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Trade with African economies and investment in Africa offer big rewards
In his famous piece ‘How to write about Africa’, the Kenyan author Binyavanga Wainaina satirically advised pundits to ‘treat Africa as if it were one country… 900 million people who are too busy starving and dying and warring and emigrating to read your book…so keep your descriptions romantic and evocative and un-particular.’ While Wainanina was writing firmly tongue in cheek, he elegantly expressed a major challenge facing African governments and business people aiming to engage as equals with the world economy, establish mutually beneficial trade relationships, and attract investment. Africa is still often perceived in the West mainly as a recipient of pity and aid dollars, a source of raw materials, and a very risky bet for the bravest of investors. Fortunately, all this has been changing since the turn of the century.
Wainiana’s warning about generalisations is important. Africa is indeed extraordinarily heterogeneous. But it is permissible to sum macroeconomic aggregates. The continent’s growth rate has exceeded five per cent a year for more than a decade now. Foreign direct investment into Africa has increased dramatically in the last decade and a half, and continues to grow. In 2013, FDI to Africa increased by 9.6% to an estimated $56.6 billion, representing 5.7% of global FDI. FDI is forecast to exceed $60 billion in 2014.Total foreign inflows to the continent reached $186 billion in 2013, and are expected to top $200 billion in 2014. Africa, in other words, has become one of the world’s most favoured investment destinations.
Emerging economies – and the BRICS in particular – are seizing the African opportunity. China-Africa trade has surged from $10 billion in 2000 to more than $200 billion in 2013, making China Africa’s largest trading partner. A wide range of firms from India, Brazil and South Africa are also expanding quickly in Africa, often with strong support from their governments.
US-Africa trade has also been increasing, although on a gentler trajectory – doubling from about $50 billion in the early 2000s to $110 billion in 2013. Major private equity firms, including the Carlyle Group, have launched Africa-focused funds valued in the hundreds of millions. And leading technology companies are investing in new ventures and start-ups across the continent. IBM has invested at least $100 million, with new Innovation Centres in Lagos and Casablanca. Microsoft and Intel Capital are embarking on partnerships with African tech companies, and Google is working on delivering broadband to remote communities.
Africa, in other words, has come a very long way from its era of aid-dependence. As former President of Ghana John Kufuor memorably put it, ‘Africa is being courted vigorously by China and the other emerging economies, while our traditional partners in the West are also holding on tight. Africa must ensure that it comes out of this tango better off.’
Trade with African economies and investment in Africa offer big rewards – but it requires sound local knowledge, strong local partnerships, and a long term view, to ensure that both Africa and her dance partners maximise their returns.
A sceptic might well reply that we’ve been here before. Is the present moment really different from previous bursts of Afro-optimism? Won’t growth tail off as commodity prices soften? Isn’t it true that Africa lacks the internal growth needed to supplement external demand? Aren’t Africa’s governance institutions still too weak to support sustained growth?
On the first question, there’s a precise quantitative answer, courtesy of the wonks at the IMF. While the era of steep commodity price increases does indeed appear to be over, the IMF is projecting, at worst, mild declines in most commodity prices until 2018. What’s more, even a quite significant decline in commodity prices would have a surprisingly limited impact on African growth. Even if commodity prices fall by as much as 25%, Africa’s growth would only slow by around half a percentage point a year.
Of course, as Wainaina would remind us, the impact would vary by country. Major oil producers such as Angola would suffer a more serious decline in growth. But even in big oil exporters, economic growth would remain positive. In more diversified economies, such as Ethiopia and Uganda, a dip in the commodities cycle is unlikely to have any meaningful impact on their growth.
About that internal growth engine: Africa has youth, improving health and education, and rapid urbanisation on its side. Between 2000 and 2012, the UN’s Human Development Index for Sub-Saharan Africa rose by 7 percentage points. By 2030, 46% of Africans will live in urban areas, rising to 57% by 2050. Across the continent, a rapidly expanding middle class is changing historic patterns of consumption. The trend is particularly apparent in Nigeria, where the middle class has swelled by 600% since 2000. Today, Nigeria is home to 4.1 million middle-class households, containing 11% of the total population. Other economies doing particularly well on this measure include Angola, where 21% of households are considered middle class, Sudan, at 14%, and Zambia, at 10%.
This rising middle class is driving a rapid diversification of Africa’s economies. Natural resources remain important, but sectors such as wholesale and retail trade, transportation, manufacturing and services are growing fast. The IT story is particularly striking. The number of mobile phone users in Africa has multiplied 33 times since 2000. Within the next five years, it is likely that almost every adult African will have a mobile phone. Over 50% of urban Africans are already online. If they don’t like what you’re writing about the continent, expect to get a lot of tweets about it.
On governance, there’s a lot of work to be done. But the direction is correct. Macro-economic conditions have improved – inflation, foreign debt and budget deficits are largely under control; state-owned enterprises are being privatised; trade is increasingly open; and regulatory and legal systems are stronger. Many countries have taken convincing measures to strengthen government efficiency. According to the World Bank’s 2013 Doing Business report, 17 of the 50 fastest-improving regulatory environments for business are in sub-Saharan Africa.
In other words, this time really is different. We’re seeing a combination of internal dynamism and far-reaching policy and regulatory reforms that are making many African countries very appealing dance partners indeed. Take the power sector, for example. The International Energy Agency has described Africa as being ‘ripe for a boom in renewable energy’. President Obama’s Power Africa programme is working to deliver just that. The programme, which aims to double access to power in sub-Saharan Africa, has identified six African countries which are making big strides in reforming their energy sectors and privatising aspects of power supply. The US is partnering with the governments of these countries – Tanzania, Kenya, Ethiopia, Ghana, Nigeria and Liberia – to create attractive investment opportunities for American and African firms. The US government has committed more than $7 billion in financial support and loan guarantees for the period 2013-2018 – a commitment doubled by the almost 30 private sector partners, who have pledged $14.7 billion in project finance through direct loans, guarantee facilities, and equity investments. These firms will be working with national governments and global experts to develop power resources responsibly, to build power generation and transmission, and to develop geothermal, hydro, wind and solar energy. They can be confident of a good return – all partners are incentivised to ensure that their projects deliver sustainable benefits to both investors and communities.
But, of course, unquestioning optimism is as foolish as relentless pessimism. Most Africans are very poor by developed world standards. A great deal of new investment in infrastructure and productive capacity is still required if we are to fix that. Sub-Saharan Africa’s investment-to-GDP ratio remains the lowest among developing regions, at just 22%. Unsurprisingly, therefore, the average return on investment in Africa is very high. According to UNCTAD, the global average return on FDI was 7.2% in 2011; the return on FDI to Africa was 9.3%. US FDI showed a 20% return in Africa in 2010.
But, once again, those are averages. To do well on my home continent, US companies need to understand Africa’s markets in detail. The US-Africa summit and CEO forum are an important step towards deepening that understanding.
Tshabalala is the Chief Executive of Standard Bank Group
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Mines pay over Sh300billion in royalty
The government last year collected Sh310.66 billion as royalty and taxes from large scale mines, according to the Tanzania Minerals Audit Agency (TMAA) annual audit Report.
TMAA Director for Financial Audit and Analysis Elikana Petro mentioned the mines as Bulyanhulu, Buzwagi, Geita, Golden Pride, New Luika, North Mara, Tulawaka, Tanzaniate One and Williamson Diamonds Limited (WDL).
In an interview with this paper in Dar es Salaam this week, Petro described large scale mines to be ones with investment of more than $100 million
He said a total of Sh2.7 billion royalty was also collected from some medium and small scale mining operations as a result of TMAA strategic audits.
The official said they would continue aggressively to monitor and audit large, medium and small scale mining operations this fiscal year to ensure the owners make the required payments to the government as well as conduct activities in sound environmental manner.
The audit cites Geita Gold Mine (GGM) as leading gold producer in 2013 with 37% of total production. In 2013 gold output (from gold bars and copper concentrate products) by major gold mines was the same as the previous year at 1.25 million troy ounces.
Total mineral exports in 2013 from gold bars and copper concentrates produced by the seven major gold mines were 1.24 million troy ounces of gold worth $1.74 billion; 12.70 million pounds of copper worth $40.95 million and 0.38 million troy ounces of silver worth $8.93 million – making a total worth of $1.79 billion, down 17.7 per cent compared to $2.17 billion realized in 2012.
The mines are Bulyanhulu, Buzwagi, Geita,Golden Pride, New Luika, North Mara and Tulawaka,
According to the report, royalty to government by the seven major gold mines during the year under review was $ 70.76 million, representing a decrease of 4.47 per cent compared to $74.07 million realised in 2012.
He added that Tanzanite One Tanzanite Mine (TTM) produced 3.24 million grammes in 2013. It sold Tanzanite worth $10.97 million, with total royalty paid amounting to $229,545.
Diamonds output at Williamson Diamonds Limited (WDL) during the year was 158,562 carats, up 17.35per cent compared to 135,122 carats produced in 2012.
The mine exported 144,354 carats of diamonds worth $39.56 million in 2013, compared to 116,658 carats worth $29.85 million the previous year. A total of $1.91 million was total royalty paid for the exported diamonds.
Capital investment and operating expenditure was conducted on seven major mining companies, 15 medium scale mining companies and seven mineral dealers.
The audits revealed a number of significant queries which could lead to recovery of lost revenue by government once acted upon by the relevant authorities,
The auditing of minerals produced and exported by major gold mines conducted by TMAA in the year undwer review aimed at ascertaining the quality and quantity of gold, silver and copper production and exports by each mine.
The report says TMAA auditors inspected every smelting session performed in the respective gold rooms including the pouring, marking, weighing and sampling of ingots.
The total value of mineral exports by the seven major gold mines decreased by 17.7 per cent from $2.16 billion in 2012 to $1.79 billion in 2013, largely due to lower gold prices in the world market during the year.
The TMAA said monitoring and auditing coal production and sales activities continued at Ngaka Coal Mine (NCM). During the year, the mine produced 128,920 metric tonnes and sold 134,063 metric tonnes of coal worth $7.45 million.
Resolute Tanzania Limited (RTL) paid a total of Sh15.53 billion in 2013 as corporate tax. Cumulatively, the company has paid corporate tax amounting to Sh100.39 billion.
Geita Gold Mine Limited (GGML) paid a total of Sh8.97 billion as corporate tax. Cumulatively, the company has paid corporate tax amounting to Sh308.34 billion.
WDL paid alternative minimum tax amounting to Sh178.9 million, withholding tax amounting to Sh2.77 billion which was not paid from payments made to mineral rights holders and mining technical services.
Click here to view the Tanzania Minerals Audit Agency (TMAA) Annual Report 2013.
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US-Africa summit was positive – Minister Davies
South Africa and Africa in general benefitted immensely from the recent US-Africa Leaders’ Summit held in Washington last week, Trade and Industry Minister Rob Davies said on Tuesday.
“By and large, there are a lot of positive things we gained from the summit… The message from all of us was that the African continent needs to industrialise and there were a lot of echoes in that regard,” he told reporters during a media briefing in Pretoria.
Minister Davies said the major victory from the summit was the commitment by US President Barack Obama to support the renewal of the Africa Growth Opportunities Act (AGOA), and the various investments he announced to the tune of US$33 billion in Africa through the programme called Doing Business in Africa.
More than 40 Heads of State and Government, including President Jacob Zuma, attended the summit, which was convened by Obama from 4-6 August. The summit focused on peace and security as well as trade between Africa and the world’s economic giant.
On the renewal of AGOA, Minister Davies said the summit provided an indication that US believes a lengthy re-authorisation of AGOA was justified.
“They are looking at possibilities of improving AGOA. They said they are looking at the eligibility criteria… They are looking at countries that did not qualify… I think that was the message from our side that was pretty good news,” Minister Davies said.
Congress is scheduled to vote on the renewal of AGOA, whose current term expires in next year.
Obama last week said he was confident that congress will back the renewal of the scheme.
South Africa is the only country that makes extensive use of the tariff trade preferences provided by the US through AGOA and other schemes.
Film industry
Meanwhile, Minister Davies said there are a lot of partnerships South Africa can build from Hollywood studios to grow the local film industry.
This follows his visit to Hollywood, Los Angeles, last week where he visited Disney and 20th Century Fox, among other big names in the film industry.
A study conducted by the National Film and Video Foundation found that in 2012, the film industry in SA was employing around 25 000 compared to around 4 000 10 years ago.
Minister Davies attributed the growth in the local film industry to government’s role in developing capacity within the industry through rebates and investment in film studios.
The rebates programme, which is operated by the Department of Trade and Industry (dti), which seeks to promote South African productions. It allows producers to get 20%-25% in rebates for locally produced films.
“It has led to a substantial increase in the number of films produced in SA,” Minister Davies said.
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Morocco to host the 9th Africa Development Forum
Forum to focus on innovative financing for Africa’s transformation
The Ninth African Development Forum will be held in Marrakech, Morocco, from 12 to 16 October 2014 on the theme “Innovative financing for Africa’s transformation”. The Forum is the United Nations Economic Commission for Africa’s (ECA) flagship event and it is the first time it will be held outside Addis Ababa where the ECA is headquartered.
The ECA is Africa’s leading think tank and the Forum is known to bring together the experts from Africa and internationally to discuss and thrash out some of the most pressing issues relating to Africa. There is expected to be a strong private sector participation and it will provide a unique platform for business and political leaders to come up with some concrete solutions to some critical issues.
The theme is on innovative finance, which more specifically means accelerating the capital deployed in Africa by deepening capital markets, putting domestic capital to use, looking at new sources of investment such as private equity and also reversing and ending the financial flows through clearer and more structured tax regimes.
The ECA expressed the delight of holding the Forum in Marrakech. Morocco is a key centre for business development in Africa and the Moroccan private sector has been expanding its operation throughout the sub-region. It has a stable political environment, favourable geographic position, an operational legal framework, and a sufficiently development infrastructure of services.
Speaking about the 9th ADF, ECA Executive Secretary, Mr. Carlos Lopes, said, “The Forum seeks to enhance Africa’s capacity to explore innovative financing mechanisms as real alternatives for financing transformative development in Africa. The theme – Innovative financing for Africa’s transformation – stems from the recognition of the role of finance in attaining the structural transformation agenda premised on African-owned and African-driven developmental initiatives.”
Despite the positive growth outlook, Africa still faces an annual funding deficit of $31 billion for electrical power alone, while some donor countries have been falling short of their international commitments.
In the medium term, aid budgets are likely to be affected owing to fiscal consolidation in the traditional donor countries. This trend, coupled with Africa’s increasing domestic investment and funding needs, calls for a discussion on the strategic importance of financing development in Africa and the roles to be played by stakeholders. The theme for the Forum could not have been more timely as access to finance for development remains a critical challenge.
“Although foreign direct investment inflows have been rising, the continent still attracts only a small share of global equity funds, which are concentrated in a few countries and sectors such as business services and information and communications technologies. African countries must develop appropriate policies to attract private equity investment, particularly in sectors identified as key growth areas. The above issues will be discussed in depth at the Forum,” added Lopes.
The Forum will build on best practices, innovative policies and strategies, and institutional and governance frameworks. It will also aim to be guided by evidence-based knowledge and information on the range of options and their scope for leveraging opportunities for financing Africa’s sustainable development.
Background
The ADF Forum is a flagship biennial event of the Economic Commission for Africa, and offers a multi-stakeholder platform for debating, discussing and initiating concrete strategies for Africa’s development.
The Forum is convened in collaboration with the African Union Commission, the African Development Bank and other key partners with a view to establishing an African-driven development agenda that reflects consensus and leads to specific programmes for implementation.
This year’s theme is Innovative Financing for Africa’s Transformation, focusing on the below topics.
(a) Domestic resource mobilization;
(b) Illicit financial flows;
(c) Private equity;
(d) New forms of partnerships;
(e) Issues in climate financing.
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Trans-Kalahari railway on track
The tendering for the feasibility study for the construction of the multi-billion dollar railway line connecting Botswana’s Mmamabula coal field to the port of Walvis Bay is expected to start before the end of this year, National Planning Commission (NPC) Permanent Secretary, Leevi Hungamo, informed New Era yesterday.
“The tender process for the feasibility study will start this year and the report will be ready next year,” said Hungamo.
“The two governments are still working on logistics and setting up the project management office that will spearhead the project,” he said.
Asked whether there is any challenges faced by the project, Hungamo said currently there are no challenges facing the project and all planned activities are on course.
“So far the cost of the project has not yet been established as the feasibility study is yet to be conducted,” said Hungamo.
“Even if the cost will be that much, the parties concerned will be able to secure the funds,” he said.
He further said it is important to note that this project will not be funded by the two governments but rather by a private sector developer.
However, given the distance and complexity of the project, it is anticipated that the construction may take three years.
The 1 500km railway line will traverse the vast semi-arid, sandy savannah of the Kalahari desert from Botswana to Namibia, with the sole benefit of connecting the landlocked Botswana to Namibia’s port of Walvis Bay, thus unlocking the value of coal mining in Botswana and power generation in the region.
The railway line mirrors the existing Trans-Kalahari Highway or corridor, which links Botswana to Walvis Bay, but stretches 1 900km from Walvis Bay through Windhoek, Gaborone in Botswana and Johannesburg to Pretoria in South Africa.
Construction of the project is expected to cost approximately N$100 billion (about US$9.2 billion). Financing will be sourced through private stakeholders. The Trans-Kalahari Highway was constructed at a cost of N$850 million and opened in 1998.
But Hungamo said that there has not been any study conducted to determine actual costing.
“The process to obtain financing from the private sector in order to secure the development has already commenced,” said Hungamo.
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Nigeria’s foreign trade increases to N5.51tn in first quarter
Imports down by 6.2%, India remains major trade partner
Nigeria’s total merchandise trade increased by 6.8 per cent to about N5.51 trillion in the first quarter of the year (Q1 2014) compared to about N5.16 trillion recorded in the fourth quarter of 2013, according to the National Bureau of Statistics (NBS).
When compared to the corresponding quarter of 2013 (Q1 2013), the value of the total merchandise trade also increased by N406 billion or 8.2 per cent, it added.
The NBS, in its Foreign Trade Statistics, Q1 2014, which was released yesterday said there had been rising exports and declining imports which resulted in greater trade surplus for the country.
It said trade surplus increased by 34.3 per cent or N618.6 billion in Q1 2014 following a decline in imports by 6.2 per cent while exports increased by 15 per cent when compared to the Q1 2013 figures.
The report stated that the total trade was dominated by crude oil exports which accounted for about N3.23 trillion, representing 81.5 per cent of total exports while the non-crude oil accounted for N735.9 billion or 18.5 per cent of total exports.
Conversely, total imports in Q1 2014 was valued at about N1.54 trillion, representing a 8.3 per cent decline compared to about N1.68 trillion recorded in the preceding quarter.
When compared to the corresponding quarter of 2013, the value of imports dipped by N101.3 billion or 6.2 per cent, according to the NBS.
It stated further that the structure of Nigeria’s import trade was dominated by the imports of boilers, machinery and appliances, which accounted for 23.7 per cent of the total value of import trade in Q1, 2014.
The value of export trade amounted to about N3.96 trillion in Q1 2014, representing an increase of N492.6 billion or 14.2 per cent over the value recorded in the preceding quarter.
Crude oil component of export trade grew by 8.4 per cent from the preceding quarter, contributing 51.1 per cent of the total growth in exports while the non-crude oil component of trade grew by 48.6 per cent and accounted for 48.9 per cent of the total export growth from the previous quarter.
Further analysis of the trade statistics showed India as the country’s major trade partner with exports to that country valued at N544 billion followed by the Netherlands, Brazil, Spain and France, whose values stood at N461.5 billion, N376.8 billion, N346 billion and N310.9 billion of total exports respectively.
On the other hand, import trade by country showed that Nigeria imported goods mostly from China, United States, India, Belgium and Netherlands, which accounted for N368.1 billion, N164.7 billion, N93.2billion, N91.7 billion and N76.4 billion respectively.
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New Zimbabwean permits announced
Home Affairs Minister Malusi Gigaba has announced the details of the new Zimbabwean Special Dispensation Permit (ZSP).
Outlining the particulars of the ZSP at a media briefing in Pretoria, the Minister said this marked the beginning of a new phase, as the Dispensation for Zimbabwe Project (DZP) will officially be closed on 31 December 2014.
Under the DZP, Zimbabwean nationals, who were in the country illegally, were granted an opportunity to legalise their stay.
The special dispensation was introduced in 2009 to regulate the stay of Zimbabweans working illegally in South Arica as a result of the political and socio-economic situation in their country.
Approximately 295 000 Zimbabweans applied for the permit. Just over 245 000 permits were issued, with the balance being denied due to lack of passports or non-fulfilment of other requirements.
Since then, the Department of Home Affairs developed a proposal with regard to the new ZSP and it was accepted by Cabinet on 6 August 2014.
At the briefing on Tuesday, Minister Gigaba said Zimbabwean nationals, who are in possession of the DZP permits, are eligible to apply for the new ZSP. However, this is only if they wish to extend their stay in South Africa.
The Minister said certain conditions, however, must be fulfilled.
“These conditions include, but are not limited to: a valid Zimbabwean passport; evidence of employment, business or accredited study and a clear criminal record,” said Minister Gigaba.
The ZSP will allow permit-holders to live, work, conduct business and study in South Africa for the duration of the permit, which is valid until 31 December 2017.
Applications for ZSP permits, will open on 1 October 2014, and close on 31 December 2014.
Applications
According to Minister Gigaba, applications will be managed by VFS Global, a worldwide outsourcing and technology services specialist for diplomatic missions and governments. However, applications will be adjudicated by the Department of Home Affairs.
VFS will open four new offices in provinces where it is anticipated that there will be large numbers of applicants. These are Gauteng, Western Cape, Limpopo and Mpumalanga.
The new offices will be in addition to the 11 offices already opened, all of which will deal with ZSP applications.
Minister Gigaba said ZSP permit-holders, who wish to stay in South Africa after the expiry of their ZSP, should return to Zimbabwe to apply for mainstream visas and permits under the Immigration Act.
“We are appreciative of the many contributions made by Zimbabweans in our society and economy. Zimbabweans have made notable contributions in our education and health sectors, for example as teachers, health professionals and in many other sectors.
“We welcome Zimbabwe’s return to a path of stability and prosperity, and remain committed to cooperation and partnership with our valued neighbour,” Minister Gigaba said.
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Finally, light at end of the tunnel for 5,000mw dream thanks to US deal
While the agenda at the recently concluded US-Africa Summit included such things as governance and education, the underlying motivation was business with Africa.
But the first notion we must dismiss is that this was about America offering aid to Africa. The summit was more about aid to American companies to enable them get a foothold on the continent where Asian companies have entrenched themselves.
The so-called aid generally works like this: America provides funds towards certain projects. US firms implement those projects. Depending on the recipient country’s due diligence and proper cost-benefit analysis, both nations benefit.
For Kenya, the most visible outcome of this summit is funding for power projects. Under the US Power Africa Initiative, six African countries – Kenya, Tanzania, Ethiopia, Nigeria, Ghana and Liberia – will benefit from a $7 billion (Sh615bn) fund for power projects both on-grid and off-grid.
The World Bank announced during the summit that it would provide an additional $5 billion (Sh439bn) towards the initiative. Several other banks including Standard Bank of South Africa have also pledged funding for the same.
American companies such as General Electric, General Cables among others are gearing up to benefit from this funding to do business on the continent.
In need of serious funding
This is particularly significant for Kenya which is in the process of scaling up the installed power capacity to over 5,000mw. Currently we produce about 2,000mw.
This is hardly enough. Aliko Dangote, the Nigerian cement tycoon, for instance, told government officials the last time he was here that he would need about 1,000mw for a cement plant he plans to put up in Kitui.
The ministry of Transport, likewise, has indicated that it would need about 700mw for the standard gauge railway line service. These two ventures could thus gobble up what we produce currently.
Primary beneficiaries will be the big players in the energy sector – KenGen and GDC in exploration and generation, Kenya Electricity Transmission Company (Ketraco) in transmission, and Kenya Power in distribution and retail.
All these state players are in need of funding. KenGen, which recently added 140mw of geothermal power to the grid, and expects to add another 140mw by the end of the year, is looking to exploit a further 560mw in the same Ol Karia area. It needs funding and the Power Africa initiative could come in handy.
Ketraco, which was hived off from Kenya Power to focus on building power transmission lines, is fully-government owned unlike its siblings and, therefore, relies completely on state funding.
It is in need of serious funding especially because the amount of new power expected to come on stream cannot be handled by our fragile grid. Some of the proposed power plants will generate much more power than the current lines can handle.
There is 300mw coming from Loiyangalani – the Lake Turkana Wind Power project. We have 400mw coming via a high-voltage Direct Current line from Ethiopia to land at Suswa.
There is a 900mw liquefied natural gas power plant to be put up at Dongo Kundu in Mombasa; a 900mw coal fired plant in Kitui and an expected 1,200mw to be generated from Menengai. There is also the 61mw expected from the Kinangop Wind Park project to be commissioned next year.
Kenya can benefit from the US initiative immediately because these projects are ready for implementation if funding is there.
But crucially, government will need to have an organised end-to-end approach from generation to consumption.
It is one thing to generate the power but quite another to distribute it and to ensure it is taken up. Currently, 60 per cent of the power produced in Kenya is consumed by industry. Households barely consume 30 per cent. Along the way about 18 per cent of this power is lost through system leakages and theft.
It will be in order then for some of this funding to go to strengthening Kenya Power’s systems to reduce these losses. This will include removing bureaucratic barriers; for instance, power in Nairobi is unstable because Kenya Power cannot put up a ring around the region to stabilise it.
This is a responsibility that Ketraco has adamantly held onto yet it has to wait to get funding to do it. Kenya Power, which could build the ring with its own funds, is left to fire-fight blackouts. A holistic approach can deal with this.
The ministry of Industrialisation will also have to develop the market for the uptake of the generated power. This will include wooing industries to set up shop in the country to ensure we don’t have idle power plants.
Government could, for instance, insist that much of the funding from the US goes towards geothermal generation in Ol Karia and Menengai. Then it can partner with KenGen to put up an industrial area in Naivasha where companies will be fed power directly from generation, making it both cheaper and more reliable.
Private sector companies interested in the power sector also stand to benefit if they have their projects planned. The US Development Fund with General Electric are running competitions for innovative clean energy projects.
Opportunities exist especially in those areas that are not served by the national grid. Wind and solar initiatives in northern Kenya, for example, stand to benefit.
At the end of the day, the bottom line of these initiatives is business and Kenya must approach it as such and not as charity.
The writer is a financial communications consultant.
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Mozambique: Assembly passes Petroleum Bill
The Mozambican parliament, the Assembly of the Republic, on Monday passed the first reading of a bill amending the country’s law on petroleum and gas, intended, according to the government, “to make the legal framework more predictable and transparent for investors”.
The government bill seeks to convert matters that had previously been in contracts signed between the government and hydrocarbon companies into rights and obligations regulated by law.
The bill reiterates that all petroleum and gas resources are state property, and the state has the right to participate in all hydrocarbon operations at any phase. All data obtained under any of the concessions contracts envisaged by the law also become state property.
Petroleum and gas operations must be undertaken through a concession contract that may result from a public tender, or negotiations between the company and the government.
Introducing the bill, the Minister of Mineral Resources, Esperanca Bias, stressed that it is obligatory to publish all concession contracts.
Contracts signed by the companies to obtain goods and services above a minimum value must be preceded by a public tender, and the companies must give preference to local products and services when these are comparable in quality to imported goods and services, are available in due time, and are no more than 10 per cent more expensive.
Companies exploring for hydrocarbons must report any discovery in their concession area to the government within 24 hours. In the case of a commercial discovery, the company must submit to the government a plan to develop the deposit.
The bill states that a percentage of the revenue generated in hydrocarbon production must be channelled to the development of communities in the areas where these operations take place. The exact percentage will be fixed in the state budget each year, depending on the revenue envisaged from petroleum and gas.
Petroleum and gas companies must ensure that their operations cause no environmental damage as far as possible, and must take environmental measures that are in line with internationally accepted standards.
In particular, the companies must avoid oil spills or leaks, and if these do happen they are responsible for the subsequent clean-up operations, and must report to the government the amount of oil spilled. The companies must also pay compensation for any pollution or other damage caused.
In its written opinion on the bill, the Assembly's Commission on Agriculture, Economic Affairs and the Environment proposed amendments to the bill notably that some goods and services, to be defined in a specific regulation, should be provided exclusively by Mozambican nationals.
The commission stressed that some of the petroleum and gas produced must be directed to the development of the national economy and the industrialization of the country, and suggested that this should be at least 25 per cent of what was produced.
When people need to be resettled because of petroleum and gas operations, the commission called for “fair compensation” to be agreed in a memorandum of understanding between the company and the households and communities concerned, signed under the auspices of the government. Such a memorandum should be an indispensable condition for starting the exploitation of hydrocarbons.
Bias said the government accepts the thrust of the Commission's amendments, which will now be incorporated into the final version of the bill.
The first reading of the bill passed by 175 votes to 23. All deputies from the ruling Frelimo Party and from the Mozambique Democratic Movement (MDM) present voted in favour, while the 23 deputies of the former rebel movement Renamo voted against.
Renamo justified its vote on the grounds that the bill contains no mention of the High Authority on the Extractive Industry. This is a body that does not yet exist, but will be set up under a Mining Law passed last month.
Renamo objects to the fact that the High Authority as envisaged in the Mining Law will be set up by the government. It demands that the Assembly should elect members of the High Authority - which is just a way of ensuring that there will be some Renamo members on the new body, since “election” by the Assembly always means that the Frelimo parliamentary group appoints the majority of those being “elected” and Renamo appoints the minority.
Read the press statement here: http://www.parlamento.mz/noticias/575-parlamento-aprova-revisao-da-lei-dos-petroleos [Portuguese]
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African states must conclude double taxation pacts to attract investors
With the increasing Africa-wide trade efforts fronted by various governments, it is imperative that these governments offer supportive trade platforms for their nationals and investors by concluding Double Taxation Agreements.
At present, most of the African states do not have DTAs, making trade between and among them tax inefficient.
In East Africa, even though states have made gains in removing trade barriers among themselves, the East African DTA has not been concluded.
Kenya, for example, should aggressively seek to conclude as many DTAs with African countries, first so as to enable its nationals and residents to trade in those countries, and also to provide a springboard for investments into Africa where investments are routed through the country.
Mauritius and South Africa have concluded DTAs with many African countries.
A DTA is a treaty between states to co-ordinate the exercise of their taxing rights. It is signed by states (bilaterally or multilaterally) for several purposes, the most important being as a fiscal tool aimed at eliminating or reducing double taxation of taxpayers of those contracting states.
Since it is considered that double taxation hinders trade and the free flow of capital, goods and services between states, the conclusion of a double taxation treaty helps in eliminating or reducing this obstacle, thus fostering economic exchanges between those states.
In the absence of a DTA, a taxpayer doing business in two states would be taxed under domestic legislations of those states. Since those domestic legislations may be based on different fiscal systems, like taxing of territorial and worldwide incomes, often instances arise where there is double taxation.
This may be in the form of the same income being taxed in the hands of the same person by the two states, thus increasing the total tax burden of that person, or in situations where two different taxpayers are taxed in respect of the same income.
Where a DTA exists between these two states, it would provide taxing rights to one of the states or oblige one of the states to grant double taxation relief.
By way of a simple hypothetical example, a Kenyan company that is paid management fees by its Uganda subsidiary would be taxed as per table below.
Based on the above, it is clear that management fees payable to the company would suffer double taxation and cost the company tax of Ksh255,000, in comparison with Ksh 150,000 that the company would pay if there existed a DTA between Kenya and Uganda.
In such a case, the company’s total tax burden would be reduced. It should be noted that in most cases, a DTA would limit Uganda’s taxing rights to say 10 per cent. In such a case, the company’s total tax burden would be as per the last column.
DTAs also prevent the application of discriminatory tax treatments of one state to nationals or residents of the other state under certain situations, for example, in cases of a permanent establishment belonging to or enterprises owned by those nationals or residents, as well as on deductibility for tax of certain expenses paid to those nationals or residents.
DTA also may constitute the legal basis for co-operation between contracting states to prevent tax evasion by providing a platform for exchange of information or enforcement of the domestic laws of the contracting states.
Christopher Kirathe is the director tax services, at Ernst & Young. The views expressed here are his.
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Liberalisation of air transport can bolster countries’ GDP by $1.3b, says IATA
The International Air Transport Association (IATA) has disclosed that Nigeria and 11 other nations in Africa may earn at least $1.3billion as Gross Domestic Product (GDP) annually if they implement the liberalization of air transport in the continent.
According to IATA, Yamoussoukro Decision is the agreement for liberalisation of air transport for the West African region reached at a regional conference in 1999. The implementation of this agreement has however been slow due to lack of political will by African leaders, it noted.
Other factors militating against the implementation of the policy, according to the body include unnecessary restrictions on establishing air routes and the penetration of African skies by foreign carriers through obnoxious air agreements.
The Director-General, IATA, Mr. Tony Tyler said that potential five million passengers annually are being denied the chance to travel between these markets because of unnecessary restrictions on establishing air routes.
Statistics presented by IATA indicated that Nigeria would have additional 17,400 employments with $128.2m annual GDP.
Algeria is expected to generate about 15,300 jobs with revenue potentials netting $123.6m, while Angola is to generate about 15, 300 jobs with over $137.1m contribution to its GDP.
On its part, Egypt would be expected to generate over 11,300 jobs and $114.2m contribution to its GDP and Ethiopia to generate over 14,800 jobs and $59.8m GDP, Ghana would be expected to generate over 9,500 jobs and $46.8m contribution to its GDP, while Kenya, to generate about 15,900 jobs and $76.9m annual GDP.
“This report demonstrates beyond doubt the tremendous potential for African aviation if the shackles are taken off. The additional services generated by liberalisation between just 12 key markets will provide an extra 155,000 jobs and $1.3bn in annual GDP.
Tyler said: “A potential five million passengers a year are being denied the chance to travel between these markets because of unnecessary restrictions on establishing air routes.
“Furthermore, employment and economic growth are just the tip of the iceberg in terms of the benefits of connectivity. Aviation is a force for good, and plays a major role in helping to reach the African Union’s mission of an integrated, prosperous and peaceful Africa”, he added.
Tyler noted that aviation already supports 6.9 million jobs and more than $80 billion in GDP across Africa, adding that the InterVISTAS research demonstrates that liberalisation would create opportunities for further significant employment growth and economic development.
He insisted that the study clearly highlighted the crucial role air transport plays in driving economic and social development in Africa through enhanced connectivity .
He urged government in the continent to support the growth of the industry by fully liberalising African skies as intended by the Yamoussoukro Decision, while providing other facilitator assistance like implementing global standards in safety, security and regulations, reducing high charges, taxes and fees and removing visa requirements for ease of movement across the continent.
“Africa represents a huge potential market for aviation. It is therefore unfortunate that African states are opening their aviation markets to third countries but not to each other, which does not promote the spirit of the Yamoussoukro Decision”, he said.
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Harare plans could dent SA exports
Plans by Zimbabwe to drive a policy promoting vehicle assembly through the importation of knocked-down kits and the imposition of higher tariffs on imported vehicles will significantly dent exports by South Africa’s automotive industry.
Total automotive exports from South Africa to Zimbabwe were worth a total of R1.85 billion last year, of which R1.1bn was attributable to vehicle exports and R839 million to automotive component exports, according to the latest South African Automotive Export Manual published by the Automotive Industry Export Council.
Norman Lamprecht, the executive manager of the National Association of Automobile Manufacturers of SA, said on Friday that Zimbabwe had already introduced some surcharges on vehicle imports, which was similar to what Nigeria had done.
Lamprecht said this could have a significant negative impact on South African automotive exports because Zimbabwe was one of the top destinations in Africa for these exports. But he said any tariff increases by Zimbabwe applicable to South Africa would be in conflict with the Southern African Development Community (SADC) free trade agreement.
This agreement is between the 12 SADC member states with almost all tariff lines traded duty free.
Lamprecht said the agreement was subject to the rules of origin, which specified 40 percent local content and completely knocked-down vehicle assembly. In terms of the definition, this meant that all parts must be in unassembled format, which meant a production facility and paint plant were required.
Lamprecht said there was already some vehicle assembly taking place in Zimbabwe but it only amounted to a few hundred vehicles a year. He questioned whether it would be economically viable for Zimbabwe to produce vehicles on a small scale and protect its industry with high import duties.
Lamprecht added that Africa was the dumping ground for global used vehicles, which were the main competition for new vehicles and grey imports on the continent.
Reports from Zimbabwe suggest that used vehicle imports will still be permitted. He said used vehicle imports undermined any new vehicle manufacturing industry, which was the reason they were not allowed in South Africa.
Nigeria last year emerged as a potential competitor to South Africa for foreign direct investment by global multinational vehicle manufacturers.
This followed the Renault-Nissan alliance and west African conglomerate Stallion Group announcing their intention to jointly launch vehicle assembly in Nigeria and indicating there was potential to develop the plant into a major manufacturing hub for Nissan in Africa.
However, Nissan SA managing director Mike Whitfield, who is responsible for the sub-Saharan Africa region, including South Africa and Nigeria, stressed it did not pose any threat to the domestic motor industry and was an opportunity for co-operation and complementation.
This view was echoed by Trade and Industry Minister Rob Davies, who said last year the government had been working with its colleagues in Nigeria to support them in establishing motor manufacturing in that country because South Africa supported industrialisation of the entire African continent and believed there were synergies and complementarities South Africa could benefit from if Nigeria developed a motor manufacturing industry
Jeff Nemeth, the president and chief executive of Ford Motor Company of Southern Africa, confirmed in May that Ford was considering expanding its manufacturing footprint to other countries such as Nigeria.
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Speaking Africa’s language
The US wants what we always wanted – two-way trade, investment, mutual respect and strategic collaboration, writes Kuseni Dlamini.
The inaugural US-Africa Leaders Summit marked a turning point in relations between the two in general and US economic diplomacy towards the continent in particular. The summit was a historic moment, indicative of President Barack Obama’s determination to reset the relationship between Africa and the US from being paternalistic and transactional to being strategic and mutually beneficial.
As Obama indicated in his eloquent address to the Business Forum, “in the past it used to be about what the US can do for Africa. Now it’s about what the US can do with Africa”.
We need to grow and develop the continent in such a way that the US and the world ask what Africa can do for the US and the world.
Africa has the right combination of natural and human resources (youthful and energetic population) to be a first-world continent, provided it does what is necessary. US-Africa relations are in a state of flux for the right strategic reasons.
The world has taken note of Africa’s inexorable rise. So has the US.
Never has the US publicly declared that African prosperity was in its national interest, until the summit, when Obama said US exports to Africa support 250 000 American jobs.
The more the US exports to Africa the more jobs it can create and maintain back home. Job creation is a global challenge for most economies, especially for South Africa’s.
Never before has the US engaged with Africa as a strategic partner with value to add. At the summit, it did.
Never before have the top guns in Washington DC, including a former president, lined up to tell Africa how important and critical it is to the world. At the summit, Obama did. As did former president Bill Clinton.
The summit marked Africa’s rare moment of glory, visibility and celebration. Washington DC almost came to a standstill because most roads were closed and traffic jammed. Hotels were taken over by African delegations accompanying the more than 40 heads of states. A hotel worker told me his five-star hotel was even busier than during the presidential inauguration, which is usually the busiest time in Washington.
Obama’s Africa policy pundits were in overdrive as they basked in the glory of what was, by all accounts, a great foreign policy moment for Obama since he came into office The summit brought about unity in the increasingly divided and quarrelsome Washington marked by bipartisan tension and division on most issues.
On Africa, however, it is encouraging that there is consensus that its rise and prosperity is in the best interests of the US and the world. Let’s hope this will manifest itself in the extension and enhancement of the African Growth and Opportunity Act (Agoa) which has resulted in 95 percent of South African exports enjoying duty-free access to the lucrative US market.
Other major Agoa beneficiaries are Nigeria and Angola.
We need more African countries to benefit from an enhanced Agoa. We also need the US administration to extend the life and mandate of the Export and Import (Ex-Im) bank which has underpinned many inward investments into Africa and South Africa.
Congress should unite in support of Africa’s prosperity by extending the lives of Agoa and the Ex-Im bank. Africa needs trade and investment. Not aid. If the summit is continued by future US presidents, as I think it should, credit will always go to Obama for initiating it.
During the Cold War US-Africa relations were shaped by the West-East divide which saw Africa split according to spheres of ideological influence between the capitalist West and the Communist East. Aid was an instrument to woo African countries to align themselves with this or that superpower’s foreign policy priorities and keep them dependent on handouts.
The post-Cold War era unleashed a new wind of change across the continent which saw hitherto despotic and autocratic regimes swept away by democratically elected governments with a “new generation” of enlightened leaders who pursued liberalisation and deregulation policies in pursuit of freer markets.
The Washington consensus underpinned by neo-liberalism entrenched its hegemonic project as a new world order or as Francis Fukuyama called it, “the end of history” was heralded.
Then came China and the rise of other key emerging markets such as Brazil, India, South Africa, Turkey, Mexico and Indonesia which tilted the established global configuration of economic and political power.
The advent of China and other emerging powers as aspiring new powers changed the balance of forces and gave African countries a new “look East” option with no strings attached in terms of governance, accountability, rule of law, transparency and other stringent criteria demanded by the West. The Brics alliance (Brazil, Russia, India, China and South Africa business communities) is partly an offshoot and symptom of that trend and dynamic in global affairs.
Beijing’s approach promised to respect the sovereignty of all African states by avoiding lectures on democracy and human rights – which is viewed as an encouragement of mischief by critics. Its foreign policy emphasised the notion of the equality of all nations and “mutual benefit and development” as cornerstones of Sino-African relations.
This is in direct contrast to Washington consensus-type conditionalities that are hated by corrupt and badly governed African countries because they are viewed as undermining their sovereignty and independence. Obama advocated a partnership premised on the respect for human rights, democracy, rule of law and good governance.
His Africa policy is bold, decisive and focused on key issues that matter to African economies and societies. It also puts African people at centre stage as demonstrated by his Young African Leadership Initiative (Yali). He wants what Africans have always wanted – two-way trade and investment underpinned by mutual respect and strategic collaboration.
It is up to Africans to leverage this new era in US-Africa relations to unleash Africa’s potential for generations.
The way American investors engaged African leaders demonstrated a high degree of maturity, respect and increasing sophistication. This reflects their appreciation of the changed and changing balances of forces in global economics.
Africa is experiencing its moment of glory with the world’s economic superpowers jostling for position to build and deepen better economic ties.
The EU, Japan and China are as keen as Washington is to have ever-closer investment and trade relations with Africa. They have all developed strategies on the continent.
The question that needs to be raised is to what extent has Africa developed smart and co-ordinated strategies on engaging with these suitors who are driven by the pursuit of their national economic and commercial interests?
Africa needs a strategic approach and concept on how best to maximise benefits from its engagements with these economic giants in ways that advance African economic and strategic interests.
It is one thing to be the most wanted bride and another to choose the right groom for your short-, medium- and long-term advancement and lifelong prosperity.
The need for Africa to have co-ordinated and well thought-out strategies on how to maximise leverage from the global fascination with its rise cannot be overemphasised.
Dlamini, the chairman of Massmart, attended the inaugural US-Africa Leaders summit in Washington DC.
The views expressed here are not necessarily those of Independent Newspapers.
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Kenyans move Sh1.1trn on mobile phones in 6 months
Kenyan consumers used mobile money services to transfer more than Sh1 trillion in the first six months of the year, the latest industry statistics show.
The new Central Bank of Kenya’s (CBK) report shows the value of mobile payments grew by nearly a third to Sh1.1 trillion in the first six months of the year compared to Sh872.1 billion last year. This means that consumers moved an average of Sh186.4 billion monthly or Sh6.2 billion per day compared to the Sh4.8 billion a day they moved in a similar period last year.
Kenya has six main mobile money platforms – Safaricom’s M-Pesa, Airtel Money, yuCash, Orange Money, MobiKash and Tangaza Pesa – backed by a network of about 120,781 agents.
The increased uptake of mobile money comes at a time when mobile money providers are fighting for a piece of the lucrative retail payments market with the launch of mobile payment products.
The merchant platforms include Safaricom’s Lipa Na M-Pesa; Lipa Sasa Na MobiKash; Airtel Money and yuCash. Tangaza Pesa is currently piloting MyDuka – a new online shopping product.
Safaricom reckons that the success of M-Pesa – Kenya’s pioneer mobile money service – has inspired ordinary consumers, companies, banks as well as government agencies to embrace mobile commerce.
“I think that the early success of M-Pesa has encouraged ordinary citizens to have confidence in a concept that otherwise would have been difficult for them to comprehend or accept,” said Bob Collymore, the Safaricom chief executive. “This growth is driven primarily by an increase in active M-Pesa customers and an increase in the average number of transactions per customer.”
Kenya had a total of 25.9 million mobile money subscribers at the end of June, having risen from 23.75 million in June 2013, a growth of 9.2 per cent.
The CBK’s data shows that the value of mobile money transactions more than tripled in the past five years to reach Sh1.1 trillion compared to the Sh322.5 billion that was moved in the first six months of 2010.
Sustained growth of mobile money is further attributed to the convenience it offers users beyond the traditional money transfer to include payment of utility bills such as water, rent and electricity, and for shopping and bus fare.
Safaricom in June 2013 launched Lipa Na M-Pesa - a service that enables consumers to pay for goods and services using M-PESA – which has so far enlisted 122,000 outlets including airlines, hotels, supermarkets, public service vehicles and oil marketers.
“Lipa Na M-Pesa has enabled cashless merchant payments and facilitated trade between businesses and their customers while improving business efficiency,” Safaricom said in a statement. Safaricom charges a flat processing fee of one per cent on the value of every Lipa Na M-Pesa transaction.
The Nairobi bourse-listed telecoms company has 19.3 million registered M-Pesa users who are serviced by 81,025 agents across Kenya. M-Pesa earned Safaricom Sh26.56 billion or nearly a fifth of total revenue in the financial year ended March 2014, confirming the growing importance of mobile money as a revenue stream.
Mobikash has launched the Lipa Sasa Na MobiKash, a merchant payment service that allows customers to pay for goods and services, that is available to subscribers of all the four mobile networks. Users pay a standard Sh15 processing fee. Mobikash, which is controlled by investment firm Foundation Enterprise Programme (FEP), has so far recruited 4,000 agents and 2,000 Lipa Sasa Na MobiKash merchants in Kenya.
“We are seeing more person-to-business payments, utilities and bulk payments such as salaries,” said Duncan Otieno, the chief executive of Mobikash Afrika.
Tangaza Pesa, which partnered with Airtel to acquire a Mobile Virtual Network Operator (MVNO) licence in April, said increased uptake of m-commerce is linked to the growing use of mobile money services.
Oscar Ikinu, the chief executive of Tangaza Pesa, said the advent of MVNOs in Kenya is likely to further propel the mobile money industry by increasing variety, lowering costs and signing up more retailers.
Equity Bank and Zioncell have also been awarded MVNO licences and plan to roll out mobile banking services complemented by voice and data offerings. “We see mobile money growing given that we can tie up value-added services to our mobile money offering once we have our own SIM cards,” Mr Ikinu said.
Tangaza Pesa has about 598,000 customers and a network of 3,800 agents. The company plans to roll out its own SIM cards and launch a merchant payment facility.
The 2013 FinAccess survey credits mobile money services for the more than doubling of Kenya’s banked population to 67 per cent from a low of 26.1 per cent in 2009. “There has been increased convergence of banking and mobile phone platforms as banks explore more convenient and cost-effective channels of banking,” said CBK governor Njuguna Ndung’u in the 2013 Bank Supervision Annual Report.
The shift towards retail payments, mobile banking and bulk transfers is seen as the next frontier in the evolution of mobile money growth. The volume of person-to-business payment using Lipa Na M-Pesa service and Pay Bill numbers grew 73 per cent to 11.0 billion per month in the year to March 2014.
Statistics from Safaricom show that bulk payments to settle dividends, per diems, salaries and wages through M-Pesa from businesses to persons grew 70 per cent to an average of Sh8.7 billion per month in the period under review.
This means retail and bulk payments on the M-Pesa network now account for nearly a fifth or 19 per cent of total cash moved on the platform – helping Safaricom diversify from peer-to-peer mobile transfers which is high volume but low in earnings.
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URA starts clearing global cargo through single customs system
The Uganda Revenue Authority (URA) will today (August 11) start a pilot project of clearing of bulk international cargo through the Single Customs Territory (SCT).
The SCT involves removal of internal border customs controls on goods moving between partner states with an ultimate realization of free circulation of goods.
According to the URA commissioner customs, Mr Richard Kamajugo, the trial project will involve overseas cargo bound for Uganda through the port of Mombasa.
“The bulk cargo on the list includes Clinker – a raw material used in the manufacturing of cement, edible oils and wheat grain,” Mr Kamajugo said.
The revenue body says the project will last for about three weeks before all international containerised cargo is brought on board.
URA commenced pilot SCT systems in February and by April, they had rolled out clearing of Uganda-bound light cargo through the port of Mombasa.
Mr Kamajugo added that URA has also started clearing cargo through the southern corridor’s Dar es Salaam Port.
“We commenced pilot clearing of fuel products imported to Uganda through the port of Dar es Salaam on August 4,” he said.
Experience with SCT
The businesses that have had goods cleared through the SCT system say they have experienced improved efficiency, seen increased supplies and improved bound time, something which has seen them reduce on the cost of doing business.
Talking to Daily Monitor, the general manager Hash Energy-fuel dealers, Mr Peter Ochieng, said: “We used to spend more time entering multiple entries of products but now with a single entry, which is done online we do save two to three days.”
About the single customs territory
The East African Community member states, through the Single Customs Territory, have adopted a destination model where duties are assessed and payable upon arrival of goods at the first point of entry.
This means the partner states where goods are destined will collect the taxes and notify the first point of entry to release the goods. At the first point of entry, depending on the level of risk, customs officers from the destination country-posted at the first point of entry (Mombasa and Dar es Salaam) – may subject the goods to physical examination before release.
Goods will, therefore, move directly to the owner without going through other customs controls at the internal borders and inland customs cargo centres. Goods destined to a bonded warehouse located inland will be declared directly for warehousing at the first port of entry and will move across the partner states on a single regional bond without subjecting them to other bonds at the internal borders.
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NDP implementation framework unveiled
Minister in the Presidency for Planning, Monitoring and Evaluation Jeff Radebe on Thursday released the government’s comprehensive framework for implementing the National Development Plan (NDP) over the next five years.
The Medium-Term Strategic Framework (MTSF) will serve as a prioritisation framework to focus the government’s efforts on a set of manageable programmes, as well as the principal guide to the allocation of resources across all spheres of government.
Radebe said the MTSF was a mechanism through which all five-year strategic plans and annual plans across government were being aligned to the NDP and made to pull in the same direction.
“The aim of the MTSF is to ensure policy coherence, alignment and coordination across government plans.”
He added that the MTSF would form the basis for performance agreements between the President and ministers.
“Cabinet will use the MTSF as the basis for monitoring the implementation of the NDP over the next five years. Cabinet will consider progress reports for each of the outcomes at least three times a year, and these progress reports will be made public through the Programme of Action website managed by the [Department of Planning, Monitoring and Evaluation in the Presidency].
“We will use our monitoring and evaluation work to inform improvements to our plans and programmes as we implement the MTSF.”
14 priority outcomes
The MTSF is structured around 14 priority outcomes, covering the focus areas identified in the NDP, namely:
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Quality basic education.
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A long and healthy life for all South Africans.
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Safety, and sense of safety, for all people in South Africa.
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Decent employment through inclusive growth.
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A skilled and capable workforce to support an inclusive growth path.
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An efficient, competitive and responsive economic infrastructure network.
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Vibrant, equitable, sustainable rural communities contributing towards food security for all.
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Sustainable human settlements and improved quality of household life.
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A comprehensive, responsive and sustainable social protection system.
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Responsive, accountable, effective and efficient local government.
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Protected and enhanced environmental assets and natural resources.
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An efficient, effective and development-oriented public service.
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A diverse, socially cohesive society with a common national identity.
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A better South Africa contributing to a better Africa and a better world.
In each of these outcomes, the MTSF document outlines goals, indicators, targets, actions and responsibilities.
Regarding the rapid economic growth outcome, Radebe said the MTSF would set the wheels in motion to grow the economy by a rate of 5% by 2019.
“Government’s programme of radical transformation is about placing the economy on a qualitatively different path that ensures more rapid, sustainable growth, higher investment, increased employment, reduced inequality and deracialisation of the economy.”
Targets for the economy
MTSF targets include increasing the investment rate to 25 percent of gross domestic product (GDP), increasing public sector investment to 10 percent of GDP, adding 10 000 megawatts of electricity to the national grid, and reducing the country’s unemployment to 14 percent.
MTSF also includes actions aimed at diversifying in order to reduce economic concentration. “It focuses on ensuring growth in the core productive sectors of manufacturing, mining and agriculture, and opening new areas of economic growth such as the oceans economy, the green economy and shale gas.”
There are also actions to ensure that small business can make a much larger contribution to growth and job creation, as well as actions to promote increased private sector investment. This is critical for higher growth, Radebe said, as the private sector accounts for 70 percent of production and employment.
“The MTSF includes actions aimed at achieving an economic environment that encourages business investment and rewards competitiveness, especially in sectors that can catalyse longer term growth and job creation.”
More opportunities for young people
He said the NDP and MTSF included a range of actions aimed at creating more opportunities for young people, many of whom did not currently share in the benefits of economic growth and development.
“The priority areas of youth development are employment creation, entrepreneurship support and education. By rapidly absorbing youth into the mainstream development of our country, we will have responded effectively to the fact that of the approximately 25 percent unemployed in South Africa, the vast majority are young people between the ages of 15 to 35 years.”
Local government outcomes
Radebe said the MTSF also introduced a range of actions to improve municipal management, such as providing basic water, sanitation, refuse removal and road services as well as fixing potholes, traffic lights, service interruptions and billing problems.
He said the Auditor-General’s 2014 audit outcomes report indicated that local government was far from achieving the vision of an efficient and effective local government as outlined in the NDP.
Actions in the MTSF related to improving local government include addressing maintenance and new infrastructure requirements in each municipality; addressing water and sanitation challenges among water services authorities; improving the financial management and governance of municipalities; and tackling corruption at local government.
The MTSF also aims to expand the Community Work Programme sites in 234 municipalities in order to reach one-million participants.
Reducing crime and corruption
South Africa has unacceptably high levels of crime, especially serious and violent crime, according to the NDP. This affects economic development, undermining people’s well-being and their ability to achieve their potential.
Some progress has been made over the past five years in reducing serious crime rates. But weaknesses in forensic, detective, investigation and prosecution services hamper the government’s efforts to reduce the overall levels of crime, particularly contact crimes.
“The NDP highlights the need to address the crime that is damaging our communities, and the MTSF contains a range of actions and targets in this regard,” Radebe said.
The NDP vision is that, by 2030, people living in South Africa feel safe at home, at school and at work, and enjoy a community life free of fear. Women should be able to walk freely in the street and children should be able to play safely outside. Businesses should be able to invest confidently and create jobs without the threat of livelihoods being undermined by crime.
Read the Media statement on the release of Medium-Term Strategic Framework 2014 - 2019.
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Employment levels declining despite increased investment
Despite increased growth in actual investment experienced in the last quarter of the previous financial year 2013/14, there was decline in both employment levels and number of planned investments, Uganda Investment authority data has shown.
The 4th quarter also witnessed 38 percent decline in planned jobs, which translate to 8,650 jobs from 13,850 anticipated jobs in the 3rd quarter.
“During the quarter under review, actual investment grew by 8 percent translating to $46.8 million (about Shs117billion) compared to $43 million (about Shs108billion) recorded in the 3rd quarter,” Mr Frank Sebbowa, the Uganda Investment Authority (UIA) executive director, said in a midweek news conference in Kampala.
He continued: “The actual capital investments were driven by three sectors which together accounted for 44percent of the actual investment in the 4th quarter. “Finance, Insurance, Real estate and Business Services sector registered $17million (about Shs43 billion; Agriculture recorded $10 million (about Shs25 billion) while in the manufacturing sector $9.1 (Shs about 23 billion) million was invested in various industries.”
The last quarter of the previous financial year also experienced improvement in the investment conversion rate which grew from five percent in the third quarter to 15 per cent by end of the financial year 2013/2014.
“The positive performance resulted from continued improvement in the macroeconomic environment – controlled inflation and less volatile foreign exchange among other reasons,” Mr Sebbowa said.
He continued: “It should be noted that there was improvement in actual investment in spite of an 11 percent decline in the number of licensed projects from 127 projects licensed in the third quarter to 113 projects in the fourth quarter.
Similarly, planned investment reduced in the fourth quarter from approximately $1 billion (about Shs2.5 trillion to $310 million (about Shs775 billion in the third quarter, registering a 69 per cent decline.
According to UIA ,this can be explained by the value of investments licensed during the period.
Explaining the improved conversion rate compared to the other previous quarters, Mr Sebbowa said: “In addition to our marketing strategies, we have been more cautious or if you like selective in giving licenses. We only license those that we are really sure that they will invest.”
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No plans to stop trade with Israel: government
There are no plans to impose trade restrictions on Israel amid its conflict with Palestine, the trade and industry department said on Wednesday.
“We have not yet made any assumptions against Israel. It’s not government’s call,” said department spokesman Sidwell Medupe.
“People in South Africa are free to trade with Israel and Israel is free to trade with South Africa.”
He said South Africa’s trade policy was aligned with its foreign policy, recently highlighted by President Jacob Zuma at the US-Africa summit in Washington.
Twice on Monday Zuma took the opportunity to tell the United States what South Africa’s position on Gaza was.
Firstly at a US Chamber of Commerce business forum, he said the country was outraged by the “continued violence that is claiming scores of lives of civilians in Palestine”.
Zuma said there would never be a military solution to the problem and urged both sides to sit and talk so that they could arrive at an internationally agreed solution of two states.
At a National Press Club luncheon, he changed his words a bit, also criticising Hamas.
“We are outraged by the killing of civilians by Israel, some in United Nations shelters,” he said at the time.
“We also condemn the killing of Israeli civilians by Hamas.”
The National Coalition for Palestine (NC4P) said on Wednesday it was calling for a boycott of all Woolworths stores because the chain had refused to remove Israeli products from its stores.
NC4P spokesman Edwin Arrison said the coalition was made up of the ANC Youth League, the Muslim Judicial Council, the Congress of SA Trade Unions, and other bodies.
“The call to boycott is due to Woolworths’s unwavering support for the apartheid state of Israel, and comes after much research and assessment of the status and level of trade between the chain store and the Israeli state,” Arrison said.
He said the coalition would call for boycotts of other companies once it had conducted further research.
Woolworths responded in a statement on Wednesday that it had no political affiliations.
“We respect our customers’ right to make individual purchasing choices, which is why we clearly label every product’s country of origin and fully comply with government guidelines on product from Israel,” it stated.
The company said that less than 0.1 percent of their food, mostly imported fresh produce, was sourced from Israel.
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Waking up to the BRICS
BRICS members should democratise the New Development Bank’s functioning if new stakeholders are included in the future. If anything, the NDB must be a template for change, not a mirror to the existing hegemony of money
In his 2001 paper titled “Building Better Global Economic BRICs,” (click here to download) economist Jim O’Neill of Goldman Sachs calculated that “if the 2001/2002 outlook were to be extrapolated, over the next decade, China would be “as big as Germany” and Brazil and India “not far behind Italy” on a current GDP basis. Cut to 2013; Jim O’ Neill’s expectations seem modest. Last year, China was the world’s second largest economy, Brazil ahead of Italy and India just one rank behind in terms of current GDP. In purchasing power parity (PPP) terms, all the BRIC countries were within the top 10, with China and India at second and third position respectively. BRIC, in Wall Street lingo, is an “outperformer.”
Despite the crippling financial crisis, BRIC has done better on pure economic terms than most expectations. But the acronym is today representative of much more than an investment narrative alone. With the inclusion of South Africa, BRIC became BRICS, giving a pluralist and inclusive veneer to an economic idea. This group now has a significant political dimension, as is evidenced by the increasing number of converging positions on political issues.
In a follow-up paper in 2003, titled, “Dreaming with BRICs: The Path to 2050,” (click here to download) Goldman Sachs claimed that by 2050, the list of the world’s largest 10 economies would look very different. It is remarkable then, that in 2014 the list already looks radically different, and it is clear that it is time to “wake up” to the BRICS.
NDB versus existing banks
In this context there were at least two concrete arrangements inked at the sixth BRICS Summit in July, which will have a large economic and political impact. These were the Contingent Reserve Arrangement and the New Development Bank (NDB). Conversations and reportage on these two were shrill, coloured and obtuse in the run-up to the Summit. It continues to follow in the same vein. Indeed the NDB is at once the most celebrated and critiqued outcome of the Fortaleza Summit. Now that we are a few weeks away from its public conception, it is time for a reality check on this widely discussed BRICS achievement.
The first reality is the NDB can neither replace nor supplant the role of the existing development banks. The NDB will not be able to compete with the reach and expanse of existing institutions such as the World Bank, which has a subscribed capital of over $223 billion. The bank borrows $30 billion annually by issuing Triple-A rated debt in international bond markets. Such easy access to capital markets on the back of high promoter creditworthiness allows the bank to have a lower cost of funds. Other development finance institutions enjoy similar financial backing. The Asian Development Bank (ADB) too has a large balance sheet, backed by 67 member nations and a subscribed capital of $162 billion.
In contrast, the NDB will require over half a decade before it can accumulate the stated capital base of $50 billion from within BRICS and another $50 billion (approximately) from other countries and institutions. Indeed, in the immediate term, only a modest $150 million has been promised by each of the BRICS countries. A contribution of $1,850 million thereafter, staggered over five to six years, will require some doing as the BRICS countries are grappling with weak balance sheets, fragile current accounts and other domestic imperatives.
Then, there are other questions that will need to be answered in the days ahead. If China is unable to dominate this institution, will it prefer to prioritise investments through its (proposed) Asian Infrastructure Investment Bank? How soon can the central banks of the member countries devise arrangements to act as depository institutions for the NDB? And, how will the NDB raise funds in different countries? What will be the currency or currencies of choice? All important posers which can be addressed if the resolve is unerring.
Development finance
The second reality is, in spite of its modest economic weight in the initial years, the NDB can change the ethos of development finance irreversibly. Rather than replacing or supplanting existing development finance institutions, the NDB will seek to supplement existing resources. In fact, the World Bank President, Jim Yong Kim, has welcomed the idea of the NDB and acknowledged its potential in infrastructure development and the global fight against poverty.
An important difference could be in the way conditions and restrictions are imposed on loan recipients. Bretton Woods Institutions such as the World Bank have been known to impose conditions for lending that create structural mismatches between project funding, demand and supply. As recently as last year, the World Bank Group decided to restrict funding for new coal plants in developing countries, deciding instead to invest greater resources in “cleaner” fuels. Of course, the World Bank would be well advised to reconsider this decision given lifeline energy needs and the energy access realities in developing countries such as India.
The NDB’s mission must be to create a business structure where borrowing countries are given greater agency in prioritising the kinds of projects they would want funded. Over a decade, this could become the demonstrator project through which the relationship between donors and recipients, lenders and borrowers, will be rewritten. Hopefully this will be in favour of developing economies and will enable the reimagining of economic pathways.
Location and ownership
The third reality – perhaps, the most debated – is that the location of the NDB is immaterial when governance and ownership is equally shared. Location has frequently been confused with ownership, skewed by our imagination of existing institutions such as the World Bank. According to its Articles of Agreement, major policy decisions at the World Bank are made through a Super Majority – 85 per cent of votes. Vote shares in turn are determined by the level of a nation’s financial contribution. With around 16 per cent voting share at the World Bank, the U.S. has a de facto veto. Conversely, BRICS, with 40 per cent of the global population and a combined GDP of $24 trillion (PPP), collectively accounts for a mere 13 per cent of the votes at the World Bank.
As such, the concentration of voting power and headquarter location in Washington DC in the case of the World Bank is merely a coincidence. Japan dominates the functioning of the ADB with a 15.7 per cent shareholding, despite the headquarters being located in the Philippines.
It is also useful to note that previous World Bank presidents have been U.S. citizens and the International Monetary Fund’s (IMF) list of managing directors is composed entirely of Europeans. Even the ADB’s presidents have been Japanese citizens, with almost all of them having served in the Finance Ministry in Tokyo. In this regard, the NDB, with its intention of rotating leadership, seeks to overhaul the existing governance framework prevalent in the international development finance institutions. Through equal shares of paid-in capital in the NDB, there is a clear intention of creating an alternative model that focusses on voting-power parity. The smallest country can negotiate at par with the biggest country.
Will BRICS create a framework that is as democratic in sharing governance space with other investors and stakeholders? This will be something to watch for as the systems and structures evolve. The notion that the NDB has been “Shanghai-ed” is perhaps a shallow understanding of this exciting new initiative.
With an equal voting share, all five countries have to be on board to move in a particular direction. Admittedly, this can be hugely inefficient and troublesome. Therefore, it is incumbent upon BRICS members to ensure that this initial at-par equity in governance does not unexpectedly allow for a super majority like gridlock, restricting decision making because of a lack of consensus. The NDB must be dynamic and lithe, much like the BRICS grouping itself. It would be useful for BRICS members to institute a professional management body for steering everyday operations of the NDB as well as all non-policy related decisions, including those dealing with project funding.
And most importantly, as discussed earlier, BRICS members should democratise the bank’s functioning if new stakeholders are included in the future. They must find ways to engage the recipients and beneficiaries in its decision-making apparatus. If anything, the NDB must be a template for change, not a mirror to the existing hegemony of money.
Samir Saran is vice-president at the Observer Research Foundation.
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Packed agenda for 34th SADC Summit
The 34th SADC Heads of State and Government Summit to be held in Victoria Falls, Zimbabwe on 17-18 August will deliberate on a wide range of issues including the political and socio-economic situation in the region.
SADC Executive Secretary Dr Stergomena Lawrence Tax told the incoming SADC chair and host President Robert Mugabe during her briefing on the preparation of the summit that the meeting will discuss a report on the Review of the Regional Indicative Strategic Development Plan (RISDP).
The RISDP is a 15-year strategic plan approved by SADC leaders in 2003 as a blueprint for regional integration and development
The plan was under review as part of efforts to realign the region’s development agenda in line with new realities and emerging global dynamics.
The first review was a desk assessment by the SADC Secretariat in 2010, followed by an independent mid-term review in 2013, and another assessment done by a multi-stakeholder task force as directed by the 2013 SADC Summit held in Lilongwe, Malawi.
The review process is now complete, and the revised blueprint is expected to be presented to regional leaders for approval. Once adopted, the plan is set to provide the impetus for deeper integration among SADC Member States.
Another key issue for discussion is how southern Africa can come up with viable strategies that ensures that the region fully benefits from its vast natural resources.
This is in realization of the fact that SADC continues to be among the poorest in the world despite the abundant natural resources since the majority of SADC countries do not have beneficiation and value addition policies, hence the bulk of the value-addition takes place elsewhere and benefiting others.
“Bearing in mind that the theme for this year is ‘SADC Strategy for Economic Transformation: Leveraging the Region’s Diverse Resources for Sustainable Economic and Social Development through Beneficiation and Value Addition’, efforts will be made to prioritise beneficiation and value addition in SADC’s economic strategies and programmes during the tenure of Zimbabwe as chair of SADC and thereafter,” Dr Tax said after meeting with President Mugabe on 6 August.
Southern Africa is home to a variety of natural resources including minerals such as diamonds, gold and platinum. Roughly half of the world’s vanadium, platinum, and diamonds originate in the region, along with an estimated 36 percent of gold and 20 percent of cobalt.
SADC leaders are also expected to review the global economic situation and general performance of the SADC economy.
As such, the summit is set to adopt measures of improving agriculture – a major economic sector in most SADC countries.
Since the 34th SADC Summit is held in the year declared by the African Union as the “Year of Agriculture and Food Security,” leaders are expected to encourage member states to speed up the implementation of Comprehensive Africa Agriculture Development Programme (CAADP).
CAADP is a continent-wide programme formulated in 2003 by the AU to encourage countries to reach a higher path of economic growth through agriculture-led development.
Under this programme, African governments made a commitment to allocate at least 10 percent of their national budgets to the agricultural sector each year.
Ultimately, this ambitious and broad vision for agricultural reform in Africa aspires for an average annual growth rate of six percent in agriculture.
Most SADC countries have already signed the CAADP agreement and are making vigorous efforts to meet the targets.
With regard to the political situation, the leaders are expected to receive a report from the outgoing chairperson of the SADC Organ on Politics, Defence and Security, Namibian President Hifikepunye Pohamba.
The report will discuss the situation in the eastern part of the Democratic Republic of Congo as well as an update on the situation in Lesotho.
Eastern DRC slid into political turmoil in 2012 when anti-government rebels invaded and captured the city of Goma, causing displacement of people and loss of lives and property. However, the situation is closely being monitored by SADC.
The Coalition Government in Lesotho led by Prime Minister Motsoahae Thabane is experiencing some challenges. However, at their recent meeting with President Pohamba, the leaders of the Coalition Government pledged to working together in addressing their challenges.
SADC leaders are expected to also receive a report on the SADC Tribunal. The SADC Tribunal was disbanded in 2010, following an order by the SADC summit for an independent review of its functions and terms of reference.
At the summit, Dr Tax will deliver her maiden speech since this is the first summit in her capacity as the SADC Executive Secretary.
Dr Tax was appointed the new SADC boss by the SADC leaders at their annual summit last year in Malawi to replace Dr Tomaz Augusto Salomão.
The 34th SADC Summit will also witness the historical launch and presentation of the publication on the Hashim Mbita Research on the Southern African National Liberation Struggle, and the launch of the Statistical Yearbook.
Prior to the SADC Heads of State and Government Summit, there will be a meetings of senior officials, followed by the Council of Ministers.