One good term leads to another 👏
Fuel price goes up in some countries, New term at AFDB, Japan and Africa.
Welcome to September! In Nigeria, Amusement parks, gyms, and cinemas can finally reopen ( at half capacity), while clubs and schools are still waiting for the green light.
Which of these places would/ did you visit first?
Fuel price goes up in some countries
The gradual rise in global oil prices and the depreciation of currencies. With lockdown restriction being lifted around the world, the increase in movement - road trips and flights - has led to an increase in the demand for fuel. Also, the slowdown in economic activities has led to the depreciation of the value of most African currencies against the US dollar, the currency used to import petroleum products.
But unlike other African countries, Nigeria is playing a long game here.
In March, after years of trial and failure, the Nigerian government made another attempt to deregulate the oil sector. Deregulation meant that the government withdrew from the importation of petroleum products and allowed market forces to determine prices of petroleum products. Oil prices were low (200% lower than in Jan) so no one noticed until recently, as oil prices climbed back up.
Why does this matter
Savings: Nigeria spends a lot on subsidies. In 2018, Nigeria spent ₦1.2 trillion on petrol subsidies and has spent an estimated ₦10 trillion on subsidies from 2006 to 2018; more than the individual budgets for health, education or defence. The removal of subsidy would mean the government saves the amount spent on subsidy, redeploying to other sectors. For 2020, the removal would lead to savings of about ₦1 Trillion.
Loan requirements: As we stated last week, the recent actions of the Nigeria government have been spurred by loan requirements. In order for the Nigerian government to access loans from the IMF ($3.4 Billion COVID-19 response relief fund) and World Bank’s $750 million power sector loan. The Nigerian government had to make certain adjustments: Unify the exchange rate (Done), introduce new electricity tariffs to reduce the need for government subsidies (Done) and remove fuel subsidy (Done).
Looking forward: These changes would clearly lead to immediate discomfort and some push backs but hopefully long term gains. There’s no shortcut here as the best time to plant a tree was 20 years ago but the second-best time is now.
One good term leads to another
Photo: Akinwumi Adesina(Twitter)
In the past five years, the African Development Bank (AFDB) led by Adesina Akunwumi focused on a few developmental aspects of the continent which were categorised under five major umbrella projects including Light up and Power Africa; Feed Africa; Industrialize Africa; Integrate Africa, and Improve the Quality of Life for the People of Africa. As the Bank begins a new 5-year term, here’s a look at what’s on the list of the bank’s priorities.
In case you know nothing about the AFDB
Established in 1964, It is a development finance institution —institutions that lend at low and stable rates of interest to promote long-term investments with considerable social benefits — backed by 54 African and 26 non-African member countries. Its major mission is to assist African countries – individually and collectively - in their efforts to achieve economic development and social progress.
Top issues for this new term
The Adesina issue: Akinwumi Adesina was recently sworn in for a second 5-year term as President of the African Development Bank after the African Union endorsed him as the only candidate for the position but this milestone didn’t come without a drag.
An independent probe was held against him following a series of allegations from a whistleblower. He was accused of unethical conducts, questionable appointments and contract awards. Although Adesina has since denied all allegations and has been cleared by an independent investigative panel, it seems the issue is not yet off the table as it has already caused division among stakeholders of the bank.
Capital Increase: In 2019, the AFDB recorded a landmark $115 billion increase in the capital where the bank’s capital base jumped from $93 billion to $208 billion, the largest in the history of the bank since its establishment in 1964. Although the bank received an AAA rating earlier this year, its ability to continue to function rapidly is linked to the shareholders’ payment of their share of paid-in capital. So far, only four countries have already paid their financial contribution, building uncertainties, heightened by the pandemic.
NB: Nigeria was among the first to pay its contribution to capital increase voted in 2019, almost doubling its voting rights (from 8.5 per cent as of March 31 to 16.8 per cent as of July 31) to become the bank’s largest shareholder, overtaking the number two and three, Germany (from 8.2 per cent to 7.4 per cent) and the United States (from 6 per cent to 5.4 per cent), and all African shareholders.
Breaching the gap between non-African shareholders
Non-African shareholders entered the capital of the bank in 1982 and have continued to contribute the majority of the usable capital but both regions never seem to agree. Unfortunately, the AFDB will not play its role with just regional shareholders alone. This suggests the need for unity.
Staff strength: The AFDB has a problem in maintaining in-house staff. The bank has a record of excessive use of consultants (683 contracts at the end of 2018). The vacancy rate had fallen from 24% in 2017 to 14 per cent in 2018, expected to reduce even more in 2019.
In conclusion: The objective of the AFDB is to spur economic development and social progress in its regional member countries via mobilizing and allocating resources for investment and technical assistance to aid development, the group owes it to their member countries to reach their goals for the term following these four major outlooks.
Japan and Africa
In spite of the fact that Foreign Direct Investments (FDI) is at the heart of Africa’s needs, it still receives less FDI than any other emerging region, well except for Central-Asian transition economies. China has been known to try to fill this gap, but another player from Asia has been overlooked for the most part.
Yes, that country is Japan. The bulk of Japan’s emphasis has been on infrastructure development, essential in connecting emerging economies in Western and Southeast Africa and expanding African trade. Three of these initiatives include:
The Nacala Corridor that connects the Democratic Republic of Congo, Malawi, and Zambia by rail to the eastern deepwater port in Mozambique, giving regional farmers access to broader markets.
The East Africa Northern Corridor which connects east Africa to the eastern Port in Mombasa, Kenya
The West Africa Growth Ring which connects Burkina Faso, Ghana, Benin, and Côte d’Ivoire with Nigeria
However, in spite of all this, something just changed.
And what’s that?
The resignation of Japan’s longest-serving Prime Minister Shinzo Abe due to illness.
He led several initiatives on foreign policy that led to some strategic investments in Africa over the past couple of years. A popular one is the signing of a $270mn loan deal with Kenya to boost the capacity of Mombasa port.
The China Debacle
China’s lending practices on the continent have been dubbed “debt-trap diplomacy” where credit is extended to a debtor country with the intention of extracting concessions when it cannot sustain the loan payments. For example, Zambia took out a series of loans to pay for airports, hospitals, and infrastructure, increasing the amount owed to China to a third of its external debt, forcing its government to restructure.
Japan distinguishing itself from China
Japan, as led by Abe, seeking to distinguish itself from China, has argued that it would not seek to burden national partners with debt, seeking rather to jointly develop a more sustainable approach in line with the UN Sustainable Development Goals (SDGs) and Agenda 2063, endorsed by the African Union.
What this means
A change in leadership is a pivotal move. While Japan claims to have good intentions, it would be reasonable to look into the future to see if Abe’s successor will continue with the current strategy or make changes. And how they might impact the continent as a whole in the future.
Worth reading 📚
The reason you’re scared is because your mind over amplifies what you could lose rather than the infinite possibilities of what you can gain.
— Vusi Thembekwayo
Thank you for reading this week’s edition 💙