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Investec Asset Management completed its first private equity investment in Egypt as it bought a controlling stake in the supermarket chain Spinneys. IAM acquired the stake from the Abraaj Group, since its liquidation and financial ruin. Peter Baird, Managing Principal for Africa Private Equity at Investec Asset Management joins CNBC Africa for more.

Investec Asset Management is bullish on African retail, here’s why

JOHANNESBURG (Reuters) &#8211; The group treasurer of South Africa’s Eskom, Andre Pillay, will leave the power utility at the end of August, it said on Monday, the latest high-profile exit after its chief executive quit earlier this year.



Eskom supplies more than 90% of South Africa’s electricity, but has implemented severe power cuts this year and is failing to generate sufficient profit.



It is hinging its recovery hopes on a 230 billion rand ($16 billion) bailout pledged by government in February.



Reporting by Mfuneko Toyana; Editing by Jan Harvey

Treasurer of South Africa’s Eskom quits, what you need to know

By Efosa Ojomo



In their paper
“The Rise of the Regulatory State,”Harvard University economists
Edward Glaeser and Andrei Schleifer wrote “whatever law enforcement strategy
the society chooses, private individuals will seek to subvert its workings to
benefit themselves.” In recent years, few African countries have exhibited that
theory better than South Africa. 



Before the ousting of the allegedly corrupt former president, Jacob Zuma, South Africa was engrossed in a web of corruption characterised as “state capture”: a severe level of corruption where private individuals influence the state to such an extent that they almost assume ownership of the state’s resources. 



At the center of
the web were the Gupta brothers, who rose to such prominence in South Africa
that <a href="https://www.nytimes.com/2018/12/22/world/africa/gupta-zuma-south-africa-corruption.html">The
New York Times</a> reported “it became difficult to draw the
line between their business empire and the president’s office.” From high-level
cabinet appointments to the South African Revenue Services, corruption
permeated virtually every element of society, with much of it involving the
country’s leading political party, the ANC.



But things appear
to be looking up for South Africa, where newly elected leader Cyril Ramaphosa
has <a href="https://www.bbc.com/news/world-africa-48252097">vowed to tackle
corruption</a>. In March he established a new Investigating Directorate within
the National Prosecution Authority (NPA). And since his election, various party
leaders facing corruption probes by the ANC Integrity Commission have delayed
taking their seats in parliament or have declined to do so. 



While holding
corrupt leaders accountable sends a powerful message, if Ramaphosa’s long-term
strategy does not include investments in innovations that lead to prosperity
creation, he’s effectively snipping the buds while the roots remain intact.



For many,
engaging in corruption is simply a workaround—a means of making progress when
few better options exist. But the corrupt behavior exhibited by those within
the highest levels of government is something entirely different: the result of
an imbalance of power, in which those who have it use it to exploit those
without it. In contrast to the wealth and power of Zuma and the Gupta brothers,
more than half of South Africans live below the poverty line. Without financial
and political resources, it&#8217;s difficult for people living in poverty to
advocate for themselves. Thus, Zuma and his cronies succeeded in siphoning
funds away from public projects and programs for years because those who bore
the cost—the South African people—couldn’t do much about it. 



Ramaphosa’s best
shot at making a dent in corruption, then, is to not only investigate corrupt
individuals—a necessary short-term approach—but to also to double-down on his
market-oriented approach to development. If he’s able to help his country
become more prosperous, South Africans will not only have more bargaining
power, but the government will also be less vulnerable to exploitation and
better equipped to fight corruption.



To achieve this
goal, his government can support investments in market-creating innovations
that solve everyday problems. Unlike other types of innovations, our research
has found that these innovations create the foundation for robust, sustainable
growth by transforming complex and expensive products into simple and
affordable ones, allowing more people to participate in the economy. They
create jobs, result in investments in infrastructure, and provide much-needed
tax revenue to the government that can then be reinvested in communities and
anti-corruption efforts. They also tend to <a href="https://www.christenseninstitute.org/blog/to-strengthen-institutions-good-laws-are-not-enough/">strengthen
institutions</a> once stronger legislative systems and more contextual
regulations become essential to sustaining and growing the new markets. In
short, these powerful innovations spur significant economic development, while
creating the conditions for good governance. 



As people become
more prosperous and drive economic growth, the power dynamic shifts such that
government leaders become more responsive to the people’s needs, recognizing a
mutual interest in seeing the economic engine of their country succeed. This is
exactly what happened in the United States, where corruption ran rampant from
the mid-19th century until the early 20th century. But as more Americans
created more wealth for themselves, their voices of dissatisfaction with
corruption became louder. “Politically, the rage of victims counted for very
little in 1840, not much in 1860; by 1890, it was a roaring force” is how
Stanford Law Professor <a href="https://www.amazon.com/History-American-Law-Third/dp/0684869888">Lawrence
Friedman</a> put it.



Corruption can be
found in virtually every country across the globe, but it’s especially
difficult to squash wherever people lack the ability to advocate for their own
interests, and governments lack the ability to adequately respond to their needs.
To that end, Ramaphosa must play the short game and the long game—trim the buds
and pull out the roots. By encouraging investments in market-creating
innovations, he can spearhead a new era of development, while simultaneously
creating the conditions for corruption to plummet and a stable, responsive
government to take its place. 



*Efosa Ojomo is a senior research fellow at the Clayton Christensen Institute, where he leads its Global Prosperity research.



@GlobalCCI



###

Op-Ed: On corruption: How South Africa’s new leader can replace bold promises with bold action

Former President Jacob Zuma said the “Zuma must go”&nbsp;campaign
of 2017 where hundreds of thousands&nbsp; of South Africans took to the streets
to protest against him was part of the intelligence-fuelled campaign to vilify
him that upset his family.



Zuma was giving evidence to the Zondo Commission on State Capture in Johannesburg where he is expected to answer questions on the controversial Gupta family and alleged corruption in the function of the government of his day.  



Read: <a href="https://www.cnbcafrica.com/zdnl-mc/2019/07/15/i-have-been-vilified-over-the-years-zuma-and-his-comrade-conspiracy-theories-open-day-one-of-statecaptureinquiry/">“I have been vilified over the years!” Zuma and his comrade conspiracy theories open day one of #StateCaptureInquiry</a>



“People were calling,&nbsp;
Zuma must go. What can be done? No one can do anything he is corrupt.
What has he done ? Nothing. No president has been brought before a commission
but if it is Zuma we must do it…Zuma must resign. It is part of the
intelligence plan against me. Then he must be brought before the commission and
answer questions,” he said.



Zuma sounded a little bitter as he hinted that he was going
to retaliate and told of the pain suffered by his family. 



I have been provoked and provoked to the last degree, by
people purporting to save the country they make stories they do everything. My
own family suffered out of this leaving me, as a soldier I can take everything,
people forget I have a family who do not want to hear lies being told against
me.”



The hearing continues.&nbsp;

#StateCaptureInquiry: The Zuma must go campaign was part of the conspiracy

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Former South African president Jacob Zuma finally took the stand today at the Zondo Conmission on State Capture in Johannesburg. His opening speech to the commission was the keynote of the day in which he claimed there was a campaign to vilify him and remove him from ANC structures. CNBC Africa&#8217;s Yolanda Mabanga filed this special report.

Zuma on claims of vilification

Day 1 highlights of Jacob Zuma’s testimony at Zondo inquiry

Former President Jacob Zuma made it clear his comrades were out to get him when he began giving evidence to the Zondo Commission in Johannesburg.



Supporters clapped and cheered as Zuma walked into the
hearing where he is expected to answer scores of questions for the rest of the
week on everything from the controversial Gupta family to the hundreds of
thousands he is alleged to have taken as a bribe every from the security
company BOSASA. Zuma told the hearing that he was there because he
believed&nbsp;it was important that people say things they know, that than
telling things they can’t prove.



“Ï have been vilified over the years!” Zuma told the commission
clearing his throat&nbsp;frequently and blaming a bout of flu.



This commission from my understanding was really created to
have me coming here and perhaps to find things on me…This is why, in the
background I am going to give&#8230;There has been a drive to remove me from
everything a wish that I should disappear…Why it is important I will deal
with…Work in the ANC and also because of who I am…This conspiracy against me
has been stressed at all material times when there are things to be done. It
has come in different forms and that is why people who are trying to dodge
things in one thing or another. I am going to connect the dots as to why I am
here.”



Zuma claimed that three intelligence organisations, one from
South Africa, in 1990 decided to remove Zuma, then head of ANC intelligence,
from all structures in the party. He claimed it was a clear character assassination
on the grounds that he had information that his party had been infiltrated by
spies.



Zuma also claimed his removal from power in 2005, in
reaction to South Africa’s controversial arms deal, smacked of a campaign
against him.



“Before I was charged, I was removed as deputy president in
2005 because I was implicated in the arms deal. Of all the people implicated in
the arms deal there was not a single one investigated but they investigated me.
I had been investigated in a very strange way, the head of the NPA and the
minister where they announced there is a prima facie case against him but it is
not winnable in court. There are investigations and then there are
investigations. I have never heard of an investigation against anyone being run
like that in the media.”



The hearing continues.

“I have been vilified over the years!” Zuma and his comrade conspiracy theories open day one of #StateCaptureInquiry

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In #TheHashtag, CNBC Africa&#8217;s Social Media Coordinator, Busi Lethole, takes a look at the biggest news that made headlines this week in Africa and the rest of the world.

A look at top stories that got Africa talking this week

JOHANNESBURG (Reuters) &#8211; South African retailer Steinhoff reported a 356 million euros ($401 million) half-year loss from continuing operations on Friday, as the damage from a massive accounting scandal drags on.



Steinhoff first flagged holes in its accounts in December 2017 — the warning shot for an accounting fraud since put at over $7 billion — shocking investors that had backed its transformation from a small South African outfit to a discount furniture retailer spanning four continents.



The owner of Mattress Firm Inc in the United States, Fantastic chains in Australia and Conforama in France said the loss from continuing operations came in at 356 million euros in the six-months ended March compared with a loss of 392 million euros a year earlier.



Steinhoff, which is also listed in Frankfurt, blamed the loss on the cost of advisors and professional fees as it cleans up its balance sheet.



Advisory fees for the period amounted to 82 million euros, which included 11 million euros for forensic investigation and technical accounting support, and 30 million euros for creditor adviser fees.



“While every effort is made to limit costs, we expect this to remain our reality for some time,” the retailer said in its 97-page half-year unaudited report.



Net sales from continuing operations increased by 3% to 6.8 billion euros from 6.6 billion euros, with strong contributions from Pepkor Europe and Pepkor Africa.



At 1105 GMT, shares in Johannesburg-listed Steinhoff jumped 4.72%, while in Frankfurt they were up 8.9%.



($1 = 0.8885 euros)



Reporting by Nqobile Dludla; Editing by Mark Potter and Louise Heavens

Scandal-hit Steinhoff reports $400 million loss in half-year earnings

CAPE TOWN (Reuters) &#8211; South African Finance Minister Tito Mboweni aims to table a bill in parliament on July 23 to give struggling state power firm Eskom more money for the current financial year and next, to alleviate its acute liquidity problems.



Mboweni told parliament on Thursday that Eskom presented the biggest risk to the country’s fiscal framework and stressed that there were serious risks to the economy if it collapsed.



Eskom, which supplies more than 90 percent of the country’s electricity but has implemented severe power cuts this year, fails to generate sufficient profit to meet its debt-service costs and has required state cash injections to stay afloat.



Mboweni, a key ally of President Cyril Ramaphosa, added that the government would also provide financial support from its contingency reserve to ailing South African Airways, weapons manufacturer Denel and broadcaster SABC.



“This additional financial support cannot be a blank cheque to these state-owned enterprises,” Mboweni said. “We really and truly cannot go on like this.”



The minister said South Africa’s tax collection was underperforming due to a weak economic environment and the government would focus its short-term efforts on addressing rising debt and on stricter controls on expenditure.



Reporting by Wendell Roelf; Writing by Alexander Winning; Editing by Olivia Kumwenda-Mtambo and Elaine Hardcastle

South Africa’s Eskom new funding bill expected July 23, what you need to know

In conversation with K J Srinivasa on his time in Africa, strengthening India-SA trade ties

By Victor Oladokun, Director of Communication and External Relations at the African Development Bank.



At the ongoing Africa Cup of Nations in Egypt, the visual imagery of  almost empty stadiums is a powerful narrative. But not the kind that African sports, African football, or corporate sponsors deserve.



The empty seat syndrome in suggests
that football fans are voting with their feet, or better still with their
backsides. Fans are choosing not to watch live football events, and instead are
opting in increasing numbers&nbsp; for the
&#8216;intimacy&#8217; of their crystal clear digital flat TV screens, or not all.



Before Egypt&#8217;s stunning 0-1 loss to South
Africa in the round of 16, the host country was the only team able to attract
70,000 fans. Other than when Mo Salah and the Pharaohs have been on the field,
most stadia across Egypt have at best attracted an average of 5,000 to 7,000
fans.



Official broadcast camera crews have done a
creative job minimizing the visual gaps of empty seats. But wide camera angles
reveal the obvious &#8230; a lack of attendance and public enthusiasm, in spite of
the presence of some of the biggest names in world football on the field.



In European football leagues, where many of
the stars in Egypt ply their trade, fans pay mega bucks to see the likes of
John Mikel Obi, Ahmed Musa, Sadio Mane, Ryahd Mahrez, Nicolas Pépé, Wilfred,
Zaha, and Kalidou Koulibaly.



Which is why the empty seats in Egypt are
both stunning. 



Admittedly, Egypt bailed CAF out and should
receive well-deserved credit for coming to the rescue and hosting the African
Cup of Nations, with barely 6 months notice, when the original hosts were
sanctioned due to shoddy preparations.



Nevertheless, the lack of attendance in
Egypt speaks volumes high ticket costs; the timing of matches bang in the
middle of work days; the difficulties faced by national team supporters in
obtaining entry visas to Egypt; and challenges with the Confederation of
African Football&#8217;s complicated online ticket purchasing system.&nbsp; 



It should not be so. This after all, is the
most important event in Africa&#8217;s sports calendar. At least, it used to be
before England&#8217;s Premier League, Spain&#8217;s La Liga, Italy&#8217;s Serie A, and
Germany&#8217;s Bundesliga captured our collective imaginations.



The end result is that where once 30,000 to
70,000 fans a week watched highly competitive domestic football leagues across
Africa, the empty seat syndrome has been&nbsp;
the norm for almost two decades. It is not unusual to have less than a
thousand fans in a stadium that seats 30,000.



The lack of fan attendance has obvious
economic and financial implications across the sports value chain for team
owners, sports federations and confederations, players, sponsors, advertising
and marketing agencies, merchandisers, vendors, and local communities who once
counted on fan attendance to boost fledgling economies.



What&#8217;s responsible for the increasing
slide in fan attendance?



1. Poor facilities



2. High ticket costs



3. A lack of reliable transportation
to and from venues. As well as sufficient and secure parking.



4. Increasingly crude behavior and violence
at event locations.



5. Technology. Mobile phones
and Apps that carry events live as well as a plethora of entertainment
alternatives. In other words, once big events are no longer the main gigs in
town.



So, what can be done to reverse the
trend? Here are 5 quick suggestions.



1. It can no longer be business as
usual. Africa must run sports as a professional business. This includes
the right infrastructure, training facilities, attractive pay scales for
professional athletes who now consider anything less than a European league
appearance, a professional failure. 



Regrettably, as with Africa&#8217;s overall
propensity to simply export raw materials instead of adding value to what we
produce, we are doing the same with football and many other sports. Africa has
a tremendous abundance of potential talent that for the most part (with the
exception of South Africa, Kenya and Ethiopia) we add little or no value to.
Instead, millions of genetically blessed athletes are simply waiting or begging
to be &#8216;found&#8217; on the cheap by European and American sports teams. Why? Simply
because we fail to see diamonds in the rough and because we are unable to add
value to the potential of what for now seems to be rough stones.



2. Modern and professionally
maintained facilities: In sizzling hot Africa, we must invest in
covered stadia. When I can sit in front of my big screen TV in my air
conditioned living room, why would I want to subject myself to temperatures
that I swear have gone up a number of notches in recent years?



3. Sport is a spectacle. This
includes everything including pre-event and half time entertainment to keep
fans with short attention spans upbeat and engaged.



4. Give back to the fans:
Essentially, engagement in the 21st century must change. Its time to give something
back to fans rather than fleecing them at every opportunity with sub-standard
services and products. It would seem to me that sports teams could offer
something as simple as raffle draws that reward fans with extra game tickets,
signed player jerseys, visits with select players, or products from local
sponsors. Professional marketing firms can come up with an endless list.



5. Make sports big and make it a
win-win proposition. 



Real Madrid F.C. and Barcelona F.C. for
example, are not owned by a few rich individuals. Instead, they are owned and
supported by thousands of shareholders known as &#8216;socios.&#8217; Across Africa,
it&#8217;s time to change the numbers game &#8211; in ownership, money, and attendance &#8211; by
giving fans a seat at the table.



These are just a few quick ideas. However,
the running of sports in general and football in particular as a business and a
brand proposition, will require honest analysis, political and financial will,
and a collective approach.



It must be if Africa is to unlock potential
and turn millions into billions.

Op-Ed: Sports as a business and a brand in Africa

JOHANNESBURG (Reuters) &#8211; The South African Reserve Bank is likely to cut interest rates by a quarter of a percent next week as a slowdown in the economy during the first three months of the year could turn worse if left unchecked, a Reuters poll showed on Thursday.



Twenty-four of 30 economists in the survey taken over the past three days said the repo rate would be cut by 25 basis points to 6.50% on July 18. Two expected a cut of 50 basis points. The other four said rates would be left unchanged.



“Conditions in South Africa have been shifting in favour of a rate cut for some time,” said Razia Khan, chief economist for Africa and Middle East at Standard Chartered Bank.



Economists assigned a median 60% probability rates would be cut on July 18, even though inflation is expected to average 4.5% this year, the centre of the Bank’s 3% to 6% target range.



The median forecast for economic growth was 0.7% for this year. That is 0.1 percentage point higher than last month’s median, when economists lowered their forecasts because of a quarterly 3.2% contraction when the year began.



South Africa’s private sector has been shedding jobs recently, including in the interest-rate-sensitive banking industry, where banks have already cut or announced plans to cut staffing.



Khan — who predicted a 50-basis-point cut next week — said the daily drip-feed of retrenchment headlines should, in theory, make little difference to the SARB because it is the economic outlook that matters to it.



“The reality, however, is that it does impact psychology and people expect – especially with inflation well-behaved – that the SARB should be in a position to react to their perception that the economy is weak,” Khan said.



Senior officials in the ruling African National Congress party have argued in recent months over whether the Reserve Bank’s mandate should be broadened to explicitly include job creation and economic growth alongside price stability.



Joblessness rose to 27.6% in the first quarter, official data showed in May, underscoring the task faced by President Cyril Ramaphosa after the ANC, his party, won re-election last month.



An expanded category of unemployment, including people who have stopped looking for work, rose to 38% in the first quarter from 37% in the previous quarter.



This trend is also affecting services. Local banks have been automating their services to clients, cutting the number of face-to-face interactions and digitising services.



Khan said monetary policy will not be able to reverse structural trends like automation, nor should it even try to.



However, economists said growth would accelerate to 1.4% next year, in line with last month’s poll.



“Looser policy will help to boost growth in South Africa in 2020,” said John Ashbourne, a senior economist at Capital Economics.



Still, gross fixed capital investment continues to dampen the outlook for growth. One economist predicted a 0.2 economic contraction for the full year as they don’t expect private-public infrastructure spending to show up soon.



(For other stories from the economic outlook polls:)



Additional polling by Khushboo Mittal in Bengaluru, editing by Larry King

South Africa’s Reserve Bank expected to cut rates, what you need to know

RMB’s Milk Index: What milk prices across Africa reveal

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The Council for the Advancement of the South African Constitution, which is a project which seeks to advance the South African Constitution to ensure a clean and cooperative democratic governance. CASAC has an upcoming Kader Asmal Lecture which will be delivered by the Head of the National Prosecuting Authority Shamila Batohi, the same speech which was presented by Finance Minister Tito Mboweni last year. Lawson Naidoo, Executive Secretary of CASAC joins CNBC Africa for more.

CASAC’s Lawson Naidoo on what the new NPA head should prioritise

Press Release: Issued by the Ministry of Finance Date: 10 July 2019 



The Minister of Finance, Mr Tito Mboweni, after consultation with Cabinet, has appointed an Interim Board of Directors (BoD) at the Public Investment Corporation (PIC). The appointment shall be effective 12 July 2019 to 31 July 2020. The Chairperson and Deputy Chairperson shall be elected at the first meeting to be convened by the Interim BoD. The members of the Interim BoD are as follows: 



Ms Sindi Mabaso–Koyana, non-executive director of Eskom and Chairperson of AIH  Ms Irene Charnley, former director at MTN and founder of Smile Group Ms Tshepiso Moahloli, chief director: liability management at Treasury Ms Maria Ramos, former CEO of Absa and non-executive director of AngloGold Ashanti Ms Barbara Watson, chief director of transformation policies at the Department of Public Service and Administration Mr Ivan Fredericks, general manager at PSA Mr Zola Saphetha, General Secretary of NEHAWU Mr Bhekithemba Gamedze, GEPF board of trustees Dr Angelo David Sabelo de Bruin Prof Bonke Dumisa, economist Advocate Makhubalo Ndaba, company secretary of Platinum Hospitality Holdings Dr Reuel Khoza, former chairman of Nedbank and chairperson of Platinum Hospitality Holdings 



RE-APPOINTMENT OF PIC BOARD MEMBERS 



Mr Pitsi Moloto 



Dr Xolani Mkhwanazi 



RE-APPOINTMENT AND APPOINTMENTS AT THE SOUTH AFRICAN RESERVE BANK 



On the South African Reserve Bank (SARB), President Cyril Ramaphosa, after consultation with the Minister of Finance and the Board of Directors of the SARB, has re-appointed Mr Lesetja Kganyago to serve as Governor of the SARB for another five years, effective from 9 November 2019. Mr Kganyago’s current term expires on 8 November 2019. The President has, also after consultation, appointed Ms Fundi Tshazibana and Dr Rashad Cassim as Deputies Governor of the SARB for a period of five years each, effective 1 August 2019. Ms Tshazibana is currently the Adviser to the Governors of the SARB and holds a Master’s of Commerce degree in Economics, while Dr Cassim is currently Head of Economic Research and Statistics at the SARB, and holds a PhD in Economics. 



Minister Mboweni said of the appointments: “We congratulate the appointees and look forward to working with them. We need not remind them of the tough economic and fiscal circumstances facing South Africa at the current moment. They have my full support and confidence that they will take South Africa forward as we move to bring development to our people.”

Improperly appointed boards spell disaster for organisations

New PIC board appointed, includes Ramos, SARB governor reappointed

By <a href="https://theconversation.com/profiles/danny-bradlow-168878">Danny Bradlow</a>, <a href="http://theconversation.com/institutions/university-of-pretoria-1645">University of Pretoria</a> and <a href="https://theconversation.com/profiles/william-n-kring-771072">William N Kring</a>, <a href="http://theconversation.com/institutions/boston-university-898">Boston University</a>

African Union (AU) leaders will gather in Niger on 7 July for an Extraordinary Summit to discuss the <a href="https://au.int/en/cfta">African Continental Free Trade Area</a>. They will be meeting at a <a href="https://www.worldbank.org/en/region/afr/publication/taking-the-pulse-of-africas-economy">critical moment</a> for the continent. Many African countries are experiencing uneven growth and rising debt. All face an uncertain global environment and need the boost that closer and more dynamic continental trade relations could deliver.

In our view the AU leaders should also use their meeting to reinvigorate their efforts to create an <a href="https://au.int/en/treaties/protocol-establishment-african-monetary-fund">African Monetary Fund</a>. This would be used to encourage African states to engage more actively in regional trade by offering them financial support for managing the <a href="https://www.imf.org/external/pubs/ft/fandd/2018/09/sub-saharan-africa-regional-integration-arizala.htm">risks</a> associated with closer regional integration and expanded intra-regional trade.

Over the past 10 years, most regions have developed <a href="https://www.bis.org/review/r120203d.pdf">regional arrangements</a> that can supplement the help that the IMF provides to countries facing balance of payments problems. Ten years ago, US$100 billion was available through these regional funds. Today more than <a href="https://onlinelibrary.wiley.com/doi/10.1111/dech.12464">US$900 billion</a> is available through these arrangements. Africa is currently the most prominent gap in the <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2692622">evolving global financial safety net</a>. 

The African leaders signed a treaty to establish this fund in 2014. Unfortunately, progress to set it up has stalled. So far the treaty has been signed, but not ratified, by eleven AU member countries. Fifteen must sign and ratify the statutes for the fund to become operational. Once operational, it will have a capital subscription of up to US $22.64 billion and the ability to provide member countries with loans equivalent to two times their contributions to the Fund’s capital.

<h2>Managing the ripple effects</h2>

The free trade area offers states new growth and employment opportunities. But by increasing economic linkages between African states, it could also increase the risk that economic problems in one country can spill over and have a strongly negative effect on growth, trade, investment and employment in others. For example, both positive and negative developments in the US economy will have a powerful impact on Canada and Mexico.

<hr>

 
 
 Read more:
 <a href="http://theconversation.com/more-work-lies-ahead-to-make-africas-new-free-trade-area-succeed-118135">More work lies ahead to make Africa&#8217;s new free trade area succeed</a>
 
 

<hr>


To help mitigate these effects, participants in other regional trade arrangements have established regional financial arrangements. These provide financial support to their members to manage balance of payments crises. 

The <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2128437">evidence</a> suggests that when states have access to this type of financial support they are less likely to take actions that impede intra-regional trade flows. <a href="https://papers.ssrn.com/abstract=2128437">For example</a>, the Latin American Reserve Fund, which provides its members with financial support during balance of payments crises, has helped the recipient countries to maintain their intra-regional trade arrangements. This, in turn, has reduced the risk that the recipient’s problems would cause a crisis in its neighbours.

The failure of an adequate number of states to sign and ratify the African Monetary Fund treaty is an embarrassing challenge to the credibility of the AU’s efforts to promote a more integrated, dynamic, sustainable and equitable African economy. These efforts have been going on for more than 40 years. Steps along the way have included the former Organisation of African Unity’s Lagos Plan of Action for Economic Development of Africa <a href="https://www.jstor.org/stable/745620?seq=3#metadata_info_tab_contents">signed in 1980</a> and the Abuja Treaty <a href="http://repository.uneca.org/bitstream/handle/10855/3000/Bib-24781.pdf?sequence=3">signed in 1991</a>.

In a <a href="http://www.bu.edu/gdp/2019/07/03/july-2019-summit-of-the-african-union-jump-starting-the-african-monetary-fund/">policy brief</a> published by the Centre for Human Rights at the University of Pretoria and the Global Development Policy Center at Boston University, we propose three concrete steps to jumpstart the push for the fund. 

<h2>Action plan</h2>

First, the creation of the fund must be explicitly linked to the success of the free trade area. The AU leaders can do this by making the case that, just as has happened in other regions, the presence of a regional financial arrangement will support the efforts to boost intra-regional trade in Africa. It will help participating countries mitigate the balance of payments challenges that greater regional integration may cause. 

Moreover, the fund, by quickly providing its members with financial support, can offer them more time to negotiate a larger support package with richer institutions, such as the IMF. In this regard, it should be noted that eight of the AU member countries (Cape Verde, Comores, Djibouti, Eritrea, Guinea-Bissau, Sao Tome and Principe, Seychelles, and Somalia) will be able to borrow more resources from the AMF than the IMF. 

Second, one AU member state should become the champion for the fund. This country would become the first country to sign and ratify the fund treaty. It would lobby other AU member countries to ratify the African Monetary Fund. It would advocate for the AU to reconstitute the steering committee created in the treaty and provide it with adequate resources. Since Cameroon is the designated host country for the AMF’s headquarters, it has an incentive to be a champion for the institution.

Finally, the steering committee should develop a plan for overcoming the substantial resource constraints in the region. This will require balancing the fund’s need for sufficient resources to be credible with the limited ability of some states to contribute. This could be addressed by negotiating an arrangement in which richer regional countries and institutions contribute a disproportionate share of their capital contributions up-front. 

These additional contributions will be reimbursed as poorer countries make their capital contributions. It’s important to note that the AMF Board of Governors has the authority to extend the period for a country to make its contribution for up to eight years. To further incentivise small to medium sized member countries to contribute capital, they should be allowed to treat their capital contributions as part of their international reserves. Such an arrangement is not unprecedented and was used effectively in South America. These measures would make an implementation plan more feasible.

Africa has tried valiantly for decades to overcome the substantial challenges hindering the development of robust intra-regional trade. The free trade area agreement is the most recent of these efforts. The credibility of the continent’s leaders and institutions will be influenced by its success or failure. The establishment of the African Monetary Fund would demonstrate the continent’s determination to promote intra-regional trade and development.

Hadiza Gagara Dagah is a co-author of the policy brief, <a href="http://www.bu.edu/gdp/2019/07/03/july-2019-summit-of-the-african-union-jump-starting-the-african-monetary-fund/">Jump-starting the African Monetary Fund </a>, on which this article is based.<img loading="lazy" decoding="async" src="https://counter.theconversation.com/content/119827/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important" />

<a href="https://theconversation.com/profiles/danny-bradlow-168878">Danny Bradlow</a>, SARCHI Professor of International Development Law and African Economic Relations, <a href="http://theconversation.com/institutions/university-of-pretoria-1645">University of Pretoria</a> and <a href="https://theconversation.com/profiles/william-n-kring-771072">William N Kring</a>, Assistant Director, Global Development Policy Center, <a href="http://theconversation.com/institutions/boston-university-898">Boston University</a>

This article is republished from <a href="http://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/why-the-african-monetary-fund-is-a-good-idea-and-what-can-be-done-to-get-it-going-119827">original article</a>.

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