Monday, November 29, 2010

Farmers use mobile phones to enter financial markets in Africa

Thousands of small farmers in Africa will be able to negotiate better prices for their crops thanks to real-time market data sent to their mobile phones, the Ghanaian company behind the scheme said.

The mobile phone application, which sends farmers market data via SMS messages, can be used to monitor prices, crop demand, weather and the location of seeds and fertilizers, software company Esoko said.

The International Finance Corporation and Soros Economic Development Fund (SEDF) have invested $2.5 million in the company, which they think will help revolutionise the terms of trade for small-scale agriculture on the continent.

“Over two-thirds of Africans are engaged in small-holder agriculture so the potential social impact upside is enormous,” Benjamin Matranga of the Soros Economic Development Fund (SEDF) said by telephone from Nairobi.

Farmers send an SMS message with a specific commodity code and receive a list of wholesale and retail prices at markets across the country. Such systems have been used in East African countries such as Kenya but are less prevalent in West Africa.

The platform is interactive so farmers can also publish information, helping companies or governments conduct surveys of rural populations who were hitherto hard to reach.

In northern Ghana, where the system is being piloted, farmers use the data to compare prices around the country and map price changes over time.

“The farmers seem to be getting between 20-40 percent revenue improvements,” Esoko founder Mark Davies told Reuters.

The service, which costs $1 per month, has allowed some farmers to even double their profits by avoiding traders and sending their produce directly to cities like Kumasi or the capital Accra, he said.

Earlier this year Esoko launched a non-tradeable commodity index that tracks wholesale and retail prices of selected agricultural products across the country and through time - a system Davies hopes to roll out across the continent.

“There's a lot of interest in setting up commodity exchanges across Africa,” he said of an index which currently covers 12 commodities including groundnuts, white maize, millet, soya beans, rice, cowpeas, cassava tuber, wheat, tomatoes and yams.

“One of the things that has been time and again identified is that Africa suffers from a lack of transparent market information, and we think that Esoko has cracked how to make this element sustainable,” Jason Downes, senior investment officer at IFC, told Reuters by telephone.

Africa is one of the fastest growing regions for mobile subscribers, increasing 18 percent over the year to September, according to business intelligence firm Informa. Their research shows Africans account for 10 percent of global subscribers, reaching over 500 million at the end of September.

That in turn is changing how the continent does business, said Esoko's Davies.

“We're seeing huge demand from all kinds of businesses and services across Africa that aren't ready to fully computerize, but want to be able to quickly and cheaply move information up and down their supply chain,” he said. - Reuters

Tuesday, November 23, 2010

Eskom Profitable, Finds Funds for Expansion

South African power utility Eskom reported a surge in first-half profit on Tuesday, boosted by higher power tariffs, and said it had secured the necessary funding for its expansion programme.

The state-owned firm, which supplies 95 percent of electricity in Africa's largest economy, said net profit for the six months to end-September was 9.5 billion rand ($1.4 billion), compared with 1.1 billion rand in the same period a year earlier.

Revenue totalled 51.1 billion rand, compared with 38.3 billion rand in the same period a year earlier.

The utility said its first-half earnings were boosted by the high tariffs and increasing demand and low maintenance during the winter period.

Eskom was granted an annual increase in power tariffs of around 25 percent for three years and said it may apply for two additional such increases.

Eskom, which had been struggling to raise the 440 billion rand it needs over seven years to build new power plants to meet fast-rising demand in South Africa, said it had identified sources of funding for its capacity expansion programme.

“We now have the certainty we need to go ahead with the build programme,” chief executive Brian Dames told a news conference.

The government has given Eskom 350 billion rand of guarantees, a 20 billion rand equity injection and a loan of 60 billion rand. In addition, Eskom has secured funding from various international institutions, including a $3.75 billion loan from the World Bank.

Eskom has also said it would tap the US bond market in early 2011 for cash to pay for new power stations and other infrastructure desperately needed to avoid a power crunch.

Eskom is currently building two new 4800 MW coal-fired power plants. Any delay in the two plants would prolong and exacerbate a power supply shortfall in South Africa, the world's top platinum producer and a major producer of gold.

“Supply will be tight up to 2015, and particularly so next year and in 2012, until our large new power stations come on line,” Dames said.

Eskom has had a monopoly on the country's power supply but independent producers are expected to join the generation business under a new government energy plan currently under discussion.

South Africa suffered serious blackouts in early 2008 after the national grid nearly collapsed, forcing mines and smelters to shut for days and costing the economy billions of dollars.

Monday, November 22, 2010

Africa's Future and the World Bank's Role

For at least four reasons, Africa in 2010 has an unprecedented opportunity for transformation and sustained growth. First, until the onset of the global economic crisis, economic growth was averaging 5 percent a year for a decade, accelerating to 6 percent for 2006-8. Growth was widespread: some 22 non-oil exporters had 4 percent or higher growth from 1998-2008. While Africa was badly hit by the global crisis, thanks to prudent macroeconomic policies and financial support from multilateral agencies, the continent avoided an even worse growth shortfall in 2009, and has rebounded in 2010.

Second, alongside the acceleration in growth, progress on the MDGs has been sufficiently rapid that many countries (such as Malawi, Ghana and Ethiopia) are likely to reach most of the goals, if not by 2015 then soon thereafter. Africa’s poverty rate was falling at one percentage point a year, from 59 percent in 1995 to 50 percent in 2005. Child mortality rates are declining; HIV/AIDS is stabilizing; and primary completion rates are rising faster in Africa than anywhere else.

Third, Africa’s private sector is increasingly attracting investment, with much of the funding coming from domestic banks and investors. Returns to investment in Africa are among the highest in the world. Success of ICT, especially mobile phone penetration, shows how rapidly a sector can grow. Private capital flows are higher than official development assistance (and FDI is higher than in India). China, India and others are investing large sums in Africa.

Fourth, the climate for market-oriented, pro-poor reforms is proving robust. Although the payoffs to economic reforms fell during the global crisis, policymakers continued with prudent economic policies, even in the face of contradictory policies elsewhere—because the public demanded them. The voice of civil society is increasing, as evidenced by Uwezo on education in Kenya, citizen report cards in Ghana, and the various groups demanding accountability for resource revenues.

Putting all these factors together, we conclude that Africa could be on the brink of an economic takeoff, much like China was 30 years ago, and India 20 years ago.

Read the full piece here.

Friday, November 19, 2010

South African Companies to help Brazil

South African business is ready to take up the role of preferred partner to its Brazilian counterpart, which is engaging in a substantial infrastructure development programme ahead of the 2014 Soccer World Cup and 2016 Olympics, says Trade and Industry Minister Rob Davies .

Mr Davies said by telephone yesterday, from the small town of Carapicuiba, east of São Paulo, that Brazilians are keen to form partnerships with established businesses in SA that had "played a pivotal role" in the development of infrastructure for the 2010 World Cup.

"Our ability to build and deliver on time the world-class infrastructure for the World Cup, and our success in hosting the event — beyond expectations — has put us in a better position for many countries to seek our experience and expertise," he said.

" We have a legacy to transfer to Brazil. SA’s quality of workmanship and service has impressed many people here and this will most certainly benefit the companies that participated in our own infrastructure development."

The 2014 World Cup offers "immense opportunities for South African entities to forge partnerships in various infrastructure projects".

Mr Davies is representing SA at the head of a business delegation of about 30 companies at the three-day Investment and Trade Initiative. The event started yesterday with a business conference focusing on IT infrastructure, energy, sports facilities and public transport .

Brazil is planning the biggest infrastructure project in Latin American history and is to spend 150bn- 290bn in the next six years.

"Their planning for things such as airport infrastructure and the construction of the stadiums is still at infancy stage, but we are encouraged by the levels of excitement and determination from both the private sector and the government," Mr Davies said. The conference was a platform to showcase SA’s goods and services and promote SA as an investment destination, he said.

Mr Davies is to meet his Brazilian counterpart, Development, Industry and Trade Minister Miguel Jorge Filho, today.

They are hoping to add flesh to trade agreements drafted to help facilitate business co-operation, and to examine tariffs and nontariff trade barriers between Brazil and SA.

The relationship between the two countries has evolved remarkably over the past decade. SA and Brazil have a strong political and economic relationship with a well-functioning binational commission, and are engaged in trilateral relations through the India, Brazil and SA (Ibsa) co-operation pact. They also collaborate in the Southern African Customs Union and Southern American Common Market .

The two trade ministers will discuss ways of encouraging expanded trade links and investments . Ibsa’s goal is to create long-term trading partnerships based on the doctrine of the reciprocal rights and obligations of the member states.

SA is keen to encourage its Ibsa partners to start working towards the elimination of customs rights and lifting nontariff restrictions on the transit of goods


Thursday, November 18, 2010

CDC Group to invest $300m per year in African Markets

Britain's overseas investment arm plans to invest about $300m a year in coming years in African companies because the continent is registering high economic growth rates and it has become easier to do business in Africa.

The $300m figure, some of which will be directed toward infrastructure and consumer goods companies, represents about 50% of CDC Group's new investment portfolio in the coming years, chief executive Richard Laing told The Associated Press late on Tuesday.

"What we are seeing in these economies is for the first time many individuals have discretionary (spending money) available and they are looking for ways to spend that money. They want to have good value in goods and services," said Laing, explaining the group's motivation in putting more money into African consumer goods companies.

"I think Africa compares extremely well with Asia," Laing said, referring to the rate of return on private investments. He said that the CDC Group has had an average return of 16% a year on its investments in sub-Saharan Africa.

CDC Group is owned by Britain's Department for International Development and has been investing in the private sector of emerging economies for more than 60 years.

Laing said it has become easier to do business in sub-Saharan Africa compared with 10 to 20 years ago. The World Bank said earlier this month that 10 sub-Saharan African countries were among the world's top most-improved economies for doing business over the past five years.

Last month, the International Monetary Fund said the region is recovering fast from the global financial crisis and it will register the second-highest growth rates in the world, behind Asia.

The Washington-based institution said in its 2010 economic outlook that sub-Saharan Africa's economic growth will be 5% this year, compared to 2.5% in 2009. But the region has not recovered fully from the crisis, IMF officials warned.

They, however, said that next year's economic growth for sub-Saharan Africa's is projected to be 5.5%, bringing it closer to the high average rates of 6% to 6.5% it registered between 2004 and 2008.

The CDC Group has invested in a wide range of companies in sub-Saharan Africa, including in the power, telecommunications, industrial and financial sectors.

CDC Group generally does not invest directly in companies, but through local fund managers. The group also has investments in Asia and Latin America. Last year, it made global investments worth about $500m.

When the group was formed in 1948 it was called Colonial Development. It later changed its name to the Commonwealth Development Corp. before abbreviating it to CDC. In Africa, it concentrated its investments in former British colonies. But recently, the group has expanded to other African countries.

South Africa and China sign $435m Solar Manufacturing Deal

South Africa has signed a deal with Chinese company Yingli Solar to build a $435 million manufacturing plant with a local partner, a senior government official said on Wednesday.

Nelisiwe Magubane, director general at South Africa's department of energy, told Reuters on the sidelines of a visit by China's vice president that Yingli would partner with a local company and aimed to start building the plant within 12 months.

Magubane on Wednesday also signed an agreement, witnessed by Vice President Xi Jinping, between South Africa and the China Development Bank on broad ranging energy cooperation.

"We have a memorandum of understanding on various projects... and this allows them the opportunity to invest in other's energy infrastructure projects," Magubane said, adding that no specific funds were discussed yet.

Yingli is on track for about a 10 percent share of the US solar modules market by volume this year, and if it meets forecasts, would vault the company among the top US suppliers.

Wednesday, November 17, 2010

World Cup 2010: They Said We Couldn't Do It

China’s Xi in SA for minerals

Chinese Vice President Xi Jinping began a trip to mineral-rich South Africa on Tuesday aimed at securing resources for the Asian economic power, looking to extend its influence in the African continent.

Beijing sees global mining power and regional financial services leader South Africa as a vital source of commodities to fuel its rapidly expanding economy and industries and as a stepping stone to access other African states.

Xi, pegged as China's next president, is on a three-day official visit to Africa's largest economy, which exports about $5.5 billion a year in minerals to the state and has been increasingly a destination of Chinese foreign direct investment.

“As the international landscape evolves and China-South Africa cooperation deepens, the need for our bilateral cooperation is growing, the areas of cooperation are expanding and a confluence of our interests is increasing,” Xi said on Tuesday.

The Chinese delegation and South Africa are expected on Wednesday to sign a bilateral memorandum of understanding for co-operation in geology and mining, and a letter of intent related to South Africa's energy sector, among others.

“It makes sense that China's political diplomacy marries that desire to reshape the world with Africa's participation,” Jeremy Stevens, an economist at Standard Bank told Reuters.

Standard Bank, the largest on the continent, is 20 percent owned by the Industrial and Commercial Bank of China, in an arrangement analysts felt could foster increased Chinese investment in the continent but has yet to yield big dividends. - Reuters

Africa the next Asia: Ramos

Africa has the potential and advantages to become the next big success story and emulate the successes of Asia, Absa CEO Maria Ramos said on Tuesday.

However, while Africa had several economic advantages over the rest of the world, it also had to address some major problems, she said in a public lecture at the University of Pretoria.

While it would be dangerous to compare Africa with Asia, she believed the continent could effectively become the Asia of the future.

“We need to expand beyond being just and exporter of resources,” she said.

One positive sign was that increasingly the continent’s leaders were focusing on poverty alleviation.

While some might view Africa’s young population with concern, she said if it was provided with the right education and skills, it could in future become a competitive advantage as other continents battled with ageing populations. But labour, goods and finance would need to move more freely within the continent than was currently the case.

Education and infrastructure, especially power generation, would be critical in Africa achieving economic success.

The continent would need to encourage greater levels of saving and improve its financial sectors, which would in turn use those savings to further development. A lack of saving also did not encourage foreign investment.

“If we are not saving, then no one else is going to invest in our state,” she said.

African countries need to diversify and use the profits from the commodity boom to reduce dependency on those resources. Ramos cited Nigeria and Angola as examples of countries being overly dependent on a single commodity, namely oil.

If Africa wanted the levels of success achieved in Asia, it needed the determination to invest in education.

She warned against protectionism, saying the most successful countries in history had not closed themselves off to the outside world. - Sapa

Monday, November 15, 2010

Quantitative Easing Explained

Thursday, November 11, 2010

Chanos Makes his case: "Overheating and overindulgence in China"

Analysis: Engagement is vital for emerging markets to bear fruit

An excerpt of a great piece by Sanjeev Gupta of Sanlam Investment Management:

Evidence abounds of the growing influence of the new world. India obtained a nuclear treaty with the US that would have been laughed off by the US Congress a few years back. China and its currency is keeping the US Federal Reserve awake all night and threatening a new kind of war. Even Blackberry has had to suspend its “research in motion” and work with emerging market regulators who have demanded access to its guarded encrypted data – its selling point.

Yes, emerging markets are no longer a hobby horse and have instead reared themselves as a fountainhead of potent themes that are coming through thick and fast. In these times of extreme change only the nimble will survive, thus the need to unlearn and learn will be paramount to avoid the dangers of continued naivety.

To achieve a balance between development and sustenance, big business will soon have to work with a greater sense of responsibility and engage at a diverse level. The consumer-centric post-World War II legacy cannot meet the demands of the 3 billion people joining the fray. If this is ignored, the abuse and wastage of consumer extravagance will permanently damage the delicate ecosystems, straining limited global resources.


A myth is that all reforms are good and all economic liberalisation healthy. In fledgling economies, state intervention and control over key deliverables is key if development is to be all-inclusive and sustainable.

Continue to full article...

Wednesday, November 10, 2010

World debt during the Depression and now

Governments have been indebted for centuries, running ongoing Ponzi schemes involving tax-payers, investors and future generations. But data sets on debt levels over time are rare (the most comprehensive ones only begin in the 1970s). A new paper from the IMF seeks to resolve this. Data gathered from a number of different sources allow the fund to give a historical perspective on today's mounting debt. Over the 218 years for which data on America are available, government debt has averaged just 28% of GDP, peaking at 121% in 1946. The maps below compare debt levels in 1932 and 2009. Most countries have become more indebted in the intervening years. In 1932 US debt amounted to 33% of GDP, compared with 84% in 2009. But some, including South Africa, Australia and New Zealand, have gone the other way.

From The Economist

Monday, November 8, 2010

Charlie Munger interview with Stanford Lawyer, Nov 2010

Munger(Stanford Lawyer)

George Soros: Act II

An extract from an article penned by the legendary George Soros, June 2010 (emphasis added):

Let me briefly recapitulate my theory for those who are not familiar with it. It can be summed up in two propositions. First, financial markets, far from accurately reflecting all the available knowledge, always provide a distorted view of reality. This is the principle of fallibility. The degree of distortion may vary from time to time. Sometimes it’s quite insignificant, at other times it is quite pronounced. When there is a significant divergence between market prices and the underlying reality I speak of far from equilibrium conditions. That is where we are now.

Second, financial markets do not play a purely passive role; they can also affect the so-called fundamentals they are supposed to reflect. These two functions that financial markets perform work in opposite directions. In the passive or cognitive function, the fundamentals are supposed to determine market prices. In the active or manipulative function market, prices find ways of influencing the fundamentals. When both functions operate at the same time, they interfere with each other. The supposedly independent variable of one function is the dependent variable of the other, so that neither function has a truly independent variable. As a result, neither market prices nor the underlying reality is fully determined. Both suffer from an element of uncertainty that cannot be quantified. I call the interaction between the two functions reflexivity. Frank Knight recognized and explicated this element of unquantifiable uncertainty in a book published in 1921, but the Efficient Market Hypothesis and Rational Expectation Theory have deliberately ignored it. That is what made them so misleading.

Reflexivity sets up a feedback loop between market valuations and the so-called fundamentals which are being valued. The feedback can be either positive or negative. Negative feedback brings market prices and the underlying reality closer together. In other words, negative feedback is self-correcting. It can go on forever, and if the underlying reality remains unchanged, it may eventually lead to an equilibrium in which market prices accurately reflect the fundamentals. By contrast, a positive feedback is self-reinforcing. It cannot go on forever because eventually, market prices would become so far removed from reality that market participants would have to recognize them as unrealistic. When that tipping point is reached, the process becomes self-reinforcing in the opposite direction. That is how financial markets produce boom-bust phenomena or bubbles. Bubbles are not the only manifestations of reflexivity, but they are the most spectacular.

In my interpretation equilibrium, which is the central case in economic theory, turns out to be a limiting case where negative feedback is carried to its ultimate limit. Positive feedback has been largely assumed away by the prevailing dogma, and it deserves a lot more attention.

I have developed a rudimentary theory of bubbles along these lines. Every bubble has two components: an underlying trend that prevails in reality and a misconception relating to that trend. When a positive feedback develops between the trend and the misconception, a boom-bust process is set in motion. The process is liable to be tested by negative feedback along the way, and if it is strong enough to survive these tests, both the trend and the misconception will be reinforced. Eventually, market expectations become so far removed from reality that people are forced to recognize that a misconception is involved. A twilight period ensues during which doubts grow and more and more people lose faith, but the prevailing trend is sustained by inertia. As Chuck Prince, former head of Citigroup, said, “As long as the music is playing, you’ve got to get up and dance. We are still dancing.” Eventually a tipping point is reached when the trend is reversed; it then becomes self-reinforcing in the opposite direction.

Typically bubbles have an asymmetric shape. The boom is long and slow to start. It accelerates gradually until it flattens out again during the twilight period. The bust is short and steep because it involves the forced liquidation of unsound positions.

Link to full article

Tuesday, November 2, 2010

Rezidor Builds on World Cup Success

The international Rezidor hotel group, which is already established in this country, sees huge opportunity for expansion following the success of the
World Cup, according to Kurt Ritter, the company’s president and chief executive.

He said it was “short-term thinking” that had made some people in the trade give way to disappointment because the event had not been followed immediately by the forecast rise in tourists from overseas.

This was normally the low season and the worldwide television coverage had made South Africa better known.

Millions of people now knew that South Africa was a peaceful country that was no more dangerous than New York.

“In fact there are already signs of a pick-up in arrivals”, said Ritter. “I was hard put to find a seat on a flight to Johannesburg (from Europe). Lufthansa and Air France, each with 500 seats on their Airbus A380s, and Swiss International airline, were all full.”

His group, which opened its first five-star Radisson Blu hotel in Sea Point 10 years ago, has two new ones within 500m of each other in Sandton. Rezidor plans to roll out a secondary chain of mid-market Park Inn hotels all over South Africa in sizeable towns such as Polokwane and Umtata at a rate of two a year.

Keep reading...

Monday, November 1, 2010

Is the Rand fairly valued?

This graph, taken from the Ministry of Finance' Medium Term Budget Policy Statement, shows the rand is only slightly overvalued on a real basis:

Jim Grant on the Future of America and Keys to Investing

Jim Grant on the Future of America:

On Keys to Investing:

See more videos here.

Zuma's Cabinet Reshuffle - The Good News

South African newspapers on Monday hailed President Jacob Zuma's cabinet reshuffle, calling it a balancing act between improving government services and easing tensions within the ruling party.

Zuma on Sunday fired seven ministers, the biggest reshuffle in the country's democratic history, in what he said was a bid to better meet the needs of the country's poor by holding government officials accountable for progress.

"Zuma has finally broken with one frustrating aspect of South Africa's 16 years of democracy: he has fired someone," The Times newspaper said.

Business Day newspaper said Zuma's reshuffle less than two years into his presidency was "an effort to get his stuttering presidency in the front foot after 16 months of delivery delays, political infighting and growing complaints about his leadership."

The new ministers will be sworn in on Monday.

The Star said Zuma's had "executed a delicate and calculated political balancing act."

"Zuma moved to restore public confidence by dealing with non-performers, some of who were described by some members of the national executive committee of the ANC (African National Congress) as embarrassments," the newspaper said.

Among those axed was controversial communications minister Siphiwe Nyanda, a senior official in the ruling ANC, who previously served as the head of the South African National Defence Force.

Also sacked was Noluthando Mayende-Sibiya, the minister for women, children and people with disabilities, who had faced criticism for failing to get the newly established ministry off the ground.

There were no changes however at key ministries such as finance, foreign affairs and home affairs