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Economy

Ramaphosa appoints Tito Mboweni finance minister after Nene quits

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South African finance minister, Nene resigns(NAN)

 

President Cyril Ramaphosa, promptly replaced South African Finance minister Nhlanhla Nene, who resigned Tuesday, with former central bank governor, Tito Mboweni.

Nene considered a very close ally of Ramaphosa, resigned on Tuesday following financial scandals involving the Gupta family.

He reigned after meetings with the business family.

Mr Nene was a leading figure in the government’s efforts to tackle graft that allegedly flourished under Jacob Zuma, who was ousted in February.

But Mr Nene revealed to a judicial inquiry last week that he had met with the Gupta business family at their home and offices six times — contradicting earlier statements that he had only met them in passing at social occasions.

“I have decided to accept his resignation,” President Ramaphosa said in Cape Town.

He added that Mr Nene feared his testimony to the inquiry “detracted from the important task of serving the people of South Africa particularly as we work to reestablish public trust in government.”

Ramaphosa stressed that Mr Nene “has not been implicated in any act of wrongdoing himself” and hailed him as minister who had “defended the cause of proper financial management as well as clean governance”.

Mr Nene, who was widely respected by investors, served as Finance minister from 2014 to 2015 until he was sacked by Mr Zuma and was re-appointed by President Ramaphosa earlier this year.

Mr Nene apologised after giving testimony to the inquiry, which is probing allegations of systematic corruption under Zuma’s government involving the three Gupta brothers.

“I was wrong in meeting the Guptas at their residence and not in my office or at least a public place,” his public apology letter read.

“These visits do cast a shadow on my conduct as a public office bearer. I deeply regret these lapses and beg your forgiveness.”

The Guptas are a trio of Indian-born brothers accused of fraudulently profiting from vast government contracts and energy and transport deals under Zuma, who ruled from 2009 to 2018.

President Ramaphosa has vowed to crack down on corruption as he tries to revive the economy and boost declining support for the ruling ANC party ahead of elections next year.

Source: East African

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Economy

Recession: A great time to invest

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Recession (Image credit: Skynews)

Following the 2008 global economic crisis, countries around the world put in modalities that have seen post recovery global economic growth that has been positive in the past decade. IMF projections had estimated global growth to rise from 2.9 percent in 2019 to 3.3 percent in 2020 and 3.4 percent in 2021 and these projections are justifiable given the economic fundamentals that existed at the time of estimation. However, the emergence of the COVID-19 pandemic which was unpredicted and hence not factored in estimation as an assumption has negatively impacted growth which is estimated at -4.9 percent in 2020 according to the World Economic Outlook statistics. Other than the health impact that has caused over one million deaths globally, the pandemic has disrupted global supply chains and each continent has seen millions lose employment and livelihoods, business operations have been altered and production reduced.

As a consequence, the Coronavirus has triggered a recession, much deeper than the 2008 financial crisis and worse than the “Great Depression” of the early 1930s. A look at all the happenings of the year acts as a disincentive to would be investors that would view the fragile environment as a ground for breeding losses if they are to invest.

As in any tournament, one’s misfortune is another person’s fortune and as such, the recession period would be a good time for identifying opportunity and exploiting all avenues of profit maximization. But a recession signals the downfalls of many businesses, increased losses and unemployment among other things, why would it be a great time to invest?

Access to cheap labor force

The world has become so competitive such that attracting the most skilled and educated labor force comes at a huge cost. Companies have to incur a huge expense on renumeration in order to retain the best minds or else, competitors would easily snatch them. During a crisis such as a recession, the demand for jobs is higher than the supply because many businesses are closing down and as such, a business may be able to acquire the skilled labor at a cheaper price. Because of the scarcity of jobs, employees would be more than willing to work at a lower wage and therefore, a firm that invests during this time can take advantage of this reduced cost.

Building business resilience

If a business is able to start at a time when the economy is nose diving, it learns techniques and strategies on how to overcome certain challenges and be able to mitigate them in the future. Enduring a fragile environment and navigating through it helps in building resilience that will help overcome future factors. This also helps in building a loyal customer base who are impressed with the fact that the business was able to provide the products and services at a time when many began to close. Because of the trust and belief that customers have in the business, this could lead to an increase in the profitability particularly due to increased referrals and positive world of mouth that’s acts as free advertisement for the firm.

Reduced financing cost

A higher interest cost is often a hindrance to access to finance because it discourages businesses from borrowing. As a response to boost economic activity, many countries around the world have decided to slash the interest costs. Central banks are pursing expansionary fiscal policy despite the rise in inflation but this is all in an attempt to ensure that borrowing costs are reduced and businesses are able to borrow and boost their production. Investing during such a time will and taking advantage of lower financing costs can help a business establish itself quickly and produce to meet the demands of the society. Further, during a recession, governments often give tax incentives to help companies navigate the crisis and so, investing during this period enables the enjoyment of this incentive.

Market penetration opportunity

Most of the product and service markets have been flooded with competition such that it is difficult for new entrants to enter. However, during an economic downturn like a recession both small and large companies struggle to adjust and survive in a crisis and this means that they are vulnerable to new entrants. Further, many new opportunities for new products arise during a crisis that can help a business. For example, the emergency of the COVID-19 created a need for facemasks, sanitizers, remote working and many other needs that have enriched businesses and individuals that took advantage of the opportunities. Identifying opportunity can make a business penetrate the market, outsmart competition and make profits.

During a recession, the country’s currency often depreciates due to lower production not earning foreign among other factors. But this works to the advantage of firms that export because a depreciation entails that their products are relatively cheaper compared to other countries and because the recession is affecting many countries, it provides a chance for increased demand for the products and hence the profitability of the firm increases. This can help companies to penetrate foreign market by taking advantage of deficit products and producing them.

However, it is not all investments and businesses that can be undertaken during a crisis and an error to embark on them can lead to serious consequences. The focus therefore should not be on short-term benefits of having to launch the business in a recession but also balancing this with post crisis planning on how you want the business to succeed. Some gains may be temporal and business may not be sustained over a longer period of time and as such serious scrutiny of the business must be undertaken to plan for the long-term objectives of the business. To the would-be investor, it is important that you are not profit driven by rather seen to provide what people need during and post-recession and this will help establish the company quickly and provide prospects of future growth and resilience. Don’t miss the opportunity, invest now!

Author: Nchimunya Muvwende (Economist)

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Africa speaks

Exploring a new model for cooperation between business and society- Nonny Ugboma

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Nonny Ugboma is the Executive Secretary of the MTN Foundation (Image source: Nonny Ugboma)

The hand-me-down capitalism models Africa inherited from her colonial masters have failed to yield a prosperous continent despite its vast resources. Therefore, Africa is in desperate need of something different that takes into consideration its unique history, qualities, and context.

Experts have mostly seen the interdependence of businesses and society as transactional, with the society needing business for products and services, for jobs, for government taxes revenues. In turn, business needs the society for the market, sales and profits and public infrastructure, security and the rule of law! According to Amaeshi (2019) businesses, though sympathetic to societal challenges, are reluctant to act positively through their companies as they sometimes see such requests as irrelevant to their objectives.

However, due to the interdependency and interconnectedness of business and society, companies must work collaboratively with the government for a common purpose. That purpose is to build local resources.

There have been calls for western economies to rethink their capitalism model (Jacobs & Mazzucato, 2016). There have also been calls for Africa to develop its model of capitalism, with theorists and entrepreneurs exploring ideas like Africapitalism (Amaeshi, 2015). Africapitalism, coined by Nigerian entrepreneur Tony Elumelu, focuses on the role of business leaders, investors, and entrepreneurs on the continent’s development to create economic prosperity and social wealth. It rests on the following four pillars: a sense of progress and prosperity; the sense of parity and inclusion; a sense of peace and harmony; and a sense of place and belongingness.

Africa does need its model. However, I would argue that this model should be spearheaded by the state in collaboration with willing stakeholders in the private sector and third sector, unlike Africapitalism. A government-led push is especially relevant now that a few 21st century economists are reassessing and rethinking capitalism in its present form. One of such critics is UCL’s Mazzucato (2018) The Entrepreneurial State: Debunking Public vs Private Sector Myths who debunks the mainstream neo-classical narrative that the private sector alone drives innovation but takes the position that the state is the driver of innovation.

Mission-Oriented Innovation Approach (MOIA) could help address some of the identified gaps to ensure state and business work jointly to solve grand challenges, to co-create public value and co-shape a robust and sustainable society that it can bequeath to future generations.

There is, therefore, a need for an alternative model of collaboration for business, society and government. A suggested way forward for Nigeria, and indeed Africa, is to embrace a mission-oriented innovation approach. The concept of the mission-oriented approach that involves government co-creating and co-shaping the market with the private and third sectors has enormous potential for Africa. The four pillars of ROAR, developed by Mariana Mazzucato (2016), is a useful tool-set to anchor MOIA in Africa:

1. Routes and directions– Government and Public institutions and agencies to set
missions. Also, private sector leaders can nudge government agencies to agree to
work collaboratively on national priority areas.

2. Organisational Capacity– Building of dynamic Capabilities within the Public sector through advocacy, capacity building, conferences and training.

3. Assessment and evaluation– Agencies, academia and organisations to determine new
dynamic tools to assess public policies to create new models and markets.

4. Risks and rewards– Government and private organisations need to engage on the
best risks and rewards sharing formats from initiatives to ensure smart, inclusive and
sustainable growth.

Also Read Closing The Gender Gap: An Interview with Dream Girl Global (DGG) Founder, Precious Oladokun

In conclusion, as Western Economies are reviewing and rethinking capitalism and their operating models, Africa must ensure she does the same. The reason is that the future of the development of the continent depends on the economic model that it chooses to adopt, in the future, especially with the growing youthful population.

Aurthor: Nonny Ugboma is the Executive Secretary of the MTN Foundation and has recently returned from one-year Sabbatical studying for a master’s degree in Public Administration from the University of London Institute for innovation and Public Purpose.

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Economy

Leveraging Digitized Social Welfare Programs to Deepen Female Financial Inclusion in Africa

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(Image credit: jumo.world)

Global economies- from Nairobi to Beijing- are undergoing a rapid
transformation, with digital technologies changing the way people
communicate, work, bank, and access information.

Today, previously unbanked households in Nigeria, Kenya and other nations of Africa can now access instant credit over their mobile phones.

Rural households in Senegal are lighting their homes by linking their bank accounts to off-grid solar energy systems. Government officials in India are combining digital payment and ID technologies to deposit money directly into the accounts of citizens living in distant villages, increasing the transparency and efficiency of social welfare programs.

These and other digital innovations are creating opportunities for countries to build more inclusive, productive, and prosperous societies.

The McKinsey Global Institute estimates that widespread adoption and use of digital payments and financial services could increase the GDP of all emerging markets by $3.7 trillion by 2025. This additional GDP could create up to 95 million new jobs, raise overall productivity and investment levels, and make government spending more efficient.

Interestingly, no one stands to benefit more from this growth than women. It is a fact beyond argument that women and girls shoulder the global burden of poverty. Decades of research show that poverty deprives women of vital health, education, and socioeconomic opportunities throughout their lives. As a result, women earn less, own fewer assets, and are underrepresented in economic and political decision-making. This inequality means they experience fewer benefits from economic growth and suffer more of the challenges of life lived in poverty.

Also Read: Ava Airways CEO Olivier Arrindell On Envisioning An Airline Of The Future And Connecting Africa With The Caribbean

For women in low- and middle-income countries, digital savings, credit, and payments services can provide them with a critical link to the formal economy and a gateway to greater economic security and personal empowerment.

An emerging body of evidence shows this also pays dividends for their families in the form of better health and education. When women-headed households in Kenya adopted mobile money accounts, poverty dropped, savings rose, and 185,000 women left agricultural jobs for more reliable, higher paying positions in business or retail.

In Niger, distributing government benefit payments through a mobile
phone instead of cash helped give women who received the transfers
more decision-making power in their households.

Overall, strong progress has been made with financial inclusion in many (African) countries. And many of these countries have also experienced a sharp uptick in financial inclusion rates among women. Between 2011 and 2017, the number of women with their own account doubled in Kenya and Ghana and increased seven-fold in Senegal. And crucially, in several African countries, mobile money has emerged as an equalizing force, and can further help more and more (African) women towards financial inclusion.

However, digital financial exclusion is not merely an access problem. Although digital technologies hold vast potential to improve human welfare, they also pose considerable risks, from the establishment of digital monopolies to cyberattacks to digital fraud.

In light of that, as previously excluded women become first-time users of digital technologies, they are particularly exposed to these and other risks, such as new forms of gender-based violence, abuse, and harassment in digital contexts.

Our global challenge, therefore, is not merely to close the digital (financial) divide, but also to establish sound regulatory and supervisory frameworks to ensure that women and vulnerable citizens reap the benefits from digital technologies without suffering from their potential adverse effects.

Written By: Onyeka Akpaida, Founder at Rendra Foundation

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