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Is China Really Helping Africa?

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The past three decades have seen a marked step change in Africa’s international relations. While geography historically favoured a European focus – especially in North Africa – the continent has shifted its gaze to the East.

China has catapulted from being a relatively small investor in the continent to becoming Africa’s largest economic partner. Africa-China trade is poised to grow 20% year on year making it seem like dragons are the new king of the African jungle.

Investment in Africa has however been structured around Chinese ownership, with roughly 90% of firms either majority controlled or owned outright by Chinese nationals. There are estimated to be over 10,000 Chinese firms in Africa that have created work for several million Africans. This economic stimulus continues to have significant economic impact in communities riddled with historic economic disparities.

Chinese firms have shown remarkable prowess in sectors such as manufacturing, resources, and infrastructure. One of the first famous examples is the Tanzania-Zambia Railway built between 1970 and 1975, for which China provided a zero-interest loan of RMB980 million ($150 million). Sectors including agriculture, banking, insurance, transport and logistics, housing, information communications technology and telecommunications are poised to see significant shifts to Chinese firms. Chinese firms have the benefit of tried-and-tested business models which bear great similarities to the African marketplace.

‘It’s Africa’s Time For Animation’

To ensure the sustainability of the Africa-China partnership, three key concerns need to be addressed: Corruption, personal safety, and language and cultural barriers.

Corruption has thrived in Africa’s current climate of political and economic impunity. Corruption creates and increases poverty and exclusion. While corrupt individuals with deep political ties enjoy a lavish life, millions of Africans are deprived of their basic needs like food, health, education, housing, access to clean water and sanitation. Violence and crime across the continent derail efforts to encourage community building and foreign direct investment. Language and cultural barriers can lead to clashes that lead to misunderstanding and ignorance of local regulations.

If these problems are left unaddressed, the misunderstandings – and potentially serious long-term social issues – could weaken the overall sustainability of the Africa-China relationship.

Chinese aid to Africa has been criticized as being a form of economic colonization. Politically aid has been used to create strong bilateral ties between African countries and China. Proponents highlight the structural benefits brought about by aid; downplaying the benefits to China in the form of profit, resource extraction, and the acquisition of service contracts to Chinese companies. In a nutshell, whichever country offers the greatest economic gains based on China’s growth strategy becomes a target for aid. Currently this strategy is geared towards partnering with resource-rich countries, which often lack the political and economic structures required to efficiently and effectively manage such bilateral trade opportunities.

The key challenge is to ensure that there is an effective political and economic strategy to piggyback off Chinese intervention to ensure broad based economic empowerment.

Private Money Worth Its Weight In Gold

Part of this strategy should include elements like building a middle class in Africa, developing African entrepreneurs, allocating factors of production, industry 4.0, innovative distribution, and public-private partnerships.

The current economic polarization in Africa needs to be addressed by actively creating a middles class. Clan-based economic feudalism needs to be replaced by an educated and economically engaged middle class. Economic empowerment in turn will promote political development leading to healthier international trade relations.

Entrepreneurship, while still in its African infancy, has made significant strides both domestically and internationally. Agriculture, manufacturing, retail, and tourism can act as an employment sponge for basic labour intensive work. While not a cornerstone employment strategy, it will lead to rapid, broad-based job creation, often requiring very basic skill sets. Further vocational training can be provided in these sectors to prevent generational skills gaps.

Effective allocation of factors of production – specifically land ownership – will be critical. It’s a sensitive subject given Africa’s colonial past, however it’s one governments need to address to start an ambitious national agricultural plan. The rapid growth of Africa’s population presents significant opportunities for our poultry and grain sector.

Industry 4.0 will make global manufacturing much more competitive in the future. Traditional industrial economies, such as Germany and the United States, expect the fourth industrial revolution to create many competitive advantages, reversing the trend to relocate manufacturing processes to low-cost countries and create new high-tech opportunities at home. Africa is ideally positioned to leapfrog into Industry 4.0 by adopting best practices seen in developed countries. This will enable African-owned manufacturers to effectively compete with Chinese companies.

Africa is at the tip of an economic renaissance that will see opportunities being created that were considered impossible a few decades ago. But, this requires strong leadership in both politics and business. Citizens in turn will have to hold their political leaders accountable, specifically promoting broad-based economic empowerment, to ensure that the maximum number of people benefit from this growth. – Written by Johan Hanekom

Johan Hanekom

Johan is a globally recognized expert on strategy, innovation, and growth with an emphasis on corporate entrepreneurship. A believer in social entrepreneurship, his paper while at Oxford focused on developing a nation of social entrepreneurs in Africa.

Economy

Are ICOs Relevant In Africa?

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Initial coin offerings (ICOs) see companies create their own digital tokens and sell them to the public.

They are like initial public offerings (IPOs), but investors take no equity in the business, and rather invest in the potential value of the token.

They are proving attractive to firms and investors alike, with over 230 companies raising almost $4 billion in such a way in 2017.

“Initial coin offerings allow companies an easy way to raise capital while bypassing many of the regulations and requirements associated with initial public offerings. ICOs also allow companies to tap into the hype around cryptocurrencies and crowd-sourcing,” says George Etheredge, Research Analyst in the Digital Transformation Practice at Frost & Sullivan Africa.

But are ICOs relevant in the African context? It’s early days, but a number of startups have recently given them a whirl. Nigerian remittances platform SureRemit netted $7 million, while South African company and property investment portal ProsperiProp secured $200,000.
ProsperiProp founder Llew Morkel says ICOs offer entrepreneurs an opportunity to dip into a global source of capital without having to go through formal channels like banks or venture capitalists.

READ MORE: Why it’s in everybody’s interests to regulate cryptocurrencies

“Investor institutions require the entrepreneur to commit to a period of exclusivity while the funder conducts their due diligence. In the event where the application is rejected, the entrepreneur has to start over, often costing valuable time to market. This cycle is discouraging,” he says.

The lack of regulation in this space makes it easier to fund starved African businesses. But it’s also the main drawback of ICOs.

“It’s far easier for groups to set up ‘fake’ ICOs. The general hype around the crypto space may cause investors to be insufficiently diligent,” says Etheredge.
This is likely to mean the space becomes the focus of more regulation as time passes.
“One factor here will be those parties that currently make money from the way things are done at the moment will have powerful incentives to lobby for regulation. This is a pattern in most disruptive industries, just look at Uber,” says Etheredge.
Getting the legal ducks in a row was one of the challenges for ProsperiProp.

“It’s important for an ICO to move inside the guidelines of each country’s legal framework. The country’s framework not only protects the ICO investor but also the entrepreneur,” says Morkel.

READ MORE: Forbes’ First List Of Cryptocurrency’s Richest People: Meet The Secretive Freaks, Geeks And Visionaries

With all the noise around ICOs, and awareness of potential scams, marketing is key. Wala CEO Tricia Martinez says trust, transparency and community are key elements.

“We quickly recognized that in order to gain trust you must be transparent. And the only way to build a community is by being transparent. Once we gained the trust of the individual and were transparent our community began to grow,” she says.

Africa’s foray into the world of ICOs have been tentative thus far, but those that have made the jump expect more to follow. SureRemit co-founder Adeoye Ojo says they are about more than just capital.

“There needs to be a real utility for the underlying token being distributed. Many businesses are rushing to tokenise without a proper plan to sustain the new economy they are creating. This isn’t unique to Africa,” he says.

Martinez agrees.

“ICOs shouldn’t be used as a funding mechanism. Only if there is a real use case to build a token economy should an entrepreneur look at this as a potential channel,” she said.

Yet the potential for token sales to provide access to funding cannot be ignored.

“The good thing is that barring countries that have some strict financial regulations about ICOs, almost anybody can participate. This allows projects, including African ones, to have exposure to a diverse audience who can both back and be first users of the product,” says Ojo.

Eugene Mutai, bitcoin ‘miner’ and software developer, uses the LBRY web site at his home in Nairobi, Kenya. Photographer: Luis Tato/Bloomberg via Getty Images

This diversity, however, also means the usage of ICOs by African companies will depend on how these strategies perform globally.

“They are attractive in an African context as they can, for now, get past regulatory and bureaucratic red tape. However, Africa is some distance behind wealthier areas with respect to crypto adoption,” says Etheredge.

Yet all the signs are that crypto, in Africa and globally, is on the rise. Much of the future of ICOs in Africa may hang on the level of success experienced by first movers like SureRemit, Wala and ProsperiProp. For now, it’s a question of riding the wave and seeing where it goes.

– By Tom Jackson

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Economy

Save Jobs Or Save Energy? The Dilemma Of Going Green

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The High Court case, in Pretoria on March 27, saw the full gamut of human emotions: anger; frustration and folly, followed by joy.

The latter emotion came from the long-suffering 27 independent power producers who won the case against an interdict to pave the way for the signing of the Power Purchase Agreements (PPAs) with the Department of Energy – the 20-year agreements that give them a chance to claw back $3.8 billion in investment.

The deal will add 2,300MW of green power to the estimated 40,000MW in installed capacity. Despite this, green power will make up 5% of South Africa’s power.

Outside the court, the thwarted National Union of Metalworkers of South Africa (Numsa) members and pressure group Transform SA weighed in with the anger and frustration coupled with a threat to block the streets in protest. As the union licked its wounds, the court poured on salt by ordering it to pay costs as it stuck the application from the roll.

“We got it from Eskom that if they introduce these renewables, they’ve done calculations on power station by power station on how many jobs will be lost. When we did this study last year it was found that 30,000 to 40,000 jobs are likely to be lost and there seems to be no interest about that,” says Numsa Secretary Irvin Jim.

“We are prepared to block the streets to achieve this.”

This claim despite the fact that Eskom will have to close down a number of its ageing and crumbling coal-fired power stations.

READ MORE: On The Road To A Green Future

“The South African population is being taken for a ride. Our fiscus is being looted because these companies, IPPs are only producing 5% power and taking 30% of Eskom’s profits,” says Transform SA’s Adil Chabeleng outside the court.

The mighty National Union of Mineworkers (NUM) – the biggest union in Africa with more than 300,000 members – agrees with Numsa that the unions don’t want private money generating the people’s electricity. They also feel that capitalists have benefited from public money ploughed into kick-starting green energy with preferential tariffs.

“We view this capitalist IPPs deal as a backdoor privatization of Eskom. The plan is to privatize 42% of Eskom by 2030 masquerading as the implementation of clean energy,” the NUM said in an angry statement.

“We are going to mobilize all our members and society to revolt against this planned madness called IPPs.”

Days after this fire and fury, Energy Minister Jeff Radebe shocked many by putting pen-to-paper for the PPAs to end the years of waiting.

The big problem now is to revive the dormant green power industry in South Africa.

“We have to resuscitate the industry to generate this power. Supply chains have to be rebuilt and manufacturing restarted. The whole supply chain has lain dormant for nearly three years,” says Brenda Martin, a board member of the South African Renewable Energy Council that represents most of the 27 IPPS.

Martin also refutes one of the claims of the unions that green power will see billions leaving South Africa and into the pockets of foreign investors. Numsa’s legal counsel Advocate Nazeer Cassim had argued in court that the signing of the IPPs could be viewed as a form of economic looting.

“Only 25% of this deal is owned by foreign investors and the rules of the game is that most of the money must stay in the country.”

Whatever the fall-out over the signing of the PPAs, just weeks before, this unsteady progress was a pipe dream after many months of dithering and a court case.

Picture this: multi-millionaire, suited and booted, investors leave air-conditioned airport lounges to fly thousands of miles to Africa to accept a government invitation to finally sign up for a return on their investment; only to arrive to, amid confusion, a court case, disappointment and a union that they’d never heard of, threatening to block the streets in protest against the deal. Confused? Most of them were.

“Excuse me,” a fresh-off-the-plane Italian investor, who looked like a clown lost in a circus, at the Department of Energy, asked one of the many young journalists at the press briefing, in Pretoria, on March 13.

“What is happening?”

The confused man from Milan was one of a number of foreign investors, from Spain to the United States, who flew in to sign PPA contracts. Investors expect it will take them a decade to claw back their money.

There was chaos before the investors landed that morning. Overnight, the militant Numsa – a union that appears to have forgotten that the Berlin wall came down – claimed it had won a late-night court interdict against the signing.

When it came to the signing later that day, in Pretoria, Energy Minister Radebe told investors that the courts had in fact not issued an interdict, as Numsa had claimed; it rather postponed the next hearing until March 27. You can understand the confusion of the man from Milan.

“It’s a banana republic,” chirped one of the South African investors in the wake of a day to forget in the course of renewable energy.

READ MORE: Shedding Light On Renewable Energy

More inexplicable for investors was how these IPP contracts raised the ire of the unions almost overnight; there was hardly a peep from them in the years of government foot-dragging over signing them that has left many of the green power producers; at least 14 of the 27, according to industry, sources – on the brink of bankruptcy.

The coal-fired power stations of South Africa, built in the 1970s, are ramshackle and inefficient. Last year, the government said it was going to shut down the 3,000MW Kriel, 1,000MW Komati, 2,000MW Hendrina and the 1,600MW Camden power stations, all in Mpumalanga, anyway.

In any case, renewable energy generates a mere 5% of South Africa’s total power so the chances of green energy elbowing out coal, which produces nearly 80%, are unlikely in the extreme. It is more likely that South Africa’s coal-fired power stations will perish under the weight of repair bills and the cost of compliance with environmental regulations on account of the vast amount of acrid black smoke they belch into the African sky every year.

Other energy experts put down the government lethargy over signing the PPAs to ill-advised complacency. Low growth leading to low demand for electricity, plus a 500% increase in cost since 2007, has seen a cessation of power cuts in South Africa, for the time being.

Under the current energy scenario, South Africa will have more than 60GW of capacity by 2022, against a flagging demand of below 30GW, Ted Blom, a partner at Mining & Energy Advisory, said.
All in all, South Africa, which once dreamed of building the continent’s leading green power industry, creating thousands of jobs, has done quite a lot to destroy that dream. As well as the near three-year delay over signing the IPP contracts – the government has been penny-pinching, that is, trying to negotiate down tariffs with the argument that the country doesn’t really need energy right now.

What it means is that South African renewable energy producers are now looking across the continent for projects in favour of trusting the backed-up process in their own country. One of the unintended consequences of this whole controversy is likely to be that a score of African nations – who once lagged behind in renewable energy – could find themselves at the cutting edge of the industry thanks to South African technology and knowhow fostered by South African tax money and exported thanks to foot-dragging over contracts in Pretoria. Now, for hard-pressed South African taxpayers, that is an issue worth blocking the streets over.

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Economy

Loud And Lonely On The Streets – The Life of A Lagos Hawker

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On a rainy Tuesday morning in Lekki, Lagos in Nigeria, 12-year old Ezinne Ibrahim runs frantically after a moving bus balancing a heavy load of bottled groundnuts on a tray on her head with one hand and a bottle in the other hand.

As she gets closer to the bus’s open window, a passenger hurriedly reaches out to snatch the bottle from her and tosses N500 ($1) on the ground before the bus speeds off. Ibrahim bends to pick up the drenched note, narrowly avoiding being hit by a truck from the opposite side of the road. She quickly scans the oncoming traffic for potential customers before crossing the road to get cover from the heavy downpour.

“I am here from six in the morning until 10PM with my mother,” says Ibrahim. Her mother, 45-year-old Sade, expertly weaves between traffic lanes, sells two bottles of groundnuts before joining us under the shed.

“I have been selling on the streets for the past eight years now and that is how I earn a living to feed my family. We used to sell in Victoria Island last year but we changed locations because this area has a lot more traffic and that means more money. I know it is dangerous for Ezinne and I never wanted her to do this but I cannot afford to put her into school,” says Sade.

On a good day, they make roughly N20,000 ($55). If life is already hard, it has gotten a lot harder for the pair over the past couple of years.

READ MORE: Successes Amid The Squatters

Kick Against Indiscipline (KAI), Lagos state’s environment law enforcement unit established in 2003 by the government to enforce environmental law in the state, is a constant threat to street hawkers.

“We get harassed several times a week by the task force. They arrest us and detain us for hours before releasing us if we pay them something,” says Bayo Adesina, a gum and sweets seller.

“We have a look at who calls whenever KAI is coming and we all stop selling and run. They cannot stop us from trading because this is the only way we know to survive,” says Sade.

In July 2016, in an attempt to escape the tight leash of the law, a street hawker was run over by a bus, leading to widespread violence and destruction by a mob. The incident led to even tighter regulations being enforced by Lagos State governor Akinwumi Ambode who declared a fine of N90, 000 ($250) or a six-month jail term.

“Things have really gotten a lot tougher for us because you never know when the task force will detain you. We move about a lot so they do not find us and take away what little money we have,” says Adesina.

However, Lagos State says the clampdown on street hawkers is necessary as it causes traffic jams and puts their own lives at risk.

Yakubu Mohammed, 25, sells watches on a busy intersection in Ladipo.

“Competition is tough here because there are so many of us. I make about N35,000 ($100) a month which I use to feed my wife and child,” he says.

According to the African Development Bank (AfDB), over 55% of Africa’s GDP comes from the informal sector, accounting for about 80% of the labour force. Many of those are street vendors like Mohammed who have traded in everything from windscreen wipers to mobile phone chargers in the past year alone.

“You sell what you can get your hands on. Sometimes there is a lot of supply of certain types of products and they are easy to get your hands on so you get them and start selling,” says Mohammed.

That supply is driven by an insatiable demand by customers who prefer the convenience of picking up items on their way to their various destinations.

A street vendor hawks tubers of yam in a wheel-barrow in Ketu district of Lagos. Photograph supplied.

The constant ruckus between government enforcement agencies and street hawkers has led to a debate about tighter regulation of the informal sector in Nigeria.

READ MORE: Nigeria: To Invest Or Not To Invest? That Is The Question

According to a Reuters report, unemployment in Africa’s most populous economy is at 14% and climbing. Furthermore, the International Monetary Fund (IMF) claims: “By 2035, sub-Saharan Africa will have more working-age people than the rest of the world’s regions combined. This growing workforce will have to be met with jobs.”

“Unless the government gets a firm grip on these critical macro economic issues, the potential of the informal sector can never be realized. A lot of the stress of unemployment has been taken up by the informal sector who pay no taxes but contribute significantly to the country’s wealth,” says Bismarck Rewane, CEO of Financial Derivatives Company in Lagos.

According to the IMF report, most entrepreneurs in the informal sector reported doing what they were doing out of necessity and given the chance would rather work in the formal sector.

Bashiru Amusha dreamed of becoming a doctor but his parents could not afford to send him to school. He now owns a kiosk selling airtime vouchers in Victoria Island.

“I try to make do with what I have. I used to be a security man for a company sometime ago but things didn’t work out and I had to leave. I am hoping someone can help me get a car so I can turn it into a taxi and pay him back with interest,” he says.

In view of the economy, the informal sector presents both advantages and disadvantages. On the one hand, it is a great representation of entrepreneurship development and growth in the number of start-ups on the streets.

However, this growth is negligible when you weigh up the low productivity and the poorly-skilled workers prevalent in the informal sector.

“This is actually detrimental to the Nigerian economy because the informal sector accounts for about 50 to 65 percent of GDP and that represents reduced growth for the economy. So it is actually important to provide skilled training to improve productivity and regulate the informal sector through taxation,” says Rewane.

As Africa’s largest economy struggles to come to grips with growing unemployment rates and barriers to entry, the informal sector is the only way out for thousands of unemployed Nigerians whose only need is to somehow make ends meet.

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