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IGNITION TIME? Africa’s automotive sector in focus
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C O N T E N T S March 2018 ISSUE N° 450 WWW.ICPUBLICATIONS.COM UNITED KINGDOM IC PUBLICATIONS 7 Coldbath Square London EC1R 4LQ Tel: +44 20 7841 3210 Fax: +44 20 7713 7898 icpubs@icpublications.com africanbusinessmagazine.com FRANCE IC PUBLICATIONS 609 Bat A 77 rue Bayen 75017 PARIS Tel: +33 1 44 30 81 00 Fax: +33 1 44 30 81 11 info@icpublications.com www.icpublications.com FOUNDER Afi f Ben Yedder EDITOR Lanre Akinola l.akinola@icpublications.com CHIEF FEATURES WRITER David Thomas d.thomas@icpublications.com DIGITAL EDITOR Taku Dzimwasha taku@icpublications.com SUB EDITOR Charles Dietz c.dietz@icpublications.com ART DIRECTOR Jason Venkatasamy jason@icpublications.com STRATEGIC DIRECTOR Christian Udechukwu CONTRIBUTORS Tom Collins Lawrence Kilimwiko Rafiq Raji Stephen Williams SUBSCRIPTIONS IC Publications Webscribe Unit 4, College Business Park College Road North Aston Clinton, HP22 5EZ UK Telephone: + 44 (0) 1442 820580 contact@webscribe.co.uk www.africanbusinessmagazine. com/subscribe
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COVER STORY IGNITION TIME? AFRICA’S AUTOMOTIVE SECTOR IN FOCUS 4
BRIEFS
News from around Africa
COVER STORY
12 Ignition time? Africa’s automotive sector in focus
INFOGRAPHIC
16 Africa’s automotive sector
INTERVIEWS
20 Hon Ken Ofori-Atta, Minister of Finance, Ghana 28 Emma Wade-Smith, UK Trade Comissioner for Africa 58 Vera Songwe, Executive Secretary, UNECA 61 Thomas Matola, CEO, BNI (Mozambique)
CORPORATE FOCUS
24 Meet the board: Sonangol
AFRICAN UNION
26 Kagame steps up pace of reform
BRAZIL-AFRICA FORUM
38 Exploring common interests
TUTU FELLOWS LEADERSHIP COLUMN
43 Cost of poor infrastructure
TRADE
44 Can CFTA deliver?
FINANCE
48 A new financial crisis
INFOGRAPHIC
52 The digital divide
INFRASTRUCTURE
64 UK offers solutions for African infrastructure
COUNTRYFILES
66 Tanzania revives sisal 72 Sierra Leone’s elections
LAST WORD
74 Has Africa learned its lesson on debt?
4 African Business March 2018
Briefs s
Djibouti axes DP World
Djibouti has ended a contract with Dubai’s DP World to run a container terminal, after the government accused the company of securing a 50-year concession through illegal payments. Strategically located on the major shipping lines of the Gulf of Aden, the port of Djibouti is a vital regional trading hub.
Kenya in fresh eurobond sale
Kenya has raised $2bn in a Eurobond sale that was seven times oversubscribed, attracting a total of $14bn worth of bids. The appetite for Kenyan bonds comes despite news earlier this week that the IMF had blocked access to a $1.5bn standby credit facility, and a sovereign downgrade by Moody’s in February.
SOUTH AFRICA ANNOUNCES ‘TOUGH BUT HOPEFUL’ BUDGET South African finance minister Malusi Gigaba (above centre) delivered his budget speech announcing it will raise VAT for the first time since the end of apartheid, from 14% to 15%, in an effort to cut a growing deficit. The measure is part of a “tough but hopeful” budget according to the government, which hopes to revive a flagging economy under its new president, Cyril Ramaphosa.
Tunisia in tourism rebound
Tunisia hopes to receive 8m international tourists this year as the sector rebounds, following a high-profile terror attack which left 39 dead in 2015. Tourism accounts for a sixth of the country’s GDP and employs around 250,000 people.
Burkina Faso seeks new manganese partner
Burkina Faso is looking for a new partner to develop its $1bn Tambao manganese mine, the world’s biggest deposit. Development of the mine by Pan African Minerals, a unit of Timis Mining Corp, was halted in 2015 following a change of leadership in the West African country.
Egypt and Israel ink gas deal
Israel and Egypt have announced a landmark $15bn gas export deal, adding an economic dimension to the security-dominated relationship between the two former regional rivals. Egypt’s Dolphinus Holdings will import 64bn cubic metres from Israel’s Tamar and Leviathan reservoirs over 10 years.
cover_a
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6 African Business March 2018
Briefs Numbers
6000 $384m $202m
The estimated number of political prisoners released by Ethiopia in the last month.
Senegalese telecommunications company Sonatel’s 2017 full-year net profit.
The estimated North America opening weekend earnings for Africa-themed Marvel superhero movie Black Panther.
8m 1745MW 2%
The number of tourists Tunisia expects to receive in 2018.
The amount of generating capacity Kenya Electricity Generating Company hopes to add from geothermal sources by 2025.
The stake Qatar National Bank is selling in its Egyptian unit QNB Alahly to comply with Cairo listing rules.
$5.8bn 210000 $40m
The amount Nigeria’s national The size in square kilometres of The amount India’s on-demand car rental startup Zoomcar a new ocean reserve created by oil company has spent on fuel imports since late 2017 to tackle the Seychelles in return for a debt has raised in series C funding to expand in Southeast write-off. a petrol shortage. Asia and Africa.
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8 African Business March 2018
Briefs s
Congo Republic in debt relief talks
The Republic of Congo is reportedly set to begin debt relief talks with trading houses including Trafigura and Glencore over $2bn of debt. This comes amid rising concern about unsustainable debt levels in a growing number of countries on the continent.
Zambia to continue IMF talks
Zambia’s finance minister, Margaret Mwanakatwe, has said the country will continue to engage the IMF on debt management following the lender’s dismissal of the country’s latest debt management plan. Africa’s secondlargest copper producer is seeking an IMF bailout to stabilise its public finances.
SWITZERLAND SANCTIONS DRC Switzerland has imposed sanctions on 14 allies of Democratic Republic of Congo’s President Joseph Kabila (above). The move comes amid a protracted political crisis in the mineral-rich country due to Kabila’s refusal to step down at the end of his second term in December 2016.
Nigeria to sell seized assets
President Muhammadu Buhari of Nigeria has said the country plans to sell assets seized in anti-corruption probes and use the proceeds to boost state coffers. No details have been provided, but billions of dollars in stolen funds have reportedly been recovered since Buhari took office in 2015.
Mozambique eyes debt restructure
Mozambique plans to meet holders of about $2bn of its debt and outline restructuring proposals in London in March, more than a year after it defaulted, its Ministry of Economy and Finance said.
Afreximbank to finance $1.5bn Mauritania investment
The African Export-Import Bank (Afreximbank) will attract $1.5 billion to Mauritania to finance development of trade and related infrastructure under the terms of a memorandum of understanding signed with the country, the bank’s president, Benedict Oramah, has announced. The MoU is aimed at strengthening economic cooperation between the Bank and Mauritania, one of Afreximbank’s member states.
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12 African Business March 2018 COVER STORY AUTOMOTIVE
With just 44 vehicles per 1,000 inhabitants and few manufacturing plants, Africa’s automotive sector is profoundly underdeveloped, but things could be about to change.
IGNITION TIME?
Africa’s automotive sector in focus
14 African Business March 2018 COVER STORY AUTOMOTIVE
T
ake a journey through any African city and it’s clear that the continent is permanently on the move. Minibuses crammed with commuters weave manically through traffic, pickup trucks overflow perilously with construction workers, and decades-old Japanese taxis spew diesel fumes among roadside vendors. Despite this sense of constant, exhilarating motion, the unfortunate reality is that African countries continue to suffer from rudimentary transport systems defined by dilapidated roads and outdated vehicle models long since abandoned in the rest of the world. Vehicle ownership remains the preserve of the few – according to Deloitte, in 2014 there were just over 42.5m registered vehicles in use in Africa, a continent of approximately 1bn people. The continent’s motorisation rate of just 44 vehicles per 1,000 inhabitants that year, versus a global average of 182, hinted at the profound underdevelopment of the automotive market and manufacturing base in large swathes of Africa. With the exception of new vehicles built in the established hubs of North and South Africa, most of the continent makes do with imports of dubious quality from the developed world. But that picture could soon be about to change. In January, German automotive giant VW – already active in South Africa – announced that it will begin assembling vehicles at a new plant in Rwanda in May. The firm says that their $20m initial investment will offer new cars to compete with second-hand imports, and will enable the firm to launch a ride-sharing service in a country where Uber has yet to make its mark. By producing the Hatchback Polo, the Passat, and possibly the Teramont, a sports utility vehicle, the firm aims to initially create up to 1,000 jobs, according to Reuters. “We are trying to break this pattern that Africa is poor; they can’t afford (new) cars,” Thomas Schaefer, chief executive of the firm’s South African operations, told a press conference. Growing markets VW’s move capitalises on a new economic rationale for the opening of auto manufacturing bases in Africa. As incomes rise across the continent and more citizens enter the middle class, consumers are increasingly on the lookout for safe, convenient and durable forms of transport. With more cash in their pockets, consumers are also prepared to shell out for after-purchase servicing and vehicle upgrades. “In Africa you’ve got rising young populations, ris-
In 2014 there were just over 42.5m registered vehicles in use in Africa, a continent of approximately 1bn people.
42.5m
March 2018 African Business 15
Companies are being doubly incentivised to enter new markets on the African continent. ing incomes and purchasing power, and going forward the opportunities in the automotive sector in less traditional areas are going to be big and increasing,” says Vaughn Harrison, partner at Hogan Lovells in Johannesburg. “Very soon you’ll have new technologies including driverless vehicles and electric vehicles.” That rising consumer demand, allied to African governments’ willingness to offer generous terms to would-be manufacturers, means that companies are being doubly incentivised to enter new markets on the African continent. But while the prize on offer appears great, the risks of moving too soon with expensive capital investments remain. “OEMs [original equipment manufacturers] have been burnt in recent years by investing in Africa,” says Ryan Bax, senior industry analyst for mobility at Frost and Sullivan. “The whole first mover idea has not shown much success in the new car market recently, and I feel that OEMs will take a tentative approach to new investments in sub-Saharan Africa. They will likely wait for success stories and proof of demand before investments will be made.” The enabling environment With just 12m citizens and a limited technological and manufacturing base, Rwanda might be thought of as a surprising springboard for VW’s bold push into East Africa. With its small-scale automotive assembly sector, strong infrastructure and solid growth rate, some may deem Kenya a more viable home for the expansion of an East African auto industry. Yet the government of Paul Kagame is likely to have offered compelling financial incentives and pointed to its membership of the East African Community – a tariff-free trading block encompassing Kenya and other regional powers – when wooing VW. “Rwanda has been selected by VW because of financial incentives, and the Rwandan government currently offers strong tax incentives to attract foreign direct investment,” says Harrison. “Ordinarily, if one were going into East Africa you’d probably think of Kenya, first because of the longer establishment of that market and the size of the population. Another attraction for VW is that Rwanda has a young and tech savvy population.” Indeed, with its reputation for cultivating skilled jobs, high-value exports and local supply chains, the auto manufacturing sector appears to have a strong hand in negotiations with African governments, many continued on page 18
16 African Business March 2018 AUTOMOTIVE INFOGRAPHIC
In numbers: Africa’s automotive industry Needs:
42.5m
80%
In 2014, there were just over 42.5m registered vehicles in use in Africa.
The market is dominated by South Africa, Egypt, Algeria and Morocco, which accounted for 80% of new vehicle sales in 2015 – 1.5m in total.
44
2
0.9%
The motorisation rate is only 44 vehicles per 1,000 inhabitants, well below the global average of 180 per 1,000 inhabitants.
Ethiopia, a country of 100m, has a motorisation rate of two cars per 1,000 inhabitants.
Africa’s total automotive sector accounted for just 0.9% of global production in 2015.
16
The Middle East December 2011
AB_CS Autocar 0318 Creation date
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In 2015, South Africa, Egypt, Algeria and Morocco accounted for 80% of new vehicle sales in Africa.
The potential:
Recent investments:
10m
3.6%
Africa’s passenger vehicle sales could reach up to 10m per year within the next 15 years.
$1.24bn
From 2005 to 2015, registrations and sales of new vehicles increased by a compound annual growth rate of 3.6%, slightly above the global average of 3.5%.
In 2017 Morocco signed deals worth $1.45bn for 26 auto manufacturing projects, including six agreements with France’s Renault.
8%
$20m
The entire automotive sector is expected to grow at close to 8% up to 2025.
Volkswagen is investing $20m in a new manufacturing plant in Rwanda. It will produce 500 cars a year to begin with. The company has also opened plants in Algeria and Kenya in the last 12 months.
December 2011Africa The Middle East 17 Source: Deloitte Automotive Insights.
18 African Business March 2018 COVER STORY AUTOMOTIVE
of whom are willing to offer generous terms to secure the industry’s attention. Ethiopia, Kenya and Nigeria have all tinkered with a range of incentives in a bid to attract auto manufacturers, including tax breaks, tariffs on imports and the establishment of special economic zones. But according to Deloitte, uneven implementation, policy uncertainty and wider macroeconomic and political factors have combined to undermine their effectiveness. Ruwayda Redfearn, Africa automotive leader at Deloitte, says that several basic areas – including strong infrastructure and direct policy support – need to be addressed before African countries can seriously think about attracting auto manufacturers. “A manufacturing plant will not be able to be successful without having an ecosystem around it, which includes first-tier and second-tier suppliers, infrastructure, roads and rails, etc. It is very difficult for OEMs to make massive capital outlays without government’s help to regulate, [and] provide governance and favourable conditions to give the OEM some flexibility.” Despite progress, the uneven policymaking environment in many markets continues to concern wouldbe investors, many of whom prefer either to import cars from proven manufacturing bases outside the continent, or semi knocked-down kits (SKDs), which are cheaply assembled in-country without a reliance on inefficient or non-existent local supply chains. “Policymakers have come a long way in recent years – many of these governments have received assistance from South Africa and other emerging automotive assembly and manufacturing regions in the development of their policies. Unfortunately, the inability to implement these policies in full, combined with the lack of necessary volumes and poor economic climate means that OEMs are struggling to achieve success,” says Bax. Yet perhaps the most basic reason for the manufacturers’ prior lack of interest in the continent is the relatively small market for new vehicles. In 2015, approximately 1.55m new vehicles were sold or registered across Africa, but just four markets – South Africa, Egypt, Algeria and Morocco – accounted for more than 80% of the total. Total annual compound growth in sales and registrations of 3.6% between 2005 and 2015 paled in comparison to emerging regions such as Asia and the Middle East (8.9%), and Latin America (4.2%). According to estimated data from Deloitte in 2015, at least eight out of 10 imported vehicles in Kenya, Nigeria and Ethiopia were second-hand. “The number one barrier to entry is the low volume
Viewing a BMW in Soweto. South Africa is one of the continent’s major markets for new cars.
of new vehicle sales. Without the requisite volumes, manufacturers are unable to feasibly invest,” says Bax. The import conundrum In a bid to break the stranglehold of second-hand imported vehicles the government of Nigeria slapped a 70% tariff on imported vehicles in 2015. Where secondhand imports from the US had previously hit 100,000 cars a year from the United States, they slumped dramatically to 40,000 in 2015, part of an estimated twothirds contraction in sales of foreign vehicles. Yet while the expressed intention of the policy was to encourage domestic manufacturing, the emerging local industry was unable to take up the slack.
March 2018 African Business 19
tailored to restrict imports and boost domestic manufacturing activity – no easy feat, as shown in Nigeria – entrants to the sector are likely to come up against the limited spending power of consumers. “Nigeria’s automotive industrial policy noted the importance of curbing the import of such vehicles to drive or enhance the success of investments into new vehicle assembly plants in the country,” says Bax. “[But] debt funding in Nigeria remains challenging as interest rates exceed 22%, making the purchase of cars on credit exceptionally expensive. This is coupled with the fact that many Nigerians, and other African cultures believe that vehicles should be purchased in cash.” In order to challenge for this elusive business, new auto manufacturers on the continent may have to introduce new models at market-appropriate prices. “One interesting area where a niche market has been left open is vehicles of less than 1000cc. It’s going to be an interesting region for smaller mass-produced vehicles at entry level prices,” says Harrison.
“Nigeria is interesting because some of their import tariffs are designed to increase local assembly, which is not happening fast enough. There was a sharp drop in sales in 2015, and local assembly in 2015 was only able to cover a maximum of 10–15% of all vehicle sales, so decisions to increase import tariffs to protect local manufacturers have to be carefully considered and aligned with the establishment of a strong assembly base – which is quite a difficult balancing act,” says Harrison. How policymakers grasp the thorn of cheap foreign imports – many of which are unsafe – is likely to dictate the success of domestic manufacturing efforts. But even if taxes or other restrictive measures are carefully
Manufacturing hubs While cultural and economic differences make it impractical for manufacturers to build individual products for dozens of African countries, regional plants linked to emerging supply chains across multiple countries offer a compelling chance for producers to target neighbouring countries with similar tastes and income brackets, while benefiting from the establishment of new regional economic communities. “What would make sense is a Mexican type of model where a manufacturing hub is established where all the brands manufacture in one hub. There can be a North, West and East automotive strategy where the manufacturing plant can sit in one country, supported by parts being manufactured in neighbouring countries. All the affected countries will benefit from such a model,” says Redfearn. Against this uncertain backdrop, manufacturers will be keenly watching VW’s experiment in Rwanda and its strategy in the East African region. “This is a good sign for East Africa,” says Bax. “East Africa has been performing well over the past decade, showing consistent economic growth and sales of new vehicles. Rwanda represents an interesting proposition in East Africa with its relatively well-developed infrastructure and educated people… Ultimately, we see this VW model extending to other East African markets, depending on market readiness.”
David Thomas
20 African Business March 2018 INTERVIEW
Hon. Ken Ofori-Atta, Minister of Finance, Ghana Ghana’s finance minister, Hon. Ken Ofori-Atta, talks to African Business about the reforms his government has brought in over the last year.
‘We want to unleash the potential of the Ghanaian people’
S
ince taking office in January 2017, Ghana’s minister of finance, Hon. Ken Ofori Atta, has overseen a revival of fortunes for the country’s economy. Notable successes have included budgetary reforms, reprofiling the country’s debt through the issuance of a cedi-denominated bond in April that raised over £2.25bn, and offsetting the country’s energy debts through the issuance of an Energy Bond. The government also raised the minimum capital requirement for Ghana’s banks in order to strengthen the industry. The minister spoke to African Business about these reforms and prospects for the country’s future.
the energy sector [power shortages] that were impairing productivity. Another key thing that we did was to identify five key pillars of reform, which were: restoring the economy; transforming agriculture and industry; revamping economic and social infrastructure; strengthening social protection and public service delivery institutions; and streamlining the earmarked funds [payments to statutory bodies such as the Ghana Education Trust and the Road Fund]. We were able to cut the latter to around 25% of GDP. These reforms strengthened consumer and investor confidence last year. But we didn’t stop there. We were also keen to ensure that our economic policy was more transparent, so we focused on the key themes of policy clarity and credibility. We achieved this by being frank and open with investors, the media and key stakeholders across various sectors. This policy shift allowed us to achieve one of our greatest successes to date, which was reprofiling the debt through the Franklin Templeton transaction, which was a market transaction that helped us restructure our public debts by raising over $2.25bn – which was the single-biggest daily transaction in sub-Saharan Africa at the time – with a yield curve of 15 years at 19.75%.
Ghana’s key economic indicators were mostly positive in 2017. What were the drivers for this performance? Over the last four years, the Ghanaian economy has faced severe challenges such as burgeoning debt and an energy crisis. When our government came in at the beginning of 2017, we wanted to be bold and come in with reforms that would unleash the potential of the Ghanaian people. Our agenda was to create an economy where people feel ownership and buy into a vision of entrepreneurship. The first-year budget, with policies such as reducing taxes, helped sow the seeds for growth and jobs. However, the key success factor for this recovery is the economic relief that was provided in the latest budget which focused on moving our economy from services to production. There were also a number of initiatives we implemented such as taking pragmatic steps to strengthen the banking sector by increasing the minimum capital requirements and tackling non-performing loans, which were a major headache for the sector. The government also took steps to address the challenges in
AB_Ghana Minister INT_0318 Creation date 10/12/14
Analysts have raised concerns about the country’s debt-to-GDP ratio. What steps have been taken to reduce this? And how has the debt situation affected the president’s economic agenda? We have reduced the debt-to-GDP ratio from around 73.3% at the beginning of 2017 to around 68%. By reprofiling the debts and implementing the reforms mentioned above, we have boosted economic growth, which has helped to reduce our debt levels. In addition, when I came into office, interest rates
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When I came in, interest rates were above 22%, but we have managed to reduce that to 13%.
22 African Business March 2018 INTERVIEW
were above 22%, but we have managed to reduce that to 13%. We also significantly reduced the primary balance last year and we are hoping to have a surplus in 2018, which is a strong indicator that we are not looking to add to the national debt. We will continue to conduct macroeconomic reforms to rein in public debt and to ensure public debt is sustainable. The 2018 budget has signalled clearly that infrastructure, industrialisation and investment in agriculture cannot happen on the back of government balance sheets, so we have come up with what we call the “Framework for Economic Transformation”, which will put the burden of economic growth and development onto the shoulders of the private sector. The National Development Bank – which will be formed by a merger of the National Investment Bank and the Agricultural Development Bank, and will only be partly owned by the government – will act as a vehicle to attract both foreign and domestic private capital under a private sector model to finance industry and agriculture. We are planning on seeding it for over $500m. Additionally, the Ghana Infrastructure Investment Fund (GIIF) will restructure its operations to raise over $1bn and the Ghana Eximbank will also look to leverage on foreign private money to be able to support exports. Therefore, concerns about adding to the national debt are not valid because you can see our funding model is outside of the government balance sheets. Our overall strategy is to position Ghana as a regional hub for financial services, where we will be able to attract a lot of private money starting with local sources including pension and insurance funds. How will merging the National Investment Bank and the Agricultural Development Bank to form the National Development Bank improve both services? Could the new bank move away from its stated remit? The truth is that we need stronger banks in this country and government having significant stakes in these banks means that we to take the lead and set an example. The vision of the government is to set up a new development bank and we have created a task force that will conduct some technical work to advise us on some of the issues that have been raised. But at the end of the day, the objective is to produce a stronger and more effective bank. The model of what will be done regarding the branches and other assets will be determined by the task force.
AB_Ghana Minister INT_0318 Creation date 10/12/14
The government plans to position Ghana as a regional hub for financial services.
What will happen if banks can’t meet the new minimum capital requirements? We need to consolidate. To that end, the increase in minimum capital requirements will help us to consolidate the sector. Some analysts are concerned that indigenous banks will be adversely affected by the capital requirements, what is your view? We are very concerned with protecting Ghanaian banks, which that is why one of the key reforms I am trying to enact is to ensure that pension and in-
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March 2018 African Business 23
coalesce state-owned enterprises’ debt with government debt. Therefore, the taxpayer didn’t foot the bill and the banks managed to deal with some of their non-performing loans. It was also designed in such a way that we didn’t give free money to the energy sector companies and there was a strong refinancing element. So, we cleaned up the debt so that the energy firms were not under as much pressure as they were before, but we also held them accountable for their debts. However, I disagree that interest in the bond is falling away. As with any type of new policy, especially one as historic as the Energy Sector Levy Act (ESLA) bond, it is prudent to take things slowly. The Energy Bond was designed to be issued in tranches, so when the bond was initially issued the key decision for us is to ensure that the coupon on the bond is something that reflects market fundamentals. We wanted to avoid a situation where investors’ bid in excess of what we expect but the bids don’t make good financial sense, then it is my interest to protect the public. Therefore, we have ensured that there is a cut-off coupon that reflects strong fundamentals. We will be issuing the bond in tranches so that as the market improves and the ESLA itself gains a positive track record, then market participants will show greater interest in the next tranche.
surance money is available for these local banks. It is important that looking at the history of UT and Capital Bank that the local banks are strengthened by raising new money. How successful was the Energy Bond and have you noticed interest in it waning? The bond was a great success from all stakeholders’ point of view. We managed to restructure these energy sector levies that were leading to problems in the banking sector by issuing the Energy Bond. We structured the bond in such a way so that we didn’t
How do you plan on further engaging in the bond market? We have taken necessary steps to deepen the benchmark yields so that they are more liquid and they serve as an actual benchmark, and we have also taken steps to normalise the yield curve. Our aim is to go to the bond market to ensure that long-term capital is available across the economic spectrum. So, we have taken very measured steps to ensure that we have a dynamic capital market, including national pensions and insurance reforms announced in the 2018 budget. What is your 2018 outlook? The president is in a hurry to implement his economic agenda, especially the Akufo-Addo Programme for Economic Transformation (AAPET). We have been able to lay the groundwork for his reforms in 2017 and the 2018 outlook looks positive, with growth expected to continue to rise. So we plan to implement policies that will stimulate job creation and influence the fundamental structures of the economy, such as building a domestic financial market with depth.
Taku Dzimwasha
24 African Business March 2018 CORPORATE FOCUS
A new board has been charged with reviving the fortunes of Angola’s state-owned oil company. African Business takes a look at its members and the experience they bring.
Meet the board: Sonangol
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ngola’s stateowned oil company Sonangol experienced tectonic changes in 2017 as President João Lourenço appointed a new board. In a surprise move in November, Lourenço removed Isabel dos Santos – daughter of the former president – from her role as chairwoman of Sonangol. The new chairman is Carlos Saturnino, an oil veteran who was ousted by dos Santos from Sonangol two years ago. The new board has been tasked with reviving the parastatal’s fortunes, which have been in the doldrums since global oil prices plummeted in 2014. Sonangol has been operating since 1976 and while the bulk of its operations are in Angola, the firm has partnered with companies in Brazil, Cuba and Iraq. The company produces 1.7m barrels a day.
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Carlos Saturnino Guerra Sousa e Oliveira, chairman of Sonangol Carlos Saturnino is a 30-year veteran of the oil and gas sector. He is no stranger to Sonangol, having worked on the board of Sonangol Pesquisa & Produção – a subsidiary tasked with exploring, researching and producing oil and gas – from 2015 to 2016, before he was dismissed by former chairwoman Isabel dos Santos. Prior to his time at Sonangol, Saturnino established a name for himself in Mozambique, where he sat on the board of ENH Integrated Logistic Services, an oil and gas logistics firm. He has also worked as the president of the Angola-France Chamber of Commerce and Industry.
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Sebastião Pai Querido Gaspar Martins Sebastião Gaspar Martins is a director of Sonangol Starfish Oil & Gas, the Brazilian subsidiary of Sonangol. He chaired Somoil, which researches, develops and produces crude oil in both Angola and Brazil, from 2015 to 2017. Before that, he worked in various capacities at Sonangol over a 38-year period.
Alice Marisa Leão Sopas Pinto da Cruz Alice Sopas has over 20 years’ experience in the business management planning field across a range of well-known Angolan companies. She joined Sonangol in 2001, working her way up to reach the role of specialist negotiator at the company’s logistic support department. Sopas is the only female member of the board at Sonangol.
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Carlos Eduardo Ferraz de Carvalho Pinto Carlos Pinto has over 15 years’ experience in law in four different countries, namely Angola, France, Portugal and the US. During his legal career in Angola, Pinto worked at the Ministry of Finance, overseeing the entire legal department. He was appointed to the board of Sonangol in October 2017 with the remit of improving the performance of the oil and gas industry in Angola.
Luís Ferreira do Nascimento José Maria Luís Maria has distinguished himself in a long career in logistics, aeronautics and oil and gas. He has held a variety of roles including legal adviser and manager at some of Angola’s most renowned companies, including Angola Airlines and SonAir Airline Services, which provides helicopter services to onshore and offshore facilities. He has over 10 years’ experience at Sonangol.
Rosário Fernando Isaac Rosário Isaac has over 20 years of experience at Sonangol, overseeing much of the firm’s gas logistics field. Educated in Cuba, Isaac has played a role in devising Sonangol’s distribution and refinery infrastructure. He was appointed to the board in November 2017, and his technical experience will prove invaluable.
Baltazar Agostinho Gonçalves Miguel Baltazar Miguel has been heavily involved in the development of Angola’s capital markets. He took part in the creation of Angola’s stock exchange as one of Sonangol’s technical representatives. Miguel also has an extensive academic background, including a master’s degree in money, banking and finance from the University of Sheffield in the UK.
Above: An oil rig in the Dalia Oil Field in deepwater block 17, 135km off the coast of Cabinda, Angola.
26 African Business March 2018 AFRICAN UNION
The African Union has a poor record on implementing reforms, but its new chairperson is determined to bring about change.
Kagame: ‘We must act now on AU reform’
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he African Union (AU) has come a long way since its days as the Organisation of African Unity. Nonetheless, a recurring reproach has been the body’s poor ability to implement key policy decisions. A lack of robust monitoring and evaluation has led to an absence of transparency and accountability, meaning that member states are under little pressure to act. The recently launched Single African Air Transport Market (SAATM) – providing a deregulated airspace for 23 African countries – is a case in point. Dating back to the 1988 Yamoussoukro Declaration, the idea of an African air market has been around for a long time but has only just been properly implemented. Similar examples exist with regards to agricultural reforms and the establishment of a free trade area. Key recommendations are pushed back from summit to summit. Yet there is cause for celebration. The establishment of the air market should rouse some AU-optimism and act as the first in a number of dominoes to fall in terms of policy implementation. This can-do attitude is being spurred on by improvements to AU processes – including monitoring and evaluation tools – and by a wholesale overhaul being led by the incoming AU chairperson, Paul Kagame, the president of Rwanda. Institutional reforms Speaking at the opening ceremony of the AU Summit in January, Kagame highlighted the need for the AU to implement the Continental Free Trade Area and the Protocol on Free Movements of Persons in 2018 and the important role institutional reforms will play. “We are running out of time and we must act now to save Africa from permanent degradation,” he says. “The institutional reforms of the African Union derive all their urgency from these realities.”
The reforms Kagame refers to were drawn up by an advisory committee of public and private leaders including Donald Kaberuka, former president of the African Development Bank, Vera Songwe, executive secretary of the United Nations Economic Commission for Africa, and Strive Masiyiwa, executive chairman of Econet Wireless Group. The purpose of the committee was to review and submit proposals for a “system of governance for the AU that would ensure the organisation was better placed to address the challenges of facing the continent with the aim of implementing programmes that have the highest impact on Africa’s growth and development.” Emerging from the analysis were five key recommendations, in what is popularly known as the “Kagame Report”. The first recommendation is for the AU to focus on fewer areas but with greater vigour. These areas should be continental issues such as political affairs, peace and security, and economic integration. Second is to review and update the inner workings of the AU to root out inefficiencies. Third is for the AU to better connect with its citizens and to foster greater pan-African spirit, for example through the African passport and cultural and social events attached to the AU. Fourth, and perhaps most importantly, the AU is seeking to self-finance by levying 0.2% on eligible non-African imports to AU member states. At the moment the AU is financed largely by donors including the European Union, US, World Bank, China and the United Kingdom. Payments made by the European Commission increased from €91m ($112m) in 2010 to €330m in 2015. Kagame has argued that sustainable financing would lead to greater agency over policy directives. The final aim is to manage the business of the AU efficiently and effectively at both the political and operational levels. The recommendations were that each summit should have no more than three strategic areas of focus and the assembly be held only once a year. These reforms should help streamline the processes of the AU and increase its ability to follow through on key decisions. Evaluation and monitoring A good example of the AU’s growing capacity to monitor and implement major policy decisions is the Agricultural Transformation Scorecard; a bi-annual review detailing the progress of African nations in developing and allocating sufficient resources to their agricultural
March 2017 African Business 27
A can-do attitude is being spurred on by improvements to AU processes, including monitoring and evaluation tools. sectors. The scorecard aims to ensure that AU agricultural policy recommendations, enshrined in the 2013 Malabo Declaration and based on the 2003 Maputo Declaration, are properly implemented and member states held accountable. Only 47 out of 54 African countries reported their data. The scorecard assesses participating member states on 43 indicators using data gathered at a national level and amalgamates this into one score. Broadly, the indicators are a reflection of how successfully African countries are upholding the seven key commitments of the Malabo Declaration. These commitments include boosting intra-African trade from an agricultural commodity perspective, bringing undernourishment down to 5% and halving poverty by 2025, building resilience to climate change, enhancing regional accountability for actions and results concerning agriculture and enhancing investment and finance in agricultural sectors such that 10% of a country’s national budget should be committed. The report reveals that only 20 of the 47 member states are on track towards achieving the commitments set out in the Malabo Declaration. Rwanda leads the top 10 best performers with a score of 6.1, followed by Mali 5.6, Morocco 5.5, Ethiopia 5.3, Togo 4.9, Malawi 4.9, Kenya 4.8, Mauritania 4.8, Burundi 4.7 and Uganda (4.5). The report sets the 2017 benchmark at 3.94 out of 10 as the minimum score for a country to be considered on track towards achieving the Malabo commitments by 2025. Regionally, East Africa performed best with a score of 4.2, followed by Southern Africa with a score of 4.02. Hailemariam Desalegn, former prime minister of Ethiopia and leader of the Comprehensive Africa Agriculture Development Programme (CAADP) presented the scorecard at the summit saying: “There has been good progress on some key issues but at the same time there are areas in which we can collectively do better.” Indeed, as a prototype the scorecard is still in its infancy, but its use as a means to lobby governments to implement key agricultural policies paves the way for good practice throughout the AU. “This is the first time that data is coming out, and countries are reporting back. They are engaged and they are learning from each other from a scorecard perspective,” says Agnes Kalibata, president of the Alliance for a Green Revolution in Africa. “Everyone is on board and it’s a good way to start. Let’s see how countries react and if they act to improve their numbers.”
Tom Collins
Interview
Emma Wade-Smith, UK Trade Commissioner for Africa As the UK moves away from the EU, it has the chance to re-engage with Africa, not just to boost its own trade with the continent but to help create greater prosperity for its African partners as well.
BREXIT CREATES NEW OPPORTUNITIES FOR UK-AFRICA TRADE The UK’s Department of International Trade (DIT) promotes UK trade and champions free trade across the world. Emma WadeSmith, the British government’s most senior trade official in Africa, talks to African Business about the exciting new possibilities for UK-Africa trade that are emerging in the wake of Brexit. How do UK-Africa trade relations stand right now? We’ve got a UK-Africa trading relationship that’s worth more than £27bn and the UK is the second-largest investor in Africa, with over £21bn of investment. From a DIT perspective, I have a team in 24 locations across Africa, and 21 countries. We focus at the moment on oil and gas, infrastructure, agricultural technology, renewable energy, and defence and security. As the UK moves away from the EU, how do you see these relationships developing? The decision for the UK to move away from the European Union (EU) provides an opportunity to re-engage and refresh the way we operate across Africa. There is much more we can and want to do. There’s everything from ensuring continuity in our existing trade agreements through to figuring out how we realise the full potential of those of those trade agreements. The British government has been very clear that Brexit provides this opportunity for us to project a Britain that is still thinking globally and still out there in the world as champions of free trade. This is an exciting moment to explore what that means for us in Africa. There should be more opportunity
AB_DIT Emma Wade-Smith _0318 Creation date 10/12/14
We want to create an ever-more vibrant commercial relationship between the UK and our African partners.
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as we see more British companies exploring markets outside the EU. The government is very clear that no trading relationships should be worse off because of Brexit. We want to ensure that existing duty-free, quota-free relationships endure and are not affected by the UK’s departure from the EU, and that we secure continuity in existing trading arrangements. We’re engaging with all countries where we have existing trade agreements, and we’re working together to ensure continuity and clarity for businesses, consumers and investors. What we are not able to do while we remain a member of the EU is to negotiate new trading arrangements, so this is a technical exercise to maintain the effect of existing agreements. Because we’re not actually able to formally negotiate new trade agreements till we’ve left the European Union, this is not an opportunity to change the existing structures. What we are saying, though, is that after leaving the EU the UK will be able to implement an independent trade policy – this would make it possible to revisit and improve existing agreements where appropriate. We’ll be looking to see how we can create an ever-more vibrant commercial relationship between the UK and our African partners. Whether it is DIT, or Department for International Development or the Foreign Office, we are working with African governments to see what is causing a block to further trade and investment. Is it the regulatory environment, can we use the UK’s experience to improve that? Are there legislative barriers, are there things around infrastructure that we can help improve? How do we work with African governments to enable them to build the vibrant, diverse, mature economy that they need?
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Interview
So it’s not just us trying to promote UK goods and services but about how we engage and help to improve the overall business environment. Free-trade agreements are just one aspect of that. Are there off-the-record conversations happening with potential African partners? We aren’t allowed to talk about that future or formally negotiate new agreements until we’ve left the EU, but we do have people across the continent who are talking to people and to governments to understand blocks in the existing trading arrangements that we could look to improve upon in the future. That’s why we’ve been having these conversations as well and we’ve got various projects and programmes that are looking to see what we can do to address some of these market access barriers in the meantime. What is the role of the UK’s new Africa Infrastructure Board? Is this a new model in which the UK will project itself bringing together private and public and associated benefits to provide valuable knowledge transfer and expertise to the African continent? I hope so. It’s a pilot or experiment at the moment. It came about because as I was going around the continent talking to business and governments it became really clear there was room for us to improve the way that we interacted with one another, whether that’s the UK government supporting UK companies and talking to African governments and business, and the sense that some of our competitors were better able than the UK to build a strong consortium and bid for some of the more complex infrastructure projects around the world. As I was doing that colleagues in the UK were thinking the same way and they created the Infrastructure Exports UK board (IEUK). The Africa Infrastructure Board is modelled on that. It’s co-chaired between the UK government and UK industry and focuses on identifying projects where we think we’ve got UK capability and how we can bring our expertise together to better promote a coherent UK offer. There are a huge amount of untapped projects across the continent that are either waiting for a feasibility study or have bankability concerns. The idea is that we look at some of those, where we believe that we’ve got a UK offer that can make a difference. Is it a question of financing and what can we do to bring in our UK Export Finance capability or the City of London? Or is it an expertise issue, in which case can we think up an ingenious offer between government and industry that will help to tackle that issue and enable that project to move forward. In some cases we want to have strategic partnerships with our African host governments and be able to say, here is a set of projects that you could put together, here would be a UK offer to deliver that – not purely UK in many cases. It’s about mobilising some of these projects to get them off of dusty shelves and get them into practicability and help promote UK capability so we’ve got good
AB_DIT Emma Wade-Smith _0318 Creation date 10/12/14
Above: Work on Cape Town Stadium in South Africa. British companies played a role here.
quality, needed infrastructure going in across Africa that will really help to fire up these economies to create jobs and see the growth that we want and need. We’re also looking at whether this is a model we could achieve in other sectors, whether that is healthcare or financial and professional services. What is the UK’s competitive advantage in Africa? UK companies have a long history on the continent. We do our research and when we come to do business in Africa we tend to do it really well. It’s not just a question of the range of abilities we have across the UK – everything from technology and project management and financing and planning and design – we’ve also got the standards and values that we represent as UK companies. I think that is increasingly important for Africa as we look to introduce resilience and good infrastructure and solutions that will be sustainable to Africa. We’ve got that standards and values approach, we’ve got huge innovation in the UK, so when we come we bring the latest techniques and the latest products, so we’re not trying to flog old stock. We come with huge technical capability, which stems in part from really impressive research and development capabilities and, of course, we bring some pretty impressive financing
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That is world class as an offer, and it partly demonstrates the extent to which the UK business environment is so interconnected around the world. We build these consortia and we’re fairly comfortable with having a minority stake in some of these things. I think that’s good for everybody. In Africa we’ve got nine countries where UK Export Finance offers local-currency financing options. That means if you’re an African buyer and you’re looking at ways to bring in medical supplies and you’re looking at the UK, you can engage in that contract and secure a loan in your local currency. It’s helping to facilitate deals all across Africa. And we’re working really hard to get more financing people based on the continent, to help promote that offer.
credentials too, whether that is through public-private partnerships or through being able to access venture capital and City of London capability, or it’s our export credit agency. And British companies that are active in Africa genuinely care. They want to do good business – and that isn’t just about profit, that is about doing the right thing, and investing in the communities they are operating in. And it’s amazing how many community support schemes are being run by British companies as a result either of their investment into Africa or their exporting relationship.
How can African countries capture the opportunities presented as the UK seeks a new trade logic? For Africans and Brits alike, I would say, come and talk to us. You will find us wholly receptive and keen to talk and understand, whether you’re an African buyer or whether you’re looking for investment, we want to know that so that we can promote those opportunities back into the UK business world, and similarly help to connect businesses in the UK that are looking to either establish a foothold in Africa or expand their existing business in Africa. We operate on both sides, for supply and demand. African businesses and governments can come and talk to us. We’re in 24 locations and where we are not we do have usually a UK ambassador or high commissioner who equally would be happy to talk, so we can explain what we can offer as the UK and how we can help African governments really deliver their development goals and build their economies. I haven’t yet come across a government that doesn’t want to create jobs. When you look at the demographics of Africa that job creation and wealth creation can be so critical for the future and trade is the only way that we’re going to really build that prosperity we want to see. So we’re poised and ready. Over the last three months we’ve created a new structure within our team in Africa, the Trade Services Unit, to provide a single source of enquiry for any trade or investment questions to do with the UK or Africa. Through that we’re able to provide a much swifter response and more professional service and publish opportunities as we hear about them and try and connect them with our supply side.
What can UK Export Finance do for Africa? UK Export Finance is the world’s oldest export credit agency. There aren’t yet enough people who know enough about it, but where they do I think it’s proving to be really successful in supporting British companies to land deals. In Africa we have a risk appetite of over £21bn – that’s £21bn we could be investing in Africa, that African partners can be accessing. And we have a really competitive offer there in that we have an expectation of just a minimum of 20% of UK content for any of these sorts of projects.
In terms of trade, is Africa the place to go next? Absolutely. If you think about Southeast Asia 15–20 years ago and how excited everybody was, everyone should be even more excited about the opportunities in Africa. I think people understand that and as we at the Department for International Trade move to mature our own approach to doing business and really looking to establish that longer-term strategic relationship, I think that Africa is absolutely the place we can demonstrate where this works. Tom Collins
British companies want to do good business – and that isn’t just about profit, that is about doing the right thing.
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As the UK starts looking further aďŹ eld for trading partners, Africa and the UK have a lot to gain from augmenting their relationship. The UK’s Department for International Trade (DIT) has been at the forefront of this push and hopes to take relations into a new era.
AFRICA-UK MOVING FORWARD TOGETHER
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rade relations are changing globally. As regional groupings are disrupted and reformed, global value chains contract, protectionism creeps in and the digital economy strengthens, old hat trading portfolios look increasingly out-dated. Without a doubt, enthusiasm for multilateralism has waned and the World Trade Organisation faces an existential crisis having not completed a new round of global trade liberalisation in two decades, since the Doha Round. For most of the past seven decades global trade grew twice as fast as the global economy and increased on average by nearly 7% a year, according to the IMF. Since the financial crisis and a commodities tumble, trade growth has averaged just 3% since 2012. On this footing, many are beginning to look to bilateralism and the possibility of forging better structured and more rewarding trade deals. As each country strikes out its competitive advantage, new trade partners are envisaged and Africa and the UK find themselves at this coterminous juncture today. Development and shared prosperity are key to the priorities of the UK, which is helping its African partners to achieve the Sustainable Development Goals (SDGs), so all parties are set to benefit.
Africa-UK trade
The UK has a long tradition of trading with African nations. The UK is the world’s sixth-largest exporter and in terms of its European counterparts, exports around 20% more to third party countries. UK exports to non-EU countries are 43% higher than in 2007 and exports to Africa have grown at an annual average rate of 8.7% over the last 20 years. This growing trend represents significant opportunities for African nations and companies looking to do business. Indeed, trade between UK and Africa totalled £28.7bn in 2016, with the biggest recipients of UK exports being South Africa and Nigeria. As it stands most of the UK’s bilateral agreements are pegged to the European Union – the Financial Times found a total of 759 agreements covering trade in nuclear goods, customs, fisheries, transport and financial services. Although these agreements will need to be re-worked post-Brexit, Liam Fox, UK secretary of state for international trade, has confirmed this will happen with “zero disruption”. Brexit, even, will be a golden opportunity for Africa to entrench and expand its trade relations with the UK government’s growing international vision. The UK’s Department for International Trade (DIT) is leading the push and acts as the go-to deal broker for UK companies doing business in Africa. The vision is to use the UK’s expertise to partner and collaborate with African governments and the
business community to support sustainable economic growth through industry job and wealth creation. Its team of advisers located in 24 offices across Africa (with a main office in Johannesburg) provides expertise in sectors ranging from manufacturing and construction to services and technology, with a focus on infrastructure and energy. It has been instrumental in helping UK firms invest more in the continent and creating a robust trade policy environment to enter new markets and build on existing ones. DIT Africa has established an African Trade Services Unit, which works directly with UK SMEs to answer trade and investment queries, identify business opportunities and help companies better understand the markets in Africa. An initiative called the Africa Economic Horizons is also being piloted in Kenya, Ethiopia and Tanzania and is designed to pull together the department’s experience and expertise across trade policy, diplomacy, and aid to ensure bilateral growth opportunities are maximised and commercial and development outcomes are delivered. Government collaboration in Africa is a key priority for the UK as it aims to forge new trading relationships that maximise benefits for developing countries and the UK. DIT has also created an Africa Infrastructure Board which brings together notable British infrastructure companies with a footprint in Africa to collectively identify infrastructure programmes across Africa and work together with governments and industry leaders to facilitate deals. Future infrastructure deals could support African development by improving the continent’s health, transportation and education facilities.
Finance and investment
The UK is one of the top investors in Africa. In 2015 it ranked second in the world at $64bn, according to a UN report. Mining and quarrying and financial services were the main sectors in receipt of UK foreign direct investment, and accounted for 54.4% and 34.3% respectively in 2014. Indeed, the UK services export share is higher than any G7 economy at around 12% of GDP, compared to about 8% in Germany and France, 4% in the US and 3% in Japan. British investment in Africa more than doubled between 2005 and 2014 and over the same period African investment in the UK grew by over 500% to £3bn. The scope and breadth of investment in Africa and vice-versa is impressive, yet more is possible. One initiative working to boost investment, the ODI project, engages in research, servicing investors, creating propositions, gathering evidence and longterm methodology in order to support British investors. The project has established sup-
Trade between UK and Africa totalled £28.7bn in 2016, with the biggest recipients of UK exports being South Africa and Nigeria
port for over 250 UK companies in Ethiopia, Kenya and South Africa. The UK also offers competitive and innovative financing with the national export credit agency, UK Export Finance (UKEF). As its CEO, Louis Taylor, puts it, the organisation believes that “no trade with the UK should fail for lack of finance or insurance. We want to ensure the quality of UK products and services is matched by agreeable payment terms and competitive finance.” UKEF can give overseas project sponsors attractive-long term financing that makes sourcing from the UK more competitive, either in the form of guarantees on bank lending or by borrowing directly from the UK government at competitive rates. As a complete package, goods and services are accompanied by attractive finance with repayment terms of 2–10 years, stretching up to 18 in sectors such as renewable energy. In 2015, UKEF joined African Trade Insurance (ATI) as a shareholder, working together to identify and promote real business opportunities where UK and African countries can collaborate and encourage trade. UKEF and ATI can also share risk with other ATI-members in strategically important markets, increasing risk capacity for projects in African countries sourcing goods and services from the UK. As an illustration of how this works in practice, UKEF’s loan of £250m, its largest ever to an African government will help
finance the construction of a new international airport in the Kabaale region of Uganda. This will become the country’s second international airport, and have significant long-term benefits for the country’s economy. UKEF’s finance will help support work on the construction of the runway, taxiway, cargo terminal and other necessary infrastructure to be undertaken by the UK arm of infrastructure firm Colas UK.
Success stories
With competitive financing and sector-specific expertise, the UK government and DIT have helped numerous projects – mostly in infrastructure and energy – come to fruition in Africa. The projects continue to have a transformational impact in terms of integrating local companies into the global supply chain and job and wealth creation. The Africa team at DIT have been working with British companies in East Africa to bring investment, skills and knowledge to support the rise of the energy sector in this region. For example, the University of Aberdeen teamed up with University of Dar es Salaam on a $2m grant to develop local human resource capabilities. The universities have developed a curriculum across a range of energy related disciplines including engineering, geosciences, social services, business and law. In terms of technical assistance and financing strategies DIT has been work-
UK companies played a role in the building of the Nelson Mandela Bridge (top) and the expansion of the Grootegeluk Medupi Mine (above) in South Africa.
ing with numerous African governments to get projects off the ground. In Ethiopia, DIT helped Mott MacDonald, a British engineering and development consultancy firm, provide technical review and advisory service to the Ethiopian Railway Corporation to help the optimisation of the design of a 760km standard gauge electrified railway from Addis Ababa to the port of Djibouti, a development which will significantly boost Ethiopia’s trade prospects. In South Sudan the government reappointed DIT to run a Basic Services Fund (BSF) which assigns funds to non-government contractors to provide essential infrastructure and services. In Ghana, DIT provided technical assistance to Ghana Water Company Ltd for the rehabilitation and expansion of water systems across 10 regions of Ghana. They worked to determine and establish the full range of activities, investments and other measures needed to ensure the safety of dams and reliability of water services. In addition, UK legal services continue to provide support to countries across Africa. From training programmes for judiciaries to structuring finance for infrastructure projects, UK legal practitioners and English law continue to support economic development across Africa.
Win-win
As Emma Wade-Smith, the UK’s trade commissioner for Africa says, “We continue to work hard to build a strong platform from which to help UK companies explore the full range of opportunities to build good commercial partnerships in Africa. The UK’s sectoral and financing strengths match well with what many African economies are looking for, to help generate more jobs and inclusive growth. I’m excited about the scope for the UK to do even more to partner with African governments and business.” In short, DIT is leveraging its expertise in infrastructure and energy to provide much needed services and know-how to African partners. The department also works to boost trade and capital flows between Africa and the UK and functions as an authoritative go-between for any government or company wishing to do business. As the UK looks further afield than traditional regionally mandated trading partners, Africa can only be set to gain from a new trade logic in the UK. At the same time, British companies and the UK government are well on track to recognising the enormous opportunities Africa can offer the UK, and organisations like DIT are committed to ensuring these are not wasted. In this new context both Africa and the UK are on to a win-win relationship. n For more information contact DITAfricaTrade@mobile.trade.gov.uk
UK–Africa trade in numbers
DIT Africa’s main office is in Johannesburg. The other offices are organised into four regions
21 The UK’s Department for International Trade has offices in 21 African countries
£28.7bn
$64bn
Trade between UK and the whole of Africa totalled £28.7bn in 2015
Value of the UK’s investment in Africa in 2015
£12.7bn The UK imported £12.7bn in goods and services from Africa in 2016
The UK’s largest export partners in Africa in 2016
500% Investment ties between the UK and Africa are growing with African investment into the UK increasing by 500% between 2005 and 2014
£215m UKEF’s largest ever loan to an African government, for an international airport in Uganda
£42.5bn n South Africa (£4.3bn) n Nigeria (£2.1 bn) n Egypt (£2.0bn) n Morocco (£1.0bn) n Ghana (£1.0bn) n Angola (£706m) n Kenya (£611m)
The amount the UK invested in Africa more than doubled between 2005 and 2014 from £20.8bn to £42.5bn
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38 African Business March 2018 BRAZIL/AFRICA FORUM
The fifth edition of the Brazil Africa Forum took place in São Paulo in November last year. African Business was there.
Brazil and Africa explore common interests
J
oão Bosco Monte, the president of the Brazil Africa Institute and organiser of the annual Brazil Africa Forum, underlined the mission of the Brazil Africa Institute in fostering dialogue to serve as a catalyst for those engaged in the cooperation between African states and Brazil. It is a relationship that in many ways is as deep as time. The way that the western coast of Africa and the eastern coast of South America look like two fitting pieces from a jigsaw puzzle is no coincidence. It is evidence that the two continents were once joined, before starting to drift apart some 150m years ago. Other linkages between Brazil and Africa are more recent and more painful. Hundreds of thousands African slaves were transported from Africa, mainly from Congo and Angola, to work in the sugar-cane fields of northeast Brazil. In 1829 and 1830, nearly 60,000 slaves were taken to Brazil. Their descendants are still a significant part of Brazil’s population and culture. Agriculture remains a key sector within Brazil’s economy, and one of the first keynote speakers was Gilbert F Houngbo, president of the International Fund for Agricultural Development (IFAD). Houngbo kept to this year’s forum theme, “Trends in Innovation and Technology for Sustainable Development,” asserting, “agriculture must be aligned to new technological transformations, and demands the dissemination of new know-how to more people… the future holds great opportunities for those working in the fields of agriculture and agribusiness.” Agricultural sector innovation was further discussed at the forum by Jennifer Blanke, the vicepresident of agriculture and human and social development at the African Development Bank. She said that agricultural technologies have helped dispel a long-held misconception that tropical regions can-
Right: A view of São Paulo’s downtown.
Lessons learned in Brazil could be applied to Africa’s tropical belt to make the continent more food secure.
not be as productive as the temperate regions of the world. Indeed, new crop varieties adapted to the tropics, combined with good soil science, turned tropical Brazil into one of the major breadbaskets of the world in a few decades. That lesson could well be applied to Africa’s tropical belt, including the savannahs and the Sahel, to make the continent more food secure. Sharing technical advances It was in the area of healthcare that two fascinating technological initiatives were discussed. Abimbola Adegboye, the technical director of Nigeria’s National Agency for Food and Drug Administration and Control outlined the agency’s agenda, touching on the work that had gone into bearing down on counterfeit medicines in his country. What has been developed is a mobile phone app for the customer to use in a pharmacy that can scan a medicine’s unique barcode, uploading the data to a central register that can determine its authenticity and expiry date within seconds. As counterfeit medicines are a scourge that also needs to be addressed in Brazil, this African technological initiative can be of value to the country. Cybele Maria Philopimin Leontsinis, coordinator of the burns unit at the Instituto Dr José Frota in Fortaleza, Brazil, described the extraordinary work of her institution, which uses tilapia fish skin to treat serious burns. This treatment, using a fish farmed and consumed across Africa, offers an alternative to the need for burns victims to undergo skin grafts. Nísia Trindade Lima, the president of Fiocruz, a world leader in research and development in the biological sciences headquartered in Rio de Janeiro, Brazil, told the forum about efforts in the field of diagnostics, citing technologies that can identify the
40 African Business March 2018 BRAZIL/AFRICA FORUM
Initiatives like the Brazil Africa Forum must focus on innovation as their pivotal concern. and public sectors, namely Miguel Stief, the CEO of Positivo BGH; Frank Aswani, the vice-president of the African Leadership Academy; and Sarah Anyang Agbor, the African Union’s commissioner of human resources, science and technology. The session was moderated by Mauro Oliveira, a researcher at Brazil’s Federal Institute of Education, who steered the conversation towards the forum’s theme of technology and innovation due to their critical role in developing human capital. Other sessions covered finance, with speakers from Standard Bank and Afrexim Bank. The concluding session dealt with innovation and infrastructure and heard from Brazil’s National Economic and Social Development Bank, which has been instrumental in promoting investment beyond Brazil’s borders by supporting Brazilian businesses that are expanding overseas, including those active in Africa.
presence of the HIV, HPV, and hepatitis viruses at blood centres. She also spoke with pride about human breast-milk banks, a Brazilian innovation that has been taken up in several Lusophone African countries. The forum attracted the participation of Gilberto Kassab, Brazil’s minister of science, technology, innovation and communications. He used the occasion to announce that Brazil would participate in the Azores International Research Centre multi-national scientific research programme focusing on the Atlantic Ocean. “This group is going to make a great contribution to strengthening Brazilian relations with Africa,” the Brazilian minister pledged, pointing out how technology had done so much to make countries better connected, improving the quality of the people’s lives. Innovation is essential Kassab concluded by stressing the importance of innovation. “Nowadays, a country, wherever it may be, must place innovation as its key planning pillar,” he said. “Initiatives like the Brazil Africa Forum must focus on innovation as their pivotal concern, for the purpose of generating know-how and exchanges, as countries cannot go forward without cooperation.” Innovation was also the focus of an important education panel that drew together both the private
Above: Gilbert F Houngbo, president of IFAD, was one of the keynote speakers at the conference.
Training for African youth Speaking to African Business after the forum had concluded, João Bosco Monte took the opportunity to talk about a very special initiative of the Brazil Africa Institute, the Youth Technical Training Programme (YTTP). “The YTTP brings young Africans from across the continent to train in Brazil in areas where Brazil has demonstrated it leads; in agriculture, education, IT, health, social media, etc,” Monte explained. “When they go back home, they will be taking skills. I am not talking about rocket science! For instance, our first programme was concerned with cultivating cassava. As you probably know, Nigeria is the world’s biggest cassava producer but it exports this crop without any value addition. “If you go to the countryside in Brazil, you see farmers adding value, for example adding pineapple juice to tapioca, to make it more attractive and tasty for the consumer. It is one example of simple value addition.” Monte was delighted with the way that the forum had not only attracted a high calibre of speakers, but the quality of the dialogue: “Brazil needs to know more about the African continent. The African continent needs to become better known. I am very pleased that after a year of hard work that we have managed to reunite friends, some from some time ago, and new friends who we are privileged to have here with us.” The 2018 edition of the Brazil Africa Forum is due to take place in November in Salvador, Bahia State.
Stephen Williams
March 2017 African Business 41 PERSPECTIVE
Africa’s infrastructure gap leads to many lost opportunities. Investing in the right solutions could lead to an economic boom.
The economic cost of poor infrastructure
I
nfrastructure is one of the most critical components of economic development. In Africa, inadequate networks are a major reason why the continent continues to struggle economically. Africa’s basic infrastructure is not as strong as it should be, and this has cost the continent many opportunities. The Brookings Institution found that only 34% of Africans have access to roads and over 620m people do not have access to electricity. These inadequate infrastructure networks limit the flow of trade, capital, education, information and people. What we see going on in Africa is an infrastructure gap – a need for basic services and public utilities that are essential for economic growth and to attract investment. Roads, electricity and telecommunications are a few of the major infrastructures that desperately need investment and government support in order to advance. With Africa’s rapid industrialisation, greater demand for goods and surging trade levels there is a demand for new infrastructure like never before. Africa has an immense opportunity for growth and investors are starting to recognise that. There are a vast amount of natural resources, millions of individuals eager to work and significant capital being injected into the economy. If given the right support and investment,
Africa has the potential to become the world’s next emerging market.
Laying the South Atlantic Cable System. Africa needs efficient new infrastructure like this.
Addressing the inefficiencies The current inefficiencies need to be addressed so that companies will invest in Africa’s infrastructures. Investments will be the strategic tool that reduces poverty and aids Africa’s economic development. The World Bank found that closing the infrastructure gap could increase growth of GDP per capita by 2.6% per year in Africa. The construction of the South Atlantic Cable System (SACS) is one step towards bridging the gap. This cable connects Fortaleza on the Brazilian coast with Luanda in Angola and is the first transatlantic cable route in the southern hemisphere. This project is the first direct link to North America and the US from Africa and is crucial for advancing Africa’s digital economy and improving global communications. Building a reliable telecommunications network also encourages larger companies to expand and invest in the continent. Telecommunications in Angola will also see improvement because of AngoSat 1. This is Angola’s first satellite to be launched into space and is expected to survive about 15 years. AngoSat 1 will provide better reception for mobile phone users and will also support telemedicine, a way of providing clinical care for patients in distance areas from physicians. Telemedicine is crucial for those who are not located near hospitals or in places that do not have proper telephone service to reach medical professionals. With the launch of AngoSat 1, Angola has become one of the increasing number of sub-Saharan African countries to be in space. Ghana, Nigeria and South Africa all have implemented satellites to aid different telecommunications, telemedicine, education and environmental programmes. The launch of the satellite not only improves the lives of people in Angola, but also puts the country in the space race. Infrastructure investment, like the SACS, and AngoSat 1 is vital to the development of sustainable economic development in Africa. A great deal of funding has already begun to ameliorate the issue. With help from different banks, private investors and the government Africa will soon see an enormous economic boom that will uncover all of Africa’s economic potential. Zandre Campos is chairman and CEO of international investment firm ABO Capital.
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March 2017 African Business 43 TUTU FELLOWS COLUMN
Initiatives such as the Women’s Investment Club in Senegal are leading the way in helping Africans to take control of their own economic destiny.
Mobilising domestic resources is key for development
I
n early 2015, I and several other Senegalese women business owners came together to address a gap we had seen – that of mobilising significant domestic resources to address Africa’s development needs. While the culture of raising funds for community needs already exists on the continent in the form of savings and credit cooperatives and associations, we knew that the real game-changer would be in mobilising even larger amounts of money for the growth and development of the continent in more formalised investment vehicles. It is against this backdrop that we founded the Women’s Investment Club (WIC). WIC, through its WIC Syndicate Fund, aims to accelerate women’s inclusive economic emergence in Senegal, through support and investments in high-potential early-stage businesses with a gender focus. More broadly, WIC provides financial products that are tailored to womenled businesses in Senegal and Africa. These financial products include an existing index fund targeting the West African Regional Stock Exchange, a soon-tolaunch syndicate fund targeting early-stage businesses, and a planned private equity fund targeting more mature small and medium enterprises. The domestic options to mobilise resources have to be both attractive and safe to work. Attractive because collectively Africans in the continent and beyond are
already mobilising huge amounts of resources, but for several different uses. In 2015 alone, African migrants sent home some $64.6bn, a sum that rivals FDI flows and dwarfs aid. In 2017, mobile payments in Kenya – one of the leading players in the area – averaged close to $100m a day. Safe, because with the many uncertainties surrounding the African investments space for individuals, investors need to be assured that their funds are secure as they wander into new territory.
Domestic options to mobilise resources have to be both attractive and safe to work.
Investing in our own economies The need in the region for initiatives such as WIC is very clear, with WIC Senegal having inspired the setting up of similar women’s clubs elsewhere. The continent is also fortunate that there have been similar homegrown initiatives to learn from, especially those in Nigeria and Ghana, the leaders in impact investing in West Africa, where the regulatory environment is more favourable to both angel and impact investing. By setting up the first syndicate fund based on the angel investing model in Francophone West Africa, WIC will be establishing a precedent for the development of angel investing networks all over the region, therefore creating more fi nancial mechanisms for businesses looking for funding. Such homegrown resource mobilisation initiatives are a great step in putting the continent and its people more in control of our own destiny. If this and other similar models can be scaled up throughout the continent, African investors can increasingly find ways to invest profitably in their own economies, still in partnership with foreign investment, while ensuring that Africa is more in charge of delivering on its own development objectives for the benefit of its people. Madji Sock is Dalberg Advisors’ global operations partner, a co-founder of WIC, and a Tutu Fellow.
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March 2017 African Business 45 TRADE
To make a meaningful impact, Africa’s Continental Free Trade Area (CFTA) will have to improve the quality as well as the quantity of intra-African trade.
Can the CFTA deliver economic progress?
M
ore than two years after the signing of the Sharm-el-Sheikh Tripartite Free Trade Area (TFTA) agreement in June 2015 – which brought together member states of the Southern African Development Community (SADC), East African Community (EAC) and Common Market for Eastern and Southern Africa (COMESA) – trade ministers from all of Africa’s 54 countries, including those of the Economic Community of West African States (ECOWAS), which already have a common external tariff, met in Niamey, the capital of Niger, in early December last year to agree final terms for the African Union’s Continental Free Trade Area (CFTA).
Intra-African trade currently comprises just 15% of the continent’s mercantile trade.
By and large, they made good progress. A formal signing of the trade deal by heads of state is expected in March. However, there are still a few pending issues. They have yet to agree on tariffs on all goods, for instance. But on services, they successfully closed the book. Intra-African trade recovers The objective of the CFTA is primarily to engender more intra-African trade, which currently comprises just 15% of the continent’s total merchandise trade. When compared with intra-regional trade in other continents – 67% in Europe, 58% in Asia and 48% in North America – this is quite low. Efforts, thus far, at improving the low trade interac-
46 African Business March 2018 TRADE
tions within the continent, have clearly not been very effective. There are signs of improvement, though. According to most recent data from Cairo-based African Export-Import Bank (Afreximbank), intraAfrican trade grew by 8% in the first nine months of 2017, with Guinea, Ethiopia, Burkina Faso, Equatorial Guinea, and Sierra Leone in the lead. This is definitely better than the marginal 0.6% growth to $156.94bn recorded in 2016. Even so, there is still much road to cover before intra-African trade recovers to the 2013 peak level of $174.9bn. And as recently as 2015, intra-African trade growth was almost 9%. Afreximbank attributes the latest recovery to rising commodity prices, “improved regional trade across regional economic communities and some countries’ increased focus on promoting intra-African trade.” This could be the start of a paradigm shift. A new departure? After the jamboree likely to herald the signing of the CFTA, the various heads of government may as usual go back to their capitals and do little to implement the accords. However, things could be different this time: the need for improved intra-regional trade relations is now almost existential. With additive manufacturing, automation and other fourth industrial revolution innovations likely to maintain the insurmountable advantage of developed economies, African manufactures will only thrive if they are traded within the continent. And since it is only by trading more with each other that this could be achieved, African governments will need to ensure hassle-free market access for African-made goods. This is the underlying motivation behind the CFTA. To meet the continent’s needs, however, more of African countries’ predominantly primary commodity international trade will have to be pared down. For example, instead of exporting so much of their cocoa to Europe and the US, Ghana and Côte d’Ivoire should keep more of the crop at home to produce chocolate and other cocoa-related manufactures. Batteries used to power electric vehicles could be manufactured in the Democratic Republic of Congo and Zambia, where the key input, cobalt, is found in abundance, instead of exporting the mineral to China. Were the CFTA able to boost the quality of trade as much as the quantity, it could be truly groundbreaking. Considering how hard it has been to achieve even the slightest consensus on trade integration, however, this is probably too much to ask. But politicians cannot
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go on talking about the need for greater beneficiation without ever taking any concrete action. Strangely, the bulk of our meagre intra-African trade is in manufactures. But these tend to be goods like processed food products, cement, and so on, which are not complicated to manufacture. And even these supposedly simpler manufactures have to contend with cheaper imports in some African countries. The CFTA that may be signed in March will still be a work in progress. Negotiations on such important issues like intellectual property rights, tariffs for some goods, what constitutes proper competitive behaviour and so on, are still ongoing. Besides, there is the bigger issue of how African countries would extricate them-
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March 2017 African Business 47
short of acceptable standards. Frankly, the likelihood that African-made goods will ever be as competitive as foreign ones is slim. Thus, African countries will in addition to trading more with each other also need to exclude outsiders with as much zeal, at least for a while. Threat of isolationism Should the CFTA vision be realised, intra-African trade could increase by at least 50% over the next five years, according to some estimates. A market of more than 1.2bn people with a combined GDP of $2.2 trillion is a far stronger bulwark against limiting external trade forces than the tiny ones that inevitably get overwhelmed in negotiations with big countries – even as stand-alone economies – like the US, Britain and China. Incidentally, even these countries which already trade a great deal within their own continents are becoming increasingly isolationist. So, just as African countries are beginning to find trade unity, previously globalist and more integrated ones abroad are beginning to flirt with insularity. Benedict Oramah, president of Afreximbank, put it succinctly in remarks he made in early December: “While the speed with which the CFTA has been concluded appears to indicate Africa’s preference for unity, we have to be mindful that the attainment of the ultimate goal of the CFTA of strengthening Africa’s role in global trade may be more difficult to achieve under the wave of isolationism sweeping across other markets.”
selves from constraining bilateral and multilateral trade agreements with developed economies, which at first glance seem beneficial to African countries but on further scrutiny have been found to be ultimately detrimental to their long-term industrial development. The European Union’s Economic Partnership Agreements (EPAs) top the list. In 2016, for instance, Africa’s trade with the European Union was valued at €262bn ($324bn), with a relatively small trade deficit of €28.6bn. However, the fact that 62% of Africa’s exports were primary products and 71% of its imports were manufactures puts that deficit in a different light. And even when the EU has been magnanimous, African manufactures sometimes fall embarrassingly
Ghana and Côte d’Ivoire should keep more of their cocoa at home to produce higher value-added products.
Other barriers to trade In any case, the trade barriers that really require attention on the continent would barely surface in negotiations or be amenable to them. For instance, infrastructure – which with its terrible state and its huge financing deficit ($93bn per annum) adds to logistical costs and retail prices – is one of the reasons why African goods are not competitive. Non-tariff barriers like that would require not just collaboration between African governments but a sense of initiative by each of them. And even as the raison d’être of the CFTA is palpable, will there be similar enthusiasm in implementing it? John Ashbourne, Africa economist at London-based Capital Economics is sceptical: “I am generally pretty pessimistic about the CFTA. It is a good idea, but I doubt that it will be implemented in a way that will have much of an effect.”
Rafiq Raji
48 African Business March 2018 FINANCE
At some point, there will be a sharp correction in global financial markets. When it comes, some African markets could suffer damaging shocks.
Is Africa prepared for a global financial crisis?
V
olatility is back in global financial markets. In early February, Denver-based hedge fund Ibex Investors, with just $350m assets under management, made $17.5m on a $200,000 VIX wager – an 8,600% return. How come? It bought insurance to protect it when markets go haywire. It was a far-fetched scenario at the time, but they eventually did, on 5 February. In early February, data showing high wage growth raised expectations that the American Federal Reserve would hike interest rates sooner than expected. Bond yields shot up consequently. Equity markets took a hit, as the cheap debt hitherto fuelling their rally was about to start getting dear. Higher inflation expectations were confirmed almost two weeks later, when US inflation data for January came out at 2.1%, 20 basis points above the consensus estimate of 1.9%. A week later, hawkish Fed minutes confirmed the fears of market participants. Prior to the release of the minutes, the Fed had led markets to believe there would probably be about three rate hikes in 2018. Afterwards, some economists began to suggest there could be as many as five. This is probably extreme. But such varying views, fears and sharp market reactions are evidence of what has been missing from the markets since global central banks starting flooding them with easy money in the aftermath of the 2007–08 global financial crisis – volatility. Unprepared In tandem with the Fed, the Bank of England (BoE) is similarly on a tightening cycle. And the European Central Bank has already signalled monetary contrac-
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tion could come as early as 2019. The Bank of Japan has also started to reduce its asset purchases. Does that mean the end of easy money, though? Not really. At 1.5%, US money is still relatively cheap. And even in the UK, where consumer inflation (3% in January) is already above the much sought after 2% target of other global central banks, the BoE rate is just 0.5%. Emerging markets (EMs), which have been huge beneficiaries of quantitative easing (QE), need to start preparing for a post-QE world, however. This is because as interest rates start to rise in advanced economies, as they already have, there is going to be an increasing opportunity cost to allocating capital to EMs. Still-attractive EM yields will continue to make the carry-trade too tempting to ignore, but the party will not last forever. At some point, there will be a sharp market correction, as yields rise in response to tighter global monetary policy. When that time comes, emerging and frontier markets, particularly African ones, not already prepared might suffer damaging shocks. Andrew Alli, president and chief executive of Lagos-based Africa Finance Corporation (AFC) highlights why African markets might be at risk: “Many African countries have run down their reserves and/ or borrowed significantly since the financial crisis and, as such, don’t have as much ‘fiscal space’ as they did prior to the last financial crisis. Also their macro positions – deficits/inflation, etc – have worsened.” Wale Okunrinboye, fixed income and currency specialist at Ecobank, the pan-African bank, corroborates his view: “Reserve levels across most countries have declined markedly as fiscal and current account
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Wall Street took a hit in early February. Volatility is returning to the markets.
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March 2017 African Business 49
50 African Business March 2018 FINANCE
pressures increased reserve drawdowns across most oil exporters whose economies went into recession… Sub-Saharan African [SSA] economies at the present appear lightly equipped to deal with [another] global financial crisis.” This was not always the case. “In the run-up to the [2008–09] global financial crisis, helped by [the] commodity price rally, [ample] FX reserve levels… alongside relatively low debt levels and high economic growth rates, helped [African] countries deploy countercyclical measures to temper spillover shocks,” he adds. Some African countries have been taking precautions, though. For instance, Kenya sought and secured a two-year $1.5bn standby credit facility from the International Monetary Fund (IMF) in March 2016. It has not had cause to use it, even though the prolonged presidential elections last year could have triggered a need to do so. However, there were revelations in February that the buffer had not actually been available to the Kenyan authorities since June 2017. The IMF provided clarification to Reuters on why it stopped the authorities’ access: “The programme has not been discontinued but access was lost in mid-June because a review had not been completed”, said Jan Mikkelsen, the IMF representative for Kenya. For such arrangements to achieve their confidenceboosting utility transparency is required. Market participants might not consider such arrangements to be entirely iron-clad in the future.
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Commodity prices have rebounded but this may not protect African economies from financial crisis.
Can squandered foreign exchange reserves be restored before any potential crisis?
Publisher Editor
Narrow leg room As commodity prices have been rising, can squandered foreign exchange reserves be restored before any potential crisis? Okunrinboye gives a comprehensive explanation: “Though [commodity] prices have rebounded, they remain at discounts to levels seen during the commodity supercycle.” So wide current account deficits continue to be the case. “Furthermore,” he says, “capital pressures lurk on the horizon, as a search for yield [which] drove heightened portfolio inflows to SSA capital markets [caused] significant asset price inflation.” Thus, rapid exits of hot money in the event of another global financial crisis are likely to fuel exchange rate pressures. And, following an expansion in debt levels by African economies due to QE, “fiscal leg room appears narrow relative to the last global financial crisis; even as elevated inflation has forced many of these economies into hawkish positions with little choice but to tighten in the event of sudden currency pressures.” “So,” he says, “even as a host of SSA economies are now entering into structural reform programmes with the IMF, the overall sense is that they seem lightly prepared for another event of a similar scale.” Even so, it is not entirely improbable that they could come out again largely unscathed. According to AFC’s Alli, at less than 3%, “Africa’s general lack of exposure to global trade flows” is one reason why.
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52 African Business March 2018 INTERNET INFOGRAPHIC
Bridging the internet divide Africa’s mobile revolution is well established...
500m There are now more than 500m subscriptions on the continent.
1bn
Mobile broadband users are expected to hit the 1bn mark by 2022.
March 2018 African Business 53
32%
32% of Africans have access to the web – the lowest percentage of any continent.
Sources: InternetWorldStats, We Are Social.
However, the gap is closing:
20%
... but internet access remains low.
51.8% The global average is 51.8%. Asia: 47.4% Europe: 84.6% North America: 95%
10%
Africa accounts for just 10% of a total of 4bn global users.
89.45% Penetration rates vary from 89.45% in Kenya to 1.3% in Eritrea. Nigeria stands at 47.7%.
Internet access increased by 20% in 2017, above the global average of 13%. It doubled in Benin, Sierra Leone, Niger and Mozambique. In Mali access increased sixfold.
Communiqué
Chafic Traboulsi, Head of Networks for Ericsson Middle East and Africa, tells the story of 5G
5G IS THE FUTURE OF WIRELESS TECHNOLOGY With the first G NR standard in place, what can we look forward to in terms of G development in the coming months? The pace at which business use cases are being visualised, conceptualised, and constructed today is quite phenomenal. 5G use cases will include faster and more robust high-speed mobile broadband and video everywhere, a proliferation of connected sensors to support Internet of Things (IoT) implementation, and everything from driverless buses to remote surgery to immersive augmented reality. We can all agree that 5G is the future. It is estimated that by 2023, there will be more than 9.1bn mobile subscriptions and 1.5bn cellular IoT devices relying on mobile networks worldwide. In order to support this immense demand and the necessary speed of services, operators will continuously strive to improve capacity, quality and functionality of their networks at one end while looking at ubiquitous digital transformation initiatives to deliver innovative services and customer experience on the other end. In line with this pressing agenda, Ericsson is tirelessly working with partners and operators to address impending market realities. In a bid to augment the business potential of 5G, Ericsson has introduced the world’s first 5G NR Radio – featuring 64 transmit and 64 receiving antennas enabling 5G plug-ins for both Massive MIMO and Multi-User MIMO. We’ve also added Gigabit LTE and Cloud RAN – new LTE soft ware and hardware solutions that leverage key 5G technology concepts operators can deploy in today’s network to improve both performance and efficiency while preparing for largescale 5G
adoption. In the coming months, we will see more operators begin trials that will bring essential 5G technology concepts to existing cellular data networks. In your opinion, which use cases of G would be most popular in the MEA market? Cellular IoT connections in the Middle East and Africa are expected to grow from 35m in 2017 to 159m in 2023 – a CAGR of around 30%. As the world becomes more connected, industries are experiencing an ICT-driven transformation, creating new revenue opportunities for ICT players. Cumulative revenue in the Middle East and Africa is predicted to reach $242bn through 2026. 5G will be an important technology in growing industrial digitalisation, particularly for use cases dependent on ultra-low latency and high reliability. This presents an Cumulative G enabled industry digitalisation revenues for IoT in the Middle East and Africa in percentages: Energy & Utilities:
19%
Manufacturing:
19%
Health Care:
13%
Public Safety:
12%
Public Transport:
9%
Media & Entertainment:
9%
Automotive:
8%
Financial Services :
6%
Retail:
4%
: %
opportunity for service providers that are ready to explore revenue streams addressing B2B2X industry players (see table). Even though IoT is still in its infancy throughout many parts of the Middle East and Africa, there are still examples of how it has helped improve livelihood of communities and industries in the region. For instance: • In Turkey, smart agriculture initiatives have been ongoing since 2011, and similar initiatives are now ongoing in parts of Africa. • The Saudi Arabian market has been exploring remote monitoring of oil wells and making temporary networks available in cases of disasters. • In South Africa, Narrowband IoT (NB-IoT) technology will serve the region’s diverse needs, opening up new revenue streams as a result of industrial digitalisation and improving standards of living in relevant countries. What’s your G agenda for the year ? Our primary focus is to put our customers at the centre of everything we do. Today, their priorities are as follows: Relentless Efficiency: Our priority is to work with our operator customers to accelerate 5G use cases, assist in the smooth transition to 5G, and work along with them to manage capacity growth. Digital Experience: We will deliver for our partners’ automated and cost-effective operations with programmable networks for faster time-to-market and optimise network
In a bid to augment the business potential of 5G, Ericsson has introduced the world’s first 5G NR Radio CHAFIC TRABOULSI, HEAD OF NETWORKS FOR ERICSSON MIDDLE EAST
performance to radically enhance customer experiences. New Revenue Streams: We will work with operators to innovate and optimise on emerging business opportunities, connectivity services, and platforms to support growth of IoT. How long would the wait be for the commercialisation of G? The big question – when is G coming for real? We don’t speculate on this and to be honest, it would difficult to provide a concrete timeframe, as 5G commercialisation will entirely depend on market dynamics and maturities of the ecosystem in general. However, what is heartening to note is the fact we are not too far off from this reality. According to Ericsson’s G Readiness Survey published in October 2017, 78% of respondents were involved in 5G trials in 2017 as compared to 32% in 2016. Furthermore, 28% of respondents expect to deploy 5G in 2018. The survey also revealed that operators have further developed their business strategies for 5G services, looking beyond the consumer segment to foresee opportunities in the enterprise and industrial segments as well. The top three industry sectors that were highlighted by survey respondents were media and entertainment, automotive, and public transport; but many also ranked healthcare as well as energy and utilities among the most attractive sectors for 5G applications. A clear majority of respondents believe that IoT will play an important role and that third-party collaboration will be essential in this context. n
56 African Business March 2018 PERSPECTIVE
Franchising has led to a business revolution in the US, but uptake has been slow in Africa. How can this successful model be extended across the continent?
Franchising: Big possibilities for small businesses
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any commentators attribute the parlous state of the economies of most African states to the underperformance of their small and medium enterprises (SMEs), the driving force of successful economies. The non-performance of SMEs in a region such as Africa, bursting with entrepreneurial zeal, has largely been blamed on the lack of infrastructure. A light-hearted joke in Nigeria, for instance, is that every business in the country is a self-catering municipality – providing its own water, power, security, and sometimes roads. But the problems facing SMEs in Africa are much more than infrastructure. Studies show that 40% of SMEs die in their first year; 80% die by the fi ft h year. Out of the 20% that manage to survive the first five years, another 80% die within the second five years. That is about 96% mortality within the first 10 years. Interestingly, studies equally show that less than 5% of franchises fail every year. In order words, the success rate of SMEs that run as franchises is remarkably high compared to those operating as solo enterprises. That is why countries that are at the forefront of franchising are also among the most prosperous in the world. In the US, franchising has led to a revolution in business. There are nearly 400,000 franchised businesses across nearly 80 industries, accounting for over $1 trillion in sales annually, with nearly 50 cents of every retail dollar coming from them. With the exception of South Africa, where the contribution of franchising to GDP moved from 11% in 2016 to 13% in 2017, Africa’s story is totally different. Template for business success Why does franchising succeed, and why is it recommended for African economies? Franchising has been
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There are Africanowned businesses that could take on new life if they were franchised.
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described as a template for business success – a way to quickly, identically, inexpensively and efficiently replicate business success. It assists SMEs by providing advantages such as structure and processes; discipline in operation; training and capacity building; a presold customer base and access to market; access to technology; economies of scale in research, market development and advertising; and access to funding, as a result of improved bankability. That is why it is now reasoned that to tackle the problem of failure of SMEs – and by extension, the scourge of poverty in Africa – the concept of franchising as a business model must be taken very seriously and supported by African countries. No wonder two regional financing and development institutions focused on Africa are turning their attention to encouraging franchising: both the African Export-Import Bank and the African Development Bank Group are known to be in the process of developing funds to support franchising in Africa. While those large continental bodies are putting things together, some young African entrepreneurs (to which I declare allegiance) based in Nigeria have had their epiphany and want the rest of Africa to catch up
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with the vision, with what we call the Africa Franchise Centre (AFC). One-stop point for African franchising Our team is made up of former bankers, executives in oil and gas firms and business people, and we came up with the initiative after studying businesses in Nigeria, as a microcosm of African SMEs. We realised that the problems of SMEs in Africa go beyond the paucity of infrastructure (power and roads) and funding. We established that the problems of lack of capacity, indiscipline, poor work ethics, inadequate structures and processes, and lack of transparency are as detrimental to the success of SMEs as poor infrastructure and access to finance. We also realised that the economies with vibrant SMEs have used franchising as their engine of growth. Having left the corporate world in banking and now running a US franchise in Nigeria, I believe that, in addition to domesticating international franchises, there are Africa-owned businesses that could take on new life if they were franchised. It is for this reason that we have created this platform, the AFC, to help develop franchising in Nigeria and Africa.
The Domino’s Pizza franchise has been successful in Nigeria.
The AFC promises to provide a one-stop point for franchising in Africa both geographically and by the spectrum of solutions it offers. For one thing, it treats Africa as an integrated franchise market, thereby offering global franchise brands a single entry into Africa. Secondly the centre links finance, training, franchise brokerage and franchisor-to-franchisee matchmaking in one place. Considering the immaturity of franchise regulation in many African markets, AFC also seeks to help promote pro-franchising laws and policies, working with trade promotion agencies of different countries. To complement home-grown franchise policies, the centre is actively working with the commercial sections of embassies/high commissions of major African countries to facilitate franchising of their home businesses in Africa, enabling them to access, navigate and consolidate in the largely untapped African franchise market. At the official launch of the AFC last November, Antoine Zammarieh, who is also the franchisee in Nigeria for the Domino Pizza and Cold Stone Creamery brands, outlined some critical success factors for franchising in Africa, adding that there were vast opportunities for growth and success in the Nigerian franchising sector. He said his brands that started five years ago in Nigeria with just four employees had grown to about 1,500 staff across the country, adding that one of the Domino Pizza outlets in Abuja, Nigeria, rose to the second position among the 12,500 outlets of the brand globally within two and a half years of operations. Another speaker, the chairman of the Centre for Values in Leadership, Professor Pat Utomi, highlighted how franchising can help entrepreneurs address the risk element in business by providing a proven successful model. When people talk of America as the land of opportunity where dreams come true, Utomi pointed out that of the 2m millionaires in the US, the majority are franchisees. Franchising can offer a genuine path for wealth creation and scale. Utomi reminded us that the most critical factor in franchising is the discipline franchisees must learn in order to successfully run franchises. We are driven by a genuine belief that franchising offers a viable model to develop SMEs not only in Nigeria, where we have seen proof of concept, but also across Africa. Emma Esinnah is one of the founders of the Africa Franchise Centre, which launched last year in Nigeria.
58 African Business March 2018 INTERVIEW
Vera Songwe, Executive Secretary, UNECA What are UNECA’s current priorities in its mission to promote economic and social development across Africa? The organisation’s new executive secretary spells out her objectives to African Business.
‘We must balance growth and fiscal discipline’ You’ve released a number of statements since taking office as executive secretary of the United Nations Economic Commission for Africa (UNECA) last August. What are the big ideas – what are the big projects you want to get involved in? First of all, ensuring the good work African countries have done to bring their macroeconomic environment into shape and have stable credible macroeconomic trajectories continues. There is a growing concern around our debt-to-GDP levels but I think that with the need to grow fast many countries are investing more. To continue to invest you need to raise revenue. We caution about macroeconomic stability, but we need long-term growth. So where is the balance? Going contrary to received wisdom, which is either you are doing counter-cyclical or pro-cyclical policy, we are trying to see whether Africa can do both, which is basically saying we are going to continue to grow but we going to be very fiscally disciplined. To do that you need to raise more resources. Can we take African countries to a 30% tax-to-GDP ratio? So the first point is macro-economic stability, the second is how can you raise the resources? There are a number of ways in which we can do it. One is collecting better taxes. A second is innovative ways of financing. Is there dormant capital within the continent that we can use for investment and regulate in a way that works? And then there is the whole issue of bringing more of the private sector into solutions for the continent. We know that with the growing youth bulge if we do not find jobs for the youth we will never achieve the growth we want and we may be risking instability. And finally we are thinking about continuing the work around governance. The African Union has picked anti-corruption as the big pillar of its agenda for 2018. That’s something we also want to do. We also want to build stronger institutions for peace.
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Most of our countries are stuck with decisions around fiscal policy that were taken 15 years ago.
Publisher Editor
In terms of domestic resource mobilisation, how can African economies better leverage monies trapped in banks? What is the main strategy for mobilising resources on the continent? There are three things that we will be working on. The first one is increasing the tax base. We have a large informal sector on the continent but we also have a large sector that just does not pay taxes even though they can. Most of our countries are stuck with decisions around fiscal policy and tax that were taken 15 years ago, coming out of structural adjustment. Our economies have substantially changed since then. Can we look again at the agricultural sector? There are pockets there that could contribute to the fiscal basket. Are we taxing all of the service sector? Many countries are rebasing their GDP. As we do that we should also look at getting more money into the tax base. We need to be sure we’re capturing everything. The second thing is looking at dormant areas of capital, at pension funds and insurance. A few countries allow pension funds to invest in their countries, one or two in cross-border investments. We would like to see if it is possible to do more and have a lot more cross-border investment. Deepening capital markets is another way of doing it. There are not many functional stock exchanges on the continent. We are now looking at creating ratings agencies, because part of raising capital is getting a better sense of risk assessment. We are very dependent on sovereign risk ratings, but we do have corporates that could be rated equally well, so helping them understand how they get risk ratings is something we are looking at. ECA has done a lot of work on illicit financial flows. How can we ensure that we can get some of the resources back? We have base erosion and price shifting that is happening particularly in the mining sector.
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60 African Business March 2018 INTERVIEW
Vera Songwe, Executive Secretary, UNECA
Can we stop that? We need the governance systems in our countries to improve so we don’t allow transfers of our resources that are not legal. How has your work in the private sector informed your new role as policy chief? In the private sector you realise very quickly how much policy is needed to make the private sector work. Each time a business goes into a country you need to understand the tax regimes, whether you can take the capital out and stability of contracts, so there is a lot of policy around that. Working very closely with the AU – we’ve just done the Continental Free Trade Agreement – you don’t work for one business in one country. If there are some good ideas that can engender businesses across the continent then we put them forward. Having coordinated policies across the continent ensures that we have better trade and better foreign direct investment, but more importantly that intra-African trade goes better. Take open skies policies, the common market for air transport. Those kinds of policies are important because the private sector doesn’t come unless you have them. In some sense maybe it’s working backwards, but it’s ensuring you create that space to attract the private sector. But you need to do it together, because the public sector alone does not know what the private sector needs. Africa is new and I think with all the innovation that is happening, we can do things much faster. But you need to come to the continent to try it and we need policy which will allow you to do that.
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Above: Vera Songwe with Moussa Faki, chairperson of the African Union Commission.
Policies like open skies are important because the private sector doesn’t come unless you have them.
Publisher Editor
How are your relationships developing with the leaders of the African Union (AU) and the African Development Bank (AfDB)? The relationships are fantastic. We have the joint secretariat for what we call the three African agencies. You could say that the AfDB is the fi nancing arm, the AU is the policy arm and the ECA is the research arm. We do the analysis and recommend the policies, then the governments put it in place and the AfDB finances the result. That’s putting it simply. All of us do a little bit of all of that. At the ECA, as part of the UN, we have the sustainable development goals (SDGs). The AU has Agenda 2063. How can we bring those together? The AfDB funds either one of those agendas, but we have done a lot of work to show the two agendas are the same. What we want is prosperity for everybody – as the UN general secretary says, leave no one behind. The SDGs are a much broader remit – it’s a development remit and a peace remit – so we are doing a lot more work that allows us to work a lot better and faster together. We have relatively new leaders, relatively from the same generation, relatively working towards the same goals. I think the fact we have global agendas like the SDGs, climate change and Agenda 2063 allows us to all feed into that, so we don’t all have to create something new. We are essentially working towards the same goals but with different comparative advantages. But we meet very regularly and we’re working very well together as bodies for the betterment of the continent. Tom Collins
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Thomas Matola, CEO, BNI (Mozambique) With big opportunities coming up in infrastructure, power, agriculture and tourism, the president and CEO of Mozambique’s national investment bank is optimistic for the future.
This is the best time to invest in Mozambique
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ozambique’s Banco Nacional de Investimento (BNI) is a hybrid between an investment and development bank which was created in 2010 as a joint partnership between the Mozambican government and the government of Portugal. In December 2012, with economic uncertainty in the Eurozone following the financial crisis, it became a 100% Mozambican entity, 100% government owned and with assets of approximately $150m. The bank has worked on a number of projects, helping structure deals as well as financing them, and in general focuses on projects that will contribute to the social and economic development of the country. The bank’s president and CEO,
Tomas Matola, a veteran of Mozambique’s finance industry, spoke to African Business about the bank’s activities and future plans. Can you talk us through the investment banking activities of the bank? We act as advisers for financial restructuring, mergers and acquisitions and fundraising. Why fundraising? Because we don’t yet have enough balance sheet to finance all our projects. When we can’t finance a project via our balance sheet, we acquire mandates to raise funds from international market. We do that for the private sector, for public companies, and for government. Some projects cannot be financed solely from the Mozambican financial system and that’s why we have this role to look for funds from international markets. We have financed projects in agriculture, in mining, in transport and telecommunications, as well as in fisheries. Can you be more specific in terms of sectors and projects? We helped structure the deal for Maputo-Katembe Bridge and also raised funds, close to $100m, for an electricity centre. But we also advise and provide fi nance for smaller projects. We have been managing some lines of credits from our partners, for example, they are required to finance agriculture
62 African Business March 2018 INTERVIEW
There are four strategic sectors for government: infrastructure, power, agriculture and tourism. but don’t have the expertise for that, so they partner with us and we manage these funds to ensure that they will reach the final user. When those in the agriculture sector use commercial banks, the interest payments they incur means that the development objectives are not achieved. When you talk about a 100m electricity project, what is the exact role of your bank, the role of other banks and the role of government? Some projects are structured as project finance but in cases like the electricity project, this amount will be supported by the balance sheet of the company. We negotiate all the conditions and after the financial close, these funds go straight to the company. Sometimes, if they are not comfortable enough with the balance sheet of the company, the investors require sovereign guarantees. In that case, our responsibility is to negotiate with the minister of finance to get the sovereign guarantee. If the projects have social impact and meet certain conditions, the minister of finance will generally provide it. Can your balance sheet support the financing of all these projects? Before the depreciation of the metical [the local currency] we had a balance sheet of over $200m; now it’s around $150m. But we are talking to the government to strengthen our balance sheet because it’s difficult to even talk about raising large funds if your balance sheet is small. We argue with the government that if it wants us to raise funds for big projects, it has to enhance us in terms of balance sheet. We are confident that once they receive funds from the Eni and Exxon Mobil deal, they will use part of this money to increase our balance sheet. In order to recapitalise? Yes, but as you know the country has had many difficulties and there are many needs to be financed. We don’t know if recapitalising the bank will be the solution but we are working on that. This is one way to increase our balance sheet. But we are also negotiating some concessional financing that will be done via the government balance sheet. By this route, commercial funders will finance the government balance sheet and then the government will finance us at a very low interest rates, so that we can use these funds to finance development at a competitive rate.
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Th is will affect all those projects that have development impact and that cannot be financed due to the high market rates currently prevailing in Mozambique. Mozambique has been in the press for the wrong reasons over the past couple of years. How does this affect your fundraising when you go to international markets? I can assure you that we suffered a lot because of this crisis. Before the crisis, we were negotiating the funding of some projects but investors wanted to find out the outcome of the IMF report and the results of the international audit. The message that we are selling today is that this is the best moment to take a position on Mozambique because things have changed. The investors who come to Mozambique now will get the best opportunities. The Eni deal helps us a lot because it has shown that it believes in this country and believes that things are changing for the better. That’s why they signed the deal. What large-scale opportunities and projects are you currently looking at or advising the government on? There are opportunities in four areas and all of them will be improved by the liquefied natural gas (LNG) projects because they will need support not only upstream but also medium stream and downstream. All this will provide many opportunities for Mozambican and international investors. Construction is another area: for example we looking at a cement plant to support the construction sector. Also, we are looking at electricity. As you know, we have rivers – now we use gas – but we have potential in terms of hydro. We have the potential to generate 12.5m MW in terms of hydroelectric. There are some projects where the feasibility studies have been completed, others where feasibility studies are still ongoing but expected to be completed soon. Given our location, we can also export power to South Africa, Zimbabwe, and Namibia. We have concrete projects to show to investors in this sector. And as I mentioned there are four strategic sectors for government: infrastructure, power, agriculture and tourism. Do you finance feasibility studies? Not yet but we have a plan in our budget for this. In our five-year strategic plan we have included a budget to finance feasibility studies, as many viable projects are not being financed due to a lack of feasibility studies.
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We also want to get into private equity, so we have a fund specifically for private equity investments. Why? Because 98.6% of the private sector in Mozambique are SMEs. It is difficult for SMEs to get loans, where interest rates can reach 50%! We saw that the best way to help SMEs is using private equity (through a structure called BNI Capital) buy shares in these companies, get into the management board and help them grow. They can then purchase these shares back, or we can exit through the capital markets, something we also want to develop. Did the crisis in Mozambique affect your bank? Yes, the crisis affected our bank, as it affected the whole system. Because of the crisis, interest rates went up, and the currency depreciated. Inevitably, bank activity was reduced and the non-performing loans of all the sectors increased, because companies either closed or projects were put on hold. For us, while we had agreements with government to receive some disbursements of funds, because they were facing difficulties they could not do so, which slowed down what we could do. It meant that we had to readjust our plan and our budget. But fortunately, in 2016, we closed well, with a net profit 10% higher than in 2015 and even the performance, in terms of return on assets and return on equity, was good. And on debt, I’d like to emphasise that KPMG recognised us for our efficiency ratio. For 2017, I think the profits will be less than in 2016 but not by much. But it’s good to note that we have a profit. Our return on asset and our return on equity will be good, and will be very close to the previous year. So, I can say that in terms of performance, we were affected by the crisis but in terms of performance measured by ratios, we are still good. One of the measures we took when we saw that the crisis was affecting us, was to reduce expenditure, thus reducing the cost line. And also, we decided to add more sources of revenue. We added more products to ensure that we would secure revenues, especially on the advisory side. For this year we have put forward an ambitious strategic plan so that we are ever more active in the economy. We are seeing a return of FDI, and with the start of the LNG projects, things will change in terms of employment, in terms of exchange rate, in terms of our balance of payments, in terms of our international reserves. So, expectations are high. We feel that slowly the economy is recovering and are very confident for 2019 and 2020. n
64 African Business March 2018 INFRASTRUCTURE
In the margins of the Mining Indaba in Cape Town, at a roundtable hosted by the UK’s Department for International Trade (DIT), UK Foreign and Commonwealth Office and private sector delegates presented their new approach to involvement in African infrastructure projects.
UK offers end-to-end solutions for African infrastructure
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hether one is a “remainer” or a “leaver” – as the two camps against and for Brexit are called – the fact that the UK is leaving the EU could prove to be a boon for African economies, as the UK seeks to strengthen its trading relationship with old and new partners across Africa. This message came across clearly during a roundtable discussion hosted by the UK Department for International Trade (DIT) and attended by a number of African delegations, during the Mining Indaba investment conference in Cape Town last month. One of the rationales of the leave camp is that trade with the EU over the last 20 years has fallen from 50% of GDP to 42% today and that the UK should be able to negotiate trade deals with, among others, the fastgrowing emerging markets, unencumbered by EU regulatory regimes. From Africa’s perspective, this approach would mean that the countries will be able to negotiate hopefully more favourable deals on a bilateral basis with the UK. It is likely that some industries and sectors may be subject to less punitive restrictions than is the case currently with the EU – for example, in the heavily protected agriculture sector. It is acknowledged, however, that new trade agreements, which are invariably complex, will take quite a long time to finalise. Having set the tone for a prospective new and more intense business relationship between the EU and Africa, DIT presented a promising new initiative, the
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The UK seeks not only to develop projects but to create holistic solutions that benefit the community.
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Africa Infrastructure Board. The aim was to put the case for choosing the UK as an ideal partner, across the infrastructure sector. This includes mining projects and the related infrastructure with the aim to create a holistic solution that will benefit the wider community by developing the associated infrastructure around the project. Nigel Casey, the British High Commissioner to South Africa, said that the UK would be increasing its efforts to work more closely with African governments and the private sector. Mining projects, he argued, involve much more than the actual mining operations, and they cannot work without the associated infrastructure. Without naming names, he mentioned that the UK was aware that there is plenty of competition out there when it comes to offering comprehensive solutions to African partners. “We felt the need to up our collective game,” he said, “and create a new government–industry partnership called the Africa Infrastructure Board, which brings together all the players in the UK, whether that is government through the Department for International Development (DFID), or UK Export Finance (UKEF), one of our best-kept secrets, or the Commonwealth Development Corporation (CDC), and private sector operators – all operating in one single place to offer an end-to-end solution.” Oliver Andrews, Chief Investment Officer at the Africa Finance Corporation (AFC), who was one of the panellists during the roundtable, noted how DfID, the UK government’s development arm, was instrumental in institutionalising the model currently being used in infrastructure project financing, with initiatives such as InfraCo Africa and the Emerging Africa Infrastructure Fund. He also reiterated the importance of the City of London, especially as most contracts are generally governed by UK law. The support network in structuring these deals, that is, the legal, capital-raising and technical side in London, plays a vital role. Craig Sillars, from DIT, showcased a number of projects where opportunities in the mining sector are being structured in a way that truly develops the infrastructure, and acts as a catalyst to develop other sectors. DIT, he said, giving an example, is working with a British investor in Angola on resurrecting an iron ore mine. In addition to the mine, the country is developing a smelter, which will ensure in-country beneficiation of natural resources. It will also involve the extension of an existing railway, and the expansion of a port.
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“There will be 600 MW of power attached to that,” he went on to add, “and 25,000 hectares of agriculture land provided to grow biomass to help provide charcoal for the smelter.” Interestingly, he said that the UK was looking at partnering with China on the Simandou Mine in Guinea, to help them develop a holistic solution and develop the local infrastructure, and sharing with the Chinese the designs they have put together to ensure a sustainable project that benefits the local community as well as getting high-quality iron ore to market. “We have a value proposition for China. It’s not just a case of ‘You’re building lots of railways, can we have a piece of it?’ We want to take the expertise we have already got and apply it to that project, where we have something to offer to you.” He mentioned a range of UK household names involved in that project, ranging from law firms such as Hogan Lovells, to construction giant Mott MacDonald and botanical and environmental experts such as Kew Gardens and the Natural History Museum. It was this holistic approach, providing a level of expertise throughout the supply chain that would present the UK’s competitive advantage, as long as it was offered in a coordinated fashion. “The approach we are taking,” he told the participants, “is to produce masterplans that will benefit the communities not only for the next four to five years but the next 60 – which is what we are doing in Angola; so that when the mining project is finished, the infrastructure will continue to benefit the whole region.”
Above: Drilling in Simandou, Guinea. The UK is looking to work with China to develop the mine here.
Francis Gatare, CEO of the Rwanda Mines, Petroleum and Gas Board, said that most of the Rwandan involvement with the UK had been through government, but that private sector interest was growing. He mentioned that the UK is now leveraging the development support that DfID is able to provide to encourage private sector involvement and strengthening the policy and regulatory environment to help drive investments in energy and infrastructure. Coming late to the party? However, some of the delegates felt that the UK was coming late to the party, especially in the infrastructure sector where others have been dominant; nevertheless, they added, this resurgence in interest was welcome. “Diplomatically, the UK has been active,” said the AFC’s Oliver Andrews, “but the private sector has not been present enough in business and industry.” Most delegates agreed that London would continue to be an important hub for investors in mining and in infrastructure, not only as a financial centre, but also for the legal and technical expertise it offered, and that the resurgent interest from the UK towards Africa can only be a positive development for both the UK and the African continent. n The Energy and Infrastructure Roundtable was hosted by the UK Department for International Trade and organised by IC Events, the events department of IC Publications, publishers of African Business.
66 African Business March 2018 COUNTRYFILE
Tanzania Sisal was formerly a major export earner for Tanzania. Now, as demand grows, the government has plans to vastly increase cultivation of this eco-friendly crop.
Tanzania revives the ‘green gold’ Uganda Kenya Mwanza a
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p to the mid-1970s, Tanzania was the largest producer and exporter of sisal in the world and the industry employed over 1m farmers and factory workers. The crop, which is converted into a fibre traditionally used to produce ropes and twine, was also the country’s highest foreign-exchange earner, generating 35% of foreign exchange and earning it the “green gold” tag. Thereafter, however, production began to decline due to the drop in world prices as synthetic nylon substitutes became more popular. A further factor in the decline was the nationalisation of sisal estates under the socialist policies of the country’s post-independence government. Production fell from a peak of 250,000 tonnes in 1964, three
years after independence, to 32,000 tonnes in 1985. With many sisal estates abandoned by growers and processing factories operating below capacity, the labour force also dropped to just 100,000 in the main producing regions of Tanga, Morogoro, Arusha, Mwanza and Shinyanga. But now there is glimmer of hope as steps are being taken to revive production and export of the “green gold”. Professor Godius Kahyarara, director general of the country’s National Social Security Fund (NSSF), recently announced that his organisation had teamed up with Katani Ltd to revive the sisal industry in support of the country’s industrialisation drive. Katani is an independent agro-based company specialising in sisal which was formed as the Tanzanian economy opened up to the free market again in the 1990s. According to Kahyarara, the NSSF and Katani are mobilising funds from Azania Bank and National Microfinance Bank (NMB) to fund revival activities and mobilising experts from the Small Scale Industries Development Organization (SIDO) and Vocational Education Training Authority (VETA) to design projects that
Right: Women dry sisal leaves in the sun.
will utilise sisal products for both home and external markets. The aim here is to support small-scale industries and job creation. The industrialisation project calls for massive production of gunny bags to support production in the export-oriented agro-industries, notably cashew nuts, sugar, coffee, cotton and tea factories. Gunny bags are also in great demand for maize, wheat, rice and other cereals.
Wide range of products Sisal production is environmentally friendly, as it uses very few pesticides or chemicals, while the fibre itself is biodegradable. Products that can be made from sisal materials range from ropes, twine, and cordage for packaging and baling to carpets, wall covering, doormats, car mats, buffing cloth used for polishing of metal and furniture, fine yarn, bag cloth, padding, mattresses and handicrafts. Sisal fibre and products have traditionally been exported mostly to the European Union (EU), Russia, Japan, India, China and Pakistan, while new markets recently have recently
opened in Saudi Arabia, Iraq and Iran. The domestic and regional markets have not been exploited fully, despite moves by the East African Community (EAC) to increase cooperation and eliminate trade barriers. New applications for the fibre are causing demand to expand. These include its use in strengthening recycled paper pulp, as a reinforcer for plastic in car interiors, and for roofing materials, piping and fibreboard. An important new devel-
March 2018 African Business 67
The economic outlook remains hostage to the president’s erratic relations with finance minister Pravin Gordhan.
Above: Cyril Ramaphosa, deputy president of South Africa and president of the African National Congress.
opment is its use to produce electricity, fuel, fertiliser and animal feed. Only 2% of the plant is used to make the fibre, and the waste has traditionally been used as fertiliser, but now Katani has constructed a power plant at its processing plant in Hale, north of Dar es Salaam. The plant, which has received investment of $2m from the Common Fund for Commodities (CFC) the United Nations Industrial Development Organisation (UNIDO) and the Tanzanian sisal industry, provides an important step for-
ward in terms of adding more value and sustainability to sisal production. To produce energy, waste is fed into a digester along with cow dung. The resulting biogas can be used as fuel for transport, farm equipment and domestic uses. A side product is a nitrogen-rich effluent that is used as organic fertiliser and provides nutritious animal feed. There are plans to replicate the project on all five of Katani’s estates and eventually all the sisal estates in the country.
Sisal production is environmentally friendly, as it uses very few pesticides or chemicals, while the fibre itself is biodegradable.
Traditional cash crop Sisal is the oldest commercial cash crop in Tanzania. The plant, which is native to Mexico, was introduced in 1893, under German colonial rule, by the agronomist Dr Richard Hindorf, who had been seeking a crop suited to the climatic conditions of the Tanga region in the country’s northeast. Export of the plant was banned in Mexico, but Hindorf managed to obtain 1,000 seedlings from dealers in Florida. Only 66 of them survived the journey to Tanga, but the
68 African Business March 2018 COUNTRYFILE
Tanzania
industry took off rapidly. The country’s warm and semi-arid climate was perfect for the plant and production in the colony grew exponentially. In 1904 some 2,000 hectares of sisal were planted in Tanga and Lindi. The plant’s fibres were mainly used for the production of ropes for the German naval fleet and sacks to export other agriculture products from the colony. The success story grabbed the attention of the other European powers expanding their navies. The sisal industry grew to become the most extensive commercial agriculture and primary processing industry in East and Central Africa, spreading to modern-day Kenya, Mozambique, Madagascar and Angola. Sisal was continually pro-
duced during the German and the British administrations and was the colony’s largest export, highly prized for use in cordage and carpets worldwide. Following the decline of the industry after independence, Tanzania is currently the second largest producer of sisal in the world after Brazil. Vision for the industry The sisal industry vision for Tanzania aims to bring about a massive leap in the production of sisal fibre by 2025. Existing large-scale plantations are projected to produce around five times what they currently produce, while smallholder farms in estates are projected to increase 10 times, and there is a target of 345,000 smallholders producing sisal outside the large estates.
NSSF and Katani executives are optimistic that their joint venture should create around 500,000 new jobs in rural areas, not to mention the creation of those in processing and service industries. The smallholder schemes will also improve the country’s food security, crop diversification and farming systems. Sisal fields have been found to produce better yields on food crops due to the moisture around the plants. Smallholders are expected to produce food from intercropping with sisal amounting to more than 1,382,000 tonnes, mainly grains and legumes. As a result, the incomes of smallholders are expected to rise from an average of $38 a month to $250 a month. It is estimated that by 2025 at least 100,000 tonnes of fibre will
Above: A woman gathering sisal leaves in the Tanga region of Tanzania.
be needed in Tanzania alone. In the Middle East the increased utilisation of sisal in construction has made the region the second-largest user of sisal fibre in the world. In the Far East, particularly China, imports of sisal fibre have grown significantly in recent years. Most of it is utilised in new products, such as industrial polishing cloth and composites. Within the African region, there is great potential for growth in demand, with over a billion potential consumers entering the market for more environmentally friendly and newer products such as sisalbased composites. Lawrence Kilimwiko
INVITATION TO TENDER
INVITATION TO TENDER
Advisory Services Relating to the Rotation of Tenures of EBID Top Management
Consultancy Firm to Recommend New Conditions of Service for the President of EBID
The ECOWAS Bank for Investment and Development (EBID) seeks to contract the services of a reputable consultancy firm to assist in advising on the principles and procedures for the rotation of the positions of President and Vice-Presidents on country basis, as well as the mode of renewal of the tenures of its President and Vice-Presidents, in line with best practices in similar international financial organisations.
The ECOWAS Bank for Investment and Development (EBID) seeks to contract the services of a reputable Consultancy firm, to assist in proposing a new set of conditions of service for the President of EBID including the terminal benefits attached to the office in line with best practice in similar regional financial organizations.
Those interested in this announcement are invited to find the Terms of Reference for the mission and the conditions for submission of offers on the website www.bidc-ebid.org.
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Those interested in this announcement are invited to find the Terms of Reference for the mission and the conditions for submission of offers on the website www.bidc-ebid.org.
WE ARE HIRING. Africa University, a Pan African and United Methodist Church Related Institution in Zimbabwe, invites applications from suitably qualified and well experienced persons to fill the following strategic positions: ENDOWED CHAIRS: 1. The Bishop Roy and Dr. Ruth Nichols Chair of Education Technologies 2. 3. 4. 5.
Chair of Agribusiness: Department of Agriculture and Natural Sciences James M. Walker 1 Director for the Institute of Theology and Religious studies James M. Walker 2 Chair of Pastoral Care and Counselling Institute of Peace Leadership and Governance Chair of Intellectual Property
General Criteria for Appointments:
The following general criteria will be used in the review and recommendation of candidates for appointment to endowed chairs: Renowned Senior Lecturer/ Associate Professor/Full Professor with PhD degree and an outstanding record of productive Research, publication, creative activity; and scholarly achievements appropriate to the discipline and fields of specialization. Evidence of a continuing record of exemplary academic and professional leadership appropriate to the discipline or profession. Evidence of professional achievement at the national or international level which will enhance the status of the University’s faculty.
DIRECTOR, ADVANCEMENT AND PUBLIC AFFAIRS The Director is responsible for leading and managing all functions of the Office of Advancement and Public Affairs (OSPA). He/she will ensure the effective and efficient execution of efforts to grow philanthropic investment in the university from African sources. Key areas of focus/responsibility include resource mobilization across Africa (making friends and raising funds for Africa University), public affairs, marketing, and alumni relations.
ASSISTANT REGISTRAR-ACADEMIC AFFAIRS
FLEET AND FACILITIES MANAGER
The role ensures that the recruitment, admissions, registration and examinations of the University are well run. In addition, the role plays a critical role in managing student records, planning academic events and processing certificates and transcripts.
The main purpose of the job is to ensure that the University has a fleet that is functional and serviceable to meet all transport needs of the University community. In addition, the role is responsible for supervising contractors on repairs, renovations and building projects and preparing a scheduled maintenance plan for buildings
C
To view the full terms of reference for each vacancy, visit our website at: www.africau.edu/vacancies.html TO APPLY Applications together with six (6) copies (applies if application is in hard copy format) of Curriculum vitae, certified copies and certificates, academic transcripts and at least three names of referees with their e-mail, phone numbers and postal adresses should be forwarded to: Assistant Registrar - Human Resources and Administration, Africa University, P. O. Box 1320, Mutare, Zimbabwe or email to: careers@africau.edu *NB: The closing date for applications is 15 April, 2018
Africa University is an equal opportunity employer and invites applications from different ethnic backgrounds, races, nationalities and sexes. Tel: +263 20 60075 | 6002 | 61618 Website: www.africau.edu | Email: info@africau.edu
Afrexim
The African Export-Import Bank (Afreximbank) is a pan-African multilateral financial institution established in 1993, for the purpose of financing and promoting intra and extra African trade. “The Bank” is currently hiring the below positions. All positions are based at “The Bank’s” Headquarters (HQ) in Cairo, Egypt unless otherwise stated. To view further information on Afreximbank, please visit their website: www.afreximbank.com. Director, Export Development • Based in Cairo, Egypt. • Responsible for export development policies and project finance. • To apply, contact Danelle at danelle@caglobalint.com Manager, Strategy & Innovation (Performance & Reporting) • Based in Cairo, Egypt. • Responsible for strategy and business performance and reporting. • To apply, contact: Thania at thania@caglobalint.com Manager, Information Technology (Core Banking Support) • Based in Cairo, Egypt. • Responsible for core banking functional support and configuration management. • To apply, contact Lizette at lizette@caglobalint.com
Current Vacancies
Manager, Legal (Project & Asset Finance) • Based in Cairo, Egypt. • Responsible for the provision of internal legal services with a focus on project and asset finance. • Fluent in English and French. • To apply, contact Pandora at pandora@caglobalint.com Regional Chief Operating Officer (Southern Africa) • Based in Harare, Zimbabwe. • Responsible for branch business development and management. • To apply, contact Pandora at pandora@caglobalint.com Manager, Banking Operations (Commodities) • Based in Cairo, Egypt. • Administering, monitoring and managing facilities for commodity sector clients. • To apply, contact Thania at thania@caglobalint.com Manager, Intra-African Trade Facilitation • Based in Cairo, Egypt. • Responsible for the implementation of key trade facilitation activities. • To apply, contact Danelle at danelle@caglobalint.com Manager, Research (Economic Modelling) • Based in Cairo, Egypt. • Responsible for macroeconomic analysis, financial economics and financial modelling. • To apply, contact Lizette at lizette@caglobalint.com CA Global Headhunters has been exclusively retained to search and select the final shortlists for these positions. To apply, please visit our website www.ca-finance.com/latest-jobs or for more information contact Bryan Le Roux, Director at CA Global Headhunters on +27 (0) 216599200.
72 African Business March 2018 COUNTRYFILE
Sierra Leone Sierra Leone’s presidential election takes place on 7 March. The contest may be hard-fought, with the two main candidates facing strong challenges from other contenders.
Sierra Leone faces close election result Mali Guinea
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Liberia
S
ierra Leoneans go to the polls on 7 March. The incumbent president, Ernest Bai Koroma, will not be on the ballot. This is no mean feat. A campaign to allow him to stay on beyond the constitutionally mandated two five-year terms started as early as 2012. A review of the constitution, which began in July 2013 and took four years to complete, was controversial in part because of speculations Koroma might be desirous of staying longer in office. More recently, about a year ago, there were reports of plans by the ruling All People’s Congress (APC) party to tamper with the electoral calendar. At about the same time, Koroma was endorsed by the youth wing
of his party as “chairman for life”, further fuelling speculations he still planned to hold on to the reins of power in one form or another. The funding of just about half of the estimated $48m cost of the polls by his administration, supposedly because of strained finances, and a seemingly less than enthusiastic pace of disbursement to the National Electoral Commission (NEC), have been viewed with suspicion as well. Koroma’s officials dismiss such insinuations, averring that the outgoing president never aspired to serve a third term There is a precedent for the “third-term” phenomenon in West Africa. Former President Olusegun Obasanjo of Nigeria was believed to have desired a third term as well; in 2006 the country’s Senate rejected a move by his supporters to amend the constitution to allow him to run for office again. There are interesting parallels. Just as in the Sierra Leonean case years later, there were indicators to suggest Obasanjo might have “tried his luck” if there had not been much resistance. Similarly, Koroma was perennially at loggerheads
with his former deputy, Samuel Sam-Sumana. Accusing him of fomenting violence and antiparty activities, Koroma fired him in March 2015. To this day, Sam-Sumana insists it was because he opposed his former principal’s third-term agenda. By and large, however, West African countries are proving to be excellent democratic exemplars. Neighbouring Liberia, which had its first successful civilian-to-civilian transition in January, is a sterling example of how much better things are becoming. The trail Liberia just blazed, however, was trodden long ago by Sierra Leone in 2007, when President Ahmad Tejan Kabbah passed the baton to Koroma. What the Sierra Leonean case proves is that even a powerful president will struggle if they try to go against the will of the people or flout the law.
Libeeria
Opponents line up The ruling APC chose the foreign minister, Samura Kamara, as its presidential flag bearer in October. The other main candidate in the presidential race is Julius Maada Bio of the Sierra Leone People’s Party (SLPP), who Koroma beat in 2012. Bio could prove a formidable oppo-
nent for Kamara. Even so, what could potentially make the upcoming polls very interesting is that perhaps neither of the two establishment candidates will be able to secure a firm win. Kandeh Kolleh Yumkella, the increasingly popular technocratic candidate and former United Nations undersecretary general, could eat into the support of the SLPP, his former party, under the auspices of the National Grand Coalition, the political party he set up after his defection. Perhaps in recognition of the threat he poses, the APC
March 2018 African Business 73
The economic outlook remains hostage to the president’s erratic relations with finance minister Pravin Gordhan. tighter, raising the likelihood of rigging and violence.
To shore up its finances, the Koroma administration secured $224.2m from the IMF in July 2017.
$224.2m has challenged Yumkella’s candidacy in the Supreme Court, arguing that his status as a dual national of Sierra Leone and the US disqualifies him from running, even though he has renounced his US citizenship. The court had not reached a decision at time of writing. Alliance Democratic Party’s Mohamed Kamarainba Mansaray, who was once an APC stalwart, is a potential threat to the ruling party in the north. The trio of Kamara, Bio, and Yumkella are believed to be the real contenders in an expected close vote, though. Some Sierra
Leoneans want a full departure from the Koroma era. Thus, the president’s avid support for Kamara may prove to be a disadvantage. The Chinese government has been accused of bankrolling the ruling party’s candidate and Chinese citizens have been campaigning for him, much to the discomfort of some locals. For SLPP’s Bio, there is little evidence his popularity has increased since his last attempt at the presidency five years ago. As defectors from the two leading parties, Yumkella and Kamarainba make the poll
Above: Cyril Ramaphosa, deputy president of South Africa and president of the African National Congress.
As defectors from the two leading parties, Yumkella and Kamarainba make the poll tighter, raising the likelihood of rigging and violence.
Economy needs a boost International prices for iron ore, the country’s key export has been in the ascendant lately. With one of the country’s two major iron ore mines closed, however, the improved price outlook has not had as much revenue impact as it could have. To shore up its finances, the Koroma administration secured $224.2m from the IMF in July 2017. As part of the conditions, the authorities were forced to cut fuel subsidies, with the effects more painfully felt by the masses as oil prices rose. Never mind that the awful experiences from the Ebola epidemic and more recently, a massive mudslide in the capital, have been greatly dampening for the economy. Together with the mining sector slump, the central bank estimates economic growth slowed to 5.6% in 2017, from 6.1% the year before. Annual consumer inflation rose significantly in 2017, at an average of 18.6% (Jan–Nov) from 10.8% in 2016. A 25% depreciation in the country’s currency, the leone, was one reason for this. “Economic conditions heading into the elections leave a largely sour reading,” says Wale Okunrinboye, a fixed-income and currency specialist at Ecobank, a pan-African bank. “Set against an uninspiring economic scorecard, amid fractures within the ruling APC, the March 2018 elections look set to be a keenly contested affair.”
Rafiq Raji
74 African Business March 2018
Last Word Global interest rates are still hovering round historic lows, but a sharp rise could have ugly consequences for Africa’s economies.
Has Africa learned its lesson on debt?
T
hirteen years after the debt relief movement saw billions in unsustainable public borrowing written off by Western creditors, there are worrying signs that African economies could be lurching towards another crisis. Average public debt is expected to rise to 53% of GDP this year, up from 34% in 2013. The average cost of debt servicing is 12.2%, the highest since 2001, and as high as 35.4% of government revenue in Ghana. Driven by the collapse in commodity prices and growing deficits countries have flocked back to international lenders like the IMF. More than 20 countries have taken out loans since 2012. Within the last month Egypt, Ghana, Nigeria, Kenya and Côte d’Ivoire – all key economies – have all either issued large eurobonds or announced intentions to do so. Nigeria has just sold $2.5bn of eurobonds, adding to a record $4.8bn last year. Egypt has raised $4bn this year to help plug a budget deficit, on top of its $12bn IMF loan taken out in late 2016. Ghana and Côte d’Ivoire are mulling $1bn eurobonds, while Kenya has just raised $2bn.
Much debt is being taken on to pay off existing debt – like using one credit card to pay off another.
Unsustainable levels All of this comes despite growing warnings about unsustainable debt levels on the continent. Zambia has just received a warning from the IMF that it is at high risk of debt distress. Africa’s secondlargest copper producer has been seeking a bailout from the Washington, DC-based lender since late 2016. In a bid to secure a loan Lusaka recently agreed to to restructure its debt with China. Meanwhile Kenya has also been in trouble with the IMF, with access to a $1.5bn standby facility blocked by the lender on concerns over its debt burden. Matters were made worse by the central bank’s reported continued insistence that the facility was still in place. East Africa’s biggest economy has also seen its sovereign credit downgraded by Moody’s because of its borrowing spree. Too much borrowing Worryingly, much of the debt currently being taken on is to pay off existing debt or stabilise public finances that have been hammered by the commodities slowdown. It is the equivalent to using one credit card to pay off another. Unlike the crisis of the 1980s, commercial debt is also becoming a problem. Some $35bn of existing eurobond debt will mature between 2021 and 2025. The Republic of Congo is already in debt relief talks with trading houses including Trafigura and Glencore, while Chad has just agreed a debt restructure deal with the latter. None of this takes into account vast borrowing from China, on which there is little public data available. The borrowing is being fuelled by deteriorating public finances and low global interest rates – at least for now. When, as is increasingly expected, global interest rates are hiked, things could get ugly. Given Africa’s fraught history with debt it is a trend that should be taken very seriously. n
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