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Africa Displays Pockets of Positivity Amidst Covid-19 Fallout



Investors King

The latest NielsenIQ Africa Prospects Indicator (APi) report Recalibrating for an Unprecedented Future which looks at the prospects of key countries across Sub-Saharan Africa (SSA) has revealed that despite the unprecedented times in which we live, there are pockets of positivity to drive businesses through the COVID-19 storm.

Commenting on the results of the tenth edition of the APi NielsenIQ Global Intelligence Unit Executive Director Ailsa Wingfield says; “As countries deal with second and third waves and virus mutations, the evidence of significant economic, employment and social effects are manifesting in permanent, changed consumer behaviour as lingering pandemic effects have shaped adjusted circumstances, attitudes and needs  that will persist in 2021.”

Top country prospects

To understand the broader context of this phenomenon, the APi ranks the top country prospects in SSA based on combined economic, business, consumer and retail indicators. Kenya has achieved top spot in the latest report amidst the 2020 pandemic period, with its annual economic growth outlook positive at +1%, owing to Kenya’s more diversified economy, and more favourable business and consumer indicators.

The second highest-ranking country is Tanzania which achieved the biggest change in rank, rising to second place. After reclaiming the top position at the end of 2019, Nigeria drops to third place, with its economic prospects having been dampened by lower oil prices, increased fuel prices and rising inflation, together with weaker retail prospects.

Ghana is in joint third position and is expected to continue its long-term advances and outperform the regional economic growth average in 2021, buoyed by rising demand for its commodity exports and supportive macro-economic conditions which will facilitate investment and private consumption increases.

South Africa drops one place in the top five, having operated under severe containment measures with one of the strictest global lockdowns impacting the GDP contraction by 6% year-on-year into the third quarter of 2020.  Cote d’Ivoire, Uganda and Cameroon rankings remained unchanged amidst the pandemic period.  While the Ivorian GDP growth forecast is amongst the highest in the region, it is offset by weak consumer prospects with 69% of retailers reporting a decrease in consumer spending and only 11% of consumers willing to try new products.

 The weak business outlook also poses a challenge for Uganda and Cameroon as companies may look to de-prioritise operations in these markets to reallocate resources to top priority markets. Wingfield points out that; “Despite weaker business and economic outlooks also characterising the more established economies of Nigeria, Kenya and South Africa, the reality is that serious investors have to focus on them if they are to achieve significant growth in the region.”

The importance of these proven prospects is borne out by the fact that ‘own business growth expectations’ (how businesses rate their own prospects) have fallen across SSA but are more optimistic than country growth expectations. The biggest differential between these two indicators is in South Africa and Kenya, a clear indication that businesses in these two markets remain firm in their view that favourable growth is achievable, despite adverse macro factors.

In addition, only one in five companies expects value growth declines in the next year. The majority of businesses forecast muted growth between 0 and 5%, but one third (36%) of businesses are more optimistic, predicting their own business growth levels ahead of 5% in 2021 and a sizable 17% of businesses anticipate growth ahead of 10% in 2021 – predominantly in West Africa.

 West Africa: Nigeria, Ghana, Cameroon, Cote d’Ivoire, East Africa: Kenya, Uganda, Tanzania, Ethiopia

 Key challenges

However, turning this optimism into reality will require the elimination of a variety of bottlenecks. For example, the APi report cites overcoming supply constraints as the top factor that has impacted business performance amidst the COVID-19 pandemic and will be key to achieving any significant growth upturn. Closely related to this is product availability and out of stock issues, followed by retail closures and slow reopening.

Wingfield comments; “Many of these factors will remain obstacles in 2021 as resources and logistics remain constricted, especially for imported products. Manufacturers and retailers could face further share fallout as consumers substitute brands and stores for available alternatives, however, this could also work in favour of local origin brands and products, and informal retail.”

Within this reality, a key question will be how businesses pivot and position themselves to overcome these challenges to achieve growth, what level of growth they will aim for and what they intend to focus on to achieve this growth? The APi report shows that the largest proportion, one in five companies, is initiating a strategic business refocus or reprioritisation to reboot their performance in the year ahead.

Sixteen percent are adjusting their route to market/channel/distribution focus and 14% will modify their price and promotion strategies and rationalise their product portfolios to only the most needed products, while only 5% are looking to increase their technology and online investments, despite the massive move to online shopping.

Basket unusual

A critical part of any business success is the needs and wants of the consumers who drive its growth. Income impacts have driven spend redistribution, with consumers compelled to rethink what goes into their baskets as they seek to stretch their spend further while merging old and new needs.

These adjustments reflect a fundamental consumption reset, with consumers carefully evaluating their overall spend and the products that make up their “usual” basket composition. Evidence of this is that across SSA the proportion of consumers spending more in-store has dropped to just 12% (from 21% pre COVID-19), and those willing to try new products has dropped to only a quarter of consumers.

“No matter whether consumers are constrained, insulated or gain access to a vaccine in 2021, they will remain less optimistic about what the future holds. Decisions will be made to adjust the purchase habits shoppers have had in place for years, alongside the current reality where health and value priorities compete side by side. This will impact where consumers shop, what they buy, why they buy and how much they are willing to spend in 2021 and well beyond,” Wingfield concludes.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade experience in the global financial markets.

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AfCFTA: Nigeria-South Africa Chamber Advocate Single Africa Passport, Free Visa



African Continental Free Trade Area (AfCFTA)- Investors King

The Nigeria-South Africa Chamber of Commerce (NSACC) has called for a single Africa passport and a free visa to ensure the success of the Africa Continental Free Trade Area (AfCFTA) agreement.

Speaking on Thursday in Lagos during the chamber’s September Breakfast Forum, with the theme: `Perspectives on the Africa Continental Free Trade Area in Relation to Nigeria’, its President, Mr. Osayande Giwa-Osagie noted that AfCFTA would boost intra-African trade by 22 percent, adding that its implementation would impact positively on the Nigerian economy.

AfCFTA is a single continental market that adopts free flow of goods, services, and capital, supported by the free movement of persons across Africa.

Giwa-Osagie however said Nigeria must diversify its economy in order to harness the gains of the agreement.

“Current intra-African trade rated at 15 to 17 percent is low and the AfCFTA is expected to boost intra-African by 22 percent. Challenges to its implementation are lack of infrastructure, political instability and lack of economic diversification.

“This gives rise to the need for Nigeria to diversify its economy to harness the gains of the agreement. Given the importance of the free movement of people, there is a need for a free visa for Africa and a single Africa passport.

“While the implementation would help boost the Nigerian economy, the impact would be limited if there are no free movement of people,” he said.

Mr Jesuseun Fatoyinbo, Head, Trade and Transactional Services, Stanbic IBTC Bank, said the business community needed more clarification on tariff reduction or elimination under the agreement.

According to him, the little information available to corporate organisations with regards to tariffs may lead to holding back on investments.

“We have noted increased interests from global multinationals and other corporates in setting up facilities in Africa aimed at serving the continent and exporting abroad.

“So more transparency around tariff reductions both in terms of timelines and details of goods could prompt companies to act,” he said.

Fatoyinbo also called for more attention to the digitisation of trade processes across the continent. “Currently, trade in Africa is largely reliant on physical documentation and this is a major impediment. Policymakers need to prioritize regulatory amendments that allow for the digital signatures, a digital certificate of origin, digital bills of lading, and other documentation,” he added.

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Nigeria Borrows $4 Billion Through Eurobonds as Order Book Peaked at $12.2 Billion



Eurobonds - Investorsking

The Federal Government of Nigeria has raised a fresh $4 billion through Eurobonds, according to the latest statement from the Debt Management Office (DMO).

Nigeria had set out to raise $3 billion but investors oversubscription peaked at $12.2 billion, enabling the Federal Government to raise $1 billion more than the $3 billion it announced.

DMO said “This exceptional performance has been described as, “one of the biggest financial trades to come out of Africa in 2021” and “an excellent outcome”.

Bids were received from investors in Europe, America, Asia and several local investors. The statement noted that the quality of investors and the size of the Order Book demonstrated confidence in Nigeria.

The Eurobonds were issued in three tranches, details, namely seven years–,$1.25 billion at 6.125 per cent per annum; 12 years -$1.5 billion at 7.375 per cent per annum as well as 30 years -$1.25 billion at 8.25 per annum.

The DMO explained that the long tenors of the Eurobonds and the spread across different maturities are well aligned with Nigeria’s Debt Management Strategy, 2020 –2023.

The Eurobonds were issued as part of the New External Borrowing stipulated in the 2021 Appropriation Act. DMO noted that the $4 billion will help finance projects state in the 2021 budget.

Nigeria’s total debt stood at $87.239 billion as at March 31, 2021. However, with the $4 billion new borrowing, the nation’s debt is now $91.239 billion. A serious concern for most Nigerians given the nation’s weak foreign revenue generation and rising cost of servicing the debt.

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CIBN Banking and Finance Conference 2021: Structural Transformation and Growth



Coronation Merchant Bank - Investors King

Today we highlight one of the sessions, ‘Economic Recovery’, at the recently concluded CIBN Banking and Finance conference. This was a hybrid event in Abuja, Lagos and partially virtual last week. The Covid-19 disruptions have created demand and supply shocks in the global system while unlocking new opportunities for growth.

Given the pre-existing financing challenges and growing spending needs, many developing countries are in dire need of financial support. As a result of the pandemic, the financing gap for the sustainable development goals increased by 70% (over USD4.2bn). The speaker on this session, Amina J. Mohammed, Deputy SecretaryGeneral of the United Nations and Chair of the United Nations Sustainable Development Group focused on structural transformation, technology, finance and sustainability.

Recent developments such as the allocation of the USD650bn in Special Drawing Rights (SDR) were highlighted during the session. Although the SDR offers improved liquidity into the system, Africa is set to receive only USD32.2bn (or 6.4% of the total amount). Therefore, it is important that the funds are channeled towards well-targeted sectors that can contribute to sustainable development.

The banking and finance sector plays a crucial role. The Africa Continental Free Trade Area (AFCFTA) agreement offers an opportunity for the financial sector to work within a continental market of 1.2 billion people. According to Amina J. Mohammed, three main actions areas will reshape the financial sector and support stronger recovery.

The first, better customer engagement with a dynamic range of relevant products and services that go beyond bank-based financing mechanisms and offer innovative financial products tailored to specific needs of business ecosystems. Second, the adoption of new operating models to drive efficiency and inclusion. Third, a deliberate focus on enabling sustainable development investing.

Furthermore, Nigeria’s banking and finance industry is well positioned to drive specific UN sustainable development goals such as inclusive and affordable credit, especially for micro, small and medium-sized enterprises. The industry can also provide support towards climate change.

Technology also featured in the discussion points. Undoubtedly, technology is a catalyst for growth across economies and the pandemic has further exposed the deficit within the sector across developing countries. Investments in digital infrastructure need to be rapidly expanded and scaled up to boost socio-economic development.

The speaker commended the FGN’s efforts on its push towards sustainable economic recovery. Some policy and regulatory reforms highlighted include, regulation of fintechs and related services to strengthen payment systems and regulate data protection; the green bonds which Nigeria first issued in 2017 in support of green projects, including solar energy and the modernisation of the Nigerian stock exchange that has given rise to a new operational structure and leadership.

These are laudable steps. However, we note that there is still room for improvement. To achieve double-digit GDP growth and sustainable development, structural transformation should remain on the FGN’s priority list.

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