How China's Approach Beats the West's in Africa
Harvard Business Review Blog | by Stephan Richter | September 3, 2012
U.S. Secretary of State Hillary Clinton's recent 10-day tour across Africa represented a strategic caving-in of sorts. In many of the places she visited, the Chinese had gotten there first. In fact, China is everywhere in Africa these days, both exploiting the continent's vast natural riches and pursuing infrastructure projects long promised but never quite delivered by the West.
Building railroads from inland areas to the coast, with the eventual prospect of a network that spans sub-Saharan Africa? Putting in highways at affordable prices across the continent? Constructing state-of-the-art office complexes, within budgets that African nations can afford?
These are all goals that African leaders have pursued for a long time. In the past, a toxic combination of corruption, murky ties between ex-colonizing countries (and their business elites) and the new rulers, and overly complex planning structures derailed project after project. Given the ability to deliver projects on time and on budget, the Chinese offer Africa's governments and people a clean-cut deal: If you work with us, we will build it - period. No ifs, ands, or buts.
Given that Africa's economic growth has long been stunted by the lack of a dependable internal transportation infrastructure - within countries and among them - this is more than a tempting offer. It represents an opportunity of historic proportions.
Yes, the continent has airports and cell phones galore, but due to the wholly insufficient rail and highway infrastructure, trade is still hampered in a manner reminiscent of Europe before 1820. In that sense, the initiatives undertaken by the Chinese in Africa now are the historical equivalent of what the Napoleonic wars brought to a country like Germany. They are a long overdue wake-up call to get rid of outdated traditions in order to advance to the age of modern commerce and trade.
Without making light of the drawbacks of how the Chinese operate, including the fact that they rely mostly on their own workforces even for projects deep in Africa's interior, theirs is a vision that is very distinct from that of the West over the past 50 years.The formula the West applied to post-independence, post-1960 Africa was one that focused on democracy-building over market-building. The Chinese approach it just the other way around. And whatever the preferences of Westerners, it is clearly Africans who have to make the choice of whether to go with democracy first or markets first.
In the abstract, it is always preferable to focus on democratic structures. However, in countries where poverty is still rampant, an uncomfortable counterargument can be made, based on the track record of the past 50 years. In much of Africa, political growth remains as stunted as economic development. Political maturity - in the sense of a robust enough democracy for elections to result in actual power change - for the most part only works in countries like Ghana, where economic development is already advanced and broad-based.
Focusing on market-building first can empower a budding middle class - which provides a check to the vestiges of often clan-based political and economic feudalism. In this approach, economic development leads political development. That is pretty much how things transpired in Europe over the centuries. There, economic empowerment led the merchant classes to demand increased political rights, which eventually put the continent on the road to full-blown democracy.
For Westerners. it is confounding to see that theirs somehow ended up being the "ideological" approach. Focusing on ideology, mind you, was supposed to be the Communists' gig, due to their inability to offer anything meaningful in terms of material goods.
And yet, it was the United States that peddled democracy and human rights - a.k.a., broadly speaking, ideology. Faced with the negative fallout of that, Secretary Clinton has recently sought out a more balanced approach, focusing on business (and opportunity) over human rights (and hectoring).
Meanwhile, the Chinese have kept building bridges, railroads, and conference centers. Ironically, it is the Chinese - not the Americans - who can make a compelling case that their focus in Africa has been not on spreading ideology but on the practical business of securing natural resources and creating future customers and trading partners.
Such a customer focus, of course, runs fully counter to Marxist doctrine. Better yet, the Chinese can call on the estimable Adam Smith as the crown witness for their strategy in Africa. In assessing the economic strategies of great empires, he wrote:
To found a great empire for the sole purpose of raising up a people of customers may at first appear a project fit only for a nation of shopkeepers. It is however a project altogether unfit for a nation of shopkeepers - but extremely fit for a nation whose government is influenced by shopkeepers.
And indeed, as the African continent proves, the Chinese Communist Party is spreading its wings around the world via commercial, rather than military, means. It is thus very much a government influenced by shopkeepers, one that uses their vast range of activities for its own alliance-building purposes.
SA Most Competitive In Africa
Sept 5, 2012 | Business.iAfrica.com
South Africa remains the most competitive economy in sub-Saharan Africa, according to the World Economic Forum's Global Competitiveness Report 2012/13 released on Wednesday."South Africa is ranked 52nd this year, remaining the highest-ranked country in sub-Saharan Africa and the third-placed among the BRICS economies," the WEF said in a statement.BRICS refers to the Brazil, Russia, India, China and South Africa group of large emerging market economies.
South Africa ranked 50th in the 2011/12 report.The country benefits from the large size of its economy, particularly by regional standards, the WEF said. It ranks 25th out of 144 economies in the world in terms of market size."Particularly impressive is the country's financial market development (third), indicating high confidence in South Africa's financial markets at a time when trust is returning only slowly in many other parts of the world," the WEF said.
South Africa did well on measures of the quality of its institutions and on intellectual property protection (ranking 20th), property rights (26th), the accountability of its private institutions (2nd), and its goods market efficiency (32nd).
South Africa does "reasonably well in more complex areas" such as business sophistication (38th) and innovation (42nd), benefiting from good scientific research institutions (34th) and strong collaboration between universities and the business sector in innovation (30th)."These combined attributes make South Africa the most competitive economy in the region."The WEF said to improve its competitiveness, South Africa needed to address some weaknesses."South Africa ranks 113th in labour market efficiency (a drop of 18 places from last year), with rigid hiring and firing practices (143rd), a lack of flexibility in wage determination by companies (140th), and significant tensions in labour-employer relations (144th)."The country also needed to increase its university enrolment rate to better develop its innovation potential." Combined efforts in these areas will be critical in view of the country's high unemployment rate of almost 25 percent in the second quarter of 2012."
Although South Africa's infrastructure was good by regional standards, it needed upgrading (63rd).The WEF pointed out that the poor security situation remains another important obstacle to doing business in South Africa. "The high business costs of crime and violence (134th) and the sense that the police are unable to provide sufficient protection from crime (90th) do not contribute to an environment that fosters competitiveness."The health of the workforce -- ranked 132nd out of 144 economies -- was concerning.
Switzerland tops the overall rankings, with Singapore second, and Finland in third position. They are followed by Sweden, Netherlands, Germany, the United States, the United Kingdom, Hong Kong and Japan in the top 10. Among the BRICS, the People's Republic of China (29th) continues to lead the group. Brazil is ranked 48th, South Africa 52nd, India 59th and Russia 67th.
Link To Article
World Bank approves $250 mln for S.Africa's Eskom
Reuters | Oct 28, 2011
The World Bank on Thursday approved $250 million in funding for South African power utility Eskom to develop a wind and solar plant as part of a push to boost sources of clean energy.
The World Bank said the funding through its Clean Technology Fund will finance a 100-megawatt solar power plant in Upington in the Northern Cape province and a 100-megawatt wind power project at Sere, north of Cape Town.
"The loan will help Eskom to implement two of the largest renewable energy projects ever attempted on the African continent," the bank said in a statement.
Eskom, a major supplier of energy to South Africa and neighboring countries, is keen to reduce its carbon footprint.
The state-owned utility is spending billions of dollars to build and upgrade existing coal-fired power plants to meet immediate energy needs, and wants to diversify the energy mix toward cleaner sources of energy.
Last month, Eskom signed two loan agreements worth $365 million with the African Development Bank to develop the Sere and Upington projects. For more see .
Eskom said it hoped to begin construction of the Sere wind project early next year.
The World Bank came under fire last year for approving a $3.75 billion loan for the development of a coal-fired plant in South Africa, but Eskom said the project was necessary to ease the country's chronic power shortages.
South Africa hosts global climate talks in the port city of Durban between November 28 and December 9 on a new globally binding climate pact to succeed the Kyoto Protocol from 2013. Part of the discussions are on designing a fund to help developing countries tackle climate change.
Link to Online Article: Reuters
Web boutique "My Asho" brings African fashion to global market
CNN | Sept 21, 2011
From color-popping dresses to bold prints and shapes, Afro-centric designs have been storming catwalks in recent years, catching the eye of fashionistas across the world.But for many international consumers, especially those with no access to shops dedicated to African brands, it can often be hard to get their hands on designer garments from the continent.As a result, more and more African designers are taking their lines to the web in a bid to reach out to a larger market. And while many are setting up their own websites, others rely on internet boutiques which have more experience navigating the online market.
One such store is My Asho -- launched in June 2009, this UK-based web boutique carries the work of established and up-and-coming African designers, giving them a chance to showcase their creations to a wider audience.
Founder Dolapo Shobanjo says she started My Asho -- taken from the Yoruba word "aso" which means cloth -- when she realized that African designers were not getting the promotion they deserved.
"I contacted the top designers, I spoke to them and asked them about their struggle and how difficult it is for them," says Shobanjo. "That's really how it got started, so to create that credible infrastructure is to show the global demand for the products and that will kick start the productions."Today, My Asho stocks a variety of womenswear, children's clothes and accessories from more than 30 African designers. Shobanjo says she is very careful when it comes to selecting new designers, making sure they have high professional standards.
"We're very happy to add new people in the site but we have to ensure that the designers we add are serious," she says.
"There are a lot of people out there who claim to be African designers but it's more like "oh, I have a tailor who can sew very well and who can copy items," so we have to distinguish between copy-cats and people doing this as a hobby."
One of the designers featured on the site is Erzumah Ackerson who runs clothing label Bestow Elan. She says My Asho is an ideal platform for her work, helping her to make her creations more visible as well as boost demand.
"I think there's still an element of investment that still needs to be done so we are recognized on an international as well as mainstream platform but I think My Asho is a perfect platform because since I've been on there, I've had a lot of international buyers and got into mainstream magazines."And as this digital expansion is helping create more demand, many African designers are now having to keep up in their supply.
Titi Ademola, a Ghana-based designer who is the founder of the KIKI Clothing brand, says the biggest challenge for many fashion designers is manufacturing.
"You get a lot of excitement from so many places but once you get an order, how do you manufacture in large quantities?" says Ademola.
"So, that's the issue that I'm facing, trying to focus on quality control and trying to ensure that you consistently provide quality and appealing garments to other companies and other markets," she adds.
With clients in more than 50 countries, Shobanjo's goal is to create a sustainable business model for My Asho. At the same time, she also wants her company to help her continent by supporting local African communities where the clothes are manufactured.As a result, Shobanjo's prioritized working with ethical brands that show a commitment to fair labor practices and create opportunities for their communities.
"I'm supporting Africa, helping it grow and creating jobs but it's not to say that a certain percentage of x is going to here because I don't think that is a sustainable business model," says Shobanjo."I think it is better to create from the start ethical principles and work with designers who pay their tailors well, who are investing in helping their communities grow and then once you grow as a business then you know that they will also grow as well."
Link to Online Article: CNN
Young Entrepreneurs Link Africa To Top Global Business Thinkers
Business Daily Africa | Aug 4, 2011
Early this year, Christian Haukaas, a 2011 IESE graduate, worked with two of Kenya’s leading innovative young companies, Craft Silicon and Pamoja Media.
Christian undertook a market study and business plan consultancy for Craft Silicon, which provides back-end business solutions for banking institutions. At Pamoja Media, he constructed an innovative mobile-accessible platform that helps to improve yields for smallholder farmers. As a result, Joshua Wanyama, CEO of Pamoja and TED Fellow, has turned the web advertising agency into a multi-purpose firm, creatively bringing his company’s technical savvy to bear on Kenya’s agricultural realities.
When Harvard management expert Michael E. Porter sets out for yet another African tour, he will lead workshops where some of these entrepreneurs will discuss their projects.
Hosted by the Tony Elumelu Foundation (TEF), a not-for-profit organisation that promotes business leadership in Africa, the workshops will target the first-class of interns who have gone through the inaugural African Markets Internship Programme (AMIP) that has placed some of the world’s brightest young business students in executive suites in African-owned businesses.
Prof Porter, a TEF founding patron, is recognised as the father of the modern strategy and one of the most influential thinker on management and competitiveness.
“Our African Markets Internship Programme combines two ingredients that could put Africa on the fast-track to transformation: top-tier students whose talents we bring to bear ... and the world’s keenest business minds, such as Michael Porter, whose ideas have shaped national markets and triggered regional development,” said founder of TEF and chairman of Heirs Holdings Tony O. Elumelu.
Prof Porter will lead two strategy workshops with the interns and the host business CEOs in which they will discuss projects and lessons from the programme. The sessions will include a focus on the industries represented in the 2011 programme, such as media, agriculture, private equity.
The workshops to be held in Nigeria, pairs students from Africa’s top business schools with students from elite business schools in Europe and the United States.
“Over the next few years, Africa will approach a turning point in its economic development,” Prof Porter said. “Its key business leaders could reinvent capitalism on both a local and continental scale if they are able to unleash innovation.”
Efe Odeleye, programme manager for TEF’s AMIP says: “This new generation of entrepreneurs and business leaders can be found at both ends of AMIP, as interns and host businesses. They represent the diversity and depth of African innovation and talent.”
Over her internship in Nigeria, Julia Otis, a Yale School of Management first year student, interned with NN24 where she undertook an extensive market study to determine the cable news station’s audience, reach and perception in their quest to become “the African CNN”.
CEO of NN24, Anthony Dara, called her work “critical, timely and key to redefining our image and honing our viewership base.”
Eleven host businesses are located in Nairobi, Lagos, all led by individuals in their 30s or 40s. In Lagos, Brandeis University International Business School first-year student and banker, Azuka Okofu, helped his host business, E-Motion Advertising to close a multi-million dollar investment deal with the Swiss government. E-Motion controls prime advertising real estate along four kilometres of one of Lagos’ most valuable expressways that cuts through the heart of the commercial centre, Victoria Island. “We could not have done it without him” remarked CEO Simdul Shagaya.
Cameroonian AMIP intern, Zekebweliwai Geh, Harvard Kennedy School first year, will bring his experience from his work at the IFC to Injaro Investments, a Ghanaian private equity firm.
“The internship creates a pipeline of talent to serve Africa’s interests and opens recruitment opportunities for African firms. The internship also takes on global significance,” says Jerry Parkes, MD of Injaro Investments.
Link to Online Article: African Business Daily
African Business Confidence Grows
New Vision | Aug 3, 2011
The Africa Business Confidence Index (ABCI) for July shows growth in both manufacturing and non-manufacturing sectors in Africa.
The difference compared to June in the indices for manufacturing and non-manufacturing shows a decrease of 2.2 and 4.4 percentage points respectively.
The index measures business confidence in the manufacturing and non-manufacturing private sector throughout Africa. Results are published on a monthly basis.
The July ABCI results indicate confidence and growth with an index of 51.7 and 56.0 for the manufacturing and non-manufacturing sectors respectively. A level of 50 and above indicates expansion. Business professionals from 30 countries in Africa participated in the survey, making the results a reliable gauge and early indicator of the underlying economic activity on the African continent.
The ABCI follows a similar methodology and logic as the PMI indices, which set the global standard. Members of the Africa Business Panel are business professionals and entrepreneurs working in Africa’s private sector.
Link to Online Article: New Vision
mLab Southern Africa Opens Membership Applications
it news Africa | July 28, 2011
mLab Southern Africa, a new regional incubator for entrepreneurs and innovators with a focus on mobile technology, has announced that applications for membership has opened. mLab will only be launched officially in Pretoria on 15 September, but mobile developers and startups may apply to become members.
mLab SA provides incubation support to mobile developers and entrepreneurs through the following services: subsidised office space with meeting rooms – to allow members to benefit from being part of the mobile startup community; training and accreditation on mobile technologies and entrepreneurship; business mentoring and coaching; business intelligence, such as privileged access to market research information and knowledge repositories; testing of mobile apps and services in dedicated test bays; and organising regular events for networking and knowledge sharing. The mLab SA will also assist members in accessing finance, whether it be in the form of grants, seed capital, angel investors or venture capitalists.
Members benefit from shared services offered at the mLab SA, such as reception, internet and test bays, because this allows entrepreneurs to lower their burn rate – how quickly they spend their startup capital – and so extend the survivability of their ideas.
mLab SA, and the recently opened mLab East Africa, in Nairobi, are the first of a number of mLabs to be launched around the world as part of the Creating Sustainable Businesses in the Knowledge Economy programme, supported by infoDev (World Bank), the Ministry of Foreign Affairs of the Government of Finland and Nokia. mLab SA is also generously supported by the South African Department of Science and Technology. While the head office will be in Pretoria, a number of satellite offices will be established throughout the region. A Cape Town satellite office is in the process of being established.
Southern Africa was chosen as a region to locate an mLab because of the enormous potential of mobile technologies for supporting business development, social development and job creation in the region. In South Africa, mobile penetration is around 100%, and 39% of urban South Africans are now browsing the internet on their phones. Mobile phones touch almost every aspect of peoples’ lives, and the potential for improving areas such as healthcare and education has already been successfully demonstrated.
But while there exists an enormous mobile opportunity in the region, there are still challenges to creating a sustainable business or organisation in mobile. Competition is stiff; the mobile landscape is highly uneven across different technologies, user groups and countries; and mobile developers are scarce and expensive. Added to that, a startup business or organisation is very vulnerable. It needs business, technical and financial support, and can benefit greatly from acceleration and incubation.mLab SA offers three types of membership: Community, which is free and which anyone can join, and Silver and Gold, for which interviews are necessary. Silver and Gold members pay a fee to access the core services of the mLab SA at the facility in The Innovation Hub, and receive more structured support from the mLab SA team and it’s partners. Support services will either be delivered directly by the mLab SA, or through external providers to which members will be pointed, e.g. the Bandwidth Barn’s business mentoring program.
Applications can be submitted via the mLab SA website, where further information regarding membership can also be found.
Link to Online Article: it news Africa
Visa Acquires South African Mobile Payments Company Fundamo
American Banking News | June 14, 2011
Visa Inc. (NYSE:V) announced today the acquisition of Fundamo, a privately held mobile financial services company based in Cape Town, South Africa, for $110 million in cash.
Joseph W. Saunders, chairman and chief executive officer of Visa Inc said, “Combining Visa’s unparalleled network scale, global reach, extensive product suite and established financial institution relationships with Fundamo’s expertise in delivering mobile financial services in developing economies presents us with an important long-term opportunity to grow our business and drive financial inclusion in key geographic markets. We are pleased to add Fundamo’s industry leading technology solutions to our portfolio.”
Fundamo has over 50 active mobile financial services deployments and operates in more than 40 countries, including 27 countries in the Africa, Asia, and Middle East Region. The company currently has 5 million registered subscribers and has the potential to reach more than 180 million. Hannes van Rensburg, CEO of Fundamo said, “Mobile network operators and financial institutions will now be able to take advantage of Fundamo’s trusted mobile financial services platform backed by Visa’s high standards for security, reliability and scale.” The acquisition is expected to close today, and will be slightly dilutive to Visa’s EPS for its fiscal year 2011.
Link to Online Article: American Banking News
Has Africa’s time come? E&Y thinks so.
FT.com | May 4, 2011
As executives and politicians descend on Cape Town for Africa’s World Economic Forum, Ernst & Young has a succinct message for foreign investors – “It’s time for Africa.”
In a new report, Africa Attractiveness Survey, the professional services company is forecasting that foreign direct investment into the continent will reach $150bn by 2015, up from less than $100bn last year. While that remains below a 2008 peak when FDI topped $200bn, the mineral-rich continent looks set to becoming increasingly attractive long term to international investors, particularly in emerging markets, E&Y reckons.
“Although the African share of global FDI has grown over the past decade, we believe that it does not reflect the increasing attractiveness of a region that has one of the fastest economic growth rates and highest returns on investment in the world,” says Ajen Sita, managing partner for Africa at E&Y.
Afro-optimists have been predicting “the year of Africa” for some time, on the belief that a continent better known to some for conflict and corruption has been making steady progress along the bumpy road towards stability and better governance.
Africa has also benefited from Asian demand for its abundant commodities. Its economies have been growing at an average compound rate of 5 per cent a year for the past decade – twice that of the developed world.
Yet the upbeat E&Y report suggests there are still sceptics who need convincing that Africa’s time has really come.
African respondents were the most positive about the continent’s progress over the past three years, with 86 per cent saying things had improved; 74 per cent of investors from other emerging markets said Africa had become more attractive.
But “developed regions such as Europe and North America are more ambivalent, as a large proportion of respondents from these regions appear to believe that Africa’s progress has stalled over the last few years,” the report says.
A significant minority of respondents from North America and Europe (16 per cent and 9 per cent, respectively) felt Africa had deteriorated during the past three years, while 46 per cent believed it had neither improved nor deteriorated.
And it is the age-old barrier of political instability that appears to be the dominant factor among more pessimistic respondents.
The report says:
Africa is high on the agenda of investors, with 43% considering investing further in the region and an additional 19% of business leaders confirming they will maintain their operations on the continent. … However, one-third of investors are still not considering investing in Africa. Despite 23% of them focusing on their local market and not considering international expansion, the reasons companies give for not wanting to invest in Africa are instructive in order to shape recommendations for the future. The most common barrier raised by business leaders surveyed is the instability of the political environment. Access to customers and the level of infrastructure (transport, logistic and telecommunication) are also cited as areas of concern. Corruption and security issues are considered as major barriers by one out of five of our respondents.
The report also notes that many new FDI projects between 2003 and 2010 were concentrated in 10 of the huge and diverse continent’s 53 nations – South Africa, Egypt, Morocco, Algeria, Tunisia, Nigeria, Angola, Kenya, Libya and Ghana.
The north Africa members of that clique have been at the heart of the revolutionary unrest that has swept the Arab world. Nigeria has also been plagued by post-election violence – although voting in the continent’s most populous state was credited with being among its most transparent.
Elsewhere, Ivory Coast lurched perilously close to civil war earlier this year and remains vulnerable to further violence, while on the eastern side of the continent Uganda – once a darling of western donors – has endured bouts of unrest as the government cracks down on opponents.
Africa has managed to maintain its “increased share of FDI compared with other regions” through the economic crisis, E&Y notes, although it is still a meagre percentage of the global total, ranging from 3.6 per cent of new FDI projects in 2003 to a high of 5.2 per cent 2008 and 4.5 per cent last year.
Investment is also diversifying away from extractive industries, with more inflows going to sectors such as tourism, construction, telecommunications and financial services.
The hope is that the positive trends outweigh the negative and Africa can start to match its obvious potential.
The report says:
The levels of risk in investing in Africa can be high but levels of profitability are high too, with competition in some sectors comparatively low. This investment window may not remain open for long, but it suggests that Africa actually appears to be relatively well positioned, with the only emerging region clearly ahead in terms of investor perceptions at this point being Asia.
“There are of course parts of the Continent where there are real and perceived barriers to investment due to political instability and corruption. These are obvious challenges but those investing in Africa and Africans themselves have much to be positive about,” Sita says.
“We are confident that Africa is on a sustainable growth curve and that FDI rates will steadily grow. However, to accelerate and take advantage of this growth process, governments and investors – foreign and domestic – should act now. The earliest to do so, and the canniest, will benefit the most.”
Link to Online Article: FT.com
South African Credit Growth Slows as Consumers Cut Debt
Businessweek.com | April 29, 2011
South African credit growth slowed in March as consumers took advantage of low interest rates to reduce debt in Africa’s biggest economy.
Borrowing by households and businesses rose an annual 5.1 percent, down from 5.4 percent in February, the Pretoria-based Reserve Bank said on its website today. The median estimate of eight economists surveyed by Bloomberg was 5.9 percent.
The Reserve Bank cut its benchmark interest rate three times last year to a 30-year low of 5.5 percent to help support the economy’s recovery. Consumer spending, which accounts for two-thirds of demand in the economy, has picked up gradually, while manufacturers are still holding back on investments.
“Credit markets are going to remain fairly tight,” said George Glynos, managing director of Econometrix Treasury Management in Johannesburg. “There is no underlying demand for credit. We probably won’t see a rate increase well into next year.”
The rand was at 6.6195 against the dollar as of 9:24 a.m. in Johannesburg from 6.6050 before the data was released. The yield on the R157 government bond, due 2015, was unchanged at 7.62 percent.
Consumers’ disposable income grew at a slower pace of 5.3 percent in the fourth quarter, compared with 5.5 percent in the previous three months, the central bank said on March 22. Growth in spending on durable goods such as furniture eased to 6.9 percent from 13.4 percent in the period.
Governor Gill Marcus left the key interest rate unchanged for a second meeting in March, saying that rising gasoline and food costs were the biggest threats to inflation. The bank aims to keep the inflation rate, which reached a nine-month high of 4.1 percent in March, inside a range of 3 percent to 6 percent.
The broad M3 measure of money supply increased an annual 6.5 percent in March, down from 7.6 percent in February. The median estimate in a Bloomberg survey was for M3 to expand 7.8 percent.
Link to Online Article: Businessweek
Yes, There Are Tech Startups in Nigeria. Here Are My Favorites.
TechCrunch | May 13, 2011
Last week I wrote about Computer Village, where many of the gadget-hounds in Lagos go to get their gadgety fix. But what about new technology being developed in the country? The city’s tech entrepreneur scene is small, but several people are working on changing that.
Oo Nwoye– or @oothenigerian as he’s known on Twitter– is one of the more enthusiastic champions of this nascent scene. (That’s him on the left.) I met him two years ago in London, where he cornered me at an event and made a case for me going to Nigeria, so he was one of the first people I contacted when I finally did.
Since then, he’d moved back home. He’s working on a to-be-determined startup and spending the meantime trying to galvanize a startup community. He organized a fantastic demo day to give me a taste of what people are working on.
In the days leading up to the pitches, I spoke with half a dozen tech entrepreneurs in Nigeria who had a lot of complaints about the ecosystem. There was the ever-present emerging market complaint of not enough venture capital, but the entrepreneurs also complained about the extremely high costs of doing business in Nigeria given how small the online market is so far, the spotty infrastructure, and the lack of enough developers who want to work for startups instead of the big oil companies.
Victor Asemota (pictured at Demo Day with me to the left) moved to back to Nigeria after starting his mobile technology services company in Ghana, lured by the juicy 150 million person population. He pays the same amount for his office space in Nigeria that he used to pay for a house and a comparable office space in Ghana. More galling: Because the infrastructure is so poor in Nigeria, he also has to provided his own power and water backups. “I have to build my own city just to live here,” he said, exasperated.
Asemota also talked about a bigger challenge to building a tech company in Nigeria: The stigma of illicit 419 scams. He’d negotiated a deal with a customer in Florida one time and was wrapping up the meeting by handing the man his business card. Simply seeing that he was from Nigeria killed the deal instantly, Asemota says. The man wouldn’t even keep his business card. I noticed at the end of our dinner, when Asemota handed me his card it listed his company as located in Ghana. And, he says, ground down by the frustrations of doing business in Nigeria, he’ll probably move back there.
So I entered Demo Day halfway through my trip, desperately looking for some hope. I found the first glimpse of it, appropriately, in a guy wearing an Obama Hope T-Shirt. His name was Gbenga Sesan, and he runs a organization called Paradigm Initiative of Nigeria. It takes small delegations of Lagos’s techies into less developed and frequently more violent parts of Nigeria to convince 13-year-olds to get interested in computers. “If you don’t start at 13, they can’t be millionaires by the time they are thirty,” he says.
Another group called Co-Creation Hub immediately caught my attention. It is building an incubator to help entrepreneurs with business advice, funding and mentoring. Their focus is using technology to solve real problems Nigeria faces, not just copying what people read on TechCrunch. It welcomes more than just coders, but teachers, doctors, or anyone from any background that has a dramatic idea of how to make life in Nigeria better. A new co-working space to be opened later this year will operate like an open living lab for social change.
I love that strategy. I always advise entrepreneurs if they want to build a Western-facing consumer Internet company to move for the Valley; it will just be easier. But if they want to be pioneers in their own markets, focus on the problems and endemic strengths there. (And probably read sites like TechCrunch a little less too.)
So right away between Nwoye’s evangelism, Paradigm Initiative of Nigeria’s efforts to build a young generation of coders and Co-Creation Hub’s cushy nest for social change, there was a pretty impressive mix of people actively working to foster an ecosystem. Things were looking up for Nigerian entrepreneurs. The demos started, and I was impressed by many of the companies too. They ran a tight ship doing pitches of no more than five minutes, and there were only a few copy-cat Western Web ideas in the bunch. My favorites are below. I should mention there was also a Garage48 hacker event over the weekend in Lagos that I wasn’t able to attend.
TT Sağlık Gyst: This was one of two truly long-term, big-idea, swing-for-the-fences startups I saw in the country. (I’ll write about the other one on Saturday.) Sim Shagaya (pictured to the left) has a Harvard MBA, but don’t hold that against him. After studying in the US and bouncing around the tech and banking world, he returned home to build a traditional old media billboard business.
He’s now leveraging the cash-flow of that to build two exciting new media companies. One is a daily deal site called DealDey. The other is super exciting. It’s called Gyst, and it’s a very local business directory search engine. He hires a bunch of kids throughout the country and gives them each a smart phone with a camera. They go door-to-door, manually getting information and GPS coordinates on every small businesses in the city, gathering the information in a database. Amazingly, nothing like this exists in Nigeria– no Yellow Pages, no local search engines, no 411 service. Like most emerging markets, many cities in West Africa don’t even have a formal system of streets and addresses or a working postal system.
This is an insanely expensive and ambitious project, and it’s 100% bootstrapped by the parent company. The opportunity is huge. It’s Google on a local level combined with Yelp, JustDial, SMSOne, Gigwalk, and a bunch of other exciting companies who rethink cost effective ways to amass huge amounts of local data in one easy-to-access place. “It will take a long time to show the true value of this business, but we’re willing to wait,” Shagaya says. Right now the company has 20,000 business listings, and its ultimate ambition is to index every city in West Africa with more than one million people. And the company will make all that information completely free for users. Whoa.
There are obviously huge synergies between these three businesses. A daily deal site that is tied to billboards and the region’s onlycomprehensive small business directory is a lot more powerful and exciting than a run-of-the-mill Groupon clone. It’s a textbook example of how industries develop in parallel, not serial, in emerging markets, utterly transforming how they develop. Imagine if Clear Channel, Google and Groupon were all the same company. And I love the ambition: Shagaya said he is focused on building nothing less than the Naspers of Nigeria.
Naspers– the South African media conglomerate– is not only one of the most dominant new media companies in Africa, it’s investing in the most important new media companies in the emerging world. One of their companies, DealFish, was even a sponsor of this Demo Day. It’s about time a continent as big as Africa has more than one new media powerhouse. This company is one to watch.
Skoola: This company has taken several years of Nigeria and Western Africa’s standardized tests and converted them into a basic test prep app that can run on any mobile phone, smart or dumb. I asked how big the market is and the whole room laughed. This is the test everyone takes if they have any ambition of higher education.
The business– which is so clear that the entrepreneur pitched in under three minutes– is a no brainer on a lot of levels. More people have phones in the developing world than toilets so it’s the ideal medium, and it’s a way to kill time sitting in traffic and further your education at the same time. It’s a perfect example of how to build a mass market product in a country like Nigeria: It’s distributed on the broadest possible platform, solving a problem a huge percentage of the population has, and priced for volume at less than $.30 per test. The company is working on French translations so neighboring West African countries can use the product too. I’m amazed I haven’t seen something like this in India. I’m sure it already exists. If it doesn’t, it should.
Traffic Nigeria: Speaking of the need to kill time in traffic, this company uses crowd-sourcing to monitor the traffic in Lagos, delivering results over the Web or SMS. Nigerian traffic is not the worst I’ve seen in the emerging world, but it’s pretty awful. As the entrepreneur put it dramatically, “You’re dying gradually sitting in this traffic, and we want to increase Nigeria’s life expectancy.”
I like the idea of attacking a local problem like this, but I’m not convinced crowd-sourcing is the right way. One entrepreneur I talked to later suggested that Traffic Nigeria should charge people for the updates (many people would gladly pay if the information was solid) and then pay motorcycle cabs or delivery guys to report once an hour or so on traffic conditions on their already traveled routes. That could be an instant local hit, and again, something that should exist in the rest of the developing world too.
But the entrepreneur behind Traffic Nigeria seemed sharp, and I have no doubt if the crowd-sourcing approach doesn’t pan out, he’ll iterate his way to a better method. The company is wisely tapping into something people feel passionate about: Everyone in Lagos talks about how brutal the traffic is and routes, meetings, days and plans are all orchestrated to avoid it at all costs.
Several other companies I met were working on important building blocks for any local Web ecosystem. My favorites in that category were Pagatech, a pretty sophisticated company that turns mobile phones into electronic wallets, and Bloovue, a Nigerian-localized ad network that hand-holds small businesses as they start to advertise on the Web and mobile devices. One cool thing about Bloovue is you can build an ad easily on a mobile phone; a small business never has to touch a computer to advertise online. The company cited the example of a woman named Judy the Cheesecake Lady. After one ad ran on Bloovue’s network she got six calls for cheesecakes within twenty minutes, and sixty calls over the next few days. She’d never considered advertising online before, and was stunned by the rapid results.
So that’s the raw, hopeful side of the Nigerian tech scene. This weekend I’ll post two stories about my brushes with the country’s no less entrepreneurial tech underworld.
Link to Online Article: TechCrunch
Diaspora Bonds Can Tap Into Migrant Wealth, Say Economists
CNN | April 7, 2011 | By Teo Kermeliotis
African countries can raise up to $10 billion a year by tapping into the savings of nationals living abroad, leading economists have said report released last week by the World Bank and the African Development Bank said sub-Saharan African countries such as Kenya, Nigeria and Ghana can potentially mobilize the wealth of their nationals scattered across the globe by issuing "diaspora bonds."
World Bank lead economist Dilip Ratha, the main author of the "Leveraging Migration for Africa: Remittances, Skills, and Investments" report, says there are about 30 million African migrants living outside their home countries, who are estimated to have more than $30 billion in annual savings.Most of these savings are kept in bank accounts outside Africa or invested in migrants´ host countries. "If a fraction of this money was tapped through diaspora bonds, then that could amount to $5-10 billion a year," says Ratha, pointing out that the figure is likely to be even higher.
"We don´t know whether African diaspora members would only want to invest 10, 20 or 50% of their total savings," he says. "The estimate we´ve put together is an underestimate -- the true size of savings that diaspora members have is probably significantly larger."It´s a patriotic discount in a way that one can tap into.--Dilip Ratha, World Bank economist
Ratha says migrants´ emotional ties with their home countries, coupled with attractive interest rates, can entice overseas communities to buy diaspora bonds.
"It´s a patriotic discount in a way that one can tap into, plus the fact that diaspora members have lower risk perception about their country (than foreign investors) and better information," he says."Also, a more tangible benefit that they have, compared to the foreign investors, is that they do have local currency needs," he adds.
Diaspora bonds could provide a lifeline to countries struggling for access to capital and funds for infrastructure development, according to Ratha.
The practice of wooing wealthy migrants in high-income countries through bonds is not new. Israel and India have issued such bonds in the past, often in periods of financial difficulties, raising more than $35 billion.
Last year, debt-ridden Greece unveiled plans to raise up to $3 billion by targeting its wealthy communities abroad.
In Africa, a similar effort was launched by Ethiopia in 2009, although without much success, because of perceived political risk, according to Ratha.
He says there are several hurdles that need to be overcome for these bonds to be effective.One problem is that the recognition of migrants as a resource for growth is relatively new in Africa. "There hasn´t been a concerted and recognized effort to mobilize diaspora resources in any manner," Ratha explains.
Another difficulty is that a country issuing bonds must provide investors with extensive information, including transparency details and regular reports during the time that the bond is outstanding.But perhaps the most significant obstacle is governance problems and the diaspora´s perception of political risk in the country issuing bonds.
"That is a problem in many countries," Ratha says. "The minimum condition is, of course, the diaspora has to feel that there is enough credibility of the borrower on the other side and the money will be used properly and that the money will be paid back in the end."The money locked away in the banks here, in foreign countries, can be used to develop Ghana.--Hannah Apeah-Kubi -- Ghanaian living in UK
But would migrants be interested in buying diaspora bonds if they were issued?Joseph Alajemba, the general secretary of the National Association of Nigerian Communities in the UK, says diaspora bonds are a welcome idea, as long as the funds would be used to improve areas such as infrastructure and health care and are not mismanaged.
Alajemba, who lives in Cardiff, Wales, says: "If the money is going to be channeled into areas visible, that we can see, not just like the other type of money that comes in and is being hijacked from individuals, then definitely people would be willing to buy the bonds."For Ghanaian Hannah Apeah-Kubi, who´s been living in the UK for 29 years, diaspora bonds are a good idea that she says could help in the development of her country if they are purchased by enough people.
She says she would buy such a bond if she could "part with some money I wouldn´t need immediately but can be put away for such purpose."She adds: "The money locked away in the banks here, in foreign countries, can be used to develop Ghana."
In their report, the World Bank and the African Development Bank say that recorded remittances into Africa increased fourfold between 1990 and 2010, reaching almost $40 billion last year.The report urges African governments to first strengthen and then maintain their links with their nationals abroad to realize the full economic benefits of migration.
Link to Online Article: CNN
OPIC Issues Call For Proposals For Impact Investing Funds
OPIC | March 31, 2011
Agency´s $250 Million Commitment Will Leverage Hundreds of Millions More in Investment
The Overseas Private Investment Corporation (OPIC), the U.S. Government’s development finance institution, today issued its first-ever call for proposals to catalyze support for ‘impact investments’ – a fast-growing sector that is drawing investors with the promise of targeting and delivering social and environmental impact to emerging markets while at the same time generating profits.
The OPIC initiative, which aims to commit $250 million in OPIC financing, represents the largest U.S. Government commitment to international impact investing to date.
The OPIC call invites proposals from qualified fund managers and other financial intermediaries to establish investment funds designed to create a portfolio of social and environmental impact investments in the emerging markets where OPIC operates. The call is open to equity, debt and hybrid strategies. Deadline for the submission of proposals is May 12.
The call for proposals may be found on OPIC’s website.
Strategically, the call will build on the promising work of innovators in the social impact investing field, support its financial intermediaries, and utilize OPIC’s debt, insurance, and guarantee products to attract a wider pool of investors than has been seen to date. In advance of the call, OPIC and investment advisor Cambridge Associates invited input and ideas – including perspectives on innovative structures and measurements of social performance – from investors, advisors, entrepreneurs and other parties in order to optimize its design.
“Private capital has an important role to play in helping solve development challenges, especially when development budgets are under pressure.” said OPIC President and CEO Elizabeth Littlefield. “With this call, OPIC seeks to catalyze the field’s growth, by encouraging innovation, mitigating risks and committing capital to attract more private investment.”
Link to Online Article: OPIC
Change Of JSE Guard
www.iol.co.za | March 30, 2011
The recent annual results of the JSE to December last year were overshadowed by Russell Loubser announcing that he was standing down as the chief executive of the JSE at the end of this year.
This was a sad moment for the JSE as for the past 15 years Loubser has been a successful and innovative leader who led the JSE from strength to strength.
He never failed to make courageous decisions when necessary. During his term he led the JSE from being a small, backwater local exchange to becoming a recognised and respected international player. It is significant that he took the decision to stand down not because he thought it was time to go but because he felt that it was important for the JSE to elect a new leader to take it through the next decade.
We have been successful I believe in choosing the new leader. Nicky Newton-King has been groomed for this position as deputy chief executive under Loubser for the past eight years.
Newton-King, a lawyer, was a partner at Webber Wentzel Attorneys before joining the JSE 15 years ago. Together with a number of other high-quality candidates she underwent a rigorous vetting process and was the JSE board’s unanimous choice.
The JSE will therefore be in capable hands in the foreseeable future and I also look forward to following Loubser’s future career path with great interest.
The financial results for 2010 are now history but I would like to point out that they were achieved in a difficult trading period and were a tribute to all concerned.
For the record, the exchange reported a 9 percent rise in operating revenue for the year to December of R1.3 billion with net income after tax at R378 million, compared with R366m the previous year. I was particularly delighted that we managed to increase our dividend to R2.10 (in 2009 it was R1.92) as I am well aware that there are a number of JS Limited shareholders who look to the JSE for their income.
Readers may not be aware that Loubser is both a director and the treasurer of the World Federation of Exchanges (WFE).
The WFE is the association of 52 regulated exchanges around the world that develops and promotes standards in markets. WFE exchanges are home to more than 45 000 listed companies.
Obviously Loubser is highly regarded in international stock exchange circles as well as in South Africa. It is therefore fitting that in his final year as the JSE’s chief executive that the WFE has voted to hold its 51st general assembly and annual meeting in Johannesburg, from October 11 to 13.
This assembly represents the largest and most widely attended gathering of global exchange leaders. It is also attended by a number of prominent international business people and government dignitaries. I personally regard this as a milestone in South Africa’s business history and is something that Loubser and I have been lobbying for over the past 12 years.
Soaring commodity prices led to a buoyant and optimistic mood at this year’s Mining Indaba in Cape Town. For local delegates it was gratifying to experience the global interest in the resource-rich African mining sector. A delegate told me it was “like lions fighting over a kill”.
Clearly there is an increasing appetite for Africa as an investment destination as low yields in developed countries prompt investors to search for high returns in previously unexplored emerging markets.
I believe that Africa contains more than 30 percent of global mineral reserves but has less than 5 percent of the global exploration and extraction budget. What does this mean for stock exchanges on the continent and, more pertinently, for South Africa’s ability to attract new investment?
When global fund managers consider putting funds into a new destination they look for a number of criteria including a sound, business-friendly economy and, for listed investments, a stock exchange with regulatory and operational standards that meet international benchmarks. Exchanges must have a predictable set of rules, fair operating schemes and smooth and transparent operating systems. If these factors aren’t present other investment destinations will be found.
A major hurdle for investors wanting to put money into Africa is the difficulty involved in transacting on a large number of small exchanges, some with as few as five listed companies and each with its own regulatory system – often very different from the regulatory systems investors are used to. For multinational institutions the effort required to investigate each market is not always worth the effort given the low number of potential investment opportunities and the relatively high costs of executing trades in these markets.
As the largest exchange in Africa the JSE has always believed that it has a pivotal role to play in the development of capital markets throughout the continent. We have positioned ourselves as a gateway for investors worldwide wishing to access opportunities throughout the African continent and have developed the strategic links and technological capacity to do so.
In February 2009 we established our African Board, a listing venue for companies domiciled in Africa or with assets on the continent.
Because we realised that turf issues are a major stumbling block we encouraged companies to dual list on the JSE as well as their local exchange as this will offer them increased liquidity in their shares and visibility to more investors through exposure to the JSE’s large local and foreign investor base. Moreover we will share our revenues with the local exchanges.
We have also launched a series of indices to track the performance of top issuers across the continent and are developing a hub and spoke model of linking and routing orders and data to and from African exchanges.
South Africa is blessed with staggering mineral wealth. For more than a century our economy has been built on these vast resources. Our mining industry is well established and resourceful with a high degree of technical expertise and an ability to mobilise capital for new development. It has contributed greatly to the establishment of our country’s secondary industries. Resource stocks comprise about 40 percent of the JSE’s value.
However if we wish to benefit from the momentum created by foreign interest, create jobs on a sustainable basis and not miss out on the next commodity boom the government must be proactive.
The best input the state can provide is to sort out once and for all a transparent regulatory framework for the mining sector, thereby creating an environment for the mining sector to flourish.
Second, it needs to accept that a market economy, with all its imperfections, is the only kind that works. It has had very little success with state-owned mining groups such as Alexkor and should remain a facilitator and not try and be a player on the field. It has enough on its plate in trying to fulfil its core obligation of rendering public services.
Once these issues have been addressed I have no doubt that the minerals under our feet will keep our economy robust for at least another hundred years.
Humphrey Borkum is the chairman of JSE Limited.
Link to Online Article: www.iol.co.za
South African Banks Poised to Lead Stock Rally With 40% Advance, RMB Says
Bloomberg | March 30, 2011 | By Sikonathi Mantshantsha
Banks will lead a rally in South African stocks that may last 18 months as record-low U.S. interest rates spur emerging-market gains, according to RMB Asset Management, one of the nation’s three biggest fund managers.
Lenders may jump 40 percent because valuations as low as 10 times annual earnings compare with multiples of 15 for the FTSE/JSE All Share Index, according to RMB. FirstRand Ltd. (FSR), the second-largest South African lender by market value, trades at 10.2 times earnings, compared with 13.9 for the MSCI Emerging Markets/ Financials index, data compiled by Bloomberg show. The stock gained the most since December today.
“Banks are truly cheap at the current valuations,” Wayne McCurrie, a portfolio manager who helps oversee 110 billion rand ($16 billion) at the Johannesburg-based company, said in an interview in Johannesburg yesterday. Stock gains will be spurred by earnings growth of as much as 30 percent, he said.
Africa’s biggest stock gauge may climb 10 to 15 percent over the next year-and-a-half as the global economic recovery boosts corporate earnings while the Federal Reserve avoids tightening monetary policy, McCurrie said.
RMB’s outlook contrasts with a more bearish view from Investec Asset Management, South Africa’s biggest independent money manager. South Africa’s stocks are “significantly overvalued” as the surge in metals prices in the past two years boosted Anglo American Plc and BHP Billiton Plc, Sam Houlie, who oversees about 120 billion rand ($17.5 billion) as head of South African equities at Investec, said on March 25 in Cape Town.
FirstRand’s shares jumped the most since Dec. 6, rising 3.2 percent to close at 19.90 rand in Johannesburg, while Absa Bank climbed 2 percent to close at 137.25 rand, the highest since Jan. 26. Standard Bank Group Ltd., Africa’s largest retail bank by assets, advanced 2.3 percent to 104.75 rand, the highest closing level since Feb. 4.
FirstRand, based in Johannesburg, has tumbled 8 percent from its peak on Jan. 13 and Absa Group Ltd. (ASA), the biggest retail lender, has dropped 5 percent to value its shares at 11.98 times annual earnings, data compiled by Bloomberg show. Johannesburg- based Absa’s bad debt, which rose almost fourfold between 2007 and 2009, fell 33 percent to 6 billion rand last year, the bank said in a statement last month.
Growth in borrowing by South African households has slowed to 5 percent from as much as 27 percent in 2006 as the country recovered from the 2009 recession. The nation’s benchmark interest rate of 5.5 percent, the lowest in 30 years, and an inflation rate of 3.7 percent, 50 basis points above the slowest pace in 5 1/2 years, will boost prospects for increased lending by banks, according to McCurrie.
Bad Debt Unwinding
Standard Bank Group Ltd., Africa’s biggest lender, said its personal and business unit returned to profitability and registered a 5 percent advance in new mortgages for the year through December. The Johannesburg-based company has gained 7.8 percent since March 15, lifting its valuation to 13.9 times annual earnings, data compiled by Bloomberg show.
“There’s huge bad debt unwinding in the banking sector and that’s why we think the banks will rise,” said McCurrie.
Share gains will be spurred by company earnings growing about 30 percent next year, he said.
Anglo American, which makes up 11 percent of the All Share index, has lost 11 percent since Feb. 15 as metal prices fell on concern Japan’s earthquake would stem demand. The London-based company’s stock is valued at 9.1 times earnings, while BHP, the world’s biggest mining company that comprises 13 percent of the index, is trading for a price-to-earnings multiple of 12.5.
Commodity shares “are very good, but the shares aren’t cheap,” McCurrie said, adding RMB isn’t buying diversified base-metals producers including Anglo American and Melbourne- based BHP.
Link to Online Article: Bloomberg
Interview: E&Y´s Adrian Macartney Talks Of African Ventures
WSJ.com | March 21, 2011 | By Divya Guha
The bulk of the money entering Africa, until recently, was through aid programmes. Now companies from across the globe want to tap the continent´s rich resources and untapped consumer potential. The gross domestic product per household across Africa has more than doubled in the last 15 years. Ernst and Young´s Adrian Macartney, leader of transactions advisory services (Africa), spoke to Divya Guha of Mint about the shift in perception.
Why is Africa an exciting place for Indian businesses to look for acquisition targets? Are Indian multinational companies factoring Africa into their long-term growth strategies?
Africa is on the agenda of many countries, not just India. The continent is approaching one billion people in population, it has a growing middle class, growing level of wealth, greater disposable income, a growing number of cities approaching a million people.
The downside is that the geographic mass, the sheer spread of people, is far greater than in India. This will be a challenge.
What are the success rates of businesses in Africa?
It would be premature to comment at this time. However, it would be worthwhile to observe the performance of investors such as Bharti, Godrej and Essar.
What´s the downside?
No different from any other — lack of ability to penetrate the market and scale up, and operating in a market that (at the moment) is too small.
What is the main reason for the rise of interest in Africa as a growth hot spot?
Africa is rich in minerals, yet has traditionally underinvested in infrastructure. Combining this with the factors mentioned earlier, Africa offers an opportunity for sustained growth over coming years compared to stagnant markets in Europe and North America. Like many developing markets, projected growth in GDP is significantly higher than mature markets.
How many of these businesses are looking at acquisitions as a means to strategic growth versus survival? How does this compare with deals to Africa from other markets (say Europe or the US)?
Most businesses are looking for growth, not necessarily survival. Africa offers the opportunity for long-term growth. Europe and the US are not growing, so in order to deliver growth to shareholders, it is important to look for growth elsewhere. International clients, whom I have worked with, whether already having a presence in Africa or entering the market for the first time, see Africa as offering growth opportunities.
In terms of comparing it to other markets, they are not very different. Africa has become a more competitive playground, capital is available and, of course, Indian companies will have to compete with them. This includes China, which competes extensively in the infrastructure and natural resources space. Opportunities abound, but competition will rise as it becomes more focused.
What challenges does Africa face in attracting business? And what might India offer the region?
One of the things Africa needs is the ability to manage a low-cost environment. Indian companies have experience of this. Africa competes with many other emerging markets for foreign direct investment. The largest challenge is a lack of knowledge of the realities of business on the continent. Indians coming in and providing a low-cost, high-quality product will capture market share. But consumers are sophisticated in today´s market and will quickly see through poor quality.
Culturally, Indian companies might be a little closer to Africa. In terms of their shared colonial histories, Indian companies will have a unique cultural understanding of the market as well; they will understand the need to work with communities, perhaps better than some competitors.
To what extent are they looking at acquiring established African brands?
In the consumer products sector, local brands are particularly important as they allow a new player an entry to the market. This can then be used to leverage other products into the market. This is not quite the same for other sectors where it is possible to introduce brands directly.
To what extent is lowering costs their main motivation? Which sectors are most motivated by this?
This applies differently in different sectors. Many companies requiring resources are seeking to secure off-take agreements (an agreement between a producer and a buyer to buy or sell portions of the producer´s future production) and manage their long-term business through integrating the value chain. Other companies are seeking to secure ranks to market (significant market share) for their products. These companies are seeking growth. However, the ability to cut costs is what makes Indian companies attractive to the African market.
What proportion of Indian companies do you think are just testing the waters as opposed to being serious contenders?
There are many serious contenders—some slower, some faster. Each company needs to make the assessment around whether or not Africa is the best use of their capital. Indian companies are competitive and they are seeking to secure their long-term growth. Many have the skills and abilities to go offshore and where they don´t, there are sufficient skills in the market to assist them.
How will the deals be financed—retained earnings, private equity, public listings, debt or accruals?
If we look at the years 2005-08, there were many debt-financed deals. Then (after) the economic crisis, liquidity dried up, capital was scarce and the money that was available, debt, was more expensive. Now people will see more equity-financed deals. A number of funds in Africa are starting to see that they have some capital available to start investing. They will have to see exits to see more capital. South Africa is seeing a number of companies raising equity. Certainly, our expectation is that the resources sector is looking attractive for initial public offers.
I think there is probably a move towards looking for the right opportunity and finding the right structure for that, a joint venture maybe, rather than take the risk alone. There is a fair amount of debt in India, but there are many Indian companies that have a significant amount of cash and find no problem in raising finance. There´s a trend towards more sharing and partnering rather than 100% ownership.
Which are the relatively more mature countries in Africa? Do they get their fair share of attention from investors?
People know a fair bit about South Africa and Nigeria, but then it tails off. People use broad brushstrokes to paint Africa. They are worried about political risks and these issues are based on a lack of understanding and are often out of date. Go out and find out the latest details rather than base your views on reports from two years ago. Your experience in Egypt will be completely different from Tanzania. Rwanda is a country that has completely transformed itself in a very short space of time.
Current, up-to-date and reliable information is what is required. This is best summed up by the chief executive of a large listed company who insisted on taking his entire executive team on a walk through the city streets of a target to taste, smell, see and hear the sounds of consumers in that city. That seemed a sensible approach to me.
Link to Online Article: wsj.com
The Emerging Markets That Banks Should Go Into Next
Forbes | March 9, 2011 | By Richard A. Lumb
There is a rush to find the next financial growth markets. Our picks: South Korea, Mexico, Turkey, South Africa and Indonesia.
For investors and businesses alike, the key to success is often getting in on the ground floor of a market before it takes off. For investors, that has meant getting in early on great companies like Microsoft and Google. For financial services firms with global ambitions, it has meant planting the flag years--if not decades--ahead of the pack, as new markets develop. Aflac, for instance, has profited immensely from the toehold it established in Japan in the mid-1970s. And Citibank´s early bets on emerging markets have helped make it the world´s largest provider of credit cards.
At the world´s top 15 global banks, most of the profits now come from emerging markets. Thus many financial services firms are following the fashion of investing heavily in the BRIC economies--Brazil, Russia, India and China--but some are contemplating what lies beyond. When thinking of the less-than-obvious countries where an investment today might realize venture capital-like returns in the future, there are five markets that Accenture ( ACN - news - people )´s financial services industry group believes have the most potential: South Korea, Mexico, Turkey, South Africa and Indonesia.
Most of them require a strong stomach for political and economic risks of the kind we´ve seen in Egypt recently. And each of these growth markets has its own unique regulatory and cultural conditions that firms must understand going in. What they all have in common is that they are poised to grow well above the global average and have strong legal systems and open banking systems that are not controlled by the government. Not least, these markets also have comparatively low penetration rates in financial services, creating plenty of upside and opportunity for Western financial firms hoping to stake a claim. In some cases, the growing popularity of mobile banking has lowered the barriers to entry. The fact that an estimated 20% of Kenya´s gross domestic product was moved by cellphone in 2010 shows that foreign firms don´t necessarily need to spend billions on costly branch networks to compete in the developing world.
Some of these markets, particularly those in the Middle East, carry higher political risks and regulatory restrictions, and taking market share from the incumbent players will require time and money. But the ongoing liberalization of global trade and financial markets should help lower these barriers naturally--creating opportunity for financial services firms that invest today. Here is the case for each of these markets:
Although Mexico is one of the top five nations in Latin America in per capita GDP, the majority of Mexicans still don´t use banks. In fact, only a quarter of all citizens here have a financial account, vs. 43% in Brazil and 60% in Chile. That´s because many Mexicans--perhaps put off by chronically high fees and poor service at banks--have become adept at getting credit from alternative sources. Half of the country´s vast unbanked population uses department stores as its primary source of credit, compared with just 10% using financial institutions, according to the World Bank. A 2009 survey by Accenture and AMECE, Mexico´s electronic commerce standards association, revealed that 43% of the mid-sized businesses polled said they didn´t plan to use banks for any financing during the next two years.
This provides an opening for newcomers. And the industry´s current profitability--the average return on equity here has consistently topped 12%--means there is plenty of margin to go around. That´s because the share of the population that is in its peak earning years--29 to 49--is expected to rise from 37% in 2005 to 45% in 2030. That means the pie should grow for all players.
The financial services market in South Korea has historically been dominated by the "chaebols," those giant conglomerates such as Samsung and Hyundai that even have their own securities divisions. But recent trade concessions negotiated by the U.S. are expected to provide further openings for international competitors.
As U.S. firms expand into South Korea, they´ll find an insurance market that´s bigger than Spain´s, a capital market that´s bigger than Italy´s, and a banking industry that is larger than Hong Kong´s. They will also find a country that´s been an early adopter of new technologies, including mobile banking. Already, more than one out of five new auto insurance policies are sold online or over the phone, and roughly 1.4 million cell phones are expected to serve their owners as "mobile wallets" by 2015. That could give Western firms a quick way to build market share without investing in costly real estate.
This nation, at the nexus of Europe and Asia, boasts a relatively high literacy rate and a young population. Combined, that makes for a technologically savvy public that conducted 148 billion online bank transactions in 2009. Its financial system, once dominated by state-owned banks, has undergone liberalization--only two banks remain with large government-owned stakes--and a 2007 mortgage law has stimulated residential lending. Looking forward, the pieces are in place for an increase in borrowing. Inflation and interest rates have dropped, the corporate sector is relatively unleveraged, and rising middle-class incomes will provide more opportunity for household borrowing. Our biggest concerns are a large fiscal deficit and growing issuance of government bonds that, if not checked, could crowd out private borrowers.
This is another nation where technology could serve as a game-changer in the financial services sector. South Africa´s dispersed population means that there is one bank branch for roughly every 16,500 people--as opposed to one branch for every 3,100 in the U.S. As a result, expanding in financial services has been a costly proposition, and one made more difficult by the historic regulatory barriers between banks, life insurers and stockbrokers. But like South Korea, South Africa is a technologically savvy market. There are now 54 million mobile phones in use among the nation´s 50 million citizens, giving South Africa a mobile penetration rate of 108%. Right now less than half the adult population has a bank account, creating an opening for banks that can use mobile technology to serve the vast number of "unbanked" consumers--as well as a potential inroad to the whole of Africa.
The economic contagion that engulfed Indonesia in the late 1990s is now a distant memory, with the economy growing, inflation falling and the banking sector relatively sound. That´s partly because in the wake of that crisis regulators sold stakes in government-owned banks to foreign businesses, which provided the badly needed capital to stimulate lending and growth and raised the bar on banking services. Foreign institutions still hold just 14% of Indonesian bank assets, and the recent push by regulators to promote consolidation may provide yet another opening for foreign banks looking to enter through acquisition. Indonesia´s legal and regulatory systems can be difficult for outsiders to comprehend, and corruption persists as a cost of doing business here. Still, many foreign players may conclude that the benefits to be gained from penetrating the world´s fourth most populous country ultimately will outweigh those risks as its economy rises. And the fact that only a fifth of Indonesians have bank accounts but nearly half have mobile phones provides another opportunity for foreign institutions to use mobile banking services as their entrée.
Although none of these five countries can match the scale of China, India, Brazil or Russia, they nonetheless could provide attractive long-term returns for Western financial services firms that are able to move in quickly and decisively. That will require patience, which can be in short supply in an era when success is measured a quarter at a time. But as companies such as Aflac ( AFL - news - people ) and Citibank have proven, the payoff over time can be exponential.
Link to Online Article: Forbes
Aspen Network of Development Entrepreneurs Releases Second Annual Impact Report
ANDE | March 29, 2011
ANDE’s findings on the small and growing business sector reveal a “hot field” fueled by increased membership and additional investment
The Aspen Network of Development Entrepreneurs (ANDE), a global network of more than 110 members working in 150 emerging and developing countries, today released its second annual Impact Report at the Shell Foundation headquarters. The report launch marks the second anniversary of ANDE and follows its daylong member meeting, bringing together global leaders from the small and growing business (SGB) sector.
Judith Rodin, Ph.D., president of the Rockefeller Foundation, was in attendance at the launch to help celebrate ANDE’s progress and share her insights on the impact investing space. "ANDE is playing a crucial role in building the impact investing sector, and the Rockefeller Foundation is proud to be a founding partner in this innovative work. We look forward to continuing to work with ANDE to better understand the importance of small business entrepreneurs in the fight to alleviate poverty," said Dr. Rodin.
The ANDE Impact Report is a comprehensive assessment of the state of the SGB sector. It shares lessons learned about supporting and sustaining SGBs in emerging markets andaddresses areas where improvement and mobilization are needed to further promote entrepreneurship to achieve poverty reduction around the world.
“Increasingly, the development community is recognizing that market-based approaches offer a more effective model for providing key products and services to needy populations. Meanwhile, the traditional investment community is recognizing the potential of making financial returns while improving society. This convergence is leading to a greater understanding of the power of SGBs as well as increased capital flows into the sector,” stated Randall Kempner, executive director of ANDE. The report includes research that demonstrates between 2001 and the first half of 2010, 199 funds have announced a total target investment raise of $10.6 billion to invest in emerging market SGBs.
ANDE members are making strides to help build an investment community that is committed to both social and financial success. Over the past year, ANDE has grown by 37 members, reaching an additional 18 countries. Collectively, ANDE members manage 63 funds devoted to SGBs and have invested more than $900 million across 2,500 investments. Through capacity development and direct equity or debt investment, ANDE members have supported over 11,100 SGBs, with $80 million also being provided in capacity development activities in 2010.
In the report we learn about several SGBs supported by ANDE members which have expanded their supply chains and increased revenue, such as: Ecotact, which deploys payper-use toilets and showers in Kenya, growing its customer base exponentially from 4.3 million users in 2009 to 6 million in 2010; Nandan Biomatrix, which provides energy and income by converting jatropha plants into biofuel in India, reaching 15,000 households; and Better World Books, which recycles used books, saving more than 200,000 trees and 6,400 tons of books from landfills.
Link to Full Report: ANDE 2010 Impact Report
Link to Video: The ANDE Story
Carlyle to launch fund for Africa
Financial Times | March 2, 2011 | By Henny Sender
Carlyle plans to launch a $750m fund to invest in Africa, a continent long neglected by the large international buy-out firms, people familiar with the US private equity group said.
David Rubenstein, the group’s co-founder, has a reputation for being a pioneer in raising and investing money in frontier economies.
Mr Rubenstein was among the first buy-out executives to raise money in Libya and has oil money going into Carlyle funds from resource-rich African nations such as Angola.
The soon-to-be-launched Carlyle fund would be overseen by a team of three with a presence in Johannesburg, Zimbabwe and Nigeria, these people added.
Carlyle already has a significant presence in north Africa, as well as a dedicated private equity fund for the Middle East and north Africa.
Many parts of Africa are now enjoying better prospects than at any time in recent history due largely to a rush for resources led by the Chinese.
“The majority of Americans don’t pay enough attention to Africa,” one source close to Carlyle said. “It has been China that has been the catalyst for economic activity in Africa.”
Carlyle’s fundraising machine is by far the most powerful of any of the large private equity groups. But speaking at a conference in Berlin on Tuesday, Mr Rubenstein referred to a difficult fundraising environment, a complaint echoed by executives at all of the significant private equity groups. For example, in 2007, at the height of the boom, Carlyle raised $30bn, a figure it is unlikely to come close to today.
“We have seen more investment and more exits, but fundraising lags behind,” Mr Rubenstein said. Yet, he added that he expected fundraising to improve due to low interest rates and the thirst of pension funds in particular for yield. But even when the pension funds and sovereign wealth funds increase the money they give to the buy-out firms, the fees they pay are likely to be dramatically smaller, Mr Rubenstein said.
The sovereign wealth funds in particular are becoming less passive, seeking to invest alongside the private equity groups, hold separate accounts with them or invest directly and avoid paying fees.
Today, Carlyle has numerous specialised funds and has also been growing through acquisitions, bringing its total assets under management, whether direct or indirect, to almost $150bn. These new funds and acquisitions, such as its deal to acquire Alpinvest, which invests in private equity on behalf of its own investors, comes as Carlyle is moving towards a public listing, following Blackstone and KKR, and also Apollo, which will soon list.
Link to Online Article: ft.com
Bank: China’s Africa Investment to Jump 70% by 2015
WSJ Blog | February 25, 2011 | By Dinny McMahon
Think China’s pumping a lot of investment into Africa? You ain’t seen nothing yet.
Chinese President Hu Jintao, right, shakes hands with Nigerian President Olusegun Obasanjo at China’s Beijing Summit of the Forum on China-Africa Cooperation in 2006.According to a forecast statement from South Africa’s Standard Bank, Africa’s largest bank, investment from China into Africa is likely to hit $50 billion by 2015, up 70% from 2009.
Outward investment by Chinese businesses has only started to ramp up in recent years, with capital generally flowing into the world’s second largest economy as a much faster clip than it flows out. In January the Ministry of Commerce said total overseas investment by Chinese companies in nonfinancial sectors was $59 billion last year–barely larger than Standard Bank’s 2015 forecast for Africa alone.
Meanwhile the bank forecasts China-Africa bilateral trade to double in four years to $300 billion from $150 billion last year. In the past 15 years, China-Africa trade has doubled every three years, the bank said in the statement .
It also predicts that Africa’s gross domestic product, or the total value of good and services produced in a region, is likely to double to about $3 trillion in 2015 from $1.5 trillion now.
“Trade and investment routes into Africa are being recalibrated as economic momentum shifts to the East,” said George Fang, Head of Mining and Metals, China. “Through trade and direct investment, China is broadening its resources supply base with Africa as one of its key partners.”
Mr. Fang’s enthusiasm is understandable. China’s banks have only a handful of branches between them throughout Africa. Moreover, Standard Bank is in a unique position to take advantage, with Industrial & Commercial Bank Ltd. holding a 20% stake in it. Standard Bank’s investment banking operations are already benefiting from that relationship, and it looks like they may even benefit a tad more down the road.
Link to Online Article: WSJ Blog
Africa’s Expanding Middle Class Drives New Freedom Fight
iol.co.za | February 27, 2011 | By John Matisonn
This year’s Arab revolutions could bring higher oil prices, and greater instability in African countries, but also greater economic opportunities with Africa’s economic outlook better than it has been at any time since the end of colonialism. It will be some time before the effects of the recent turmoil become clear, and analysts are struggling to find relevant pointers to the future. Some have seen similar risks in South Africa’s economic policies.
Oil prices are already rising, as is to be expected, especially now that oil-producing Libya has joined the list of unstable countries. But analysts also point to tension between King Abdullah of Saudi Arabia and US President Barack Obama, as an indication that the character of the next oil crisis could be different.
The Saudis’ fury at Obama’s willingness to let go of erstwhile Egyptian president Hosni Mubarak showed in a telephone call between the two leaders. Afterwards, King Abdullah had his aides brief colleagues on the bruising encounter and promised to replace the $1.3 billion (R9.3bn) of direct US military aid to Egypt, with Saudi support.
The importance of this encounter could be great, given that in the last major oil crisis, in 1979, it was Saudi Arabia that came to the West’s aid by boosting its oil output by 30 percent. That support is no longer to be taken for granted.
Closer to home, political analyst Moeletsi Mbeki has warned that South Africa’s “Tunisia Day” would be in 2020. He arrived at that date based on the Chinese estimate that its current minerals-intensive industrialisation phase would be concluded around that time. It is also true that China’s one-child policy will ensure that around that time, the country’s ageing population and low birth-rate are likely to slow Chinese demand for African commodities.
Mbeki pointed to the decline in South African life expectancy from 65 years to 53 years since 1994, the loss of jobs in agriculture and mining, and the country becoming a net food importer for the first time as indicators that the ANC government shares unfortunate characteristics with vulnerable north African governments.
That fear emerges in a variety of ways. At a meeting at UCT this week, students who support the ANC were most keen to ask speakers what the lessons of Egypt were for South Africa.
ANC MP Pallo Jordan pointed to the most obvious difference, that South Africa is a democracy, where the ruling party can be voted out of office by its citizens. It also has a more independent judiciary and media, and diversified civil society, elements north African countries are well behind in building. He said there was resentment among South Africans, but argued that it would be targeted at business for failing to employ black school and university leavers.
South Africa has hundreds of service delivery demonstrations each year. Analysts are divided about the political consequences of these protests. While protesters still do not see a viable alternative to the ANC among political parties, some social protests are linked to more radical civil society groups. The uprising of demonstrations in Egypt, Tunisia, Libya and Morocco followed economic reforms that have improved economic growth in those countries. For that reason these appear to be revolutions of rising expectations – fuelled by a growing middle class that now has the resources to seek fulfilment of other needs, such as freedom of expression and political representation.
While this revolution surprised most Western analysts, a McKinsey & Company study of Africa’s economy, written before the start of the current Arab revolution, casts light on the underlying economic forces driving change in Africa.
McKinsey categorised four African economies as the most advanced and diversified. Three of these – Egypt, Tunisia and Morocco – are facing a revolution. The fourth is South Africa. What led McKinsey to unite these four countries as the four most advanced on the continent is their level of advancement in diversification of their economies and exports per capita.
It classified countries based on a single commodity, such as oil in Nigeria, differently because their levels of economic diversification and sophistication are lower.
The four countries are already broadly diversified, with manufacturing and services totalling 83 percent of their combined gross domestic profit (GDP). Domestic services like construction, banking, telecommunications and retail have accounted for more than 70 percent of their growth since 2000.
“They are among the continent’s richest economies and have the least volatile GDP growth,” the study says.
With high urbanisation, their cities have added 10 million people in a decade, and real consumer spending has grown by 3 percent to 5 percent annually since 2000. Urbanisation has prompted a construction boom, creating 20 percent to 40 percent of all jobs in the past decade, and consumer-facing sectors like retailing, banking and telecommunications have grown rapidly.
While these trends are most advanced in the four leading countries, they are part of a continent-wide change. GDP rose by 4.9 percent a year from 2000 to 2008, more than twice the level of the previous two decades. “Africa’s collective GDP growth accelerated over the past decade, reaching $1.6 trillion in 2008 – a level similar to Brazil’s or Russia’s.”
The study is extremely optimistic for African growth, pointing to a major turnaround in African economies since 2000, after decades of falling growth, investment and productivity. The four “diversified” economies show the hallmarks of much of the progress on the continent.
It finds that there has been a surge in growth across most African countries since about 2000. Only a third of that growth is based on the growth in commodities. The balance is attributed to internal changes, notably negotiated ends to military conflicts, improved economic policy including privatisations, and better regulation and legal frameworks.
Urbanisation has contributed to growing consumption. Growth is fuelled mainly by a rising urban middle class.
Labour costs remain higher than those in much of Asia, but the changes described have fuelled a “productivity revolution”, enabling companies to achieve economies of scale, face increased competition and employ new technologies. After declining through the 1980s and 1990s, productivity began growing in 2000, escalating to 2.7 percent for the 2000 to 2008 period.
Foreign investment has expanded and trade has shifted from Europe to Asia and intra-Africa, and non-resource countries match the growth rates of resource-rich countries. Foreign investor confidence has been enhanced by an overall reduction in budget deficits, interest rates and inflation.
Among the challenges and opportunities, the study lists improving education and health, and taking advantage of the vast tracts of arable land not fully utilised. World food production may need to rise by 70 percent from its 2005 to 2007 levels, and Africa has almost 600 million hectares of potentially suitable land that is not under cultivation. This represents about 60 percent of the world’s total available cropland.
Link to Online Article: iol.co.za
Africa Seen As Investment Hub For Renewable Energies
engineeringnews.co.za | February 18, 2011 | By Chanel de Bruyn
As developing economies, South Africa and other African countries have the potential to attract strong international investor interest for the renewable-energy sector.
Africa and South Africa fall within the target zone of international investors and South Africa consistently scores high in terms of providing a conducive business and legal environment. South Africa’s energy sector is significant to the economy, as it constitutes 15% of the gross domestic product and relies heavily on the energy-intensive mining industry, says international lawyer and special adviser to the Energy Indaba Greg Nott.
Among South Africa’s strengths as a destination of choice for investors are the size of its economy, the efficiency of its financial markets, good business practices and its innovative nature. Further, international credit agency Fitch changed South Africa’s credit outlook from negative to stable in 2011, citing improved economic growth in significant sectors of the economy and resilience in the wake of the global financial meltdown, explains Nott.
“The country’s capital expansion programme got another boost in January when State-owned power utility Eskom sold $1,75-billion worth of ten-year bonds on the international market. The bond issue is a strong indicator of international investor appetite for emerging-market debt and adds certainty to the funding of Eskom’s projects. The bond offer was two-and-a-half times oversubscribed,” he says.
Further, renewable energy is recognised by government as essential to the continued sustained growth of a modern, developing economy and Presi-dent Jacob Zuma supports the call for green technologies and industries to respond to climate change.
“These are some of the factors that impact on the decision- making of corporate leaders in their strategic investment decisions,” he says.
He adds that the Department of Trade and Industry has singled out power generation, the distribution of electricity generated by independent power producers, energy infrastructure, alternative energy, solar water heating, concentrating solar heating and wind and biomass energy as significant investment opportunities in South Africa.
Nott notes that Zuma has emphasised the need for substantial investment, skills development and technologies to grow this sector and the economy. The country also serves as a gateway to Africa, as a significant player in the power sector of the region.
Initiatives on both the demand side and supply side are required. On the supply side, Eskom is actively developing renewable- energy investments, which include the Sere Wind Project and a solar thermal project in the Northern Cape. This project will unlock enormous solar potential in the country. Besides renewable projects, there are also plans for the roll-out of advanced clean-coal technologies and nuclear energy, he explains.
Legal policy plays a significant role in providing a strong framework for the establishment of an enabling environment that is needed to grow the renewable- energy sector. While South Africa has created the broad policy framework to enable investors to consider it an attractive investment destination, more needs to be done to harness the opportunities provided by the regulatory environment, he says.
“The recent activity in the renewable-energy market shows heightened interest by investors, despite what some critics may see as a less-than-perfect legal environment,” adds Nott.
The Energy Indaba will feature experienced legal experts who will tackle these issues.
“Hopefully, the deliberations can result in a constructive dialogue that further addresses the refinement of the enabling environment to the satisfaction of all who may have an interest in the market,” he says.
Meanwhile, Nott highlights that the skills shortage in South Africa, which also impacts on the renewable-energy sector, is not an issue that government alone can deal with. He urges the private sector to also contribute to alleviating this shortage.
“In 2009, the Renewable Energy Summit organised by the former Department of Minerals and Energy, now the Department of Energy, acknowledged and recognised that there was a need to implement skills development and training in the energy sector. The call was made for all stakeholders, including the government, tertiary institutions, industry associations and the private sector to work together to develop appropriate skills and training. This programme of action also called for knowledge management and awareness campaigns to give effect to the resolutions of the summit,” he adds.
Further, on January 13, govern- ment also launched the new national skills development strategy, which calls for partnerships among all stakeholders to develop skills. The strategy links skills to career paths and, because the need for skills is high on the agenda of all players in the energy sector, the Energy Indaba is expected to give effect to a programme of action.
The application of renewable technology has the potential to alleviate many of the challenges faced by African citizens on a daily basis. Access to energy is essential for poverty alleviation and the stimulus of economic growth. The Indaba has again secured the support of the World Energy Council through its hosting of the Africa regional meeting as an ancillary meeting to the main conference.
Nott notes that the regional meeting will address issues such as the alleviation of poverty and access to energy by means of innovative funding solutions, subsidies and private-sector initiatives linked to the various interests in the region.
Rural areas will only be able to tap into the growth in renewable energy if their cause is deliberated and made a priority. The Energy Indaba intends to provide a platform for innovative ideas to tackle the rural energy challenge, he says.
Nott believes that every African and South African needs to educate themselves on renewable-energy alternatives and stake- holders should make it a priority to have awareness programmes in place.
Besides these, consumer behaviour can play a significant role in the productive and efficient use of energy resources. The Energy Indaba is positioned as one of the drivers in promoting a change in consumer behaviour for the better in Africa and South Africa.
Nott will chair a session at the Energy Indaba that will look at new renewable- energy opportunities in Africa. This session will draw on the experience, expertise and knowledge of advisers, bankers and businesspeople.
Link to Online Article: engineeringnews.co.za
NextThought Monday: Why Africa is Open for Business
NextBillion | January 24, 2011 | By Michel Bézy
Link to Africa Infographic: Wall Street Journal
Recently, I was asked to present the business perspectives in Africa to students of one of the top business schools in the US. When I asked the students at the beginning of my presentation if they would be interested in doing business in Africa, the great majority didn´t raise their hands. When I asked the few who raised their hands what type of business they would engage in Africa, their answer was working for an NGO or a microfinance organization. While this sample is not statistically valid, I think it represents the general perception of Africa in the U.S. as a region where there are no businesses in which to invest, except for philanthropy. For many, Africa is a region of famine, wars, poverty, and sickness. This stereotype is reinforced by the news media in the rare Africa news they chose to broadcast. In addition, most Americans never visited Africa and most likely will not. Therefore, any information that is received about Africa is taken for granted.
But in the last decade, things have been changing. Better governance, investments by Eastern countries, the end of wars, and the resolution of the debt crisis have all resulted in significant progress in supporting businesses and the resulting maturation of the business climate.
You will find more than 9 million search results from Google by typing "investing in Africa." But beyond interesting anectdotes many noteworthy papers and books have been published on the subject of "investing in Africa" in the recent years, including:
Paul Collier, author of the influential book, "The Bottom Billion," published "Now´s the Time to Invest in Africa" in Harvard Business Review in 2009.
The McKinsey report Lions on the Move notes: "Today the rate of return on foreign investment in Africa is higher than in any other developing region".
The annual flow of foreign direct investment (FDI) into Africa in 2008 increased to $62 billion, from $9 billion in 2000.
Wal-Mart Stores announced a cash offer of over 2 billion USD for a majority stake in the South African retail company Massmart Holdings, one of South Africa´s biggest retailers.
The CEO of the Rwanda Development Board makes the case for Rwanda in the Independent, a local media: Rwanda is now open for business.
My friend Ryan Allis, CEO of iContact, speaks about Why invest In Africa? in his Dare Mighty Things blog and provides good links for investments in Africa.
An interesting interactive graphic "The New Gold Rush" recently published by The Wall Street Journal shows how the rise of a new consumer class is shifting the balance in Africa.
So how much more information does one need to be convinced that Africa is a worthy investment? Obviously, the continent is a complex grouping of 53 independent countries and clearly the business environment required for investments is not homogeneous. The growth of individual countries across the continent will differ greatly.
The risks of investing in Africa remain high, just as they are for most emerging markets. But the perceived risk is much greater than the real risk. And once the risk goes down, the returns won´t be as good.
It is therefore important to carefully select the countries where to invest.
The McKenzie report cited above provides good economical information on the African market. The report provides a ranking of countries in 4 categories:
1) Diversified economies: Africa´s growth engines: South Africa, Egypt, Morocco and Tunisia.
2) Oil exporters: They have the continent highest GDP per capita but the least diversified economies: the three largest producers are Algeria, Angola and Nigeria.
3) Transition economies: Rapid growing economies but agriculture and resources sectors account for as much as 35 percent of GDP and two-thirds of exports: Ghana, Kenya, Senegal
4) Pre-transition economies: Their economies are very poor, with annual GDP per capita of just 353 USD: RDC, Ethiopia, Mali
A recent book "Emerging Africa: How 17 Countries Are Leading the Way" by Steven Radelet published by the Center for Global Development (Read the NextBillion post on this book here) provides a more in depth view of the success of some countries called Emerging Countries: "These countries are putting behind them the conflict, stagnation, and dictatorships of the past and replacing them with steady economic growth, deepening democracy, improved governance, and decreased poverty. Five fundamental changes are at work: (1) more democratic and accountable governments; (2) more sensible economic policies; (3) the end of the debt crisis and changing relationships with donors; (4) the spread of new technologies; and (5) the emergence of a new generation of policymakers, activists, and business leaders."
The 17 Emerging Countries are: Botswana, Burkina Faso, Cape Verde, Ethiopia, Ghana, Lesotho, Mali, Mauritius, Mozambique, Namibia, Rwanda, Sao Tome & Principe, Seychelles, South Africa, Tanzania, Uganda, and Zambia.
You may be surprised not to find oil exporting countries like Nigeria, Angola in the list of performing countries. That is because the book is evaluating more than just the GDP growth. It analyzes important indicators of development like average income per capita, agricultural production, investments, productivity, trade (imports plus exports), infant mortality, political rights and civil liberties, strength of democratic institutions, governance (rule of law, regulatory quality, government effectiveness, control of corruption, accountability, political stability), cost of starting business. In all these indicators without any exception, the Emerging Countries are outperforming the rest on the continent, including the oil exporters.
Micheal Lalor, a director at Ernst & Young SA, explains what the key considerations for investors should be in the face of the upcoming polls; plus where to start if you are planning an African foray.
So, about one third of the countries are moving in the right direction, but they are facing many remaining challenges to stay true to that course. Here are some of them:
Africa has 14 percent of the world´s population, over one billion people. It is estimated that by 2050 it will increase to almost 20 percent up from 7 percent in 1950. By 2040, Africa´s labor force is projected to reach 1.1 billion, overtaking China´s or India´s. About 44 percent of the African population is under 15 years old, making it the youngest population in the world.
Education and infrastructure
Demography will have significant implications on the need for productivity and growth to create new and diversified economic opportunities for this growing workforce and provide employment to all these people. Africa has the potential to become an important resource for labor-intensive industries, but this requires major investments in appropriate education to develop a skilled workforce that can compete in a global economy. It also requires major investments in infrastructures to support the economical development. The ICT infrastructure in particular is critical as it will be a key engine for the development of the private sector (see my post in NextBillion).
Only 9 of the 53 African countries for which the WHO shows data have life expectancies of 50 years and over while the world average is 67.2 years. The figures reflect the quality of healthcare in these countries as well as other factors including ongoing wars and HIV/AIDS infections, particularly in sub-Saharan Africa with adult prevalence rates ranging from 10 to 38.8 percent. Governance
While much progress has been accomplished, African countries are still below average in world rankings of governance. Strengthening of the progress is needed to further improve the business climate.
Adapting to climate change
Everyone understand how agriculture is depending on the climate. But weather variability has even more impact in Africa. African farmers know too well how weather changes may affect their crops. But there are other weather changes: the increasingly erratic weather patterns due to the climate change in the world, that also impact Africa. I address that challenge in my posting of August 26, 2010 in my Africa Oye blog.
In summary, Africa is open for business, but as any smart business man or woman, you need to do your homework first to figure out where to invest for better return at lower risk.
But probably the greatest challenge resides in the U.S. and the Western world. That challenge is to change the perception of Africa and encourage young entrepreneurs and investors to look at Africa as a place to do business. Business is probably a better way out of poverty than philanthropy. And I can´t wait for Business Schools to lead the way by developing curriculums on business in Africa.
Link to Online Article: NextBillion
Top 10 risks South African businesses will face in 2011
ITWeb | Dec 14th 2010
A tough economic year has seen the risk profile of most South African businesses sharply increasing. Unfortunately, 2011 will be no different and no less dangerous. In this article, Hedley Hurwitz, MD of Magix Integration, identifies the top 10 risks corporate South Africa will face in 2011.
1. Ineffective security posture: Businesses have not yet aligned their business and IT strategies, and all too often they function as separate entities. Any enterprise needs to define a holistic security posture that identifies and mitigates the vulnerabilities specific to that business. You can´t adopt the same security solutions as your peers or competitors without ensuring they apply to the risks your company faces.
2. Poor internal risk management: Without insight into user activity, companies can´t successfully mitigate their insider risks. Constant monitoring of activity and access is not a luxury, but a necessity as identified in the first Insider Threat survey, sponsored by Magix Integration. The survey found that as many as 71% of South African companies have discovered cases of fraud committed by their own employees over the last few years.
3. IT security still a grudge purchase: Security purchases are not simply a must-have to keep malware and hackers out, it is an investment that can protect your company´s reputation, prevent productivity-sapping downtime and keep revenue flowing.
4. Security disciplines not integrated: Security should be seen as concentric lines of defence that add more comprehensive security solutions to more valuable assets with each new layer. It´s not a package you buy, install and forget.
5. Insider threats accepted: Companies are inclined to buy into the need for perimeter protection, but neglect the serious threats posed by malicious and even careless employees. Today´s malware can enter a system via various mechanisms and give criminals access to the company´s entire network.
6. Identity theft: Identity management is a complex issue that most companies try to avoid. By not addressing the issue, identities and passwords are lost or stolen and systems are open to exploitation.
7. Lack of mobile and endpoint protection: The market is more aware of mobile and endpoint risks, but many companies are still neglecting to close this enormous vulnerability. Your company is only as secure as the smartphone your director left at the airport.
8. Unprotected networks: A lack of knowledge about the number and configuration of network devices in the organisation also leaves gaping holes. Often, in order to boost their productivity, departments or small teams will set up a wireless network without permission and without following the correct security protocols.
9. Corporate governance ignorance: Ignorance of basic policies, such as who can access what, which hardware and software configurations are allowed and what users can change, install or configure is dangerous. Often these rules are printed on a piece of paper tucked into corporate rulebooks that nobody except an auditor reads.
10. Lack of information control: The data in most corporations is a mess, with multiple copies of documents in various places with no view of who has what, where. Uncontrolled information easily finds its way into the wrong hands.
“Good intentions and a password no longer protect your data,” states Hurwitz. “Effective security relies on the appropriate access controls and authentication mechanisms combined with the intelligence to determine whether a person has permission to be doing what they are trying to do, and to raise an alert if not.”Link to online article: ITWeb
South Africa Business Confidence Improves In November: SACCI
RTT News | Dec 9th 2010
South Africa´s business confidence indicator rose to 87 in November from 85.9 in October, a survey report from the South African Chamber of Commerce and Industry or SACCI showed on Thursday.
Among the sub indicators, seven indices were positive during the month while four were negative and two remained unchanged, SACCI said.
Five of the seven sub-indices on real economic activity had a negative impact on the index in November on an annual basis. Four of the six sub-indices reflecting on the ´financial´ environment were positive year-on-year and may positively impact the real economy and accordingly the relevant business confidence index real sector sub-indices in the medium term, the report pointed out.
According to the report, three significant developments had an important bearing on economic prospects for the economy. One is the ongoing crisis in Ireland, which reaffirmed the possibility of problems in Portugal and Spain, thereby putting the recovery of Europe in jeopardy.
Domestically, the continued lowering of the repo rate and the growth enhancement plan could also have important implications for business and the economy, SACCI noted.
Link to online article: RTT News
Rand Trading Near 3 Year High Against the Dollar
Business Day | Dec 23rd 2010
South Africa´s rand firmed to its strongest in nearly three years against the dollar on Thursday, supported by investors´ appetite for riskier emerging market assets.
By 11h30, the rand was trading at 6.7706 to the dollar, after touching 6.76 earlier, its strongest since mid-January 2008. It closed at 6.8075 in New York on Wednesday.
Earlier the rand was bid at 8.8910 to the euro from 8.8942 before and at 10.4556 against sterling from 10.4417 at its previous close.
The euro was bid at US$1.3130 from US$1.3114.
"There is no correlation between the rand and the euro as the rand is doing its own thing," a local currency trader said.
"While there´s not a lot of volume going down, the exporter interest is good and the report that Russia expects South Africa to join the BRIC grouping with Brazil, India and China next year is rand positive," he added.
He expects the rand dollar to trade in a range of 6.77 to 6.81 for the day.
Link to online article: Business Day
South Africa to Join BRIC to Boost Emerging Markets
BusinessWeek | Dec 26th 2010
South Africa has been formally asked to join the BRIC group of major emerging markets, comprising Brazil, Russia, India and China, bolstering its position as Africa’s champion.
Chinese President Hu Jintao wrote a letter to his South African counterpart, Jacob Zuma, to inform him of the decision and inviting him to the BRIC’s third heads of state meeting in Beijing next year, Chinese Foreign Minister Yang Jiechi said in a statement on his ministry’s website today.
South Africa, which has a population of 49 million compared with China’s 1.36 billion, is betting on raising its clout on the world stage by joining BRIC, while strengthening political and trade ties within the bloc. The country accounts for about a third of gross domestic product in sub-Saharan Africa and will offer BRIC members improved access to 1 billion consumers on the continent and mineral resources including oil and platinum.
Joining the group is “the best Christmas present ever,” South Africa’s Minister of International Relations and Cooperation Maite Nkoana-Mashabane told a reporters in Pretoria today. “We will be a good gateway for the BRIC countries. While we may have a small population, we don’t just speak for South Africa, we speak for Africa as a whole.”
Zuma has made state visits to all of the BRIC nations since coming to power in May last year and the government has “lobbied very hard” to be included in the group, which will now be known as BRICS, Nkoana-Mashabane said.
Africa’s biggest economy is a “powerful country,” even though it’s small compared with the other BRIC nations, Alexei Vasiliev, Russian President Dmitry Medvedev’s envoy to Africa, said on Dec. 22.
South Africa has an economy of $286 billion, which is less than a quarter of that of Russia, the smallest of the BRIC nations. Its population is also dwarfed by India’s 1.2 billion, Brazil’s 191 million and Russia’s 142 million.
Goldman Sachs Group Inc. economist Jim O’Neill coined the BRIC term in 2001 to describe the four nations that he estimates will collectively equal the U.S. in economic size by 2020.
“South Africa’s economy is very small,” O’Neill, who is now chairman of Goldman Sachs Asset Management International, said in an interview from London today. “For South Africa to be treated as part of BRIC doesn’t make any sense to me. But South Africa as a representative of the African continent is a different story.”
At their first summit in Russia in June last year, the BRIC heads of state called for emerging economies to have a greater voice in international financial institutions and for a more diversified global monetary system.
“South Africa as a country is small, but if we go there as a regional market, that’s a different story,” said Martyn Davies, chief executive officer of Johannesburg-based Frontier Advisory, which provides research and corporate finance services on emerging markets. “For South Africa, it’s nice to be associated with the big boys.”
South Africa is the only African nation represented in the Group of 20, and will take up a two-year seat on the United Nations’ Security Council along with India and Brazil next year, resulting in all BRIC nations being represented on the council. The African nation is also part of a trilateral group with India and Brazil, known as IBSA, created in 2003 to coordinate action between the three emerging economies in global forums.
“We bring the most diversified and most advanced economy on the continent,” said Nkoana-Mashabane. “We may not be the same size, but we can open up opportunities for them and through that, we can complete our economic integration on the continent.
South Africa’s rand gained against the dollar to its strongest level since Jan. 15, 2008, trading at 6.7308 to the dollar as of 5:13 p.m. Johannesburg time.
Link to online article: Business Week
Best Bank in Africa NamediAfrica.com | Dec 3rd 2010
Standard Bank, Africa´s largest bank by assets, has been named 2010´s Best Bank in Africa and best bank in five individual African countries by The Banker, a leading journal of the global banking and finance industry.
In addition to Best Bank in Africa, The Banker named Standard Bank the best bank in South Africa, Lesotho, Malawi, Uganda and Zimbabwe.
The annual Bank of the Year awards recognise banks that succeed in gaining strategic advantage and delivering shareholder returns in spite of volatile market conditions. The Banker recognised Standard Bank for its ability to adapt to changing conditions, secure important deals and succeed in an increasingly competitive landscape.
Standard Bank Group has now won more than 20 awards from a variety of industry bodies since the beginning of 2010. Overall, the awards recognize the group´s efforts to develop a solid banking business in key African regions going back many years to when the continent was still struggling to gain global confidence.
Ben Kruger, Deputy Chief Executive, Standard Bank Group, says of the awards: "Standard Bank has a deep and long-standing commitment to developing business in Africa. We are delighted with this recognition of our capability on the continent as well as our ability to connect Africa and the world.
"Africa will remain our calling card and Standard Bank is ideally placed to capitalise on developments in the region. We are particularly well-placed to connect trade and investment opportunities in Africa to not only developed markets, but also with the emerging BRIC economies that are helping to propel growth in world trade."
Link to online article: iAfrica.com
South African Bonds Rise as ECB Plan Boosts High-Yield AllureBusinessweek.com | Dec 3rd 2010
South African bonds rose on bets investors bought the securities to benefit from their yield advantage following the European Central Bank decision yesterday to continue providing liquidity to its financial system. The benchmark 13.5 percent security due September 2015 gained for a third day in four, climbing 42 cents to 124.47 rand by 4:47 p.m. in Johannesburg. That reduced the yield by 9 basis points, or 0.09 percentage point, to 7.33 percent.
ECB President Jean-Claude Trichet said late yesterday that policy makers will continue offering banks unlimited loans through the first quarter in an attempt to prevent the region’s sovereign debt crisis from spreading. The decision marked a shift from his stance last month, when he said the ECB may start limiting access to its funds in the first quarter.
“The ECB’s continued provision of liquidity is going to help the local bond market from a yield differential point of view,” Trevor Barsdorf, an analyst at Econometrix Treasury Management, said in a telephone interview from Johannesburg. “There is still some skittishness in the market but at current levels, South African bonds offer good value to yield-seeking offshore investors.”
Five-year bonds plunged in South Africa last week, raising yields to the highest since August, on bets Portugal and Spain could be forced to join Ireland in seeking a rescue package from the European Union to deal with high levels of government debt.
“There was a bit of a healthy shake-out in the local bond market after a very good run this year,” said Barsdorf.
South African bonds have surged this year, pushing benchmark yields down by 108 basis points, as the central bank reduced its main interest rate to a record low 5.5 percent, boosting the allure of securities that guarantee a fixed return. The rate compares with deposit returns of 0.25 percent in the U.S. and 0.1 percent in Japan making South African bonds attractive to investors seeking higher yield assets.
The rand traded little changed against the dollar at 6.8839, from a previous close of 6.8861. Against the euro, the rand lost 1.2 percent to 9.2029, snapping a four-day advance.
Link to online article: Businessweek.com
Busa Calls for Action On Govt´s New Growth PathAllAfrica.com | Dec 2nd 2010
Business Unity South Africa (BUSA) has cautioned government that concrete action needs to accompany the country´s new growth plan.
"We know what the problems in the economy are, it is time for action," BUSA CEO Jerry Vilakazi told media during a briefing on Thursday.
BUSA met with Economic Development Minister Ebrahim Patel on Monday to discuss the new growth plan.
The plan aims to create five million jobs in the next 10 years in strategic areas of the economy, including the green economy, agriculture, mining, manufacturing and tourism industries.
BUSA said before wheels could be set in motion, skills development, education and inclusive wage setting had to first be put in place in order to meet long-term targets.
The body´s Deputy CEO, Professor Raymond Parsons, said that they had reached consensus on the need for a more stable, competitive exchange rate, strengthening of public delivery and the development of infrastructure, among other things.
Asked about BUSA´s standpoint on state intervention in the economy, Vilakazi said: "Every government has a mandate from its voters and certain responsibilities it must carry out.
"If you create a state that is constantly interfering and not allowing free enterprise to develop within that economy, then you have a problem. We would caution against an over emphasis on an intervening state (because) that will create uncertainty in the minds of investors."
BUSA raised concerns about the creation of a state mining corporation and state owned bank as reflecting low confidence in the private sector. BUSA suggested that there should be focus on fixing existing structures before creating new ones.
On the issue of caping salaries, as suggested by the new growth plan, Simi Siwisa, Economic Policy Director at BUSA, said that targeting salaries alone without looking at the structure was risky.
"We believe we have to take a sober look at salaries. We must caution against unintended consequences," she said, adding that the country was competing globally for talent.
The plan proposes moderate wage settlements for those who earn between R3 000 and R20 000 a month. It also suggested the capping of bonuses paid out to senior managers.
Link to online article: AllAfrica.com
Saudi Arabia Invests $100 Million in World Bank Fund Targeted at AfricaBloomberg | November 7, 2010
Saudi Arabia’s government-owned Public Investment Fund has invested $100 million in a subsidiary owned by the International Finance Corp., the private-sector arm of the World Bank, which will invest in Africa and Latin America, an executive at the corporation said.
Rashad Kaldany, IFC’s vice president for Asia, Eastern Europe, Middle East and North Africa, said the PIF had put the money in the African, Latin American and Caribbean Fund, which was launched in April and has investment commitments totaling $950 million as of June 30. He was speaking in an interview in Riyadh on Nov. 3.
As of June 30, ALAC had invested $66 million in its first three transactions, according to the IFC.
Other investors in the ALAC fund include the Dutch pension fund manager PGGM, the Korea Investment Corporation, the State Oil Fund of Azerbaijan and the United Nations’ Joint Staff Pension Fund.
The IFC invested $2.2 billion in Africa last year and it plans to increase its investment in its 2011 fiscal year, Chief Executive Officer Lars Thunell said in an interview at the World Economic Forum in Marrakesh, Morocco on Oct. 27.
American Tower to Buy Cell C´s Towers for $430 Million, Expand in Africa
Bloomberg | November 5, 2010
American Tower Corp., a Boston-based operator of mobile-phone towers, has agreed to buy as many as 3,200 towers from Cell C Ltd., South Africa’s third-largest mobile-phone company, for about $430 million.
South Africa is a “compelling investment opportunity” for American Tower, Jim Taiclet, the company’s chief executive officer, said in a statement today. The deal provides a platform for “our future growth in the region.”
American Tower will buy 1,400 of Cell C’s existing towers and as many as 1,800 additional towers that are already being built or will be constructed over the next two to three years, the companies said in the statement. Johannesburg-based Cell C will be the “anchor tenant” for each tower and the transaction is expected to close early next year.
The transaction lets Cell C “realize the value embedded in our passive infrastructure,” said CEO Lars Reichelt. The relationship will enable Cell C to enhance the quality and coverage of its network, he said.
Cell C trails Vodacom Group Ltd. and MTN Group Ltd., respectively the country’s largest and second-largest providers of mobile-phone services to South Africans.
Link to Online Article: Bloomberg
Lord Boateng predicts bright future for Africa’s economy
Vanguard Online | November 1, 2010
Former United Kingdom Treasury Secretary, Lord Paul Boateng, yesterday, said Nigeria was the key to African’s success as other countries on the continent look up to the country to demonstrate good leadership and sound economic management, especially coming out of a global recession.
He also said recent developments across the world were an indication that African economies have a bright future.
Speaking to aviation correspondents at the Murtala Mohammed International Airport Lagos, Lord Boateng noted that Africa and, Nigeria, in particular, had proved to be resilient in its economy during the recent global downturn.He added that Africa would come through in this difficult process when the economy was well managed.
He said: “Nigeria and its huge potentials are the key to the success of Africa. That is why all people of good will look up to Nigeria to demonstrate leadership, to demonstrate strength.
“I believe that it must have displayed some 50 years ago when the people of Nigeria won their independence. So this is a great conference and we are looking forward very much to do a serious work in order to make sure that the economy of Africa and its people fulfill the potentials that they have.“
Lord Boetang, who will present a paper entitled, Developing Economies: Rethinking and Reshaping the Future, at the forthcoming Kuramo Conference organised by Lagos State government, said for Africa to be emancipated from its present economic woes, depended on having sound economic policies.“The good news is that Africa has proved to be remarkably resilient in terms of its economy during the current global down turn and we have every expectation that Africa will come through this difficult process stronger and better placed”Lord Boateng stressed the need for economic growth and job creation to put Africa right on track and commended the government and people of Lagos State for recognizing the rebuilding and strengthening of African economy.
He said: “We have to ensure that the economy is managed very well and that we have effective and sound economic policies so that together we create a continent in which there is growth with job.”
He challenged African leaders to rise to the task of growing African economies, stressing global focus was currently on the continent as a fast growing emerging economy.
Link to Online Article: Vanguard Online
Africa: Coke´s Last Frontier
Bloomberg Business Week | October 28, 2010Sales are flat in developed countries. For Coke to keep growing, Africa is it
Piles of trash are burning outside the Mamakamau Shop in Uthiru, a suburb of Nairobi, Kenya. Sewage trickles by in an open trench. Across the street, a worker at a bar gets ready for the lunch rush by scraping the hair off a couple of roasted goat heads. It´s about 70 degrees, the sun is beating down, it smells like decay, and it´s time for Coke to move some product. Annual per capita consumption of Coca-Cola (KO) in Kenya is 39 servings. In more developed countries like Mexico, which consumes more Coca-Cola than any other country, it runs 665 servings per year. One does not need an MBA to see the possibilities.
Two, in fact, have just walked in. The pair wear short sleeves and jeans. They reach into a refrigerated cooler, grab two Cokes in glass bottles, and pull up two overturned red crates for chairs. Mamakamau Kingori, proprietor, 39, bustles up in a patchwork-quilt apron to take their money. The 500-milliliter sodas cost 30 Kenyan shillings (37 cents) each. As is often the case in Africa, the customers enjoy the drink on the premises, the deposit on the bottles being too dear.
Such a transaction happens about 72 times a day at Mamakamau´s, and that has earned her the status of a "Gold" vendor, the highest level awarded by the local bottler. Kingori´s sundry store—known locally as a "duka"—also sells plastic buckets and mattresses, and is no larger than a small bedroom. Her Gold status brings benefits, like an introduction to Coke´s globally standardized selling techniques. She´s urged by Coke to promote combo meals to boost profits, and so red menu signs supplied by the beverage company suggest a 300-milliliter Coke and a ndazi, which is a kind of greasy donut, for 25 Kenyan shillings. Coke also paid for the red refrigerated drink cooler at the entrance to the shop, which is protected by a blue cage. She´s told to keep it full to draw attention, and to stock it according to a diagram inside: Coca-Cola always at the top, Fanta in the middle, large bottles on the bottom. At stores down Naivasha Road, and throughout the continent and the rest of the world, Coke fridges are stocked in similar fashion.
Chasing shillings in Nairobi is the sign of both a healthy company expanding its borders and an empire so mature that it must, for its last great push, reach into many of the most war-torn and impoverished countries on earth. Chief Executive Officer Muhtar Kent may not be weeping, like Alexander the Great, at the prospect of having no worlds left to conquer, but with Coke sales stagnant or plodding in most of its developed markets—North Americans bought $2.6 billion worth of Coke in 1989 and just $2.9 billion 20 years later—Coca-Cola will rely on some of the poorest nations to generate the 7 to 9 percent earnings growth it has promised investors. That means, from the dukas of Nairobi to the "tuck shops" of Johannesburg, Africa´s mom-and-pop stores are a major front in Coke´s growth plan, not only for the flagship soda but also for the company´s huge stable of waters, juices, and other soft drinks.
Per-capita consumption of Coke is also low in India and China, relative to the U.S., Europe, and Latin America, but those two continents present less of an opportunity for the company than Africa. China´s market, famously difficult for outsiders to navigate, is already crowded with competitors like Wahaha, whose founder Zong Qinghou is China´s richest man. India drinks Coke, but loves Pepsi, too. In New Delhi, Pepsi (PEP) is so popular that the name is Hindi shorthand for soda of all kinds, even Coke. Coke will continue to compete in those countries, of course, but Africa, where Coke is the dominant brand, and where the middle class is just emerging, may offer a potentially greater payoff.
Coke has been in Africa since 1929 and is now in all of its countries; it is the continent´s largest employer, with 65,000 employees and 160 plants. Its market share in Africa and the Middle East is 29 percent, which adds up to 9.1 billion liters of beverages a year. Pepsi´s share is 15 percent. But now the small shops in the back alleys have become more important, as Coke wagers on Africa finally emerging as a viable market in the next 20 years, riding a hoped-for wave of improving governance and demographics. Coke is now in a street-by-street campaign to win drinkers, trying to increase per-capita annual consumption of its beverages in countries not yet used to guzzling Coke by the gallon. To do so, Coca-Cola is applying lessons learned in Latin America, where an aggressive courtship of small stores helped boost per-capita consumption in Mexico to the highest in the world.
"I´m not interested in owning Coke when it´s got no more continents," says Ned Dewees, a principal at Douglas C. Lane & Associates in New York, which manages $2 billion and owns Coke and PepsiCo (PEP) shares now. "But that´s 15 to 20 years from now." Africa offers "enormous opportunity" for Coke, agrees Philip Gorham, a senior equity analyst for Morningstar (MORN) in Chicago.
Looking to capitalize on its position in Africa, Coca-Cola is adding beverage plants and developing packages and products to serve a growing population with rising incomes—and anticipating that stable governments will allow the Coke sales machine to work at speed. In 2000 about 59 million African households earned at least $5,000, which is the point when families begin to spend half their income on nonfood items, according to a recent McKinsey report. The study suggests that number could reach 106 million households by 2014. Coke plans to spend $12 billion in the continent during the next 10 years, more than twice as much as in the previous decade. The expansion will include new juice plants to capture a growing middle-class demand for orange, mango, and other tropical fruit beverages, as well as to allow wider distribution of plastic bottles as more consumers can afford to sip on the go or buy the two-liter family sizes that Americans take for granted.
As Kent hunts for consumers, he is shadowed by a number Coke may never see again—$87.94. That was the company´s stock price on July 14, 1998, when its shares reached an all-time high following the 16-year term of former CEO Roberto Goizueta. By 2003, the stock was less than half that as everything from a contamination scare in Belgium to a race-related class action in the U.S. flattened the company. The turmoil was coupled with high turnover at Coke headquarters in Atlanta. Goizueta died of cancer in October 1997, and Coke has had four CEOs since.
Muhtar Kent started in 2008. Now, as he travels the globe in search of growth, he keeps a green spreadsheet in his briefcase from the industry newsletter Beverage Digest. It lists the soft drink market shares for Coca-Cola and PepsiCo in 95 countries last year. Kent has highlighted in yellow the nine countries on the list where PepsiCo leads. None is in Africa.
"Africa is the untold story, and could be the big story, of the next decade, like India and China were this past decade," Kent says. "The presence and the significance of our business in Africa is far greater than India and China even today. The relevance is much bigger."
The 25th-floor executive suite at Coca-Cola headquarters in Atlanta, from which Kent, 57, runs the company, resembles the oversized living room of a new-South mansion. Draped in rich cream fabrics and varnished wood accents, the floor is connected to the executive offices below by a spiral staircase. Portraits of company leaders such as Robert W. Woodruff, who ran Coke from 1923 to 1954, and oil paintings used for old ads hang in wooden frames.
Kent briskly enters a small dining room connected to his office. He is famous at Coke for his energy, known to contact subordinates at all hours from far-flung time zones. Broad-shouldered and barrel-chested, with thinning hair, he is dressed as usual in a shirt and tie. He wears a tie-bar Coke gave him in the 1990s for 15 years of service, with one small ruby for each five years worked.
"You´ve got an incredibly young population, a dynamic population. Huge disposable incomes. I mean, $1.6 trillion of GDP, which is bigger than Russia, bigger than India," he says, leaning into the table. "It´s a big economy, and so rich underground. And whether the next decade becomes the decade of Africa or not, in my opinion, will depend upon one single thing—and everything is right there to have it happen—and that is better governance. And it is improving, there´s no question."
Kent´s understanding of the importance of government may be as much inherited as learned. His father, the late Necdet Kent, was a Turkish diplomat. While stationed in France during World War II, the older Kent, who was Muslim, issued citizenship papers to Jewish refugees facing deportation by the Nazis. By December 1952, when Muhtar was born, Necdet Kent was serving as the Turkish Consular General in New York.
Whenever possible, Kent arranges meetings with political leaders during his travels, whether he needs something from them or not. Such relationships come in handy when, for example, he needs permission to build a new bottling plant. In July, Kent hosted Jacob Zuma, the President of South Africa, at a Special Olympics soccer match during the recent World Cup, which was heavily sponsored by Coca-Cola. "I invited him to come and join when we were together in Davos, and he kindly accepted," says Kent. "When everyone was pulling him in one direction because it was right in the middle of the World Cup, he came and spent the whole afternoon with us."
Though Kent grew up in Turkey, he studied economics at the University of Hull in the U.K., and earned a master´s in administrative sciences from London City University. He started at Coca-Cola in 1978, answering a want ad. He was soon based in Italy, where he managed advertising and sports marketing for several regions including North Africa. His first assignments required regular trips to Morocco, Tunisia, and Algeria. He´s been working in and with Africa ever since, and gets excited as he rattles off the countries he´s visited on the continent.
"There´s nowhere in Africa that we don´t go," he says. "Being in a country is very easy, you can go and set up a depot in every capital city. That´s not what we´re about. We go to every town, every village, every community, every township."
Population growth in Africa has long been a source of concern, as food and fresh water supplies are strained, but Kent argues that Africa´s plentiful young may actually be viewed as its strength. "In the old days when I used to study economics at university in England, everybody who taught macroeconomics used to say how bad population growth was, that it would condemn a country to poverty," he says. "The world has actually changed. You need a young population for a country to survive."
Maturing economies are of particular concern to Kent. Since taking over as chief executive, Kent has struggled to find growth in countries such as the U.S. and Europe, two of Coke´s largest and most profitable markets. The U.S. soda market has declined for five consecutive years, prompting both Coca-Cola and PepsiCo to buy back bottlers to retain more of a shrinking profit pie. In this, they are reversing a decision made years ago when the lower-margin business of manufacturing and distribution was shed from the higher-margin business of licensing, keeping returns on capital high. The benefit no longer outweighs the loss of control in markets where profit growth comes not from new demand but through measures such as shaving millimeters off plastic caps, as both Coke and Pepsi have done.
So Kent looks overseas, increasing investments in developing countries as part of a plan to double, by 2020, the $100 billion in global system revenue last year. Kent is fond of pointing out that 1 billion consumers will come into the middle class during the coming decade, mostly in Africa, China, and India.
Ahmet Bozer, president of Coca-Cola´s Eurasia & Africa Group, notes Africa´s minuscule debt and positive trade balance. Governments like Zambia are collaborating more with institutions such as the World Bank and the International Monetary Fund. Regional trade agreements are being signed. "There are lights coming on in the continent," says Bozer, minutes after stepping out of an August meeting with Coke´s Zambian bottler and local company executives in Lusaka. A day earlier, Bozer had visited a bottler in the Democratic Republic of Congo who was elated over a new 200-kilometer road built near the country´s troubled northern region. The access helped the bottler triple his business in the area.
Africa, of course, is not Atlanta, and Coke is, in a sense, sticking its hand into a bees´ nest to get some honey. Poverty, war, and shortages of fresh water plague the region and make commerce extremely difficult, especially for a company whose chief product is discretionary and offers no nutritional value aside from calories. Political instability complicates the building and supplying of factories, and transportation is notoriously unreliable. In the Sudan, Coke supplies syrup to an independent distributor but is barred by the U.S. government from providing any marketing or sales support. Somalia is in the midst of a decades-long civil war, and though soda gets in via boat, the bottling plant is closed. In Zimbabwe, Coke supplies "dried up" for the first time in 40 years in 2006, during the economic crisis there under Robert Mugabe.
"It´s a hugely undeveloped continent, but in order to become the next China it will have to have some growth driver," says analyst Gorham. "In China´s case that was exports. In Africa it will have to be exports as well."
In the U.S., health advocates who say Coca-Cola contributes to an epidemic of obesity have put the company on the defensive. Last year, Kent attacked a congressional proposal to tax soft drinks to pay for health care, calling it "outrageous" and comparing it to actions the Soviet Union might have taken. Still, Coca-Cola and PepsiCo have relented on calls for clearer calorie information on packages and a ban on soft drink sales in schools. In Africa, though, arguments over empty calories are mostly drowned out by concerns of too few available calories of any kind. That is not to say that Africa offers some kind of health-concern-free marketing Shangri-la. The World Health Organization has called a rise in overweight children in countries including Nigeria "disturbing" and warned of the same for adults in Northern Africa. The U.S.-based Center for Science in the Public Interest—famous for its 1998 anti-soft drink report, "Liquid Candy"—has turned its attention to obesity in countries like South Africa, already joining with international activists for a Global Dump Soft Drinks Campaign.
Coca-Cola, however, remains undaunted, at least in the person of Nathan Kalumbu, president of the company´s East & Central Africa Business Unit. Kalumbu keeps a photo of a pride of lions above his desk in Nairobi. When it comes to selling, Kalumbu says the animals remind him to "go kill something," whether it be a corner store or an entire continent. "You gotta get hungry," he says.
In Africa, most soft drinks are sold in returnable glass bottles. In Coke´s plants they are refilled as many as 70 times each before they´re recycled, depending how far the bottler chooses to stretch the glass. Returnable bottles help keep prices down so the company can reach more of what it calls "economically diverse" customers. Consumers, in effect, pay only for the liquid in the bottle.
As any good Coke man will tell you, the first rule is to get the product "cold and close." In Alexandra, a dense township of 500,000 in Johannesburg, South Africa, with 65 percent unemployment, Coca-Cola is sidling right up. Last year the local bottler blanketed streets with drink coolers and Coke signage. To keep the coolers full, the bottler extended credit to merchants who didn´t have the capital to take on inventory, giving them seven days to pay. "That´s one of the challenges in this market," says Billy Tom, a district manager for bottler South African Breweries. "You want the pipeline to be full all the time." Sales on one test street rose from 5,000 to 14,000 cases in the first six months of the year.
Not everyone on the local level appreciates Coca-Cola´s aggressive tactics. Patricia Ndlovu, 45, saw her business dip after the Coke bottler decked out her general store-like tuck shop and tavern in red tablecloths and Coke signs. The bottler even installed a remote opener on the door of Ndlovu´s drink cooler so the attendant, behind a small window, could open it when a customer rang a small chime. Some of the locals became jealous and stayed away, thinking she was being paid for tarting up the neighborhood. Things got worse when the Coke bottler painted a nearby wall red and the owner demanded payment from Coke. Coke repainted the wall white.
Mostly, though, Coke´s plans work. In Kabira, a Nairobi slum the size of New York´s Central Park, shop after shop along the densely populated main roads are Coke-red, like colored links in a chain. The local bottler hires an artist to paint the makeshift stores with logos and enticements like "Burudika na Coke Baridi," Swahili for "enjoy Coke cold."
Outside one of those shops, Ann Kimeu, 34, sips Sprite through a straw from a green glass bottle. A few blocks away, residents of the slum, which has no public water or sewer system, pay 3 shillings to fill used 20-liter cooking oil jugs with fresh water from a Coke-sponsored well. At a new bathroom Coke is helping to build in the poorest section of the slum, it will cost 2 shillings to use the toilet or the shower. Kimeu buys soft drinks as many as four times a week. It´s not a treat. She´s mostly just thirsty. A seamstress, Kimeu earns about 1,000 Kenya shillings ($12) a week when business is good. At 35 shillings a bottle, the soft drinks consume 14 percent or more of her income.
Morning breaks in Nairobi´s Central Business District, and men in red Coca-Cola lab coats arrive at Rosinje Distributors as red trucks pull up from a local bottling plant. Rosinje is one of 3,000 Manual Distribution Centers that are the backbone of Coca-Cola´s delivery system in places such as Kenya and a big part of the plan to get Coke into every alley. Ayub Onyango, 28, helps unload red plastic crates of soft drinks into three shipping containers, which serve as a warehouse. Slender, with a runner´s physique, Onyango will stack up to 22 crates, about 40 pounds each when full, onto a two-wheeled trolley. He and 10 others then fan out on the broken and congested streets of Nairobi to deliver Coke, Fanta, and Stoney Ginger Beer to about 345 small shops and beverage kiosks. With no room for inventory, many shopkeepers order as little as a case a day, and, with the crowds and the poor roads, it´s easier to deliver by hand.
Onyango´s boss, Rosemary Njeri, herself peddled clanking crates of soda shop-to-shop as a stockist 12 years ago. The mother of three worked her way up to eventually own one of Nairobi Bottlers´ largest Manual Distribution Centers, moving 20,000 to 25,000 cases a month.
The program helps the company beat Pepsi to remote customers as they develop the taste and the income for soda. Coke is also establishing Manual Distribution Centers like these in countries such as Vietnam and Thailand, where poor roads are also a challenge. In 2010, Kent is adding more than 1,200 such distribution centers in Africa. They currently employ more than 12,000 Africans and generate $500 million in annual revenue.
Coca-Cola teaches these mini-distributors everything about how to run a business—from things as simple as waiting until the midday rush before icing down the Cokes to save resources to how to buy a house with their newfound wealth.
Coke is working to bring Njeri´s business into the 21st century. In August a small team from Nairobi Bottlers studied maps of Njeri´s territory and evaluated hand-tabulated data to help construct new delivery routes. Up until now, Onyango and his fellow salesmen visited a handful of accounts in the morning before going back to the distribution center to load up and deliver. They repeated this several times a day until their route was done.
Now a specialized sales team has been walking accounts, sending orders in the afternoon by cell phone to laptop computers. That lets Onyango and his colleagues concentrate on deliveries, while the sales crew helps shop owners with marketing and inventory management. Njeri and the bottler also get more precise sales data, which are easier to mine for trends and places to cut costs. "My business is all about volume," says Njeri. "When I do volume, I get money in my pocket."
Back in Atlanta, not far from where Coke´s phenomenal run began, it´s lunchtime at Lenox Square, a shopping mall a short drive from Coca-Cola headquarters. Shoppers park their BMWs below glass office towers and a rooftop hotel pool. They buy perfume, silk ties, and Apple laptops. In the food court, they eat pita wraps and Japanese noodles. Here, the Coke system operates with peak efficiency. When customers ask for a soft drink with their combo meal, chosen from a red menu board, the clerk reaches into a red cooler and hands them a Coke. But the new money in Coke´s pocket will be earned by Njeri.
Link to Online Article: Bloomberg Business Week
Welcome to My Taxi - Let´s Do Business With My Cell PhoneAllAfrica.com | Aug 31, 2010
In cities across Africa, being an entrepreneur requires no office, business card or investors. All it takes is a cell phone, according to Adele Botha, a researcher at the Council for Scientific and Industrial Research (CSIR) in South Africa.
More than a convenience, cell phones have become a means of livelihood and information for people in rural communities across Africa. NGOs and researchers are studying their effects on rural communities.
Mobile phones have made deep strides into the African market in recent years, and are becoming important tools for helping rural and urban populations stay connected and promote business.
Presenting her research at the CSIR´s Third Biennial Conference on Aug. 31, Botha detailed how phone access can be used as a money-making tool.
In Lusaka, Zambia, Botha said she encountered a taxi driver who would make money by researching and diagnosing people´s diseases using his phone´s internet browser. And in rural Kenya, Botha said she interviewed an orphanage worker who used to make money by hiring out her phone for use, until other people in town got their own mobiles.
"Now she makes money by charging other people´s phone batteries," Botha said.
Between 2003 and 2008, the number of cell phone subscriptions grew from 11 million to 246 million, faster in Africa than anywhere else in the world, according to the International Telecommunications Union. And while less than three percent of rural areas in Africa have landline telephone connection, the ITU estimated that over 40 percent of these areas have phone access via cell phone.
While Europe´s technology infrastructure was centered on the personal computer, Botha said Africa, and much of the developing world, is basing its infrastructure around the mobile phone.
"The developing world is coming into the information era with a development-centric point of view," Botha said, with communities embracing the mobile phone for its ease of use and ability to proliferate among communities.
While there is a trend among wealthy mobile phone users to buy expensive phones with internet or Bluetooth capability, Botha said most phone users need only three capabilities to be connected with each other: text and voice messaging, and Unstructured Supplementary Service Data, which allows phones to communicate with their service provider.
"If you want to connect to everyone, this is what you need to have," Botha said.
Recognising the proliferation of mobile phones in South Africa, CSIR´s Meraka Institute, with funding from the Department of Arts and Culture, worked to develop Lwazi, a cell phone-based system to disseminate government information.
Lwazi has been tested over the past two years in six municipalities across the country, ranging from rural to urban, according to Aditi Sharma, a CSIR researcher who helped develop the system.
"In rural areas with no (landline) service, you can still get information," Sharma said.
Using the system, people without the internet can call a hotline for access to government information, Sharma said. Additionally, the automated system is available in all 11 of South Africa´s official languages, according to information provided by CSIR.
According to Sharma the system is locally customisable and organisers at community centres can post messages to the system via the internet. Locals can listen to the messages through their mobile phone and in turn can leave voicemail messages for the community centre.
"Through the piloting of project, we have shown that automated telephone is an effective means for facilitating dissemination of information," Sharma said.
Link to Online Article: AllAfrica.com
South Africa Bonds´ `Perfect Storm´ Lures Record Foreign BuyingBloomberg | Sept 1, 2010
International investors are buying more South African bonds than at any time in the past 15 years, lured by slowing inflation, a stronger rand and higher interest rates than in developed markets.
Net foreign purchases of local-currency government debt swelled to almost 67 billion rand ($9.2 billion) so far in 2010, more than in any full year since the so-called financial rand was abolished in 1995, according to data from JSE Ltd., the company that runs the country’s stock and bond exchanges.
The purchases sent yields on the government’s bond due in 2026 down as much as 119 basis points, or 1.19 percentage points, this year to 7.86 percent, the lowest level since January 2009. Even after cutting the benchmark interest rate 550 basis points since December 2008 to 6.5 percent, the central bank will probably reduce by a further half percentage point on Sept. 9 as inflation slows, according to Johannesburg-based Nedbank Group Ltd., Vunani Securities and Stanlib Asset Management.
“South African bonds are in a perfect storm -- yields are high, inflation is low and the Reserve Bank is one of the only central banks in the world that can still realistically contemplate cutting rates,” said Kieran Curtis, who helps manage $2 billion in emerging-market debt at Aviva Investors in London. “You can feel the market looking for places to pick up yield and that’s feeding returns in emerging market bonds.”
Seeking Yield:Near-zero interest rates in industrialized nations are encouraging investors to borrow at lower costs and invest in markets offering higher returns, prompting rallies in local- currency debt from Indonesia to Brazil. The transactions, known as carry trades, have propelled South Africa’s local-currency bonds to the second-best performers in Europe, the Middle East and Africa after Russia in dollar terms, according available index data compiled by Bank of America-Merrill Lynch.
South Africa’s benchmark interest rate compares with deposit returns of 0.25 percent in the U.S., 0.5 percent in the U.K. and 0.1 percent in Japan.
“The record-low rate we’re seeing globally means there’s a hunt for yield going on at the moment and South Africa offers good returns,” said Vivienne Taberer, a portfolio manager who helps oversee about $70 billion at Investec Asset Management in Cape Town. “The market is realizing that local currency emerging-market debt is a good place to be and that’s helping high-yield markets like South Africa.”
Apartheid Currency:Foreign investors bought more South African bonds this year than in the previous 15 years combined, according to JSE Ltd. data. Offshore investors purchased a net 6.89 billion rand of South African bonds between June 1995, when the country scrapped the financial rand, and the end of last year.
The finrand, as it was known, was a parallel currency instituted by the government in 1985 to limit outflows from the country at a time when the apartheid-era regime faced economic sanctions. Non-residents wanting to sell their South African investments had to do so using the financial rand, which traded at a discount to the spot exchange rate, while limitations were placed on the convertibility of financial rand into foreign currency.
UBS AG, Switzerland’s biggest bank, is recommending investors sell South African bonds as inflows in the nation’s fixed-income assets have been “too excessive,” said Di Luo, an emerging-markets strategist at UBS AG in London. Zurich-based UBS also predicts the rand will give up gains by year-end, reducing investor returns, she said.
Slowing Inflation:The brokerage estimates the rand will depreciate almost 3 percent to 7.60 per dollar by December. The forecast compares with an end-2010 median estimate of 7.68 based on a Bloomberg survey of 18 analysts.
South Africa’s benchmark 13.5 percent bond due September 2015 surged as much as 3.55 rand this year, reducing the yield by 122 basis points to 7.18 percent, the lowest since December 2008.
Inflows into the bond market have helped the rand extend its surge against the dollar since the start of last year to almost 29 percent, making it the second best-performing emerging-market currency after Brazil’s real over the period, according to data compiled by Bloomberg.
The rand traded little changed from its previous close at 7.3816 per dollar as of 10:44 a.m. in Johannesburg today.
As inflation slows, traders are increasing bets for further interest rate cuts. Inflation eased to an annual 3.7 percent in June, the slowest in more than four years and below the central bank’s 6 percent target limit.
Abandoning Bets:Slowing price growth data prompted Nedbank, Vunani Securities and Stanlib Asset Management to abandon earlier estimates that the central bank would leave its benchmark rate unchanged at its next meeting.
“The central bank has plenty of room to cut rates thanks to the strong rand, which has reduced imported inflation,” said Ian Cruickshanks, head of research at Nedbank Treasury in Johannesburg. “Inflation is likely to stay below 4.5 percent until the end of the year.”
Money-market futures used by analysts to gauge interest- rate expectations show traders are pricing in an almost 70 percent probability that the central bank will reduce its main rate by 50 basis points when it meets next week, according to Johannesburg-based Econometrix Treasury Management, which advises South African banks on foreign exchange transactions.
FRAs, or forward-rate agreements, for three-month cash contracts due in one month have slumped as much as 1.135 percentage points this year to 6.17 percent, the lowest since the central bank first introduced its repurchase rate in 1999.
“The market is pricing in rate cuts going forward but that’s unlikely to significantly dent foreign portfolio inflows into the local bond market,” said Cruickshanks. “The rate differential between South Africa and the developed world is so high that they’re likely to continue for some time.”
Net Foreign Purchases of South African Bonds (in rand)
2010: 66.99 billion (year-to-date)
2009: 26.54 billion
2008: -15.98 billion
2007: 2.15 billion
2006: 20.50 billion
2005: - 5.00 billion
2004: 3.00 billion
2003: - 5.40 billion
2002: 0.20 billion
2001: -26.51 billion
2000: -20.53 billion
1999: 14.34 billion
1998: -9.77 billion
1997: 14.78 billion
1996: 3.81 billion
following the March 1995 abolition of the financial rand, the currencypreviously used for foreign capital transactions.Link to Online Article: Bloomberg
Adcock, Merck & Co Expand African Distribution DealReuters Africa | Sept 1, 2010
U.S. drugmaker Merck & Co and South African peer Adcock Ingram have expanded their cross-distribution deal to sub-Saharan Africa, raising both companies´ presence on the fast-growing continent.
In June, Adcock and Merck signed a similar five-year deal for the South African market.
The tie-up marks the latest push by big pharmaceutical companies into emerging markets where they see much of their future revenue growth as sales stall in developed markets.
"We expect sales from emerging markets to be a key contributor to our future performance," said Marc Princen, head of Merck´s Eastern Europe, Middle East and Africa regions.
The deal also helps Adcock´s expansion drive into the rest of Africa where it has small operations in Ghana and Kenya, and gives it access to a wider product range.
Merck´s products to be co-promoted in countries such as Botswana, Kenya and Ghana include medicines for asthma, dermatology, hypertension and migraines.
Link to Online Article: Reuters Africa
HSBC in Talks to Buy Control of Old Mutual´s Nedbank
Bloomberg | Aug 23, 2010
HSBC Holdings Plc, Europe’s largest bank, is in talks to buy a controlling stake in Old Mutual Plc’s Nedbank Group Ltd. that’s valued at about $7 billion to benefit from growing business ties between Asia and Africa.
HSBC may acquire as much as 70 percent of the Johannesburg- based bank, London-based Old Mutual said today. HSBC and Old Mutual are in exclusive talks and have eight weeks to reach an agreement for Nedbank, which has a market value of 71.5 billion rand ($9.8 billion).
HSBC said last month it was looking to expand in Africa as more companies in Asia, where the bank gets more than half of its profit, trade with the continent. The International Monetary Fund forecast 5 percent economic growth for Africa this year, five times the pace of the European Union, amid demand for the continent’s natural resources and an expansion of infrastructure. Old Mutual, Africa’s biggest insurer, wants to build its South African business while concentrating on insurance and paying down debt of as much as 1.5 billion pounds ($2.33 billion).
“Over time, the value of this deal would lie in leveraging off HSBC’s strengths in Asia and the growing Asia-Africa trade links,” said JPMorgan Chase & Co. analysts, including Carla Antunes da Silva, in a note today.
Nedbank jumped as much as 7.4 percent in Johannesburg trading, the most since March, and ended the day 6 percent higher at 139.01 rand. Old Mutual gained 3.3 percent to 125 pence in London, while HSBC rose 0.7 percent to 638.9 pence.
Under the proposed transaction, HSBC may offer all Nedbank shareholders the opportunity to sell 70 of every 100 shares in the lender, according to Mike Brown, Nedbank’s chief executive officer. Nedbank would remain listed in South Africa and follow disclosure rules, Brown said.
“We believe a strong international banking partner” could accelerate Nedbank’s growth ambitions, Brown said. HSBC came through the global financial crisis with “a pedigree that speaks for itself,” and its possible acquisition of Nedbank may carry less risk than Old Mutual remaining the parent, Brown said. There haven’t been discussions about whether he would keep his job if the deal goes ahead, Brown said.
Old Mutual owns about 52 percent of Nedbank.
HSBC emerged ahead of Standard Chartered Plc as the favorite to purchase the controlling stake. London-based Standard Chartered, which gets three-quarters of its profit from Asia, was also considering a bid for Nedbank, a person familiar with the situation said in May. Tim Baxter, a London-based spokesman for Standard Chartered, declined to comment.
Nedbank, South Africa’s No. 4 bank by market value, would be HSBC’s first major takeover since the start of the global financial crisis. Nedbank, which traces its origins to the 1830s, provides banking services primarily to companies. Through an alliance with Ecobank Transnational Inc., which is listed in Nigeria and Ghana, Nedbank has a presence in 33 African countries.
“With 30 percent of exports destined for Asia, and China now its largest trading partner, South Africa’s prospects are brighter than ever,” Paul Harris, a spokesman for HSBC, said from Johannesburg today. HSBC, which entered South Africa in 1995, has five branches in the country.
‘Power Their Way’
Africa’s economy has a population that has just surpassed 1 billion. While the World Economic Forum on Africa in Tanzania this year dubbed corruption on the continent the “elephant in the room,” a McKinsey Global Institute report, published in June, said the region’s collective gross domestic product may reach $2.6 trillion by 2020, with consumer spending likely to reach $1.4 trillion in the next decade.
Nedbank accounted for 12 percent of Old Mutual’s revenue in 2009 and was the second-biggest earner for the group after the insurance business. Old Mutual would use some of the sale proceeds to boost operations in South Africa, said CEO Julian Roberts, adding that he hopes Nedbank and the insurer will keep close ties.
“This is great for the local banking industry,” Chris Gilmour, a Johannesburg-based analyst at Absa Investments, said in an e-mailed response to questions. “HSBC and Nedbank will be able to power their way into the rest of Africa, mainly concentrating on Chinese development deals involving multinational banks and companies.”
‘Vote of Confidence’
An acquisition would be “a vote of confidence” in South Africa, the National Treasury said in an e-mailed statement. While the transaction will need approval from the country’s Finance Minister, Pravin Gordhan, it is already foreign controlled as Nedbank is majority owned by London-based Old Mutual Plc, the Treasury said.
Nedbank should retain its listing in Johannesburg and a local chief executive officer, Errol Kruger, South Africa’s registrar of banks, said in an interview on Talk Radio 702, which is based in the South African city. The Nedbank brand is “not sacrosanct,” he said.
Africa’s largest bank, Standard Bank Group Ltd., sold a 20 percent stake to Industrial & Commercial Bank of China in 2008 as both lenders sought to capture financing opportunities between the two continents. FirstRand Ltd., South Africa’s second-largest banking group, signed a cooperation agreement with China Construction Bank Corp. last year. The shares advanced 3.2 percent today.
If HSBC succeeds in acquiring control of Nedbank, it “will surely make a massive, concerted effort to flex its muscles on the continent,” Gilmour said. “The HSBC brand will probably prevail over the Nedbank brand.”
HSBC, which has African operations in Egypt, Mauritius and Nigeria, was advised by Lazard Ltd. Old Mutual was advised by Lexicon Partners, Rothschild and Bank of America Corp., while Nedbank was advised by Credit Suisse Group AG.
On Aug. 6, Old Mutual said it has agreed to sell its U.S. life operations to Harbinger Capital Partners for $350 million to pay off debt and reduce assets in the U.S.
Link to Online Article: Bloomberg
The Final Frontier
Barron´s Cover | August 2, 2010
Investors will lose a huge opportunity if they avoid vibrant and changing Africa. Fast growth in a continent of misconceptions.
What images does Africa conjure in the mind of the average Westerner? Probably skinny children in dire poverty, corrupt dictators and, thanks to Hollywood, blood diamonds. Africa doesn´t get much attention in the West beyond that. During South Africa´s successful World Cup this summer, for example, many news reports focused on vuvuzelas and few on the capable management of the event itself
China Raising the Stakes in Africa: China´s trade with sub-Saharan Africa has expanded by a factor of about 10 in the past decade. China is importing mostly commodities and exporting infrastructure and machinery, among other thingsLikewise, the noisy financial crises in the developed financial markets appear to have drowned out a decade of impressive and sustained economic and institutional progress in sub-Saharan Africa. (See table: A Decade of Improvement.) To many Western investors who don´t look past the stereotypes, Africa is terra incognita. Their ignorance could cost them plenty in lost opportunity.
Take the U.S. Chamber of Commerce, which in a survey last summer revealed that "over all, U.S. businesses do not view Africa as an attractive place to invest. The image of lawlessness, corruption, unstable governments, an inadequate infrastructure, uneducated or untrained people and an unwelcoming government attitude toward business serve as major deterrents."
Africa suffers from misconceptions more than any other area in the world," argues Miles Morland, whom many consider the father of fund investment in Africa. He founded Blakeney Management in the early 1990s, and now is chairman of Development Partners International, a London-based private-equity firm that invests in Africa.
Perceptions based on the way Africa once was linger in the minds of many investors, he says. The U.S. and U.K. effectively have nationalized more companies during the financial crisis (think GM, Chrysler, AIG, Citigroup, Royal Bank of Scotland, Northern Rock) than African nations have in the past nine years, he quips, and national debts are far less worrisome there than in America or Europe.
"Funnily enough," Morland continues, "people wearied by bankruptcies, meltdowns, restructuring and bank bailouts are amazed to learn about a continent that has transformed itself into one of the fastest- growing regions in the world, where banks haven´t needed bailing out, no large companies have folded, with no accounting scandals and where the biggest problem businessmen have is getting capital to finance growth."
He is seconded by another investor with decades of experience, Donald Elefson, portfolio manager of the Harding Loevner Frontier Emerging Markets Fund (ticker: HLFMX). Among frontier regions, Africa is the most interesting, he asserts, because it offers strong markets with huge potential, liberalizing policies, good capital flows and undiscovered high-quality companies. And Nigeria is one of his favorite frontier countries. He contends that the giant nation of about 150 million people eventually can fill the same leading role for Africa that Brazil has played for emerging markets.
Like Brazil, Nigeria hasn´t liberalized its petroleum and telecom industries yet, and its stocks in those sectors will benefit whenever that happens. Again like Brazil, Nigeria has grown strongly, even though its banks curbed lending last year. Whenever the banks ratchet up lending, that will further fuel growth. (Nigerian regulators recently forced some banks to take bigger-than-expected write-downs on loan losses. That hurt reported earnings, but has removed a nagging issue and will help future profits.)
Indeed, after a big drop from boom highs in early 2008, African stock markets—despite their problems—now offer the long-term investor a number of fast-growing companies with stocks that sell for about 11 to 12 times trailing 12-month earnings per share as of June 30, according to S&P Indices. They look inexpensive compared with price/earnings ratios in most developed markets or even in the broad world of emerging markets, where the average stock fetches 15 times trailing profits
With many economies on the continent growing 5% to 8% annually, according to the International Monetary Fund, investors can find banks, brewers, supermarket outfits and mobile-phone companies with good prospects, decent balance sheets and relatively low P/Es (especially compared with their growth potential). Some have few rivals, provide important consumer services and boast profits that are growing faster than their homelands´ economy.
If the West hasn´t noticed this big change, China has. With relatively little fanfare, it has made a huge foray into Africa. China´s rapidly rising middle class isn´t just pulling itself up by the bootstraps, but also is creating demand for resources from Africa. That´s helping to raise income levels on the vast continent, as well.
Africa´s bounty of natural resources, such as oil, iron ore, gold, copper and numerous others, have brought in strong trade flows from the Asian giant, with $88 billion in 2008 in exports and imports between the two, up 10 times from 2000 (see table, China Raising the Stakes in Africa). In return for those commodities, China is building seaports, power plants, roads and other infrastructure projects, which should help sustain the growth in gross domestic product expected in many parts of the sub-Sahara. Africa´s economy is growing at a tiger-like 5% to 8% pace, versus 4% for countries like Russia and Brazil. And the IMF has been nudging up its forecasts for Africa.
There are compelling long-term trends on the continent, says Razia Khan, the London-based head of research on Africa at Standard Chartered, a U.K. bank with businesses in many emerging and frontier markets. Political stability and economic policy has improved. Consumption is rising, with the working-age population expected to hit 65% of the total population in 2050, versus about 50% now. And new capital, some from investment funds, is coming in. Africa´s debt and foreign-exchange markets are opening up, too, Khan adds, another encouraging sign. Over all, "Africa is becoming more accessible" to Western investment.
Some Ways to Play AfricaThere are few African pure plays available to individual investors in the U.S., but there are a few stocks, as well as frontier funds and an ETF, that are significantly exposed to sub-Saharan Africa. There are also locally traded stocks that are investable by institutions, though liquidity is a problem.
|P/E * |
|MTN Group / MTNOY||Pink Sheets||Mobile Phones||$29.7||12.1||10.2|
|Shoprite Holdings / SRHGY||Pink Sheets||Supermarkets||6.9||21.1||18.3|
|Tullow Oil / TUWOY||Pink Sheets||Energy Exploration||17.5||131.1||33.7|
|African Bank Inv / AFRVY||Pink Sheets||Banking||3.6||12.6||9.9|
|Mutual Fund or ETF/Ticker||Assets|
|Return Since |
|Morgan Stanley Frontier Emerg / FFD||$85.9||-15.9%||Overweight Africa|
|T. Rowe Price Africa & Middle East / TRAMX||200.8||-8.6||Doubled Africa weight recently|
|Harding Loevner Frontier Emerg Mkt / HLFMX||21.5||-15.1||Invests in Nigeria and Kenya|
|Templeton Frontier Mkts / TFMAX||44.3||25.0||28% of fund in sub-Sahara|
|iShares MSCI South Africa ETF / EZA||441.0||19.4||Mimics MSCI S. Africa Index|
A key sector is banking, a necessary engine for consumer and corporate growth. Credit to the private sector in East African nations, for example, is growing at a healthy yearly clip of 15% to 20%, notes Simon Migangala, the Dar es Salaam-based treasury director for CRDB Bank in Tanzania, which operates in East Africa. The global recession has hurt, but regional economies are recovering, with banking, construction, energy and telecommunications showing gains. "It will be much higher than expectation," he predicts of banking growth.
With net-interest margins significantly higher than in the rest of the world, Morland views bank stocks as one of the best investments in the early stages of a frontier market´s growth. If an economy is expanding by 7% a year, for example, banking assets can grow 30% to even 100%. "Businesses we like to invest in are the same ones others are buying in China: banks, brewers and telcos," he says.
The consumer-growth potential is huge. Africa, the second most populous continent, has close to 900 million people. While many are very poor, incomes generally are rising, thanks to globalization and China´s hefty appetite for commodities.
Alan Dowokpor, 44 years old, who grew up in Ghana, departed and then returned to Accra to head Tullow Oil´s drilling program, says that when he was a child, visitors from the U.K. used to bring a suitcase full of necessities like soap. Now people are earning enough to afford consumer items like that. Making a phone call used to be a "real big deal," but mobile phones have changed that. Perhaps most important, former economic emigrants, "qualified, educated Ghanaians, are coming back and that in itself says something about improving opportunity.
"These days, investors artificially distinguish between emerging and frontier markets, contends Lawrence Speidell, chief investment officer for Frontier Market Asset Management. Africa is the most neglected frontier market, he avers, because its countries are "a little bit poorer and their stage of development a little behind" that of emerging markets in general. But, he adds, "from the standpoint of the people living in those nations and their everyday lives, the differences between them are slighter than many believe."Speidell´s firm has investments in Ghana, where the banking industry has a net-interest margin of 8% and banking shares have relatively low price/earnings ratios. Ghana Commercial Bank (GCB.Ghana), for example, is the largest in that country, with the longest reach, 157 branches and a stock price around six times expected 2010 earnings.
His other African investments, Standard Chartered Bank Ghana (SCB.Ghana), which is focused on high-end clientele, has a 48% return on equity and trades at a multiple around 10. Cal Bank (CAL. Ghana) is another of Speidell´s favorites. Small and nimble, it´s the only independent bank in his top 10. It focuses on the high-end market, targeting recent university graduates. And it has a P/E of 6.6. (It must be noted that frontier-market P/Es often are based on only a handful of profit estimates. The 10 multiple listed for Cal Bank in the table at left, for example, is based on an analysis from only one broker, Securities Africa in Johannesburg.)
After the frontier stock-market boom ended in early 2008, African shares fell hard along with the major global markets. They remain far below their highs, despite a nascent recovery that began late last year. Nigerian stocks, for example, are more than two-thirds below the highs of 2007-08, when hedge-fund money was pouring in, creating a bubble in which too much cash was chasing too few companies.
A lot of that hot money was among the first to leave during the global crisis, observes Jenni Chamberlain, a portfolio manager at Finch Asset Management. Still, she´s seeing "more interest from long-term investors" in Africa lately. One of her favorite stocks is Sonatel (SNTS.Senegal), a fixed- and mobile-phone outfit that trades in Senegal and is 42% owned by France Telecom (FTE) and 27% by the government. It´s the most attractively valued sub-Saharan telecom operator, as well as the dominant player in both Senegal and Mali, with a growing share in Guinea Bissau and Guinea. The company has a strong balance sheet and a 10% dividend yield, Chamberlain notes.
The share-price drop across markets in Africa should entice new investors willing to look five years down the road as an opportunity to pick up stocks at some of the lowest prices since 2006, when Barron´s last wrote at length about frontier markets ("Finding Riches on the New Frontier," Nov. 6, 2006)
Profit growth has been much higher in Africa than in the rest of the world, mitigating some of the higher risk there. For example, from 1995 through 2009, earnings per share advanced at a compound annual rate of 17% for the companies in the Blakeney Africa portfolio, which also includes Middle Eastern stocks. That return far outpaced the 4% to 5% average for companies in the Standard & Poor´s 500 index and the MSCI Emerging Markets index in the same span.
What would you pay for 4% to 5% annual growth? Morland says maybe nine or 10 times earnings, but adds that he would "pay 25 times for 17% growth." Yet the P/E for Blakeney´s African portfolio is about 10 times 2010 earnings.A Decade of Improvement:Many investors in developed markets don´t know the extent of the dramatic economic improvements that have occurred in sub-Saharan Africa over the past decade. While the region remains among the world´s poorest, it is growing swiftly. That should boost profits at many of the companies that operate there.
|Locally Traded Company/Ticker|
2010 E 2011E
|Cal Bank / CAL.Ghana||Banking||$0.43||10.0||8.0|
|CRDB Bank / CRDB.Tanzania||Banking||0.17||5.0||NA|
|East African Breweries / EABL.Kenya||Brewer||1.70||16.2||14.8|
|Equity Bank / EQBNK.Kenya||Banking||1.10||12.2||10.0|
|Ghana Commercial Bank / GCB.Ghana||Banking||0.28||5.8||5.1|
|Guaranty Trust Bank / GUARANTY.Nigeri a||Banking||2.70||7.9||6.0|
|Safaricom / SAFCOM.Kenya||Cellphone & Internet Provider||2.80||14.1||12.2|
|Sonatel / SNTS.Senegal||Telecom Provider||2.70||7.1||6.7|
|Standard Bank Group / SBK.South Africa||Banking/Insurance||24.30||12.1||9.2|
|Standard Chartered Bank / SCB.Ghana||Banking||0.57||10.5||7.2|
|E=Estimate *Based on estimates of home traded stock.Sources: Securities Africa, Bloomberg; Lipper|
|Gross national income per capita*||1,272||1,950|
|GDP ($US bil)||342.4||978.1|
|GDP growth (annual%)||3.6||5.1|
|Days required to start a business||61**||46|
|Mobile-Phone subscriptions (per 100)||2||33|
|Internet users (per 100)||0.5||6.5|
|*Measured by purchasing-power parity in U.S. dollars. **2005Source: World Bank|
African equities—not including stocks issued by companies in South Africa, which is classified an emerging market—represent roughly 15% of the frontier indexes.
In recent months, the flow of money into frontier markets has accelerated. About a $1 billion has been added this year, 14.5% of total frontier-fund total assets, according to EPFR Global, which tracks institutional flows. With frontier- and emerging-market money managers growing more enthusiastic about the continent, more of their cash is going into African stocks.
Many institutional investors argue that Africa is now where emerging markets were 20 years ago—a place investors are deathly afraid of, but one that is rapidly changing and in which returns can be high.
Says John Niepold, managing partner at SQM Frontier Management and a 20-year veteran of emerging and frontier markets: "If you go around on the ground in Africa, as I do, you´ll find companies are doing well. Information isn´t readily available, but that also means there are market inefficiencies and the possibility for a good return. It´s probably the place that investors should consider."
Joseph Rohm, who runs the T. Rowe Price Africa & Middle East Fund (TRAMX), says South African stocks are among his most preferred and that he´s doubled his weighting in African stocks to 35% of the fund since April 2009. Frontier stocks were laggards last year, so they might contain more bargains than emerging-market stocks, which were on fire in 2009.
Nigerian banks, for example, were trading at four to even six times book at the top, Rohm adds, but now have forward price-to-book-value ratios of about one times. Although Nigeria has 150 million people, only eight million have bank accounts, he says, so there´s huge growth potential.
AMONG BIG STOCKS, Rohm likes Africa-related play Tullow Oil (TUWLY), a growing U.K.-based energy-exploration company with significant assets in Uganda, Ghana and other parts of the continent. Among local stocks, Rohm´s fund holds Safaricom (SAFCOM.Kenya), an innovative Kenyan mobile-phone outfit with one of the most successful mobile- banking applications; Guaranty Trust Bank (GUARANTY.Nigeria) and (SBK.South Africa).
Another fan is Timothy Drinkall, whose Morgan Stanley Frontier Emerging Markets Fund (FFD) is overweight Africa. He notes that frontier-market valuations are trading at a big discount to emerging markets´, instead of the premium seen during the boom. And he adds that frontier markets show lower correlations with developed-market moves.
Emerging markets rallied 75% in 2009, but the stock market in Nigeria, one of his favorite investment areas, fell 33% in dollar terms, and Kenya rose only 5%. In Kenya, he says, the underlying profit growth potential is more than 15%. There he holds East African Breweries (EABL.Kenya) and Equity Bank (EQBNK.Kenya). The latter has the most accounts in Kenya and is expanding in Uganda.
Another stock worth a look is Letshego (LETSHEGO.Botswana). It´s a growing payday lender, with relatively low credit risk, a P/E multiple around 10 and a return on equity of 27%, says Nick Padgett, whose Frontaura Global Frontier fund has been increasing its weighting in African stocks. Another of his holdings, CRDB Bank (CRDB.Tanzania) is one of the largest banking institutions in its home country. It sports a P/E of five, a price-to-book ratio of 1.1 and a potential for a double-digit net interest margin.
Sub-Saharan Africa is far more attractive than its media stereotype would lead one to believe. Yes, poverty and violence are still huge problems in some parts of the continent. But, increasingly, the miseries of lands like Zimbabwe are more the exception than the rule. Africa isn´t an easy place to invest in. But the patient are likely to be rewarded for venturing into what for many is the last overlooked investment frontierLink to Online Article: Barrons
The dragon in Africa: An overview of China´s presence on the continent
International Business Times | July 31, 2010
China, an emerging global superpower which will likely become the world's biggest economy within fifteen years, has planted itself deeply into the vast continent of Africa -- a land of huge untapped natural resources and incredible growth potential.
It would seem to be an ideal marriage -- China possesses immense intellectual capital and an inexhaustible appetite for commodities to keep its economic engines running, while much of Africa remains poor and in dire need of external assistance.
“Africa has an abundance of resources and is regarded by many as a frontier market that has strong growth prospects,” said Avior Research (Pty) Ltd., an equity research firm based in Johannesburg, South Africa.
“China is well aware of their need for resources as their own economy grows and, therefore, it is in China’s interest to gain a strong foothold on the African continent if it wants have access to those resources. China’s biggest investments into Africa have been in infrastructure, mining and banks.”
The two-way trade between China and Africa is expected to exceed $100-billion this year -- but that is only a pittance of what the future holds.
China's interests in Africa is nothing new, of course, but only in the past two decades have these giant entities established a firm and burgeoning economic cooperative.
Africa is the source of at least one-third of the world’s commodities, Avior Research estimates, and from the perspective that China needs raw materials “it is understandable that they are determined to build roads, ports, and railroads all over Africa.”
It could be argued that China moved into Africa only after the U.S. and Russia began to scale back their presence on the continent after decades of using it as a 'Cold War' chessboard.
Avior Research explains that as an emerging economy, China is arguably ideologically more aligned to Africa, than what the U.S. or Russia currently is.
“Much of the US/Russian interests arose out of the Cold War crisis between these countries,” Avior stated. “However, once hostilities ceased, a lot of the U.S and Russia’s political drive to economically re-colonize Africa lost momentum.”
In its recent approach to Africa, China could not be more different from the West, Avior Research added.
“It has focused on trade and commercially justified investment, rather than aid grants and heavily subsidized loans. It has declined to tell African governments how they should run their countries, or to make its investments contingent on government reform. China has moved quickly and decisively, especially in comparison to many Western aid establishments.”
In October 2000, Beijing created the Forum on China-Africa Cooperation, which regularly holds summits between Chinese leaders and various African rulers to discuss and formalize deeper relations. China