As part of the Angolan government's plans to substitute imports of key goods with national production this year, domestic media reported that the import of cement would be banned from 1 January, but that, due to negotiated exceptions, its effects were not likely to be felt until the second quarter (Q2).
Local media reported that the Association of the Angolan Cement Industry (AICA) maintained that national production of eight million tons exceeded the total demand of 6.5 million tons, and that the ban was already effective since 1 January, in conjunction with raised import tariffs on other key goods.
However, the AICA has negotiated some exceptions with the government, by which existing contracts with foreign suppliers can still be upheld. Furthermore, border areas would still benefit from temporary exceptions to the ban, due to internal supply constraints, and "turnkey projects" that were previously subjected to a quota of 30% of domestic cement would also be allowed to go ahead as stipulated.
Although certain Angolan construction companies stated that they would not be affected by the ban as they already sourced their cement from national producers, several large-scale construction projects, including Dar Group's 345,000 square metre "Comandante Gika" project in Luanda, are likely to face a substantial rise in operating costs once existing supply contracts expire, probably in the second quarter, according to local media quoting industry sources.
Most at risk will be Brazilian, Portuguese, and South African construction companies. Risks to Chinese "key-in-hand" projects will be mitigated by import duty exceptions normally negotiated for such projects.
The 2014/2015 national budget of the Finance Ministry of Botswana is based on relatively conservative macro-economic assumptions: GDP growth is expected to average 5.1% in 2014, down from 5.4% in 2013; while a low domestic inflation environment will leave the real effective exchange rate of the pula broadly stable.
The non-mining sector (particularly trade, hotels and restaurants and finance and business services) is expected to be the growth drivers during 2014.
A negative performance in the mining (dominated by diamonds) and water and electricity sectors during 2013 was offset by resilience in Botswana’s non-mining industry. Growth in non-mining sectors such as construction, social and personal services and finance and business services propped-up growth while confirming some progress in Botswana’s economic diversification drive. By 2013, the mining sector’s contribution to GDP has fell to only 20% from roughly 30% earlier on.
The 2014/2015 national budget proposes a surplus of 1.326 billion pula (USD154 million), or 0.9% of GDP. This will be achieved by increasing government spending by 9.0% year-on-year (y/y) while government income is budgeted to rise of 10.4% y/y.
Around 70% of government’s recurrent expenditure is allocated to the Ministry of Education and Skills Development, Health, Local Government and Rural Development (which include the temporary job creation Ipelegeng program) and Defence, Justice and Security.
The commencement of principal payments of some of the major loans secured during the financial crisis will commence during 2014, increasing government’s statutory expenditure by 16.9% y/y.
The largest share of government’s capital budget will go towards the development of the electricity and water resources sectors in the economy. No announcement regarding public sector wage adjustments were made as consultation with different parties involved are ongoing.
More than 60% of the Botswana government’s 2014 revenue is sourced through customs and excise duties and mineral revenues. Uncertainty over the prospects of these two major revenue sources remain due to a sluggish recovery in the world market demand for diamonds and the on-going negotiations of the South Africa Customs Union (SACU) revenue sharing formula which could result in a significant drop in customs and excise duties over the medium-term.
A decline in donor funding for HIV -AIDS related programs has furthermore placed progress in this field in serious jeopardy while the Botswana government will increasing face financial responsibilities to fill the gap.
The anticipated budget surplus will leave government’s domestic and external borrowing requirements at zero for the coming fiscal year.
Botswana’s macro-economic fundamentals remain in place: conservative monetary and fiscal policies have favoured the inflation environment, swung the current account back into surplus according to the 2014 National Budget and ensured the further accumulation in Botswana’s foreign reserve holdings, which now stands at an estimated 16.5 months of import cover of goods and services.
The economy furthermore continues to diversify into sectors which a relatively high rate of competitiveness such as tourism, financial and business services and trade. The country’s banking system remains sound which continues to boost consumer spending.
Vulnerabilities remain however, of which a fall in donor contributions to AIDS programs and an overreliance on diamonds mining as a source of government income, GDP growth and foreign exchange earnings remain.
Botswana’s close link to its larger Common Monetary Union (CMU) member South Africa will also leave the economy more vulnerable to pula currency volatility and rising import inflation in the next 12-months.
Republic of Congo (Brazzaville)
The Republic of Congo (Brazzaville) regulatory authority for post and electronic communication (Autorité de Régulation de Poste et Communications Electroniques: RPCE) on 3 February threatened to suspend two of the existing four mobile operating licences in the country, due to persistent bad service by the providers which led to communication outages for customers.
The targeted operators are MTN Congo and Airtel, while the other two, Azur and Warid, have not yet been targeted. Currently, Airtel is the Republic of Congo's largest operator and has entered into an agreement to take over Warid’s operations in the country, which would give it a 53.4% market share.
MTN and Airtel have rejected the complaints about bad service, saying it was part of the upgrade to the 3G network. Although outright suspension of the licenses is unlikely, the threat of revocation and fines should result in improvements being made to mobile services in the country. Azur, as the smallest of the operators, with only 8.2% of market shares is less likely to be targeted.
Gambian authorities on 7 January 2014 disclosed the revocation of two offshore licences (blocks A1 and A4) awarded to Australia-listed firm African Petroleum, and one onshore Block (Lower River), awarded to Nigeria-based firm Oranto Petroleum.
The reason for the licence cancellation was because the licensees were holding the concessions for speculative purposes, which, according to Gambian authorities, was in contravention of the country's Petroleum Law. African Petroleum bought the two licences in 2010 and was still planning to drill a well on block A1 to test the Alhamdulillah prospect, having completed 3D seismic testing.
Since the discovery of oil deposits in February 2004, Gambia has yet to start any oil production on a commercial scale. In the November 2013 issue of New African magazine, President Yahya Jammeh revealed that the country's crude oil reserves were estimated at around 4–5 billion barrels. In 2004, WesternGeco's seismic survey provided an estimate of 100–200 million barrels of crude reserves.
To address the problem of investor inertia to commence exploration and move on to production, the Gambian government is in the process of strengthening the capacity of the Gambia National Petroleum Company (GNPC), which will serve as the country's investment vehicle in the energy sector.
It is unlikely the government will undertake any venture alone, given the lack of adequate finance and expertise. The government will rely heavily on a joint venture (JV) initiative. The latest player in the country's oil sector is CAMAC Energy, a US-based firm that holds 100% interests in offshore Gambian blocks A2 and A5, awarded in 2012.
However, foreign investors seeking to harness the untapped oil reserves of Gambia independently will have to contend with the country's uncertain regulatory environment and lack of independent judiciary.
The unpredictability of Jammeh's policy direction poses an enormous challenge for foreign investments. In August 2013, the Office of the President intervened in the foreign-exchange market by suspending the operating licences of all foreign-exchange bureaus and pegging the Gambian currency, the dalasi, to the US dollar and British pound in a bid to stem the depreciation of the dalasi.
On 2 October 2013, Gambia withdrew from the Commonwealth with immediate effect – and without any prior warning – after 48 years of membership, 18 of which was under Jammeh. Soon after the country's withdrawal from the Commonwealth, the Gambian government released a statement accusing the US and UK governments of seeking to overthrow Jammeh through subversive means.
One month later, Jammeh broke diplomatic ties with Taiwan without parliamentary consent. Taiwan's foreign minister David Lin claimed that the reason behind the sudden end of diplomatic ties was because Taiwan refused to meet Gambia's request for USD10 million in aid. The Gambian government denied the allegation.
Since coming to power through a military takeover in July 1994, President Jammeh has maintained complete control over the country and he has repeatedly stated that he has no intention of stepping down.
Changes to policies and regulatory frameworks are done with little or no consultation or the required parliamentary approvals. In February 2013, the president gave barely one month's notice to introduce a four-day working week with extended working hours (Mondays–Thursdays 0800–0600) for public-sector workers, excluding parastatals and the private sector.
By extension, the oil sector faces the risk of changes to petroleum regulation without sufficient warning to foreign operators. Western investors face further risk of arrest, detention, and deportation in the event they are accused of economic crimes against the state.
High taxes are one of the inhibiting factors for foreign investment. The tax regime in Gambia is relatively uncompetitive compared with its neighbours, with a corporate tax rate of 31%. In January 2013, the government introduced a 15% value-added tax. In the oil sector, the government is demanding 40% royalty. Gambia is ranked 179th out of 185 countries in the World Bank Doing Business 2013 survey for ease of paying taxes. This is due to a combination of high rates, multiple payments, and time taken to provide the necessary information.
Gambia's investment environment is increasingly becoming challenging for foreign operators. Investors seeking to operate in the country's oil sector will have to secure the president or his trusted vice president as a way of mitigating risk. Jammeh is likely to use GNPC as a vehicle to go into a JV with foreign partners willing to offer the government a high return.
The unpredictability of Jammeh's policy direction poses an enormous challenge for foreign investments, adding to overall business uncertainty in the country. Increased state interference and a compromised judiciary pose high risks of arbitrary tax increase, contract cancellations, and expropriation of assets.
Out-of-favour business operators, accused of economic sabotage, face risk of arrest, long detention, and expulsion.
A group of workers' unions notified the Guinean government of their demand for a 100% salary increase for public employees and in annuities for pensioners, according to a report by a local news outlet Africaguinée on 4 February. The demands came in response to a price hike of petroleum products, resulting in an increase in the price of local transport fees and goods.
The unions are also demanding an increase in transport and housing allowances and the construction of low-cost housing for public workers. Demands for wage rises are often accompanied with threats of strikes and sometimes end in street protests in Guinea. National trade unions do have considerable influence in the country. In December 2012, they succeeded in pressuring President Alpha Condé to introduce a national minimum wage of USD65 a month and increase public workers' salary by 50% after the government's initial offer of 15%.
National trade unions are very likely to increase their pressure on the government by threatening street protests in order to secure wage increases, probably above 25%. The government's reluctance to accede to their demands will raise the risk of protests in major towns, with Conakry being the hotspot.
There is a moderate risk that demands for wage increases will spread beyond the public sector to other sectors, including mining, banking, and port workers. Firms in the mining sector that are at risk include AngloGold Ashanti, GUITER SA, Rusal, and Semafo; and in the banking sector, BICIGUI (part of BNP Paribas) and African Bank for Agricultural Development and Mining (BADAM).
In the probable event of street protests, they are likely to be peaceful at the outset, although the risk of them turning violent will increase the longer they last. Violence would raise the risk of damage to government property and harm to motorists in Conakry.
The Kenyan cabinet approved a draft mining law on 28 January 2014, which is to be tabled in parliament in February and is likely to pass in the first half of 2014.
Although Cabinet Secretary for Mining Najib Balala had originally proposed in August 2013 that local firms should hold a 35% stake in all mining operations, this has been reduced in the new draft. The draft stipulates that a national mining corporation would have a 10% stake in all concessions and proposes that "extra large" foreign companies (classification yet to be defined) are required to sell 20% of their shares to Kenyan investors.
In order to reduce the number of speculators, individual firms will only be allowed to prospect on up to 165 square kilometres. The mining ministry would also be reorganised, including the creation of a sovereign fund, which Balala stated would receive at least 25% of all government revenue from the sector.
Following the passage of the draft law, the Mining Ministry will now begin implementing a report published by the taskforce that reviewed all licences issued between January 2003 and May 2013.
The report, handed to the Ministry on 29 January 2014, found that only 175 out of 253 licences reviewed were valid. The 78 invalid licences were primarily due to a lack of approval from county councils for land use or a lack of financial capabilities to launch operations.
The Ministry stated that it will implement an automated licence application process by the end of February 2014, at which point the 78 licences will be reviewed and face a severe risk of cancellation. The new law maintains the first-come first-served licensing arrangement, as opposed to competitive bidding rounds, which exposes the sector to a high risk of preferential treatment for well-connected firms.
Additionally, Balala stated that discussions over the division of revenue between the national and county level are ongoing, which is likely to lead to stalling at the county level of any new licence applications.
São Tomé / Angola
On 2 February 2014 Angolan and San Tomean media reported that the Angolan government had attributed a USD180-million credit line to the government of São Tomé and Príncipe (STP). Although the credit has not yet been confirmed by the Angolan authorities, local media in STP stated that a first instalment of USD60 million would be disbursed in 2014 "for development projects".
This credit highlights the growing economic interest and influence of Angola and Angolan investors in STP, which started when the Angolan state oil company Sonangol acquired 51% of STP Airways through its subsidiary, Sonair, in 2012.
Since then, Sonangol also won the contract for upgrading and running the deep-water port of São Tomé, while Angolan mobile network operator Unitel, owned by Isabel dos Santos, the daughter of Angolan president José Eduardo dos Santos, recently acquired an operating licence for STP.
According to local media, the credit line will be reimbursed through Angola's participation in future oil exploration. This is likely to lead to adverse discrimination for other foreign investors in the next bidding round for San Tomean oil blocks, including the joint exploration zone with neighbouring Equatorial Guinea, as Equatorial Guinea also counts on Angolan support to join the Community of Portuguese-Speaking Countries.
However, due to the underdevelopment of the San Tomean oil industry, swift repayments are unlikely, and with Sonangol's manifest appetite to diversify into other sectors, we assess that Angolan companies will benefit from preferential treatment in other sectors, including the handling of air and marine cargo, civic construction, and agribusiness.
Separately, the new credit is likely to put additional strain on STP's public finances as the current external debt of 93% of GDP includes USD24 million in repayment arrears to Angola, raising non-payment risks in the one-year outlook.