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Economic fundamentals in African countries showed significant improvement

Global growth has stabilized, with world output estimated to have grown by 3.7 per cent in 2018 and projected to grow by the same magnitude in 2019.

With the volatility of commodity prices and the rise of trade tensions between the United States and its main trading partners, the external environment has created increasingly adverse conditions for Africa’s growth. According to African Development Bank, higher interest rates in the United States and the strengthening of the US Dollar have put pressure on the currencies of developing countries and increased the costs of borrowing.

While the increase in energy prices gave relief for oil producers, it also worsened the terms of trade for oil importers. African Development Bank said in 2018, Africa’s Gross Domestic Product GDP growth reached an estimated 3.5 per cent, roughly the same as in 2017 and up by 1.4 percentage point from 2.1 per cent in the previous year 2016. In the short term, growth is projected to accelerate to 4 per cent in 2019 and 4.1 per cent in 2020. These projections are higher than those of other emerging and developing regions.

However, domestic risks, in addition to external constraints, could limit the continent’s growth. These include climate change, security and migration concerns, increasing vulnerability to debt distress in some countries, and uncertainties associated with elections and political transitions. In 2018, ADB reported, while East Africa remained the fastest growing region at 5.7 per cent, North Africa contributed the most to overall African GDP growth, accounting for 37 per cent.
 

The general drivers of Africa’s economic growth have been gradually rebalancing, moving from consumption to investment and exports. The recent commodity price rebound and particularly the increase in oil prices supported the recovery of commodity exporters. Overall, 17 African countries achieved real GDP growth higher than 5 per cent in 2018, and 21 between 3 and 5 per cent.

Only five African countries recorded a recession in 2018, down from eight in the two previous years. Six of the world’s ten-fastest growing economies (Burkina Faso, Cote d-Ivoire, Ethiopia, Libya, Rwanda and Senegal) are African countries. Some of the non-resource-rich countries had high growth rates in 2018, including Cote d’Ivoire (7.4 per cent), Rwanda (7.2 per cent) and Senegal (7 per cent), supported by agricultural production, consumer demand and public investment.

Economic fundamentals in most African countries continued to improve, thanks to fiscal consolidation along with massive investments in infrastructure, major roads in financial innovation, increased domestic demand, and substantial improvements in the investment climate (more than a third of global reforms). On average, Africa’s fiscal deficit declined from 5.8 per cent in 2017 to an estimated 4.5 per cent in 2018, while inflation fell from 12.6 per cent in 2017 to 10.9 per cent in 2018.

However, growth rates remain insufficient to address the persistent challenges of high unemployment, low agricultural productivity, inadequate infrastructure and fiscal and current deficits as well as debt vulnerabilities. Although tax revenues and spending efficiency have improved, domestic resource mobilization has generally remained well short of potential. For instance, 16 African countries were classified as being in debt distress or at high risk of debt distress at the end of 2018.

Debt in Africa has risen steadily in recent years after having declined and stabilized under the Heavily Indebted Poor Countries Initiative, and the Multilateral Debt Relief Initiative. Africa’s public debt represented 58 per cent of GDP in 2017, up from 36 per cent in 2008. The drivers of the rise in debt include low commodity prices, higher infrastructure spending, depreciating exchange rates, rising costs of foreign currency borrowing and greater defence and security spending. The report said there is, however, significant heterogeneity across countries and regions. At the end of 2017, the government debt-to-GDP ratio was below 40 per cent for 16 of 52 countries with data and above 100 per cent for six.

According to ADB, to ensure a high social return on debt-financed public investment, it is important to strengthen the debt-investment link. In this regard, the Bank’s multidimensional approach to mitigating the risk of debt distress in Africa will include tapping new sources of funding to lower the cost of debt; engaging in policy dialogue to raise awareness of debt sustainability at the highest political level; laying the foundation for efficient use of existing resources to limit recourse to additional debt; strengthening country capability to manage debt; supporting efficient and productive use of debt; and building fiscal capacity for increased domestic resource mobilization.

ADB further indicated that Africa has the world’s fastest growing population. The continent’s young labor force is projected to grow at an average rate of 2.75 per cent a year between 2016 and 2030, so an inclusive and pro-employment growth path is crucial to creating enough jobs. In addition, the adverse impacts of climate change, now pronounced, are projected to become even starker by 2050, undermining Africa’s agricultural performance and water and energy security.

These challenges, ADB stressed that call for significant investment and external funding, involving the private sector, particularly in regional infrastructure development and financing. The continent faces a large annual gap of between USD 68 billion and 108 billion in meeting its infrastructure investment needs, estimated at USD 130 to 170 billion a year. African countries must therefore fast-track economic transformation and structural reforms and continue to tap into identified opportunities.

Fostering regional integration would increase trade and economic cooperation and enhance the delivery of regional public goods, according to African Development Bank. The bank said this will also enable countries to move up the ladder through socialization and reverse external imbalances. The African Continental Free Trade Agreement, upon entry force, will contribute to the creation of the world’s biggest free trade area in terms of the number countries involved, and will be an important driver of sustained economic growth.

In line with its High 5 priorities, the Africa Development Bank is ideally placed to enhance social and economic inclusiveness in Regional Member Countries through infrastructure development, agro-industrialization, and improved access to finance and support for regional integration. As a knowledge institution with an overview of Africa, the bank helps to produce and manage knowledge, build capacity and provide sound policy advice to member countries’ decision-makers. It also aims at boosting blended finance for attracting private investment at scale. In this context, the results of the first Africa Investment Forum, organized by the bank in Johannesburg in November 2018, exceeded expectations, resulting in 49 deals totalling 38.7 Billion US Dollars.

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Business

Investors inject capital into Tsodilo Resources Company

25th January 2023

Local diamond and metal exploration company Tsodilo Resources Limited has negotiated a non-brokered private placement of 2,200, 914 units of the company at a price per unit of 0.20 US Dollars, which will provide gross proceeds to the company in the amount of C$440, 188. 20.

According to a statement from the group, proceeds from the private placement will be used for the betterment of the Xaudum iron formation project in Botswana and general corporate purposes.

The statement says every unit of the company will consist of a common share in the capital of the company and one Common Share purchase warrant of the company.

Each warrant will enable a holder to make a single purchase for the period of 24 months at an amount of $0.20. As per regularity requirements, the group indicates that the common shares and warrants will be subject to a four month plus a day hold period from date of closure.

Tsodilo is exempt from the formal valuation and minority shareholder approval requirements. This is for the reason that the fair market value of the private placement, insofar as it involves the director, is not more than 25% of the company’s market capitalization.

Tsodilo Resources Limited is an international diamond and metals exploration company engaged in the search for economic diamond and metal deposits at its Bosoto Limited and Gcwihaba Resources projects in Botswana.  The company has a 100% stake in Bosoto which holds the BK16 kimberlite project in the Orapa Kimberlite Field (OKF) in Botswana.

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Business

Global CEOs Back Plan to Unlock $3.4 Trillion Potential of Africa Free Trade Area

23rd January 2023

African heads of state and global CEOs at the World Economic Forum Annual Meeting backed the launch of the first of its kind report on how public-private partnerships can support the implementation of the African Continental Free Trade Area (AfCFTA).

AfCFTA: A New Era for Global Business and Investment in Africa outlines high-potential sectors, initiatives to support business and investment, operational tools to facilitate the AfCFTA, and illustrative examples from successful businesses in Africa to guide businesses in entering and expanding in this area.

The report aims to provide a pathway for global businesses and investors to understand the biggest trends, opportunities and strategies to successfully invest and achieve high returns in Africa, developing local, sub-regional and continental value chains and accelerating industrialization, all of which go hand in hand with the success of the AfCFTA.

The AfCFTA is the largest free trade area in the world, by area and number of participating countries. Once fully implemented, it will be the fifth-largest economy in the world, with the potential to have a combined GDP of more than $3.4 trillion. Conceived in 2018, it now has 54 national economies in Africa, could attract billions in foreign investment, and boost overseas exports by a third, double intra-continental trade, raise incomes by 8% and lift 50 million people out of poverty.

To ease the pain of transition to its new single market, Africa has learned from trade liberalization in North America and Europe. “Our wide range of partners and experience can help anticipate and mitigate potential disruptions in business and production dynamics,” said Børge Brende, President, and World Economic Forum. “The Forum’s initiatives will help to ease physical, capital and digital flows in Africa through stakeholder collaboration, private-public collaboration and information-sharing.”

Given the continent’s historically low foreign direct investment relative to other regions, the report highlights the sense of excitement as the AfCFTA lowers or removes barriers to trade and competitiveness. “The promising gains from an integrated African market should be a signal to investors around the world that the continent is ripe for business creation, integration and expansion,” said Chido Munyati, Head of Regional Agenda, Africa, World Economic Forum.

The report focuses on four key sectors that have a combined worth of $130 billion and represent high-potential opportunities for companies looking to invest in Africa: automotive; agriculture and agroprocessing; pharmaceuticals; and transport and logistics.

“Macro trends in the four key sectors and across Africa’s growth potential reveal tremendous opportunities for business expansion as population, income and connectivity are on the rise,” said Wamkele Mene, Secretary-General, AfCFTA Secretariat.

“These projections reveal an unprecedented opportunity for local and global businesses to invest in African countries and play a vital role in the development of crucial local and regional value chains on the continent,” said Landry Signé, Executive Director and Professor, Thunderbird School of Global Management and Co-Chair, World Economic Forum Regional Action Group for Africa.

The Forum is actively working towards implementing trade and investment tools through initiatives, such as Friends of the Africa Continental Free Trade Area, to align with the negotiation process of the AfCFTA. It identifies areas where public-private collaboration can help reduce barriers and facilitate investment from international firms.

About the World Economic Forum Annual Meeting 2023

The World Economic Forum Annual Meeting 2023 convenes the world’s foremost leaders under the theme, Cooperation in a Fragmented World. It calls on world leaders to address immediate economic, energy and food crises while laying the groundwork for a more sustainable, resilient world. For further information,

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Business

Electricity generation down 15.8%

9th January 2023

Electricity generation in Botswana during the third quarter of 2022 declined by 15.8%, following operational challenges at Botswana Power Corporation’ Morupule B power plant, according to Statistics Botswana Index of Electricity Generation (IEG) released last week.

The index shows that local electricity generation decreased by 148,243 MWH from 937,597 MWH during the second quarter of 2022 to 789,354 MWH during the third of quarter of 2022.

This decrease, according to the index, was mainly attributed to a decline in power supply realized at Morupule B power station. The index shows that as a result of low power supply from the plant, imported electricity during the third quarter of 2022 increased by 76.3 percent (123,831 MWH), from 162,340 MWH during the second quarter of 2022 to 286,171 MWH during the current quarter and Statistics Botswana added that the increase was necessitated by the need to augment the shortfall in generated electricity.

In the index Statistics Botswana stated that Eskom was the main source of imported electricity at 42.0 percent of total electricity imports. “The Southern African Power Pool (SAPP) accounted for 38.4 percent, while the remaining 10.1, 9.1 and 0.5 percent were sourced from Electricidade de Mozambique (EDM), Cross-border electricity markets and the Zambia Electricity Supply Corporation Limited (ZESCO), respectively. Cross-border electricity markets are arrangements whereby towns and villages along the border are supplied with electricity from neighbouring countries such as Namibia and Zambia.”

The government owned statistics entity stated that distributed electricity decreased by 2.2 percent (24,412 MWH), from 1,099,937 MWH during the second quarter of 2022 to 1,075,525 MWH during the third quarter of 2022. The entity noted that electricity generated locally contributed 73.4 percent to electricity distributed during the third quarter of 2022, compared to a contribution of 85.2 percent during the third quarter in 2022 and added that this gives a decline of 11.8 percentage points. “The quarter-on-quarter comparison shows that the contribution of electricity generated to electricity distributed decreased by 11.8 percentage points compared to the 85.2 percent contribution during the second quarter of 2022.”

Statistics Botswana meanwhile stated that the year-on-year analysis shows some improvement in local electricity generation. Recent figures from entity show that the physical volume of electricity generated increased by 36.3 percent (210,319 MWH), from 579, 036 MWH during the third quarter of 2021 to 789,354 MWH during the current quarter. According to Statistics Botswana electricity generated locally contributed 73.4 percent to electricity distributed during the third quarter of 2022, compared to a contribution of 57.7 percent during the same quarter in 2021. This gives an increase of 15.7 percentage points.

 

The entity noted that trends also show an increase in physical volume of electricity distributed from 2013 to the third quarter of 2022, thereby indicating that there are ongoing efforts to meet the domestic demand for power. “There has been a gradual increase of distributed electricity from the first quarter of 2013 to the third quarter of 2022, even though there are fluctuations. The year-on-year perspective shows that the amount of distributed electricity increased by 7.2 percent (71,787 MHW), from 1,003,738 MWH during the third quarter of 2021 to 1,075,525 MWH during the current quarter.”

The statistics entity noted that year-on-year analysis show that during the third quarter of 2022, the physical volume of imported electricity decreased by 32.6 percent (138,532 MWH), from 424,703 MWH during the third quarter of 2021 to 286,171 MWH during the third quarter of 2022. “There is a downward trend in the physical volume of imported electricity from the first quarter of 2013 to the third quarter of 2022. The downward trend indicates the country’s continued effort to generate adequate electricity to meet domestic demand, hence the decreased reliance on electricity imports.”

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