VenturesNow

Russia strikes Ukraine in war of neighbours. Why Africa should be concerned

Published

2 years ago

March 3, 2022

Russia’s invasion of Ukraine on February 24 is casting a long shadow across Africa – a devastating effect on some African states, threatening their economies and could also benefit the continent in some ways.

As devastating as it is, some African countries may benefit from a shift in global markets away from Russia due to the crisis. The short-term potential impacts on economic livelihoods are worrying while the implications for pan-African solidarity and adherence to multilateralism are increasingly uncertain.

There are important ties between Ukraine and Africa, including more than 8,000 Moroccans and 4,000 Nigerians studying in Ukraine and over $4 billion in exports from Ukraine to Africa.

Though, African leaders have come under diplomatic pressure to take sides in the escalating feud between Russia and Western powers, African Union (AU) has called on Russia to respect international law and Ukraine’s sovereignty.

In a statement on Feb. 24, AU chair Macky Sall and AU Commission chair Moussa Faki called on Russia and Ukraine to establish a ceasefire and open political negotiations “to preserve the world from the consequences of planetary conflict.”
Kenya, Gabon, and Ghana spoke out against the escalating conflict at an emergency meeting for the United Nations Security Council on Feb. 21, but most African countries have remained quiet.

South Africa, on Feb. 23 asked Russia to withdraw its troops from Ukraine and called for a peaceful resolution of the conflict.

How will the ongoing conflict affect Africans?

Russia is one of the world’s biggest fossil fuel producers. The sanctions on Russia, especially by the United States of America, would linger inflation, high prices of gas in the countries which is a giant headache for American President, Joe Biden.

With this, few countries are sensing long-term growth opportunities from the crisis specifically, Africa’s natural gas could reduce Europe’s dependence on Russian energy.

The budgets of oil-producing countries like Nigeria and Angola might get a boost from the rising prices, but the cost of transport is likely to rise for people across the continent. This will have a knock-on effect on the prices of nearly all other products.

“It becomes a double whammy of potentially higher food prices globally and higher energy prices pushing up inflation. And when central banks respond by hiking interest rates, it becomes a triple whammy,” said Charlie Robertson, global chief economist at Renaissance Capital.

But the editor of the UK-based Africa Confidential publication, Patrick Smith, said the war offered massive opportunities for oil- and gas-producing countries.

“Europe has to rapidly find alternatives to Russian gas, and the most reliable alternatives are in Africa. It’s a great opportunity for African states to move in, and get new deals done quickly,” he added.

Besides natural gas, further sanctions on Russia might benefit other natural resource exporters in the region. For instance, South Africa is, after Russia, the world’s second-biggest producer of palladium—a critical input into automobiles and electronics—and therefore could experience growing demand as a result of international sanctions placed on Russia. Similarly, as a major exporter of gold, the South African rand has been strengthening as a result of rising global prices for precious metals.

Several other countries could similarly benefit from Europe’s energy diversification, including Senegal, where 40 trillion cubic feet of natural gas were discovered between 2014 and 2017 and where production is expected to start later this year. Nigeria, already a supplier of liquified natural gas (LNG) to several European countries, is also embarking with Niger and Algeria on the Trans-Saharan Gas Pipeline to increase exports of natural gas to European markets. On February 16, the three countries signed an agreement to develop the pipeline, estimated to cost $13 billion. Europe is likely to be a key financer, bolstered by the EU’s controversial decision in early February to label investments in natural gas as “green” energy.

VenturesNow

Nigeria: Manufacturers’ market access key to success of AfCFTA agreement

Published

12 hours ago

May 6, 2024

Ifeoluwa Dada

According to the Manufacturers Association of Nigeria (MAN), the ability of local manufacturers to compete on the continent is crucial for obtaining market access under the terms of the African Continental Free Trade Area (AfCFTA) agreement.

The Guided Trade Initiative (GTI) under the AfCFTA has begun with a few countries’ participation, except Nigeria, which is about to sign off for the guided trade, even though the trade deal has not yet fully taken off.

To match businesses and products for import and export between interested state parties who have complied with the minimal requirements for trade under the AfCFTA, GTI was introduced in September 2022.

Nigerian manufacturers have frequently expressed their regret over the different issues limiting the industry’s competitiveness and warned that if these issues are not resolved, their nation will suffer due to the continental trade agreement.

Mr. Segun Ajayi-Kadir, Director-General of MAN, stated that the manufacturing sector lacks the infrastructure and microeconomic support necessary for growth and competitiveness.

He stated: “The manufacturing sector is already beset with multidimensional challenges.

“We now have AfCFTA that allows us to compete around the African continent. But if we are not competitive, and we cannot grow the sector within the country, your guess is as good as mine as to the millage in terms of market access that we should be able to enjoy.

“So, I believe the manufacturing sector has good growth prospects, but it needs supportive policies that would aid its growth in all ramifications.

“What local manufacturers are yearning for are supportive policies that will aid the growth and competitive capacity of the country’s industrial sector in all ramifications,” he added.

VenturesNow

FX bank swaps account for 30% of Nigeria’s external reserves— Fitch

Published

2 days ago

May 5, 2024

Ifeoluwa Dada

Global credit ratings firm, Fitch, has claimed that approximately 30% of Nigeria’s external reserves is comprised of foreign exchange (FX) bank swaps.

This disclosure underscores ongoing uncertainties regarding the country’s net FX reserves, exacerbated by opaque entries amounting to nearly $32 billion in FX forwards, over-the-counter futures, and currency swaps listed as off-balance sheet commitments in the Central Bank of Nigeria’s (CBN) consolidated financial statement for 2022.

The Central Bank of Nigeria’s (CBN) consolidated financial statement for 2022 lists approximately $32 billion in FX forwards, over-the-counter futures, and currency swaps as off-balance sheet commitments.

These opaque entries, combined with this disclosure, highlight the continued uncertainty surrounding the nation’s net foreign exchange reserves.

“Uncertainty continues over the net FX reserve position, with a particular lack of clarity on near USD32 billion of ‘FX forwards, OTC futures, and currency swaps’ recorded as an off-balance sheet “commitment” in CBN’s last consolidated financial statement for 2022.

“Fitch estimates around 30% of Nigeria’s reserves are made up of FX bank swaps, although we expect most of these to continue to be rolled over.”

Uncertainty in Nigeria’s FX Reserves.

In its latest credit outlook for the country, Fitch noted that the lack of clarity over the precise size and composition of Nigeria’s FX reserves remains a significant constraint on the nation’s sovereign credit profile.

Fitch believes that the majority of FX bank swaps will be rolled over in spite of these worries, which might offer some brief stability in the reserves management. Additional report insights point to a recent increase in non-resident inflows into Nigeria, which are being driven by more stringent monetary policy measures and a greater formalization of FX activities.

The report also showed that by the end of April, Nigeria’s gross foreign exchange reserves had dropped from $34.4 billion in mid-March to $32.2 billion. Fitch stated that in order to support the currency, FX sales to Bureau de Change operators and debt repayments account for a portion of the decline.

By the end of 2024, the FX reserves are expected to fall to just 4.2 months’ worth of current external payments, which is in line with the “B” median.

“Gross FX reserves fell to USD32.2 billion at end-April, from a peak of USD34.4 billion in mid-March, partly reflecting repayment of existing debt obligations, and FX sales to BDCs to support the currency.

“Fitch projects a broadly flat current account surplus, averaging 0.5% of GDP in 2024-2025, supported by a modest rise in oil production and remittances.

“We forecast FX reserves to fall to 4.2 months of current external payments at end-2024 (‘B’ median 4.2), from 4.4 months at end-2023.”