Infrastructure Archives - African Financial & Economic Data

04 Apr

S.Africa mulling privatisation in Ramaphosa reform drive

South Africa will consider partially privatising struggling state-owned companies as part of wide-ranging reforms set in motion by President Cyril Ramaphosa since he came to power last month, the head of the National Treasury said on Saturday.

Dondo Mogajane said South Africa was at the end of a credit downgrade cycle after Moody’s held its investment-grade rating and raised its outlook on Friday, partly because of Ramaphosa’s plan to reform state companies.

“For me, I see it as the end,” Mogajane told Reuters in an interview.

“Moody’s are saying there are things we can do and these are the things we will be focused on,” he added, highlighting plans to stabilise debt, revamp state firms and boost growth in sectors such as agriculture and tourism.

A downgrade to a “junk” rating by Moody’s would have seen South Africa removed from Citi’s World Government Bond Index, and could have triggered up to 100 billion rand ($9 billion) in asset sales by foreign investors.

Investors have cheered Ramaphosa’s arrival and his choice of respected ministers in key roles, including former finance minister Pravin Gordhan as minister of public enterprises.

Gordhan is tasked with turning around state companies that have plunged public finances into crisis in recent years, including heavily indebted power utility Eskom and South African Airways (SAA), which is on the brink of bankruptcy.

“Why not?” Mogajane said when asked if it was possible parts of government-owned companies could be sold.

“There have to be new ways of looking at these things. Are we talking privatisation? Are we talking equity partnership? Let’s give an opportunity for new ministers to unpack what it means.”

Mogajane gave as theoretical examples the sale of 49 percent of SAA and of attracting private investors by splitting up the generation, transmission and distribution sections of Eskom, one the world’s biggest power utilities.

His comments are likely to go down badly with powerful trade unions, sections of the ruling African National Congress (ANC) and the Economic Freedom Fighters, a disruptive red-beret-wearing opposition party.

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.

10 Nov

Exporting to Nigeria: Tips and insights

Nigeria is still, by a slim margin, the biggest economy in Africa, despite the economic woes of the past two years. A population of anything between 180 million to 200 million people makes its consumer market in particular of great interest to investors, manufacturers and exporters around the world. The country manufactures relatively few of the products it consumes and despite efforts to increase local industry, it remains largely import dependent.

However, despite the multitude of opportunities that Nigeria presents to exporters, getting a product into the market can be a challenging exercise.

Nigeria’s main port complex is in the commercial capital of Lagos, a city of an estimated 20 million people – a major market in itself – but also the shipping gateway for imports and exports for the whole nation.

The facility, comprising the Lagos Port Complex and Tin Can Island Port in the Apapa area of Lagos city, is one of the busiest in Africa. It is also by far the main portal for trade into and out of this large country, processing 97% of containers. The only other port of size, Onne, is focused on the oil and gas industry around Port Harcourt, and there are a few other, smaller, ports.

As a result, there is usually serious congestion at Lagos. The high volumes are just part of the problem. Other challenges include poor infrastructure, inadequate and often poorly functioning equipment, the demands of different agencies located there, onerous bureaucracy and general issues related to officialdom.

Clearance time in Lagos port is between seven and 14 days. Once clearance is complete, it takes, in a best-case scenario, 48 hours to get the product out of the port. However, this can take longer depending on other factors, as currently being experienced with the rebuilding of the access road to the port, and any problems in the manifest or other documents.

Having a competent cargo clearing and forwarding company is vital to navigate the process. Exporting to Nigeria requires detailed knowledge of requirements. A simple mistake in documentation or process can lead to cargo sitting in port for weeks or even months, with hefty demurrage charges.

It is important for an exporter to be on top of any changes in documentation and import requirements. Do not wait for the importer in Nigeria to alert you to what is needed; rather do your own homework.

Belt and Road Initiative – African countries offer major investment opportunities

China’s Belt and Road Initiative (BRI) is stepping up a gear, with new BRI-related projects estimated to be worth US$350bn over the next five years. This is according to a new report by Baker McKenzie and Silk Road Associates – Belt & Road: Opportunities & Risks.

According to the report, various African countries along the BRI have the potential to provide major opportunities for investment. These countries particularly include Kenya, Tanzania, Ethiopia, Djibouti and Egypt.

The report explains how BRI (also known as One Belt One Road (OBOR)) is primarily divided between the overland ‘Belt’, the classically defined Silk Road that stretches from China to Europe, and the new, maritime Silk Road. The maritime Road is a densely populated consumer and industrial opportunity. Like the landlocked Belt, it also connects China and Europe, but differs in that the Road passes through Southeast Asia, South Asia, the Middle East and East Africa, a region that is home to 42% of the world’s population and 25% of its GDP, excluding China.

The report states that multinationals from all countries can expect to find significant opportunities in the maritime Road regions over the coming decades, irrespective of the success of BRI.

Kieran Whyte, head of the energy, mining and infrastructure practice at Baker McKenzie in Johannesburg, says that for investors in Africa, “A big attraction of the Belt and Road Initiative for both governments and project sponsors is that it assists the speed of project implementation. Project stakeholders advise that the whole process is a lot quicker than other options”.

The report outlines East Africa’s integral role in the BRI, owing to Djibouti’s ports, Ethiopia’s manufacturing, and the region’s existing plans to connect rail, road and energy networks. It also details how key opportunities in Africa with regards to BRI will be transactions related to major projects in the power and infrastructure sector and related financing. China’s construction of power plants and transmission lines in East Africa is expected to be a game changer for local industry.

25 Oct

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

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

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

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

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

A promising economy

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

25 Oct

Pension funds – should they be financing infrastructure in Africa?

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

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

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

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

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

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

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

25 Oct

Feed Africa: Adesina to set up fund for young farmers

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

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

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

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

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

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

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

25 Oct

Investment: Cotton industry of Africa looks to the future

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

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

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

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

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

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

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

20 Oct

West Africa business should turn to solar for their bottom line

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

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

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

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

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

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

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

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

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

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

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

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

20 Oct

Investment: Silicon Valley Loses Out on Africa Startups

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

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

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

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

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

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

‘Endless Opportunities’

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

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

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