No Holidays for African Currencies

As the currency crisis plaguing Sub-Saharan Africa in 2015 continued through the recent holidays, Nigerians have learned that they can have their naira, but they can’t spend it too. Nigerians saw several restrictions on foreign exchange (“forex”) put in place, limiting what they could do with their naira. Triggered by the dive in oil prices that impacted foreign currency reserves, New Central Bank Governor (“CBG”), Godwin Emefiele, banned the use of forex for the importation of several dozen products in mid 2015. By the holiday season, the annual limit for dollar-denominated ATM transactions dropped from $50,000 to $5,000, after dropping from $150,000 mid-year.

Under directives from the Central Bank, Nigerian banks restricted customers from using their bank cards in foreign exchange transactions during December and January, when many Nigerians travel internationally. For some, the daily spend limit was only $100 a day. Desperate Nigerians resorted to travelling abroad with several bank cards to withdraw forex. The Central Bank discontinued the sale of foreign exchange to Bureau de Change operators in the country in mid-January 2016. Many online payments in foreign currencies remain blocked for Nigerian cardholders and restrictions remain in place for Nigerians looking to send money overseas. In a small reprieve, restrictions on using local cards abroad were removed in January.

The official exchange rate of US dollar to Naira is holding at 199 as President Muhammadu Buhari reaffirms that he will not devalue the currency. Forex restrictions are the government’s preferred alternative to devaluation as President Buhari expressed concerns that Nigeria’s poor would suffer with the rising inflation and costs of such a move.

However, many are critical of President Buhari’s decision. The well-respected former CBG Lamido Sanusi, commented that the drawbacks of this monetary policy outweigh any “dubious benefits.” Currently, the black market exchange rate, called the “parallel market,” has the value of one dollar at 322 N, up from 250 N just at the beginning of January. Though entities such as the IMF have called for more flexible foreign currency policies, there is no indication that official devaluation will occur any time soon. The government is, however, currently in talks with the World Bank seeking a loan package to cover the predicted deficit.

Though Nigeria’s forex restrictions were more unusual, Nigeria is far from alone in its currency troubles.

Zambia. Trouble for its large copper industry put pressure on Zambia’s kwacha in 2015, with copper selling at half its 2012 price. An extreme power shortage also hurt Zambia’s economy in 2015. Zambia resisted turning to the IMF for emergency aid, but by July 2015, the international reserves were only $3.87 billion.  The fate of the Zambian currency has been so uncertain that a national day of prayer was devoted to the struggling kwacha last year. Yet, increased interest amongst foreign investors and purposeful intervention by the Central Bank may show the kwacha making measured gains in 2016.

Ghana. The cedi depreciated 18.75% against the dollar in 2015 in one of the worst dips on the continent, now trading at around GH¢3.9 to a dollar. The dip in oil prices, high levels of imports, and repatriation of foreign currency by multinationals has been blamed for the continuing depreciation. Although the Bank of Ghana believes that depreciation will slow in 2016, others believe that the cedi will lose more value, ending the year between GH¢4.7 and GH¢5.1.

Uganda. Rapidly rising inflation, which the Central Bank believes may reach over 10% this year, is straining the resources of Ugandans. Food prices are on the rise and the value of the shilling is falling; the shilling depreciated something to the tune of 17.5% in 2015. However, most of the depreciation happened prior to September, with the shilling rallying in the latter part of the year. A tightening monetary policy and rise in exports due to the currency depreciation may shape 2016 into a more positive year for the Ugandan shilling and people.

South Africa. After losing over 25% of its value in 2015, the rand hit as low as R17.99 against the US dollar in January 2016. President Jacob Zuma removed the Finance Minister Nhlanhla Nene in December in a move now dubbed “Nenegate,” which led to uncertainty and a noticeable dip in the currency value. Spurred by low commodity prices and weak economic growth, some think that the Rand will sink to 20 ZAR per dollar before even the hike in tourism and the price of gold stems the flow.

Many other Sub-Saharan countries are experiencing similar currency woes as the African continent has not been spared from the currency and economic troubles seen around the world. The above highlighted countries are some of those hit especially hard. The best way for African governments to rein in the currency devaluation and inflation is to implement smart and strict fiscal policies that promote exports, while focusing on an expansion away from the commodity-dependence that has made them vulnerable to sharp currency fluctuations.

Khadijah Robinson is a Law Clerk and attended Harvard Law School.

How Mozambique Can Realize IMF’s Recent Predictions of Exponential Economic Growth

Early last month, the International Monetary Fund (IMF) caught the attention of investors when it issued a report predicting that Mozambique’s average economic growth rate between 2021-2025 could reach as high as 24 percent per annum and liquefied natural gas projects (LNG) could reach more than 50 percent of the country’s nominal output by the mid-2020s.  While this growth and these production levels are attainable, they are based on a number of assumptions and what the IMF describes as “various risk factors [which]could significantly change the long-term projections.”

First, gas processing facilities in the Rovuma Basin will need to begin production by 2021.  The Mozambican government already has made a significant step forward by approving the Decree-Law nº 2/2014 of 2 of December, which establishes the legal and contractual regime applicable to the LNG projects in the Areas 1 and 4 of the Rovuma Basin. According to the IMF, the total investment in these two areas could exceed one hundred billion dollars and Mozambique would become the world’s third largest LNG exporter.

Second, peace and security based on inclusive growth must be one of the government’s top priorities in the short term.  The opposition party Renamo is putting an increasing amount of pressure on the governing Frelimo party and threatening to use force to achieve its political objectives.  An unstable political situation, whether real or perceived, could deter foreign investment thereby threatening the development of the country’s gas sector and other economic development goals.

Finally, the government has been engaged in an  economic and social reform process, which will lead to significant poverty reduction in the country, although other development challenges remain such as fighting corruption.

The government will continue to  invest heavily in  public sector reform and capacity development, with the objective of improving efficiency, enhancing transparency and devolving responsibility from the highly centralized ministries to the provinces and districts. The government, according to the IMF, also needs to develop and consolidate a macroeconomic policy focused on three main goals: (i) diversification into an economy that is sustainable and not overly reliant on the mega-LNG projects; (ii) proper management of the expected financial windfalls from the gas sector; and (iii) investment in infrastructure and other critical sectors of the economy. Implementing these policies will be critical to Mozambique achieving its long-term high-growth potential.

*Sandro Jorge is a senior lawyer at Couto, Graça & Associados in Mozambique and is a guest contributor to CovAfrica.

Nigeria’s automotive industry shifts into high gear

In late 2013, the administration of then-President Goodluck Jonathan made a bold bet: that it could jumpstart the country’s ailing automotive industry through a comprehensive—and controversial— industrial policy, known as the National Automotive Industry Development Plan (NAIDP). Although the policy is still young, there are now promising signs that these efforts to revive the once-vibrant industry are starting to pay off—which bodes well for the current administration’s drive to diversify the oil-focused Nigerian economy.

Nigeria is certainly no newcomer to the automotive industry: from the 1960s to the late 1980s, a number of private and government-owned vehicle assembly plants operated in the country, but production dwindled down to virtually nothing in the 1990s and 2000s as a result of protracted economic downturn and plummeting oil prices. As local assembly came to a gradual halt, vehicle imports in Nigeria flourished; today, most vehicles in Nigeria are imported—and largely used (so-called “tokunbo”) imports at that. Now, the NAIDP seeks to reverse this trend, most visibly by more than tripling import tariffs on cars (to 70%) and on commercial vehicles (to 35%).

These tariff hikes on imported vehicles, it is hoped, will (re-)incentivize local assembly of vehicles (from imported parts), with a view to full domestic manufacture in the medium to long term. To complement this hike, import tariffs on partially-assembled vehicles were set at discounted rates of 5 to 10%, whereas the tariffs on parts for full assembly were completely eliminated. Despite widespread backlash against the tariff increases, year-long delays, and a change in administration with the election of President Buhari last year, the new tariffs have nonetheless come into force (on new cars at least: there are reports that tokunbo cars are still subject to a lower tariff).

The results of this policy are just now starting to show, and they reveal early markers of success. According to recently-released data, imports of new cars into Nigeria decreased by 67% in 2015 relative to the prior year, exceeding the government’s 65% target. (The continued decline of the naira may also be a factor, as car imports have become more expensive). At the same time, domestic assembly appears to have picked up sharply. Prior to the NAIDP, 15 assembly plants remained in Nigeria, only three of which were operational. Now, barely two years later, nearly all of the dormant plants have become operational again, and the government has granted a number of licenses for new assembly plants, bringing the number of assembly plants in Nigeria to at least 35. A number of major international brands have begun assembly through local partners, as has at least one Nigerian company, the much-heralded Innoson.

If such trends continue, Nigeria’s automotive landscape could change rapidly: for instance, in a recent report, PricewaterhouseCoopers (PwC) forecasts that, in a best-case scenario, Nigeria could begin full automotive manufacturing in 2023, phase out all tokunbo vehicles by 2034, and achieve new car sales of over 1 million per year by 2035.

Rosy forecasts aside, several challenges must still be tackled for Nigeria’s automotive policy to be a long-term success. Despite the current investor enthusiasm buoying the sector, automotive manufacturers have been nervous about the policy direction for the NAIDP now that President Buhari is in the driver’s seat. Certainly, the Buhari administration has emphasized the importance of diversifying the economy away from reliance on oil revenues, and developing a robust domestic automotive industry falls squarely within this vision. Still, the new administration may take a different approach than its predecessor. For instance, in October, the government suspended issuance of licenses for new assembly plants, allegedly to focus on developing local content. Moreover, the government’s recently proposed 2016 budget has drawn criticism, because of all of the government vehicles proposed to be purchased for the presidency and the legislature, worth billions of nairas, none are models that are currently being assembled in Nigeria. (The car budget was subsequently revised substantially downward). The change in administration is also said to have factored in to the recent troubles of Innoson, which fired half its workers in the last few weeks. Beyond soothing investor concerns, the government will also need to address the very real risk to its auto policy that vehicle imports will be diverted to the ports of nearby countries and brought through Nigeria’s notoriously porous land borders in order to dodge the high tariffs.

The challenges to Nigeria’s automotive vision aren’t just supply-side issues. On the demand side, an important challenge will be to provide finance to enable Nigerians to purchase cars: PwC’s report identified that over 60% of Nigerians require some type of financial support to be able to purchase a car. On this front, there are encouraging signs: the country’s National Automotive Design and Development Council has recently announced that, as part of the NAIDP, it would be rolling out an affordable “Made-in-Nigeria” vehicle purchase scheme later this year for vehicles assembled in the country.

If it can manage these and other challenges, Nigeria is well positioned to emerge as a hub for Africa’s future automotive industry. The country is the most populous in Africa and boasts a growing middle class—all of which could drive high domestic demand for new cars. Better yet, the potential market for Made-in-Nigeria cars is not bounded by the country’s borders: with its favorable geographic location, Nigeria could be exporting to West Africa and beyond in the not-too-distant future.

AfDB President Launches “New Deal on Energy in Africa”

New African Development Bank President Akinwumi Adesina chose last week’s World Economic Forum at Davos for the official launch of the Bank’s New Deal on Energy for Africa, along with a Transformative Partnership for Energy in Africa (TPEA).  While a candidate for the AfDB president position a year ago, Adesina placed energy at the top of his list of priorities for the bank and continent.  Now as president he is acting on his promises and positioning the AfDB to play the leading role on energy expansion and access in Africa.

The New Deal aims to reach universal access of power for Africans by 2025.  Today, nearly 660 million Africans lack access to reliable power.  To achieve the New Deal’s goals, Adesina says Africa needs to add 160,000 MWs of on-grid power (about 800 new power plants) for 130 million new connections.  In addition, off-grid power solutions will provide another 75 million connections.  The AfDB, and other donors, are banking on “pay-as-you-go” home solar systems as a quick fix to the power deficit in rural and peri-urban areas.  Although the systems offer commercial scalability — quick roll-out and a good financing model — they do not generate sufficient power for small businesses and agro-processors.  Mini- and micro-power grids, which can actually stimulate economic growth, will need to be factored into the New Deal’s mix of solutions.

Borrowing from the model of the G-8’s New Alliance for Food Security, Adesina, the former Minister of Agriculture from Nigeria, is turning to the private sector for investment and know-how.  Development banks will continue to perform critical roles, however.  According to Adesina, the African Development Bank has invested a total of $34 billion in infrastructure (all forms of infrastructure) over the last ten years.  For the next five years, as part of the New Deal, the Bank will double the amount of money it spends on energy from $6 billion to $12 billion.  Equally important, he is on a campaign to persuade other development finance institutions and donors to increase their funding commitments for power.  As for the private sector, the new TPEA, a virtual investment platform, is expected to leverage an annual minimum of $40 billion in investment through the use of innovative de-risking instruments, such as credit enhancements, early stage equity, political risk insurance, and partial risk guarantees.

Do Africa’s political leaders share this same sense of urgency?  Adesina gives a resounding “yes” to the question, but he adds, they will have to live up to their commitments by making tough decisions.  First, government spending in the energy sector will need to increase from what is now 0.3 percent of GDP to 3.4 percent.  By doing so, Adesina estimates that an additional $50 billion a year would be available for allocation into the energy sector.  Equally difficult for leaders will be the tough policy decisions required to attract more private capital into bankable energy deals, everything from improving the legal and regulatory environment to de-politicizing tariffs by creating independent regulatory boards to set pricing.

A critical question is whether the Bank — and everyone else — can actually do what Adesina has envisaged.  Success will hinge not only on the Bank’s ability to increase its absorptive capacity, speed up its execution rates, and integrate its numerous instruments more holistically to meet the needs of its clients (i.e. the private sector and governments), but also on the ability of partners to structure bankable projects, build the necessary backbone infrastructure, mobilize vast sums of money, and execute.  Some changes in the Bank’s structure and leadership might be needed to break old habits and systems and streamline decision making.  It is a long shot that the New Deal will achieve its highly aspirational vision of universal access by 2025, which coincidentally would mark the end of a second term for Adesina as the Bank’s president.  It is the boldest initiative ever for the Bank, and Adesina’s presidency will most likely be judged against the goals he announced in Davos.

The AfDB president also acknowledged the importance of the many energy initiatives that seek to increase energy access in Africa, such as “SE4ALL”, the Obama Administration’s “Power Africa”, and the U.K.’s recently announced initiative, “Energy Africa”, among several others.   The New Deal, through the Transformative Partnership on Energy for Africa, builds on those initiatives — one could actually say integrates them — lays out a bold vision, and places the AfDB at the helm by bridging donors, the private sector, and African governments.

Can Adesina pull off all the changes necessary for success; or will the New Deal become a reshuffling of the same deck?

An end to the never-ending South African poultry dispute?

President Obama, on January 11, suspended the application of duty-free treatment to South Africa’s agricultural exports that come into the U.S. under the African Growth and Opportunity Act (AGOA). The suspension will take effect on March 15 if South Africa does not lower tariffs on American poultry products before then.

The development represents another twist in a saga that gained momentum nearly two years ago when U.S. poultry and meat producers called on Congress to not renew AGOA as long as South Africa continued to keep their products out of its market by imposing maximum import duties of 82 percent.

In fact, in the 24 months leading up to AGOA’s renewal for 10 years last June, South Africa was concerned that it might be “graduated” from AGOA altogether. There were some in Congress who argued that, given the advanced nature of South Africa’s economy and the fact that it is the largest AGOA beneficiary due largely to the volume of automobiles exported to the U.S., South Africa did not need the program. This situation led to a sustained, and ultimately successful, effort by South Africa’s Minister of Trade and Industry Rob Davies to persuade the Obama administration and members of Congress that denying benefits to South Africa would be to the detriment of the Southern Africa region and not just South Africa itself.

Throughout the AGOA renewal process, two of the most outspoken advocates for strong commercial ties between the U.S. and Africa, Senators Chris Coons (D-DE) and Johnny Isakson (R-GA), were also adamant that U.S. poultry producers be given fair access to the South African market.

Earlier this month, on January 7, Minister Davies announced that the issue had been resolved. South Africa would open its market immediately to 65,000 tons of U.S. poultry imports and U.S. exporters would receive a rebate on any anti-dumping duties. U.S. Trade Representative Michael Froman, however, responded that obstacles remained and that the “final benchmark” would be the ability of South African consumers to buy the American products in local stores.

President Obama’s action four days later drove the message home: The U.S. would not tolerate the unfair treatment any longer.

In a comment to South African media last week, Mike Brown, the president of the U.S. National Chicken Council, said that the last hurdle was for the South African government to issue import certificates and for U.S. food and safety inspectors to approve the exports. Brown estimates that U.S. product could be in South African stores within 30 days, prior to the March 15 deadline.

In fact, a deal to end anti-dumping and food safety and health trade barriers on U.S. poultry was reached last June in Paris between South African and U.S. negotiators. Final removal of these barriers, however, has been exceedingly slow, leading to the Obama threat to suspend South African agricultural products.

If the suspension goes into effect, the impact would be significant, especially as it concerns the wine and citrus industries in the Western Cape. Last year, South Africa exported $176 million worth of agricultural products to the U.S. under AGOA, and the wine industry alone employs nearly 170,000 workers.

There is optimism that this trade dispute can be resolved. In a statement issued in early January, Senator Coons and Isakson said that South Africa’s decision to fulfill the obligations of the Paris agreement would mean that “after more than 15 years of illegal anti-dumping duties and unfair trade policies, American poultry will finally be able to enter the South African market.”

In contrast to the negotiations a decade ago to create a free trade agreement between the U.S. and the Southern African Customs Union, which ended in failure, both U.S. and South African negotiators have remained focused on achieving a successful outcome to the poultry dispute.

A positive outcome to this trade dispute would create welcome momentum in U.S.-South African trade relations. As South Africa assesses its relationship with China and the other BRICS (Brazil, Russia, and India), a successful resolution to the poultry dispute would be a useful reminder of the value that both sides attach to their commercial partnership. It could also create the context for dealing with other thorny issues about which the U.S. is concerned, including the Private Security Bill, which would require 51 percent local ownership of international security firms, and the erosion of U.S. export competitiveness due to the Economic Partnerships Agreement between the Southern Africa Development Community, of which South Africa is a member, and the European Union.

Witney Schneidman is a nonresident fellow at the Africa Growth Initiative in the Global Economy and Development program of the Brookings Institution. This piece was first posted on Brookings’ Africa in Focus blog.

Climate negotiation scorecard: how did Africa fare at the COP 21?

The outcome of the 21st Conference of Parties (COP) of the UNFCCC, which came to a close just over a week ago in Paris, was generally a positive one for Africa. While, of course, the continent represents a wide range of interests when it comes to climate change, African countries have developed an increasingly unified voice over the years of climate negotiations. The adoption of the legally-binding Paris Agreement reflects many of the key positions of the Africa Group negotiating at COP 21 on behalf of African countries. That said, African opinions diverge on the Paris Agreement, even within governments, with some observers jubilant while others believe the treaty is too weak.

As a preliminary matter, it goes without saying that the very achievement of a legally binding treaty is, in itself, momentous, as are the decisions to limit the increase in global warming to a 2° C increase above pre-industrial levels and to pursue efforts to limit such an increase to 1.5° C. The latter target is of particular importance to African countries, given the continent’s unique vulnerability to the impacts of climate change. African commentators have expressed concern not at the goals themselves, but about the compliance mechanism for achieving them: countries are not legally bound to achieve the emissions cuts that they outlined in the Intended Nationally Determined Contributions (INDCs) they submitted prior to the COP 21. (Parties are, however, bound to ratchet up their subsequent Nationally Determined Contributions (NDCs) every five years.) Article 15 of the Paris Agreement does establish a compliance mechanism, but one that is non-punitive and instead relies on transparency. The decision accompanying the Paris Agreement acknowledges that there is a significant gap between the aggregate expected effect of the INDCs—which could limit average global temperature increases to roughly 2.7° C—and the treaty’s stated 2° C limit.  Many are concerned that, while the aspiration of limiting warming to 1.5° C is laudable, the rest of the treaty is insufficient to reach a limit in warming of 2° C, much less 1.5° C.

Adaptation is also more strongly embedded in the Paris Agreement relative to prior treaties—another important achievement for African countries, for which adaptation is a climate change response priority. Article 7 of the Paris Agreement establishes a “global goal on adaptation,” which had previously been proposed and pushed forward by the African Group. The global goal on adaptation aims to strengthen adaptive capacity and climate resilience through international cooperation and the mobilization of support, and should catalyze larger funding flows to adaptation efforts in Africa and elsewhere. The Paris Agreement is relatively vague on this issue—for instance, it does not mention agriculture, which the African group had been advocating—and it does not contain qualitative or quantitative climate finance targets; however, the treaty’s associated decision at least sets in motion the process by which such specificity may be determined and achieved.

Speaking of finance, developing countries managed to set the much-heralded $100 billion annual commitment from developed countries for climate finance as a floor to be ramped up after 2025. This was a key demand from developing country parties, including all African countries, and many of the mitigation and adaptation plans set out in African INDCs are contingent on the level of funding received from developed country parties. However, African commentators have noted the uncertainty surrounding who will provide these funds, and how. Article 9 of the Paris Agreement refers to the “mobilization” of climate finance from “a wide variety of sources, instruments and channels,” which means that a significant portion of climate finance may come from the private sector (although Article 9 notes the “significant role of public funds” in mobilizing climate finance. Some African commentators have also deplored the fact that there is no additional financing for “Loss and Damage” that vulnerable countries will incur due to unavoidable climate change, while others celebrate that a stand-alone article is devoted to the topic—something championed by the Africa Group—even if it explicitly rejects notions of liability or compensation.

Moreover, new funding mechanisms targeting Africa were also announced in anticipation of the conference or at sideline events. For instance, at the Climate Change and African Solutions summit on December 1, France’s President Hollande committed EUR 2 billion to fund renewable energy projects in Africa before 2020. In late November, the World Bank announced its $16 billion Africa Climate Business Plan to help enhance adaptation measures across Africa. And during the conference, North American and European governments also earmarked $150 million of funding to support the African Risk Capacity Centre, a specialized African Union agency that focuses on developing insurance models for African countries to manage the risk from natural disasters such as drought.

Aside from climate finance, another notable outcome of the Paris Agreement is Article 5’s recognition of carbon sinks, especially forests; the treaty encourages parties to support conservation, including the Reducing Emissions from Deforestation and Forest Degradation mechanism. This provision is important for Africa, given that the continent’s forests are major carbon sinks—especially the Congo Basin, which has one of the largest forest reserves in the world.

Finally, one of the significant successes of developing country negotiating blocs, including the Africa Group, is the preservation of the “common but differentiated responsibilities” (CBDR) concept. CBDR is explicitly mentioned a few times in the final treaty text, but the notion is also embedded deep in the text. In nearly every aspect, whether it is mitigation, finance, NDCs, or transparency, the treaty distinguishes between developed and developing country responsibilities, with “least developed countries” and small island developing states often recognized as categories of their own.

Regardless of one’s position on the outcome of negotiations for African countries, it is well understood that the agreement is “just” a beginning: the Paris Agreement sets in motion an evolving process, the implementation and revision of which will depend crucially on the political will of the parties to the agreement and a range of other actors. If the Africa Group continues to lead on the parameters of climate action, it will help shape the legacy of the Paris Agreement.

Assessing the Paris Climate Agreement

Much no doubt will be written about how 195 nations came together in Paris to make a global commitment to tackle climate change and what changes in regulation and the investment landscape might result. From my vantage point in Paris during the negotiations, a few key impressions stand out.

First, the agreement overcomes those past flaws that prevented a more universal endorsement, including fully by the United States. Rather than being a top down allocation of an emissions budget, it relies on each country to identify those measures it will take to address greenhouse gas emissions. This eliminates the past distinction between developed and developing countries and seems to contain a more equitable burden sharing, epitomized by the extensive green energy commitments China has made.

Second, the degree of business participation in the discussions and the commitments many businesses brought forth were quite extraordinary. Large companies in the United States signed on to the Business Acts for Climate Pledge, the We Mean Business coalition brought other business commitments, and the U.N. Global Compact registered actions by many more. Large electricity generators and oil and gas producers called for a price on carbon, and renewable energy generators highlighted the scale of their recent deployments.

Government and United Nations negotiators heard a clear message that many capable companies and investors believe in clean energy solutions and are rethinking their business models to develop more nimble, technologically-oriented models. Some of this optimism flowed from the new connectedness that technology enables and the ever accelerating pace of that technological change. Many in Paris envisioned a sense of new possibilities for economic growth from the need to decarbonize economies, rather than a pervading sense of limits and sacrifice.

Third, the numerous regulatory and diplomatic steps that the United States has pursued these past several years provided it with significant negotiating credibility. By coming equipped with extensive emissions reductions from EPA’s power plant regulations and the doubling of motor vehicle efficiency standards, and having worked closely with China and India through bi-lateral efforts, the U.S. was able to achieve its key negotiating objectives. Thus, the final agreement includes enhanced transparency and review provisions to help to ensure that country emissions reduction commitments prove to be meaningful. U.S. negotiators also carefully avoided new legal obligations and thereby arguably minimized the need for Senate confirmation before a deeply polarized Congress, much as occurred with the Minamata Convention on mercury emissions.

Fourth, the agreement follows the pattern of existing domestic environmental laws in recognizing that it may not be a perfect solution, in and of itself, and that the science will continue to evolve. Similar to the Clean Air Act’s five year review provision for fundamental health-based pollutants, the Paris climate agreement acknowledges the need to calibrate future emissions reductions based on new science and will regularly assess the success of country measures in meeting the emissions targets.

While the agreement and on-going support for it in the United States surely will spawn much on-going debate and many challenging implementation issues, what happened in Paris represents a tectonic shift in the global approach to climate change and energy.

This post can also be found on Global Policy Watch, the firm’s blog on key public policy developments around the world.

Tanzania, Kenya and Nigeria Finally Stepping Up Anti-Corruption Efforts

Over the past two days, members of the private sector, government and civil society have gathered in Nairobi to discuss the role of the private sector in fighting corruption and implementing the Sustainable Development Goals.  The scourge of corruption has long been one of the main obstacles to realizing the incredible potential of the people and resources in Sub-Saharan Africa.  While there certainly is still progress to be made, some of the continent’s key markets finally appear to be stepping up their anti-corruption efforts.

Tanzania. Inspiring both a hashtag (#WhatWouldMagufuliDo) and a new verb (“to magufulify”), new president John Magufuli has instituted dramatic measures to address corruption and excessive government expenditure in Tanzania.  These actions have included a ban on foreign travel for nearly all government officials; cancelling the annual Independence Day celebrations and reallocating the money towards hospitals and fighting a cholera outbreak; a surprise inspection on the main state hospital that resulted in firing the hospital chief and dissolving its governing board; and the suspension of the Tanzania Revenue Authority Commissioner and other senior officials pending an investigation into unpaid taxes at the Dar es Salaam port.  These measures have garnered widespread praise from citizens of Tanzania and across the continent.

Kenya. Kenyan President Uhuru Kenyatta and his administration have been under intense pressure to address the rampant corruption in the country especially after an audit revealed that 98.8% of the government’s 2013-2014 budget could not properly be accounted for.  Late last month, Kenyatta declared that corruption has become a national security threat and unveiled a range of reforms in the areas of procurement, customs and revenue, and anti-money laundering.  In addition, he has fired the five cabinet secretaries who had been suspended earlier in the year on corruption charges.  However, some critics wonder if these actions are only political posturing ahead of the upcoming 2017 elections.

Nigeria. Combatting corruption was one of the pillars of the campaign of Nigerian President Muhammadu Buhari.  Since assuming office in May of this year, Buhari has overhauled the senior management at the Nigerian National Petroleum Corporation and ordered a complete audit of it and the country’s other revenue generating agencies including the Central Bank of Nigeria, the Federal Inland Revenue Service and the Nigerian Customs Service.  In addition, he has initiated investigations against a number of prominent figures from the previous administration including former Petroleum Minister Diezani Allison-Madueke and former national security adviser Sambo Dasuki.  He also has appointed a new acting chief for the country’s anti-corruption agency.  Notably, Buhari has enlisted the support of the United States, the United Kingdom and other members of the international community.

These efforts are long overdue but only time will tell if they are sincere and sustained.

Africa’s long road to Paris

As the UNFCCC’s twenty-first Conference of Parties (COP) gets underway in Paris today to negotiate a post-2020 international climate treaty, it is time to recognize that African countries have come a long way in the global climate negotiations process. In the earlier days, climate change was portrayed as a scientific problem for so-called “developed” countries to debate among themselves; Africa was not seen as a potential actor but rather as a victim, passively bearing the brunt of climatic changes. African countries’ contributions to the yearly COPs were further constrained by insufficient resources and limited institutional capacity. However, over the years, African countries have become increasingly unified on climate change—no small feat, considering the stark differences in relative wealth, vulnerability to climate change, language, emissions, and oil and coal resources across countries.

The path to achieving something approaching an “African Common Position” has required a great deal of behind-the-scenes work. African countries have worked through regional blocs to provide input to the UNFCCC, notably as members of the African Group of Negotiators (AGN) as well as the influential “G77 + China” group, which represents developing countries. (Smaller subsets of African countries are also in the Alliance of Small Island States (AOSIS) and the Least-Developed Countries (LDC) group.) The AGN has become the front-line group by which African countries have represented their climate change interests to the world, bolstered by increased institutional coordination across the continent. For instance, the African Ministerial Conference on the Environment has provided technical input and political oversight to develop an African Common Position on climate change. This Common Position receives a high-level endorsement by the Committee of African Heads of State and Government on Climate Change (CAHOSCC), established by the African Union in 2009. Other bodies (like the AfDB) and regional events (like the yearly African climate talks) also feed into this process.

Of course, consensus is not always easy to come by: for instance, in 2009 in Copenhagen, fissures between Sudan and Ethiopia emerged, and certain representatives strayed from the African Common Position at the subsequent Cancun COP. However, thanks both to Africa’s increased prominence globally and the high-caliber technical and financial efforts expended to develop a robust Common Position, the AGN is in a better position than ever to advance African interests at the COP 21 in Paris. Yet African negotiators will be facing challenges in the next few weeks on the following issues:

  • Mitigation. Aside from the still-open question of emissions reduction targets, the issue of how to divide mitigation responsibility across developed and developing countries—and even how to define “developed” and “developing” countries in the first place—is one of the chief hurdles that Paris negotiators face. The Kyoto Protocol featured a static division between “Annex 1” (developed) and “Annex 2” (developing) countries, where only Annex 1 countries were bound to reduce emissions. Since then, developed countries have pushed to break the “firewall” between Annex 1 and Annex 2 countries and spread the mitigation burden across to the wealthier emerging economies, which Annex 2 countries (including African countries) met with resistance. The 2009 Copenhagen talks failed for precisely this reason. (This tension illustrates the principle of “common but differentiated responsibilities” (CBDR), which holds that all states are responsible for addressing climate change but that the mitigation burden for each country should reflect their level of economic development and their level of contribution to the problem.) However, since 2011, there has been a shift toward recognition that developing countries should also begin controlling emissions. Recent African attitudes toward CBDR also reflect this shift; for instance, the 2015 Africa Progress Report condemned the “sterile deadlock” over CBDR and instead encouraged developing countries to obtain the support they need to transition to a low-carbon economy. Still, adequate reference to CBDR in the final agreement is important to the AGN, yet the current final draft of the text heading into the COP 21 mentions CBDR only in some of its bracketed language.

The new approach to CBDR ahead of the Paris talks is a bottom-up one in which states submitted wholly voluntary, non-binding “Intended Nationally Determined Contributions” (INDCs)—i.e., emissions reduction goals. All African countries other than Libya have submitted INDCs (Nigeria and Angola cut it close, submitting their INDCs only on November 28 and 29, respectively). Because there is no set format or minimum emissions amount, African INDCs vary widely from one another in structure, ambition, and type of commitment (reduction-based versus action-based). Most African INDCs provide an emissions reduction target, typically to be reached by 2030 relative to a business-as-usual baseline; about fourteen African countries—ranging from Burkina Faso and Niger to Ghana and Morocco—specify an unconditional, minimum target (not dependent on receiving external climate finance) and then an additional target contingent on external funding. A number of countries’ targets are wholly contingent on funding, with no unconditional minimum reduction. At a minimum, however, these African INDCs provide a glimpse of each African country’s plan for a low-carbon, climate-resilient development pathway, which climate aid donors can use to guide their future support.

  • Adaptation. The issue of adaptation is an overriding priority for African countries, yet the draft agreement continues to be heavily mitigation-centric, despite Africa’s best efforts. At the COP 20 in Lima last year, the AGN had to fight to keep adequate reference to adaptation in the text. The fact that the current draft’s Article 4 contains language recognizing the importance of adaptation reflects the AGN’s enhanced role in prior negotiations, but the AGN is still said to be disappointed with the lack of focus on adaptation in the current draft.
  • Climate finance. The issue of financial support from wealthy countries to support adaptation and mitigation activities is of paramount importance for Africa, but, to date, the continent has been “poorly served” by climate finance. For one, funding has heavily focused on mitigation. Moreover, funding levels remain too low relative to need: UNEP has estimated that the average annual costs to Africa of adapting to unavoidable climate change would reach somewhere between $7-15 billion by 2020, and $15-18 billion in the following decade. Though estimates vary, Africa has been receiving closer to half a billion to at most $3 billion per year for adaptation; this amount will likely increase in the near future given the World Bank’s recently-announced Africa Climate Business Plan. To address this, some of the options favored by the AGN in the current draft call for a progressive scaling-up from a “floor” annual commitment of $100 billion for climate aid, to be allocated as determined by developing country priorities. While this language may be a tough sell for the AGN at the COP 21, climate finance (especially for adaptation) is another area in which the AGN will have an opportunity to demonstrate leadership.
  • Loss and damage. During COP 19, the AGN pushed the issue of how to address loss and damage caused by adverse climate events. In part as a result, a “Warsaw Mechanism for Loss and Damage” was established. Now, in the run-up to Paris, the AOSIS and LDC blocs have advocated for including a stand-alone “loss and damage” component for the post-Kyoto agreement. Certain developed countries have countered that loss and damage instead falls under “adaptation.” This is not just a matter of categorization: financial commitments could be at stake, as the goal of mobilizing $100 billion yearly by 2020 is supposed to cover both mitigation and adaptation, so stand-alone loss and damage could re-open funding negotiations. This advocacy by AOSIS and LDCs was preliminarily successful—Article 5 of the final draft text is separate from the article on adaptation and sketches the contours of a mechanism on loss and damage. However, the entire article is subject to removal.
  • Technology transfer. The issue of technology transfer remains a contentious one—notably because of intellectual property rights regarding green technologies—but one whose outcome will impact the shape of African countries’ trajectories towards low-carbon economies. While this issue will likely not be one of the main sticking points in the negotiations, the AGN will aim to obtain firm commitments on technology transfer and to boost the existing “Technology Mechanism” for green technology transfer.

The Paris talks represent a critical juncture for Africa. A recent Science article suggests that even if all countries around the world implement their INDCs, the probability that average warming will stay under 2°C is only about 8%. This means that vulnerable African countries and populations will, at a minimum, continue to be confronted with drought, food insecurity, and extreme climate events. So, in this COP 21, the AGN will need to negotiate fiercely to obtain the financial and technical climate assistance deemed necessary to adapt to unavoidable impacts. More than ever, a unified African position will prove crucial.

Kenyan Government Disavows Controversial Local Ownership Requirement

The Kenyan government has suspended a controversial local ownership requirement in the new Companies Act 2015.  The confusion regarding how the provision made its way into the law is unsettling for foreign companies that are interested in one of the region’s top investment destinations.

Regarded as an overdue modernization of Kenya’s company and insolvency laws, the Companies Act is a sizeable piece of legislation.  Indeed, the main provisions pertaining to foreign companies do not appear until over 680 pages into the law.  Pursuant to section 974, a foreign company cannot carry on business in Kenya unless it is registered.  Pursuant to section 975(2)(b), registration involves submitting an application that, inter alia, “demonstrates that at least thirty percent of the company’s shareholding is held by Kenyan citizens by birth.”

When President Kenyatta signed the Companies Act into law in September 2015, one of Kenya’s leading newspapers highlighted the provision as a “significant change” that was introduced “at the third reading” of the bill and whose consequences “may not have been fully appreciated.”  Notably, the Ministry of Industrialization and Enterprise Development republished this news article on its blog thus putting at least that Ministry on notice about the provision.

Yet, now over three months later, senior government officials are disavowing the provision and claiming that it never should have been in the law in the first place.  According to Attorney General Githu Muigai, the provision was not in the original draft of the legislation: “‘From all indications it was inserted at the committee stage.  It does not represent the current government policy on foreign investments.’”  Similarly, and notwithstanding his Ministry’s blog entry, Minister of Industrialization and Enterprise Development Adan Mohamed has stated that the provision “‘may have been overlooked during the legislation process but is obviously unrealistic’” and is “‘an error.’”  Deputy President William Ruto has called the provision “‘toxic’” and has promised to “‘look for a way of correcting the situation so as to create a favourable climate for investments.’”

In the past few years, the Kenyan government has tried and failed to impose local ownership requirements in the construction sector (proposed then removed), the mining sector (passed then repealed) and the telecommunications sector (required by regulations but waived for several major operators).  Did a local ownership requirement somehow make its way into the Companies Act and it took over three months for anyone to notice? Or was this actually another attempt to introduce local ownership requirements in Kenya?  Neither scenario is particularly reassuring.

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