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10 Reasons to Consider African Trade and Investment Opportunities in 2022

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Investment Opportunities

By Lerisha Naidu, Lodewyk Meyer, Mike van Rensburg and Virusha Subban

  1. Visible green shoots – rising commodity prices

The pandemic closed borders and stopped trade, other than for essentials, across the continent and was the principal reason for a decline in investment in 2020. A lack of available capital and acquisition finance, as well as difficulties pricing deals in an uncertain market, also affected investment.

Other reasons for declining investment, included that the levels of economic activity have slowed in the major African economies, such as Nigeria and South Africa.

However, green shoots are visible and market fundamentals are signalling a region with underlying resilience. Commodity prices are rising and landmark deals are returning to the continent.

  1. The launch of AfCFTA

To date, 38 countries in Africa had ratified the African Continental Free Trade Area (AfCFTA) agreement and 54 countries have signed it. The start of trading in 2021 resulted in an increase in investor sentiment as dealmakers took note of the agreement’s first movers.

AfCFTA is unlocking significant growth opportunities for the continent, providing the chance for countries to diversify their economies, scale production capacity and widen the range of products made in Africa, in particular boosting the production of manufactured goods.

Closer integration of neighbouring economies is providing a potential avenue for creating scale and competitiveness through domestic market enlargement, promoting development through greater efficiency. AfCFTA is also acting as an impetus for African governments to address their infrastructure needs as well as to overhaul regulations relating to tariffs, bilateral trade, cross-border initiatives and capital flows.

  1. Shifting patterns and alternative financing

There has been an urgent imperative to identify and enable new sources of finance, outside of traditional lenders and international partners, to address Africa’s infrastructure gaps in, for example, transportation, energy provision, internet access and data services, and education and healthcare infrastructure in Africa.

In the commodity financing space in Africa, international banks have withdrawn as they focus on managing their liquidity and current debt positions. As a result, Development Finance Institutions (DFIs) are increasingly anchoring the infrastructure ecosystem in Africa.

Local and regional banks, specialist infrastructure funds and private equity and debt are also stepping in to collaborate with DFIs and access returns. Multi-finance and blended solutions are expected to grow in popularity as a way to de-risk deals and support a broader ecosystem of lenders.

  1. Global interest

Trade data from China’s Ministry of Commerce showed China’s trade with Africa has risen 20-fold in twenty years – firming China’s position as Africa’s biggest bilateral trading partner. However, fewer infrastructure financing projects are expected out of China going forward.

Those that do occur will be of higher quality, using sophisticated structures and new finance options, such as supply chain finance structures to deploy finance to the region. The United States is renewing its focus on impact-building and financing strategic long-term projects in the region, with the Export-Import Bank of the United States supporting infrastructure development in the continent. The US recently announced the renewed Prosper Africa initiative, which focuses on improving reciprocal trade and investment between the two regions. The European Union has always been clear about its commitment to strong relationships with African countries.

Recently, DFIs from the US, France and Germany collaborated to finance a substantial transaction in the African healthcare sector. The United Kingdom is also making a strong play for influence, investment and trade with Africa post-Brexit. Further to key summits in 2020 and 2021, finance is being redirected into Africa.

  1. Post-pandemic sector potential

Investors with strong market positions and an appetite for risk are capitalizing on the bargains in challenged sectors, such as retail, transport, energy, construction, hospitality and leisure, and eyeing opportunities in well-performing sectors like technology, healthcare and Fintech. The oil & gas industry and non-core infrastructure sectors have faced significant stress, producing opportunities for buyers.

An unabated demand for technology has caused extensive cross-sector disruption, with the financial, energy, transport, retail, agricultural and health sectors all seeking opportunities to expand their tech infrastructure.

  1. Digitization

Digitization is enabling the development and harmonization of a regulatory framework to integrate Africa’s digital economies, crucial to be able to operate in the post-pandemic environment. The African Virtual Trade-Diplomacy Platform was implemented this year to allow parties across different timelines, languages and legal frameworks to meet in a secure online environment, streamlining cross border negotiations.

Digitization is also aiding lenders with assessing risk more accurately through access to previously unavailable data before they deploy capital in the region. This is allowing projects that would otherwise seem too risky to go ahead.

  1. Leapfrogging traditional energy systems

Access to power in the continent is hampered by the lack of access to competitive funding, the dire state of Africa’s utilities infrastructure, and the need for energy policy and legislation to be adapted to boost investment.

However, new systems and networks are being designed around future environmental stressors and energy demands, without having to consider the limitations of old infrastructure. With the use of mobile technology and the lack of existing electricity transmission networks, these developments are providing an opportunity for African communities to gain access to power by leapfrogging the traditional model of centralized generation and transmission of power.

New and cost-effective solutions that utilize renewable energy, green hydrogen, battery storage and smart power technologies, as well as the global drive towards a decentralized, decarbonized and secure energy supply that addresses climate change and stimulates economic growth, are all leading to investment opportunities.

  1. Mending chains

Before the pandemic, supply chains were already under pressure in Africa due to inadequate infrastructure, corruption and security issues, poor logistics and onerous regulatory requirements. During COVID-19, these chains became longer and more vulnerable to breaks.

When AfCFTA became operational, it highlighted the crucial need for improved infrastructure and stronger supply chains to facilitate the free flow of trade across the continent.

Last year, the African Union African Peer Review Mechanism highlighted Africa’s supply chain challenges and overreliance on foreign trade and suggested the continent boost its manufacturing capacity to build a supply chain that could not be weakened by global blockages. As a result, many African countries have begun assessing ways to improve their manufacturing capacities so that they can produce local components.

  1. Competition law and enforcement

Competition policy continues to be viewed by regulators as a key driver of economic growth. Across Africa, competition policy enforcement is increasingly being employed as a tool to boost economic performance and to promote the revitalization of trade and industry.

Numerous jurisdictions have strengthened their competition and antitrust regimes through amendments to existing legislation, the introduction of new laws and regulations, and have renewed fervour and political will to enforce laws. These developments draw attention to the continent’s collective enthusiasm in ensuring competition compliance, and its determination in promoting and protecting more effective economies.

  1. Environmental Social and Governance

As Africa reduces its over-dependence on natural resources and increases its manufacturing capacity, it must ensure it develops in a sustainable way – spurring investment in projects focused on clean energy, community development initiatives, wildlife protection, sustainable agriculture and low-carbon development, for example.

A commitment to Environmental Social & Governance principles is now a primary focus in the quest for post-pandemic funding, with access to capital for large projects almost certainly containing sustainability requirements.

Lerisha Naidu is a Partner, Competition & Antitrust; Lodewyk Meyer is a Partner, Banking and Finance; Mike van Rensburg is a Partner, M&A; and Virusha Subban is a Partner, Customs and Trade, Baker McKenzie Johannesburg

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Nigeria to Benefit from AfDB $2m Electricity Research Fund

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electricity in nigeria

By Adedapo Adesanya

Nigeria is set to benefit from a technical assistance grant of $2 million to fund research that will contribute to electricity reforms in the Economic Community of West African States (ECOWAS).

The grant from the African Development Fund, the concessional window of the African Development Bank Group (AfDB), will go to the ECOWAS Regional Electricity Regulatory Authority. The fund was signed by the board of the financial institution on Friday, June 24.

The ultimate objective is to stimulate cross-border electricity trade and improve energy access in the 15 countries covering about 6.1 million km² in the region – Benin, Burkina Faso, Cabo Verde, Côte d’Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo.

The electricity research fund has five components. The first involves selecting electricity regulatory principles and key performance indicators from the bank’s flagship Electricity Regulatory Index for Africa report, to be adopted by the ECOWAS Regional Electricity Regulatory Authority.

As part of this component, the project will build capacity in Nigeria and other member countries for collecting and reporting on these indicators on a common platform.

The second component will involve conducting a study in order to update a comparative analysis of electricity tariffs and their underlying drivers across the electricity value chain of ECOWAS.

The third involves developing a centralized database management system that will provide a platform for digitally collecting relevant energy information from member countries, storing it, and disseminating them on a common digital platform.

The fourth component will assess and identify project bottlenecks and risks in ECOWAS member countries and recommend a coherent approach to progressively address ground-level barriers to investment in the power sector in pre- and post-establishment phases of the regional electricity market.

The final component focuses on programme management and capacity building, which will be co-financed with the Regional Electricity Regulatory Authority. All components of the project will include gender-disaggregated data.

Speaking on the plan, Mr Solomon Sarpong, project team leader at the AfDB, said the project will help boost electricity supply and make it a viable investment sector to serve a population of about 360 million in the bloc.

“Ultimately, this project will facilitate regional electricity trade and help improve access to electricity.

“It will address major causes of fragility, such as infrastructure bottlenecks, youth unemployment, environmental challenges, gender inequalities, and regional development imbalances,” he said.

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AfDB, Sovereign Investors to Develop Climate Resilient Projects

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climate resilient projects

By Adedapo Adesanya

The African Development Bank (AfDB), Africa50 and Africa Sovereign Investors Forum (ASIF) have signed a letter of intent to collaborate on developing green and climate resilient infrastructure projects across Africa.

The three entities will work together to galvanize financing and drive the development of skills and expertise within the infrastructure sector.

The signing took place on June 20, 2022, in Rabat, Morocco, during an event to launch the Africa Sovereign Investors Forum.

Under the high patronage of His Majesty King Mohammed VI of the Kingdom of Morocco, 10 African sovereign investors including Nigeria, agreed to set up the Forum.

The newly formed platform will accelerate coordination to mobilize patient capital for the continent’s development.

The signatories are Agaciro Development Fund of Rwanda, Fonds Souverain de Djibouti, Fonds Gabonais d’Investissements Stratégiques (FGIS), Fonds Souverain d’Investissements Stratégiques (FONSIS) of Senegal, Fundo Soberano de Angola (FSDEA), Ghana Infrastructure Investment Fund, (GIIF), Ithmar Capital (Morocco), Nigeria Sovereign Investment Authority (NSIA) and The Sovereign Fund of Egypt (TSFE).

Africa50 CEO, Mr Alain Ebobissé signed for his organization, African Development Bank Vice-President for Private Sector, Infrastructure and Industrialization, Mr Solomon Quaynor, signed on behalf of the Bank, and Ithmar Capital CEO, Mr Obaid Amrane, who will serve as the inaugural chair of ASIF, signed on the new initiative’s behalf.

Me Ebobissé said: “this is an important step to building strong collaboration between the right stakeholders to meet the substantial infrastructure financing needs of Africa. We must make key regional infrastructure projects attractive and bankable for both global and African private investors and today’s signing will go a long way to address the continent’s infrastructure deficit.

“It is therefore important that we leverage the strength of the African sovereign wealth funds on the continent, who manage significant domestic savings, to drive the growth of Africa’s economies through the development and successful implementation of strategic infrastructure”.

On his part, Mr Quaynor said: “The African Development Bank’s partnership with ASIF and Africa50 would enable stronger collaborations on project development and co-financing, mobilization of capital to fund resilient, green and sustainable infrastructure and identification of investment opportunities to promote Africa’s infrastructure and industrialization.

“This is a key part of the Bank’s strategy to harness the estimated $2 trillion of assets under management from African institutional investors including sovereign wealth funds, pension funds and insurance companies for the continent’s infrastructure and industrialization,” he said.

Mr Amrane said “ASIF main objective is to accelerate the development of investment opportunities and to mobilize patient capital. As sovereign investors, we see strong complementarities with African Development Bank and Africa50, especially since our visions are aligned with regard to project preparation and capital mobilization.

“We are pleased today to formalize ASIF, AfDB and Africa50’s mutual desire to collaborate together, for we have a common objective to foster investment in climate-resilient projects, among others, according to our respective mandate.”

The collaboration agreement will also seek to address the identification and preparation of projects, a critical success factor in attracting financing to any project.

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The Era of Unipolar World Order Has Ended—Putin Tells US, Others

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Vladimir Putin unipolar world order

By Kestér Kenn Klomegâh

At the plenary session of the 25th year of the St. Petersburg International Economic Forum (SPIEF), Russia’s President, Vladimir Putin, lambasted the United States and its Western and European allies, wholeheartedly predicted the end of the unipolar system and bristled at the idea of creating a new global order that might ensure equality and drastically change living standards of impoverished millions around the world.

Putin believes that the United States sees itself as a “messenger of God on Earth”, who has interests but no responsibility. “The United States is ostensibly unaware that over the past decades, new powerful centres have emerged around the globe and their voice is heard ever louder. Each of them is developing its own political system and public institutions and implements its own model of economic growth and, of course, has the right to protect them and to ensure national sovereignty,” Putin stressed.

While emphasizing the problems currently faced by the world’s economy at large, unfair competition among states, trade and financial wars, sanctions, restrictions, and so on, he asserted that the era of the unipolar world order has ended. The United States for the sake of ambitions and in the name of preserving outdated geopolitical illusions really don’t understand that the world based on such dogmas is definitely unsustainable.

In his opinion, “we are witnessing objective processes and truly revolutionary tectonic changes,” in the world. “After claiming victory in the Cold War, the United States declared it was the messenger of God on Earth, who has no obligations, but only interests – and these interests are sacrosanct,” Putin said. A world order based on the dogmas of unipolarity is unstable. Western elites are largely “clinging to ghosts of the past,” thinking that Western dominance is “an unchangeable and everlasting thing. Nothing lasts forever.”

New world order is still emerging but it’s clear that its rules will be created by those “who aren’t moving along a path set out by others.” “Only strong and sovereign states can have a say in this emerging world order or they will have to become or remain colonies with no rights,” Putin noted.

He further described as “thoughtless” and “insane” unprecedented sanctions imposed on Russia by a number of Western countries. “The idea was clear: crush the Russian economy violently, in a swoop, and deal a blow to industries, finance and living standards of people by destroying business chains, forcibly pulling Western companies out of the Russian market and freezing domestic assets,” he said.

Putin highlighted six principles constituting the basis for the development of the national economy during the forum. These are openness, reliance on freedoms of entrepreneurship, balanced macroeconomic policy, social justice, advanced development of infrastructure and achievement of technological sovereignty.

State sovereignty cannot be partial or fragmentary in the 21st century, all of its elements have equal importance. They reinforce and complement each other. That is why it is important not only to defend the political sovereignty and national identity but also to strengthen everything that ensures the country’s economic independence, its self-sustainability and independence in the matters of finances, workforce and technology,” Putin explained.

The president said that Russia changed in recent years through a planned effort to create a sustainable macroeconomic structure, ensure food security, enable import substitution and establish its own payment system.

Nevertheless, the sanctions have brought about “numerous difficult tasks” that Russia has to solve, he continued. “On the other hand, this situation creates new opportunities for us. We are saying this quite often, but this is really so. All of this will be an incentive to build an economy whose technological, production, workforce and scientific independence and potential is full rather than partial,” Putin said.

In a clear and concise but tense language, he expressed optimism that Russia would become stronger than before, taking advantage of emerging opportunities and new initiatives to build a better economy. With Russia under wide sanctions after sending troops into Ukraine, Putin spoke at length acknowledging the economic difficulties Russia faces as it tries to promote itself to international businesses, and the evolutionary processes in the new global configuration.

Chinese President Xi Jinping and Egyptian President Abdel Fattah el-Sisi, by video link, took part in a plenary meeting together with Russian President Vladimir Putin and Kazakh President Kassym-Jomart Tokayev. The forum brought representatives from Latin America, Africa and mostly Asia. There were a number of international organizations as well as representatives from more than 90 countries, compared to 140 countries during the pre-corona pandemic years.

Under the chosen theme ‘New Opportunities in a New World’ that reflects the changing global situations, the conference from June 15 to June 18 marked the 25th year of the St. Petersburg International Economic Forum (SPIEF) since its establishment. Over the last 24 years, the forum has become a leading global platform for members of the business community to meet and discuss the key economic issues facing Russia, emerging markets, and the world as a whole. Since 2006, has been held under the auspices of the President of the Russian Federation.

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