By Lerisha Naidu, Lodewyk Meyer, Mike van Rensburg and Virusha Subban
- Visible green shoots – rising commodity prices
The pandemic closed borders and stopped trade, other than for essentials, across the continent and was the principal reason for a decline in investment in 2020. A lack of available capital and acquisition finance, as well as difficulties pricing deals in an uncertain market, also affected investment.
Other reasons for declining investment, included that the levels of economic activity have slowed in the major African economies, such as Nigeria and South Africa.
However, green shoots are visible and market fundamentals are signalling a region with underlying resilience. Commodity prices are rising and landmark deals are returning to the continent.
- The launch of AfCFTA
To date, 38 countries in Africa had ratified the African Continental Free Trade Area (AfCFTA) agreement and 54 countries have signed it. The start of trading in 2021 resulted in an increase in investor sentiment as dealmakers took note of the agreement’s first movers.
AfCFTA is unlocking significant growth opportunities for the continent, providing the chance for countries to diversify their economies, scale production capacity and widen the range of products made in Africa, in particular boosting the production of manufactured goods.
Closer integration of neighbouring economies is providing a potential avenue for creating scale and competitiveness through domestic market enlargement, promoting development through greater efficiency. AfCFTA is also acting as an impetus for African governments to address their infrastructure needs as well as to overhaul regulations relating to tariffs, bilateral trade, cross-border initiatives and capital flows.
- Shifting patterns and alternative financing
There has been an urgent imperative to identify and enable new sources of finance, outside of traditional lenders and international partners, to address Africa’s infrastructure gaps in, for example, transportation, energy provision, internet access and data services, and education and healthcare infrastructure in Africa.
In the commodity financing space in Africa, international banks have withdrawn as they focus on managing their liquidity and current debt positions. As a result, Development Finance Institutions (DFIs) are increasingly anchoring the infrastructure ecosystem in Africa.
Local and regional banks, specialist infrastructure funds and private equity and debt are also stepping in to collaborate with DFIs and access returns. Multi-finance and blended solutions are expected to grow in popularity as a way to de-risk deals and support a broader ecosystem of lenders.
- Global interest
Trade data from China’s Ministry of Commerce showed China’s trade with Africa has risen 20-fold in twenty years – firming China’s position as Africa’s biggest bilateral trading partner. However, fewer infrastructure financing projects are expected out of China going forward.
Those that do occur will be of higher quality, using sophisticated structures and new finance options, such as supply chain finance structures to deploy finance to the region. The United States is renewing its focus on impact-building and financing strategic long-term projects in the region, with the Export-Import Bank of the United States supporting infrastructure development in the continent. The US recently announced the renewed Prosper Africa initiative, which focuses on improving reciprocal trade and investment between the two regions. The European Union has always been clear about its commitment to strong relationships with African countries.
Recently, DFIs from the US, France and Germany collaborated to finance a substantial transaction in the African healthcare sector. The United Kingdom 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.
- Post-pandemic sector potential
Investors with strong market positions and an appetite for risk are capitalizing on the bargains in challenged sectors, such as retail, transport, energy, construction, hospitality and leisure, and eyeing opportunities in well-performing sectors like technology, healthcare and Fintech. The oil & gas industry and non-core infrastructure sectors have faced significant stress, producing opportunities for buyers.
An unabated demand for technology has caused extensive cross-sector disruption, with the financial, energy, transport, retail, agricultural and health sectors all seeking opportunities to expand their tech infrastructure.
Digitization is enabling the development and harmonization of a regulatory framework to integrate Africa’s digital economies, crucial to be able to operate in ...-pandemic environment. The African Virtual Trade-Diplomacy Platform was implemented this year to allow parties across different timelines, languages and legal frameworks to meet in a secure online environment, streamlining cross border negotiations.
Digitization is also aiding lenders with assessing risk more accurately through access to previously unavailable data before they deploy capital in the region. This is allowing projects that would otherwise seem too risky to go ahead.
- Leapfrogging traditional energy systems
Access to power in the continent is hampered by the lack of access to competitive funding, the dire state of Africa’s utilities infrastructure, and the need for energy policy and legislation to be adapted to boost investment.
However, new systems and networks are being designed around future environmental stressors and energy demands, without having to consider the limitations of old infrastructure. With the use of mobile technology and the lack of existing electricity transmission networks, these developments are providing an opportunity for African communities to gain access to power by leapfrogging the traditional model of centralized generation and transmission of power.
New and cost-effective solutions that utilize renewable energy, green hydrogen, battery storage and smart power technologies, as well as the global drive towards a decentralized, decarbonized and secure energy supply that addresses climate change and stimulates economic growth, are all leading to investment opportunities.
- Mending chains
Before the pandemic, supply chains were already under pressure in Africa due to inadequate infrastructure, corruption and security issues, poor logistics and onerous regulatory requirements. During COVID-19, these chains became longer and more vulnerable to breaks.
When AfCFTA became operational, it highlighted the crucial need for improved infrastructure and stronger supply chains to facilitate the free flow of trade across the continent.
Last year, the African Union African Peer Review Mechanism highlighted Africa’s supply chain challenges and overreliance on foreign trade and suggested the continent boost its manufacturing capacity to build a supply chain that could not be weakened by global blockages. As a result, many African countries have begun assessing ways to improve their manufacturing capacities so that they can produce local components.
- Competition law and enforcement
Competition policy continues to be viewed by regulators as a key driver of economic growth. Across Africa, competition policy enforcement is increasingly being employed as a tool to boost economic performance and to promote the revitalization of trade and industry.
Numerous jurisdictions have strengthened their competition and antitrust regimes through amendments to existing legislation, the introduction of new laws and regulations, and have renewed fervour and political will to enforce laws. These developments draw attention to the continent’s collective enthusiasm in ensuring competition compliance, and its determination in promoting and protecting more effective economies.
- Environmental Social and Governance
As Africa reduces its over-dependence on natural resources and increases its manufacturing capacity, it must ensure it develops in a sustainable way – spurring investment in projects focused on clean energy, community development initiatives, wildlife protection, sustainable agriculture and low-carbon development, for example.
A commitment to Environmental Social & Governance principles is now a primary focus in the quest for post-pandemic funding, with access to capital for large projects almost certainly containing sustainability requirements.
Lerisha Naidu is a Partner, Competition & Antitrust; Lodewyk Meyer is a Partner, Banking and Finance; Mike van Rensburg is a Partner, M&A; and Virusha Subban is a Partner, Customs and Trade, Baker McKenzie Johannesburg
El Salvador Buys Additional 150 BTC as price Falls Below $50,000
Many in the cryptocurrency community are now calling the President of El Salvador a Chief Executive Officer (CEO) as he has managed his country like a CEO would a company. He has now allocated his ‘company’s’ treasury into Bitcoin, as he aims to ‘Buy the dip’, anytime there is a price drawdown in the asset class.
Today ‘CEO’ Nayib Bukele took to Twitter to announce that his ‘company’, El Salvador, just bought an additional 150 BTC, adding to the 100 BTC the Latin American nation bought when Bitcoin’s price fell below $60,000.
He stated, “El Salvador just bought the dip! 150 coins at an average USD price of ~$48,670 #Bitcoin ” He further explained that he missed the bottom as Bitcoin traded as low as $42,874.62 according to coinmarketcap. He stated, “missed the f***ing bottom by 7 minutes.”
What you should know
This purchase puts El Salvador’s Bitcoin reserve at a total of 1,270 BTC, which is worth nearly $61.6 million at the time of writing. On the 26th of November, just 8 days ago, the President announced the purchase of 100 BTC.
The Salvadorean government game plan includes withdrawing unrealized BTC gains in U.S. dollars to fund various developmental projects while maintaining the overall value of the central reserve.
President Nayib Bukele first announced that El Salvador would be making their first major BTC purchase on the eve of the country’s Bitcoin Law going into effect on Sept. 7, buying 200 BTC when the price was roughly $52,000. The nation has seen added 1,020 BTC, with the nation buying whenever there has been a major sell off in the price of Bitcoin.
Nayib Bukele has proposed several initiatives in the country around Bitcoin adoption and mining. The government has started construction of the infrastructure to support the state-issued Bitcoin wallet, Chivo, and recently unveiled plans to launch its own Bitcoin City at the base of a volcano, funded initially by $1 billion in Bitcoin bonds.
Since the adoption of Bitcoin as a legal tender, the Salvadoran government has been investing gains onto various infrastructure development projects. In mid-October, the President announced that the $4 million from the profits of their Bitcoin Trust will be used to construct a new veterinary hospital in the capital, San Salvador. Early November, Bukele announced that the surplus earned from the state’s Bitcoin Trust account will be used for constructing 20 new schools.
However, Many Salvadorans have pushed back against the crypto initiatives, specifically protesting Bukele and Bitcoin. In September, residents marching through the capital city destroyed one of the Chivo kiosks and defaced the remains with anti-BTC logos and signs.
Superalgos is the go to hub for day traders – Luis Molina, CEO
The SA token is the native token of the Superalgos platform. It was recently launched on PancakeSwap, a decentralized exchange (DEX), under the ticker ‘SA’. The launch comes after four years of development with tens of thousands of downloads during the open beta phase as the community builds up liquidity pools for its native Superalgos token on the DEX.
Molina says, “Our token is a community token and it represents how much you have contributed to the project. The difference between the SA token and other tokens is that others use their token to incentivize security for their respective networks while we don’t need security for our network because our token runs on someone else’s network. What we do is we use 100% of the incentivization power of each token to incentivize contribution to the platform. In the first four years, the contribution was in the form of codes to the codebase to create these tools. We are transitioning to allowing people contribute trading intelligence in the form of indicators, strategies and also signals. The platform will be set up where people will be running bots which produces signals for traders and putting them in the Superalgos network for everyone to benefit.”
Molina concluded by telling us more about the Superalgos application and how traders can benefit from the #1 platform on GitHub. He also gave hints about his top five cryptocurrencies. Click here to watch the full interview.