Leveraging the African diaspora

Eric Guichard

By: Eric Guichard, the founder and chief executive officer of Homestrings

With US$40 billion in annual remittances into Africa, the African diaspora has become the subject of much public policy discussion as a potential source of sustainable supplemental development finance.


In recognition of the power of the diaspora, President Kagame of Rwanda recently announced the launch of a Rwanda Diaspora Mutual Fund whose objective is to tap into the offshore savings of Rwandans, and other East African diaspora, to finance key public sector projects in Rwanda. Similarly, in 2011, The Central Bank of Kenya redirected a segment of its regularly scheduled domestic currency     infrastructure bond to target investors from the Kenyan diaspora. Other countries have plans to follow similar paths. According to the World Bank, aggregate African diaspora savings amount to about $35 billion. These sums are deposited in Western banks earning negative interest rates, when adjusted for inflation.
 
Dr Dilip Ratha, lead economist at the World Bank Migration and Remittances Unit narrows it down to two key factors: (1) patient capital and (2) counter-cyclicality. Diaspora remittance flows are linked to families in the home country. What’s more, the character of these flows is unique in its counter-cyclicality. Ratha’s findings suggest that in periods of economic stress in the home country remittance flows tend to increase, unlike foreign direct investments and development aid which tend to flee in periods of duress in either home or source country. This factor tends to suggest a more patient, long-term character to diaspora flows. This is especially important when considering Africa’s infrastructure needs. Infrastructure investments typically require long term commitments. The same commitment is also required for financing small- and medium-sized enterprises (SMEs).

Until recently, conventional wisdom suggested that all diaspora flows were consumed by recipients for subsistence. However, according to a recent World Bank study, conducted in the case of Kenya, the breakdown of remittance receipts can be roughly classified in the following manner: 50% for family support, 15% medical, 10% education related and an amazing 25% of remittances are directed at some sort of investment (SMEs, real estate, services…). In 2011, according to the Central Bank of Kenya, the country received $891 million in diaspora remittances. Based on the CBK’s own figures, this would mean that $222 million, or close to a quarter of a billion dollars, is available capital to be directed into the productive sector. This number rivals $180 million in total foreign direct investment received by Kenya in 2011, as reported by the World Bank in 2012.

The above assumptions about size of diaspora savings pool are supported by academic research conducted by George Washington University’s Center for International Business Education and Research, in conjunction with Western Union and USAID. GWU conducted an investment interest survey targeted at US-based African professionals and entrepreneurs who participated in a 2010 venture financing competition. The results show an overwhelming interest in investing “back home”. However, the study also reveals a dramatic gap between the “desire to invest” in a range of opportunities from real estate to manufacturing and services, and the “ability to invest” in those same opportunities, as members of the diaspora. This suggests the existence of structural impediments preventing the diaspora from accessing opportunities with ease. A closer examination reveals that these structural blocs fall into three key categories: transparency, regulatory and administration.

Transparency: Most opportunities sought by the diaspora are not structured for ease of access by them. In part this is due to the fact that amounts required may be too large relative to what the diaspora can afford to invest, or that the opportunities are not transparent enough to enable them to judge inherent risks on their own as remote investors.

Host country regulations: Both the United Kingdom’s Financial Services Authority and the United States’ Security and Exchange Commission have household earnings tests that limit access to private deals that are not listed on an exchange. Only those with financial sophistication as defined by the regulators – with private net worth exceeding $1 million – can invest in opportunities that are not listed on a public exchange. Listing on an exchange can be an expensive proposition even for sovereigns, much less for an entrepreneur in the home country seeking to tap into diaspora capital.

Small transfers: Diaspora transfers on average are small and most investment opportunities are seeking aggregates that are larger than what one individual remitter can afford. Therefore the need to administrate these small amounts into larger pools that can command institution-like influence is critical.
The combination of these factors make it difficult for the diaspora to participate in a meaningful way in the development of critical sectors such as infrastructure, key SME industries and large scale real estate projects.

To capitalise on the transformational nature of diaspora flows one has to simultaneously engage key constituencies:

Domestic banks: Domestic commercial banks play a key role in providing financial services to the diaspora. Recently, Kenyan and Ghanaian banks have designed new financial products directed at the diaspora to facilitate savings, and investment including financing of the purchase of land and building a home. Banks need to do more by offering more targeted private banking services to the diaspora. This entails offering a wider choice of investment opportunities that diaspora seek back home, and partnering with other players to broaden their offerings;

Aggregating platforms: New aggregating platforms have emerged, including one that the author has initiated – Homestrings.com. These platforms take advantage of a new web-based phenomenon called crowd-funding. This method has also found success in the political arena with the Obama campaign innovating fundraising via the web. Crowd- funding platforms, such as Homestrings, have the advantage of being omnipresent, being on the internet, and of being responsive to the needs to the diaspora, in real time;

Government: Investment promotion agencies (IPAs) have a key role to play in attracting diaspora capital. As a facilitating agent they should be engaged in selling the investment programme to their respective diaspora and, more importantly, working with financial players to structure these opportunities in such as way that it facilitates access to them by the diaspora. IPAs are also critical in the education of investors – which in turn requires them to have a good grasp of financial presentation practices;

Domestic private sector: As targets of diaspora investments, the domestic private sector, in conjunction with the IPAs, should create avenues of investment that facilitate access by the diaspora. Whether it’s listing in the host country’s stock exchange (AIM) or providing much needed due diligence transparency and education. These efforts, combined with the sustained and targeted marketing efforts of IPAs, form a powerful galvanising mix that could only be beneficial to the home country.

Once the impediments are removed it comes down to constant marketing to the diaspora. The Israel Bond Agency is the global benchmark in diaspora engagement. Its organisational approach to raising funds from its global diaspora is testament to what can be accomplished. Israel raises between $1 billion to $5 billion annually from the Jewish diaspora and diaspora related institutional investors. Its offices span the globe and they are constantly informing the diaspora of various developments and investment opportunities. They work collaboratively with various public and private players in order to leverage the existing financial infrastructure to their advantage.

The diaspora presents a significant opportunity to introduce a paradigm shift in how development is financed. However, attracting the diaspora to invest in the productive sector is a combination of education, effective structuring, transparency and active promotion and engagement. All vested parties must work together to facilitate diaspora investments. Each party has leverage that the other doesn’t. By working together, diaspora investment capital can be a sustainable, effective and efficient source of development finance for Africa.

 This article was first published in ‘New Africa: From Growth to Jobs’, a publication by Business Action for Africa.

How Africa can raise Long-Term Finance

 By: Paul Frimpong, Associate Chartered Economic Policy Analyst- ACCE-Global 
      Tel: +233 -241 229 548;  Email: py.frimpong@yahoo.com
      University of Ghana

Africa has the potential to be the world’s leading destination of investments. Africa is ambitious to take its rightful position in the global economy. The stakes are high for Africa to control global trade and attract the largest portion of the world’s investment. But the story has always been thwarted one way or the other and the mystery behind it is very clear and starring us in the face. The challenge has always being the incident of poor infrastructure. Africa has the world’s least sufficient infrastructure capacity and this has made trade in Africa very difficult and expensive.

Even though the world has identified Africa as the next best destination to do business, it has always being hindered by poor infrastructure. Economic efficiency is not harmonized due to difficulty in accessing Africa’s markets. Therefore, for Africa to realize its full potential, a fully structured and sustainable infrastructure development is needed. Africa accounts for 12% of the world’s population but only contributes 1% of global GDP and only 2% of world trade.

Although the continent has successfully maintained an average growth rate of between 4 % and 6% for the past few years, Africa accounts for 12% of the world’s population but only contributes 1% of global GDP and only 2% of world trade. Poor infrastructure cost each member country’s growth to reduce by 2percentage point each year and cut productivity by as much as 40%.

According to the World Bank, about $93 billion is needed annually to be able to fund Africa’s infrastructure for the next 10 years. Which is about 15 percent of the region’s GDP. About $60 billion would go to new projects and the rest would go into the maintenance of the existing ones.

According to a development research brief, by the African Development Bank (AfDB), in 2009, less than 10% (in 10 countries) and less than 50% (in 33 countries) of roads in Africa are paved, 40% of the continent’s population lacks access to safe water; 60% of the population lacks basic sanitation an only 30% of the rural population in Sub-Saharan Africa has access to all-season roads. Transport costs in Africa are among the highest in the world; only 30 percent of African population has access to electricity; Africa has the lowest telephone penetration – 14% (the world average is 52%). Africa has the lowest Internet penetration – 3% (the world average is 14%).

These are the challenges staring the continent in the face despite the recent economic prospects projected to be experienced in the next decade and beyond. How then do we as Africans, solve the infrastructure deficit? This is a legitimate question which demand answers from all quarters. The issue of financing Africa’s infrastructure is of course long term in nature. That is why we must critically look at means possible to reach our continental goal of creating a strong socio-economic welfare. Recent activities of governments across the continent have proven again and again that, they cannot single handedly handle the infrastructure deficits, the more reason why it has become very critical for the involvement of the private sector to provide long term capital in this regard.

A recent African economic theory, which has gain attention from the world all over is Africapitalism, coined by Mr. Tony Elumelu, a distinguished business man and African Philanthropist. Mr. Tony O. Elumelu, CON, is an entrepreneur, a philanthropist and the chairman of Heirs Holdings Limited, an investment company that builds sustainable African businesses. He is the creator and the leading proponent of the term Africapitalism. In 2011, he started The Tony Elumelu Foundation, an African-funded philanthropic organization focused on supporting entrepreneurs in Africa by enhancing the competitiveness of the private sector.

Mr. Elumelu has received numerous honours, board, and committee appointments, and in 2012, the government of Nigeria conferred on him the national honour of Commander of the Order of the Niger.

In 2012, Forbes Magazine named Mr. Elumelu one of Africa’s 20 Most Powerful People in African Business, and he was included in New African Magazine’s list of 100 most influential Africans in business. Mr. Elumelu also serves as an advisor to the USAID’s Private Capital Group for Africa (PCGA) Partners Forum.

Why is Africapitalism identified as a philosophy which Africa must consider now in order to secure future economic boom? It is for the simple fact that, it seeks to address the very challenge facing the continent, “Lack of access to long-term financing”. It stresses on the role of the private sector in this regard.

Mr. Elumelu, according to a white dubbed “Africapitalism: the path to economic prosperity and social wealth” described Africapitalism as an economic philosophy that embodies the private sector’s commitment to the economic transformation of Africa through investments that generate both economic prosperity and social wealth. This is to the end of seeing Africans taking charge of the value-adding sectors and ensuring faster economic prosperity. Africapitalism asserts that value creation through entrepreneurship is Africa’s unique path forward — distinct from emerging markets like China with its state-run enterprises, or Korea with its “Chaebol” conglomerates, or India with its large family-run businesses. The philosophy is about long-term investment in Africa, driven by Africa’s own private sector to deliver economic prosperity and improve the lives of Africans. Africapitalism is not capitalism with an African twist; it is a rallying cry for empowering the private sector to drive Africa’s economic and social growth.

Its primary goal is greater economic prosperity and social wealth, driven by Africa’s private sector, its domestic economies, markets, and businesses. This, to an extent is to satisfy three fundamental tenets; wealth creation, funding entrepreneurship and transparent competitive markets. It is in the philosophy that the private sector, both foreign multinationals as well as African business leaders to break free from the historical tendencies of exploitation and extraction of wealth and instead focus on generating profit through wealth creation. Again, it asserts that, governments are not responsible for running industries; they are responsible for providing a supportive environment for businesses to thrive, in markets that are fair, transparent, and open. Their policies should encourage creation of new wealth rather than support the exploitation and extraction of existing wealth

At the heart of Africapitalism is long-term investment that creates economic prosperity, a commercial objective, as well as social wealth. Thus, a private sector approaches to solving some of Africa’s most intractable development problems and the “new” Africa: a reinvigorated private sector solving social problems by building businesses and creating social wealth. It is a drastic departure from the old model of centralized governments managing basic industries, a structure often developed at the recommendation of the well meaning but misguided global development.

Africa’s quest to access long term financing for infrastructure development is what has actually made the theory more useful and practical. Long term financing of infrastructure development by private investors is very difficult because of the lack of a comprehensive market-oriented infrastructure finance system, with clearly defined roles and responsibilities for the public and private sectors, and a clear and transparent system to provide public sector financial support to make infrastructures financially viable.

Again, there is insufficient capacity for project design and implementation. The key bottleneck to infrastructure development has been identified as not capital, but a severe lack of bankable projects which can attract private capital. There is poor accountability, performance-, and contract-management across the continent, all these leading to the inaccessibility of long term finance.

It has therefore become critical, that Africa rethink around the AFRICAPITALISM theory and make it work practically and effectively on the continent.

No Room for Arrogance in Business

Carol Weaving

Carol Weaving, managing director of Thebe Exhibitions and Projects Group, has made the finalist list for the South African 2012 Sanlam/Business Partners Entrepreneur of the Year award. Thebe Exhibitions and Projects Group is an event organiser and venue management company. The group is also currently spreading its wings across the rest of the African continent. How we made it in Africa’s Kate Douglas asked Weaving about what it takes to run a successful business.

What’s the single most important reason for your success?

I have the vision to develop a concept and the drive and determination to make my vision a reality.

Do you think being an entrepreneur has changed you? If so, how?

I don’t think so. I was very entrepreneurial when I was young and I remain humble and grounded. You are only as good as your last success so it’s important to keep your feet on the ground and keep it real. There is no room for arrogance in business but confidence is essential.

How did you finance your business?

This is always the tough part and where a lot of people fail in the first two years. I started my company with nothing – R2,000 (US$242) to be precise – but worked seven days a week, 18 hours a day, to bring in as much income as possible to fund the growth of the business. I always re-invested into the business. I kept my team lean and mean initially. I then sold 70% of my business to a Dutch company which then helped me catapult to the next level. It’s about timing and seeing the opportunities in advance. I then realised we needed a Black Economic Empowerment partner so I approached Thebe Investment Corporation to buy the shares of the Dutch company. I then built the company to what it is today.

What was the tipping point for Thebe Exhibitions and Projects Group?

Getting my business to the point where it was attractive enough for the Dutch company to buy in.

What plans do you have for expansion into Africa?

As I write this I am sitting in Nigeria. We are looking at developing and growing our business in Nigeria, Angola, Ghana and Tanzania. There is a lot happening across the venue development side of the business with arenas, convention centres and stadium management and then we are looking at the content development of the business for these venues. I am bringing a group of Nigerian businessmen into our show in September and they are looking for South African partners who want to start up their franchises or business opportunities in Nigeria.

Where do you see yourself and the business in 10 years?

I see myself continuing the growth in South Africa and Africa and in international markets. I can only do this by surrounding myself with exceptional talent which I think we are good at identifying and also making sure we have the right partners in the right countries. I will still be working though as I love what I do.

How do you go about marketing your business?

We market our business across all mediums. We are very much in the public eye and our shows are profiled across various industries. We do above the line, below the line and we believe in PR. It’s important that we tell people about the good things we are doing. Communication is key.

In your opinion, what is the major difference between entrepreneurs and those who work for someone else?

Entrepreneurs see the bigger picture, they come up with concepts, they have the courage of their own convictions and they are not scared to take a risk, calculated of course.

Looking back, what is the one thing you wish you understood about entrepreneurship before you ever got started?

Nothing. You cannot train to be an entrepreneur. I believe it comes from within and you either have it or you don’t.

Source: How We Made It in Africa

AfDB targets new Markets as Crisis bites

RIO DE JANEIRO - The African Development Bank (AfDB) is targeting new markets and sources of finance as the global economic downturn and the euro zone crisis reduces available capital, the bank's director of strategy said in an interview.

The AfDB has 53 African member countries and invests in projects including infrastructure and renewable energy schemes.

As a result of the economic turmoil in traditional Western markets, the bank is starting to target investments in Brazil, India and China - countries that have experienced rapid growth, mainly driven by abundant oil, gas and mineral resources.

"In the next two months we will be finalising our (investment) strategy for the next 10 years ... We are trying to reinvent ourselves," Kapil Kapoor, the bank's director of strategy, told Reuters at the Rio+20 sustainable development summit in the Brazilian city of Rio de Janeiro.

"A very important part of our long-term strategy is new sources of finance and recognising what is happening in the U.S. and the euro zone, for example," he said.

This month, the AfDB agreed to collaborate with the Brazilian National Development Bank (BNDES) on sourcing and potentially financing clean energy and infrastructure projects in Africa.

The AfDB is also among eight of the world's largest development banks which pledged $175 billion on Wednesday over 10 years to support low-emission transportation programs at the U.N. development summit in Rio.

LEVERAGING CAPITAL

Last year, the bank approved financing that will result in 630 megawatts of clean energy generation in Africa.

"The current resources we have - $4-6 billion a year - are not sufficient for Africa. We would like to multiply them 5, 7 or 10-fold," Kapoor said.

The bank taps a U.N. carbon credit scheme, the Clean Development Mechanism (CDM), to finance renewable energy projects.

Under the CDM, countries and companies buy credits to meet emissions caps agreed under the emissions-cutting pact known as the Kyoto Protocol, paying for cuts in developing country projects instead.

However, prices for U.N. carbon credits have fallen as much as 75 percent in the past year due to oversupply in the market and concerns about economic turmoil.

When asked whether the price crash had affected the bank's strategy, Kapoor said uncertainty around future financial markets was having more of an impact.

"I don't think (low carbon prices) is the real constraint. It's more about political risk and investors not knowing the environment they are getting into," Kapoor said.

"That's why we are increasingly looking at a variety of instruments like guarantee and reinsurance mechanisms to leverage capital."

Africa has posted strong economic growth rates in recent years, second only to Asia. The AfDB expects the continent's economy to grow 4.5 percent this year and by 4.8 percent in 2013, but the festering euro zone crisis could dent demand for African exports.

Africa's natural resources are under great strain. Biodiversity has declined by 40 percent in 40 years and increases in population and consumption are expected to double Africa's carbon footprint by 2040, according to conservation group WWF.

Source: Reuters

Inefficiencies in Banking sector holding back Africa’s Growth

In its report entitled “Challenges of African Growth, opportunities, constraints and strategic direction”, the World Bank clearly points out that a key constraint to growth in Africa is indeed the structure of African financial sectors as this generally influences private sector activity, economic growth and poverty alleviation. 

We would also concur with the World Bank that a vibrant, competitive and efficient financial sector that reaches the majority of an economy’s population is a cornerstone of sustained high levels of economic growth and development. In this note, we have taken a broad look at financial sector developments across sub-Saharan Africa. However, we have also centred our arguments on Zimbabwe; a country that we believe is currently facing serious liquidity constraints. The main constraints are outlined below:

Inefficiencies in the banking sector

It still remains a fact that African financial sectors, especially in low-income countries, are among the least developed in the world. We note that interest rate spreads throughout the region have largely remained high, with little indication of converging with global levels at a median of around 13% (Latin America 7%, South Asia 5%, South East Asia 6%).

We opine that the main factors causing high spreads include high operating costs (including energy), perceived risk from policy frameworks and lending environments, lack of competition, and high concentration.

In the case of Zimbabwe, the use of multiple currencies in the economy (USD/ZAR/BWP) has simply meant a limited supply of liquidity in the market and therefore high minimum lending rates (MLRs) of around 15% per year. We also highlight that some banks remain largely under-capitalised, thereby limiting lending activity. In addition, the prevalence of non-performing loans in banks’ portfolios also adds to costs as banks compensate for the cost of foregone interest income by charging higher lending rates to performing loans.

Poor credit culture

The lending environment across Africa is also characterised by a poor credit culture, poor contract enforcement, and lack of protection of creditor rights.

Coupled with a lack of collateral and inability to prove creditworthiness on the part of potential borrowers, these have resulted in a higher perception of risk and higher external finance premiums. In Zimbabwe, for example, good information is scarce in the absence of a national credit bureau.

Furthermore, the value of the collateral, which is real estate in most cases, tends to be overstated and inevitably harder to realise if the need arise. Given the fact that the lender of last resort lacks adequate funding capacity, default risk and more importantly, counter party risk remain elevated.

Low levels of savings

Saving rates in Africa have remained far below that of other developing regions. In the early 1970s, for example, the average savings rate in sub-Saharan Africa was higher than in South Asia. However, while the savings rate in Africa has trended downward, South Asia has experienced a sustained upward trend so that by 2003, the average savings rate had exceeded 20%, compared to a mere 9% for Africa. Even though the saving rates for most countries bounced back in the following decade, for some countries the falls were sustained. In Zimbabwe, for example, as at 3 February 2012, total banking sector deposits were US$3.5 billion (including inter bank deposits).

Low levels of banking penetration

It still remains a key feature that a disproportionately small fraction of the population across the region is served by formal financial institutions. Data on access to financial services is scarce, and most conclusions reached are from anecdotal but compelling evidence. Low penetration is partly a result of income levels, although an increasingly affluent urban middle class is now emerging. The low proportion of people with bank accounts also reflects infrastructure problems that have resulted in the limited development of branch networks, especially within remote rural areas. Few countries are served by more than two branches per 100,000 people.

Despite the above-mentioned constraints related to banking in Africa, we have begun to see some pockets of success across the African continent, suggesting some improvements in a number of fronts. We highlight our key findings as follows:

E-banking slowly driving financial inclusion

One of the biggest success stories with regards to financial inclusion in sub-Saharan Africa is M-Pesa’s mobile wallet in Kenya. This has successfully penetrated some of the most deprived economies and simultaneously spurred unprecedented demand in a very short amount of time. M-Pesa now provides international money transfers between Kenya and other African countries and even the UK. Countries such as Kenya, South Africa and much of the North African region are now facing 100% m-banking penetration. However, in countries such as Burundi, the Central African Republic, Eritrea, and Rwanda the penetration is far less, standing at roughly 35%.

China-Africa partnerships yielding some rewards

We have also seen Chinese-African partnerships being extended to banking activities. A good example is the US$5.5 billion acquisition of a 20% stake in Standard Bank by the Industrial and Commercial Bank of China (ICBC). Along with other players like Stanchart, it is our view that such partnerships are broadly cementing a financial services gateway between Africa and China.

Regulation and liberalisation more developed

Some banking sectors, such as Nigeria, are benefiting from market reform. Nigeria’s banking sector has gone through consolidations over the years, leading to the emergence of streamlined, better capitalised banks that have been able to enhance their services and are in a better position to compete and meet customer demands, while seeking to develop their international presence, both within the region and overseas.

In conclusion, we believe that the various constraints highlighted in this note need to be addressed in order to reinvigorate economic growth in sub-Saharan Africa. Nonetheless, banks in Africa are evolving and we continue to see vast opportunities for emerging market investors.

 Imara is an investment banking and asset management group renowned for its knowledge of African markets.

Source: How We Made In Africa

Dishonesty, Cause For Expensive Financing

Alhassan Andani, MD of Stanbic Bank Ghana

Financing experts at a forum on ‘Financing Business Operations in Ghana’ have agreed that dishonesty in the operations of businesses, particularly small- and medium-scale enterprises (SMEs), largely account for the high interest rate financial institutions slap on them.

The Managing Director of Stanbic Bank Ghana, Mr Alhassan Andani, who first articulated the point, stated, “The biggest problem making financial services and products expensive is dishonesty. People consistently misrepresent themselves and the sectors they are in.”

Mr Andani was contributing to a theme “Financing businesses in Ghana”, which was discussed at a forum on Wednesday. The Ghanaian-German Economic Association (GGEA), a grouping of businesses of Ghanaian, German and/or European origin with business interests in West Africa, organised the forum.

The forum brought together financing entities and corporate players, particularly in the SME sub-sector, who may need financing in their operations, and equiped them with vital information to enable them to access financing.

Some of the topics included “Financing Business Operations in Ghana”; “Possibilities for Financing Business Operations in Ghana”; “Assessing the capital market to fund business operations in Ghana”; “The Bank and its Financing Options for Business Operators in Ghana”; and “Funding Start-Up Concerns”.

The GGEA organises such fora regularly to enable its members to have a deeper understanding of regulatory and policy issues that affect their business operations.

Mr Andani expressed concern that some of the professionals did not deliver on their role of straightening the books of SMEs, therefore, banks had to subject such applications for loans from that sub-sector to rigorous checks and apply higher risk premiums for resources they release to them.

He explained that banks looked at several issues before lending, the primary one being the cash flows of the business, as well as a lot of due diligence to establish certain technical issues such as whether the equipment a business intended to purchase was obsolete or in vogue as that would impact of availability of parts for maintenance.

Mr Andani also agreed with other speakers that small businesses needed to be mindful of the type of financing for their operations, as different stages of the businesses required a certain type or mix of financing options.

The Deputy Managing Director of the Ghana Stock Exchange, Mr Ekow Afedzie, reiterated that “appropriate capital is a problem in Ghana as it is the cause of many businesses that have gone under”, explaining that instead of going for medium to long term financing when the business reach the point of expansion, such SMEs still resorted to the bank financing.

He said the stock exchange was one sure place to raise long-term capital to fund expansion, adding that listing on the Ghana bourse was a simple procedure that many SMEs should take advantage of.

Besides the benefit of a stress-free long-term capital, raising capital on the exchange helped SMEs to conform to good corporate governance and adhere to transparency and disclosure policies, Mr Afedzie noted.

The GSE deputy managing director announced that as part of creating a separate alternative market for SMEs and star-ups to raise capital, the GSE in collaboration with some donor partners would set up a revolving fund to enable the target businesses to access in financing their listing expenses, in addition to incentives such a waiver of listing fees.

The West African Head of the German private sector-focused development financier, DEG, Dr Andreas Vo?, explained the various medium to long-term interventions his outfit made in businesses across the world, including a portfolio of €600 million for sub-Saharan Africa in 2010 and over €250 million in Ghana as of last year.

He explained that DEG, a member of the German development banking group, KfW, had medium to long-term financing of anything from €5 million to €30 million for a period of between four and 15 years, adding that the financier was mainly interested in infrastructure, energy, telecommunications, manufacturing and agribusiness which it did through equity participation, debt financing or mezzanine financing arrangements (a hybrid).

The President of the GGEA, Mr Stephen Antwi, called on the government to engage the private sector and inculcate its input into the second phase of the Financial Sector Strategic Plan (FINSSP II).

Mr Antwi stressed that since the plan was directed at the financial sector it would eventually impact on the private sector, the reason they must have their inputs into it at the very beginning in order to own the plan.

Source: Daily Graphic

Ghana e-zwich to go international with Money Transfers

E-zwich

It should be possible to use E-zwich cards for not only domestic money transfer (as it is currently) but also international money transfer by the second quarter of this year. This would however start with transfers to and from the UK before extended to other parts of the world.

This forms part of plans by the Ghana Interbank Payment and Settlement Systems, GHIPSS to deepen electronic banking transactions in the country. General Manager in charge of Projects and Business Development at GHIPSS, Archie Hesse tells JOY BUSINESS talks have been advanced with two organizations in the bid.

“We are providing the infrastructure which is no different from what we have now. The business or company will have to develop it and determine how much they are going to charge. All indications show that they would charge cheaper than what currently exists in order to make people to hop on to it. We have a bank that is partnering this company in question”.

He continued “What we are doing is to ensure that if money is transferred to an individual because it is a partnering bank, you can go that bank and collect cash. We are now about to start advertising and I think its going to start abroad before Ghana”

Currently domestic money transfers with E-zwich has a nationwide coverage involving all banks. Mr. Hesse further explains how the use of E-zwich cards for international money transfer would work to complement the domestic transfers.

“Let’s assume you are in the UK and you need to transfer money to Ghana, the shop will ask you for the E-zwich card number and it will be transferred from there directly onto your E-zwich card. This would be in competition with already existing international money transfers. Individuals would have to choose which one works best for them.

“It won’t be any different from what we already have here where you give a merchant, lets say 20 Pounds and he or she will then convert it into the cedi equivalent, give you the electronic amount and then transfer it using the PDS system into the individuals account. Once its been transferred, moments after you can go and load it” he concluded. 

Source: myjoyonline.com

Citi expects clients to double Nigeria Investment

LAGOS - Citibank expects annual investment flows into Nigeria through its banking platform to double to around $2 billion this year, as multinational firms and foreign funds expand operations, its country officer told Reuters on Thursday.

Lagos the commercial Capital of Nigeria

Emeka Emuwa also said Africa's second-biggest economy was witnessing an increasing mix of trade and investment from Africa and Asia, though the bulk was largely from Europe and the United States.

Contributions to trade and investment flows from Africa and Asia were likely to overtake Europe and North America over the next 4-5 years, he said in an interview in his office in Lagos.

"In 2011, we saw flows of almost $1 billion, made up of both portfolio flows and FDIs (foreign direct investment). We expect this to double this year, a lot of which will come from the portfolio side and foreign companies expanding ... in the country," Emuwa said.

He said Citi, which has been in Nigeria for 27 years, had been focused on institutional banking and public sector finance, but was looking to develop consumer banking and equity brokerage over the next three years.

Headlines on Nigeria this year have been dominated more by an upsurge in violence by Islamist sect Boko Haram in the north than by investment flows. More than 250 people were killed by the group in January, according to Human Rights Watch.

But the violence is taking place hundreds of kilometres north of the commercial hub Lagos and the southeastern oil fields. Emuwa said the unrest was not impacting investment.

"From 2010 to 2011, what we saw coming through our own channels grew by a multiple of 5-6 times on the portfolio side and foreign direct investment," Emuwa said.

"If you use investment flows, current and potential, to measure the sensitivity of Boko Haram, I'd say I haven't yet seen ... an adverse impact," he said, adding that investors see it as something to consider, but not enough to change their investment plans.

Analysts say northern Nigeria, where most of Boko Haram's attacks have taken place, contributes such a small portion to the country's GDP that its broad economic fundamentals have not been affected by the instability.

Citi has 12 branches in Nigeria and is looking to expand.

"We don't have any consumer banking at all, our business is entirely institutional (but) given the growth in consumer incomes in Nigeria, it is a new and growing segment for us," Emuwa told Reuters.

"We will focus on where there's a concentration of income," he said, adding the consumer banking side would start with employees of companies that hold corporate accounts at Citi.

Source: Reuters

A Ghanaian Chief advises Entrepreneurs to save with Credible Financial Institutions

The Paramount Chief of Lower Dixcove, Nana Kwasi Agyemang IX, on Wednesday admonished entrepreneurs and businesses to utilize their resources judiciously by saving with credible financial institutions.

He entreated petty traders and entrepreneurs to investigate the credibility of financial institutions before transacting business with them so that they do not run at a loss.

Nana Agyemang gave the advice at the opening of an ultra modern office complex of GHAMFO in Takoradi to coordinate and administer its activities.

He commended the GHAMFO Investment Savings and Loans Limited for distinguishing itself as a credible financial institution over the years and offered financial support to women in particular to boost their trade.

Ms Elizabeth Tawiah, Chief Executive Officer (CEO) of GHAMFO, said the company had 15 branches in Western and Central Regions.

Some of the branches are located in Sekondi, Daboase, Aiyinase, Tarkwa, Agona Nkwanta, Dixcove, Mankessim, Simpa, Dompim, Akwidaa, kojokrom, kokompe, Essiama, Takoradi and Nsuaem.

Ms. Tawiah said the company started as a non-governmental organization in 2007, which trained women in batik, tie and dye, soap making, sewing and catering.

After sometime, the NGO developed into a micro support scheme and offered financial support to women to improve their businesses.

It later methaphosized into a financial institution and offered services such as fixed deposit, loans, educator savings plan, old-age savings plan and kiddies savings plan to its customers, she said .

The CEO said the company aimed at ensuring financial independence to the needy and underprivileged in society.

Source: Ghana News Agency 

Nigeria leaves key rate at 12 pct as expected

ABUJA - Nigeria's central bank kept its benchmark interest rate on hold at 12 percent on Tuesday, saying it expects any upward impact on inflation from removing fuel import subsidies to be short-term.

All but one of nine analysts surveyed by Reuters had expected rates to remain at 12 percent.

Nigeria Central Bank Governor Lamido Sanusi

Nigeria partly removed subsidies for petrol this month, increasing the pump price to 97 naira from 67 naira and pushing up the cost of transport, food and other goods.

Inflation eased to 10.3 percent in December, down from 10.5 percent in November but the impact of removing fuel subsidies is likely to send that figure higher.

The central bank expects inflation to increase to around 14-15 percent in the first half of this year, before reducing towards single digits by the end of 2013.

"It (central bank committee) commended the Federal Government on the partial removal of subsidy on PMS (petrol) which it noted will have salutary effect on the external reserves and exchange rates as well as on investments in oil and gas," Central Bank Governor Lamido Sanusi said, while announcing the Monetary Policy Committee decisions.

"The committee noted historically an upward adjustment in the price of PMS (petrol) has tended to have a short-term impact on the rate of inflation."

Nigeria's national assembly is considering a 2012 budget proposal put forward by President Goodluck Jonathan last month, which would raise overall spending but begin efforts to reduce the funds going to government and cut the fiscal deficit.

BENCHMARK OIL PRICE

The budget proposal was based on a benchmark oil price of $70 per barrel, anything earned over that level is put into the Excess Crude Account (ECA) as a buffer against potential oil shocks. Savings can also be used in a recently set-up sovereign wealth fund.

Nigeria's Senate said on January 20 it wanted to raise this benchmark price to $75, giving more money to government and less for savings. Sanusi urged lawmakers to keep a benchmark price at no more than $70.

The ECA contained more than $20 billion in 2007 but despite a period of record high oil prices since, the account has been drained and only contained $3 billion at the end of last year.

"There is a concern that the National Assembly may decide to raise the oil price benchmark ... which may not be much, but would indicate that large segments of the political elite are still opposed to the idea of fiscal consolidation," Samir Gadio, emerging market analyst at Standard Bank said.

Interest rates were hiked six times last year, rising from 6.25 percent to 12 percent between January and December, in an effort by the regulator to curb rising inflation and stabilise a weakening naira currency.

The naira has shown signs of recovering after CBN lowered its target band in November, due to prolonged naira weakness and high U.S. dollar demand.

The naira traded at 161 to the dollar on Tuesday, slightly weaker than the CBN's preferred trading band of 150-160 naira against the dollar, which was retained at Tuesday's meeting. The November move shifted the band from 145-155.

Foreign exchange reserves stood at $34.10 billion on January 27, up from 32.64 billion a year ago, according to the CBN.

The central bank kept its 200 basis point corridor around the benchmark interest rate, so its recommended deposit rate is 10 percent and its lending rate is 14 percent. The cash reserve required to be held by banks was left at 8 percent of deposits.

Source: Reuters

World Bank to cut down on financial support to Africa

Developing countries should prepare for further downside risks, as Euro Area debt problems and weakening growth in several big emerging economies are dimming global growth prospects, says the World Bank in the newly-released Global Economic Prospects (GEP) 2012.

The Bank has lowered its growth forecast for 2012 to 5.4 percent for developing countries and 1.4 percent for high-income countries (-0.3 percent for the Euro Area), down from its June estimates of 6.2 and 2.7 percent (1.8 percent for the Euro Area), respectively. Global growth is now projected at 2.5 and 3.1[1] percent for 2012 and 2013, respectively.

Slower growth is already visible in weakening global trade and commodity prices. Global exports of goods and services expanded an estimated 6.6 percent in 2011 (down from 12.4 percent in 2010), and are projected to rise by only 4.7 percent in 2012. Meanwhile, global prices of energy, metals and minerals, and agricultural products are down 10, 25 and 19 percent respectively since peaks in early 2011. Declining commodity prices have contributed to an easing of headline inflation in most developing countries. 

Although international food prices eased in recent months, down 14 percent from their peak in February 2011, food security for the poorest, including in the Horn of Africa, remains a central concern.

Developing countries, like Africa countries, need to evaluate their vulnerabilities and prepare for further shocks, while there is still time, said Justin Yifu Lin, the World Bank's Chief Economist and Senior Vice President for Development Economics.

Developing countries have less fiscal and monetary space for remedial measures than they did in 2008/09. As a result, their ability to respond may be constrained if international finance dries up and global conditions deteriorate sharply.

To prepare for that possibility, Hans Timmer, Director of Development Prospects at the World Bank, said: Developing countries should pre-finance budget deficits, prioritize spending on social safety nets and infrastructure, and stress-test domestic banks. 

While prospects in most low-and middle-income countries remain favorable, the ripple effects of the crisis in high-income countries are being felt worldwide. Already, developing country sovereign spreads have increased 45 basis points on average and gross capital flows to developing countries plunged to $170 billion in the second half of 2011, compared with $309 billion received during the same period in 2010.

An escalation of the crisis would spare no-one. Developed- and developing-country growth rates could fall by as much or more than in 2008/09 said Andrew Burns, Manager of Global Macroeconomics and lead author of the report. The importance of contingency planning cannot be stressed enough.


Source: myjoyonline.com


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Euro Zone Crisis may slow down Ghana Economic Growth

Doing Business gets more difficult in Ghana

Kwame Nkrumah Circle, Accra. © EnterpriseAfrik

The ease of doing business in the country has worsened over the past 12 months as local businesses find it quite difficult to open and run a small- to medium-size business when complying with relevant regulations, the World Bank has reported. 

This is in spite of the fact that the country has fewer obstacles in doing business compared to many other countries in the West Africa sub-region.

The World Bank in its 2012 report on “Doing Business” dropped the country’s rankings on the ease of doing business in the world from the 60th position attained last year to 63rd this year.

Yearly movements in rankings -- even though they do not reflect how the business regulatory environment in an economy has changed over time -- can provide some indication of changes in an economy’s regulatory environment for firms, but they are always relative. An economy’s ranking might change because of developments in other economies. 

According to the businesses surveyed by the World Bank, Ghana has loosened grips in all but two of the indicators used in assessing the obstacles businesses go through when doing business in the country including starting a business, dealing with construction permits, registering property, getting electricity, getting credit, paying taxes, trading across borders, enforcing contracts, resolving insolvency and protecting investors.

Though the World Bank’s rankings on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy, still, a high ranking does mean that government has created a regulatory environment conducive to operating a business.

The ease of doing business in a country influences investors’ decision in sitting their investment projects.

Apart from the World Bank, other international organisations have in recent times downgraded Ghana’s competitive edge in attracting investments because of the increasingly difficult environment in doing business. 

The latest Global Competitiveness Index report, released by the World Economic Forum (WEF) in November last year, concluded that the country’s edge in attracting investment and businesses was found to be below that of dozens of other African countries including Rwanda, Benin and The Gambia, pulling an overall index score of 3.65.

The WEF reports that businesses in the country are sweating over access to financing and choking tax rates, corruption and poor ethics in the national labour force which is affecting the global competitiveness of the country.

These developments indicate that there are other weaknesses demonstrated in a number of areas which equally require attention to move the country to a higher level of competitiveness. 


Source: myjoyonline.com

Related Article:

Euro Zone Crisis may slow down Ghana Economic Growth

Economic Horizons Darken in South Africa

This article was written by Jon Herskovitz, who passed the South African Economy under microscope during the past 17 years of ANC ruling. EnterpriseAfrik think this article should be available to our readers to digest and make their own judgement. Is Africa well positioned to take advantage of the economic and financial crisis in Euro zone?

• Economy risks slide under current ANC policies

• Joblessness looks set to rise - analysts

• Growing debt, corruption eroding business confidence

JOHANNESBURG - Trevor Ghavala has grown up in post-apartheid South Africa, and like nearly half his young adult contemporaries he is unemployed and has little chance of escaping a social underclass in which millions are trapped.

"I don't have a job ... I've never had a job. I've been asking people, doing crime," said Ghavala, 24, chewing on a piece of bread as he squatted with his back to a wall in a central street in Johannesburg's Soweto township.

President Jacob Zuma.

South Africa's African National Congress (ANC), the anti-apartheid liberation movement turned ruling party, came to power in 1994 promising to help people like Ghavala.

But after 17 years running Africa's biggest economy, critics say it has done more to enrich its leading members and allies than to help the poor masses.

At the weekend, it will hold a lavish birthday bash to celebrate its 100th anniversary with a golf tournament, banquets and concerts by the biggest stars in South African music while people like Ghavala struggle to eke out a living.

"I wish that Madiba was fresh back," Ghavala said, referring to the popular clan name of former president and anti-apartheid icon Nelson Mandela who, in a blaze of international goodwill, led South Africa into a new era of multi-racial democracy.

Mandela, elected president of the ANC after it was unbanned and he was freed from jail, led the country from 1994-1999. His departure from power was seen as an example to African leaders although the movement sees itself ruling for years to come.

It beat its nearest rival by more than 40 percentage points in elections last year, but analysts warn the party faces a defining moment in the next three years or so.

They say that if the ANC government keeps up its current policies, South Africa risks slipping to new depths of unemployment, debt and corruption that could swell the ranks of the destitute like Ghavala and undermine long-term prospects.

Critics say President Jacob Zuma, an ANC veteran and political backstreet brawler both before and since taking office in 2009, has been a virtual bystander when it comes to tackling the country's deep social and economic problems.

"We are deeply concerned about the current trajectory. A rapid turnaround would be required in Zuma's next term," said Neren Rau, the chief executive of the South African Chamber of Commerce and Industry.

ANC PUT TO THE TEST

The ANC says it has made big strides in erasing the economic and social injustices caused by decades of oppression of the black majority by a white minority under apartheid.

The government says that when the ANC took over in 1994, 62 percent of households had access to clean water and about 50 percent had access to electricity. This has increased to nearly 95 percent and about 80 percent, it says.

Underpinning the economy is the most advanced infrastructure on the continent, the strongest banks and a well-developed rule of law and judicial system, making South Africa a stepping stone for investment in Africa's quickly emerging states.

One constant that has kept the ANC government on the fiscal straight and narrow and reassured investors has been the National Treasury, led since 1994 by just two finance ministers highly praised for their fiscal discipline.

The World Economic Forum's Global Competitiveness Survey ranks South Africa as top in the world for its regulation of its security exchanges, number two in the world behind Canada for the soundness of its banks. It is also one of the easiest places for a firm to raise money by issuing shares.

But the same survey also said South Africa has some of the world's most rigid labour laws, one of its least productive workforces and a broken school system that is staggeringly bad at educating its students, given the money spent on it.

At the end of 2012, Zuma faces a party leadership election. Despite a leadership style criticised as lacking vision and ineffectual, he is widely expected to garner enough support in the fractious party to win a second term as party chief and then stay on as national president until 2019.

Against this background, analysts do not expect him to rock the boat and upset left-leaning allies with pro-business reforms such as loosening the labour market and state economic controls.

"As it approaches almost two decades in power and demands for economic delivery grow more strident, the party's ability to hold together in the same way will increasingly be put to the test," Standard Chartered Africa analyst Razia Khan said in a research note.

BOWING TO THE UNIONS

Unemployment has been a chronic problem for the ANC and has also contributed to an alarmingly high murder rate, among the highest in the world outside a war zone.

About 40 percent of the adult population is jobless - a percentage expected to rise substantially in the coming years - and this is seen driving crime and widening economic inequality.

"If the same pattern of job loss continues, we will reach very shortly, in three to five years, a situation where more people are unemployed than employed," said Andrew Levy, who heads a leading private South African labour research group.

"Economically, there will be a continually higher burden on those who are working because government will try to do more and more to ease the lot of the unemployed," Levy said.

ANC governments have poured billions of dollars into job training programmes only to see much of it lost to corruption or incompetence and the education system fails to provide basic skills.

The country has lost about a million jobs in the past two years, with the manufacturing sector the hardest hit. Many of these jobs will not come back because labour has priced itself out of the market.

The average factory worker in South Africa earns about six times as much as a factory worker in China and is less efficient. Industries in sectors which were once internationally competitive, such as footwear, have faded.

South Africa adopted rigid labour laws in large part because of the governing alliance between the ANC and the major union federation COSATU, a pact which was formed in the anti-apartheid struggle and continued after the ANC formed a government.

Zuma and other ANC leaders have tried to keep COSATU and its 2 million members close to them, not wanting to alienate a major source of votes by enacting labour reforms that would make it easier for firms to hire and fire workers.

There are four major measures before parliament aimed at appeasing COSATU that will be at the heart of the legislative agenda this year. The bills place more burdens on employers, make it more difficult for them to hire seasonal labour and drive up personnel costs.

BUDGET UNDER STRAIN

While joblessness looks set to rise, so too does the country's growing debt as pressure mounts on the ANC to open the taps to still more welfare spending.

The squeeze on state finances will likely push South Africa's debt-to-GDP ratio above 50 percent in the next three years for the first time under ANC rule, economists said. This would put the country's credit rating under pressure and could make it more expensive to borrow money.

"Debt levels will continue to rise as a percentage of GDP until 2016 when they should plateau at around 55 percent," said Peter Attard Montalto, emerging market economist at Nomura.

The budget is already under strain to pay the wages of more than 1 million civil servants, many of whom belong to COSATU-affiliated unions.

"South Africa's debt position will likely become more precarious, especially if economic growth continues to disappoint," said Anne Fruhauf, a specialist on Africa at political risk consultancy 

Eurasia Group.

If the global economic crisis leads to slower growth in South Africa, and lower tax revenue as a result, the government wage bill could well reach about 50 percent of tax revenue within three years, leaving even less money for other spending.

On top of this, the government plans to begin rolling out a National Health Insurance programme it said will cost 125 billion rand ($15.6 billion) this year, about 13 percent of the state budget.

"PREDATOR ELITE"

There is also a growing clamour from ANC supporters to improve delivery of electricity, running water, schools and other basic services to the poor. Analysts say this is undermining the ANC's voter support.

Improvements the ANC has made so far have not satisfied the poor black majority, which sees progress as too slow and complains of incompetent local officials. Scores of violent protests have added to the pressure for better services.

The country has also slid in Transparency International's highly regarded gauge of perceived corruption, from 38th in the world in 2001 to 64th in 2010, a trend that worries many citizens, long-time ANC supporters among them.

"The problem is the leaders. They must deliver, They are corrupt," said Soweto resident Mzwandile Sifile, expressing a widely held view.

Corruption has also undermined investor confidence.

There is also growing anger with ANC economic empowerment policies that were nominally designed to reverse apartheid era curbs that had largely shut blacks out of the economy.

Many see the programmes as benefiting just a few people with ANC connections. COSATU has said they have lined the pockets of a corrupt "predator elite".

"We are still waiting for the delivery," Soweto resident Sifile said. "We are still hoping for the best."

Source: Reuters