In a move aimed at addressing decades of economic turmoil, Zimbabwe recently launched its new gold-backed currency, Zimbabwe Gold, ZiG, with hopes of bringing stability to its volatile financial landscape. However, experts warn that the road ahead for ZiG is fraught with challenges, with doubts lingering over its ability to enact meaningful change without systemic and governmental shifts to match.



Renowned South African economic analyst Daniel Silke cautions against placing too much faith in the currency&#8217;s ability to single-handedly solve Zimbabwe&#8217;s economic woes. Silke suggests that while a new currency may offer a temporary reprieve, lasting stability requires comprehensive economic and political reforms. He emphasizes to FORBES AFRICA, &#8220;A new currency is like putting a plaster over a wound, rather than treating its cause.&#8221; Silke&#8217;s analogy underscores the deeper structural issues facing Zimbabwe&#8217;s economy, highlighting the need for systemic change beyond mere currency reform.



Marisa Lourenço, an independent political and risk analyst, echoes Silke&#8217;s sentiments, expressing skepticism about ZiG&#8217;s potential impact on inflationary pressures. Lourenço points out that Zimbabwe&#8217;s history of currency failures highlights the need for more than just a change in currency. She emphasizes the importance of building reserves, committing to long-term monetary policies, and tackling corruption to address root causes of economic instability. &#8220;Printing money actually drives up inflation, which we have seen happen before in Zimbabwe,” she asserts in an interview with FORBES AFRICA, underscoring the complex interplay between monetary policy and inflation dynamics, suggesting that ZiG may not provide the desired solution to Zimbabwe&#8217;s economic challenges.



The introduction of ZiG comes amidst a backdrop of skepticism surrounding the Zimbabwean government&#8217;s ability to manage monetary policy effectively. Lourenço suggests that a stable monetary policy is crucial for maintaining ZiG&#8217;s credibility in the long term. She advocates for a liberalized currency regime, allowing the market to determine the currency&#8217;s value without undue interference from the central bank. &#8220;A stable monetary policy that enables a liberalized currency regime is essential,&#8221; Lourenço states, emphasizing the importance of market-driven mechanisms.



One of the key challenges facing ZiG is its coexistence alongside other currencies, particularly the United States (U.S.) dollar, which remains widely used in transactions. Silke highlights the dominance of the U.S. dollar and the difficulty of displacing it, especially in a country like Zimbabwe with an entrenched parallel market. Lourenço adds that Zimbabwe&#8217;s currency instability makes it challenging: &#8220;Given Zimbabwe’s track record in being unable to sustain its own currency on at least two occasions, the uptake of the ZiG is going to be difficult to enforce.&#8221;



Concerns have also been raised about the adequacy of gold reserves to back the new currency. Lourenço suggests that Zimbabwe&#8217;s government needs external assistance to address its massive debt arrears. However, she notes that political and economic reforms, including respecting democratic freedoms and implementing stable monetary policies, are essential for restoring confidence in ZiG&#8217;s stability. &#8220;Zimbabwe desperately needs external assistance to help clear its massive debt arrears,&#8221; Lourenço asserts, highlighting the urgency of international support. However, she cautions that without fundamental reforms, Zimbabwe may struggle to overcome its economic challenges and restore confidence in ZiG.



Despite these challenges, Silke remains cautiously optimistic about Zimbabwe&#8217;s future. He suggests that while the road ahead may be difficult, there is potential for positive change if the government commits to meaningful reforms. &#8220;Zimbabwe has the opportunity to turn things around,&#8221; Silke states, &#8220;but it will require bold leadership and decisive action.&#8221; Lourenço echoes this sentiment, emphasizing the need for political will and international cooperation to support Zimbabwe&#8217;s recovery efforts.

Zimbabwe Replaces Battered Dollar With New Unit Called ZiG

Can Zimbabwe’s New Gold-Backed Currency Solve Its Economic Woes? Experts Weigh In

It’s bad enough that fintech startups have to grapple with the&nbsp;<a href="https://www.forbes.com/sites/forbestechcouncil/2023/04/27/finding-vc-funding-is-harder-now-for-startups/?sh=581ae6da7e82">challenge</a>&nbsp;of competing for funds in a global venture capital market that&#8217;s experiencing a funding drought. There is an extra hurdle for those using foreign capital to create new financial products in Nigeria: the value of the country’s currency has fallen 43% over the past year alone thanks to recent currency reform.



Nigeria is Africa’s biggest economy–it’s home to more than 220 million people and the continent’s&nbsp;<a href="https://disrupt-africa.com/2023/02/09/nigeria-is-the-clear-leader-for-african-startup-funding-yet-a-trickle-down-is-happening/" target="_blank" rel="noreferrer noopener">leading destination</a>&nbsp;for startup funding. A substantial portion of its financial transactions still occur in cash, creating a fertile ground for the development of multiple fintech solutions.



“There is a bit of instability happening in the country right now,” says Luci Fonseca, lead partner at San Francisco-based Base10 Partners, which has funded multiple Nigerian businesses, including payments startups Nomba and Okra and e-commerce firm Bumpa. “It creates a number of challenges for a business that charges in naira and reports its revenue in U.S. dollars.”



The massive depreciation of the local currency puts pressure on businesses in multiple ways, according to Gbenga Ajayi, lead partner at VC firm QED<a href="https://www.forbes.com/investment-funds/qed/" target="_blank" rel="noreferrer noopener">QED</a>&nbsp;<a href="https://www.forbes.com/investment-funds/qed/">0.0%</a>&nbsp;Investors, where he focuses on investing in African startups, including payments startup Moniepoint and pharmaceutical management firm Remedial Health. Ajayi said that access to foreign exchange is “one of the biggest challenges” that investors face in the market.



“If you&#8217;re from Nigeria, from Egypt, or even from Kenya, you&#8217;re very much aware that when your currency starts to depreciate, it affects spending power, purchasing power, and there is just a lot of uncertainty,” says Ajayi.



Last year, African startups raised 227 rounds of funding, according to <a href="https://protect-us.mimecast.com/s/PSx0CNk7A3slxG1nI4XZuL?domain=cbinsights.com/" target="_blank" rel="noreferrer noopener">CB Insights</a>, 174 of which went to Nigerian companies. More than 80% of the investors who financed Nigerian businesses this year before the foreign exchange market&#8217;s liberalization were based outside the country, according to PitchBook data, underscoring the significance of foreign capital within the country’s business landscape.



Nomba raised $30 million in May 2023, largely funded by foreign venture capitalists at a valuation of $148 million, according to PitchBook. Lagos-based e-commerce startup Sabi secured $38 million in May at a $300 million valuation, while electronic medical records provider Helium<a href="https://www.forbes.com/digital-assets/assets/helium-hnt/" target="_blank" rel="noreferrer noopener">HNT</a>&nbsp;<a href="https://www.forbes.com/digital-assets/assets/helium-hnt/">0.0%</a>&nbsp;Health got $30 million in a Series B round in June. For outfits like embedded payments firm OnePipe, which secured $4.5 million in debt capital in March, it could make repayment more challenging than envisaged.



Some of the strategies startups are employing to manage currency risks include attracting more customers who transact in dollars; paying local employees, vendors and partners with naira reserves; and adding fees for customers who make payments in naira.



“The startups that are mitigating the reform best are those that already started hedging against the naira even before the reform,” says Mathew Saunders, head of investment at venture capital firm Future Africa. Another method he has seen companies use is “diversifying the customer base to include more international players that can make payment in dollar equivalents,” he says.



Currencies in China, India, Turkey, and Argentina are among the major emerging market currencies that have also come under pressure this year, driven in part by a stronger U.S. dollar. But the situation takes a different turn in African nations such as Nigeria, Egypt and Kenya, which are finding it&nbsp;<a href="https://www.forbes.com/sites/segunolakoyenikan/2023/07/02/africa-becomes-a-casualty-in-the-war-against-inflation-as-dollars-dry-up/?sh=42bd034755f1">increasingly difficult</a>&nbsp;to obtain hard currencies like dollars, pounds or euros.



For countries like Nigeria, which has a long history of supplying dollars to the foreign exchange market to keep the local currency stable, the limited dollar reserves make it challenging for the Central Bank of Nigeria (CBN) to meet the demand of dollars for transactions like imports, where suppliers often require payment in dollars.



Authorities allowed the pegged naira currency to trade more freely in June after foreign reserves fell further to $34 billion from $39 billion a year earlier. With only 35% of the current reserves available for use, according to Abdulazeez Kuranga, macroeconomic strategist at Lagos-based Cordros Securities, “the low liquidity position clarifies why the CBN’s FX supply to the official windows has been underwhelming.”



Since the devaluation on June 14, 2023, the value of the naira has dropped a whopping 40% against the United States dollar in the official window, the currency market where government transactions occur. With inflation at 24% in July, a weaker service demand could potentially put a strain on startups’ revenue and, subsequently, their valuations, especially since some of them generate earnings in naira but report their financials in U.S. dollars.



Nigeria’s central bank authorities say all hands are on deck to stabilize the exchange rate. However, should the currency situation fail to improve, startups backed by foreign capital would have to intensify efforts to significantly boost earnings in order to assuage the impact of the devalued naira or come up with strategies to mitigate these risks.

Nigerian Naira Currency And General Economy As Country Set To Exit Recession

Nigeria’s Sliding Currency Leaves Foreign-Backed Startups In Limbo

Kenya is among several African countries that have experienced a decline in the local value of currencies.



By Terryanne Chebet



Kenya has had a tough few months: ballooning debt, an enormous wage bill, and a depreciating shilling exacerbated by global conditions. Now, the government is unable to pay its salaries. An increased import bill, investment portfolio outflows, and servicing of existing foreign debt have also resulted in the reserves falling below the statutory minimum of four months of imports, with the Kenya shilling depreciating to an all-time low of KES130 to the US dollar.



So, how did Kenya get here?&nbsp;



“It was a matter of &#8216;when&#8217; and not &#8216;if&#8217; KES would weaken to reflect its fundamentals. There have been successive external shocks since 2020, but the currency remained relatively stable relative to its peers. In this light, it is not surprising the sharp adjustment we have seen this year and which we see bringing it closer to its fundamental value,” explains Churchill Ogutu, an economist with IC Africa.&nbsp;



Kenya is among several African countries that have experienced a decline in the local value of currencies, with a 25% decline in value since 2020, to a large extent caused by the rising interest rate environment in the United States (US), which has witnessed a very aggressive rate tightening by the US Federal Reserve.&nbsp;



&nbsp;Kenya’s borrowing for the financial year 2022-2023 is also substantially behind target.



“Given the continued uncertainty in the global financial markets, it appears that [the government] will have no choice but to borrow at higher rates from the domestic markets,” adds Sunil Sanger, CEO of Orion Advisory.&nbsp;



Kenya is also looking to offload its parastatals to reduce pressure on funding and to raise capital.



Despite fears that Kenya could default on its external loans, experts say it is unlikely.&nbsp;



Ogutu notes that Kenya’s position may be fragile, but a default seems remote. “With FX reserves at multi-year low levels, it is higher than upcoming short-term external debt servicing costs. Thus, I see a muddling through regarding external debt servicing costs.”



He adds that a default on&nbsp;domestic borrowing seems to be more likely due to its outsized domestic debt servicing costs compared to external debt servicing costs.&nbsp;



The outflow of portfolio investments in equity and bond markets and higher import prices for commodities, particularly petroleum products has seen Kenya’s government importing petroleum products on a deferred payment basis. The government is pursuing the government-to-government oil importation deal with Gulf countries to alleviate pressure on the&nbsp;shilling.&nbsp;



The reduction in oil demand will also help to reduce the depreciation of the shilling though analysts argue that Kenya could have used the opportunity to build reserves and maybe even consider using those to start buying back its 2023 eurobond maturity, an action that could help to calm down the market nerves.



Ogutu argues that is short-term thinking. “At some point in time, the supply and demand in the FX market will still reflect the mandated OMC coming to the market sourcing dollars. Kenya may get a bit of reprieve in the short-term but ultimately, the supply-demand dynamics will come to play.”



Both analysts agree that the revival of the interbank market in the last few weeks is a positive sign and has helped to reduce some of the uncertainty in the exchange rate. However, given the economic environment both locally and internationally, it is difficult to see circumstances under which the Kenya shilling would appreciate from current levels. &nbsp;



However, Ogutu holds that the shilling isn’t out of the woods yet.



“I have the sense that the initial sugar rush in the FX interbank market has ebbed away, and the next FX guidance will be delivered with the imminent changes at the helm of CBK. That said, my base case is a continued further weakness with 140 on sight.”

African business

Kenya Currency Woes: How Did It Get There?

The respected Kenyan scholar Ali Al’amin Mazrui would have had interesting things to say about Africa’s current dalliance with Asia, especially the rise of Chinese business interests and influence across the continent.
Increasingly, companies from Japan, Singapore, Malaysia and South Korea have also been boosting their national GDPs with Africa-based projects. According to Linklaters, a commercial law firm, Asian-sponsored project finance funds in Africa grew by over 160% during the last decade, with Nigeria, South Africa, Mozambique, Egypt and the Democratic Republic of Congo the leading destinations for these commitments, which were in excess of $12 billion.
Mazrui would have advanced a quaint thesis for re-balancing Africa’s trade, cultural and diplomatic ties with Asia’s power blocs. He would have been especially aggrieved by the current state of inertia in the political economy of Africa’s most populous nation. A pan-Africanist and student of Nigerian affairs (his wife Pauline Uti, mother of two of his five sons, is Nigerian), the late professor is credited with stating way back in the 1970s that, “Africa produces what it does not consume and consumes what it does not produce.” And those were the early days of continental profligacy.
Nigeria could be Africa’s biggest culprit in this regard. The country is consequently experiencing its first recession in 30 years. Tired of waiting for the promised hope of a better nation, Nigerians now, rightly or not, accuse their current leader of bringing Africa’s largest economy by GDP to its knees.
President Muhammadu Buhari has been blamed for not ‘radicalizing governance’ fast enough, which was one of the reasons Nigerians voted for his All Progressives Congress (APC) party in 2015. Nigeria is engulfed in a torrent of crises never before seen in the history of the nation.
Clearing the cobwebs of the past is proving to be a delicate dilemma for the taciturn president and his team. Grappling with sluggish growth, dwindling external revenues, double-digit inflation and a prolonged currency constipation, he is leading the ethical campaign to wrestle with the seen and unseen forces of corruption and ineptitude. His seeming preference for advisers from his northern base is also being openly examined by civil society.
For Nigeria’s sake, Buhari needs to win the war against graft and impunity. His victory will begin to recreate a new nation, sealing his place in history and in the soft spot of a large-hearted nation.
But, can he do what is required to transform the ethos of governance, business and society? Will “the Nigerian system” allow him?
Will confirmed and well connected crooks go to jail? Will reportedly recovered looted funds be reinjected into the treasury? Will massive recovery of this commonwealth mean less recourse to external loans? Will the judiciary invoke its constitutional principles on its own stables? Will the Economic and Financial Crimes Commission (EFCC) ever successfully convict any person of influence?
Will federal and state legislatures reduce their allowances and salaries in tandem with the austere times? Do we need a referendum on their astronomical salaries? Will the Nigerian state significantly increase investment in education, healthcare and the police, using advanced technology tools and techniques to revamp these ecosystems? And when will politics with principles become the order of the day?
These are the sort of questions Nigerians are asking themselves. But they also realize their quest for jobs, stability and development is hobbled by a subculture of guile and graft.
Teaching at Uganda’s Makerere University between 1963 and 1973, the late Mazrui was known for poking fun at the megalomania of Africa’s fat-cat leaders and speaking truth to power. Naturally, Idi Amin disliked him a lot. He was also not able to get a job in any Kenyan university during the regimes of Jomo Kenyatta and Daniel Arap Moi. Were Mazrui alive today, he would have also queried the absence of truth and the dearth of altruism in the politics of modern Nigeria.
Mazrui would have encouraged Nigeria’s business, political and military intelligentsia to openly discourse their festering sores. He would have prayed for peace, unity of purpose and nation-wide reflection. He would have said hope should never be allowed to get into a cul-de-sac.
So will 2017 be the year Nigeria begins to recalibrate its moral compass? Nigeria desperately needs to lead Africa out of the nadir of homegrown frustrations.

Quest For A New Nation

It’s a 542-kilometer drive from Johannesburg to Beitbridge. As we arrive the sun is shining its warm golden light over the bridge connecting South Africa and Zimbabwe. There are no birds chirping over the Limpopo River. It seems like a peaceful morning, until you get closer.
There is pandemonium as hundreds of cars line up to be stripped and searched before proceeding into Zimbabwe. A journey to Harare is delayed by at least three hours. President Robert Mugabe’s government has banned the importation of basic goods from South Africa. All banned goods are confiscated.
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Priscilla Ngwenya is a woman in the autumn of her life. She has brown wrinkly skin, dull brown eyes and a jutting jawline that makes her look tired of suffering. On this day, she says she has endured pain and penury working for her grandchildren at home in Zimbabwe. She is not about to let anyone else gain from her sweat, nor her liters of cooking oil that she is trying to import.
“I will not work for the police. I work too hard for you to take food I bought for my family for yourselves. If I can’t get this to my hungry grandchildren, then no one else will have it,” she says as she pours 20 liters of cooking oil onto the street that she carried 2,000 kilometers from her job as a domestic worker in Cape Town.
Zimbabwe’s Ministry of Industry and Commerce banned basic imports of goods, such as cooking oil, coffee creamers, hair extensions, body creams, building material, furniture, baked beans, cereals, peanut butter, jams and mayonnaise. It is all part of a “Buy Zimbabwe” campaign that government hopes will see factories built in its land.
With millions worth of goods going into Zimbabwe, South Africa is the largest importer to the country and the biggest trading partner.
“[The ban] is a desperate move by Zimbabwe, to try and preserve their currency and to stimulate internal trade, however [it is] not viable as no local company can provide the basic consumer goods that South Africa offers,” says Ian Cruickshanks, Chief Economist at the Institute of Race Relations.
“This government is very stupid. We buy from South Africa because it is cheaper and it’s the only way for us to survive. Buying anything made in Zimbabwe is very expensive. The rands I earn can’t support my family,” Ngwenya screams throwing the empty bucket on the ground at Beitbridge.
The ban on imports has irked many like Ngwenya. Next to her is a man breaking the plastic electrical conduits he isn’t allowed to take across the border.
Just days before, traders burned a warehouse, where the confiscated goods were held, and barricaded the roads with rocks and burning tyres, forcing the closure of the border, believed to be the first time in history.
“I buy goods in South Africa and sell them here in a small shop in Bulawayo. That’s the way I have been surviving and keeping my family afloat. I used to be a teacher but I couldn’t deal with the lack of payments by government and I decided to get into business,” says Prudence Dube.
Tuleka Ngci, of GoAfrica, who has been transporting goods from South Africa to Malawi since December, says business has been slow after traders blocked the Beitbridge border. Ngci transports goods such as groceries, fruit and vegetables from South Africa through the Zimbabwean border to Malawi every week.
“If we can’t pass through the border to buy goods then that means there’s no business for us. Customers blame us for what is happening in Zimbabwe and as a result we find ourselves in the middle of a crossfire we don’t even understand,” says Ngci.
“The restriction against imported goods is threatening the livelihood of people and when people are hungry they get angry. And in this case who knows who they’ll take out their anger on.”
According to Dube, many Zimbabweans turn to smuggling.
“My business is registered, I pay duty for the goods I buy, and I employ six people. If this ban is not lifted, I will have to go the smuggling route like most informal traders in the country. That will be a disadvantage to government. I don’t think they thought this through and looked at how we would be affected,” she says.
Smuggling goods in open sight seems easy enough to do. At the border, some authorities are not shy to take bribes. We carried a two-liter cooking oil bottle to test the system. The man doing the checks told us cooking oil could no longer be imported into the country before asking for a bribe to let us through.
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“I have a lot of friends who never pay anything. The officials are also hungry so they just pocket whatever they can get from people,” says Dube.
Most small businesses smuggle goods with the help of transporters like Bongani Sibanda.
“Because of the economic situation in Zimbabwe, smuggling is an everyday thing and we see ourselves as business people providing a service. I carry groceries, and whatever else people send from South Africa to Zimbabwe, twice a week. As long as it is not drugs or any illegal goods I see myself as helping people,” he says.
Sibanda says the ban will affect his “business”. More bribes mean higher fees.
“It will also bring in more business to us because those who cross the border to stock up themselves may be afraid to smuggle things so they will commission us,” he says.
Sibanda worked at a shoe factory in Bulawayo for 15 years before being thrown out by the factory closure. He now makes around $2,500 a month, enough to send his daughter to university in South Africa.
Sibanda may be making a buck, but the Zimbabwean economy isn’t.
According to media, the Chief Executive Officer of the Zimbabwe National Chamber of Commerce, Christopher Mugaga, estimates Zimbabwe could be losing $1.5 billion every year through smuggling of goods. The figure is more than one third of the country’s $4 billion national budget. Local industries have closed shop as their products fail to compete with the cheap smuggled products, cutting 100,000 jobs over the last five years. The government is said to make $60 million per month from duties charged at Beitbridge.
At the Beitbridge border post, Zimbabwe Revenue Authority (ZIMRA) Acting Commissioner General, Happias Kuzvinzwa, in a statement, has urged members of staff to desist from corruption.
“It is time to wipe away corruption! We must all know that we are accountable to the nation and seriously consider our duty as custodians of revenue laws in this country,” he says.
He says ZIMRA will intensify lifestyle audits to decrease numbers of goods smuggled into the country.
As we drive off, it seems trouble and smuggling at the border will not go away anytime soon.

The Border On A Slow Road To Nowhere

It was a warm day for winter in Pretoria when I arrived to interview South Africa’s Finance Minister Pravin Gordhan, the man with one of the toughest jobs in African finance. He has to make cuts, balance the books, to stop the mighty South African economy falling over the cliff. This, following the crazy days of uncertainty in December when South Africa sacked Nhlanlha Nene; installed unknown Des van Rooyen; before retreating to the safe hands of Gordhan – finance minister between 2009 and 2014 – to steady the markets and resuscitate the currency. You could argue that a finger of one of those safe hands is in the dyke.
As the shafts of mid-morning light shone through the tall windows in the finance minister’s office, in the granite Treasury headquarters, it was getting warmer, but not as warm as the seat where Gordhan now sits.
In June, Gordhan helped South Africa stave off a downgrade, by the rating agencies, to junk status. If South Africa can show growth, prudence and greater fiscal discipline, it may escape a downgrade yet again at the end of the year.
The week of the interview was not a good one for growth in South Africa; it had just shown negative growth of -1.2%. Yet Gordhan, who chose his words very carefully, appeared more bullish than the economy.
&nbsp;
<h4>Forbes Africa: It’s been a rollercoaster six months, how are you holding up?</h4>
&nbsp;
Gordhan: I am used to rollercoasters in my life, so this is one more. This one has been very rewarding because the efforts that government has put in to join forces with business and labor have paid off as far as the first phase of our battle to remain outside of sub investment grade has been won. And largely through the joint efforts of all of us; and now we start the journey into the next five months which is a period where we must deliver on some of the things we have committed ourselves to. I am confident that as a country we will begin to do that because some of that momentum has already been building up.
&nbsp;
<h4>Forbes Africa: You avoided the downgrade to junk status; a lot of people are still saying the country has merely postponed it for another six months. How likely is that?</h4>
&nbsp;
Gordhan: It’s true that we have postponed it but you can’t call it mere postponement when you were about to fall over. Not falling over is a major and important victory for all of us; so it’s a question of  who is the narrative being created by; people who believe in a half full glass or a half empty glass… We still have investments coming in, we have kept to our fiscal targets and we will continue to actually do so. We will unite the key role players in this country behind the common program and we have got a few months to demonstrate we are capable of doing it. We have a clear program in terms of reforming key parts of this economy and making sure some of the key constraints are now taken out of the way.
&nbsp;
<h4>Forbes Africa: Look at the latest data and the economy contracted for the first quarter by 1.2%. Does that make your target that much harder to achieve? How much reform are we going to have to go through for the next five months to ultimately head for that 2% target?</h4>
&nbsp;
Gordhan: I set the 2% mark largely by saying we are going to get moving in the right direction. We all know that in terms of the National Development Plan, we ultimately want to move into the 5% terrain.
&nbsp;
<h4>Forbes Africa: Another question people are asking, as you know, civil service is about 50% of your budget, maybe less than that but it’s still a lot, I was with a lot of financial journalists last night and they were saying why doesn’t the minister cut civil service and save?</h4>
&nbsp;
Gordhan: How many more unemployed people do you want? Firstly, the cost of compensation is about R460 billion ($30 billion), currently that is about 37%, which is high. In the budget, we have said that we are now going to certain measures to start cutting that expenditure. Vacancies not being filled and the most recent report, that we have received from provinces, where a bulk of teachers and health staff are employed is very encouraging.
<h4>Forbes Africa: The ratings agencies have also stated that the risk of political instability, especially on the lead up to the August 3 municipal elections, could affect the economy.</h4>
&nbsp;
Gordhan: Elections happen as part of a democratic society in South African and elsewhere… We are nowhere near disruption but what we do require is for political leaders to recognize that there is a relationship between the way we conduct ourselves politically and the confidence in our economy that we create and today we live in a world where politics and the economy are closely related whether it’s here, Brazil or anywhere else in the world. The prospect of a particular candidate winning the elections in the Unites States is also giving people a wake-up call.
&nbsp;
<h4>Forbes Africa: You definitely can’t forecast the rand and I think that’s the problem right now; small businesses out there are saying they just need to know that there is some stability in the currency.</h4>
&nbsp;
Gordhan: Currency volatility is something that nobody has control over. There are mega forces and dynamics in the globe that influence what happens to a currency as much as there are domestic factors as well, so, look at what’s happening to the pound, so every day that something happens to the dollar, something happens to the rand which are not necessarily related to domestic considerations as well.
&nbsp;
<h4>Forbes Africa: In your efforts to reduce debt and cut expenditure, what kind of painful cuts do you think this country may be looking at in the next six months?</h4>
&nbsp;
Gordhan: We have made the cuts for this year and we have to look hard to find money for a zero increase for student fees, finding money for our subscription to the BRICS New Development Bank, and a few other items that need to be financed both as a result of expenditure cuts and managing the tax side. We have indicated, very transparently, that in the coming two years, we have to find R15 billion (around $1 billion) each year, either from the expenditure or the tax side.

The Finance Minister In The Trenches

Nigerians are currently hard at work. What sort of work, you might ask? Economic reconstruction and the quest for social and political rebirth. The new sheriff in town seeks to sweep the dregs of a shattered polity into the cesspit of history. Clearing the skeletons and cobwebs of the past is, however, proving to be a delicate dilemma for the good people and managers of the Nigerian nation.
Grappling with sluggish growth, dwindling external revenues, double-digit inflation and a prolonged currency constipation, Nigerians must now wrestle with the seen and unseen forces of corruption and ineptitude, the gods of inertia and impunity, and the innumerable anti-development demons in its social democratic space.
A nation which was once embroiled in a two-and-a-half-year civil war in the 1960s, without borrowing a dime and without experiencing a run on its national currency, now finds it difficult to maintain a healthy balance sheet in peace time. No doubt, Nigeria has earned its spot in global economics by virtue of its position as Africa’s largest economy. This status will, however, not produce social harmony, wealth and economic growth for Nigerians.
Nigeria’s one-year-old government continues its search for the Chibok girls (#BringBackOurGirls), abducted two years ago from their school in the north east of the country. President Muhammadu Buhari has embarked on a global search for the country’s missing money, embezzled by past leaders and cronies of previous governments. Currently struggling to wean itself off crude oil addiction and diversify its productive base, it’s taken almost a year for the president and his All Progressives Congress (APC) party to begin to translate their social and economic agenda into a “SMART Framework”.
In what seems to be a blueprint and agenda-setting address to selected private and public sector leaders during a National Economic Council (NEC) retreat in March, the president listed agriculture, solid minerals and infrastructure investments as the fulcrum of his agenda, with national targets for self-sufficiency in tomato paste production by 2016; rice production and milling by 2018; and wheat by 2019. He also introduced a new phrase into the lexicon of governance: “import competition”, where states focus on growing selected crops in which they have natural comparative advantage.
These confidence boosting steps notwithstanding, Nigerians are increasingly wary of the future. They have come to terms with that fact that the path to the future is riddled with dead promises.
On the political rostrum, campaigning for votes between 2014 and February 2015, APC big wigs made numerous promises to Nigerians. Granted this was all done in the heat of politicking, Nigerians now want the current Lords of Aso Villa to quit blaming previous administrations and simply execute their well-intentioned strategies.
The president has been blamed for not ‘radicalizing governance’ fast enough, which was one of the reasons Nigerians voted for his party. He has also been blamed for reneging on a campaign promise to provide a monthly allowance for unemployed youths. The APC’s manifesto also promises to: “create additional middle-class of at least two million new homeowners in our first year in government and one million annually thereafter; by enacting a national mortgage system that will lend at single digit interest rates for purchase of owner occupier houses.”
Good idea. But have two million new homes been built in the last year?
In just one year, the national mood has swung from politically-induced hope to a calm and unnerving anxiety about “personal survival in a regressive system” as it becomes increasingly clear that things will get worse – for much longer – before they become better. Thankfully, Buhari has also said this much, as he pleads for patience against the growing wave of disappointment and despondency.
So, El Nino has finally caught up with the nation’s 2016 fiscal budget, as GDP growth for the 2016-2017 period is likely to remain below 3%, according to the IMF, unless of course global crude oil prices shoot up to $100 per barrel.
This is very unlikely, observes Bismarck Rewane, renowned economist and CEO of Financial Derivatives Ltd.
“That era is gone for good. The chickens (of decades of economic profligacy) have come home to roost. We are now going into a likely prolonged phase of belt tightening,” he told members of the Harvard Business School Association of Nigeria recently.
The smart, hard, work must go on.

Recalibrating Expectations

In the last year, the cedi has lost more than 40% of its value and was the worst performing currency in Africa, the third worst in the world, in 2014. It was so bad that the government called in the International Monetary Fund.
To make matters worse, power cuts are plaguing the land. In the gloomy streets of Accra, they call it ‘dumsor’ – a colloquial expression meaning ‘on and off’.
Ghana is suffering from power rationing – a hark back to the dark days of 2007 – where people have to check a load shedding timetable to find out when their lights will go out. In February, the Ghanaian government purchased 80 megawatts (MW) from neighboring Abidjan so the nation could watch the African Nations Cup final between the Black Stars and the Mighty Elephants of Ivory Coast; it was the same story when Ghana celebrated 58 years of independence on March 6.
All of this is a blow to President John Dramani Mahama. When he took power, he promised to end load shedding in three months. Halfway through his tenure the lights are still going out.
One cause is the fall of water levels at the Akosombo Dam on the Volta River. The dam produces 558MW of power, or 20% of the Ghana’s needs, 17% down on the electricity it generates at full tilt.
The Ghanaian Institute of Statistical, Social and Economic Research has estimated that the power crisis has cost between approximately $85 million to $243 million.
Many who run businesses here say the power crisis has been devastating and expensive; as the number of generators sold increases, the rise in the price of fuel piles on the costs. It is estimated Ghana spends $3 million a day on diesel fuel for its generators. To remedy these rising costs, small and medium enterprises have even gone as far as having two price points for their services – a dumsor price and a non-dumsor price. Even if you have power, the rising cost of it is causing uproar among Ghanaians.
The Cocoa Processing Company and Nestle Ghana complain the lack of power has stalled new projects.
The government has made efforts to rectify the electricity shortage with new power plants in the pipeline. Ghana has also seen a new wave of entrepreneurs, in energy, step forward.
A few minutes’ drive from Kotoka International Airport, a meandering road running alongside the famous Accra Polo Grounds, solar powered streetlights light the way. The plan is to do the same on other roads.
Infrastructural development of Accra over the last few years has been immense but has come at a cost with the Electricity Company of Ghana (ECG) unable to keep up.
Despite the economic hardship, the country is still able to attract foreign direct investment and the government has made efforts to rectify the power shortage.
The Atuabo power plant, which will receive gas from Ghana’s offshore Jubilee oil field, has overcome teething problems and is now in operation. It could generate up to 550MW; Ghana’s power shortfall is estimated to be around 400MW.
Another solution could be the numerous thermal power plants scattered across the country, namely the Asogli, Kpone and Aboadze plants. The problem is a lack of maintenance has seen many of these thermal plants either closed or working below capacity.
Then there is the problem of the bureaucratic ECG; many in Ghana have called for it to be privatized. A poor revenue collection system has led to growing debt that is another unwelcome hazard when it is trying to keep the lights on.
Surely, for this to carry on, is dumsor.

Tag: Currency

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