In 138 BC China took its first step towards global connectivity with the establishment of the historical Silk Road. Zhang Qian was sent by Emperor Wudi to Central Asia to establish trade relationships. His historic missions enabled China to make contact with the outposts of Hellenic civilisation established by Alexander the Great.
These efforts enabled Emperor’s Han dynasty to develop political and trade relationships with Central Asian countries. New ideas came to China, along with new plants like grapes and alfalfa and superior breeds of horses.
Centuries later, China is building a very different, very modern version of that route. The Belt and Road Initiative consists of two complementary, concurrent plans. One is an overland route connecting Europe, the Middle East and Central Asia to China. The second is the 21st Century Maritime Silk Road, which aims to connect China, South East and South Asia with Africa.
The Belt and Road Initiative will connect at least 65 countries, most of them developing economies. The routes will cover 63% of the world’s population and 29% of global GDP.
Chinese President Xi Jinping reiterated his commitment to the project during the 10th BRICS Summit held in South Africa in late July 2018. He said it would “create new opportunities of social and economic development for participating countries.”
On the face of it, the Belt and Road Initiative looks set to change a number of economic, social and strategic landscapes. But it’s essential that whatever the project produces is perceived as benefiting everyone involved – China as well as the country’s affected.
Some projects which are already underway, particularly in Africa, offer insights into how the initiative might unfold and what its benefits and pitfalls could be. These projects also suggest that China has learned from previous infrastructure investments on the continent some decades ago.
Already connecting Africa
The African leg of the Belt and Road Initiative is work in progress. China says it will hold ongoing discussions with various countries and make decisions based on consensus as well as the economic, social and political feasibility of individual projects. Some of the countries poised to benefit most include Kenya, Tanzania, Ethiopia, Djibouti and Egypt.
This will cement China’s role as Africa’s main trading partner, a space it’s occupied since overtaking the US in 2009. Between 2010 and 2015, China’s foreign direct investment on the continent grew by 21.7% – and it’s still rising.
It’s important to point out that the Belt and Road Initiative will not be starting entirely from scratch. China has already provided significant help in improving connectivity and developing infrastructure in countries set to benefit from the initiative.
For example, China supported the Addis Ababa–Djibouti Railway. It’s the first transboundary and longest electrified railway line in Africa. The Export-Import Bank of China provided commercial loans that funded 85% of Ethiopia’s and 70% of Djibouti’s contributions. And the China Civil Engineering Construction Corporation also owns 10% of Djibouti’s portion.
The 759 kilometre long railway, which connects landlocked Ethiopia to the maritime trade routes of the Red Sea and the Gulf of Aden, started carrying passengers in late 2016.
China is also responsible for constructing the Madaraka Express which connects the Kenyan port of Mombasa to the capital city Nairobi, a distance of 489 km. This railway is being extended to Naivasha in Kenya’s northwest. There are plans to extend it even further so that it eventually interconnects Kenya, Uganda, Tanzania, Rwanda, Burundi and, much later, South Sudan and Ethiopia.
The new railway has already reduced transportation time between Kenya’s two most important cities and, crucially for trade, reduced the cost of transporting a container between the two cities by half.
Next steps for the initiative
The success and effectiveness of the Belt and Road Initiative will depend on many factors. These include national and regional geopolitics and the long-term economic benefits of various projects in beneficiary countries.
It will also be important that non-Chinese companies, both public and private, are able to compete successfully for a significant portion of the construction pie. And China’s economic rivals should not be excluded from bidding for and winning work.
But tension is inevitable, as has already been seen in South Asia.
China is working to complete a 6 kilometre bridge over the river Padma in Bangladesh for which it is providing over USD$3 billion loan. China is investing some USD$31 billion in other projects in Bangladesh. It also plans to spend some USD$60 billion on construction of ports, railways, roads and power plants in Pakistan.
These activities and similar infrastructure developments in other countries like Nepal, Sri Lanka and the Maldives have unsettled India, which is questioning China’s real intentions in the region.
The world will be watching as the Belt and Road Initiative unfolds – and all the players will hope the benefits outweigh the costs and are sustainable in the long term.
Asit K. Biswas, Distinguished Visiting Professor, Lee Kuan Yew School of Public Policy, National University of Singapore and Cecilia Tortajada, Senior Research Fellow, Lee Kuan Yew School of Public Policy, National University of Singapore
Total deal volumes and values of Merger & Acquisition (M&A) transactions in Africa fell sharply in the first half of 2018, declining 44% in deal volume and 57% in aggregate value, compared to the first half of 2017.
This is according to analysis by Baker McKenzie of Thomson Reuters M&A data for Africa. The report notes that there were 485 deals valued at USD 19, 420 million in the first half of 2017, this dropped to 270 deals valued at USD 8,318 million in H1 2018. On a positive note, intraregional cross-border deals rose twofold in terms of aggregate value from USD 418 million in the first half of 2017 to USD 1,292 million in H1 2018.
Morne van der Merwe, Managing Partner and Head of the Corporate/M&A Practice at Baker McKenzie in Johannesburg explains, “Africa is a continent with 54 different countries, all with different economies and so it is difficult to pin down specifically what has caused the downturn in M&A activity in the first half of the year. Generally, inbound investment in Africa has been affected by political uncertainty and unpredictability - business does not mind challenge but has no affinity for uncertainty. Corruption and bad governance, as well as the strict anti-bribery and anti-corruption laws in some investor countries, such as the United States and the United Kingdom, has made investors more cautious.”
“Despite the downturn in M&A transactions, it appears that regional economies are developing and intraregional trade is doing well. East Africa is developing a strong regional focus and had almost left the Southern African region behind, although this region has come back onto the radar of late,” van der Merwe notes.
Van der Merwe explains further that certain economies such as Ethiopia are becoming more of a discussion point as popular investor destinations in Africa because of interesting development initiatives taking place in this country.
The majority of the intraregional deals in Africa were in the High Technology Sector (cutting edge or advanced technology) which accounted for 21% of all deals. Interregional dealmaking value was highest in the Financial sector which made up 82% of the total value. There were four High Technology intraregional deals in Africa in the first half of 2018. Intraregional deals in the financial sector in H1 2018 were worth USD 1,056 million.
Van der Merwe says that the financial services sector, especially banks and insurance companies have been deploying various models for their expansion into Africa, including regionally focused strategies.
“Lessons I have picked up from these markets include that having the right local partner remains key to being successful in Africa and that it is important it to think twice before you impose your brand on a market where you have recently made an acquisition. This is because you may change the recently acquired company from what had made it successful in the first place. Keeping the local brand and management in place has worked very well for some in the financial services sector who have expanded into Africa,” he notes.
Van der Merwe explains that events such as Barclays withdrawing from Africa had left many wondering how a financial giant like Absa would rethink its strategy and possible expansion into Africa, and it will be interesting to follow the unfolding of their strategy to position themselves as an African Bank.
“I think that expanding into the continent and having a regional approach as part of that expansion is something they are most likely thinking about very carefully,” he says
He notes that the growth in investment in both the financial services sector and the technology sector in Africa are interlinked. Financial services organisations are becoming more dependent on investment in technology and innovation as they look to upgrade their IT systems and find news way to grow their customer bases.
In terms of inbound cross-border transactions with other regions, Industrials was the most popular by deal volume (16% share of the total) with 16 deals completed in the first half of the year. Energy & Power attracted the highest share of aggregate deal value (35% of the total value), with deals valued at USD 1,493 million.
“The industrials sector is a focus area for many developing economies across the continent and the sector is well established, leading to many more opportunities than one would find in less well established sectors,” he says.
Van der Merwe explains that the extent of the power deficit in Africa is well known and increasing electricity generation, whether on-grid or off-grid, across the continent is the focus of a number of initiatives, all of which are driving investment.
In terms of foreign investors, the United States (US) was the most acquisitive in Africa, representing 18% of deal volume and 39% of deal value. The US completed 18 deals in Africa in H1 2018, worth USD 1,694 million.
“The US has been a significant investor in the African continent for some time. Trump’s policies have played out well for certain countries in Africa and the relationship between the US and Africa is very much focused on strategic bilateral relationships influencing the direction of investment flow,” he notes.
In terms of outbound deals, High Technology had the highest volume of outbound interregional cross-border deals (13% of total deals). There were eight outbound deals in the High Technology sector in the first half of the year. Real Estate accounted for the highest share in aggregate value at 27% of total value of outbound deals. This sector completed USD 430 million worth of deals in H1 2018.
“The high number of outbound technology deals from Africa is because African tech companies are targeting offshore investments in companies that will deepen their access to new technologies, markets and talent,” he says.
The real estate sector attains prominence because of relative value of real estate as an asset class.
“As economies develop, so does real the estate sector. For example, the expanding middle class and consumerism in Africa has led to a growth in the consumer goods sector and real estate development is part of that as new shopping centres are developed. Also, African infrastructure development is high on the agenda across the continent and there is a big real estate element associated with that as well,” he explains.
The UK had the highest number of investors from Africa during the period H1 2018 (20% share), with 12 deals being completed in the first half of the year. India was the most attractive market in terms of value (46% of total value). African dealmakers completed transactions worth USD 735 million in India in H1 2018.
“The ease of doing business with the UK brought about by various factors, including, time zones, easy access, language, historical ties and familiarity has meant that investment between the UK and numerous African countries has always been good. Brexit has impacted positively on investment in that it has caused UK trade outreach initiatives to various historic trade partners,” van der Merwe explains.
“With regards to India being a popular investment destination for African businesses to invest, this is because like Africa, India is a developing economy. African investors are astute in seeking out opportunities in these economies because the environment and challenges are often similar, or at least comparable. This makes it easier to build a relationship with local partners, which is so necessary for successful investment. India is also a very large economy and so huge opportunities can be accessed for investors who know where to look. In addition, historical ties between India and many countries in Africa adds to the familiarity and relative ease of doing business,” he adds.
Africa has long been considered a continent with growth potential. Although this is the case, the question remains, is the continent developing at a sustainable rate?
According to World Bank statistics, intra-African trade was at just 11% of the continent’s total trade between 2007 and 2011. In 2015, intra-African trade was worth just $170 million, when the potential stands at trillions of dollars .
While intra-African investment is critical to Africa’s future economic growth, it still remains significantly low despite the positive results it can yield. Intra-African trade fails because of volatile political climates and governance challenges in some countries. Potential trading partners cannot collaborate because of jurisdiction red tape.
Intra-African trade is essential so that African countries can do business with each other frequently in order to grow the economies of the continent and raise Africa’s global competitiveness. Recently, I attended the Africa CEO Forum, an event which seeks to find future solutions for the benefit of the continent’s development by bringing together governments and industry captains to engage on what is possible and intra-Africa trade was a topic in which many were interested and dominated the conversations in some of the sessions and hallways.
While Africa is often an overlooked investment target for many global multinationals as a result of infrastructure and policy challenges, it is upon businesses that are Africa born to reinvest in the continent. I have always believed in the opportunity that exists in Africa and that is the reason why we, at Tsebo Solutions Group have implemented a robust plan that has seen us build the business relationships we have on the continent. Although we believe that African economies will continue to grow despite the various market challenges, governments can catalyse easier trading practices to alleviate the burden of governance issues and border control challenges that many countries on the continent still face.
The World Bank forecasts growth of 3.2% for the year, up from 2.4% in 2017. It also predicted slightly higher growth for 2019 of 3.5% . This provides a window of opportunity for businesses to strengthen trade
relationships with counterparts on the continent to build sustainable trade. As an African business, we saw the need to focus on harnessing the power of doing business on the continent, not only to cement our footprint as a facilities management provider that understands Africans, but to support and strengthen the growth of the continent.
Intra-African investments are critical to Africa’s future economic growth as it creates greater opportunities to uplift the people of Africa as it has more of a direct impact on poverty by creating more job opportunities for the poor. Tsebo Solutions Group employs over 39 000 staff and more than 50% of the business’ turnover is fed back to our staff in wages. This has created a unique opportunity to not only grow our service delivery capabilities in Africa, but to uplift people across the continent.
However, it is important to note that expanding into Africa requires a deep understanding of the countries and their unique characteristics.
As a business, we believe that we can only reach our full growth potential by continuing with our Africa journey. With a customer base of nearly 1 billion people in Africa, the continent is set to grow only if African business continue to trade with each other and governments realise the importance of the private sector in opening growth opportunities.
Clive Smith, Chief Executive Officer, Tsebo Solutions Group
Africa has made great progress in the fight against malnutrition. Between 2000 and 2016 Senegal, Ghana, Rwanda, Ethiopia, Togo, Cameroon and Angola reduced undernourishment, child wasting, child stunting and child mortality by up to 56%.
As a result of these countries’ efforts, the proportion of hungry people on the continent dropped from 27% to 20% between 1990 and 2015.
The benefits of improved nutrition are widely known and appreciated. Improved nutrition increases the incomes of households. This in turn raises the demand for food, enriches livelihoods and leads to more employment opportunities.
Many past initiatives to produce more food in Africa and combat malnutrition have focused on increasing the availability of staple foods like maize, rice, wheat or cassava.
But too little attention has been paid to diversifying diets and on how policymakers can ensure that low-income households can access the variety of foods they need to be healthy.
Staple food prices
It’s clear from food policy research that the continent needs to learn from past mistakes across the world. There have been a variety of approaches to tackle malnutrition.
In the 1960s and 1970s, it was widely claimed that lowering the price of food staples, the most inexpensive source of energy in the diet, would alleviate malnutrition. Globally, the price of food reduced significantly after the 70s. But it turned out this was not a silver bullet.
In the 1980’s vitamin A, iron and iodine deficiencies were added to the list of scourges frequently associated with low protein diets. A lack of nutrients was behind the severe impact on child development and pushed up stunting and wasting levels. But it was clear that simply producing more low-cost, energy dense foods that were widely consumed could not solve the malnutrition problem. Greater emphasis needed to be placed on foods with high per unit protein and micronutrient content such as animal-sourced foods, fish, fruit and vegetables.
In the last decade more, attention has been paid to how to promote nutrition-sensitive agriculture. This puts nutritionally rich foods and dietary diversity at the heart of fighting malnutrition. But there is a lack of agreement about the best way to do this at scale and in ways that drive widespread economic development.
Governments and policymakers face two problems. Firstly, they are trapped in a short-term mode of planning. This neglects long-term development objectives that ensure sustainable growth in household incomes and a steady improvement in the overall availability of food.
Getting out of this will require a food security policy with a clear vision and defined timelines to achieve long-term development targets. In addition government also needs to forge alliances with private sector actors to lead to changes in food systems. This will generate livelihood opportunities and a year-round supply of affordable and diverse food for all people.
Secondly, most policy actions for nutrition happen at the national level. They have significant potential for widespread behavioural change that can benefit nutrition. Restricting the advertising of unhealthy foods or incentives for healthy foods is a good example.
Yet, national policies have the potential to bring about large-scale positive change needed for nutrition sensitive-development programmes. National policies can also undermine such change by influencing what is grown, processed and marketed. But national development policies often prioritise other sectors: agriculture, poverty alleviation, economic growth at the expense of nutrition.
The challenge is that nutrition programmes are hard to design.
Some nutrition-specific interventions have worked in reducing malnutrition. Examples are supplementation, complementary feeding for children and food parcels. Complimentary baby foods have provided essential nourishment for children between the ages of six months and two years old and has been shown to save lives and reduce stunting.
But to make even more progress in fighting malnutrition, policymakers need to be smarter and sharper with nutrition-sensitive planning. For example, by anticipating that the demand for nutritious foods will increase if incomes increase, should help with the plans to meet this demand through programme development and intelligent investment.
Asia in the 1970s and 1980s is an example of how things can go badly wrong if not planned well. During the Green Revolution the price of staple foods reduced quicker than prices of vegetables and pulses. This meant that vegetables and pulses became less affordable for low income households. In some cases, these foods became entirely unaffordable.
If African food policy only focuses on supplying cheap starches then the demand for nutritious foods will exceed the supply. The prices of these nutritious foods could be pushed beyond the reach of those the policy was designed to help.
One solution is to invest in value chains that meet multiple development objectives: ones that increase employment, improves incomes and makes more nutritious food available. The aquaculture industry is a good example as is diary, fruit and vegetables.