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Zambia Snapshot

Zambia’s economy is holding steady despite the massive drop in agricultural output in 2018. But political and economic challenges weigh heavily on the country. World Bank figures estimated Zambia’s 2018 GDP growth at 3.5% while the African Development Bank estimated economic growth at 4.0% in 2018, compared with 4.1% in 2017. It said that agricultural output fell more than 35% in 2018 due to poor rainfall, although copper production and construction contributed positively to growth. The World Bank expects the Zambian economy to grow 2.5% in 2019 and 2.8% in 2020. Finance minister Bwalya Ng’andu, a recent replacement of Margaret Mwanakatwe, who was unexpectedly fired, reduced the country’s growth outlook for 2019 to 2.5% from an initial estimate of almost 4%. Since president Edgar Lungu came into power in 2015, many Zambians have been unhappy about increasing corruption and fiscal and political challenges which have seen some ministers resign and a number of opposition leaders being imprisoned. Britain’s outgoing ambassador recently slammed the country’s rampant corruption and fraud, saying it had led to withholding of aid and investment. The economy, which is heavily reliant on copper mining and agriculture, is vulnerable to variations in the copper price, and to drought, according to a Who Owns Whom report on the agri-business sector. The report said that economic growth was mostly due to growth in the services and mining sectors that offset a contraction in the agricultural sector as a result of low rainfall. The World Bank said in its April 2019 Macro Poverty Outlook report that the GDP of Zambia’s agricultural sector decreased in real terms by an estimated 6.5% in 2018, after achieving a growth rate of 16.5% in 2017. The Who Owns Whom report indicated that maize production dropped by 33.6% in the 2017/2018 season on the back of a 15.3% reduction in the area planted, and a 21.5% drop in maize yields, caused by prolonged dry spells. Investors have been having difficulty in Zambia. Vedanta Resources got a South African court order blocking the liquidation of its Zambian-based Konkola Copper Mines in an ongoing battle with the government, which has claimed that Vendata abused its mining licence and was shifting profits. Zambia is 118th out of 140 countries in world competitiveness and scored poorly in measures of human development. Ng’andu pointed out that resources are largely being deployed to service debt. This will likely see it continuing to find it difficult to develop infrastructure and to attract investment. It is widely acknowledged that a substantial portion of Zambia’s external debt, believed to have totalled $10bn at the end of 2018, is owed to China, and a number of reports express fear that Zambia is in negotiations to or is expected to hand over national assets such as electricity producer Zesco, Lusaka’s airport and mines, including Vendata’s, to China and increasingly fall under its control. The Economics Association of Zambia said recently that Zambia’s debt to China was US$3.1bn, a third of the US$9.51bn external debt the country had in the third quarter of last year. China is already a major provider of development finance and has invested in water, milling, mining, broadcasting and cement projects and companies,

Corporate citizenship

How are we going to uplift the unacceptable levels of vulnerable people in our society? The Black Economic Empowerment (BEE) policy was designed to redress the economic imbalance caused by apartheid, yet, in 2019, it still has a long way to go to bring dignity to all South Africans. Social development must come from the private sector because these are different times and business and the state need to engage more productively if we want to see sustainable change. Read more on The Africa Report

Know your client

The global fight against corruption, money laundering and terrorist funding activities has seen the obligation to ‘know your client’ become an inexorable international trend, which has been brought even closer to home with the Gupta, VBS, Steinhoff and Bosasa delinquencies. To bring South Africa in line with international efforts and to meet our commitments to the G20 in this regard, government promulgated The Financial Intelligence Centre Act (Fica) of 2001 (amended in 2017) to create the Financial Intelligence Centre, which has become one of the most effective institutions fighting corruption and crime in our society. Fica places the obligation on a wide range of professions and financial services companies to ‘know your client’, particularly with regard to who owns them. While section 26 of the Companies Act gives any member of the public the right to request the share register of a private company, the practicalities of accessing  this information tend to defeat the intention. In 2013 Moneyweb journalist Julius Cobbett requested the share register of Nova Property Group Holdings, which was involved in the Sharemax property syndication. Nova refused to provide it, and the matter went all way to the Constitutional Court which, in 2016, dismissed Nova’s appeal against the Supreme Court ruling against it, settling once and for all the principle that any person has an unqualified right to access the securities register of any company. However, while the right is there, the process to uplift this information is onerous. WOW, amaBhungane and the Helen Suzman Foundation have, for the last two years, been petitioning the Department of Trade and Industry to introduce legislation into the Companies Amendment Act which will obligate private companies to list beneficial shareholders on CIPC, as is currently the case with directors. We hope that we are being heard. Fica does state that outside sources may be used to verify data, and WOW has accumulated, over 39 years, ownership information on 180,000 companies. WOWEB users are increasingly using this information for know your client purposes.

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Malawi Snapshot

Economic growth forecasts remain high for Malawi despite extreme poverty, food insecurity and recent protests over its May elections. President Peter Mutharika, voted in by a small margin in the election, which protesters across Lilongwe and Blantyre say was rigged, said in his state of the nation address that economic growth would reach 5% in 2019 on the back of higher agricultural production and growth in mining, ICT, and financial services. Riots over the election have caused instability in the country where extreme poverty, droughts, cyclones and prior corruption scandals forced Malawi to go to the International Monetary Fund for a US$112m extended credit facility. In April 2018 the IMF approved a new three-year arrangement for Malawi “to support the country’s economic and financial reforms”. The IMF said Malawi has shown progress in achieving macroeconomic stabilisation following two years of drought, with growth rebounding and inflation reducing to single digits, although its fiscal position had deteriorated and the public debt to GDP ratio has increased. “Increased debt service pressures have reduced space for needed infrastructure and social spending,” it said. Malawi’s GDP grew by an estimated 3.7% in 2018, compared to 5.1% in 2017 and 2.7% in 2016. The African Development Bank expects GDP to grow by 4.6% in 2018/19 and 5.6% in 2019/20, driven by agricultural improvements, stable macroeconomic fundamentals, the recovery in commodity prices and foreign direct investment inflows. Still, at least half the population lives below the poverty line and the country is wracked by food insecurity and power cuts, with Reuters saying it is “among the world’s poorest countries, reliant on donor funding and tobacco and tea exports”. The Malawi Project says 85% of the population survives from subsistence farming. A Who Owns Whom’s report on the tobacco industry states that Malawi “is widely regarded as the most tobacco-dependent country in the world”, and its tobacco industry is the country’s second-largest employer, with more than 350,000 farmers and their families dependent on this industry. The report says tobacco is Malawi’s main cash crop, contributing 60% to foreign exchange reserves and 15% to GDP. But annual tobacco revenues have declined 24%, resulting in farmers starting to grow other crops. The industry has, however, attracted investment. Japan Tobacco International is one of Malawi’s largest tobacco buyers and has invested US$450m in the business over past five years, contracting 11,000 tobacco growers, according to the Who Owns Whom report. The African Development Bank says that due to high dependence on rain-fed agriculture, “weather-related shocks are key risks to export commodities such as tea, tobacco, and other products”. The protests add another risk.  As Malawian political scientist and Wits lecturer Michael Jana told AFP: “A significant section of Malawi society is disgruntled and does not want the current government. It’s a divided country.”