Can African governments head off a sustained spike in the spread of COVID-19 and recover economically in 2021? How will the Biden administration engage the continent? Will companies implement more effective due diligence efforts in their supply chains to prevent human rights abuses? What impact will efforts to battle corruption and mitigate climate change have in the coming year? Covington’s Africa Practice offers insights on these questions and other key issues that will define 2021 on the continent.
COVID-19 Recovery: Since Africa confirmed its first COVID-19 case in February 2020, every country has been affected, leading to over 100 million cases and two million deaths. The World Health Organization applauded African governments for their swift responses which curtailed wide-spread infections but contributed to the region’s first economic recession in twenty-five years. Over the last month, Africa has been hit hard by a second wave of COVID-19. Daily case rates have increased to almost twice the rates in July and August 2020, prompting South Africa, among other nations, to re-impose severe measures aimed at preventing deaths.
In 2021, we expect African governments to build on the Partnership to Accelerate COVID-19 Testing, an initiative that expanded the continent’s capacity for testing, contact tracing and treatment. We also expect more support for the Africa Medical Supplies Platform, an online marketplace to help lower the cost of accessing COVID-19 test kits and personal protective equipment). Procuring and distributing the COVID-19 vaccine is a key priority for government leaders across the continent. The IMF expects that nearly half of Africa’s 54 countries will return to growth rates over four percent in 2021.
Biden and Africa: Given the economic downturn in the US, COVID infection rates and a focus on accountability related to the January 6th insurrection at the U.S. Capitol, expectations should be measured for quick U.S. engagement in the continent. Nevertheless, Biden has called for a global summit on democracy, which will include some African governments and civil society leaders. This is more relevant than ever given the democratic back-sliding on the continent and the need to reaffirm democratic principles globally. We will be watching to see whether the Biden administration continues negotiations on the U.S.-Kenya Free Trade Agreement, how it supports the implementation of the African Continental Free Trade Agreement and the future of the African Growth and Opportunity Act, scheduled to expire in 2025. We will also be watching how the Biden administration translates the priority it will place on climate change into its relations with African governments. Finally, the Biden administration will have to develop a response to the intensifying security threats in the Sahel, Somalia, and northern Mozambique.
Digital Economy: Increased internet penetration, cloud computing, Internet of Things (IoT), Industry 4.0, and advanced technology have taken root in Africa and have been accelerated during the COVID-19 pandemic. As such, many African countries have sought to develop regulatory and institutional frameworks to integrate their digital economies to enable digital transactions and participate in global digital trade. Thus far, only a few African countries have implemented legislation to regulate the protection of personal data, cross-border transfers of data, cybersecurity and electronic transactions, all of which have been identified as key elements for a digital economy. South Africa, Kenya, and Egypt are the latest countries that have enacted a comprehensive set of data protection regulations and have established data protection authorities. We will be monitoring new country regulations that seek to protect the right to privacy and ensure the protection of personal data of its citizens in 2021, while paying special attention to how nations throughout the content seek to harmonize their respective national regulations.
Business and Human Rights: For companies doing business in Africa, continued U.S. enforcement actions related to forced labor and the ongoing development of legislative proposals related to due diligence will be key issues to watch in 2021 from a human rights perspective. We anticipated an increased number of enforcement actions from the Customs and Border Protection (“CBP”) in 2020, and ultimately the agency issued 15 Withhold Release Orders (“WROs”) compared to the six issued in 2019. CBP also imposed the first penalty for forced labor violations since the passage of the Trade Facilitation and Trade Enforcement Act in 2015, collecting $575,000. Likewise, on October 20, 2020, CBP issued the first forced labor Finding since 1996, in relation to stevia sourced in China. This is worth noting as a formal Finding requires conclusive evidence of forced labor, a higher standard than the reasonable suspicion necessary for issuance of a WRO. We anticipate ongoing aggressive enforcement actions from CPB, and as it pertains to Africa, CBP’s ongoing investigation into forced labor in the cocoa supply chain in West Africa will be of consequence to companies engaged in the chocolate business.
In addition, the European Commission is set to introduce legislation on mandatory human rights due diligence of EU companies, as announced by European Commissioner for Justice Didier Reynders. The new law could also make provisions for corporate liability and access to remedies for victims of abuse. The European Commission also launched a public consultation on sustainable corporate governance, which is open until February 8, 2021, and addresses these plans for mandatory human rights due diligence. Notably, this consultation takes into account the European Parliament report put forward by Lara Wolters, Member of the European Parliament, and particularly recommends that the Commission’s proposal apply to both EU companies and non-EU “limited liability undertakings”, requiring due diligence across entire value chains “inside or outside the EU”. Furthermore, the Second Revised Draft of the UN Treaty on Business and Human Rights is scheduled to be discussed further, with proposals requiring State Parties to introduce mandatory human rights due diligence measures on all transnational corporations within their territory. For companies dealing in Africa, these proposals together raise interesting questions on scope, the framing of a due diligence duty, the willingness of States to become parties, and the forms of enforcement.
Anti-corruption: As we noted in a recent client advisory, we have observed an upward trend in recent years in anti-corruption enforcement activity in Africa, including cross-border cooperation between African law enforcement authorities and their counterparts in the U.S. and UK. Looking ahead to 2021 and beyond, we see no reason to expect this trend to reverse.
In South Africa, the Commission of Inquiry into Allegations of State Capture (the “Zondo Commission”), created in 2018, has now held over 300 days of testimony focused on fraud and corruption during the administration of former President Jacob Zuma. In 2020, we saw the wide-ranging State Capture investigations begin to bear more fruit in terms of high-profile prosecutions, with none more significant than the November 2020 institution of corruption and money-laundering charges against African National Congress Secretary General Ace Magashule relating to an asbestos removal contract in the Free State. Aided by recent rule changes enabling Zondo Commission investigators to share evidence for use in criminal prosecutions, we expect that 2021 will see more high-profile prosecutions growing out of the Zondo Commission’s work.
Angola has also seen a flurry of recent investigative enforcement activity focused on alleged corruption and money laundering by family members and associates of former President José Filomeno dos Santos. As with the State Capture investigations in South Africa, the so-called “Luanda Leaks” scandal in Angola has drawn scrutiny from numerous foreign law enforcement authorities, including authorities in the U.S., Portugal, and the Netherlands.
The African Development Bank (“AfDB”) also has become more active in recent years in bringing suspension and debarment proceedings in relation to fraudulent and corrupt practices in AfDB-financed projects. While the World Bank remains the most active enforcer of its suspension and debarment regime among multilateral development banks, 2020 was the most active year in the history of the AfDB in terms of the number of debarments.
Against this backdrop, companies operating in Africa are well advised to focus on building compliance programs that account for guidance from international enforcement authorities, but that are also tailored to the unique challenges of doing business on the continent. This includes focusing on core risks, such as local content requirements and empowerment transactions, conducting effective internal investigations, and remediating identified compliance issues in a timely and appropriate manner.
Elections: There are 14 presidential and parliamentary elections scheduled for 2021 on the continent. Several of these contests are noteworthy for different reasons and are highlighted here. In Uganda, President Yoweri Museveni, who has maintained power since 1986, won a sixth term in a January 14 election characterized by violence and controversy. In South Sudan, President Salva Kiir’s transitional government comes to an end this year after two postponements of national elections and a three-year extension. The government will be challenged to reach national unity without a power-sharing deal of the country’s warring parties. Somalia, where presidential elections are scheduled for February 8, faces greater political violence in the wake of the withdrawal of U.S. special operation forces from the country by President Trump. In Libya, the December 2021 presidential and parliamentary elections provide an opportunity for democratic reform in the context of the ceasefire deal between the internationally-recognized Government of National Accord led by President Fayez al-Sarraj and the eastern-based Libyan National Army led by military general Khalifa Haftar. The outcome will be important for rebuilding the country after the 2011 overthrow of former President Muammar Gaddafi. Finally, in Ethiopia, conflict between the Tigray People’s Liberation Front and Prime Minister Abiy Ahmed threatens a nation that has been a pillar of stability in the Horn of Africa. Elections are scheduled for June 5..
Project Finance: As is the case in other markets, infrastructure investments are key to reigniting Africa’s economic growth and development in the wake of the COVID-19 pandemic. According to the AfDB, the infrastructure funding gap is in excess of $100 billion a year. However, despite the impact of the COVID-19 pandemic on African economies, we have seen development finance institutions, both in and outside of Africa, taking active steps to prioritize economic development projects in Africa in an effort to close the infrastructure funding gap. For example, the U.S. International Development Finance Corporation (“DFC”) recently deployed a new equity instrument in an amount of $171 million, expanded its portfolio in Africa, and launched new initiatives to address the economic and health consequences of the COVID-19 pandemic. DFC’s new equity instrument allows it to invest in funds in support of development and foreign policy objectives where lending and insurance alone have been insufficient. This is in the form of direct equity investments into companies or projects in the developing world which will have developmental impact, or otherwise advance U.S. foreign policy. The equity instrument also allows for a range of new investments by DFC, complementing the then Overseas Private Investment Corporation’s already robust funds program. As a financial tool, direct equity provides DFC with greater flexibility to: (i) invest in early and growth-stage companies; (ii) partner with other financial institutions; and (iii) enable investees to scale operations more efficiently to create greater development impact.
Regionally, the AfDB approved a $7 million grant from the Sustainable Energy Fund for Africa for technical assistance in setting up a mini-grid acceleration initiative to meet the needs of the continent’s fast-evolving renewable mini-grid industry. Other significant financings include the AfDB’s $500,000 grant agreement concluded between AfDB and the Government of Uganda for financing of micro, small and medium enterprises to boost business linkages on the East African Crude Oil Pipeline technical assistance project, and a $120 million loan to fund the construction of a 50MW hydropower plant in Western Tanzania.
These financings provide renewed hope for Africa’s economic recovery. We expect to see more investment by development finance institutions particularly in the clean energy sector in 2021.
Climate Change: In 2020, East Africa had the worst outbreak of desert locusts in decades. Countries across Africa had devastating floods and now face a looming threat of drought on account of a La Niña event. The COVID-19 crisis has aggravated the effect of these conditions.
The COVID-19 crisis led the Bureau of the Conference of Parties to postpone the 2020 UN Climate Change Conference, COP 26, to 2021. With this delay, Africa has the most to lose. On the agenda for COP 26 are issues left unresolved from December 2019, including guidance for Paris Agreement Article 6 carbon market and non-market mechanisms, common timeframes, and long-term financing—key shortcomings of COP 25. These issues remain particularly important to Africa, which experts have identified as most vulnerable to climate change impacts and poised to benefit from developed countries delivering on their pledge to jointly raise $100 billion per year in climate financing in 2020. The African Group of Negotiators on Climate Change issued a response to the decision to postpone the COP 26, calling on developed countries to agree on a path forward to close the climate finance gap. We will be watching how countries approach climate financing in the coming year.
We will also be watching countries’ responses to the United Nations Environment Program’s annual emissions gap report, which measures the disparity between the world’s current path and the actions needed to effectively manage climate change. According to the December 2020 findings, countries would need to roughly triple their current emissions, cutting pledges to limit the Earth’s warming in line with Paris Agreement targets. Although there was a decrease in greenhouse gas emissions during the COVID-19 pandemic in 2020, that decrease will have a “negligible long-term impact” on climate change unless countries alter their policies and behavior.