka.
<div id="attachment_34797" style="width: 311px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-34797" class=" wp-image-34797" src="https://www.forbesafrica.com/wp-content/uploads/2017/12/Magda-Wierzycka-Chief-Executive-Officer-at-Sygnia-Group-200x300.jpg" alt="" width="301" height="452" />Magda Wierzycka, Chief Executive Officer at Sygnia Group. (Photo supplied)</div>
Goodson has a five-year-old daughter and, according to Wierzycka, she was petrified.
“My biggest concern was her personal safety. If she had died in a random hijacking, no one would think because no one knew her name. So, what I thought was that the most important thing that needed to happen was to get her name out there in the headlines.”
Wierzycka’s good fight doesn’t end there.
Earlier this year, Sygnia started a new money market unit trust and the firm said it will donate 100% of the management fees, earned on the fund, to non-political organizations fighting corruption. Sygnia also fired KPMG when news on state capture allegations broke.
“At the end of the day, I think it’s up to each company to make a choice. In the instance of KPMG, their board of directors make up their own minds as to whether what they’re seeing is what they expect to be seeing from their service provider and how serious they view what the company has done. In the instance of McKinsey, do you honestly want to do business with a company that has robbed South African taxpayers while we have a tiny taxpayer base supporting such vast percentages of the South African population which is living in inequality… Are you happy, morally, to do business with a business like that? That’s a question each board of directors has to ask,” says Wierzycka.
Another problem with some corporate companies is that they use denial as a first response when they are embroiled in a crisis. It creates a bigger mess.
KPMG South Africa, as an example, hired Nhlamu Dlomu, previously Head for People and Change, to clean up the mess as their new CEO. She couldn’t answer many questions posed to her, probably because she wasn’t prepared to be the CEO of one of the four top audit companies in the country that was facing its greatest crisis.
Women CEOs in times of corporate crisis may be a global trend.
A PwC report found that 38% of female CEOs are forced out of the office; compared to 27% of male CEOs. Another study, by Utah State University researchers, found boards are more likely to promote women and minorities to top leadership roles when an organization is in crisis.
“To me, that was a typical response of an international company that thinks  putting a fairly attractive female in front of clients is going to solve the problem… I think that the reason they are losing the battle in the court of public opinion is because they’re arrogant,” says Wierzycka.
<a href="http://www.forbesafrica.com/focus/2017/04/01/give-us-water-not-statues/" target="_blank" rel="noopener">READ MORE: Give Us Water Not Statues</a>
Before firing KPMG, Wierzycka says she advised the audit firm to withdraw the entire ‘rogue unit’ report and they refused.
“I said, ‘let’s talk about the money then, because we know that this is blood money, whether it’s stolen from taxpayers or the farming community in the Eastern Cape. R63 million ($4.43 million) will go a long way towards fighting corruption. So donate all this money to organizations which are fighting corruption in South African courts. At least try to redeem yourself in the eyes of the South African public.’ I was told no…,” recalls Wierzycka.
KPMG only withdrew sections of the report, under questioning in parliament, admitting that it was wrong about the SARS report and that their conclusions and recommendations were incorrect.
Clearly, it will take more than marches in Sandton to bring about change.
<div id="attachment_34801" style="width: 360px" class="wp-caption aligncenter"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-34801" class=" wp-image-34801" src="https://www.forbesafrica.com/wp-content/uploads/2017/12/Sylvester-Chauke-Founder-DNA-Brand-Architects-300x277.jpg" alt="" width="350" height="323" />Sylvester Chauke, Founder DNA Brand Architects (Photo supplied)</div>
<h1>How To Weather A Corporate Storm</h1>
Sylvester Chauke loves to communicate. We meet him in his well-decorated office in Fourways, Johannesburg. As we enter, we are welcomed by multiple awards on the walls behind and in front of his desk. It is like we have entered a trophy factory.
“I don’t know how many awards I have. Not all of them are here but this is all inspiration and it is kudos to the hard work we do,” he says.
This is a world away from where it all started.
At 12 years old he went for a TV commercial audition. He loved it. Since then, he knew he wanted to work in the media industry.
There was research and soul searching. It ushered in a marketing and advertising communications degree, from the University of Johannesburg, and an internship. He never looked back.
Five years ago, he founded DNA Brand Architects; a marketing and brand consultancy company that advises people on how to avoid or deal with corporate crisis. He employs 34 people and counts Vodacom, Edgars, Bonang Matheba, Steers and Wimpy among his clients.
“It is all about taking all these fields of communication, whether it’s broadcasting, advertising, and brand communication, into one space,” says the 36-year-old.
According to Chauke, it is very obvious that there is a corporate communication crisis in South Africa. He says in most businesses, communication is just seen as PR. They send press releases and hope for the best. They don’t plan for a crisis.
“Most businesses don’t think that they have to think and plan for it, they just become overly confident, to some extent quite arrogant, to think that they are such great brands that can sort of overcome anything. We are seeing it right now with the likes of Bell Pottinger, KPMG and McKinsey. It is indicative of that communication is a ‘by the way’ thing,” says Chauke.
It is dangerous. When companies say the wrong thing, they risk losing their clients, or worse, the company. According to Chauke, planning for a crisis isn’t rocket science.
“Most of the time you can anticipate issues. For example, when your financial results come out and they are not good, you should plan what you are going to be saying to the stakeholders about the performance. It is the same if you are going to be retrenching 2,000 people, you need to be prepared.”
Chauke says every business needs a crisis management plan, reviewed annually, for crises they can’t anticipate.
“The biggest challenge that we have is people think because you are a CEO, and you speak to a crowd of 1,000 in a conference, you can handle media. That is so not true. You need an experienced spokesperson to handle that.”
He says Africans should inspire the world.
“I think that if the way that we do business is given a chance and doesn’t get distracted by all the corruption, scandals and corporate blunders, the way we do business would inspire others because we push regardless,” he says.
Maybe this is just the kind of inspiration corporate South Africa needs.

Anger At The Corporate Slippery Slope

It could have come straight out of a novel. Twenty men, most of them Congolese asylum seekers, stand accused of plotting to overthrow their head of state, Joseph Kabila, from a base deep in the South African bush.
When news of their arrest broke last year, the headlines flew: “Congolese Crisis Comes Knocking at South Africa’s Door”, “Congo Dissidents Stung By Hawks”. The men appeared at the North Gauteng High Court in Pretoria with a supportive crowd of countrymen behind them. They denied the charges.
The peculiarities of this case may impact the future of mercenary law in South Africa, says Cerita Joubert, lawyer to three of the accused.
“It’s a very good test case&#8230; because the definition of mercenary activities [in the Act] is to actually actively engage in combat&#8230; and in all the previous cases in South Africa regarding Foreign Military Assistance there was actually a guilty plea by the accused.”
But there are other concerns regarding the investigation that led to the men’s arrests.
“The whole setting of a trap [by South African Police] makes a very nice test case for how far you [are] allowed to go before crossing that border. Our argument is [that] a line was crossed,” she says.
Thesigan Pillay, lawyer to 14 of the accused agrees.
“[They] deliberately [lured] these people to commit the offense to use them as an example&#8230; whoever wants even to think about [planning a coup] in South Africa [will] face the full might of the law. Or it could be that there is complicity from the hierarchies of the South African government who are encouraging this [saying] ‘arrest them, detain them because we have interests in the DRC and we do not want South Africa to be used as a platform for dissent against Kabila.’”
However, a source close to the National Prosecuting Authority (NPA), which is currently presenting the case against the men from Congo, claims the prosecution is simply following its mandate.
“Any action for the unconstitutional change of a government would obviously result as Foreign Military Assistance&#8230; we are trying to get rid of this culture of mercenarism in South Africa.”
Joubert and Pillay also insist that, for their clients, money was the main objective.
“The entire thing wasn’t about a coup d’état, it was an opportunity to make money,” claims Pillay.
The story of the Congo 20, as the group is also known, is a convoluted one. To understand why, it helps to return to the very beginning.
Early last year, the men from Congo are accused of convening in Johannesburg to discuss the fronting of an obscure rebel unit to remove the Kabila regime through ‘conventional warfare’. The group’s leaders emerged as James Kazongo, a naturalized American citizen, and a man who claims to be Kabila’s half-brother, Etienne Kabila. General William Amuri Yakutumba, whose whereabouts are currently unknown, was implicated as the group’s military head.
It was claimed, during the trial, that around 7,000 to 9,000 rebel soldiers were loyal to this dissident organization, Union des Nationaliste pour le Renouveau or the Union of Nationalists for Renewal (UNR), based in the Democratic Republic of Congo (DRC). Over a five-month period, beginning in September 2012, key members of the group made contact with men they believed to be sponsors interested in mining concessions once the Kabila regime was toppled.
The ‘sponsors’ were actually elite undercover agents in the South African police known as the Hawks. They caught the Congolese in a sting operation.
New information obtained by FORBES AFRICA points to a very different version of events.
In September 2012, accused number four, Kabuka Lugamba Andrian Kilele met Carlos Nkuka, a Congolese man living in Angola, who claimed to work for an Umkhonto we Sizwe veteran, going by the name of Andries Pienaar, later revealed to be part of the sting operation.
Nkuka convinced Kilele to introduce his friend Etienne Taratibu Kabila, alleged son of former Congolese president, Laurent Kabila, who lived in Cape Town, to his boss. Nkuka and Pienaar said they wanted to go into ‘business’ with Kabila.
A few days after making contact, Kabila traveled to Johannesburg to meet with Nkuka and Pienaar at their request. They met first at a fast food restaurant on Louis Botha Avenue, a major thoroughfare that links downtown Johannesburg to Sandton, the city’s business district.
The men then moved the meeting to Kilele’s house on Nugget Street, in downtown Johannesburg, where Pienaar first brought up the mining proposal.
“[He said] I have my people who always wanted to exploit mining business in your country&#8230; among Congolese here, I haven’t found one who has got influence in your country,” a source at the meeting tells FORBES AFRICA.
Nkuka and Pienaar wanted to harness the influence of Kabila’s name to take over key mining operations in the DRC already controlled by major rebel groups and government forces. This was their ‘business’ proposal to Kabila.
Days after Kabila returned to Cape Town, Nkuka and Pienaar met with Kilele in the garden suburb of Norwood at a local restaurant. This time Kilele brought along a friend, Lunula ‘Patrick’ Masikini, accused number two. They were instructed to drive to Pienaar’s house and as they were driving they noticed two cars were trailing them: one blue, one silver. They all pulled up at Pienaar’s front yard.
Masikini and Kilele were led into the dining room where they were questioned about Kabila’s relationship with his alleged half-brother, Joseph. After a long conversation about the Kabila brothers, they were shown photos of gold purchased from a mine in Goma, a city on the northern banks of Lake Kivu, by the driver of the blue car.
The case investigator, Lieutenant Colonel Noel Zeeman, was at this meeting. While undercover, Pienaar told the men from Congo that Zeeman was their ‘boss’ who lived in Europe but came to South Africa often.
A few days later, they reconvened. Pienaar, with Zeeman and Nkuka, informed Kilele and Masikini that Kabila had agreed ‘to do business with them.’
The men returned to Norwood and met with undercover agents James Jansen and Joe Bressler for the first time. Pienaar waited in the car.
For the second time, Kabila traveled to Johannesburg to meet with his ‘business’ partners. But this time he was wary. He sent Kilele to meet with Jansen and Bressler at an address sent to him via SMS. After this meeting, an offer was made.
According to a source, Jansen offered Kabila $30,000 to scout mining locations in the DRC. He also emphasized the need for security at the mines, saying that Kabila needed to be ‘with people carrying guns’. The Hawks asked for images of the mines as well as photos of Kabila’s ‘people’ along with the names of ‘10 to 15 people for training’. The plan was to force President Kabila to ‘a point of negotiation’ for mines under his control.
Kabila was hesitant so the offer was increased to $79,000 in two instalments.
“First they will hand over [to Etienne] $30,000 and $49,000 will be [handed over] once he [brought] people for the training,” claims a source who joined the negotiations.
Kabila did not bite, instead withdrawing completely, suspicious of the Hawks and their interest in his name.
“He said&#8230; ‘I am not going to continue with these people because why James [Jansen] asked about my brother Joseph [Kabila]?’&#8230; I am [certain] these people must be police or Kabila’s agent.’”
Kabila returned to Cape Town and was not seen again until he handed himself over to police in February 2013.
At this point, Kilele decided to continue with the partnership recruiting some friends, also facing charges, to take over from Kabila. He introduced his friends to Jansen and Bressler in Midrand, at a restaurant suspended above the N1 highway, the road that links Johannesburg and Pretoria.
Jansen talked about the money they could all make, if they took ‘two or three provinces in the DRC’ and ran the mines. Later that night, the men received an offer from the agents that they found hard to refuse – $300,000 – more money than any of them had ever imagined.
“Hearing this amount of money&#8230; I said I have to do whatever they want to get the money,” admits a source at that meeting.
Kazongo was central to obtaining the money, claim a number of sources. The alleged leader of the group knew Maskini through his sister in Belgium. At some point, he was preparing an affidavit for Masikini to relocate to the United States, where he has lived for 32 years, but the move never happened.
Kazongo was to play a small role: meet with the agents, posing as ‘President’ of the group,  to collect the money. For his trouble, he was promised $100,000.
The UNR’s alleged military head, General Yakutumba, founder of the Mai Mai Yakutumba rebels in South Kivu, was forced into their plans.
“These guys [wanted] a person who has influence to lead&#8230; [and] some photos of soldiers and also Yakutumba’s image because they checked him on the internet&#8230; that’s where the idea of Yakutumba came from,” reveals a source.
In January 2013, Kilele met with the general at an undisclosed location just outside Uvira, a town that flanks the northern edge of Lake Tanganyika. For the promise of $20,000, Yakutumba and his soldiers posed for photographs and video with Kilele. This would later be used as proof of the group’s military prowess.
During the same trip, Kilele took photos of mines and brought back gold samples. This, he hoped, was evidence enough for ‘the sponsor’. He handed over the evidence, with Masikini, to Jansen after returning South Africa on January 22, 2013.
Many of the Congolese men implicated in the coup charges claim they were recruited by Kilele and another man, accused number 13, David Bakajika, to attend anti-rhino poaching training. They say they knew nothing about the agreements Kilele made with the agents.
“The training was supposed to last for seven weeks. Upon completion of that training we were supposed to receive a certificate and a lump sum of $2,500 for each trainee. Furthermore, I was told by Kilele that there will be opportunity for employment as security in the farms of South Africa, so I wanted to use my vacation time to get the certificate and the money and go back to DRC,” says a source close to Kilele.
On February 4, 2014, a day before their arrest, 19 of the Congolese accused departed for a fast food restaurant to meet with Jansen and Bressler. Masikini drove Kazongo and Kilele to the restaurant. The other men took public transport. When they got there, they felt something was wrong. A source claims that there were four men accompanying the agents and all of them were carrying pistols.
The men from the DRC were then driven further north on the N1. They didn’t know where they were going. They passed Pretoria and drove for hours into the bush.
The journey ended at a farm in the middle of nowhere.
“It was just a camp with some tents,” says a source on the trip.
The men were given military fatigues, boots and coats. On a flipboard was written ‘Coup d’état’ and ‘questions which needed to be answered’ in both English and French.
They were told to familiarize themselves with the place as they were going to spend seven weeks there, but the stay was cut short.
“[They] pointed a gun at [us] and said ‘no one is allowed to move around,’ says another source.
They felt they were in trouble.
“We knew then that we were with the wrong people, at the wrong place, at the wrong time.”
While at the farm, they met another face they later would see in court, the trainer, ‘Nick’.
“He introduced himself saying he is not a good man as we might think. He is a killer and he [doesn’t] know how many people he has killed in his life and he [doesn’t] trust anyone; only his cousin, who was holding a camera in front of us,” claims a source.
Nick had helped train security contractors in Afghanistan. He told the men from Congo that he had recently returned.
An ‘agitated’ Jansen then appeared with a wooden box containing ‘huge guns’. He instructed them to put on the fatigues, grab a gun and pose for photographs, which were later used against them in court.
At 4:30AM the next morning, the men were summoned from their tents by men in balaclavas. They were told they were going to meet the ‘sponsor’. Instead they met a familiar face with a police identification card who introduced himself as ‘Lieutenant Colonel Noel Graeme Zeeman’.
The men shuffled into a police van and were returned to Pretoria. In the car, a translator with the police confirmed their fate.
“Vous étés sous L’arréstation!” she said according to a source who was in the police van.
The men appeared at Pretoria Magistrate’s court two days later. After a month long battle, they were denied bail.
The Congo 20 last appeared in court in late October. Their lawyers expect the case to conclude early next year.

Soldiers Of  Misfortune

Countries in sub-Saharan Africa are set to clock up the fastest pace of growth since the global financial crisis struck five years ago, despite the weak global environment. But it has not prevented the finances in many of their economies from deteriorating. The question is, should we be worried?
Budget deficits in the region have swelled in the past decade, as governments have ratcheted up their spending. According to research from UK-based Capital Economics, the combined shortfall for the region in 2012 amounted to 2.5% of gross dom-estic product (GDP) – a key financial health ratio – compared with just 0.5% in 2000. Ironically, the trend has nothing to do with excessive borrowing. Over the same period, government debt as a share of GDP plunged to 33% from 70% – a respectable level.
However, the improvement in debt ratios has been driven largely by debt relief from Western donors. As these countries grapple with their own fiscal constraints, this is likely to dwindle. At the same time, prices for exported commodities, the mainstay of the region’s economies, are starting to subside after reaching historic peaks in the past decade. This means that governments will have less to spend on financing their own development, and may have to borrow more to do so.
The marked acceleration in spending that has taken place across the region is generally viewed as positive. Most of the money is invested in capital projects, which will ultimately boost growth potential. Sub-Saharan Africa needs an estimated $93 billion a year for infrastructure development. But some governments are pumping increased amounts of money into what is known as current spending. This includes the salaries of civil servants and subsidies on necessities like fuel, electricity and food. These eventually become unaffordable.
The biggest spenders on subsidies in the region are Angola, Ghana, Nigeria, Mozambique and Zambia. Ample oil revenues mean that Angola and Nigeria can cope with the financial burden, but the finances of the other three countries are not as healthy. In Ghana, fuel and electricity subsidies swallow nearly a quarter of official revenues. Power subsidies alone account for 17% of revenue in Mozambique and 20% in Zambia.
Yvette Babb, Standard Bank’s Africa strategist, believes that countries in sub-Saharan Africa are trying to address the burden of fiscal subsidies. She says that there has been a strong improvement in the way that fiscal budgets have been managed. She also says that the debt burdens of countries in the region are generally still “enviable” when compared with the US and Europe.
However, there are significant exceptions. The region’s two main offenders are Ghana, its biggest cocoa producer, and Zambia, its top copper producer. Both countries’ economies are growing at a heady pace of more than 7%, so there is little justification for fiscal slippage.
In what was seen as a bid to garner support ahead of the 2012 elections, Ghana overhauled its government salary structure in 2010. The public wage bill was pushed up to nearly half of overall spending. This had disastrous effects on the country’s financial credentials. Ghana’s budget deficit ballooned to about 12% of GDP in 2012, nearly double its official target, from just 4% in 2011. Its debt had reached 50% of GDP at the end of 2012, up from 41% a year earlier.
Ghana’s government has pledged to narrow its budget deficit to 9% in 2013 and 6% by 2015, but there is widespread skepticism that these targets can be achieved. In what was seen as a step in the right direction, the country scrapped fuel subsidies worth $500 million in May.
Despite partial cuts in fuel and maize subsidies in 2013, Zambia’s budget deficit is also expected to widen, reaching 8.5% of GDP in 2013 from 2.8% in 2012. After a broad-based increase in civil servants’ salaries, the country’s budgeted wage bill will climb to more than half of official revenues in 2014, from 40% previously.
One of the strategies that Ghana, Zambia, and several other sub-Saharan African countries have deployed to deal with their fiscal challenges is tapping international capital markets. In 2013, governments from the region raised more than $5 billion in global sovereign bonds – including several debuts. That compares to issuance of just $1 billion a decade ago.
More bonds are in the pipeline, with Zambia, Kenya, Tanzania and Senegal all likely to enter the market. And there is ample appetite from investors. In 2012, Zambia’s debut $750 million Eurobond was 15 times oversubscribed. Provided the money is allocated wisely, the trend is set to continue.

Healthy finances Africa’s spending PATTERNS

Since 1985, Africa’s growth has dipped below zero only twice – in 1991 and 1992. Over the past 10 to 15 years, the continent’s growth has been impressive, fueled by fast-paced urbanization, increasing political stability, connectivity, a youthful population and an expanding middle class.
Another contribution to its success is the emerging trend towards economic diversification. While in the past, Africa’s growth has been largely resource-dependent, the 2008 global financial crisis exposed the continent’s vulnerability to external economic shocks. Those economies largely dependent on the export of commodities were hardest hit.
The movement towards economic diversification has the potential to increase Africa’s resilience. It will also contribute to the continent’s development and ability to achieve sustainable, long-term economic growth.
Small, medium and micro enterprises (SMMEs) have played a critical role in the stability of economies on the continent. Overall, SMMEs account for 20% of Africa’s gross domestic product (GDP) and 50% of the continent’s jobs. In South Africa’s case, an estimated 2.8 million SMMEs contribute between 52% and 57% of GDP. They also provide about 61% of employment, according to official government figures.
However, the development of these budding areas of economic prosperity requires the combined efforts of African governments and the private sector.
“Finance is the number-one biggest constraint for businesses, particularly in Africa,” says Delphine Govender, co-founder of Perpetua Investment Managers. Finance is thus a very nece-ssary discussion to have. In Nigeria, for instance, the formal financial sector meets only 1% of business needs. In China and India, these percentages are above 20% and 30%, respectively.
There is no denying that Africa’s needs are great. But in addition to the construction of physical infrastructure, there is social infrastructure and business growth. Finding sound projects can be a challenge, Govender says. Investors require returns that commensurate with risk, and often, the challenge is not necessarily in financing the project, but in repaying that finance.
Brian Molefe, the chief executive officer (CEO) of South African rail and infrastructure company Transnet, believes “transformational leadership” is key to growth. He says leadership is about making bold and audacious decisions. And then acting on those decisions: “We’re good at talking, but we need to start doing.”
Furthermore, Africa’s leadership needs to decentralize and become more accessible. This is where social media platforms can play a role. In Rwanda, for example, the president and many politicians are active on Twitter, keeping the government accountable to ordinary citizens.
Admassu Tadesse, the CEO of the Burundi-headquartered Eastern and Southern African Trade and Development Bank, commonly known as the PTA Bank, says that leaders on the continent are under pressure to live up to expectations.
“We’ve done well but there is huge pent-up demand that needs to be dealt with, such as infrastructure. This is the challenge we face.”
Tadesse points out that Africa’s strong growth has also not translated into jobs, which is of major concern, given the millions of young people who enter the job market every year.
“Average growth rates of six percent are not sufficient. Rather, we should be targeting nine percent,” he says. Tadesse has also highlighted that African investment as a percentage of GDP at 22% still lags behind other regions, including Latin America at 32% and Asia at more than 40%. The solution, he argues, is to ensure that Africa’s growth becomes inclusive.
One of the key challenges African companies face is how best to take advantage of the continent’s status as the new economic frontier.
Opportunities abound in developing industries such information and communications technology (ICT) and energy. This is evident from the growing investment in alternative sources of power, such as nuclear, gas and renewable energy (hydro, wind and solar). Immense quantities of natural gas have been discovered in South Africa’s Karoo region. It has led to fierce public debate, weighing up the possible impact on the environment against potential job creation.
Organizations such as the International Finance Corporation, the World Bank’s private sector arm, are investing in the sector, particularly in energy efficiency and in renewable energy.
And the critical role that ICT is playing in transforming Africa by connecting businesses, citizens and governments cannot be undermined.
However, it is only through emphasizing intra-African trade that the continent’s growth and prosperity can be truly inclusive and sustainable.
The continent’s resources will not last forever, especially with a population that is expected to double in the next 30 years. This warrants more focus on diversifying economies, ensuring financial inclusion and emphasizing sustainable growth.
For Pravin Gordhan, South Africa’s finance minister, the solution lies in developing the kind of business models that will buffer the economy against further shocks. “Africa has come a long way in terms of reducing risk premiums… (But) we do have a perception deficit,” he points out.
The continent’s time has come, but success depends on the choices that African leaders make and the institutions they build.
The authors are media consultants. This article is based on discussions held at the Association of Black Securities and Investment Professionals conference in September.

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