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)
The Impact on G7’s multi-billion dollar plan on Africa’s infrastructure gap
G7 Members (Photo: European Union)
In late June 2022, it was announced at the G7 Summit in Germany that a USD 600 billion lending initiative, the Partnership for Global Infrastructure Initiative (PGII), would be launched to fund infrastructure projects in the developing world, with a particular focus on Africa. The G7 countries – Canada, France, Germany, Italy, Japan, the United Kingdom (UK) and the United States (US) – explained the PGII would help address the infrastructure gap in developing countries.
The US has recently renewed its focus on impact-building and financing strategic, long-term infrastructure projects in Africa, with the Export-Import Bank of the United States (EXIM) supporting infrastructure development on the continent. According to a 2020 report by McKinsey and Company – Solving Africa’s infrastructure paradox – the US accounts for 38% of global investors who have an appetite for African investment, by far the most of any country. In 2021, the US launched a refreshed “Prosper Africa initiative”, focusing on improving reciprocal trade and investments that create jobs and build infrastructure between the two regions. In 2022, the US announced it would mobilise USD 200 billion over the next five years as part of the PGII, in the form of grants, financing and private sector investments. Some deals have already been announced, including, for example, a USD 2 billion solar energy project in Angola, and the building of multiple hospitals in Côte d’Ivoire.
In February 2022, the European Commission announced investment funding for Africa worth EUR 150 billion. The funding package is part of the EU Global Gateway Investment Scheme and is said to be in the form of EU combined member funds, member state investments and capital from investment banks.
In early 2020, the European Commission published its Comprehensive Strategy with Africa, outlining the region’s plans for its new, stronger relationship with the continent. The strategy document laid out five top priorities for the EU in Africa: the green transition and improving access to energy; digital transformation; sustainable growth and jobs; peace and governance; and migration and mobility.
The UK is also making a strong play for influence, investment and trade with Africa, post-Brexit. Further to key summits in 2020 and 2021, finance is being redirected into Africa from the UK. In 2022, UK development finance institution (DFI), British International Investment (formerly CDC Group), announced it had exceeded its pledge to invest GBP 2 billion in Africa over the last two years. The UK’s Global Infrastructure Programme helps partner countries (including in the African continent) to build capacity to develop major infrastructure projects, setting up infrastructure projects for success and paving the way for UK companies to support these projects.
Further, in November 2021, it was announced that the governments of South Africa, France, Germany, the United Kingdom and the United States of America, along with the European Union, were in negotiations to form a long-term Just Energy Transition Partnership. The partnership focuses on boosting the decarbonisation of the South African economy, with a commitment of USD 8.5 billion for first round financing. It is expected that 1-1.5 gigatonnes of emissions will be prevented over the next 20 years, assisting South Africa to accelerate its just transition. Discussions are also currently taking place to establish a similar partnership in Senegal.
The African Development Bank noted in early 2022 that Africa’s infrastructure investment gap is estimated at more than USD 100 billion per year.
DFIs are increasingly anchoring the infrastructure ecosystem in Africa – serving a critical function for project finance as investment facilitator and a check on capital. DFIs can shoulder political risk and access government protections in a way that others cannot, enter markets others cannot and are uniquely capable of facilitating long-term lending. The large amount of capital needed to fill the infrastructure gap, however, means that DFIs cannot bridge it alone. Private equity, local and regional banks, debt finance and specialist infrastructure funds are primed to enter the market, and multi-finance and blended solutions are expected to grow in popularity as a way to de-risk deals.
The African Union’s 55 member states have stated that their primary funding needs include support in terms of safety and security on the continent, as well help in implementing the African Continental Free Trade Agreement (AfCFTA) and the massive infrastructure investment it needs to be successful. The development of supporting infrastructure is key to boosting AfCFTA’s free trade potential, especially in terms of transportation, energy provision, internet access and data services, education and healthcare infrastructure projects.
Infrastructure projects in Africa now also have a heightened focus on improving Africa’s capacity for green, low-carbon and sustainable development, via, for example, clean energy, community healthcare and support, green transport, sustainable water, wildlife protection and low-carbon development projects. Funding such projects comes with responsibility – projects must not only be bankable and yield attractive returns, but must also be sustainable and provide tangible benefits to local economies and communities. All of Africa’s major partners have noted they will prioritise projects that commit to Environmental, Social and Governance principles, and access to capital for large infrastructure projects is likely to contain sustainability requirements.
That the focus of the PGII is on the sustainability and the social impact of these projects in Africa is further evidenced in the White House briefing room statement issued at the launch in June 2022, where it was stated that the PGII will “mobilize hundreds of billions of dollars and deliver quality, sustainable infrastructure that makes a difference in people’s lives around the world…”
By: Michael Foundethakis, Baker McKenzie’s Global Head of Projects and Trade & Export Finance, and Africa Steering Committee Chair
Shelter Afrique: Rising cost of land, materials, could adversely affect provision of affordable housing
Shelter Afrique Ag. CEO & Chief Finance Officer Mr. Kingsley Muwowo (right) explaining engaging with delegates at the 11th World Urban Forum held in the Polish city of Katowice. (Image: Shelter Afrique)
The high cost of land and the rising cost of building materials could derail efforts to speed up the development of affordable housing across the globe, pan African housing development financier, shelter Afrique has warned.
Speaking on Delivering Affordable Housing Across Continents at a special session of the 11th World Urban Forum held between June 26-30 in the Polish city of Katowice, Shelter Afrique’s Ag. Managing Director and Chief Finance Officer Mr. Kingsley Muwowo said there was an urgent need by governments to address the issues of rising costs of land and construction materials, which were hindering efforts to fast-track the provision of affordable housing globally.
“From market studies the cost of land should constitute between 10% and 15% of the total cost of a housing unit for it to be affordable, but this isn’t the case in many countries,” Mr. Muwowo said.
“In Kenya, for instance, the cost of land makes up between 40% and 60% of the total cost of a housing unit, like the case with Nairobi which is the most expensive in the entire continent of Africa. How do you deliver affordable housing when you’ve got the most expensive land? So if we don’t address the issues around land we will not be able to effectively tackle the issue of affordable housing.”
Mr. Muwowo also decried the rising construction cost – which he blamed on old building codes, punitive tax regimes, and high cost of financing such projects in various countries. He added that the Russian – Ukraine war had also resulted in the sharp increase in prices of critical construction materials. Russia is considered the fourth-largest steel exporter globally, serving over 150 countries and territories.
“In the built environment, the conflict has exacerbated and exposed the dangers of overreliance on importing building materials. Prices of building materials have increased and continue to do so, a burden that the homeowners will ultimately share,” Mr. Muwowo said.
The price of steel in Kenya, for instance, has significantly shot up over the past few months. The prices of steel bars and nails have risen by between 80 per cent to 90 per cent and 13 per cent to 43 per cent, respectively, in the past few months in the country. Additionally, the conflict has resulted in shortage of coal, which is a crucial source of energy in cement production through clinker manufacturing resulting in price hikes.
Speaking at the same event, European Investment Bank Vice President Prof. Teresa Czerwińska said the rising cost of housing in many cities across the world was a major concern for the Bank.
“We have managed to make education and healthcare relatively cheap and accessible by putting in place proper policy interventions. Housing is a fundamental human right and we can apply a similar framework in ensuring housing remains affordable and available,” Prof. Czerwińska said.
The World Urban Forum (WUF) is a global event on sustainable urbanization convened every two years by the United Nations Human Settlement Programme (UN-Habitat). It was established in 2001 by the United Nations to examine rapid urbanization and its impact on communities, cities, economies, climate change and policies. The first WUF was held in Nairobi, Kenya in 2002 and has been held around the world ever since.
This year’s event was convened under the theme: “Transforming our cities for a better urban future”.
Africa’s youth unemployment challenge needs a revolution in order to sustain global development
Opinion By Dr Dennis Rangi, Director General, Development at CABI based at its regional centre for Africa in Nairobi, Kenya. (Africa’s youth Image credit: CABI).
It’s a startling statistic but by 2050 Africa’s population is expected to double to around 2.6 billion. This creates greater pressure to feed so many mouths amid the challenges of economic, political and societal instability let alone the impacts of climate change.
When one considers that almost 60% of Africa’s population in 2019 was under the age of 25, making Africa the world’s youngest continent, it’s clear that Africa’s youth holds the key to the continent’s very survival and the burden to sustain wider global development
In 2019, more than a third of the population was aged between 15-34. By 2100, Africa’s youth population could be equivalent to twice Europe’s entire population.
According to the UN, the median age in Africa is 19.8 in 2020. On the continent, Mauritius is expected to have the highest median age, 37.4, and Niger is expected to have the lowest, 15.1.
However, in youthful Africa, just 56% of the population is of working age, which translates to about 1.3 people of working age supporting every dependent (mostly youth) – versus a global average of two workers to every dependent. This in essence is the ‘youth bulge’, and addressing it has never been more of an urgent task.
According to the World Bank, in 2020, 14.5% of 15 to 24-year olds in Sub-Saharan Africa were unemployed. This is among the lowest rates globally among young people in this age bracket. But the International Labor Organization says most of them work informally, are underemployed or stay in poverty because of low wages.
Quite simply, the growing youth unemployment and underemployment – especially in developing countries – is one of the greatest challenges of the 21st century.
Agriculture has long been the dominant sector in much of Africa in terms of output, employment and export earnings. Indeed, agriculture is arguably the most important business opportunity for our young people to embrace. As such, any meaningful change in the continent’s future must involve agriculture.
A ‘revolution’ in agribusiness involving Africa’s youth is therefore required so they can capitalise on the sector’s contribution to around 25% of the continent’s Gross Domestic Product (GDP) and 70% of its employment. They, with our support, need to meet these challenges head on so they can leave a lasting and sustainable legacy for their own children and their futures.
This is especially true when thinking of young people’s roles in agricultural value chains. We need to take a ‘two-pronged’ approach to enhancing their skills not only in producing safer foods free from crop pests and diseases but also in helping to involve them as village-based advisors – giving crucial information to help increase yields.
It may also be that they can combine both roles as part of a dual approach to the ever-increasing food crisis.
The time is ripe for Africa’s youth to lead the technological realisation of digital agriculture – recognising this a key driver for economic development within the agricultural sector.
This is particularly so in Kenya where digital innovations have eased trading barriers in certain value chains by providing trade platforms that directly connect farmers to traders enabling them to get competitive returns on their yields.
The African Centre for Women, Information and Communications Technology (ACWICT)-led Maudhui Digiti (Digital Content) project, for example, recently assessed the access and use of digital content.
This included evaluating opportunities for women and young people’s employment in the digital sphere for farmers, particularly the underserved agricultural communities and organizations in Laikipia County.
Youth play a pivotal role in agriculture and rural transformation. One of the findings in a book recently published by CABI titled ‘Youth and the Rural Economy in Africa,’ recommends a targeted technology promotion aimed at young people, most of whom are ‘digital natives’.
These youth can catalyse the realisation of digital agriculture in Sub-Saharan Africa due to their innovativeness and fast adoption of new technologies.
One example where CABI has extensively supported agricultural production, especially amongst smallholder farmers including the youth in Africa and beyond, is the Good Seed Initiative.
This ran in East Africa from 2013 to 2016 and sought to promote good production of quality African Indigenous Vegetable (AIVs) seeds and vegetables so as to improve the income of seed producers.
It also aimed to contribute to food and nutritional security of smallholder farmers and other actors in the seed and vegetable value chains of seeds.
The project enabled women and youth in Uganda and Tanzania to engage in market-driven profitable value chains that required minimum capital, capital and other factors of production.
This was achieved by empowering women and youth with requisite skills for seed entrepreneurship of indigenous vegetables which continued to be in high demand.
In research conducted by CABI – which focussed on Zambia and Vietnam – we sought to understand the nature of youth participation and identify barriers and opportunities for youth engagement in agriculture and agribusiness in Lusaka, Zambia and Vinh Phuc, Hung Yen, Dak Lak and Tien Giang in Vietnam.
We found that while a majority of youth were engaged in agriculture – primarily production – few were involved in input supply, trading, transportation and the provision of advisory services.
For instance, the study in Zambia found that almost all the youth (99%) were engaged in farm production, producing crops and animals for home consumption and local markets – yet hardly any were involved in valuable extension services.
This is where initiatives such as the CABI-led PlantwisePlus global programme can engage youth in non-formal extension services and help fill in the missing linkages within the agricultural value chain.
CABI in partnership has trained – through the preceding Plantwise programme – millions of professionals in 34 countries over 10 years. This includes extension staff, agro-dealers, quarantine officers to provide improved quality services to farmers.
In Uganda, where 70% of those unemployed are youths, CABI partnered with Zirobwe Agaliawamu Agri-business Training Association (ZAABTA) in Luwero district. This was to skill youth to enable them to provide various services in major agricultural and profitable value chains in the country.
Implemented under PlantwisePlus, the training sought to increase the supply of safer food through enterprises driven by women and youth to meet the growing demand by consumers in rural, urban and peri-urban markets.
We believe helping to enable youth to provide services as ‘village-based advisers’ in this way will be an attractive option to our youth and call for it wholeheartedly – even if they wish to engage in this activity alongside regular farming activities.
We simply cannot rely upon young people to be only producers of food. They may also need to be involved in the safe production of it in the first place and be part of a ‘knowledge exchange.’
In terms of open access learning, CABI’s ‘plant doctor’ training modules have been adopted by various academic institutions across the world. Plant doctors work at ‘plant clinics’ held in communities to help farmers diagnose their plant health problems and suggest remedies so their crops can grow more successfully.
In Uganda, for example, CABI’s practical hands-on course on field diagnostics and plant clinic operation is giving good recommendations to farmers to students at various years of study.
The course was first introduced in Makerere University in 2013 and is now offered by Uganda Christian University, Bukalasa Agricultural College, Busitema University and Gulu University.
We need to build our capacities and strengths in partnership to help address the ‘youth bulge’, and also the growing demand for youth and their role in agriculture to feed the rising population.