The Pulse is a special background brief by Shared Interest’s Executive Director, Donna Katzin, for key investors and other stakeholders on recent developments in South and Southern Africa that impact the organization’s work.
Sustainable Development Goals Center/ Africa: Launch
“Africa’s establishment of its own center to implement the UN Sustainable Development Goals shows that African countries are looking to Africa for solutions to our own issues, and making contributions to global partnerships and solving global problems.”
With these words, Dr. Belay Begashaw, Director General of the Sustainable Development Goals Center for Africa (SDGC/A), welcomed participants to the official launch of the center in Rwanda’s capital, Kigali. They included more than 200 leaders, government, civil society, business and academia experts and activists from across the African continent. The excitement was palpable. It is the first (and to date only) center in the world to focus on implementation of the SDGs.
Rwandan President Paul Kagame, who has provided strong support for the center, underscored what Earth Institute Director Jeffrey Sachs described as “a breakthrough era for Africa.” President Kagame emphasized, “As Africans, we should see this as an unprecedented opportunity to bridge our challenges and our mission…doing once and for all the right thing in the right way. This Center will serve as a focal point for coordination…but this is a tool to get what we really want. The actions we take must contribute to fundamental change in the lives of the people who need it most.”
Shared Interest was privileged to participate in the Center launch, thanks to the efforts of Board member Aniket Shah, who serves as Program Leader for SDGC/A. The experience of Shared Interest and its guarantee model are particularly relevant to the work of the Center and the continent – as unlocking and leveraging local capital is key to the achieving the SDGs by 2030.
The Center, which opened July 1, 2016, was established to expedite the implementation of the 2030 Agenda for Africa to achieve the goals by 193 members of the United Nations in September 2015 for the world’s people and planet. A self-described “home-grown African institution,” the Center is an autonomous non-profit international organization working to accelerate the SDGs’ implementation by providing technical support, unbiased advice and expertise to governments, the private sector, civil society and academic institutions across the continent. It aspires to achieve a shared developmental vision to implement the SDGs, the African Union’s vision for its own 2063 Agenda and the visions of each African country.
This is no simple task. The major systemic challenges Africa faces, Aniket Shah reported to the conference, are daunting: Population growth and climate change. By the year 2100, an estimated ¼ of the world’s people – and 1/3 of its productive population – will live in Africa. The demand for the resources and services will increase exponentially – even as climate change risks gut the continent’s ability to survive and feed itself. It is projected that a 2 degree Celsius increase in global temperatures by 2040 would destroy between 40 and 80 percent of Africa’s crop land. In Southern Africa, an estimated 75 percent of the region’s land is partially degraded, and 14 percent severely degraded.
Moreover, experts estimate that global overseas development aid is only sufficient to cover five percent of what is needed to achieve the SDGs, and is not likely to increase. Shah reported that in order to bridge the investment gap required to meet the SDGs in Africa, the continent would need to double its investment rate – to that of China
The program’s three thematic group discussions focused on Development Financing; Monitoring, Evaluation and Reporting (MER); and IT systems to support African integration efforts. Shared Interest was asked to describe its model, which attracted the attention of a number of participants eager to bring their countries’ private sector financial institutions to play a more important role in their development process. Key to their curiosity was the projection that bilateral and multilateral overseas development assistance will only meet five percent of the costs of financing the initiatives required to achieve the SDGs.
The report distributed at the launch noted: “A central question for financing the SDGs is how incremental public and private resources can be mobilized with private resources being substituted for scarce public funding.” (Africa 2030: How Africa can Achieve the Sustainable Development Goals,” p.121.)
This focus on mobilizing local private sector resources to complement public resources provides an opportunity to highlight Shared Interest’s guarantee model – and encourage sharing information about other credit enhancements – to accelerate other African countries’ progress toward unlocking their own resources to achieve the SDGs.
The shapes in South Africa’s political kaleidoscope have begun to shift into new patterns – with enhanced intensity. Within the ruling African National Congress (ANC), the battle for presidential succession is now an increasingly heated public contest, with five announced candidates – four months before the party’s June policy conference and ten months before its December elective conference that will select the new president of the ANC – and presumed president-in-waiting of South Africa.
The five candidates (to date) are Nkosazana Dlamini-Zuma (President Jacob Zuma’s ex-wife and recent president of the African Union – strongly supported by the ANC Women’s League); Cyril Ramaphosa (Deputy President, National Union of Mineworkers leader and subsequently prominent businessman, backed by the Congress of South African Trade Unions, COSATU); Baleka Mbete (National Assembly Speaker); Mathews Phosa (former ANC Treasurer-General); and most recently Jeff Radebe (Minister in the Presidency, and senior government and ANC leader during the presidencies of Mandela, Mbeki, Motlanthe and Zuma). In addition, some forces in the ANC – seeking a “unity” candidate – are backing Kgalema Montlanthe, who they see as a potential bridge between different groups within the party and among its allies.The branches are to meet in September and October to finalize their nominations.
President Zuma has given indications of a pending cabinet reshuffle, with the possibility that he might appoint former Eskom CEO Brian Molefe – or even Nkosazana Dlamini-Zuma -- as Finance Minister to replace two-time Minister Pravin Gordhan. Gordhan has been outspoken in his opposition to “state capture,” and recently locked horns with the allegedly “state capturing” Gupta family company Oakbay Investments. His prudent fiduciary policies have put him at loggerheads with a number of projects President Zuma has sought to advance, such as the military-build projects which Molefe has championed during his leadership at Eskom. This week the President declared the Finance Minister an obstacle to transformation. The Guptas, in self-defense, are supporting allegations that Gordhan – in challenging them – is serving as a tool of “white monopoly capital” to scape-goat them.
Meanwhile, tensions between the ANC and other parties were dramatized by the vocal and physical disruption of President Zuma’s State of the Nation Address (SONA) on February 9 by parliamentarians representing the Economic Freedom Fighters, who were removed from the session.
Economic Pressure Heats Up
These political dynamics are taking shape in the crucible of an increasingly stressful economic environment that is intensifying pressure on current and aspiring leaders. After several years of hovering around the official 25 percent mark, South Africa’s national unemployment rate has risen to 27.1 percent of the world-be working population – the highest since 2003. For young people it is 48.6 percent. Moreover, Statistics South Africa’s Living Conditions Survey reported in 2015 that the average black family’s annual income was R92,893, while the average white family’s was R444,446. (Blacks constitute 80 percent of the population of 55 million, whites eight percent.)
The economy’s decelerating growth has been a major factor, slowing to less than three percent for the last five years. The threat of stagnation also concerns the international agencies, which have lowered South Africa’s debt rating to one grade above junk bonds (S&P and Fitch), and Baa2 (Moody’s), which sustained it two notches above sub-investment grade. The threatened downgrade to junk status last December would have raised the country’s borrowing costs and, according to Stellenbosch economics professor André Roux, thrown 160,000 people into poverty. Growth is projected to rise slightly over the next two years, but not enough on its own to make a major dent in poverty or unemployment.
Factors that have helped protect the country’s rating from the fall below investment grade have been confidence in dropping the charges against Finance Minister Gordhan, and in former public prosecutor Thuli Madonsela’s “State Capture” report, the continuing service of Finance Minister Pravin Gordhan, and an international commodities market now showing signs of recovery, with sustained Chinese demand, after a two-and-a-half year slump. Currently this seems to be true even for “safe-haven” minerals such as gold and platinum, which do not necessarily track the performance of other commodities. In this context, despite fluctuations, the rand has strengthened considerably during the last six months. Nonetheless, a change in any one of the confidence-generating factors could jeopardize South Africa’s rating and the cost of its imports and debt. These in turn would impact the cost of living of most South Africans.
Still, South Africa faces some serious economic challenges – some stubbornly hardwired into the economy, others now threatening the environment. Inequity of land ownership, carved into the land since colonial times and exacerbated by apartheid, remains intractable, as land reform continues at its sluggish pace. Many of the remaining claims awaiting resolution are the more complicated ones, and legal and valuation procedures take time. Some claims have stood before the court for 20 years – since South Africa’s landmark constitution was written. In his February 9 address, President Zuma underscored that only eight million (9.8 percent) of the country’s 82 million hectares of arable land had been transferred to black people since the end of apartheid. He further reported that over the last five years, the country’s number of farming households has shrunk 19 percent -- from 2.9 million to 2.3 million.
In 2014, the Department of Rural Development and Land Reform (DRDLR) announced a pilot program for its “50/50” policy to secure permanent tenure and 50 percent ownership for black farm-workers and residents. The farmers invest assets comprising the other 50 percent of the new enterprises, while the National Empowerment Fund (NEF) invests in skills development, inputs and transfers half the ownership from farm owners to farm workers and dwellers. Since then, the DRDLR has received 90 proposals, approved 13 – benefiting 921 farm dweller households. His week, with the resolution of the country’s largest land claim (54,280 hectares in Northwest Province), the DRDLR restored 1,878 Bahurutshe families to land taken from them in the late 1930’s. The case is part of the Department’s initiative to settle all land claims lodged during the first period of “reopening” the process, which ended in 1998.
At the local and national level, workers continue to organize and fight for their jobs, better wages and working conditions. Members of the Food and Allied Workers Union (FAWU) marched in Pretoria to protest the closing of poultry farms, and to call on government to protect the industry. South Africa’s chicken industry has been hard hit by the dumping of low-price birds from the US, the EU and Brazil. At risk are 110,000 poultry workers, and 20,000 jobs in the grain (chicken feed) industry. At the Rainbow Chicken plant in Hammarsdale, KZN, 1,350 workers (of 2,700) lost their jobs as the result of chicken dumping.
There have also been some victories. The Mines 1970 Unclaimed Benefits Preservation Pension and Provident Funds paid more than R60 million to beneficiaries living in South Africa, Mozambique, Lesostho, Swaziland, Malawi, Botswana and Zimbabwe. The beneficiaries had paid into the fund in the 1970’s, but had only been located now, after the fund’s concerted effort to locate and pay them.
Students – demanding the reduction and/or elimination of higher education fees – have also gained government concessions. In his February 9 address, the President agreed to consider raising the student financial aid income eligibility level above the current R122,000, and to cover fee increases for students whose families earn less than R600,000. He also announced the “reprioritization” of R32 billion in government allocations for higher education. But the issue is far from solved.
Rural communities, are now facing two additional major challenges. The first is the drought – with South Africa claiming the dubious honor of being one of the world’s 30 driest states. A number of parts of the country are now on water alerts, as residents are urged to conserve water – a basic right affirmed in the country’s constitution.
According to Eugene Poolman, Chief Forecaster: Disaster Risk Reductionfor the South African Weather Service, the 2015/16 drought was the worst in the country’s recorded history. He cautioned that some provinces’ green appearance after brief rains could be misleading. In some areas, the drought continues, and animals are dying due to reduced grazing areas and protein and energy deficiencies. Many consumers can no longer afford the rising prices of fruits and vegetables. Government has announced an allocation of R2.5 billion for drought relief, and noted that an additional R500 million would be provided in soft loans or distressed farmers.
Given the rate at which the continent is heating up, this drought will by no means be the last. With 60 percent of country’s water usage going for agriculture, and the country filled with small rain-fed farms, the water shortage and unpredictable weather are likely to impact agriculture more and more – and particularly small-holder farmers.
Adding insult to injury – in a Jaws-like scenario (just when you thought it was safe…) –
South Africa’s maize growers are facing a new assault by armyworms. The caterpillar-like pest enters and lays its eggs in the stalks of young maize – usually after a long period of drought. They then march – army-style – across the landscape. The bumper crop of armyworms began in Zambia and Malawi, and seems to have arrived in Limpopo, North West and the Free State. Authorities are doing tests to be sure that they have correctly identified the pests, and will then consider aerial spraying. But it is not clear that this would prevent the spread in time.
In a region where 40 million people are food insecure (and South Africa is the largest maize producer, supplying 42 percent of the region’s maize), this is a disaster waiting to happen. Even with the country’s projected maize surplus this season, farmers could be hard pressed to make ends meet, and feed their communities, nation and region.
On the banking front, there are still echoes from South Africa’s past. According to the Ciex Report by a British spy, the South African Reserve Bank gave Bankorp -- a bank subsequently acquired by ABSA – R26 billion in 1985, during apartheid. Last October Black Land First filed papers in the high court attempting to force Finance Minister Gordhan to implement recommendations to require ABSA to give the money back. This could present major financial and public relations issues for ABSA in the near future. It could also heighten ABSA’s motivation to engage in projects that will win them positive publicity by serving low-income markets.
Such projects, when done right, have also recently proved to be lucrative. Capitec Bank, a financial institution that entered the market in 2002, largely serves people previously unbanked – primarily providing basic banking services including consumer (though not producer) credit. In 15 years, the bank’s stock has risen from R2 to R700 a share – putting other banks on notice that low-income clients are a potential market. (Enterprise lending remains a challenging, but increasingly promising frontier.)
Moreover, a recent forward-thinking change in the interpretation of the B-BBEE codes may encourage banks to move more in the direction of retail and potentially broader-based banking. Previously the Financial Sector Charter and B-BBEE codes required financial institutions to ensure that 25 percent of their shares were owned by black people or entities. When black investors “exited” the institutions were challenged in obtaining black replacement owners. The Finance Committee is about to conduct hearings to discuss what can be done – other than going out and finding black owners. Suggestions include actually putting capital to work in support of small and growing black-owned enterprises. It is expected that the amended Financial Sector Code will be gazetted by March.
Looking ahead, this is a dynamic time to be working in South Africa and surrounding countries. With movement on the political scene, and both challenges and important developments in the economy, there is potential to support significant advances toward more equitable development. For Shared Interest, this experience is useful not only in Southern Africa, but across the continent as a contribution to building more equitable and resilient societies through the UN’s Sustainable Development Goals.