Checkered shirts for American chain Gap. Slate leggings for Swedish store H&M. Twill shorts for Germany’s Tchibo. They are among a growing list of clothes being stitched together for big brands in Ethiopia.

As labor, raw material and tax costs rise in China – the world’s dominant textiles producer – the Horn of Africa country is scrambling to offer a cheaper alternative, and go up against established low-cost garment makers like Bangladesh and Vietnam.

It is still early days, and most of the clothing companies to source production in Ethiopia are testing the waters with small volumes. But the government is working hard to attract their business with tax breaks, subsidies and cheap loans. Ethiopia, which is a landlocked country, is also about to open the final stretch of a 700 km (450-mile) electric railway to Djibouti’s coast.

This is part of a drive to turn Ethiopia into a manufacturing hub in Africa.

There has been some progress; foreign investment in the textile industry has risen from 4.5 billion birr ($166.5 million) in 2013/14 to 36.8 billion in 2016/17, the Ethiopian Investment Commission, a government agency, told Reuters.

“This is a huge success,” Arkebe Oqubay, a prime ministerial adviser directing the industrialization drive, said during the inauguration of an industry park in the northern Ethiopian town of Kombolcha this summer. “The challenge now is to bring the world’s biggest companies into the country.”

Some have already arrived, most of them sourcing some production locally, like Gap and H&M, but a few building factories themselves.

Those to set up factories this year include U.S. fashion giant PVH, whose brands include Calvin Klein and Tommy Hilfiger; Dubai-based Velocity Apparelz Companies, which supplies Levi’s, Zara and Under Armour; and China’s Jiangsu Sunshine Group, whose customers include Giorgio Armani and Hugo Boss.

French retailer Decathlon and over 150 companies from China and India will begin sourcing production from Ethiopia soon, said the investment commission.

However, while Ethiopia is moving faster than its continental rivals, there is a long road ahead.

Route to Red Sea

Officials say the $4 billion electric railway between Addis Ababa and the Red Sea, to be inaugurated in the coming weeks, will reduce the transit time to the Port of Djibouti from 2-3 days to eight hours.

Bill McRaith, PVH’s chief supply chain officer based in New York, told Reuters his company saw sub-Saharan African countries as a promising new manufacturing frontier at a time of rising costs and labor shortages in other regions.

PVH arrived in Ethiopia this summer and is building a factory in Hawassa, south of Addis Ababa – an investment which McRaith said was based on a long-term expectation that Ethiopia would become one of the most competitive locations in the world to make apparel.

Source: africanbusinesscentral.com

A number of countries in Africa have seen rapid technological development in recent years, as exemplified by mobile internet deployment across Uganda and Tanzania.

This is largely due to a lack of existing infrastructure and regulation allowing for new technologies to leapfrog traditional solutions and for policy frameworks to be implemented in conjunction with new products. This results in stable macroeconomic environments which now sees countries, such as Kenya, as a favourable market for tech investors.

Blockchain and other decentralised systems are likely to be the next technology to capitalise on this ‘test and learn’ approach as they are well suited to manage data, financial assets and B2B transactions without the need for intermediaries. As a core principle, Blockchain improves the quality, reliability and accessibility of data and for this reason, they have the potential to alleviate various issues which can arise when conducting business.

Whilst recognising that there will be regional and national level nuances to Blockchain’s implementation, this report highlights how the technology is expected to affect business across the continent. By no means exhaustive, the examples below represent areas in which Blockchain is likely to have a significant impact in the short to medium term.

Currency

Due to their reliance on international commodity markets, African currencies can lack stability. The result is that the US Dollar is often used as an informal currency, particularly by businesses. This presents its own issues as foreign currency reserves are often limited – as an example Zimbabwean banks cap daily cash withdrawals at USD $20.

By using cryptocurrencies, businesses can benefit from a stable store of value and hedge against inflation whilst avoiding reserve issues. Furthermore, cryptocurrencies aren’t geographically restricted which has the potential to facilitate cross-border trade.

BitPesa is currently pioneering this process by hosting B2B payments and offering a real-time settlement at wholesale FX rates to frontier and emerging markets through mobile money networks.

Land

At present, land tenure in many jurisdictions lacks clarity and security – this leads to the issue of ‘dead capital’ as lenders are typically unwilling to securitise land. This prevents effective utilisation of one of Africa’s most significant assets and hinders entrepreneurs who are otherwise unable to raise capital.

Unclear land rights also pose difficulties to international investors (particularly in the projects sector) as the security of tenure is critical to ensuring a project’s success. Many countries have taken steps to alleviate this issue; however, most records still remain paper-based.

Blockchain has the potential to resolve this issue and is currently being trialled in Ghana where the government is working in collaboration with Bitland; a startup which allows land to be surveyed and title deeds to be recorded on the Bitland Blockchain – creating a permanent and auditable land record.

Commerce management

Effective supply chains are critical to development and are of particular importance to many of the continents land-locked states such as Uganda which relies on imports by road from the Kenyan port of Mombasa. Although in operation, many supply chains perform suboptimally which increases the cost and decreases the efficiency of conducting business.

Blockchain can assist with alleviating this issue through a number of mechanisms such as resource management and performance-based incentivisation. Currently, commerce management operates in a siloed fashion with limited information sharing, leaving resources unused or underutilised.

As Blockchain is implemented and full supply chain data becomes available, it will be possible to assess a supply chain’s capacity in real time and automatically allocate items to available space in containers, warehouses and vehicles. This has the potential to substantially reduce bottle-necking that occurs at many terminals.

Furthermore, as individual products will have an increased data history, it will be possible to analyse the efficiency of their transit. Local supply chain partners can then be remunerated on this basis, encouraging distribution efficiency.

The legitimacy of this approach can be seen with Walmart’s Blockchain trials in association with IBM where various smart contracts have been implemented to provide an overview of a product’s supply chain.

Trust Mechanism/ Bureaucracy

Due to their codified nature and automatic execution, Blockchain contracts have the potential to provide greater transparency over contractual compliance – thereby acting as a trust mechanism for contractual relationships and alleviating a significant business risk.

In addition, the distributed nature of the data across multiple nodes ensures that information cannot be held by single organisations/ institutions; nor can data be altered or its accuracy challenged. This will assist with the information imbalance which exists when dealing with many public bodies.

Additionally, smart contracts can have the capacity to track every dollar spent. This will be of particular benefit to lending institutions and will ultimately allow entities which are more risk averse to invest in the African market. BitFury (an American based company) is currently assisting with this process through its involvement with African Bitcoin payment providers such as BitPesa, mentioned above.

As demonstrated above, Blockchain has enormous potential to revolutionise business in Africa and its implementation is compelling. Although in its early stages, we are seeing an exponential growth in the technology’s foothold in the continent and initial trials are proving successful. Furthermore, governments appear to be actively engaging in Blockchain’s implementation which is crucial for technologies to be successfully deployed in the country.

Notwithstanding the above, we suggest that comprehensive legal advice is sought in conjunction with Blockchain deployment to ensure that companies fully reserve their legal position in this relatively untested market.

Peter Kasanda & Lee Bacon, partners at global law firm Clyde & Co

Source: African Business Magazine

It is now a year since an amendment to the Kenyan Banking Act of 2016 capping interest rates on loans at 4% above the Central Bank rate – which stands at 10% – came into force.

Twelve months later the exercise has brought home sobering lessons for the Kenyan economy and the banking sector as a whole. The Central Bank of Kenya (CBK) is now contemplating reverting to the free-market regime that existed before capping was introduced.

The capping of interest rates was viewed as a populist move when enacted even though the proponents, had explained it as a cushion to protect consumers from high interest rates charged by banks at the time. Before the interest rate cap, Kenyan banks charged an interest rate spread of 11.4% which was 5% higher than the global average.

Even though there had been previous attempts to persuade banks to lower their interest rates, these had been unsuccessful until last year when Parliament unanimously passed the amendment.

At the time when the interest rates amendment became law, local private equity firm Cytonn Investment issued a warning that the move was bad for the Kenyan economy: “We are of the view that capping interest rates might solve the high interest rate spreads in the banking sector, but will lead to other challenges such as locking out of SMEs and other ‘high risk’ borrowers from accessing credit as banks will prefer to loan to the government, [thus] straining small banks who effectively have been shut out from the interbank market and now have to mobilise funds at rates higher than what they are getting and can only lend out within the stipulated margins.”

The statement concluded: “We believe the amendment will do more harm to the economy than good.” In mid-September this year CBK Governor Patrick Njoroge admitted that the government was contemplating reversing the move to allow for free market policies to reign again.

“It is in our interest as a country and as CBK, to work to reverse these measures and go back to a regime with freely determined interest rates but in a disciplined environment,” he said.

This was not entirely unexpected as during the interest rate capping debate in 2016, Njoroge had opposed the move noting that it went against the principles on which the Kenyan economy had been based since independence.

It was in early March this year that the initial signs of the impact of the interest rate capping began to be seen and felt as decreased lending became evident. All of Kenya’s top five banks – Equity, Kenya Commercial Bank, Cooperative Bank, StanChart and Barclays – reported a drop in their earnings.

Profits squeezed

When lenders listed at the Nairobi Securities Exchange (NSE) released their reports for 2016, it was clear the interest caps had squeezed their profits. Barclays Bank of Kenya recorded a fall of 12% on its net profits, while Stanbic Holdings Kenya announced a 10% drop.

Banking stocks continue to fall more steeply than in previous years and this decline has been blamed on the interest rate capping and the country’s election cycle. Kenya held its Parliamentary and Presidential elections in September but the Kenya Supreme Court annulled the results of the Presidential poll following a petition by the losing candidate, Raila Odinga. As African Banker went to press it was uncertain whether the re-run scheduled for October 26 would take place.

Presaging the elections, The Financial Sector Stability report released by CBK in August stated: “Domestically, the election cycle generally impacts financial stability and growth prospects, especially if results are contested.

“This, coupled with geopolitical and macroeconomic instability in some East African countries where Kenya’s financial institutions operate and the trade links are strong, is more likely to be a source of vulnerabilities going forward… As a result the stock market is likely to record further depressed activity.”

As the interest rate cap marks a year since it came into force, an internal CBK study has already indicated tougher times for the banking sector and the multiple ripple effects on the Kenyan economy.

While the CBK admits that its study has shown that an interest rates freeze is bad for the economy, it is yet to release the full findings for public scrutiny. An increase of non-performing loans has already elicited worry from the International Monetary Fund (IMF), which has asked the CBK to be vigilant and requested that the Treasury remove the interest rate caps as small banks and borrowers are facing a crunch time.

Problematic issue

“I think it is clear to us that this interest cap has been problematic in many ways.” Njoroge says. “It is in our interest as a central bank to work to reverse these measures and go back to a regime where interest rates are freely determined but in a disciplined environment.”

The fact that small banks have been badly affected has prompted the New York-based credit rating agency, Fitch Ratings, to sound an alert on the Kenyan economy.

“Banks have become more selective about who they lend to and have lost the incentive to grant long-term loans and finance emerging economic sectors, as the cap means that the rate will be the same as for safer short term loans,” says the agency. “This is a threat to growth in the Kenyan economy which relies heavily on bank lending and private sector credit growth which had been flattening since 2015, has slowed since the rate cap.

“Small banks are worst affected as they are more reliant on higher risk return loans and sectors and some are finding that their niche business models are no longer viable.”

But supporters of the cap have strongly defended the measure. Kiambu Town MP Jude Njomo, who led the campaign to curb interest rates in Parliament, said: “There is a concerted effort by banks, which have formed cartels to keep off credit from the public thus blackmailing Parliament into changing a law that protects the ordinary people.”

One of the fiercest critics of the capping, the IMF, which had said that “these controls have had unintended negative consequences on the availability of financing for small and medium-sized enterprises, with the risk of reversing the remarkable increase in financial inclusion observed in recent years,” itself came under attack from some quarters.

Stephen Mutoro, the Consumers Federation of Kenya (COFEK) Secretary-General criticised the IMF for its sustained tilt against the rate cap and added that failed IMF policies were to blame for the sad state of Kenya’s banking. The Kenya Bankers Association (KBA), on the other hand, warned that banks were likely to divert more funds towards Treasury bills and “other opportunities in the forex market” rather than lending to borrowers, as government debt is considered less risky and more profitable.

There is no doubt that when the rate cap was announced one year ago, it met with a good deal of public approval as rampant interest rates before then had priced local capital out of the reach of the majority of small traders in the country.

Source: African Business Magazine

Beijing has been given a 99-year lease on Hambantota port as part of a debt-reduction deal, amid talk of creditor imperialism following China’s buy-up of strategic ports in Piraeus, Darwin and Djibouti

 

To describe cotton as ubiquitous is almost an understatement. The textile is so much a part of modern life as to be nearly invisible.

From Egyptian cotton bed sheets (said to be the most luxurious in the world) to the towels you use after a shower; or the undergarments, blue jeans, shirts and socks that you might wear – all originate from a small white boll, or seedpod, that is cultivated around the world. This makes cotton one of the world’s most important commodities, and the most valuable non-food agricultural crop.

Africa is an important producer and the continent has a significant role further along the value chain as a manufacturer of apparel. Africa grows just under 10% of the world’s total cotton harvest, but unlike any other region it is the smallholder farmer, rather than large-scale plantations, that grow this crop.

Cottonseed is also used to extract edible oil that is used, especially in West Africa, in both animal feed and products like margarine. Out of the 12 leading African cotton-producing countries, eight are in West Africa.

The rest of Africa’s cotton growing takes place among four zones along a north–south strip stretching from the Nile Valley to South Africa. The most important zone is that of the Nile Valley. Egypt has long been a leading African producer.

The Origin Africa conference in Mauritius, organised under the aegis of the African Cotton and Textile Industries Federation (ACTIF), took place over two days in September and drew delegates from across the continent and further afield; from Asia, the Americas, the US and Europe.

The first day’s presentations were taken up with the issues concerning cotton production and the various international crop certification options. One of the principal organisations offering global cotton production standards is the Better Cotton Initiative (BCI). Its representative, Romain Deveze, described how the BCI is bringing an integrated approach to tackling the vulnerabilities of the complex supply chain to ensure the industry’s sustainability.

The BCI works with about one million farmers, or 8.8% of the global total who grow the crop, to reduce the use of pesticides, synthetic fertilisers and water while increasing farmers yields and the take-up of organic fertilisers.

These are important objectives, for, as the Environmental Justice Network has reported, cotton accounts for 26% of global insecticide releases – more than any other single crop. Almost 2kg of hazardous pesticides are applied to every hectare of land under cotton cultivation.

These troubling statistics are just the latest chapter in the awful history of a crop that underpinned the transatlantic slave trade and caused millions of Africans to be abducted and subjugated to a life of hard labour in the cotton plantations of the southern US.

The cotton industry became one of the world’s largest industries, and most of the world’s supply of cotton came from the US South, fuelled by the labour of slaves on plantations.

Even with the Union’s victory in the civil war, the fortunes of plantation slaves changed little. Many became sharecroppers, eking out a precarious living on a small plot of land growing cotton.

From 1803 to 1937, the US was the world’s leading cotton exporter. Its cotton industry became a powerful political lobby, able to sway successive administrations to grant subsidies to cotton farmers. Cotton’s financial and political influence in the 19th century has been likened to that of the oil industry in the early 21st century.

Accessing the US market

By the end of the 1990s, the big four West African cotton farmers – Benin, Burkina Faso, Chad and Mali – had joined together to express their unhappiness at these unfair subsidies, but it was Brazil that had the financial muscle to take the US to the WTO, which found against the US and ordered the elimination of cotton production subsidies as well as the US agricultural commodity export guarantee programmes.

While Marsha Powell, representing Cotton USA at the Mauritius conference, implied that US governentsupport to US cotton farmers was a thing of the past, a number of other delegates told African Business that US policy continues to skirt international trade rules. The result has been that, effectively, the US restricts competition from overseas cotton producers.

Nevertheless, the African Growth and Opportunity Act (AGOA), has empowered African manufacturers to export clothing to the US tariff free. This has been driven by, in the main, Indian, Chinese and Turkish manufacturers switching their manufacturing to African countries. But there are moves by smaller African manufacturers to win valuable export market share.

For example, the Nigerian Export Promotion Council organised half a dozen designers to travel to Mauritius and showcase their fashions at the trade show that followed the conference.

Speaking to African Business, Muinet Atunnise of Atunnise Clothiers said that she would be returning to Lagos enthused by the reception her collection had received and determined to take advantage of the many international connections she had made.

As far as the mass-market industry is concerned Kenya, Lesotho and Mauritius account for much of the apparel exports under AGOA. In 2014, Kenya exported $423m worth of apparel to the US, followed by Lesotho with $289m, Mauritius $227m and Swaziland $77m.

According to Gail Strickler, assistant US trade representative for textiles and apparel, African textile and apparel exports to the US could potentially quadruple to $4bn over the next decade, creating 500,000 new jobs, through the renewal of the AGOA signed into law in June 2015.

Impact of new technologies

But the Origin Africa conference did far more than just discuss macro-economic trends. The second day’s proceedings included a debate on the fourth industrial revolution (essentially the application of new technologies to the industrial process) and its impact on the industry.

As Jaswinder Bedi, the ACTIF chairman commented, harnessing new technologies at the right time and throughout the textile value chain is an essential element for the industry to continue to benefit Africa’s millions of cotton farmers.

And speaking to African Business, Yousouf Djime Sidime, the permanent secretary to the Bamako-based Association of African Cotton Producers said that his organisation was determined to both grow production and ensure farmers received a fair price for their harvests.

Stephen Williams

The Africa 2017 Forum – held in Sharm el Sheikh in early December under the high patronage of President Abdel
Fattah Al Sisi of Egypt – brought together seven heads of state and numerous political and economic decision-makers to discuss regional integration and job creation in Africa.

Participants established partnerships and affirmed the forum’s theme of “Driving investment for inclusive growth”. The key narratives emerging from the public and private sector were the need to consummate African integration, to harness the power of entrepreneurial youth and to make the most of Africa’s growing investment climate.

Speaking on the first day, President Sisi said: “Our priority is to support young entrepreneurs, especially those who come up with smart and innovative solutions in health, education and basic services. “The youth of the African continent are the future; you are our competitive advantage; you are the source of our wealth; we emphasise our will to support you and to be behind you to realise the ambitions of a brighter future on the continent.”

During the same session, President Paul Kagame of Rwanda added: “The enormous wealth we have on the continent in terms of natural resources is outstripped by our human capital. Invest not only in youth entrepreneurs but also in the environment which helps them do what they are able to do to raise their game.”

Fuelling startups

The World Bank estimates that there now 200 innovation spaces across the continent when in 2010 there were just five. Tech startups and their associated financing methods will be a key driver of GDP growth in the future, and Africa 2017 recognised this importance by opening with a Young Entrepreneurs Day.

Ben White, founder and CEO, VC4Africa, pointed out how African economies are exhibiting some of the largest growth rates in the world and European and North American angel investors are keen to get involved. His organisation has linked up more than 60,000 venture capitalists with African startups in 159 countries and he stressed the need for platforms to work hard to make visible the number of African entrepreneurs. 

He argued that is no lack of talent in Africa: only a lack of visibility and its associated barrier to attracting finance. A subsequent session gave 18 young entrepreneurs the chance to pitch their ideas to business leaders. Omar Sakr, founder and CEO of Nawah-Scientific, an online platform which links up scientists to analyse samples, won the competition for best pitch and was rewarded with an entry to a training programme at Stanford Business School.

In terms of policy, the Egyptian government has shown its commitment to the startup ecosystem at the highest level, and has introduced a new investment law that grants tax and customs duty exemptions for any business working in tech free zones.

Cross-border trade

Intra-African trade was on the agenda in almost every session at Africa 2017. A continent-wide trading zone has the potential to enhance export competitiveness, create employment, contribute to economic diversification and reduce vulnerability to global shocks.

However, intra-African trade currently hovers at just 13%. Although a Continental Free Trade Area (CFTA) was adopted by the African Union as policy in 2012, little has materialised and many in the private sector have instead picked up the mantle.

“We are seeing a lot of corporates who are becoming intra-African champions, who are starting to tackle the borders and difficulties that we used to see, and we are doing everything to support these champions,” said Amr Kamel, executive vice-president of Afreximbank, at a session on financing cross-border infrastructure and trade.

For Kamel, companies like Elsewedy and Dangote are able to accommodate the high tariffs associated with cross-border trade, and in so doing can establish tangible trading routes between African nations. Showing its commitment, Afreximbank signed a $500m export support agreement with the Export Development Bank of Egypt on the sidelines of the forum. The loan is aimed at supporting exports and investments by Egyptian businesses to other African countries.

Prince Randy Koussou Sogan, founder and CEO of Black Lion Holdings, argued that Africa struggles to fill its infrastructure gap due to lack of bankable and well-structured projects. Sogan’s investment management firm specialises in impact investments, and he disclosed that while being able to raise $12bn in funds he could only deploy $3bn due to a lack of decent projects.

Isabel dos Santos, CEO of Unitel, posed a different problem. She argued that the risk premium for investors in Africa is accentuated by an unclear regulatory environment that changes from border to border. Cross-border headaches can be circumvented, she argued, by first building a strong team in the country of origin and then working with local partners to navigate the nuances of the local market.

Mohammed Talaat of Baker & McKenzie added that Africa needs legal harmonisation at a continental level and pointed to regional bodies as the answer. On that front, a Tripartite Free Trade area was established in 2015 between the East African Community, the South African Development Community and the Common Market for Eastern and Southern Africa, signalling at least some movement towards the implementation of the CFTA.

Many look towards Paul Kagame as the soon-to-be AU chairman, believing he will make some progress with one of Africa’s biggest setbacks.

China-Africa

China-Africa discussions also featured heavily throughout the forum. With other Asian players entering the African market, it is clear China-Africa relations are changing and African nations and businesses are querying how to get the most out of Chinese investment and the One Belt One Road initiative.

Helen Hai, CEO, of the Made in Africa Initiative, argued during a China-Africa panel that China’s success was premised on its ability to have a clear strategy and to execute it regardless of obstacles in the way. “African countries must be clear about what they want from China,” she said. Local conditions may also present significant opportunities for Africa in the next few years, she added, as rising labour costs are likely to see 85m jobs exported from China. “If Africa can capture those jobs it can enjoy the same economic transformation that China had.”

However, Carlos Lopes, former executive secretary of UNECA, warned that robots and automation, not Africans, could replace many jobs that move out of China and that other regions would also compete for the kind of jobs that Africa seeks – those at the lower end of the value chain.

“A few African countries will make it, but not all,” he said. “This huge move to get jobs can be elusive if we are not fast enough in creating opportunities. The window is closing very fast. We need to move quickly and do so in a way that is commensurate with the interests of China’s strategy.”

Hai also argued that as China moves away from manufacturing towards services, Africa should follow China’s development model and aim to become a light-manufacturing hub. However, in a separate panel debating the role free zones played in rapid economic development, panellists discussed the pros and cons of adopting another country’s development model.

“Every country has a different path of development, you cannot compare Rwanda to Indonesia. You have to look at the state of your country’s growth, how much people are making and what your competitive advantage is,” said Kelvin Tan, secretary general of the Africa South East Asia Chamber of Commerce.

For him utilising and understanding competitive advantage was what Africa could learn from China, not the need to become a manufacturing hub. While African approaches to Chinese involvement differ, a strong consensus was reached regarding the need to coordinate efforts to make the most out of Chinese investment and technology transfer.

Tom Collins

source : africanbusinessmagazine.com

After a sharp slowdown mainly caused by the falls in global commodity prices, sub-Saharan Africa finally emerged from an economic slump in 2017.

According to the World Bank, year-on-year economic growth is expected to rise to 2.4% this year, an improvement on the two-decade low of 1.3% in 2016. The growth came as the continent’s three biggest economies – Nigeria, South Africa and Angola, which account for over two-thirds of economic output – finally emerged from downturns. In Nigeria and Angola, the economic climate improved as oil prices strengthened towards the end of the year due to increased demand and supply cuts. Oil prices were expected to average $52 to $53 per barrel in 2017, up 24% from the previous year.

Meanwhile, in South Africa, metal commodity prices and agricultural output improved when compared to the previous year. The recovery in metal prices was due to a tightening of supply mainly in China; and the agricultural sector witnessed a revival due to the drought subsiding. “Africa is continuing to recover but the recovery is a little slower than [the 2.6%] we had projected in April,” says Punam Chuhan-Pole, World Bank lead economist for Africa, in a podcast for the bank.

“The recovery is basically being led by the largest economies in the region including Nigeria, which exited 15 months of negative growth in the second quarter of this year; and South Africa, which emerged from two-quarters of negative growth also in the second quarter.

“So, on the one hand, these economies are seeing somewhat faster growth, but on the other hand the growth that these economies are seeing is really quite weak and below the level that these economies were enjoying between the period of 2010 and 2014.”

While there has been a slight rebound in the three largest economies in sub-Saharan Africa, the rest of the continent has experienced multi-speed growth with some nations lagging behind others. Ethiopia remained Africa’s fastest growing economy, with GDP expected to reach 8.3% this year, despite political instability and the state of emergency which affected parts of the country, and export trade dwindling.

Meanwhile, countries such as Senegal and Tanzania have made significant strides, with growth projected to reach 6.8% and 7%, respectively, this year. However, in the slow lane, the countries of the Central African Economic and Monetary Community, which includes oil exporters Chad, Republic of the Congo and Gabon, have struggled to emerge from the downturn.

Nonetheless, most countries have experienced some level of positivity from the economic climate in 2017, which has helped support increased public spending. “So going beyond the growth experience of these countries, we’re finding that there are some favourable developments in terms of current accounts,” says Chuhan-Pole. “There is a narrowing of current account deficits which is being boosted by commodity prices being higher.

“However, agricultural commodities are struggling in some countries such as cocoa exporter Côte d’Ivoire and that is reflected in the current accounts of those nations,” she added. “But by and large current account deficits across the region are narrowing.”

Despite deficits in some countries narrowing, the level of debt in Africa has continued to rise, especially in commodity-export nations, leading some analysts to warn that the increase is not sustainable.

Rising debt

The growth of sovereign bond issuance in African countries revealed a rebound in lenders’ confidence in commodity-export nations. Nigeria, Senegal, and Côte d’Ivoire, to name a few, sold multiple bonds on the international capital markets in 2017.

However, debt levels in some countries have continued to rise during the last three years, with metals-exporter Niger’s debt-to-GDP surging to over 50% this year. Much of the debt acquired by governments has been borrowed to sure up public expenditure, which has been affected by the weak economic growth in the region.

Across sub-Saharan Africa, the median government debt-to-GDP ratio has risen by 20% or more for the oil exporters and for the region as whole the rate has gone up by 15% in the last four years. The main driver for the increased debt is exchange rate depreciation and the operations of state-owned enterprises, which have significantly weighed down the balance sheets of governments and thrust debt levels higher.

“Debt burdens are rising in some countries, for example in Angola it has reached over 60%,” says Chuhan-Pole. “There is a rise in debt burden which calls for a greater focus on rebuilding fiscal space and looking into issues of fiscal sustainability.”

However, while debt alone is not necessarily a problem, borrowing to support public expenditure is not a viable long-term strategy, according to Abebe Selassie, director of the African department at the International Monetary Fund (IMF).

“Debt in itself is not an issue – the issue is if you can’t service those debts,” Selassie says. “So it is important going forward that governments implement the adjustment plans, such as mobilising revenues, to be able to stabilise debt at its current level.” While the continent’s debt levels have experienced a surge, foreign investment also showed a slight uptick in 2017, especially in countries that have worked to diversify their economies.

Diversification conundrum

Africa’s dependency on commodities as the driver of economic growth has left the region vulnerable to volatile markets which rely on demand in foreign countries that manufacture goods. This dilemma has once again been thrust into the spotlight following the most recent commodities supercycle that was mainly fuelled by increased Chinese demand, and which helped Africa grow by 5% after the financial crisis of 2008–09.

However, that demand has waned and, together with commodity prices being depressed because of oversupply, has led to slow growth across Africa since 2014. Analysts have long argued that governments need to implement a coherent strategy to wean their nations off their dependence on commodities. However, in the majority of cases, very little progress has been made on that front, according to John Ashbourne, Africa economist at Capital Economics.

“A lot of commodity-export dependent nations have been having the same conversation about diversification for a while now, but not enough is being done to implement a coherent strategy,” he says. “However, there are a few countries who have made definitive strides towards diversifying their economies, including Ethiopia and Kenya, and they have increased investment in areas like manufacturing and other value-added areas.”

While some countries have emphasised diversification, the lack of progress in the commodity-export dependent nations such as Nigeria and Angola will continue to drag on the continent’s economic performance. The urgency for commodity-export nations to diversify is further highlighted by the fact that foreign direct investment (FDI) in the last two years has slowed in those countries, and investors are eyeing up non-commodity-export countries in the region.

“The good news is that after a pullback in 2016, bond and equity flows have increased in non-commodity-export countries, which also saw an uptick in FDI,” Chuhan-Pole says. “It’s good to see a return of capital to the region and it also highlights investor sentiment being positive towards a range of countries in Africa.”

As the year draws to an end expect favourable global economic conditions to help continue Africa’s economic recovery, with growth forecasted to reach 3.2% in 2018 and 3.5% in 2019. Despite the positive outlook, the growth will fall short of the headline-grabbing figures seen before the slump.

Taku Dzimwasha

Source : africanbusinessmagazin.com

Nigeria may have reclaimed its position as Africa’s top oil producer beating Angola. Angola had led the African oil producing countries with its 1.7 million barrels of crude oil a day, well above Nigeria’s 1.5 million barrels per day, in September 2016, for seven straight months.

According to the December 2016 Monthly oil Market report (MOMR) of the OPEC, crude oil production from Nigeria went a notch above that of Angola even before the start of 2017 as per the planned production cut agreed by OPEC and non-OPEC producers.

Angola would be expected to cut about 78,000 barrels per day (bd) of its production in the agreement which was sealed in late 2016.

But secondary sources in the MOMR indicated that in November last year, Nigeria and Angola produced 1.692 million barrels (mb) of oil apiece. Information from primary sources in the MOMR stated that Nigeria produced 1.782mb of oil as against Angola’s 1.688mb to show its takeover of Angola by about 94,000bd.

According to secondary sources, OPEC crude oil production in November increased by 151tb/d compared to the previous month to average 33.87mb/d. Crude oil output increased the most in Angola, Nigeria and Libya, while production in Kuwait and Saudi Arabia showed the largest decline.

“A new OPEC-14 production target of 32.5mb/d as per 1 January 2017 represents a reduction of around 1.2mb/d from October production levels,” said OPEC’s December MOMR.

Earlier in the year when Nigeria lost its position as Africa’s largest producer, its output fell to about 1.677mb, as against Angola’s 1.782mb then.

The development was made possible by repeated attacks on Nigerian oil infrastructure by militants in the Niger Delta.

Amsale Gualu, the Ethiopian Airlines pilot who a led a historic an all-female inter – Africa flight last weekend has expressed joy at the feat her team chalked.

She was speaking after the five-and-half hour flight from the Ethiopian capital Addis Ababa landed at the Lagos International airport on Saturday, December 16, 2017.

She told pressmen who gathered at a short ceremony at the airport about how she developed love for flying planes: “I guess I developed my passion for flying when I was young, my father used to take my sister to the airport to see airplanes take off and land.

When I was in high school also, I used to be impressed by the (pilots) uniform. And I guess that is where my passion for flying developed. After graduating from Addis Ababa University, I joined Ethiopian Airlines as a first officer.

“When I was in high school also, I used to be impressed by the (pilots) uniform. And I guess that is where my passion for flying developed. After graduating from Addis Ababa University, I joined Ethiopian Airlines as a first officer.

“Then I went all the way up. I flew Fokker 50 and Boeing 767 as a first officer, then I became a captain in 2010, then as a captain I flew 767 and now I’m here on the 777 aircraft, the latest aircraft.”

The entire team managing the flight from Addis Ababa comprised of women, from the pilots and cabin crew to in flight ramp operations as well as flight dispatchers on the ground. The flight was received with water canon salute in Lagos.