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28 June 2002 Vol 43 No 13
AFRICA CONFIDENTIAL
SOUTH AFRICA
NIGERIA
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Banker versus banker
The Central Bank is trying to impose order on Nigeria’s 100 banks: many make big profits from illicit foreign exchange deals. One
End of an Alliance
Squabbles and scandals are now destroying the only opposition which really mattered
The most serious opposition group, the Democratic Alliance (DA), has been gravely wounded by corruption allegations and political misjudgement. The governing African National Congress is sticking the knife in deeper with a new law allowing elected representatives to defect to other parties without losing their seats. The ANC stresses that such a law operates in most European parliaments but its clear aim is to give it control of all nine provinces and all main provincial and city councils. In the two opposition-controlled provinces, Western Cape and kwaZulu-Natal, enough opposition representatives want to cross the floor to give the ANC majority control. The ANC’s advantage is mainly due to opposition incompetence; the biggest personal loser is the DA’s Tony Leon (45), whose energetic and pragmatic leadership once rattled the government. The national parliament passed the Floor-Crossing Legislation on 20 June but opposition parties argue that it violates voters’ rights and want the courts to stop it. The case, heard by the Cape High Court on 24 June, will probably be referred to the Constitutional Court and the bill will most likely go through. Pressure is mounting for a wider review of electoral law: a cross-party lobby wants to move away from proportional representation to a mixture of candidates’ lists and single-member constituencies.
solution would be exchange rate, although that could put several banks out of business.
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FRANCOPHONE WEST AFRICA
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The voters’ friend
After a decade of ‘democratising’ some Francophone countries are starting to see real change brought about through the ballot box. Others are still struggling to convince their veteran rulers of the benefits of retirement and, while France urges reform, President Chirac’s networks are not necessarily helping.
Crossing the floor
In the Western Cape, New National Party (NNP) leader Marthinus van Schalkwyk and his group have defected from the DA coalition (AC Vol 42 No 22) and the ANC will gain control of the provincial government if and when the Floor-Crossing Legislation is finally passed. If it applies nationwide, four potential defectors in the kwaZulu-Natal legislature would give the ANC 41 of the province’s 80 seats. ANC supporters speak of replacing the Inkatha Freedom Party Premier, Lionel Mtshali, with their own S’bu Ndebele. Inkatha naturally claims that the Floor-Crossing bill applies only in Western Cape. More darkly, Inkatha leader Mangosuthu Buthelezi warns that the ANC risks re-igniting the struggle that killed thousands of people in kwaZulu-Natal in the early 1990s and nearly scuppered the 1994 elections. The legislation coincides with a crisis in the DA over its links to Jürgen Harksen, a businessman wanted in Germany on multi-million dollar fraud charges. In March, Harksen claimed that he had paid the DA Mayor of Cape Town, Gerald Morkel, 785,000 rand (US$78,000) for political protection and influence. Harksen also implicated Leon Markowitz, a former Western Cape Finance Commissioner and DA fundraiser.
ERITREA
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Disarmed but not demobbed
Donors have lost patience with bad governance, harsh treatment of political prisoners and clampdowns on the press. Development aid has all but dried up and President Issayas has asked conscripts to stay on an extra two years to work for the government.
Morkel and Markowitz denied Harksen’s claims but admit to an ‘inappropriate relationship’ with him. A government commission in Cape Town is inspecting documents seized from Harksen, including receipts of Morkel’s legal accounts, letters promising donations to the DA and telephone records. They appear to bear out Harksen’s claim that he contributed to Morkel’s rent, bankrolled his litigation and made a sizeable party political donation. Harksen also alleges that Morkel was linked to Vito Palazzolo, a convicted money launderer and alleged Mafia boss (AC Vol 40 No 3).
MOZAMBIQUE
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Seconds out
Frelimo has picked veteran Armando Guebuza as its presidential candidate in 2004, despite opposition from President Chissano. ‘Guebas’ will hope to keep the lid on scandals and to appease donors by limiting corruption.
Morkel was investigated by a crack police intelligence unit, the Scorpions. To preserve their secrets, Morkel and other DA officials bought expensive anti-bugging equipment and met in the basement of the city council in what they called ‘the bubble’, an area meant to be secure from electronic surveillance. They sat on aluminium beach chairs, which they thought would block electronic signals. The chairs turned out to be useless: the Scorpions produced clear recordings and transcripts. The DA denies the allegations and Morkel insists that each document has an innocent explanation. The DA has promised a forensic audit of its accounts but, politically, the sleaze may stick and will anyway disrupt its claim to offer an alternative to ANC sleaze. Morkel is still Cape Town Mayor, though suspended from official duties.
POINTERS
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Founded in July 2000, the DA brought together the Democratic Party (mainly white, economically conservative) and the NNP (successor to the former apartheid National Party and the official opposition in 1994-99). The alliance had no chance of unseating the ANC but provided the serious parliamentary opposition missing since Inkatha locked itself into a coalition with the ANC.
Ghana, Zimbabwe, World Bank/DRC & Senegal
The ANC’s chief blunder was opposing the dispensing of anti-retroviral and other anti-HIV/AIDS
- 28 June 2002
- Africa Confidential
which governed the province.
Vol 43 No 13
Old-style DP liberals at first opposed the July 2000 DP-NNP merger
butveteranliberalColinEglinandvoiceofconscienceHelenSuzman
endorsed it. Leon became leader, with NNP boss Van Schalkwyk as deputy. The Alliance managed to get Cape Town’s very capable ANC
Mayor,NomaindiaMfeketo,replacedbyNNPpopulistPeterMarais.
The NNP became a ‘coloured’ (mixed race) party with its main support base in the Western Cape. Its coloured politicians gained confidence. Marais and Morkel, both keen entrepreneurs and popular in working-class neighbourhoods, demanded rank and power. The old NP had run patron-client politics for its former white Afrikaner constituency; Marais and Morkel skillfully ran similar operations for their own community. This was very different from the closed decision-making of Leon, Selfe and Coetzee. NNP leaders, especially Van Schalkwyk and Marais, disliked that style and the influence of the young Coetzee.
What’s left of the opposition
● The Pan-Africanist Congress: Since the African National Congress won power, the PAC has lacked a role or clear political identity. Its five members of parliament and one representative in the Northern Province assembly have proved uninspiring. In exile, the ANC proved more adept at playing both its Western hosts and communist donors; in the early 1990s, the PAC’s insistence on armed struggle alienated many. Its dour leader, Reverend Stanley Mogoba, holds on at the expense of the more energetic Patricia de Lille, a former trades unionist. Secretary General Thami Plaatjie focuses on poor people’s grievances, especially on land for housing, but that doesn’t translate into sustained support. ● Azanian People’s Organisation: Proclaiming ‘black consciousness’, Azapo was never a mass organisation but enjoyed some sympathy among black intellectuals. It boycotted the constitutional negotiations and the first democratic elections. In the June 1999 poll its mere 100,000 votes won it one seat, for its national Chairperson Mosebudi Mangeni. The ANC has slowly siphoned off its brightest leaders: Itumeleng Mosala (deputy Education Minister), Mojunki Gumbi (Legal Advisor to President Thabo Mbeki). It recently opened membership to whites and is no threat to the ANC.
Inkatha and friends
DP MPs began to criticise Leon’s leadership style and DA politics. DP strategists met potential allies behind NNP leaders’ backs. Selfe
talkedtoMarioAmbrosini, oneofButhelezi’scontroversialadvisors,
seeking Inkatha support to get on to parliament’s key Security and Intelligence Committee, so far blocked by the ANC. In return, the DA offered to drop its objections to Inkatha’s support for unelected traditional leaders in local municipalities. Ambrosini, an Italian, is a private consultant to Buthelezi in his capacity as Home Affairs Minister. Ambrosini is wary of the ANC, with which Inkatha is allied at national level, giving the IFP two seats in the national cabinet and a share of power in kwaZulu-Natal. The DA was riding high; Leon, not Van Schalkwyk, reaped the resulting popularity. The party embarrassed President Thabo Mbeki by leaking his private correspondence with Leon (penned by DP researchers) on the government’s flawed HIV/AIDS policy. Western Cape was the only provincial government dispensing anti-retrovirals to HIV-positive pregnant women; Cape Town and Western Cape were showing above-average economic growth rates, education results and health statistics. The Alliance, though, was starting to crack. The DA leadership was frustrated by Marais. He made anti-gay remarks in a city with a vocal gay community and told Christians to choose between the Bible and the country’s constitution. Alleged irregularities marred a referendum last May to rename two
Cape Town streets after Mandela andFrederik Willem de Klerk. DA
leaders suspended Marais, but he won reinstatement after a court battle. TheDAlookedfoolish;NNPpoliticians,ledbyVanSchalkwyk, began talking secretly to the ANC (Marais met National Chairman
Mosiuoa ‘Terror’ Lekota). Finally, the Alliance broke.
The ANC was planning its Floor-Crossing bill to win control of Cape Town and the Western Cape. Morkel and several councillors decided to stay with the DP in the now-weakened Alliance. Morkel was rewarded by promotion to Mayor of Cape Town. Marais became provincial Premier, with a new NP-ANC provincial cabinet. With Morkel and the DA fundraisers embroiled in the Harksen scandal, Tony Leon’s party is foundering. His combative style (which can sound patronising, even racist) plays badly with the black electors that the DA desperately needs. Its leading black MP, Joe Seramane, joined the Alliance in reaction to the ANC’s treatment of his brother’s death in an ANC guerrilla camp while in exile; he would fare no better than Leon.
● United Democratic Front: Formed by disgruntled politicians from the
ANC under Bantu Holomisa and the New National Party under Roelf
Meyer, it has failed in its quest to form a national party that breaks with race. Meyer retired from politics soon after the UDF was formed in 1999. Holomisa’s wing now looks no more than a Xhosa-speaking faction from the rural Eastern Cape, the worst governed ANC province. Another Xhosa, ex-President Nelson Mandela, unsuccessfully wooed Holomisa but he has flirted with the PAC. ● Inkatha Freedom Party: The Zulu former ‘cultural movement’ lost much significance when it allied with the ANC nationally and in its native kwaZulu-Natal. Eight years ago, the IFP was a real force, not least as one side of the political violence in Johannesburg and kwaZulu. Now itispreoccupiedbyissuesoftraditionalleadershipandtheZulumonarchy. The ageing Mangosuthu Buthelezi, who came to fame as leading warrior in the film ‘Zulu’, personifies Inkatha and has no apparent successor.
drugs by the public health service. Its reputation was further weakened by its handling of a $6 billion arms deal (and its manipulation of a parliamentary inquiry into it) and its ambiguous stance on land seizures and the disputed elections in Zimbabwe. Continuing high unemployment and poverty have fuelled disputes with its allies in the trades unions and left-wing bodies. The DP was formed in 1989, just before Nelson Mandela’s release from Robben Island, as a repository of liberal values, funded by big business. For the next five years it floundered, as the ANC and NP led the constitutional negotiations, then the first free elections. The DP polled a dismal one per cent in April 1994 and the dynamic Leon replaced Zac de Beer, a former Anglo American Corporation director, as leader. Leon energetically changed the party’s image; its seven members of parliamentsoonestablishedtheDPasavigorousandprobingopposition. At the 1999 elections, with the campaign slogan ‘Fight Back’, the DP won over ten per cent of the national vote and 38 parliamentary seats. However, it was too small for comfort and on the eve of the 1999 polls Leon, with DP national Chairman James Selfe and political strategist Ryan Coetzee (in his late 20s and with little political experience), decided to woo NP supporters. To be taken seriously, the DP needed a base, and control of a provincial government. In Cape Town, the ANC achieved its slim majority through agreements with the NNP,
The party’s rising leaders are white, most notably the young MP Nick Clelland. With its integrity in question and its appeal to black voters limited, the DA now faces a tough future.
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The rest of the economy is in trouble: manufacturers are operating at about 35 per cent of capacity and unemployment is growing fast. The government’s economic management – money supply almost doubled last year, the fiscal deficit is over 7 per cent of gross domestic product and interest rates are well over 20 per cent – offers the banks easy profits from trading in almost risk-free government paper, with wide spreads on short-term loans. Customers pay stiff (some say extortionate) fees. The biggest profits, especially for smaller banks, come from illegal currency dealing. The official exchange rate is now 119 naira per US dollar, the parallel market rate N137 per dollar. As that gap increased over the past three years, so did the temptation of ‘round-tripping’: buying forex at the official rate and selling at the higher parallel rate. Round-tripping involves raising cheap ‘official’ dollars from the CBN with the help of false import documents, then selling the fraudulent dollars on the parallel market at premiums of 17-plus per cent. Bankers reckon that half of all foreign currency transactions take place on the parallel market, either in cash through bureaux de change and currency dealers or in offshore bank transfers. By providing dollars without valid import licences, the banks foster corruption in the ports and civil service. CBN officials say they want banks to stop dealing in the informal and unregulated economy but that, unfortunately, means most of the economy. Obasanjo’s government berates Western governments for not handing back state funds stolen by former military leader General Sani Abacha and laundered through Western banks such as Citicorp (AC Vol 43 No 9). Yet it has tolerated local money launderers, most of whose offences are prompted by government restrictions.
NIGERIA
Banker versus banker
Central Bank Governor Sanusi wants to tame his former banking colleagues
Nigeria’s banks are dynamic, indigenous and very profitable. Their attitude to financial regulation is another story. Some of the country’s biggest financial egos are now at war with the Central Bank of Nigeria (CBN), which is trying to bring them to heel without a major banking crisis (AC Vol 43 No 5). A confidential study by the International Monetary Fund this year estimated that about half of Nigeria’s 100 banks were insolvent or close to it and should be shut. The top 40 or so should survive but CBN Governor Joseph Sanusi has taken on his former colleagues; he was formerly Managing Director of First Bank of Nigeria. Relations have soured fast. Bankers lambasted the CBN for closing Savannah Bank in February without following legal procedures. In April, the CBN suspended 16 others from the foreign exchange market after an investigation established that most of their profits were made by flouting currency regulations. A further 55 banks are said to be under investigation for exchange infringements. Top bankers broke with protocol at a meeting a few weeks ago and loudly booed Sanusi when he harangued them. He wants to stop illegal currencytrading, whichhebelievesfeedsunregulated, undocumented, untaxed ‘informal’ trade, encouraging smuggling and the bribing of customs officers. President Olusegun Obasanjo backs his ‘crusade to cleanse the banking system’. They have chosen a popular target. Nigerians tend to dislike bankers, seeing them as profiteers at the expense of the economy and the value of the naira. Some foreign bankers, though, enviously admire their resourceful and innovative Nigerian counterparts.
Benchmark interest rates in the interbank market are some 27 per cent; inflation is close to 20 per cent. Since the army left power in 1999, the naira has depreciated by more than 40 per cent. This cripples productive investment but is good news for banks. Balance sheets have doubled every three years, in line with money supply growth. The government wants the banks to make longer-term, lower-interest loans. ‘The economic climate makes this impossible to all but a handful,’ says one senior Lagos banker.
Some winners and losers
Union Bank, First Bank and United Bank for Africa control over a third of the sector. Mid-level banks range from stars to the technically insolvent. Small banks often survive and even thrive by foreign currency deals and high-risk loans to importers. All spend fortunes on the abilities and connections of their chief executives. former petroleum advisor Yahaya Dikko and corporate Wunderkind, won control in the mid-1990s by coordinating blocks of shares allocated to Nigeria’s states during a government sell-off – and clashing with General
Sani Abacha’s regime. His father, Professor Tiamiyu Bello-Osagie, was
gynaecologist to several Nigerian first ladies. UBA’s new MD isArnold Ekpe. ● FSB International: quiet executive Mohammed Hayatudeen orchestrated a management takeover when the government sold residual shares in 2000. He is an Arab Choa from the north and may have political ambitions. ● IBTC: Atedo Peterside, suave Managing Director and weekend polo player, backs liberalisation and abolition of currency controls, and is tipped as a future finance minister. Alongside FCMB, his bank has won lucrative privatisation consultancies.
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First City Monument Bank: created in 1983 by Otunba Subomi
Balogun, a politically active, influential Yoruba banker who pioneered the new generation of banks. Last year the Central Bank of Nigeria tried to force his resignation over foreign exchange deals but he won a court battle. Proud and flamboyant, he is expected to hand over to second son, Ladi Balogun. ● Diamond Bank: Pascal Dozie, Chairman, has wide financial interests; he is Igbo and does much of his business in the south-east. Diamond was one of the first to introduce automated banking; penalised in April (with 15 others) for breaking forex rules, it was ordered to refund over US$3 million. ● First Bank of Nigeria: the biggest bank, previously owned 60 per cent by Standard Chartered and nationalised in the 1970s under Samuel Asabia. FBN’s share price fell this year after it forfeited $96 mn., lent to consortium IILL to acquire a majority stake in state telephone company Nitel. The loan, worth two-thirds of the bank’s shareholder funds, broke CBN rules and Managing Director Bernard Longe was sacked, after reportedly clashing with Oba Otudeko, a leading shareholder. FBN may replenish its coffers thisyearbysellingitsmulti-million-dollarstakeinEconetmobiletelephones. ● United Bank for Africa: Chairman Hakeem Bello-Osagie, assistant to
● Zenith International Bank: has become fourth most profitable bank under Jim Ovia and is now cleaned up after previous forex controversies. ● Hallmark Bank: Chief Executive Marc Wabara is close to Health Minister Alphonsus Nwosu. Eyebrows rose when European Union funds worth 20 mn. euros ($19 mn.) for a polio eradication campaign landed in in a high interest account at Hallmark.
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Equatorial Trust Bank: Chairman Mike Adenuga is confidant and business partner to former dictator Gen. Ibrahim Babangida. ● Standard Chartered: one of a handful of foreign banks, now back in Nigeria alongside Citibank. Both did well when CBN punished local banks for breaking forex rules.
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InsidersclaimonlyafewbanksincludingIBTC,StandardChartered, Citibank,StanbicandGuarantyTrust,haveobservedforeignexchange regulations strictly over the past ten years. Other banks claim the CBN fails to distinguish between round-tripping and the more common deals in ‘free funds’, trading at smaller margins with dollars drawn from outside the official accounts. They also argue that the CBN crackdown has made matters worse, by damaging public confidence and driving the illicit forex business further offshore, where it is often carried on by Nigerian expatriates. Some banks, hurt by the resulting loss of earnings, have gone in for high-risk lending at high rates of interest. Agusto, a Lagos-based credit rating agency, reports banks writing off 18 per cent of their net interest income to cover loan defaults in 2000. This proportion has risen every year since 1996 and is approaching 1994 levels, when financial turmoil forced 31 distressed banks to close. developing accountable pluralist institutions since the 1990 FrancoAfrican summit at La Baule, France, when French President François Mitterrand famously told his mainly autocratic audience that democracy could be their ‘friend’. Yet after more than a decade of multi-party elections, the real question is: whose friend has democracy proved to be in Francophone Africa? Have elections simply been transformed into a mechanism for legitimising old dictators and ensuring their continued access to foreign aid under today’s tougher conditionality? Or have elections emerged as a credible mechanism for expressing the popular will and allowing people to change their rulers? Recent developments in Congo-Brazzaville do not engender optimism. Patently distorted presidential and parliamentary elections, following an equally questionable constitutional referendum, have elicited practically no comment from African leaders whose aid pitch to the G-8 summit in Canada on 26-27 June was supposed to be based largely on improved standards of governance.