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Economy

Power Woes Stall Uganda’s Rise

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Few countries enjoyed as much sustained growth in recent history as Uganda, which averaged 7% over the last three decades. And then came a slow turn.

Now expected to grow around 4% this year, among the slowest in East Africa, there is rising sentiment that forecasts may have been too optimistic.

“Since the downturn of 2009, successive forecasts have predicted a recovery in growth rates that did not materialize,” said a September IMF working paper that assessed medium-term budget frameworks of Uganda and five other sub-Saharan Africa countries. “The existence of separate functions and organizational arrangements for the preparation of countries’ multi-year national development plans and the budget remains problematic. In most sub-Saharan African countries, coordination of national planning and preparation of the budget remains challenging.”

Indeed, Uganda’s National Planning Authority (NPA), which aims for the nation to attain middle-income status by 2020, is expressing reservations about manufacturing, a key pillar of its current development plan.

“We thought by the end of the financial year 2016/17, industry would be contributing 27.4% but it only contributed 19.6%,” said NPA Chairman Wilberforce Kisamba Mugerwa in a speech on September 12.

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Growth in East Africa’s third largest economy, driven by the service sector at the expense of industry and manufacturing sectors, has led to non-inclusive growth, according to Andrew Mold, Acting Director of the United Nations Economic Commission for Africa (UNECA) in Eastern Africa.

High power tariffs are a major factor curbing manufacturing.  The price is more than double the government’s target of $0.05 per unit for industrial consumers. The government, looking to cut the cost of Bujagali Power Station,  the country’s largest hydropower producer, is in talks with the African Development Bank and the International Finance Corporation to refinance its loan, extending repayment from seven to 15 years, according to Energy Minister Irene Muloni.

Even as industries consume about 70% of Uganda’s 860MW in power output, a 10% target of annual growth in demand for power is unlikely at the current economic growth rate, according to Selestino Babungi, Managing Director of Umeme, the country’s largest power distributor. The government’s aim to install 2,500MW by 2020 is also a “stringent target,” says Harrison Mutikanga, CEO of Uganda Electricity Generation Company.

While Uganda’s low electricity access levels of 22% are attracting global companies into utilities, a consumption risk exists as subsidies are necessary, says Sabine Dall’Omo, Siemens CEO for South and East Africa.

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Meanwhile, credit growth to manufacturing has been down this year, a trend that poses negative risks to private investment growth and recovery of domestic economic activity, says the Bank of Uganda in a June report.

Yet Uganda and India are seen as the fastest growing economies through to 2025 at 7.7% annually, according to Harvard University’s Atlas of Economic Complexity report, which attributes much of the prospective growth on rapid population increase.

Uganda, with a population of 41 million, is also looking to boost tourism and agricultural output. It’s targeting a million tourists out of China, which could increase overall arrivals from 1.3 million to four million by 2020, says Tourism Minister, Ephraim Kamuntu.

Production of coffee, the country’s largest export, is projected to rise from 3.5 million 60 kilogram bags to 20 million in 2020, says the Uganda Coffee Development Authority.

For Finance Minister Matia Kasaija, the country’s climate is key.

“The weather really cheated us, because we were not ready,” Kasaija tells FORBES AFRICA in reference to last year’s drought that saw growth slow to 3%.

“We shall go back to our growth rate of 5% and above this year,” he says optimistically. – Written by Joseph Burite

Economy

5 Tips For SMEs To Counter The Covid-19 Crisis

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It was recently reported by ratings agency S&P Global that the coronavirus outbreak has plunged the world into a recession. On the home front, a sudden surge in COVID-19 cases in the country resulted in the President of South Africa imposing a 21-day country-wide lockdown, starting from Thursday, 26 March 2020. Combine this with the fact that the country also recently announced to be in its third recession since 1994 it’s safe to say that many businesses are beginning to feel the effects of the pandemic.

The impact of the coronavirus on small businesses is likely to be substantial, especially for local businesses who are already feeling the pinch, as financial and market uncertainty can easily translate into an emotional crisis that can overwhelm our systems. However, help is on the way as the Department of Small Business Development announced that a Debt Relief Fund has been set up to assist small, medium and micro enterprises impacted by COVID-19.

While this relief is welcomed, it is still vital for leaders to step up. The world has been through crises before, but during these significantly difficult times, the economic impact may be as severe or possibly worse. As such, those in leadership positions must use past crises as examples and apply what was learnt to keep the country on course and minimise the impact of the pandemic.

Karl Westvig, CEO at Retail Capital, has pinpointed the visible areas that are affected and outlined a few pointers to help small business owners weather the storm.

Liquidity

The first victim of panic is liquidity – banks, asset managers and funders stop lending. When they cannot calculate the potential risk, they will not lend.  Therefore, it is critical to shore up cash by drawing down on available facilities and suspending any unnecessary investments. Reduce expenses and manage cash flow daily.

Get Your Best Team on It

When a business is growing, we tend to shift our best people into roles linked to growth and new initiatives. In a crisis, these people need to move into the highest priority roles. These roles would include collecting from customers, raising facilities or engaging key clients.

Morale and Communication

People need leadership. This would include authentic and regular communication about the situation, what the business requires and how this will be achieved. You can’t control the circumstances, but you can control the response and actions. This will create more certainty.

Hands-on

Events evolve quickly and every day is critical. Leaders must be hands-on. They have to be in touch with customers, suppliers, funders and staff. They have to collect data on everything – the mood, the financial metrics, even customer stories. Some of the best information is anecdotal, not just big data.

Policies

It’s tough to lead when you don’t understand all the underlying levers. These can change in a crisis. What worked in a stable environment can go out of the window in an instant. The best approach is to start again, listen to customers and then adapt your policies within your framework.

“This is not a manual on how to handle the current crisis, but hopefully, the points mentioned above can add to what you are already doing. In simple terms, it is easy to be overwhelmed, so tackle a few things very quickly and with commitment. This will create certainty and lead to action. The alternative is paralysis,” concludes Westvig.

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Current Affairs

Moody’s Downgrades South Africa To Junk

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Credit ratings agency Moody’s has downgraded South Africa to junk status on day 2 of the country’s nationwide lockdown.

President Cyril Ramaphosa’s economic reform plans have been slowed by the coronavirus pandemic. The downgrade adds salt to injury for South Africa as it currently struggles with a recession it slipped into in early March.

“The unprecedented deterioration in the global economic outlook caused by the rapid spread of the coronavirus outbreak will further exacerbate South Africa’s challenges” said Moody’s.

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Current Affairs

What You Need To Know About AfDB’s $3 billion “Fight COVID-19” Social Bond

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Landmark transaction, largest Social bond transaction to date in capital markets

Abidjan, Côte d’Ivoire, 27 March 2020 – The African Development Bank (AAA) has raised an exceptional $3 billion in a three-year bond to help alleviate the economic and social impact the Covid-19 pandemic will have on livelihoods and Africa’s economies.  

The Fight Covid-19 Social bond, with a three-year maturity, garnered interest from central banks and official institutions, bank treasuries, and asset managers including Socially Responsible Investors, with bids exceeding $4.6 billion. This is the largest Social Bond ever launched in international capital markets to date, and the largest US Dollar benchmark ever issued by the Bank. It will pay an interest rate of 0.75%.

The African Development Bank Group is moving to provide flexible responses aimed at lessening the severe economic and social impact of this pandemic on its regional member countries and Africa’s private sector.

“These are critical times for Africa as it addresses the challenges resulting from the Coronavirus. The African Development Bank is taking bold measures to support African countries. This $3 billion Covid-19 bond issuance is the first part of our comprehensive response that will soon be announced. This is indeed the largest social bond transaction to date in capital markets. We are here for Africa, and we will provide significant rapid support for countries,” said Dr. Akinwumi Adesina, President of the African Development Bank Group.

The order book for this record-breaking bond highlights the scale of investor support, which the African Development Bank enjoys, said the arrangers.

“As the Covid-19 outbreak is dangerously threatening Africa, the African Development Bank lives up to its huge responsibilities and deploys funds to assist and prepare the African population, through the financing of access to health and to all other essential goods, services and infrastructure,” said Tanguy Claquin, Head of Sustainable Banking, Crédit Agricole CIB.

Coronavirus cases were slow to arrive in Africa, but the virus is spreading quickly and has infected nearly 3,000 people across 45 countries, placing strain on already fragile health systems. 

It is estimated that the continent will require many billions of dollars to cushion the impact of the disease as many countries scrambled contingency measures, including commercial lockdowns in desperate efforts to contain it. Globally, factories have been closed and workers sent home, disrupting supply chains, trade, travel, and driving many economies toward recession. 

Commenting on the landmark transaction, George Sager, Executive Director, SSA Syndicate, Goldman Sachs said: “In a time of unprecedented market volatility, the African Development Bank has been able to brave the capital markets in order to secure invaluable funding to help the efforts of the African

continent’s fight against Covid-19. Not only that, but in the process, delivering their largest ever USD benchmark. A truly remarkable outcome both in terms of its purpose but also in terms of a USD financing”.

The Bank established its Social Bond framework in 2017 and raised the equivalent of  $2 billion through issuances denominated in Euro and Norwegian krone. In 2018 the Bank was designated by financial markets, ‘Second most impressive social or sustainability bond issuer” at the Global Capital SRI Awards.

“We are thankful for the exceptional level of interest the Fight Covid-19 Social Bond has raised across the world, as the African Development Bank moves towards lessening the social and economic impact of the pandemic on a continent already severely constrained. Our Social bond program enables us to highlight our strong development mandate to the investor community, allowing them to play a part in improving the lives of the people of Africa. This was an exceptional outcome for an exceptional cause,” said Hassatou Diop N’Sele, Treasurer, African Development Bank.

Fight Covid-19 was allocated to central banks and official institutions (53%), bank treasuries (27%) and asset managers (20%). Final bond distribution statistics were as follows: Europe (37%), Americas (36%), Asia (17%) Africa (8%,) and Middle-East (1%).

Press Release by the African Development Bank

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