Honorable ministers, members of the investment community, leaders of business, esteemed guests, ladies and gentlemen, good afternoon. Welcome to the MTN Capital Markets Day. Thank you so much for joining us here today at the MTN Innovation Center. Of course, to the hundreds of people that are already logged on virtually through our webcast. My name is Andile Khumalo. I will be your host for the next day and a half or so. I'll be facilitating the program. We've got lots in store for you as we go through the macroeconomic, economic environment that many of the geographies that MTN operates in, as well as get digging deep into the strategy of MTN Group, which is, of course, Ambition 2025.
We're gonna hear about its progress, we're gonna hear about its prospects, and of course, all the plans that the leadership at MTN Group have in store for the creation of the MTN of tomorrow. The program includes a couple of presentations, some keynote addresses. There's a lot of panel discussions. Most importantly, there's enough time and space for you to ask your questions. I was talking to some members of the investment community outside. They were saying, Andile, we've come to this day because we've already read everything on the SENS announcements. We've already watched every interview of the CEO. We hope that with these engagements, we get a little bit more color and depth. That's exactly what I have in store for you.
We hope everything that will be discussed today will give you a deeper understanding of this Pan-African group, as well, of course, as its compelling investment case, notwithstanding the challenges that not only the continent has, but the world over. Before we kick off, I have some housekeeping rules for you. First of all, there are two emergency exits. There's one on my immediate right. If you go left here, it'll take you out into the exhibition and the cafeteria area that you saw. The second one is on the far left at the top. It will also take you out into an open area, and if you're looking for tea and lunch, you just go down the stairs, and you end up in the same area. Should there be an emergency, please look right now for the one closest to you.
You know, the stuff they tell us on airplanes. Please, right now is a good time to find the one that's closest to you, should you need to get out of here in a hurry. There are also restrooms, of course, in this building everywhere, but the nearest ones is that as you get out of the emergency exit on my top left, there is a tech bar reception. Right next to it are bathrooms, and if you're using this particular exit, as you get out here, right next to the elevators, there is a bathroom there for you as well. We do have free Wi-Fi. We are MTN, of course. On the screen, you're going to be having some QR codes that you can scan, as well as around the room, you'll see some signage, especially on the left-hand side. You can also scan those.
It'll take you straight into the free Wi-Fi. We also realize there are those of us that are more old school than others. The username and password is here. If you don't quite know about this QR thing, we've got you. You just need to complete... SSID is also, like, a username, and the password, as you can see, is #MTNEvents20 23. For those who'll be tweeting, which we do encourage, or perhaps using other social media platforms, on Twitter specifically, we are at MTN Group. I'm pretty sure many people that can't join us physically or online would love to hear some of your insights as the day goes by. Take pictures, share selfies, whatever you wish, and please use the #MTNCMD2 3, which of course, stands for MTN Capital Markets Day 2023.
That is for sharing. We've also made some provisions to avoid being affected by load shedding. All right? We've got a UPS system in this building, so you should probably hear nothing or feel nothing or see any difference other than what you already see. You know, sometimes things don't work as planned. If something does quite happen, I'll make sure that I'll be on stage and kind of calm you down, and the lights will be back in no time. This is the new reality we have to deal with now. Please also note there is a disclaimer for independent speakers. We are a publicly listed company. We have to be quite responsible about this one fact. We've invited a lot of people that do not work for MTN, that do not represent MTN.
We need them because they give us lots of insights, especially in this ever-changing world. The views that will be expressed by these independent speakers at this Capital Markets Day are their own and do not reflect the views of MTN. When there is lunch and tea, your exits are here to my right and to the top of my left. If you go out to the top of my left, you just have to kind of make your way back down. Those are the exits. When we are ready to get back into the room, there will be a sound that will play. Right. That does not mean stand and dance. If you wish to dance, please dance on your way back into this room.
That means it's time for us to start whatever the next session will be. Please, when you hear that, make your way into the sessions. If you need any assistance at all, there are MTNers all around the room, all around this particular venue. They look like this wonderful, standing model we've got here in Marina. They're all wearing these white tops with a wonderful pattern that represents MTN's colors and, of course, its roots that are in the continent of Africa. Anybody dressed like that can help you. That's the short answer. Right, now, let's get the show on the road. This afternoon, we are going to be discussing our markets in a lot more, more detail.
We have a lot of experts that operate in these markets, that write and cover these markets, whether for the media or as analysts, we're gonna be getting into the depth of what's happening in these various markets that all, of course, culminate into this beautiful group called MTN. We're gonna begin, though, with an introduction from the MTN Group President and CEO, Mr . Ralph Mupita. He's been at the helm of MTN since September 2020, he will now be addressing us and welcoming us and setting the scene and the tone for this Capital Markets Day. Ralph?
Thanks very much. A hearty welcome from my side as in, the Group President and CEO of MTN. On behalf of the MTN Group, we really are privileged to see a house full here at 14th Avenue Campus. We know that on the webcast, many other investors are online. We really appreciate you taking out two full days to actually engage with us as MTN. We launched our Ambition 2025 strategy to the capital markets pretty much two years ago. We feel that we are kind of midstream in execution of what is a five-year plan. Thought it very important that we would engage with our capital holders and broader stakeholders to give a sense of how we're progressing and what has shifted, if anything, in terms of the commitments that we've made.
As Andile has mentioned, for today, what we want to start off with is give you a sense of the macro backdrop. Obviously, we have independent speakers, not MTN speaking. We will engage in some of the discussions and the narrative, but before we go into the detail of how we're executing the strategy, which is tomorrow, we thought it's important to kind of zoom out and look at some of our key markets and the big issues that we believe our stakeholders, and shareholders more broadly, would have as key issues that they're applying their minds around in terms of thinking about the MTN investment case. As we mentioned by, Andile, we have a wonderful array of speakers today. I wanna thank the Minister of Finance of Ghana. Ma'am, also, thank you for joining the Minister.
The minister has traipsed across the continent. He has arrived yesterday from Seoul, he's on his way back to Accra, and I think he will give you some good insights around what's happening in Ghana and the Ghana investment case. We also have Bismarck Rewane, who is a renowned economist in Nigeria, and, you know, given the change in administration on Monday, I think you can ask him the questions and form your own views about the direction of Nigeria over the next four years. In South Africa, we've got two speakers who will give us a really good sense of the macro backdrop.
Load shedding obviously is very topical, the Deputy Reserve Bank Governor, Kuben Naidoo, would actually give us a sense of how the Reserve Bank is looking at South Africa more broadly. The MPC was last week, 50 basis points up. The rand did react to that a little bit. I think we also have James, and he'll give a sense from the Energy Council, how he sees the load shedding and what needs to be true to see, you know, what, you know, how people should frame their thinking about load shedding and its impacts on the economy.
We have a really good program today, and tomorrow we'll deep dive into Ambition 2025 and give you a sense of where we are now that we've you know, been executing for, you know, the last two years. I hope that you will take a couple of things back at the end of today, and I want to put these things out today. I think the first thing that we hope as a management team you will take forward, is that Africa presents a unique and compelling growth opportunity for digital and financial inclusion. We at MTN believe that deeply. We believe that, you know, Africa's growth prospects are gonna be driven by the digital economy. I think that's the one message that we'll leave.
I think we will also want to leave a message that we see ourselves as partners for nation states development. For sure, we have a responsibility towards building a business that delivers value for our shareholders, but we see ourselves also having a social purpose, and that social purpose is enabling the markets that we operate to grow, and hopefully you leave that with that message. The third message that we hope you take is, for sure, there are near-term macro challenges that are impacting, you know, pretty much all businesses globally, and us, we will have our specific set of issues. We have a plan that will help us navigate these issues, and come out on the other side, more stronger and more resilient, and we'll take you through all of that detail.
The fourth is really that we have a very, very clear plan, and we're still committed to executing on Ambition 2025, and that our medium-term guidance and the targets that we set out, we feel, you know, that a responsibility to our capital holders, that we are going to deliver on them. Myself and the executive team who will support me in the presentations tomorrow, will give you a lot of detail on that. Enough of that tomorrow. Let's get the show underway, Andile, and you know, start with the first panel discussion. Thank you so much.
Thank you very much, Ralph, for those opening words and setting the scene and the tone for us. I'm pretty sure everybody's excited to hear that, especially the point about the digital economy driving Africa's growth and, of course, the MTN Group hopefully being a leader in that particular space. Next up, we're gonna take a deep dive into the macroeconomic environment here in South Africa, which happens to be MTN Group's base since launching operations in the country way back in 1994. South Africa has enormous growth potential, as we all know, but has experienced a steady GDP growth over the past decade, unfortunately, in the context of a very difficult challenge around the power cuts that have been growing quite intensely in the past few years.
We are very pleased to have with us today, two authorities on these particular topics, one on the economy and one on the power situation in South Africa. We're gonna kick off with Dr. Rashad Cassim. He is the Deputy Governor of the South African Reserve Bank and a member of the Monetary Policy Committee, that committee that you and I hold our breath every time they have an announcement to make. Yeah, he's that guy, and he oversees the financial markets and international cluster. There, he's responsible for financial markets, international economic relations and policy, as well as legal services. Ladies and gentlemen, please join me in giving a round of applause to Dr. Rashad Cassim.
Thank you very much. Do I change my slides just yet? Okay. Okay, thank you very much. It's a great pleasure. Thank you to Ralph Mupita and the leadership team and other dignitaries from our lovely continent. I assure you, when I woke up this morning and in the darkness, put on a tie, I didn't realize the significance of the color until I met Ralph Mupita, and he was very pleasantly surprised. You know, there are two things, I guess, most of you are acutely aware of the fact that economists are boring, and having both an economist and a central banker in one present, I'm happy that I'm not doing the after-lunch shift. Well, he described the after-lunch shift, so I have a particular challenge.
You know, Andile, warn me when my time is up. I'm going to raise many things, but I hope that we can talk more about this when we have the discussion. Investors often say we do many road shows. The governor and I will be doing one abroad pretty soon. We do them in New York. Often, you know, the SARB has a reputation for being brutally honest, to the point that, at times, we tend to be maybe a bit more alarmist than we should be. We say it like it is, but I think that investors appreciate the fact that we're pretty honest. I have a few themes.
I won't talk through all the themes, and, you know, there are a few questions I'm sure in your mind, you know, how do we think about inflation and growth? That's our key mandate. Why on earth are interest rates going up when this economy is, growth is rather very, very sluggish? What does the energy crisis mean for the macro policy? There are always two sides to how you think about the economy. There's the economic side, which economists ironically call the real economy, strange term, and then there's the monetary side, you know, lending, borrowing, the financing of our ability to sustain the economy. That's a very important part of understanding the cost of borrowing and sovereign risk.
Those are really some of the key issues that I will talk to, but not to all of it. Hopefully, we can clarify some of that in the discussion. I wanted to just make a simple point here, that South Africa is not an outlier when it comes to inflation. Inflation is worse in many other parts of the world than in South Africa. I think what happens with inflation, trying to tame inflation, has severe consequences for South Africa. I said to many people, as someone who's, I think, been on the Monetary Policy Committee for 12 years, for the first time, I worry more about U.S. inflation numbers than I do about South African inflation numbers, because the impact of U.S. monetary tightening on South Africa is something that we cannot ignore.
The other important thing is that being a small, open economy, global growth has a very important impact on our own growth prospects, and that means that, you know, that if you take 2000, when the global economy was growing at about 5%, we were growing at about 5%. The numbers are coincidence. I think that the ability to take advantage of global growth is very important for a small, open economy, like South Africa. The argument today is that if global growth goes up back to 5%, it'll be very hard for us to grow at that amount, because there've been a number of structural problems in the economy that makes that very hard.
Okay, this is just the point that I was making, that you can see every country has increased its rates. Actually, if you think that we've been a bit extreme in raising rates, the Brazilians have a real interest rate of about 9%, which means that their inflation is about 4%, and their repo rate is about 13%. Whereas in our case, you know, our repo rate is 8.75%, and the inflation rate is around 7%, 6.9%, 6.8%, the last reading. Countries have really. Brazilians and the Latin Americans, as you know, have a history of hyperinflation in the way that we don't have.
We like using a term called the potential growth of the economy, a very important term. The reason it is an important term is because the potential of the economy determines how far can you grow without having an inflation problem. In other words, you can say that, you know, maybe the potential of a country like China or India is 6%, 7%. The moment they start growing above 6%, 7%, they have capacity constraints, and inflation picks up, and the monetary authorities have to control the economy and do that. South Africa is not the same, but it used to be a 3% economy. You know, pre-2008, we used to be a 3% economy. The moment the economy goes above 3%, we start seeing inflationary pressures.
Now we've become a 1% economy. So in other words, the potential of this economy is very low, and the real challenge is how do you get this potential to grow? As you can see, our GDP growth is very modest. We think that the economy will grow at about 0.3% this year, but we think that in the longer run, it will pick up to 1%-2%. It's very hard to make a dent in the unemployment numbers with those growth. You know, one thing that's really important is, and I just throw this out, I'm not gonna talk much to it, is how do you think about economic growth of an economy? Economics 101 .
That is that, you know, there are there's cycles. Sometimes you can have a cycle where commodity prices pick up, and we, like many other parts of countries in our continent, gain a lot. We have windfall gains from commodities. Sometimes the economy can grow for two, three quarters, at 2%, 3%, and then it can stagnate again. It's all cyclical. It's cyclical growth. The real question is, you know, what happens in the short term, the medium term, and the long term? In the short term, we are very modest about our growth prospects, but I do think that there is a silver lining with the energy constraint, and that is that there's most of the investment we're tracking is in renewables.
You're gonna see a reallocation of investment in the economy, and those kind of things, I think, will really be important. It's hard to see it now, but I take a very positive view about the investment that the energy problem will unleash in this economy. There's a robust private sector. You can see the extent to which solar companies are thriving. I do think there is something coming out from this. We have an energy expert. I don't want to go too much into energy. I just want to say that, you know, few things: It is not only energy that is constraining the potential of this economy, it is also, for example, logistics and transport. These are low-hanging fruit. They could be fixed up very easily.
It can accelerate growth, but we have found that one of the reasons why our forecast for economic growth is low for this year is the load shedding, but also many able exporters are struggling to get their goods to the harbor, their backlogs and so on. These things could be fixed up very easily and could turn the fortunes of this country quite a bit. The thing that worried us most was the unprecedented days of load shedding that we estimate we saw it in 2022, but that we estimate for 2023. In our estimate, economic growth for 2023 would have been not 0.3%, but 2.3%.
This is how load shedding has weighed down on our growth, had it not been for load shedding. In fact, we make an assumption that when we're at stage one, stage two, actually, that impact on the economy is not very significant. Firms work around it, and so on. The moment there's a nonlinearity. The moment you go up to three and four, and six, its impact on growth is very binding. It's a very binding constraint. Our estimate are - 2%. We think that as we deal better with load shedding, what the constraint of the economy for 2024 and 2025 is much less, but it does weigh heavily on us.
Now, you know, on the one side, the supply side of the economy is a problem. The potential has declined. On the other side, you know, there are some positive things. Household expenditure is a bit more robust than it was. Household expenditure drives our economic growth. It's a major part of what drives our economic growth. The real challenge really comes in public fixed capital formation or what we generally call investment. You know, part of the problem is that government always accounts for large part of investment, but that has declined for many good reasons.
One of the reasons why South Africa is growing at the rate it grows is our investment as a percentage of GDP is around 14%. If you compare us to our East Asian tigers, who grow at 6%, 7%, their investment as a percentage of GDP is around, you know, 25%, 30%. It's not only the level of investment, it's the efficiency of the investment. This is the thing, we cannot conceive of having a higher growth rate above what we have currently if investment as a percentage of GDP is going to remain at the current levels. What will it take to get investment up is the real key challenge? I'm not gonna say much here.
I think that the one important point is that notwithstanding the fact that the economy hasn't been doing too well, we've been pleasantly surprised at how credit extension is has been increasing. Now, this is a highly unequal society. It happens in some households, while some houses are bleeding. The thing that's most depressing, I think, about this economy is that we actually have not reached pre-COVID unemployment levels. As you can see in the blue graph, the unemployment level was around... Sorry, the number employed in the formal economy was just about 16 million. We're just below that has been the devastating impact of the COVID experience. We've had so many other unfortunate events. What's the movie?
Something of unfortunate events that really has had a very negative impact on our growth. There is the inflation, there is the inflation problem. We have a 3%-6% target, and inflation has been rather high. This is where South Africa is not unique. There's nothing idiosyncratic about our inflation problem. It is a problem that exists in many parts of the world, and they exist for very different reasons. The biggest culprit has been, you know, food prices, has been oil prices. Thanks to the Russo-Ukrainian War , there's not much we can do about it, but it has had an impact on the economy, and we can talk more about it as we go along.
We divide inflation into services, and you can see that services inflation is much lower, while underlying inflation is much higher. One thing that is quite striking, I look at the exchange rate, and I look at prices in the economy. Let me tell you something: I'm not a user of very fancy personal care. I walk into Dis-Chem and take whatever I can get, whether it's aftershave or whatever, but I'm amazed at the relationship between the exchange rate and personal care. Most of our personal care is imported. Exchange rate depreciates, you see personal care inflation go up. That's part of the problem, that is why core goods inflation is high because of the import content of core goods.
On one side, I talked about the impact of load shedding on the productive potential of the economy. On the other side, we have done some estimates of the impact of load shedding on inflation. You know, we estimate that it has an additional impact of 0.5% and in total. That has to do with what you all are seeing. Businesses have to have generators, perishables in particular. Where the impact is most stark is in the perishable area. Little supermarkets have to invest in generators. We hit from both sides. We hit from the inflation side and from the productive potential side of the economy. I don't want to get into this, but this gives you a sense of.
You know, South Africa reduced its repo rate to 350 basis points at the beginning of COVID, and we had to increase it, unfortunately. It's a very technical concept that I talk about here, is what is called the real repo rate, which gives you an indication of how tight or loose monetary policy is. By this criteria, we don't think we're very tight. Now, I talked about the monetary side of the economy. The big thing about the monetary side of the economy is the success story of this country was that when you had the great financial crisis, there was this search for yield. Investors were getting very low return in the U.S.
The success story is that the non-resident component of investment in South African bonds went up from something like about 10% to about 40% at its peak. What it does is it basically says that non-residents are owning South African bonds. That compresses premiums of your yield curve, and it means that the cost of borrowing comes down. This is what we saw. We saw that under the great global financial crisis, we had this massive increase in bonds, and the blue line shows you how that was happening from 2012 - 2014.
Now, you know, from a peak of 40%, non-resident ownership of South African bonds have come down to about 20%-25% of total ownership. It's not only idiosyncratic. As you know, the Treasury bill in the U.S. looks very good. The returns are very high, so that looking for more safe investments, it's not only South Africa that has experienced the outflow, but it is many other countries. Our idiosyncratic risks has intensified that in a way that is a bit unusual. I put in two other things. One of our roles in the SARB is not only to maintain price stability but also financial stability, so we look at what's going on in financial markets. The SARB is what I call the market maker of last resort.
We play a very important role in ensuring that our financial markets are stable, and I think that's a real positive for an investor in this economy. This gives you a sense of the outflows of capital. You must remember, when you have a current account deficit, and when your savings are, when your saving, your income is below your expenditure, we import capital. How do we import capital? Through people investing in our equities, in our bonds, and so on. The moment there's a net outflow of capital, this puts a particular strain on the economy. We have an incredibly sophisticated economy.
We have, by emerging market standards, one of the most deepest liquidity markets. That also partly explains the behavior of the rand, of which I will come to. I'm almost done. I can see you, that look. That look is saying, You should be finishing up. Let's make no pretense to the fact that the rand took a particular knock. The higher we're going up, the worse the performance. You can look at the ZAR compared to the average EM currency, a few others. That knock happened particularly in the last month or so. I've just put forward a list of what's explaining the risk.
You know, this slide has to be treated very carefully because, you know, when I say that investors are concerned about load shedding, they're concerned about the fiscus slippage in sovereign rating. They're concerned because, not because we're the worst. It's from where we were that, you know, South Africa has an incredible infrastructure by any measure. What has happened is that that infrastructure has deteriorated over the last couple of years, and it's. It's the starting point and the decline from the starting point that is a concern. I think that, and I think that, you know, I was asked last night on SABC what would improve the rand? Can the SARB play a role?
I've said that, You know, the SARB's role is probably insignificant compared to government giving more clarity on its position on, you know, Russia, or government giving more clarity on how decisively wants to deal with load shedding and so on. Those are the factors that are driving the rand. The rand also has a very special place. It is the proxy rand. You know, they used to say Mexico, the Mexican peso, and the South African rand were the proxy, so whatever happens to them, is a proxy of what... I think the rand has become the authoritative proxy.
Someone asked me a question now the other day: Why is it that Turkey has a 50% inflation rate, but its currency is not weakening as much as the South African currency? I say the big difference is that the Turkey Central Bank has eroded its reserves to very dangerous levels by selling dollars. By selling dollars for more lira, it creates demand for the lira, so it's artificially kept its currency up. We are totally free-floating exchange rates, so our exchange rate is more volatile. When you compare our currency with others, a lot of little technical factors that one has to take into consideration. You know, I've raised a lot of things. I know there's a discussion.
I can follow up on some of the issues I've raised, in the discussion. Let me end there. Thank you very much.
His first question comes from that slide. Very interesting indeed. Thank you so much, Dr. Rashad Cassim. There's a lot to talk about on your insights today, especially why is it that the currency is doing things that we didn't learn in university when interest rates go up? I'm dying to find out how that works. Next up is the second part of our kind of deep dive into the South African macroeconomic environment, and that is our electricity challenge or crisis, as some might say. James Mackay is the CEO of the Energy Council of South Africa. With professional qualifications in engineering and finance, he has got more than 20 years of diverse experience in public and private sectors and has worked across the continent, and he will be addressing us on our energy security challenge.
Over to you, sir.
Thank you very much, Andile. Meetings are coming through all right. Greetings, Minister, board members, everyone, and also online. Ralph, it's fantastic to be here. Thanks very much. Rashad, that was a great presentation. Thank you. I think you've covered all the important areas of energy, but I've been taking some notes. I'm going to work on it. I'm disappointed you haven't got rooftop solar yet and got to the trend and keeping the lights on. I'm going to take also just a quick moment to introduce the Energy Council. We're not as famous and well known as the Reserve Bank. Hopefully, after this, we will be, though. The mandate of the Energy Council is the energy transition of South Africa, so it is a national mandate. We represent business, public and private sector.
The IDC, Central Energy Fund, PetroSA, Eskom, those are all founding members and board members. Really, the objective is to unify the voice of business, both sort of in action and investment, because we have got a very long, hard road towards net zero, and we've committed to this energy transition. We are relatively new, expanding quickly. I came on board last year in November, so we've been building this organization very quickly. Membership is expanding, so very much started off with the mining and industrials. The banks are all on board. The renewables developers are starting to come on board
I'm going to cover a little bit of the scene, current status of the system, load shedding, the old, UCLF, EAF, other generation options, including renewable energy, and then some views around delivery confidence. Importantly, I'm also going to just talk about NECOM and the Presidential Energy Action Plan. I think these are quite important to kind of understand where we're at. Our energy crisis has been a long time in the making, and I think in hindsight, we can see that although we had policies to avoid the crisis, really, implementation failed us. Load shedding is causing immense economic and social pain, which I think Rashad has very well sort of painted out. I'm going to lay out an engineering or technical road to end load shedding by the end of 2024.
Yes, people will say, Nonsense, but anyway, I'm gonna put that out for you. The critical question, though, is, again, will be implementation. Okay? I also do believe if we fail to action the high road, really what we'll see is this implementation in load shedding will stretch probably till maybe into 2028. I choose this date, really because there is a study that has been done. It's not publicly released. I've engaged a little bit on it, I personally feel it's a little bit overly negative. It really doesn't understand some of the things, I have an obvious sort of optimism bias sitting in the Energy Council. I will leave you sort of to think about it and decide.
Really what I'll frame is we've got these two ends, book ends around ending load shedding, 2024, 2028. It's also very clear the energy crisis has spurred some positive structural changes, these really being sort of real collaboration now between business and government. I think secondly, an acceleration of market liberalization, very important, and then increasing transparency. André de Ruyter's book, I think, is an easy example of how corruption and sort of poor performance has been paraded for all to see, and has spurred action.
Over the last six months, as the Energy Council CEO, I've certainly had to embrace the phrase, One can't wish for a better past, 'cause the reality is, we've squandered the last six-seven years in the energy sector, we really do need to take action very quickly. I believe we can recover more resilient and more relevant. We also can't ignore the state capture period, and this is important because I think it's really broken a lot of the institutional delivery capability and the decision-making in specifically in SOEs.
I make a differentiation from the institutional side because, I think we've got to still recognize and understand that there are some very committed, very technically competent and capable people working in Eskom as well as in government, and I sort of work and engage with them regularly. We need to, I think, create some separation, and we need to think of a way to create a better storyline and to actually protect those who are doing. This sort of a little bit of an opening backdrop I put against sort of really big external disruptors, COVID-19 and climate change. Climate change really is the biggest global sort of disruptor in history, and the energy transition is fundamental and an explicit part of climate change.
South Africa, we're the most coal-dependent economy and the most emissions-dependent sort of economy hence. Eskom makes up 43% of our emissions profile. Despite this sort of low economic base and high emissions, we have adopted a global leading position on climate change. We are the only African country who has legislated 2050 net zero and implemented a carbon tax. Lofty ambitions, but, you know, this is a significant challenge even for leading global economies. In the South African context, this maybe is just a commitment that could be viewed as an insurmountable challenge, and I think also talks a little bit to the constant push-pull politics and policy incoherence that, you know, has very been frustrating and that we have experienced.
Despite the cracks in the, in this policy environment and lack of energy transition planning, the upside is that actually the broader reform momentum has really steadily progressed, and I'll talk a little bit about this later. I do believe that market liberalization really is on the cusp of a big shift, and this is going to really move a lot of the energy development, and investment that you talk about, Rashad. It is very exciting. It's gonna move into the hands of the private sector very quickly, and it's gonna be a positive, I think, for the economy and also for the sector.
To give just a reference or some color to the cracks that I referred to, we think of the REFIT program, I think, was renowned as a world leader starting in 2011. 4 Bid Rounds, successfully done, stalled in 2016, only really to be resurrected in 2021, Bid Round 5. It's still stalling and struggling despite the commitments for Bid Rounds 7 and 8. In the meantime, sort of I think the other side is that our national utility, Eskom, actually got Global Power Company of the Year in 2001, but really then got just trapped into this classic utility death spiral, which is a well-recognized kind of global phenomenon.
The obvious challenges: 13 CEOs in 13 years, technically insolvent for probably nearly the last five years. You know, really, really difficult. Eskom is, in reality, actually been the biggest driver of reform planning and restructuring, from design of independent grid company, adoption of new technology and standards, the implementation of national wheeling, development of the first internal energy market, which are all very exciting. Part of this reform narrative actually also included an aggressive decommissioning of 12,000 MW of our coal-fired power fleet, which is roughly 1/3 , by 2030, which actually conveniently aligned with sort of old age. You want to look at around the room, sometimes they talk about who's out at old age, but old age is not necessarily a good lead indicator of that.
However, nonetheless, when we put this in context, I believe that there's a, you know, bit of a disconnect in the environment and where Eskom's core business actually was neglected, unfortunately. Which combined with key sort of loss of skills and the broader sort of challenges, really has just became a breeding ground for corrupt activities, which is where we find ourselves. I think a bit of a tough opening position. As I say, we can't wish for a better past, and we really do need to find a constructive way to move through and move forward. We'll talk a little bit now about the actual current system outlook, and I'm just gonna talk about gigs. Gigs is GW. Hopefully, that all makes sense, but it keeps it simple.
Winter is likely gonna range from stage four to six load shedding, and I think we will see occasional stage eight. The rumors of stage 16, I think are really just that. The stage 16 is an extended technical definition under an NRS code, but it's not related to an Eskom operating outlook or systems planning. Okay? Also, while we on talking about scenarios, let me also just reference that deeper load shedding doesn't equate to the risk, deeper risk of a blackout. There's been some really sensational media coverage about an impending blackout. I'm personally very confident that the risk of blackout is extremely low.
Eskom is a highly competent system operator, regularly tests blackout protection and black start procedures. I think it's also very important, technically, to understand that a blackout is actually premised on rapid loss of frequency in the system. It's not actually load shedding. The rapid loss of frequency in a system is actually protected largely through automated protection functions, but is designed to actually island the system. Eskom actually do test this on a regular basis, and they do have plans for this. I think these things are quite different, and the system operator is very confident and do understand what they're doing there. They've also quite recently released a very informative presentation talking about the technicalities of blackouts, et cetera.
We can talk about it during the Q&A, but I think it's just relevant in the general conversation. Coming back to load shedding itself, if we start with demand, it's important just to consider that the summer peak in South Africa is 27 GW, 29 GW. This goes up to about 33 GW, 34 GW. Winter has quite a high increase in peak, especially in the evenings, and so there's an obvious view that maybe, you know, in the winter period now, there's a deterioration in the system reliability, which is not actually sort of necessarily true. In compensating for now, as we go into winter, certainly, Eskom have reduced their planned maintenance function by about 4 GW. This is a big offset. They will focus only on statutory schedules in terms of maintenance.
This does create a little bit of risk in the system because it leaves more volatility in unplanned or sort of reactive maintenance that may be required. Again, you know, we do have to think about that, and hence I say, you know, I think this. We will have some journeys into the stage 8 load shedding, which is gonna be very tough, really, we should be able to stay at 4, between 4 and 6. On the Eskom demand side, again, with those winter peaks, especially in the evening, there is a demand program, which Eskom have.
They have also are busy rolling out a communication program. The other part of the demand program is a buyback scheme, and this is targeting about 1.4 GW of demand reduction, especially in the peak, and it's already showing kind of good progress and yielding results. I think that's positive. If we switch a little bit into the unplanned losses, this is where everyone sort of talks about the energy availability factor or EAF. The installed capacity of 47.5 GW, Eskom is running at unplanned losses of about 16 GW-17 GW, with 19 GW essentially being the equivalent of about Stage 6. We're sitting in that stage, sort of 4-6 load shedding Stage range. 2022 was 56% EAF for the year.
This has declined year to date to 51% in 2023. The official plan in Eskom, sometimes we hear different plans out of different ministries, but the official plan in Eskom is recover 60% by March 2024 and 65% by March 2025. Actually, this is enough to end load shedding, again, it comes back to confidence around implementation. Incidentally, 2015, the EAF of Eskom was 74%, again, a reference, this lost period that we've got to recover. I think to also just understand a little bit better, and certainly, you know, what we're working with now, is that we have to break down this EAF global number. What does it mean?
The first thing, if we look at the return to service units that are out, there's about 5 GW of capacity there. We know it's the Kusile 3 units on the duct failure. Those are targeted for return by December this year. Kusile unit 6 will be back in commercial operations February 2024. Medupi unit 4 is the replacement generator. That's targeted for August 2024 , for both units, midlife refurbishment by November 2024. Collectively, the return to service plants should be putting back operational capacity, not total capacity, but about 2.4 GW sort of this year, in the next 12 months, and then another GW in the sort of by the end of 2024 in those programs.
That's about 3-4 stages of load shedding that will be addressed by the return to service units. If we quickly just look at the older coal fleet, and really, I'm just looking at the 10 older or old stations. The best performing stations, Lethabo and Matimba, combined capacity of about 8 GW, strong performance, good availability. By contrary, of course, the four worst performing stations, Tutuka, Kendal, Majuba, and Duvha, combined capacity of about 15.5 GW. Kendal and Majuba being actually the youngest stations, under 30 years, but operating at really poor performance levels, Tutuka in the low 20% range. These four stations making up nearly 60% of total unplanned losses for the Eskom fleet at the moment.
One can see, you know, underneath this global number that gets put into the media, that there's actually a very different sort of technical situation. To recover the operating performance, Eskom has launched a targeted power station improvement program, that's being led by the new Head of Generation, Bheki Nxumalo. Bheki has a deep experience. He's been in a power station for many years. He talks the numbers, and he says, "No, that can't be. Those tube failures didn't happen. Go look at the numbers again." I think really great to have a steady hand. I think it's already making a big difference, and we see really a lot of the focus is around stabilizing leadership and management at the power station level, and this is where we have to focus, I think, to get this right.
What really kind of does give me sort of more confidence, though, is the business Eskom teamwork, which is starting to take shape. I spoke about this partnership, and under NECOM, I think this is really starting to move, where business is supporting Eskom, to action a number of specific technical challenges. Working with Eskom, we've actually identified four power stations with key issues, things like mills, ash handling, demineral water, strategic spares, that actually are target to continuous losses of nearly 3.5 GW of power. I go back to the sort of earliest reference to institutional capacity to implement these remedial actions, which is just, I think, lacking. We've lost this in this middle period.
Right now, we've got to find a way to get this up and running, but we don't have time, so we need to support. NECOM, I think, is working into a really good action-oriented vehicle. We are hopefully gonna have about three teams, business teams, on the ground within weeks, working with Eskom, focusing on specific technical sort of issues with a target in mind, so we know what the gigawatts are that we can put back on the grid. I think that's a really positive sort of action orientation. When one looks at those plans, it looks at about in the next six to 12 months, if we can address those, there's another 2-3 stages of load shedding we could put back.
Just quickly switching to external power being purchased, I think this is where we need to think about how market liberalization is gonna be an opportunity also for the private sector. There's a rapidly expanding source of direct purchases from private generators. Actually, when I said, you know, Eskom has just quietly got on with a lot of the reform, they've already established an internal market where generators are bidding against each other. This is being expanded now to include external supply. The market mechanisms are the standard offer, feed-in tariff. They've just launched an emergency generation program, and also regional purchases from the SA Power Pool. This is a really, it's a significant reform step because it creates this platform for the first South African wholesale energy market.
When thinking in the concept of energy as a service, which is going to be the future, it's actually something a lot of companies, even like MTN, chatting to Charles, I think you're building that resilience in the network already. Now you'll be able to sort of target a developing marketplace. I think credit needs to be given, actually, to some, you know, good and hardworking, clever people in Eskom who've been driving this reform work. They've already contracted some of the first private generators, who are bidding in on static and dynamic pricing, so they have got a real day-ahead market, week-ahead, month-ahead. You know, it's quite remarkable that they've managed to pull this off with probably limited support also, and limited support from NERSA.
It is an exciting development, and I think can unlock probably about 1.5 GW of power in the next 18 months. Which I believe once it's brought out in the new national transmission company, under the unbundling, that is gonna be the market, and it's gonna expand very, very rapidly. A quick switch just back to the OCGTs or diesel peakers as we know them. In the short term, this really is the only quick lever that Eskom has to pull. We've got 3.1 GW of these diesel peakers. A big challenge is being able to get enough diesel through them. They're not designed to be able to cater for the higher levels of utilization, and this has been a challenge for Eskom, so securing this reliable diesel supply.
We have a business Eskom team on the ground starting on Monday, which is gonna look at sort of trying to optimize and improve the reliability so that, especially during the winter period, Eskom can kind of reliably run at higher loads. This will put an additional approximately 500 MW back into the system operator's pocket, which I think will help with load shedding again. I'm just gonna look quickly or touch on renewables, 'cause that's a little bit of sort of outside of the Eskom purview.
We know that through the proposed public procurement bid windows, which, you know, there's been some bullish statements on that, but I think also really what we've seen is the big acceleration is in the private sector direct investment, so in the form of corporate PPAs and behind-the-meter solutions, also some of the and the rooftop solutions. We're seeing a really rapidly expanding rate of wind and solar development. Despite the grid constraints, and other sort of issues that we're facing, I believe we're fast approaching about a 45 GW build sort of rate per annum. This is, will make a huge reduction in terms of load shedding and creates an energy buffer for that sort of extended Eskom maintenance that they need, so I think are very positive.
To give you a sense of the numbers of this, the renewable energy pipeline at the moment, Eskom have issued about 58,000 MW of cost estimate letters for grid connections. And of those, they've got 13,000 megawatts or 13 GW already in budget quotes. Those are projects which are actually kind of going into being built. As impressive as this sounds, as the Energy Council, we've made a call for a 2030 Energy Ambition of actually 56,000 MW of wind and solar, 8,000 MW of storage, 5,000 MW of gas to power. If we could achieve that would give us the energy stability and headroom to decommission the 12,000 MW of coal, which have been targeted in our emissions profile.
The reality is, I think we're well behind that ambition of energy. I think that really what, the reality of that is, we will have to see a delayed coal decommissioning program as a trade-off to keep the lights on. That is something probably which we'll have to deal with in the planning, but, you know, in terms of the reality of the system, I think that's where we're at. Just some other, I think, key reform indicators which are worth noting or highlighting is that the ERA amendment, which has gone through cabinet, now sitting with Parliament, really essentially, legislates the liberalization of the energy market and non-discriminatory access to the grid. This is a real positive.
There are other things, you know, the tax incentive for residential solar, an aggressive 125% write-off for businesses, support fund for agricultural energy, embedded generations, all gazetted as SIPs. The national transmission company is now registered with SIPs. As a company, NERSA will, I think, finally issue the license in the next two months, and I believe that we will see an unbundling of Eskom as a transmission company before the end of this year. This is gonna be a really big signal, and I think an important shift and move in the reform of the energy sector. I think very positive and will help to deal with grid constraints.
In summary, based on the opportunities outlined, I think we can quickly add up the opportunities there, and we get to about 9.5 GW that we could realize over the next 18-24 months. This plus the ongoing renewable program clearly can end load shedding. Going back to my opening remarks on implementation, though, the obvious question is: What needs to be done to keep tracking delivery on the high road? Which is where NECOM, I think, is presenting a positive structural shift in collaboration and action. I'll quickly just talk, give a sense of NECOM.
I think it's very important, as I said earlier, the energy crisis really has created this burning platform and triggered an engagement between business, the president and a number of ministries, and all were in agreement that we really have to work very urgently in partnership. Under the Presidential Energy Action Plan, the National Energy Crisis Committee was formed, that's NECOM, and it's being strongly supported by business. Businesses have established the Resource Mobilization Fund, which is ZAR 100 million worth of professional services that are going to be mobilized into supporting NECOM, and to get that moving. There are 10 workstreams structured in NECOM. The structure now is working collectively or at the table, business, government, and Eskom.
There are a number of initiatives there, as well as a few of the key dedicated workstreams. One is the power station performance, which we're calling kind of the EAF recovery, and this is where I referenced earlier, we've got business teams. We're hoping to probably have joint business Eskom teams on the ground within the next weeks, and I think very positive working relationships and really getting into the sort of the meat of the challenges. We've also got other workstreams and focus areas. Workstream 9 is market and wheeling. Big focus there, trying to unlock national wheeling, municipal utilities. This is a very important part of the recovery plan. We've got to bring the municipal utilities into the reform program, which I think they've been left out up until now.
Workstream 10 is on grid, I think everyone understands grid. A very important part of the reform program. In conclusion, Andile, pleased to see me go. I think we're going to experience stages, high stages of load shedding in the immediate future, but we do have the structural capacity to largely end load shedding by end of 2024. I think that's a very positive opportunity. However, it's gonna require really big team effort. It will require government, Eskom, and business to work kind of well and really focus. You know, we're really seeing positive traction, maybe thanks to the crisis that's forced this.
Without the collaborative approach and the focus and mobilization of capacity, business as usual is likely to be somewhere closer towards 2028, which can't be an option for us. In more general terms, I think it's also unlikely that we're gonna see big shifts in policy direction and pace, but the reality is the electricity sector, I think, is sufficiently deregulated actually to allow a rapid market response and drive exponential private sector sort of investment, which I've referenced. So I think that there's some mitigation there. At the end of the day, you know, the Stone Age didn't end because it ran out of stones. It ended really because society chose a better way to live. I think we need to think along those lines. Thank you very much.
Thank you very much, Mr. Mackay. All I heard there was that load shedding ends at the end of 2024. I'm now gonna ask Dr. Rashad and also Ralph, to please join me for our panel discussion. Gents, grab any of those, just so that we can distill some of the stuff you all three have already shared with us. Let me just remind you all, especially those at home that are joining us or in the office, that are joining us via webcast, just at the bottom of your screen, there's an opportunity for you to load your questions. I'll be receiving them here on my device, and I'll be able to send them to the gentleman here on my left.
Everybody in the room, we've got roving mics that are on standby for you, so just simply raise your hand, when I, when I give you a chance, and you can pose your question as well. We've got a couple of minutes to get through as many questions as we possibly can. I'm gonna kick off with you, Ralph. You've heard Dr. Rashad, you've heard Mr. Mackay promising us end of load shedding end of next year, which I'm absolutely thrilled about. Both of them have given a landscape of what's happening in South Africa, right? From a macro and also this particular challenge. What are your reflections on that?
Maybe a couple of points, with an MTN kind of lens on it. I think the first thing is that, we at MTN, you know, have taken a position that, you know, we do think we need to take matters into our own hands, really around load shedding. I think we came to the market with our results and said, We're taking a particular view that we're gonna be in sustained stage 4 plus, and therefore, we need to ensure that, the network in South Africa is resilient for that outlook. As the data sets you've seen have shown is that, you know, the load shedding really creeped up on us very suddenly.
Three or four years ago, you'd have said, Well, you know, what's the likelihood of stage 4? You'd have said this force majeure and so forth. I'm heartened by what both of them have said, because actually our own planning and framing is within that bookends that says, somewhere between 2024. Would love to believe that it's gonna get there, 2024, but we're being a bit more conservative and putting the investment in. Also importantly, and I think it's a point that James makes, is really this point that actually the investment you make in energy right now, actually, you should think about it with the opportunity it creates, you know, about energy markets and the liberalization. Charles and team are already thinking about, and investors can ask him some questions tomorrow.
You know, we're being real about the situation, we've changed our guidance to reflect the reality that we see. I think the second point I'd make is that, you know, we're not standing back as a business, I think there's a lot of criticism that, you know, business is not leaning into the situation. I think we're trying to do a lot of work behind the scenes, engaging the government. James and myself and a few other CEOs are members of a CEO group that's been meeting since January with a focus on three major themes. The one is the energy security, how we engage government to deal with this 6 gigs issue. I mean, the bottom line is, if today you had 6 GW in the net, we wouldn't have load shedding.
How do we work with government towards ensuring that? That's the energy security theme number one. Theme number two is what Rashad spoke about, which is logistics. We talk a lot about load shedding, but just go back and reference the chart on capacity for rail, and you just see everybody's now using the roads, and you see the infrastructure. There is a real bottleneck on the logistics side. Work stream two is the logistics, and the third one is crime and corruption. In our engagements, we've said, Look, it's not enough to talk to business about the problems. We have to come up with solutions. The solution issue is really about jobs. You know, can we create 300,000 jobs? What will it take? What's our role in business?
I think the other points, the point to make, is that we're not sitting behind. I know there's a lot of criticism that. Actually there's significant engagement, and actually there's an engagement at the presidency level, you know, with CEOs.
Lovely, lovely. That's really encouraging. Dr. Cassim, let me come to you. I said it jokingly about what the currency has done since your very unpopular decision of raising interest rates last week. The rand weakened. We were all surprised. Yesterday, it slumped even further. Either I learned I was in the wrong class or something weird is happening. What's going on?
Was I, actually, also. You know, I think that firstly, the worst predictors of the rand are economists. I mean, part of the problem of making sense of what drives the rand is there's just so many moving parts, a multiplicity of factors. At the time when the Monetary Policy Committee announced the 50 basis points increase, the rand weakened a bit because U.S. economic indicators looked better. What that meant by economic indicators looking better, it means that the U.S. is gonna continue to tighten to keep inflation in check. That has had a negative effect on the rand. I think that when we came out, the market expected a 50 basis points tightening.
I don't know what would have happened had we had the counterfactual, a 25 or a 75, I think that there was something in the statement that worried the markets. You know, maybe we were a bit more explicit than we should have been about our concerns about the weakness of the rand, I think the market took that in a negative way. That, you know, actually, in our model, we assume that the rand will actually improve, but in the current moment, we assume that there's some upside risk to the weakness of the rand. I think we were the bearer of bad news. The market felt that, you know, our assessment of the economy was more negative than they felt.
That could have been some of the factors that may have led to a slightly. I think that the recent example you're looking at is, you know, people are just nervous. Investors drawing their mind, what are the implications of a secondary sanction? Every time government does something which indicates, you know, that we have a very ambivalent view about what we think of Russia, the rand takes a knock. There are all these factors that just make it very difficult.
Before you wrapped up this morning, your slide about South Africa's idiosyncratic risk. The first two bullet points were quite interesting, and I'd like you to elaborate because I know you were running out of time at the time. Elevated levels of load shedding known, covered by James, and a risk of grid collapse, not fully factored in, which I'll ask James about. The second point was interesting for me, which was you mentioned the high risk of SA listings and the risk of secondary sanctions. What's your take on what that could really lead to if it actually materializes?
I mean, we have a living example, and that's Russia, right? The living example is that it cannot trade. It is off the SWIFT system . Russia has actually developed its own payments infrastructure, which means it can trade internally, but it's extremely hard to import goods. There's the other thing. There's the highly politicization of finance, where some of its reserves are kept, are frozen. That's the extreme. I think that the concern with secondary sanctions is it becomes harder for the financial sector to do business. There's an extra layer of documentation required. There's concerns that it'll be you know, that maybe there'll be a boycott on some of our trading partners.
Most of our investors, if you look at our breakdown of equities, foreigners owning South African equities, foreigners owning South African bonds, they come from countries that are closely aligned to the West. They could go on some, you know, on a bit of a strike or pull out some of their investments. I think that's the kind of thing that. We had a press conference on Monday night, where we launched something called the Financial Stability Report, and the aim of that was to flag secondary risks as to what it means for the financial system, and that's, you know, what I can talk about, what it means for the financial system.
Absolutely. Thanks, Dr. Cassim. Mr. Mackay, let me come to you. Direct question: Your view on the likelihood of a total grid collapse.
Yeah, so in very simple terms, you know, one can't say none, because it's possible. There have been many grid collapses and blackouts internationally. Even U.S. and Texas had a grid blackout. One has to understand that there are sort of circumstances that can lead to a blackout, so that's possible. The question is, you know, are we at a stage where our system is collapsing, and we can't protect against that? No. Do we have an incompetent system operator? No. If it does happen, do we have no plan to recover it? No. I think it's part of the media hype around this blackout has been that we have an incredibly negative sentiment and narrative in the energy space.
There are many, many groups who are just looking to kind of almost jump on anything and bash everyone, from Eskom, from fossil fuels, from government, understandably, there's a lot of frustration, there's a lot of pain in the system. I think we have to put that in context, then it was just a matter of time before kind of blackouts was going to be the next thing to grab onto and sort of rattle around. From a technical perspective, we are no further at risk of blackouts than what we were prior to 2015, when things were working well.
I think more what we have to think about is at deeper stages of load shedding, if we had to go be at a stage 8 or something like that, the reality is that the average person in the street doesn't see a positive or constructive narrative of how this is gonna end. They don't understand the bookends. They haven't seen the bookends. Government is not telling them about the bookends. People are gonna sit there and go, Wow, I'm out of power for 12 hours a day, 14 hours a day, so I don't know. I give up. I think that is what we've got to address. It's not the blackout. It's gonna have to be a messaging to society that there is hope, we can get through this.
There's a lot of constructive things that are happening. The average person just sees kind of almost darkness. Maybe there's an interesting parallel there between darkness and blackouts.
It may be dark, but it won't be black. Ladies and gents, let me take some questions from the floor. I'm pretty sure many of you guys have got some views. I've got a gentleman. Please keep your hand up, sir. Here we go. Please, just your name and the organization you represent.
Sure. Thank you. It's AJ Snyman from Peregrine Capital. I have a question for Dr. Kasim. Thanks for your time today. I think I speak on behalf of most of Africans in thanking the SARB for your dedicated and disciplined work. I understand that the SARB's mandate is inflation, and the only tool, well, the best tool you have at your disposal is interest rates. I hear what you're saying about the fact that South Africa is not unique in the context of the global inflationary environment. I would like to argue that perhaps indeed we are, and maybe put it to you that inflation expectations is all anchored around load shedding, the cost that's pushed through the system because of load shedding.
In that context, do you think that the current hiking cycle that we're in or the stage of the hiking cycle that we're in, is actually an effective and efficient tool, for our specific inflationary environment in South Africa? Thank you.
Look, at the end of the day, using interest rates to manage inflation is a crude tool. It's the best tool we have. Just to say that, you know, what drives inflation expectations for... For those of you who don't follow this, that a mark of a successful central bank is when expectations about inflation are anchored. What does that mean? It means that if you have a shock from the oil price or you have a shock from food prices, and it's temporary, in other words, inflation goes up from, say, 4.5%- 12%... If you believe that this central bank is credible, it will not allow inflation to stay at 12%. It means inflation expectations are anchored.
It means we don't have to use monetary policy to tighten, because that'll be temporary. It'll come back to 4.5%. Now, directly speaking to your question, I think that the big issue that the public has with us is how on earth could you tighten by 50 basis points when real estimates of real disposable income of households for this economy, for this year, are kind of 0.5%? Now, the argument is as simple, and we don't have the luxury of getting to the detail, but the argument is very simple: expectations are driven not only by load shedding. That's a more recent phenomenon. Expectations are driven by the fact that, you know, you're a contractor, you're a construction company.
Oil prices are going up, food prices are going up, the exchange rate's depreciating, so your import costs have gone up, and now you're pricing in more high inflation into your five-year contracts. Maybe you're pricing in higher than you should, you. Because you don't believe expectations are anchored. Monetary policy works best when the economy, when overheating, demand outstrips supply, you cool the economy down. Yeah, it's a very, very crude tool, but I think the logic of our system is that if you don't make the tightening now. If you slowing down the economy at the rate that we may be by tightening, by not trying to keep inflation in check, we may have to slow down much more dramatically in a few years' time.
If, you know, so let's say that for the last three MPCs, we didn't do anything. It may well be that, you know, a year down the line, we may have to tighten by 400 basis points. I think that's the logic of it, but it's a big debate we have with the analysts.
I'm sure it is. I'm sure it is. Let me go to our webcast right now, maybe turn to you, James. Mike Farry from the Sasol Pension Fund has a question about the risk you've already highlighted, is about execution. I mean, Ralph has already touched on what CEOs and businesses are doing to create the right kind of lobby platforms to get everybody going. At some point, the buck stops with somebody. Mike is asking: What are the key factors underlying either good or poor execution, and who is ultimately responsible?
I think at the end of the day, it's Eskom. Eskom is the only entity that can really make the decisions, sign the check, and say, kind of, do whatever. We mustn't forget that the people who are on the ground making the decisions, running these things, are Eskom employees. I think that's where we have to focus. My personal view is that there are, I think that we've seen a very different Eskom starting to sort of come out. There's a different narrative, a more positive, we're gonna recover, we're gonna do stuff. I think some of the reform things that I spoke about are supporting and helping that.
We do need to change the broader context of the Eskom bashing and start recognizing some of these pockets of excellence and supporting Eskom. When it comes to then the do versus the not do, we've got to, again, just reflect in this last period, six, seven years. There's just not enough technical capacity left in Eskom. And not everyone is a pocket of excellence, because that's also a little bit of a legacy of the system. In the short term, we just have to create capacity around those pockets of excellence. We know what needs to be done. We've just got to get it done and find a way to do that.
I think that will buy us time to kind of get through load shedding. We need to then start having a strategy of what is our future utility gonna look like? Internationally, the great public and private utilities, they compete head-to-head. We have very different structures in energy markets. We don't have a clear vision of that. We've got to find that and find a sensible, sustainable place where Eskom is gonna move towards. I don't think that's been defined for Eskom. It was reform to this and just, you know, leave this somewhere to just decay. That was never sustainable. I think we've got to rethink that strategy around that.
Let me take one more, couple more from the floor. Yes, sir. I'll come back to you, sir.
My name is Sunil Varghese. I'm from the Public Investment Corporation. One question for the Deputy Governor there. You were talking about secondary sanctions. One thing that comes to mind is, earlier this year, the Financial Action Task Force gray-listed us. Can you give us some insight as to the steps that we are taking to reverse that? When do you think we could be removed from the gray listing? Thank you.
Before Dr. Rashad Cassim comes in, let me take that gentleman, and then we'll just answer both questions and wrap up this section. Yes, sir. Right in the middle.
Hi. Hi, everyone. It's Prashant Nodiya from Nedbank CIB. I've also got a question for Dr. Cassim. You mentioned that South Africa's investment as a percentage of GDP is relatively low at 14%. How do we get that up in a rising interest rate cycle now that, you know, your cost of debt is increasing and, you know, your cost of equity would also increase on the back of what the Energy Council is also talking about, higher cost to actually run businesses during load shedding? Just your thoughts on that. Thanks.
Thank you, gentlemen. Sir, yeah.
On FATF, I should say that my colleague, the Deputy Governor, the regulator, Fundi Tshazibana, and the acting director general of treasury, worked extremely hard at FATF. By the time we were gray-listed, you know, I can't remember the numbers, but there were maybe something like 25 issues that FATF had raised. By the time they got to the assessment, they were limited to maybe something like a few, half the amount. Shows that, you know, the country really worked hard at trying to deal very decisively. There was an incredible team that did this. I think that the FATF did identify a few issues, weaknesses in our prosecution services, and the broader issues around money laundering, and so on.
I can tell you that, you know, the financial sector remains a very credible and robust sector in this economy. It is one of the kind of, you know, leading areas that where I think that one shouldn't worry. How long it will take? I think, you know, I think these things take a while, one or two years. I think there are few countries that have worked with it, but I'm not exactly sure how long that could take. The issue of interest rates, I mean, there is a school of thought that, you know, when you tighten, you make the cost of borrowing much more expensive. How can you expect, you know, investment to grow? In fact, interest rates play a very small role.
It, on the margins, helps you make your decision, are you gonna invest or not? Excessively tight could be very dangerous. I think that, you know, the real problem is confidence. And confidence is not about monetary policy, it's about firms having the confidence to invest in this economy. I think that one of the areas that need a lot of attention is the difficulty that firms have in local municipalities. Many firms are feeling the brunt of being able to do business in this country, when we can see what happened with Clover in a little town, Laingsburg, because, you know, everything was going haywire.
I think that there are so many, you know, from business confidence, to sorting out so many things before you can get investment going. I think that's really, really the issue. I think that the SARB, by being preemptive, may be able to, may be able to kind of, keep inflation in check. Once inflation goes down, interest rates go down.
All right, ladies and gentlemen, we're gonna wrap it there. A round of applause for our panel. Thank you, guys. Right, lots more to talk about. Thank you, gentlemen. Thank you for giving us the time and also the time you've taken to prepare for these presentations. It is now lunchtime. I know it sounds early, right? 'Cause you probably had lunch before you got here. We have lunch for you, okay? It is now just gone 1:38 P.M. We're gonna give you about 40 minutes to enjoy a bit of lunch. Also, in the area where we'll be having lunch, there's a whole exhibition on a couple of things. I know the MTN Group ESG team has got a bit of a demo there for you. There's a couple of organizations that the MTN Group supports.
I know that some of the gifts have already been handed out, that are being supported by some communities in the underprivileged communities of our country. They are exhibiting a few very interesting initiatives, so please interact with that. Also, the initiatives that are within the MTN Group around digital services and what Ralph has already touched on, which is the future of our continent being driven by digital. I need you back in this room in the next 40 minutes, so that will take us to 20 past 2. At 20 past 2, we will then kick off the second session, where we'll be going deeper into 2 other markets on our continent, being Nigeria and Ghana. Enjoy lunch. Ladies and gentlemen, welcome back. I hope you enjoyed your lunch break.
I saw many people, when the beat came on the first time, some people were still a little confused whether that meant they must come back. Well done for doing the best you can. We're gonna move on with our agenda. We've got quite an action-packed one for the rest of the afternoon. In a few moments, we'll be hearing from Razia Khan, who's the head of research for Middle East and Africa at Standard Chartered Bank. We'll get into two of MTN Group's largest markets, being Nigeria, we've got a couple of invited guests that will be sharing some insights with us. Also, the other market that is just as important, if not perhaps a bit more in terms of prospects, and that would be Ghana. We'll talk a bit more about that.
It is actually the center of the MoMo product that MTN has got, as you know, and rolling out in all the markets. Ghana seemingly has had the greatest traction in recent times. We're going to hear about that. Then that will be the wrap-up of our day. To kick us off, let me introduce you to what is hopefully going to be a quite a comprehensive review of the performance and prospects of the Sub-Saharan Africa region. Coming from, of course, Razia Khan. You might know her very well. She's the head of research at SCMB, and she's been there now for a couple of years, covering Middle East and Africa. She's got over two decades of experience covering emerging markets and frontier markets and, of course, a well-known commentator on our region.
She did do a pre-record for us, so the lights will be dimmed and the screens will be on. Kick back, relax, as she takes us through the current trends and developments that are happening in our region and to what extent that might affect the prospects of the MTN Group. Ladies and gentlemen, Razia Khan.
Good day to everyone who's joined this conference. I'm going to be presenting to you the Africa Economic Outlook as we see things right now. If we could move on, please, to the very first slide, which is: tighter global financial conditions have a negative impact on the outlook. We know that there's a lot of focus on this at this particular point in time. When we look at sub-Saharan African growth, the region has been impacted by a series of negative shocks for...
that happened in very quick succession. Not only had we had the 2014, 2015 commodity price slowdown, concerns around China's growth and the sustainability of that growth early on, this was followed in quick succession by, in 2020, the COVID crisis, the impact of global tightening as everyone recovered, and it looked as though inflation rates in developed markets were much stronger than even central banks had anticipated. The tightening that was necessary, the inflation risks compounded by the Russian invasion of Ukraine, the impact on food and energy prices, and an even further tightening of global financing conditions still. The IMF and others have often remarked that at any one point in time, even one of these singular shocks would have been sufficient to disrupt African growth.
Nobody would have imagined that we would have seen all of these various shocks impacting at the same time. I'm going to talk you through a presentation on how we see the outlook going forward. Moving on to slide thre of the presentation pack, please. The first chart I would like you to focus on is that relationship between sub-Saharan African growth and global growth. We know that when we look at the global economic outlook, this is a time of significant uncertainty, that we have seen a lot of tightening, an unprecedented speed to that tightening in some respects, from global central banks, both in developed markets and in emerging markets alike. This is bound to have repercussions for the growth outlook. We also know from history that any time there has been a global shock, growth in sub-Saharan Africa has been impacted with some lag.
Typically it's only a year after the global shock is felt, that the full effect is transmitted to sub-Saharan African economies, and it looks very much as though that post-COVID 2021 recovery and growth now looks to be at risk of being significantly disrupted. Moreover, if the calculation is that we are going to see tighter monetary conditions, tighter external financing conditions remaining in place for African sovereigns for some time, this would be a fair assumption, then it becomes very difficult to focus on what the drivers of future growth could be. Moving back to the second chart that you see before you on slide three of the presentation. This looks at the relationship between global food prices and inflation in Africa. For much of the rest of the world, they're over the worst of the global food price shock.
In year-on-year terms, food prices have started to trend down. Energy prices, also reflecting the expectation of a growth slowdown, are also weaker. This comes as a source of very little comfort for African economies. What we're generally seeing across the region is that the lagged impact of those shocks is still playing out for individual economies. It is often compounded by foreign exchange stress. The fact that we've been in a strong dollar environment for so long, that African currencies are largely still weakening against the dollar and other global currencies, means that this is something of a more prolonged inflation shock. We should not forget that food contributes around 40% of consumption baskets in Africa in general. There is little point in downplaying the impact of any food-related shock. The inputs for agriculture remain very expensive in local currency terms.
There is little comfort that we're getting from the scale of domestic harvests, that things are likely to improve very meaningfully. All of this means, for a variety of reasons, inflation in many sub-Saharan African markets remains elevated. Not only do we have difficult growth conditions, but this means that for the region's central banks, many are still in a tightening cycle. They do not have the luxury of adding at all to policy accommodation to try to ease the way through this likely growth slowdown. This just adds to the difficult conditions that the region must contend with. Moving on to the next slide four of the presentation. What can we say about the recent growth trend? Well, 2021 was broadly a year of recovery for the sub-Saharan African region.
Even as we saw many economies still having to deal with the long, drawn-out effects of the COVID shock. Nonetheless, the reopening in developed markets was a source of external positive surprise for many African economies. Commodity prices recovered, growth in those developed markets initially seemed to be bouncing back more strongly than many had anticipated, and that external demand no doubt contributed to conditions that saw a bounce back in African growth. Let's look at what the more forward-looking survey data is telling us right now. That is, if you focus on the blue dots on this particular chart, the most recent PMIs for the region. You'll see that across the different economies, there is a mixed picture.
In many instances, the PMIs have been struggling to hold up above that crucial 50 level that would typically denote the difference between contractionary or expansionary conditions in the economy. The takeaway is that because of the magnitude of external stresses, concerns about a global slowdown, concerns about how governments are able to finance or refinance their maturing debt obligations, central banks having to keep monetary policy still very tight, problems to do with the availability of foreign exchange and dollar liquidity in many instances, that all of these different factors have been playing out as well. The survey data tells us that in many instances, this is leading to quite a negative turn in terms of business sentiment, notwithstanding the growth recovery that we have so clearly seen since the COVID years. Moving on to the next slide five.
There are a number of charts that I would like you to focus on here. The first one is simply a rebasing of different African exchange rates to a single starting point, January 2020, and you can observe the performance against the U.S. dollar. There's one very important point to bear in mind when interpreting this chart, and that is that in some instances, FX rates don't seem to be very volatile. Nigeria, for example, the official FX rate has hardly adjusted. That in itself is part of the problem. We have seen, alongside accelerated Fed tightening, at Standard Chartered, we believe we're now seeing the peak in the cycle in terms of where U.S. interest rates are. That has fed into a strong dollar environment, and very few economies have been immune to that strengthening of the dollar.
We have seen a pronounced amount of FX volatility in many different African currency pairs. Where it doesn't show up on the chart, that often hides the fact that we have non-functioning markets, where whatever levels you see in the official FX rate, in official FX markets, are very unlikely to be market-clearing levels. This is part of the problem. In economy after economy, the supply of dollar liquidity has been that much more constrained. Those currencies that are still relatively flexible, those countries with the benefits of a flexible exchange rate, have generally been spared the worst of the growth pressures because they still have functioning FX markets. An increasing number of different African FX markets have moved from better functioning to less well functioning as they have had to contend with these dollar liquidity pressures.
This is the problem: as a consequence of those global shocks and a still very difficult global external environment facing African economies, it's not clear where the supply of dollar liquidity is necessarily going to come from. In many instances, significant FX adjustment is still very much required, and this will need to be watched very carefully. Another chart on this same slide that I want you to focus on now is this one of Eurobond spreads. We know the story. 2020, a global shock disrupted the world's economy in a way that very few of us had ever imagined could be the case. The simultaneous lockdowns, the seizing, essentially, of global economic activity, a slowdown that we wouldn't have been able to contend with just a few years ago when we thought the Global Financial Crisis was as bad as it got.
Accompanying that situation, the COVID shock, was a withdrawal of capital from many so-called perceived to be riskier markets. In Africa, we saw this reflected not only by the withdrawal of investors from local currency debt markets, but a considerable widening in Eurobond spreads. We know about the policy reaction. We know that the COVID shock was followed by an unprecedented amount of global central bank tightening, balance sheet expansion on a scale we just hadn't seen before. This, in part, is responsible for some of the inflation story today, but at the time, even that unprecedented pumping of liquidity into the world's economy did very little for African markets.
There was a lot of debate around the Debt Service Suspension Initiative, soon followed by the G20 Common Framework for the restructuring of external debt. The belief was that creditors to different sub-Saharan African sovereigns might be forced to share the burden of some of that debt service suspension as well. It took a while before we saw any meaningful spread compression in African Eurobonds. Even when it did happen, we were very quickly seeing the replacement of one shock, the COVID shock, with yet another, the Russia invasion of Ukraine, elevated inflation, even more concern that central banks were behind the curve, that they needed to do so much more to tighten even faster. All of this has meant very difficult market access conditions for sub-Saharan African sovereigns.
The irony of it is that in a slowing global environment, where there are concerns about developed market growth in particular, these elevated spreads mean that it's still very difficult for African sovereigns to seek the external financing that they need. Often, when it comes to the refinancing of existing Eurobond commitments, it's just prohibitively expensive. It isn't going to be happening in the near term. The longer that situation lasts, where essentially the whole world's economy is having to adjust to the magnitude of tightening that we've just seen, the more the fears about some countries just not making it through this stress are going to be sustained. There will be investor concerns around who might be next to sign up for a debt restructuring. Which is the next country that is likely to default on its debt?
Those fears are currently reflected in market pricing, in the elevated spreads. It's not clear what kind of a situation moves us out of this very easily. If I were to summarize, if we were to look at the performance of both African FX rates, some of which show the adjustment, even worse cases that don't, where an adjustment is still very necessary. If we were to look at the performance of African Eurobonds, they all speak to considerable financing stresses still. These are the challenges that the Africa region, with all of its natural growth advantages. Let's not forget the big picture. Demographics that are favorable and urbanization pace, the formalization of economies, things that would normally lend themselves to productivity gains and faster growth. They're still there in the background, they're very much overshadowed by these other concerns right now.
If we can move on to the next slide, please. This shows us the impact of offshore investor positioning in local currency markets. To those of you in South Africa, you would know this very well. Around the time of the COVID shock, South Africa also got a downgrade from Moody's that meant the loss of its last remaining investment grade rating, and that meant World Government Bond Index exclusion, the outflow of billions of dollars from the local currency debt market. It's little comfort to look at a slide like this and to realize that South Africa shouldn't be seen in exclusion. If anything, it's one of the economies where there haven't been problems with an FX market that just ceases to be functional. South Africa has since seen inflows from offshore investors.
For a lot of the rest of the region, with the exception perhaps of Uganda, which is still seen as tradable, which is still seen as open to foreign portfolio investment, we have seen a real step decline in the amount of foreign portfolio investor participation in local currency debt markets. You can see that despite everything that South African markets have had to contend with, South Africa possibly still sees the healthiest amount of foreign investor participation compared to the frontier market equivalents in the region, where foreign investor interest is really rather minimal, where investor positioning has lightened up very considerably. As always, at the accusation of being an economist who looks at this in many different ways, there are different ways that you can look at this.
The good news is that investor positioning is so light, that there are very few instances where we think we could be seeing more market volatility because investors have anything to sell, have anything with which they can exit. In a lot of instances, should risk conditions improve eventually, it won't happen until developed market growth concerns have disappeared, and that may not be on the horizon for a long while yet. Should risk conditions improve, because investor positioning in the region's local currency markets is already so light, one way of looking at this would be it can only get better from here on, surely, or maybe not. Let's move on to the next slide in this presentation. That slide, very soberingly, shows you the trajectory of credit ratings in the region.
We're looking specifically at Moody's here. It wouldn't be an altogether different picture if we were to consider Fitch or S&P. There is one overwhelming trend that really stands out. That is that in recent months, in recent years, it's the credit rating downgrades that have become that much more prevalent in the region. Forget the good long-term growth potential offered by African economies. At a time of global stress, at a time of significantly tighter global financing conditions, most credit ratings have only been moving in one direction. That is down very considerably. You can see that some economies seem to have bucked the trend or rather have weathered the storm a little bit better than their counterparts elsewhere.
The Francophone economies, where because they have a peg to the euro, they haven't been subject to the FX depreciation stresses that feed into even more concerns around solvency. How will these economies afford to finance their external debt, to pay their external debt service? By and large, just about every other economy has been subject to a reassessment of credit strength by the rating agencies. There have been downgrades, and in some instances, multi-notch downgrades. I would say we're not out of this process yet. There is necessarily going to be an adjustment to the resetting higher of global interest rates. After the global financial crisis, we had been in a world of such easy monetary policy for so long, now we're coming out of it.
One of the ways in which Fed tightening works is that it causes a slowdown in the rest of the world as well. That weakening of demand weakens commodity prices, weakens global demand, leads to a lessening of inflationary pressure on a global scale over time. It's very painful for the weaker credits involved in this process. It's very painful for the most vulnerable economies, who are left without the financing that they would otherwise need. Moving on to the next slide, please. This is where the crux of the concern really comes about. In country after country, on an almost daily basis, we are asked, Which is the next country that is going to have difficulty financing its external obligations? One way of looking at this, as we've done here, is to use the Eurobond debt maturities as a proxy. It's an imperfect proxy.
The best way to do this would be to look at all external financing obligations, the entire external financing requirement. What do countries need to finance their current account deficits? What debt service do they have to pay over the next year? That could be principal repayments, it could be the interest payments on the existing debt. Add that all together to get the total external financing requirement, compare it to where their foreign exchange reserves are, and you'll be a lot more worried than the simple color scale adopted on this particular table. Even this paints a sobering picture. There are some economies, given their current foreign exchange reserves, that are going to have great difficulty financing their external obligations.
At the time when a lot of the Eurobond debt was being taken on in the region, the easy assumption in that instance was that African economies were benefiting from accommodative global monetary policy. This is why they could issue big in international capital markets. This is why they could borrow more commercially on an unprecedented scale. We were kind of worried about what would happen 10 years on, where suddenly the region would see this concentration of maturities. Never in our wildest imagination did we think that this would happen in the context of multiple global shocks. COVID, Russia-Ukraine, an unprecedented speed to developed market tightening, emerging markets having to tighten to keep up. No amount of tightening is quite sufficient in an environment when all central banks are doing the same thing.
This is a problem because it's suddenly so much more expensive to refinance those external debt obligations. This theme of which countries are going to get through this easily and which countries will stumble and fall over and may have to sit down with their creditors and try to go through an orderly debt restructuring, it's not going to go away anytime soon. The problem is, given the global tightening that we have experienced, it's going to be very difficult for many African sovereigns to seek the financing that they need through markets. The IMF and the World Bank and other multilaterals are trying to step up.
The global community is coming together to say: What financing can we provide to these very vulnerable economies in a situation where the market financing just isn't available because of the amount of risk aversion out there? We know from the experience of recent decades, not even recent years, that the financing requirements for African economies are substantially more than is likely to be easily satisfied by IMF, World Bank financing alone, by what we can get from the international financial institutions. This is the basic problem. To be able to power African growth for investment in the region to come back in a strong way, we need to see private sector flows being reestablished.
Global conditions right now, the downside risks to growth, the geopolitical fragmentation, the tensions between China and the rest, these are not going to go away, and these conditions do not necessarily lend themselves to the easy availability of financing. This is the basic problem. If I were to summarize, I'd say I remain, as always, a longer term believer in African growth. We have so much potential. We know from the good years of the kind of growth rates that can be achieved, there is economic diversification to happen. The African Continental Free Trade Agreement will set about the impetus for far deeper intra-regional growth. We know that there's still the financing of infrastructure to be able to enhance that process. We know that there are other building blocks to growth.
We know that African economies continue to formalize, that there's a lot of upside to revenue mobilization still, that as people move from lower value-added activities in rural areas to higher value-added activities in urban areas, that there is a productivity boost to growth underway. We know that with the adoption of new technology, we could supercharge that growth in Africa. The sobering fact is these are going to be difficult years. Notwithstanding those natural growth advantages, there is the tightness of external financing conditions to contend with.
The global community, if it puts any value on the boost to global growth that we could see from an Africa that is performing, needs to come together in a way that is much better than has been done so far, to try to deal in a more rapid way with debt restructurings, to try to deal in a more conducive way with the conditions that will attract private capital back to the region. It will happen, but there's a bumpy road ahead as we navigate through these difficult times. I hope that does as a summary of the overall Africa outlook. We know that we could look at the individual growth outlooks for many different economies. There are different challenges underway. The good news is that in a big economy like Nigeria, which I'm sure you'll hear about, the...
There is the expectation of significant reform impetus, FX reforms, fuel subsidy reforms, things that make it easier to do business in Nigeria. This could be a big boost to overall growth prospects. In other countries like Kenya, where the government is going through a difficult time with fiscal consolidation, nonetheless, we are seeing a willingness to put in place reforms, raising revenue mobilization, ensuring that the process of formalizing the informal economy continues, and this will ultimately strengthen performance over the long term. Let's not downplay the impact of intra-regional trade at all. In a world of global geopolitical fragmentation, when many different countries are moving into different blocks, African countries coming together can provide an important impetus to growth. It isn't going to be easy, but it can be done. Thank you for your time today.
Thank you, Razia Khan, for that presentation. Great and comprehensive review of what's happening in our region. Razia did wrap up by referencing Nigeria, and it's quite great because it segues well into the next conversation that will be focused on Nigeria as a market. As we all know, Nigeria is both the most populous country in Africa and also the largest African economy. It has numerous latent growth opportunities. It does face elevated inflation, though, and a depreciating currency, and these have pressurized consumers' disposable incomes and the cost of doing business over there. A limited foreign exchange availability does make it difficult for multinational companies like the MTN Group to repatriate earnings, and this has been a big topic in much of the discussion on Nigeria.
We are quite honored this afternoon to have with us today the best people equipped to speak with authority on what's happening in Nigeria. Let me introduce you to our first speaker. He is the managing director and CEO of Financial Derivatives Company in Lagos. He's a macroeconomic research and finance advisory firm that he runs there. He's got over 40 years experience as an economist, a banker, and a financial analyst. Ladies and gentlemen, please put your hands together for Mr. Bismarck Rewane.
Good afternoon, ladies and gentlemen. Once again, thank you for having me. After listening to Razia, I'm encouraged by what I want to say because kind of validates most of the points that I make. Let me start off by saying clearly, the question is, Nigeria is now almost fully integrated with the global economy, one. two, there are t hree possible options for Nigeria. We just had an election, and it's being contested in the courts. Will Nigeria... Is Nigeria at a point of, at a precipice? 1. 2, is Nigeria about to, how would I put it? Nigeria is at the point of inflection, which means it's gonna take off or Nigeria is gonna remain the same. Some facts that must be noted. Nigeria's economy is $500 billion. It's about almost 21% of the, of the African economy.
Two, Nigeria, the gap between Nigeria and the rest of the regional economy has actually narrowed. Three, Nigeria has actually shifted more from being oil dependent in terms of activity to becoming more service-oriented. I think that is clear. Now, the question is: What kind of leadership is going to take place? What kind of leadership and what kind of policy reform, policy change is going to take place? Two, will there be courage and the confidence to have institutional reform, to reform the institutions? Three, with this change, is this change sustainable? What does the future hold for those who are investing in this country? Let me start off first and foremost by saying, as you can see from these slides, it is during war that generals are made, and one general handing over to a civilian general.
A button change, policy change, and institutional reforms are imminent. We're gonna be talking about snapshot analysis and key takeaways. Where is Nigeria right now? Where are the challenges and major policy changes that will take place? The outlook and the opportunities, the risk footprints, summary and conclusion. Firstly, there are about 13 variables that we're looking at here. Of these 13 variables, three are green, which is positive, and the others are all negative. They're looking at a five-year average, as well as where it is now and where it will be in the next few years. What are the key takeaways here? The growth is suboptimal, and I think earlier on, our colleague from the South African Reserve Bank talked about potential growth, potential growth and real growth.
You'll find that Nigeria has been growing suboptimally and total factor productivity, which means the optimal use of capital, has not been the highest. There's been low labor productivity and underutilization of capital stock. Inflation is at a 70-year high of 22.2%, and it has stayed that way. Again, anchoring inflation on the expectations. Inflation expectations in Nigeria are relatively very, very people are expecting inflation to continue. The expectations are different in the sense that the inflation psychology, people have factored in the fact that there will be shortages and that price, the transmission of prices to the in future is gonna be much higher. There is also the, what we call the lags, the time between when you notice a policy and when you react to it, and when the impact is felt.
The lags in Nigeria are pretty high, and we'll come back to this because under the new dispensation, under Bola Tinubu, the lags are gonna be much shorter because there'll be some decisiveness. The monetary policy transmission mechanism is weak. The effective exchange interest rates and nominal interest rates are quite diverse. Now, you can see from that point here that the treasury bill 364-day treasury bill rate is 8%, which gives you a negative yield of 14%. Now, there are also restrictions, forest restrictions and rationing. You have that whole philosophy that if you the more you ration, the more you stabilize the price and the exchange rate, but that has not turned out to be true. There are subsidies in the system.
Subsidies are, range from petroleum subsidies all the way to foreign subsidies, to fertilizer subsidies, and so on. We'll talk about the big ones coming up soon. The other thing, we've seen revenues actually begin to decline compared to GDP. Having said that, this is another slide that is important. There's a country of bottlenecks. Here, there's a vast there's a lot of output and a lot of resources, but because of the bottleneck, you will find out you will have negative outcomes. For example, there's a lot of farmland, 70 million hectares of land. There's food insecurity because of the bottlenecks. Large oil reserves and gas reserves. There's very little refined products. You have the crisis that is at hand right now. There's a large population. Low productivity. There's abundant water resources. Low irrigation and poor electricity.
There's a high volume of fertilizer, but you're also having low agricultural output. Having said that, what will the new administration and major policy changes? What's the background of this guy? Yeah. This guy has worked in, at Mobil, and he knows how to pick the right team, and he has big dreams, and he has a lot of good ideas, but he has skin in the game. In other words, the value at risk. If anything goes bad, he has much to lose. In fact, he has more to lose than the ordinary man on the street. He's got big dreams, but dreams can become nightmares if you're not careful. Also because you have to start by visioning and dreaming, and then you set your goals, and then you have the outcomes. What has he said?
He said, I will remove petroleum subsidy, and that he did yesterday. Of course, there was crisis, and he's moved in, and he fixed the new prices, so things will get better. He talked about unified exchange rate, which means that, again, he wants to deal with the subsidies. Repatriation of profits for investors, both domestic and international. That was there. Multiple taxes, he wants to reduce that. It talks about institutional reform. House cleansing at the central bank, low interest rate on business loans, infrastructure development, and so on. Again, there are too many things, too many problems that he has to prioritize, and we are gonna have to speculate. This is what you're seeing. Now the policy is over.
The outcome was what you saw here, all of a sudden, today, we've had a new pricing regime, and the problem seems to be at least going away, and he's dealing with it. Negative effect. Is there the risk of a policy backlash? We've seen that, again, because he is decisive, and he has a maximum of 90 days of honeymoon. Don't forget, there are the trials going on, the petitions and the tribunals and all that. If he does well and people now say, Okay, sure! Why bother yourself? There's no need. Second, you know, one, why do you have to remove him? Two, if he's to go back for a rerun because he has actually set the stage and people have seen the performance, he's more likely to win, like what you have in Turkey.
That's one of the things you have to look at. There's no political honeymoon as such. He has only 60, 90 days to do, and he has to deal with it very quickly. If there's anybody that can do it, he could, just like any of the others, but because he has more skin in the game, he's more likely to want to make sure that he wins. Could there be a disruption to economic activity? Yes, we've seen that, but there's disruption fatigue in Nigeria right now, people just want to get things going. How would the reforms look like? We've done some dimensioning. The official exchange rate today is NGN 462. It tested NGN 632 and it's been back upward.
We think in a post-reform environment, the unified exchange rate will be at about NGN 600, whilst at the same time, the parallel will have about 3%-5% differential, maybe about NGN 650. Petrol price, NGN 185. Today, it's trading at about NGN 530. What does that mean? It means that the inducement or the incentive to smuggle across the border, across to African other countries, is reduced. You are reducing essentially the amount of subsidies in the system. Another thing that I want us to think about, the price of energy. Today, it's about NGN 72 per kWh . We think that it could go to about NGN 90-NGN 95 per kWh .
Strangely enough, the total effect of that is that people will get more quality power and more reliable power, and actually, the Nigerian consumers will benefit more from that adjustment than what you see. This is where we see exchange rate convergence and unification, and it's possible, depending on the fact that if you ensure that the supply or the foreign exchange is there. I saw Razia's slides here, and she talked about external reserves. The external reserves, Nigeria has gross external reserves. All the other reserves are net external reserves. We will have to know exactly what the true position is, but I think there's enough to actually support the currency if you allow it be priced properly. What does this all mean? It means that today, this is what the GDP, what we call the circular flow of income.
Of the $508 billion, $350 billion is actually co- aggregate consumption. If you remove the subsidies today, the private man on the street is gonna be losing $26 billion, and the currency adjustment will also give him back about $4 billion. The investors are going to be bringing in, because of currency adjustments and all of that, they will get about $9.5 billion increase in value, and government is, of course, going to benefit significantly, because from petrol subsidy removal, the government will get $10 billion, and from currency adjustment, the government will also get some more. Net exports also is positive. Generally speaking, the effect on the economy is positive, but the change has to be there, the change has to be sustained, and the change has to be continued.
These are just things that how will it impact on the telcos and fintechs and PSBs? Yes, because of subsidy removal, again, because consumers have less money to spend, it depends on the price elasticity. If once they pay more for petrol, then I will have less to pay for data, to pay for food, pay for... You know, it depends on the relative inelasticity. People are going to have to make that, what we call income adjustment and substitution adjustment for what you consume. Unification of exchange rates means that generally speaking, if the guys today are spending NGN 765 effectively, and it goes to about NGN 630, then net-net, they'll be getting more money in their pockets. The same thing will happen for power.
In the end, at the end of the day, you'll find that the Nigerian consumer probably has more to gain from the reform, and the Nigerian investor and pro-provider of resources like telcos and fintechs will gain more from the post-adjustment environment. Long-term gains, like we said, government revenue increases, foreign investment increases, and the diesel price, which is a proxy for a deregulated price of petroleum, is at NGN 620. And that's where this price had gone all the way to NGN 850 in the past, two, six months ago. If that happens, you'll find that net-net, you'll find that you're spending less on diesel, and that's good for the telcos because of the CAPEX and everything there. What's the outlook and the opportunities?
Short-term outlook, GDP growth will slow to 2.9, which is not bad compared to where the other African countries are. Inflation will climb to about 22%, 20.3%. It begins to slow down eventually because output increases. The official exchange rate will merge at about NGN 630. Initially, because of fear, it will go all the way to NGN 680, then begins to slowly go down. One thing that is clear is that between yesterday and in the last two days, we've seen the stock market appreciate by about almost 5%-7% in some stocks and the leading stocks.
That means if the stock market is an efficient reflection of future expectations, that means that they have actually factored in the fact that these reforms are here to stay, and it will benefit everybody. What are the big game changing things? The African Continental Free Trade Agreement means economies of scale, intra-African trade will actually increase, and that's a major thing that to look at. The Lekki Deep Sea Port and the Dangote Refinery and Petrochemical Plant will do a lot of things, but it's a necessary condition, but not sufficient to solve all the problems. What happens is that we take crude out for refining in Rotterdam and bring it back. The changes are not that significant in terms of Forex, but it helps in terms of reducing downtime.
It's not a silver bullet, but again, there's the petrochemical part of it, there's the fertilizer part of it, and then there's the refining part of it. Again, the Dangote Refinery becomes a hub refinery for the whole of West and Central Africa. I think that's worth noting. What do we see for financial inclusion and opportunities here? We've seen that there's a lot of the payment and settlement system has increased, has become more efficient. Just like in Kenya, starting in 2007, and other African countries, we are beginning to see that correlation. We are now beginning to see the effect of this payment and settlement revolution that is taking place in Nigeria and with like the rest of Africa.
The other thing you must note is that the 5G network, there's a lot of investment in CAPEX. The float of funds, let me take it a bit. That is one, there's a lot of investment in CAPEX. There will be an improvement in power supply, reduction in price of diesel, and therefore, the benefits for financial inclusion and an improved payment and settlement system, and increase in the velocity of circulation of money, means that Nigeria begins to benefit from the scale economies and settlement of its transactions. That shift from brick-and-mortar to virtual payment system and all that means a lot. What kind of reform do we see in terms of institution?
The institutions that will be reformed are about five or eight of them, but the key ones, Federal Inland Revenue, be number one. Number two will be NNPC, number three will be Central Bank, number four will be NCC. We think that there will be limited regulatory trespass. In other words, NCC will regulate the telcos, the Central Bank will regulate the financial institutions, and therefore... The rates of interest, there are two big, major benefits to the PSBs. One is that they can charge, you know, efficiently and reap for the benefits of the investment in CAPEX. Two, is that the float of funds that come to them under the financial inclusion and the mobile payment system, has to be invested so that they can get a decent return.
When you take the charges, one, they increase activity, and three, the yield on it becomes it's a win-win for the telcos in that area. Because of the regulatory reform and institutional reform, and the segregation of duties between the NCC, Central Bank and others, I think it's a much more efficient system. We think the NCC becomes more powerful. The Central Bank will go back to orthodox monetary policies. There'll be a more efficient payment system, and high income from fees charged, and the activities will increase. That's the good news. This is the projection of mobile subscribers and broadband penetration. We're going to see more of that, and there's a lot of investment in this.
Nigeria, because of the new leadership, and no matter what happens in the tribunals, we are going to be seeing the benefits of this upgrade. In summary, I think that, one, GDP growth will follow this trajectory and begin to improve as we go along. Two, Nigeria will not skip into a recession. The macroeconomic problems are well documented. Slow growth, high inflation, weak public finance, but the reforms are going to address this quite aggressively. Exchange rate and inflation will benefit everybody, including the government, the people, and businesses. Policy reforms will come with short-term pains, but those short-term pains will be pale compared to the gains that are going to come. Telco providers will benefit in the long run. I think there'll be reciprocity, there'll be connectivity, and there will be...
Those are the two key things, reciprocity, connectivity, and also the fact that Nigeria will benefit from a showcase of companies that are in that sector will benefit. Easing forex sourcing challenges, the fact that we think that over this next 3-5 years, Nigeria will head towards currency convertibility, and therefore, the whole idea of moving money around, findable funds, going from one market to the other, the ease of doing business across the West African region will become extremely beneficial to investors. The Dangote Refinery will help in terms of creating scale economies, there's a big risk of, one, the obsolescence of oil over the long term, the shift to renewable energy, and also the growing irrelevance of OPEC over time.
These are some challenges, but in the meantime, in the next three-five years, we are gonna be seeing the benefits of what I've explained. GDP will slow in 2023 to 2.9%. Long-term growth will be driven by export, investment, and consumption-led strategies. Inflation will average at about 20.34% from 18.8% in 2022. Disposable income will remain low as inflation remains high, but as productivity increases, disposable income will increase, and so you will see that lull drop in disposable income of people will not be as impactful, negatively impactful as we thought. The minimum wage in Nigeria is NGN 30,000, and that was decided about four years ago.
We are in for the new round, and that will happen, so we are gonna have some wage adjustments to come. The money policy rate is about, almost will peak at about 19.5%, beginning to go down. Official exchange rate will go to about NGN 600, which is a major shift, and then at worst, we see ourselves coming to about NGN 650, as a unified rate. Power market rate is, appreciate towards NGN 680 initially, but then we'll see some struggle in there. In the end, the availability of foreign exchange will boost trade, and trade is the most vibrant sector of the Nigerian economy. Don't forget, the Nigerian economy has an informal segment.
While you have $508 billion as a formal economy, there's a 30% informal economy, and that activity level there, changes things come almost dramatically. Finally, as far as the West African region is concerned, Nigeria continue to dominate that region, both from the informal trade perspective, from a formal trade perspective, from the export of cement, petrochemicals, fertilizers, and the refinery hub. There are some good signs to come, but there are some risks that are there. The turkey don't vote for Christmas, so the guys who have special interests, who have vested interests, are gonna push back. I think that the guys in charge now have been part of the vested interest, and they know what it is.
It takes a vested interest man to catch a vested interest man. Thank you very much.
Oh, it takes a vested interest man to catch a vested interest man. Mr. Awana, please join me on stage and grab a seat. I'd also like to call the CEO of MTN Nigeria. He's been steering the ship there for a long, long time in this role since 2021, but has been with MTN Nigeria since 2006. Of course, I'm talking about Mr. Karl Toriola. The two of them and myself are gonna take some questions from you. If you are dialing in on the webcast, please share your questions on the Q&A panel that's below your screen. Of course, for everybody in the room, please just raise your hands and the roving mics will get to you as soon as possible. Mr. Awana, let me start with you and talk about this vested interest man.
You know, a lot of people, a lot of analysts and a lot of role players, especially when it comes to our continent, there's a big kind of indexation to politics. Just because, you know, generally as Africans, we seem to have not always gotten the political side of things, you know, the best of ways. Every time there's a new president, there's almost like this new hope. You were quite sober in your analysis. There were some very positive things you said, and you had some warnings. I'm keen to hear your personal views of what do you think becomes in Nigeria post these elections? Inflation doesn't seem to be abating. There's lots of talk about President Tinubu's cabinet and his choices of the people he will govern with.
You've already said he's a man who knows how to pick a good team. Outside of the presentation, what are your thoughts?
Well, I think the presentation actually captures it. I'm being brutally frank. The truth is that I think it takes a vested interest man to know how to capture. That's first. Secondly, he has a lot more to lose, both personally and reputational, from a reputational perspective than any other person.
Well, why is that?
He has investments, right? He has a lot of investments on the ground, during the End SARS riots, he was a victim of... He knows what the people backlash could mean. The best not to crush it, but to prevent it from happening. The only way to prevent it from happening is to ensure, one, that institutions are reformed, that policies actually give you the positive outcomes. The value at risk for Tinubu or any of the other candidates, for that matter, is much higher than the value at risk for the guys who are just vested interest out there. Because you now have political risk, you have economic risk, he has personal capital risk in all cases. Yeah, it's a no-brainer.
The truth is that everything, nobody benefits from a crisis situation, and the best people to prevent the crisis are those who can read it and can react. There's no lead or lag time.
Got you. You mentioned the point about his planned reforms on the repatriation of profits. That's been a big topic over the years for the MTN Group and widely covered by many of the people in this room. Do you think these reforms are gonna work, and if so, why?
Let me tell you why. The thing is that if you look at Nigeria's balance of payments, you have a line that is visible trade, tradable values, sell oil, cocoa, cashew, and others. You have the invisible flows, which are diaspora flows, are coming from Nigerians outside. You have invisible flows due from musicians, the entertainment area. If you look at the trend, you'll find that the, that part that comes from oil and gas is reducing relative to the invisible flows. The reason why the invisible flows have not been reflected is because of the rationing and the dangerous policies of, you know, stopping all the exchange rate controls. Once you lift those controls, those flows will come in, and Nigeria will have enough to meet those repatriation things.
I think MTN Group and other investors will have no fears about the fact that if I bring my money in, I'll be able to get my money out, right? Rather than just having all those restrictions. You see, the restrictions are part of the institutional decadence that have taken place. You would have to not only change the people, because that's not the. You can change the people from now to tomorrow, it won't change anything. You must reform the institutions. Like I said earlier in this discussion, the mental adjustment is much more difficult than the fiscal adjustment, the financial adjustment.
All right. Karl, you know, if the way MTN Nigeria has been covered by analysts over, let's call it decade, maybe decade and a half, I would summarize it as, you know, the investment community has a love and hate relationship with MTN Nigeria. When it pumps, it really pumps, and everybody loves it. But every once in a while, there's like a little, you know, screwdriver that goes into the works, and everybody goes, Oh, no! Now, what's gonna happen to MTN Nigeria? When you hear about these reforms that have been quite well articulated by Mr. Rewane, what do you think of the current situation, and how does that, for you, work out in terms of the opportunities that lie ahead?
Yeah, well, thanks. It's great to be here with this community. I think, perhaps we've been unfairly characterized by two large instances or incidences. One is the fine, and the second is the whole noise about the currency repatriation, and both have been firmly put to bed quite a number of years ago. We've consistently delivered positive results, and by the way, also repatriated proceeds to MTN Group over the period. The worries over the macro, the flows of capital, et cetera, are valid and have been valid in spite of our successes in the past few years. I personally am very excited. I think most Nigerians have been optimistic that the next eight years must be better than the last eight years.
If you want to write a script on how to start your first day, your inauguration, your first few days of political leadership, in Nigeria, I don't think it could have gone better than it has in the last two or three days. Let's be clear, that's three days in a span of eight years, a heck of a long time to go. Announcing clearly that the subsidy is gone, then following it up by an immediate price adjustment. Today, in Abuja, the capital city, in the NNPC petrol station, the mega station, in the capital city, the prices have been adjusted of petrol. That is a demonstration of a follow-through and decisiveness in policy implementation and a recognition that the difficult decisions need to be taken. I'm optimistic.
I'm actually quite excited as a Nigerian, first and foremost, but of course, as the leader of the great subsidiary of MTN Group, that the outlook is good. I think Bismarck has been spot on a lot of the points. The intellectual capability of President Bola Tinubu, his private sector background, his ability to put together, and he's had a proven track record of that, a great set of technocrats. These first few days of quite firm decisiveness in tackling probably what is politically the most challenging policy decision that he has to take. Quite positive on that.
What does that mean for some specific opportunities for you? 'Cause, I mean, this doesn't come. Rather, this comes in the context of you already launching new products and trying to grow subscribers and trying to grow your digital offering. If all things work out as you both hope, as you've articulated, what do you think that looks like for the actual MTN Nigeria business?
I think we've established ourself as a critical part of the economy. You can see that from the contribution of telecommunications to the GDP numbers, and in the ambitions of the digitization of the economy. An improved ease of doing business, more transparent, predictable government allows us to do a few things. One, continue down our path of accelerating digitization of the economy, not just in the core Telecom space, but particularly in the Fintech and PSP space, to increase the velocity of cash and transactions in the space. It gives us predictability, and an optimism around continuing to execute our plan, which has firmly been in place, Ambition 2025, but even possibly accelerate that. We've managed our capital allocation very cautiously, and according to what we've committed to the market.
We've never missed an opportunity to accelerate as we see increasing demand, sustained changes in things like the demand of data consumption. As we're seeing now, and then pushing forward our opportunity around the PSB, we'll capture those opportunities with a much more stable, predictable, and consistent policy framework from the federal government that allows us to get even more aggressive in those spaces.
Sounds great. All right, I'm going to open to the room. Ladies and gents, any questions for the Nigeria team? We've got the person who runs the business there, as well as a very, very articulate and clear, analyst of the matters that are going on there. Any questions in the room? Going once. There's a hand right there, my lady. Thank you.
Thank you for that optimistic outlook on Nigeria. Maybe you can just give us a view on when you think we will start seeing changes in the central bank space. What do you think? I mean, do you think that'll happen before or after the unification of exchange rate? Thanks. I think there are two different things. The unification of exchange rates is a process, and our view is that over the next thre-five years, you will have full convertibility, whether we like it or not, right? Two, that the central bank policies, which has gone into, you know, unorthodox policies, lender of first resort, those things have virtually come to a halt.
The reform that is required to make it more accountable, because, for example, the central bank has not published its audited accounts for some time. All those things are now going to be done efficiently, but it's only one institution. There are many other institutions that need to be reformed. Once the leadership is clear that this is what I want to do, I will not tolerate that, you'll find those institutions become reformed almost automatically. What does this mean for institutions like MTN? When I said productivity, one, Nigerian is productivity. Two, connectivity, right? Reciprocity.
In other words, you invest, you get as a poster investor in this country who has gone through the thick and thin, it becomes so as an alignment of goals and, you know, views, but from MTN and other telcos, and in Nigeria, the new Nigeria. There's a point that Razia made about maturing obligations. I think there's a $500 billion obligation that is due soon, and there's the whole question of downgrades and. Nigeria needs to, one, sort out itself with the IMF and the Washington Consensus, also go to the other creators, and three, deal with the Paris Club at the same time.
I think these things are possible because of the clear signals that are coming out, that, one, there's decisiveness, two, there's value at risk, and three, that investors will have actually shown some signs of confidence by coming back and investing. If you look at the $508 billion could easily become $700 billion-$800 billion if everything is captured and is well done. Multiplicity of taxes reduced. I wouldn't say there's any sequence of changing people before reform. I think all of them go together.
All right. We take one more? Yeah, yeah, sure. Follow up?
Just a follow up.
I didn't catch your name, by the way, or the organization.
Sorry, it's Pallavi from Coronation.
Great.
One more follow-up, maybe then just a comment on, the outlook for taxation, because you mentioned the fiscal pressures. Maybe if you could just comment on overall taxes. Thank you.
I think first and foremost, taxes, there are four canons of taxes. We have tax of, one, it must be neutral, two, it must be progressive, three, it must be equitable, and four, it must be easy to administer. Now, going by those canons, Nigeria will rely more on indirect taxes, what we call benefit approach, rather than ability to pay approach. You are gonna have a VAT increase, I think, from last time VAT was 5%, we moved it to 7.5%. Now we're talking going to 15%. I don't think that will fly. You are going to have it go from 7.5% to 10%, 1.
The excise duty on telco and things will be a big struggle because that has a major impact, but I think there will be some in between. The corporate income tax rates remain about the same. There are sales taxes and all sorts of taxes, but one is to increase the tax efficiency and reduce the burden, right? Secondly is, what do you use the tax revenue collected to do? The people must see the impact. The most important thing is there's a trust deficit and credibility gap. My approach will be: give the people the benefit of it before you even take it away from them. Right now, we've taken it away from them, right?
People are beginning to wonder, Well, okay, what are they gonna use the money for? If you are actually giving the money to the people by shifting and then collecting it later on, then you will have addressed, one, the credibility, trust, deficit problem. Two, it will give you a lead time, and then you can actually borrow against it, like revenue, anticipation, bonds, and all that. Again, it depends on how Tinubu wants to look at the sequence of what he wants to do and how you're gonna have to manage the crisis of false expectations, which, I think he's used to that. Again, it takes vested interest to capture vested interest.
That's gonna be trending all afternoon. Yes, Karl.
... At a point, I think this market is spot on. They will use some levers to increase the overall tax income, things like VAT, although that's probably a few months away. However, if you look at the antecedent of Bola Tinubu, he's been very effective in Lagos State in generating internal revenue by expanding the tax base. There's been engagements across people who are speculated to be in his economic team, and they're very clear that that's a priority of his.
Rather than just going to the automatic obvious sources, which there will always be a little bit of in every country and every economy, there's gonna be a lot of focus in developing the tax base itself on a larger scale, to sustain the policies and the fiscals of the country.
Interesting. I'm gonna wrap with one last question, for you, Bismarck, the first part of it you've already answered. It comes from Madhvendra Singh. He's from HSBC. The first part was about the impact of the launch of the Dangote Refinery on the economy, Forex and the fiscal outlook. I think you've covered that quite in depth. The second part might be quite interesting to hear your views on: Can Nigeria take credible steps to reduce import dependency for non-energy products as well?
I think as an economist, I'll tell you once price changes, the quantity demanded will change. What is the price of imports? The price of imports depends on the exchange rate. There's no better way of diversifying the economy and dealing with import dependence. There's no other credible way than to allow the exchange rate to find its true value. Once you do that, you'll find out what happens. For example, take medical tourism. Because it has become more expensive to get Forex and travel abroad, we've seen a massive level of investment in medical, substituted medical services within Nigeria, i.e., Heva Care, Heva Grade, Eurocare, and all of that. We've seen schools like the Waterfall and others because of education tourism.
If you allow the exchange rate to become really driven by the market, you'll find automatically and you will find that happen, right? You don't have to have a special task force forcing people to, you know, the old mundane, what we call the infant industry argument. You nurture people until they get to a particular point. No, those things are far gone. I believe that the policies, the institutional reform, the mental adjustment, and the fact that you are at the mercy of your consumers, one, and creditors, two, right? More than anything else, the political transparency that is required under election, the new electoral processes, makes it almost impossible for you to, one, run an inefficient government, run an indolent government, and being totally indifferent of the views of the people.
Wow! What an interesting insight. Ladies and gentlemen, we're gonna have to wrap it there. Thank you so much, and please give a round of applause for Bismarck Rewane and Karl Toriola. Thank you, gentlemen. What happened there? All right. Hey, who's this guy? Ladies and gentlemen, introducing Sporty. If you didn't get a chance to see him, there's actually a very interesting story about this robot from Boston Dynamics, and thanks to the power of 5G. I'm told that this guy is currently working in a mine here in South Africa, and he's been able to go to the parts of the mines where human beings cannot go because it's so dangerous. Of course, you know, the mining industry is focused on ensuring that there are no fatalities.
Anyway, the 5G network helps this guy be able to track all sorts of things, and be able to be used in very dangerous circumstances, doing his thing, as he currently is on stage. Apparently, his name is Sporty. If you come from South Africa, all dogs are sporty. Let's give a round of applause for that. That's very interesting indeed. Thank you very much to Mr. Rewane. Thank you very much to Karl, and thank you very much to Sporty. He needs to find his way. How does it do that? Just got off the stage, didn't fall at all, unlike most of us. Cheers, brother. That's really cool. That's interesting. Thank you very much, ladies and gentlemen.
We're gonna take a bit of a stretch break right now, just for about 10 minutes or so, in case you need to get some coffees or waters. You can also chill in your seats and answer some WhatsApps and emails, and in about 10 minutes, we're gonna pick up again and go straight into the Ghana market, and where we're gonna have a very similar insight into that market as well. You might know that it's the oldest market for the MoMo product of the MTN Group. So I'm pretty sure you'll be interested. It is 3:47 P.M. If I could have you back on your seats at, let's make it 4:00 P.M. And we'll kick off. 3:55 P.M. Great stuff. Thank you .
Welcome back, ladies and gentlemen, we're on to our last stretch for day one. Of course, later on, as I promised you, we do have dinner arranged and planned. If you used any e-hailing service to get here, and you are joining us for dinner, you need not have to arrange that. There is a shuttle that will be waiting as soon as we are done here, that will be able to take you through to the venue for tonight's dinner. Right. We've just had a very interesting session about the Nigeria market, and a neighbor of Nigeria is Ghana. We're now going to move on to Ghana, which is home to MTN's oldest MoMo market. Ghana is facing significant economic challenges.
There's been a sharp increase in inflation and also a well-publicized depreciating currency that has put a lot of pressure on the disposable incomes of consumers and also historically made it difficult for government to repay its debt. Just two weeks ago, Ghana secured a $3 billion loan from the IMF after its creditors agreed to a debt restructuring. It gives me great pleasure to introduce to you the Honorable Minister for Finance and Economic Planning, the Honorable Ken Ofori-Atta. He is currently in his second term in this role, and he taught me that in South Africa, we speak of Ministers of Finance. In Ghana, he's the Minister for Finance. Please, put your hands together for Honorable Minister of Finance, Economic Planning, Ken Ofori-Atta.
Let me also tell you, I think it's quite important that I do this properly, Honorable Minister. Prior to his appointment in this role, he was a co-founder and executive chairman of a leading investment bank called Databank Group. Before that, he was an investment banker at Morgan Stanley and Salomon Brothers in New York. During this illustrious career rather, the Minister has received many numerous accolades for his many contributions at home and abroad. Another round of applause for the Honorable Minister.
Thank you very much indeed. Good afternoon to you all. It's really a great honor to be here, to be part of this, to have been invited by MTN. As we all know, it's been a very difficult period. As you mentioned, inflation has been high, debt issues, currency issues. He was really kind not to mention the numbers. Inflation went as high as 54%, we are now at 41%, and we think we are tabling down. The currency last year was also came down maybe at 54%. We ended the year at 30% or so. We are seeing some stability going forward. Debt has been a major issue. We've gone through some restructuring. This is not a good time to be finance minister anywhere. Minister for finance, anyway.
Truly, so this is, in effect, an outpouring of some sort, and I thank MTN for this. As was mentioned, we just very recently, two weeks ago, managed to secure an IMF program, which I guess many people thought was not possible, including we ourselves in Ghana. It has been done, and we are grateful for it. For us, we continue to be extremely optimistic. You know, our president was one who declared an Africa beyond aid, a Ghana beyond aid. We've had these major interventions that brings certain sense of cynicism and an inability to do it. We have hope, and we believe that it can be done.
For us in government, we want Ghana to be the best place in Africa to start, grow, and invest in a business. I hope that through today's interventions, the community will better appreciate how we intend to realize this ambition. Obviously, Ghana's recovery is most important to the citizens who live there. It is worth highlighting that our recovery is also crucial in the broader context of African development, because Ghana has always been a leading light on the continent. From our early independence, yes, through to our embrace of market reforms and more recently, Accra being the host city for the most extensive trade deal on the continent, the African Continental Free Trade Area. That's 1.3 billion people, two and a half trillion dollars.
Ghana has always been one of the leading countries to become a unicorn in sub-Sahara. Our history has, though, been checkered, and believe it or not, this is our 17th time going to the IMF. Is that the last time? We believe it is. with some, I think we have significant comparative advantages, including just the geography, the size, institutions, human capital, and the history. The can-do spirit, which Nkrumah unleashed on the continent and really has stayed with us as a people through that. For about 32 million people, our country is large enough to create a substantial domestic market, but small enough that providing jobs and enhancing social mobility is not an impossible challenge for the government.
Moreover, Ghana serves well, scores well on international indicators of governance, quality, freedom, democracy, ease of doing business, and corruption. English, the international language of business, is also our lingua franca. Before the pandemic, our GIPC, led by Mr. Grant, reported that we were ranked first in West Africa based on rule of law, first in West Africa based on ease of doing business index, second in West Africa based on the Global Peace Index. I wonder who could be first in peace in West Africa? It must be us. Projected by Bloomberg in the good old days to be one of the fastest growing economies in the world through 2020 and 2021.
To ensure a deeper understanding of the needs of the private sector and drive the needed economic growth, government is setting up what we call the Ghana Mutual Prosperity Dialogue, as an anchor to engage the private sector at the respective industry levels, and to ensure sector forward-looking policies to reflect aspirations of industry people. How do we work with industry in a new way, given that the gap between our savings and investment is high, and we need to bridge that, and that will come from foreign investment and also galvanizing domestic savings. We are willing to listen to the investor community and take the requisite steps to create a more competitive, transparent, and attractive business landscape. This is how we look like.
2017 to 2019, average 7% growth, fiscal deficit broad, that was double the 3.4% that we inherited. Inflation actually coming down to 8% and a positive primary balance. 2020, 2021, COVID pandemic, as we saw it, the war, a financial global tightening, global supply chain disruptions, which led to the red boxes, greater fiscal imbalances and debt vulnerabilities. I mean, I guess many of you who were invested in Ghana, you know, went through these difficult periods in which foreign exchange were problematic. Truly, one wondered where we were going to go and where we're going to land. Truly, I cannot find another example in history where so many different headwinds simultaneously hit any economy.
Truly, there's a perfect storm that occurred. But with the benefits of hindsight, I can truly raise my hand and say, just like many other African ministers, finance ministers did, I didn't get everything right in the early days of the COVID-19 pandemic. Indeed, in the immediate aftermath of the pandemic, my colleague, Minister of Finance, Zainab, in Nigeria, remarked, No one teaches you how to manage an economy going through a pandemic. But even I think we did quite well, like most, unlike most other countries. We had about 1,470 people dying, compared to 50,000 in Africa, and 1.2 million in the U.S. or so.
Even in Korea, they had about 35,000, in effect, a comparable number of people, 50 million, 30 million, would have been about 21,000. We did spend considerable amounts of money leading to a deficit of some GHS 25 billion, where revenues came down by GHS 12 billion, and expenditures were up by GHS 13 billion. Truly, as our president said, "We cannot bring people back to life, but certainly we can revive the economy." That, therefore, was what we were called to do.
The whole issue then of the kind of debt that we owed leading to the downgrades and loss of external capital market and the externalization of capital by invested led to a heavy reliance on domestic financing. That continually led to increasing costs, eventually leading to deficit monetization in 2022. Foreign exchange outflows put pressure on the GHS and sharp depreciation, as I mentioned, as high as 54%, end of the year, 30%, 2022. Truly exacerbated the debt vulnerabilities that we were experiencing. All these outturns culminated in a severe balance of payment challenges and debt vulnerabilities. Government used available fiscal and monetary tools at our disposal to mitigate the impact of these.
Yet the toll from the effects of multiple global shocks cannot be understated. I think we sometimes forget that. As such, to protect all the macro and social policy gains made since 2017, we had to resort to the IMF. I think I'm famously quoted as saying that we shall never go to the IMF, we had to go to the IMF. The point of this is to realize that there's a community to be saved, there's a community to cross the Jordan, it's not really your personal issues, but what is it to do practically to move them to the next level and to ensure that we stay alive?
We did go to the fund, we developed what we call the Post-Covid-19 Programme for Economic Growth, anchored in these specific areas. Front loading of fiscal measures to bring public finances back on a sustainable path in an accelerated way, to restore debt sustainability, including the cost of financing, where we're talking about debt at some point becoming more than 100% of GDP. Minimize fiscal risk, including risk from contingent liabilities from SOEs, where entities like Cocoa Board and Co in the energy sector had chalked up some very serious debts that we were not aware of. To deepen the structural reforms and restore investor confidence, and therefore boost development partners' disbursement, to unlock other sources of financing.
To implement reforms necessary to encourage private investment growth and job creation. This really is key, programs such as this are relevant to us, that we are going to do many more of these. At the same time, to ensure that you safeguard social protection, issues of school feeding to our kids and livelihood empowerment programs were literally doubled to make sure that in these austerity times, those citizens are also protected. The PCPEC program really it's to ensure that we are moving in a direction of adjustment that will bring us back to stability.
You can see fiscal adjustment efforts of literally 5 percentage points of GDP, ensuring that revenues and expenditures are managed, targeting a primary balance on a commitment basis of 1.5% by 2025. Trying to anchor inflationary expectations and preserve financial stability, adopting the requisite reforms to achieve greater forex flexibility, and then the restoration of public debt sustainability. The goal was really to move towards a 55% debt to GDP ratio by 2028, and also extend our debt service into revenue, not to exceed 18%. Lastly, of course, enhancing economic competitiveness of exports surpassing 37% of GDP in the medium term, whilst concurrently strengthening the social safety net that I've talked about.
Key highlights of the fiscal adjustments, revenue and expenditure measures, fiscal adjustments, Really front-loaded, 3.1 percentage points, this year. Going through parliament with a number of revenue measures. That was really difficult. It took a while to get through. Yes, we moved VAT to 15% or so. That, strangely enough, was able to occur last year, whilst a number of other revenue bills were held up until this year, that we finally got them through, losing about half of the resources that we had anticipated anyway. I think the country now is moving in tandem.
The PCPEC program looks at public financial management reforms, which are really strong in terms of getting back the state-owned enterprises, especially the energy sector and Cocoa Board. Energy sector, I'm sure we have a few things to share with our South African friends, where we signed a number of emergency deals, but giving them 10 and 15-year contracts. I don't know how emergency becomes 15 years. For them to also have take or pay contracts, which were terrible. Financial sector reforms, you know, we came into government and cleaned up about GHS 25 billion worth of that. Through this debt exchange program, we are going to have to put some more resources in supporting the solvency of these, of the banks.
Tax policy and revenue administration is going to be key for us to go there and change the way in which efficiencies and leakages and corruption that comes in there. Here is where technology, again, will be helpful, and therefore, working with entities like MTN to look at that. I think MTN needs to redefine its role going forward. It was interesting for us. We went to Korea, we just came from there. The integrative nature between governments and the major firms, you know, are key.
You know, whether you are gonna follow the Chicago ideologues of, well, you are just working for the shareholders, or whether you are working for stakeholders, whether in Hyundai and Samsung and Co, working with government through 1960 to now, they have created a much bigger market to support the growth of the firms. I think it's an existential moment in terms of thinking through what the philosophy of a company, an African multinational should be with regards to their relationship with governments. Going forward, government understanding that they need to give space, and multinationals also stretching. African multinationals stretching themselves to appreciate that rare responsibility to change the fortunes of this continent. The question also becomes: well, where would you get the money from to be able to do this?
Here, the $3 billion facility that we negotiated, and that actually was kind of a stroke of luck or blessings, because we were able to get 3x our quota. 304% of our quota, which gives us a $3 billion. We're also able to front load, so that in 2023, we get $1.2 billion. It was amazing. We got the approval on a Wednesday, May 17th, by Friday, May 19th, IMF had already sent in our first tranche of $600 million because we had also fulfilled all the prior actions before then. The next $600 million will be released, disbursed somewhere in November, and then it becomes $360 million going forward through 2026.
Of course, the World Bank, we have a DPO that we expect of $300 million, and then $250 million that they are going to use to support the Ghana Financial Stability Fund, which will create some resources for the solvency of the banks, and then $300 million going forward in the years ahead. We expect the standard debt restructuring to provide financing of about $2.5 billion. As you know, we're in discussions with the Paris Club, and they gave the financing assurances, and MoU will be completed in the coming weeks or so. That should be helpful in the way forward.
We also have project loans that we'll be using, and World Bank to disburse another $1.45 billion during this period. The issue of debt restructuring has been one that has been contentious, very difficult and really took quite a bit of courage from government to do that. Essentially, therefore, the old bonds, as you can see, 19.1%, short maturities of about four years, moving that to 9.1%, 8.2 years. That will not make anybody happy, individuals, institutions, everybody. The reality is that government was not going to be able to support that. This really is not the first time in history.
Even if you look at, Korea, they had these things called the curb loans. They also went quite drastic in being able to cut down, reduce it, extend the maturities, and basically change the landscape in their economies. After a lot of difficulties, we were able to get $83 billion of the $98 billion outstanding to participate, which, as you can see, would dramatically reduce the interest payments and give us the appropriate fiscal space to be able to do what, we ought to do, going forward. Are we done? No, there's still some ways to go.
We still have to work with the pension funds, who have about ZAR 29 billion, and really, to let them know that it's not in their best interest to be in government paper. 70% of their money is in government paper, and we need to change that. We also need to get them to use some of their resources in real investments, like toll roads, airports, et cetera, housing, you know, urban transportation, which happens around the globe. That's a new thinking, and we hope that will come to the same place. We did agree with them that we should find ways to ensure debt sustainability and help with macroeconomic stabilization and the economic recovery.
Of course, that is being interpreted differently, from what we believe to be the spirit of it, to what is. I think we are making headway in those discussions. We also have independent power projects, and I'm sure South Africa would also be beginning to understand this. Through December of last year, it's about $1.6 billion that we owed. I imagine, through May, by the time we finish with the discussions, it will be about $2 billion, in which we need to find ways of ensuring that going forward, we will be able to pay them regularly, but somehow find a way to restructure this $1.6 billion, so that we all look to burden share in where we are as a country. The restructuring of external debt.
As you know, the Paris Club, fortunately for us, we were able to get China and France to co-chair the Official Creditor Committee, and that helped in ensuring the financial assurances were gone. We should be now looking at the MoU and in terms of bilateral debt treatment, that would occur. It might be a flow activity in which we extend the terms of the loans and give us space for that. We'll continue to engage private creditors to seek relief on external debt. This, of course, has to do with our Eurobond holders. That's where we are at. We started in July of last year, in which we went to the fund.
By December of last year, we had reached a staff level agreement, which was really in record time, started the discussions with the G20 for the DSSI. We finally got assurances to the fund May 12th. On May 17th, the fund was able to approve our program. In all, within a space of 10 months, Ghana was able to achieve that. As we all know, when you enter the Common Framework environment, you just don't know where to end.
We know our sister brother countries, Zambia, Chad, Ethiopia, two years on, are still lingering, and we hope that what we've been able to do will set a new precedent so that things will be faster and more effective for other countries coming forward. With regards to the Eurobond, investors, we have given them all of the material that they require, and we hope that in the same spirit with which we worked with the fund, worked with the Official Creditor Committee, we would also work with them to make sure that there's mutuality of interest in what we come up with, and we work our way towards coming back to market. Going forward, really is how do we focus on manufacturing, exports?
How do we strengthen delivery of private partnerships? How do we improve the business environment, promote entrepreneurship, and really transition into a digital economy? I'm very clear in my mind that without digitizing our economies in Africa, it's going to be very difficult to get to where we want to get to. Got into Korea, they are not even looking at 5G. They are playing around with 6G, that is the exciting thing about empowering local companies to be where the future is. Technology is going to be key, and therefore, the centrality of MTN in this whole issue of the development of Africa. Mr. Grant is here, these are areas of opportunity, agro-processing, manufacturing, tourism, infrastructure, and technology, of course.
I guess in my mind, this is where the board of MTN needs to really sit and discuss their role in the whole issue of African renaissance. Is it really just the purview of only governments to structure that? What is the responsibility of huge companies such as MTN to be engaged in actually supporting and promoting policy discussions in this area? I think that's a big question for you. Even as you look at your 2025 program, you may have to tweak it. Things are different. The importance of change is upon us, and we need to find ways to ensure that social risk is minimized.
Really, I mean, ladies and gentlemen, I think we have done what most people thought would not be possible. I think the resilience of the Ghanaian has come through again. It is one of those countries that I believe can be the key demonstration effect of a successful African country, and therefore, we need to put all of our energies in there.... ingenuity to be encouraged, innovation to be supported, value in public service, ensuring that prosperity is shared. More importantly, the private sector becomes really key to the growth agenda that we have.
For us, we are looking at launching this Ghana Mutual Prosperity Dialogue to ensure that the private sector is at the center of what we intend to do. We are confident that we will be able to get there, but we want to get there with the private sector with us. We look at issues of our Gini coefficient and human index, and I think it's quite criminal, given the resources we have as a continent. How do we leverage off of that? How do we, as citizens or the middle class, so privileged, really take that as issues of heart? In a real sense, quote Martin Luther King, "All men are caught in an inescapable network of mutuality.
We are tied in a single government of destiny. Whatever affects one directly, affects all indirectly. You can never be what I ought to be until you are what you ought to be, and you can never be what you ought to be until I am what I ought to be. This is the interrelated structure of our reality. I think it is that. From your own Mandela, "A part of being optimistic is keeping one's head pointed towards the sun and one's feet moving forward." We in Ghana will continue to do that. We're looking forward to partners, especially with digital companies for innovation, and I know that we'll be able to get there. Thank you very much for this.
Thank you, Honorable Minister. If you don't mind grabbing maybe the one close to the middle there. Yeah, yeah. Yeah. As the center of attraction for my panel. I'd like to also call the following guests to join us on stage. Let me start with Mr. Reginald Yofi Grant. He's the CEO of the Ghana Investment Promotion Centre. He's been referenced quite a lot in the Honorable Minister's presentation. He has a lot to answer for. Mr. Grant, welcome. There we are. Following him is Mr. Solomon Asamoah. He's the CEO of the Ghana Infrastructure Investment Fund. He's also been referenced a lot in terms of the strategy. Mr. Asamoah, thank you for joining us. Yeah, you just wanna fix the. Yes, thank you.
To field any questions around, of course, the MTN business, over there is the Senior Vice President for Markets at MTN Group, Mr. Ebenezer Asante. Thank you very much, gentlemen, for joining us. Let me give you a bit more detail of Mr. Grant's profile. He's a financial policy advisor in both his country and beyond. Strong record of leading advisory mandates for equity and debt transactions. More than three decades of experience in investment banking and finance. Thank you so much for joining us, sir. Mr. Asamoah, he's led over $4 billion in transactions across Africa in his 25 years of working at some of the most foremost financial institutions, including the AfDB, the Africa Finance Corporation, our own DBSA, and also the IFC, as well as the World Bank.
In his current role, he oversees origination, structuring, and investment into infrastructure projects across Ghana. Very big job. Thank you very much for joining us, Mr. Asamoah. Of course, our very own, Ebenezer Asante, is the Senior VP for Markets, which includes, of course, the business in Ghana. Gentlemen, I have questions of my own, but there's also questions from the floor. I'm sure that there's lots coming from the floor, and there's already got lined up. We already have a couple of questions lined up from the webcast. Honorable Minister, let me start with you. Just to reference two items that you touched on in your presentation, I'm keen to hear what your views are on the potential impact, first of all, of the domestic debt exchange on banks.
It's a very big topic, as well as the measures that you are taking to rein in the inflation that you touched on already in the beginning. You referenced us as kind and not mentioning the numbers, then you proceeded to mention the numbers. Please help me understand to what extent or what measures are in place to rein that in.
Thank you very much indeed, and thank you once again for this opportunity. The domestic debt exchange was really a very difficult exercise because we are basically changing people's expectations of what they were going to get, and they've planned their lives. It also affected the banks deeply, so that the impairments were very high, which then led to really our analysis of believing that we may need up to about $1.5 billion for solvency and liquidity. The central bank is stepping in with the solvency of the liquidity in terms of changing adequacy ratios, et cetera, to really give forbearance to the banks. We are putting together the fund, Financial Stability Fund-...
to be able to intervene and give the appropriate resources to the banks to make sure that they operate in this difficult environment. I think that's the intervention that we want. With regards to inflation, the central bank has been very clear on the way in which they are managing it. MPCs, I think, maybe you had a 50 basis point. I think in the past year, they might have done about 2,500 basis points of increases. The last MPC, they actually did not do anything, which was a respite for all of us. Inflation is gradually coming down. I think the past two months or three months, it's been inching down progressively. We are now 41%.
The target is to be at 29, by year-end, and then manage the process towards the 8, ±2.
Right. Right. Mr. Grant, let me come to you and talk a little bit about investment attraction. I mean, you there's a lot of reforms that have already been presented, but what, in your opinion, becomes the single best thing that the government of Ghana can do just to restore confidence in the economy, and in so doing, hopefully encourage some investment?
Well, there are a lot of things. First of all, you said the single most. I'm not sure there should be an answer for the single most. It's a combination of a number of things, and Ken has mentioned some. I think overwhelmingly, what is quite instructive of where we are right now is the partnership of the private sector.
Right.
The fact that, you know, there's a bigger story out there that we need to confront. Let me explain what I mean by that. I mean, if you look at the African continent, it's resource-rich. 90% of the world's platinum, 90% of the world's cobalt, 90% of the world's lithium... sorry, chromium. 65% of the world's manganese. It's got currently a population of 1.4 billion, which is comparable to that of India, which is 1.47, and comparable to that of China at 1.45. Yet, the continent is poor. If you look at even the climate change and transitions, and when you talk of food security, Africa to date holds 60% of the world's remaining arable land left, yet the continent is poor.
It means that there is a certain structural problem that we need to address, and I think our president alluded to that by starting with saying, Look, let's build a Ghana beyond aid and Africa beyond aid. Let's use our own resources and our energies to develop our continent. Because you can't have all these resources, you can't have the population size, and yet still be poor. It means that we've negotiated very poorly in the past. That can be the only problem that we have. In doing so, first of all, the first lever that I think can change that is the African Continental Free Trade Area.
The fact that we can trade between ourselves would definitely create a new paradigm for African economics by adding value to all these resources in situ, and not just exporting the raw materials and the resources to other parts of the world. Today, as we speak, I mean, all of you have a mobile phone.
Yeah.
The coltan in the mobile phone exclusively comes from Togo, but it's taken off the ground, sent to China, processed, and then put in the phone. The lithium in most of the batteries that you need for e-mobility come from DRC, but they just pick out the lithium, export it to China again, and then they add value, and they export the finished goods back to Africa. We need to change that narrative seriously, and I think, ushering in an Africa beyond aid, that's the first thing. The second, creating an internal intra-African market so we can trade amongst ourselves, but with a tacit agreement that we need to add value to our resources in situ and not just export them. In doing so, partnering with the private sector, because that is key.
With all these resources, with all the numbers, there are only approximately about 490 companies in Africa that have a turnover of $1 billion a year, according to McKinsey. That means we are not even monetizing our own opportunities...
Yeah.
to the extent to which we can. In that narration, I think the private sector has a particular responsibility of actually doing that.
Mr. Grant, I mean, what you're saying isn't new. We've heard many people call for the many things you call for, and quote the examples that you quote about the potential of the continent, yet we haven't quite achieved this very elusive place of finding a way to get ourselves out of what you've just described. My question would be, what is it that we've done wrong? What is it that we can do right?
I think, I mean, we do not need to belabor the point of what we've done wrong. We all know that. It's what we should do to right it.
Yeah.
I think the AfCFTA, the African Continental Free Trade Agreement, is in itself a major trigger, a major motivation for Africa to trade within itself. Secondly, the fact that we are evolving a Pan-African Payment Systems, where you can buy in cedis and pay in rand, or you can buy in kwachas and pay in naira, is a new dynamic that didn't exist. It means I don't have to change my money to dollars and then send those dollars in there, and then those dollars are changed there. It solves a bit of the problem we have with our currency depreciations. Beyond that, with all these opportunities in Africa, and you can say it in different ways, whether it's in transition energies or not, the African continent becomes more important.
critically, because 60% of our population is below the age of 35. If you look at the future, this is a consumer market waiting to happen. This is a labor market that is happening. Technology is accelerated on the continent. Today, Africa has close to about 125 million mobile money users. That's more than 50% of the global total. We are about 650 million cell phone users on the continent. Very significant for technology. We are seeing quite a lot of that. In Ghana somehow has emerged as probably a safe place to scale up. I am seeing quite a number of players in the data center business looking at Ghana to, you know, to actually set up data centers. Why?
They recognize the import of the Africa consumer market, and it's gonna be technology driven. That is where they want to plant the seed. Nigeria is a big market, for them it's more difficult to do it in Nigeria. They need a small market. I compared Nigeria and Ghana to Nigeria being the oil tanker. You know, when it goes, it has to turn around. It might take a week to turn around. Ghana is a speedboat. When it wants to turn around, it just goes small and, you know, small but efficient. The Nigerian market is extremely important to us, and in fact, they are our biggest... Next to South Africa, they are our largest investor in Ghana, African investors.
You have quite all these things coalescing into a certain realization that, yes, maybe we didn't do things right in the past. We have a great opportunity to do things much better. Would you believe that by 2018, out of the 10 fastest growing economies in the world, six were from Africa? You know, those are points that we normally don't highlight. When somebody wants to invest in Africa, they always demand a premium, which is totally misplaced, unfair, and unrealistic, because we've allowed the myth of an Africa that cannot develop, that has problems, to lead the way.
Well, well, I think it's a great segue, Mr. Speedboat, to Mr. Asamoah, who can then tell us about the infrastructure side, because it's all good and well to say we're so great, we're so great. Businesses go there, they wanna operate, they need an infrastructure that works. How is the landscape looking now, and I guess going forward, in terms of the priorities for you on what infrastructure needs to be developed in the country?
Thank you very much. For those who don't know who the Ghana Infrastructure Investment Fund, essentially we are a government-owned investment vehicle with a mandate to invest and develop infrastructure assets within Ghana. We were set up by the government. They gave us initial capital of around $325 million, and said, Finance and invest in infrastructure. $325 million is a substantial sum for a country like Ghana. We are very grateful for the funds that the government gave us. Given the scale of the problems and the deficits, it's relatively small. The only way we could have an impact is if we leverage the private sector, and we bring co-financiers and co-investors alongside with us. We've been very busy on that, and over the last five years or so, I think we've been quite effective.
We now have a portfolio of 13 infrastructure investments, including projects like the new airport terminal, for those who have been there, a major expansion of Ghana's second port, Takoradi Port. We've done hospitality projects, we have done mining projects. We're doing the first major toll road project in Ghana, hoping to cut sod in the next couple of months. For every $1 that we've invested in each of these projects, we've managed to bring $10 of other people's money to finance and invest alongside us. We know how to attract private sector financing and private sector investment. The other thing that we're really proud of, is that every single investment that we have done has been with a Ghanaian sponsor. It also raised the level of participation of Ghanaian entrepreneurs in infrastructure development in Ghana.
What are some of the lessons that we've learned? Lessons that we've learned, if you want to attract the private sector, the private sector needs to see certain things, and no matter how much you may want to try and convince them that they're being unfair or unrealistic, at the end of the day, they won't write a check unless they see those things. We have to make sure that we structure our projects in a way that will attract and give confidence to the private sector financiers. As I said, $300 million effectively, we've invested. When all of our projects are completed, that would have brought in $3 billion of investment into Ghana. There is appetite, there is a desire to invest in Ghana.
We have to make sure that the macroeconomic environment and our specific projects are structured well. I think Ghana is a place that many investors would like to invest in. For all of our investments so far, despite the problems that we've had in the last three years or so, our portfolio is looking very robust and very healthy at the moment. That goes to how it's been structured and how we make sure that the cash flows that are generated can be captured to be able to repay financiers and investors in our country.
All right. Yeah, yeah. The big oil tanker is applauding the speedboat. Tomorrow, ladies and gentlemen, Mr. Ebenezer Asante, the Senior VP for Markets and his team in all the regions will be presenting to you. He is joining us on the panel to take any questions you might have, along with the delegation from Ghana, which will now be called the speedboat. There is a gentleman here with a question. I think he's from Nedbank. Just keep your hand up, sir, just so they see you. There you go.
Hi. Thanks, Mr. Khumalo. It's Prashand Nodiya from Nedbank. I've got a question for the Minister of Finance. Just your thoughts on taxes in Ghana. Obviously, the mobile money tax of 1.5% last year took the market by a bit of surprise. MTN and Ebenezer and his team had to give some subsidies or discounted fees on those transactions. I know it's been dropped to 1% now. Going forward, are you looking to generate more tax revenue from indirect taxes or more direct taxes, and your views on that? I've got another question, if I can sneak it in, around foreign exchange availability now that you've got some money from the IMF, and how does that play into whether MTN can pull back that script dividend and get some cash out? Thanks.
The man knows how to use the platform, yeah?
Yeah. Where, where did you say he was from?
Nedbank.
Nedbank.
Nedbank.
Are you writing that down? It doesn't look good.
No, actually, I mean, very, very good questions. We have a tax-to-GDP ratio of some 13%. Clearly, if we look at an average of 18%-20%, we are way behind. The question is not really generating new taxes, but getting efficient, because you can see the gap there. You have this interregnum, this period, in which, you know, we are all bed and sharing and making sure that we get stable. For a center-right party, clearly, taxes is not where we typically would want to go.
My expectation is that with technology, with improving, the tax collection system through digitalization, I mean, these taxes you talk about, we do not have to get new ones to be able to do what we have to do. Foreign exchange issues, I think we've all seen what happens when you don't have adequate foreign exchange. I think with regards to being able to restructure the debt, to give us a little bit more time, for that to happen so that we can manage our foreign reserves a lot better. Practically, it's the issue of generating foreign exchange, and therefore, we import maybe close to $2 billion worth of food. That's criminal. Rice, about $600 million. We launched new programs of being sort of rice self-sufficient, rice, maize, soya, and tomatoes.
Actually went to one of those farms, it's just fascinating to see that in four months we are harvesting rice. You know, we created some 10,000 hectares to do that. Then you wonder, 60 years, Africa, how can we not be self-sufficient in rice? I think it's just the reality of correcting our policy orientation, taking advantage of this polycrisis, you know, to look at things a lot more differently. I think we can pull through this in a good way. Yes, yes, we are not going to continue to increase taxes. We are hoping to be more efficient in collection, and that will stop that. With regards to foreign exchange, we need to reverse it.
The African Continental Free Trade is really, you know, a huge sign of moving from the issue of political, dialogue and, emancipation to economic emancipation, and I think that's where we are.
Thanks for that question. just before we take the final one from the floor, Honorable Minister, there was a question that came online. It came from Jean-Claude Clanke . He's from Stenham Capital Management , and his question is around confidence once again. How confident are you that you'll be able to grow foreign reserves again, and how confident are you that you'll be able to meet IMF requirements for fiscal consideration, consolidation?
Right. Thank you very much for that question. I mean, the... We came into government, you know, actually inherited an IMF program, supposed to take three or four years, within two years and a little, we exited that. Our capacity to do that is very clear to us. I think this is an existential crisis, which has brought things to a head, and that's where we are, where we are. In terms of the confidence to be able to ensure that we follow through with what we've agreed with the IMF, the Post-Covid-19 Programme for Economic Growth is our program, in which then the funds, structural, benchmark, et cetera, were around that. We believe that we can do it because we've done it before.
The numbers, 2017- 2020, suggest the type of trajectory that we're on until these incidents that occurred. Very confident about what we have to do these 18 months, and then somebody will say, Well, but you're gonna have elections at the end of next year. What does that mean?
Yeah.
Truly, I mean, I'm very clear that to be able to win the next elections, we are going to have to have a macroeconomic stability. It's not my building KVIPs or, you know, little roads or dams here and there that's gonna do it. The impact of currency depreciation is just so clear. Inflation, it's so clear. Given our need for the resources that we have programmed with the World Bank and with the fund, we need to follow these targets that we have set, and these are targets we set ourselves, and these are things that we have done before. That's where I'm confident that we can do that.
Once the political elite are clear, there is macro stability that will win the elections, I think we'll all be pushing in the same direction.
Great stuff. Let me just double-check in the room if there's any other one last compelling question. Going once, going twice. I think that's about it. Ladies and gentlemen, please give a round of applause for our delegation from Ghana. Thank you so much, gentlemen.
Thank you.
The speedboat. Yes, indeed. Thank you so much, Honorable Minister. I appreciate it. Thank you, Baba.
Right. Thank you.
All right. I'll see you at dinner, eh?
Yes.
All right. Great stuff. Ladies and gentlemen, that is a beautiful end to our day. Thank you very much to all of our panelists and our speakers today. It's been a very educational day and surprisingly, very positive day. I kinda thought, you know, it's gonna be one of those days where you hear about all the problems. I think we're all versed in the challenges. I think today was positive because we're all exploring solutions and we're debating the best solution, as opposed to kind of dwelling on the challenges. We had a great presentation from the team that covered the dynamics that are happening in South Africa, both macro and also the specific challenge around the electricity. Of course, the team from Nigeria, led by the very able Mr.
Bismarck, who did a very good presentation on what was going on, of course, the discussion that Karl contributed to as the CEO of MTN Nigeria. Then, of course, the speedboat wrapped it up for us this afternoon, and really set the tone for the evening that we're about to have. I'm sure there's a lot for us to talk about. The good news is that we actually have many of the people, in fact, 95% of the people that spoke today, joining us for dinner. Maybe there are some questions that you couldn't ask on the panel today, or maybe, you know, you just didn't think it was the right or appropriate time to ask the question. Please feel free to talk to them. I'm seeing nods from the front.
They're more than happy to talk to you. They made this trip to engage with you, please do engage with them as much as you can. Let me give you some specifics about tonight. A reminder, if you did Uber here or used any e-hailing service, you needed a trip to the venue for our dinner, shuttles are already waiting outside. Our start time is 6:30 for 7:00 P.M. Given Johannesburg traffic, my suggestion is, I know you're thinking about it, don't go home first. It's not gonna happen. Just drive or join the shuttle. Make your way to Melrose Arch. You can have a glass of wine or whatever just before we start this evening. Our venue is the Venue in Summit Place. The address is 39 Melrose Boulevard in Melrose Arch.
Please make sure you come to the right place over there. Also speaking with tonight, we also have a couple of dignitaries joining us. Of course, the Minister for Finance and Economic Planning in Ghana, Honorable Minister Ken Ofori-Atta, and his delegation will be joining us. We also have the Minister of Public Enterprises here in South Africa, Minister Pravin Gordhan. He'll also be joining us tonight, so don't be surprised if you see him. We also have the MTN Group Chairman, Mr. Mcebisi Jonas. He'll be joining us also for dinner, as well as the Group President and Group CEO, Mr. Ralph Mupita, and his executive team will all be there. Please use the opportunity to interact. Feel free to go to the tables and have conversations.
It's not one of those, you know, there's a VIP table, and there's the rest of us. No. There's all of us having dinner together, so feel free to go up and have conversations about some of the things we spoke about today. Going into tomorrow is focused on the strategy. We all have heard about it. We've heard Ralph talk about it a hell of a lot in almost every opportunity he gets, when he talks to the media and the market. Ambition 2025, leading digital solutions for Africa's progress. That's what the focus will be tomorrow.
You'll hear more from the CEO and the CFO right at the beginning and early in the day, and then you're gonna get some discussions from the people that lead these businesses, where you can engage in a lot more detail and granular detail on how the businesses are running. I'm gonna look at my watch to see if there's anything else that I'm missing so far. I don't think there's anything else I'm missing so far. All right. Ladies and gentlemen, it is 5:05 P.M. We will be starting at 6:30 P.M. You've got a bit of time. We will see you in Melrose Arch for dinner.