10 Points from AfDB 2022 in Accra

The African Development Bank (AfDB) Group held its 2022 series of annual meetings in May in Accra, Ghana with the theme of achieving climate resilience and a just energy transition for Africa.

Highlights of the meetings:

  1. Food Security: Most countries in Africa are Agri-based. But going forward, they should engage in modern agriculture with technology, fertilizer & seed improvements, and not just produce, but also process and package high-value foods to quality standards that they can export. Agriculture can then bring transformation and jobs to rural areas.

Africa has 400 million hectares of savannah which, the President of the African Development Bank Group Dr. Akinwumi Adesina, said, is better than Brazil’s (which is a net exporter of maize, beef, and soya) – and that for Africa to be a major player of global food, must transform its Savannah.

In six years, the Bank’s Technologies for African Agricultural Transformation (TAAT) program has provided 76 million farmers with improved agricultural technologies. In Sudan, the AfDB provided certified heat-tolerant wheat seeds that, when cultivated over 65,000 hectares, made the country self-sufficient. In Ethiopia, the country progressively increased its acreage cultivated with certified heat-tolerant seeds from 5,000 to 167,000 hectares in 2021. With the increased harvest, they expert to export 1.5 – 2 million tons to Kenya and Djibouti.

  1. Energy Transformation: Currently 85% of the bank’s energy investment are in renewable energy with plans to double funding to $25 billion by 2025. While the bank has a policy not to support any coal, as part of its climate change, they acknowledge that intermittent renewable energy sources cannot power Africa alone, and that Power must also be accessible, secure and affordable.
    • One solution for Africa is gas. Nigeria has $200 trillion worth to exploit, according to President Adesina who said that Europe, which gets 45% of its gas from Russia, should look to Africa. Other countries with gas potential are Ghana, Cote de Ivoire, Angola, and Morocco. The AfDB is assisting Mozambique with a $24 billion LNP project that may make the country the 3rd largest producer in the world.
    • Some of the renewable energy investments the bank has undertaken are the Quarzazate Solar in Morocco – the world’s largest concentrated solar farm, the 3,000 MW Benban energy in Egypt, the $20 billion Sahel 10,000MW, and the largest wind project in Africa at Lake Turkana in Kenya.
    • The bank is mobilizing $40 billion for South Africa to ease its transition from a reliance on 44,000 MW of coal toward renewable energy sources. Donors have committed $17 billion of grant financing, and concessions, that the bank will leverage to meet this gap without South Africa getting into debt. As the government plans to move to net-zero emissions, the AfDB has invested in solar (Xina and Redstone projects) and wind (Sere) and is also supporting a feed-in tariff for renewable energy.
  2. The ADF: The Bank’s African Development Fund (ADF) receives donations from regional members and has provided $45 billion to low-income countries. Nine of the ten countries that are most vulnerable to climate change are in Africa and 100% are ADF countries. As the ADF needs more resources, the Bank plans to tap the ADF’s accumulated equity of $25 billion to raise $33 billion from capital markets. This will make the future of the ADF more sustainable and member countries will enjoy lower borrowing costs.
  1. The Infrastructure Gap: Infrastructure’s share of the bank’s funding portfolio is high because infrastructure projects are capital intensive. One project showcased was the Pokuase road interchange that is part of the Accra Urban Transport Project and which now disperses traffic on four levels to help reduce transport congestion in Accra. It was funded with $84 million from the Bank and the Government of Ghana.

Also at the summit, Tanzania’s President Samia Suluhu Hassan received the Africa Road Builders–Babacar Ndiaye prize for 2022. In her speech, she credited her predecessors, especially President John Pombe Magufuli who was a Roads and Public Works Minister in two governments before leading the country. The AfDB in 15 years had advanced $2.1 billion for 2,315 kilometres of road on the Tanzania mainland while Zanzibar has received $113 million for 139 kilometres of roads.

  1. Climate Change: One of the themes of the 2022 meetings was “achieving climate resilience”. Climate change is an existential threat with droughts, floods, and cyclones devastating Africa and causing losses of $7-15 billion a year. Even though the continent contributes just 4% of greenhouse gas emissions, it just gets 3% of climate-related financing. Developed nations had promised to fund Africa with $100 billion to adapt to climate change but this has not materialized and the Bank now plans to mobilize $25 billion for climate adaptation through a new fund.
  1. Creative Financing: During Covid, the bank launched a $3 billion social impact bond on global capital markets and the funds went to train 130,000 health workers, provide social protection for 30 million households, and business advisory for 300,000 SMEs. The Bank now plans to use its AAA-rated balance sheet to leverage $100 billion of Special Drawing Rights (SDR) from International Monetary Fund and grow that four times.
  1. Development Financing by the AfDB can be targeted at specific areas:

• Towards Food Security: In the wake of Russia’s invasion of Ukraine, food prices have gone up 30-40%, oil is 60%, and fertilizer prices tripled. So the AfDB launched a $1.5 billion African Emergency Food Production Facility to enable countries to intensify agricultural productivity and ward off the looming hunger crisis.
• For agriculture, President Adesina said the bank will allocate $1 billion to fund special agri-processing zone in rural areas of Zambia, Nigeria, Tanzania, Ghana, CIV and Senegal.
• Towards transformational infrastructure projects; the bank continues to fund ports, highways, bridges and border-crossing stations.
• Towards Youth Funding: one mechanism to help youth stop fleeing Africa will be through a youth entrepreneurship investment bank that will invest in youth business in 13 countries. The Bank is working on a mechanism to be ready after June 2022.

  1. Looming Debt: Even as African countries recovered in 2021 from Covid shocks, they face elevated debt levels and limited financial capacity that constrained further growth.

The bank has a focus on debt management of countries to improve the quality, sustainability and transparency of the debt. They will work with the World Bank, IMF and G20 nations to deal with private debt and commercial debt that now account for 44% of Africa’s debt. The Bank helped Somalia build back its debt management capacity after decades of war and negotiate debt relief with an arrears clearance plan and it now plans to l work with partners to do the same for Zimbabwe and build it back to an economic breadbasket.

  1. Rain parade: The Economist magazine dive-bombed the meetings with an article about a missing evaluator at the Bank. Later in his speech at the end of the summit, President Adesina said that a two-year external review of the Bank showed that its governance was world-class where areas of improvement were pointed out, these will be done. The joint communique at the end of the meetings mentioned the AfDB would implement the recommendations of a governance committee.
  2. Accra Image: The host nation of Ghana, celebrated 50 years since the passing of Kwame Nkrumah its founding President. It is seen as the birthplace of Africa as, in 1957 Ghana was considered the first Sub-Saharan country to achieve independence and is now a showcase for AfDB -financed projects including roads, farms and airports.

See more about the last in-person annual meetings – the 2019 AM in Malabo, Equatorial Guinea.

Picture of President Samia Suluhu Hassan of Tanzania, speaking after receiving the Babacar Ndiaye prize for 2022. Courtesy of Edgar Batte

Next meetings: Following these first meetings since Covid, the next annual meeting will be at Sharm El Sheikh in Egypt from May 23-26, 2023. The new Chairman of the Board of Governors is Tarek Amer, the Governor of the Bank of Egypt. The First Vice-Chairperson will be a representative of Brazil and the second one will be from Uganda.

Investing to make Africa self-sufficient in food

The ongoing war in Russia and Ukraine shows the need for countries to have excellent food security. Currently, several African countries are expected to face increasing food inflation from shortages of fertilizer and grain that are produced in the war regions, combined with rising oil prices as well as global shipment chain disruptions. Wheat prices are up 45% while fertilizer prices have also risen 300% since the conflict began.

One of the most interesting programs from the African Development Bank Group that is being showcased at the 2022 annual meetings in Accra, Ghana is an ongoing farm improvement project that links to food security and climate resilience in the production of vital cereals such as maize and soya bean and also of poultry.

The AfDB Group’s African Development Fund, which this week celebrates 50 years since its establishment, approved funding of $34.75 million towards the implementation of Ghana’s Savannah Zone Agricultural Productivity Improvement Project (SAPIP), one of whose pillars aims to provide access to agricultural finance in two ways: extending “missing middle” loans to commercial farmers, and food processors including makers of animal feed and a poultry revolving fund that finance imports to small poultry farmers. These have competitive interest rates and flexible repayments that are matched to production periods.

It includes a symbiotic relationship between larger nucleus farms and smaller out-grower farmers who previously had challenges accessing resources and inputs for intense cultivation. But now they get these from this to nucleus farms who have been supported by the AfDB to source modern farm equipment and certified seed. They then hire them out to smaller farmers and provide inputs to the out-growers and provide a ready market by buying produce from the out-growers.

in the harsh Northern regions of the country where farming capacity is underutilized and other land is degraded, conservation farming is encouraged by minimum-till cultivation and reforestation that set trees planted on boundaries and degraded farm areas to restore water and carbon levels and rebalance the environment.

Employing lessons from the Bank’s Technologies for African Agricultural Transformation (TAAT), including improved certified seed, blended fertilizer adapted to suit local farm needs, subsidized inputs and mechanization, the TAAT program was rolled out as (TAAT-S) in the savannas regions. It started in 2018 with four commercial farmers on 87 hectares and received more funding under the Savannah Investment Program to support land development, high-quality inputs, and minimum-till cultivation of maize, soya bean, rice and other staple crops. By 2021 it had 118 farmers cultivating 13,000 hectares with further support from 30,000 smallholder out-growers who cultivate an average of 2 hectares. They now benefit from technology transfer, access to markets financial and mechanization services provided through commercial farmers in the out-grower arrangement.

Four mechanization service centres have been established in the country with a full complement of equipment for land preparation, from planting up to harvests for operations on both large and small farms. Small farmers who do well can graduate to larger farms while other specific programs target to make women and the youth become better entrepreneurs. Large farmers who participate in the scheme can, as a result of their increased acreage and yield, be able to approach financial institutions and access larger facilities such as asset finance of $200,000 – 300,000.

There’s is also the Savannah Investment Program (SIP) being implemented in nine districts of northern Ghana in which the Agriculture Ministry works with farmers to help the surrounding communities improve staple crops and animal yields to reduce grain and poultry imports. The country imports $400 million worth of poultry products a year, but the Ministry is certain the demand can be met locally if farmers’ capacity was enhanced. It has developed value chains finding buyers for the farm outputs with governments, schools, hotels and other institutional and retail buyers.

To enhance local value chains, poultry breeds are improved with exotic breeding while goats and sheep were introduced to the pastoralist communities. To improve sustainability, poultry farmers are assisted to venture into feed production, to reduce the substantial cost of animal feed.

The improvements have been achieved with a subsidy cost of about $100 million a year. But subsidies are the norm in food-producing countries in Europe and the Americas that then get to export their surplus to other nations.

The Ghana program is now a flagship of the Bank’s “Feed Africa” portfolio and a template for other African countries. The program will be rolled out to other countries including Tanzania, Uganda, Mauritania and Egypt.

Speaking ahead of the annual meetings in Accra, African Development Bank Group President Dr. Akinwumi Adesina said that TAAT has delivered improved agricultural technology to 76 million farmers. The interventions have led to enhanced harvests and crop self-sufficiency in countries like Sudan and Ethiopia that received and cultivated new heat-tolerant wheat varieties.

The Bank has just announced a $1.5 billion emergency food production facility to help African countries enhance food production and mitigate disruptions from the Russian war in Ukraine. Taking on lessons from TAAT, instead of relief food distribution, which is a short-term measure, the AfDB is signaling that the continent has the resources, technology and a plan to boost production and ensure food security. It will target to deliver subsidized certified seed, technical support and extension services to over 20 million farmers.

EAPI Summit showcases African property opportunities

The 9th annual East Africa Property Investment (EAPI) Summit was staged in Nairobi this week after a two-year hiatus and brought together over 300 people who are involved in investments, the management and financing of commercial real estate and other property developments.

The break in between, occasioned by covid-19, did not result in a disruption of developments and construction. Indeed this week, the Nairobi Expressway was opened to the public by its operator Moja for the public to test.

The conference, with the theme of “renewed focus,” was sponsored by Absa who is one of the oldest bank groups in the country and one that is connecting with the property market. They are a founding shareholder of the Kenya Mortgage Refinance Company.

Speakers at the EAPI Summit spoke of the great demand for light industrial, cold storage, manufacturing and warehousing infrastructure on the continent which is expected to become the fastest-growing consumer region in the world. There is an attraction to having small local manufacturing closer to the local markets as opposed to importing goods manufactured in far-off places like China, whose availability and distribution could be disrupted by global events. It was noted the facilities necessary to support e-commerce on the continent were still lacking, even after Covid-19 had accelerated the emergence of e-commerce at a pace and scale that had not been projected to happen for another decade.

Another area that was highlighted at the summit is affordable housing as different countries in East Africa countries have documented growing deficits of needed units. The gaps are driven by rapid urbanization estimated at 4% a year in the region and the governments of Tanzania Kenya and Rwanda have come up with regulatory changes to support affordable finance such as by introducing mortgage refinance programs to help reduce the costs of finance to homes, while banks like Absa are also making contributions to alleviate the problem. Speaking during the opening of the Summit, Jeremy Awori, the Absa Kenya Managing Director said the bank has advanced a total of Kshs 3.8 billion to Kenya’s National Housing Corporation, through a combination of direct lending and support to three affordable housing building projects being developed by the corporation.

Awori said real estate investors need to reinvent models to match the modern trends and needs of the local communities such as sectional ownership, multi-tenant shared spaces and converting under-utilised buildings into enthusiastic venues and the bank is ready to offer financing solutions. Many financial institutions, multinationals and NGOs have relocated their headquarters and offices to secondary business districts that were previously residential.

Elsewhere, a lot is happening in the hotel space. A few weeks after announcing they will close the iconic hotel in downtown Nairobi, Hilton used the EAPI summit to announce the opening of Kwetu, a new 100-room facility under the Curio brand that will be in the Westlands area later in 2022. It will be operated under their Curio brand. The EAPI summit was held at the Kempinski Hotel, in the shadow of the giant GTC complex, which opened in December 2021 and which was a co-sponsor of the summit as it seeks tenants for its adjacent properties.

Also at the Summit, Absa Kenya which was the first bank to subscribe to the principles of the Kenya Green Building Society, received an award from the International Finance Corporation for integrating green building technologies in its designs. The two-day EAPI event had 300 attendees in person, combined with a global broadcast of all the 30 sessions to 550 other virtual delegates in 35 countries.

Kenya Tax Changes in 2022

A few weeks before Kenya’s August 2022 general election, Parliament is to debate and pass the Finance Bill which was published in April. Some measures it proposed will become effective in July 2022 and others in January 2023.

The tax proposals are to meet the country’s 2002/23 budget with a planned expenditure of Kshs 3.4 trillion which includes Kshs 2.14 trillion of ordinary revenue. The Finance Bill will need to be passed along with the Budget Estimates, Appropriations Bill and County Allocation of Revenue Bill. A recurring concern with investing in Kenya is the ever-evolving tax code that changes from year to year, adding, taking away or adjusting taxes and deductions.

Local tax advisory firms such as PWC, KPMG, and Deloitte have published summaries and interpretations of some of the tax proposals,

Excerpts

Agriculture: Removal of an exemption of clearing or planting on agricultural land.

Digital Economy: The digital service tax doubles from 1.5% to 3%. What impact will that have on e-commerce in Kenya?

Energy: Briquettes using sustainable fuel are exempted from VAT

Financial Markets Capital gains tax (CGT) goes up from 5% to 15%. Also, gains by foreign investors trading in derivatives will attract a withholding tax of 15%.

Foods: Excise duty of 15% on imported potatoes, excise duty goes up slightly on fruit juices, beer, other alcohol, wines, imported sugar, and white chocolate. Also, excise tax is added on electronic cigarettes, ice cream not containing cocoa, and liquid nicotine.

Local medicine manufacturing: in the recovery from covid-19, plants aiming to manufacture pharmaceutical products will be exempt from paying import declaration fee (3.5%) and railway development levy (2%). Also while a 25% excise duty on imported glass is imposed, it excludes those for pharmaceuticals.

Media: 15% excise tax added on advertisements by betting firms and alcohol companies.

NGOs: Trusts must now use taxpayer PINs to transact.

Sports Betting: Excise duty goes up from 7.5% to 20%.

Big Stick Enforcement: To appeal against a tax claim, someone must deposit 50% of the amount upfront in a special account at the CBK. Also, ships, planes, and motor vehicles can have a payment claim registered against their ownership by KRA, in case their owners have not paid other taxes. The law currently only applies to land & buildings. Also, multinationals with a turnover of Kshs 95 billion ($750 million) will be required to file Kenya-specific reports within a year of their financial year-ends.

Also, see a KPMG analysis in 2021.

Energy and Climate to feature at AfDB talks in Accra

The annual meetings of the African Development Bank Group (AfDB) are now scheduled to take place in Accra in May 2022. Ghana’s capital has previously been expected to host the meetings last year in a physical setting, but with covid-19 still disrupting continental travel, the meetings were held virtually, for the second year in a row.

While these are is the first-in-person annual meetings since Malabo in 2019, they will be held in a hybrid format with governors representing 54 African countries and 27 other nations who oversee the African Development Bank and the African Development Fund (ADF) meeting at the Accra International Conference Centre while other participants will join in virtually. Attendees will also celebrate the 50th anniversary of the ADF.

The 2022 annual meetings will be hosted by the outgoing Chairperson of the Board of Governors, Ken Ofori-Atta, Ghana’s Minister for Finance and the theme of the annual meetings is Achieving Climate Resilience and a Just Energy Transition for Africa. This is at a time when in South Africa, homes, highways, bridges have been damaged or swept away by floods and nearly 400 have died in what President Cyril Ramaphosa said was “a disaster of catastrophic proportions” while in Eastern Africa, the Intergovernmental Authority on Development (IGAD) has warned that rains will fail for the fourth consecutive year.

 In terms of climate finance, the AfDB will support transitions to non-coal and non-nuclear projects including hydro-generation, geothermal, gas, wind, and solar – and countries will be invited to put forward bankable projects for financing to be arranged. However, with the continent still energy-starved, countries that want to pursue coal as part of their energy-mix plans, can do so but with financing from other sources. 

The meetings will have knowledge events to promote discussion of policy and development of the continent. Some will be on building digital economies,  green jobs for youth & women in post-covid Africa and supporting resilience in agri-food systems with a focus on rural economies.