Secret Ballot for President Zuma’s Upcoming No Confidence Vote

The speaker of the National Assembly chamber of the South African parliament, Baleka Mbete, ruled that tomorrow’s vote on the motion of no confidence in President Jacob Zuma would be conducted by secret ballot. Most of the country’s opposition parties have welcomed her ruling, viewing it as a catalyst for a different outcome. Since March 2015, three voted-on motions of no confidence in President Zuma have been quashed and five other attempts to procure a vote on such motions were scuppered by the ruling African National Congress (ANC) party

So how would a secret ballot vote enable a different outcome?

The circumstances surrounding tomorrow’s vote of no confidence are different to those surrounding previous votes of no confidence in President Zuma. For starters, the current vote was called soon after the President fired the then Minister of Finance, Pravin Gordhan and the deputy Minister of Finance, Mcebisi Jonas in an unexpected cabinet reshuffle – a move that several senior ANC officials publicly spoke out against, and which according to financial analysts was a key reason for South Africa’s credit downgrade to junk status. Further, the vote is being heard close to four months after it was originally scheduled for hearing, and numerous intervening, and unflattering, events have strengthen the opposition parties’ position.

The delay in hearing the debate was partially attributed to a Constitutional Court application moved by opposition parties, UDM (United Democratic Movement) and EFF (Economic Freedom Fighters). These opposition parties requested the Constitutional Court (the highest court in the country) to order the Speaker to conduct the vote on the motion of no confidence by secret ballot. The Speaker argued in her court papers that she did not have constitutional powers to institute a secret ballot for such vote.  The Constitutional Court declined the opposition parties’ request, stating that such an order would violate the separation of powers. Instead, the Constitutional Court, in a unanimous decision, affirmed that the speaker did have the constitutional powers to institute a secret ballot for a vote of no confidence in the President. The judgment reads: “[A]s in the case with general elections, where a secret ballot is deemed necessary to enhance the freeness and fairness of the elections, so it is with the election of the president by the National Assembly. This allows members to exercise their vote freely and effectively, in accordance with the conscience of each, without undue influence, intimidation or fear of disapproval by others…”. Bolstered by this decision, the opposition parties threatened to go to court if Baleka Mbete had refused to allow a secret ballot.

Another distinguishing circumstance is the increasing pressure being brought to bear on the President to step down from office. Marches organized by civic organizations, trade unions and opposition political parties over the past four months have drawn tens of thousands of citizens to the streets demanding that President Zuma resign. The ruling party’s alliance partners, the South African Communist Party and trade union federation, Cosatu, have publicly called for the President to step down, and have banned him from attending their respective rallies. Allegations of graft and corruption levelled against those close to the President, including his closest advisors and his sons, have not helped the President ward off the attacks against him.

Further, members of the ANC have been emboldened by public and private persona speaking out, and for the first time have broken rank calling for the President to resign. Some of the ANC members of parliament (MPs) have indicated that they would vote with their conscience (as opposed to adopting the traditional approach of toeing the party line) in the vote tomorrow. The secret ballot gives other ruling party MPs the opportunity to vote with their conscience without fear of reprisal.

The ANC has 249 MPs. For a motion of no confidence in the President to carry, the motion must be supported by a majority of the MPs (i.e. 201 of the 400 MPs in the National Assembly). The opposition parties collectively have 151 MPs in the National Assembly, and therefore need the support of 50 ANC MPs to vote with the opposition parties for the vote to carry.  Julius Malema, leader of the EFF confirmed that his party is lobbying the ANC MPs to vote their leader, President Zuma out of office. The ANC stated that it is confident that its MPs will not vote with opposition parties in the no confidence vote tomorrow.

If the motion of no confidence carries, the President and the entire cabinet must resign. The speaker of the National Assembly becomes the acting President, and the National Assembly must elect a new President from among its members at a time and on a date determined by the Chief Justice of the Constitutional Court not later than 30 days after the vacancy occurs.

A vote which many until today believed would be uneventful has suddenly become a key highlight in South Africa’s political calendar and an event in respect of which the populace keenly awaits the result – as they would ordinarily await the result of a general election.

The Trump Administration’s First African Growth and Opportunity Act Forum

Next week, some 40 African finance and trade ministers, along with a large contingent of senior U.S. government officials will descend upon the coastal city of Lomé, Togo for the annual African Growth and Opportunity Act (AGOA) Forum.

There will be more eyes on this year’s Forum. Aside from Secretary Ross’ brief address at the Corporate Council on Africa’s Annual Summit earlier in the summer, this will be the first opportunity to hear the Trump Administration substantively outline their approach to economic and trade relations with the continent.

Leading the U.S. delegation to the Forum will be U.S. Trade Representative (USTR) Ambassador Robert Lighthizer and he will be joined by representatives from the State Department, Treasury Department, USAID, Department of Agriculture, among other agencies.

AGOA, first approved in May 2000 and subsequently reauthorized, provides duty-free access for more than 6,000 items exported from eligible sub-Saharan African countries. The program is intended to stimulate economic growth through a market based approach that will help Africa integrate into the global economy.

Uniquely, the Administration is mandated by the legislation to organize the Forum annually, for the purpose of “discuss[ing] expanding trade and investment relations between the United States and sub-Saharan Africa and…encouraging joint ventures between small and large businesses.” By all accounts, the AGOA Forum continues to be the primary mechanism, and opportunity, for  discussing policy matters that impact the commercial relationship between the U.S. and Africa. Since the private sector and civil society are integral to these discussions they also have a seat at the table at the Forum.

It is expected that the American delegation will emphasize the importance of adhering to the eligibility criteria of AGOA, particularly on issues related to “the elimination of barriers to United States trade and investment.” AGOA and its cyclical (and off-cycle) review process gives the Administration a significant, and flexible, tool to push African governments on their priority issue – ensuring American companies can fairly compete on the world stage.

A recent example is the successful March 2017 petition for an off-cycle review by the Secondary Materials and Recycled Textiles Association (SMART) claiming that the East African Community’s recent decision to ban imports of used clothing and footwear is a violation of the AGOA eligibility criteria. Last month, the Trade Policy Staff Subcommittee of USTR held an open hearing on the matter and is currently reviewing public comment and testimony with a decision expected by the end of the year.  At stake is the full or partial duty free benefits of Rwanda, Tanzania, and Uganda.

Africans are rightly concerned about the future of AGOA and its associated benefits. Some expect it will be difficult to continue justifying the one-way trade preference when AGOA expires in eight years. Discussions should be begin now on what the U.S. – Africa trade relationship will consist of in a post-AGOA world. As private industry begins making strategic and commercial decisions like future supply chains routes, it would give them some confidence to know that both sides are thinking about next steps.

The U.S. Congress, specifically the House Foreign Affairs Committee, is considering ways to improve and strengthen AGOA. Last week, Chairman Ed Royce and a group of bipartisan committee leaders introduced the AGOA and MCA Modernization Act (H.R. 3445). This legislation encourages policies that promote trade and cooperation, while providing much-needed technical assistance to help eligible partners fully utilize AGOA. Given the recent economic trends of embracing regional trade, this legislation also importantly grants the Millennium Challenge Corporation increased flexibility to support regional integration by allowing up to two simultaneous compacts with an eligible country.

With the attention and manpower that the Trump Administration is dedicating to the AGOA Forum and sustained congressional interest in promoting U.S. – Africa trade, there appears to be an understanding across the U.S. government that sub-Saharan Africa remains an important market for U.S. businesses and the global economy.

Ross Outlines Trump’s Commercial Policy Toward Africa

Last week in a speech to the U.S.-Africa Business Summit sponsored by the Corporate Council on Africa, Secretary of Commerce Wilbur Ross signaled that there would be continuity in U.S. commercial policy to Africa.

Ross struck a positive tone and noted that President Trump described Africa as a “place of opportunity” at the May G-7 meeting in Taormina, Italy. The secretary also noted that the strong growth in U.S. exports to Africa over a 15-year period, total trade is up over the same timeframe, and the U.S. trade deficit with Africa has declined. As he put it, the U.S. has to continue the transition from aid to trade in its relationship with Africa, an approach consistent with the Clinton, Bush, and Obama administrations. With key senior Africa positions still unfilled, especially at the State Department and the National Security Council, Ross’ remarks are a step forward in filling the gap on Trump’s Africa policy.

Here were Ross’ key points:

  • The African Growth and Opportunity Act (AGOA) continues to be the cornerstone of the U.S.-Africa commercial relationship. Ross did say that the Trump administration takes AGOA’s eligibility requirements “very seriously,” which may be a signal that the frequency of out-of-cycle reviews will increase. He said also that the administration will “vigorously protect” U.S. companies and workers, calling on African governments to help U.S. companies resolve obstacles and investment barriers.
  • Though the secretary noted that bilateral trade agreements can be more effective than multilateral trade agreements, Ross made no commitment to increase the number of bilateral investments treaties (BITS) beyond the six the U.S. currently has with governments in sub-Saharan Africa. Nor did he make any reference to a post AGOA relationship with Africa or the need to move toward reciprocity in the trade relationship.
  • Ross made a full-throated appeal for the full implementation of the WTO’s Trade Facilitation Agreement (TFA), which came into force in February. African countries are expected to benefit more than others from the implementation of the TFA, as trade costs in Africa are anticipated to fall on average more than 16 percent.
  • Ross took a not-too-thinly veiled swipe at China’s practice of subsidizing products and bidding low to win procurement contracts. Low-cost procurement, he argued, has often been to Africa’s detriment and a deterrent to American firms entering African markets. At the same time, he noted that U.S. firms were actively pursuing 147 tenders valued at more than $44 billion.
  • Finally, the secretary made two references to “our” Advisory Council on Africa. This appears to signal that the Commerce Department will continue the Obama-era presidential advisory committee on doing business in Africa, albeit under a different name. The continuity of the committee’s existence would be a welcome development, helping ensure continued private sector input into Trump’s commercial policy to the region.

Clearly, several themes were missing from the secretary’s remarks. There was no reference to regional integration, a trend critical to accelerating growth on the continent, creating larger markets, and attracting more U.S. investment and exports. The European Union’s Economic Partnership Agreements, which threaten to put U.S. goods and services at a significant commercial disadvantage across the region, also received no mention. Support for small and medium U.S. companies entering the African market was only mentioned in passing. There were no new U.S. initiatives proposed.

On balance, however, Ross reassured many in the U.S. and Africa who have been looking for an indication of the Trump administration’s commercial policy toward the continent.

ADESINA CHALLENGES THE U.S. 

Indeed, Akinwumi Adesina, the president of the African Development Bank, seemed to signal as much in his remarks following the secretary. Adeptly playing to his American audience, Adesina started with a call to “let us be great together,” and noted that Africa offers investors “the deal of the century.”

The African Development Bank president, however, went on to challenge the Trump administration to shift from not just aid to trade but to investment as well. Adesina made the point, implicitly, that the U.S. is falling behind when it comes to its presence in the African market.

In sharp contrast to Ross’s positive rendering of U.S.-Africa commercial trends, Adesina noted that U.S. exports to Africa have declined from $38 billion in 2014 to $22 billion in 2016. Africa’s exports to the U.S. have declined even more sharply, according to Adesina, $113 billion in 2008 to $26.5 billion in 2015. And, as is well known, China is Africa’s largest trade partner, with $102 billion in exports in 2015.

To underscore his message, Adesina pointed out that Africa’s key partners have launched substantial initiatives toward Africa: Japan at $30 billion, China at $60 billion, and South Korea at $10 billion. India has also opened a $10 billion soft credit window.

The good news from last week’s U.S.-Africa Business Summit is that the Trump administration appears to understand the importance of the African market. As well, Ross was clear in his advocacy for U.S. business success on the continent. However, as Adesina made clear, there is commercial competition across the continent that will only get stronger.

A note from the World Economic Forum on Africa in Durban

Earlier this month, more than 1,000 leaders from business, government, and civil society participated in the World Economic Forum on Africa in Durban in early May with the theme, “Achieving Inclusive Growth through Responsive and Responsible Leadership.”

This note highlights several conversations relevant to the forum’s theme.

The Leadership Challenge

The challenge of responsible leadership was on display from the beginning of the forum: At one of the first plenaries, Zimbabwe’s nonagenarian leader, Robert Mugabe, rambled incoherently about youth, agriculture, and job creation.

In stark contrast, he was followed by Winnie Byanyima, the Ugandan-born executive director of Oxfam International, who said, essentially, that the problem of leadership in Africa is leaders who are too old and stayed in office too long.

Also on the panel was Lindiwe Mazibuko, the former parliamentary leader of the Democratic Alliance in South Africa, who made an impressive appeal to government and the private sector to embrace the continent’s youth and provide jobs and training.

According to the WEF Africa Competitiveness Report 2017, 450 million individuals on the continent will be added to the labor market over the next two decades, and only 100 million jobs are expected to be created during this period.

These two women represent the growing number of individuals on the continent working to identify and implement solutions to these key problems, while Mugabe is an ongoing reminder of Africa’s leadership challenge.

Inclusive Growth

Government regulation is a significant factor related to inclusive growth. This was evident in an exchange between Stephen van Coller, a senior executive at MTN, Africa’s largest cell phone provider, and Sim Tshabalala, co-CEO of Standard Bank, the region’s largest banking network.

Van Coller commented that 50 million of MTN’s 240 million customers across Africa and the Middle East have MTN Mobile Money, of which 16 million are active on a monthly basis. This makes MTN, in addition to the largest cell phone provider on the continent, potentially one of the largest financial services providers too.

Indeed, Sim Tshabalala recognized the challenge that mobile banking represents to traditional banking services—mobile banking is poised to leap frog retail banking in Africa, much like cell phones bypassed landlines. In response, Tshabalala said that “fintech,” which includes an array of mobile-based financial services, can work well with products from traditional banks given the latter’s balance sheet and range of products.

The advantage of mobile products is that they can go “down market,” or reach lower-income individuals faster and more cheaply than traditional banks. In doing so, they have the added advantage of breaking down the barriers between the informal and formal sectors to create more financial inclusivity in a way that traditional banks are struggling with.

Kenya is a case in point. Currently only 2 percent of government bonds in Kenya are purchased by individual investors. However, in March, Kenya became the first country in the world to sell government bonds to citizens over their cell phones. The bond program, known as M-Akiba, was a pilot for raising resources domestically for infrastructure and other projects by selling bond shares for as little as $30 a unit. The cell phone user who purchased the M-Akiba bond did not need to have a bank account. The initial three-year bond offering of $1.5 million will pay an estimated tax-free interest of 10 percent every six months. All shares of debut mobile-based M-Akiba bond were purchased within six days, much faster than the allotted 13 days, and the experience is expected to lead to a second, larger bond offering.

The WEF dialogue on the future of banking in Africa reflected the challenge facing inclusive growth across the continent. While countries such as Tanzania and Kenya, where the mobile banking penetration rates are 84 percent and 68 percent, respectively, are making impressive gains on financial inclusion, progress is not uniform across the continent. In Nigeria, for example, there is an 80 percent mobile phone penetration rate but less than 3 percent of cell phone users have mobile money accounts.

The reason for this difference is that in Kenya and Tanzania there is close cooperation between the cell phone operators and government regulators. The same is not the case in Nigeria and other African countries. Clearly mobile banking can play an important role in expanding financial inclusion. Governments, however, have to create a conducive regulatory environment for the cellular operators to provide the necessary services and to stimulate inclusive growth.

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

Covington Opens a New Office in Johannesburg, Expanding the Project Finance Team

Covington will significantly expand its Project Development and Finance practice with the addition of Ben Donovan, Agnieszka Klich, Richard Keenan and David Miles, and the firm’s Middle East regional capabilities in corporate and dispute resolution matters with the addition of Jack Greenwald. With these additions, the firm will also open offices in Dubai and Johannesburg.

The group will deepen Covington’s corporate and project finance capabilities in the Middle East, Asia, Africa, and beyond. Their arrival follows that of Graham Vinter, the former General Counsel of BG Group, who joined Covington to lead the expansion of the firm’s capabilities in this area. The new partners will also work closely with Korean project developers and lenders and Covington’s experienced project team in its Seoul office, including partner William H.Y. Park, of counsel Sam Pyun, and senior finance advisor Jinhong Park.

“Covington has long helped clients around the world navigate their most difficult legal and business issues in foreign markets,” said Timothy Hester, the firm’s chair. “These additions are a natural progression of our strategy to build a leading projects practice that leverages other important areas of the firm, including global dispute resolution, government affairs and public policy, anti-corruption, export controls, corporate, international tax, and energy regulation. In addition, this group’s particular strength in the Middle East and Africa will meet key needs of our existing client base and allow the firm to provide them even greater resources in those regions.”

“The team’s reputation in project finance is absolutely first class, and we are delighted with their decision to join the firm,” said Mr. Vinter. “Not only is Covington’s strength in policy-facing matters and diplomacy a huge asset for clients involved in complex project finance transactions, the firm’s reputation and capability in corporate and regulatory law will also prove invaluable to our clients.”

The lawyers joining the firm are:

Ben Donovan (Partner): Mr. Donovan represents oil and gas companies, government and parastatal entities, independent power producers, investment funds, and lenders in the development, acquisition, financing, restructuring, and divestiture of energy and infrastructure projects worldwide, with a particular emphasis on projects in Africa, Turkey, Central Asia, and the Middle East. He will split his time between Covington’s Johannesburg and London offices.

Daniel “Jack” Greenwald (Co-Chair of Middle East Initiative): Having practiced in Dubai since 1986, Mr. Greenwald’s practice encompasses joint ventures, project development and construction, acquisitions, investments, contracts, complex dispute resolution, and international arbitration and litigation. He will be based in Covington’s Dubai office.

Richard Keenan (Partner):  Mr. Keenan represents sponsors, investors, lenders and governments in connection with the development and financing of projects in the power (conventional and renewable), oil and gas (upstream and downstream), water, mining and industrial sectors.   He has advised sponsors and lenders in relation to some of the largest and most complex independent water and power projects in the Middle East.   He has also advised clients in connection with the successful financing of oil and gas projects in the Middle East and India and in relation to some of the most significant mining projects to have been financed in Africa.  He will be based in Covington’s Dubai office.

Agnieszka Klich (Partner): Ms. Klich’s advises on the acquisition, development, and financing of international energy and infrastructure projects throughout the world with a focus on renewables, power and water, oil and gas, and mining. Ms. Klich has handled projects in the UAE, Qatar, Saudi Arabia, Jordan and Oman in the Middle East and in Egypt, South Africa, Kenya and Mozambique in Africa. She has also worked on projects in Greece, Turkey, the United Kingdom, Croatia and Kazakhstan. She speaks several languages including English, French, Polish, Russian, and Spanish. She will be based in Covington’s London office.

David Miles (Partner): Mr. Miles has extensive experience structuring and executing complex, high value financing transactions. He advises clients on project finance, general lending, leveraged and other event-driven finance, real estate finance and asset finance matters. His practice covers both conventional lending and Sharia compliant financing structures. Prior to joining Covington, Mr. Miles was based in the United Arab Emirates for a number of years and has also worked in London, Hong Kong, Tokyo and New York. He will be based in Covington’s London office.

Can Pension Funds Help Solve Africa’s Infrastructure Deficit?

Despite the global focus on growth trends in Africa, one trend has flown mostly below the radar: the increase in the number and size of pension funds. In addition to evidencing increased income security, the continent’s growing number of  pension funds could potentially be a new source of funding to address Africa’s  infrastructure deficit, estimated by Ernst & Young to be $90 billion annually.

African pension funds, which are currently estimated to hold USD 334 billion in assets, are now beginning to invest in large infrastructure projects throughout the continent. Traditionally, these pension funds have invested primarily in local, fixed-income bonds.  Compared to other types of investment funds that feel market pressure to yield quicker returns, pensions have a long investment horizon and are  thus well suited to more protracted, capital-intensive projects. Numerous examples of African pension funds investing in infrastructure projects have emerged in recent years. The South African Government Employees’ Pension Fund, as one example, has made investments in solar power and telecommunications projects. Just last April, Tanzania’s state-run pension fund invested USD 135 million to construct a six-lane toll bridge across Kigamboni Creek in Dar es Salaam.

The growth and increasing sophistication of pension funds is positive news for infrastructure projects throughout Africa. Now, as development banks and private equity funds target pension funds in Africa as sources of investment capital there are important legal and policy challenges that need to be addressed in order for pensions to truly drive major infrastructure construction and improvement. There are three challenges in particular worth considering:

(1) Overconcentration. As it currently stands, the bulk of pension funds throughout Africa are concentrated in sixteen major markets, and specifically in four countries: Nigeria, South Africa, Namibia and Botswana. According to a report by the South African investment advisory firm RisCura, these four countries alone hold some 90 percent of Africa’s pension fund assets.  This suggests that most infrastructure investment will accrue to major markets, leaving smaller countries to rely on traditional pension investment strategies.

(2) Opposition. To date, labor unions have been the most vocal opponents  to pension funds’ participation in infrastructure projects. In Nigeria, for instance, the Nigeria Labour Congress publicly opposed investment in infrastructure, arguing that public sector projects are too often mismanaged, too often delayed and overall too risky to entrust pension assets to.

(3) Restrictive Regulation. The current landscape of regulation across the continent does not adequately reflect the increasing sophistication and ambition of African pension funds. An increasing number of  funds are seeking to make investments in infrastructure projects outside their own country. In some countries, however, national laws require that pension funds only make domestic investments. In addition to precluding funds from investing in high-yield projects in other countries, such regulation constrains a fund’s ability to contribute to the capital-raising efforts of regional development banks.  In contrast, in other countries, as in Nigeria, the National Pension Commission’s regulations limit infrastructure and, in some cases, require federal guarantees for bonds. Nonetheless, the restrictions are commonplace, and make it considerably more difficult for pension funds to invest in infrastructure than other types of funds making similar investments.  Moving forward, more African countries may wish to follow the example of Malawi, which the OECD specifically identified as having among the least restrictive pension regimes in the world. Looking outside Africa, another model for relaxed regulation is Canada, which eliminated its rule barring pension funds from investing internationally in 2005 and imposes no ceiling on pension funds’ ability to invest in public or private bonds.

Despite the above challenges, African pension funds are likely to make an even more substantial impact on infrastructure investment across the continent in the next few years. In particular, one promising trend is the rise of regional funds that are targeting pensions as institutional investors, including the Pan-African Infrastructure Development Fund, the Africa Development Bank’s Africa50 Fund and the COMESA Infrastructure Fund. The emergence of numerous such entities is starting to create greater regional coordination in the growing pension market and, as importantly, making a new source of African capital available to address the region’s infrastructure deficit.

Africa Events in Washington: A Recap of March

This past March was a busy month in Washington for Africa related events. Covington participated in a number of business focused summits and congressional hearings touched on U.S. – Africa public policy and its impact on the commercial relationship.

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CCA’s board meeting at Covington’s Washington office

In early March, Covington’s Washington office hosted the Corporate Council on Africa’s (CCA) Annual Board Meeting.
One of the leading associations focused on cultivating commercial linkages between the United States and Africa, the CCA’s board meeting brought together nearly 50 corporate members to formulate policy objectives that would eventually be shared with senior leadership in the Trump Administration. The timing of these recommendations are ideal as the Administration is still in the early stages of identifying and evaluating the efficacy of particular programs. Adding weight to the recommendations is the fact they are coming from an organization whose membership consists of some of the largest American multinational corporations, such as Caterpillar and Hess Corporation, who recognize and appreciate the potential of Africa for their overall bottom line.

The Powering Africa Summit also took place in early March. Focused on “Increasing Private Sector Competitiveness in Africa’s Energy Sector,” the Summit included government participants from the U.S. and Africa and representatives from various power providers, financial institutions, law firms, and engineering and construction companies. Plenaries ranged from topics such as “Energy Economics for Gas IPPs” to “Blending of Public and Private Financing for Clean Energy Projects.” Away from the public stage was where more of the substantive issues were discussed. Smartly organized, the private sidebars allowed select participants to take country specific deep-dives with some of the continent’s leading officials. One roundtable that stood out was with the government of South Africa.

Senior leadership from the South African Ministry of Energy and the Office of the President shared the government’s intent to announce later this year a second bid window for the coal-based independent power producer (IPP) procurement program. Coal is strategic for South Africa. Since coal mines are abundant throughout the country, the government expects bidders to utilize the readily available deposits to address the country’s large energy shortfall. In order to incentivize financing and minimize environmental concerns, the delegation shared a desire for “clean” and other smart coal technologies. With an anticipated 1,600 MW available for bidding, expect strong interest in this upcoming procurement from a number of the world’s leading energy producers.

Towards the latter-half of March we also saw various congressional hearings touch on Africa’s economic potential and why it should continue to be a focus for U.S. policy makers.

Africa’s sustained economic growth, improved social development, and growing entrepreneur class are unlocking the continent’s potential for international investment and trade, raising its geostrategic importance to the U.S. while also attracting international competition for access, influence, and trade.”

The above quote would be expected from a senior official at the Department of Commerce or the Office of the U.S. Trade Representatives. It is noteworthy since it came from General Thomas Waldhauser, the top military official of U.S. Africa Command, in his annual posture hearing before the Senate Armed Services Committee.

General Waldhauser dedicated a portion of his written testimony to comment on the continent’s economic and trade dynamics sharing that, “Africa links directly to U.S. strategic interests as the continent strives for inclusion in the rules-based international order. Just as the U.S. pursues strategic interests in Africa, international competitors, including China and Russia, are doing the same.” The General’s astute economic observations, at a time when he’s primarily responsible for lines of effort to counter al-Shaabab or Boko Haram, only impresses on the public the potential and competition for access into Africa’s economic markets.

At the end of March, the House Foreign Affairs Committee held a hearing on “Budget, Diplomacy and Development” that examined President Trump’s proposed cut to the international affairs account. The general sentiment, shared on both sides of the aisle, was the adverse impact the proposed budget would have on America’s strategic foreign policy priorities, such as combatting terrorism and promoting rule of law. As the Chairman of the Committee, Rep. Ed Royce, sharply said “we shouldn’t be cutting to the bone.”

There were a handful of references to Africa throughout the hearing. Aside from lauding the U.S. intervention in the Ebola crisis and other humanitarian efforts, Members discussed the need to continue trade capacity building efforts between the United States and Africa.

Rep. Ted Yoho, a Republican from Florida, articulated the “benefits of bringing electricity and power to the people” as a means of “empower[ing] the people” and changing the country’s dynamic by developing a trade partnership rather than an aid dependent relationship. He explained that “coming from a strong conservative side, to stand up for global food security and Electrify Africa wasn’t real popular in my district,” but by sharing the similarities to rural electrification efforts in the United States in the early 1900s people began to appreciate the long-term benefits of this assistance.

As we look to April’s upcoming events, such as the World Bank and International Monetary Fund Spring Meetings, expect Africa – particularly the economic relationship – to continue to be a focus for policy makers in Washington.

Continued Growth in Covington’s Africa Initiative

Covington’s Africa initiative has unparalleled experience working with companies across a variety of sectors, helping them navigate the risks of Africa and achieve their business objectives on the continent. Over the past several months, we have continued to bolster our capabilities by adding to our team of lawyers and advisors:

Jonathan Berman: Mr. Berman, a Senior Advisor to the firm’s Africa initiative and C.E.O of J.E. Berman Associates, has over 20 years of experience working with global companies on entry and operations in emerging and frontier markets. He brings insights from his experience of working with senior business leaders and understanding their approach to opportunities in a range of African markets. He is also an investor in Africa-focused technology companies and the author of Success in Africa: CEO Insights From a Continent on the Rise (2013).

Mr. Berman received an M.A. in Political Science from the University of California, Berkeley in 1992 and his undergraduate degree from Yale University.

Worku Gachou: Mr. Gachou is a Policy Advisor in Covington’s Public Policy and Government Affairs practice, providing strategic political and economic consulting, risk management, and other advisory services for clients in the United States and Africa. Before joining the firm, Mr. Gachou was majority staff lead for Africa issues in the U.S. House of Representatives where he was responsible for the drafting and enactment of several landmark pieces of legislation impacting the continent, including the Electrify Africa Act, the END Wildlife Trafficking Act, and the reauthorization of the African Growth and Opportunity Act. Additionally, he was responsible for oversight of all African programs initiated by the National Security Council in the White House, the U.S. Department of State, and other executive branch agencies, and was the primary congressional point of contact for foreign governments, policy and research institutions, trade associations, and lobbying firms that had interests in U.S. – Africa policy. Mr. Gachou is a WEF Global Shaper and Young Professionals in Foreign Policy member.

Mr. Gachou received an M.A.L.S in International Affairs from Georgetown University in 2013 and his undergraduate degree from DePaul University in 2009.

Bridget Nambooze: In January, we welcomed Bridget Nambooze, the second Covington-LEX Africa fellow, from Katende Ssempebwa & Co. in Uganda. Ms. Nambooze received her Master of Corporate Law from Newnham College, University of Cambridge, in 2014. She received a Bachelor of Laws degree from Makerere University in Uganda in 2011 and a Post Graduate Diploma in Legal Practice in 2012 from the Law Development Center in Uganda.

Launched in 2015, the Covington-LEX Africa Fellowship program strives to foster links between the African and international legal communities. Each year, LEX Africa member firms recommend an internal candidate for the fellowship, and the successful candidate spends three months at Covington’s Washington office.

Although Ms. Nambooze’s fellowship is quickly coming to an end, we look forward to welcoming our next fellow in 2018.

“There are vast opportunities and unique challenges when doing business in Africa,” says Witney Schneidman, a former senior State Department official and leader of Covington’s Africa initiative. “Especially given the uncertainty of the relationship between Africa and the United States under President Trump, Covington’s growth in this area, coupled with our impressive team already in place, will continue to allow us to help our clients strategically navigate the most demanding policy, legal, and regulatory challenges and successfully achieve their business goals.”

To learn more about Covington’s Africa initiative, please click here.

Top 5 Business And Human Rights Concerns For Companies To Monitor

Businesses are being bombarded with information about their global human rights and other nonfinancial responsibilities, and are under growing pressure to publicize their efforts in that regard. Below we outline five key developments that business should be actively monitoring in a rapidly evolving landscape.

1.“Hard” Legal Obligations

Governmental efforts to force transparency are intended to incentivize large businesses with resources and market influence to address current practice and to take steps to eliminate any adverse impacts on human rights. Increasing legislation on supply chain transparency and corporate accountability has gained significant momentum, with:

  • French “corporate duty of vigilance” law. On Feb. 21, 2017, the French Parliament adopted a corporate duty of vigilance law applying to France’s largest companies (capturing around 100 companies). The law imposes an obligation on parent companies to draft “vigilance plans” and take steps to prevent adverse human rights and environmental impacts arising from the activity of their own company, companies they “control” (applying a broad test) and certain subcontractors and suppliers. Noncompliance with the new rules could lead to civil liability and financial sanctions of up to €30 million.
  • Implementation of the U.K. Modern Slavery Act 2015, which requires certain larger organizations (wherever incorporated) supplying goods or services and carrying on business in the U.K. to publish a slavery and human trafficking statement (“MSA statement”) each year, describing steps taken (if any) during the previous year to ensure that slavery and human trafficking are not occurring in its global supply chain.
  • At a regional level, the deadline for EU member state implementation of the Non-Financial Reporting Directive (2014/05/EU) passed in December 2016. Member states are required to oblige “public interest” companies with more than 500 employees to disclose information about policies and practices relating to social and employee matters and respect for human rights and diversity, among other matters.

Legal developments in the field are spreading rapidly across Europe and are on the horizon in the following countries (at least):

  • Netherlands: the Child Labour Due Diligence Bill will — if passed — require companies to identify instances of child labor within their supply chains and to develop plans to combat those practices.
  • Switzerland: the Responsible Business Initiative is pushing for amendments to the Swiss constitution (to be put to popular vote in 2018) which would compel Swiss companies to conduct human rights due diligence on all of their business activities abroad, with possible civil sanctions for noncompliance.

Whether corporate vigilance will be legislated further at a European level is uncertain. The European Parliament voted in favor of a (non-legally binding) resolution in October 2016, calling on EU member states and the EU Commission to adopt regulations on corporate liability for serious human rights abuses in global supply chains. In particular, the resolution:

  • called on members states to implement mandatory human rights due diligence;
  • recognized that nonbinding private sector initiatives are insufficient and sought binding and enforceable rules, sanctions, and an independent monitoring mechanism; and
  • encouraged reflection on whether member states courts should have jurisdiction to hear claims against non-EU defendant companies if such companies were linked to the EU.

At a sector-specific level, the EU Council and Parliament are seeking to adopt a Conflict Minerals Regulation before the summer of 2017, which will require European companies to ensure that their trade of minerals from conflict-affected areas is not linked with human rights abuses.

In addition, stock exchanges in around 45 countries now require or encourage corporate sustainability disclosures — with Singapore the latest to implement “comply or explain” rules in July 2016.

2. Voluntary Standards

The following international guidelines and their supporting databases are designed to aid companies in identifying human rights issues in their global supply chains and effectively reporting on these issues in a way that meets minimum legal thresholds.

  • UN Guiding Principles: an authoritative global standard for preventing and addressing the risk of adverse human rights impacts linked to business activity. The accompanying Reporting Framework provides guidance on meeting information thresholds when reporting and identifying salient human rights issues in a global supply chain.
  • OECD Guidelines for Multinational Enterprises: make recommendations on responsible business conduct, including in relation to labor and human rights issues and risk-based due diligence of supply chains. Participating countries are also obliged to set up “national contact points” (NCPs) tasked with providing a conciliation platform to resolve issues arising from allegations of non-observance by companies.
  • GRI Standards: the Global Reporting Initiative launched its new GRI Standards (replacing the earlier G4 Standards) in October 2016, designed to represent best practice for reporting on a range of topics, including social impacts. The organization maintains an online platform to solicit direct feedback from stakeholders.

The Global Reporting Initiative’s Sustainability and Reporting 2025 project anticipates a continued rise in voluntary digital reporting and even the possibility of “real-time” reporting to allow stakeholders to make better informed decisions regarding the human rights challenges facing their businesses

3. Litigation Against Parent Companies

There is a growing trend of claimants bringing claims against locally registered companies, particularly in Europe and North America in respect of offenses alleged against their foreign subsidiaries and contractors. Though, to date, such claims have been unsuccessful, businesses should not turn a blind eye for the following reasons:

  • Are court doors being widened for claimants? In June 2016, the English High Court awarded damages to six Lithuanian workers for modern slavery taking place on U.K. soil. However, in recent years, claims have been brought against companies for human rights violations before national courts in the U.K., Germany, Canada and various states in the U.S. (among others) for alleged violations abroad. The volume of claims being brought is undeniably significant and global litigation trends should be closely monitored. In Canada, for example, the Supreme Court of British Columbia recently rejected a Canadian company’s motion to dismiss a lawsuit alleging its complicity in the use of forced labor by its local state-run subcontractors at an Eritrean mine. It is the first time that a Canadian court has recognized that a company may be tried for violations of customary international law such as slavery, forced labor and torture. A key consideration of the court was that there was a real risk that the claimants might not be provided with justice in Eritrea. In the wake of this decision, similar claims have been filed in other Canadian provinces.
  • “Soft law” enforcement mechanism. The OECD framework is increasingly being used to lodge public complaints against companies with respect to alleged human rights violations. In recent years, claims have been brought before “national contact points” in the U.K., Australia, France, Germany and Switzerland, among others. Although NCPs do not generally have the power to impose binding sanctions on companies, risks to companies include reputational risks, credit-score risks when it comes to borrowing from financial institutions and the risk that such proceedings will be used by claimants as a fact-finding tool in parallel with other legal proceedings.
  • “Prevention is better than cure.” Taking early action to prevent allegations in the first place, is recommended. Regardless of the outcome of attempts to litigate, a review of the global landscape reveals that once proceedings are commenced against a multinational, large out-of-court settlements (frequently in the range of $20-25 million) are not uncommon, particularly in the interests of minimizing reputational damage and legal costs.

4. Your Own Supply Chain

Businesses face significant challenges when trying to implement meaningful human rights programs across global organizations, including in mapping complex global supply chains and monitoring the operations of overseas third parties. Those operating within certain industries, such as retail, extractive, construction and manufacturing, might face more obvious exposure to harboring modern slavery or practices with adverse human rights impacts within their supply chains. However, industries that are seen to be “lower risk” are also thinking hard about the issues. For example, businesses operating within the professional and financial services industries may still engage — either directly or indirectly — lower-paid migrant workers in higher-risk support services roles such as security, cleaning, catering and call centers.

Where possible, businesses should take early preventative steps to ensure that risks within their supply chains are identified and managed. Initiatives might include:

  • 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 human rights abuses;
  • training and awareness campaigns;
  • updating policies, procedures and supplier contracts to include verifying suppliers’ compliance programs; and
  • carrying out onsite audits of high-risk suppliers, providing training to suppliers, commercially incentivizing better practices, including contractual compliance programs. Responsibility for overseeing human rights issues should ideally be allocated to a senior member of the organization in order to demonstrate an embedded organizational commitment.

5. The Market

A “race to the top” in corporate supply chain reporting, due diligence and human rights compliance is in motion. One of the main compliance drivers within the growing international reporting framework is, of course, reputational.

Public reporting facilitates the comparison of business commitment and pressure from consumers, investors, regulators and nongovernmental organizations on businesses that are failing to identify and assess human rights risks within their supply chains or that are not actively monitoring the efficacy of their initiatives to address adverse human rights impacts. The following are useful resources for monitoring movement in the market:

  • U.K. public registry: repository of MSA statements for over 1,500 companies, the majority of which are headquartered in the U.K. or the U.S.. While 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, extractives and professional services — are doing more than is strictly required by the U.K. regulations. Unsurprisingly, few (if any) statements indicate that no steps have been taken, though such a statement would satisfy the requirements.
  • Report of the World Business Council for Sustainable Development (WBCSD): identifies reporting trends and emerging good practice seen from 163 companies across 20 sectors and 35 countries. WBCSD discovered that 87 percent of reports contained a commitment by the organization to respect human rights. More notably, 76 percent of members confirmed that they had gone a step further and communicated their position on human rights to their suppliers, suggesting that businesses are increasingly using their purchasing power to influence the behavior of their supply chains with respect to human rights.
  • Corporate Human Rights Benchmark (CHRB): a multi-stakeholder initiative which aims to rank the top 100 companies in the agricultural products, apparel and extractive industries on their human rights performance. Results of the pilot project are expected in March 2017. This is expected to further peak investor, governmental, industry association and other stakeholder interest in corporate human rights compliance.
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