Recession Without Representation
Recently, I told you that South Africa's economy is expected to slow in 2009, and that it was debatable whether the World Cup 2010 or the coming commodities rally would be able to stop the slide.
But let's take a step back and examine the rest of Africa...
First and foremost, the G-20, a group of the world's most powerful leaders, met on April 2 in London to discuss the global financial crisis. Together, this group represents 85% of the world's economy.
South Africa is the only African nation that's taking part in the summit.
And while this is an "exclusive" group, meaning that no other African nation has an economy big enough to get it a seat at the table, the group will certainly be discussing the impact of the global crisis on African economies.
In fact, the U.K.'s Prime Minister, Gordon Brown, met with African leaders to talk about the effects of the global downturn.
One charity organization, ActionAid International, says the crisis will cost the continent $49 billion, and $27 billion of this was from a decline in aid, export earnings, and income from "richer recession-hit nations."
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The International Monetary Fund says that 15 of the 21 most vulnerable countries - those that could be impacted the hardest - are in Africa, and the continent's growth rate has been more than halved for 2009.
But Ngozi Okonjo-Iweala, Managing Director of the World Bank, said that Western nations were behind on their pledges to double aid even before the global financial crisis began to take its toll.
(By the way, this pledge was made at the G8 Gleneagles summit back in 2005 in Scotland.)
And that makes African leaders angry. Tanzanian President Jakaya Kikwete told delegates at the IMF conference, "If there is going to be a message to the G-20, it is keep the promise."
That's becoming increasingly harder to do as Western nations are pinned under the weight of their own economic problems.
And yet, there's a key phrase in that sentence I want you to look at: "Western nations."
That's only half the equation nowadays... China and India have become increasingly important in Africa, buying up oil fields, investing in schools and telecommunications, and participating in other mutually beneficial projects.
And not everyone has a gloomy outlook.
Morocco's Finance Minister, Salaheddine Mezouar, told the conference, "Africa is a land of many opportunities and through investment we can prop growth, and by supporting African growth you can rekindle it at a global level."
But where will those investment dollars come from?
More and more, they will be coming from the East, not the West, and that means China. I told Taipan's Emerging Markets blog readers that Industrial and Commercial Bank of China (ICBC) (601398:Shanghai) took a 20% stake in South Africa's largest lender, Standard Bank (SBK:JSE). That deal was worth $5.5 billion.
Standard Bank's CEO, Jacko Maree, told the Financial Times that he thought Chinese companies were getting ready to pour more money into Africa.
Mining companies and telecoms have all been devalued since the beginning of the economic crisis, and that means China - with its massive reserves stockpile - can sweep in and buy up cheap assets such as commodities, and stakes in big-potential businesses.
Back in January, China reaffirmed its aid promises to Africa. It doubled its aid to Africa back in 2006, and has no plans of halting or scaling back any programs. And in February, China's President, Hu Jintao embarked on a tour of Africa and promised increased aid.
In 2008, China's trade with Africa jumped 45% to $107 billion. That's a ten-fold increase since 2000.
On this latest trip, President Hu visited Tanzania, Mali, Senegal and Mauritius.
Now, Tanzania and Mali are Africa's third and fourth biggest gold miners, and Senegal is just getting into gold and iron ore mining, so investment capital can do a lot to expand these industries.
Reuters reports, however, "Chinese companies are expanding in technology sectors such as mobile telephony as well as food and agricultural businesses, such as fisheries and sesame production in Senegal."
As Western countries slip in their contributions to and investments in Africa, China's seeking to create long-lasting ties that - in the future - would certainly benefit ongoing relations and business ventures.
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Worth a read??????????
This reminds me of I story I read with a powerful message….
There was this elderly man who had a profitable little business selling hot dogs on a busy street corner in a major city. He wasn’t particularly well educated, but he sold great hot dogs and his customers loved him.
During the early morning rush hour, he’d wheel his mobile hot dog stand to position it near the exit of the central railway station in town. A year ago he’d added a bacon and egg roll to his range and sold scores of them to this breakfast crowd every day. At lunchtime, he’d move his stand to a popular park where he had lines of regulars.
In the afternoon he’d be back at the station entrance and then later most nights he knew a great spot near a nightclub where young patrons rushed him off his feet. He had even installed special lighting and a flashing neon sign. Even people driving by would stop.
He’d worked hard for years and done well enough to put his only son through university who later became an accountant with a large accounting firm.
One day his son warned him that a recession was on the way. The old man asked his son what this meant. Being an educated man his son gave a very detailed explanation of how the recession would severely impact everyone in the community, particularly small business people like his father. There would be enormous unemployment; people would not be able to afford to spend money as they did now. He painted a gloomy picture of the future and warned his father that it would be wise to cut back on his expenses and “tighten his belt” financially and prepare for the worst. The old man didn’t know much about the economy or interest rates, but he trusted his son. After all, he was an educated man. Recession mentality kicked in...
The old man began to cut back on the quantity of sausages and bread rolls he bought. He didn’t want to get caught with stale rolls as business began to drop off. But it was hard to judge and some days he actually ran out of sausages and rolls earlier than he normally would. So he went home early and spent more time worrying about this recession that was coming.
Soon he knew that what his son had said was right. He noticed that his takings were indeed falling. This depressed him more and so he tended to get out of bed later each day. After all, why get to the station so early when obviously more people would be eating at home rather than spending money on breakfast in the city. He decided that his bacon
and egg rolls were too expensive for most people now. After all, they were twice the price of a hot dog, so he cut them from his menu and his sales continued to plummet.
Wow, his son was right, this recession was hitting hard!
He decided to save more money and not replace the batteries that powered his neon sign and lights at night. Now because he was in the dark, fewer people bought from him and soon he decided that it wasn’t even worth his time setting up at night. Eventually he decided to sell off his equipment and his trolley. He was in luck though because the young woman who bought his trolley didn’t seem to know how bad business was, or how severe the recession was going to be. He managed to unload the trolley for more than he thought he would get. Now day after day he stayed at home, depressed, and occasionally his son would visit him and they would discuss how bad the recession was, and how lucky the old man had been to have an educated son who had warned him in advance about this terrible recession.
So what’s the moral of this story?
Recession mentality starts in one’s own head. Like the old man in the story, you’ll start to change your successful behaviour patterns and replace them with less resourceful habits.
But it needn’t be that way...
We are in an industry that is still growing despite the economy. We represent some brands in Australia that have a relatively small market share – much smaller than other countries in Europe especially.
In these times, through sales activity, innovation, customer service and closely supporting our dealers businesses, we will emerge with more market share & a very strong brand offering.
Looking forward to these challenges & working with each of you for the seriously massive role you all play in this journey to dominate the market in Australia.
Thank you so much for your hard work so far & bring on the rest of the year.
Cheers, Garney