January 2021 / Focus Africa

On 1 January 2021, Africa commenced trading under the preferences and rules that were negotiated and agreed upon under the African Continental Free Trade Area Agreement (AfCFTA). The commencement of trade had earlier been postponed due to the COVID-19 pandemic with the priority being given to fighting the pandemic by the Secretariat of the AfCFTA (the Secretariat).

The AfCFTA which entered into force on 30 May 2019 has been signed by 54 countries while 34 countries have deposited their instruments of ratification to date.

The AfCFTA comprises of four legal instruments, which are:

• the Agreement establishing the AfCFTA;
• the Protocols on Trade in Goods and Trade in Services;
• the Protocol on Rules and Procedures for Settlement of Disputes; and
• the Protocol on E-Commerce. This protocol was included later on in the AfCFTA through a decision of the African Union Heads of State and Government Assembly (Heads of State) in February 2020 to integrate it through a third phase of negotiations.

The principle objective of the Protocol on Trade in Goods is to create a liberalized market for trade in goods between partner states, while the specific objective is to boost intra-African trade in goods through:

• progressive elimination of tariffs;
• progressive elimination of non-tariff barriers;
• enhanced efficiency of customs procedures, trade facilitation and transit;
• enhanced cooperation in the areas of technical barriers to trade and sanitary and phytosanitary measures;
• development and promotion of regional and continental value chains; and
• enhanced socio-economic development, diversification and industrialization across Africa.

Some countries like Ghana, Egypt, South Africa and Rwanda have already started trade through the AfCFTA, however, many other African countries still need to build their administrative capacity and put in place the infrastructure/tools necessary to facilitate trade. The Secretary General of the AfCFTA (the Secretary-General) said that the partner states are to put in place a re-imbursement system where a country that does not yet have the infrastructure necessary to facilitate preferential trade from 1 January 2021 will later refund money paid by traders for non-preferential duties suffered after the commencement of trade.

This development has not come without criticism from various critics with a view that the Secretariat has rushed the launch without ensuring first that all the infrastructure needed to facilitate trade is in place in all partner states. The Secretary-General said, however, that market integration is a process and the Secretariat is committed to ensuring that the positive projections of the AfCFTA are attained.

The official AfCFTA start of trading ceremony was held virtually on 1 January 2021 via Zoom. But prior to the launch, the Heads of State held a meeting on the 5 December 2020 where they adopted the decision of the secretariat to start trading through the AfCFTA.

African Development Bank (www.AfDB.org) President Akinwuma A. Adesina announced the launch on Monday of the Africa Adaptation Acceleration Program (AAAP) to mobilize $25 billion to scale up and accelerate climate change adaptation actions across Africa. The announcement came during the Climate Adaptation Summit (CAS) 2021, hosted by the government of the Netherlands and the Global Center on Adaptation.

The AAAP, a joint initiative between the African Development Bank and the Global Center on Adaptation, is expected to scale up innovative and transformative actions on climate adaptation across Africa, Adesina said during the inaugural Ministerial Dialogue on Adaptation Action, held as part of the summit.

 “Our ambition is bold: to galvanize climate resilience actions; support countries to accelerate and scale up climate adaptation and resilience; and mobilize financing at scale for climate adaptation in Africa,” the Bank chief said.

Adesina was joined in addressing the summit by Netherlands Prime Minister Mark Rutte, 8th UN Secretary General Ban Ki Moon, current UN Secretary General Antonio Guterres (https://bit.ly/3qQ5jCY), UK Prime Minister Boris Johnson, Germany Chancellor Angela Merkel, Canada Prime Minister Justin Trudeau and India’s Prime Minister Narendra Modi. World Bank president David Malpass and IMF Managing Director Kristalina Georgieva also spoke.

The ongoing COVID-19 crisis formed a backdrop to the meeting, a fact Prime Minister Rutte acknowledged in his opening statement. The Netherlands has taken a lead role globally in harnessing the energy and entrepreneurship of the youth and developing nature-based solutions.

 “I hope that 2021 will be a year of heightened international ambition and action on climate change, after a difficult 2020, and this conference will help achieve that goal,” Rutte said.

Acknowledging the “huge gaps” remaining in financing for adaptation in developing countries, the UN Secretary General called for 50% of all climate finance provided by developed countries and multilateral development Banks to be allocated to adaptation and resilience in developing countries, noting,  “the African Development Bank set the bar in 2019 by allocating over half of its climate financing to adaptation.”

A number of speakers acknowledged Africa’s vulnerability to climate change, as well as Africans’ innovative responses to challenges.

Ghanaian president Nana Addo Dankwa Akufo-Addo said the country was working with the private sector with the assistance of the Green Climate Fund, “to establish a multimillion-dollar green fund to support our climate adaptation interventions and our efforts to transition to renewable energy.”

Adesina thanked Ban Ki Moon for his role in the establishment of GCA’s regional office for Africa in Abidjan last year, which is hosted by the Bank. The African Development Bank head participated in three sessions and outlined a number of Bank initiatives, including the $20 billion Desert to Power project to create a solar zone in the Sahel, the largest in the world.

“Our Youth Adaptation flagship will unlock $3 billion for the youth, support 10,000 youth-led SMEs in climate resilience, and build capacity for one million youth on climate adaptation,” Adesina said.

The Bank’s TAAT initiative has leveraged $450 million and provided 19 million farmers in 27 countries with climate resilient agricultural technologies, raising average yields by 60%.

Adesina also acknowledged that the presence of John Kerry, U.S. special envoy for climate, provided a boost to global climate efforts. “With you in charge, and the strong and palpable leadership of President Biden, we are reenergized on the global agenda on climate change,” Adesina said.

The Climate Adaptation Summit, held annually, aims to answer Secretary-General Guterres call for more concrete plans and more ambition from more countries and more businesses to make the world more climate resilient.

The Global center on Adaptation is a solutions broker to accelerate action and support for adaptation solutions around the world.

In 2020, Africa recorded its highest level of project financing in a decade in terms of investment value with 28 deals, totalling $30.07bn, reaching financial close, according to Linklaters.

Despite there being a similar number of projects, 2020 saw double the value of deals in comparison to 2019, which recorded $12.65bn.

Andrew Jones, Head of Linklaters’ Africa group, said: “Like all countries, the major economies in Africa were impacted by the Covid-19 pandemic. Its therefore interesting that the continent recorded its highest level of project financing in a decade last year. This is indicative of the resilience and sound fundamentals of the continent and how the region continues to present exciting opportunities for long-term investors.”

Mozambique recorded the highest deal value in 2020 at $22.6bn, thanks to the Area 1 Mozambique LNG project, the country’s first onshore LNG development.

Morocco, Nigeria, Guinea, Uganda and Cote d’Ivoire were the only countries to record multiple project finance transactions this year at 6, 4, 2, 2 and 2, respectively.

Mozambique has recorded the highest deal value at $48.02bn in 12 projects in the past decade, with South Africa recording the highest level of activity, with 103 projects totalling $20.43bn.

According to Linklaters’s research, in the past decade, French sponsors have been the biggest investors in Africa, sponsoring 53 projects totalling $46.57bn followed by Japan (10, $31.6bn), the US (47, $26.95bn) and India (11, $25.85bn).

In 2020, Renewables sector recorded the highest volume of deals, with 13 totalling $1.592bn, whereas Oil and Gas sector, although low by number of transactions, clocked the highest value of deals at $26.14bn.

Oil & Gas sector also witnessed the highest value of deals in the past 10 years at $85.73bn, while Renewables have witnessed the highest volume (177).

 “Economic expansion plans, favourable demographics and natural resources, and the need to generate large scale employment and infrastructure development will ensure continued growth for the sectors. This also means that strong growth will continue in energy, transportation and mining,” Jones said.

China’s biggest port operator, China Merchants Group, has agreed a deal with Djibouti to turn its port into a regional hub.

The agreement was reached with state-owned investment company Great Horn. According to its terms China Merchants will carry out a $3bn expansion of the East African micro-state’s century-old port.

Aboubaker Omar Hadi, chairman of the Djibouti Ports and Free Zones Authority (DPFZA), said on Twitter that the project would “profoundly transform our capital and create numerous economic  opportunities in the years to come”.

As well as an expansion of the port, the project will create the “East Africa International Special Business Zone”.

The $513m first phase of the project, which involves the construction of an exhibition centre and a four-star hotel for the zone, began on 8 October.

China Merchants, which already owns a 23.5% stake in the port, said in a filing to the Hong Kong stock exchange that Djibouti had “a stable geopolitical environment and the largest deep water port in East Africa”.

China’s involvement in Djibouti has been growing in recent years. The country hosts China’s only overseas military base, opened in 2017, and it is the terminus for Chinese-built, $3.4bn railway from Ethiopia, China’s closest ally in the region.

The South China Morning Post lists other notable projects, including Huawei Marine’s project to build an undersea fibre-optic cable between Djibouti and Pakistan, and China Merchants’ previous involvement in the building of the $590m Doraleh Multipurpose Port, to the west of Djibouti City. This is presently the subject of a legal dispute with Dubai port operator DP World (see further reading).

The paper quoted John Calabrese, an academic at the Middle East Institute in Washington, who said Djibouti was the “linchpin of China’s efforts to gain a strategic foothold in the Horn of Africa and as part of its broader engagement on the continent as a whole”.

China Merchants signs deal for $3bn expansion of Djibouti City port - News - GCR (globalconstructionreview.com)