Africa Investment Notes INVESTMENT INSIGHTS | CAPITAL FLOWS | SECTOR TRENDS | ENTERPRISE | M&A
Why Africa remains a compelling investment destination
$14.10bn
Figures inside the map represent current GDP value
$7.57bn
$10.44bn $415.08bn $34.65bn $42.76bn $30.87bn GDP, constant prices (% change)
$1.78bn
$2.63bn
$69.22bn
$25.61bn $14.56bn
> 7
$69.17bn
$39.82bn
5 - 7
$46.69bn
4 - 5 3 - 4
$91.94bn $20.57bn
0 - 3 < 0
$12.05bn
No data
Corporate sector investment in Africa Share of Revenue % 28
Resources
13
Wholesale and retail
Utilities and Transportation
9
Food and agriprocessing R&D - intensive manufacturing
8 7
Telecommunications
6
IT, media and marketing
6
GDP growth (%)
7.6 6.8 5.7 4.9 4
4
Light manufacturing
5 4.2
2
Construction
2
Healthcare
2
Others
$280.37bn
12
Financial services
Resource processing
$10.19bn $10.95bn
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INSIDE THIS ISSUE
2005
2007
Investment events around Africa ............................ 3 Emerging Ideas ............................ 5 Country Focus ............................ 10
-0.1
2009 2011 Sub-Saharan Africa
5.2 3.3
2013
3.4 3.1
2015 World
4 3.5
4.5 3.8
2017
2019
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Africa Investment Notes: Monthly
November 2016
Africa Investment Notes November 2016
Why Africa remains a compelling investment destination
F
ollowing the deceleration of the Sub-Saharan Africa (SSA) region in the first quarter, the economy continued to disappoint in the second quarter. According to a preliminary estimate, GDP expanded 1.2% on an annual basis in the second quarter, which came in below the 1.7% increase observed in the previous quarter. The reality is that economic growth across the region is likely to remain relatively slower in the coming years. Africa is not in this alone, as the global economy is facing the same: generally, a slowdown in emerging-market economies; the ongoing stagnation in most developed economies; lower commodity prices; and higher borrowing costs. Although growth has slowed in SSA, the region will remain the second-fastest growing region in the world for the foreseeable future, after Asia. Slower growth does not imply no growth and certainly does not signal a cyclical decline in most African economies The majority of the SSA economy, in particular the region’s oil producers, continues to be negatively affected by subdued commodity prices, making it imperative for governments to introduce policies that aim to diversify their economies in order to reinvigorate growth. Relatively low commodity prices coupled with growing economic imbalances and the withdrawal of foreign capital pose risks to growth prospects going forward. In the second quarter, the Nigerian economy contracted for the second consecutive quarter on an annual basis. Disruptions in oil production resulting from militant attacks, the currency devaluation and ongoing struggles due to subdued oil prices hurt the economy and caused GDP to contract at a much sharper rate than in the first quarter. The bad news for commodities producers has been a boon for East Africa, which has done better at developing agriculture and manufacturing industries. Low prices of energy and other inputs also have helped contain inflation and interest rates, in turn shoring up consumer spending. The region is also reaping the benefits of an improved regulatory regime and increased investment
in transport “Despite links and recent shocks and telecommuchallenges, nications. spending by East African nations Africa’s consumers and other oil and businesses importers already totals $4 have largely trillion annually, been shieldand is growing ed from the rapidly” deceleration currently being experienced by the big commodity producers. This is largely due to the fact that they were unable to rely on behemoth industries; they were forced to make some tough decisions and tough reforms earlier and they are now reaping the benefits. Despite recent shocks and challenges, spending by Africa’s consumers and businesses already totals $4 trillion annually, and is growing rapidly. Household consumption is expected to grow at 3.8 percent a year to total $2.1 trillion by 2025. African businesses are an even larger spender. From $2.6 trillion in 2015, business spending is expected to increase to $3.5 trillion by 2025. Africa could nearly double its manufacturing output to $930 billion in 2025 from $500 billion today, provided countries take decisive action to create an improved environment for manufacturers. Three-quarters of that potential could come from Africa-based companies meeting domestic demand; today, Africa imports one-third of the food, beverages, and other similar processed goods it consumes. The other one-quarter could come from more exports. The rewards of accelerated industrialization would include a step change in productivity and the creation of up to 14 million stable jobs over the next decade. Africa still remains a viable investment destination, however, governments need to provide stability; remove barriers; create an environment that is business friendly; and empower the private sector, which ultimately will drive accelerated economic expansion.
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Investment events around Africa Marriot hotel opens Resort in Cairo, Egypt
Westin Hotels and Resorts, part of Marriott International, have announced the opening of Egypt’s Westin Cairo Golf Resort & Spa Katameya Dunes , Owned by New Cairo for Real Estate Investment Company.
NIPCO acquires ExxonMobil’s 60% stake in Mobil Oil
Indigenous downstream company, NIPCO Plc, announced recently that it has acquired a 60 per cent stake in Mobil Oil Nigeria (MON) Plc from United States oil giant, ExxonMobil. The transaction was seen by market watches as a continuation of the divestment strategy by international oil companies (IOCs) operating in the country. NIPCO is also set to initiate the process of obtaining regulatory approval from the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE), having signed the sale and purchase agreement (SPA) with ExxonMobil.
DHL Regional Conference Highlights Sector Growth
DHL’s Annual Regional Life Sciences & Healthcare Conference focused on life sciences and healthcare supply chains to support African growth in the sector, with Africa highlighted as market with a positive growth trend in healthcare. According to Deloitte, the Sub-Saharan region is on a positive growth trend, although growth rates vary considerably from as low as 1.52 percent in South Africa to as high as 9.94 percent in Ethiopia. Growth in healthcare spend across Africa is forecasted at around 3 percent until 2020, with the top 15 countries except for Gabon currently spending over 1 billion US$ per annum on health.
‘Africa is world’s most attractive equity market’
Africa is still one of the world’s most attractive markets for private equity, Boston Consulting Group (BCG) has said. The Financial Group, in a statement signed by Associate Director and a co-author of the report, Marc Becker, said Africa remains one of the world’s growth opportunities for private equity investors, though with some facing serious challenges of recent. To generate the high returns that investors expect, however, funds should consider more flexible investment strategies and new types of corporate targets, the report stated.
Khato Civils sign multi-million dollar deals with govt
Malawi’s agenda of bringing foreign investors into the economy is taking great shape with numerous deals being sealed at and after the just ended Malawi Investment Forum (MIF) in Lilongwe. Of special interest is the coming on board of a big investor who happens to be Malawian despite operating from South Africa for years, Khato Civils Pvt Ltd. Khato Civils (PTY) LTD is a South African based design and construction company involved in the development of large scale infrastructure targeting both the Private and Public sectors.
Africa Investment Notes November 2016
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Investment events around Africa Studies on Africa’s transport sector highlight opportunities for investment
The Infrastructure Consortium for Africa (ICA) held a one-day workshop at the African Development Bank (AfDB) headquarters in Abidjan, Côte d’Ivoire, to discuss findings of three studies on opening up aviation services, urban transport development, and trade facilitation. Hosted by the AfDB, ICA was launched at the 2005 G8 Gleneagles Summit. Its mission is to help improve the lives and economic well-being of African people by supporting and promoting increased infrastructure investment from both public and private sources. It also acts as a platform to increase infrastructure financing, helping to remove policy and technical barriers. In addition, the ICA facilitates greater cooperation among stakeholders, and fosters knowledge exchange through monitoring, reporting and sharing best practices.
Amidst Recession, World Pension Summit Raises Hope for Infrastructure, Socio-Economic Development in Africa
At the third edition of the World Pension Summit (WPS)- Africa Special, which recently held in Abuja for the third consecutive time, courtesy of the National Pension Commission, PenCom, and WPS, global pension experts, investors, stakeholders, and delegates dissected the challenges and prospects of financing infrastructural development in Africa with pension funds. If the insights, suggestions, and opportunities flowing therefrom are taken advantage of, Africa, especially Nigeria, may well be on her way to better infrastructure that would stimulate the much needed socio-economic transformation
AfDB directors approve Africa Investment Forum
The board of directors at the African Development Bank (AfDB) have passed the institution’s proposal to launch an Africa Investment Forum (AIF). According to the AfDB, the AIF will not only be a meeting place for investors interested in Africa, but also a destination of showcasing bankable projects, attracting financing, and providing platforms for investing across multiple countries.
AfDB approves 570 million rand loan to finance affordable housing in South Africa
The Board of Directors of the African Development Bank Group (AfDB) has approved a Senior Loan of ZAR 570 million to South Africa’s Housing Investment Partners Trust 2 -HIP2), also known as Vulumnyango Trust, to help finance affordable housing programmes in the country. The loan will help improve access to long-term affordable housing finance to South Africa’s lower-middle income earners currently with limited opportunities to access affordable mortgages.
Africa Investment Notes November 2016
Emerging Ideas Industrialization in West Africa: Giving rise to a “Made in Africa” regional industry? The Regional Value Chain, RVC strategy consists in implementing, at a regional scale, a production system which is comparable to the world-scaled one of the global value chains (GVCs). Unlike the latter, the RVCs are deployed within a world-region and are focused on producing a differentiated offer adapted to the specificities of the local demand and consumption practices. The cultural and geographical specialization of the regional production system then provides a significant added value, since the offer meets both the cultural preferences of consumers and the needs created by their environment. Several sectoral examples allow to illustrate this model and its relevance. As regards with the pharmaceutical industry, for example, the region faces distinctive health problems, as seen not only with infectious diseases in the region (malaria, Ebola, neglected tropical diseases), but also the environmental health challenges (pollution, humidity, sun exposure). Because of the narrowness of the market and the low purchasing power of the population, few extra-regional companies, for now, are willing to invest in research programs dedicated to these local issues. The West African pharmaceutical industry, which would specialize in the local needs and be able to produce low-cost affordable medicines, would have the opportunity to tap a regional-wide market while contributing to the improvement of population health. Similar rational can be applied to the automotive industry. The Innoson Nigerian group, for example, has a competitive advantage based on its ability to produce trucks adapted to the poor state of the West African roads, on which vehicles designed for roads in developed countries wear out more quickly. Numerous additional exam-
ples exist in the food industry (processing of local foods such as yam and cassava), textile (African fabric), construction (local materials), or cosmetics (local products). In terms of costs, the model may seem almost impossible to implement considering that logistics costs and low productivity in the region weigh heavily on the local industries’ competitiveness. For many textile companies, it is still more competitive to produce African fabrics in the Netherlands and China then export them to West Africa than to manufacture them in Ghana, for instance. This reasoning, however, do not take into account the multiple gains associated with local market specialization, which could more-than-offset the technical production costs. Indeed, a recent report of the Boston Consulting Group showed that African companies, including in West Africa, hold out on large multinationals in several areas, sometimes driving them out of their area of influence, as recently seen with Nestlé’s difficulties to duel with the competition of the Senegalese Patisen group. According to the BCG report, the reasons for their success lie in four competitive advantages: focus on the local market, where they concentrate their development and branding strategies; their mastery of the industrial environment (logistics, suppliers); their flexibility, particularly in terms of standards adaptation and production modes; their knowledge of the expectations and behaviour of consumers, thanks to the data gathered since the beginning of their activity. In other words, with tariff conditions similar to those of foreign multinationals, these local champions make their advance on their ability to manage non-tariff costs, which is critical for tapping the developing markets.
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Africa’s large companies are growing faster and making more money than their global peers Large companies in Africa are growing faster than their peers in the rest of the world, raking in $1.4 trillion in annual profits and contributing to government taxes and higher wages, a new report finds. The continent has 700 companies with annual revenue of more than $500 million, 400 of which generate more than $1 billion, says the new study from the McKinsey Global Institute (MGI). These large companies consist of both African-owned brands and foreign-based multinationals operating within the continent across a wide range of sectors. Five years ago, African economies were accelerating, and the continent was home to six of the world’s ten fastest-growing economies. Yet that sunny confidence has waned due to the drop in oil and commodity prices, besides the sociopolitical instability that came along with the Arab Spring. Despite that, African companies have become new drivers of economic growth, contributing not only to wages and taxes but also to innovation and technology dissemination. MGI estimates that the largest 100 companies by revenue contribute to an estimated 50% to 60% of corporate taxes in Africa. Just over half of these large firms are African-owned, 27% are foreign-based multinationals, while the remain-
ing 17% are state-owned enterprises. The multinational corporations dominate in the food and agricultural sector, while state-owned companies play a bigger role in resources, utilities, and transportation sectors. In contrast, state-owned
nies and accounts for nearly half of all Africa’s large companies. North African countries account for onefifth of the continent’s large companies. However, despite the continuous growth, Africa is still heavily underrepresented in
companies operated mostly
Data: McKinsey Global Institute
in their home countries, diversifying less and focusing heavily on resources and utilities. Family businesses make up only 10 to 20% by revenue of these companies, a sharp under-representation when compared to other global regions. The report also shows that South Africa stands as a unique example of large company growth than the rest of the continent. The country is the only one that has a globally comparable prevalence of large compa-
global business in both the number and size of large companies. The continent needs more of these companies, the report says, to drive growth and increase investment, corporate tax contributions, exports, and productivity. The fate of corporate Africa to a great extent lies in its own hands,” MGI said, “but governments can strengthen dialogue with organized business, remove barriers, and enable large firms to grow and prosper.” This is a McKinsey Report
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Africa Investment Notes November 2016
Sustainable Development Goals and business opportunities The business case for the SDGs is strong. This Development Co operation Report 2016 makes it clear that investing in sustainable development is smart investment. Companies that introduce sustainability into their business models are profitable and successful, with positive returns on capital in terms of reduced risk, diversification of markets and portfolios, increased revenue, reduced costs and improved value of products. Increasingly, investments in developing countries â&#x20AC;&#x201C; and even in the least developed countries â&#x20AC;&#x201C; are seen as business opportunities, despite the risks involved. On the other hand, companies provide jobs, infrastructure, innovation and social services, among others. This report explores five pathways for realising the enormous potential of the private sector as a partner for delivering on the SDGs, providing the quantity and quality of investment needed to support sustainable development.
Five pathways to the Sustainable Development Goals 1. Foreign direct investment is by far the greatest source of international capital flows to developing countries and is considered one of the most development friendly sources of private investment. It can create jobs, boost productive capacity, enable local firms to access new international markets and bring with it transfers of technology that can have positive long term effects. Many are expecting these flows to play a major role in filling the SDG financing gap. According to the United Nations Conference on Trade and Development (UNCTAD), a concerted effort by the international community could help to quadruple foreign direct investment by 2030, especially in structurally weak countries. There is, however, some cause for concern: global capital flows have started to decelerate, while economic vulnerabilities are growing. Chapter 2 warns that a slowdown, or even reversal, in foreign direct investment could have serious negative ramifications for both developing and international investment markets. Framing development strategies around the complementary and mutually reinforcing qualities of private investment and development co operation can help to offset the cyclic, changing nature of foreign direct investment trends. 2. Blended finance â&#x20AC;&#x201C; using public funds strategically to provide, for instance, de risking instruments for private investors can dramatically improve the scale of investment in development. Blended finance offers huge, largely untapped potential for public, philanthropic and private actors to work together to dramatically improve the scale of investment in developing countries. Its potential lies in its ability to remove bottlenecks that prevent private investors from targeting sectors and countries that urgently need additional investment.
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Africa Investment Notes November 2016
To accelerate social and economic progress towards the Sustainable Development Goals, blended finance needs to be scaled up, but in a systematic way that avoids certain risks. Chapter 3 takes a close look at the use of development and philanthropic finance to unlock resources through blending mechanisms that have the potential to transform economies, societies and lives. It notes that while the concept of blending public and private finance in the context of development co operation is nothing new, it has played a marginal role so far. 3. Chapter 4 of this report describes work underway to monitor and measure the mobilisation effect of public sector interventions on private investment. This is expected to be an important element of the new “total official support for sustainable development” (TOSSD) framework, which will provide important information about financing strategies and best practices, helping to attract development finance to support the SDGs. A recent OECD survey has confirmed the feasibility of collecting and measuring data on the direct mobilisation effect of guarantees, syndicated loans and shares in collective investment vehicles; work is underway to develop similar methodologies for other financial instruments. Much work still remains to be done, however, in particular to find ways of measuring the indirect – or “catalytic” – effect of public interventions on the achievement of the global goals and in tackling climate change. The OECD is co ordinating its efforts with work underway in other fora to ensure coherence. 4. If development is to be truly sustainable and inclusive it must benefit all citizens – in particular the poorest, most marginalised and vulnerable. Social impact investment has evolved over the past decade as an innovative approach to increasing the benefits of business for the world’s poorest and most marginalised populations. Enterprises that generate measurable social as well as financial returns can bring effectiveness, innovation, accountability and
scale to development efforts. Public funds can be used to strengthen and promote this type of investment by sharing risks, and also by supporting a sound business environment, particularly in the least developed countries and in countries emerging from conflict. These new business models can complement existing ones, especially in areas not traditionally popular with business – but essential to the poor – such as education, health and social services. 5. For business to do good while doing no harm, the private sector must be held to the same international transparency and accountability standards as all other actors. Chapter 6 looks at the principles and standards of responsible business conduct and how following them can give responsible businesses an advantage that benefits their bottom lines, while at the same time producing positive results for people and the planet. Business and government have complementary roles to play in implementing, promoting and enabling responsible business conduct. The OECD Guidelines for Multinational Enterprises help to optimise their contributions, supporting the development of responsible and accountable business practice to ensure that investment quantity is matched by business quality to produce social, economic and environmental benefits. This report provides examples of how the OECD is stimulating dialogue and creating opportunities for co operation among the many stakeholders involved in sustainable development. It also presents practical cases that illustrate how businesses are already working to promote sustainable development and inclusive growth in developing countries. In this era hallmarked by globalisation, rapid technological advancement and competition for precious resources, it is important to remember that business thrives when the world thrives.
This ment
is an excerpt from DevvelopCo-operation Report, 2016 OECD
Africa Investment Notes November 2016
Country Focus - Rwanda Rwanda’s transformation landlocked nation is man- for a clean, corruption-free from the peak of its polit- aging to maintain strong public sector and a staical crisis culminating in growth of 6 percent through ble regulatory framework. strong-handthe 1994 Rwandan geno- 2016 even as sub-Saharan Rwanda’s cide until now is remark- Africa is forecasted to slow ed government may divide able. Though the country is to 3 percent. It has averaged opinion, but its track record also shows that the frequently held up as a commitment of top model for rapid developRwanda - Economic information leaders to development by politicians and Indicator 2014 2015 ment objectives goes development policymaka long way towards ers, its trajectory and poPopulation 11,341,544 11,609,666 achieving them. litical culture are unique. Population density Rwanda’s president, 460 471 (people per sq. km) Rwanda’s governPaul Kagame, is an unMedian age (years) 19 19 ment has set itself a abashed admirer of Sintarget for industrial gapore’s transformation Urban population (%) 28 29 production (which infrom a resource-poor GDP (US$ Billion) 7.9 8.11 cludes manufacturisland nation into a high ing, mining and utiltech global finance and GDP per capita (USS) 697.6 697.3 ities) to account for technology hub. There FDI net, BoP (US$ 20 percent of GDP is a long way to go be291.7 323.2 Million) by 2018. Currently it fore Rwanda can be the Sources: World Bank, Country data stands at 14.4 perICT-driven knowledge cent of economy its leaders envision. Though the pover- more than 8 percent for the GDP, according to the World Bank. Manufacturing acty rate has dropped rapidly past decade. since the turn of the millen- This is partially because counts for nearly 45 percent nium, 39 percent of the pop- Rwanda, a net importer of of all industrial output, and ulation still lived in poverty most products including oil, some 7 percent of GDP. Dein 2014, according to the UN stands to benefit from glob- spite rapid acceleration, Development Programme. al commodity and oil price there is still some ways to Rural road networks are un- plunges. But speaking to go. In the first two months of derdeveloped, electricity both foreign investors and 2016 Rwanda’s trade deficit is both scarce and pricey, government officials, it is increased by 12.7 percent, and investors complain that Rwanda’s business climate according to figures from skilled labour is s till hard to that helps to set it apart. the central bank. manufacturing The country frequently tops Although come by. However, despite the chal- rankings for the best places remains a small sector in lenges, clearly some things to do business and to invest Rwanda, the government’s are working well. The small, in Africa. It has a reputation commitment to develop it
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Africa Investment Notes November 2016
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Manufacturing accounts for nearly 45 percent of all industrial output, and some 7 percent of GDP may make it an increasingly attractive opportunity. Inyange Industries is a case in point. Established in 1997, the drinks manufacturer has established a strong brand across Rwanda, slowly beating Agashya to become the next local manufacturing beacon in the country. Today, Inyange drinks bottles decorate tables during high level conferences, boardroom meetings and weddings. The company sells well in Uganda, thanks in part to the large Rwandan diaspora population there, and wants to expand across all east Africa. Clearly Rwandaâ&#x20AC;&#x2122;s manufacturing sector, though challenging, has potential for those with solid strategies.
Endnotes: 1. Cover page infographic created with data from World Bank; IMF and McKinsey Global institute. 2. Page 3 (Events): AIN selected African investment events curated from several news sources. 3. Page 5 (Emerging ideas): an article published on AfDB blog 4. Page 6 (Emerging ideas): a McKinsey report 5. Page 7 : SDGs and business opportunities: culled from an OECD Development Report 6. Page 10 (Country Focus): culled from This is Africa Report: Rwanda, a new model for growth
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