October 2017 - African Financial & Economic Data

31 Oct

Private equity: Consumer staples a prominent theme for investors

Africa’s consumer-driven sectors, which includes agribusiness and food production, attracted strong interest from private equity investors in the first half of 2017, according to recent data by the African Private Equity and Venture Capital Association (AVCA).

Private equity firms typically try to improve the financial results and prospects of the companies in which they buy a stake, in the hope of reselling the business to another firm or cashing out via an initial public offering (IPO). The value created is then passed on to the investors in the fund.

“Consumer staples (including investments in the African packaged food industry) saw a rise relative to 2016. Telecoms and materials also showed an increase in terms of deal values as a result of a handful of large transactions in the first half of 2017,” says AVCA in its latest African Private Equity Data Tracker report.

The total value of disclosed private equity investments over the period was $1bn, with the median deal size about $15m. Some 68% of the total deal value was from private equity transactions between $100m and $250m in size.

Tapping into Africa’s agribusiness and food opportunity

One prominent agribusiness transaction during the period was an investment by Sahel Capital, managers of the Fund for Agricultural Finance in Nigeria (FAFIN) and CardinalStone Capital Advisers (CCA), in Crest Agro Products, an integrated cassava processor based in Nigeria’s Kogi State.

Cassava is a woody shrub with an edible root resembling a large sweet potato. It is widely grown in many parts of Africa, predominantly by small-scale farmers. Although cassava roots can be processed into a variety of products – including cassava flour, starch, ethanol and glucose syrup – the crop has not been a great commercial success in the continent.

Crest Agro’s aim is to become a major producer of food-grade cassava starch for industrial users in Nigeria and the broader West Africa sub-region. There is a strong demand for starch in the fast-moving consumer goods, brewing and pharmaceutical sectors. It is expected that as the Nigerian middle class grows and more companies look to enhance their ability to source raw materials locally, this demand-supply gap will widen substantially.

A major food-industry deal during the first half of 2017 was the tie up between Africa-focused private equity firm Helios and Barcelona-based multinational GBfoods, to create GBfoods Africa. The new entity has acquired assets from different African companies, including brands such as Jumbo (bouillon), Gino and Pomo (tomato paste), and Jago (milk powder and mayonnaise), as well as Bama (mayonnaise) distribution rights for Africa.

The Bond Market Hates the New Plan for South Africa’s Finances

South African Finance Minister Malusi Gigaba took on the bond market, and he is losing.

As investors digested Gigaba’s intention to close a yawning budget gap by flooding the domestic market with an additional 122 billion rand ($8.6 billion) of bonds over the next three years, benchmark yields soared as much as 56 basis points to 9.42 percent, the highest in 19 months. That’s already closing in on the government’s own bad-case scenario of an 80-point jump in yields – and things could get a lot worse.

26 Oct

Additive manufacturing: Implications for African economies

Global trade, the merchandise exports component of which was about US$15.5tn in 2016, according to World Trade Organisation (WTO) data, is expected to shrink by at least half over the next half century due to 3D printing or additive manufacturing (AM). In tandem would be global value chains (GVCs), which were set to give African countries perhaps their last fighting chance at industrialisation. At $346bn in 2016, African merchandise exports were just 2% of the world total. And 32% of these were oil exports.

Still, African manufacturing has actually been on the ascendancy, growing in real terms by 3.5% a year to $157bn in 2014, up from $73bn in 2005, with exports doubling to more than $100bn in the period.

But what is additive manufacturing? Simply put, as the name implies: it is manufacturing by adding. Unlike the conventional manufacturing process, where an object having been designed is put into form by “cutting, drilling, and milling”, “a 3D printer starts with nothing and add stuffs to it”. With the aid of a computer programme, a 3D printer is able to produce a three-dimensional physical form of what was hitherto no more than a virtual representation. However, relative to traditional manufacturing, the additive kind is slow and expensive. In addition, the quality of produced objects can sometimes be doubtful. But it is fast evolving to overcome these constraints.

Bespoke specialist products or prototypes are better suited, therefore. For now. Incidentally, there are indications that improvements could come about faster than expected. Take polymer-based manufacturing, for instance: digital light synthesis pioneered by Carbon, an American producer of 3D printers, allows for a process 100 times faster than conventional printing. And objects produced are of far greater quality and strength. For metal printing, better methods are beginning to emerge as well. An example is “bound-metal deposition”, which produces objects 500 times faster than traditional laser-based ones. Thus, the ascendancy of additive manufacturing to mainstream production is only a matter of time.

Retail: Supermarket Surge on the cards for Côte d’Ivoire

Despite Côte d’Ivoire still being dominated by a traditional trade retail base, the Nielsen Shopper World Conference held in the capital Abidjan, has found that the country’s modern trade arena has seen the greatest evolution in the last two years and therefore holds the most potential for growth.

This has been spurred on by the expansion of brands such as Carrefour and Bonprix and a growing consumer appetite for more organised retail outlets, which offer a broader assortment of ranges as well as competitive pricing and enhanced promotional activities. This in comparison to small independent stores that utilise bargaining opportunities, as a form of promotional activity.

Speaking at the event, Nielsen Francophone Africa lead Yannick Nkembe commented: “Traditional trade is still very strong in the minds of shoppers in Côte d’Ivoire, who value the bargaining option they have in open markets and the availability of all the products they want in one place. However, the current development of modern trade and a growing middle class is creating a shift towards more formalised shopping experiences.

“In addition, the activities supermarkets put in to align their offers with those found in open markets, e.g. fresh products and convenience, is boosting the appeal of modern trade outlets. It’s therefore clear that to win, good execution is needed independent of store types.”

A promising economy

Looking at the bigger picture, Côte d’Ivoire’s rapidly developing retail sector is no surprise, considering its ongoing strong performance in Nielsen’s Africa Prospects Indicator (API) where it has retained consecutive top positions ahead of some of its larger peers. The conference also included a presentation on shopper trends in Côte d’Ivoire which found that this is due to its outstanding improvements in terms of ease of doing business. It has also recorded strong GDP growth, several new IPOs, a doubling of the banking sector, low inflation, a stable currency and solid infrastructure.

25 Oct

Pension funds – should they be financing infrastructure in Africa?

Infrastructure as an asset class can provide a distinct addition to African pension and investment portfolios and is increasingly being considered.

In principle, the asset class presents a compelling natural “fit” to the longer-term liability profile of most pension funds given the investment horizon of most infrastructure investments, with the primary appeal of this asset class being the potential to deliver a predictable cashflow stream over time.

The World Bank places an approximate US$93bn a year into infrastructure on the continent, a third of which is for maintenance of existing infrastructure, while its Infrastructure Action Plan FY 2012-2015 proffers important guidance as to what African institutional investors can factor into their considerations in terms of defining infrastructure, and in-turn, identifying strategic benefits in allocating to this asset class. It further identifies three important themes to which African institutional investors can draw upon:

1. Ripple effects such as an ICT application that generates data on sector performance with spill over effects in sector accountability and governance, a regional power project that has ripple effects beyond the host country, or a rural infrastructure package that boosts agricultural productivity with ripple effects on rural income and development;

2. Bottlenecks, which are investments that unlock the volume, cost, and quality of economic activity such as a law on competition that opens up the potential of private sector investments, or a source of clean water, for example, that provides for women to participate in economic activity, and;

3. Missing links, which are infrastructure investments that interconnect two markets/areas such as a bridge within a region or a cross-border power interconnector, international road corridors, or fibre-optic links in a region, to name a few examples.

Salient features of this asset class would be investments that have attributes of inelastic demand, economy of scale and a long useful life. A typical example of an infrastructure investment with such attributes is a toll-road concession.

25 Oct

Feed Africa: Adesina to set up fund for young farmers

“I am proud as the Governor of Iowa State to proclaim Dr. Akinwumi Adesina as the 2017 World Food Prize Laureate.” With these words, the Governor of the State of Iowa, Kim Reynolds, officially named President of the African Development Bank (AfDB), Akinwumi Adesina, as the 2017 World Food Prize Laureate, on behalf of the World Food Prize Foundation, setting off an atmosphere of festive celebration at the Iowa State Capitol Building in Des Moines.

Accompanied by Olusegun Obasanjo, former President of Nigeria, and John Mahama, former President of Ghana, Adesina took elegant steps to the podium to receive the award – the world’s highest recognition for food and agriculture, with his wife Grace and his two children, Rotimi and Segun, and a large and distinguished crowd cheering him on. Representatives of the Nigerian Government, Purdue University, his alma mater, friends, associates and Bank staff were among the well-wishers who came in out in large numbers to celebrate the African agriculture icon, known as “Africa’s Norman Borlaug.”

In line with his avowed commitment to a new deal for youth empowerment, Adesina pledged devote the US $250,000 prize money to a fund in support of young African farmers and agriculture entrepreneurs, or “agripreneurs.”

“And so, even though I don’t have the cash in my hand, I hereby commit my $250,000 as a cash prize for the World Food Prize award to set up a fund fully dedicated to providing financing for the youth of Africa in agriculture to feed Africa,” Adesina said.

“We will arise and feed Africa. The day is coming very soon when all its children will be well-fed, when millions of small-holder farmers will be able to send their kids to school,” Adesina said.

“Then you will hear a new song across Africa: ‘Thank God our lives are better at last.’”

The President of the World Food Prize Foundation, Ambassador Kenneth Quinn, paid tribute to Adesina, “whose breakthrough achievements have impacted millions of farmers and those living in rural poverty in Nigeria and throughout Africa…”

25 Oct

Investment: Cotton industry of Africa looks to the future

From Egyptian cotton bed sheets (said to be the most luxurious in the world) to the towels you use after a shower; or the undergarments, blue jeans, shirts and socks that you might wear – all originate from a small white boll, or seedpod, that is cultivated around the world. This makes cotton one of the world’s most important commodities, and the most valuable non-food agricultural crop.

Africa is an important producer and the continent has a significant role further along the value chain as a manufacturer of apparel. Africa grows just under 10% of the world’s total cotton harvest, but unlike any other region it is the smallholder farmer, rather than large-scale plantations, that grow this crop.

Cottonseed is also used to extract edible oil that is used, especially in West Africa, in both animal feed and products like margarine. Out of the 12 leading African cotton-producing countries, eight are in West Africa.

The rest of Africa’s cotton growing takes place among four zones along a north–south strip stretching from the Nile Valley to South Africa. The most important zone is that of the Nile Valley. Egypt has long been a leading African producer.

The Origin Africa conference in Mauritius, organised under the aegis of the African Cotton and Textile Industries Federation (ACTIF), took place over two days in September and drew delegates from across the continent and further afield; from Asia, the Americas, the US and Europe.

The first day’s presentations were taken up with the issues concerning cotton production and the various international crop certification options. One of the principal organisations offering global cotton production standards is the Better Cotton Initiative (BCI). Its representative, Romain Deveze, described how the BCI is bringing an integrated approach to tackling the vulnerabilities of the complex supply chain to ensure the industry’s sustainability.

The BCI works with about one million farmers, or 8.8% of the global total who grow the crop, to reduce the use of pesticides, synthetic fertilisers and water while increasing farmers yields and the take-up of organic fertilisers.

20 Oct

West Africa business should turn to solar for their bottom line

“Honestly, I’m surprised this place even runs,” says the technical director of a multinational consumer goods company, with a large factory on the outskirts of Lagos, Africa, as he gestures at the flickering lights above his head.

“Besides the high cost of our diesel power, we have at least six power outages from the grid everyday,” he explains.

This frustration is shared by businesses across west Africa, including in major economies like Ghana, Nigeria, Senegal, and Cameroon.

Distributed solar generation – where households or businesses generate and consume their own solar power rather than obtaining it from centralised power plants – is being touted as a solution to the region’s power problems.

However, so far it has had disappointing traction. Solar currently accounts for less than 1 percent of the generation capacity in west Africa, with no solar generation contracts signed by any businesses prior to late 2016.

A key challenge for solar is that it is impossible to control when the sun will shine. This leads to mismatches between the amount of power produced by a solar plant and the power needed by the consumer.

Also, unlike more developed markets, most African governments do not offer tax credits for solar or net metering credits, which would allow excess power to be sold profitably back to the national power grid.

However, the tide is turning. Solar is finally beginning to deliver on its promise. Three trends have driven the rise of commercial and industrial scale solar in west Africa.

First, affordability has improved dramatically. The price of solar panels have dropped 80 percent over the last eight years.

Second, electricity prices in the region remain at historic highs. The cost of power for large businesses in west Africa typically ranges between 0.14-0.25 $/kWh, compared to a range of 0.09-0.14 $/kWh in Kenya, Tanzania and Uganda.

In places such as Ghana and Nigeria, tariffs have dramatically increased in recent years as cash-strapped governments and utility companies have been forced to reduce legacy subsidies.

Read more: West African business should turn to solar for their bottom line

20 Oct

Investment: Silicon Valley Loses Out on Africa Startups

Silicon Valley is ignoring Africa’s startup scene, passing up an opportunity to invest in creating innovative technology-based businesses on the continent, according to TechCrunch Inc.

“Silicon Valley does not understand the context of Africa, so we see it as an opportunity to fill the gap,” Edward Desmond, chief operating officer at the Verizon Communications Inc. unit, said in an interview Wednesday in the Kenyan capital, Nairobi. “The outside world that is very powerful does not know the innovation and possibilities available.”

African startups raised an estimated $129 million in 2016, according to Disrupt Africa, an African startup information portal. China alone attracted $31 billion in venture capital last year, while the U.S. received $69.1 billion, according to KPMG International’s Venture Pulse report.

Desmond was in Kenya for TechCrunch Battlefield Africa, its first startup pitching event on the continent in the competition’s decade-long history. Competitions by the San Francisco-based technology media property company help early stage enterprises with exposure and to find financing from global investors.

“We are here to connect the money guys around the world with opportunities here,” Desmond said.

Companies that have participated, including Dropbox Inc., have gone on to raise $7 billion in funding since 2007, according to Desmond.

‘Endless Opportunities’

At TechCrunch’s Facebook Inc.-backed Africa event this week, 15 companies shortlisted from an initial 700 that sought funding were in the running for $25,000 prize money. The winner was Lori Systems, which also got the chance to compete at TechCrunch’s Disrupt SF in San Francisco next year.

Lori provides a technology platform that connects truck owners to customers needing haulage, much like Uber Inc.’s system links passengers with taxi drivers. Logistics and infrastructure development offer “endless” opportunities for startups, Desmond said.

Opportunities also lie in agriculture and fintech, sectors in which Village Capital has made 14 investments in sub-Saharan Africa, investing between $25,000 and $50,000 in either debt, equity or convertible debt, according to Adedana Ashebir, Africa regional manager at the Washington-based venture capital company.

20 Oct

Africa Telecommunications: Orange Telco Launches In Sierra Leone

French telecommunications giant, Orange on Wednesday, 18th of October 2017 announced the official launch of its brand in Sierra Leone. This comes over a year after it acquired Airtel Sierra Leone.

“We are pleased to bring the Orange brand to Sierra Leone, bolstering our already strong presence in West Africa. The launch of the Orange brand confirms our confidence in the country’s on-going economic recovery and our commitment to bring all the benefits of new digital services to Sierra Leoneans in the framework of a fair, transparent and clear partnership that will enable it to be established over time,” said Bruno Mettling, Deputy Chief Executive Officer of the Orange Group and Chairman & CEO of Orange MEA (Middle East and Africa).

Following the rebranding, Orange Sierra Leone will rank with one of the world’s most powerful brands and stands to benefit from being part of a large international group. As part of Orange, it will gain access to the group’s expertise, technical know-how and an extensive product and service portfolio. With its considerable presence on the African continent, which is a strategic focus for the Group, the telco offers strong growth potential for its Sierra Leonean operation.

Extensive investment in networks to drive unrivalled customer experience

With a population of about seven million people, Sierra Leone has significant potential for growth in mobile services. Following the acquisition of the company, the telco has committed itself to improving the quality and availability of its services by venturing into untapped and underserved geographical areas, offering to the people of Sierra Leone the innovation that the telco is delivering elsewhere.

Earlier this year, the telco disclosed a modernization and expansion plan to enhance the reliability, coverage and quality of its network, and voice and data services. Since the acquisition, about US $33 million has been invested for that purpose and as of mid-October, the majority of investments have already been realised with 30 new radio sites on air and over half of the entire mobile network upgraded.