What happens when the world’s mighty ratings agencies downgrade your country to a non-investment grade, the dreaded so-called junk status?
High interest rates, slow growth, capital flight and inflation are some of the problems that come with a downgrade; in short, everyone from a street vendor to a corporate executive will feel the pinch.
So how does a downgrade happen?
“Ratings agencies analyse a sovereign’s performance over past economic and political cycles, as well as factors that indicate greater or lesser economic flexibility in future economic cycles, to determine the country’s creditworthiness,” says Gardner Rusike, Sovereign Credit Analyst at Standard &amp; Poor’s, one of the three big agencies.
“Sovereign ratings can improve when a ratings agency takes a forward looking opinion that an individual country has a willingness and ability to service its debt on time and in full.”
Ratings agencies, Standard &amp; Poor’s (S&amp;P) and Fitch have South Africa at BBB–, a notch above sub-investment grade, while Moody’s has the country two notches above.
Most economists say, for South Africa, junk status is a when and not an if. But for now finance minister, Pravin Gordhan, says the country is breathing thanks to Moody’s and its two notches.
“We live in a very volatile world and for us this is coupled by our own structural concerns. We should make the right noises, building consensus and confidence to attract investment from both South Africans and international investors,” he says.
Moody’s issuing South Africa’s Baa2 long-term government bond, in May, says the first driver for the confirmation was the agency’s expectation that South Africa’s economic growth will gradually strengthen after a trough this year, as the various supply-side shocks, that have suppressed economic activity since 2014, recede.
The other two agencies, Fitch and S&amp;P are expected to report on their ratings in June.
Professor Jannie Rossouw, Head of the School of Economic and Business Sciences at the University of the Witwatersrand, says junk status for South Africa was not necessarily inevitable.
“Politicians have a tendency to make reckless statements in an election year. As for South Africa, it matters what will happen in the forthcoming municipal elections and how the Independent Electoral Commission will conduct the August 3 municipal polls. We also need the right policies, such as on immigration, media freedoms, as investors require information to make investment decisions,” says Rossouw.
Hanns Spangenberg, Senior Economist at NKC African Economics, says while a drop to junk status could have significant implications for the South African debt market, much of the damage has already been done.
“In fact, according to our model, South African bonds (rated BBB-) are currently priced between a BB+ and a BB-rated bond (i.e. one to two notches lower than its actual rating). This indicates that a downgrade to junk status has already been priced in,” he says.
He says it may not be that bad.
“While a downgrade will probably have some effects, we do not anticipate massive capital outflows from South Africa if the country’s rating is downgraded to junk status, not as a direct result of the downgrade, and not significantly more than the emerging market sphere is already facing this year.”
Rossouw says South Africa needs decisive government action.
“There has been some actions from the government that could trigger ratings downgrade, this include the cabinet reshuffle of 9 December, 2015 (when the country had three finance ministers in four days). We can’t afford such irresponsible actions. Government should stick to its budget and should not borrow more than what is budgeted for.”
South Africa’s Deputy President, Cyril Ramaphosa, warns of hard times if there is a downgrade.
“South Africans have taken the bull by the horns and they are doing as much as possible to try to move the needle in the right direction. We should not be downgraded. We are very positive and robust, clearly we are doing as much as we can,” Ramaphosa told Eyewitness News.
If downgraded, South Africa will join Russia, Brazil, Bulgaria, Greece, Indonesia, and Turkey. It will mean these countries – facing economic headwinds and struggling to lure investment – will have a new competitor from the southernmost tip of Africa.

The Junk Dunk

Landing in Kigali at night is like swooping down on a bed of stars. The land of a thousand hills twinkles with lights rivalling the skies above. On this particular night, the eve of the city’s first-ever World Economic Forum (WEF), immigration lines at the tiny but gleaming Kigali International Airport are long – mostly business travelers with thick passports and thick accents – but the wait, thankfully, isn’t. Staff quickly issue visas on arrival, Rwanda one of the few African countries to offer this ease of access.
The country has long been preparing for this day, and that first important step to flexing its economic muscle on a global stage. Chinese philosopher Lao Tzu’s famous quote, “the journey of a thousand miles begins with a single step” would certainly apply here; WEF was Rwanda’s ticket to even greater global glory, beyond the 2Gs it had been known for thus far – the genocide and the gorillas.
The packed hotels and packed agendas over the next three days, May 11-13, justified its place on the WEF map. The delegates spoke, the presidents nodded, and there was affirmation everywhere, at forums, sessions, breakfasts and dinners: that Rwanda is “a beautiful country, so clean, so green, so safe”, but more importantly, a country that’s perhaps a model for the rest of Africa, and the world, for its progress over the last 22 years since the genocide against the Tutsi battered its being.
There was lavish praise also for President Paul Kagame for spearheading this growth. At the packed interactive session on African partnerships on day one moderated by former British Prime Minister Tony Blair, Kagame said: “Twenty two years ago, we had to involve everyone’s participation&#8230; we lost the past, but needed to regain the future.”
And Blair closed: “Twenty two years ago, if you said a couple of decades later, you would be hosting the World Economic Forum, people would have been surprised… it’s an amazing country that has seen extraordinary progress. You have done a great job.”
Toronto-based entrepreneur Sunir Chandaria said post-session: “They have moved mountains to make this happen… Rwanda has taken a leap with digitization amongst African countries.”
The Kigali edition was the 26th World Economic Forum on Africa, themed ‘Connecting Africa’s Resources Through Digital Transformation’. Some 1,200 delegates from 70 countries jetted into the small African city. In attendance were names like Tony Elumelu, Tonye Cole, Ngozi Okonjo-Iweala, Howard Buffett, Pravin Gordhan and Cherie Blair. The venue at Camp Kigali, rechristened the Kigali Conference and Exhibition Village, had a tented concept to stir a sense of déjà vu of WEF’s annual Davos outing.
From the Alps of Switzerland to the hills of Rwanda, the forum did manage to generate its own share of excitement.
Against the backdrop of Kigali’s rolling hills – mostly red, not green, owing to the profusion of red-roofed homes on the slopes – the African plenary unfolded. Gun-toting men in military fatigues guarded the main venue and the five-star Serena Hotel, where most of the 10 visiting African heads of state were staying, and which was the venue for the stately events and dinners throughout WEF. One couldn’t get to the lobby without bag and body thoroughly searched.
Issues around women and youth featured prominently throughout the conference, not surprising, considering the host country boasts more women in parliament, in the ministries and the judiciary.
The first side event, held on the eve of WEF, was ‘Women Creating Wealth’, by the Graça Machel Trust, supported by the Rwanda chapter of New Faces, New Voices, a pan-African advocacy group expanding the role and influence of women in the financial sector. Machel, also a co-chair of WEF on Africa, said: “Women are power, women are energy, women are creativity&#8230;”
Arjuna Costa, Partner at Omidyar Network, a philanthropic investment firm with a long history of investing in Africa, who was the only male member on the panel, spoke to FORBES AFRICA: “It’s an exciting time to be a young entrepreneur in Africa, especially with the world moving towards more and more mobile, Africa in many ways being the pioneer of things like mobile systems, and also creating rich ecosystems on which more innovation is coming… It’s exciting as it’s home-grown innovation tackling global challenges with local solutions but still leveraging the power of technology.”
On day one of WEF, the Youth Forum, a breakfast event hosted by Rwanda’s First Lady Jeannette Kagame, saw a full auditorium at the Serena that was, for a change, an equal turnout of both male and female achievers.
In attendance throughout the conference were WEF’s Young Global Leaders (YGLs) and Global Shapers; there were so many, you could tell them from a distance.
One of them, Gerald Chirinda, a 20-something Harare-based entrepreneur standing in line for the security check at the Serena that night, for the social entrepreneurship dinner hosted by South Africa’s Motsepe Foundation, explained: “You see, we all look hungry&#8230; Hungry for power, and change&#8230; that’s why you recognize us.”
The one word used – and perhaps over-used – at the forum was ‘leapfrogging’. At one point during the interactive session on the Fourth Industrial Revolution at the venue’s Akagera hall, the forum’s co-chair, Akinwumi Adesina, President of the African Development Bank (AfDB), even said he didn’t believe in the word.
“Even a frog can’t leap that far,” he said to laughter.
“We cannot industrialize unless we solve access to electricity,” he said. One of the greatest priorities for the continent is electrification to enable digital technology – 500 million are without power.
“Africa is tired of being in the dark,” said Adesina. The AfDB is spending $12.5 billion in the next five years on its New Deal on Energy.
It’s crucial the Fourth Industrial Revolution “does not leave anyone behind”, said Machel, referring to Africa’s 52% female population.
At the same session, Kagame mentioned “people technology”. “Development is more than money or machines or tech. It’s about good people and the lives they lead every day,” he said.
Among the new initiatives unveiled, was the WEF-led Internet For All, a collection of best practices from around the world on how public-private collaboration has enabled internet access and adoption.
The forum’s Africa Skills Initiative brought organizations including MMI, GE, Google, Agility, the Rockefeller Foundation, Yellowwoods and the University of the Witwatersrand together to form a coalition committed to tackling Africa’s shortage of future-oriented STEM and ICT skills, while the Rockefeller Foundation announced a $1 million Cassava Innovation Challenge, aimed at finding ways to improve the shelf life of this staple crop.
Visitors to Rwanda’s first Marriott hotel that opened in time for WEF were awe-struck by its grandeur. Given the number of high-profile events the country has on the cards, hotels of this caliber are now necessary to meet the demands of discerning business travelers. The Radisson is set to open for the African Union summit here in July, right next to the Agaseki basket-inspired conference center, which was lit throughout the duration of WEF as a beacon of light and hope, hope for a tomorrow that has already come in Rwanda.

From The Alps  To The Hills

They dig profitably the desert soil of Botswana searching for stones – that say more than words &#8211; for fingers from Belgium and China to New York. They are so tiny that according to diamond experts, all the diamonds mined in the world, since 1870, would not fill a London double-decker bus.
This is the 44-year story of Botswana’s diamonds. An industry that has overcome hurdles that have tripped many in a string of African countries: ownership laws; competition; land battles and the threat of blood diamonds.
This is also the story of the world’s richest and largest diamond mine, Jwaneng, a huge hole in the desert, ringed by roads, 200 kilometers north of the capital Gaborone.
Diamondfacts.org says diamonds earn approximately $8.4 billion a year for Africa and most come from Botswana. In Botswana, diamonds contribute 33% of GDP and are mined by a joint venture, between the government and De Beers, called Debswana. The venture also means life.
“For our people, every diamond purchase represents food on the table; better living conditions; better healthcare; safe drinking water; more roads to connect our remote communities and much more,” the former President, Festus Mogae, once said.
As a market leader, Debswana can defend itself by holding on to diamonds to keep prices up. This is one reason why production fell in 2015.
According to the General Manager of Jwaneng, Albert Milton, the mine produced about 11.3 million carats in 2014.
“This number went down by 14 percent in 2015 to nine million carats due to market related conditions. We invested about $2.2 billion in 2010 and we are positive about the outlook.”
The mine aims to more than double diamond production to 20 million carats this year.
The big threat that could dull Botswana’s sparkle comes from competition elsewhere.
The bosses at Jwaneng fear that miners from Zimbabwe, Angola, Namibia, Liberia, Canada and Russia will find more and more. This could loosen Botswana’s grip on supply and with it power over price.
A geological survey found that Russia could supply the world market for the next 3,000 years as there are trillions of carats lying beneath a 35-million-year-old asteroid crater in Siberia, in the east of the country – it has more than 10 times the global stockpile.
Hanns Spangenberg, a Senior Economist at NKC African Economics, says Botswana’s single largest rating constraint is the country’s dependence on the diamonds, which exposes the economy to external shocks.
“Depressed external demand for diamonds has had extreme consequences for the landlocked country, with real GDP contracting by 0.3 percent in 2015, while the government has been forced to record a fiscal deficit in 2015/16 after recording surpluses the previous three fiscal years,” he says.
Spangenberg adds that authorities are well aware of Botswana’s exposure to the diamond sector, and have tried to diversify the economy – the most significant being the Economic Diversification Drive (EDD). They are pouring state coffers into the dairy, textiles and clothing sectors with the hope of creating jobs.
Ahmed Bin Sulayem, the Chair of the Kimberley Process – an organization fighting to stem the flow of conflict diamonds – warned in a statement in February, that the outlook was not convincing for the diamond sales industry.
“[It] will be a challenging year for our industry with continuing oversupply, low commodity prices and tightening liquidity. The social impact of these combining factors is likely to be severe and felt across large parts of the world’s diamond producing regions.”
It seems the story of diamonds, that started with discoveries in 1870, in Kimberly, is far from over.

Diamonds  May Not Be  Forever

Once an epitome of slums, chaos and erosion, Lagos is now home to a new breed of entrepreneurs, creative netizens and socially responsive leaders. They’re dealing with the demons of development, placing their bets on the commercial magic of the city and fomenting plans to benefit from the spasms of a city in search of its soul and a smart future.
With roughly 20 million people, Lagos is Africa’s most congested city, and the gateway to the continent’s biggest economy. Arguably one of the reasons why Nigeria is Africa’s most populous nation, the city and its environs represent the most economically significant aspects of life in Nigeria. According to the UN, Lagos will be the world’s third largest city by 2025, with 25 million people, and will need to provide shelter for 77 million by the end of the century.
Its excruciating population, coastal location and complex political economy, makes it a perfect melting pot, a bazaar of pain and pleasure, an investor’s haven. For a city which welcomes a new arrival almost every minute, Lagos is literally a pressure cooker, an addiction, a habitat for struggling software gurus and literary Lilliputians, a testament to human resilience and surely, its proclivity for concocting fame, fortune, disaster, adventure and adversity.
“Lagos is without a doubt the engine of Nigeria’s economy,” says Niji Adelagun, CEO of IQ Systems Solutions. “The place has always been driven and defined by its constantly evolving demographics, ambition and the quest for identity.”
Lagos is largely responsible for the nation’s burgeoning “lifestyle economy”: the proliferation of leisure and entertainment establishments, art galleries, music dens like Fela Kuti’s Africa Shrine, and Freedom Park, once a colonial jail house and now an open space where art and literary cognoscenti converge for shows, recitals and festivals.
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The gods of the marketplace also like Lagos. Its fabled open-air markets (in Badagry, Balogun, Oke-Arin, Oyingbo and Mile 12) continue to receive bargain hunters from as far as Bouaké in Côte d’Ivoire, Bobo-Dioulasso in Burkina Faso, Banjul in Gambia and Bamako in Mali. Telecoms operators Airtel, Etisalat, Glo, MTN and new entrant NTel all have their head offices in Lagos. The Lagos-based Nigerian Stock Exchange and the activities of financial institutions fuel commerce, manufacturing and job security nationwide.
Among the array of enterprising citizens in this space are Olaide Agboola and Obinna Onunkwo, two ex-bankers who quit their comfy jobs a few years ago to set up Purple Capital Partners Ltd, an investment, private equity and real estate firm. Still in their thirties, they are by no means the wealthiest or most prominent players in their field. They however represent an emerging class of risk taking, empire-building citizenry; a potent can-do spirit so abundant in Lagos.
The Purple Capital duo are helping to reshape the state’s retail, entertainment and lifestyle sectors: financing and developing a boutique hotel, bespoke residential apartments and malls across the state, in the process creating new jobs and rejuvenating the state’s agro-allied, construction, information technology, out-of-home advertising and logistics industries.
Partnering with Stanbic IBTC Bank and AXA Mansard Investments, their flagship project, the Maryland Mall, located in the Maryland district of the state will open later this year. Built at a cost of about $25 million, the development will possibly be the largest investment in retail infrastructure in Lagos by a private firm after Nigeria’s 2015 general elections.
Maryland Mall will have the largest outdoor LED screen in West Africa, cementing the mall’s status as a landmark with a remarkable outdoor character and atmosphere in tandem with world-renowned locations like Times Square in New York, and Piccadilly Circus in London.
Official government data shows that Nigeria attracted over $1.3 billion in investments into its formal retail sector over the last four years. Yet modern malls represent only around 3% of Nigeria’s retail space. As Lagosians welcome the stress-free shopping experience that modern markets represent, affinity to traditional African open-air markets, a cultural inertia to the glitz and glamour of shopping malls, remains strong.
Private, public sector partnerships, improved public administration of state resources and efficient tax administration has given Lagos a healthy balance sheet. It generates up to 67% of its income from within, with monthly revenues growing from $4 million in 1999 to more than $100 million presently.
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The state has the best record for internally generated revenue and is also the largest debtor among Nigeria’s 36 states, with total domestic obligations of N268 billion (about $1.3 billion) as at December 2014, according to the Debt Management Office.
Citizens benefit from this deft management of public resources. A better lit, neater, better managed, safer and friendlier Lagos is emerging. Crime in Lagos in 2015 dropped with police recording 220 murders, 44 armed robbery and 25 kidnap cases. In 2012, state authorities set up Lagos Traffic Radio, Nigeria’s first radio station dedicated to traffic management.
The pervading poverty in the land however competes for space with an urban jungle of mansions, private jets, yacht clubs and an ever-growing presence of sleek automobiles. This contrasting visage is mostly visible in the Ikoyi, Victoria Island and Lekki peninsula areas of the state.
In the foreseeable future, new urban landscapes will rise out of the bowels of the old city. A new airport, petroleum refinery and port will bring life to the Lekki Free Trade Zone in the east of Lagos. And the Eko Atlantic Economic City, a Dubai-style development on land reclaimed from the Atlantic Ocean, will become a reality – concrete evidence of the state’s mega-city status.
With a new marina and 10 million square meters of prime real estate, Lagos’ position as West Africa’s financial capital is secure.
<h1>Barcelona to kick off in lagos?</h1>
In a bid to jumpstart local innovation and boost the productivity of citizens, the Lagos State authorities plan to provide loans to artisans, young entrepreneurs and start-ups via an Employment Trust Fund worth N25 billion (about $125 million).
The city hosted its first marathon in 30 years last February and soon Spain’s Barcelona FC will open a youth academy in Lagos.
“These developments showcase a paradigm shift in the governance of the state. Investors and the entire world are taking note,” says Steve Ayorinde, the state’s Commissioner for Information and Strategy.  He says Lagos State governor Akinwunmi Ambode’s priorities include “expanding the waterways to move more people, working on completing the light rail projects, and engaging the youths through the arts, entertainment, tourism and sports”.
“Lagos has a vibe, you just can’t put your finger on it, imagine I’m still in heavy traffic at 10PM!” says Peju Adebajo, CEO of Lafarge Africa’s cement subsidiary. “It’s everything from the attitude of Lagosians to entrepreneurs, to the unpredictability of the place and the succession of improving governance also means that more and more goods and services are attracted to Lagos despite the high cost, so housing and infrastructure has to develop around it.”
LafargeHolcim, parent company of Lafarge Africa, is working with government agencies and real estate developers to roll out mass housing schemes on the outskirts of Lagos, which technically are in nearby Ogun State. The authorities in Ogun State are keen to leverage their proximity to Lagos, using the New York-New Jersey model as its reference.
“We can’t continue to do mass housing on a bespoke basis anymore, we need to build modern, structured communities; that’s the only way we will begin to plug the huge gap in the housing sector,” says Adebajo.

Where Commerce,  Concrete  And  Culture Collide

It can be tough to get hold of a busy mother; tougher still, when she’s fighting the good fight against corruption and is on the front pages of all the newspapers. Thank goodness for social media.
Many know Thuli Madonsela for her work as South Africa’s Public Protector. Few know she is a single parent with two children Wenzile and Mbusowabantu.
“It’s so difficult to get hold of my mom; I sometimes have to get hold of her through Twitter,” says Wenzile, Madonsela’s daughter.
In 1998, their father, Nhlanhla Mngomezulu, the first Secretary General of the People’s United Democratic Movement in Swaziland, died of a stroke.
“My father was passionate about human rights and movements, that is how he and my mom met. They shared the same passion,” says Wenzile.
We are at the Serious Social Investing Conference, in the Gordon Institute of Business Science in Sandton. Here, Wenzile is engaged in a heated debate with Adam Habib, Vice-Chancellor at the University of the Witwatersrand and Anthony Farr, CEO of the Allan Gray Orbis Foundation.
Her brother Mbusowabantu is also present.
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“At home, she’s not the Public Protector. She is a loving mother; she hurts when we’re hurting. She takes no joy in our pain. The reason I can dream is because of her. She raised us to believe anything is possible and that we can achieve whatever we want,” says Wenzile, wonderfully opinionated and not afraid to speak her mind. Her brother is a soft-spoken environmentalist.
“We come from a home where we live out the spirit of Ubuntu. For example, she sent five children to university because she’s trying to break the cycle of poverty.”
Wenzile says Madonsela is a diplomat. “She likes sugar-coating things.”
What makes her angry? “If you interfere with her territory, she bites. But she doesn’t lose her temper,” says Wenzile.
According to Madonsela’s son Mbusowabantu, deception is what annoys Madonsela the most.
The 24-year-old Wenzile is following in her mother’s footsteps, studying towards a degree in law at the University of Pretoria and is also Secretary General of the Economic Freedom Fighters (EFF) at university.
“I feel like we can’t live in a false paradise, we need to redress past injustices before dealing with current ones.”
Big on black consciousness, in 2015, Wenzile decided to enter politics, a decision Madonsela supported.
“In terms of harnessing my dreams, whether through the ANC or EFF, she supports me. As long as it resonates with my identity and vision… she invests in our dreams. She used to be a communist herself.”
In February 2011, controversy loomed at the Madonsela household, when Mbusowabantu, crashed her BMW X6, a state-owned car into a garden wall on Lucky Bean Crescent in the center of Pretoria, after allegedly attempting to avoid a dog on the road.
“If we do something wrong, she doesn’t defend us&#8230; When she heard about the car, she told me to take responsibility for my actions.”
“My mother is socially awkward. She is always discussing work, philosophy and politics. She finds it difficult to converse with a stranger,” says Mbusowabantu.
“I am still finding myself and identifying with the circumstances of being the Public Protector’s daughter. I have to be careful of what I do even though sometimes it’s harmless to me,” says Wenzile.
Mbusowabantu hopes Madonsela’s successor will have the integrity his mother has.
So does South Africa.

Tag: June 2016

FORBES AFRICA SOCIAL MEDIA

The Junk Dunk

From The Alps To The Hills

Diamonds May Not Be Forever

Where Commerce, Concrete And Culture Collide

‘I Sometimes Have To Get Hold Of Her Through Twitter’