15 Nov

Kenya’s Economy Could Face a Bleak 2018

Kenya is facing an economic storm in 2018 in the aftermath of two disputed elections. Saddled with the triple threat of austerity measures to pay for those votes, slowing credit growth and new accounting rules for banks, Kenya now risks missing the government’s forecast for 6 percent economic growth next year, according to lenders including Nairobi-based Stanbic Bank Kenya Ltd. Investec Bank Ltd. strategist Chris Becker says expansion could slow to as little as 1 percent.

“With growing headwinds, there is no longer any room for complacency,” said Ronak Gopaldas, an independent analyst, formerly at FirstRand Ltd.’s investment banking unit in Johannesburg. The new administration should “refocus its attention to the economy, which has been on the back-burner for the better part of the year,” he said.
The country’s Treasury has already cut this year’s growth target to 5 percent from 5.9 percent as the protracted election furor damped investment and a drought curbed farm output.
Now key indicators for East Africa’s largest economy, the regional hub for multinationals including IBM Corp. and Toyota Motor Corp., are flashing warnings signs, with the latest Purchasing Managers’ Index, a measure of private-sector activity, falling to a record low and bank loans growing the slowest in more than a decade.

After a court annulled an Aug. 8 election, Kenya held a rerun of the vote on Oct. 26, that was boycotted by the main opposition coalition. President Uhuru Kenyatta’s Jubilee Party also won the second ballot, which is now being challenged in the Supreme Court.

The nation’s 2.6 trillion-shilling ($25.1 billion) budget was amended to include “austerity measures” for the current fiscal year to accommodate unplanned expenditures such as the rerun of the election, Treasury Secretary Henry Rotich said in September. The Treasury has revised its 2017-18 budget deficit forecast to 8.5 percent of gross domestic product from 6.8 percent. The government recorded a 9.2 percent shortfall in year through June 2017.

Read more: Kenya’s Economy Could Face a Bleak 2018

13 Nov

African Economic Growth Rides on Wireless Rails

A telecommunications boom is lifting an industry and a continent.

In Kenya, hundreds of thousands of people are rising out of poverty as mobile-money services turn subsistence farmers into business people. A similar dynamic drives Ethiopia, the fastest-growing economy in Africa, where the gross domestic product is forecast to climb 8 percent in 2019. Borrowing costs in Ghana plummeted almost 2.5 percentage points during the past 12 months amid an unprecedented gain in GDP that’s been led by the growth of the telecom industry.

From the Atlantic to the Indian Ocean, hand-held phones are letting people become their own ATMs, increasing economic activity by enabling payments for food, travel, school and business. Wireless communication is driving economic growth in sub-Saharan Africa much as the railroad did in the 19th-century U.S., accounting for almost a tenth of global mobile subscribers and a growth rate that’s beating the world.

The transformation is reflected in the more than 1,300 publicly-traded companies that make up corporate Africa. The value of communications firms increased during the past five years to 25 percent of the total market capitalization of African companies, up from 16 percent, according to data compiled by Bloomberg. Materials and energy, the natural-resources benchmarks that defined the region since its colonial days, diminished to a combined 18 percent from 27 percent during the same period.

Read more here: African Economic Growth Rides on Wireless Rails

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.

Read more: How We Made It in Africa

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.

Read more: Pension funds – should they be financing infrastructure in 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.

Read more: Africa’s cotton industry looks to the future

 

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.

Read more: Silicon Valley Loses Out on Africa Startups, TechCrunch Says

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.

Read more: ORANGE TELCO LAUNCHES IN SIERRA LEONE

18 Oct

Investment: The digital bank – delivering on Africa’s potential

Digital transformation ranks alongside changing demographics, increasing customer expectations and industry consolidation as one of the major factors that will shape the future of African banking.

While cash is still dominant, the shift to digital banking increasingly is becoming the driving force across our continent. It is no secret that Africa’s high mobile phone penetration, expected to rise to 85% by 2020 (when there will be 498m smartphones in use), is enabling banks to connect with millions of new customers, while the breakneck pace of innovation from fintech start-ups shows little sign of slowing.

The high number of unbanked and underserved customers, together with still growing economies and rising demand for more sophisticated financial services, represents a significant opportunity for Africa’s banking industry to provide new and innovative ways to access financial services beyond the reach of traditional branch and ATM networks.

Digitalisation also has the potential to alleviate some of Africa’s greatest economic and structural challenges. Digital collections, such as payments for utilities, will contribute to combining enterprise with the passion and ingenuity of the individual.

If these anticipated benefits are to be fully realised, building the capacity of end users to adopt technology, as well as creating an enabling regulatory environment, will be as important as the solutions themselves.

Competitive advantage
This presents a number of challenges, including improving financial literacy, ensuring that regulation keeps pace with innovation and maintaining trust with every digital transaction, especially in the light of growing cybersecurity threats.

Nevertheless, the rapid uptake of mobile wallets indicates that African consumers more readily accept digital technologies than their Western counterparts, so they represent a key weapon in a bank’s armoury to maintain competitive advantage.

Digital transformation
Ecobank was in the vanguard of African banks to recognise the need to harness technology to unleash the full potential of our unparalleled pan-African platform. Utilising technology to automate internal processes, improve compliance and monitor performance, we are increasing efficiency and achieving considerable cost savings.

Read more: The digital bank – delivering on Africa’s potential

18 Oct

Andela: Africa’s Engineering Talent With Global Technology Companies

Andela, the company that builds high-performing engineering teams with Africa’s most talented software developers, announced on Tuesday that the company has secured $40M in Series C funding. The investment was led by pan-African venture firm CRE Venture Capital with participation from DBL Partners, Amplo, Salesforce Ventures, and Africa-focused TLcom Capital. Existing investors, including Chan Zuckerberg Initiative, GV, and Spark Capital, also participated. The round, which marks one of the largest investments ever led by an African venture firm into an Africa-based company, brings Andela’s total venture funding to just over $80M.

Andela was launched in 2014 to combat the global technical talent shortage by investing in Africa’s most talented software developers. With an estimated 1.3M software jobs unfilled in 2016 in the U.S. alone, it’s clear that the growth of today’s major technology ecosystems is inhibited by a severe lack of talent. To solve this, Andela invests in high potential pools of brainpower across the African continent to help more than 100 partner companies build distributed engineering teams. These partners range from industry leaders like Viacom and Mastercard Labs to high-growth technology companies such as Gusto and GitHub.

With offices in Lagos, Nigeria; Nairobi, Kenya; and Kampala, Uganda; Andela has hired 500 developers to date — the top 0.7% of more than 70,000 applicants from across the continent. Selected developers spend six months in a rigorous on boarding program before being matched with one of Andela’s partner companies as full-time engineering team members. Beyond recruiting elite development talent, Andela is catalyzing the growth of tech ecosystems across the continent by open-sourcing its content and partnering with organizations including Google and Pluralsight to provide resources and mentorship to developers.

“Over the past three years, we’ve helped prove to the world that brilliance is evenly distributed. It’s now time to prove that our model of investing in extraordinary people isn’t just viable, but revolutionary,” says Jeremy Johnson, Co-Founder and CEO of Andela.

Read more: Andela Raises $40M To Connect Africa’s Engineering Talent With Global Technology Companies

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