Development Partners International (DPI) a private equity firm deploying global capital to unlock the potential in Africa’s high growth, in October announced the close of its third fund, ADP III at $900m, with an additional $250m of dedicated co-investment.
This was their biggest PE close for many years. Eduardo Gutierrez-Garcia, a partner at DPI, talked to us about the latest close and the state of PE in Africa post-Covid.
You mention that this fund will invest in innovation-led companies. What exactly is an innovation-led company?
These are companies that are essentially doing things in a new way, or a better way, in their markets. They may have figured out some better way of dealing with the supply chain or they have unique technology underpinning their product or their service.
The ultimate product or service is fundamentally the one that an African middle-class emerging consumer would want. The innovation would be around the delivery of the products or services.
Your investments are substantial, starting at $40m. How does your origination process work; have you got a strong pipeline?
Because our minimum investment size is quite big, the companies we invest in do tend to be the bigger companies on the continent and in the industries that we like to go after. We take a regional view as well as an industry view and ask ourselves ‘Who are the likely winners within those industries?’
As we seek out those companies, we look to build relationships. We will also let industry intermediaries know that we have an interest in a particular industry or companies and get them to source opportunities for us. So, there is direct sourcing by ourselves, as we identify things – or there are people bringing transactions to us.
Are there certain specific characteristics in terms of PE investment on the continent that are different to other regions?
There is a very broad spectrum to types of transactions that one might describe as PE or venture – from early-stage businesses, all the way through to quite well-established, developed growth companies, to very big infrastructure-type transactions.
On that spectrum, the types of transactions a party may invest in have different characteristics. In some cases, a low-growth company for example may require a sort of typical buy-out.
With an infrastructure deal, a longer time horizon may be needed to build and develop it.
An early stage transaction may require quite a big portfolio, until you’ve got enough winners to compensate for the losers. Within this range DPI targets growing, established companies.
Africa’s a huge place with big economies and we are very disciplined and confident around the five-year investment cycle. We will find eight to 12 companies that meet our criteria and that will be able to achieve the sort of growth that we are seeking that will have the appropriate governance features, the right industry features, an attractive investment hypothesis.
Also, equally importantly, we are confident that when the time comes to exit, we will be able to exit within the requisite timeframe.
It is all about knowing what you are looking for and being disciplined in the execution of that investor strategy.
If you’ve gone on a fundraising, you must be pretty confident in the African narrative despite the recent cycles that we have gone through?
Previously there has been quite a lot of hype around Africa – perhaps it was oversold by some parties. People may have made investment mistakes, which might have resulted in some disappointment for some investors and some funders.
We have been quite careful in not over-hyping Africa. We have got a team of people who understand Africa intimately and they are people from different countries, well plugged in, with a deep and firm understanding of those markets and able to find those opportunities and partner with shareholders or management teams to create even more value.
That’s what we present when we fundraise. That we are able to access those opportunities.
We’ve seen resurgent stock markets in the West, and a stuttering recovery in Africa. How tough was the fundraising?
I think it is fair to say it has been a difficult environment. On a relative basis, the West has done quite well. We were able to demonstrate to our limited partners across our existing funds that we did what we said we were going to do. We’ve delivered sensible and sound returns.
We go beyond financial returns, we also measure and track non-financial outcomes, such as, gender balance, trying to reduce carbon footprints, employment growth – the sorts of things that I think are also increasingly important to investors.
We’ve got the trusted backing of LPs who have backed us again. Then there are also other LPs who are intrigued by what we are doing and sought to back us this time round. It has been a long conversation and a difficult process, so we are very pleased with where we ended up.
But the appetite is still there?
Absolutely. I think we have demonstrated that there is appetite there. As global economic dynamics change over time, that appetite may well increase. It is hard to predict with the current global environment.
I know you have a number of metrics, non-financial, that you apply to your investments. Do you think that this focus, essentially Environmental, Social and Governance credentials, helps?
It certainly does. Investors are increasingly looking for their investments to also deliver some sort of ESG impact. So, if you can demonstrate a commitment or track record of doing that, it definitely helps.
But you also have to be able to convince them that you can deliver the financial returns that they are seeking. You have to be able to cover both aspects.
According to the African Private Equity and Venture Capital Association, PE funds investing in Africa raised $1.2bn in 2020, down from $3.9bn in 2019. Will the numbers go back up on the fundraising side?
There has been a huge recession in Africa. A lot of funders have withdrawn. In some cases, there has been a level of disappointment with the investment returns.
However, some fund managers have done well and in certain niches, it remains quite healthy. I think there is a lot of interest in technology funding for example; in things like renewable energy, some infrastructure. In the areas we’re in, it really does depend on the track record and the trust in the manager.
I think fundraising was at a low point before we announced our own. I am actually feeling quite confident that the industry will start growing and become of the size that it ought to be in Africa.
One of the main concerns I hear from investors is currency risk. Hence why they often invest in companies with USD denominated revenues. Which doesn’t seem to be the case with the companies you invest in. How do you manage that currency risk and the potential downside of currency devaluations?
Currency devaluations pose significant risk. We take a portfolio view on that. We consider the currency risk across the portfolio and actually, some of our companies do have natural hedges within them.
When we look at an individual transaction, we consider the risk of currency devaluation and whether or not the target has features which might mitigate that risk.
We try to understand the currency within which it operates and what we anticipate currency devaluation will be. The approach we take seems to have worked.
You recently invested in a tomato processing company, SICAM in Tunisia. Why that particular business?
Firstly, Tunisia is the biggest per capita tomato consumer in the world; so, there is a big local market. It’s a leading producer of tomatoes in the world due to the amount of sunshine it gets. It’s a competitive product to export into Europe and elsewhere.
We saw a big opportunity to help them significantly increase their export initiatives and to benefit from the global competitive advantage that Tunisia has in that industry. Great management team; great product.
So, it checked all the boxes for us. Now that’s a good example of the kind of deals that we do; in its own way, it’s a world-class company.
‘One out of four Africans is Arab and three out of four Arabs are African,” says Sidi Ould Tah, director general of the Arab Bank of Economic Development in Africa (BADEA).
Since 1975, the Khartoum-based development bank has offered technical assistance and finance for public development projects across Africa. It disburses between $150m and $200m each year in a range of sectors including agriculture, infrastructure, energy and SMEs.
Speaking on the sidelines of the bank’s Second Arab-Africa Trade Forum in Cairo in October, the director general says that Arab countries have the potential to step up investment in Africa and remain bullish on the continent’s growth prospects.
“Every Arab country is keen to invest in Africa. The image of Africa which was mainly negative has changed and now the various resources in most of the African countries are really attractive for investors around the world,” he says.
The bank’s shareholders are all member states of the Arab League but the specific mandate of the bank is to invest shareholder capital in the African countries that do not belong to the collection of Arab states.
This means that it operates in 44 countries which are predominantly in sub-Saharan Africa, not in North Africa. The last African country to join the Arab League was Comoros in 1993.
BADEA says it was one of the first development finance institutions (DFIs) in Africa to respond to the outbreak of Covid-19 last year.
“We took the decision in March 2020 to commit $100m to support eligible countries,” says Tah. “We have increased that amount substantially over the last year, we have been part of many initiatives together with other DFIs and Arab coordination groups.”
In November 2020, BADEA, Afreximbank, and ITFC launched a $1.5bn Covid-19 Pandemic Response Facility (COPREFA) to support African economies with rapid financial assistance to reduce the impact of the pandemic.
The bank’s investments are diverse. In August, the bank signed agreements with West African countries worth over $100m, including a road modernisation project in Guinea Bissau, the building and equipping of a university hospital centre in Abidjan, Côte d’Ivoire, and the development of watershed projects on three islands of Cabo Verde.
In terms of capital, the bank’s last increase was in 2013 and the director general says that the bank has been “steadily” expanding its pipeline of projects since then. Rather than push for an increase in shareholder contribution, Tah says that he is happy with the pace of growth.
“An institution has a speed at which it grows, so we don’t see the need for another capital increase. The member countries will be there if needed,” he says.
The former minister for economic affairs and development in Mauritania explains that the bank is relatively unique as it has not issued bonds to raise funds. This puts the financial institution in a very flexible position where it could easily tap into public debt if it wanted to.
“We currently have zero debt,” says Tah. “We are allowed to borrow 200% of our shareholders’ equity so have room for mobilising resources from the market if need be.”
One major pivot the bank has recently undertaken is a move towards lending to the private sector. In 2015, the bank began various types of private sector funding “to support trade between Arab countries and sub-Saharan Africa but also trade within Africa”.
“The shift stems from the change in the structure of economies in Africa, as you know there is a growing role of the private sector and cross-border trade,” says Tah.
The bank entered its eighth five-year plan in 2020, which the director general says aligns to the objectives of the sustainable development goals (SDGs) and also the African Union’s Agenda 2063.
Despite the opportunities for Arab investors in Africa there are several barriers to investment and trade flows between the two regions. Tah says the business environment in many African countries needs improving, though this is “not very different” to other developing regions.
“In sub-Saharan Africa we are working with many institutions and governments to make the business environment more conducive and the countries more attractive,” he says.
“In this regard we have been supporting capacity development and we are developing ties with investment promotion agencies to try and help them adopt best practices.”
But African countries and companies must also be comfortable working with Arab investors. Tah says that Arab investors in Africa are generally seen in a very positive light.
“The image of the Arab investor is one who is not only motivated by gain but also to the contribution and development impact of alleviating poverty in the countries,” he says.
The ease in working relationships stems from shared values that are based on a long history of cooperation between the Arab world and Africa.
“There is an inextricable link between two regions that have shared very strong ties,” Tah says.
“The main capital of this relationship should be development. It makes it very easy for investment to flow from one region to another, based on mutually beneficial projects. The principle on which the bank has been created is equality.”
In fact, the reason why the bank is based in Khartoum is because Sudan is a very good example of the “co-existence of sub-Saharan Africa and the Arab-African populations”.
“Sudan is a bridge between North Africa and sub-Saharan Africa so I think the location is very well selected,” says Tah.
Author Steven Friedman begins Prisoners of the Past with a paragraph that reads: “In one of those polarised arguments which are typical of South Africa political debate, a quarter-century of democracy has either changed everything – or nothing. Both views are right and both wrong.”
In many ways, this is the crux of this intriguing book. Friedman, a research professor attached to the Department of Politics in the Humanities Faculty, University of Johannesburg, is a political scientist and former trade unionist who specialises in the study of democracy.
But if you were expecting a dry, academic tome, you would be mistaken. His narrative is clear, concise, and free from the complicated terminology that mars many academic books.
An exclusive club
The common, conventional view is that post-apartheid South Africa enjoyed an all-too brief period under the enlightened presidency of the saintly Nelson Mandela. This era was followed by the dour and learned Thabo Mbeki, before Jacob Zuma’s tenure characterised by “state capture” and accusations of high level corruption.
Friedman is clear. “The Zuma administration did great damage,” he writes. “But corruption did not disrupt an economy and society that worked for all. Rather, corruption was a symptom of the fact that they worked for far too few.”
He asks us to view South Africa in 1994 as a country whose economy and society were controlled by an exclusive club comprised of only white people.
Since 1994, the club has taken on new black members – but it remains an exclusive club because many cannot gain admission and most of the new members lack the same power and privileges enjoyed by the old ones.
Friedman offers the view that the black majority were not duped into accepting this reality, but that it boiled down to one simple fact: that the goal of the new order agreed upon was that the new democracy would offer to all what was previously only enjoyed by whites under apartheid.
It is here that Friedman introduces the work of the economist Douglass North (and his followers) and the concept of “path dependence”, in which decisions presented to people are dependent on previous decisions or experiences made in the past.
North, an American economic historian whose work on institutions won him the Nobel Prize in 1993, uses this term to explain why societies can experience political change but remain fixed upon an economic path.
Friedman argues that the economic and social developments post-apartheid had their roots in the pre-1994 realities of minority rule, a system that 30 years of ANC rule has been unable to tear down.
In recent years, Nelson Mandela’s decision to prioritise a peaceful political transition from apartheid over a potentially disruptive economic one has come under increasing scrutiny, not least from those on the left of the ANC and the socialist Economic Freedom Fighters.
Friedman says that the settlement that ushered in majority rule left intact core features of the apartheid economy and its bifurcated society. The economy continues to exclude millions from its benefits, while discrimination on the basis of race has proved difficult to shift.
Friedman contends that while the obscenity of apartheid is discredited, “the values of the pre-1948 colonial era, the period of British colonisation, still dominate. Thus, South Africa’s democracy supports free elections, civil liberties and the rule of law, but also continues past patterns of exclusion and domination.”
Friedman writes perceptively: “At no point since majority rule was achieved has the governing party developed a strategy clearly designed to end path dependence. While mythology assumes the Reconstruction and Development Programme (RDP) was the planned antidote, it was not a coherent plan for a new order.”
The author argues that the most workable means of ending path dependency’s negative consequences is negotiated compromise between the holders of power and those that seek it, those with a stake in the patterns of the past and those with an interest in ending them.
Friedman insists that the RDP, pioneered in 1994 by Mandela’s government, was not the radical charter that myth held it to be, nor the radical charter that South Africa so desperately required.
He makes the claim that since the ANC’s return from exile, its economic policy had undergone significant revision as its strategists (primarily Trevor Manuel, South Africa’s first black finance minister, and Tito Mboweni, who would become governor of the Reserve Bank and also a finance minister) sought to soften radicalism to ensure that it did not drive away investment.
Indeed, Friedman says that “By the time the final version [of the Reconstruction and Development Programme] became ANC policy the RDP was more a fudged reflection of internal ANC compromises than a call to a new order.
“Before it became government policy, the RDP was again subject to negotiation, which ensured that the White Paper was even less a blueprint for radical change than the already watered-down ANC version.”
Friedman aligns himself with the work of Harold Wolpe, a lawyer, anti-apartheid activist, and friend to both Nelson Mandela and Joe Slovo, who wrote a critique of the RDP and argued (in the last article he published before he died in 1995) for the need for renewed negotiations as a means to escape the trap of path dependency and make a clean break from the old order.
Until negotiations take place on a fairer and more sustainable economic dispensation, many believe South Africa will remain trapped by the inequalities of its brutal past.
Despite his relatively young age, Vincent Le Guennou can be considered a veteran in African investment. As one of Africa’s most prominent private equity investors, he has undoubtedly helped shape and grow the industry.
For two decades, as founder and co-CEO, he was the force behind the growth of Emerging Capital Partners. His next challenge, as CEO of Africa50’s Infrastructure Acceleration Fund, will be to re-shape the African infrastructure space.
Industry insiders describe him as someone who is brimming with ambition and driven by a strong passion to see Africa succeed. He was described by a former colleague as a great communicator and excellent at getting investors to buy into his vision – in other words, an expert fund raiser.
He joined Africa50 because he sees an opportunity to make a lasting impact in what is arguably the toughest sector to make a significant dent in: infrastructure.
The lack of hard infrastructure is a major constraint to the region’s economic growth, possibly lopping off three to four percentage points a year. Africa’s shortcomings in this regard, especially in road, rail and power infrastructure, have been well documented.
Even in mobile telephony and broadband, the scarcity of necessary infrastructure means that Africans pay some of the highest data costs as a percentage of GDP.
Le Guennou explains that the Fund intends to try and fill the infrastructure gap by investing in a number of key sectors, such as power, water, ICT, gas distribution, and also in social infrastructure projects in healthcare and education.
His first few months will be dedicated to achieving the fund’s first close next year, which will raise part of the $500m set as his total target over a number of closings.
Given the size of the gap, is $500m sufficiently ambitious to be able to make a considerable dent
Le Guennou says that once you leverage that amount, the Fund will contribute to raising total financing of $5-6bn worth of investments.
Individual investments, he says, are expected to be in the $40m range, with the company taking equity and quasi-equity positions.
“It will be a commercial fund looking for commercial returns,” he says. He cites the Azura-Edo IPP project in Nigeria as a success story he’d like to replicate.
What does he think about the oft-quoted statements that ‘there are just not enough bankable infrastructure projects in Africa?
“That is a facile excuse,” he says. “There are more than enough excellent opportunities on the continent, for a fund of our size. But this does not alter the fact that there is a need for further early-stage equity funding to increase the number of bankable projects,” he stresses. The Fund has no concerns about taking on more perceived risks than other financial institutions in Africa.
He expects a broad set of investors, from the traditional DFIs to private and institutional investors in Africa, Europe, North America and Asia to contribute to the Fund. He is also confident that despite fast-growing stock markets in Europe and the US, there is still appetite for emerging and frontier markets. “We are fairly optimistic that the continent will continue to attract international private sector investors provided that we come with the right product offering.”
Ironing out the wrinkles
One aspect of infrastructure investing that Africa50 is trying to remediate is the lead time between identifying an opportunity and reaching financial close, which at the moment is too long.
Le Guennou explains that the Acceleration Fund will go a long way towards achieving this because it will benefit from and complement Africa50’s other activities, which provide early-stage equity funding to help bring projects to bankability.
He also rejects the suggestion that investors are too risk-averse in Africa and will only invest in gold-plated, risk-free projects. Based on his experience in the private equity space, he says it’s important not to short-cut any process in terms of the quality of structuring, but rather be creative and innovative in mitigating risks and constraints that hold back greater investment: “I would rather be creative about mitigating risks than try to be bold and increase the level of risk that we are taking.”
One area under consideration is gas distribution. This leads to the thorny discussion about investing in fossil fuels at a time when the focus is moving inexorably towards greener energy. He says Africa50 sees gas more as a ‘transition’ fuel and transactions they finance will generally be mid-stream, with the aim of contributing to a low carbon economy.
“Africa50 is developing a measurement system that will give projects scores based on development and environmental impact. The Acceleration Fund itself will have a climate strategy which will drive investment decisions; we will make sure that when we invest in a project, it helps the continent become greener,” he pledges.
As such, the Fund will be able to meet ESG credentials that institutional investors today and DFIs, especially those in Europe and North America, are seeking.
Environment much better today
Le Guennou says that Africa50’s approach to developing early-stage projects, as well as its experience in the market, means that deploying the capital raised by the Fund should not be an issue at first close.
“We have already identified a number of transactions,” he says. “The idea is to go live with a number of projects so that we don’t have to face issues about how to deploy capital when you have the first close.”
Having been involved in the African investment space for two decades, what are his thoughts on the regulatory environment, which has at times been accused of moving too slowly, and thus adding to the lead time to bring projects to financial close?
“The environment has improved tremendously over the last 20 years and maybe even more in the last 10 years,” he says.
He credits a good deal of this to the work of the DFIs and the international finance institutions, “who have helped build capacity. We are now seeing huge infrastructure transactions close as a result. The trend is positive, and I view that as an upcycle.”
Le Guennou has been a leader throughout his career. After an impeccable education at French and American Ivy League institutions, he now joins an institution that has been created to think differently and unlock the infrastructure investment conundrum.
If he manages to cut the infrastructure Gordian Knot, develop a track record, and bring African and international institutional investors with him on the journey, the floodgates may open for what is arguably the most important asset class to sustain rapid African development over the next two to three decades.
How do you view the prospects for the Egyptian economy in the short, medium and long term?
The Covid-19 pandemic was a test to the Egyptian economy, especially due to the country’s drop in foreign currency inflows.
However, the impact wasn’t as severe as everyone expected it to be for a country as densely populated as Egypt, and we started to see signs of recovery in economic activity, and economic growth is expected to reach 5.2% in FY 2021/22, according to the International Monetary Fund (IMF).
Consequently, the private sector will continue to grow and achieve its potential for job creation and sustainable market expansion.
In which sectors are you seeing most scope for growth as a bank?
The e-commerce sector, coupled with fintech, has been driving economic growth in recent years. E-commerce in MENA is expected to grow by 35% year-on-year in 2021 to reach around $30bn, which is double its value in 2019.
Consumers have been leaning more toward online shopping due to its ease and speed, and our services currently cater to this need, allowing customers to perform secure online banking transactions remotely.
In FY 2020, the number of individual customers subscribed to CIB’s online banking service increased by 35% year-on-year, while the CIB Smart Wallet witnessed an increase of 107% in transactions.
Another leading sector in terms of growth is fast-moving commercial goods (FMCG), driven by strong consumer spending and an increasingly formalised retail sector.
Total household spending will expand at a real rate of 3.7% over 2021, and average 4.2% per annum in local currency-terms over the 2021-25 period, making Egypt the second fastest-growing consumer market in the MENA region, creating a higher buying power for consumer goods.
In terms of your own banking services and operations, where will CIB be devoting most attention?
In line with the Central Bank of Egypt’s directions and the bank’s strategy in acquiring a bigger share in the SME credit market, business banking started working on an “Accelerated Growth Plan” through amending our credit policies, alternative score lending model, investing in people, premises, IT developments and wider distribution through business hubs.
To enhance our service model and ensure full coverage, a “New Service Model” was launched in 2021, aiming to expand the coverage of small businesses. We also mapped our branches into household, flagship and corporate to provide tailored services to customers.
For consumer banking, we will continue to focus on strategic priorities such as digitalising the acquisition efforts, marketing activities and service model to support our premium pricing strategy. We’re also concentrating on upgrading our technologies and redesigning our customer experience through introducing transformation projects.
CIB is implementing digital transformation throughout its entire business, from product development to risk management and human capital management.
With digital banking mapping out the future of businesses and the economy at large, big data has become a vital tool to building information-gathering and analysis structures and turning quantitative knowledge into building blocks for future strategies.
CIB has been vocal about expanding its African footprint and acquiring new assets abroad. Is this still part of CIB’s strategy or has the pandemic changed priorities?
Diversifying our operations and expanding into other African nations is still part of our strategy for the coming years. Africa houses some of the fastest-growing economies in the world, which represents a golden opportunity to grow and solidify CIB’s continental footprint as a trade finance hub.
We are currently in the process of identifying potential African trade finance opportunities as we continue to support the growth and development of our subsidiary in Kenya.
Is there room for banking consolidation?
Currently, the Egyptian banking sector is composed of 38 banks, where the level of business activity – number of branches, number of customers, assets and liabilities portfolios, etc – is proportionate to the equity size.
This fragmentation negatively impacts the market, we therefore believe that consolidating some of these entities will create a more competitive banking system with an increased customer satisfaction, and most importantly further push the financial inclusion efforts and reach more easily the unbanked and under-banked segments of the population.
Has the adoption of new technologies resulted in the returns that you envisaged?
Our efficient digital banking solutions have helped expand our customer base across all segments. CIB’s digital platforms became crucial for customers during the Covid-19 pandemic to conduct seamless, secure transactions. It also helped facilitate customers’ migration from branches to the bank’s online services.
This has helped CIB maintain its dominant position in Egypt’s payment acceptance sector in 2020. In the past year, the number of digital banking transactions performed through the bank’s mobile banking service has more than doubled, jumping by 118% year-on-year.
Corporate digital services have also witnessed a major leap, as customers now completely depend on channels offering alternatives to cash transactions and paperwork.
The percentage of corporate internet banking transactions increased by 93% year-on-year, with the number of subscribers increasing by 45% in FY 2020.
CIB digital products include Zaki the Bot, an artificial intelligence chatbot, available on the bank’s website and official Facebook page. Zaki the Bot uses the latest AI technologies that allow CIB customers to easily navigate the bank’s products and services in both Arabic and English.
CIB recently successfully raised a $100m Green Bond. How and where will you be deploying this capital?
CIB’s Green Bond approved pipeline currently has projects in various industrial sectors worth around $70m, including CIB’s headquarters building in the New Administrative Capital, which is in the process of being certified as a green building.
Three projects in the banking and educational sector and the food and beverages industry are also pending certification, with more promising projects underway. It is expected that certified green buildings will be a large part of the projects to be financed, considering that CIB has partnered with IFC on the development of the first green building financing line in Egypt.
Industrial energy efficiency, manufacturing of energy-efficient equipment and water waste projects will also be the focus of CIB financing under the green bond.
Twelve months after the official start of trading under the African Continental Free Trade Area (AfCFTA) agreement, some commentators fear that the project is losing steam.
Despite the “fantastic surprise speed” of progress in 2020, “the AfCFTA seems to be losing the momentum it gained amongst African leaders at the very time its importance is recognised elsewhere,” says Carlos Lopes, professor in the Mandela School of Public Governance at the University of Cape Town.
“This apparent paradox has to be dissipated fast,” he warns.
Lopes argues that while the Covid-19 pandemic is responsible for slower progress in getting the AfCFTA up and running, the real stumbling blocks lie in three elements that are eroding consensus:
the never-ending discussion on the rules of origin, which is the intersection between trade and possible industrial policy;
a lack of capacity in the Secretariat to push the agenda, given its launch in the middle of the pandemic.
In this article we look at the background to the AFCFTA, catch up on progress towards its full implementation and consider whether it really is losing its way.
Current untapped export potential of intra-African trade is $21.9bn, says UNCTAD
“Comparing export potential to actual trade reveals that the total untapped export potential of intra-African trade is around $21.9 billion, equivalent to 43 per cent of intra-African exports (yearly average for 2015–2019),” according to the UN Conference on Trade and Development’s (UNCTAD) Economic Development in Africa Report 2021.
“More than one third of that export potential is explained by frictions, namely, static untapped export potential, which implies that $8.6 billion in trade could be realized by engaging actively in efforts to identify and address current market frictions in African trade today,” says the report.
What is the AfCFTA?
The AfCFTA is an ambitious trade pact to form the world’s largest free trade area by connecting almost 1.3bn people across 54 African countries.
The agreement aims to create a single market for goods and services in order to deepen the economic integration of Africa. The trade area could have a combined gross domestic product of around $3.4 trillion.
However, achieving the AFCFTA’s full potential depends on significant policy reforms and trade facilitation measures across African signatory nations.
The AfCFTA aims to reduce tariffs among members and covers policy areas such as trade facilitation and services, as well as regulatory measures such as sanitary standards and technical barriers to trade.
The agreement was brokered by the African Union (AU) in response to a growing realisation that trade integration across the African continent has long been limited by outdated border and transport infrastructure and a patchwork of differing regulations across dozens of markets.
The low level of intra-African trade in comparison with that between countries on other continents in particular reflects the continent’s position as an exporter of raw materials to the rest of the world. It is hoped that the AfCFTA will greatly boost Africa’s industry and agriculture.
Initial progress on developing the AFCFTA was relatively rapid and an agreement was signed by 44 of the AU’s 55 member states in Kigali, Rwanda on March 21, 2018. The only country still not to sign the agreement is Eritrea, which has a largely closed economy.
Many issues remain to be solved
Trading under the agreement commenced in a limited form on 1 January 2021, after a sixth month delay as a result of the impact of Covid-19.
Although trading has officially been launched, negotiations on many issues need to be resolved before the agreement can fully function. The negotiations have been divided into three phases:
Phase 1 negotiations – trade in goods and services. Negotiations led to the ratification of legal instruments (the AfCFTA agreement itself and protocols on trade in service and goods and settlement of disputes) that came into force on 30 May 2019, permitting the launch of trading. However, negotiations continue on many details (see “Update on progress” below).
Phase 2 negotiations – intellectual property rights, investment and competition policy. Some of these negotiations have already begun (see “Update on progress” below).
Phase 3 negotiations – e-commerce. These negotiations are due to begin when phase 2 is complete.
“Our main priority is to make sure that significant trade starts to happen across the continent under the AfCFTA regime,” explained Chidede.
“For trade to happen we have fundamental issues that we have to finalise. In terms of negotiations we have rules of origin, tariff schedules, trade in services commitments and non-tariff barriers.”
Rules of origin
The rules of origin are important because they determine the goods that are going to benefit from preferential treatment under the AfCFTA, explained Chidede.
According to the Secretariat website, they are “the criteria needed to determine the national source of a product. Their importance is derived from the fact that duties and restrictions in several cases depend upon the source of imports.”
Chidede said that the negotiations were 87.3% completed and that the Secretariat is engaging with stakeholders and member states to ensure they are finalised as soon as possible “because without the rules of origin we cannot trade under the AfCFTA”.
Negotiations are under way to eliminate tariffs on 90% of goods over a five-year period (10 years for least developed countries, or LDCs). An additional 7% of tariff lines are deemed “sensitive”. Tariffs on these goods will be eliminated over a 10-year period (13 years for LDCs). A remaining 3% of tariff lines can be excluded from liberalisation, but the value of these goods cannot exceed 10% of total intra-African imports.
“Countries are submitting their tariff offers,” said Chidede. “So far we have received 43 tariff offers from member states and they’re going through technical verification at the AfCFTA Secretariat, and of the 43, 29 comply with the modalities and principles of trading goods, which means that these 29 tariff offers are ready to commence trade.
“Member states are ready to commence trade as they comply with the threshold of trading under the AfCFTA.”
Trade in services
“We have the protocol on trade in services, but for trade in services to happen, member states or state parties have to make specific commitments, which we call service commitments. In service commitments we have received 44 initial offers. They go through the same processes as trade in goods. Malawi was the latest one to submit its initial offers.”
Non-tariff barriers (NTBs) restrict trade using forms other than tariffs, such as quotas, embargoes, sanctions and levies.
They are a greater hindrance to intra-African Trade than tariff barriers, says the Secretariat website. “One of the key objectives of the AfCFTA is to progressively eliminate existing NTBs and refrain from introducing new ones in order to enhance and facilitate intra Africa trade. The Continental tool will ensure NTBs are monitored with a view to ensuring they are eliminated.”
“We’re trying to ensure that traders and businesses are able to report when they encounter non-tariff barriers when they encounter them through trading or when they are at the border. Then they get resolved through the mechanism.”
He added that the Secretariat was trying to ensure that businesses know how to use the system through sensitisation, with training sessions in collaboration with member states or other development partners to come next year.
Phase 2 issues
While the above issues relate to phase 1 of negotiations (which were originally supposed to be concluded by July 2021), Chidede said that progress was also being made on phase 2 issues including investment, intellectual property rights, competition policy, digital trade and women and youth and trade.
Member states have received documents on the investment and competition policies and are in the process of carrying out national consultations. Meetings are planned for early next year on digital trade, women and youth and trade and intellectual property rights.
One of the main findings of the PAFTRAC CEO Trade Survey Report was that a majority (62.3%) of respondents did not know where or how to find information about the AfCFTA.
Asked what information the Secretariat would be providing, Talkmore Chidede said that the Secretariat was working in collaboration with Afreximbank to make sure that information is available to the private sector.
When up and running, Afreximbank’s African Trade Gateway will provide digital assets to eliminate some of the challenges to intra-African trade.
“We are also developing a website for the AfCFTA Secretariat such that we have all the information and updates to whatever processes you are doing in relation to the AfCFTA negotiations, AfCFTA processes or any information that is very useful to the private sector.”
“We are also doing capacity-building workshops. We have some scheduled next year, to ensure that we do country workshops to sensitise the private sector and all the stakeholders about the AfCFTA and all the processes and give them an update on where we are with the negotiations, where we are in terms of implementation.”
He added that every country is supposed to have a trade portal housing information about the AfCFTA.
While many traders may have seen the AfCFTA as “dead in the water”, other remain optimistic.
As South African journalist and Institute for Strategic Studies consultant Peter Fabricius points out, the limited progress in negotiations does not cast doubt on the viability of the AfCFTA. The full goal of removing tariffs from 97% of goods is not even supposed to be met until 2034.
“Complex trade negotiations no doubt take time. But by firing the starting gun almost a year ago when no runners were out of the starting blocks, African leaders have created confusion, especially among traders,” he writes.
This opinion is echoed in UNCTAD’sEconomic Development in Africa Report 2021, which found that the time needed to resolve issues has varied between 46 and 2,082 days in negotiations to set up the tripartite free trade area between the Common Market for Eastern and Southern Africa (COMESA), Southern African Development Community (SADC) and East African Community (EAC).
Issues related to rules of origin have taken on average 536 days to be resolved, with half of all issues related to rules of origin only being resolved in about one year, says the report.
The rules of origin were a sticking point for the AFCFTA from the beginning, said Omar Ben Yedder, group publisher and managing director of IC Publications (publishers of African Business), as he moderated the PAFTRAC webinar.
“Until that is resolved, nothing is resolved, so to speak. And it has to be sequential – you have to solve certain problems sequentially, before we can open the floodgates.”
Private sector must be part of the negotiations
“The private sector wants to be part and parcel of the negotiations,” said Amany Asfour, president of the Africa Business Council at the PAFTRAC webinar.
“Policymakers and negotiators within the government sector are not the ones who are going to implement the AfCFTA, but it is the private sector,” she said, underlining that the sector is overwhelmingly made up of SMEs, many run by women and young people.
“How will the AfCFTA impact the private sector?” she asked. “How does it create jobs? How does it make value addition? How does it transfer technology? How does it help industrialisation?”
According to the Africa Report, the AfCFTA Secretariat has received permission to recruit 350 more officers, including trade lawyers and economists, who should help to speed the implementation process, which will perhaps address the problem of the Secretariat’s weakness in pushing its agenda raised by Carlos Lopes.
In an interview with the Africa Report conducted in late November, the Secretariat’s secretary-general, Wamkele Mene, said this would allow the Secretariat to recruit the “brightest and best Africans” and build a “civil-servant sense of public service in the secretariat” that would serve the continent for decades.
He also expressed a faith in the commitment of Africa’s heads of state that contrasted with Lopes’s view that the project was losing momentum.
“I saw it from the beginning,” he said. “I have never seen this high level of commitment from our heads of state, who want to make sure our continent becomes industrialised. [That] we create jobs for young people. And that we place ourselves as a continent on a path to success and prosperity.”
But negotiators should still take heed of Lopes’ warning: “Without progress on the AfCFTA, Africa will be on the receiving end as usual. We need to accelerate the pace.”
Why we need a “Made-in-Africa” brand
At November’s Intra-Africa Trade Fair (IATF) in Durban, former Nigerian President Olusegun Obasanjo called for the creation of a Made-in-Africa brand that would promote intra-African trade and boost the international export of African products.
He told the audience that having such a brand would instil a sense of pride in each African country.
He said that the AfCFTA was working to remove the divisions that were brought about by colonialism, where Africa had been divided into regions based on the languages of the colonisers. The shared vision of IATF 2021 participants and traders was what would bring the AfCFTA to life, he declared.
Speaking at the PAFTRAC webinar, Amany Asfour, president of the Africa Business Council said:
“We are advocating to have at least 40% of all government procurement go to African private sector local products. If we give the big corporates all the government procurement then we are going nowhere.
“If we want AfCFTA to happen, we must have an African product that is strong, quality, competitive, standardised and value-added. We are not going to export again raw material… We need to have a standard product we call ‘Made in Africa’ we can trade among ourselves.”
“This summit is a testament to the fact that Turkey is interested in Africa and Turkey’s interest in Africa is not a temporary interest, it is a maintained commitment. Our African brothers and sisters are showing they are interested in better cooperation with Turkey,” PresidentErdoğan told the assembled heads of state on the second day of the summit.
Some 16 African heads of state attended the summit, including Félix Tshisekedi, current chair of the African Union, Senegal’s Macky Sall, Ghana’s Nana Akufo-Addo, representing Ecowas, Rwanda’s Paul Kagame, Zimbabwe’s Emmerson Mnangagwa and Muhammadu Buhari of Nigeria.
They were accompanied by 102 ministers, including 26 foreign ministers, from 39 countries.
Why did some invitees not attend?
“Interestingly out of the 54 countries invited, several (like Togo) declined the invitation in order to conform with the AU’s Banjul formula (strategic partners like Turkey can only convey a limited number of African heads of state at the same time /year),” comments Oxford University researcher Folashade Soule on Twitter.
See below for Soule’s view that using the term “the new scramble for Africa” to describe recent Africa + 1 conferences such as the Turkey Africa summit or FOCAC 2021 is misleading.
Moussa Faki Mahamat, Albert Muchanga, AU commissioner for economic development, trade, industry and mining (ETIM) and Josefa Leonel Correia, commissioner for agriculture, rural development, blue economy and sustainable environment (ARBE) and other high officials from AU member states were also in attendance.
On 17 December, PresidentErdoğan and his wife Emine gave a dinner in honour of their guests at the Dolmabahçe Palace.
The two-day summit agenda reviewed cooperation between Turkey and African countries since the second summit in 2014 (see below) and drew up a framework for the partnership process going forward.
A parallel session on health took place on the margins of the summit on 17 December under the theme “Mobilising Potentials for African Health Needs in the Pandemic and Post-Pandemic Era” with ministers of health and heads of delegation from Africa and Turkish minister of health Fahrettin Koca in attendance.
“As the theme of this event is ‘Enhanced Partnership for Common Development and Prosperity’, we want to march down this path of development with our African friends and take our cooperation into the future. Our aim is to win with Africa and walk to the future together,” Çavusoglu told delegates on the first day of the summit.
He also announced that Turkey would deliver 2.5m doses of Covid vaccine to Africa in the coming days.
On the second day of the summit, President Erdoğan announced that Turkey would be sharing 15m doses of the vaccine with African countries in the next few months, adding that it was “a disgrace for humanity” that only 6% of Africa’s population had been vaccinated so far, reports Al Jazeera.
The summit also included sessions on agriculture, development and the defence industry.
The summit provided guidelines for Turkish cooperation with Africa for the next five years, with projects that will directly involve the private sector being decided.
The “Turkey-Africa Partnership Joint Action Plan 2021-2026″ contains concrete actions to be implemented jointly by Turkey, the AU and its Member States. It covers the following areas:
Peace, security and governance;
Trade, investment and industry;
Education, STI skills, youth and women’s development;
Infrastructure development and agriculture; and
Promoting resilient health systems.
According to Anadolu Agency, the final declaration said the parties committed to further strengthen and deepen the cooperation in the interest of the states and peoples and the next summit will convene in Africa in 2026.
“We’re very excited about the outcomes of today’s summit,” AfCFTA secretary-general Wamkele Mene told Antalya Diplomacy Forum. “This memorandum of understanding is within the overall framework of cooperation between Turkey and the African Union. And we hope that this memorandum of understanding will be the instrument, the tool, that we require to really accelerate trade relations between Turkey and the African continent.”
Mene added that trade facilitation, investment facilitation, the services sector and investment in manufacturing were some of the areas identified for specific focus.
In the closing ceremony, PresidentErdoğan said, “We want to develop together and increase the welfare of our people together, thus, we attach great importance to the memorandum of understanding.”
President Tshisekedi said Turkey had paved the way for a historic summit and hailed Turkey’s win-win approach towards Africa.
Growth of Turkey’s footprint in Africa
Ankara’s presence has grown rapidly on the continent under PresidentErdoğan, who has visited more African countries than any other African leader.
The volume of bilateral trade between Turkey and Africa rose from $5.4bn in 2003 to $25.3bn in 2020.
Over the same period, Turkish foreign direct investment in the continent grew from $100m to $6.5bn, and Turkish companies have become increasingly present across Africa.
The main sectors for Turksih trade and investment are construction, steel and cement, followed by textiles, household goods and electronic devices.
South Africa is Turkey’s largest trading partner on the continent,with bilateral trade of $1.3bn in 2019, but Ethiopia, where Turkish firms have more than 20,000 employees, has drawn nearly a third of Turkey’s investment in sub-Saharan Africa.
What began with economic outreach has progressed into a complex Africa policy encompassing business, aid, diplomacy, culture and military support.
Turkish Airlines, the country’s national carrier, which only flew to North Africa in 2003, now flies to 51 destinations in 33 African countries, 26 of them in sub-Saharan Africa.
In the educational field, Turkey has provided more than 14,000 African students graduate, post-graduate and doctorate scholarships since 1992, and runs 175 schools on the continent.
Security has also been a focus.Ankara has signed a string of arms deals with African countries. Kenya recently spent $73m on armoured vehicles from Katmerciler, an Izmir-based manufacturer.
On his most recent trip to Africa, PresidentErdoğan discussed the sale of unmanned aerial vehicles (UAVs, or drones) and armoured carriers to Angola and defence manufacturing in Nigeria, as well as signing a joint declaration with the presidents of signing a joint declaration with Presidents of Togo, Burkina Faso and Liberia reinforcing cooperation in the fight against terror organisations, as reported by POREG.
“Everywhere I go in Africa, everyone asks about UAVs,” said PresidentPresidentErdoğan, according to Turkey’s Daily Sabah, which notes that “the scale of Turkey’s drone program places it with the world’s top four producers – the United States, Israel and China”.
Turkey has also provided military equipment and troops to the UN-recognised government in Libya in its conflict with the Tripoli-based forces of Khalifa Haftar, in a move that has caused tensions with Egypt (see below).
On the other side of the continent,Turkish personnel train Somali government soldiers, and Turkey’s largest overseas base is situated near Mogadishu.
And during a bilateral meeting with PresidentErdoğan before the official commencement of the Partnership Summit on 17 December, President Buhari announced that the two countries were to strengthen security ties.
“Turkey has practical experience dealing with challenges over the years and Nigeria stands to gain from that,” said the Nigerian president.
The number of Turkish embassies in Africa has risen from 12 in 2002 to the current figure of 43, with a mission soon to open in Guinea-Bissau. Meanwhile, the number of African embassies in Ankara rose from 10 in 2008 to 37 in 2021, according to the MFA.
Tensions with Egypt
Tensions with Egypt have caused setbacks in this otherwise largely positive progression, according to former Turkish diplomat Yusuf Kenan Küçük.
There has been a polarisation between Turkey and Qatar on one side and Saudi Arabia, the UAE and Egypt on the other, over conflicts in Syria and Libya. The two blocs also have clashes of interests in Sudan and the Horn of Africa.
Turkey’s failure to recognise the legitimacy of General Abdel Fattah al-Sisi’s government after the overthrow of President Mohamed Morsi in 2013 has led to further tensions with Cairo.
The summit was originally due to take place in 2019, but was postponed at the time Egypt held the chairmanship of the AU. (It was postponed again in 2020 due to the Covid-9 pandemic.)
Writing in February 2020,Küçük suggested that “African countries might take into account possible reactions from Egypt when they consider improving relations with Turkey”.
In March 2021 Turkey announced that diplomatic ties had resumed, but this was denied by Egypt. However, despite the break in diplomatic relations, trade between the two countries has continued to flourish.
Criticism of Western approach to Africa
In its dealings with Africa Turkey has presented itself as a friend of the continent free of the exploitative and racist baggage of former colonial powers.
In October 2021,PresidentErdoğan undertook a tour of three African countries, meeting leaders and investors in Angola, Nigeria and Togo.
“As Turkey, we reject Western-centred Orientalist approaches to the African continent. We embrace the peoples of the African continent without discrimination,” he said in a speech to the Angolan parliament.
Turkey has also been critical of the West over its failure to give Africa greater support during the Covid-19 pandemic.
In TogoPresidentErdoğan announced that Turkey would be donating Covid-19 vaccines to the region, a promise that was followed up on 7 December with the delivery of vaccines to Togo and Burkina Faso by the Organisation of Turkic States.
According to the Turkish daily Hurriyet, a third of the 600,000 doses delivered were Sinovac jabs allocated by Turkey.
PresidentErdoğan also took up the theme at October’s Turkey-Africa Economic and Business Forum (see below).
“Turkey is proud to have contributed to African countries in their fight against the novel coronavirus with Turkish-made respirators, masks and overalls,” he told delegates.
“The peoples of Africa were unfortunately left to their fate in the face of the virus while Western developed countries were engaged in mask wars. The essence of our relations with Africa is sincerity, brotherhood and solidarity.”
2005 was designated “The Year of Africa” and in 2008 Turkey became a strategic partner of the AU.
Previous editions of the partnership summit were held in 2008 and 2014, in Istanbul and Malabo, Equatorial Guinea, respectively.
The 2008 summit formalised the strategic partnership between Turkey and the AU and adopted compacts which determined a wide range of primary areas for cooperation, ranging from intergovernmental cooperation, trade and investment to security and educational ties.
The 2014 summit adopted the Malabo Declaration as a basis for strengthening partnership and cooperation between Turkey and Africa and led to a Joint Implementation Plan for 2015-19. The plan was reviewed at a meeting of senior officials in March 2015 and a list of priority projects was drawn up.
In a 2018 ministerial review conference held in Istanbul, it was agreed to develop concrete projects, in line with Agenda 2063.
According to the MFA, projects have been implemented in the fields of trade and investment, peace and security, education and culture, youth empowerment and technology transfer, rural economy and agriculture, energy and transportation.
In preparation for the third summit, Turkey submitted to the AU a report on Turkish-African cooperation between 2015 and 2020 and a five-year action plan for the coming period.
The AU website provides further details of multilateral cooperation between Turkey and Africa in recent years.
The theme of the forum was “Deepening Turkey-Africa Partnership: Trade, Investment, Technology and Logistics”.
According to the MFA, it was attended by 2,500 participants from Turkey and 71 countries (including 46 African countries), with 43 high-level speakers, 22 ministers, four deputy ministers and representatives of African regional economic communities among the participants.
President Erdoğan announced that Turkey aims to double its bilateral trade volume with Africa to $50bn.
The pledge was echoed by the chairman ofTurkey’s Foreign Economic Relations Board (DEIK), Nail Olpak, who said: “Signing free trade agreements, agreements to reciprocally strengthen and protect investments, besides cooperation and knowledge-sharing in the fields of industrialisation, agriculture, construction, textiles and health, are our priorities.”
Speaking to Turkish state broadcaster TRT at the forum, Fahti Akbullut, the president of the Turkish-African Business Association said that people had realised that the partnership between Turkey and Africa was not a short-term thing.
“It is actually something the Turkish government is looking to on the long run. Realising this, a lot of countries that are looking for foreign direct investment (FDI) are looking into Turkey to see how they can take this cooperation to the next level,” he told the broadcaster.
Promotion of public-private partnerships was highlighted at the forum as a critical element in the development efforts of both Africa and Turkey.
“Encouraging and facilitating private sector exploitation of investment and business opportunities is… a key objective of the forum, as is increasing interaction between the business communities of Turkey and Africa,” according to the AU.
‘Without Africa there cannot be a prosperous world’
In comments on the sidelines of the forum to Anadolu Agency, the Turkish foreign ministry’s director-general for Africa, Nur Sağman said: “We want to develop together. We want to support [African countries] and be on their side.”
“Everyone will one day realise that without Africa, there cannot be a prosperous world. That’s why we all need to move forward, hand in hand with Africa,” she added.
A “new scramble for Africa”?
The plethora of “Africa + 1” conferences taking place recently has led many to talk of a “new scramble for Africa”, reflecting the original “scramble for Africa” by European powers, who carved up the continent between them at the Berlin conference of 1884-5.
But such a narrative is misleading, according to Oxford University academic Folashade Soule.
In an article published in African Affairs, October 2020, she argues that it is “misleading on at least two levels: diplomatic presence and agenda-setting”. In Berlin, no Africans were at the table, while the question of sovereignty of African territories was discarded and the needs and perspectives of African populations were barely considered.
Contemporary African leaders and governments, she argues “use these platforms not only as an opportunity for a photocall or to attract investments, but also as a means to exert more agency at the domestic policy level”.
By putting the focus on traditional and emerging powers’ rivalry on the continent, the “new scramble for Africa narrative decentres African actors from the narrative and lacks investigation on their motives and strategies for choosing their partners”, she says.
In conclusion she says that African actors need to be put “back at the centre and as key agents of the decision-making process and analysis instead of stripping away their agency by focusing too much on how Africa is acted upon”.
She finishes by saying that “investigation is needed to assess to what extent Africa’s engagement in these summits is effective and benefits the continent’s economic and social priorities”.
Gilbert Houngbo, the former prime minister of Togo and the current president of the International Fund for Agricultural Development (IFAD), has set his sights on a new goal – to head the International Labour Organization (ILO). In an interview with Omar Ben Yedder, he explains how his life-long quest for social justice has provided the moral compass that shaped his career.
Houngbo, like Ngozi Okonjo-Iweala at the World Trade Organization, Makhtar Diop at the International Finance Corporation, and Tedros Adhanom at the World Health Organization, is one of the growing number of African talents at the helm of major international organisations.
A seasoned professional, who combines, according to those close to him, attention to detail with rare teambuilding abilities, Gilbert Houngbo rose swiftly within the UN hierarchy to become Director of the UNDP’s Regional Bureau for Africa in 2005 under the then Secretary-General Kofi Annan.
Three years later, Houngbo decided to leave UNDP, since Togo’s President Faure Gnassingbé had asked him to assume the duties of the country’s Prime Minister, a post left vacant by the resignation of former incumbent, Komlan Mally.
Reforms in Togo
At this point in time, Togo’s government was in need of a pragmatic, modern and forward thinking leader as it embarked on a period of reforms; these were the credentials that Gilbert Houngbo had on offer.
He applied his talents to strategically repositioning his country, located between Ghana and Benin, as a reliable, agile and flexible business hub in the region.
At this time, the country had been lagging behind its neighbours, and the economy had stagnated. Houngbo responded to this challenge by inculcating a more business-friendly climate, and by starting Togo’s transformation into a regional logistics hub.
In doing so he argues that “reform and transformative change inevitably require you to set exacting standards and ensure that people are not satisfied with just the status-quo.”
He served as Togo’s prime minister for four years, before re-joining, in 2013, the UN as Deputy Director-General for Field Operations and Partnerships at the ILO. In this position, he oversaw the ILO’s global field structure, the organisation’s development cooperation programme, and its involvement in multilateral processes. Here, he was able to rely on his diplomatic skills and organisational qualities to find solutions where others only saw problems.
After four years at the ILO Gilbert Houngbo was, in 2017, elected president of the International Fund for Agricultural Development (IFAD). In this capacity, UN secretary-general António Guterres asked him to serve on the Advisory Committee of the 2021 Food Systems Summit. Gilbert Houngbo presides over IFAD until this day.
Given the formidable challenge at IFAD and in global agriculture today, why is Gilbert Houngbo now aiming to lead the ILO?
For Houngbo, both organisations share a similar mission: “Both agencies, IFAD and the ILO, pursue similar goals that both are close to my heart: the fight for social justice and the promise to leave no-one behind. IFAD targets the rural poor, the ILO targets the working poor; IFAD works through loans and grants, the ILO creates international law and provides advice and expertise.
“The ILO owns far less financial power than IFAD, but it has the mandate and competence to rewrite the rules of the world of work. I find this fascinating, as it has the potential to better the lives of all of us, and notably the poorest on the planet.”
Escaping the poverty trap
Gilbert Houngbo was raised in a rural village in Togo, and he attributes his success to a good education, to the right mentoring he received during his childhood, and to hard work. He never forgot the challenge to make ends meet in the rural environment where he grew up.
“We must keep in mind that 90% of the world’s poorest live in rural areas. If you consider Africa, 80% of the protein intake is produced by rural smallholders and yet they are the ones most at risk from food insecurity because they often must sell their meagre harvest to pay school fees or cover health expenditures. The rural poor, especially the women, are always the first to be affected by external shocks.”
“I cannot accept a situation where you witness people dying of hunger or deprivation even though they could survive even with the same resources they have,” he says. “That’s really where my drive to implement changes comes from.
“But let us not forget that poverty exists in urban areas as well, especially in the informal economy, which provides livelihoods to over half of the global population. Here, the mandate and expertise of the ILO comes to play.”
Jobs, jobs, jobs
It is a simple truth that national wealth must grow before it can be redistributed. But there is a need, Houngbo argues, to put rules, systems and institutions that guarantee the fair distribution of the nation’s wealth, so that growth enhances social justice.
“I have always believed that governments are not there to create jobs but rather to facilitate job creation. Jobs, essentially, have to come from the private sector.”
Whilst in government, his objective was to improve the country’s business environment to support both domestic and international investment.
Even at IFAD, he says “my mission has been to encourage investment and to create jobs for the youth – and the private sector was a key actor in implementing this strategy.”
“But the private sector must not get a free pass. Business must fully respect the ILO’s fundamental principles and rights at work,” he asserts.
He feels that the best instrument to advance social justice and ensure responsible business practices is social dialogue.
“Through social dialogue, which involves governments, employers and workers, we can promote both – economic growth and job creation, while ensuring rights at work and human rights in general. The issue of job creation – ensuring access to decent work for all women and men – is central to our global efforts of tackling poverty, as called for by the SDGs.”
A modernised book of rules for the world of work
When asked what changes he would make at the ILO, Houngbo says that currently the organisation is set up for problems relating to the old work.
“The organisation is at a turning point right now, with a profound shift in what constitutes work and how we work. My vision for the ILO is very much anchored in the need to find innovative global solutions to the changes that occur in the world of work.”
Hs says that the ILO has developed numerous conventions, recommendations and protocols, but whilst some are up to date many have been made obsolete by the changing world of work.
He is referring to the platform economy, the rise of digital technology and automation, teleworking arrangements, and ever more complex supply chains. He feels there is a void which the ILO is in a unique position to fill by creating a new set of, modernised, labour instruments.
“The rule book is being rewritten and ILO needs to be at the centre of this conversation to ensure that workers and enterprises benefit from these new instruments.”
A global social justice coalition
Houngbo thinks that the next major project is to lay the foundations for a global social justice coalition that will drive the struggle against inequality, exclusion and marginalisation. Of chief importance in this effort is the establishment of a universal social protection scheme where every citizen is guaranteed a minimum package of social security.
“We need to have minimum packages for social protection, be it guaranteeing primary school education to all girls and boys; or minimum healthcare for all. We also have to safeguard women’s and men’s equal access to health care, including women’s access to maternal healthcare,” Houngbo argues.
He also feels he’s got what it takes to ensure that the developed and developing world work in synch.
“Covid-19 showed us once again the gap between developed and developing countries, and the difference in firepower they each had in terms of supporting populations as economies closed down; I believe developed countries spent 16 or 17 trillion dollars to cushion the impact of Covid whereas low income countries barely spent four trillion” he recalls.
“The ILO has a key role to play in putting in place universal social protection so that anyone who needs protection can access it at any time, thus closing the social protection gap between countries with high and low income levels” he argues.
“This requires innovation, creativity and cooperation with other multilateral organisations such as the World Bank, the IMF, the WTO, the WHO, and the regional development finance institutions. This is, in a nutshell, what I mean by global social justice coalition.”
Does Houngbo still believe in multilateralism?
“Actually, I am very optimistic,” he stresses. “Let me give you two points. The first is that multilateralism remains indispensable to secure international peace, international security and international sustainable development. To succeed in an interconnected world we must cooperate and we must give importance to both social and political dialogue. And the way to do it is through the multilateral system.”
But he adds that it is important that the multilateral organisations should not just be a place for negotiation or discussion, but a place where decisions are taken and an instrument for action.
Citing the issue of vaccine inequity, he says that the multilateral system needs to show that it can be the vehicle for greater international co-operation, and for a “system that ensures social justice at the global level.”
He then comes to the second point, that of transparency and accountability: “We also need to review the way the multilateral organisations currently operate and ask ourselves what we can do better, how we can be more effective. Taxpayers have a right to know.”
Across the globe including Africa we have seen in the last two years rising social unrest; is he worried where we are heading?
“I honestly think that the world needs a new social contract and that the ILO, with its unique tripartite structure that comprises the actors of the real economy – governments, employers and workers – has an important part to play in formulating this contract, whose objective is to advance social justice.”
The overwhelming challenge of our day is, of course, climate change which is impacting the poorest most. As with everything else, it requires a holistic solution, hence the importance of a multi-stakeholder, multilateral approach.
“Unless we look at these problems holistically, there will be greater inequality and this will inevitably lead to greater social unrest,” he adds.
“Right now, many indicators are going in the wrong direction in terms of inequality; we must stop and reverse this trend. For example, the unrest in the Sahel is largely caused by hunger, poverty and desperation, which, to a large extent, are exacerbated by climate change. We need a multi-pronged approach to address these challenges.”
Houngbo nevertheless remains optimistic that Africa can replicate the successes of other continents in lifting their populations out of poverty.
What will be critical, for Africa and the world at large, he concludes, “is that you need to create a conducive environment for growth and sustainability. And that will require a new and reinvigorated social contract to provide coordinated stability and shared prosperity. In brief, to reinforce the fabric of our societies. The ILO is ideally placed to lead this effort.”
In November, the Nigerian government unveiled plans to revise its crucial mining law, the Nigeria Minerals and Mining Act (NMMA).
The outdated law, which hasn’t been updated since 2007, is accused of stifling growth in the nation’s underdeveloped mining sector.
Mining currently generates just 0.3% of GDP and leaves the country scrambling to import minerals, like salt and iron ore, which could be produced domestically. In contrast, the oil and gas sector produces around 10% of GDP and 65% of government revenues.
The amendments are seen as the finishing touch to five years of government measures to make mining a means of weaning the country off petrodollars.
“There is definitely an interesting story behind the mining sector in Nigeria,” says Kwadwo Sarkodie, a partner at legal firm Mayer Brown International.
Before the brutal civil war between 1967 and 1970 there was an active mining sector in Nigeria, and the country was a significant exporter of certain mined minerals including coal and tin.
“That all changed in the 1970s partly as a consequence of the oil boom, and to a large extent the oil sector crowded out the mining sector. There were various mines that were closed as a consequence of the civil war and they never reopened,” says Sarkodie.
Nigeria passed the 2007 law deregulating the mining of solid minerals in a bid to attract much needed private investment to develop the underperforming and neglected sector. At the same time, the outgoing government of president Olusegun Obasanjo awarded a flurry of mining leases and exploration licences to multinational mining companies who were guaranteed incentives and tenure security under the new law.
What are the proposed changes to Nigeria Minerals and Mining Act (NMMA)?
One of the key changes is that the law will give local governments the impetus to crack down on illegal mining by devolving responsibility from the federal to the state level of government.
“The 2007 act is very federal government-centric, so essentially the powers and ownership of mineral rights under the act rest with the federal government,” Sarkodie explains.
Under the amendment, power and revenues will be shifted from the regulating body, the Nigerian Mining Cadastral Office (MCO), which is very much an arm of the federal government, to the local level, giving both the local community and the state government incentives to abide by and enforce the rule of law in the sector.
“The states can increase their own revenue from legal and licensed mining, and that increases their incentive to combat illegal and unlicensed mining,” says Sarkodie.
“And if local communities see that their own state is benefiting economically, again that provides further reassurance that they are benefitting from the mines,” he adds.
As a federally governed nation the issue of state control versus federal control is one that crops up repeatedly in the Nigerian context, Sarkodie says.
“This is potentially an opportunity to shift that balance in the mining sector from the federal government to the state government, and hopefully address some of the underlying issues driving the illegal mining.”
“Those are the two things that the new act is trying to rebalance and trying to address. The old act wasn’t completely unsuitable for purpose, but it clearly wasn’t providing the conditions needed to develop the sector.”
Why is illegal mining a problem?
Nigeria’s north, especially Kaduna, Katsina, Kebbi, Kogi, Nasarawa, Niger, Plateau and Zamfara states, are particularly hard hit by the blight of illegal mining. An estimated 80% of mining in these areas is conducted illegally on an artisanal basis, involving over two million people who depend on it for survival.
Previous government efforts to crack down on illegal mining in northern Nigeria have failed, while the phenomena continues to provoke two worrying trends, says NGO ENACT Africa.
One is the trade of illegally mined gold in exchange for weapons, and the other is the use of women and girls in these illicit activities.
Unregulated mining also stokes environmental issues in these areas, such as water pollution, deforestation, poor soil fertility and limited access to land for agriculture productivity.
“One of the reasons that it’s considered that illegal mining is so high is that the state government don’t really have an incentive to take significant steps to stop it because it’s taking place in the states themselves,” Sarkodie says.
Will it be a game changer for attracting investment and driving resource revenues?
“No, on its own I don’t think it has the potential to be transformative,” Sarkodie says.
There are other priority areas such as security, power, transport, infrastructure and the competing energy sector that will continue to hold the mining sector back, regardless of the new terms of the act.
“One principal challenge is the size and well-established nature of the oil and gas sector in Nigeria, which is many times bigger. It does activate essentially a magnet for investment and talent and government attention due to its sheer size. That does have the effect of crowding out the mining sector,” Sarkodie explains.
“The second big challenge is transport infrastructure, that currently restricts access to mineral reserves and mines from internal and external export markets. In terms of where these mineral reserves and mines are located, and the places internal or export markets for those are positioned, there are transport restrictions and shortcomings. So improvements in transport infrastructure such as roads, rails and ports are going to need to be improved to fully realise the potential of the mining sector.”
Another challenge revolves around the limitations of power generation and capacity in the region.
“Mining is very power-intensive and so the reliability of supply is not insurmountable, but it does just add an additional cost and potential hurdle. And finally there is a security situation in northern Nigeria in an area where many mineral deposits are understood to sit. With ongoing concerns surrounding security there remain additional hurdles to large-scale new investment in the sector.”
When will the new law come into force?
To put the process into context, the Petroleum Industries Bill took about 20 years to come into force and become the Petroleum Industries Act, Sarkodie says.
“A draft might be well developed before parliament in bill stage, but it doesn’t necessarily mean that its going to come into force in the medium term.”
What are the next steps?
The bill is currently before the House of Representatives (Nigeria’s lower house) and will then pass before the Senate (the upper house) before being enacted into law.
Why is it happening now?
Gold mining can offer an effective hedge against swings in oil prices, especially as investors and policymakers adapt to the global energy transition.
“When oil prices dip that does focus minds of Nigerian economists and policymakers on the need to focus on other sectors,” says Sarkodie.
“There is a broad recognition that it’s beneficial for Nigeria to diversify its economy, away from such a high-level of reliance on the oil and gas sector.”
In 2019, Iya Halimah, a middle-aged woman who sells soup ingredients at her small shop in Tanke, Ilorin, joined the wave of Nigerians jettisoning unclean cooking fuels such as firewood and charcoal. Instead, she embraced LPG – liquefied petroleum gas – a less harmful and faster alternative that was then more affordable.
“Gas was cheaper and faster so I found it easy to stop using charcoal and firewood. When I put food on it, it cooks up quickly and I do not have to wait for long. I used to buy the full 3kg for my cylinder,” the mother of three says.
Three kilos was enough to see her through daily cooking for around three weeks. But two years later, Halimah is abandoning gas and returning to cooking with charcoal.
While it remains clean and fast, the rising cost of LPG is making the gas unaffordable for Halimah and many others. At the start of the year, a kilo could be bought for 300 Nigerian naira ($0.73) – today it tops N800 in some places.
The cost of 12kg of LPG rose from N4,515 ($11) in September 2020 to N6,165 in September 2021, according to Nigeria’s National Bureau of Statistics. Halimah says that she does not have enough money to buy gas.
“The last time I bought gas was when it became N650 [per kilo] and that is about two months ago now. So I thought about everything and I started cooking with charcoal again because gas has become too expensive. In the past, my husband could give me N1,000 and that would be enough but now, that cannot even feed us for a day.”
Writing in Nigeria’s Premium Times, policy expert Dakuku Peterside says that even though it has the world’s ninth largest LPG reserves, Nigeria only obtains a little over a third of the 1.3m tonnes annually required for the domestic market from its majority state-owned liquefaction company, the Nigeria LNG. The country has to make up the shortfall through imports.
The problems for Nigerian consumers are exacerbated by the weakness of the naira against the US dollar, increasing global prices, and the reintroduction of a 7.5% federal tax on LPG importation in a bid to spur domestic production, he says.
The environmental cost
Climate activists fear that the spiralling costs of LPG will lead millions of Nigerians to revert to wood and charcoal, which are major sources of greenhouse gas emissions and contributors to deforestation.
Tracking SDG 7: The Energy Progress Report, jointly compiled by the International Energy Agency, the International Renewable Energy Agency and the World Bank, found that on average between 2014 and 2018, 173m Nigerians lacked access to clean fuel, putting the country third in the world behind India and China.
Just 7% of Nigerians were said to have access to clean cooking fuels. In recent years, efforts to persuade citizens to buy LPG had become more effective – but the price rises put that progress in danger.
“It truly is bad for the country,” said Olasupo Abideen, a climate activist and gas retailer speaking from the conference halls of Cop26, the international climate conference in Glasgow.
“This is at a time where we are trying to campaign for a cleaner form of energy, trying to encourage people to adopt gas as cooking fuel. It means low income users will no longer have access to a clean form of energy and all our efforts from the last three to four years trying to correct the misconception and make people adapt to LPG are going down the drain.
“If the government is committed to something, it should not use its action or policy to affect such plans.”
Aside from its effect on the global climate – dirty cooking fuels account for approximately 2% of global carbon emissions, equivalent to annual air travel emissions – dirty fuels can also have disastrous health effects that disproportionately affect women as a result of their traditional role preparing food for households.
Pollution from the use of dirty fuels contributes to heart disease, strokes, cancer and pneumonia. Over 98,000 Nigerian women die annually from the use of firewood, according to the World Health Organisation.
“Respiratory problems, skin cancer, eye problems, food poisoning, and threats to women’s safety result from overexposure to unhealthy cooking fuels,” says the UN Framework Convention on Climate Change, which is involved in a project to increase the use of ethanol gel in cooking for poor Africans.
What are the solutions?
In his Premium Times article, Peterside argues that government must step in to regulate the market and keep prices down given the importance of gas to millions of Nigerians: “The price spike must not be allowed to continue. Government should take deliberate policy and regulatory steps to check the rising cost of gas.”
Yet there are few quick solutions to the crisis. Globally, The Clean Cooking Alliance estimates $4bn is required annually to ensure universal access to cleaner options of cooking by 2030. Population growth is outpacing the number of people gaining access to clean cooking by four times.
Nigeria has long failed to refine its valuable oil and gas locally, leading to a long-term dependence on imports even as it ships its own resources abroad.
The long-awaited Dangote oil and gas refinery, one of Africa’s largest planned refineries, is expected to produce 290,000 tonnes a year of propane/LPG when fully operational, but is not expected to start producing until next year after substantial delays.
Until large refineries are ready to produce locally, import controls and taxes are likely to only put gas beyond the reach of many.
A repeal of the import tax could be considered in the meantime to ease supply disruption, says Abideen.
“The first solution is for the government to find a way in which Nigeria is going to be refining its own gas. Number two is for the government to remove the VAT that has been imposed on the LPG industry, solve the problem with dollars and democratise LPG, because demand outweighs supply and scarcity ensues in such a situation.”