Private Equity Africa ranks top 10 deals in 2014

Leading website and magazine Private Equity Africa lists the top 10 Africa private equity deals from 2014. They use data from Preqin.

1. Helios Investment Partners – Helios Towers Africa – $630m
This is the second year that Helios Investment Partners took the top slot when it led a consortium to inject $630m of growth capital into telecommunications service provider Helios Towers Africa (HTA) in July. It was US-based private equity investor Providence Equity Partners’ first deal in Africa. The IFC’s African, Latin American and Caribbean Fund also invested for the first time in HTA. Existing investors Quantum Strategic Partners, Albright Capital Management and RIT Capital Partners also backed the tranche. (Helios’ big deal in 2013 was to partner with BTG Pactual and Indorama to bring $1.5bn investment into Nigeria-based oil and gas exploration company, Petrobras Africa.)

2. Emerging Capital Partners leads consortium – IHS – $490m
Emerging Capital Partners (ECP) led the consortium that invested $490m in Nigeria-based telecommunications towers company IHS. The latest 2014 funding round brought in Goldman Sachs was a new investor and the IFC Global Infrastructure Fund and African Infrastructure Investment Managers (AIIM) were also in. IHS is part-owned by Investec Asset Management, the first private equity investor to fund its expansion. Other existing investors are ECP, Wendel, sovereign wealth fund Korea Investment Corporation (KIC) and the Netherlands Development Finance Company (FMO). KIC first backed IHS when it joined Investec and ECP in a $1bn financing round in 2013. Standard Chartered Bank contributed $70m in senior debt specifically set apart to finance expansion into Zambia as part of the capital package

3. Abraaj – Liberty Star – confidential
South Africa’s Liberty Star Consumer Holdings (Libstar) manufacture and distributes food. It sells private-label products to retailers, own-brand products and third-party packaging and ingredients to the food industry. Abraaj acquired a majority stake in the company through a secondary buyout from Metier, Old Mutual Private Equity, Development Partners International and Lereko – which have all exited the company. Libstar management took a minority stake in the buyout. The deal value is confidential.

4. Atlas Merchant Capital – Union Bank of Nigeria – $270m
The investment was channelled through Atlas Mara Co-Nvest, its $325m investment vehicle listed on the London Stock Exchange. Atlas Merchant previously held 9.05% in Union Bank, inherited when it took over ADC African Development Corporation in early 2014. It committed the capital by exercising an option to acquire 20.89% of the financial services company.

5. IFC-Asset Management Compan & Temasek – Seven Energy – $255m
More sovereign wealth fund action in April, when Singapore’s Temasek partners with IFC Asset Management Company (IFC-AMC) to invest $255m in Nigeria’s Seven Energy, an oil and gas exploration and production company. Temasek contributed $150m for a 25% stake. Previous investors in Seven Energy include Actis, Investec Asset Management, Africa Finance Corporation, Capital International Private Equity and Standard Chartered Private Equity. Seven Energy’s $600m capital-raising round included $335m in debt of which the IFC African, Latin American, and Caribbean Fund contributed $30m.

6. Kohlberg Kravis Roberts – Afriflora – $200m
KKR’s first deal for Africa, in July, was approximately $200m in Afriflora, an Ethiopia-focused agriculture production company that cultivates, produces and sells roses based on Fairtrade standards. The company operates as Sher Ethiopia. The investment is part of KKR’s $6.2bn European Fund III.

7. Carlyle – Tiger Automotive – confidential
It was fast-moving Carlyle’s third deal of the year from its maiden $698m Africa-focused fund, closed earlier in 2014. It bought South Africa’s vehicle accessories distributor Tiger Automotive (TiAuto) in November. It partnered with Old Mutual Private Equity (OMPE) to buy the company from Ethos Private Equity. TiAuto operates through 7 divisions, including Tiger Wheel & Tyre, Tyres & More, YSA and Treads Unlimited and primarily distributes branded tyres such as Continental, Yokohama, Michelin, Pirelli, Goodyear, Achilles, GT Radial and Hankook.

8. Stanchart – Sphinx Glass – $180m
Standard Chartered Private Equity backed a deal and partnered with Saudi Arabia’s Construction Products Holding to buy Egypt-based industrial production company Sphinx Glass from Qalaa Holdings (formerly Citadel Capital) in May for $180m. Sphinx Glass operates under license from US-based PPG Industries, a specialist float glass technology provider. Qalaa sold it as part of a strategy to shed non-core assets.

9. Rocket & Kinnevik – Jumia – $148m
Hotshot tech investors Rocket Internet and Kinnevik put another $148m into their consumer shopping platform Jumia in December. US-based private equity investor Summit Partners owns part of Jumia and JP Morgan Asset Management has also previously invested. Jumia owns consumer shopping websites offering branded consumer products as Internet shopping starts to take Africa by storm. Rocket Internet has previously backed Groupon, eBay, Facebook, LinkedIn and Zynga. Watch this space.

10. Carlyle Diamond Bank – $147m
Carlyle’s fourth deal was into Nigeria-based financial services company Diamond Bank, which is a Tier II bank, covering corporate, retail and public sector banking with subsidiaries offering custodian, mortgage, securities and insurance products and services. Kunoch Holdings, the Africa-focused investment platform of entrepreneur and investor Pascal Dozie, raised its holding in the bank from 5.86% to 20.65% in August, buying the additional stake from Actis and CDC Group.

*Rankings based on Preqin data and Private Equity Africa research.

IPOs soar as Africa’s capital markets raise $11bn

• US$11bn IPO and FO proceeds raised in 2014 in African equity markets
• US$37.4bn proceeds raised from 2010 to 2014
• 24 African IPO companies listed in 2014

African markets excelled in terms of capital raising for business in 2014 with a total of $11 billion raised through a total of 24 initial public offers (IPOs) and also through further offers (FOs). According to the inaugural publication IPO Watch Africa 2014, released by PwC on 1 Feb, a significant portion of the 2014 capital raising came from outside South Africa, compared to previous years.

The PwC study covers the 5 years 2010-2014 and shows that the total money raised in 2014 was equivalent to the combined total for 2012 and 2013. The sum from IPOs alone was $1.7bn in 2014, up from $0.8bn in 2013. Listings on the Johannesburg Stock Exchange accounted for 32% of total IPO capital in 2013 and 44% in 2014.

Source: IPO Watch Africa 2014 by PwC

Source: IPO Watch Africa 2014 by PwC


Nicholas Ganz, PwC Africa Capital Markets Leader, said in a press release: “The performance of African markets was strong in 2014, with an increase in equity capital market activity of 40% in terms of volume of offers and 100% in terms of capital raised when compared with prior year activity.”

However South Africa accounted for 87% of the capital raised through FOs offers with a 50% increase in the number of transactions and doubled in terms of capital raised to $9.3bn, from $4.6bn in 2013.

Coenraad Richardson, PwC South Africa Capital Markets Partner, said of South Africa’s share of the market for further offers: “This is a reflection of the depth and stability of the South African listed company and investor base, underpinned by a securities exchange regulatory framework ranked number one in the world by the World Economic Forum’s 2014-2015 Global Competitiveness Report.”

The excellent report can be downloaded here and includes lists of the top 10 IPOs in 2014 and 2015, performance by exchange, share performance from the IPO to 31 Dec (the Egyptian Exchange’s Arabian Cement Co raised $109m and then soared 88%) and much other useful information.

Source IPO Watch Africa 2014 by PwC

Source IPO Watch Africa 2014 by PwC

The financial services sector (including real estate) was 57% of the combined IPO and FO volume, followed by industrial products & services, and consumer products. Growth in these sectors reflects Africa’s shifting economic and social demographics, including increasing urbanization and an emergent middle class. The resources sectors were a smaller proportion of 2014 activity.

The trend also shows “increasing global integration of businesses in Africa and the interest of international investors in opportunities in Africa” according to the report. Several top 10 IPOs in 2013 and 2014 had an international component, either foreign companies raising capital directly on African exchanges, or African companies marketing shares to international investors through dual listings or sales to qualified institutional buyers abroad.

During 2010-2014, African companies raised a total of $31.1bn through FOs on African exchanges plus another $1.2bn of FO capital raised by African companies on international exchanges. This included companies expanding their investor base via a secondary listing, as with the 2011 listing of Elemental Minerals on the Toronto Stock Exchange and the 2013 listing of MiX Telematics on the New York Stock Exchange under the Jumpstart Our Business Startups (JOBS) Act, as well as those raising further funds from existing international listings. Resources transactions are more prominent in “outbound” FOs compared to the African IPOs and FOs over the period 2010-2014.

Good prospects for 2015

The report notes: Further liberalization of exchange regulations in some key territories, such as Tanzania, as well as harmonisation of regional exchanges bodes well for continued growth of ECM activity in 2015. Other positive factors include expectations for continued exits by private equity investors, reforms to certain capital markets legislation, and growing investor confidence in and familiarity with African markets.

Darrell McGraw, PwC Nigeria Capital Markets Partner, warns that commodities prices and currency depreciation could lead to some “headwinds that may affect the momentum of the capital markets in Nigeria and other territories heavily involved in resources.” However, Nigeria already had an IPO in Jan 2015 and “has a strong pipeline of listings likely to be brought to market later this year.”

Source IPO Watch Africa 2014 by PwC

Source IPO Watch Africa 2014 by PwC

Dar es Salaam Africa’s top stock exchange to 31 Jan

Tanzania’s Dar es Salaam Stock Exchange topped the performance list for the 12 months to 31 January for USD investors, according to the data collected by Ryan Hoover’s excellent Investing in Africa website. It managed a 27% climb, including 3.8% in January. That beat the S&P 500 index which managed a strong 11.9%, despite increasing worries of pending bear markets and falling back to 30 Jan, although it has since gained.
Other African bourses which beat the S&P included Uganda Securities Exchange (up 18.3%), South Africa’s JSE (up 17.1%), Nairobi Securities Exchange (16.1%) and Namibian Stock Exchange (up 15%).

Source http://investinginafrica.net

Source http://investinginafrica.net


Hardly surprisingly, two of the worst performers were hit by the crashing oil price, including heavy falls in the currency compared to the soaraway USD. Nigeria was down 36.9% including 16.6% in January and Ghana down 32.1% including 8.3% in January. Weakness in the euro no doubt contributed to the poor performance of the BRVM, as the CFA currency is linked to the euro.

Graphic by www.africanbusinesscentral.com

Graphic by www.africanbusinesscentral.com


This picture, created by website AfricanBusinessCentral gives “volume”, which is normally defined as the number of shares traded, although I could not find the source data for this infographic so we welcome any clarifications. Better indications of exchange liquidity are often the value of shares traded and the number of transactions.

JSE number of equity trades up 19% in 2014, scores daily records

South Africa’s Johannesburg Stock Exchange (JSE) saw the number of equity trades soar 19% for the year 2014, compared to 2013. It also broke records for the highest daily value traded on 18 Dec when R53.7 billion ($4.6bn) worth of equities traded, and it hit the highest number of daily trades was 395,969 trades on 16 Oct.

Johannesburg Stock Exchange (credit: JSE)

Johannesburg Stock Exchange (credit: JSE)


There were a total of 24 new listings for the year, which added R86bn in market capitalization, including a record 8 new listings in December. In the same month, the value of trades reached a monthly record of R345.5bn, a 45% increase compared to trading in Dec 2013. In 2014, the net inflow from foreigner investors was R13.4bn.
The JSE Equity Derivatives Market, which provides traders and private investors with a platform for trading futures, exchange-traded CFDs (contracts for difference), options and other derivative instruments, saw value traded up 18% to R6 trillion. This was largely driven by the JSE flagship equity derivative futures products, index futures and single-stock futures (SSFs), which both increased by 19%.

Growth for 2015
Donna Oosthuyse, Director Capital Markets at the JSE, comments in a press release (not yet available at www.jse.co.za): “Going into 2015, a key focus for us will be to sustain these positive growth levels for the Equity and Equity Derivatives Markets. For the Equity Market our priority will be to ensure that the JSE remains an attractive venue for participation in the capital markets. For the Equity Derivatives Markets, our key focus will be to remain responsive to the needs of the market by offering investors with innovative products that provide global exposure and an ability to weather the prevailing economic environment.”
Looking back on a busy year and particularly December, she said: “The JSE Equity Market is the bedrock of the exchange and we are pleased with the performance of this segment of the market for the year, driven mainly by renewed positive US economic sentiment and a rapid decline in oil prices.
“The performance of the Equity Derivatives Market is also pleasing as it signals to the improving appetite of local and foreign investors to participate in this segment of our capital markets.”
Oosthuyse added that foreign participation in index futures had increased compared to 2013, from 31% to 37%: “This is a promising development as any increase in foreign participation can only breed more liquidity and galvanize our status as a first world exchange.”
The Johannesburg Stock Exchange has operated as a market place for trading financial products for 125 years and is one of the top 20 exchanges in the world in terms of market capitalization. It offers a fully electronic, efficient, secure market with world class regulation, trading and clearing systems, settlement assurance and risk management. It is a member of the World Federation of Exchanges (WFE).

“Africa’s largest” Helios III private equity fund to close at $1.1bn

Leading African private investment firm Helios Investment Partners says it is about to close its 3rd Africa-focused private equity fund at the $1.1 billion limit. The firm said yesterday (12 Jan) it had already passed its $1bn target. Helios Investors III L.P. fund will “acquire and build market-leading, diversified platform companies, operating in the core economic sectors of the key African countries, with an emphasis on portfolio operations as a creator of value”, according to a press release.

The company says Africa’s attraction to investors stems from growth driven by factors specific to the continent, including economic liberalization, technology driving increasing productivity, demographic dynamics and urbanization. The Financial Times describes it as “the first $1bn-plus Africa-focused private equity fund.”

Tope Lawani, co-founder and Managing Partner of Helios Investment Partners, commented in the press release: “Much has been made of the rise of the African consumer, and that does, from time to time, give rise to potential investment opportunities. However, as discretionary incomes remain low and the cost of basic goods and services is high, Helios believes that addressing the supply side of the economy is generally more attractive.

“Helios’ strategy focuses on investing in businesses that lead the provision of core economic infrastructure: de-bottlenecking the economy; increasing efficiencies; and reducing living costs for households and operating costs for businesses.”

Economic woes bring buying opportunities
According to the Financial Times, many countries’ economic prospects are troubled by falling commodity prices. Increased interest rates in US cause capital flows out of developing markets. In an interview Mr Lawani told the paper that in the near term many African countries were going to suffer an “adverse impact” on their currencies as capital flew back to the US: “We are witnessing sharply lower commodities prices and it is reasonable to expect African currencies to lose value against the dollar,” he said.

He claimed that the downturn would turn into an opportunity for investors holding large amounts of US dollars, such as Helios. “It is an excellent time to invest: asset values are going to come down.”

From Helios Investment Partners website

From Helios Investment Partners website

Investor appetite matures
The company says that over 60% of the new capital committed comes from their existing investors, and other leading global institutional investors have joined them. The investor base for Helios III includes sovereign wealth funds (SWF), corporate and public pension funds, endowments and foundations, funds of funds, family offices and development finance institutions across the US, Europe, Asia and Africa.

Helios investment team is supported by Helios’ dedicated Portfolio Operations Group, based in Lagos and Nairobi, who work in active partnership with portfolio company management to create value within the firm’s portfolio by driving operational improvements. Helios has already made one investment through Helios III, acquiring an interest in ARM Pensions, Nigeria’s largest independent pension fund manager with over $2.2bn of pension assets under management. It has built a robust pipeline of proprietary opportunities.

Dabney Tonelli, Investor Relations Partner of Helios Investment Partners, commented: “Achieving, and exceeding, our fundraising target for Helios III underscores the global demand for experienced, institutional, Africa-focused private equity specialists and the strength of the relationships we have built with the world’s leading private equity investors.”

Helios was established in 2004 by Nigerian-born Tope Lawani and Babatunde Soyoye. It raised the previous record for Africa’s biggest private equity fund at $908m in 2011. Through various investment types, such as business formations, business formations, growth equity investments, structured investments in listed entities and large scale leveraged acquisitions across Africa, it has aggregated more than $2.7bn in cpapital commitments, according to its website.

The Financial Times adds: “Africa still attracts a tiny proportion of the world’s private equity money, even compared with other emerging regions, notably Asia and Latin America. But interest has increased recently, buoyed by strong economic growth. After stagnating for two decades, African gross domestic product per capita has surged almost 40% since 2002, fuelled by high commodity prices, the rise of a small consumer class, and cheap Chinese loans.”

Africa deals
It says that buyout groups raised $3.3bn for Africa funds in 2013, down from a peak of $4.7bn in 2007.

The FT points to US buyout private equity firms Carlyle’s $698m fund and regional deals by KKR (which invested $200m in a Afriflora, an Ethiopian exporter of roses, in June 2014 from its $6bn European fund according to this Wall Street Journal story and a KKR press release) and Blackstone. In June 2014 Edmond de Rothschild amassed $530m for its first private equity fund focusing on deals in Africa, managed by Amethis, majority-owned by the Swiss private banking group and founded by Luc Rigouzzo and Laurent Demey, two former top executives at French development financial institution Proparco. There has also been increased multinational deal-making, including French insurer Axa entering Nigeria, an alliance between SAB Miller and Coca Cola, and a merger in South Africa’s retail sector.

“Jeff” Otieno Odundo new head for Nairobi Securities Exchange

Geoffrey “Jeff” Otieno Odundo will be the Chief Executive of the Nairobi Securities Exchange (NSE), effective from 1 March 2015. The announcement was made yesterday (8 Jan) by the NSE Board of Directors.

Mr. Odundo is an accomplished investment banker with 22 years of experience in the financial sector experience including 16 years in the capital markets in various senior roles in asset management, corporate finance and stock broking, according to a press statement.

Geoffrey Otieno Odundo (credit Salaton Njau, Nation Media Group)

Geoffrey Otieno Odundo (credit Salaton Njau, Nation Media Group)

Leadership skills
Mr. Odundo has been Managing Director and CEO of Kingdom Securities Limited from June 2009. According to the statement: “During his tenure at Kingdom Securities Limited he has overseen the growth of the firm to become one of the leading trading participants of the NSE and has been instrumental in key listings on the NSE as well as other corporate finance transactions.”

According to a report in Business Daily NSE chairman Eddy Njoroge said the investment banker was appointed after a thorough vetting process: “The board together with KPMG considered numerous applications from various applicants of the highest standards”. He said Mr. Odundo’s leadership skills, experience and wealth of knowledge would be instrumental in driving the NSE’s strategic plan.

Capital FM quoted Mr Odundo as saying: “I am very confident that the future of the NSE as a key driver of Kenya’s economy is very bright as we deepen the current products and diversify into new product offering.”

He takes over from Peter Mwangi who left in November after serving two 3-year terms as CEO and became CEO of Old Mutual Kenya. Mr Njoroge also thanked Andrew Wachira, the Head of Compliance and Legal, who has been the Acting Chief Executive for the transition.

Leading stockbroker
Odundo has served as a Non-Executive Director of the NSE representing Trading Participants from March 2012. During this time, he has been the Chairman of the NSE Technology Committee and has also been a member of the NSE Finance and Manpower Committee and the NSE Listings and Admissions Committee.

Before moving to Kingdom Securities he was instrumental in setting up Co-op trust Investment Services and Co-op Consultancy Services Limited. Other roles include as a Director and Secretary of the Kenya Association of Stockbrokers and Investment Banks (KASIB), “a role in which he was instrumental in improving the service delivery and standards on the operations of Capital Markets intermediaries.” According to the statement.

Personal
Qualifications include a Bachelors of Arts Degree in Mathematics and Economics from Egerton University in Kenya (main campus Njoro near Nakuru) and a Masters in Strategic Management from the United States International University (Nairobi). He is married with 3 children and enjoys soccer, golf and Formula One. He is also a dedicated member of the St. Paul’s University Chapel Lectors Group and founder of Ame Foundation to support the less fortunate.

South Africa’s PIC aims to invest $1bn into African private equity and development

South Africa’s Public Investment Corporation (PIC) has established 2 funds and plans to invest at least $1 billion into African investments outside South Africa, including R2.5bn ($213 million) in the current financial year to 31 March.

According to South Africa’s Finance Minister Nhlanhla Musa Nene, who is also Chairman of the PIC: “True to the GEPF mandate which requires that we commit 5% of assets under management (AuM) on the African continent, the PIC acted accordingly in the past year. That commitment stands. We have established 2 funds, namely: Africa Developmental Investments and Private Equity Africa, which will assist us to discharge our client-given mandate to invest on the rest of the continent. The commitment to invest in the rest of the continent is born out of a realization that our collective success is premised on economic integration.

South Africa's Finance Minister - Nhlanhla Muse Nene

South Africa’s Finance Minister – Nhlanhla Muse Nene

Acting CEO Matshepo More

Acting CEO Matshepo More

“More importantly, the African economic narration has been positively changing. Over the last decade, the continent’s economic output has tripled, while it is projected that Sub-Saharan Africa will grow at an average of 5% in the coming decade. This growth means that the continent will be the second fastest growing region in the world after Asia. For this reason, the PIC will, in the new financial year, also focus on developmental investments in Africa with a minimum commitment of $500m for developmental investments in Africa and a further $500m towards private equity in Africa. The African story presents the PIC with unique investment opportunities and we are fully aware that part of this strategy should be to grab opportunities in Africa and reap rewards in a manner that promotes inclusive growth and creates decent work for the people of Africa.”

Earlier PIC had established the Pan African Infrastructure Development Fund with a target size of $1bn and attracting $625m of investments in its first year, and set up Harith Fund Managers to manage it.

R1.6trn of assets
The total PIC AuM came to R1.6 trillion ($136bn) according to the annual report for the year to 31 Mar 2014, tabled in Parliament last October. Strong listed equity performance helped boost returns to well ahead of benchmarks (including consumer price index + 3%), and AuM were up from R1.4trn the year before and R1.19trn in Mar 2012 and around R83bn in 1994. Nearly 90% of its assets are from the Government Employees Pension Fund (GEPF), with the rest from the Unemployment Insurance Fund, the Compensation Commissioner Fund and other clients.

Asset allocation at 31 Mar 2014 (NB the annual report also gives contradictory figures on p71):
Asset class %
Local equity 49.11
Local bonds 32.42
Cash & money market 7.12
Properties 4.39
Offshore equity 3.64
Offshore bonds 1.72
Africa equity (ex-SA) 0.5
Isibaya 1.1

African investments
The unlisted investments portfolio is divided into developmental investments, private equity and properties. The annual report separates “Africa” from South Africa and the “Africa” developmental investments are focused on energy, transport and logistics, social and infrastructure, water and ICT; private equity to focus on “consumer-driven sectors, other sectors will be viewed opportunistically” and properties are retail, industrial and offices.

The African investment portfolio outside South Africa was valued at R7.9bn ($672m) at 31 Mar and the largest purchase during 2013/14 was $289m for a 1.5% stake in Nigerian listed cement firm Dangote Cement. The first African investment was a stake in Ecobank Transnational Incorporated Ltd.

Development impact
The PIC also has a strong commitment to investments in economic infrastructure, environmental sustainability, social infrastructure, priority sector (high labour intensive sectors), Small, Micro and Medium Enterprises (SMMEs) mostly in South Africa. According to the Minister: “During the 2013/14 financial year, R11.4bn worth of unlisted investments were approved, of which R4.8bn have already been disbursed. The impact on social returns was significant:
• In excess of 7,805 jobs (directly and indirectly) were created and 78,636 jobs were sustained
• 309 SMMEs have been funded and underwent entrepreneurship training
• The PIC is emerging as a leader in the development of green industries by directly and indirectly funding renewable energy projects that will generate in excess of 1,558 megawatts of electricity.”
The PIC is also supporting black asset managers through training as part of a BEE (black economic empowerment) incubator programme for South Africa’s asset management industry and has entrusted some R50bn of assets to 12 firms. It is also supporting transformation of stockbroking and said it paid 86% of brokerage fees to brokers that met Level 4 or better BEE as classified by the Department of Trade and Industry, and aims to pay 50% of all brokerage to Level 2 or better firms in the current year.

Acting CEO Ms Matshepo More (previously Chief Financial Officer, the previous CEO Elias Masilela resigned on 31 May 2014) said that “developmental” unlisted investments in the year came to R6.9bn and in the current year to Mar 2015 it will invest at least another R2bn in “social and economic infrastructure”.

Profit was R209m (up from R130m in 2013) and 1% of profit after tax is set aside for corporate social responsibility. It has a Corporate Governance and Proxy Voting Policy outlining its shareholder activism and is a signatory to the United Nations Global Compact and the United Nations Principles for Responsible Investing. One example was blocking takeover of listed pharmaceutical company Adcock Ingram by Chilean company CFR “to unlock value using local talent and also to preserve jobs”.

The PIC annual report was reported in South Africa’s Business Day in January and on South Africa Info in October 2014 and the last annual report can be obtained here.

Rwanda Stock Exchange closer to Nasdaq X-stream automated trading

Rwanda Stock Exchange (RSE) says it is getting closer to introducing an Automated Trading System using trading technology from Nasdaq OMX. It will also link its trading infrastructure to the Central Securities Depository (CSD) and Real Time Gross Settlement System (RTGS) at the National Bank of Rwanda.

In March 2014, there was a report in The East African that the RSE was aiming to use the Nasdaq X-stream system installed at the East African Exchange (EAX) regional commodity market. The latest news from the East African Securities Exchanges Association EASEA press communiqué (available here) from the 24th meeting in Rwanda on 26-27 November was: “The RSE is in the final stages of automation of its trading system”.

Nasdaq describes X-stream as “a flexible, out-of-the-box solution trading multiple asset classes simultaneously on a single platform” on its website. It says X-stream is “the world’s most widely deployed matching technology” among market operators and is deployed in over 30 exchanges globally.

According to the March story in The East African: “John Rwangombwa, the governor of the National Bank of Rwanda, told Rwanda Today that though electronic trading had been delayed due to the heavy financial outlay required, RSE and EAX are now in advanced stages of sharing the NASDAQ system. .. We have been working on our side as a central bank to link the central securities depository. In the course of this year —in three or four months — automatic trading will be up and running.”

The report added: “While trade volumes on the RSE have been steadily increasing, its current manual trading platform makes it uncompetitive in particular among offshore investors.”

The RSE also reported that the bond market is becoming more “vibrant”, with quarterly issues by the Government of Rwanda. This was after work by a team made up of Capital Market Authority (CMA), Rwanda Stock Exchange (RSE), Central Bank of Rwanda and the Ministry of Finance and Economic Planning.

East African Exchange
The EAX was launched on 3 July 2014 by His Excellency President Uhuru Kenyatta of Kenya. It had been established by Tony O. Elumelu, CON, of Heirs Holdings, Nicolas Berggruen of Berggruen Holdings, Dr. Jendayi Frazer of 50 Ventures and Rwandan investment company Ngali Holdings. Acccording to a press release: “the EAX is a commodity exchange that aims to increase regional market efficiency and give the growing population, particularly smallholder farmers, better access to commercial markets.

“EAX will use NASDAQ’s OMX X-Stream trading platform for electronic trading and warehouse receipts so farmers can deposit their produce into EAX certified warehouses and access its services.

“At the formal launch, Mr. Elumelu said: ‘The EAX showcases our desire to identify far reaching investment opportunities, while ensuring that most of the value-adding aspects of Africa’s resource wealth stay on our continent. Africa must move toward greater self-sufficiency with private investment and strategic partnerships, just as we have done at EAX through our partnership with NASDAQ.’

“Nicolas Berggruen said: ‘EAX is complementing the EAC’s goal of regional economic integration, and putting in place a world-class exchange to create a globally competitive market for Africa’s commodities.’ EAX’s goal is to facilitate trade across all five East African Community member states. EAX is wholly owned by Africa Exchange Holdings, Ltd. (AFEX). EAX in Rwanda is additionally owned by local investment company Ngali Holdings.”

According to an earlier story on AFEX and its plans in Nigeria, Jendayi Frazer was key in U.S.-Africa policy for nearly 10 years and U.S. Assistant Secretary of State for African Affairs (2005-2009). Nicholas Berggruen has a charitable trust which funds the investment arm to take “a long-term, patient capital value-oriented approach”.

A story written in New York Times in March 2014 described “A commodity exchange, with its dozen terminals and state-of-the-art software provided by Nasdaq, held its first six auctions over the past year — a fledgling venture, but the kind that helps explain how a nation with no oil, natural gas or other major natural resources has managed to grow at such a rapid clip in recent years.

Rwanda Stock Exchange trading boards (2013 - credit The East African/umuseke.rw).

Rwanda Stock Exchange trading boards (2013 – credit The East African/umuseke.rw).

For 2104 photos of the Rwanda Stock Exchange and the East African Exchange see the New York Times website here.

East African securities exchange integration – what’s on in 2015

Securities exchanges in East Africa are working together on the infrastructure for tighter cooperation and links between the capital markets of Rwanda, Kenya, Uganda and Tanzania and potentially Burundi. The body for cooperation is the East African Securities Exchanges Association (EASEA). The key integration driver is the Technical Working Group (TWG), which has a member from each State. It was established by the East African Community (EAC) to review the best infrastructure and legal framework to facilitate seamless cross-border movement of capital.

Training and qualifications
Also important is the Securities Industry Training Institute (SITI) East Africa, which is improving skills and technical capacity to international standards and creating regional qualifications to enable skilled candidates to work across the region. For 2015 SITI East Africa aims to help more market players and regulators have SITI certification and examinations and is driving training to meet the growing demand for expertise. SITI was set up in 2009 to establish a common curriculum. See this post about the launch of SITI.

Infrastructure
A regional inter-depository transfer mechanism is in place to support movement of cross-listed securities and provide possibilities for investors seeking cross-border trading and investment opportunities. It is part of a capital market infrastructure project progressing under the EAC Financial Sector Development Regional Project (FSDRP I). Each country is leading publicity and workshops to raise awareness and boost cross-border trading.

Backbone – new directives
The TWG is developing Council Directives “which will be the backbone of the proposed integration of the regional capital markets”, according to the communiqué (“EASEA Press Release”) of the last EASEA meeting. The directives under public discussion are:
1. Council Directive of the EAC on Central Securities Depository
2. Council Directive of the EAC on Securities Exchanges
3. Council Directive of the EAC on Self-Regulatory Organizations
4. Council Directive of the EAC on Conduct of Business for Market Intermediaries
5. Council Directive of the EAC on Corporate Governance for Listing Companies.

The TWG has also drafted and completed directives on
1. Council Directive of the EAC on Investor Compensation Schemes
2. Council Directive of the EAC on Financial Education and Consumer Protection
3. Council Directive of the EAC on Disaster Recovery for Capital Market Infrastructure
4. Council Directive of the EAC on Regulated Activities
5. Council Directive of the EAC on Credit-Rating Agencies
6. Council Directive of the EAC on Regulatory Authorities
7. Council Directive of the EAC on Anti-Money Laundering and Combating of Financial Terrorism

The last meeting of EASEA was 26-27 November and Tanzania did not attend. The next is due in Uganda in the Q2 of 2015. EASEA is a member of the Capital Markets Development Committee (CMDC) of the East African Community (EAC) – a committee of the East African Community Secretariat, according to the Uganda Securities Exchange website. The CMDC objectives include

  • Establish cross-listing of stocks, a rating system of listed companies and an index of trading performance to facilitate the negotiation and sale of shares within and external to the Community
  • Ensure unimpeded flow of capital within the Community by facilitating the removal of controls on the transfer of capital among the Partner States
  • Prevent money-laundering activities through the capital markets
  • Ensure that the citizens of and persons resident in a Partner State are allowed to acquire stocks, shares and other securities or to invest in enterprises in the other Partner States

Encourage cross-border trade in financial instruments.

Africa should be in your 2015 portfolio, including gold

[Contributed article] Africa is currently the second most-attractive investment behind the U.S. for a number of reasons. Seven countries – Ethiopia, Tanzania, Rwanda, Chad, Mozambique, South Sudan and Sierra Leone – have forecast growth rates over 7% a year for 2014-2016, according to the World Bank.

These are the 3 major drivers of Africa’s economic growth.

Rich in natural resources

Africa is very rich in natural gas, minerals, food and oil, and has some giant water resources. Its land mass is bigger than the U.S., India, China, and Europe combined. While oil is the major driver of Africa’s economy, other industries such as mining and technology are thriving and renewable sources of energy are being built throughout the region.

Expanding economy

Many of the economies are among the fastest growing in the world. In addition, many countries have lower debt to GDP levels than most developed countries. Yahoo! Finance reports that UK has a debt level of 77% of GDP compared to 16% in Nigeria.

Thanks to Africa’s young demographic, a lot of international companies are currently investing in the region. Because of its thriving economy, the middle class are growing, giving people more purchasing powers to keep Africa’s economy running.

Africa’s gold-mining industry

The gold-mining industry is huge in Africa. One country, South Africa, is the world’s 6th gold producer as of 2014, according to Investment site BullionVault.

Gold-mining output is declining all over the world. However, precious metal experts are confident that there are still many unmined gold resources in Africa. To take only one country from the aforementioned huge land mass, Nigeria still has a lot of underdeveloped land. With promising technology that makes it easier for miners to extract more gold from Earth, Africa can become the world’s number-one producer again in the future. Two of the deepest gold mines can be found in South Africa, including the TauTona mine in Carletonville and East Rand Mine in Boksburg. Gold demand is huge in China, which bodes well for Africa’s mining industry

Africa’s soaring growth seems set to continue for many years to come, and there are many good reasons why investors should add the region to their portfolio.