Trade & Investment

Islamic trade finance bank signs deals across Africa

The Saudi-based International Islamic Trade Finance Corporation (ITFC) has signed trade financing agreements worth tens of millions of dollars with several African countries at its annual meeting in Uzbekistan.

The agreements provide public and private sector financing, as well as technical assistance for export and SME development initiatives, targeting high growth industries including agriculture, energy and medicine.

The bank, a member of the Jeddah-based Islamic Development Bank group, signed a 3-year, €330m agreement with the island nation of Comoros to support food and energy security by importing strategic commodities including petrol products, rice and other foodstuffs. The agreement will also provide health sector support and SME financing and offer technical assistance to projects geared towards national development goals.

The bank also signed several Murabaha trade financing agreements to support the health, mining and energy sectors in Mauritania. The bank will provide $20m to SNIM, the continent’s second largest producer of iron ore, and $10m to CAMEC, a government entity that distributes medicine to the public sector. The bank has also renewed an existing facility with SOMELEC, a state-owned electricity company.

An October 2018 deal worth $1.5bn signed with Burkina Faso has also been amended. The five-year deal now includes extra support for priority projects in agriculture, health and the private sector. The support includes the export of agricultural commodities and import of energy commodities, such as refined petroleum products, financing to import medicines and health equipment, and the implementation of technical assistance programs for strategic sectors of the national economy.

The Islamic Development Bank Group has 57 shareholding member states, many based in Africa and the Middle East, of which the largest shareholder is Saudi Arabia. The International Islamic Trade Finance Corporation was established with the primary objective of advancing trade among the 57 countries of the Organisation of Islamic Cooperation.

“The impact of these agreements will be significant for ordinary citizens and will greatly enhance their economic prosperity.  This significant milestone also reaffirms the mutual trust between our member countries throughout CIS and Africa regions and the ITFC teams.  Furthermore, ITFC is dedicated to support economic growth among OIC member countries, especially during the challenging times of the COVID-19 pandemic period,” said ITFC CEO Hani Salem Sonbol.

Trade & Investment

ECOWAS sanctions on Guinea ‘unlikely’

The Economic Community of West African States (ECOWAS), is unlikely to impose economic sanctions on Conakry after a military coup which ousted former president Alpha Conde last week, analysts say.

Economic sanctions, which would take months to implement, would likely only target key officials in the military junta and their assets, so the overall economic impact would be limited, says Eric Humphery-Smith, an Africa research analyst at consultancy Verisk Maplecroft.

“If ECOWAS doesn’t see enough proof of progress in appointing a transitional government and organising democratic elections subsequently…and if ECOWAS deems there’s delays in implementing that, then that’s when the threat of sanctions might come,” he added.

ECOWAS has already suspended Guinea’s membership following the coup, but the regional bloc has the power to take further actions to disrupt the new government and its leadership. ECOWAS slapped sanctions on West African neighbour Mali in August 2020 after Malian soldiers detained President Ibrahim Boubacar Keita after a mutiny that followed weeks of protests against his government.

“We saw sanctions on Mali last year as a result of the coup against IBK [Ibrahim Boubacar Keïta] so its not unprecedented, but it’s important to note that [if sanctions were imposed] it would come after a few months.”

Central and West Africa’s third coup this year has sparked consternation from African leaders who slammed the junta for upending the constitutional order. The African Union has followed ECOWAS in suspending Guinea.

Ugandan President Yoweri Museveni told France24 that the coup was a “step backwards” and said the leaders of the putsch should face sanctions and “get out”.

Economy resilient

The impact of the coup on Guinea’s mineral-dependent economy remains uncertain. The economy had emerged virtually unscathed from the pandemic owing to resilient production of bauxite – a key source of aluminium – over the last year and a half. The previous government had struck a deal for the long-awaited exploitation of the Simandou mine with the SMB-Winning consortium, which expected to bring the site into production by 2025. It is unknown whether that timetable will be affected, but Guinea’s coup leaders have urged mining companies to keep operating.

In the immediate aftermath of the takeover, land and air borders were closed, raising fears of disruptions to the global supply of bauxite, of which Guinea accounts for 20%. Since the coup, Conakry has announced the gradual reopening of borders with neighbouring countries.

The new government also kicked off week-long consultations with political, religious, and business leaders on Tuesday that it says will pave the way to forming a transitional government.

Trade & Investment

Somalia points the way to first cashless society

Mogadishu famously only installed its first ATM in 2014, but the progress of Somalia’s wider digital economy since then has been astonishing. Just seven years later, the country is on the cusp of becoming the world’s first cashless society.

The Somali Central Bank introduced a central payments system in August which connects the nation’s 13 lenders, and formalises digital payments, making payments easier for people across the country.

With more than two-thirds of all payments in Somalia made via mobile money platforms, the untapped market for new infrastructure, apps, payment systems and fintech is huge – at least for those savvy enough to seize first-mover advantage.

In the Covid-era, cash is no longer king, as citizens around the world fast embrace cards, the internet and apps for financial transactions. Norway currently ranks the world’s most cashless society, with only 4% of transactions currently conducted offline, according to Norges Bank.

In a recent conversation with the Central Bank Governor, Abdirahman Mohamed Abdullahi he said:

“Somalis are world renowned for our business savvy. Add this with Somalia’s young population and the country’s advanced adoption of technology, the equation equals an innovation hub, which is exactly what Mogadishu is becoming.”

Emerging from the rubble

This window of opportunity comes as the country turns a corner on two decades of civil strife.

Over the past decade Somalia has been working with international financial institutions, the World Bank, the African Development Bank (AfDB) and IMF, to implement key economic reforms.

The country has passed necessary legal frameworks to create a conducive environment for businesses, and to better facilitate foreign and domestic investment into the country.

A burgeoning financial sector will create opportunities Somalis at home and abroad. Somalia is already a world leader in mobile money use, with over 70% of the 13m population using mobile money services. The national payments system will be an unprecedented boon for the economy, that has struggled in the past with widespread counterfeiting.

A representative of the Central Bank of Somalia hands a mobile money licence to a representative of Hormuud Telecom.
In a boost for financial inclusion, the Central Bank of Somalia issued the first-ever mobile money license for Hormuud Telecom’s EVC Plus service last month.

The Somali diaspora sending remittances home can now rest assured that on their return they will have the same financial power as they would elsewhere. We are creating a Somalia where in the near future working abroad will a career move, not a necessity.

This also showcases Somalia’s potential for foreign investment. Investments are not without risk, but thirty years after a devastating civil war, the country has come a long way in rebuilding its war-torn economy. Insurgent from al-Qaeda affiliate, al Shabaab, continue to wield influence over vast swathes of territory, deterring foreign investors.

Horn of innovation

Our population is young – the majority under 30 – hard working and eager to equip themselves with world class, cutting-edge skills. Around 85% of Somalis use mobile money compared to fewer than four in ten in Nigeria, Africa’s biggest economy, and far more than in the UK (25% in 2020) and US (29% in 2021).

Somali-led innovation is booming, and the government last year secured a debt-relief deal with the World Bank and the International Monetary Fund; another key stepping stone on our return to the global economy.

Despite its deep well of tech talent, until this month Somalia’s financial system meant that lenders could only interact on a superficial level. This made payments inconvenient and reinforced a reliance on the US dollar, while holding back businesses looking to grow across the country. This is now poised for change.

Somalia’s untapped potential has been catalysed by the adoption of mobile money over the past 10 years. Hormuud Telecom, which began operating its Somali network in 2002, now has 3.6m subscribers, and was awarded the nation’s first mobile money licence in February. Its 3m subscribers to mobile money platform EVC Plus is testament to the potential of mobile money in the country, and should galvanise investors to venture back to the nation with confidence.

Somalia received no foreign investment for a 20-year period up until 2013. These early investors understood, to see Somalia as simply a ‘war torn’ state is short sighted. Somalia’s economy will likely expand 2.9% this year, according to the IMF. With our new and improved financial infrastructure, businesses will be unshackled, payments made easier, and we will hopefully see reliance on the US dollar decline.

All are symptoms of a ripe investment market. Those who are awake to the opportunities inherent in the country, which has lifted itself out of the ashes of war will be the winners.

To echo Central Bank Governor Abdullahi, “We are now ready to welcome investors in earnest.”

Ahmed Mohamed Yusuf is chairman and CEO of Somalia’s biggest network, Hormuud Telecom.

Finance & Services

Covid-19 allows insurers to prove worth, says Sanlam CEO

When a large shock hits the system, it is the insurers who are the first line of defence. Claims go through the roof and the bottom line of the financial service providers takes a hit. 

But the unprecedented shock of Covid-19 also provides a time where insurers can come out of the woodwork to reassert their value in society, setting the stage for increased business further down the line, despite initial payouts. 

Paul Hanratty, CEO of South Africa-based Sanlam, one of the largest diversified financial services groups in Africa, tells African Business that pandemics are when insurance companies must come to the fore. 

“Behind every claim is an unfortunate hidden story, but that is what we are there for,” he says. “In a sense, it is when you prove your worth to people as a company during tough times.” 

Tale of two years 

Hanratty, who has sat on Sanlam’s board since 2017 and was appointed CEO last year, says that 2020 and 2021 have been two very different years for the company. 

He describes last year as more of an “economic crisis” than a “health crisis” in South Africa. Claims increased for business continuity insurance, where companies are covered for unexpected events that shut down operations, like infectious diseases. The group was also impacted on credit insurance as people were unable to repay loans due to widespread loss of jobs and a downturn in the economy.

Sanlam says that it lost more than $135m to excess claims because of Covid-19 in 2020. Earnings for the year were negatively impacted and lower than 2019, with lockdowns forcing a decline in new business growth as people were unable to visit branches. Corporate life insurance sales fell by 26% and individual mass life insurance fell by 10%, for example. 

In a surprise turn of events, medical claims were limited as South Africa’s strict alcohol ban – which continues today – brought down average fatalities while Covid-related deaths went up. 

“Research has shown that if you ban alcohol South Africa has 42 fewer deaths per day, so there were some offsets last year from the lockdown and the first wave,” Hanratty says. 

The beginning of South Africa’s second wave in December ushered in new impacts of the pandemic for Sanlam. The new wave, driven largely by the Beta variant, was far more deadly than the first and sent South Africa into a serious health crisis amid the return of strict lockdowns. 

“2021 has been a much tougher year from a mortality claims point of view. They have been much more significant, predominantly in December, January and February,” he says. “Now the third wave I think is somewhere near the peak. It will be hard to predict the future.”

Savings rise

However, Hanratty says that unlike 2020, sales in South Africa have been very strong this year for several reasons.

One is that economic lockdowns have forced savings rates to rise across the world, for those who have been able to keep their jobs. This means that more people can take out insurance, Hanratty says. 

Another is that reoccurring bouts of Covid-19 infections, driven by the ever-increasing number of variants amid a global vaccination drive that is playing catch-up, has led many people to start thinking more seriously about their future. 

“When the pandemic first came, everybody thought it was one bad flu year. Actually this is going to be with us for a few years and people really need to think about having cover because generally they are at risk,” says Hanratty. 

He projects that premium rates will probably have to rise to deal with the extended amount of risk and more people being covered. 

As the second-largest insurer in Africa and one of the most dominant forces in the South African market, Sanlam is also hoping to outmanoeuvre competitors during the pandemic. 

“It is an opportunity for us to take a bit of market share,” Hanratty says. “In tough times people tend to turn to quality and we are fairly well known as being a secure place. We have a very well run, well organised business that was able to respond quicker than other competitors.”

Communicating the message 

Conveying the brand message to clients will be a key focus for Sanlam moving forward. Rather than creating any new Covid-19 products, the main driver of growth will be looking at more innovative ways to reach people, including digital means. With a solid set of products, Hanratty believes that now is a perfect time to bring more people onboard. 

The company has also rebranded this year to strengthen its message to the consumer. The new tag line “Live with confidence” is expected to reassure customers and tap into their aspirational wishes of how they might like to live. 

“When you already have a good brand you don’t want to disrupt anything or destroy value,” Hanratty says. “We did a lot of testing and we recommunicated what the brand was all about.” 

This message will be rolled out across Sanlam’s 32 African markets, as the CEO says the pandemic has not dampened the insurer’s appetite for growth in Africa. Indeed, new business volumes grew dramatically outside South Africa in 2020. East Africa saw a 227% increase and North and West Africa saw a 12% increase. Despite poor initial results from Sanlam’s acquisition of Morocco-based Saham Finances in 2018, Hanratty says that the business started to pick up last year. 

While there are no plans on the table for any big announcements in the upcoming period, he says that Sanlam is always on the lookout for good deals. Preferring “local partners” the method of choice for expansion plans will be M&A as opposed to greenfield investments, he says. 

South African outlook 

Though South Africa has faced many years of subdued growth, Hanratty is confident that Africa’s rainbow nation will eventually turn a corner. 

Widespread rioting after the arrest of former president Jacob Zuma hit over 40,000 businesses and left damages totalling more than $3bn in July. Though it will help with recovery, Hanratty says Sanlam is not subject to increased claims as many claims will be processed by Sasria, a state-owned non-life insurer that provides special risk cover to individuals, businesses and government entities against risks such as civil commotion, public disorder, strikes, riots and terrorism. 

Despite another dampener to the growth outlook, the Sanlam CEO says that things had been looking up before the riots began. 

“Before the unrest there were actually a lot of relatively good signs,” he says. “If you talk to any businesses in South Africa, they were getting surprised at upside growth and greenshoots.”

Trade & Investment

How multilaterals exaggerate Africa risk

Jeff Bezos, founder of Amazon and now space traveller, is famous for his observation that “your brand is what people say about you when you are not in the room”.

Brand management is a big business, but it has important economics behind it. One of the key issues it is trying to solve is a problem economists call “asymmetric information”, and specifically a type of asymmetric information that can lead to the problem of adverse selection, or what the Nobel Prize-winning economist George Akerlof famously termed “the market for lemons”.

Adverse selection describes the problem of a market collapsing because consumers are unable to tell whether a product is high-quality or low-quality. As a result they are not prepared to pay the highest prices for goods. Sellers, who do have an accurate knowledge of the quality of the goods, will therefore only offer their lower quality products. 

As a result, prices will tend towards the price of the worst quality goods in the market and the quality of goods available in the market will deteriorate. We see this all the time. Back in 1970, Akerlof used the example of second-hand cars, where only the faulty models, or “lemons”, would be left in the market.

But adverse selection does not only occur in consumer markets, it also occurs for countries, especially for what is often branded “sub-Saharan Africa”.

There is no doubt that the brand “sub-Saharan Africa” has come to be seen as synonymous with poor quality economics – especially when it comes to debt. For instance, in 2019, prior to the Covid-19 crisis, there were 64 countries globally with public debt over a threshold of 60% of GDP. Only a third of these were African. 

However, 100% of the 12 countries from the 64-country grouping that were classified by the IMF and World Bank as high-risk or in debt distress were African. Today, these same countries, and more African countries, are still assessed as highly risky, despite having managed the global Covid-19 crisis significantly better than many of the other 64 countries in the over 60% category.

How the debt sustainability criteria misrepresent Africa

But how? How can one-third become 100%? How can good management of the world’s worst health and economic crisis inspire less confidence not more? It starts with the process of debt sustainability assessment (DSA), led by the IMF and World Bank.

The DSA process is deeply flawed. In January 2021 my consultancy, Development Reimagined, published a paper that set out eight specific problems with the process, but here I will point to the two that lead African countries to be perceived as “lemons”, and as a result demonstrate the urgent need for reform. 

1. The existence of an assessment provides a negative signal about investment potential

The first problem with the debt sustainability process is that it is applied only to relatively poorer countries – specifically, countries that are eligible to access concessional loans from the World Bank, which in turn is determined by their income. The thesis says that poorer countries that borrow need surveillance. Yet, as the 2008 global financial crisis demonstrated, it is not just poor countries that meet financial challenges or have problematic debt market structures.

However, the result of confining surveillance and labelling to poorer countries – including the vast majority of African countries – is that the very fact of having a debt sustainability assessment suggests a problem. In other words, the DSA itself automatically creates a category of “fake”, “second-hand”, “used” or “lemon” countries, versus the “trusted”, “high-quality” countries. 

Even if there are various categories within that assessment – from low-risk to in distress, it’s hardly worth understanding these in depth. By default, a disproportionate number of African countries are assessed publicly as “in or at risk of debt distress” compared to the rest of the world. As per the market for second-hand cars, the existence of an assessment provides a negative signal about investment potential in African countries, leading demand and therefore prices to collapse, and to what others have called the “Africa risk premium”.

2. The assessment ignores the positive side of debt

The second problem with DSA exacerbates the first problem: the IMF’s debt sustainability assessment is incomplete. Imagine the scenario of a vintage market where sellers were told they could only list the problems with their used goods. This is exactly what happens with the DSA. Let me explain.

Country debt can be spent on very different activities. For example, loans can be used for “recurrent expenditure” – such as salaries of civil servants or health or education workers – or one-off investments in infrastructure, such as rail, energy or hospitals. 

As most economists recognise, both of these types of spending can have “spillovers” which create new growth that would not have been there otherwise. For example, more education can translate into an increase in human capital and innovation, while a new railway project can cut travel costs and create new markets, which translates into higher productivity. 

Yet none of this examination of the potential new “goods” or “assets” created by debt incurred are included in DSA. It is deemed irrelevant by omission – yet the sustainability implications likely diverge hugely. The upshot is that African and other lower income countries are literally unable to sell their positive elements. 

The DSA process feeds the notion that debt is always “bad”, rather than an investment in the future, again implying that any lower income country that needs debt is always a “lemon”.

Rebranding Africa

Yet, as we project into the future, a great deal of public investment (and often debt) will be needed in infrastructure and human capital to meet Africa’s development goals. Covid-19 has only made these needs more urgent, especially for digital infrastructure.

Climate change also increases the need for resilient and green infrastructure, which can often be more expensive than brown investment. Yet, as it stands, the DSA can mark down countries that might be making investments now to meet these needs. It is clearly not sustainable.

George Akerlof shared his asymmetric information theory 50 years ago. Today, as part of the Covid-19 recovery, it remains highly relevant. We need to use it to solve development problems and change the IMF’s debt sustainability framework for good – including by widening surveillance to all countries and assessing assets as well as risks. Without these changes, the only brand African economies will be associated with – in and outside the room – is poor quality.

Hannah Ryder is the CEO of Development Reimagined, a pioneering African-led international development consultancy based in China.

Trade & Investment

Investors and world leaders reel from Guinea coup

A military coup in Guinea that ousted the country’s president has sent shockwaves through global bauxite markets and ended the country’s period of political stability, analysts say.

The coup leaders placed President Alpha Condé under house arrest and removed all public officials from office, alleging economic mismanagement, corruption and human rights violations.

The coup’s leader, Mamady Doumbouya, a former officer in the French Foreign Legion, has promised a transitional government of national unity and a “new era for governance and economic development”.

In the immediate aftermath of the coup, land and air borders closed, raising fears of disruptions to the global supply of bauxite, the main ore source of aluminium, for which Guinea supplies 20% of the global market.

But the new transitional government, led by military junta the National Committee for Reorientation and Development, (CNRD) moved swiftly to reopen sea borders and ports, ensuring bulk mineral exports continued, and encouraged miners to resume operations.

This helped offset the risk of supply disruptions, says Eric Humphery-Smith, Africa analyst at risk intelligence company Verisk Maplecroft.

“However, poor communication by the new authority spooked the market: aluminium future prices have increased over 1% since Sunday, highlighting the importance of Guinea’s bauxite supply to global markets,” he said. Prices spiked to their highest level in a decade on the London Mineral Exchange on the day after the coup.

Outlook for Simandou

The political upheaval could cause delays to Guinea’s biggest iron-ore mining project, Simandou, he adds.

The largest-known deposit of its kind, containing more than 2 billion tonnes of high-grade ore used to make steel, has remained largely untapped due to political wrangling and disputes over its ownership. The project’s future appeared brighter in 2020 after the China-backed and SMB-Winning consortium signed a deal to develop the site.

Following the coup, the project, which has faced decades of delays, could face further setbacks. The deadline set by SMB-Winning to bring blocks 1 and 2 of Simandou into production by 2025 is likely to slip, Humphery-Smith says.

Timeline of the two Simandou projects, 2010-2030

Credit: Verisk Maplecroft

Mining policy

As the world’s second-biggest bauxite producer, Guinea supplies 20% of the world’s bauxite, mainly to Russia and China. The ore accounts for around 35% of the West African nation’s GDP, estimated at $26.5bn in 2020.

Doumbouya, the leader of the new transitional government, has historically supported the development of an infrastructure project key to the development of the Simandou mine – the trans-Guinean railway – as a means to export iron ore from the mountainous area in southern Guinea.

“But there is no guarantee that a government of national unity will not make additional stipulations. A review of the mining fiscal framework cannot be discounted, as Guinea’s 2011 Mining Code remains among the most competitive in the region,” Humphery-Smith says.

China’s investments

The coup stoked fears of disruptions to China’s aluminium supply-chain, with Beijing importing almost half (47%) of its bauxite from Guinea last year, helping to cement its position as a global leader in aluminum output.

Chinese companies are also heavily invested in the country’s mining sector. Any supply disruptions would likely cause China to turn to Australia for bauxite and eventually iron ore, something that policymakers in Beijing are keen to avoid, says Eric Olander, co-founder and managing editor of the China Africa project.

“At this point, there’s been no discernible impact from the coup on China’s mining investments as all of the major mining companies are reporting that operations are proceeding as usual.”

Beijing’s relations with Australia frayed in 2018 when it became the first country to publicly ban China’s Huawei from its 5G network. Since then a trade war has rumbled featuring tit-for-tat tariffs after Canberra called for an enquiry into the origins of the coronavirus.

Regional trend

Military takeovers are on the rise in West Africa, with the coup representing the third military takeover in West Africa in the last year, after recent coups in Mali and Chad.

Condé’s ousting also sends a clear signal to a generation of political leaders within Francophone Africa and beyond who seek to extend their rule through constitutional changes, says Humphery-Smith. Alpha Condé had been controversially sworn in for a third term that opponents described as unconstitutional.

“We expect these events to embolden military officers in countries such as Côte d’Ivoire, Senegal, Cameroon, Togo and Gabon, where governments have staved off major opposition movements, coup attempts and army mutinies in recent years.”

Chorus of condemnation

West African heads of state from the Economic Community of West African States (ECOWAS) suspended Guinea’s memberships form the regional bloc on September 8, calling for a return to the constitutional order in Guinea.

The 15 member bloc also demanded the release of Alpha Condé and agreed to send a high-level delegation, due in Conakry on Thursday.

On Sunday, the chorus of condemnation was joined by President of the Democratic Republic of Congo, Félix Tshisekedi, and Ghanaian head of state President Nana Akufo-Addo, who demanded Condé’s immediate release and “a return to constitutional order under penalty of sanctions”.

Washington, Brussels and Paris have also condemned the coup, with France joining the call for “the immediate and unconditional release of President Condé”.

Former US special envoy to the Sahel, J. Peter Pham, said “Whatever the justification given, an extra-constitutional regime change is always destabilising for a country, and bad for the economy”.

Finance & Services

Review: How Boards Work by Dambisa Moyo

Zambian author, veteran board director and economist Dambisa Moyo’s latest book, How Boards Work: And How They Can Work Better in a Chaotic World, might be described as a handbook for corporate oversight.

The publisher’s summary describes the book as “a road map for how boards can steer companies through tomorrow’s challenges and ensure they thrive to benefit their employees, shareholders, and society at large.”

Moyo is perhaps best known for her blockbuster bestseller Dead Aid, an impassioned critique of the way that Western overseas development aid adversely impacts Africa and beyond by fostering dependency and fuelling corruption.

Dead Aid kick-started a career that made Moyo a superstar development economist and commentator in demand by broadcasters and conference organisers. 

Not that the book was universally acclaimed. Jeffrey Sachs, who was Moyo’s professor at Harvard University, took issue with some of the author’s research and assertions, while Bill Gates went as far as to say: “Books like that – they’re promoting evil.” 

Responding to Gates on her website, Moyo stated: “To cast aside the arguments I raised in Dead Aid at a time when we have witnessed the transformative economic success of countries like China, Brazil and India, belittles my experiences, and those of hundreds of millions of Africans.”

Amid the ruckus, Dead Aid sparked an important wider debate on the merits and risks of African countries accepting official development assistance.

How Boards Work is unlikely to stir such controversy and has more modest goals. The book reflects a much more conventional viewpoint – that, essentially, boards play an important role in corporate governance and have a crucial role to play in navigating today’s challenges. 

“I aim to demystify for current executives and employees exactly what it is their boards do, educate investors about boards’ ability to effect meaningful change – both the limits and opportunities – help policymakers and regulators better understand the trade-offs and conflicting priorities that boards face, and guide the next generation of prospective board members,” Moyo writes. 

Asleep at the wheel?

The educational mission of the book is understandable. Moyo has skin in the game with experience on many boards. She currently sits on the boards of the oil giant Chevron, publisher Condé Nast, and the industrial group, 3M. Her history includes serving as a non-executive director on the board of Barclays for almost a decade as well as stints on the boards of SABMiller, Barrick Gold and others.

She says that Barclays wanted her to join the board to bring her expertise to guide the bank as it considered its future in Africa, a region the bank had invested in for over 100 years but was considering exiting.

“It was no accident that Barclays had recruited me,” she writes. “They had deliberately searched for someone with knowledge of emerging market economics to join their board. More generally, all corporate boards benefit from meticulously cultivating the international expertise in their boardroom – that is, by attracting candidates from different parts of the world or with public policy experience.” 

However, a board’s responsibility goes much further than strategy, and this reader feels that Moyo could have offered a more pointed critique of the board misgovernance and oversight scandals that have dogged the corporate sector in recent years.

In 2012 it emerged that some of Barclays’ traders had been manipulating the Libor rate, an interest-rate average calculated from estimates submitted by the leading banks in London. Each bank estimates what it would be charged were it to borrow from other banks. A small change in either direction can earn millions for the banks and their trader’s bonus pots.

As it transpired, between 2010 (when Moyo joined the Barclays board), and 2016, (she stepped down in 2019), Barclays paid a staggering £15.2bn ($20.8bn) in misconduct fees and fines. Had the board she joined been asleep at the wheel? Moyo does not comment directly. But speaking of the wider corporate environment, she concedes that “laypeople and ordinary shareholders have seen immense wrongdoing including value destruction and scandals without any obvious repercussions for senior management or the board itself.”

That has led to increasing calls for board reform or even abolition. 

“Some argue that, even without a board, the market – in the form of customers and investors – could hold corporations accountable for operational and financial performance and guide company strategy. Furthermore, this theory holds, a combination of regulators, lawyers, and accountants sets guardrails and keeps the company operating strictly within the law. Some combination of excellent recruitment firms and consultants would be more than able to pick a CEO and evaluate their performance without the formalities of a board. 

“This view of corporate boards as obsolete and other negative perceptions should not be dismissed out of hand.”

Formidable challenges

Yet despite outlining the concerns of board opponents, her own outlook on the corporate sector as a whole is generous and her solutions relatively conventional. 

“As campaigners and lobbyists pressure the boards of global companies to change their ways, it is crucial not to lose track of the fact that corporations do bring substantial benefits to society. These include not just economic growth but second-order benefits – such as wider investment in people, innovation, and infrastructure – that the average citizen does not always ascribe to corporations. Balancing between garnering higher returns and adhering to ever-greater levels of social responsibility involves difficult decisions. If lobbying leads companies to scale back too far, the benefits they previously brought may disappear.”

Boards in the past had to deal with the major macroeconomic and geopolitical challenges of their eras: the Spanish flu, the Great Depression, the First and Second World Wars, the oil-price shocks of the 1970s, and the collapse of the USSR. Today, the challenges are equally formidable, including climate change, Covid 19, increasing global protectionism, widening social inequalities and cybercrime. The question is whether today’s corporate boards are up to the task. After reading this restrained book, readers may have more questions than answers.

Trade & Investment

What you need to know about the African Continental Free Trade Area

What is the AfCFTA?

The African Continental Free Trade Area 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, but achieving its 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) and was signed by 44 of its 55 member states in Kigali, Rwanda on March 21, 2018. Trading under the agreement commenced on 1 January 2021, after a sixth month delay as a result of the impact of Covid-19. As of 27 August 2021, 38 of 54 signatories (70%) have deposited their instruments of ratification with the chair of the African Union Commission, according to the Tralac Trade Law Centre. The only country not to sign the agreement was Eritrea, which has a largely closed economy.

The AfCFTA Secretariat, an autonomous body within the African Union based in Accra, Ghana, and led by secretary general Wamkele Mene, is responsible for coordinating the implementation of the agreement.

Why does Africa need the AfCFTA?

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. Governments have often erected trade barriers to defend their markets from regional competition, making it more expensive for countries to trade with near neighbours than countries much further afield.

Intra-African exports were 16.6% of total exports in 2017, compared with 68.1% in Europe, 59.4% in Asia, 55% in America and 7% in Oceania, according to UNCTAD. Intra-African trade, defined as the average of intra-African exports and imports, was around 2% during the period 2015–17. The share of exports from Africa to the rest of the world ranged from 80% to 90% in 2000-17 – only Oceania had a higher export dependence on the rest of the world in that period.

What are the predicted economic benefits of the AfCFTA?

The World Bank estimates that by 2035, real income gains from full implementation of the agreement could increase by 7%, or nearly $450bn. By 2035, the volume of total exports would increase by almost 29% relative to business as usual. Intra-continental exports would increase by more than 81%, while exports to non-African countries would rise by 19%.

The Bank predicts that the agreement could contribute to lifting an additional 30m people from extreme poverty and 68m people from moderate poverty.

Yet the impact across countries will not be uniform. The World Bank says that at the very high end, countries like Côte d’Ivoire and Zimbabwe could see income gains of 14% each. At the low end, some – such as Madagascar, Malawi, and Mozambique – would see real income gains of only around 2%.

What does the AfCFTA mean for trade tariffs?

Starting in 2020, signatories to the agreement began to eliminate 90% of tariff lines over a five-year period (10 years for least developed countries, or LDCs). Starting in 2025, tariffs on an additional 7% of tariff lines will be eliminated over a five-year period (eight years for LDCs).

Countries within the trade area were given until July to complete their tariff reduction schedules and finalise essential rules of origin, the AfCFTA Secretariat said in January.

How will the AfCFTA work with existing regional trade areas?

According to an analysis by the World Bank, in the policy areas already covered by subregional preferential trade areas, such as the Common Market for East and South Africa (COMESA), the East African Community (EAC), the Economic Community of West African States (ECOWAS), and the South African Development Community (SADC), the AfCFTA will offer a common regulatory framework, reducing market fragmentation created by different sets of rules.

Secondly, the AfCFTA will be an opportunity to regulate policy areas important for economic integration that are often regulated in trade agreements but that so far have not been covered in most of Africa’s PTAs, which the Bank says “tend to be shallow”.

What does the AfCFTA say about the free movement of people?

Policymakers say that the free movement of labour will be a key contributor to the successful functioning of the free trade area, but not all African countries are committed to the concept. Alongside the signing of the establishment of the AfCFTA and the supporting Kigali Declaration, 30 African nations signed the Protocol on Free Movement of Persons which seeks to establish a visa-free zone within the AfCFTA countries. Yet major AfCFTA signatories Nigeria and South Africa have not signed the Protocol and the political will to do so is lacking.

Trade & Investment

Zambia’s new president ramps up reforms

A week after taking office, Zambia’s new president Hakainde Hichilema has reshuffled the country’s security forces and kicked-off an economic reform drive.

In a major shake-up of the security sector, the president replaced the heads of the army, air force, prison and police force in an announcement on August 29.

“His swift move is a positive indication that the new era in Zambia puts respect for the Constitution and rule of law above loyalty to the ruling party and president,” says Ringisai Chikohomero, a researcher at the Institute for Security Studies (ISS) think-tank in Pretoria.

The move will restore trust in state institutions as the protectors of the nation – not the ruling party, he added.

On Tuesday, Hichilema vowed to disclose the full extent of the country’s debts and root out corruption as it prepares to seek a bailout from the International Monetary Fund.

Zambia’s economy has borrowed heavily to bankroll questionable infrastructure projects since Lungu took power in 2015

A new independent debt office would also be created to manage the country’s vast debt that could exceed $12.7 billion, President Hichilema told Bloomberg news agency.

Shortly after his victory, the president appointed Situmbeko Musokotwane as the new Minister of Finance. Musokotwane, who held the same post from 2008 to 2011, pledged to conclude talks with the IMF on a lending programme by October.

The president also revealed that talks are ongoing with China to restructure their foreign debt, a quarter of which is held by Chinese entities.

“The Chinese are aware that if the economy is not re-oganised to bring about growth, their own debt stock is at risk. They understand that we need need to talk, we’ve started the initial steps and they have indicated they are willing to cooperate,” he told the BBC on Thursday.

Striking a debt deferral deal with China, their biggest creditor, will be key to keeping the southern African country’s economy afloat, experts says.

The murky details of Zambia’s Chinese debt profile has made it harder to qualify for IMF lending, leading to calls that Hichilema should pass legislation that will require all government loan contracts to be made public. 

The IMF is also expected to push for key economic reforms shortly after the election before signing off on a loan agreement. Hichilema had promised to ease the regulatory environment and bring back foreign investment to the mines in the run up to the election, though analysts say it is too early to tell whether his tenure will be a continuation of Lungu’s legacy of aggressive resource nationalism.

In his inauguration on August 24, the former executive at an accounting firm promised a cheering crowd to restore prosperity, stability and jobs to Africa’s second-largest copper producer, which is mired in huge debt and recession owing to depressed commodity prices.

Newly elected Zambia President Hakainde Hichilema waves at the crowd after taking oath of office at the Heroes Stadium in Lusaka on August 24, 2021. – Zambia’s newly elected president Hakainde Hichilema on August 24, 2021 promised to rebuild the ailing economy and alleviate poverty as he was sworn in following an election hailed as a milestone for African opposition movements. (Photo by Salim DAWOOD / AFP)

Additional reporting by Tom Collins.

Finance & Services Technology & Information

How Africa can lead the financial and crypto revolution

The effects of the fourth industrial revolution in Africa have been taking everyone by surprise. While all eyes were turned to the US, Europe, and China, Africa was silently growing much faster than anyone anticipated, especially in financial technologies.

The combination of mass adoption of recent technologies in the region, without big monopolies nor outdated infrastructures, creates a never-seen-before opportunity for Africa to create the next disruptive startups and the global leaders of tomorrow.

While the US is busy maintaining a monopolistic financial system, built on old infrastructures and outdated technologies, Africa has the opportunity to build something better, faster, and stronger, without the massive technical debt the US is facing. With many people lacking access to a bank account, Africa has become a mobile-payment first continent, leading the way, just like China does, in that front.

In a ripple effect, the African mobile-payment and fintech ecosystem have unlocked other fields and markets, like e-commerce, which is also rising very fast. So much so that Africa has now the biggest potential for e-commerce in the world. The economic expansion and rising mobile internet penetration rates have created Jumia, its e-commerce giant.

While not being profitable yet, the growth of the company is explosive, and it has the potential to turn into an e-commerce behemoth like Mercado Libre in Latin America. While Jumia has many critics, what everyone can agree on is that Africa created a champion in e-commerce that Europe was not able to create. This is a strong sign that Africa not only has a huge potential, but has already started to beat other continents in various fields.

Jumia is far from being the only success of the African startup ecosystem: in October last year, the US-based startup Stripe announced that it would be acquiring Paystack, a Nigerian payments platform for more than $200m. Egypt’s fintech startup Fawry is worth over $1bn, while WorldRemit, a UK online money transfer company, has acquired the African fintech startup Sendwave for more than $500m last year.

Flutterwave (Nigeria), Mergims (Rwanda), SawaPay (founded in Kenya), and many others form a very fast-growing ecosystem of African fintech champions. And Jumia also processes payments with its own service, Jumia Pay.

Read our special report on fintech in Africa

Africa leads in the new world of finance

The African Fintech ecosystem also includes the development and use of cryptocurrencies. Bitcoin has become popular in many African countries, as a cheaper solution to sending money across borders. In Ethiopia for instance, ProjectMano has been trying to push the government to consider mining and storing Bitcoin to combat the rising inequalities & global inflation. While in the US, many politicians call Bitcoin a scam and China is banning cryptocurrencies, in Tanzania, President Hassan urges the country’s central bank to prepare for cryptocurrencies.

Earlier this year, the central bank of Nigeria issued a circular warning banks and financial institutions that “facilitating payments for cryptocurrency exchanges is prohibited” and that they needed to identify and close accounts associated with them. It didn’t work. Despite this banking ban, Nigerians have built a pan-African financial settlement layer using Bitcoin and today, 32% of Nigerans are either using or owning cryptocurrency. More people use Bitcoin in Nigeria than they do in the US.

It is clear that Africa is leading the new world of finance and crypto adoption in many ways. In order to nurture and grow this lead and increase the ripple effect of its fintech industry into all other industries, African countries need to scale their education systems, especially in computer sciences and software engineering.

There are only 690,000 software developers in Africa, compared to 4.5m software developers in the US and 6m in Europe. Without a strong source of highly trained talent, it will be very hard to catch up on the US and Europe.

In fact, software engineering education and training has now become a strategic topic for many governments. Every company is becoming a tech company, and many countries have invested, in different ways, in training the local talents they and their startups and companies need to continue innovating and compete in the local and global markets.

In China, driven by the encouraging policy laid out by the government, the pool of software developer talent is growing 6% to 8% per year. A few years ago, India had around 2.75m software developers, but in two years, this number will skyrocket to 5.2m, surpassing the number of software developers in the US.

It is now crucial for Africa as a continent to also close this huge gap separating them from the US and Europe, especially as the demand for software developers is growing rapidly. For instance, the demand for blockchain – the technology behind many cryptocurrencies, including Bitcoin – engineers increases by 517% every year.

The regions who will be able to train high quality engineers, at scale, will be the winners of tomorrow. And if we look at all the innovation that has been happening in Africa with eight times less software developers than in Europe, imagine what the continent can achieve with as many software engineers as in Europe!

Julien Barbier, CEO, and co-founder of Holberton. A startup specialised in computer engineering training solutions for universities, training centres and companies on the African continent.