Bank of Tanzania's monetary policy and non-performing loans in light of COVID-19
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In our latest East Africa update, Michael Strain, James Pius and Amreen Ayub highlight some of the key recent developments investors should be aware off, including the development of power projects in Tanzania, investment opportunities in Kenya, top sectors to watch in Rwanda and much more.
Tanzania turns focus to oil and mineral exploration
The Government of Tanzania has issued a seven-month target to petroleum authorities in the country to complete oil explorations and embark on drilling and production as it seeks to widen sources of revenue. The Tanzania Petroleum Development Corporation announced in late 2019 that it was investing TZS 2 billion into drilling three oil wells with 300 metres-depth each as part of the project.
The oil exploration project aims to commercialise oil discovery, which will give Tanzania an upper hand in terms of the amount of profit accrued from present and future projects.
The Government of Tanzania and British company Kabanga Nickel Ltd (Kabanga) have executed a binding framework agreement for the development of the Kabanga Nickel Project by forming a new joint venture to be known as Tembo Nickel Corporation Limited (Tembo). Tembo will create two subsidiary companies: Tembo Nickel Mining Company Limited, which will be responsible for the mining activities; and Tembo Nickel Refining Company Limited, which will build a value-addition facility and smelter in Kahama region.
The agreement is important as it will help Tanzania and Kabanga to develop the world’s largest development-ready battery grade nickel sulphide deposit and the economic benefits of the project will be shared on a 50/50 basis between the mining company and the Government.
European Union boosts Dar es Salaam power projects
Tanzania has received a grant of TZS 84 billion (approximately USD 36.2 million) from the European Union through the French Development Agency (the FDA) to finance the construction of an electric transmission line between Tanzania and Zambia.
According to the Permanent Secretary of the Ministry of Finance and Planning, Dotto James, the grant will be spent on building a power station in Tunduma and the construction of a 4km transmission line for 330 KV from Tunduma to the border with Zambia. The move is expected to increase the availability of reliable electricity and boost production in rural areas, particularly in the Southwest of the country where there is a high level of poverty.
The Resident Director of the FDA, Ms Stephanie Essombe, stated that the FDA had also signed a soft loan agreement worth TZS 280 billion (approximately USD 120.8 million) for the construction of the Tanzania-Zambia electric transmission line. Ms Essombe further stated that the project was the final part of implementing a corridor project that links Ethiopia, Kenya, Tanzania and Zambia which is meant to reduce costs of electricity and boost the economies of these countries.
Ascent Capital to raise USD 120 million for regional investments
Nairobi-based Private Equity Firm, Ascent Capital (Ascent), is seeking to raise a total of USD 120 million (KES 13.1 billion) from various investors through a new fund. The capital will be invested in small and medium-sized companies in the East African region. Ascent has already received an investment proposal from the International Finance Corporation (IFC) which plans to provide Ascent with USD 10 million (KES 1 billion).
According to the founding partner, Mr. Owino, Ascent will complete the fundraising in one year, having approached development finance institutions and other commercial investors mainly from Europe to provide the balance of the capital. Ascent typically invests between USD 2 million (KES 219 million) and USD 15 million (KES 1.6 billion) per transaction and seeks opportunities in diverse sectors. Ascent also lists International Clinical Laboratories, a company based in Ethiopia, among its current portfolio.
A boost for the tourism industry
The Ministry of Health and African Union with the technical support of panaBIOS are implementing an online trustworthy and safe system for travellers across Africa through the deployment of technology called Trusted Travel (TT) to strengthen the ability to verify, authenticate and validate test results and vaccination certificates for diseases of international public health concern, such as COVID-19.
According to Dr Sam Ikwaye of the Kenya Association of Hotelkeepers and Caterers, the partnership will help in authenticating certificates and it will make it easy for visitors to travel globally without being subjected to different countries’ standards.
The Kenya Civil Aviation Authority advised passengers departing from Kenya to visit authorised laboratories to take the COVID-19 RT PCR test and be issued with a trusted travel code that can be verified by airlines and port health authorities. The passengers will then receive a text message from panaBIOS in addition to an email from the testing laboratory with a link to guide the traveller to generate a travel code.
Rwanda’s top sectors 2021
2021 looks promising for Rwanda as several sectors are expected to perform well, partly due to efforts to recover from the effects of COVID-19. Such sectors include finance, insurance, e-commerce, advertising/communication, manufacturing and construction, hospitality and tourism.
The e-commerce sector dominated transactions in 2020 following measures to minimise the spread of COVID-19, including the reduction of physical movement. As a result, people relied on electronic transactions providing a boom to the sector. The sector is expected to prosper in 2021 due to the development of supporting infrastructure which will enhance transactions and increase profits for players in the industry.
The manufacturing and construction sector is also on the spotlight due to the expected tax incentives on import duty and value added tax for materials imported or bought locally, respectively. Such incentives are part of the government’s implementation of the Manufacture and Build to Recover Programme expected to last for two years.
Horticultural exports on demand in Dubai
The National Agricultural Export Board (NAEB) entered into a partnership agreement with Carrefour for supply of Rwanda’s quality fresh products. The move proved to be effective as consumers flocked for such products in one of Carrefour’s biggest outlets in Dubai.
Rwanda’s target is to generate USD 130 million from horticulture exports by 2024. As a strategy to reaching this target, the country’s focus is to increase investment to secure quality fresh products for export under the partnership agreement. Carrefour has more than 300 stores in 30 countries, thereby securing market for horticultural products from Rwanda under the agreement.
Rwanda promotes electric vehicles
The Rwanda Environment Management Authority (REMA) is promoting a shift from the usage of petrol and diesel powered vehicles to electric powered vehicles. REMA is advocating for this change in order to create and increase public demand for electric vehicles in Rwanda in an effort to curb air pollution as part of its long-term plans for carbon neutrality.
Companies that supply electric vehicles are encouraged to install more charging stations in Rwanda.
Foreign Direct Investment (FDI) opportunities
Over the last decade, Ethiopia maintained a steady economic growth ranging between 8.3% and 11.2% making it one of the fastest growing economies in Africa. However, due to the recent political events in the northern province of Tigray and the outbreak of the COVID-19 pandemic, Ethiopia has experienced a slowdown in economic growth. In a bid to overcome these shortcomings and to stimulate the economy, Ethiopia has turned towards FDI, mainly in sectors such as infrastructure and telecommunication.
The Dilla Industrial Park complete, Yirgachefe Industrial Park on the way
According to the Industrial Parks Development Corporation (IPDC), the construction of the Dilla Industrial Park is complete and that the Yirgachefe Industrial Park is nearing its completion. The Dilla Industrial Park covers 20 hectares in the country’s southern nations and it, together with the Yirgachefe Industrial Park, will have the capacity to house 20 factory sheds.
The Dilla Industrial Park accommodates coffee processing, animal husbandry and honey production. Investors in such sectors are encouraged to explore opportunities at the Dilla Industrial Park and the Yirgachefe Industrial Park, once complete.
Ethiopia attracts over USD 1 billion FDI
It is has been reported that Ethiopia has been able to attract USD 1 billion in five months. Whilst the target was to attract USD 1.5 billion, this appears to be a much needed boost to the economy. These funds are expected to be invested in projects relating to manufacturing, agriculture and the hospitality sector.
Clyde & Co has the largest “on the ground” presence of any international law firm in East Africa. From our hub in Dar es Salaam, Tanzania and our newly opened office in Nairobi, Kenya, we act as international counsel on transactions across East and Southern Africa. Our team advises across the full spectrum of corporate transactions, including cross border M&A and private equity investments.