Last dictator standing - October 2018

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Peter Leger

Peter Leger

Peter is head of Global Frontier Markets and manager across all strategies within the investment unit. He joined Coronation in 2005 and has 21 years' experience in African financial markets as both a portfolio manager and research analyst

“WE ARE GOING to die, and that makes us the lucky ones. Most people are never going to die because they are never going to be born. The potential people who could have been here in my place but who will in fact never see the light of day outnumber the sand grains of Arabia."

So starts Richard Dawkins’s Unweaving the Rainbow, which studies the relationship between science and the arts from his perspective as a biologist with a naturalistic world view. Dawkins explores the idea that science does not destroy, but rather discovers poetry in the patterns of nature. He concludes that human beings are the only animal with a sense of purpose in life. In his view, that purpose should be to construct a comprehensive model of how the universe works.

I have always thought of politics as the realm where a sense of purpose should collide with action. And the pinnacle of this realm would be the installed leader. ‘Make America Great Again’ must be right up there when talking sense of purpose. But so strong is this sense of purpose that a number of leaders seem keen on the idea of extending their stay in power. Indefinitely.

Africa has had its fair share of leaders who have overstayed their welcome. Opposition has been aggressively managed. Leaders have ignored election results with little fear of consequence. And the sense of purpose is only curtailed by Dawkins’s opening truism, where dying is the only limitation to a president for life. Uganda, for example, has recently scrapped the age limit of 75 years to allow President Yoweri Museveni to extend his ‘brief’ three-decade stay in power indefinitely. This is a very bad thing.

Where there is no challenge and no change, there is no accountability. A long-serving dictatorship wears down the division between political and commercial power. Leadership cannot tell the difference and government becomes a service for the elite, resulting in countries that have great wealth making only a few wealthy. So when this changes, it is a very big deal.

Why was the December election of the new ANC leader in SA so closely followed? It was arguably the most important vote since free elections in 1994, as many saw this as a moment when SA would either continue down the road of the state being used for personal gain, or a return of accountability to SA politics. Ten years ago the National Prosecuting Authority brought 783 counts of corruption, fraud, racketeering and money laundering charges against president Jacob Zuma. And 10 years ago he became president of the ANC. That he has managed to avoid having these charges heard in court is a direct result of the position of power he has held. Imagine an SA where no term limit existed for our president or for the ANC, and where accountability could be delayed indefinitely. A chilling thought. How the transition of power plays out will be market defining for SA.

So far, since Cyril Ramaphosa became president of the ANC and the country, his actions have been more presidential than those of a dictator. Progress with rooting out corruption has been slow but is at least happening. Zuma’s acolyte Shaun Abrahams has been removed as head of the National Prosecuting Authority, power authority Eskom and other state-owned enterprises are being cleansed of corrupt officials and a commission investigating state capture which took place during Zuma’s “rule” has begun its work. Ramaphosa will be closely watched in the run up to the 2019 elections particularly with how he manages the land reform issue, which has now infamously drawn the attention of Donald Trump. Ramaphosa will need to display some strong leadership skills. To our north, José Eduardo dos Santos was president of Angola for 38 years, and Robert Gabriel Mugabe president of Zimbabwe for 37 years. Both left office within two months of each other towards the end of 2017. Isabelle (44), dos Santos’s daughter, is Africa’s richest woman today. Her business interests stretch the gamut of the Angolan economy. Doing business in Angola requires doing business with the family, suggesting that her wealth comes almost entirely from her family’s power and connections.

The new president Joao Lourenco came into office in September 2017. Since then he has set about dismantling the dos Santos hold and tearing down the original compromise government that was negotiated. Angola’s state oil company has announced an investigation into “possible misappropriation” of funds. The former first family is no longer protected. But being run as a family firm for so long has left the country with a large deficit, high debt levels, low oil reserves and forex illiquidity. Lourenco has acknowledged the pressures on Angola and promised economic reforms, including fiscal consolidation and ditching the currency peg. He is also seeking loans from the IMF for the first time in almost a decade and will use the funds towards economic reforms particularly the diversification of the economy beyond its reliance on oil. Recent rising oil output should in the meantime ease some forex constraints, while the reform agenda should help stabilise the fiscal position, support the currency and promote a more balanced economy. The president has also issued an ultimatum for the return of foreign-held funds – a figure of $30 billion. He has to introduce reforms if any kind of relationship is to be built with global financial institutions and foreign governments.

In a recent development, Angola’s state prosecutor has arrested Jose Filomeno dos Santos, the son of former president dos Santos, with regards to an alleged illegal US$500 million transfer he made from state coffers to an HSBC account in the UK.

While this has been happening, just a little bit east of Angola, president Mugabe resigned under huge military pressure, leaving a chronically failed state. In return, he is rumoured to have received a $10 million bonus and a bevy of benefits. The economy was starved of physical cash while Grace, Mugabe’s wife, and his sons were making headlines for behaving badly and consuming conspicuously – an extreme case of government serving the elite.

Zimbabwe now has a new ruler - on 26 August, president Emmerson Mnangagwa, was sworn in as only the second president since independence, almost forty years ago. He narrowly won the presidency, but his party Zanu-PF won the General Assembly with a 68% majority, resulting in a turbulent few post-election weeks including a challenge of the results by opposition party, the MDC. In the end, the Constitutional Court dismissed the application saying the MDC did not supply enough evidence to prove that election irregularities took place. However, despite the turmoil, it is probably worthwhile remembering that the 2018 election was easily the most peaceful and well organised since 2002.

Much has been written about Zimbabwe’s new president and what might be. In fairness, he needs to do very little to make a big change. The country does not have a functioning currency and the US dollars that it uses are in short supply. A revaluation of ‘zollars’ (the nickname for Zimbabwe’s electronic dollars) to dollars seems inevitable. But when you are heading at full tilt towards the edge of the cliff, just tapping the brakes and turning the wheel a little starts to look like skilful driving to your panicked passengers.

His inauguration speech focused heavily on attracting domestic and global capital by offering incentives such as speeding up efforts to improve the ease and cost of doing business and by emphasising market-driven policies. He also promised zero tolerance to corruption. Even before the election he had embarked on a major corruption crackdown, warning offenders to come clean and surrender ill-gotten gains.

The appointment of Mnangagwa’s new cabinet will be closely watched with the hope that new, younger technocrats will replace Mugabe-era stalwarts especially in the key finance minister post. The president will have to make an impact fast by fulfilling his promises as foreign sentiment easily shifts when nothing happens.  The stories of the two new African presidents and their countries they now need to transform is remarkably similar and their future actions will be monitored with interest.

While our funds do not have any Angolan allocations, we hold a material level of exposure to Zimbabwean equities on behalf of our clients. These businesses have endured ‘Dante’s inferno’ and still continue to be profitable today. We think there is a reasonable chance of a decent recovery in Zimbabwe. With some of the highest literacy rates in Africa, many of Zimbabwe’s three million diaspora would like to return home, but still need to be convinced by meaningful actions from their new president.   

The country has rich institutional memory and structures. There is reasonable international goodwill but a lot more is needed such as support from Washington should Zimbabwe need an IMF loan.  But excitement about small pockets of change like exiled white farmers being invited to return, could all just be hope for a return to some normality. The stark realities of Zanu-PF’s history and the power of the military remain to be addressed.

While we are all going to die, a lengthy status quo can beguile us into expecting more of the same. Three seismic leadership changes occurred in the last quarter of 2017, setting the scene for significant future changes. We do not expect more of the same and are feeling very optimistic for what may come, both at home and north of our borders. The countries are now more aligned than ever to make the region great again.

This article was published in FundNews Africa’s Special Report titled, Accessing Africa – A guide for investors.


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