Governance - a victim of crime?

Governance is an important part of a nation’s brand, particularly with regard to attracting foreign investment. The annual Ibrahim Index of African Governance, looked upon as a credible calibration by the international community, was released on Monday, when South Africa saw its ranking move down to 5^th place due to high levels of crime, despite high scores in public management and most other areas.

Mo Ibrahim foundation board director Mamphela Ramphele commented that, "South Africa is in the Top 10 in every other category... but [with crime] we are lounging down there with the Somalians of this day and Zimbabweans. It's not a pretty place." In fact, in the personal safety sub-category, South Africa was ranked 44^th – still above Cameroon, Nigeria, Chad, Mauritania, Zimbabwe, Sudan, the Democratic Republic of Congo and Somalia, but not exactly where the country wants to be.

Crime’s been a target area in South Africa for the last twelve months, given the country’s hosting of the FIFA World Cup amid global concerns about safety. So why the drop? Is the issue policing, poverty or politics? Ramphele identified the root of the problem in the "political culture" of countries: "In our country, South Africa, we have fantastic policies but the performance doesn't always match the policies.”

She draws a parallel between business and government. Activist shareholders keep businesses in line. What we need is citizens’ involvement to drive better governance. But for that you need citizens with the same interest and stake in their government as a shareholder does. In a country where 95% of the population don’t pay taxes, 95% of the population have no reason to fight for a system that makes better use of their money.

But what does the future hold for driving governance, and who are the leaders who are going to ‘up’ the calibrations and raise the rankings on a pan-African scale?

The Ibrahim Prize for Achievement in African Leadership was not awarded in 2010 for the second year running, with no candidate that promoted excellence in leadership. It will be interesting to see how initiatives like the African Leadership Network build a more cohesive community of leaders for the community that might raise the rankings and compete for the award.

Meanwhile, does South Africa forge ahead trying to tackle crime in an isolated manner, or will the country use this as a benchmark for treating the root cause of poor governance overall?

Doing Business 2010

The International Finance Corporation (IFC), a World Bank institution, released its annual “Doing Business 2010” report yesterday. The audit looks at how countries around the world have improved the environment for small to medium businesses (including sole traders and entrepreneurs) to set up and do business.

Singapore remains at the top for overall “ease of doing business” but some interesting results for Africa – and opportunities for sharing best practices.

287 reforms were recorded in 131 economies (June 2008 to May 2009) – a record – but more significant was the fact that low- and lower-middle-income economies accounted for two-thirds of reforms in 2008/09. Is the economic crisis hitting developing nations harder than we thought, kick-starting reformers into action to attract more inward investment?

Rwanda – the top reformer - introduced reforms in 7 out of the 10 categories (such as registering property, enforcing contracts, getting credit, protecting investors), rising from 143rd to 67th place on the ease of doing business rankings – and the first time a Sub-Saharan African country has led the world in reforms. Liberia entered the top ten, while Mauritius and Sierra Leone were also recognised for leading in certain areas.

So post-conflict countries have a reason to reform as well it seems – again with the driver of attracting Foreign Direct Investment. While business reforms are only one part of economic development / recovery, it is one area that the government can manage, monitor and measure. The question is how much the private sector can influence the government – but big business has to realise the advantages of a thriving SME sector in that case.

Rankings are one thing – the World Economic Forum also released its 2009 / 10 global competitiveness index yesterday, to give countries even more numbers to compete on, but surely what counts is the experience in each country. As Penelope Brook, Acting Vice President for Financial and Private Sector Development for the World Bank Group said – absolute scores are what matter. A women trying to set up a retail business in South Africa is not going to care what others are going through in Ghana or Guinea; what matters is the speed and ease of processes for her. All the top rankings in the world count for nothing if people on the ground don’t experience change.

So where to from here? Is it the case, as Thierry Tanoh, IFC Vice President for Sub Saharan Africa, states, that we are seeing a sea change in the way Africa views investment, or is it a short-term shift in rankings due to circumstance? There are remarkable signs of progress in Africa, with the likes of Rwanda providing a roadmap for others, but the ability to maintain that momentum, and weather the storms of political, economic or social changes is crucial – for domestic and international audiences and investors.

Kicking the tyres - slow but steady trickle of investment into Zimbabwe

“I am really getting sick and tired of these endless investment conferences, seminars, delegations.
All these gatherings have yielded nothing except talks, official addresses and some politically correct statements from the foreign delegates of what a promising country Zimbabwe is, and that’s it. When these people leave, you will never hear of them again,” ranted a Mr Chinenhamo in a Zimbabwean weekly newspaper.

My initial reaction was to chuckle at Mr Chinenhamo’s comments but after exercising my mind more on his contribution, his frustration seemed justified and encapsulates the frustrations of capital starved Zimbabwean companies - the unity government has come into being, the economy has stabilised, the country is no longer top of the inflation charts, successful Zimbabwean business has little debt, the country’s infrastructure is relatively intact, the workforce is highly skilled ....... the list of positives goes on. So what more could an investor need? The real money should be flowing by now! On the other hand, Mr Chinenhamo’s sentiments reveal the expectations of some local businesses and some in the general population that investment into Zimbabwe should happen immediately because on the private sector side, they have ticked all the boxes they feel they need to have ticked– the reality is often very different - it is a process and not an event to attract the calibre of investment Zimbabwe needs.

Investors have been well aware of the country’s potential but because of the previous 10 year economic crisis in Zimbabwe, that potential could not be converted to reality. Zimbabwe was one of those countries which geologists would speak about the vast mineral resources, and the financially astute would fawn over their returns from the local stock market. Bar the odd mining multinational and a few tyre kickers looking to build a relationship ‘for when things turn,’ the level of new FDI into the country was extremely low. In 2007, inward FDI flows into the country were about 14% less than that of Swaziland. Now things have changed. For those multinationals that kept their operations functioning, they are seeking to recapitalise their Zimbabwean assets, for those that left, they are now looking at re-entering the country. Slowly investment is beginning to trickle into the country. There is widespread acknowledgment that the political changes are permanent and the economy has responded positively.

One of our clients, African Sun has interests in the Zimbabwean hospitality sector and their Chief Executive, Shingi Munyeza, commented that their city hotels in Harare were almost at 70% occupancy in the first half of the year driven by international business-people. He also gave an interesting anecdote about the number of Gulfstreams at Harare International Airport – which got me thinking about creating a GulfStream Index as a proxy for international investment activity...........that discussion will be reserved for another blog though!

It would be very naive not to consider the history, political environment and perceptions surrounding any sort of large scale capital investment in the country – these topics have been covered in detail in many other forums, but three stick out; i) concerns over policy consistency ii) property rights and iii)indigenisation (Zimbabwe’s version of BEE). The government does have a clear position on these matters and a call to the Ministry of Industry and Commerce could provide one with the clarity they need. The ministry has set up the Zimbabwe Investment Authority, a one-stop shop providing investment advice on the country. The challenge now is to communicate that vision clearly.

Then again, perhaps I’m being unfair to Mr Chinenhamo, and his statement was merely a call for action. Any takers?

"Make investing easy, Africa told"

That’s the headline on the front page of Business Day’s Companies & Markets section today. That’s an issue we talk about a lot, often in the context of the role of media in developing a healthy investment climate. It also came up at the World Economic Forum (WEF), as we outlined in a post below.

But it seems it takes a bold statement by Standard Chartered at a conference in Sandton to make the news. At the Banking Outlook conference, Steve Brice, head of global markets Southern Africa, talked about the need to counter the impact of the financial crisis, the impact of which was not yet fully understood on the continent.

Plenty of reasons why African countries are suffering in the downturn, but his advice to “stick to their knitting” and be internally focused, seems to go against his over-arching call to be more externally-focused to attract foreign investors. No wonder we’re not making this easy on ourselves..

US President Barack Obama takes a different approach in an interview with AllAfrica.com today, stating African nations must clean up corruption and end political instability in order to attract the investment needed to prosper. ‘Speaking in advance of a visit this week to Ghana, Obama said there was a direct correlation between governance and prosperity and urged African leaders to do better.’

In terms of ease of doing business, the average ranking of sub-Saharan countries is 138 out of 181 countries globally. So there are worse places. Remember, this is not a comment on the attractiveness of doing business, but in terms of how to lift Africa up the rankings to a place that is easy to do business, there doesn’t seem to be a simple solution. The measures that Brice puts forward, developing long-term interest rate and forward foreign exchange markets are – on his own admission - “easy to say and difficult to do”. Obama’s solution of ending corruption and political instability is a pretty tall order too..

Raila Odinga, Prime Minister of Kenya told WEF that Africa has to knock down the hurdles to doing business, such as lengthy legal and operational processes - but this has to be permanent, not temporary measures. Omari Issa, CEO, Investment Climate Facility, commented that African media needs to be part of changing the perception of Africa as a good place for business, as investors still often look to international media for info – and it needs to come from the inside.

This raises the question of whether it is just an external perception – or a reality - that Africa is a hard place to do business? Will it always be more difficult than an America or Germany, and investors just need to get over it and go for it? While there are undoubtedly people and processes that could make foreign investment easier, is it just a different way of doing business, which also sees different returns?

I don’t mean to push the onus of finding a solution back on to the international investors, but like any form of regulation or policy change, it is external pressure that will make things happen. Internal change or any kind of self-regulation is never easy, without the threat of losing something – and foreign investment is no small thing – especially in a downturn. We can at least agree on that.