Corporate africa issue 59 digital

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Quarter I 2014 Issue 59 Vol 1 Number 888 Quarter II 2014 Issue 59 Vol 1 Number 888

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SOUTH AFRICA’S BUSINESS MODEL

Trade Minister on sustainable business models

MANDELA’S DEATH

Impact upon South Africa

MOZAMBIQUE’S RESOURCE POTENTIAL World’s biggest potential market for energy

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CONTENTS Features

4 South Africa’s business model

Rob Davies, South Africa’s Minister of Trade and Industry, talks to Corporate Africa about the future strategy for sustainable business models in South Africa.

8 The UK–Kenya Trade Partnership

Dr Christian Turner, Britain’s High Commissioner to Kenya, writes on increasing trade and fostering relations with East Africa.

Technology

60 A review of Africa’s largest growing commercial sector

Africa’s financial markets need modernizing in order to accommodate growing international investor interests. Bourse Consult’s senior partner, Hugh Simpson, describes the challenge.

38 MOBILIZING THE PRIVATE SECTOR

The digital revolution has had a profound impact all over the world. Dr. Hamadoun Touré, Secretary-General of ITU, reviews the last two years in this vital sector.

64 Regulating for the Future

Ed Farquharson, Executive Director at PIDG, describes the key to private sector involvement in galvanizing an economy.

Main One director Funke Opeke explains why regulation and investment initiatives in the broadband sector could see Nigeria become the leader of the MINTs.

42 AFRICA’S STUNTED GROWTH

10 Mandela’s death impacts

upon South Africa

By Dr Jon Foster-Pedley, Dean and Director of Henley Business School Africa.

The Afrobarometer’s report shows that African economic growth is not making any difference to those at grassroots level.

44 Foreign Direct Investment IS KEY

International Politics & Business

Stephean Diefenthal, Vice President at DEG – Deutsche Investitions – discusses foreign investment into Africa.

Industry 14 Eskom’s new build program

36 ModernisingAfrica’s market infrastructure

The demand for power and electricity is steadily growing in South Africa. Eskom executives describe how they plan to provide for the increasing demand for electricity.

16 Kosmos Energy in Ghana Darrell L. McKenna, Chief Operating Officer at Kosmos, describes the difference the oil sector is having on the Ghanaian economy.

20 CARBON TAX PROPOSAL IN SOUTH AFRICA. The South Africa Petroleum Industry Association analyzes the necessity and implementation process of a controversial proposed carbon tax law.

24 Mozambique’s resource potential.

Mozambique’s resource potential presents significant opportunities for energy diversification and for BRICS.

28 Is Africa immune FROM

economic and Financial Bubbles?

By Fred Vacelet and Dorne Sowerby.

An in-depth analysis of Africa’s immunity to financial bubbles.

32 Angola Land of growth and Opportunities

By José Filomeno dos Santos, Chairman of the Fundo Soberano de Angola (FSDEA).

Made In Africa’s founder Chris Cleverley explains why he thinks Africa’s growth will be greater than people expect.

46 Focus upon Africa

Dr. Ken Ife ponders the future for Africa’s infrastructure, its international relations, and its agricultural sector.

69 Britain’s relationship with Africa Mark Lowcock, Permanent Secretary for the Department for International Development (DFID), discusses Africa’s relationship with Europe and the UK.

Agriculture 50 Reaching Africa’s FULL potential

EMRC’s mission is to contribute to the development of the private sector in Africa by boosting sustainable and responsible economic growth. By Idit Miller, Managing Director EMRC .

72 Africa’s Promise Elizabeth Littlefield is the President and CEO of the Overseas Private Investment Corporation. She describes the huge investment in galvanizing public-private partnerships in Africa.

Nigeria Special 52 Nigeria’s battle for power

Nigeria’s Minister for Power, Professor Chinedu Nebo, looks at the challenges faced, supplying electricity for Nigeria’s growing economy.

54 Nigerians tell their stories

Finance

67 Africa will grow exponentially

Interview 75 GROWING FROM WITHIN Elsie Kanza is the Head of Africa at the World Economic Forum. She talks to Corporate Africa about the model for success on the African continent.

Joke Silva is one of Nigeria’s most popular actresses and directors. She has starred in award-winning films. She discusses the increasing global popularity of Nollywood.

56 Managing Nigeria’s economy

Foluso Phillips is Chairman of the Nigerian Economic Summit Group and founder of Phillips Consulting. In this article, he addresses issues about managing the financial expectations placed on Nigeria’s development.

Events 78 EVENTS

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Features

SOUTH AFRICA’S BUSINESS MODEL Rob Davies, South Africa’s Minister of Trade and Industry, talks to Corporate Africa about the future strategy for sustainable business models in South Africa.

S

outh Africa’s Minister for Trade must be a busy man. As we sit down to discuss the potential stagnation of the BRICS market and South Africa’s tentative bridge-building with damaged European markets, he is still writing furiously at notes of issues that he wants to cover. We begin at the top, and the issue most recently putting Minister Davies in the news.

Much has been made about South Africa’s ability and willingness to invest in green energy, particularly as the country is now a member of BRICS arguably the most significant economic bloc in the world.

Trade Minister Rob Davies has talked at length in the past about how a green, sustainable business model can work symbiotically with economic development, but his critics have questioned him at every turn: Will investing in green energy not be a drag on South Africa’s development?

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“No,” Minister Davies replies. “On the contrary, we have actually indicated, a quarter of our GDP in 2013 will come from renewable sources. There are very

Africa’s development has to involve industrialization, with value-added production very much a part of that core.

interesting projects in South Africa .

The main green energy options for this generation are in the potential offered by solar and wind energy. There are projects ongoing throughout South Africa and there have been rollouts on many contracts already provided for. I see this as an

opportunity for our development, rather than a drag.”

The Minister hardly needs to be pressed for examples of the success of South Africa’s nascent green strateg y. “Just look at the Vodafone Innovation Centre in Gauteng,” he says. This is the first carbon neutral building in the country that generates its own power through solar powers, and harvests and stores rain water, while recycling its waste water. It is the first building to receive a six star rating from the Green Building Council.

Corporate and business exploitation of Africa’s land is a controversial subject.

But what about Donald Kaberuka’s widely discussed view that Africa is being “ripped off” by multinational corporations who are exploiting the continent’s natural resources while giving little back to the

Features

community; does the Minister share the views of the African Development Bank’s President?

“Well, I think what the entire African cont ine nt is s aying is t h at ‘ we c an’t occupy a place in global value chain’. We are producers and exporters of mineral products and we are importers of foreign goods. We have a mineral product group which basically passed its peak in 2012 as far as industrial minerals are concerned. I think the point Donald Kaberuka was making, which is shared by all African leaders across the continent, is that Africa’s development has to involve industrialization, with valueadded production very much a part of that core.”

We have a strong banking system, which I think is well recognized as a model for international investors.

It is favorable, then, that, according to a recent survey in the Financial Times, South Africa is the most business friendly country in Africa and attracts the most foreign direct investment (FDI).

“I think it’s because we have a growing perception of the African continent as a place where businesses need to become more active,” Minister Davies states.

“People look at the African continent and they see that South Africa has a business environment which is well understood.

“We have a strong banking system, which I think is well recognized as a model for international investors. We have business laws which in some cases are second to none. We have really modern companies and legislation…and I think also we have an active investment promotion regime which works under the Department of Trade and Industry, and our investment promotion agency works with international investment agencies. So I think these combine to make South Africa attractive to investors. I think, in particular, investors who are looking at value-added activities and high value services are increasing their involvement in the South African economy.”

This comment seems par ticularly relevant when considering South Africa’s relationship with Europe, and especially Swit zerland. As tr ade relations with Europe have begun to wane, South Africa

has announced many significant trade deals and partnerships with Switzerland. Is this the start of a new strategy with Europe?

“Our trade relationship with Switzerland does show how the relationship with Europe is changing. Last year we had a reduction in trade with Switzerland, and the main item there is platinum. Platinum prices were down, so that explains that.

On the other hand, our relationship with Switzerland on the investment side

Our trade with China is characterized by high proportions of mineral products, and we had the benefits of a mineral super cycle up until last year and now we are seeing slower growth.

has grown whereby we have seen Swiss investments from 2003-2008 and then comparing that to 2009-2012, we have seen more or less a quadrupling in the number of goods exported. This is telling us something ver y interesting: Swiss companies are becoming more involved.

Par ticularly we have had signif icant investments by the leaders of Swiss industry, including companies like Nestle.

We’ve also had investment by a company which produces small machinery, which is rolling back those projects out there in South Africa, along with many other important pharmaceutical companies. In

the value added production-manufacturing economy, our Swiss investment relationship is def initely growing. Our tr ade was affected by the drop in mineral prices, and in particular, the price of platinum. “ But has the global financial crisis, especially Europe’s slow return to growth, created a growing trade deficit with South Africa?

If so, does the BRICS market alleviate this deficit, in some ways?

“Well, I wouldn’t say a growing deficit.

In most cases, actually only with the exception of Germany, our trade with the EU has not yet reached the level it did pre-2008, so we had contraction in 2009 and then growth subsequently. But, no, we haven’t yet reached the levels we had in 2008 – but we are going to review this.

And actually the most distressed countries in Europe, which were not our biggest trade partners in the EU in the first place, have seen continued contraction. So this has been one effect of the financial crash in 2008.”

And yet South Africa, until very recently, has kept its economy on a straight road.

How has it managed to balance a significant

I think in particular investors who are looking at value added activities and high value services are increasing their involvement in the South African economy.

Corporate Africa 2014

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We have a mineral product group which basically passed its peak last year as far as industrial minerals are concerned.

trade relationship with a continent in economic decline? “It was partly balanced by growing trade relationships, particularly with countries in the East. China has become our number one trading partner, but of course the European Union has been by far our largest trading partner in the past. Our trade with China is characterized by high proportions

of mineral products, and we had the benefits of a mineral super cycle up until last year and now we are seeing slower growth. Structural trade is also waning, but I think our conclusion is that we need to strengthen trade on the African continent.

We need to continue concentrating on regional integration projects that are underway, particularly large projects such

as the East Africa Community Free Trade Area, which will involve 26 countries, 600 million people, and 1 trillion US dollars combined GDP, and then also complement that with infrastructure programs. Finally, as I said earlier, it is vital that we promote value - added production and the use of the regional market as a stimulus to manufacture trade on our continent.�

Features

The UK–Kenya Trade Partnership Dr Christian Turner, Britain’s High Commissioner to Kenya, writes on increasing trade and fostering relations with East Africa.

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he UK–Kenya partnership is strong, broad, and is based on mutual benefit. We are proud of our long-standing and deep defence and security, trade, development, and people to people links that bring real benefits to both countries. We are working on shared goals with Kenya on our wide range of mutual interests in support of prosperity, stability, security, and development.

Trade is a key area of this partnership approach. Increased trade benefits both countries, as the figures show. The UK is Kenya’s biggest export market outside of East Africa, and UK companies play a key role in Kenya’s economy, accounting for a significant proportion of tax revenue and job creation. Half of the top ten taxpaying companies in Kenya are UK based, as are two of the three biggest private employers in the country. Total trade is in excess of £1.2bn, (US$2.018bn.) and we are working hard to double that figure over the next few years.

Trade Finlays Group Kenya is the leading agri-business company in Kenya and is involved in the export of flowers, vegetables, and tea. The company contributes about £210m (US$353.3m)in foreign exchange earnings and employs about 22,000 Kenyan workers, including casual and seasonal workers. G4S Kenya employs 26,000 people in Kenya and has a countrywide network.

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Corporate Africa 2014

British supermarkets such as Marks & Spencer are important customers for Kenyan produce. M&S alone buys products worth £100m (US$168.23m) per year from Kenya. Furthermore Sainsbury’s, Waitrose, Tesco, and Asda source products of similarly significant amounts. This translates to thousands of jobs and significant income for Kenyans. British companies like Tullow Oil are leading on oil and gas exploration in Kenya, which promises to dramatically improve the Kenyan economy over time.

UK exports to Kenya have been increasing year on year for several years now. My team in the UK Trade & Investment (UKTI) office in Nairobi are working hard to increase this. While Kenya exports goods such as flowers, and vegetables, tea, and coffee to the UK, the UK exports vehicles, pharmaceuticals, and general machinery to Kenya. And increasingly British companies with expertise in the oil and gas sector, including from the UK’s oil hub in Aberdeen, are coming to Kenya to examine possibilities for providing services and knowledge transfer, in partnership with the Kenyan government.

Nurturing relationships A key part of the offer of many big UK companies is capacity building and training, which is in stark contrast to others who seek contracts with the aim of maximizing profit, sometimes to the detriment of local workers. UK companies are urged

by UKTI to ensure that their offer for winning a contract

The UK is Kenya’s biggest export market outside of East Africa, and UK companies play a key role in Kenya’s economy. is suppor ted by ef for ts on fur ther education, vocational training, and capacity building, so that something longterm and sustainable is offered to those places in which the contract is being run. For example Tullow Oil runs a scholarship program for 30 master students per year to study in the UK. This month we are also launching the British Chamber of Commerce in Kenya, in conjunction with the British Business Association of Kenya. The Chamber is part of an £8m (US$13.5m) worldwide initiative by the UK government to help British Small and Medium Enterprises (SMEs) to trade overseas. The aim of this is to have a cohesive, accredited global network of business-led, business-backed government, supported organizations supporting UK SMEs. This newly established British Chamber of Commerce for Kenya is the start of this objective.

Over the next few months and years, the Chamber of Commerce, led by a project director and small team, will start to develop a strategy for assisting UK companies in trade and exports in Kenya in collaboration with existing Kenyan companies and businesses. The new chamber will start to deliver basic services to UK SMEs such as: provision of contacts, signposting to existing companies at home in the UK, market research, organizing events, program arranging, and advice on setting up businesses. As part of this initiative the new chamber, through the British Business Association of Kenya,

will be expanding its membership. Expanded membership will bring better networking opportunities for existing companies in Kenya.

Another recent announcement involves the appointment of Lord Hollick as trade envoy for Kenya and Tanzania. The Prime Minister’s Trade Envoy program is designed to help promote trade to and investment from emerging and growth market. The envoy prime focus is to showcase, to small and medium-sized businesses in the UK, foreign opportunities available in their markets.

Finally I should say that prosperity and growth through trade is also central to our development strategy. The Department for International Development’s Secretary of State Justine Greening has just announced that the UK will double investment in emerging frontier economies to end their dependency on aid.

This will solidify plans to agree a series of new partnerships with leading British and international companies to improve business conditions in Africa, and will kick-start embryonic capital markets and drive more investment into frontier economies. DFID Kenya already has an ambitious wealth creation development program designed to scale up and deliver this vision, and will focus on financial services, trade, markets for the poor, and investment climate reform.

Secretary of State Justine Greening, announced that the UK will double investment in emerging frontier economies to end their dependency on aid.

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Features

Mandela’s death impacts upon South Africa

By Dr Jon Foster-Pedley, Dean and Director of Henley Business School Africa.

D

oomsayers were expecting the co u n t r y t o f a l l a p a r t a n d t o descend into chaos once our for mer Preside nt N elson Rolihl ahl a Mandela had left us. Nothing like that happened. As we mourn the passing of the father of our young multi-racial democracy, the mood in South Africa is unique – as unique as the extraordinary man himself. In the days since he left us, the people of South Africa, gathering outside Mandela’s house in Houghton and his former home in Vilakazi Street in Soweto, were united in sorrow but also paid tribute to Tata Madiba – as he was affectionately called by South Africans – and celebrated the life of their hero, who stood for peace, freedom and forgiveness in a country scarred by the injustices of the past and still struggling to come to terms with the legacy of apartheid. While

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How does one prepare for the passing of an icon?

Mandela’s passing was expected due to his deteriorating health, nobody was prepared for the day he would leave us.

How does one prepare for the passing of an icon, an extraordinary man who was often portrayed as larger than life, yet a man who remained extremely humble?

The passing of Mandela has put South Africa in the international limelight .

Media outlets from around the world covered this historic event and world leaders flocked to FNB Stadium for the

official memorial service paying tribute to this outstanding leader and unifier.

Political campaigning This is also the time when the country is gearing up for its general elections early this year and campaigning is in full swing.

Nelson Mandela’s passing comes at a time when the ruling party, the African National Congress (ANC), is struggling with internal division, a seeming lack of direction, and controversy. Ongoing skirmishes between the ANC and its alliance partners – the South African Communist Party (SACP) and the Congress of South African Trade Unions (COSATU) – as well as violent industrial action, have had a negative imp ac t on inve st or s’ se nt ime nt and have stif led much needed economic growth. Madiba’s passing may be a great

Features

chance for the ANC to return to the movement’s ideals and principals of non-racialism, non-sexism, and unity and to overcome its internal division.

The Johannesburg Stock Exchange (JSE), usually quick to respond to news of this magnitude, was unmoved by this historic eve nt . S imil arly, t he S out h Afric an rand, recently haunted by volatility and weakness, remained steady following the announcement of Mandela’s death and even strengthened slightly. Yet it will be more telling to look beyond any short-term flickers in the market and consider the medium, and long-term impact Mandela and his legacy will have on Africa’s second largest economy.

Impact It is too early to tell whether Madiba’s departure will have the same impact the birth of democracy in South Africa had in the early 1990s. At that time civil strife was rife and South Africa’s economy was down on its knees, brought down by ever tightening sanctions against the apartheid state. Mandela’s release from prison in 1990 and his election as the first democratic South African President in 1994 marked a turning point in the country’s history. Through his unique ability to bring people together and to spread a message of forgiveness and reconciliation, President Mandela achieved t he seemingly impossible:

Madiba’s passing may be a great chance for the ANC to return to the movement’s ideals and principles of non-racialism, non-sexism, and unity, and to overcome its internal division.

Corporate Africa 2014

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Features uniting a deeply divided nation. Under the extraordinary leadership of President M ande l a , t he count r y – once c alled a p ar i a h s t at e d ue t o i t s r ac i s t a nd inhum an policie s and l aws – quick ly turned into the darling of the world with investors flocking to the country.

Despite the great achievements since the country’s transition into democracy, South Africa’s long walk to true freedom – economic and social freedom – is far from over. A mammoth task lies ahead of the government to restore the confidence in the country and its economy. The unifying power of Madiba even in his death may prove to be the much needed impetus for South Africans to once again put

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Corporate Africa 2014

South Africa’s long walk to true freedom – economic and social freedom – is far from over.

their differences aside and work toward the common goal of realizing a more prosperous and more equal South Africa.

This will help to restore confidence in the economy and will calm investors’ concerns about the future of the country.

Today it may be business as usual in most offices and companies across South

Africa, but there seems to be a common commitment among South Africans to honor Mandela’s legacy by keeping his principles and the beliefs he fought for alive. While I do not expect to see massive changes on the surface, I do believe that, after losing this giant among us, South Africans will reflect on Madiba’s legacy and will strive to continue his fight for a better and more inclusive South Africa.

It is unlikely that South Africa’s political parties will rewrite their political agendas ahead of the general elections or that the fundamentals of the economy will radically change in the short, to medium-term; but hopefully Mandela’s legacy will continue to guide the country in the long run.

EMMANUEL ESSIS ELECTED HEAD OF IVORY COAST NETWORK SPEAKING AGENCIES FOR INVESTMENT PROMOTION (RIAFPI) Ivorian Emmanuel Essis, Director General at the Centre for the Promotion of investments in Côte d' Ivoire (CEPICI) was elected to head the International Francophone Network Agencies for Investment Promotion (RIAPFI).

Following a General Meeting held on Monday 17 March 2014 in Abidjan, Emmanuel Essis was elected to head the Network by his peers for a term of five years. He is the first president elected to head the Network.

Mr. Essis’ mission will, among other things, put into practice recommendations established during the Abidjan meeting, including the constitution for the Network, rules of procedure, and to set-up its governing bodies.

It also includes negotiating an agreement with the Republic of Côte d'Ivoire for the Network to have a joint headquarter with the State.

According to Mr Emmanuel Essis it involves convincing the state to work with RIAPFI in relation to budget , and to look for funding and partners to promote investments in the Francophone region.

The RIAPFI consists of 16 countries, including Morocco , Congo Brazzaville , Guinea, France, Belgium , Comoros, Senegal, Mali , Burkina Faso, Cameroon, Niger , Mauritania, Burundi, Lebanon, Benin and Tunisia. It also includes three organizations; African Development Bank ( AfDB), International Organization of the Francophonie ( OIF), and United Nations Industrial Development Organization (UNIDO)

Avenue Abdoulaye Fadiga,16ième Etage, immeuble Belle Rive - Plateau - Côte d’Ivoire | contact: +225 20 31 14 00 | www.cepici.gouv.ci

Industry Features Technology

Eskom’s new build program As South Africa’s population booms and the city becomes a financial hub representing the largest economy in Africa, the demand for power and electricity is steadily growing. Eskom executives describe how they plan to provide for the increasing demand for electricity.

S

ince the inception of its build program in 2005, Eskom has shown it can deliver the new electricity infrastructure which South Africa needs to support economic growth and development. Eskom’s nominal generating capacity in 20 05 was 36.2 GW. The new build program will increase this by 17.1 GW by 2017/18. By 31st March 2013, Eskom had delivered 6017 MW of new generation capacity as well as 4686 km of new transmission network and 23775 MVA of substation transformers.

Eskom is currently building two new large coal-fired stations: the Medupi coal-fired power station in Lephalale in the Limpopo Province and the Kusile coal-fired power station near eMalahleni in the Mpumalanga Province. On top of this, the new pump storage scheme, on the border between the Free State and the KwaZulu-Natal Provinces, will add a further 10896 MW to the national grid, expanding Eskom’s current installed capacity by over 25 per cent by the time these projects are completed, and supporting higher rates of economic growth. These projects are faradvanced, with more than 80 per cent of the funding secured, most of the contracts already placed, and significant progress made on construction and implementation.

Eskom is committed to supporting the government ’s cle an and sust ainable energy objectives for the country and has geared itself toward meeting this o b j e c t i ve . Re n ew a b l e e n e r g y a s a generation source is one form of providing clean energy. Eskom has commenced the development of a 100 MW concentrating solar power plant in Upington in the N or t h e r n C a p e P rov i n ce , w h ic h i s

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expected to be commissioned in 2017.

In addition, the National Energy Regulator (NERSA) has granted a license for Eskom’s Sere wind farm, opening the way for construction to go ahead on the US$ 240 million project. The Sere Wind Farm Facility is located in a good wind resource area at Skaapvlei Farm near Koekenaap (Vredendal area) within the Matzikama

or 62.8 per cent of the total contract values awarded in the build projects.

These projects are faradvanced, with more than 80 per cent of the funding secured, most of the contracts already placed, and significant progress made on construction and implementation.

The build program has faced challenges since its inception, but significant progress has been made. Medupi is the first of two large new power stations due to come online and Eskom has been transparent about the risks to delivery, indicating earlier in 2013 that labor unrest and under-performance by key contractors put the timelines at the project in question.

Unit 6, which is the first of Medupi’s six 794 MW units, was due to deliver first power to the grid by the end of 2013.

M u nic i p a li t y, i n t he We s t e r n C a p e Province. The project is due to be in full commercial operation by the end of 2014.

E s ko m’s i n f r a s t r u c t u re i nve s t m e n t program is unparalleled in South Africa and has yielded tangible benefits in terms of job creation, skills development , and the development of local supplier i n d u s t r i e s . T h e r e a r e n o w 3 5 , 7 59 individuals working on new build project sites, of whom 16,100 are employed from the local districts. Since the inception of the build program 6851 individuals have completed their skills development training and 2763 are currently in training.

Since the inception of the respective new build projects, the total local content c o m m i t t e d b y t h e E s ko m s u p p l i e r network amounted to US$ 850 million,

Eskom Chief Executive Brian Dames claims, “In line with government policy, we are not just investing in the physical infrastructure which South Africa needs to enable higher rates of economic growth but we are also building a legacy of skills and industrial development for the country.”

However, Eskom earlier communicated that critical technical challenges need t o be re solved in orde r for U nit 6 t o b e g i n p r o d u c i n g p o w e r. T h e s e technical challenges relate to welding on t he boilers and t he control and instrumentation systems for the units.

Improved labor agreements Significant progress has been made to restore ef fective labor relations on site since March 2013. In June 2013, E s ko m , t he con t r ac t or s , a nd l a b or signed an innovative new Par tnering Agreement, which sets the basis for an

Eskom has engaged with the global leadership of Hitachi and Alstom to resolve the technical issues on the boiler and, control and instrumentation contracts, and has put significant skills and resources in place in an effort to ensure performance by the contractors, as well as pursuing contractual remedies.

In its update on July 8th 2013, Eskom confirmed that the December 2013 target date was unlikely to be met. The power utility announced that a more realistic target for the first synchronization of Unit 6 to the grid was the second half of 2014. This was based on in-depth independent and internal assessments of

Since the inception of the respective new build projects, the total local content committed by the Eskom supplier network amounted to US$ 850 million. the project which Eskom had undertaken.

Once Unit 6 is online, the remaining five units of Medupi will be brought online at intervals, so that the entire power station should be fully commissioned by 2017.

Eskom is using an integrated approach to managing schedules, budgets, and risks associated with the capacity expansion program. This involves lessons learned and putting in place procedures, tools, and systems to improve the effectiveness

Features Industry Technology

effective partnership and should bring stability and improved productivity.

and efficiency of all capital programs.

These include instituting a project life - cycle methodolog y and project development and readiness assessment.

Eskom is working with stakeholders to ensure security of electricity supply despite the Medupi delay. “We remain determined to keep the lights on, with the help of all South Africans. This is being done with support from government. We expect to get more than 3800 MW of new capacity online by 2015, from Medupi, Kusile, Ingula, and our Sere wind farm.

We have had the program and the costs independently reviewed. We are working very hard indeed to make sure that we deliver, and we have the commitment of the major contractors to achieve our goals,� Dames said.

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Industry Features

Kosmos Energy in Ghana Darrell L. McKenna, Chief Operating Officer at Kosmos, describes the difference the oil sector is having on the Ghanaian economy.

A

t Kosmos E nerg y our most successful project to date is the 1 billion barrel Jubilee Oil Field offshore Ghana; which in 2013 will produce an average of over 100,000 barrels of oil per day. The oil, discovered in 2007, has allowed Ghana to record an average annual economic growth rate of 6.7 per cent between 2007 and 2012, making it the third highest growth figures in Africa.

As a business, Kosmos has committed to operating ethically, transparently, and consistently within industry best practices.

Corporate responsibility is one of the core elements of our business strategy because we recognize that development of hydrocarbon resources can have profound implications for producing countries.

Immediately after the successful discovery 16

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offshore Ghana, the company sought to make early strong footprints in its areas of operations, beginning with the six front-line districts along the coast of the Western Region in Ghana. Aside from the financial benefits of the discovery, Kosmos was determined to play its part in creating a long-term legacy by helping to build mechanisms contributing to transparency, good governance , c ap acit y building , respect for human rights, and stakeholder engagement. It is a vital element of our

Community ownership is key to ensuring sustainability of projects.

strategy to be seen by governments, other international oil companies, and local stakeholders as the partner of choice.

Education, health and ICT With its local expertise (99 per cent Ghanaian staff in the Accra office) Kosmos chose to take a different approach to stakeholder engagement, using a traditional G h an ai an me t hod of announcing it s presence in the region and then commence its stakeholder engagements– what is referred to as the Knocking Process.

Traditionally, this involves carrying along gif ts to the hosts or custodians of a community (local Chieftains and tribal leaders) to introduce the company and announce its aims and objectives. This

Features Industry

was accomplished by first identifying and consulting with key stakeholders on two priorities – Health and Education – to anticipate pressing needs of the communities across the board. The outcome was a series of projects that achieved success in a very short timeframe.

The company’s desire to build capacity began with a contribution of US$ 10,000 for the Western Regional Education Fund for educational development in 2008.

This also included a donation of over 22,000 text books and books for leisure reading, worth over US$ 50,000 in 2009 to deprived schools in the Western Region from pre-school to senior high.

In October 2010, the reconstruction of 40 -meter perimeter fence for the Sekondi secondary School for the Deaf at Nchaban in the Shama District of the Western Region was built to ensure adequate security for the school. This request, made by the school to Kosmos, is typical of the company’s desire to listen to the needs of the communities and be a contributing partner in society.

In suppor t of the health sector, the company provided incinerators and blood banks to major hospitals in Western Ghana. A major project to support capacity and easy access to health was the provision of a 22-seater fiber glass boat to the Regional Health Directorate for medical outreach programs. This boat allowed the Health Service to reach out to 100 communities living around the Abby Lagoon with healthcare needs.

F ro m 2 011, Ko s m o s E n e r g y b e g a n to move toward fully implementing and supporting projects which aimed to build capacit y and provide longterm economic opportunities. These projects are carefully sourced with the collaboration of all key stakeholders, including women and other marginalized groups. For example women in Beyin, Atuabo, Jomoro, and Ellembelle Districts respectively decided on the location of the water vending stations across the communities and the retail cost of the water. The youth in these communities were in full support and contributed to

the projects through manual labor, which included digging trenches and laying pipes.

The oil, discovered in 2007, has allowed Ghana to record an average annual economic growth rate of 6.7 per cent between 2007 and 2012, making it the third highest growth figures in Africa.

The company believes that it is paramount to consult with all stakeholders if it is to truly gain the social license and build longterm relations with the community. These projects are ultimately designed with longterm sustainable growth in mind; therefore community ownership is key to ensuring sustainability of projects. One such key project was the total rebuilding of a derelict building used by the Chest Center of the Axim Hospital, into an Emergency and Accident Unit.

Subsequently, three ICT centers have been built fully equipped to serve the ICT training needs of schools. Women in two communities have benefited from improved fish smoking ovens and capacity building in basic bookkeeping and business management in the Ellembelle. The initiative is to help prevent post harvested losses during the fishing peak season and also to provide a sustainable business environment.

Another hallmark project is Kosmos Energy’s collaboration with Safe Water Network in a three year (2012- 2014) water project in three phases, to communities spanning across the coast of its operational districts. Upon completion of the project we anticipate that more than 20,000 people in the various communities will benefit from clean drinking water. In addition, the water filtration plants will belong to the communities, provide work for the local communities, and generate income for the maintenance of the plant. Already a first phase of the project, a Modular Ultra filtration water treatment plant, provides a

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Industry Features minimum of 100,000 liters per day of clean drinking water to about 6000 people. A number of communities such as Beyin have already begun to see the demonstrable benefits of this project. The second phase of the water project which will benefit nine more communities began in September 2013 and it is expected to take approximately 12 months to complete.

Environment and safety Kosmos E ne rg y conduc t s oil and g as activities in a manner sensitive to the environment , oper ating in accordance with the highest industry and international environmental standards.

All field operations are subject to a r i goro u s e nv iro n m e n t a l a nd so c i a l imp ac t a sse ssme nt and are c arried out under a det ailed environment al management plan. Kosmos is a member of the Oil Spill Response Group reviewing new standards to mitigate the risks around of fshore oil spills.

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In 2011 the Ministry of Environment, Science, and Technology in collaboration with Kosmos Energy Ghana undertook study of Capacity Needs assessment of the Oil and Gas Sector. The study identified ten high level need categories and specified 57 actions needed to make progress on strengthening the governance and regulatory systems to better manage future oil and gas activities. The intent was to use the Assessment and associated Capacity Building Plan as a needs-based foundation for building Ghana’s capacity to better govern the environmental and social concerns associated with it s oil discover y and production.

key capacity building efforts. An example is the modern Jubilee Technical Training Centre at the Takoradi Polytechnic.

Jubilee Partnership – social investment initiatives

In addition, the Enterprise Development Centre is an initiative by the Ministry of Energy and Petroleum and supported by the Jubilee Partners. The facility aims to introduce local SMEs to international

Kosmos Energy is an integral part of the Jubilee Partnership (led by Tullow as operator, Anadarko, Ghana National Petroleum Corporation, and Petro SA).

A similar focus is maintained – supporting

This is a joint initiative of the Jubilee Partners to provide hands-on technical training for Ghanaian nationals in the fields of Instrumentation, Mechanical, Electrical, and Process Engineering ( Technician Level) at the Takoradi Polytechnic (Western Region, Ghana).

The Centre is internationally accredited, o f f e r i n g Vo c at i o n a l Q u a l i f i c at io n (VQ2) training that is sustainable and meets the required health and safety standards requirements of such a facility.

business practices, deeper understanding o f p ro c u re m e n t p l a n s , t e n d e r i n g

processes, and tender writing along with business planning and development skills.

The aim is to create an internationally competitive platform for the supply of equipment and materials, as well as provision of services to the oil and gas industry in Ghana. Kosmos Energy and its partners believe that this is a way of contributing to the safe and sustainable development of the local and national economy of Ghana.

Ultimately it will be achieved by promoting and developing the skills of local suppliers to make way for their participation in the oil and gas supply chain in the country.

Future outlook In just a decade in Ghana, Kosmos Energy has demonstrated that it aims to be as good above the ground as it is below. These projects (both Kosmos Energy specific and

Upon completion of the project we anticipate that more than 20,000 people in the various communities will benefit from clean drinking water.

Jubilee Partnership projects) show that corporate responsibility is a central tenet of our business model, not an add-on.

As its continued commitment to stakeholders, Kosmos recently published its Business Principles, which articulate the company’s commit me nt to tr ansp are nc y, et hics , human rights, safety, and the environment in all areas of operation. They are based on widely accepted international benchmarks

and industry best practice, such as the Extractives Industries Transparency Initiative (EITI), the Voluntary Principles on Security and Human Rights, and the United Nations’ Guiding Principles on Business and Human Rights. Kosmos also recently published its first annual Corporate Responsibility report.

Kosmos Energy hopes to continue to build a long-term legacy. We are proud to have played a part in the development of this nation’s economy, and we are committed to being a responsible corporate citizen.

We have already seen the energy industry grow significantly since our discovery and we hope that this can lead to a more robust long-term growth in the economy. Ghana is one of Africa’s shining lights and, for Kosmos, we hope to continue supporting its people as they move forward.

Industry Features

CARBON TAX PROPOSAL As South Africa grows and becomes more industrialized, the nation must keep in line with global climate change policy. The South Africa Petroleum Industry Association analyzes the necessity and implementation process of a controversial proposed carbon tax law.

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Complex implementation Implementation of a carbon tax as proposed for the crude refining sector will be extremely complex and must be developed in tandem with emissions data and other carbon policies to avoid unintended consequences.

SAPIA recommends the adoption of well-defined policies that are phased in over time and are designed with the input of all stakeholders. Iterative consultation is critical for energy policies that have such a significant impact on the fabric of South African life. SAPIA

is concerned that the current plan and schedule for policy development and adoption is not adequate for consideration of the potential consequences.

Research During the past 12 months, SAPIA has been engaging with the Department of Environmental Affairs (DEA) on the implementation of the National Climate Change Response White Paper.

As part of the implementation, DEA commissioned DNA Economics to consider how quantity based instruments could be combined with a carbon tax to support the effective and efficient achievements of desired emission reduction outcomes (DEROs).

A carbon budget approach and a carbon tax should be designed simultaneously.

This study has been completed and the findings have been adopted by DEA. The principle conclusion of the study was that “ideally the instruments that are to be implemented jointly in an inter face between a carbon budget approach and a carbon tax should be designed simultaneously.”

Features Industry

T

he South African Petroleum Industry Association (SAPIA) recognizes the need for South Africa to move to a climate-resilient, lower carbon economy and is committed to working with government and other stakeholders to develop appropriate policies aimed at facilitating this transition. In order to coordinate the petroleum industry’s inputs into the various aspects of climate change policy, a carbon tax proposal needs to be considered. The climate change policy landscape is complex and it is clear that interventions need to be implemented gradually with iterative stakeholder engagement to avoid unintended consequences.

for sectors and sub-sectors. In SAPIA’s view, it is not possible to develop the detail of a carbon tax until this process has been completed because the carbon tax policy will be informed by the DEA report. We encourage the use of sound technical data in the development of energy policy to form a strong basis for reasonable targets.

DEA has also committed to establishing a national system of data collection to provide detailed, complete, accurate, and up-to-date emissions data in the form of a Greenhouse Gas Inventory and a monitoring and evaluation system to support the analysis of the impact of mitigation measures. In the policy paper, National Treasury (NT) acknowledges that the best option is to impose the levy directly on the actual emissions of GHG or CO2 equivalents and has chosen to use a fossil fuel input tax as a proxy for directly measured GHG emissions.

Burning fossil fuels At present, GHG emissions from conventional crude oil refineries are not separately reported in the National GHG inventory; they form part of the consolidated emissions for manufacturing industries and construction. In the absence of measured GHG emissions, it would be necessary to use a fossil fuel input tax for this sector.

DEA is currently engaged on a process to identify greenhouse gas (GHG) mitigation potential in the economy as a precursor to developing DEROs

IN SOUTH AFRICA

Corporate Africa 2014

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Industry Features

A proxy tax on crude oil inputs would not be appropriate for the sector as more than 90 per cent of the carbon in crude oil is transferred to the products and cost recover y across a r ange of products (petrol, diesel, jet fuel, bitumen, fuel oil) would be extremely complex and potentially impracticable for some products. An unrecovered prox y ta x would impose a sufficiently high cost to close down the refining sector in South Africa. In South Africa, gasoline prices are regulated and the regulator would need to be involved in determining the level of passthrough if any. A proxy tax on fuel inputs would require the development of accurate and audited energy use data. The sector’s recent experience using Department of Energy fuel use data in the DEA mitigation potential analysis was that more work is still needed before this data could be used as a basis for tax determination.

In addition, a number of SAPIA members h ave e x pe r ie nce w it h t he E urope an Union Emission Trading System (EU ETS).

The EU ETS Phase 1 pilot showed that effective carbon policy must be based on a country-wide emissions inventory. The inventory and covered industry emissions are needed to set the environmental target and thus an accurate, high-quality GHG reporting system must serve as the basis for any regulatory regime. Without several years of a quantified countrywide inventory, it would be impossible to measure the progress made toward GHG reductions. It is therefore clear that implementation of the tax should be delayed at least until the appropriate means to measure the tax-base are implemented.

The Z-factor A key positive feature of the carbon tax design is the proposed application of the Z-factor to reward and incentivize improvements in carbon intensity. The Z-factor methodology requires that a benchmark is developed for a sector against which actual performance can be measured. Development of a benchmark for the refining sector in South Africa would be extremely complex as each refinery has a different configuration and, as a result, the benchmark energy use per unit of crude input will vary from refinery

Iterative consultation is critical for energy policies that have such a significant impact on the fabric of South African life.

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Corporate Africa 2014

to ref iner y. The use of a complexit y weighted ton (CW T) as the basis for benchmarks in Europe can be introduced.

This approach was specifically developed

by CONCAWE and EUROPIA over the course of two years and is owned by them for use in Europe only. In order to allow comparison of different refineries in South Africa, a similar methodology should be developed in consultation with SAPIA. A carbon tax on the crude refining sector will not result in material GHG reductions because the sector is a small contributor to over all RSA GHG emissions with limited mitigation potential. To date, the small contribution of the crude refining sector has been hidden because GHG emissions from conventional crude oil refineries are not separately reported in the National GHG inventory; they form part of the consolidated emissions for manufacturing industries and construction.

As part of the DEA mitigation potential analysis study currently being concluded, Scope 1 emissions for the crude refining sector were estimated at between 3 and 4 mtpa for 2010, which is less than 1 per cent of South Africa’s total GHG emissions.

In a typical crude oil ref iner y the m a j o r i t y o f d i r e c t ( S c o p e 1) G H G emissions are associated with the combustion of fuel oil, fuel gas, and fluid, catalytic cracker (FCC) coke used in the production of finished refined fuels.

Investment Producing ref ined products requires very specific manufacturing processes that require energy as an input. In order to operate as ef f iciently as possible, all refineries continuously monitor the amount of energ y used and work to minimize the energy consumed. As an additional incentive, energ y is mainly sourced from the crude oil feed and any reduction in usage is directly reflected as an increase in total product yield.

Planned reductions in emissions of sulphur dioxide (SO2) have resulted in refiners maximizing the use of more GHG efficient fuel gas over fuel oil to the extent that fuel forms less than 10 per cent of the direct fuel use and the potential for further feed switching is severely limited.

I m p r ove m e n t s i n e n e r g y e f f i c i e n c y are already incentivized through high energy prices, the targets articulated in the National Energy Efficiency Strateg y (NEES), and existing tax

It is therefore clear that implementation of the tax should be delayed at least until the appropriate means to measure the taxbase are implemented. rebates. South African refineries have limited additional mechanisms by which t o f u r t h e r re d u ce t h e ir e n e r g y u se a nd cor re s pond ing G H G e mi s sio n s .

Even an improvement of 10 per cent in energ y ef f iciency and hence GHG intensit y would be considered to be an e x t re me ly ch alle nging t arge t , and there are practical and technical limitations to much higher reductions.

It is therefore unlikely that the imposition o f a c a r b o n t a x wo u l d s i g n i f i c a n t l y increase focus on energy efficiency in this sector and drive any additional GHG mitigation. Rather it could have a negative impact by diverting financial resources away from GHG mitigation projects.

Threat to the sector The increased costs introduced by this proposal and several new regulatory schemes represent a threat to the economic viability of the sector.

South African refineries are important both to the overall economy and fuel su p p l y se cur i t y of t he n at io n . T h e pro p ose d c ar b on t a x t hre at e n s t he ongoing viability of the South African ref ining sector and the signif icant contribution it makes to the economy.

Local ref ining plays a key role in the per formance of a region’s economic infrastructure. The fuel supply chain and energy security are strengthened with in-country refining capacity. This is particularly important in South Africa w he re re source e x t r ac t io n a nd t he movement of goods represent major sectors of the economy. The South African refinery sector supports South Africa’s need for a safe, cost-effective, and reliable supply of transportation fuel. South African crude ref ineries supply about 60 per cent of South Africa’s fuel requirements and almost all the sector’s production is sold within South Africa. This fuel is manuf actured in South Africa and marketed to local consumers – industrial, commercial, and retail. Less than 10 per cent of South Africa’s fuel supply

Features Industry

is manufactured outside of South Africa and imported into the country.

A sig n i f ic a n t p or t io n o f re f i n i ng investment is spent on locally sourced goods and labor. The South African ref ining sec tor has made signif icant c apit al invest ment s at the refineries including significant environmental, infrastructure, and process upgrades required to produce cle aner fue ls in t he re ce nt p a st .

Cost-efficiency In an industry with historically tight margins, a ref iner y must be costefficient to be viable. South African ref inerie s f ace a number of cost pressures including rising labor costs, the costs of ongoing replacement and maintenance of refinery equipment, and costs to comply with new minimum emission standards under t he A ir Qu alit y Ac t . Ch anges to clean fuels st andards, strategic stocks, biofuels, and a number of other initiatives have added to these cost pressures. In addition to the direct cost pressures, compliance to minimum emissions st andards, clean fuels legislation, and mandatory blending of biofuels all require refineries to work harder generating more scope and GHG emissions.

It is important that the impacts of the cumulative costs on this important sector are t aken into account .

Disadvantage While the refineries must continue to make essential investment into t heir oper ations , t he carbon t a x could put South African refineries at a fundamental competitive d i s a d v a n t a g e f o r i nve s t m e n t v s . investment opportunities in other jurisdictions. Once a refinery is no longer continuously upgraded, its economic performance deteriorates, f ur t h e r d e c re a si ng i t s e co n o m ic

South African refineries have limited additional mechanisms by which to further reduce their energy use and corresponding GHG emissions. competitiveness. When a refinery is faced with reduced capital investment and increased marginal cost from a carbon tax point of view, its ability to continue operations is threatened. Oil refining is a highly competitive industry.

The business model for conventional crude oil refineries relies on the margin between finished products and crude oil feedstock. Crude refining margins are set by international crude and product prices and are extremely narrow. The BP Statistical review of World Energy 2010 gives historical cracking margins from 1992 to 2010. During that period, northwest Europe cracking margins and Singapore

and Dubai hydro-cracking margins, which form the ultimate basis for the regulated price averaged only US$3.60/ Bbl. (R0.22/liter) of crude processed.

C a r b o n t a x p ro g r a m s r e l y o n t h e influence of increased prices to cause consumer and business shifts to lowercarbon alternatives. Some 90 per cent of the carbon contained in crude oil is ultimately passed to end consumers in the finished product. However, with the regulated nature of fuel prices based on import parity pricing, there is no mechanism for the final fuel consumer to experie nce price incre ases t hat re f le c t t he c ar bon t a x and modi f y b e h av i o r t o r e d u c e c o n s u m p t i o n .

Consumers of transportation fuels will already face considerable upward price pressures from proposed additional levies for strategic stocks, clean fuels, and biofuels. It would not be unreasonable to expect push-back from the regulator if an additional levy were requested to recover a carbon tax.

South African refineries are important both to the overall economy and fuel supply security of the nation.

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Industry Features

Mozambique’s resource potential Mozambique’s resource potential presents significant opportunities for energy diversification and for BRICS. According to Sasol, it is one of the biggest potential market for energy in the world, and its gas fields will lead to a greener Africa.

A

t a meeting of Southern African Development Community (SADC) Ministers of Energy held in April 2013, the point was made that, as of 24 April 2013, the Southern African Power Pool (SAPP) had an available capacity of 51,702 MW against a demand of 53,833 M W inclu sive of pe ak de m and , sup pressed demand, and reserves, giving a regional capacity shortfall of 7709 MW. At the same meeting, the Mozambican Minister of Energy, the Honorable Salvador Namburete, noted that over the past 20 years there has been limited investment in the regional power sector and that the SADC region lags behind other regional economic communities in Africa in terms of energy and electricity access. He indicated that Mozambique was investing in a number of power projects which would contribute to regional generation capacity.

Mozambique Basin gas fields Many of these projects are based on gas from the Mozambique Basin in the south of the country in Inhambane province, where the natural gas fields were techni24

Corporate Africa 2014

cally stranded for over three decades due to lack of markets and infrastructure, and prevailing political conditions.

Sasol, a South African-based international integrated energy and chemical company, together with its partners, the Companhia Mocambicana de Hidrocarbonetos (CMH) – the Mozambican vehicle for participation in the project – and the International Finance Corporation, helped to pioneer the monetization of the gas fields. This was achieved through the development of the Pande and Temane gas fields and the construction of a Central Processing Facility (CPF) in Temane, Inhambane province. Here, the gas is cleaned and dried before the bulk is transported through an 865-km pipeline to Sasol’s gas distribution network in Secunda, South Africa.

Access to energy is one of the most important vehicles for poverty alleviation and a key enabler for overall economic growth.

“Mozambique lies at the hear t of our operations in Africa and we value our relationship with our stakeholders and the significance of our activities in the country. Along with our partners, we are proud to have played a role in facilitating a new era of development, which began in 2004 when the CPF came on stream. We are the only company to have monetized g as in Moz ambique . The g as projec t not only had a positive impact on the Mozambican economy, but also provided the basis for the development of a gasbased industry in-country and broadened the energy supply mix in Southern Africa,” said John Sichinga , General Manager, Development and Production Africa , S a sol Pe t role um I nte r n at ion al (S PI).

In 2012 , the capacity of the CPF was increased to 183 MGJ/a of natural gas, from its initial design capacity of 120 MGJ/a, in order to meet increased market demand in Mozambique and South Africa.

The additional gas has opened up a number o f p owe r ge n e r at io n o p p or t u n i t ie s .

A mong t he se i s t he Re s s a no G arci a Thermal Power Station (CTRG) which will produce 150 MW of electricity annually for

Features Industry The gas project not only had a positive impact on the Mozambican economy, but also provided the basis for the development of a gasbased industry in-country and broadened the energy supply mix in Southern Africa.

Traditionally gas has significant advantages: G a s e m i t s 4 0 p e r ce n t l e s s c a r b o n dioxide than coal for the same amount of e ne r g y prod u ce d . I t ’s a l so m ore flexible and cleaner burning than coal and can be used in conjunction with a renewable source, such as wind or solar power, to supply a const ant source of energy to the grid. In addition, gas allows us to preserve the region’s coal resources much further into the future.

BRICS, involvement power generation in Mozambique. The CTRG, currently under construction at a cost of US$ 246 million, is 51 per cent owned by the state-owned power utility, Electricidade de Moçambique (EDM), and 49 per cent by Sasol New Energy (SNE). When finished, the CTRG will be Mozambique’s largest thermal power plant and the second largest in Africa.

Gas emits 40 per cent less carbon dioxide than coal for the same amount of energy produced.

There are significant opportunities in the region, not just because access to energy is one of the most important vehicles for poverty alleviation and a key enabler for overall economic growth, but because of the opportunities the development of the energy infrastructure in Mozambique holds. The entire Southern African Development Communit y (SADC) region represents a combined m arke t of over 250 million people .

This opportunity is heightened by the

Southern African Power Pool, which is one of the largest interconnected grids in the world, linking the power networks of twelve countries in Southern Africa.

Temporary power provider Aggreko and its joint-venture partner Shanduka have also availed themselves of the additional gas. In July 2012 , this joint venture began operating an interim gas power plant which has been supplying power to EDM for national energy requirements in Mozambique and to the South African utility Eskom. From the end of August 2013, the joint venture began supplying 122 MW to Namibia. Under this agreement, the Aggreko power will reach Namibia on tr ansmission lines owned by the Mozambican and South African electricity companies, EDM and Eskom respectively.

The distance involved is 1500 kilometers.

The benefits of gas in energy diversification Gas is helping the SADC region make the transition to a low-carbon economy – a point which has been recognized in South Africa’s National Development Plan (NDP) 2030 which calls for “incorporation of a greater share of gas in the energy mix.”

There have been game - changing d i s c ov e r i e s o f c o n v e n t i o n a l g a s i n Areas 1 and 4 in the offshore Rovuma B a s i n t o t h e n o r t h o f M oz a m b i q u e

by U S - based Anad arko Petroleum Corporation and the Italian integrated e n e r g y co m p a ny, E n i , r e s p e c t i ve l y.

According to Gas Investing News, current estimates are that the Rovuma Basin holds over 150 trillion cubic feet (tcf) of gas in place, although this figure continues to change as new discoveries are made – the most recent being at the beginning of September 2013 in Area 4 by Eni. In December 2012 , Anadarko and Eni signed a heads of agreement that allows for coordinated efforts in developing an LN G pl ant in t he C abo De lg ado province of northern Mozambique. The plant will receive gas from the offshore fields and pre-treat and process it in preparation for storage and expor t .

Most of the g as from the Rovuma Basin will be sold on the international market , and Asian countries, including I ndi a , h ave alre ad y bee n i de nt if ied a s it s prim ar y cu s t omer s .

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Global investments Recently Indian companies ONGC Videsh Ltd, (OVL), the overseas arm of Indian state-owned Oil and Natural Gas Corp (ONGC), and Oil India Limited (OIL) announced the joint acquisition of a 10 per cent stake in Mozambique’s offshore Rovuma Area 1 from Videocon for US$ 2.48 billion. OVL followed this deal with the acquisition of another 10 per cent stake in the same field from US energy firm Anadarko Petroleum for US$ 2.64 billion.

According to the US Chamber of Commerce, the northwestern Mozambican province of Tete is regarded as the largest undiscovered coal province globally, with an estimated output amounting to 25 per cent of the world’s coking coal by 2025. Brazilian company Vale is currently mining coal in Tete province while in 2012-13, Indian imports of Mozambican coal amounted to US$ 179.63 million.

Vale is also the main investor in the multi

million-dollar 912-km long railway line linking Tete province to Nacala port in Nampula province, passing through Malawi.

The northwestern Mozambican province of Tete is regarded as the largest undiscovered coal province globally.

Hydropower is another important power source for Mozambique. The US $2 billion Mphanda Nkuwa hydropower plant project on the Zambezi River, downstream from the Cahora Bassa Dam, is key to the government’s electrification strategy and is due to be completed in 2017.

Owned by a consor tium including EDM, Mozambican holding firm Insitec, and B r a zili an construc tion comp any Camargo Corrêa, Mphanda Nkuwa is

set to provide an additional 1500 MW in capacity to the region’s power pot, with 20 per cent to stay in Mozambique.

Significant opportunities The African Development Bank (AfDB) quotes the World Bank as saying that the emerging extractive industry could provide the means for Mozambique to reach the st atus of a middle -income country by 2025. The AfDB further states that the Mozambican economy maintained its robust performance in 2012 with a real GDP growth of 7.4 per cent. The bank is predicting growth figures of 8.5 per cent in 2013 and 8 per cent in 2014.

These growth rates, together with ongoing investment in the extractive industries, hold the key to the development and diversification of the region’s energy mix and infrastructure and represent significant oppor tunities not just for the SADC region, but for companies and countries with the vision to invest in Mozambique.

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Is Africa immune FROM Economic and Financial Bubbles?

An in-depth analysis of Africa’s immunity to financial bubbles,

by Fred Vacelet and Dorne Sowerby.

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t is now well understood, at least in micro-economic circles, that irrational e x u b e r a n c e i s p a r t a n d p a rc e l o f m arke t s . Ever since d at a h a s bee n collected analyses of economic data in the long term show evidence of bubbles. What is worrying is the frequency and intensity of these bubbles since World War II. Although we can no longer ignore the existence of bubbles, can we manage them? Are governments and central banks

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Financial and economic bubbles do offer opportunities to create vast wealth for the investors.

part of the problem, when they exist to offer solutions? Fiscal responsibility belongs to all governments, alongside allowing for robust economic activity.

The detection of bubbles formation, in order to apply policy measures to either dissipate or at least manage these bubbles, falls squarely within the governments’ purview. The most recent debacle has been the consequences of the great recession of 2008 to 2012, when Lehman Brothers

Asset bubbles are characterized by a period of exponential rise in prices followed by a sudden drop (and, in cases of commodities bubbles as seen from the sellers’ side, bubbles can occur downwards).

Commodity bubbles, the ones periodically experienced in Africa, and most recently gold, are most typically characterized by a sharp drop in prices, which are followed by shortages and subsequent price rises. Africa is far from being immune but , so far, the continent is not the driver of the bubbles but a forced participant, driven by the insatiable demand in the West and Asia for commodities.

and t he de ployme nt of v a st sums for quantit ative e asing, have seen currencies such as the US dollar and the pound sterling fall against other c u r r e n c i e s , a n d a f l i g h t t ow a r d s c o m p a n y s h a r e s i n t h o s e s t o c kmarkets. Is this the current bubble?

In many cases, investors are unaware of a bubble blowing, mostly due to misplaced knowledge emphasis. Bubbles similar to any other activity occur in phases. The phases of development of bubbles are build-up, development, and crash. Price figures and patterns tell the story, revealed by price changes, volatilit y, and auto - correlation of price changes. Connected data, which usually serve to predict or explain prices, follow rules of their own during the build-up phase of bubbles.

The build-up In this phase, prices do not yet increase a t a p h e n o m e n a l r a t e . Te n s i o n s accumul ate and unsee n be havior s

Commodity buyers feel that supplies have been ensured indefinitely.

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collapsed, resulting in huge national debts which are still being worked through today. Financial and economic bubbles do of fer oppor tunities to create vast wealth for the investors.

Preconditions include f irst- mover advantage, skills, and expertise, not to mention money to invest at the beginning and to ride the wave. The problem rests in our zero-sum capitalist model, which inherently means winnertakes-all and some people, usually those entering the markets when the wave is at its highest and about to crash, lose more than they should, if economic drivers remain unknown.

appear, together with a sense that risks have now been tamed. The mid-2012 report told us that gold prices could reach US$ 2000 per troy ounce by 2014, as stated by the investment and retail bank J P Morgan. Now, in 2014, gold hovers around the US$1250 per troy ounce market .

Analysts, market-makers, and other key figures in the financial sector make press announcements, which aid and abet bubble build-up. Production capacities do not show bottlenecks, and optimism reigns by buyers about unit prices consolidating and producers about production volumes alike . Co m mod i t y b u ye r s fe e l t h at supplies have been ensured indefinitely.

Development The development stage is the zenith of the wave, when prices are about to crash. Still, there are usually very glaring signs, if one cares to observe objectively.

Prices are usually high above the long t e r m t re nd , g i v i ng eve r y i nd ic at io n that current prices are not sustainable.

Moreover, the fact remains that there are too many buyers, but most investors and producers throw caution to the wind unwittingly due to the endowment effect and in the absence of rationality.

E xplanator y variables are extreme during the development phase. Investors prepare for a long period in which falling

Bubbles can be tracked Bubbles are not just breakdowns of time series data, which usually come from exogenous shocks or one-off events, such as natural disasters and political actions. Bubbles may be part of a deliberate government policy, such as an increase in home ownership in the United States of America under George W. Bush’s administration, or construction and building drives, as in China for the past 25 years.

Indeed, bubbles can be a reaction to other weaknesses in the overall economy. The present weak economies,

Africa is far from being immune, but so far the continent is not the driver of the bubbles.

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Features Finance African economies should use the income or royalties from mining in order to create other industries as part of a diverse economic superstructure.

commodit y prices will be normal.

Analysts, who had previously noticed with caution and interest the strange alarm signals during the build-up phase, use countless metaphors to explain why this time is different, and most commonly jump on the bandwagon at the very time when positions should already be unwinding. Investors and buyers are of the view that the market is rational and prices will continue their upward trajectory. There is the distinctive belief that so many market i nve s t o r s c a n n o t b e w r o n g . T h e problem is now to determine when the crash is about to occur. Exit strategies must be designed and rehearsed before the crash has been confirmed as then it is too late to exit without heavy losses.

Crash The initial trigger may be difficult to spot, but the exit cannot be delayed.

The reason can be sudden and come from a far-fetched area in the economic radar. The announcement of shortcomings in one sector of the economy results in the market reaction, and this can be sudden and brisk. The detection of what is normal market behavior within the trend, as opposed to a trend reversal and a crash, lends

Those who spotted the crash, and therefore exited on time, would have made pots of money.

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it self to cre ate we alt hy por t folio managers and investors. In other words, those who spot ted the crash, and therefore exited on time, would have made pots of money. As the market reverses, the experts who stuck too long to the old story lose credibility and reputation as well. Within the commodities sector, bubbles are easier to spot but it is hard to ascertain when the bubble will burst due to many determinants of the demand side.

Africa should diversify its economies Whereas bubbles in rich countries are more of ten than not caused by ce nt r al b ank s and governme nt policies, commodity bubbles are not unhe ard of within Africa . This is due to the inability of the region to be market-makers. The continental suppliers react to demand-pull factors

and generally suppor t rather than invest in mines to meet that demand.

The issue for African suppliers is to invest in other non-related activity in order to weather the weak demand, which inevitably will come. African economies should use the income or royalties from mining in order to create other industries as part of a diverse economic superstructure.

International markets, including the commodity sector, must have many more secrets or otherwise would have dried up when the theory of bubbles came up. Aspects of bubbles will survive unexplained as more academic research is needed in this area, and, painfully, more material losses are needed for market operators to believe that bubbles, like fire a few thousand years ago, can be tamed.

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Angola Land of Growth and Opportunities

By José Filomeno dos Santos, Chairman of the Fundo Soberano de Angola (FSDEA).

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f ter being plagued by ye ar s of stagnant growth (averaged at 2 per cent), 1043 per cent hyperinflation, and a damaging 35-year armed conflict, Angola emerges from the ruins as a dynamic and patent illustration of prosperity in Africa.

Today, all economic indicators point to a faster growth that has remained co n si s t e n t t hrou g hou t t he g l o b a l economic downturn. This is reaffirmed by its current GDP of 5.1 per cent for 2013, which confirms its fast-growing position among the economies of subSaharan Africa.

Since reaching peace in the early 2000s, a time when Angola’s soil was considered the second largest depository of antipersonnel landmines by several reports, the government has rolled out a widereaching de-mining and reconstruction program that has restored the roads, bridges, airports, hospitals, and schools once ravaged by the conflict. More recently, this program was extended to include the domestic provision of water and energy. Change in Angola is undeniable and has been happening at a fast pace, making the country a home to a booming economy with an increasingly important international profile.

A new IMF repor t suppor ts this observation. It states that out of the 45 nations in the region, Angola is one of only six whose GDP has risen by more than 5 per cent year on year, every year since 1995. Analysts from the IMF and the African Development Bank (AfDB) have predicted that it shall maintain this growth rate for several years to come. These strong growth figures 32

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occur at a time when the economy also benefits from a reduction in its inflation rate, which has been decreasing into single digits since 2012. These feats, combined with a stable exchange rate, support the view that the economic indicators are increasingly attractive for private investments. Oil output has, of course, supported this growth and it has continued to increase during the global recession. OPEC figures show that Angola’s oil exports increased by US$ 4.64 billion from US$ 67.31 billion to US$71.95 billion, between 2011 and 2012.

The FSDEA has attracted interest from investors from inside and outside of Angola due to its potential for economic diversification.

The oil backbone Although the oil industr y remains the back-bone of the economy, there is a cle ar trend toward economic diversification. This is underpinned by the fact that the non-oil sector is expected to grow by 7 per cent. This creates potential to increase employment opportunities and increase incomes of a significant number of Angola’s citizens.

Foreign Direct Investment (FDI) can also play a key role in diversifying our economy and the government has been granting various incentives to drive investment toward the more labor-intensive fields of farming and manufacturing. Incentives are also granted to investments that generate employment opportunities and enhance the nation’s productivit y, thereby increasing expor ts and supplies to the internal market with goods and services, while reducing the reliance on imports and improving the trade balance of the country. These measures

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have had a positive impact over recent years, which is noticeable through t h e i n c re a s e i n t h e l eve l o f F D I .

Foreign direct investment Today, international businesses and governments continue to demonstrate keen interest. For instance, in October 2013, the French government sent a delegation of French business leaders to accompany its foreign minister, Laurent Fabius, on a mission to seek investment opportunities in Angola.

These representatives included Air France, Airbus, BNP Paribas, and Total.

The latter has already invested US$ 12.3 billion in Angola in 2012.

Similarly, the U K’s Foreign Of f ice minister for Africa, Mark Simmonds, and International Development Secretary, Justine Greening, formally launched

Change in Angola is undeniable and has been happening at a fast pace.

impact on the overall economy of our country and will further strengthen economic cooperation and trade ties bet ween the United Kingdom and Angola.

Growth opportunities

the High Level Prosperity Partnerships (HLPP), together with the governments of five African countries. The program places Angola among the top f ive priority markets for investments in Africa for the United Kingdom. Through this partnership, the United Kingdom government aims to promote British investment into the key sectors of oil, gas, and agriculture and facilitate access to British expertise in financial services and education. The outcome of this program is likely to have a positive

These developments position Angola 7th in the top 10 of African countries with major private investments and 25th in the global league tables of 208 nations. It is reassuring to observe that most of these investments are focused on non-oil sectors and particularly aimed at t he count r y ’s re surge nt business infrastructure. However, more investments are required considering that Angola’s total investment rate remains at 13 per cent of its GDP, compared to the sub-Saharan Africa’s 3 year average of 24 per `cent. However, this also confirms that the opportunity Corporate Africa 2014

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Features Finance f o r g r ow t h , e s p e c i a l l y i n c a p i t a l investments, remains significantly high.

In 2012 , the government of f icially established Angola’s sovereign wealth f u nd , Fu nd o S o b e r a n o d e A n go l a (FSDEA), as the state’s investment arm with the aim of pursuing inbound and outbound investments that preserve capital and maximize the returns of a part of its reserves. Having its focus on supporting investments in commercial infrastructure and a US$ 5 billion legislated start-up endowment , the FSDEA has attracted interest from investors from inside and outside of Angola due to its potential for economic diversification and role as a catalyst for inbound investments. In 2014, the FSDEA shall allocate half of its funds to commercial investment opportunities in the non-oil domestic sectors such as infrastructure, hospitality, industry, and agriculture.

Clearly, it is the people of Angola who must benefit most from the FSDEA’s investment policy, and it has been essential to reflect this in the allocation of its assets approved by the government.

We understand that it is important for investors to have faith and confidence in the FSDEA’s strategy, particularly with regards to its transparency and governance. Therefore, materializing the governmental approval and disclosure of the Fund’s investment policy in June 2013, with the right system of checks and balances, was vital. More recently, t he government has appointed an external auditing company (Deloitte), whose responsibility is to independently 34

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assess the Fund’s performance. With this fr amework , the FSDE A can deploy the best investment practices to ensure future economic success.

Although we expect the FSDEA to continue attracting investor interest, it is essential to emphasize that it is not the primary conduit for investment into the country. Such responsibility rests with the Angolan National Private Investment Agency (ANIP), which assist s priv ate investor s in streamlining application procedures for investment licenses and financial incentives, on behalf of the government.

It is also the only accredited entity re sponsible for t he gover nme nt ’s private investment policy (national and FDI). In July 2013 alone, ANIP announced 24 new investment contracts worth US$ 14.4 million. Most of these contracts were linked to the industrial sector, services, and civil engineering.

The opportunity for growth, especially in capital investments, remains significantly high.

Thus today, Angola has a comprehensive platform for investment that is made up of 3 organizations with distinctive mandates that share aligned objectives.

The FSDEA is a significant element in this effort. It is now in a position to invest in projects that are aligned with the Fund’s investment policy. With its

focus on diversifying Angola’s economy, t he F S D E A i s ke e n t o wor k w i t h organizations from the non-oil sectors.

Agriculture, for example, is a sector t h a t h a s h i s t o r i c a l l y e m p l oye d a large number of Angolans and we expect that significant future private investments can play a role in reviving it.

These facts demonstrate that Angola has the ability to attract investments and suppor t domestic businesses.

The government’s priorities and the FSDEA’s mandate are clearly set out.

All recent developments support the view that the national authorities are working to maintain sustainable growth and attain prosperity, and we are incredibly excited to be part of an institution that can act as a catalyst for growth by investing in a manner that will offer a brighter future for all Angolans.

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Modernizing Africa’s market infrastructure Africa’s financial markets need modernizing in order to accommodate growing international investor interests. Bourse Consult’s senior partner, Hugh Simpson, describes the challenge.

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here is a paradox in many African countries. The need for investment to finance growth is enormous. International investor interest has never been higher. Yet there is a shortage of assets available to investors.

In many cases, the answer to the paradox lies in the structure of the f inancial markets of African countries, which too often lack the depth, breadth, and modern infrastructure necessary to meet the needs of international investors.

Based on work recently carried out by Bourse Consult of London and Genesis Analy tics of Johannesburg, we have identified a number of common patterns.

Securities markets Very often, securities markets lack depth of liquidity and breadth of offerings.

Features that were well suited to a developing local market are no longer appropriate for a market seeking to at tract international investors. The issue is not necessarily technical – many stock exchanges have modern trading technology – but market practices that fail to deliver liquid markets and that put up barriers to foreign investors, such as requirements to pre-position cash or securities in specific accounts before trading. However, change needs to be seen as part of a coherent program, as a change in one area depends on changes elsewhere to be successful.

For e x a m ple , m ar ke t liq uidi t y m ay be improved by introducing marketmakers and permitting shor t-selling.

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Features that were well suited to a developing local market are no longer appropriate for a market seeking to attract international investors. r e q u i r e s u p p o r t f ro m t h e a b i l i t y t o b or row se c u r i t ie s , w h i c h m ay de pe nd on re gul at or y ch ange s a s well as development s in market infrastructure to manage the process.

Increasing the number of listed companies available in the market is a longer-term project that requires educating smaller companies on the benef its of incorporation that may le ad to an eventu al public listing.

H oweve r, t he re is al so scope for creativity in developing fixed income vehicles to f inance infr astruc ture projects, which can be made attractive to international investors, for example, using depository receipts.

However, it is not sufficient to create at tr active investment s; investors need to feel conf idence in their abili t y t o se t t le t r an s ac t ion s and hold their assets. This is the role of securities depositories, but few outside South Africa achieve the standards expected by international investors.

The benchmark is full Delivery Versus Payment in central bank money. This means that between buyer and seller the exchange of cash and securities is simultaneous, so that there is no time when one par ty holds both assets and that payment takes place across accounts in the central bank,

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so that the seller is not exposed to credit risk on a commercial bank for the payment received. In addition, the ability of the depository to send and receive electronic instructions using international message standards adds to the attractiveness of t he market by reducing cost s.

Commodity and futures markets There is widespread interest across Africa in launching commodity exchanges. They can bring transparency to prices, helping to ensure that farmers, other producers, and consumers get fair prices. A natural development fro m s p ot com mod i t y e xc h a nge s is to deve lop commodit y futures exchanges, which make it possible for producers and consumers to protect themselves against the uncertainty of volatile commodity prices. Financial future s exch ange s are also being developed to enable businesses to hedge their exposures to movements in interest or exchange rates.

However, to function effectively and give participants confidence, these markets require sound infrastructure.

C o m m o d i t y m a r ke t s d e p e n d o n a ne t work of w are house s , w hich provide assurance on the quality of the commodities they accept and hold for storage. The receipts they issue enable producers to use the commodities in storage as collateral with a bank or sell them at a time of their choosing. They can only do this, however, if they can be relied on to operate to consistent standards and with high integrit y.

Fu t ure s m a r ke t s a l so d e p e nd o n sophisticated infrastructure. A contract may be entered into for settlement many months later, leaving each party exposed to the risk that the other may fail to meet its commitments when the time comes and that the price may have moved against them in the meantime. For this reason, futures markets typically require a central counterparty clearing house. A clearing house takes on itself the exposures between participants in the market, manages the risks of price movements by taking collateral, and, if a participant fails to deliver, manages the default in order to protect counterparties a nd c lie n t s . To d o t hi s , i t ne e d s sophisticated risk management systems and financial resources proportionate to the scale of the risks it is managing.

Investors need to feel confidence in their ability to settle transactions and hold their assets.

The standards for market infrastructures All kinds of market infrastructure, especially securities depositories and clearing houses, depend on a robust legal foundation. It is critically important that there should be certainty over the outcome of actions taken by the infrastructures. When a security has been delivered against payment there should be no risk that the delivery of t he se cur i t y m ay b e reve r se d , leaving the buyer with neither cash nor security. When a clearing house nets off a trader’s sales against its purchases, there should be no risk that the counterparty could unwind the netting and settle only the trades in its favor. And when a clearing house closes out the positions of a firm that has defaulted, there should be no risk that a liquidator could claim back the collateral t h at prote c t s t he cle aring house .

These concepts are not always clear in legislation that was drafted when financial markets were at an earlier stage of development. It is important to review financial law not only to ensure that it supports the current development of financial markets but to ensure that it keeps pace with the development of new ins t r ume nt s and m ar ke t s .

There are internationally accepted standards for market infrastructures, developed by the Commit tee on Payment and Settlement Systems at the Bank for International Settlements and the Technical Committee of the International Organization of Securities Commissions , k nown as the CP S S IOSCO Principles for Financial Market Infrastructures. In one respect, Africa has led the way, as the South African clearing house, Safcom, was the first clearing house in the world to be recognized as complying with these principles.

However, other countries have much catching up to do, initially in assessing their systems against these principles and then in ensuring compliance.

People Finally, but not the least important , financial markets depend on the skills and expertise of the people working in them. These skills are rooted in the level of education in a countr y and will grow with time and experience.

Training institutes are needed in order t o s e t p ro f e s s i o n a l s t a n d a rd s a n d qualifications, but many African countries also have diasporas of experienced professionals who can be at tracted back , bringing valuable experience.

Financial markets have the potential to bring many benef its to Africa by attracting foreign investment for vital infrastructure development and providing businesses with the means to offset the risks of volatile prices. One of the keys to realizing this ambition is to understand and meet the standards expected by international firms for the infrastructure that underpins the financial markets.

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MOBILIZING THE PRIVATE SECTOR Ed Farquharson, Executive Director at PIDG, describes the key to private sector involvement in galvanizing an economy.

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oads. Bridges. Ports. Hydroelectric plants. Fiberoptic cabling. Our daily routine relies on an invisible architecture: the means by which people start businesses, transport goods to new markets, create employment, boost tax revenues, stay healthy, gain education, and grow economies. Infrastructure transformed the fortunes of Europe and America in the 19th and 20th centuries. Today it offers the potential to transform developing nations across Africa where access to even basic infrastructure services is severely lacking.

Without serious investment in infrastructure, no country can deliver sustainable economic growth; no country can lift its people out of poverty. Yet too often the cost and expertise of providing infrastructure is beyond capacity.

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PIDG facilities have successfully mobilized over US$ 28bn private sector investment from funding commitments of US$ 1.5bn.

In sub-Saharan Africa alone, there is currently an estimated need for US$ 60 billion of core infrastructure. Of this, at least US$ 35 billion will not be met under the current market structure.

With limits to public sector and development funding, mobilizing private sector finance is vital to meeting the investment gap.

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Private infrastructure

Rapidly emerging markets

The Private Infrastructure Development Group (PIDG) is a multi-donor organization set up and governed by development agencies to tackle major institutional and market obstacles hindering private sector participation in infrastructure in developing countries. Together, the PIDG members commit public funds through a portfolio of eight facilities, each designed specifically to address a particular obstacle to infrastructure development and the mobilization of private sector resources to complement PIDG resources. These facilities either provide early stage development finance, longterm lending, and guarantees or provide technical expertise for infrastructure investment . For more than a decade PIDG has challenged and catalyzed investment practices, demonstrating that commercially viable deals f inanced with private capital are possible in developing countries.

The changing environment is reflected in the sectors in which PIDG operates. In 2003, the Emerging Africa Infrastructure Fund (EAIF) played a major role in financing the expansion of mobile telecom networks in sub-Saharan African countries when other financial institutions were not prepared to invest at the time. Private investment in mobile telecom has taken off in recent years in Africa and the need for PIDG support has declined. As a result, the share of telecoms in the overall PIDG portfolio has fallen from a high of 50 per cent at the end of 2007 to 21 per cent (or US$ 315m) at the end of 2012. However, PIDG support for telecoms, data transmission and IT related hardware continues for projects where financing is not easily available from market sources, but which have an important developmental impact. During 2012, PIDG engaged in several innovative transactions, including the expansion of the broadband network in Cameroon (GuarantCo) with significant regional benefits, and technical support for the privatization process for Comoros Telecoms (DevCo). The history of telecoms development in Africa is a powerful example of where technology has enabled developing countries to leap ahead of existing ways in which infrastructure services are delivered.

At the heart of PIDG operations is a commitment to transform the lives of those living in poverty by spurring economic development and access to infrastructure in the world’s poorest countries. Its focus is on low and middle income countries and fragile and post-conflict states where private sector investors are reluctant to engage, and the level of private sector financing available for long-term infrastructure projects is constrained. All projects are expected to deliver significant development impacts which are tracked and measured rigorously. This includes the level of private sector investment mobilized in poorer countries, the numbers of people with access to new or improved infrastructure, the fiscal impact for governments, and the impact on direct job creation.

PIDG members direct their funds through a portfolio of eight targeted funds (facilities) which provide: technical assistance, affordability and •capacity-building support to PIDG projects (TAF) and to public authorities seeking to deliver projects with private sector involvement (DevCo).

early-stage project development capital and •expertise in Africa and Asia (InfraCo Africa and InfraCo Asia).

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long-term debt and equity finance both in foreign (EAIF, GAP, ICF-DP) and local currency (GuarantCo).

Without serious investment in infrastructure, no country can deliver sustainable economic growth; no country can lift its people out of poverty.

Another sector with potential for leapfrog technology is renewables. More than 700 million inhabitants of sub-Saharan Africa lack access to electricity. Alongside a shortage of power generation, there is a sizable and largely untapped potential for renewable energy resources across the region.

The growth of renewables in sub-Saharan Africa is inhibited by pronounced market failures, including the lack of cost reflective tariffs, high upfront capital costs that make financing projects more challenging, particularly when local banks are unwilling or unable to lend for the longer tenors required and specific risks common in the region, such as construction delays and f inancial we ak nesses of of f-t aker utilities.

One of PIDG’s strengths is its ability to respond rapidly to

PIDG facilities have successfully mobilized over US$ 28bn private sector investment from funding commitments of US$ 1.5bn to over 130 projects, 99 of which have successfully reached financial close. Directly employing over 270,000 men and women in their construction and operation, these projects will provide infrastructure services to over 177 million people.

The environment in which PIDG operates is changing rapidly – many of PIDG’s markets are now some of the highest growth economies in the world. While this is good news in many respects, it places enormous strain on the already inadequate supply of infrastructure services, which in turn acts as an obst acle to fur ther grow th.

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Features Finance The history of telecoms development in Africa is a powerful example of where technology has enabled developing countries to leap ahead of existing ways in which infrastructure services are delivered.

market needs and pioneer new forms of support. In line with this, and in order to support more renewable power projects in Africa, £98m (US$ 164.56) was secured from the UK government to fund Green Africa Power (GAP).

GAP will provide mezzanine capital that is prepared to wait longer for its return than commercial sources. This will help to unlock a significant number of renewable power projects that might otherwise struggle to get to financial close. It has been designed to crowd in private investment, and will be explicitly restricted to projects that would be highly unlikely to proceed without its support because of market failures.

addition long-term project finance from international banks is much reduced and likely to remain so for some time.

It is also apparent that private equity seeking a high return and a quick exit will be less relevant and workable for the longterm financing needs of infrastructure, especially when compared with the perceived shor ter-term investment opportunities in consumer goods, retail or financial services. There is a growing need for dif ferent forms and wider sources of long term, often more patient, capital to support infrastructure projects.

Public and private sectors will need to work imaginatively to find new sources of long-term capital for infrastructure.

Urbanization.

This is why PIDG Facilities such as GuarantCo are so vital, as they seek t o s t i m u l at e so u rce s o f l o n g - t e r m domestic capit al for infr astruc ture project s in low- and lower- middle income countries. In these countries the local financial markets are often undeveloped, and the availability of local currency capital is therefore limited in size and tenor. Local currency loans are preferred, because they often match the currency of the project revenues to that of the capital and interest payments of the loans that finance the projects.

Infrastructure needs are also changing due to pressures such as urbanization.

Africa is home to some of the fastest growing cities in the world – as a result, water, sanitation, solid waste treatment, housing, and urban transport, as well as food production, are all seeing significant increases in the need for investment. Such needs far outstrip the availability of public sector investment resources and there is a continued need to support scarce government capacity to evaluate and prepare infrastructure projects in many countries. In

More than 700 million inhabitants of sub-Saharan Africa lack access to electricity.

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GuarantCo offers guarantees of loc al currenc y loans and bonds , of between US$ 5-20 million equivalent, to f inance infrastructure such as transportation, water, telecoms, and power generation and transmission. As well as expanding access to longer-term local currency finance, the aim is to build sustainable financing capacity in domestic

capit al markets. Guar antCo has achieved this by partnering with local institutions to build local capacity and experience, and by introducing new approaches to project risk evaluation and f inancing in these markets.

Early stage equity.

One of the main obstacles to infrastructure development in PIDG’s m a r ke t s i s t h e l a c k o f p u b l i c a n d p r i v at e se c t o r c a p a c i t y t o d e s i g n projects that are capable of attracting long- t e r m priv at e f in ance and t he scarcit y of upfront resources to develop projects from the early high risk stages. PIDG facilities specifically target this problem by providing early stage development equity in Asia and Africa and by providing high-quality technical advice to public authorities preparing projects for the market .

Demand for PIDG Facilities’ financing and technical services reflects both the continued risk aversion in capital markets and the shortfall in the current stock of infrastructure assets in low-income countries. The pressures of continued population and economic growth, and the limited capacity of host countries to identify, structure, and finance viable investment projects, are likely to drive this demand. In response, PIDG will continue to expand its presence in the poorer countries in Africa and Asia, developing new ways to support the infrastructure project development cycle, and pushing at the frontier of the interventions needed and of the sectors and countries in which it operates.

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AFRICA’S STUNTED GROWTH Harold James examines Afrobarometer’s report, which shows that African economic growth is not making any difference to those at grassroots level.

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or the last ten years the main African narrative has been one of economic growth, optimism, financial independence, and an end to third-world poverty. Africans are st ar ting to have it good , and t his belief has become so entrenched that it has become orthodox to describe Africa in populist terms, such as “The Hopeful Continent” as it was described

by The Economist, or “Africa rising,” the go-to term for politicians such as Jacob Zuma and William Hague.

These epithets are derived from average annual GDP growth rates of 4.8 per cent for the continent from 2002-2011.

In 2003, Forbes counted two billionaires in Africa – Nicky Oppenheimer and Johann Rupert – both of South Africa.

In 2014 there are 27. In the last year the number of African billionaires has risen by 30 per cent, and this is due to rising stock prices and an influx of foreign investment and business deals.

The popular narratives when discussing the t ask s of alleviating pover t y center on investing in infrastructure,

The ability to live a life of material dignity plays a role in determining how citizens evaluate the state and economic conditions.

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i n a l l ow i n g f o r we a l t h t o t r i c k l e down to the middle classes who will create businesses and generate local economies. This is where the populist narrative begins to turn into myth.

The majority of Africans are not feeling the effects of growth, according to the world’s biggest study on this subject.

New findings from the Afrobarometer, based on sur veys conducted in an unprecedented 34 African countries between October 2011 and June 2013, reveal widespread dissatisfaction with current economic conditions despite Africa’s decade of strong grow th.

Africans overwhelmingly reject their government’s management of their e conomy, giving f ailing m ar k s for job cre ation , improving t he living standards of the poor, and narrowing t h e g a p b e t w e e n r i c h a n d p o o r.

Poverty A third of Africans believe their living conditions have become worse over the last year, as well as 34 per cent who have seen no change. In addition to this many individuals still experience regular shortages of basic necessities. Some 20 per cent of Africans told researchers they of ten lack food, clean water, and medical care. Almost 50 per cent say they regularly lack a cash income that could enable them to meet basic needs, and three-quarters report going

Africans overwhelmingly reject their government’s management of their economies. without money at least once in the last 12 months. What the researchers term “lived poverty” has changed very little over the last decade, the report finds. “ W h i l e we d o s e e r e d u c t i o n s i n five countries (Cape Verde, Ghana, Malawi, Zambia, and Zimbabwe), we also find increases in lived poverty in five others (Botswana, Mali, Senegal, S out h Afric a , and Tanz ani a),” t he report states. “Overall, then, despite high repor ted grow th r ates , lived pover ty at the grassroots remains little changed. This suggests either that growth is occurring, but that its effects are not trickling down to the poorest citizens (in fact , income inequality may be worsening), or, alternatively, t hat ac tu al grow t h r ates may not match up to those being reported.”

Perception of economies Across the 34 countries questioned the majority of Africans (53 per cent) described the condition of their national economies as either “fairly or very badly.” compared to only 29 per cent who rate their economy positively.

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In the last year the number of African billionaires has risen by 30 per cent.

Among the five countries which reported the lowest ratings for trust in their national economy, t wo of them, Egypt and Tunisia, have recently experienced an overthrow of government as part of the Arab Spring. The other three – Kenya, Tanzania, and Uganda – have all sustained high levels of growth in the past decade, suggesting that wealth is failing to trickle down to the lower and middle classes.

These statistics support sceptical opinions that Africa’s boom is only benefiting a narrow elite while leaving the poor and jobless behind. As well as exacerbating inequality this is also a potential catalyst for civil unrest, as social media hinder authoritarian or corrupt regimes from controlling communication and information about economic and social matters.

The poll also found that 56 per cent of Africans feel that their governments are doing a bad job of managing the economy and even higher numbers give them low ratings for improving the living standards of the poor (69 per cent), creating jobs (71 per cent), and narrowing income gaps (76 per cent).

The ability to live a life of material dignity plays a role in determining how citizens evaluate the state and economic conditions. Many Africans do not yet feel a sense of material security. Nearly half say that their personal living conditions “fairly or very bad.”

Carolyn Logan, Assistant Professor of Political Science at Michigan State University and Deputy Director of the research project, said: “These survey results show there is a disconnect between repor ted growth and the persistence – in both frequency and severity – of poverty among ordinary citizens. It’s evident that African governments need to focus as much attention on poverty reduction efforts as they are on growing their economies.”

As well as exposing significant links bet ween access to electricit y and

good enough to keep the commodity trend in the right direction for Africa.”

Wealth is failing to trickle down to the lower and middle classes.

piped water to lower levels of poverty, the report also revealed a correlation bet ween high levels of education and lower ex perie nce s of pover t y.

The report has triggered a series of debates throughout the continent, in par ticular in South Africa . Kenneth M u b u , S h ad ow E co n o m i c M i n i s t e r for opposition Democratic Alliance, described the repor t as a “harsh realit y for our government ” and c a lle d for a p ar li a me n t ar y d e b at e .

But it is time for governments and business to manage Africa’s natural resources windfall better, he added. “Some of it has been jobless growth, frankly, and the idea is now that it must create jobs.

The good thing is that the leadership – whether political or economic – is recognizing that the quality of growth has to be improved. We see the opportunity with natural resources as one way to do it, so structural transformation is critical for the attainment of inclusive growth. I think over the next 10 to 15 years we’ll see progress in this direction.”

Optimism Economists insist , however, that the overall trends remain positive. Professor Mthuli Ncube, Chief Economist of The African Development Bank, said that the “Africa rising” narrative is intact, adding: “Even in the face of headwinds, we still see the same drivers in place, if not even stronger, be they political progress in terms of governance and macroeconomic stability or burgeoning domestic demand from t he middle cl a ss . E ve n Chin a growing at 7 per cent sustainably is

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Features Finance

Foreign Direct Investment is Key Stephean Diefenthal, Vice President at DEG – Deutsche Investitions – discusses foreign investment into Africa.

F

oreign direct investments will play a signif icant role in Africa’s development. For example, a scheme i n N i g e r i a a i m e d at re p l ac i n g c a s h transactions with electronic ones will help to provide a better business environment for international and regional investors.

Aside from innovative policies like this, however, the best way of at tracting foreign direct investments is political stability, a sound and stable business environment, a reliable legal system, good infrastructure, and reliable energy supply.

Modern techniques and developments can attract new investors and facilitate the way of doing business. However, it is the basic goods, agriculture, and food supply, natur al resources , and economic and social infrastructure that

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attract investors more and in a wider r ange t h an sophis t ic at ed produc t s .

There is a wide spectrum of countries among the 54 African states that offer attractive investment oppor tunities.

DEG has selected 13 countries which are in our main focus. These are: South Africa, Kenya, Ghana, Nigeria, Cote

The energy sector has a good chances of becoming one of the most important infrastructure subsectors in Africa.

d’Ivoire, Cameroon, Morocco, Egypt, Ethiopia, Uganda, Tanzania, Zambia, and Mozambique. We have selected them as a mix of economic factors as well as from a political and healthy business e nvironme nt a s pe c t . B e side s t he se countries, we see plenty of business opportunities in many other countries depending on, for example, sectors, natural resources, business contacts, etc.

Potential new markets There is a growing population and at the same time a growing middle class all over Africa. In particular, the growing middle class has higher demands with regards to basic needs. They expect good quality products, there is demand for proper housing, people are looking for better

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The energy sector has a good chance of becoming one of the most important infrastructure subsectors in Africa.

healthcare and parents care for good education for their children. What this growth means is that living standards will improve that people will require better access to power, renewable energies, and basic food and goods.

We see substantial business opportunities in sustainable and renewable energies in Africa. However, so far there are only a very few countries which can provide sufficient track record in the privatization of their energy sector to attract larger FDIs. The more developed the markets are the lower the required risk premium for foreign investors.

Industry We h av e s e e n l a r g e i n v e s t m e n t s i n the African telecoms/ICT sector over t h e l a s t 10 -15 ye a r s . T h i s s e c t o r i s expected to experience continued high growth rates in the forthcoming years.

After a decade of relatively few private activities in the African energy sector, the last 2-3 years were characterised by increasing private investments (IPPs). We currently see a lot of new IPP projects coming into the

market although sometimes still at an early stage. The energy sector has a good chance of becomingone of the most important i n f r a s t r u c t u re s u b s e c t o r s i n A f r i c a .

The transport sector is still lagging behind the two big subsectors, telecoms/ICT and energy, but may also experience increasing dynamics in a few years (container terminals, toll roads). Crucial for future development will be government commitment and the investment environment for foreign private investors.

The expected investments in the energy sector of some $US 50-70 billion per annum over the next decade will only be achievable if the investments will be structured in a way that will include private investors and commercial funding.

Feeding the growth There will be growing investments in agribusiness in Africa, with a wide range stretching from agriculture and animal husbandr y to food processing and related transport and service industries.

The inclusion of small and medium sized farms and investments along the value chain will be of great importance.

In particular, the growing middle class has higher demands with regards to basic needs.

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Features Finance

Focus upon Africa Dr. Ken Ife, Chairman of the Africa Business Round Table, ponders the future for Africa’s infrastructure, its international relations, and its agricultural sector.

1

Starting with the BRICS bank – are you optimistic about this? There are questions over locations of headquarters and seed capital, which many suggest may delay its inception. Are you optimistic over whether we will see its inception within the next few years?

Yes; I am very optimistic. It is important we have a development bank coming from BRICS, so it can deliver on the partnership projects which have already been prioritized. There is a wide range of these projects all relating to infrastructure – road, rail, trade related infrastructure, water, particularly water for urban areas. These issues are all economic and should all concern the private sector. Particularly when you have an economic project which is commercially feasible, technically feasible and financially viable, then resources should be invested. If governments want to work on social infrastructure projects then that’s up to the government but, in terms of development assistance and funding from financial institutions, they should target commercially viable projects.

2

President of the African Development Bank, Donald Kaberuka, has said that he believes Africa is being “ripped off big time” by global corporations who extract natural resources without compensating local communities.

What are your thoughts on this, and what can be done to tackle this issue?

Now, the thing is that natural resources and mineral resources are there to be exploited, but they need to be exploited sustainably. In many cases, this is not the case. We have lots of examples where exploitation has created more problems than solutions: where the environment has been degraded due to the method of extraction. But the second issue around exploitation is lack of investment in value addition. The third point is that mineral resources are not infinite; they are finite.

They are there but they will not regenerate themselves: We are taking something irreplaceable. It is important that value addition sits in the middle of this strategy – a sustainable development strategy. Now, where you benefit is in the sense that you are creating more industries around that mineral.

We have derivatives and complementary products coming from these, so you have to develop your industries, and in future look at developing more sust ainable models.

3

Do you subscribe to the view that the middle class in Africa is growing and that the consumer market is changing? There is an argument over whether this growth is legitimate in terms of global consumer buying power.

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When you talk about economic growth this usually always comes from the middle class and, when you talk about employment, this also tends to come from the middle class. This is because the middle class is where we see SMEs, who represent 80-90 per cent of jobs in an economy. Think about when a person sets up a business; immediately people are employed – 10, 20, or 30 people. These people are empowered financially; you have created disposable income, better education, better healthcare, sanitation, and you create money – you are creating more services. The private sector is increasing because of the middle class; the expansion comes from them. When you have growth in the middle class, this is a sign that wealth is beginning to trickle down. There are many African countries where there is a divide between affluence and poverty, with nothing in the middle. So the center of gravity is very high. But when you have the middle class getting larger, they regenerate the economy. They borrow, invest, tier the ground – they produce. They go into commercial agriculture and make it work.

Without this you end up with subsistence agriculture, which doesn’t leave farmers with enough money to be able to send their children for an education. So growth in the middle class is a sign that the economy is moving forward. When people finish education, what happens? They need a job; otherwise you end up with a situation like the winter of discontent. When they are empowered and in productive activity, then they are empowered, and so is the economy. So this is a necessary step forward.

There are many African countries where there is a divide between affluence and poverty, with nothing in the middle.

4

So you’re optimistic as to the middle class growth and employability through the private sector in Africa?

Jobs are not created by the public sector. Whenever you hear a public sector worker talking about job creation, this is absolute nonsense. I don’t know of an economy where the public sector employs more than 5 per cent of the population. The maximum number of jobs that big companies and corporations employ is 10-20 per cent of the population. The rest of the jobs are created by SMEs. This is how it’s been, always. These

5

And are we seeing this in Africa?

Yes, of course. It is a sign that the class is coming up. They are no longer about renting property; it’s about owning their own homes. In the UK Mrs. Thatcher created six million middle class people by forcing the local authority to sell their houses to the people, but of course you have to bring finance. Credit cards and finances enable people to buy houses. And once they have bought their house, the house becomes maintained, and the landscape improves and the value begins to rise.

6

It sounds like you subscribe to, and you hear this coming from African markets, using Thatcherism as a model. In 1990 Nelson Mandela promised the liberation movement would take over the apartheid economy, including the banks, and said that “a change of our views in this regard is inconceivable.” However, over twenty years later, his attitude changed: “For this country, privatization is the fundamental policy.” he said. Are you in favor of this change in attitude toward privatization?

Thatcher’s legacy was starting the decay in the public sector.

She contained the unions; she privatized industry – telecoms, gas, rail, water, mines – she opened up the private sector.

She brought us supermarkets. She clamped down on local authorities to bring us supermarkets. She changed the UK. She created luxury shopping and made sure workers and shoppers could park their cars on the streets without getting clamped! She created demand by lowering prices. So the economy took off.

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are the people who want to be home owners, first time buyers, and once they buy their homes then the demand for construction increases and this creates more jobs.

Public sectors have no business in business because they do not operate businesses efficiently.

The same issue that Thatcher faced in the UK is faced in Africa. In the 1950s most of the leaders in Africa were all schooled in Europe where there was a wave of nationalism due to World War II, and all countries nationalized. Africans were not an exception. But where you nationalize you have a problem. Public sectors have no business in business because they do not operate businesses efficiently. They have no interest or even an understanding. The skill base is not in the public sector to run businesses. The second issue is finance.

For example, the Nigerian government has estimated that its infrastructure costs by 2030 will total US$ 20 billion. Now the government plans to contribute half of this money, but it is relying on the private sector to bring the rest. The government doesn’t even have the money. Western governments don’t have the money because of their economic difficulties.

The issue is how do we get the private sector 1) to bring in finance and 2) to help the public sector? The domain of the public sector is infrastructure, that is their concern, but the public sector doesn’t have the resources to adequately fund this. Furthermore, sometimes when short-term budgets are used to fund long-term infrastructure projects, they don’t work. These infrastructure projects sometimes take decades.

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Features Finance There is therefore a yearly battle to get budgets approved.

It doesn’t work. It works out as far more expensive in the long run. Using the private sector changes all that…they carry out due diligence, using a plan that adds up, that is commercially feasible and financially viable, to get the funding that they need. But the government doesn’t do that. The government latches on projects without testing if they’re feasible, and then, after wasting public funds, discover the project is unfeasible. The private sector makes projects bankable and move with speed as they have infrastructural expertise. They have the experience, expertise, and the money.

7

Africa’s population is growing at an exponential rate, with an increasing number of people moving into urban areas. The demand for food is set to rise rapidly. However, the vast majority of African farmland is reliant on increasingly unpredictable rainfall. Do you foresee major investments in agricultural technology, and how do you think this problem can be solved?

I know that soon Africa’s population will be over 1 billion people. I also know that urbanization means that 30 per cent more young people will be moving to urban areas, and this is going to put pressure on urban infrastructure.

However, what will be the source of the greatest challenge for food se cur i t y is t he ave r a ge a ge of t he f ar me r s , which is 60 years old. This is where the crisis will come.

By 2030 many of these farmers will be gone, and fewer young people are engaging in agriculture. The only way you can contain that is to have more commercial agriculture because over 90 per cent of agriculture right now is subsistence agriculture, which can mean peasants…one man, one family…the only way to counter this dangerous trend is to have more agri-business.

Whereas 80 per cent of Africans are involved in agriculture, we are having trouble feeding ourselves. But less than 5 per cent of Americans are involved in their agriculture, and yet they have no problem feeding themselves. They literally feed the world! The difference is the commercialization of agriculture. Many people do not understand that commercial agriculture is not just for large scale funds and farmers…you don’t need 1000 hectares.

Tesco has an outgrower scheme in Madagascar involving 10,000 families, and none of them has more than 1 hectare. But Tesco is the big buyer, it has contracts with them, it gives them seeds, trains them, and has 300 extension workers there to support them and supply them with inputs like fertilizers etc., so they grow to specification. This is commercial agriculture.

8

Is Africa’s development reliant on Chinese investment?

China is in Africa to do business. They are taking as many of our raw materials as they can. China has excess liquidity. They need to invest their money to make more money. Other areas like Europe are risky areas, so China goes to Africa, which is hungry for infrastructure. It is business that China is doing, and they are being strategic with their money. They are aware of the risks, and I don’t blame them for not investing in Europe!

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The private sector makes projects bankable and move with speed as they have infrastructural expertise.

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9

So you see China as a sustainable partner, in terms of its investment in infrastructure?

It is very important as we are trying to make a link between investment infrastructure and Africa’s raw materials, because once we have infrastructure it opens up the space for others to invest in value addition. Otherwise investors are worried. When we get infrastructure there will be a more dynamic, competitive marketplace for the production of those goods. So investments in infrastructure are a good thing.

When you have growth in the middle class, this is a sign that wealth is beginning to trickle down.

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Features Agriculture

Reaching Africa’s full potential EMRC’s mission is to contribute to the development of the private sector in Africa by boosting sustainable and responsible economic growth. According to Idit Miller, the Managing Director, it does this by growing cross and intra-continental business partnerships with and between the public and private sectors. and, more importantly, long-lasting growth. The most significant challenge for governments is how to make growth inclusive; in other words, how to create employment opportunities and ensure that growth benefits all sections of society, especially the poorest. At the moment there is potential for great improvement in this area. Improving levels of governance and educating and

The reality is that agriculture, which is made up mainly of SMEs, is the main source of income for communities across the continent.

training Africa’s large youth population will help to significantly raise levels of trade and investment from the rest of the world.

O

ur focus at EMRC is primarily toward the agricultural sector and the small and medium enterprise (SME) sector. These two sectors are in fact interlinked. The reality is that agriculture, which is made up mainly of SMEs, is the main source of income for communities across the continent.

The strategic role of agriculture in Africa’s social and economic development cannot be overstated. The sector provides livelihoods for about 65 per cent of the continent’s active labor force, and accounts for 32 per cent of the continent’s gross domestic product (GDP). No other economic sector on the continent employs more people or provides a bigger portion of annual wealth produced. Agriculture is the backbone of most African economies. Inclusive growth in agriculture is essential for poverty eradication and sustainable human development in the region. It is not exaggerating to say that SMEs and agriculture are Africa’s most vital, and also perhaps most delicate, sectors.

If the goal is to achieve sustainable economic growth that translates into better standards of living at grassroots level for Africa, then we have to accept that there are some underlying trends that seem to be hampering most countries. If these trends could be remedied, this could help economies achieve more growth

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Parallel to this there must be a conscious effort to provide communities with basic facilities – roads, electricity, and tools, so that they can actually work in environments which are conducive to boosting SMEs. Without these, people may want to work, may have the skills, but will be unable to achieve anything if they cannot get to their jobs, cannot send their products to the next village or cannot access tools which are cost-effective etc. Then development cannot take place. Infrastructure invest ment is also a key par t of Africa’s development .

Population A key issue across the continent is the exponential growth of the population, combined with a huge proportion of people, particularly young people, moving to cities. This is again an issue linked directly to agriculture because many of these people are leaving rural areas, for a variety of reasons, hoping to find jobs in cities. To curb this trend, there must be an incentive to remain in agriculture. This incentive is linked to the potential to generate a realistic livable income in addition to knowing that government policies are geared to improve rural institutions, infrastructure, etc. Policy makers must understand what these

Features Agriculture

Improving levels of governance and educating and training Africa’s large youth population will help to significantly raise levels of trade and investment from the rest of the world.

communities face on a daily basis. I would suggest that looking at the lack of access to finance; the lack of access to markets; lack of proper infrastructure such as roads, transport and the lack of access to tangible and cost-effective technology would be a top priority. These small farmers must be included in the larger scale projects and in national and regional agricultural policies. They are the backbone of the Agri-Food sector and this must be reflected in policy.

The role that EMRC plays is by providing a platform.

We provide a unique pan-African platform where government officials, farmers, donors, and large scale international companies as well as community leaders can interact, discuss, and at the end of the day find potential partners and business opportunities.

We expect results, we expect partnerships to be established, and we expect participants to walk away having met their counterparts, learnt and shared lessons, and establish, significant collaborations.

Through these kinds of business meetings, the sector can actually reach the next level as productivity increases, income is generated, and more people are connected and included in the value chain.

Foreign direct investment While talking with Corporate Africa magazine there were some very good points raised on foreign direct investment. For investment to occur, there needs to be an active private sector. As said, promoting a growth that is exclusive is an important means to ensure that employment opportunities are created for a cross section of the society, especially the poorest. Again, I go back to highlighting the important fact that agriculture employs a significant percentage of the population and promoting the agrisector is one of the critical ways of reducing poverty.

There must be an incentive to remain in agriculture.

It is common knowledge that Africa’s agricultural sector is faced with dramatically low levels of productivity coupled with high rates of post harvest losses. Once small farmers and farming communities manage to establish stable growth, with the necessary support from government and with realistic public sector policies, then investors, be it regional or foreign, will be more willing to invest. In addition, political stability and sound corruption-free institutions are key factors to attract investors.

Public-private partnerships There is a clear trend worldwide that the public and private sectors need each other and partnerships will ensure stronger economies. We encourage partnerships by providing a platform, a meeting point , and getting the various actors linked to a particular sector in one room. We also use a unique Swedish-based program, which can accurately put the right people together. In the previous two AgriBusiness Forums over 2000 of these B2B meetings were organized. People who may never have heard of each other let alone met each other, can sit down and brainstorm and f ind common ground and potentially link par tnerships.

The public and the private sectors are not mutually exclusive.

Combining their strengths can only bring positive and long-lasting outcomes.

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Features Nigeria Special

Nigeria’s battle for power Nigeria’s Minister for Power, Professor Chinedu Nebo, has just given an acceptance speech for a Commonwealth award for remarkable leadership.

He sits down to discuss the challenges faced in his current role as being the man responsible for powering Nigeria’s expected economic boom.

Q. Honorable Minister, many thanks for this interview and congratulations on your award. Can you briefly explain what this award represents?

I

have just been given this award as recognition for remarkable leadership.

I think this comes from a number of different roles I have enjoyed working in during my life. I have always enjoyed working with the development of young people, as I was Vice Chancellor of the University of Nigeria, and have been

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Nigeria today is the preferred investment destination throughout Africa.

Vice Chancellor at other universities around the nation. We have a huge responsibility to young people in Nigeria and of course throughout Africa .

As we move into the next generation our time will be defined by big business, global movement , and quick communication and technology. Therefore I am very p ro u d t o h ave acce p t e d t h e aw a rd for excellent leadership, and I think t h at t his accol ade e x t e nd s int o my current position, in which I am serving a t t h e f e d e r a l m i n i s t r y f o r p owe r.

Q. Can you describe how you feel about the future of Nigeria, now that it is a mem-

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ber of the MINT economic bloc, and, with its population growing and growing, what does the future look like for power in Nigeria? How is it going to provide power for its increasing population?

I am excited about Nigeria’s future, naturally excited. There are opportunities for Nigeria to become a giant in Africa and indeed in global terms, with ramifications on world economics and on world markets. Nigeria today is the preferred investment destination throughout Africa. It is number one in Africa for foreign direct investment and this alone is a remarkable fact. It is in the top four in its figures for foreign direct investment for the whole world. This is very exciting, but of course also raises challenges. However, it is vital we think in optimistic terms.

Nigeria has an incredible return on investments. One of the top four in t he wor ld a g ain! N ige r i a h a s G D P which is growing at galloping rates, and in fact Nigeria’s GDP rate has recently exceeded that of South Africa.

So the potentials are just enormous.

With regards to power, the suppressed demand for power in Nigeria is so huge that even if we managed today to quadruple our power supply, it will be used up by Nigerians and they will still be asking for more. Think of that as a market of people. There is an extraordinary oppor tunity for those who want to invest in power and thankfully, due to privatization, the necessary capital is now being injected from the generation and distribution end: while the government is doing very much in injecting a lot of capital in renewing and in expanding infrastructure for transmission.

Once we have t his combination of government expansion and distribution and generation boosts from the private sector, the future for Africa’s power looks to be in very safe hands.

Of course power is absolutely paramount for Nigeria to live up to its reputation as one of the key emerging markets in the world, and we are confident of utilizing private and public sector involvement, and investment, in the right ways to provide power both to the necessary major businesses and foreign investors, but also to all of Nigeria’s citizens. People talk of the communications sector and technology sector being vital in creating a boost to Nigeria’s economy and in particular for Nigeria’s young people, but this all relies on the importance of

our ability to provide a reliable power supply to all. We are certainly going in the right direction and have a realistic target to aim for. And, vitally, our fate is in our own hands. I am very confident in our ability to provide an excellent power service to run parallel with Nigeria’s economic and international expansion.

A journey of a thousand miles begins with a single step.

Q. W hat kind of timescale is the government setting itself for the target of power supply no longer being an issue for all Nigerians? Currently phone lines going down and blackouts are a problem for certain pockets of the population in dif ferent states and regions; how long until all Nigerians have a reliable working power supply?

Of course this will take a while. This is no simple task we are discussing here and of course this is going to require a huge effort on behalf of all concerned parties.

A journey of a thousand miles begins with a single step, and we are taking the first step and beginning to get into our stride.

Right now we have about 40 per cent of our populous which has a power supply.

This 40 per cent is a big improvement on previous years and decades and people are seeing the difference in Nigeria. Our

plans will see this rise to 70 per cent of our population receiving excellent power supplies within the next decade.

By 2020 the expectation is up to 75 per cent. And we will get there. I am a realist and am pragmatic, but I can say with a high degree of certainty that we will get there. Everything is in place in terms of foreign interest, foreign investment, p r i v at e se c t or m o b i l i z at io n , a nd a determined and serious government.

O f co u r s e N i g e r i a n s re co g n i z e a n i m prove me n t a nd se e t h at f ur t he r improvement is forthcoming, and this is making a huge different in Nigerian lives.

Q. Yes, we hear about how business relations are improving in Nigeria, how it is becoming easier to start a company, and how foreign investment in Nigeria is rapidly increasing…

Of course and this is all due to increased a nd i m prove d powe r su p p lie s . B u t it is about balancing our growth and infr astructure and improving the infrastructure and lives of our nation.

As the private sector becomes more involved, the quality will only improve and with it so will the quality of healthcare, of education, of technology development, of general infrastructure, and of business relations regionally and internationally.

The government is very aware of this key infrastructural tool, and so we are taking the power situation, within the context of our growing population and our advantageous economic position in terms of exports, very seriously.

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Features Nigeria Special

Nigerians tell their stories Joke Silva is one of Nigeria’s most popular actresses and directors.

She has starred in award-winning films such as ‘White Waters’ and The ‘Amazing Grace’ and is one half of Nigeria’s most celebrated celebrity marriage. She discusses the increasing global popularity of Nollywood.

One of the beautiful things about Nollywood is that we haven’t needed so far to think about exporting. The reason for this is because of the economic situation of Africa in the 1980s and the 1990s – there was a lot of migration to different parts of the world. When Nollywood started in Nigeria and films went to video, we had people of African origin who were hungry for stories from home, and they created a vast market for exporting Nollywood films. Nollywood hasn’t needed to consciously source new markets; exporting was a natural progression. And there is a huge market not just in Nigeria, but the diaspora as well. Wherever you go in the world and find black people, you will find Nollywood films. These are the preferred entertainment.

Nollywood hasn’t needed to consciously source new markets; exporting was a natural progression.

Q. Nollywood is Africa’s most prominent contemporary media form. But how does Nollywood reflect the attitudes and values, as well as practicalities, of everyday Nigerian life?

I

n so many ways. Nollywood is the preferred film industry for Africans and Africans in the diaspora. Nollywood started in Nigeria in the early 1990s and one of the reasons it was successful initially in Nigeria was because, for the first time, Nigerians had Nigerians telling them stories. Telling them stories without being apologetic about it; without having to defend the fact that we are black; just people telling everyday normal stories, and this really captured the imaginations of Nigerians, and of Africans, and Africans in the diaspora. Furthermore, there had been a film industry since the early 1950s but it was in fits and starts and it was so expensive to make films on celluloid. But then toward the late 1970s and early 1980s that all died out, and up comes video, and then digital technology. Nigeria jumped on this, hit the ground running, and became very prolific. We had a huge audience, and people could relate to this industry because they could recognize themselves or a member of their family in what was on the screen.

Q. How ambitious is Nigeria in terms of exporting Nollywood to the rest of the world? Are there plans regarding distribution to further export the industry?

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When we started, there was, in Nigeria, a bootlegging form of distribution. This was tied to spare parts dealing and Hollywood films that were being bootlegged – this was the old distribution platform. But following on from this we were able to export to the rest of the continent. Ousmane Sembène, one of Africa’s greatest filmmakers until he passed away, said that what Nollywood had done was to make it possible for Africa to tell its own stories. He was a francophone man, and what usually happens is that francophone people depend on grants, and their stories and narratives are seen in libraries and things like this – not in terms of mass entertainment available to large groups of people. And before he died, he gave his blessings to Nollywood.

Q. So, then, is Nollywood representative of Nigerian culture as a whole? There are many different religious groups and ethnicities within Nigeria, but does Nollywood represent all of these?

Very definitely. Nollywood is actually not homogenous. There are many different cultures that make up the industry. You can have Nollywood in English, which basically tells a lot of Ibu stories, some others as well, but tells lots of stories.

Nigeria FeaturesSpecial

Nigerians have ownership of their own industry.

Then there are many other indigenous languages in Nollywood, and each one reflects the culture of that particular group. So it is very representative.

Q. In terms of bigger budgets, the growth of the industry, the mass fame enjoyed by celebrities, what does the future look like for Nollywood?

Yes, the industry will continue to grow most definitely. Just recently we have finished the AMVCAs; run by Africa Magic…

This is part of a South African pay-perview platform. When this began, there was no particular channel for African movies. Now we have ten African movie channels, with two more about to come on stream. This was the second award ceremony, and it has upped the ante – it is a very glamorous event with all the stars across Africa. As I said, Nollywood has made it possible for Africans to tell their own stories.

Q. Yes, there has been a lot of talk about how f ilms in Nigeria are being increasingly restricted or censored for their content. Do you see this hypersexualization of content as an inevitable part of the industry growing or is it something that has to be stopped?

And all African countries are telling their own national stories, using the same kind of formula. We have people from Cameroon, Kenya, from all parts of Africa. These awards aim to recognize all forms of African filmmaking, and I t h i n k i t w a s a f i l m f ro m Ke ny a which won the majority of awards.

I think the former. I think because Nigerians have ownership of their own industry they feel as if they have the right to see what they want to see in their films. Also the kinds of people who are celebrated are those who exude the values that ultimately we would like to see passed down to future generations.

Q. What are the main values that Nolly wood aims to broadcast?

W h at k in d s of me s s age s doe s it broadcast to a young African watching television?

Q. Industries like Hollywood and Bollywood have historically been very successful in attracting business to their countries. Do you see Nollywood eventually becoming emblematic of Nigerian success

In a lot of ways it is trying to preserve the culture in modern times. For us in Africa respect for age is a key thing. This is paramount in all our movies. Also, family is a very key value. The network of family is portrayed in our films. And yes, sometimes you will find films similar to the ones in the West with people wearing not very many clothes, but this is generally frowned upon.

In a lot of ways Nollywood is trying to preserve our culture in modern times.

and being something that draws people in to the country in the form of business, tourism, etc.

What Nollywood has done is make itself the big gest br and to come from Nigeria in such a long time – 20 years I would say. It is a huge African brand. And you find a lot of people coming from different parts of the world wanting to be part of this industry. Recently one of our writers, a third or fourth generation writer, has had his work turned into a film. This film was shot in a studio in Nigeria and producers, writers, staff – they were shocked at the quality of the studio they found in Nigeria.

It was of the standard of any studio anywhere in the world. I am talking about world- class production facilities. We have had technology and equipment imported, but we have also sourced locally in order to build world-class film studios. So, what am I trying to say? I’m saying that the torchlight has been shined from the world onto Nollywood, and so many people are looking at it and saying, “wow, there are so many possibilities, let’s make these a reality.” Now really is the time to become involved in this booming film industry.

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Features Nigeria Special

Managing Nigeria’s economy Foluso Phillips is Chairman of the Nigerian Economic Summit Group and founder of Phillips Consulting, Nigeria’s leading consultancy firm. He is an expert in Nigerian economics and talks about managing the financial expectations placed on Nigeria’s development.

Q. Star ting with Niger ia a s a key member of what has been termed the MINTs economic bloc, can you tell me how Nigeria is helping its companies and corporations to expand around the world and how Nigeria is making itself attractive to investors around the world?

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he question and concept of attracting investors is, if I can borrow from the term that the World Economic Forum applies, rooted in the competitive index. Competitiveness is really about attractiveness. Bear in mind at this stage in its life cycle Nigeria is really more of an import dependent country.

That’s number one; and number two is that we have not advanced ourselves to the stage where we are adding value to the raw materials we produce through our agricultural output. Our claim to fame as far as exports are concerned is oil.

And so, from an export perspective, we are still extremely limited to that which we generate from oil. Now, coming back

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to the issue of attractiveness, you have to bear in mind that Nigeria is made up of 36 states and one federal capital, and you have to ask yourself which particular aspect of the economy you are talking about. If you look at Lagos it probably has

It makes sense to be cautious, and businesses will be under more pressure to have due diligence. the highest GDP going by state, and the highest growth rate, and so it is totally different to other states like Borno state, where there are issues where people say the grow th r ate is negative and GDP is probably, lowest in the country.

So this is a very diverse economy, and the concept of attractiveness which is relevant to investors, in terms of highest

rates of return and lowest amounts of risk, are currently skewed in terms of geographical location within the country.

Q. Are there any plans, or ongoing projects, to create inter-state or inter-regional connectivity between states in Nigeria?

The nearest thing to what you are talking about is agriculture. At the moment we have this philosophy of driving an agricultural value chain, where the value chain itself can be trans-state, can cross borders…So I might produce cassava in one state, and another state can help to process it, and another state is going to use it and release it to the retail market.

The interconnectivity between states is today driven by agriculture. We are trying to kick off an automotive industry and are at t he ver y e arly st ages of that; it is likely that you will find, as we progress, that dif ferent components for this nascent industry are sourced from dif ferent par ts of the countr y,

Nigeria FeaturesSpecial

d e p e n d i n g o n t h e av a i l a b i l i t y o f raw materials. We are building an automotive industry, starting with CKD products for Peugeot cars, and I think a Japanese company is looking at this, and hopefully we will have back-up and integration over time.

There is a huge propensity toward a more infrastructural driven industry.

Q . So this would be a project also br inging investment into Niger ia and creating jobs. The figure we often hear is 3.5 million new jobs in Nigeria over the next couple of years. Can you describe other projects that are going to provide these jobs, and explain where these jobs are going to come from?

We’ve got t o t r y t o l o o k at jo b generators and, again, at the moment the most highly regarded sector in Nigeria in terms of job generation is agriculture. The next one that is going to take off is the construction industry.

It is ver y cle ar we have to build homes , build roads , and t here is a huge propensity toward a more infrastructural driven industry, and we expect this to employ more and more people along this value chain of infrastructure development. But the key thing is that agriculture is the main driver. We must not also forget that, as far as the new generation of young people are concerned, ICT is a major are a and it has grown exponentially and is one where the skills of our youth is going to come into play. This is an area where Nigeria has been able to leapfrog without any infrastructural concerns; this is more of an intellectual sector, with a level playing field. There is a whole new world emerging now, around bandwidth, capacity, around internet, and technology, and that is happening rapidly and will be fueled by increasing bandwidth capacity in the country.

Q. And the whole ICT sector has this reputation of being centered on young people who have grown up with computers and know technology; can you explain how Nigeria is investing in that sector and into its young people?

Oh yes, the government is setting up ICT hubs around the whole country,

whereby people can come and develop their IT skills and they can develop applications and learn about new products. There are so many initiatives f o r yo u n g p e o p l e i n t e c h n o l o g y i n Nigeria, which will help them in becoming young entrepreneurs.

Q. Nigeria’s economic narrative is very optimistic but how is the political state in Nigeria, and how the world views Nigeria from the outside, going to impact on foreign investment and business?

No doubt about it, from a distance Nigeria’s political state is going to have a severely negative impact. But the thing is that for most serious businessmen they must come to the country. You cannot make decisions regarding millions of dollars without first seeing the country. This is where you will come to appreciate the physical size of Nigeria.

The threats to securit y, specif ically from the Boko Haram, are skewed to just one particular part of the country.

That is looking at the situation on the f irst level. The second thing is that Nigeria has 36 states, and in most states there is no security issue whatsoever, w h e re a s o t h e r s a re ve r y e x p o se d .

Finally, you realize that you must look at the trend of what is happening and a sk your se l f whe t her t his t hre at is really enough to discourage investors.

It m ake s se nse to be c autious , and businesses will be under more pressure to have due diligence, the process for decision making will be longer, but I think ultimately people will be more thorough when work ing in Nigeria .

Terrorism will have an impact, but again it is going to have an impact in certain areas, but we will find alternative locations. This is not a welcome situation

at all, and in any country would provide a significant issue. We are developing, and going in the right direction, but this is an issue which is slowing growth.

Q . With the coining of the MINT acronym and with so much optimism surrounding Nigeria’s future, can you explain to me how you see the next ten years panning o u t i n t e r m s o f Nig e r i a’s e c o n o my?

A very good and very fair question. In reality, in the next decade for Nigeria will see a major change for economic growth. As the country continues to deregulate and embraces an open market policy, and continues to have a free market policy, the private sector will force the country to take off. And it happens and is happening, that when the government focus on regulating, and being the prime regulatory authority, the private sector, because of the phenomenal return on investment when they work well, will drive the country forward.

The interconnectivity between states is today driven by agriculture.

It has retarded its own growth by the u n n e c e s s a r y l e ve l o f g ove r n m e n t a l interference or government ownership of so many things. But once government steps out, the man who has made an investment will see a return, and this man will focus on running business properly. A private sector economy, open market policy, market deregulation, less government interference, and governments learning the art of regulation; ensuring there are no monopolies; these are the things that the government must be attending to, and where we will see Nigeria progress.

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Features Technology

A review of Africa’s largest growing commercial sector The digital revolution has had a profound impact all over the world but perhaps nowhere more so than in Africa, where its potential to revolutionize is vast. Dr. Hamadoun Touré, Secretary-General of ITU, reviews the last two years in this vital sector.

Mandela said ITU was a body of crucial importance for the entire African continent.

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riting early in 2014 I feel it is impor t ant to recognize that we are now living in a world having just lost a great leader.

N e lson M ande l a w a s re now ned for his open attitude toward technology, recognizing its significance as a catalyst for change and development. As President of South Africa , Mr. M andela was a strong supporter of ITU, and he helped to champion the communications and technology sector. In 1995, speaking at the opening ceremony of ITU Telecom World in Geneva in 1995, President Mandela said ITU was a body of crucial importance for the entire African continent . He said, “We need a vast expansion of our communication and information network and ITU, as the principal driving force behind international policy, technological development , cooperation, and skills transfer, is an indispensable agent in

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this regard.” Without Mr. Mandela’s contribution, it is unlikely we would have witnessed such a huge growth in the information technology sector in Africa, and this is another debt the country owes to the great man. Even as late as 2009, Mr. Mandela continued to support the work of ITU. Speaking via video link at the opening ceremony of ITU Telecom World 2009, he underlined that “information and communication technologies are the single most powerful tool we have for human progress” and urged participants to “support efforts to connect the world and bridge the digital divide.” It was with great sadness that I learned about Mr. Mandela’s passing, but he has left a legacy for all people to strive toward.

Mandela’s open attitude to information and communication technology helped to create a surge in the sector that nobody

could have anticipated. The African region has experienced remark able growth in the mobile-cellular networks and services department since 2008, allowing for an increasing number of the almost 850 million people in the region to get connected and join the information society. Within five years the region’s mobile-cellular penetration rate doubled from 32 to 64 per cent and active mobile-broadband penetration, w hich w a s pr ac t ic ally non - e xis t e nt in 2008, has grown to almost 11 per cent. ICT uptake in the region has been growing faster in other regions, with the 2008-2013 growth rates of key ICT services well above the global average.

This kind of grow th will open up governments and industries to better practices; will open up business opportunities for Africans; and will enable better communication throughout the continent. It is vital that ITU strives to continue to advance openness and inclusion in t he discussions of IC T development. This will act as a catalyst for the achievement of the Millennium Development Goals. Brahima Sanou, Director of ITU’s Telecommunication

Features Technology

Development Bureau, was correct in saying, “Credit goes to governments for their political will, to the private sector for investing in the ICT sector, and to the citizens for a high uptake of these new technologies.” He, like me, believes the future is very bright for Africa.

Harnessing technology I n 2 012 2 5 0 mi ll io n m ore p e o p le came online, the largest to in a single year. At the start of 2014 40 per cent of the world’s population is online.

This is a s t a g ge r ing s t at is t ic bu t , ultimately, 1.1 billion households, the equivalent of 4.4 billion people, remain unconnected. However, we are at a point where almost the entire world is wit hin re ach of mobile - cellular service, and mobile broadband is now, for the first time, cheaper than fixed broadband. There are almost as many mobile subscriptions in 2014 as there are people on the planet and this unprecedented demand for mobile broadband and 3G access is bringing prices down on information technology.

At the start of 2014 40 per cent of the world’s population is online.

However, every nation in the top 30 for digital access (number 1 is South Korea) countries, and this underlines a strong link between income and ICT progress.

There are large differences between developed and developing nations and continents, with values on average prices twice as high in the developed world compared with developing countries.

Of the group of “dynamic countries.” so - called for their achievement in recording above average improvements to their digital access, only two of these are from the African continent: Z ambi a and Zimb abwe . The le a st connected countries (LCCs) are home to 2.4 billion people – one third of the world’s total population – and these are the nations that could potentially derive the greatest benefits from digital access and the use of ICT in areas of health, education, and employment.

Therefore the figures from the previous 12 months do show much reason for optimism, with governments clearly

prioritizing ICTs as a major lever of socioeconomic growth, resulting in better access and lower prices. However, our most pressing challenge is to identify ways to enable these countries which are still struggling to connect their populations to deploy the networks and ser vices that will help lift them out of poverty.

Pricing Analysis of trends in broadband pricing more than 160 countries shows that, in the four years 2008-2012 fixed broadband prices fell by 82 per cent overall, from 115.1 per cent of average monthly income per capita in 2008 to 22.1 per cent in 2012. The biggest drop occurred in developing countries, where fixedbroadband prices fell by 30 per cent year on year between 2008 and 2011.

The average price per unit of speed (Mbps) also decreased significantly between 2008 and 2012, with a global median price of US$ 19.50 per Mbps in 2012, almost a quarter of the price that was being charged in 2008. However, in developing countries mobile broadband is still much more expensive than in developed countries.

The global broadband af fordabilit y target set in 2011 by the ITU/UNESCO Broadband Commission for Digit al Development aims to bring the cost of entry-level broadband service to less than five per cent of average monthly income.

Digital natives A new model developed by ITU for this year’s report estimates the size of the digital native population worldwide, howing that in 2012 there were around 363 million

digital natives out of a world population of around 7 billion. This equates to 5.2 per cent of the total global population, and 30 per cent of the global youth population.

It is vital that ITU strives to continue to advance openness and inclusion in the discussions of ICT development.

The model def ines digit al natives as networked youth aged 15-24 years with five or more years of online experience.

Out of a total of 145 million young internet users in the developed countries, 86.3 per cent are estimated to be digital natives, compared wit h less t han half of t he 503 million young internet users in the developing world. Within the next five years, the digital native population in the developing countries is forecast to more than double.

Planning for the future ITU’s sixth World Telecommunication Development Conference took place in Sharm el - Sheik h , Eg ypt , from t he 31st March to the 11th April 2014. This concentrated on continuing to make broadband available for the billions for whom it is currently unavailable or too expensive. We will work to harness the remarkable growth in the development of young people in embracing technology, and we will work to open up governments to the growth of the technology sector.

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Features Technology

Regulating for the Future Main One director Funke Opeke explains why regulation and investment initiatives in the broadband sector could see Nigeria become the leader of the MINTs.

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here is potential for continued growth in the mobile and broadband sector in Nigeria, but also a need to identify urgent and practical policy imperatives required to ensure ICT growth and development. This is needed particularly in the broadband and data segment of the telecoms sector of the Nigerian economy, to enhance the contribution of ICT to the socioe cono mic ad v a nce me nt of N ige r i a .

The Nigerian ICT sector has witnessed phenomenal growth in the last decade to emerge as the leading mobile telephony market in Africa in terms of subscriber base and revenue. This growth has been largely due to regulator y and policy reforms in the country, and the emer-

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Most of the financial gains from the development sector over the past decade have been exported offshore.

ported by a series of financial incentives, economic regulations, and determinations that fur ther promoted growth in the voice telephony market (largely mobile), which is evident in improved availability, affordability, and quality of services to the Nigerian consumers today.

Profits exported gence of a quasi-independent regulator, which in turn ushered in an era of stability. The resultant increase in investor confidence led to an abundant inflow of foreign direct investment which provided the financial lubricant required to sustain growth in mobile telephony infrastructure and services deployment in Nigeria.

These regulator y changes were sup-

However, while the foreign market has been good and necessary to jump-start the sector and make better telephony services available to all Nigerians, it has also implied that most of the financial gains from the development sector over the past decade have been exported offshore. Furthermore, a decade into this process, Nigeria remains largely a

consumer of telephony services and contributes minimal local content to the services enjoyed. Indeed, telecoms has become a larger part of our GDP, so it creates some jobs and income; however, the significant gains from providing the initial capital, network, and subscriber equipment, software and specialized services are gained offshore.

Restricted to voice.

The growth so far witnessed in the ICT sector has also largely been restricted to the voice telephony segment of the sector and has so far failed to extend to broadband and data segments. The huge dichotomy between the voice telephony and data segments is evident when statistics are presented. With tele-density in the country growing from below 2 per cent in 2001 to about 65 per cent in 10 years, the broadband segment is yet to catch up. Recent stats show that there are over 45 million internet users in Nigeria, which appears to be a huge number, until we note that this figure represents only 29 per cent of the population. In reality, we estimate that actual broadband penetration in Nigeria is in the 10 per cent range.

We at Main One believe that the goal in terms of broadband penetration should be such that there is a higher degree of penetration, and broadband is available in all parts of the country such that is starts to impact Nigerians’ lives in a meaningful way – in education, service delivery, government, commerce, and big businesses.

Where as there have been huge advances in international bandwidth, such as the advent of the Main One

E ach major oper ator in t he voice telephony ser vices has invested in their own infrastructure. Voice data requires limited bandwidth and the high population of Nigeria makes it easy for mobile operators to pass high costs on to consumers. However, broadband services require a lot more infrastructure, which is unaffordable to serve most parts of the country if the infrastructure is not scalable and shared between operators. So we need to ask: How can end users reap the benefits of abundant international bandwidth connectivity? And how can we resolve the issue of the access to distribution and last mile infrastructure? What is the role of the regulators and policy makers, and what amount of independence should be given to the free market?

Regulation.

Intervention in access to critical last mile infrastructure (backhaul and the local loop) for the deliver y of the services to the end user remains essential for progress. Regulating access to, and prices of, existing backbone and last mile distribution infrastructure will create competition and provide further incentives to new entrants to deploy only unavailable infrastructure.

The objective should not be to stifle growth in infrastructure development but to ensure that efficient competition is fostered and infrastructure builds are appropriately directed to meet areas where those needs truly exist, while service requirements in areas with existing backbone infrastructure could be immediately addressed. The nature of competition contemplated is the fair and competitive unbundling of local loop access to existing infrastructure by an infrastructure-owning operator to other service providers at prices that are reasonable and reflective of the economic cost of the provision and

Features Technology

Whereas there have been huge advances in international bandwidth, such as the advent of the Main One and Glo1 submarine fiber optic cable systems, this has not been translated to the end user due to a lack of privatized, national carrier companies.

and Glo-1 submarine fiber optic cable systems, this has not been translated to the end user due to a lack of privatized, national carrier companies. There is little domestic bandwidth in Nigeria to complement the international efforts that have been made. High domestic bandwidth prices, non-level competitive market for oper ators , inadequate access to last mile infrastructure fraught with discriminatory and prohibitive costs, and poor quality of service are symptoms of the domestic bandwidth sector that require urgent intervention.

maintenance of the infrastructure and sundry investment by the facility owners.

Though current regulatory prescriptions in Nigeria provide for such access to shared infrastructure, the scope and enforcement provisions of the regulations le aves more to be de sired . W hile t he re s pe c t ive provisions, the Communications Act and the Telecommunication Networks Interconnection Regulations, guidelines on Coloc ation and Infr ast ruc ture Sharing generally provide for access in one way or the other, there are no specif ic pricing regimes and enforcement of the current rules are not par ticularly f irm, even though some of these regulations sug gest that the prices should be reasonable, non-discriminatory, and cost based.

Specifically, there is no cost-based rationale for bandwidth from Lagos t o A buja or Por t H arcour t t o be more expensive than bandwidth between Lagos and London but such is the re alit y because there is no enforcement of the existing regulations for i n f r a s t r u c t ure s h a r i ng. G i ve n market antecedents, it is unlikely that infrastructure-owning operators are ever going to commercially agree rates that are truly cost based, competitive, and non-discriminatory w i t h o u t re g u l at o r y i n t e r ve n t i o n .

It is clear that the regulator must make strict pronouncements that mandate access and determine pricing in the interest of promoting broadband access, particularly in relation to duct space, dark fiber, other ancillary network infr a st ruc ture , and high , c ap acit y bandwidth needed to aid the market development of broadband services.

Several models abound all over the world and, looking inward, the Nigeria Communication Commission (NCC) could benefit from similar experience

The notion that government’s policy role should be limited and that market forces will solely drive broadband service availability beyond the most densely populated urban areas is simply wrong.

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Features Technology In reality, we estimate that actual broadband penetration in Nigeria is in the 10 per cent range. this development with NSFNet which led to the development of the Internet and companies like Cisco Systems and, more recently, we have Tenet in South Africa, Ubuntu in East Africa, NITA and GARNET in Ghana, but Nigeria is yet to boast of a Research and Educational network. in the voice telephony segment, which w a s l arge ly uncompe t it ive in re t ail and end user pricing until the three different phases of voice termination regimes were made by the NCC. The phased determinations have significantly improved competition in the voice market, helped to improve quality of services in the process, and drastically improved prices. M ain One , along with other industry players, firmly believes there is an urgent need for the Commission to implement a study of the wholesale leased line and other last mile access and distribution infrastructure market, and implement a firm access and pricing regulation and enforcement regime. Such regime needs to also clearly spell out the guidelines for sharing, with incentives and penalties for operators willing or unwilling to open up their networks to others at competitive rates. In addition, the measures would need to be structured in a manner that such incentives do not continue to strengthen dominant players, but support overall growth in the sector and local content development.

Policy and investment initiative In recognition that we are still lacking reliable power supply in Nigeria today, this poses a challenge, but similar to the challenges faced in the power sector today, we do not want to look back in ten years and face similar problems with regards to broadband communications. Today most developed and even developing nations recognize that access to broadband services is similar to the requirement of access to electricity, and government is a major driver in ensuring broadband services are deployed to every citizen. For example, National Research and Educational networks have been a major focus of government to drive broadband network deployment to educational institutions. The US pioneered 66

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Beyond funding support for research and educational networks, in areas where the infrastructure is inadequate or does not exist, the provision of special funds to enhance access to backbone and last mile infrastructure facilities across the country is urgently required. The National Policy needs to specify a transparent process that ensures competitive bids and an efficient monitoring system to guarantee optimum application of the resources to enhance existing infrastructure and/or new builds.

In addition, programs must be designed to cut across government agencies, federal and state governments or collaboration between agencies such as the CBN with the cashless Nigeria program and the telecomms regulator. If such programs are not leveraged to achieve the broader policy objective of broadband penetration, when will the opportunity exist? Likewise, if we continue to deliver satellite-based communications services to our schools, where is the opportunity to migrate to fiber and ensure that our students have enough bandwidth to support learning in today’s environment and that gets our educational institutions once again competitive? Lessons must be learned from previous initiatives that have failed to meet the expectations of the consumers and policy makers alike largely because they were based on frameworks that did not effectively consider their impact on the fulfillment of the project objectives, as well as the sustainability of the processes.

The notion that government’s policy role should be limited and that market f o rc e s w i l l so l e l y d r i ve b ro ad b a n d ser vice availabilit y beyond the most densely populated urban areas is simply wrong. Given today’s realities in Nigeria, government’s direct support is needed for infrastructure development for broadband services in urban areas as it is needed in

the rural areas. Direct financial incentives toward broadband last mile infrastructure development, which may be through a dedicated government controlled national broadband infrastructure development fund or application of the USPF fund which can be equally accessed by operators and services providers demonstrating clear and proven deployment strategy, operational antecedents, and execution plan. This needs to be supported by an efficient management and governance structure that will guarantee proper supervision to assess the service impact of the utilization of such funds. Such framework must take into consideration the need for local content development to ensure sustainability and economic growth. In order to ensure that, again, we simply do not become consumers of bro adb and se r vice s in a m anner s i m i l a r t o m o b i l e s e r v i c e s t o d a y, government suppor t needs to be geared toward the development of local companies, skills, and jobs that will foster innovation and creation of local wealth.

Nigeria cannot overlook the important economic benef it s of expanding it s broadband connectivity capacity if it were to compete with the global league of developed countries. Prior strategic plans of the NCC have secured mobile voice access in the country and such services are now available within no more than 30 minute travel time of every Nigerian.

If Nigeria is going to achieve Vision 2020 which will place it in the G-20 league of nations, or go from BRICS to BRINCS by joining the emerging economic bloc of nations in which S out h Afric a is already a member, the next strategic plan of the NCC must address growth in broadband capacity distribution to every corner in Nigeria. There is indeed ample need for the regulator and policy makers to take the lead in developing and implementing appropriate policies and regulations that encourage continued growth and investment in the sector in ways that ensure our public institutions embrace ICT, support ample creation of jobs, and ensure adequate local content participation and the creation of wealth and economic growth for more Nigerians.

The new NCC Strategic Management p l a n m u s t ad d re s s h ow b ro ad b a n d gets to every doorstep and how public institutions embrace ICT for service delivery to all Nigerian citizens.

Nigeria FeaturesSpecial International Politics and Business

Africa will grow exponentially Made In Africa’s founder Chris Cleverley explains why he thinks Africa’s growth will be greater, and will arrive sooner, than people expect.

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y 2012 the IMF estimated that, with GDP growth of 35 per cent, Sierra Leone had t he f astest growing economy in the world. An analysis by ‘The Economist’ reveals that from 2000-2010, six out of the world’s fastest-growing economies were in sub-Saharan Africa.

On IMF forecasts, Africa will grab seven of the top ten places from 2010-2015 (Ethiopia, Mozambique, Tanzania, Congo, Ghana, Zambia, and Nigeria). Libya will also return to being a powerhouse in Africa, as stability returns to the region. Over the past decade the average of countries’ growth rates was virtually identical in Africa and Asia. Over the next five years Africa is likely to take the lead. In other words, the average African economy will out pace it s A si an counterpar t .

Africa50 Fund L ast ye ar t he Afric an Development Bank (AfDB) led by its president Donald Kaberuka began a process by which the bank will create the Africa50 Fund. Africa50 is a new and innovative vehicle which is reimagining infrastructure financing and aims to unlock global private capital to close the Africa infrastructure gap. Africa50 will bring to the market much needed financing tools and services, mainly offered through its two sub-vehicles: Project Finance and Project Development. It will be groundbreaking in its design and structure, l eve r a g i n g i n f r a s t r u c t u re - f i n a n c i n g resources from a diverse set of sources.

Africa50 is in the process of raising US$ 10 billion to finance infrastructure projects

across the continent. My foundation, the Made In Africa Foundation, is the AfDB’s partner on the project development side.

This facility will be of a size capable of ensuring that the infrastructure projects – the roads, railways, ports, the clean water, abundant electricity, and the wireless connectivity – necessary to ensure that the renaissance of Africa occur. In the main, these will be the large regional integration projects contained in the AU-approved Program for Infrastructure Development in Africa (PIDA). The PIDA priority action plans require a US$ 68bn investment and US$ 10bn of equity investment should be able to stimulate sufficient debt support.

These amounts are big for Africa but not much when compared to

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International Politics Featuresand Business

other fast-growing regions. China , Russia, Brazil, and India all have fiveyear infrastructure plans requiring investment of over U S$ 20 0 bn.

What a more linear projection suggests will occur in 25 years will actually happen in 10 years.

It is estimated that PIDA will enable African countries to increase access to electricit y from 39 per cent in 2009 to nearly 70 per cent in 2040, thereby providing power access for an addi t ion al 8 0 0 million pe ople .

According to Shem Simuyemba, Chief Infrastructure Economist at the AfDB, by 2 0 4 0 , i t w i ll c re at e t r a n s p or t efficiencies of at least US$ 172 billion with the potential for much larger savings as trade corridors open up.

PIDA will boost broadband connectivity by 20 per cent – every 10 per cent increase in broadband penetration increases GDP by 1 per cent. And this investment will prevent the predicted coming crisis of food and water scarcity.

Personally, I believe that much of this will be achieved by 2025 rather than the more conservative estimate of 2040.

Growth patterns are not the result of linear interactions but rather the product of the innumerable connections of all the seemingly infinite variable opportunities. The greater the number of nodes of connections, whether they are geographic, demographic, or economic, the greater the density of potential destiny for growth is created.

What a more linear projection suggests will occur in 25 years will actually happen in 10 years – our growth will be accelerated, its impact exponential.

Africa will transform beyond recognition over the next decade.

Asian model These are the lessons that we learnt from China. The poverty rate in China changed from 16 per cent in 2001 to 4 per cent in 2007. This came down from a poverty rate of 60 per cent 25 years ago.

Over 500 million people have been lifted out of poverty in China. According to the World Trade Organization (WTO), 68

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in 2010 China ranked first in exports to the world market with merchandise export sales of more than US$ 1.5 trillion and a world market share of 10.4 per cent. In 1998, China had less than 2 per cent of the world market. Africa has presently 3 per cent of the world market share but can boast 15 per cent of the world’s population, 60 per cent of the world’s uncultivated arable land, and a fast-growing proportion of the world’s discovered valuable natural resources. Africa’s potential for growth over the next ten years is greater than China’s over the same period.

Such explosive growth patterns have bee n re plic at ed in S ou t h Kore a , Indonesia, Singapore, Dubai, Mexico and Brazil. More creates much more and when the law of mass action meets collective belief then the will of this continent shall be defined. Charles Robertson, Global Chief Economist of Renaissance Capital, estimates that Africa’s GDP will increase from US$ 2 trillion to US$ 29 trillion in today’s money by 2050. Africa will produce more GDP than the combined economies of the US and Eurozone do today. This is the potential for growth.

This is what we must strive for. It is the duty of Africans to dream big.

It is commonly told that the richest man in history was the African king, M ans a M us a . Look ing at Afric a’s potential wealth this should come as no surprise. Mansa Musa ruled West Africa’s Malian empire in the early 1300s, making his fortune by exploiting his country’s salt and gold production.

Many of the mosques he built stand today and the education and literacy that he brought to his capital Timbuktu resonate still. A fitting example to t he gre at Afric an e nt re pre neur s emerging in our age who have also set up foundations to aid and stimulate growth in Africa; an appreciation of communal responsibility that sets our philanthropic billionaires apart from the less benign Russian oligarchy and those of other emerging economies.

I n 2 011, O z w a l d B o a t e n g a n d I set up a foundation, the Made In Africa Foundation, with Nigerian businessman Kola Aluko and with the generous support of Atlantic Energy.

The intention was to support and fund feasibility studies, preparation materials, and master plans for t r ansfor m at ion al and l arge - sc ale development s and infr astructure

projects across the African continent.

We set ourselves the task of raising US$ 400 million and both the AfDB and the World Bank agree that this pivotal sum would be sufficient to provide bankable, investable studies to get the priority action plans of PIDA on the road. Lamentably, only 10 per cent of Africa’s trade is within the continent, as anyone trying to fly from Marrakech t o H ar are (a t rip t h at re quire s at least two stops including London, P ar is , or D ub ai) w ill unde r s t and .

Infrastructural advantage With proper master planning of the continent , Africa’s present lack of infrastructure shall be an advantage as it means that the most efficient routes, the cleanest energy, and the greatest benef it to bot h agricultur al value chains and the fast-growing African cities can be secured. Already, Africa is the leader in usage of mobile financial transaction technology through M-PESA. The efficiency that this and similar innovations will eventually create will spread to loans, insurance, mortgages, and ret ail transactions working in tandem with banks to create a private response to the woefully expensive and mispriced cost of debt and risk on the continent.

Africa’s GDP will increase from US$ 2 trillion to US$ 29 trillion by 2050.

If the world economy is to get beyond boom and bust , it requires African creators, farmers, workers, industrialists, and leaders to be given the tools and the opportunities to play their part for the good of all. It requires an efficient use of the world’s resources where processing plants and factories are sited near the raw materials and energy sources. It requires the positive growth of a strong African middle class of consumers of global goods and access to a life worthwhile for all.

Nigeria FeaturesSpecial International Politics and Business

Britain’s relationship with Africa Mark Lowcock, Permanent Secretary for the Department for International Development discusses Africa’s relationship with Europe and the UK.

O

ne of the major stories emerging from t he B RIC S m arket and South Africa is the emergence o f a B R I C S - l e d b a n k , w h i c h wo u ld have a significant impact upon Africa.

Inevitably this has led to discussion that such a bank could disrupt or rival the World Bank and other major financial institutions. I agree with Jim Kim, World Bank President , who has been clear that the establishment of a BRICS-led development bank would complement rather than rival the World Bank. There is a huge shor t fall in infr astructure investment in sub-Saharan Africa and South Asia that cannot be met by private flows or multilateral development banks currently working in those regions.

And I welcome the prospect that part of the savings of BRICS governments would be invested in addressing critical constraints to poverty reduction in the poorer countries of the world, as well as in the BRICS countries themselves.

At the same time the UK has invested up to £31 bn. (US$ 52.08 bn.) in Africa. I have talked in the past with ‘Corporate Africa’ about how best to channel this investment, and have been asked in what form we can expect to see a return on this investment.

There is a huge shortfall in infrastructure investment in sub-Saharan Africa and South Asia that cannot be met by private flows or multilateral development banks currently working in those regions.

As mentioned before by the DFID in ‘Corpor ate Africa’, the tot al annual infrastructure financing gap in Africa is

estimated at £20 bn. (US$ 33.6 bn.) by the World Bank. The UK government supports the Program for Infrastructure Development in Africa (PIDA) which was approved by African Heads of State in 2012 and which incorporates a Priority Action Plan of 51 regional projects with an estimated annual cost of US$ 7. 5 billion from 2012-2020. PIDA’s purpose is to provide a common fr amework for African stakeholders to build the transformational infrastructure necessary for more integrated transport, energy, ICT, and transboundary water networks to boost trade, spark growth, and create jobs across Africa. Implementing the program successfully will help deliver t h e AU ’s go a l o f a we l l - co n n e c t e d Africa, transforming the way it does business and realizing the building of t h e A f r i c a n E co n o m i c C o m m u n i t y.

We are providing significant support to implementing the Priority Action Plan in a range of ways – for example Corporate Africa 2014

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through our support project preparation facilities, through direct contributions from our country programs, and through our shares of the World Bank’s, African Development B ank ’s , and Europe an Investment Bank’s financial contributions to project implement ation. The key returns from these investments will be the growth in trade and development resulting from African countries’ growing economic links with each other, and through Africa’s fuller integration into the global economy.

For economic growth to make the biggest contribution to reducing poverty, the private sector needs to create productive jobs for poor people and to generate tax revenues which governments can then use to provide public services.

Reducing risks There is a perception that poor infr a s t r uc t ure in A fr ic a , a s we ll a s issues such as corruption, creates risks with investments. The question is how to deal with these risks. In terms of capital, investment risks are reduced through careful project preparation, st rong gover nme nt commit me nt t o t he inve s t me nt s , and gove r nme nt s’ ability to deliver a stable and conducive investment environment within their jurisdictions. The AU’s Program for Infrastructure Development in Africa is distinguished from what has been tried before through its detailed analytical process that produced a macro-outlook for infrastructure demand across a wide range of sectors. The process included examination of the bottlenecks, gaps, institutional inefficiencies, and lessons learned from previous planning initiatives in Africa which is intended to reduce future risk to investment in infrastructure.

Tackling actual and perceived corruption requires a range of responses. High among these is promoting transparency – increasing the opportunities for all stakeholders to access information, a goal to which the UK is absolutely committed, as shown by the strong transparency theme at the G8 Lough Erne Summit.

There are also impor tant steps that can be taken to influence international behavior; for example the UK has moved to he lp t ack le corruption over se a s with the passage of the Bribery Act. In terms of transparency coming from Britain, the Loch Erne G8 communiqué said: “We will act to restore confidence in the fairness and effectiveness of our international tax rules and practices, and to ensure t hat e ach countr y is able to collect taxes owing, and that developing countries are also able to secure the benefits of progress made on this agenda.” The G8 also asked the Organisation for Economic Co-operation 70

Corporate Africa 2014

and Development (OECD) to develop a “common template for country-bycountry reporting to tax authorities by major multinational enterprises.” This would be for all multinationals, not just the UK’s, and developing country tax authorities would be able to access the information. The G8 also endorsed the “Tax Inspectors without Borders” initiative , which aims to get exper t tax inspectors working alongside their counterparts in developing countries on audits of big companies. In addition G20 finance ministers last week endorsed a new Action Plan to combat corporate t a x av o i d a n c e . T h e a i m i s t o f i n d global solutions to this global problem.

DFID is already one of the most active donors on t a x issues. We recently announced that HMRC, funded by DFID,

will set up a dedicated t a x capacit y building unit to get HMRC experts out in the field helping developing country partners. But improving tax receipts in developing countries isn’t just about tackling tax avoidance by corporates – developing countries need to have broad tax bases with fair and ef f icient tax systems. Tax evasion is also a problem: making elites pay tax and finding out about undeclared assets held overseas.

This is why improving tax information exchange between countries was such a big par t of the G8 agenda and an area where DFID has led the field, for example, in providing assistance to help Kenya and Ghana implement international standards on tax information exchange.

Multinational companies bring significant, a n d n e e d e d , i nw a rd i nve s t m e n t t o African economies. It is essential that companies and governments engage in productive, and equitable, negotiations to agree the terms for resource extraction which ensure that local communities benefit. This is why DFID is currently reviewing options to support African governments building their legal capacity for negotiations in the oil, gas, and mining sectors. It is often challenging to ensure that there is full transparency around where the revenues from the multinational extractives companies

Translating growth into value For economic growth to make the biggest contribution to reducing poverty, the private sector needs to create productive jobs for poor people and to generate tax revenues which governments can then use to provide public services. Sustained economic growth historically has been associated with growing international trade. In Africa, significant infrastructure i nve s t m e n t i s n e e d e d , n o t o n l y t o enable efficient economic activity, but also to improve access of poor people to infr astructure ser vices, including water, sanitation, energy, transport, and telecoms.

There are many ways the UK can help facilitate this kind of development. UK businesses clearly need to be present and active in Africa. But the most important requirement is for national governments to understand how businesses, large and small, think and behave in terms of their investment decisions, and what they require in terms of a stable and conducive business environment. There has been some steady progress on this front in recent years, as shown by the gradual improvement in Africa’s ratings in the different Ease of Doing Business surveys. But overall Africa’s scores are still far too low, and much more needs to be done on this front to ensure that Africa is truly regarded as “open for business.”

What needs to be done The priv ate se c t or is t he e ngine of economic grow th – creating jobs, increasing trade, providing goods and services, and generating tax revenues to fund public services. Yet businesses will not grow and thrive unless the regulatory environment, and investment climate in which they operate, allows them to safely invest and expand. While the investment climate in Africa has improved in recent

years, Africa as a whole remains the least business friendly region in the world as ranked in the Doing Business and Global Competitiveness Index scores.

The DFID-supported Investment Climate Facility (ICF) for Africa works with African governments and the private sector to identify and remove key constraints to business and investment activity in that country. Over the past six years, the ICF has carried out 56 projects in 31 countries which have helped African governments, for example, to improve, the efficiency and speed of commercial courts, modernize land titling offices and make it easier for people to submit their tax returns and pay what they owe.

For economic growth to make the biggest contribution to reducing poverty, the private sector needs to create productive jobs for poor people and to generate tax revenues which governments can then use to provide public services.

To enable profitable business activity, more government action is also needed to improve reliability and efficiency in the service sectors, especially energy, transport, and communication services, including better coordination between countries in order to gain the benefits from regional infrastructure and services networks.

Sustainable energy There is a growing demand for energy in Africa – for economic development and to meet the needs of 80 per cent of people in sub-Saharan Africa without modern energy. Africa needs to use a range of resources available: both fossil fuels and renewable energy. It has an array of potential renewable energies on w hich t o dr aw – such a s hydro, solar, wind, geothermal – which can be effective sources of power. Renewable sources can be particularly suitable to increase access to modern energy for r ur al pe ople and communi t ie s w i t h

less chance of grid connection. Better household access to power can, for example , help children to study for longer and helps people communicate through radio and mobile phone.

UK assistance, especially through the International Climate Fund managed jointly by DFID and DECC, is helping renewable energy investments. Enabling private sector delivery and investment in power, including renewables, is an important aspect of ICF support. The UK provides support for grid connected renewables, such as through the new Green Africa Power initiative of the Private Infr astruc ture Development Group (PIDG). We also support off-grid access, including through a window of the Africa Enterprise Challenge Fund which provides seed funding for businesses that offer renewable energy products to rural communities, such as solar lighting systems. We are also contributing to the multilateral Climate Investment Funds, such as the Scaling Up Renewable Energy Program and the Clean Technology Fund.

Nigeria FeaturesSpecial International Politics and Business

flow; this is why the UK government has been a strong supporter of the new E x t r ac t i ve I nd u s t r ie s Tr a n s p a re n c y Initiative standard, including signing up to this ourselves, as well as promoting the EU Accounting Directive which requires project-by-project reporting of natural resource revenues by all companies listed in the EU.

The UK is not just helping to develop greener industries, however. Through mechanisms such as the EU -Africa Infrastructure Trust Fund, the UK has contributed to a wide range of major infrastructure projects in Africa. Three examples are the Kazungula Bridge which is enabling the growth of transport links and trade between Zambia and Botswana; rehabilitation of the Great East Road connecting central Zambia to its eastern province as well as to the Nacala Regional Transport Corridor which links Malawi and Zambia to the Nacala port in Mozambique; and the African Internet Exchange System (AXIS) which supports the creation of a continent-wide African internet system.

Each country’s economic development strateg y will ref lect its par ticular strengths, advantages, and constraints. But to underpin sustained economic growth, reliable and efficient services are needed in all infrastructure sectors: in the energy sector to enable efficient production, in the transport sector to reduce trading costs, and in the communications sector to facilitate production and trading. And as Africa urbanizes, good water supply will be essential too, in order to support rising living standards as well as production.

Corporate Africa 2014

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International Politics Featuresand Business

Africa’s Promise Elizabeth Littlefield is the President and CEO of the Overseas Private Investment Corporation, President Obama’s overseas development agency. She describes the huge investment in galvanizing public-private partnerships in Africa.

A

generation ago, many nations across sub-Saharan Africa had to promote their markets to global investors largely on the basis of promise; the bright future over the horizon.

Today, the case could not be more different. Tangible, compelling, and vivid proof of progress is everywhere at hand.

The rate of economic growth during the past decade has been roughly double the rates of the 1980s and 1990s. This has brought optimism to investors and has effectively changed the African narrative.

Africa’s economy once rose and fell in tandem with natural resource prices.

Now, most growth comes from sectors

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The main objective of Power Africa is to harness and catalyze private investment.

around 60 0 million people, still live without a basic element of the modern global economy: reliable electricit y.

Basic needs

The number is hard to conceive. Imagine the productivity loss from a one-day blackout for every nation of Western Europe plus Japan and South Korea. The population of those nations combined roughly equals the number of Africans who live without power throughout the year.

While this is long-overdue good news, any African will tell you the news could easily be much better. Even as Africa rises each year faster than its neighbors, more than half of Africans, which is

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go home to candles or lanterns?

Education is stunted. Healthcare suffers.

Africa’s power deficit is so pervasive that it shaves an estimated 2 per cent from the continent’s GDP each year.

Public-private partnerships Never before have entrepreneurs and investors been invited to take such a pivotal leadership role in addressing Africa’s problems at the intersection of

Obama’s initiative President Obama’s Power Africa initiative, steps up to this challenge, and it does so in a new, innovative way.

Rather than attempting to amass and direct donor money from development agencies and foreign countries, the main objective of Power Africa is to harness and catalyze private investment for electrification.

President Obama believes that Africa’s power shortfall can best be solved through the rapid, relentless innovation and costconscious refinements encouraged by market discipline. Rather than focusing exclusively on mega-projects, Power Africa will foster a diversity of projects: mini-grid, off-grid, conventional fuels, and renewables, as well as efficiency-enhancing projects in transmission and distribution.

The aim is to double access to electrical power across sub - S ahar an Africa .

The model is to leverage every US$ 1 of public funds into at least US$ 2 of private capital – provided investors are willing to meet minimum environmental and social standards, and operate w i t h s o u n d c o r p o r a t e g ove r n a n c e .

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Africa’s economy once rose and fell in tandem with natural resource prices.

economic growth, social progress, and environmental sustainability.

This public-private financing approach is viable. My agency, the US government’s Overseas Private Investment Corporation (OPIC), has been making it work in Africa for four decades.

Over the past decade alone, OPIC has supported over US$ 1 billion in power projects across Africa. Currently, we have more than US$ 4 billion in investments here, and it has been one of the fastest-growing segments of our portfolio in recent years.

I n Togo , for e x a m p l e , we p rov id e d loans and political insurance to a publicprivate, tri-fuel power plant that tripled energ y production in the nation and he l p e d re d u ce b l ac kou t s t h at we re c r i p p li ng t o b u sine s se s a nd ho me s .

In late 2013 OPIC approved US$ 185 million for a solar park that will power into the South African grid. In addition to increasing electrical capacity, it will create good local jobs. The manufacturer and supplier of the solar modules for the park are majority-owned by South Africans.

As the sole development finance agency of the United States, we are capable o f p rov i d i n g f i n a n c i n g , g u a r a n t e e s , political risk insurance, and support for private equity investment funds. The key dif ference bet ween OPIC and a private investor, however, is that we only participate in a project if it will generate jobs, improve lives, or help communities.

We also have a mandate to foster solid business practices and the highest standards of transparency.

Accountability is essential. OPIC does not merely hope that such benef its will be generated by our projects. We track results. We evaluate effectiveness. We constantly learn from our experience in projects large and small.

When I traveled to West Africa in late 2013, one of my primary goals was to listen. We want to hear investment ideas of all types–large or small, high-tech or low-tech. We seek disciplined partners who can combine their unique knowledge of loc al m arke t s wit h a p a ssion for commercial excellence and making an impact on people’s lives.

Features Interview

GROWING FROM WITHIN Elsie Kanza is the Head of Africa at the World Economic Forum. She talks to Corporate Africa about the model for success on the African continent.

I

n May the World Economic Forum (WEF) will host its forum on Africa.

This meeting will take place in Nigeria a nd w ill con si s t of A fr ic a’s le ad ing entrepreneurs, politicians, and academics w o r k i n g t o g e t h e r t o p l o t A f r i c a’s d eve l o p m e n t ove r t he ne x t t we l ve months. Africa’s surge in economic growth has created new opportunities in business and investment in Africa but the priorities remain the same: creating access to wealth and basic living standards for the majority of Africans; integrating industry across regions throughout the continent; and creating new, sustainable partnerships for national and international investors.

I sit down with Elsie Kanza to discuss t h e f o r m u l a f o r d e ve l o p m e n t t h a t will be discussed at the Africa forum.

1 In spite of Africa’s continued economic

growth, many Africans still live without electricity and in poor living standards.

How is the World Economic Forum on Africa going to resolve the problem of poverty and poor living standards in Africa, and reconcile its new found wealth with grassroots poverty?

U n f o r t u n a t e l y, p ove r t y re m a i n s widespread across Africa and inequalities of various kinds are increasing. Also, there are more people aged under 30 in Africa than anywhere in the world – all of them need jobs, yet there are few answers about how to address this challenge decisively. The purpose of the forum on Africa is based around interrogating what

it takes to deliver and what success looks like. This idea of getting things done, how to get things done, and learning from what has been done is translated into three main areas of focus: “Redesigning Growth Models” will look at how growth strategies can be inclusive and job creating; “Deepening Investment Partnerships” will try to identify opportunities for business to deliver both market and social returns; and “Accelerating Society’s Transformation” aims to scale grassroots innovations in social service delivery, especially in education, technology, and health. Frankly, on all of these issues, we need to move faster and our aim is to create a sense of urgency and encourage our leaders to be bold in action.

2 What is the World Economic Forum’s number one priority for the next 12 months, and how will it achieve this goal?

Central to all our activities is harnessing Africa’s greatest asset: its people.

The Forum’s mission is to bring together different actors from all backgrounds and sectors of society to solve the world’s toughest challenges. This translates into myriad goals across all areas of human development, including food security, infrastructure development, education and employment , gender parity, and human rights. In Africa, my team has Corporate Africa 2014

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focused on addressing issues critical to Africa such as competitiveness, food security, infrastructure development , water resource management , natural resources management , and f inancial inclusion. Central to all our activities is harnessing Africa’s greatest asset: its people.

3

What developments are we likely to see in the agricultural sector in Nigeria and other African countries, particularly regarding the fact that thi s i s the predominant inter-regional industry in most African nations and states?

African economies import agricultural products from global markets instead of from within their own regions. The continent’s cereal farmers, for example, produce a mere 5 per cent of Africa’s imports, according to a recent World Bank report. High transaction costs, low regional integration and an over-reliance on food imports puts countries against the wall whenever wholesale prices surge.

The situation can change. The African market of food staples and production is estimated at US$ 50 billion per year, or three - quar ters of the tot al agricultural output. So, enormous growth oppor tunities remain unexploited.

Regional integration is, therefore, key to feeding Africa’s growing population in a sustained fashion by facilitating trade from food-abundant areas to areas with a food deficit. The Forum is very active in furthering projects in agriculture. This year, Grow Africa – a project jointly led with the African Union and the New Partnership for Africa’s Development (Nepad) – will hold a one-day summit on 7 May. Founded three years ago, it has unlocked local and international private sector commitments totaling over US$ 5 billion to invest in African agriculture. At the same time, it is developing funding and business models to ensure that smallholder farmers directly benefit from this momentum.

4

How will African entrepreneurs be supported in setting up their businesses at home and abroad? What policies and actions can be taken that will improve Africa’s trade and investment relations with other countries around the world?

There are several key challenges that we expect our participants to address: First, upholding good governance (both by governments and businesses) and developing transparent and ef fective institutions while enhancing productivity 76

Corporate Africa 2014

and competitiveness. Second, investing s u b s t a n t i a l l y i n u p g r a d i n g A f r i c a’s i n f r a s t r u c t u r e , e s p e c i a l l y e n e r g y, t r anspor t at ion , and communic at ion net work s. This is a prerequisite for industrialization and trade, by adding value and facilitating the movement of people and skills, and enabling entrepreneurs to get their goods and services to markets in a secure and timely manner. The third key challenge is investment in education and training and improving access to affordable financing for entrepreneurs.

These must be tackled urgently if the region is to attract the level of investment that it needs to meet its transformation agenda.

5

In terms of trade, investment and economics, what kind of damaging effect is terrorism having on African nations?

Te r r o r i s m a n d t h e f e a r o f a t t a c k s continues to cast a shadow in some co u n t r ie s . I n t h ose cou n t r ie s , i t i s necessarily dampening investment and adversely affecting those economies.

However, the majority of African nations are not experiencing terrorism and this is evidenced by the fact that sub-Saharan Africa continues to grow at above 5 per cent per annum. Trade and investment, both within the continent and globally, continues to rise. Thus, it is important to correct the misperception that a problem in one country is equally a problem for over 50 countries. Indeed, the Africa narrative is one of the topics to be discussed at the World Economic Forum on Africa in Abuja. Nonetheless, insecurity in a few countries poses a risk for other countries on account of spillover effects, including the displacement of people. Accordingly,

The main objective of Power Africa is to harness and catalyze private investment. peace, security, and fragile economies are all on the agenda in Abuja. We are emphasizing the urgency with which Africa’s leaders must build the governance structures that can drive optimal societal and economic transformation.

6

Is Nigeria reliant on its status as an oil export-based country? What is going to be done to change this?

For Nigeria and all African countries, two inter related challenges are critical: diversifying the structure of their econo-

mies in order to reduce vulnerability from commodity price swings, and accelerating regional integration. Countries are losing out on billions of dollars in potential trade every year because of the continent’s fragmented markets. The production networks, diverse markets, and competitive measures that spurred economic dynamism in other regions, especially East Asia, have yet to materialize in Africa.

The dependence on commodity exports means that fluctuating prices can seriously disrupt a country’s growth. Government finances are also vulnerable. Structural transformation and regionalization are on the meeting agenda in Abuja for government, business, and civil society leaders to discuss with a view to exchanging best practice and emerging with concrete solutions.

7

Which industries are going to be the biggest provider of jobs for Africans in the next ten years?

Sectors such as agriculture, banking, consumer goods, infrastructure, commodities, and telecoms, have been cited as areas of serious potential in recent years. I believe that any industry that is focused on meeting the needs of Africa’s burgeoning consumer market, at all levels of society, has the potential to be a big provider of jobs for Africans.

To m e , i n f r a s t r u c t u r e , e d u c a t i o n , and competitiveness remain critical prerequisites for success. Underpinning all aspects are effective leadership and good governance that is concerned about ensuring that all Africans participate in the continent’s growth and transformation agenda.

L'IVOIRIEN EMMANUEL ESSIS, ÉLU À LA TÊTE DU RÉSEAU DES AGENCES FRANCOPHONES DE PROMOTION DES INVESTISSEMENTS (RIAFPI) CÔTE D'IVOIRE - L'Ivoirien Emmanuel Essis,

Il s'agit notamment de "convaincre la République de Côte

Directeur Général du Centre de promotion des

d'Ivoire pour un accord de siège entre le Réseau et l'Etat

investissements en Côte d'Ivoire (CEPICI) a été élu à la

ivoirien" et de "proposer un budget, rechercher des

tête du Réseau International des Agences Francophones

financements et des partenaires en vue de promouvoir les

de Promotion des Investissements (RIAPFI).

investissements dans l'espace francophone", a indiqué Emmanuel Essis.

Au terme d'une Assemblée Générale qui s’est tenue le lundi 17 mars 2014 à Abidjan, Emmanuel Essis, a été porté par

Le Réseau International des Agences Francophones pour la

ses pairs, pour un mandat de cinq ans, à la tête du Réseau.

Promotion des Investissements comprend 16 pays dont Le

Il est le premier président élu à la tête du Réseau.

Maroc, le Congo Brazzaville, la Guinée, la France, la Belgique, les Comores, le Sénégal, le Mali, le Burkina

La mission de M. Essis va consister, entre autres, à

Faso, le Cameroun, le Niger , la Mauritanie, le Burundi, le

"traduire dans les faits" les recommandations arrêtées au

Liban, le Bénin et la Tunisie ainsi que trois organisations,

cours de la rencontre d'Abidjan qui a permis au Réseau de

la

se doter de statuts et d'un règlement intérieur et de mettre

l'Organisation internationale de la francophonie (OIF) et

en place ses organes dirigeants.

l'Organisation des Nations unies pour le développement

Banque

africaine

de

développement

industriel (ONUDI).

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