Tar59 ghana oil gas by Africa Report

SoUth africa Battle for the rainbow nation’s soul

KEnya/Uganda The race to first oil

w w w.t hea f r ic a r ep or t .c om

EU/aSia The world woos Africa

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the africa report

Ghana

What business wants Deficits and a commodity crunch force Mahama to listen to industry

monthly • n° 59 • april 2014

Charles Darko, MD Tullow Ghana

Kate Quartey-Papafio, CEO of reroy Cables ghana Edition

Algeria 550 DA • Angola 600 Kwanza • Austria 4.90 € • Belgium 4.90 € • Canada 6.95 CAN$ • Denmark 60 DK • Ethiopia 75 Birr • France 4.90 € • Germany 4.90 € • Ghana 7 GH¢ • Italy 4.90 € • Kenya 410 shillings • Liberia $LD 300 • Morocco 50 DH • Netherlands 4.90 € • Nigeria 600 naira Norway 60 NK • Portugal 4.90 € • Sierra Leone LE 9,000 • South Africa 30 rand (tax incl.) • Spain 4.90 € • Switzerland 9.90 FS • Tanzania 6,500 shillings • Tunisia 8 DT • Uganda 9,000 shillings • UK £ 4.50 • United States US$ 6.95 • Zimbabwe US$ 4 • CFA Countries 3,500 F CFA

Tonyi Senayah, CEO Horseman Shoes

groupe jeune afrique

KENYA/UGANDA The race to first oil

GHANA What business wants

EU/ASIA The world woos Africa

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GHANA What business wants

SOUTH AFRICA Battle for the rainbow nation’s soul

w w w.t heafr icarep or t.com

EU/ASIA The world woos Africa

SOUTH AFRICA Battle for the rainbow nation’s soul

KENYA/UGANDA The race to first oil

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contents

EU/ASIA The world woos Africa

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N ° 5 9 • A P R I L 2 0 14

THE AFRICA REPORT

Ghana

What business wants Deficits and a commodity crunch force Mahama to listen to industry

KENYA–UGANDA

After 20 years of freedom, activists want a new generation in power and an end to patronage politics

GROUPE JEUNE AFRIQUE

The AfricA reporT # 59 - April 2014

Charles Darko, MD Tullow Ghana

MONTHLY • N° 59 • APRIL 2014

Who gets oil first?

Battle for the soul of South Africa

Kate Quartey-Papafio, CEO of Reroy Cables

INTERNATIONAL EDITION

EAST AFRICA EDITION

GHANA EDITION

Tonyi Senayah, CEO Horseman Shoes

GROUPE JEUNE AFRIQUE

country focus

4 Editorial Africa and the sick men of Europe

43 ghana Home-grown solutions Business leaders push the government to promote local industries and introduce policies to benefit manufacturers

6 lEttErs 8 thE QuEstion

Briefing

10 signposts 12 intErnational cover crediTs: inTernATionAl: reUTers/s. sibeko; s. AbAbio for TAr - eAsT AfricA: foToliA; iillUsTrATion c. chAUvin/TAr - GhAnA: reUTers/s. sibeko; s. AbAbio for TAr; TUllow oil

14 pEoplE 16 calEndar

frontLine

66 lEadErs Congolese mobile app maker Carlo Lekea and Kenyan mining firm Base Titanium 70 financE Senegal, the donor darling

poLitics

70 hanniBal At the Africa CEO Forum

28 Eu-africa All roads lead to Brussels Trade, aid and security are on the table at the EU-Africa summit – not to mention tariff protection and peace-keeping mission funding

32 opinion Stephen Chan Stepping stones, quagmires and capacity 34 algEria The big men back Bouteflika 37 thE long ViEW Transparency tests Rangoon 38 nigEria Beyond Boko Haram 39 MoZaMBiQuE Succession choice 39 cÔtE d’iVoirE Gbagbo’s long shadow 40 anansi the africa report

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60 angola Iron snake, forked tongue The Benguela railway project brings new potential but opaque dealmaking 64 coffEE The speciality sector starts to blossom in Ethiopia and Burundi

18 south africa The battle for South Africa’s soul With the ruling ANC certain of victory in the coming national elections, attention turns to the countervailing forces within the party

31 intErViEW Andris Piebalgs Europe has still not discovered Africa’s potential

Business

dossiEr 72 oil and gas The race for oil in Kenya and Uganda; New licensing terms put pressure on margins; Libyan militias tout crude

Art & Life 82 Music Turning the tables Women DJs are spicing up the mix in clubs across Africa 86 in BriEf Zimbabwean artist Portia Zvavahera and Nigerian author Okey Ndibe 88 traVEl North Moroccan revival 89 lifEstYlE Spoek Mathambo and Tunis cafe culture 90 daY in thE lifE Edison Mwesiga, shoe-shiner

editorial

The AfricA reporT A Groupe Jeune Afrique publication

By Patrick Smith

57‑Bis, rue d’Auteuil – 75016 PAris – FrAnce tel: (33) 1 44 30 19 60 – FAx: (33) 1 44 30 19 30 www.theafricareport.com

Africa and the sick men of Europe

here is this knotty problem in European-African relations, and one side is really losing the plot. You see, there is this autocratic regime that is invading a neighbouring state, and the socalled continental organisation that is meant to uphold the values of non-aggression and national self-determination is weak and divided. Maybe it is waiting for a big power, like the United States or China, to help it sort it out. And then tribal politics is stronger than ever: in May, it is having elections where ethnic separatists and even ethnic cleansers are expected to do well. And that is before we get to the disastrous economies. Almost all the countries are staggering along with low growth rates, high deficits and crony capitalism while their finance ministers seem to have taken up residence outside the International Monetary Fund in Washington clasping an empty bowl. Well that is a shame about Europe, but what about Africa? Okay, Europe’s flatlining economies are an easy target these days. However, straitened economies in Europe should not lead to a failure of imagination when trying to develop a dialogue with Africa. But that is the risk ahead of the grand Africa-Europe summit in Brussels on 2-3 April at which many of the European delegates will have in their minds a view of Africa honed in the structurally adjusted and Live-Aided 1980s. To counter this, the more creative and better-informed diplomats in Brussels should convey the message to their colleagues of a rapidly changing Africa with a widening range of trading and diplomatic options. For example, Andris Piebalgs, the EU devel-

Cha i r m a n a nd f o und e r Béchir Ben yAhMed P ub l i s he r dAnielle Ben yAhMed publisher@theafricareport.com e x e Cut i ve P ub l i s he r JérôMe MillAn

opment commissioner who we interview in these pages, told us openly that too many of his colleagues see Africa “as a continent where you provide support, but where you don’t expect anything to come back.” The problem is, says Piebalgs, that European companies look to invest in China, Russia and the US. They do not imagine they can make the same level of returns in Africa. “We want them to see Africa differently, as dynamic in terms of growth […] that’s what this summit is about,” he says. It may be that as a Latvian, Piebalgs has How about an instinctive symrecognition pathy for small countries that get pushed in the around by big bullying new trade ones. But the European Commission should agreements give him something of Africa’s more to bring to the efforts table with Africa: how about a recognition in to produce the new multilateral locally? trade agreements of Africa’s efforts to build processing and manufacturing industries locally – that is, the right to protect them with tariffs? And, on the other side of the equation, to cut down the agricultural subsidy schemes that lock Africa’s exports out of Europe’s markets? On the positive front, Africa has the potential for gigawatts of solar power that experts say could be tapped within a decade or two. Why cannot Europe’s engineers join forces with Africa’s to speed up this development to produce cheap and green power for both continents? ●

m a r K e t i nG & d e ve l o P m e nt AlisOn KinGsley‑hAll e d i t o r i n Chi e f PAtricK sMith m a na G i nG e d i t o r nichOlAs nOrBrOOK editorial@theafricareport.com a s s i s ta nt e d i t o r chArlie hAMiltOn e d i t o r i a l a s s i s ta nt OheneBA AMA nti Osei r e G i o na l e d i t o r PArselelO KAntAi (east Africa) a rt & l i f e e d i t o r rOse sKeltOn s ub - e d i t o r s AlisOn culliFOrd MArshAll vAn vAlen P r o o f r e a d i nG KAthleen GrAy a rt d i r e Ct o r MArc trensOn desiGn vAlérie Olivier christOPhe chAuvin éMeric thérOnd P r o d uCt i o n PhiliPPe MArtin christiAn KAsOnGO r e s e a r Ch AnitA cOrthier P ho t o G r a P hy clAire vAtteBled o nl i ne JeAn‑MArie Miny Prince OFOri‑AttA sales sAndrA drOuet sOlène deFrAncq tel: (33) 1 44 30 18 07 – Fax: (33) 1 45 20 09 67 sales@theafricareport.com cOntAct FOr suBscriPtiOn: Webscribe ltd unit 8 the Old silk Mill Brook street, tring hertfordshire hP23 5eF united Kingdom tel: + 44 (0) 1442 820580 Fax: + 44 (0) 1442 827912 email: subs@webscribe.co.uk 1 year subscription (10 issues): All destinations: €39 ‑ $59 ‑ £35 tO Order Online: www.theafricareportstore.com d i f Co m internAtiOnAl AdvertisinG And cOMMunicAtiOn AGency 57‑Bis, rue d’Auteuil 75016 PAris ‑ FrAnce tel: (33) 1 44 30 19‑60 – Fax: (33) 1 44 30 18 34 advertising@theafricareport.com a d ve rt i s i nG d i r e Ct o r nAthAlie Guillery with AnnGie AvilA cArdenAs r e G i o na l m a na G e r s cArOline Ah KinG FAdOuA yAqOBi liliA BenAceur us r e P r e s e ntat i ve AzizA AlBOu a.albou@groupeja.com

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letters For all your comments, suggestions and queries, please write to: The Editor, The Africa Report, 57bis Rue d’Auteuil - Paris 75016 - France. or editorial@theafricareport.com

gmo Corporate takeover oF aFriCan agriCulture

SOUTH AFRICA Three divorces and an election

NIGERIA The Sanusi Legacy

EAST AFRICA Oil, gas & the new Great Game

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N ° 5 8 • M A R C H 2 014

GETTING

alundi Serumaga hits the nail on the head in his feature ‘The Seeds of the Privatisation of Knowledge’ [TAR58, March 2014.] The biggest threat of GMOs to African THE HARD WAY The new leaders behind agriculture is handing over control of seeds and Africa’s industrial renaissance their genetic biodiversity to multinational corporations, ultimately undermining food sovereignty and entrenching poverty. What we are witnessing today is the corporate hijacking of the agricultural agenda to push policies that support a model based on chemical inputs and GMOs, which could compromise this continent’s food sovereignty and biodiversity. A more resilient and foodsecure route to take is the ecological farming model. Ecological farming is rooted in seed and farming diversity; it ensures abundant and nutritious food for all without enslaving Africa’s most precious asset – small-scale farmers. Glen Tyler Agriculture Campaigner, Greenpeace Africa

RICH t

q Daphne Mashile-Nkosi

Bassem Loukil

u Aliko Dangote

t Innocent Chukwuma

UNITED STATES & CANADA EDITION

GROUPE JEUNE AFRIQUE

new mining regulations punish investors

PRINTED IN FRANCE

manuFaCturing strength is possiBle

Countries have rarely become industrialised without engaging in manufacturing [‘Getting Rich the Hard Way’, TAR58 Mar 2014]. Why has sub-Saharan Africa not had much success in following this path? Reforms focusing on macroeconomic stability and liberalisation have been gaining traction. Yet economic growth has not been accompanied by the structural transformation that creates jobs and lifts workers to higherproductivity activities. Fortunately, the policies required to foster growth Steve Schleg via Facebook in light manufacturing do not

I’d be more impressed if [countries] simply increased the amount of legal rights foreign investors have [‘Mining code shifts across the continent’, TAR56 Dec 2013-Jan 2014]. Without that legal guarantee the amount of investment into new projects will dry up. Why would you keep flogging the same investors over and over again for new contracts without extra legal protection? Why not simply make it easier for investors to open up new projects and make these new projects carry better terms?

necessarily include the large public sector investments. Governments can support industrialisation by identifying and removing the binding constraints in individual sectors. Low-cost, focused policies aimed at enhancing private investment could launch Africa toward competitiveness in light manufacturing. The impact of isolated successes could be multiplied, as demonstrated by Ethiopia’s foray into the European Union market for cut flowers: a single firm opened the door for an industry that now employs 50,000 workers.

Hinh Dinh Senior Economist, World Bank, Washington DC

are emerging markets less attraCtive? The key word to investors is ‘returns’ and they are more generally recouped in stable environments [‘The Question’ TAR58 Mar 2014; see also page 8]. This can vary greatly in countries across the continent. On a related note, the type of investment would surely depend on the investment vehicles. On the service/tech level, for example, Kenya has a more sophisticated direct mobile phone payment system than in Western countries. This is due to the lack of existing communications infrastructure and lack of financial viability to install traditional landlines; therefore, more modern forms of communications can go into the market at “entry level”.

Andrew Chupeau via Facebook

How To gET youR copy of THE AfRIcA REpoRT On sale at your usual outlet. If you experience problems obtaining your copy, please contact your local distributor, as shown below. ghana: GREENWICH MAGAZINES & BOOKS, Mr Ernest Asare, +233 (0)208 142 374, greenmaghana@gmail.com – kenYa: NATION MEDIA GROUP, Josephine Bonareri Abuga, +254 (0)20 32 88507, JAbuga@ke.nationmedia.com – nigeria: NEWSSTAND AGENCIES LTD, Solomon Otinwa, +234 (0)709 8123 459, newsstand2008@gmail. com – sierra leone: RAI GERB ENTERPRISES, Mohammad Gerber, +232 (0)336 72 469, raigerbenterprise@gmail.com – southern aFriCa: RNA DISTRIBUTION, Luisa Rebelo, +27 (0)11 602 9800 • luisar@magcservices.co.za – tanZania: MWANANCHI COMMUNICATIONS, Erasto Matasia, +255 (0)713 512 551, ematasia@ tz.nationmedia.com – uganDa: MONITOR PUBLICATIONS LTD, Stephen Eselu, +256 (0)702 178 198, seselu@ug.nationmedia.com – uniteD kingDom: COMAG, Mark Swan, +44 (0)1895 433791, Mark.Swan@comag.co.uk – uniteD states & CanaDa: LMPI, Sylvain Fournier, +1 514 355 5610, lmpi@lmpi.com – ZimBaBwe: MUNN MARKETING (PVT) LTD, Nick Ncube, +263 (0)4 662755, nickncube@munnmarketing.co.zw For other regions go to www.theafricareport.com

ADVERTISERS’ INDEX TOTAL p 2; HEIRS HOLDINGS p 5; NCT NECOTRANS p 7; SAHAM GROUP p 9; BOA p 13; DANGOTE p 17; STANDARD BANK p 23; LIEBHERR p 25; COMMERZBANK p 27; CBS p 41; TULLOW OIL p 42; SOCIETE GENERALE GHANA p 47; INTERPLAST p 49; ACTIVA INT. INSUR. p 51; KGL - KWATSONS GH. LTD p 53; AHS p 55; LABADI BEACH p 57; DDP OUTDOOR p 59; GLOBAL MEDIA ALLIANCE p 59; EMRC - AFIF p 67; EMS - WAMPEX p 67; AVCA p 69; TERRAPINN - SATCOM p 69; GLOBAL CAREER COMPANY p 71; SPINTELLIGENT - AUW p 71; ORYX SUPPLY & STORAGE p 75; ADEXEN p 77; GPP - EAOG p 77; EKO HOTELS & SUITES p 79; FRISOMAT p 81; KINCANNON REED p 81; COMPAGNIE INDUS. INTERN. p 81 ; TERRACE EAPI p 81 ; CNN p 91 ; SONILS p 92 the africa report

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the question To respond to this month’s Question, visit www.theafricareport.com. You can also find The Africa Report on Facebook and on Twitter @theafricareport. Comments, suggestions and queries can also be sent to: The Editor, The Africa Report, 57bis rue d’Auteuil, 75016, Paris, France or editorial@theafricareport.com

RESpOnSES to last month’s question:

africa’s GDP is growing but so too are africans’ waistlines, according to new data. the story of african malnutrition is well known, but is the continent now facing a new and equally deadly challenge: obesity?

Is Africa getting fat?

Yes Dr ZanDile MchiZa Senior specialist scientist, Chronic Diseases of Lifestyle Unit, Medical Research Council of South Africa

The World Health Organisation has shown that in 2009 Africans were fatter than they were in 2002 with predictions suggesting a progressive increase in the coming years. Unlike in high-income countries, in low- to medium-income countries, Africa included, women of all ages are the most vulnerable group. In addition to obesity being a strong risk factor for non-communicable diseases it also impacts the economics on the continent. Not so long ago Africans were grappling with under-nutrition, but today over-nutrition rivals under-nutrition with some countries such as South Africa, Seychelles, Mauritius, Mauritania and Gabon presenting unbearably high levels of overnutrition. Urbanisation has been implicated, in that the rise in caloric and fat intake in a region where exercise is not a defining part of the culture has also added to the overall increased percentages of [people that are] overweight and obese. In summary, in Africa, increasing urban migration has an effect on Africans adopting Westernised lifestyles. Moreover, Africa is recognised for its diversity in culture, traditional beliefs and attitudes, of which some are putting communities at risk of developing obesity and its co-morbidities. This, therefore, calls upon swift response by African governments to effect primordial prevention strategies that include health education and the regulation of sales of ‘energy-dense but nutrient-empty’ foods. ●

No naiDa Pasion Regional programme director, Save the Children, West and Central Africa regional office

Africa has a food problem. It is not, as is commonly thought, that there is not enough food; it is more often that millions of Africa’s poorest people cannot afford it. The reality for most people is not the threat of obesity but of hunger and under-nutrition. It is estimated that 5.3 million children suffered from severe acute malnutrition in the West and Central Africa region in 2012. Last year, more than 1.3 million children aged below five were treated for severe acute malnutrition in this region, which demonstrates the need to reach and treat even more children. These are children that face the possibility of mortality owing to severe wasting, a massive loss of body fat and muscle tissue, or nutritional oedema. Sadly, more than half those children estimated to be severely acutely malnourished will not receive appropriate treatment. Exacerbating the problem, conflicts such as those in the Central African Republic, Northern Nigeria and Northern Mali have forced more than 750,000 people to flee their homes depriving them of their land and other means of earning money. Africa is making great strides economically, and widening waistbands may be considered one measure of that success. But the dietary habits of an emerging middle class should not blind us to the fact that millions of Africans remain desperately poor – and tonight will sleep with little in their bellies. ●

Are emerging markets less attractive than they used to be? Although the growth of emerging economies was a bit slow in the past couple of years, due to various factors, the [IMF] World Economic Outlook has projected a growth of 5.1% in 2014 as compared with just 2% for the developed economies. The projected economic growth for India, since I am from there, would be seen in the second half of the year, especially because of the general elections due in the next two months. Rajesh Korde via theafricareport.com [Emerging markets] may be a little less attractive now relative to the US, where there is something of an economic recovery, but it’s worth remembering that not all emerging economies offer the same characteristics. Tomsp1 via facebook Or maybe that’s what they’d like you to think. Michele Mistry via facebook The emerging markets will always be attractive to those looking for both social and economic return on their investments. So maybe those who pulled out were never in for the long haul. Wycliffe Sande via facebook

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briefing

intErnational 1

1 2

china

$132bn

China’s military budget for 2014, an increase of 12.2% on last year. Following sabre-rattling over islands in the South China Seas, Beijing’s security spending will raise the hackles of neighbours concerned about China’s Blue Sea naval abilities in the Pacific.

EuropEan union

Transparency move The ball is in European MPs’ court on creating public registries of who owns and controls companies and trusts registered in the EU. Two key committees have voted in favour, and the parliament now has to ratify the decision. For campaign group Global Witness this is essential. “Public registries of the real owners of companies and trusts will give police, tax authorities, journalists and civil society a vital tool to track illicit money trails,” said Robert Palmer, money laundering campaign leader. “Ending anonymous companies [will help] to curb the corruption and tax evasion that keeps poor countries poor.” ●

AnindiTo MUkhERjEE/REUTERS

india

Pre-election clashes

Some 814 million Indians will head to the polls from 7 April to take part in the world’s largest election against a backdrop of bloody street battles between supporters of the Hindu nationalist Bharatiya Janata Party (BJP) and anticorruption campaigners. The colossal number of voters – more than the entire population of Europe – will cast their ballots over nine dates, ending on 12 May, with the results scheduled to be announced four days later. The election is being tipped as the most crucial in recent years with analysts predicting significant losses for the Indian National Congress party, headed by the Gandhi family, which has dominated Indian politics for almost seven decades, while Narendra Modi’s BJP is expected to make key gains. Meanwhile, anger is swelling among Indian urban youth who accuse the administration of failing to tackle corruption and of squandering opportunities for faster and broader economic growth. BJP supporters and backers of anticorruption group Aam Aadmi Party (AAP) – which means ‘common man’ – fought a pitched battle with stones and clubs in New Delhi before police used water cannons to disperse them on 5 March. ● 3

spain/morocco

Not safe to go into the water Ten years ago Spain spent more than €30m building up the barriers around Melilla and Ceuta, its two enclaves surrounded by Morocco, which offer the only land borders between Europe and Africa. In February Spanish military police in Ceuta, facing about 250 immigrants climbing the fences or swimming near the shoreline, fired rubber bullets into the sea, drawing outrage from EU officials and human rights activists. The Moroccan authorities claim seven drowned in the attempt to cross the border. ●

brazil

“We have

RoRiZ/AGEnCiA ESTAdo/SiPA

to respect privacy, human rights and the sovereignty of nations. We don’t want businesses to be spied upon” Brazil’s President Dilma Rousseff, on announcing an EU-Brazil undersea cable to circumvent US spying the africa report

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briefing

CAlendAr 20 yeArs of south AfriCAn deMoCrACy 24-26 April

MARCH

2-8 April JohaNNesburg | south AfriCA

17-19 March geNeva | sWitZerlAnd theafricaceoforum.com

AVCA ConferenCe 31 March-2 April Lagos | nigeriA avca-africa.org APRIL

eAst AfriCA ProPerty inVestMent suMMit 2-3 April Nairobi | KenyA eapisummit.com

ghAnA oil And gAs suMMit 8-10 April accra | ghAnA cwcghana.com

Wind energy suMMit south AfriCA 9-10 April cape TowN | south AfriCA windenergyupdate.com

oxForD | uK Deputy president of south africa Kgalema Motlanthe will deliver the keynote address at oxford’s african studies centre conference, which also includes a performance of Matthew hahn’s The Robben Island Bible and sessions looking at the aNc in power and the forthcoming 2014 election. africanstudies.ox.ac.uk

Hot on the heels of March’s Paris Fashion Week, a total of 29 South African designers will headline the three-day style extravaganza hosted in Johannesburg. the event, now in its 17th year, will feature designers such as Clive Rundle, Joel Janse van Vuuren and the winner of the Renault new talent Search, Laz Yani. the Week seeks to draw attention to the country’s blossoming design talent and provide a platform for the potential fashion gurus of tomorrow to break further into the mainstream. the show will feature the latest spring/ summer collections for 2014 and will be held at the Crowne Plaza. tickets are priced at R175 per person per show. safashionweek.co.za

london MArAthon 13 April LoNDoN | uK Mo Farah will make his full marathon debut, facing a field of talent including reigning race champion ethiopian Tsegaye Kebede and the world record holder, Kenya’s wilson Kipsang. 2013 women’s champion Kenyan priscah Jeptoo will also join runners from more than 50 countries to compete on this world stage. virginmoneylondonmarathon.com

iMf And World BAnK sPring Meetings 11-13 April

Western AfriCA oil, gAs & energy 14-16 April

washiNgToN Dc | us fundbankmeetings.org

wiNDhoeK | nAMiBiA petro21.com

AfriCA Business suMMit 28-30 April abuJa | nigeriA abrnetwork.org saFw

AfriCA heAlth ConferenCe 28-30 April gaboroNe | BotsWAnA corporateafricahealthfoundation.org

eAstern AfriCA oil, gAs & energy ConferenCe 28-30 April

AlgeriA PresidentiAl eleCtion 17 April

Nairobi | KenyA petro21.com

president abdelaziz bouteflika is standing for re-election for a fourth term (see page 34). MontH

festiVAl internAtionAl de louisiAne 23-27 April LouisiaNa | us This year’s world music festival in Lafayette includes performances by sierra Leone’s refugee all stars, Mali’s Tinariwen and Tuareg singer-songwriter omara ‘bombino’ Moctar. festivalinternational.com

hArAre internAtionAl festiVAl of the Arts 29 April-4 May harare | ZiMBABWe a week-long festival of theatre, dance, music, circus, street performance, spoken word and visual arts. hifa.co.zw

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Ulrich Doering/AlAmy/photo 12

country focus Ghana

Ghana’s growing import bill for fresh produce should spur local production

Home-grown solutions Business leaders insist that the government must use the current economic woes as an opportunity to revive local industries. Companies want new policies to benefit manufacturers, but public resources are limited, especially given the twin budget and current account deficits By Patrick Smith and Billie Adwoa McTernan in Accra

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he superstars of Ghana’s business scene are in a bind. Just as they are getting the ear of government and looking for dividends as the oil and gas industry starts up, the country is faced with its worst financial problems in more than a decade. Everybody’s favourite economy two years ago with world-beating growth rates, Ghana is now the the target of the rating agencies. Citing worries about the budget deficit remaining stubbornly above 10% of gross domestic product, Fitch downgraded Ghana’s local foreign debt to B from

country focus | ghana

its former B+ ranking in October 2013. This year, Standard & Poor’s listed Ghana among the top three emerging markets most vulnerable to changing capital flows as the United States (US) tightened its monetary policy: the other two countries were Turkey and Ukraine, both immersed in political crises. For now, Ghana’s woes are far more economic than political. The cedi has lost about a quarter of its value against the US dollar over the past year, making it Africa’s worst-performing currency after the South Sudan pound. In Ghana’s import-heavy economy, that in turn pushed inflation up to 13.8% in January, prompting serious rethinking in government about backing local production.

●●●

profit from a crisis

So in February, President John Dramani Mahama invited about 50 business leaders to a retreat at Peduase Lodge, the state guest house in the Aburi hills just north of Accra. Gazing down from the escarpment on the capital and its rapidly spreading suburbs, entrepreneurs and financiers explained how the combination of high interest rates, late payments from government agencies and intermittent power supplies is holding back their operations. Not all the conversations were apocalyptic. Do not let a crisis go to waste was themessagefromKwesiAmoafo-Yeboah, the chairman of Venture Capital Fund who was also at Peduase Lodge: “You buy a dilapidated building and instead of trying to renovate it, you tear down everything and rebuild it. I think that’s where we are.” The major part of the rebuilding is to redirect the economy towards production and export, away from consumption and imports. That means substantial public and private investment in the real economy, for example in manufacturing and processing, if the government’s Made in Ghana campaign is to become reality. Amoafo-Yeboah, a veteran of California’s information technology and oil services industries who was once an independent presidential candidate in Ghana, says the policy change is real: “We are finally heading in the right direction, which is why I’m so excited now.” The government is determined to cut Ghana’s import dependence and to double exports to $5bn within three years, according to Haruna Iddrisu, the trade and industry minister. Iddrisu ● ● ●

inTerview

John Dramani Mahama President, Ghana

We are listening to business The list of the government’s priorities for reform is long, from improving the business environment to cutting deficits and expanding the provision of free secondary education TAR: You spoke of the country’s serious economic problems in your state of the nation address. What is your strategy and when is Ghana going to get out of these financial difficulties? JOHN DRAMANI MAHAMA: The major problems – the twin [budget and trade] deficits – are due to several factors: the implementation of the single spine salary system which saw a ballooning of wages and salaries, and the delay in reducing subsidies on petroleum products and utilities. From the 2013 budget we’ve been implementing adjustments. But 2014 is the first full year of adjustment measures: reducing subsidies on petroleum prices and utilities; increasing value-added tax by 2.5%; introducing the national stabilisation levy and the special import levies; and also putting the brakes on wages. We’ve been in discussion with labour organisations to moderate the demands for wage increases. So the end of 2014 will be a better time to judge what progress we have made. Many people are saying your new foreign exchange rules

might exacerbate the problem by creating panic. We went from one extreme in a command and control environment, where foreign exchange was strictly controlled and the Bank of Ghana set the exchange rates, to the other extreme where our foreign exchange rules were so lax that speculators took advantage of them. In line with best practice around the world, we’re putting in the necessary regulations to ensure people play by the rules. The initial reaction was panic but clarifications have gone out. All existing agreements on investments still hold. The free zone’s guidelines and regulations still hold, so I think the investor community is reassured. Some of the government’s toughest critics are in business. When you convened meetings with the executives of these companies at Peduase Lodge, what did they want? We held one meeting with the big companies such as the telecoms giants, then we had the small and medium-sized enterprises. Different issues were raised, but we had a very lively dialogue. They

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Steve AbAbIo for tAr

You are also promising free and universal secondary education. That was the policy of your opponents in the last election. Your party said it was impractical. What has changed? We’re all on the same side and I think that it’s just the pettiness of our politics that makes us look like we were singing from different hymn sheets. The basic vision for secondary education is in our constitution, which says that we shall make it available to all children and that we shall make it progressively free. It’s just how it should be achieved that was the difference [between the parties]. Our intention is between now and 2016 to build 200 community-based schools across the country. Ours is a package that had to do with affordability but also with access and quality.

said we need strong public-sector reform to make the public service more client-friendly in terms of the private sector. A lot of complaints came about the revenue authorities and the speed with which they process tax refunds and duty exemptions. I think we have a major challenge there and that ran through all the three categories of companies that I met with. There were complaints about slowness of business registration, the Investment Promotion Centre and how we could make its services better. There was a major complaint about the length of time it takes to clear things from the port, the congestion in the port and illegal fees collected by various agencies the africa report

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in the port. It was a very, very comprehensive discussion.

mahama’s first year

You have launched the Made in Ghana campaign. Do you have a time frame for Ghana-made products to replace imports? I cannot produce enough rice with a click of a finger to make Ghana self-sufficient. There is no reason why we have hectares of arable land good for rice growing and yet we have to import $400m worth of rice every year. We have land for sugarcane, yet import nearly $200m worth of sugar a year. We’re going to target seven crops and if we put in the right investment we should reduce drastically the billions we spend importing these items.

DeC 2012 Elected President of Ghana

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aUG 2013 Supreme Court rejects the opposition complaint about the 2012 election feB 2014 The Bank of Ghana raises interest rates to 18% to fight the cedi’s slide

As public finances tighten, people are getting more concerned about losses to the state treasury. What are you doing to stop corruption and mismanagement? The national anti-corruption action plan was spearheaded by the Commission on Human Rights and Administrative Justice. The thrust of the plan is to make us look at corruption in a more systemic manner, not in the ad hoc and anecdotal manner we have done in the past. That plan is currently with parliament. The anti-corruption institutions will be be more independent and track corruption in a more aggressive manner. [The plan] also promotes transparency in government procurement. It also has accompanying legislation, like the right-to-information bill and an amendment to the whistleblowers bill. Do you know how much these losses to public finances cost each year? If you take the auditor general’s report alone then it appears that government losses – if you include misappropriations and lack of due diligence – are about ¢1.5bn ($580m) a year. ● Interview by Patrick Smith in Accra

country focus | ghana

was speaking to The Africa Report just hours after returning to Accra from Mauritius where he was negotiating for Omnicane to invest in a sugar plantation and refinery. “Plans are far advanced to relaunch Ghana as a sugar-producing country,” says Iddrisu. “We will be cutting the sod in June for a major sugar factory in Komenda in Central Region. It will be executed by Seftech of India. I have the no-objection clearance from the Eximbank of India to proceed.” Then he reels off a list of sugar projects targeted for his home region of northern Ghana, where he says the huge potential for commercial agriculture is largely untapped.

BURKINA FASO

●●●

Tamale TOGO

GHANA Kumasi

CÔTE D'IVOIRE

ACCRA Takoradi

150 km

Gulf of Guinea

Ghana by numbers PoPulation

25.37 million

GDP

$40.71bn

GDP Growth

7.9%

inflation

9.2%

life exPectancy

61 (2011)

literacy rate (% of people aged 15 and above)

71 (2010)

Public sPenDinG on eDucation (% of GDP)

8.1 (2011)

access to electricity (% of population)

60.5 (2010)

total reserves (includes gold, current US$)

5.8bn

education

ED C A Tteaching I O N Astaff L LEVEL Proportion of U full-time 80%

PhD Master’s

70%

Bachelor’s Others

60% 50% 40% 30% 20% 10% 0%

Public universities

PolyPublic technics colleges of education

Private tertiary

export/import levels EXPORT/IMPORT LEVELS 25,000 20,000

($m)

Exports Imports

15,000 10,000 5,000 0

2005

2006

2007

Dreams anD constraints

2008

2009

2010

Source: worLD bANK 2013, GhANA eDucAtioN Sector PerformANce rePort 2013, worLD bANK 2012

other $283m of fish, $226m of wheat and $169m of poultry last year. Yet cheap imports from the giant rice plantations of Thailand and Vietnam, which attract a 20% tariff, are easily outpacing local production. Rice imports in 2011 were 485.6m kg, that was a 65.5% increase in imports over 2010. Perhaps surprisingly, given that it was an election year, when rice imports often rise exponentially, Ghana rice imports grew by just 5.3% to 511.2m kg in 2012 and a further 12.8% to 576.9m kg in 2013. The $467m of rice imports last year may be a future business opportunity for rice growers, but it is a current opportunity for Ghana’s formidable import lobby. With their powerful tentacles in both the major political parties, the ruling National Democratic Congress and the opposition New Patriotic Party, the import lobbyists have had the resources and the personal connections to scupper any attempt to reduce their cut of the national economy. For the past two decades, imports of foodstuffs that Ghana produces locally have risen inexorably.

Iddrisu is similarly enthusiastic about expanding rice production and irrigation, again in northern Ghana, near Savelugu and also in Brong Ahafo. The government is talking to local and foreign investors about these projects, he says. Both Amit Agrawal of Olam and Nabil Moukarzel of Finatrade – currently a maFor two decades, imports of jor rice importer – went to foodstuffs that Ghana produces Mahama’s Peduase Lodge session and talked about locally have risen inexorably expanding rice production. Plenty of state support for rice and horThere are already some success storticulture as well as dam building is also ies, such as sugar. Imports of sugar fell being promised, at least for what Iddrisu to 215.8m kg in 2013 from 283m kg in defines as “bankable projects”. But with 2010. That trend could be reinforced huge constraints on state finances, the with the revival of the sugar project commercial commitment of those comin Komenda. But imports of fish and pany bosses invited to Peduase Lodge poultry have also gone up by over 25% from 2010 to 2013. That is probably due is going to be critical to the success of to the growth of the protein-hungry the Made in Ghana campaign. middle classes. Another initiative likely to concenSimilarly, edible oil imports have risen trate minds is the government’s new International Trade Commission, which by a third in the same period, most of it will review tariffs and import duties to palm oil from Southeast Asia, from counboost incentives for local producers and tries such as Indonesia and Malaysia, make importing less lucrative. Iddrisu which studied Ghana’s oil palm industry in the 1960s. Turning around local prowill be running the commission. It will have the power “to consider anti-dumpduction will take several years, which is ing measures and even a future ban on beyond the electoral schedule. some major imports into Ghana so long as we can guarantee their domestic procommoDities cruncheD duction,” he explains. But the toughest and most time-bound tasks will fall to finance minister Seth Just how steep is the climb to selfTerkper, whose repeated promises to resufficiency, even just in staple foods, is clear from these statistics from the Bank duce the budget and trade deficits have of Ghana and trade ministry. In last year’s been confounded by falls in the prices import bill, Ghana spent $467m on rice, of Ghana’s main exports – gold fell by $217m on sugar and $234m on edible 28% last year but has risen a little this oil – all commodities that the country year on the back of political instability produces already. Ghana imported anin Eastern Europe – together with ● ● ● the africa report

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● ● ● the country’s import bill and the implementation of a new public sector wage structure, which was not properly costed. Terkper insists that the systems are now in place to cut back sharply on waste and corruption in government, with a state contracts database and close monitoring of all state-sector procurement. At the same time the government will be raising more revenue from a 2% increase in value-added tax and a temporary fiscal stabilisation levy. But Terkper’s toughest negotiations will be with state employees. “The Economic Community of West African States

convergence guidelines stipulate that governments spend 35% of tax revenue on wages and salaries. We were at 4243%, but we went up as far as 55% and we are now trying to get it down.” Cutting that figure, even if he can substantially raise tax revenue when economic growth is slowing, means that Terkper will have to continue with a wage and hiring freeze on the public payroll. Indeed, ministers speak delicately about adjusting the size of the state payroll: the last time a government made substantial cuts to that was under the military regime of President Jerry John Rawlings and the cuts were

at the International Monetary Fund’s and World Bank’s insistence. This time the tough choices are all with President Mahama and his ministers when they meet at Flagstaff House. As Terkper will tell them, if the government does not get the deficits under control, it will be the markets not the economists in Washington that will be giving their verdicts and the cost of servicing Ghana’s foreign debt could spiral. As the government tries to fight off a financial crisis, it is broadcasting its determination to restructure the economy: this year may prove a decisive chapter in Ghana’s economic future. ●

Put the best foot forward Though government is now starting to talk the talk on helping business, it has yet to put local manufacturers in its procurement policies

t was about the best endorsement Tonyi Senayah, the founder of HorsemanShoes,couldhavehopedfor.Midway through his 90-minute state of the nation address toparliament in February, President John Dramani Mahama started talking about Senayah’s shoes. Starting his company in 2009 by importing shoes from La Paz, Bolivia, Senayah went on to design his own shoes and to train young people in his home town of Kumasi to make shoes. “And, Mr Speaker,” Mahama continued, “they are very nice, very comfortable shoes. In fact, I am wearing a pair right now.” Since then Senayah’s shoes have become a flagship for the government’s Made in Ghana campaign. In April, 30-year-old Senayah will open his first shop in Accra and is setting his sights on contributing to the local and export market: “It is imperative for us as manufacturers to up our game in terms of improving the quality of our products and services,” he says. “We need to meet world standards.” Despite the presidential publicity, Senayah has been openly critical of the government’s failures on power and public services. Most of all, he wants the government to get serious about buying from

Steve AbAbio for tAr

Tonyi Senayah (left) and Kate Quartey-Papafio want the government to use the huge leverage of its procurement spending to support local manufacturing

Ghanaian manufacturers. If government insists that the hundreds of thousands of shoes that state agencies buy must be made in Ghana, it would transform the economics of local manufacturing, says Senayah. It’s the same message from Kate Quartey-Papafio, chief executive of Reroy Cables, the main supplier of locally made cables to the Electricity Company of Ghana (ECG), GRIDCo and the Volta River Authority, the three main electricity companies in the country. Reroy started inthelate1980sby importingfromBritish Insulated Callender’s Cables and then went into semi-finished products and set up its own manufacturing plant in 2007. Quartey-Papafio is gearing up for higher demand as the economy bounces back: “We’re looking at making other

components and accessories. Now is the time to build our capacity.” But, like Senayah, she wants government to prioritise the buying of locally made products: “ECG should put us in their planning [...] tell us what they need for the next five years.” Both Senayah and Quartey-Papafio attended a special meeting of local companies convened by President Mahama at Peduase Lodge and made clear what needs to be fixed. “Interest rates and the cost of borrowing, late payments [by state agencies] and access to foreign exchange,” Quartey-Papafio reels off a list of the priorities. Reroy already exports to Togo, Benin, Burkina Faso and Nigeria. Quartey-Papafio plans to expand the company’s product range and sell P.S. and B.McT. to other regions. ● the africa report

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increase in utility prices in October 2013. The completion of the country’s gas processing plant was expected to ease power problems, but it has been delayed. Tullow Oil,oneofthemainpartnersattheJubilee oil field, has resorted to flaring gas. Ghana National Gas Company chief executive George Sipa-Adjah Yankey (2) said in January that gas should come online by May. In the same month, however, energy minister Emmanuel Armah-Kofi Buah said it was unlikely the oft-shifted deadline would be met.

PeoPle To WATch

Economists waver; technology stars are on the rise While ministers struggle to prop up the cedi, a new wave of industrialists and tech entrepreneurs are providing an economic jumpstart of their own

data centre delays

omgghAnA

o stabilise the cedi and reduce the current“excessivedependencyon imports” is the order of the day, President John Dramani Mahama told journalists at a meeting on 11 February. Following the cedi’s rapid depreciation over the past year, the government has been under pressure to rescue the currency. In January, some members of parliament called for the sacking of Bank of Ghanagovernor HenryKofiWampah (1) who, together with finance minister Seth Terkper, then took to issuing new measures to get the cedi back on track. Also part of the government’s economy-boosting agenda is a renewed effort to encourage locally made goods. Crucial to this move is the Association of Ghana Industries (AGI). One member of the association is Comfort Aniagyei, founder and managing director of promotion and marketing company GhanaMade. In December 2013, GhanaMade receivedaspecialrecognitionawardfrom the AGI for its efforts in championing the cause of local production. Alongside running her own company, Aniagyei is also director of finance for the Ghana National Petroleum Corporation. Asthegovernmentmovestooffermore considered support to manufacturers, as explained by trade and industry minister Haruna Iddrisu, it will have to consider the country’s erratic power supply. In February, Ghana Grid Company embarked on a load-shedding programme after system failures occurred at the Volta River Authority’s thermal plant. The exercisecameayearafterthecountrysuffered chronic power outages over a period of six months. In January, the government gave assurances that there would be no load-shedding this year. The use of generators will also prove pricey following the government’s removal of fuel subsidies in June and an

Chris stein for tAr

Elsewhere in the cabinet, communications minister Edward Omane Boamah has settled into the position he took up in January 2013 when he replaced Idrissu. Omane Boamah has been overseeing the completion of the $30m national data centre, which will handle all of the government’s data and eventually also house the communications ministry. Political insiders tell The Africa Report that the minister is fighting delays to finishing the centre, which is now expected to reach completion in the first quarter of 2014. It marks an important move to centralise digital information. The ministry is also working on the second phase of establishing community information centres across the country, with a particular emphasis in providing educational resources to communities in the northern regions. Capitalising on the technology revolution is young entrepreneur Derrydean Dadzie (3). Dadzie is the 31-year-old founder of DreamOval, a consultancy and software solutions company whose clients include Ghana Commercial Bank. Having founded the company at just 24, Dadzie is also working on establishing Dreamville, a proposed research and training site for budding technologists. He is just one of a growing number of young people working with technology in Ghana. In January, BloggingGhana – a group of 100 or so bloggers – launched a crowd-sourcing campaign to fund the country’s first physical social media hub. During the 2012 elections, the organisation led the Ghana Decides project to inform the electorate before and after the vote. The group’s newest project is Inform Ghana, a platform that enables the sharing of information on health, education, governance and education to encourageinteractionbetweenmembers of the public and civil society groups. ● Billie Adwoa McTernan in Accra

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Tel: + 233 302 685 118-120

Tel: + 233 302 686 352 Fax: +233 302 672 145

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country focus | ghana

Kumasi

Traders and factories look to the future

An investment programme and the revival of shoe manufacturing are two ways the capital of the Ashanti Region plans to boost the local economy

f any more proof were needed of Kumasi’s importance as a regional trading centre, the arrival in Ghana of 15 Malian traders on camels in February made the point. The police stopped the traders at Mampong, but they were en route to Kumasi, where they hoped to sell herbal medicine. Kumasi’s role as a commercial centre dates back to the heyday of the transSaharan trade routes. Today, Kumasi is ringed by new highways, the railway line to the coast is being rehabilitated and there are daily flights to Accra, Takoradi and Ouagadougou. According to trade minister Haruna Iddrisu, Ghana is emerging again as a major trading hub. “We are making a paradigm shift in the structure of the economy. The government is backing new projects to produce sugar, rice and vegetable oil across the country,” says Iddrisu as he lists several new projects in Brong Ahafo and Northern, Central and Western regions.

At the crossroads of the country, Kumasi will play a key role in this wave of expansion. Kumasi is also the capital of the Ashanti Region, and the region is rich in mineral resources, particularly gold. The farms of Ashanti grow yam, plantain and the high-quality cocoa that has been the lifeblood of Ghana’s export economy. In Asokwa and Kaase, the industrial areas of Kumasi, there are timber-processing factories. The vibrant central market in Kumasi is recovering from a fire that gutted

about 100 shops at the end of February. The fire was the second at the market in the past nine months. Traders blame unprotected electrical cables for the conflagrations. Despite calls from the Ghana Fire Service last June for the market to be rewired, there has been little progress. Traders, who pay taxes to the Kumasi Metropolitan Assembly (KMA), complain that little has been done to improve facilities. Private companies are putting up most of the new buildings. The city authorities did complete a new footbridge in the Central Business District last August, which has relieved some of the worst congestion for traders. towards millennium goals

Kojo Bonsu, the chief executive of the KMA, says he is committed to boosting the city’s profile. In 2006, Kumasi joined the Millennium Cities Initiative, a Columbia University programme that helps cities draw up sustainable development strategies to achieve the Millennium Development Goals. Under that programme, the city launched the Kumasi City Investment Promotion Unit in 2012. The number of trees the Kumasi Metropolitan Assembly Kumasi’s reputation as the has pledged to plant over the next four years ‘Garden City’ has declined as forests have been cut down and gardens neglected. Bonsu plans to plant a million trees over the next four years. The programme will begin in May. “If the last tree dies, the last man dies,” he says.

1 million

fotoliA

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The mêlée at Kumasi’s central market recalls its position at the centre of historical trade routes

“The vision to transform the KMA and lives of people in Kumasi is to deepen the education of youth to have an educated and better informed populace,” says Bonsu. But there are worries about a brain drain. When graduates from the Kwame Nkrumah University of Science and Technology in Kumasi – one of the country’s best tertiary institutions – complete their studies, they regularly flock to Accra in search of work. More productive investment could reverse this trend, and some important new and rehabilitated projects suggest economic changes ahead. A good example is the Kumasi shoe factory. The government built it in 1960 under founding president Kwame Nkrumah with help from Czechoslovakia. After Nkrumah’s overthrow in 1966, the stateowned factory fell into disuse and was sold off by President John Kufuor’s government in 2002.

The factory now belongs to Defence Industries Holding Company (DIHOC), jointly owned by the Ghana Armed Forces and Knight Ghana, a subsidiary of a Czech company. At the factory, an assembly line churns out boots for soldiers and police. About 50 workers are employed there, but the factory is not at full capacity. A further three assembly lines are due to be installed by the end of July. seeking hides

also buy shoes for students, and the government could subsidise the cost of locally made footwear. “This is Ghana. When we buy from here, we are opening up opportunities for the youth to be employed,” says Koranteng. “We also pay taxes to develop this economy. Why are we opening tenders, importing from all these other countries and then helping build someone else’s economy?”

Kumasi has the potential

The factory imports leather to become a manufacturing but that could change, according to Kingsley Asiedu hub for the whole region Koranteng, the acting genThe company has raised the issue eral manager of DIHOC’s footwear with the authorities. As the remaining division. “We need to have the hide in Ghana, but at the moment we don’t 60% of holdings of the factory belong even have the farms for the cattle,” to a Czech company, the Czech ambassador to Ghana, Miloslav Machálek, he explains. There is a defunct hide has also played his part in calling on the processing factory on the compound. government to encourage local produAlthough the Ghana Armed Forces cers. “If we can build Kumasi as a manhave a 40% stake in DIHOC, there is no contractual obligation for the minufacturing hub, then Ghana would be istries to buy its products. Koranteng doing better.” ● Billie Adwoa McTernan in Kumasi says the ministry of education could

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the Tweneboa-Enyenra-Ntomme fields to the west of Jubilee should add another 80,000bpd. Companies have had technical problems too. Last year maintenance at the Jubilee field and some unexpected engineering issues meant they had to cut production. They have now asked the governmenttowaiveitsbanongasflaring for a limited period. This follows a failed attempt to drill another gas re-injection well and continued delays in the commissioning of the gas processing plant at Atuabo in Western Region. Gas policy is politically contentious. Flaring means wasting a vital energy resource. Opposition parties and civic groups have lambasted the management of the Ghana National Gas Company (GNGC) under chief executive George Sipa-Adjah Yankey. Critics claim China’s Sinopec was not the best choice to build the plant because the company’s strengths are in oil production and the price of $690.6m is uncompetitive.

The Kwame Nkrumah FSPO unit reflects high hopes at Jubilee

energy

The gas processing plant at the end of the rainbow After a series of delays and technical problems affecting the whole value chain, the state-owned petroleum company’s new chief executive promises lift-off in July

il and gas – the great game changers – have taken Ghana’s economyonarollercoasterride. Trailing great expectations for revenue and industrial development, the start of oil exports in 2012 made Ghana one of the fastest-growing economies in the world that year. After a chapter of accidents, the International Monetary Fund (IMF)forecastsGhana’seconomicgrowth could shrink this year to 5.5%, around a third of its level two years ago. Finance minister Seth Terkper told The Africa Report that delays and shortfalls in the oil and gas industry were two of the reasons for the current foreign exchange crisis and for the government missing its targets to cut the budget deficit. “On the revenue side, one of the biggest problems was the shortfall in petroleum receipts last year. We lost around ¢800m [$315m]. Another problem was the breach in Nigeria’s gas supplies,” Terkper explains. This lack of gas – because of the breakdown of the West African Gas Pipeline

leveraging oil assets

Tullow

Terkpersays thedecisiontouseaChinese contractor, which would allow the government to draw on a $3bn credit it negotiated with the China Development Bank, was based on financial realities. “We spoke to several private-sector contractors, and they all demanded a sovereign guarantee for the finance,” he says. Such a guarantee would have breached the debt ceiling imposed by the IMF after Ghana was reclassified as a lower middle-income country. Instead, Sinopec is being paid indirectly out of Ghana’s oil exports through a complex system that Terkper insists is far more accountable than conventional countertrade deals: “We are leveraging the value of our oil assets, not collateralising them.” On 10 March, the GNPC’s Mould announced the main engineering and mechanical work on the gas plant would be finished by the end of the month, and that the full commissioning of the system would take another three months. If he’s right and the gas starts to fuel the power stations, this could be the beginning of a muchneeded turnaround in Ghana’s energy industry. ●

from Nigeria and from Ghana’s own offshore Jubilee field – cost the country about $1bn in oil imports last year, a former senior official at the state oil company says. These are the headaches inherited by Alexander Mould, who took over as chief executive of the state-owned Ghana National Petroleum Corporation(GNPC)inOctober2013. Although officials forecast that oil production could morethandoubleto250,000 barrels per day (bpd) by the beginning of the next decade, production now stands at just over 100,000bpd. This is all from the Jubilee field, which has the capacity to produce at least The Ghana National Petroleum Corporation 120,000bpd. forecasts oil output to increase by the beginning of 2020 In two years,

250,000

Martin Yeboah and Patrick Smith in Accra

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finance

A smaller fistful of dollars The government has restricted forex transactions and raised interest rates to protect the value of the cedi, which has been in decline for several years

ou know you are in trouble when pastors are seeking divine intervention for your currency. On the Sunday that followed the Bank of Ghana’s attempt to halt the flow of dollars out of the country, Ghanian preacher Archbishop Duncan-Williams commanded the cedi to rise in the name of Jesus, and asked his congregation to pray for the currency’s health. On 4 March, exactly a month after the imposition of restrictions on foreign exchange (forex) activities, in part to stem the downward spiral of the exchange rate, the regulator took out a full-page advert in the dailies. Offering “clarification to notices” on forex trading, it aimed to calm the nervesofparticipantsintheforex market and reassure the business community of the good intentions of the directives, which sought to reinforce the provisions of the various financial laws already in place, for example the Foreign Exchange Act of 2006. parallel currency

The restrictions in forex trading are part of a series of problems currently challenging the Ghanaian economy. They include the behaviour of the currency, high interest rates, inflation, increasing levels of national debt and reduced commodity prices. The sharp decline in the exchange rate appears to have triggered a second look at parallel currency usage in Ghana. The government had given some service providers, such as hotels, exemptions to allow them to quote their rates in United States dollars. Others jumped on the bandwagon with dollar quotations for rent,schoolfeesandevencabletelevision services. The regulator cancelled all such exemptions and directed all businesses to state their fees in cedi.

At an exchange rate of ¢0.90 to the dollar in 2007, the cedi depreciated to ¢2.56 in February. The drop was so marked that the regulator imposed restrictions on operations of foreign exchange accounts and foreign accounts as well as the repatriation of export proceeds. In line with other emerging markets experiencingsimilarrunsontheircurrencies, the central bank increased interest rates by adding 2% to the policy rate, peg-

The cedi’s exchange rate with the dollar slipped from ¢0.90 in 2007 to ¢2.56 in February 2014

ging it at 18%. The effect of the high interest rate has, among other things, made the cost of doing business expensive. “The issues confronting Ghana are not unique”, says finance minister Seth Terkper. “We have an exposure in terms of our bonds, we have exposure in terms of seasonality, we have a direct exposure

[...] when the dollar changes, it affects gold. Part of the problems we are facing are global in character.” The pressure of inflation, currently at 13.8%, is also adding to the economic challenges as the central bank’s latest outlook on inflation predicts that the “government is likely to miss [its] inflation target for 2014 [of 9.5%]”, just as it missed last year’s target of 9%. Acknowledging the government’s relatively high debt stock, President John Mahama, in his February state of the nation address, said: “Our domestic debt and the current high interest rates are a major challenge to the economy.” commodities to blame

Speaking at the American Chambers of Commerce Summit in Accra in February, vice-president Kwesi Amissah-Arthur attributed the depreciation of the cedi to a decrease in commodity prices, with gold and cocoa both dropping 20% in value since 2011. “In 2013, Ghana lost $1.3bn [in] potential export revenue due to price declines on these two products,” he said. The forex trading restrictions have dampened economic activity. According to one bank chief executive: “It is not business as usual.” Bankers hope this will lead to only short-term problems. In its latest assessment of the Ghanaian economy, the International Monetary Fund urged the government to “address the short-term vulnerabilities, contain rising public debt levels and reduce interest rates” in order to stabilise the economy and support private-sector development, growth and employment creation over the medium term. ● Nana Otuo Acheampong in Accra

Luc GnAGo/ReuteRs

The government’s restrictions address a currency that has been in freefall since 2008 the africa report

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VOTED 5 â&#x20AC;&#x201C; st a r hote l o f the ye a r * A new conference centre for 600 delegates opening in Februar y 2014

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country focus | ghana

interview

James Asare-Agyei President, Association of Ghana Industries (AGI)

We need local content and local participation the agi is lobbying for ghanaian companies to play a larger role in the economy through the creation of new financial institutions and legislative measures TAR: To what extent do the recent Bank of Ghana foreign exchange (forex) reforms affect businesses? JAmes AsAReAGyei: With the new measures, it makes it quite difficult for businesses. We are asked that all foreign exchange proceeds are repatriated within 60 days of export. [But] what if the trade agreement goes beyond 60 days? Are there going to be any sort of sanctions for the exporter? Once these export proceeds come in, within five days of their recourse to the account holder you have the foreign currency or the proceeds converted to the Ghanaian cedi. Once it is converted and you also need to import your materials, what do you do? Do you go back and then buy at a higher rate? What are the other challenges facing local manufacturers and producers? There [are] challenges like the cost and availability of credit. At the moment, commercial banks are giving credit facilities [at] between 27% and 30% [interest], which is highcomparedtosomeeconomies where you can get 2%. So how are

ChrIs steIn for tAr

you going to be competitive? How do you get credit at more than 30%, beabletopayalltheoverheadsand make a profit? The second thing has to do with the availability of power. The cost of utilities keeps rising, and there are companies that rely heavily on power, like the steel companies. The increases definitely affect them and mean they are not competitive. inhisFebruarystateofthenation address President John Dramani mahama announced plans to boost locally made goods. Have you seen a concerted effort towards this? We at AGI are encouraged by some of the initiatives that were mentioned, however we want to see it become a reality. We want to see imports of raw ma-

“We are encouraged by some of the initiatives, but we want to see it become a reality” terials and finished products reduced and make the economy an export-driven economy. The issue has to do with making efforts to [encourage] people to accept products made here. There are a lot of high-quality products [but] sometimes their prices are quite deterring. You have to be able to build the capacity to take advantage of the economies of scale. Building capacity involves building financial capacity, human resource capacity and other forms. We need to

grow our businesses so that we [can] build the quality products and also bring down prices. These things are medium- to long-term measures so we need to make the effort and take deliberate steps. We have launched the Made in Ghana products process. We need to eat what we produce, and we should produce what we eat. Do you think a local content bill could be extended to other sectors? We need to go beyond the oil industry and ensure that other sectorsarealsocovered.We’relooking at the mining sector, energy sector and other areas to be brought on board. We’re not only looking at local content but also local participation. Local participation goes beyond local content in the sense that it brings about ownership of some multinational companies. When you were elected you announced plans to set up a bank for small and medium-sized enterprises. is this still on your agenda? We are working seriously on that. There is a huge gap in the medium- to long-term financing. Almost all the banks operate on a commercial basis in that they give short-term loans that cannot be used for capital expenditure. We at AGI feel there is a need for us to get an industrial bank that will serve the needs in terms of medium- to long-term financing. ● Interview by Billie Adwoa McTernan in Accra

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dossier oil & gas

Kenya-Uganda

Who gets

oil first?

By Jeff Mbanga in Kampala and Parselelo Kantai in Nairobi

Oil companies are keen on Kenya’s prospects while firms in Uganda engage in long and difficult negotiations on infrastructure and production contracts. Kenya could edge Uganda out with first exports in 2016

illustratioN By christophe chauviN

he race is on between Kenya and Uganda to become East Africa’s first commercial oil producer. Both countries plan to start oil production within the next few years, and regional cooperation will be necessary for infrastructure projects to move ahead. The Ugandan government signed a memorandum of understanding with France’s Total, the United Kingdom’s Tullow and the China National Offshore Oil Corporation (CNOOC) on 5 February, after more than a year of slow negotiations. In Uganda, Tullow discovered an initial field containing an estimated 1.1bn barrels in 2006, but current plans call for production by 2018 at the earliest. CNOOC signed a production contract for the Kingfisher field last year, while Tullow and Total await the signature of a series of contracts. Rather than jumping into action following the signing of the February memorandum, Total has been cautious, while Tullow has been confrontational, showing its frustrations at the pace of development. Tullow’s chief operating officer Paul McDade told the Wall Street Journal on 12 February that the company could reduce its activities in Uganda to finance its projects in Kenya because the fields there are easier to exploit and the government is more supportive. Tullow said that Kenya could beat Uganda to become East Africa’s first oil exporter by starting exports in 2016. When asked for comment on the developments, Total Uganda’s corporate affairs manager, Ahlem Friga-Noy, urged patience and said: “Detailed discussions will soon take place between the government of Uganda and the partners to identify the concrete steps and actions to be taken to ensure a smooth implementation of the memorandum.”

One of the causes of delay has been the Ugandan government’s insistence on building an oil refinery. The planned refinery will have an initial capacity of 30,000 barrels per day, which could be raised to 60,000. The government has shortlisted six companies that could build the plant and expects to announce a winner in the first half of this year. It wants a privatesector company to take up a 60% shareholding, while the government takes the remaining share. Refining the excuses

3.5bn barrels of oil reserves in Uganda, according to new estimates

10bn Estimates of Kenya’s oil reserves in the Turkana Basin

Progress on the refinery is not going according to plan, however, owing to difficulties in compensating families living around the 29km² site in Kabaale, Hoima District, in western Uganda. A draft December 2013 report on development in the region around Lake Albert, where the oil is found, said that many households were dissatisfied with the payout, while others quickly spent the money without developing plans for resettlement. It suggests that this could further delay the refinery. President Yoweri Museveni’s government wants countries in the region to purchase small stakes that will reduce its total shareholding in the refinery. At least $12bn of investment is needed for Uganda to produce oil by its target year of 2018. That includes a planned pipeline, which is expected to cost between $2.5bn and $5bn, to reach the Kenyan coast at Lamu or Mombasa. Talks on the Lamu pipeline have stalled because of fighting in South Sudan, where the Juba government could use the export outlet to reduce its reliance on pipelines through Sudan. Construction of the pipeline and refinery could begin next year. The government has not decided if it will insist on owning part of the pipeline. “The decision on whether the government will in-

dossier | oil & gas

vest in the pipeline or not is dependent on the structuring of the investment [...] This decision will therefore be made later when the financing structure has been decided,” explains commissioner Ernest Rubondo of the energy ministry’s petroleum exploration and production department. greasing the taps

With production yet to begin, the government is already showing signs that it will have difficulty managing the oil revenue. Parliament is set to debate the amended Public Finance Bill 2012, which seeks to create a petroleum fund, among other things, under the auspices of the central bank. The government’s first proposal was to split the fund into two accounts. A reserve account would hold money for future generations, with strong limitations on who could access it, while a holding account would be used to support the national budget. The government no longer supports protecting revenue for future generations. In October 2013, finance minister Maria Kiwanuka argued: “The split effectively prohibits the government from ever accessing the principal of the Petroleum Investment Reserve for budget financing. This is likely to prove incredible in a country with relatively limited oil reserves and large long-term development needs.” Civil society groups are opposed to the government’s change of position. There has been more momentum on the Kenyan side of the border after Tullow made its discovery at the Ngamia-1 well in 2012. Tullow and its Canadian partner African Oil Corporation are in talks with the government to launch field development and the construction of an export pipeline by next year. Africa Oil announced in February that it will drill 20 wells in Kenya and Ethiopia this year. Despite companies’ statements about the government’s support for the industry, it has been slow to set up frameworks. While Kenya’s constitution makes sound provisions for the equitable sharing of mineral resources, the laws that

Tullow explored in Uganda but may divert funds to Kenya, where it feels it is getting more support

Number of wells Africa Oil Corporation has announced it will drill in Kenya and Ethiopia in 2014

Tullow oil uganda/HandouT/reuTers

give the executive a broad discretionary mandate on how to exploit the country’s natural resources have not been updated for close to 30 years. “ The upstream game is shrouded in secrecy. We know that the Turkana Basin alone contains about 10bn barrels of oil – that’s between three and five times Uganda’s known deposits. But the government is yet to clearly articulate what it is going to do with the oil, for the country generally and the people of Turkana specifically. What, for instance, are the terms of the production-sharing agreements with Tullow?” asks Mohamed L. Baraka, a petrochemical engineer with decades of experience in the oil sector who now runs a downstream oil company. regions demand share

But secrecy should not be understood to mean inactivity. In February 2012, then finance minister Njeru Githae requested a visiting International Monetary Fund (IMF) mission to draw up a fiscal policy framework for the country’s extractive industries. The IMF team delivered its confidential 81page report last April. It makes a

number of recommendations on how to design production-sharing agreements. Notably, the report’s authors introduce what they refer to as the ‘R-factor’ – a built-in ratio that automatically adjusts revenue shares after tax when oil prices rise above existing or anticipated prices. It is not clear how far the government has gone in implementing those recommendations. While a review of the Mining Act is close to being tabled in parliament, there is no word on the progress of a Petroleum Act that would shape the emerging upstream oil sector. But the unaddressed issue of resource sharing is making little progress. Indeed, as the country moves into production mode, the questions of regional equity are only likely to grow stronger. Last year, Tullow’s operations at its Ngamia-1 well were shut down for a month as locals picketed the company’s office demanding jobs. As an indication of the rapidly changing infrastructure terrain, oil services companies – notably Halliburton, Baker Hughes and the Egyptian firm Saxon Energy Services – have set up shop in Turkana, expanding from their Uganda operations. ●

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dossier | oil & gas

interview

Nick Cooper Chief executive, Ophir Energy

This is our most exciting campaign the London-based oil and gas explorer, Ophir energy, is appraising gas finds in equatorial Guinea and tanzania that will be developed into major projects by 2020

Ophir EnErgy

phir Energy, an Africafocusedexplorerfounded in 2004, has entered into a crucial year as it appraises major gas fields. With about 1.25bn barrels of oil equivalent in reserves, Ophir is due to make investment decisions on two of its most promising projects within the next few years. Ophir chief executive Nick Cooper tells The Africa Report: “We are in the middle of what we would see as the most exciting campaign we have ever drilled.” Ophir holds an 80% stake in Equatorial Guinea’s Block R, and the company expects to develop Africa’s first floating liquefied natural gas (FLNG) project. Ophir will drill three wells, in a mixture of appraisal and exploration, this year, says Cooper. “In Equatorial Guinea, the main event is around appraising the gas and finding a bit more gas for the FLNG project. But in addition there is the potential that the Niger Delta oil play extends under the acreage, and so we will be testing that.” The company now estimates that it has 2.6 trillion cubic feet (tcf) of recoverable reserves in Block R and

that this year’s drilling will take it up to more than 3 tcf. Cooper says backing the FLNG projecthasbeenalearningprocess both for the company and the government. “FLNG has been talked about for a long time, and I think there was a fair bit of cynicism around it. That said, incrementally, all the parts of the project have been proven elsewhere.” He says Ophir and the Malabo government are both seeking to maximise value: “It is possible to structure them [FLNG projects] like the gas equivalent of an FPSO [floatingproduction, storage and offloading] project, where the oil compan-

ies do not need to own the vessels.” Ophir expects to make a final investment decision by mid-2015 and to produce first gas by 2018, at least two years before LNG projects in Tanzania take off. Ophir partners with BG Group on Blocks 1, 3 and 4 in the Tanzanian offshore. “The scale of the project at the moment is two 5m tonne trains. Each 5m tonnne train needs about 6 tcf recoverable,” explains Cooper. He says that before the year is over, the company is likely to have discovered enough gas to supply a third LNG train. partners to develop

Ophir holds a 40% stake in those Tanzanian blocks, and its activities there highlight the company’s business model. It is in the process of selling a 20% share, valued at $1.29bn, to Pavilion Energy, a subsidiary of Temasek, a Singaporean investment fund. Cooper explains: “Our cost of capital is a lot higher than that of a big oil company, whichmeansweareveryprepared to fully fund and undertake big exploration programmes, and we do that. But when we get to the more mature phases where we have been successful, we bring in bigger oil companieswho can help to fund that development phase.” While Ophir has had its success with gas discoveries, it is now drilling in Gabon’s Padouck Deep field to see if it holds similarities to the fields discovered in offshore Brazil. The company is also evaluating three potential plays on its L9 block in offshore Kenya. In March, Ophir farmed in to two blocks in the Seychelles, continuing its trend of looking for large blocks to operate. “Africa is substantially more licensed by the oil and gas sector than it was say, five or six years ago,” says Cooper. Ophir has the rights to acreage in Western Sahara and Somaliland, two areas seeking international sovereignty. “We believe that we are supporting the appropriate resource holders or else we would not be there. We would love to be investing significant capital into them.” ● Marshall Van Valen

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dossier | oil & gAs

The latest rounds of oil exploration licences have greater strings attached

LicenSinG

More for governments, less for companies Analysts worry that Africa will become less attractive for exploration as states try to get more from the oil and gas sectors

frica’s licensing regimes for oil and gas projects are steadily becoming more onerous and less predictable, according to Babette van Gessel, chief executive of Global Pacific & Partners (GP&P). Van Gessel was addressing a select gathering of top oil and gas executives and senior politicians at the 2013 Africa Oil Week organised by GP&P in Cape Town late last year. In Libya, the government has proposed an oil-licensing round for 2014, but protestors continue to block oil exports, making the exercise uncertain. Exploration and production have sloweddramaticallyinEgyptsince late2012,andVanGesselsaidoperators also reported the duplication of functions among the various licensing authorities. In Algeria, the government abandoned a mooted 2013oilandgaslicensingroundfor lackofinvestorinterest–apparently due to tighter conditions. A presidential election scheduled for April is likely to delay matters further. Moving to West Africa, Liberia is due to launch a licensing round in the third quarter of 2014. A new petroleum bill is on its way in Ghana, with higher local-content

picto/graph

75% Is the level of state control of some new gas exploration contracts offered by Tanzania in 2013

requirements and an increased state stake. In Nigeria, the longawaited legislation has still not materialised and prospects for its appearance before the 2015 elections are receding. In the meantime, ambitious local operators are snapping up the assets of international companies. The government allocated new oil blocks in Cameroon in 2013, but GP&P said uncertainties remained about the state’s stake and local-content requirements. IntheRepublicofCongo,10oil blocks are due to be offered during 2014, and there is a planned licensing round in Angola this year too. TheAngolangovernment hadalreadyincreasedthe state’s stake and implementedpreferentialtreatment for local companies. dry wells

Results from exploration in Namibia are proving disappointing. Companies have hit a series of dry wells and are still waiting for big discoveries. In South Africa, Van Gessel noted with approval the lifting of a moratorium on shale gas prospecting in the pristine Karoo but said the government’s proposed 20% free carry was “troubling” investors. Sudan is due to allocate three offshore and two onshore oil blocks by the end of 2014, and South Sudanese officials have talked about some new licences, though heightened political un-

certainty there is likely to deter the fainthearted. In Kenya, a licensing round was delayed in 2013 and no new date has been set. Oil companies have resigned themselves to a new petroleum act imposing tougher terms and a higher free state carry. Tanzania launched a licensing round in late 2013, again with tougher terms, and with a state stake of up to 75%. Van Gessel saidsheexpectedliquidnaturalgas production in Tanzania by 2018. In Uganda, she said the development of the oil and gas industry had “come to a standstill” due to increasingly tougher requirements from the state, which had resulted in the apparently indefinite delay of a proposed 2013 licensing round (see page 72). Mozambique, by contrast, is expected to offer new contracts this year, which should attract significant investor interest. Overall, the trend is towards tougher fiscal terms for international oil and gas investors, higher free state carries and more local content. To those who share her analysis but not her concern – arguing that these are welcome trends indicating that African governments are finally beginning to secure sufficient returns for their irreplaceable natural endowments – Van Gessel replied that Africa was becominglessandlesscompetitive internationally. “Africa’s share of international oil and gas exploration is already too low. Who does it help it if drops lower?” ● Gregory Mthembu-Salter in Cape Town

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PeTer Langer/Design PiCs/Corbis

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dossier | oil & gas

MozaMbique

Protestors have blockaded Hariga port for several months

Asian attraction

IsmaIl ZetounI/ReuteRs

libya

Rebels block export terminals Militias in the east tried to sell crude outside government control, prompting the ousting of the prime minister

The instability has affected exn the latest sign that Libya’s troubles with rebel groups is not ploration too. In March, BP anending anytime soon, a North nounced that it had halted its activities in the onshore Ghadames Korean-flagged vessel docked at Basin. The company said that it Sidra port in the east of the counwould continue with its exploratry in early March. The rebels that July tion programme in offshore areas. control the port want to sell crude 2013 in order to finance their moveThe city of Tobruk, situated ment. Troops loyal to milibetween Tripoli and Benghazi, tia leader Ibrahim JathMarch is the site of another dispute. 1.4 bpd 2014 ran seized three ports last Protestors at the port of year and are demandHariga have blockaded ing a greater share of it for several months. the revenue and politThe fight over the port is 230,000 bogged down in local political autonomy for the bpd ics, with different factions putative government of Cyrenaica. The three ports, divided as to whether or not to which also include Zueitina reopen it. This has complicated and Ras Lanuf, account for around 600,000 negotiations with Tripoli. A more 600,000 barrels per day (bpd) in lost hardline faction has scuppered a barrels export earnings. compromise and instead reached out to Jathran. Talks with the central author- per day Prime Minister Ali Zeidan had ities in Tripoli aimed at stopping of potential repeatedly threatened military the wave of strikes and protests oil exports are being action to reopen the ports, but in the oil sector are sporadic and lost by the indirect. The Libyan regime needs blockades with no army to call his own the cash to rebuild the country after in three words carried little weight in the the conflict and, more importantly, eastern east. He was forced from his post to buy peace amongst the vari- ports on 11 March by rebel MPs furious ous armed factions that still vie for at the blockades. The post-Zeidan control of the capital. Oil exports administration may find itself as toothless as the hapless Premier. ● fell from 1.4m bpd in July 2013 to Nicholas Norbrook 230,000bpd in March 2014.

The race between India and China to secure resources in Mozambique continues apace. ONGC Videsh and Oil India Limited spent $2.5bn to buy a 10% stake in Rovuma Area 1 last year. Now the companies are preparing to contribute their share of an estimated $18.4bn needed to produce first gas by 2018. Indian companies are keen to access natural gas for the domestic manufacturing and power sectors.

SoMalia

Exploration advances Soma Oil & Gas, set up by Bob Sheppard and Basil Shiblaq to explore Somalian energy prospects, is moving into a new phase. It secured a $50m equity investment from private company Winter Sky in January. Soma plans to use the funds for a seismic survey. It awarded the contract, which covers offshore areas, to Seabird Exploration in early February.

Nigeria

Upstream go-slow The sale of upstream assets by oil majors has slowed, partly due to finance constraints. Local companies linked to wealthy members of the elite are pushing up prices – putting them out of reach of local banks – while international banks are becoming wary of risky onshore assets. The fate of the jewel in the crown, Shell’s Oil Mining Licence 29, should be decided soon.

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