Corospondent - January 2018

Corospondent - January 2018

Summer edition

Download PDF

Making Africa great again - January 2018

Back to contents
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 in 2018 will be market defining for SA.

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 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. The president has also issued an ultimatum for the return of foreign-held funds – a figure of $30 billion. And the currency peg is to be ditched. He has to do this if any form of relationship is to be built with global financial institutions and foreign governments. These are very good things.

While this has been happening, and 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. His final months in office made a mockery of Zimbabwe and its government. 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: president Emmerson Mnangagwa. Much has been written about him and what might be. In fairness, he needs to do very little to make a big change. Yes, the country is in a shambles. It 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.

Instated in November, Mnangagwa’s new cabinet consists mostly of Zanu-PF and military loyalists. Yet the crucial positions of finance and mining have both been filled by technocrats. The president, joined by his deputy, has visited the main opposition leader at his home; not to discuss a coalition government, but as a symbolic gesture of acknowledgement. The president has embarked on a major corruption crackdown, warning offenders to come clean and surrender ill-gotten gains. Grace Mugabe and her sons are being probed by the anti-graft agency over dodgy land deals and mineral trading. The family protection does not extend beyond the former president. Former ministers are facing corruption charges. Bids are being sought for state-owned enterprises which gorge on the little tax revenue available. And a moratorium on prosecution for repatriating ill-gotten offshore funds was announced. It is rather surprising how similar the Zimbabwean and Angolan hymn books are.

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. The country has rich institutional memory and structures. There is reasonable international goodwill, with the African Export-Import Bank, an international financial institution, having extended funding of $1.5 billion and the UK stating that it would like to assist in the recovery. The country needs a lot more. Exiled white farmers have been invited to return, with one farmer arriving at his grabbed farm under military escort to the sound of ululating workers. Even the black market ‘zollar’ rate has strengthened significantly from its lows. This could all just be hope, and stark realities remain to be addressed. Elections are planned for this year, which will provide more guidance on the road ahead.

While we are all 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 changes in 2018. 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.