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Key economic issues to be addressed at WEF Africa in Cape Town

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CAPE TOWN – The World Economic Forum on Africa to be held in Cape Town will address a number of key issues facing the region’s inclusive development, the organisers said on Thursday.

WEF on Africa will take place in Cape Town, on September 4 – 6, under the theme “Shaping Inclusive Growth and Shared Futures in the Fourth Industrial Revolution”.

The organisers said the meeting will be the first that the Forum has held in sub-Saharan Africa since 2017 when leaders from government, business, and civil society from around the world gathered in Durban, KwaZulu-Natal.

This year’s meeting falls in a year when 20 elections will take place across the region, and nearly 100 days since South African President Cyril Ramaphosa took office. While progress has been made politically in sub-Saharan Africa, economic growth is also expected to accelerate modestly in 2019 from 3.1 percent in 2018 to an average of 3.6 percent in 2019, according to the World Bank.

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According to the organisers, the Forum will address a number of key issues facing the region’s inclusive development, including supporting growth and integration through the African Continental Free Trade Area, creating high-quality employment opportunities and protecting workers in the Fourth Industrial Revolution, and employing drones to address health, infrastructure and other societal needs, among others.

“Africa’s successful development depends on building the right conditions for its new generation of entrepreneurs, innovators and leaders. This means smart, agile institutions; an enabling environment for innovation that includes access to skills and capital; and a determined approach by policy-makers to level the playing field and implement policies that prioritise sustainable, inclusive growth over short-term imperatives,” said Elsie Kanza, head of the regional agenda, Africa, and member of the executive committee at the World Economic Forum.

PHOTO: weforum African News Agency (ANA) 

Economy

Nigeria’s informal economy: A catalyst for economic growth

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Balogun market, Lagos, Nigeria. Pic: Megainsights

In a country like Nigeria that lacks social safety nets and has a minimum wage of less than US$98, a significant section of the population have no choice other than to turn to the informal sector as a survival strategy. However, there is every potential for the informal sector to be more than just a means of survival.  If carried out effectively, government engagement with the informal sector can lead to an invaluable economy boost.

The informal sector: What are its contributions?

In a nutshell, an informal sector business is an unregistered business owned by one or more members of one or more households selling goods and services. Informal workers are workers engaging in work without formal employment contracts or workers producing goods for final use by their households. Jobs under this category include paid domestic workers, drivers, subsistence farmers and artisans. Over 61% of the world’s working population work in the informal sector. 85.8% of employment in Africa is in the informal sector. Over 65% of the working population in Nigeria is in the informal sector. In the 2016 fiscal year, 41% percent of GDP came from the informal sector and the informal economy also accounted for 73.7% of created jobs.

Whether the numbers tell the full story or not, the contribution of the informal sector to economic growth is more than negligible. Notwithstanding, the informal sector does not figure as prominently as it should in economic growth plans, even in previous administrations. The seven point agenda of the Umaru Musa Yar’adua administration did not consider the informal sector; neither did the transformation agenda of the Goodluck Jonathan administration.

Why must we pay more attention to the informal sector? Simple. The present and projected demographic of the Nigerian population demands it. Nearly 65 percent of Nigeria’s population is between the age of 15 and 64. Only about 8% of the adult population is formally employed.25% of Nigerian children aged between 5 and 17 are engaged in labour, all of whom are most likely in the informal economy. About 43 percent of women in Nigeria, particularly Northern Nigeria are married before the ages of 18 and in all likelihood have little to no chance of obtaining higher education. The chances of such individuals ending up in the informal economy are very high.

There are about 44.3 million small business owners in the sector employing about 22.9 million people. It is important to harness the potential contributions of the informal economy, which is responsible for the employment of such a significant section of the working population, to the fullest.

How can we remodel the informal economy? Two points will be made here. First of all, greater attention should be paid to proper regulation and structuring of activities in the informal economy. In doing so, the government could create an organization responsible for the registration of businesses in the informal sector all over the country. Such organization would be established by law and its activities monitored by established bodies. Subdivisions of such organization(s) at state and local government level could be established for effective monitoring at all levels. The Economic Growth and Recovery Plan (ERGP) developed by the Muhammadu Buhari Administration in 2017 places the responsibility of monitoring the informal economy on the Ministry of Industry, Trade and Investment. It remains to be seen whether this function will be carried out effectively by this organization.

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Any formalization processes that will be carried out under the ERGP or any other economic plan should comply with International Labour Organization (ILO) standards in that it provides opportunities for income security, livelihoods and entrepreneurship. If the informal economy can be formalized through registration of informal businesses and workers, an obvious dilemma would be how to develop a proper taxation regime. If formalization does not result in taxation, government revenue from a significant aspect of the economy is reduced. Taxation on the other hand may discourage business owners and workers from being registered. A possible solution may be granting tax reliefs to registered businesses and workers below a certain income or profit level with income derived from taxation of formalized units being redirected towards investment in such sectors.

Furthermore, effort should be directed towards removing any ‘stigma’ associated with the informal economy. 61% of all workers worldwide are informally employed and as discussed earlier, the informal sector makes significant contributions to the Nigerian economy. Concerted effort must be made towards promoting the informal sector as a viable economic growth/poverty reduction mechanism. Informal workers are also skilled workers and the informal economy is also a skilled economy.

Accordingly,the government can create and sponsor low-cost well-equipped skill platforms that connects individuals willing to work in the informal sector and experts together. The current government appear to be taking steps in this regard. In 2015, the government approved the establishment of Vocational Enterprise Institutions(VEIS) and Innovative Enterprise Institutions(IEIS), secondary schools which work with businesses to provide vocational and technical training. There are now about 82 VEIs and 152 IEIs in Nigeria.

However, these institutions, as with other educational institutions in Nigeria, suffer from funding problems and are also expensive for many of the prospective beneficiaries. The government could provide assistance in this regard by subsidizing costs for prospective attendees. Alternatively, the government could collaborate with private organizations to organize periodic technical training programmes for members of the public. The allocations to the Ministry of Education in the 2019 budget proposal and projects listed under it do not indicate that the government is willing to make significant investment in this regard anytime soon.

It may be unheralded but the strong contributions of the informal economy to employment and economic growth cannot be easily discountenanced. With proper structuring, it could be an economic goldmine.

 

Author

Oluwafifehan Ogunde is a research specialist and legal consultant. He has a PhD in Law from the University of Nottingham and is a qualified barrister and solicitor of the Federal Republic of Nigeria.

 

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Economy

International Youth Day: How government can get 140,000 Youths out of unemployment in 2 years

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Tochukwu Egesi, Innovation Corner CEO

International Youth Day is an awareness day designated by the United Nations. The purpose of the day is to draw attention to a given set of cultural and legal issues surrounding youth. This year’s edition of the Youth Day was held in Aba hosted by Vision Alive Foundation. A program which aims to promote youth development and inclusion across the world along with the sustainable development goals.

Speaking at the event, Tochukwu Egesi, Innovation Corner CEO used the opportunity to recommend 5 ways the government can lift young people out of poverty in the state and support their growth.

These five recommendations include:

1.  Abia Apprenticeship Program: Aba hosts over 65,000 independent businesses popularly known as Shops and an international Market known as Ariaria.  Tochukwu, therefore encouraged the government to go back to the apprenticeship system and develop an annual program that will assign one youth to each shop for 1 year and support them with stipends for transportation, after which the government will provide a guarantee for the CBN to give 200,000 to  1 million naira for the youth to establish their own trade anywhere in Nigeria and Africa leveraging non-technology and technology means for the trade. This program alone will support 130,000 youths in two years.  

2. Abia Venture Fund: Tochukwu acknowledged the efforts of the government for setting up the Abia Investment House. Tochukwu, therefore recommended that the government through the investment house set up an annual fund of 1 Billion Naira to support youths that have built a technology solution or a technology enabled business to enable them scale. Tochukwu also pointed out that this investment could be an equity investment, hence the funding is an asset to the state that will also turn into an avenue to increase our internally generated revenue in the future.

3. Public Education Lab: There is so much demand for education to be transformed to meet the demands of the 4th Industrial revolution. Tochukwu recommended that the government sets up a public education innovation lab that will be responsible for developing and sourcing innovations within and outside Abia state that will support the government in transforming the education sector in Abia state.

Leftmost: Former Minister for Aviation, Chief Osita Chidoka, Tochukwu Egesi(CEO, Innovation Corner), Lady Ngozi Okechukwu (National Orientation Agency Director Abia State) and Former Minister for Education and Presidential Candidate Dr. Oby Ezekwesili

4. Competency based appointment: Tochukwu used the opportunity to decry the federal process of appointment which is based on compensation of party loyalists rather than competency of candidates. He recommended that Competency should be above Compensation in political appointments in the state.

5. Office of Innovation and Partnership: Tochukwu stated that the Ministry of Technology exists to regulate and integrate technology in the state. Hence, its unlikely to generate innovation and drive technology related partnerships in the state. He therefore called on the government, as a matter of urgency setup an office of innovation and partnerships that will work with the governor to develop and attract innovative approaches to social development in the state. He stated that other states such as Ondo state has a similar office as well as countries like Sierra Leone and Rwanda.

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Also in attendance at the Youth day  were Former Education Minister and Presidential Candidate Dr. Oby Ezekwesili, Former Aviation Minister Chief Osita Chidoka, National Orientation Agency Director, Aba State Lady Ngozi Okechukwu and a representative of the Speaker House of Assembly Abia.

 

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Economy

Shell’s annual revenue equals South Africa’s GDP

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JOHANNESBURG – Royal Dutch Shell, more commonly referred to as Shell, is the world’s largest energy company with annual revenues equivalent to the South African gross domestic product (GDP).

It explores for crude oil and natural gas around the world, both in conventional fields and from sources such as tight rock, shale and coal formations. Through its subsidiaries, the company also performs activities related to chemicals, power generation and renewable resources.

Although dependent on the oil price, Shell’s exposure to falling oil prices has been significantly reduced following major cost optimisations, divesting of non-core assets and the acquisition of the BG Group in early 2016.

Operationally, conventional oil and gas will continue to play a major role for Shell, but its integrated gas segment is where the real growth is to be found with more than fifteen major products.

Further growth in global liquefied natural gas (LNG) demand, particularly in emerging markets presents significant opportunity.

The company has entered a harvesting phase after years of exploration investment. It plans to pay out at least $125billion (R1.9trillion) to shareholders in dividends and share buybacks from 2021 to 2025. That is approximately half of its current market capitalisation. It has also been reducing is net debt since the oil price glut in 2016 and aims to further reduce its gearing to about 20percent over the next five years.

Shell remains the strongest free cash flow generator among the major oil and gas companies and has never cut its dividend, even during times when oil prices were below $40. A stable and predictable dividend yield of about 6.5percent and recently authorised share repurchase programme worth $25bn make it an attractive opportunity for income-seeking investors.

Based on the company’s new projections for 2025, it is evident that Shell will be able to fund capital expenditure and current dividends even at oil prices below $40. Although difficult to forecast, consensus oil price forecasts over the next five years gradually trend upwards towards $70 per barrel, which would give Shell a significant safety margin.

Oil prices have, however, been very volatile over the past five years and are no longer as predictable due to an oil industry fundamentally changed by the US oil production boom, uncertainty over Opec’s clout, the fluctuating value of the US dollar and shifts in oil demand.

A tailwind for Shell is the distinct possibility of interest rate cuts by the US Federal Reserve. In such an environment companies with high income distributions to shareholders are often preferred over lower-yielding bonds.

Trading at 2020 forward price-to-earnings multiples below 10 times, with a free cash flow yield of 10percent and a dividend yield of 6.5percent, its valuation is undemanding compared to its own history and peers. Shell is well-positioned to benefit investors who prioritise income from their portfolios.

Frants Preis, CFA is a portfolio manager at Vega Asset Management based in Pretoria. Shell shares are owned on behalf of clients.

BUSINESS REPORT 

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