What just happened?

There is a second wave of desert locusts arriving in East Africa, and this may cause significant challenges in completing vital infrastructure in these African regimes.

What does this mean?

A swarm of locusts of ‘just more than a third of a square mile’ is said to eat the same amount of food in one day as 35,000 people.[1] The problem has escalated due to the coronavirus crackdowns and flight restrictions, causing pesticide deliveries to be held up. This has further slowed down efforts to fight the infestation.[2] With strict lockdown measures now intact within international borders, further reducing cargo flights and production supplies in Europe and Asia, failing to produce and maintain agriculture due to delayed deliveries may lead to a further 4 million people facing starvation.[3] In such tumultuous times, African ministers of their respective countries have urged the need for fiscal stimulus to contain the crisis. With African economies reaching a standstill, the ministers have called for the urgent and immediate release of $100 million US dollars, of which $44 million will go towards debt relief for all African countries.[4]

With such financial strains, the completion of significant infrastructures that would give recognition to East Africa’s emerging markets has been halted. For instance, in 2014, the Kenyan government introduced the ‘Kenyan Roads Programme.’ It paid an annual sum of $557 million to contractors for building 10,000km of roads by the year 2022. To run this programme, a special annuity fund was set up to fund these road constructions.[5] This project has now been delayed. The Belt & Road Initiative that extends to 38 sub-Saharan African countries and which aims to connect major Eurasian economics through infrastructure, trade, and investment, has also been impacted.[6] At LawMiracle, we believe that the pandemic and the recent swarm will create a significant challenge from a project finance perspective in these emerging markets.

How does this affect the legal industry?

Transport acts as a catalyst for economic development. A country depends on its transportation to deliver offerings that are produced from important sectors such as agriculture.[7] With this in mind, the economies of East Africa before facing financial strains were growing in the last five years, adding pressure on expanding existing road networks, which has not kept pace with the increasing GDP. The World Highway reports that ‘Governments in the region continue to miss revenue collections target while increasing both recurrent and development expenditure with more reliance on external financing to meet their infrastructure demand.’[8] In view of this, mitigating counterparty credit risk or perceived credit risk are going to be the key challenges that law firms must carry out when representing their clients who are most likely going to be private sector sponsors and lenders providing external finance in this case. This is because state-owned organisations that are carrying out projects do not have an independent credit rating, and the organisation’s financial position shadows the long-term prospect of the project.[9]

Furthermore, due to coronavirus and the swarm concerns, those that live in these emerging markets require food, medical, and healthcare assistance, which may become a priority ahead of continuing infrastructure projects.[10] This factor further adds pressure for law firms providing services in project finance as project delays might result in their clients lending more money to the borrowers, resulting in less cost-efficient project development. Such problems may already be experienced by Norton Rose Fulbright, who is advising lenders on the Kenyan roads programme and Dentons Hamilton Harrison & Matthews, who also remain heavily involved in handling this project.[11]

Written by Amarjit Tark

Assessing firms:

#Allen&OveryLLP #AshurstLLP #CliffordChanceLLP #CMS #DentonsHamiltonHarrison&Matthews #FreshfieldsBruckhausDeringerLLP #HoganLovells #HerbertSmithFreehills #Latham&Watkins #Linklaters #NortonRoseFulbright #White&CaseLLP

References:

[1] Samuel Okiror, ‘Second wave of locusts in east Africa said to be 20 times worse’ (The Guardian, 13th April 2020)

[2] Omar Mohammed, ‘East Africa locust swarms gather as coronavirus curbs delay pesticides’ (Reuters, 3rd April 2020)

[3] Emily Price, ‘Africa suffers as locust swarm treatment is delayed due to coronavirus flight restrictions’ (VG PSU Vanguard, 20th April 2020)

[4] ‘Communiqué - African Ministers of Finance – Immediate call for $100 Billion support and agreement the crisis is deep and recovery will take much longer.’ (United Nations Economic Commission for Africa, 31st March 2020)

[5] Finance & Funding, ‘Kenya soon to start its eight-year road works programme’ (World Highways Routes Du Monde, 11th November 2014)

[6] Tom Luckock, ‘The Belt & Road Initiative: A modern day silk road’ (Norton Rose Fulbright, May 2016)

[7] ‘National: Transport catalyst to economic development’ (The Herald, 22nd April 2020)

[8] Shem Oirere, ‘Investing in East Africa’s road sector to boost economic development’ (World Highways Routes Du Monde, 14th April 2020)

[9] Mukund Dhar, ‘Sub-Saharan African power projects: Credit support and enhancement’ (White & Case, 11th September 2017)

[10] Oxford Business Group, ‘COVID-19 Could Kill China’s $8.3 Trillion New Silk Road’ (OilPrice.com, 20th April 2020)

Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.