Put your money where your mouth is

China's increasing influence via its currency, Zimbabwe is tweaking her Constitution, Investing in Agribusiness during a pandemic

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China’s increasing influence via its currency

China is taking more steps towards increasing the use of yuan in Africa and the World. As UnionPay International recently announced a partnership with Interswitch East Africa, a subsidiary of the Nigerian-based Interswitch Group.

What’s UnionPay

Think of Visa, Mastercard, or Verve. Yeah, UnionPay is China’s version.  UnionPay international is a financial services corporation established in 2002 by the People’s Bank of China (PBOC), China’s central bank. And now it’s in partnership with more than 2,300 institutions worldwide, enabling card acceptance in 179 countries and regions.

How is it doing?

Having easily gained a foothold in China, it’s now expanding to other countries. UnionPay partnered with Paypal earlier this year to gain access to the 25 million merchants that use Paypal. In the last two years, it has also partnered with one of Portugal’s largest banks and UK’s fintech Tribe Payments to issue cards to customers, banks and other fintechs.  Within the space of 5 years (2012 - 2017), UnionPay reportedly issued 68 million bank cards in 40 countries. In Africa, its cards are issued in South Africa, Ghana, Mauritius, Kenya, Seychelles and a few others.

Unsurprisingly, Africa’s adoption of the Chinese yuan has increased over the years as between April 2016 and April 2019, the value of yuan-denominated payments from Africa jumped 123%.

Bigger Picture:

The drive to increase the use of the yuan is also supported by China promoting its own interbank settlement payment system.  An alternative to Society for Worldwide Interbank Financial Telecommunications (SWIFT) - the predominant interbank settlement system in the World. It’s called Cross-border Interbank Payment System (CIPS), sometimes referred to as the China Interbank Payment System. 

CIPS was created to reduce financial risks caused by the US or international sanctions. While SWIFT takes strictly neutral positions — it has a board made up of 25 members from different countries, there are concerns that the US has great influence on SWIFT. Case in Point: The U.S. government has been monitoring and retrieving information related to terrorism from SWIFT since the 9/11 attacks in 2001 and citing International Emergency Economic Powers Act as a basis to impose financial sanctions on other countries through SWIFT.

Looking ahead: Growth of CIPS & UnionPay

In 2018, Chinese platforms Alipay & Wechat did over 500m transactions within China while all other card networks - Visa, Mastercard & co - did just 400m transactions. This means the amount of digital transactions within China is more than all digital transactions worldwide. 

Despite this, SWIFT’s data (April 2019) showed that the yuan’s share of global international payments had only risen from 1% to 1.91%. This means China is still far away from gaining a foothold in international payment, or maybe it is already but we don’t know because more yuan interbank payments now pass through CIPS.

Zimbabwe is tweaking her Constitution

Photo source: Twitter

Zimbabwean President, Emmerson Mnangagwa has decided to go ahead with the national constitutional amendment even after he was accused of tyranny following his initial attempt with the release of the bill. 

A little detail: A national referendum in 2013 birthed the Zimbabwean Constitution after millions of citizens voted in favour of the new constitution. The federal government is now seeking to establish new policies by which the country will be governed, through the 27 claused amendments bill. However, the changes are not based on the advice of the Judicial Service Commission (JSC), but it is believed to be entirely the president's decision. 

The 27 proposed amendment: The clause of the amendment touches about 27 aspects of the constitution including to get rid of the running-mate concept of the Vice-Presidency instead two vice-presidential candidates will be chosen by the President. Another major amendment will extend the retirement of judges as five more years will be added to the terms of serving judges even after the age of 70. It will also provide positions for women and youths in the National Assembly. The amendment also seeks to create the office of the Public Protector, who will take over certain functions concerning public mal-administration.

What people say: Opponents and independent critics feel the president handpicked amendments that suit his political ambitions while reluctant to fully implement the  2013 constitution. It is also believed that the amendment gives the president greater control over Judicial activities but dilutes and weakens the rule of law.  

Moving forward: The recent Constitutional Bill Amendment has been rejected by many people but the president insists that the major goal for the changes is to strengthen the legislature. Maybe the raft of political reforms might benefit the country in one way or the other, but till that happens Zimbabweans are not exactly happy about the new reforms. 

Put your money where your mouth is

Investing in Agribusiness during a pandemic

Source: Altech

At the Africa Investment Forum in 2018, the Agribusiness sector was predicted to reach US$1 trillion by 2030 and was dubbed to become the ‘new oil” on the continent. 

Why? For one, Greater size = Greater consumption. According to United Nations’ projections, Africa’s population could reach 2 billion by 2030 and 2.5 billion by 2050. Consumption power is also touted to be driven by the rise in the middle class who are becoming relatively more discerning in the food they choose to buy and eat. In megacities such as Lagos and Cairo, there are opportunities for investment, as a result of high consumption and concentrated spending power.

Hello Economy

In spite of these opportunities, the continent’s food import bill during the last five years averaged $68.5 billion annually, according to the African Development Bank. And if left unchecked, it is estimated that by 2025, the import bill could surge to $110 billion. This is because of high production, storage and distribution costs, making their agricultural produce bring low yields(profits) to compete with foreign producers.

Investment Opportunities

AgDevCo, an  impact investment firm specialising in agribusiness in sub-Saharan Africa have explored some lucrative investment opportunities in this sector.

Tree crops like avocados and macadamia have global demand and can be exported to bring dollar revenue with industries developing in Mozambique and Malawi. Livestock, poultry and pork products play into supply to domestic markets where a young demographic are switching to protein-based diets. Quality, locally-produced products such as maize meal and groundnuts can also appeal to African consumers if the price is convenient for them, provided it's well branded. 

Keep your hand out of the wrong cookie jar with commodity crops like rice which have relatively low-margins and cannot compete internationally with prices in regions like South America and Asia who benefit from subsidies and have significant economies of scale.

Malawi is reported to have a supportive environment for agriculture with a strong solid legal systems unlike some African countries. It also has a history of commercial agriculture in tobacco, sugar and tea, and opportunities in poultry, macadamia, sugar.

Looking Ahead

Support has come to the industry through the African Development Bank who introduced initiatives, boosting historically low yields in priority commodities such as rice, maize and soybeans. They have also invested in Special Agro-Processing Zones (SAPZs) to expand local agro-processing activities along numerous agricultural value chains.

The Nigerian authorities recently introduced two new initiatives (here and here) to support this sector financially.

With all the uncertainty that comes with the pandemic, It will be interesting to see how things turn out in the future and maybe talk about it again :)

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Quote 💭

The Stone Age didn’t end for lack of stone, and the Oil Age will end long before the world runs out of Oil.

Sheik Ahmed Zaki Yamani

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Have a restful weekend 💙