Walmart’s Massmart takeover sparks US interest in Africa

NORTH American investors have seen the successful takeover of South African retailer Massmart by US giant Walmart as a signal that investing in Africa is a valuable proposition.

Africa is seen as a major investment frontier because of its young population, untapped resources and economic instability in other regions such as the European Union, African Venture Capital Association CEO Michelle Essomé said in an interview on Friday.

The North American interest in African businesses had only developed recently.

Ms Essomé said this did not mean that investors would be flocking to Africa. "It takes time, but African leaders are starting to communicate better with investors.

"We have noticed express interest from American companies since the Walmart purchase of Massmart."

The South African government had initially expressed reservations about the $2.4bn takeover, saying in 2011 that it would destroy jobs and lead to a decline in local manufacturing and production. But the deal went ahead with conditions.

One of the conditions was that the government and the merging companies should set up a study on how smaller companies could participate in Walmart’s supply chain.

Massmart corporate affairs executive Brian Leroni said he could not comment in detail on how Walmart had influenced Massmart’s performance as it was in a closed period.

But Mr Leroni did say there had been a positive effect. "There are numerous benefits associated with the merger with Walmart, which include benefiting from Walmart expertise as we develop our new retail food supply chain."

Further, Massmart had benefited from adopting Walmart’s supplier planning processes to improve merchandise availability and the local farmer development programme to improve fresh food supply chain efficiency.

Innovative product promotions were another benefit Massmart had enjoyed. An example of this was the ten-week extended price cut promotions that generated in excess of R300m savings for consumer savings.

Ms Essomé said various American companies were interested in developing infrastructure and working in various sectors in Africa, especially in oil and gas. But investors from developed countries still believed there could still be too much state interference in business affairs on the continent.

http://www.bdlive.co.za/world/africa/2013/02/15/walmarts-massmart-takeover-sparks-us-interest-in-africa

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Foresight Africa: Top Priorities for the Continent in 2013

Africa starts 2013 with hope and optimism. Africa has dropped its mantle as a “doomed continent” and has weathered several global economic crises fairly well. Today, the continent is a land of opportunity both for Africans and international investors. Many now see the region as “emerging Africa” because of the positive changes that have taken place and continue to take place across the continent.

Africa has changed, moving from economic stagnation to above 5 percent GDP growth on average. The continent is now home to some of the fastest growing economies in the world: Ethiopia, Ghana, Mozambique and Tanzania. This growth has helped build a burgeoning middle class, which has created new markets for goods and services. Investors focused on tapping into these new markets in Africa are likely to find it easier to do business there than ever before as African governments are working to reduce transaction costs. In addition to growing consumer markets, African countries have discovered additional natural resources. If managed properly, these resources could help spur further economic growth and development for the region and improve the lives of millions.

Such an optimistic outlook for the continent means that African and global policymakers must get ahead of the challenges and opportunities for an important year of decision-making. Since 2010, the Brookings Africa Growth Initiative (AGI) has asked its scholars to assess the top priorities for Africa in the coming year. This year, AGI experts and colleagues have identified what they consider to be the key issues for 2013 and ways to leverage opportunities so that Africa can continue its “emerging” momentum. The following briefs in the Foresight Africa collection are meant to create a dialogue on what matters in Africa for 2013, and it is our hope that this dialogue will continue through the year.

Download the full 2013 Foresight Africa report » 

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South Africa -State cannot build cheaper — Trevor Manuel

It is a mistake to assume that the state alone is responsible for improving infrastructure and can deliver it more cheaply than the private sector, says Planning Minister Trevor Manuel .

He questioned the controversial decision by the Cabinet last week to veto a deal between Telkomand South Korea’s KT Corporation, which would probably have resulted in lower data prices for consumers.

Deputy President Kgalema Motlanthe on Tuesday praised South Korea for propelling itself into the top-eight richest economies in the world by setting up a knowledge-based economy.

"Even when lucrative offers are on the table we seem not to be able to utilise them," Mr Manuel told a conference yesterday organised by the Bureau for Economic Research.

"We think we as a state can deliver more cheaply than the private sector."

KT was set to buy a 20% stake in Telkom for R3,3bn — a badly needed cash injection for the ailing company — but that would have diluted the government’s 39,8% share in Telkom.

Mr Manuel said capacity was a "fundamental challenge" in implementing the plans to upgrade SA’s infrastructure.

The government aims to spend R845bn over the next three years to improve roads, railways and ports, increase power supply and improve social infrastructure.

"This notion that the state should be responsible for delivery ... is a non-starter. If we want transformation, a lot will emerge from partnerships (with the private sector)," Mr Manuel said.

His comments are the strongest acknowledgement yet by a Cabinet minister that the government lacks capacity to deliver on its infrastructure plans.

Last week, Transnet CEO Brian Molefe said that possible capacity problems were one of the threats to the group’s R300bn investment programme.

Grahame McCaig, MD of construction and engineering group Aveng Grinaker, told the conference he was "shocked" by the dilution of skills when he returned to SA after an 18-year absence.

"It’s not just general management skills but trade skills ... manufacturing and construction productivity are going down.

"We need people who can use their hands ... it’s not just a South African issue, but it needs to be addressed very urgently."

Mr McCaig said more than 80% of his firm’s R34bn turnover in the financial year 2010-11 was generated by private sector projects. Lack of engineering skills in the government and municipalities was responsible for the lack of public sector participation.

A Presidential Infrastructure Co-ordinating Commission study released last month counted 5515 engineers in the public sector.

Mr Manuel said infrastructure should be paid for by its users, although the state had a role to pay in "lengthening the payback period". But the poor should be shielded from this, he added.

He was critical of the idea that high wage settlements would boost demand, saying they would only lead to greater poverty and inequality. Finance Minister Pravin Gordhan has pledged to keep public sector pay rises in check this year, but unions are already threatening action as their demands are not being met.

Global rating agencies have warned that the outcome of the negotiations could affect SA’s investment grade credit rating.

It was "necessary for the state to have the best sovereign rating that it can", Mr Manuel said.

isam@bdfm.co.za

DIFC-based firms boost deposits to $12.8 billion

Issac John / 29 May 2012

The Dubai International Financial Centre, or DIFC, said on Monday that deposits out of the global financial hub have grown in the past three years at an average annual rate of 39 per cent to reach $12.8 billion at the end of Q1 2012.



Loans and advances of DIFC’s regulated entities rose over the same period at an average annual rate of 40 per cent to reach $14.7 billion.

Assets under management at DIFC-based companies remained steady, and recorded $8.1 billion during the period.

Abdulla Mohammed Al Awar, chief executive officer of the DIFC Authority said the numbers were testament to the successful growth in the breadth and depth of financial activity within DIFC due to the diverse services provided by the regulated firms. “As one of the global financial hubs, it is natural that we are observing an influx of new companies from around the world, especially banking and financial services firms, who are attracted by the vast opportunities the region offers.”

“Our effort toward enhancing DIFC’s legal and regulatory framework as well as its physical infrastructure positions DIFC as an ideal platform for regional and international growth,” said Al Awar.

He said DIFC continued to grow steadily as one of the world’s established financial centres. “As of March 2012, the DIFC community comprised 861 active registered companies (322 regulated and 539 non-regulated companies); already two per cent up on 2011 numbers.”  Dr Nasser Saidi, Chief Economist at the DIFC, said the hub is the only international financial centre that collects and publishes financial activity data of its registered entities.

“What the data clearly shows is that DIFC entities have witnessed continued real growth over the past three years, despite the international financial crisis and regional events.  “Deposits and credit growth rates of DIFC-based companies have also been substantially higher compared to those of the GCC area banks. We expect higher growth to continue as DIFC-based companies expand their activities further.”

The DIFC is home for 21 of the world’s top 30 global banks, 8 of the top global money managers, 6 of the 10 largest insurers and six of the top 10 law firms in the world.

The DIFC statistics are collected from different sources.

The DIFC Economics team and the Dubai Financial Services Authority provided data and estimates. Other information, including data on deposits, credits, and assets under management outside the DIFC, were collected from monetary and statistical authorities’ websites and other databases.

issacjohn@khaleejtimes.com

Al Maliki holding Iraq to ransom

Democracy is not served by political instability and pushing for a military showdown with Kurds

The roots of Iraq’s present political conflict lie in the 2010 elections. But in reality, the problem started since the establishment of the country in the 1920s. Almost a century has passed, but these conflicts have not been resolved.

The problems between different Iraqi blocs are numerous and varied. However, the most dangerous of them is the conflict between the government in Baghdad and the Iraqi Kurdistan government. Some say that it is a conflict between Kurds and Arabs though Iraqi governments prior to 2003 saw it as a form of Kurdish mutiny.

Kurds consider the conflict as a struggle for gaining their legitimate rights in their land.

Iraqi governments, in both the monarchy and the republican eras, tried to resolve the conflict through force. The results were devastating as the clashes depleted Iraq’s human and financial wealth. The struggle also obstructed Iraq’s development plans and contributed to undermining its national security, leading to interference from neighbouring countries.

Iraq’s political atmosphere was never devoid of dangerous tensions, but after the downfall of the Baathist regime, it has entered a new phase that is threatening to destroy the foundations of democracy.

Prime Minister Nouri Al Maliki is at the centre of these developments, and has been targeted by many. He has clashed with fugitive vice-president Tareq Al Hashemi, deputy prime minister Saleh Al Mutlaq, chairman of Al Iraqiya bloc Eyad Allawi, president of the Kurdish province Masoud Barzani and Sadrist leader Muqtada Al Sadr. Al Maliki is probably having problems with those in his own Al Dawa party.

Political survival

It is difficult to see Al Maliki emerging unscathed from these conflicts as all these forces are closing in on him in a joint attempt to get him out of office.

Playing on the interests of the US and those of regional powers, which served him well in recent years, will not ensure Al Maliki’s political survival, as finding a substitute is not very difficult.

The opposition has lately become more influential and has begun to take the initiative.

It recently held a meeting that was also attended by Al Sadr. A memo was sent by those who met in Arbil to the Iraqi National Alliance (INA), giving them two weeks to reply and threatening a no-confidence motion if they failed to comply. The two weeks went by, and another meeting was held in Najaf. The INA was given another week to choose a new prime minister.

Members of parliament threatening to go ahead with the no-confidence motion against Al Maliki constitute a majority in the house. However, whether or not they actually go ahead with this decision is not guaranteed. Each lawmaker has a number of issues that decide his or her position, and some of those are personal and related to re-election. Other factors that may influence the decision may relate to the power vacuum Al Maliki’s dismissal may create.

The INA expressed its backing for Al Maliki as a reply to the Arbil ultimatum. It also pointed out that it does not mind instituting reforms if Al Maliki can continue as prime minister.

In the midst of all this, the prime minister decided to turn the tables and transform the struggle into a conflict with the Kurds.

Al Maliki, accompanied by ministers from the federal government arrived in Kirkuk on May 8 to hold a cabinet meeting. His visit was preceded by military forces, who had orders to drive away any militia.

The struggle has become extremely tense.

Kirkuk drama

Al Maliki chose Kirkuk as a battleground so as to announce from an Iraqi city that includes every component of Iraq’s ethnic and sectarian groups that the demand of the Kurdish province to include Kirkuk is unacceptable to his government. And that the Constitution’s item 140 — relating to Kirkuk determining its future — is not applicable.

Thus, Al Maliki decided that the differences, and the mechanisms to solve them, will not be settled through the constitution. He was also very clear about freezing it until the end of his tenure. All this will serve Al Maliki’s opponents, who accuse him of being autocratic.

Al Maliki’s shortsightedness is dangerous as it contravenes the strategic alliance between the State of Law and the INA.

Al Maliki is pushing towards a military a showdown with the Kurds at a time when they are stronger than ever before — locally, regionally and internationally.

He is betting that his dangerous step will break the opposition alliance against him, as he thinks he will be seen as fighting a national battle. He is also betting on other smaller alliances with those who have already walked out on Al Iraqiya.

Al Maliki’s statements about freezing the constitution raise concerns about his seriousness regarding democracy in Iraq. Talking about freezing the constitution is akin to a coup against the political process in Iraq. It is like declaring a state of emergency, wherein the government does what it pleases.

Dr Mohammad Akef Jamal is an Iraqi writer based in Dubai.

Opportunity still in the air across the GCC

Abu Dhabi accounted for 70% of the $20b in contracts awarded between first quarter and third quarter of 2011

Dubai: Investment opportunities worth more than $500 billion (Dh1.83 trillion) in energy, transportation, education, health care and other critical sectors of economic development continue to beckon for contractors in the Gulf, industry experts said.

"GCC countries have significant trade surpluses which they are planning to invest in order to diversify their economies' dependence on oil revenues and also to develop their countries and satisfy the demands of their people following the Arab Spring. The region certainly is expected to continue to offer a lot of opportunity for contractors," said Rizwan Shah, managing director, Corporate Finance, and leader of Deloitte's Capital Projects Advisory services practice for the Middle East.

Despite grappling with challenges and delivery issues related to current projects, major opportunities remain prevalent in Saudi Arabia, Qatar, Abu Dhabi and Iraq this year.

Shah said the UAE is ranked the second largest market with investments worth $9 billion allocated to buildings, infrastructure and energy in the first quarter.

Abu Dhabi in particular accounted for 70 per cent of the $20 billion in contracts awarded between first and third quarters of 2011.

Driving this growth, with over $12 billion in awarded contracts, the emirate is placing "particular attention on transport, utilities and social infrastructure," Shah said.

Of the biggest investments currently underway is Qatar's plan to spend $100 billion in preparation to host the 2022 World Cup and Saudi Arabia's capital spend programme approaching $400 billion over the next ten years.

Laurie Voyer, CEO and managing director of Al Habtoor Leighton LLC, said: "The market is probably best described as challenging. The challenges we're facing now, as described above, will remain for the foreseeable future."

Area of growth

However, he said significant opportunities still exist — particularly in Qatar, Saudi Arabia and Iraq — and for those who are able to demonstrate that they can deliver to an international standard, the region can still be an area of growth."

Backed by vast oil-based reserves and government stimulus packages, Deloitte's latest report said that the economic prospects of the GCC region have remained positive despite ongoing political unrest in the wider Middle East.

"The oil and gas exporting countries, such as Saudi Arabia, Qatar and Abu Dhabi, have an additional objective which is the need to diversify their economies away from the traditional petrochemical and hydrocarbon industries.

"This is also driving infrastructure spending in these countries.

"These countries are now looking at how to take advantage of existing strengths to develop upstream industries — and the focus has shifted to construction," Shah said.

Construction contracts alone worth $40 billion were awarded to contractors in the first quarter of 2011, 47 per cent of which were in the energy sector.

"The region certainly is expected to continue to offer a lot of opportunity for contractors," said Cynthia Corby, audit partner Deloitte Middle East and leader of the construction industry for the UAE.

The report indicates that there are vast opportunities across the Middle East, with longer term infrastructure investment plans for the region estimated to be in excess of $1 trillion.

In terms of projects in the pipeline across the Middle East, the majority are social (36 per cent); 29 per cent power-related; 13 per cent in transport and 13 per cent in oil and gas.

Budget value of contacts to be awarded in Saudi Arabia in 2011 onwards is set to increase to $35 billion, as compared to $25 billion in 2006.

The government is undertaking grand investments, with plans nearing $400 billion in five years, demonstrating an increasing trend of projects that will need to be awarded in the coming years ahead. The construction market is therefore expected to be one of the most buoyant in the world.

Qatar holds an eight per cent share of the value of the regional projects. Projects planned to be underway in the future are valued at approximately $230 billion

South Africa - State fiscal watchdog warns on spend plans

The Finance and Fiscal Commission has cast doubt on the effectiveness of infrastructure spending to create jobs and redress poverty unless it is supplemented by other critical policy interventions.

The government and state-owned companies plan to spend about R845bn on infrastructure over the next three years, which they expect will contribute significantly to meeting the government job-creation target of 5-million jobs in 10 years. This spending is also key to the government’s New Growth Path policy and Industrial Policy Action Plan.

The commission, an independent body established by the constitution to make recommendations on fiscal policy and to assess the effect of government policies, urged the adoption of job-creation policies such as giving incentives to companies that create employment, enhancing productivity and promoting the informal sector.

The commission also argued in its 2013-14 submission for the division of revenue, tabled in Parliament on Friday, that the failure of the government, business and trade unions to reach a social compact on job creation needed "urgent redress".

Acting chairman and CEO Bongani Khumalo stressed at a media briefing yesterday that the report was intended to promote innovative initiatives to enhance economic development. The commission noted that "the negligible impact on growth of interventions such as an expansive infrastructure strategy or expanded public expenditures has important implications for fiscal policy".

The commission’s researchers examined several studies on the effect of infrastructure spending on projects such as roads, sanitation, electrification and dams on economies in sub-Saharan Africa. They found that while some were beneficial for poverty reduction, others actually caused poverty.

"At the very least, the finding suggests government interventions that emphasise infrastructure alone will make little impression on employment. Therefore, such interventions are not an adequate basis for introducing new economic sectors or raising the capabilities of existing economic sectors," the report read.

"Rather than replacing ageing infrastructure, new infrastructure should be used as a catalyst and long-term solution for economic development and job creation.

"The analysis shows clearly that fiscal policy (infrastructure and current expenditures) alone is not going to solve job-creation problems unless complemented by other interventions.

"New investments are required that allow shifts towards jobs and knowledge-intensive production and provision of government services. In all cases fiscal policy needs to be consistent with long-term fiscal objectives and take into account the limits of direct public-sector employment."

Department of Trade and Industry director-general Nimrod Zalk said the department would not disagree with the commission’s assessment that a wide range of interventions was needed to create jobs.

"Public investment will create important opportunities to either create new industries or generate a step change in production and employment in some existing industries. This includes establishment of an industry to supply components into renewable energy generation as well as to build rail rolling stock, both for the South African market and for export," Mr Zalk said yesterday

Investment Solutions chief strategist Chris Hart said yesterday infrastructure spending was "an important component, but not a necessary component" of job creation.

Such spending would not automatically produce spinoffs for economic growth and job creation as commonly assumed. Many examples show ed it had not generated growth, notably in Europe. The critical issue was decent economic leveraging off the spending, Mr Hart said.

"Infrastructure is only one aspect, but the government has pinned its entire strategy on infrastructure and virtually very little else. This one can see by the way they allocate resources," he said.

The commission recommended that companies that excelled in job creation should be rewarded and the Public Investment Corporation should direct its investments into such JSE-listed companies.

ensorl@bdfm.co.za