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.
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.
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
Are ICOs Relevant In Africa?
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.
“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.
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.
“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.
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
Save Jobs Or Save Energy? The Dilemma Of Going Green
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.
“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.
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.
Loud And Lonely On The Streets – The Life of A Lagos Hawker
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.
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.
The constant ruckus between government enforcement agencies and street hawkers has led to a debate about tighter regulation of the informal sector in Nigeria.
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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