Looking back: Unpacking the trends that shaped Africa’s business environment

By Johan Burger

2018 has been an interesting year for Africa, with various events and trends becoming visible. 2016 saw the effects of the slowdown of China’s economic growth due to its rebalancing of its economy and the end of the commodity price super cycle. 2017 brought some relief. In Africa, 2018 demonstrated a number of continued trends, but also some new events.

The NTU-SBF Centre for African Studies, situated in Singapore, publishes a weekly newsletter. These were studied to pick up on the trends prominent in 2018. Some of these trends are more elaborate than others.

Trend 1: Foreign investment in Africa

Africa has been the recipient of foreign investment form a variety of foreign countries. In addition to the normal investors such as China, Japan, India, etc., we are also seeing new entrants or countries that are making a comeback. The countries identified below are also not meant to be the only investors, but have been noted in the general media.

China is still Africa’s largest trade partner. A prominent development in 2018 was China’s outreach to African governments to participate in the Belt and Road Initiative (BRI), as well as the hosting of the Forum on China-Africa Cooperation (FOCAC) in Beijing.

In January 2018, China’s state-owned Sinopec was punted to buy Chevron’s assets in South Africa and Botswana. Sinopec pledged investments over five years post acquisition to upgrade the Cape Town refinery into a world-class plant. It also pledged to develop the fuel marketing business by introducing small and black-owned business as fuel retailers. China has invested in various sectors, such as mining, wine, urban development and now the petrochemical industry.

China’s EximBank has approved US$1.3 billion in financing for a utility-scale hydroelectric plant in Guinea. The 450MW plant is expected to produce sufficient capacity to export to Guinea’s neighbouring countries.

It has not always been plain sailing for China. The new Sierra Leone government recently stopped the project to build a new airport. The Mamamah airport construction was going to cost $400 million, through a loan agreement between the former government and China. The Chinese were also contracted to build, manage and maintain the airport.

China has frequently been accused of lending too much money to African governments, in the process putting them in debt distress. Examples in Africa recently mentioned include Djibouti and Zambia. At the latest FOCAC meeting in China, President Xi Jinping stated African government leaders should refrain from spending money on “vanity projects”.

A Chinese banking conglomerate wants to buy African infrastructure debts from the government starting in 2019, repackage them into securities and then sell them to investors. This could put African countries in more debt. For Chinese financiers, developers and multilateral development financial institutions, this will offer further opportunities to make money from Africa. With an eventual total capital investment of between $4 and $8 trillion for the BRI, should such a securitisation exercise go wrong, it will have a far more devastating impact on the global economy than the 2008/09 financial crisis.

In Namibia, Rio Tinto is selling its 68.62% stake in the Rössing uranium mine to China National Uranium Corporation (CNUC) for $106.5 million. China will now have complete control of Namibia’s active uranium production, with China General Nuclear (GCN) owning the Husab mine next to Rössing.

Egypt’s el-Sisi visited Beijing in September 2018, where he signed deals worth $18 billion with Chinese companies, covering a railway, real estate, energy projects and an oil refinery. Chinese companies have close to $6 billion of investments in Egypt.

Russia has also decided to join the competition for influence and trade in Africa. Russia had agreed to supply Sudan with a small-capacity floating nuclear plant to produce electricity within eight years. Russia has also reached out to Ethiopia. They have agreed to reinforce diplomatic and economic relations to raise the level of their cooperation, and undertook to work on nuclear energy for peaceful purposes.

Russia is now involved in various countries; from Egypt, Algeria, Morocco and Sudan in the north, to Mozambique, Angola, Namibia and Zimbabwe in the south, to the Central African Republic in Central Africa, to Nigeria in West Africa and to Ethiopia, Rwanda, Tanzania and Uganda in East Africa. One specific focus area of Russian investment is the development of nuclear power plants in Africa.

South Africa has also grown its investment ties with Russia. The trade volume between Russia and South Africa increased by 26% to almost $800 million in the first nine months of 2018. South Africa accounted for 20% of Russia’s total trade with all countries in the region. Russia and South Africa have signed an agreement for the implementation of joint projects in the market of platinum group metals, as well as on the exploration, extraction and processing of mineral resources until 2025. Russia and South Africa are also working on joint projects in nuclear energy, subsoil use, oil and gas, and projects in agriculture.

In response to China’s initiatives, former USA Secretary of State Rex Tillerson visited countries in Africa in March 2018 to convince Africa to rather support the USA in competition with China. The countries included Ethiopia, Kenya, Djibouti, Chad and Nigeria. In November 2018, the USA awarded $60 billion to the International Development Finance Corporation (IDFC), which will spearhead the financing of infrastructure projects and open avenues for US companies to increase investments in Africa. East Africa will probably be the primary beneficiary in Africa of the fund, which was created to increase the USA’s influence in Africa and rival the growing influence of China in Africa.

Turkey has also been continuing the expansion of its footprint in Africa. Amongst others, Sudan has been the recipient of Turkish investment pledges, and expertise in education and health. Turkey also pledged to enhance cooperation in the fields of energy, agriculture, electricity, livestock, transport, aviation, health and education. Turkey would also open a bank in Sudan to facilitate trade between the two countries.

In East Africa, Tanzania businessmen and traders have been urged to utilise the partnership opportunities offered by their counterparts from Turkey. Areas which appeared to be of more interest to potential Turkish investors, include agriculture, construction, industries, energy, and the hospitality industry.

The GCC states have also started to target Africa in a more focused manner. This includes economic ties in Côte d’Ivoire’s agriculture, mining, tourism, and real estate sectors. Qatar’s Minister of Foreign Affairs also visited Sudan to boost the strategic relations between the two countries in the various domains.

Singapore has also increased its footprint in Africa in 2018. Singtel announced it would invest $250 million in Airtel Africa (Airtel) to tap into Africa’s growing use of mobile money and mobile wallets. Airtel has secured $1.25 billion from international investors, which includes Temasek Holdings (Singapore) and Softbank Group International (Japan). Singtel holds a 39.5% effective stake in the parent company.

Nordic businesses such as Ericson and H&M are also tapping into opportunities in Ethiopia despite challenges in the business environment. The industrial parks, access to bank loans, financial incentives and access to new sectors like telecom, energy and logistics are the drivers of attraction.

 

Trend 2: Economic development in Africa

In the $2 trillion-plus sub-Saharan Africa economy, growth was projected to increase from 2.7% in 2017 to 3.1% in 2018. The regional business climate is improving, with 40 African countries implementing a total of 107 reforms in the past year, up 24 on the previous year. Sub-Saharan Africa is home to five of 2018’s top 10 improvers  – Côte d’Ivoire, Djibouti, Kenya, Rwanda and Togo. Strengthening governance, fighting corruption and tackling obstacles such as inadequate electricity and financial services will support further business growth. Overall, growth prospects for sub-Saharan Africa are favourable, although greater economic diversification would strengthen resilience to commodity price shocks. The IMF has predicted that in 2019, 18 out of 45 sub-Saharan African countries will grow at 6% or higher compared to 10 in 2016 – well above the global trend.

In East Africa, industry players feel the opening of the local market to imports would have a devastating impact on efforts to expand the industry, and could destroy the livelihoods of 1.5 million small scale farmers who depend on dairy farming, amongst others. East African textile companies are under threat from second-hand clothing imports from especially the USA. Subsidies in EU countries create an even more unequal playing field. Southern Africa and West Africa also frequently suffer from cheap imports that threaten the local industries.

East African countries, led by Ethiopia, Kenya, Tanzania and Rwanda, have been enjoying growth rates of more than 5%. The region’s positive economic growth, low labour costs, political stability, an improved regulatory environment and a big market of over 120 million people all make a contribution. Growth is expected to reach 5.9% in 2018 and 6.1% in 2019. According to the AfDB, the industrial sector contributed 39% of the region’s average real GDP growth in 2017. Nissan, Volkswagen, Peugeot and CNH have all announced plans for their own assembly lines.

In East Africa, Kenya appears to be losing its lead position in FDI to Ethiopia, due to new investors turning their focus on the latter following wide-ranging socio-economic reforms. Ethiopia could surpass Kenya in the value and number of capital projects in less than 2 years. An EY report on FDI readiness ranks Kenya third in Africa after South Africa and Morocco in attracting investors with 67 FDI projects. In the agriculture sector, Kenya’s horticulture sub-sector is growing in leaps and bounds. The value of horticulture production rose 41% in 2017 compared with 2016 on account of good prices.

Rwanda has been quite busy in the economic domain. Non-traditional exports have been an important driver of growth, forming the basis for export-led development in the country. To promote the development of value-added products, Rwanda is promoting the export of semi-processed or finished products and more sophisticated niche products instead of exporting raw materials and commodity products.

Rwanda raised tariffs on the importing of second-hand clothing from the USA. The ban violated the country’s obligations under AGOA. The USA subsequently removed textile products from the list of products Rwanda could export to the USA under AGOA.

Rwanda is now looking at having a larger portion of flower exports, to bolster its prospects as a flower exporter, spur foreign earnings and create new jobs. The attractive investment climate and government’s clear policy of supporting the development of the flower industry, were the other pull factors. Overall, Rwanda is looking at increasing its flower production to 44,000 tonnes per year or $140 million worth of export receipts by 2020.

Rwanda recently focused strongly on the Chinese market for tourism. Chinese tourists can now directly book tour packages to Rwanda, following the launch of the ‘Visit Rwanda’ online pavilion on Fliggy, Alibaba’s travel platform that is accessed by over 500 million users in China.

Rwanda has recently reached out to companies to invest in its timber production and other related industries to boost forestry and timber business locally. For Zambia, which is diversifying from copper, timber has the potential to become a major export commodity that could generate a lot of foreign exchange, create jobs and help reduce poverty. The sector can contribute over US$10 billion to GDP if well managed.

Ghana has also embarked upon the journey of adding value to its raw materials, thereby stimulating its manufacturing base, tapping into the benefits of import substitution and export revenues. Ghana is now a member of a growing group of African countries that have legislated the beneficiation of raw materials before exports.

In the cocoa industry, President Nana Akufo-Addo and President Alassane Ouattara have signed the “Abidjan Declaration” to defend the interest of the two countries in the global cocoa industry. The agreement will address the common challenges cocoa producers from Ghana and Côte d’Ivoire face.

Ghana, a relative newcomer to the oil industry, plans to award as many as nine offshore blocks off its west coast in 2018 and 2019 in a mix of competitive tenders and direct negotiations.

Companies in the Ghanaian coffee industry have asked the government to invest in coffee to boost the economy. According to the experts, coffee can rake in more revenue to shore up the $2 billion that cocoa generates annually, and also create more than 500,000 jobs for the youth.

A Nigerian study has revealed that its maritime sector is losing about $4.13 billion annually due to its inability to exploit the ‘blue ocean economy’. Through various incentives, indigenous ship owners can now acquire new ships for local use and gradually build up their fleet at low cost. There are also initiatives between Nigerian entities to ensure that ship-owners can participate in shipping Nigeria’s crude.

In addition to stimulating the fishing industry, Angola plans to privatise 74 state companies over the next few years, predominantly those in the industrial sector. President Lourenço undertook to reduce state interference in the economy, which remains centrally controlled.

Saudi Arabia will invest at least $10 billion in South Africa, mostly in the energy sector, including building oil refineries, petrochemicals and renewable energy. The UAE has also announced plans to invest $10 billion in key sectors of South Africa’s economy, such as tourism and mining. The Saudi move is part of President Ramaphosa’s drive to attract $100 billion in investment in the next five years to boost the ailing economy. President Ramaphosa also recently said China would invest $14.7 billion in South Africa.

Zimbabwe has plans to privatise and merge its ailing parastatals. SOEs have performed poorly in recent years; most are struggling to service their debt, and they have faced allegations of entrenched corruption and poor levels of corporate governance. Zimbabwe also signed a $1 billion deal with Sinosteel Corp in 2018 to build a 400MW coal bed methane-fired power plant and set up two new ferrochrome smelters.

 

Trend 3: Manufacturing in Africa

Manufacturing and industrialisation are the current buzzwords for transforming Africa’s economies. To reduce any dependence on the extraction and sale of raw commodities, it makes sense to diversify Africa’s economies.

B2B spending in manufacturing in Africa is projected to reach $666.3 billion by 2030, $201.28 billion more than that it did in 2015. Africa is also considered to be the world’s next great manufacturing centre, potentially capturing part of the 100 million labour-intensive manufacturing jobs that will leave China by 2030. This trend creates a huge opportunity for Africa countries (like Ethiopia, etc.), all of whom have recently adopted policies enabling manufacturing and industrial development.

VW developed an assembly plant in Kigali, Rwanda. In addition, the digital mobility concept, “Moving Rwanda,” will connect the production of VW cars, the share usage concept and training. VW will build their own cars with their own rates. These cars will go into the mobility service and be used in the mobility space. Once they have been used here, they will be eventually sold off as used vehicles. Currently, new car sales in Rwanda is about 1,000 cars per year, with a population of approximately 12 million. Rwanda therefore needs time to grow this market.

Rwanda’s textile industry has started to turn towards the EU and the rest of Africa for alternative markets to make up for the loss of exports to the USA. An example of such a strategy is where Ethiopia is now producing textile products for companies such as PVH (USA) and H&M (Sweden).

Rwanda has also turned towards the manufacturing of sophisticated technological products. The Mara smartphone project is projected to take the smartphone business in Africa by storm.

Ethiopia’s manufacturing sector has also been boosted by the government’s policies and other incentives. With help from PVH Corp – owner of Calvin Klein, Van Heusen, Izod, Arrow, Speedo, Tommy Hilfiger and other brands – Ethiopia is putting its name and Africa on the clothing map. USAID, the AfDB, JICA and other international players have thrown their support behind the Hawassa project.

To protect is infant manufacturing sector from being over-run by China’s cheaper and more efficient producers, Kenya recently refused to sign an FTA that China has been negotiating with the EAC states since 2016. Kenya prefers a preferential trade agreement with China, such as the USA’s AGOA. Kenya signed a double taxation agreement (DTA) with China in October 2018 to incentivise Chinese firms setting up base in Kenya.

President Kenyatta announced his Big Four development agenda at the start of his second term as president to address the challenge in manufacturing, amongst others. Manufacturing in Kenya presents a challenge to the government. Output volume of the sector declined by 1.1%, primarily due to lower production of food products, beverages and tobacco, leather and related products, etc. From 2013, the manufacturing sector’s contribution to GDP dropped annually from 11.05% (2013), to 10.76% (2014), 10.54% (2015), 10.22% (2016) and 9.77% (2017). Developing industrial parks, SEZs and EPZs are part of the approach to grow the sector.

Uganda’s industrial outlook is improving. During the period from July to September 2018, President Museveni commissioned four factories, i.e. Simba Cement factory in Tororo, the Ntinda/Kampala-based Saachi Electronics, Bushenyi tea factory, and the Kyamuhunga Tea factory.

West Africa has also started to prioritise the manufacturing sector as a development zone. In Ghana, the pharmaceuticals industry is expected to reach $1 billion in value by end of 2018. Nigeria is also looking at significant growth in the pharma sector. Challenges include limited expertise, limited capital and the high cost of borrowing.

 

Trend 4: Infrastructure in Africa

Africa has vast infrastructure needs. According to the AfDB, Africa’s infrastructure requirements are estimated to be between $130 billion and $170 billion, far higher than the previous estimation of $93 billion a year. Nigeria’s infrastructure cumulative financing needs are estimated to reach $3 trillion by 2044 or about $100 billion annually. The AfDB stated the new estimates left a financing gap of $108 billion. Given this, and urgent needs in various sectors, Africa must attract private capital to accelerate the building of critical infrastructure needed to unleash its potential.

 

Trend 5: Renewable energy

A trend of earlier years in which we saw the further growth and development of the renewable energy sector, has continued in 2018.

A significant number of renewable energy deals were announced during December 2018. Examples include: 1) Kipeto Energy (Kenya, wind farm, 100 MW); 2) Nachtigal Hydro Power Company (Cameroon, hydropower); 3) d.light (off-grid solar); 4) ZOLA Electric (Tanzania, off-grid solar); and 5) Karoshoek Solar One Project (South Africa, 100 MW).

Services that allow customers to pay for solar equipment and service in small instalments, have picked up momentum in the last couple of years, particularly in East Africa. Two firms that supply solar power products with pay-as-you-go products, are San Francisco-based Off-Grid Electric, and UK-based Azuri Technologies.

Another technology that has been developed in the solar energy sector, is SolarNow, providing solar energy, appliances and financing solutions in East Africa. This will make solar more accessible through affordable finance.

West Africa has also embraced solar energy. Ghana’s President Nana Akufo-Addo has pledged to increase the contribution of solar energy to Ghana’s energy mix. Currently, solar energy only contributes 1% to the energy mix, as opposed to 59% from fossil fuels, and 40% from hydro. He wants to accelerate the development of mini-grid solutions in off-grid and island communities for lighting, irrigation and other economic activities.

The development potential of Nigerian mini-grids is valued at up to US$20 billion. The development of off-grid systems, including mini-grids and solar home systems, could save individuals and businesses US$6 billion per year. In addition, by scaling up the mini-grid market to 10,000 sites, the sector can electrify an estimated 14% of the population and generate annual returns of US$3 billion by 2023. As the market expands, costs could fall by 60% by 2020. The government, supported by the World Bank, has launched a 5-year, US$350 million Nigeria Electrification Project to help finance electrification solutions for rural populations.

Recently, Ethiopia signed a MoU with the Gulf Electricity Interconnection Authority and the International Energy Linking Organisation to start a feasibility study of electricity linkage between Ethiopia and the GCC countries. The project aims to enhance energy security and raise the level of reliability and safety of the Gulf electrical systems.

Ethiopia’s huge water capacity can be used in generating electricity, which will be exported from Ethiopia to the GCC countries. Ethiopia has approximately 4.3GW of installed power generation capacity, of which 3,810MW is in the form of hydro installations, 324MW wind, 7MW geothermal and 143MW of diesel.

In Kenya, the Kenya National Electrification Strategy recognised the key role played by mini-grids and stand-alone solar systems to complement the grid densification and extension. Kenya has a target of 35,000 connections through 121 mini-grids and 1.96 million connections as stand-alone solar home systems. From January-June 2018, 519,154 off-grid solar products were sold in Kenya, accounting for 34% of all sales in sub-Saharan Africa. Market penetration of off-grid solar in Kenya has increased ten-fold and is currently estimated at between 25–30%.

 

Trend 6: Mining

Tanzania wants to take more of the profits from its vast mineral resources by overhauling the fiscal and regulatory regime of its mining sector. It adopted new regulations, which now make it compulsory for foreign-owned mining groups to offer shares to the government and local companies. A contractor, sub-contractor, mining company or other allied entity must maintain a bank account with an indigenous Tanzanian bank and transact business through banks in the country. The insurable mining risks in the country must be insured through an indigenous brokerage firm or an indigenous re-insurance broker. The new rules also require indigenous Tanzanian companies to have at least 5% shareholding in a mining company, in addition to a 16% government free carried interest. There are fines of at least US$5 million for mining companies that fail to implement the new requirements. The regulations also require the government to prioritise indigenous Tanzanian companies in granting mining licences.

Patrice Motsepe, the executive chairperson of mining company African Rainbow Minerals, in 2018 stated that South Africa was reinforcing its position as a competitive mining destination through a positive Mining Charter outcome and widespread consensus on the manner in which the crucial issue of land expropriation is tackled. Motsepe was confident that current Mining Charter discussions under way would ensure South Africa’s position as a competitive global mining destination for investment.

Mozambique planned to sign an agreement with Rosneft and ExxonMobil on gas field exploration in the north of Mozambique by the end of 2018. The plan is to also launch the project on field development in Mozambique with the participation of Rosneft and ExxonMobil. Rosneft and ExxonMobil received three license areas. According to preliminary agreements, the initial drilling period will be four years.

Chinese entities are collaborating to develop oil and gas projects in Ethiopia. The conglomerate, named POLY-GCL, began extracting from the Ogaden Basin in May 2018. Construction of a 550km pipeline pumping gas to the Port of Djibouti is underway, and substantial exportation is set to begin in 2021. Black Rhino Group has already invested US$300 million in the pipeline running from Ethiopia to Djibouti.

Turkey and Sudan have signed a US$100 million oil exploration deal and an agreement allocating 780,500 hectares of Sudanese agricultural land for investment by Turkish companies. The Turkish Petroleum Corporation (TPAO) and Sudan’s Ministry of Petroleum and Gas also signed an oil field development agreement, which would initially lead to an investment of up to US$100 million. As for participation in the oil industry, Sudan has also invited companies from both China and Russia to become involved.

 

Trend 7: Agriculture

Feeding the people of Africa is another High 5 Priority of the AfDB. Africa is a net importer of US$41 billion of food annually, which is set to grow to US$110 billion annually by 2025 if nothing changes. Africa has the potential to feed the world, and it seems that they cannot feed themselves. Yet agriculture is very important in poverty eradication in Africa.

According to PwC, Africa’s agribusiness sector is confident about its growth prospects in the short to medium term despite widespread economic and political uncertainty. CEOs are looking for diversification within their current commodity value chain before moving into new commodities. CEOs of agribusinesses are positive towards expanding into the rest of Africa, with 40% indicating that they would pursue such opportunities. Angola, Botswana, Ethiopia, Malawi and Namibia were cited as the top five destinations for expansion.

As it is, Africa’s agricultural sector is dominated by 250 million small family farmers, who cultivate small areas with poor farming techniques. However, they produce 80% of the food consumed in Africa, with limited access to inputs, financial services or technology and mainly practicing subsistence farming because of their difficulties in accessing the market. Major challenges include the lack of access to information, best agricultural practices, inputs, mechanisation, market opportunities and financial services.

Governments are encouraging indigenous businesspeople to shift from importing goods to investing in agricultural production, both for local consumption and exports, to reduce pressure on their economies. Some, such as Uganda, are developing the capacity to help local investors get involved in large scale agricultural production.

One initiative to support the smallholder farmers, is the Alliance for a Green Revolution in Africa (Agra), which aims to support 3.5 million small scale farmers to sustainably transform their mode of farming to be commercially viable and profitable.

Various new models are tapping into crowdsourcing and social media, to link up investors, farmers and the markets. These include FarmCrowdy in Nigeria and FarmDrive in Kenya. FarmCrowdy connects investors with farmers and ensures there is a market. All three of the stakeholders, i.e. investor, farmer and FarmCrowdy, share in the returns. FarmDrive gathers information of the smallholder farmers in a format that is acceptable to the banks in Kenya, utilising a switchboard model by connecting suppliers with clients.

Another technology-driven application, is Wefarm, a farmer-to-farmer digital network currently in Kenya and Uganda. Wefarm enables small-scale farmers to connect with one another to solve problems, share ideas, and spread innovation. Through Wefarm, farmers can ask questions on anything related to agriculture.

In addition to the platforms mentioned above, other platforms include eFarmers Nigeria, Hallo Tractor, Alosfarm, Probity Farms, Zowasel and Grow Crops Online. However, Africa’s agriculture technology industry remains underdeveloped with huge potential. By focusing on players upstream and downstream, a lot of value can be unlocked by tapping into the utilities of modern technology.

A few crops are becoming more prominent. While there are the usual examples such as cocoa, cashew nuts, rubber, palm oil, wheat and maize, others are gaining in visibility. Cassava has become a much-talked about product in Africa. Nigeria is the largest producer of cassava in the world, with Ghana, the DRC and Angola making up the other African countries in the top 10 producers in the world. Tanzania and Mozambique have also embarked upon cassava production in a major way.

Floriculture is another such a crop. We have seen Kenya, Ethiopia and Rwanda grow and develop this subsector. While the Netherlands is the normal target market, the USA and China have also been identified as markets with great potential. The sector still faces many challenges that have affected its growth, including logistics, access to chemicals and fertilisers. The expansion of Kenya’s flower markets to China is a delightful development.

Rwanda achieved the highest score on Agricultural Transformation in Africa and emerged as the 2017 Best Performing Country in implementing the 7 commitments of the June 2014 Malabo Declaration. Rwanda is followed by Ethiopia.

Some of the youth in Rwanda have come up with new mental models as far as youth participation is concerned. These include the need for more role models, a make-over to shed its old-fashioned image of hard labour with a hoe, and targeting the whole agriculture value chain. Stepping up the use of mechanised equipment and new technology is another key way to attract young people – and will also improve productivity.

Most recently, it seems that external entities are increasing their exposure to African agriculture. The EU has asked for proposals to be funded through a €10 million fund to unlock the potential of Rwanda’s horticultural and coffee value chains to ensure the supply of safe products to local, regional and international markets.

In South Sudan, the Turkish Cooperation and Coordination Agency (TIKA) donated 30 tonnes of seeds and agricultural equipment to farmers in South Sudan. Despite its rich soil, South Sudan has fallen short of fulfilling its agricultural potential.

Tanzania also presents various business opportunities in the agriculture sector. Coffee, maize, sugarcane and rice farming will be highly lucrative in the next few years. Reports state that the future demand for the four crops will be relatively high in both the domestic and export markets. A development that created cause for concern, is that Tanzania’s cashew nut traders are now staring at huge losses after the government confiscated the produce of those who failed to prove that they are farmers. The government launched the verification exercise to rid the sector of middlemen who have dominated the cashew nut trade for years.

In Uganda, the Agriculture Cluster Development Project intends to boost the commercial production of 5 prioritised crops in 42 districts of Uganda. The crops are maize, beans, cassava, rice, and coffee. The objective is to raise on-farm productivity, production, and marketable volumes of selected agricultural commodities in specified geographical clusters.

In West Africa, we saw the development of the System for Rice Intensification (SRI), which has significant potential to close the rice production gap in West Africa and create rice self-sufficiency. By adopting the SRI method, farmers’ yields increased overall by 56% for irrigated rice and 86% for lowland rain-fed rice.

In Ghana, agriculture is seen as vital to the development of the economy. The diversification of agriculture is part of the vision to develop Ghanaian agriculture and the Ghanaian economy. Ghana loses about US$12 billion annually to Burkina Faso through importing fresh tomatoes. Fortunately, for Ghanaian producers, the application for establishing a tomato processing factory under the government’s “One District, One Factory” policy has been approved.

In Nigeria, agriculture showed limited glimpses of recovery, but almost entirely through efforts of peasants and antiquated processes. The agricultural sector grew by 3.00% (y-o-y) in real terms in the first quarter of 2018, a decrease by 0.38% points from the corresponding period of 2017 and also a decrease by 1.23% points from the preceding quarter. Agriculture is a critical success factor for Nigeria.

A serious development that has received global attention, is that of land expropriation without compensation in South Africa. Its Joint Constitutional Review Committee on 15 November adopted a resolution that Section 25 of the Constitution be amended to allow expropriation of land without compensation. AgriSA, a body representing farmers in South Africa, met with senior ANC officials on 21 August 2018, and the following was promised by the ANC: No land grabs will be allowed; The protection of productive agricultural land will remain a priority; Optimising the use of fallow land in deep rural areas; Property rights will remain a key priority in agrarian development; Government is finalising an audit of state land for transfer to black farmers; and Initiating production on 4,000 farms currently in government possession to unlock commercial value and create farming opportunities.

 

Trend 8: Regional integration

Regional integration has become a high profile intervention and is seen as the route to economic integration and increasing intra-African trade.

The greatest opportunity for securing its own share of global economic growth and sustaining its economic growth, is Africa’s ability to trade and do business with itself. This requires further regional integration and trade liberalisation. Africa’s fragmented markets have long constrained growth and acted as barriers to trade. World Bank statistics put intra-African trade at just 11% of Africa’s total trade between 2007 and 2011. The implementation of the African Continental Free Trade Area (AfCFTA) will nearly double intra-African trade by early next decade. This will require huge investments in cross-border infrastructure.

The AfCFTA will help Africans meet their needs by trading with each other. Nigeria did not sign the AfCFTA “to allow more time for input from Nigerian stakeholders”, and still has not done so. South Africa initially only signed the Kigali Declaration on the establishment of the African Continental Free Trade Agreement, and signed the agreement itself much later.

The CFTA has the potential to increase intra-African trade by as much as 50%. The CFTA must be ratified by 22 members to come into effect. Currently only 18 countries have ratified the AfCFTA. There is no denying that the CFTA has tremendous potential for African countries. Putting it to bed, however, is going to be a difficult endeavour.

The AfCFTA will make Africa more integrated, united and prosperous. It will unite 1.2 billion people and create a combined GDP of over US$3.4 trillion — under a single continental market for goods and services, including free movement of business people and investments, and expansion of intra-African trade (from 15% to 25% in a decade).

The AU launched its Single African Air Transport Market (SAATM) at the AU summit in Addis Ababa in 2018. This has the potential to ease the integration of African economies, trade and tourism. So far, 23 member states, including Ethiopia, Egypt, Kenya, Nigeria and South Africa, have adopted the SAATM, which came into full operation with immediate effect following its launch. Full liberalisation of the air sector in 12 of Africa’s biggest economies would add US$1.3 billion to their output.

Regional integration is being hampered by trade spats between REC members. Kenya and Tanzania (as members of the EAC) have been at loggerheads for quite a time, with the parties unable to subordinate national interest to regional interest. Trade between the 2 of them constitutes over 45% of the entire trade within the EAC. Their combined GDP accounts for 76% of East Africa’s economy.

Africa’s private sector has also been identified as players that could enhance African integration. The Dangote Group, Globacom, Nigerian Breweries and Jumia have been identified as players that could play a part in this. BCG identified 150 companies (75 Africa-based and 75 MNCs) that are driving towards a more integrated Africa. The African pioneers come from 18 countries, with 32 based in South Africa, 10 in Morocco; Kenya and Nigeria are each home to 6, 4 are from Egypt, and 2 from Côte d’Ivoire, Mauritius, Tanzania, and Tunisia.

To close this financing gap, the AfDB is working with leading global development finance institutions to set up a mutualised co-guarantee platform to de-risk investments and facilitate projects that have the capacity of transforming Africa under the Africa Investment Forum.

In Rwanda, a group of local and international players in the housing sector announced a $200 million project on the construction of affordable housing units to address the shortage of accommodation in Kigali. This would benefit nearly 50,000 people in terms of employment and business opportunities. The deal will also offer alternative financing to homeowners who often rely on expensive commercial bank loans to construct houses.

Rwanda has also addressed its energy infrastructure. Government has adopted digital technologies in the power distribution system as it increasingly looks for ways of how to efficiently respond to Rwanda’s power demands.

Technology is increasingly playing an important role in many African countries in various industries. With Rwanda doing its best to ramp up its manufacturing sector, the availability of abundant low-cost electricity is essential.

The Kenyan government undertook to construct 100,000 affordable housing units in line with the Big 4 agenda. They want to implement interventions that will ensure that developers can produce housing units at scale, homebuyers can access affordable financing facilities, and that the enabling environment facilitates innovation, embraces technology, and commercial arrangements that can bring down the cost of construction.

In the next five years, Kenya is expected to open 13 new hotels, adding 2,400 rooms and increasing hotel capacity by 13%. Kenya’s hospitality sector was expected to grow by more than 8% in 2018. 31 hotels are being erected in Ethiopia, which will add 5,747 rooms. This puts Kenya at second place with new hotels numbering 20, adding 3,444 rooms, Tanzania at third with 15 hotels and 1,494 rooms, Uganda at fourth with 9 hotels (1,238 rooms) and Rwanda with seven new hotels and 655 rooms.

In Southern Africa, the port of Walvis Bay is getting a new container terminal and an oil jetty, both being built by a Chinese company, i.e. the China Harbour Engineering Company (CHEC). The project lies at the heart of Namibia’s ambition to become a logistics hub in the southern African region. The port’s throughput capacity of container terminals will be more than doubled to 750,000 TEUs per year. It will also add the first government-controlled oil storage facility in Namibia and a cruise jetty to boost tourism to the country. Upgrading the key port is significant to the entire SADC region, as it will boost imports and exports of mineral-rich landlocked nations like Zimbabwe and Botswana that are using the port as access, and in the meantime increase Namibia’s appeal to global investors. The port construction will spur upgrading of nearby roads and railways as well, fuelling Namibia’s infrastructure boom that hopefully will create employment.

The above are by no means an exhaustive list of the infrastructure development projects that were implemented during 2018.

 

Trend 9: Financial Services

The financial services industry in Africa has seen a lot of development throughout the past few years, as was the case in 2018.

The mobile phone as a platform business model is gaining traction and scale on an unprecedented scale. It has vastly increased the percentage of people now formally included in the financial systems of many African countries. It is leapfrogging the traditional development of branch networks in rural areas.

Mobile telephony has driven the US$300 million monthly transactions in Africa from 7.2 million new people (up 250% from 2012) using digital financial services and 45,000 new banking agents due to a financial inclusion project. Financial inclusion in sub-Saharan Africa has increased from 23% in 2011 to 43% in 2017. Mobile money solutions and agent banking now offer affordable, instant, and reliable transactions, savings, credit, and even insurance opportunities in rural villages and urban neighbourhoods where no bank had ever established a branch. In the DRC, mobile money services have risen to 16% by 2017. This has pushed the overall financial inclusion rate from 3.7% to 26% from 2011 to 2017. While East Africa has long been the star performer in terms of the evolution of digital financial services, West Africa is the new growth market.

In Rwanda we have seen the roll out of new tech-based banking facilities by BPR. This has increased the level of financial inclusivity significantly. BPR will introduce agency banking and roll out a mobile micro-lending facility, and various debit and credit cards. The bank has also launched an improved internet banking platform. BPR has already formed a partnership with telecom firms Tigo Rwanda and MTN to launch services, allowing its customers to deposit or withdraw money from their accounts to their Tigo and MTN e-wallets and vice versa. Customers can also pay for different government services electronically.

In Uganda, Centenary Bank has added itself to the growing number of financial service providers targeting mobile phone users. The bank recently launched Cente Mobile Loan, a mobile phone enabled service through which customers will be able to access loans from as low as Shs5,000 up to Shs2 million.

Funds for start-ups are also a challenge in Africa. A new angel investing network was set to launch in Tanzania in May 2018, to support the emergence and growth of a local angel investor community in the country. The Tanzania Angel Investors Network (TAIN) will be the first community for angel investors in Tanzania.

In Ghana, mobile money has been its backbone in financial inclusion and has spurred increases in account ownership to other financial services. While the current African leaders of mobile money account ownership are Kenya at 73%, Uganda at 51%, and Zimbabwe at 49%, mobile money activity in Ghana has led to an increase in financial inclusion. Ghana is now one of the fastest growing mobile money markets in sub-Saharan Africa. The number of transactions stand at 82 million average per month and 7.2 average on a monthly basis per user.

Another country that has become prominent in this sector, is Somalia. The World Bank suggests that Somalia can emerge as the biggest mobile money market in Africa, with the number of mobile money transactions in Somalia surpassing that of Kenya. Kenya recorded 137.4 million mobile money transactions worth US$3.17 million in June 2018. Somalia recorded 155 million transactions worth US$2.7 million in the months of 2017.

MTN announced it would launch mobile money services in its two biggest markets, South Africa and Nigeria, in the first half of 2019 as part of its efforts to be “the biggest provider of mobile financial services in Africa.” In Nigeria, the Central Bank has agreed to allow mobile operators to act as payment-service banks. MTN, which has 55 million subscribers in Nigeria, will apply for a licence to launch mobile money services in Nigeria in the second quarter of 2019. It has about 27 million mobile money customers and is targeting 60 million customers in the next few years.

Banks in Nigeria should be watching this development with trepidation. They were asleep in Kenya when Safaricom opened M-Pesa way back, and have only wakened recently. This is a greater imperative when Africa’s central banks actively support mobile telephony companies’ attempts at providing mobile money services.

The formal banking industry in African countries have also experienced a number of developments. Amongst others, Kenya is looking for strong banks that would be capable of withstanding shocks to finance large infrastructure projects, which has left the future of about 20 small banks hanging in the balance. In 2018, the Kenyan Central Bank quietly engaged with these small banks in merger and acquisition talks to help them voluntarily close shop. Kenya has 42 banks; the 20 small banks control only 8.7% of the banking business, while eight big banks control 65% and 11 medium-sized banks 25% of the market share. The struggling state-owned banks (National Bank, Development Bank of Kenya and Consolidated Bank) are also looking for strategic investors.

Remittances have started to play a prominent role in supporting economic growth in African countries. Nigeria was the biggest receiver of remittances, receiving 29% (US$22 billion) of total remittances flowing to Africa in 2017. Egypt was the second biggest receiver of remittances with US$20 billion. Remittance flows also continue to play an important role in Ghana, amounting to US$2.5 billion in 2014 (18.6% of exports); in 2017 they declined to US$2.2 billion (15.8% of exports). As remittances play an important role in African economies, policies should focus on reducing the cost of remitting funds. After FDI, recorded remittances are Africa’s largest source of foreign inflows.

 

Trend 10: E-commerce

The growth and continuation of e-commerce in Africa has received various boosts during 2018. Africa’s leading online shopping platform, Jumia, reported in 2018 it wanted to make Egypt its biggest market in Africa, and it’s tapping into Egypt’s vast network of unlicensed vendors. Jumia wants a 10-fold growth in revenue from Egypt and a six-fold growth in the number of products offered on its platform by 2021. To achieve that, Jumia is urging the government to regulate informal retailers by offering them tax incentives and cheap loans that would allow them to market their goods online.

While Jumia is the largest e-commerce platform in Africa, Kenya’s Kilimall has been growing as well. In 2018, Kilimall stated it planned to spread across Africa by the end of 2022 to serve the growing demand for online shopping. Kilimall’s plan is to revolutionize the retail sector by allowing anyone to sell their goods and services online.

We are therefore seeing the growth of an e-commerce sector in Africa, with an increasing number of people turning towards this platform to buy. It also shows upon an increase in the number of people trusting the process of e-commerce. The number of e-commerce platforms is also growing. In South Africa, Spree merged with Superbalist in 2018, both online fashion retailers and both owned by Naspers. In Kenya, a new e-commerce platform, Masoko (Safaricom), will be targeting formal retail and informal online trading, providing a platform for SMEs interested in moving into the e-commerce sector.

We also find e-commerce transactions in the agriculture sector. Zambian startup eMsika is helping farmers find, buy and receive agricultural inputs in a fast, trustworthy and convenient way, as well as access markets for their produce. eMsika lists over 300 different products in 10 different categories of agricultural input, including poultry, crop protection chemicals and seeds. They also serve areas in Zimbabwe, the DRC, Namibia and Mozambique, with plans to eventually spread across Africa.

 

Trend 11: Political issues

Africa has seen a number of developments on the political front in various countries. Below are a few examples, which are by no means an exhaustive list.

Angolan President Joao Lourenco is cleaning up the Dos Santos family links in government positions in a bid to eradicate corruption. He dismissed his predecessor’s son as head of Angola’s US$5 billion sovereign wealth fund. He also removed the former president’s daughter, Isabel, as chairwoman of the state-owned oil company Sonangol, and fired the central bank governor and the head of diamond company Endiama. He’s also terminated management contracts for state TV channels with two of Dos Santos’ younger children. All public building projects will have to go through tender processes instead of being directly granted.

When President Jacob Zuma, South Africa’s president resigned on 14 February 2018, it ended nine years of his scandal-marred administration. Cyril Ramaphosa was sworn in as president on 15 February 2018. Ramaphosa is widely expected to adopt business-friendly policies. Ramaphosa subsequently reshuffled his cabinet and got rid of various controversial figures. He also initiated commissions of inquiry to investigate issues such as state capture, the problems with SARS, etc. Ramaphosa will, however, need to balance his clean-up act and the needs of his party with great caution. At this stage he does not enjoy overwhelming support in the ANC.

The East African Community (EAC) has frequently been described as the most efficient of the major regional economic communities in Africa. The trade disputes between Tanzania and Kenya the past few years have undermined the efficiency of the EAC. We saw various actions that clearly showed the two countries were struggling to subordinate national interest to regional interest. In the process, we also saw Uganda becoming involved, frequently supporting Tanzania’s position in the “trade wars” between Kenya and Tanzania.

At the FOCAC 2018 Summit Meeting in Beijing, Chinese President Xi Jinping offered US$60 billion in financing for Africa, while warning against funds going towards “vanity projects”. He promised tangible development that would be green and sustainable. China has denied engaging in “debt trap” diplomacy, and his offer of more money comes after a pledge of another US$60 billion at the summit in South Africa in 2015. The new US$60 billion will include US$15 billion of aid, interest-free loans and concessional loans, a credit line of US$20 billion, a US$10 billion special fund for China-Africa development, and a US$5 billion special fund for imports from Africa. Chinese companies will be encouraged to invest no less than US$10 billion in Africa in the next three years.

These funds would grow the manufacturing and other sectors, with the concomitant benefits. Some of the funds will be used to finance imports from Africa. China will also be writing off government debt of very poor indebted African countries. One must also see the FOCAC 2018 spending within the context of the BRI, where all of Africa have been invited to participate.

 

Trend 12: Horn of Africa

The Horn of Africa has increasingly become the scene of activity, driven not only by players in the region, but also from abroad.

The UAE has reached out meaningfully to Sudan, providing continued support. As Sudan struggles to tackle an acute foreign exchange crisis, the UAE has offered US$1.4 billion to Sudan’s Central Bank. This aid comes just days after the Central Bank had agreed to a US$2 billion loan from Turkish conglomerate Ozturk to help Sudan purchase petroleum products and wheat.

In 2018, and before, we have seen Russia, Britain, Turkey, Saudi Arabia, Qatar and the UAE becoming active in Sudan. China is Sudan’s biggest trade partner, importing oil from Sudan while exporting low cost items and armaments to Sudan. The USA’s sanctions against Sudan means a zero US-footprint in the country, while it gave China the gap to increase its presence substantially.

Saudi Arabia and the Saudi private sector are investing in maritime transport in Sudan. Sudan and Qatar also signed a US$4 billion agreement to jointly develop the Red Sea port of Suakin off Sudan’s coast. Sudan also signed a separate deal with Turkey whereby Turkey would restore part of Suakin and construct a naval dock to maintain civilian and military vessels. Sudan also signed a deal with the Turkish company, Summa, to build the new Khartoum international airport at a cost of US$1.15 billion.

While Ethiopia had also been looking at developing links to Port Sudan further up north of Suakin, a more developed Suakin could reduce travelling time from Addis Ababa and provide additional flexibility for Ethiopia and reduce its dependence on Djibouti. As it is, Port Sudan has also become busy.

Sudan has also invited Russian companies to take part in the development of its oil industry by offering them several oil sites, including both producing and untapped ones, and fields that are currently being developed by other foreign companies, whom the Russian players would help to increase production. It seems that Sudan will soon have its own oil reserves to pump, instead of just being part of the supply chain for its southern neighbour.

Ethiopia has also been the scene of exciting developments during 2018. Ethiopia appointed Dr. Abiy Ahmed as Ethiopia’s next prime minister. He visited Djibouti, Sudan and Kenya, indicating Ethiopia’s search for access to ports. Ethiopia struck a deal to take a stake in the Port of Djibouti, in exchange for the option to take shares in state-owned Ethiopian firms, including the profitable Ethiopian Airlines. Ethiopia also agreed to acquire a 19% stake in the Port of Berbera in Somaliland. In Sudan, Abiy struck a deal for Ethiopia to obtain a stake in Port Sudan. Sudan would also back Ethiopia’s US$4 billion dam on the Nile. In Kenya, Abiy revived a deal to set up a logistics facility at the Port of Lamu. Ethiopia and Kenya will work on joint projects, e.g. railways, roads, and developing the border town of Moyale into a joint city and economic zone.

Ethiopia has also recently seen the introduction of franchise business Pizza Hut. A few more international franchise brands such as KFC and McDonald’s are on their way to Ethiopia. Economic experts see this as an indication of a greater liberalization of the economy ahead.

The Ethiopian government decided in 2018 that private investors would be able to buy complete or partial shares of public enterprises aimed at promoting efficiency and productivity, enhancing sustained growth and ensuring management accountability.

There are quite a number of issues involved in Somalia that are important. Firstly, the UAE and Somalia have had a fall-out with the former ending its involvement in Somalia. Secondly, Djibouti ended the management contract of DP World (from the UAE) to run its Doraleh Container Terminal. DP World will figure very prominently in the development and management of the Port of Berbera. Thirdly, Russia has shown interest in developing a naval base at Zeila in Somaliland, which will provide it with the ability to project power into the Mediterranean Sea, the Middle East and the Indian Ocean. Lastly, Ethiopia has also been “shopping” around for additional access to the oceans.

Eritrea has come in from the cold. Ethiopia and Eritrea ended a conflict in July 2018 that lasted for close to three decades after Prime Minister Ahmed came to power in April 2018. Russia and Eritrean leaders have discussed expanding trade and joint projects, while the UN Security Council reviewed sanctions imposed on Eritrea and they were subsequently lifted. The two countries discussed a port logistics centre and projects in mining and infrastructure. Eritrea has also restored relations with Djibouti and Somalia towards the end of 2018.

Russia has been looking for ports to use in the entrance to the Red Sea. Gaining a foothold in Eritrea could therefore help Russia to position its navy. This is in addition to the discussions that Russia is reportedly involved in with Somaliland to develop a port near the city of Zeila. This would help it to project power into the Middle East and the Indian Ocean region.

Eritrea is now working to regain its place in Africa and the international community. The fragile peace could be threatened if Eritrea’s growing economic interests encroach on its neighbours, particularly Djibouti. Eritrea has the potential to provide Ethiopia and South Sudan with port facilities, going into competition with Djibouti. In addition to this, it also has the option to provide military bases to outside powers, just as Djibouti has been doing.

 

About the author

The author, Johan Burger, is the director of the NTU-SBF Centre for African Studies, a trilateral platform for government, business and academia to promote knowledge and expertise on Africa, established by Nanyang Technological University and the Singapore Business Federation. Johan can be reached at [email protected].

This commentary was published in How We Made It In Africa on 28 March 2019.