Africa Continental Free Trade Agreement: Opportunity or Mirage?

2. Africa Continental Free Trade Agreement:Opportunity or Mirage? by Duncan BonnettAfrica House 8th July 2019

3. Who are we? Africa House represents the merger between two companies recognised as leaders in their fields: Whitehouse & Associates and Africa Project Access. Working exclusively in sub-Saharan Africa, we offer insight and access into the African trade and project environment through the provision of intelligence on projects and bespoke research on expansion opportunities in growing markets. Our Services: Africa House provides: • Projects: On-going research and intelligence on greenfield and brownfield projects to a dedicated subscriber base • Trade: Market and partner identification, export strategy development and commercial feasibility • Access: To the world’s fastest growing markets through a team that has worked in 30 countries across the continent over a period spanning 30 years • Insights: What is driving the continent and targeting regions of high opportunity going forward.

4. Some of the ways we can help you • Market Strategy development: Understanding where your markets are and how best to access these markets. This would include: • Market Identification and Analysis • Trade flow analysis – product and country specific • Ranking market attractiveness • Assessing competition • Understanding export market environments • Barriers to entry • Distribution and logistics • Partner identification • Independent and Lenders Market Assessments • A basket of subscriber services including identification of project opportunities and supply of project intelligence • Coordination (and inclusion if required) of in-market visits • Group visits to Development ‘Hotspots’ • Sub-group Meetings on key topics for Africa House Subscribers

5. Regional Growth: More Nuanced • By 2023: • 5 economies over US$100bn; • 5 more over US$50bn; • Kenya, Ethiopia & Tanzania in top 6; • Growth for SSA at 7.4% to 2023 looks excellent after the downturn from 2014 to 2017; • Remove Big 3 laggards – SA, Nigeria and Angola, and it’s far better; • East Africa driving growth – regional economy has not contracted at all, whereas every other region has; • Largely because it’s not an extractives dependent region, with mining and oil & gas only now starting to become of some importance; • With SA and Nigeria excluded from regional data, East Africa emerges as the largest regional economy by 2018; • Southern Africa, even excluding SA, is the worst performing major region: • Angola, Mozambique, Zambia, DRC all hit by commodity price declines and Zimbabwe, eSwatini, Malawi a combination of commodity prices, drought and governance; • West Africa looks relatively good, with the regional GDP growing from US$600bn to over US$1 trillion – Nigeria to rebound in 2019 and beyond; • Central Africa is the smallest regional economy, but ticks along and is expected to maintain growth of around 3.5% a year – much of it driven by regional gateway Cameroon; Source: IMF, WEO Report, October 2018

6. Continuation of Infrastructure-led Growth: • Infrastructure spend in SSA will grow by 10% a year, exceeding US$180 billion by 2025; • Nigeria, South Africa dominate the market, but Ethiopia, Ghana, Kenya, Uganda, Mozambique, Tanzania positive; • Infrastructure spend in Nigeria to grow from $23bn in 2013 to $77bn in 2025. A more investor-friendly oil investment environment likely to boost this projection further. In SA, this figure may reach US$60bn; • Major increase in basic manufacturing spend underway in SSA. Annual spend on chemical, metals and fuels sector forecast to increase across seven major economies to $16bn, up from about $6bn in 2012. • Evident in the cement sector, where currently in excess of 75 greenfields and brownfields projects are underway, under consideration or recently completed. Investment in roofing products, plasterboard, paints, concrete products rising; • Investment in agri-processing from crops, livestock and milling to dairy, bakery, biscuits, processed meats and fish, beverages, pasta, edible oils and fats, increasing across Africa – brings in need for packaging, warehousing, cold storage, logistics etc; • SSA to increase spend on utilities, where an annual rate of 10.4% between now and 2025 is forecast; • Rail expected to need US$93bn in the foreseeable future, with power estimated at almost US$50bn a year required; • Oil and gas extraction activity and infrastructure spending are expected to vary across countries and regions. Extraction spending in sub-Saharan Africa is projected to increase at 8% annually over the next decade; • Angola, E-Guinea, Uganda, Nigeria, Congo-B, Ghana, São Tomé & Príncipe, Zambia all considering upgrades or new refineries to meet consumer demand – extra 3.4 bbl/d of refined fuels needed to by 2030 to satisfy additional consumers of refined; Source: PWC Infrastructure Analysis, PWC Africa Oil and Gas Review, Africa House

7. Project Activity: Current and Future (US$ Millions) • South Africa, Mozambique and Nigeria have abundance of projects: • All three in weak economic position, however; • ‘Energy Crescent’ from Botswana to Ethiopia providing excellent long-term opportunities; • Strong regional project focus in Southern Africa and East Africa – integration of infrastructure; • Ghana, Guinea, Cote d’Ivoire add to West Africa’s basket – seeing signs of more co-ordinated regional approach there too; • Central Africa largely revolves around Cameroon and regional projects;

8. Project Activity: Current and Future (US$ Mn) • From Africa House databases: • Over 3,300 projects added since January 2016; • Of these, roughly 63% have a declared value – others too early in project cycle; • Total value of projects is US$1.65 trillion • Oil & Gas, Transport and Power account for 75% of declared value of projects: • Sectors are critical to African industrial development and growth, as well as trade competitiveness; • Agriculture seeing a resurgence in interest: • Basic foods, export crops and value-added for domestic, regional consumption; • Mining saw many projects ‘parked’ due to commodity crisis – starting to pick up; • ‘Urban Development’: • Construction, property, healthcare, water & sanitation, Integrated Urban development, accounts for 11% of the total – a definite growth area across the region; • Figures much higher, but many projects don’t have a declared value;

9. Extractive and Socio-industrial development nodes Trans-Africa Highway:Dakar-Niamey Djibouti-Addis-LAPSSET Trans-Africa Highway: Lagos-Dakar Northern Central Dar es Salaam NW Corridor Lobito Nacala Trans-Cunene Beira Trans-Caprivi Maputo Trans-Kalahari North-South Cape-Kinshasa Africa House analysis based on US Geological Survey statistics

10. Following Slides Unpack East Africa • Does not detract from opportunities in other regions: • Nigeria remains critical in Africa – despite forex issues, it is growing internally. Dangote cement revenues up 11.7% Y-o-Y in 2018 in Nigeria, other companies continue to expand – FMCG, ICT, infrastructure etc; • Angola similarly placed – expect recovery from mid/late 2019 in key consumer market; • Cote d’Ivoire key entry point for Francophone Africa – virtually untapped by SA companies; • Offers good access to other countries in West Africa, as does Senegal; • Cameroon offers similar opportunities into Central Africa • Ghana has similar value proposition – but not as a gateway to Nigeria! • Similar (but not as extensive or developed) regional infra-energy and extractive-led process underway in West Africa that will link Nigeria to Cote d’Ivoire through Benin, Togo, Ghana, and into the hinterland with Burkina Faso, Mali, Niger, Guinea, Liberia and Sierra Leone; • Based on roads, rail, power to integrate landlocked regions into ports and to unlock intra-regional trade; • Smaller process underway with Senegal, Gambia, Mali, Guinea-Bissau and Guinea which will complete the loop in broader West Africa;

11. East Africa in Context TUNISIA MOROCCO ALGERIA • Ethiopia: • Major growth node and key Horn of Africa economy; • Unlocking regional value chains in Djibouti, Eritrea, Somaliland; LIBYA WESTERN EGYPT SAHARA MAURITANIA MALI NIGER • Uganda: • Oil is spurring development, both directly and in allied sectors – growth of +10% expected for next few years; • Regional hub for energy products – South Sudan, Rwanda gas, Eastern Congo oil; • Regional trade hub for E-DRC, S Sudan etc; SUDAN ERITREA CHAD SENEGAL THE BURKINA GAMBIA GUINEA GUINEA BISSAU BENIN NIGERIA Berbera COTE SOUTH TOGO DTVOIRE SUDAN CENTRAL SIERRA GHANA ETHIOPIA AFRICAN LEONE REPUBLIC CAMEROON LIBERIA • Rwanda, Burundi: • Smallest EAC markets, but: • Gas potential for Rwanda, nickel other minerals for Burundi; • Services economies – especially ICT in Rwanda; • Links into E. DRC and Zambia UGANDA KENYA EQUATORIAL REP OF GUINEA DEMOCRATIC THE CONGO REPUBLIC GABON OF THE CONGO RWANDA (ZAIRE) BURUDI ANGOLA • Kenya: • Remains the business hub of East Africa; • Emerging oil producer? • Critical to unlocking hinterland development through ports; • Large and emerging consumer market; Zanzibar TANZANIA MALAWI ANGOLA • EAC: • EAC forms integral part of East African Energy and Infrastructure Hub Development • Kenya, Uganda, Tanzania, Rwanda and Burundi pushing forward quickly; • Infrastructure developments key to this – includes extensions into southern Sudan, eastern DRC and SADC region (Zambia); ZAMBIA MOZAMBIQUE MADAGASCAR ZIMBABWE NAMIBIA • Tanzania: • Major oil and gas potential; • Ongoing mining development; • Fast growing consumer base in key cities; • Key linkages to Rwanda, Burundi and SADC countries BOTSWANA SWAZILAND LESOTHO SOUTH AFRICA

12. Regional Logistics Linkages: Current and Planned Reopening of Assab and Massawa ports and roadsa priority for Ethiopia: key trade routes for northern cities $13bn being spent on Djibouti ports New Port in Eritrea? $442m DP World Port Concession at Berbera China’s Belt and Road Initiativelooking to open Central Africato trade and investment – from Djibouti/Ethiopia US$300m Berbera Road Corridor Mogadishu – over 7,000 TEU per month Kisangani Lamu – developing hub; alternative for trade for Ethiopia, S. Sudan, N. Uganda. Mombasa – only major port in Kenya at present Tanga – upgrade for oil exports from Uganda – industrial hub? Oil Pipeline – Lake Albert to Tanga Mtwara – fuel licence; gas, cement, mining Mpulungu Port – linkingSADC to C/E Africa – Pedicle Rd Rail from Dar to Mwanza, Burundi, Rwanda expanded

13. Africa Continental Free Trade Agreement • Creates the world’s largest trade bloc, comprising 55 countries, with GDP of US$2.2 trillion in 2017, rising to between US$3 trillion and US$3.5 trillion by 2023 (IMF); • Bulk of countries have signed the agreement (52), 25 have actually ratified it, meaning it is now in force; • Eritrea only outstanding – Nigeria and Benin signed on 7th July; • Deadline for submission of tariff schedules was December 2018, but only likely in late 2019; • Tariff Concession portal established to allow countries to submit schedules; • July 2020 is when tariff reductions come into force – allows countries time to adapt; • Comprises tariff phase down over 5 years on 90% of goods (and over 10 years for least developed countries); • Also negotiation on sensitive/protected industries and services;

14. Africa Continental Free Trade Agreement • Global exports to Africa averaged US$560bn from 2011 to 2016 – this should average between US$580bn and US$600bn to 2023, depending on pace of recovery in key markets; • Currently only around 15% (US$85-100bn) of Africa’s total trade is intra-regional; • Successful – not guaranteed – implementation of AfCFTA, could see this rise by between US$16bn immediately (IMF) and up to US$50bn if NTBs are also addressed; • Requires commitment to eliminate smuggling of goods from 3rd party countries! • May see the opportunity to expand African manufacturing as well – both from domestic players as well as foreign entrants; • This is already underway in key basic sectors such as building materials, agri-industrial and light engineering;

15. Tunis Algiers AfCFTA Signatories TUNISIA Constantine Oran Rabat Casablanca Mediterranean Sea MOROCCO Tripoli Marrakech Banghazi Bechar Alexandria Cairo ALGERIA LIBYA El Aaiun WESTERN EGYPT SAHARA Al Jawt Aswan Tamanrasset Red MAURITANIA Sea MALI Port Faya-Largeau NIGER Sudan SUDAN Nouakchott Lombouctou ERITREA Nema CHAD Agadez Dakar Khartoum Asmara SENEGAL Banjul Niamey Zinder THE Bamako Al Fashir BURKINA DJIBOUTI GAMBIA N' Djamena Bissau Kano Maiduguri Djibouti Ouagadougou GUINEA GUINEA BISSAU BENIN NIGERIA Berbera Conakry Addis SOUTH COTE TOGO Freetown Ababa Abuja Waw SUDAN DTVOIRE Porto-Novo CENTRAL SIERRA GHANA ETHIOPIA Lagos AFRICAN LEONE Abidjan Monrovia REPUBLIC Loma Juba CAMEROON Bangui Accra LIBERIA Yaounde SOMALIA UGANDA Malabo Mogadishu KENYA Sao Tome and Principe EQUATORIAL REP OF Kisangani Kampala GUINEA DEMOCRATIC THE Libreville Nairobi CONGO REPUBLIC Kigali Indian GABON Lake OF THE CONGO RWANDA Victoria Brazzaville Mombasa Bujumbura BURUNDI Lake Pointe-Noire Ocean Kinshasa • 24 Countries; • Combined GDP of US$1.17tn in 2019; • GDP will rise to US$1.6tn by 2024; • 5 of the top 10 economies already signed up; • 17 of Africa’s 40 largest cities – combined citypopulation of 75m in them; Kalemie Tanganyika ANGOLA Zanzibar Kananga TANZANIA Dar es Salaam Luanda Mbeya Lake Malanje MALAWI Nyasa ANGOLA Lilongwe Ndola Lobito Nacala ZAMBIA Menongue Namibe Lusaka Harare MOZAMBIQUE MADAGASCAR ZIMBABWE NAMIBIA Beira Antananarivo Bulawayo • With Nigeria: • Combined GDP of US$1.62tn in 2019; • GDP will rise to 2.37tn by 2024; • 6 of top 10; • 25 of Africa’s 40 largest cities – combined city population of 106m in them; BOTSWANA Windhoek Toliara Walvis Bay Gaborone Pretoria Maputo Johannesburg Luderitz Mbabane SWAZILAND Maseru Indian LESOTHO Durban SOUTH Ocean AFRICA Cape Town Port Elizabeth

16. South Africa’s Influence Illusion • South Africa’s share of regional markets is in decline; • We’re not the ‘Gateway to Africa’ in a major sense – but a key player in Southern Africa; • 44% of SA’s Africa exports go to SACU; • The key developing regions in East and West Africa (including Cameroon in Central Africa) are largely out of our sphere of influence, bar pockets of success; • Only Kenya (3% in 2018) is key outside of SADC; • Central Africa – stretching from Angola (actually Southern Africa) to Sudan has little or no SA presence; • Ditto the Sahel; • BUT – we have instruments and influence through regional memberships, proximity, suitability of products and services and the ability to service markets flexibly;

17. South Africa’s Influence Illusion • 85% to 87% of SA exports destined for SADC region; • SA exported more by value to both Botswana and Namibia in 2018 than to the rest of Africa outside of SADC combined; • Nigeria accounts for 1/3 of SA exports to eSwatini! • AfCFTA could redress some of the imbalances in SA exports to North, East, Central and West Africa as scrapping duties give some comfort to our exporters;

18. Countries with Local Content Requirements/Preferential Procurement Laws Petroleum (Local Content and Local Participation) Regulation 2013 New Mining Code, 2015 2012 Petroleum Law Law No. 2015-35 of 16 July 2015 Proclamation to Promote Development of Mineral Resources MAURITANIA MALI NIGER Petroleum Code SUDAN ERITREA CHAD South Sudan Economic Empowerment SENEGAL Mines Act, 2014 THE BURKINA DJIBOUTI GAMBIA FASO GUINEA GUINEA BISSAU BENIN NIGERIA Berbera Local Content Policy COTE SOUTH TOGO Enhancing National Participation in the Oil & Gas Industry in Uganda DTVOIRE SUDAN CENTRAL SIERRA GHANA ETHIOPIA AFRICAN LEONE REPUBLIC CAMEROON LIBERIA Petroleum E&P Reform Law, 2014 SOMALIA UGANDA KENYA EQUATORIAL DEMOCRATIC REP OF Oil & Gas Industry Content Development Act 2010, 2014 draft National Energy Policy GUINEA THE REPUBLIC CONGO OF THE CONGO GABON RWANDA Petroleum Code (Law no. 99/013 of December 22, 1999) BURUDI Petroleum Act, 2015 ANGOLA Zanzibar TANZANIA National Content Regulation of Hydrocarbons Law Zambia Mining Local Content Initiative MALAWI ANGOLA ZAMBIA 2014 Hydrocarbons Law 2018 Revised Mining Code MOZAMBIQUE MADAGASCAR Draft Petroleum Law ZIMBABWE NAMIBIA BOTSWANA The Petroleum Activities Law of 2004 SWAZILAND Petroleum Law 18 August 2014; Mining Law 2014 LESOTHO SOUTH Section 14 of the Petroleum Act AFRICA Indigenisation Law(Under review) Localisation, Reservation & Public Procurement Policy Preferential Procurement Act

19. Looking Forward • Opening up of Southern and East Africa, away from SA-axis, will see shift away from SA supply: • You have to ‘fly the flag’ – if your product doesn’t have a presence, it won’t sell; • ‘Local’ Supply – increasing investment in local manufacture of basic building inputs as well as other products – this is increasingly happening in key markets; • Not only goods, but services as well – architects, designers, contractors; • Means procurement channels are changing as well – more focus on Middle East and Asia as suppliers of goods and services; • Influence of China: • Very strong in most industries: • From construction of infrastructure to building materials and FMCG products, Chinese goods becoming dominant;

20. Looking Forward Other suppliers have tapped into this • Asian rivals are also developing markets that did not exist before; • Indian companies growing their influence in sectors such as power, automotive, clothing, FMCG and household goods; Other influence is growing; • Increasing number of Brazilian, Turkish, Moroccan, Pakistani, Kenyan, Nigerian, Egyptian etc companies investing in and exporting to Sub-Saharan Africa in all sectors; • Morocco took a bilateral delegation of 150 companies to Rwanda last year and Zambia and Morocco have signed 19 governmental and economic partnership agreements. Morocco has applied to join ECOWAS and is pushing for a single currency for the region; • Very noticeable on recent visits that manufacturers and service providers in key sub-regional markets such as Kenya, Zambia, Nigeria, Cameroon, Cote d’Ivoire and Ghana are increasing their regional footprints – often with better knowledge than their SA competitors;

21. Can we Export our Way out of Trouble? • In short? No, if we’re looking at traditional method of ex-SA into immediate regional markets; • The landscape – from projects to trade has matured in recent years and will continue to evolve; • Growing insistence of government on local procurement, skills is forcing the hand of project developers; • Increasingly, global players making direct entry into key markets: • This has slowed slightly with lower growth projections for the region, but remains a long-term trend; • This is across many industries, from basic building materials, to other construction and industrial products, to food and beverages, luxury goods and other products; • Also happening in the services sector, with increasing numbers of architects, designers, engineering companies, law firms and others either investing directly or looking for strategic partnerships in key markets; • SA companies (in our experience) are slow off the mark, but getting there: • This applies to both local companies as well as SA-based MNCs; • Increasingly, a presence will be needed in key markets to sustain exports, or even local assembly/manufacture operations; • Increasing domestic capacity in many basic industries is reducing import dependency; • Bear in mind the growing long-term prospects offered by key growth nodes, the rapid pace of change, as well as the increasing independence from SA-focus as countries evolve and integrate into the global economy;

22. Thank You! E-mail: duncan@africainfo.co.za