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tralac’s Daily News Selection

tralac’s Daily News Selection
Photo credit: Kenyan Daily Post

11 Sep 2019

African Leapfrog Index: Getting Lions to Leapfrog

With financial support from the Mastercard Impact Fund, the African Leapfrog Index – which was launched during the World Economic Forum on Africa – uses Egypt, Ethiopia, Kenya, Nigeria, Rwanda, and South Africa as examples to provide insights on key drivers that could accelerate digital inclusion across the continent. The six countries were examined against three primary variables for harnessing digital technologies to facilitate development and inclusive growth. These variables are “Ease of Creating Digital Jobs,” “Resilience of Governance and Infrastructure” and “Foundational Digital Potential.” Extract from the executive summary:

The regional leaders represent different areas of strength and opportunities to grow. To get to the benchmark and develop a more balanced, well-rounded leapfrog profile, Kenya’s priority would be to improve its Ease of Creating Digital Jobs – i.e., nurturing jobs in the digital economy, such as online freelance, ridesharing, and in e-commerce – while South Africa’s priority needs to be to improve on Foundational Digital Potential – i.e., expanding the integration and use of digital technologies across society. While Kenya has the seen the greatest amount of digital change over the past decade of all African countries studied and has over 80% Internet penetration, it can, for example, improve its education and skill-building capacity to enhance its ability to grow higher-skilled digital services jobs. South Africa, on the other hand, can improve its payments capabilities; it made 65% of payments in cash, as compared to 40% in Rwanda – and this is despite the fact that Rwanda has only 30% of its population on the Internet compared to South Africa’s 54%. South Africa’s strength in creating high skilled digital jobs – through a balanced repertoire of strengths in available human capital, market sophistication and facilitating institutions – is impressive when compared to similar baskets of developing world nations from ASEAN and Latin America; it is competitive in a global marketplace for such high-skilled jobs, such as digital freelancing.

Rwanda has several core strengths in Governance (providing digital government services), Digital Evolution (its overall state of digital development) and Mobile Money (use of mobile money accounts, and other forms of digital money). These are solid foundations to build upon to facilitate digital leapfrogging. It needs to invest in the other capabilities – such as infrastructure, Internet penetration and online freedoms to fully leverage its core strengths. Nigeria’s route to capturing more digital opportunities runs through improving the reliability of basic infrastructure. While Nigeria is strong in internet affordability, investments in reducing power outages and other unintentional disruptions to the internet will be key to enhancing its digital potential. Of the six countries studied, Nigeria has the biggest gap to close in this area.

When compared with the six other African countries, Egypt’s primary strengths are in the potential ease of creating medium and high skilled digital jobs, due in part to its high number of skilled graduates. Egypt’s tertiary unemployment rate is high: ILO estimates from 2014 place it at 34 percent.17 Tapping into its digital potential and continuing to drive efforts to digitize payments will enable the country to more fully capitalize on these strengths. Ethiopia, with its high rate of GDP growth, has the most to gain from creating strong digital foundations and basic infrastructure, improving on its low momentum, and moving away from its near total reliance on cash payments towards digital payment rails.

5th Investing in Africa Forum: updates

  1. Africa’s development dependent on citizens’ input – Kagame. Among the areas that hold game-changing potential for the continent is the AfCFTA, which he said holds a win-win scenario for all countries. “While the more industrialised countries are better placed to take advantage of the opportunities for manufactured goods, the less industrialised can benefit from linking into regional value chains. For example, countries that are mainly agricultural can gain from meeting Africa’s growing food security needs,” he said. President Kgame said that by embracing e-commerce to trade with the rest of the world, Rwandan producers and service providers are starting to sell directly to more customers through the Alibaba Electronic World Trade Platform. He called for more collaboration in using technology and overcoming digital barriers through initiatives such as Smart Africa Alliance. President Kagame also made a case for free movement of people across the continent, saying that citizens cannot trade or invest if they cannot move.

  2. Angola reassures private investors. The President of the Republic, João Lourenço, announced on Tuesday, in Brazzaville, that Angola has created the necessary conditions for foreign investors to do their business in the country, transparently and safely., According to the Angolan Head of State, who was speaking at the 5th “Investing in Africa” Forum (FIA5), the new scenario is the result of reforms undertaken by the Government in all sectors of the national economy and at all levels. He explained that his government has decided to “take practical and coherent action” to adopt measures aimed at creating conditions of macroeconomic stability that are essential for improving the business environment. To this end, he said, Angola is implementing an economic stabilization program “with very encouraging results” in fiscal consolidation, the reduction of the inflation rate and the gradual normalization of the foreign exchange market, among other indicators, which contribute to improving the performance of the national economy.

  3. World Bank urges African countries to make bold decisions for digital transformation. As Africa sits on the precipice of digital transformation, governments will need to make some bold choices, said a World Bank policy brief, which was revealed during the ongoing Fifth Investing in Africa Forum in Brazzaville. “In Africa, faster Internet helps create jobs across education levels. Urgent investment in digital infrastructure is necessary to reach the African Union’s goal of universal and affordable internet for all,” the document, based on the report The Future of Work in Africa: Harnessing the potential of digital Digital Technologies for All, said.

  4. The fifth IAF will examine how best to support economic diversification and jobs creation in African countries, take stock of progress and achievements, and chart a path forward. The IAF was established in 2015 as a global platform to promote multilateral cooperation and investment opportunities in Africa.

Africa – EU relations and the von der Leyen Commission:

  1. Phil Hogan: Commissioner-designate for Trade (pdf). Over the next five years, I (Ursula von der Leyen, President-elect of the European Commission) want you to lead the work to strengthen Europe’s global leadership in trade: You will work towards a positive, balanced and mutually beneficial trading partnership with the United States; You will step up negotiations with China on a Comprehensive Agreement on Investment, with the aim of reaching an agreement by the end of 2020; I want you to prioritise our trade and investment partnership with Africa. The implementation of the AfCFTA should be seen as a step towards our long-term objective of a continent-to-continent free trade area between Africa and the EU; You will take forward the finalisation of trade agreements already negotiated. You will lead the work on concluding ongoing negotiations, notably with Australia and New Zealand. Where conditions are met you will propose to open negotiations on new bilateral or multilateral agreements. Where relevant, you will work closely with the Commissioner for Agriculture. [Phil Hogan’s official biography; BloombergQuint: Meet the Irishman the EU just picked to battle Trump; Phil Hogan on twitter: @PhilHoganEU]

  2. Jutta Urpilainen, Commissioner-designate for International Partnerships (pdf). Over the next five years, your main objective will be to ensure the European model of development evolves in line with new global realities. It should be strategic and effective, should create value for money and should contribute to our wider political priorities. We must make the most of the political, economic and investment opportunities that Africa, with its growing economies, populations and digital innovations, presents. Building on the current EU–Africa Sustainable Alliance, I want you to work with the High Representative/Vice-President on a new comprehensive strategy for Africa. This should create a partnership of equals and mutual interest. I want you to focus on concluding the negotiations for an ambitious post-Cotonou agreement with the countries from the African, Caribbean and Pacific Group of States. [“An Africa-specific portfolio was discussed, but it was considered discriminatory. In that case, we would’ve had to have separate commissioners also for Latin America, Asia and the Middle East.”; Jutta Urpilainen’s official biography, Twitter account: @JuttaUrpilainen]

Ethiopia unveils ‘blueprint’ to drive economic growth (UNECA)

The government of Ethiopia has unveiled what it describes as a “Homegrown Economic Reform” agenda aimed at unlocking the country’s development potential. “Several months in the making and spearheaded by some of Ethiopia’s finest minds, our initiative aims to propel Ethiopia into becoming the African icon of prosperity by 2030,” said Prime Minister Abiy Ahmed. He made the remarks on 9 September during an event to unveil the Reform Agenda at the UN Conference Centre in Addis Ababa. The PM said “in just over one year,” his government has taken a series of measures to shift the economic landscape of Ethiopia, such as reforms in investment laws and business climate, which have helped remove regulatory obstacles that hamper investment. Mr Ahmed stated that the private sector was crucial for the next chapter of Ethiopia’s growth and development. Consequently, he said, we have “opened up key economic activities to private investments,” adding that these measures will “surely be reflected in Ethiopia’s ease of doing business ranking.” The PM pointed out that to ensure the success of the Agenda, “we are tightening our fiscal belts, strengthening our public sector finances, shedding our debts, and increasing domestic resource mobilization.”

Plug $10bn hole and prosper, UN economists tell Ethiopia (Bloomberg)

Ethiopia must attract new investment and reduce its debt if it’s to achieve the government’s economic growth and job creation targets, according to the UNECA. The Horn of Africa nation has a $10bn gap -- $6bn in new investment and $4bn of debt reduction per year -- that must be bridged to achieve its reform aspirations, UNECA Executive Secretary Vera Songwe said in an emailed statement. “If you continue to accumulate debt the way you’re doing now, you will likely fall into debt distress in the next two years,” Songwe said about Ethiopia. “A lot of the structural reforms you’ve put in place will not bring in the private sector because you will not be a creditworthy country.” [More funds needed to counter ‘persistent and multi-faceted humanitarian problems’ in Ethiopia]

Madagascar Economic Update (World Bank)

Favorable weather conditions in 2018 paved the way for a productive rice harvesting season, with domestic production rising from 3.1 million tons in 2017 to about 4 million tons in 2018. This excellent performance gave a boost to the agricultural sector and significantly helped slow down inflation in 2018, from an average rate of 8.3% to 7.3% in the same period. The current account recorded a surplus equivalent to 0.8% of GDP, owing largely to the good performance of exports. Export earnings and higher external financing helped maintain official foreign exchange reserves at a level equivalent to four months of imports. In addition to a collection rate that met 97% of the annual target, tax revenues also rose in 2018, aided by the revision of the tax on petroleum products. Nonetheless, this performance is still weaker than that of the other sub-Saharan African countries, although the ratio of tax revenue to GDP has increased in the past five years.

Somalia Economic Update (World Bank)

The Somali economy is highly dollarized, including the mobile money services that are used by about 73%. The CBS has not issued any official Somali shilling banknotes since 1991. Much of the remaining stock, which is used primarily by the poor, is counterfeit or of very poor quality. This undermines the financial access of the substantial proportion of the Somali population who are mainly poor and nomadic and have no access to US dollars or other foreign currencies. It also inhibits any form of monetary policy since the CBS has no control of the money supply. Cash-based humanitarian interventions are also dollarized. These cash and mobile money transfers operate in an environment where regulation is minimal.

Somalia typically runs large trade deficits, which are financed by remittance and grant inflows (Table 1.1, pdf). In 2018, exports of goods and services accounted for just 26 percent of GDP, with goods exports consisting mostly of livestock exports to Gulf Cooperation Council countries. Imports of goods and services, on the other hand, remained high, accounting for about 100% of GDP, and consisting mostly of food and industrial goods. While exports are estimated to have modestly rebounded from the effects of the 2016/17 drought, they remain small and narrow-based. Somalia’s exports have been severely afflicted by conflict and climatic shocks and by subsequent GCC livestock import bans imposed to contain trans-boundary livestock diseases. The high imports have been covered by remittances, estimated at about 29% of GDP, and official grants, estimated at about 37%.

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