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


19 Oct

How this South African banker found success in the fitness industry

In April 2014 South African entrepreneur Tumi Phake clocked out for the last time from his job at Rand Merchant Bank (RMB), where he worked as a structured-lending specialist, to start his own business.

Despite his experience and having studied a BCom finance degree, it wasn’t the financial sector that Phake had his sights set on.

He is now the sole founder and CEO of Zenzele Fitness Group, a gym management business which operates fully-equipped health clubs for, and in partnership with, various large companies and universities.

Interestingly, RMB – part of the FirstRand group – was founded by three of South Africa’s most respected entrepreneurs, Paul Harris, Laurie Dippenaar and GT Ferreira. In 1977, they established Rand Consolidated Investments with just US$10,000, which later became RMB. Known as the three musketeers, the founders subsequently laid the foundations for the FirstRand empire, with today includes First National Bank, RMB, WesBank and Ashburton Investments.

Despite quitting a job at one of their companies, Phake draws some inspiration from these South African banking pioneers. “Working at a corporate was very valuable and necessary – especially around understanding the governance of running a successful business… But I always knew in the back of my mind that I wanted to have my own company that I could grow and potentially have scale to becoming half-a-billion to a billion-rand business – and that’s my vision. And if someone else has done it on their own, such as FirstRand – why can’t I give it a shot?”

Exploiting a gap in the market

South Africa has a relatively well-developed health club industry, with Virgin Active and Planet Fitness standing out as some of the prominent chains. Virgin Active controls at least 60% of the market. It was established in 2001 when Nelson Mandela reportedly phoned Richard Branson to ask him to save thousands of jobs by taking over the liquidated gym brand Health and Racquet Club.

Read more: How this banker found success in the fitness industry

11 Oct

Swedish firm moves Sh253bn Malindi power plan to Tanzania

A Swedish firm that wanted to construct Africa’s largest wind power plant in Malindi at a cost of Sh253 billion has relocated the investment to Tanzania, citing frustration by Kenyan authorities.

VR Holding AB had last year expressed interest in building a 600-megawatt (MW) wind farm in the Indian Ocean waters bordering Ras Ngomeni in Malindi, but Ministry of Energy officials turned down the request citing lack of a framework for renewable energy projects of that scale besides low demand for electricity in the country.

The firm’s executives said they have now switched their focus to Tanzania, which shares the Indian Ocean coastline.
“We have opted to look at offshore solutions for Tanzania,” Victoria Rikede, an executive at the company said.

“Kenya is proving to be a very difficult place and besides the grid is too weak to absorb all the power produced and therefore mini-grids is the solution for now,” she added.
Kenya, East Africa’s largest economy, has recently been losing mega investments to Tanzania, including a crude pipeline deal with Uganda.

Tuesday, Ministry of Energy officials reckoned that a huge power plant would leave the country with excess power that will only force consumers to pay billions of shillings annually for electricity not used.
This would dim the government’s quest to deliver cheaper power through renewable sources.

Documents seen by the Business Daily show that Kenyan authorities, upon receiving the application, had directed the Swedish company to construct a smaller capacity project. “The company was to give us a proposal for a smaller capacity plant of 50 megawatts. They are yet to do so,” said Isaac Kiva, the director of renewable energy at the ministry.
The Malindi offshore location was identified by the World Bank, according to the Swedish firm’s executives.

They put the cost of generating electricity from the offshore wind farm at €3.5 million (Sh423 million) per megawatt.

This means the 600 megawatt offshore wind park would cost a total of Sh253.8 billion, in what would be the single most expensive private-funded project in East Africa.

Read more: Swedish firm moves Sh253bn Malindi power plan to Tanzania

06 Oct

Commercial Bank of Africa (CBA) secures Sh9bn funding by Africa bank

Commercial Bank of Africa (CBA), the country’s largest privately-owned lender, has secured a Sh9.297 billion ($90 million) facility from the African Development Bank (AfDB) for on-lending largely to credit-starved small and medium-sized enterprises.
The two institutions signed this important deal on 5th October.

About $50 million (Sh5.17 billion) of the cash is in the form of a line of credit, while the remainder $40 million (Sh4.13 billion) has been committed under the Trade Finance Line of Credit (TFLoC).

“The funding will be geared towards helping finance small and medium enterprises (SMEs) and local corporates involved in value-addition,” African Development Bank said. The facility targets firms in some of the sectors which have suffered a drop in credit, according to the latest data from the Central Bank of Kenya.

Commercial Bank of Africa, associated with the wealthy Kenyatta family, will be extending the funds to firms in trade, manufacturing, agriculture, infrastructure, transport, and construction. The deal comes at a time when year-on-year growth in private sector credit has slowed to 1.6 per cent in August from 21 per cent in August 2015.

Risk-averse banks have blamed the year-old cap on loan charges and rising non-performance of loans for the sharp slowdown which has hit dominant SMEs hardest.
NPLs rose to 10.7 per cent, or more than Sh250 billion, in August of gross loans from 9.9 per cent in June largely due to layoffs in the private sector and delayed payments to suppliers by the government, latest CBK data shows.

Most banks are expected to experience a drop in their capital base when the International Financial Reporting Standards (IFRS) 9 take effect next January.
The new rules require lenders to set aside cash for expected rather than incurred (which they already do under CBK’s prudential guidelines) credit loss based on historical loan performance data.

[Via] Commercial Bank of Africa secures Sh9bn funding by Africa bank

02 Oct

Kenya: Safaricom’s share of calls market hits 5-year high

Kenya. Safaricom’s share of the voice calls market rose to a five-year high in the year ended June 2017, underscoring the company’s continued dominance of Kenya’s telecommunication market.

Newly-released data from the Communications Authority of Kenya (CA) shows that Safaricom had 80.4 per cent share of voice traffic, up from 75.7 per cent the previous year.
Safaricom’s dominance of the voice market last rose past 80 per cent in the year ended June 2012.

Kenya’s two other telecoms operators, Telkom Kenya and Airtel, saw their share of voice traffic shrink, signalling the challenge they face fighting for space in a market dominated by the Safaricom behemoth.

Telkom Kenya’s market share fell from 8.6 per cent in 2015/16 to 6.3 per cent in 2016/17 while Airtel’s market share fell from 15.4 per cent to 12.9 per cent, according the latest industry report.

The CA attributes the changes to pricing decisions made by the two smaller operators.
Upward reviews made to voice and data tariffs have seen customers either flee from the smaller operators or choose not to use those networks when making calls, the CA report says.

The report paints a rather darkly picture for competitiveness of Kenya’s telecommunication sector, pointing ever more to the question of the smaller operators’ ability to survive in the current market structure.

Of the three mobile network operators, Safaricom remains the only profitable company. Airtel Kenya’s most recent financial results show that the company is operating deep in the red with current liabilities that far outweigh its assets. The trends in mobile voice traffic are also reflective of the overall picture in the telecommunications sector.

The CA report shows that there were 40.2 million mobile subscribers in Kenya at the end of June 2017.

The data shows that over the past five years, Safaricom’s customer numbers, buoyed by the company’s market share, rose to over 70 per cent for the first time in the year ended June 2017 since 2010.

Read more: Safaricom’s share of calls market hits 5-year high


28 Sep

Businesses: East Africa is a Rising Hub – Jad Abbas, The Abraaj Group

East Africa: being local is key. Simply put, it helps us to identify great businesses, work in partnership with investee companies, and manage risks. That philosophy has always been core to the investment thesis across each of the markets we work in and Africa is no exception.

With a two decade history in the continent and investment in more than 80 businesses, this is a region that we know extremely well. I have lived in both East and West Africa and worked on deals across sectors including Mouka, a leading mattress manufacturer in Nigeria. Two fundamentals are clear: Firstly, the continent is not, and cannot, be treated as a monolith. Secondly, local, national and regional nuances are critical to success and our track record in Africa is proof of Abraaj’s ability to create value for its partner companies.

This July, we announced our latest investment in Sub-Saharan Africa through the acquisition of Java House Group (Java House), the largest casual dining chain in East Africa with 60 outlets in Kenya, Rwanda and Uganda. As a member of the East Africa investment team that worked on the acquisition of this truly iconic asset, I believe the transaction was timely and targeted, especially when considering the underlying dynamics of the sector in East Africa, but also across Sub-Saharan Africa.

Enabling Environments

At a time when the ‘Africa Rising’ narrative seems to be in question, our focus as long-term investors in the continent remains resolute. Why do I say that?

If you look at the African Great Lakes area, the economic growth we expect to see over the next decade, combined with compelling individual investment opportunities makes it an exciting time to be active in this market. And it is not just Abraaj that believes in this opportunity. The Africa Private Equity and Venture Capital Association (AVCA), a leading Pan African investment body which promotes and enables investment in the continent, likewise foresees a shift of investment activity to East Africa and a maturing secondary market in the years ahead.

Read more: East Africa: A Rising Hub



28 Sep

Africa: sustainable forest ecosystems will help boost its economies

Africa: humanity has long appreciated forests for the energy, food and medicine they provide, and as a source of wood products for construction and other purposes. But the role of forests in supporting agriculture, preserving biodiversity, protecting water supplies, creating jobs, increasing domestic GDP and moderating the impact of climate change are less well-understood.

It is an industry often crucial to the well-being of people in large parts of Africa. Angola, for example, has a total forest area of 60 million hectares, representing 20% of its total land area including a rich variety of flora and fauna. This is combined with relatively stable governance as well as various measures the government has implemented to improve Angola’s forest ecosystem such as creating ties between the Ministry of Agriculture and the Ministry of Planning, the Ministry of Industry, and the Ministry of Water and Energy. The country’s exotic plantation area is small (0.2% of forest area) but with significant potential for the economy.

Located in the Planalto region of Angola, Quantum Global Group, through its US$250m Timber Fund, has acquired 18 land concessions leased from the government of Angola. The objective is to manage and rehabilitate the old Angolan Government eucalyptus pulpwood plantations, with an aim to build an integrated forest industry in the provinces of Huambo, Benguela, Huila and Bie to develop the country’s forest ecosystem.

Natural resources have a large role to play in Africa, specifically the timber industry due to its enormous potential. Through the Timber Fund, we have opted to plant carefully selected eucalyptus species, given its many uses and reputation as one of the best options for curbing deforestation of natural woodland in Africa.
Eucalyptus is not only sustainable but also plays a driving role in the supply of raw materials for the manufacturing industry, whilst presenting tremendous benefits for local communities. The sale of wood will be used for both national and regional exports, including residential and other basic needs.

Read more: Developing sustainable forest ecosystems in Africa will help boost its economies

22 Sep

Agriculture: Private equity investors can help Africa to feed itself

The agriculture sector employs more people in Africa than any other industry and it also accounts for almost half of the continent’s GDP.

Yet inefficiencies in the sector have held back production in the sub-Saharan African region, hindering the sector’s growth and stymieing the industry’s ability to achieve cross-border trade and long-term food security.

This represents a fairly significant socioeconomic challenge, but it also provides private equity investors with an opportunity to support one of the continent’s biggest industries while contributing to job and wealth creation.

For investors, returns from the farming industry can be enhanced through investment and implementation of modern farming techniques.

In turn, successful agribusiness investments stimulate growth through the access to new markets and the development of a vertically integrated supply chain in the form of food processing, packaging and assembly, transportation, distribution and retailing.

Most importantly, well-targeted investments, alongside close collaboration between governments, donors, entrepreneurs, the international community and investors can make a significant and lasting contribution to Africa’s 2050 goal of being able to feed itself, as referenced in the African Development Bank’s Feeding Africa action plan.

Businesses that succeed after investments in their production and processing capabilities go on to create jobs and stimulate the wider supply chain.

Most importantly, they help to reduce Africa’s crippling reliance on food imports.

A March 2017 article by the Rockefeller Foundation says that one third of the world’s food, “never makes it from the farm to the table” and in developing countries, about 40% of produce is lost immediately or soon after harvest because of poor farming techniques and technologies. Inadequate storage facilities, poor processing, weak transport networks and poorly structured markets all work against Africa’s ability to feed itself, and most fruits and vegetables never make it to market for these reasons.

These facts are even more tragic in the context of the famine in South Sudan. The UN has also warned of a high likelihood of famine in Somalia and Nigeria.

Read more: Private equity investors can help Africa to feed itself

20 Sep

Is Africa on the cusp of a new era of sustainable mining?

Africa’s sustainable mining industry is gaining momentum. Steadily rising commodity prices, particularly gold and copper, are creating a more stable environment; and exploration has returned. Combined with a greater level of regulatory oversight and new mining laws in some countries, these factors indicate that Africa’s mining industry may be on the cusp of a period of sustained growth.

Regulatory oversight has significantly improved in some parts of the continent. In the east, Kenya’s government unveiled a progressive new mining act in 2016, which forms part of its 20-year mining strategy, aiming to attract 20 major mining companies to the country. In addition to simplified permits (for small-scale operations) and licences (larger scale), prospecting restrictions have also been removed. The act also spells out important sustainability and environmental policies, which include technology transfer, local equity participation, labour laws and incentives on local investments. This is an attempt to strike the right balance between deregulation and environmental and social protections. On the other side of the continent, we are seeing similar moves to incentivise investment. The Angolan government is currently working on a new special tax regime for the mining sector, which may include new incentives concerning tax deductible costs and losses.

As the sector continues to evolve, we are also seeing an increase in the number of co-investment opportunities in several African nations – providing opportunities for investors to benefit from reduced operational costs and take on build, operate, and transfer projects with short-term operational returns and a long-term investment horizon. Naturally, governments benefit from co-investment because it reduces their capital outlay and achieves greater levels of productivity – as well as job creation and exports.

Investment opportunities are rising in number right across the continent, including in Angola, Ghana, Kenya, Mauritania and Senegal. The Angolan Ministry of Geology and Mining confirmed in February 2017 that it had secured funding for the Angolan National Geology Plan (Planageo), which is described by the Minister of Geology and Mining, Francisco Queiroz, as “The main instrument of the government’s strategy for protecting the geology and mining sector”.

Read more: Is Africa on the cusp of a new era of sustainable mining?

14 Sep

How Chinese innovation can spur economic growth in Africa

China’s economic success has been the envy of the world in recent decades. Its GDP grew by an average of 9.71% between 1989 and 2017. The country’s story has evolved in tandem with three key factors: steady deregulation, major investment in infrastructure, and a surge in innovative technologies. These three factors have proven throughout history to be reliable liberators of economic growth – but can the same be applied thousands of miles away in one of the world’s most complex regions, sub-Saharan Africa?

Africa – a region of 54 countries – is separated by thousands of miles of terrain, complicated political histories and anywhere between 1,000 and 3,000 languages. It also has significant socioeconomic challenges, such as access to education, infrastructure, poverty and life expectancy. Yet Africa and China have much in common.

China and Africa both have huge populations, which in the pursuit of industrialisation and economic growth is hugely important. Over a third of the planet’s people (2.6 billion) live in either Africa and China. Of these, 1.2 billion live in Africa. Unlike China, however, Africa has an extremely young population – and it is the fastest-growing in the world. This provides the African continent with the richest source of human capital in the world – but it must be nurtured.

China’s story illustrates how important it is for human capital to be nurtured. At a 2016 event combining the national conference on science and technology, the biennial conference of the Chinese Academy of Sciences (and the Chinese Academy of Engineering, President Xi Jinping said that, “China should establish itself as one of the most innovative countries by 2020 and a leading innovator by 2030”. He went on to say that, “Great scientific and technological capacity is a must for China to be strong and for people’s lives to improve.”

This is as true for Africa as it is for China. The emphasis in both countries must be to push enterprise from the grass roots.

Read more: How Chinese innovation can spur economic growth in Africa