Tar62 July issue by The Africa Report

nigeria The litmus test election in Ekiti

drC Kabila puts economy on ice

SoUtH aFriCa SAA and Eskom, the vulnerable parastatals

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

N ° 6 2 • J U LY 2 014

the africa report

CommodiTies

The trade challenge With new rules and new markets, African companies fight for a bigger stake in the continent’s resource bonanza

Aliko Dangote, CEO Dangote Group, Eleni Gabre-Madhin, CEO eleni LLC and Ivan Glasenberg, CEO Glencore Xstrata

monthly • n° 62 • july 2014

groupe jeune afrique international edition

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

NIGERIA The litmus test election in Ekiti

DRC Kabila puts economy on ice

contents

SOUTH AFRICA SAA and Eskom, the vulnerable parastatals

w w w.t heafr icarep or t.com

N ° 6 2 • J U LY 2 0 14

COMMODITIES

The trade challenge With new rules and new markets, African companies fight for a bigger stake in the continent’s resource bonanza

Aliko Dangote, CEO Dangote Group, Eleni Gabre-Madhin, CEO eleni LLC and Ivan Glasenberg, CEO Glencore Xstrata

The AfricA reporT # 62 - july 2014

GROUPE JEUNE AFRIQUE INTERNATIONAL EDITION

04 Editorial Democracy’s tarnished model

06 lEttErs 08 thE QuEstion

Briefing 10 signposts 12 intErnational

66 local contEnt Cultivating homegrown talent Governments are supporting local firms, helping them enter global supply chains and putting them in line to win lucrative government contracts 72 mozambiQuE Infrastructure obstacles slow Mozambique’s coal producers

16 pEoplE 18 calEndar

frontLine

73 tElEcoms New era of consolidation in the south

20 commoditiEs The trade challenge New rules and new markets mean that African companies are now fighting to gain a greater stake in the continent’s resource bonanza cover crediTs: sundAy AlAmbA/Ap/sipA; eric lArrAyAdieu/ceo forum; simon dAwson/bloomberg/geTTy imAges; All righTs reserved

Business

74 intErviEw Rio Tinto’s Alan Davies 78 financE Policies to encourage banks both large and small 79 hannibal

poLitics

dossiEr

26 nigEria The litmus test poll The vote for a new governnor in Ekiti State could provide a foretaste of how the national elections will play out in 2015

30 south africa This time our people must benefit 37 uganda Dissidents begin to shake Museveni’s base

80 agribusinEss Africa has the potential to feed the world Nigeria’s agriculture minister Akinwumi Adesina outlines the much-needed rice revolution in the country’s north 83 Ethiopia Tef tops the agricultural agenda 84 privatE EQuity Global funds for African farmers

41 mali Conundrums in khaki

Art & Life

42 malawi A brotherly legacy 42 libya Too many PMs

88 KEnya Running in Iten

43 anansi

92 in briEf African mobile phone apps and writer Dayo Olopade

country focus 45 dEmocratic rEpublic of congo Will he stay or will he go? The economy is stuck in limbo with key decisions unresolved as President Kabila manoeuvres to stay beyond the end of his term the africa report

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94 lifEstylE Mulatu Astatke talks Ethiojazz, plus Joburg burger bars

98 day in thE lifE Bright Kpocha, street artist This issue carries an insert between pages 66-67 for selected countries

editorial

The AfricA reporT A Groupe Jeune Afrique publication

By Patrick Smith

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

Democracy’s tarnished model

stanbul, as it turns out, is a good place to discuss politics in Africa. The Turkish city straddling the fault lines of Europe and Asia demonstrates just what effective policies and institutions can achieve: rapid modernisation, better public services, more jobs, credible elections and the end of military rule. So is it a promising example for those searching for ways to marry economic growth with democracy? Not exactly. Rather, it points to the continuing difficulties of mediating between the two. Important as the gains have been, the Turkish model – at home and in North Africa – is tarnished. It has been a little more than a year since millions of activists joined demonstrations across the country sparked by government efforts to tear up Istanbul’s Taksim Gezi Park. Quickly, the protestors’ targets widened to include creeping authoritarianism and the undermining of secularism. Despite Prime Minister Recep Tayyip Erdoğan’s dismissal of the protestors as “just a few looters”, they swept across the country. In clashes with the security forces, 11 people were killed and more than 8,000 injured. Here in Istanbul, we are a group of foreign correspondents taking stock with officials and businesspeople from Africa and Turkey at a conference on energy. What went wrong last year? How resilient is the democratic system? How serious is the corruption and environmental degradation? How widely shared are the fruits of this impressive growth? For the African attendees, such issues are at the top of the agenda at a time when economies are bounding ahead amid mounting social

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

discontent. Equally, for Turkey, Africa’s economic acceleration presents exciting commercial and strategic opportunities. A Kenyan official described his country’s new constitution, with its provisions for devolution and requirements for local consultation, as “too democratic”. A case of “directed democracy”, that would have been music to Premier Erdoğan’s ears. The official recalled a recent bout of protests: “We’re trying to build a pipeline, a road, a railway […] but people are using the constitution – their rights – to take us to court. That Developing may sound good, but we’re stopping the economies economy, holding up are development.” bounding Providing better public services is nonahead amid negotiable, they said, mounting as is a free press and the rule of law. But the social members of the group discontent also saw a wind of authoritarianism blowing through Africa, even gusting across Ethiopia and Rwanda, and predicted that it can only blow harder with instability and insurgencies fanning out from the Horn and the Sahel. And Turkey, which has been a leading supporter of the opposition in Syria and whose second-largest trading partner is Iraq, is well acquainted with regional political risk. Walking across Istanbul’s cross-cultural cityscape – from the Blue Mosque to a forest of gleaming metallic skyscrapers – it’s clear that Turkey’s struggle for democracy is far from over and that there are important lessons to be drawn from its journey so far. ●

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

editorial@theafricareport.com the africa report

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Printer: sieP 77 ‑ FrAnce n° de cOMMissiOn PAritAire : 0715 i 86885 dépôt légal à parution / issn 1950‑4810 the AFricA rePOrt is published by GrOuPe Jeune AFrique

info@primature.cd www.primature.cd/public/investir

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

any use of force will be fatal

NIgERIA Security services penetrated by Boko Haram

RwANDA President Kagame: “France helped prepare the genocide”

SouTH AfRIcA The new opposition generation

he abduction of the Chibok schoolgirls [‘Media headlines, security deadlines’, TAR61 June 2014] is just one of the frequent kidnappings carried out by Boko Haram in the country. Chibok is only different because of the number of people involved and the massive international attention Africa-Brazil it received. The authorities are now in a tight spot, torn between using force or negotiating with the militant sect. The best option will be to swap the girls with detained relatives of the insurgents as any use of force will be fatal for the girls. Unfortunately, the incompetence of President Jonathan and his government is hampering the rescue operation. Secondly, money drained through corruption has left the army and security forces underfunded and ill-trained. I believe the Chibok girls can be freed and one step forward will be to engage Islamic clerics in northern Nigeria to reach out and amicably secure the girls’ release. Mallam Shehu Sani President of Civil Rights Congress of Nigeria, via telephone w w w.t hea f r ic a repo r t .c om

N ° 61 • J U N E 2 014

Dilma Rousseff, Neymar, Yaya Touré, Pelé and Jacob Zuma

A love affair

The warm embrace across the Atlantic may be built on shared history, but beneath the surface lies the realpolitik of sharp economic interests

GROUPE JEUNE AFRIQUE

INTERNATIoNAL EDITIoN

Police need resources to halt illicit cash flow The problem of illicit flows [‘The fight against dirty money goes global’, TAR61 June 2014] and trade misinvoicing in Africa has been a known for at least 50 years. Until recently, it was thought of as solely a problem of poor governance, crony officials and poor macroeconomic conditions. Little attention was given to the other side of this equation, the fact that the global shadow financial system – created by the West – is equally responsible. African countries need the resources to police illicit flows at the domestic level. Forcing companies to disclose

profits on a country-by-country basis, as well as disclosing the beneficial owners of offshore accounts, will contribute greatly to curbing illicit flows. Brian LeBlanc Junior Economist, Global Financial Integrity, via Email

exPats, make uP your mind Dear African diaspora [‘Our African and American story’, TAR60 May 2014], the grass is not necessarily green back home! People need to make up their minds when it comes to returning home or staying abroad. We need to stop luring ourselves into the possibility

that it will be convenient and bearable to make a living back home. It won’t be. We are no stranger to what the continent is going through economically, politically and socially. The decision to go back is either made out of personal motives or clearly out of patriotism. The guilt trip is uncalled for once the decision has been made to stay abroad. I know my journey will end where it has started, where I belong!

Oeku Menik via Email

africa should not be a food dumPing ground Many people confuse the concept of cheap food with affordable food [‘From (cold) poultry war to land grabs’, TAR61 June 2014]. For most of the developing world, once people have urbanised the only way that food can be sustainably affordable is if you are employed and have some sort of disposable income. Most African countries will not create sustainable economies by importing goods, especially something as basic as food, which we can all produce wherever we are. Brazil, the US and the EU make up about 80% of trade, with the USA and the EU selling essentially only what their own people do not want to eat. Why should Africa be a surplus dumping ground for the rich world?

Kevin Lovell CEO, South African Poultry Association via email

How To gET youR copy of THE AfRIcA REpoRT On sale at your usual outlet. If you experience problems obtaining your copy, please contact your local distributor, as shown below. ghana: GREENWICH MAGAZINES & BOOKS, Mr Ernest Asare, +233 (0)208 142 374, greenmaghana@gmail.com – kenya: NATION MEDIA GROUP, Josephine Bonareri Abuga, +254 (0)20 32 88507, JAbuga@ke.nationmedia.com – nigeria: NEWSSTAND AGENCIES LTD, Solomon Otinwa, +234 (0)709 8123 459, newsstand2008@gmail. com – sierra leone: RAI GERB ENTERPRISES, Mohammad Gerber, +232 (0)336 72 469, raigerbenterprise@gmail.com – southern africa: RNA DISTRIBUTION, Luisa Rebelo, +27 (0)11 602 9800 • luisar@magcservices.co.za – tanZania: MWANANCHI COMMUNICATIONS, Emmanuel J Lyimo, +255 716 500 500, elyimo@ tz.nationmedia.com – uganda: MONITOR PUBLICATIONS LTD, Stephen Eselu, +256 (0)702 178 198, seselu@ug.nationmedia.com – united kingdom: COMAG, Mark Swan, +44 (0)1895 433791, Mark.Swan@comag.co.uk – united states & canada: LMPI, Sylvain Fournier, +1 514 355 5610, lmpi@lmpi.com – Zimbabwe: MUNN MARKETING (PVT) LTD, Nick Ncube, +263 (0)4 662755, nickncube@munnmarketing.co.zw For other regions go to www.theafricareport.com

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

the african union (au) was the first international body to condemn the ousting of President morsi in July 2013. now that the ‘ouster’, abdel Fattah al-sisi, is egypt’s elected president the au looks likely to lift its suspension

Should Egypt’s suspension from the African Union be lifted?

Yes Désiré AssogbAvi Head of Oxfam International Liaison Office with the African Union

However, I have a ‘but’ to my yes. The African Union [AU] has rules on sanctions that govern any unconstitutional change of government. And there is no doubt that what happened in Egypt was an unconstitutional change of government. There is another rule that says in the case of an unconstitutional change the authors of that change should not contest any elections that follow. This rule has been clearly ignored by Abdel Fattah al-Sisi, so in principle the AU should not admit Egypt back. However, I don’t think the AU has anything to gain by keeping this important member out of the Union for four years. The AU has a dilemma: either to violate its own principles or to keep this contributing member outside. I am in favour of the readmission of Egypt. First, the principle of the non-participation of the authors of a coup d’état has already been violated by the AU itself in the case of Mauritania, whose president is the current chairperson of the AU. Second, sanctions have not been fairly or equally applied in the past. Until the AU clearly defines the scope of the implementation of the rules that govern unconstitutional changes of government I believe that Egypt should be readmitted, but under certain conditions – the establishment of the rule of law; civil and political liberty for all; the dismissal of the death penalties against the supporters of the Muslim Brotherhood; and concrete steps towards national reconciliation. ●

No HAllelujAH lulie Researcher, Institute for Security Studies, Addis Ababa

One of the African Union’s biggest successes has been its zero-tolerance policy towards unconstitutional changes of government: using a stick – sanctions and suspension – to promote democracy, good governance, fair and free elections and constitutional order in the continent. Receiving Egypt back would be wrong on many levels. It sends a very wrong signal to other member states. It will be affirming accusations that the AU is an Orwellian society where some are more equal than others. It will be contradicting not only the AU’s documents and previous practices and precedents but also its stance a year back. The AU Peace and Security Council (PSC) didn’t call the events in Egypt a military coup but they came out and said that there was an unconstitutional change of government and they suspended Egypt. There are no legal grounds that can lead to the reinstatement of Egypt’s membership to the AU. First, the army took a very active part in the removal of the democratically elected president. Second, it is the figurehead of the coup who has won the election. This is unacceptable. As an African I am furious. I think it would be a big, big blow to the achievements of the AU and the efforts of the PSC to set precedents and norms and a political culture in the continent. It will be a setback. ●

ReSPOnSeS to last month’s question:

Is Africa selling itself short with tax holidays and other breaks? Unfortunately, yes! It is important to promote responsible investment. Both investor and government need to act in a responsible, transparent and objective manner. The culture of secrecy should not be encouraged. Sombo Chunda via Facebook Big time! It is time to revisit the policy on tax breaks. Agula Joseph Ogoror via Facebook Multinationals come to an African country and are given 10 years of tax free status as incentives. Ten years later they pack up and go. But they are back the next year with a different name to get another 10 years. They can do that three times. That is 30 years of tax-free breaks for multinationals who are creaming Africa of its wealth and resources. Sindi Phiri via Facebook As a Sierra Leonean, despite the tax break, I’ve seen more investments in the country in the past five years, an increase in employment, rise in wages, more investment in the health sector and an increase in electricity supply. Though it’s not perfect [it is] better than in the previous 30 years. Zechariah Conteh via Facebook the africa report

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briefing

signposts

nigeria 21/5 Some of the 100 traditional hunters who have formed vigilante groups to hunt for Boko Haram pose for photos in Maiduguri.

Kenya 9/6 The grandson of Mau Mau

fighter Dedan Kimathi Waciuri chains himself to a statue of his ancestor in Nairobi.

libya 14/6 Immigrants detained in Tripoli.

African migrants continue to stream through Libya’s porous borders on their way to southern Europe.

investment targets for growth

africa expects up from

56 bn

80 2014

in fDi in

2013

must self assess. We are afraid to speak frankly to one another about the wrong things that we are doing ” Thabo Mbeki The former South African president has been pushing for reflection and honesty uN

AS/

EIr

IL P. F

SIMON MAINA/AFP

“Africa

Kenya

War of terror

hen Islamist militants linked to Osama Bin Laden flew planes into the World Trade Center on 11 September 2001, their aims were clear: provoke the West to retaliate and use that brutal reaction as a recruiting tool for their cause. Kenya is falling into the same spiral. At least 48 people were killed in an attack by members of the Somali rebel group Al-Shabaab on the town of Mpeketoni on 16 June. The rebels butchered their victims after they failed to recite verses of the Koran. They killed another 15 people in villages around the town the next day. Mpeketoni is a town largely inhabited by people from the Kikuyu ethnic

group, of which President Uhuru Kenyatta is a member. Rather than build bridges with the Somali community to fight an intelligence war (as has worked more recently in the West), the Kenyatta government is burning bridges with Kenyan Somalis, who are thought to number around two million. The government has cracked down on the Somali community, with shadowy security operatives snatching suspects off the streets of Nairobi and other cities. The murder of moderate cleric Sheikh Mohammed Idris, gunned down in the port city of Mombasa on 10 June, is proof that the hardening is on both sides. ● The AfricA reporT

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briefing

brazil 14/6 Côte d’Ivoire’s Gervinho (left) and Didier Drogba celebrate after scoring against Japan in the World Cup.

south africa 15/6 At the Nelson Mandela Capture Site, a woman adds a crocheted blanket to gifts to be handed out to the needy on Nelson Mandela’s birthday, 18 July.

south africa 15/6 Economic Freedom Fighters dance after hopes were raised of an end to the five-month strike at Marikana mine.

JoE PENNEy/REutERS; toNy KARuMBA/AFP; HAzEM tuRKIA/ANADolu AGENCy; NEWSCoM/SIPA; RAJESH JANtIlAl/AFP; MuJAHID SAFoDIEN/AFP

cities follow the money, finD the people

conflict minerals the iphone karma count

Algiers

803

Tunis

Casablanca

Alexandria Cairo

Kumasi Abidjan

Lagos

Accra

Abuja

Douala

Mombasa

Nairobi

Dar es Salaam Lusaka Maputo

Durban Cape Town

800

600

400

Johannesburg

Apple

Addis Ababa Kampala

smelters used

finance zimbabwe Dollar woes

a total of 29 firms have ceased trading on zimbabwe’s stock exchange since the formal dollarisation of the economy in february 2009, with 14 firms suspended and 15 delisted.

maternal mortality ratio africa murDerous for mothers

power green machines

only 49% of south africans think that zuma’s second term will be better than his first

the continent remains a dangerous place to give birth for many millions of women. Figures are for deaths per 100,000 live births.

Solar generating installed capacity globally will hit

374GW

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100-299 300-499

500-999 ≥1000

Data not available Not applicable

source: wHo 2013

In conjunction with GeoPoll, The Africa Report asked 100 South Africans, across the country, a question: “Do you expect President Zuma’s second term to be better than his first term in office?”

source: euroPeAN PHoToVoLTAIc INDusTrY Assoc.

in 2018, with Asia replacing Europe as leader. (139GW in 2014)

the africa report

Intel

smelters not accredited

three of the largest technology firms, apple, hewlettpackard (hp) and intel, have released data revealing what proportion of the raw materials used in the manufacture of their products is processed by smelters that have been certified as conflict-free. source: ecoNoMIsT INTeLLIGeNce uNIT

Dakar

200

Lagos Johannesburg Algiers Cape Town Casablanca Alexandria Durban Abidjan Nairobi Tunis Lusaka Abuja Douala Kampala Cairo Accra Addis Ababa Mombasa Kumasi Dakar Dar es Salaam Maputo

source: sec

Some African cities have a greater concentration of wealth, measured here in terms of thousands of households earning more than $10,000 a year.

GeoPoll is a mobile surveying company that uses the mobile phone to connect with Africans and others across the developing world, using text messaging and other modes of communication. To join the global GeoPoll network and answer short surveys like this one, please visit m.geopoll.com

briefing

internAtionAl 1

5 8 4 7

3 6

2 1

ClimAte ChAnge

160bn tn

CryoSat spacecraft estimates of the loss of ice from the Antarctic each year. Governments are scrambling to mount a response. In June, US President Barack Obama announced plans to cut power plant emissions by 30% of 2005 levels by 2030.

AfghAnistAn

Polls and violence

PIlAr OlIvAreS/reUTerS

Citizens voted for a new president on 14 June after leading candidate Abdullah Abdullah survived a suicide bomb attack on his convoy in Kabul on 6 June. Abdullah, who is seen as Tajik, beat former finance minister and Pashtun favourite Ashraf Ghani in the first round of the polls in April by 13%. He hoped to win the support of the also-rans to beat Abdullah. On the security front, both candidates declared they would sign the the Bilateral Security Agreement with the United States (US). Without the US forces, international troops are unlikely to stay in Afghanistan, and the resurgence of sectarian violence in Iraq has shown the instability that a rapid withdrawal of troops can cause. ●

fifA

Red carded, but not sent off

FIFA president Sepp Blatter is no less tenacious than certain African leaders. Against mounting criticism of corruption in international football, the 78-yearold plans to run for a fifth term in office after FIFA delegates removed term limits. Britain’s The Sunday Times newspaper reported on secret deals related to the award of the 2022 World Cup to Qatar, where thousands of workers have died on construction sites and football authorities are worried about the impact of scorching heat on players. Brazil’s tournament had its own troubles linked to political donations and fraudulent billing by construction groups. Netherlands Football Association chief Michael van Praag and English Football Association (FA) chair Greg Dyke called for Blatter to step down over his management of the crisis linked to kickbacks in the Qatar decision. Lord Triesman, a former English FA chairman, said FIFA has a “decades-long tradition of bribes, bungs and corruption” and that half of the executive committee needs to be replaced. Michael Garcia, FIFA’s ethics investigator, says that he had seen the documents in The Sunday Times reports well before they were published. He is not due to file his report on the case until July. ● 3

not like to think this is the start of a new Cold War. It is in no one’s interest and I think it will not happen”

ChinA

Tension with the United States increases The United States (US) defence department said in June that China’s military spending reached $145bn in 2013, which was 21% higher than the Chinese government had reported. Chinese officials complained, saying that Washington is seeking to portray China as a rising military threat. The report fed into already high tensions after the US authorities charged Chinese military officials with conducting cyber-espionage projects on strategic companies. ●

russiA

“I would

eSKInder deBeBe/Un

Vladimir Putin Russia’s President said he would negotiate with Ukraine’s new government and not seek to escalate the conflict. the africa report

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briefing | international

african angles 6

IndIA

Modi’s operandi Sworn in as India’s prime minister on 26 May, Narendra Modi is focused on reforming the economy and raising revenue. In the subregion, he wants to settle diplomatic tensions and be more assertive internationally. China says it is keen to resolve its border dispute with India. After meeting with Modi, Pakistan’s prime minister Nawaz Sharif said he looked forward to working in harmony with the Indian government. Modi was set to visit Prime Minister Shinzo Abe of Japan on 3-4 July, followed by the BRICS – Brazil, Russia, India, China and South Africa – summit. ●

unItEd ArAb EmIrAtEs

% % 0 0 0 2 + 2013 > 2014 Since 2013, the Dubai stock exchange has been the world’s fastest-growing bourse, rising by about 200%. However, in May the International Monetary Fund advised the government to take action against a growing property bubble.

EuropEAn unIon

Debt crisis not over In June, the European Central Bank (ECB) launched measures to encourage bank lending and fight off deflationary pressure. The ECB set negative interest rates for bank reserves and said it would lend up to 400bn at interest rates of 0.25%. Policy-makers are worried about the health of small businesses in countries like Italy, Spain, Portugal and Greece. Germany’s Chancellor Angela Merkel said that the ECB moves show that the European Union has not left its debt crisis behind. ●

Tolu ogunlesi

West Africa editor, The Africa Report

The scotlandengland rivalry Anthropological observations from a train, on the eve of an independence referendum

in a taxi in Glasgow headed ’ mto the train station, to catch a train.

The driver is a chatty Glaswegian. Our conversation touches on rivalry between the Scottish and the English – apt at a time when the news is abuzz with ‘heated debate about the approaching independence referendum’, a euphemism for a state of escalating tribal rivalries. “The Scottish don’t like the English,” he says. “Hell, the English don’t even like the English!” That reminds me of a football jersey I saw in a shop window in Edinburgh years ago that carried the message: ‘I support Scotland, and everyone who plays against England.’ That age-old Scotland-England rivalry, devoid of violence though it is, is tribalism by another name. If, to Europeans, tribalism is a concept generally associated with darkest Africa, not Europe, it has started to make a frequent appearance in media reports about the Scottish debate. Whenever I travel through this part of Europe, I often imagine myself as an explorer in the mould of David Livingstone or Mungo Park, foreigners – Scotsmen as it happens – who earned their reputations ‘discovering’ rivers and lakes and waterfalls across Africa centuries ago. In my 21st-century explorations, I am slowly but steadily discovering the strange tribal types of Scotland, a cold and wet stretch of endless green fields and farms that is defined more by its uneasy relationship with the proud, paternal tribes to its south than by any other thing.

Beyond the issue of the tensions among these island tribes, there is also the puzzling matter of their various cultures. On a train from the city of Aberdeen to Glasgow, I spend the entire trip studying two women seated across the aisle from me. They have spread out a feast on the table before them. The contents are mostly unfamiliar to me: the sort of tribal fare common in places like this – dubious looking, designed to be eaten cold or raw, designed to leave the African stomach unappeased, dismayed even. What catches my eye is the bottle of wine they are enthusiastically attacking. It’s barely five o’clock in the afternoon, but that doesn’t seem to bother them. You can imagine my shock when a second bottle replaces the empty debut, and the same gusto is unleashed on it. Two roughlooking men opposite me are doing a similar thing. In this case the object of their attention is a six-pack of beer. Later on in my wanderings across the region, I am reliably informed that it is how things are done here. Alcohol is the solvent that dissolves the stubborn knottiness of almost permanently miserable weather and a genetic constitution that requires assistance to reach a state of enthusiastic sociability. These alcohol-guzzling habits require some curtailing, I conclude. I think about the report I will write to my people back home in Nigeria about the strange ways of these people. The book I will someday write will be titled The Pacification of the Primitive Peoples of the North Sea. ● the africa report

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FRONTLINE

COMMODITIES

The trade

With new rules and new markets, African companies are fighting for a bigger stake in the continent's resource bonanza. At the same time, multinational traders like Glencore are targeting Africa as they seek to control commodity value chains By Gregory Mthembu-Salter in Cape Town and Patrick Smith

oracoupleofdaysinmid-June, as the rest of the world settled down to watch the World Cup, Chad made a rare foray into the global news headlines. Idris Déby Itno, its dapper deal-making president who had paid a call a month earlier at the Elysée Palace to see France’s President François Hollande, announced that Chad’s capital , N’Djamena, was going to be headquarters for the regional campaign against jihadists in Nigeria, Mali and beyond. Forces from neighbouring countries and special operation forcesfromtheUnitedStates(US),France and Britain have already set up there. Then, just days after that news broke, it emerged that Chad was spending $1.3bn THE AFRICA REPORT

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F. O'REILLY/REUTERS; T. STODDART ARCHIVE/GETTY; C. RATCLIFFE/BLOOMBERG VIA GETTY; K. SIA/AFP

challenge on Chevron’s stake in its Doba oil concession and pipeline. Chad’s co-investors will be the US’s ExxonMobil and Malaysia’s Petronas. Not a mega-deal by global standards, but it is around 10% of Chad’s gross domestic product. The fact that Glencore, the Switzerland-based trading conglomerate, arranged Chad’s loan and purchased Chad-focused oil company Caracal Energy in April, points to big changes in the commodity-trading business. Outsiders might ask why Glencore, the world’s second-largest commodity trader, is risking over a billion dollars in a war zone. But for top traders inured to geopolitical crises, the critical questions are about Glencore’s game plan – does THE AFRICA REPORT

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it want to be a bank, an oil company, a refiner, a mining company, a pipeline builder, a retailer, just an ever-expanding oil trader or all of the above? Some are intensely sceptical about the trading companies’ attempts to control the whole value chain: “Commodity traders wanting to be mining or oil companies should think it through,” says Gary Busch, chief executive of International Bulk Trade, a company specialising in transport logistics in Africa and Asia. “Why would you take on all that political and financial risk where you don’t have the expertise? If you want the oil or minerals, negotiate a longer-term offtake agreement at a competitive price […] that works for everyone.”

Founded by Marc Rich, the US commodity-trading king who died last June, Glencore is one of the most successful and aggressive trading companies in the world, but it faces ever more competition and political and legal challenges. Under Rich, it kept ahead of the pack by its ruthless acquisition of market intelligence and political relationships. Rich bypassed international sanctions to sell Russian oil to apartheid South Africa and Iranian oil to Israel, deals that made him billions but earned him international enmity. Charged with tax evasion and racketeering in the US, he fled to Switzerland in 1983, where he stayed until President Clinton pardoned him in 2000. Glencore was formed in 1994 ● ● ●

frontline | commodities: the trade challenge

Tipping The balance wiTh congo’s gold In the remote gold mInIng town of musebe, in haut Katanga district, democratic republic of Congo (drC), a collection of diggers who are covered in dust are huddled around a market stall. A neatly dressed man with shiny black shoes sits behind a rough wooden table with a tiny, delicate pair of scales in his hand. the measuring weight is two worn coins dating from the Belgian colonial administration. onto the other side of the scales are gently placed the flecks of gold the diggers have prised from the ground earlier that day. the buyer calls his measure a gram, and after weighing the gold he offers the diggers a sum that, remarkably, almost matches the international price. weighing two similar

Robin Hammond/PanoS-REa

Artisanal miners scrape in the dirt while commodity traders make billions

coins on a later date, the two coins measure 1.45 grams, meaning the buyer has bought much more gold than his scales have indicated. this enables him to be so apparently generous with his price. According to one musebe

by a management buyout of Rich’s company, Marc Rich & Co. Now, ties between Africa’s mainly state-owned resource companies and the commodity conglomerates are fraying. Local companies, backed by their governments, want bigger stakes in production and trading. Cash-strapped governments are looking for ways to boost their revenue from royalties and taxes. That is squeezing the traders’ margins.

●●●

times are changing

Technological and market changes over the next five years will challenge the dominance of players such as Vitol, Glencore, Trafigura, Cargill and Bolloré. Electronic trading and more intricate derivatives markets in commodity contracts mean greater complexity but also more price transparency. More people have more access to information about the trades. The geography of global markets is changing, too. The all-powerful terminal markets in New York and London no longer set demand or supply.Not onlyare Bombay and Shanghai buying in bigger volumes, but India and China have estab-

gold buyer, most of the gold makes its way to the comptoirs (trading posts) of Bukavu. From Bukavu, gold is often smuggled to Kampala, Uganda, where it is bought by Indian traders. Kampala is the destination of gold

from all over eastern drC and South Sudan. traders collect several kilos before declaring it to the Ugandan authorities and transporting it to its next destination – dubai in the United Arab emirates. ● G.M.S.

lished their own trading conglomerates, sector. Many companies in the field say state-owned and private, to compete at that they benefit from good relations with every level with the West’s resource and African governments, but, Eigen says: “I trading behemoths. wouldn’t call it political connections, I Despite the new risks, Glencore chief would call it outright corruption.” executive Ivan Glasenberg, who gained Organisations such as Kofi Annan’s his trading nous under the mentorship Africa Progress Panel and Global Witof Marc Rich, showed no signs of exness have questioned Glencore about istential doubts when he addressed a the ethics, if not the legality, of its busicouple of hundred shareholders and the ness partnership with Dan Gertler, the wider world via a webcast at the company’s annual genThe relationship between eral meeting in Zug, near african governments and Zürich, in May: “We are the only company that has the traders is often ambivalent mining and the marketing Israeli mining magnate whose relationand a vast array of assets […] grain, oil andmining.” Glencore’sstrength,Glasenship with President Joseph Kabila has berg argued, lay in its “real diversity” given him access to some of the cheapest and highest-quality mining assets in – its control of value chains. It finances, the world, causing substantial losses to it produces, it refines, it markets and it the state of the Democratic Republic of sells. “We have it all,” he said. Congo. Gertler and Glencore dismiss the Peter Eigen, the founder of nonclaims, describing the arrangements as governmental organisation (NGO) standard commercial relations. Transparency International, says that This typifies the ambivalent relation information from trading companies between African governments and is the missing link in the debates about traders. The Nigerian government, which transparency in the natural resource the africa report

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commodities: the trade challenge | frontline

profiles

Kin CheunG/ap photo

is alone among major oil producers in selling all its oil via third-party marketers, has kept the traders close. Now it is using its own home-grown traders, who are every bit as unsentimentally focused on the bottom line as their foreign counterparts. They include companies such as Igho Sanomi’s Taleveras, Tonye Cole’s Sahara Group, Ben Peters’ Aiteo and Walter Wagbatsoma’s Ontario Oil & Gas. Cement magnate Aliko Dangote’s announcement last September that he was putting $3bn of his company’s money and $3bn raised through Nigerian and international banks into a commercial oil refinery to process over 400,000 barrels per day could change the game. Commercially viable refineries in the region could edge out the trading companies.

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Chief executive, Glencore

Profits, not pleasure, no questions asked South African Ivan Glasenberg, whose personal wealth is estimated at $8.3bn – about the same as the gross domestic product of Benin – started out as a coal trader at Marc Rich and Co., was global manager for the company when it became Glencore in 1994 and oversaw Glencore’s mega-merger with mining firm Xstrata last year. Under his leadership, Glencore has focused on picking up established mining assets and oil exploration acreage. It now holds interests in five blocks in Equatorial Guinea. Glasenberg told the Wall Street Journal that the company is interested in profits and not employee satisfaction. Transparency campaigners say the company has benefited from cut-rate deals for copper mining assets in the DRC. ●

eriC LarraYaDieu for Ja

downstream push

Eleni Gabre-Madhin Chief executive, eleni LLC

Helping Africans do it for themselves Coming from the World Bank and International Food Policy Research Institute in Washington DC, Eleni helped set up Africa’s first commodity exchange in Ethiopia in 2008. By creating a network of warehouses and accredited assayers, the ECX allows farmers access to a far wider market. The success of the venture has led Gabre-Madhin to set up eleni LLC, which acts as both consultancy and financier to African countries wishing to set up a commodities exchange of their own. The new company is hoping to create exchanges in cocoa-producer Ghana, and Cameroon, whose agriculture potential is vast. Regulatory hurdles are holding up both projects.●

Ian Taylor Denis BaLiBouse/reuters

South Africa, too, is stepping up its refining capacity for the regional market and traders are changing tactics. Now the talk is of investing in Africa as ‘a destination market’. Trafigura and Vitol have been buying up service stations in Southern and Eastern Africa from BP, Shell and other international oil companies that are trying to prune their operations. In parallel with the push downstream by Africa’s oil and gas producers are the efforts spearheaded by Ethiopia’s Eleni Gabre-Madhin, chief executive of eleni LLC, to modernise the marketing of Africa’s coffee, cocoa and tea through commodity exchanges. After the success of her operation in Addis Ababa, a new partnership with Lomé-based Ecobank will enable her to establish more regional exchanges. These exchanges will give farmers access to national and global markets, their products will be weighed and valued and they will be given assayers’ receipts. In this way, Eleni says, the farmers get “access to a much wider market of buyers, on terms that are transparent and in which they have the same information as their counterparts on the buying side. So that gives them the option to negotiate better on prices [and] the knowledge to be able to use the market to their advantage.” The exchanges will promote the development of futures markets in Africa, which, with better warehousing facilities, will give producers more leverage in the market. All this, says Eleni, will raise more finance for agriculture but will also better connect Africa to international markets. The coffee farmer in Addis or the cocoa farmer in Accra will know what ● ● ●

Ivan Glasenberg

Chief executive, Vitol

Spreading a wide net on the continent Under Taylor’s charge, Netherlands-based commodity trader Vitol recently expanded its African operations with a joint venture to increase Shell’s retail fuel distribution networks, a stake in South African coal miner CIC Energy Group and gas projects in Ghana. The company has also invested in infrastructure with a stake in Mozambique’s Terminal de Carvão da Matola coal terminal. Taylor started his career in trading and shipping at Shell. He moved to Vitol in 1985 and became chief executive in 1995. The unlisted company reported profits of $845.4m in 2013, a 20% drop on the previous year that it attributed to increasing competition. The company’s business model focuses on geographical arbitrage – taking advantage of price differences across global markets. Taylor says that Vitol will look to make new acquisitions as oil majors reduce their involvement in the trading and refining sectors. ●

frontline | commodities: the trade challenge

is impossible. Twenty years ago, perhaps. haven of Curaçao as the end repository Then there was much less transparency for profits. It reckons Trafigura has 40 in markets. But today, information syssubsidiaries in tax havens and pays taxes of 6.2% on its global profits. tems are such that it is difficult to play Andew Gowers, head of corporate with the price of a product.” affairs at Trafigura, answers: “Trafigura Markets have become more democomplies with the tax legislation – incratic, according to Billon: “In the old days[markets]wereessentiallycontrolled cluding that on transfer pricing – in all by the US and Europe. But now there the countries in which it operates. We are many new actors, making it much do not warehouse profits in tax havens harder for anyone to control commodity prices, like The Berne Declaration says that of cocoa, where African Trafigura has 40 subsidiaries in countries produce 70% of tax havens and pays 6.2% tax global production.” markets more democratic Activists in groups such But, for now, many African officials as the Berne Declaration, a Swiss NGO, or zero-tax-rate jurisdictions. And our average effective tax rate is actually conremain guarded in their public stateargue that commodity traders use their ments about the big trading companies, siderably higher than that of many large global reach to push their tax bills far sometimes protecting them from activmultinationals that have been the subject lower than they should be. Commodity of recent controversy.” ist campaigns. Jean-Louis Billon, Côte traders often try to book losses in their In 2013, Trafigura published an and’Ivoire’s trade minister and a former subsidiaries in producer countries and chairman of one of the country’s largest send their profits to tax havens. Accordnual report for the first time, declaring agro-industrial companies, rejects claims ing to the NGO, Trafigura headquarters turnover of $133bn and a net profit of that commodity traders can meddle with its trading activities in Geneva but uses $2.2bn. The report disaggregated some the prices of agricultural commodities a Dutch holding company to deposit its aspects of Trafigura’s performance by its like cocoa and palm oil: “Today, I think it global revenues and a company in the tax subsidiaries, but not its profits. It failed to disaggregate profit and loss by country, something that many regulators want to profile make mandatory. Andreas Missbach of the Berne Declaration advises African governments wanting to stop tax evasion to “focus less Commodity trader on their profits in the country and focus more on volumes. Concentrate more on royalties than profit taxes and make sure your customs systems are able to Trafigura Beheer BV 5m barrels. Trafigura approach to doing monitor the volumes.”

● ● ● their crops sell for in Delhi, London and Shanghai. Dangote is making substantial investments in rice and sugar production. His plan is to substitute local production for the $10bn a year that Nigeria spends on importing staple agricultural commodities. Ultimately, it will be the commercial muscle of businesspeople such as Dangote and Eleni that challenge the big traders because they have the capacity to provide an alternative route to market for the farmers, the mining houses and the oil companies.

Trafigura

From trader to infrastructure builder

is one of the world’s largest trading companies, with nearly 9,000 employees, assets worth $40bn, turnover of $133bn and net profit of $2.2bn in 2013. Trafigura includes among its subsidiaries Puma Energy Group, Impala Terminals, the DT Group and Galena Asset Management. About 76% of Trafigura’s turnover is from oil and petroleum products. The company traded 117.8m tonnes of oil and petroleum products during 2013. Crude oil accounted for 43m tonnes of the total, and Trafigura has worldwide oil storage capacity of more than

traded 32.9m tonnes of non-ferrous and bulk commodities last year. It carried out 2,399 shipping and chartering fixtures. Unlike Glencore, Trafigura has decided against the acquisition of significant mining assets. Instead, it is investing in infrastructure. In the company’s 2013 annual report, Trafigura declared that “if there are bottlenecks impeding the flow of a commodity from a source of supply to a centre of demand, we are ready to invest to remove them.” Like most commodity traders, Trafigura takes a highly pragmatic

business and is willing to partner with figures that other companies might avoid. One of Trafigura’s subsidiaries is the DT Group, a joint venture with Cochan, which has a large number of investments in Angola and boasts General Leopoldino Fragoso do Nascimento, an adviser to the chief of intelligence in Angola, as one of its directors. In another controversial move, Trafigura is poised to take over Sakunda Energy via another of its subsidiaries, Puma Energy. Sakunda has very close connections with Zimbabwe’s ruling party. ●

tight-lipped swiss

Billon says Côte d’Ivoire has its own checks: “Our fiscal system for primary products is sufficiently well structured to guarantee the revenues we expected from these products. For cocoa, we know the volumes and we can thus easily calculate the level of revenue that should come from the crop for each campaign.” Billon adds: “This does not mean there is no tax evasion. While I don’t think this is a major concern, it is certainly a source of worry.” An estimated 20% of the global commodity trade goes through Switzerland. Missbach says the Swiss government, which has the best information about the finances of the big trading houses, should share this with the tax authorities of countries in which its commodity traders operate. But it will take international pressure to achieve that, he says: “The African Union could lobby the africa report

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Switzerland on this, though I think support from the EU [European Union] and the US would be important too.” Trafigura’s Gowers says: “It is clear that commodities trading firms will be affected by increased regulation of the financial sector, and there will be other areas where we can expect to be under greaterscrutiny,suchasoursupplychain. But I don’t think the argument is being seriously made any more that these firms need bespoke regulation because they are too big to fail.” Yet the biggest battle between Africa’s producersandthetraderswillbe,predict-

ably enough, about money and margins. Over the past 60 years, the share of oil profitscapturedbyproducercountrieshas risen consistently and in some instances now exceeds 95%. For minerals, royalties tend to be 0-6%, rising to around 10% for diamonds and other precious stones. Botswana’sdiamondindustry provides a model for African producers. The state collects a 10% royalty from domestic diamond production, imposes a 35% profit tax, owns 50% of the Debswana mining company and 15% of South African diamond company De Beers, which owns the other 50% of Debswana.

Companies like Glencore control the whole value chain, from the coal face to product marketing

Despite the wealth and the political power of the Swiss-based commodity companies, history is on the side of the producers, argues the Berne Declaration’s Missbach: “Global opinion is shifting on who should capture what percentage of resource rents. The Guinean government, for instance, is pushing hard on this issue. While it is still a long way from the situation for oil, the trend is definitely moving in the direction of producer countries.” ●

COMMODIT Y TR ADERS AND THEIR PROFITS Company

Sector

Founded Headquarters CEO

Revenue

Net income/profit Employees 3

$2.312 bn3

140,0003

$170 bn1

10,0004

$232.694 bn3

$7.402 bn3

200,0004

Cargill

Agribusiness, energy trading, 1865 biofuel production, steel

David W. MacLennan

UNIPEC

Oil, natural gas, chemical feedstock, logistics

China

Simon Chen Bo

Glencore- Metals, minerals, energy and 1974 Xstrata agricultural products

Switzerland

Ivan Glasenberg

Gunvor

Oil, energy and coal trading

2000

Switzerland

torbjörn törnqvist

$93 bn2

$301.1 m2

1,6342

Olam

Agribusiness

1995

Singapore

Sunny G. Verghese

$16.55 bn3

$311.5 m3

23,0003

Trafigura

Oil, minerals and metals

1993

Switzerland

Claude Dauphin

$133 bn2

$2.2 bn2

8,7732

Vitol

Oil

1966

Switzerland; Netherlands

Ian taylor

$307 bn3

$1.7 bn1

5,4414

1993

2011 22012 32013 42014 SourceS: reuterS; BloomBerg; cargill; ForBeS; Vitol; Sinopec; oilchina.com; aFrican reFinerS aSSociation. 1

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$136.654 bn

business LocaL content

cultivating

homegrown talent

companies & markets

At last, African governments are encouraging the development of networks of small and capable local companies that can become a part of global supply chains and win government contracts By Nicholas Norbrook

Antonin BorgeAud for JA

The oil and gas sector is one of the pioneers in local content, and Nigeria leads the fray

ocal content – the phrase has rippled through Africa’s energy and mining sectors, gathering strength over the past decade. From workshops to conferences, from ministerial briefings to presidential speeches, African governments are devising frameworks that will hitch their domestic industries to the growth that foreign investment brings. Nigeria, Ghana, Angola, Morocco, South Africa, Uganda, Gabon and Guinea have passed local content bills in recent years, often in the extractive industries. The Nigerian Oil and Gas Industry Content Development Act hastoughrequirementsongivinglocal companies priority in oil block licensingroundsandcompelsoilcompanies and service providers to hire Nigerians. Ghana’s local content law likewise gives local companies first preference in bidding rounds for oil blocks and requires a minimum 5% equity stake for Ghanaian firms – not including the government-owned Ghana National Petroleum Corporation – in every oil licence. The rationale is clear. After decades of natural resource flows out of African countries, economies remain locked into the lowest rung of economic development, with local companies unable to add value to raw commodities. The continent’s industrial fabric remains threadbare, and the growing number of young graduates will cause chaos if there are not enough jobs to fill. African Union Commission chairperson Nkosazana Dlamini-Zuma reminded African finance ministers in March that African countries have to “design a comprehensive industrial development framework […] to speed up and deepen value-addition of local production, linkages between

the commodity sector and other economic sectors”. Guinea’s mines minister Kerfalla Yansané says: “We have been learning from our mistakes. Our mining companies were not integrated into the mainstream of our economy. Now we want them to be part of growth corridors. There should be a link between mining activities and the whole environment, meaning agriculture, services, transport, education and so on.” jobs first

For Jean-Louis Ekra, president of Afreximbank, this economic nationalist moment “is not just happening in Africa, because of the difficulty in job creation you see around the world. In Europe, whenever a company says it will move a factory abroad you have instant uproar from the government.” A panel of experts convened by Britain-based law firm Pinsent Masons earlier this year was unanimous: “Local content legislation [in Africa] is here to stay, and those companies that fail to recognise this evolving investment reality will quickly fall behind.” In places where governments have been working on this for some time, like Nigeria, there are real changes afoot. “One of the best testimonies to this is local participation in the annual CWC Nigeria Oil & Gas Conference,” says Fisoye Delano, senior vice-president of CAMAC International and previously managing director of the Nigerian Petroleum Development Company. “The number of Nigerian oilfield services providers has changed significantly, just as significantly as the number of indigenous exploration and production companies. Eighty-five percent of exhibitors in NOG 2014 were local ●●● service providers.”

business | companies & markets

VolkswAgEN

JEAN-MichEl RuiZ

case studies in local content R. VAN DER MEEREN/ED.DuJAguAR

Oil and gas

Automobiles

Power

Nigeria has taken the lead with its 2010 law pushing international oil companies to use local partners. In April, the country’s first deepwater simulation theatre – built by Tolmann Allied Services – opened in Port Harcourt. The challenges of finance and skills are being addressed as never before. Angola, Ghana and Gabon are following suit. In 2012 Angola passed a law stipulating that tax bills and payments from oil companies to local suppliers must transit through the local banking sector. It should boost the financial sector’s capacity to participate in oil investment deals.

South Africa’s auto sector policies are working. The Automotive Investment Scheme has contributed to 193 projects totalling R22.5bn since it began in 2009. The latest C-Class Mercedes is manufactured in Port Elizabeth, where 10 new suppliers are setting up shop. With the new Automotive Production and Development Programme local parts suppliers are improving the quality of production and delivery speeds. In Morocco a dedicated site for parts manufacturers is opening at Tanger Automotive City and new legislation is expected to boost local companies.

In the recent bid rounds to provide South African renewable energy, applicants had to fill in a scorecard to show how much component manufacturing would end up in South Africa. In this way the government hopes to kick-start the country’s entry into global supply chains for green energy. In Morocco’s fast-growing solar and wind power sector local companies are doing some of the preparatory work on project sites. The Nigerian government plans to use a recent electricity privatisation round to lay the groundwork for involving local companies in the sector.

Multinational companies tend to fight against the local content policies. When companies have large international service providers, they can keep costs low and maintain high standards. A senior manager at an oil company operating in Nigeria says: “What they are asking for in local content is just unworkable.” Local service providers often ask for higher fees than their international competitors and do not have the same levels of experience.

●●●

slippery definitions

The complaints of multinational companies are not the only obstacles to the implementation of local content policies. Two additional challenges are rooted in the historical lack of capacity in local industries. The first is that the slippery definitions of local content can often lead to fronting, whereby multinationals structure arrangements so that there is only a semblance of domestic participation. In Uganda, a clause in the local content law says that “where the goods and services required by

the contractor or licensee are not available in Uganda, they shall be provided by a company which has entered into a joint venture with a Ugandan company provided that the Ugandan company has a share capital of at least 48% in the joint venture.” FewUgandancompanies have the capital to set up joint ventures with multinationals. Because of the lack of definition of what constitutes a Ugandan company, civil society groups say that local elites can create front companies that help multinationals to comply without transferring skills and wealth (see page 38). Some of the early black economic empowerment deals in South Africa faced this problem, hence a redoubled effort by the department for trade and industry to crack down with an approach that uses scorecards and an agency to investigate the investors. When there is room for discretion in interpreting the eligibility criteria in local content deals, predatory elites can benefit. The second obstacle to local content policies is the lack of support given to boosting capacity. “Of

Minimum stake for Ghanaian companies in oil licences under the country’s local content law

1,500 Local companies trained by Angola’s CAE in how to win contracts from multinational corporations

course we have to build the capacities of our SMEs [small and medium-sized enterprises] and our manpower so that we can actually turn local content into reality,” explains Guinea’s Yansané. capacity building

In 2012, the Moroccan government established a regulation that entitles SMEs to manage 20% of all government contracts. Ensuring that these companies actually exist is a challenge, but skills and finance are the main constraints that limit the creation of a fleet of local companies that can seize local content opportunities. Here, at least, there seems to be more progress. In Angola’s oil sector, the international nongovernmental organisation CDC Development Solutions created an enterprise development agency called the Centro de Apoio Empresarial(CAE)in2005incollaboration with the Angolan government, international oil companies and the nationaloilcompanySonangol.The CAE provides Angolan companies with training that allows them to participate in the supply ● ● ● the africa report

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business | companies & markets

● ● ● chainsoflargeoilcompanies. CAE consultants also help in the development of business plans, a crucialmentoringservicethatmany African SMEs could use. Since its founding, more than 1,500 companies have particip ated in the scheme, winning more than 300 contracts worth $214m and creating 2,700 jobs. In 2010, the CAE expanded its mandate to include the provision of finance. Some of the companies that the CAE has helped have grown into much larger companies. Examples of success include the NASA Com mercial Import and Export Lda, which started off as a small com pany with a handful of employees and now supplies safety shoes and otherclothingtoChevron.Another istheplumbingandelectricalrepair company Luafanda Reparações. It won a $680,000 building main tenance contract with BP in 2010.

nigerian success

But this remains small beer com pared to Nigerian success. The listing of Caverton Helicopters on the Nigeria Stock exchange in late May is just the latest step for the indigenous air services company, which won a contract from Shell worth $760m over five years. “Today, that company is becom ing a regional player, selling ser vicesinGhana,” saysSimbiWabote, global local content manager for Shell. He believes it is because of a step up in quality, and especially critical mass. “Doing business with theoilandgasindustryisnotabout small enterprise, these are not Mickey Mouse contracts”. Niger dock’s manufacturing for Total is anotherexample,likewisethemany vesselsservicingplatformsoffshore that are owned by Nigerians. Most encouraging is that com panies that have benefited from local content deals tend to get local banks involved in their op erations. Again, Nigeria leads the way. “Banks in the West Africa region are now depending on Ni gerian banks for expertise in major oil, gas and power transactions,” says CAMAC’s Delano. In the long term, strengthening local banks could be far more important to boosting Africa’s economies. ●

opinion

Bright Simons

Honorary research director, IMANI

The elusive prize of value addition

here is no truism more universally acknowledged in the discussion about Africa’s economic redemption than that of the need for countries to add value to their natural resources. And this truism is not of recent vintage. In many African countries, the acknowledgement, in fact, goes back to colonial times. And yet, this holy grail seems to elude Africa decade after decade, and not always for want of trying. In Nigeria, Ghana and Sudan, the immediateeraafterindependence was one of intense factory build ing, all in homage to the doctrine of value addition. Why is this universal theory of natural resource value addition (NRVA) so honoured in doctrine and yet so ineptly pursued? What could be amiss? It turns out that most African economists tend to focus on diag nosing the problems and symp toms associated with the condi tion of low NRVA, but very few conduct detailed empirical re search into the how and where fore of actual efforts to achieve it in African countries. Several years after Nigeria virtually banned the import of certain processed food items in order to encourage local value addition, I struggled to ac cess even a single detailed value chain analysis of how the policy has turned out in practice. It turns out that for real insights into NRVA dynamics in emerging and transforming societies, one has to look carefully into the re search results of international economists working elsewhere,

especially in Asia and Latin America, the likes of Charles Sabel, Ricardo Haus mannandDaniRodrik. When the data and analysis of the sub ject is carefully studied, it be comes obvious that the NRVA theory is not a general theory about how to grow capacity in an eco nomy in order to en sure a broad change from lowervalue eco nomic activities to highervalue economic activities. Instead, it is a much narrower focus on ver tical integration in a manner that nevertheless appears oblivious to the specialised literature on vertical integration as a feature of business strategy, regardless of geographic setting. This immediately raises the sus picion that NRVA theories, despite their pretensions, tend to be nar row lessons in business strategy for specific industries in emergent societies rather than comprehens ive economic policy platforms for lowcapacity economies seek the africa report

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companies & markets | business

value. Saudi Arabia exports most of its oil unprocessed. Australia exports most of its iron and other natural resources raw to China. ● The natural resource

sector tends to lack strong connections to other industries. This means that as a countrygrowsitscompetence in a particular natural resource sectorthroughvalue addition, the spinoffs tend to be very low. An industry like electronics, on the other hand, is so interconnected that as one climbs the sophistication ladder in electronics, wholenewindustrieswillbeborn. ● Knowledge in natural resource

ing to diversify beyond a dependence on a few crops or minerals. Some of the insights that underlie the suspicion are as follows: ● Major transitions from low in-

comes to high incomes have not really involved this NRVA approach. Britain grew rich through expansive trade, often leveraging other people’s natural resources. Malaysia’s game-changer was neither palm-oil-based biofuels nor tin trinkets. ● Many so-called natural re-

sources are themselves products of historic accidents or specific machinations. There is nothing about Ghana that makes cocoa native as a resource in that country. Ghana’s seeming advantages in cocoa production are themselves purely products of colonial interventions. the africa report

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● The old idea that neighbours

tend to specialise in complementary products and that regional trade can be driven by pure comparative advantage is clearly not borne out by practical evidence. Neighbours very often specialise in the same kind of things. Yet, except in places like Africa, regional trade continues to expand. The factors that drive trade are nowadays driven more by corporate and entrepreneurial behaviour thannationalnaturalendowments per se. Depending on how entrepreneurs are allowed to develop and to deepen their capacity, they can turn anything into a tradeable commodity, such as copra – dried coconut meat or kernel – which is processedinJinjaforsaleasanimal feed in Mombasa. ● It is also worth noting that

aroundtheworldthereisaconsistent picture of countries, regardless of the size of their national income, not being dogmatic about adding

sectors is less mobile than that in other sectors. Increasing competence in a natural resource sector translates much less easily to participation in broader global supply chains and to the ability to source capital and talent more broadly in a geographical sense. ● Rather than growing vertically

upthevaluechain,itappearsmore efficient to grow laterally by focusing on adjacent sectors that require competencies somewhat similar to the sectors a country is alreadyfamiliarwith.Thailanddiscovered that rather than specialise in furniture, moving into chainsaw production was a more interesting jump. Over time, the Thais moved from chainsaws to lumberjacks. ● Diversification and capacity

building should be the true aims of economic transformation. Whilst moving up the value chain in any sector is usually a good thing, premises that depend on a few arbitrary notions of what a country’s natural resources are, and obsessing over a particular business strategy – vertical integration – is almost certainly short-sighted. ●

business | companies & markets

Mining

Infrastructure obstacles slow Mozambique’s coal Coal has fuelled Mozambique’s recent breakneck growth, but creaky transport infrastructure and civil conflict now threaten to hamper the sector’s expansion

ince Brazilian company Vale won the rights to explore and develop deposits in one of the world’s largest coal basins in Moatize in 2008, interest in Mozambique’s coal mining industry has risen spectacularly. The country’s annual coal production is projected to reach nearly 42m tonnes by 2017, and mining companies are investing more than $1bn a year in the sector. Last year Mozambique’s government awarded exploration permits for the Minas de Revuboè, Carvão do Zambeze and Midwest Africa projects in coal-rich Tete Province. Mozambique’s coal is “top-five quality” according to Ricardo Saad, chief executive of Vale’s Mozambique operations. “Because of the high quality of the coal, we can forecast at least a 5060% gain in the very long term. We are talking world-class revenue,” Saad says. settling old scores

Conflict between the government and the Resistência Nacional Moçambicana (RENAMO), a political party and former rebel movement, is affecting the coal industry’s operations. In April, Vale halted the transport of coal from its mining facility in Moatize after gunmen shot at one of its trains, injuring a conductor.

ticker tape Finance Nigeria’s Skye Bank raises $150m in capital

The development came after RENAMO threatened to attack the Sena railway last June. Sena links Mozambique’s coal fields in the north with Beira, a port city in the east. The threat of conflict has loomed over the coal industry since tensions started to boil up last year between the Frente de Libertação de Moçambique-dominated government and RENAMO. The two rivals fought a bitter civil war for two decades until 1992. For the moment, Vale is taking a cautiously optimistic line about the political situation in Mozambique. “The fighting is quite concentrated in some regions. We have been taking care, and we are committed to Mozambique,” commented Saad. Inadequate port capacity and rundown railways and roads are holding the coal industry back

Vale has mountains to climb before it can get the “topfive” coal flowing smoothly to the port

as well. Sena’s poor state leaves it vulnerable to flooding, which caused three weeks of delays at the beginning of last year. There has been speculation recently about whether Rio Tinto would withdraw from the Mozambican coal sector because of transport-related difficulties. Not only has it been affected in

Mozambique coal production (Mtpa)

70 60 50 40 30 20 10 0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Benga O/C (Rio Tinto) Minas Moatize (Beacon Hill Resources) Moatize O/C (Vale)

industRy Profits at Aluminium Extrusion Industries in Lagos rise 37%

Revuboe O/C (Anglo American) Songa O/C (Jindal Steel & Power) Zambeze (Rio Tinto)

Retail State-owned Alle launches its cash-and-carry empire in Addis Ababa the africa report

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Source: central StatiStical agency

companies & markets | business

Mozambique’s network of roads and railways and improve its ports. It includes a $224m rehabilitation of the Sena railway, underway since last June and due for completion in 2015. It should boost Sena’s transport capacity from 6.5m tonnes to 20m tonnes per year. There are already signs of improvement, according to David Outhwaite, a principal adviser at Rio Tinto: “Washouts of the rail line caused two days of stoppages this year compared to three weeks last year over the same period.”

l producers

Marcelo coelho

gateway to export

general by Mozambique’s poor infrastructure, but it has also proved unsuccessful at negotiating a permit to barge coal down the Zambezi River. The firm’s investment in the country in 2013, at $32m, was less than a third of the sum in 2012. Vale’s Saad also says that transport is holding his company back. “The challenge is infrastructure here,” Saad says. ”Mozambique has the coal capacity, but it needs the infrastructure to unlock this capacity. The Sena railway’s capabilities are limited. The ports have shallow bays and are only suitable for handy-size vessels,” he adds. Coal India’s plans to develop two blocks in Moatize also depend on finding a means to export its production. Investors and the government plan to invest more than $20bn into a programme to overhaul

agribusiness Morocco’s SNI to sell its 23.6% stake in cooking-oil firm Lesieur the africa report

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Another major infrastructure plan is to expand one of the most important coal export points, the Matola Coal Terminal in Maputo. The capacity of the coal terminal is being expanded from 7.3m tonnes per annum to 12m tonnes per annum in 2016, rising to 20m by the middle of 2019, according to Sarel Ceronio, the chief executive of Grindrod’s Terminal de Carvão da Matola. The most transformative plan in the pipeline is the Nacala Corridor. Vale is spending $4.5bn to build the 912-km railway that will have an annual capacity of 18m tonnes. It will extend from Moatize to the port of Nacala and is expected to be ready in December 2015. Vale anticipates that the project will bring the firm’s production capacity up to 22m tonnes annually. The high cost of Vale’s Nacala ambitions and the low current price of coal have prompted some to question whether Vale’s strategy will pay off. “In our game, true success requires a combination of good reserves and good infrastructure. You cannot have one without the other,” responds Saad. “You can’t analyse what we are trying to do here in the short term. This is a very, very long-term game.” ●

TelecoMS

million tonnes of coal a year are expected to be mined in the country by 2017

$20bn Total cost of the planned overhaul of the railways, roads and ports

$4.5bn Brazilian company Vale’s investment in the 912-km Nacala Corridor

Sherelle Jacobs in Maputo

Packaging South Africa’s Nampak announces 10% rise in first-half profits

New era of consolidation in the south Vodacom’s buyout of fixed-line operator Neotel will start to sort out the men from the boys

hen Neotel opened for businessinSouthAfrica in August 2006, it was seen as just the competitor needed to push telecoms giant Telkom into improving service and dropping prices. That did not happen. Now, Neotel’s proposed buyout by mobile operator Vodacom might be a step in the right direction. Vodacom announced its R7bn ($656m) deal to buy the Tata Communications-owned operator on 19 May. Analysts say this will help Vodacom compete against Telkom’s alliance with the largest mobile phone company, MTN. “This is good news for competition in both the consumer and enterprise sectors,” Vodacom Group chief financial officer Ivan Dittrich told reporters. Almost 400 telecoms operators hold network licences in South Africa, creating much competition. The tight margins contribute to poor service, hence the call from theIndependentCommunications Authority of South Africa to have around four majors that would have the capital necessary to upgrade and to keep up with technological advances. The Neotel deal is a step towards this kind of market consolidation. The current price war started by mobile operator Cell-C and taken up a level by MTN could well provoke more. ● nicholas norbrook

Telecoms Kenya’s Equity Bank to launch mobile-money rival to Safaricom’s M-Pesa

business | leaders

InTeRvIew

Alan Davies

Chief executive for diamonds and minerals, Rio Tinto

Simandou is our flagship in Africa The Anglo-Australian miner Rio Tinto has agreed a framework for its $20bn iron-ore mining and infrastructure projects in Guinea. It plans to assemble a group of infrastructure investors in 2015 and start production in 2018

n 26 May, mining giant Rio Tinto’s chief executive in charge of diamonds and minerals was in Conakry with the Aluminium Corporation of China and the International Finance Corporation to sign the Simandou iron-ore project’s investment framework. In an interview with sister publication Jeune Afrique, Alan Davies talked about the challenges the company has faced in order to carry out the continent’s largest ironore project. The government awarded the company exploration licences in 1997 for all of the blocks covering Simandou. In 2008, the administration in Conakry cancelled the company’s rights to develop the two northern blocks. President Alpha Condé’s government revoked the two northern blocks from their new owners this year and has yet to award them to a new company.

TAR : Why did it take so long to conclude negotiations? ALAN DAVIES: Two-thirds of the Simandou project’s developmental costs are related to the project’s infrastructure, and only one-third covers the mine. We had to discuss all the possible options for funding, building and operating the 650km railway that will link the mine to the Atlantic Ocean and to the deepwater port planned for a site south of Conakry. Rio Tinto is used to working with such complex structures, but the Guinean government – for whom this project is unique and strategic – was in no hurry. We therefore formed a working group with the authorities and the main project partners. It advanced at its own pace. After 12 months of discussions, it came to fruition on 26 May with the signing of the investment framework. Under the agreement, infrastructure will be at the disposal of users other than Rio Tinto. Was this an easy point to accept?

Rio TinTo

A long record At rio 1997 Began working for Rio Tinto January 2007 Became managing director for global development and chief financial officer 2011 Appointed president of international operations in the iron-ore division 2012 Named chief executive for diamonds and minerals

The Guinean government’s requirement for multi-user infrastructure was legitimate because other projects – mining and agricultural – can also benefit from it. Initially, the state intended to fund 51% of the facilities and to manage them, and also insisted on equal treatment among users. However, it was not able to raise the funds. Under the agreement, Rio Tinto has become the leader of the financial and operational group in charge of infrastructure. Taking into consideration the company’s involvement, it will benefit from a more advantageous regime compared with those who will obtain the right of access to these facilities later. What are the next steps of the Simandou project? The Guinean national assembly has to ratify the agreement. Then, bytheendof2015,weplantocreate a consortium of investors for the infrastructure projects. I’ve met about 30 partners that are ● ● ● the africa report

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This summer from Bloomberg TV Africa

BUSINESS NIGERIA DISSECTING MARKET TRENDS IN KEY NIGERIAN ECONOMIC SECTORS DELIVERING ANALYSIS AND REPORTS ON NIGERIAN INVESTMENT OPPORTUNITIES UNIQUE PERSPECTIVE FROM AFRICA’S ECONOMIC POWERHOUSE

Watch Business Nigeria weekly on DStv Channel 411 and Star Times Channel 328

BLOOMBERG TV AFRICA. TIMELY REPORTING. ACCURATE ANALYSIS

business | leaders

appointments

Zelkifli Ngoufonja

rIo TINTo

interested. At the same time, we are working on a call for bids for the construction of these facilities. The model we’ve chosen is build, operate and transfer, wherein the infrastructure will be transferred to the Guinean government at the end of a 30-year concession period. The bidders will specify the proposed time frame for construction, which we estimate can be completed within four years. Theminingoperationshouldcommence towards the end of 2018. ●●●

Are you also in contact with Western companies such as Bolloré Africa Logistics for the construction and management of this project? We have spoken to most of the high-calibre international investors, and we do not want to concentrate on any particular companies. A transparent tender will be won by the best bid. There are no deals reserved for Chinese or Western companies. Rio Tinto has initiated legal proceedings in New York against the mining company BSGR and the Brazilian company Vale, saying that the licences to Blocks 1 and 2oftheSimandoudeposit,which you initially held, were obtained through corrupt practices. Will this affect your current project on Blocks 3 and 4? They are two different things altogether. Our aim is not to recover

Simandou is valuable for the high iron content of its ore

An iron giant

2.25 bn tn

Estimated reserves, with 62% iron content

100 m tn

Annual production at full capacity

$20 bn

Total cost of the mine and associated infrastructure projects

the mining licences to Blocks 1 and 2, we are simply claiming damages from BSGR and Vale. I wrote to Guinea’s mines and geology minister Kerfalla Yansané to inform him that Rio Tinto will abide by the authorities’ decision on how the deposits are allocated. No matter which operator is chosen, we will guarantee it access to the infrastructure. Have you renounced ownership of Blocks 1 and 2? All our energy is focused on successfully putting in place the facilities and developing the mines in Blocks3and4.Thisprojectrequires intense work. What will happen to the other blocks will not affect our commitment. If the government reaches out to us on the matter, we will then know how to respond. That is not our present concern. How important is the Guinean mining project relative to Rio Tinto’s other mineral deposits? It’s our flagship project in Africa. However, it will not be in competition with our Pilbara mining complex in Australia. Through the Guinean project, we will have access to high-grade iron ore, which is readily marketable and strongly demanded by the Chinese. Simandou’s close proximity to Europe is also of interest because it will allow us to export iron ore there. ● Interview by Christophe Le Bec

Cameroon’s Ngoufonja is the first African to be FIFA’s development manager for Africa. A consultant in the communications field, he previously worked at FIFA’s regional office in Yaoundé.

Thomas Makore Makore took over as managing director of Zimbabwe’s Hwange Colliery Company at a crucial time for the company. It is planning to cut half of its 3,000-member staff and is looking for new coal mines to exploit.

Larry Annetts In June, Annetts took over as chief marketing officer of MTN South Africa, the telecom company’s home market. He was appointed to the same position at MTN Nigeria in June 2012. He is a specialist in consumer strategy, marketing and product development and has worked for the company since 1995. the africa report

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Côte d’Ivoire

Agriculture: a key sector of the economy

Côte d’Ivoire is bursting with agricultural raw materials, including cocoa, rubber, cotton, palm oil, cashew nuts, citrus fruits, pineapples and mangoes. Arable land accounts for three-fourths of its area. Farmers with a very old agricultural tradition make up over half the population.The country’s four types of climate favour the variety of crops. Côte d’Ivoire, a producer and exporter, has had to face various political crises, ageing methods and infrastructure, and globalisation.The implementation of emergency modernisation programmes should help the country keep its position as West Africa’s locomotive and support its economic development strategy.

MESSAGE õ July/August 2014 - I -

A huge potential Agriculture has always been the bedrock of Côte d’Ivoire’s economy.The country’s development is based on cash crops, such as cocoa and coffee. In 2013 agriculture was the main source of livelihood for two-thirds of households, accounted for nearly 30% of Gross Domestic Product (GDP) and made up 70% of export revenues. The “Ivorian miracle” of the 1960s to the 1980s, when the country had nearly 20 years of steady economic growth (7% to 9%), was built on agriculture. At the time, the population was eight million. Today it is nearly three times that.

Adressing four key objectives • Increasing food crops • Accelerating agricultural production • Improving the quality of export products • Processing in order to boost added value

Côte d’Ivoire in ﬁgures Area

322,462 km2

Arable land

24 million hectares (70% of the total area)

Population

22.6 million

Gross domestic product (GDP, 2013)

$28 billion

Agriculture

30% of GDP

Per capita GDP (2013)

$1,220

Currency

CFA franc (1 euro = 656 FCFA)

Growth

9.8% in 2012 8.9% in 2013 9.8% in 2014 (e)

MESSAGE õ July 2014 - II -

CÔTE D’IVOIRE > AGRICULTURE: A KEY SECTOR OF THE ECONOMY

In 2012 Côte d’Ivoire began undertaking reforms to energise its agriculture. They are already bearing fruit. Productivity is up. Farmers receive more money for their crops, increasing their motivation. And processing industries, vital for West Africa, are being set up with the backing of private investors increasingly conﬁdent in the country’s ability to take its place in the sun. Côte d’Ivoire is determined to join the ranks of the emerging countries by 2020. Agriculture is a priority for getting there, on two counts: creating value and jobs to improve living conditions, and building a modern, structurally industrialised country.

Four billion dollars to revitalise key crops The country’s emergence strategy is mobilising considerable investments.The PND (Plan national de développement), which has broad backing from the international community, puts the figure at $20 billion for the 2012-2015 period. The country has reached its goals: economic growth has been nearly 10% a year since 2012 and Côte d’Ivoire has won back its positions as West Africa’s secondleading economic power and the biggest economy in the francophone sub-region. Côte d’Ivoire’s agriculture benefits from the PNIA (Programme national d’investissement agricole), which will have devoted four billion dollars to the sector by 2015. That accounts for 10% of the national budget each year. Previously, the figure was below 2%. The goal of PNIA projects is to increase the sector’s growth by 8.9% a year. They are participatory, involving professional agricultural organisations, the private sector, technical and financial partners, civil society and NGOs.

The rise of export crops Diversiﬁcation aims to strengthen exports. With two priorities: spurring village production and encouraging industrial processing in order to export more ﬁnished products.

Self-sufﬁciency in foodstuffs and export growth Today the country depends on imports, which account for over 50% of its rice consumption, the staple most in demand. It also imports more than 50% of the vegetables and 60% of the dairy products it consumes. To achieve the goal of self-sufﬁciency, food crops are a priority of the PNIA.

10 percent of the national budget is devoted each year to agriculture

Cocoa • Côte d’Ivoire is the world’s top producer and exporter of cocoa beans (40% of the global total, 1.5 million tonnes a year). •The government wants to boost productivity ﬁvefold to two tonnes per hectare. • Another goal is to boost industrial processing of the country’s cocoa production from 9% to 75%.

Cashew nuts •The world’s second-leading producer (450,000 tonnes of raw nuts a year) • Industrial goal: to process half the output inside Côte d’Ivoire by 2015 and 100% by 2020 (9% today).

Côte d’Ivoire will grow 1.9 million tonnes of rice by 2016, making it an exporter again, a position it lost in the 1970s. The maize sector also needs development. Maize offers an excellent potential for export to neighbouring countries, all of which have severe shortages. The same goes for manioc and plantain bananas, for which the country is already self-sufﬁcient.

Palm oil

Agro-industry in the lead

Rubber

• Côte d’Ivoire is the world’s ﬁfth-leading palm oil producer. • 95% of the processing (table oil and soap) is done on site. •There is a major potential for export to West Africa, which has a shortage of 80,000 tonnes a year (1.5 million tonnes in 2020).

• Africa’s top producer of natural rubber

Côte d’Ivoire has West Africa’s second-most developed industrial sectors after Nigeria. It is heavily dominated by agro-industry. The share of processed products in the total of agricultural and agro-industrial exports rose from 28% in 1995 to 36% in 2008. To reach the goal of emergence by 2020, ofﬁcials have set the target of processing at least 50% of the raw materials the country produces on site, instead of barely 30% today. In the case of cocoa, for example, steps such as the reduction of export taxes encourage private companies to process 40% of the harvest into cocoa butter, liquor and powder.

(250,000 tonnes a year) • 70% of output is intended for Europe’s tyre industry. •The government wants to raise production to 600,000 tonnes by 2020.

Rice • Côte d’Ivoire imports over 50% of its rice and has no control over its price. • By creating new rice paddies, the country aims to achieve self-sufﬁciency export. • By 2016 Côte d’Ivoire will grow 1.9 million tonnes of rice and become an exporter again. MESSAGE õ July 2014 - III -

Convincing the private sector to invest

A market of 300 million consumers

To convince major private companies to add their contribution and know-how to its development, the government grants businesses creating new agricultural activities tax and tariff breaks and has created special economic zones in the country’s northwestern, western and eastern regions.

Côte d’Ivoire, a powerful engine of integrated growth in the Economic Community of West African States (ECOWAS), is the gateway to that market of 300 millions consumers – as many as the United States – where middle-class purchasing power is rising at a steady pace. Major African and international companies are already involved in the development of its agriculture and agro-food industries.

A determined strategy aiming to become an emerging country by 2020

Companies that set up business there can take advantage of particularly attractive breaks. Dedicated to the processing of agricultural products and to private agronomic research, the zones are part of the huge nationwide road infrastructure project under way that will allow them to become industrial and biotechnological hubs.

A case in point is the US giant Mondelez International, whose brands (Cadbury, Lu, Milka, etc.) are better known, which is helping to boost the output of cocoa plantations. Singapore’s Olam group has built Africa’s biggest cashew nut processing plant in Bouaké, in the middle of the country. They have joined the many multinationals betting on Côte d’Ivoire’s dynamism and its outstanding location as the gateway to West Africa.

On the agenda in Abidjan Côte d’Ivoire took part in the international agriculture exhibition in Paris in February, seizing an opportunity to promote its agriculture’s growth prospects at the world’s biggest farm show. In 2015 the country will hold its own event, the Côte d’Ivoire Agriculture and Animal Resources Exhibition (SARA), in Abidjan from 2 to 12 April. It’s shaping up to be

“the biggest farm in Côte d’Ivoire”. MESSAGE õ July 2014 - IV -

CÔTE D’IVOIRE > AGRICULTURE: A KEY SECTOR OF THE ECONOMY

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dossier

agribusiness

profile

Akinwumi Adesina Agriculture minister, Nigeria

Africa can feed When Nigeria’s billionnaires start investing in agriculture it’s news, says the minister, who has also brought in a raft of state solutions to overturn the country’s crop deficit By Nicholas Norbrook in Kigali

omething is stirring in the wide expanses of northern Nigeria, and it is not another Islamist insurgency. “The governor of Kebbi State says because of the rice revolution they no longer count rice in hectares, they count rice in kilometres,” says Akinwumi Adesina, Nigeria’s minister of agriculture. “In the north in 2012, we produced an additional 1.4m tonnes of paddy rice. Last year, we

expanded that by an additional 2.95m tonnes.” Though Nigeria still produces less than half the rice it consumes, there are signs of a turnaround. Adesina points to the N320bn ($2bn) gross contribution made by rice to the Nigerian economy as a sign that things are improving. “We needed to begin to restructure the economy, to be less dependent on oil and to also begin to have equitable economic growth and prosperity in differthe africa report

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ent parts of the country. And the sector that’s going to give you that is agriculture,” Adesina says. Given the predations of militant group Boko Haram in the north, creating jobs and wealth in the area is a vital part of any peace-building efforts. “We launched a dry-season farming programme, a first for the country. Today, the youth are busy,” says Adesina, who explains that the rice sector alone has created nearly 370,000 jobs. the africa report

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Nigeria has kickstarted its agricultural rise with a mixture of ‘enabling-state’ solutions, such as de-risking agriculture for bank lending, alongside more nimble market-based methods. A good example of this is the provision of fertiliser subsidies, something that the World Bank frowns upon. But by using a mobile-phone-based voucher delivery system, it avoids some of the problems associated with large state bureaucracies.

Brent Stirton/Getty imaGeS

the world “It [the previous system] was corrupt, it was inefficient and it didn’t reach the farmers,” says Adesina. “No more than 11% of farmers were getting the fertilisers bought and sold by government. It took us 90 days to dismantle a corrupt system of 40 years in Nigeria,” he continues. Campaigners for transparency in Nigeria’s opaque oil subsidy system may wonder whether similar methods could be applied to the energy sector.

dossier | agribusiness

Olam InternatIOnal

Nigeria’s former central bank governor, Lamido Sanusi, favoured these sorts of pragmatic solutions. Sanusi and Adesina educated Nigeria’s banking fraternity on financing the agriculture sector. “What I cannot forget was the experience of a meeting in the central bank with all the bank CEOs [chief executive officers] and all the chief risk officers at all the banks in Nigeria. I asked them: ‘How much money do you think you’re going to lose from lending to agriculture?’ They said 90-100%.” lending frenzy

In 2011, when the Central Bank of Nigeria started its innovative de-risking mechanism known as the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending, lending to agriculture was 0.7% of the banking sector’s total loan portfolio. “By last year – 2013 – it grew to 5%. We expect it to be 7.5% this year, and we expect it to rise to 10% by next year,” says Adesina. Small companies selling fertiliser, seed and other inputs have been major beneficiaries, with $53m lent to small and medium-sized enterprises in 2013. These had largely been shut out of domestic credit markets. Big business is getting involved, too. While stressing that smallholder farmers need continued support, Adesina points to the country’s 84m hectares of land, of which 40% is cultivated – just 10% of it with modern technology. The government has

removed import duties on agricultural machinery and is facilitating access to land in order to encourage investment. “In the last two years, we’ve been able to attract $4bn of private sector investment commitments. Those range from those that are making warehouses, to seed companies, to fertiliser companies as well as juice manufacturing companies,” says Adesina. In Taraba State in the north east, United States-based and Kenya-registered Dominion Farms has set up a joint venture with the T.Y. Danjuma Group that includes a plan for $40m in investment. However, the optimism surrounding the project was dented this year by farmers protesting against non-payment of compensation for land. In Nasarawa State, Olam is planning to invest more than $72m in a commercial rice farm, a fully mechanised project covering 6,000ha. It will house a processing facility for milling 210,000tn of rice per year, making it the biggest project of its kind in Africa. Commodity trader Cargill is also setting up a 15,000ha cassava-processing project in Kogi State. Adesina says that the actions of domestic investors are increasingly important. “We have shifted people that have invested in oil and gas – even in the cement business – to diversify into agriculture. That’s a big thing, when Nigeria’s billionaires are going into agriculture,” says Adesina.

Nigeria has undergone a rice revolution, with 4.35m more tonnes produced in two years

“As we speak [Aliko] Dangote is putting $2.3bn into agriculture, and he says he’s going to put $300m into commercial rice production and milling in Nigeria.” Dangote is investing $30m in a tomato paste factory in Kano. Another tycoon, Tony Elumelu, has diversified into agriculture with a juice-processing plant in Makurdi through the Transcorp subsidiary Teragro. africa has the land

Planting the seeds of growth 1988 Earned a doctorate in agricultural economics from Purdue University, US 1995 Became an economist at the International Institute of Tropical Agriculture 1998 Joined the Rockefeller Foundation’s food security programme 2007 Became the vicepresident of the Alliance for a Green Revolution in Africa 2010 Appointed agriculture minister

Policy-makers have the ambition to transform Nigeria from the second-largest importer of rice in the world, spending $2.5bn annually, into a producer that can rival the Thai rice export machine. Adesina argues that the agriculture and agribusiness sectors in Africa will be worth $1trn annually by 2050. He estimates that agriculture-related foreign direct investment in Africa will rise from $10bn to $45bn in just six years. The continent has one of the great global competitive advantages, Adesina argues. “Africa has 65% of all the land left to feed nine billion people in the world by 2050. Nobody drinks oil, nobody smokes gas, but everybody needs food. Now Africa has the potential to feed the world. That’s a huge asset!” This campaigning rhetoric may presage a loss for Nigeria and a gain for the African Development Bank. Adesina is now one of the people touted to replace bank president Donald Kaberuka in May 2015. ● the africa report

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agribusiness | dossier

Ethiopia

in 2012. Last year, the government rolled out TIRR to more than two million farmers. Outside Ethiopia, the demand for tef is beginning to grow as word A programme to improve production in simple ways has spreads of its nutritional value, doubled yields of this staple crop for two million farmers as it is rich in calcium, iron and protein. However, the country’s is grown in Ethiopia and parts of ef is a national obsession farmers are currently unable to Eritrea – we don’t have a lot of in Ethiopia. The tiny grain take advantage of this newfound the size of poppy seeds has research being done on it,” says interest due to a ban on the exbeenconsumedinthisEastAfrican Khalid Bomba, the chief executive port of unprocessed tef introcountry for centuries. Women eat of ATA. As a result, he charged his duced in 2006. a porridge made from it immetef team with finding an intervenThe government 197,083,806 tion that did not involve complex has no immedidiately after giving birth, and inEthiopia’s tef jera, the tef-based flatbread that is biotechnological interventions. ate plans to lift production (kg) 2013/ the embargo, the staple of Ethiopian cuisine, is The ATA has since developed a 2014 three-pronged strategy known typically used in gursha, an act in although this which friends and family feed each as TIRR: Tef Improved varicould change in 157,487,133 other as a sign of love and loyalty. ety, Reduced seed Rate row the longer term if the goal of Despite the Central Statistical planting. Over the past two doubling production is realised. 2012/ Agency’s forecast that tef producyears, the ATA Mama Fresh, an Addis-based 2013 tion would rise to 197m kilograms distributed a 125,080,208 family business that has been in 2013/2014 from 157m kilograms higher-yielding selling injera to the capital’s top in 2012/13, the appetite for tef is variety of tef and hotels and restaurants for more introduced row such that domestic demand curthan a decade, is trying to carve 2011/ 2012 planting. Farmitself a small slice of $6.2bn global rently outstrips production. Due ers previously health food market. It exports to population growth, high inflation and increased consumption used 30-50kg of seeds per hectare around 10,000 pieces of injera per by the middle classes, prices have and this has been cut to just 2-3kg. week to the United States (US), risen rapidly. A kilo of tef retails In April 2011, the ATA piloted Germany, Sweden and Finland. for between 17 and 21 birr (about “Because of the gluten-free marthe TIRR programme with two $1) in Addis Ababa. While this ket, our business will double,” farmers who achieved yield inRising prices may have resulted in higher insays Hailu Tessema, managing creases of almost 50%. In June of comes for some rural communitthat year, it was scaled up to 1,400 mean some director of Mama Fresh. “Curies, the cost has put the grain out smallholders across the four main communities rently 90% of our exports are for tef-growing regions, producing the diaspora, but this will change. who harvest of the reach of the poorest and has led many subsistence farmers In the US we expect to sell 50% tef can no gains of between 30% and 80%. to send the bulk of their harvests Using the country’s extension syslonger afford to the local market.” ● Elissa Jobson in Addis Ababa tem, 400,000 farmers were trained to eat it to market. Between 2.7m and 3m hectares of land is currently under tef cultivation, but there is little scope for increasing this, explains Tareke Berhe, director of the tef and rice value chains at the Agricultural Transformation Agency (ATA). Yield is low, he says – on average just 1.3tn/ha – so this is where gains are being made.

Tef tops the agricultural agenda

The Ethiopian government wants to double production by 2015, accordingtotheNationalTefWorking Strategy. The ATA has been collaborating with the National Research Centre to design simple methods to achieve this goal. “Because it is considered to be an orphan crop in international terms – something like95%ofthetefgrownworldwide the africa report

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Christophe Boisvieux/hemis/CorBis

orphan crop

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dossier | agribusiness

PrivAte equity

Global funds for African farmers Africa’s urban food markets will increase fourfold by 2030, and small and unlisted companies setting out to supply them hold high-yield potential

n making 2014 the ‘Year of Agriculture’, the African Union has concentrated its focus on private-sector investment and public-private partnerships to drive the sector. Private equity (PE) financiers, funds and investors who put money into companies not listed on a stock exchange are answering the call. United Statesbased firm KKR & Co. made its first African PE investment in Africa through Ethiopia’s Afriflora, a rose producer, in early June. Kenyan PE investor Centum Investment Companyisnowengagedinalegal tussle over its bid to take over REA Vipingo Plantations, the owner of several East African sisal farms. There is great potential in agriculture-focused PE funds. In June 2013, the Africa-focused Future Agricultures Consortium reported that there were 53 PE funds that had raised or were raising funds targeted at African agriculture. Twenty-seven of them are focused solely on agriculture, but together they had a target of raising an estimated $5.8bn. sme INTeResT GROWs

Small and medium-sized enterprises (SMEs) account for 90% of business activities in many 2005-2007 African coun$375m tries. African Agricultural Capital, backed by Belgium’sVolksvermogen, the Rocke-

AfriflorA

in its first continental investment, KKr & Co. hopes ethiopia’s Afriflora will come up roses

Private equity funds have or are raising funds targeted at African agriculture

Fundraising target for African agriculturefocused PE ﬁrms

2008-2012

$5.5bn

feller Foundation and the Gatsby Foundation in 2004, was the first fund focused on small companies in African agriculture. Others are now active in that space. The AAF SME Fund is a $36m pan-African PE fund dedicated to companies along the agricultural value chain. Last year it took an equity stake in Top Crust, a bakery in Lagos, Nigeria, with expected annual yield on investment in excess of 35%. With increasing urbanisation and fast-growing middle classes, Africa’s urban food markets are expected to grow fourfold by 2030, according to a World Bank study. “There is a growing food gap between regional demand and supply, and between regional supplyandglobaldemand.Weseethis as a win-win opportunity to make decent profit for our investors and create significant wealth for the continent’s farmers – including the millions of small-scale farmers – with access to inputs, best practices and strong links to markets,” explains Brian Frimpong, managing partner of Databank Agrifund Manager, which manages the AAF SME Fund. The AAF SME Fund has committed $4m in debt and equity to Cameroon’s West End Farms, a 350ha farming enterprise that is projected to expand into a 20,000ha opera-

tion. “The demand for PE funding in agribusiness is huge. We have reviewed over 500 viable business plans since 2012, and we have over $100m in approved projects in the pipeline,” says Frimpong. The fund managers intend to launch the AAF SME Fund II early next year to raise more than $100m. capacITy buIldING

SMEs not only require funds but technical support too. Accordingly, Phatisa, managers of the parent $243m African Agriculture Fund, has secured a technical assistance facility of €10m ($13.6m) to finance studies and capacitybuilding projects for small firms, bottom-of-the-pyramid market support and out-grower and smallholder schemes across its portfolio companies. The global players are bringing in larger resource bases. Tana Africa Capital, a $300m fund founded in 2011 by South Africa’s Oppenheimer family and Singapore’s Temasek, also aims to invest primarily in agribusiness and consumer goods across Africa. In April, The Carlyle Group ended fundraising for its Sub-Saharan Africa Fund after taking in $198m more than its $500m target. It is investing in agriculture, consumer goods and logistics. It made its first investment in Tanzania’s Export Trading Group, a transport, storage and distribution company. ● Gabby Asare Otchere-Darko in Accra

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The future for agriculture in Africa:

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dossier | agribusiness

opinion

Sipho Moyo Africa executive director, ONE

Hunger-free in 2063 – Africa’s powerful potential

he African agriculture story is one of poverty amidst plenty. With the world’s largest share of arable land, 79% of it uncultivated, Africa has the resources to feed itself and the world. However, a quarter of all Africans experience the everyday reality of hunger. Although rates of poverty have declined from 57% in 1990 to 49% in 2010, high population growth means that the number of people in poverty has continued to rise. Today, 414 million Africans live in poverty. I firmly believe that this reduction in poverty rates indicates that a hunger-free continent is within our grasp, provided the right policy and institutional frameworks are put in place. Research conducted by the non-governmental organisation ONE shows thatwecaneradicatehungerinAfrica by 2063 – just two generations from now – if we invest more and better. AccordingtoarecentUnitedNationsFoodandAgriculturalOrganisation study, agricultural growth in sub-Saharan Africa is estimated to be 11 times better in reducing poverty than that of other sectors. Smallholder agriculture in particular adds greatly to economic development and food security. In Africa, 65% ofsmallholderfarmersproduce80%ofthe continent’sfood.Theyalsocontributealmost one-thirdofgrossdomesticproduct(GDP),with almost no government support or subsidies. By investing in this sector, we can not only create sustainable jobs and increase exports, but we can also reduce poverty in rural areas. A 1% increase in agricultural growth improves incomes by 2.7% for people in the lowest three income deciles. Increased agriculture output decreases food prices, allowing poor people increased spending power. By increasing agricultural productivity, we can also boost other sectors, such as manufacturing. This is not just a pipe dream. Countries such as Burkina Faso and Ghana are already seeing promising results from more agricultural support. Burkina Faso, where 90% of the population is employed in

agriculture, has maintained an average economic growth rate of 5.5% for more than a decade. Per capita GDP grew from $795 in 2000 to $1,116 in 2007 through gradual reforms of the cotton sector. Farmers were able to participate in policy decisions, and the government partially liberalised markets. Export earnings for the cotton sector rose and 235,000 new jobs were created. Poverty rates dropped from 62% in 2000 to 47% in 2007. Similarly, Ghana’s continued and consistent investment in agriculture has helped reduce poverty from 52% to 28% of the population and halve hunger rates. The sector accounts for 30% of GDP and more than half of Ghanaian jobs. Africa’s current low productivity shows us the magnitude of its potential. Only 3% of arable land and 6% of farmland is irrigated, compared with 47% of Asian farmland. On average, African farmers use 11kg of fertiliser for every hectare, compared with 169kg in South Asia. These statistics may seem daunting, but they should give us hope. We have seen what agriculture investment, coupled with political will, can bring. Ghana and Burkina Faso have very different economies, but they shared the same recipe for success: a commitment to agriculture sustained across government transitions, and the inclusion of civil society and farmers’ representatives in policy formulation and implementation. Last January, ONE launched the DO AGRIC, it Pays! campaign based on its report ‘Ripe for Change: The Promise of Africa’s Agricultural Transformation’. This called on governments to implement an enhanced Comprehensive Africa Agriculture Development Programme. The programme’s policies were developed after lengthy consultations with farmers from all over the continent. They include eliminating the gender gap and making time-bound commitments to spending at least 10% of national budgets on agricultural investments. With the African Union summit in June, we must continue to strengthen our call to improve and enhance investment in agriculture. ● the africa report

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