AIN December Edition

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Africa Investment Notes INVESTMENT INSIGHTS | CAPITAL FLOWS | SECTOR TRENDS | ENTERPRISE | M&A

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Investment events around Africa Emerging Ideas Policy Matters Country Focus

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Africa Investment Notes: Monthly

December 2016


Africa Investment Notes December 2016

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Africa-USA: what to watch in economic and trade relations The United States was the top source country for FDI projects into Africa despite a decline of 4 percent in project numbers. Additionally, the value of these projects dropped 12 percent to $6.8bn AGOA’s exports to United States of America increased from $14.6 billion in 2002 to $63.6 billion in 2011 but decreased from $63.3 billion in 2011 to $15.4 in 2015 mainly due to reduced petroleum exports to the U.S. The African Growth and Opportunity Act (AGOA) was signed into law in May 2000 with the objective of expanding U.S. trade and investment with sub-Saharan Africa, to stimulate economic growth, to encourage economic integration, and to facilitate sub-Saharan Africa’s integration into the global economy. The United States trade relationship with sub-Saharan Africa remains underdeveloped. In fact, U.S. trade with Africa has been declining since 2011. Currently, only approximately 1.5 percent of U.S. exports are to sub-Saharan Africa. At the same time, economic growth in Africa from 2004 to 2014 averaged 5.8 percent, though in 2015 growth was only 3.75 percent, in large part reflecting the decline in commodity prices. AGOA provides exports from sub-Saharan Africa preferential access to the U.S. market. The U.S. also provided preferential access for sub-Saharan Africa exports under its Generalized System of Preferences (GSP), a program that applies to exports from most developing countries. The GSP expired in 2013, but under AGOA, GSP preferences remain available for AGOA-eligible countries. AGOA, combined with the GSP, provides duty-free access to the U.S. for 6,400 product lines from 38 countries in sub-Saharan Africa. Of total U.S. imports from AGOA countries, around 70 percent enter under AGOA.

get, and Old Navy s o u r c e goods in Africa for export to the U.S.

“AGOA’s exports to USA increased from $14.6 billion in 2002 to $63.6 billion in 2011 but decreased from $63.3 billion in 2011 to $15.4 in 2015”

American financial capital is important to African development. In 2015 alone US $14 billion poured in. Having less investment coming to African states does not spell good news regardless of how much some believe China pitches in. There’s still some life left in the act. But it’s clear that Trump is protectionist. He is not going to tolerate any expansion or extension of the agreement, or any misunderstandings. This means American trade policy under Trump needs to be watched closely. A key strategy for President-elect Trump is to turn the US inward, both economically and politically. Many of his economic policies reflect a mercantilist perspective on economic development. This can be summed up as being the opposite to free trade. He has recently promised to withdraw from negotiations on the Trans-Pacific Partnership trade deal.

There is also likely to be a decline in aid to Africa from the US. For some African countries aid from the US is crucial. Take Malawi for example, where it is essential and necessary. As a businessman, Trump will want something in return and it’s unlikely he will get his sort of returns on investment from most African countries. His possible response will be that of a reality show host -- eject any errant contestants. Another factor that will affect investment is By enabling increased trade, AGOA supports that Trump is going to improve American inlocal businesses and their integration into the frastructure. global economy. AGOA has also stimulated The next four years promises to test Africa’s foreign investment in sub-Saharan Africa, of- place in the world. The lodestars by which we ten by companies taking advantage of the new have understood politics such as right-wing, market access opportunities back in the U.S. fiscal conservative, social conservative are all For instance, U.S. retailers such as Gap, Tar- going to be overturned.


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Investment events around Africa Launch of Boost Africa Initiative, a new integrated approach to boost young innovative entrepreneurs across Africa

Boost Africa Initiative, a unique partnership in support of innovation and entrepreneurship across Africa has been launched on Monday, November 21 in Abidjan by the European Investment Bank (EIB) and the African Development Bank (AfDB) in partnership with the European Commission. The launch ceremony took place at the Headquarters of the AfDB in Abidjan in the presence of EIB President Werner Hoyer, AfDB President Akinwumi Adesina, EIB Vice-President Ambroise Fayolle and Stefano Manservisi, Director-General for International Cooperation and Development at the European Commission.

Across Africa, 3 in 4 countries improve business environment

Almost three-quarters of African countries saw an improvement in their business environments in 2016, according to the Doing Business 2017 report published in October by the World Bank. Forty African states have seen improvement in their ease of doing business ranking in the 2017 report, with sub-Saharan African economies improving their overall scores at a rate that is three times that of high income OECD economies (albeit, coming from a lower base)

UK to Increase Investments in Mozambique’s Natural Resources

The United Kingdom has begun exploration of business opportunities in Mozambique with the intention to further boost commercialization of viable sectors. United Kingdom’s Trade Envoy Richard Benyon paid a three-day visit to Mozambique in September with an agenda centered on boosting trade relations between the UK and Mozambique. The visit was to create space for UK businesses to strengthen their knowledge of the growing commercial opportunities in the Southern Africa country

AfDB approves US $1-million grant to finance nutrition campaign in Nigeria’s

Executive Directors of the African Development Bank (AfDB) has approved a US $1-million emergency assistance grant to support the fight against malnutrition in Nigeria’s northeastern state of Borno.

EMRC to Impact Africa’s Finance and Investment Sectors

The Africa Finance & Investment Forum (AFIF) will be held for the first time in Nairobi, Kenya from 15th to 16th February 2017. The annual business event is organized in the framework of EMRC, an organization dedicated to strengthening the private sector in Africa, encouraging entrepreneurship and attracting investment to the continent to establish a stable and vibrant economy.

Morocco, WB Launch Green Growth Infrastructure Facility for Africa

Morocco’s sovereign investment fund “Ithmar Capital” and the World Bank (WB) inked, recently in Marrakesh, a memorandum of understanding to launch the first Green Growth Infrastructure Facility for Africa” (GGIF for Africa), during the Finance Summit held on the sidelines of COP22. Its objective is to attract private investors with interest in Morocco or Africa who are looking for responsible and green investment opportunities.


Africa Investment Notes December 2016

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Investment events around Africa Oxford Business Group to Support The African Investments And

Algeria’s bid to foster new commercial links across West Africa and take advantage of the opportunities emerging in key markets, including Ghana, is expected to be a topic of discussion at a transcontinental forum to be held in Algiers at the beginning of December. The global publishing firm Oxford Business Group (OBG) will be a key partner at the African Investments and Business Forum, which takes place from December 3rd – 5th at the International Conference Centre. The event, which is supported by the Algerian government and the Algerian Business Leaders Forum (FCE), will bring together more than 2000 industry and public sector representatives from across the continent, including several government leaders.

Trade between South Africa, Russia should strengthen – DTI

Russian companies are urged to increase their investment in South Africa by taking advantage of the investment opportunities presented by the industrial reform of the South African economy. Addressing the South Africa-Russia Business Council in Pretoria, Department of Trade and Industry trade and investment deputy director-general Pumla Ncapayi noted that Russia was a key strategic trading partner in South Africa’s integrated national

Potential $23trn in climate-smart investments

East Africa: SMEs to Get EAC Market Information

Paris climate change agreements adopted last year have helped open nearly $23trn (£18.5trn) in emerging-market investment opportunities according to the International Finance Corporation (IFC). Sub-Saharan Africa represents a $783bn opportunity—particularly for clean energy in Cote d’Ivoire, Kenya, Nigeria, and South Africa. IFC executive vice president, Philippe Le Houérou, said: “There has never been a better time than now for cliSmall and medium enterprises (SMEs) will now be able to access firsthand information on trade and investment opportunities across East African Community (EAC) member countries, thanks to a new initiative by youth focused non-governmental organization (NGO). The Vision for Youth has launched has launched a project known as “SokoMkononi” that aims to identify challenges and enable SMEs to get information on the EAC investment and trade opportunities

British Pound volatility brings hot opportunities for SA Property Investors

The weak post-Brexit pound has opened a window of opportunity for South Africans to invest in the UK property market. The weakness of the pound indicates that South Africa is not alone when it comes to political and economic uncertainty and currency risk. In the US, the hotly contested election is also underpinning investor nervousness and the slowdown in China’s economic growth has caused global ripples of uncertainty


Africa Investment Notes December 2016

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Emerging Ideas

Digital Finance For All: Powering inclusive growth in emerging economies

Two billion individuals and 200 million businesses in emerging economies today lack access to savings and credit, and even those with access can pay dearly for a limited range of products. Rapidly spreading digital technologies now offer an opportunity to provide financial services at much lower cost, and therefore profitably, boosting financial inclusion and enabling large productivity gains across the economy. While the benefits of digital finance—financial services delivered via mobile phones, the internet or cards—have been widely noted, in this report we seek to quantify just how large the economic impact could be.

a business-as-usual scenario. Nearly two-thirds of the increase would come from raised productivity of financial and non-financial businesses and governments as a result of digital payments. One-third would be from the additional investment that broader financial inclusion of people and micro, small, and medium-sized businesses would bring. The small remainder would come from time savings by individuals enabling more hours of work. This additional GDP could lead to the creation of up to 95 million jobs across all sectors. The potential economic impact varies significantly depending on a country’s starting position.

Digital finance has the potential to provide access to financial services for 1.6 billion people in emerging economies, more than half of them women. It could increase the volume of loans extended to individuals and businesses by $2.1 trillion and allow governments to save $110 billion per year by reducing leakage in spending and tax revenue. Financial-services providers would benefit too, saving $400 billion annually in direct costs while sustainably increasing their balance sheets by as much as $4.2 trillion. Overall, we calculate that widespread use of digital finance could boost annual GDP of all emerging economies by $3.7 trillion by 2025, a 6 percent increase versus

We conducted field research in seven countries that span geographies and income levels: Brazil, China, Ethiopia, India, Mexico, Nigeria, and Pakistan. Lower-income countries such as Ethiopia, India, and Nigeria have the largest potential, with the opportunity to add 10 to 12 percent to their GDP, given low levels of financial inclusion and digital payments today. In comparison, middle-income countries such as China and Brazil could add 4 to 5 percent to GDP—still a substantial boost. The rapid spread of mobile phones is the game changer that makes this opportunity possible. In 2014, nearly 80 percent of adults in emerging economies had a mobile phone, while only

55 percent had financial accounts—and mobile phone penetration is growing quickly. Mobile payments can lower the cost of providing financial services by 80 to 90 percent, enabling providers to serve lower income customers profitably. The data trail these technologies leave can enable lenders to assess the creditworthiness of borrowers, and can help businesses better manage their finances. Businesses and government leaders will need to make a concerted effort to secure these potential benefits. Three building blocks are required: widespread mobile and digital infrastructure, a dynamic business environment for financial services, and digital finance products that meet the needs of individuals and small businesses in ways that are superior to the informal financial tools they use today. Broadening access to finance through digital means can unlock productivity and investment, reduce poverty, empower women, and help build stronger institutions with less corruption— all while providing a profitable, sustainable business opportunity for financial service providers. The benefits for individuals, businesses, and governments can transform the economic prospects of emerging economies.

Culled from a Mckinsey Global Institute Report


Africa Investment Notes December 2016

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Emerging Ideas Unlocking the potential of the tourism industry in Africa In considering the economic significance of the tourism sector in Africa, the following can be observed: it is a fast-growing and generally labour-intensive sector, with plenty of opportunities both for skilled and unskilled workers, and especially for women and the youth. It is also a sector with massive linkage potential with other economic sectors, which, if realized, would encourage diversification of other economic sectors while ensuring the retention of tourism revenue, thus reducing leakage in the sector. The tourism sector puts African countries at an advantage, particularly when considering Africa’s endowment with natural resources as well as its rich cultural heritage. The cultural heritage creates opportunities for small and medium enterprise (SME) development in small and rural communities. The development of tourist towns can turn otherwise remote and isolated areas into commercial centres, competing with light manufacturing and attendant service sector development, thus creating more opportunities for local communities. Transport infrastructure development, telecommunications, finance and energy are crucial as these facilitate backbone services for any sector, and are especially essential in the tourism sector to expand both regional and global value chains as well as reduce the costs of access to tourist destinations and services. Looking at the accom-

modation aspect of the tourism industry, such industries as construction and manufacturing, agriculture, and food processing play a huge role as suppliers to the tourism industry. Add to that list the utilities, entertainment and art and craft industry. These are but some of the examples of the inter-industry linkages. It is quite clear that tourism is a low-hanging fruit when it comes to economic growth, employment creation and the improvement of social welfare, particularly as Africa struggles with industrialization and other development challenges.

Accessing this low-hanging fruit has been challenged by a number of factors and a few will be highlighted here. In its Doing Business 2016 report, the World Bank has given Sub-Saharan economies an average ranking of 143 out of 189 and this has to be improved. In the tourism sector, a conducive business environment is a catalyst for value chain participation and investment. A difficult business environment punctuated by very high operational costs is partly responsible for keeping the African tourism sector relatively captive and producer driven, with the sector dominated by a few large developed country travel agencies. Political instability, combined with the regional spillover effects of unrest is another challenge, although the region has made significant progress over the past few

years, it still remains fragile. Poor infrastructure and limited connectivity is another issue, especially when it comes to backbone service sectors. Linked to this, the high costs of road and air transport in Africa, mostly due to market restrictions, are particularly problematic and estimates are that even a moderate opening of the markets could lead to a 25% increase in the number of flights. ICT development is another challenge – access to information technology could assist with such functions and services as marketing, distribution, professional services and various other logistical arrangements that African service providers could undertake and which are currently dominated by international players. Dealing with the challenges above and others will ensure the development of the tourism sector and associated industries in Africa. However, as stated above, such development also depends to a large part on governments taking the lead in developing the sector and particularly from a policy perspective. African governments need to deal with the regulatory barriers to services trade in their countries, particularly in the key service sectors of transport, communications and business services. These services are integral to the development of the tourism value chains as well as to investment in the sector.


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Africa Investment Notes December 2016

Policy Matters African Union passport opens door to closer integration While western governments toy with isolationism, the African Union (AU) is making moves in the opposite direction. In July, the continental organisation launched an electronic passport intended to allow free movement among all 54 markets in the region at its summit in Kigali, Rwanda. The passport will be available to diplomats and heads of state by 2018, and to citizens by 2020, according to the AU. However, given the scale of the project and the region’s tendency for delays, it might take longer. The rollout is the latest in a series of continent-wide digital document initiatives aimed at addressing a broad range of issues such as national security, financial inclusion, identity protection and improved cross-border relations. According to Nkosazana Dlamini-Zuma, chair of the AU Commission, the initiative is a “steady step toward the objective of creating a strong, prosperous and integrated Africa, driven by its own citizens and capable of taking its rightful place on the world stage”. The East African Community (EAC) and the Economic Union of West African States (ECOWAS), two regional blocks encompassing more than 20 countries, have already started to set up the infrastructure to deploy electronic passports and other digital ID documents. In July, Ghana implemented a visa on arrival systems for citizens of AU member countries, joining some dozen others working towards the same policy. AU heads of state and government, ministers of foreign affairs and the permanent representatives of AU member states based at the organisation’s headquarters in Addis Ababa, Ethiopia, will be the first to receive the AU-wide ePassports. Africa’s 54 markets have long placed regional integration high on their development agendas. These objectives form part of the vision for Africa set out in the AU’s Agenda 2063 white paper. However, the process of regional consolidation has been slow due to political and structural barriers. According to the 2016 Africa Visa Openness Index Report, on average African citizens require visas to travel to 55 percent of the continent’s countries. As a result, interregional trade between African countries remains low – with the bulk of exports still destined for China, Europe and America – especially when compared to counterparts in Europe and Asia.


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Africa Investment Notes December 2016

Policy Matters Electronic passports in Africa use the same technology as in other parts of the world, and they comply with standards set by the International Civil Aviation Organisation (ICAO). This means African governments can be confident the technology works and is interoperable across borders, helping to facilitate business, travel and tourism across the continent. The security and biometric features of these documents should also help combat identity fraud, which is a problem across much of the region. In the year to April 2014, 1370 cases of identity theft were reported to the Southern African Fraud Prevention Service (SAFPS), a 16 percent increase in ID theft on 2012. More secure identity documents are also seen as weapon in the fight against cross-border terrorism. “Trusted verification of the document means increased certainty about the bearer’s identity, and the technology is a vital tool to combat identity theft, so ePassports are an important part of the focus on global security, and key to Africa,” says Tony Mullen, key accounts director at De La Rue. The firm is involved in ePassport projects in several African countries. However, the document itself is only one part of the secure process. The right infrastructure and databases need to be built to support them. “You need to roll out enrolment equipment in different centres throughout a country, and you need to have the infrastructure in place to trust the data from these enrolment centres to enable you to print the documents,” says Charles Mevaa, vice president for government programs in Africa at Gemalto. The company is involved in ePassport deployments in countries such as Algeria, Côte d’Ivoire, Morocco and South Africa. Given the scale of these projects and the systems involved, in Africa lack of finance is one of the biggest challenges to rolling out major ePassport and eID schemes. A popular solution is for governments to turn to public-private partnership models. When Côte d’Ivoire adopted ePassports in 2008, it granted a 15-year concession to produce the documents to ID and secure printing special-

ist SNEDAI, supported by technical partner Zetes. SNEDAI’s contract with Zetes to ‘build, operate and transfer’ means that Zetes manages the project from start to finish, and is paid per the number of passports issued. In 2008, the project forecasted it would issue 200,000 five-year passports per year. Over the course of the 15-year contract, that should generate an estimated €60m ($67m) in revenue for the firms. “Using PPP, governments do not have to provide funds or set funds aside or manage complex standards processes,” says Ronny Depoortere, senior vice president at Zetes. “Usually countries have figures for the number of travel documents they’ve issued previously, so you might have relatively reliable numbers to advertise to investors,” he adds. Multilateral organisations are also providing support and channeling funds into eID programmes. According to the World Bank, those who lack official identification are typically the world’s most vulnerable and poorest. “People with no identity are unable to access educational opportunities, financial services, health and social welfare benefits. Further, these people are disenfranchised, unable to have their say in their country’s electoral process,” the bank’s Identification for Development (ID4D) strategic framework claims. Other challenges persist. Lack of power and network connectivity top the list. Mr Mullen of De La Rue points out that solutions should be designed to work without guaranteed power and internet connectivity, or to use alternative sources such as solar power. Country-specific factors must also be taken into account. Unrealistic budgets and lack of political continuity can stymie projects. “It is important to work with government decision makers to understand their needs, stay close to their original idea, keep projects on track and manage risk – even when governments go through periods of transition,” Mr Depoortere concludes.



Africa Investment Notes December 2016

Country Focus - Côte d’Ivoire Côte d’Ivoire’s economic ly between 2012 and 2015. ing below the poverty line inperformance has been im- This has been one of the creased from around 10% to pressive over the past four highest rates in Sub-Saharan about 49%. During this period, years with a robust GDP Africa. Economic growth has the increase in the depth and growth which resulted in a been driven by agriculture, severity of poverty was dradecline in poverty. The gov- services, industry, increased matic. The findings of the 2015 ernment adopted a Living Standards Moninew National Develtoring Survey (LSMS – Côte d’Ivoire - Economic information opment Plan (NDP) ENV2015) indicate that 2014 2015 for the 2016-2020 pepoverty has decreased to Indicator riod, to follow its previ46% in 2015 as the econ22,157,107 22,701,556 Population ous development plan omy rebounds as a result for 2012-2016, which of improved conditions in Population density 70 71 encompasses major both rural and urban ar(people per sq. km) structural reforms to eas. Poverty continues to 20.7 20.7 Median age (years) achieve a sustained be overwhelmingly rural private sector and inwith disparities in access 53 54 Urban population (%) clusive growth. The to basic services, and NDP 2016-2020 aims gender disparities across 34.2 31.7 GDP (US$ Billion) at achieving an emergwealth and urban-rural ing economy status for GDP per capita (USS) groups. 1,545.9 1,398.7 Côte d’Ivoire in 2020, FDI net, BoP (US$ 438 430 with a substantially Cote d’Ivoire has a large Million) reduced poverty rate. working-age population, Export of goods & 43.4 45.4 In April 2016, donors the vast majority of whom services (% of GDP) pledged to fund Côte Sources: World Bank, Country data are employed. 93% of d’Ivoire’s NDP up to working-age Ivorians $15.4 billion (in grants report that they are emand credits) during a consul- domestic demand, and rising ployed, and the report notes tative group held in Paris. investment. Despite a slow- an unemployment rate of just The World Bank Group com- down in agricultural produc- 7%. However, while the unmitted to double its support tion in 2016, the strong eco- employment rate is extremely for the next four years rep- nomic growth rate reported in low relative to the rates obresenting approximately $5 previous years should be sus- served in industrialized counbillion. tained in 2016 and 2017, as tries, young graduates are still real GDP growth is projected struggling to make a decent Côte d’Ivoire’s recent eco- to reach 7.8% and 8% respec- living. This relatively low unnomic growth performance tively. employment rate is explained has been strong with unprecin part by the use of statistical edented GDP growth and a The poverty incidence in Côte categories that are not adaptcontrolled fiscal and external d’Ivoire slightly diminished ed to the prevailing situation in balance. There has been a from an estimated 51% in Africa. It can also be attributed robust recovery of Côte d’Ivo- 2011 to 46% in 2015 in re- to the fact that unemployment ire’s economy in the wake of sponse to the recent rebound is a “luxury” that few Africans its 2010 post-elections crisis, of economic growth. Between can afford. They have to earn with the average real growth 1985 and 2008, the estimated a living, even from small jobs rate reaching 8.5% annual- share of the population liv- that offer no job security, as

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Africa Investment Notes December 2016

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In April 2016, donors pledged to fund Côte d’Ivoire’s NDP up to $15.4 billion (in grants and credits) during a consultative group held in Paris.

unemployment benefits are not available in Africa. Finding a job is not the main challenge facing Ivoirians, it is rather securing a quality job. Indeed, most Ivorians work long hours without earning an income that would allow them to enjoy a decent standard of living. The average monthly income for workers is approximately CFAF 97,266 (or $197), which is lower than the average in Africa. It should be noted that this average income has increased marginally over the past decade, owing to rapid population growth and the relative stagnation of the Ivorian economy up to 2011. Economic recovery has paved the way for higher incomes since 2012, and this positive trend is expected to continue through 2016, although the data is not yet available.


Endnotes: 1. Cover page infographic created with data from trademap; worldbank; agoa.info; africa investment report 2016 (most data are approximate figures) 2. Page 3 (Events): AIN selected African investment events curated from several news sources. 3. Page 5 (Emerging ideas): culled from a Mckinsey Global Institute report 4. Page 6 (Emerging ideas): culled from Afdb blog 5. Page 7 (Policy Matters): AIN culled from thisisafricaonline 6. Page 10 (Country Focus): AIN editorial with info and data culled from; World bank country data 7. Acronyms used on the cover page: 1. COMESA: Common Market for Eastern and Southern Africa 2. CEMAC: The Economic and Monetary Community of Central Africa (CEMAC) (French: Communauté Économique des États de l’Afrique Centrale) includes six countries: Cameroon, Congo (Brazzaville), Gabon, Equatorial Guinea, the Central African Republic and Chad. 3. ECOWAS: The Economic Community of West African States (ECOWAS) is a regional group of fifteen West African countries 4. SADC: The Southern African Development Community. Its members comprise Angola, Botswana, DRC, Lesotho, Malawi, Mauritius, Mozambique, Swaziland, Tanzania, Zambia, Zimbabwe and South Africa.

Disclaimer: This newsletter is a mix of curated and original information service of Pedestal Africa Ltd. As much as possible we have identified sources of content used in the Endnotes and any omissions, inaccuracies or incompleteness are not deliberate. The research has not been prepared in accordance with the full legal requirements designed to promote independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Pedestal Africa Ltd. may not be held liable for any infringements on intellectual property and copyright laws or for any investment loss arising from the use of this service.

ABOUT AFRICA INVESTMENT NOTES Africa Investment Notes is a monthly investment digest for people, governments and businesses focused on the African continent. Its purpose is to convey strategic investment data, information and insights to both foreign and local investors, entrepreneurs, corporate entities and government actors within the African business space so as to support best practice, capital growth and investment throughout the continent. It is a service of Pedestal Africa Limited.

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