Gateway to Africa March 2013

Coke versus Pepsi in Kenya Destination: Ivory Coast Microsoft in Africa Controlled Distribution UK & RSA Issue 09 \ March 2013

Transforming Africa Business | Entrepreneurship | Innovation | Investment | Lifestyle

SunInternational_A5_flyer_aw2.indd 1

12/11/12 11:41:06

AFRICA NIGERIA Federal Palace Hotel LAGOS

ATLANTIC OCEAN

ZAMBIA

NAMIBIA Kalahari Sands WINDHOE K

BOTSWANA

Gaborone Sun

GABORON E

The Sun International Sandto n JOHANNESBURG

LESOTHO

SOUTH AFRIC A The Table Bay Hotel

CAPE TO WN

The Boardwalk PORT ELIZABETH

INDIAN OCEAN

4 \ Contents \ March 2013

www.GatewayToAfrica.com

CONTENTS Regulars

Business Life

6 News and analysis

20

Retail business in East Africa

Recent developments from Sub-Saharan Africa.

30 Destination: Ivory Coast We examine the Francophone West African state to see how it is recovering from a history of coups and a recent civil war.

Interview 16 Bringing Ghana’s diaspora home The newly founded Network for Diaspora Professionals works to build a platform to present investment opportunities in Ghana for the country’s entrepreneurs and professionals living abroad.

Features 10

Microsoft in Africa

Mamello Masote speaks to the CEO of Microsoft in Africa and finds out how exactly the global computer giant plans to expand their operations in the world’s fastest growing markets.

18 Lonrho moving back into African hotel trade Andrew Maramwidze looks at Lonrho’s latest venture, a luxury hotel in Gaborone.

He finds out how this African business plans to reignite its fortunes in the continent where it first started.

Mark Kapchanga examines the impact major chain stores are having on East Africa. We look at the winners and the ones to watch.

10

Microsoft’s Africa Strategy “Access is not just dependent on affordable devices, but also on making connectivity cheaper and more accessible” - Mteto Nyathi, MD: Microsoft SA

22 Nedbank’s Agribusiness Zhann Meyer, Africa Head, Global Commodity Finance at Nedbank, speaks exclusively to GTA about their strategy for investment in commercial agribusiness in Africa. We look at the opportunities, challenges and extraordinary growth of this market.

25 Coke and Pepsi in East Africa Washington Gikunju, our man in Nairobi, takes the Pepsi challenge: he speaks to key drinks industry insiders in East Africa, including Coke and Pepsi, to assess Pepsi’s chances of entering Kenya, a market they previously ignored.

Final word 28 African investment Preaching to the unconverted Jonathan Howard, CEO of Business Council for Africa, cuts through the gloss to give his members the gist of doing business in Africa.

20

East African retailers battle it out for share of growing market “Our focus is to continue hitting our targets as we move on. We are actually even beyond the target and we are working on the positive side of things,” Jonathan Ciano, Uchumi Supermarkets

28

African investment – preaching to the unconverted “I spend a lot of time thinking how we can get the message out to those people who’ve never really thought about investing in Africa.”

- Jonathan Howard, CEO BCA

Participate in the rapid growth of Africa:

Mobileweb/Web

|

Print/Digital Edition

|

Weekly Enews

www.gatewaytoafrica.com

Enewsletter: subscriptions@GatewayToAfrica.com Twitter: @GatewayToAfrica Facebook: www.facebook.com/GatewayToAfrica Comment: www.GatewayToAfrica.com

March 2013 \ Contents \ 5

www.GatewayToAfrica.com

GatewayToAfrica.com is a multi-platform title for businesses looking to take part in expansion opportunities in Sub-Saharan Africa Editor: Jeremy Kuper Publisher: Gordon Glyn-Jones Art Director: Jackie Lampard Sub Editor: Brett Petzer Contributors: Andrew Maramwidze, Dr Jacqueline Chimhanzi, Milton Lindsay, Washington Gikunju, Mark Kapchanga, Mamello Masote Illustrator: Jackie Lampard Directors: P Atherton, J Durrant, N Durrant and R Phillips

• To Advertise: Email: advertise@GatewayToAfrica.com Tel: +44 (0) 845 456 4910 Account Directors: Gordon Glyn-Jones, Patrick Atherton, Bryce Lowry

• TO Subscribe: Email: subscriptions@GatewayToAfrica.com Tel: +44 (0) 845 456 4910

PUBLISHED BY BLUE SKY PUBLICATIONS Tel: +44 (0) 845 456 4910 Email: info@GatewayToAfrica.com

12

UK Address: Unit 7C, Commodore House Battersea Reach, London, SW18 1TW South Africa Address: 3rd Floor, Sunclare Building, 21 Dreyer Street, Claremont, 7708

Views

Printed by: Wyndeham Heron

The rise and rise of the African Middle Class Dr Jacqueline Chimhanzi, one of Forbes Africa’s 20 Youngest Power Women, examines the exponential growth of Africa’s middle class. She explains how the emergence of this new social class will alter Africa’s economic patterns forever.

Official Partner Organisations:

Photo: Graeme Williams, Media Club South Africa

BREAKFAST

INDABA The South African Business Network

Blue Sky also publishes:

Cover Credit: Jackie Lampard — design, (Photo by Shutterstock) Content Disclaimer The information contained in this publication has been obtained from sources Blue Sky believe to be correct. However, no legal liability can be accepted for any errors or omissions. Unless otherwise stated, copyright of all original materials is held

by Blue Sky Publications Ltd. The printed and online opinions of writers, reader commentators and advertisers are theirs and are not necessarily shared by Blue Sky Publications Ltd and affiliates.

6 \ News \ March 2013

www.GatewayToAfrica.com

NEWS AND ANALYSIS:

NEWS IN BRIEF Recent developments from Sub-Saharan Africa

Ghanaian Firm SliceBiz announced as winner of Apps4Africa SliceBiz, a Ghanaian start-up planning to popularise mobile crowdfunding in Africa, has been announced as the winner of the 2012 Apps4Africa competition.

The app, which will be released in the coming months, is a service that delivers a 30-second pitch recorded by entrepreneurs to potential investors over the mobile network.

Slicebiz was founded by William Edem Senyo, a Ghana-based businessman who previously spent time in the banking sector and Heather Cochran, a former social worker from California.

The crowdfunding model has become a popular promotion tool in the United States and Europe, as websites like Kickstarter, Indiegogo and GoFundMe have popularised the service in the West.

In addition to SliceBiz, other winners in the Apps4Africa competition were Ffene, a Ugandan firm developing software that lets companies use tablets and mobile phones to format data into professionally styled reports and Prowork, a Nigerian company creating software that enables workers to collaborate on projects via apps, text messages and email.

Liberian government signs $50m oil deal The deal will transfer the rights to Block 13 from Peppercoast Petroleum PLC to COPL and ExxonMobil, with Exxon owning 80 per cent of the interests.

Block 13 has been surrounded by controversy since Peppercoast signed the deal, when it was revealed the company lacked the resources to take full ownership of a project at the scale of Block 13.

This most recent deal marks the third and final instalment of the overall development plan of Liberia’s 2,400-square kilometre offshore oil reserve.

Unlike the original $45-million deal signed in 2007, this deal will ensure that Liberia benefits, even if the actual oil reserves are lower than originally speculated. The contract for the final phase stipulates that $21.25 million of the overall $50-million fee must be paid upfront.

Zambia seizes Chinese-owned mine over safety concerns Citing safety concerns, the Zambian government has seized control of a Chinese-controlled Collum coalmine located 325km south of the capital of Lusaka.

“Collum Coal mine has had a history of poor safety, health and environmental compliance,” Zambian Mines Minister Yamfwa Mukanga said in a statement.

“In view of this, my ministry has with immediate effect cancelled all three smallscale mining licenses held by Collum Coal Mine.”

Collum has been involved in a number of controversies involving worker safety in the last few years.

In 2010, two Chinese managers were charged with attempted murder after allegedly opening fire on a group of protesting miners. And in 2012, mine workers attacked and killed a Chinese manager during a riot over working conditions.

Zambia has been at the forefront of China’s increased economic presence in Africa. In the past five years, China has invested over $2 billion in Zambia, creating more than 50,000 jobs, primarily in the mineral sector. Last year trade between the two countries reached $3.4 billion, up from $2.9 billion.

Dr Ramphele speaks out against Black Economic Empowerment Dr Mamphela Ramphele, who recently announced that she was setting up a new political party platform, Agang South Africa, has spoken out against the government policy of Black Economic Empowerment (BEE).

Dr Ramphele claims that BEE operates only for a limited class of politically connected individuals to the exclusion of the majority of the population.

Dr Ramphele, who has resigned her directorships at Anglo American, Gold Fields, Remgro and MediClinic International, told South Africa’s Mail & Guardian newspaper: “The most disappointing thing for me is that employee share schemes in the mining industry are discouraged by the department of mineral resources because they want so and so. This is the list you must empower, [they say], not the mineworkers who are actually … working in the mines.”

Collum Coal Mine, image by photosmith2011

March 2013 \ News \ 7

www.GatewayToAfrica.com

Africa on the move

6

African countries have been among the 10 fastest growing economies in the world over the past decade:

2001 to 2010

7

Seven African countries are set to be among the 10 fastest growing economies over the next five years.

2011 to 2015

Angola 11.1%

Ethiopia 10.3%

China 10.5%

China 9.5%

Myanmar 10.3%

India 8.2%

Nigeria 8.9%

Mozambique 7.7%

Ethiopia 8.4%

Tanzania 7.2%

Kazhakstan 8.2%

Vietnam 7.2%

Chad 7.9%

Congo 7%

Mozambique 7.9%

Ghana 7%

Cambodia 7.7%

Zambia 6.9%

Rwanda 7.6%

Nigeria 6.8%

Ethiopia, image by Harri J

Ethiopian Government and Tullow Oil PLC insist “No oil discovered” The British petroleum company Tullow Oil PLC dismissed media reports from the British government that oil reserves had been discovered in southern Ethiopia, near its border with Kenya.

Recent reports on a number of news outlets regarding the finding of oil reserves along Ethiopia’s western South Omo block were said to be baseless, according to a spokesperson for Ethiopia’s ministry of mines.

Tullow Oil Plc, which is based in London, found crude oil in Kenya last year. It is now conducting an exploration along with Africa Oil Corp. and Marathon Oil Corp. to find potential oil reserves in Ethiopia as an extension from neighbouring Kenya.

Africa in numbers

3 of the top 5

Investors into the largest new projects in Africa are African

35 African countries

Ahead of Russia on Transparency International’s corruption perception index

17 African countries Ahead of India on the World Bank’s doing business index

Econet’s Strive Masiyiwa joins Africa Progress Panel The Africa Progress Panel welcomed Strive Masiyiwa as a Member, bolstering the Panel’s experience in business, governance, and other issues critical to Africa’s development.

“Strive brings a wealth of extraordinary business and governance experience.

We’re delighted to have him join us,” Kofi Annan, Chair of the Africa Progress Panel and former Secretary-General of the United Nations, said.

Widely known for a landmark ruling in Zimbabwe which led to the end of state telecommunication monopolies in Zimbabwe and elsewhere, Mr Masiyiwa’s flagship business, the South African-based Econet Wireless, is a global telecommunications group with operations, investments and offices in more than 18 countries worldwide.

Other business activities include financial services, insurance, renewable energy, bottling, and hospitality.

$20 Technology that Powers Digital Monetisation System for Africa Gary Ellis, Chief Technology Officer with Exset, says, “To make this project work we needed to develop an ecosystem – now called the Digital Monetisation System (DMS) – that allows additional interactive services over and above TV via digital networks at an incredibly low price point for operators – our target for set-top boxes is $20 per unit, which we’ve met. This means that revenues can be generated not only via a very low subscription fee, but also via interactive transactions and information dissemination.”

Research by the Economist

8 \ News \ March 2013

www.GatewayToAfrica.com

NEWS AND ANALYSIS:

Sudan and the South agree to resume oil production South Sudan and Sudan reached an agreement to resume oil production, after a disagreement over revenue sharing.

by Milton Lindsay In a critical development for its fledgling economy, South Sudan announced that an agreement had been reached with Sudan to resume pumping oil through pipelines to Port Sudan by the end of the month.

The pipeline, which had been shut down since January 2012 after a dispute over revenue sharing between South Sudan and Sudan, is critical for the landlocked nation’s oil sector. South Sudan currently has no oil refineries and relies on Sudan’s production facilities for oil exportation.

Before the disagreement halted oil production, South Sudan had a daily output of 350,000 barrels per day and the economy was beginning to achieve at least modest

growth, posting a 1.4 per cent rate in 2011.

However, Sudan’s decision to cut off access to its facilities proved devastating to South Sudan’s economy. In 2012, the country’s economic output shrank 55 per cent, according to the World Bank.

The shutdown in oil production was also detrimental to Sudan. The IMF reported that the country’s GDP shrank by 11 per cent last year. This economic downturn led to widespread protests against Sudan President Omar al-Bashir. However, he has managed to retain power.

The agreement was reached this past weekend in talks mediated by former South African president Thabo Mbeki at the African Union’s headquarters in Addis Ababa.

In addition to the agreement to resume

Image by Sanjay Acharya

oil production, the two governments also took steps to relieve tensions stemming from the country’s civil war, which claimed nearly 1.5 million lives.

Each government agreed to withdraw troops from their border area and a demilitarised zone will be established.

Investors look beyond South Africa Investors are beginning to bypass South Africa’s labour troubles in favour of mining and other commodities in secondary Sub-Saharan countries once viewed as a wild frontier.

by Milton Lindsay With labour unrest having plagued the country’s mining sector for the past six months, investors are beginning to bypass South Africa, choosing instead to buy mining and other commodities in other Sub-Saharan countries once viewed as a wild frontier.

Though South Africa remains Africa’s top mining economy, a number of economic indicators demonstrate that the sector is beginning to falter under the pressure of ongoing labour strife.

A series of violent strikes, which began last August when police opened fire on a group of protesting miners

near Marikana and killed 44, have put 59 per cent of South Africa’s platinum mines into a marginal or loss-making position, according to the SA Chamber of Mines. Moreover, a number of funds have dropped their investments in South African mining interests, often citing ethical reasons. Since the beginning of last year, the basic materials index – a categorical measurement for South Africa’s mining sector – lost nearly 12 per cent of its aggregate value.

Beyond the immediate unrest, another reason that Africa’s secondary mining economies are attracting greater investment is a result of more sanguine labour relations in the mining sector, according to analysts.

Image by Evan Bench

Compared to South Africa’s long history of worker strife, which has often contained strong undercurrents of racial tensions, labour relations have never been a prominent issue elsewhere in SubSaharan Africa.

Nedbank Capital is a leading funder of South Africa’s Renewable Energy programme.

When you understand the importance of renewable energy, you start to understand that the future won’t be the same without green. Nedbank Capital is committed to making more green deals happen, contributing towards the realisation of our country’s vision for a green economy. www.nedbankcapital.co.za

Nedbank Limited is incorporated with limited liability in South Africa (no.1951/000009/06) and its London branch is registered in England and Wales (no.BR001334), and whose registered address is 1st floor Old Mutual Place, London, EC4V 4GG. Nedbank London is authorised and regulated in the UK by the Financial Services Authority (FSA Register number 204684).

Our future won’t be the same without green.

10 \ Feature \ March 2013

www.GatewayToAfrica.com

FEATURE:

Microsoft’s Africa Strategy Microsoft is pursuing a multipronged strategy to engage Africa’s consumers using mobile technology and apps built by and for Africans.

by Mamello Masote in Johannesburg Microsoft is making aggressive inroads into capturing Africa’s growing mobile market. The global technology company recently announced a massive Africa-wide initiative (4Afrika) in an effort to accelerate the adoption of its smartphone devices and drive economic development in the region.

A report released in November last year

by Matthew Reed of London-based research company, Informa Telecoms and Media, pegged the number of mobile subscriptions in Africa at one billion by 2015.

Microsoft has partnered with Chinese manufacturer Huawei to develop a low-cost fully functional Windows 8 smartphone which will come pre-loaded with select applications designed for Africa.

The phone is expected to be rolled out in Angola, Egypt, Ivory Coast, Kenya, Morocco, Nigeria and South Africa later this month.

According to the managing director of Microsoft South Africa, Mteto Nyathi, who has been an instrumental part of the initiative, they plan to partner with other manufacturers to produce more low-cost handsets.

“Access is not just dependent on affordable devices, but also on making connectivity cheaper and more accessible” Mteto Nyathi

- Mteto Nyathi, MD Microsoft SA

March 2013 \ Feature \ 11

www.GatewayToAfrica.com

While it has been widely reported that the handsets would cost about $150, Nyathi said pricing would depend on negotiations with the various local mobile network operators. He said that [Microsoft] would try to make it as cheap as possible.

Yet Nyathi admits that access is not just dependent on affordable devices, but also on making connectivity cheaper and more accessible.

Microsoft will be looking at enabling this connectivity through white space technology, or super wi-fi, particularly in the extension of high speed broadband to rural areas.

“We already have this kind of technology. Right now it’s being piloted

by Microsoft in Kenya. Our intention really is to significantly reduce the1000 cost of connectivity to something likestudenti $1 a che cambiano il month, which is a significant reduction mondo con from where it is now,” said Nyathi.Imagine Cup Nyathi added that the super wi-fi technology was light in infrastructure and uses solar panels and that is why its cost of use would be so low.

Another part of the three-year investment plan into Africa will see Microsoft bring about one million African small and medium enterprises online, taking a page out of rival Google’s book, which has been doing this for quite some time.

Microsoft will also be looking at developing the skills of 100 000 recent graduates and help place 75 per cent of them in jobs.

To make the smart phones more locally relevant as well as to reach their skills development objectives, Microsoft has smartly introduced an App factory.

The factory has already been running for three months with 15 interns, but Nyathi said they were definitely going to increase this number as they have set themselves the target of producing 700 high quality applications a year.

“We want to scale this project through universities of technology. We want to get people in various universities participating in this program and then skill them up so that when they come out of university they are able to be employed or they are able to go and start up their own businesses. In the beginning when they are starting up they will be contributing to the app factory, but also being skilled in relevant technology,” said Nyathi.

But while app development in Africa has steadily been growing, monetisation of the apps is a problem for many developers looking to build their own businesses.

Nyathi said different models of monetisation needed to be explored.

MICROSOFT AFRICA

146,270

Shape the Future

4 Microsoft Innovation Centers

USD earned by local partners for every $1 of Microsoft revenue

supported by Microsoft BizSpark

partnerships in 8 African countries, accounting for more than 350K PCs since 2011.

supported through Microsoft products

Between $9 - $11

625 startups

5.3M

12 African Languages

jobs

tied to MSFT partner ecosystem

in Tunisia, Uganda, Botswana and Tanzania

INNOVATION 20 years

2,550 students

10,000

have earned tech certification through Microsoft IT Academy

Local Partners

students using Microsoft Education cloud services for free

19 Million

students in 20 African countries impacted by Partners in Learning since 2003

Students in

career skills & job 13 African gain opportunities through Countries Students-to-Business

752 Employees

885,772 teachers

free developer tools and 106,000 ofapplications by technical downloads students through DreamSpark

OPPORTUNITY

connected through the Partners in Learning Network

214,500 children

$24 Million

and parents trained on Internet Safety

Named

in software donated in Africa in 2012

one of the

TOP EMPLOYERS

in Africa 2012/3 by the CRF Institute

3 e-Government centres

632

nonprofit organizations supported

created Kenya, Mozambique and Ghana

PARTNERSHIP

Microsoft and its partners work closely with organizations and people across Africa to fully harness the power of innovation to meet the needs of our countries and communities. Through flexible solutions, programs and partnerships and a business model that puts People First, our objective isn’t innovation for innovation sake, but innovation that empowers people to make a Real Impact for a Better Africa.

www.microsoft.com/4afrika

“Initially, we are starting to see apps that largely link government to business but there are many other ways of monetising the apps. For example, if you have a very good app that links citizens to government for example, you may not get the monetisation through the download but through advertising within the application, that’s where the money lies for the person who has developed the app,” Nyathi said.

Clifford de Wit, lead developer at Microsoft SA, said monetising apps in

REAL IMPACT FOR A BETTER AFRICA

Africa was about solving problems and providing a service that affects people’s lives.

“I don’t think it’s that different to any other kind of business. If you offer apps that add real value and provide real solutions I don’t think people will mind paying for them,” he said.

To support the growth of small businesses, Microsoft will also establish a new online hub where African small businesses will have access to relevant products and services from Microsoft and other partners.

12 \ Views \ March 2013

www.GatewayToAfrica.com

COMMENT: Dr Jacqueline Chimhanzi

The Rise and Rise of the African Middle Class The rise of the African middle class, as a percentage of the population, has been steady - in 1980, 111 million or 26 per cent of the continent’s population fell in this category, rising to 151.4 million or 27 per cent of the population in 1990 with a further surge to 196 million in 2000 and a dramatic increase to 313 million in 2010 equating to 34.3 per cent of the population (African Development Bank, 2011). In contrast, the rise in absolute numbers, compared to the percentage rise, has been more dramatic and this is best explained by the increase in population with Africa having hit the 1 billion population mark in 2010.

This population boom captures, at once, the African opportunity and its dilemma.

The opportunity is that large population numbers create the very necessary volume for any consumer goods and services.

Numbers move product. The dilemma is that Africa’s population growth has undercut any dramatic reduction in

“A landmark, groundbreaking Deloitte study found that a 10 per cent increase in mobile phone penetration is linked to an increase in a middle/low income country GDP of 1.2 per cent due to the ensuing economic activity that people engage in as a result of being ‘plugged in’ and connected.” - Dr Jacqueline Chimhanzi, formerly of Deloitte

poverty. For now though, we will focus only on the opportunity on the premise that profit is underpinned by volume.

It is vital, at this early juncture, to define the term middle class. The African Development Bank (AfDB) defines the African middle class as those spending between US$2 and US$20 a day. While, in the developed world, this may appear too low to be classified as middle class spending, the Bank deems this range appropriate given the cost of living on the world’s poorest continent. Middle class is defined in relation to the average income and that average is lower in Africa than in the west. They take a PPP perspective – not Private Public Partnership – rather, Purchasing Power Parity. Simply put, US$20 has more stretch in Benin, for instance, than in the USA. Within this broad African middle class category, there are further sub-classes: upper-middle class equates to those spending between US$10 and US$20 a day. Lower-middle refers to those spending US$4 and US$10 a day and the floating class are those that are the most vulnerable in society, spending between US$2 and US$4 – this only slightly above the developing world poverty line of US$2 person per day. At 313 million, the African middle class is roughly the same size as its Indian and Chinese counterparts and this is the very basis of media reports such as “Africa is the new Asia” ( a Newsweek cover in 2010) and “The Hopeful Continent: Africa Rising” with the subtext: “After decades of slow growth, Africa has a real chance to follow in the footsteps of Asia (The Economist, 2011).

The African middle class: Who are they?

The urban/rural divide in Africa is pervasive of all socio-economic aspects and, evidently, that divide also features heavily in the definition of who is middle class in Africa.

What they are generally not: • They do not derive income from farming and rural economic activities.

What they generally are: • They live in urban centres. In terms of residence, middle class households tend to reside in bigger and more permanent dwellings equipped with modern amenities.

• Higher levels of tertiary education.

• Hold salaried jobs.

• Are small business owners.

• Young and in the acquisitive phase of life.

• Have fewer children than previous generations and certainly than those in the rural areas.

• Have strong vested interest in their children’s welfare. They tend to opt for private education and health services.

• Send their children to overseas universities.

• May receive remittances from relatives living in the diaspora. Total diaspora remittances are estimated at US$ 38 billion.

• Aspirational.

In terms of asset ownership, the middle class is typically associated with the widespread ownership of

March 2013 \ Views \ 13

www.GatewayToAfrica.com

major household durable goods such as refrigerators, telephones, flat screen TVs and automobiles.

• They have more recreational time.

• They are harnessing technology.

• Political assertive.

• Culturally self-confident.

How does the rise of the middle class manifest itself?

In a globalised world, Africa is not impervious to new trends and influences that are fast shaping consumer behaviours and consumption patterns. Africans are also aspirational. African consumers want the same as consumers elsewhere – a mobile phone, a bank account, and the latest Beyoncé CD bought in a store at a shopping mall. And indeed, shopping malls are sprouting in the continent’s major capitals - Dakar, Lagos, Accra, Nairobi and Lusaka. In Deloitte’s interactions with various clients expanding on the continent, it is clear

that there is a need for formal retail infrastructure.

Africa’s growth is, in fact, being primarily driven by the consumption of goods and services – retail, financial services and telecommunications — with consumption accounting for two thirds of Africa’s GDP growth. This is contrary to perceptions of it growing on the back of mining and commodities. Possession of cars and motorcycles in Ghana, for example, has risen by 81 per cent in the past five years. Internet penetration, on the other hand, while still relatively low at 120 million users, is growing rapidly the growth rate between 2000 and 2011 was 2,527 per cent, compared with a world average of 480 per cent (Smith and Lamble, 2011).

What trends are driving growth now and into the future?

There are a number of social and demographic factors that are colliding

The African middle class: Where are they?

and driving this new consumerism on the continent.

Firstly, as African economies grow, the growth is trickling down and people have more disposable income. Their spending patterns are being dictated and shaped through media and other influences as Africa ‘opens up’.

Secondly, Africa has a disproportionately young population with 62 per cent of the population in Africa under 25 years. There is, therefore, a guaranteed consumer base for years to come in stark contrast to Europe, for example, which is characterised by a shrinking population.

Europe’s workforce, will shrink from 63 per cent in 2010 to 51 per cent in 2050.

Thirdly, there is trend towards urbanisation with African cities growing rapidly. As aforementioned, socioeconomically, Africa is defined along urban/rural lines and a move from a rural community to the urban area necessarily implies an increase in income, albeit informal. The link between urbanisation and income is best illustrated with this statistic: while only a third of Africa’s population lives in cities, that segment accounts for 80 percent of total GDP, according to the U.N. Centre for Human Settlements. In the next 30 years, half the continent’s population will be living in cities. (Newsweek 2010) Finally, statistical data shows a link between those African countries with very low internet access and low levels of health, education, and income. This seems to indicate that there is a connection between social gaps and the digital divide.

Stated differently, there is a correlation between mobile phone uptake and socioeconomic development. A landmark, Deloitte study, for example, found that a 10 per cent increase in mobile phone penetration is linked to an increase in a middle/ low income country GDP of 1.2 per cent due to the ensuing economic activity that people engage in as a result of being ‘plugged in’ and connected. Internet access is both an indicator of socio economic well-being as well as a predictor of participation in the mainstream economy. ICT access is increasingly being seen not as a luxury but as a very necessary tool for development.

In Africa, the mobile phone is a tool that is, at once, equalising and empowering and has allowed those marginalised in society to participate in the mainstream economy. Africa became the world’s second most connected region after Asia in late 2011, with 616 million mobile subscribers. With new mobile telephony

14 \ Views \ March 2013

www.GatewayToAfrica.com

applications continually being developed in areas such as banking, health, education, agriculture, it is clear that lives will also continue to change qualitatively

Opportunities exist ... but it is not necessarily business as usual The biggest implication of this emerging African middle class is for consumer goods and services, such as consumer business/retail (both food and clothing), Technology, Mobile services and Telecommunications (TMT), entertainment, financial services and healthcare but also with a spill-over effect into other areas such as construction, infrastructure development and agriculture. When focusing on the numbers - 1.1 billion middle class consumers or 42 per cent of the population in 2060 – the African investment case is even more compelling.

However, two caveats exist: first mover advantage is everything and secondly, seizing these opportunities calls for leadership with a clear and long-term vision.

However, despite these glowing statistics and a continent that is directionally correct, it is important to remember that 61 per cent of the population still survives on less than US$2 a day.

Clearly, for those companies seeking to expand their footprint on the Africa continent, opportunities lie at the bottom of the pyramid and this implies doing things differently. Do not be put off by the seemingly low daily spending levels. Africans are generally very entrepreneurial and often supplement

The African Middle Class

their formal salary in various ways.

While this informal sector is significant in Africa, it is unaccounted for. However, for illustrative purposes, Mozambique is growing fast but still remains one of the world’s poorest countries, yet Mozambique is one of South Africa’s top 5 contributors towards tourism in terms of spending as Mozambicans visit South Africa frequently for shopping purposes (South African Tourism).

In Deloitte’s experience of dealing with companies expanding on the continent, they have gleaned the following in terms of needs and how best to respond to them: • For financial institutions: − Package and formalise informal savings schemes. − Offer more credit facilities and ideally, unsecured lending. − Develop mortgage products. − View African women as a distinct banking segment with specific needs.

Women represent a significant untapped market which can be serviced profitably – both as individuals but also in the segment of women entrepreneurs. An attempt to quantify the funding gap experienced by women-led businesses that lack adequate access to finance was undertaken recently by the G20. The conclusion was that a shortage of funding of the order of US$20 billion was needed to bridge the SME funding gap. The resilience of African women combined with statistics that women pay back loans on time represents an opportunity that the banks have not capitalised on (New Faces, New Voices 2012).

• For consumer products: − Repackage goods into smaller units to suit local affordability.

• For food manufacturers − Adapt to local palates.

• For vehicle manufacturers: − Partner with a bank and offer vehicle financing.

• For healthcare providers: − More affordable healthcare models • For property developers: − Shopping malls! Shopping malls!

Shopping malls! To illustrate the size of this opportunity, for example, Nigeria has a population of 160 million people and has 36 states each with a sizeable population and requiring formal retail infrastructure. − More modern but affordable housing.

• For energy companies: − Africa is endowed with natural resources that can go some way in closing the current supply gap while also allowing for a relatively easier migration to a cleaner energy mix.

The real challenge is funding and developing models that allow for the average African consumer and industry to access this energy affordably. The funding gap, viewed conversely, however, presents an opportunity for greater private sector involvement and gives rise to new energy ownership models on the continent.

Dr Jacqueline Chimhanzi, formerly of Deloitte

SABLE a professional edge

E U PA S S P O RT

F O R Y O U A N D Y O U R F A M I LY

Sable Group & PTP have partnered to deliver a unique specialist solution to families who want to enjoy the security and quality of life a property investment in Portugal can offer, leading to the right to European Residency and Portuguese Citizenship, for themselves and their family.

Why Portugal?

European Citizenship

• • • • • • • •

• Residency within 6 months for you and your family • European citizenship after 5 years for you and your family • Secured finance of up to 60% with a European bank • No requirement to live in Portugal • Property purchase required*

No requirement to live permanently in Portugal Favourable tax environment for foreign investors Original member of the EU On mainland Europe Excellent quality of life Safety, security and peace of mind Tourism 10 months of the year Golfing high season from Oct to Dec

*Minimum purchase price ¤190,000

Contact us at +27 (0) 21 657 1584 or ptp@passporttoportugal.com Sable Ground Floor, Block B1, Regent Square Doncaster Road, Kenilworth, 7708 Cape Town, South Africa Telephone +27 (0)21 657 2180

www.sable-group.com

Passport To Portugal

SABLE a professional edge

Rau D. Maria do Carmo Fragoso Carmona No. 256 Cascais, 2750428, Portugal Telephone (+351) 214 839 200

www.passporttoportugal.com

16 \ Views \ March 2013

www.GatewayToAfrica.com

COMMENT:

Ghana retains lustre as Africa’s star of fiscal prudence Ghana’s responsible management of the oil industry, that precipitated the nation’s eight-percent annual growth over the past five years, has set a model for other African nations to follow

by Milton Lindsay As Ghana ascends to the forefront of the economic lions of Africa, the country is rapidly becoming an increasingly attractive location to conduct business for the West African nation’s diaspora communities around the world.

With the economic crisis here in Western countries, there has been widespread loss of jobs and careers.

Ghanaians are beginning to see the need to look back home.

This pressure has pushed the diaspora community to create a stronger network within itself.

Just over a year ago, the Network for Diaspora Professionals (NFDP) was founded to help fill this void by providing a forum for Ghanaians living in Europe to communicate with one another and to assist those entrepreneurs looking to return to Ghana to start a business.

However, it hasn’t just been Europe’s poor economic performance in the last decade that has driven Ghanaians living abroad to look at returning home.

Frank Anderson, who is the director of communications at NFDP, says that Ghana’s economic performance over the past five years has made the country a place where an increasing number of Ghanaians want to return to invest.

Over the past five years or so, major discoveries of oil and other resources

“have put Ghana on the global map,” Anderson said. “So, naturally, Ghanaians all over the world are beginning to beat themselves on the chest and say “I am proud to be from Ghana.”

Anderson says that this increase of national pride has encouraged the diaspora community to “make available whatever skills they have to help transform the lives of ordinary people” living in Ghana today.

“The essence of educating is making sure it translates into productivity that affects humanity,” Anderson said. “And so that is what is bringing everyone together.” The NFDP strives to do just that.

Using social media and other channels of electronic communication, NFDP maintains a strong network of Ghanaians living in Europe and presents opportunities for investment that emerge in Ghana.

There are many reasons for the abounding optimism that surrounds Ghana, according to Anderson. But above all else, the government’s management of Ghana’s oil reserves, discovered in 2007, is one of the developments that have produced the most positivity from outside observers.

Determined to mitigate the deleterious effects that major oil discoveries have had in other developing countries, former Ghanaian presidents John Kufuor and John Atta Mills took the policy steps to ensure that oil revenues supported diverse

“Ghanaians all over the world are beginning to beat themselves on the chest and say: I am proud to be from Ghana.” - Frank Anderson economic growth for Ghana.

Following in Norway’s footsteps, the Ghanaian government passed the Revenue Management Act, which specifies what percentage of the oil revenue should go to the annual budget and also sets money aside in a rainy day fund.

These efforts have helped ensure that Ghana has enjoyed diverse economic growth since oil production began in 2010, developing burgeoning real estate, IT and service industries, according to Anderson.

Moreover, Anderson believes that it is Ghana’s responsible management of the oil industry that has precipitated the nation’s eight-percent annual growth over the past five years and set a model for other African nations to follow.

“A lot of people are beginning to see Ghana’s potential,” Anderson said. Many have begun to call it “a beacon of hope to the whole African continent.”

Registration & Programme: www.petro21.com

19th “Western Africa’s UPSTREAM • MIDSTREAM • DOWNSTREAM

Prospective

22 - 24 April 2013 nd

th

Oil & Gas Frontiers”

Hilton Hotel, Windhoek, Namibia 9th Western Africa: Strategy Briefing 22nd April 2013 19th Western Africa Oil, Gas & Energy Conference 23rd - 24th April 2013 Endorsed By

Cocktail Sponsor

Platinum Sponsor

Gold Sponsor

Silver Sponsor

Bronze Sponsor

Contributing Sponsors

Exclusive International Broadcast Partner

Supported By

PertoAfricanus Club Cocktail Sponsor

Global Pacific & Partners Senior Partners:

Sponsor / Exhibition

Pre-Registration:

Dr Duncan Clarke: duncan@glopac.com Babette van Gessel: babette@glopac.com

Sonika Greyvenstein: sonika@glopac-partners.com Amanda Wellbeloved: amanda@glopac-partners.com

tanya@glopac-partners.com jodee@glopac-partners.com

Registration & Programme: www.petro21.com

“Eastern Africa’s

18th - 20th June 2013

Renaissance Reshapes

InterContinental Hotel, Nairobi, Kenya

Oil & Gas Landscape”

Gold Sponsor

Supported By

Silver Sponsor

Bronze Sponsor

4th Eastern Africa: Strategy Briefing 18th June 2013 4th Eastern Africa Oil, Gas & Energy Conference 19th - 20th June 2013 51st PetroAfricanus Dinner 19th June 2013 Venue Sponsor

PetroAfricanus Dinner Sponsor

Luncheon Sponsor

Delegate Bag Sponsor

Contributing Sponsor

Exclusive International Broadcast Partner

18 \ Feature \ March 2013

www.GatewayToAfrica.com

FEATURE:

Lonrho is back in the luxury hotel business

by Andrew Maramwidze in Gaborone

Lansmore Masa Square Hotel

Six months after Lonrho Hotels opened its newest outpost in Gaborone, capital of Botswana, the Lansmore Masa Square Hotel is glowing - and winning a sizeable stake in the market.

As a group aspiring to a redefinition of the hospitality experience in diamondrich, landlocked Botswana, Lansmore Masa Square Hotel remains optimistic that its endeavours are on track and hitting financial targets.

Located in the heart of Gaborone’s new central business district, the business and leisure hospitality outfit guarantees international levels of service in a country where these have been in short supply of late.

“Our objective is to try and build up this industry to attract more people and business travellers, to improve the rest of the industry and to shine in the international market,” said Rupert Elliott, General Manager at Lansmore Masa Square.

Contrary to the views of certain analysts who have attributed declining service standards in the country to the skills gap, Elliott said an attitude gap exists in the market.

He said the hotel has employed people with ‘a desire to work and be part of something’ to bridge the attitude gap and bring out the excellence that Botswana can offer.

According to Elliott the decision resonates with the hotel’s dedication to better the community in which it resides, thereby investing in the growth and development of the nation.

The hotel is training people with ‘charm and sparkle’ to do the job right, and has a staff complement of 160 locals working hard to make the hotel a success story.

“We are attracting a significant number of customers, with higher expectations,” said Elliott.

“We do not alienate anyone. We do things well, and our varied price categories for food caters to a broad range

of diners and guests. We are not elitist, we welcome everyone,” said Elliott.

Lonrho Hotels has splashed over five million pula as the initial capital injection into the project. Its lease as anchor tenant has secured it 15 years in what is currently the tallest building in the fast-developing CBD. The hotel occupies one of the two iconic Masa Square towers, cascading into the piazza of Masa Centre. The Botswana Tourism Board is currently grading the Lansmore Masa Square, which is hoping for five-star status, although Elliott said that grading could take up to a year.

The hotel is uniquely positioned, both literally and figuratively, to raise the bar in terms of service, cuisine and a sense of luxury and convenience.

Elliott said apart from its outstanding features, its operations are in cohesion with other tenants at Masa Square to ensure guests become fully connected while in Gaborone, whilst being able to enjoy a little indulgence during their stay.

“We try to improve everyone’s business as much as they try to improve our business.

The square is going to be a huge success story,” he added.

The hotel has 153 luxury rooms spread over seven floors, the gourmet La Touche de Provence restaurant, the Espretto Coffee Shop, a rooftop infinity swimming pool and events space, fully equipped gym, seven flexibly designed meeting rooms with multimedia equipment, and conference facilities accommodating up to 200 people.

Lansmore Masa Square Hotel joins Lonhro’s other luxury brands such as Metropole and Princess hotels, and iconic luxury hotels within Africa such as the Norfolk and Nairobi Safari Club in Kenya and Labadi Beach in Ghana.

For some time, the Hotel Cardoso was the only remaining Lonrho Hotel before acquisition of the Leopard Rock Hotel & Championship Golf Course in Zimbabwe and the opening of Grand Karavia reignited Lonrho Hotel’s appetite for growth.

速

20 \ Business Life \ March 2013

www.GatewayToAfrica.com

BUSINESS Life:

East African retailers battle it out for share of growing market The East African retail sector feels the pressure to expand as traditional players face strong competition from new entrants.

by Mark Kapchanga Currently, major regional players such as Game Discount Stores, Shoprite, Uchumi, Nakumatt and Tuskys are scouting for opportunities in larger towns in a bid to outclass each other.

The rivalry has been catalysed by the integration of East African countries into a common market in July 2010, which opened up the five member states’ borders to trade.

Nakumatt Holdings says the retail sector may well be the most sought-after

economic investment sector and the largest employer within the next five years.

With a population of more than 140 million people, the East African region provides a vast retail market. Formal retail traders currently serve close to half of this population, with daily turnover of more than Ksh1.4 billion.

“This population can sustain at least 10 major retail stores in each town with a turnover of $300milion,” said Nakumatt Holdings Managing Director Atul Shah.

In the next ten years, Nakumatt is forecasting that close to 25 million

customers across the region will have access to new formal retail trade facilities.

Monthly sales are projected to reach the $700 million mark. The expansion means that selling space will also hit close to 3.7 million m2 from 1.4 million m2 today.

“Nakumatt Holdings is keen to facilitate the upgrading and development of its regional retail trade from its current informal classification to a more formal one that can guarantee better returns for the population,” Shah said, adding: “At the current market coverage, the formal retail trade is an investor’s haven.”

In Kenya, the leading players alongside Nakumatt include Uchumi, Tuskys, Naivas and Ukwala. The regional retail sector is currently tilted heavily towards informal operators.

However, the sector urgently requires a Retail Development Policy and recognition as a key economic driver. Indeed, in a recent forum on investment in East Africa, Tanzania’s President Jakaya Kikwete called on the leaders in the region to come up with policies more conducive to the growth of retail business in the region.

"Our focus is to continue hitting our targets as we move on. We are actually even beyond the target and we are working on the positive side of things,” - Jonathan Ciano, Uchumi Supermarkets

March 2013\ Business Life \ 21

www.GatewayToAfrica.com

The number of branches of dominant East African supermarkets in each country.

Nakumatt

Uchumi

35 30 25 20 15 10 5 0

Kenya

5 4 3 2 1 0

Uganda

1,

0

Tanzania

3, 2,

1,

0

Rwanda

Tuskys

Uchumi Supermarkets The chief executive officer Jonathan Ciano says the retail firm’s expansion in East Africa has been phenomenal. The chain that almost went under in 2006 has recorded a marginal growth that has seen it re-listed on the Nairobi Stock Exchange.

Uchumi currently has 22 branches in Kenya and six more are in the pipeline.

In Uganda, the retailer has five branches with another two in the pipeline. In Tanzania, where the supermarket has one of the country’s largest shopping malls, it plans to open five branches in future. “We want to be an East African Community company with branches in all the five states,” he said of the regional expansion. “Our focus is to continue hitting our targets as we move on. We are actually even beyond the target and we are working on the positive side of things,” Mr Ciano said.

Uchumi has been on the path to recovery since it emerged from receivership following years of financial troubles that led to huge losses and bankruptcy.

Critical in the looming competition is the move by supermarkets to cut down on their operating costs, expand their operations and cut prices.

Analysts say Uchumi should swiftly redeem its customer loyalty through low pricing of its products. “Uchumi’s comeback needs a robust strategy that will make it sail through the current competition. The short-term approach is to put their prices lower than those of

Tanzanian President Kikwete

their competitors while going for fastmoving products,” John Kandie, a retail market analyst said.

Mr Kandie says that in spite of their growth plans, supermarkets in the region are still faced with a number of challenges such as unresponsive policies which render them uncompetitive in the market. “Supermarkets are no longer [the] privilege of the rich. To safeguard themselves against the hostile environment, supermarkets must define ways to gain a competitive advantage through product and costs strategies.”

Uchumi, Kenya’s oldest retail chain, is now planning to enter Rwanda. Mr Ciano says the plans are still at conceptual stage. “The success in our subsidiaries in Uganda and Tanzania shows the region still has huge retail opportunities,” he said.

It is also seeking to cross-list its shares on the Rwanda Stock Exchange, Dar es Salaam Stock Exchange and Uganda Securities Exchange.

22 \ Business Life \ March 2013

www.GatewayToAfrica.com

BUSINESS LIFE:

Nedbank’s African agriculture drive Interview with Zhann Meyer, Africa Head, Global Commodity Finance at Nedbank Capital.

by Jeremy Kuper

GTA: What does the job of Africa Head, for Nedbank’s Global Commodity Finance entail?

Zhann Meyer: I am responsible for the African continent insofar as Structured Commodity Finance within Nedbank Capital is concerned. So my team of ten principals and associates basically looks after the agri, soft commodities, energy and metals space on the continent. On the agricultural side, this would include physical production and cultivation of commodities on the African continent, as well as the trading and storing thereof, for either traders or processors down the supply chain.

GTA: What kind of agri-clients does Nedbank invest in?

ZM: [Our aim] would generally be to serve a range of clients that would fit within the investment banking ambit.

Individual farmers would typically fall outside of that mandate; we have our colleagues at Nedbank Business Banking to service a client on that front.

We look at commercial agriculture. At this stage in terms of where we are in our growth, in our model, and according to our mandate at Nedbank Capital, we wouldn’t fund subsistence or small-scale farmers. Unless it’s part of an outgrower model where there is a hub of commercial

farmers present – we would then support outgrowers in the vicinity as part of a hub-and-spoke approach.

So our target market would typically be the larger corporate clients with a need to cultivate commodities either on a wholesale or a commercial basis.

We furthermore assist them with the financing and storing of those commodities, until such time as they require the stock for processing or trading.

Supply and Demand Obviously supply and demand is going to affect the price of commodities along the supply chain. At the end of a cycle, where all the commodities are coming in during a harvest period, which is typically two to three months, the supply is more than the demand, so that means that the prices are naturally in a depressed low in terms of the commodity cycle. Therefore a lot of processors (millers, ginners, crushers, etc) take advantage of that and would like to stock up on these commodities for subsequent utilisation throughout the season.

So our facilities would typically cater for that and we would allow either on or off-balance sheet storage of those commodities. Either at a haircut price – in other words where we’ve brought in a price buffer – or against a short or selling position on a recognised commodity exchange. And we would then hold stock on behalf of our client in accordance with their draw down profile throughout the year.

Bespoke solutions We don’t offer a strict set of standard products; we would like to think we provide custom-made solutions for our clients. And it’s not only in South Africa – those solutions span across the continent. It would be for both the range of the ABCDs of the world (the big four international traders) as well as the smaller Eastern African traders and Southern African traders that are obviously cutting a niche for themselves with these types of products in their specific regions.

Ghana cocoa crop One of the things we are involved in and have been for some time is the Ghana Cocoa Board. We enable Ghana Cocoa Board to procure cocoa beans from small scale producers, and those cocoa beans are then sold to international buyers. This is a $1.5bn facility, which is syndicated amongst a whole number of banks.

Another product which is taking off is the commercialisation of crop cultivation in Southern Africa. We have a number of clients where we deal through a conduit, called a contract manager, and that contract manager then contracts individual farmers to grow a crop for a specific season, along certain parameters.

So we would insist on, for instance, insurance on the crop, which would cover us for drought, floods, hail, rain, fire and all risks associated with crop cultivation.

We would also insist on price risk mitigation, where we would short the

March 2013\ Business Life \ 23

www.GatewayToAfrica.com

“Our focus for the coming season would be where crop cultivation is in an advanced state, where agriculture is an intrinsic part of that country’s GDP. And Zambia is a prime example of what commercial agriculture can do for a country where they’ve been net importers and now suddenly and purely because of government incentives and support, [they] have become net exporters for the last three seasons.” -Zhann Meyer, Africa Head, Global Commodity Finance at Nedbank Capital

physical crop to that client upon harvest.

The aim is never to sit on the commodity. The aim is obviously to get rid of it: that’s how the loan gets extinguished in our books.

Sustainable Agribusiness GTA: What does sustainability mean to you and how you measure that?

Zhann Meyer, Nedbank

anticipated crop on an exchange – the South African futures exchange would be a typical example. We would also insist on regular reporting on the progress of the crop.

In essence what we do here is we recognise collateral based on the intrinsic value of the crop yet to be harvested. We then finance the seed, insecticide, the fertiliser, herbicide and diesel for the cultivation of that crop. And that’s a product that’s grown phenomenally in the last couple of years, especially in Southern Africa.

A typical model would require the farmers to give land as collateral. This product differentiates itself from that. We don’t ask for alternative collateral, we basically take the crop as collateral for the loan.

GTA: Presumably you wouldn’t want to end up with a few tonnes of maize…what would you do if that happened?

ZM: We would sell on an exchange…it would typically be a deliverable exchange, although in some cases that’s obviously not ideal. As an alternative, we would go to offtakers who would try and set fixed-price forward sale agreements for us. Another option would be an overthe-counter put option with an option writer after we’ve vetted them for credit worthiness. That put option would allow us to engage in a minimum price arrangement where we would deliver the

ZM: In terms of farmers, they are all are vetted and we make sure the farmers employ good agricultural practice.

That’s something that we demand from our clients, and that would include, for instance, strong support for precision farming. We try and get our farmers to use chemical analysis, soil analysis and also grid mapping with the use of a GPS to ensure that they plant according to the soil profile – in other words, not to overplant or to over-fertilise a specific type or profile of soil. This naturally just wastes money and obviously chemicals.

We also require that our farmers only use recognised seeds. This will be seeds that are endorsed under regulations in that specific country. If it’s a non-GM country, we would only allow the planting of non-GM seeds in compliance.

The other aspect is also in terms of cultivation practices, we are a strong supporter of ‘no till,’ in other words zero or minimal disturbance of the soil. We encourage our farmers to preserve the organic material in the soil, as far as practically possible In terms of chemical rectification of the soil profile, it is something we would strongly approve and in fact in some

24 \ Business Life \ March 2013

cases, we even finance the cost associated with chemical rectification. We would typically fund lime application to get the pH of the soil right, and also to make sure that in terms of other trace elements, the soil is ready to accept the type of crop that will be planted for that specific season.

Sustainability for us is important, not only from that perspective, but also in terms of what the farmers do – the working conditions of their staff, making sure staff are housed in decent and humane circumstances. Naturally it’s important for us to make sure that everybody has access to water, electricity, clinics, schools, and those types of things.

Whilst we do not actively check that on a daily basis, it’s something that our contract managers go out and check to make sure that our contracted farmers are adhering in general to good farming practice.

GTA: What are the main countries you’re operating in?

ZM: Our focus for the coming season would be where commercial crop cultivation is in an advanced state, and where agriculture is an intrinsic part of that country’s GDP. Zambia is a prime example of what commercial agriculture can do for a country where they’ve been net importers and now suddenly and purely because of government incentives and support, they have become net exporters for the last three seasons.

Another country which in terms of their rainfall and soil conditions makes it worth our while from a risk profile perspective is Kenya, as well as Tanzania. And then naturally, I don’t even need to talk about Mozambique. Mozambique at this point in time is thriving in terms of agriculture, and there are also a lot of South African farmers engaging in commercial activity

www.GatewayToAfrica.com

in Mozambique as well as in Zambia.

So for us to follow a South African client into these countries is a natural flow of business – to support them where they’re going, and where they see opportunities.

This is typically the model that we will follow to enter a country in the first place.

by carefully monitoring the level at which you finance, and obviously you’re dealing with selective clients.

GTA: How do tariffs hamper free trade? Is that a problem you’ve come up against?

ZM: I think for a commercial farmer at this stage, if you don’t get a 20 per cent return on your capital, then you should seriously consider going into another business. For us 20 per cent is, I would think, pretty much the bottom line.

Having said that, if you look at where Southern African agriculture is going, you will find that the number of commercial farmers has fallen significantly in the last ten years. And this could be the result of economies of scale and the fact that efficiencies become more crucial to staying on the farm at a profitable level of operation.

What’s happening now, is that basically the bigger farmers are becoming even bigger as they are able to use economies of scale to produce larger crops at a reduced price, and thereby obviously increasing returns. Another factor is that increased mechanisation reduces your dependence on labour.

Especially in the South African scenario it’s a risk that a farmer would prefer not to take, to be heavily labour dependent. So I think there’s a movement, whether rightly or wrongly, for commercial farmers to move towards mechanisation, to reduce their dependence on labour.

ZM: It’s not only that tariffs are there and potentially impact on free trade. It’s also the fact that there are no certainties in terms of these tariffs and how long they will be in place. In some countries tariffs can change intra-seasonally, which obviously exposes us to risks. If you finance a commodity that is valued at X, that price might change because of a tariff implication, and that naturally increases your risk in terms of taking that commodity as the intrinsic value for your loan. So in terms of trade or export embargoes, that naturally has a massive impact on whether a commodity trades at either import or export tariffs.

We can see it in certain countries where for instance there’s an export ban on maize being imposed – the price drops purely because of the fact that you are now looking at an internally focused market, and obviously your demand will now not be as much as supply because you can’t export anymore. So that’s a danger for us, it’s something we have to deal with. You actively mitigate your risk

“If you look at where Southern African agriculture is going, you will find that the amount, or the number of commercial farmers have reduced significantly in the last ten years. And this could be the result of economies of scale and the fact that efficiencies become more prevalent.” -

Zhann Meyer, Africa Head, Global Commodity Finance at Nedbank Capital

Cocoa beans by Everjean

GTA: What rates are you expecting for your agri-investments? Are you talking about in excess of 20 per cent?

March 2013\ Business Life \ 25

www.GatewayToAfrica.com

BUSINESS LIFE:

The Pepsi challenge – Drinks giant returns to Kenya after four decades Pepsi’s re-entry into Kenya stokes turf war with Coca-cola.

by Washington Gikunju in Nairobi Global soft-drinks giant PepsiCo has made a dramatic re-entry into the Kenyan market, reviving a turf war with its old international rival Coca Cola after a four-decade absence in East Africa’s largest economy.

PepsiCo officially launched its

manufacturing plant located in Kenya’s capital Nairobi on February 18, and immediately stoked a price war with Coca Cola.

The company had exited Kenya in the 1970s amid a fierce battle for market share with its American rival, and its re-entry is set to light up the industry which has since then remained in the firm grip of Coke, the world’s biggest soft drinks maker.

“In this business you cannot play the price game,” - Bob Okello, the Coca Cola public affairs and government relations manager for East Africa

“We will be selling our products in the 350ml glass bottle at the price of a regular 300ml soda,” said the Pepsi Kenya operations chairman Faysal El-Khalil, in an apparent reference to Coke’s popular 300ml brands.

“We are committed to ensuring that our customers enjoy pocket-friendly prices,” he added.

Softa Bottling Company, a Kenyan firm, has been Coke’s only competitor in the soda market, but its limited resources mean that it has barely challenged the global giant’s market dominance.

After what appears to have been an ill-advised exit in the seventies, PepsiCo made a quiet comeback on Kenya’s supermarket shelves in 2011 supplying the market through imported plastic bottled sodas and cans.

Within a year the company had concluded that there was a viable case for setting up a processing plant, underlining its faith in the growth potential of Kenya’s soft drinks market.

A manufacturing presence is expected to help Pepsi cut its operational costs, freeing up cash for sustained competition with Coke.

Interestingly, Pepsi maintained a presence in East Africa’s second and third biggest economies Tanzania and Uganda respectively, even as it closed shop in Kenya.

The decision to leave Kenya would come back to haunt Pepsi as they missed out on the country’s steady economic growth in the past decade, during which its annual output of $43 billion exceeded the combined GDP of Tanzania and Uganda.

Coca Cola Kenya’s reaction to

26 \ Business Life \ March 2013

www.GatewayToAfrica.com

“Coca Cola Kenya’s reaction to Pepsi’s comeback has been muted, but market watchers have taken note of the subtle reaction to its rival’s price strategy.” - Washington Gikunju Kenya’s production of soft drinks (‘000 Litres) dropped slightly in 2012 as high inflation eroded consumers’ spending power 400 000 350 000 300 000 250 000 200 000 150 000 100 000 50 000 0

2006

2007

2008

2009

2010

2011

2012

Soft Drink Production in Kenya

Pepsi’s comeback has been muted, but market watchers have taken note of the subtle reaction to its rival’s price strategy.

In a country of which the GDP per capita is less than $800, Coke is well aware that soda is still considered a luxury in most households, and the saving of a few coins could significantly sway consumer choices.

The sensitivity to price was most apparent in 2011 when a surge in the inflation rate to a peak of 19.72 per cent flattened demand for soft drinks, knocking down annual industry output by more than 10 million litres.

Coke, which has been in the Kenyan market for 65 years, reacted by cutting the price of its 300ml soda by two shillings to Sh23, and the price of the half-litre bottle by three shillings to Sh37.

Coke says its price cuts aimed to position its products within consumers’ reach, and was not necessarily a reaction to Pepsi’s re-entry.

“In this business you cannot play the price game,” said Bob Okello, the Coca Cola public affairs and government relations manager for East Africa, in an interview with GTA Magazine.

Coke’s strategy, he said, has been to package its products in many different

sizes tailored for the pockets of each consumer segment.

The company’s array of products includes 200ml, 300ml, 500ml, 1 litre, 1.25 litre and 2 litre serving sizes.

“This pack portfolio offers consumers the widest choice at a price point for every segment,” says Mr Okello.

The 200ml Coke bottle costs about USD 0.17 and is targeted mainly at the low-income earners, while the two-litre bottle costs about USD$1.6, and is mainly targeted at middle-income consumers who would tend to stock their coolers with them during occasional shopping.

Pepsi’s re-entry into Kenya coincided with a slight decline in the fortunes of soft drink processors.

Total annual production of sodas in the Kenyan market hit the highest mark of 371.4 million litres in 2011, but declined 3.2 per cent to 359.5 million litres last year.

Growth of the industry has been rather slow since 2007, when total production crossed the 300 million litres mark.

Mr Okello, however, sees last year’s drop in production volumes as a blip on the radar caused mainly by high inflation.

Coke cites its $60 million investment in capacity expansion over the past three years and a further commitment of $62 million in the next three years as its vote of confidence in the growth potential of Kenya’s soft drinks market.

The money is to be spent on setting up new production lines, glass bottles and canning lines, and market development strategies like supplying retailers with free coolers.

Coke has six bottling companies located in different regions of the country and a juice processing plant in Nairobi.

Pepsi remains guarded on its expansion plans, only revealing that it has about 200 employees in its Nairobi plant with plans to grow this to 300 in the next twelve months.

“The manufacturing capacities have been designed to keep abreast of market demand,” said Mr El-Khalil.

With a market experience of sixand-a-half decades, Coke feels that its competitor will take time before establishing a distribution machine that can rival its reach around the country.

Coke also feels that the Kenyan market can only grow bigger to accommodate the new competitor. “The competition will not eat into Coke’s market share; they will help to grow the cake. It’s just like in the mobile telephony market, where the subscriber base keeps growing as service providers increase,” said Mr Okello.

Kenya’s non-alcoholic drinks consumers are also increasingly opting for healthier fruit-based drinks, posing a new challenge to soda processors.

Coke has taken note of the shift, and has introduced other beverages such as teas, coffees, energy drinks, bottled water and fruit juices. Its Minute Maid range of juices have grown in popularity, challenging the dominance of Kevian Kenya, the biggest player in this field.

However, sales volumes of fruit juices have been held down by relatively more expensive pricing which makes them a favourite for the relatively small number of middleincome earners, meaning that soda remains the main field of competition.

March March 2013 2013 \\ Recruitment Recruitment \\ 31 27

www.GatewayToAfrica.com www.GatewayToAfrica.com

Jobs in Africa Would Would you you like like to to advertise advertise aa position? position?

Contact info@gatewaytoafrica.com Contact info@gatewaytoafrica.com to to advertise advertise here. here.

EnERgy/OiL & gAS

BAnking

FMCg

BD & Sales Performance Manager

CEO (Chief Executive Officer)

Area Head of Talent

Purpose The CEO shall exercise overall control and supervision of all activities of the Bank.

Purpose Drive the Area Talent Strategy to ensure a self-sustaining leadership pipeline based on current and future requirements.

Location: Zambia

Purpose To take responsibility for developing plans and executing projects and initiatives that support both the Sales and Marketing departments in Zambia.

Experience & Qualifications • Minimum of a Business/ Economics/Marketing degree, MBA or equivalent • 5 years’ Sales Management experience preferably in an industrial sector

HR Manager Sub Sahara Location: Angola

Purpose Responsible for the development and implementation of business aligned HR strategy in Sub Sahara region.

Location: Rwanda

Experience & Qualifications • Master’s degree in Management, Economics, Business Administration, Finance, Accounting or in any other related field • 20 years’ experience in Retail and Branch Network Banking at a senior position • Experience in retail banking in Africa

Branch Banking Head Location: Botswana

Purpose Build and develop a high performing team through embedding performance development and coaching.

Location: nigeria

Experience & Qualifications • HR professional with a university degree • 8 years’ experience preferably built on a generalist HR background

Commercial Leader north Africa Location: Morocco

Purpose Responsible for the business’ development in the market and the definition of an optimum distribution and marketing model.

Experience & Qualifications • HR related experience in a multinational corporation and university degree • English and Portuguese languages • Experience in start-up companies or in Change Management

Experience & Qualifications • Graduate or relevant experience to compensate • Working experience in Customer Relationship Management • Retail Management experience

Experience & Qualifications • 6 years’ experience in Sales and specifically Distributor Management • Appropriate level of higher education at degree level • Strong interpersonal skills • Solid leadership skills

Apply now at: www.careersinafrica.com

Apply now at: www.careersinafrica.com

Apply now at: www.careersinafrica.com

28 \ Final Word \ March 2013

www.GatewayToAfrica.com

FINAL WORD:

African investment preaching to the unconverted Jonathan Howard CEO of the Business Council for Africa speaks exclusively to GTA.

GTA: Can the goals of the Business Council for Africa be summarised as promoting trade with the continent through your network of business councils in Africa to escape a dependence on aid?

JH: In order to achieve sustained economic growth in Africa, trade is absolutely paramount and we’ve really got to help build trade within Africa. There is also a place for aid, but I think the focus should be very much on using trade to promote economic sustainability.

There’s one thing about trade I have to stress: although there’s a lot of trade involving Africa, the bulk of Africa’s trade goes out of Africa – only 11 per cent of trade is intra-African. Our great aim is in some way help promote intra-African trade. Countries like Nigeria with 170 million people and Ethiopia with about 88 million have huge internal markets.

That’s the reason for those councils… [to] try in some way to get our councils not just talking with business in Europe, or ourselves, but actually talking to one another. And trade within Africa is our

ultimate goal, to try and get that working really well, so actually it’s to the benefit of Africa and the African countries.

UK Minister of Africa, Mark Simmonds MP

GTA: So you’re currently working with diaspora business organisations?

JH: When we hear about GDP growth rates, which are spectacular for Africa compared to the rest of the globe, 6 or 7 [African countries] are in the top. But I always think the better statistic, and we haven’t got one yet, is the number of the diaspora going back to Africa because they think there are more opportunities there.

When I was in Ghana about five years ago, all we were talking about was the brain drain, now that’s almost reversed. A lot more Africans are now actually going back to Africa and I think that’s extremely positive. We keep on talking about a false dawn, but actually because more and more are going back there might be the possibility that it’s not a false dawn and it might be sustained economic growth and I think it’s very encouraging, that angle.

And the other organisations that we’re very keen to deal with are the business schools, because that’s the future talent,

“I spend a lot of time thinking how we can get the message out to those people who’ve never really thought about investing in Africa.” - Jonathan Howard, CEO of Business Council for Africa

the future leaders I guess; so again we’re talking with Cambridge, Oxford and the London business schools. Not just them, but [also] the ones in Africa.

For sustained economic growth you need that middle management and some of our members point out that the middle layer has got to come out of educational institutions in African countries.

GTA: Presumably the trends that your members tell you about make you extremely positive about the whole African boom?

JH: It goes back to Africa as [a collection of many countries]: some are hugely positive and others are not quite so positive. But I think in general terms it’s probably more positive, because the interest is there, but actually the problem still is to try and get

March 2013 \ Final Word \ 29

www.GatewayToAfrica.com

over the negative publicity that exists… certainly in this country.

So again one of our aims is not just to preach to the converted, but to try and reach out to the unconverted. I spend a lot of time thinking how we can get the message out to those people who’ve never really thought about investing in Africa.

GTA: In terms of the challenges, how do you see the impact of Chinese influence on Africa?

JH: The whole question of China is I think a fairly emotive one. And I like looking at opportunities rather than threats, and…if there’s an opportunity out there, well then let’s complement each other, let’s work together, in partnership. And I’m not saying we necessarily work in partnership with China, although there are meetings talking about how we can work more in partnership.

I see it as an opportunity. They’ve produced infrastructure which other people weren’t prepared to do, and to provide that infrastructure has allowed opportunities for other companies – British, American whatever – to come in with more confidence to do business in Africa.

Obviously some of the initial agreements with governments had been pretty onesided but I think some of the African countries are getting wise to that.

GTA: Once you get past infrastructure, how can China’s presence, the way they saturate the markets, really stimulate the growth of a manufacturing sector without a strong trade agreement?

JH: I agree, and it’s still imbalanced I suppose, and we’ve got to do more to prove our worth. You speak to all the heads of mission here and the UK in particular has a huge advantage in Africa with the Commonwealth. It’s English speaking, with a lot of it based on English

Jonathan Howard

law. And they keep on saying, “Where are the Brits?” You’re left behind…and it’s because of this negative perception in our press. And I think in some ways it’s the same in America.

It’s [about] getting the message out and trying to convince business that they have a pretty good advantage - [both] the UK and America. And so it’s really to convince them to take that little bit of extra risk and give it a go.

It’s not going to be easy. We’ve got for instance the Zambian Development Agency coming over to talk and they will talk about development opportunities in Zambia but it will all be very glossy, so we have to redress that balance.

Hopefully the Economist Intelligence Unit will come and they will give an economic view, in which they will say what they think. Not what the Zambians want them to think necessarily, and then we try and get a few of our own members who are operating in Zambia to tell us all about the challenges, because they are bound to be there, and tell us about solutions.

You can highlight that to people who might be nervous about investing in Zambia or wherever. The practicality of doing business is the nub of what we try and do, rather than getting too ensconced in non-reality. If you go and invest in Africa, you’ve got to do your research. It’s the same as anywhere.

30 \ Destination \ March 2013

www.GatewayToAfrica.com

DESTINATION:

Ivory Coast Mali

The economy of Ivory Coast used to be one of the most important in West Africa. With a sensible economic plan and political stability it will get back on track.

Burkina Faso

Guinea

Ivory coast Yamoussoukro

Ghana

Liberia

Ivorian Economy

Currency: West African CFA Franc Population: 21,952,093 GDP based on PPP: $39.501 bn GDP growth (2011): -4.7% Head of Government: President Alassane Ouattara Finance Minister: Daniel Kablan Duncan

Known not just for being the largest producer of cocoa in the world, Ivory Coast used to be one of the few countries in Sub-Saharan Africa that was considered politically peaceful, despite hosting almost 60 different ethnic groups.

For almost three decades after independence, the country was distinguished by its developed economy and its social, political and ethnic harmony.

In 2002, due to an armed rebellion, the country was ripped in two. Since then, Ivory

Ivorian Business

Language: French World Bank Doing Business rank: 177 World Economic Forum Global Competitiveness rank: 129 Investment agency: Centre de Promotion des Investissements en Côte d’Ivoire Public sector opening hours: 0800 – 1700 Private sector opening hours: 0800 – 1700 Legal system: Based on French Law

Getting There

Airlines: Lufthansa, British Airways, Virgin Atlantic and Air France Visas: Ivorian Tourist visa required for UK nationals – valid for three months and costs £96 Hotels: £36 – 326 a night

Image by Zenman

Coast has struggled to get back on track.

The country barely had a chance to compensate for the damage caused by the Civil War in 2002, before the disputed elections in 2010 set it back again and livelihoods across Ivory Coast were severely affected.

After independence, the country boasted a stable government and one of the wealthiest economies in West Africa. But as a result of civil war, coups and political divisions, the economy has slumped.

However, with its good infrastructure and natural resources, Ivory Coast should be able to recover economically from the recent unrest. Also, with the emergence of new peace deals, the country has begun the long road back to political stability and the peaceful transfer of power.

8000+

16TH ANNUAL

ATTENDEES

300+

VISIONARY SPEAKERS

300+

12-14 NOVEMBER 2013 CTICC CAPE TOWN SOUTH AFRICA

EXHIBITORS

100+

COUNTRIES REPRESENTED

BUILDING AFRICA’S DIGITAL ECONOMY

COME AND SEE THE FUTURE OF DIGITAL AFRICA...

NEW

NEW

NEW

@

NEW

2012 SPONSORS INCLUDED:

Don’t miss out on this world-class event. Find out more: www.comworldseries.com/africa