Crowdfunding in Africa: Opportunities and Challenges

Crowdfunding—or the use of online platforms to raise money for business ventures from a large base of investors—has been steadily gaining traction in Africa over the past decade. Still, crowdfunding in Africa remains limited compared to other regions: In 2015, the African crowdfunding market amounted to about $70 million, accounting for less than one percent of the global crowdfunding market. However, a 2013 World Bank report estimated that by 2025, crowdfunding will be a $96 billion industry growing at a rate of 300% per year. While much has been made of crowdfunding’s potential to transform small business and entrepreneurship across the continent, there are important challenges and regulatory barriers that need to be better understood and addressed.

Current landscape of crowdfunding

Crowdfunding platforms are usually structured as follows: An entrepreneur will post a business pitch to a website such as Afrikstart, Thundafund or M-Changa. These pitches—or “campaigns” —include a fundraising target that the entrepreneur hopes to reach. There are also non-African platforms that allow African entrepreneurs to pitch their businesses and raise capital from funders abroad.  However, certain international platforms may use payment systems that restrict contributions originating in lower-income countries. Frequently, funders are members of the entrepreneur’s social network, but in many cases funders may be the general public or institutional investors looking for small businesses to support. Much crowdfunding activity in Sub-Saharan is donation-based, but there has been some significant early activity around equity-based and debt-based platforms in South Africa, Kenya and Ghana.

There has been a steady growth in the number of crowdfunding platforms in Sub-Saharan Africa, a result of the high demand for capital, the surge in mobile penetration, and the growing African middle class. At the end of 2015, there were 57 crowdfunding platforms headquartered in Africa, of which 21 were based in South Africa.  And, just a little under half of money raised through crowdfunding in 2015—and the significant majority of crowdfunding projects launched—took place in South Africa. Most of these platforms are designed to serve a local consumer base and tend to support projects that operate in their host country only. Five of these platforms, however, support businesses and attract investment from across the continent.

Opportunities

Crowdfunding offers three distinct opportunities for entrepreneurs on the African continent:

  1. First, crowdfunding creates more avenues for businesses to access capital. Traditionally, entrepreneurs—when they can—either borrow at fixed rates from banks or seek investment from established business communities. However, African entrepreneurs’ access to credit is often constrained: Banks are highly risk-averse, and would-be borrowers are often too small-scale, or lack the credit history and other data, to qualify for bank loans. Crowdfunding enables entrepreneurs to appeal directly to supporters or potential customers without onerous inquiries into their creditworthiness, business histories or incomes.
  1. Second, as a purely digital mechanism, African crowdfunding can leverage the increased use of mobile networks to transact business. The rapid expansion of mobile technologies in Africa in the last decade is a well-known fact, and indeed, people across Africa are using phones for transactions ranging from common purchases to peer-to-peer microlending. Even though there is less familiarity (and in certain cases, trust) in Africa when it comes to online fundraising as a capital-raising tool, the prevalence of mobile phones could allow for rapid increases in crowdfunding activity in the context.
  1. Third and finally, crowdfunding platforms subsidize the costs of marketing and promotion by typically allowing entrepreneurs to use the platform for free. The platforms themselves have a built-in user base, and most of the platforms that are currently active in Africa have no subscription costs. Listing a venture on a crowdfunding platform not only increases exposure to investors, but it also enables entrepreneurs to benefit from the platform’s infrastructure (e.g., online presence) and brand recognition.

None of this is to suggest that crowdfunding platforms are purely advantageous for would-be entrepreneurs in Africa. One common criticism is that digital platforms in general tend to elevate wealthier, tech-savvy entrepreneurs at the expense of businesspeople who truly cannot access traditional financing. Crowdfunding in particular can deepen the urban-rural divide: because it relies on social connections, crowdfunding rewards individuals with larger, denser networks. Also, African entrepreneurs are often supported by remittances. The vast majority of crowdfunding platforms available across the continent today are locally-oriented and do not support the sort of international payment mechanisms necessary to turn some remittances into crowdfunded investments.

Challenges

Investors and African entrepreneurs who use crowdfunding platforms are operating in an unregulated space, at least in most African countries  This raises two issues. First, the absence of regulation means an absence of adequate investor protections. Without laws to protect privacy, mandate disclosures and ensure that contributors have opportunities for legal redress, investors may not sufficiently trust an entrepreneur to fund his or her venture. By contrast, in the United States, Title III of the JOBS Act regulates equity crowdfunding and permits companies to issue securities through crowdfunding platforms. U.S. law requires would-be crowdfunders to make substantive disclosures that provide investors with information. Similar disclosure rules in African nations would enable investors to make informed decisions and potentially improve investor confidence.

Second, the lack of clarity about the legal status of African crowdfunding organizations risks causing a chilling effect for international investors. In order to encourage more crowdfunding, governments need to mitigate concerns about money laundering and fraud. Moreover, most equity or debt crowdfunding organizations in Africa are not licensed as financial services companies. As a result, some investors are concerned that they are running afoul of laws when making contributions. Regardless of whether a given crowdfunding platform, company or investor is actually breaching any laws in a given country, there is widespread investor concern about either being defrauded or inadvertently breaking the law. Crowdfunding platforms can do relatively little on their own to dispel these concerns; African governments would benefit from enacting clear laws on crowdfunding so that investors can achieve clarity on how to make contributions legally.

Some countries are beginning to take steps. In South Africa, the Financial Services Board released a list of potentially-applicable existing regulations and encouraged crowdfunders to contact the Board to ensure the lawfulness of their campaigns. And there is reason to believe that as the crowdfunding industry grows in African markets, so too will the push for an adequate regulatory framework: For instance, in 2015, the African Crowdfunding Association was founded with the specific objective of lobbying for clear and simple crowdfunding legislation and harmonization of such legislation across countries. The organization has not succeeded in getting any laws passed, but counts among its members the largest African-based crowdfunding organizations (including Thundafund and M-Changa).

ECOWAS Forces Gambian President’s Hand

The end of the 22-year reign of former Gambian President Yahya Jammeh, ushered in by the December election of opposition candidate Adama Barrow, is widely seen as a win for democracy in Africa. More so than anything else, this is a win for the Economic Community of West African States (“ECOWAS”) and regional self-policing in Africa.

President Jammeh was well known for his harsh views on issues such as homosexuality and his eccentricity, such as his claimed ability to cure AIDs. He came to power in The Gambia in 1994 following a coup, and his rule in the West African country stood out in the region for its brutal treatment of opposition groups and its reliance on a powerful intelligence agency to root out dissent. There have been several attempted coups in The Gambia since Jammeh took the helm, but it was democracy and regional pressure that finally led to his demise, aided by a stagnant economy that fueled popular discontent. Corruption, protectionism, the lack of an independent judiciary, and a weak private sector all hindered The Gambia’s growth during Jammeh’s presidency, adding to the tension and dissatisfaction of the population.

While The Gambia has had several elections, these have been seen as one-sided and have even been criticized by ECOWAS for “an unacceptable level of control of the electronic media by the party in power and an opposition and electorate cowed by repression and intimidation.” The election on December 1, 2016 proved to be a turning point for the country, with a resounding victory for the opposition despite external monitors’ concerns over the transparency of the polls. An independent election commission helped to administer the historic vote. According to the electoral commission’s official election results, Barrow won 45.5 percent of the vote while Jammeh won 36.7 percent. President Jammeh quickly accepted this defeat, to the surprise of critics at home and abroad. However, the following week, on December 9, President Jammeh made a speech in which he announced his “total rejection of the election results,” a move which he claimed “annull[ed] the elections in its entirety.”

As President Jammeh indicated his unwillingness to leave the country, division and turmoil spread further and deeper, with the Presidency closing three radio stations, arresting opposition supporters, and even causing the head of the electoral commission to flee to Senegal. By January 18, combat troops from Senegal, Nigeria, Mali, Ghana and more countries had amassed at the Gambian border, prepared to intervene if the democratically-defeated leader did not step down. The Nigerian Air Force further indicated that it had already dispatched an aviation fleet to provide support to any military intervention in The Gambia. Military intervention ultimately was not necessary, as President Jammeh negotiated with the opposition and the government of Senegal, which led the ECOWAS effort, and ultimately accepted the results and left the country in mid-January.

It is unlikely that The Gambia’s experience will be the blueprint for democratic transition in all of Africa. West African political dynamics are vastly different from those of central and southern Africa, and the regional backchannelling, negotiations, and military pressure effectuated by ECOWAS are nearly impossible to reproduce right now in other areas of the continent. Yet this result is important for the confidence of investors and businesses operating or looking to operate in West Africa. Although there is significant uncertainty about the path that The Gambia will take under its new leadership, outsiders can have confidence that the regional political structure and external pressure from democratic neighbors will help maintain democratic norms in West Africa. Of course, The Gambia is much smaller than all of its West African neighbors; it is unclear if ECOWAS or other neighbors could exert the same level of regional pressure on a larger country in a similar situation. However, it is noteworthy that the larger surrounding countries prioritize democracy in the region highly enough to orchestrate a coordinated intervention in the first place.

Even more encouraging is that preliminary signs from The Gambia suggest, tentatively, that the new administration is following a more democratic path than its predecessor. President Barrow, who returned to The Gambia last week, has indicated that he is that “President of all Gambians,” and has made a point to be diplomatic in his dealings with Jammeh and his loyalists. Though there is evidence that Jammeh may have taken state money prior to his departure, Barrow is attempting to build confidence in the judicial processes of the country by relying on an independent investigation into the matter. This is a departure from the tendency of new African regimes to assume the role of policing the opposition.

It will be difficult to replicate the ultimately peaceful—if initially tenuous—transition of power that took place in The Gambia over the last few weeks. However, the transition marks a win for emerging democracies in Africa and all other actors interested in the peace and stability of West Africa.

United States Suspends Sudan Sanctions

In response to “positive actions” taken by the Government of Sudan over the past six months, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced today an amendment to the Sudanese Sanctions Regulations (“SSR,” 31 C.F.R. Part 538) that effectively suspends virtually all of the U.S. sanctions against Sudan by authorizing through a general license (referred to in this post as the “General License”) all transactions otherwise prohibited by the SSR and two related executive orders (13067 and 13412). The General License will take effect when it is published in the Federal Register, which is scheduled to occur on Tuesday, January 17, 2017.

OFAC’s issuance of the General License accompanies a new Executive Order that President Obama signed today, which revokes, effective July 12, 2017, key provisions of the two executive orders that established the Sudan sanctions, provided that Sudan sustains the “positive actions” of the last six months. Such revocations, if they were to take effect, would result in the termination of the U.S. sanctions against Sudan.

The General License authorizes a broad range of export and import activity with Sudan, and investment in Sudan, by U.S. persons. Such activities had been prohibited by U.S. sanctions for nearly two decades. In addition, the General License unblocks frozen assets of the Government of Sudan. OFAC has published a fact sheet and frequently asked questions to provide additional information and guidance on the operation of the General License.

Importantly, the General License and President Obama’s Executive Order do not affect the limited sanctions regimes in place with respect to the Darfur region of Sudan and the separate country of South Sudan, the existing U.S. arms embargo against Sudan, or the general export controls applicable to Sudan maintained by the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”). As a result, U.S. persons continue to be prohibited from dealing with individuals and entities whose property and interests in property are blocked pursuant to the separate U.S. sanctions regimes relating to Darfur and South Sudan, and BIS authorization will still be required for the export or reexport to Sudan of certain items that are subject to U.S. jurisdiction.

Improved cooperation by the Government of Sudan

Today’s actions reflect a sea change in U.S.-Sudan relations. A comprehensive trade embargo was first imposed against Sudan in 1997 by President Clinton on the grounds that Sudan was a sponsor of international terrorism. In addition, the sanctions have been intended to pressure Sudan to improve its human rights record.

In issuing the new Executive Order and the General License, the Obama Administration indicated that the suspension of U.S. sanctions is intended to support and sustain positive actions taken by Sudan over the past six months, including enhancement of U.S.-Sudan bilateral counterterrorism and security cooperation; a reduction in offensive military activity by Sudan, including a pledge to maintain a cessation of hostilities in areas of conflict in Sudan (including Darfur, Southern Kordofan state, and Blue Nile state); cooperation on addressing regional conflicts, such as efforts to resolve the civil war in South Sudan; and efforts to improve access for humanitarian assistance in Sudan.

As described further below, Sudan remains on the U.S. government’s State Sponsors of Terrorism List, and neither the General License nor the Executive Order will have an impact on that listing, or on certain export/reexport restrictions related to Sudan. Further, Sudanese President Omar al-Bashir’s indictment by the International Criminal Court on charges of genocide is not affected by these changes. However, the Obama Administration’s actions essentially normalize much commercial activity between the United States and Sudan.

The General License

The General License broadly authorizes U.S. persons to engage in trade and other business dealings with Sudan. “U.S. persons” for these purposes are (i) companies organized under U.S. law and their non-U.S. branches and offices; (ii) U.S. citizens and lawful permanent residents (“green-card” holders), regardless of where they reside or by whom they are employed; and (iii) any person physically present in the United States. U.S. financial institutions may now participate in and facilitate such transactions (as well as the Sudan-related transactions of non U.S. persons), and are authorized to take any actions necessary to unblock the property or interests in property of the Government of Sudan that were blocked under the SSR.

Under the General License, the property and interests in property of the Government of Sudan, and any entity owned or controlled by the Government of Sudan, that are or come into the United States or the possession or control of a U.S. person no longer must be blocked. Additionally, the importation of goods or services of Sudanese origin into the United States is now permitted, as is the exportation or reexportation to Sudan of goods, technology, or services from the United States or by a U.S. person (wherever located), subject to obtaining any required export licenses. U.S. persons also are permitted to facilitate transactions with Sudan by non U.S. persons.

The General License also supersedes prior Sudan general licenses that OFAC had issued, which authorized certain limited activities with Sudan (such as the exportation and reexportation to Sudan of certain food items and certain services, software, and hardware incident to personal communications), as well as any specific licenses pertaining to Sudan. This means that U.S. persons are no longer required to comply with the conditions that OFAC had imposed in these prior general or specific licenses (except to the extent that such conditions were based on other statutes or regulations, such as the U.S. Export Administration Regulations (“EAR”) administered by BIS), and specific licenses will not need to be renewed.

Due to existing statutory authority, however, some minor conditions will remain in place under the General License regarding the exportation and reexportation to Sudan of agricultural commodities, medicine, and medical devices that are subject to the EAR and are classified as EAR99. Although such items may be exported and reexported to Sudan pursuant to the General License, they must be shipped within 12 months of the date on which the relevant contract is signed.

Remaining U.S. trade controls restrictions relating to Sudan

The General License does not affect restrictions imposed by other U.S. sanctions programs. For example, U.S. persons, as defined above, still may not engage in transactions or dealings with, and must block the property and interests in property of, individuals or entities identified on OFAC’s List of Specially Designated Nationals and Blocked Persons (“SDN List”) pursuant to authorities other than the SSR and Executive Orders 13067 and 13412. This includes transactions or dealings with SDNs designated pursuant to the Darfur Sanctions Regulations (31 C.F.R. Part 546) or the South Sudan Sanctions Regulations (31 C.F.R. Part 558) and their related executive orders, among others.

Additionally, BIS has not announced any relaxation of the export controls it administers relating to Sudan. As a result, although it will be permissible to export and reexport to Sudan items subject to the EAR and classified as EAR99 (as well as items that qualify for export or reexport under an EAR license exception, such as certain personal communications equipment and software), a BIS authorization still will be required to export or reexport to Sudan any item subject to the EAR (including U.S.-origin items and non-U.S.-origin items that incorporate more than 10% controlled U.S.-origin content by value) that is on the U.S. Commerce Control List (“CCL”). This includes items controlled on the CCL only for anti-terrorism reasons. The U.S. government has not made any announcement indicating an intention to remove Sudan from the State Sponsors of Terrorism List. End-use and end-user controls in the EAR also continue to apply, and could restrict the export/reexport to Sudan of even some EAR99 items.

Moreover, the export and reexport to Sudan of defense articles and defense services controlled on the U.S. Munitions List of the International Traffic in Arms Regulations continue to require authorization from the U.S. State Department, and license applications are subject to a policy of denial (subject to very limited exceptions pertaining to the United Nations and peacekeeping operations).

Finally, neither the General License nor President Obama’s Executive Order is retroactive. OFAC will continue to pursue enforcement actions for proscribed conduct that pre-dates the effective date of the General License.

Africa, Trump, Infrastructure

The Trump policy towards Africa will not be clear for several months at least, if we are to judge by the time it has taken past administrations to put their teams in place and articulate their objectives. While it is apparent that the president-elect has had very little contact with the continent, the same was true for Presidents Clinton and Bush. Similarly, President Obama—who later emerged as a champion of African-U.S. private sector investment—did not develop a strategy for the continent until the end of his first term.

So, what might lay ahead for Africa?

One of the most interesting initiatives to appear in the transition is the formation of Trump’s President’s Strategic and Policy Forum. The purpose of this group is to provide the president with private sector expertise on creating jobs and accelerating economic growth.

The group is made up of 16 CEOs and, notably, many lead companies that are active in Africa. They include: Blackstone, General Motors, Wal-Mart, Boeing, IBM, Ernst & Young, and GE. The forum’s first meeting is planned for February at the White House.

Clearly, the focus of the forum will be on the private sector’s role in rebuilding America’s infrastructure, which Trump announced as a priority on election night. This goal has great relevance and potential for Africa. For instance, one proposal would be to create an economic subcommittee of the forum to look at infrastructure opportunities for American companies in Africa that would utilize American-made components. Enhancing the U.S. role in addressing Africa’s infrastructure deficit with American machinery and other products would increase U.S. exports to the region. In 2015, the export of U.S. goods to Africa was valued at $18 billion, which supports an estimated 121,000 jobs in the U.S., according to the Commerce Department.

To facilitate its work, an African subcommittee of the forum could coordinate its work with the President’s Advisory Committee on Doing Business in Africa (PAC-DBIA), which reports to the president through the Secretary of Commerce. Over the course of three meetings, the PAC-DBIA has made a number of recommendations related to enhancing the role of the Unites States in developing Africa’s infrastructure. These recommendations include creating a U.S.-Africa Infrastructure Center and prioritizing U.S. companies and products in building out Africa’s transportation, energy, and health infrastructure.

The last three presidents have left positive legacies related to Africa. This includes President Clinton’s signing into law of the African Growth and Opportunity Act; President Bush’s support for the President’s Emergency Program for AIDS Relief and the Millennium Challenge Corporation; and Power Africa, the Young African Leaders Initiative, and the U.S.-Africa Leaders Summit of the Obama administration. A strategy that incentivizes American companies in such a way that it increases U.S. exports and jobs to reduce Africa’s infrastructure deficit would contribute to a legacy in Africa for President-elect Trump on par with his predecessors, if not more so.

To make this happen, African leaders should engage the Trump administration actively and with an open mind. They should also endeavor to point out ways in which a substantial infrastructure program could benefit Americans as much it would those on the African continent.

This article first appeared in the Brookings Institution’s Foresight Africa 2017 report. 

Ghana’s New President: Jobs, Jobs, Jobs

Nana Akufo-Addo, the 72-year-old leader of the New Patriotic Party (NPP), was elected Ghana’s president on December 9 by a margin of 1 million votes, affirming the country’s status as a leading democracy on the continent. The peaceful election supports the remarks of former assistant secretary of state for African affairs and election observer, Ambassador Johnnie Carson, that the country is “a gold standard for democracy in Africa.”

The results reflect wide frustration in Ghanaian society with low growth, high unemployment, and a government that seemingly had lost touch with the average Ghanaian. This frustration was expressed in the creation of the Occupy Ghana Movement and Red Friday, which had support from various segments of society, including previously apolitical professionals.

Akufo-Addo—who lost close races for the presidency in 2008 and 2012 (by only 300,000 votes in the latter)—brings experience to the job as the son of a former president, a human rights lawyer, former attorney general, and former foreign minister. This experience and his focus on job creation played large roles in his defeat of President John Mahama of the National Democratic Congress—with 53.9 percent to 44.4 percent of the votes, an apparent landslide. With 171 of 275 seats in parliament, the NPP has been given a clear mandate. This is the largest number of seats that any party has had in Ghana’s parliament since 1992.

In addition, while the incumbent party has twice been defeated at the polls by the opposition, this is the first time that a sitting Ghanaian president has been turned out of office after only one term.

1-District-1-Factory

The president-elect’s campaign was based on a commitment to create jobs and to move Ghana to the forefront of industrialization efforts in West Africa. Specifically, the Ghanaian leader promised to establish at least one factory in each of the 216 districts across the country (“1-District-1-Factory”). The Akufo-Addo team has reportedly identified 300 projects that they are ready to move forward on. However, it is not clear how these projects will be financed.

Another priority is to develop the country’s significant bauxite resources as well as an integrated aluminum industry to take advantage of the bauxite, again creating the opportunity for more jobs.

During the course of his campaign, Akufo-Addo pledged on a number of occasions that the private sector would regain its “pride of place” in Ghana’s economy and that “killer” taxes would be slashed. He also promised to develop a “dual system” that would enable artisans and wage workers to go to school to upgrade their skills while continuing to work.

Greater transparency

On the “toxic issue” of corruption, the president-elect has pledged to ask parliament to pass legislation to establish a special prosecutor within six months of taking office. He has also said that he will crack down on politicians who are flouting the public procurement act—violations of which have been quite high in recent years.

In fact, Mahama’s tenure as president was marred by persistent corruption scandals, reports of inflated costs of various projects and tenders being awarded to those close to government officials. In fact, an Accra think tank, the Danquah Institute, published a report in November contending that Ghana has lost $1.93 billion to sole-sourced contracts since 2010.

As for the country’s oil resources, which yield about 110,000 barrels per day, Akufo-Addo said that he would transform Ghana’s Western Region, where the oil is produced, into an international oil hub and build a “first-class” port facility.

The challenge ahead

The president-elect will face a steep challenge in revitalizing Ghana’s economy. Rolling power blackouts are common and, according to the World Bank, there is discontent with living standards, rising taxes, fuel prices, and utilities. The government is facing particular challenges with land use, infrastructure, and the provision of services, especially as it relates to housing, sanitation, transportation, and employment opportunities for the youth. The African Development Bank notes that over half of Ghana’s population lives in urban areas.

Ghana’s growth dropped to 3.9 percent in 2015, the lowest rate in two decades, from a peak of 14 percent in 2011, reflecting the global decline in commodity prices. Ghana is the world’s second-largest producer of cocoa after Ivory Coast and, after South Africa, the continent’s second-largest gold producer. However, inflation is at its lowest rate since March 2015, and the cedi has been relatively stable, although nominal interest rates are high.

2016 has not been a particularly good year for democracy in Africa. However, with last week’s outcome in Ghana, South Africa’s municipal elections in August, and Nigeria’s historic presidential election last year, the importance of democracy to the continent cannot be underestimated.

This article originally appeared on The Brookings Institution’s “Africa in Focus” blog.

Donald Trump and Africa

For Africa, at stake in this election of Donald Trump is the strong bipartisan consensus in Congress that has been the cornerstone of U.S. policy toward the continent for the last three administrations.

This consensus, supported by Presidents Clinton, Bush, and Obama, was predicated on the notion that Africa has opportunities worth U.S. attention and investment. In the past two decades, Congress not only passed the African Growth and Opportunity Act (AGOA), but also enacted transformative initiatives such as the President’s Emergency Program for AIDS Relief (PEPFAR), created the Millennium Challenge Corporation (MCC) and, more recently, passed the Power Africa Act, the Food Security Act, and AGOA’s extension.

Will a Trump administration seek to weaken or overturn these and other legislative initiatives? Hopefully not. Nevertheless, there is no evidence that Africa will be a priority for President Trump in the way it has been for his three immediate predecessors. In fact, there is every reason to expect that, under a Trump administration, the U.S. will be less engaged in Africa, especially where it concerns the expenditure of taxpayer resources on economic development initiatives.

AGOA

AGOA could easily be the first casualty under Trump. While its benefits have been uneven, the legislation has served as a key framework for U.S.-African relations. It has led to trade and investment being at the forefront of U.S. policy in the region. AGOA has encouraged African women in trade and led to the creation of the African Trade Hubs (rebranded as Trade and Investment Hubs under Obama) to help African companies access AGOA. More recently, the Obama administration has been working to develop a new trade architecture based on reciprocity that would ultimately replace AGOA’s unilateral preference regime.

Over the last decade, however, the European Union has aggressively implemented Economic Partnership Agreements across the continent that require African governments to grant European goods, services, and companies preferential access. American products increasingly are at a significant tariff disadvantage in Africa. With the outcome of the November 8 election, Trump is more likely to see AGOA as a “bad” trade deal than an innovative economic development program based on stimulating light manufacturing and trade. Hopefully the Trump administration will make a careful assessment of AGOA and the African trade environment before acting.

Partnership or paranoia

In the post-Cold War era, the U.S. has worked with some success to transform its relationship with African governments from that of donor-recipient to one based on mutual benefit. While still a work in progress, there have been strides forward.

All U.S. assistance is now based on grants instead of loans. African governments have an increasingly significant voice in determining the programs in which the U.S. government will invest. Perhaps the best example is the MCC, which coordinates the entirety of its investments with host country teams. The Young African Leaders Initiative, which has brought 2,000 of the continent’s best and brightest to the U.S. for leadership training and meetings with President Obama and senior officials, and maintains an online network of 300,000 young professionals, is the most compelling example of the new type of partnership that the U.S. is forging.

It is difficult to see this effort being sustained by a President Trump, although it would be in U.S. interests to do so. In fact, most Africans are wondering if the Trump administration will impose a ban on Muslims, will expel the large numbers of African immigrants in the country, and whether the U.S. will continue to be the beacon of hope, friendship, and opportunity that it has traditionally been to many on the continent.

The security challenge

The U.S. has also played a critical role in responding to Africa’s key security challenges. Over the last year it has increased its cooperation with the Nigerian and other regional governments in an effort to defeat Boko Haram, and progress is being made. U.S. support for peacekeeping efforts in the Democratic Republic of the Congo, Somalia, and South Sudan has been central to promoting stability in conflict areas and regional counter-terrorism efforts. Whether a Trump administration will continue to support these programs is an open question.

In Nigeria, where I arrived yesterday, the response to Trump’s election was summed up in several comments. President Muhammadu Buhari congratulated the president-elect and said that he looked forward to working with him. The president of Nigeria’s senate, Dr. Bukola Saraki, issued a similar statement and added that Trump’s experience in the private sector could help Nigeria restructure and diversify its own economy.

At the same time, Trump’s electoral victory was also welcomed by the Indigenous People of Biafra, which advocates a separate republic from Nigeria, and the Niger Delta Avengers, a militant group in the Niger Delta opposed to the government.

Nigeria’s former ambassador to the United Nations, Oladapo Fafowora expressed the concerns of many when he told the Vanguard: “There is nothing in [Trump’s] background to suggest that he has any durable interest in Africa. I think it is a lesson for Nigerians: people should stay home and make contributions in developing our economy.”

This article originally appeared on The Brookings Institution’s “Africa in Focus” blog.

 

South Africa to Cooperate on Competition Law with Russia and Kenya

Earlier this month, South Africa reached agreements with Russia and Kenya to cooperate on enforcing competition law. At the Annual Competition Law, Economics and Policy Conference in Cape Town, South Africa’s Competition Commission signed Memoranda of Understanding (MOUs) with its Kenyan and Russian equivalents, the Competition Authority of Kenya (CAK) and the Federal Antimonopoly Service of the Russian Federation (FAS). The non-binding MOUs are designed to exchange technical assistance and promote cooperation on a range of competition policy issues, including enforcement and merger review.

These MOUs are part of a trend towards increased cooperation in competition law enforcement in Africa. The number of countries or regional blocs on the continent with competition laws jumped to 32 in 2015, from just 13 in 2000. In the past few years, African countries have entered more frequently into agreements with one another, usually aimed at cross-border enforcement, information sharing and mitigating regulatory conflict across jurisdictions. South Africa has been a particularly active collaborator: Since 2015, its Competition Commission has signed agreements with Brazil, India, China, and the European Commission’s Director-General Competition—and now, Russia and Kenya.

These collaborative agreements are an important step towards ensuring that African countries can more efficiently combat anti-competitive practices. Ultimately, better enforcement is crucial for achieving a range of social policy and development goals in Africa. A 2015 study has shown that anti-competitive behavior increases prices by an average of 31-49% globally. Decreasing prices for consumers can have significant effects on welfare, especially in developing countries. For instance, as estimated recently by the World Bank, a 10% reduction in the price of food staples would lift approximately 500,000 people out of poverty in Kenya, South Africa and Zambia alone. Especially as South Africa has in the past seen high food prices as a result of the so-called “bread, flour and maize meal cartels,” such numbers suggests that more muscular competition law enforcement has the potential to improve the quality of life of Africans.

South Africa-Kenya MOU

South Africa’s MOU with Kenya provides for collaboration in two main areas: (1) information sharing and technical assistance and (2) enforcement.

The information-sharing provisions of the MOU include a pledge to exchange “market research conducted in identified sectors,” as well as a promise to assist one another in developing enhanced competition policies and regulations. The MOU also provides for the two countries to exchange experts as necessary and to establish skills development programs.

On enforcement, the parties pledged to increase coordination. Specifically, the agreement provided that Kenya and South Africa will cooperate to review cross-border mergers. With respect to investigations, the two countries agreed to coordinate where possible when investigating or prosecuting the same cartelistic behavior.

Though South Africa and Kenya do not share a border, they are significant trade partners, and a number of large South African firms operate in Kenya. Accordingly, each is well positioned to gain from cooperating with the other. Moreover, the two countries already have a history of collaborating on legal matters, notably on criminal investigations: Investigators from South Africa, among other countries, are assisting Kenya in its efforts to combat money-laundering cartels.

South Africa-Russia Agreement

Much like the MOU with Kenya, South Africa’s MOU with Russia focuses primarily on encouraging information sharing and collaboration around enforcement and investigations. However, the South Africa-Russia MOU includes a few unique provisions. Rather than simply say there will be exchanges of market research, the MOU states that “the Parties will jointly identify socially sensitive markets of common interest as priorities for their cooperation.” Though the MOU itself does not specify which sectors are priorities, the FAS’s deputy chief indicated that there will be a particular focus on the pharmaceutical and automotive industries.

Challenges remain

The increase in collaborative agreements—such as South Africa’s MOUs with Kenya and Russia—are a key step towards more competitive regional and international markets. Certain challenges remain, however. Neither MOU addresses some of the structural impediments to coordinated competition policy. Two challenges are worth paying particular attention to: (1) conflicting standards for merger review and (2) the problems created by multiple agencies having concurrent jurisdiction.

First, jurisdictions have different standards for when mergers should be reviewed by competition authorities. In South Africa, the Competition Commission must be notified of mergers where the value of the proposed deal is above R560 million (approximately $40 million), and where the target firm has at least R80 million (approximately $5.7 million) in asset value. Russia has an even higher threshold: the FAS must consent to any merger where the value of the proposed merger exceeds 7 billion RUB (approximately $112 million).  In Kenya, by contrast, all mergers must be noticed to the CAK. This may create friction in implementing the MOUs between South Africa, Kenya, and Russia.

Second, the MOUs may be undermined by the fact that the competition authorities in each of the three countries do not exercise exclusive jurisdiction over competition policy and enforcement. Many sectors have their own regulators that have enforcement capacity. At their best, the competition authorities can complement these efforts by providing advice and assistance where necessary. In order to ensure the kind of international coordination that these MOUs propose, governments should focus on enhancing coordination between their sector regulators and competition authorities so as to avoid promoting forum shopping and jurisdictional conflict.

UK Rules Prompt Businesses to Report on Slavery in their Supply Chains

According to the 2016 Global Slavery Index, an estimated 45.8 million men, women and children around the world are ensnared in some form of modern slavery, which includes slavery, servitude, forced labor and human trafficking. Sub-Saharan Africa is particularly vulnerable to this scourge: Estimates of modern slavery in Sub-Saharan Africa accounted for approximately 14 percent of the world’s total enslaved population in 2016, with the Central African Republic, Democratic Republic of Congo, Somalia, South Sudan, Sudan and Mauritania having the highest rates of modern slavery in the region.

Increasingly, businesses are called upon to demonstrate efforts to tackle slavery in their supply chains. Last year, the UK government introduced a legal requirement for certain large businesses to make annual statements on actions taken to eradicate slavery and human trafficking from their businesses and suppliers, known as the Modern Slavery Act. In late September, the publication deadline for the first companies caught by the rules expired. In forcing transparency, the requirement is intended to incentivize large businesses with the resources and market influence to address current practice and take steps to reduce their global footprint in labor exploitation. The requirement mirrors the requirement introduced in 2012 under California’s Transparency in Supply Chains Act.

Businesses, wherever incorporated—which includes US companies—are caught by the requirement if they (i) supply goods or services; (ii) carry on a business, or part of a business, in the UK; and (iii) have an annual turnover above £36 million (approximately $44 million). All businesses meeting these requirements must publish a “slavery and human trafficking statement” each year describing steps taken (if any) during the previous year to ensure that slavery and human trafficking is not occurring in the business, including its supply chain. The statement must be approved by the board of the relevant entity, signed by a director or partner, and published on the company’s website. If more than one company in the group is caught by the requirement, subsidiaries may use their parent’s statement as long as the statement covers the steps each company has taken in the relevant year.

A UK registry of statements shows that over 750 companies—the majority of which are headquartered in either the UK or the US—have now published statements. While the legal requirements themselves do not obligate businesses to produce extensive statements or reports, current market practice strongly suggests that businesses across a variety of industries—including manufacturing, energy, technology, pharmaceutical, utilities, food and drug, consumer products, and professional services—are doing more than is strictly necessary to comply with the regulations.

Unsurprisingly, few (if any) statements indicate that no steps have been taken, though such a statement would satisfy the requirements. Common initiatives include updating procurement policies and procedures to include verifying suppliers’ compliance programs, establishing internal training platforms, carrying out on-site audits of high-risk suppliers and conducting internal audits and risk assessments of the organization’s supply chains to determine which countries, industry sectors or business partnerships are at risk of harboring modern slavery practices. Companies with supply chains operating out of Sub-Saharan Africa might, for example, wish to consider the 2016 Global Slavery Index’s finding that human trafficking and forced labor are of particular concern throughout the region, especially within industries such as farming and fishing, retail sales, manual labor and factory work.

Legal sanctions for non-compliance are limited to a possible injunction to compel publication of a statement. There are no fines, unless non-compliance is in contempt of a court order to publish. Currently, the main compliance driver is, of course, reputational. The central repository of statements facilitates the comparison of approaches and levels of commitment by businesses and it is expected that consumers, investors, regulators and non-governmental organizations will apply pressure to those businesses that have failed to sufficiently engage with the reporting obligations.

The UK government hopes that these reporting requirements will, year-on-year, encourage pro-active monitoring of supply chains by businesses, help foster transparency in labor standards and ensure that organizations all over the world are held to account for modern slavery within their supply chains, whether operating in Africa or elsewhere.

The US-Africa Business Forum: Investing in Solar Energy

Next week, the Second U.S.-Africa Business Forum will be taking place on the occasion of the 71st Session of the UN General Assembly. The Forum will focus in particular on several sectors that are important to African economies and offer trade and investment opportunities on the continent, including infrastructure and energy. This piece explores the theme of  energy as an increasingly attractive opportunity for investment in the continent.

Solar energy is a very good and important investment in sub-Saharan Africa.

The energy is cheap, clean and relatively easy to install. It is also very beneficial to consumers. As Andy Herscowitz, the coordinator for Power Africa notes, individuals do not have to rely on an electricity grid that can be unreliable, and once they own their own systems, they are self-reliant for power.

For example, Mobisol, a German solar housing company active in Tanzania and a partner of the Power Africa initiative, provides solar panels that enable customers to power welding and pipe cutting equipment, water pumps, and egg incubators as well as fans to make cook stoves more effective. Solar-powered appliances can be “super efficient,” and utilize a fraction of the power of traditional appliances.

Moreover, an increasing amount of public money is being invested in solar energy, which mitigates risk for private investors, makes long-term capital available at competitive prices, and provides access to government expertise and other benefits that come from working with international financial institutions.

In June, for example, the World Bank through its initiative, Scaling Solar, conducted an auction in Zambia to enable the government to procure solar energy quickly and at very competitive prices. The winning bidders, Neoen/First Solar and Enel, will enjoy some of the lowest prices for solar anywhere in the world at 6.02 cents per kilowatt hour and 7.84 cents per kilowatt hour, respectively. This compares very favorably with oil-based power, which can be three to four times as expensive per kilowatt hour.

First Solar, the biggest U.S. panel producer, and France’s Neoen will jointly build a 45-megawatt power plant and Enel, an Italian sustainable energy producer, will provide power from a 28-megawatt facility. The two companies are expected to be generating electricity within a year. Enel will invest approximately $40 million in the construction of the new plant, and has signed a 25-year-long power purchase agreement for the sale of all the energy generated by the plant to the state-owned utility ZESCO.

Senegal and Madagascar are also participating in the Scaling Solar program, which may eventually spur development of 850 megawatts of solar capacity in the three countries. This could amount to investments of nearly $1 billion.

Scaling Solar was developed to help introduce solar technology to the Zambia, using competitive auctions and the endorsement of the World Bank. That helps to overcome the concerns of international banks about political risk and makes these emerging markets more appealing to developers and investors. It also includes standardized contracts, eliminating the often lengthy process of negotiating power-purchase deals one at a time. Scaling Solar is an initiative of the World Bank Group, Power Africa, the Ministry of Foreign Affairs of the Netherlands, the Ministry of Foreign Affairs of Denmark, and the Infrastructure Development Collaboration Partnership Fund (DevCo).

As part of its “High 5” initiative, the African Development Bank earlier this year also launched a multi-billion dollar New Deal on Energy for Africa, which aims to establish 75 million new off-grid connections. Since USAID’s Power Africa was launched in 2013, the program’s off-grid partners have added more than 2.5 million new electrical connections.

Thanks in part to these initiatives, solar energy in Africa is an increasingly attractive investment.

This article originally appeared on The Brookings Institution’s “Africa in Focus” blog.

SpaceX Rocket Explosion Deals a Blow to Expanding Internet Connectivity in SSA

The explosion of the SpaceX Falcon 9 rocket yesterday was bad news for SpaceX, certainly, but the loss of the rocket’s payload is particularly troubling in light of the need to further expand internet access within Sub-Saharan Africa. That payload was the Amos-6 communications satellite, which Facebook, as part of its Internet.org initiative, intended to use to provide broadband internet coverage for large zones of East, West and Southern Africa, in partnership with French satellite operator Eutelsat. Amos-6 was scheduled to launch into geostationary orbit on Saturday.

The Internet.org initiative aims to provide internet access to the majority of the world’s population that is not connected to the internet—about four billion by some estimates, though the numbers differ depending on how one defines the terms “connected”or “access.” By some measures, the proportion of the population with regular internet access is estimated at an average of 19 percent for Sub-Saharan Africa—even though the region has one of the world’s highest mobile penetration rates—compared to 87 percent in North America. Complete or partial lack of connectivity occurs in large part due to problems of affordability or, to a lesser degree, lack of physical access. An estimated 300 million Africans live over 50 km away from the closest fiber or cable broadband connection, and some 400 million Africans lack any kind of internet access, period. Moreover, for many Sub-Saharan Africans, a related problem is also one of access to and cost of electricity: the cost of charging internet-enabled devices can be orders of magnitude higher than for people living in, say, North America or Europe. For instance, it costs an average of about $0.25 per year for a user to charge an iPhone once a day in the United States, whereas it would cost $0.25 for a rural Kenyan each time their phone is charged—not to mention the time spent going to and waiting at a local charge shop for the batteries to charge.

Facebook is one of several tech companies that have been addressing both the affordability and the physical remoteness constraints of providing internet access to less-connected regions in Sub-Saharan Africa. With respect to the latter constraint, Facebook has been developing new methods to deliver internet access, of which the Amos-6 satellite was a part. Internet provision via satellite solves traditional problems to land-based infrastructure, as satellite broadband technology can overcome certain geographical barriers like mountains, deserts, or dense forests, for instance.

In a Facebook post written from Kenya, Mark Zuckerberg noted that, while the explosion is “deeply disappointing,” Facebook is developing alternative methods of expanding internet connectivity in lower-income regions. These methods include OpenCellular, a small device that can set up a local wireless network in areas that lack traditional cellular infrastructure, and Aquila, the solar-powered light aircraft that would use laser technology to beam internet service down to remote areas. The Aquila aircraft are conceptualized as working in tandem with satellite technology to help provide wide-ranging internet coverage from the sky.

The problems of internet connectivity in Sub-Saharan Africa and other lower-income regions remains as urgent as ever. The internet is a major driver of growth and economic transformation, and enhancing further access in Sub-Saharan Africa through technological innovation would help unlock an unprecedented degree of entrepreneurship in the region.

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