Agribusiness & Manufacturing Trade & Investment

Towards better times for Africa’s watchmakers

Before 2015 Ghanaian former hotel worker Anthony Dzamefe had never owned a watch. But he needed to make more money, so he bought watches from a local boutique, took pictures of himself wearing them, advertised on social media, and sold them in car parks and on university campuses. After initial success, he soon began to tinker with the designs in order to attract new customers. 

“I kept adding value by using better glasses, and by taking every part of a watch apart to put it back together again, so I could learn how to do repairs. It was then that I discovered the most important part of the watchmaking process, which is the artistry,” Dzamefe says.

The 31-year-old is now CEO and founder of Caveman, a company in the vanguard of Africa’s first generation of artisan watchmakers emerging across the continent. The continent’s watchmakers enjoyed a moment in the international spotlight in 2019 when the Duke and Duchess of Sussex were given LN Watches featuring straps in the colours of Zulu royalty during their visit to South Africa. 

A Caveman watch.
A watch made by Ghanaian firm Caveman.
(Photo courtesy of Caveman)

Meanwhile in Nigeria, luxury watchmaker Asorock is taking on international brands and forging a reputation for artistry and reliability. At its Ghanaian factory, Caveman now has workers expert at different stages of the painstaking watchmaking process and has had to separate its process to prevent spies from competitors stealing trade secrets. 

Globally, watch sales were proving resilient even in the era of the smartphone up until the pandemic, with the global market valued at $62bn in 2020 by Business Wire, a market research company. Rising urbanisation in China and India, an expanding international middle class, and growing urban fashion consciousness in China and India, the world’s two most populous nations, had proved a bulwark to help offset dips experienced in more mature markets.

Still, despite the obvious buzz, the African market is in its infancy. Most African watchmakers are self-taught, with few opportunities for any formal watchmaking education on the continent. Creators first have to learn the different aspects of watch-making from online video tutorials or apprenticeships with those in connected trades – Dzamefe spent two months with a shoemaker learning how to fashion leather straps.

The size of the embryonic African timepiece manufacturing sector is unclear, as second-hand sales dominate, and less research has been carried out. But the production process is the same used by counterparts around the world, with most firms starting off by importing watch movements – also known as a “calibre” in horology – the mechanical engine that drives the watch, chiefly from Japanese manufacturers Seiko or Miyota. Caveman says about 70% of their watch movement parts are imported from Japan, with 30% customised and assembled in Ghana. 

Watchmakers then create their own unique cases that enclose and protect the movement, design the face and dial and add straps and boxes. 

“They don’t make the watches with the African weather condition in mind. So, for example, a certain type of material or metal that could be used in European countries would expand with the heat over time here, so we customise and adapt,” says Dzamefe, who uses surgical stainless steel in his watches. 

“The whole idea of the Caveman brand is to have products that can be generational. Watches that grandfathers leave to their grandsons, and by using surgical stainless steel it means they won’t corrode, or react to sweat or the oxygen in the air.”

Swiss fall out of favour

The last decade has been transformative for the luxury watch market. Smartphones have presented stiff competition to traditional watchmakers, and dominant Swiss luxury firms were suffering declining sales in Africa even before Covid-19 lockdowns forced malls to close. 

“From 2017 to 2020 exports of Swiss watches to Africa have been on a downward trajectory, with exports declining by 47% in volume,” says Rubab Abdoolla, a beauty and fashion analyst at Euromonitor.

Speaking from the Swiss Business Hub at the Embassy of Switzerland in South Africa, Daniel Schneider says the luxury sector is a quick adapter, and the export of Swiss watches like Rolex, Omega and TAG will pick up again. But the recent civil unrest and looting in South African cities and the weak economy are hurting Swiss imports and investment.

“We believe that in African countries like South Africa, with strong financial institutions and longstanding established markets for luxury goods, the export of Swiss watches will pick up again, even if it takes its time,” he says.

“Very often these timepieces are seen as investments, bought intending to be passed on as heirlooms, and perceived as a status symbol. Connoisseurs also purchase certain luxury brands because they value the craftsmanship, so it’s expected that once the economic situation improves, demand for luxury watches will see healthy growth,” says Abdoola.

In the meantime, some African companies are eschewing the luxury end of the market in favour of timepieces targeting the wealthy middle classes. In the second quarter, Caveman sold 600 turquoise Blue Volta watches, which sell for C450 ($75) – while Asorock watches retail for up to around $200. 

Betting on luxury

Despite the tough times for luxury, other African watchmakers continue to target the upper end of the local market. Cape Town watchmaker Bettél, whose wooden timepieces can sell for over R5000 ($340), says the lockdowns have been unsparing. Co-founder Stuart Swan led a team producing 200 handcrafted wooden-cased watches per month before Covid, to sell at its store in the trendy Watershed at the V&A Waterfront luxury shopping development. 

Mixing high-quality stainless steel, carbon fibre and natural local wood, with movements often manufactured by Seiko and customised by Bettél, Swan says that a single piece of dust entering the movement during assembly can ruin the operation, meaning that precision skills are essential for workers in the labour-intensive process. 

After a tough year-and-a-half, Bettél are ramping up production once again, and will target social media to release videos showcasing their watchmaking prowess. Despite growth in smartwatches like the Apple Watch – which is capable of running a host of health monitoring apps and is estimated to have sold over 100m units since 2015 – Swan believes the distinctive craftsmanship of Bettél’s watches will retain their appeal when tourists and shoppers return in numbers to Cape Town.

“Each watch is truly unique, using local wood, local leathers and metals. It’s very meticulous work and a difficult product to make, but many of our customers say this is the best watch they’ve ever had.”

Finance & Services

Gender lens investing takes centre stage

Women currently oversee just 6% of the total funds managed in Africa, with their roles often restricted to the micro and small-scale sectors, but growing interest in gender lens investment could see real change in the investment landscape.

A string of research projects has demonstrated that more diverse teams adopting gender-aligned strategies generate higher returns, so the benefits are commercial as well as in promoting gender equality and social fairness.

In order to highlight the challenges and the opportunities, Educate Global and African Business organised a webinar attended by leading female voices in the African financial services industry.

For the uninitiated, gender lens investment takes gender-based factors into consideration to advance gender equality and better inform investment decision making.

Sandrine Henton, managing director of Educate Global, a private equity asset management company based in Nairobi that invests in companies in the food, health and education sectors, said: “Investing in women is not just good for impact but is also good for business.” Educate Global is over 65% women-owned.

Recent research by the International Finance Corporation of the World Bank calculated that gender balanced teams in private equity generated 20% higher rates of return than average. If you fund more women fund managers, you will fund more women entrepreneurs. By contrast, it is widely recognised that people invest according to their bias, so women-led and owned businesses are less likely to attract funding if those allocating that funding are overwhelmingly men.

The trend is certainly in the right direction. Alternative investment strategies focused on female fund managers and gender lens investing today account for $7.7bn of assets under management, 61% more than in 2018. Moreover, the G7 has committed to inject $15bn into gender lens investment by 2022.

Jen Braswell, director of value creation strategies, at British development finance institution (DFI) CDC Group, told the webinar that “valuing how and where women play is simply good investing… There’s a lot of momentum around the idea of gender lens investing… but we need to not be distracted with other factors.”

At least 40% of African SMEs are owned by women but only 20% of these have access to institutional finance, creating a funding gap of about $42bn.

Lindeka Dzedze, Executive Head: Institutional Clients, Global Markets at Standard Bank Group, which has set a target of ensuring 40% of group executive roles are held by women by 2023, commented: “We are seeing significant progress and change but we need to accelerate that pace of change. Even where funds are in place, it can be difficult for female-led businesses to find out about them.”

Dzedze said that Standard Bank had a three-month campaign to market its initiatives and works with female entrepreneurial organisations, as well as identifying partners through its own networks. Dzedze herself worked on setting up the African Women Impact Fund.

Pandemic recovery

The Covid-19 crisis has put a very clear spotlight on the challenges facing women in Africa because it has added to the already heavy care burden that women are placed under, increasing the desire by the investment community to invest in sectors that support the care economy.

Seun Toye-Kayode, Vice President, Head of Launch with GS EMEA at Goldman Sachs, said that one of the benefits of gender lens investing was “ensuring that capital gets into the hands of those who need it the most”.

“Put quite simply, if we don’t put money in the hands of women, the issues that we have in the world will not be resolved”, she added.

Goldman Sachs is seeking to create change across all the organisations that it works with as well as within its own doors. Last year it introduced a policy of not taking any company public that does not have at least one woman or other diverse member on its board and as of July 2021, it is increasing this minimum threshold to two board members, including at least one woman.

Henton agreed that there was momentum towards gender-aligned strategies that seek to address bias in pandemic recovery strategies. Recent research highlighted a correlation between women fund managers and increased fund allocation in the recovery sectors, such as health, food, education and digital services, although many fund managers are unsure how to proceed.

“Many institutional investors are still missing out on the possibility of generating superior returns by investing in diverse teams and gaining fresh insights for compelling investment strategies for Africa”, noted Henton.

Working together for change

There is a danger that the current upsurge of interest in gender lens investing will be a temporary blip but Braswell is convinced that there is now a critical mass of men and women ready to pursue change. The debate now should be about the mechanics of achieving it.

“Operationalising a gender strategy is not as easy as saying ‘we’re making a commitment and here’s our ambition’; it requires change management,” she said, adding “gender lens investing is an idea whose time has come” and that it is up to everyone to make sure real change is achieved.

However, there is currently remarkably little investment data on gender splits because companies and institutions are not looking for it. Although there is the capacity to generate the required information and it is straightforward to take women into account because they are easy to identify, “that lack of data makes it hard to invest with purpose”, said Braswell.

Shared definitions and reporting frameworks are needed, so data can be comparable across the industry, so CDC set out agreed minimum standards in its 2X Challenge in partnership with other DFIs. The Challenge calls on DFIs to mobilise both their own funds and private capital to advance women as entrepreneurs and business leaders.

The capital to support gender lens investment already exists. Henton said that the investment landscape in Africa was dominated by very large funds that already exhibit a discrepancy between the amount of capital they are raising and the amount they are deploying.

More capital needs to be brought to the real economy and to medium-sized companies, rather than the current narrow focus on infrastructure, energy, financial services and tourism she said.

Perhaps the greatest challenge will be moving from gender lens investment being a side issue to becoming a fundamental part of business strategy. Toye-Kayode said that much depends on where such initiatives are positioned within an organisation: they have to become important strategies for core departments.

Organisations that are currently devising their diversity strategies need to bring a good team together and make any goals public because then there is more accountability, she advised.

Fundamentally, it will take the entire sector to make the change and that has not happened yet. Goldman Sachs had hoped that other investment banks would follow its lead on board representation but that has not happened yet.

Toye-Kayode argued: “It’s not one strategy or one firm that is going to make a difference. We all have to come together: we have to look at it from the top end, from the bottom end and from everything in between.”

Having more women on boards will help but it will not solve the problem alone.

Technology & Information

Review: Chain Reaction: How Blockchain Will Transform the Developing World

In the May 2020 issue of African Business, our Deal Tracker section reported the first use of blockchain for an intra-Africa trade finance transaction. The transaction involved several thousand tonnes of fertilisers shipped by OCP from Morocco to Ethiopia, valued at nearly $400m.

This transaction makes the OCP Group the first African company to execute an intra-African trade transaction using blockchain, essentially a digital ledger of transactions. 

The deal illustrates the possibility of reducing the trade finance gap in Africa and boosting trade between African countries through adoption of the new technology.

In Chain Reaction: How Blockchain Will Transform the Developing World, the authors – comprising both consultants and entrepreneurs – set about explaining the many practical uses of a technology which is predicted to help bring the next billion emerging consumers into the formal economy by creating reliable institutions of contract, ownership and trust. 

Some argue that blockchain is a poor substitute for an efficient banking and regulatory system, but for those living in countries where the rule of law is weak, concepts of ownership are vague and trust in institutions is in scarce supply, it could be truly transformative.

Chain Reaction provides a number of case studies that illustrate many ways that blockchain can facilitate development objectives – everything from property registration to pharmaceutical certification, money transfer to farming applications.

Early in the book, the authors state: “Blockchains can, and will, interact with all of the internet-enabled tech or smart tech: internet of things, machine learning, artificial intelligence, ubiquitous connectivity. These technologies are really about creating systems that do things better than we humans can – whether faster, more safely or for less money. Blockchains could become the transactional lifeblood that enables these technologies to become more effective.” 

Verifying medicines

A timely application of blockchain is in the global war against the pandemic. A Q&A with Genevieve Leveille, the chief executive of OTT8 Group, a company using blockchain to authenticate coronavirus testing kits, explains the thinking behind test kit verification.

Leveille points out that verifiable tracing of the supply chain adds transparency, uniformity and trust, allowing the manufacturer or purchaser of a Covid-19 test kit to track the product.

The transparency and trust this builds “leads to better relationships, secure purchasing and, in the case of medical tests and therapeutic treatments, more certainty around efficacy,” she argues. 

Leveille goes on to explain just why this is so important in an emerging markets context. In the case of Covid test kits, the volume manufacturers are based in China, a country where verifying quality in medical goods has traditionally been difficult.

Via a blockchain-enabled supply chain management ecosystem, manufacturers can demonstrate in a verifiable way that their product has been manufactured and delivered according to certain specified standards.

Such technology can also help with other medicines common in emerging markets. The authors quote research that indicates that fake drugs are estimated to account for 15% of the global pharmaceutical supply, rising to as much as 50% in some developing countries. This causes deaths from untreated illnesses and side-effects from harmful ingredients in fake pills.

The market for counterfeit drugs is particularly significant and deadly in Africa, which the World Health Organisation estimated accounts for 42% of all fake or substandard drugs globally. Counterfeit malaria tablets alone result in 120,000 children dying every year across the continent, according to the Brazzaville Foundation.

But with blockchain technology, if at any point in the supply chain nefarious activity occurs, it is possible for a pharmacist to track precisely where and when it happened. Patients can scan the digital label with their smartphone and receive an instant reply on the authenticity and provenance of the drugs.

Financial applications

While the authors are broadly enthusiastic towards blockchain technology, they add a note of caution regarding the limited usage of cryptocurrencies and the financial risks inherent in an unregulated currency. 

The authors write: “With regard to how many outlets in a given area accept payment, crypto-currencies are very limited. As compared to the ubiquity of whatever the local physical currency may be, crypto-currency penetration has a long way to go, even in countries where the local currency is more challenged. Electronic cash, by contrast, has reached material penetration even in the most remote of regions.”

But they argue that the reality is that cryptocurrencies are only the very first of many financial applications of blockchain technology. 

Take the perennial issue of sourcing forex in Africa. The authors profile AZA, a profitable firm which developed through blockchain technology and which now employs over 200 currency traders at offices in Africa and Europe and administers $100m of intra-African trades every month. 

The firm began when banker Elizabeth Rossiello, frustrated that a Kenyan, Ugandan or Tanzanian exporter can’t transact with a Nigerian, Senegalese or South African importer without the cost and delay of routing payments via the US dollar, began trading African currencies from her living room via bitcoin as a cheaper and faster alternative.

Nowadays, very few of the trades involve bitcoin. AZA now has enough transaction volume to deal the currencies direct, meaning that it can move beyond the blockchain. But the authors say the firm offers a model for how startup firms can adopt the technology to suit their business needs.   

“The most fascinating thing about AZA’s journey is Blockchain’s usefulness as a catalyst for creating infrastructure – in this case financial. While the ultimate outcome has been to evolve beyond Blockchain, this would not have been possible without first building the market using bitcoin.

“The second most fascinating thing is that AZA is a profitable business – and there aren’t too many of these amongst the Blockchain startups set.” 

The authors conclude: “That this should occur in Africa is significant.”

As the last paragraph of this compelling book states: “The post-Covid world may be filled with shadow as we slowly recover from the pandemic, but the blockchain future remains brighter, and as complicated, as it ever was. We’re now hurtling towards a blockchain-based future even faster.”

Finance & Services Technology & Information

How Fintech lenders can help SMEs unlock post-pandemic recovery

It feels like a lifetime since the Egyptian government reported the first positive case of Covid-19 on the African continent back in February 2020.

As I write from Lagos in Nigeria where I have been based for almost the entire duration of this pandemic, I can see that there is much work to be done in rebuilding African economies as we look beyond the “new normal” of restrictions and vaccines.

While the human cost of this deadly virus is frightening, dramatic changes to our everyday lives – that have been catalysed as a result of successive lockdowns – leave us at a crossroads.

We can either choose to return to the ways we did business and interacted with one another before the pandemic, potentially risking the next global shockwave having an even more catastrophic effect on our livelihoods, or we can chart a new path.

Addressing the SME credit gap

SMEs are the backbone of all global economies but are an even more delicate and salient matter for African and other fast growing markets. The International Labour Organisation (ILO) estimates that SMEs contribute 70% of employment worldwide, while research by the Johannesburg Business School suggests that as much as two-thirds of African economies are made up by SMEs.

The latter disregards the informal economy, which is widespread across the continent, yet includes many hundreds of thousands of SMEs and jobs that are not connected to the wider economic matrix. It is fair to say that African economies are highly reliant on the fortunes of SMEs, perhaps more so than fast-growing economies elsewhere in the world.

I know from first-hand experience what a struggle it can be growing a business from the ground up in Africa. As an SME entrepreneur and business owner the multitude of obstacles can be overwhelming, including lack of reliable access to power, poor logistics and transport infrastructure, low but growing levels of internet and mobile internet penetration, and access to finance.

The global SME credit gap, which the International Finance Corporation (IFC) estimates to be $5.2 trillion (a figure not updated since before the coronavirus pandemic and now likely worse), is the challenge that Lidya and other fintech lenders have set out to solve.

A new approach to financing SMEs

Entrepreneurs and business owners with great ideas but lacking the finance they need to scale is constraining economic growth and job and wealth creation in Africa and elsewhere. By not providing the tools our small businesses need to thrive is perhaps one of the single biggest self-inflicted economic dilemmas of our generation, and it does not serve us well in building back better after the pandemic. 

The SME Finance Forum believes that 131m SMEs in fast-growing economies experience constraints in accessing finance and working capital. In many cases it is small and sudden costs which can become troublesome for business owners.

Larger and more traditional lenders cannot usually meet their needs because of high thresholds for collateral and credit history when applying, greater perceived risk, and the often small size of the loans required. In Nigeria, for example, most traditional lenders are unlikely to loan sums less than $50,000 and the process can take many weeks.

This traditional approach is outdated and not fit to meet the needs of modern SMEs in Africa and other fast-growing economies. Alternative lenders, powered by fintech, are beginning to address the challenge. Lidya, for example, uses a proprietary fintech platform that uses artificial intelligence (AI) to assess more than 1,000 data points and can disburse loans from around $500 in just 24 hours.

Unleashing untapped potential

By addressing the credit gap, fintech lenders will help to unleash untapped potential across fast-growing economies, providing long-term benefits to employment, public services, education and many other industries and sectors.

It goes beyond benefitting the SMEs themselves and will enhance the quality of life for communities that feel cut off. Not only are SMEs the largest contributors to national gross domestic product (GDP) figures and job employment rates, but they are incubators for progress – pushing the needle in sectors such as the creative arts to tech.

As a Nigerian, I am constantly impressed and proud of the innovative solutions which African entrepreneurs are taking to the next level, in some sectors stealing a march on the rest of the world.

Nigeria’s startup scene is vibrant and full of original ideas and thinking. This was another driver for why we founded Lidya; to nurture entrepreneurial mindsets and ensure that SMEs can grow without fear of whether a loan may or may not be approved, or if they have the right collateral to apply in the first place.

When you place yourself in the shoes of a small business owner, you are better equipped to empathise with their situation and create solutions, and this is exactly what fintech lenders are doing. 

At such a volatile time in our lives there is absolutely no need to lose more jobs than what the pandemic has already cost us. The various virus strains and access to vaccines have disproportionately affected different regions of the world.

Africa has not been immune to the more negative impacts of this pandemic with lockdowns and tight restrictions exacerbating an already significant unemployment problem and severely dampening economic growth projections, risking the future for Africa’s rapidly expanding population.

The African Development Bank (AfDB) has found that continental growth shrank by 2.1% during 2020. Academics highlight that African economies will not see a return to levels of pre-pandemic growth until 2022 when a greater proportion of the continent’s population will be vaccinated, travel resumes and safeguards against potential spikes in transmission levels have been put in place. This is why the work of alternative SME lenders and ensuring every SME has the best opportunity to grow is more important now than ever.

The pandemic has ravaged economies across the world, but it has also allowed space for a complete reset. We have a duty to think what we can do to respond better to events like this in the future and I for one believe the lending sector is one of the first port of calls for encouraging change.

SMEs are at the nexus of how we can help build back better from this pandemic and ensure the benefit of economic growth is felt more evenly across African societies. We need to lend them more than just a hand and make sure they have access to all the tools they need to succeed.

Tunde Kehinde is the founder and CEO of Lidya, an international alternative SME finance lender with operations in Nigeria, Poland and Czech Republic. Tunde also co-founded Africa Courier Express, the leading e-commerce delivery company in Nigeria, and Jumia Nigeria, the leading e-commerce platform in Nigeria.

Trade & Investment

SAA: Selling off the family junk?

Pravin Gordhan, South Africa’s Minister for Public Enterprises, is either a genius in corporate debt restructuring or the doyen of all risk-takers.

While his boss, President Cyril Ramaphosa was hobnobbing as a guest with the likes of Joe Biden and host Boris Johnson at the G7 Summit in sunny Cornwall, Gordhan was busy trying to sell off the family junk – the debt-ridden state-owned enterprises (SOEs) such as Eskom, South African Airways (SAA) and Sanral (the national roads agency).

They are the bane of Minister of Finance Tito Mboweni’s plans to stabilise the country’s growing debt – 80.3% of GDP for 2020/21, and projected to rise to 88.9% in 2025/26. Gross loan debt is projected to increase from R3.95trn ($280bn) this year to R5.2trn in 2023/24. 

Loss-making parastatals have been the bane of African economies – a drain on the national coffers and an obstacle to public debt stabilisation. They are consumed by a bloated bureaucracy and over-employment. They are often based on a misplaced sense of national pride, driven usually by a leftist ideology centred on a ‘people’s ownership’ of ‘national assets’. 

So when on 11 June, Gordhan signed a “groundbreaking public-private partnership (PPP) for SAA” with Takatso Consortium, Mboweni must have let out a huge sigh of relief. Last year he reluctantly forked out R10.5bn ($730m) to keep SAA afloat.

The majority Black-owned Takatso will own 51% while the state will retain 49%. SAA’s historical debt of $1bn remains the responsibility of Pretoria. Its list of creditors is 32 pages long.

But all is not as rosy as it might appear at first sight. Selling off these assets to private ownership, albeit with some caveats – privatisation to you and me – is politically sensitive even in developed countries. SAA is no exception!

Investors, bankers and the IMF/World Bank Group love privatisation. The International Finance Corporation (IFC) for instance midwifed the sell-off of Kenya Airways in 1995, in which Holland’s KLM took a 26% strategic stake. 

The partnership, even after the KLM/Air France merger, was largely profitable. The impact of Covid however put paid to it. In September the partnership mutually dissolved.  

When it comes to airlines, one choice is to have a state-owned model, such as Ethiopian Airlines, Africa’s largest and most profitable service, which last October suspended privatisation moves as part of wider economic reforms because it was “doing well”. Or, having a PPP where the state shares ownership with a strategic investor; or, going for a full-scale privatisation, where the law acts as the guardian of the national interest. 

Gordhan has opted for a PPP, which carries huge risks. Nevertheless, he is bent on diluting the government’s shareholding and eliminating the burden to the taxpayer, but he says the government will retain a ‘golden share’ of 33% of voting rights. 

The reasons against having a PPP are manifold. Using the sop of Black Economic Empowerment (BEE) to make the sell-off palatable to radical ANC factions, does not remove the state’s future liabilities. Several BEE projects have been mired in corruption. 

Devil in the detail

The devil of the partnership deal is in the detail, which has yet to be revealed. The state-owned Public Investment Corporation – itself investigated for alleged corruption last year – holds 30% shares in the Harith Group, one of the Takatso Consortium’s partners, along with Global Aviation.  

SAA is currently under “business rescue protection”, which saw 80% of staff laid off. The plan is to relaunch domestic and regional services in September and international services thereafter. 

A public offering down the line – to allow ordinary South Africans to invest in listed national assets – is dependent on the airline becoming profitable. How likely is this in an industry that has been clobbered by the pandemic and is projected to take some five years to get back to pre-Covid levels? 

There are also questions about the consortium’s ability to run an international airline as opposed to a local budget airline and charter service, which it has been operating. Injecting a mere $258m to relaunch SAA hardly matches the aspiration of a ‘world-class’ airline.

The PPP is far from being a done deal. Due diligence on almost every facet of SAA’s future operations and crucially, the future of its subsidiaries, Mango Airlines, SAA Technical and Air Chefs, has yet to be carried out. 

This begs the question: Why did Gordhan not opt for a continental troika tie-up with Ethiopian Airlines, and Kenya Airways, international carriers with proven credentials, both interested in SAA?

Has political accommodation once again got in the way of rational business?

Finance & Services

Rating agencies risk condemning Africa to penury

The economic downturn created by the Covid-19 pandemic, which begot Africa’s first recession in 25 years, also triggered an avalanche of sovereign credit rating downgrades across the region.

In one of the most dramatic moves on record, 18 of the 32 African countries rated by at least one of the ‘big three’ agencies (Fitch, Moody’s, and S&P) endured downgrades at the peak of the pandemic downturn in 2020, heightening uncertainty and potentially exacerbating the crisis. 

Several studies have shown that sovereigns that suffer such demotions are likely to experience a deterioration of their macroeconomic fundamentals and an increase in foreign currency borrowing costs.

This landslide of procyclical downgrades affected more than 56% of rated African countries, significantly above the global average of 31.8% as well as averages in other parts of the world (45.4% in the Americas, 28% in Asia, and 9.2% in Europe). 

The share of affected African nations is even higher (62.5%) if we extend the period covered to include the two countries downgraded in the first half of 2021. 

Further curtailing investor confidence, the glut of downgrades has been accompanied by a torrent of negative reviews of African countries’ ratings outlooks. Cumulatively, rating agencies revised downward the outlook of 17 nations, in four cases from positive to stable and in the remaining 13 from stable to negative.

Fallen angels

The significance of these large-scale procyclical moves goes far beyond the total number of downgrades. They have created cliff effects, with two of the very few African countries – Morocco and South Africa – that have enjoyed a relatively low sovereign risk premium losing their investment grade and becoming, in the vernacular of rating agencies, ‘fallen angels’.

For years, four nations in the region – Botswana, Mauritius, Morocco and South Africa – have enjoyed investment grade status. By downgrading the latter two to high-yield and junk status, the financial fallout of the Covid-19 downturn has been cataclysmic for Africa’s sovereign risk profile. The region will emerge from the pandemic with over 93% of its sovereigns rated as sub-investment grade borrowers.

These downgrades are underpinned by several factors, but two are especially relevant to Africa. The first is the institutional instinct of rating agencies to preserve their reputational capital. 

The second concerns perception premiums – the overinflated risk with which African sovereign and corporate entities have been perennially overburdened, irrespective of their improving economic fundamentals.

While the synchronised nature of the pandemic downturn offers an opportunity to scrutinise the extent to which perception premiums are shaping the distribution of sovereign risk across countries and regions, the disproportionately larger number of African countries affected by procyclical downgrades further supports the Africa premium hypothesis.

Impact on growth

Irrespective of the underlying causes, the bevy of downgrades will have significant implications for the region. By raising countries’ risk premiums and ringing investors’ risk-aversion bells, they could undermine access to the development financing that would support growth and the structural transformation of African economies. 

Higher premiums will raise the costs of borrowing on international capital markets, and getting the cold shoulder from investors will diminish demand for African public assets. Prevailing regulations either prohibit investors from holding sub-investment grade securities, or generally deter such investments by requiring that extra capital be held against those securities.

The spillover effects of the procyclical downgrades were strongly felt across Africa when the sharp tightening of financial conditions early in the Covid-19 crisis set the stage for sudden stops and reversals in capital flows in a ‘flight to quality’. 

Capital outflows from the region reached new highs, with South Africa particularly affected. It recorded net non-resident portfolio outflows (bonds and equities) exceeding $10.6bn (3.6% of GDP), and its 10-year bond yield rose by more than 100 basis points (from 8.24% to 9.27%) between January and September 2020.

Across Africa, the impact of the downgrades on countries’ ability to access financing were just as significant. A comparison based on a large sample of Eurobonds shows that the spreads of African sovereign issuers increased dramatically in the wake of the demotions. They rose sharply relative to the full JP Morgan EMBI averages, setting a record in June after escalating by over 1,000 basis points above US treasuries and more than 400 basis points above the all-grade EMBI composite index spread. 

Throughout the region, the short-term implications of the downgrades for borrowing costs on international capital markets are magnified by the predominantly junk status of African sovereign issuers. 

Most regional sovereigns were already sub-investment grade borrowers, paying higher coupons to attract investors. The downgrades will raise these costs, as yields are not only inversely proportional to credit rating scores, but are also more sensitive to rating changes within the sub-investment grade bracket.

Moody’s own research has shown that yields that are relatively insensitive to downgrading when the rating is above investment grade become very responsive even to small downgrades when the rating plunges below investment grade. 

Perhaps this helps to explain the large spreads logged across Africa last year, and validates policymakers’ concerns about the cliff effects associated with the demotions of Morocco and South Africa.

Long-lasting effects of downgrades

Besides their short-term implications for economic recovery, the negative spillovers of procyclical downgrades can persist long after crises have passed. These downgrades are not automatically reversed after recession and recovery from the trough of business cycles.

As the pandemic unfolded, Fitch, in a dramatic ‘multi-notch move’, downgraded Gabon’s sovereign rating to ‘CCC’ from ‘B’, largely on the grounds that falling oil prices would widen the country’s twin deficits and undermine the government’s capacity to honour commitments to external creditors.

Oil prices have since recovered, rising above pre-crisis levels and as the world braces for a post-pandemic commodity super-cycle. But an upgrade of Gabon’s sovereign credit rating seems far from imminent, with empirical evidence showing that it takes an average of seven years for a downgraded developing country to regain its previous rating.

Reflecting these challenges, early in the Covid-19 crisis the European Securities and Market Authority cautioned rating agencies against deepening the pandemic downturn through ‘quick-fire’ downgrades. The European Systemic Risk Board echoed these concerns, stressing the need for greater transparency and incorporating changes in economic fundamentals in credit rating models in a timely manner. 

With a view to reducing volatility, these groups also argued for a through-the-cycle approach to credit risk assessment, recognising that credit ratings are not expected to change frequently during business cycles.

Whether or not through-the-cycle approaches are fully integrated in existing credit rating models, the concerns raised by these regulators highlight the potential risks of procyclical downgrades to growth and financial stability. 

Across Africa, where private sources (bondholders and commercial banks) have become major providers of long-term development financing, the dangers of large-scale downgrades are even more acute.

Beyond exacerbating the crisis and compounding macroeconomic management challenges in the short term, procyclical downgrades have long-term consequences for economic development. 

They can undermine the process of structural transformation necessary to reduce the unhealthy correlation between commodity price cycles and growth, especially in a region where most countries   remain heavily commodity-dependent. 

Access to affordable long-term development financing will boost returns on investment and accelerate the diversification of sources of growth and trade. This, in turn, will broaden African countries’ fiscal space and set them on the path towards long-term fiscal and debt sustainability, both of which are credit-rating positive.

These factors, in addition to the unlikelihood of a rapid reversal (even in the face of better economic fundamentals) of rating demotions, should militate against hasty large-scale procyclical downgrades, even though rating agencies may rationalise such moves on the basis of self-preservation. 

Striking a balance

Finding the right balance, though perhaps less expedient, should be their objective. Ultimately, this will lead to a win-win engagement that accounts for increases in credit risk without undermining economic recovery or long-term development goals.

It is possible for rating agencies to preserve their reputational capital without jeopardising the growth prospects of sovereigns aspiring to global standards of macroeconomic and corporate governance. Across Africa, striking that balance will enable countries to escape the destructive twins – the high costs of development financing and commodity-dependency traps – and ease the process of global income convergence.

Hippolyte Fofack is the Chief Economist & Director of Research and International Co-operation at the African Export-Import Bank.

Trade & Investment

Time for the continent to reform its lobbying laws

Back at a Paris Summit for Africa’s economic recovery in May, delegates discussed potential solutions to solve the problems created by Covid-19 .

Many at the summit argued that a successful recovery relies on African solutions to African problems, ensuring that local businesses support economies, and governments push through economic developments.

While the pandemic has blurred the lines between the public and private sector, lobbying may be key to helping African economies bounce back post-Covid. Lobbying can play a vital role in creating a more open, business-friendly legal system which is fit for purpose.

It is essential that the global business community, not just in Africa, plays a vital role in creating a more open, investor friendly legal system by improving transparency. As well as improving the perception of societies as attractive places to do business, it simultaneously builds trust in government across society.

This is a global challenge as lobbying and the process of lobbying policy makers is often seen as murky and corrupt. The UK’s Greensill scandal and the accusations facing the government of cronyism illustrate that there is often no easy solution to these complex problems, and even with legislation in place, the lobbying process can be left wide open to abuse.

But how can the continent make lobbying more transparent?

Lobbying is an important part of a functioning democracy and when done transparently it can help educate policymakers by providing information to inform debate and change.

Lobbying often enables government officials to have access to a greater wealth of knowledge and prioritise and organise this information. A country’s legal system can also benefit from lobbying as it can help improve its legislation to make processes more business friendly.

Lobbying can help modernise a legal system by ensuring lines of communication between the state and citizens are open, and the government decision-making process is properly accessible.

Updating lobbying laws in Cyprus

Like many countries in Africa, lobbying in Cyprus until recently was considered by some as the dark arts. However, legislation can force the lobbying process to become more transparent by providing regulatory guidelines.

People in Cyprus started to realise that more needed to be done to transform these processes after the country ranked at the bottom of Transparency International report in 2015 looking at lobbying in Europe.

However real progress was not made until 2019 when it was announced that an anti-corruption body would be established to ensure lobbying of state officials and public servants is properly scrutinised. 

In coming months, the Cypriot Parliament is also due to vote on a proposed bill on transparency in the public decision-making process and related issues, which will regulate lobbying, as well as introducing a bill against corruption and a bill for the protection of whistle-blowers.

The bill regulating lobbying will be a landmark moment ensuring that all this activity is strictly regulated and fit for modern day use. From what has transpired from a number of MPs, the bill regulating lobbying has been finalised but has not passed yet because the bill introducing an anti-corruption body is still pending.

Cyprus’ first lobbying startup, Zenox Public Affairs (, was established in 2020 to help close the communication gap between businesses and the government and to help boost access to justice at all levels. Lobbying with Zenox consists of exploratory consultations, legal drafting and delivery of legislation to policymakers, as well as continuous updates about pending legislation.

Zenox is currently assisting, among others, Bolt and Lime in Cyprus in their efforts to modernise the transportation industry including legislating e-scooters, micro mobility, ride-sharing and ride-hailing. Both companies have been advised to sit down and discuss with the authorities to find win-win solutions for all parties. Whilst modern, science-based, transparent lobbying is very new in Cyprus lots of active steps are being taken to further improve the country’s image including the newly formed forum, Cyprus Lobbying and Public Affairs Professionals.

Reform does not stop with businesses; in an effort to bring policy making to the people Nomoplatform was launched. The aim is to encourage transparency across all level of society and to make it accessible to all.

The new app allows anyone to have access to a portal which highlights the bills are making their through parliament and who is promoting them. Whilst the new Cyprus Forum, for which Zenox is a communications partner, is an annual non-profit conference that looks to create change through discussions and subsequent direct action. With a panel of speakers addressing different topics, such forums give a voice to professionals, foster collaborative thinking and help lead to solutions.

Countries like Cyprus would benefit from the legal system being hauled into the 21st century, and a legal system that is transparent and independent from government.

In Cyprus we have seen an overhaul in recent years to attract outside investment, something that we are starting to see more of.

The new Commercial Court will have jurisdiction over contracts and disputes between companies, and shall operate under a contemplated 18 month fast-track procedure independent of district courts.

This radical move to e-justice is part of the wider digitisation of court process which was launched in May 2017. These strides forward, along with other initiatives, means more and more businesses are considering Cyprus. Newly approved changes to immigration incentives aimed at technology professionals, for example, also means more businesses in this sector are also looking to Cyprus.

The ’uberisation of policy making’ is something African countries should embrace, as only by allowing everyone to have access to governmental decisions, and business interaction with government, will a country truly be transparent and able to prosper.

Africa could easily lead the way with rapid reforms throughout the continent as various countries across Africa have highlighted the speed in which development can happen and the depth of creative thought and innovation. Take a look at the micro-mobility sector, across Africa public transport remains in high-demand with many networks struggling to meet the need. As a result, the number of shared-owned electric cars has risen dramatically and adoption of electric bikes and scooters has happened almost overnight. This example also highlights how consumers have woken up to climate change and human rights issues and are demanding change across the business landscape; so only by enabling the population of a country to have transparent access to their government and the lobbying efforts of businesses will real change occur. 

Dr Nicolas Kyriakides, Partner at Harris Kyriakides, Adjunct Faculty at the University of Nicosia, Founder of Cyprus’ first lobbying startup Zenox Public Affairs and the Cyprus Forum

Technology & Information

Afrijet CEO looks forward to growth as pandemic restrictions ease

Afrijet is a Libreville-based airline operating scheduled services to airports across Camer­oon, Gabon, and São Tomé. CEO Marc Gaffajoli spoke to African Business about the company’s experience over the last year and the future of the African airline industry.

How was last year in terms of demand and passenger numbers?

The year 2020 was terrible. After a promising start to the year and double-digit growth, we had to deal with a four-month ban on any activity and five months of severe restrictions due to the pandemic. In the end, we came out of it with a 55% drop in revenue and a 65% decrease in traffic compared to 2019, which was, admittedly, a very good year.

These figures are more or less the average for the industry. In Africa, there was a higher level of government restrictions on our business, but the traffic was also less volatile than elsewhere. On the African continent, the motive for travelling is often to do with a fundamental need, for family, health or business reasons.

What is the outlook for you for the next 6-12 months?

Afrijet is currently ramping up on a step-by-step basis as the restrictions are eased. At the same time, we are preparing the start of a new phase of expansion for 2022-25 and hope to reap the benefit of the major cost reduction effort that we have made. We have managed to preserve the operational tools and human capital, and we are ready to bounce back.

An Afrijet ATR2 twin-engine turboprop in the hangar.
An Afrijet ATR2 twin-engine turboprop in the hangar at Libreville Airport. (Photo: Afrijet)

If you were new to the industry, would you choose to focus on commercial flights, private jets or freight?

If I were new to the industry, I would choose to… not focus! The most resilient business models during this crisis have been those that are built on a balanced portfolio of activities.

Since 2016, our strategy has been based on two main drivers: business travel on-demand and regular air travel. That is what has enabled us to survive thus far. Repatriation flights and charters linked to the pandemic, for example, have been a breath of fresh air for our cash flow at critical times. In early 2021, we launched a third line of services for cargo in the same spirit. We believe in airfreight over the coming decade, particularly due to the development of e-commerce.

The cost of air transport on the continent is still too high; can you see any rapid solutions to making it more competitive and helping the airlines?

Modernise the air travel infrastructure, put an end to the inflation of airport charges, encourage the setting up of African aeronautical maintenance centres, better regulation of travel agents… these are a few areas for the authorities to consider to bring down factors that can make up to 60% of costs.

The airlines also have a role to play – accelerate the digitisation of distribution up to and including their internal processes and work better together to position themselves in the operations/marketing value chain depending on the routes.

Read our special report on African aviation

How can the regulators help the airline industry and entrepreneurs like yourself?

The lead times for commissioning aircraft are a real problem in Africa. It should be the number one priority for all the regulatory authorities – planes that sit on the tarmac for weeks or even months and the completion of regulatory formalities are real destroyers of value. The inspectors are rarely allocated to these tasks and that makes the process even longer.

The regulators don’t receive enough support from governments, which results in the development of a sort of informal fiscality in the form of billing for services and charges that, in the end, affects the cost of travel.

Is the airline industry working together to make flying in Africa safer, easier and more affordable?

Africa, despite the stereotypes, has had safe air travel for a decade now. Some countries are naturally lagging behind, but the African fleet in general has been greatly modernised, for all types of planes. More and more players, including us, also have IOSA certification, which is acknowledged to be the highest level of safety for air travel.

The question of affordable transport remains an issue, but we should not forget that the main driver of cost reduction is the volume of passengers. With only 2.5% of global traffic happening on the continent, we don’t have the large economies of scale of other regions.

Finance & Services

Nigerian businesses groan as naira devaluation bites economy

At the age of 45, Johnson Mathew, a Lagos-based civil engineer, can count just a few mistakes in his life. One is ignoring a piece of advice by a friend to save part of his income in US dollars. 

A year on from that advice, Mathew is filled with regret. He has seen his life savings shrink to almost nothing as a result of the Central Bank of Nigeria (CBN) constantly devaluing the naira, leading to a spike in inflation.

Mathew made another blunder in January when he delayed purchasing building materials for his family house in Ebonyi State, Nigeria. 

By early June, when he finally decided to start the building project, the prices of cement, sand, granite, iron rods and other building materials had risen by at least 30% compared to January.

The price increases followed the 25 May devaluation of the naira, from N379/$1 to N410.25/$1. By 12 June, the naira was exchanging at N502/$1 on the parallel market, where the majority of Nigerians purchase their foreign exchange. 

The exchange rate volatility, the scarcity of dollars and speculators making a premium from the currency crisis pushed the naira to its current level of depreciation. 

Heavy burden for businesses and households

For many businesses and individuals, the naira’s fall has been a heavy burden on their operations and personal lives. 

Mary Ozolua, a business woman based in Balogun market in  central Lagos, said the prices of goods rose immediately the devaluation was announced. She said many business owners now find it difficult to replenish their stocks as prices have surged.

The naira depreciation makes her operating capital insufficient, while the rise in the price of goods makes it difficult for her to get buyers. “We are fighting two evils: Rising inflation and low purchasing power for the people. Many of my friends have already closed shops to prevent more losses,” she said.

In the aviation sector, airlines, ground handling companies, aircraft maintenance centres and aviation fuel suppliers are committing more naira to source dollars for aircraft spares, aircraft leasing costs, flight crew training, insurance premiums and other obligations. 

Ikechukwu Nnamani, president of the Association of Telecoms Companies of Nigeria, said the naira’s devaluation and foreign exchange scarcity have had a devastating impact on the telecoms industry, as most of the equipment used in the sector is purchased in foreign currency.

He said that with the difficulty in accessing dollars, operators sometimes buy them from the parallel market, when the need to purchase the equipment is urgent. 

Investigations have shown that since the naira devaluation was announced, many online phone stores, food vendors and fast moving consumer goods outlets have increased their prices. A tuber of yam that sold for N1,500 ($3.63) previously now costs $6.06, with the same degree of price increase seen for rice and onions. 

Importers that source raw materials from other countries, and students going to university abroad have all seen the negative impact of the naira devaluation.

Martins Oke, a Nigerian student studying in London, said he is considering a cheaper alternative after he used more naira to buy dollars for his tuition fees abroad. Talking about his experience earlier this year, he said: “Inflation is at 18.12% in April, the exchange rate is largely unstable, and monetary policy has provided inconsistent guidance to the financial community, in particular, and the country in general.”

Squeeze on foreign exchange 

But Godwin Emefiele, CBN governor, who never supported naira devaluation at the onset of his leadership, announced that people can now buy dollars to meet their genuine needs. 

He had warned of a “devastating” effect of the devaluation of the naira due to Nigeria’s import binge.

Emefiele gave reasons why the naira was devalued. He explained that for Nigeria, an emerging market economy reliant on oil exports, the drop in crude oil earnings and retreat by foreign portfolio investors significantly affected the supply of foreign exchange into the country. 

It was the need to adjust for the decrease in supply of foreign exchange that prompted the CBN to devalue the naira.

Emefiele explained that due to the unprecedented nature of the reduced dollar earnings and the shock that came with it, the CBN is committed to a gradual liberalisation of the foreign exchange market in order to smoothen exchange rate volatility and mitigate the impact which rapid changes in the exchange rate could have on key macro-economic variables. 

He disclosed that the same foreign exchange management plan is adopted in many other countries where managed float arrangements are in operation, adding that Nigeria is working very hard to improve its non-oil exports and other sources of foreign exchange.

Devaluation is ‘not a good decision’

Many economists have linked the naira crisis to a negative balance of payments in the country. 

Okechukwu Unegbu, a Lagos-based stock trader, said the status of the naira and CBN’s action would be determined by the balance of Nigeria’s gains from foreign trade and capital pooled out of the country.

For him, the current capital flow shock and the attendant strain on the foreign reserves account is a temporary problem with no need for permanent action, because naira devaluations are usually irreversible once the conditions that triggered them are corrected.

“Devaluing the naira because of low capital flow today is not a good decision because when the situation improves, the decision is hardly reversed and the damage on businesses would continue to hurt the economy,” he said.

Rise in inflation will damage economy

Muda Yusuf, director-general of the Lagos Chamber of Commerce and Industry, said the naira volatility will continue to determine the state of Nigeria’s economy and businesses.

For him, one of the negative effects is a rise in inflation and subsequent uptick in the cost of production and prices of goods. 

Yusuf said: “As the naira exchange [rate] falls, prices of goods and services rise. Inflationary pressures deplete real incomes, reduce the purchasing power of the people, and worsen poverty rates – and those are the challenges facing the country today. A stumbling economy and rising inflation are at the centre of Nigeria’s economic challenges,” he stated.

However, he added that the positive side of the currency predicament is that a weak currency makes exports competitive and provides a significant boost for export growth and more dollar-earning.

Aminu Gwadabe, president of the Association of Bureaux De Change Operators of Nigeria, linked the naira crisis to currency speculators taking advantage of the crisis to manipulate exchange rates. He said the solution is to make dollars available at the retail end of the market to ensure that people can buy dollars at the CBN-approved rates. 

Can oil revenues turn round balance of trade?

Bismarck Rewane, managing director of Financial Derivatives Company Ltd, said Nigeria had enjoyed a balance of trade surplus until recently. 

“In recent times with the oil price crashing, Nigeria had started running a balance of trade deficit. The deficit increased by 1,094.2% to $9.61bn in the first quarter of 2021, from $804.71m in the first quarter of 2020, and that affected the available dollars in the economy and subsequently led to devaluation of the naira,” he added.

In his view, the recent spike in oil prices has raised hopes for a return to the trade surplus era for Nigeria. “This is why the surprise swing of first quarter merchandise trade to a deficit of $9.61bn caught the market napping. Analysts are still optimistic and project that the balance of trade will swing into a surplus of $3.6bn in 2022. Nigeria’s import bill is currently $63.8bn.” 

He predicted that the first quarter deficit of $9.61bn will be more than compensated by the higher oil price, currently at $80pb. 

Rewane said trade deficits are usually funded by a combination of export earnings, external reserves and foreign loans. This could further increase Nigeria’s external debt stock to $45bn. 

Trade & Investment

Ethiopia’s outlook turns sour as war rages on

As rebel forces in Ethiopia’s Tigray region claim a series of battlefield gains this week, the ongoing conflict is putting further pressure on an economy that is already battered by Covid-19.

A spokesman for the Tigray Defence Force (TDF) said on Tuesday that fighters had recaptured the towns of Korem and Alamata in southern Tigray just two weeks after ousted rebels marched into the regional capital Mekelle.

Tigray rebels laid out seven demands for their acceptance of Prime Minister Abiy Ahmed’s unliteral call for a ceasefire, making an end to the conflict look increasingly unlikely.

The conflict is the result of mounting tensions between the former ruling elite, the Tigray People’s Liberation Front (TPLF), and Abiy Ahmed, who has championed an anti-federal agenda since coming to power in 2018.

The wages of war

Two weeks ago, the government revealed that rehabilitation work and the humanitarian response to the conflict had cost around $2.2bn, notwithstanding the enormous pressure that military expenditure has put on state resources.

In the first six months of this year, military expenditure almost exceeded the entire budget allocation for the fiscal year.

Ethiopia also recently shut down 30 foreign embassies, including Kenya, one of the country’s most important neighbours, in a sign that the government was under financial pressure. Abiy reportedly directed politicians to drive themselves to work rather than take chauffeured cabs.

Once heralded as Ethiopia’s great economic reformer, the Nobel prize winner’s promises to transform the economy and bring broad-based growth to Africa’s second most populous nation are unravelling.

Ethiopia’s recent election, though widely regarded as flawed, may help the ruling Prosperity Party drive some reforms home, analysts say.

The National Election Board announced on Saturday that Abiy’s party had won 410 out of 436 seats in federal parliament, giving the 44-year-old prime minister ample room to legislate.

Patrick Heinisch, economic researcher at Germany-based commercial bank Helaba, says the immediate focus will be on resolving debt issues at state-owned enterprises and following up on the privatisation programme.

“However, as long as the domestic security situation remains precarious, investor confidence is unlikely to rebound,” he adds.

The recent disappointment of a licensing round for two telecoms licenses is a prime example, he says.

“Ethiopia previously had hoped to sell each of the two licenses at $1bn but only obtained offers of $800m (Safaricom) and $600 (MTN). The MTN offer was rejected all-out.”

Ethiopia’s potentially lucrative telecoms market had been eyed for years by international and Africa-based operators who saw it as untapped high-growth market.

The discrepancy between the Ethiopian government’s valuation and the bidders’ prices shows a huge dent in investor confidence as the war in Tigray rages on.

“Ethiopia just cannot wait for the domestic security situation to improve because they need dollars now,” Heinisch says.

Indeed, Ethiopia imports far more than it exports, leading to a crushing foreign exchange that makes it almost impossible for businesses to secure the currency they need to maintain operations.

On top of that Ethiopia owes around $30bn in debt, mostly to China, with $2bn owed to creditors this year which Addis Ababa has so far failed to renegotiate.

Covid-19 is also putting huge downward pressure on the economy, effectively shackling Ethiopia’s largest company and biggest foreign exchange earner Ethiopian Airlines.

In this context, many analysts believe that the IMF’s prediction of 8.7% growth in 2021 is unrealistic.

“The IMF estimates growth at around 2% in the past fiscal year 2020/2021, a significant drop from the 6.1% recorded in the previous fiscal year, and way below the average of almost 10% per annum over the period 2010-2019,” says Heinisch.

“However, given the recent intensification and escalation of the Tigray conflict following the unilateral ceasefire, I think this expectation can no longer be upheld. Growth is more likely to reach something between 6% and 7%.”