afric-Invest

Africa’s sustainable financing gap until 2030 is about USD 1.6 trillion. According to this report’s estimates, the continent needs additional financing of about USD 194 billion annually to achieve the Sustainable Development Goals by 2030. This annual sustainable financing gap is equivalent to 7% of Africa’s gross domestic product (GDP) and 34% of its investments in 2021. The annual gap equals less than 0.2% of the global and 10.5% of the African-held stock of financial assets.

African economies hold unique assets to close the continent’s sustainable financing gap:

• Real GDP growth is estimated to return to the levels before COVID-19, at 3.7% in 2023, the second highest rate in the world after developing Asia (5%) and before Latin America and the Caribbean (1.6%). The growth is estimated at 4.9% in East Africa, 4.3% in Central Africa, 4% in North Africa, 3.8% in West Africa and 1.4% in Southern Africa.

• The proportion of African youth completing an upper-secondary or tertiary education could reach 34% by 2040, up from 23% in 2020 and 18% in 2010. Africa has the world’s youngest population, with a median age of 19 years, compared to 30 for Latin America and the Caribbean, 31 for developing Asia and 42 for Europe.

• Natural resources represent key assets for African economies. Natural capital accounts for 19% of Africa’s total wealth compared to 7% for Latin America and the Caribbean and 3% for developing Asia. From 2011 to 2020, African forests increased the global carbon stock by 11.6 million kilotons of CO₂-equivalent net emissions, while carbon stocks in forests outside Africa declined by 13 million kilotons.

• Africa’s domestic financial resources hold a large potential for sustainable development. Domestic government revenues amounted to USD 466 billion in 2021, equivalent to 17% of GDP, and assets held by African institutional investors amounted to USD 1.8 trillion in 2020, equivalent to 73% of GDP. During the COVID-19 pandemic in 2020-21, intra-Africa foreign direct investment was three times more resilient than foreign direct investment from outside the continent, boosting growth in renewable energies and in information and communications technology.

Despite this potential, global crises are affecting investment in Africa more than in other regions. The average inflation rate for the continent is projected to reach 15.5% in 2023 – the highest level in 27 years – with peaks above 15% in 11 African countries. As of February 2023, 8 African countries were in debt distress (out of 9 globally), and 13 were at a high risk of debt distress (out of 27 globally). Africa’s share of global greenfield foreign direct investment has been on a downward trend in recent years, dropping to 6% in 2020-21 (the lowest share in 17 years), while high-income countries in other parts of the world have recorded their highest share ever (61%), compared to 17% for developing Asia and 10% for Latin America and the Caribbean.

The cost of capital in Africa has risen above the levels in other world regions, pricing some African governments out of bond markets while thwarting investments in transformational sectors such as renewable energy. The spread on an average African Eurobond (a measure for the potential cost of sovereign borrowing) reached a 15-year high of about 10 percentage points in September 2022, eclipsing previous peaks. In 2021, the average cost of capital for energy projects was about seven times higher in Africa than in Europe and North America. While experienced investors attain higher average returns in Africa than in other world regions, the lack of reliable information and data is an important barrier to new investments.

To increase resilience to external shocks and improve investor confidence, African policy makers can work with international partners and African civil society to mobilise investments towards Agenda 2063 and sustainable development. The international community must follow through on commitments on debt restructuring and climate finance. African governments, development partners, the private sector and civil society must work closer together to improve Africa’s investment landscape. This report proposes three key policy priorities to accelerate sustainable investments on the continent:

• More and better data will reduce transaction costs, improve sustainability assessments and increase investor confidence. In 2021, less than a third of African countries (30%) had a fully funded statistical plan, compared to almost half the countries in Latin America and the Caribbean (44%) and in developing Asia (47%). Improved macroeconomic data may help align risk perception with real risks. Partnerships with business associations or academic institutions can allow government agencies to share industry data that inform investors’ risk assessments at lower cost. African governments can also facilitate sustainability assessments through disclosure requirements and the provision of training and incentives to smaller firms with limited capacity.

• Strengthening the capacity of Africa’s large development finance network will improve the allocation of sustainable finance. The 102 African development finance institutions (DFIs) can act as intermediaries between international finance and local projects, in line with national development agendas. The international community can channel more resources to well-managed DFIs and deliver on existing obligations, for instance, by increasing the allocation of climate adaptation finance. African governments and DFIs can also scale up the use of innovative de-risking and financing tools, including green, social, sustainability, and sustainability-linked bonds or local currency financing solutions emerging in many countries. Developing and interconnecting capital markets and stock exchanges will contribute to the growth of African firms.

• Regional integration policies will improve and harmonise Africa’s investment landscape. Cross-border initiatives such as development corridors and digital infrastructures can reduce trade frictions and market fragmentation. At the same time, small and medium-sized enterprises need targeted support to seize investment opportunities along regional value chains. The African Continental Free Trade Area (AfCFTA) Investment Protocol aims to harmonise the African investment policy landscape but requires effective monitoring mechanisms and public-private alliances.

The five regional chapters of this report highlight how African regions can accelerate sustainable investments in strategic sectors. African regions can better leverage their unique assets to accelerate sustainable development and productive transformation. Regional case studies propose ways of operationalising the continental policy recommendations in specific sectors.

Source:  OECD 2023

Optimism about the African Continental Free Trade Area (AfCFTA) is high among African CEOs, according to the latest survey by the Pan-African Private Sector Trade and Investment Committee (PAFTRAC).

December 6th, 2023  By Kwame Ofori Appiah Image : Chris / Adobe Stock

The Pan-African Private Sector Trade and Investment Committee (PAFTRAC) has launched its annual Africa CEO Trade Survey, which gives a snapshot of sentiments among Africa’s business leaders and is intended to inform decision-making by African public policymakers. This year, over 1000 CEOs from 44 countries, the largest sample ever, participated in the survey. The report shows that while inflation and access to finance remain of great concern to businesses in Africa, many are optimistic about the prospects of the African Continental Free Trade Area (AfCFTA).

Presenting the results at the virtual launch of the report in a webinar on 21 November, Professor Patrick Utomi, chairperson of PAFTRAC and policy consultant to the Africa Export-Import Bank (Afreximbank), noted that the majority of the sample were small businesses, and about 35% had been in operation for five years or less. This, he said, reflects the fact that about 80% of businesses in Africa are in the small- and medium-sized enterprise (SME) category.

While rising debt and global security issues were of concern, high inflation was the major concern that interviewees had. “Overwhelmingly, inflation is seen as having the most significant impact on the continent and its businesses,”

Free trade spurs optimism

Despite the challenges, the survey indicates that optimism regarding the African Continental Free Trade Area (AfCFTA) is high. Over 50% of businesses anticipate a positive impact, while “about 24% think it will have a moderate effect on their business, and 18% think it would have little effect, or did not know what impact it would have on their businesses,” Utomi said.

Another common hurdle highlighted by the survey is access to finance, which affects the ability of businesses across sectors to operate and to scale up their operations. Utomi noted that agriculture, manufacturing, and transportation firms particularly identify financing as a major hindrance. “It goes to show that if financing does not exist, then anything else we’re speaking about, whether it is cross-border trade, unification or AfCFTA, would amount to nothing more than rhetoric,” Utomi stressed.

As in previous surveys, a notable concern was the lack of adequate information on the AfCFTA. “Most of them did not know what the AfCFTA was, what it meant for their businesses or, more importantly, how to tap into it,” Utomi said, stressing that without this information, SMEs in particular would be left out of the AfCFTA because they would not know how to engage with it and access the benefits they could derive from doing so.

In response to these concerns, Utomi said, the report makes a number of recommendations, which focus on boosting value-added production; providing more information on AfCFTA opportunities; creating forums for SME engagement with policymakers; incentivising cross-border aggregators; and fostering collaboration between the private sector and development institutions. The report also highlights the need for capacity improvement, structures for businesses to access financing, and continuous monitoring and evaluation of AfCFTA implementation for a prosperous future of trade in Africa.

The presentation was followed by a panel discussion with Professor Utomi; Gwendoline Abunaw, managing director of Ecobank Cameroon; Geoffrey White, CEO of Agility Africa; and Amit Agrawal, Ghana country head at Olam Agri. The discussion was moderated by Pedro Besugo, head of business development at Invest Africa.

Related articles

• What you need to know about the African Continental Free Trade Area
• AfCFTA opens new era of possibilities for African trade
• How ambitious AfCFTA implementation can drive agricultural trade growth for Africa

Access to finance is critical

Utomi welcomed the report’s findings, saying “it is an important affirmation of something that we know, which is the problem of access to finance being a major challenge, especially for cross-border trade.” He noted that inflation also remains a major challenge, arising from recent trends and supply chain crises related to the Covid-19 pandemic. This, he said, has had a significant impact on the capacity of small scale businesses to deal with the commitments they have.

Utomi also underscored the significance of information availability and the role of aggregators in facilitating efficient trade and emphasised the need for SMEs to recognise the benefits of collaboration and aggregation across borders, which he said could give them the kind of volume that would make them significant global players. He stressed that PAFTRAC will continue to play its advocacy role and work with policymakers to create the conditions most conducive to business and trade on the continent.

Reacting to findings from the report which indicate that central Africa is the least dynamic region in the continent, Abunaw said that “The flows are not at the level that they should be. And it actually shows that there has been a regression or it has been stagnant,” she said. Other obstacles to regional trade, Abunaw said, are inadequate transportation links, economic and physical integration barriers, and complex customs and tax regimes. “Trade liberalisation would definitely boost economic growth and poverty alleviation,” she argued. She pointed to efforts by financial institutions such as Ecobank to facilitate money transfers and to support small and medium-sized players in cross-border trade, while emphasising the crucial role of political will in addressing infrastructure, tariffs, and trade-related decisions among participating countries.

White said he was most heartened by the enthusiasm shown for the AfCFTA, which has the potential to create a market of 1.3bn people, growing to 2.4bn over the next 25 years. “The concept of the AfCFTA is strong and so beneficial for everyone,” he said. He noted that his company, Agility Africa, which is building warehouses across Africa, will make it easier for local and foreign businesses to operate in Africa.

Trade promotes local production

Following Covid-19, companies are keen to produce locally to obviate challenges associated with moving goods across long distances. Creating a larger market through the AfCFTA would make Africa a more attractive destination. “If you can actually move goods across the borders easily and seamlessly and in one trade bloc, West Africa, for example, becomes a 500m-person market,” he noted.

Commenting on intra-regional trade, Agrawal noted that the Economic Community of West African States is a good example of a regional trade bloc that works. “The Ecowas regime works actually pretty well in terms of documentation, acceptance across borders, zero duty and entry into various markets within the Ecowas zone,” he said. It also has a good road network that enables the transport of goods from Ghana as far as Niger and Benin, for example.

With regard to the AfCFTA, he observed that uneven tariff regimes are likely to be the biggest stumbling block to its successful implementation. Increasing intra-regional trade will also depend, in large measure, on expansion of the road infrastructure, Agrawal said, pointing out that, in some cases, it is more cost-effective to transport goods from Asia to Africa than between African countries.

He proposed a phased approach to implementation, beginning with making regional blocs function more smoothly. “I think the first thing that the African Union can do is to make the regional blocs work very smoothly. There is a lot of scope to make them work better,” he urged.

On how to improve regional trade, Abunaw stressed the importance of facilitating the movement of people within sub-regional blocks and across Africa as a whole. Streamlining visa procedures, she said, would discourage the use of informal routes.

She also suggested that “if people know what they’re supposed to pay, and we can actually digitalise it, it becomes formalised and transparent and it would also greatly improve the flows.” She suggested that parity in currencies would mean that traders do not need to go through a foreign currency to buy across borders. Finally, she advocated for capacity building and increasing production, underscoring the need to provide knowledge and promote the use of initiatives from development banks and governments.

 

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Source: AfricanBusiness, 6th December 2023

The U.S. Space Force, U.S. European Command, and U.S. Africa Command activated their newest service component on Dec. 8, in an expansion of USSF’s growing reach into combatant commands.

“This is an important day in the history of the Space Force as we mature our organization and our partnerships to take on the challenges of the space domain,” Chief of Space Operations Gen. B. Chance Saltzman said in remarks at a ceremony held at Ramstein Air Base, Germany, where the component will be headquartered.

U.S. Space Forces Europe and Africa (SPACEFOREUR-AF), under the command of Space Force Col. Max Lantz, gives the USSF into its own organization in the vast combined area of U.S. European Command and U.S. Africa Command.

“We are activating the component because presence matters,” Lantz said.

Previously, U.S. military space capabilities in Europe and Africa, which Lantz already headed, were part of the air component, U.S. Air Forces in Europe-Air Forces Africa (USAFE-AFAFRICA), in a model that predated the Space Force as an independent service. Inside combatant commands, services provide their own components that the command can draw on. Now, the Space Force has its own organization.

The activation of Space Forces Europe and Africa is a “critical step” in USSF’s growth as its own service with its own voice in operations, Saltzman said.

“Space has become more and more central to joint operations,” he added. “We are better connected, more informed, more precise, and more lethal thanks to space.”

The official party for the U.S. Space Forces Europe & Africa activation ceremony stand at attention during the USSPACEFOREUR-AF activation and assumption of command, at Ramstein Air Base, Germany, Dec. 8, 2023. USSPACEFOREUR-AF will provide U.S. European Command and U.S. Africa Command a cadre of space experts who collaborate with NATO allies and partners to integrate space efforts into shared operations, activities and investments. (U.S. Air Force photo by Senior Airman Edgar Grimaldo

SPACEFOREUR-AF is now the fourth service component embedded in one of the U.S. military’s regional commands, joining U.S. Central Command, U.S. Indo-Pacific Command, and U.S. Forces Korea. Joint combatant commanders and Space Force leaders say the new organizations help better articulate what space capabilities are available and ensure they are taken into account and put to use.

“The joint force’s missions increasingly rely on space and the Space Force is committed to ensuring that the force has the space resources it needs to succeed,” Saltzman said. “That is particularly important here in the European and African theaters of operation. The Space Force is already very actively involved in supporting efforts in the region, with our support to Ukraine being most visible.”

The USSF is considering establishing components in other commands, possibly including U.S. Cyber Command, U.S. Special Operations Command, and U.S. Forces Japan.

“Space operations is our daily lives, our operations, our activities, and our investments,” Marine Corps Gen. Michael E. Langley, the head of U.S. Africa Command, said during the ceremony. “All the space-based assets [are] ensuring the joint force has the right information at the right time to fight and to win. SPACEFOREUR-AF will work with all other components to ensure that space planning and support is embedding in all of our operations.”

Like the rest of the Space Force, SPACEFOREUR-AF is a small organization. But throughout 2023, after the plans for SPACEFOREUR-AF were announced, senior U.S. military space leaders visited Europe to strengthen the U.S. military space alliances. On Dec. 1, the U.K. agreed to host a new advanced space tracking radar system along with Australia and the U.S.

The activation will “finally normalize how space forces are presented to the theaters—sound, structural changes,” Lantz said. “The component we’re standing up today will never be as small, under-ranked, or less resourced than at this very moment. Starting tomorrow, we will gain in strength, understanding, and resources in order to add value to EUCOM and AFRICOM. Every day we will get better.”

The new U.S. Space Forces in Europe-Space Forces Africa patch is displayed at Ramstein Air Base, Germany, Dec. 6, 2023. U.S. Air Force photo by Senior Airman Jared Lovett

Source: Space & Airforce Magazine, 8th December 2023