South African power utility Eskom cut electricity for a fourth straight day on Wednesday, as the department of public enterprises warned the struggling state-owned firm needed a cash injection by April to survive. 



Eskom, which supplies more than 90 percent of the power in Africa’s most industrialized economy but is laden with more than $30 billion of debt, is battling a shortage of capacity that threatens to derail government plans to lift the sluggish economy.



President Cyril Ramaphosa said last week that the government would support Eskom’s balance sheet but said details would be announced in a budget speech by the finance minister on Feb. 20.



The department of public enterprises, which oversees Eskom, said in a presentation to parliament that Eskom was technically insolvent and would “cease to exist” at the current trajectory by April, unless it gets the bailout. The minister, Pravin Gordhan, however, ruled out privatization of the utility.



The department also said Eskom was struggling to keep its mainly coal-fired plants running due to coal shortages and poor maintenance, with 40 percent of breakdowns a result of human error.



The cash-strapped company said it would cut 3,000 megawatts (MW) of power from the national grid from 0600 GMT on Wednesday, likely until 2100 GMT. This follows a similar cut on Tuesday and 4,000 MW on Monday in the worst power cuts seen in several years that drove the rand currency down on Monday. The rand was slightly firmer against the U.S. dollar on Wednesday.



Around a third of Eskom’s 45,000 MW capacity was offline on Tuesday.



The power cuts are prompting frustration among ordinary South Africans, with traffic gridlock in major cities during rush hours as traffic lights stop working and switched-off fans leave office workers sweating in the summer heat.



Business owners with no access to backup power sources have also been hit.



“We’re struggling,” said Eunice Mashaba, a manager of a textile shop north of Johannesburg who said he had to close the shop early on Tuesday because most customers do not carry cash but have to rely on debit or credit cards for payment.



Ramaphosa announced a plan last week to split Eskom into three separate entities in an effort to make it more efficient as he tries to lift the economy before an election in May, but faces opposition from powerful labor unions and from within his ruling African National Congress party. -Reuters



-Olivia Kumwenda-Mtambo and Wendell Roelf

View of electric pylons in Randburg, viewed from Republic Road, Johannesburg, Gauteng, South Africa.

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

WEF Africa 2017 was a story of foreign investors, growth and grey business suits. It also held the tale of two finance ministers. Rarely have the economic politics of the host nation loomed so large over one conference.
The reshuffling of steady-as-she-goes Finance Minister Pravin Gordhan for young, untested, Malusi Gigaba prompted a downgrade to junk status for South Africa and reverberated throughout the conference in Durban.
“I am young, I have energy for days,” says the younger of the two as he strides confidently down the walkway. Forty-five-year-old Gigaba almost shines when you look at him, like has been varnished. He has his skinny suits made for him – for about $1,600 a pop – by Johannesburg designer Linda Makhanya and wears snazzy glasses. He may have a long way to go to become the greatest finance minister South Africa ever had, but is certainly the most snappily dressed from day one.
Gigaba, fresh from an investment roadshow to New York, Washington and Boston, faces another long haul to drag South Africa clear of damaging junk status and economic decay that will drive capital away from the country.
“He is a bright guy, give him a chance,” says Maria Ramos, the CEO of Barclays Africa.
The man himself bridles at the suggestion that he is too inexperienced for the job. He says, with 13 years under his belt, he is one of the most experienced in cabinet who served in the economic cluster when public enterprises minister.
“I think as soon as he can be on top of the numbers and speak the language of the numbers he will be able to work with a very good team at Treasury,” says Lesetja Kganyago, the Governor of the South African Reserve Bank.
It is Gigaba’s difficult job to stave off another downgrade by the ratings agencies, which could come in a matter of weeks, restore confidence, promote investment and create what he calls inclusive growth – fashionable buzz words in cabinet right now – at a time when any kind of growth would be welcome.
“You need to change the patterns or structures of ownership, of the South African economy, so that black people don’t become only employees and get limited to being a middle class, but you create asset owners,” he says.
<div id="attachment_31403" style="width: 1034px" class="wp-caption alignleft"><img aria-describedby="caption-attachment-31403" decoding="async" loading="lazy" class="wp-image-31403 size-large" src="http://www.forbesafrica.com/app/uploads/2017/06/GettyImages-661435026-1024x684.jpg" alt="" width="1024" height="684" srcset="https://cms.forbesafrica.com/wp-content/uploads/2017/06/GettyImages-661435026.jpg 1024w, https://cms.forbesafrica.com/wp-content/uploads/2017/06/GettyImages-661435026-300x200.jpg 300w, https://cms.forbesafrica.com/wp-content/uploads/2017/06/GettyImages-661435026-600x401.jpg 600w, https://cms.forbesafrica.com/wp-content/uploads/2017/06/GettyImages-661435026-768x513.jpg 768w" sizes="(max-width: 1024px) 100vw, 1024px" />Former Finance Minister, Pravin Gordhan</div>
Nationalization – a word that sends foreign investors running for the hills – is off the table for now.
“You don’t nationalize shrinking economic sectors in a shrinking economy. We are not talking about that. The ANC itself, as the ruling party, has been clear on that; South Africa is a mixed economy.”
With corruption allegations swirling around government, the new minister’s public position on it could be seen as comforting.
“If we allow corruption to become rampant it actually creates a trust deficit between the public representatives as well as the public. And it makes it difficult for us when we have to take tough decisions to earn loyalty and support from the public. And so I am committed in doing everything that we have to do and can to fight corruption and ensure that we are running a clean country.”
Also at WEF Africa was the more soberly dressed Gordhan who looked a little down and had every right to be. He had worked tirelessly for 14 months to put the economy back on to an even keel before being dragged back from an investment roadshow in London to be reshuffled ruthlessly; he found out he had been fired in the newspapers.
“What has happened has happened we can’t mourn over those things. There could have been a more dignified way in which some of those ways could have been done and it was not just me, many  colleagues were part of this process as well and if we begin to lose our sense of dignity and decorum that is not a very good sign,” he says.
It did not rob him of all hope.
“We have had assurances that the policy framework that the government has adopted will remain in place. The world of course is still an uncertain place and whilst there were still green shoots in our economy and globally there is an element of uncertainty that come in either of geo-politics on the one hand or domestic politics and economics on the other hand as well. I am not apprehensive, I am hopeful but hope must be based on some real actions that are taken,” says Gordhan.
“We have to all focus our attention on our best to get the country going, not in the interest of a few individuals, but in the interest of the 50 million people we are here to serve.”
Gordhan had a rough ride as finance minister after climbing back into the saddle in December 2015 following a clumsy reshuffle that saw three finance ministers in four days. He spent most of his second stint in the shadow of the sack or trumped up charges in court.
Even outside cabinet he was under unfriendly fire. Hotheads from the ANC youth league heckled him at a memorial service – yes, I said memorial service – for party stalwart Ahmed Kathrada in Durban. Catcalls from youths for a man who spent the best part of a year in solitary confinement for their freedom to do so.
“I think if you lack a sense of history, if the younger people are not educated about the past and don’t wish to be educated. Thirdly if you practice the politics of renting a crowd you will end up with that sort of denigratory behavior and you have to just forgive them for their ignorance,” says Gordhan before giving a warning.
“Many of us have said that if you carry on at the current rate then the ANC will lose the 2019 elections and we don’t want that to happen.”
A dignified political epitaph for a man likely to end nearly half a century of fighting the good fight by quitting politics. He says he will discuss this with his family and surely they’ve had enough by now.
As for Gigaba; people can often become what the times demand. Many expect him to do what he is told, but maybe the unexpected power bestowed upon him could see him make landmark decisions for the good of the economy with insight as sharp as his tailored suits. If only.

SAFRICA-ECONOMY-WEF

A Tale  Of Two Ministers

On April 3, the rating agency Standard &amp; Poor’s Global (S&amp;P) downgraded South Africa to junk status following the reshuffling of several cabinet ministers, including finance minister Pravin Gordhan and his deputy Mcebisi Jonas. President Jacob Zuma’s reshuffling received mixed reaction from the people, but even worse, the downgrade that followed rocked the country’s markets. And more was to come; four days later, Fitch Ratings announced the second downgrade.
Azar Jammine, Chief Economist at Econometrix, says the downgrades can hurt the economy in three ways.
<div id="attachment_5619" style="width: 310px" class="wp-caption alignleft"><img aria-describedby="caption-attachment-5619" decoding="async" loading="lazy" class="wp-image-5619 size-medium" src="/wp-content/uploads/2017/05/march-047-300x201.jpg" alt="" width="300" height="201" />Zuma must fall protest</div>
“When business confidence is low, businesses don’t invest in capital formation. If you reflect on what happened in 2016, the economic growth rate was just 0.3% but when you look at the breakdown thereof you see that consumer spending grew by nearly 1%, government spending grew by nearly 2%, exports exceeded imports, so why was growth why so low? The answer is because capital investment fell by 4%, and one fears that we are going to see more of this going forward,” he says.
“People are focusing a lot on the impact on the rand, but in fact that’s neither here nor there. All that happened thus far the rand has retraced some of the gains that it made in January and February. At this current exchange rate, the impact in boosting inflation and interest rates will not be too severe. What is has done is to get rid of any hope of a cut in interest rates, and to that extent has dampened the business confidence.”
“The third way in which downgrades are likely to impact negatively is through the increase in the long-term interest rate which is going to raise government’s cost of servicing its debt. Government and parastatals have to borrow R260 billion ($19 billion) or about 5.5% of GDP in the coming year. Now, already, long term interest rates have risen by 50 basis points and the impact on cost of servicing debt in the longer term will be substantial, around R15 billion ($1.1 billion) to R20 billion ($1.45 billion), which will be taken away from the ability of government to spend on all sorts of vital areas of infrastructure and social requirements.”
Jammine isn’t writing off any possibility of a third downgrade from  credit rating agency Moody’s. He doesn’t expect to see improvement under the new Minister of Finance, Malusi Gigaba, who has little experience in finance.
“If the new minister carries on the way he has about the radical economic transformation, then that dashes the hopes of credit agencies regarding adherence to fiscal discipline. The moment you have that, the ratings agencies are going to downgrade you, and that’s a big concern. If S&amp;P and Moody’s local currency debt decline to junk status, then South African government bonds will fall out of the Citigroup World Government Bond Index.”
Iraj Abedian, an economist and CEO at Pan African Investments and Research Services, also has doubts about Gigaba.
<div id="attachment_5618" style="width: 310px" class="wp-caption alignleft"><img aria-describedby="caption-attachment-5618" decoding="async" loading="lazy" class="wp-image-5618 size-medium" src="/wp-content/uploads/2017/05/march-17-300x201.jpg" alt="" width="300" height="201" />Zuma must fall protest</div>
“He’s been a weak leader in the ministries he led before and his current comments on the downgrades have been contradictory. It seems he doesn’t understand the gravity of the problem, he has little time to allow himself to learn basic economics, but we can hope he transforms himself for the benefit of the country and the people,” he says.
Abedian says South Africa can return to normality within five years only if Gigaba doesn’t listen to clueless politicians and rather pays attention to the markets’ demands.
Jammine, however, says we haven’t seen the worst yet. There’s a huge burden on Gigaba to try and convince the markets that he’s not going to go crazy with government spending. He fears the new minister doesn’t understand the implications.
“First, he said you don’t go and downgrade a country just because of the change of one person, and then after that he said he knew about the downgrade, so the statements were totally contradictory. In the same way, he says we are going to be committed to radical economic transformation and then argues that we are committed to fiscal discipline, this also tends to be contradictory.”
If the minister cannot heed to the advice of economists, there’s a risk of a long spell of recession and social upheaval as the living standards of ordinary people in South Africa deteriorates, says Jammine.
Ordinary South Africans are aware of the damage that Zuma’s reshuffle has done. More than 100,000 marched on the streets to show the president their displeasure.
“It’s bad news as the people started to ask whether South Africa is going the route of Zimbabwe or Venezuela, for example,” says Jammine.
“What you have right now is a huge divide between what the president himself has termed ‘clever blacks’ and white monopoly capital, who are seen to do all this to benefit themselves. They are being accused of making a big brouhaha about the ratings downgrades in order to persuade people the impact would be bad for the poor. The reality is that it would be worse for the poor than the middle [and] upper income groups because a fall in the value of the rand tends to push up the share prices of the companies listed on the stock exchange that have huge investments overseas. Secondly, higher interest rates improve the returns on pensions people hold. So pensioners and those who have a lot of shares will do well out of this.”
The South African Reserve Bank Governor Lesetja Kganyago lambasted politicians who questioned the credibility of rating agencies when they should be taking the people into their confidence.
“We are going to engage the credit ratings on their own terms. When you lose your investment grade ratings, your government is going to pay more to raise debt and when your government does that, your banks are going to pay more to raise debt and they will pass those costs to businesses and household and then it doesn’t become nice. It is going to affect the poor and the middle class who rely on credit,” says Kganyago at the monetary policy forum.
Jammine agrees the poor will suffer from this as there will be job losses and rises in inflation. So, what can the government do?
“The best thing the government could do is reinstate Pravin Gordhan and Mcebisi Jonas, or to put someone in Gigaba’s place. Gigaba has a very poor reputation in the way he managed the ministries of public enterprise and home affairs previously.”
“You may shout about the credibility of the agencies until the cows come home, the fact is the international investors do pay attention to these credit rating agencies… you can try and pretend they don’t count, but they will cost you a lot of money.”
Despite the upheaval seen on the streets, it is not the first time South Africa has faced economic meltdown and certainly won’t be the last. In 1994, the new government inherited a treasury with huge amount of debt that rose sharply as a result of a massive increase in defence spending.
<div id="attachment_5624" style="width: 310px" class="wp-caption alignleft"><img aria-describedby="caption-attachment-5624" decoding="async" loading="lazy" class="wp-image-5624 size-medium" src="/wp-content/uploads/2017/05/AnitZumaMarch_JC-3-300x200.jpg" alt="" width="300" height="200" />Zuma must fall protest</div>
“Nelson Mandela and his minister of finance that he appointed in 1996, Trevor Manuel, realized that the only way to get back on course was to actually cut back on government spending rather than increasing on populist needs. That restored a lot of confidence in the South African economy but it took a long while. But it was only after the 2001 crisis that South Africa’s economy started picking up, but we did see credit ratings gradually improving and Standard &amp; Poor’s actually put us on investment credit rating for the first time,” says Jammine.
It is said that one of the reasons the Gordhan was fired was that he defied Zuma’s wish to commission Russia to build a $70-billion nuclear plant in South Africa.
“That is also why people are concerned the President appointed Gigaba instead of Pravin – in order to sign a nuclear deal. The fear with the nuclear deal is that it will cost R1 trillion, that it will be unaffordable. Our total public debt is R2 trillion and it will increase our debt in one fell swoop 40% to 50%, something that will stifle the ability to spend on everything else. What is particularly worrisome to people is why there is this dramatic desire to embark upon a nuclear deal? There are strong suspicions, as has been the case with other smaller projects that the president is personally involved with, that the Russians are paying him to get this deal through,” says Jammine.
This time, the president may have overplayed his hand. South Africans of all colors and creeds united to defy him.
President Zuma Bites Back
<div id="attachment_5617" style="width: 610px" class="wp-caption alignnone"><img aria-describedby="caption-attachment-5617" decoding="async" loading="lazy" class="wp-image-5617 size-medium" src="/wp-content/uploads/2017/05/GettyImages-667743392-300x200.jpg" alt="" width="600" height="400" />Presidents Jacob Zuma&#8217;s Birthday Celebration</div>
While tens of thousands protested outside at the gates of the Union Buildings in frustrationon april 12, President Jacob Zuma ate cake – after all, it was his 75th birthday.
Eighty kilometers away from the crowds chanting down his name, Zuma celebrated in Kliptown, Soweto – the place where the Congress of the People drew up the guiding Freedom Charter in 1955 – with dancing, singing and speeches.
&#8220;Do not be fazed by people who are saying we are marching, we are marching, today was declared a national day of action. What is it? Zuma must go. What has he done? He is not running the country properly, he must go. You can&#8217;t even pick up the essence for the protest, it&#8217;s complicated to be the opposition. I am trying to put you at ease because if they don&#8217;t protest they wouldn&#8217;t be the opposition,&#8221; says Zuma in Zulu, his mother tongue.
&#8220;Don&#8217;t let the opposition make decisions on your behalf; you would have lost your way, because regardless of who the next leader is they will never be satisfied.&#8221;
Sitting next to him in a lavish armchair were some of his closest allies – Deputy Secretary General of the ANC Jessie Duarte, Water and Sanitation Minister Nomvula Mokonyane and Social Development Minister Bathabile Dlamini.
Zuma seemed unconcerned that key figures of the ANC were absent, among them the likes of  Deputy President Cyril Ramaphosa, Secretary General  Gwede Mantashe, and Treasurer General Zweli Mkhize.
The president chose to send a clear message to those who have been calling for him to step down. He said he would be willing to do so if called upon by the ANC.
&#8220;Even if you said tomorrow I should step down from my duties, I will gladly do that with a pure heart, but what I want to tell you my leaders is that I will be ANC until the day I die.&#8221;
It is not the only event in which Zuma has shrugged off opposition. Two days before, at the Chris Hani wreath laying ceremony in Thomas Nkobi Memorial Park, east of Johannesburg, he criticized the 60,000-strong national march on April 7.
&#8220;There is a resurgence of racism in our country… Many placards and posters displayed beliefs that we thought had been buried in 1994, with some posters depicting black people as baboons. It is clear that some of our white compatriots regard black people as being lesser human beings or sub-human,&#8221; he said.

One Decision, Many Repercussions, Millions Angry

South Africa’s President Jacob Zuma desperately tried, but failed, to block the release of the public protector’s report that implicated him, several politicians, and state-owned enterprises, in the so-called state capture saga.
In the same week that controversial fraud charges against the Minister of Finance Pravin Gordhan were dropped, the president and two of his ministers were dealt with a sickening blow by the North Gauteng High Court in Pretoria. On November 1, Judge Dunstan Mlambo struck off the roll the application of the Minister of Cooperative Governance and Traditional Affairs, David van Rooyen. Minister of mineral resources, Mosebenzi Zwane, and Zuma also failed to have the report interdicted. Zuma’s lawyers withdrew their application and the judge ordered the office of the Public Protector to release the report in a few hours.
The report implicated Zuma, several ministers, and some businessmen, in colluding in state capture with the Gupta family. Brothers Ajay, Atul, and Rajesh Gupta, from India, have numerous business interests in South Africa.
Former Public Protector, Thuli Madonsela, had planned to release the report on October 14, her last day in office, but Zuma’s lawyers applied for an interdict to prevent the report being released.
In a television interview soon after the state capture report was released, former South African president, Thabo Mbeki, said he believes Zuma will respect the law.
“I would like to imagine the president, like everybody in the country, would take the report seriously, study it as the presidency has suggested. Study it closely with the view to taking whatever action might be necessary. I don’t know what it would be, but it must be based on assessment of what the Public Protector has said and the implication of those statements if they are indeed correct,” said Mbeki.
In 2005, Mbeki suspended Zuma, who was the Deputy President at the time. Zuma was accused of having a corrupt relationship with his former financial advisor, Schabir Shaik. Although the charges against Zuma were dropped, Judge Hilary Squires found the two had a “generally corrupt relationship” and Shaik went to prison.
Zuma dodged serious charges then. Will he be able to repeat the trick after the state capture report? The Public Protector stated that Zuma must appoint a judicial inquiry within 30 days to investigate the allegations. Zuma, however, says he plans to go back to court to challenge the report. He says it is inconclusive and needs to be reviewed by him.
Prince Mashele, a political analyst and senior researcher at the Centre for Politics and Research at the University of Pretoria, says the African National Congress (ANC) missed a golden opportunity to fire Zuma when the Constitutional Court ruled he had misused state funds to upgrade his Nkandla homestead.
“The report is a clear indication that South Africa is run by a corrupt government and people who join politics to enrich themselves at the expense of citizens. This is a simple message to the rest of the world that we are no different from the rest of the continent. This doesn’t put us in a positive light. During the tenure of Presidents Mandela and Mbeki we gave the impression that we were different, but Zuma has confirmed the stereotypes that we cannot run our countries,” he says.
Mashele says he cannot imagine the ANC repairing its dented imagine before the national elections in 2019.
“The ANC is doomed. They can only go down. Come 2019, if they are winning the elections, they can only do that with a small margin. They have been constantly losing the people’s support. I won’t be surprised if the people dump them for the opposition,” says Mashele, is the author of The Death of Our Society and co-author of The Fall of the ANC: What Next?.
Scathingly, Mashele says we must all thank Zuma for revealing our true African character, that the idea of the rule of law is not part who we are, and that the constitution is a concept far ahead of us as a people.
“How else are we to explain the thousands of people who flock to stadiums to clap hands for a president who has violated their country’s constitution?”
“Now that we have reclaimed our place as another African country, we must reflect on, and come to terms with, our real character and imagine what our future portends,” says the despondent Mashele.
Unless a credible and independent investigation into the state capture allegations takes place, that future could be bleak.

Backed Into A Corner But Still Throwing Punches

In the space of few days, just before South Africa’s Finance Minister, Pravin Gordhan, was to appear in court on charges of fraud, the reputations of President Jacob Zuma and the country’s National Director of Public Prosecutions, Shaun Abrahams, were dealt damaging blows.
In an impromptu press conference on October 31, a day of Halloween that might haunt Abrahams for years to come, the National Director of Public Prosecutions announced that he was withdrawing the charges against Gordhan, along with those against two former employees of South African Revenue Services (SARS), Ivan Pillay and Oupa Magashula. From the word go, many suspected the charges were trumped up and politically motivated.
In a long-winded speech at the NPA’s headquarters in Pretoria, Abrahams was nervous as he fielded scathing questions from the media. It was a far cry from the man who seemed self-assured as he announced the charges less than a month before. While Abrahams was confident then, his actions sent shivers down the spines of investors. The markets plunged and the rand fell more than 3% in few minutes. It was just two weeks before Gordhan delivered his mid-term budget speech.
It raised questions about the leadership of Abrahams, who is in charge of National Prosecuting Authority (NPA), and Zuma, who appointed him.
“When you are in a situation like we are in at the moment, you need leadership in government. At the same time, get the timing right. Leadership, in this particular instance, is needed to inspire confidence. Confidence in your country, confidence in a future and confidence in yourself, that you can influence the present to change the future. That is what is missing at the moment. Some of us are trying, some of us are close. I think we can do it,” said Gordhan during an interview with CNBC Africa a week before the trial was to begin.
On November 2, the day Gordhan, Magashula and Pillay were meant to appear in court, the High Court in Pretoria ordered the Public Protector to release the report on state capture, despite attempts to interdict its release by Zuma, Cooperative Governance and Traditional Affairs Minister David van Rooyen, and Mineral Resources Minister Mosebenzi Zwane. All three are implicated in the report which raises questions over the influence of the Gupta family on the president, ministers and state-owned enterprises.
Members of the Economic Freedom Fighters (EFF) marched in Pretoria demanding Zuma and Abrahams resign.
In Pretoria, shops closed their doors for fear of looting. The only people making money were those selling food and EFF merchandise in the streets.
<div id="attachment_5493" style="width: 310px" class="wp-caption alignleft"><img aria-describedby="caption-attachment-5493" decoding="async" loading="lazy" class="size-medium wp-image-5493" src="/wp-content/uploads/2017/05/GettyImages-532201724-300x200.jpg" alt="" width="300" height="200" />img_8932.jpg</div>
An EFF branded truck entertained the supporters with music as a group danced and sang revolutionary songs at Church Square. Later, while addressing thousands of his supporters, EFF President, Julius Malema, lashed out at Zuma‚ saying that he’s “the country’s number one thief who sold it to the controversial and well-connected Gupta family.”
“We are putting a very strong argument that Zuma must pay the cost personally. We want to teach Zuma’s Mickey Mouses a lesson because these ministers are doing as they wish and they take matters to the court knowing that they won’t be affected,” says Malema.
“All those who captured the state of our institution must go. The CEO of [national power supplier] Eskom must go because he doesn’t have a place in our institution and that includes everyone else in government-owned companies who are controlled by the Guptas, if you can’t resign from the Guptas now; you’re going to be history. The Guptas must leave South Africa.”
The marchers dispersed while chanting: “Zuma the thief must voetsek (go)” and “Defend the democratic state”. Chaos erupted as they blocked traffic around the central business district. Police attempted to control the crowd after they burned a water tank.
The crowd ran amok and damaged property and looted shops. They assaulted the security who was trying to protect shops. The police used stun grenades, rubber bullets and water cannons to disperse the supporters after they reportedly tried to force their way onto the lawns of the Union Buildings.
In these few days, where chaos erupted in parliament, court and the street, South Africans were assured that the law will always trump political shenanigans. As Gordhan was able to hold his head high, Zuma and his cronies had to take cover and plot their way out of the mess they suddenly find themselves in.

‘Zuma The Thief Must Voetsek’

In a week of tumultuous South African political news, as Finance Minister Pravin Gordhan’s battle with the National Prosecuting Authority came to a head, a crucial infrastructure story broke to little fanfare.
The South African Forum for Civil Engineering Contractors (SAFCEC) announced that under its auspices, most of the major listed construction companies reached an historic, unique and far-reaching voluntary agreement with the South African government.
The signing of this settlement ends years of dispute between the construction companies and government following findings of collusion by the Competition Commission investigation launched in 2009. The agreement commits the parties to chart a new future co-operative trajectory underpinned by measurable commitments to empowerment and transformation.
Collectively, the construction companies will make a combined contribution of R1.25 billion ($87.5 million) over 12 years into a trust fund to be controlled by a board of trustees appointed from government, the construction companies and SAFCEC. Each year, individual companies will pay between R15 million ($1 million) and R21.25 million ($1.5 million).
This voluntary contribution is in addition to the R1.46-billion ($100-million) penalty imposed by the Competition Commission Tribunal on some companies in 2013.
The trust will use the payments to develop and enhance the construction industry in line with government’s transformation goals and to develop emerging contractors and suppliers in South Africa.
Initiatives to be supported by the fund will include financial support for young trainee artisans and engineers from disadvantaged backgrounds, support for the teaching of maths and science at public schools, funding for social infrastructure and the development and promotion of construction companies owned and managed by black people.
The funding will also be used for the appointment of professionals to provide the government with engineering, project management and other services to strengthen its capacity to deliver the public infrastructure.
Combatting large-scale collusion and corruption, opportunities for South African companies in infrastructure projects elsewhere on the continent will be identified.
The construction companies have also individually undertaken to either develop up to three emerging black-owned businesses or dispose of a portion of their South African basic construction businesses to majority black-owned enterprises.
The agreement provides a framework for settlement of claims by the industry regulator, the Construction Industry Development Board (CIDB), as well as civil claims by public entities against companies investigated by the Competition Commission.
The positive implications of the Competition Commission extend beyond South Africa’s borders. The investigation was active in other territories and being watched across Africa and the rest of the world. Foreign competitors gained ground in these markets because our construction groups were not supported by the South African government until a resolution was found.
That is all set to change now and perhaps South Africa can hunt as a pack and claw back markets and jobs for the benefit of people and suppliers in those territories and within South Africa.
Those who have followed my column will have noted my consistent call for an end to the destructive standoff between the South African government and the construction industry. In my latter years as a CEO in the industry, and now in retirement, I have been committed to resolving the industry’s future and was a member of the CEO group who helped craft the early foundations of this voluntary resolution program. I recall many late evenings driving back from ministerial meetings in Pretoria and intensive debate and strategy sessions within SAFCEC. Important stakeholders from black business, who will likely significantly benefit from this agreement, were included.
Simultaneously with this announcement came an uptick in the project outlook for gold, the announcement of two big private sector coal power plants, and momentum on nuclear power.
“Through the transformation commitments in the agreement, we can rebuild the relationship with the companies concerned and work in partnership in future,” says Gugile Nkwinti, the Minister of Rural Development and Land Reform, as well as the Chairperson of the Management Committee of the Presidential Infrastructure Coordinating Commission.
“This arrangement also demonstrates the commitment to a transformed, transparent and ethical industry, which has a major role to play in delivering much needed infrastructure,” says Webster Mfebe, the CEO of SAFCEC.
I was thrilled to learn of the successful conclusion of this agreement. It took seven years, but the benefits might be felt for decades to come.

Burying the hatchet  for a brighter future

In the build up to the furore over Pravin Gordhan, the African National Congress (ANC) delivered a slap in the face to scores of its biggest names who endured prison and faced death to put the party into power. It spoke of a yawning gap between the principled roots of the party and its current remote and embattled leadership.
Sixty five ANC stalwarts wrote a letter to the General Secretary of the ANC, Gwede Mantashe, addressed to President Jacob Zuma and the top five in the leadership, castigating the ruling party and calling for change in way it runs.<img decoding="async" loading="lazy" class="alignleft size-medium wp-image-5364" src="/wp-content/uploads/2017/05/RZ8F0590-300x286.jpg" alt="" width="300" height="286" />
The letter, in the possession of FORBES AFRICA, was signed by scores of the biggest names in African liberation politics, including three survivors of the so-called Rivonia Trial in 1964 who faced death with Nelson Mandela in 1964. Ahmed Kathrada, Denis Goldberg and Andrew Mlangeni were all found guilty, with Mandela, of sabotage and spent a lifetime in prison.
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Other signatories to the letter:  former Reserve Bank Governor Gill Marcus; former Director General of the Presidency of South Africa Frank Chikane; former Finance Minister Trevor Manuel; former Trade and Industry Minister Alec Erwin; former Speaker of the National Assembly Frene Ginwala; and former ambassador to London Cheryl Carolus.
“We have observed the ill-begotten wealth among some of our leaders at all levels and the resulting ruinous effects on the organization’s moral and political fabric and on society as a whole,” says the letter.
“We have watched as the leadership of the ANC became mired in a cycle of in-fighting occasioned not by any ideological or political difference but personal interest. We believe that many of the factors outlined have contributed significantly to the political assassinations to which we are sadly becoming accustomed.”
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The letter calls upon the president and the leadership to acknowledge its shortcomings, including failing to act against corruption, nepotism and factionalism.
In reply, on October 3, came a standard letter that astonished many party stalwarts.
The letter, signed by Mantashe, asked why the concerns were not coming through the structures of the ANC. It included the following questions of people who had been loyal members of the movement for more than 50 years.
Which branch of the ANC are you currently a member of?
What has caused you to mobilize a group of 65 comrades outside of the structures of the ANC?
Please advise us of who, if anyone, has paid for the costs of the mobilization of your group?
Please provide a brief summary of your understanding of the objectives of the group?
Many of the ANC veterans on the list were flabbergasted at being brushed off in such a manner and vowed to take the matter further; yet another rift likely to cause conflict and ructions in Africa’s oldest liberation movement.

A Slap In The Face Comrade

It was a warm day for winter in Pretoria when I arrived to interview South Africa’s Finance Minister Pravin Gordhan, the man with one of the toughest jobs in African finance. He has to make cuts, balance the books, to stop the mighty South African economy falling over the cliff. This, following the crazy days of uncertainty in December when South Africa sacked Nhlanlha Nene; installed unknown Des van Rooyen; before retreating to the safe hands of Gordhan – finance minister between 2009 and 2014 – to steady the markets and resuscitate the currency. You could argue that a finger of one of those safe hands is in the dyke.
As the shafts of mid-morning light shone through the tall windows in the finance minister’s office, in the granite Treasury headquarters, it was getting warmer, but not as warm as the seat where Gordhan now sits.
In June, Gordhan helped South Africa stave off a downgrade, by the rating agencies, to junk status. If South Africa can show growth, prudence and greater fiscal discipline, it may escape a downgrade yet again at the end of the year.
The week of the interview was not a good one for growth in South Africa; it had just shown negative growth of -1.2%. Yet Gordhan, who chose his words very carefully, appeared more bullish than the economy.
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<h4>Forbes Africa: It’s been a rollercoaster six months, how are you holding up?</h4>
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Gordhan: I am used to rollercoasters in my life, so this is one more. This one has been very rewarding because the efforts that government has put in to join forces with business and labor have paid off as far as the first phase of our battle to remain outside of sub investment grade has been won. And largely through the joint efforts of all of us; and now we start the journey into the next five months which is a period where we must deliver on some of the things we have committed ourselves to. I am confident that as a country we will begin to do that because some of that momentum has already been building up.
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<h4>Forbes Africa: You avoided the downgrade to junk status; a lot of people are still saying the country has merely postponed it for another six months. How likely is that?</h4>
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Gordhan: It’s true that we have postponed it but you can’t call it mere postponement when you were about to fall over. Not falling over is a major and important victory for all of us; so it’s a question of  who is the narrative being created by; people who believe in a half full glass or a half empty glass… We still have investments coming in, we have kept to our fiscal targets and we will continue to actually do so. We will unite the key role players in this country behind the common program and we have got a few months to demonstrate we are capable of doing it. We have a clear program in terms of reforming key parts of this economy and making sure some of the key constraints are now taken out of the way.
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<h4>Forbes Africa: Look at the latest data and the economy contracted for the first quarter by 1.2%. Does that make your target that much harder to achieve? How much reform are we going to have to go through for the next five months to ultimately head for that 2% target?</h4>
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Gordhan: I set the 2% mark largely by saying we are going to get moving in the right direction. We all know that in terms of the National Development Plan, we ultimately want to move into the 5% terrain.
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<h4>Forbes Africa: Another question people are asking, as you know, civil service is about 50% of your budget, maybe less than that but it’s still a lot, I was with a lot of financial journalists last night and they were saying why doesn’t the minister cut civil service and save?</h4>
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Gordhan: How many more unemployed people do you want? Firstly, the cost of compensation is about R460 billion ($30 billion), currently that is about 37%, which is high. In the budget, we have said that we are now going to certain measures to start cutting that expenditure. Vacancies not being filled and the most recent report, that we have received from provinces, where a bulk of teachers and health staff are employed is very encouraging.
<h4>Forbes Africa: The ratings agencies have also stated that the risk of political instability, especially on the lead up to the August 3 municipal elections, could affect the economy.</h4>
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Gordhan: Elections happen as part of a democratic society in South African and elsewhere… We are nowhere near disruption but what we do require is for political leaders to recognize that there is a relationship between the way we conduct ourselves politically and the confidence in our economy that we create and today we live in a world where politics and the economy are closely related whether it’s here, Brazil or anywhere else in the world. The prospect of a particular candidate winning the elections in the Unites States is also giving people a wake-up call.
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<h4>Forbes Africa: You definitely can’t forecast the rand and I think that’s the problem right now; small businesses out there are saying they just need to know that there is some stability in the currency.</h4>
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Gordhan: Currency volatility is something that nobody has control over. There are mega forces and dynamics in the globe that influence what happens to a currency as much as there are domestic factors as well, so, look at what’s happening to the pound, so every day that something happens to the dollar, something happens to the rand which are not necessarily related to domestic considerations as well.
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<h4>Forbes Africa: In your efforts to reduce debt and cut expenditure, what kind of painful cuts do you think this country may be looking at in the next six months?</h4>
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Gordhan: We have made the cuts for this year and we have to look hard to find money for a zero increase for student fees, finding money for our subscription to the BRICS New Development Bank, and a few other items that need to be financed both as a result of expenditure cuts and managing the tax side. We have indicated, very transparently, that in the coming two years, we have to find R15 billion (around $1 billion) each year, either from the expenditure or the tax side.

The Finance Minister In The Trenches

Last month I suggested that the South African government is unsure of which route to follow to find a shared strategy with the private sector to deal with the infrastructure backlog preventing the region’s progress.
Has the ruthless march towards recession, higher unemployment, coupled with the prospect of credit ratings downgrades and potential changes in voter sentiment, finally struck home?
Finance Minister Pravin Gordhan’s recent bellwether meeting with 60 CEOs reminds me of the Union Buildings meeting I attended after South Africa successfully hosted the 2010 World Cup. The President and most of the Cabinet met with business in high spirits to reinforce the need to harness the collaborative momentum that had delivered so well.
Will the economic crisis that has followed the inaction and ineptitude after that euphoric session finally galvanize government and business into action?
Economic revival will not be achieved without massive investment in infrastructure and it cannot be delivered effectively without collaboration between the public and private sectors at the highest level.
In many countries there is a close relationship between the government, the national agenda and the construction industry. Many have transparent cross shareholding and collective arrangements that make for quicker infrastructure expansion.
The key is harnessing private sector funding for public infrastructure through commercially viable PPPs and concessionary projects, where each party takes a share in the risk for reward. This relieves the fiscus of having to fund everything and can then direct scarce public funds towards infrastructure that will attract industrial investment and drive long-term economic growth.
My previous company has decades of experience with this in Africa and Eastern Europe, but political ideology in South Africa has bedeviled this opportunity.
After 2010, we had numerous discussions with Brazilian groups and learned of this collective mindset in Brazil ahead of their 2014 World Cup and 2016 Olympics programs.
France has a deep collaboration between government and construction. The United States infrastructure is now undergoing massive rebuilding, with a strong private sector participation in both funding and implementation.
Likewise for overseas work, our competitors come into our region with robust political and financial backing from their governments.
The French approach to business is founded upon national interest and long-term foreign relationships, which was evident in recent years with the prospects for a fleet of nuclear power plants for South Africa. For several years, I participated in the developing French strategy for this work that encompassed major technology groups, their suppliers looking to localize in South Africa, the French national power utility and their government representatives.
Likewise, the Russians and South Koreans have strongly developed public/private trade institutions and strategies and have engaged with targeted partnerships with local companies. The success of South Korean business in our market is remarkable. The Russians are now firm contenders for nuclear power.
In stark contrast, in my experience in working across Africa and the Middle East, South African business generally feels alone and has to fend for itself internationally.
South Africa’s tax-payer funded development finance institutions have been known to fund projects in other African countries without involving any South African content. Most competitor nations would have contractual requirements that their funding has a high content from the lending nation.
This further diminishes South Africa’ growth prospects, the tax base and the desired employment and regional cooperation. The lack of support, and the time lost, is eroding the commitment to South Africa as the bigger companies shed local jobs and continue to shift to new international markets.
The construction industry has been through hell but it’s ready to make a difference. To do this it needs a champion in government, that has until now been absent.
The industry has tabled robust investments and long-term plans that include significant additional training and skills program. It has also offered to assist distressed municipalities and undertake social projects.
There is also a suite of execution strategies that will deliver on the commitment to collaborate with, mentor and jointly execute large projects with black-owned business to ensure the next generation of large construction companies are created from a solid experience base.
Perhaps out of adversity, the need for radical change in ideology and policy from government and for business to deliver more jobs, demographic and economic transformation and black industrialization, Gordhan’s new approach will find traction.
The engineering and construction industry in this country cannot wait much longer.

Collaborate Or Else

Every few minutes, they touched down at Nnamdi Azikiwe International Airport. The roads buzzed and hotel lobbies filled as the world arrived for the most important meeting in African business.
The World Economic Forum (WEF) on Africa, hosted in Abuja, was one of the largest in many years. The biggest names in world business, among 1,000 leaders, were there. They included Aliko Dangote, Pravin Gordhan, Paul Kagame, Uhuru Kenyatta, Li Keqiang and Bineta Diop.
This was a meet to check progress from the last meeting in Cape Town and work out what needs to be done ahead of the next.
Nigeria hosting the gathering reflected its success and trials. In one way it was a celebration after the country was elevated to Africa’s largest economy after the rebasing of its GDP. On Nigeria’s rebased GDP, a wide cross section of investors and prospective entrants confirm that investing in Nigeria has become a priority.
“There is undoubtedly huge potential in this country and the rest of Africa respectively. The real power will, however, only materialize when we get plans into motion and make things work,” says Julian Roberts, the Group Chief Executive of Old Mutual.
On the other side of the coin, the country is still plagued by poor infrastructure and unrest. In Abuja there have been deadly bomb attacks and further north, the Islamist militant group Boko Haram abducted 276 schoolgirls.
It meant public offices and schools closed from May 7 to May 9. Security was beefed up as police squads threw up checkpoints. But, the world made its way to Abuja to tap into Nigeria’s burgeoning market. Investors contributed $21.3 billion in foreign direct investment last year and $2.5 billion in January and February this year alone.
Expectations were high in spite of the difficulties. The forum was set to discuss innovative structural reforms and sustainable investments for creating jobs and prosperity.
“The need to create jobs is a global problem. All countries around the world are concerned about job creation. In Africa, the unemployment problem is compounded by the youthful population and pending demographic transition. Africa’s population is very young…  making African leaders face special challenges,” says Nigeria’s president Goodluck Jonathan.
So, what has changed since the previous forum in Cape Town?
In spite of impressive growth, many African economies have yet to see broad-based prosperity. There are also issues of security, infrastructure, skills, education and health.
Africa’s alarming youth unemployment story is often told in parallel with growth. The youth account for 60% of all of Africa’s unemployed, according to the World Bank. Sub-Saharan Africa’s unemployment rate is at 6% in comparison with the world average of 5%, according to the African Development Bank. The problem is that youth unemployment in most African countries occurs at more than twice the adult rate.
A defective educational system, lack of vocational guidance and training could be to blame.
Nigeria, West Africa’s leading economy is even plagued by intermittent strikes in the classroom.
So, what will WEF achieve?
“It is not just about growth, it’s about the right kind of growth and participants’ focus will not be limited to growing Africa’s economy, but will also highlight means of doing so in an inclusive manner,” says WEF’s head of Africa, Elsie Kanza.
“This meeting is creating tremendous opportunity in sub-Saharan Africa and the continent at large. These opportunities will help to break down barriers and open up new frontiers for business. The theme of this year’s forum is very apt as this is what we are working tirelessly on presently. The power of these forums should not be underestimated,” says Jim Ovia, the $900-million banking veteran and FORBES AFRICA cover in June last year.
Sub-Saharan Africa is expected to remain the world’s second fastest growing region &#8211; a result of more efficiency in resource utilization, better governance and rising domestic demand. Challenges and opportunities shaping Africa’s growth outlook are often under-estimated. These issues went under the microscope at the forum.
Nigeria’s finance minister, Ngozi Okonjo-Iweala, says infrastructural and logistical challenges will continue to hamper the growth of the continent. West African leaders drew up plans to build highways to boost intra-Africa trade, as has been seen in East Africa.
Kenya has signed a $3.6 billion Mombasa-Nairobi railway deal with China. The railway will connect Kenya with the rest of the region and open up trade within East Africa.
Security in Nigeria was also on the agenda with the schoolgirl abduction in the headlines. Jonathan thanked the international community for their support on the issue but questions still hang over what the government will do.
It was announced by Okonjo-Iweala that a sum of $10 million has been approved by the state for a safe school project. A further $10 million will be provided by Nigerian business. This is seen as a move to improve security in Nigerian schools.
Lack of power in Africa poses a major threat to economic growth. Nigeria’s parlous power sector and power privatization process, the biggest on the continent yet, has spurred global interest.
“We are getting somewhere and it will not be an overnight transformation. We are excited about the transformation this sector will experience and urge Nigerians to have some belief and patience in the process,” says Okonjo-Iweala.
Trade between Africa and China is also expected to continue to grow.
“This is definitely the world’s largest inclusive growth. Africa needs to develop its infrastructure and industries while China boasts a stronger and spare capability of investment and construction in this area. Thus, the economies of China and Africa are highly complementary and both sides’ development is each other’s opportunity. China and Africa shall complement each other in mutually beneficial co-operation to give a stronger impetus to each other’s development,” says Li Keqiang, the premier of China.
Technology can also drive the continent’s economy.
“A vast number of people have been digitally empowered and are more open to economic participation. Getting this critical mass to act accordingly should be a stronger focus. Therein lies an opportunity,” says Hendrik du Toit, the CEO of Investec Asset Management.
WEF also announced so-called Global Growth Companies (GGCs) in Africa. These are 16 high growth companies on the continent with innovative revenue growth and sound corporate governance. The selected companies are: Seplat Petroleum Development Company (Nigeria), Computer Warehouse Group (Nigeria), Interswitch Limited (Nigeria), Nagode Group (Nigeria), UAC of Nigeria (Nigeria), Notore Chemical Industries (Nigeria), Nation Media Group (Kenya), Bidco Oil Refineries (Kenya), GML (Mauritius), Growthpoint Properties (South Africa), KZN Oils (South Africa), Net1 UEPS Technologies (South Africa), Tekkie Town (South Africa), Capitec Bank (South Africa) Webber Wentzel (South Africa) and Simba Group (Uganda).
WEF and the Organisation for Economic Co-operation and Development set a joint task force to redesign financing for Africa and developing economies. According to Development Initiatives, an independent organization working on poverty alleviation, approximately $1.7 trillion flows from the developed to the developing world. The task force will redeploy the finance to key sectors of the economies that will benefit the most.
For now, Africa waits in anticipation to see whether the proof is in the pudding.

Time For Action

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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