By Virusha Subban, Partner specialising in Customs and Trade at Baker McKenzie in Johannesburg

The United States (US) President Elect Joe Biden and his new administration are expected to take a multilateral approach to foreign policy, easing tensions and increasing engagement with allies. Trade issues are also expected to be a top priority for the Biden administration and under Biden, US engagement with African countries will likely focus on strengthening relationships in a strategic, co-operative way. Biden is also likely to continue with successful bipartisan programmes implemented by his predecessors, as well as encourage US trade and investment in the continent. This bodes well for US-Africa trade and the US position as a key trading partnership for African countries.

During his election campaign, Biden responded to a questionnaire by the Council on Foreign Relations on how the US should adjust its policies to Africa. Biden noted that the US should not miss the opportunity to engage Africa’s youth, and that it should prioritise economic growth in Africa by strengthening trading relationships; empowering African women, starting urbanisation initiatives in African cities, and demonstrating the American model of democracy and economic development.

Further, during an election fundraiser event for the Biden campaign, Susan Rice, US diplomatic and Democratic policy advisor, and Karen Bass, who focused on Africa policy in the US Congress, gave further insight into Biden’s future Africa policy. They noted the important role that the US had to play in Africa, Africa’s significance on the global stage and that restoring the trust of African nations was essential. They said that Biden would engage with African countries in a respectful way. Issues on which the US and Africa are expected to collaborate include economic growth, clean energy, public health, sustainable agriculture and pandemic recovery assistance. Initiatives focusing on innovation,  immigration, education, investment and infrastructure will also be on the agenda.

Biden is known for his multilateral approach and is expected to work with the World Trade Organization (WTO) and seek to introduce reforms there, if needed. The US is also expected to work with allies at the WTO, such as Europe and Japan, to mobilise resources for Africa. The Biden administration is also likely to engage with United Nations (UN) agencies in Africa, possibly restarting sustainable financing for the African Union’s (AU) peacekeeping operations. Biden has already pledged the country’s return to the Paris Climate Agreement and has said he will halt US withdrawal from the World Health Organization  (WHO) and resume funding, which means it will be better able to help developing economies in the pandemic. Biden is also likely to provide financing for the Green Climate Fund, which was started in the Obama administration to help developing countries respond to climate change.

Previous bipartisan-backed US projects in Africa – including the Development Finance Corporation (DFC), Power Africa and Young African Leaders Initiative (Yali) – have been successful in Africa and Biden is likely to continue with these initiatives. The DFC, for example, was a development of the Trump presidency, and with the US Exim Bank now functional, Biden is expected to make use of this platform to initiate development projects and work with allies on countering Chinese influence in Africa.

When Trump introduced his US Africa strategy at the end of 2018, he said the US would promote intraregional trade and commercial ties with its African allies, shifting  focus from “indiscriminate aid” to one of trade and investment and positioning the US as a more sustainable alternative to what it termed “predatory” Chinese and Russia interests in Africa. Biden’s Africa strategy could be more targeted – creating alliances through strengthening relationships with allies to stand up to China, as well implementing policies that will benefit US workers.

Private investment in Africa is predicted to continue to grow under a Biden administration, as it did under previous administrations, and investment will continue to be encouraged as a means to counter the detrimental economic impact of the pandemic. M&A investment into Africa from US acquirers grew in the first half of 2020. According to data from Refinitiv, the US announced 15 deals in H1 2020 up from 11 in H1 2019.  In H1 2020 deals worth USD 658 million were announced in Africa, an increase of 219% from H1 2019 (USD 206 million).

Biden is reportedly supportive of the African Continental Free Trade Area agreement (AfCFTA) which kicks off in January 2021. AfCFTA is a landmark deal that aims to bring together 54 African countries with a population of more than one billion people and a combined GDP of over USD $3 trillion. Once the agreement’s ambitious goals are realised, it will help African member states establish new cross-border value chains, encourage foreign investment and better insulate the continent’s economies from future global shocks.

Biden’s administration is likely to look at new, reciprocal bilateral and regional trade agreements with Africa in future. Such agreements are expected to eventually replace the non-reciprocal African Growth and Opportunity Act (AGOA), which allows duty – and quota-free exports from eligible African countries into the US, but is due to expire in 2025. AGOA was signed into law by Bill Clinton, and presidents Bush and Obama extended it during their tenure. All future trade agreements signed between the US and African countries will have to align with AfCFTA trade stipulations and, considering Biden’s environmental stance, they could include climate _­­­change provisions and tariffs on high-carbon imports. Biden will also  continue the focus on trade agreements that don’t hamper the exchange of goods or disadvantage US businesses and consumers.

Biden’s likely focus on increased engagement and continued trade and investment in Africa will be good news for a continent in vital need of strong allies and support in its post-pandemic recovery

By Zareenah Rasool, Candidate Attorney, Rui Lopes, Associate, and Darryl Bernstein, Partner and Head of the Healthcare and Lifesciences Industry Group at Baker McKenzie in Johannesburg

The ongoing, global COVID-19 pandemic has led to an obvious need for clarity regarding the regulatory approvals that must be satisfied before a vaccine can be rolled out. In anticipation of the vaccine being developed and readied for wide-scale clinical use, pharmaceutical companies and Non-Governmental Organizations (NGOs) have sought to clearly define the necessary procedures for expedient approval of a candidate vaccine. This need has been amplified in recent weeks, given the latest promising developments in vaccine trials. Pfizer and BioNTech have confirmed that an early analysis of trial data has showed that their vaccine prevented 90% of COVID-19 symptomatic infections, making the vaccine strongly effective. As a result, we could see a first roll-out of the vaccine, to a limited number of high-risk individuals, before the end of the year. This news gives hope to late-stage trials being conducted worldwide, that an effective and successful vaccine may be within reach, critical to global health.

South Africa has a comprehensive and well-defined drug-regulatory framework, which has been developed by the Medicines and Related Substances Act, 101 of 1965 (Medicines Act), the National Health Act, 61 of 2003, and the South African Good Clinical Practice Guidelines (Clinical Guidelines). The Medicines Act established the South African Health Products Regulatory Authority (SAHPRA), which is the body tasked with ensuring efficient, effective and ethical evaluation, registration and control of all clinical trials, medicines and other healthcare products in South Africa. The Clinical Guidelines detail further scientific and ethical standards that must be satisfied in the context of clinical trials conducted on human beings. Trials cannot be conducted, and medicines cannot be prescribed, sold or marketed in South Africa, without prior SAHPRA approval. The SAHPRA does not undertake ethical or safety trials in its own capacity as regulator, but rather approves those conducted by pharmaceutical researchers and manufacturers, in order to ensure that safety standards have been complied with and are being maintained.

The Process to Approve a Clinical Trial

The following streamlined steps must be followed before a clinical trial may be conducted in South Africa:

Medical Control Council Approval

First, the pharmaceutical company or other organization responsible for the launch, management and/or financing of the trial (Sponsor), or a South African-based scientist accountable for the undertaking and reporting of the trial  (Principal Investigator), must apply to the Medical Control Council to approve the trail being conducted on human participants. The Medical Control Council has a statutory responsibility to confirm that drugs available in the country meet safety, quality and efficacy standards. To clarify, the SAHPRA is secretariat to the Medical Control Council.

Ethical Approval

Second, all clinical trials to be undertaken in South Africa, including multinational trials, must apply for, and receive, ethical approval from an accredited research ethics committee based in the country. Ethics committees are responsible for safeguarding the human rights of all trial participants and inspection of the scientific relevance of the trial within the South African context. Ethics committees are required to pay additional attention to certain, named categories of trials, including, trials involving “innovative therapy or intervention“. In these circumstances, additional measures are imposed on the trail to ensure that the welfare of participants are protected. These measures may include more frequent or stringent review standards. All COVID-19-related clinical trials will fall within the category of “innovative therapy or intervention“.

Registration

Once a trial protocol has received Medical Control Council and ethical approval, the Sponsor must submit an application to register the trial, together with all relevant trial information, to the Department of Health. Within two business days of the application being received, the trail will be recorded on the South African National Clinical Trial Register and will be awarded a unique number. The trial may only begin once this number is received by the Sponsor or Principal Investigator.

Monitoring

The Sponsor should develop a monitoring plan, to provide for the methods, responsibilities and requirements in respect of periodic review and monitoring of the clinical trial. It must be noted that should a regulatory or ethical authority find that a trial is being conducted in a manner inconsistent with the approved protocol, or in any manner that does not satisfy or that breaches imposed and industry standards, approval can be withdrawn and the trail will be discontinued or suspended.

Clinical trials are a lengthy process and may take anywhere between two to five years, or any such longer period as may be necessary. However, SAHPRA has confirmed that it will “expedite the review” of COVID-19 treatments, although it will not amend processes or compromise standards to do so.

The Process to Approve the Roll-Out of a Vaccine

Once a vaccine has been successfully developed, it must be registered with the SAHPRA before it may be prescribed, administered or sold in South Africa. At the point where a COVID-19 vaccine is readied for wide-scale roll out, it is likely that the vaccine will have already received approval from a foreign drug-regulatory authority, however SAHPRA approval will still be required irrespective of whether such offshore approval has been granted. If offshore approval has been granted by a stringent regulatory authority, which SAHPRA recognizes as being particularly thorough, such as the Food and Drug Administration in the United States, SAHPRA may accelerate local approval.

In order to register the vaccine, an application must be made to SAHPRA, accompanied by all required documentation, whereafter the Biological Medicines Evaluation and Research Unit will evaluate the application to register the biological medicine, together with any recommendations of expert committees, and will make a determination in respect of whether the medicine satisfies all required standards. Only once registration has been confirmed may the vaccine prescribed, administered, sold or marketed in South Africa.

The pathway to obtaining regulatory and ethical approval in South Africa is clearly defined. This is of key importance to pharmaceutical companies and NGOs, given this will ensure the vaccine will be rolled out efficiently and expeditiously once developed, simultaneously minimizing costs and prioritizing the welfare of the South African population.

By Wildu du Plessis, Head of Africa, Baker McKenzie 

As African businesses begin to recover and build the necessary resilience to successfully navigate COVID-19 disruption, a focus on Environmental Social and Governance (ESG) strategies is proving essential for long-term success. In order to stay competitive, organisations based in Africa are engaging meaningfully with ESG to build robust sustainability strategies that comply with global and local mandatory and voluntary ESG standards and codes, and which fit in with their overall strategic priorities. 

The definition of Environmental, Social and Governance (ESG) encompasses a broad range of issues across the spectrum of Environmental (climate change, biodiversity, waste, water and resource use, pollution), Social (human rights, labour practices, HSE, diversity); and Governance (corporate governance, ethics, compliance) matters. 

Post-COVID-19, the discussions around ESG are resulting in an added emphasis on the Social aspect – which focuses on protecting the health of an organisation’s workers and the wider local populations in which these businesses are based. Organisations are looking at ways to build better social programmes that are more resilient to future pandemics and ensure good business practice. A focus on issues such as enhancing considerations around the health and safety of employees and communities, implementing diverse and inclusive workplace cultures, and building good management teams that are able to pull employees together in virtual settings, will put companies in a strong position to move forward. 

As climate change impacts become clearer and nearer, there is also an added emphasis on the Environment aspect of ESG. There is a major role for ESG policies to play in mitigating some of the effects of climate change, through planning and building for hotter temperatures, higher sea levels and more extreme weather conditions, for example. Organisations are adopting new strategies that address climate change risk and identify the sustainable opportunities that arise from addressing climate concerns. To regulate this, there are likely to be developments from African regulators in the near future that address climate risk disclosure requirements for businesses operating in the continent. 

The Governance aspect has also been emphasized by the pandemic, with an increased focus on due diligence around compliance with regards to anti-bribery and corruption, data privacy and cyber security legislation, for example. ESG risk management is expected to become a mainstream component of corporate due diligence programmes, and corporate boards are being held accountable for their ESG practices by their shareholders, stakeholders and management teams.

We already have some of the larger African jurisdictions with mandatory ESG and sustainability reporting frameworks and, going forward, we are expecting more and more African regulatorsto replace current voluntary frameworks with mandatory ones or to adopt new mandatory frameworks. In turn, organisations operating in Africa will seek guidance and more detail from corporate regulators on how they want to see ESG reported and the practices behind the reporting process. 

In South Africa, there are a number of laws that govern ESG factors, including business and financial sector conduct, economic and social empowerment and environmental protection. Voluntary codes such as the King IV Code on corporate governance and the Code for Responsible Investing in South Africa also serve as a guide to businesses on ESG considerations. Other examples include Kenya, where the Capital Markets Authority introduced Stewardship and Corporate Governance Codes in 2017 and Nigeria, where the Nigerian Code of Corporate Governance was introduced in 2019. Globally, in addition to numerous country-specific laws, there are a plethora of voluntary sustainability focused codes and standards, including the UN Guiding Principles on Business and the Human Rights and UN Guiding Principles Reporting Framework. 

Risks for non-compliance with the multitude of global and local laws, voluntary codes and best practices governing ESG factors range from criminal prosecution and hefty fines, to reputational risk and business failure as a result of not fulfilling ESG commitments. Alongside these developments, actual and perceived non-compliance with ESG regulations and best practices have engendered activist shareholder protests and action against the parent companies of global groups. 

For African organisations, maintaining a long-term, sustainable strategy will ensure sound financial performance, full compliance with local and global laws and frameworks, and substantially increased resilience in a challenging post-pandemic environment. 

A global survey of compliance leaders, including in some countries in Africa, found that fewer companies in Africa faced investigations due to poorly implemented technology, compared to global companies. Janet MacKenzie, partner, Baker McKenzie explain why!

A landmark survey of more than 1500 compliance leaders around the world has revealed major risks associated with digitalisation, with 41 per cent of those surveyed admitting their organisation has already experienced enforcement investigations by regulators because of technology that was poorly on-boarded and/or implemented.  According to this new research The Currency of Connection: Mobilizing Technology for Compliance Integration, investigations are most likely to arise in relation to data privacy and cyber-security, as well as tax, transfer pricing, fraud and antitrust.

Janet MacKenzie, Partner and Head of the Technology, Media and Communications Industry Group at Baker McKenzie in Johannesburg, explains that only 26% of African respondents in this survey (compliance leaders based in Cote d’Ivoire, Egypt, Ethiopia, Ghana, Kenya and South Africa), had been subject to a compliance investigation as a result of poorly implemented business technology.

Mackenzie explains that this lower percentage of investigations in Africa is mostly due to the widespread lack of legislation covering the technology sector in Africa – numerous countries in Africa do not yet have specific legislation around cyber security, and data privacy and protection. In countries where regulations do exist, the laws can be vaguely worded, and there are challenges around enforcement.

“Regionally, for example, the Southern African Development Community and the Economic Community of West African States have data protection policies in place, and the African Union’s Convention of the African Union (AU) on Cybersecurity and Personal Data (2014) has been ratified by seven countries so far, but it needs the ratification of 15 member states to become effective.

“Legislation governing the digital economy is essential to protect African citizens in terms of both their digital privacy rights and cybersecurity threats, while at the same time also ensuring that their online freedoms are not threatened. The AU has been encouraging its member states to sign the agreement and implement balanced local legislation that is fully enforceable and that respects human rights.

“To facilitate this process, consultations with stakeholders in government, businesses (local and international) and organisations representing wider society, would ensure a balanced approach during the drafting of these laws. International legislation has to be considered alongside local laws, given the borderless nature of the online environment ,and consulting with technology experts on policy means that due consideration can be given to the specific nature of this rapidly developing sector. Considering the current rapid move to digitally focused business models in Africa, the implementation of these legal protections and guidance has become urgent,” Mackenzie notes.

Gaps in legislation is an issue for regulators in other jurisdictions as well, who, in some cases, are continuing to play catch up. Some 53 per cent of the 1500 compliance leaders surveyed report that a lack of consistent guidance on compliance technology from regulators globally is a barrier to further tech adoption.  Most respondents expect this to change, with almost two thirds (64%) of compliance leaders predicting that scrutiny of tech-enabled business models and data privacy issues will now be top of their regulators’ ‘to-do lists’.

The research also reveals that compliance teams, who are often a key line of defence against such enforcement investigations, are largely shut out of decision making around new tech, including a third of businesses surveyed who believe their organisation is employing new technology without any regard for potential compliance and regulatory risk at all. Thirty-four per cent of African respondents said that the compliance function had no oversight of new technology and that they were not consulted on purchase decisions.

To drive their own efficiencies, manage cost pressures (56 per cent of compliance leaders have seen their budgets cut due to COVID-19) and to keep up with the digitalisation of their wider organisations, compliance teams themselves are therefore also increasingly turning to tech. While this has largely to date been focused on relieving the administrative burden, most compliance teams are on the cusp of more ambitious investments.

According to Joanna Ludlam, Global Co-chair, Global Compliance & Investigations, Baker McKenzie: “Within the next two years, the overwhelming majority of compliance leaders plan to further adopt machine learning, AI and predictive analytics within the function, and we are already seeing some advanced use of digital tools among tech-enabled compliance teams — including bots for finding and delivering information as part of compliance training and data-backed systems designed to identify concerning patterns of behavior.”

However, maximizing the value of compliance technology is still challenging for many. Only 56 per cent of compliance leaders report that compliance technology is effectively achieving its primary purpose, while 63 per cent agree there is value yet to be realized from their digital tools. In Africa, 54% of believed that the value of these digital tools would be realised in future years.

By Darryl Bernstein, Partner and Head of Dispute Resolution, Baker McKenzie, Johannesburg

 There have been sustained efforts to improve the enforcement of foreign judgments and awards across global borders in recent years. Organisations with cross-border operations must negotiate a myriad of laws and regulations in a challenging environment and as a result, cross-border legal compliance and the speedy resolution of disputes has become critical. Baker McKenzie’s recently launched Cross-Border Enforcement Centre (report), provides a high-level, comparative analysis of the enforcement of court judgments and arbitration awards across 44 jurisdictions. The report outlines procedures for the enforcement of foreign judgments and arbitration awards, including details regarding applicable laws and conventions.

 According to the report, the Hague Convention on Choice of Court Agreements, which allows judgments of one jurisdiction to be enforced in another (provided a choice of court clause exists) has gained significant momentum, with numerous new signatories and its first enforcement case. The more ambitious Hague Judgments Convention, which allows for cross-border recognition of judgments in specified situations, even without a choice of court clause, was concluded in July 2019, after 27 years in development, and now has its first signatories. The Singapore Mediation Convention, which aims to ensure cross-border enforceability of settlement agreements arising from mediation, was launched last year and has been ratified by several jurisdictions, and the New York Convention continues to gain signatories, with only a handful of jurisdictions now outside of its scope.

There are no bilateral treaties or multilateral conventions in force between South Africa and any other jurisdiction, on reciprocal recognition and enforcement of judgments. The present position in South Africa, however, is that even if there is no reciprocal arrangement, it is still possible to enforce a foreign judgment in the country.

If a foreign judgment is not directly enforceable, but constitutes a cause of action, it will be enforced by the country’s courts on application, provided that the court that pronounced the judgment had jurisdiction to entertain the case, according to the principles recognised by South African law concerning the jurisdiction of foreign courts.

Enforcement also depends on whether the judgment is final and conclusive in its effect and has not become superannuated, and whether the recognition and enforcement of the judgment by the country’s courts would not be contrary to public policy. Further, the judgment should not have been obtained by fraudulent means and must not involve the enforcement of a penal or revenue law of the foreign state. The enforcement of the judgment can also not be precluded by the provisions of the Protection of Business Act.

In terms the difficulties in enforcing a foreign judgment in South Africa, according to the Protection of Businesses Act, no foreign judgment in respect of multiple or punitive damages may be recognised or enforced in the Republic. “Multiple or punitive damages” is defined as that part of the amount of damages awarded, which exceeds the amount determined by the court as compensation for the damage or loss actually sustained by the person to whom the damages have been awarded.  Apart from this, our courts will not go into the merits of the case adjudicated upon by the foreign court and will not attempt to review or set aside its findings of fact or law.

In terms of the enforcement of foreign arbitration awards, South Africa is a signatory to the New York Convention, which provides a framework for the enforcement of such awards for all its signatories. In addition, and in light of the relatively newly commenced International Arbitration Act, there are now no unusual difficulties in enforcing such arbitration awards in South Africa. One aspect of the International Arbitration Act was to amend the Protection of Businesses Act to exclude its application in respect of foreign arbitration awards.

According to the interactive comparative rating analysis contained in the report, the ease of enforcing foreign judgments is considered to be “moderate” (as opposed to easy or difficult) in South Africa. Enforcement of foreign judgments is also considered to be moderate in other EMEA countries, such as the Czech Republic, Hungary, Russia, The Netherlands, Saudi Arabia, Spain, Switzerland, Turkey and the United Arab Emirates (UAE).

Due to South Africa being a signatory to the New York Convention and in the face of the International Arbitration Act, the enforcement of foreign arbitration awards is rated as “’easy”. Similarly, such enforcement is rated easy in Austria, Belarus (subject to potential political issues), England, France, Germany (depending on the facts of the case), Italy, Kazakhstan, Luxembourg, The Netherlands, Sweden and Uzbekistan (subject to potential political issues and corruption influence over local courts).

In a post-pandemic environment, African banks will have to navigate not only an economy in recession, but one where there will be many disruptors to existing business models and a rapid acceleration of existing trends such as digitalisation, cybercrime and the importance of environmental, social and governance (ESG) factors.

Challenges

Baker McKenzie’s latest report, Finding Balance: The Post-COVID Landscape for Financial Institutions (report), states that at the beginning of the COVID-19 crisis, financial institutions faced two main challenges – prudential and operational. The prudential challenge refers to a sudden drop in the value of financial assets, or loss of liquidity, whether domestically or elsewhere in the world. Much of the initial falls on financial markets have since been somewhat reversed, but asset valuations in the worst affected parts of the economy are significantly down and liquidity remains a major concern. The operational challenge refers to the failure of systems and controls that underpin the financial system in the face of operational risk, reflecting inadequate resilience. By and large, with the reforms enacted since 2008, most global financial institutions have managed the operational issues quite well.

However, the report outlines how a longer and more protracted recession has implications for financial institutions, as it does for other sectors of the economy. At a high-level, while organisations currently remain well capitalised, the position could deteriorate. Banks will face increasing levels of non-performing loans, with corporates drawing down pre-existing credit lines.

 Rising debt

The report notes that in recent years, a global investment surge has driven a rising debt burden, which combined with ongoing economic disruption, has created the conditions for rising debt defaults. The lockdowns imposed by many governments to tackle the public health emergency, the consequent disruption to supply chains and the reduction in demand for those corporates whose business models are most impacted by social distancing, will almost certainly trigger defaults and bring their viability into question. A further unknown concerns the path of interest rates in the future, currently at historic lows. All this means that there will likely be significant credit losses for commercial banks that must agree to either restructure debt or write off much of their exposure.

Wildu du Plessis, Partner and Head of Banking & Finance at Baker McKenzie in Johannesburg says that African banks are, on the whole, in good health at this stage, with adequate funds set aside to ease them through difficult times.

 “While the big banks have been affected by the pandemic, they still have liquidity and strong capital levels and should not need to raise capital as a result of the impact of COVID-19.  However, pandemic relief programmes will soon need to be paid back and it remains to be seen how this debt will be managed in the current economic environment.

Regulation and supervision

The report also outlines the trend towards increasing regulation and supervision of financial institutions. Regulations requiring organisations to act in their clients’ best interests over and above strict contractual obligations – paying close attention to their regulators’ expectations – has received added impetus in light of the flexibility and forbearance shown towards customers in the opening stages of the lockdown.

Du Plessis notes that financial services regulatory frameworks in Africa have improved substantially in recent years, which has aided regulators in their response to the COVID-19 crisis. Over the past decade, African regulators have been improving financial sector stability through the adoption of regulations that, for example, promote competition, improve access to credit information, support tighter lending and more stringent capital ratio requirements, encourage financial innovation and ensure the improved monitoring and governance of financial institutions. Challenges, such as limited enforcement power and the lack of independence of regulators in some countries, still exist.

“There have also been developments in policy reforms around improving financial inclusion in Africa. The United Nations Economic Commission for Africa  issued a report in 2019  – Financial Regulation for Inclusive Growth in Africa –which showcased three  countries in Africa – Kenya, Morocco, South Africa – as countries with financial institutions and markets that have grown substantially in recent years. The report said all three showed increased financial inclusion and a rapid expansion of bank accounts, especially through mobile banking,” notes Du Plessis.

Cybersecurity

Less happily, with so many in the financial sector working remotely, the report points to an enhanced risk of cybercrime – especially for banks transferring processes to contingency environments running on outdated security systems. For many financial institutions, a cyber-attack is the highest operational risk they face as they hold so much sensitive (financial) data of great interest to hackers, and securing this information is business critical.

Darryl Bernstein, Partner and Head of Dispute Resolution at Baker McKenzie in Johannesburg, says that post-pandemic, financial services organisations will be focusing on improving their resilience and increasing their digital due diligence as a result of the increased risk of cyber-attacks and data breaches.

“Numerous countries in Africa do not yet have specific legislation around cyber security and in countries where regulations exist, there can be challenges around enforcement. Data privacy laws, which govern, amongst other things, data security and breaches, is present in less than half of African countries. Regionally, the Southern African Development Community and the Economic Community of West African States have data protection policies in place and the continent is also covered by the African Union’s Convention of the African Union on Cybersecurity and Personal Data (2014). However, as of January 2020, only seven countries had ratified the convention. With the rapid growth in the digital economy, it is likely that these increasing cyber security concerns will receive more attention from policymakers.

 Digitisation

The report also points to the positive role of technology in transforming the financial services sector, opening it up to competition, introducing new services and disrupting incumbent business models. The immediate impact of COVID-19 is expected to boost existing trends, for example, digitalisation and the remote delivery of financial services.

Janet MacKenzie, Partner and Head of Technology, Media & Telecommunications at Baker McKenzie in Johannesburg, notes that well before COVID-19, banks had turned to technology to reduce costs, improve processes, grow customers and enhance innovation.

“The demand for digital financial offerings grew dramatically during the first six months of the pandemic, and African banks have been implementing a range of digital systems, including artificial intelligence and advanced analytics, to speed up banking services including loan applications, credit scoring and safeguarding against fraud. Further, the African Continental Free Trade Area agreement, which will implement its first deal in 2021, has motivated banks to improve and implement digital trade finance platforms to support a big increase in African trade deals.

“In terms of crypto-based financial solutions, there is already an abundance of local mobile and e-payment platforms easing the transfer of money across the continent. Some governments have taken a positive stance, seeking to understand how best to regulate such solutions, while others have adopted a wait and see approach. Countries in Africa that have seen a rapid growth in cryptocurrency use and are beginning to contemplate or adopt regulations in this regard, include Kenya, South Africa, Nigeria and Ghana,” she notes.

Sustainability

The report also outlines how the crisis has brought home the importance of ESG concerns – not only environmental – but social and governance issues as well. Successful financial institutions will have already embedded sustainability in their prudential frameworks and will have taken advantage of their favourable regulatory treatment to improve their competitiveness. Further, corporates that have stronger, more resilient business models, especially taking into account their ESG footprint, may represent better value partners to financial institutions in the longer term and, therefore, more deserving of equity or loans to survive the economic downturn.

Du Plessis adds that while there will be challenging times ahead for African banks, the sector, on the whole, has been resilient, and is already leveraging the opportunities presented by sustainability and digitisation, to renew operations and gear up for the new normal.

Kieran Whyte, Partner, Head of the Energy, Mining and Infrastructure Practice, Johannesburg, and Marc Fèvre, Partner, London, Baker McKenzie.

Across Africa, access to power is hampered by the lack of access to competitive funding, the dire state of the continent’s utilities infrastructure and the need for energy policy and legislation to be adapted so that it can boost investment in the sector. Post COVID-19, new solutions are urgently needed to address Africa’s power crisis and switch on a continent-wide strategy for its recovery and renewal. Such solutions must take into account the energy transition and in particular, the utilisation of renewable energy, the focus on smart power technologies and cost effective solutions, as well as the global drive towards a decentralised, decarbonised and secure energy supply that addresses climate change and stimulates economic growth

To address urgent energy needs across Africa, the African Union (AU) Commission and the International Renewable Energy Agency (IRENA) agreed in May 2020 to work together to alleviate the impact of COVID-19 and ensure that Africa is able to meet its development goals.  According to the AU, the focus of this agreement was on supporting the development and adoption of innovative renewable energy technologies, improving access to energy, building more resilient energy systems, mobilising international support including the private sector, developing larger and more robust power markets, and encouraging cross-border trade of renewable power.

Africa has a role to play in innovating smart power solutions for a post-COVID-19 world and ensuring a sustainable and diversified energy mix. Within developing economies, there are growing opportunities to implement new technologies and localised energy generation systems that lead to innovation that will change how the world generates, stores and distributes power. The combination of the rise of cost-effective renewable energy, the decentralisation of energy production, and improvements in energy storage, smart metering and other digital technology have the potential to revolutionize the way power is generated and consumed.

 Across Africa, new systems and networks can be designed around future environmental stressors and energy demands, without having to consider the limitations of old infrastructure. With advanced use of mobile technology in Africa and the lack of existing electricity transmission networks, these developments provide an opportunity for communities in Africa to gain access to power by leapfrogging the traditional model of centralised generation and transmission of power.

Long before COVID-19 shone a bright light on the continent’s energy crisis, investors in the energy sector in Africa were looking at opportunities to back innovative energy solutions that could address rapidly changing energy demands and environments. According to a Baker McKenzie report, the Smart Power Revolution – Opportunities and Challenges (report), more than 40% of the global energy companies surveyed said smart power was a core part of their business, and 37% had established at least one business line related to smart power.

In Africa, the most noticeable trend has been the transition towards decentralised power solutions and solar home systems from being a niche sector dominated by NGOs to being considered a mainstream investment focus by the big players. To name a few, Engie, EDF, Marubeni and Mitsui, which have traditionally focused on grid scale generation, have all been investing in and buying or developing businesses in this area in Africa.

Instead of lack of scale being an obstacle to getting the market going, companies have been developing models to scale up the sector themselves and build businesses or portfolios. To date, these have largely been financed on corporate balance sheets, but bankers are also taking notice and looking at how to put in place bankable business structures.

There is a need to look at how to mitigate the short-term impact of COVID-19 on this sector – being consumer facing it has been much more heavily impacted than utility scale generation. It is key to ensure that a sector that is essential to Africa’s post COVID-19 recovery and renewal is not irrevocably damaged by the pandemic.  It is helpful that governments across Africa have acknowledged the need to adapt their legal and regulatory frameworks and introduced programmes and incentives to boost this investment in innovative projects in the power sector.

Multilateral and development finance institutions have been important allies in the development and mobilisation of funding in the renewable energy sector in Africa. Not only have they provided funding for projects, but they have structured successful programmes to address some of the political and credit risk issues that have hampered projects in many countries.

For example, Zambia was the first country in Sub-Saharan Africa to implement the Scaling Solar programme, with support from the World Bank Group through the International Finance Corporation (IFC). The programme facilitates the development of privately owned, utility-scale solar PV projects and enables governments and utilities to procure solar power cheaply and efficiently. Zambia’s solar PV’s success led to the extension of the programme to Senegal.  The 2019 scaling solar PV tender in Senegal set a new price benchmark for the region and made solar energy Senegal’s cheapest energy source.  The extension of the programme to Ethiopia encountered obstacles around currency convertibility, but the IFC is extending the programme to Côte d’Ivoire, Madagascar and Togo.  Similarly, the KfW-backed GET-FiT program has enabled a number of projects (in particular run of the river hydropower projects) to be developed in Uganda and Zambia to date, with extension to Mozambique and other countries under consideration.

These DFI/multilateral programmes, however, take time and resources to implement and are dependent on particular structures that cannot easily be implemented without the involvement of these institutions.  There remains a need for more local-led development of the sector, supported by appropriate tools and resources.  One example of this would be Kenya’s National Electrification Strategy, launched by the Government of Kenya and the World Bank and which uses a geospatial tool to identify least-cost options for securing the delivery of electricity to houses and businesses in Kenya. It also outlines the important role of private sector investment in providing off-grid solutions to remote areas.

If the continent can build on these initiatives, and is successfully able to address its power crisis through the widespread use of renewable energy solutions and smart power technologies, it will ensure that all who call it home can plug in to clean, sustainable and cost-effective electricity in the years to come, powering up Africa’s post-pandemic recovery in the process.