29 Aug

Venture capital investment in Africa: Where the IFC is betting its money


The International Finance Corporation’s (IFC) Venture Capital arm invests in growth-stage companies that offer innovative technologies or business models geared at emerging markets. Olawale Ayeni is regional head for Africa investments at IFC Venture Capital. How we made it in Africa asked him about investment opportunities in the continent and how local start-ups compare to their global peers.

Is it true that the IFC wants to double the value of its venture capital (VC) portfolio to US$1bn by 2018?

I don’t want to go into numbers, but I can say that the IFC will focus on being more aggressive with the venture asset class, particular in frontier markets. The size of the team has increased and we are looking at [more deals on the continent]. We are not just increasing for the sake of it. It is about using equity to really unlock markets… and actually create new markets. It’s more around us trying to push the envelope in Africa to do more.

Any specific sectors or countries where you see potential investments coming from?

Basically we are looking for high-growth businesses that can use technology to enable their ability to scale rapidly. Within Africa there are both large and small markets – but we focus on all of them, as long as the potential to scale rapidly is there. The total addressable market has to be big enough for venture capital to participate.

We look at a bunch of sectors too – but mostly tech and tech-enabled businesses… We spend a lot of time looking at consumer internet technology, such as e-commerce and e-logistics platforms. Consumer internet as a sector is quite broad, but we focus on it a lot. We also focus on education technology. We actually have an investment in a company called Andela, which has done quite well. It was started in Nigeria, then [expanded to] Kenya and has recently launched in Uganda.

We are also focused on health tech, fintech and clean tech. Mobisol is one of our portfolio companies within [clean tech].

In addition to all of this, we also focus on frontier tech. Frontier tech refers to businesses using new technology solutions like artificial intelligence and machine learning – which are coming up in the world. We see an opportunity to apply these technologies to African problems today.

Which of the IFC’s current African VC investments are looking particularly promising in terms of potential returns?

We believe most of our investments are doing well, and that is why we invested in them. We have had some exits which have been good. I think the bottom line of your question, which I will address, is whether you can get high returns in Africa. I fundamentally believe you can get high returns in Africa and the way you get them is to fully understand the opportunity and then source the right team to address a very large problem.

If you are successful there are various ways you can exit – from trade sales (which is very prominent on the continent) to merger and acquisitions (M&As). In Africa, if you are able to scale quickly and solve a large problem, the chances are actually quite high that it will become the only solution available. And once you become the company which everyone goes to, you have a lot of pricing power and value to bring to the table.

In terms of [high-return] sectors, it is still broad. We see a lot in the over-the-top (OTT) sector where people are leveraging the mobile connectivity that has been growing rapidly in Africa for the past seven years. People are building digital infrastructure around that with a lot being quite profitable. We also [see the same] in the e-logistics space, which is fundamentally trying to solve Africa’s supply chain problem. About 80-90% of the retail market in Africa is informal, and the supply chain is very haphazard. So a lot of people are using technology to really disrupt the informal supply chain.

And then there is the education tech space. Africa is a young continent and there are a bunch of players that are leveraging the ability of young people to adapt to technology quickly, and then provide that talent to a global audience. Andela is an example of that and doing quite well. Another example in this space is GetSmarter in South Africa, although it is not one of IFC’s investments. It just got acquired for over $100m. That is an example of a successful exit in Africa.

I could go on and on about different sectors but the overriding notion is that it is all about opportunity at the end of the day, and having the right team to design solutions to solve very big problems in a large market – and tech can be used as a turbocharger for scale.

In your opinion, how do African start-ups in general compare to those in other part of the world?

Start-ups are always different all over the world… But with looking at how entrepreneurs should approach opportunities, the advice I would like to give is that African start-ups need to have a bigger vision and dream more. In my view you are only limited by how big you can actually dream. Drawing from my experience with meeting start-ups from San Francisco, their vision is very big. If you ask what their vision is, they always start with saying they want to change the world.

I think African start-ups are more humble and reserved in the way they communicate their vision. That is the difference I see. But [my advice] is that [entrepreneurs] can start with a small problem, as long as that problem is applicable to a very large market. I can’t over emphasis that enough. There are various asset classes, but for the venture asset class the size of the problem matters a lot. It needs to be big.

So this is a lesson that African start-ups can take from their peers in Silicon Valley?

Yes, from a vision and market [size] perspective, this is a lesson they can learn from Silicon Valley. But there are also lessons Silicon Valley can learn from African start-ups. In my experience African start-ups are ultimately more capital efficient, just given the nature of the capital raising and funding activities on the continent. African start-ups are actually very capital efficient from day one. So that is one lesson Silicon Valley can learn from them.


from How We Made It In Africa

29 Aug

Is the African mining sector becoming uninvestable?

mining sector

At the recent Africa Forum hosted by Hogan Lovells, in London, a number of common, positive themes came through: Africa is a continent of endless possibilities and opportunities; Africa has significant natural and human resources which can be unlocked for the benefit of all Africans; and the investability of many African countries has improved, for various reasons, including mature banking, finance and legal institutions, investment-friendly policies and regulatory frameworks, and national development plans which demonstrate governmental support for sustainable infrastructure and development.

Why then, within the context of a mostly positive view of investment in Africa, is the question posed whether the African mining and natural resources sector, is becoming uninvestable?

Firstly, positive views of investment in Africa don’t always extend to the mining and naturals resources sector. While it is often acknowledged by stakeholders that the mining and natural resources of a country can contribute meaningfully to growth, development and transformation, there is a growing questioning of the impact of mining on aspects such as the environment, host communities, social structures, tourism, and industries such as agriculture, versus the benefits that often flow from mining and beneficiation operations. As the voices of concern increase and develop, the benefits that flow from mining and beneficiation operations are likely to be questioned, even further.

Secondly, the recent mining policy and regulatory changes in Tanzania and South Africa have brought into sharp focus the fragility of investment decisions relating to so-called frontier markets, such as Tanzania, and emerging markets, such as South Africa.

With a decrease in the number of investable frontier markets (equity and bond markets which are typically smaller than emerging markets and where there is less liquidity) and investment instability in emerging markets, such as South Africa, the recent events in these two countries are more concerning.

Tanzanian president, John Magufuli, signed into law the Natural Wealth and Resources Bill 2017, and the Natural Wealth and Resources Contracts Bill 2017, on 3 July, 2017. These laws, which were fast-tracked though the Tanzanian parliament, in a matter of weeks, have far-reaching consequences for foreign companies with investments in Tanzania, one of the continent’s largest gold producers.

There has been extensive investment in Tanzania’s gold mining industry, with a large percentage of the investment, focused on prospecting operations, which are of course critical in the creation of a pipeline that can be converted into mines, in the future. Many of these investors are listed in Australia, and the Australian Stock Exchange took the drastic step of suspending trading of various junior mining companies, following the announcement of the enactment of the laws, by President Magufuli. The uncertainties flowing from the new laws are likely to impact on these junior mining companies, who are focused on exploration, quite dramatically and it will make capital raising exercises extremely difficult, if not impossible. Where ownership of mining assets in a company are put at risk, this is likely to scare off would-be investors, and make existing investors exercise extreme caution.

Key changes brought about by the new legislation in Tanzania include the following:

  • The Tanzanian government is given the right to re-negotiate or dissolve current mining contracts with multi-national companies
  • The state will be required to own at least 16% of mining projects
  • Export royalties have been increased
  • The Tanzanian government can reject a mining company’s valuation where the government believes that the transfer price is too low, and the Tanzanian government is entitled to purchase the consignment of the minerals, at the price declared by the mining company
  • The right to international arbitration is removed
  • The Tanzanian government is also pushing for compulsory listing of mining companies on the Dar es Salaam Stock Exchange, with the complexities that this will bring, particularly because of the potentially small pool of investors who can take up the public offerings.

While multi-national mining companies with investments in Tanzania continue to engage with the Tanzanian government, some of the multi-national companies have declared disputes with the Tanzanian government and are referring these disputes to arbitration. None of this is good for the Tanzanian mining sector.

On 15 June, 2017, the South African minister of minerals, Mosebenzi Zwane published the “Reviewed Broad-Based Black Economic Empowerment Charter for the South African Mining and Minerals Industry, 2016″, (“Mining Charter 3“).

The response was immediate, dramatic, and far reaching. It is estimated that mining stocks lost approximately R50bn (US$3.8bn) in value, following the announcement, with the rand losing ground, and the Chamber of Mines, the body that represents the majority of the mining companies, launching legal proceedings against Minister Zwane. The grounds of challenge go to the heart of the minister’s powers and functions under the mining legislation and the Constitutionality of Mining Charter 3.

While Minister Zwane has labelled the legal challenge as being anti-transformation, the Chamber of Mines and other bodies representing mining interests have consistently expressed the position that the industry is committed to transformation, that the industry has demonstrated its commitment through the implementation of appropriate programmes of transformation – including in respect of the host communities through the social and labour plans, which are a requirement under the mining laws, but that the targets in the Mining Charter must be achievable, sustainable, and the timeframe should take into account the reality that the mining industry finds itself in, with the spectre of further job losses in the near future (while figures vary, the suggestion is that in excess of 80,000 direct jobs have been lost, in the industry, over the last three to five years. Various South African mining companies have recently announced proposals for further job losses, which may exceed 20,000 direct jobs).

Mining Charter 3 made significant amendments to the transformation requirements under the previous versions of the mining charter. Key changes include the following:

  • Holders of new prospecting rights must have a minimum of 50% plus one black person shareholding
  • A holder of a new mining right must have a minimum of 30% black person shareholding (up from the previous 26%)
  • The 30% black person shareholding in new mining rights must be distributed amongst three beneficiaries, namely a minimum of 8% for employee share ownership plans, a minimum of 8% for mine communities to be held in a community trust, and a minimum of 14% to Black Economic Empowerment entrepreneurs
  • For employee share ownership plans, a minimum of 8% for mine communities to be held in a community trust, and a minimum of 14% to Black Economic Empowerment entrepreneurs
  • A holder of a new mining right must pay a minimum of 1% of its annual turnover in any given financial year to the black person shareholders prior to, and over and above, any distributions to the shareholders of the holder
  • While there is limited recognition of the “once empowered, always empowered” principle, unless the historical Black Economic Empowerment transaction achieved 26% black shareholding or more, the historical transaction is not recognised
  • Where a historical Black Economic Empowerment transaction is recognised, the holder is required to top up the black person shareholding from the existing level to a minimum of 30% black person shareholding within 12 months;
  • Even where a holder of a mining right maintained a minimum of 26% black person shareholding as at 15 June, 2017, the holder is required to top up its black person shareholding to a minimum of 30% within 12 months from the date of publication of Mining Charter 3;
  • Minimum requirements are specified in relation to procurement, supplier and enterprise development. A holder is required to spend a minimum of 70% of total mining goods procurement spend on South African manufacturedgoods, with the 70%, being broken down into specified requirements. A minimum of 80% of total spend on services must be sources from South African-based companies, with the 80%, being broken down, into specified requirements;
  • A foreign supplier (a foreign controlled and registered company, supplying the South African mining and minerals industry with mining goods and services, which does not have at least a Level 4 DTI Code BEE Status, and 25% plus one vote black ownership) must contribute a minimum of 1% of its annual turnover generated from local mining companies towards the Mining Transformation and Development Agency;
  • Employment equity targets are increased, and there are specified requirements from board level, to core and critical skills.

There were glimmers of hope when, following negotiations between the Chamber of Mines and Minister Zwane, Minister Zwane agreed to suspend Mining Charter 3 pending the outcome of the legal challenge initiated by the Chamber of Mines. However, the following week, Minister Zwane published his intention to issue a notice placing a moratorium on all applications for new prospecting and mining rights, renewals of prospecting and mining rights, and ministerial consents in terms of Section 11 of the Mineral and Petroleum Resources Development Act, No. 28 of 2002 (“MPRDA”) (in summary where a right or an interest in a right is to be transferred or there is a change of control, ministerial consent is required).

The minister indicated his intention to issue the moratorium notice under Section 49 of the MPRDA which vests the minister with the authority to issue a notice prohibiting prospecting or mining in respect of certain geographical areas or certain minerals for a particular period, having regard to the national interest, the strategic nature of the mineral in question and the need to promote the sustainable development of the nation’s mineral resources.

The widely expressed view was that the minister had exceeded his powers under Section 49 of the MPRDA by intending to issue a blanket notice. Litigation was again initiated, and at the time of publishing this article, there is uncertainty regarding the status of the moratorium notice.

On a positive note, stakeholders across the spectrum, including the largest, recognised trade unions in the mining industry, have spoken out against the actions of Minister Zwane, and there have been widespread calls for his resignation or sacking.

But this of course does not remedy the turmoil which the South African mining sector finds itself in, and large scale job losses loom.

While the South African and Tanzanian mining sectors are in turmoil, this does not mean that Africa is uninvestable.

Africa has a significant and, often, thriving mining and minerals industry, providing millions of jobs and opportunities. It is also a source of significant foreign direct investment, and the mining sector remains a substantial contributor to the GDP of many African countries with the benefits that this brings to the growth of those economies.

It is likely that demand for certain precious metals will continue to grow, and that the demand for the so-called “battery metals” will grow exponentially. All of this creates opportunities for investors, provided that the investors have a proper understanding of the various risks that are faced in these investment opportunities.

The investability of Africa is likely to depend, significantly, on balancing the growing need for mineral resources while at the same time, addressing concerns that multi-national companies extract value without returning benefits for the host countries, and ensuring that the vast socio-economic benefits that can flow from mining operations, materialise.

Warren Beech is global head for mining at Hogan Lovells in Johannesburg. Jessica Black Livingston is a deputy for mining at Hogan Lovells in Denver.


from How We Made It In Africa

29 Aug

Swapping ‘rubbish’ for food in Dunoon


Cape Town – Every Tuesday morning between 09:00 and 11:00, a handful of Dunoon residents gather at the Recycle Swop Shop at Inkwenkwezi Secondary School, bringing material for recycling.

In a long steel container, food and household items, toiletries, and donated clothes line the shelves, GroundUp reported.

Residents are “paid” with tokens according to the amount of items delivered for recycling and the tokens are then exchanged for food and clothes.

For some 30 women, this is their only job and their only way of providing for their families.

Alice Mahase starts her day at 05:00 seeing to her children and household before she sets off to collect plastic, mostly bottles.

‘Something purposeful’

On Tuesdays she delivers it all to the Swop Shop in blue recycling bags.

“I don’t have a job and I don’t want to just sit at home. I have been with the shop for four years and every week I can buy some clothes, food and stuff for my baby”

Louise Vonofakidis, who has run the container shop for five years said this way residents who couldn’t find jobs could still “do something purposeful for their families”.

Groups of friends club tokens together so that they can buy in bulk, she said.

The collected materials are sold to a recycling depot and the money is used to buy the food and household goods for the token system. There is always a shortfall.

Corporate sponsorships help but the organisation has to cover the deficit, which is why the project is in need of more local business support.

Manager Riaan van der Westhuizen and his wife Maria launched the project seven years ago after meeting with Marilyn van der Velden, who started the first Swop Shop in Hermanus.

“The original Recycle Swop Shop started out as a project that uses recycling as a tool to ‘help children help themselves’ and to provide ‘a hand up rather than a hand out’,” said Van der Velden.

The project was adopted by an organisation in Durban, The Domino Foundation, which provided sponsorship and corporate exposure.

Earlier this year, the foundation sponsored a team in the Cape Argus Cycle Tour to raise awareness about the Dunoon project.

The Van der Westhuizens also ran a swop shop in West Bank near Kuilsrivier but due to security and safety reasons, it closed.

Today, the Swop Shop has a presence in Dunoon and at a primary school in Philippi. The project’s goal is to empower the community and benefit their environment.

from News24

29 Aug

Africa: A Brief Guide to the Continental Free Trade Agreement


What is the Continental Free Trade Agreement?

The Continental Free Trade Agreement(CFTA) is an Africa-wide free trade agreement (FTA) designed to boost intra-African trade and pave the way for the future establishment of a continental customs union. The CFTA builds on existing Tripartite FTA negotiations amongst three African regional economic communities (RECs): the Southern African Development Community (SADC), the Common Market for Eastern and Southern Africsa (COMESA) and the East African Community (EAC), although it would like to incorporate all other African RECs too.

The decision to establish the CFTA was adopted as early as 2012 by the heads of state at the 18th ordinary session of the African Union (AU), and negotiations officially begun in June 2015. In bringing together all 54 African countries with a combined GDP of more than US$3,4 trillion, the CFTA is an ambitious project that will connect more than one billion people to a variety of cross-continental goods and services through enhanced trade facilitation and greater movement of people and investments.

Why do we need it?

The CFTA stems, in part, from the realisation that regional integration is stultified and not equitably pursued amongst all African regional economic communities (RECs), and that intra-African trade is at critically low levels compared to African trade with outside partners.

The CFTA will address seven priority areas related to trade: policy, infrastructure, finance, information, market integration, boosting productivity and trade facilitation. For the CFTA to be successful there is great need to address a variety of inter-linked challenges, some of which are critical for enhanced intra-Africa trade: diversification of the export base, reducing reliance on raw commodities and enhancing regional integration that would facilitate greater movements of goods, services, people and investment.

Statistics show there is greater need to enhance intra-African trade because African export markets are already diversified and sophisticated – in comparison, greater intra-African trade will afford African countries with a broader market for their manufactured goods. For example, in 2015, African-manufactured goods accounted for 43% of intra-African exports, compared to 19% of exports to external markets.

Similarly, projections by the United Nations Economic Commission for Africa shows that the CFTA has the potential to boost intra-African trade by 52% between 2010 and 2022, while trade in industrial goods will receive the largest boost, increasing by an additional 53% for the same period. Therefore, the CFTA’s role in improving intra-African trade levels will be important for enhanced continental growth, particularly as it will facilitate market access for COMESA, SADC and EAC countries to Central and Western African states.

The CFTA also has an Action Plan on Boosting Intra-African Trade (BIAT), which underscores a framework for regional development, with a particular focus on doubling intra-Africa trade flows between January 2012 and January 2022. The Action Plan is endorsed by the African Union, and implementation of its various programmes will work towards addressing the key constraints hindering intra-African trade, together with promoting sustainable economic development.

In order to achieve deepened African market integration the plan is divided into seven clusters related to trade: productive capacities, infrastructure, finance, market integration, and trade facilitation, information and policies.

Potential challenges

Regional integration and a continental FTA is an ambitious agenda. In order to be successful, there are a number of potential challenges that will have to be addressed. As it stands, the CFTA is designed to address specific bottlenecks that include streamlining countries’ regional memberships – for example, many countries are partied to more than one REC, which allows them to cherry-pick their commitments. Resolving overlapping memberships will go towards expediting regional and continental integration.

Similarly, in order for Africa to become a larger player in international trade, the CFTA will also have to improve the flow of goods and services, together with improving productivity levels, market access and incorporating marginalised members of society.

The CFTA’s success will also depend on how successfully RECs are able to streamline their respective FTAs to be aligned with a future CFTA. One of the essential goals for the CFTA will be to capitalise on previously failed opportunities at regional integration, trade facilitation and similar issues that have been plaguing the African continent at large by providing tangible progress on these fronts. Synergies between bilateral trade and regional trade agreements and the CFTA are essential if regional and continental integration is to have long-term impacts.

The CFTA also needs buy-in from all AU member states, including its smaller and less developed economies. Any implemented agreement has to take into account the needs of both its smaller members and its economic powerhouses: smaller countries need to feel ownership over the CFTA that reflects their interests.

Harmonisation, coordination and trade liberalisation can only work if the CFTA caters for the needs of all AU members and their differences.

In order for the CFTA to have long-lasting impact, capacity building, understanding country-specific realities and implementing plans that encompass a wide array of viewpoints and levels of development and addresses a variety of challenges will be essential.

Lastly, although the CFTA represents a trade-driven agenda, there is a need to address current trends such as the fourth industrial revolution and the digital economy in ways that meaningfully contribute to Africa’s own continental growth. This will help ensure that the CFTA is current and able to address 21st century global developments and challenges.

The CFTA should also have a human-rights based agenda within the free movement of labour paradigm, labour laws and ensure the protection of migrant labourers, particularly in light of growing anti-migration sentiments at a global level.

State of play: where are we now?

As it stands, the CFTA negotiations are set to be finalised this year.

At the second round of CTFA negotiations in May 2016, AU members approved procedural rules governing the CFTA negotiating institutions, while the third round of talks (held in October 2016) focused on the draft modalities for CFTA negotiations on trade in goods and services.

Since February 2017, meetings have commenced with the Technical Working Groups to provide experts with an understanding/overview of the draft text that will be used in further negotiations.

As of March 2017, the CFTA negotiating forum has held five meetings towards finalising the various draft modalities for negotiations, and the end goal is to have the CFTA implemented in October 2017. An ambitious agenda indeed!

Source from allAfrica

24 Aug

The African economy: Better than people think


Analysis of headline GDP figures in Africa would presuppose a region going through a period of prolonged stagnation, with growth slowing down to 2.2% in 2016 (1) off the back of falling commodity prices and tighter Chinese economic conditions – but this needs to be put into proper context. Nigeria and South Africa are the two biggest regional economies and the main bulwarks behind the continent’s growth, and both markets have contracted. Slowdowns in these two countries tend to have a disproportionate weighting on the overall region’s growth figures.

Nigeria has very specific problems related to the decline in oil price, and this has been exacerbated by various currency and policy decisions.(2) South Africa’s economy is under strain due to a combination of different factors including drought, declining political confidence, reduced business confidence and a commodity slowdown. Just because growth has been sluggish in these two markets though does not mean there is a universal slowdown(3) across the entire Africa region.  A number of other African markets have recorded strong growth presenting opportunities for foreign investors. Côte d’Ivoire’s economy is forecast to expand by 7.5% in 2019(4) while World Bank data stated Senegal was the second fastest growing West African market. East Africa is a strong performer too, with Kenya, Ethiopia, Uganda and Tanzania all forecast to grow 6% and above for the decade.(5)

Flows into Africa

Foreign Direct Investment (FDI) recovered in 2016 after a slight decline in 2015. Ernst & Young (EY) analysis indicates capital investment into Africa increased by 31.9% in 2016.(6) The continent’s share of capital flows grew from 9.4% in 2015 to 11.4% in 2016 while (7) EY added Africa was the second-fastest growing destination when measured by FDI capital.(8) Despite the recent economic uncertainty, South Africa, Egypt and Nigeria still account for significant FDI flows, but there has been a pivot to smaller markets in East and West Africa such as Ghana, Senegal and Côte d’Ivoire.(9) Much of this investment has been in infrastructure, energy, pharmaceuticals and technology and it has been driven by Asian investors, particularly out of China.(10)

Easing access and building infrastructures

African markets were often seen as frontier, and there are problems with investing in such jurisdictions, namely low levels of liquidity, regulatory opacity and a lack of market depth, but this is likely to change. This is because a number of countries in the region are introducing positive market reforms to advance the needs of institutional investors and meet their regulatory obligations and reporting requirements. (11) Institutions need guarantees that when they invest into a market, their money is recoverable in crises, and that the infrastructures are aligned with international standards and best practices. Major efforts have been made across Africa to bring markets in line with these expectations.  Ghana – through the Securities Industry Act – has introduced securities borrowing and lending, and Kenya will do so later in 2017.

Over-the-counter (OTC) derivative trading is gradually being adopted in countries beyond South Africa and Nigeria, namely Kenya. Ghana is also looking at setting up an OTC regime although the Ghana Stock Exchange (GSE) has yet to implement the operational processes.    hese OTC flows are small though, at least relative to US, European or developed Asian markets, and there is sharp industry disagreement as to whether CCPs need to be introduced in these markets.  In a market where OTC volumes are considerable, industry consensus, international best practice and regulation would infer protections in the form of a CCP are necessary.

There is less unanimity around inaugurating CCPs in emerging economies which do not have scalable OTC markets, as it introduces costs that could potentially restrain growth and development.  East Africa through the EAC (East African Community) and West Africa via the ECOWAS (Economic Community of West African States) have both sought to enact regional harmonization programmes of securities markets modelled somewhat on the EU. Efforts have been ongoing to standardize rules around cross-border brokerage activities and dual listings of securities.

A number of market infrastructures across Africa are involved in integration and standardization discussions. CSD linkages, for example, will make account openings and know your customer (KYC) checks simpler, although some markets are disinclined to consolidate into regional exchanges and CSDs, as they view such national infrastructures as a sovereign right. However, efforts around cooperation are making progress.  Securities settlement is one area where progress has been made, particularly through the accentuation of SWIFT connectivity and automation across East African CSDs including Uganda, Rwanda and Tanzania.

Efforts are being made at Kenya’s Central Depository & Settlement Corporation (CDSC) to enable Swift connectivity and this is likely to go live in the second half of 2017.   In Ghana, Swift communication between the CSD and its settlement bank – the Bank of Ghana – is in place but there is presently no MT54X series SWIFT communication for securities between market participants, the exchange and the CSD. Discussions on MT54X Swift connectivity between stakeholders began earlier in 2017, but implementation could take time, and the costs of setting up such a system may be off-putting to some brokers.

Harmonization efforts are also in motion at stock exchanges, where there are ambitious plans to enable connectivity between exchanges in South Africa, Kenya, Nigeria, Côte d’Ivoire, Mauritius and Morocco through the Africa Exchanges Linkage Project (AELP). (12) This initiative will help cement liquidity in these markets, although experts are conscious that divergent regulations across these disparate countries will present issues around governance and best practices.

A lot of work still to be done

Cross-border harmonization initiatives in Africa should be applauded, but there are limitations. Harmonization of settlement in the EU through the Central Securities Depository Regulation (CSDR) and Target2-Securities (T2S) was possible because many of the markets possess a shared currency and have broadly similar regulations, levels of economic development, and common regulators, namely the European Securities and Markets Authority (ESMA). This is not the case in Africa. An absence of a single currency and conflicting regulations and legal systems will make it difficult to drive an African T2S equivalent.  Regulation and change in Africa markets can also be unexpected, arriving without warning or consultation. The Uganda Securities Exchange (USE) switched to an Automated Trading System in July 2015 with a resultant trade settlement time-frame changing to T+3 from T+5.  This decision was executed precipitously and caught a lot of market participants by surprise. Experts have warned that it is essential that regulators give sufficient notice about when they intend to execute market change otherwise it can cause major disruption.  Asset safety is a key criterion for foreign investors, and it is reinforced through regulations such as the Alternative Investment Fund Managers Directive (AIFMD) and UCITS V, which impose sanctions on depositaries which fail to effectively monitor assets in custody. As such, the ability to repatriate funds out of a country is critical. Nigeria has imposed currency controls and restrictions around FX in reaction to its recent market volatility. The situation appears to be calming following the retraction of some of these FX controls and the introduction of Naira non-deliverable FX futures, enabling investors to hedge Naira futures against USD.(13)

Looking towards a bright future

Africa should not be viewed through the lens of South Africa or Nigeria by international investors. Both of these markets have underperformed, but the region – when observed holistically – has a positive growth story to tell. Economic stability – coupled with efforts to implement market infrastructure standardization projects – will help encourage investors and liquidity into the region.

Article from EuroMoney

22 Aug

Mozambique: Gas-Fired Power Station Plans to Triple Production

electricity generation

Maputo — The company Gigawatt-Mocambique plans to expand the electricity generation from its gas-fired power station at Ressano Garcia, on the border with South Africa from the current 120 to 350 megawatts.

Cited by the Maputo daily “Noticias”, the Gigawatt director of operations, Nazario Meguigy, said that an additional 60 megawatts of generating capacity will be added in 2018, with an investment of about 120 million US dollars.

The project to almost triple production, to 350 megawatts, will require a further 700 million dollars, and Meguigy, who was speaking during a visit to the power station by Deputy Labour Minister Osvaldo Petersburgo, said this sum is under negotiation with several financial institutions.

For his part, the Chief Executive Officer of Gigawatt-Mocambique, Bruno Morgado, said the company intends to transfer knowledge from foreign technical staff to their Mozambican colleagues, so that Mozambicans can guarantee the company’s production.

“When the company began its operations, we drew up a plan to reduce the number of foreign workers”, said Morgado. “We are in the second year of the plan and we think that within the next three years the company’s operations will be 100 per cent managed by Mozambicans”.

He added that, whenever necessary, specialists will be hired to support the Mozambican workers in such sensitive questions as the maintenance of equipment. Currently the Ressano Garcia power station employs 112 workers, of whom 102 are Mozambican.

“We have no doubt that, within the next three years, the company will be run by Mozambican workers”, he stressed.

source allAfrica

16 Aug

Ghana: Economy Among Africa’s Best


Ghana is the eighteenth-most attractive economy for investments flowing into the African continent, according to the latest Africa Investment Index (AII) compiled by Quantum Global’s independent research arm, Quantum Global Research Lab. In 2016, Ghana attracted a net foreign direct investment of US$3.5bn.

According to research by Quantum Global Research Lab (QGRL), Ghana’s economy has experienced strong and robust growth over the past decade, making its success a case worth emulating by its regional peers. Industry was the main driver of overall growth with an annual average growth of about 13%, followed by services with 8.4% and agriculture with about 8%. The strong growth record has fostered the country’s graduation to lower-middle-income status in 2010.

Commenting on the Ghanaian economy, Prof. Mthuli Ncube, head of Quantum Global Research Lab, stated: “Ghana’s democratic attributes are as robust as its economic growth, and by improving policies and institutions, successive governments have been able to build an attractive business climate conducive to growth. These measures include reducing the number of days it takes to register a limited liability company and days spent on resolving commercial disputes in the courts. Furthermore, the election of a new government in 2016 has revitalised the drive for higher growth and infrastructure investment, all which augurs well for investment opportunities in the country.”

The research noted that whilst the economy continued to grow on a steady pace until 2013, the GDP growth slowed from 7% in 2013 to 3.6% in 2016 due to structural challenges – such as the on-going fiscal deficits pushing public debt to over 70% of GDP, trapping the country in a cycle of debt service and borrowing.

Furthermore, a three-year power crisis and power rationing slowed down the private sector’s productivity and competitiveness. In addition, the significant external sector deficit and low world prices for the country’s gold, cocoa and oil exports were a major factor behind the economic slowdown.

According to the research, the financial sector in Ghana has undergone restructuring and transformation, and the supervisory framework is relatively strong. Bank credit to the private sector has increased, and capital markets are developing. The sector was rated as fairly developed by the 2014-2015 Global Competitiveness Report, with Ghana ranking 67th from 116th out of 148 countries.

According to the AII report, the top-five African investment destinations attracted an overall FDI of $13.6bn. Botswana was ranked the most attractive economy for investments flowing into the African continent followed by Morocco, Egypt, South Africa and Zambia.

Source from allAfrica

15 Aug

Tony Elumelu on the challenges of growing a pan-African company


Policy uncertainty, labour mobility restrictions and foreign exchange issues.

These are some of the challenges foreign companies can expect to encounter as they grow their businesses across the continent, according to Nigerian businessman Tony Elumelu, chairman of United Bank for Africa (UBA). Headquartered in Nigeria, UBA has a presence in over a dozen African countries. Elemu was speaking during the recent Afreximbank annual general meeting in Kigali, Rwanda.

Elumelu, who is also chairman of diversified investment company Heirs Holdings, used UBA’s experience of expanding to Zambia as an example of how changing policies can cause havoc for companies. When UBA decided to enter the Zambian market, it took into consideration the size of the Zambian economy (its GDP) and the minimum capital required to obtain a banking licence. “We did our feasibility and went to Zambia based on that… The capital you deploy is a function of the size of an economy,” explained Elumelu.

However, relatively soon after it opened shop, Zambia suddenly changed the capital requirement to US$100m, significantly higher than the original amount. Although UBA did end up staying in Zambia, Elumelu conceded that “it was a major issue”.

A second cross-border business obstacle is restrictions associated with moving staff from one African country to another. “We can’t be talking of intra-African trade when labour is not as free and mobile as it should be,” said Elumelu

Only 10 of Africa’s 55 territories grant either visa-free entry or visas on arrival to all Africans. In fact, it can be easier for Americans or Europeans to travel the continent than for its own citizens.

However, to overcome this challenge, UBA established its own internal training programmes. “Where we’ve had human capital issues, we’ve set up an internal academy, an internal school – where you hire people, you train them in school, and they are able to deliver.”

Elumelu furthermore highlighted foreign exchange-related constraints in some African countries.

He concluded by saying successful businesspeople look to find opportunities in challenges. “They don’t run away from problems or challenges, they think of how to mitigate challenges.”

Source fromHow we made it in Africa

14 Aug

Nigeria: U.S. Boost Nigeria’s Local Refining Capacity With $1 Million


Lagos — A landmark investment partnership has been sealed between Eko Petrochem and refining company, an indigenous petrochemical and refining company and the US Trade and Development Agency, USTDA, to fast track a feasibility study, supporting technologies and development of an Implementation plan for a modular refinery located on Tomaro island, Lagos.

The partnership involves a seed fund of about one million US dollars grant to the company by USTDA after the selection of Texas based VFuels to carry out the study which will provide technical analysis and engineering and design needed to advance the 20,000 barrels a day modular refinery.

The refinery is expected to promote Infrastructure development by increasing Nigeria’s local refining capacity.

Speaking during the signing of a Memorandum of Understanding (MoU), acting director of USTDA, Thomas Hardy said, “We are proud to support this new project, which will lead to infrastructure development and economic growth in Nigeria. This project represents an excellent opportunity for US businesses to export technologies and services in support of Nigeria’s refining goals.”

In his remarks, chairman of EKO Petrochemand Refining Company, Capt. Emmanuel Iheanacho said, ” We appreciate USTDA supporting our company’s infrastructure development plan” adding that the funds received will help ensure timely completion of the proposed development and the attainment of the underlying economic and social impacts envisaged.

14 Aug

Africa’s Working-Age Population to Grow By 450 Million in 20 Years

working-age population

The working-age population in Africa is projected to grow by about 70 per cent or 450 million over a period of 20 years, spanning 2015 to 2035, said the Africa Competitiveness Report 2017. To date, Africa, which has Nigeria as one of the most populated, is inhabited by 1.246 billion people. The population had grown by about 550 million, nearly doubled to 1.2 billion over 30 years, from 1985 to 2015, and now to the current level.

The recently released ACR 2017, which was prepared by the Africa Development Bank, World Economic Forum and World Bank, noted that, going by the current trends, only about 100 million of the 450 million increased population would be able to find stable employment opportunities by 2035.

According to the report, “Countries that are able to enact policies conducive to job creation are likely to reap significant benefits from this rapid population growth. Those that fail to implement such policies are likely to suffer demographic vulnerabilities resulting from large numbers of unemployed and/or underemployed youth. New research is providing governments in the region with insights into how they can address the coming rise in the working-age populations.”

In its analysis, the ACR noted: “From 2004 to 2014, employment grew by only 1.7 percent in total–an average of less than 0.2 percent a year. This level of job creation has been barely sufficient to absorb the approximately 100 million additional African workers aged 20-59 who entered the job market in this period, which meant that the formal unemployment rate remained virtually unchanged amid continuing high rates of informal and vulnerable employment.

“Over the next decade, both GDP and the working-age population are expected to increase by about 3 percent per year. If it was possible to increase employment by only 1 per cent in the past decade, when GDP growth was higher, it could be harder to add jobs over the next few years when economic performance is expected to be softer. Looking ahead, the main question for Africa will be how to improve its competitiveness while absorbing a continuously expanding labor force in a scenario of lower growth.”

The report posited that, it was imperative for African countries to find ways to expand aggregate demand for labor and improve supply-side factors at the same time. “Beyond the traditional prescriptions–such as stable macroeconomic policy, a supportive investment climate, and improving the quality of human and physical capital–countries can facilitate more rapid and better job creation as well as accelerate the development of their manufacturing sector by implementing policies suited to their specific circumstances.”

It added: “Since almost all new jobs in Africa today are in agriculture and microenterprises, improving the business environment in these sectors is a high priority. Fragile countries can create jobs as well as promote growth and stability through targeted support to vulnerable regions and/or populations. Open trade policies and developing value chain links to extractive sectors are crucial for encouraging diversification and job creation in resource-rich countries. Finally, policies that foster regional trade and integration can be a major source of new jobs as well as improve firm-level productivity and economic competitiveness.”

Pointing out that this edition of the Africa Competitiveness Report came at a time of reduced enthusiasm about African growth prospects, the ACR expressed regret that, “The robust expansion experienced by the region over the past two decades may not continue over the next few years, reducing expectations about the continent’s employment outlook.”

“Since the publication of the last Africa Competitiveness Report in 2015, the region’s growth prospects have been affected by multiple external shocks: for example, oil exporters such as Nigeria have begun to be affected by lower oil prices over the past few years, and other mineral exporters, such as South Africa, have been hit by the slowdown of emerging economies, especially China,” the report pointed out.

Stating that, “Growth is expected to pick up in 2018 but will most likely remain below 4 per cent over the next few years,” the ACR 2017 recalled that, from 2004 to 2014, the region as a whole averaged a growth above 5 per cent a year, but it is now about 2.2 percent.

“Over that same period, growth of GDP per capita, however–the main indicator of economic development–was well above 5 per cent only between 2004 and 2007. Relatively few jobs have been added to African economies over almost 20 years of strong output expansion, mainly because of an overreliance on the primary sector (mineral extraction and agricultural products), little diversification, and low productivity,” it added.

from allAfrica