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South Africa Will Chair The African Union In 2020

South Africa is set for a big 2020 on the international stage after it was announced that its president (most likely Cyril Ramaphosa) will be chairing the African Union next year. It will also be footing the bills for a certain monarchy on its border with Mpumalanga, to play host to AU activities.

There were handshakes and jokes as President Cyril Ramaphosa took his place behind the small South African flag in the front row on the floor of the vast Nelson Mandela Plenary Hall at the African Union headquarters in Addis Ababa for the opening session of the 32nd African Union heads of state summit. Kenyan president Uhuru Kenyatta, en route to his seat, paused a bit longer to chat, full of jokes, possibly reminiscing about the ANC’s birthday bash in January 2018 which he came to attend in East London. Ramaphosa apparently reached out to Kenyatta himself on that occasion to pull the countries closer.

In the row behind Ramaphosa sat Zimbabwean president Emmerson Mnangagwa. When he arrived moments before, he paused for a discussion with international relations and co-operation minister Lindiwe Sisulu – part of the six or seven-strong Cabinet delegation that travelled to Addis with Ramaphosa. For the rest, the man with his now-famous scarf mostly sat quietly, possibly thinking of the economic troubles back home, and devoid of the adulation that was normally reserved in this forum for his aged, stumbling predecessor.

Ramaphosa’s first AU summit in Ethiopia turned out to be an important one, as South Africa was chosen to chair the continental body in 2020. The chair is rotational, and this year it was the turn of the Southern African Development Community to put forward a candidate. The lobbying wasn’t half as tough as, say, in 2012 when Nkosazana Dlamini Zuma was elected AU Commission chairperson, but South Africa wasn’t the first choice. There was talk initially that it was eSwatini’s turn to lead. Officials, however, said the monarchy – which is heavily in debt – complained about “capacity constraints”. The officials didn’t clarify the meaning of this, but it seems to be about money.

eSwatini would still be “hosting”, officials said, which means the mid-year summit would go to the kingdom. Except, following the AU reforms, mid-year summits are supposed to have been downgraded to gatherings. This aspect of the reform hasn’t gained too much traction so far because hosting summits is a matter of national pride, and perhaps the continental body would agree to make an exception for eSwatini. It has, after all, spent billions of rand (an estimated R4.8-billion, to be more exact) it doesn’t really have, to build a massive convention centre for this purpose.

“South Africa will still have to help foot the bill,” an official said, “because it would have to provide security and logistics.”

eSwatini does not have the military or the cars and drivers to ferry all the big people around, but King Mswati III built a big airport a year or two ago. This means fugitives of international justice, like Sudanese president Omar al-Bashir, could jet in and out for the summit without the fuss caused in 2015 when the AU summit was hosted in Sandton. (eSwatini is not a signatory to the Rome Statute.)

Bar a big upset during the May 8 general elections, Ramaphosa will still be in the seat in 2020. As AU chair he is likely to focus strongly on trade and investment, and perhaps pay some polite lip service, at the very least, to human rights issues. During a ceremony where South Africa ratified the African Continental Free Trade Agreement (AfCFTA) late Sunday afternoon, AU Commission chairperson Moussa Faki Mahamat praised the country for its political commitment to free trade in the continent.

“With the support of South Africa, we can see this become a reality,” Mahamat said.

Ramaphosa said the AfCFTA would move “our continent in a direction that will see African countries progress”. Only about five more ratifications are needed to have the agreement come into effect.

Ramaphosa might also want to see AU meetings start more punctually, although his powers to enforce this might be limited. He appeared to have spent an hour or more waiting on Saturday night for all to arrive for the SADC meeting, which ended up not starting on time, just like the opening session of the summit, which kicked off more than 90 minutes late.

Rwandan president Paul Kagame’s term at the helm of the AU ended in a bit of a storm on Sunday. His invitation to Microsoft founder Bill Gates, whose foundation does a lot of work in health in Africa, and Fifa president Gianni Infantino, to address the African heads of state, caused some friction with fellow leaders. It’s highly unusual to invite speakers from outside the continent. Despite this, Kagame failed to live up to his good record of keeping gender balances. Apart from a report-back on refugees, not a single woman spoke during the opening session.

Kagame, however, worked hard in the past year to make the role of AU chair a prominent one, and he hosted no fewer than two summits in Kigali – one on the AfCFTA and the other on AU reforms.

Apart from the AU, South Africa is also currently a non-permanent member of the United Nations Security Council, where numerous countries and pressure groups have tried to lobby the country to pursue what they consider to be a human rights approach.

South Africa did review its vote on Myanmar in favour of such, but the way it’s downplayed opposition concerns of rigging during the Democratic Republic of Congo elections in favour or stability had some questioning its commitment. (Even at the AU opening on Sunday, newly-elected president Felix Tshisekedi was welcomed without any references to concerns around the integrity of the vote.) 1

South Africa would be in a strong position to represent the continental body’s concerns on an international stage through this.

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email marketing@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: [1], [2].

Africa in 2019 Outlook Conference Highlights: Part 2

This is a continuation of the highlights from Deloitte’s Africa in 2019 Outlook Conference that recently took place in Johannesburg, South Africa. To read our first article on the conference, click here.

Free trade in Africa – How will the AfCFTA play out?

As one of the flagship projects of the African Union’s Agenda 2063, the African Continental Free Trade Area (AfCFTA) aims to create a single market economy to enable the free movement of goods, which may see over one billion people benefit from a combined GDP of almost US$3.3trn. Yet, with 49 countries having signed the consolidated AfCFTA agreement and only 18 out of the required 22 countries having ratified the agreement, Africa’s development impasse may be the result of a number of factors.

Political will

Political will is fundamental to achieving free trade across the African continent, as there needs to be a concerted effort from governments and politicians to drive regional free trade. If AfCFTA follows through with its mandate, it could have the potential to unlock value for companies such as the Mr Price Group, whose operations in 13 African countries may benefit from the logistical and manufacturing capabilities that a unified region would expose the South African-based retailer to. However, engagements between corporates and government are largely characterised by bureaucratic inertia, making it difficult to enable integration. In order to drive substantive outcomes, AfCFTA will require stakeholders to facilitate and stabilise economic growth across the continent.

Infrastructure and logistics

Africa’s infrastructure deficit remains a primary constraint to growth, and so too the resultant high costs of logistics. Although logistics is paramount to AfCFTA, its scale requires significant infrastructure investment and development across the continent, in order to drive structural reform. Infrastructure upgrades will facilitate more efficient trade between countries and across regions. The improvements will also provide an opportunity for countries to leapfrog to new efficient technologies, for investors to expand and diversify their customer base. Engagements with policy-makers and stakeholders will thus be fundamental to ensure infrastructure development across these markets.

Cost of doing business

The cost of doing business across African markets can be as high as 25% to 60% for certain products or services, as the costs associated with logistics, duties and permits tend to be much higher than those in developed economies. Investments in commodity dependent countries such as Nigeria are often characterised by high costs such as logistics, duties, electricity and dollar-funded property developments, which continue to stunt development prospects. With the grander political project of AfCFTA being the African monetary project, achieving regional financial integration and a regional monetary union will strengthen the continent’s bargaining power with global investors.

China in Africa

The presence of Chinese investment in Africa has driven infrastructure development, paving the way for new investments across the continent. Initiatives such as the Belt and Road Initiative (BRI) – a global infrastructure development and integration project spearheaded by China – has had notable influence on the role of trade and development finance across the continent. The Chinese currency, the renminbi, has the potential to challenge the US dollar when it comes to the terms of payments for projects or business across the continent. The People’s Bank of China, is expected to facilitate further engagements with African central banks in this regard; but whether the Chinese currency will supplement the US dollar on the continent any time soon, remains to be seen.

Free movement of labour

Trading talent and skills is the low hanging fruit of the broader AfCFTA project, and companies will need to be ambitious in order to drive this growth forward. The skills-export economy will remain fundamental to gearing African economies for growth, as migration will have a significant bearing on boosting the economic integration of Africa. AfCFTA has the potential to unlock value on the continent, contributing to the broader African economy. However, gauging the appetite from African governments, more so those in the economic nodes of the continent, including Nigeria, South Africa, Kenya and Ethiopia, will determine the success of the project in the long term.

A view on Africa’s economic and fiscal outlook in 2019

Political tensions continue to plague African economies in 2019, fuelling further speculation their economic prospects. According to the AfDB, GDP growth on the continent is projected to be 4% in 2019 and 4.1% by 2020. Key elements affecting Africa’s economic and fiscal outlook include the following:

Global economic growth

Global economic growth will underpin the development prospects of countries in Africa, however, the slowdown in China, which was supported by the announcement of a fiscal stimulus, is expected to have undue repercussions on the global economy. Moreover, the consequences of political uncertainty in the US will filter through to emerging markets. Similarly, the impact of Brexit as well as the European sovereign debt crisis are expected to underpin the demand and supply prospects from global markets in Africa.

Banking and financial inclusion

Over the past few years, banks have built up their capital buffers to maintain a solid funding base. In East Africa, this has deepened financial inclusion. However, banks in the region will have to align with international best practises and adopt provisions to support the rise of mobile banking. The increase of remittances has had a significant impact on financial stability within SSA banking systems, and in 2019 remittance growth is expected to continue. However, given that the region is affected by contrasting dynamics such as geopolitical risks and trade tensions, these will need to be addressed to determine the financial conditions of these states. Together with rising government debt, these factors will continue to put pressure on banking systems. Banking penetration in the rest of Africa remains low. As it stands, the ratio of banking assets to GDP is under 70%, while in South Africa it is 117%. Although the potential exists to grow this base, there are a number of constraints.

Size: The SSA banking sector is dominated by smaller banks, but in order to achieve scale and drive financial investments, larger banks will need to participate in stimulating financial inclusion. The influx of global players investing in micro enterprises will scale up inclusion in the banking sector.

Access to funding: When it comes to banks, size matters; and the bigger the bank, the more capacity they have to support consumers that do not have access to formal markets. PanAfrican banks have the capacity and strategies to tap into these markets and create new opportunities to promote inclusive growth. Private equity funds will continue to back financial inclusion initiatives across the continent.

Fiscal consolidation

Government finances have been affected by low commodity prices, and for commodity-dependent economies, this has seen the escalation of government debt. However, government guarantees to ailing state-owned enterprises need to be stabilised in order to close fiscal deficits.

South African elections

As South Africans approach the general elections in May, investors will be looking to the president to affirm the South African Reserve Bank’s (SARB) mandate. While investors have regained confidence in the South African economy, the consolidation of cabinet to reduce the expense of civil service and government finances is being scrutinised by credit rating agencies. However, a 2019 Investec GDP growth forecast of 1.9% anticipates that better governance will continue to pull through to aid domestic policies. While 2019 is expected to be a better year for South Africa, with minimal concerns of a further ratings downgrade, there needs to be an improvement on the country’s fiscal outlook to mitigate risks such as unforeseen increases in expenditure to fund infrastructure projects, rising government debt and political uncertainties.

To read the conference report, click here.

Sources: [1], [2]. Image sources: [1], [2].

Africa, South Africa

Africa in 2019 Outlook Conference Highlights: Part 1

Deloitte recently hosted the 2019 Africa in 2019 Outlook Conference in Johannesburg, South Africa. A focus area was how Africa can improve on its ability to execute economic growth. Our Director, Rene Stegmann, attended on behalf of Relocation Africa. Below are some highlights from the conference.

US-Africa strategy countering China

At the end of 2018, United States (US) National Security Advisor John Bolton unveiled the Trump administration’s new Africa strategy. Known as the Better Utilization of Investment Leading to Development (BUILD) Act, the policy move aims to ensure US competitiveness on the continent where extensive engagement has already been made by China. How this geostrategic competition between two great powers plays out for the continent is a key question.

Growing debt in Africa

African economies have witnessed rising debt levels as the continent continues to make use of borrowed funds to finance infrastructural development. With a significant sum of financing flowing from China, the average debt-to-GDP ratio on the African continent has risen to 57%. What is important, however, is not the amount, but the serviceability of the debt in question. African economies need to ensure that acquired infrastructure is used productively to create returns that can service the debt from which such infrastructure originated.

The year of politics

In 2019, 24 countries across the continent will hold a major election (presidential, general, legislative), which is significant given that the economies of frontier markets tend to be influenced by domestic politics. The outcomes of these elections will shape the future for many economies on the continent.

Nigeria and South Africa – will 2019 be a year of structural reform?

Nigeria and South Africa, two of Africa’s largest economies currently experiencing “structural limbo”, are in need of renewed growth drivers. It remains to be seen whether or not the requisite political will exists to reinvigorate growth in both economies.

Ethiopia

Referred to as the “African miracle” Ethiopia’s leadership has undergone significant restructuring to ensure that the economic changes currently taking place are supported by new political thought and leadership. Growth in Ethiopia has been driven by investment in fixed capital, giving rise to powerful domestic industries responsible for job creation. The future development of Ethiopia poses an interesting case study for the continent. Looking forward, 2019 is set to be the year of uncertain sentiment, most notably due to global trade tensions and protectionist strategies and their potential effect on the global economy. However, not all global crises are felt equally across geographic regions, as was the case with the 2008 global financial crisis.

Private capital as a force for development in Africa

Productive infrastructure is vital for development to take place in Africa, however, access to funding continues to be a significant issue facing multiple economies across the continent. According to figures published by the African Development Bank (AfDB), infrastructure needs across the continent amount to US$130bnUS$170bn a year, with a corresponding funding gap in the region of US$67.6bn-US$107.5bn. Furthermore, tightening fiscal conditions across the continent mean that the existing funding gaps will not be covered by government expenditure, placing infrastructure investment under stress. The introduction of private players in the infrastructure funding space, however, has been a significant development, particularly where infrastructure is concerned in countries in need of growth.

Intra-African trade – trade between African countries – currently accounts for 18% of overall trade on the continent, indicating the high degree of opportunity that still exists for the further integration of African economies. To this end, it is paramount that the necessary funding is available to develop African economies as well as support their ability to trade with each other. While private capital can be key enablers of such development, countries hoping to attract more private capital need to focus on developing growth incentives and an industrial base to drive investment.

To view the conference report, click here.

Sources: [1], [2]. Image sources: [1], [2].