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Technology & Information

Flutterwave flies flag for new generation of Nigerian entrepreneurs

The face of Nigerian business is starting to change as the country’s young tech-savvy entrepreneurs launch successful fundraisings attracting global investment.

Fintech payments company Flutterwave, just five years old, was valued at over $1bn in March after capital-raising netted $170m from investors, including Tiger Global Management, the US hedge fund and investment firm. The fundraising brings the total investment in Flutterwave to $225m.

The new valuation has led to Flutterwave’s designation as a “unicorn” – a privately held startup company valued at $1bn, and the second unicorn to come out of Nigeria. The firm serves more than 290,000 businesses including customers like Uber, Flywire, Booking.com and Facebook. The firm will use the capital to acquire more users, expand into new markets and build an app.

Nigeria’s Interswitch became Africa’s first unicorn in late 2019 after US payments technology corporation Visa acquired a 20% stake in the company for $200m.

Flutterwave, founded in Nigeria and based in San Francisco, has become one of the fastest-growing payments companies in the world. By 2021 it had processed more than 140m transactions worth more than $9bn across 33 African countries. It enjoyed compound annual growth of 226% from 2018 to 2020. The company will soon set up shop in more Francophone and North African markets including Egypt, Tunisia and Morocco.

Other firms in the Nigerian fintech market are also making waves with international investors. Paystack, a payments provider for businesses, was acquired by US-based digital payments giant Stripe in October for $200m in the biggest startup acquisition yet.

The deal, which will allow both companies to operate independently, formed part of Stripe’s shift into Africa amid international expansion plans sparked by its own $600m funding round in 2020. Paystack, like Stripe, went through Y Combinator, the Silicon Valley-based startup incubator in 2016, the first ever startup out of Nigeria to do so. Stripe, which led Paystack’s 2018 $8m Series A funding prior to making the acquisition last year, counts Amazon, booking.com, Facebook, Shopify, Paypal, Zoom, Jobber and others among its clients.  

At the time of the deal, Paystack had about 600,000 customers. CEO Shola Akinlade, co-founder of the company with Ezra Olubi, says, “Paystack was not for sale when Stripe approached us. For us, it’s about the mission. I’m driven by the mission to accelerate payments on the continent, and I am convinced that Stripe will help us get there faster.”

A growing fintech hub

The deals have boosted Nigeria as an African fintech hub to rival Egypt, Kenya and South Africa. Together, the four countries make up about 85% of total fintech investments on the continent.

Many of the companies leading the charge are just a few years old and have benefited from a spike in investor interest since 2018, when funding into African fintechs nearly quadrupled to $357m. Global giants such as Visa and China’s Tencent regularly appear in the funding rounds of growing African fintechs.

The pandemic has had a broadly positive effect, driving an increased public acceptance and uptake of online transactions as consumers avoid physical cash and face-to-face contact with retailers. Flutterwave CEO Olugbenga Agboola says revenues grew more than 100% in 2020 due to the pandemic. 

Policymakers are keen to encourage the trend. The Central Bank of Nigeria has a target of financial inclusion of 95% by 2024, but analysts believe it will need the growth of fintech companies, products and funding to get close to achieving this target.

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Beyond payments 

Fintech is not the only game in town when it comes to serious fundraising. Innovation across the board is helping to solve longstanding problems in Nigeria, unlocking growth and improving livelihoods. Helium Health, a company that specialises in digitising medical records and offering tech solutions for administration as well as digital payments, last year raised $10m in a fundraising round.

It has spurned acquisition offers, according to media reports, and opted to expand its services to North and East Africa, particularly in the wake of a significant shift to online business because of Covid-19.

“It’s really about tackling three core problems that we see in the healthcare sector in Africa: inefficiency, fragmentation and a lack of data,” says CEO and co-founder Adegoke Olubusi. “I’m hoping this coronavirus crisis will be a period that forces everyone to rethink what we’re doing on healthcare.”

The company is capitalising on a migration to online services among healthcare providers. The head of the Nigeria Centre for Disease Control, Chikwe Ihekweazu, says automating a range of services has helped the organisation to manage Covid-19. “Almost everything we’re doing right now, from logistics to managing the outbreak itself, is being migrated onto different technological platforms.”

Many of Nigeria’s new entrepreneurs have gained experience in international companies. Helium Health’s Olubusi did stints with Goldman Sachs, eBay and PayPal before coming back to Nigeria. Flutterwave was founded by serial entrepreneurs Iyin Aboyeji and Agboola, supported by a team of African payments, technology and banking specialists drawn from companies such as Standard Bank, Google Wallet, Andela and PayPal.

The startups are challenging the status quo of Nigeria’s corporate landscape by taking on the big banks that have dominated the financial services landscape for decades. That, in turn, has spurred innovation in the traditional financial sector. GTBank is hunting for fintech talent in its own startup company, Habari Pay, which is due to start operations in 2021, while Access Bank has established a tech accelerator, the Africa FinTech Foundry, to build digital talent for itself and the industry as a whole.

Some of the large banks and other corporates in Nigeria are already working with newly emerging fintechs in an effort to improve their own services and develop new services to help them modernise. With the changes brought about by the pandemic, these fast-growing companies and the profusion of new entrepreneurs are charting a new course for the Nigerian economy.

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Categories
Finance & Services

Africa’s financial sector needs to tackle climate change

If 2020 is seen as the year of the pandemic, 2021 will hopefully be seen as the year of successfully financing a resilient, inclusive global recovery from Covid-19, spurred by two important UN climate conferences: the UN Biodiversity Conference in Kunming in China in May and the UN Climate Change Conference (COP26) in Glasgow, UK, in November. 

Finance is being placed front and centre in relation to these issues. When it comes to climate change in Africa, signs that financial sector regulators and policymakers are taking concrete steps towards climate-related policies and frameworks are a positive development. 

The effects of climate change and the resultant environmental, social and governance (ESG) issues are a tough reality for African countries. The severity of weather-related events such as the 2016-17 drought in Kenya and Ethiopia or Cape Town’s water shortage crisis in 2018 have been made more likely because of climate change. 

Most African countries are deemed vulnerable to future climate change impacts because temperature increases on the continent are projected to be higher than global mean temperature increases, and because 23 out of 48 sub-Saharan African countries are classified as low income by the World Bank, characteristics which exacerbate key development indicators such as disease and social inequality.

Yet the continent contributes less than 4% of global greenhouse gas emissions and therefore can do very little to address the climate change mitigation needed to reduce these impacts.

This points to the need for the multi-sectoral problem-solving that takes place through the UN climate conferences, but over the years, the link between climate resilience and financial sector policymakers in Africa – and indeed in the rest of the world – has been weak.

However, this year’s biodiversity conference provides an opportunity for financial policymakers and regulators to not only engage in the wider discourse on climate, but to also play a part in creating an enabling environment for the sector to innovate for climate solutions. 

The renewed global enthusiasm surrounding the UN climate conferences can also motivate the private sector to create Africa-focused solutions that align with and deliver positive ESG impacts.

There are no panaceas for these complex issues, but looking at them through a finance lens is important. For example, at a global level, the Global Commission on Adaptation estimated that $1.8 trillion of investment in the areas of early warning systems, climate resilient infrastructure, improved dryland agriculture, global mangrove protection and resilient water resources could generate $7.1 trillion of avoided costs, and non-monetary social and environmental benefits. 

This presents a significant opportunity for Africa’s businesses, some of which are already leading innovation in these areas, such as M-Kopa, a mobile-based asset financing platform that provides renewable energy access to those excluded from traditional banking. 

While finance is only a necessary but insufficient condition in this context, it also tends to attract decision-makers across a wide range of stakeholder groups, including government departments, the private sector and civil society, which is essential because any climate-related plan needs financing.

Climate finance and Covid-19

Climate finance is even more important in the wake of the Covid-19 pandemic, where calls for a green and inclusive recovery are being echoed by concerned decision-makers across the world, including in Africa. 

For example, 23 former central bank governors and finance ministries from around the world, including Brazil, Colombia, Germany, Kenya, India, South Africa and Bangladesh issued a “statement on debt relief for a green and inclusive recovery”. 

A coalition of finance ministers on climate was formed in 2019 aiming to “bring together fiscal and economic policymakers from over 50 countries in leading the global climate response and in securing a just transition towards low-carbon resilient development”.

The coalition includes ministers from seven African countries (Côte d’Ivoire, Ghana, Nigeria, Ethiopia, Kenya, Uganda and Madagascar) that together made up 33% of Africa’s 2019 nominal GDP. Of particular relevance to businesses in these countries is that the coalition aims to “mobilise private sources of climate finance by facilitating investments and the development of a financial sector which supports climate mitigation and adaptation”.

Multi-stakeholder engagement and collaboration are therefore critical for countries to achieve their desired climate objectives and an optimal financial sector legal and policy framework. Some examples of note in Africa include Kenya’s 2018 National Policy on Climate Finance, which was developed following a series of country-wide consultations and aims to address Kenya’s ability “to mobilise and effectively manage and track adequate and predictable climate change finance”. 

Another example is South Africa’s National Climate Finance Strategy, which is currently under development, and aims to “provide a stimulus for collaborative action by government, [the] private sector and civil society, to respond to South Africa’s climate change priorities and realise its sustainable development goals”. 

Financial sector must play a role

ZeniZeni Sustainable Finance supported early work on the development of the strategy, and it was evident that while the government can work towards establishing the enabling environment for necessary investments to take place, the strategy needs the input of the business sector and civil society actors to be implementable. 

For example, how can smallholder farmers be supported to adopt climate smart, regenerative agricultural practices? What would the costs and capacity-building needs of such a strategy be? Or, as high electricity users, what contribution can the mining sector make to significantly increase the amount of electricity that is generated from renewable sources such as wind or solar power? And, what role can the financial sector play in facilitating this? 

These are all important questions that government cannot answer alone.

While not every country has chosen to develop a national climate finance strategy, the UN Framework Convention on Climate Change provides scope for this within the finance component of the “nationally determined contributions” (NDCs) that all African countries as signatories to the Paris Agreement are required to update before COP26. 

For example, Kenya’s updated 2020 NDC states that of the $62bn required for adaptation and mitigation up to 2030, 13% will come from its own resources, with the balance needing to come from international support.

Africa’s financial sector decision-makers need to take a permanent seat at the continent’s climate change negotiating table to take advantage of the renewed global focus on climate finance and chart a path that results in relevant climate solutions for the continent.

Malango Mughogho is managing director of ZeniZeni Sustainable Finance. 

Jacqueline Musiitwa is a senior associate at ZeniZeni Sustainable Finance. 

Categories
Agribusiness & Manufacturing

Ethiopia’s textile sector battles against setbacks

Before war erupted last November in Ethiopia’s Tigray region, the Almeda textile factory supplied some of Europe and America’s top brands with low-cost garments and provided jobs to more than 300 people, most of them women. 

Almeda was part of Ethiopia’s bid to make its textile industry globally competitive, by enticing investors with a young and economical workforce and the promise of attractive margins for suppliers to household-name global brands.  

Now the factory lies in ruins, burnt to the ground after being looted – according to eyewitness accounts – by Eritrean forces.

The war between Ethiopia’s central government and the Tigray regional government, led by the Tigray People’s Liberation Front (TPLF), which has drawn in troops from Eritrea, could be potentially devastating to the future of the garment industry. Amnesty International says that 450,000 people have been displaced in the region, and 2.3m of its 7m population are in immediate need of life-saving assistance.

The Ethiopian textile sector was already battling the twin impacts of Covid and reduced exports, and now the Tigray war has put “long-lasting dents” on Ethiopia’s prior success, according to Manoj Tiwari, a global textiles expert at the National Institute of Fashion Technology, India.

“Mekelle [the capital city of the Tigray region] is the most important textile hub of Ethiopia, and due to the war, it has been severely affected,” he says. 

“The situation is expected to improve in the near future, and I hope industrial activities will be able to resume soon, as Ethiopia offers a bright and promising hope to the global textile industry, provided labour, safety and health concerns, wages and uplift of living standards and issues to do with low productivity and better skilled labour are addressed efficiently, effectively, and quickly. Ethiopia’s push into the textile industry over the past 10 years has been emblematic of its manufacturing ambitions.”

Workers in an Ethiopian textile factory.
Workers in an Ethiopian textile factory. (Photo: Pinar Alver/Shutterstock)

The Ethiopian Ministry of Trade and Industry has confirmed it is losing $20m per day in exports due to the closure of factories and mining plants in Tigray.

Addis Ababa still plans to increase clothing exports to $30bn a year by 2030, from its current $145m base, as part of a push to see Ethiopia become a lower-middle income country by 2025. The Ethiopian government has built industrial parks in cities across the country, issuing textile licences to over 175 manufacturers in a bid to increase the sector’s share of total exports to roughly 10%, representing 0.6% of total GDP.

Most foreign investors come from China and India, while leading Bangladeshi textile firm DBL was forced to evacuate 103 of its foreign staff from the country when the war began. It’s unclear when they will be able to return.

Egyptian investors are awaiting the Ethiopian government’s response to requests for $2m compensation for losses incurred in the region. SCM Knit Tex Plc, an Indian textile company based in Tigray, has been more fortunate. Its 1,300 employers and factory were protected by federal Ethiopian forces when fighting broke out, allowing operations to continue. 

The Ethiopian government declared victory four months ago, but the conflict risks becoming a prolonged guerilla struggle. The IMF has forecast 0% GDP growth in real terms in 2021, as rising debt repayments to China threaten to choke Ethiopia’s industrial ambitions.

Responding to the pandemic

An accurate number of textile workers is difficult to gauge, but analysts estimate it is well over 60,000. When Covid cases began steadily rising last year, many garment workers were too afraid to go to work. This prompted a collaboration between the Ethiopian government and development arms of the UK and German governments to provide financial assistance to employees. 

A 2019 survey of over 1,000 textile workers across 52 factories in three regions found 65% earn less than $70 per month, with many making less than half of that.

“Most workers in the textile industry are poorly paid women so the social consequences of mass unemployment in the sector were potentially severe,” says Mark Napier, CEO of Financial Sector Deepening (FSD) Africa. 

“Textile manufacturing is a global business. Buyers can switch production from Ethiopia to Kenya or Bangladesh relatively quickly. So the nascent Ethiopian textiles industry really was vulnerable, and for Ethiopia to lose this industry, which forms a key plank of its industrialisation strategy, after so much government and donor support, would have been a tragedy.”

An initial $6.5m fund to which Ethiopia’s industrial parks could apply for wage subsidies was created and Napier says 35,000 jobs in 30 factories have been secured. Funds are ring-fenced to support the six large factories in Tigray when the security situation improves. 

“Textiles manufacturing is a significant source of employment – especially for women – a tax base for the country, inward investment from international partners and an opportunity to demonstrate investment. Donors can continue to play a role, especially in capacity building and improving working conditions,” says Napier.

For the Ethiopian government, it’s hoped the country’s closer proximity to Europe and North America compared to Asian countries, industrial funding provisions, exemptions in customs duties and tax holidays for foreign firms and international agreements for trade promotion can elevate Ethiopia to become the “Bangladesh of Africa”. 

Traditional Ethiopian textiles.
Traditional Ethiopian textiles. The country has a unique weaving tradition. (Photo: Artush/Shutterstock)

And for Lelise Neme, at the Ethiopian Investment Commission, improved security is paramount for providing fertile ground for added inward investment.

“The government is proactively addressing peace and security challenges that threaten investments in the country, and this is significantly observed with the recent law enforcement operation taken in response to the TPLF’s violation of the national constitution,” Neme tells African Business.

“Currently, the country has just launched a 10-year perspective plan and a three-year home-grown economic programme which give prime attention to competitiveness, industry-led growth and private sector development, to become a middle income country in 2025 and achieve the Sustainable Development Goals (SDGs) by 2030. This action also assures the establishment of a safe and secure investment climate in the country.” 

Glimmers of hope

Despite poor security in Tigray and the unprecedented shock from Covid-19, glimmers of hope have emerged. The biggest firm in the handcraft segment of the textiles industry reported a 92% growth in exports in 2020. And an expanding cotton and leather industry, together with new railways and roads, are laying the foundations for increased exports.

Kathy Marshall moved to Ethiopia from Canada 26 years ago and set up Sabahar, a producer of hand-woven textiles using only natural fibres including cotton, silk and line. With 96 full-time employees it exports to 11 countries worldwide.

“There’s growing market opportunities for high-quality authentic hand-woven products, as people are tired of feeling like they’ve had the wool pulled over their eyes with products from China claiming that it is handmade or authentic,” she says. 

“I think the international customer that we’re engaged with in this sector is very interested by Ethiopia’s unique textile weaving tradition.”

Categories
Energy & Resources

Buhari announces Nigeria’s ‘Decade of Gas’

On 29 March, Nigeria’s President Buhari announced “The Decade of Gas”, an initiative designed to ensure Africa’s biggest oil producer can take advantage of the global energy transition. The launch comes just as the government is pushing through some major reforms for the sector – notably, its long-awaited Petroleum Industry Bill – that could see the biggest transformation of Nigeria’s energy industry in decades. 

Oil contributes around half of the government’s revenue and most of its foreign exchange receipts making Nigeria one of the countries most susceptible to the global transition to cleaner fuels.  

But as Buhari’s latest initiative makes clear, many now believe that Nigeria’s largely untapped, natural gas resources could provide the means for the country to fund its way through the global energy transition.   

One of the country’s major efforts here is the Ajaokuta–Kaduna–Kano Natural Gas Pipeline set for completion in 2023. Spearheaded by the government and funded by China’s Belt and Road Initiative, the government hopes it will connect the country’s gas supply to other planned trans-regional and intercontinental pipelines , such as the Trans-Saharan Gas Pipeline, in order to open up access to Europe. 

Lack of infrastructure has historically hampered the Nigerian energy sector, and represents a crucial reason why its gas reserves have been untapped for so long. This pipeline project could fundamentally alter the calculus, and also help the country meet its growing electricity needs in a cleaner, more sustainable manner.  

Expanding the national power grid, and the interconnection of local, regional and national power generation will also be key. Without a full-scale national power grid, the exponential impact of renewables and natural gas-fuel power generation will not be possible. Additional power generation projects will also need to be put in place, so as not to burden the current grid. 

Such investments will be crucial in moving the sector towards gas. It is important for Nigeria’s economy, however, that it does not try to move too fast. Immediate financing will be available from third party providers, especially China, and often with high risks. The more prudent option in the long-term would be for Nigeria to retain ownership of its energy transition infrastructure.

Reforming the energy sector  

To do so, Nigeria will need to generate funds from existing energy resources, and balance investment in renewables with extracting short-term value from its oil sector. This is why the government’s Petroleum Industry Bill will be so significant. Its reforms are wide-ranging but at their heart is the optimisation of the revenues accruing to the Government, and the promotion of the kind of governance reforms necessary to prepare the industry for a move into renewables.

Reforming the management and oversight of the energy sector has been a major focus of the Buhari government, which in recent years has moved to commercialise Nigeria’s national oil company and put in place plans for new regulatory agencies designed to tame a sector with a history of malpractice. There remains much to be done, including the need to address internal instability which has disrupted the industry, but they are positive steps forward. 

For Nigerian policymakers, additional revenues from natural gas could in turn provide valuable support for renewables and generate millions of skilled, green jobs for Nigeria’s young and fast-growing population. In the private sector, growing investments in wind and solar energy are a positive early sign. Nigerian companies like AllBase and Daystar Power are already expanding across West Africa. The success of firms like these may ultimately have just as significant an impact as Nigeria’s pivot to natural gas.

Diversification is crucial for economy 

As the global energy transition deepens, however, so too will Nigeria’s need for diversification. The country’s fast-growing tech sector, which already accounts for 10% of GDP, demonstrates a capacity for innovation that Nigeria must nurture further.

The government recently announced the largest infrastructure drive on record to improve ports, roads and rail networks, with an eye on job creation and boosting the country’s export capabilities. Targeted investments in agricultural technology are also on the agenda, aimed at modernising and making more competitive the country’s largest employer, the agricultural sector.  

A lot needs to go right for Nigeria’s economy to weather the global energy transition, and ultimately thrive in its decade of gas. Yet Nigeria’s leaders are taking a sensible approach: enacting much-needed reforms to maximise revenues from its extractives, while investing in the future. Time will tell if they’re to succeed. 

Cyril Widdershoven is a veteran global energy market expert who holds advisory positions at various international think-tanks and energy firms.

Categories
Energy & Resources

Nigeria cleans up its energy act

Nigeria is one of the most underpowered countries in the world. Despite being Africa’s largest economy, its per capita consumption of electricity is just 150 kilowatts per hour (kWh), compared with 3,500 kWh in the continent’s second largest economy, South Africa. 

According to PwC, only one in five people has access to power from the electricity grid with the remainder having to get by with makeshift and localised power solutions. The rollout of decentralised renewable energy solutions is potentially a game-changer for closing Nigeria’s energy access gap. Investors, supported by government policies and regulation, are moving to gain a foothold in the market. 

The shift to renewable energy was given greater impetus by Nigeria’s signing of the Paris Agreement on Climate Change in 2016. The government’s Renewable Energy Master Plan has a target for clean energy to contribute 10% of Nigeria’s energy needs by 2025. It has also established the Rural Electrification Agency of Nigeria (REA) to work with the World Bank and other stakeholders to roll out solar and minigrid projects with private investors. 

The renewables rollout was given a shot in the arm by the Solar Power Naija project launched in December 2020 as a response to the Covid-19 pandemic. The project aims to provide energy access to 25m people through connections to minigrids or solar home systems.

In order to build a local supply chain and create jobs and skills, the state is giving qualified companies long-term, low-interest credit facilities, with the aim of also saving up to $10m from import substitution.

The size of both the need and the opportunity has drawn in not just the private sector but also international development finance institutions, such as the United States Agency for International Development (USAID), the UK Department for International Development (DFID), and Germany’s GIZ. Many private funders have also lined up to support the growth of this industry. 

The fact that Nigerians already spend an estimated $14bn annually on generators highlights the potential viability of a business model offering cleaner energy sources to consumers. The REA predicts that minigrids alone present a $10bn opportunity in Nigeria.

Demand set to double

One of the big players in the renewables space is All On, a Nigerian off-grid energy investment company backed by Shell. 

CEO Wiebe Boer is upbeat about the opportunities – energy demand is expected to double over the next 10 years, he says, and Nigerian consumers are willing and able to pay for alternative sources of power. The opportunities are not just in rural areas, he says, but in high density, low-income urban areas. “In Nigeria this is not just a deeply rural play.”

Big corporates are showing interest. Banks and petrol stations are starting to run their branches on solar power and energy providers are offering solar solutions to business customers. Several large companies such as Nigerian Breweries and Nigeria’s largest egg producer, Premium Poultry Farms, have signed power purchase agreements with investors, resulting in significant energy savings.

The Ashama 200 MW solar farm, set to be the biggest in West Africa on completion, is being built in Delta State, a joint venture between Singaporean and Nigerian investors. 

The government is also pushing for greater efficiency in the commercial uses of its enormous gas reserves to power business and create new value chains. For example, it has launched an ambitious programme for cars to convert to gas in place of fuel, and has directed 9,000 filling stations in the first phase to reconfigure their infrastructure accordingly.

Categories
Technology & Information Trade & Investment

Africa needs to take bold, transformative action on climate change

Hannah Ryder, CEO of Development Reimagined, an African-led international development consultancy based in China.
Hannah Ryder, CEO of Development Reimagined, an African-led international development consultancy based in China.

Hydrogen energy and electric vehicles. These are two phrases you will not find in Africa’s Agenda 2063 – Africa’s blueprint for “The Africa We Want”, first agreed in 2014 by heads of state of the 55 nations.

This is despite the fact that in then-African Union chairperson Dr Nkosazana Dlamini Zuma’s beautiful and inspiring “email to the future” – written to a hypothetical Kwame in the year 2063 – the vision is for Africa to be the third largest economy in the world. 

You also won’t find these phrases in Africa’s so-called development partners’ strategies or plans for the postponed COP26 climate change conference coming up in Glasgow in November 2021. In place, you’ll find phrases such as “debt-for-climate swaps”, “nature-based solutions”, “capacity building” for adaptation or disaster risk management, or support for renewable energy for rural populations.

When it comes to looking at Africa and climate change, the view of Africa remains stuck in a backwards environment. That is, a vision for an environment in which the majority of Africans are envisioned in rural areas, needing to adapt to floods, droughts and other emergencies that affect the agriculture sector. 

In contrast, while there is talk of “capturing Africa’s demographic dividend” the vision is not for an environment that requires cheap, efficient transport for over 4bn people, accounting for close to 40% of the global population. Nor is the vision for an environment that requires cheap and clean energy for huge factories on the scale of those currently in China. 

Why is this climate change vision so backwards, and why does it matter? There are two key reasons.

Shifting perceptions of risk

First, it is due to Africa’s marginalisation in the world economy. Africa makes up less than 4% of world trade and investment, and the prevalent view is that African markets are “risky”. I have written previously in African Business about the need to rethink African risk perceptions given what has been learned about Covid-19 management – a uniform global event in which African nations clearly outperformed many others. 

The need to shift risk perceptions is vital when it comes to climate change and ensuring that the same technologies that are available in other countries are made available in Africa. Right now, even clearly profitable, dependable economic activities such as energy for extraction of natural resources are seen as risky on the continent – so much so that they often require subsidies from governments, in the form of power agreements or publicly financed infrastructure, such as railways from mines to ports. 

How then can the private sector invest in next stage technologies? It means the public finance that does get spent on the continent is poorly spent on simple activities that the private sector should be financing, rather than on innovative public goods that are not yet profitable. 

Indeed, if we are looking towards a vision of the future, clearly only the cleanest, most advanced technology should be demanded by African governments from domestic and foreign investors and partners. Instead, while there now appears to be a consensus that concessional loans should not be provided for coal-fired power stations, we are still debating whether natural gas projects should get such finance. 

We are stuck in old, inefficient business models because risks in Africa are still perceived as too high. 

Getting the finance

The second reason for this backward vision is a lack of resources – in particular a lack of climate finance support from Africa’s partners. Recent data from the Center for Global Development shows that not only have donor countries fallen short of meeting a 2020 goal to provide “new and additional” climate financing of $100bn by $21bn, but 45% has not been new at all – i.e. it has been also used for traditional aid purposes. 

Some might argue this double counting is good as it means climate change is being “mainstreamed” into traditional aid. But from a recipient perspective, it makes life difficult. It increases requirements for every single grant or loan to tick more boxes and meet multiple objectives, therefore constraining the potential to be innovative and visionary. 

There is no excuse for this. I was a negotiator in 2009 and 2010 when developed countries committed to this goal. At the time, the government I worked for – the UK – took that seriously. A Green Climate Fund was created, today still a pioneering structure due to its equal representation of developed and developing countries – meaning African countries can have a significantly larger voice in directing grants and concessional loans than they do, for instance, at the World Bank, IMF or even African Development Bank. Yet the Green Fund too is underfunded.

Africa’s own efforts towards integration will help address the first challenge, no doubt. The African Continental Free Trade Area (AfCFTA) does have at its core an ambition for stronger industrialisation, moving up the value chain to ensure African economies get a larger share of their own and world trade.

The vision might not be visionary enough, but it is at least a start. It can be augmented too by demanding that foreign investors also innovate and openly experiment with new technologies such as electric vehicles on the African continent – not just sell or assemble them there.

But more and higher quality climate finance provided by richer countries is also crucial. Estimates from the African Development Bank suggest that at least $20-30bn is needed to green African economies each year, on top of additional international finance of $68-108bn per year.

The easiest means for Africans to make this happen will be for Africa’s partners – whether the US, Europe or China – to put finance into specific funds such as the Green Fund or Adaptation Fund, so that recipients can best set the terms of the future they want to see.

Towards a carbon-neutral future

In the run up to COP26, many richer economies – such as the UK, China, Germany and South Korea, are rushing to announce their carbon neutrality targets by 2050 or 2060. The US and Australia, though they have not announced such targets, are trying to persuade the rest of the world of their commitment to action. 

This is progress, but not sufficient. Only three African countries – Ethiopia, South Africa and Sierra Leone – have so far announced visions to be carbon neutral by 2050 or before. Today’s 1.3bn Africans and those of the future are entitled to this and the technologically advanced future it implies.

It’s time for Africans to start demanding that future and for partners to help build seriously towards Africa being the third largest economy in the world by 2063. Starting at COP26.

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

Categories
Finance & Services

Proparco takes stock after ambitious investment strategy

Gregory Clemente, CEO of Proparco.
Grégory Clemente, CEO of Proparco. (Photo: Alain Goulard/Proparco)

When African Business magazine’s French language sister publication interviewed Grégory Clemente, CEO of Proparco, the private sector arm of the French Development Agency (AFD), less than a year into his new post in 2017, he set out an ambitious strategy to double in size, expand equity investments and ensure at least 50% of its activities were on the African continent.

Five years on, many of those ambitions have been realised at Proparco, which takes direct stakes in companies and invests in private equity and specialised funds. In 2018, Proparco appointed a dedicated team to look exclusively at equity investments. Proparco’s equity investments globally have ballooned from €100m ($117.6m) in 2016 to €450m in 2019.

The expansion was replicated in the group’s wider activities, with total yearly commitments reaching €2.5bn in 2019, up from €1bn in 2017. For Clemente, the fact that Proparco has exceeded its targets of five years ago validates its change of strategy and proves its commitment to the continent.

At the heart of the expansive investment strategy was a continent-wide approach to investing. Clemente moved to his current post in 2016 at the same time as the AFD appointed Rémy Rioux as its new head. Rioux’s appointment signalled a shift in approach to investing in the continent, with the AFD becoming the first DFI to treat it as a homogenous  entity rather than divided between North and sub-Saharan Africa.

For Clemente, this rational approach mirrors the desires of the companies they invest in to grow both regionally and continentally, and more so today in light of the opportunities provided by the African Continental Free Trade Area (AfCFTA).

“The businesses and the banks that have grown to a certain scale are adopting a regional strategy, and we need to be able to accompany their regional and continental strategies,” he tells us. “So we wanted to remove those artificial barriers that can be constraining. You’ve got be able to adapt to this continental outlook, which is even more important with the launch of the AfCFTA.”

Expanding footprint

The approach has allowed Proparco to expand its geographical footprint. While an important proportion of its investments are in Francophone countries, Proparco is increasingly active in other markets. The firm now has six regional offices on the continent including in Johannesburg, Nairobi and Lagos, as well as antennas in other capitals, with 90 full-time staff members on the ground across Africa and other offices around the world.

Proparco, increasingly active in economies such as Kenya and Nigeria, is following the lead set by French President Emmanuel Macron, who has made state visits to both countries. Last year, in a return visit, Kenyan President Uhuru Kenyatta and a number of high profile business leaders visited France.

Macron has also made a habit of rolling out the red carpet to African industrialists such as Aliko Dangote during his jamboree in Versailles that usually takes place immediately before the World Economic Forum in Davos. On the back of these meetings, French industrial group Axens partnered with the Nigerian BUA Group to build a refinery project in Akwa Ibom State, Nigeria.

Pandemic slows activity but prospects improving

While ties between France and Africa are flourishing, Clemente admits the pandemic slowed activity, with many transactions pushed back.

There were also changes to the Digital Africa initiative, which was launched by AFD in 2018 to great fanfare, but Clemente says that the firm will continue to engage with the sector.

“We’re still fully engaged with startups and tech companies, through our financing of incubators, accelerators and tech hubs on the continent. We launched a $5m bridge fund last year exclusive for startups, which have been hit hard by the pandemic.”

But he remains confident that activity will pick up and says 2021 activity is already gathering pace. 

“Last year was a difficult year in so much as companies themselves did not know how things would evolve, so any talk of M&A or investments were largely off the table. But there is definitely greater appetite: we feel that 2021 will be a good year and the pipeline is actually growing and shaping itself nicely and at pace,” Clemente explains.

Clemente says that throughout all their interventions, including debt, equity and guarantees, they will be providing over €2bn of funding this year. The firm is able to make use of its own capital and mobilise other sources, including investment capital, insurance and pension funds. 

Collaborations with DFIs are also taking off – AFD organised a meeting in November that brought together over 450 public development banks operating around the world. On the back of this meeting, Clemente says, the partners initiated $4bn worth of commitments to support SME finance in Africa by 2021, with Proparco putting up €1bn.

Replicating a domestic French government programme, Proparco has also initiated a programme to provide 80% guarantees on loans made to SMEs. They have partnered with Société Générale, a retail bank active in a number of Francophone African countries, and hope to roll out the scheme with other local banks.

Proparco is planning on deploying lending guarantees of €100m – thus enabling €125m of loans. In the countries where these loans have been made – Côte d’Ivoire, Senegal, Cameroon and Madagascar – SMEs have benefited from loans ranging from €8,000 to €60,000.

Clemente says that such initiatives will help to drive an economic recovery following the pandemic, and says that financial institutions can play a key role in helping businesses get back on their feet.

“Access to finance is key. It’s still an important obstacle and SMEs still struggle to access finance. Another problem is that many MSMEs operate in the informal economy and we need to help to formalise their activities. For the more mature businesses, we need to strengthen their capital base. They are too often under-capitalised and this is why we put an emphasis on equity investments.”

Looking to the future, Clemente says that the firm’s work on “upstream” activities – investment in feasibility studies to develop bankable projects – and their focus on impact and climate will continue to help Proparco grow and set even more ambitious targets on the continent. 

Categories
Finance & Services

Fidelity Bank posts N28.1bn profit for 2020

Fidelity Bank has posted robust full year (FY) results for the financial year ended 31 December, 2020, as it looks to recover from Covid-19 disruption.

In the results announced on 31 March on the Nigerian Stock Exchange (NSE), the Nigerian lender registered strong growth in core operating profits, net revenue and other key financial indices. 

The bank posted a 50.9% growth in core operating profits from N29.8bn ($78.2m) in 2019 FY to N44.9bn while net revenue increased by 15% from N111.8bn in 2019 FY.

Customer deposits, a measure of consumer confidence rose by 38.7% from N1,225.2bn to N1,699bn just as total assets grew by 30.5% from N2,114.037 trillion in 2019 FY to N2,758.148 trillion. However, profit before tax dropped by 7.6% to N28.1bn from N30.4bn in 2019 FY, due to an increase in its loan provisions to shield it from any headwinds.

The board is proposing a N6.4bn payout to shareholders, translating to a dividend of 22 kobo per share.

The board stated: “We are pleased with our financial performance, which clearly showed the resilience of our business model as core operating profit increased by 50.9% to N44.9bn from N29.8bn in 2019 FY. We also saw a significant improvement in our efficiency indices as cost-to-income ratio moderated downward to 65.1% from 73.4% in 2019 FY. However, Profit before Tax (PBT) dropped by 7.6% to N28.1bn as we proactively increased our provisions on risk assets to N16.9bn from a net write-back of N0.6bn in 2019 FY.”

Managing director and CEO Nneka-Onyeali Ikpe, who has led the bank since January,  said that Fidelity “took a conservative stance in recognition of the impact of the global pandemic, which has redefined business risks and opportunities in the new normal”.

As seen in recent years, the bank’s digital retail banking approach has continued to yield positive results. Though digital banking income dropped by 18.8% due to the revised banker’s tariff, it increased by 19.6% quarter-on-quarter as a result of increased customer adoption as more services were migrated to the bank’s digital channels.

Onyeali-Ikpe is happy with the progress of its digital banking strategy, and said that over 52.8% of customers are now enrolled on the bank’s mobile/internet banking compared to 47.4% in 2019 FY. More than 81% of total transactions were conducted on digital platforms.

Fidelity Bank has around 6m customers and 250 business offices. 

Categories
Trade & Investment

Diplomatic progress brings hope of economic dividends for Somaliland

Until recently the dusty streets of Somaliland’s capital city of Hargeisa were without a diplomatic neighbourhood. The semi-autonomous country, which unilaterally declared independence from Somalia in 1991, has struggled to gain recognition from the international community as a sovereign state.

However, recent bilateral developments have emboldened Somaliland’s dreams of independence and boosted hopes of a windfall of trade and investment opportunities.

Kenya, the UAE and Taiwan have each expanded their diplomatic presence in Somaliland over the last few months, adding to consulates from Djibouti, Ethiopia and Turkey. The UK and Denmark also have liaison offices, while Egypt is in the process of establishing a representative office and a proposed military base.

Hargreisa, the capital of Somaliland.
A view of Hargeisa, capital of Somaliland. (Photo: Homo Cosmicos/Shutterstock)

New partners

The flurry of activity is a result of shifting alliances in the region and Somaliland’s strategic position on the Gulf of Aden, one of the busiest shipping lanes in the world.

“Almost 30% of trade in the world crosses through the Gulf of Aden,” says Mohamed Awad, Somaliland’s minister of investment promotion. “We are positioning ourselves as the gateway to Africa.”

Taiwan, which has parallels with Somaliland as a breakaway region of China, is set to build a military base in the country after the establishment of diplomatic ties. The move angered China, which responded by strengthening its relations with Somalia and agreeing to conduct joint naval patrols in the Red Sea.

Somalia also railed against Taiwan for not going through the proper channels in Mogadishu, stating that that it will take “necessary measures under international law to protect the nation’s unity”.

The Gulf of Aden and the Red Sea are peppered with military bases as big powers seek to gain a foothold in a region of great geopolitical importance. China and the US both have sizeable bases in neighbouring Djibouti. Turkey’s largest overseas military base, Camp Turksom, is in Somalia.

Meanwhile, Kenya and Egypt have turned to Somaliland. Egypt is reportedly looking to bolster its military presence south of its borders as it finds itself positioned against Ethiopia in the ongoing dispute over the Grand Ethiopian Renaissance Dam (GERD).

Kenya is moving closer to Somaliland as the fallout from a dispute with Somalia over maritime territory that could hold substantial oil and gas reserves continues. The East African nation pulled out of hearings to resolve the dispute at the International Court of Justice in March, accusing the court of bias towards Somalia.

New friendship with Kenya

Somaliland’s President Muse Abdi visited Nairobi in December, in a move that angered Somalia. Mogadishu cut ties with Kenya the following day. But the new friendship with Kenya is expected to lead to increased trade and is a positive step towards Somaliland’s international recognition.

“We want to build relations with Kenya, looking for business and trade,” says Guled Harun Ibrahim, CEO of the Hargeisa-based investment advisory Guul Group. “Kenya is a hub in terms of the international community, so I think it will open doors for us.”

The two countries are expected to cooperate in areas including farming, education and minerals. Kenya Airways will operate direct flights to Hargeisa, and Kenya will not only recognise Somaliland travel documents but also enable the acquisition of visas on arrival. Somali citizens still have to apply for visas in advance.

Kenya is looking for new markets for its miraa, or khat – a mild stimulant commonly chewed in the region. Kenya used to export millions of dollars’ worth of khat each year to Somalia before Mogadishu stopped imports last year as international flights were suspended due to Covid-19.

A trader sorts bushels of khat, a popular stimulant in the region. Kenya wishes to increase its exports of khat to Somaliland. (Photo: Simon Maina/AFP)

When flights resumed, Somalia continued the restrictions due to the growing tension between the two countries. Though the ban has now been lifted, Kenya is looking for new buyers given that punitive measures could easily be restored at any moment.

Back in 2016, the governor of Meru County, which is where Kenya grows its khat, went to Somaliland and discussed the possibility of diplomatic recognition in return for lowering tariffs on the product.

UAE appoints ambassador

The UAE has also strengthened ties with Somaliland over recent months. In March, Somaliland received the credentials of Emirati diplomat Abdulla Alnaqbi as ambassador, cementing the relationship between the countries and taking it to a higher level.

In contrast with Somalia, which is backed by Turkey and Qatar, Somaliland has long been a favourite for Emirati investment in the region. The $440m expansion of Somaliland’s Berbera port is  being undertaken by the Dubai-based company DP World and represents the biggest foreign investment in the country since it declared independence. 

The enormous construction could bring great benefits to Somaliland as it positions itself as a logistics hub for the surrounding region.

“It’s bigger than the other ports in East Africa,” says minister Awad. “Mombasa and Dar es Salaam, these ports are very congested. The clearing times in Berbera will be much quicker. From Berbera to Mumbai is going to be much quicker than from Mumbai to Dar es Salaam.”  

The port is also expecting a lot of trade from neighbouring Ethiopia which is currently reliant on Djibouti for all imports and exports.

“At times, it can take around six months for a container to pass through Djibouti,” says Guul’s Ibrahim. “We are expecting about 30% of Ethiopia’s import-export to come through Berbera.”

Somaliland is also hoping to attract investment to build a transport link dubbed the “Berbera corridor” which will link the port to Ethiopia by railway. Ibrahim believes that the port and the accompanying free zone will attract over 1,500 companies.

Attracting investment

To counter the difficulties of attracting investment as an unrecognised country, Somaliland has tried to sweeten the deal for investors by creating a good enabling and macroeconomic environment.

The country of around 4m people boasts a relatively stable political system, with five presidents in 30 years. It also has one of the lowest corporate tax rates in the world and a visa on arrival system.

“If you see any businesses who are struggling, it is not due to the burden of tax and government regulations,” says Awad. The government is currently trying to expand its tax base so it can invest in power and road infrastructure to reduce the cost of doing business for foreign companies, he says.

With a relatively undeveloped private sector, the government is hoping to attract companies to agriculture, mining, energy and the blue economy. For example, Somali­land is currently one of the largest exporters of livestock and cattle to Gulf countries. However, the overriding issue for investors is that they cannot secure international bank guarantees while Somaliland is an unrecognised country.

“We cannot have access to international financing agencies like the IMF and World Bank if we are not a member of the UN – it is a challenge,” says Awad.

The road to recognition

Whether the recent diplomatic developments will help Somaliland move towards independence is unclear. Talks attended by European and US representatives and chaired by Ethiopia were held between Somalia and Somaliland in Djibouti last June.

However, the talks were not attended by the African Union. The organisation, which resolutely upholds the principle of respecting the territorial integrity of its member states, is a major hurdle for Somaliland independence.

Yet rather than focusing on the politics, Ibrahim believes that a thriving private sector will lay the groundwork for independence.

“If the country develops in terms of trade and investment, and a lot of international companies come in then that will help the push to recognition,” he says.

Categories
Agribusiness & Manufacturing

Africa can offer solutions to help deliver Europe’s decarbonisation

Several scientific studies and opinions describe Africa as the region most vulnerable to climate change. Indeed, the very nature of many African societies depends on climate-related factors.

Rainfall and droughts affect agricultural production while poverty limits the continent’s capacity for adaptation or mitigation; all of which lead to a more fragile starting baseline.

However, the continent is responsible for only three percent of global carbon emissions; tangible proof of its under-industrialisation.

Yet, despite Africa’s pressing need for growth and development, many of its countries have eagerly joined the global decarbonisation movement. Indeed many African countries should be commended for their efforts to reduce their nationalemissions and adapt to the impacts of climate change under the Paris Agreement.

Although the dilemma of decarbonising Africa is not as difficult as it sounds, since it is seen increasingly as an opportunity, rather than a hindrance to growth.

Being behind in terms of industrialisation would allow these countries to develop green industries more rapidly, without having to compensate for overstretched, ageing industrial capital.

Africa’s “late mover” advantage is reinforced by the abundance of sun, wind, and unexploited land, all enhanced by an increasingly ambitious young generation thriving for change.

Africa presents a sound solution to Europe’s decarbonisation woes, providing a unique answer to the EU’s 2050 zero carbon target.

Europe wants to accelerate the world’s green transition by putting in place its Carbon Border Adjustment Mechanism. Although the system is driven by a sense of responsibility for the future of the planet, and not a seemingly latent need for protectionism, this approach will certainly have systemic effects on the stakeholders upstream in the supply chain.

Besides, Europe plans to subsidise its green industries to allow them to flourish and lower their costs closer to become economically viable. Nevertheless, the additional cost generated by the adjustment mechanism will most likely be transferred overseas, for example to African farmers or smallholders.

We can then expect, at least in the near future, that this additional barrier to entry imposed by Europe will affect local value creation and reduce locally manufactured goods, in favour of supplying raw material resources to Europe.

According to many European sources, revenues from the EU Carbon Border Adjustment Mechanism also intend to help finance the green transition in Africa. However, a ‘case studies’ approach cannot provide a lasting, sustainable, and economically viable solution for the planet.

“It is not about offering aid to Africa, but rather of exploring, together, potential partnership opportunities”

All stakeholders, from both sides of the Mediterranean would benefit from working together to resolve the carbon neutrality equation.

This would provide Europe with a reliable opportunity for its much-needed subsidies in support of its green industries, in partnership with African countries, relying on Africa’s abundant resources.

It is therefore not about offering aid to Africa, but rather of exploring, together, potential partnership opportunities.

Decarbonisation is the future of Africa and Europe at the same time, under different, but complementary perspectives. Protecting the planet is ultimately everyone’s responsibility.

Not far from Europe is Morocco, an African country ranked fourth on the world’s 2021 Climate Change Performance Index ranking after Sweden, the UK and Denmark.

The country is home to the world’s largest concentrated solar power plant, Morocco also hosts the largest producer of phosphate fertilisers, a company that has committed to carbon neutrality by 2040.

Morocco is then a perfect partner for Europe to collaborate with on an ‘extended version’ of the Green Deal.

This article was first published on the website of “The Parliament Magazine”.

Hanane Mourchid is Senior Vice-President, Sustainability Platform, at the OCP Group.