Africa: fragile gains
There’s been some progress towards ending wars on the continent, but 2020 was never a realistic goal for ending all conflicts
A Kenyan police officer of the African Union’s
peacekeeping mission in Somalia (AMISOM) takes part in a night patrol on a street in Mogadishu in September 2019. Photo: TINA SMOLE / AFP
Seven years ago, in 2013, African leaders solemnly vowed “not to bequeath the burden of conflicts to the next generation of Africans”. The occasion was the 50th anniversary of the founding of the continent’s premier political body, the Organisation of African Unity, the predecessor of today’s African Union (AU). As part of a broader development plan extending to the hundredth anniversary, the AU set a goal of ending all African wars by 2020. That campaign, known as Silencing the Guns, is now reaching its deadline. It has registered some accomplishments in that short time. During 2019 alone, the AU helped negotiate new peace accords among warring parties in South Sudan and the Central African Republic (CAR).
Then in August, AU and Ethiopian mediators persuaded Sudan’s generals to form a transitional government with leaders of the popular uprising that had ousted longtime dictator Omar al-Bashir four months earlier, at least momentarily averting the likelihood of greater bloodshed. The gains remain fragile, however. And across the continent, Africans continue to die in large numbers. According to Uppsala University’s Conflict Data Programme, some 15,000 people were killed in violent confrontations in Africa in 2018, the last year for which figures are available. The bulk of those casualties were in five countries: with Nigeria at the top, followed by Somalia, the Democratic Republic of Congo (DRC), the CAR and Mali. Although 2018’s total was notably down from a peak of more than 24,000 deaths in 2014, it was still only slightly below the figure for the year Silencing the Guns began.
“As human beings we cannot accept such levels of violence,” AU commissioner for peace and security Smail Chergui told a reporter for the London magazine New African in February 2019. However, sceptics, accustomed to the organisation’s history of unmet targets, never expected very much. The limited results have less to do with excessive ambition than with the sheer difficulty of quickly resolving such complex conflicts. The tight deadline was intended to spur African leaders to concentrate their energies more than they might have otherwise. Everyone agrees that ending war is essential for Africa’s future. “We cannot have sustainable development without sustaining peace,” Amina Mohammed, the UN deputy secretary-general, who is from Nigeria, observed at a March 2019 African regional conference in Morocco.
She promptly added: “neither can we build a secure future for everyone without addressing the root causes of our conflicts and vulnerabilities.” The old Organisation of African Unity (OAU) only occasionally engaged in peacekeeping, hindered by its prohibition against African interference in the internal affairs of member states. By the early 1990s, as more conflicts erupted, that notion began to change. The principle of noninterference became less categorical in the face of massive human rights violations and population displacements that threatened regional security. The OAU set up new mechanisms to quickly field mediation and observer missions. Initially, however, the most active African-led peacekeeping came from regional organisations such as the Economic Community of West African States (ECOWAS) or East Africa’s Intergovernmental Authority on Development, sometimes as precursors to better-financed UN operations.
With the transformation of the OAU into the AU in 2002, security issues acquired an even higher priority. The AU’s Constitutive Act explicitly gave it authority to “intervene in cases of war crimes, genocide and crimes against humanity”, thereby replacing the principle of non-interference with one of “non-indifference”. Still, it took some time before African leaders assumed greater responsibility to act on their own, rather than leaving the task to the UN or other foreign entities. The AU has mounted peacekeeping missions in Darfur, Burundi, Somalia and several other countries. It is also in the process of establishing an African standby force capable of rapid interventions. The Silencing the Guns campaign builds on those efforts. It explicitly links security with the wider range of AU concerns.
Eliminating the root causes of conflict in African societies, notes the 2013 declaration, will require effort on a number of levels: improved governance, better entrenched democratic and human rights norms and stronger anti-corruption measures. Economic and social disparities fuel tensions and discontent, especially among marginalised ethnic groups, youth and women, and they need to be addressed. Making progress in all these areas, moreover, cannot rest on the shoulders of African leaders alone. A detailed “Master Roadmap” to ending conflicts adopted in 2017 specifies tasks to be carried out by the AU, regional organisations, governments, international partners, civil society groups, and local communities. Like the UN and other organisations, the AU emphasises the need to increase women’s involvement in peace efforts, often citing the role of women activists in helping end Liberia’s civil war.
But the record so far is disappointing, for the AU as well as its partners. In Mali, for example, the highest body overseeing the implementation of a 2015 peace agreement is composed entirely of men. Women did better in Sudan. After the AU suspended Sudan’s membership in June 2019 to pressure the junta into negotiating seriously with protest leaders, women had limited involvement in the talks. But when the resulting transitional government was announced, four women figured among the 18 cabinet members, including the new foreign minister, Asmaa Mohammed Abdullah. Levinia Addae-Mensah, deputy executive director of the West Africa Network for Peacebuilding, says that there has been only a “marginal increase” in women’s roles in African peace efforts. And while a few women may now be in prominent positions, their absence on the ground is most serious.
Pointing to the need to narrow the gap between national decision makers and local communities, she told allAfrica.com, “that is why we want the voices of women to be heard in … community dialogues”. The AU originally sent peacekeepers to Darfur, Sudan in 2004 at a time of widespread killings by pro-government militias. In 2007, when the UN authorised its own intervention, the AU troops were merged into the UN-AU Mission in Darfur, the first such hybrid undertaking. There is still no peace agreement between Khartoum and the Darfur rebels, but the violence has declined considerably. Also in 2007, the AU established a Somalia peacekeeping mission to support the government in Mogadishu. Despite the presence of nearly 20,000 AU troops there, parts of the country remain outside government control and insurgents continue to attack Somali and AU positions, including in the capital.
The AU’s peace toolkit is varied, however, and includes a spectrum of initiatives, from conflict prevention to post-conflict stabilisation. Mediation, which requires no troops, arms or expensive logistical support, is an important one. In March 2019, a peace accord between various rebel groups and the government of the CAR was on the verge of collapsing, as its seven predecessors had. The AU hastily brokered a new round of talks that brought more rebel leaders into the deal. According to Mankeur Ndiaye, head of the UN’s CAR peacekeeping mission, the competing rebel factions still sometimes fight each other, but “there are no more direct confrontations between the government and the armed groups”. In 2019, the AU sent election monitoring missions to Madagascar and the DRC, with the aim of averting renewed partisan bloodshed.
While the election in the DRC featured major irregularities, both contests yielded political reconciliation rather than violence. The AU is also working to control the proliferation of illicit guns. An AU funded report by the Small Arms Survey, a Geneva research group, estimates there were more than 50 million small arms and light weapons in Africa in 2017. Only one fifth were held by official military or police forces. The rest were in the hands of non-state armed groups, private security businesses and individuals. Such weapons have fuelled fighting by organised factions, but they have also aggravated community disputes and enabled all sorts of criminal activity. Small arms, notes Kwesi Aning, a director of the Kofi Annan International Peacekeeping Training Centre in Ghana, are “Africa’s weapons of mass destruction”. Reducing illegal imports or cross-border smuggling is difficult.
Small arms experts argue that the demand for guns must be reduced, whether through the disarmament of organised military factions or by better ensuring the safety of local communities, which often acquire arms for self-defence against marauding rebels, predatory soldiers or bandits. Consolidating peace after conflicts formally end is essential for preventing a reversion to warfare. But funding is often scarce for community recovery efforts, the reintegration of ex-combatants and numerous other pressing tasks. One of the greatest handicaps, notes the AU’s Master Roadmap, is “inadequate resources” for financing peace operations. The AU has struggled to ensure funding from its own members. Until recently, only about two thirds of assessed contributions were collected, with more than half of all members in default.
In 2017, the AU started assessing a 0.2% levy on all imports into African countries to support the group’s various activities. It is also exploring other, more innovative ways to raise funds. Regional African organisations face similar problems. Despite meagre resources, the Sahel Group of Five (Burkina Faso, Chad, Mali, Mauritania and Niger) launched a joint anti-terrorist military force, but after several years have yet to mount significant ground operations against jihadist groups active there. But a September 2019 summit meeting of the broader ECOWAS decided to commit $1 billion over four years to combating jihadism in the Sahel, in principle tapping the greater resources of Nigeria and other states in the region. More international support will also be essential, including from the UN, which currently has seven peacekeeping missions in Africa.
The UN, however, faces resource difficulties of its own, especially with major US cutbacks to its funding contributions. In July 2019 the AU Executive Council proclaimed that its theme for 2020 would be “Silencing the Guns: Creating Conducive Conditions for Africa’s Development”, inviting African leaders to take stock of what has been achieved so far. But by tacitly dropping the 2020 deadline, the body suggested that the process will be ongoing. Whatever new mechanisms or timetables Africans develop, reducing mass bloodshed will remain a vital goal for the continent’s future.
Africa: the age of revolutions
A broader view of history reveals Africans to have been decisive actors in shaping global changes, both inside and outside the continent
Anonymous painting of the Lisbon waterfront, late 16th century, known as Chafariz d’ei Rey in the Alfama District. Photo: CREATIVE COMMONS
One big difficulty historians of Africa face is the need to articulate historical changes in African experience through language accessible to a wide audience. Communicating widely means using concepts which are generally understood – yet these are usually Eurocentric, and not ideas which relate specifically to African historical experiences. Specialists have debunked the tired old western myth of African history as static. However, little of this has yet filtered into the mainstream. A good example is the so-called “age of revolutions”, the phrase coined by the historian Eric Hobsbawm to describe the decades between the American revolution in the 1770s and the Paris commune of 1848. Though the idea is Eurocentric in conception, Hobsbawm did recognise that this era also saw immense political upheavals in Africa. However, few historians have followed his lead.
African actors and societies were deeply connected to the Age of Revolutions. The way to approach Eurocentric concepts such as this may be not to discard them, but rather to expand their application to the world far beyond Europe, thus globalising historical concepts that are often used very narrowly. Connections between Africa and the world have been longstanding and usually grounded in reciprocal relationships. Indeed, they were already deep-rooted during the Age of Revolutions; by the late 18th century, many parts of Africa had had global links for centuries. East Africa was initially the best connected. As early as 150 BC, Chinese sources suggest the arrival of ambassadors from what is now Ethiopia. The Chinese connection to eastern Africa was significant. Chinese porcelain and grave goods have been found in Kilwa (Tanzania) and Madagascar from around 1,000 AD, brought by the dhow trade.
Dhows, and then camels, also brought traders from Basra in Iraq to do business in the Saharan region of the Fezzan, a desert region in what is now south-western Libya, in the 13th and 14th centuries. Meanwhile, West Africa did not take long to catch up. The mai (king) of Borno in north-eastern Nigeria first performed the haj to Mecca in the 11th century, and was followed by his successors, most famously by Mansa Musa of the Mali empire in the 1320s. An annual caravan of pilgrims would travel from Mali to Mecca during the 14th century. In the 15th and 16th century, Jolof ambassadors from Senegambia lived in Portugal, alongside those from the kingdom of Benin in southern Nigeria. Looking north, meantime, annual caravans of pilgrims would leave Timbuktu for Mecca well into the 18th century. Thus, by the eve of the American Revolution (1775-83), societies across Africa were globally connected.
Many African rulers had diplomatic envoys placed abroad. From the 16th century, Kongo, in northern Angola, often sent envoys to the Vatican. Dahomey – now the republic of Benin – sent frequent envoys to Brazil and Portugal from 1750 onwards. Borno, an independent Muslim kingdom that existed from the 8th century until the late 19th century, had regular diplomatic ties with the Ottomans in what is now Turkey. African rulers and people both shaped and were influenced by the rising tide of revolutionary movements that spread across the world from the 1770s onwards. Though the American revolution is much more famous, a movement of equal significance crystallised in Arabia during the 1770s. This was the Salafi Islamic reform movement, led by Muhammad ibn Abd al- Wahhāb, which would ultimately lead to the uniting of much of Arabia under the Ibn Saud family. The movement began in the 1740s, bringing in increasing numbers of followers.
By the 1770s, its influence was very strong and new leaders and followers joined all the time, including West Africans. Constant trading and migration to and from northern Africa had long influenced the growth of Islamic communities in West Africa. However, West African Muslims were Sufis, and now their journeys as pilgrims to Arabia brought about a reorientation of Sufi tenets along the lines of the Salafiya movement. In the 1790s, a movement of Islamic reform began in north-western Nigeria, led by a preacher called Uthman dan Fodio. This saw the establishment of the Sokoto caliphate, which dominated politics in the northern half of Nigeria throughout the 19th century. Gradually, an Age of Revolutions spread through West Africa as increasing numbers of people converted to Islam. This was a way of escaping enslavement; Muslims could not be enslaved by Islamic armies. It was also a way of escaping the control of warrior aristocracies practising African religions, who were often deeply embroiled in the trans-Atlantic slave trade.
This African Age of Revolution was therefore driven by the desire to overthrow an outdated aristocracy – just as the European Age of Revolution. It expressed the aspirations of a growing underclass keen to grasp the opportunities offered by expanding trade, and its desire to escape the influence of the slave traders. Just as there were reciprocal exchanges linking eastern and central Africa with the Mediterranean and Arabia, so were there linking West Africa with the Americas. Dahomey’s diplomatic links with Brazil were grounded in shared trading interests and, increasingly, the flow of Africans back and forth across the Atlantic. By the late 18th century, slaves from Dahomey who had managed to earn enough money to buy their freedom in Brazil began to return to their homeland in West Africa, bringing altered forms of religious practice, music and culinary life. Products from Dahomey such as cloth and kola nuts could be bought in the markets of Salvador da Bahia in north-eastern Brazil.
Many of the Fon people who returned to Dahomey acted as agents and traders in the growing trans-Atlantic trade, which had opened new markets for consumers on both sides of the Atlantic by 1800. Traditionally, historians have seen the connections between Africa and the world in this era as grounded exclusively in the Atlantic and Saharan slave trades. Of course, these were significant. Yet if they are placed in a much deeper context, a much fuller picture of the continent’s history emerges. The growth of diplomatic links, the rise of consumer and trading classes, and also the frustration which these classes experienced at the excesses and corruption of their aristocracies, all led to a wide ranging revolutionary movement, which took hold of much of central and western Africa from 1800 onwards. Thus, Africa was experiencing its own age of revolutions just as the bourgeois revolutions against the European aristocracy were taking hold in Europe and America. The impact of these interconnections grew year by year.
By 1823, military expansion by the Sokoto caliphate founded by Uthman dan Fodio led to the fall of the Yoruba empire of Oyo in southern Nigeria. Slaves rushed to convert to Islam and then attacked the property of their former masters, seeing the new movement as an opportunity to reverse decades of inequality. This in turn precipitated huge changes in Dahomey, which was a tributary to Oyo. West Africa’s revolutionary era was just as much a matter of overturning an old, reactionary elite as was Europe’s. Africa’s 18th century is still often understood as characterised by the violence of the slave trade and a growing inequality in economic exchanges with the wider world. However, a deeper look at the continent’s history shows African actors taking decisive roles in driving forward the revolutionary changes which have come to characterise this period of history as a whole. A broader view of history thus shows Africa and Africans as decisive actors in shaping global changes both inside and outside the continent.
China: the special relationship
Economic and political ties between Africa and China have led to infrastructural development on a monumental scale but their roots go back millennia
A statue of 15th century Chinese diplomat, admiral and explorer Zheng He. Photo: AFP
No one knows exactly how long ago the friendship between China and Africa began but contact and trade between the two can be traced as far back as 202 BC. This relationship deepened in the 14th century during the expedition of Ibn Battuta, a Moroccan scholar and explorer, to parts of Asia. The China-Africa connection was furthered in the same century by the travels of Sa’id of Mogadishu, a scholar who is said to have been the first African to study Mandarin. Besides being a pioneer in the translation of Mandarin to native African languages, Sa’id is credited with playing a role in establishing Somali merchants as leaders in the trade between Asia and Africa. In the 15th century, during the Ming Dynasty, Zheng He, a Chinese diplomat, admiral and explorer, is reputed to have made voyages to the Horn of Africa, passing Ajuran, a Somali empire that commanded the Indian Ocean trade.
Scholars now believe that during his final voyages Zheng followed the coast down to the Mozambique channel, between Madagascar and Mozambique. But while these medieval voyages might have established a strong foundation for relations between the two, it is China’s rapid economic growth in the late 20th and early 21st centuries, creating unprecedent demands for resources such as oil and other raw materials, that has undoubtedly underpinned the modern economic, political, and social ties between China and Africa. As Kenyatta University senior economics lecturer Emmanuel Manyasa notes, at no time has the friendship between China and Africa “been more pronounced” than in the 21st century. Kampala-based historian Peter Chemaswet argues that connections were first cemented in the late 1950s, when China signed the first bilateral trade pact with a number of African countries, namely Sudan, Guinea, Egypt, Morocco and Algeria.
More trade agreements were signed in late 1963, early 1964 with at least 10 recently independent African countries, when China’s first premier, Zhou Enlai, toured the continent. African signatories included Egypt, Algeria, Morocco, Tunisia, Ghana, Mali, Guinea, Sudan, Ethiopia and Somalia. The premier’s Ghana leg of his tour was regarded as a particular landmark because the country’s leader, President Kwame Nkrumah, was seen at the time as a champion of a united Africa. “The premier’s tour of Ghana was a strategic move that opened doors for China to warm its co-operation with African countries. It is in Ghana that the China- Africa relationship was actually born,” says Joel Savage, a Ghanaian journalist and author based in Brussels. Zhou’s prime objective in Africa was to elevate China’s profile on the continent, and in a speech in Mogadishu at the end of his trip the premier said China would support revolutionary struggles throughout Africa and fiercely oppose foreign interventions.
The outcome of Zhou’s visit was evident in 1971 when 26 African countries voted in the United Nations with 50 others to recognise the People’s Republic as the only legitimate China representative at the UN, replacing Taiwan, which had held the seat since 1949. The foundation of the current relationship between China and Africa was laid with the Beijing Declaration in October 2000 and the announcement of the Forum on China-Africa Cooperation (FOCAC) at a conference attended by at least 80 ministers from China and 44 other countries, as well as representatives from 17 international and regional organisations. Chinese President Jiang Zemin, Premier Zhu Rongji and Vice-President Hu Jintao were all present at the conference. “This is when the serious work that we see today between China and Africa began,” says Hongxiang Huang, the director of China House, a Nairobi-based research think tank he founded in 2014. Since then, China’s relationship with Africa has grown exponentially.
In 2006, at a FOCAC summit in Beijing attended by 35 African countries, the then president, Hu Jintao, rolled out $5 billion concessionary loans to Africa. The president also, as one of the “eight measures” for Sino-African relations, announced the creation of the China-Africa Development Fund to stimulate his country’s investment in Africa with $1 billion of initial funding. In 2009, the year China became Africa’s biggest trading partner, surpassing the US, a FOCAC ministerial conference in Egypt further defined China-Africa relations. At the conference an action plan to deepen cooperation was announced, including a $10 billion low-cost loan, double the amount committed in 2006. An additional $1 billion special loan for small- and medium-sized African enterprises was also established. At the same time, Premier Wen Jiabao announced a debt write-off for poor African nations, the construction of 100 new energy projects and a gradual lowering of custom duties on 95% of products from African countries with which China had diplomatic ties.
Crucially, China said it would ensure that Africa attained a stable food supply and it would provide the continent with modern medical equipment to fight malaria. Trade between China and Africa has expanded at an average annual rate of 20%, from $13 billion in 2001 to $188 billion in 2015. Figures from China’s General Administration of Customs show that in 2018, the country’s total import and export volume with Africa was $204.19 billion. During that period, China’s exports to Africa were $104.91 billion, up by 10.8%, and China’s imports from Africa were $99.28 billion, translating to a 30.8% increase. However, some analysts and observers – and the International Monetary Fund (IMF) – have cautioned that China’s economic slowdown and the sharp drop in commodity prices presents a risk for resource-dependent sub-Saharan African countries. The IMF, for example, has advised countries to look at diversifying their economies and reducing their reliance on natural resource exports.
On the other hand, China’s demand for consumer-related resources such as agricultural raw materials and food products has increased, and this focus on agriculture is likely to intensify China- Africa trade. To date, China has acquired 252,901 hectares of land for agriculture in Africa. According to the China Africa Research Initiative, a research programme dedicated to understanding the political and economic aspects of China-Africa relations, at the Johns Hopkins University School of Advanced International Studies, China has also established 14 agricultural centres across Africa, “taking an increasingly hands-on role in its work and investment related to African agriculture, leasing and developing land”. China is also synonymous with large scale infrastructural investment in Africa, historically epitomised by the construction of the 1,710 km Tanzania-Zambia railway, which was completed in 1976. “China finances one in five projects; it also engages in the construction of one in three mega projects,” observes Luke Mulunda, a finance journalist who runs business today. co.ke in Kenya.
Transport, shipping, ports, energy, power, real estate – encompassing industrial, commercial and residential real estate – are some of the key infrastructural works in which China has invested in Africa. A Deloitte report by Hannah Edinger and Jean-Pierre Labuschagne published in March this year noted that to date China has participated in over 200 infrastructure projects in Africa. They said Chinese enterprises have completed and are building projects that “are designed to help add to or upgrade about 30,000 km of highways, 2,000 km of railways, 85 million tonnes per year of port throughput capacity, more than nine million tonnes per day of clean water treatment capacity, some 20,000 MW of power generation capacity, and more than 30,000 km of transmission and transformation lines”. The China-Africa friendship has also seen an expansion in aid. Currently, China is one of the largest country donors to Africa. However, critics argue that some support has been extended to Africa disguised as aid when in reality it is in the form of loans.
Analysts also point out that some African countries, happy to take advantage of China’s “ready-to-assist” policy – and willing to overlook questionable labour and environmental practices by Chinese business operations in Africa – have ended up choking themselves with loans. “The secrecy that shrouds Chinese operations, and corruption in many African countries, is what has perpetuated this time-after-time interchangeable use of aid and debt,” says Manyasa. According to The Brookings Institution, a non-profit public policy organisation based in Washington DC, China’s loan issuance to Africa has tripled since 2012. New debt issuance by Chinese institutions to African countries has gone up substantially in the past five years, rising to some $5 billion to $6 billion of new loan issuances each year in the 2013–15 period. McKinsey & Company say that in 2015, these loans accounted for about a third of new sub-Saharan African government debt. Most of the loans have been linked to infrastructure projects, such as China EXIM Bank’s $3.6 billion loan to finance the Mombasa-Nairobi Standard Gauge Railway in Kenya.
Ongoing Chinese investment in African infrastructure is in line with its Belt and Road initiative (BRI) announced by President Xi Jinping in 2013. This hugely ambitious transcontinental project aims to revive the ancient Silk Road for the 21st century, improving interconnectivity between Asia, Europe and Africa to increase trade and development along economic corridors – and enhance Chinese influence along the way. Unsurprisingly, therefore, that when China announced a new $60 billion African development fund at FOCAC 2018 in Beijing it was made clear the money would be channelled to projects, including ports, telecommunications, bridges and roads, aligned to the BRI. The John Hopkins China Africa Initiative says in a recent report that “from 2000 to 2017, the Chinese government, banks and contractors extended $143 billion in loans to African countries and their state-owned enterprises (SOEs).
Importantly, the report notes, however, that while some government loans qualify as “official development aid”, others are “export credits, supplier credits or commercial, not concessional in nature”. It is in this context that analysts caution that it is up to African governments to ensure that these funds are put to productive use to have the desired impact on their economies. Otherwise, as financial journalist Luke Mulunda says, African countries may find themselves in a serious debt trap, jeopardising their development.
African capital markets
While investor interest in the continent’s stock exchanges rises, liquidity and other regulations restrain this growth
By Simon Allison
Ironically, Africa’s chronic economic underdevelopment may now be its greatest opportunity. After so many decades of sluggish economic growth and lagging far behind other continents, Africa can be regarded as a place of unmatched potential. In the post-crash world, where economies everywhere are stalling and investment opportunities few and far between, the received wisdom is that Africa is the last great untapped market. This does not mean, however, that investing in Africa is easy. Quite the opposite. When it comes to attracting foreign investment, the continent’s real challenge is to connect cash with opportunities. How can African countries make it easier to invest in African businesses? Historically, most foreign investment in Africa has occurred through private equity and this trend continues today. But private equity works only for certain types of investors—those with large pockets and long-term goals. In this context, institutional investors are becoming more interested in other options, especially Africa’s capital markets.
The rationale behind any stock exchange is simple. At their most basic, they are a place where companies can go shopping for capital—the money they need to expand their business. At the same time, they are a one-stop shop for investors who can back a range of companies in a transparent, regulated environment. By most estimates Africa has about 30 listed markets. These range from the Johannesburg Stock Exchange (JSE), which trades in more than 400 shares and is consistently rated as one of the most competitive stock exchanges in the world, to the tiny Rwandan Stock Exchange (RSE), which boasts only seven listed companies and is open for just three hours a day. The RSE, however, is more typical of the continent. In its 2014 “Bright Africa” report, investment advisory firm RisCura rates the quality of African stock exchanges according to their liquidity level, availability of information, governance, regulation, openness to foreign ownership and ease of capital flows. Only the JSE gets an A grade.
The Egyptian Stock Exchange (EGX) is next with a C, while the Nigerian Stock Exchange (NSE) receives an E—despite the country having the continent’s largest GDP, and arguably its most attractive investment destination. Most African exchanges are in the lowest categories, F and G. “Looking at some of the exchanges in the F and G categories, a common trend of significantly lower values traded, as well as lack of information in efficiency, ease of capital flows and openness to foreign ownership were observed,” said the “Bright Africa” report. “To put this in perspective, the combined value traded for the 15 exchanges in categories F and G is approximately 0.57% of that of the JSE.” In other words: most African stock exchanges are simply not up to scratch. This is largely a function of size, but other related challenges also play a part. One is liquidity, or how easily stocks can be bought and sold. This is important for investors because they need to know that they can sell their shares when they want to. But only the South African and Egyptian exchanges can match global average levels of liquidity. This problem is compounded in many countries by domestic investment regulations, which encourage major domestic investors such as pension funds to buy and hold local shares.
A second challenge is the high transaction costs of doing business on many African exchanges. In Zimbabwe, for example, it costs approximately 3.3% of the value traded to buy and then sell shares, which thwarts regular trading. “It’s still quite expensive to trade in Africa,” said Rory Ord, head of RisCura Fundamentals and editor of the “Bright Africa” report. “Investors need to have quite a long-term mindset. African exchanges are not places where you want to buy in one day and sell the next. Your transaction costs are simply too high to do that. ” A third challenge is the type of shares traded, which typically focus on financial services, Mr Ord said. Some of Africa’s largest growth sectors—such as telecoms or manufacturing—are poorly represented on local exchanges. Investors wanting to access these markets will probably have to find another route. Investors also struggle to find large enough investments to justify the effort that goes into expanding into a new market. Despite these obstacles, Africa’s listed markets have made impressive progress over the last few years. Average growth for African exchanges between 2012 and 2014 was 16%, according to the “Bright Africa” report.
But more can be done to make African exchanges more attractive, and so spur growth even further. One option is to work towards consolidating some of Africa’s smaller bourses into regional exchanges. A regional exchange is far more than the sum of its parts because it offers a much greater number of shares than those available on local bourses and improves liquidity in the process. “Setting up larger regional stock exchanges could provide the liquidity, security and ease of access that investors crave,” wrote The Economist in January 2015. “For this to happen, the continent’s leaders would have to set aside national vanity and instead focus on enriching the capital diet for all.” Easier said than done, of course. “Even with obvious rewards such as a bigger market size, low costs and more liquidity, the conditions for regional integration are yet to mature,” explains Masimba Tafirenyika, editor-in-chief of the UN’s Africa Renewal online journal. the UN’s Africa Renewal online journal. “According to financial experts, progress would require African countries to harmonise their trading laws and accounting standards, set up convertible currencies and establish free trade among members.
Also, nationalism still plays a part: countries tend to treat stock markets as national symbols and therefore are not rushing to relinquish control.” The idea of regional stock exchanges sounds like common sense, but the continent only has two regional bourses, and their experience suggests that they are no panacea. The Bourse régionale des valeurs mobilières (BRVM), based in Abidjan, serves Benin, Burkina Faso, Guinea-Bissau, Côte d’Ivoire, Mali, Niger, Senegal and Togo, while the Bourse des valeurs mobilières de l’Afrique Centrale (BVMAC), in Libreville, serves the Central African Republic, Chad, Equatorial Guinea, Gabon and the Republic of Congo. These exchanges are an improvement on individual exchanges for each of their eight and five members respectively, but neither exchange has really made an impact. The market capitalisation of BRVM, the larger of the two, is still less than that of exchanges in Botswana, Cameroon or the Seychelles. Another option is to improve liquidity by encouraging more intra- African trade. At the moment, this is minimal, with the major exception of South African financial institutions investing elsewhere on the continent.
This is partly because of the paucity of African investors with sufficient capital, while national regulations often make it difficult to invest outside the domestic market. This problem is particularly pronounced when it comes to pension funds. “Each African country has its own set of rules” for pension funds, Mr Ord explained. “Some allow investment in other countries, others don’t. For example, Nigeria has quite conservative rules and they don’t allow investment outside of their own country except in very specific circumstances. So while they’re building institutional capital in that market, you’re not seeing investment in other parts of the continent. Similarly in Kenya.” Countries such as Botswana and Zambia do permit foreign investment, he added, but they typically invest outside the continent. However, “most countries have been liberalising. This is one of the areas we’re going to see growing as the different sets of regulations get relaxed. We’ll see more intra-African investment over time.” The African Securities Exchange Association, the umbrella body for Africa’s stock exchanges, is the critical player driving these changes. Currently, it has 25 members. Its intended role is to act as a clearing house for information and technical expertise so that members can learn from each other.
The association also pushes for common standards, better regulations and improved professionalism from members. Its ability to play this role will have a major impact on making Africa’s listed markets more attractive and easier to access over time. Ultimately, however, the fate of Africa’s capital markets rests with individual exchanges and the governments that regulate them. Key to unlocking their potential is to improve systems and automate trade, to make them as efficient and user-friendly as possible. At the same time, corporate governance must be raised to match international standards so that investors can trust that the opportunities on offer are as good as they look on paper. Finally, if the continent’s stock exchanges are really to succeed, governments need to create an investor-friendly regulatory climate that streamlines trade and investment. The logic behind this is simple: if a country makes it easy for capital to enter, then more of that capital will end up in stock markets. Africa’s listed exchanges are clearly vital to the continent’s continued economic development.
Already, the growth in investment flowing in their direction is impressive. Given their small size and poor liquidity levels, this shows that there is enormous interest in investing in Africa, and a desire to find ways to do so beyond the traditional private equity route. The question that we should all be asking, then, is: how much money could be raised if Africa’s stock exchanges were all as well-regulated and crucially, as liquid, as the JSE?
Sub-Saharan Africa: Islamic investment
Investors from Organisation of Islamic Cooperation member countries are increasingly looking at opportunities in sub-Saharan Africa
By François Misser
The Islamic world is increasingly seeing Africa as a destination for foreign investment, both on the institutional and corporate fronts. One sign of such interest was the recent forum on investments in Africa, held in Marrakech from December 17th -19th 2015 and organised by the Organisation of Islamic Cooperation (OIC), which groups 57 countries. The OIC has been active on the continent on the humanitarian and diplomatic fronts since its creation in 1969. More recently, the organisation’s financial arm, the Islamic Development Bank (IDB)—whose main shareholders are Saudi Arabia (23.6%), Libya (9.5%), Iran (8.3%), Nigeria (7.7%) and the United Arab Emirates (7.5%)—has become a major player in development finance in Africa. Some 30% of the $12 billion invested in 2015 by the IDB went to sub- Saharan Africa, says its regional director, Sidi Mohamed Taleb.
The bank is now focusing on removing obstacles to African development, among them poor infrastructure and agricultural productivity. The strategy, which has been largely designed by the OIC’s 22 African member states, according to Mr Taleb, will invest mainly in Africa’s energy, telecoms, transport and agriculture sectors. In the Sahel region the bank is financing the flagship Dakar-Port Sudan railway and key energy projects in Mali, Mauritania, Guinea and Côte d’Ivoire, in some cases with the geo-strategic aim of stabilising the region. Another major IDB initiative in Africa is the OIC Cotton Action Plan, first created in 2007 to rehabilitate decaying cotton and textile industries in OIC member states. The bank has a $400m portfolio in Mali, where it is building a new international airport. It is also financing a road between Algeria and Kidal, the capital of northern Mali, which fell to the extremist group Al Qaida in the Islamic Maghreb, in 2013.
“There is an absolute necessity to break the isolation of this region,” says Mr Taleb. It would appear that the OIC’s aim there is to restore political stability, including mediating between the government and the rebels. The Khartoum headquartered Bank for Economic Development in Africa (BADEA), established in 1973 by the Arab League member states, is another important institutional player in the Islamic world. Between 1975 and 2014 it allocated some $3.69 billion in loans. In 2014, it provided $200m in loans to 22 sub-Saharan countries, 57.6% of it to infrastructure, 22.6% to agriculture and rural development and the rest to the non-profit and private sectors. Certain gulf states rank high among Islamic partner countries. In 2014, the Saudi Fund for Development (SDF) supported 13 projects in 11 African countries, which received a total of SR1.27 billion ($340m). In November 2013, Kuwait said it would extend $1 billion in soft loans to the continent over the next five years.
Since its inception in 1961, the Kuwait Fund has contributed over $6.4 billion to projects in 48 African states. The Abu Dhabi Fund for Development (ADFD) has provided 65 billion dirhams (about $17.7 billion) to 76 countries around the world since its creation in 1971. It financed Egypt’s Sheikh Zayed Canal, built using a Dh348m (about $94.74m in 2012) grant (the canal has yet to be completed). Meanwhile, Qatar also has ambitions to be a major player in Africa. Its department of international aid spent more than $1.7 billion on development assistance in 2013, one third of it in Africa. Companies from several Islamic countries have also developed commercial and private investment ties with Africa. According to a 2015 report by the Economist Intelligence Unit (EIU), East Africa is attracting most of the Gulf’s non-commodity investment, with manufacturing in Ethiopia; leisure, retail and tourism in Mozambique and Kenya; and education in Uganda of particular interest.
Retail and hypermarkets, automotives, commercial banking and tourism are key sectors. However, trade between the Gulf Cooperation Council (GCC) and Africa is still modest. In 2014, GCC exports to sub-Saharan Africa totalled $19.7 billion, according to the IMF. However, direct investment flows are growing significantly. Gulf firms invested at least $9.3 billion in sub- Saharan Africa between 2005 and 2014, and $2.7 billion in the first half of 2015, according to the EIU. South Africa, Kenya and Uganda have attracted most Gulf investment. The trend is likely to continue. The UN Conference on Trade and Development (UNCTAD) recorded 17 bilateral investment treaties between the Gulf and sub-Saharan countries in 2013, one third of which were signed that year. Most GCC capital goes into Africa through listed stocks and bonds, including locally domiciled funds such as Invest AD’s Emerging Africa Fund in the UAE, which is co-managed with the Morrocan Attijariwafa Bank.
Significant investments recorded in 2014 were the purchase by Qatar National Bank of a 23% stake in Ecobank of Togo and the acquisition of $300m of Nigeria’s Dangote Cement shares by the Investment Corporation of Dubai. Morocco’s banks, insurance and agribusiness are expanding fast in Africa, helping to boost Moroccan exporters. The Attijawariwafa Bank now has subsidiaries and branches in 14 African countries, mostly in west Africa. The world leader in fertilisers, the Office Chérifien des Phosphates (OCP), a Moroccan company, is aggressively promoting its products south of the Sahara. Meanwhile, Turkish Airlines is expanding its presence on the continent, with 44 African destinations; Royal Air Maroc has 22 and Emirates Airlines 19. Turkey is becoming increasingly involved in FDI to Africa. It held two summits with Africa, in Istanbul in 2008 and in Malabo (Equatorial Guinea) in 2014. Turkish Airlines was one of the first airlines to resume international flights to Somalia in 2011. Turkish trade with Africa has risen nearly fourfold from $5.4 billion in 2003 to $20 billion in 2014, according to a 2015 research paper by Chatham House, the UK’s Royal Institute of International Affairs.
Turkey has signed investment treaties with 12 countries in sub-Saharan Africa and aims to sign a free trade agreement with the East African Community by 2019. At the end of 2011, then Turkish Foreign Minister Ahmed Davutoglu estimated Turkish investment in Africa at some $1 billion. It is likely much higher today. An Ethiopian Investment Agency official noted in 2014 that Turkey had invested about $1.2 billion in Ethiopia in recent years, particularly in the textile industry, as compared to China’s $836m over the past decade. Islamic finance is gaining momentum in sub-Saharan Africa, where about 30% of the population is Muslim, according to the Pew Research Center, a think tank in Washington D.C. Gulf African Bank, which offers sharia-compliant products, now has 14 branches in Kenya, with a rising portfolio of small and medium enterprises. Islamic finance is one of the fastest growing financial segments at global level. This is one reason why the World Bank Group’s International Finance Corporation (IFC) has invested in the Gulf African Bank.
In September 2015, South Africa issued its first $500m sukuk, a sharia-compliant and interest-free Islamic bond, in the international capital markets to broaden its investor base and diversify funding for infrastructure. Côte d’Ivoire plans to issue its first sukuk, for 350 billion CFA francs (roughly $700m), with the support of the IDB. According to the ratings agency Standard & Poor’s, new regulations and fiscal incentives around the continent “could accelerate Islamic finance development in Africa”. However, the low oil price may cause some disruption to Islamic foreign investment. Saudi Arabia has withdrawn tens of billions of dollars from global asset managers since September 2015, according to the Financial Times. Money transfers from Islamic countries or charities to Africa have also faced regulators’ concerns that networks could be used for criminal financing. Kenya suspended the operations of 13 firms in the first half of 2015 over concerns that funds were flowing to al-Shabab militants. In May 2013 Barclays said it would close the bank accounts of 250 money transfer companies as part of a drive to meet stricter money laundering rules.
A February 2016 study by the IMF concludes that there is no evidence that Islamic finance faces different risks from those of conventional finance as regards terrorism and crime. However, it concludes that an in-depth analysis of the intrinsic characteristics and arrangements used in Islamic finance is still required, and that Islamic financial institutions need to build more experience with regard to the risks they face in dealing with money laundering and terrorism financing. If so, this would apply also to the Islamic world’s investments in Africa.