Sub-Saharan Africa's Mobile Boom - 'Huge Opportunities'

Sub-Saharan Africa's mobile industry has been the fastest growing region in the world for mobile users in the past five years, according to a report published on Monday by the GSMA, the body representing mobile operators worldwide.
The region's mobile subscriber base has grown by 18% a year over the past five years to 253-million unique users and 502-million connections. GSMA forecasts in their report, "Sub-Saharan Africa Mobile Economy 2013", that mobile users in the region will be closer to 346-million within the next five years.
Despite the high figures, there is still ample room for growth. "With unique subscriber penetration rates still less than 33%, this opens up a major opportunities for growth in the next five years," the GSMA said.
At 65.7%, South Africa has the highest penetration rate, while Niger represents the lower end at 20%.

Economic effect
The mobile industry currently contributes more than 6% of Sub-Saharan Africa's gross domestic product (GDP) - higher than any other comparable region globally, according to the report. This contribution is expected to rise from $60-billion in 2012 to $119-billion, or more than 8% of GDP, by 2020.
Last year, the mobile ecosystem directly supported 3.3-million jobs and contributed $21-billion to public funding in the region, including licence fees, the study shows.
By 2020, mobile is set to double its economic effect, employing 6.6-million people in the region and contributing $42-billion to public funding.
Fixed-line penetration rates in many countries in the region are less than 5%. "Mobile has emerged as the main medium for accessing the internet across sub-Saharan Africa. While 2G connections still dominate, 3G and 4G networks are gaining scale and smartphone ownership is on the rise," the GSMA said.
"Despite the significant impact of the mobile industry in sub-Saharan Africa in recent years, even greater opportunities are ahead," said Tom Phillips, GSMA's chief regulatory officer. "Beyond further growth for voice services, the region is starting to see an explosion in the uptake of mobile data."
However, Phillips said, a short-term focus by some countries on generating high spectrum fees and maximising tax revenue risks "constrains the potential of the mobile internet".

Policy reform
The GSMA has called on countries to develop a more "transparent and enabling policy environment" to help realise the mobile sector's potential.
"Operators and investors need clarity to fund the substantial investment needed to extend coverage to remote areas and meet the growing demand for higher speed connectivity."
The report highlights three key areas that it believes most affect the growth of the mobile industry:
Managing spectrum allocation in a way that balances socioeconomic benefits with the costs needed to deploy advanced networks. The association urged regulators to use transparent and predictable processes for granting and renewing spectrum licences, which would allow operators to better plan their investments.
The importance of spectrum harmonisation in the region, including the need to accelerate the analogue to digital television switchover, which would free up spectrum for mobile and help boost economic growth.
"Broader economic analysis predicts that mobile broadband adoption would generate up to $197-billion in additional GDP in Sub-Saharan Africa between 2015 and 2020 and help fuel the creation of 16-million new jobs across a variety of sectors," the report said.
Taxation, including customs duties on handsets, is very high, retarding the take-up of new mobile services.
"Lowering taxation levels on the mobile sector would benefit consumers, businesses and government by lowering the cost of ownership, encouraging the take-up of new mobile services, improving productivity and boosting GDP and overall tax revenues in the longer term," the GSMA said.

Transformative effects
Mobile solutions are used to address a range of socio-economic challenges in Sub-Saharan Africa. According to the GSMA, there are almost 250 mobile health services in operation across the region. These support patients who may not have access to local healthcare services.
Many people who never had a bank account are now able to be financially active. According to the study, there are more than 100 active mobile money initiatives and 56.9-million registered mobile money users in the region.
Mobile solutions are also playing an increasingly important role in improving agricultural output, which generates around a third of the region's GDP and employs nearly two-thirds of the labour force.
"The mobile industry has already had a transformative effect on the social and economic life of sub-Saharan Africa, but there is scope for far greater growth and innovation, if the right conditions are established," said Phillips.
"In addressing key regulatory concerns, policy makers throughout the region have a major opportunity to unlock the potential of a dynamic and interconnected Africa."

Source: All Africa

Analyzing Investments With Solvency Ratios

Solvency ratios are primarily used to measure a company's ability to meet its long-term obligations. In general, a solvency ratio measures the size of a company's profitability and compares it to its obligations. By interpreting a solvency ratio, an analyst or investor can gain insight into how likely a company will be to continue meeting its debt obligations. A stronger or higher ratio indicates financial strength. In stark contrast, a lower ratio, or one on the weak side, could indicate financial struggles in the future.

A primary solvency ratio is usually calculated as follows and measures a firm's cash-based profitability as a percentage of its total long-term obligations:

After Tax Net Profit + Depreciation

Long-Term Liabilities

Commonly Used Solvency Ratios

Solvency ratios indicate a company's financial health in the context of its debt obligations. As you might imagine, there are a number of different ways to measure financial health.

Debt to equity is a fundamental indicator of the amount of leverage a firm is using. Debt generally refers to long-term debt, though cash not needed to run a firm’s operations could be netted out of total long-term debt to give a net debt figure. Equity refers to shareholders’ equity, or book value, which can be found on the balance sheet. Book value is a historical figure that would ideally be written up (or down) to its fair market value. But using what the company reports presents a quick and readily available figure to use for measurement.

Debt to assets is a closely related measure that also helps an analyst or investor measure leverage on the balance sheet. Since assets minus liabilities equals book value, using two or three of these items will provide a great level of insight into financial health.

More complicated solvency ratios include times interest earned, which is used to measure a company's ability to meet its debt obligations. It is calculated by taking a company's earnings before interest and taxes (EBIT) and dividing it by the total interest expense from long-term debt. It specifically measures how many times a company can cover its interest charges on a pretax basis. Interest coverage is another more general term used for this ratio.

Solvency Versus Liquidity Ratios

The solvency ratio measures a company's ability to meet its long-term obligations as the formula above indicates. Liquidity ratios measure short-term financial health. The current ratio and quick ratio measure a company's ability to cover short-term liabilities with liquid (maturities of a year or less) assets. These include cash and cash equivalents, marketable securities and accounts receivable. The short-term debt figures include payables or inventories that need to be paid for. Basically, solvency ratios look at long-term debt obligations while liquidity ratios look at working capital items on a firm’s balance sheet. In liquidity ratios, assets are part of the numerator and liabilities are in the denominator.

What Do These Ratios Tell an Investor?

Solvency ratios are different for different firms in different industries. For instance, food and beverage firms, as well as other consumer staples, can generally sustain higher debt loads given their profit levels are less susceptible to economic fluctuations. In stark contrast, cyclical firms must be more conservative because a recession can hamper their profitability and leave less cushion to cover debt repayments and related interest expenses during a downturn. Financial firms are subject to varying state and national regulations that stipulate solvency ratios. Falling below certain thresholds could bring the wrath of regulators and untimely requests to raise capital and shore up low ratios.

Acceptable solvency ratios vary from industry to industry, but as a general rule of thumb, a solvency ratio of greater than 20% is considered financially healthy. The lower a company's solvency ratio, the greater the probability that the company will default on its debt obligations. Looking at some of the ratios mentioned above, a debt-to-assets ratio above 50% could be cause for concern. A debt-to-equity ratio above 66% is cause for further investigation, especially for a firm that operates in a cyclical industry. A lower ratio is better when debt is in the numerator, and a higher ratio is better when assets are part of the numerator. Overall, a higher level of assets, or of profitability compared to debt, is a good thing.

Industry-Specific Examples

A July 2011 analysis of European insurance firms by consulting firm Bain highlights how solvency ratios affect firms and their ability to survive, how they put investors and customers at ease about their financial health and how the regulatory environment comes into play. The report details that the European Union is implementing more stringent solvency standards for insurance firms since the Great Recession. The rules are known as Solvency II and stipulate higher standards for property and casualty insurers, and life and health insurers. Bain concluded that Solvency II “exposes considerable weaknesses in the solvency ratios and risk-adjusted profitability of European insurers.” The key solvency ratio is assets to equity, which measures how well an insurer’s assets, including its cash and investments, are covered by solvency capital, which is a specialized book value measure that consists of capital readily available to be used in a downturn. For instance it might include assets, such as stocks and bonds, that can be sold quickly if financial conditions deteriorate rapidly as they did during the credit crisis.

A Brief Company Example

MetLife (NYSE:MET) is one of the largest life insurance firms in the world. A recent analysis as of October 2013 details MetLife's debt-to-equity ratio at 102%, or reported debt slightly above its shareholders’ equity, or book value, on the balance sheet. This is an average debt level compared to other firms in the industry, meaning roughly half of rivals have a higher ratio and the other half have a lower ratio. The ratio of total liabilities to total assets stands at 92.6%, which doesn’t compare as well to its debt-to-equity ratio because approximately two-thirds of the industry has a lower ratio. MetLife’s liquidity ratios are even worse and at the bottom of the industry when looking at its current ratio (1.5 times) and quick ratio (1.3 times). But this isn’t much of a concern given the firm has one of the largest balance sheets in the insurance industry and is generally able to fund its near-term obligations. Overall, from a solvency perspective, MetLife should easily be able to fund its long-term and short-term debts, as well as the interest payments on its debt.

Advantages and Disadvantages of Relying Solely on These Ratios

Solvency ratios are extremely useful in helping analyze a firm’s ability to meet its long-term obligations; but like most financial ratios, they must be used in the context of an overall company analysis. Investors need to look at overall investment appeal and decide whether a security is under or overvalued. Debt holders and regulators might be more interested in solvency analysis, but they still need to look at a firm’s overall financial profile, how fast it is growing and whether the firm is well-run overall.

Bottom Line

Credit analysts and regulators have a great interest in analyzing a firm’s solvency ratios. Other investors should use them as part of an overall toolkit to investigate a company and its investment prospects.

Source - Investopedia

The Basics Of The Bid-Ask Spread

You've probably heard the terms spread or bid and ask spread before, but you may not know what they mean or how they relate to the stock market. The bid-ask spread can affect the price at which a purchase or sale is made - and an investor's overall portfolio return. What this means is that if you want to dabble in the equities markets, you need to become familiar with this concept.

Supply and Demand
Investors must first understand the concept of supply and demand before learning the ins and outs of the spread. Supply refers to the volume or abundance of a particular item in the marketplace, such as the supply of stock for sale. Demand refers to an individual's willingness to pay a particular price for an item or stock.

Example - How Supply and Demand Work Together
Suppose that a one-of-a-kind diamond is found in the remote countryside of Africa by a miner. An investor hears about the find, phones the miner and offers to buy the diamond for $1 million. The miner says she wants a day or two to think about it. In the interim, newspapers and other investors come forward and show their interest. With other investors apparently interested in the diamond, the miner holds out for $1.1 million and rejects the $1 million offer. Now suppose two more potential buyers make themselves known and submit bids for $1.2 million and $1.3 million dollars, respectively. The new asking price of that diamond is going to go up.
The following day, a miner in Asia uncovers 10 more diamonds exactly like the one found by the miner in Africa. As a result, both the price and demand for the African diamond will drop precipitously because of the sudden abundance of the once-rare diamond. This example - and the concept of supply and demand - can be applied to stocks as well.

The Spread
The spread is the difference between the bid and asking prices for a particular security.

Example - The Bid-Ask Spread
Let's assume that Morgan Stanley Capital International (MSCI) wants to purchase 1,000 shares of XYZ stock at $10, and Merrill Lynch & Co. wants to sell 1,500 shares at $10.25. The spread is the difference between the asking price of $10.25 and the bid price $10, or 25 cents.
An individual investor looking at this spread would then know that if he wants to sell 1,000 shares, he could do so at $10 by selling to MSCI. Conversely, the same investor would know that he could purchase 1,500 shares from Merrill Lynch at $10.25.

The size of the spread and price of the stock are determined by supply and demand. The more individual investors or companies that want to buy, the more bids there will be; more sellers results in more offers or asks.

On the New York Stock Exchange (NYSE), a buyer and seller may be matched by computer. However, in some instances, a specialist who handles the stock in question will match buyers and sellers on the exchange floor. In the absence of buyers and sellers, this person will also post bids or offers for the stock to maintain an orderly market.

On the Nasdaq, a market maker will use a computer system to post bids and offers, and essentially plays the same role as a specialist. However, there is no physical floor. All orders are marked electronically.

It is important to note that when a firm posts a top bid or ask and is hit by an order, it must abide by its posting. In other words, in the example above, if MSCI posts the highest bid for 1,000 shares of stock and a seller places an order to sell 1,000 shares to the company, MSCI must honor its bid. The same is true for ask prices.
Types of Orders
An individual can place five types of orders with a specialist or market maker:

1. Market Order - A market order can be filled at the market or prevailing price. By using the example above, if the buyer were to place an order to buy 1,500 shares, the buyer would receive 1,500 shares at the asking price of $10.25. If he or she placed a market order for 2,000 shares, the buyer would get 1,500 shares at $10.25 and 500 shares at the next best offer price, which might be higher than $10.25.

2. Limit Order - An individual places a limit order to sell or buy a certain amount of stock at a given price or better. Using the above spread example, an individual might place a limit order to sell 2,000 shares at $10. Upon placing such an order, the individual would immediately sell 1,000 shares at the existing offer of $10. Then, he or she might have to wait until another buyer comes along and bids $10 or better to fill the balance of the order. Again, the balance of the stock will not be sold unless the shares trade at $10 or above. If the stock stays below $10 a share, the seller might never be able to unload the stock.

3. Day Order - A day order is only good for that trading day. If it is not filled that day, the order is canceled.

4. Fill or Kill (FOK) - An FOK order must be filled immediately and in its entirety or not at all. For example, if a person were to put an FOK order in to sell 2,000 shares at $10, a buyer would take in all 2,000 shares at that price immediately, or refuse the order, in which case it would be canceled.

5. Stop Order - A stop order goes to work when the stock passes a certain level. For example, suppose an investor wants to sell 1,000 shares of XYZ stock if it trades down to $9. In this case, the investor might place a stop order at $9 so that when it does trade to that level, the order becomes effective as a market order. To be clear, it does not guarantee that the order will be executed at $9. However, it does guarantee that the stock will be sold. If sellers are abundant, the price at which the order is executed might be much lower than $9.

Bottom Line
The bid-ask spread is essentially a negotiation in progress. To be successful, traders must be willing to take a stand and walk away in the bid-ask process through limit orders. By executing a market order without concern for the bid-ask and without insisting on a limit, traders are essentially confirming another trader's bid, creating a return for that trader.

Source: Investopedia

Over US$4M Needed For 2013 Census

The statistician general at the Gambia Bureau of Statistics (GBoS) has revealed that the budget for the activities relating to the Fifth National Population and Housing Census in 2013 is estimated to be above US$4M.

Nyakassi MB Sanyang made this disclosure Wednesday while presenting the annual activity report and audited financial statement of GBoS for the year ended 31st January to December 2011, before the Joint Session of the Public Accounts and Public Enterprises Committee (PAC/PEC), of the National Assembly. He said the census is conducted every 10 years and The Gambia has successfully conducted four censuses since independence, the last of which was in 2003.

He also told the deputies that they plan to open 13 regional offices at least three months before the actual census count, and that each office needs to be equipped with a pick-up vehicle. Sanyang added that in the light of the above, it is recommended that a donor conference be held to solicit more donor funding for the 2013 Population and Housing Census.

Sanyang informed the Committee that the 2013 Census has both long and short-term objectives. He explained that the long-term objectives can be identified as follows: by the end of the project, to improve the knowledge on main characteristics of the population in the country to better understand the interrelationships of the population and development; build a data capture system that is sustainable and always available for document management for the GBoS and other government departments/agencies; analyse demographic and related socio-economic data/information at the national and sub-national levels, publish reports on thematic areas and disseminate these findings through seminars, workshops, internet and the mass media to engender wider access to information and for better integration of demographic variables in developing planning; and establish a geo-reference system of demographic and socio-economic information or planning and management.

Sanyang said the short-term objectives include the following: To develop skills of the GBoS staff; Geographic Information System (GIS), data collection, data processing, analysis, data dissemination and utilisation; to improve availability, accessibility and utilisation of census outputs in a timely manner; to identify population characteristics for the purpose of guiding social-economic policies and programmes; to update the enumeration area maps and district maps for use in sampling frame for inter-censual surveys; to establish an integrated GIS for the purpose of producing thematic maps; and to build a data processing system that produce tables for publication and further analysis as well as proper archiving of census data.

He said given the scope of censuses, preparatory activities usually start 2-3 years before enumeration.“When GBoS numerators were doing census mapping-out throughout the country, some people were claiming that they are not aware of any census activity going on, that means we at GBoS need to inform the people about what is happening so that they cooperate in what we are doing,” he added.

Sanyang noted that census activity entails a lot in terms of equipment and other resources, adding that in West Coast Region alone GBoS would open three centres, one for Kombo North, while the second centre is for the other Kombos and the third centre for the Fonis.

He further stated that preparations for the 2013 Population and Housing Census were continued in 2011 with the mapping exercise key among the preparatory activities. He also disclosed that The Gambia is for the first time using modern Geographic Information System (GIS) technology in census mapping, adding that with this technology, high quality census maps would be produced using satellite imagery while a GIS database will be developed.

He continued: “Recruitment and training for the mapping exercise was done in the second quarter of 2011. The actual mapping started in June 2011 both in the field and in office. For the field mapping exercise, teams were constituted and all teams were deployed to start the exercise in the URR. The official launch of the 2013 census mapping was also held in Basse, URR in July 2011 and it coincides with the national celebration of the World Population Day held in that region.”

The GBoS statistician general further informed the Committee that field mapping was successfully completed in URR and Banjul by the end of 2011, and that some teams have moved into CRR. He explained that to further build national capacity in GIS, a team was hired by UNFPA to conduct a two-week intensive training in GIS for the GIS assistants and some GBoS staff. 

He added that the training was not only found to be useful, but also timely. He opined that the census has been generally well coordinated since it started in mid-2011 at both field and office levels, adding that the exercise is on schedule as planned and is expected to be completed by the end of 2012.

Specific Recommendations

While underscoring that census is an extensive statistical inquiry that requires huge financial, material and human resources, Sanyang said since 2010, government and UNFPA are the financiers of the census preparatory activities. According to him, in the light of the above, it is recommended that a donor conference be held to solicit more donor funding of the 2013 Population and Housing Census.

GPPA Compliance Review

Ibraima Sanyang, senior compliance officer at the Gambia Public Procurement Authority (GPPA) said that for the period under review, GBoS was found to be mainly-complaint with the Public Procurement Act 2001 and Regulations 2003. The Committee then raised comments, concerns and observations before finalising the adaptation of the GBoS 2011 report.

Source: Daily Observer

Gamtel Made D1.450BN In 2011

The Gambia Telecommunications Company Ltd (Gamtel) said it generated D1. 450 billion in revenue in 2011, compared to the D1.395 billion registered in 2010.

This was disclosed by Baboucarr Sanyang, the managing director of Gamtel Tuesday, while presenting the annual activity report and financial statements for the year ended 31st December 2011, before the Joint Session of the Public Accounts and Public Enterprises Committee (PAC/PEC) of the National Assembly.

According to him, this represented an increase of D0.055 billion representing 4% increase with a gross profit margin of 33%. He explained that the increase in revenue was due to the increase in international, interconnection and data revenue by D13M, D32M and D42M respectively.

Sanyang further disclosed that the total sales for the year amounted to D970M and of this amount, D430M related to payment of interconnection charges to GSM operators for calls terminated on to their networks. He said that D195M related to payments to foreign carriers for the carrying and termination of international traffic on to their networks while the company incurred a material cost of D345M in 2011 compared to D68M in 2010 which shows an increase of D277M which represented 407%.

The Gamtel MD, however, noted that the increase was associated with an increase in the operations and maintenance of the international gateway. On their technical activities for 2011, Sanyang said there was an upgrade of international Internet bandwidth from two STM-1s to three STM-1s, which increased the capacity of their network from 310Mbits to 465 Mbits and back up of 14Mbits via satellite.

The Gamtel boss told the Committee that in their corporate affairs, the company in 2011, signed a Delegated Management Contract (DMC) with the Gambia Agency for Management of Public Works (GAMWORKS) for the refurbishment and upgrading of Gamtel sites and facilities in readiness for the NGN project. He said the activities of customer services in the fiscal year 2011 were centered mainly on expansion projects to keep pace with the stiff competition in the telecoms industry in The Gambia, due to the introduction of substitute and competing products by GSM operators.

Since training and development initiatives have been part and parcel of the development of telecommunication sector in the country, he said it has contributed immensely to the development of the telecommunications sector in the country. He added: “The high demand for more work-specific and academic programmes had made Gamtel management to put in a lot of efforts and finances towards the upgrading of the company’s training institute.”

Sanyang finally disclosed that the total number of staff of Gamtel as at the year under review stood at 1,125 comprising of 852 male and 273 female, out of which 81 are at managerial level, 67 male and 14 female. 

Gamcel 

In a similar presentation, Almamy Kassama, the general manager of Gamcel, also presented their report before the Committee. He reported total revenue of D1.127 billion as at 31st December, 2011, compared to D761M in 2010.  This, he said, represented an increase of D366M, representing 48% increase with a gross profit margin of 20%. D34M, D16M and D4M respectively attributed to the increases in revenue.

The Gamcel general manager explained that the total cost of sales for the year amounted to D900M, and of this amount, D522M related to free bonus given to customers while the company incurred a material cost of D116M in 2011 compared to D87M in 2010.

He further explained that the balance sheet has shown total non-current assets of D553M representing tangible fixed assets.He noted that there has been a decrease in tangible fixed asset from D637M to D553M as a result of depreciation charge for the year of D124M. He added that the total current assets stand at D68M as compared to D105M in the previous year.

On marketing and technicality, Sisay said Gamcel has embarked on network expansions while the commercial department manages the marketing and sales activity of the company through the creation and implementation of strategies aimed at adding value to Gamcel and its stakeholders profitably.

GPPA Compliance

Ibraima Sanyang, a senior compliance officer at the Gambia Public Procurement Authority (GPPA) revealed that Gamtel and Gamcel were found to be fully compliant with the public procurement Act, their Attendant Regulations and Instructions during the period under review, before both reports where finally considered and adopted by the Committee.

Source: Daily Observer

Can Ghana's Economy Prosper Against The Odds?

The sudden death of Ghana's president, John Atta Mills, on July 24 did not come as a rude surprise. Most Ghanaians already knew his health was failing; he was losing his eyesight and voice.

For the seven months that I was in Ghana (Dec 2011-July 2012), he rarely made a public appearance -- and despite official assertions to the contrary, most people did not believe he had the will nor the capacity to campaign for re-election in this year's elections in December.

What was remarkable, however, was that within hours of his death, the Vice-President, John Mahama, had been sworn in as the new president. The smoothness of the transition was exactly how Atta Mills would have wanted it. He was a man of peace and ardent believer in the rule of law.

The smooth transfer of power not only attested to the strength and stability of Ghana's democracy but also stood in sharp contrast to the rocky and chaotic transitions that followed the deaths of presidents Felix Houphouet-Boigny of Ivory Coast in 1993; Musa Yar'Ardua of Nigeria in 2010 and Bingu wa Mutharika of Malawi in 2012.

Also standing in sharp contrast to the smooth political transition process is the performance of Ghana's economy. After a stellar performance the past few years, the economy has hit some road bumps.

At a time when Europe has been in deep crisis, Ghana's economy galloped at a dizzying 14.5% rate of growth in 2011. In the fourth quarter, the rate was an astonishing 16%. The country achieved a single digit inflation rate of 8.6% and the lowest fiscal deficit to GDP ratio of 4.8% in decades, according to figures from the Minister of Finance.

Moreover, Ghana attracted $7 billion in foreign investment -- the highest amount recorded in its history. This economic boom has been sparked by recent discovery and production of oil.

However, prospects for 2012 have dimmed. The projected growth rate has been scaled back to 10%, although still impressive. An IMF team which visited the country in June described the economy as "sick" -- perhaps, an unintended allusion to the condition of the president.

The external value of the local currency, the cedi, has dropped precipitously from 1.4 cedis to the dollar in January 2.2 cedis to the dollar in July -- a drop of 57% in terms of the local currency. That drop has made imports more expensive and pushed the rate of inflation up above 10%. There is widespread grumbling about the rising cost of living.

It may seem skeptics, who questioned the sustainability of Ghana's economic success, are being proven right. They point to Ghana's neighbor, Ivory Coast, which was once declared an "economic miracle" back in the late 1990s but then convulsed into civil war and economic ruination in 2005 and 2010. They ask further: Hasn't oil been a curse to such countries as Angola, Cameroon and Nigeria, among others? Is Ghana not destined to follow the same path?

To some extent, the skeptics have a point but that is not the whole picture. To be sure, Ivory Coast was declared an "economic miracle" in the late 1980s and in 1994, the World Bank declared Ghana to be an economic success story.

However, received wisdom and accumulated evidence suggest that doing well economically is not enough. Intellectual freedom (freedom of expression, of the media, etc.) and political reform (establishment of democratic pluralism) are also needed to sustain economic prosperity. Countries that resist them eventually implode, unraveling all the economic gains made. This was what happened in Ivory Coast in 2005 and also in Yugoslavia (1995), Indonesia (1998), Madagascar (2001), Tunisia (2011) and Egypt (2011).

In other words, democracy is not necessary to engineer an economic success story but vital to sustain it.

In Ghana's case, incomplete political liberalization and fitful intellectual reform clipped its economic success in the 1990s.

However, things are much different today. The intellectual environment is much freer now. There are more than 100 private radio stations and over 20 privately-owned newspapers in Ghana. There is a vibrant and vigilant media that sparks intense intellectual debates. Call-in radio programs hold the feet of politicians to the fire and expose their shenanigans. Now and then, the country's Supreme Court rules against the government. Freedom of information bill is wending its way through Parliament, although it has been dragging its feet.

Politically, democracy is also being entrenched. Since 2000, there have been two successful transfers of power without violence or bloodshed. And the smooth transfer of power after the president passed away is another feather in the Ghana's democracy cap.

All these bode well for the sustainability of the current economic prosperity. But still, some serious hurdles lie ahead for Ghana's economic prosperity.

First, the non-oil sector of the economy is performing poorly. Agriculture, which employs over 60% of the population, grew marginally at 2.8% in 2011. With food production per capita declining, the country has to rely on food imports to feed itself. The performance of the manufacturing sector has also been weak. It is hard to find a manufactured good with the label, "Made in Ghana." As Ghanaians often lament, "We don't produce anything; we import everything from tooth-picks to toilet paper." As a result, imports are surging dangerously out of control.

The situation is eerily reminiscent of Nigeria in the 1980s when the country neglected its agriculture and manufacturing base and splurged on luxury imports. Army chiefs parked Maseratis and even Lamborghinis outside plush government villas, while their children attended expensive schools in Britain. One even had his Rolls Royce flown from Britain to Nigeria. Nigeria, which used to export food in the 1960s, now spends over $120 billion [latest figure I found] on food imports while 61% of Nigerians now live in poverty.

There are other bumps as well on Ghana's road to economic prosperity. The bloated size of the government suffocates the economy. In 1997, there were 88 cabinet and regional ministers plus their deputy ministers in a country with a population of 25 million. By 2004, the number had reached 92 but now down to 84. 

Too many ministries means overlapping jurisdiction and functions and a bloated bureaucracy. Indeed, the Vice President, John Mahama, has been complaining persistently about "excessive bureaucracy and red-tapeism in the public sector" in the state-owned Daily Graphic.

The public sector is riddled with overspending, wasteful practices and financial irregularities and profligacy. The situation has become so dire that the government consumes all it collects in revenue, leaving it with little or no savings to finance investments. For example, in 2011, total revenue stood at GH¢12 billion (or $7.5 billion) but general government expenditures added up to GH¢13 billion, leaving the government with negative savings.

However, the biggest hurdle when I was in the country was the high level of anxiety, tension and uncertainty about the December poll. In times of uncertainty, investors hold on to their wallets and the rich park their wealth outside the country. Capital flight and surging imports have evidently contributed to the sharp drop in the external value of the local currency.

I left Ghana for the U.S. on July 21 and President Atta Mills passed away on July 24. Most likely, political tension in the country will abate somewhat as Ghanaians put away their differences to mourn their departed president. However, the uncertainty will resurface after the burial. While the new president, John Mahama, is respected and level-headed, he is unlikely to accomplish much before December.

One wag has urged Ghanaians to vote for a "Non-John" in December. Since 1981, Ghana has had the following presidents: Jerry John Rawlings, John Kufuor, John Atta Mills, and now John Mahama. "Enough JOHNS. Haba! This is the worst form of name tribalism. Time for a revolution," the wag exclaims.

Well, Ghanaians will decide in December.

Source: CNN Marketplace Africa

Could Third World Debt Relief Pay Off?

According to the International Monetary Fund (IMF), there are 156 economies that could be considered "developing." Calling a country "developed" as opposed to "developing" is a charged topic: no one wants to be told that they aren't as good as someone else. Being a developing country, however, doesn't mean that the country is some backwater nation that time forgot. Quite the contrary; many developing nations are sitting on veritable goldmines of natural resources and with investments in modernizing the economy, these nations could see rapid growth in GDP.

Getting Funds from the Kitty

Countries seeking to modernize their economies face a daunting task. The projects that will push their economies forward - infrastructure, education, healthcare - don't come cheap. For example, China's Three Gorges Dam cost an estimated US$26 billion. Building roads to shuttle products and people around requires materials and engineering expertise; hospitals require expensive electronics. Developing countries often cannot afford to take on these projects without having to significantly sacrifice spending on other priorities.

There are several ways that developing countries can obtain funds from outside their borders. They can get direct loans from other countries, through funding provided by private companies or through loans provided by international lending organizations. Obtaining loans from private lenders is a difficult proposition for the poorest of countries, since they tend to be economically and politically riskier. A significant amount of developing debt comes from organizations such as the International Monetary Fund and the World Bank, which pool funds from multiple countries and use their financial clout (and good credit ratings) to obtain low interest rates.

The World Bank lends funds to countries based upon their Gross National Income (GNI). The poorest countries - those with per capita income of less than $1,195 - borrow from the International Development Agency (IDA) because they lack the ability to borrow from the World Bank's other fund, the International Bank for Reconstruction and Development (IBRD). The IDA charges little or no interest on the funds it lends out, typically allows repayments over longer-than-normal periods of time and also provides grants to countries in extreme financial distress. The amount of annual funds committed by the IDA - approximately $15 billion per year - is on par with the amount provided by the IBRD.

How Much Debt Are We Talking About?

The World Bank estimates that developing countries owed $4 trillion dollars in external debt as of the close of 2010. That number seems huge, but when compared to the debt owed by developed countries, it's fairly small. The United States and the European Union owe more than $25 trillion between the two of them.

Bleeding hearts and boisterous world leaders lament the oppressive burden that external debt (and the rules that often accompany it) has on developing countries. The evidence points to the opposite, however; debt forgiveness already exists. Debt is as much a political tool as an economic one. Leaders of developing nations, just as leaders of developed nations, want to keep their populations happy (at least happy enough to not cause trouble), and it's much easier to wag a menacing finger at foreign debt holders than it is to fess up to years of profligacy.

The World Bank, for example, operates both the Heavily Indebted Poor Countries (HIPC) Initiative and a Multilateral Debt Relief Initiative (MDRI). The MDRI was a 2005 pledge by G8 countries to cancel the IDA debt of countries that have gone through the MDRI program. The total pledge was $37 billion to an initial set of 19 countries, most of which are located in Africa. The International Monetary Fund (IMF) and Africa Development Fund (ADF) kicked in funds as well, bringing the total to $50 billion.

So what about wholesale debt forgiveness? What if the developed world and the financing institutions they run offer everyone a clean slate? It would be a disaster. It's one thing to offer the most struggling countries debt forgiveness: it's a small number of countries, it's a comparatively low amount of funds and it makes much more sense developmentally (a country in political and economic chaos could cause a humanitarian disaster at home and potentially spark lots of problems for its neighbors). It's a totally different thing to wipe the debt clean for 156 countries that the IMF considers to be "developing."

Lending countries could feel less inclined to shell out development money in the future, since there would be a precedent for not getting paid back. Debtor countries could balk at future commitments because they were allowed to start from scratch once before. The signals would be perverse. Additionally, while developing countries are net debtors - they often owe more to others than they are owed by others - many developed countries are owed money by others. If the money they are owed is suddenly wiped clean, then there would be multi-billion-dollar holes in countries' finances.

Next Time Will Be DifferentThe key to not getting into the debt forgiveness quagmire is to lend smart. Just as many individuals had lived beyond their means leading up to the financial maelstrom of the 2000s, so too did developing countries spend too much. The first taste of debt trouble came from the 1970s and 1980s, on the back of global commodity demand. Countries borrowed huge sums after finding natural resource bonanzas and crowded out private development. When commodity prices tumbled, those developing countries faced steep debt payments and had no funds with which to pay them. This was not totally the fault of debtors, as donors also provided expert advice that wound up not working out.

The Bottom Line
"Lending smart" entails injecting funds to develop industries outside of commodities, and to do so at a pace that won't cause a shock if the means to repay the loans falls short. After all, not all countries that receive developmental aid fall short of repayment. Some of the biggest success stories include China, Singapore, South Korea and India, all of which used funds to diversify away from reliance on volatile commodity exports. You'd be hard pressed to find a world leader who wouldn't want to be at the helm when a country makes the jump into a modern economic juggernaut.

Source: Investopedia