Archive for the 'Foreign Direct Investment (FDI)' Category

Opportunities in Africa’s top 20 cities

Nairobi is ranked the most attractive destination for foreign direct investment (FDI) in Africa and a regional financial services hub. However, North African cities and Johannesburg dominate the continent in an interesting report “Into Africa, The continent’s cities of opportunity” published by consultants PWC recently.
The report highlights key aspects of 20 African cities, along with photos and charts, ranking all in their score on different areas. This is because cities are the engine of growth worldwide and particularly in Africa, where increasing numbers of the fast-growing population are moving to cities and mega-cities are emerging and growing very fast.
The report points out a strong correlation between infrastructure, human capital and economics and makes it clear that Africa’s future will partly depend on developing infrastructure and human capital, partly that smart and ambitious people will live where it is easier for them to flourish.
It highlights how many of the cities in the report have had millennia to establish themselves, but newcomers can catch up fast if the leaders become complacent. Johannesburg is 3rd among the 20 but was officially founded in 1886 and opened the stock exchange and the theatre next year. Accra, which grew from 20,000 resident to 2 million in a century, is number 6 but only fractionally behind Algiers and is forceful and dynamic, with a good vision, ranking 1st for communications infrastructure and low crime, 2nd to Nairobi in attracting FDI and to Casablanca in GDP diversity, 3rd for political environment, 4th for ease of doing business.
The report highlights how some effort and planning can help cities develop: Dar es Salaam and Douala are key ports and Douala also for transshipments, Accra for telecommunications, Lagos in culture, both music and Nollywood film (Johannesburg has top spending in Africa for entertainment and media and Nairobi has the fastest growth in E&M spending with projected increase of 12.5% in 2013-2018), and Nairobi in financial services along with Johannesburg. Abidjan is top in middle-class growth and diversity, Dar es Salaam in GDP growth.
According to the authors: “The entire purpose of this analysis, of course, is to facilitate the decisions and actions of both investors and policymakers. Therefore, we’ve structured this report, as much as possible, around the critical issues of the business community, as well as those of the officeholders and other public authorities who are responsible for improving the collective life of each city examined here. And that leads to our third – and, we believe, most important – group of readers, the actual citizens of the 20 cities in this report. Every element of this study – from infrastructure and human capital to the economy and society – directly concerns the more than 97 million people who live in the cities described here.”

The rankings
This is the order overall, including top rankings in each of the 4 main categories:
1. Cairo – top in infrastructure
2. Tunis – top in human capital
3. Johannesburg
4. Casablanca – top in economics
5. Algiers
6. Accra
7. Nairobi
8. Lagos
9. Addis Ababa
10. Kampala – top in society and demographics
11. Dakar
12. Abidjan
13. Kigali
14. Lusaka
15. Dar es Salaam
16. Douala
17. Antananarivo
18. Maputo
19. Kinshasa
20. Luanda

Gauged by opportunity, the ranking is headed by Dar es Salaam, followed by Lusaka, Nairobi, Lagos, Accra and Abidjan.

Urban infrastructure development

Urban infrastructure development

How Nairobi attracts FDI
This report on Ventures Africa website highlights the FDI figure, where Nairobi comes top. It reports that in the 2013/2014 financial year, FDI to Kenya was estimated at $1.6 billion, despite the increased terror attacks. Writer Emmanuel Iruobe analyzes steps for success:
Rapidly developing infrastructure: Infrastructure plays a fundamental role in attracting investors and Kenya is investing into energy, maritime, aviation and rail, including major financing from China, Japan, Western Europe and the United States.
Leading technology adoption: The country is a leader in technology adoption and advancement within the African continent and abroad including for deepening financial inclusion and he says Nairobi is the only African smart city among the list of top 20 smart cities globally and highlights plans to build Konza technology hub as part of Kenya’s Vision 2030, which has attracted the interest of IBM (which set up the first African research lab in Nairobi last year), Google, Microsoft and Intel. Dubbed the African “Silicon Savannah”, the project is expected to be a key economic driver for the country in the coming years.
High value mineral resources: In addition to natural resources such as coal and titanium, the recent discovery of oil and gas has contributed to FDI inflows into Kenya over the past 3 years with firms from the UK, US and Canada setting up operations in Nairobi.
Growing consumer base: The growing consumer class in the country, anchored on a fast-expanding middle class, has provided business opportunities for consumer goods. South African retail giant Massmart is expected to make an entry into Kenya in May under the “Game” brand name. French retailer Carrefour has reportedly signed up.

9 reasons Africa tops investment agendas

Here are 9 reasons why Africa is topping long-term investors’ agenda. According to press releases Eddy Njoroge, Chairman of the Nairobi Securities Exchange, told this week’s African Securities Exchanges Association conference in Kenya they are:
1. Recent research by economists indicates that 9 of the 20 fastest-growing economies are in Africa.
2. A recent report by Deloitte states that Africa’s economy will grow from $1.1 trillion to $3.9trn in the next 5 years.
3. The value of exports from Africa has risen from $170 billion in the late 90’s to $800bn last year. Africa is the only continent to have a trade surplus with China which would probably explain why several Chinese firms are setting up shop on the continent.
4. According to the African Development Bank, Foreign Direct Investment (FDI) into African economies will reach a record $80bn this year, with most of the money being directed to countries without natural resources but which nevertheless present attractive opportunities in other diverse sectors.
5. Today, Africa is the second most populous continent on earth with a current estimated population of 1.12bn. The Washington-based Population Research Bureau estimates that this population would more than double to 2.4 bn by 2050, with sub-Saharan Africa making up a headcount of 2.2bn.
6. Currently, the African middle class is estimated at 123 million with a projected rise to 1.1bn by 2060. Investor and philanthropist George Soros has termed this demographic shift as “the world’s fastest growing middle class.”
7. Infrastructure has played key part in Africa’s recent economic transformation and will need to play an even greater role if the continent’s development targets are to be realised. Africa’s largest infrastructure deficit is to be found in the power sector. The 48 countries of Sub-Saharan Africa less South Africa (with a combined population of about 780m people) generate roughly the same amount of power as Norway (with a population of 5m).
8. It is estimated that Africa’s infrastructural investment requirement will be $38bn per year and a further $37bn for operations and maintenance- an overall price tag of $75bn per annum. This translates into some 12% of Africa’s GDP. There is currently a funding gap of US$35bn per year.
Njoroge said Africa’s securities exchanges are key: “The conference gives us the opportunity to tell our own success stories; the story of an Africa that is on the rise and how we, the capital market practitioners, can transform a potential into a reality while ensuring that at all times, the fruits of economic success are widely shared across the population… Strengthening stock exchanges to support our capital-markets ecosystem will fuel economic growth. The Nairobi Securities Exchange will continue to work together with other stock exchanges strengthening Kenya’s position as East Africa’s financial services hub.”

Kenya pledges lower domestic rates after $8.8bn bids for its $2bn Eurobonds

Nairobi National Park (credit: Kenya Tourism Board, www.magicalkenya.com)

Nairobi National Park (credit: Kenya Tourism Board, www.magicalkenya.com)

Global investors offered a record $8.8 billion in bids for Kenya’s 5- and 10-year Eurobonds this month. The country issued $0.5bn in the 5-year bond at 5.875% and $1.5bn in the 10-year at 6.875%. The resounding success is likely to encourage more African governments to speed up plans to come to international markets for credit while cheap global rates continue and appetite is high for frontier markets debt.

This is Africa’s biggest Eurobond issue to date. According to the BBC, investors from the US took about 67% of the issue and UK investors about 25%. Bond rates on Kenya’s 10-year debt in issue came down since the new issue was first announced on 16 June to 6.41% which is 381 basis points over the similarly dated US treasuries, according to Bloomberg.

President Uhuru Kenyatta was reported on Reuters telling a news conference: “By accessing these external funds, we will reduce government borrowing from the domestic markets, thereby helping drive down interest rates which should boost investment, spur economic growth, provide more employment opportunities to our people.” He described the sale as “a vote of confidence”. At a state of the economy address on 25 June he said the funds would be used prudently to fund infrastructure including transport and energy and to fund agriculture.

Cabinet secretary for the National Treasury (equivalent to Finance Minister) Henry Rotich said: “Investors were impressed with the management of our economy and perceived it to be very strong.” He said it would diversify government’s financing for development programmes. He also said the Government would come back to the markets in the next fiscal year (starting 1 July) but may consider a sukuk bond (see here for UK’s £200 million sukuk bond success) or a diaspora bond. The sovereign is also set to be a benchmark for Kenyan firms issuing corporate bonds on international markets, similar to the success of Nigeria’s sovereign issue.

Rotich said that from 8 July the Central Bank of Kenya would start setting a new reference rate for banks, the Kenya Banks Reference Rate. Banks would have to use this, although they would still be able to add risk premiums according to the creditworthiness of borrowers. This is also expected to lower interest costs and the rate would be set according to the average of the CBK’s main lending rate and the average yield on benchmark 91-day Treasury Bills every 6 months.

The Government announced its 2014/15 budget this month and forecast a budget deficit of 7.4% of gross domestic product (GDP) and local borrowing of KES190.8bn ($2.18bn) or 4.1% of GDP, according to Reuters. Macro-economist Rotich was a colleague when Kenyatta was Finance Minister and the two are working together to speed up Kenya’s economic growth to over 10%. According to a story in the Financial Times blog Beyond Brics, Rotich says Kenya will grow at 5.8% this year and 6.4% next year, however the World Bank has just cut its forecast from an earlier 5.3% forecast for this year and forecasts 4.7% for both years.

The blog cites the World Bank report: “The new projections reflect the effects of the drought, the deteriorating security situation, the low level of budget execution, and tighter global credit as the US Federal Reserve winds down its expansive monetary policy.”

The World Bank says drought has cost Kenya $12bn over the last 10 years and that foreign direct investment (FDI) is only 1% of GDP. The blog reports: “The World Bank is also increasingly preoccupied by the impact of inequality on growth and stability.” The World Bank is optimistic and is backing Kenya with a $4bn programme, double the Eurobond.

Kenya plans $43bn of infrastructure by 2017, but there are questions as to whether they get value for money in a $3.7bn deal with Chinese for new rail and rolling stock. Kenya is likely to become a middle-income country by September after re-basing because of statistical revisions.

EFG Hermes says 3 IPOs coming to Egyptian Exchange this year

pic: Tom Minney

pic: Tom Minney


Three new initial public offer (IPO) share flotations with a total value of over $300 million are planned for the Egyptian Exchange (EGX) this year, says Egypt’s largest investment bank. According to a story on Reuters, these would be the first listings on the Cairo bourse since the revolution, the last IPO was in 2010.
The Egyptian Exchange has been booming in recent months, after suffering in the political turmoil since Mubarak’s fall in 2011.
Reuters reports that Karim Awad, co-CEO of EFG Hermes, told financial newspaper Al-Mal that Egypt’s Arabian Cement Company would be one of the listings but did not name the other two. Awad told Reuters by email: “The IPOs will hopefully happen this year. The exact timing in the year will be agreed with the companies who are undertaking the IPOs and considering the state of the financial markets.”
Egyptian stock market investors have chosen to ignore increasing violence and repression and are focusing instead on the ongoing national economic and political stabilization, particularly since the 14 Jan referendum approving a new constitution and cleared the way for presidential and parliamentary elections. The main EGX 30 Price Return index of the Egyptian stock exchange is up over 45% since the army ousted Islamist President Mohamed Mursi in July 2013, after mass protests against his rule.
As reported here, Egypt’s financial regulator the Egyptian Financial Supervisory Authority (EFSA) will implement new regulations for companies listed on the bourse from tomorrow (1 Feb), which could help boost liquidity and attract listings and further investment.
On 28 Jan, Finance Minister Ahmed Galal said details of its second stimulus package since Mursi’s ousting would be announced within days. The aim is to boost growth and investment, which had slowed dramatically. Government had done a first stimulus package of EGP30 billion ($4.3bn) last year and promised a second of the same size this month. Gulf countries have pledged more than $12bn in aid since Mursi was overthrown and Galal has said that EGP20bn would go on public investment and the rest would create a new public-sector minimum wage.
Before the 2011 revolution, Egypt was attracting around $8bn a year of foreign direct investment (FDI) but that shrank to $4bn in the year to June 2012 and $3bn to June 2013. Investment Minister Osama Saleh said this week they expect to beat the target of $4bn in FDI by June 2014.
Here is last week’s Economist article on Egypt.

Ernst & Young forecasts $150 bn of FDI investment by 2015, good growth

Strong growth in new projects into Africa is expected from 2012 with foreign direct investment (FDI) inflows forecast to reach US$150 billion by 2015, says top consulting and auditing firm Ernst & Young. The company’s analysis shows that there has been a drop in investment in the last 2 years following a peak in 2008, but Africa is still an attractive investment destination and has maintained its relative share of global investment flows.
Ernst & Young’s first “Africa Attractiveness” survey says foreign investors see huge long-term growth possibilities. With regard to future investment strategies, 42% of the businesses surveyed considering investing further in Africa and an additional 19% of executives confirming they will maintain their operations on the continent. Those companies that have invested and already integrated Africa into their overall investment strategy are particularly positive.

Emerging markets interest in Africa
Much of the interest is coming from investors based in emerging markets, with investment from emerging markets into Africa up from 100 new projects in 2003 to 240 in 2010 (annual growth of 13% per year). Emerging markets investment now comprises 38% of the total into Africa (from 30% in 2003) and 74% of emerging market investors surveyed said Africa had become a more attractive investment destination over the last 3 years and they were increasingly positive about the long-term investment potential.
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. However, North American respondents are more optimistic about Africa’s long term investment potential with Europeans remaining relatively pessimistic.
The survey combines an analysis of investment into Africa over the past 10 years with a survey of over 562 global executives on their views about how and where investment will take place in the next decade. In the last decade inward FDI into Africa has climbed from 338 new projects in 2003 to 633 in 2010.
Ajen Sita, Managing Partner: Africa at Ernst & Young says in a press release: “FDI has a particularly important role to play as a future source of longer term capital for reinvestment in infrastructure initiatives and as an accelerator of sustainable growth across Africa. And there is far more to come. 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.”

Global competition for investment
Africa is in competition for international capital and resources and is currently ranked in the same category as Latin America and Eastern Europe in terms of attractiveness for investors.
Mark Otty, Area Managing Partner Ernst & Young Europe, Middle East, India and Africa comments: “There has been a fundamental shift in the global economy over the past few years, with emerging markets not only dominating investor attention and capital flows, but also playing an increasingly strategic role in defining the global economic agenda.” African markets must position themselves appropriately in this shifting landscape to accelerate growth and development and avoid getting left behind by other emerging markets and regions
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.

Barriers to investment
Sita says: “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. 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.”
The large majority of respondents view the extractive industries (mining) as a major area of investment perceiving it to be the sector with the greatest growth potential over the next few years. However, a more diverse range of sectors are now beginning to emerge as attractive investment options, with tourism (15%), consumer products (15%), construction (14%), telecommunications (13%) and financial services (9%) featuring strongly as offering high growth potential among respondents.
Ernst & Young says the African growth story is underpinned by a longer-term process of economic and regulatory reform that has occurred across much of the continent since the end of the Cold War; a period during which inflation has been brought under control, foreign debt and budget deficits reduced, state-owned enterprises privatised, regulatory and legal systems strengthened, and many African economies opened up to international trade and investment.

Where does the investment go?
Ten African countries attracted 70% of the new FDI projects in Africa between 2003 and 2010 (South Africa, Egypt, Morocco, Algeria, Tunisia, Nigeria, Angola, Kenya, Libya, Ghana). There has also been a significant growth in the investment by African countries within Africa growing by 21% between 2003 and 2010. However, despite the considerable growth in the number of projects the amount of capital remains less than that provided by other emerging economies.
The majority of respondents believe that Africa will only offer high and robust growth potential over the longer term (i.e. beyond 3 years). Strong growth in new FDI into Africa is expected from 2012 onward, reaching US$150 bn by 2015. In 2015 alone, the estimated number of jobs created will be over 350,000.
The continued growth of FDI will be based in part on the economic recovery of Africa’s main developed market investors, and the continued strong growth of emerging markets such as China and India. The GDP growth of Africa will continue to remain robust averaging a healthy 5% up to 2015, and predicated partly on an assumption of continued strong demand for, and high prices of, commodities.