Category: News

Kenya: Government seeks to install solar PV plants

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Deadline date: 29 January 2019

The government of Kenya has received a credit from the International Development Association (IDA) and grants under Scaling Up Renewable Energy in low-income countries under the Strategic Climate Fund Grant towards the cost of Kenya Electricity Modernisation Project (KEMP).

It is intended that part of the proceeds of this credit and SREP grants will be applied to eligible payments under the contract for design, supply and installation of solar PV power generation plants (SPGP) with associated power distribution network (PDN) in selected un-electrified areas in Kenya.

The contract will have two parts:

Part 1: design, supply, installation, testing and commissioning of SPGP and construction of associated PDN.

Part 2: Operation and Maintenance (O&M) services of the facilities and reliable supply of power to the consumers for a period of 15 years.

The Rural Electrification Authority (REA) now invites bids from eligible bidders for Part 1: design, supply and installation of 1175 kW AC (1410 kWp) Solar PV plants with associated power distribution network (Mini-Grid Projects) and Part 2: Operation and Maintenance (O&M) services of the facility.

Bidders may bid for Lot-1 or Lot-2 or both Lots. This International Competitive Bidding will be conducted adopting the World Bank’s Standard Procurement document for design, supply and installation “Single Stage Bidding Procedure”.

Interested eligible bidders may obtain further information from and inspect the bidding document at the office of Rural Electrification Authority (REA) project during office hours from 9:00 to17:00 hours at the address given below.

Complete set of bidding documents in English can be downloaded from the REA web site(www.rea.co.ke)

Queries can be directed to:

Edward Gakunju

Address: P.O. Box 34585 – 00100

Nairobi,

Kenya

Tel: 254 20 4953000

Email:    eGakunju@rea.co.ke

Submissions

Bids must be delivered to the address below on or before 10:00am on 29 January 2019and must be accompanied by appropriate bid securities as indicated in the data sheet of the bidding document and indicated below.

The address referred to above is:

Chief Executive Officer

Rural Electrification Authority (REA)

Kawi House, South C,

Red Cross Road off Popo Road, Behind Boma Hotel,

Nairobi

Kenya

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Boosting green investment in Africa with the African Development Bank’s AFAC initiative

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Launched on the sidelines of the Annual Meetings of the African Development Bank in Busan in May 2018, the African Financial Alliance on Climate Change (AFAC) was the subject of a special session held at the Africa Investment Forum on November 7 in Johannesburg.

The AFAC Steering Committee comprising investors, lenders, regulators and insurers from Africa’s financial sector, met to approve the guiding principles underlying this new African Development Bank initiative, which seeks to boost the flow of climate finance towards the continent.

Currently, Africa receives only three percent of the world’s climate finance despite being the continent most at risk from climate change and accounts for less than 4% of global greenhouse gas emissions.

African Development Bank Vice-President for Power, Energy, Climate Change and Green Growth, Amadou Hott, opened the session in a packed room, pointing out that the Bank was at the front line of the fight against climate change in Africa: “We have agreed that 40% of our investments will include a ‘climate change’ aspect by 2020.  We reached 28% last year and will achieve 32% this year”.  He added, “If the Bank is strongly committed to this fight, investments must be strengthened.”

Jens Frølich Holte, the State Secretary for Foreign Affairs in Norway, one of AFAC’s earliest contributors, reaffirmed his country’s support for the Bank’s action and the new pan-African financial alliance launched by the Bank to increase climate finance for Africa.  “We are an enthusiastic partner of the Bank”, he began.  “A transition is under way in the energy sector in many African countries, and the market for renewable energies is developing very quickly.  But we are surprised that there is not more investment in Africa, where the potential is huge.  It’s a shame”.  He continued, “In 2017 Norway pledged to double its development aid for renewable energies by 2019.  And Africa will be at the heart of these actions!”

The co-chair of the AFAC steering committee, Rwandan Minister of Finance and Economic Planning, Uzziel Ndagijimana, began by thanking the Bank’s leadership for this excellent AIF initiative, before describing how Rwanda had seized upon the climate change challenge, integrating it in its policies.  “Climate finance from public sources will not be enough to meet Africa’s colossal needs… We need extensive cooperation and more political will,” she said.

AFAC co-chair, Lord Nicholas Stern, former Vice-President of the World Bank, in his video message reiterated “the need to act”.  This sense of urgency was shared by all the panellists, including Dolika Banda of Zambia, the president and managing director of the African Risk Capacity Insurance – which is at the forefront of risk mutualisation linked to natural disasters in Africa – Youssef Rouissi, Assistant Managing Director for the Attijariwafa finance and insurance bank, and Parks Tau of South Africa, president of United Cities and Local Governments (UCLG).

According to Anthony Nyong, the African Development Bank’s Director for Climate Change and Green Growth, this urgency has arisen “because the financial sector is crucial”.  He repeated AFAC’s purpose: “to lead the African financial sector at the heart of action to combat climate change…We must build an entire ecosystem: multilateral development banks, central banks, national and regional banks, commercial banks, institutional and sovereign investors, etc.  We must strengthen financial institutions in Africa,” he added.

Carla Montesi, the Director of Planet and Prosperity at the European Commission’s Directorate-General for International Cooperation and Development, addressed the session and in particular welcomed the Bank’s “ambitious” goal of integrating climate change in 40% of its investments by 2020: “We know that climate change will have a huge impact on African economies.  But doing nothing will take a heavy toll,” Montesi said.

Final remarks came from Amadou Hott, who welcomed the commitment and will of all actors present to move forwards.

“We want Africa to advance towards a green economy; not as a fad, but because it is a viable and responsible economic vision,” he added.

Rwanda: The Emerging Economy To Watch

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In recent years, Rwanda has proven to be a role model for the continent.

During her November 2018 visit to Rwanda, World Bank CEO Kristalina Georgieva described the country as one that has enjoyed impressive growth and often has bold ambitions.

At business summits across the world, it’s not uncommon to hear such praise about Rwanda. Various speakers have singled it out as one of the emerging economies to look out for in terms of investment opportunities, value for money and economic growth.

The statistics explain why Rwanda has become Africa’s poster child for progress. The country has reduced reliance on donations and currently, domestically funds about 84% of the budget up from about 36% two decades ago.

In the last fiscal year (2017-2018), the economy grew by 8.9%.

Barely 24 years after the horrific genocide against the Tutsi, when the East African nation lost over a million lives and the devastation left a trail of trauma and economic ruin, its achievements have often been described as miraculous.

At the center of the tiny country’s recovery is President Paul Kagame, who led the revolt that ended the genocide.

Kagame has led his country from penury to prosperity. His government has co-invested alongside private capital to reduce risk and create a more appealing proposition.

For instance, when one of Africa’s leading telecoms groups, MTN, was keen on entering the Rwandan market in 1998, the government boosted their confidence by purchasing a 20% stake in the company.

This was driven by an ambition to not only attract the firm to the country but to ensure citizens have access to affordable telecom services. Years later, the government offloaded its stake in the firm through an initial public offering, allowing citizens to be part of a meaningful income-generating firm.

MTN is just one example of the strategic approaches taken by the Kagame-led government. The same has been replicated in multiple sectors, including finance and agriculture.

The last two decades on the Rwandan economic front have also been characterized by improving the investment ecosystem to create interest from the international and local business community.

While most would concentrate on the odds against the country, such as its small size, and its landlocked location, amidst a volatile region, Kagame sought to give investors every reason to put their money in Rwanda.

In a continent that has always been associated with corruption, the Rwandan government adopted a zero-tolerance stance on graft.

This was paired with the improvement of service delivery across all sectors, eliminating the need for bribes to access public services.

The most recent Corruption Perceptions Index by Transparency International placed Rwanda as third least corrupt country in Africa.

The reforms have for the last two decades addressed challenges that have often kept investors up at night. Steps that are cumbersome in countries across the world, such as business registration, were eased to a six-hour activity, while tax declaration and registration were simplified to online processes.

The World Bank ranked Rwanda 29th globally in its 2018 Ease Of Doing Business Report and put it second in Africa. The index tracks business efficiency across the wd

Statistics from the RDB indicate there were about 10,488 hotel rooms in the country in 2017, while aviation traffic is expected to grow to about 1,151,300 in 2018, from 926,571 in 2017.

The trend is expected to persist going forward. Rwanda will by the end of 2020 have a new modern airport located in the Bugesera District, a 25-minute drive from the capital.

While pursuing externally-driven growth, Kagame has not forgotten about the home front. This led his government to adopt a ‘Made in Rwanda’ strategy in 2016, which has reduced the trade deficit by about 36% and increased the value of total exports by about 69% from about $558 million to $943 million. Local producers have fast become empowered to produce for the local and export market.

The Rwandan leader has turned his attention to regional integration in the six-member East African Community to counter complaints about Africa’s small, fragmented markets.

The consolidated market of over 200 million citizens is more reassuring to investors and makes a business case for joint infrastructure projects such as the Standard Gauge Railway, which will connect the major Kenyan centers of Mombasa and Nairobi.

Lisa Kaestner, a practice manager for finance competitiveness and innovation at the International Finance Corporation, says: “I see Rwanda is keen on this and trying to support through the East African Community. This is one way to reduce the cost of doing business. If you look at it through the doing business lenses, all countries are trying to improve.”

Kagame’s continental mission has been evident in his various roles at the African Union (AU).

As the chairperson of the AU Reforms team, Kagame has advocated for less donor dependency and more sustainable funding by African states.

He has often challenged African countries who contribute less than 30% of the AU’s budget and turn to external donors with a begging bowl, which has been blamed for influencing the body’s decisions and priorities.

As  AU chair, Kagame has sought an adjustment of terms between Africa and the rest of the world for mutual benefit. This, he has argued, is more sustainable in the long run and presents an avenue for growth among all parties, as opposed to aid, which maintains dependence.

Months after assuming the chairmanship of the AU, in March 2018, Kagame hosted over 50 African heads of state and government in Kigali for the signing of the African Continental Free Trade Area.

As a trade bloc, the trade agreement envisions a continental market of 1.2 billion people, with a combined gross domestic product of more than $3.4 trillion.

So far, 49 countries have signed the agreement, with nine ratifications. The development is a huge step towards encouraging industrialization and job creation across Africa.

Peter Mathuki, Executive Director of the East African Business Council, says: “The country’s leadership is on the grip to lift the EAC country to middle-income level faster than most African countries. The fast economic growth is premised on pillars of good governance, easy-to-do business climate and zero tolerance to corruption… Rwanda is indeed Africa’s rising star and driver for economic transformation.”

Credits to Collins Mwai and the publication in Forbes

How Can Research Support Rural Women Farmers and Entrepreneurs to Thrive in Africa?

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Winnie is an entrepreneur from Uganda who runs a successful business making probiotic yogurt and selling to other businesses and schools. When I heard her speak at a recent food security meeting in Ottawa, Canada, I learned that Winnie has not always been this successful.

Winnie’s family had always kept cattle, but most of the milk the cows produced was for consumption by the family. In 2014, Winnie received training from an organization called Yoba for Life on how to use freeze-dried bacteria to produce probiotic yogurt from her family cows’ milk, a practice that has been common in the Netherlands where Yoba for Life is based, but not in Africa. Research conducted by Yoba for Life and Heifer International developed the technology used by Winnie for producing and using freeze-dried bacteria to make yogurt in Uganda.

Winnie started selling the yogurt to neighbors and to the local shopping center. As sales increased, her family milk was not enough, and she started purchasing milk from other women farmers in her neighborhood. Soon, she teamed up with a few other women to start the Kiboga Ikamiro Women’s Group production facility. Using the new freeze-dried bacterial technology, they currently produce 150-200 liters of yogurt per day, earning USD 3500 per month. She has increased her cattle herd to 20 milking cows, employs 27 women and youth in the production facility and built a better house for her family.

Winnie is one of more than half a million women who has been involved in research projects funded under the Canadian Food Security Research Fund, a research program implemented in 24 countries over the last nine years by Canada’s International Development Research Centre and Global Affairs Canada. This program has been hugely successful at helping women, who often provide half of the agricultural labor but do not have the same land rights and access to income as men, improve their livelihoods.

It may be surprising to learn that a program focused on research can help rural women engaged in agriculture and agribusiness to thrive. When people hear of research, they often think of complex experiments done in laboratories by serious looking scientists in white lab coats working on things only they understand. But research can have very practical implications in the lives of people.

I have been a researcher for 20 years now, and I have seen the power of research and innovation in transforming the lives of women like Winnie.

First, research can help identify and develop innovations that enable women to add value to their products and thereby increase their incomes. In Nigeria and Benin, the production of indigenous vegetables has been hampered by low consumption and lack of markets for smallholder farmers. Through several years of research, researchers found new ways and technologies for producing wine and syrups, in addition to the more traditional products such as bread, to add value to these vegetables. Women increased their incomes from indigenous vegetables by over 120 percent.

Second, research can find ways of reducing the drudgery of food production and processing for women. Of the 250 million tons of crops grown in sub-Saharan Africa in 2012, a total of 75 percent were grown by smallholder farmers and these were weeded by hand. Between 50 and 70 percent of these farmers’ time was spent on weeding, and 90 percent of women smallholder farmers carry out this task themselves. In India, processing one bag of millet can take up to two days. As a result, the consumption of millet, a crop that is highly nutritious and has the potential to contribute to better nutrition is rarely consumed in India.  Through research, scientists developed a threshing machine that reduces the time it takes to thrash a bag of millet to two or three hours. As a result, women entrepreneurs using the technology increased their income from US$1800 to US$4500 per annum, close to a three-fold increase.

Third, innovations from research can increase the nutrition and health of women. In the Indian State of Uttar Pradesh, 50 million women and 15 million children suffer from anemia. A new technology that encapsulates salt with iron and iodine has led to the local production of double fortified salt in the state. Between 2014 and 2017, 40,000 metric tonnes of double fortified salt were distributed through India’s public distribution system with 85% of the targeted households purchasing and using the salt on a regular basis. The use of double fortified salt has led to a decline in the prevalence of iron deficiency from 23 to 9 percent.

Finally, research can illuminate the financial needs of women smallholder farmers and entrepreneurs and facilitate the development of appropriate products and access to these products. In Bolivia, researchers working with the Insitucion Financiera De Desarrollo increased the understanding of the fisheries sector by the financial company, leading to dthe evelopment of financial products that suited the needs of women in the sector. Between 2015 and 2017, US$ 1.9M was loaned to women entrepreneurs in the sector with an average loan size of US$ 6000.

For research to work for women, women must be engaged as researchers, producers, business owners, consumers so that they can set their priorities and contribute to the development of innovations that best suit their needs and priorities.

Dr. Jemimah Njuki is a Senior Program Specialist at Canada’s International Development Centre where she works on gender and women’s empowerment. She is an Aspen New Voices 2017 fellow. Follow her @jemimah_njuki

Africa pioneers floating liquefied natural gas

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Africa has become a key testing ground for floating liquefied natural gas pioneers. FNLG spending in Africa is forecasted to reach $15.4bn out of a global total of $42bn, in the period 2019-24.

When the first wave of floating liquefied natural gas (FLNG) projects was conceived at the beginning of this decade, it was hard to envisage that Africa would become a prime testing ground for the technology. The idea of liquefying gas for export in a floating facility located above offshore gas reserves made as much sense in Africa as anywhere else. The technology offered a cheaper way to exploit offshore gas reserves than building pipelines and developing permanent onshore infrastructure.

In particular, it could make possible the exploitation of smaller “stranded” reserves, whose economics wouldn’t stack up with a costly onshore development. And re-usability helped too – when a field’s reserves were depleted, an FLNG facility could simply be moved somewhere else. But the highest profile project, Shell’s Prelude facility – the world’s largest floating structure – was destined for offshore Western Australia and had an estimated price tag of $12bn or more – way beyond the scale of investment usually ploughed into African hydrocarbons projects, even in established exporting nations such as Nigeria and Angola.

But, in May 2018 – nearly six years after Prelude’s construction started and before it was operational – Golar LNG’s Hilli Episeyo, moored off Kribi, Cameroon, became only the world’s second FLNG facility to start production. The first was Petronas’ PFLNG Satu in Malaysia. In late August, Golar’s chief executive, said on a media conference call, that the facility was poised to ship its sixth cargo. He said that all four trains on the facility had been successfully tested, though only two, producing a total of 1.2m t/y of LNG, were currently being used. On the other side of the continent, a consortium led by Italy’s Eni is already building a 3.4m t/y FLNG facility to operate on the Coral South development from 2022. These will be the first exports from Mozambique’s huge offshore reserves In the Rovuma Basin

And there’s more planned for West Africa. BP plans to use a Golar design for FLNG exports from the Tortue/Ahmeyim gas field that straddles the maritime border between Senegal and Mauritania from around 2021 (see also Senegal article). UK-based Ophir Energy also plans to use a Golar design to liquefy gas from its Fortuna LNG project off Equatorial Guinea, if it can secure the investment it needs. Meanwhile, London-based New Age is seeking to develop FLNG projects in Cameroon and Congo-Brazzaville. Westwood Energy, a consultancy, forecasts FLNG spending in Africa will amount to $15.4bn out of a global total of $42bn, in the period 2019-24.

Rosy demand outlook

So, what happened to pique the interest of investors in this pioneering technology? One important factor is that global LNG demand has been rising fast in recent years, lifting prospects for the whole sector. While the massive expansion of onshore LNG export capacity in Australia and the advent of US LNG exports have saturated the market in the last two years, most forecasters believe demand will start outstripping supply in the early 2020s, providing the prospect of healthy returns for those that can get LNG to market then. Golar said in its second-quarter 2018 results statement that it expected the LNG market to balance in 2022, with a supply gap of around 50m t/y by 2025.

But perhaps the most important change has been falling costs. Since Prelude was conceived, the investment needed to build FLNG has dropped sharply. Whereas Shell estimated that Prelude would cost some $3.5bn per million tonnes of annual production capacity, the figure for LNG from Golar’s Hilli Episeyo is thought to be well under $1bn per million tonnes.

That has been achieved largely by using off-the-peg, modular technology bolted onto a converted LNG carrier. It’s a no-frills approach compared to Prelude, which was built from scratch to produce a range of products besides LNG and to operate in much more demanding ocean conditions than those likely to encountered by Golar’s conversions.       

FLNG also has the added advantage of keeping hydrocarbons investment clear of the perceived risks associated with developing onshore projects in coastal regions that may be remote from main population centres with limited access to infrastructure and skilled labour.

Lower risk

A project involving a vessel built in an Asian shipyard and then deployed without necessarily even going to port in the country where it is deployed is an attractive one for risk-averse international investors. It’s a similar rationale to that already evident with the successful development of offshore oil developments using floating production storage and offtaking vessels (FPSOs) in countries such as Angola and Nigeria, where onshore developments may be considered a risk.

That doesn’t always go down well with those who want the local economy to benefit directly from construction jobs and infrastructure development. But increasingly, African governments seem to be taking the view that if the choice is between export revenues from FLNG or no LNG investment at all, then FLNG is worth going with.

A willingness to sanction relatively low-risk FLNG can also help get the onshore industry rolling, once an export industry has established. In Mozambique, following ENI’s decision in June 2017 to go ahead with the Coral South FLNG project, consortiums led by ExxonMobil and Anadarko are now pushing on with plans for onshore LNG plants in the northern Cabo Delgado region. If they are built, these will create local jobs, require local content and supply gas domestically as well as for export markets.

Credits to Ian Lewis (African Business Magazine)

Kenya hosts the “Sustainable Blue Economy Conference”

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From the 26th to the 28th of November, Kenya is hosting a historic conference that has to do with environmental protection.

The three-day conference has high global support with over twenty world leaders in Nairobi for the event. A number of environment-friendly civil society organizations are also in attendance.

The major highlights of Nairobi Sustainable Blue Economy Conference are as follow:

  • After years of advocacy in the area, this is the first conference on Sustainable Blue Economy.
  • It is taking place across three continents. Kenya is hosting it with Canada and Japan as co-hosts.
  • There are 17,000 plus participants from some 184 countries involved in the conference.
  • It is under the theme: ‘The Blue Economy and the 2030 Agenda for Sustainable Development.’
  • It pools under one roof political leaders and government representatives from across the world, the African Union, United Nations organs and Commonwealth are also participating.
  • Other interested parties are as follow: The World Wildlife Fund, WWF; International Maritime Organization, IMO; International Seabed Authority, ISA; the World Bank; AFRIEXIMBANK; Ocean Foundation etc.

The Blue Economy and its importance

The Blue Economy is the economic benefit and value we realize from the Earth’s coastal and marine environment.

Sustainable Blue Economy is a marine-based economy that provides social and economic benefits for current and future generations, restores, protects and maintains the diversity, productivity and resilience of marine ecosystems, and is based on clean technologies, renewable energy, and circular material flows.

The website dedicated to the conference said: “The world has rallied around the enormous pressures facing our oceans and waters, from plastic pollution to the impacts of climate change.

“At the same time, there is international recognition that we need to develop our waters in an inclusive and sustainable manner for the benefit of all.

“The Sustainable Blue Economy Conference builds on the momentum of the UN’s 2030 Agenda for Sustainable Development, the 2015 Climate Change Conference in Paris and the UN Ocean Conference 2017 ‘Call to Action.‘”

The multi-pronged conference will primarily:

1. Identify how to harness the potential of the blue economy to create jobs and combat poverty and hunger.
2. Show how economic development and healthy waters go hand in hand.
3. Capture commitments and practical actions that can be taken today.
4. Bring together the players needed to transition to a blue economy

“Overfishing and its ecosystem impacts are increasingly becoming an equity and humanitarian issue; global leaders must urgently act together – with a strong sense of urgency –

“… to take the necessary, tangible steps towards an inclusive, sustainable blue economy, in the interest of the people of the region and the environment that supports them,” Frederick Kwame, Regional Director WWF Africa has stressed.

Africa Investment Forum (AIF) boosts dealmaking

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The African Development Bank (AfDB) has often been criticised for the time it takes to approve projects, but it responded at the Africa Investment Forum (AIF) in Johannesburg in November by bringing to the table a pipeline of 61 projects with a value of $40bn.

According to the organizers, of the 61 projects put forward, there was investment interest in 45, representing a total deal value of a little under $32bn, in sectors including energy, transport, logistics, and agriculture. The AIF sent a clear message that demand for bankable projects exists alongside the available capital to finance them. The pipeline was aggregated by the AfDB in collaboration with African development finance institutions, including the Trade and Development Bank, Afreximbank and the Africa Finance Corporation.

In the past, a common complaint has been a dearth of bankable projects and the extended timeframes to deal closure. While the Chinese are able to fast-track projects and add 120 GW of installed power capacity a year, Africa has too few projects it can showcase to reduce its energy gap. A handful of successful flagships projects still command attention, even if they took many years to see the light of day.

Accelerating deals

The AIF aimed to show that the continent can accelerate dealmaking at scale by linking funding to an existing pipeline of projects. Alain Ebobissé, CEO of Africa 50, said that the forum showed that if you bring well-structured projects to the table, an appetite for dealmaking will follow. Financial institutions are often guarded about projects and their pipeline of deals, even if they collaborate on loan syndications and project finance. However, at the forum, they threw their weight behind new projects. The president of Afreximbank, Benedict Oramah, revealed that they had 60 meetings and developed a project pipeline of $15bn.

Yet Admassu Tadesse, the president of Trade and Development Bank, whose own bank’s balance sheet has increased 50% in the past two years to nearly $6bn, said that new sources of finance must be found if the momentum of the AIF is to be maintained.

It is estimated that global funds under management represent $133 trillion, with pension and sovereign wealth funds representing $56 trillion. The AfDB’s High Fives initiative aims to unlock $170bn – less than 0.3% of those accessible assets under management. African pension and sovereign funds alone represent some $1.1 trillion, according to NEPAD, which is planning to boost African funds’ allocations into infrastructure to around 5%.

Africa’s risk profile

Much of the discussion about how to access these funds revolved around Africa’s risk profile, with the perception of risk on the continent thought by many investors to be much higher than reality, leading to a higher cost of capital and difficulty meeting some of the stringent investment criteria that foreign funds are subject to.

In response, AIF delegates discussed the ways in which investments in a number of sectors are often held back by an inadequate policy framework. While some governments are beginning to recognise that the private sector needs to be allowed to take a lead in financing and developing projects, others are too slow to reform. The Ibrahim Index of African Governance 2018 found that the average African score for business environment has declined by almost five points over the last 10 years, showing that the regulatory and policy framework does not always provide the enabling environment to unlock investment in infrastructure and agriculture.

AfDB president Akinwumi Adesina insisted that attitudes are changing among heads of government, who he argued were now encouraging growth through fiscal incentives and engaging the private sector as a key partner.

“[Heads of government] have come to realise that private sector is not the enemy and they can carry the load,” Adesina told the media. “There is a much more friendly tone in their conversations.”

To ensure that the AIF is a platform for the future and that dealmaking momentum is maintained, the AfDB will launch the Africa Investment Forum Marketplace on 1 December, an open-source digital platform that the bank has developed with the Inter-American Development Bank to publish and connect real time projects with developers and investors.

For, now the AfDB hopes that the Africa Investment Forum sent a crucial message: the continent is open to dealmaking. Finance exists and investors are increasingly passionate about the continent, if the right enabling environments can be found. Yet financiers and projects need to be linked together in forums across the continent if Africa is to rise to its huge infrastructure challenge.

Trade and Development Bank president Tadesse says that the AIF was just the first step in an ongoing process of making this happen.

“News travels, and this will help change the narrative out there.”

Boosting Africa’s tax revenues

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Taxes on corporates and individuals have steadily declined in Africa just as national budgets are being stretched. How can Africa boost tax revenues?

In late August, South African telecoms giant MTN, Africa’s biggest mobile operator, was stunned by an $8.1bn demand from Nigeria’s Central Bank, which had accused the firm of illegally sending money abroad. With executives and investors in a state of disbelief and shares plunging to a nine year low, the firm barely had time to respond before the country’s attorney general – an unusual outlet for such orders – demanded a further $2bn in taxes and charges from the company in an unrelated case just days later.

For MTN, the charges represent just the latest challenge it has faced while operating in the volatile Nigerian market following a multi-billion dollar fine levied on the firm in 2015 in a dispute over unregistered simcards. “It’s completely unfounded,” MTN group president and chief executive Rob Shutter told African Business after the moves wiped some $6bn off the company’s share price. He argues that Nigeria’s allegations are incorrect and takes issue with the attorney general’s role in the affair.

Implications for Nigeria

“I think a lot of our investors are more concerned about the implications for Nigeria as an investment destination than the specifics of our two incidents,” says Shutter. “The sooner we can persuade the authorities that we have not made any infraction in either engagement the better for everybody because once that is resolved not only will it clear some of the headwind we are facing but it would also show that the rule of law in Nigeria is still in good shape.”

As the thorny case of MTN in Nigeria shows, taxes and the way in which they are levied have become a highly emotive subject that can make or break a country’s business environment. For every outraged executive smarting at an alleged corporate shakedown, there are politicians and campaigners arguing that companies are taking host countries for a ride by failing to pay their fair share.  They argue that this has a direct impact on African citizens, who suffer from a lack of basic services and vital infrastructure as a result of shrunken government revenues while corporates carry off the profits.

No simple answers

And yet there are no simple answers. For some, high taxes are the backbone of a successful economy, while for others tax breaks and tax holidays are the way forward. Compare Sweden and Singapore. Both have dynamic economies yet vastly different tax regimes and tax revenues as a share of GDP. In Africa, the continent’s budgets are stretched and perforated. Debt levels, in some cases, are ballooning. Organisations like the IMF have recommended domestic resource mobilisation by doubling down on taxes.

Fortunately, the data suggests that tax collection is already improving in Africa. According to the OECD’s Revenue Statistics in Africa 2017 report, the average tax revenue to GDP ratio from data in 16 countries was 19.1% in 2015 – an increase of 0.4% from 2014. Since the turn of the century, every country in the survey increased its ratio, with average growth of 5%.

The bulk of these increases are the result of strengthened indirect taxes. Most sub-Saharan countries introduced VAT to replace a general sales tax. In 2015, taxes on goods and services were the largest contributor to total tax revenues at an average of 57.2%. Direct taxes on corporates and individuals, in contrast, have been steadily declining in sub-Saharan Africa – mirroring a global trend. The average personal income tax collection has decreased from around 44% to 32% since 2000, while corporate income tax collection has dropped by an average of 5%.

Expanding the base

While these are positive steps, problems remain. Individual countries register strong performances – according to Heritage Foundation data, Lesotho’s tax revenue to GDP ratio stands at an impressive 42.9% – but others clearly lag. Nigeria stands as low as 6.1% and many fall below the 15% mark. These deficits are caused less by onerous tax rates – income, corporate and VAT levels largely mirror the rest of the world – but more as a result of narrow tax bases in the context of huge informal markets and limited revenue authority capacity. Expanding this base will be key to plugging budgets and offsetting debt.

The IMF predicts that African countries can mobilise a further 5% of GDP from taxes over the next few years. It identified six countries that have pursued effective resource mobilisation strategies at various stages: Liberia, Mozambique, Rwanda, Senegal, Tanzania and Uganda.

“All countries paid special attention to measures to build the tax base, simplify the tax system, and tackle exemptions and incentives,” they argue. “The countries in the study appear to have made limited use of tax policy adjustments. The focus was instead on measures to improve the effectiveness of tax policies and expand the tax base.”

Grappling with giants

Building a healthy tax base fundamentally relies on the ability of a country to successfully tax corporate activity. As the MTN case shows, striking the right balance between encouraging multi­nationals to invest and ensuring they give back to domestic governments has been a tricky undertaking in Africa. Too often the scales are disproportionately tilted towards multinationals.

Many campaigners argue that tax regimes have been extremely lenient to international companies and investors. As part of the continent’s development path, attracting capital through tax exemptions and tax breaks has been a major strategy. Yet as the continent attracts greater numbers of successful companies and gains a reputation for lucrative markets, many have begun questioning the need for such incentives. The IMF argues that unnecessary exemptions are significantly narrowing the tax base.

Recent events in Africa’s mining sector, particularly in the Democratic Republic of Congo (DRC), have brought this issue to light. In the wake of the Second Congo War, president Joseph Kabila enacted favourable mining legislation in order to incentivise private sector participation. Royalties on precious metal were as low as 2% and miners like Glencore, China Molybdenum and Randgold enjoyed a generous regime. Recently, Kabila reworked the legislation to raise general royalties to 3.5%, while royalties on strategic metals including cobalt have been hiked to 10%. Cobalt prices have more than doubled since 2017 owing to the metal’s use in long-life lithium ion batteries. Despite great initial protest, the mining firms now look to have accepted the legislation. In reality they have little choice: DRC is home to over two-thirds of the world’s cobalt.

“In my experience foreign investors tend to believe that they can get away with much more in developing markets as compared to developed markets,” says Kunle Elebute, chairman of KPMG West Africa. “They feel they have a stronger leverage over the country.”

Illicit Flows

Indeed, some shadowy corporates on the continent bypass the tax authorities with impunity. The United Nations Economic Commission for Africa (UNECA) recently estimated that around $50bn is lost annually in Africa due to illicit financial flows. Within this estimate there are many different forms of activity, ranging from flagrantly corrupt criminal behaviour to questionable corporate capital streams. Africa’s tax base has been significantly eroded by both types of activity over the years.

Elebute describes how the biggest outflows are due to corrupt local officials doling out contracts to international firms in exchange for sizeable back-handers. “Local contractors don’t have the capacity to build a big dam – you need foreign contractors,” he says. “And that’s where all the corruption happens: between foreign companies and international firms.” Elebute queries why more isn’t done by the international community to stop such practices.

African regulators particularly face an uphill battle in the fight against corporate profit shifting through transfer pricing. A common strategy is paying taxes on goods and services in a tax haven as opposed to the country where the transactions take place. With large legal teams and a wealth of resources available to multinational companies, African regulators repeatedly find themselves on the back foot. Indeed, the issue is testing even the most advanced economies, and institutions on the continent look ill-equipped to take on large corporates. “For us in developing countries we have no way to prevent those guys from using intermediary companies in tax havens,” comments Elebute. “There’s no amount of legislation we can pass to stop that happening.”

Improving administrative capacity is vital in expanding Africa’s fight against illicit flows and many governments are looking towards technology for solutions. E-tax platforms are making a foothold on the continent as governments seek to use technology to simplify tax payments. Rwanda has introduced mobile tax payments, while electronic tax registers have been used in Kenya since 2005 to instantly record VAT payments and relay the information to the authorities. Centralising payment records and providing tax payers with easy platforms to pay will be key to bringing more corporates and individuals into the system.

The dangers of onerous tax systems

Yet there are counterarguments against a general crackdown on cross border flows, with some firms arguing that it puts legitimate business models at risk. Antoine Maillet-Mezeray, chief financial officer of Nigerian e-commerce firm Jumia, argues that regulators in Africa may jump to the wrong conclusion by targeting corporate capital flows, especially in emerging sectors like e-commerce and technology. Certain Jumia operations, he explains, are centralised in Europe and therefore the company requires some cash flow to and from Europe and its African markets.

“Some governments will always think that we are trying to escape taxes,” he says. “But I think as they are getting more and more familiar with e-commerce this will change.” In many cases, Jumia must spend time and energy explaining to the regulators what they actually do. The company has two business models: one where Jumia buys and resells products online and the other where the company acts as the market intermediary between buyer and seller. Most African governments are unaccustomed to this business model and therefore struggle to regulate the sector.

“Not all the countries have the relevant expertise,” says Maillet-Mezeray. “They are getting up to speed but it takes time and meanwhile it creates some friction.” During this interim period African regulators must take care not to spook nascent sectors or startup companies, but to engage in clear conversation in order to find regulation that works for both parties. Jumia’s troubles and MTN’s battle in Nigeria highlight the importance that African regulators should place on responding fairly to new and lucrative sectors like e-commerce, fintech and telecoms, as well as the use of new tools like blockchain.

If regulators and central bank governors slap heavy taxes and restrictive legislation on firms due to unfamiliarity, or to make a fast buck, any opportunity for Africa to leapfrog in new technologies is cut short. Nigeria, for example, has blocked mobile money due to protest from established banks. Elsewhere unfamiliarity with cryptocurrencies has seen the potentially transformative technology barred from markets. Critics say that this cornering of the market will only serve to stifle wealth creation, arguing that services are best and profits more equally distributed when competition is rigorous.

Innovative tax

Yet there are multiple ways to creatively tax both new and existing firms without resorting to a corporate shakedown. Abebe Aemro Selassie, director of the IMF’s Africa department, points to new methods of raising taxation that African countries ought to consider.

“Urbanisation and real estate development has been a very important feature of many countries in the region. So things like property taxes which have in many cases not been an important source of revenue in the past are now being seriously looked at,” he says. “As the structure of your economy changes, you have to make sure you look at ways of capturing that.”

In Lesotho, property taxation already accounts for half of local government revenue. In Cape Verde the figure is 70%. Yet elsewhere penetration is low and the IMF says that more can be raised through such means.

Meanwhile, VAT and excise duties can be further levied. In 2015, sub-Saharan Africa countries collected on average 1.4% of GDP from all forms of excise taxes, less than half the level in Europe. Wide disparities also exist on a country-to-country basis. Benin, Côte d’Ivoire, Madagascar, Nigeria and Sierra Leone all collect excise revenues of less than 1% of GDP.

The positive case for tax

But perhaps one of the most effective ways of encouraging companies to part with more of their cash is simply showing the benefits that a strong and wealthy state can offer to entrepreneurs. Tax revenues spent in a sustainable, targeted way on improving institutional capacity and building vital infrastructure projects ultimately improve the business environment for firms operating in the country, and thus increase the potential for greater future profits.

Until now, low levels of confidence in governments and institutions across sub-Saharan Africa have led many companies to conclude that money given to the government will be frittered away on vanity projects or siphoned off through corruption. “What are governments doing with taxed money?” asks Elebute.

“In the developed world you see exactly what the taxes are used for: health, roads and education. But what are the taxes used for in Africa?” Taxes, after all, are a social contract between government and citizens and are underscored by the belief that the state will offer some form of return on the capital invested. If more is on offer it may be easier to persuade citizens or companies to part with their money.

Selassie believes that this shaky contract between government and citizens is steadily improving across the continent. “In most low-income countries, not just in Africa, there are always low tax-to-GDP ratios within the early stages of development,” he says. “As the legitimacy of governments strengthen and they are able to show what they are doing with the resources, so too will the willingness of people to pay taxes.”

A fair and stable tax regime, which sees every economic actor contribute equally to the treasury relative to their means, is the ideal that governments and companies should work towards. Private enterprise must be incentivised to grow but wider contributions to the national economy will ultimately have a positive knock on effect on the business environment. While the challenges Africa faces in getting taxes right are many, the continent is making steady progress.

Tax, if used correctly, has the potential to balance Africa’s books and drive economic transformation. If used incorrectly, regulators may do more harm than good. While problems certainly exist, Africa looks to be diligently expanding its tax base and gradually boosting the reach and capacity of its institutions.

Credits to Tom Collins

African Oil and Gas Industry set for Rebound

Posted by khaoula on

Africa’s offshore oil and gas industry after seeing tough times in recent years, it is becoming more dynamic again.

With the oil price back at levels last seen in late 2014, and oil company coffers swelling, Africa’s leading hydrocarbons producers are hopeful that they can draw investment back to the continent’s upstream oil and gas sector after some lean years. Both Nigeria and Angola, Africa’s largest oil producers were already finding it tough to launch large offshore oil developments before the oil price nose-dived from over $110 a barrel in mid-2014 to below $30/b in early in the following year.

In August 2018, Nigerian crude production averaged around 1.85m barrels a day (b/d), while Angola’s averaged 1.38m b/d, according to Opec data. Both countries are producing less than past peaks – over 2m b/d for Nigeria and around 1.8m b/d for Angola. Nigeria’s failure to nail down new legislative and financial frameworks for exploration and production agreements, along with the ever-uncertain security situation in the oil-rich Niger Delta, had already prompted some of the majors to scale down operations in the country.

Meanwhile, Angola’s state energy firm Sonangol was finding it hard to stimulate sufficient fresh exploration to replace fast-depleting reserves of existing developments, not least because of the high cost of operating there. Both countries’ oil sectors were also tainted by a lack of transparency and the impact of oil sector-related corruption scandals. In the last few months, both nations have been trying to heal their relationships with foreign investors by pushing ahead with plans for industry restructuring, though it remains to be seen how successful they will be in implementing meaningful change.

Nigeria’s legislative overhaul

In Nigeria, the Petroleum Industry Governance Bill (PIGB), a key piece of legislation affecting future investment – and the first of four related bills – had been passed by both houses of Nigeria’s parliament by early 2018. After a decade of fruitless negotiations, this potential breakthrough offered the prospect of a more clearly defined investment framework for major oil and gas projects. “I don’t think the PIGB was ever the silver bullet that some people thought it was going to be. But there was a body of opinion that said it would at least be a bit better than the current status quo,” says Gail Anderson, Research Director at consultancy Wood Mackenzie.

However, the reform process hit a snag in late August, when news broke that President Muhammadu Buhari decided to withhold his assent for the PIGB, apparently, in part, because it trimmed the amount of oil revenues available for government spending. Ita Enang, a senator and presidential aide, refuted local media reports that the president, who also acts as oil minister, was concerned that the PIGB would reduce his power over the industry by giving more control to independent regulators. Whatever the reason, a further delay – which could be months or even years, given the proximity of next February’s presidential elections – won’t do much for investor confidence in the sector.

There has also been mixed news from the Niger Delta. Militant attacks on oil and gas facilities in the region that have regularly disrupted onshore production and pipeline supply to oil and gas export facilities have eased off over the last year or two. This has enabled export volumes to recover, after Delta disruption caused Nigerian crude production to fall well below 1.3m b/d at some points in 2016. However, a coalition of local militant groups seeking a greater share of the spoils from the oil industry said in September that It would resume attacks if international oil companies did not move their headquarters to the Delta region by the end of 2018 – a demand that is unlikely to be met.

End of an era in Angola

Meanwhile, Angola’s President João Lourenço has announced measures that if implemented would loosen Sonangol’s tight grip over the oil industry there. Under recently unveiled plans, Sonangol, the state-owned company that oversees oil and natural gas production in the country would hand over responsibility for petroleum agreements, oil block sales and their management to an independent National Oil and Gas Agency (ANPG) by the end of 2020.

Lourenço was elected in September 2017, succeeding José Eduardo dos Santos, who stood down as president after 38 years at the top. Since then, his daughter, Isabel dos Santos, has been removed as head of Sonangol and an investigation into possible corruption at Sonangol under her leadership has been launched. She denies any wrongdoing. Both Angola and Nigeria are members of Opec, but their output has been little affected by the cartel’s recent production quotas. In Angola’s case, falling output meant it was producing well below the cap imposed on it. Nigeria was initially excluded from quotas to enable output to recover from the impact of Niger Delta unrest.

Projects advance

Despite the continued uncertainty, the uptick in interest in costly deepwater investments, which look more attractive with today’s higher oil price, has moved some big projects forward in both countries. In Nigeria, Total is considering expanding the scope of its new Egina deepwater project, whose floating production storage and offloading facility (FPSO) is due to start operations in late 2018. The FPSO is set to produce 200,000 b/d of oil from the Egina Main field, whose reserves are estimated at  570m barrels. The French company has said it is now considering connecting its nearby Preowei discovery to the Egina FPSO, after a third appraisal well was successfully drilled there in late 2017.

Prospects also seem brighter for Shell’s delayed expansion of the Bonga deepwater oil field, which had been mired in legal wrangles between Shell and the state-controlled Nigerian National Petroleum Corporation (NNPC) over the terms of the field’s Production Sharing Contract. In early September, Shell Nigeria’s managing director Bayo Ojulari said in a statement that a timetable for a final investment decision would be announced after commercial discussions with the government were concluded. He said those talks could be concluded “soon”. The $10bn Bonga Southwest project could add as much as 175,000 b/d to the field’s output.

In Angola, on the Total-operated Kaombo development on Block 32, the Kaombo Norte FPSO started producing in July, while the Kaombo Sul FPSO is due to start up in 2019. Overall production from the development is expected to peak at some 230,000 b/d. But Angola still needs a lot more exploration than is currently on the cards to make the discoveries it needs to compensate for falling output from now-maturing assets that have been the mainstay of production over the last two decades. Without more investment, production could fall to 1m b/d by 2023, as output from older fields runs down, according to Angola’s Ministry of Mineral Resources and Oil.

Spotlight on gas

Of course, it’s not just about oil anymore. With the era of peak oil fast approaching, many international oil companies (IOCs) are ploughing more money into gas export projects, whose shelf life could be longer. Nigeria remains the kingpin of Africa liquefied natural gas (LNG) exports, but is facing stiff competition not only globally, but also from within the continent, as up to three LNG projects in Mozambique move closer to fruition.

Talk of expanding export capacity from the current 22m tonnes a year (t/y) – all of it from the Nigeria LNG (NLNG) facility on Bonny Island – has been around for years, without progress. But, with the current the global LNG supply glut due to turn into a shortfall in the early 2020s, NLNG’s IOC owners have embarked on efforts to raise finance to build a new production train at the site to add to the existing six. NLNG is owned by Shell (25.6%), Total (15%) and Eni (10.4%), with NNPC holding the other 49%. 

They are seeking some $7bn to cover the cost of building Train 7 and another $5bn for upstream investment in gas supply. The expansion would add 8m t/y to Nigerian export capacity, bringing it to around 30m t/y. That would make the country the world’s third largest exporter, behind Australia and Qatar, based on current production data. Angola also exports LNG from the 5.2m t/y Angola LNG plant, operated by Chevron. The plant, which opened in 2013 has had a chequered history, and had to be shut down for months at a time due to technical problems in the following two years. Its operating record has improved more recently.

The country’s gas production has largely been based on associated gas from oil projects. But the new government has improved terms for gas-focused developments, raising the prospect of possible expansion of Angola LNG, as well as greater supply to the domestic market.    

Ian Lewis

KAOMBO: AN INNOVATIVE ULTRA-DEEP-WATER OFFSHORE PROJECT IN ANGOLA

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Angola and Total inaugurated a new deep-sea oil field worth $ 16 billion on Saturday.

This is expected to boost the production of the African nation since the fall in crude prices that plunged its economy into crisis in 2014.

Located 250 km off the capital Luanda, the Kaombo project is the largest offshore operation ever launched in Angola.

For the first time in the world, a network of more than 300 kilometers of tubes was laid up to 2,000 meters under the sea to raise hydrocarbons on the surface.

The first of the two ships, Kaombo Norte, produced its first oil last July.  The other, Kaombo Sul is expected by mid 2019.

Eventually, they must produce 230,000 barrels a day, or 15% of the country’s current production for total reserves estimated at 660 million barrels.

‘‘Kaombo opens a new chapter in Total’s commitment to Angola. It will produce 230,000 barrels of oil per day on a plateau basis and will enable Total to maintain world production of 600,000 barrels per day by 2023, or 40% more or less of the country’s production. So let me be clear, Minister of State ( Manuel Nunes Júnior), the future of our company is deeply linked to the future of your country’‘, said CEO of Total, Patrick Pouyanne.

The project is led by the French group, Total in partnership with the Angolan national company Sonangol, Sinopec from China, Esso, the United States and Portugal’s Galp.

Total produces 40% of the crude oil extracted from Angola, the second largest supplier of sub-Saharan Africa behind Nigeria.

In the early 2000s, Angola experienced a period of very strong double-digit growth fueled by oil. But in 2014, the sharp drop in crude prices, which sold 90% of its exports and 70% of its revenue, pushed the country into recession and brought down the national currency.

The price of the barrel reached its highest in four years last month but has recently fallen.

Angolan President Joao Lourenço, elected in 2017 after thirty-eight years of Jose Eduardo dos Santos’s reign, has promised the country an “economic miracle” that has been triggered by the revival of its oil production.

Angola’s Minister of Mineral Resources and Petroleum, Diamantino Azevedo said “our goal is to maintain production, the government has pledged that this figure will not decline during its term”.

AFP