1. Africa’s Growth Prospects. Africa’s gross domestic product (GDP) is expected to grow at 3.8 percent in 2019, which is a significant improvement over last year’s regional growth rate of 2.6 percent. Excluding the continent’s largest economies (Angola, Nigeria and South Africa), which are growing collectively at an average of 2.5 percent, the aggregate growth rate for the region would be a healthy 5.7 percent. According to Foresight, about half the of world’s fastest growing economies are in Africa, with 20 economies expected to grow at five percent or more over the next five years. This includes Burkina Faso, Tanzania, Uganda, Kenya, Senegal, Benin, Cote d’Ivoire, Ethiopia, Ghana and Rwanda. We will be watching whether commercial debt, both from the issuance of Eurobonds and Chinese loans, starts to be a drag on growth. Good governance and transparency will also impact the economic performance across the region.
  2. African Continental Free Trade Agreement. While some of the world’s leading economies struggle to grow due to the implementation of protectionist trade policies, the leadership of the African Union (AU) is working to create the world’s largest free trade zone since the formation of the World Trade Organization. Concerns about an increasingly bureaucratic AU did not prevent 50 of the 55 African nations from signing the AfCFTA. To date, 18 of the required 22 countries have ratified the framework designed to eliminate tariffs on a large variety of goods and significantly boost intra-Africa trade. Non-tariff barriers to trade—including burdensome customs controls, high settlement payments, deficient distribution channels, and corruption—may prove to be the most difficult hurdles to a more prosperous Africa and deserve close scrutiny as the AfCFTA progresses toward implementation. Furthermore, collaboration between the private sector and governments will be critical in areas of intra-African trade infrastructure, trade finance, trade information, and logistics services for the AfCFTA to be successful.
  3. Enhancing Africa’s Connection to World-Class Computing. Africa’s economic growth in 2019, which will be accelerated by technological innovation across all sectors, coincides with global trends toward digital and shared economies. A growing focus on efficient and scalable utilization of assets will lead to innovative, high growth, and high impact opportunities in Africa. Critical to this transformation is the commitment by leading cloud computing companies to build data centers on the continent, which will enable broader access to advanced computing resources and services driven by artificial intelligence, machine learning, and the Internet of Things (IoT). Cloud computing resources will lead to more productive and knowledge-based economies and help Africa’s young and fast-growing population create innovative opportunities while addressing challenges in key sectors like healthcare, transportation, trade, and education. How African policy makers collaborate with the private sector to enact enabling and harmonized privacy, cybersecurity, and related policies and regulations that protect individual and institutional data is one of the key issues to watch in this space.
  4. Development Finance in Africa. Leveraging the power of the private sector through development finance is an increasingly popular complement to traditional foreign aid around the world. In October, the United States took steps to modernize its approach to development finance with the passage of the Better Utilization of Investment Leading to Development (Build) Act, which was signed into law by President Trump on October 5, 2018. The Act creates a new institution—the U.S. International Development Finance Corporation (USDIFC)—which will merge the Overseas Private Investment Corporation (OPIC) and several USAID facilities, including the Development Credit Authority (DCA), the Office of Private Capital and Microenterprise (OPCM), and enterprise funds. With $60 billion dedicated to USIDFC, the new entity will have twice the amount of money to invest as compared to OPIC’s current lending cap of $29 billion. OPIC’s president and chief executive was explicit about one of the primary motivations behind USIDFC: to be “a financially sound alternative to the state-directed initiatives pursued by China that have left many countries deep in debt.” It is estimated that China leverages $40 billion through is varied development finance institutions, monies implemented with no political conditionalities attached under the umbrella of China’s One Belt One Road initiative. According to the Washington-based Atlantic Council, between 2012 and 2016, projects in sub-Saharan Africa accounted for the largest share of DFI commitments ($14.2 billion), followed by East and South Asia ($10.5 billion), and Latin America ($10.2 billion). Monitoring the implementation of USDIFC, and assessing how its offerings affect China’s DFIs, if at all, will be of interest to corporations and public policy makers alike.
  5. A Continuing Trend of Anti-Corruption Enforcement. Last January, we noted that anti-corruption initiatives were on the rise on the continent, with 2018 declared the “African Anti-Corruption Year” by the African Union. If 2018 is any indicator, we expect that this trend will continue in 2019 and beyond. While the sheer volume of anti-corruption enforcement actions involving conduct in Africa in 2018 was not particularly significant, recent developments suggest that companies operating in Africa can expect heightened scrutiny from anti-corruption enforcers in the coming year. As we have previously described, France’s arrival on the international enforcement scene is likely to be particularly notable in this regard, given the large number of French companies operating in Francophone Africa. On the domestic enforcement front, in South Africa we will be watching developments in the sprawling “State Capture” matter, which is focused on allegations of widespread corruption and conflicts of interest in the government of former president Jacob Zuma. We can also expect U.S. enforcers to continue to be active on the continent, as evidenced by the successful prosecution of Chinese national Patrick Ho in a case involving alleged bribes on behalf of a Chinese energy company in Chad and Uganda, and the early 2019 indictments of a number of individuals in connection with Mozambique’s “Tuna Bond” scandal. Finally, as we have previously discussed, multilateral development banks will continue to play an important enforcement role in Africa. The World Bank, which has aggressively enforced its sanctions and debarment procedures for several years, initiated 28 investigations in Africa in its 2018 financial year alone, representing 41 percent of all new investigations. With this enforcement activity in the background, we expect that companies operating in Africa will need to continue to focus on developing and implementing effective anti-corruption compliance programs. In the coming weeks and months, we will be further analysing anti-corruption developments on the continent, and providing insights on how companies can best mitigate corruption risk in their operations in Africa.
  6. Project Finance. Based on the African Development Bank’s estimate that there remains a $68–$108 billion financing gap to meet Africa’s infrastructure needs, which is estimated to be in the range of $130–$170 billion annually, we expect to see continued growth in project finance projects during 2019. Lending from development finance institutions (DFIs) continues to play a crucial role in project finance across Sub-Saharan Africa, particularly in the infrastructure sector. Power projects will also be a key driver of project finance work on the continent. Today, an estimated 600 million people in Africa lack access to electricity. This power deficient on the continent coincides with the increasing interest and investment in renewable energy sources, and thus we expect to see more renewable energy projects on the continent in 2019. In particular, we anticipate a higher volume of smaller scale power projects due to the demand for less complex projects that can be implemented quickly.
  7. Climate Change, Energy, and Business. Climate change will remain a key issue for countries and companies in 2019, as we continue to see impacts globally from fires in California to a faster melting glaciers in Antarctica. The Intergovernmental Panel on Climate Change has declared Southern Africa a “climate change hot spot.” In 2019, we expect there will be more focus on types of fuel for new projects that are being developed in Africa. The financial impacts and outlook for renewable (wind, geothermal, hydro, and solar) and thermal (gas, coal, diesel, and HFO) energy will be impacted by improvements in technology as well as regulatory and economic issues. The handling of these issues (price, intermittency, base load, land rights, and tax incentives) will be key to financing these projects. There will be increasing pressure from the development finance institutions to finance more renewables projects, but economic factors will determine most fuel sources such as fuel availability, grid stability and strength, and overall project cost. All of this will add complexity and time for completion of these projects. Notably, there are potential wind and geothermal projects in Kenya and Ethiopia, while South Africa is likely to implement the next round of bids for the REIPPP wind projects.
  8. South Africa. With elections expected in May, the Ramaphosa government needs to deliver on economic growth which the World Bank indicates was 1.3 percent in 2017, rising only to 1.4 percent in 2018, due to high levels of unemployment, low business confidence, and policy uncertainty. While the issue of expropriation without compensation looms large, UBS, the world’s largest wealth manager, believes that the South African government will manage the land reform issue “sufficiently well.” Reform of key parastatals including, Eskom and South African Airways, is a pressing matter. The ongoing prosecution of Jacob Zuma and his former officials will be a constant reminder of the corruption and lack of transparency that characterized his tenure. On the positive side, Ramaphosa’s campaign to attract $100 billion in new investments in five years is starting to show results. The South African government is also hopeful that last year’s Job Summit will be a stimulus for the creation of over 10,000 jobs.
  9. Ethiopia. Perhaps the most exciting leader on the continent, 42-year old Dr. Abiy Ahmed has raised expectations that Ethiopia will become the next economic powerhouse on the continent. Not only is Ethiopia the second most populous country, with 100 million people, but it is the fastest growing economy in Africa with a GDP of 8–10 percent. Abiy’s unprecedented reforms include normalized relations with Eritrea after 20 years of hostility, the release of thousands of political prisoners, lifting the state of emergency, and cutting the number of ministries from 28 to 20 while ensuring half of all cabinet positions are filled by women. Some of the challenges that Abiy will face in coming months include managing the influx of refugees from Eritrea (which are arriving at an estimated 10,000 per month), decreasing ethnic tensions and competing factions within the ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF), and preparing for local elections this year and national elections next year. The World Bank’s commitment of $1.2 billion in budget support is an important vote of confidence in Abiy’s reform process from the international community.
  10. Nigeria. When elected in 2015, President Buhari promised to realize 10–12 percent annually GDP growth, secure the territorial integrity of the nation, and combat corruption. However, for 2019 the World Bank forecasts 2.2 percent growth for Nigeria, the Boko Haram insurgency in the northeastern part of the country persists despite significant progress, and the country continues to score lower than average for Sub-Saharan African nations on the Corruption Perception Index. These three fundamental issues will frame the presidential election scheduled for February 16, 2019. President Buhari may have an advantage given the power of incumbency but Atiku Abubakar, who was Vice President under President Obasanjo, will present a stiff challenge given his strong ties to business across the country. With 91 political parties and 35 presidential aspirants, there could be a run off given the spirited campaigns of Professor Kingsley Moghalu (former Deputy Governor of the Central Bank), and Donald Duke (a successful former governor of Cross Rivers State), and others.

A version of this blog was first published by African Law & Business. If you have questions about Covington’s Africa Practice, please contact Witney Schneidman at wschneidman@cov.com.

This post can also be found on CovAfrica, the firm’s blog on legal, regulatory, political and economic developments in Africa.