MINING IN FOCUS
Ethiopia makes progress
Contrary to the images that would previously conjure up at the mere
mention of Ethiopia, the country has made commendable economic
progress in reducing poverty and improving living standards. While the
market outlook continues to be somewhat subdued due to dynamics that
were historically hampered by poor government policies and state-owned
monopolies, foreign exchange shortages, and weak prices for traditional
exports, Ethiopia has displayed economic growth potential. In the last
quarter of 2018, the International Monetary Fund's World Economic
Outlook Report predicted Ethiopia to be the fastest growing frontier
economy in Africa with 8.5% growth, thereby far outstripping the growth
of advanced economies.
Ethiopia's economic growth has been driven by an increase in industrial
activity and the availability of domestic and foreign investments in certain
industries such as infrastructure, manufacturing and telecommunications.
The reduction in its current account deficit to 6.4% of the real gross domestic
product in 2017/2018, the flexible exchange rate regimes and the various
attempts to bring inflation back on target have all supported Ethiopia's
economic growth.
Although the telecommunications monopoly seems to be the main prize
because of its protected market and the absence of competitive broadband
services, other major state-owned companies facing partial privatisation in
2019 include Ethiopian Airlines, Ethiopian Shipping and Logistics Services
Enterprises and Ethiopian Electric Power.
Improved prospects for Nigeria
Turning to Nigeria, the upgraded forecast reflects improved prospects for
Africa's most populous nation and the growth of its real gross domestic
product is projected to increase to 2.3% in 2019. Although the sharp
recovery of oil prices and various portfolio outflows have provided some
relief to Nigeria's 1.5% annual contraction and technical recession recorded
in 2016, the country's improved economic growth still falls short of the levels
seen during the commodity boom of the 2000s. While crude oil and gas
products accounted for over 94.4% of Nigeria's foreign exchange earnings
in 2018, Nigeria is under immense pressure to introduce reform policies in
order to adjust to the global pursuit of sustainable energy alternatives which
include solar energy, wind power and geothermal energy.
In addition, the current Prime Minister's reform agenda is driven by
a strategy to shift the engine of economic activity to private sector
development, while allowing the public sector to be consolidated into such
development. For instance, the Ethiopian Government has accelerated its
efforts to bolster network expansion and improve the hardware capabilities
and infrastructure of its state-owned telecommunications company, Ethio
Telecom, which boasts over 60 million mobile subscribers and 18 million
internet users. To this end, the Ethiopian Government has reportedly
opened-up Ethio Telecom's assets and shares, for acquisition by local and
foreign investors as part of a multi-billion-dollar investment. This investment
is aimed at accelerating fixed broadband and internet penetration and
ultimately, fast-tracking the development of Ethio Telecom's infrastructure.
Yemi Osinbajo has played an increasingly prominent role in Nigerian politics
since he was appointed as President Muhammadu Buhari’s deputy in 2015.
The Nigerian economy's vast dependence on its crude oil and natural gas
resources also makes it vulnerable to oil discoveries in other African countries,
the global push towards technologies that promote energy sustainability and
fluctuating commodity prices. The extent to which the Nigerian economy
moves towards its near-term development aspirations will depend on the
success of its import substitution policies, the fast-paced implementation of
structural reforms and economic diversification of non-oil economic indicators.
Ethiopia has made great economic progress in a region characterised by
conflict.
In order to address Nigeria's economic diversification and growth, the federal
government launched the Economic Recovery and Growth Plan (ERGP) in
April 2017. The ERGP is a medium-term all-round developmental initiative
for the period 2017-2020, focused on restoring economic resurgence
and building a globally competitive economy. Some of the objectives of
the ERGP include stabilising the macro environment, increasing non-oil
revenue generated from the agricultural sector, improving transportation
infrastructure, driving the industrialisation of small and medium-sized
enterprises, and ensuring sufficiency in energy and petroleum products.
Although there have been challenges in achieving the ERGP objectives,
positive results are already manifesting in key economic indicators. For
instance, the Nigerian economy has witnessed an increase in non-oil
revenue generated from the agricultural sector, which has reportedly shown
a steady growth of 18.58% in the last quarter of 2018 and contributed
14.27% to the nominal gross domestic product. In addition, the ERGP
task team has launched a number of agricultural projects such as the
commissioning of the West African Cotton Company Limited rice mills in
Argungu, Kebbi State, with a production capacity of 120 000 metric tonnes,
geared towards enhancing productivity in the agricultural sector. According
to the most recent data published by Nigeria's National Bureau of Statistics,
other non-oil sectors that are contributing to Nigeria's economic growth
include trade, telecommunications, mining and quarrying, real estate
services, finance and insurance and construction.
Evidently, there is great investment potential across the African continent
and the outlook on African countries remains positive despite the reported
downgrades for the global economy.
Ethiopian prime minister, Abiy Ahmed, has emerged as one of Africa’s prime
reformists.
www. africanmining.co.za
African Mining Publication
Itumeleng Mukhovha is corporate M&A associate at Baker McKenzie.
African Mining
African Mining September 2019
47