Sunday, November 30, 2014

G East Africa Worry About the Oil Crisis?

. Recent oil and gas finds across the East Africa region has positioned it as a lucrative investment destination in Africa. Research has shown that discoveries in the last few years are more than that of any other region in the world, and the boom is expected to continue for the next five years. This impressive position is however becoming less significant as global oil prices continue to fall. A continued decline threatens the region’s economic prospects.

Multiple Oil and gas discoveries, better economic prospects

The ongoing market integration by the East African Community (EAC), which comprises Burundi, Kenya, Rwanda, Tanzania and Uganda, has contributed to the region becoming an attractive investment destination. But the recent oil and gas finds in Kenya and Tanzania have also made its prospects even better.

East Africa Oil map source: paixetdeveloppement.net

British exploration firm, Tullow Oil and its partner, Africa Oil have found more than 600 million barrels of oil in Kenya, and has discovered over 8 commercially viable oil wells since the first oil find in 2012. Uganda also has 6.5 billion barrels of oil deposits discovered over the last eight years. Tanzania’s natural gas discovery has topped 50.5 trillion cubic feet. Albeit not a member of the EAC, Mozambique is another country in the East African region that has found gas. It has a reserve of about 200 billion cubic feet. The natural gas finds in Tanzania and Mozambique are among the largest in the world.

Uganda and Kenya are expected to commence commercial oil production by 2017, while Mozambique and Tanzania’s natural gas projects are expected to come online in 2019. The discoveries are very important to the region, as they have the potential of hastening economic growth via investments in road, rail and other infrastructure. Whatever bright hopes the region may have before as regards economic growth from oil revenue, has now been lulled by the falling oil prices. Production has not even begun.

Recouping its massive investments in infrastructure just got harder for East Africa

Kenya, Uganda and Tanzania are particularly hopeful to lure investors to key infrastructure to further exploit their oil and natural gas. The region is already investing in infrastructure. Several projects have commenced, one of them is the LAPSETT projectvalued at $23 billion. It includes the construction of a network of roads, railways and pipelines linking Kenya, Ethiopia and South Sudan.

Kenya is expected to increase its spending on infrastructure by 15 percent by 2015. The government also plans to fast-track the construction of a pipeline to export crude.

Uganda has signed an agreement with France’s Total, Britain’s Tullow Oil and China National Offshore Oil Corporation (CNOOC) to develop oil fields and a pipeline linking them to the coastal port of Lamu in Kenya for export. The country is also considering bids from companies including Japan’s Marubeni Corp. and a group of investors led by China Petroleum Pipeline Bureau to build a 60,000-barrel-per-day refinery.

With a loan from the Export-Import Bank of China, Tanzania hopes to complete construction in 2014 of the $1.2-billion Mtwara gas-pipeline project stretching to Dar es Salaam on the coast. Norway-based Statoil and London-based BG Group are also considering a liquefied natural gas (LNG) export plant on the Tanzanian coast.

However, the free fall of global oil prices is beginning to raise fears on whether the region will be able to recoup its massive investments on infrastructure, as investors have become less optimistic. Toronto-listed explorer Africa Oil, whose interests span across several African states such as Kenya and Ethiopia, said this month that its plans in Kenya might be brought into question if the long-term outlook saw prices dropping below $70 a barrel. The company has already put up part of its stake in Kenya up for sale.

Oil legislation

The region’s future economic growth seem to have been tied to its oil boom, as legislations aimed at milking the new found cash cow is being effected across East Africa.Even Rwanda whose hope of striking oil is just being kept alive by the success of its neighbours, have put an exploration policy in place ahead of its anticipated discovery. The upstream petroleum law is also currently being drafted.

Kenya has raised the capital gains tax for oil and gas related transactions to 37.5 percent. Analysts have however said it will have a negative impact on the development of the exploration industry still in its early stage. This will include potential barriers to entry for new investors and erosion of present investor confidence. When Kenya announced its capital gains tax plans in September, the shares of Canadian firm Africa Oil, one of the major exploration companies working in the country, dropped. This shows how far-reaching the effect of the new tax regime can be.

Kenya has licensed 41 out of its 46 oil and gas blocks to 21 companies, showing the country’s eagerness to start making money from oil. Its Petroleum Bill is also expected to be passed by Parliament this month. The bill proposes, among other things that petroleum production be managed under the Energy Regulatory Authority; it stipulates how the revenues from future oil and gas extraction should be shared.

There also contains in the bill, a proposal to establish the Kenya National Sovereign Wealth Fund. The fund would build a portfolio of investment in Kenya and abroad, and it will consist of a stabilization fund, a future generation fund and an infrastructure and development fund. However, with the continued decline in oil prices, Kenya may have to wait close to a decade to actualize these plans.

East Africa gets a wake-up call

The multiple oil finds in the region may be good news for East Africa, but it is coming at a bad time. The present oil glut which is making prices fall seem set to continue, as the much awaited meeting of OPEC ended with the cartel maintaining its output at 30 million barrels per day. Some analysts have said that oil prices could fall to as low as $60 per barrel if OPEC does not agree to a significant output cut.

With oil-based economies struggling under the impact of the price fall, it is unlikely that prospective oil producers will get any new investments in the mean time, as investors hold back to see where the oil market heads in the coming months.

Although the current trend in the oil market is not expected to play on for too long, East Africa might have just gotten a wake-up call. It has to ensure it does not get carried away by the natural resources boom and fall into the Dutch disease risk. The region should continue its market integration and focus on strengthening its manufacturing and agricultural sectors.

VENTURES AFRICA

- See more at: http://www.geeskaafrika.com/ethiopia-should-east-africa-worry-about-the-oil-crisis/6812/#sthash.xqxBUUpr.dpuf

Thursday, November 27, 2014

Opec – The prisoner of Vienna

Wednesday, November 26, 2014

Ethiopia plans first US dollar bond - International | IOL Business | IOL.co.za

London - Ethiopia plans to sell its first dollar bond as Africa’s fastest-growing economy exploits record demand for the continent’s debt.

Ethiopia picked Deutsche Bank and JPMorgan Chase & Co for fixed-income investor meetings in Europe and the US beginning tomorrow, according to a person familiar with the matter, who asked not to be identified as the information is private.

The proceeds of the sale will be used to fund electricity, railway and sugar-industry projects, Finance Minister Sufian Ahmed said October 8.

The Horn of Africa nation is joining issuers, including Ghana, Kenya, Senegal and Ivory Coast, who sold what Standard Bank says is a record $15 billion (R165 billion) of Eurobonds this year.

Government and corporate issuers are seeking to benefit from investor appetite for higher returns before the Federal Reserve raises interest rates as soon as next year.

“There is an incentive to issue before US rates start to gradually edge up from next year,” Samir Gadio, head of African strategy at Standard Chartered in London, said today by e-mail.

“The market seems to expect that Ethiopia will price among the highest-yielding African sovereigns.”

African government and corporate Eurobonds sales this year beat 2014’s record $14 billion, Standard Bank said on November 13.

Sovereigns accounted for about 71 percent of issuance, according to the Johannesburg-based lender.

The yield on Kenyan dollar bonds due June 2024 was at 5.91 percent today, down from 6.88 percent when it was sold in June.

Zambian dollar bonds returned almost 17 percent this year, while Ghanaian debt earned 9.5 percent, according to the Bloomberg USD Emerging Market Sovereign Bond Index.

Ivory Coast returned 1.3 percent as neighboring countries battled an outbreak of Ebola, while Gabon earned about 11 percent.

Fed Policy

Emerging-market assets have benefited from record-low interest rates in developed nations that pushed investors to seek out higher returns elsewhere.

The end of quantitative easing by the Fed and the prospect of its first interest-rate increase since 2006 is drawing some of that money back to the US.

Almost 30 years after pictures of Ethiopian children with distended stomachs were used to raise money by Bob Geldof and Live Aid, the country is growing faster than any other African economy, at an average of 10.9 percent over the past decade, International Monetary Fund data shows.

Ethiopia’s planned issue could be assisted by technical factors, such as scarcity, as the Eurobond will be the only tradable asset for international investors wanting access to the African nation, Standard Chartered’s Gadio said.

Nile Dam

State Minister of Finance Abraham Tekeste and Haji Ibsa, a spokesman for the Finance Ministry, didn’t answer their mobile phones when Bloomberg called each of them seeking comment today.

Ethiopia is building the continent’s biggest hydropower plant on the Blue Nile River, known as the Grand Ethiopian Renaissance Dam, that will probably increase electricity supply five-fold by 2020.

It may need to invest about $50 billion in infrastructure over the next five years, of which $10 billion to $15 billion may come from foreign investors, the finance minister said last month. - Bloomberg News

Saturday, November 22, 2014

Ethiopian women show men the way

Women do an estimated 70 per cent of the farm work in Ethiopia, but because men do the ploughing it is they who are considered to be the farmers. This means men control the family income. Gorta-Self Help Africa is involved in a drive to encourage women to join credit unions and share control of the family finances.

With the support of the Irish credit-union movement it established Yenetsanet Credit Union, in Butajira, an umbrella group for 109 rural savings and credit co-operatives.

About 15,000 people are saving and borrowing from these co-operatives. They must save at least 20 birr (about 80c) a week; after six months of saving they can take out one-year loans. These are for as little as €40 or for as much as almost €20,000, and they are used for everything from setting up beauty salons and cafes to buying fertiliser.

We visit one of the savings co-operatives, where women with babies are queuing to lodge wads of notes. The agency’s inclusion adviser, Mary Sweeney, says it is making a real and practical difference to the lives of women, because they finally have a say in how the household income is spent.

Gete Kerala, who is 38, has received several loans from her co-operative, the most recent being for 33,000 birr (about €1,310), last year, to build a retail unit that she is now renting as a clothes shop. Her four children, aged five to 15, are also members of the savings co-operative. “My life is much better now,” she says. “Before I joined the savings co-operative I didn’t have a job. I had nothing. Now I have built this,” she says, gesturing to the shop, “and I have also a small restaurant.”

Yibeltal Asmare, manager of the Rural Savings and Credit Co-operative programme, says women initially made up 100 per cent of members; then men began to get interested, and they now make up 30 per cent of savers. Co-operative members must vouch for someone seeking a loan, which may explain why the default rate is just 5 per cent.

Sweeney says evidence shows that when women control more household income, children get a greater benefit, as mothers are more likely than men to spend money on food and education.

Less than half the population has access to an improved water supply; in 2011 less than a quarter of the population had access to electricity. Next year the government aims to begin generating electricity from the Grand Ethiopian Renaissance Dam hydropower project, which is expected to be Africa’s largest power plant. It says it will have reached 75 per cent of towns and villages within five years.

Thursday, November 13, 2014

H&M Responds to Ethiopia Cotton Land-Grabbing Accusations | Sourcing Journal Online

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Posted on November 12, 2014 by Angela Velasquez

Swedish retailer H&M said it makes every effort to ensure its cotton does not come from appropriated land, however, the company admitted that it cannot provide an absolute guarantee.

The statement from the world’s second-largest retailer is in response to a Swedish television show’s accusation that H&M was using cotton from areas in Ethiopia that are vulnerable to land-grabbing. Land-grabbing is used to describe the buying or leasing of land in developing countries without the consent of the surrounding local communities. Governments of developing countries often sell the land to foreign companies as an attempt to boost agriculture, but in some cases local farmers are forced off their property.

According to a company statement, “H&M does not accept appropriation of land, so-called land-grabbing. Because of that we demand that our suppliers ensure that they do not use cotton from the Omo Valley region where there is a higher risk for land-grabbing.”

H&M said its risk assessment showed that land-grabbing did not take place where its direct suppliers are located and that it was not possible to trace any land-grabbing further down its cotton delivery chain. “The cotton used in our products come from different regions and we therefore cannot guarantee that the cotton fiber is not from the affected areas. Today we can only trace organic cotton and sustainable cotton from the Better Cotton Initiative. Our goal is to use 100 percent of the cotton by the year 2020, which will allow for better control. We are already the world’s biggest buyer of organic cotton,” H&M noted.

The Swedish retailer has been at the forefront of promoting Ethiopia’s garment industry since it began sourcing from the African country in 2013. It noted that its experiences in dealing with other global textile industry issues, like wage talks in Bangladesh, are lessons it takes with them as the company begins to form partnerships with Ethiopian suppliers.

H&M said it welcomes the review of its operations and a discussion of how the industry as a whole can work to affect the textile industry in a positive way. “Together with other stakeholders, we have a responsibility to deal with the problem of land-grabbing. By attending in the country work preventively, we see that we can influence in a positive direction,” the retailer shared.

The company added that it has also discussed the issue of land-grabbing with representatives of the Ethiopian government while also keeping an ongoing dialogue between aid agencies and the Ethiopian government. H&M said, “Key issues are how local people are involved and compensated properly when the state leases land.”

Thursday, November 6, 2014

Regreening program to restore one-sixth of Ethiopia's land | Environment | theguardian.com

Tree and shrub-planting program has transformed degraded and deforested land across Africa, with Ethiopia planning to restore a further 15m hectares by 2030

John Vidal
the guardian.com, Thursday 30 October 2014 11.11 GMT
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Regreening Ethiopia — Bale Mountains, Ethiopia: Trees and shrubs can be seen growing on the steeper slopes along a ravine that was once plagued by erosion. Photograph: Aaron Minnick/WRI

Fifteen years years ago the villages around Abrha Weatsbha in northern Ethiopia were on the point of being abandoned. The hillsides were barren, the communities, plagued by floods and droughts, needed constant food aid, and the soil was being washed away.

Today, Abrha Weatsbha in the Tigray region is unrecognisable and an environmental catastrophe has been averted following the planting of many millions of tree and bush seedlings. Wells that were dry have been recharged, the soil is in better shape, fruit trees grow in the valleys and the hillsides are green again.

The “regreening” of the area, achieved in just a few years for little cost by farming communities working together to close off large areas to animals, save water and replant trees, is now to be replicated across one sixth of Ethiopia – an area the size of England and Wales. The most ambitious attempt yet to reduce soil erosion, increase food security and adapt to climate change is expected to vastly increase the amount of food grown in one of the most drought- and famine-prone areas of the world.

“Large areas of Ethiopia and the Sahel were devastated by successive droughts and overgrazing by animals in the 1960s and 1970s,” says Chris Reij, a researcher with the World Resources Institute in Washington.

“There was a significant drop in rainfall, people had to extend the land they cultivated and this led to massive destruction and an environmental crisis across the Sahel. But the experience of Tigray, where over 224,000 hectares of land has now been restored shows that recovery of vegetation in dryland areas can be very fast. Tigray is now much more food secure than it was 10 years ago. You really see the changes there,” he says.

Rather than just plant trees, which is notoriously unreliable and expensive in dry land areas, the farmers have turned to “agro-ecology”, a way to combine crops and trees on the same pieces of land.

A trailer for a new documentary by film-maker Mark Dodd on the land restoration project in Tigray.

In Tigray it has involved communities building miles of terraces and low walls, or bunds, to hold back rainwater from slopes, the closure of large areas of bare land to allow natural regeneration of trees and vegetation, and the widespread planting of seedlings.

“The scale of restoration of degraded land in Tigray is possibly unmatched anywhere else in the world. The people ... may have moved more earth and stone [in recent years] to reshape the surface of their land than the Egyptians during thousands of years to build the pyramids,” says Reij.

“In the early 1990s every able-bodied villager in Tigray had to contribute three months of labour to dig pits to save water, or to construct terraces and bunds to stop water rushing off the hills. This was reduced later to 40 days a year and currently it is 20 days a year.

“Several hundred thousand hectares are now under ‘exclosures’ - degraded areas in which no cutting and grazing is permitted. This allows the natural regeneration of vegetation. Tens of thousands of kilometres of rock bunds and terraces have been constructed, often on steep slopes,” he added.

Ethiopia’s pledge to restore a further 15m hectares of degraded land was the largest of many made at the end of UN secretary general Ban Ki-moon’s New York climate summit last month, where governments, companies and civil society groups together agreed to try to restore 350m hectares of deforested landscapes - an area the size of India - by 2030.

Commitments have now come from Uganda (2.5m hectares), Democratic Republic of the Congo (8m hectares), Colombia (1m hectares), Guatemala (1.2m hectares), and Chile (100,000 hectares). Many others are expected to follow in the run-up to the Paris climate talks in December 2015 because the restoration of degraded land is expected to qualify for carbon credits.

Africa, with help from the World Bank, the UK government and development groups like Oxfam and World Vision, has emerged as the leader in restoring the world’s estimated 2bn hectares of degraded lands.

According to Reij, a quiet revolution has seen over 200m trees planted and 5m hectares of degraded land regreened in Niger. The result, says a report by the International Food policy research institute, has been extra 500,000 tonnes of food grown in the country with the fastest growing population in the world, as well as an increase in biodiversity and incomes.

In Burkina Faso where 2-300,000 hectares of land has been regreened, food production has grown about 80,000 tons a year – enough to feed an extra 500,000 people.

“There are a lot of inspirational examples in Africa. In Tanzania 500,000 hectares of land has been restored. What this shows is that well-managed ecosystems are good for biodiversity as well as for food security, water supplies and climate change,” said Stewart Maginnis, director of International Union for Conservation of Nature’s (IUCN) nature-based solutions group in Geneva.

Increasing the rate of restoration of degraded lands will be vital both for feeding fast-growing populations and adapting to climate change, says Green Belt Movement (GBM) international director, Pauline Kamau.

“Africa is already experiencing some of the most dramatic extreme temperature events ever seen. Without action to reduce emissions, average annual temperatures on the continent are likely to rise 3-4C by the end of the century and [there could be] a 30% reduction in rainfall in sub Saharan Africa.

“We know that regreening could be a key part of the solution to these problems. Agriculture, forestry and other land use changes accounts for nearly 25% of greenhouse gas emissions globally. Restoring degraded lands can both help rein in warming and adapt to higher temperatures,” she said.

UNIDO Forum Expresses Cautious Optimism on Ethiopia’s Economic Strides | Inter Press Service

By Julia RainerReprint | |

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VIENNA, Nov 5 2014 (IPS) - With annual economic growth rates of over 10 percent and attractive investment conditions due to low infrastructural and labour costs, Ethiopia is eagerly trying to rise from the status of low-income to middle-income country in the next 10 years.

Ethiopia, with some 94 million inhabitants, is the second most populous country in Africa after Nigeria, but it remains a predominantly rural country. Only 17.5 percent of the population lives in urban areas, mainly Addis Ababa.

It is also one of the continent’s fastest growing economies. Between 2015 and 2018 growth is expected to average 7.3 percent, according to a recent study by the United Nations Industrial Development Organisation (UNIDO).

While economic growth since 2006/2007 doubled per capita income to 550 dollars in 2012/13, and the percentage of people living below the national poverty line dropped from 38.9 in 2004 to 29.6 in 2011, government sources admit that eradication of poverty remains a compelling issue.

“There is not a single country in the world which has reached a high state of economic and social development without having developed an advanced industrialised sector” – UNIDO Director General Li Yong

The official target of rising to a middle-income country is considered to be realistic, but an East Asian diplomat accredited to the African Union in Addis Ababa says there is reason to be sceptical, partly because although the amount of foreign direct investment (FDI) rose from 0.5 percent in 2008 to 2 percent in 2013, investors continue to face trade constraints.

According to UNIDO, these are mainly related to border-logistics. Djibouti, the main import-export seaport used by Ethiopia, is situated 781 km from Addis Ababa, which makes the cost of land transportation a critical factor.

It is against this backdrop that UNIDO has chosen Ethiopia, along with Senegal, as a pilot country for its ambitious inclusive and sustainable industrial development (ISID) programme, which aims to achieve industrialisation in developing countries in order to eradicate poverty and create prosperity.

According to UNIDO Director General Li Yong, “there is not a single country in the world which has reached a high state of economic and social development without having developed an advanced industrialised sector”.

What distinguishes the ISID programme is that “current modes of industrialisation are neither fully inclusive nor properly sustainable”, he added. UNIDO is therefore not merely promoting industrialisation but trying to approach the needs and challenges of the globalised world that demand future-oriented concepts.

Promoting the sustainability that should be inherent to industrialisation, UNIDO says that the ISID programme takes into account environmental factors together with its partner countries and organisations.

It also fosters an industrialisation that is inclusive in sharing the benefits of the generated prosperity for all parties involved, thereby promoting social equality within populations as well as an equal distribution between men and women to ensure that nobody is excluded from the benefits of growth.