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Egyptian-Japanese missed opportunities

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CAIRO – 6 August 2019: Lots of missed opportunities need to be reconsidered for further cooperation between Egypt and Japan in the near future. The two countries still have a lot of potential for joint coordination in several aspects.

Taking a closer look on Japan would make you re-think of it as more than just a technologically sophisticated country, and for Egypt, as more than a North African developing, and economically growing country.

Egypt, which is currently the head of the African Union, is looking for more discussions and solutions to several national and African issues, including the countries’ economic reform and growth as a priority.

Other issues including enhancing peace and security, countering terrorism, developing health, education and infrastructure are among the challenges that need a second look in Africa. That is in addition to poverty, forced displacement and illegal immigration.

What could Africa as a nation with all its particularchallenges and prioritiesbenefit from cooperating with Japan?

The policy of the “closed door” was forced in Japan for hundreds of years. Per this policy, very few things could have the opportunity to enter or leave the country. This affected the country’s trade, culture and military and led to the transformation of the country.

Many things happened during wars and conflicts, especially World War II,forwhich the country officially apologized. Years after all of this, Japan has become more than just atechnologically-advanced country;it is a country which is still seeking to learn, and communicate.

“Japan is an isolated country.It is far from Africa. It needs nearly a day of traveling so we can reach each other,” President of Japan International Cooperation Agency (JICA) Shinichi Kitaoka said during a meeting that included ten journalists from different African countries, reviewing the Japanese-African relations and the aspects of ongoing cooperation.

During the meeting,Kitaoka said that Japan supports other countries to grow and be independent through providing ODA loans. “Loan is something to support being independent. Countries need to know how to utilize these loans and give themback after several years,” Kitaoka explained.

“We made mistakes in World War II, invaded other Asian countries, so we wanted to give back to these countries, and this is what we did during the past years. However, as the Asian countries have developed, we think that Africa has to be the main focus of Japan at the meantime,” Kitaoka added.

TICAD, as a start

In 1993, Japan and Africa started holding Tokyo International Conference on African Development (TICAD). TICAD was held for the first time in Tokyo on October 5 and 6, 1993, aiming to enhance dialogue between African-Japanese leaders, promote Africa’s development, peace and security, strengthen relations between the countries, and establish strong partnerships between Tokyo and Africa.

The international conference which has been held regularly since then is not just led by Japan, despite being a Japanese initiative. Several international partners shared the organization of TICAD, which is co-sponsored by the United Nations, along with the Japanese government. The partners include the United Nations Development Programme (UNDP), the African Union Commission (AUC) and the World Bank.

On August 28, TICAD7 is expected to be held inthe presence of all African leaders, including Egypt’s President Abdel Fatah al-Sisi. Many things were announced to be discussed.

During meeting with JICA and Japan External Trade Organization (JETRO) officials in Tokyo in July, Business Today knew several details about the awaited conference including the side eventsbeing held for the first time with an Egyptian start up participation among other African startups invited to the conference.

Under the theme “Africa and Yokohama, Sharing Passion for the Future,” several issues are going to be discussed during the conference. Technology and innovation wereannounced to be part ofall discussions this year.

But, as discussions have been ongoing between Africa and Japan extensively since 1993, what else could be done, so no opportunities would be missed, especially between Egypt and Japan?

Startups

Egypt is a rising market for startups. According to start-up platform MAGNiTT’s 2018 Mena Venture Investment Report, Egypt is the fastest growing startup ecosystem and the second largest after the UAE.

Egypt’s share of the total number of seed funding agreements grew by 7 percent y-o-y to $196.5 million, representing 22 percent of all MENA closes in 2018. “Egypt is seeing a second wave of entrepreneurs and investors that are more mature and experienced. The population is also starting to embrace technology for everyday activities,” Algebra Ventures Managing Partner ZiadMokhtar said.

Accordingly, Egypt’s entrepreneurs could not just see golden opportunities during TICAD7, but also for what a city like Kobe could offer to them.

Kobe is a Japanese city promoting itself as the young people and innovators’ first choice. During a presentation for Kobe officials at the city administrative headquarters, they focused on the city’s goal to become an environment where entrepreneurs can grow easily and create their new business.

The start-up visa for foreigners is among the very special things offered by Kobe city. Meeting with the city officials, they explained that they can offer a startup visa that allows foreign entrepreneurs to stay in Japan for one year maximum.

After getting the approval of the city officials, entrepreneurs will be able to start their business in Japan and enjoy a subsidy provided by the government “covering half of rent and communication cost, 2million ($1.8K) Yen personnel expenses for hi-tech engineersand a maximum of13 million ($120K) subsidies for 3years.”

However, after the first year of operating in Japan, startups need to meet the city’s demands to continue operating for further periods. The city’s criteriainclude the business has “a maximum of two fulltime staff or a capital exceeding 5million Yen”.

This Japanese city is offering a start-up visa for entrepreneurs even if they do not have an existing business at their own countries. The officials affirmed to Business Today that no legal consequences will be imposed onthe startups or the founders if they fail to meet the demands. They added that the Japanese perspective towards startups is different than the African one, and they believe that startups will have a fair chance in Japan to succeed and continue.

Age, health and society

The challenges in Japan and Egypt are severely different. Egypt deals with the high and rapidly growing population as a problem which is equally dangerous to terrorism, according to President Abdel Fatah al-Sisi’s earlier statements. Japan is suffering from the rising number of elderly people and the reluctance of young people to marry and have children. According to statistics reviewed during a presentation at the National Hospital Organization, Nagasaki Medical Center, Japan in the future willsuffer population reduction.

Japan’s Ministry of Health is currently working to promote increasing the population, according to doctorAtsumasa Komori from Nagasaki Medical Center. “The increasing numberof elderly people in Japan is our biggest problem,” he said.

Enhancing communications between Japanese and African nations and increasing the cultural exchanging channels could offera solution for both countries.

“Egypt’s steadily growing population should be used as a privilege,”JICA’s Middle East division Director Masataka TAKESHITA said during an interview with Business Today at JICA’s headquarters’ in Tokyo. He assured that the country’s population is one of the positive sides that should be exploited in the best ways.

He pointed out that Egypt still needs to work on creating more job opportunitiesamid the government’s economic reforms.

Japan has many successful experiments on human development especially in Asia, according to Shigeru Ushio, director-general for African Affairs department and assistant minister offoreign affairs.

Egypt and Japan had a lot of meetings and discussions ahead of TICAD7, set to be held on August 28 in Yokohoma city, according to Ushio, who affirmed that both parties held a number of senior officials’ meetings.

He added that Japan has huge commitments with Egypt. “The Egyptian government always sends high level seniors to Japan to follow up on updates of our agreements and discussions and we respect their views and leadership,” Ushio added.

He pointed out during a limited press conference held in the attendance of the African media representatives that Egypt and Japan held a lot of discussions, especially regarding human development aspects where Japan has a number of successful experiences in cooperation with other countries.

“We believe development is the key to do anything, as we have done this with many countries, especially in Asia, and believe that the time has come to do it with Africa now,” Ushio stated

With Further discussions among officials in both countries, maybe Japan and Egypt can reach a solution for them both.

Agriculture

“I am interested in Delta. If there is a chance to conduct research and see what we can do in this area, we are certainly interested in it,” Yasuhiro Tsujimoto, a member of the Crop, Livestock, and Environment division at Japan International Research Center for Agricultural Science (JIRACAS) told Business Today during a presentation at JIRACAS headquarters in Tsukuba.

Tsujimoto was reviewing his pilot project implemented in Madagascar since 2001. He said that the final results of his project, which aims at improving rice production in Africa, cannot be officially announced yet. He added, however, that if JIRACAS found that any of its research results are suitable with Egypt’s agriculture conditions and climate, it will definitely share it.

He also explained that his project, entitled “FY VARY project”, aims at the improvement of rice yield production under law fertilizer input and poor soil fertility environment in SSA. It was mainly conducted as a pilot experiment in Madagascar, and is scheduled to continue until 2022.

Answering Business Today’s question about JIRACAS’ researches in North African countries, and especially Egypt, in order to raise the production rate and quality, Yasuhiro said the institute is not currently conducting research in North Africa, especially with the existence of a nearby universities and institutes interested in conducting researches on Egypt’s climate and agriculture conditions.

“We are not conducting current research in North Africa, as other universes are doing research. We are focusing more on doing what no one else has done before, especially in other African countries,” Yasuhiro said.

The Food and Agriculture Organization of the United Nations (FAO) published a research on rice production in Africa titled, “Rice production in Africa, current situation and issues”. The study states that, “With the exception of a few countries that have attained self-sufficiency in rice production, rice demand exceeds production and large quantities of rice are imported to meet demand at a huge cost in hard currency.”

According to a FAO study, Africa consumes a total of 11.6 million tons of milled rice per year, of which 3.3 million tons (33.6 percent) areimported.

Egypt, in particular, has imposed restrictions on planting rice since the beginning of 2018 due to fears of water shortage. The government has decided to reduce the area of rice cultivation from 1 million feddans to 724,000feddans. Furthermore, planting rice was prohibited in certain governorates, including Aswan, Luxor, Qena, Sohag, Assiut, Minya, BeniSuef, Fayoum, New Valley, Giza, Cairo, Qaliubiya, Menoufia, MarsaMatrouh, North Sinai, South Sinai and Red Sea.

According to reports, Nigeria was named the largest producer of rice in Africa, replacing Egypt which was known of being on top of Africa’s production in this regard.

In March 2019, Egypt’s government has announced raising the allowed area of rice cultivation, to be once again 1 million feddans, in order to reduce the import expenses for rice.

Also Read Interview: African Energy Chamber Executive Chairman, NJ Ayuk on Transforming Africa’s Energy Sector

Education

Egypt and Japan already have a “successful implemented experience” regarding educational cooperation, according to JICA’s Egypt Office Chief Representative, Yoshifumi Omura, during an interview with Business Today.

Nearly 100 schools are to be opened during the several coming years. Some 35 schools have already opened their doors and received Egyptian students for the academic year 2018/2019. Five more schools are expected to open during the next year.

The 100 schools will be based on “Tokkatsu”. As identified by Japanese Asakawa elementary school principal, Ms. Hiromi Shimizu, Tokkatsu is a kind of student activity which builds the students’ characters to make them more independent and positive. She said that studies have been conducted on students’ behavior before and after applying the Tokkatsu activities, and showed significant transformation in students’ behaviors. Students turn into more engaging and open individuals who are willing to participate in discussions without fear.

Many Egyptian teachers came to Japan to take the Tokkatsu training, according to Shimizu. She added that she met and trained some of them, and even became friends with them.

“We understand that we have an education system different from the one in Egypt, or any other country; however, Tokkatsu is not just about learning, it is also about building personalities,” Shimizu said.
By the end of the academic year, teachers will have to fill a form to check if all of the Tokkatsu goals have been achieved during the year. This is the only aspect through which they can check if Tokkatsu was successful or not.

“Tokkatsu can be applied anywhere around the world. Eventually, Tokkatsu is about changing people’s mind sets to be more motivated to participate in the society even more,” Shimizu said.

“Of course we expected to face some difficulties and problems in the beginning because the whole idea is new. But, so far, I can say that the experience is pretty much successful, despite everything that happened during setting up the process last year,” JICA’s Egypt Office Chief Representative, Yoshifumi Omura, said.

Japan is not a countrywithso many natural sources; however, they managed to create different sources to strengthen their economy. JICA’s Kitaoka reviewed during the meeting with the Africanjournalists that Japan focused after World War II on reforming the country’s economy. Several years later, Japan, a country which survived two atomic bombings, turned from an invading country during the war to a supporting country for its neighbors.

 

Credit: Aya Samir/ Egypt Today

Economy

Deal making slows across sub-Saharan Africa, but post-pandemic opportunities look interesting

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Deal making activity in sub-Saharan Africa (SSA) dropped in the second half of 2020 (H2 2020), when compared to the second half of 2019 (H2 2019) and year-on-year, deals were also down in both volume and value compared to 2019. As the continent gears up for post-pandemic recovery in 2021, the opportunities presented by free trade across the continent, foreign investment opportunities due to new partnerships and trade relationships, as well as the post-pandemic focus on technology, healthcare and renewable energy, will be key factors in attracting valuable mergers and acquisition (M&A) activity to the region.

Further, South Africa’s deal volume and value both dropped in 2020, with the industrials and healthcare sector attracting the biggest investments. Ghana stood out as a country that attracted more and higher value M&A deals in 2020 than it did in 2019, with China being the primary inbound investor in the country. And Kenya recorded a good increase in deal value for 2020, although volume decreased, with the financial sector being the primary target for inbound investors.

Sub-Saharan Africa

According to Baker McKenzie’s analysis of Refinitiv data, M&A transactions dropped in SSA in H2 2020, down 4% compared to H2 2019, with 329 deals in the period. Deal value fell by 17% to USD8.9 billion in the second half of 2020, compared to the same period in 2019. For the full year 2020, transactions dropped by 8%, with 625 deals in 2020, and deal value dropped by 33%, with deals valued at USD17.4 billion in total for 2020. 

Cross-border activity in SSA remained much the same in the second half of 2020, with 210 deals in H2 2020 compared to 209 in H2 2019. This was due to an uptick in outbound interregional deals, which were up 28% year-on-year. The total value of cross-border M&A deals in the second half of 2020, however, dropped by 21% to USD6.5 billion when compared to H2 2019. For the full year 2020 (FY 2020), the number of cross-border deals dropped by 8% and deal value by 27% compared to 2019. United States-based Mylan NV’s acquisition of the Aspen Pharmacare-Thrombosis business in South Africa for USD759 million was the biggest cross-border deal in the period.

Companies in the materials sector remained the top target for investors in sub-Saharan Africa, with 29 deals in H2 2020, though the biggest value deals came from the energy and power sector, with deals amounting to USD1.7 billion in H2 2020.

The United Kingdom was the most active investor in the SSA region for the second straight year, with 29 deals announced in the second half of 2020. There were also 29 deals from the UK for the full year 2020.

For outbound transactions from SSA, the primary target companies for African investors were in the industrial sector, which announced seven deals for H2 2020 and 17 in total for the full year. The high technology sector announced 12 deals in H2 2020, and 17 deals altogether in FY 2020. Further, India was the primary target for African outbound investors in the region, with 11 deals in H2 2020 and 20 for the full year 2020.

Analysis

Wildu du Plessis, Head of Africa for Baker McKenzie, noted, “While deal making has slowed across Africa, all is not lost and there are still plenty of  opportunities to benefit from good deals on the continent. For the next while, we believe that deal activity across Africa in general will mostly be in the form of take-private transactions, distressed M&A opportunities, restructurings, disposals; and corporates looking for investment opportunities in offshore markets.

“Usually viable businesses are experiencing continued challenges due to the pandemic, leading them to turn to M&A as a way to raise funds. However, the lack of available capital and acquisition finance, as well as the difficulty in pricing deals in an uncertain market, are proving to be big issues for investors and this is slowing down the pace of deal making. For those who have capital, there are plenty of bargains to be had in Africa in the next few years, particularly in those sectors that have been badly affected by the pandemic, as well as in those industries where demand has dramatically increased,” he notes.

“Sectors in SSA that have clearly flourished during the pandemic include healthcare, technology media and telecommunications (TMT) and renewable energy,  with the materials and the financial sectors also attracting interest. Industries such as aviation, retail, oil and gas, and tourism/hospitality will take longer to recover and are more likely to result in distressed M&A activity,” du Plessis says.

Du Plessis says that the good news is that the start of trading for numerous member states of the African Continental Free Trade Area (AfCFTA) is expected to provide a huge boost in investment in post-pandemic Africa.  The AfCFTA has done a great deal to bolster investor interest in the region and dealmakers are taking notice of the agreement’s first movers. After Brexit, big African investors in the United Kingdom and countries in the European Union will continue to target African sectors, hoping to capitalise on new economic partnership agreements, and the launch of free trade in Africa. Investors from the United States will also continue to be strong M&A players in key African countries, with a Biden administration expected to further encourage investment and trade between the US and African countries.

“We can also expect to see heightened scrutiny of environmental, social and governance issues, with companies that have sound ESG strategies leading the pack in terms of investment and growth on the continent.”

Country data

 

South Africa

M&A activity in South Africa decreased as a result of the COVID-19 pandemic. The number of transactions dropped by 6% to 186 deals in H2 2020, and the value of the deals shrunk by 36%, down to USD4.9 billion from H2 2019. The full year 2020 activity was down 6% to 337 deals, while deal value fell by 46% year-on-year to USD8.5 billion. Monthly figures rebounded in H2 2020 and were more comparable to those in 2019.

Cross-border transactions dropped 2% year-on-year to 164, with deal value dropping by 47% to USD4.3 billion. The industrial sector was the primary target for inbound deals with 14 transactions in 2020, up 133% year-on-year.  However, these deals were small in value, yielding a total for 2020 of USD37 million. The largest inbound deal completed in 2020 was in the healthcare sector, with Aspen Pharmacare-Thrombosis acquired by Mylan NV (US) for USD759 million.

The United Kingdom remained one of the primary investors for South African companies, with 25 deals, up 25% year-on-year. However, the biggest deals were brought in by US investors, with total deal value amounting to USD871 million. This was largely driven by the Aspen Pharmacare-Thrombosis acquisition.

Analysis

Morne van der Merwe, Managing Partner and Head of the Corporate M&A Practice at Baker McKenzie, says, “The pandemic has clearly affected both the volume and value of deals announced in the country in 2020. However, South Africa remains attractive to foreign investors who have long considered the country a key gateway into Africa, even more so now that AfCFTA trading has begun, and the country has been singled out as one of the early beneficiaries of intra-African free trade.

“South Africa’s infrastructure, automotive, healthcare and renewable energy sectors have seen large investments in recent years, and this looks set to continue, despite short-term pandemic lows. Government policy has focused on boosting investor interest in these sectors and the country’s special economic zones (SEZs) have been successful in facilitating foreign investment inflows. SEZs are areas in the country that are set aside for specific economic activities. For example the Tshwane Automotive SEZ was launched to attract automotive component manufacturing companies and related services, boost investment in the sector and support black economic empowerment initiatives.

“However, the uncertainty in the country with regards to onerous policy and legislation, junk status announcements by rating agencies, currency volatility, social unrest, electricity and water challenges, skills shortages, the performance of state-owned enterprises, the security of property rights, and serious governance issues in both the public and private sector, continues to make investors nervous.

“To address these challenges, the South African government announced its Economic Reconstruction and Recovery plan in 2020, which outlined deliverables such as energy security, job creation and a trillion rand infrastructure plan. The National Economic Development and Labour Council (Nedlac) also outlined its Plan of Action last year and provided more detail on the infrastructure and energy plan, the creation of a more enabling regulatory framework and a commitment to fighting corruption.

“Despite recent challenges, foreign investors in the UK, Europe and the US have long been valuable M&A investors in South Africa, and this is likely to be further boosted by South Africa being able to maximise the benefits of AfCFTA, due to strong connections across the continent and well-established manufacturing base,” adds van der Merwe.

 

Ethiopia

Ethiopia recorded eight M&A deals in 2020, totaling USD1 million. Of the eight deals in 2020, two of them happened during the second half of the year. The majority of the deals were inbound and cross-border in nature, with seven deals in total in 2020, six of which were announced during the first half of 2020. The country did not announce any outbound transactions in 2020.

The retail sector has the highest number of inbound transactions in Ethiopia, two in all. Eritrea made most investments into the country, with two transactions in 2020.Tigray Ethiopia’s acquisition by Yanchang Petroleum of Hong Kong for USD1 million was the sole transaction with a disclosed deal value.

“Deal making in Ethiopia slowed due to the pandemic in 2020, exacerbated by foreign exchange shortages, electricity supply issues and security concerns, among other things. The country’s industrial parks have attracted the interest of foreign investors and look set to assist the country in its post-pandemic recovery. The parks are providing a boost to Ethiopia’s manufacturing sector and will assist in the creation of jobs,” says du Plessis.

 

Ghana

Ghana exhibited a solid M&A performance, despite the slow pace of dealmaking in H1 2020. It recorded 10 deals in H2 2020, representing 100% growth from H1 2020, and 14 deals in total for the full year, reflecting a growth of 17% year-on-year. Total deal value soared by 11607% to USD818 million and 3369% to USD832 million in the second half of 2020 and the full year, respectively.

Cross-border transactions contributed a huge portion of M&A activity in Ghana, recording a total deal value of USD793 million for both H2 2020 (seven deals) and the full year 2020 (nine deals).

The materials sector was the top target for inbound and outbound deals in H2 2020 and FY 2020. China was the primary investor in the country, with two inbound deals worth USD214 million for both H2 and FY 2020. For outbound transactions, Australia was the key target with two deals totaling USD 440 million, and one transaction worth USD439 million in H2 and FY 2020, respectively.

China’s acquisition of the Bibiani Gold Mining Project via Chifeng Jilong Gold Mining Co for USD 109 million was the largest inbound deal in H2 and FY 2020. Conversely, Engineers & Planners Co Ltd’s acquisition of Cardinal Resources Ltd in Australia for USD 439 million was the top outbound transaction for H2 and FY 2020.

Ghana, despite some ups and downs, appears to be getting it right in terms of striking the right balance between encouraging investment and protecting the rights of the country and its people. It has also been singled out as one of the countries that is ready to benefit early on from AfCFTA. This is due to existing favourable conditions in the country, such as having an open economy, good infrastructure, a supportive business environment and the ability to quickly ramp up its intracontinental exports. All this bodes well for Ghana’s future economic position in Africa,” says du Plessis.

 

Kenya

Deal making in Kenya dropped 28% with only 18 deals in H2 2020, but deal value increased by 224% to USD467 million. This was mainly due to Network International Holding Plc’s USD 288 million acquisition of Direct Pay Online Ltd. Activity for the full year 2020  was down 28% in volume terms, but value increased by 52% year-on-year to USD722 million. Monthly figures seem to have peaked in July with eight transactions and tailed off over the rest of the year.

France was the top M&A partner for Kenya, with five inbound deals from this country, up 25% year-on-year. Deals from France into Kenya were worth USD36 million for FY20, up 24% year-on-year. The UK had the highest deal value for inbound transactions due to the Direct Pay Online acquisition. Volume-wise, the financial sector was the primary focus, with seven inbound deals and three outbound transactions. For inbound value, deals in the financial sector increased to USD435 million, up an incredible 1697% year-on-year.

The Deal Drivers Africa Report, published by Mergermarket, ranked Kenya among Africa’s most sought-after countries for M&A transactions. Before the pandemic, M&A activity in the East Africa region had increased significantly, with Kenyan deals dominating the market. The East African regional economy (in which Kenya has the largest economy) continues to be a key driver for sub-Saharan Africa’s growth going forward.

“Kenya has long been considered East Africa’s investment hub, attracting some high-value M&A deals in the last few years. However, the country’s post-pandemic economy will take some time to reach previous levels. The country’s TMT sector, which has a well-developed market for mobile money services, and its bustling financial sector, are the ones to watch as the country gears up for its post-pandemic recovery,” says du Plessis.

 

Mozambique

In Mozambiquedeal making grew by a few deals, although the number overall was limited. There were six reported deals in H2 2020 compared with only one in H1 2019. The full year total for 2020 was 12 compared to four deals in 2019.Transactions in Mozambique were mostly inbound cross-border deals. There were six such deals in H2 2020, and 11 for the full year.

The real estate sector was the primary target for investors into Mozambique in H2 2020, with two deals announced, though for the full year, the materials sector was the most targeted, with four deals in total. The energy sector in Mozambique was the most prolific sector in terms of deal value, with USD145 million in deals announced in H2 2020. This is mainly due to the acquisition of Cetral Termica de Ressano Garcia by the UK’s Actis LLP, for the same amount.

Mauritius and Canada were the top two investors in Mozambique, with three deals each in 2020, although Canada did not make any acquisitions during the second half of the year. Two out of the three deals from Mauritius were announced in H2 2020. Mozambique announced no outbound transactions in 2020.

“Mozambique is one of the world’s largest holders of liquified natural gas, and its energy sector has been attracting global interest for some time. We expect interest in this sector to increase in future years, and possibly act as a catalyst to boost much-needed investment in other sectors in the country going forward,” notes du Plessis.

 

Nigeria

M&A activity in Nigeria in H2 2020 dropped by 25% to 24 deals compared to H2 2019.Tthe size of the deals shrunk by 68% down to just USD279 million. However, full year 2020 activity was up by 4% to 52 deals compared with 2019, but deal value was 42% lower year on year at USD 716 million.

Cross-border transactions dropped 8% year on year in 2020 to 33 deals, with deal value dropping by 36% to USD552 million. Domestic deals increased in 2020 by 36%, however, the value of the deals dropped by 57. This indicates a focus on smaller deals in the country in 2020.

The financial sector remained the primary target for both for inbound and outbound deals, with five and three deals respectively in 2020. Lagos, the capital of Nigeria, was cited in May 2020 as one of four cities in Africa to be emerging as FinTech hubs by The FinTech Times. The megacity of over 20 million inhabitants is home to the nation’s largest financial institutions such as First Bank of Nigeria (FBN), Access Bank, Ecobank and First City Monument Bank (FCMB) as well as international banks such as Citibank.

South Africa served as the primary investor for Nigerian companies with six deals in 2020. Multichoice Group Ltd.’s USD 83 million acquisition of Betking was the biggest deal in the country.

Du Plessis says, “The Nigerian economy was already impacted quite severely by the disruption in oil markets in recent years, and COVID-19 added extensive damage to the economy. The fintech and renewable energy sectors, however, look set to provide much needed investment impetus for economic recovery and the country has also stated it plans to boost its manufacturing capacity, which will enable it to take further advantage of free trade under AfCFTA.”

By: Baker McKenzie

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Economy

Recession: A great time to invest

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Recession (Image credit: Skynews)

Following the 2008 global economic crisis, countries around the world put in modalities that have seen post recovery global economic growth that has been positive in the past decade. IMF projections had estimated global growth to rise from 2.9 percent in 2019 to 3.3 percent in 2020 and 3.4 percent in 2021 and these projections are justifiable given the economic fundamentals that existed at the time of estimation. However, the emergence of the COVID-19 pandemic which was unpredicted and hence not factored in estimation as an assumption has negatively impacted growth which is estimated at -4.9 percent in 2020 according to the World Economic Outlook statistics. Other than the health impact that has caused over one million deaths globally, the pandemic has disrupted global supply chains and each continent has seen millions lose employment and livelihoods, business operations have been altered and production reduced.

As a consequence, the Coronavirus has triggered a recession, much deeper than the 2008 financial crisis and worse than the “Great Depression” of the early 1930s. A look at all the happenings of the year acts as a disincentive to would be investors that would view the fragile environment as a ground for breeding losses if they are to invest.

As in any tournament, one’s misfortune is another person’s fortune and as such, the recession period would be a good time for identifying opportunity and exploiting all avenues of profit maximization. But a recession signals the downfalls of many businesses, increased losses and unemployment among other things, why would it be a great time to invest?

Access to cheap labor force

The world has become so competitive such that attracting the most skilled and educated labor force comes at a huge cost. Companies have to incur a huge expense on renumeration in order to retain the best minds or else, competitors would easily snatch them. During a crisis such as a recession, the demand for jobs is higher than the supply because many businesses are closing down and as such, a business may be able to acquire the skilled labor at a cheaper price. Because of the scarcity of jobs, employees would be more than willing to work at a lower wage and therefore, a firm that invests during this time can take advantage of this reduced cost.

Building business resilience

If a business is able to start at a time when the economy is nose diving, it learns techniques and strategies on how to overcome certain challenges and be able to mitigate them in the future. Enduring a fragile environment and navigating through it helps in building resilience that will help overcome future factors. This also helps in building a loyal customer base who are impressed with the fact that the business was able to provide the products and services at a time when many began to close. Because of the trust and belief that customers have in the business, this could lead to an increase in the profitability particularly due to increased referrals and positive world of mouth that’s acts as free advertisement for the firm.

Reduced financing cost

A higher interest cost is often a hindrance to access to finance because it discourages businesses from borrowing. As a response to boost economic activity, many countries around the world have decided to slash the interest costs. Central banks are pursing expansionary fiscal policy despite the rise in inflation but this is all in an attempt to ensure that borrowing costs are reduced and businesses are able to borrow and boost their production. Investing during such a time will and taking advantage of lower financing costs can help a business establish itself quickly and produce to meet the demands of the society. Further, during a recession, governments often give tax incentives to help companies navigate the crisis and so, investing during this period enables the enjoyment of this incentive.

Market penetration opportunity

Most of the product and service markets have been flooded with competition such that it is difficult for new entrants to enter. However, during an economic downturn like a recession both small and large companies struggle to adjust and survive in a crisis and this means that they are vulnerable to new entrants. Further, many new opportunities for new products arise during a crisis that can help a business. For example, the emergency of the COVID-19 created a need for facemasks, sanitizers, remote working and many other needs that have enriched businesses and individuals that took advantage of the opportunities. Identifying opportunity can make a business penetrate the market, outsmart competition and make profits.

During a recession, the country’s currency often depreciates due to lower production not earning foreign among other factors. But this works to the advantage of firms that export because a depreciation entails that their products are relatively cheaper compared to other countries and because the recession is affecting many countries, it provides a chance for increased demand for the products and hence the profitability of the firm increases. This can help companies to penetrate foreign market by taking advantage of deficit products and producing them.

However, it is not all investments and businesses that can be undertaken during a crisis and an error to embark on them can lead to serious consequences. The focus therefore should not be on short-term benefits of having to launch the business in a recession but also balancing this with post crisis planning on how you want the business to succeed. Some gains may be temporal and business may not be sustained over a longer period of time and as such serious scrutiny of the business must be undertaken to plan for the long-term objectives of the business. To the would-be investor, it is important that you are not profit driven by rather seen to provide what people need during and post-recession and this will help establish the company quickly and provide prospects of future growth and resilience. Don’t miss the opportunity, invest now!

Author: Nchimunya Muvwende (Economist)

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Africa speaks

Exploring a new model for cooperation between business and society- Nonny Ugboma

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Nonny Ugboma is the Executive Secretary of the MTN Foundation (Image source: Nonny Ugboma)

The hand-me-down capitalism models Africa inherited from her colonial masters have failed to yield a prosperous continent despite its vast resources. Therefore, Africa is in desperate need of something different that takes into consideration its unique history, qualities, and context.

Experts have mostly seen the interdependence of businesses and society as transactional, with the society needing business for products and services, for jobs, for government taxes revenues. In turn, business needs the society for the market, sales and profits and public infrastructure, security and the rule of law! According to Amaeshi (2019) businesses, though sympathetic to societal challenges, are reluctant to act positively through their companies as they sometimes see such requests as irrelevant to their objectives.

However, due to the interdependency and interconnectedness of business and society, companies must work collaboratively with the government for a common purpose. That purpose is to build local resources.

There have been calls for western economies to rethink their capitalism model (Jacobs & Mazzucato, 2016). There have also been calls for Africa to develop its model of capitalism, with theorists and entrepreneurs exploring ideas like Africapitalism (Amaeshi, 2015). Africapitalism, coined by Nigerian entrepreneur Tony Elumelu, focuses on the role of business leaders, investors, and entrepreneurs on the continent’s development to create economic prosperity and social wealth. It rests on the following four pillars: a sense of progress and prosperity; the sense of parity and inclusion; a sense of peace and harmony; and a sense of place and belongingness.

Africa does need its model. However, I would argue that this model should be spearheaded by the state in collaboration with willing stakeholders in the private sector and third sector, unlike Africapitalism. A government-led push is especially relevant now that a few 21st century economists are reassessing and rethinking capitalism in its present form. One of such critics is UCL’s Mazzucato (2018) The Entrepreneurial State: Debunking Public vs Private Sector Myths who debunks the mainstream neo-classical narrative that the private sector alone drives innovation but takes the position that the state is the driver of innovation.

Mission-Oriented Innovation Approach (MOIA) could help address some of the identified gaps to ensure state and business work jointly to solve grand challenges, to co-create public value and co-shape a robust and sustainable society that it can bequeath to future generations.

There is, therefore, a need for an alternative model of collaboration for business, society and government. A suggested way forward for Nigeria, and indeed Africa, is to embrace a mission-oriented innovation approach. The concept of the mission-oriented approach that involves government co-creating and co-shaping the market with the private and third sectors has enormous potential for Africa. The four pillars of ROAR, developed by Mariana Mazzucato (2016), is a useful tool-set to anchor MOIA in Africa:

1. Routes and directions– Government and Public institutions and agencies to set
missions. Also, private sector leaders can nudge government agencies to agree to
work collaboratively on national priority areas.

2. Organisational Capacity– Building of dynamic Capabilities within the Public sector through advocacy, capacity building, conferences and training.

3. Assessment and evaluation– Agencies, academia and organisations to determine new
dynamic tools to assess public policies to create new models and markets.

4. Risks and rewards– Government and private organisations need to engage on the
best risks and rewards sharing formats from initiatives to ensure smart, inclusive and
sustainable growth.

Also Read Closing The Gender Gap: An Interview with Dream Girl Global (DGG) Founder, Precious Oladokun

In conclusion, as Western Economies are reviewing and rethinking capitalism and their operating models, Africa must ensure she does the same. The reason is that the future of the development of the continent depends on the economic model that it chooses to adopt, in the future, especially with the growing youthful population.

Aurthor: Nonny Ugboma is the Executive Secretary of the MTN Foundation and has recently returned from one-year Sabbatical studying for a master’s degree in Public Administration from the University of London Institute for innovation and Public Purpose.

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