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F E AT U R E S Outlook – Africa in 2019 Fr e n c h c o m p a n i e s e x p l o r e E a s t A f r i c a Should Zimbabwe adopt the rand? Nigeria: Abubakar takes on Buhari A f C F TA : I s A f r i c a r e a d y f o r f r e e t r a d e? INTERVIEWS G i l b e r t H o u n g b o , P r e s i d e n t , I FA D A l b e r t Z e u f a c k , Wo r l d B a n k Bruno Mettling, Orange
TIPPING POINT A f r i c a’s w a s t e c h a l l e n g e
Euro Zone €5.00 ● UK £4.00 ● USA $6.50 ● Algeria DA 300 ● Angola 1000 Kwanza (AOA) ● Australia A$ 7.50 ● Bahrain BD 2.00 ● Canada $6.50 CFA Zone CFA 3.000 ● Cyprus 4.00 ● Denmark DKr 40 ● Egypt E£ 33 ● Ethiopia R 90 ● Gambia Da 150 ● Ghana GH¢ 12.00 ● Indonesia R45,000 Jamaica $680 ● Jordan JD 3.500 ● Kenya KShs 350 ● Kuwait KD 1.500 ● Lebanon LL 7500.00 ● Malaysia RM 15.90 ● Mauritius MR 150 ● Morocco Dh 39 ● Norway NOK 59 ● Oman OR2.00 ● Qatar QR 20 ● Rwanda RWF 3000 ● Saudi Arabia Rls 20 ● Sierra Leone LE 20.000 ● Singapore $7.50 ● South Africa R40.00 (inc. tax) ● Other Southern African Countries R 35.10 (excl. tax) ● Sweden SKr 33 ● Switzerland SFr 8.70 ● Tanzania TShs 6,500 ● Tunisia TD 5.000 ● Turkey 10.000YTL ● UAE Dh 20 ● Uganda USh 10,000 ● Zambia ZMK 45 ● ●
Mapping new frontiers in Africa
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C O N T E N T S January 2019 ISSUE N° 459 WWW.ICPUBLICATIONS.COM UNITED KINGDOM IC PUBLICATIONS 7 Coldbath Square London EC1R 4LQ Tel: +44 20 7841 3210 Fax: +44 20 7713 7898 email@example.com africanbusinessmagazine.com FRANCE IC PUBLICATIONS 609 Bat A 77 rue Bayen 75017 PARIS Tel: +33 1 44 30 81 00 firstname.lastname@example.org www.icpublications.com FOUNDER Afi f Ben Yedder EDITOR IN CHIEF Omar Ben Yedder email@example.com ACTING EDITOR David Thomas firstname.lastname@example.org DIGITAL EDITOR Taku Dzimwasha SUB EDITOR Charles Dietz email@example.com STRATEGIC DIRECTOR Christian Udechukwu CONTRIBUTORS Giorgio Berti Tom Collins Tendai Marima Chris Matthews Linus Unah Stephen Williams SUBSCRIPTIONS IC Publications Webscribe Unit 4, College Business Park College Road North Aston Clinton, HP22 5EZ UK Telephone: + 44 (0) 1442 820580 firstname.lastname@example.org www.africanbusinessmagazine. com/subscribe
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COVER STORYTIPPING POINT: AFRICA’S WASTE CHALLENGE 4
News, deals and events from around Africa
COVER STORY: WASTE MANAGEMENT
10 Tipping point: Africa’s waste challenge
18 The View: South Africa-Nigeria axis flounders 21 Outlook: What does 2019 hold for Africa? 28 Interview: Albert Zeufack, World Bank Chief Economist for Africa 30 Progress on path to free trade 32 French companies explore East Africa 36 Emerging business: Smarter office spaces for Africa 38 Interview: Gilbert Houngbo, President, IFAD 41 Interview: Sebastian Mikosz, CEO, Kenya Airways
44 Nigerian internet firm widens the net 53 Interview: Bruno Mettling, President of Orange, Middle East and Africa 56 Interview: Admassu Tadesse, President and CEO, TDB 58 Opinion: Insular aspirations take their toll on growth 60 Egypt pledges to boost investment and cooperation
64 Zimbabwe’s currency crisis 66 Eritrea: Peace leads to economic uptick 69 Can Abubakar get Nigeria working again?
72 New strategies to address growth, jobs and inequality
74 Cop24: Africa faces climate heat
4 African Business January 2019
Business Intelligence News African countries implemented 107 reforms this year alone
AFRICA IMPLEMENTS RECORD REFORMS African countries have implemented the highest number of businessrelated reforms each year since 2012, with 107 reforms carried out this year alone, which is a regional record, according to the World Bank’s Doing Business 2019 report. The report captured 314 reforms enacted around the world. Among the top 10 improved nations in the report, five were African countries: Djibouti, Togo, Kenya, Côte d’Ivoire and Rwanda. The latter ranks second globally for registering property and third for the ease of getting credit. Overall, the highest ranking African country for the ease of doing business was Mauritius and the lowest ranking was Somalia, which came bottom of the global rankings.
107 Africa tops growth potential
African carriers are expected to report a $300m net loss in 2019, a slight improvement from their $400m net loss in 2018, according to the International Air Transport Association’s latest outlook for the global industry. The expected net loss per passenger is $3.51, making Africa the weakest region, as it has been over the past four years. Performance is improving, but only slowly, according to the organisation, which says that losses are expected to be cut in 2019 as fuel prices decrease. The region benefits from higher-than-average yields and lower operating costs in some categories, but few airlines in the region are able to achieve adequate load factors to generate profits.
European Union extends DRC sanctions
The Council of the European Union has extended its existing sanctions on the Democratic Republic of Congo (DRC) until 12 December 2019, including an asset freeze and travel ban targeting 14 individuals. The sanctions were imposed in 2017 in response to the country’s electoral process. In a statement, the Council said that it will review the restrictive measures following the upcoming elections in the DRC and stands ready to adjust them accordingly.
Djibouti – one of the world’s most improved countries for doing business, according to the World Bank.
VISA-FREE ACCESS to over 120 Countries Trusted, efficient and STREAMLINED APPLICATION PROCESS Citizenship can be passed to FUTURE GENERATIONS
6 African Business January 2019
Business Intelligence Deals s
$200m EX-VODACOM CHIEF PLOTS $200M IPO WAR CHEST Former Vodacom executive Romeo Kumalo (pictured below) has launched a tech-focused investment firm that aims to raise at least $200m in an initial public offering in 2019. Kumalo, who led Vodacom’s international business until 2016, has teamed up with fellow South African business veterans including banker Michael Jordaan to start the company that will focus on investments in the country. The firm, dubbed LLH Capital, aims to invest in internetrelated businesses and industries such as drones and car tracking. It plans to undertake a joint listing in Johannesburg and Mauritius, while raising an additional $250m to $300m for a deals fund.
Capitec’s $232m acquisition of Mercantile approved
South Africa’s Capitec Bank has purchased Mercantile Bank for R3.2bn ($226m). The deal comes after the Portuguese government approved the sale of Caixa Geral de Depósitos’ (CGD) 100% stake in Mercantile. Capitec, which hopes to formally enter the business banking space through Mercantile, secured the deal ahead of Nedbank and the Public Investment Corporation (PIC). Capitec Bank reported a 13% year-on-year rise in net income to R6.7bn in the six months ending August 2018.
LLH Capital aims to raise $200m in an initial public offering in 2019
Airtel appoints 8 banks for IPO
Bharti Airtel’s Africa unit has appointed eight global banks for its IPO on the London Stock Exchange next year. The India-headquartered company, which was aiming to raise $8bn, has appointed JP Morgan, Citigroup, Merrill Lynch, Absa Group, Barclays Bank, BNP Paribas, Goldman Sachs and Standard Bank Group to support the listing. The appointment of the banks comes a month after the Africa unit raised $1.25bn from six investors, who valued the company at $4.4bn. The news comes after the telecom giant reported an 11% increase in revenue in the quarter that ended in September 2018.
The value of Senegal’s compact with the Millennium Challenge
Senegal compact will boost access to electricity
Senegal has signed a $550m compact with the Millennium Challenge Corporation, a US government development agency, to boost access to electricity. The government of Senegal will contribute an additional $50m to the compact, bringing the total programme to $600m. The compact will strengthen electrical transmission links in Senegal’s capital, Dakar, expand electricity coverage in rural areas, and improve overall governance of the power sector. The countries also discussed cooperation on matters of regional security.
$550m CDC invests in Liquid Telecom
CDC, the UK’s overseas development finance institution, has announced a $180m equity investment in Liquid Telecom, the pan-African fibre and cloud provider that is 51% owned by Strive Masiyiwa, chairman of Econet Global. The deal is CDC’s first direct investment in an African telecoms company in over 20 years and its largest single investment since it acquired the pan-African power company, Globeleq in early 2015. The investment will enable the firm to accelerate expansion on its Capeto-Cairo route and move further into Central and Western Africa, according to CEO Nic Rudnick.
$3BN DEAL THREATENS WILDLIFE Tanzania will sign a controversial $3bn deal to build a hydroelectric power plant and dam in the Selous Game Reserve (pictured below), according to the government. The 2,100 MW plant, to be built by Egypt’s Elsewedy Electric Company and Arab Contractors, is expected to double the country’s power generation capability. Yet conservationists say that the deal could threaten wildlife and the livelihoods of residents in the game reserve, which is a UNESCO World Heritage Site.
8 African Business January 2019
Business Intelligence Appointments s The sum the Nigerian government is claiming from MTN
MTN loses two execs
Multinational telecommunications company MTN has lost two key executives in a short space of time, as the firm continues to negotiate with Nigeria over $10bn worth of claims. Chief innovation officer Herman Singh and chief technology officer Babak Fouladi have moved on, with the former starting his own venture and the latter joining Dutch telecoms firm KPN NV. The losses come at a critical moment for the firm, which was fined $5.2bn in 2015 and has faced multi-billion dollar demands this year. The company’s stock price has halved in three years despite subscriptions continuing to increase.
COCA-COLA APPOINTS NEW CEO Coca-Cola Beverages Africa has appointed Jacques Vermeulen as its CEO. He takes over from Doug Jackson, who has 35 years’ experience at the firm. Vermeulen, who first joined Coca-Cola in 1995, was previously managing director of the company’s international division. Coca-Cola Beverages Africa, which was formed following the merger with SABMiller and Gutsche Family Investments, has 40 bottling plants across Africa, and annual revenues of $3bn.
$10bn Kenya port’s new MD
Kenya Ports Authority (KPA), which runs the port of Mombasa, has appointed Daniel Ogwoka Manduku as its new managing director. He replaces the former managing director, Catherine MturiWairi. Manduku, an architect and former chief executive of the National Construction Authority, was appointed after being headhunted by Deloitte Consulting in May on a temporary basis, but his strong performance in running the port convinced the country’s transport secretary to employ him full time.
KPMG South Africa’s new CEO
Under-fire KPMG South Africa has appointed Ignatius Sehoole as its new CEO, as it attempts to rebuild its reputation after being caught up in corporate scandals. The company has been linked to the Gupta family and VBS Mutual Bank scandals that have gripped Africa’s second-biggest economy. Sehoole, who previously worked as PwC joint deputy chief executive and executive president of the South African Institute of Chartered Accountants, will take over the local operation for KPMG in South Africa on 1 May 2019. He has Bachelor’s degrees from the University of South Africa, Vista University, and the University of South Africa Foundation.
The annual revenues of Coca-Cola Beverages Africa
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10 African Business January 2019 COVER STORY WASTE MANAGEMENT
January 2019 African Business 11
Waste management is a growing problem across the continent, but there are signs that Africa is starting to wake up to the urgency – and the opportunity – of treating waste sustainably.
TIPPING POINT: AFRICA’S WASTE CHALLENGE
12 African Business January 2019 COVER STORY WASTE MANAGEMENT
or five decades, the Koshe landfi ll site in Addis Ababa served as a vast open-air dump for Ethiopia’s sprawling capital. Day after day, tons of rotting food and plastic were poured onto its fetid mounds, to be sifted by scavenger birds, rodents and impoverished informal workers living in its shadow. On the night of 11 March 2017, disaster struck. Tons of waste became dislodged from the mound, sending a garbage avalanche of unstoppable force towards the makeshift shacks that workers called home. The sun rose the next day to a scene of carnage. Dozens of shacks were submerged in the waste. Emergency workers sifted through piles of steaming rubbish in a desperate hunt for survivors, using a digger when manual labour proved inadequate. Grieving families wept openly as they awaited news of their loved ones. By the time the rescue operation had drawn to a close, 115 were dead. As three days of public mourning unfolded, the government announced an inquiry to investigate the causes of the disaster. Some residents blamed the collapse on the nearby construction of a biogas plant. For many, the landslide was the inevitable result of decades of neglect. Throughout Africa, millions of citizens are forced to use unplanned open-air dumping sites or burning to dispose of their waste. As vast urban settlements continue to swell, scarce collection and processing services are contributing to a mounting waste crisis. The human and ecological costs are stark. Toxic liquid seeps into the soil, polluting water courses and drinking supplies. Open-air burning sends plumes of coal-black smoke into towns and villages, sparking respiratory illnesses. While landslides on the scale of Koshe are rare, death, illness, and debilitating injury among informal workers are not. As Africa’s urban growth mushroomed by 3.55% per annum over the last two decades – a trend expected to continue well into the future – the problem has only become more acute. Africa’s waste generation is expected to reach 244m tonnes per year by 2025, almost double that of 2012, according to the Africa Waste Management Outlook, a 2018 report from the United Nations Environment Programme and partners. SubSaharan Africa is forecast to become the largest area of total waste generation in the world on current trends. Yet municipal solid waste (MSW) collection in Africa was estimated to stand at just 55% of waste generated in 2012 on average, and as low as 20% in some countries.
Waste is a resource, it has value for an economy, and if you can recognise that, it does unlock socioeconomic opportunities.
“If you look at the expected changes in terms of population, urbanisation, and a growing middle class, we know we will see significant changes in waste generation,” says Linda Godfrey, coordinating lead author on the Africa Waste Management Outlook and a principal researcher at South Africa’s Council for Scientific and Industrial Research. “It almost doesn’t matter what other countries in the world are doing, it will be overshadowed by what happens on the African continent in the coming century,” she says. “The concern is that the current systems, infrastructure and technology that we have in place are inadequate, and so we’re going to see significant change on a shaky foundation, and that raises particular red flags.” As politicians have striven to meet citizens’ basic food, health and education needs, waste collection and processing have been shunted down the policy agenda and deprived of budgetary support. Weak regulation and a lack of legislative oversight have added to the sense of drift. “The regret is that it has not got the political priority it deserves,” says Oladele Osibanjo, a waste expert and chief executive of Nigerian consultants Jawura Envi-
January 2019 African Business 13
ronmental Services. “Funding for waste management is ridiculously low – they don’t understand the rudiments, the serious ecological and human costs.” And yet there are signs that Africa is starting to wake up to the urgency – and opportunity – of sustainable waste management. As governments look for creative ways to tackle climate change, reusing and recycling are becoming increasingly popular. Africa’s urban trash, once deemed worthless, is now estimated to have an annual value of at least $8bn, leading scientists to promote waste as a critical economic resource capable of driving private sector-led growth and employment. “We’ve tried to flip the story to say that waste is a resource, it has value for an economy, and if you can recognise that, it does unlock socio-economic opportunities and create jobs,” says Godfrey. “That argument finds political traction with high levels of unemployment and slowing economies. If that’s the way we have to drive this discussion, so be it.” Rethinking waste Just minutes from the site of the Koshe tragedy, a stateof-the-art plant looms over the surrounding area. In
Above: Destruction caused by the landslide at Koshe landfill in Addis Ababa.
the control room, Chinese characters flash across an electric ticker. The Reppie waste-to-energy plant, which began full construction in 2014, is a $120m project inaugurated in August that is intended to reshape the future of waste in Ethiopia. Planned and designed by Cambridge Industries (CIL), and developed with consortium partners including state-owned China National Electric Engineering for owner Ethiopian Electric Power, the grey, rectangular structures are an ambitious private sector bid to use the huge amount of waste generated in Addis Ababa to generate power, while ending the city’s reliance on Koshe and other dangerous dumping sites. If the project succeeds, CIL is considering expansion to cities across the continent. The principle is simple. Waste is burned in a combustion chamber, which in turn heats tubes of water within the boiler walls, producing steam. The steam is then used to drive a turbine generator that produces electricity. CIL says that when fully operational, the plant can receive 420,000 tonnes a year of rubbish – over 80% of the city’s currently collected waste – while generating over a quarter of current household consumption of electricity. That is just one of the byproducts that managing director Samuel Alemayehu says will emerge from the truckloads of waste that arrive at its doors every day. “We want to create value from everything within the waste stream. The leachate treatment facility treats toxic water from the garbage and converts it into clean water that can be used to water plants or wash the streets. And the super magnets in the ash treatment area sort scrap metal for recycling. The residual bottom ash can be used for construction purposes including brick making,” he says. Waste-to-energy has its sceptics, including Linda Godfrey, who argues that while it can be part of a portfolio of technologies, it can also prove expensive. The high organic content of much African waste – organic waste accounts for 57% of MSW in Africa – can also make incineration inefficient, Godfrey argues, requiring the pre-separation of materials before burning. Nevertheless, Reppie’s ambitions to extract a range of products from waste chime with calls for Africa to adopt a “circular economy” – a system in which resources are used for as long as possible, eking out maximum value, before being recovered and regenerated. Until recently, that seemed like a pipe dream, despite African Union calls for African cities to commit to recycling at least 50% of the urban waste they generate by 2023. The Africa Waste Management Outlook
14 African Business January 2019 COVER STORY WASTE MANAGEMENT
estimates that just 4% of the 125m tonnes of MSW produced annually in urban Africa are recycled, recovering a mere $318m in value. But if the recovery rate were to increase to 50%, the value of the reclamation could increase to $4bn per annum. It is those sorts of figures that are rousing the attention of private sector operators such as CIL. Godfrey says that the private sector’s involvement will be crucial in the absence of reliable government funding. “One of the key messages is that this can’t be done with government alone, it has to be done through public-private partnerships,” says Godfrey. “Many municipalities are bankrupt, they don’t have the ability to lend money or raise capital for investments in infrastructure, so the easiest way is to partner with the private sector. Unfortunately it’s still seen as a high-risk investment area, so we have to change that perception.” For CIL, government support is crucial for providing consistent delivery of waste to the Reppie Facility. Waste collection in Ethiopia is the responsibility of municipal government, which raises collection fees through a levy on customers’ water bills. Without this reliable waste collection, Alemayehu says that Reppie’s recycling and electricity generation efforts would prove unsustainable as a business concern. “Here’s the challenge, you need a partnership with government. We prefer it to be a private operation because it makes a whole lot of things easier and we’re able to move a lot faster, but its profitability depends on the reliability and supply of garbage, and collection is done in the municipalities. Ethiopia and Senegal have done a fantastic job of setting the precedent for how waste collection can be done. But if you can’t rely on garbage collection, or you’re not getting proper compensation on waste disposal, or not getting paid what would have been spent on landfi ll, then it gets a bit tough.” In many countries on the continent, collection services are limited to city centres at the expense of poorly served suburbs and rural areas. With an estimated 56% of sub-Saharan Africans living in slums, a lack of road access and basic waste infrastructure makes the problem even more acute. In Nigeria, some municipal governments have yet to organise efficient collection financing systems, and remain dependent on variable state or central government support. As a result, some industries, including soft drinks manufacturers like Coca-Cola, are beginning to take an active role along the waste chain, contributing to reuse and recycling initiatives with the active encour-
Link-ups between the formal and informal sectors will prove ever more crucial to unlocking waste’s true value.
agement of government. But if Nigeria is to attract large private sector interest, governance structures and regulation will require a radical rethink. “The city councils and municipal governments in Nigeria by law are supposed to take care of waste, but they are not equipped in terms of management and resources,” says Osibanjo. “Some of the laws are antiquated and need a lot of revision, and jurisdictional conflict is a problem. The way the system works is top down – it needs the political class at federal and state level to look at governance structures, regulations and how to operate in an efficient manner.” Reppie’s Alemayehu says that getting the relevant departments around the table is the critical factor in persuading private sector operators that they can turn enough profit. “It’s not a sector where you are getting runaway success, where your return is 50% a year. It’s a long-term investment that requires patient capital. But it’s also a very attractive return. The challenge of this type of investment in waste-to-energy is it requires multiple ministries to work together. Municipalities have to sit at the table, the utilities have to sit at the table, the finance ministry, which guarantees the power purchase agreement, has to sit at the table. That’s been the big challenge, they don’t always work very well together, but when they do it’s a rewarding investment for everyone involved.”
January 2019 African Business 15
Just 4% of the 125m tonnes of municipal solid waste produced annually in Africa are recycled.
Above: A reclaimer separates garbage. Hundreds of thousands of informal workers make a living this way.
Informal sector Welcome as they are, attempts to attract big business to African waste management often overlook the fact that a vibrant private sector already exists in the shape of the hundreds of thousands of informal workers who toil in the dangerous conditions of Koshe and other dumps. Risking life and limb to sift through public dumping sites, such workers have long been attuned to the financial opportunities of reuse and recycling. Many of these informal workers instinctively view attempts to clamp down on open dumping as an unwelcome threat to their livelihoods. Yet alliances between the formal and informal sectors could unlock huge benefits to both groups. In Lusaka, Zambia, the net cost of waste collection is $1.60 per tonne in the informal sector, compared to $10.40 in the formal sector. The expansion of the formal private sector could offer thousands of informal workers regular, safer waste collection roles at reasonable cost. “We can start to acknowledge the role the informal sector play and reward them in terms of the resource value and the services they provide in material collection. Because we have an informal sector we are able to introduce recyclable material into the value chain at low cost to government and business, but we have to do it in a way that doesn’t exploit the informal sector,” says Godfrey. Attempts to formalise the sector by encourag-
4% ing informal workers to collaborate have not always proved successful – nine out of 10 waste and recycling cooperatives fail, according to South Africa’s Department of Trade and Industry. But as the quantity of sophisticated waste, including electronics – commonly known as e-waste – expands in Africa, link-ups between the formal and informal sectors will prove ever more crucial to unlocking waste’s true value. About 2.2m tonnes of e-waste was generated in Africa in 2016, a number expected to increase exponentially as cell phone and personal computer uptake continues on the continent. While informal workers have long sifted dumpsites for valuable electronic goods, their rudimentary training and limited knowledge of e-reuse and e-recycling means that the true value of electronic goods can often be underexploited. Instead, the private sector could invest in efficient dismantling and processing plants while paying the informal sector for collection. Such an approach could unlock value, improve worker safety, and allow for greater data collection around recycling, according to Osibanjo. “The waste hierarchy has to build capacity through training. Train and equip the informal sector – they are not familiar with safety issues, there are no safeguards. They don’t know what they are doing is wrong. With support from government and international organisations, they can become the future of waste management in Africa.” At the Reppie facility, Alemayehu says that CIL hopes to integrate nearby informal workers, including those who make their living off the perilous waste dumps of Koshe, as it pushes to be the long-term lead operator. “Local waste pickers have to be an integral part of the facility,” he says. “Once the facility moves to an operation team we will announce the mechanism of the work. When and if CIL is the lead operator or owner it is our priority. “Long-time waste pickers have been documented by the city administration. CIL values the role of local residents and documented waste pickers as an integral part of the production of by-products from the facility. In the future it is our plan to extend the inclusion through employment in the adjacent industrial park.” While that will be too late for the dozens who died at Koshe, it could offer a compelling way forward for the future of Africa’s waste management industry as it approaches a critical juncture. David Thomas
16 African Business January 2019 WASTE INFOGRAPHIC
Recycling waste in Africa: Challenges and opportunities Sub-Saharan Africaâ€™s waste generation is set to triple by 2050 2016 n 174m tonnes/year 2030 n 269m tonnes/year 2050 n 516m tonnes/year
174 269 516
Recycling rates are low in Africa The average municipal solid waste (MSW) recycling rate in Africa is estimated to be only 4%, lower than the average recycling rate of most countries of the Organisation for
Economic Cooperation and Development (OECD), which was 30% in 2013. Controlled and uncontrolled dumping is the most common type of waste disposal in Africa.
January 2019 African Business 17
The value of recovering waste Waste is increasingly viewed as a â€œsecondary resourceâ€? within the context of a global circular economy. Such opportunities are still
largely unexplored in Africa. A conservative estimate of the value of MSW generated in African urban areas is $8bn per annum, of which 96% is currently lost.
47% Open dump n n n n n
29% Sanitary landfill 9% Open burning 4% Recycling 2% Incineration 9% Other
Potential economic gains for Africa from Municipal solid increased recoverywaste and disposal in recyclingAfrica (2012)
n 100% recovery rate $8bn/year in value n 50% recovery rate $4bn/year in value n 25% recovery rate $2bn/year in value n 4% recovery rate (current situation) $318.6m/year in value
$8bn $4bn $2bn $318.6m Sources: UNEP (2018). Africa Waste Management Outlook; UNEP (2015) Global Waste Management Outlook.
18 African Business January 2019
The former cooperation between South Africa and Nigeria has been bogged down by competing interests. Other countries are prepared to step up.
South Africa-Nigeria axis flounders as rivals assume leadership
igeria and South Africa have always been viewed as the natural leaders of the continent, with commentators firm in the belief that the collaborative leadership of these two economic and political giants is essential to Africa’s progress. The common wisdom is that each is a pivotal state in its own region, whose fortunes have a direct impact on the nations around them and a wider influence on the continent because of their huge populations
There was a time when the vision of the two big powers showed they were a force for shaping Africa’s integration and representing its interests on the international stage
and economic and political might. There was a moment in time when the vision of the two big powers showed they were a force for shaping Africa’s integration and representing the continent’s interests on the international stage. Presidents Olusegun Obasanjo in Nigeria and Thabo Mbeki in South Africa showed the potential of this relationship in the early part of the century. The two men had a deep-seated passion for African development that found traction in the events of the time. Mbeki, strongly supported by Obasanjo, was the key driver of the African renaissance concept, with the New Partnership for Africa’s Development (Nepad) being a key programme designed to enable the political and economic recovery of the continent for Africans by Africans. The two leaders combined to sell the concept at successive G8 summits in the early 2000s with a bid to getting Africa back on the global map via debt relief for poor countries and other initiatives. But latterly, the two countries have been bogged down by their own competing interests, including challenges in bilateral policy and arguments about process in the African Union and other institutions. The countries
January 2019 African Business 19
have abrogated their continental leadership responsibilities, amid the distractions of internal politics and economic issues. Both have recently been through recession – Nigeria mostly because of a slump in oil prices as well as ongoing poor economic management and South Africa because of poor governance, ANC graft and uncertain policy in key sectors such as energy and mining. The two countries have been among the slowest growing nations of the past few years in Africa. As their fortunes have waned, engagement between the two countries has mostly been ad hoc and opportunistic, relegated to a few state visits over the years. Institutional arrangements set up to bolster the relationship, such as the South Africa-Nigeria Binational Commission, have lost traction and effectiveness. The political space that could be directed to broader African initiatives has instead been occupied by concerns about bilateral issues – people-to-people relations, unequal economic engagement and other longstanding gripes. Nigeria is yet to sign up to the African Continental Free Trade Area, ratified by South Africa in December. The perceived harassment by the Nigerian authorities of South Africa’s biggest investor in Nigeria, mobile phone company MTN, and huge fines imposed on the company for various alleged regulatory infractions, has further raised tensions between the partners. The outcome of elections in Nigeria and South Africa, scheduled to take place in the first quarter of 2019, may help to revive this historic partnership. Visible engagement at the top levels of both governments is urgently required on ares of mutual and continental importance – including trade, regional integration and infrastructure – if they are to revive their leadership roles.
In the meantime, other countries in Africa are not waiting around for South AfricaNigeria cooperation to return. They are moving on, finding new alliances that will allow them to leverage the benefits of smart policy, proactive leadership, growing economies and new partnerships.
Prime minister Abiy Ahmed of Ethiopia has shown himself to be a masterful reformist who is moving quickly to modernise one of Africa’s biggest markets.
Ethiopia is key among them. Prime minister Abiy Ahmed has shown himself to be a masterful reformist who is moving quickly to modernise one of Africa’s biggest markets. Despite economic challenges, the country is poised to continue with growth of more than 8% in 2019 and is being eyed by investors as the business sector opens up. It is also assuming a new importance in the region for foreign powers seeking new alliances there for security and other interests. Ethiopia is changing the security and political dynamic in the region with the recent cessation of longstanding hostilities with Eritrea and a growing closeness with Sudan, a pivotal link between North and East Africa. Relations are also thawing with another potential African powerhouse, Egypt. The country is already a key player in North Africa and the Middle East and President Abdel Fattah El-Sisi is set to capitalise on his year at the helm of the African Union in 2019 to rebuild long-neglected relationships on the continent. Currently in the grip of a fast-paced radical reform programme and already Africa’s third largest economy after Nigeria and South Africa, Egypt is attracting significant interest from investors and development
institutions alike as Sisi builds relationships with East African leaders. Ethiopia and Egypt seem to have buried the hatchet after years of hostile relations over the potential impact of Ethiopia’s Grand Renaissance Dam on the Nile River, on which Cairo depends for its survival. This has the potential to bring these two eastern giants closer over time. Kenya is already one of Egypt’s main trading partners in Africa while Rwandan President Paul Kagame, an ally of Sisi, has been a special guest at Egypt’s Africa investment conferences in Sharm El Sheikh over the past two years. Rwanda’s economic progress has made it a force to be reckoned with in the region, despite its small size. The East Africa region, home to some of Africa’s biggest and fastest-growing economies, is well positioned as an emerging centre of power in Africa as the continent seeks new models that may drive Africa’s interests more proactively than has been seen in the recent past. In a rapidly changing world in which Africa constantly seeks relevance, new paradigms of leadership need to be considered that are better aligned to a more progressive agenda than what is currently on offer from a disengaged Nigeria-South Africa axis.
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January 2019 African Business 21 OUTLOOK 2019
African Business looks forward to 2019, with analysis of political and economic trends, commentaries from leading policymakers and an interview with the World Bank’s chief economist for Africa.
What does the coming year hold for Africa?
uring the UN Climate Change Conference (COP24) held in Poland in December, Nigerian President Muhammadu Buhari addressed the conspiratorial whispers about his health. Rumours online claimed that at some point when the president was in London receiving medical treatment in 2017, he had died and been replaced by a doppelganger. Buhari spent long periods in the city being treated for an undisclosed illness, leading to intense speculation. Speaking at a side event with the Nigerian community in Poland, Buhari jokingly told his audience: “I can assure you all that this is the real me. Later this month I will celebrate my 76th birthday. And I’m still going strong!”
Below: Nigerian President Muhammadu Buhari celebrates his nomination as candidate of the All Progressives Congress for the country’s 2019 presidential election.
22 African Business January 2019 OUTLOOK 2019
The International Monetary Fund (IMF) forecasts Nigeria’s growth to pick up to 2.3% in 2019. The president’s stamina will surely be tested in 2019 as the West African nation goes to the polls in what is essentially a referendum on his performance thus far. The election, which will be held in February, comes as Africa’s biggest economy is in the doldrums, with growth projected to reach 1.9% in 2018, downgraded from 2.1% earlier this year. The International Monetary Fund (IMF) forecasts growth to pick up to 2.3% in 2019, but says inflation will rise by 1.1% year-on-year to 13.5% in 2019. The weak performance in 2018 occurred despite the global price of crude oil, which accounts for over half of government revenue, shooting up, peaking at $76.41 per barrel in October. Production in the West African nation was also strong, reaching 1.93m barrels per day in August. Oil prices are forecast to average $67.45 per barrel next year, according to a Reuters poll of economists and
‘We need a return to fiscal discipline’ African countries will need to focus more on debt in the coming year, says Vera Songwe, executive secretary of the United Nations Economic Commission for Africa (UNECA). While we are not at a critical point yet, we do need to focus more on African debt levels because some countries are in either moderate or high risk of debt distress. The debt issue stems from poor fiscal management following a period of fluctuation last decade. We need a return to fiscal discipline seen prior to the year 2000. It would also be beneficial for African countries to demand that some loans be denominated in local currencies, which would reduce exchange risks. South Africa, Rwanda and Togo have already gone down this road but not enough countries are doing this. Meanwhile, the trade war between the US and China could be a major threat to African growth in 2019, because if it continues to escalate then demand for commodities will decline and foreign investment by the Asian nation will slow, which would obviously have a detrimental effect on African economies.
Opposite: South African President Cyril Ramaphosa is adorned in traditional Zulu attire.
analysts, down from an average of $72.84 per barrel this year, but up from $54.15 per barrel in 2017. As Nigeria’s economy stutters, the Northern region of the country continues to experience severe insecurity, with thousands killed this year in herder-farmer violence, while the militant Islamist group Boko Haram continues its attacks, including killing more than 100 soldiers at a single base in November. Meanwhile, the 76-year-old leader’s approval rating has plummeted from a peak of 80% in October 2015 to 41% in May this year, according to NOIPolls, a Nigerian polling service. Despite his unpopularity, the ruling All Progressives Congress (APC) party retains support in key provinces including Lagos State and Kaduna State. The main opposition People’s Democratic Party (PDP) has been buoyed by a series of defections from the ruling party. Its presidential candidate, 72-year old Atiku Abubakar, has promised ambitious programmes to lift 50m Nigerians out of poverty and create 3m jobs a year. The incumbent’s prospects of securing another term will likely be determined by the state of the economy, which is vulnerable to global events out of its control, says John Ashbourne, a senior emerging markets economist at Capital Economics. “In Nigeria, growth will stay quite weak and may even slow down a little bit because oil price forecasts show a decline and there may also be some disruptions because of the election,” he says. “The vote appears to be close and the re-election of President Buhari is not guaranteed, therefore, there will probably be quite a long period after the poll of some policy drift.” Challenges for Ramaphosa Meanwhile, Africa’s second-biggest economy, South Africa, will also hold general elections next year. President Cyril Ramaphosa is juggling the twin challenges of pushing through an anti-corruption campaign and appeasing supporters of the African National Congress (ANC) caught up in the drive, including former President Jacob Zuma. The elections, which will likely be in May, come as the country slowly emerges from a technical recession this year, with growth predicted to reach 0.8% in 2018 and 1.4% in 2019. The sluggish growth was attributed to droughts, weak agricultural and manufacturing output, and poor consumer spending. While foreign investors have welcomed Ramaphosa’s anti-corruption drive and budget discipline, the country’s planned land reform policy – including land expropriation without compensation – is proving to be controversial despite the government’s attempts to placate investor concerns.
January 2019 African Business 23
Oil prices are forecast to average $67.45 per barrel in 2019, according to a Reuters poll of economists and analysts.
Above: President Jacob Zuma (L) and Zwelinzia Vavi. Right:
24 African Business January 2019 OUTLOOK 2019
Attracting foreign capital is a major priority of President Ramaphosa, who has targeted $100bn in investment to boost South Africa’s ailing economy.
“National leaders have to bend over backwards to accommodate the nationalist, populist sentiment that is dominant within the party; however, this hinders the projected message of a return to ordinary management and respect to private property that is so important in resuscitating investor confidence after the disastrous past few years,” says Mukhisa Kituyi, secretary-general of the United Nations Conference on Trade and Development (UNCTAD). Despite the sluggish economy, polls commissioned by Paris-based research firm Ipsos, the Institute of Race Relations and the ruling party all show the ANC maintaining a majority in parliament, although down on the 62% it garnered in 2016. An ANC victory will mean Ramaphosa’s reform agenda stays on track, and with a likely recovery in the manufacturing and agriculture sectors, growth should continue moving in a positive trajectory. However, the country is not out of the woods yet. Attracting foreign capital is a major priority of the president, who has targeted $100bn in investment to boost the ailing economy, but investors remain wary because of instability in the country. “While the issue of rampant corruption is being tackled by the government, South Africa still has an unusually high level of insecurity, with a higher murder rate per capita than Brazil, so a negative statistic such as that affects investor confidence,” says Kituyi. “Also, the political bureaucracy of the ANC is very responsive to populist measures, and, sometimes for reasons of political survival, the ruling party make compromises, such as land reform, which hinder investment.” Meanwhile, despite a rebound in oil prices, Angola’s economy is also experiencing a slump, with GDP shrinking marginally by 0.1% in 2018. But Africa’s second largest oil exporter is expected to exit recession in 2019, with growth expected to pick up to 3.1% due mainly to an improvement in foreign currency allocation and declining inflation, which will fall year-on-year by 9.3% to 20.5% in 2018 and it is projected to drop further to 15.8% in 2019. Much of the economic recovery in the country is due to the reform policies of President João Lourenço and the efforts of José de Lima Massano, the central bank governor, according to Charles Robertson, global chief economist at investment banking company Renaissance Capital. “Angola is a very untransparent country, which had an absurdly over-valued currency a year ago, but it is remarkable what the central bank governor has done in the space of a year,” he says. “The country is heading in the right direction but the dependency on oil exports leave the country vulnerable to global events out of its control.”
$100bn East Africa powers ahead While the continent’s three largest economies stutter, East African countries continue to drive much of the growth on the continent, with the IMF expecting Ethiopia (8.5%), Rwanda (7.8%), Tanzania (6.6%), Kenya (6.1%) and Uganda (6.1%) to perform well above the global average next year. While Ethiopia remains a global leader in terms of growth, there are signs that a slowdown could be on its way as a foreign exchange shortage – which was only temporarily alleviated when the United Arab Emirates deposited $1bn in the central bank in June – continues to weigh on the construction and manufacturing sectors. However, prime minister Abiy Ahmed has imple-
‘FDI flows should rebound in 2019’ Mukhisa Kituyi, secretary-general of the United Nations Conference on Trade and Development (UNCTAD) shares his predictions for 2019 with African Business. In 2018, there was an upturn in foreign direct investment (FDI). We forecast that investment will grow year-onyear by 20% to $50bn this year. Commodity prices have recovered somewhat and if this trend continues into 2019, then we expect to see improved demand for African raw materials by advanced economies. But there are also a number of positive signals when it comes to investment. The number of FDI projects, particularly in manufacturing, has been growing in Egypt, Morocco, Nigeria, Ghana and Ethiopia. Additionally, market sentiment is increasingly positive and investors are regaining confidence in the government of South Africa. Therefore, we project that FDI flows to the continent will rebound next year after the very poor cycle in 2017 and 2016. We’ve also seen an increase in greenfield projects, which indicates that investors are willing to invest long-term permanent capital, which has not been the trend in the past halfdecade.
January 2019 African Business 25
mented a series of economic reforms aimed at attracting foreign investors. including allowing private firms to provide internet services through Ethio Telecom’s infrastructure. Privatisations are being considered at a range of state-owned monopolies. “Ethiopia is going through plenty of changes but the underlying story is still an investment-led push driven by the government with significant distortions to currency policy,” says Robertson. “However, investment levels are very high and the model is working for now, but it is unclear how this will pan out next year.” Kenya, Rwanda and Uganda should continue to perform well, benefiting from a strong rebound in the agricultural sector following the drought in 2017 and lower oil prices next year. Despite the generally positive outlook for the region, the anti-business policies of Tanzanian President John Magufuli have created a weak investment climate, which threatens growth. The West African Economic and Monetary Union (WAEMU) member states, meanwhile, are expected to grow at least 5% or more, with Côte d’Ivoire (7%) and Senegal (6.7%) leading the way. Within the region, Sen-
Above: An Ethiopian factory worker. East African economies continue to push much of the continent’s growth.
egal, Benin and Guinea-Bissau will all hold elections next year, which could affect policy implementation. The sluggish recovery of the continent’s three largest economies, which account for almost 40% of the continent’s GDP, will lead to sub-Saharan Africa’s growth reaching 3.1% in 2018 and 3.8% in 2019. In North Africa, Egypt’s economy is projected to rise by 1.1% year-on-year to 5.3% in 2018 and 5.5% in 2019, as the tourism and natural gas industries recover, and reforms begin to show results. Algeria and Tunisia will grow marginally to 2.7% and 2.9% next year. Morocco’s growth will remain stable at 3.2% on the back of subdued non-agricultural activity and a widening trade deficit. Debt warning Multilateral organisations, including the IMF and World Bank, have raised concerns about US dollar-denominated debt levels in Africa, especially since the currency has strengthened against emerging and developing economies. Since 2013, there has been an increase in African governments issuing international bonds for a variety of needs, including infrastructure projects and financing
January 2019 African Business 27
budgets. Eight African countries, including Ghana and Sudan, featured among the 30 countries with the highest debt-to-GDP ratio globally. However, a full-blown debt crisis may still be some way off because debt levels in most countries remain manageable. “We shouldn’t be overly alarmed about African debt just yet,” Robertson says. “While there has been a record level of issuances in the last two years, debt crises usually come about when you are trying to roll over the debt, not when you’re taking out the debt in the first place, so we won’t have a clearer picture until the debt matures.” Beyond 2019 Looking beyond 2019, Africa’s population is set to double over the next three decades, reaching around 2.2bn people by 2050, and half of the world’s working population will be from Africa. This demographic dividend and strong economic growth are a unique opportunity for Africa to converge with high-income countries. However, the continent may miss its chance because of a failure to create opportunities, according to a recently published report by Capital Economics, Taking the Long View: Africa in 2040. “[The] huge increases in population will require massive investments in social and physical infrastructure, [and] given African governments’ poor performance at meeting the needs of their existing populations, most [nations] will struggle to meet this new challenge,” the report states. The sobering prediction is echoed by Kituyi who believes that the positive could quickly become a negative.
Huge increases in Africa’s population will require massive investment in the coming decades.
“Talk of a population dividend needs to be tempered,” he says. “If you can develop a human capital resource and unleash its potential in these changing times of technology then those people are an asset. But if you look where Africa is now, much of the fastest population growth is in areas with the least capacity to invest in the human resource, so they are voting with their feet and leaving their home territories.” Developing human capital resources will require significant investment in infrastructure and social services, but the continent currently has an annual infrastructure funding deficit of $68–$108bn according to the African Development Bank (AfDB). Various organisations have launched a series of infrastructure investment vehicles, such as the AfDB’s Africa50 Infrastructure Fund. But investment at current levels will fail to keep pace with demand, leaving millions of young Africans without opportunities to participate in the economy. The future population profile is also different from demographic dividends seen in other regions, such as Asia, with more young people and fewer savers. Creating jobs that keep pace with the population will be the greatest challenge facing the continent, but if current job creation levels are anything to go by, the dividend could turn into a crisis. “Part of the arithmetic going forward is to replace the talk about the demographic dividend with talk about the critical need for resources to invest in human capital,” Kituyi concludes. Taku Dzimwasha
28 African Business January 2019 OUTLOOK 2019 INTERVIEW
Albert Zeufack, World Bank Chief Economist for Africa Africa’s economy is recovering slowly, but problems in other parts of the world could create headwinds in 2019, the World Bank’s chief economist for Africa tells African Business.
African economies vulnerable to external shocks in 2019 What is your overall outlook for Africa in 2019? The region’s economic recovery is in progress but at a slower pace than expected. The external environment facing sub-Saharan Africa has become more challenging. Growth in the region is projected to increase from 2.7% in 2018 to 3.3% in 2019. To accelerate and sustain an inclusive growth momentum, policymakers must continue to focus on investments that foster human capital, reduce resource misallocation and boost productivity. Policymakers in the region must equip themselves to manage new risks arising from changes in the composition of capital flows and debt. OPEC has cut its global demand forecast for oil next year, how will this affect growth in exporters such as Nigeria and Angola? The fact that OPEC has cut its global demand forecast for oil next year implies that there are also likely demand forces for a reduced price of oil. In Angola, conditions were already weak as oil production failed to respond positively to prices increasing before October due to maturing oil fields. The economy will be affected further negatively, as their FX reserves continue falling. To mitigate the effects of oil prices, the government is implementing a series of reforms to boost the non-oil economy and is preparing a set of reforms within the oil industry. In Nigeria, the impact of falling oil prices may be more subdued given that the non-oil economy is picking up. In terms of the economic structure, the economy of Nigeria is more diversified than that of Angola. Having said this, the fall in oil prices will hit government revenues as well as FX supply.
Albert Zeufack (pictured right) says policymakers must be ready to face new risks.
Have commodity exporters such as Nigeria done enough to diversify their economies? Crude petroleum in Nigeria represents about 10% of GDP whereas it is about 75% of total exports. The country needs to: (a) diversify its sources of foreign exchange and thus diversify its export basket, (b) implement policies to boost productivity in both the informal and formal sectors. Diversification requires to have in place an enabling environment for its own success. A number of key drivers are necessary – including investment, trade and industrial policies; a dynamic growth performance; macroeconomic stability; a competitive exchange rate; good governance; and absence of conflict and corruption. Given the volatile nature of its current growth process, largely linked to the oil sector, Nigeria would benefit from policies to promote diversification and long-term inclusive growth. Spatial integration and sub-national specialisation are important in this regard. They are key for creating a nationally integrated market for goods and products as well as attracting much-needed private investment, which in turn could enhance productivity through scale and specialisation. To tap the spatial drivers of development, policymakers need to focus on investments that reinforce agglomeration and economies of scale (i.e., around clusters and urban nodes); optimise the backward and forward linkages between rural areas and the major urban markets; and address structural and land management issues in major urban nodes and along major growth corridors to remove or alleviate barriers that undermine the growth potential. Should we be concerned about debt levels in Africa? Public debt remained high and continued to rise in some countries, reflecting the recent surge in eurobond issuances. The vulnerability to weaker currencies and rising interest rates associated with the increased reliance on foreign-currency debt may put the region’s public debt sustainability further at risk. As countries have gained access to international capital markets and non-resident participation in domestic debt markets has expanded, non-concessional debt has increased. The share of foreign currency-denominated public debt rose to 60% of total debt in 2017, an increase of about two-fift hs from 2010-13. Do you foresee the emerging market rout continuing into next year? Risks to global economic expansion have increased. Financial conditions in advanced economies could worsen abruptly, perhaps due to a more drastic fall in
January 2019 African Business 29
Risks to global economic expansion have increased and global trade tensions could escalate. equity markets, and global trade tensions could escalate. This would create further headwinds for emerging market economies, especially those with significant imbalances, high external financing needs and limited room for policy support. Slower-than-expected growth in China, which has strong trade and investment links with countries in sub-Saharan Africa, would adversely affect the region through lower export demand and investment. Faster-than-expected US monetary policy tightening could result in sharp reductions in capital inflows, higher fi nancing costs, and rapid exchange
rate depreciations, especially in countries with weaker fundamentals or higher political risks. Sharp currency depreciations would make the servicing of foreign currency denominated debt more challenging for many countries in the region. How can African nations tackle low productivity and maximise the population dividend? To accelerate and sustain an inclusive growth momentum, policymakers must continue to focus on investments that foster human capital, reduce resource misallocation and boost productivity. Labour productivity differences between sub-Saharan Africa and more advanced economies have remained large. More recently, the story of misallocation (inefficiencies in the use of technologies) has become relatively more important than undercapitalisation (low capital stock) in driving these productivity differences. These inefficiencies in resource allocation across agricultural farms and manufacturing firms in sub-Saharan Africa are linked to human capital misallocation. Policies and institutions distort the allocation of talent by delivering inefficient occupational choices (which either leads to more informality or a slower structural transformation process) and affecting producersâ€™ decisions to invest in new technologies or methods of production as well as their decisions to enter or exit the industry. Application of digital technologies to sectors such as agriculture provides unrivalled opportunities for an acceleration of growth in the country. How can Africa better integrate itself into the global economy? Lower tariffs, better access to credit for the private sector, a more conducive business climate, and investment in human capital are found to support more intense trade flows and better insertion in global value chains. Governments have control over these policies, and are being implemented in countries across the region. Sound macroeconomic policies, improving economic institutions, and a growing labour supply would help sustain these efforts. Additionally, efforts have been made to increase intra-regional trade. So far, 49 out of 55 countries have signed the African Continental Free Trade Area (AfCFTA). The AfCFTA will enter into force once 22 member states have deposited their instruments of ratification. The United Nations Economic Commission for Africa estimates the AfCFTA will increase intra-African trade from the current 10-16% to about 52% by 2022. Taku Dzimwasha
30 African Business January 2019 TRADE
The African Continental Free Area (AfCFTA) is a vital step for boosting intra-African trade. Only six six countries have ratified it so far, but many more are expected to do so in the coming months.
‘Significant progress’ on path to AfCFTA
rom around 750 CE, the town of Gao in modern-day Mali played a crucial role in the trans-Saharan trade route. The town, which lies on the Niger River, thrived as a major trading centre for gold, copper, salt and slaves travelling north towards modern-day Libya. The town’s importance and wealth diminished when Portuguese explorers in the 15th century opened up new avenues for trade via sea, before the French colonisation of Mali ended much of the empire’s trade with its northern neighbours. Today, the trans-Saharan trade routes are mostly used by Berber nomads and a sparse number of trucks carrying fuel and salt. The African Union (AU) and African Development Bank (AfDB) have proposed extending the Trans-Sahara Highway from Algiers in Algeria to Lagos in Nigeria via Tamanrasset. The project reflects a desire to reignite intra-African trade, which was stymied for many African countries during the colonial era. Trade between African nations stands at 18% of total regional trade, compared to 59% in Asia and 69% in Europe. The African Continental Free Trade Area (AfCFTA), which has been signed by 49 African countries and could boost African economic output to around $29 trillion by 2050, is a vital step in boosting trade among African countries, according to one of the architects of the agreement, David Luke, coordinator of the African Trade Policy Centre (ATPC) at UNECA. “The reason intra-African trade is so small is that colonialism forced Africans to export their raw materials outside of the continent to Europe and the US; therefore, much of the trading infrastructure was built with this in mind,” he says. “The AfCFTA is a new paradigm which lets African nations reduce tariffs and non-tariff barriers such as red tape and inconsistent standards for
The agreement has received a major boost after South Africa’s parliament ratified it in December.
products, which will help boost economic activity across the continent.” The benefit of the deal is clear. However, to date, only 12 out of the required minimum of 22 member states have ratified the accord. The AU had hoped the agreement would be ratified by the end of 2018. The AfCFTA has six main protocols, including rules on trade in goods, trade in services, rules and procedures on dispute settlement, competition policy, investment and intellectual property rights. All the protocols have to be agreed upon by member states by January 2020 for the full adoption. While some critics have voiced concerns about the pace of ratification, defenders of the deal believe that significant progress has been made, including Vera Songwe, executive secretary of the UN Economic Commission for Africa (UNECA). “I believe we are doing very well in terms of ratification of the deal and I’m confident that we will reach the minimum threshold by the middle of 2019 despite the fact that Nigeria is yet to sign up to the agreement,” she says. “There is definitely momentum behind the deal but we need to ensure that we are ready to implement the next part of the strategy the day after it is enacted.” President Muhammadu Buhari of Nigeria announced that the country would delay signing up to the accord pending further discussions with local trade unions and the business community. The absence of Africa’s largest economy has led some to question the viability of the deal. However, Buhari’s decision is based on a political calculation rather than a lack of faith in the deal, says Gerhard Erasmus, co-founder of the South African-based Trade Law Centre (TRALAC). “There are very powerful lobby groups who would prefer that Nigeria doesn’t enter into any regional trade arrangements that could challenge their interests,” he says. “And, with the elections coming up next year the incumbent President Muhammadu Buhari has indicated that he is quite sensitive about domestic opposition for this agreement and the official line is that they are consulting the relevant players.” It seems that it will only be a matter of time before Nigeria – which actually chaired the negotiations that eventually led to the AfCFTA – signs up, with government officials, such as vice president Yemi Osinbajo making positive statements about the deal. The agreement has, however, received a major boost after South Africa’s parliament ratified it in December. South Africa’s total trade with Africa amounted to R421bn ($30bn) in 2017, with exports amounting R311bn and manufactured goods accounting for 64% of exports to the region. The continent’s second-largest economy and
January 2019 African Business 31
Most African businesses pay an average of 6.9% tax on cross-border transactions and that does not include the additional costs of nontariff barriers.
the largest contributor to intra-Africa trade is expected to submit the approved instrument of ratification at the 32nd Ordinary Session of the Assembly of the AU in February 2019. Reforms Most African businesses pay an average of 6.9% tax on cross-border transactions and that does not include the additional costs of non-tariff barriers such as excessive bureaucracy, regulatory discrepancies and delays. The agreement calls for member states to cut tariffs on 90% of goods traded. However, removing tariffs is only the first step. Serious reforms will need to be implemented by member nations signed up to the agreement. “I’m not one of those that believe that suddenly, when this agreement is ratified, there will be an explosion of booming inter-African trade,” says Erasmus. “Trade agreements around the world only work when there is a consistent, well-designed effort to improve governance and transparency and, most importantly, there is a private
Below: A truck on the road between Djibouti and Ethiopia.
6.9% sector producing tradeable goods that other countries want to buy.” “Therefore, African policymakers need to address nontariff barriers to trade, such as limited industrialisation, weak productivity and poor infrastructure,” he adds. The success of the agreement hinges on African countries implementing pro-private sector reforms and diversifying their economies. While countries including Tanzania, Kenya, Uganda and South Africa have similar diversification levels to other emerging markets, oil export countries such as Nigeria and Angola have become more dependent on revenues from commodities. Nevertheless, if endorsed by all the countries of Africa, the AfCFTA would potentially create the largest free-trade area in the world, and leverage Africa’s surging population and a combined GDP of more than $3.4 trillion. However, the agreement is only an enabler. Governments need to create the ideal environment to allow trade to flourish. Taku Dzimwasha
32 African Business January 2019 FRANCE-EAST AFRICA
With its fast-expanding economies and business friendly governments, the East African region is becoming an Eldorado for French companies in search of expansion.
French companies explore East Africa
or decades, French commercial interest in Africa has been characterised by a special relationship known as “la Françafrique” between Paris and its former colonies. Popularised in the media by stories of powerful close-knit relationships, often with hidden agendas, French businesses have enjoyed prevalence throughout much of Francophone Africa. But French firms are beginning to venture out of their comfort zone in search of new growth stories. East Africa – especially Kenya and Rwanda – has recently seen an influx of French commercial activity and interest. En marche There are clear signs that French companies are on the move throughout the East African region. In Kenya, Air France made a return to Jomo Kenyatta International Airport earlier this year after an 18-year hiatus. The airline’s senior vice-president Frank Legré attributed the comeback to increased business between Kenya and France, and told reporters that some French companies “have made Kenya their regional hub”. Since 2012, the number of French companies in Kenya has increased from 30 to 110, according to the French Chamber of Commerce Kenya, an organisation which helps private enterprise establish operations in the country. Major French groups have recently established their presence, including Accor, Peugeot, Décathlon, Société Générale, Air France and France 24. Last year, French exports to Kenya increased by 11.7% compared to 2016, reaching €171.2m ($194.4m). France is now the third largest investor in East Africa’s most developed market. Justine de Guerre, executive director of the Chamber, reveals how Kenya has overtaken South Africa as the prime location for French companies looking to tackle Anglophone markets. A slowdown in the continent’s largest Anglophone economies – South Africa and Nigeria – has caused many to search for a more stable English-speaking foothold, she says. Kenya is also drawing interest from French companies working in Africa
Right: Air France staff promote the return of the airline to Kenya.
Since 2012, the number of French companies in Kenya has increased from 30 to 110.
January 2019 African Business 33
with no previous interest in Anglophone markets, and, she argues, even companies with no prior experience in Africa at all. A similar story has been unfolding in nearby Rwanda, where the resolution of a diplomatic impasse could presage an uptick in increased trade and investment, which has already been growing steadily for a number of years. “In 2010 we had only as little as $469,000 investment from France,” discloses Clare Akamanzi, the minister in charge of the Rwandan Development Board. “By 2015 that figure had grown to almost $13m, so the growth was big.” This figure is expected to grow and Akamanzi is confident that French businesses are beginning to take notice of Rwanda’s investment environment, which scores highly for ease of doing business and access to nearby markets. The fact that much of the population speaks both French and English is an added bonus, she says. The cabinet minister expects collaboration in the ICT, hospitality and agriculture sectors, while French companies Canal Plus and Golden Tulip Hotels have already moved in. Greener pastures The arrival of French enterprises reflects an increasingly globalised world in which business decisions are based less on historic and linguistic ties than by simple opportunity. Xavier Chatte-Ruols, regional director for East Africa at Business France, a public-led entity encouraging French companies to explore new markets, points out that the GDP of Kenya is higher than that of Côte d’Ivoire and Cameroon combined – the two main Francophone markets for French companies. “East Africa has been the most dynamic region in Africa for the past five years and hence is currently the most interesting market for French companies,” he concludes. This helps explain the recent French foray into East Africa. The region recorded the continent’s best economic performance last year at an average of 5.9% – compared to the continental average of 3.6%. Ethiopia, Tanzania and Rwanda were forecast by the World Bank to be among the top 10 best performers in 2018, making a compelling case for French companies looking to tap into emerging market growth. As well as growth, countries in East Africa are gaining plaudits for their ease of doing business, market access, diversified economies and bulging middle classes. West African markets, by contrast, are often seen as riskier and more prone to economic or political shock due to the export-orientated nature of their economies, where growth is often driven by a single resource or sector.
34 African Business January 2019 FRANCE-EAST AFRICA
In contrast, East Africa’s markets are viewed by the French private sector as relatively stable. Rwanda and Kenya were ranked second and fourth respectively throughout Africa in the World Bank’s 2018 Doing Business index, whereas not one West African country made the continent’s top 10. De Guerre comments that even during last year’s troubled election period in Kenya, which witnessed a rerun after a disputed vote, 10 French companies approached the Chamber looking to do business. “Some companies were putting the brakes on and waiting to see what happened,” she says. “But I also saw companies coming despite the election because Kenya has a reputation as a very resilient economy.” Additionally, many investors argue that East African countries are far better connected to neighbouring markets, citing the East African Community (EAC) regional bloc and the Common Market for Eastern and Southern African (COMESA), which links markets from Cairo to Maputo along the east coast. This provides access to a great diversity of markets, many of which are becoming known for an ever-growing and affluent middle class. These positive indicators are attracting interest from French companies who are beginning to take notice of opportunities which fall outside their Francophone strongholds. Government encouragement Besides the private sector’s natural search for greener pastures, interest in East Africa is being spurred on by the French government. France, along with other major European players like the UK and Germany, has begun to rejig its relationship with Africa from aid to investment. Amid the backdrop of disruption to global trade, France is encouraging its private sector to deepen and expand commercial links with non-traditional partners. French President Emmanuel Macron has shown a strong commitment to East Africa. The previously frosty relationship between Rwanda and France is undergoing a thaw following Rwandan President Paul Kagame’s visit to the Élysée Palace in May 2018. The two countries were at loggerheads for years after Rwanda accused France of playing a role in the 1994 genocide. Yet after Kagame’s visit, the French President said he would support Rwanda’s foreign affairs minister Louise Mushikiwabo in her bid to become the secretary general of La Francophonie, the international organisation uniting French-speaking countries. This marked a significant improvement in the relationship between the countries, and Kagame left Paris describing how his counterpart had a brought a “fresh-
ness” to world politics, expressing his hope for an increase in economic ties. Mushikiwabo was elected to the post in October 2018. French businesses have been historically active in Rwanda, only to have their potential thwarted by the poor relations between the two countries. But French commerce has been regaining a hold in Rwanda’s markets for a while. “There was a steady growth of French interest even before Mushikiwabo was appointed,” comments Akamanzi. In January, former president Sarkozy led a business delegation to Kigali, including Cyril Bolloré, deputy CEO of France’s Bolloré Group, and discussed opportunities in hospitality, transport, logistics, music and conference tourism. This summer, the French multinational CFAO
January 2019 African Business 35
is set to visit Kenya next year and will bring a business delegation to collaborate in areas of mutual interest. Meanwhile, Ethiopia is being eyed closely by French companies as the government mulls the privatisation of previously state-dominated sectors like telecoms, banking and aviation. French telecoms giant Orange is reportedly considering investing in state-owned Ethio Telecom. The government support has encouraged many French companies to look more closely at East Africa. According to Chatte-Ruols, Business France is in conversation with 400 companies who are currently looking to enter the Kenyan market and have requested market surveys. Although unable to give names, he says that next year will see entrances from companies in the automotive, tourism, energy, water and engineering sectors. The opportunities are being talked up in the French media, with a journalist at TV station France 2 memorably referring to Kenya as “the new Eldorado”.
entered the market. The company, whose full name (Compagnie Française de l’Afrique Occidentale) reflects its origins in shipping goods between West Africa and France, has been contracted to work with German automobile maker Volkswagen in the country, following a similar tie-up between the firms in Kenya. It will manage the shipping of car parts used to assemble the vehicles, and handle some sales and distribution operations. In Kenya, many French companies are seeking opportunities in green energy and smart cities, both earmarked by the Macron administration as key sectors of investment. As French and European pressure to stem the number of refugees arriving from Africa has increased, Paris has prioritised job-creation, with a focus on youth employment and SMEs. De Guerre reveals that Macron
Above: President Macron of France stands alongside President Kagame of Rwanda at the VivaTech show in Paris, May 2018.
Cultural adjustment Nevertheless, East Africa’s markets are different from France’s historical markets. De Guerre was surprised, when setting up the Chamber in 2016, to find language a continuing problem for new French arrivals. “It was difficult to admit at first, but I found that some executives were arriving without speaking English.” This she attributes to an older generation of executives who are not as linguistically savvy as their younger counterparts. Aside from traditionally Francophone Rwanda and Burundi, most East African business is conducted in English. French companies should conduct thorough market research before entering these new markets in a bid to understand their local quirks, which extend beyond language to often distinct business cultures and social norms. Finally, de Guerre suggests that French executives should not get carried away by the “Eldorado” promise of the Eastern market. As with West Africa, she says, the East is a diversified region with over and underperforming economies and distinct systems of governance. She says that some French companies are currently weary of Tanzania due to increasing protectionism and the policies of President John Magufuli. Nevertheless, as colonial and linguistic links gradually assume less importance and Macron continues his push, many of East Africa’s fast-reforming markets will naturally begin to attract a new generation of French companies and executives with wider horizons than their predecessors. Tom Collins
36 African Business January 2019 EMERGING BUSINESS
Demand for more attractive office space is increasing across Africa. African Business talks to a young company that is growing fast on the back of this trend.
Creating smarter office spaces for Africa
hen Betts & Townsend, a South African construction management company, decided to expand to Nairobi, executives wanted an eyecatching space to impress visitors. With clients to win over in negotiations and sales talks, the firm enlisted a professional design company to craft new premises with minimalist furniture, oak panelling and meeting rooms bathed in natural light. For many companies toiling under the daily challenges of doing business in Africa, attractive office design is far down the list of priorities. Most office space in the established industrial zones of Nairobi and other major Kenyan cities remains outdated and poor quality, according to real estate agent Knight Frank. Yet for a growing number of multinationals expanding to Africa, office design is key to projecting a successful brand and attracting young talent, says Gregoire Schwebig, chief executive of pan-African office developer Haussmann Group. “I think it’s critical because of the image and because of the workforce… large corporates in old boring offices have a lot of difficultly attracting talent in Europe. The workforce in Africa are young millennials and they aspire to the same things as in Europe. They want to be working in a creative, dynamic, young, collaborative environment.” French-led but with a base in Johannesburg and satellites across Africa, Haussmann’s teams of mostly South Africa-based interior designers, project managers, quantity surveyors and construction managers fan out to projects in Kenya, Mali, Cameroon, Côte d’Ivoire, Nigeria, Zambia and beyond. They aim to capitalise on steadily increasing office space across the continent: 300,000 square metres of commercial office space was delivered to the Nairobi market in 2016, almost double that of previous years.
Tailor-made solutions “We speak to the CEO, and our designers go and speak to other people within the organisation. We need to understand how people work together and how departments interact, what are the workflows and how that translates into how people work together. Based on this relatively thorough understanding, we tailor designs for their needs, people and company culture.” Haussmann mainly works with wealthy multinationals who require international-quality office space to reflect their financial muscle and ambition, a focus that has delivered big name clients including Uber, Total, Mitsubishi and L’Oreal. Schwebig says that their cash flow and stability mean that they often pay in full – something that occasionally eludes domestic African firms. “Focusing on multinationals in Africa is not a bad move, because it’s a growing market. We’ve left a bit of money on the table by not dealing with these kind of guys [in the past]. We’ve learned our lessons when it comes to being paid.” But Schwebig admits that political risk is an everpresent threat to the mission of upgrading Africa’s bland office environment. With election cycles and currency risk upsetting corporate plans and negatively impacting demand for office space, Schwebig says that continental expansion offers a hedge against local volatility. “From a business point of view it’s good to not put all of your eggs into one basket – this year none of our countries will represent more than 15 or 20% of our revenues. Last year was terrible in Kenya because of political reasons. Next year it’s going to be Nigeria and South Africa [holding elections]. So we’re taking it as an assumption into our model that at least one country will be in election year every year, and that affects the currency and political situation.” Yet the steady pace of economic development across the continent – and demand for smart premises in unlikely locales – means that wherever multinationals plant their flag, Haussmann hopes to follow. “We see good momentum in Uganda, which is about to open up big time. The oil boom could start in a matter of months and there should be a massive influx of expat money in the country. If all goes well the future of Uganda is relatively bright. Rwanda is very interesting for different reasons, there’s lots of conferencing and they’re on the map.” Pushing forward The aggressive strategy of pushing into emerging markets poses challenges in supply chain management and talent acquisition. Interior design talent is thin on the
January 2019 African Business 37
For a growing number of multinationals expanding to Africa, office design is key to projecting a successful brand. ground in smaller markets, while even those active in some of the continent’s major markets struggle to match up to international standards. The firm has launched an internal exchange scheme to improve the exposure of its regional African designers, but for now, the firm is reliant on South African talent. “Seventy percent of the team of interior designers are based out of Johannesburg, mostly because South African designers are very good designers in between international standards and a thorough understanding of how Africa works. We have designers on the ground, but to be honest we often deal with the headquarters of the multinationals in London, Paris, Dubai and Johannesburg. There aren’t many Kenyan designers we can easily put in front of the head of real estate at L’Oreal, just because of [a lack of] exposure. Its not a matter of technical skill.” Supply chains are similarly challenging, with building materials and attractive furniture difficult to source on a continent where imports dominate and trade costs remain high. On smaller contracts, the firm uses local
suppliers rather than imports, while for larger projects, they work hard to minimise middlemen demanding a cut. Schwebig says technology is reducing overheads, including the deployment of 3D cameras at construction sites that beam back images to an expert in Johannesburg. The firm is also hoping to capitalise on the international trend for flexible office space by launching 50 “AfricaWorks” spaces across the continent offering corporates and SMEs a cheaper option than costly permanent premises. Already backed by big-name VC funds, the firm is seeking new investors for the plan. “We have a very good problem; [previous] fundraising was for a plan supposed to last anything from three to five years and we’ve executed it in a year. So in that sense we went much faster than expected. Now we’re adding different verticals to our business, we are looking at fundraising a much bigger ticket early next year once we have proof of concept of our flexible workplace product so that we can do an entire rollout across Africa.” David Thomas
38 African Business January 2019 INTERVIEW
Gilbert Houngbo, President, IFAD The United Nations International Fund for Agricultural Development (IFAD) wants to make farming more profitable and halt the youth exodus from the land, as its president tells African Business.
Halting African agriculture’s youth drain
or tens of thousands of young farmers toiling on generations-old family plots outside Nairobi, the pull of the big city proves more irresistible every year. As the energetic metropolis creeps further into surrounding areas, the prospect of a new career and a new way of life act with magnetic force on youngsters raised on humble corn and potato plots in the rural hinterland. Since 1986, Nairobi has doubled in population, part of an unprecedented rural exodus to urban areas. The average age of a farmer in the country is 60, according to the United Nations Development Programme – an alarming stat in a nation where those under the age of 35 represent 78% of the population. Unless Africa can find answers to the push factors of climate change, limited capital and restricted opportunity, food security could be at risk, Gilbert Houngbo, president of the United Nations’ International Fund for Agricultural Development (IFAD), tells African Business. “You need to keep in mind that 80% of crop production today in Africa comes from smallholders… If you really want to improve food security and nutrition, you can’t avoid those producing 80% of your food,” he says. Funding smallholders Led since 2017 by Houngbo, a former prime minister of Togo, IFAD’s mandate is to invest in rural people, enrich food security and boost smallholder income. While it commands a lower profile than other UN agencies, IFAD’s decades-long mission chimes with policymakers’ hopes for a “Green Revolution” in Africa. In common with African Development Bank president Akinwumi Adesina, who leads calls for a new generation of agricultural billionaires, Houngbo says that IFAD hopes to combat the youth exodus by linking farming with entrepreneurialism and success. The World Bank estimates that the African food market will be worth $1 trillion by 2030.
“Whether they can be a billionaire is maybe a different question, but can they be successful and earn a decent living and income from agriculture? Absolutely yes. The market is there for people to be richer, but even if they don’t become billionaires, if they can be rich enough to have a decent life and raise their family in a rural setting, it will be a good way forward.” For that to happen, Houngbo admits there must be a sea change in how smallholders are supported on the continent. Too many are wedded to unproductive tools and outdated land husbandry techniques in an era where technology and modern fertilisers are reshaping possibilities. Without a paradigm shift, the UN’s Sustainable Development Goal of doubling the productivity and income of smallholder farmers by 2030 is unlikely to be met. “The whole productivity spectrum will require a shift in some of the parameters. Barely 4 or 5% of arable land is irrigated, compared to 40% in Asia, for example. In Africa the average farmer will use 13 kilos of fertiliser per hectare, [compared to] maybe 100 in Asia. So it’s clear that has a direct impact on productivity. There’s also the matter of making sure smallholders have access to improved seeds that are both resilient to drought and flood,” he says. Welcoming big business IFAD plans to spend at least $3.5bn over the next three years by focusing on youth, women, nutrition, and climate-smart agriculture. The fund backs a diverse array of projects, from aquaculture in Kenya to financial markets access in Malawi. A common theme is the critical role that large private sector operators can play in energising the smallholder ecosystem. IFAD’s goal is to transform smallholders into profitable businesses that supply local and national markets, generate surpluses, and offer rural people – particularly the young and women – a viable future. To achieve this, Houngbo says that the fund is
January 2019 African Business 39
More and more, with access to the right technology, a five hectare producer can be very successful and intensive.
linking big business, a potential customer and source of training and tools, to the smallholder community. “More and more with access to the right technology, a five hectare producer can be very successful and intensive. The private sector or larger size farmers can automatically become a market for smallholders,” he says. In September 2017, IFAD penned an agreement with US food giant Mars to offer smallholder farmers training, technology and access to tools. That agreement builds on a partnership in Indonesia, where the partners opened centres to educate and tool cocoa farmers – an initiative which Houngbo says has tripled production, allowing farmers to reach out to other buyers while offering Mars reliable supply. This blended approach could deliver elsewhere, Houngbo says. A 2013 study estimates that only 7% of smallholders participate in tight value chains in which they operate at least two hectares of land and take a more business-like approach to farming. “Generally speaking investment in agriculture is not something that is naturally appealing to the sector, so you have to be very incentivised or determined. Knowing the groundwork in the community, we use that knowledge and bring in the private sector for them to invest directly, or with us in a blended approach to financing.” In a bid to improve their bargaining power with larger operators, Houngbo encourages young farmers to join farming organisations and cooperatives. Yet climate change complicates such youth-oriented efforts. As temperatures fluctuate and floods, droughts and other climate events become more common, a commitment to the sector carries ever-greater risk for young smallholders. In response, IFAD launched the Adaptation for Smallholder Agriculture Programme (ASAP), a scheme to help smallholders respond via environmentally friendly farming techniques, access to renewable energy, and engagement with the private sector and policymakers. Whether playing their part in the fight against climate change or creating an enabling environment for business, Houngbo says policymakers must now step up to the plate. Having sidelined farming at the expense of commodities-led growth over recent decades, many politicians have a poor record in boosting agriculture. Houngbo believes that the importance of smallholders is finally sinking in. “What you see more and more in countries in Africa is a genuine political interest in the agriculture issue. Obviously it’s one thing to go from political will to the right policymaking. Of course no solution fits all so you need to take into account each country and situation, but the political will is more and more there.” David Thomas
A new programme from BBC World News This new weekly show will look at the economic trends that are shaping Africaâ€™s future. Presented by Nancy Kacungira from Lagos and Lerato Mbele-Roberts from Johannesburg. In Business Africa will report on the key growth sectors, from tech to energy, manufacturing to agriculture, tourism to design and feature those driving change, from CEOs to entrepreneurs. Watch on BBC World News from February 2019.
IN BUSINESS AFRICA_New African_ 270x210_dec18 final.indd 1
January 2019 African Business 41 INTERVIEW AVIATION
Sebastian Mikosz, CEO, Kenya Airways The unveiling of a route to New York could mark a new beginning for Kenya Airways. The airline’s CEO, Sebastian Mikosz (pictured below), discusses the significance of the move with African Business.
How Mikosz plans to make Kenya Airways a success
fter a restructuring programme aimed at reducing Kenya Airways’ $2bn debt pile, the majority state-owned airline is pursuing a strategy to once again become a competitive African carrier. Under new CEO Sebastian Mikosz, the airline is flying new routes and looking to diversify its revenue stream at its Jomo Kenyatta International Airport hub in Nairobi. Mikosz was brought in a year ago having led LOT Polish Airlines, before which he worked in banking and private investment. His appointment came after the resignation of former CEO Mbuvi Ngunze. All eyes now look to Mikosz, who has overseen the unveiling of a new route to New York. The grand unveiling of Kenya Airway’s (KQ) direct flight to New York this October seems to promise a new era for Kenya’s national carrier. What is the significance of this latest route? Is this the beginning of growth and expansion? It is a symbol but there are two aspects. The first aspect is that we have managed to go through all the formalities; so achieving the departure is behind us. From a symbolic level it’s very positive. For us as an airline, it has created a strong level of emotion in terms of public perception. Now the biggest difficulty is to sell the tickets.
42 African Business January 2019 INTERVIEW AVIATION
You can reach Nairobi from the US through many hubs, which are run by good airlines with good products. So it’s a very competitive market. But I am confident that this project will be a success, I am confident that we will make it, because there is genuine interest; but I keep reminding everyone that as an airline we need to be extremely agile and flexible and adapt to the market. That’s my strongest message. We are going to announce five weekly flights instead of daily flights starting from late January to summer. Then we will come back to the daily flights after we have tested the market. Now I have a product, I need to sell. KQ was reportedly in $2bn worth of debt until last year’s debt-for-equity swap with the Kenyan government and 11 local banks. One year on, has the restructure yielded results? Is KQ on the path towards overall profitability? We are on the path but we haven’t reached it. The financial restructuring has saved the airline and provided it with significant support; it was part of the healing process and it’s a long process through time. Without it we would simply cease to exist. So we went away and dealt with the danger but we still need to prove that the airline can deal with long-term viability. Overall, we are decreasing the losses and increasing the revenues. We are on the path, but not everything is done. It’s going to be a process of internal change. The debt-for-equity swap signified confidence in KQ from the Kenyan government and the local banks who held the majority of the debt. How is the relationship with your new shareholders panning out? The plan is that they can recover what used to be the debt through the growth of the value of the company. The swap was part of a pretty complicated structure and for the moment it is very fresh. One of the key projects I’m trying to achieve is to build a normal relation with the board. I meet with them every week and we discuss priorities. I don’t think they are focused on us repaying anything, they are really focused on us turning around the company. The relation with the state is going well because the state is our biggest shareholder. Some analysts are critical of African governments for continuing to bail out their struggling carriers, like South African Airways. What case would you make for the continuing development of many of Africa’s previously debt-ridden national carriers? I’m not critical of this because I worked in an airline that was bailed out. Without the government bailing us out, we wouldn’t have an airline. Point number two is to look
Above: Mikosz receives authorisation for Kenya Airways to fly direct to New York.
There is a strong connection between the competitiveness of the country and the availability of the air network.
at this discussion from a broader perspective. First of all the story of bailing out airlines is the story of the airline industry. It started in the US, which is the biggest market, and is the story of most airlines going through a number of restructuring and bailing out procedures. Then there’s the story of European airlines. There is hardly a single European airline that hasn’t been bailed out once. There is a strong connection between the competitiveness of the country and the availability of the air network. This is why there will always be the tendency of bailouts, as an airline is essentially the economic blood circulation. Without the airline you will not have a competitive economy. Of course my business model is not to grow an airline and then go back to the government to be bailed out. The African air market is very small. It represents less than 3% of worldwide traffic. As it builds there will always be protectionism, there will be bailing out because the state will not allow an airline to go under. At the end of the day countries are not in the process of bailing out airlines. They are in the process of building the airline, so it’s going to take time. It’s very difficult to think that suddenly a new airline will be successful. Even if you look at private investors they need bailing out. The story of Fastjet is a good example. It was a private investment that failed completely. Can smaller national airlines compete with heavyweights such as Ethiopian Airlines and other global carriers? What lessons can be learned from their model? This is really a challenge. What the Ethiopian model has shown is that when you create the right finance structure, you protect your airline, and you have consistency, then you achieve success. But they have been around for over 70 years; Ethiopian hasn’t built itself in two years, which is sometimes the expectation. The expectation that buying an aircraft and having passengers means you are successful is not how it works.
C o m m u n i q u é
‘Africa is not a country!’ business experts tell roundtable Ethiopian Airlines will try and fly 10m passengers this year, so they are two and a half times bigger than us. But there are still 90m passengers flown in Africa so there is room for competition. There are routes and markets in which Ethiopian will not be successful. If having one big player was a showstopper for other airlines, then the market would be frozen and nothing would move. The government is backing a merger between KQ and the Kenya Airport Authority (which runs Jomo Kenyatta International Airport) so that KQ has full control of the airport. How important is the merger? It’s absolutely fundamental for an airline and its hub to have an additional revenue stream. That’s absolutely Ethiopian’s model and it’s the right model. We are pursuing a very similar model. So we have our own training centre, we have our maintenance hub with 800 people working, we have our own handling and cargo warehouse. So the model is more or less there, but our problem is scale. We need to grow in terms of scale. There was a cabinet meeting a week ago where the main topic discussed was the merger. There might be delays in the future, but we are on track and it will be game-changer for Kenya, not just for KQ. If you look at our competition, all of the airlines have all their cards in one hand. It’s the case of Rwanda, Ethiopian, Turkey, Emirates, Qatar and Oman. So everyone that’s in the area and competing with us for traffic from and within Africa has exactly the same model where all the assets are working together and not against each other. The introduction of the Single African Air Transport Market (SAATM) earlier this year was heralded as a turning point for African aviation. What effect has the market had on KQ so far? It’s a very nice idea but for me in everyday life running an airline, I encounter all the same obstacles. The state will always need to protect their airlines; that is how Ethiopian got so successful. You need to have a system which completely enforces open skies. You have to align all the passengers’ rights and all the legal mechanisms through SAATM. So for me it’s a valuable idea but we are nowhere near there in reality. We still have to refer to bilateral relations. So if I want to fly somewhere I don’t refer to SAATM. If I want to fly to Angola I need to talk to the Angolan government. If I want to fly to Rwanda I need to talk to the Rwanda Civil Aviation Authority. So it has not fulfilled as many expectations as when it was announced. Tom Collins
nderstanding Africa in all its diversity is fundamental to business excellence on the continent. This was the key takeout of a special media roundtable event, which African Business attended, hosted by the Hollard Insurance Group, on the subject of “Business excellence and risk mitigation in Africa: The vital link.” The event highlighted Hollard’s sponsorship of the Company of the Year category in the 8th All Africa Business Leaders Awards (AABLA), won the previous evening by Ethiopian Airlines. The roundtable featured a distinguished group of speakers, including:
• Sam Bhembe, head judge for the AABLAs • Peter Mountford, CEO of Super Group and winner of the 2018 AABLA Business Leader of the Year category • Keynote speaker Professor Adrian Saville, founder and CE of Cannon Asset Managers and director of the Centre for African Management and Markets at GIBS • Mandla Shezi, CEO of Hollard International • Sarina de Beer, director, client experience, at research fi rm Ask Afrika. Bhembe told the audience that the thinking behind the awards was “to show the world what Africa has to offer in the business realm. “It is my fi rm belief that we are growing companies that will compete globally,” he said.
Mountford spoke on the need for African businesses to overcome “almost an inferiority complex in Africa.” “As Africans we should stand up and say, ‘We can compete, and we can deliver excellence to the rest of the world,’” he stated. Saville, in discussing major economic transformation in other parts of the world, listed a “six pack” of conditions such countries have in common: • elevated saving rates and functional investments • a young population • policy stability and capable institutions • education • health • openness. Trust and emotion are also very powerful customer drivers, argued de Beer. Trust is dropping because customers don’t feel heard. “If we want to be customercentric, then we really need to understand consumers,” she said. Shezi used a series of maps to illustrate perceptions of Africa. Global corporates see it as one “dark” continent; more enlightened players may differentiate between North Africa and sub-Saharan Africa; and South African companies struggle to see South Africa as part of the continent at all. “There is no single way to do business on the continent,” Shezi argued. “We have to understand customers, we have to understand suppliers and we have to understand the nature and role of all other stakeholders in each individual market.” n Le: Mandla Shezi, CEO of Hollard International.
44 African Business January 2019 TECHNOLOGY
Price is a barrier to many potential internet users, but as Nigerian startup Tizeti is showing, the more you make the internet affordable, the more people will use it.
Nigerian internet firm widens the net
he hype surrounding Africa’s technology sector was already gathering pace by 2012. Soon-to-be online marketplace giant Jumia had launched, the iHub technology space in Nairobi was becoming internationally known and internet penetration hit 15%. Amid the proliferation of startups and excited chatter about “Silicon Savannah”, Kendall Ananyi spotted an opportunity. A video-on-demand and streaming service seemed like a winning idea for the millions of young people getting online. But while internet numbers ballooned in urban areas, patchy connections and expensive data were stumbling blocks. “We found that the internet was expensive and streaming video was going to cost a lot of data,” he says. “So we said: ‘Let’s go after the internet problem.’” Today, the company Ananyi co-founded to provide low-cost internet is thriving. Tizeti boasts more than 300,000 users, 10,000 hotspots and covers over 70% of Lagos. The story of technology in Africa is one of upwards mobility; internet penetration is now north of 20% according to the International Telecommunication Union (other estimates are even higher), there are more than 400 technology hubs, and startup venture capital funding hit $560m in 2017. However, the internet remains out of reach for millions. Rural and landlocked regions are drastically underserved and a digital gender divide persists. Tizeti, which provides broadband packages to businesses and homes alongside public wifi hotspots with unlimited data through its wifi.com.ng platform, has 80 solar-powered network towers in Lagos. “We built our network into one of the submarine cables off West Africa but that doesn’t take it to the user so sometimes we use fibre to connect the internet and we use the towers to connect people through point-to-point,” says Ananyi. CEO Ananyi, previously at Microsoft and then Exxon in Lagos, says the biggest cost challenge is energy and so using solar power was crucial to address price barriers: “Our model involves us building our infrastructure [tow-
There is a direct correlation between affordable connections, high speed internet and innovation.
ers]. We own it and so then we are not leasing space or reliant on generators. This cost difference can be passed on to the customer.” Tizeti’s hotspots launched in 2017 and the company now partners with Facebook to provide the Express Wifi public hotspots service; 100 MB of data costs N50 (14 cents) and 10 GB is N2,000 ($5). Ananyi claims this is 30-50% cheaper than using established mobile operators. The bulk of Tizeti’s profits come from monthly subscriptions but Ananyi says revenues from hotspots are increasing and that they are reaping benefits from their affordable pricing model. “The bottom of the market is where most of the internet users are and so if you create a higher margin product then the market will be smaller and we wanted to build a product that anyone could afford. As we offer unlimited data we have seen a lot more downloads. It is significant and people simply can’t do that affordably on a mobile network.” Affordability is key A study by the Alliance for Affordable Internet (A4AI) said Africans spend almost 9% of monthly income for 1GB of data compared to 3.5% in Latin America and the Caribbean. “Affordability is the number one issue that impedes people getting online,” says A4AI’s Eleanor Sarpong. “There are groups of people who will still have to make a decision between buying a device and buying food. Unfortunately, we can’t control income levels and so public access is very important.” Customers are applying pressure. South African citizens used the Twitter hashtag #DataMustFall to criticise high data costs. Research by Ecobank says 1 GB of prepaid mobile data cost $10.34 – the seventh highest in subSaharan Africa, trailing Zimbabwe ($25) and Equatorial Guinea, Africa’s most expensive at $35, among others. If operators were willing to share infrastructure and data, expenditure could fall, resulting in lower pricing and enabling operators to reach more people, Sarpong believes. “If we are to close the African internet gap, providers and governments must be willing to share data and then we can direct investment to the right places and increase access.” Universal Service Access Funds – public funds financed primarily through mobile operators and telecoms to enhance ICT capabilities – could also be better utilised. Across 37 USAFs in Africa, unspent funds total $408m, A4AI estimates. If spent effectively they could “bring 6 million women online, or provide digital skills training to 16 million women and girls,” says the organisation.
January 2019 African Business 45
Africans spend almost 9% of monthly income for 1GB of data compared to 3.5% in Latin America and the Caribbean.
The huge growth of underwater fibre networks has had an impact but equipment damage and infrastructure issues taper reliability, Meanwhile, landlocked countries’ ability to access networks is often limited due to costs, regulations and lack of “last mile infrastructure”. Sarpong says regions and authorities could make improvements “either by subsidising the cost or making sure they have enough investment to take it from the border that last mile into the country”. A4AI says governments should treat ICT like utilities and “not tax internet investments and infrastructure but tax revenues made at the end” to help widen access. Narrowing the access divide Technology is helping narrow the access divide. Satellite-powered broadband is connecting schools in rural Uganda, while Google has joined Facebook with public wifi hotspots in Nigeria. Meanwhile, local ISPs such as
9% Mawingu Networks in Kenya are providing affordable internet to rural communities and poor areas in Nairobi. Groups like Project Isizwe in South Africa are rolling out free public wifi in cities and Zenzeleni Networks has created the first cooperative-run ISP using solar power to get the rural Eastern Cape town of Mankosi online. At Tizeti, which closed a $3m Series A funding round in September, led by 4DX Ventures, hot on the heels of a $2.1m seed round in 2017, Ananyi and the team have big plans. The company owns the Wifi.Africa domain, will expand into Ghana in 2019, has plans for Senegal and beyond, and intends to extend its reach to more cities and rural areas in Nigeria. “There is a direct correlation between affordable connections, high speed internet and innovation,” Ananyi says. “It’s really exciting because the more the internet is affordable, the more people will want to use it.” Chris Matthews
C o m m u n i q u é
The Aliko Dangote Foundation, the UN Economic Commission for Africa (ECA) and GBCHealth will launch the Africa Business: Health Forum on 12th February 2019 alongside the African Union Summit.
Business heavyweights to launch private sector coalition on health
wo of Africa’s business heavyweights, Aliko Dangote and Aigboje AigImoukhuede, founder of the Dangote Group and Access Bank respectively, are championing this event along with other eminent global and African private sector leaders. The event aims to bring together some of Africa’s major players in business to engage actively to address the health challenges facing the continent. The Africa Health Strategy 2016 – 2030 recognizes that providing access to quality healthcare at affordable rates is one of the most critical challenges facing Africa. Scarce public funds as well as limited and unpredictable donor aid are pushing countries to seek innovative sources of fi nance, making health fi nancing a key policy issue in most countries. For a more prosperous Africa to emerge we need to leverage private sector’s unique capacity to mobilize resources and innovation to strengthen health systems. Stepping up investments in health is not only the right thing to do, but it’s also good for business, meeting the demand will deliver strong fi nancial returns. Achieving the global Sustainable Development Goals opens an economic ‘prize’ of at least $12 trillion a year by 2030 for the private sector (10% of global GDP in 2030). Most of this from developing countries and from four sectors including health and wellbeing. This could also create about 380m jobs – 90% of which will be in developing countries. By 2030, business opportunities in the health and wellness sector will reach $1.8 trillion in current prices.
Launch of the Healthcare and Economic Growth Report
The Forum will see the launch of the report, “Healthcare and Economic Growth in Africa . Preliminary fi ndings of the report were unveiled this September in New York on the margins of the 73rd UN General Assembly. The report calls for greater African private sector involvement and investment in healthcare by underscoring the importance of improving health to drive Africa’s economic growth, recognizing the need for the private sector to play a significant role in improving Africa’s health outcomes, and identifying opportunities for the private
Le: A so launch of the Forum took place last September during the UN General Assembly. Boom: Aigboje Aig-Imoukhuede with Amina Mohamed, UN Deputy Secretary General and former President Olusegun Obasanjo
The untapped potential of the private sector is enormous sector to strengthen national healthcare systems by improving access to quality products, information and services through public-private partnerships. Vera Songwe, the Executive Secretary of ECA said “Africa’s population bulge and its abundance of young people is a competitive asset. This asset however must not become a fi scal burden. rowding in private sector fi nancing will help spread the costs of health care, and create more fi scal space for governments while improving overall well-being.” Within this context, the Forum aims to bring leaders from the private sector to take greater ownership of Africa’s health challenges by working closely with national policymakers. Insufficient and inefficient investment in the health sector and in tackling the environmental and social determinants of health is a serious obstacle to improving health outcomes in Africa especially given that the continent bears the bulk of the global disease burden.
Launch of the African Business Coalition for Health (ABCHealth) The Forum will culminate with the launch of the African Business Coalition for Health (ABCHealth), an African led coalition that will mobilize a core group of private sector champions through a coordinated and neutral platform, to advance health outcomes and shape health markets across Africa. The coalition will serve as the regional platform to unlock synergies that will contribute more directly to meeting regional health goals, drive the mandate of creating long-lasting and effective impact in health across Africa, leading to improved health and wellbeing of people, and ultimately the African economy. “It’s an ambitious and bold project,” said Mr. Dangote, “but the only way to move Africa forward is to take bold moves, to think big, dream big and do big things together – breaking down silos, working across borders and working across sectors – with government and with each other.” The Forum is expected to bring together a number of African leaders, CEOs and business leaders, philanthropists, scientists and academicians, as well as high-level representatives of the African Union, the United Nations, and Development Banks to discuss issues relating to health and business in Africa. One of the Forum’s objectives therefore is to broker private sector commitments to health across Africa, as well as foster a greater partnership between the public and the private sector. By bringing a private sector lens to the discussion, the idea is for the coalition of private sector players to work closely with national policymakers and develop new mechanisms and instruments to deliver innovative solutions to address Africa’s health challenges. A private sector approach will also help leverage the energy and innovative spirit of youth and entrepreneurship. n
12th February 2019
Hyatt, Addis Ababa
HEALTH FORUM Join African and other global leaders to explore new solutions towards economic growth by transforming health in Africa. The Forum is by invitation only. gbchealth.org/events
‘By fixing health, you fix Africa’ Aigboje Aig-Imoukhuede, Founder & Chairman, Africa Initiative for Governance (AIG) and Co-Chair, GBCHealth
Youssef Nabil, Lonely Pasha, Cairo 2002, Courtesy of the artist and Galerie Nathalie Obadia, Paris / Brussels
A f r i c a
The power of electricity to transform people’s lives is enormous, and GE is helping to bring its benefits to millions across Africa. Neil Ford looks at some of the projects where the company’s investments are bringing economic, social and development benefits to the continent.
Powering Africa forward
frica is growing. The World bank projects that Sub-Saharan Africa’s growth is projected to average 3.6% in 2019–20. The lack of access to reliable and affordable power could be one of the biggest impediments to economic growth, industrialisation and higher living standards in the continent. Changing this will require a very significant increase in power generating capacity across the entire energy mix of fossils and renewables, the expansion of grid transmission and distribution networks, alongside the stabilisation of grids to enable more reliable supply. The transformative power of electricity is enormous. Power enables critical infrastructure for industry, manufacturing transportation and healthcare. Access to electricity also helps other technological advances like mobile telecommunications, internet and data penetration to make a bigger contribution to
economic growth and human development. It would bring huge benefits to the 600m Africans still without access to electricity at home, extend business hours for SMEs, increase standards of living and improve night life on a continent where it generally gets dark year-round before 7pm. Electricity for basic household uses such as cooking and lighting is also incredibly safe in comparison with the alternatives, such as kerosene and paraffin lamps, which pose many health hazards and all too common fires. In addition, many families still rely on wood for cooking, causing widespread deforestation and an average kerosene lamp produces 340kg of carbon emissions a year, so the alternatives to electricity are far from environmentally-friendly. Expanding transmission and distribution networks can help spread electrification into unserved urban districts and particularly into rural areas. Most Africans with access
to electricity at home live in cities, supplied by old and aging grids which have not been expanded as urban populations have grown and therefore do not cater adequately for the growing power demand. At the same time, connection rates in rural areas are often lower than 10%. Even many of those connected to grids experience frequent power cuts, forcing those who can afford them to buy their own expensive diesel fired generators. Making power grids and utilities more efficient helps to drive down the cost of electricity to homes, while making businesses more profitable. Apart from the power sector, GE is also heavily involved in the oil and gas, transport, healthcare and aviation sectors, so can transfer advances in one industry into another. In order to maximise the benefits of its investment, it has concluded partnership agreements with governments, parastatals and private sector firms in order to ensure a
A f r i c a
long-term future for the projects on which it works.
A diverse generation mix
African countries must solve the growing energy demand from diverse energy sources to ensure long-term economic development. Countries that rely on only one power generation technology are generally more vulnerable – to variable rainfall, wind,sunshine, and to fluctuating oil, gas and coal prices. This is where GE comes in, having installed more than 300 turbines in 22 countries in Sub-Saharan Africa across the various energy sources that collectively provide 46 GW of generating capacity and equivalent power
for the needs of up to 250m people. It is most active in Nigeria, South Africa, Angola, Ghana, Cote d’Ivoire, Ethiopia, Tanzania, Mozambique and Kenya. Hydroelectric power production has traditionally dominated the generation mixes of many African countries, although hydro schemes can be vulnerable to drought. As a result, new thermal power plants and renewable energy schemes are being developed to balance out hydro power production while GE’s latest turbines on existing hydro schemes make them more efficient. Gas is becoming a far more popular power sector feedstock in Africa, particularly because of the fluctuating cost of diesel and fuel oil but also because gas fi red plants generate lower carbon emissions. Nigeria has by far the biggest official gas reserves in the region at 192 trillion cubic feet but new discoveries offshore Ghana, Mozambique and Tanzania can all be used to fuel local power plants. In Ghana, GE is particularly active in supporting the development of alternative sources of gas feedstock while its technology is at the heart of rapid power sector growth in the country, adding 600 MW of new generating capacity over the past two years, with another 900 MW under development. The 400 MW Bridge Power combined cycle plant in the port city of Tema will be the fi rst LPG-
fi red power plant in Africa and the biggest in the world, and has the option to convert it to natural gas at a later date. GE is also working with IPP developer, Marinus Energy to develop the Atuabo Waste Gas to Power project, using isopentane gas that would otherwise be flared. The fi rst phase will provide 25 MW but this can be gradually ramped up to 100 MW. Marinus Energy’s strategic advisor, Fred Asamany, said: “By using a fuel source which would otherwise have been flared as waste, we are further reducing emissions and costs. This is good for our business; and the climate and eliminates the potential environmental hazards facing the local community.” With over 35,000 wind turbines installed globally, GE is also well placed to support the growing wind power sector in Sub-Saharan Africa and the creation of a genuinely diverse generation mix. Taken as a whole, such projects can help achieve one of the UN’s Sustainable Development Goals: that of providing clean and affordable energy. As we discuss below, achieving this goal will require investment in much greater power generation; support for African industrial enterprises; improved environmental standards; and encouraging small businesses and skills transfer, so African countries can genuinely fulfi l their economic potential.
Powering localisation: more than just soft skills Localisation requires the development of local African talent with the most in-demand commercial and technical skills. More specifically, GE Power also seeks to develop the creation of the next generation of engineers and other specialists working in the power sector. In April 2018, it set aside R30m ($2.1m)to provide needs-based bursaries to 60 South African students in Mpumalanga Province where most of the South African power plants that it has worked on are located. The bursaries will cover living and education costs for four years. Lee Dawes, the General Manager of GE Steam Power business in SubSaharan Africa said: “We understand the importance of ensuring that the future generation of engineers, technicians and scientists have access to the training and support that they need to develop and contribute to the development of the country.” In addition, GE Power and the South African government have set up an engineering graduate development
programme, called the Accelerated and Shared Growth Initiative South Africa, with 155 trainees. Across the region, it also has a portfolio of rotational development programmes to grow talent in critical functions of the company to become leaders and innovators for the future. GE is also seeking to power localisation by empowering local communities, including through the Londvolota Trust in South Africa, which supports startups and emerging black-owned industrial companies by offering structured mentoring and business and technical support for entrepreneurs. It focuses on businesses in the power, water, aviation, transport, healthcare and oil and gas sectors, with the aim of supporting the industrialisation of South Africa. To date, the Trust has invested R22m in supporting 546 businesses. Developing a viable network of indigenous power and infrastructure developers, contractors and a heavily localised supplier network has been a key strategy to building a sustainable
relationship in most of its businesses across the region. To promote invention, innovation and manufacturing, GE runs its Garages Advanced Manufacturing Programme in Lagos. The Lagos Garages, acts as a hub for advanced manufacturing with equipment such as 3D printers, laser cutters and CNC mills. Participants receive support in taking products from design to testing and on to production, plus marketing and fi nancing. It recently launched an electronic learning (elearning) portal in order to extend the training programme to thousands of Nigerians across the country. Patricia Obozuwa, Director, Communications and Public Affairs, GE Africa, said that the e-learning portal was in line with GE’s commitment to skills development and the empowerment of entrepreneurs in Nigeria. Other similar ventures offer advice and training but few provide access to the hardware needed to build and test products.
Powering grid digitisation: making the most of new technology Smart technology can play a huge role in overcoming grid weaknesses in Africa. While power generation attracts the most attention, transmission and distribution infrastructure needs even more investment. Smart technology will be crucial as decentralised power production, intermittent output from solar and wind power projects and the potential for energy storage create new challenges. Advanced metering and grid automation can ease the transition to renewables and help integrate renewable energy projects and micro-grids where necessary, while predictive maintenance in distributed grids helps to reduce outages. Innovations such as deferred bi-directional data transmission and wide area monitoring and control will provide utilities with the opportunity to increase power supply reliability and reduce costs. In July 2018, GE Powerâ€™s Grid Solutions business and research analysts Frost & Sullivan published their Digitisa-
tion of Energ y Transmission & Distribution in Africa whitepaper, which highlighted the benefits of smart grids and the Internet of Things in combating African power sector problems. While many countries in the industrialised world would have to replace existing power sector infrastructure to take advantage of the new technology, the limited geographical reach of many African grids could be an advantage. Just as the lack of landlines has driven the uptake of mobile telecoms across the continent, so too African states have the potential to leapfrog technologies and move straight to smart grids. It is vital to move beyond simply maintaining and repairing limited and aged infrastructure. A holistic approach needs to be adopted; one that ensures sustainability, reliability and longevity of power supply. For instance, Botswana Power Corporation (BPC) has decided to create a single platform for grid control centres
in Gaborone and Francistown using GEâ€™s SCADA/Energy Management system. BPC chief executive Dr. Stefan Schwarzfischer said that the system would reduce downtime and improve revenue collection as well as overall customer satisfaction. Most transmission utilities in Southern Africa now rely on GEâ€™s Advanced Energy Management System to operate their networks. Strengthening grid control within each national grid could ease power sector integration within the Southern African Power Pool. GE is also playing a key role in upgrading the Ethiopian power grid, through an Electricity Transmission System Improvement turnkey project to supply the south and southwest of the country. New substations will also help to reduce transmission losses. This project will significantly reduce high transmission losses while improving system efficiency, stability and reliability.
Powering lives: supplying electricity and curbing pollution
Ensuring that more people have access to electricity in their homes requires a huge increase in power generation across Africa. In June 2018, GE announced that it had installed its 100th power plant in Sub-Saharan Africa, with the provision of trailer-mounted aero-derivative gas turbine technology in Angola. This takes the proportion of Angolan gas powered generating capacity running on GE technology up to about 80% and it now seems certain that the Angolan government will achieve its 2020 goal of boosting national generating capacity by 2 GW. The CEO of GE’s Gas Power business for Sub-Saharan Africa, Elisee Sezan, said: “This milestone is a testimony of our commitment to providing power solutions to meet the growing energy needs in many countries in the region ahead of other OEMs.” Sezan attributed the company’s success to the creation of an expert and truly African team; its cooperation with independent power producers, EPCs, strategic investors and governments to deliver projects; and its flexible and modular energy solutions. In many instances, GE has a long track record of engagement. In Côte d’Ivoire, for instance, it installed the first ever gas turbines in the country, at the Vridi plant in 1984 and then the first independent power producer, Ciprel, in 1994. Most recently, it supplied its technology to the country’s first combined cycle power plants, Azito and Ciprel, which came on stream in 2015 and is committed to supporting the government’s goal of adding another 1 GW to its power generation mix. The company’s work to improve living standards across the continent also encom-
The transformative power of power The transformative power of power has long been recognised and there have been numerous initiatives to improve electrification rates across the continent, generally with varying degrees of success. The ingredients for improved residential, business and industrial access to electricity will include greater investment in all sectors of the energy value chain, a combination of new and more sustainable technologies as well as a more effective use of established technologies. The resulting economic, social and development benefits are likely to be enormous.
passes the implementation of best-in-class steam power technology to improve air quality and reduce carbon emissions especially in South Africa. The country is currently building the two largest coal fired plants in the continent that will generate up to 9.6 GW of power upon completion to ensure that it has sufficient generating capacity to end the periodic power shortages that have affected the country over the past 12 years. GE is playing a key role in this process by actively participating in the new build projects of the Kusile and Medupi plants as well as improving the performance and environmental standards of the country’s existing coal fired plants through upgrades, retrofits and digital technologies for predictive maintenance. In April 2018 it completed tests on Unit 1 of the Wet Flue Gas Desulphurisation (WFGD) plant at power utility Eskom’s new Kusile plant, providing the first air quality control system of its kind in Africa.
Powering industries: big and small
As elsewhere in the world, most industries require reliable power supplies to be profitable and successful Most industries have resorted to captive power plants or embedded generation which is essentially operating their own power plants as this is so crucial to effective production cycles and overall operations. Without this, the risk to business and economies include loss of jobs and stalled economic growth. GE has been supporting industries to ensure that they continually have reliable power to manage their operations efficiently. In 2018, GE Power and its field services operation FieldCore restarted two steam turbines at Metahara Sugar Factory in Ethio-
pia’s Oromiya State in 20 days, allowing the factory to resume production after more than seven months of unplanned shutdown.. The turbines, which were manufactured in the 1950s, had been damaged by a severe thunderstorm in 2017 halting work for its 5,000 employees and caused severe shortages of sugar supplies across Ethiopia. Metahara’s deputy factory manager, Fahmi Dawud, said: “We had lost all hope that these extremely aged units would ever come online again due to the damage. Hotels and supermarkets had run out of sugar, and it was a critical situation. We are excited to hear the machines humming again.” In November, GE also announced that it had signed a 12-year agreement with GEL Utility to support the power generation requirements of the Port Harcourt Refining Company, which is a Nigerian National Petroleum Corporation subsidiary. GE will provide parts, repairs and servicing over two major inspection cycles for the aeroderivative gas turbines, which were installed at the plant in March 2015. Ensuring that the power plant is reliable will allow the 210,000 b/d refinery to operate more efficiently. It can be difficult to maintain gas turbine performance when budgets are under pressure. As oil prices are a determinant of Nigeria’s growth pattern, this service agreement should improve power supply to one of the country’s biggest industrial plants. GE is also upgrading Shell Petroleum Development Company’s Afam IV power plant to increase combined cycle efficiency. This should boost power production by up to 30 MW, reduce plant operations and maintenance costs and extend inspection intervals. n
January 2019 African Business 53 INTERVIEW
Bruno Mettling, President of Orange, Middle East and Africa The president of Orange for the Middle East and Africa tells African Business why he believes that digital technology will be central to the future. of Africa’s development.
Digital technology will revolutionise African education
runo Mettling, president of Orange, Middle East and Africa, has accumulated exceptional knowledge and expertise about Africa over many years. In his new book, Booming Africa (not yet translated from the French) he draws on this knowledge to highlight the key factors in the continent’s digital revolution. He spoke to African Business in Paris about his vision. What is the fundamental message of Booming Africa? More than anything else, I wanted to provide evidence for what seemed increasingly clear to me, after more than three years at the head of Orange Middle East and Africa: the huge impact of the continent’s digital transformation. What’s the message? We have to acknowledge that the pace of demographic change in Africa will only be an opportunity if we manage to educate its young people. We need to move on from the slightly arguable narrative which considers population growth to be essentially, and in every case, a positive thing for Africa. Everyday reality – I’m thinking specifically of those people on the migrant trails – bears witness to the difficulty in finding inclusive growth. The President of Côte d’Ivoire, Alassane Ouattara, has said as much: population growth will only be an opportunity if it is used to benefit a people and an educated younger generation, to enable them to participate in the dynamism of inclusive economic growth. The second major point is that we have plenty of concrete examples in Africa today of the impact of digital technology and of how this digital transformation is a
54 African Business January 2019 INTERVIEW
What’s happened with mobiles will happen with energy, agriculture, education, health... It’s the same logic. key factor in providing the population with access to education, health services, agricultural development, etc. This is the central argument that I express in the book, and address to those in positions of authority, to funding providers, and to other stakeholders in development. Digital technology is part of the response that will enable Africa to experience a far more sustainable, efficient and inclusive growth in the service of its peoples. I report nearly a hundred concrete examples. Yes, digital technology can play a very important role in resolving the problems in education. Yes, it can make a major contribution to developing health systems for the people, particularly in preventative medicine. Yes, digital technology can help farmers grow their incomes by anything from 10% to 80%, and make use of their reserves of farmland that are still largely underexploited on the continent. Yes, e-administration works for collecting taxes and modernising the public sector. We can even imagine a public sector with less red tape and bureaucracy which would, in the end, be far more efficient. Yes, as mobile telephony has demonstrated with banking, digital technology can encourage economic inclusion. So your approach is a realistic one? When we see the potential of digital technology, particularly in new applications... with what’s happening in Rwanda, in Senegal, in Côte d’Ivoire and other African countries, all this momentum made possible by digital, I say – and this is the contention I defend in my book – that hidden behind the sense of inaction or overly slow progress that we so often feel, is actually an unstoppable dynamism. Between now and 2030, the continent will have to cope with a growth in its population equivalent to the size of the European Union. This is not a theoretical challenge. This is the reality. And in the face of this challenge, there are numerous examples showing that children taught using interactive tools acquire a far greater capacity to learn. It is an illusion to let people believe that they are going to have access to a traditional educational system – a teacher in a classroom – when in just one area of Abobo in Abidjan, 50 babies are born every day. Who could possibly believe that a new class could be created every day in one neighbourhood alone? We have to revisit our entire way of thinking. We must not be content with including a bit of digital in development policies designed using the traditional model. We must rethink education, health and agriculture starting with the huge opportunities opened up by the potential of digital technologies.
How is digitalisation disrupting Africa? Africa has an enormous advantage that we’ve already observed with mobile telephony, namely, being able to access digital technology whilst circumventing the need to upgrade via traditional, physical infrastructures. So Africa has had access to digital – to 4G and tomorrow 5G – on almost the same time scale as Europe, without having to go through the stage of building fixed networks. Today, the rate of mobile phone banking is higher in Africa than in the United States or Europe. It is the highest rate in the world. Africa doesn’t always need to go through the traditional infrastructure stage. What distresses me today, when we talk about energy, for example, is that we instinctively think of heavy infrastructure, whereas solar power could be today’s answer at an extremely reasonable price, and the solution to the legitimate demand of the African peoples, particularly in rural areas, for access to energy. If you bring electricity to a village using solar kits for a total cost of less than a thousand dollars, as I have seen for myself in Madagascar, you transform village life. We have to move beyond the pessimistic view. We must accept the need to re-examine how we usually do things and see things, and accord digital technology the central role it deserves, in order to speed up development. Africa needs a massive influx of skills and brains, but is that still some way away? Educating young people is the priority. Experiments conducted today in Africa – for example, the virtual university in Senegal – show that 20,000 students can have access to degree-level and masters-level mathematics using new digital tools. The materials are downloaded directly onto mobile devices; teachers can provide distance support; tests and examinations can be held in non-traditional ways. The skills need is crucial. To meet it, we must revisit the traditional education system. But is Africa at this stage today? Yes, the experiments show that it is. Orange Group alone has made the use of digital technologies possible in more than 530 schools, which has contributed to the education of more than 150,000 children with methods which are far more interactive, far more effective, and in perfect harmony with the teacher. It is imperative that Africa is provided with the higher education digital skills it needs. Training is required in all digital roles, from programmers to data analysts. For the most part, this training can take place online, via distance learning. We must provide training in digital technologies using digital technologies. This is a matter
January 2019 African Business 55
of great urgency. Today, Africa does not provide enough training in digital skills at home, on its own soil. And the big fear is that applications continue to be developed in Europe, Asia or the United States, and arrive in turnkey form in Africa without contributing to job creation on the continent. Young people have the right idea. The first class at the programming school opened by Sonatel in Senegal was offering 50 places. We received more than 12,000 applications. Does this show the extent of the gap which still exists today between what is needed and the reality? Certainly, but it also shows that we must increase digital technology training. In the example I’ve just given of Sonatel, we will go from 50 pupils to several hundred, then to several thousand, using mixed programmes combining online training and physical classroom sessions. At the other end of the spectrum, let’s take the example of the data scientist, the most demanding role possible and right at the top of the pyramid of digital technology training. These are men and women who have the skills to manage and analyse databases that are dubbed the “new black gold of digital technology”. Is it known widely enough that the first intake of 100% African data-scientists completed their studies last year, thanks to a partnership between Ivory Coast’s Institut Polytechnique Houphouët-Boigny, the École Polytechnique Française, the ENSAE and Orange which co-financed this training? It was the first cohort. We recruited Bac +4 mathematics students who had outstanding results and put them through specialist data-science training. In that way, in West Africa, we demonstrated that it is possible to train young Africans locally for the most sophisticated digital technology roles. Aren’t you being idealistic? I have great faith in Africa and in the digital solution. What’s happened with mobiles will happen with energy, agriculture, education, health... It’s the same logic. From 2030, Africa will certainly be one of the most populous continents but it will also be the most digital. I’m willing to bet on it. And, above all, if it follows the path that I urge it to take, it will be the continent that has committed to the most radical transformation policies. Today, you have enough concrete examples in health, education, agriculture, energy and e-administration to amply demonstrate that digital technology can contribute to substantive solutions that are far less expensive than traditional ones, and furthermore, they can satisfy the needs of the population far quicker. Hichem Ben Yaïche
56 African Business January 2019 INTERVIEW
Admassu Tadesse, President and CEO, TDB The President and CEO of the Trade and Development Bank (TDB) shares his thoughts on the bank’s growth strategy and the prospects for drawing more investment into Africa.
Speed up, scale up and synergise
dmassu Tadesse is believed by some to be one of the outstanding bankers of his generation. He has an enviable CV, having attended LSE, Wits and Harvard and having gained experience in banking in the US and South Africa. Like many Ethiopians, he is self assured and determined. Colleagues say he has a very clear reading of situations. He was catapulted to the head of the Trade and Development Bank (formerly PTA Bank) at 41 and has since assembled a strong team of youth and experience, giving them, as he puts it, the reins to grow the bank. “Systems are developed by people, systems are managed by people and in the end it’s all about talent and the ability to have an eye for what will work and what will not work,” he says. Since he joined the bank in 2012, its balance sheet has grown from $1bn to nearly $6bn – to put this into context, the AfDB’s loan book stands at approximately $18bn and that of Afreximbank at $12bn. Over that time, he has managed to bring in a number of institutional partners as shareholders to support its growth, including African pension funds and insurance companies. In 2017 the bank grew 20%, despite a challenging environment. We caught up with Tadesse on the sidelines of the Africa Investment Forum, where he called for partners to speed up, scale up and synergise to ensure greater investments into the continent. How do you see the current economic outlook on the continent? The year 2018 has been quite a watershed in many respects. We have seen Zimbabwe reset, we’ve seen Ethiopia reset, we’ve seen Angola reset and we’ve also seen South Africa reset. So these are four very significant countries where the political risk prospective is somewhat improved. We’ve also seen South Sudan sign a peace
agreement. We’ve seen Egypt advance its reforms and improve its economic performance and prospects. We’ve see Sudan come out of sanctions. That’s seven countries where there have been very significant positive developments. We are not operating in any way in Somalia but Somalia also has a government that’s looking much more robust than in the past. So just generally in Eastern and Southern Africa there has been a positive development. We are seeing sanctions being removed from Eritrea on the back of the wind of peace that is coming out of the Horn of Africa. So that’s eight very interesting developments. It means that there are more prospects for co-financing projects and opportunities with partners. And the investment picture in your East African base? We come from East Africa, which is continuing to grow very strongly. We have Tanzania, Kenya, Uganda, Ethiopia, Rwanda. These five countries are all growing in the range of 5 to 9%, so the average growth rate would be the highest in Africa. Mozambique is beginning to recover and they’ve also now closed one or two big deals on the gas front. All of this adds up and translates into a more interesting set of transactions to come on many different fronts. Will you continue growing at 20% in the foreseeable future? We have an asset growth strategy that is scenario based, where growth can range from 5-20% per annum. Our base case, our working plan, is to grow assets, mainly loan and investment assets, at between 10-15% per annum. The low case is 5-10% and the high case is 15-20%. If the business environment is enabling, and we are able to originate healthy assets on a diversified basis we can still do 20% per annum. Historically, the majority of our loan book has been trade finance, roughly two thirds, and our long-term loan book would range between 30% to 40%. Our strategy is to keep trade finance as being a majority [of our loan book]. You don’t just grow for the sake of it, we are always trying to shape our portfolio that meets certain requirements. The success of any portfolio depends on the geographic base on which it sits. Which sectors are giving you case for excitement? We are seeing quite a bit of demand coming through on the resources side, gas and mining. Agri-business is also a continuous area of growth. Trade is back as well, dominated by commodities. And with higher valuations, the volumes of trade have gone up again. So that’s also going
January 2019 African Business 57
It’s very important that we keep stimulating the discussions around how to regenerate surplus savings.
to give us some good opportunities for further growth in some of those sectors. The power sector is well poised to attract considerable investment. It is attractive as an investment sector now because the cost reflective tariffs today have moved us beyond where we used to be in the past, where power was so deeply subsidised. Transport is also a sector where we will see more activity. There are a lot of opportunities for spinning off transport projects, such as toll road based projects. Speed of execution has been a common complaint from private sector operators with regards to DFIs. How is the organisation adapting to respond to their needs? We’ve introduced innovations in our organisational structures. We’ve established offices closer to the subregions in order to speed up access to the bank and to have people residing in the different sub-regions able to receive applications and process them quicker. At the same time, we’ve strengthened our capacity at the centre to actually process the deals, to do the due diligence, prepare the papers, get the approval systems in place. The committees meet much more regularly. So we’ve been investing in a more efficient and quicker business process. You mentioned that investment rates need to grow. Can you elaborate on what you meant? We are actually at record levels of FDI and fixed capital formation has improved. At the turn of the millennium we were all very critical of the levels of investment in Africa. We were looking at very low numbers and today, there are many countries that are getting very close to 25% and quite a handful that are well above 25 and several above 30. Twenty-five percent fixed capital formation is considered to be an adequate level of investment to help generate 6% growth. But with African population growth at about 3%, we need to be aiming higher. We’ve seen the Asians invest for sustained periods, 35%, 40%, 45% of GDP. It’s very important that we keep stimulating the discussions around how to regenerate surplus savings so that we can finance more of our own investment, but that is not going to be very easy to do because savings are very low in Africa. The private sector has a domestic, regional and global character and we need much more of that to come in and boost the numbers. We’ve scaled up already, we are doing much better than we were 10 years ago, but it’s still nowhere near where we need to be. We have to be much more aggressive, much more proactive and innovative in how we do things. We really have to boost confidence internationally to make Africa a very serious investment destination. n
58 African Business January 2019 OPINION
Globalisation is receding as protectionism and trade wars undermine growth, while the lingering effects of a fiscal and sovereign debt crisis are fuelling resentment against immigration in Europe.
Insular aspirations take their toll on growth
he power of globalisation as an engine for peace and prosperity is increasingly challenged, especially as more countries move away from the rules-based framework that has governed international trade for decades and resort to trade wars to address structural current account deficits. Whether one assesses it from the standpoint of global political integration and stability, or from the standpoint of global trade and capital flows, globalisation is receding. The increase in the free movement of goods, services, capital, and labour witnessed during the third wave of globalisation, which started in the 1980s and culminated in the rise of global value chains, is no longer happening in a uniform manner. Insular aspirations are taking a toll on global growth and trade. First, creeping protectionism and outright trade wars are exacerbating global volatility and uncertainty. Th is is undermining the growth momentum and synchronised global expansion that emerged after the deceleration triggered by the end of the commodity super-cycle in 2014. Despite the slight recovery witnessed last year, global trade is still significantly below the high of $37.8 trillion recorded before the end of the commodity super-cycle when resilient global demand sustained a strong rally in commodity markets. Likewise, African trade â€“ which rebounded in 2017, growing by more than 10% to $820bn after contracting by more than 12% the year before â€“ is still significantly below the historical record achieved by the region in 2011, when its total trade (both extra- and intra-African) exceeded the threshold of $1 trillion. Flows of foreign direct investment (FDI), which is highly correlated with trade, also have diminished because of the headwinds of increased global volatility. Global FDI fell by 23% to $1.43 trillion in 2017. In line with global trends, FDI flows to Africa continued
their downward slide. This happened even though the region has been a historical laggard in the global distribution of FDI, consistently receiving the least of any region, including other developing regions. In 2017, FDI flows to Africa fell by 21% to $42bn, compared with $476bn for Asia and $151bn for Latin America and the Caribbean. The headwinds of global volatility are also affecting the trajectory of global growth. An earlier 2018 IMF global growth forecast called for strong and broad-based growth; the latest revision lowers growth projections not only in the Euro area, but also in a few leading emerging market economies.
African trade is still significantly below the historical record achieved by the region in 2011.
Right: Tanger-Med container port in Morocco.
Increasing uncertainty Perhaps the downward revision reflects the increasing uncertainty associated with trade wars and their inherent risk of disrupting supply chains. Most recent indicators on the dynamics of trade and growth suggest that these developments are shifting the balance of risks further to the downside, and in the process, affecting investment decisions and prompting either a reversal in capital flows, or a reduction in capital inflows to developing economies. In the medium term, the normalisation of monetary policy that is steadily bringing the era of accommodative financial conditions to an end could further exacerbate these risks, especially as interest rate spreads between emerging market debt and US treasuries become less attractive for investors. To these short-term economic costs and downside risks, one must add the medium and long-term consequences associated with ongoing efforts to speedily unwind the process of globalisation. The growing popularity of nationalist political parties is undermining the ability of governments to deliver on the difficult reforms necessary to expand industrial output and boost global growth. Yet these reforms are very
January 2019 African Business 59
important for the expansion of employment opportunities, especially within the Eurozone, where the lingering effects of a fiscal and sovereign debt crisis have sustained high unemployment rates, resulting in income and secular stagnation that are perhaps fuelling the resentment against immigrants. Under pressure from the influx of refugees, the foundation of the European Union (EU) which has been underpinned by four freedoms, including labour and capital as economic inputs into the production of goods and services as economic outputs, is being challenged. The commitment to open borders and the free movement of people within the EU is no longer accepted by all countries. A growing number of member countries no longer feel bound by the Schengen Agreement and its four freedoms. Collectively and under the EU umbrella they are seriously exploring the option of outsourcing the integration of new immigrants to non-EU states willing to accept financial aid and other forms of incentives even if these states are not recognised as safe third countries for refugees. Nigeria and Turkey have been considered as potential candidates for that outsourcing option, with the latter expected to receive about $3bn dollars annually from the EU as a key incentive under the EU immigrantsâ€™ diversion scheme. Similarly, a readmission agreement under negotiation between Nigeria and the EU will enable EU member countries to deport Nigerian emigrants back to their country, in exchange for EU economic aid. As the most populous country in Africa, Nigeria is potentially the single largest source of emigrants undertaking the perilous journey of crossing the Mediterranean Sea in search of better opportunities in Europe. Towards a sustainable solution While the ongoing outsourcing of government responsibility and accountability under the EU immigrant diversion plan may stem the inflow of people, it is at best a stopgap measure and not a solution to stagnant wage and unemployment challenges. The long-term and more sustainable solution may lie in the implementation of structural reforms to raise productivity, improve policy coordination at the global level, and promote global demand and trade which, time and time again, have been the leading drivers of growth and an effective path to integrating countries into the global economy. Dr. Hippolyte Fofack is the chief economist of the African Export-Import Bank.
60 African Business January 2019 FORUM REPORT
At the Africa 2018 Forum, which took place in Sharm El Sheikh in early December, President El-Sisi of Egypt announced his agenda as the incoming chair of the African Union for 2019.
Egypt pledges to boost investment and cooperation in Africa
peaking at the Africa 2018 Forum in the resort town of Sharm El Sheikh in December, Egyptian president Abdel Fattah El-Sisi outlined how Egypt plans to tackle some of the issues and constraints holding back investment and economic growth on the continent as it takes up the rotating chairmanship of the African Union in 2019. “This event emphasises how much importance Egypt accords to the African continent,” he said. “It’s been an important platform to enhance the multilateral framework of African countries. Improving African infrastructure and a clear focus on development will be central to our agenda during our chairmanship of the AU.” “We have another pressing challenge in Africa – that of time. I believe building hope for our people cannot wait any longer. We have to be in a hurry and apply progress in a speedy way in whatever we do.”
President El-Sisi used the forum to announce a number of planned initiatives.
Egypt will take over the chairmanship of the African Union from Paul Kagame’s Rwanda at January’s AU Summit. President El-Sisi said that corruption, infrastructure, regional integration and development acceleration would all form part of his agenda as chair of the African Union during the coming year. “Governance and the fight against corruption are some of the core issues at the centre of the African Union agenda. We have to provide the leadership necessary for young people to be free, explore and express themselves. We are not doing them a favour, it is our duty and responsibility.” But he was also emphatic on the importance of a secure and peaceful Africa. “Security is an investment for Africa, “ he said. “If we cannot maintain security and stability, everything we do is impacted negatively… we need peace and security.” President El-Sisi used the forum to announce a number of planned initiatives to bolster the AU agenda and his country’s policy framework. He announced the creation of a National Academy to Fight Corruption in Egypt under the auspices of the Administrative Control Authority. Grants will made available for 250 Africans to study at the academy to help develop skills and measures to tackle graft in their own countries. He announced that Egypt will also establish a risk insurance fund to encourage Egyptian entrepreneurs to invest in other African countries and a guarantee fund dedicated to investing in infrastructure, information technology and the high-end digitisation of African economies. Perhaps the AU’s key mission in 2019 will be boosting intra-African trade, which lags behind every other region. Central to the efforts to expand trade on the continent is the planned ratification of the Continental Free Trade Area, which is intended to remove barriers and facilitate greater trade integration. Speaking at the forum, Mahamadou Issoufou, President of Niger and a prominent backer of the CFTA, reminded the audience of the urgent need to take bold and decisive action to ratify the pact as soon as possible. Twenty-two countries need to ratify it for it to come into force. “If political pan-Africanism emerged victorious in the twentieth century, economic pan-Africanism must win the day in this century,” he said. Women take centre stage The first day of the forum was devoted to women and youth development. Two hundred and fifty start-ups were invited to take part in the Young Entrepreneurs Day, while panel discussions took place as part of the Women Empowering Africa event. The Forum also brought to-
January 2019 African Business 61
Left: Delegates listen to a roundtable debate at the 2018 Africa Forum. Below: President Paul Kagame (L) of Rwanda and Abdel Fattah El-Sisi (R) of Egypt take part in the forum.
gether over 30 African women in the fashion, design and luxury goods industries for a curated exhibition aimed at giving them exposure to investors. The day following the Forum, the OECD reported the findings of its Social Institutions and Gender Index, which showed that Africa as a region registered the most progress since the last report, published in 2014. Since that year, 10 countries on the continent have enacted laws against domestic violence and five have introduced
quotas to increase the number of women in parliament. Bathylle Missika, head of the OECD’s gender division, stated that most African countries now guarantee paid maternity leave for formal work, something that does not happen in the United States. In the African Union and its 2063 Vision – and in many countries on the continent – the parity principle is becoming enshrined in law via policies and legal instruments. But there remains an imposing implementation deficit. Too often culture and tradition are more powerful than the law and patriarchy is a major blockage. The forum discussed ways in which such obstacles can be cleared through a vibrant discussion on women in leadership, which touched on pay parity, boardroom respect and breaking the glass ceiling. There seemed to be consensus around one point. To achieve gender equality will require a radical mind-set change, which will have to start at home and in schools. The forum played its part in furthering that goal by putting women’s empowerment at the heart of the policymaking agenda. n
C o m m u n i q u é
Smallholder productivity is low in Africa, but there are a number of ways in which government and the private sector can help to improve it.
Improving smallholder productivity in Africa
ith over 470m smallholder farmers producing almost 70% of total food consumed, Africa still faces lagging productivity growth over time. The gap between small farmers’ yields and technical potential yields, which are achieved with the latest varieties and under best conditions, are reflected in the large suboptimal use of inputs and insufficient adoption of the most productive technologies. African smallholders struggle to match the productivity levels of commercial or large-scale farmers. A smallholder palm planter in Côte d’Ivoire gets around 5-6 tonnes/Ha, while in Nigeria this can be low as 2-3 tonnes/Ha. This contrasts with the 1516 tonnes/Ha achieved by commercialised plantations in the same region. Across crops and regions, it has been observed that well managed commercial farms or plantations have delivered between 50 and 200% more than the smallholders. This is ascribed to the lack of quality farm inputs such as seeds, fertilisers and agro chemicals; lack of farm mechanisation and the lack of irrigation infrastructure and thus dependence on rainfed agriculture. Irrigated areas as a share of total cultivated area are estimated at only 6% for Africa, compared with 37% for Asia. Inadequate access to markets and price volatility are also issues that smallholders are faced with. This is due to a significant number of smallholders being heavily dependent on the middle man to gain access to such markets. As they lack the capacity and access to markets, they are forced to sell during glut or peak seasons. Most of the time they resort to selling at the bottom of the price cycle, while the middle man makes most of the upsides by hoarding or selling during the off-season. In addition, climate change and weather risk have contributed to challenges faced by smallholders. Climate variability is expected to impact many major crops, cutting productivity in key food crops like irrigated rice by as much as 27%, rainfed wheat by 25%, and rainfed maize by 15%. The main reason
is that changing weather patterns reduce response time for agricultural activities like land preparation, application of fertiliser and chemicals and harvesting. For instance, to prepare a hectare of land takes approximately 20 days if done manually, two days if done with a pair of cattle and a plough and two hours if done with a tractor. With smaller holdings and lack of access to finance, the smallholder is the most affected by this.
Another challenge is access to financial services, such as credit and insurance. Credit provided by informal and formal institutions as well as value chain actors meets just $50bn of the $200bn demand for smallholder finance in the developing economies of sub-Saharan Africa. Most farmers in Africa do not have access to finance through formal banking structures. Some countries like India has mandated banks to allocate a certain percentage of credit financing to farmers as priority funding at a nominal rate. In contrast, in Nigeria, roughly 1.4 % of all bank lending goes into agriculture, a sector that is the mainstay of the economy, employing about 70% of the labour force and accounting more than 18% of nominal GDP. This problem is further accentuated by the low level of land registration in Africa. It is
assumed almost 90% of Africa’s rural land remains undocumented. Because of the size and fragmentation of smallholdings, most insurance companies are either not willing to offer crop insurance, or else the cost of insurance is too steep. Economic growth in agriculture is up to 11 times more effective in reducing poverty than other sectors in the sub-Saharan region. It thus becomes imperative for policy makers and other stakeholders to address these issues at the earliest opportunity, in order to provide a much-needed injection of economic growth in this sector. We are at one of the best possible times to attempt this, as Africa is largely peaceful and has developed strong democratic processes, building vigorous institutions with support from international bodies. With recent advancement and technical innovations in the IT and digital sector, there have been substantial reductions in cost and time to reach out to smallholders in rural areas. The challenges mentioned above provide the private sector with immense opportunities.
There are a number of measure that can be taken to help improve smallholder productivity and generate stable income: Access to critical quality inputs like seeds, fertilisers and agro chemical: We will need government and private sector institutions to invest in much needed research and development for developing or shortlisting of inputs specific to the region and for smallholders. There is a great need to build a two-way distribution channel for delivery and feedback. Access to extension and training services for modern agricultural practices and production techniques: The distribution channel mentioned above can also be used for providing these training and extensive services for pre- and post-harvest practices and other services like soil testing, pest identification and necessary treatment recommendation. A great example includes Olam’s involvement in helping smallholders with a variety
P o w e r e d of solutions that help grow their production. Olam has introduced a platform for farmers to help grow and sustain their produce, called The Olam Farmer Information System (OFIS); this system solves the information issue by providing a revolutionary tech innovation for collecting and analysing first mile data. These includes traceability and ways in which supply chain risks can be reduced. OFIS has helped farmers to double or triple output and reduce reliance on pesticides. Access to irrigation and other mechanisation infrastructure like tractors and other agricultural machineries: Due to the sub-economic size of the farms it is commercially challenging to adopt new capital-intensive technologies. In such cases smallholders could be encouraged to form cooperatives to pool resources and invest or local entrepreneurs could be encouraged to run these services on a rental basis for small farmers. Equipment providers should look at creating a local ecosystem for these services backed by a very robust economical repair and maintenance framework. Many initiatives for mechanisation in Africa were unsuccessful as they were not backed properly with the R&M infrastructure. Timely weather and agricultural-related information and advice: With advancement in weather forecasting, we can predict the short-term weather for a defined region with
85-90% confidence. This information needs to be provided to the smallholder along with precise advice on land preparation, harvesting, fertilisation and spraying. We can use the same two-way distribution and feedback channel developed above to reach these smallholders. Access to market and possible forward price fixation mechanism: Smallholders will need information on market prices, both physical and futures, so that they can hold their produce if needed. There exists a space for both the private and public sector to participate in this to build economically viable models, which can provide a very important service to smallholders. Local processing and value addition of the agricultural produces needs to be encouraged by government by providing fiscal support: This will supplement farmer income, provide a hedge for price volatility by increasing shelf life and in some cases allowing the by-passing of middle men and selling directly to first grade final consumers at a higher realisation and also far forward. Local entrepreneurs should be encouraged to set up such facilities to bring certainty to farmer pricing. Access to formal credit at nominal interest rates and crop insurance at reasonable cost: This will require a multi-level approach. This includes
making smallholders profitable and possessing sustainable income thus making them creditworthy. All the points mentioned above lay a strong foundation for this to be achieved. Reducing volatility and risk will help lead to lower crop insurance premiums; alternatively, the public sector can aid with rates that are subsidised. Improvements in land rights, such as enhanced land administration for the region will allow farmers to use their land as collateral, thus giving them access to finance and encouraging investment, and ultimately translating into economic growth. An important factor mentioned above is the building of a robust two-way delivery channel. Today, with the advent of digital, improved data connectivity and proliferation of smart mobile devices, this job has been made considerably easier and economically viable. We therefore, should not miss this golden opportunity that is available to us in building structures, processes and mechanisms to deliver these services to smallholders at their doorstep. This needs to be done by both private and government stakeholders engaged in agriculture. This would go a long way in improving smallholder productivity and income and in the process create a robust and resilient agri supply chain. n Ravi Pokhriyal, President and Regional Head, West Africa and MENA, Olam International
64 African Business January 2019 COUNTRYFILE
Zimbabwe Foreign exchange shortages and inflation are taking their toll on Zimbabwe’s businesses. Finding a solution to the country’s currency problems is becoming increasingly urgent.
Zimbabwe’s currency crisis hits producers Zambia Harare
Zimbabwe Bulawayo Botswana Mozambique
Africa ongSouth queues for fuel, food and beverages have become a common sight in Zimbabwe as the supply of basic commodities dwindles and fuel pumps run dry as a result of severe currency shortages. In the factories of Bulawayo, the second city and industrial hub of the southwest, the currency shortage is being keenly felt by manufacturers. Companies cannot access foreign currency because of a persistent US dollar shortage. The central bank, which gives weekly forex allocations, is low on currency reserves and is struggling to pay out manufacturers, miners and fuel carriers. Petroleum companies, gold and flour producers are among those who have been forced to shut down some of their operations. Others, like consumer goods
company United Refineries Limited, (URL) are struggling to source the basics they need to stay in business. URL is having significant difficulty sourcing soybean and animal fats, the key raw ingredients for the production of their edible oils, stock feeds and soaps. Chief executive Busisa Moyo says that less than 10% of the company’s needs are locally sourced, forcing the firm to look to Malawi, South Africa and Zambia for the bulk of the 72,000 tonnes per year they require. But limited access to foreign currency is making that tough. “We get forex support from the Reserve Bank for our main raw materials, but it depends on the [weekly] allocation we get. However, there’s no support for packaging or for additives, so we have to buy from merchants and traders who factor in street rates which go up every week, so we are continually reviewing our product prices,” he says. In many supermarkets, quantities of cooking oil are strictly limited to one bottle per customer and since October, the price of the product has jumped from less than US$4 to as high as US$9 or $12 for a 2 litre bottle.
“We are in a quandary where we have to choose between a high price and availability or a low price and poor availability and shortages, which is where we are right now,” says Moyo. Businesses such as URL and bread-maker Lobel’s say if they could independently source their own foreign currency rather than going through a centralised allocation system, Zimbabwe could see a turnaround within days. But Moyo laments the government’s tough currency controls. The challenges faced by business were highlighted in November’s Zimbabwe Economic Report, released by the African Development Bank, which spoke of the pervasive impact of the currency shortages. “Rationalizing of foreign currency by the Reserve Bank of Zimbabwe is affecting a lot of manufacturers that import materials for production. The lack of foreign currency coupled with high production costs has choked capacity utilization. The Zimbabwe Fertilizer Company, the country’s largest manufacturer and supplier of fertilizers and agricultural chemicals, cannot meet domestic demand because of the lack of foreign
currency to import raw materials.” Many businesses had hoped such shortages were a thing of the past, and that the succession of President Emmerson Mnangagwa heralded a new era for the currency. Yet many of the economic shortages that ravaged Zimbabwe during Robert Mugabe’s reign persist. On the streets, prices have steadily risen and for the first time in a decade in October inflation surged to double-digit figures. Severe cash shortages and a controversial government deci-
January 2019 African Business 65
President Trump’s economic agenda has burdened South African exporters with aluminium and steel tariffs.
sion to impose a 2% tax on all electronic transactions above $10 in a bid to broaden the tax base have worsened shortages, stoking public fears of a return to hyperinflation. The relentless currency shortages have resulted in the rise of a parallel black market trading in forex and fuel at exorbitant rates. Adopt the rand? Some industrialists and economists have called for the adoption of the South African rand to resolve Zimbabwe’s currency woes, including former minister of finance and prominent gov-
ernment opponent Tendai Biti. “Bringing in the rand as the official currency would certainly benefit Zimbabwe, but it would be a waste of time to try it under the current regime,” he told local journalists. “They’re failing to get the fundamentals right. The first move is to remove the 2% tax which is causing mayhem, and cut down on government expenditure. If this is a time of austerity, the state must reform and learn to live within its means.” In 2016 the country introduced a bond note, a local form of currency rated as equivalent
Above: One of the bond notes issued by the central bank.
Some industrialists and economists have called for the adoption of the South African rand.
to the US dollar by the central bank. The highly unpopular notes are used daily in electronic and physical form, but their value has sharply decreased. The bulk of the country’s banking deposits, worth over US$9bn, are stored as Real Time Gross Settlement (RTGS) balances and paid out to depositors in bond notes. This has led some to call for the liberalisation of the exchange rate so that Zimbabwe can phase out bond notes and end dependency on the US dollar. This, Biti says, would enable the nation to move towards the rand-pegged Common Monetary Area (CMA) to which South Africa, Botswana, Lesotho, Namibia and eSwatini (formerly Swaziland) belong. In September, new finance minister Mthuli Ncube said that the government was mulling three choices: adopting the US dollar only while liberalising exchange controls, joining the CMA, or adopting a new Zimbabwean dollar. Economist Vince Musewe argues that steps towards the long-term re-introduction of a local currency must be prioritised if a solution is to be found to revive Zimbabwean industry and encourage liquidity. However, many citizens remain wary of currency associated with the country’s economic collapse. While Moyo supports wider circulation of the rand, he sees loosening the central bank’s tight currency control as the most important move. “I’m at risk of losing everything. We need to bite the bullet now,” he says. Tendai Marima in Bulawayo
66 African Business January 2019 COUNTRYFILE
Eritrea Rapprochement between the governments of Ethiopia and Eritrea has led to an opening of the border, providing new economic opportunities for local communities.
Peace leads to economic uptick in border communities Arabian Peninsula
Asmara Senafe Adigrat
n June, Eritrea and Ethiopia signed a peace treaty that finally brought a close to their decades-long conf lict. As Addis Ababa the neighbours move forward in what appears to be a more amicable direction, the tentative partners have reestablished phone links, restored air travel, and reopened embassies. On 11 September the border was officially reopened, a week after the Ethiopian cargo ship Mekelle docked in Eritrea’s Massawa, the first Ethiopian ship to do so in two decades. On 14 November, the UN Security Council agreed to lift sanctions imposed in 2009, including asset freezes, travel bans and an arms embargo. Questions have arisen as to what this rapid détente means
for border communities, as Eritreans look to exploit their newfound freedom to pursue economic opportunities with their Ethiopian neighbours. For many, that option was previously unthinkable. Up to 450,000 lost their lives in the harrowing conflict between the two that began in Gulf of countries Aden 1961. Following Eritrean indeDjibouti pendence in 1993, a border conflict broke out which left both sides in a state of war readiness. Against this backdrop, Eritrean leader Isaias Afwerki suspended the constitution and clamped down on civil rights, leading to the country’s economic and political isolation. Many foreign investors avoided business in Eritrea as a result of sanctions. Investment slowed to a trickle, suffocating the domestic private sector and leading to a shortage of essential goods. Today, many Eritreans have little access to internet, basic health services and agricultural inputs, while staple crops cost significantly more in Eritrea than across the border: the price of teff is four times higher in Eritrea.
South Sudan Détente Afwerki’s decision to reopen the border allows Eritreans to leave the country freely for the first time in many years. This has led to tentative economic activity in border towns, including Adigrat in Ethiopia and Senafe in Eritrea. A trade in electronics and consumer goods is beginning to take hold as Eritreans take advantage of the détente to buy items that have long been difficult to acquire. Small traders spy an opportunity to cash in. “Many loaded up cars with goods in Ethiopian border towns, and then they took the goods back to sell in Asmara,” says Geno Teofilo, head of communications for the Norwegian Refugee Council in the East Africa region. As a result of decades of Eritrean isolation, it remains difficult to quantify the true extent of economic activity. The Associated Press reports that cement is the major commodity Eritreans are buying from Ethiopia, with a minimum of 20 truckloads leaving Adigrat daily. While foreign investment
Kenya Kitale Nakuru Nairobi
Tanzania has been largely non-existent, some industries persisted amid Eritrea’s isolation. A rare sign of foreign investment is the Bisha Mining Company, 60% owned by Canadian mining group Nevsun, which extracts copper, gold, silver and zinc and commenced production in 2011. “Many in the border areas welcome an increase in trade. Gold is being mined across the border, as well as agricultural activity, and [there is] a growth of industry in Tigray,” says John Campbell, emeritus reader in the anthropology of Africa and law at the School of Oriental and African Studies, University of London. For now, the emerging border trade remains poorly regu-
January 2019 African Business 67
lated, the inevitable result of decades of Eritrean isolation. A robust black market trade has long replaced legitimate commerce. It will take some time for the détente to lead to the establishment of formal trading networks. “They are trying to figure out regulation, tariff regimes, currency – right now you have a bit of a free market on the border,” says Omar Mahmood. senior researcher at the Institute for Security Studies. Meanwhile, there are green shoots for the farming community. Many Eritreans living in border areas rely on sustenance farming to make a living, including livestock herding and growing crops such as sorghum and sesame. Isolation and sanc-
tions have led to a lack of farming equipment and inputs on the Eritrean side, leading to renewed demand for inputs as the border opens up. C ompu l s or y E r it re a n military conscription long hollowed out the supply of labourers available to such communities, but in June, Eritrean conscripts were told that unlimited national service, which previously forced thousands of young men to flee the country every month, will last no longer than 18 months. Why now? Yet while border communities are encouraged by the uptick in activity, the future of détente remains unclear. Disputes over territory and military
Above: A girl in a shop in the Ethiopian border town of Zalambessa.
Observers hope that the early impact of détente on these communities will persuade politicians to continue down the path of reform.
postings continue to simmer. While Ethiopian prime minister Abiy Ahmed is seen as a key figure behind détente, there is no guarantee that the country’s military and political establishment, long used to conflict with Eritrea, will continue to support the prime minister’s bold moves. The commitment of Eritrea’s government is also likely to be tested significantly. By opening the border, the Eritrean government is surrendering control over the movement of people and hard currency, an unprecedented move for a previously isolated regime. Given the government’s tight control of the economy and political system until now, it remains to be seen whether the Eritrean government will have the appetite to continue détente at the rapid pace of the last few months. A continuing outflow of Eritrean refugees to Ethiopia – according to the UNHCR, between 12 September and 13 October, 9,905 Eritreans arrived in Ethiopia – could put a strain on ties. Nevertheless, observers are in no doubt that the rapprochement has the potential to reshape the prospects for border communities. They hope that early impact of détente on these communities will persuade politicians to continue down the path of reform. “There had been no trade between these two countries for years, and already commerce and business between them is rising quickly. A lasting peace will bring prosperity for people living on both sides of the border,” says Teofilo. Giorgio Berti
Below: A worker installs solar panels in Nigeria.
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January 2019 African Business 69
Nigeria In Nigeria, Atiku Abubakar, presidential candidate of the People’s Democratic Party, is promising to turn over a new leaf for the country and double the size of the economy.
Can Abubakar get Nigeria working again?
Below: Supporters celebrate Atiku Abubakar’s adoption as candidate.
Cameroon Port Harcourt
n early October, at least 4,000 delegates gathered at the Adokiye Amiesimaka stadium in the southern Nigerian city of Port Harcourt for the national convention of the People’s Democratic Party (PDP), the country’s main opposition force. It was time to decide who would challenge incumbent President Muhammadu Buhari of the ruling All
Progressives Congress (APC) in the country’s crucial February 2019 presidential elections. The air was fi lled with trepidation. Soon, news filtered through that Atiku Abubakar, a businessman and former vicepresident of Nigeria between 1999 and 2007 under Olusegun Obasanjo, had been chosen by the party to challenge Buhari. Abubakar decisively defeated
rivals including Sokoto state governor Aminu Tambuwal and Senate president Bukola Saraki. “This is a victory for all of us. The task to get Nigeria working again starts now,” Abubakar tweeted. This is not the first time the businessman from the northeastern state of Adamawa has aimed for the presidency, fol-
70 African Business January 2019 COUNTRYFILE
lowing unsuccessful runs in 2007, 2011 and 2015. Like Buhari, who returned to power after a previous stint as president in the 1980s, Abubakar is a veteran hoping for a similar run of good fortune. His political career to date also reveals an opportunistic streak. Until December 2017, he was a member of the APC, which he joined in February 2014 following a wave of defections from the then ruling PDP. He had previously left the PDP before returning in 2009. The early exchanges suggest that several issues will dominate the campaign, including the ongoing battle against Boko Haram, corruption, infrastructure, employment and energy. In an effort to distinguish himself, Abubakar has called for the restructuring of Nigerian federalism, which allows the centre to wield considerable power at the expense of the states. As a northern Muslim, he has been chosen to give the president a run for his money in his northern power base. Yet the most significant plank of his campaign is a bid to get Nigeria’s torpid economy moving again. Though Nigeria is Africa’s top oil producer, the economy has stagnated under Buhari, who has pursued controversial currency controls and import restrictions despite the dissatisfaction of the business community. A combination of low oil prices – Capital Economics estimated November price falls shaved US$1bn off export revenues – the weakness of the Nigerian currency, and attacks on pipelines by militants in the crude-producing Niger Delta region have added to the
woes. For much of Buhari’s reign, growth has been tepid or nonexistent. In August 2016, Nigeria slipped into its first recession in 25 years, and even though the country climbed its way out of it early last year, the IMF forecasts growth of just 2.3% in 2019. Abubakar insists that his government will turn over a new leaf. The ex-vice-president flaunts his reputation as a business tycoon with experience in real estate, agriculture, port logistics, and trading. During his previous stint as vice-president, Abubakar oversaw the sale of over 60 public enterprises under a privatisation programme. On the campaign train, he talks up his experience as a wealthy businessman with intimate knowledge of the private sector, castigating the current administration at every turn for economic mismanagement. Abubakar’s manifesto On 19 November, the former vice-president unveiled his manifesto, promising to remove subsidies on imported fuel, attract renewed investment to the flagging oil sector, and double the size of the economy by 2025. The opposition leader has also set his sights on privatising parts of the Nigerian National Petroleum Corporation (NNPC), the state-owned oil company that has been dogged by mismanagement, despite Buhari’s tentative reforms.
Atiku Abubakar stresses his credentials as a businessman.
He has pledged to let the Nigerian currency, the naira, float freely, welcome news to market watchers frustrated by Buhari’s tight currency control. As Nigeria slipped into recession in 2016, analysts say the delay in allowing the currency to float hurt the economy and led to a shortage of crucial foreign currency. The opposition leader insists that his reforms will unlock billions in new investments – one of several extravagant claims. “If elected president, I will be proactive in attracting investments and supporting the 50m small and medium scale enterprises across Nigeria for the purpose of doubling the size of our gross domestic product to $900bn by 2025,” he said in a video message. “These investments will create a minimum of 2.5m jobs annually and lift at least 50m people from poverty in the first two years.” The claims have been greeted with broad scepticism. “My main issue with Abubakar’s document is that it doesn’t seem to get how things have regressed,” said Cheta Nwanze, political analyst and head of research at the Lagos-based geopolitical research firm SBM Intelligence. “For instance it says that it
will grow Nigeria to a $900bn economy by 2025… Based on a World Bank report, we are at best a $408bn economy right now, which means that we’d have to more than double in size, which is 13% year-on-year growth. That’s just not going to happen. In that respect, you’re already talking of poor expectation management. You’re setting yourself up to fail.” Infrastructure pledge Just as inflated is Abubakar’s eye-catching pledge to invest $90bn in infrastructure yearly over the next five years, and create a $20bn infrastructure debt fund with support from the private sector. While the focus is to be welcomed amid a crippling absence of critical infrastructure needed to help businesses, few believe that Atiku will be able to crowd those sums into an underheated economy in serious need of reform, even with his apparent business credentials. “He has apparently created much-needed employment so that works in his favour if the Nigerian presidency is a competency-based contest – which it really isn’t,” says Sola Tayo, associate fellow in the Africa Programme at Chatham House. “Experience has taught us that the wild promises and pledges made by presidential candidates are often never realised so the electorate is faced with the stark choice of judging the incumbent on his record so far and judging any potential newcomers on what kind of change they are promising and how badly they want rid of the incumbent.” Linus Unah
8 â€“ 10 April 2019
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72 African Business January 2019 REVIEW
Africa’s growth has been second only to that of Asia since 2000, but a recent report argues that new policies are needed to deliver sustainable growth and eradicate inequalities.
New strategies to address growth, jobs and inequality regional levels, and the eighth charting a way forward in the form of proposed policy actions.
AFRICA’S DEVELOPMENT DYNAMICS Growth, Jobs and Inequalities Free – African Union/ Organisation for Economic Cooperation & Development ISBN: 978-92-64-30249-5
espite strong growth between 2000 and 2016, quality jobs are scarce and inequalities remain high across Africa. If the aims of the African Union’s Agenda 2063 strategy – the creation of a united, integrated, peaceful and prosperous continent – are to be met, new development strategies will have to be adopted, say the authors of Africa’s Development Dynamics: Growth, Jobs and Inequalities. The report, produced by the African Union Commission (AUC) with the OECD Development Centre, aims to be more than just another document to be fi led away, unread, in a dusty cabinet. The first edition of what will be an annual economic report by the AUC, it is intended to further the aims of
Agenda 2063 by fuelling debate and bringing an African contribution to fair and sustainable models of development. In a presentation given in late October at the OECD’s Paris HQ, Mario Pezzini, the director of the OECD Development Centre and special advisor to the OECD secretary general on development, commented that he saw the publication not simply as a report, but as a platform to address Africa’s policy choices. The report is arranged over eight chapters, with chapters 1-7 examining the current challenges at continental and
Current strategies will not deliver The first two chapters focus on Africa’s integration within the global economy and why new development strategies are needed. Although Africa experienced strong economic growth rates between 2000 and 2016, averaging 4.6% annually, the authors highlight reasons why current strategies will not deliver the aims of Agenda 2063. Growth remains volatile, and has not improved wellbeing as much as it has in the rest of the world. Nor has it produced enough quality jobs for the expanding labour force. Furthermore, reducing inequality is essential to make growth “more inclusive and resilient”, and structural reform will be hard to sustain if firms do not increase their productivity. The authors also argue that development policies must take account of the “five megatrends” affecting Africa’s integration into the global economy, assessing the risks,
Africa needs more quality jobs for the expanding labour force.
opportunities and policy implications of each for African countries. The narrative is well known. The report says that global wealth is shifting, with emerging countries today producing more than half of global output. As a result, Africa’s linkages and partnerships with the rest of the world are increasing – an emerging reality that offers Africa new markets and the chance to learn from new manufacturing methods but also creates new sources of
January 2019 African Business 73
Development policies must take account of the “five megatrends” affecting Africa’s integration into the global economy. practice provided. For example, the deepening of urban-rural linkages action point is divided into seven sub-actions, of which one is “improve land information and management systems by adopting low-cost and scalable technological solutions”, with concrete examples given of land registration schemes in Namibia and the use of satellite mapping in Burkina Faso. Sets of policy actions tailored specifically for each of the five regions are also included.
competition for African producers. Nevertheless, the authors argue that the expansion of domestic industry can be sustained by the continent’s population boom, which ought to result in a “demographic dividend” if local economies can supply enough jobs and basic services to meet the growing demand. Yet rapid urbanisation, development’s by-product, is changing economic structures and posing new challenges. Furthermore, “green growth” strategies are needed to adapt to climate change.
Ten key actions The report goes on to look in detail at the dynamics of growth, jobs and inequalities in Southern, Central, East, North and West Africa, but it is in the eighth and final chapter that it offers an overall response to the challenges and opportunities raised in Chapters 1 and 2. The report advocates 10 key policy actions, grouped into three sets: • Bringing about sustainable development by stimulating domestic investment, diversifying exports, deepening rural-urban linkages and promoting
green growth. • Promoting social development through educational provision aligned with labour market needs and effective and universal social protection. • Building stronger institutions by deepening regional integration, better mobilisation of domestic resources and ongoing improvement of political and economic governance. Each of the actions is broken down into a number of proposals that are explained in detail, with examples of good
Progress is needed If Africa wants to take full opportunity and capitalise on the megatrends that the report says will shape its future, policymakers will have to start making real progress on the 10 actions laid out in the report. The African Continental Free Trade Agreement (AfCFTA) offers a path to progress on several of these indicators. If fully ratified it would make Africa the world’s largest free trade area, and, as the report claims, “fully liberalising trade in goods could boost Africa’s GDP by 1% and total employment by 1.2%. Intra-African trade could grow by 33% and Africa’s total trade deficit could be halved.” The AfCFTA has been signed to date by 49 African countries, but the continent’s largest economy, Nigeria, remain a holdout. As a result there are significant doubts over whether it will ever meet its full potential. If the report has the effect of concentrating policymakers’ minds on the importance of signing the deal, it may yet reach its authors’ lofty ambitions. Stephen Williams
74 African Business January 2019
Last Word Africa will require billions of dollars to prepare itself for climate change, but with the right finance the continent could become a beacon of good practice.
Cop24: Africa faces climate heat
n October, scientists released their most doomladen prophecy yet about the impact of global warming. In a landmark study for the UN’s Intergovernmental Panel on Climate Change, leading researchers warned that the planet now has only a dozen years to keep temperature rises to a minimum of 1.5 degrees, above which catastrophic events including floods and droughts are far more likely to occur. Only urgent and unprecedented action by the international community will be enough to avert crisis, they argued. But as the international community gathered in Katowice, Poland, for the crucial Cop24 climate conference in December, observers could be forgiven for thinking that some policymakers still hadn’t received the memo. As the conference began, the US joined fellow oil majors Russia, Saudi Arabia and Kuwait to water down the endorsement of the IPCC’s report. Rather than “welcoming” the study, they decided to merely “note” it – diplomatic parlance for kicking its conclusions into the long grass. Days later, the Trump administration cynically used the talks to launch a pro-coal event in which US officials boasted of becoming “the number one combined oil and gas producer in the world” – a far cry from the green energy future that the world requires. For Africa, which will truly be on the front line
Right: Protesters outside the climate conference in Katowice, Poland.
Policymakers need to offer an enabling environment for renewable energy investments.
in the battle against climate change, such moves are demoralising. Rising temperatures risk plunging millions into poverty, undermining food security and destroying ecosystems. The continent requires billions of dollars in funding to prepare itself for the worst effects. Whatever action comes out of Katowice is likely to be limited in scope and fall short of Africa’s hopes. But not all progress has been lost. Over the last few years, the continent’s well-organised negotiators have played a key role in global talks, achieving a crowning victory with the signing of the landmark Paris Agreement in 2015. While the Trump administration has tried its best to vandalise that deal by pulling out and encouraging others to do likewise, the global business community is starting to make its voice heard. Demands for action At Katowice, global investors with $32 trillion under management used the summit to demand action, warning of $23 trillion a year in global economic losses and a financial crash worse than that of 2008 unless the world acts. Meanwhile, development finance institutions are stepping up, including the World Bank, which pledged to make $200bn available from 2021-25, a doubling of its support following Paris. Encouraging mechanisms such as the Africa Adaptation Initiative, active at Katowice, are helping to crowd resources into the continent’s climate fight. In the absence of multilateral action, Africa must take full advantage of this investor momentum. Policymakers need to offer an enabling environment for renewable energy investments while diversifying away from the fossil fuel exports that have long underpinned their economies. With the right finance, the continent could become a lab for innovative adaptation and mitigation projects, and a beacon in the world’s fight against climate change. The Trump administration and its regressive climate policies are unlikely to last. But Africa cannot afford to sit still until the world wakes up again. n
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In the January issue of African Business Magazine we take a look at the immense waste management challenges facing the continent. With open...
Published on Dec 17, 2018
In the January issue of African Business Magazine we take a look at the immense waste management challenges facing the continent. With open...