Newsroom > Blog

Browse more

RENEW’s Legal Corner: February 2022

By Tsegamlak Solomon & Lincoln Ford | Sun Nov 28 2021
RENEW’s Legal Corner is designed to keep you updated with the regulatory progress and changes happening throughout the different jurisdictions in which RENEW operates. This month has seen several regulatory changes in Ethiopia, Rwanda and Uganda. Below are the highlights:

The Regulation that Defines the Activities and Structure of the Ethiopian Holding Company Comes into Effect
The Ethiopian Holding Company (EIH) was formed as a sovereign wealth fund by Proclamation No. 1263/2021. On January 31, 2022, the regulation that defines its activities and structure was issued in the Federal Negarit Gazette, which in effect brings the EIH to life. The regulation is cited as “The Definition of Objectives and Function of the Ethiopian Investment Holding Council of Ministers Regulation No. 487/2022.” Below are a few things we learned about the EIH:
  • What is EIH? - EIH is a sovereign wealth fund that holds state-owned enterprises under an umbrella. It is structured as a holding company that holds shares, debentures, bonds and securities in enterprises that are in its ownership. In addition to structuring currently existing state-owned enterprises, EIH will also invest in businesses and investment opportunities as it sees profitable.  
  • Accountability - The EIH will be accountable to the Prime Minister of the country.
  • Legal Status - EIH and its subsidiaries will be considered as private business organizations disregarding the shareholding percentage of the government.
  • Objectives - EIH is mainly established for the following reasons:
    • To serve as a strategic investment arm of the government;
    • To introduce professional management and best corporate governance practices to maximize the value of government assets; and
    • Provide a strategic vehicle to attract foreign investment.
  • Capital - EIH is established with an authorized capital of 100B ETB (approximately $2B USD).
  • Source of Funds - EIH sources its funds from:
    • A pool of state-owned assets administered by EIH;
    • Returns and revenues of the investment of its assets;
    • Proceeds from the sale of its assets;
    • Loans and issuance of transferable securities; and
    • Other resources allocated to it and approved by the Board.
  • Governance - EIH will be managed by a Board of Directors consisting of six members appointed by the Prime Minister of the country. The Prime Minister will chair the Board. Each board member will be appointed for a term of three years, which could be renewed. The Board will have a regular meeting every month.  Decisions of the board will be made with a simple majority vote, however, in case of a tie, the chairperson shall have a casting vote. EIH will have a CEO reporting to the Board of Directors, who will have an ex-officio non-voting seat on the Board. 
AfCFTA Hit an Important Milestone to Enhance Intra-African Free Trade
African intra-regional trade accounted for just 17% of Africa’s exports in 2017 (1). This compares with 59% in Asia and 69% in Europe. However, the African Continental Free Trade Area (AfCFTA), which Ethiopia signed along with 53 other African members and subsequently ratified in April 2019, is projected to increase this figure with a potential to lift 30M people out of extreme poverty (2). 
The agreement’s purpose is to boost trade, economic growth and integration among African countries. It establishes a free trade area that provides member countries with free access to the markets of other members. For that effect, member states are obliged to progressively eliminate tariffs and similar charges on goods and services originating from member states. This month has seen the member states concluding their negotiation on the ‘rules of origin’. The adopted rules could cover 87.7% of goods on the tariff lines of the AU member states. 
Although trading under the AfCFTA had started officially on January 1, 2021, the problems regarding rules of origin remained unresolved, making it difficult to identify products that could enjoy the preferential tariff regime under the agreement (3). Now the member states have agreed on 87.7% of rules of origin and once member states publicize these rules at the national level, the free trade area is expected to be active.
Once fully implemented, AfCFTA will create the largest free trade area in the world measured by the number of countries participating. The agreement connects 1.3B people across 55 countries with a combined GDP valued at $3.4T (4). 

Uganda and Tanzania Ink Final Oil Drilling and Pipeline Deal
Uganda and Tanzania have agreed on the “final investment decision” in a landmark $10B deal for crude oil production in East Africa. TotalEnergies EP Uganda, CNOOC Uganda Limited, the Uganda National Oil Company (UNOC) and the Tanzania Petroleum Development Corporation (TPDC) will all be working together to develop the East African Crude Oil Pipeline (EACOP) that will cross the ten districts in Uganda. The major oil project that is on Lake Albert is expected to yield significant results that boost the energy and mineral development sector. It will mainly involve setting up oil fields, developing the pipeline network in Uganda and exporting the rest of the oil through Tanzania to the coastal ports. The government has also made several infrastructural improvements to the Albertine region where the oil project is based by constructing an airport in Hoima district and completing more than 700km of the road network. According to an article in FurtherAfrica, government geologists estimate Uganda’s gross reserves at 6B barrels, while recoverable oil is seen at 1.4B barrels (5).

IMF says Rwanda’s Economic Outlook is Positive in a January 2022 Report
Rwanda entered into a three-year Policy Coordination Instrument (PCI) with the International Monetary Fund (IMF) in June 2019. The PCI is a non-financial instrument that any member of the IMF can utilize. It’s designed to help support member countries implement macroeconomic policies and receive IMF advice and guidance, in an effort to facilitate policy reforms and catalyze financing from other, non-IMF sources. As part of the PCI, the IMF visits Rwanda on an annual basis, holds discussions, collects data and prepares a report on the outlook for Rwanda and progress under the PCI.
The IMF released its most recent report in January 2022 following its fifth review of the PCI (6). In the report, the IMF states that Rwanda’s medium-term outlook is positive with GDP growth projected at 10.2% for 2021. The economy had strong improvements in 2021 coming out of the COVID-19 pandemic due in large part to the country’s vaccination efforts, continued government support programs and reopening of economic activities. In the medium term, GDP growth is predicted to gradually slow back to 7.5% (similar to pre-COVID levels). That said, the IMF cautioned that Rwanda must still address several issues stemming from the pandemic - namely protracted unemployment and rising poverty, particularly for women - to ensure the country’s economic recovery continues and that the social and economic progress Rwanda has made over the past twenty years is not lost. 
Under the PCI, policy recommendations from the IMF included a continued focus on fiscal spending to support social policies and recovery from the pandemic, balanced with advancing growth-friendly policies and safeguarding financial stability. In addition, the IMF noted that continued focus on advancing the Sustainable Development Goals, particularly by supporting human capital and climate change-readiness and adaptation, will be key to enabling a sustainable and inclusive recovery from COVID.  

Rwanda’s National Budget Increased by 16%
The Government of Rwanda has proposed a 16% increase to the national budget in a revised proposal presented to parliament last week. The approximate $610M increase will be geared towards offering support to public institutions and helping them successfully execute their projects in key sectors such as agriculture, health and education. The government’s expenditure policies in fiscal year 2021/22 are guided by the National Strategy for Transformation priorities and objectives (7) with 58.7% of the resources allocated to economic transformation which includes most of the priority private sector areas such as agriculture, energy, hospitality and financial services.  Social transformation takes up 27.2%, catering for access to electricity and clean water. The Minister of Finance and Economic Planning mentioned that he is very confident the increase in national spending from the original $366M to $428M will be beneficial to the economy after carrying out numerous surveys on how Rwanda can mitigate the financial loss suffered during the COVID pandemic. The recovery of the different economic activities across the country will ensure a steady and gradual rise to the country’s domestic revenues.

Photo by Imran Mazar
Renew Capital is an Africa-focused impact investment firm that backs innovative companies with high-growth potential. Renew Capital manages investments made on behalf of the Renew Capital Angels, a global network of angel investors, foundations and family offices who seek financial returns and sustainable social impact. For the latest on investing in Africa, subscribe and follow us at our social links below.

Related Posts