The end of half of the year is always a good time to reflect on how the year has been — what worked out well and what could be better.
2020 isn’t cancelled yet, it still has 187 days.
Kenya & US are about to become best friends
As we head into the month of July, Kenya & the US are gearing up to take their relationship to the next level with a landmark deal - possibly a Free Trade Agreement (FTA).
What’s a Free Trade Agreement?
Think of it as moving up the ladder of relationship, from friends to best friends. It is a pact between two or more nations to reduce barriers to imports and exports among them. Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.
Why these two countries
A short answer is Kenya is merely a starting point for bilateral agreements in Africa and a good way to reduce the influence of China in Africa. China has been attempting to negotiate a free trade agreement with the entire East African Community bloc which Kenya is part of since 2016.
Things can get better
The total trade transactions between the US & Kenya amounted to only $1 billion in 2018. Kenya and the US aren’t top five trading partners. Kenya ranks as only the 98th largest trading partner for the United States. In addition to the relatively small amount of trade that occurs between the United States and Kenya, top U.S. imports from Kenya are relatively low-value products, such as apparel, fruits, nuts, and coffee. While major U.S. exports to Kenya, on the other hand, are relatively high value-added products like aircraft and machinery.
Who needs this deal more
At the moment, The United States consistently ranks as one of Kenya’s top export markets, and more than 70% of Kenya’s exports to the United States are duty-free under the African Growth and Opportunity Act (AGOA), a major U.S. preferential trade program that’ll expire in 2025.
It’s important that Kenya secures a new deal before the current one expires. So in the short term, Kenya needs this deal more.
Who is unhappy about this?
Other African Countries.
Wait, they’re not hating here and have a point.
In March 2018, the AfCFTA was signed by 54 African countries. Remember, AfCFTA is an agreement that allows 52 African countries to buy and sell goods without tariffs, this will make them less expensive, and therefore more appealing to African consumers. On July 1, 2020, the AfCFTA should take full effect.
A special agreement with America could conflict with Kenya’s agreements with other African Nations.
Big Picture: Kenya needs to tread carefully here, Trade deals are complex and are fraught with risks and challenges.
Egypt and Ethiopia’s feud over water
Source: USGS (Unsplash)
Ethiopia is constructing the largest Dam in Africa by the river Nile but it represents a grave concern for Egypt and Sudan as they fear their access to water will be cut short.
The river Nile is the only major river that runs south to north covering 11 countries, including Sudan, Egypt and Ethiopia. The Grand Ethiopian Renaissance Dam (GERD) is a few steps away from completion if only Ethiopia would be given a go-ahead to fill a massive reservoir behind the Nile. With 6450MW Capacity, GERD will be the largest hydroelectric plant in Africa when it is completed but there are still pertinent intermediate bargainings to be done by major players, Egypt and Ethiopia.
Just as it is named “renaissance”, the dam is expected to boost the economy of Ethiopia, give constant electricity by generating over 6,000mw power capacity and might be able to export electricity but for Egypt, it is not such good news.
What is the feud here?
Egypt relies on the river Nile for almost all its water supplies and a major aid to their agricultural sector. However, the dam with its capacity of 74 billion cubic meters as well as filling of the reservoir poses a potential disruption in the flow of the river and Egypt will do anything to avoid that.
Other players: With the fear of losing about 22 per cent of their water supply and having thousands of acres of lands rendered useless, Egypt has tried to get international communities on their side. The United States and United Nations have been mediating the situation calling for a fair agreement but there is not major ground reached yet.
So what now?: Ethiopia is proceeding to fill the reservoir this July whether or not they reach an agreement with Egypt.
Consequences: The need for military intervention by parties may arise and might even escalate, resulting in a bigger feud.
VC Funding in Africa
For an entrepreneur or founder, bringing a new product to the market can be challenging especially when it comes to generating funds. Because of this, Venture Capitalists (VCs) have become prominent over the past two decades for helping new businesses and startups get the capital they need to start running. In Africa, MPesa has been the closest thing to a genuine mass-market product because VCs have focused on the more glossy European and American markets.
Venture Capital (VC) describes financing that investors provide to start-up and early-stage companies.
Thought you’d never ask :) There’s a few, really - Currency risks, a lack of established operational and management structures within many startup businesses, a preference amongst African businesses for borrowing rather than giving up significant equity stakes, lack of foreign policy investment clarity and political and macroeconomic instabilities.
A new dawn
Data from AVCA show that VC funding is starting to catch up on the African continent - A mammoth 613 deals totalling $3.9 billion have been made by VCs between 2014 and 2019.
A favourable economic outlook, the magnitude of the market and growing middle class have been the reason for these deals.
African countries such as Tunisia and Senegal have passed Startup Acts to create opportunities for innovation because of its importance in economic development, job creation and poverty reduction.
Sectors and Region
Fintech has been popular amongst VCs (39.7% of total funds), while other sectors such as Utilities, Logistics and Transportation, E-Commerce, Healthcare, and Agribusiness have also seen tremendous growth. South Africa, Kenya and Nigeria have attracted most of the investments.
Innovating during a Pandemic
While the outlook on the economic repercussions of the pandemic has mostly been negative, it is worth noting that truly innovative companies have arisen over the years in the era of a crisis. Uber, Spotify and Airbnb were born in the middle of the Great Recession.
It's no different in Africa too. Kenyan telco, Safaricom, was founded in 1993, in the middle of a historic economic crisis triggered by drastic government revenue shortfall and rising inflation, it went on to birth MPesa in 2007, the continent’s most used mobile money service. Andela and Flutterwave were also founded in the years surrounding Nigeria’s 2015 recession.
The pandemic has revealed infrastructural deficiencies in key sectors, from transportation and commerce to healthcare and education which gives ample opportunity for the passionate entrepreneur to thrive.
Worth reading 📚
“The only thing worse than being blind is having sight and no vision.”
– Helen Keller
Thank you for reading this week’s edition