Tag: economy

Significant progress on path to Africa Continental Free Trade Area

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The African Continental Free Area (AfCFTA) is a vital step for boosting intra-African trade. Eighteen countries have ratified it so far, and it is highly expected that 4 more will to do so in the coming months – to meet the 22 ratifications required.

From around 750 CE, the town of Gao in modern-day Mali played a crucial role in the trans-Saharan trade route. The town, which lies on the Niger River, thrived as a major trading centre for gold, copper, salt and slaves travelling north towards modern-day Libya.

The town’s importance and wealth diminished when Portuguese explorers in the 15th century opened up new avenues for trade via sea, before the French colonisation of Mali ended much of the empire’s trade with its northern neighbours.

Today, the trans-Saharan trade routes are mostly used by Berber nomads and a sparse number of trucks carrying fuel and salt. The African Union (AU) and African Development Bank (AfDB) have proposed extending the Trans-Sahara Highway from Algiers in Algeria to Lagos in Nigeria via Tamanrasset.

The project reflects a desire to reignite intra-African trade, which was stymied for many African countries during the colonial era. Trade between African nations stands at 18% of total regional trade, compared to 59% in Asia and 69% in Europe.

The African Continental Free Trade Area (AfCFTA), which has been signed by 49 African countries and could boost African economic output to around $29 trillion by 2050, is a vital step in boosting trade among African countries, according to one of the architects of the agreement, David Luke, coordinator of the African Trade Policy Centre (ATPC) at UNECA.

“The reason intra-African trade is so small is that colonialism forced Africans to export their raw materials outside of the continent to Europe and the US; therefore, much of the trading infrastructure was built with this in mind,” he says. “The AfCFTA is a new paradigm which lets African nations reduce tariffs and non-tariff barriers such as red tape and inconsistent standards for products, which will help boost economic activity across the continent.”

The benefit of the deal is clear. However, to date, only 12 out of the required minimum of 22 member states have ratified the accord. The AU had hoped the agreement would be ratified by the end of 2018. The AfCFTA has six main protocols, including rules on trade in goods, trade in services, rules and procedures on dispute settlement, competition policy, investment and intellectual property rights. All the protocols have to be agreed upon by member states by January 2020 for the full adoption.

While some critics have voiced concerns about the pace of ratification, defenders of the deal believe that significant progress has been made, including Vera Songwe, executive secretary of the UN Economic Commission for Africa (UNECA).

“I believe we are doing very well in terms of ratification of the deal and I’m confident that we will reach the minimum threshold by the middle of 2019 despite the fact that Nigeria is yet to sign up to the agreement,” she says. “There is definitely momentum behind the deal but we need to ensure that we are ready to implement the next part of the strategy the day after it is enacted.”

President Muhammadu Buhari of Nigeria announced that the country would delay signing up to the accord pending further discussions with local trade unions and the business community. The absence of Africa’s largest economy has led some to question the viability of the deal. However, Buhari’s decision is based on a political calculation rather than a lack of faith in the deal, says Gerhard Erasmus, co-founder of the South African-based Trade Law Centre (TRALAC).

“There are very powerful lobby groups who would prefer that Nigeria doesn’t enter into any regional trade arrangements that could challenge their interests,” he says. “And, with the elections coming up next year the incumbent President Muhammadu Buhari has indicated that he is quite sensitive about domestic opposition for this agreement and the official line is that they are consulting the relevant players.”

It seems that it will only be a matter of time before Nigeria – which actually chaired the negotiations that eventually led to the AfCFTA – signs up, with government officials, such as vice president Yemi Osinbajo making positive statements about the deal.

The agreement has, however, received a major boost after South Africa’s parliament ratified it in December. South Africa’s total trade with Africa amounted to R421bn ($30bn) in 2017, with exports amounting R311bn and manufactured goods accounting for 64% of exports to the region. The continent’s second-largest economy and the largest contributor to intra-Africa trade is expected to submit the approved instrument of ratification at the 32nd Ordinary Session of the Assembly of the AU in February 2019.

Reforms

Most African businesses pay an average of 6.9% tax on cross-border transactions and that does not include the additional costs of non-tariff barriers such as excessive bureaucracy, regulatory discrepancies and delays. The agreement calls for member states to cut tariffs on 90% of goods traded. However, removing tariffs is only the first step. Serious reforms will need to be implemented by member nations signed up to the agreement.

“I’m not one of those that believe that suddenly when this agreement is ratified, there will be an explosion of booming inter-African trade,” says Erasmus. “Trade agreements around the world only work when there is a consistent, well-designed effort to improve governance and transparency and, most importantly, there is a private sector producing tradeable goods that other countries want to buy.”

“Therefore, African policymakers need to address nontariff barriers to trade, such as limited industrialisation, weak productivity and poor infrastructure,” he adds.

The success of the agreement hinges on African countries implementing pro-private sector reforms and diversifying their economies. While countries including Tanzania, Kenya, Uganda and South Africa have similar diversification levels to other emerging markets, oil export countries such as Nigeria and Angola have become more dependent on revenues from commodities.

Nevertheless, if endorsed by all the countries of Africa, the AfCFTA would potentially create the largest free-trade area in the world, and leverage Africa’s surging population and a combined GDP of more than $3.4 trillion. However, the agreement is only an enabler. Governments need to create the ideal environment to allow trade to flourish.

Credits to: Taku Dzimwasha (African Business Magazine)

Ethiopia selected to host 2020 World Economic Forum

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The World Economic Forum (WEF) in 2020 will be hosted in Ethiopia, as the Eastern African nation hopes to attract more investment.

The announcement was made following a meeting between Ethiopia’s prime minister, Abiy Ahmed and Prof Klaus Schwab, Founder and Executive Chairman of WEF.

The office of the prime minister said the two leaders discussed the importance of a collaborative approach among government, the private sector and civil societies in addressing key global challenges

Abiy Ahmed attended the WEF 2019 meeting held in Davos, Switzerland, where he met several business leaders before heading to Belgium.

PM Abiy Ahmed courts investors

Abiy Ahmed, who has championed reforms since taking office in April last year, called upon investors in Davos to take advantage of the huge business opportunities available in the country.

Reiterating Ethiopia’s plans to liberalize the previously state-controlled sectors of telecommunications, banking, and aviation among others, Abiy Ahmed pledged to do more to make it easier to do business for anyone planning to invest in Ethiopia.

“In order to enforce our up word trajectory and achieve even more rapid and sustainable growth, Ethiopia has embarked on a comprehensive reform process since last April,” he said.

Credits to Daniel Mumbere

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

Making African agriculture more attractive for investors

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While global population growth slows, Africa’s population is set to double over the next three decades, reaching around 2.2bn people by 2050.

This surge in numbers will have significant ramifications for the continent’s food security, which is already under pressure mainly due to climate change. The good news is that Africa’s agriculture sector has been growing at a steady pace and the continent boasts at least 65% of the world’s uncultivated arable land. If this is fully utilised, then African farmers could meet the food needs of the entire world.

As things stand, however, the continent will continue to be dependent on the rest of the world for food, with imports amounting to $35bn annually entering the African market. This includes imports of staples such as wheat ($9.3bn), rice ($5.3bn) and maize ($4.1bn). The rate is projected to rocket up to $110bn by 2025. The current system is geared towards cheap imports of commodities such as sugar, rice and palm oil which are all also produced in Africa, making it very difficult for domestic farmers and food processors to compete.

The conundrum is clear: Africa must find a way of scaling agricultural output. In response to this challenge, the African Union adopted the Comprehensive Africa Agriculture Development Programme (CAADP) in Maputo, Mozambique in 2003. One of the key policies called for member states to increase public agricultural investment to 10% of national budgets per year and for a 6% increase in agricultural productivity per year.

Obstacles to investment

Despite most member states signing up to the ambitious strategy, very few nations have met the minimum requirements of the programme. While the African Union attempts to accelerate CAADP, agribusinesses have to rely on the private sector to help meet its funding needs in some countries. However, investors tend to be reluctant to offer affordable finance to agribusinesses because they consider the sector to be too risky, according to Dagmawi Habte-Selassie, programme officer at the UN-backed financial institution the International Fund for Agricultural Development (IFAD).

“The challenges facing the agribusinesses in Africa is that there is a shortfall in access to finance because many financial institutions view the sector as too risky,” Habte-Selassie says. “Some of the main obstacles cited by these institutions include an absence of data such as information on land titling, weak infrastructure in some areas, insufficient regulations and a lack of collateral to access significant amounts of funds, to name a few. “Investors would rather throw their backing to something which will guarantee returns such as real estate or ICT-related investments, but if you show them the model that is viable then they will definitely be willing to step in and seize the opportunity.”

Only 3% of total bank lending in Africa is allocated to agribusiness, this despite the fact that it contributes 40% of sub-Saharan Africa’s GDP and employs 70% of the population. The available domestic funding is expensive, with agricultural lending interest rates reaching as high as 50% in some countries. De-risking agricultural investment is achievable through the right kind of collaborations between government, private sector and agribusiness stakeholders.

De-risking agribusiness

Private investments in the agriculture sector are mainly targeted towards high-value crops and export products such as flowers. There is also an increase in countries such as China purchasing land in some African countries to secure their long-term food and biofuel supply. There are also a number of private agribusiness investment funds targeting African agriculture. These funds use various instruments such as quasi-debt investments and public-private partnerships (PPPs). 

More investors are embracing the opportunities on offer in agribusiness, but the lack of consistent government policy and poor regulations in some countries continue to constrain investment, according to Hans Bogaard, director at the Dutch development bank FMO. “It helps if governments and policymakers don’t interfere in agriculture in a way that creates uncertainties and unpredictabilities in the market,” Bogaard says. “The governments need to really understand that they have to facilitate a strong agricultural sector, which means investing in the rural infrastructure and creating predictable regulations.”

Government intervention, however, is required to improve poor infrastructure in every stage of the supply chain. Improving rural roads or implementing cold storage facilities could boost the volume of quality products making their way into the market. More countries need to ramp up their implementation of CAADP and embrace pro-private sector policies such as offering tax incentives to new agri­businesses. While these measures will go some way to making agribusiness an attractive investment prospect, systemic issues, especially the fragmented nature of Africa’s agribusiness will continue to hamper the sector.

by Taku Dzimwasha (African Business Magazine)

Ethiopia PM opens industrial park in Oromia region

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Ethiopia’s latest industrial park is located in the Oromia region – the largest and most populous, and home region of Prime Minister Abiy Ahmed.

Abiy was back home to inaugurate the Adama Industrial Park. The parks are central to the country’s economic plans and were started years back. Also in attendance was President of the Oromia region, Lemma Megerssa and other regional officials.

 

The PM’s chief of staff wrote on Twitter that the park is “an important addition to a network of world-class, sustainable eco-industrial parks in Ethiopia ready for plug and play investment. Productive investments strengthen the base of our economy and generate sustainable jobs.”

According to the Ethiopian Investment Commission, EIC, these parks are set up for specific sectors such as textile and apparel, leather and leather products, pharmaceutical, agro-processing and more.

The Adama Park joins others like the flagship Hawassa Industrial Park and the Bole Lemi I Industrial Park. Its scope will be the textile, apparel, vehicle assembly and food processing cluster. It is expected to open up a million job vacancies.

Adama, also known as Nazreth, is a city in central Ethiopia and the previous capital of the Oromia. Adama forms a Special Zone of Oromia.

Other upcoming industrial parks include Dire Dawa, Mekelle, Kombolcha, Kilinto, Arerti, Bole Lemi II and Debre Berhan Industrial Parks.

Ethiopian government has often taken high-profile visitors to tour these parks. The International Monetary Fund chief, Christine Lagarde; Rwandan president Paul Kagame and President Isaias Afwerki of Eritrea have all visited these parks whiles in the country.

by Abdur Rahman Alfa Shaban