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Africa money memo to s africa economic woes begin at home


* Marikana mine violence may lead to useful introspection* Government routinely blames euro crisis for economic ills* Social tensions join high energy, labour costs as worriesBy Stella MapenzauswaJOHANNESBURG, Aug 24 South African policy makers from President Jacob Zuma down routinely reach for external factors such as the euro zone crisis to explain why Africa's biggest economy cannot grow faster or create more jobs. But the bloody confrontation at the Marikana platinum mine last week, which killed 44 people and uncovered deep undercurrents of labour and social unrest, is forcing them to look closer to home for the sources of the nation's problems. What is being called the "Marikana massacre" - which saw striking miners armed with spears and machetes hack mine guards and police officers to death, followed by strikers being cut down by a hail of police gunfire - has done more than trigger a wave of anguished soul-searching among South Africans who thought such scenes were part of the apartheid past. It has also revealed another uncomfortable truth, grudgingly acknowledged by the central bank and finance ministry and cited by local businessmen: that domestic factors such as soaring power tariffs and high labour costs, combined with political uncertainty and simmering social resentment are as much, if not more, of a drag on business activity as the turmoil in Europe."This latest round of violence says to people - wait a minute, there's way too much uncertainty in South Africa," said analyst Mike Schussler, a noted local commentator from the private research company economists.co.za."I'm sure other countries also have violent strikes, but I don't know of many cases where policemen are hacked to death," he added, reflecting the blot Marikana has put on a post-apartheid South Africa which likes to project itself as distant and distinct from the poverty and suffering seen in Africa. With Europe absorbing about 25 percent of South African exports, no one is denying that the euro zone meltdown has taken a toll on the most powerful economy in Africa. With most sectors of the economy stuttering, Finance Minister Pravin Gordhan has warned growth this year will be less than the 2.7 percent projected in February. The World Bank has cut its own estimate to 2.5 percent from 3.1 percent.

In her latest monetary policy statement, Reserve Bank Governor Gill Marcus reiterates her by now familiar argument that "negative spillover effects" from the euro zone crisis on the South African economy are likely to persist and intensify. But Marcus and Gordhan acknowledge the economy is riddled with structural constraints that keep growth below potential. Domestic operating headaches cited by South African businesses include electricity tariffs that have soared by an average 25 percent per annum since 2009, and unsustainably high labour costs. South Africa's union-friendly labour legislation enforces a mininum monthly wage of about $230-$240, much higher than $55 and $70 in neighbours Zimbabwe and Mozambique."We're losing our competitiveness because our commodities are also produced in South America and elsewhere in Africa where the labour costs are a fraction of what they are here," Riel Malan, managing director of fruit and vegetable exporter Unlimited Group, told Reuters.

LOW MARKS FOR BUSINESS CONDITIONS Malan said his company saw a sharp euro zone-related fall in demand for citrus fruits and baby vegetables from nations such as Spain and Portugal, who are grappling with debt problems that have raised the spectre of a global recession on the heels of the last one in 2008/09. The previous downturn slashed Unlimited's exports by about 40 percent and it has not completely recouped the lost trade, despite cultivating new markets to augment sales to Germany, Britain and Switzerland, Malan said."The one good thing that came out of the recession is that we have become far more diversified in our marketing mix and are not as dependent on the European market as we used to be."By contrast, some of the domestic headwinds look a lot more difficult to reverse. A recent survey by the South African Chamber of Industry and Commence shows local businesses are downbeat in their assessment of the operating climate in terms of security, infrastructure and the labour market.

Participants rated the labour environment and ease of doing business in the country at a meagre 2.8 out of 10 for each of these categories while security and infrastructure also scored poorly at 3.4 and 3.9 respectively. But even if Europe were out of the equation, growth would barely reach 3.5 percent, the World Bank says, citing power bottlenecks as state utility Eskom's ageing infrastructure fails to generate enough to meet rising demand. By contrast, growth in Nigeria is seen at 6.5 percent this year while East African giant Kenya expects 5.2 percent expansion. A POTENTIAL SOCIAL TINDERBOX? The Marikana mine carnage also shines a harsh spotlight on South Africa's glaring income disparities and social inequalities, which fly in the face of the ruling African National Congress' promise to create a "better life for all" after the end of apartheid in 1994. Amid a growing perception that a much-debated government "black empowerment" drive has benefited only an elite and ANC-connected few, an increasingly restive black population has stepped up often violent protests against enduring poverty and poor basic services."The global headwinds have put into even sharper focus the demanding policy challenges of high inequality and unemployment in the country," said World Bank country director for South Africa Asad Alam. This is tweaking the nerves of local and foreign investors already jumpy about calls from radical factions of the ANC to nationalise mines and confiscate white-owned land. The country's Gini co-efficient, a measure of income inequality, is one of the highest in the world at 0.69, Planning Minister Trevor Manuel conceded last week, when he unveiled a growth plan whose ambitious targets include creating 11 million jobs over two decades and more than doubling per capita income. This was just days before the Marikana bloodshed added dark clouds of potentially spreading labour unrest and violence to the already glowering economic outlook.

Bangladesh seeks sukuk rule amendments, sovereign issuance


Bangladesh's central bank is seeking to amend rules on its existing Islamic bond (sukuk) programme to broaden its use and allow for a sovereign issuance by the government, enhancing the prospects of Islamic finance in the country. Bangladesh, a majority-Muslim country of 160 million, has developed Islamic finance with marginal regulatory support but a lack of Islamic capital market tools are limiting the industry's expansion. A request for the amendments was now being considered by the finance ministry, which would allow sukuk to be used as a money market as well as a fiscal instrument, the Bangladesh central bank governor's spokesman A. F. M. Asaduzzaman told Reuters."Issuance of sukuk by the government is one of the major considerations in the proposed amendment," Asaduzzaman said.

The central bank has a small sukuk programme backed by legislation dating back to 2004, which issues short-term paper to help Islamic banks manage their liquidity, but a wide range of tenors is not available and there are no corporate sukuk. The proposal comes after a report by the Malaysia-based Islamic Financial Services Board (IFSB) highlighted the need to develop sharia-compliant funding instruments such as sukuk in the south Asian country.

The IFSB report said a sharia-compliant lender of last resort facility and an Islamic deposit insurance should be developed in Bangladesh to support an Islamic finance industry which has doubled in size in the past four years. The central bank is currently developing a lender of last resort framework for the entire banking sector which is expected by December of this year, with a sharia-compliant equivalent to be developed afterwards, Asaduzzaman said.

Islamic deposit insurance, however, was not under consideration with Islamic banks currently covered under the existing scheme managed by the central bank, he added. The IFSB lists Bangladesh as one of a handful of countries where Islamic banking has systemic importance, an industry which follows religious principles such as a ban on interest and monetary speculation. The country was gripped by political turmoil leading up to an election in January, with economic growth expected to slow to less than 6 percent in the financial year. In the previous year, the economy grew by 6 percent.

Bank of korea joins islamic finance body ifsb


March 28 South Korea's central bank has joined the Islamic Financial Services Board (IFSB), one of the main standard-setting bodies for Islamic finance, as regulators across Asia build closer ties to the growing industry. Guidelines issued by the Kuala Lumpur-based IFSB are gaining prominence as the industry takes a greater share of the banking sector in several majority-Muslim countries and expands into new markets. The Bank of Korea is the 59th regulatory body to join the IFSB, bringing total membership to 184, joining the likes of the central banks of Luxembourg and Japan and the monetary authorities of Hong Kong and Singapore. The move could augur stronger links between South Korea and Islamic finance hubs in southeast Asia.

South Korea's Export-Import Bank of Korea already has a bond programme in Malaysia that can issue Islamic bonds, or sukuk, although it has yet to tap the market. This week, Hong Kong lawmakers passed a bill that will allow the AAA-rated government to raise around $500 million via sukuk, or Islamic bonds.

In a separate statement, the IFSB also adopted a revised guideline on the supervision of Islamic finance institutions, helping tighten regulatory oversight of industry practices.

The latest update complements stricter Basel rules, agreed globally to make banks safer after the 2007-09 credit crisis. In the past two years, the IFSB has issued separate guidelines on liquidity risk management, stress testing and capital adequacy.

Bank on poor women and phones to drive growth in africa, experts say


NAIROBI, Nov 24 (Thomson Reuters Foundation) - Mobile phone technology can help to bring financial services to the 80 percent of African women who do not have a bank account and bolster the growth of the world's poorest continent, Nigeria's finance minister, Ngozi Okonjo-Iweala, said on Monday. Okonjo-Iweala was one of a dozen government, finance and business leaders who met in Nairobi on Monday to roll out a plan to bring financial services to more poor African women."It's not just about empowering women, it's about economic growth," said Okonjo-Iweala, honorary co-chair of the newly-formed Africa Advisory Council of the U.S.-based charity Women's World Banking."Unless we can make access to finance easier for women in their businesses, we will be missing out on a significant portion of growth within our economies."She cited a study by accounting firm Ernst & Young which shows that 75 percent of consumer spending power will be in the hands of women by 2028. Women are also known to be better than men at repaying loans and saving money, the experts said. In Nigeria, 73 percent of women have never used a financial product, according to Women's World Banking. Instead, they rely on in traditional savings groups, where a collector comes to collect their daily earnings.

Women's World Banking worked with with Nigeria's Diamond Bank to develop a pilot savings account, called Beta (pidgin English for 'good') to reach this vast, untapped market. Sale representatives go to the open-air markets of Lagos each day, rather than waiting for customers to come to the bank. Using their mobile phones, they open savings accounts for busy traders in a few minutes. They also come to their customers' market stalls to collect money that they wish to deposit in their accounts, the same way those who run informal savings groups visit their members. The deposits are confirmed by SMS text message.

In its first year, more than 132,000 people who had never had a bank account opened Beta accounts."I think technology is going to help us go to scale," said Okonjo-Iweala. Kenya is one of Africa's leaders thanks to mobile phone-based financial services, such as Safaricom's Mpesa.

But there is still a big gender gap here, with 53 percent of women compared to 71 percent of men using formal financial services, the experts said. One challenge with mobile banking is that poor families often share one phone - and that is controlled by the man."Women in Africa do not need charity," said Jennifer Riria, chief executive of Kenya Women Holding, the largest microfinance network in Kenya."Access

Banks better information may hurt loan investors study


Banks that trade the stock of companies they make loans to have superior information, which can help investors trading in equities and hurt customers trading loans, according to a study. The study, by business school professors at Baruch College and Pace University in New York, looked at so-called "dual market makers" - banks that simultaneously were the lead lenders to companies and traded their shares with investors. In markets where there are dual market makers, dealers tend to buy shares from investors at higher prices and sell them at lower prices compared with markets without dual market makers.

That means equity investors were getting a better deal whether they were buying or selling shares in the stock market, which tends to trade actively.

But in the loan markets, which trade much less frequently, the presence of dual market makers translated to inferior pricing for investors, the study said. Dual market makers reduced equity bid-ask spreads - the highest price at which someone will buy a stock and the lowest price someone will sell it - by about 39.5 basis points or some 35 percent of the mean equity spread.

But the presence of dual market makers increased spreads in the syndicated loan market by around 25.3 basis points, or 21 percent of the mean loan spread, which minimizes liquidity. The study, titled "The impact of joint participation on liquidity in equity and syndicated bank loan markets" was published in the January issue of the Journal of Financial Intermediation.

Britains would be finance ministers sum up stark choice for voters


* Voters' choice: public spending or budget surplus* Biggest gulf in a generation between Tory and Labour plans* Osborne and Balls highlight gap between parties* Polls show Conservative lead on economy, lag on fairness* GRAPHIC: Conservative and Labour budget plans hereBy David MillikenLONDON, Feb 27 The stark choice faced by Britons in May's national election is summed up nowhere more clearly than by the two men vying to be finance minister. One wants more austerity to erase the deficit, the other says it is time to talk about living standards. The Conservatives' George Osborne, 43, and Labour's Ed Balls, 48, have helped define what their parties stand for. Now each is betting that the other has miscalculated the public mood as they bid to oversee the world's sixth-largest economy - now growing again after years of painful budget cuts."We are getting a genuinely significant choice," said Paul Johnson, director of the Institute for Fiscal Studies, a non-partisan think tank. "Voters will be choosing between two different economic visions."Osborne is seeking another five years to finish the challenge of wiping out what remains of one of the world's biggest budget deficits. Balls says Britain should focus more on boosting growth and living standards, and argues Osborne's strategy masks an ideological crusade to shrink the state. Both want to reduce government borrowing. But Osborne aims to get rid of the deficit altogether in order to cut Britain's debt pile faster, while Balls is happy to borrow modestly to fund long-term investment and boost growth. It is the biggest difference between the parties since 1992 or even before, believes Johnson. Opinion polls put the two parties neck-and-neck but show the Conservatives are more trusted to run the economy than Labour. However the Conservatives are also widely regarded as less fair, having cut welfare benefits while lowering the tax rate for Britain's highest earners."When you want people to do a job, it's the Conservatives people turn to. But they do have an Achilles' heel, and that is fairness," said Joe Twyman, an analyst at polling firm YouGov. But whoever is finance minister after May might have to rework at least some of their plans. With voters drifting away from the two major parties, neither looks likely to win outright and may need to do a coalition deal with either the centrist Liberal Democrats, who favour slower deficit reduction, or the Scottish nationalists who are hostile to austerity.

PERSONALITY CLASH The two men also present different personalities to the public. Osborne favours appearances at factories and construction sites, wearing a hard hat and hi-vis jacket in an attempt to demonstrate a recent pick-up in wages and growth. He is gambling that this will count for more with voters than the fact that many are worse off than in 2010, and convince them that his tough spending cuts are working. Though Balls talks of fairer policies he has a reputation as a political bruiser after years spent advising former prime minister Gordon Brown. Television footage which emerged recently showed him joking over how he helped strip the Bank of England of its powers to regulate banks in 1997. He has since tried to soften his image by admitting to crying when he listens to the Sound of Music. The men's differences often spill over into taunts and mocking gestures in the rowdy Westminster parliament.

On Monday, during a debate about past tax avoidance by British bank HSBC, Osborne described Balls and his colleagues as "a bunch of arsonists throwing rocks at the firefighters who are putting out the fire that they started". Balls has returned fire of his own by saying the Conservatives' promise of referendum on Britain's European Union membership represents the biggest risk to the country's economy. The two men's different relations with their bosses could also have a bearing on the ability to deliver their plans. Osborne managed Cameron's campaign to become Conservative leader in 2005 and the two men remain close. But Balls and the more left-wing Labour leader Ed Miliband are seen to be more distant after they competed for the Labour leadership in 2010. While Osborne's promise of more spending cuts was met with cheers at a Conservative conference last year, an announcement of spending restraint by Balls was booed by some Labour members. Given the scale of the challenge of returning Britain to fiscal health, having the backing of the party and its leadership will be vital.

CREDIBLE PLANS Britain's budget deficit has halved since 2010 but, at 5 percent of gross domestic product, it is still way above Osborne's original plans of five years ago and will push the country's debt to an estimated 81 percent of GDP next year. His latest plans aim for a small surplus which could bring down the debt-to-GDP ratio by 27 percentage points over the 2020s, according to the IFS. Labour's plans would lead to a much smaller 9 percentage point fall, which Conservatives and some economists say would leave Britain vulnerable if there was another economic crisis because it would have only limited ability to borrow more."If there was a market concern, it might be about the credibility of the pace and scale of (Conservative) cuts, whereas with Labour the concern is about the scale of the borrowing. It is a bit of a tightrope," said Sam Hill, an economist at RBC. Osborne aims to achieve his plan with further deep cuts to public spending, particularly in areas such as defence and policing which could see their budgets cut by 40 percent between 2010 and 2020. Welfare for working-age people, which has already been curbed, is set for further cuts to fund higher pensions. Other than a few details, however, Osborne has shed little light on how spending cuts would be achieved. Labour's plans require much smaller cuts, equivalent to around a tenth of the Conservatives'. Under Labour 100,000 public-sector jobs would be cut by 2020, compared with 750,000 under the Conservatives. Balancing the books would be much easier for both parties if they were willing to raise taxes. But for Osborne, it is a point of principle that public spending should bear the burden of austerity even if in practice he raised sales tax in 2010's budget. Labour meanwhile is wary of being type-cast as a high-tax party who will hit the pockets of voters whose incomes have suffered since the financial crisis."Unless you are going to have less good public services maybe in the long run you need higher taxation. That feels to me like the debate we are not having which we ought to have," Johnson said. However, he added, both parties are likely to raise taxes should they win May's election, if history is any guide. And without tax rises, some economists doubt Osborne can achieve his aim of running a budget surplus."Osborne's plans are simply not credible," said Rob Wood, UK economist at Berenberg, a German bank. "Cutting government spending to 35 percent of GDP in a country with the National Health Service is going to be very difficult."