Archive for the 'Infrastructure' Category
February 6th, 2017 by Tom Minney
Here is my article on a critical area for Africa to develop, creating the right atmosphere for productive investments by Africa’s growing pension funds. It is published in African Banker magazine and you can access it on the africanbusinessmagazine.com website here:
The power of pension funds for African infrastructure
By Tom Minney
“Opening the elegant new six-lane toll bridge stretching cross Dar es Salaam’s Kigamboni Creek in April, Tanzania’s President John Magufuli called it “liberation” for citizens.
It represents a $135m investment by Tanzania’s National Social Security Fund, the state-run pension fund, and government. China Railway Construction Engineering Group built the 680-metre bridge with China Railway Major Bridge Group and say it is the longest cable-stayed bridge in East Africa.
It is also Tanzania’s first toll road – which residents say is worth paying for as it makes their lives easier. The development will lead to new residential housing and is hoped to boost tourism in the country.
The World Bank estimates Africa should spend $93bn – 5% of gross domestic product (GDP) – each year on infrastructure and the African Development Bank (AfDB) notes a $50bn financing gap to reach this. Local and international pension funds can help fill the gap.
The Bright Africa report by consultancy firm RisCura says that at the end of 2014 assets under management by pension funds across 16 major African markets amounted to $334bn. Some 90% of assets were concentrated in four countries: South Africa (with $258bn) Nigeria, Namibia and Botswana. Assets had grown more than 20% a year in East Africa and 25%–30% a year in Nigeria over the previous half decade.
Potential to drive growth
Pension funds mostly invest in local fixed-income bonds, with regulation a key driver of asset allocation. But as RisCura argues, pension funds are ideal to drive inclusive growth and social stability, including through investing in longer-term projects such as infrastructure: “Local institutional investors lend credibility and a measure of validation, and often serve as a catalyst for greater external interest. Local investors also allow global peers to leverage local knowledge and networks.
With longer investment horizons, pension funds can serve as anchor investors for infrastructure and social development projects,” says the report. South African pension funds lead the way, partly spurred by rules that allow them to invest 10% of assets through private equity.
Africa’s $111bn pension fund
The Government Employees’ Pension Fund (GEPF) with R1.6 trillion ($111bn) assets under management in March 2015 reported it had committed R62bn towards “unlisted and developmental assets” in the previous 12 months, including Touwsriver and Bokpoort solar power projects in South Africa; MainOne data and broadband telecommunications in West Africa; pan-African power generation through Aldwych Power; N3TC which operates and maintains 420km of South Africa’s N3 highway; and two hospitals.
Other investments listed include $21.6m into private airport concession TAV Tunisia through the Pan-African Infrastructure Development Fund (PAIDF) managed by Harith General Partners. GEPF invested $2.6bn into the first PAIDF fund by March 2015 and pledged up to R4.2bn for the second by 2020. Five other pension funds also invested in the $630m PAIDF I fund, which will last 15 years and invested into more than 70 African projects. PAIDF 2 recently announced first close after raising $435m, again with pension funds as key investors.
South Africa’s Eskom Pension and Provident Fund (EPPF) in 2014 invested $30m into infrastructure projects through private-equity house Abraaj, based in Dubai, as well as mobile-phone infrastructure through London’s Helios. EPPF chief executive Sbu Luthuli says “We have to diversify” and wants to put more than $100m into infrastructure projects – 1.2% of its total R120bn assets (as of June 2015). GEPF said that it had invested 1% of its assets into African equities outside South Africa at March 2015, compared to a target of 5% (R80bn).
New funds being created
Financial institutions and multilateral lenders are looking to speed up the process. For instance, the AfDB created the Africa50 fund with target capitalisation up to $10bn and says it has secured $500m. For the second round to $1bn it is targeting institutional investors, including African and global pension funds. Kenya’s government and parastatals such as Kengen are leading the way in selling local-currency bonds to finance infrastructure.
The network is growing. Harith works with Asset and Resource Management Company in Nigeria to invest in West African infrastructure and is setting up a $1bn COMESA Infrastructure Fund with PTA Bank for eastern and southern Africa.
In June Harith and its Aldwych arm announced links with Africa Finance Corporation (AFC) to create a $3.3bn power portfolio, supplying 30m people across 10 countries. Andrew Alli, president and chief executive of AFC, says: “By working together we can deliver tangible benefit for Africans, switching their lights on and stimulating positive economic growth on the continent.”
Politics and mistrust
But it’s not always that straight-forward. In February, Nigeria’s minister of power, works and housing, Babatunde Raji Fashola, called on the country’s pension funds, which manage some N5.8 trillion ($18.4bn), to invest more in infrastructure and other development projects. However, later in the year, newspapers reported that no infrastructure projects had been put forward that met the legal requirements of the 2015 regulations on investment of pension fund assets, including a minimum value of N5bn for individual projects and award through competitive bidding to a concessionaire with a good track record.
The Nigerian Labour Congress expressed members’ fears: “The thought of using our pension fund for investment in public-sector infrastructure development is highly frightening given the well-known penchant for mismanagement inherent in public-sector institutions in Nigeria … It is therefore immoral and careless to subject such fund which is the life-blood of workers to the itchy fingers of politicians, no matter how well intentioned.”
Despite the worries, confidence in governance is growing and attention is switching to building the supply of projects. As RisCura’s report notes: “In many countries, assets are growing much faster than products are being brought to market, limiting investment opportunities.”
Projects and stages
Projects typically go through several stages, starting with feasibility studies to create a “bankable” project; then building or developing the project; and finally operating it once it is established, for instance collecting the tolls on a highway and fixing holes. The last stage is usually the least risky and most suited for pension-fund investors.
The Africa50 fund follows other initiatives in funding early-stage projects in order to boost the supply and mobilise more financing for later stages. Kigamboni bridge took more than two decades. Africa’s fast-growing pension funds need a faster pipeline of investible and well-run projects.
Kigamboni Bridge, Dar es Salaam. Photo Daniel Hayduk, from Nairobi Wire
February 3rd, 2017 by Tom Minney
How fast-growing pensions can transform African economies
Africa’s pension and institutional savings industry is crossing the threshold into a major growth path. Channelled appropriately, they can transform Africa’s business and investment landscape and boost economies and savings.
Institutional savings – pension, insurance and other funds – are emerging as transformative forces for Africa’s economies. Industry leaders and others will discuss it at AME Trade’s Pension Funds & Alternative Investment Africa Conference (PIAFRICA), to be held in Mauritius from 15– 16 March.
The theme is “How can we leverage pension and investment funds for the development of Africa?” Pensions in 10 African countries were tallied at $379 billion in assets under management (including $322bn in South Africa). It is forecast that pension funds in the six largest sub-Saharan African markets will grow to $622bn in assets by 2020 and to $7.3 trillion by 2050.
The aim of the PIAFRICA conference is to debate whether the environment is being created for these funds to go into productive investments that will ensure their members get good returns and that contribute effectively to Africa’s growth. PIAFRICA will bring together the leaders of pension funds and institutional investors, policymakers, regulators, capital-markets, private equity and other stakeholders and is endorsed by the African Securities Exchanges Association (ASEA)
Discussions will focus on maximizing Africa’s pension fund and institutional investor opportunity, and will revolve around the following topics:
• Key trends, challenges and opportunities for Africa pension funds, Insurance, mutual and social security funds
• Africa’s growing funds and their potential to develop capital markets
• How to achieve long-term benefits through investing in infrastructure and other alternative assets, including real estate
• Private equity as an investment avenue for pensions
• For and against more latitude to invest across African borders?
• Best practices for sustainable growth and trust in funds
• Capacity building and support tools
• Technology, fund administration and member services
• Country profiles: African pension funds
Top speakers confirmed to date include:
- Doug Lacey, Partner, Leapfrog Investments
- Eric Fajemisin, Chief Executive, Stanbic IBTC Pension Managers
- Mr PK Kuriachen, Chief Executive, Financial Services Commission
- Ernest Thompson, Director General, Social Security & National Insurance Trust
- Krishen Sukdev, CEO, Government Pensions Administration Agency
- Richard Arlove, CEO, Abax Services
For more visit http://ametrade.org/piafrica/. For media accreditation and interviews contact Barbora Kuckova, Marketing Manager, AME Trade Ltd, Tel: +44 207 700 4949 Email: email@example.com
May 26th, 2016 by Tom Minney
Cameroon is a big winner at this year’s African Banker Awards, the 10th edition. The winners were announced yesterday (25th May) in Lusaka. Morocco’s Attijariwafa Bank, active in 20 countries, wins the prestigious Bank of the Year Award and GT Bank CEO Segun Agbaje is recognized as Africa’s Banker of the Year for his leadership of the Nigerian banking giant, one of Africa’s most profitable banks.
African Banker Awards have become the pre-eminent ceremony recognising excellence in African banking. They are held on the fringes of the annual meetings of the African Development Bank. Your editor is proud to be among the judges and can comment on the excellence of the many submissions from great banks all over Africa.
For the first time, two Cameroonians feature among the laureates: Alamine Ousmane Mey wins Minister of Finance category or his contribution to socio-economic development in his country. Leading banker and economist Paul Fokam, President of the Afriland First Group, is awarded the Lifetime Achievement Award; he is a serial entrepreneur, a renowned economist and his bank is one of the more important institutions in Central Africa. Cameroon scored a hat trick as Lazard’s credit-enhanced currency swap won the award for “Deal of the Year – Debt”.
Other winners include South Africa’s Daniel Matjila, CEO of South Africa’s Public Investment Corporation, a fund with $139bn funds under management. He was awarded the African Banker Icon, recognising the significant investments by the fund into African corporations and the lead role he has played in driving investment from South Africa into the continent.
The African Central Bank Governor of the Year accolade was given to Kenya’s Patrick Njoroge. Kenya’s central bank, largely unknown a year ago, has managed to navigate a tough economic climate and Patrick has been credited with cleaning up the banking sector in his country.
Speaking at the exclusive Gala Dinner at the Intercontinental Hotel attended by over 400 financiers, business leaders, and influential personalities and policy makers, Omar Ben Yedder, Group Publisher of African Banker magazine, which hosts the awards in partnership with BusinessInAfricaEvents said: “It has definitely been a defining decade in banking in Africa. We have recognised true leaders tonight who are playing a critical role in the socio-economic development of the continent.
“Finance remains a key component of development, be it in terms of financing massive infrastructure projects that today are being wholly financed by consortia of African banks, or SME financing. It’s happening because of strong, bold and visionary leadership. I have been privileged to honour some truly exceptional individuals who have left an indelible mark on the industry over the years.
“We are very grateful to our High Patron, the AfDB, for their unwavering support in this initiative and our thanks also go to our sponsors: MasterCard, Ecobank, Nedbank, African Guarantee Fund, PTA Bank, CRDB Bank, Arton Capital and Qatar Airways for partnering with us and enabling us to reward outstanding achievements, commend best practices and celebrate excellence in African banking”.
This year’s judging panel was made up of Koosum Kalyan, Chairman of EdgoMerap Pty Ltd; Zemedeneh Negatu,Managing Partner of Ernst & Young Ethiopia; Tom Minney, Chief Executive of African Growth Partners; Alain le Noir, CEO of Finances Sans Frontières; Christopher Hartland-Peel, Principal at Hartland-Peel Africa Equity Research and Kanika Saigal, Deputy Editor of African Banker Magazine.
THE 2016 AFRICAN BANKER AWARD WINNERS
- Bank of the Year: Attijariwafa Bank (Morocco)
- Banker of the Year: Segun Agbaje – GTBank (Nigeria)
- Minister of Finance of the Year: Alamine Ousmane Mey (Cameroon)
- Central Bank Governor of the Year: Patrick Njoroge (Kenya)
- African Banker Icon: Daniel Matjila, CEO PIC (South Africa)
- Lifetime Achievement Award: Paul Fokam, Founder Afriland First Bank (Cameroon)
- Investment Bank of the Year: Rand Merchant Bank (South Africa)
- Award for Financial Inclusion: Ecobank (Togo)
- Best Retail Bank: BCI (Mozambique)
- Socially Responsible Bank of the Year: Commercial International Bank (Egypt)
- Innovation in Banking: Guaranty Trust Bank (Nigeria)
- Deal of the Year – Equity: Naspers $2.5bn Accelerated Equity Offering (Citi)
- Deal of the Year – Debt: Cameroon’s Currency Swap (Lazard)
- Infrastructure Deal of the Year: Azura – Edo IPP (Fieldstone; Rand Merchant Bank; Standard Bank; IFC)
- Best Regional Bank in North Africa: Commercial International Bank (Egypt)
- Best Regional Bank in West Africa: Banque Atlantique (Côte d’Ivoire)
- Best Regional Bank in Central Africa: BGFI (Gabon)
- Best Regional Bank in East Africa: CRDB Bank (Tanzania)
- Best Regional Bank in Southern Africa: MCB (Mauritius)
For more on the African Banker Awards, please visit: http://ic-events.net/.
May 11th, 2015 by Tom Minney
The central depositories of Kenya and Nigeria, two of the most dynamic in Africa, have formed a joint venture with Altree Financial Group. The African Development provided $400,000 in seed equity capital to the new Africlear Global venture, which aims to boost the efficiency of African capital markets by supporting modernizing the infrastructure of the central securities depositories.
The partners are Kenya’s Central Depository and Settlement Corporation (CDSC), Nigeria’s Central Securities Clearing System (CSCS) and Altree. However, several more African central depositories are interested in joining.
Africlear will help the depositories to pool their resources and boost buying power on equipment. They will work together to identify, acquire and maintain critical systems and technology, for instance for corporate actions, recording shareholder votes and other investor support services. The depositories will also share information and expertise.
The African Development Bank (AfDB) invested $400,000 in seed capital through the Fund for Africa Private Sector Assistance in an agreement signed 5 March in Abidjan. This may inspire more investors to join in building the company.
Africlear will use the money to improve the infrastructure used for post-trading processes such as settlements after a sale is done. According to AfDB press release: “The goal of the investment is to enhance the efficiency of capital markets by supporting the modernisation of central securities depository infrastructure in African securities markets.” Solomon Asamoah, AfDB Vice-President, Infrastructure, Private Sector and Regional Integration, and Anthony Fischli, Director, Africlear Global, signed the Shareholder and Subscription agreements on behalf of the Bank and Africlear Global, respectively.
Rose Mambo, CEO of CDSC, is the chairperson of Africlear. She was reported in Standard news in Kenya saying: “Africlear members will be able to realise significant cost savings via collective bargaining with industry participants and technology vendors. Africlear will also allow its members to offer more services ranging from corporate actions processing and collateral management to clearing and settlement.”
Kyari Bukar of CSCS said Africlear will accelerate process standardization and promote system integration across the borders. “By employing industry best practices, Africlear will facilitate improved levels of transparency and corporate governance within the African capital markets. This will enable local market practitioners to effectively compete for domestic and international capital.”
The board of Africlear held its first meeting in Nairobi on 24 April 2015. The members also include Altree Financial Group chairman Anthony Fischli and a representative from the AfDB to be named. Fischli said: “Africlear supports an open marketplace where scale and connectivity serve as the company’s competitive strengths” Benefits for investors should include improved access to securities services, collaboration between countries and cost-effective pricing of infrastructure.
Fischli told AfricanCapitalMarketsNews on 11 May that Africlear could also help the different countries’ and exchanges’ central depositories in future if they want to establish links. Fischli said in a press release “The AfDB investment in Africlear Global supports the improvement of securities market infrastructure through promotion of industry-leading technologies designed to enhance the underlying efficiency and overall functioning of the African capital markets.”
Kenya’s Business Daily reports that CDSC expects to gain revenue from its investment in Africlear by being able to charge for corporate actions such as reconciling investors on share splits, dividend declaration and payments. Revenues are particularly expected from international investors who mostly make the bulk of the traders on the Nairobi Securities Exchange.
Central Depository and Settlement Corporation (CDSC) Kenya is approved by the Capital Markets Authority of Kenya as provider of clearing and settlement services to the Kenyan capital markets. Central Securities Clearing System (CSCS) Nigeria is licensed by the Securities and Exchange Commission of Nigeria and serves as the clearing and settlement house for the Nigerian capital markets and The Nigerian Stock Exchange. Altree Financial Group is an integrated financial-services company licensed to conduct Investment Business by the Bermuda Monetary Authority.
The AfDB’s FAPA fund is a multi-donor thematic trust fund that provides grant funding for capacity building, seed capital and advisory services to support implementation of the Bank’s Private Sector Development Strategy. AfDB and the Governments of Japan and Austria have contributed to the fund, which to date has provided over $60m to 56 projects in 38 countries across Africa. The portfolio includes regional and national projects aimed at improving the business environment, strengthening financial systems, building private-sector infrastructure, promotion of trade and development of micro, small and medium enterprises
COMMENT – African nations seem keen on having national exchanges and central depositories under domestic regulation. However, they are working hard on harmonizing regulations, including to global standards, particularly within regional associations of regulators.
Africa is also looking for ways to increase links between the exchanges, eventually pushing to the point where a broker in one country can route orders to other exchanges, meaning that investors all over Africa have access to different exchanges, boosting liquidity and achieving more cross-border communications, trading, cross listings and remote memberships.
Africlear can be a key part of this. Getting post-trade “plumbing” for payments, clearing and settlement is key to ensuring African exchanges. Africlear is set to be an important step forward.
March 24th, 2015 by Tom Minney
“How do we become relevant to society again?” This is the challenge posed to world’s securities exchanges this morning by Ashish Chauhan, CEO of BSE India securities exchange. He told the World Exchanges Congress in London this morning (Tue) that stock exchanges that concentrate only on trading for the sake of trading are in a zero-sum game.
They should look to add value in areas where there will be gains. He sees the gains will be huge for proactive securities exchanges: “In next 20 years we will create more wealth than in last 10,000 years – will the exchange industry participate in that”.
Chauhan points out that India has 1 in 6 of world’s population but only 2% of its land mass, there are more people than Europe and USA combined and 50% of population are under 25 years old. The challenge is to create jobs and to provide the skills for employment. Exchanges should ask if that will be done by private equity and other channels, or will the exchanges be able to play a major part?
BSE India’s response is to set up BSE SME Platform. Its website “offers an entrepreneur and investor friendly environment, which enables the listing of SMEs from the unorganized sector scattered throughout India, into a regulated and organized sector.”
Chauhan says that going forward technology will change the world and India with its young population skilled in technology will be driving that change. How does each exchange solve the problems of the society it is operating in?
Europe’s integrated capital solutions to big issues
Earlier Cees Vermaas, in his first engagement as CEO of CME Europe, spoke of his vision of Europe in 2030. A centralized market and Europe-wide clearing and settlement will allow relentless pursuit of efficiency and falling costs. London will remain the financial centre, but smart networks will allow other specialist centres to grow all over Europe. This will include more exchange centres to provide funding for SMEs and for infrastructure. Exchange-linked investment into all forms of energy and will support transitions into new and efficient forms of green energy. European bond markets are only 30% of USA volumes at present but in coming years that will change fast with less fragmented bankruptcy regulatory frameworks
March 13th, 2015 by Tom Minney
Do you agree or disagree with this view? Comments are welcome below
Pension funds in 10 African countries already have $379 billion in assets under management – 85% or $322bn of it based in South Africa – and they continue to grow very fast. That means careful thinking about how to nurture Africa’s savings pool while the need to deploy these resources most productively puts the spotlight on the search for quality investment assets.
For example, Ghana’s pension fund industry reached $2.6bn by Dec 2013 after growing 400% from 2008 to 2014. Nigeria’s industry has tripled in the last 5 years to some $25bn in assets by De 2013, and assets under management are growing at 30% a year. There are 6 million contributors, but many more Nigerians still to sign up pensions.
Pensions have a special place in the capital market as they take a longer-term view and can be patient in the hope of greater returns. Some pension funds, in Africa and elsewhere, argue that pensioners are not just looking at the value of their retirement income but also the quality of their lives, opening the way to carefully chosen investments in infrastructure, healthcare and other benefits which pensioners and their families might enjoy.
What are the African factors driving the growth of pension funds?
• Many countries have set up new regulators and even more are introducing regulations, including forcing more employers to provide pensions. With the new regulatory frameworks come structural changes such as the need for professional third party asset managers
• Changing demographics: The age group over 60 years is the most rapidly increasing, according to some research
• It’s a virtuous circle, many Africans want savings opportunities. If pension funds produce results, and are well run and good at communicating, people will respond.
The growth is only beginning. So far only 5%-10% of the population in sub-Saharan Africa are thought to be covered by pension funds and 80% in North Africa. Pension funds are still tiny in comparison to gross domestic product (GDP), which in turn is growing fast in many African countries – for example pension funds are about 5% of GDP in Nigeria, compared to 170% of GDP in Netherlands, 131% in UK and 113% in America.
Southern Africa is generally better served: Namibia has some $10bn in pension assets representing 80% of GDP and Botswana $6bn or 42% of GDP. The biggest pension schemes are usually government and social-security funds as well as local government and parastatal funds (such as Eskom in South Africa), as well as those of big corporations and multinationals.
Economist Charles Robertson of Renaissance Capital says conservatively that pension funds in the 6 largest sub-Saharan African markets will grow to $622bn in assets by 2020 and to $7.3 trillion by 2050.
What to invest in?
The challenge is how to invest the capital productively. Are Africa’s entrepreneurs, corporate finance and investment banking houses and capital markets rising to the challenge of bringing a a strong pipeline of investment-ready projects to keep up demand for capital?
Capital markets need to offer liquidity and transparency both to channel the foreign capital looking for African growth opportunities for their portfolios and now for domestic funds too. Liquidity can be a key problem, even in Africa’s world-beating Johannesburg Stock Exchange, where the Government Employees Pension Fund (GEPF) is thought to account for 13% of market capitalization and to be the country’s biggest investor in commercial property.
Big funds in small other Southern African capital market swamps can be like hungry hippos, snapping up promising new investments as they surface. Even if they feel satisfied from a good run of success on some of these investments, they can hardly disgorge them back into the liquidity pool for other traders because of the gnawing fear they would not find other local investments to fill their bulging portfolios.
Others share the worry. Eyamba Nzekwu of Nigeria’s Pencom was reported as saying: “Savings are growing much faster than products are being brought to the market to absorb these funds”. Pension fund growth is thought to have contributed to a 79% surge in Ghana stock market in 2013 as funds chased too few investments.
Regulators should encourage the fund-managers to upgrade skills fast to be more proactive in picking and trading stocks and African fixed income. They should also widen the space in the interests of helping the markets and the funds to grow through liquidity. This means, for instance instance, urgently relooking restrictions on cross-border investments, including into other African markets.
Private equity and infrastructure
The pension funds provide a huge opportunity for alternative assets, especially private equity. According to research by the African Development Bank’s Making Finance Work for Africa and the Commonwealth Secretariat, African pension funds are estimated to have invested some $3.8bn-$5.7bn in private equity and to have scope to invest another $29bn (see table below). Many countries are passing new regulations to allow investment into private equity and other unlisted investments. Funds have been experimenting – sometimes disastrously – with small and medium enterprise and other developmental investments.
International private equity fund managers such as Helios and LeapFrog have also seen the future, making investment in pension fund providers – Helios took equity in Nigeria’s ARM Pension Fund Managers and LeapFrog into Ghana’s Petra Trust.
Africa has huge need for infrastructure finance and pension funds could be the ideal pool of patient capital but more work needs to be done to increase the supply of investable projects and to increase capacity of pension funds to invest in projects directly or through infrastructure fund managers.
Savings are good for growth, provided there are productive assets for them to go into. Africa’s savings are rising, often driven by regulation, and international interest has been strong for years. Can Africa’s entrepreneurs, their advisors, private equity funds and the capital markets institutions rise to the challenge of building a big enough pipeline of great investment opportunities suited to the needs of these investors?
For more reading:
This article is heavily based on work by: Ashiagbor, David, Nadiya Satyamurthy, Mike Casey and Joevas Asare (2014). “Pension Funds and Private Equity: Unlocking Africa’s Potential”. Making Finance Work for Africa, Emerging Markets Private Equity Association. London. Commonwealth Secretariat. Available through MFW4A.
Another book is by Robertson, Charles (2012). “The Fastest Billion: The Story Behind Africa’s Economic Revolution”. Renaissance Capital. Read more here or buy it on Amazon (link brings revenue to this site).
Other articles are at The Economist on Nigeria’s pensions, African Business and Wall Street Journal.
March 8th, 2015 by Tom Minney
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.”
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
4. Casablanca – top in economics
9. Addis Ababa
10. Kampala – top in society and demographics
15. Dar es Salaam
Gauged by opportunity, the ranking is headed by Dar es Salaam, followed by Lusaka, Nairobi, Lagos, Accra and Abidjan.
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.
January 6th, 2015 by Tom Minney
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
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
Offshore equity 3.64
Offshore bonds 1.72
Africa equity (ex-SA) 0.5
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.
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.
December 5th, 2014 by Tom Minney
Ethiopia saw soaring demand yesterday (4 Dec) for its debut $1 billion Eurobond, after a quick investor roadshow. Total demand was $2.6bn and the yield on the 10-year bond was settled at a relatively low 6.625%, at the lower end of the 6.625%-6.75% price guidance.
According to this report in the Financial Times: “The debut sees one of the biggest, most closed — and, some observers say, most promising — African nations joining a number of other countries in the region that have issued similar bonds in the past 5 years. Africa has become a magnet for pension funds, insurers and sovereign wealth funds seeking higher-yielding assets.”
A Bloomberg report cites Standard Bank Group that African governments such as Ghana, Kenya, Senegal and Ivory Coast and corporates issued a record $15bn of Eurobonds this year as they try to benefit from investor appetite for higher returns before the US Federal Reserve raises interest rates expected next year. The bank says they raised $13bn in 2013. Sovereign issuers accounted for 71%.
It quotes Nick Samara, an Africa-focused banker at Citigroup in London, saying ““Pricing at a 6-handle is very attractive” for the country, similar to Zambia.
The move jumps ahead of the earlier schedule suggested in this report.
Ethiopia needs $50bn over 5 years
The FT quotes Kevin Daly, senior portfolio manager at Aberdeen Asset Management, that the bond’s yield “is decent value for the deal given the limited knowledge and different nature of the Ethiopian economy and the challenges it faces compared to these countries”. Bloomberg says he said Ethiopia made a strong case for infrastructure development and financing needs at investor meetings, “which suggests they will be looking to come back to the market in near term.”.
According to Bloomberg, Finance Minister Sufian Ahmed said on 7 Oct that Ethiopia will probably need to invest about $50bn over the next 5 years, of which $10bn to $15bn may come from foreign investors. Most will be used to develop sugarcane plantations, a 6,000-megawatt hydropower dam on a tributary of the Nile River and the country’s railway network.
Grand Ethiopian Renaissance Dam (credit: www.water-technology.net)
Claudia Calich, emerging market bond fund manager at M&G told the FT that Ethiopia was one of the region’s weaker credits: “I am concerned over lack of transparency and levels of SOE [state owned enterprise] debt.” Mark Bohlund, senior economist for sub-Saharan Africa at consultants IHS, said investors were attracted to Ethiopia on the back of “strong economic growth prospects and limited external indebtedness”. He added: “We wish to highlight that there are still non-negligible risks to repayment.”
Fast 9% growth, limited foreign reserves
Deutsche Bank and JPMorgan were the lead managers for the bond and Lazard advised the Federal Government of Ethiopia.
The bond includes new clauses recently promoted by organisations such as the International Capital Markets Association and dubbed “anti-vulture” clauses. They aim to make it more difficult for investors to hold out against restructuring plans if the country defaults on its debt, as happened recently with Argentina.
Ethiopia first credit ratings came in May, as reported here. Moody’s Investors Service rates it a non-investment grade B1 with a stable outlook, while Standard & Poor’s and Fitch Ratings awarded B, one grade lower.
Ethiopia has some of the fastest growth rates in Africa, around 9%, according to the International Monetary Fund. According to Reuters, the IMF said in a September report that the risk of Ethiopia facing external and public “debt distress” remained low but said it was on the “cusp of a transition to moderate” risk. It estimated public debt at 44.7% of GDP in fiscal 2013/14. Ethiopia’s foreign reserves covered only 2.2 months of imports in 2013/14 and capacity to increase this remains under pressure due to limited capacity to increase exports and foreign investment.
African debt warning
According to the African Development Bank’s Making Finance Work for Africa website (www.mfw4a.org), a few weeks ago the IMF warned African States against rushing to issue Eurobonds, saying they may face exchange-rate risks and problems repaying debts. African governments facing falling levels of foreign aid are on a borrowing spree to pay for new roads, power stations and other infrastructure, prompting concern this could raise debt levels and undermine growth.
“It comes with some risks,” the director of the IMF’s African Department, Antoinette Sayeh, told Reuters. “Whereas what it costs the countries to issue these bonds can often look lower than what they would pay on domestic borrowing… the real cost in the final analysis will also depend on the evolution of exchange rates in the course of the life of the bond issuance.”
Kenya’s debut $2bn Eurobond had launched at 6.875% in June but fallen to 5.90% when it issued a new tranche in late November, indicating that investors did not share the IMF’s concerns. Kenya’s 10-year bond was trading at 5.88% on 4 Dec and Kenya has a much higher average gross domestic product (GDP) per capita and much better advanced African capital market and securities exchange than Ethiopia. The bond prospectus listed Ethiopia’s GDP per capita at $631.50 in fiscal 2013/4.
December 5th, 2014 by Tom Minney
Private companies have proposed to the Ethiopian and Djibouti governments a $1.4 billion pipeline to bring petroleum to a distribution centre in Awash, Ethiopia. It would take two years to complete.
The companies which made the proposal 6 months ago are Black Rhino Group, owned by private equity firm Blackstone, and MOGS (Mining, Oil & Gas Services), owned by Royal Bafokeng Holdings, a South African investment group, according to this report in Addis Fortune newspaper.
Ethiopian Petroleum Supply Enterprise (EPSE) plans to import 2.9 million tonnes of fuel this year and last year this was 2.6m tonnes. Some of the fuel comes from Sudan.
They are proposing to build 550 kilometres of pipeline, carrying oil directly from the vessels at the port to a storage facility in Awash, from where it would be distributed by trucks from Awash to the rest of the country, including Addis Abeba. According to the report, the Djibouti government has told Black Rhino and MOGS that the current port infrastructure is not big enough to meet Ethiopia’s long-term needs with Ethiopia’s demand for refined fuels growing 10% a year.
The pipeline would bypass the congested port and road. The report quotes Demelash Alamaw, assistant to chief executive at EPSE, that it is inefficient to use fuel trucking fuel up from the coast. The project is expected to reduce the supply problem caused by truck shortages, as well as reduce the cost of transport.
Brian Herlihy, CEO and founder of Black Rhino, presented the proposal on 21 Nov at a meeting on “Powering Africa: Ethiopia Meeting,” at Radisson Blu Hotel, Addis Abeba, organized by UK-based company Energy Net Ltd.
He said the Ethiopian Government is studying the proposal and Djibouti is happy. If the Ethiopian Government gives a green light to the project the company will proceed to study the environmental and engineering condition of the construction,
Fortune reports that officials at the Ministry of Water, Irrigation & Energy (MoWIE), confirmed that the proposal had been submitted and they would look at it before deciding to discuss it further with other stakeholders, such as the Ministry of Finance & Economic Development (MoFED), the Ministry of Foreign Affairs (MoFA), and Ministry of Transport (MoT).