By Aduragbemi Omiyale
There are strong indications that dealmaking activity in Africa will increase by the time the African Continental Free Trade Area (AfCFTA) agreement is deeply implemented.
The trade deal officially commenced on January 1, 2021, after it was moved from the former date of July 1, 2020, due to the coronavirus pandemic.
At the moment, the agreement is struggling to begin to yield the expected results because many nations are still dealing with the global health crisis.
Last year, dealmaking activity in sub-Saharan Africa (SSA) dropped in the second half when compared to the second half of 2019.
According to Baker McKenzie’s analysis of Refinitiv data, M&A transactions in the region went down in H2 2020 by 4 per cent versus in H2 2019 with 329 deals in the period.
Also, the deal value fell by 17 per cent to $8.9 billion in the second half of 2020, compared to the same period in 2019 and for the full year 2020, transactions dropped by 8 per cent with 625 deals in 2020, and deal value dropped by 33 per cent, with deals valued at $17.4 billion in total for 2020.
In the report by Baker McKenzie, as Africa gears up for its post-pandemic recovery, it appears that the opportunities presented by AfCFTA, as well as foreign investment opportunities, due in part to new partnerships and trade relationships, could be a key factor in attracting much-needed investment to the region.
“While dealmaking has slowed across Africa, all is not lost and there are still plenty of opportunities to benefit from good deals on the continent,” the Head of Africa for Baker McKenzie, Mr Wildu du Plessis, noted.
“For the next while, we believe that deal activity across Africa, in general, will mostly be in the form of take-private transactions, distressed M&A opportunities, restructurings, disposals; and corporates looking for investment opportunities in offshore markets.
“The good news is that the AfCFTA agreement has done a great deal to bolster foreign investor interest in the region, and dealmakers are taking notice of the agreement’s first movers,” Mr du Plessis added.
The United Kingdom, for example, is already an important investor in SSA. According to Refinitiv data, the UK was the most active investor in the SSA region for the second straight year, with 29 deals announced in the second half of 2020.
There were also 29 deals from the UK for the full year 2020. When it comes to trade, recent research by Brookings showed the untapped export potential from African countries with regard to trade with the UK, with significant gaps in apparel, electronic equipment and cocoa products, for example.
Brookings pointed out that UK trade with Africa peaked in 2012 when it was valued at $51 billion, but by 2019 it had almost halved to $27 billion, representing only 2.4 per cent of total UK trade.
This shows the potential for increased trade between the UK and African nations, especially if more mutually beneficial economic partnership agreements are finalised, positioning the post-Brexit UK to take advantage of AfCFTA’s eventual continent-wide market of around 1.4 billion people.
Virusha Subban, Partner specialising in Customs and Trade at Baker McKenzie in Johannesburg, noted that intra-African trading started on 1 January 2021 for African countries that had ratified the AfCFTA agreement and submitted their tariff offers.
“Trading in products started at the beginning of the year for the African Union member states that had aligned their customs procedures and agreed on the rules of origin for 81 per cent of the tariff lines.
“All countries in Africa, except for Eritrea, have signed the agreement and 34 countries have ratified it so far, including most of Africa’s major economies (South Africa, Kenya, Nigeria and Ghana, for example).
“A total of 41 countries (including South Africa, Egypt and Mauritius) and customs unions (the East African Community, the Economic Community of West African States, the South African Customs Union and the Central African Economic and Monetary Community) submitted their tariff offers, and were ready to trade at the beginning 2021,” she noted.
Subban explained that the AU had called for other countries to ratify the agreement and submit their offers by the end of June 2021, although there had been some concern from poorer countries who relied on the income received from trading tariffs and were therefore hesitant to lower them.
However, efforts to protect the most vulnerable countries included tariff protections for domestically sensitive products.
A further boost to the success of the agreement, came in the form of an announcement in late January from the African Export-Import Bank, in which it noted it would fund a $1 billion adjustment facility to allow countries that had lowered their cross border tariffs to offset their losses. AfCFTA member countries are set to be able to draw from the fund by the end of 2021.
“Overall, AfCFTA has provided a strong impetus for African governments to address their infrastructure needs and trade logistics systems, as well as overhaul regulation relating to tariffs, bilateral trade, cross-border initiatives and capital flows.
“Both domestic and foreign trade are set to benefit from reforms to regulation and trade policies that enhance competitiveness and improve the ease of doing business across the continent. Accessing the new facility on offer from the African Export-Import Bank will further encourage African member states to fully embrace the benefits of free trade,” said Subban.
According to Baker McKenzie’s recent research with Oxford Economics – AfCFTA’s US$ 3 trillion Opportunity – there are now unprecedented opportunities for Africa, and its trade and investment partners, to reap economic benefits on the back of the possible improvements in transport infrastructure, reduction of red tape for cross-border dealings, renewed funding and improved liquidity. AfCFTA will provide the opportunity for African 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 (and the potential for multinational companies to set up manufacturing plants in the continent).
“Closer integration of neighbouring economies is a potential avenue for creating scale and competitiveness through domestic market enlargement, thereby promoting development, and boosting foreign investment through greater efficiency. As such, the integrated free flow of trade brought about by AfCFTA is considered to be an essential element of Africa’s pandemic recovery,” Subban added.
IITA Laments Poor Budgetary Allocation to Agriculture in Africa
By Adedapo Adesanya
The International Institute of Tropical Agriculture (IITA) has blamed the insufficient budgetary allocation to agriculture as a major impediment in most African countries.
This formed part of the points raised by the Director-General of the agency, Mr Nteranya Sanginga, who added that this had been militating against the development of the sector in the continent.
Mr Sanginga, from the Democratic Republic of Congo (DRC), assumed office in 2011 and is the first African director-general of the 54-year-old international institute.
Speaking in Ibadan, Oyo State at an interactive session, said that except adequate attention was paid to agriculture by African leaders, it might be difficult to attain foof sufficiency in the continent.
He noted that African countries had more than enough resources to attain food sufficiency to rely less on importation, adding that the endemic leadership problems confronting them had been a clog in their wheel of progress.
Mr Sanginga said this had been further compounded by lack of commitment of most African leaders to agricultural development, as reflected in the quantum of resources being allocated to the sector on yearly basis.
Citing the example of his home country, he said that on the average, DRC usually had 1.7 per cent budgetary allocation to agriculture, while in Nigeria, it was not more than two per cent.
“With all the resources available to DRC, the country still imports more than 70 per cent of food items, such as rice, beans and fish as its annual budgetary allocation to agriculture is about 1.7 per cent, while in Nigeria, it is not more than two per cent.
“The situation is also the same in most other African countries. With these, how can we say that African leaders are serious about attaining food security in the continent?” he queried.
The director-general reeled out his achievements in the last 10 years, saying he had been in the saddle, especially in the areas of creation of business incubation platforms, setting up the youth agripreneur programmers, the implementation of ‘Start Them Early Project’ (STEP) and building of food processing units under the IITA leadership.
“One of my most important legacies has been the creation of IITA Youth Agripreneurs (IYA) programme which was aimed at addressing the high rate of unemployment among African youths, with agriculture sitting as a goldmine, waiting for explorers.
“More than 60 per cent of Africa’s estimated 1.2 billion people are under the age of 25 and yet with little job creation.
“Whereas agriculture remains an essential driver of economic development and an area of great opportunities for young people in the continent,” he said.
The IITA chief said that the IYA initiative had now been adopted by many organisations, especially African Development Bank (AfDB) which had been set up in to 24 countries.
He said that this had rekindled the hope of a new generation of African agricultural entrepreneurs who would feed the continent and create wealth and employment.
The director-general pointed out that these achievements, among others, had motivated the Ooni of Ife, Oba Adeyeye Ogunwusi, to honour him with chieftaincy title of Aare Afurugbin Ola of the Source.
The conferment of the chieftaincy title, meaning “Lead Sower of Wealth and Prosperity of the House Oduduwa” will take place at Ile Oodua, Ooni’s palace, Ile-Ife, on December 11.
While expressing appreciation to the royal father for the honour, Sanginga said that this would further fire his passion for the development of agriculture and agribusiness in the African continent.
Malawi, Mozambican Agree to Strengthen Economic Relations
By Kester Kenn Klomegah
Mozambique and Malawi, largely sharing borders, have agreed to forge cooperation in diverse economic sectors and take the advantages offered by the single continental market.
A number of African leaders have started looking at the African Continental Free Trade Area (AfCFTA), as it aspires to connect all regions of Africa, to deepen economic integration and boost intra-African trade and investment. It aspires to create a single market for goods and services across 55 countries and our continent, creating a market of as much as 1.3 billion people with a combined GDP of $3.4 trillion.
On November 22 to 24, President Filipe Jacinto Nyusi of Mozambique went on an official working visit to Blantyre, Malawi. It was to participate in the 5th SADC Industrialization Week in Lilongwe, according to a statement from Malawi’s Ministry of Foreign Affairs.
The first strategy for regional industrialization, he noted at the conference of the Industrialization Week, includes developing synergies linked to value chains, transport corridors, energy, and human potential. It will also involve bringing down barriers at the border to strengthen the economic identity of SADC. According to Nyusi, the impact of this strategy will be amplified through changes to the trade balance as exports are increased and imports substituted.
The second strategy is based on developing technology, employing thousands of people, creating a market to absorb agricultural surpluses from the rural population with a particular focus on women, agro-processing and associated logistics, which, he said, ends up becoming a “powerful weapon” for the well-being of the population and combating poverty.
While still in Malawi during the visit, Malawi President Lazarus Chakwera took his guest counterpart Filipe Nyusi to launch the construction works for the Mozambique-Malawi power transmission interconnection project at Phombeya in Balaka District. The power generation project planned to translate into improved access to electricity supply and ultimately strengthen the industrialization programmes in both countries.
Construction of the interconnection project includes laying transmission lines about 142km from Matambo substation and 76km into Malawi to Phombeya passing through Mwanza and Neno Districts – expected to be completed in 2023.
According to the Integrated Resource Plan of 2017, peak electricity demand will be 1,860MW by 2030 yet currently, Malawi’s installed electricity generation capacity is hovering at 50MW. The objectives of the interconnection project include supporting the economic growth of the region through sustainable power access by integrating the Malawi electricity market to the Southern African Power Pool (SAPP) in order to balance the power deficit through regional power trading.
Phase 1 of the project included a technical and economic feasibility study that was completed in 2017, project definition and scope and environmental and social impact assessment that was completed in 2019.
In his remarks, President Chakwera said like the railway rehabilitation project that the two countries have embarked on to connect Malawi to the Sena Line across the border from Vila Nova de Fronteira to Marka, “this interconnection project is yet another milestone in the linkages between our two nations.” He reminded Nyusi, that during his visit to Songo Province in Mozambique last year, Chakwera was privileged to tour the Cabora Bassa Dam which is the hub of the Southern African Power Pool (SAPP).
“It was at that time that we agreed to hold this joint ceremony launching the construction of the electricity transmission line for Malawi-Mozambique Interconnection. I am, therefore, glad to see this coming to pass as a step in the direction of integrating infrastructure across SADC for sustainable economic development. The project aims at creating avenues for trade in the SAPP, with the prospect of more exchanges of trade and power in the future,” he asserted in remarks.
President Chakwera says Malawi and Mozambique are strategic development partners and there is a need for the two nations to continue exploring economic relations in the areas of trade, transport and mining for the mutual benefit of their people. Both presidents also identified areas of rail transport, energy and mining for developing bilateral partnerships.
With the construction of The Malawi-Mozambique Interconnector, it marches towards the goal of adding 1,000 megawatts to the national grid over the next four years is making steady progress. The project is co-funded by the World Bank- IDA Credit at $15 million; European Union through KFW Grant at $20 million and the Malawi Government at $3.5 million.
Russia Assures Mozambique More Economic Cooperation
By Kester Kenn Klomegah
Russia is ready to support Mozambique in the fight against terrorism through cooperation in the field of intelligence, and further promises strengthening cooperation in various economic sectors, Russian Deputy Minister for Foreign Affairs Mikhail Bogdanov said at the end of a meeting with Prime Minister Carlos Agostinho do Rosário in Maputo.
Bogdanov, who is also Russia’s Special Presidential Representative for the Middle East and Africa, defended the importance of African countries, including Mozambique, launching initiatives on their own real needs for combating the phenomenon in international forums, especially at the level of the United Nations.
In the context of anti-terrorist cooperation between Moscow and the African continent, the Russian diplomat said it was important for Africans to help the world understand their efforts in this fight. Russia and Mozambique have consistently maintained that all problems, conflicts and crises, unfortunately, still remain on this continent, and should be resolved based on the approaches of Africans themselves, and of course with moral, political and material support from the UN and the UN Security Council.
Bogdanov considered the situation in Cabo Delgado a serious issue, which is why his country was offering to help address it. It is worth noting that during an earlier high-level visit to Maputo by Russian Foreign Minister Sergey Lavrov, it was announced that Russia would increase counter-terrorism cooperation with Mozambique. Since then, no reports have been made available publicly about concrete contributions in fighting terrorism in Mozambique.
Mozambique has been grappling with an insurgency in its northernmost province of Cabo Delgado since 2017, but currently improving after the deployment of a joint military force with the primary responsibility of ensuring peace and stability, and restoring normalcy in Mozambique.
Bogdanov also met Minister of Foreign Affairs and Cooperation, Verónica Macamo Dhlovo, with terrorism again dominating the conversation between the two. Themes related to bilateral cooperation in the areas of economy and trade, the humanitarian sphere and others of mutual interest were discussed. During tropical cyclone Idai in April 2019, Russia helped by sending humanitarian supplies to Zimbabwe, Malawi and Mozambique.
Mikhail Bogdanov said that Russia places special emphasis on relations with countries on the African continent, highlighted the holding, in October 2019, of the first Russia-Africa Summit, at which Mozambique was represented by President Filipe Nyusi.
“Preparations are now underway for the second [Russia-Africa] summit, which will take place in 2022, and we would be grateful if Mozambique were represented at the highest possible level,” Bogdanov said.
Russia has had economic cooperation with Mozambique. There is an increasing interest of the Russian business community in building partnerships with Mozambique, which matches Maputo’s intention to attract Russian investment and technical assistance. Until recently, reports on the “hidden debts” scandal amounted to a $2 billion loan scam involving two banks, Credit Suisse and Russia’s VTB bank. The secrecy and corruption surrounding the loans dealt devastating blows to Mozambique’s credibility and reputation.
It was the Wall Street Journal that first revealed the hidden debt in April 2016. By U.S. court ruling, the Russian bank VTB agreed to pay more than US$6 million to settle the US Securities and Exchange Commission (SEC).
In 2015, Rosneft was awarded three licenses to extract natural gas near the Rovuma basin, in partnership with Exxon Mobil. The plan is to create a consortium with the participation of a Mozambican company, Rosneft and ExxonMobil to develop offshore hydrocarbon fields near Mozambique. Besides that, Inter RAO-Export and EdM (Mozambique) also signed a memorandum of understanding in power generation.
Back in August 2019, when President of Mozambique Filipe Nyusi held talks with Russian President Vladimir Putin, both agreed on deepening economic cooperation especially in energy, oil and gas exploration, and the development of Russian-Mozambican cooperation in various other mutually viable sectors. A series of bilateral agreements to boost that expected cooperation were signed between the two countries.
With an approximate population of 30 million, Mozambique is endowed with rich and extensive natural resources but remains one of the poorest and most underdeveloped countries in the world.
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