Quick Money

There are two ways of doing business: The well prepared and strategic way that encompasses research, business plans, relevant paperwork, and then implementation; or the crisis way of quick explanations, problem information, and urgency in resolving the bottlenecks.

Experiences show that very few business people and companies go the strategic way and carry out their businesses in an incremental and predictable manner. The majority of Zambians especially in the micro, small, and medium business sector tend to react to business challenges rather than to plan and respond to the ever changing business pressures.

If one speaks on behalf of the majority reactionary business practices, it becomes necessary to carefully understand the various processes of acquiring financing, and the impact and consequences of each option of doing business.

Reactionary decision making in a business motivates the business person to rush off to the bank and seek support. The banks have very clear guidelines when doing business, and even clearer guidelines when lending out money to customers. Banks initially want to know what service the customer is seeking from the bank. The banks then check the balances of the customer’s account and look into the history of transactions that have taken place in the last three months or so. The next step is for the banks to request a business plan from the customer which highlight the company’s strategy to liquidate the intended debt. Finally, the banks request some security which may cover savings, life insurance policies, monthly salary and other receivables, immoveable property, and other assets.

These demands are not easy to put together and therefore appear to be monumental tasks to any business person that is in a hurry to access quick money. Today, banks typically offer loans, overdrafts, and leases at interest rates of about 30 percent per annum. This is the cheapest form of money available and the terms can be renegotiated if the customer is performing very well in the eyes of the bank. Banks in general are concerned about the viability and sustainability of the customer in an effort to reduce the possibility of default and to support the customer to build the business from one level to the next in a manageable manner.

For many Zambian companies, the banks appear to be too demanding and too slow in making money available to an institution or person that wants to transact quickly, so they look elsewhere for a quicker deal.

The next port of call for the average business person is the Micro Financing Institution (MFI). MFI’s tend to be much more flexible than banks because they are not as demanding in paperwork, but on the other hand, they provide quicker money at typical interest rates of 120 percent per annum. This is 4 times more than the worst bank interests rates on the market.

MFI’s usually want to know what the customer wants to use the money for and requests a short term and abbreviated business plan. MFI’s also require some security and will willingly take salary pay cheque remittances, moveable property such as cars and machinery, immoveable assets like houses and other forms of buildings or land, and any other income that can be reasonably proven.

MFI’s are generally more focused on the quality of the business plan to show capacity to pay back and often use some form of security to mitigate against possible default. MFI’s will typically respond to a customer s request within a few days and quick money is put on the table once the formalities have been addressed. The options for renegotiating the terms are limited and the MFI’s oversight in monitoring customer performance is imbedded in the lending agreement.

Many Zambian companies use this route to access quick finance and begin to develop an understanding of the rudiments of borrowing money and the necessary process that have to be undertaken. Many companies also recognize that the cost of money from MFI’s is too high for investment into plant and machinery or medium term programs because the interest rates will quickly outgrow the principal amount borrowed. MFI financing is therefore predominantly used for short term trading that covers not more than one month to keep the interest payments within the 30 percent bracket.

There are a good proportion of Zambians that consider the MFI’s too slow to release money and therefore look for an even faster mechanism to obtain quick money. These business people come out of the sunlight and go into the shadows to find a Money Lender typically known as a Loan Shark.The money lender will make quick money available at their low interest rates of 180 percent per annum, but predominantly offer loans at 365 percent per annum.

Money lenders generally offer quick money within 24 hours but require only a brief explanation about the use of the money and demand tangible security in the form of moveable and immoveable assets valued at typically three times the amount to be given in the quick loan request. The rationale is that a money lender becomes more comfortable that the customer will do everything in his or her power to pay back the loan before risking the loss of the pledged property that is three times more valuable than the loan taken. Clearly the motivation to pay back is based on the bigger loss that the customer would make if they defaulted.

Money lenders are not keen to renegotiate the terms of the loan agreement unless it makes substantially more profit for them. In addition, money lenders tend to secure the loan given with a sales agreement between the customer and the money lender for the property surrendered as security, but include a buy back clause that enables the customer to clear the debt owed and redeem ‘their’ property. This mechanism basically gets the customer to sell the property to the money lender, and the money lender is obliged to sell back the property (by way of cancelling and tearing up the sale agreement) to the customer when the customer pays back the principal with the accumulated interest.

The money lender therefore does not have to go through any litigation if the customer defaults on the loan agreement, but simply carry out the change of ownership process and liquidate the security to recover the money owed.

Money lenders provide the quickest cash in the financial markets, but the risks taken by the customer are higher than any other form of borrowing. Many people have lost homes, vehicles, farms, premises, and machinery because they did not meet the terms and conditions of borrowing quick money from the money lenders.

The lessons to be learned are that any quick money comes with heavy risks. The risk of heavy interest rates and the risk of losing the security pledged in order to obtain quick money is real, and it can be the recipe for a disastrous life thereafter.

Published 16 March 2010

Economic Wars

Since the end of the Second World War, the big powers have concentrated on military might and the build up of arms and ammunition. The Soviet Union on one side and the USA on the other side have spent much public resources over the last six decades on stockpiles of missiles, submarines, and other logistics to become super powers.

What is now evident is that while the super powers were building up militarily, some non descript poverty stricken economies such as India and China were pouring as much resources as they could into economic capacity building over the last four decades.

The irony is that the remaining protagonists of the Second World War continued the war through arms build ups and missile pointing across the oceans, while some developing economies changed the parameters of the war from firepower to economic growth and dominance.

These economic wars have always been around from time in memorial. Today the wars have evolved and become more sophisticated under the guise of the World Trade Organisation (WTO), the North Atlantic Free Trade Area (NAFTA), the European Union (EU), the Association of South East Asian Nations (ASEAN), the South African Customs Union (SACU), the Economic Community of West African States (ECOWAS), the East African Community (EAC), the Southern African Development Community (SADC), and the Common Market for Eastern and Southern Africa (COMESA) to name but just a few.

The WTO grapples with development concerns of various nations. North versus South, East versus West, Developed versus Developing, Socialist versus Capitalist, and the list of economic battles goes on. Free movement of human resources in addition to free movement of goods and services is an ongoing debate. The battle on Intellectual property rights continues to rage between East and West. The patenting of technologies has opened up new conflicts in the Genetically Modified Organisms domain. The debate on private ownership of technologies versus global or public ownership is constantly being fuelled.

The EU continues to battle to get African, Caribbean and Pacific (ACP) developing countries to sign new Economic Partnership Agreements (EPA) in replacement of the unilaterally cancelled Cottonou Agreement. ACP countries are continually harassed by the implications of not signing an EPA with the EU, and spend sleepless nights trying to negotiate a position that will favour economic and social development in developing countries.

The impact of the SACU in southern Africa indicates how domestic growth has been stifled over the last three decades. Lesotho, Swaziland, Namibia, and Botswana display themselves as satellite states of the South African economy with no real domestic economic activity visible on the ground. Much of the economic activities in these satellite states benefit the South African economy to the extent that the launch of a Commercial Court in Lesotho would probably not yield much positive results in supporting the local private sector because many of the significant companies on the ground are subject to South African jurisprudence.

COMESA poses a new set of challenges as the Customs Union goes into operation in 2010. What will be the trade balances amongst member states? How much equity in the regional trade will each member state take up? What mechanisms will each member state use to fast track domestic economic development without undermining the spirit of the Customs Union? What constitutes fair trade in the region? What constitutes a level playing field for trade related activities amongst member states?

These and many more questions need to be asked and need to be answered by our Governments and our private sector. As the doors of free trade begin to open the battle lines for economic wars are soon established.

In the developed world, subsidies were put in place to ensure that strategic industries were propped up and kept operational. These include agriculture to ensure domestic food security, the military and armed forces to ensure protection of the lives of all citizens, education to uplift the value of domestic human resources, health to ensure a physically higher quality of citizen, and government to develop a managed society that follows some basic rules and regulations which foster peace and prosperity.

All of these measures promoted harmony amongst people in a community and set a focus on domestic economic and social development. These measures also invested in a higher capacity for the developed countries to exploit other less developed countries with special know how and developed resources such as money, insurance, knowledge, and other parameters.

Each country in the global economy is an army of producers of goods and services. Some are very efficient such as those in the East. Some are very intellectual such as those in the West. Some are very enterprising such as those in the North who have to face cold winters. Some are very laid back such as those in the South where resources are abundant and the weather is very kind.

The economic wars are more acute and strategic in the East and North. They are patronisingly considered in the West where development is more prevalent. They are largely dismissed in the South where Africa is located.

The economic wars will escalate rapidly as the worlds resources become scarcer with the last deposits residing on the African continent. The last thirty years has seen armed conflicts across the continent seemingly due to political clashes amongst people, but more truthfully, as a result of the scramble for resources which are needed in the developed world.

Africa currently holds vast reserves of diamonds, gold, oil, copper, and other minerals sought after by the developed world. The economic wars will soon be at our doorsteps and we had better be prepared to engage in a manner that will bring prosperity and equity to our people.

The world has become a business market place where economic wars are high on the agenda and the casualties are dead economies, because there is no option for the taking of prisoners.

Published 9 March 2010

Teaming Up

Zambia has registered annual GDP growth of 5 percent or more over the last 5 years. Inflation has come down to single digit figures from around 15 percent to the current 9.8 percent.

Copper prices have gone from USD2,000 per tonne to recent figures of USD7,400 per tonne.

It is quite clear that there is some economic boom out there for some sectors of the economy. Why does the rest of the economy not experience this positive change and growth?

There may be several reasons for this, but it is quite obvious that a management system for growth is not firmly in place. Economies grow through strategic management such that the gains received from boom areas are used to stimulate other sectors in an effort to open up opportunities across the economy.

For example high copper prices generally lead to more investment in the copper industry, which then leads to increased construction and expansion of the mining activities. More mining suppliers are engaged in business, more trucking is done, and growth is registered wider. This form of growth however, is consequential growth based on the natural pressures and demands that increased mining activities generate in the economy.

A more managed and coordinated growth can be stimulated by strategic planning and investment by the Government and the private sector. This teaming up effort requires some basic shift in the economy, such as copper prices going up to trigger some strategic investments, and quickly impact on the broad based growth of the economy.

The opportunities for local value addition open up and the options for local manufacture and supply of sub components can become a reality. The number of other support services to the mining sector covering transport, accommodation, services, storage, security, sub contracting, office logistics, human resource training, banking, insurance, and many other areas of business can be targeted for local companies to engage in. These options can be promoted rather than letting them fall into place by accident.

The 2010 World Cup is another example of an anticipated boom that begs for strategic planning and teaming up amongst Government, the private sector and other stakeholders to bring about economic growth and open the country to a massive tourism explosion. In this case and at this point in time, the various organizations and Government organs impacting on tourism need to team up, and team up fast before the kick off in the next few months!

Zambia opens up for trade to the region by the end of the second quarter when the COMESA Customs Union is finally implemented. An urgent response must be put in place to ensure that the country benefits from the union. The response required should not be a written letter to member states, but the rapid teaming up of all stakeholders in Zambia to analyze, assess, and form a plan of action on how Zambia and Zambians can gain from this opportunity of a regional market of over 200 million people. The teaming up effort should not end at simply drawing up plans, but should go all the way to committing resources against an implementation strategy so that Zambia can engage in meaningful trade with other member states. The net result should be that Zambian industry grows, Zambian labour is productively employed, and the domestic market share grows beyond the eight borders into neighbouring countries.

If ever there was a time when the teaming up effort is demanded by the country, it is now. At the private sector level it should now be a matter of urgency that all business associations begin to share notes and collaborate for the benefit of the broader private sector. It is absolutely necessary for the private sector to engage Government to highlight the opportunities and challenges for Zambia as a member of the Customs Union. It is paramount that Government Ministries and departments coordinate with each other on economic development issues so that they compliment each other. It is in the nation’s interest for all opportunities to be researched and exploited in the quest for economic growth, job creation, and the economic security of the nation.

2010 presents challenges because it is a pre-election year. There is the risk with each successive day that public attention will begin to focus more on the 2011 tripartite national elections, at the cost of ignoring Zambia’s economic and social development challenges in this crucial year.

The country will have to strike a balance between national focus on considering and strategizing on the economic challenges on the one hand, and the rhetoric and campaigning in preparation for the elections next year on the other hand.

The much touted Public Private Partnerships is now being put to the test. The difference though is that it goes beyond public and private, but extends to every NGO, every religious organization, and every political party.

The need for teaming up this year cuts across all levels of the economy. It also cuts across all political party interests. In fact the need to team up affects all the people of Zambia irrespective of their activities and station in life.

Published 2 March 2010

Third Time Lucky

Today President Banda leaves for China on a state visit in response to an invitation from that country’s head of state.

This event will mark the third encounter in the last seven years between Zambia’s head of state and the leadership of China.

The first recent encounter was the state visit of Late President Mwanawasa to China in 2003 which was later reciprocated by a state visit to Zambia by President Hu Jintao and his entourage during his African tour of 2007.

The net impact of the two encounters was a pledge by President Hu Jintao for China to slash Zambia’s debt by 8 million dollars, invest around 800 million dollars in the Chambishi Economic Zone, build two rural schools, construct a hospital for malaria treatment, and the building of a new football stadium in Ndola.

Slowly the pledges are crystallizing into implemented projects but the impact on national development is too small for such a significant partnership with the world’s largest exporter of goods and services.

Zambia may be third time lucky if today’s visit can be strategically arranged to put Zambia’s key development hurdles on the agenda in Beijing.

China is the world’s biggest developer of hydro electric power stations. Zambia has lost its competitive advantage of being a country that is self sufficient in electricity at relatively low tariffs. In order to address this situation Zambia can negotiate with China to develop the vast hydro electricity potential across the country. This sector requires investments in the order of around 6 billion dollars. The higher production of electricity in Zambia will enable the country not only to steer away from the use of petrol and diesel for industry and transport, with surplus electricity being marketed to the neighbouring countries. This would be a useful engagement with China in an effort to invest in the future of Zambia’s economy and address the energy requirements of the growing Chinese investments in the mining and steel sectors.

China has the world’s widest railway network and boasts the cutting edge Mag Lev shuttle train which floats on a magnetic track at speeds of up to 480kms per hour. Zambia can dialogue with China on a program to overhaul and resuscitate the defunct operations of our railway network such that a meaningful investment is made into the rail transport sector. If the Zambian railway system can be made to operate efficiently, many of the huge trucks carrying cargo on our roads today can be eliminated and the lifespan of our roads can be extended probably by another 10 years. In addition, both India and China use rail transport to move people across the country in a very extensive way thereby making it the number one choice for cost effective travel.

China has a very successful track record in the agriculture sector and therefore can be a very useful partner in bringing Nitrogen Chemicals of Zambia back to life. Food security is a key aspect of state sovereignty. With China’s support Zambia can make food security and food surplus a living reality as fertilisers and other inputs are efficiently manufactured at NCZ.

The plight of Mulungushi Textiles in Kabwe should be addressed during the state visit so that the company can secure re-investment and Kabwe can begin to convert Zambia’s cotton into finished products for both domestic consumption and export.

Imports from the south are brought to a slow pace due to the cumbersome operation of the pontoon at Kazangula which connects Zambia to Botswana. The solution is to build an all weather heavy duty bridge that will support the high volume of traffic between the two countries. There again, is an opportunity for Zambia and China to do some good infrastructure development work that will support the growing economy.

Tourism is high on the agenda in Zambia’s development program. In order for tourism to really deliver it is necessary to build proper airports that will allow tourists to fly into Mansa, Siavonga, and along Lake Tanganyika in the Northern Province. Airports that can handle commercial aircraft flying in from South Africa and other neighbouring countries will escalate the tourism traffic into the country. Airports not only provide efficient access into the country, but also provide quick access to the tourism sites across the country.

The state visit to China can either be one that the President and his entourage have great time eating, drinking and seeing good things, or it can be a strategic series of discussions and negotiations that will ultimately bring useful development investments into Zambia.

Hopefully, the President and his team will focus on the latter. Hopefully the state visit to China will be third time lucky wherein the best interests of Zambia are not only focussed upon, but tangible results will be seen by the people of Zambia in the near future.

Published 23 February 2010

GMO Again

The Genetically Modified Organisms (GMO) debate on food products has made it into the media again. This time the debate is taking place in India where Bio Tech (BT) Brinjal (Egg Plant or Aubergine) is causing a fierce debate in political circles, amongst the scientists, and more importantly, within the farming community.

This month India imposed a moratorium on the production of BT Brinjal for various reasons which were brought out by the wider set of stakeholders.

What issues have surfaced as a consequence of the BT ban?

One sector of private business will smuggle the BT crop and technology into the country in defiance of the ban, and possibilities of the agriculture sector being contaminated by GMO crops is open to unbridled abuse.

Another sector of society will be biased against GMO crops and the many imaginary perceptions of scientifically made products that are considered to create new diseases and even new unnatural creatures will be fuelled.

In India, some scientists submit that many tests and trials have been done over the last nine years to ensure that the GMO crops that are introduced into the country are safe and profitable across the board for the country.

Another group of scientists are of the opinion that the tests and trials done by seemingly local government owned universities, are funded by outside stakeholders who may influence the work in favour of supporting GMO technologies.

The farming community are generally supportive of GMO technologies through the positive experience of BT Cotton, but they largely are concerned about the fact that Brinjal is a local food and that there are no convincing tests that indicate that BT Brinjal will be safe for human consumption.

This situation brings to the table a challenge that also faces Zambia.

The challenge is twofold. Firstly, the need for a state owned and funded research centre on GMO’s and Biotechnologies. Secondly, a forum for all stakeholders to air their views and concerns, to form a basis on which to arrive at pertinent decisions on the use of GMO’s at national level.

Some influential leaders in India are not very happy with the constitution of the members of the state owned Genetic Engineering Approval Committee (GEAC). The GEAC itself has the power to approve GMO products, but due to the ferocious debate going on in the country in respect to GMO’s, it has passed on its opinions to the top government officials for consideration and decision making on behalf of the nation.

There are calls for the government to invest public resources into GMO research such that the opinions and decisions made by the GEAC will be in the best interest of the nation. Calls are also made for the introduction of a GMO regulation authority that will authorise and monitor the use of GMO technologies and products. This would probably be the best course of action for Zambia too.

Interestingly, the various states of India have shied away from Bt Brinjal, substantially on the basis of concerns about human health and safety issues. At least eight states banned the introduction of BT Brinjal even before any national government decision was released on the matter. Even Tamil Nadu, the state in which one key GMO research laboratory has done extensive work on BT Brinjal, has banned the introduction of the crop.

For the lay person and wider society at large, this state of affairs raises more questions about GMO crops than it gives answers or reassurances. The public tend to error on the side of caution when faced with decisions that are connected with complex technologies, hence the public outcry and political frenzy on BT Brinjal.

As a result, the government has decided to make public most of the GMO documentation through their web site (www.moef.gov.in) and has marked January and February 2010 for a series of proposed consultations in different parts of the country with consumer groups, scientists, Non Governmental Organisations, farmers organisations, agriculture experts, and all civil society who want to engage in a responsible manner.

Zambia has already made some progress by developing a GMO laboratory system at Mount Makulu under the umbrella of the Ministry of Science Technology, and Vocational Training. Of course, for the laboratories to do research work that will be in the best interests of Zambia, it is imperative for the research centre to be funded through the national budget and not through direct donor or cooperating partner funding.

Some concerns pertaining to GMO crops include; safety in respect to the environment, human and animal health; the lack of conclusive research for GMO bio-safety and its possible contributions to food security and the well-being of the farmers community; the lack of a government agriculture commission to examine various technical reports and forward their views to the relevant government department to support a well informed decision making mechanism; lack of focus on the interests of small and marginal farmers; and the impact of pesticide use that can have a damaging effect on public health.

GMO’s and BT crops have the potential to leap frog decades of development in the agriculture sector. But as long as the scientists and the politicians use the GMO debate to further both scientific and political causes, the benefits may never trickle down to the poor people that the technology can lift out of poverty and hunger.

It is now time for the intellectuals and government experts to come together with the single agenda of looking to make GMO’s benefit Zambia as a whole. This single goal will set the stage for sincere, comprehensive, and inclusive debate and dialogue on GMO’s and BT such that at the appropriate time, national consensus will be achieved on Zambia’s national strategy.

Published 16 February 2010

Small And Medium Enterprises

The integration of various state economies with their specific peculiarities, into one global economy overseen by the World Trade Organisation brings out new challenges for developing nations.

The protectionist mechanisms that traditionally supported small scale industries (SME’s) have had to fall away as WTO rules become enforced in developing economies. India has experienced the survival crisis for SME’s as a result of globalisation, and some vertical and horizontal evolution has taken place in response to the shifting environment.

On the vertical axis, many micro enterprises have emerged as some SME’s down-size and opportunities for new entrants into business become more visible. Conversely, some SME’s up-size to develop greater economies of scale, and embrace a larger portion of the value chain of production. On the horizontal axis, many SME’s have had to consider product changes and sector changes in order to survive by providing the right product for the right industry that is doing well in a particular environment.

For example in an economy where construction and other civil infrastructure developments are doing well, the SME sector has had do some extensive research to find niche products and services that can be produced and offered to the large corporates in a bid to become a player in the construction value chain. Good specific examples have been steel riggers and rigging accessories, the manufacture of electrical accessories, the production of selected plumbing components, the supply of roofing accessories, and the development of various work tools and accessories for the construction sector.

Similar options can be developed in other prominent sectors such as food processing, agriculture, and tourism.

The SME sector deserves to be given a second look in respect to facilitation and promotion. The Citizens Economic Empowerment Commission, the Development Bank of Zambia, the Zambia Development Agency, the Ministry of Commerce Trade and Industry, the Ministry of Youth and Sport, the Ministry of Tourism, and the Ministry of Culture, all have a significant role to play in supporting and developing the SME sector.

It has already been acknowledged across the world that the SME sector is the backbone of any economy. Japan, India, China, and the Asian Tiger economies have all built their strong production bases on the SME sector. 88 percent of Japan’s economy is based on the SME sector. The developed economies of Europe and North America have been financially battered partly due to the fact that corporations dominated the domestic economies such that a crisis in a corporation became a crisis for the nation. This phenomenon basically makes the survival of private corporations the responsibility of the government rather than the shareholders, because of the possible large scale loss of jobs and heavy impact on the financial systems that a corporate collapse would cause.

Having learned the lesson, developing economies must rethink social and economic development strategies. This does not necessarily mean that all development programs must be abandoned. The SME challenge requires us to possibly focus more attention on the rapid and sustainable growth of the SME sector as a key program in the development agenda.

Part of the SME strategy requires developing economies to put in place a mechanism that ensures that when a large scale business or industry is established in a particular area, a linking program is immediately installed to promote SME’s to pick up the opportunities generated by the large investment.

Economic Zones, Industrial Parks, Mining Investments, Big Industries, Large Tourism Investments, Farming Blocks, and Corporate Services Providers, are all opportunities for SME’s to emerge and flourish and build the production base of the country.

The potential for SME’s is great, but three main provisions need to be in place for the potential to be unlocked. First, business promoters must become aware of the opportunities to supply goods and services. Second, there needs to be an availability of relevant skilled labour. Third, finance must be made available in a timely manner and at affordable rates.

Government, and specifically, the Ministry of Science, Technology, and Vocational Training, and various business and support organizations must assist to build the SME sector through the promotion of new and appropriate technologies; the hosting of SME development meetings for interested stakeholders; and dissemination events to highlight the opportunities for SME’s in the COMESA region.

We must keep in mind that as soon as the COMESA Customs Union is implemented, our economies will be integrated. The implications are that those countries in the region that have strong and sustainable large industries will dominate the region at some level, and those countries that have a vibrant SME sector will grow their economies even faster as they exploit the bigger markets offered by the region.

Zambia has some comparative advantages in the mining industry and can take advantage of this special endowment. However, Zambia does not have a monopoly of large investments within the region and therefore has no choice but to focus on an aggressive SME development program to remain a competitive and equitable member of the customs union.

Development of the SME sector is the way forward now, and will be the way forward for Zambia in the medium term. The big businesses should be encouraged to invest in Zambia, but not at the expense of sidelining our focus on Small and Medium Enterprises.

Published 9 February 2010

Davos 2010

The World Economic Forum in Davos, Switzerland, ran from January 27 to 31 this year under the theme; Improve the State of the World: Rethink, Redesign, Rebuild.

Davos focussed on the global economic payers which now include the USA, Europe, China, and India. In addition, the discussions challenged the global banking sector to come up with some prescriptions to support the global economy to come out of the global crisis with as little damage as possible. Another overriding major discussion at Davos was around energy sources, energy prices, and clean energy.

Prominent world leaders voiced their concerns including French President Sarkozy who said…"Either we are capable of responding to the demand for protection, justice and fairness through cooperation, regulation and governance, or we will have isolation and protectionism." and, "We will continue to make the economy run unbearable risks, encourage speculation and sacrifice the long term to the short term unless we change banking regulation, prudential rules and accounting rules."

Deputy Governor of the Peoples Bank of China, Zhu Min noted…."Risk for sovereign debt crisis is real. It seems to me the real risk for the global economy is very weak and volatile economic growth. Currently people tend to be optimistic..."

US President Obama highlighted his State of the Union Address that job creation would be at the top of his agenda in 2010 and that his focus would also be the overhaul of the healthcare system. He tactfully left the financial sector aside since he had been beating up on it all year long through 2009.

China has lamented on the USA, Canada, Australia, and Chile blockade on Chinese state owned firms from making resource investments in those countries due to supposed labour opposition and national security concerns.

China states that protectionist practices will only amplify the economic crisis and retard any recovery process in the countries that apply such measures. All in all, China continues to source for more markets around the world to export the vast range of products coming out of factories across the country.

The banking sector in Switzerland had suffered some upheavals in the last 24 months when several banks were forced to reveal sources and balances of funds in accounts connected to political leaders and grey area business operations.

However, Swiss regulators quickly moved in and imposed more stringent banking regulations which include capital ratios in an effort to stabilize the sector.

The Bank of England estimates that governments around the world have spent as much as 14 trillion US Dollars since 2008 to support the financial systems and maintain some monetary stability across the globe.

This sort of investment raises concerns amongst some financial analysts who note that much of the support is in the form of government bonds and other securities. There is a fear that many banks will soon hold huge amounts of these government papers in their vaults and should anything go wrong, then the world would experience yet another financial crisis even bigger than the current crisis that is slowly drifting away.

The Bank of England is making available 185 million pounds to the banking sector through a government guaranteed debt program. Many banks are building their portfolios with long term government paper, financed with government money, and leading to a record world ‘carry trade’.

Some banks see themselves being forced into this corner due to the lower demand for credit from their customers, the desire to reduce risk in their balance sheets, and the pressure from regulators to ensure that banks can withstand shocks in the capital markets through greater reserves of liquid securities – government bonds.

Although government paper has traditionally been respected as risk free, the experiences of Greece and Ireland start to tell another story of cracking financial systems.

Renewable and clean energy is high on the global agenda as the Kyoto Protocol expires in 2012. National measures to reduce emissions are the current debates, with China surprisingly showing much more commitment than any other country. China and the developed western countries are racing to dominate the wind energy sector. China has doubled its installed capacity each year, every year, since 2005 and now places third after the USA and Germany in installed power.

The British government has announced that Britain will install around 32 gigawatts of off shore wind power by 2020.

Africa looks forward to a brighter future as most economies are growing steadily. The IMF suggests that sub Saharan growth will register 1 percentage point above the world average in 2010 and places 8 African countries out of 20 on its fastest growing economies of 2010 list.

Experts state that for Africa to develop alongside Latin America and Asia, a lot of work must be done to move Africa from a commodity supplier to a value addition continent.

In a recent survey it was assessed that out of the 44 large companies from the USA, Japan, and Europe with operations in Africa, less than 1 percent of their equity was allocated to Africa, and about one tenth of a percent of the bond allocation was routed to Africa. The concern for this low investment in the continent was amongst other issues, the weak capital market structures, and the low liquidity to let investments in and out of the continent.

The World Economic Forum at Davos highlighted some important lessons for Africa. Africa is where much of the world’s resources are.

Africa must build its socio economic infrastructure. Africa must develop its human resource capacity. Africa must develop its trading mechanisms such as banking and insurance to world class standards. Africa must recognise that there are several new emerging economies that can symbiotically work with the continent to develop it from extractive commodity supplier status, to a value addition supplier of goods and services to the rest of the world.

Davos may not have offered some easy solutions to Africa’s economic and social development, but it certainly highlighted the imbalances and inequities of the world development order, such that Africa is challenged to not only consider the Davos theme, but to also regroup, innovate, realign, and employ new routes to development.

Published 2 February 2010