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Ethiopian Airlines Is Bringing Africa Together and to the World

Posted in Corporate and Investment

The ongoing expansion activities of Ethiopian Airlines has the potential to make a significant impact on intra-African trade and in deepening the region’s integration into the global economy.

At between 10% and 12%, intra-African trade lags far behind that of other regions.  A key reason for this trade deficit is the dearth of transportation options within the continent.  Africa’s airline carriers are working steadily to remove this roadblock.  Ethiopian Airlines is in discussions to assist in setting up national airlines in Nigeria, Uganda, South Sudan, the Democratic Republic of Congo and Rwanda.  Establishing a flag-carrier for Nigeria is particularly critical in light of the country’s status as the largest economy and population on the continent.  As a stakeholder in Malawian Airlines and ASKY Airlines of Togo, Ethiopian Airlines already has experience in providing technical assistance to, and investing in, other airlines.  In fact, last year even one of Ethiopian Airlines’ biggest competitors, South African Airways, was considering reaching out to the airline for assistance on establishing a hub in Ghana.

The airline also is making considerable strides forward in increasing air connectivity between Africa and the rest of the world, particularly the continent’s most strategic trading partners.  Earlier this month, Ethiopian Airlines announced that it would be doubling daily operations from Mumbai, adding a second flight from New Delhi, and increasing its code-share agreement with Air India from five to seven countries in Africa.  By expanding its route offerings between India and Africa, Ethiopian Airlines will be well-positioned to benefit considerably should India realize its  potential to quadruple its Africa-based revenue to $160 billion in the next decade.  In addition, Ethiopian Airlines plans to begin flights to Los Angeles and Tokyo in the next few months.  With Japan continuing to deepen its engagement on the continent, introducing flights to Japan is another example of strategic positioning by Ethiopian Airlines.  More broadly, the airline aspires to increase the number of its international destinations from 84 to 120 over the next decade.

Improving regional integration and the region’s connectivity to the global community are key trade and investment priorities for Africa and Ethiopian Airlines is poised to be one of the leading stakeholder in these efforts.

India’s ICT Companies Lead the Way to Further Indian Investment in Africa

Posted in Consumer Products and Goods, Corporate and Investment, Current Events, Media, Internet, and Technology, Uncategorized

This week, numerous companies from emerging economies will gather in New Delhi, India to participate in the third annual Growth Net conference, a unique platform focused on promoting business, trade and financial partnerships amongst the countries represented.  South-South cooperation will be the focus of much of Growth Net’s agenda, and a principal topic of interest will be the opportunities that exist for Indian companies in some of Africa’s most promising industries.  These discussions will almost inevitably involve significant attention to Africa’s Information, Communications and Technology (ICT) sector.  The African ICT sector is expected to triple by 2025, growing in value to $80-95 billion, and Indian companies’ engineering capabilities, experience with frugal innovation, and ability to train employees at scale makes them uniquely well-positioned to prosper in this booming African industry.

India-Africa Synergies

Indian companies have a first-mover advantage within Africa’s ICT sector, and their comparatively long history in Africa has resulted in an expansive Indian ICT footprint throughout the continent.  Indian ICT companies like Bharti Airtel, Essar, Tata and Wipro have a significant presence in Africa, yet much room exists for mid-sized enterprises to enter the industry, normally by partnering with local service providers.  Recently, Indian software companies Tata Consultancy Services, Infosys and Wipro all expanded their operations and delivery centers in Africa, implementing low-cost models in strategically situated delivery centers to serve outsourcing customers in Europe and West Asia.  While the bulk of Africa’s ICT spending emanates from South Africa, Nigeria, Egypt, Kenya, and Ghana, many Indian ICT companies are expanding  to countries like Ethiopia, Uganda, and Malawi.  These investments are prompted by Africa’s accelerated ICT needs, the continent’s growing urban middle class, and the increase of Western and Asian multinational corporations into sectors like manufacturing, telecom and natural resources, which demand IT support systems and infrastructure.  Overall, Indian companies low-cost, innovative business models have been particularly successful in attaining business from enterprises focused on mobile technologies, e-governance, skill development and social media.

An increase in ICT infrastructure stimulates growth in all African industries and facilitates enterprise innovation, efficiency, and job creation.  Indeed, Kenya’s Communications Authority estimates that since 2013, the country’s increase in internet access–which is substantially driven by public-private partnerships–is estimated to have created at least 1,000 jobs a month in the business process outsourcing subsector.  One of the main challenges posed by Africa’s ICT sector is the retention and training of skilled workers, yet Indian companies including Tech Mahindra, Infosys, and Wipro have addressed this obstacle by collaborating with universities and offering internship programs that expand their talent base.  If Indian companies can leverage their engineering talent and experience to train African employees at scale, these companies may possess a substantial long-term advantage over Chinese companies that oftentimes rely on skilled labor originating from outside of Africa.

Mobile Phones and Mobile Banking 

As urban centers experience further connectivity with 3G and 4G networks, the demand for newer forms of ICT services and consumer technology will rise alongside Africa’s fast-growing middle class.  However, opportunities within the ICT sector are not exclusively driven by this subset of the population.  Africa is unique in that a larger percentage of its population executes activities on relatively inexpensive mobile phones that people in other nations typically perform on computers.  Indian companies like Bharti Airtel–which acquired Zain Telecommunications’ Africa operations in 2010 and currently boasts 70 million subscribers in 17 African countries–have capitalized on Africa’s mobile phone industry, recognizing this subsector as the backbone of Africa’s ICT landscape.

Africa’s mobile phone sector encompasses Africans of all economic strata, and the continent’s mobile internet usage is predicted to increase twenty-fold in the next five years, at a growth rate that is twice as fast as that of the rest of the world.  Approximately 700 million of Africa’s 1 billion people are unbanked, and many people rely on their mobile phones’ ability to conduct low value, real-time person-to-person payments as their sole means of transferring funds, paying bills, and making everyday purchases.  While telecom companies currently dominate Africa’s mobile banking subsector, the recent increase in Indian banks operating in Africa such as the Export Import Bank of India (EXIM Bank), State Bank of India, Bank of Barod and ICICI Bank creates opportunities for cooperation between Indian ICT enterprises and Indian financial entities within Africa’s mobile banking space.

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Indian ICT companies were amongst the first Indian companies to invest in Africa’s emerging markets, and their investments are beginning to reap significant returns.  Today, Indian ICT companies in Africa are well-poised to continue their trail blazing innovations, expanding into new African markets and exploring innovative means of meeting Africa’s dynamic ICT needs.

 

 

Why AGOA should be extended for 15 years: An Ethiopian case study

Posted in Corporate and Investment

It is frequently said that investing in Africa is not for the faint-hearted.

It is less well appreciated that entering the U.S. market is not for the faint-hearted either, especially by those small and medium businesses in Africa that AGOA was designed to benefit.

For the last 24 months, the African Union and African diplomatic corps in Washington have been advocating a 15-year extension of the African Growth and Opportunity Act (AGOA). The Obama administration has also called for a 15-year extension.

Recently, I spent a week in Ethiopia last month meeting with many businesses working to take advantage of AGOA.[i] I gained the clear impression that a 15-year extension is needed for Ethiopia and that most other African countries would benefit in the same way.

Ethiopia’s trade priorities and business environment

In many respects, Ethiopia works well as a representative AGOA country. It is an agriculture-based economy and, with 94 million people, the second-most populous nation in Africa. The country has experienced impressive economic growth of 10.7 percent from 2003 to 2012 and actually has no oil and few minerals to export. It is one of the poorest countries in the world, ranking 173 out of 187 countries in the 2013 UNDP Human Development Index.

Since 2001 when AGOA went into effect, Ethiopia’s AGOA exports—principally apparel and textiles, leather products, and horticulture—increased by 150 percent. While this might sound encouraging as a percentage, Ethiopia’s AGOA exports were a mere $35 million in 2013. In fact, as the World Bank recently noted, Ethiopia is underperforming not so much in the current utilization rates of trade preferences, but rather in the volume of exports it could be sending to the U.S. and other countries. For example, though Ethiopia and Vietnam have roughly the same population, Ethiopia exports less than $3 billion to the EU and U.S., while Vietnam exports $120 billion, even though it faces higher tariffs.

Competing national priorities are one reason why the number of Ethiopian AGOA exports is so small. Working with local companies to navigate the complexities of the U.S. market under AGOA has taken a back seat to the government’s more immediate need to increase productivity in the agricultural sector, launch major infrastructure projects, and negotiate entry to the World Trade Organization and the emerging tripartite free market of the Common Market for Eastern and Southern Africa, the East African Community, and the Southern African Development Community in an effort to increase regional exports. The conflicts in neighboring Sudan, South Sudan, and Somalia also require significant government attention and resources.

Ethiopia’s business environment is also a major obstacle. The country ranks 125th out of 189 economies in the 2014 World Bank Doing Business report and 166th for “Starting a Business.” In addition, lack of access to credit and reliable internet considerably hinder business development and innovation.

U.S. non-tariff barriers also constrain Ethiopia’s exports to the U.S. under AGOA. Last year, a group of Ethiopian horticulture companies sent a consignment of roses to the U.S. for sale for Valentine’s Day in an effort to break into the U.S. market. Unfortunately, the U.S. Department of Agriculture has not delivered on its commitment to establish a fumigation center at Dulles airport in Washington, D.C. (the port of entry for Ethiopian Airlines), and the roses were destroyed. With Ethiopian Airlines set to expand service to Los Angeles in June, this bottleneck needs to be removed quickly, especially given the potential for Ethiopian horticulture to be competitive in the U.S.

In fact, the expansion of Ethiopia’s horticulture is a “spectacular export success” of the past decade,  apart from its inability to access the U.S. market. The sector now consists of 100 firms, generates $200 million of export earnings, and employs 300,000, directly and indirectly. 

Ethiopia and AGOA: Great success and immense potential

At the same time, Ethiopia is at the forefront of utilizing AGOA: It is among the first countries to develop an AGOA strategy, a draft of which was completed in October 2013. More recently, an AGOA Center was established in the Ministry of Trade with a mandate to help Ethiopian companies take advantage of the legislation.

Ethiopia is creating opportunities around AGOA outside of the government as well: Three years ago, as a result of significant government investments, the Ethiopian Institute of Textile and Fashion Technology opened at Bahir Dar University. Last year’s graduating class of 45 were all employed by Ethiopian apparel companies. While this number might seem small, it is actually impressive and suggests that the institute has the potential to become a center of excellence on the continent for apparel design and the backbone of a robust national apparel industry.

Ethiopian companies are just beginning to find American buyers interested to source from the country. Bahir Dar Tannery, an 18-year-old company that has been exporting gloves to Italy, Japan, and Sweden is in the final stages of completing an agreement to supply Wal-Mart. Once finalized, the agreement would lead to increased production from 10,000 to 50,000 pairs of gloves a month, which could lead employment to increase from about 200 workers to two shifts of 350. Bahir Dar Tannery is just one of numerous companies in Ethiopia working to utilize AGOA.

International apparel companies are also looking to locate in Ethiopia in order to access the U.S. market under AGOA. Phillips-Van Heusen (PVH) Corporation, which owns the Tommy Hilfiger and Calvin Klein labels, is considering a major investment that would include integrated cotton and apparel production. A privately owned Chinese company, Huajian shoes, has already established a production facility, and, last year, the company’s 3,500 workers produced 2 million pairs of shoes. Huajian will soon expand to 10,000 employees and develop apparel and leather products for export.

Ethiopia and AGOA are both are at key transition points. Ethiopia is about to issue its second Growth and Transformation Plan (2016-2020), which is expected to place an emphasis on the promotion of light manufacturing in an effort to shift labor from low to high productivity. In fact, Ethiopia’s potential in light manufacturing is significant: Ethiopian manufacturing firms have grown at 9.8 percent over the last decade, and they can help absorb the 2.5 million young and semi-skilled people who enter the country’s job market each year. This is precisely what AGOA was intended to achieve.

There are concerns that sub-Saharan Africa’s rapid economic growth has not led to an economic transformation toward higher productivity and economic diversification. Across the continent, fewer than 10 percent of workers find manufacturing jobs and in Ethiopia only 3 percent of workers do. Clearly, the principal sector that can accelerate this economic transformation is manufacturing.

A short-term renewal of AGOA would compound the complexities and uncertainties of accessing the U.S. market. As a result, a short-term renewal would deny Ethiopia and the majority of African countries a vital policy instrument with which to transition to more inclusive and higher-value economic growth. Given that the apparel and other industries place orders month or even years in advance, a long-term extension would be particularly helpful. Some African countries, such as Mauritius, Lesotho, and Kenya have relatively robust light-manufacturing sectors and, as a result, benefit from AGOA. The vast majority of the 41 African countries that participate in AGOA, however, need significantly more time for the legislation to achieve its intended results. When Congress does vote to renew AGOA, it needs ensure that the legislation will be in place for the next 15 years.

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[i] The visit was sponsored by the U.S. State Department’s International Visitor’s program.

Note: This piece originally appeared on the Brookings Africa Growth Initiative’s blog Africa in Focus.

India in Africa: Expanding Opportunities in the Consumer Goods Sector

Posted in Consumer Products and Goods, Corporate and Investment

With more than half of Africa’s 54 countries expected to grow at faster than 5 percent annually in the next ten years, and its GDP projected to increase to $5 to 6 billion by 2025, Africa presents lucrative investment opportunities for foreign companies looking to expand into new markets. For years the focus has been on China’s investments on the continent, but India, which benefits from its long history of cultural ties to Africa, including vibrant diaspora communities in east and southern Africa, and has emerged as one of the fastest growing economies in the world, edging China out at 7.5% GDP growth in 2014, is uniquely poised to corner quickly expanding African markets. As economists predict that India could quadruple its revenues in Africa to $160 billion by 2025, Indian companies are taking note, particularly in the consumer goods sector where the demand for appliances, electronics, and personal care products is increasing.

Indeed, Indian companies including Tata Motors, Karuturi Global, and Godrej Group have sought to capitalize on the purchasing power of Africa’s growing middle class. Last month, Godrej purchased South Africa’s Frika Hair Care company through its personal care arm, significantly increasing its investment in the $1.5 billion dollar African hair extensions market. Gondrej has pursued a successful expansion strategy, acquiring African hair care companies in larger, more integrated markets such as South Africa and Nigeria and expanding regionally. Following this incremental approach, the company acquired Darling Group Holdings, a well-established Nigerian hair care company, over several years, purchasing 51% of Darling’s stock in 2011 and the remaining 49% in 2014. Darling, which sells its products in 14 African countries, generated $80 million in sales in 2012.

In large part, Godrej’s success can be attributed to its measured, localized approach. While it imports synthetic fibers and henna leaf powder from India and Asia, the company uses those materials to mix its colorants and weave its extensions in Africa and markets its products under African brand names that cater to specifically to African consumers. Similarities between the Indian and African business climates have helped as well. Godrej’s experiences in fragmented markets and with middle-income consumers have no doubt proved critical to the company’s impressive performance on the African continent.

From producing cut flowers to cars, Indian companies are expanding their businesses and raising their collective profile in Africa. India ranked sixth in Foreign Direct Investment in Africa in 2012 and shows no signs of slowing down. With the rupee solid, China’s growth slowing, and India’s relative economic stability in the wake of falling commodity prices, the stars are aligned for Indian companies seeking to do business in Africa. While investment in Africa will surely require patience, the future is bright for Indian companies willing to bet on long-term growth.

 

 

India Leverages Capacity Building Experience in Africa to Train, Mobilize Workers

Posted in Corporate and Investment

Economies in Africa have grown at unprecedented rates in the last several decades, but continued success will hinge on the ability to build local workforce capacity.  Companies operating in Africa continue to cite difficulty in training, mobilizing and retaining a competitive workforce as one of the biggest issues they face.  India, with its booming economy, experience navigating workforce development in the developing world, and interest in increasing its influence in the continent, is uniquely situated to address these issues.

In 2008, the first India-Africa Forum Summit was held in Delhi, India, and the creation of educational and vocational training opportunities was formally identified as a joint priority.  More specifically, India pledged to establish ten in-country training institutes and provide scholarships for African students to study at Indian institutions of higher learning.  Though India is a country still on the cusp of development itself, its government views investments in African education and vocational training as an opportunity to increase “soft influence” in the region, and strengthen relations with a trading partner that is rapidly growing in importance (Indo-African trade volume is expected to reach $90 billion by 2015).

Reflecting a unique approach to capacity building, many of India’s contributions (both in the private and public sectors) have been products of collaborations between India and a local African institution, and have centered on helping Africans acquire skills in mathematics and the sciences.  Some examples include:

  • India-Africa Institute of Foreign Trade: a project of the African Union and India’s National University of Education and Planning, this institute is run out of the University of Burundi and will offer full-time and part-time MBA programs to African students.
  • India-Africa Institute of Information Technology: a Ghanaian vocational training center that will offer computer software courses developed by the state-run Educational Consultants India.
  • India-Africa Diamond Institute: a training center located in Botswana (near De Beers rough diamond sales operation center) that will provide vocational skills in gemology, diamond grading, and gem polishing.
  • Tata Motors: established a partnership with the Engineering Faculty at the University of Pretoria in South Africa, providing training in various vehicle manufacturing processes to African students.
  • CV Raman International Fellowship: in its sixty year, this grant funds African students to pursue doctoral research in mathematics and the sciences at Indian institutions of higher learning.
  • Pan Africa e-Network (PAEN): a collaboration between the African Union and the Indian government, PAEN currently connects African students in 34 countries to Indian online tele-education and tele-medicine services.  To date, over 2000 students have enrolled in top-ranking Indian universities in fields such as finance, business, and IT. India aims to provide online education to 10,000 African students by 2015.

Though some of these projects are still in nascent stages, India has shown a real commitment to leveraging its skills transfer and workforce training experience in Africa.  To this end, at the second India-Africa Forum Summit in 2011, Indian Prime Minister Manmohan Singh committed an additional $700 million towards education and skills development in Africa.  Today, there are close to 50,000 African students in Indian universities, 15,000 of them on Indian scholarships.  This commitment dovetails with growing “local content” legislation, through which, increasingly, African governments are requiring international companies doing business in Africa to hire local or partner with local institutions.

Building workforce capacity is a formidable task, but if India continues to employ and expand its multi-pronged, collaborative approach, the future for a globally competitive African workforce looks very positive.

A Spotlight on Solar Power in Africa

Posted in Energy and Natural Resources

The new year may only be a few months old, but 2015 has already ushered in a number of exciting developments in the solar power space in Sub-Saharan Africa.

Solar projects coming online across the continent and more in the pipeline. Riding the momentum of 2014 in which it brought online the largest photovoltaic (PV) plant in Africa and joined the ranks of the top ten largest markets for utility-scale solar, South Africa last week announced the opening of KaXu Solar One, the country’s first Concentrated Solar Power plant. In Rwanda, Gigawatt Global has completed the construction of the first utility-scale PV plant in the East Africa region. In West Africa, construction is underway at the Nzema solar plant in Ghana, which, with a projected capacity of 155 MW, will be one of the top ten largest PV plants in the world when completed. In addition, Nigeria has signed a Memorandum of Understanding with a South Korean firm to develop a 1 GW solar PV farm. This is the most recent of a series of new agreements to build gigawatts’ worth of utility-scale and distributed generation projects across the country. A number of other countries, including Côte d’Ivoire and Uganda, have also initiated tenders for solar projects.

Policies and programs that facilitate investment. The World Bank recently announced its Scaling Solar initiative, a “one-stop-shop” that consolidates under one window the existing services that the Bank provides its country clients. These services include technical and legal assistance, partial guarantees of private debt, political risk insurance, and competitive financing. The design of Scaling Solar draws in part upon the South African government’s success with its Renewable Energy Independent Power Producer Procurement program, which has successfully promoted competitive and rapid tenders for grid-connected renewable energy in South Africa. Both investors and communities stand to benefit from policies and programs that catalyze further competition and capital for utility-scale solar projects.

Increased attention to distributed energy solutions. With two-thirds of the region’s population not connected to the grid, off-grid solutions are as important as the utility-scale, grid-connected projects. Recognizing the critical need to develop solutions to serve these 600 million people, the IFC invested $4.5 million last month in Off Grid Electric, a “micro-solar leasing” firm that skirts the problem of high up-front installation costs of solar PV by allowing rural customers to pay incrementally for the installation over time. Innovation in financing mechanisms for off-grid solar, such as pay-as-you-go approaches and mobile payment platforms, is being pioneered by companies like M-KOPA Solar, Greenlight Planet, Azuri Technologies, Fenix International, BBOXX, and more. In addition, venture capital and private equity firms are paying increasing attention—and funding—to the off-grid space as well. In the first two months of 2015, they have invested approximately $35 million in off-grid solar tech companies—a solid start to the year, compared with the $64 million invested in all of 2014.

In light of the colossal gap in energy infrastructure in Sub-Saharan Africa, these new investments in utility-scale and distributed solar energy are an encouraging sign of the changes to come in Africa’s power sector.

Retail distribution in Africa: challenge and opportunity

Posted in Consumer Products and Goods

The economy in Sub-Saharan Africa continues to grow.  A handful of the 10 fastest growing economies in the world are in Africa, it has the world’s greatest population of young people and the number of middle class consumers – estimated to be 350 million – is booming. With such a growing, promising market, comes great opportunity for retailers. But, one of the major challenges for retailers doing business in the continent is navigating the complexity of the retail environment. Nielson has recently released a report examining the African retail environment and provides some helpful insights for retailers operating in or looking to break into this regional market.

The report suggests retailers must:

  • Understand “who shops where and for what”. The investigation found that the number of sales made through modern trade outlets is relatively small. Modern trade is generally at an early stage of development and although Africa is a “land of opportunity”, it has a highly fragmented retail system. Across the 7 Sub Saharan states studied, Nielson found that, on average, 80% of consumers shopped from “table tops” and many also shop in small, local grocery stores. Top-selling new products can struggle to build distribution in traditional outlets. “Even companies poised with the right products for the right market still often fail to get them to the right place.” The report recommends that companies focus on understanding the retail landscape to help shape an effective distribution model.
  • Identify the right retail outlets. In a case study in Nigeria, it was found that just a handful of outlets accounted for a large proportion of sales of particular products. For example, in Lagos, beverages are sold in 61,000 outlets, but 24,000 of these outlets generate 80% of sales. Identifying key retail outlets in local markets is essential to sales growth.
  • Build demand. Nielson recommends that, once manufacturers have established a distribution strategy, they should look to the local market to learn how to execute sales in traditional outlets. Local vendors are “masters at adapting their offerings to meet consumers’ immediate needs” and traditional sales operations “must be understood by a manufacturer that wants to introduce its product to the table top market and develop its success”. Meeting consumers’ needs includes thinking about the required pack size, format, affordability and denomination.

For retailers with high-end products, which are unlikely to be sold in traditional outlets, we suggest that broader lessons can be drawn from this report. Africa’s wealthy population is growing and to succeed in the region, retailers need to understand where consumers are shopping, identify appropriate retail outlets and examine local operations to understand how to appeal to end-consumers.

Brands readers who wish to find out more about news, updates and analysis affecting brands across the globe may wish to peruse Covington’s CovBrands site.

India and Africa: Picking Up the Pace of Trade and Investment

Posted in Corporate and Investment

On March 25 – 27 March 2015, the third annual meeting of The Growth Net will be held in New Delhi, India.  Convened by Smadja & Smadja and Ananta Centre, the event is a one-of-a-kind platform for companies from emerging economies to come together and discuss ways to “boost the business, trade, [and] financial linkages” amongst their respective countries, recent trends and developments in legal and regulatory frameworks, and other issues relevant to commercial success and economic development.  In particular, this year’s conference will examine how companies develop and nurture skills relevant to their sectors, how companies develop strategies that generate comparative advantages and economies of scale, and how investment decisions are reached in a timely manner in new environments.  As it has done since the inaugural event, Covington will be a Knowledge Partner to The Growth Net.

As part of The Growth Net’s focus on South-South cooperation, considerable attention is given to the African market and the role of companies from India seeking to enter or expand their presence there.  This focus is unsurprising.  A recent study found that India has the potential to quadruple its Africa-based revenue to $160 billion by 2025 through a focus on strategic sectors, such as information and communications technology, agriculture, infrastructure, pharmaceuticals and consumer goods.

Between now and the commencement of this year’s The Growth Net, Cov Africa will run a series of blogs that examines this India-Africa commercial nexus.  This series will highlight the most promising sectors in Africa for Indian companies and discuss the opportunities and challenges of entering one of the most dynamic regions of the global economy.

U.S. and Djibouti Hold First Strategic Dialogue

Posted in Corporate and Investment

Just ten months after the historic Oval Office meeting between President Obama and President Guelleh of Djibouti, the two countries last week held the inaugural Strategic Dialogue in Washington, DC.  The announcement of a “strategic partnership” came last May when the two sides agreed to a ten-year lease extension for the Camp Lemonnier military base, which houses the US military’s largest presence on the continent.

Though the focus of last week’s meetings was on regional security issues and counter-terrorism, the Dialogue comprised a full-range of topics, including investment, economic growth and job creation, and social development, such as education and health care.  Foreign Minister Youssef led the Djiboutian delegation, which included Minister of Defense Houffaneh and Finance Minister Dawaleh, among others.  Secretary of Defense Carter hosted the Djiboutian delegation at meetings at the Pentagon (his first delegation as Secretary), while Secretary Kerry kicked off the discussions at the State Department.

Djibouti faces some serious challenges.  The World Bank estimates that 40 percent of the population lives in extreme poverty – one of the highest rates on the continent.  And though the government has emphasized the importance of education – having increased enrollment rates to nearly 80 percent in recent years – the fact is few Djiboutians have the requisite skills to land jobs or start businesses in a services-oriented economy.  It is feared that unemployment might reach as high as 65%, and faced with its own youth bulge, Djibouti needs more help from Western donors and the private sector to  introduce market-driven vocational training schemes.  Add to that the tough neighborhood in which Djibouti is situated, with Eritrea to its north and a still active Al-Shabaab in Somalia to its south, and the picture doesn’t appear very rosy.

Its geography, however, is its greatest strategic advantage.  The economy, growing consistently at 5 percent a year, revolves around the port and port-related services.  The port serves as a lifeline for Ethiopia’s rapidly growing economy, and the number of countries the port services continues to grow.  A $4 billion railway project that connects Djibouti to Ethiopia’s capital, Addis Ababa, which will start service before the end of the year, promises to compress transit times from days to hours.  A new air cargo terminal is being built, and there are plans to triple the throughput of the Doraleh Container Terminal.  Moreover, the government is planning for expansion and future investment: a ship repair facility, an LNG terminal and a crude oil terminal, and widening its railway to connect to more countries.

In describing his vision for Djibouti, President Guelleh said at a dinner last year that he wanted to see his country become the “Singapore of Africa”, with an economy that is Africa’s first “all-green” economy.  With ample solar, wind and geothermal resources, it certainly has the potential to achieve that goal.  The World Bank and other donors are assisting to prove the commercial viability of the geothermal resources at Lake Assal and structure a deal with a private developer.  Finance Minister Dawaleh is one of several ministers actively trying to attract private capital and the private sector into the development of the energy sector to address the power deficit.

By all accounts, the first Dialogue went exceptionally well.  The Djiboutian delegation left Washington feeling very good about the relationship with the US, but there is an important unanswered question that the Djiboutians asked:  How can the two sides work together so that Djibouti will eventually be able to take advantage of AGOA, the Administration’s most important tool for trade with Africa?

Alternative Data Is Making (Credit) History in Sub-Saharan Africa

Posted in Media, Internet, and Technology

In yet another example of how mobile technology is revolutionizing service delivery in Sub-Saharan Africa, application developers, data mining companies and financial institutions are using mobile usage data and social media activity to determine the credit risk of potential borrowers.  These efforts are helping to surmount one of the most significant obstacles to extending credit in developing markets.

In developing markets, conducting the due diligence needed to assess a borrower’s credit risk is a challenge for two main reasons: geographic inaccessibility and little to no information as to the person’s credit history.  First, financial institutions typically have established in cities to be closer to the higher concentration of people and capital found in urban centers.  These institutions have shied away from engaging rural populations because of high transaction costs due to poor infrastructure and a widely dispersed client base.  Second, a dearth of financial as well as vital records creates a significant impediment to assessing the person’s credit risk regardless of whether that person lives in an urban or rural area.  Considering that Africa is home to the world’s fastest growing middle class, this is a significant missed opportunity.

Some of the ways in which modern sources of data are being used to tackle these challenges in assessing creditworthiness include:

  • In partnership with the Commercial Bank of Africa, Kenyan mobile network operator Safaricom created M-Shwari. An outgrowth of M-PESA, M-Shwari allows M-PESA users to save and borrow money through their mobile phones.  Prospective borrowers can qualify for loans if they “save regularly on M-Shwari and continuously use other Safaricom services such as Voice, DATA and M-PESA.”
  • Cignifi uses mobile phone usage to assess not only a person’s credit risk but also the probability that a person will use a particular financial service or product. The company is working with partners in Uganda and Ghana to expand the use of mobile financial products and services in the countries.  In addition to using mobile data, First Access analyzes additional financial information (such as the individual’s water, utilities and educational payments history) to assess a person’s credit risk.  The company has a field office and subsidiary in Tanzania and is in the process of expanding its presence across the region.
  • Lenddo offers loans and free financial education to individuals based on their LenddoScore, a creditworthiness rating that the company generates through analysis of the prospective borrower’s social media activity and related data sources. Following the group accountability model used by community-based microfinanciers, the LenddoScore also is impacted by the LenddoScores of the individual’s network of family and friends.

Importantly, these services allow an individual to prove their creditworthiness in a matter of weeks rather than years.  By both accelerating and innovating how financial institutions determine creditworthiness, these companies and others are promoting financial inclusion and spurring economic development in Sub-Saharan Africa.