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Rwanda, South Africa sign mega dollar deals with China

China will invest $14.7 billion in South Africa, President Cyril Ramaphosa said on Tuesday after talks between the two countries

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China will invest $14.7 billion in South Africa, President Cyril Ramaphosa said on Tuesday after talks between the two countries.

The news sent the rand one percent firmer.

Speaking at the same event, Chinese President Xi Jinping said the world’s second-biggest economy would take active measures to expand imports from South Africa to support development in Africa’s most industrialised economy.

Ramaphosa, who has promised to revive the economy since becoming president in February and after winning the leadership of the ruling African National Congress last year, said “Xi has indicated that China is ready to invest and work with South Africa in various sectors.”

The rand firmed after Ramaphosa’s announcement, spurred by offshore demand for the currency, traders said.

South Africa’s struggling state-run power firm Eskom, which swung to a full year loss on Monday, received a $2.5 billion loan from the China Development Bank.

Ramaphosa has focused on revitalising Eskom, Africa’s largest public utility, which was embroiled in corruption scandals under former president Jacob Zuma and narrowly avoided a liquidity crunch early this year after banks halted lending. Zuma has denied wrongdoing.

South Africa’s logistics utility Transnet also received a cash injection, as well as other sectors of the economy, officials said.

Xi said China and South Africa were important emerging economies with similar perspectives on many global issues.

“Hence the need to strengthen cooperation,” Xi said.

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Meanwhile, Rwanda has signed loan agreements worth more than $300 million with China and India to fund roads and irrigation, officials said, as leaders from the two Asian powers made their first visits to the East African nation.
Jinping visited Rwanda from Sunday to Monday and granted a loan to build two roads while India’s Prime Minister Narendra Modi arrived on Monday.
Modi, who was on the way to a summit in South Africa, agreed $200 million in loans.

“With India we signed a loan of $100 million for irrigation in three separate areas in the country and $100 million for developing special economic zones,” Rwanda’s minister of finance Uzziel Ndagijimana told Reuters.

“With China we signed a loan agreement of $76 million for the road from Huye to Kibeho and for the new Bugesera airport access road it is $50 million,” Ndagijimana said.

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Ethiopia might devalue currency to secure IMF loan

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Ethiopia may need to decide on a big currency devaluation soon to get a rescue loan from the International Monetary Fund (IMF).

In December, East Africa’s most populous country went bankrupt, making it the third African country in as many years to not pay its debts. The country already had high inflation.

Ethiopia hasn’t gotten any money from the IMF since 2020, and its last loan deal with the fund fell through in 2021. In late 2022, the federal government and a rebellious regional authority made a deal to end a cold war that had been going on for two years.

Although the IMF has not said that currency reform is necessary for its backing, it however maintained that progress was made during its most recent visit. However, the Fund usually favours flexible, market-determined exchange rates. Ethiopia has requested $3.5 billion of support from the IMF, sources told Reuters last year.

The birr currently trades at between 117 and 120 per dollar on the black market, which is more than double the official rate of about 56.7. This is because there is a constant lack of foreign cash and the exchange rate is tightly controlled.

“It seems that the Ethiopian authorities have found accepting the demands of the IMF hard,” said Abdulmenan Mohammed, an Ethiopian economic analyst based in Britain.

“The Ethiopian authorities are worried about the devaluation of the birr, (which) would have serious negative economic repercussions, including soaring inflation… and surging foreign currency denominated debts in terms of birr.”

Early in 2021, Ethiopia asked the G20’s Common Framework to restructure its debt. This was set up in response to the COVID-19 pandemic to include new creditor countries like China and India. Other African countries like Tunisia and Zambia also suffered a similar fate with their foreign debt at the time.

As of the end of March, Ethiopia’s foreign debt totals $28.2 billion. According to Boston University’s Chinese Loans to Africa Database, the country’s biggest bilateral creditor, China, agreed to stop collecting its debts in August 2023. From 2006 to 2022, China promised to give the country $14 billion.

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Nigerian govt to save N1.5tn from removal of electricity subsidy

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The Nigerian government says a recent increase in the price of electricity for Band A customers to N1.5tn means it could save more this year.

The government also said that about 2.5 million meters would be installed this year to close the metering gap across the country and make sure that people pay the right amount for electricity.

The Federal Ministry of Power, in a document made public by Bolaji Tunji, who is the media assistant to the power minister, on Wednesday evening said that the recent tariff change would save the country N1.5tn.

It said, “FG (Federal Government) to save N1.5tn with tariff adjustment. FG still subsidising Bands below A. Pricing change will help improve liquidity to the NESI (Nigeria Electricity Supply Industry).

“Discos (power distribution companies) will be sanctioned for supplying less than 20 hours to Band A consumers.”

Electrical consumers in the Band A group, which makes up about 15% of the country’s 12.82 million power users, no longer get any subsidies on their bills. Those affected would now pay N225 per kilowatt-hour, which is about 240% more than the old rate of N68/kWh.

In reaction, manufacturers and organized labour spoke out against the tariff increase that about 1.9 million consumers will have to pay. The increase was passed and announced by the Federal Government on April 3, 2024.

For the past few months, the terrible state of the electricity supply has gotten even worse because gas producers to gas-fired thermal power plants have stopped sending gas to those plants because they owe $1.3 billion in debt.

Meanwhile, the argument around subsidies of essential products and services in Africa remains active with some analysts positing that the earning power and GDP of most countries in the continent puncture the likely gains of a no-subsidy regime, given the lack of economic means by a large percentage of the public.

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