Nigeria – Borrowing Limit

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Diversification efforts fail to bear fruit as the country can no longer afford to keep borrowing.

According to Finance Minister Kemi Adeosun, who was speaking during a quarterly business forum in Abuja on July 11th, the country can no longer afford to keep borrowing and must find alternative fundraising mechanisms.

Adeosun said that the country should seek to continue to diversify its economy to generate more revenue.

“We have got to get our budget bigger and to do that we cannot borrow anymore. We simply have to generate more revenue, we have to plug the leakages, we have to improve tax collection so that we can manage our borrowing,” she said.

“The problem is that we have been relying on oil and oil gave us a big budget size,” the minister added.

Nigeria has been in talks with the World Bank and the African Development Bank (AfDB) for at least US$2bn in loans, with another $1.5bn proposed from international sources. President Muhammadu Buhari has also proposed borrowing of up to $30bn to finance major infrastructure projects across the country, although this continues to remain stalled.

The Naira (N) 7.44trn (about $24.39bn) 2017 budget has a deficit of N2.2trn, according to the Premium Times. Meanwhile, Nigeria’s external debt increased to $13.8bn in the first quarter of 2017 from $11.4bn in the fourth quarter of 2016, reported Vanguard.

The government had planned to borrow extensively from overseas to fund this record budget, aimed at enabling the country spend its way out of its first economic recession in around 25 years.

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Finance Minister Kemi Adeosun – Premium Times

However, some lawmakers, sceptical about the proposal, expressed fears that it might not be favourable in the long run, especially as the government presented no clear plans of how it will utilise the proposed loans.

When Buhari was elected in 2014 he was hailed as the saviour, a transformer of the economy, and the man to lead the country away from fossil fuel reliance and susceptibility to oil price volatility.

Since then little has changed and he has spent much of the past year being treated for a unspecified illness. According some commentators and analysts his financial and economic policies have been largely incoherent.

The push for economic diversification and boosts for manufacturing have not materialised. Many manufacturers were banned from receiving important foreign exchange and in 2016 the manufacturing sector shrank, reported the Financial Times.

However according to reports from BBC News, Buhari is now “recuperating fast” and will soon return to Nigeria from London, where he has been receiving treatment since May. His absence has led to speculation about whether he will be able to resume his position. In his place Buhari has given Vice-President Yemi Osinbajo full powers to act.

Find out more in the Africa Research Bulletin:

NIGERIA: Emergency Aid Shortfall
Economic, Financial & Technical Series
Vol. 54, Issue. 5, Pp. 21707C–21709A

NIGERIA: Dim Light at End of Tunnel
Economic, Financial & Technical Series
Vol. 54, Issue. 4, Pp. 21675A–21676A

NIGERIA: Forex Boost
Economic, Financial & Technical Series
Vol. 54, Issue. 3, Pp. 21649A–21651C

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Equatorial Guinea – Persistent Poverty

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Despite high per captia income and oil wealth the country is performing poorly in wider social development.

Comparatively, across the African continent, Equatorial Guinea boasts some of the highest levels of per capita income, and with a largely oil dependent economy, it has often escaped mention in discussions of poverty. However, Foreign Minister Agapito Mba Mokuy said despite wealth the country was performing poorly at social development.

According to reports from 2015 still around half of the country’s population lacks access to clean water, and life expectancy and infant mortality are below the average for sub-Saharan Africa. Similarly, half of the children who start primary school never end up finishing.

The problems in part stem from the fact that much of the wealth has been accumulated by senior government officials and a lack of investment in the country, as many officials have turned to overseas investments, drawing allegations of money laundering.

There seems to be, following investigations, systemic corruption at the highest levels of government. Through infrastructure projects the government pours huge amounts of oil money into construction projects, with contracts awarded to companies often owned or closely associated with high-level government officials.

International Monetary Fund (IMF) reports and high-level interviews show that the conflicts of interest allegedly lead to inflated contract prices and dubious investments in “white elephant” projects. The government does not make public its budgets, or track health and education spending, so the only data available is that collected by the IMF and World Bank.

Between 2009 and 2013, Equatorial Guinea took in an average of US$4 billion annually in oil revenue, and spent $4.2bn on infrastructure such as roads, buildings, and airports. However in 2011 the country only spent $140m on education and $92m on health, while the only other year for which data is available, 2008, $60m was spent on education and $90m on health, reported All Africa.

In comparison Uganda and Tanzania spend around a third of their budgets on education each year, while Ghana spends around a quarter, according to the World Bank.

Despite efforts to eradicate poverty and promote inclusive growth, these principles of the African Union (AU) Agenda 2063, are fruitless without efforts to tackle corruption.

The oil reserves in Equatorial Guinea, which have supplied billions of dollars in revenue over the last three decades are expected to run out by 2035, which will only deepen the crisis in the country.

In a recent case the eldest son of President Teodoro Obiang Nguema is facing an ongoing trial after accusations of plundering money from government funds to buy a mansion in Paris, France, allegedly embezzling around Euro 100m, according to Deutschewelle.

Teodorin Obiang is also a vice-president of the small oil-rich state on the African west coast. However his trial was recently postponed giving Obiang an additional six month to prepare his defence. According to Transparency International, this was a delay tactic.

Human rights groups have long bemoaned Equatorial Guinea for its record on civil liberties, unlawful killings and torture, alongside allegations of bribery and corruption.

Find out more in the Africa Research Bulletin:

EQUATORIAL GUINEA – FRANCE: President’s Son on Trial
Economic, Financial & Technical Series
Vol. 53, Issue. 12, Pp. 21521C–21522B

EQUATORIAL GUINEA: Weak Performance
Economic, Financial & Technical Series
Vol. 52, Issue. 7, Pp. 20926A–20926C

EQUATORIAL GUINEA: Co-Investment Fund
Economic, Financial & Technical Series
Vol. 51, Issue. 1, Pp. 20278B–20278C

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Liberia – Solar Energy Agenda

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The government commits to new solar farms as uncertainties around oil prompts a re-examination of energy policy.

A Memorandum of Understanding (MoU) for the financing and cooperation in construction of a new 10 megawatt solar photovoltaic plant in the capital Monrovia, was signed by Gigawatt Global Cooperatief U.A.

The signing of the MoU took place during the meeting of the Permanent Mission of Liberia to the United Nations (UN) on September 23rd. Liberian Foreign Affairs Minister Marjon Kamara said that energy is one of the country’s top priorities.

Project Coordinator, Remy Reinstein indicated that besides the 10 megawatts (MW) to be built in Monrovia, an additional 30MW would be included in other parts of the country. According to reports the government will assist by securing the land for the new facility as part of the National Electrification Plan.

Gigawatt Global Cooperatief U.A. is a US, Dutch and Israeli renewable energy company, and delivered the first utility-scale solar plant in Rwanda, supplying 6% of the country’s electiricty needs.  The company has also recently signed a 135MW project in Nigeria, expected to be the largest solar plant in Africa, reported the Daily Observer

Around the world many campaigners and activists are urging a shift away from fossil fuels; in Liberia the main sources of electricity are private and the Liberia Electricity Corporation (LEC) rely on diesel fuel generators.

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However some have said that the global drop in oil prices means that a move towards renewables is less appealing for investors, although others stress the unpredictability of the oil market and climate change mean that oil-based sources of energy are unsustainable.

One Liberian environmentalist, Silas Siakor, said, “given the level of bad governance, given the level of the breakdown of the fabric of our Liberian society, if we decided to engage in the oil sector, the possibility of causing a lot of damages is way too high that it raises the question of the sensibleness to do that.”

The Liberian oil sector is currently reeling from the announcement that the National Oil Company of Liberia (NOCAL) was bankrupt, leading to international firms such as Chevron and Anadarko taking oil blocks off the coast.

There are also other obstacles to the high cost of solar technology; the World Food Program (WFP) said that 64% of Liberians live below the ‘poverty line’ and as many as 1.3m in extreme poverty; the technology itself both on an industrial and a household level is often expensive,  reported Front Page Africa.

However earlier this year the World Bank, approved a new financing agreement of US$27 million to increase access to affordable and reliable electricity and to foster the use of renewable energy sources in Liberia. The Liberia Renewable Energy Access Project (LIRENAP) seeks to establish a mini hydropower plant to benefit about 50,000 people, as well as small businesses, associations and public institutions in Lofa County.

Also, in August Liberia and Ghana agreed to cooperate in the power sector; the Ghanaian leader claimed that Liberia could benefit from Ghanaian technical expertise in expanding electricity supply throughout the country, reported Liberia News Agency.

Find out more in the Africa Research Bulletin:

Liberia – The Tide Turns Against The Biggest Slum
Economic, Financial & Technical Series
Vol. 53, Issue. 7, Pp.21346C.

POWER
Economic, Financial & Technical Series
Vol. 53, Issue. 6, Pp. 21334C–21336C.

OIL/GAS: Liberia
Economic, Financial & Technical Series
Vol. 53, Issue. 2, Pp.21188B–21190C.

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East Africa – Graft in Rail Investment

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Investigations into fraud and embezzlement are opened in one of Africa’s oldest railways.

An investigation, which has attracted the attention of the World Bank, suggests that Qalaa Holdings, which took over Rift Valley Railways (RVR) intending to revamp the rail link, has been involved in numerous questionable dealings. The World Bank has opened investigations into RVR, which manages the railway from Kampala to Mombasa in Kenya.

For many years one of the most importance rail routes in Africa has suffered neglect and underinvestment, until Qalaa Holdings, one of the biggest African private equity funds, sought to invest in the service.

An investigation by journalists from the UK, Belgium and Kenya under Finance Uncovered has obtained leaked documents and conducted interviews with rail staff. They noted that the company had created an offshore structure of shell companies to extract millions in advisory fees from RVR. The World Banks’ integrity unit has also opened investigations into fraud and embezzlement.

At the same time a parallel railway line, built by the Chinese, is set to open soon, which will be more efficient that the older line and is expected to absorb customers and profits, hampering more RVR’s already bad financial situation.

The British started the construction of the Kenya-Uganda railway in 1896, intended to secure Lake Victoria from German, Belgian and French colonial expansion. It later became known as the ‘Lunatic Express’ after many thousands died and millions were spent on its construction.

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Tororo, Uganda – CC 2010

In 2010 Qalaa Holdings, an Egypt based fund, took over through an offshore holding, Ambiance Ventures. In the subsequent year the company managed to secure US$287m in investments from a number of sources including the World Bank ($22m), the African Development Bank (AfDB) ($40m), and a number of others.

One central investment has been in new rolling stock, for which $63m was allocated for 20 “brand new” locomotives. However the journalists discovered that no new locomotives were purchased at all, instead they were purchased second-hand and refurbished from US-based National Railway Equipment Company (NREC). In total 20 locomotives were received for $20m rather than the stipulated $63m.

Regarding freight services, Chief Executive of the Kenya Ships Agents Association Juma Ali Tellah has said that many distributors have lost faith in the railways’ ability to transport containers; a blow as much of the railway’s income comes from freight.

“There are too many delays both in the port and during transportation…the skippers never know when their containers will reach destination. It’s not surprising that only a fraction of freight is transported by rail,” Tellah said.

Even though it currently has a monopoly, RVR has struggled to make profits under Qalaa’s management; in 2014 it reported losses of $1.5m. Despite not making a profit Qalaa has collected $4.7m of advisory fees from Africa Railways Limited, the investment vehicle of RVR registered in the British Virgin Islands. The firm has also paid very little corporation tax, and despite getting millions from state-backed development banks, many of its investments are managed through these offshore shell companies; while these corporate structures are not illegal, the investment will not fully benefit the home countries.

(The Observer, Kampala 22/6)

Find out more in the Africa Research Bulletin:

ROADS AND RAILWAYS: East Africa
Economic, Financial & Technical Series
Vol.53, Issue.5, Pp.21292B–21293C

ROADS AND RAILWAYS: Rwanda – Tanzania
Economic, Financial & Technical Series
Vol.53, Issue.4, Pp.21255A–21255C

ROADS AND RAILWAYS: Kenya
Economic, Financial & Technical Series
Vol.52, Issue.12, Pp.21112A–21112C

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Nigeria – Privatisation Concerns

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As the government pushes forward with wide-ranging privatisation measures, rights groups remain apprehensive. 

Wide ranging privatisation measures are taking place in Nigeria, particularly within the water and power sectors, in a bid to ease pressure on already scarce resources and funds. However, according to one commentator, from the Senior Staff Association of Electricity and Allied Companies (SSAEAC) , the privatisation of the power sector was leading to the casualisation of the workforce, job insecurity, unemployment, and an increased cost of living.

“To date, companies in the power sector have adopted all manners of anti-labour practices, including denial of salaries and sacking without fair hearing,” the source said, reported the Daily Trust.

Earlier, on March 22nd, the Daily Trust also reported that three years after the privatisation of the sector was begun, a number of conflicts over employee settlements have yet to be resolved. Meetings were held in 2013 between the government and the National Union of Electricity Employees (NUEE). While around 90% of workers stated they did received payments, many, including most from the Enugu Distribution Company, said they had yet to see anything.

In Lagos, rights groups, including Environmental Rights Action/Friends of the Earth Nigeria (ERA/FoEN), have expressed concerns over the drive towards public private partnerships (PPPs) for water concessions in the state. The group had launched a campaign in 2014, entitled ‘Our Water, Our Right‘.

“As we have said time and again, the failure of the Lagos State government to open up on the controversial water PPP gives room for us to suspect that something is in the offing and the people are deliberately being kept in the dark,” said Akinbode Oluwafemi, Deputy Director at ERA/FoEN.

“Worse is the fact that the Lagos State government is toying with a failed model of PPP that the World Bank private arm – International Finance Corporation (IFC)  advised it to embark upon even with documented failures in Manila and Nagpur, in the Philippines and India respectively,” said Oluwafemi cited by the Premium Times.

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Source – Nigeria Electricity

A United States (US) lawmaker, Gwen Moore – a representative for Wisconsin -, and also a member of the Monetary Policy and Trade Subcommittee, penned a letter to the World Bank President Jim Yong Kim, which stated that the Bank and its finance arm the IFC had inadequately considered the conflicts of interest it had created upon taking stakes in water corporations.

“I am increasingly uneasy with water resource privatisation in developing countries and do not believe that the current ring-fencing policies separating the investment and advising functions of the IFC are adequate‎.”

“I would respectfully urge the World Bank and IFC to cease promoting and funding privatisation of water resources, including so-called PPPs in the water sector, until there has been a robust outside evaluation of the IFC’s conflicts policy and practices”; Moore said that the trends of water privatisation indicated an “improper mingling” of the World Bank and IFC advisory and investment functions.

In March many women marched in Lagos against the proposed plans to privatise the Lagos public water works, reported the Premium Times.

In the airline sector, the former Federal Airports Authority of Nigeria (FAAN) Managing Director Richard Aisuebeogun has urged the federal government to privatise the 22 federal airports under the auspices of the agency. He claimed that privatisation would enhance income generation and boost efficiency.

Aisuebeogun explained that the airports should be encouraged to look to aeronautical revenues to make them “more business minded, rather just being operations…we need to encourage private investments to cone into the airports and develop it in terms of non-aeronautical activities, so that the unviable airports will become Strategic Business Units (SBUs).”

In recent years there has been great demand for the privatisation of air facilities, due to scarce resources and demand in other sectors, particularly education, health, road and rail infrastructure, reported This Day.

According to campaigns and advocacy group Global Justice Now, there are serious concerns not only with the increasing informalisation, casualisation and increasing precariousness of the workforce engendered under privatisation, but also the huge amounts of money that are being directed at the move, which some have said is doomed to failure. According to the report the United Kingdom (UK) has contributed £50m towards the privatisation of Nigeria’s energy sector.

Find out more in the Africa Research Bulletin

NIGERIA: Rising Hopes, Falling Revenues
Economic, Financial & Technical Series
Vol.52, Issue.4, Pp.20811A–20812B

POWER: General
Economic, Financial & Technical Series
Vol.52, Issue.2, Pp.20727A–20729C

Nigeria’s Forgotten Crisis
Economic, Financial & Technical Series
Vol.51, Issue.11, Pp.20634A–20634B

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Morocco – Solar Plant Launched

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One of the largest solar power plants in Africa is hoped to boost energy self-sufficiency.

Moroccan King Mohammed VI inaugurated the country’s first solar power plant, Noor 1 on February 4th, as part of the government’s push to boost its clean energy output. The ceremony, in Ouarzazate, was attended by Prime Minister Abdelilah Benkirane and French Environment Minister Segolene Royal.

“The solar plant underlines the country’s determination to reduce dependence on fossil fuels, use more renewable energy, and move towards low carbon development,” its developers said in a statement.

Once all phases are complete, it will be “the largest concentrated solar power plant in the world,” producing 500 megawatts of electricity and providing power to more than 1 million people by 2018, its developers said. A total of $3.9bn has been invested in the project.

The plant has around half a million metal mirrors, which store thermal energy from the sun, which in turn power steam turbines that produce the electricity. The next phases of the project are Noor 2 and Noor 3 which will commence construction in 2016 and 2017; the call for tenders for Noor 4 is also now open.

Estimates suggest that the plant will reduce Morocco’s carbon emissions by 760,000 tonnes per year, equivalent to around 1% of the country’s CO2 emissions, which stood at around 56.5m tonnes in 2011, according to the World Bank.

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The construction of Noor 1 was launched in 2013, to a cost of US$660m, involving a workforce of around 1000 people; the construction contract was awarded to Saudi Arabian company ACWA Power. The project is being funded the by African Development Bank (AfDB), the European Investment Bank (EIB) and the World Bank.

According to Mafalda Duarte, Manager of Climate Investment Funds (CIF), which provided around $435m to the project, “It is a very, very significant project in Africa…Morocco is showing real leadership and bringing the cost of the technology down in the process,” cited UK-based the Guardian.

Morocco plans to use the next United Nations (UN) climate change conference, scheduled for November in Marrakesh, to launch more ambitious future plans to source 52% of its energy from renewable sources by 2030.

Duarte added, “Morocco knew their demand for electricity was growing at 7% a year and that they  were dependent on imports for 97% of that energy…they had a vision to promote renewables at a time when oil prices were high and they undertook regulatory reforms, put institutions in place, and they have done a great job.”

(© AFP 4/2 2016)

Find out more in the Africa Research Bulletin:

POWER: Ethiopia
Economic, Financial & Technical Series
Vol.52, Issue.6, Pp.20901C–20903C

POWER: General
Economic, Financial & Technical Series
Vol.52, Issue.2, Pp. 20758A–20761A

POWER: Egypt
Economic, Financial & Technical Series
Vol.51, Issue.11, Pp.20651A–20652A

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Africa – UN Economic Development Report

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Report highlights the potential for the service sector to catalyse growth but the Greek crisis harks back to African IMF-imposed structural reforms and the continents’ continued indebtedness. 

The United Nations (UN) Conference on Trade and Development (UNCTAD) report, ‘The Economic Development in Africa Report 2015: Unlocking the Potential of Africa´s Services Trade for Growth and Development’ (available here), launched on July 8th,  provides extensive analysis of different policy issues facing Africa’s service sector and recommendations to enhance regional integration and inclusive development on the continent.

Starting with the basis that the services sector is a “critical source of income and employment…and the most dominant sector” in 30 out of 53 African countries, contributing almost half of the country’s economic output and around a third of formal employment between 2009-2012.  The reports, however, also comments that such “dynamism…has failed to translate into structural transformation” necessary for developmental needs and is delivered at a high cost.

The report claims that the services sector has the “potential to become a significant driver of sustained economic growth and structural transformation” but that this would require policies to build bridges between the “services sector and other sectors of the economy, especially manufacturing”.

The report highlights some examples where African economies are tapping into opportunities in the services sector; examples of “emerging regional services” are financial and banking services industries in Mauritius and Nigeria, the commercial and cargo air transport industries in Ethiopia and South Africa, educational services industries in Uganda and Ghana, telecommunications services in Egypt and port service industries in Djibouti and Kenya.

However opportunities aside, many African countries are feeling serious economic and social strain; the Ebola-affected countries of West Africa, tourism-reliant countries such as Egypt and Tunisia suffering from recent terrorist attacks and mineral heavy economies affected by global price drops, alongside the many regional conflicts that are hampering economic and social development.

In Ghana, the Premium Times on July 3rd reported that sources were suggesting that public debt in the country could reach 70% of GDP by the end of this year, with the Ghana Cedi loosing 99% of its value against the US dollar and increasingly high inflation. Ghana has borrowed from the International Monetary Fund (IMF) 26 times since 1966, leading to the imposition of more and more conditions for the repayment of loans. The article concludes that the IMF and World Bank with extensive privatisation, foreign direct investments (FDI) and deregulations, have led to debt traps that have further encumbered and disregarded the poorest. Recently on July 7th, Ghana gave signs that it may  consider renegotiating its bailout terms with the IMF, viewed by some economists as unrealistic.

A recent commentary by Radio France Internationale draws parallels between the recent Greek economic crisis in Europe and similar actions by the IMF during the 1980-1990s in Africa. Greece, defaulting on its 1.5bn loan repayment, has felt the imposition of strict capital controls and the country is heading towards an exit from the Eurozone.

François Ndengwe from the African Advisory Board explained that “what is happening to Greece, happened to Africa for over three decades”. Dr Samuel Nyambi, Executive director of CAPDEV, a development company commented that “for myself and many other Africans, we feel a lot of sympathy with the Greeks and the reforms they’re having to swallow, because we went through the same thing with the IMF’s structural adjustment programs.”

During the 1980s-90s the IMF and the World Bank imposed a stringent set of structural reforms to repay debts owed; these reforms have been critiqued by many economists as seriously hindering economic and social development on the continent. According to GlobalInsolvency, reforms centred on the repayment of loans led to lay-offs, privatisation, salary cuts and reduced spending, that made the pursuit of long-term development agendas impossible, resulting in further indebtedness and increased poverty in almost every African country where the IMF structural reforms were implemented.

Find out more in the Africa Research Bulletin

Africa-IMF: Mission Visits and New Funding
Economic, Financial & Technical Series
Vol.52, Issue.5, Pp.20852B-20855A

Africa: Competitiveness Report
Economic, Financial & Technical Series
Vol.52, Issue.5, Pp.20841A-20842B

Africa -IMF/World Bank: Growth Remains Solid, but Slows
Economic, Financial & Technical Series
Vol.52, Issue.4, Pp.20815C-20818A

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