Business Day (SA)

As Egypt storms ahead with its ambitious and bold economic reform programme, it is attracting considerable investor interest.

Africa’s third-largest economy and, with 95-million people it is most populated after Nigeria and Ethiopia, Egypt is a compelling consumer play. Some of the world’s biggest multinational companies have deep roots there and plan to invest heavily in new products and manufacturing capacity in the next few years.

Mega projects in infrastructure, urban development and other sectors are driving new investment, both domestic and foreign. The government is targeting $10bn of investment in its fast-growing energy sector alone. This week, Uber launched its bus service in Cairo, with plans to spend $100m in Egypt in the next few years.

President Abdel Fattah el-Sisi is a man in a hurry. He began a wide-ranging reform process in 2014 and in late 2016 the IMF came on board with a $12bn loan agreement designed to deepen the programme and keep it on track.

The reforms are tough and the president has asked Egyptians to roll with the punches as he tries to stabilise the country and set it on a more sustainable growth path. He says the process is necessary to address entrenched practices that made Egypt inefficient, expensive and uncompetitive.

The IMF drove a hard bargain. Its conditions included the phased withdrawal of electricity and fuel subsidies as well as the floating of the currency. The Egyptian pound was in effect devalued by 50% overnight, while the subsidy withdrawals saw prices double.

In mid-2017 inflation hit a record high of 33.4% and interest rates went sky high as the authorities tried to moderate inflationary pressures.

Consumers have pulled back their spending and companies have had to adjust their operating models and consumer offerings and cut margins to survive rocketing prices. But the weaker currency has given impetus to the country’s ambition to become a manufacturing hub for the Middle East and Africa. Tourism, a critical sector for jobs and revenue, is also rebounding on the back of a weaker pound.

The government has introduced laws to make the operating environment easier and to attract new investment. Social safety nets and other measures have been put in place to try to offset the hardships for some at the base of the pyramid and there are numerous initiatives under way to build up micro, small and medium enterprises.

Critics point to the bad timing of the government’s massive spending on mega projects, particularly the $45bn new administrative capital under way outside Cairo, saying money would be better spent on less elitist projects at a time of increasing economic hardship for Egyptians.

But the government counters that new urban development is an investment in the future to accommodate population growth of more than 2% annually and to decentralise development and jobs away from Cairo, already one of the world’s largest and most congested cities.

There have been some quick wins. In 2017 Egypt reported its highest economic growth in a decade — 5.3%, up from 4.2% the previous year. Foreign direct investment increased by 24% in the first half of 2018 compared with the same period in 2017.

Inflation has come down to about 13%, and exports are rising. Egypt was also one of the best performers on the 2018 World Bank doing business index.

The political will behind the reform process is unprecedented, with ministers and officials tasked with implementing it under great pressure to deliver.

Sisi’s challenge is to maintain the momentum of reform. The multipronged strategy is finely balanced and needs the will of the people to keep it on track. Analysts say this requires consumers to start feeling the gains in their pockets. There are also concerns about the government’s intolerance of political opposition, the fact that Egypt is in a dangerous neighbourhood and the possible effect of negative emerging-market sentiment on the country’s big plans.

Business believes the reforms will be bedded down in two or three years and the real benefits will start to be felt. Consumer multinationals such as Mars Egypt, Unilever, Nestle and Pepsico Egypt have millions of dollars lined up for or already invested in the country. Investment in the energy sector increased by 300% in 2017 over the previous year.

Sisi’s bigger plan is to position Egypt as an export-led economic powerhouse in and for Africa within five years, using its geographical advantage as a gateway to Africa from the Middle East and Europe to best effect.

The rest of Africa is very much on Sisi’s radar and he has spent a good deal of time courting leaders from the continent. His election to the chair of the AU in 2019 is an opportunity to bolster Egypt’s long dormant ties with the continent.

Egypt’s longstanding membership of the Common Market for Eastern and Southern Africa (Comesa) has helped it maintain economic ties with the rest of Africa. It was one of the first countries to sign up to the Continental Free Trade Area launched in 2018.  In December, Sisi hosted Egypt's third annual Africa investment event, together with Comesa's Regional Investment Agency, attended by several African leaders.

The rest of Africa is not new political territory for Egypt. Admittedly, the golden age of Egypt-Africa relations was a long time ago, under the rule of Abdel Nasser, a dedicated supporter of Africa’s liberation movements and Organisation of African Unity chair in 1964. However, following his death in 1970, the engagement has drifted as subsequent leaders focused more on the Arab world.

Egypt was suspended from the body for a year in 2013 following the military overthrow of Mubarak’s successor, Mohamed Morsi, head of the Muslim Brotherhood party. But relations are now back on track and since 2014 Sisi has been actively building political and economic ties.

Egypt is becoming a force to be reckoned with as investors consider their options in Africa. While SA and Nigeria, long viewed as essential partners in Africa’s development, are diverted by domestic issues, other centres of power are starting to develop.

Politically, Sisi has been courting old foes such as Ethiopia to solve longstanding issues over the waters of the Nile, a river Egypt shares with nine other African countries.

Tanzania has provided a quick win, with an Egyptian construction and energy consortium recently winning the contract to build the $2bn Rufiji hydroelectric dam. Sisi’s visit to Tanzania to lay the dam’s foundation stone was the first by an Egyptian leader since 1968.

A year at the helm of the AU will allow an economically strengthening Egypt to position itself as an influential force in the rest of Africa. With a big vision, strong political leadership determined to deliver that vision and an increasingly competitive private sector, the country is set to become a key player in Africa’s near-term future.

• Games is CEO of advisory company Africa@Work and has been doing research in Egypt

Business Day - 2 March 2018

Former president Jacob Zuma was seen by many in Africa as a great leveller. This was not because of any attempt to address inequality among his people but because he aligned SA to the broader African experience of governance. His behaviour, together with that of his ministers and friends, removed any sense that SA is exceptional in Africa, a perception that used to be held by many in the international community but also by South Africans themselves.

Zuma can take responsibility for finally putting that issue to rest.

As SA’s media uncovered the excesses and murky strategies of the Zuma administration, revealing new dirt almost daily, many Africans expressed concern about SA’s trajectory. This was not because their own governments were better, but because they weren’t. They have lived with the continued erosion of value in their institutions, lifestyles, governance and other key areas of life. African countries from west to east have shown at times in their history how easily the rot at the top eats its way down, undermining moral and ethical propriety at all levels of society.

Nigerians maintain that SA is a beginner in the corruption stakes – their leaders and military dictators have siphoned billions from the fiscus for decades. Their lesson has been that self-interested leadership breeds endemic corruption. The longer rotten government is in place, the more moral laxity pervades the social fabric of the nation. It is hard to turn this around.     

THE recent "tuna fleet" scandal in Mozambique raises questions about whether another African success story might be heading for choppy waters, WRITES DIANNA GAMES. 

The country is facing censure over evidence that the government may be using a big chunk of $850m raised on international capital markets three years ago to buy arms and not the large fleet of fishing boats the money was earmarked for.

Earlier this month, the International Monetary Fund (IMF) cancelled the second tranche of a $285m emergency loan it had granted at the end of last year and cancelled an IMF mission to the country scheduled for later this year.

Mozambique’s credit rating has also been cut in the wake of the evidence of misuse of the money.

The capital-raising exercise was initiated by the government, which said in its investment prospectus it wanted to raise money for the expansion of the country’s newly launched and totally unknown tuna fishing company, Ematum.

The deal immediately raised eyebrows, with donors asking questions about why a country with significant development challenges would raise its debt profile to this extent just for fishing boats.

The critics of the deal were proved right when it later emerged that most of the money was, in fact, spent on security.

Africa Confidential reported subsequently that the Mozambican government raised debt to the tune of closer to $1.5bn in a series of undisclosed deals — information that has apparently shocked the IMF, which has just lent Mozambique funds to help it with its current economic woes.

The evidence has come to light in the wake of Mozambique’s attempt to restructure the bond, which it is battling to repay.

This has raised fears of a default ahead of the seven-year payment term. Read more ... 

- Published in Business Day SA, 25 April 2016. Picture: Jeremy Glynn.

THE admission by Nestlé that it overestimated the size of Africa’s middle class has caused ripples in the "Africa rising" story. But it is also a much needed reality check for companies that have pinned their hopes — and their investments — on ambitious growth forecasts of the middle-class pot of gold, writes DIANNA GAMES

Pubished in Business Day SA, June 22 2015.

Last week, the multinational food producer said it was cutting 15% of its workforce across 21 African countries and reducing its product lines. In 2008, it decided to invest heavily in sub-Saharan Africa based on projections of rising middle-class demand. Last week, it said turnover was way short of growth forecasts.

Much new investment in Africa in recent years has been based on the potential of this rising middle class despite the fact that the size and actual spending capacity of this category of consumer is rather hazy.

The African Development Bank’s 2011 research estimated that 34% of Africa’s population — 313-million people — was middle class.

Read more ...

As long as politicians enjoy official passports and visa-free travel to many countries in Africa, the political will to change the situation will not be there, writes DIANNA GAMES

Published in Business Day SA on 8 June 2015

THE best African passports to have are those from The Gambia, Côte d’Ivoire or Kenya. Why? Because travellers with these passports need visas for just 41% of African countries, lower than the average of 55% of countries requiring Africans to have visas for other African countries

The worst to have is a Somali passport, even though the country does not require visitors to have visas — rather unsurprisingly.

These findings from research conducted by McKinsey were part of a broader discussion at the recent African Development Bank annual meetings in Abidjan, where business people, politicians and others raised questions about why the free movement of people across the continent, enshrined in the founding principles of pan-African organisations, is still difficult. The issue is one of the sticky items on the agenda of the Tripartite Free Trade Area negotiations, which are scheduled to be launched at this week’s African Union summit in Johannesburg. The free trade area, due to be launched in 2017, will cover an area stretching from Egypt to Cape Town.

Many of those governments around the table will be the same officials who have visa regimes in place for fellow Africans. Read more ...

Nigeria’s agriculture minister who takes over the bank this year has the energy and vision to take this premier African institution into the future, writes DIANNA GAMES

Published in Business Day SA, 1 June 2015

THE new African Development Bank (AfDB) president, Nigeria’s Akinwumi Adesina, has been a breath of fresh air in African agriculture.

As Nigeria’s agriculture minister, he worked to cut Nigeria’s $11bn-a-year import bill for basic foodstuffs by looking at innovative funding mechanisms, tackling corruption and improving efficiency.

He tried to reframe the sector as being a critical catalyst for growth rather than a tool for poverty alleviation. "We were looking at agriculture as a developmental activity, like a social sector in which you manage poor people in rural areas. But agriculture is not a social sector… (it) is a business."

Read more ...

Muhammadu Buhari may have ben handed a poisoned chalice, having to balance tackling a litany of economic and security problems while satisfying Nigerians' expectations of change, writes DIANNA GAMES

Published in Business Day SA, 25 May 2015

NIGERIA is facing a crisis of expectations as it heads for one of the most auspicious moments in its relatively short 16-year democracy.

The inauguration later this week of Muhammadu Buhari is expected to bring significant change to this large, complex nation.

Not only will Nigeria have a different head of state, it will have a new cabinet and two-thirds of the 36 states will be changing governors after the opposition All Progressives Congress won at the polls this year, displacing the Peoples’ Democratic Party, which had governed Nigeria since 1999.

While this presents an opportunity for a new broom to sweep away much of the rot that has dogged Nigeria’s progress, it’s a formidable task. Read more ...

The outgoing president has become a household name in Africa for his stellar performance and innovative policies. He leaves big shoes to fill, writes DIANNA GAMES.

Published in Business Day SA, 11 May 2015

A LANDMARK election is coming up later this month that will affect Africa’s fortunes over the next decade — and yet most Africans are unaware of it.

The election of a new president of the African Development Bank (AfDB) looms as Donald Kaberuka spends his last few months in office after a decade at the helm.

When Kaberuka, former finance minister of Rwanda, was voted into the job in 2005, Africa was a different place. There was no talk of Africa rising, China was just starting to make its mark in Africa and the 2008 financial crash lay in the future. Africa was awash with fragile states and the possibility of middle-income nations emerging across the continent was some way off. Read more ...

Mugabe's many excuses for a feeble economy have worn thin in Zimbabwe, where many people still await an "indepence dividend" as the country markets 35 years of independence, writes DIANNA GAMES

Published in Business Day SA, 13 April 2015

ZIMBABWE President Robert Mugabe raised some laughs with offbeat remarks and jokes during his state visit to SA last week. Back home, though, there was little to smile about as the country headed for its 35th anniversary of independence this weekend.

After decades in power, Mugabe presides over an economy that the African Development Bank has described as "fragile".

The bank says Zimbabwe is undergoing "structural regression", the key features of which are accelerating informalisation of the economy and de-industrialisation.

Mugabe’s bellicose speech about black empowerment delivered to an applauding audience at a business forum in Pretoria last week failed to mention that about 55,000 people have lost their jobs in the three years to 2014 as 4,610 companies closed their doors, unable to survive the economic ravages his populist policies have wrought.

Mugabe’s administration, with few scapegoats left to blame for the state of the economy, still tries to point the finger at sanctions as the reason for its misfortune. While limited, targeted sanctions are in place, many of the world’s wealthy emerging markets have no sanctions whatsoever against Zimbabwe, but they are not investing there.

Read more ...

South Africa may be more sophisticated than other important markets in Africa, but political complacency and stagnating economic growth are getting foreign - and local - investors to look at high growth and good returns north of the border, writes DIANNA GAMES

Published in Business Day SA, 30 March 2015

AFRICANS from other countries often ask me why SA is squandering its obvious advantages. Many of them come from countries that have hit economic rock bottom and know what a long, hard road it is to recovery.

Although it is still easier to operate in than most other African countries, it is generally regarded as being on a downward trajectory, characterised by slow economic growth, policy confusion and a focus on short-term political priorities.

The country may be considerably more sophisticated than other important markets in Africa, but political complacency and stagnating economic growth have served to highlight, inadvertently, what competitors north of the border are offering — high growth, good returns and improving governance.

A survey conducted by the Economist Corporate Network among more than 200 CEOs, both local and foreign, in 25 industries across Africa, reflects an unfortunate trend — the relative decline of SA as a key market of choice for Africa-based investors over the next five years.

Read more ...