Stories that Matter | August

The Stories that Matter consists of the most significant stories across Africa that impact countries on a regional and a global level. Below are August’s most impactful stories across Africa.

Africa
Islamic Banking to Offer Alternative Financial Solutions in Africa
Africa is emerging for Islamic finance and a new destination for Islamic financial institutions, something that analysts say will open up a new avenue for foreign direct investment. AlHuda Centre of Islamic Banking and Economics (CIBE), CEO Muhammad Mughal was speaking at the inaugural ceremony of the African Islamic Banking and Takaful Summit saying that Tanzania’s Islamic banking and Takaful market is promising. He said that Islamic banking and finance are the ultimate financial solution due to its viability and sustainability. The system, he said, has multi-fold benefits which concentrate on balanced wealth distribution. He also shed light on the need for Islamic banking and financial services. “Several new Islamic financial institutions are ready to start their operations in the market. Various Islamic window operations are also going to start their operations for the development of the economy to strengthen the growth of the market and to uplift the living standards of the public in the region,” he said. According to him, a number of banks are also coming into the markets with stand-alone branches for Islamic banking operation. Source: The Citizen

Africa
IFC Provided a Record USD 9.4 Billion Financing in Africa in the 2022 Fiscal Year
The International Finance Corporation (IFC) provided record financing in Africa over the 2022 fiscal year, making USD 9.4 billion in investments between 1 July 2021 and 30 June 2022 across 36 countries, the largest ever annual commitment for the continent. The funding helped to develop regional pharmaceutical manufacturing, increase intra-Africa trade, expand access to climate financing and strengthen food security among many other pressing development needs. The investments include USD 3 billion in trade financing unlocking intra-Africa trade for thousands of small businesses, USD 2.1 billion supporting the continent’s green transition – from increasing access to climate finance to funding renewable energy projects – and USD 861.7 million that is supporting increased digital connectivity. The IFC also provided USD 603 million in agriculture financing, helping to strengthen food security during a turbulent global economic period. “While the effects of the COVID-19 crisis persist, new challenges are also looming, including from rising global inflation,” said Sérgio Pimenta, IFC vice president for Africa. Source: ESI Africa

Africa
China to Eliminate Customs Duties on Imports from African Countries
China’s Ministry of Finance has announced the elimination of customs duties for 98 percent of products imported from 16 developing countries, including Mozambique, from the start of September. According to a statement, the Customs Tariff Commission of the State Council has decided to “grant zero-tariff treatment on 98 percent of taxable items originating in 16 least-developed countries”. Most of the countries covered are located on the African continent. They include Togo, Eritrea, Central African Republic, Guinea, Rwanda, Sudan, Chad and Djibouti, where in 2017 China opened their first military base abroad. In Asia, the list includes Cambodia and Bangladesh, as well as Laos and Nepal, two countries with which China borders. The order, signed on 22 July, underlines that the ‘zero tariff’ statute covers 8,786 imported products. Effective from 1 September, the policy will help share market opportunities with those countries, push for common development, and promote the building of a community with a shared future for mankind, the statement said. Source: Club of Mozambique

East Africa
EAC, Equity Bank USD 13 Billion Deal to Promote Trade, Integration
Regional lender Equity Bank is seeking to piggyback on the protocols of the East African Community (EAC) to implement its ambitious Africa Resilience and Recovery Plan which targets small businesses in East Africa. The bank has signed a memorandum of understanding (MoU) with the EAC, on the sidelines of the 21st Ordinary Heads of State Summit, to help fast-track the plan. Equity Group CEO James Mwangi and EAC secretary general Peter Mathuki said the MoU is a vehicle for financial support and development financing using the infrastructure of the Common Market. It targets farmers, manufacturers, energy and social services providers and aims to stimulate intra-continental trade, something the bloc says is pursuing. Equity Bank is making available a part of its USD13-billion balance sheet for the region’s entrepreneurs while development financiers International Finance Corporation, African Development Bank and European lenders are to bring in more for lending. Mr Mwangi said at the signing ceremony in Arusha that the USD 2 billion is already available for borrowers. Of the money available for lending, food and agriculture will take 30 percent and manufacturing 15 percent. Source: The Standard

Algeria
Eni, Sonatrach Unveil Several Discoveries in Algeria Desert

Italian major Eni and Algerian state oil company Sonatrach have announced the discovery of significant oil and gas reserves in the Sif Fatima II concession, located in the Berkine North Basin in the Algerian desert. The Rhourde Oulad Djemaa Ouest-1 (RODW-1) exploration well – the third of five wells set to be drilled by Eni and Sonatrach in the concession – is part of a wider campaign aimed at accelerating upstream activities in the north African country to meet growing demand both domestically and in Europe. The well produced 1,300 barrels of oil per day (bpd) and two million standard cubic feet of associated gas per day during the production test. The proximity of the RODW-1 discovery to previous discoveries and existing facilities in the basin, including the Zemlet el Arbi, which was made by Eni and Sonatrach in March 2022, will enable Eni and Sonatrach to fast-track development whilst reducing associated expenses. Source: Energy, Capital & Power

Ghana
PPA Renegotiations Could Eventually Save Ghana more than USD 13 Billion
The government in Ghana is currently renegotiating some of its power purchase agreements (PPAs) and if successful, will save the country upwards of USD 13 billion. The government says the savings would accrue over the lifespan of the renegotiated agreements, the Minister of Finance, Ken Ofori-Atta, told parliament. The Minister of Finance was delivering the mid-year budget review recently and indicated that the affected projects were Karpower, Cenpower, Early Power, Twin City Energy (formerly Amandi), AKSA Energy and Cenit. Ofori-Atta said the renegotiations and the savings were some of the strategies adopted by the government to reduce costs and improve the energy situation of the country. “The raft of sanctions imposed on Russia are tightening supply conditions for energy products. In response, the government is closely monitoring the stock of products at all depots. The timely intervention of the Bank of Ghana, through the Special Forex Auction mechanism, is also expected to sustain the continuous supply of petroleum products in Ghana,” he said. Source: ESI Africa

Morocco
UNDP Allocates USD 1 Billion To African Startup Hubs
The Regional Bureau for Africa of the United Nations Development Program (UNDP) recently launched its Timbuktoo initiative that aims to boost African entrepreneurship and startup ecosystems for regional development. The USD 1 billion initiative was launched in Lagos, Nigeria on August 17, and will be funded by public and private capital over ten years. UNDP Africa noted earlier in a statement that the organisation is engaging with a network of private and public actors to establish eight Timbuktoo hubs in Casablanca, Cairo, Accra Nairobi, Cape Town, Lagos, Dakar, and Kigali. The hubs are set to become operational in 2023. Quoting the organisers, South African newspaper Business Day wrote that each hub is set to focus on a priority sector such as agritech, fintech, healthtech, tradetech, and tourism-related tech. Meanwhile, each hub is expected to host both a “venture builder” and a venture fund. Source: Morocco World News

Kenya/ Ethiopia
Ethiopia to Become Kenya Power’s Second Biggest Source of Electricity
Ethiopia will become Kenya’s second biggest source of hydropower from November under a deal by Kenya Power to buy 600 megawatts (MW) from East Africa’s most populous nation. This follows a recently-signed 27-year power purchase agreement, that will run until 2047 as Kenya turns towards cheaper sources of electricity. The new deal which is expected to edge out the expensive power from the national grid promises to increase the capacity charges – the money paid to thermal power generators when Kenya Power does not buy power from them. But the lower tariffs will help the state-owned utility further lower bills on households and businesses, helping ease the pain on the cost of living and boost Kenya’s attractiveness to manufacturers. “The agreed tariff is competitive and will see Kenyans enjoy power at a lower cost. [The] EEP will be the second largest power supplier to KPLC aside from the KenGen Hydros Eastern Cascade at 600 MW,” Kenya Power acting managing director Geoffrey Muli said. Source: Business Daily

Nigeria
Federal Government Woos Investors to Developing 42 Billion Barrels Bitumen Reserves
With a global market estimated at USD 110 billion, the Federal Government has called on investors to explore the development of the nation’s 42 billion barrels of bitumen reserves. Speaking at a virtual clarification session, organised by the Ministry of Mines and Steel Development in collaboration with PwC Nigeria, the Director-General of the Nigerian Geological Survey Agency, Dr. Abdulrasaq Garbar, who provided geoscientific data and other information to guide potential investors, said the country holds the sixth largest reserves of bitumen in the world. He said the mineral remained unexploited for years, thereby creating massive opportunity for domestic production of Bitumen in lieu of the country’s Bitumen importation. Source: The Guardian.

 

Reports

Financing for Sustainable Development Report 2022
Developing countries still have to regain lost ground from the COVID-19 pandemic. The pandemic has put more countries at risk of debt distress, constrained their fiscal space and hampered economic growth. The war in Ukraine has exacerbated all these challenges. In this context, the 2022 Financing for Sustainable Development Report identifies a “great finance divide” – the inability of poorer countries to raise sufficient resources and borrow affordably for investment.

Click here to download the report.

African Continental Free Trade Area: Leveraging Trade and Foreign Direct Investment to Boost Growth and Reduce Poverty
The establishment of the African Continental Free Trade Area promises to turn Africa into a modern, industrialised, cohesive, and influential player on the global stage. A modern Africa one that is no longer depleting her mineral wealth to export to foreign markets, but instead industrialising her economies, incubating the entrepreneurial zeal of her burgeoning youth population, and giving her people a chance to live a better life.

Click here to download the report.

Railways in Developing Countries: A Global Review
As a green mode of transportation, railways have an important role to play in decarbonising transport through shifting transport from more polluting modes of transport such as road and air. Railways can enable economic growth, which in turn generates increasing transport demand, while keeping greenhouse gas (GHG) emissions low. However, in many parts of the world, railways have lost traffic and market share to air and road transport modes.

Click here to download the report.

Venture Capital in Africa Report
2021 was a great year to be a founder in Africa’s innovation ecosystem. A record-breaking year by volume and value, venture capitalists put more money to work in Africa in 2021 than the preceding seven years combined. USD 5.2 billion was raised from 604 unique companies in 2021, and the data shows an industry that has achieved, and is poised for, tremendous growth. Progressive legislation remains paramount to cradle and incentivise entrepreneurship in Africa.

Click here to download the report.

The Role of AfCFTA in Enhancing Agriculture in Africa

The most important sector of the African Economy is Agriculture. It contributes 15 percent to the Gross Domestic Product (GDP) in sub-Saharan Africa and employs more than 60 percent of the labour force continent-wide. Agriculture accounts for 75 percent of Africa’s domestic trade. To date, 43 out of 54 African Countries (80 percent) have deposited their instruments of the African Continental Free Trade Area (AfCFTA) ratification, and 88 percent of the negotiations on Rules of Origin have been agreed upon. The AfCFTA intends to promote agricultural growth and transformation in Africa, contributing to food security, and boosting competitiveness through regional agricultural value chain development and incentivising critical investments in production and marketing infrastructure.

Africa’s Key Priority Areas Going Forward 2022

According to the World Economic Forum (WEF), African countries will need to work together with the rest of the world towards actualising key priority areas essential to the continent’s economic development. Africa has some progress but there is still a long way to go, especially following the impact of the COVID-19 pandemic and the Ukraine-Russia conflict which have brought to light the unpreparedness of the African countries.

Focus on the below would be instrumental in helping alleviate Africa’s challenges:

What the Russian-Ukraine Crisis Means for Africa

On 24 February 2022, Russia invaded Ukraine, and from a global perspective, this has been viewed as an act of aggression against a sovereign state.

According to Reuters the conflict has left damage of approximately USD 570 billion and displacement of approximately 11 million people. The effects of this conflict have had a lasting effect on global business, especially in Africa which relies on both states regarding economic relations such as tourism, employment, education, and trade relations. A new report by the United Nations report has found that more than 70 percent of Africa’s economies are at severe risk from Russia’s war in Ukraine. The report found that 41 African countries face maximum exposure to at least one emergency caused by the war.

The various sanctions and embargoes issued to Russia have left a gap in several areas, especially in the supply of various resources such as gas and oil. This gap has been created but also the impacts are being felt across the African continent in various ways as seen below:

1. Agriculture and Food Security
The uncertainty over the availability of farm inputs such as fertiliser has been the most outstanding regarding food security. Fertiliser is a major import from Ukraine and it is vital in food production in Africa. The costs of urea and phosphate—two major components of fertiliser—had already risen by 30 and 4 percent, respectively, by the end of 2021. These increases, plus fertiliser export bans by China and Russia through at least June 2022, are expected to cause the cost of fertiliser to rise much more. The disruptions in imports as a result of the conflict have also resulted in a surge in food prices on the continent, further intensifying uncertainty over food security. Importantly, during the 2020-2021 agricultural season, Africa represented 36 percent of Ukraine’s total wheat exports and was by far the largest regional destination. Nigerian business mogul, Aliko Dangote has taken advantage of the shortfall in Russian fertilizer exports by opening a USD 2.5 billion fertilizer plant with the intent of selling fertilizer to the continent as well as to the United States, Brazil and India.

2. Natural Resource Exports
With oil price volatility, compounded by fears of fuel scarcity and the European Union’s consideration to phase out the EU’s dependency on Russian oil, Africa is looking for new energy sector investors in Europe who will soon no longer depend on Russian natural gas. The price hike in these natural resources has opened a window of opportunity for African countries which are reported to have approximately 630 trillion cubic feet of natural gas reserves with Nigeria, Algeria and Mozambique averaging 200, 159 and 100 trillion cubic feet respectively. These reserves are being considered by European member states as they intend to integrate them into their energy supply. Other countries like Tanzania, with an estimated 57 trillion cubic feet of gas reserves, could end up attracting approximately USD 30 Billion in foreign investment regarding gas supplies as they continue to negotiate with energy companies.

3. Regional Solidarity
The solidarity of regional blocs such as ECOWAS, SADC and EAC will be tested during this conflict. Most of these blocs were formed from an economic perspective and due to differences in the political opinion some African countries have not agreed with Russia’s invasion of Ukraine, but some have agreed with this move made by Russia. This will bring to a test the solidarity of African countries and it will affect business between these countries regarding ease of doing business and ease of movement of goods and people across borders. It has become increasingly difficult for African countries as Russia has been able to establish itself in the continent both for security and economic purposes. This has seen a significant reduction of conflict in the Sahel region in countries such as Mali, Niger, Burkina Faso and the Central African Republic which will inevitably boost trade.

4. Debt Burden
The crisis in Ukraine could bear another crisis in debt as countries try to come up from the ravages of the COVID-19 pandemic. Many African countries are at risk of having an increased debt burden due to the crisis which will lead to any additional government revenues being channelled towards the high costs of other goods including food, fuel, and household goods. According to the Brookings Institute, more than 20 countries are at risk of debt distress in Africa. And as debt service costs continue to rise to approximately USD 70 Billion, African countries will persist in borrowing to offset gaps in revenue. This will have significant impacts on investment in infrastructure and funding of social amenities such as schools and hospitals and people who work in these sectors. The debt burden experienced by many states, especially in Africa will be a major blow as many countries had agreed on terms on debt restructuring with the IMF, World Bank and other financial institutions to be able to recover from the COVID19 crisis.

Whether the war ends soon or becomes a prolonged battle, Russia, the US, and the UK can be expected to continue cultivating economic, political and security relationships with countries across Africa to address the myriad challenges facing many African countries to exert influence. The African Continental Free Trade Agreement further provides a unique opportunity to strengthen intra-Africa trade as well as for foreign investors to strengthen strategic partnerships with African countries by driving growth, especially with small-to-medium-sized investments.

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Sources

Brookings | Reliefweb | United State Institute of Peace | African Business | How We Made it in Africa

Stories that Matter | April 2022

World

Tax Deal Sets Ground to Collect at Least 15 Percent Tax on Online Sales
A new global tax agreement will allow low-income countries to collect taxes from multinational companies with a physical presence in foreign countries but whose products are sold in countries where such multinationals have no physical presence. Under the new arrangement, if a country has a physical presence in Europe or another country but sells its products through online platforms, such a company will be required to pay taxes in the country where its products have been sold. The agreement also introduces minimum tax rates of 15 percent below which no country will be allowed to charge tax rates.

This, the agreement says, will prevent multinational companies from migrating from countries with higher tax rates to countries with lower tax rates. Currently, it is estimated that between USD 100 billion and USD 240 billion about 4 percent to 10 percent of global corporate income taxes in revenue is lost each year because multinational companies take advantage of gaps and mismatches between different countries’ tax systems. Africa loses approximately USD 50 billion each year through illicit financial activities of multinationals and wealthy individuals, and approximately USD 88.9 billion in capital flight. Source: Monitor

 

ALN’s Risk Advisory Team Step Up to Protect People, Assets, Operations, Brands

It is accepted that the business environment in Africa carries a higher level of risk and challenge than in other parts of the world. Turning risk into opportunity, ALN’s multi-disciplinary team helps clients navigate the continued changes in regulation, governance and compliance.

“Non-profit organisations, development partners and private companies across Africa need to manage risk and prevent, detect, investigate and respond to incidents to protect their people, assets, operations and brand,” says Willie Oelofse who is ALN Kenya’s Director, Forensics, Risk & Compliance.

To this end, the Adili Corporate Services and the ALN Forensics, Risk & Compliance teams have partnered to support the insurance sector as well as family-owned businesses across Africa when it comes to managing their unique vulnerabilities.

Risk Advisory for Family-Owned Business
A small outfit with humble beginnings is often what comes to mind whenever one thinks of family businesses. However, the truth is that family businesses claim a significant share of the economy, not just in Kenya but across the African continent and globally. It is said that family businesses contribute a significant portion of global GDP and are the second-biggest employers globally, next to governments.

“In Kenya, and East Africa in general, the economy is significantly fueled by family businesses, which account for over 60% of total employment,” observes Willie. “Nine out of ten businesses in Kenya are family-owned, most are small, table-top enterprises with family members as the only employees.”

This trend is expected to continue on an upward trajectory into the future, with increasing government focus on catalysing private sector growth and entrepreneurship. This goes on to show just how much the economy depends on the continuity and success of family businesses.

The importance of setting up and operationalising a risk management framework or strategy for any business cannot be over-emphasised. Family businesses are no exception, especially given the unique risk culture observed in such a setup. Proper identification, assessment and control (treatment) of risks and their impact on the organisation and its key stakeholders is an essential part of any organisation. It is also a necessity for formulating an effective strategy for business continuity and growth.

“We understand the unique characteristics of family businesses. Purpose is at the centre of all that you do – driven by core values, strong vision, trust and legacy,” says Mona Doshi a Partner at ALN Kenya who also co-heads the firm’s private client law practice. “As trusted advisors, we help family businesses drive growth, capital, and wealth potential while protecting the clients’ legacy.”

Adili Corporate Services and ALN Forensics, Risk & Compliance partner with family businesses to provide unique programs focusing on governance, risk and compliance, as well as building practical and strategic controls around prevention, detection and deterrence of enterprise risks. Some of these services include conducting internal audits, cybersecurity and data protection, as well as whistleblowing.

Risk Advisory for the Insurance Sector
The insurance sector is increasingly facing a variety of strategic risks that could undermine a company’s value proposition and foundation. According to Willie, innovative technologies, and more complex regulations are among the changes impacting insurers and posing greater risks than ever before.

“It is important for insurers to develop strategies to proactively address risk management and compliance exposure and alignment to emerging risk management practices is key to survive the inevitable changes in the sector,” says risk and compliance expert Willie.

Adili and ALN Forensics, Risk & Compliance are working across life insurance, general insurance, and reinsurance businesses, applying innovation, technology and consulting expertise to transform capabilities, improve profitability, and enhance return-on-equity and compliance. Their work is empowering M&A, divestitures, partnerships, and performance.

The multi-discipline team has acted for some of the most prominent clients, including a large insurance brokerage firm based in Kenya to assess the extent of fraud in the claims management process. This included investigating claims through the use of forensic technology to locate potential evidence and financial reconciliation to identify the customer accounts used to perpetrate the fraud and locating the key assets of the individual which were suspected to have been purchased through the proceeds of the fraud.

Due Diligence and Cross-Functional Support
The risk advisory team is also able to support ALN’s transactional teams in Corporate M&A, Banking & Finance and Projects & Infrastructure in providing due diligence investigational support to target companies, businesses and key individuals to enable clients to identify key risks and potential areas of concern with any potential acquisition or financing before a deal is signed. The team is also able to take a helicopter view of the whole due diligence process across the relevant disciplines to identify threads or lines of enquiry which may not be obvious from an individual report.

The team’s excellent knowledge and over 50 years combined experience working with insurance firms and family-owned businesses across Africa has cross-boarder clients choosing them for their diverse knowledge and expertise, network, and innovative approach to current challenges and opportunities.

The content of this article is intended to be of general use only and should not be relied upon without seeking specific legal advice on any matter.