Nigeria needs to compile a solid economic recovery plan with the right foreign-exchange policies to convince the World Bank to approve a $1.5 billion loan to support the West African nation’s budget.
The government has to assure the lender’s shareholders it is doing all it can to prop up Africa’s largest economy amid the devastation brought by the coronavirus pandemic, according to the World Bank country director in Nigeria, Shubham Chaudhuri. The nation had expected the loan to be released earlier this year to help cover a widening budget shortfall.
“The way that our board and our shareholders approach this kind of budget support is to say: ‘Has the country that’s requesting the support done all it can to help itself?” Chaudhuri said in a webinar when asked about the loan.
“There needs to be a little bit more”. The pushback comes after Nigerian Finance Minister Zainab Ahmed told Bloomberg TV on Nov. 27 that the loan was in the final stages of approval as the government had fulfilled the bank’s conditions.
The country is asking for financial help to overcome a crisis that could sink an extra 7 million people into poverty. Solid exchange-rate management and macroeconomic policies are key for the World Bank to assist the continent’s top oil producer, Chaudhuri said.
Two separate loans worth another $1.5billion earmarked for Nigerian states was recently considered and approved by the lender’s board. President Muhammadu Buhari’s administration has been forced to devalue the naira three times this year as authorities struggle to curb the demand for dollars.
Still, the naira remains too expensive and a dollar shortage is starting to hurt local businesses, economists say.
The merger of different exchange rates and allowing the naira to float more freely would speed up the recovery of an economy that slumped into a recession in the third quarter and bolster investor confidence, according to the World Bank.
Nigeria revamps regulation in Fintech
On November 13, Nigerian President Muhammadu Buhari ratified the Banks and Other Financial Institutions Act 2020. This law is an update to Nigeria’s banking legislation which was last revised in 1991.
The main objectives of the new Banks and Other Financial Institutions Act are to enhance the resilience of the Nigerian financial system, improve loan recovery and reduce the high incidence of non-performing loans by using a credit tribunal. Having a more resilient financial system is only going to be positive for Nigeria, as it will create a more stable environment for business loans, and it will aid the economic recovery post-COVID-19.
East Africa moving towards regional digital tax harmonization
The 48th East African Revenue Authorities’ Commissioners’ general meeting took place on November 11, with representatives from Tanzania, Burundi, Rwanda, Kenya, Uganda, South Sudan and Zanzibar revenue boards and authorities. Representatives from the East African Community (EAC) secretariat and the African Tax Administration Forum (ATAF) were also present.
During the meeting, it was agreed by the EAC that a joint digital tax strategy would be developed, and the integration of domestic tax systems would be accelerated. The aim is to enhance revenue collection, compliance and identification of potential revenue, as well as improve support to taxpayers.
The forthcoming digital tax strategy will be designed by member states’ tax commissioners and directors of domestic ICT authorities, who intend to work closely with and leverage the expertise of the ATAF. Some EAC states have implemented the digital tax regimes, while some are still in the process of implementation.
However, there are still concerns regarding transparency, public engagement and business consultations ahead of the new regulations and the implementation.
East Africa’s FDI doubles in size
Foreign direct investment into the East African region doubled in size in 2019 compared to 2018. Inflows surged to $11.5bn in 2019 from $5.7bn in 2018. This was courtesy the significant boost in Chinese investment ($7bn) within the manufacturing, construction and services sectors in several East African countries including Kenya and Uganda (some of the largest economies in Africa).
China was the largest investor in 2019, accounting for 59.7% of the total FDI inflows into the region. Kenya targeted sizable investment towards ICT and Health care while Uganda channelled efforts to its extractives sector and infrastructural projects. The increase in FDIs created an additional 121,207 new jobs from 89,877 in 2018.
However, with the lingering problems of weak institutions and tax regimes in the region, the impact of the increased FDI inflows has not been significant. Legislators within the region need to harmonize policy and regulatory measures to harness this investment flow and boost both country and regional development.
Kenya debt crisis looms large
A crippling public debt crisis continues to fuel debate in Kenya, with the combination of erratic external borrowing and economic pressures coming from the COVID-19 pandemic means that debt will likely pass the KES 9 trillion ($9bn) ceiling by the 2022/23 fiscal year.
Commercial loans, which make up a significant portion of Kenya’s external debt, have been paused and the government has turned to the IMF to negotiate a short-term lending facility to ease increasing budget deficits. Outside of costly loans, poor tax collection levels that have only gotten worse during the pandemic means that Kenya will have to result to borrowing more, this will worsen their debt crisis.
In order to weather the pandemic, Kenya plans to join the G20’s Debt Service Suspension Initiative and defer about $690 million in debt payments after it initially declined to do so.
Kenya signs post-Brexit trade pact with the U.K. to avoid disruption
Kenya Trade Secretary Betty Maina has announced the ratification of a post-Brexit trade deal with the UK, its biggest European trade partner. Kenya, the biggest economy in the East African Community, broke ranks with other members informing the bilateral deal be-cause it is seen as a developing economy and is not eligible for the preferential access granted to least-developed countries, Maina said in a statement on Thursday.
The Trade Pact means that Kenyan exports such as tea, flowers, fruit and vegetables will continue to have a duty- and quota-free access after the U.K. leaves the European Union. The U.K. accounted for almost one-third, or 40 billion shillings ($359 million), of Kenya’s 133 billion shillings worth of exports to the EU last year, according to data from the trade department.
Kenya, the world’s biggest producer of black tea, exported $150 million worth of tea leaves to the U.K. in 2019, while shipments of flowers amounted to $105 million, Maina said.
It imported 35 billion shillings of goods from the U.K. or about 15% of total purchases from the EU. Such items included machinery, autos, pharmaceuticals, and electrical and electronic equipment. The U.K.-Kenya Trade Pact comes into effect on January 2021 and will be reviewed every five years.
DRC declares end to Ebola epidemic
The Democratic Republic of Congo (DRC) Ministry of Health has officially declared an end to the Ebola outbreak in the North-Western Equateur province; the outbreak began in June 2020 and resulted in 130 cases and 55 deaths. The response, which received significant help from the WHO, could result in the DRC being better equipped in their fight against COVID.
Like the potential COVID-19 vaccines, the Ebola vaccine must be stored at very cold temperatures. Despite this, Ebola responders were able to vaccinate over 40,000 people, travelling across challenging terrains to remote regions of the country. Through the Ebola response, the government has also been able to improve it’s testing and tracing capacity.
New Covid-19 variant, second wave & restrictions in South Africa
The new strain of Covid-19 has been detected in South Africa and is driving the current resurgence in cases. Due to this, Germany and Switzerland have banned flights from South Africa.
This came after the President of South Africa, Cyril Ramaphosa, announced new lock-down measures at both the national and district levels. The country recorded 10,000 daily new cases on December 16. Total cases are now over 890,000 while fatalities are about 24,000.
According to the president, the spike in infections could be due to social gatherings and parties as social distancing measures are not strictly observed in these events. The four provinces leading the second wave of cases are the Western Cape, Eastern Cape, KZN and Gauteng.
The restrictions im-posed affect parks, beaches and alcohol sales. Alcohol will be sold only between 10 am and 6 pm from Monday to Thursday. The health minister urged South Africans to adhere strictly to covid-19 measures and stay protected at all times.
South Africa’s financial system could be hit by severe instability
The South African Reserve Bank (SARB) has warned that unless the government succeeds in fiscal consolidation, the country could face severe financial instability. It was revealed in October that South Africa’s public debt is expected to be 82% of GDP in the current fiscal year and will reach 95% in 2026.
In SARB’s Financial Stability Review, published on November 24, it stated that the decline in public finances will have a negative impact on the creditworthiness of South Africa’s financial institutions. It also stated that any government intervention to resolve an insolvency crisis would only create more financial strain. Any successful and effective fiscal consolidation will be contingent on the health of the broader financial sector.
The rising costs of borrowing also make private investment less attractive to potential investors. On a positive note, South Africa’s banks are still highly capitalized, with banks having entered the pandemic with sufficient capital and capital buffers.
South Africa’s Q3’20 GDP recovery must still survive the second wave
South Africa has recorded an impressive economic bounce-back in Q3 2020 (July-September) following four consecutive periods of contraction. South Africa in Q3 recorded an annual growth of 66.1%, mainly because of the easing of lockdown restrictions that stimulated economic activity.
Substantial growth in the manufacturing (210.2%), mining and quarrying (288.3%), trade catering and accommodation (137%), transport, storage and communication (79.3%) drove the sizeable economic growth rate.
While these growth rates are commendable, South Africa’s economy was always expected to re-bound following the reduction in Covid-19 restrictions. The true test of the economy will come during the second wave, where restrictions are likely to be put back in place.
Ethiopia pushes telecoms privatization despite security worries
Despite the pressures of an ongoing conflict with Tigray and the economic slowdown brought by the Covid-19 pandemic, Ethiopia has decided to go ahead with multi-billion dollar privatization of its telecoms sector.
The minister in charge of the privatization called it “a once-in-a-century reform” in a country that has, until this year, had almost two decades of nearly double-digit growth, and was home to the biggest telecoms industry monopoly in the world. Bankers and other people interested in the telecoms industry have said that government restrictions will limit the value of the sale.
The Ethiopian government is offering a 40% equity stake in Ethio Telecom, the existing monopoly, which has 44mn subscribers, as well as the spectrum for two new telecoms licenses. The privatization is expected to be completed by April.
However, people privy to the details of the privatization says that the potential attractiveness of the deal has been reduced by two important factors. Firstly, mobile financial services, which are common in Africa and are often among the most profitable part of an operator’s business, have been restricted to only existing providers, acting as a barrier of entry to new entrants.
Secondly, companies would have to lease towers from Ethio Telecom, the state provider, and would not be able to invite third parties to build new infrastructure, which happens often on the continent, although they would be allowed to build it themselves.
Telecoms operators such as Etisalat, Axian, MTN, Orange, Saudi Telecom Company, Telkom South Africa, Liquid Telecom, Snail Mobile, Vodacom and Safaricom, have all expressed an interest in buying the stake.