New Markets Investor

Q3 2015Q3 2015Issue 3 Vol.10New Markets InvestorFocused on New EconomiesWEF Africa Issue in association with the UNECAWEF Africa CapetownEnergy high on the agendaReal EstateA tale of six citiesUnderstandingWest Africa’sInfrastructurePotentialthe region is increasilybecoming anattractive destinationfor investors across alleconomic sectors.EthiopiaAfrica has a hot newinvestment destinationThe AfDB’s President ElectDr Akinwunmi Adesina shares his vision of Africa’sdevelopmentPrivate BankingAppealing to the taste and status of wealthy individuals.Informal SectorThe key to driving forward the economy.New Markets Investor1

Q3 2015New Markets Investor2

Q3 2015

Q3 2015ContentsInfrastructure34 The AIIBWith just two African member countries,does the newly formed AIIB,mean that Africa’s infrastructure needswill be overlooked?.14 Indigenous triumvirate leadingthe continents infrastructuredriveInitiatives being led by the AfricanUnion Commission (AUC), NEPADSecretariat and the African DevelopmentBank.30 Private InfrastructureDevelopment GroupAn innovative, multi-donor organizationthat encourages private infrastructure indeveloping countries with 37 projects inAfricaFinance & Investment18 EthiopiaAfrica’s hot new investment desination10 Côte d’IvoireThe country entered the internationaldebt markets as the first sub-SaharanAfrican sovereign issuer in 2015, a dealthat indicates an appetite for investmentin the region.62 Rwanda an investmentdestinationRwanda’s economy is on a solid inclinewith its gross domestic product (GDP)growing to 7.6 per cent in the first quarterof the year.64 Rwanda’ Stock ExchangeThe beginning46 Private BankingThe outlook of private banking looksgreat and reassuring, nevertheless thereare myriad of challenges confronting thisbanking model32 Consumer GoodsWith the rise of shopping malls theFMCG sector in Africa has significantscope to expand88 Sub-Saharan AfricaSet to be second fastest-growing regionin the world in 201590 Private EquityThe great “African growth story”27 The African Competitiveness Report, releasedat the WEF Africa Cape Town54 Construction Opportunities specialreport by KPMGGroup Managing EditorCharles FaulknerAssociate EditorJames AndersonHead of ProductionJeremy St.ClairHead AdministratorKeisha AbatemiHead of Business DevelopmentAndrew JohnstoneSales DirectorAlex ShawBusiness DevelopmentHayley Winstone, Charlotte LupinTom Heathfield. Robert Grobo,Raul Hernandez.New Markets Investor4The information contained within thispublication has been obtained from sourceswhich the publishers believe to be correct.Legal liability will not be accepted for anyerrors or omissions. The contents can onlybe copied with prior permission fromThe Media Corporation ©2015

Q3 2015Energy20 Renewable energyAfrica’s light at the end of the tunnel?Rolake Akinkugbe, head of energy andnatural resources at FBN CapitalTourism78 The hotel growth story of the21st century76 The tourism industry couldpotentially add 3.8 million jobsover the next 10 years in SSAComment22 AfDB chief forsees Africa asthe worlds manufacturing center26 Ghana’s Vice-President,Kwesi Amissah-Arthur at theWEF claims informal sectors arethe drivers of many of the continentseconomies.66 Science, Technology andInnovation in AfricaNot yet cutting edge, but it will soon getsharper69 Management Education with aPractical EdgeThe Lagos Business School74 The Continents’ newest realestateA tale of six cities82 The boomingentertainment sectorThe continents film andentertainment sector employsmillions with potential for millions more24 SeacomA privately owned African carrierbringing connectivity to the continentCover Story86 African Development Bankappoints new LeaderAt the Bank Group’s 50th Annual Meetingsin Abidjan, Côte d’Ivoire, the 8thPresident was elected.50 BrandingOne size fits all’ marketingconcept of global corporations fails to ‘fit’ Africa74 Real EstateInstitutional investors, both local and international, arepumping millions of dollars into retail propertyIn partnership withContributorsThe AfDBThe WEFThe African Union CommissionThe Media Corporation23-26 Tabernacle StreetLondon EC2A 4AAinfo@newmarketsinvestor.comPrinted in ChinaShanghai DP Printing Co., Ltd.New Markets Investor5

Q3 2015Klaus SchwabForwardAfrica has negotiated the journeyto another level of economicdevelopment. With six of the tenfastest growing economies in theworld, a growing middle class,expanding sectors like manufacturingand retail, and the fastest-growingtelecommunicationsmarkets in the world. Therefore,the choices Africa makes in theshort term will greatly affect itsdevelopment trajectory far intothe long-term.Good governance, education andentrepreneurship will be crucialin the region’s development story;according to Klaus Schwab, theFounder and Executive Chairmanof the World Economic Forum(WEF).stated at WEF Africain Cape Town. “Governmentsshould create space for youngpeople to exercise their talents;education will be the key to theirfuture,” adding that Africa had anadvantage of a democratic dividendas 75 per cent of the continent’spopulation were under theage of 35.“I am a big believer of Africa fortwo reasons; Africa has a youngpopulation while other countrieslike China are faced with an ageingpopulation. Africa has alsoyoung people with entrepreneurialabilities,” he added.Schwab concluded that Africacould be influential in thiscentury just as Asia was in thelast century but this depended onhow Africa goes forward.“In past decades, people cameto look for opportunities butnow they come to look for jointsolutions with government as it isclear governments alone cannotsolve problems by themselves,” hesaid.“I am very much positive aboutthe potential of Africa, I think wewill always be two steps forwardthan one step backwards.Economically there are manychallenges, but in Africa, wheregrowth is needed most, economiesare booming. More thanhalf the world’s fastest growingeconomies are now in Africa.The challenge remains that thetrickle down of this growth is stillslow, with per capita growth ratesmuch lower due to rapid populationgrowth. Africa has greatcapabilities and possibilities”.New Markets Investor6

New Markets Investor7Q3 2015

Q3 2015IntroductionAfDB PresidentDonald KaberuksThe title of this publication says it all; NewMarkets Investor. There are many new marketsin Africa and the African DevelopmentBank invested in them to the tune of over$7.3 billion last year. Africa does so; therest of the world does so. People invest forgood reason - not just to see others prosper,but to prosper themselves. Africa is not theworld’s next investment frontier; it is itscurrent investment magnet.In investing in Africa, we are investing ina growing concern. Africa grew at 3.9 percent in 2014, stronger than the global averageof 3.3 per cent.Of course growth performance variedwidely across the continent’s countries andregions. Growth is expected to accelerate to4.5 per cent in 2015 and increase further tofive per cent in 2016. This year it will surpassAsia’s growth rates, to reach the levelswhich it achieved prior to the global financialcrisis in 2008/09.Total external flows of investment intoAfrica continue to rise, and are projected toreach $193 billion in 2015, almost doublethe figure for 2005. Foreign direct investmentflows and remittances have becomeAfrica’s most important external financialsources. FDI will reach $55 billion in 2015(a threefold increase in a decade), alongsidecontinuous growth in the emerging Africanmiddle class. That section of society has alsoincreased threefold, over three decades. Itwill reach 1.1billion (or just over 40 per centof the population) in 2060.In response to growing urbanization inAfrica, foreign direct investments areincreasingly shifting from extractive industriestowards the retail sector, and especiallyconsumer goods and services. Meanwhile,Africa continues to attract investors fromemerging countries and from within thecontinent. African cities represent a growingand untapped consumer market, andare increasingly targeted by investors.Disposable income in Africa’s major citiesis expected to grow at an average of 5.6 percent each year up to 2030, while aggregatespending power is set to more than doubleto $1trillion,from now to 2030.Johannesburg,Cape Town, Nairobi, Lagos, Casablanca,Cairo and Tunis are all considered to betop investment destinations.Africa’s middle-income countries aretapping the international capital markets,mainly to secure funding for infrastructuredevelopmentAs official aid receipts decline, increasingdomestic revenues and attracting privateexternal flows will be vital in financing theUnited Nations’ Post-2015 DevelopmentAgenda.New Markets Investor8

New Markets Investor9Q3 2015

Q3 2015Nialé Kaba, the Minister of Financeand the economy for Côte d’IvoireWith Strong growth levelsIvory Coast returns to theCapital Markets with thelaunch of Africa’s firstEurobond of 2015Africa’s fortunes have changed dramaticallyin recent times. Even as the BRICgrowth story began to lose its lustre,Africa emerges as a continent that is finallybeginning to fulfill its potential. Thestarting point was low, but growth ratesare often stellar, luring investors in fromfar and wide.In 2014, however, some cracks began toshow, as tumbling oil prices, weaknessacross commodity markets and politicalvolatility took their toll. Such a backdropis less than ideal for bond issuance,particularly as the capital markets remainvirgin territory for most African countries.Côte d’Ivoire seems slightly different,however. The country experienced a periodof intense political unrest in 2011 butsince then economic growth has been robust.Since civil war in 2010 and a defaulton the country’s first Eurobond in 2011,there has been a strong turnaround in theeconomy. Repayments on the defaultedEurobond resumed in 2012 amid strongeconomic growth: 8.7% in 2013 and 9.1%in 2014. Growth of 8.5% is expected in2015, according to the World Bank“Côte d’Ivoire benefits from key growthdrivers, such as high public and privateinvestment, strong export capacity andfavourable demographics. The countryalso benefits from factors supportingfiscal, macroeconomic and monetarystability, such as moderate levels of publicdebt, sound external accounts and astructural trade surplus, as well as the securityof the CFA Franc peg to the euro,”says Nialé Kaba, the minister of financeand the economy for Côte d’Ivoire.In 2014, Côte d’Ivoire launched a highlysuccessful $750m, 10-year bond. Thisyear, Ms. Kaba decided to return to thecapital markets with a more adventuroustransaction – a $1bn benchmark Eurobondwith a maturity schedule dividedinto three equal payments due in 2026,2027 and 2028. It was four times oversubscribed,with a “negligible” new-issuepremium, a testament to Côte d’Ivoire’sstrong fundamentals, say bankers. BNPParibas, Citi and Deutsche Bank werejoint book runners on the deal.“The structure was intended to smoothNew Markets Investor10Côte d’Ivoire’s debt maturity profile,avoid a concentration of maturities andestablish a long-term pricing referencefor the country,” says Ms. Kaba. “Theorder book was strong, made up mainlyof high-quality fund and asset managerspredominantly from the US, “said MaryamKhosrowshahi, head of CEEMEAsovereign DCM at Deutsche Bank, whoworked with the Ivorian government onthe deal, adding “Between now and lastJuly, market conditions have changedbut, despite this, there was a window ofopportunity for Côte d’Ivoire to be thefirst African sovereign to issue this yearwhile the pipeline was quiet,”Côte d’Ivoire began thinking about the2015 bond late last year, discussing thetransaction with the International MonetaryFund as part of its 2015 budget.“Concerning timing, two market factorswere key; first the increase in sovereignspreads since autumn 2014, linked tohigher volatility on commodity marketsand emerging market-specific factors,and second, the expected increase in theUS Federal Reserve’s interest rate this

New Markets Investor11Q3 2015

Q3 2015year. In our view, these developments increasedthe likelihood of a tighter marketwindow for African sovereigns later thisyear,” says Ms. Kaba. “Issuing early in2015 had strategic benefits as well. First,it allowed us to open the market andanchor investor perceptions about ourrelative and fundamental strengths as aregional issuer. Second, it allowed us tobenefit from continuing strong appetitefor Côte d’Ivoire’s credit,” she adds.The country chose BNP Paribas, Citi andDeutsche as book runners for the issue,after in-depth analysis conducted by theDirection des Marchés Publics (DMP).“Each proposal was rigorously analysedby our DMP, based on a combinationof technical and financial criteria. Thebanks that received the highest scoreswere appointed as book runners. Thebanks we chose also led our 2014 Eurobondand handled it in a very satisfactoryway,” says Ms. Kaba.Having appointed the three book runners,Ms. Kaba and her team embarkedon an international roadshow, spanningLondon, New York and Boston.“Although we conducted the roadshow inspecific cities, we spoke to a wide rangeof investors across the US and Europe.For timing considerations, we made astrategic choice about the cities we visitedto maximise the number of investors wecould meet and target those most likelyto take part in the transaction,” says Ms.Kaba. “We achieved an exceptionallyhigh, 97% conversion rate of investormeetings to orders, which proved ourchoice was right.”Unsurprisingly, investors had a widerange of questions but focused particularlyon the use of the bond money, Côted’Ivoire’s growth prospects and politicalstability. “Côte d’Ivoire’s economicoutlook is widely perceived to be stronglypositive. The key challenge was to explainthe positive differentiation factors fromour peers, in the context of oil and USdollar volatility,” says Ms. Kaba.Ultimately, investors were satisfied andthe book grew to about $4bn with morethan 240 orders. As a result, pricing wastightened by 25 basis points from initialprice talks and the coupon was fixed at6.625%.“The book was built with an overwhelmingmajority of fund managers whom weknow, and who have demonstrated theirwillingness to invest in Côte d’Ivoire forthe long term,” says Ms. Kaba.The country is coming to the end of itsthree-year National Development Plan,which was started in 2012 and designedto boost economic growth and employmentby increasing public investmentand encouraging the development ofthe private sector. Proceeds from thebond will be used to implement strategicinvestments under the NationalDevelopment Plan, with a specific focuson infrastructure, education, health andagricultural sectors.Happy with the results of the $1bnbenchmark, Côte d’Ivoire has no plansto return to the markets but Ms. Kaba iskeeping her options open. “We do notNew Markets Investor12expect to return to the international marketsin the near future but we will considerany opportunity which may arise,” shesays. Côte d’Ivoire is now sub-SaharanAfrica’s second-largest issuer, with totalstock amounting to $4.25 billion, arounda third of what has been issued by theregion’s foremost issuer, South Africa.The debt to GDP level in Côte d’Ivoire isaround 35%. The latest transaction maytake the percentage up slightly, but thisis still sustainable, especially with thestrong growth levels coming out of thecountry. Côte d’Ivoire’s economy is welldiversified. It is the leading producerof cocoa, accounting for 40% of globalproduction, the second-largest globalproducer and leading global exporter ofcashew nuts, the leading African producerof rubber, bananas and tuna, andthe second-largest African producer ofpalm oil. The Eurobond issue comes ata challenging time for frontier markets,with deteriorating commodity prices,a stronger dollar and expectations of aUS rate increase that have threatenedinvestor flows into sub-Saharan Africa.But despite the broader macro challenges,Côte d’Ivoire continues to pull ininvestors.

New Markets Investor13Q3 2015

Q3 2015Indigenous triumvirateleading the continentsinfrastructure drivePromoting socio-economic developmentand poverty reduction in Africathrough improved access to integratedregional and continental infrastructurenetworks and services, the PIDA initiativeis being led by the African UnionCommission (AUC), NEPAD Secretariatand the African Development Bank.The Programme for InfrastructureDevelopment in Africa {PIDA), coversprojects in transport, energy, waterand telecommunications. In April, theAfrican Development Bank (AfDB) andthe Infrastructure Consortium for Africaparticipated in the Validation Meetingfor the PIDA Acceleration Strategy ActionPlan (PAS).The PAS aims to fast-track the implementationof a number of priority PlDAprojects, including the Serenje-Nakonderoad in Zambia, which is part of theNorth-South Corridor, and the Dar esSalaam Port expansion project in EastAfrica. A Pan-African InfrastructureDevelopment Fund {PAIDF) has alsobeen launched by the Public InvestmentCorporation of South Africa to financehigh-priority, cross-border infrastructureprojects.The scale of the infrastructure challengefacing Africa was set out in a PIDA studyentitled ‘Interconnecting, Integratingand Transforming a Continent’. It pointsout that the road access rate acrossAfrica is 34 per cent, compared with 50per cent in other parts of the developingworld. Furthermore, transport costs aretwice as high in Africa as other developingcountries. “Deficits Iike these have aclear impact on African competitiveness:African countries, particularly thosesouth of the Sahara, are among the leastcompetitive in the world, and infrastructureappears to be one of the mostimportant factors holding them back,”says the report. “Ensuring that growingdemand for regional infrastructure ismet...will require a determinedly coordinatedregional approach.”East AfricaCountries in East Africa, particularlyNew Markets Investor14Kenya, currently lead the way in largescaleregional transport projects on thecontinent, the most ambitious of whichis a new standard-gauge railway Iinethat is to run from Mombasa to Nairobi,eventually extending to Uganda, Rwanda,Burundi and South Sudan.Last year, regional leaders and ChinesePremier Li Keqiang signed officialagreements for the project, under whichChina’s Export-Import bank will finance90 per cent of the first phase of the line,which is estimated to cost $3.8 billion,with Kenya funding the remaining 10per cent. According to Kenyan PresidentUhuru Kenyatta, the costs of movingpeople and goods across borders willfall sharply as a result of the new railwayline.One big winner from the rail project willbe Uganda, a landlocked country thathas struggled to export its goods by roadto Mombasa and Dar es Salaam, Tanzania.Uganda is about to begin producingoil, and has already commissioned a60,000 barrel-per-day refinery from

Q3 2015: “Once we have the infrastructurein Africa, it should not beblocked by borders.Regional and transcontinentalintegration, enabled by bettertransport links, will be key toAfrica’s continued growth andfuture success”.South African President Jacob Zuma remarked this year at the WorldEconomic Forum in Cape Towna Russian-led consortium, which willbecome operational in 2017-18.Comparable in scale and ambition is theLamu Port and South Sudan-EthiopianTransport Corridor Project (LAPSS ET),which the Kenyan Government describedas “the largest game changer infrastructureproject the government has initiatedand prepared under [the] Vision 2030Strategy Framework, without externalassistance”. The $24.5 billion project encompassesseven components, includinga standard-gauge railway line, a crude oilpipeline, the 32-berth Lamu Portman oilrefinery, resort cities and airports servingKenya. Once completed, the project willgreatly enhance transport links betweenKenya, Ethiopia and South Sudan, andthereby foster socio-economic developmentin the region. The Kenyan Governmentestimates that the project will addbetween two to three per cent of GDPinto the economy, based on conservativefeasibility statistics.In the Horn of Africa, Ethiopia is planningto open a new railway line linkingthe capital Addis Ababa with the Red Seastate of Djibouti in early 2016.The 700kmline, being built by two Chinese companies,is expected to cost $4 billion. Thenew railway line will cut the journey timefrom days to about eight hours. GetachewBetru, Chief Executive of the EthiopianRailways Corporation, described theproject as a “game changer”.Southern AfricaAnother focal point of regional infrastructuredevelopment is southern Africa.The North-South Corridor Programme,part of the World Trade Organization-ledAid for Trade initiative, links the port ofDurban in South Africa to Copperbeltin the Democratic Republic of Congo(DRCJ and Zambia. It also includes spurslinking the port of Dar es Salaam and theCopperbelt, and Durban to Malawi. Theprogramme, covering eight countries intotal (Botswana, DRC, Malawi, Mozambique,South Africa, Tanzania, Zambiaand Zimbabwe). will involve the buildingand maintenance of 8,599km of roadsat a cost of $9.lbillion;the upgrading of600km of rail at $800 million; priorityport development at $800 million; as wellas a number of power generation andtransmission projects. Once complete,it will give regional trade and economicdevelopment a powerful boost.Yet another completed major project inthe region is the rehabilitation of the,344km Benguela Railway linking theport of Lobito in Angola and the DRC.The original railway, built by the Portuguesein the early 20th century, fell intodisrepair in the 1970s amid the chaosof Angola’s civil war. China RailwayConstruction Corporation won the bid torepair the line in 2007. In February thisyear, the presidents of Angola, DRC andZambia inaugurated the completed railway.Furthermore, bilateral agreementswere signed by ministers from Angolaand Zambia, under which Zambia is tobuild a 590km line linking Chingola toNew Markets Investor15

Q3 2015left; Kenya’s Standard Gauge Railway Line initially linking Mombasa& NairobiBelow; The Kankan-Koouremale-Bamako transnational intercityhighway linking Guinea & MaliJimbe on the Angolan border, with a connectionto the Benguela line, which willmake Zambia a transit country betweenthe west and east coasts of Africa.These new links will help provide a vitalpiece that has always been missing fromAfrica’s economies: regional integration.West AfricaIn West Africa, the AfDB has supporteda number of major road infrastructureprojects. The Kankan-Kouremale-Bamakotransnational intercity highway, onesuch example, is the single point of entryand exit between Conkary in Guineaand Bamako in Mali. The CFA9 billion(approximately $ 15 million) project,which has been financed by AfDB, wascompleted in December 2013, benefitingthe daily lives of thousands of people.According to AfDB, the project resultedin manifold benefits, including “feweraccidents for road users and residents,better traffic flow, more businesses andbooming economic activity, new buildingdevelopments, better sanitation andcleanliness”.Similarly, the Enugu-Bamenda Highwayconnecting Nigeria and Cameroon, alsobacked by the AfDB, has delivered considerablesocio-economic benefits for theregion since its completion in 2013.North and Central AfricaThe construction of a 9,022km Trans-SaharaHighway (TSH) linking severalcountries in North, Central and WestAfrica further underlines the continent’scommitment to regional integration.TSH aims to facilitate overland trade betweenthe Arab Maghreb Union (AMUJand Economic Community of CentralAfrican States (ECCAS) in general, andAlgeria, Niger and Chad in particular. Asone of PlDA’s priority projects to connectcapitals and major cities, TSH has alreadyreceived funding from AfDB. Targetbeneficiaries of the project include usersof the TSH and residents of the impactarea, which spans 4.4 million square kilometres,with a population of 60 millionacross Algeria, Tunisia, Mali, Niger, Chadand Nigeria. The project will be implementedover a period of 60 months at acost of $585.5 million.Smaller projects in the region include theCongo-Gabon road and transport facilitationproject, which has been adoptedby ECCAS, and is part of the PIDA’s PAS.It involves the construction and rehabilitationof the 276km Ndende-Doussala-Dolisiesection of the internationalroad linking Libreville and Brazzaville.As South African President Jacob Zumaremarked this year at the World EconomicForum: “Once we have the infrastructurein Africa, it should not be blockedby borders. Regional and transcontinentalintegration, enabled by better transportlinks, will be key to Africa’s continuedgrowth and future success”.With a slew of regional transport projectscurrently underway, Africa can lookforward to a more integrated, prosperousfuture. •New Markets Investor16

New Markets Investor17Q3 2015

Q3 2015Africa has a hotnew investmentdestination andit’s not Nigeria.Africa has a hot new investment destinationand it’s not Nigeria.The buzz at the World Economic Forumon Africa, an annual summit of thecontinent’s rich and powerful, is all aboutEthiopia, where the economy is flourishingand the government is embracingselect foreign capital. Executives fromGeneral Electric Co., Dow Chemical Co.,Standard Bank Group Ltd. and Master-Card Inc. attending the June 3-5 gatheringin Cape Town all singled out the EastAfrican nation as a market with strongpotential.Ethiopia was Africa’s eighth-largest recipientof foreign direct investment last year,up from 14th position in 2013, a reportreleased by accounting firm EY on June 2showed. The number of projects in Ethiopiasurged 88 percent, the most of allcountries ranked, while those in Nigeriaslumped 17 percent.“It’s got a government that is managingeconomic development in a very deliberate,cautious manner,” according to RossMcLean, Dow’s president for sub-SaharanAfrica, “It’s the second-most populouscountry in Africa. It hasn’t urbanized likeother African countries, but it’s going to.It’s a very exciting place.”Ethiopia’s economy is expected to expand8.6 percent this year and 8.5 percent in2016, compared with 10.3 percent growthlast year, the International MonetaryFund said in its World Economic Outlookreleased in April.Nigeria, which has Africa’s largest economyand is grappling with energy shortagesand the fallout of an oil price slump, isforecast to grow 4.8 percent this year and5 percent next year.Ethiopia’s (B1 Stable) government bondrating is supported by its strong growthprospects, prudent fiscal managementand large and stable donor inflows, Yieldson the nation’s debut $1 billion Eurobondhave climbed to 6.77 percent from 6.625percent when they were sold last December.Moody’s Investors Service says in itslatest credit analysis of the country “Weexpect public sector investment to continueto drive economic expansion in thenear-term, with growth averaging around10% in real terms over the next twoyears,” said Rita Babihuga, Assistant VicePresident — Analyst and co-author of thereport. “Risks to this outlook stem fromexternal shocks, such as an economicslowdown in major export partners,constraints to the financing of Ethiopia’sNew Markets Investor18

Q3 2015investment projects, or a protractedslump in commodity export prices.”Prudent government spending controlsand efforts to mobilise domestic revenueshave led to low and stable deficits. Afive-year plan has focused on rebalancingthe economy and improving agriculture,rural development and infrastructure.About 60% of government spending isdirected towards public investment projectsin sectors such as health, education,agriculture and transport.Construction BoomEthiopia’s capital, Addis Ababa, showsall the signs of a construction boom.Private developers are erecting scores ofoffice blocks and luxury housing estates,while the government is clearing slums toConstruction of Ethiopia-Kenya road in progressWhen completes in 2017, the road, which is funded by the Ethiopian government and theAfrican Development Bank, is expected to enhance trade relations between Ethiopia andKenya.build low-cost apartments. RadissonHotels International Inc. and MarriottInternational Inc. are among globalchains that have opened hotels to caterfor an influx of business travelers.A Chinese-built railway line that snakesalongside the capital’s main roads is partof a nationwide infrastructure developmentprogram that’s helping enticeinvestors. In April, Chinese companyHuajian Group began work on a $400million shoe-manufacturing park onAddis Ababa’s southwestern outskirts,while companies including Taiwan’sGeorge Shoe Corp. have opened plantsin an industrial zone in the Bole Lemidistrict.Dangote Group, the Nigerian companycontrolled by Aliko Dangote, Africa’srichest man, have plans to spend $500million expanding its cement plant inEthiopia, adding to $600 million alreadyinvested. “We will leave no stone unturnedto make this country a suitabledestination for foreign investment,”Prime Minister Hailemariam Desalegnsaid at the opening of the plant atMugher, about 80 kilometers (50 miles)west of Addis Ababa.Business Obstacles“We’ve done quite a lot of Ethiopianbusiness,” said David Munro, head ofcorporate and investment banking inStandard Bank, which has applied for alicense for a representative office. “Wesee it as a prospective place to grow ourbusiness. There’s the possibility of significantresources and it’s within an economicallysignificant zone, the eastAfrican trade area.”Obstacles to doing business in Ethiopiaremain. The Ethiopian Peoples’ RevolutionaryDemocratic Front has ruledthe country for the past two decadesand the state continues to dominatethe financial services, telecommunicationsand transport industries. Foreignexchange is in short supply, becausethe government uses inflows to financeits infrastructure program and exportsremain meager.Poverty DataOnly 18 percent of Ethiopia’s 94.1million people are urbanized and theeconomy is worth just $48.9 billion,according to the Abidjan, Ivory CoastbasedAfrican Development Bank.About 30 percent of the population livesin poverty, according to 2010 data fromthe World Bank, down from 46 percentin 1995.Pan-African lender Ecobank TransnationalInc. has a representative office inEthiopia. Equity Group Holdings Ltd.,owner of Kenya’s second-biggest bank,will prioritize its Ethiopian business aspart of an expansion into nine other Africannations; Dow doubled its sales inEthiopia last year and sees more growthto come.New Markets Investor19

Q3 2015Renewable energy:Africa’s light at theend of the tunnel?Rolake Akinkugbe, head of energy and natural resourcesat FBN CapitalThe sheer scale of energy demand inAfrica rather than the environmental impactof fossil fuels should be the crucialdriver of energy policies on the continentEnergy deficient Africa’s energy landscapeis pretty perplexing. The continent’soil producers are also amongst the largestpetroleum product importers in theworld. On average up to 70% of Africa’senergy consumption is imported, mostlyin the form of refined products. Despiteaccounting for around 9% of global oilproduction, energy access in Africa islimited to less than 20% of the continent’sentire population. The average access toenergy for developing countries is 72%.From an economic perspective, poweroutages also cost the continent a greatdeal in terms of GDP and economic efficiency.At least 30 countries on the continentexperience daily outages, whichcan account for up to 3% of GDP in someof the worst-affected economies.An African renewable-energy revolutionis brewing.Now trending in African governmentpolicy circles is the theme of renewableand sustainable energy. Effectively, Africais looking for a new ‘leapfrog’ sector.Pretty much like its telecoms revolution,there appears to be a renewable-energyrevolution brewing on the continent. Butthere are two key questions that needsto be asked: with the fossil fuel discoveriesthat Africa continues to make, isthe pursuit of green energy a short-termrealistic proposition; and would governments’limited financial resources notbe better focused on making the most ofexisting sources of conventional energy,before pursuing a green energy switch?In Africa, renewable energy accounts foraround 20% of installed capacity acrossthe continent. Not bad, considering theposition it started from, but still smallrelative to the abundant wind, hydro andsolar energy resources the continent has.If the truth be told, renewable-energysources will not materialize quick enoughto cope with Africa’s rising energydemand, estimated at least 3% annuallyover the next decade. The short-termneed for power in Africa is around74,000MW, and around $39 billion willbe required annually in new investmentto plug the energy gap. Current investmentin the sector is less than $5 billionannually. Countries, from Kenya toRwanda, Ghana to South Africa, haveall embarked on green energy plans, andhave introduced new regulation includingthe much liked feed-in tariffs (FITs)that help to incentivize private-sectorNew Markets Investor20investment in off-grid and sustainablesolutions. But for rural communities,energy education will be crucial if householdusers of fossil-fuel energy sourcesare to be made to switch to solar powersources for heat and lighting.Subsidies for fossil fuels distort thepicture. A short-term and rapid switch tolow carbon energy is also undermined tosome extent by the existing subsidies thatcontinue to distort fossil-fuel consumptionin some African economies. Thus, asfar as many household users of energy inrural Africa are concerned, the perceptionis that kerosene would be muchcheaper than alternative energy sources.With much of Africa’s power infrastructurebeing historically part of nationalgrids, there is likely to be an argument torehabilitate existing infrastructure, andeliminate transmission and distributionlosses before focusing resources on greenenergy. Notwithstanding, we continue tosee the gradual introduction and uptakeof solar technologies; certain governments,such as Kenya and South Africa,have introduced regulation that will, overtime, help to bring down the investmentcosts and, consequently, retail costs ofthese energy sources. Kenya has FITs thatinclude 20-year contracts that should

Q3 2015provide a semblance of investment stabilityfor investors. These renewable-energypolicies are still being pursued alongsidethe extraction and development ofhydrocarbons, though there is clearly anincreasing emphasis on sustainability asfar as the latter is concerned. Support forprojects that plug the energy access gap.A big challenge is access to finance for offgridsolutions.Equity investors and special funds, ringfencedfor this sub-sector, are likely to bethe most ideal. Banks in many Africancountries, primarily due to lack of technicalexpertise, may be reluctant to lendinto the sector. Meanwhile, some off gridsolutions still do not qualify for state rebates,and can be up to 30% more expensivethan grid tie-back systems. However,Africa is clearly awash with green-energyentrepreneurs who are hardly short oftailor-made energy solutions for ruraland urban communities. The key wouldbe to identify the projects that are likelyto help plug the energy-access gap andbuild the capacity of these SMEs andentrepreneurs to operate profitably andsustainably – and to create the rightinvestment conditions that will attractfunding domestically, or globally, forthese projects. Ultimately, governmentsneed to create the right policy framework. It sounds like a cliché, but it can’tbe overemphasized.South Africa has become one of theleading destinations for renewable energyinvestment with an estimated R193billion already committed.But there arequestion marks over how successful theprogramme has been in balancing thedemands of financial and commercialsoundness, and requirements of economicdevelopment and community co-ownership.The investment is the result of arenewable energy programme introducedby the government four years ago. Tariffsoffered by the most recent renewableenergy projects are now well below thosethat will come from the state energy utilityEskom’s future coal plants.The programme has been applaudedinternationally for its strong regulatoryframework, tough qualification criteriaand strong economic development andcommunity ownership requirements.Since its launch in 2011, the programmehas brought a diversity of new playersand sources of investment to South Africa.Consolidation is now taking place,with international firms playing a leadingrole in project development.Fewer companieshave won more megawatts (MW)with each bidding round. Two examplesare consortia led by Italy’s Enel GreenNew Markets Investor21Power and Ireland’s Mainstream RenewablePower.This consolidation has seensmaller South African developers beingpriced out of the market by foreign companies.Some have sold their equity shareat financial close to a larger company.Finance is Africa’s biggest challengeThe Sustainable Energy Fund for Africais a bilateral trust fund, administered bythe African Development Bank, whichstarted with a total capital of around $57million provided by the Danish government.It’s a good model that should bebuilt upon across the board. Finance willbe Africa’s biggest challenge, but withrapid urbanization and an explodingpopulation, energy demand will likelydouble on the continent in the next decade,so the financing requirements willaccelerate even faster. One idea is to ringfencepools of funds specifically targetinggreen-energy development, though thesewould need to align with national developmentpriorities which may not alwaysprioritize the green agenda. Indeed, thedebate also needs to be led in the west,since Africa’s contribution to global emissionsis less than 3% of the global total. Infact, lobbyists for a switch to low carbonenergy in Africa should be aware it is thesheer scale of energy demand in Africaitself, rather than the environmentalimpact or emissions debate, that shouldbe a crucial driver of national policies onthe continent.For now, there has to be a short-term,long-term trade-off. The hydrocarbonsthat Africa has should be used in a muchmore sustainable manner, in relation tothe environment or in relation to theextent of local value and jobs createdfrom resource extraction. Revenues andthe ripple effect of sustainable resourceuse can then provide a future platformfor Africa’s transition to a green economy.However, there’s a need to broaden thedefinition of ‘green’ in ‘green economy’.It should really be as much as about inclusivenessand development, rather thanjust the end goal of achieving low carbongrowth.There are at least 600 million Africanswho need affordable, cheap and reliablepower. Low carbon energy alone won’t bethe panacea for the energy-access problem,but it will be one of the best futureoptions Africa has.

Q3 2015Industrial Cooperation withChina is key for Africabecoming a manufacturinghub says AfDB Chief Donald KaberukaDonald Kaberuka the President of theAfrican Development Bank (AfDB) saysthe time has come for Africa to becomethe world’s manufacturing hub and thiscan be done through industrial cooperationwith China as the Asian giant phasesout labour-intensive industries.“The global manufacturing cycle startedfrom Europe then to America, beforemoving to South East Asia and China. Itis now coming to Africa,” Kaberuka commentedon the side-lines of the AfricanUnion (AU) summit held in Johannesburg,South Africa. Kaberuka, who is toretire from the helm of the AfDB thisAugust after serving two consecutive fiveyearterms, quoted a Chinese metaphor“building the nest to attract birds” to urgeAfrican countries to put in place properinfrastructure and enabling policies tofacilitate the transfer of manufacturingindustries from China.He said low labour costs and an integrated,larger market through the creationof the Tripartite Free Trade Area (TFTA)would help Africa attract foreign investmentto the manufacturing sector.However, the regional bank chiefstressed the need for the continent toput in place an enabling environment forinvestors to come in, such as adequatepower and transport infrastructure. Hesaid Africa needed to address factorsundermining its foreign investment attractioncapacity such as the high cost ofdoing business mainly due to insufficientenergy supplies and a weak regulatoryenvironment.China built up its export-oriented economybased on the proliferation of low-cost,labour intensive factories over the pastthree decades. But this edge of low-cost isbeing eroded by the gradual rise of workers’income and benefits as the economycontinues to develop. Overcapacity athome in sectors like steel, cement, textile,and solar panel manufacture pushed Chinesecompanies to seek better businessopportunities abroad. The governmenthas also identified industrial cooperationas the top priority for its engagementwith Africa this year. Chinese investmentto the continent reached USD 21.2bn in2012, a figure aimed to be raised to USD100bn by 2020.Turning to the recently launched TFTAby Africa’s three regional economic blocs,Kaberuka said the TFTA was a “majorturning point” in Africa’s quest to boostintra-Africa trade. “This region comingtogether has already made huge progresson the issue of tariff reduction and tariffharmonisation,” he said.The TFTA encompassing 26 countriesof the Common Market for East andSouthern Africa (COMESA), East AfricanCommunity (EAC) and the SouthernAfrican Development Community(SADC) was launched on 10 June withthe aim of boosting intra-Africa trade.The 26 countries, with a combined populationof 625 million people, and GDPof USD 1.3tn, present close to 60% of theAU’s GDP and population. Kaberuka saidwhile intra-Africa trade was generally putat 12% and true for the whole of Africa,the actual levels of intra-trade within theTFTA was about 20%.But for the TFTA to become successful,Kaberuka said all non- tariff barriersmust be removed while free movement ofbusiness people and bona fide travellersmust be ensured. “So for the free tradezone to become free, tariff agreement isimportant,” he said. The AfDB presidentsaid the TFTA presented an immenseinvestment opportunity for China toboost industrial cooperation with Africa.“For Chinese companies coming to thisregion, they have access to a whole biggermarket from Cape Town to Alexanderand that’s a huge advantage it offers toChinese manufactures,” he said.Kaberuka also hailed cooperation in thefinancial sector where he noted that theAfDB and the Chinese were cooperatingin co- financing of infrastructure developmentprojects on the continent. Onesuch project that had been co-financedby the USD 2bn Africa Growing TogetherChinese Fund being managed by AfDBwas the Sharm-el-Sheik InternationalAirport in Egypt, he said.Chinese investment in Africa could seea considerable increase with the boostin intra–Africa trade over the long term.The transfer of manufacturing capacityfrom China could help African industryleap frog and become more competitivewith the rest of the world. In orderto reach that level of competitivenesssome aspects of African trade need tobe looked at e.g. the high cost of doingbusiness and the free movement of goodsand people.New Markets Investor22

New Markets Investor23Q3 2015

Q3 2015A privately ownedAfrican carrierbringing connectivityto the continentA group of private investors establishedSEACOM in 2007 with a clear purposeand vision: They wanted to make broadbandconnectivity cheaper and moreaccessible to people throughout Africa.When they launched the SEACOMundersea cable in 2009, its impact on telecomsacross the east coast and southernparts of Africa was immediateFrom South Africa to Kenya to Ethiopia,telecom prices tumbled while the qualityof connectivity improved in leaps andbounds. That, in turn, has helped to spureconomic growth, create new ways ofproviding for the enablement of educationand healthcare services to Africa’speople, and enrich people’s lives withaccess to entertainment and information.“Before SEACOM launched, operatorsin southern and eastern Africa, as well asEthiopia, were heavily reliant on slow, expensivesatellite bandwidth, while bandwidthin countries such as South Africawas controlled by incumbent operatorsmonopolising the sector. The result wasthat prices were high. connectivity qualitywas poor, and the growth of the internetwas hampered.SEACOM saw an opportunity to changethat picture and started to raise fundsto build a new undersea telecoms cablealong the east coast of Africa with connectivityto Europe, says Seacom’s CEOByron Clatterbuck.When SEACOM went live, it gave Africannetwork operators and service providersaccess to plentiful and affordable Internationalbandwidth for the first time.This helped to set off a telecoms revolutionacross the continent. Since 2009,wholesale international bandwidth priceshave tumbled.There has been a huge increase in availabilityof broadband services for end-usersin a region where internet access for anordinary private citizen was prohibitivelyexpensive just four years ago.With SEACOM, several other underseacables have also arrived off the westand east coasts of Africa. We have seendemand for international capacity significantlygrow in the past three years asoperators roll out a range of compellingand affordable data services. Furthermore,the arrival of international cableshas also spurred movement in othercomponents of the telecoms infrastructureincluding national terrestrial fibrenetworks. All of this new infrastructuremovement is also helping to improve theend -user’s internet experience and todrive connectivity costs down:There is a flurry of innovation underwayin Africa’s telecoms market, thanks tonew national and international cables.Mobile networks have turned themselvesinto major data players, innovating withservices such as voice-over-IP, videomessaging, and video calling. The impacton African consumers and businesseshas been remarkable. SMEs are tradingon the web, relying on instant messaging,and even using multimedia webapplications for the first time. For consumers,social medla, mobile banking,and other applications are now a partof their everyday lives. E-government,e-health and e-learning applications arealso becoming a reality.New Markets Investor24

Q3 2015SEACO M is not, however, resting on itslaurels - the company is rapidly evolvingg from a simple cable operator intoAfrica’s foremost data network serviceprovider offering a range of private dataand IP solutions to its service providerand operator customers.“From SEACOM’s perspective, thefuture will be all about building a continent-wideecosystem rather than simplyfocusing on international connectivity.”SEACOM have continuously made keyinvestments to expand and enhance itsinfrastructure with the goal of buildinga faster, more reliable, and affordable internetservice for African telecom users.The company’s upgrade of its global IPand MPLS network has been recentlycompleted. This project consolidates itsposition as the continent’s leading dataNew Markets Investor25network service provider.. “The company continues to take advantageof the trends reshaping the telecomlandscape,” says Clatterbuck “FromSEACOM’s perspective, the future willbe all about building a continent-wideecosystem rather than simply focusingon international connectivity.” •

Q3 2015WEF Africa 2015Calls for recognition ofthe informal sectoras a major drivingforce towardseconomic growthThe African continent’s informal sector isgaining legitimacy as “the new normal”in driving forward the economy.Ghana’s Vice-President, Kwesi Amissah-Arthurat the World Economic Forumon Africa in a televised BBC debatesaid that informal producers and tradersare, in fact, the mainstream of manyeconomies throughout the continent, andgovernments must respond with policiesthat recognize that fact.Amissah-Arthur drove this statementhome when he cited an example fromhis home country, “In Ghana, farmersin rural areas are, in effect, an informaleconomy, yet they are large contributorsto the country’s foreign earnings.”While informal economies in Africaexist, they should never be seen asillegitimate or marginalized as the futureof Africa lies in self-employment andcreativity.“What is required is a policy crossover.We cannot assume such activities areillegitimate when making policy. Weneed to make legitimate activities in theinformal sector quantifiable so that wecan respond adequately,” he explained.Mandla Sibeko, Chairman of MineonlineAfrica in South Africa, said that theinformal sector is increasingly a youthdemographic due to the very limitedemployment opportunities being createdin the formal sector.Sibeko added that, in order to meet thenumber of young people reaching thework age, South Africa needs to create 80million jobs. “The young are forced to bein the informal sector, so their future hasto be self-creation,” said.Sibeko believes there are huge opportunitiesfor such ‘self-actualization’. “Morethan 80 per cent of what we consumein South Africa, for example, comesfrom outside the continent. So there areobvious opportunities there for people tomake many products,” he said.John Veihmeyer, Global Chairman ofKPMG International USA, said, “There isa tremendous amount of interaction betweenthe formal and informal sectors inAfrica – making it difficult to distinguishbetween the two.”He added that policy initiatives that aimto build economies should not seek todifferentiate between these two elements.It is not an either-or situation. “Growthshould be about lifting all boats in thesea.”Winnie Byanyima, who is theExecutive Director for Oxfam Internationalraised her voice for poor communitiesoutside the formal sector to begiven more access to the supply chain.She asked for governments to ensurethat, with such access, fair prices are paid,there is protection against low wages,there is risk insurance against changingweather and a system of credit access isintroduced.“With the ultimate aim to bring the informalsector into the formal sector andinto the tax base”, said Amissah-Arthur,“the Ghanaian government has set up apension system for rural farmers”.“They are small steps, but they are progresstowards bringing the informal sectorcloser to the formal,” he concluded.New Markets Investor26

Q3 2015WEF Africa 2015Africa CompetitivenessReportAfrican economies’ prospects for longterm,sustainable growth are under threatfrom weakness in the core conditionsnecessary for competitive and productiveeconomies, despite outwardlyhealthy-looking growth rates in manyparts of the region, according to the AfricanCompetitiveness Report, released atthe WEF Africa in Cape Town.The biennial report, themed “TransformingAfrica’s Economies”, is jointly producedby the African Development Bank,the Organisation for Economic Cooperationand Development, the World Bankand the World Economic Forum, andcontains the detailed competitivenessprofiles of 40 African economies, andcomprehensive summaries of the driversof competitiveness in each. These profilesare used by policy-makers, business strategistsand other key stakeholders with aninterest in the region.This year’s report combines detailed datafrom the Forum’s Global CompetitivenessIndex (GCI) with studies on three keyareas of economic activity; agriculturalproductivity, services sector growth andglobal and regional value chains.The data points to low and stagnatingproductivity across all sectors: agriculture,manufacturing and services, partlyas a result of ongoing weakness in thebasic drivers of competitiveness, such asinstitutions, infrastructure, health andeducation. This shortfall masks a betterperformance in other areas of the economy;specifically, better functioning oflabour and goods markets.In view of Africa’s young and growingpopulation, labour-intensive sectorsmust play a larger role in the continent’stransformation: the growth in services –both in terms of GDP and employment– cannot propel Africa’s growth alone andeven here development remains uneven,with too many people employed in lowproductivity services.“In recent years we have seen some ofAfrica’s leading economies make verypromising progress in terms of drivinggrowth through the enabling of markets.However, sustainable growth mustbe built on a solid foundation, and thismeans strong institutions, good infrastructureand targeted investments inhealth, education and skills,” said CarolineGalvan, Economist, World EconomicForum, and co-author of the report.Key findings from the report’s analysisinclude:• Improving agricultural productivity:Agriculture provides an importantsource of income for the majority of Africancitizens, but productivity remains toolow and based on small-scale subsistenceproduction. Improvements such as betterleveraging of technology (both informationand communications technologies,as well as development of high-yieldcrops and better irrigation), more clearlydefined land property rights and promotionof rights and opportunities forwomen, who represent a significant shareof the agricultural workforce on thecontinent, are all needed to address this.Moreover, enabling greater market accessfor small-scale farmers would help ensureinclusiveness, while the development ofregional value chains would serve as auseful stepping stone, enabling them toNew Markets Investor27

Q3 2015Textile production in EgyptUS$1.5 billion investment in new port in GhanaAfrican leaders sign 26 nation Tripartite Free TradeArea TFTA agreementimprove production and marketing processes,and ultimately to meet the qualitystandards of world markets.• Leveraging services:Services exports are typicallyviewed as an area of comparative advantagefor more advanced economies, buta deeper examination of trade statisticssuggests that they are much more significantfor Africa than previously thought,especially as inputs into exports fromother sectors. Further development oflow-cost, high-quality services will helpcountries participate in local, regionaland global value chains. It will alsoencourage policy-makers to promoteservices development as part of a widergrowth agenda.• Tapping global value chains (GVCs):Greater participation in globaland regional value chains can accelerateAfrican economic transformationthrough the gains associated withenhanced productivity and the developmentof new activities. However, gainsfrom GVC participation are not automaticand require a broad set of policies,with a particular focus on trade facilitation,investment, transport infrastructureand access to finance. Many of thesepolicy areas have economy-wide benefitsbeyond GVC integration.“Business cannot continue as usual inAfrica’s agriculture sector. It is imperativethat productivity be significantlyboosted through tailored agricultureresearch, harnessing ICT and strengtheninglinkages between small-scalefarmers and commercial producers,integrating them into regional and globalvalue chains” said Steve Kayizzi-Mugerwa,Chief Economist and Vice-President,African Development Bank.“The service sector is rapidly becomingmuch more prominent on the developmentagenda across Africa and for theWorld Bank. In many countries acrossthe region, services are the most rapidlygrowing sector, creating new jobs andeconomic activities, and providing criticalinputs to boost production in othersectors. Yet productivity of the servicesector remains low.To be more competitive, governmentsmust lower trade barriers as well as enactcomplementary regulatory reforms.These reforms are also necessary for Africato deepen its integration into globalvalue chains,” said Anabel González,Senior Trade and Competitiveness Director,World Bank, Washington, DC.“To consolidate the progress achievedand make new gains that will allowSub-Saharan Africa to fulfill its fullpotential, we need to promote furtherinvestment in infrastructure, adopt swiftertrade procedures, increase regionalintegration and build more effectiveinstitutions. Faster structural transformationis also needed to boost productivity,enhance job creation and improvesocial cohesion,” said Angel Gurría,Secretary-General, Organisation for EconomicCo-operation and Development(OECD), Paris.New Markets Investor28

New Markets Investor29Q3 2015

Q3 2015The Private InfrastructureDevelopment GroupAn innovative, multi-donor organization thatencourages private infrastructure in developingcountries with 37 projects in AfricaInfrastructure is the vital foundationupon which people start businesses,transport goods to new markets, createemployment, boost tax revenues, andgrow economies. The effective developmentof infrastructure transformed thefortunes of Europe and America in the19th and 20th centuries and has been vitalto Asia’s recent economic ascendancy.With a population of over 1 billion,a growing middle class, and naturalresources surpassing every other continent,Africa has enormous potentialfor economic growth. The past 20 yearshave seen improvements in governance,transformative mobile technologies, andglobal demand for natural resourceswhich has powered African economicgrowth. However, sustaining or acceleratingthis growth is only possible withsignificant investment in infrastructure.In particular, Africa needs to invest inenergy and transport to fuel growth andbetter integrate with the global economy.The African Development Bank hasestimated that addressing Africa’s infrastructuredeficit requires investment ofalmost US$ 100 billion every year for thenext decade and that the current annualshortfall in funds is more than half thatamount. While greater efficiency in theuse of public funds could help to addressthe financing gap, it will not sufficientlymeet all of Africa’s future infrastructurefunding needs. Private financing needsto be mobilized if Africa is to achieve itsvast economic potential.Bridging the gap is a core commitment ofthe Private Infrastructure DevelopmentGroup (PIDG). For more than a decadeit has built on the insight and belief thattackling poverty sustainably requireslong-term investment in infrastructurein order to allow economies to grow andprosper. Its founders (a group of publicdevelopment agencies) understood, andyear after year have sought to demonstratethat economic growth is criticalto lifting individuals and nations out ofpoverty.PIDG comprises of eight national developmentagencies and the IFC, one of theWorld Bank Group’s private sector arms.Together they commit funds, which areinvested through a portfolio of eightFacilities run by private sector managers.Each of these Facilities has a distinctremit but with shared aim to mobilizeand increase flows of local, regional, andinternational investor capital; to lend; andto bring expertise and resources neededfor infrastructure investment.The Group actively encourages innovation,creativity, and entrepreneurialspirit to respond to prevailing marketconditions. With its focus solely on infrastructuredevelopment (concentratingon low-income and fragile countries), ithas established a strong track record indeveloping and funding projects infrontier markets. It has consistentlyrisen to the challenge of attractinginvestment to countries with thegreatest need for infrastructure butwhere perception of risk has frequentlydeterred private sector investors.In these under developedmarkets, its members invest publicfunds to leverage domestic andcross-border private sector financein infrastructure projects whichare expected to stimulate pro-pooreconomic growth and improve theaccess to services of those living insome of the poorest countries.While PDIG seeks to tackle majorinstitutional market obstacles hinderingprivate sector participation,its projects demonstrate to theprivate sector that investment inlow- and middle-income countriesis commercially viable and able todeliver real benefits to those livingwithout access to basic infrastructureservices like power, transport,water, sanitation, and communications.To date, group members havecommitted public funds in excessof US$ 1 billion and PIDG Facilitiesleveraged that to mobilize US$27 billion from other DevelopmentFinance Institutions (DFI) and theprivate sector. More than 100 proNew Markets Investor30

Q3 2015Bumbuna Hydroelectric Project Sierra Leonejects have reached financialclose and 46 are now deliveringa range of new and improvedservices in power, transport,agri-infrastructure, and manufacturingto local people andbusinesses. 37 PIDG projectsin Africa are now operationaland providing services on theground. These projects are providingnew or improved accessto infrastructure for over 106million Africans, while 4,966and 24,514 are benefiting fromshort and long term employmentrespectively as a direct resultof the PIDG intervention.These projects are also boostingeconomic developmentthrough the provision of vitalinfrastructure services, anddemonstrate to more conservativeinvestors that such projectsare commercially viable..The environment PIDG operatesin inevitably continues tobe shaped by the after-effects ofthe global financial crisis andunderscores the importanceof the work PIDG undertakes.The impact of the financial crisiswas felt globally. In Africa,it has confirmed the urgency ofmassive and sustained effort toimprove infrastructure developmentacross the region.While there are deficits in spendingacross the full range of African infrastructurerequirements, by far the largestinvestment and need is in the energy sector.According to the World Bank Group,sub-Saharan Africa’s 48 countries (witha combined population of 800 million)generate the same amount of power asSpain (45 million). Power cuts are a regularfeature of daily life in many Africancountries; rural communities in particularare without access to power or enduresporadic, unpredictable supplies.Reliable and cost-effective supplies of energywill be essential for countries acrossAfrica to participate and benefit fromincreased trade and economic growth. Itis especially, a vital necessity for SMEs.Recognizing the need for investment inenergy, Green Africa Power (GAP) is thelatest PIDG Facility to be established.Open for business in November 2014,it is a mezzanine-financing fund. It isdesigned to address key market failuresin the power sector to stimulate privatesector investment in renewable energyby reducing the overall cost of capital forenergy generation projects, maintainingcommercial returns.GAP has an ambitious target to finance240MW of renewable energy generationcapacity, saving 9 million tonnes of carbonemissions and improving the supplyof clean energy to millions in sub-Saha-New Markets Investor31

Q3 2015ran Africa. Through selected investments,GAP will demonstrate the economicviability and technical feasibility of newtechnologies and encourage investmentby private investors in sustainable businessmodels and economies of Africa.The need for targeted funds has increasedin recent years. International FinancingInstitutions (IFI) face capital constraintsand commercial banks are below pre-crisislevels as they deal with weak balancesheets and regulator pressure to avoid orlimit long-term structured finance.Traditional donor governments are alsoexperiencing constrained fiscal environmentsand greater scrutiny of aid spending.Consequently, there is a growinginterest in contributions private sectorenterprise can make to poverty alleviationand an understanding that there isa need to further leverage the existingsources of finance (official or commercial)with alternative sources of debt andequity.PIDG is uniquely placed to build on itssuccessful track record, engaging theprivate sector, mobilizing and deliveringsustainable commercial returns oninvestments in some of the poorest countriesin the world, securing measurablepoverty reduction, and economic growth.The continued need for significantinfrastructure provision investmentrequires the pursuit of alternative sourcesof capital including private equity funds,sovereign wealth funds, social impact,and local investors. Currently, new playersare looking to enter the market butnot necessarily at the frontier.PIDG can take the lead, demonstratingthat investment in infrastructure in lowerincome countries can be viable and therisk profile may not always be as highas perceived. It often can be managedthrough risk mitigating measures.PIDG and its funding members remaincommitted to tackling poverty bymobilizing private investments for vitalinfrastructure. Securing that infrastructureremains key to sustainable prosperityand economic progress for Africa. ■Case StudyGigawatt Solar Power Plant, RwandaThe Gigawatt project is the first utilityscale private solar PV power projectin East Africa and demonstrates thepotential of solar power for the region.Furthermore, the project has led to aninnovative developmental model where ajoint-venture is created between a commerciallyviable power project and a socialenterprise - in this case allowing theAgahozo-Shalom Youth Village to securea source of long term income via the landlease agreement, while also creating localemployment related to the maintenanceof the solar field.The plant is connected to the nationalgrid and sells the produced powerunder a 25 year power purchase agreementto the Rwanda Energy Group(“REG”), the national power utility. Theproject is also governed by a 25 year concessionagreement with the Governmentof Rwanda.THE DEALTotal investment US$23.7m.The senior debt financing (totalling 75%of the total project cost) was financed byFMO and EAIF.Norfund provided a mezzanine loan.Norfund also provided equity to theproject on its own and jointly with theNorwegian Pension Fund KLP.In addition, significant equity wasinvested by the constructor and operatorScatec Solar. Grants were received fromEEP and from OPIC.The Project was developed by GigawattGlobal Cooperatief, who also retain anequity stake.PIDG SUPPORTEAIF and FMO were able to leverage thecompany up to 75% with a 17 year loan,which is higher and respectively longerthan many benchmark IPP projects in theregion. Both international and commercialbanks are not able to provide suchloan tenors. In addition, due to thespeedy turnaround by EAIF and the otherDFIs involved, this transaction reachedfinancial close within 3 months, whichis faster than most IPP transactions insub-Saharan Africa which typically takebetween8-12 months to complete.This is the first utility-scale solar powerproject in the region. Skill transferand training and development of localemployees was and will be undertakenduring the construction and operationNew Markets Investor32phases of the project. Several local engineerswere provided with the opportunityto attend solar energy training at SMA inGermany in order to further build theirtechnical capacityAdditional Benefits60 944 People expected to benefit fromnew/better infrastructure23 826 Women expected to benefit fromnew/better infrastructureFirst solar IPP in East Africa. In the regionthere are various government driveninitiatives to boost investments in solartechnology. This project potentially hasa demonstration effect and will lead tomore investors exploring solar opportunities.

New Markets Investor33Q3 2015

Q3 2015The AIIBWith just two African member countries, doesthe newly formed AIIB, mean that Africa’sinfrastructure needs will be overlooked?.Wirth just two African member countries,does the newly formed AIIB,mean that Africa’s infrastructure needswill be overlooked.The AIIB was conceived by China in2013. India and 48 other countriesoriginally joined China as co-founder ofthe bank and documents detailing eachmember’s share in its initial capital weresigned in Beijing in June this year. Fromdeveloped economies such as the UK, toformer Soviet states such as Kazakhstanand Kyrgyzstan, the Asian InfrastructureInvestment Bank (AIIB) has attracteddiverse members. But among the 57founding members announced in April,only two are from Africa. With just SouthAfrica and Egypt being named as membersof what’s been touted as China’s rivalto the World Bank, there are fears thatAfrica could be overlooked in China’slatest push for multilateral influence.The AIIB will have initial capital of $50bnand authorised capital of $100bn. TheAsian Development Bank estimated in2009 that the region needs to plug an $8trillion infrastructure gap from 2010 to2020. It was a de facto plea for greaterfunding because the huge amount farexceeded what ADB or the World Bankcould gather. Today, the ADB has anestimated $78 billion in capital, includingretained earnings and borrowings.It is dominated by Japan and the U.S.which have larger shareholding thanChina. ADB has begun to restructure itsoperations, while seeking greater fundsfrom the West. But even a highly efficientand recapitalized ADB could offer only afraction of the real needs in Asia.Meanwhile, the World Bank estimatesthat Africa has similarly towering needsof $93 billion annually until 2020. Chinaitself is a testament to the extent to whichinfrastructure investment can contributeto development. Formerly remote areasof the country are now prosperous as aresult of the connectivity – and thus thefreer flow of people, goods, and ideas –that such investments have delivered.New attempts to multilateralise flows ofassistance (including the Brics countries’launch of the New Development Bank aresimilarly likely to contribute significantlyto global development. Some years ago,the Asian Development Bank defendedthe virtues of competitive pluralism. TheAIIB offers a chance to test that idea indevelopment finance itself. It would bringsimilar benefits to other parts of Asia,which deepens the irony of US opposition.President Barack Obama’s administrationis championing the virtues oftrade; but, in developing countries, lackof infrastructure is a far more seriousbarrier to trade than tariffs.With such fierce competition for funds,a solely Asia-focused bank might beexpected to divert attention away fromAfrica’s infrastructure concerns and theexisting institutions that serve them.However, it is most likely that followingan initial focus on Asia, China is likelyto expand the bank’s remit – a move thatcould benefit Africa.President of the African DevelopmentBank Group (AfDB), Donald Kaberuka,has welcomed the creation of the Banknoting that it would be an importantpartner in closing infrastructure gaps inAsia and Africa.Speaking during a visit to Beijing,Kaberuka said the new instrument isa welcome complement to the work ofother multilateral development financeinstitutions. “Once the new bank has putin place its new business plans, we will bein a better position to determine specificareas of cooperation, he said.”New Markets Investor34Kaberuka met with Mr. Jin Liqun, headof the AIIB, as well as the newly electedpresident of the New Development Bankof BRICS countries, Kundapur VamanKamathAs well as altering China’s relationshipwith the existing Western-backed developmentinstitutions, it remains to be seenhow the AIIB will work alongside Chinese-backedinstitutions such as the NewDevelopment Bank – commonly knownas the BRICS Bank – an institution whichfeatures a prominent role for South Africa.As well as matching the initial $10bninvestment of the other four members,South Africa will host the New DevelopmentBank’s African regional centre.Given its role in both institutions and theabsence of fellow sub-Saharan African

Q3 2015nations, South Africa may be expectedby some to assume the mantle of ‘voice ofthe continent’.Mamphela Ramphele, a former managingdirector of the World Bank, thinks thatthe country would be better off re-evaluatingits own motivations for joining, andsays that African countries need to rethinktheir role in international forums –whether Western-backed or Chinese.“South Africa has done the right thing Iguess by joining, but did they ask themselveswhat is it we want to get out ofthis programme? Because it seems to mewell, China is setting up this, we want tobe friends with China therefore we join.If that’s the reason then we’re in trouble.But if they’ve gotten into the AIIB with astrategic approach to development thatthis bank will add to, then we have adifferent ball game”.For Ramphele, regardless of China’s intentions,Africa will need to engage withthe AIIB with far more strategic purposethan it has with development institutionsto date – starting with sending the mostcompetent people as the continent’s representatives.“We need to sit down anddecide for ourselves what it is we’d like toaccomplish by being part of internationaldevelopment aid finance or the IMFor whatever entity – right now we areonly there because those institutions arethere,” she says.It is a widely held belief throughout theAfrican continent that only when muchneeded infrastructure is complete, canthe economic and social developmentprograms progress.Chinese President Xi Jinping (Center R) meets withdelegates attending the signing ceremony for theArticles of Agreement of the Asian Infrastructure InvestmentBank (AIIB) at the Great Hall of the Peoplein Beijing on June 29, 2015.New Markets Investor35

Q3 2015New Markets Investor36

Q3 2015The development of Africanmalls, and consumer spending, isattracting international brands tolocal shoresToday there are 292 malls and 31 have been opened since Jan 2014, with West Africa showing thelargest growth in terms of new mall openingsThe number of malls in West Africa has increased by 19% in the past 18 months, the remainingregions have increased by 9% on average. International European and North American brands suchas Bata, Adidas, Mango, Celio, Swatch, Carrefour, Etam, Aldo, KFC, Nike and Levis are increasingtheir number of stores in the continent.By 2018, 223 new shopping centres are expected to be opened, including 40 in Egypt, 25 in Nigeria,20 in Kenya, 15 in Ghana, 14 in Angola and 13 in Morocco.The total surface area by 2018 will reach 10 million m².New Markets Investor37

Q3 2015The FMCG sector in Africahas significant scope toexpandThe fast-moving consumer goods(FMCG) sector, also called the consumerpackaged goods (CPG) sector, is one ofthe largest industries worldwide. FMCGsare generally cheap products that havea short shelf life, and are purchased byconsumers on a regular basis. Profit marginson these products are usually low forretailers, who try to offset this by sellinglarge volumes. Some of the most wellknownFMCG companies in the worldinclude Unilever, The Coca-Cola Company,and Johnson & Johnson. The FMCGsector comprises a large variety of products,with some of the most importantcategories being food, beverages, personalcare products, and home care products.Within categories, FMCG products areoften near-identical, and for this reasonprice competition between retailers canbe intense. To boost profitability, companiesuse marketing and other techniquesto establish loyalty to the product, whichenables them to charge higher prices.Another important characteristic of theFMCG sector is that it generally does wellin an economic downturn, with consumerscutting back on luxury products only.The FMCG sector in Africa has significantscope to expand. Poverty levels inespecially Sub-Saharan Africa (SSA) arestill quite high, with food and other necessitiesdominating consumer budgets.For this reason, the food sub-sector ofFMCG has a very large market to caterfor, while penetration rates in the othercategories still have significant room toexpand. In this report, the key driversof the performance of the FMCG sectorare analysed. The report also presents thecurrent state of the industry in Africa andthe long term growth outlook. Finally,the report identifies the African countrieswith the biggest potential for expansionof their FMCG industries, and examinesthe structure and outlook for FMCG inthese countries.Market SizeFMCG retailers generally operate in alow-margin environment. As a result, theexistence of a large market is crucial tothe success of these companies. DespiteAfrica having a population of around onebillion, the continent remains relativelyunder-served by FMCG companies.Market ConcentrationThe density of the population is anotherimportant point to consider. FMCGretailers need a steady flow of consumerspurchasing their products on a dailybasis, so they have to operate in a localmarket with a large enough sizeRelated IndustriesThe agricultural and manufacturing sectorsare vital for a country’s FMCG sector,as it is important to have a predictableand trustworthy distribution channel.This is also why many retailers opt forvertical integration, and this is particularlyrelevant for African countries, wheredistribution channelsare generally weak. The strength oflocal agriculture and manufacturing, thequality of transport infrastructure, andthe scope and extent of tariffs on importedgoods are crucial issues that FMCGretailers need to consider before enteringa new market.Spending PowerSince FMCG retailers generally sellNew Markets Investor38products that can be classified as necessities,income per person is a less importantconsideration than for retailers ofluxury or durable products. The trend inincome levels is however still importantin order to establish what types of FMCGproducts can be offered to a specificmarket. In addition, over time, retailerswould want to benefit from shifts in consumerspending patterns as they moveup the income chain, so a high growthmarket is still preferable.Buying HabitsSince FMCGs are generally similar withincategories, retailers have to competeon the basis of price. In a market withfierce competition, margins are squeezedto their minimum levels and the leastefficient companies are pushed out ofbusiness. However, companies that canconvince consumers to purchase theirbrand name rather than that of a competitorcan maintain market share withoutnecessarily having to offer lower prices.Key strategies in this regard are loyaltyprogrammes, enhancing the shoppingexperience, advertising, promotions,offering products in smaller packages tomake them more affordable and adaptingto local needs. Convincing a consumerthat your product is somehow superiorto that of a competitor offering a similarproduct is crucial in ensuring long-termsuccess in a given market. A well-knownexample is Coca-Cola vs. PepsiCo softdrinks: the products taste similar andfulfill the same need, but consumersgenerally have a very clear preference forone or the other.

Q3 2015FoodCurrently, food dominates African consumers’spending, but this will graduallychange as incomes rise. The Africanpopulation presently remains heavily dependenton cheap staple foods, while theincreased inclusion of meat in the diethas barely begun. For the large majorityof the African population, the nutritionaltransition is still focused on quantity increasesrather than quality increases. Forthese reasons, the FMCG sector on thecontinent presents retailers with lucrativeopportunities, with a wide range ofproducts expected to see a sharp increasein demand over the next few decades asAfrican consumers continue to move upthe ‘food curve’. Once basic needs havebeen met, consumers will start focusingon quality improvements, e.g. includingmore meat in one’s diet, or buying a higher-qualitybrand of the same product. It isimportant for FMCG retailers to establisha footprint in a country at an earlystage so that they can benefit from bothquantity and quality shifts in consumers’spending behavior.BeveragesBeerAfrica has become an increasingly attractivefinal frontier for the global beerindustry, as large populations, positivedemographic developments, increasingurbanisation and higher disposableincomes improve the market potentialin a largely under developed industry.This is further supported by the saturationof beer markets in most developedand emerging economies. Governmentsacross the continent are making aconcerted effort to clamp downon the consumption of illegal,unregulated alcohol because ofthe health risks as well as theforegone tax revenue. As wealth increases,legal beer consumption generallyincreases and in Africa, there is a hugeopportunity to trade consumers up fromthe informal segment or home brews,into the branded sector. Large multinationalcompanies such as SABMiller, Diageo,Heineken, and Castel have alreadyacquired significant interests in Africanbrewers, helping to consolidate the industryand improve corporate governanceand operating efficiency. Beer companiesare among the largest listed companies inmany African countries.Personal Care ProductsThis segment includes shampoo, toothpaste,soap, deodorants, and make-up.The sub-sector has great potential forexpansion in Africa. Apart from theusual reasons (favourable demographicprofile and strong economic growth),an added driver for this sector is thatmany Africans appear willing to spenda proportionately large share of theirincomes on beauty products. This isat least partially driven by the entry ofpopular international brand names, thesharp uptake of mobile telephony, andincreased internet access, which have resultedin Africans being more exposed toWestern culture. Three other importantfactors that will underpin the growth ofthis industry in Africa over the long termare improving levels of education, theyouthfulness of the population, and therise of female independence. With regardto the last point, more women are nowin the labour force and fertility rates aredeclining, which means that more moneyis available for spending on personal careproducts. A surveyconducted by Kenyan businesswomanSuzie Wokabi (founder of Suzie BeautyCosmetics) showed that Kenyan womenare willing to spend up to 20% of theirsalaries on beauty products.An important issue in the personalcare sector is the adaptation of Westernproducts to the specific needs of Africanconsumers. Some international companieshave recognised this, and have eitheradapted their global products to suitAfricans’ needs, or launched new productranges. (For example, Unilever developedits Motions range of shampoos and conditionersaimed specifically at ethnic hair;make up manufacturers have introduceddarker shades; and anti-ageing productshave been developed for ethnic skin.)It has also opened up opportunities forlocal entrepreneurs, with examples includingSuzie Beauty Cosmetics (Kenya)and House of Tara (Nigeria).Given Africa’s large market and the potentialfor rising household income, theFMCG sector on the continent stands tobenefit immensely. Given that the sectorprovides either necessities or accessibleluxury goods, the size of the market isnot constrained by income dynamics inthe same way as many other sectors.Taking the FMCG sector’s characteristicsinto account, and considering AfricanNew Markets Investor39

Q3 2015countries’ demographic profiles andincome levels, and economic growthpotential, the following countries havethe strongest prospects for growth inthe sector over the next five to 10 years:Egypt, Morocco, Nigeria, Kenya, Ghana,Angola, Zambia, Mozambique andNamibia.. In the following report, is ananalysis of three of these countries, highlightingspecific product categories thatare expected to do well.GhanaFoodInformal markets dominate food retailat present. This should slowly startto change as the number of shoppingmalls rise, and consumers increasinglyprefer the convenience that is offeredby one-stop shopping at supermarkets.The latter trend is partly being drivenby the growing expatriate population inGhana, especially Accra. In addition, theshopping mall experience has proved tobe very popular in Ghana: Accra Mallattracts around 25,000 shoppers perweek. Currently, the most important supermarketchains in Ghana are the SouthAfrican chain Shoprite, and two domesticplayers, Melcom and Maxmart.BeerGhana’s beer industry is dominated bySABMiller and Guinness Ghana Breweries,with the beer market estimated ataround 1.76 million hectolitres. In recentyears, brewers have emphasised highendbrands to boost margins by gettingdrinkers to spend more on each beer theyconsume. While the cassava-based EagleLager and Ruut Extra Beer are far frompremium products, they are still morethan twice the price of popular homebrews, but have nonetheless been able totap a market that was previously servicedby illicit, unregulated products. SABMillerhas stated that the company expects tosource its cassava for its Eagle Lager fromas many as 1,500 smallholder farmerswithin the next year. The governmentcharges an excise tax of 47.5% for beersthat have less than 30% local content. Forbrews with more domestic ingredients,the excise tax drops to 10%. This followsthe Local Raw Materials law that imposesconcessionary excise duty rates on asliding scale on the use of raw materialsproduced in Ghana, in substitution ofimported raw materials in the productionof excisable goods.Soft drinksLarge beverage-producing companiesincluding Coca-Cola and PepsiCo havebeen operating in Ghana for some time.Coca-Cola’s operation in Ghana is madeup of Coca-Cola Equatorial AfricaLimited and its franchised bottling partner,The Coca-Cola Bottling Companyof Ghana (TCCBCG), while PepsiCooperates under the subsidiary BeverageInvestment Ghana Limited.Meanwhile, Voltic Ghana is the marketleader in bottled water in Ghana with an85% share of the mineral water market.SABMiller acquired a majority stakein Voltic Ghana in 2009. A significantchallenge facing the beverages sector inGhana is the fact that many materialsneeded to support growth of the sectorare not produced domestically, and haveto be imported. This renders the sectorvulnerable to exchange rate fluctuationsand keeps production costs relativelyhigh.Personal CareGhana has strong prospects for growth inall of the sub-categories of this segment.We highlight particularly strong prospectsfor oral care and make-up.According to the World Health Organisation(WHO), many African women usedamaging skin-bleaching products onNew Markets Investor40

Q3 2015a regular basis. Ghanaian Grace Amey-Obeng Openeda beauty clinic in the1980s to help her fellow Ghanaians to reversethe damaging effects that bleachingproducts have had on their skin.However, with the imported skincareproducts she prescribed becoming tooexpensive for her customers – especiallygiven the Ghanaian cedi’s poor performance– Ms. Amey-Obeng decided tostart her own product range, ForeverClair, in 1998. Starting out with onlyUS$100, the business now has an annualturnover of US$8 million - US$10 million.The company has eight branchesin Ghana and also exports to Nigeria,Burkina Faso, Togo, the Ivory Coast, andeven Switzerland and the UK.KenyaFoodKenya’s food retail sector is developingwell. Foreign retailers are yet to breakinto the market with four local players –Nakumatt, Tuskys, Uchumi, and Naivasdominating the scene. Nakumatt has thebiggest market share, although Tuskyshas a larger number of branches. Stores ofthese companies are also very prevalentin other East African countries, especiallyUganda. In February 2015, Nakumattopened one of the three outlets whichit purchased from Shoprite in Tanzania,where Kenyan retailers still have only alimited presence. Kenyan retailers areexpected to increase the range of theirproduct offerings over the outlook periodin order to build market share. They willalso be looking to expand further in theregion, especially in countries wheretheir presence is still relatively limitedsuch as Tanzania, Rwanda, and SouthSudan. Meanwhile, Massmart’s attemptto acquire a stake in Naivas had failed,although the company is still looking toexpand into the Kenyan market, mostprobably through taking space in thenewly opened Garden City Mall.BeerWhile still the dominant producer inKenya, East African Breweries Limited(EABL, a subsidiary of Diageo) has seencompetition intensify in recent yearsfrom small local brewers and imports ofinternational brands such as Heinekenand SABMiller. Still, East African Breweriescontrols around 90% of the Kenyanbeer market, and continues to expandinto the rest of East Africa.A big focus for East African Breweriesis to boost the spirits penetration rateamongst East African consumers; thecompany has accordingly invested inmarketing and sales capabilities in thisarea. While its ‘mainstream’ brandsremain the most popular, the companyexpects consumers to trade up over timeas incomes rise.New Markets Investor41

Q3 2015Soft drinksKenya has a strong domestic soft drinksmanufacturing sector. Soft drinksproduction increased notably during2007-09, rising by an annual average of4.9%. Production stagnated somewhatin 2010, before increasing by 2.8% in thesubsequent year and fallingagain in 2012. Available data for 2013indicates that production has once againincreased. In fact, during the first 11months of 2013, Kenya’s soft drinks productionincreased by 19.1% y-o-y, whiledomestic sugar production rose by18.9% y-o-y over the same period. (Domesticsugar production had declinedduring 2009-11.) By subtracting exportsand adding imports to these outputlevels, one can estimate Kenya’s domesticconsumption of soft drinks. Kenyaimports a large amount of soft drinksfrom Austria, and to a lesser extent fromMauritius, the United Arab Emirates(UAE), Thailand, South Africa, and theUK. On the other hand, Kenya’s softdrinks exports are mainly destined forSudan, Uganda, Tanzania, and Somalia.Per capita consumption of soft drinks inKenya is projected to reach 14 litres p.a.by 2030, and 30 litres by 2050.Personal CareUnilever Kenya is the market leader inthe personal care industry. The companyhas been present in Kenya for along time, and has established a strongdistribution network. Brand loyalty hasalso been entrenched by marketing andpromotional campaigns, as well as theprovision of good quality products at affordableprices. In the oral care market,Unilever (Close Up) faces competitionfrom Colgate-Palmolive East Africa(Colgate) and GlaxoSmithKline KenyaLimited (Aquafresh).Throughout the Middle East and Africanregion, Colgate is the number onebrand for toothpaste and toothbrushes,and the second most popular brandfor mouthwash. Meanwhile, Procter &Gamble (P&G) is looking to grow itsoral care market share in the region, andrecently launched its Oral-B toothbrush.As consumers’ incomes rise, they willfirst make a quantity shift, i.e. brushtheir teeth more often, and thereforebuy more toothpaste, after which theywill make quality and variety shifts, i.e.shifting to brands that offer more thanjust the basics, and buying mouthwashand floss in addition to toothpaste.According to the Kenya Dental Association,only 5% of Kenyans currently haveaccess to quality dental care.The main sources of Kenya’s oral careimports are India, Thailand, South Africa,and China, while the primary destinationsare Uganda, Ethiopia, Somalia,Rwanda, and Tanzania.In the 2013/14 fiscal budget, the importduty on plastic tubes for packingof toothpaste, cosmetics and similarproducts was raised from 10% to 25% toprotect domestic manufacturers.Two Rivers Mall NairobiNew Markets Investor42

Q3 2015NigeriaFoodThe Nigerian retail scene remains dominatedby informal trade, although this isquickly starting to change with the entryof supermarkets and the increase in thenumber of shopping centres.The US Department of Agriculture(USDA) notes that the major traditionalfoodstuffs consumed by the majorityof the population are predominantlyunprocessed and/or semi-processed(including maize, sorghum, tubers,and fish). However, changes that areoccurring with regard to purchasingpower, demographics, lifestyles, andconsumer preferences are resulting inincreased demand for a wider range ofproducts. The most important supermarketsin Nigeria are Artee Group’sPark n Shop and Spar stores, and SouthAfrica’s Shoprite. Artee Group is Spar’spartner in Nigeria, opening the first Sparstore in the country in 2010. Artee Grouphas identified a further six sites for Sparsupermarkets, and will also convert Parkn Shop supermarkets to the Spar brand.Meanwhile, Massmart launched a pilotfood retail project in Lagos in February2014, and is currently building its third,with plans for at least twenty storesthroughout the country. Massmart issetting up smaller shops – in contrast toits usual style – owing to the difficulty ingetting access to large tracts of land inAfrica. The store sizes are around 280 m2with five employees, around 10% its usualsize.South African based food retailer Shopriteentered the Nigerian market in 2005,and was slow to increase its number ofshops. At present, the retailer has 12outlets in Nigeria. A lack of availablesites has reportedly slowed the retailer’sexpansion plans. Shoprite is in theprocess of adding a further 37 stores inNigeria, although CEO Whitey Bassonbelieves the country “could handle 600 to800 stores”. Apart from a lack of availablesites, the company is also being held backby the difficulty of importing products,and for this reason is looking to establishits own distribution centre in the countryGloo.ng is Nigeria’s biggest online supermarket,and it offers “100% free same daydelivery” in certain areas surroundingLagos, as well as a cash on delivery paymentoption. This is appealing as it savesthe consumer time, and circumvents theproblem of limited formal retail outletsin the country. E-commerce has taken offsharply in Nigeria, with Konga and Jumiaalso doing well, although these two websitesgenerally do not offer a large varietyof food products.Wide-ranging reforms in Nigeria’s agriculturalsector are ongoing. These arecentred around import restrictions toboost local production, better distributionof fertilisers, a scrapping of importduties on agricultural equipment, andeasier access tocredit for farmers.Though the policyof restricting importsis meant tosupport local production,farmershave been unableto satisfy demand,resulting in shortagesand causingheadaches forgrocers. Arguably,more needs to bedone to improvethe basics, suchas high levels ofcorruption and the poor state of infrastructure.In the interim, and as Shoprite’sexperience has shown, it is important forentrants into Nigeria’s retail industry todevelop and build local supply chains anddistribution networks.BeerNigeria is Africa’s largest alcohol consumeraccording to Deutsche BankMarket Research.Based on sales of the world’s largestdistiller – Diageo – on the continent, thecountry accounts for around 36% of Africa’sformal alcohol market. The Nigerianbeer industry has recently evolved froma duopoly to an oligopoly, with Heinekencommanding a 71% share of the marketthrough its two subsidiaries, NigerianBreweries (61%) and Consolidated Breweries(10%); Diageo has a 27% marketshare through its stake in Guinness Nigeria;while SABMiller has recently enteredthe market and shown strong growth. Accordingto figures released by Heineken,the Nigerian beer market is expected torecord a compound annual growth rate of5.6% between 2011 and 2020.Despite the strong long-term outlook,the Nigerian beer industry is goingthrough a tough period at present dueto an increase in the cost of living, aswell as distribution pressures stemmingfrom security concerns.. In particular, thedemand for premium and mainstreambrands declined to the benefit of lowerNew Markets Investor43

Q3 2015priced brandsThe value beer segment is currently thelargest in the Nigerian market, accountingfor around 25% of total consumption,the fact that mainstream brandsare performing poorly while economybrands are doing well is indicative “of apossible structural change in the Nigerianbeer market as less affluent consumersswitch to cheaper beer and more sophisticateddrinkers (the primary target ofmainstream brands) migrate to wine andspirits”. The prominence of economy andpremium brands and the poor performanceof mainstream products tend tosuggest that there is a large market at thevery low end and at the very high end,but that there is a missing middle class.Over the long term, the emergence of alarge middle class will be very importantfor the Nigerian beer industry.Soft drinksCoca-Cola Nigeria Limited remainsthe dominant producer of carbonatesand bottled water in Nigeria due its longestablished history in the country, strongdistribution network, and aggressivemarketing techniques. In turn, Chi NigeriaLimited leads Coca-Cola Nigeria Ltdin fruit/vegetable juice, with an off-trademarket share of around 45%. Competitionis intensifying, with innovative domesticcompanies gaining market share,such as La Casera (formerly known asClassic Beverages Nigeria Limited) thatrecently introduced the first sugar-freecarbonate with real fruit, Latina.Per capita consumption of Coca-Colaproducts has fallen in recent yearsin terms of units of 237 ml servings,decreasing from 31 in 2002 to 26 in 2012.Rising health awareness among Nigerianconsumers has resulted in particularlystrong growth in the fruit/ vegetablejuices and bottled water categories. Inaddition, rising health awareness hasbolstered demand for low-calorie carbonates.Consequently, manufacturershave responded to this general trend bydeveloping new reduced sugar and sugar-freevariants, as well as products thatcontain more natural ingredients. Themovement away from sugary drinks hasbeen supported by an increase in the importduty on raw sugar from 5% to 10%in the 2013 budget. This is in addition toa levy of 50%, bringing cumulative tax onsugar to 60%. Independent small grocersremained by far the most importantchannel in terms of off-trade volumesales, followed by other grocery retailers.Economic growth and the growinginfluence of Western consumption trendswill encourage Nigerians to trade up tohigher quality and more expensive softdrinks, particularly healthier products.Personal CareThe Nigerian personal care sector isdominated by international brand names.Key role players in the industry includeUnilever Nigeria, PZ Cussons, SoulmateIndustries, House of Tara International,MAC Cosmetics, and Sleek Nigeria.While demand for the basic products ismainly expected to be driven by populationgrowth, the other categories will relyon increases in disposable income. Haircare products are generally consideredto be more essential than many othercategories of personal care, and as such,it has performed well in Nigeria over thepast decade, driven by the growing youngworking female population. Other factorsthat have supported the sector’s performanceare the rise of the internet, and thegrowing number of Western- style shoppingcentres in the country. Both of thesefactors have brought the Western cultureto Nigeria’s doorstep. Meanwhile, themen’s grooming category is also expectedto show rapid growth, though from a lowbase. Demand has increased as the availabilityof these products improved, whichindicates that there was in effect a latentdemand for beauty products for men.Over time, the uptake of these productsshould increase on the back of incomegrowth, the formalisation of the economy,the fast-growing youth population,and increased exposure to Western culture.The main role player in this categoryis Procter & Gamble with a 44% marketshare, mainly due to its popular Gilletteproducts. In the bath & shower division,PZ Cussons is the market leader with ashare in sales of 30%.The company has built a strong distributionnetwork in the country and has anumber of popular brand names such asJoy, Imperial Leather, and Premier.African consumers come from a varietyof ethnicities, creeds and cultures, notto mention house hold income. Understandingthis enables a more “joined up”perspective of African consumers thatstands apart from historic and colonialboundaries. Companies need to understandAfrican consumers and overcomethe difficulties of poor local infrastructureand lack of modern trade to reachpriority consumer segments with atailored proposition.New Markets Investor44

New Markets Investor45Q3 2015

Q3 2015A Most Promising PrivateBanking MarketThe concept of private banking businessin the African banking industry can onlybe described as nascent with a positiveoutlook for the future. a banking modelthat appeals to the taste and status ofwealthy individuals, Africa is hardly thefirst region one would think of when itcomes to private banking. That is, if onehas not been following economic developmentson the continent. Last year, thenumber of high-net-worth individuals inAfrica reached 140,000, according to aCap Gemini report, a 3.7 percent annualincrease. These HNWIs held a combined$1.3 trillion, up 7.3 percent. The figuresspeak of increasing wealth in a regiontraditionally associated with poverty. Thisincreasing wealth has already grabbedthe attention of banks, especially inview of forecasts that the continent’sprivate-banking market will expand at arate of 8 percent per year over the nextdecade.The major drivers for this growth are theeconomies in sub-Saharan Africa, with aspecial focus on Nigeria. It’s fast becomingthe toast of the wealthy individualswithin the system, a precursor which hasendeared other bigger players aroundthe world to tip Nigeria as the frontierto reach out to other African countries.Despite all kinds of news and screamingheadlines on the Nigerian investmentclimate, insecurity challenges, corruptionin government, oil bunkering, and so onfiltering into the outside world, investors’confidence to invest in such a volatileNigerian market is high. According tosome estimates, deposits in 16 countriesin the SSA region will reach $766 billionby 2020, a 188-percent increase fromthe current levels, and bank loans willgrow to $980 billion, up 178 percent oncurrent levels. What’s more, the financialmarkets in the region will deepenin parallel with economic growth. Thisdeepening will be the consequence ofincreased saving among households andbusinesses alike, more credits and generallymore active use of banking services.Under this scenario, deposits are seen toreach as much as $1.1 trillion by 2020,while assets are forecast to swell to $1.37trillion. In further confirmation of thegrowth potential of SSA, the World Bankpoured a record-high $15.3 billion intothe region in the year to June 2014. Some$10.6 billion of this was in new loans for160 projects, mainly in the energy sector,of which $10.2 billion is in interest-freecredits and grants.Nigeria, which has risen to the top spotamong African economies, is a naturalfocus for private banking, with its 16,680HNWIs, according to Wealth Insight.The number of these HNWIs is seen toincrease to 18,400 in the next four years.In terms of assets, Nigerian HNWIscurrently hold around $138 billion, andthis is projected to rise to $180 billionby 2018. What makes the Nigerianprivate-banking market particularlyattractive, according to analysts, is thatit is at the initial stages of development,presenting very attractive opportunitiesfor both local and international banks.The economy is expanding- one of thefastest growing economies around theworld, also the largest in Africa.Politically, the democratic institutionsare evolving with efforts to deepen thesystem. Moreover, there are new entrantsinto the high-income class withinthe last decade to date. This is seen innew business start-ups in e-commerce,telecommunication, IT, financial services,supply chains, healthcare, advertising andmedia management, transportation, andeven aviation.The other leaders in economic developmentare Tanzania, Angola, Ghanaand Uganda, as well as Ethiopia, where,however, the private-banking-marketdevelopment is likely to be constrainedby its state-dominated economic model.In the east, the East African Communityhas been deepening the integration ofits members: Kenya, Uganda, Tanzania,Rwanda and Burundi. The latest moveNew Markets Investor46

New Markets Investor47Q3 2015

Q3 2015was Tanzania’s signing of a monetary-unionprotocol, effectively launching thethird stage of EAC’s integration. Thisstage will end with the adoption of asingle currency, which is planned tohappen by 2024. A monetary union willfurther support the deepening of thefinancial-services sector there.The situation is particularly beneficialfor local private-banking players. Whilebig international banks have been hitby the global financial crisis and havehad to cut costs and curb some of theiroperations, African banks, such asSouth Africa-based Standard Bank andEcobank from Togo, have had the fieldcleared for expansion. Standard Bank had$2.1 billion in assets under managementin 2013 and a presence in 18 countriesin the region. Ecobank, though it is notone of the top 10 private banks in Africa,has operations in 32 countries. Nigeria’sUnited Bank for Africa is now startingto make inroads into other countriesoutside its home market. South Africa’sFirst National Bank recently announcedplans to expand in Nigeria and, whileCredit Suisse has retracted its Africanoperations, Barclays Africa Group andUBS are rushing in to fill the gap, in hotcompetition with Nigeria’s own lenderssuch as Zenith and Diamond Bank. Allthese banks aim to cover the needs of thewhole spectrum of customers, from thosewith no banking history at all to HNWIsneeding investment advice.Nigeria’s wealth sector reveals a completelyundeveloped market. And, whilethe majority of HNWIs in Nigeria have awealth of between $1m and $5m, manynewly created dollar millionaires andreturning Diasporas are relatively un-financiallysavvy.The outlook of private banking looksgreat and reassuring, nevertheless thereare a myriad of challenges confrontingthis banking model. These spans fromregulatory compliance challenges, topoor relationship management, there arealso huge skills gap within the system,poor product planning, insufficientdata for proper planning, research andinnovation, and high costs. There areadditional challenges in private bankingtechnology to drive efficiency and costeffectiveness. Also, private banks stillstruggle with branding and identity management,etc.New Markets Investor48The Way ForwardPrivate bankers and wealth managersneed be strategically positioned to steerthe business forward. A clear-cut roadmapis desirable toward profiling solutionsto the challenges impeding growths,whilst bracing up to compete profitablywith both local and foreign private banksand wealth management firms in thecoming years. Such an approach shouldbe successful for private banks in Africa,should the positive economic forecastsfor the region come true.

New Markets Investor49Q3 2015

Q3 2015‘One size fits all’ marketingconcept of global corporationsfails to ‘fit’ AfricaWhen a television advertising campaignpromoting Indian mobile phone companyBharti Airtel in Africa fell flat a fewyears ago, the marketers went back intothe cutting room to work out why.Images of the savannah, actors fromSouth Africa, along with the use of coins– when many Africans use only papermoney – had limited the advert’s appealin some parts of the continent, no goodfor a company with business in 17 Africancountries.“This is where multinational companiesgo wrong. They come with their globalbrand positioning and they want to cutand paste,” says Bharat Thakrar, head ofNairobi-based Scangroup, Africa’s topmarketing services agency.“They think everybody looks the samebut just having black models is no longerenough. It’s like putting a Thai, a Chineseand an Indian in the same Asia ad. Peoplecan recognise themselves,” he adds.Just as US megastore Walmart and UKsupermarket Tesco found expansion intoChina tougher and slower than expected,Tesco have now withdrawn, globalcompanies – whether new or old entrantsto Africa – face similar headwinds ifthey fail to adapt their advertising to thecontinent.The potential consequences of failureare significant as multinationals fromHeineken to Unilever and from Nestlé toL’Oréal turn their attention to crackingAfrica, investing millions of dollars overthe past five years to tap a market witha billion people, a rising consumer classand some of the fastest growing economies.And the arrival of foreign mobilephone and consumer companies to Africahas led to an explosion in advertisingon the continent.While Africa still makes up a tiny proportionof the annual $500bn spent onadvertising worldwide, information researchersNielsen said that last year theAfrica and Middle East region was thefastest growing destination for advertisingspending, which rose by 14.6 per centagainst 3.2 per cent globally.The International Monetary Fundpredicts economic growth of an average5 per cent a year on a continentwhere some surveys put the number ofmiddle-class consumers at more than300m people. Key for multinationals isthat consumer spending in sub-SaharanAfrica is expected to reach $1tn by 2020,up from $600bn in 2010, according toresearch group Euromonitor.The surge in marketing, however, is insome cases failing to deliver returns, ascompanies have been too quick to characterisethe continent as a single entityNew Markets Investor50and, as a result, have failed to connectwith consumers.Airtel learnt this lesson and, shortly afterits disappointing campaign, put out aseries of more tailor-made televisionadverts: one about a pidgin-speakinghustler in Nigeria to reflect the country’s“bigger-than-life” appreciation for allthings slapstick; another about a Congolesemechanic whose poignant francophonetale was set to captivating localrhythms; and others showcasing graduationceremonies to capture east Africa’s“more conservative” culture.Foreign companies starting to advertisein Africa face another danger: homegrowncompanies that understand andrespect the continent’s individual marketsbetter than many global corporations

Q3 2015and are prepared to work in fragmentedmarkets.“There is growing competition fromlocal companies and brands,” says Nestléregional head Ian Donald, who oversees21 African markets.In the past decade, a detergent namedToss from homegrown Kenyan companyKapa Oil Refineries, has begun totake market share away from Unilever’s60-year-old market leader Omo. Unilever,the world’s second-largest consumergoods company after Procter & Gambleof the US, says that increased competitionis “driving a long overdue shift to aconsumer-centric marketing model inAfrica”.The Anglo-Dutch company, popularlyknown for Lipton tea and Persil detergent,now makes Portuguese-languageadverts depicting traditional chickenstews to sell Maggi stock cubes in Angola,while Amharic script emblazons itsadverts for Knorr products in Ethiopia.Mr Thakrar of Scangroup says: “We tellmultinationals all the time – they have toproduce advertising that’s more relevant,that resonates – it’s costing more but it’sthe only way to do it.”Like Kapa, which serves 18 Africanmarkets, Kenya-based Bidco Oil, whichbought several brands from Unilever in2002, plans to take further chunks out ofmultinationals as it expands beyond eastAfrica. “The barriers to entry are falling,”says Bidco chief executive Vimal Shah,arguing multinationals no longer haveexclusive access to technological knowhow,large capital and global networks.“Plus, if you come with a brand that’s notknown in this market – unless it’s Pradaor Mercedes – it could be famous inLondon but it won’t necessarily appeal toconsumers out here,” he says.The most successful brands go so localthey become part of society – runningmarathons and musical festivals, raisingmoney following natural disasters or regularlyresponding directly to customers.Bob Collymore, boss of Safaricom,Kenya’s leading mobile phone companyin which the UK’s Vodafone has a 40 percent share, regularly tweets to his 209,000followers. Now some internationalcompanies have begun recruiting local“influencers” to sell everything from vod-New Markets Investor51

Q3 2015ka to phones, beer to mortgages, payingthem a monthly wage to assess productson blogs and Twitter accounts.It is early days, but foreign executivesfrom consumer companies privately acknowledgethat they will have to adapt,and quickly. “It’s only just now thatpeople are beginning to see Africans asconsumers,” says a European corporateexecutive.“The time is coming when we andeverybody else are going to have to tailorand adapt brands – advertising andmarketing, both – to the different Africamarkets,” the executive says.Companies learn to adapt to local tastesWhile big companies are beginning totailor their marketing messages – increasinglychoosing local models, languages,music and food to reach targetaudiences – some are also beginning toadapt their products to the tastes of localAfrican markets.Manufacturers of soft drinks and confectionerytypically sweeten productsaimed at African markets, while SouthKorea’s Samsung recently brought outextra-loud stereos to appeal to Nigerianconsumers, and fridges that can withstandpower loss and fluctuations, tocope in African markets where electricityregularly cuts and surges.“There was a habit in Africa of pumpingout universal products,” says oneEuropean corporate executive, addingthat companies had not bothered to domarket research. But that is changingnow with the arrival of competition –particularly from homegrown Africancompanies.Swedish beauty company Oriflame setup in east Africa last year, but couldonly introduce 300 products from its1,500-strong line. Some of its make-upwas developed for the Indian market,but the company plans to introducedarker shades of foundation for an Africanrange soon.Often, products are so entirely new tolocal markets that customers are flummoxed.“Some of our customers try toput black mascara on their lips – theydon’t know what it’s for,” says TracyWanjiru, at east Africa’s largest supermarketchain Nakumatt.The company set up free nail bars andmakeovers to spread the word and temptnew custom for more expensive westernbrands entering the market, includingRevlon and L’Oréal’s Maybelline.Sharon Keith, marketing director of Coca-Cola’sSouthern Africa business unit,believes that marketing essentially startsNew Markets Investor52and ends with the consumer.“All our marketing starts and ends withconsumer insight. Understanding thatand the structuring marketing programmesto act on those insights is theway that we do business. That mightshow up slightly differently in differentmarkets but without a doubt, you needto personalise your marketing campaignsand bring them into the localcontext in order to make them meaningful,”Keith told CNBCafrica.comrecently.“If you asked somebody who was justa regular person on the street whetherthey thought Coca-Cola was an internationalbrand or a local brand, the waythat we market the brand is essentiallylocal. That’s what people care about.Everything we do, in local communities,on local media, the packaging,everything needs to feel like it’s specificallydesigned for people in South Africaor whichever market you happen to bein.”

New Markets Investor53Q3 2015

Q3 2015An Abundance of Opportunities in theConstruction/ InfrastructuresectorNew Markets Investor54

Q3 2015Africa’s largest, most vibrant and fastest growing economies are offering significant opportunities forcompanies in the construction business and with interests in infrastructure development. However,these countries are far from homogenous, and present diverse bureaucratic requirements, constructioncosts, levels of industry transparency, foreign involvement, and financial market development .Africa’s construction and infrastructure landscape is certainly full of challenges. The continent has asignificant handicap in terms of economic development potential due to its infrastructure deficit. Theeconomies examined in this report are seen as opportunities for investment and profit in the constructionsector or linked to infrastructure development. The selected countries combined value ofcapital stock equalled almost US$265bn during 2014, or 57.5% of the continent’s infrastructure stock.AngolaThe nation currently has the sixth-largeststock of infrastructure on the continent afterrecording Africa’s fastest growth pace in fixedcapital since the year 2000. The constructionsector expanded by double-digit figures overthe past five years in spite of a high level ofconcentration in the industry and challengesin obtaining credit. This significant growthhas brought in large amounts of foreigninvestment and Angola has the continent’ssecond-largest number of construction-relatedjobs at foreign-affiliated companies afterSouth Africa. The oil producing country’sprivate sector is largely underdeveloped, andeconomic growth is being driven by government-dominatedsectors such as construction,energy and transport. Currently, most ofAngola’s oil is found offshore, with little spillovereffects into other industries. Addressinginfrastructure constraints in transport, water,and electricity will go a long way in supportingthe government’s economic diversificationefforts, and should have positive spill-overeffects on the wider economy. The AngolanMinister of Construction, Waldemar PiresAlexander recently ruled out the possibility ofconstruction of the new Luanda InternationalAirport being compromised by low oil priceson the international market, adding that thegovernment intended to go ahead with constructionprojects that have already securedfinancial resources.Construction of the airport in the municipalityof Icolo and Bengo, 30 kilometres from thecentre of Luanda, is the responsibility of ChinaInternational Fund Limited (CIF), with anestimated cost of US$3.8 billion. The governmentis planning to spend almost US$23bnon the non-oil economy during 2015-17and has identified agriculture, food, services,refineries, public utilities, transport, andlogistics as areas that can reduce the country’sCranes rise over Luanda’s skylineNew Markets Investor55

Q3 2015dependence on the oil sector. Some of thenon-oil projects announced in November2014 include the Biocom, Kizenga, Pedroand Negras industrial parks (to be implementedduring 2015-16) as well as theKassinga and Kassala Kitungo iron oremines. Investment will also be sourcedfrom the private sector..EthiopiaThe nominal value of Ethiopia’s infrastructureincreased three-fold from 2007to 2013 and is now the seventh-largest onthe continent. The country’s developmentstrategy is currently still guided by theGrowth and Transformation Plan(GTP) 2010-15. At its core, the GTP isa public-sector led investment strategy,with a particular focus on raising agriculturaloutput and productivity, promotingindustrialisation, and investingheavily in infrastructure. Ethiopia’sinvestment-led development strategy hasdelivered robust GDP growth and progresstoward Millennium DevelopmentGoals (MDGs). In addition, developmenthas been widespread, resulting in a remarkablereduction in poverty. Regionalintegration holds significant potential tosupport growth in East Africa, as smallereconomies benefit from larger regionalmarkets, and countries take advantageof comparative advantages in the largerEast African economy. Ethiopia’s abilityto supply the region with electricity willbe a key factor in supporting regionalintegration, allowing the country to takeadvantage of its demographic and naturalresource advantages. From an installedcapacity of only 2,300 MW at present, theEthiopian Electric and Power Corporation(EEPCo) is planning to boost itsgenerating abilities to 37,000 MW by2037. Eventually, it is hoping to exportin excess of 4,000 MW of hydroelectricpower to nine of its East African neighbours.The country has the potential tosource up to 45,000 MW from hydropoweralone.GhanaThe shopping scene in the Great AccraMetropolitan Area (GAMA, the eleventh-largestmetropolitan area in Africa)has changed significantly in the wakeof oil being discovered in the countryduring 2007 and exported from late 2010.This helped the Ghanaian economy togrow by an average of 8.7% p.a. over thepast five years while private consumptionexpenditure expanded by a mean of7.5% p.a. The country’s growing middleclass has attracted many internationalbrands to its retail centres and is seeinga westernisation of shopping trends.However, the increase in shoppingmalls and the formalisation of the retailmarket has so far failed to keep pacewith shoppers’ demands, and retail spaceis in short supply. The 27,500 m2 firstphase of the West Hills Mall in Accra wasopened in October 2014 with the 12,000m2 second phase under construction.The 14,000 m2 Achimota Retail Centreis expected to be completed by October2015 and the 27,500 m2 Kumasi CityNamibia port at Walvis BayMall is set to open during H1 of 2016.A total of 250,000 m2 in space will beunder development over the next threeyears. Looking further ahead, Ghana hasan immense window of opportunity tobenefit from favourable demographicshifts over the next 25 years. The working-agepopulation (as a percentageof the total) is forecast by the UnitedNations to increase from 57.5% in 2010to 64.8% in 2040 due to an expected dropin the country’s fertility rate. At the sametime, income distribution dynamics willimprove notably: the share of Ghanaiansin the low income bracket is expected tofall from 60% at present to just 20% by2030, while an emerging middle class anda small upper middle income group arealso expected to emerge, accounting for20% and 10% of the population, respectively,in 15 years from now.New Markets Investor56

Q3 2015Côte d’IvoireIvory Coast successfully launched aUS$750m, 10-year Eurobond issuanceduring July 2014 – the country’s firstventure into the international debtmarket since defaulting on its firstEurobond payments some three yearsearlier. The Eurobond was issued withthe intent of making a big contributiontowards upgrading the cocoa-producingcountry’s physical infrastructure as partof its US$23bn National DevelopmentPlan. A second Eurobond (a 13-year noteworth US$1bn) was offered to the marketin March 2015 to bolster governmentfinances and promote economic development.The purpose of the Eurobond anda planned debut US$350m sukuk bondduring 2015 is to help finance the fiscalbudget which is focused on employmentcreation and infrastructure development.The country already has some of the mostdeveloped and busiest port infrastructureon the continent, ranked amongst the top25% of countries by the World EconomicForum (WEF), and the government ison a drive to further increase its capacityto serve the trade needs of landlockedneighbours. China EximBank announcedin December 2014 that it has madeUS$875m worth of financing availabletowards the construction of a secondcontainer terminal at the Port of Abidjanalready the largest harbour in West Africa– an construction is set to start duringQ2 of 2015. With this project and othertransport sector developments in mind,Business Monitor International (BMI)projects the local construction sectorto grow by an average of 9% p.a. during2015-19. French companies (e.g. Bouyguesand Bollore) are players in the localconstruction sector.KenyaThe standard-gauge railway that iscurrently under construction in Kenyahas the potential to raise the country’seconomic growth rate by 1.5 percentagepoints annually when finished. Therailway line, which is expected to becompleted before the end of 2017, willsupport growth by increasing nationaland international trade. The first phase ofthe scheme involves construction of a 472km railway line from the coastal town ofMombasa to Nairobi. The next phase willbe a 505 km railway line from Nairobito Malaba on the Kenya-Uganda border.In order to generate funding for suchprojects, Kenya has in recent years solddedicated infrastructure bonds: duringOctober 2014, the country sold US$117mworth of 12-year bonds. From a regionalperspective, integration efforts withinthe EAC received a significant boost inNovember 2014 when the World Bankpledged to provide support or infrastructureinvestment across the region.The multilateral organisation stated thatit will loan the EAC some US$1.2bn toimprove inland waterways and ports inKenya and Tanzania, as part of effortsto boost integration in the region. Morespecifically, the funds will be used torevive inland waterways on Lake Tanganyikaand Lake Victoria, and improvehandling capacity and efficiency at theMombasa and Dar es Salaam ports. TheEAC, which comprises Kenya, Tanzania,Uganda, Rwanda and Burundi is undertakinga substantial infrastructure investmentprogramme while also deepeningpolicy integration and reducing barriersto trade. In a recent 2015-25 strategypaper, the bloc stated that it needs at leastUS$68bn, and possibly up to US$100bn,over the next decade to develop roads,ports, railways, transmission lines and oil& gas infrastructure.MozambiqueThe US Energy Information Administration(EIA) currently estimates Mozambique’sproven natural gas reservesat 100 trillion cubic feet (Tcf), which isthe third-largest on the continent afterNew Markets Investor57

Q3 2015Solar array in South AfricaNigeria and Algeria. The lead developersof the country’s offshore reserves are theUS’s Anadarko and Italy’s Eni who expectto start liquefied natural gas (LNG)exports from the Rovuma Basin by 2019(at the earliest). Mozambican authoritiesare accumulating debt at an increasingpace in order to finance infrastructureprojects, while the private sector is set toaccumulate external financing aggressivelyin order to finance the vast importsneeded to develop the natural gas sector.In addition, Mozambique could see up toUS$20bn in net FDI during 2014-18 ofwhich 80% will go towards the developmentof the gas industry. The country’soverall infrastructure stock has doubledin value since 2008 as international gascompanies upgraded and expandedthe country’s infrastructure footprint.(Mozambique needs to import most ofits capital and consumption requirementsrelated to extractive industries.) Significantdevelopment is expected aroundthe Palma area in the Cabo Delgadoprovince. Empresa Nacional de HidrocarbonetosEP (ENH, the state petroleumcompany) is planning an 18,000 hectaredevelopment adjacent to Anadarko andEni’s planned LNG facilities that willfeature residential, energy-intensiveindustrial, retail, agricultural and tourismcomponents. This could see 250,000people migrate to the area.NamibiaThe countrys infrastructure is of a highquality both in an African and globalcontext. The country’s industrial sectorhas historically been dominated bymining and manufacturing though inrecent years the construction industryhas been buoyed by several large-scaleinfrastructural initiatives, such as thePort of Walvis Bay expansion project, thebuilding of the Neckartal Dam, the government’smass housing scheme, as wellas developments at the Husab uraniummine, Otjikoto gold mine and Tschudicopper mine. (The various large-scaleinfrastructural projects currently underwayin the country will continue to addNew Markets Investor58pressure on the trade deficit due to theimports of building materials and certainhigh-value parts and components.)Amongst Namibia’s largest projects,construction of the Southern Africa DevelopmentCommunity (SADC) GatewayPort some 5 km north of Walvis Bay) willcommence during H1 of 2015. This ispart of Windhoek’s N$223bn infrastructuredevelopment plan which will alsoinclude an expansion of the country’sother harbour at Luderitz.Namibia is positioning itself to play aneven greater role as logistics hub for theSouthern African region, in particularlandlocked countries like Botswana,the Democratic Republic of the Congo(DRC), Malawi, Zambia and Zimbabwe.This drive will include private financiersand international construction companies– South African enterprises such asAveng and Murray & Roberts have subsidiariesin the country. It is expected thatthe construction sector will remain oneof the main drivers of Namibia’s economicgrowth over the medium term.

Q3 2015NigeriaFrom a political risk perspective, theeffectiveness of state structures in Africa’slargest economy are under pressurefrom infrastructure challenges as well ascorruption. Despite being the continent’sbiggest hydrocarbon producer, Nigeria isblighted by persistent electricity outages,which force businesses and individualswho can afford them to rely on dieselgenerators. The country’s current peakpower generation is around 4,000 MWcompared to peak demand near 13,000MW. Indeed, Nigeria’s net electricity generationper capita is amongst the lowestin the world, with around half of thepopulation not having access to electricity.The government is hoping to connect1.5 million Nigerians per year to theelectricity grid in order to have 75% ofcitizens connected by the year 2020. Thecountry’s power sector is currently on anexpansion drive after being unbundledinto generation and distribution companiesand a single transmission company.Nigeria holds the largest natural gasreserves in Africa, but presently still haslimited infrastructure in place to take advantageof this massive energy resource.(At present, natural gas that is associatedwith oil production is mostly flared.)In March 2011, President GoodluckJonathan formally launched the federalgovernment’s Gas Revolution MasterPlan, an ambitious programme designedto mark the beginning of the end ofgas flaring in the country. The overallstrategy is to attract US$25bn worth ofinvestment into developing the country’sgas infrastructure and to create about600,000 new jobs. The Nigerian NationalPetroleum Corporation (NNPC) expectsto see US$16bn investment into gas-topower,gas-based industrialisation andgas export activities over the next fouryears.Last years ‘Africa’s Top 250 Companies2014’ report included 24 construction &materials companies: nine from Egypt;six from South Africa; four from Morocco;two from Nigeria; and one each fromKenya, Tanzania and Zambia.Nigeria-based Dangote Cement wasplaced seventh overall out of the 250enterprises and was the highest rankedcompany in the construction & materialscategory. Dangote Cement’s marketcapitalisation on the Nigeria StockExchange (NSE) is almost three timesas large as all of South Africa’s listedconstruction companies (in US dollarterms) and its operations are the largestin sub-Saharan Africa (SSA). A subsidiaryof the Dangote Group (West Africa’slargest industrial conglomerate), Nigeria’slargest cement maker is a fully integratedquarry-to-depot producer that hadproduction capacity of 19 million tonnesper annum in its home country at the endof 2012. An ambitious 14-country expansionplan is expected to see capacitygrow to 42 million tonnes in 2015 and 62million tonnes by 2017 – capital expenditureis planned at US$700m during 2015.Near the end of 2014, Dangote Cementapplied for a license to construct andoperate a small power plant in Tanzaniain order to power a US$500m cementfactory already under construction in thecountry – this will be the 14th Africaneconomy in which the cement giant’sfootprint expands into. The organisation’snew Cameroonian facility was set toenter production early his year. Accordingto the Financial Times, analysts at theend of January 2015 had a median forecastfor a 23% increase in the company’sshare price over the coming 12-monthperiod.South AfricaAfrica’s most developed economy has thecontinent’s third-largest stock of infra-Tazara flyover in TanzaniaNew Markets Investor59

Q3 2015structure after Nigeria and Algeria. Thecountry’s well-developed constructionsector recorded the fastest average growthin real activity since 2000 compared to itsother economic sectors. FDI stock in theconstruction sector averaged US$290mduring 2010-14 and diverse internationalcompanies involved in the industryinclude Crane Worldwide, Babcock International,Hitachi, and Komatsu.The Jones Lang LaSelle (JLL) Global RealEstate Transparency Index 2014 placedSouth Africa first on the continent in allthe categories covered by the survey, withthe overall results classifying the country’scommercial real estate market as‘transparent’, compared to semi-transparentassessments for Botswana, Mauritiusand Kenya. At the same time, SouthAfrica’s property investment market isthe largest and most mature on the continent.According to Knight Frank, typicallease periods of three to five years are thelongest amongst Africa’s largest economies.Office demand is focused on primelocations and the retail market is by farthe most mature in Africa.SunPower (NASDAQ: SPWR) has begunconstruction on the 86-megawatt peak(MWp) Prieska solar power plant inSouth Africa’s Northern Cape province.Expected to be fully operational in 2016,the project represents the third solarpower plant constructed by SunPowerunder the South Africa government’srenewable energy program (REIPPP). In2014, SunPower completed two projectstotaling 33 megawatts, located nearDouglas in the Northern Cape province.“With an abundance of reliable, cost-effectivesolar resources, South Africa isone of the fastest growing solar marketsin the world today,” said Tom Werner,president and CEO of SunPower, a globalprovider of solar technology and energyservices. “We are pleased to grow ourpresence in South Africa with the developmentof solar power plants that enableSouth Africa’s government to achieveits renewable goals, and look forward tocontinuing to serve the region with theopening of our new solar panel manufacturingplant this year.”New Markets Investor60

Q3 2015SunPower designedand is constructingthe Prieska project,and will provideoperations and maintenanceservices onceit is operational. Theproject will sell theelectricity it producesto the regional publicutility ESKOM undera power purchaseagreement. Approximately700 jobswill be created bythe project duringconstruction.TanzaniaCement importsby the EAC’s second-largesteconomyincreased from92,400 tonnes during2006 to 101,400tonnes in 2012.According to the USGeological Survey(USGS), Tanzania’sdomestic cementproduction alsoincreased almosttwo-fold during theperiod to 2.58 milliontonnes in 2012.However, despitehigher productionand increasedimports, cementdemand remainedhigher than supplyat an estimated3.5 million tonnesin 2012. Deputy Trade Minister JanetMbene expects the country’s cementoutput to double to six million tonnes ina few years’ time, as seven new factoriesare expected to commence with production.The country’s industrial sphere isamongst its strongest growing sectors,driven especially by construction, miningand manufacturing. The industrialsector’s contribution to GDP will rise inthe long term as the country’s depositsof coal, natural gas, and uranium aremined, while the manufacturing sector isexpected to gain further in importance.The country also has a lot of untappedpotential in the tourism sector, whichcould be utilised if the necessary tourisminfrastructure is put in place and/or upgraded.The nascent gas industry will beone of the key focus points of constructionactivity in coming years. Already theregion’s largest market for gas consumption,Tanzania’s possible gas reservesare in the region of 43 Tcf, according tothe Tanzania Petroleum DevelopmentCorporation (TPDC).UgandaThe Ugandan industrial sector is dominatedby construction, which, in turn,is primarily driven by large infrastructureinvestments by the government.Current infrastructure projects includework related to oil production (refinery,pipelines, access roads, and water andelectricity access) as well as a standardgauge railway to facilitate access to thesea. In addition, social expenditure oneducation and healthcare will put furtherpressure on the fiscal account, whilespending related to the electoral cyclecould result in further expansionaryfiscal policy. The industrial sector as awhole will become an increasingly importantcontributor to economic growthin coming years due to the developmentof the country’s fledgling hydrocarbonssector. Uganda is expected to maintain ahealthy inflow of foreign direct investment(FDI) going forward, with the extractivesector anticipated to remain thecountry’s main FDI drawing card. Theslump in international oil prices duringH1 of 2014 and early-2015 could have anegative impact on investment decisionsin the energy sector, but this will behighly dependent on the specific circumstancesof each project, and the mediumtolong-term outlook for energy pricesof each oil company. There is little doubtthat oil exploration budgets will be cutglobally, as energy share prices drop andexpected revenue figures fall. However,some projects in Uganda are beyond theexploration phase, with both Tullow Oiland Total having submitted their fielddevelopment plans to the governmentfor approval, and they are expected to receivetheir production licences this year.ZambiaThe rapid expansion seen in the miningsector since the turn of the centuryand resultant increase in downstreamactivities have boosted the industrialsector’s contribution to Zambia’s economicactivity to 26% of GDP. Robustperformance by the construction sector(accounting for about an eighth of GDP)has been underpinned by large-scalemining investments and developments,the domestic production of cement,as well as strong infrastructure spendingby the government. Zambia has astructural fiscal deficit due to the highpressure on fixed capital formation inorder to address the gaping transportand power infrastructure shortfall.Infrastructure-related projects accountfor 60% of the World Bank’s portfolio inZambia and the average life of a projectis 3.8 years. Geographically, Zambia isfavourably located as a regional hub andentry point into the SADC and close tothe fast-growing EAC region, a positionwhich could only firm up with the completionof the country’s ambitious road,rail and freight transport and powerinfrastructural programme. The outlookfor the construction sector remainsrobust, and favourably positioned to takeadvantage of the prolonged energy (andto a lesser extent, base metal) slump. Theindustrial sector is forecast to continuegrowing in coming years on the back ofon-going mining-related investment,although downside risk pertaining toproposed changes in the mining fiscal regimeand current opacity in the politicalarena are expected to introduce shorttermimpediments.With the rapid expansion in infrastructureseen over the past decade, the growinginterest in non-African companiesin partaking in this immense growth, aswell as the evident positive outlook forconstruction in many African states, theopportunities presented by the continentcannot be ignored.. Africa is evidentlyfirmly on the radar of major constructionmultinational companies with hundredsof large projects already underwayon the continent. These initiatives are nolonger limited to mineral resources, andhave diversified into other sectors.New Markets Investor61

Q3 2015Rwanda aninvestmentdestinationRwanda’s economy ison a solid incline withits gross domestic product(GDP) growing to7.6 per cent in the firstquarter of the year.Rwanda’s economy is on a solid inclinewith its gross domestic product (GDP)growing to 7.6 per cent in the first quarterof the year.“There’s no better place to take forwardthe discussion we’ve had here {CapeTown} than in Rwanda, a country thathas demonstrated that Africa can riseeven from the ashes having lost over amillion of our most treasured resource,our people, during the 1994 genocideagainst the Tutsi, ” Rwanda’s Financeand Economic Planning Minister ClaverGatete, said.Gatete was speaking to an audienceof over 1000 people in the Cape TownInternational Convention Centre’sTshwane arena telling them that the WEFhad made the right choice in choosingRwanda as the next host because thecountry is a reflection of the potential onthe African continent.“Rwanda is testimony that Africa can aspireto attain a much brighter future withhigh standards of good governance, a safeplace to live and to do business as well aspolitically stable under rule of law andzero tolerance to corruption,” Gatete said.Gatete’s speech as next year’s host managedto excite hundreds who haven’t beento Rwanda before with the minister highlightingsome of the attractive featuresthat makes the country an ideal host.“Rwanda has made it easier for peopleto visit the country through RwandAirwhich currently flies to 18 destinationsin Africa making it easy to connect fromalmost any part of the continent to cometo Kigali, this in addition to other airlinesthat land in the country,” he said.Gatete also told potential participantsthat Rwanda has made it possible forall Passport-holding Africans to receivevisas on arrival in Kigali while others canapply for an entry permit online whichthey can receive within three days.He also promised those that will come tonext year’s summit in Kigali to count onhaving a good experience of the country’sbeauty adding that those who have longheld wishes of Mountain Gorilla tracking;this will be their chance to do it.Gatete ended his invitation speech on alighter note when he assured next year’sparticipants that they needn’t carrywinter clothes as Rwanda has no winterseasons but cautioned them againstcarrying plastic bags as they’re prohibitedunder law.“So it’s my pleasure ladies and gentlemento invite you all to the next WorldEconomic Forum that will take place inKigali,” Gatete said amidst applause.In celebration, the Rwandan delegationat the summit hosted participants to acocktail outside the Tshwane arena inCape Town.Rwanda is likely to break records andset new ones when it hosts the forumafter previous success with the AfricanDevelopment Bank annual meetings andthe World Export Development Forum(WEDF) that took place in May andSeptember last year, respectively.New Markets Investor62The successful hosting of the two eventslast year tested and qualified Rwanda as aviable hub for important global meetingswith the AfDB annual meetings aloneattracting close to 5000 participants.And during this year’s AfDB meetingsheld in Abidjan, Ivory Coast, manyparticipants found themselves comparingthe organizationallevels of the twocountries and theiropinions were infavour of Rwanda.“Rwanda meetingswere flawlesslyorganized, fromthe transport tofood, to internet;we had a verygood time there,” aNigerian participantat the AfDBannual meetingsin Abidjan toldjournalists.There were manysuch opinions thatexalted Rwanda’sorganizational abilities.If the countryindeed marketeditself last year thenit successfully didso as participantswho experiencedthe warm hospitalityhave since,

Q3 2015indirectly, become voluntary goodwillambassadors.Last year, at the closing ceremony ofWEDF, which attracted over 1000participants from 73 countries, InternationalTrade Centre’s Executive DirectorArancha González said Rwanda’s organizationallevels had set the bar so high forthe next host.TourismApart from marketing the country’spost-Genocide success story, next year’sWEF-Africa summit will also boost thecountry’s newly created programme ofMeetings, Incentives, Conferences andEvents (MICE).MICE is a very critical initiative forRwanda’s tourism sector, a major foreignexchange earner; participants in eventsand meetings that take place in Rwandanormally spend and benefit the entirevalue chain including hotels, tour andtravel as well as leisure spending.According to RDB’s Department forTourism and Conservation, total revenuesbased on MICE tourism in 2013were US$49m and this is projected totriple to US$150m in 2015, which is 16percent of all national export earningsand 34 percent of the overall tourismreceiptsBut as ‘MICE-tourism’ taken root inRwanda, it also presents a challengeto the country’s tour operators, hotels,restaurants, professional conferenceorganizers (PCO’s) and event managerswho form part of the nationwide tourismvalue chain.These are required to improve their productoffering and customer care standardsin order to leave a lasting memory onconference tourists.At a time when the occupancy rateamong Kigali hotels is declining, manyhotels are facing periods of financialturbulence, some, like Alpha Palace, oneof the first post-conflict establishments,are facing auction after failing to repaycommercial bank loans.Yet just opposite the struggling AlphaPalace at Remera is a new establishment,the Grand Legacy hotel, which claimsfive-star-status with official rates startingfrom US$136 per room.On top of the buoyant hotel industry,government is also working around theclock to get Kigali Convention Centrecompleted with the recent appointmentof a Turkish engineering firm.FDIRwanda aims to increase foreign directinvestment this year to $1.2 billion, afourfold jump from two years ago, helpedby a new investment code that offers taxbreaks and other incentives.World Bank rankings show Rwanda isone of the easiest places to do business inAfrica, after Mauritius and South Africa,but the country has struggled to meetpast investment targets. While settingup a new business is simple, running anoperation can soon prove challenging,investors say. Some complain that statebackedfirms squeeze out competition.“This year we aim to achieve $1.2 billionworth of private investment into theeconomy and to grow that annually by 20per cent,” Francis Gatare, chief executiveof the state’s Rwanda DevelopmentBoard, told a meeting of local businesspeople recently.“That’s an ambitious target we’ve givenourselves based on the broader objectivesof our economic growth ambitions.”In 2014, the latest year for which figuresare available, foreign direct investment inRwanda was $268 million.Long praised by Western and other donorsfor rebuilding swiftly after the 1994New Markets Investor63

Q3 2015genocide, Rwanda has been aiming fordouble digit economic growth. Althoughit has not attained that level, the economymanaged 7 percent in 2014.Rwanda published a new investmentcode in May, outlining incentives that includeda seven-year corporate tax holidayto firms investing at least $50 million, ofwhich 30 percent was equity in strategicsectors.The sectors included manufacturing,tourism, health, information technology,other export-oriented industry andenergy projects with capacity of at least25 megawatts (MW).Incentives to those investing $50 millionor more were designed to attract largesingle investments “that can have biggerand sustained impact to the economy,”Gatare said, adding the sectors wereones expected to have “wider multipliereffects.”Rwandan officials have said more investmentand spurring on growth would helpwean the country off foreign aid, whichnow accounts for almost 40 percent ofthe annual budget although the proportionhas been gradually falling in recentyears. The country has found most of itsgrowth potential in the services sectorwhich accounts for 48 per cent of itsentire economy.Recently Rwanda’s Minister of Financeand Economic Planning Claver Gateterevealed the country plans to privatisetwo banks.“The services sector has really been makinga huge impact but we are workingheavily to see how we can transform theagricultural sector [which contributesone per cent to the economy], “he said.Adding that the East African countryis “surprisingly” seeing growth in ICTservices which contributes three per centto its GDP. “For the first quarter, the ICTservices grew by 35 per cent, that’s thefastest/biggest growth that you could eversee “.Gatete explained that the country islooking at a cumulative growth approachwhere it is identifying which areas needan improvement in helping the economyto grow.Rwanda needs to strengthen its exportstrategy, and it is doing this through “specialeconomic zones”. “We make sure wecan concentrate infrastructure especiallyon those that are for exports. We are notonly giving incentives for exports but weare also establishing the export growthfund so we can attack that area from differentangles.” Gatete said Rwanda plansto grow exports by 28% year on year.The minister sees the capital market asa significant addition to the country’sfinancial sector. Speaking of the stockexchange he cited that there are alreadycompanies on board- namely MTN andCrystal Venture that have put their shareson the market. He added that the governmentis also planning to privatise itsshares together with two more banks.Since regional investors are treated likeRwandan’s, this is also an encouragementto most of the region whether it is institutions,investors, or the private sector toparticipate in the market, he concluded.Rwanda StockExchangeThe beginningThe Rwanda Stock Exchange, on the firstfloor of Kigali’s tallest office building, has allthe buzz of a dentist’s waiting room. Whiteboardsdisplay handwritten trading data. Three brokers sit attheir desks, absorbed in their screens. No wolves here...Trading takes place between 9am and midday. Transactionsare carried out manually, and cleared electronically through acentral securities depository system. Automated trading is onthe way according to operations officer David Mitali, “but at themoment with such low volume it’s not necessary.” He tells us.An average day sees just a handful of trades.It is still early days for Rwanda’s bourse. Turnover in equitiesand bonds was a modest $66m last year, the fourth full year ofoperation.Six shares are listed, including four cross-listings of Kenyanbanks and companies, and seven bonds. The only Rwandanstocks so far are the government-majority Bank of Kigali, thelargest commercial bank by assets, and Bralirwa (Brasseries etLimonaderies du Rwanda), a brewery and soft drinks subsidiaryof Heineken.The exchange expects to have at least two initial public offerings(IPOs) by local companies before the end of the year.This is not Africa’s smalleststock market but it is theEast African Community’snewest. Plans are under wayto harmonise regulations inthe regional grouping andintegrate the markets toprovide greater liquidity.“Our markets are all ofdifferent sizes and at different stages of development,” saysRobert Mathu, executive director of the Capital Market Authority,Rwanda’s market regulator. Instead of going for a singletrading system, the plan is to start by connecting the differentplatforms. Four of the EAC’s five members have stock exchanges— Kenya by far the biggest, Uganda, Tanzania and Rwanda,with Burundi yet to come.To help boost the market, the World Bank’s InternationalFinance Corporation arm last year issued a Rwandan franc-denominatedfive-year bond, for the equivalent of $22m, the firstby a non-resident issuer.Mr. Mathu, a Kenyan is an eloquent advocate of the part marketscan play in funding big projects and bringing transparency— a precondition for attracting international funds.But the market has yet to perform a significant role in raisingnew money for the private sector.Mathu says Rwanda has made its legal framework “more facilitativethan restrictive” and is hopeful of winning entrepreneursover. “We will only manage to make the capital market effectiveif we do things slightly differently,” he concluded.New Markets Investor64

New Markets Investor65Q3 2015

Q3 2015Science, Technologyand Innovation inAfricaNot yet cutting edge, but itwill soon get sharperIN June 2014, global technology giantMicrosoft launched its 4Afrika IP Hub, aportal that would, for free, protect youngAfrican developers’ intellectual property(IP) rights in exchange for publishingtheir inventions.In tech-savvy Nairobi, one of the launchcapitals, the young crowd of geeky andcool developers excitedly welcomed thepossibility of being able to finally makemoney from their work. For years theyhave tended to operate in the informaleconomy, largely invisible to investors.A two-year trial, Microsoft will thenhand over a successful project to theKenyan government, before rolling itout to other African capitals, accordingto Kunle Awosika, Microsoft’s countrymanager.The multi-million dollar investment andits positive reception mirrors the concernthat while the continent is home to manybrilliant inventions, it has been difficultto invest them to scale, there being littleinformation as to their value, and consequently,tap them for Africa’s growth.New Markets Investor66Avocado export start-upMutembo Chanda runs an avocadoexport start-up out of a warehouse alongthe Great North Road leading out of theZambian main city of Lusaka. Until he investedin a cold room onsite, the biggestcost to him was storage losses.“But it often breaks down, and getting theright technician to fix it is a hit-and-missaffair,” he says, adding that this leads todelayed payments to his suppliers, whoare largely small scale growers in thecountryside.Mutembo could be speaking for anysmall trader on the continent, and by extension,the farmers who toil hard only torun into major challenges storing, sellingand earning from their sweat.Initiatives in Zambia to strengthen theagricultural value chain have largely seenforeign institutions fund small groups,

Q3 2015the result being to clear the way for majorchains to buy the produce directly.On the surface it is a desirable situation,but the catch is in the lack of indigenoussolutions, especially on a continent thatperennially battles hunger despite its richpotential.This has meant a lot of food goes towaste, faced with obstacles from processingto preservation, hurting thecontinent’s overall competitiveness. Thesituation could get worse as climatechange begins to bite, with Africa relegatedto seeking external help to combat thechallenge.To turn things around and take advantageof major global opportunities,experts say Africa requires transformation-focusedpolicies.“The focus must be on needs-based innovation;the value created is what matters,”says Dr. Ndubuisi Ekekwe, the founderand president of the African Institutionof Technology.This transition from an invention andproduction economy—including of mineralresources— into an innovation andcompetitive economy, requires knowledge,bringing into sharp focus the role ofhigher education institutions.Less than 10%These institutions play a crucial role infine-tuning the continent’s human resourcebase. But despite massive demandand the concomitant expansion of institutions,according to the African Unionless than 10% of Africans have enrolledfor tertiary education.In 1991, Africa had only 2.7 million universitystudents, by the end of this yearprojections are of 18-20 million students,according to the World Bank. To servicethis unmet demand, there has been aproliferation of private universities, withAfrica now closing in on 1,000 universitiesand over 1,500 other institutions ofhigher learning.The trend is such that by 2020, privateinstitutions could outnumber publicly-fundedones—in Somalia for example,all 40 universities are privately owned,and in South Africa they outnumberpublic institutions by a ratio of 4:1, and 7to 1 in Ghana.But it is not nearly enough, and it iscompounded by the problem that fewprivate institutions play in the science,technological and innovation (STI) space,preferring to instead concentrate onmore “marketable” areas that offer moreincome earning capacity.Underfunding by governments constrainedby the opportunity cost ofspending the money towards moreurgent areas has not helped resolve thesituation. A trend that begun in the 1980sas African governments battled withsocio-economic challenges and structuralreforms, regional governments have continuedto allocate little of their fundingto higher learning, and even less so toscience and innovation.It is a paradox—education in mostAfrican countries takes up the highestproportion of their national budgets, butalmost nothing reaches tertiary institutions.The unavoidable result has been ofstudents seeking higher education by anymeans possible, raising the question ofNew Markets Investor67quality, and consequently, skills and jobmarket mismatches, not to mention theattendant brain drain.“The correlation of jobs to output islacking in Africa, with little incentivefor partnership between institutions andemployers,” Dr. Ndubuisi adds, urging forthe attraction of more private money toeducation.The Square Kilometre Array space projectin South Africa has for example hadto send out engineers for training abroad,and while there is growing Africanexpertise, the continent’s brightest brainscontinue to be drawn away to what theysee as better opportunities abroad.Agenda 2063But institutions like Ghana’s AshesiUniversity are changing this, with its noticeablefocus on what the market needs,a trend increasingly mirrored by manyother institutions. Ashesi has looked tobuild links with employers as it looks tomatch their requirements.The African Union’s development agenda,“The Africa We Want in 2063” calls fora more robust higher education andresearch space that is both relevant andresponsive to the continent’s lived challenges,and to ensure future sustainablegrowth.African governments’ investments inSTI research also remains weak, severelyharming the scope for innovationand locally-adept solutions. The regionaccounts for less than 1% of the world’sresearch output, despite having 12% of itspopulation, even as research output morethan doubled between 2003 and 2012.Only 29% of all research in Africa is inscience, technology, engineering andmathematics (STEM) while there is verylittle intra-African collaboration, the majoritybeing with institutions in the WestCitations of Africa-authored researchis minuscule—just 0.28% of the globalcount, while a lot of scientific studies areskewed towards the health sciences andgenerally follow donors’ money.

Q3 2015There has also been a shortage of skillssharing—staff mobility across Africaremains constrained, giving rise to initiativessuch as the Nyerere Programme,which has been key in promoting portabilityof degrees across Africa.Cognisant of this, the AU Commissionhas been committed in advocating forbridging the gap between disparate educationalsystems and fostering academicintegration.Despite a minimum target of 1% of GDPin funding to Research and Development,African countries remain well short ofmeeting it.But this has steadily been changing withmore collaborations and other encouragingtrends seen in Africa, Dr. AldoStroebel, the executive director of theNational Research Foundation, says.Despite the enormous diversity amongAfrican countries, the one constant isthat skills are necessary for development;and for growth that moves away fromjust resource extraction to value additionand adaptation of technology to localconditions.AU Commissioner for Human Resources,Science and Technology Dr. Martial De-Paul Ikounga summarises it succinctly:“In as much as the tool is efficient, it isonly realisable in the right environment,and particularly, with the right implementation.”Yet basic infrastructure such as broadbandto drive ICT has also more oftenthan not initially been funded by outsidepartners, such as the Partnership forHigher Education in Africa (PHEA)project.To change the continent’s fortunes andtrajectory, investment in science, technologyand innovation must therefore bedeliberately up scaled, experts say. Areassuch as water and sanitation, health, energy,agriculture, climate change andnatural resources will all benefit from anincreased focus on STI, which is seen asthe missing catalyst for wider economicgrowth and development.RebootThe overarching position is that Africanpolicymakers need to reboot their approachtowards promoting STI. There hasalready been a renewed focus in this areain national policy, and also at the highestlevels on the continent.The adoption of the anchor STISA-2024strategy by African heads of state was abig step towards this, while the plannedmove for a trust fund dedicated towardsSTI announced recently by African ministersin Rabat only adds more impetus tothe push.STISA-2024’s four main pillars of developingresearch infrastructure, enhancingprofessional and technical competencies,promoting entrepreneurship andinnovation; and providing an enablingenvironment for STI development inAfrica address the main issues for thecontinent, with the message that memberstates, RECs and the AU all have synergeticroles to play.Other key players such as the AfricanDevelopment Bank (AfDB) have come upwith the Human Capital Strategy (2014-2018); UNESCO has the Priority Africa(2014-2021) while there have been moremoves to set up STI centres of excellencein universities all around the continent.New Markets Investor68

Q3 2015ManagementEducation witha Practical EdgeIn 1991, Lagos Business School started asa small institution offering managementcourses relevant to the Nigerian environmentin a suburb of the Lagos metropolis.Ever since, the School has madedynamism its hallmark, leveraging on itsrobust knowledge of business in Africaand beyond to offer managers the bestin business education. Today, LBS is reputedto be one of the foremost businessschools in Africa, and has sustained theFinancial Times’ coveted ranking of topopen enrolment programme providersfor the eighth time in a row.Dr Enase Okonedo, Dean of the Institution,has continually emphasised thatthe hallmark of a good business schoolis striving for more qualitative offerings.This, she explains, would involve goingbeyond just having an undergraduate andmaster’s programme in business administration,but also offering courses comparableto what obtains globally.Service OfferingsLBS adopts the case-study method tofacilitate learning, enabling students toapply the concepts and skills that coursesare designed to teach, and integrateknowledge from other courses and evenlife experiences.The School engages the services ofworld-renowned local and internationalfaculties to facilitate its MBA andExecutive Education programmes. Inthe course of both programmes, participantsare equipped with the right ethicalattitude in management and business,and values that will stand them in goodstead in the real world such as integrity,professionalism, spirit of service, mutualrespect and community.LBS’ full-time MBA programme is designedto prepare managers to succeed inthe increasingly complex global businessenvironment. Effective September thisyear, the programme will run for 18months as against 21, and applicants willbe required to have a minimum of threeyears’ post-qualification work experienceas against one. They will also haveopportunities to embark on internationalexchange programmes for elective coursesupon successful admission.The programme’s part-time variant, theExecutive MBA (EMBA), is especiallysuited for managers who hold positionsof responsibility in companies wherethey have good career prospects. Theprogramme runs for 24 calendar months.The last variant, the Modular ExecutiveMBA programme (MEMBA), is designedfor busy professionals looking for qualitymanagement education that combinesflexibility with a strong academic background.“While LBS is not the only business managementeducation institution in Nigeria,we are proud of our programmes,” saysMBA Director Dr. Uchenna Uzo. “LBSattracts the best and the brightest facultymembers who impart knowledge andconduct research to ensure the institutionis at the cutting edge of managementeducation and business practice. LBS alsopartners with other international institutionssuch as IESE Business School, tobroaden participants’ exposure to facultyand students around the world.”Making a DifferenceIn recent times, several of the School’sMBA students have proved their mettle,making a difference far and wide withthe quality of business education theyhave received. Last year, Onyanta Adama(MBA 13) made the shortlist for the FTMBA Challenge with UK charity WorldChild Cancer. She joined five otherstudents from Lagos and abroad to drafta plan on how Ghana could treat childhoodcancer in a self-sustainable manner.In the same year, a group of MBA studentsparticipated in the African BusinessPracticum organised by the Yale Schoolof Management and came tops, settingthe stage for their participation in the InternationalLeadership Case Competition(ILCC) 2015 held in the same institutionrecently, where they got accolades forbeing the only participants from Africa,as well as the rare skills in business caseanalysis they displayed.“It was an opportunity to positionourselves as competent MBA studentsfrom Africa, knowing we have the skillsto compete with top business schoolsglobally so they realise that Africa canproduce people with analytical skills,”said Babalola Williams (MBA 13), one ofthe participants.Executive EducationExecutive Education at LBS is no lesscomprehensive, drawing on the experiencesof multinational faculties andparticipants. The curriculum ensures thatparticipants gain management knowledgeand skills through the case-studymethod and group-work approach tolearning. The list of programmes in thisclass includes the Advanced ManagementProgramme (AMP), Chief ExecutiveNew Markets Investor69

Q3 2015Programme (CEP), Owner ManagerProgramme (OMP), Senior ManagementProgramme (SMP), InternationalManagement Programme (IMP) andseveral custom programmes that providetailor-made solutions to the major problemsof organisations following hands-onassessment of their needs.These courses, delivered in the School’spurpose-built learning facilities, attractover 3,000 participants from multinationaland indigenous companies yearly, whoattest to the expert teaching, relevanceand overall benefits derived from activeparticipation.In a bid to ensure the continual relevanceof its Executive Education programmes,LBS constantly interacts with participatingorganisations. The School has acommitted corporate support group of70 companies, as well as counsel providedby its distinguished Advisory Boardwhich secures this linkage.“The Executive Education landscape inNigeria is evolving by the day, with moreorganisations and individuals identifyingthe value it provides,” says Henry Onukwuba,Director, Executive Education.“There is a departure from the more traditionalrole where Executive Educationprovides general and functional knowledge,to one where it has become a driverof organisational change and builds thedepth of leadership talent.”Indeed, several participants in the programmehave gone on to drive positivechange in their respective spheres withthe practical aspects of their intensivetraining in class. Earlier this year, PaulOrajiaka (AMP 20/EMBA 14B), analumnus, revamped a rundown schoolin Ikorodu, a town in Lagos. He assuredthat the project was the first in a long lineof CSR initiatives that would cut acrossthe six geopolitical zones of the countryin months to come. This was preceded byhis interview with the celebrated Forbesmagazine for starting his doll manufacturingcompany Auldon Limited with apaltry $30, and making it a success storyin the industry.Earlier, Ayuba Loko, another alumnus(SMP 53), was awarded Grand Championof the Best Strategy Invitational (BSI)for Year 2014 in January. He was seniorexecutive of a team (Industry 4) drawnfrom the SMP who participated in theglobal virtual contest hosted by BusinessStrategy Game International (BSG).Meanwhile, LBS continues to forgepartnerships and affiliations which donot only boost its brand image but alsoestablish opportunities for students toget a truly international managementeducation.The School is now a full member of theEuropean Foundation for ManagementDevelopment (EFMD), one of the leadinginternational networks in managementdevelopment and accreditation. It is alsoaffiliated with the Global Network forAdvanced Management, IESEG Schoolof Management and IPADE BusinessSchool, among a long list of others.The FutureIn years to come, LBS will leverage onthis sense of dynamism to continuallyimprove its service offerings to participantsin its programmes, and will notrest on its oars until it instills a systemof professional ethics and service tothe community through the practice ofmanagement.FRANCIS JAKPORCommunications Officer,Lagos Business SchoolNew Markets Investor70

New Markets Investor71Q3 2015

Q3 2015Construction has begun on the first phaseof the Centenary City in Abuja, a projectwhich would cost a whopping sum of $180billion with a completion period of tenyears or more. Envisaged as a spectacularcity hub, the 1,300-hectare master-plannedcommunity is the largest of its kind inAfrica.New Markets Investor72

Q3 2015A smart, inter-connected urban centre that draws on the latest technologies,Abuja Centenary City will have a central business district, a financialcentre, a museum & cultural centre to promote African and globalarts, 13 world-class hotels, business and technology parks, residentialdistricts, an 18-hole golf course, R & D & industry centres, sports andleisure facilities and community amenities. Upon completion, AbujaCentenary City will be home to 137,850 residents and an office communityof over 87,000 workers in addition to over 60,000 workers expectedat the Science & Technology Park.Construction giants, Julius Berger Nigeria PLC are key developers ofthe multi-billion dollar city. -New Markets Investor73

Q3 2015The Continents’newest real estateBy 2020,the twenty first century’s greatmigrationto the cities will be wellunderway.Cities will be swellingacross thefast-growing countriesin Asia, Africa, theMiddle Eastand Latin America. Even thedeveloped Western nations willbe urbanising, albeit at a slowerpace. But not all cities willprosper. While some will becomegreat centres of wealth creationin a multipolar world, others arelikely to fail.Unprecedented shifts in population, drivechanges in demand for real estate.Demographic shifts will affect demandfor real estate fundamentally. The burgeoningmiddle-class urban populationsin Asia, Africa and South Americawill need far more housing. Meanwhile,the advanced economies’ ageing populationswilldemand specialist typesof real estate, while their requirements forfamily homes will moderate.New markets’ growth, ratchets up competitionfor assets.Real estate is an integral part of theemerging markets’ growth phenomenon.Even as growth moderates in many newmarkets, the pace of construction activityremains rapid, increasing investmentopportunities. The rise ofemerging economies is also increasingcompetition among real estate managersand the investment community.AbujaReal estate is a thriving industry in mostAfrican states with massive constructionactivity in cities and emerging urbanareas. A growing population, increasedincome levels and economic growth hascreated more demand for residential andcommercial property. Institutional investors,both local and international, are alsopumping millions of dollars into retailproperty.However, the focus is not only on the traditionalNairobi, Lagos and Johannesburghubs. New Markets Investor has identifiedsix investment hotspots in Africabased on market trends, infrastructuredevelopments and attractive real estateopportunities.Abuja, NigeriaAlthough Abuja is the capital city, thecommercial hub Lagos has a biggerpopulation and attracts more businesses.But due to its growing status as one of theworld’s emerging cities, Abuja is increasinglyattracting real estate investors. Itsstrengths lie in well-developed architecture,strong infrastructure, good security,a favourable climate for business and agrowing number of wealthy residents.Naivasha, KenyaFor many years Naivasha was mostlyknown for its horticulture and flowersexported to European markets. But thesedays the town, located 90km north-westof Nairobi, is both a popular tourist destinationand emerging real estate market.It attracts investments in both leisure andretail property. Last year, Buffalo Mall,the first shopping centre in Naivasha,opened its doors. Other notable projectsinclude the Aberdare Hills Golf Resorttargeting wealthy Kenyans and expatriates,and the Longonot Gate luxuryhomes development. In 2014 GemsCambridge International School, whichis associated with Dubai-based investors,acquired land in Naivasha to buildan international-curriculum learninginstitution.Casablanca, MoroccoAlso known as ‘White house’, Casablancais Morocco’s industrial and business hub.The city hosts numerous local and internationalcompanies. Some of its strengthsinclude close proximity to Europe, andthe Port of Casablanca, one of the largestartificial ports in the world and a key internationaltrade route for Morocco. TheCasablanca Stock Exchange is Africa’sthird-oldest with more than 75 quotedcompanies, both local and international.A 2014 survey by Lamudi an onlineproperty portal shows Casablanca is amost-popular location for house-hunterslooking for residential property. TheNorth African country’s youthful populationfinds Casablanca endearing becauseit offers employment and economicopportunities, and a modern lifestyle.New Markets Investor74

Q3 2015Naivasha, KenyaCasablanca, MoroccoAlgiers, AlgeriaJardins de Carthage, TunisiaLocated south of the historic site ofCarthage, this recently establishedneighbourhood has become a hotspot forluxury real estate. The residential neighbourhoodhosts Tunisia’s largest airport,Tunis-Carthage, and is close to populartourist sites making it attractive toluxury real estate developers and foreigninvestors.Ndola, ZambiaSituated 320km north of capital Lusaka,Ndola is the gateway to the country’smining industry. The third largest city inZambia, Ndola is experiencing a boom inindustrial real estate driven by a strongmanufacturing industry. The city hosts aJardins de Carthage, Tunisiamajor copper refinery industry, cementmanufacturing facilities and a transformermanufacturing plant.Industrial development is also drivenby its strong transportation connectionsfacilitated by an international airport, itslocation at the junction of roads leadingto several cities and towns and the oilpipeline from Dar es Salaam in Tanzania,which ends at the Ndola refinery. Ndolais also significant commercially with agood presence of insurance companies,local banks as well as hosting a majorcentre of operation for the country’s centralbank, the Bank of Zambia.Algiers, AlgeriaAlthough ranked as one of the least liveablecities in the world by The Economist,the vibrant capital of Algeria is emergingas an appealing location for investors.New suburbs are being created to thesouth to house the city’s growing population.The real estate sector is growingpartly due to overall economic growthin Algeria and good infrastructure in thecity and within neighbouring suburbs.Some of the strengths include the HouariBoumediene international airport, a subwayline that opened in 2011 and a portwhich is key for the import of raw materialsand industrial goods. Algiers is alsoan administrative and financial centre.New Markets Investor75

Q3 2015AAI CEO Amini KajunjuThe African continent boasts beautifulwhite sandy beaches, lush mountainsand savannahs, teeming wildlife parks,and a rich and diverse cultural heritage.Despite the global economic downturnand ensuing recession in many globalregions, the World Bank has estimatedthat the number of tourists visiting Africarose by 300% between 1990 and 2012. Asone of the fastest-growing sectors of theworld economy, tourism has the potentialto bolster economic development andsocial advancement in African countries.The benefits of a robust tourism industryare clear: tourism can create well-needed,stable jobs and fuel economic growth inAfrica.Today, Africa’s tourism industry directlyemploys about 8.2 million people. Thisrepresents 5.3% of the workforce inNorth Africa and 2.4% of the workforcein Sub-Saharan Africa. The tourismindustry could potentially add 3.8 millionjobs over the next 10 years in Sub-SaharanAfrica, the World Bank estimates.Building a skilled top-notch workforceis critical for the sustainability of Africa’stourism industry. Many jobs in the tourismindustry require mid-level servicesector skills, yet personnel with skillsat the managerial level are considerablylagging in most African countries.The McKinley Global Institute’s Africaat Work report cites that some 40% ofAfrican workers have attained some secondaryeducation. That figure is expectedto rise to 48% by 2020.The tourism industry couldpotentially add 3.8 millionjobs over the next 10 years inSub-Saharan AfricaNonetheless, current low education levels,together with a lack of solid businessskills and lack of experience in tourism,are key constraints for Africans seekingupper and middle management jobs inthe tourist industry. Advanced educationand professional development trainingprograms are needed more than ever.For African talent to fill the ranks ofupper and middle management in largecorporations or medium sized enterprises,specialized training programs mustbe developed and scaled up in managementareas such as hotels administration,catering services, finance, and humanresources.Understanding visitors’ needs andexpectations and improving customerservice are essential skills-sets to boostAfrican tourism. Vocational training forentry-level positions can provide skillsin improving front desk management,reception, maintenance, housekeeping,food service, and food preparation.Increased regional and internationalinvestment in the tourism sector canaccelerate economic growth, and triggerinfrastructure improvements and reformin African nations. Tourism can create200 full-time formal jobs for each USD250,000 invested, compared to 100 stablejobs in the resources sector, the McKinleyGlobal Institute report indicated.Yet, the private sector alone cannot expandthe tourism sector without formingpartnerships with African governments.New Markets Investor76Governments must develop an investmentstrategy for sustainable growthby creating conditions and an enablingenvironment for private sector activityto flourish. Public investment in educationand training, infrastructure, powerand transportation will go a long way inbuilding a sustainable tourism sector.For more than 60 years, the organizationthat I lead, The Africa-America Institute(AAI), has been dedicated to strengtheninghuman capacity in Africa andpromoting the continent’s developmentthrough higher education and skillstraining, convening activities, partnerengagement and research.AAI’s short- and long-term managerialand professional development trainingprograms are equipping African professionalswith the required workforce skillsand tools to effectively take on leadershippositions in nongovernmental organizationsand small- and medium-sizedbusinesses.We are identifying ways to expandour world-class training programs bypartnering with Africa’s tourism sectorto increase the number of well-qualifiedAfricans in management positions andtrain the next generation of Africans tobecome owners and managers of privatesector tourism enterprises.Amini KajunjuCEO Africa-America Institutewww.aaionline.org

New Markets Investor77Q3 2015

Q3 2015The hotel growth story ofthe 21st centuryHotel development in Africa is set tosurge as international brands such asMarriott, Hilton and Radisson seek tomaximise their returns from the fastest-growingcontinent in the world, afterAsia. South Africa’s hospitality industryis prepared to grow further in the nextfive years, with most growth in the sectorexpected to be generated in Cape Town,and according to a report by PwC. CapeTown is a major tourist destination, attractingvisitors for its beauty and sophistication.Film companies are using CapeTown for its natural beauty as well as astrong infrastructure of skilled labourand facilities. Totalroom revenue in South Africa rose9.1% in 2014 and hotel room revenueincreased 6.9%, principally generated byrising room rates. South Africa had thebest-performing market among Sub-SaharanAfrica in 2014.Although South Africa’s economy hasweakened, the hotel industry in 2014 hasbenefited from an increase in foreign visitorsand rising room rates.PwC’s 5th edition of the ‘HospitalityOutlook: 2015 – 2019’ projects that bythe year 2019 the overall occupancy rateacross all sectors in South Africa willcontinue to increase, rising to an estimated58.3% from 54.4% in 2014. . Five starhotels are expected to achieve a high of80% occupancy in 2019.The number of rooms planned for developmentin SA has been steady at about1,600 for the past three years. SA occupiessixth spot among the top 10 countriesby number of rooms in the developmentpipeline, behind Tunisia but aheadof Kenya. Uganda sits at number 10.Building activity in SA has slowed markedlysince the run-up to the 2010 WorldCup but the industry is showing signs ofrecovery.Tourists flocking to the country to takeadvantage of the weakening rand havecreated demand for accommodation andbuilding opportunity.However, one of the most significantrecent developments in the South Africantourism industry was the revision ofthe country’s visa regulations. Underthe revised regulations tourists to SouthAfrica from June this year have to applyin person for visas to visit South Africaso that biometric data can be reliablycollected. In addition, parents and guardianstravelling with minors must have anunabridged birth certificate that showsthe names of both parents.Although the new regulations areintended to protect South Africa theycould have unforeseen consequences forthe tourism and hospitality industries.Furthermore, the regulations may be onerousfor tourists to comply with. It stillremains to be seen as to how they willNew Markets Investor78affect the tourism and hospitality sectors.Tourism industry commentators in SouthAfrica say the regulations have alreadyadversely affected travel from China andIndia. The concerns may not be unfounded.Reports have emerged that Air Chinahas cancelled the launch of direct flightsto South Africa over the regulations.Elsewhere, the hotel markets in Nigeriaand Kenya were both adversely affectedby terrorist activity in 2014 and Nigeriawas also hurt by the outbreak of the Ebolavirus in West Africa. . Room revenuedeclined by 2.0% and the three – andfour –star hotel market took a knock asrevenue fell 7.7%.Because of its strong economy, the hotelindustry in Nigeria has attracted significantinvestment, over US$3 billion in thepast five years. and the number of hotelrooms in Nigeria is expected to morethan double during the next five yearswith much of the growth taking place inLagos.The economy expanded by 6.3% in realterms in 2014, its best showing since2010. A rebasing and re-benchmarkingexercise by Nigeria’s National AccountEstimates, (including the Gross DomesticProduct, GDP series) was concluded bythe National Bureau of Statistics in July

Q3 20152014. This sets Nigeria’s GDP at US$510billion compared to US$269.55 billionprior to the rebasing. This is attractingglobal investors and spurring the formationof local angel investor and venturecapital networks in Nigeria.The hotel market is almost entirelycorporate driven, as Nigeria remains a favouritedestination for business in Africa.If it were more reliant on tourism, the adverseeffects on hotels would likely havebeen greater. Planned openings in 2015include Le Méridien Ikoyi Towers, FourPoints by Sheraton in Ikot Ekpene (146rooms), Mantis Ikeja GRA (65 rooms),Wyndham with Ramada Lekki Ikota (164rooms), Sun International Victoria Island(200 rooms), and Carlson Rezidor ParkInn by Radisson (150 rooms).MauritiusThe number of tourist arrivals to Mauritiusincreased 4.6% in 2014, exceedingone million for the first time. Faced withcompetition from The Maldives, Sri Lankaand The Seychelles, hotels have beenreluctant to raise room rates in recentyears. In addition to the added competition,hotels in Mauritius are facing competitionfrom the mid-segment non-hotelaccommodation market. The hotelmarket is also seeing shorter stays as theproportion of visitors from Asia increases.Within the hotel market itself, however,luxury hotels have been the best-performingsegment of the market in recentyears. An improving global economyshould have a positive impact on overalltourism and Mauritius will benefit fromthat growth. While Mauritius is not aNew Markets Investor79traditional business destination, there hasbeen an increase in travel for businesspurposes as the country is repositionsitself as an offshore business and financialservices centre. With its resort status, theaverage room rate in Mauritius is considerablymore expensive than the typicalhotel in South Africa. The average hotelroom in Mauritius costs €172 (R2 473),2.5 times higher than the level in SouthAfrica. Hotel room revenue in Mauritiusis expected to grow at a 3.6% compoundannual rate to 2019.KenyaKenya’s hotel market declined duringeach of the past three years, with totalrevenue falling 7.1% and by a cumulative16% since 2011. Despite continuingconcerns around terrorism a number

Q3 2015Lagos Oriental Hotelof new hotels are scheduled to enter themarket. Stay unit nights are also anticipatedto decline by an additional 2.8% in2015 with occupancies just above 50%.Despite recent problems, a number ofnew hotels are scheduled to enter themarket. Five medium-sized hotels will beadded in Nairobi, which will add morethan 700 rooms in the next two years andthe Simba Corporation is opening threemid-priced hotels. A conference centreis being built in Langata, Nairobi, whichwill be the largest in Africa. The Governmentis hosting conferences to attractbusiness travel. The World Trade OrganizationMinisterial Conference and theWorld Conference on Public Relationsare among the events scheduled for 2015.In the near-term, however, concernsabout terrorism will remain an issue, andprojected stay unit nights will decline byan additional 2.8% in 2015. With recoverybeginning in 2016, it will probably be2018 before stay unit nights return to thelevel seen in 2011.Overall however the hotel developmentsector in Africa is set to surge as internationalbrands such as Marriott, Africasbiggest hotelier; Hilton and Radissonseek to maximise their returns from thefastest-growing continent in the world.A report released by the W HospitalityGroup, an advisory firm to the hotel andtourism industry, estimates that about50,000 rooms spread among 270 hotels inAfrica are set for development this year.But a lack of sufficient funding, red tapeand a shortage of expert skills may blocksome of these deals from becoming areality.Between 2006 and 2011, about 60deals were in the pipeline, aimed at opening13,500 new rooms in Africa.About 25% of these deals are still justpaperwork or, in some cases, “unfinishedmonuments to unfilled promises”,according to the report.HTI (Hospitality and Tourism International)Consulting CEO Wayne Troughtonwarns against focusing too muchon the headline figure for hotel development,as “a lot of these deals are notnecessarily new”.“Some of these hotels had been in thedevelopment pipeline for about five toseven years,” he says, referring to the 270new hotels that are expected to be builtthis year.Of the record 79 deals signed last year, asignificant number are still on the books,the 2015 Hotel Chain Development Pipelinesin Africa report states. Deals signedfor this year are not yet available.Nigeria has by far the largest developmentpipeline this year, more than CentralAfrica and East Africa combined. Anestimated 8,500 rooms are expected to bebuilt in Nigeria across 51 planned newhotels. However, less than 40% of pipelinerooms are on site and a portion of thosethat have gone to site have stalled.“Financing can be very difficult,” WHospitality Group MD Trevor Ward says.“It’s easier to raise capital for oil projectsin Nigeria than it is to develop hotels,” hesays.New Markets Investor80

Q3 2015The Lilygate Lekki reception areaLagosAlthough Nigeria has the biggest economyon the continent, it is still relativelyinexperienced when it comes to hotel-developmentknow-how as hotels “are quitecomplex buildings”.New Markets Investor81Sub-Saharan Africa, which is historicallyunderserved with branded hotels comparedwith its North African counterpart,will drive most of the building activitythis year.Of the 50,000 rooms on track for developmentthis year, about 70% of theconstruction is expected to take place insub-Saharan Africa.Only two years ago, the number of roomsin the pipeline for both regions was thesame, at just more than 18,000, but politicalimbalance and unrest in countriessuch as Morocco, Egypt and Tunisia havemade investors cautious about investingin a high-risk region.Buhler and Associates hospitality consultantRoland Buhler believes demandfrom the mid-tier market will contributeto development in sub-Saharan Africa as“interregional and local travellers lookfor three-and four-star accommodations”.“Budget hotels account for less than 1%of the total number of sellable rooms inAfrica,” he says, highlighting the opportunitythat exists for hoteliers in thismarket segment.Five-star hotels will also be sought-afteras the number of business executivesconducting deals on the continent, whichis set to grow 4.5% this year, also need aplace to stay.What is of interest, however, is the factthat although sub-Saharan Africa hadmore signed deals than North Africa lastyear, the latter has 76% of the pipelinerooms on site, compared to 55% insub-Saharan Africa.“Most North African countries are moremature in terms of their tourism industry.It’s easier to get a hotel built as theinfrastructure is already in place,” saysMr. Ward, who is also author of the hotelreport.“In contrast, most SSA (sub-SaharanAfrica) countries are building hotels forthe first time,” he said, citing Mauritania,which now has three branded hotels inthe development pipeline from zero lastyear.Building activity in SA has slowed markedlysince the run-up to the 2010 WorldCup but the industry is showing signs ofrecovery, says Mr. Troughton.The African hotel market faces a numberof challenges, but there is confidence andoptimism in its ability to compete, adaptand succeed, especially as the globaleconomy continues to improve.

Q3 2015The boomingentertainment sectorThe continents film andentertainment sector employsmillions with potential for millions moreThe decolonization period in Africamarked huge growth in the African filmindustry. Individuals such as FrançoisMitterrand led efforts that encouragedfilmmakers and producers to integratecultural, political and economic developmentof the continent into African filmproduction.Due to the fact that the majority of filmsmade before the countries´ decolonizationwere racially charged, the mostprominent directors that came out ofthe 1980s were those who used film asa political instrument to correct thestereotypes that the West had depictedabout Africa and its people. This includesdirectors such as Ousmane Sembene andOumarou Ganda whose list of moviesinclude “Black Girl”, “Mandabi”, “Xala”,“Moi, un noir”, “Cabascabo” and manymore .Examples of booming Film Industries inAfrica today include Nigeria and SouthAfrica, Egypt, Burkina Faso, Kenya, Algeria,Morocco and Somalia. Various actorsfrom these countries have also gainedinternational fame. This includes “Monster”actress, Charlize Theron from SouthAfrica, “Maleficent” actor Sharlto Copley,“Captain Phillips” actor, Barkhad Abdifrom Somalia, “12 Years A Slave” actorsChiwetel Ejiofor a Briton of Nigeriandescent and his co-star, Lupita Nyong’ofrom Kenya and so many more.In spite of the successes, the Africancinema industry lacks support and investment,which is much needed in orderto support the industry in all its spinoffs,including film festivals. These festivalsand events alike act as awareness-raisingmechanisms. They also foster an increasein distribution of films which will permitthe African film industry to attract a lotmore genuine interest from the internationalfilm going and investing community.In many African countries, the mediaand entertainment industries are expectedto grow at 5% GDP per capita year onyear. Investments in the film industry ofAfrica have the potential to help Africancountries attain sustainable development.Nigeria’s estimated annual revenue fromits film industry is $590 million USD. Anaverage of 50 films is released by Nigeriaon a weekly basis.Africa’s music industry is also flourishing.MTV’s first Africa Music Awardsin 2008 was a major discovery momentfor the world, with stellar performancesfeaturing nominees from Nairobi,Johannesburg, Lagos, and Kinshasa. Thecontinent is home to global musical starslike Salif Keïta from Mali, Hugh Masekela,Dave Matthews and Lucky Dubefrom South Africa, D’banj from Nigeria,Oliver “Tuku” Mtukudzi from Zimbabwe,Senegalese singer Akon, K’naan, aSomali Canadian, famous choral groupLadysmith Black Mambazo from SouthAfrica and so many more. However, dueto rampant piracy and the lack of formaltracking establishments, it is hard tocalculate how much the music industry isworth on the continent. That being said,informal statistics from Nigeria’s musicmarket generated revenues of R421 milNew Markets Investor82lion (US$51.3 million) in 2012, up fromthe 2008 revenue of R369 million (US$45million). Annual revenue is forecast togrow by a CAGR of 0.9% to reach R441million (US$53.8 million) in 2017.Digital’s share of total spending onrecorded music in Nigeria will rise to anestimated 66.6% by 2017, up from 49.0%

Q3 2015in 2008. The industry produces over550 albums of different kinds of musicannually, record sales have more thantripled in the past five years and industrystakeholders have projected that thecountry’s entertainment industry wouldhit one billion dollars by 2016.Africa is a market with great long-termpotential. It is in the interests of government,rights holders, artists and the technologyindustry that the digital divide inAfrica is tackled, opening up an excitingnew market. If the governments can alsobe persuaded to establish fair rules togovern unfair competition from unlicensedservices before broadband penetrationlevels soar, it could dramaticallyhelp the digital music market to flourish.South Africa has a key role to play indriving the broader African industry intoan age of increasing digital revenues.NollywoodWith more than a million people, Nollywoodis the country’s second largestemployerAs an entrepreneur, 32-year-old chemistrygraduate Jason Njoku achievedsuccess in a most unlikely way: he isAfrica’s largest distributor of Nigerianmovies, and has raked in over $8 millionsince 2010, when he founded the companyIroko Partners. In December 2012he captivated an audience at a conferencein Texas, United States, as he narratedthe story of his success after failures inNew Markets Investor83some other business ventures. Mr. Njokucurrently has 71 employees in Lagos,London and New York, and often boaststhat “these people are working for us ina country with 50% unemployment.” Hewas recently listed by Forbes, an Americanbusiness magazine, as one of the top10 young African millionaires to watch.The Nigerian film industry is undoubtedlyhelping create jobs in a country withan economy that relies mainly on oil andagriculture. Over a million people arecurrently employed in the industry, makingit the country’s largest employer afteragriculture. Although Nigeria’s economywill grow by 7% this year, according tothe African Development Bank, insufficientjobs for a growing youth populationcontinue to be a huge concern.New job creationThe Nigerian film industry, also knownas Nollywood, produces about 50 moviesper week, second only to India’s Bollywood—morethan Hollywood in theUnited States. Although its revenuesare not on par with Bollywood’s andHollywood’s, Nollywood still generatesan impressive $590 million annually.Believing that if the industry is properlymanaged, a million more jobs could becreated in the sector.In 2010, the Nigerian governmentcreated a $500 million loan facility, theNigerian Creative and Entertainment IndustryStimulation Loan Scheme, backedby the African Development Bank, whichincluded $200 million for Nollywood,distributed through the Bank of Industryand Nexim Bank.Chioma Nwagboso, a World Bankfinance and private sector specialist,says that the Bank understands the jobcreation potential of the Nigerian filmindustry and the need for a “fruitfulexport for the country.” “Without initialsupport from the government, Nollywoodpropelled itself to the position itoccupies today, and a little lift could take

Q3 2015the industry to even greater heights”.Low production costsKoïchiro Matsuura, former director-generalof the United Nations EducationalScientific and Cultural Organization(UNESCO), says that “film and videoproduction are shining examples of howcultural industries, as vehicles of identity,values and meanings, can open the doorto dialogue and understanding betweenpeoples, but also to economic growth anddevelopment.” The African film industryis not only an entertainment industry;it is also a moneymaker. Film industryanalysts believe that the Nigerian cinemais the most popular on the continent.Nollywood films have a large followingin Africa and among Africans around theworld. They gained popularity during thedigital revolution of the early 1990s whencamcorders replaced 35-millimeter filmcameras, and digital systems replaced celluloidas recording devices. At the time,while some parts of the world adapted tothe new digital technology, Nigeria continuedto use inexpensive VHS tapes andplayers that were easily accessible andaffordable to consumers. Eventually filmtechnology evolved as movies made onDVDs started to generate huge demand.On average, producing a movie in Nigeriacosts between $25,000 and $70,000, saysthe British Broadcasting Corporation.The films are produced within a monthand are profitable within two to threeweeks of release. Most DVD movies easilysell more than 20,000 units, while themost successful ones sell over 200,000.But despite the success of the movies,Nollywood actors’ incomes are low. Eventhe most popular get paid between $1,000and $3,000 per film. Only a few can claimhigher earnings. Actress Omotola JaladeEkeinde, one of Nollywood’s highest-paidperformers, recently topped the charts at5 million naira ($32,000) per film.Tackling PiracyAuthor Patrick Ebewo attributes thepopularity of Nigerian movies not onlyto their low unit costs, but also to their“indigenous content of issues relevant toa mass audience.” Through a combinationof African storylines and Westerntechnology, “these films document andrecreate socio-political and culturalevents,” states Mr. Ebewo.But Nollywood’s popularity also meansserious piracy problems. The World Bankestimates that for every legitimate copysold, nine others are pirated. “In termsof exports, these movies are purchasedand watched across the world — in otherAfrican countries, Europe, USA and theCaribbean, and almost all the exports arepirated copies,” remarks Ms. Nwagboso.She adds that because there are currentlyfew legal channels for exporting movies,few or no returns go to the filmmakersand practically no revenue goes to thegovernment. The current collaborationbetween the World Bank and theNigerian Export Promotion Council, theNigerian Copyright Commission and theNational Film and Video Censors Boardis therefore necessary and urgent, manyNew Markets Investor84analysts believe.Legitimate distributors also want an endto piracy. “We’re the first guys to actuallylegally reach out in Lagos to the productionhouses, the owners of the movies,and negotiate and sign deals with theseguys so they can finally get remuneratedfor their hard efforts,” claims Mr. Njoku.The Nigerian government and otherindustry players, assisted by the WorldBank, hope to fund anti-piracy measuressuch as the source identification code,which will create “a digital distributionplatform for Nigerian films.” The codewill connect video clubs and retail outletsand ensure that only digitally securedcontent can be rented. In July PresidentBuhari directed security operatives toensure piracy is defeated “Nollywood ismaking progress. We should work withthem. Unless they are backed, they willbe ruined by pirates who want to reapwhere they have not sowed. They havebuilt an industry with their own sweat.It is, therefore, incumbent on us to givethem the necessary support,” the Presidentwas quoted to have said.

New Markets Investor85Q3 2015

Q3 2015African Development Bankappoints new LeaderAt the Bank Group’s 50th Annual Meetings inAbidjan, Côte d’Ivoire, the 8th President was electedNigeria’s Minister of Agriculture andRural Development, Dr. AkinwunmiAdesina was recently elected the eighthpresident of the African DevelopmentBank (AfDB) at the Annual GeneralMeeting of the bank which held in Abidjan,the Cote d’Ivoire capital.He will succeed President Donald Kaberuka,whose 10-year tenure ends inSeptember.Adesina who beat seven other contendersfor the top job won the election havinggarnered 58.10 per cent of the total votes,out of which regional votes represented60.50 per cent. He was followed by Chad’sMinister of Finance and Budget, KordjeBedoumra, who came a distant secondwith 31.62 per cent of total votes and36.63 per cent of regional votes whilethe only woman in the race, Minister ofNew Markets Investor86Finance and Planning of Cape Verde,Cristina Duarte, polled 10.27 per cent ofthe total votes out of which regional votesrepresented 2.87 per cent.In Abidjan, the capital of Ivory Coast, atthe African Development Bank AnnualGeneral Meeting. Addressing a large audiencewhich included the board of governors,AfDB staff, and journalists fromacross Africa and the world an elated

Q3 2015Adesina promisedto work hard withall African governmentsto delivermore inclusiveeconomic growthacross the Africancontinent. He saidhe had been givena responsibility tomanage the bankto the best of hisability and thecooperation ofothers.The formerminister, whoacknowledged the‘excellent work’ ofKaberuka, assuredthat he wouldbuild on it, andpromised ‘to be aresponsible president,work hardand be focused.’“I salute the excellent work of PresidentKaberuka. It will be a big challenge forme to step into his shoes. He leaves asolid Bank behind him,” adding “I knowthat Africa’s future is huge and we canmake Africa the pride of the world withall-inclusive growth.”Adesina’s victory came as Nigeria preparedfor the inauguration of the newlyelected administration of President,Muhammadu Buhari. The president hadin April communicated his backing ofDr. Adesina’s candidacy to the GhanaianPresident, John Dramani Mahama, whois the current chairperson of ECOWAS.Buhari said that his support of Dr. Adesina’scandidacy was not just because heis Nigerian but because he “has a proventrack record in a career that predates hisposition as Nigeria’s Minister for Agricultureand Rural Development”.He added that Dr. Adesina had years ofexperience of working in Francophoneand Anglophone countries, and a passionto help eradicate poverty in Africa byreducing unemployment and inequalityamong African youth. The statementfurther adds that “Dr. Adesina is also anagricultural development expert with 24years of experience in developing andmanaging successful agricultural Programmesacross Africa”. He has also heldsenior leadership positions in a numberof agricultural institutions in the world.Adesina, 55, is a PhD holder in AgriculturalEconomics (1988) from the PurdueUniversity, USA, where he had previouslyobtained a Master’s degree in AgriculturalEconomics in 1985. He had baggedBachelor’s degree (First Class honours) inAgricultural Economics from Universityof Ife, Nigeria, in 1981.Until his government appointment in2010, he was the Vice President of Policyand Partnerships for the Alliance for aGreen Revolution in Africa (AGRA).Prior to that, he had worked at the RockefellerFoundation since winning a fellowshipfrom the Foundation as a seniorscientist in 1988. From 1999 to 2003 hewas the representative of the Foundationfor the southern African region.Adesina is credited with notable reformsin the agriculture sector that have attractedunprecedented level of investmentinto the sector.As part of the reforms in the sectors,transparency in the administration anddistribution of fertilisers have abatedcorruption and corrupt tendencies in theprocesses, hitherto a cesspit of graft.‘New Markets Investor’ interviewed Dr.Adesina in 2013 where he expressed hiswish to reverse the transition that hadchanged Nigeria from a major agriculturalexporter to a major importer.According to official figures, within thelast three years, food import in the countryhas dropped significantly from N1trillion to N466 billion.During his tenure bank lending to theagricultural sector has leaped from 1%in 2010 to 6% in 2014 as a direct resultof his project ‘NIRSAL’, an agribusinessinitiative that provides risk management,financing, trading, and strategic solutionsNew Markets Investor87

Q3 2015Ajen Sita, Chief Executive Officer at EYAfrica,Sub-Saharan Africa set tobe second fastest-growingregion in the world in 2015According to EY’s 2015 Africa attractivenesssurvey – Making choices, Africa’sshare of foreign direct investment (FDI)projects fell 8.4% in 2014, but remainedwell above pre-2008 levels. However,foreign direct capital investment into thecontinent surged to US$128b, up 136% in2014 – a five-year high, with the numberof jobs created from FDI jumping 68%resulting in 188,400 new positions acrossAfrica.FDI project numbers are down, butvalues are up considerably, with Africareceiving the second highest FDI capitalin the world (y-o-y growth of 136%)Sub-Saharan Africa will be secondfastest-growing region in the world thisyear, with 22 economies growing at 5%or higher. Investor perceptions have softened,but those with business interestsin Africa remain overwhelmingly positiveThe report combines an analysis of FDIdata into Africa since 2003, togetherwith a survey of over 500 global businessleaders, in over 30 countries, about theirviews on the potential of the Africanmarket.Ajen Sita, Chief Executive Officer at EYAfrica, says:“In the past year, Africa has experiencedstronger headwinds than in recent times.Consequently, economic growth this yearis likely to be at its lowest in five years,dragged down by the impact of loweroil prices on the Nigerian and Angolaneconomies, the softening of other commodityprices, and South Africa’s sluggishgrowth. At the same time though,economic growth across the continentremains resilient. Sub-Saharan Africawill still experience the second highesteconomic growth rate in the world thisyear, with 22 economies growing at a rateof 5% or higher.”North Africa reboundsForeign investors are regaining theirinterest in North Africa, particularlyin Egypt and Morocco as the politicaluncertainty following the Arab Spring in2011 begins to fade. North Africa attracted22.2% more FDI projects in 2014 thanin 2013, and accounted for slightly morethan half (51%) of all African FDI capitalinflows, against just 19.1% in 2013. Andthe number of jobs created as a result ofFDI, in a region where they are sorelyneeded, more than trebled to almost80,000.New Markets Investor88In Sub-Saharan Africa (SSA), while keyeconomies like South Africa, Angola, Nigeria,Ghana and Kenya receivedfewer FDI projects than in 2013, the averagevalue of each project across the regionmore than doubled (from US$67.8min 2013 to US$174.5m per project in2014). Mozambique (88.2%) and Ethiopia(47.1%) were among the star performers,attracting growing inflows of projects.Over the longer term, South Africa hasbeen the most popular destination forFDI projects, attracting twice as manyprojects over the past five years than anyother African country.Traditional investors regain interestRegionally, Western European andintra-African investment remain the topsources of FDI; though 2014 saw traditionalinvestors, including North Americaand the Middle East, refocus attentionon Africa. US-headquartered companiesled as the largest investors into Africa lastyear, launching 101 FDI projects, and accountingfor 13.8% of total FDI projectsin Africa, an increase from a 9.8% sharein 2013. South African investors wereagain prominent, initiating the second-mostFDI projects on the continent.UK investment was down substantiallybut investors from the UAE and Francewere resurgent, ranking fourth and fifthrespectively.

Q3 2015Sectors in vogue with foreign investorsA growing consumer class and risingurbanization in Africa are shaping thecontinent’s future and defining newtrends. In line with these trends, FDIinflows into real estate, hospitality andconstruction (RHC) have surged, emergingas a leading sector for FDI with thepercentage share in capital value at 43.8%and job creation at 33.6%.In terms of numbers of FDI projects, thelargest share of investor activity continuesto be attracted by three consumer-facingsectors – technology, media and telecommunications(TMT), financial services,and consumer products and retail (CPR).One-third (31%) of the respondents tothe survey also expect agriculture toemerge as a key driver of growth in Africaover the next two years.Investor perceptions of AfricaBased on the results of the EY survey,perceptions of Africa’s attractiveness havedeteriorated slightly over the past year.Sita says: “The shift in perceptions isthe lowest since we initiated our survey.However, it is important not to overstatethis deterioration. Overall, a majority ofrespondents were positive about the progressmade in Africa over the past year,and believe the continent’s attractivenessas a business destination will improveover the next three years. Africa continuesto rank favorably compared to otherregions, particularly among respondentswho know Africa well. In fact, thosealready doing business in Africa remainoverwhelmingly positive, again rankingthe region as the most attractive investmentdestination in the world.”Looking aheadSita concludes: “This mixed picture is notsurprising. It reflects the diversity andcomplexity of this great continent of ours– there is never a one-size-fits-all answer.Perspective remains important. Ours hasbeen, and remains, a glass half-full perspective.However, Africa’s future will nottake care of itself. Our view is that,New Markets Investor89although tremendous progress hasbeen made over the past 15 years, Africaand its leaders are poised at an inflectionpoint: deliberate and urgent choices arerequired to raise levels of productivityand competitiveness, accelerate structuraltransformation and make the shift towardan inclusive, sustainable growth path.”

Q3 2015What does this African story mean for private equity investors in terms ofhuge opportunities and challenges?About 8 to10 years ago, private equity was not well known in Africa. Nowthere is more capital coming into Africa. The fact that private equity isbeing discussed in many forums also shows that it is getting more tractionin Africa. Over $200 billion has been raised by private equity firms, withKenya, Nigeria and South Africa being the major beneficiaries. Private equityinvestment deals in Africa increased from $890 million in 2010 to $3 billionin 2011 - an increase of about 297 per cent. In 2012, total private equity fundsincreased to about $1.4 billion from the $1.3 billion raised in 2011 (EmergingMarkets Private Equity Association). The second largest deal in 2013 was theDelonex Energy deal in Kenya, to the tune of $600 million.African markets excelled in terms of capital raising for business in 2014,with a total of $11 billion raised through a total of 24 initial public offers(IPOs) and also through further offers (FOs).In the first four months of 2015, two of the largest-ever private equity fundsfocused on Africa were closed. Over the past 12 months a record of morethan US$4bn has been raised for private equity investment in Africa. OnApril 13, Dubai-based Abraaj closed its $990m third sub-Saharan Africanfund.In private equity, “close” means that the fund-raising exercise has been completedand the fund is, paradoxically, open for business.Abraaj group CE Arif Naqvi says even though 64% of the funds still camefrom North American and European investors, there were also significantallocations from African institutions. “The strong demand for this new fundreflects increasing investor appreciation for the powerful growth story unfoldingacross Africa.”It is no longer a story of foreigners coming in to exploit mineral wealth but ofurbanisation and favourable demographics fuelling consumption.The new fund will focus on consumer goods and services, consumer financeand infrastructure services in its main markets: Nigeria, Ghana, Côte d’Ivoire,SA and Kenya.Abraaj recently invested in SA-based Libstar, which manufactures toiletriesand other packaged goods on a private label basis. It has made a number ofhealth-care investments (though none in SA) such as the Nairobi Women’sHospital and the Bridge Clinic in Nigeria. It has also invested in Scaw Metals,once part of Anglo American, and has been an investor in the Kenyan insurerUAP, now controlled by Old Mutual.In April a $725m pan-African fund was closed by Development PartnersInternational (DPI).African Development Partners II (ADP II), a pan-Africanprivate equity fund advised by DPI originally targeted $500m. It has a 40%American investor base.DPI CEO Runa Alam says the strategy will target financial services, healthcare, education, construction, logistics, telecoms and consumer goods. DPIrecently sold its Nigerian insurance business Mansard to AXA.ADP II already has three investments — the Université Privée de Marrakech,a private university in Morocco and two sizeable SA-based businesses: RTT,the parcel distribution company, and HomeChoice, a previously listed homeshopping business.Alam says that the African market is still underpenetrated in terms of privateNew Markets Investor91

Q3 2015New Markets Investor92

New Markets Investor93Q3 2015

Q3 2015equity investment. She estimates theemerging middle class in Africa to be350m strong.The biggest fund to close is the $1,1bnLondon-based Helios Fund III. Over 60%of its funds are from repeat investors.Tope Lawani, managing partner of Helios,says the group has focused on coreeconomic infrastructure. It has acquiredan interest in ARM Pensions, the largestindependent pension fund manager inNigeria.Helios has the largest independent portfolioof telecom towers in Africa and alsoinvests in SA-based Continental OutdoorMedia.While private equity is certainly not theonly way to access Africa, it is the timingright now that makes it such an appealingoption. Although requiring a higherdegree of investment knowledge andhands-on participation, and groundwork,the private equity space has some majoradvantages for those willing to put in thetime and effort.Investors have a much broader selectionof companies with which they maychoose to get involved with and, as privateinvestors, have much greater accessand control regarding how the companiesare run (because you get into the companyearlier in its lifecycle), as opposedto being an “anonymous” investor in apublic market.Furthermore for private investors, capitalis not as vulnerable to the whims of otherpublic participants buying and sellingstocks on a public exchange. Although it’sa long-term investment horizon (five toseven years), achieving a similar or greatercapital growth than a stock exchange,with a more stable, or at least predictable,trajectory should not be too difficultAs countries across Africa grow, theirfinancial markets are bound to grow anddevelop with them, moving away fromthe informal sector. This means a steadyincrease in IPOs, increasing tradingvolumes and more stringent regulatorybodies overseeing the markets. Recently,investors from China and India have alsoshown great interest in private equityinvestment in Africa, particularly inthe natural resource, infrastructure andrenewable energy sectors.So to invest in a company now, andparticipate in its ultimate IPO, or get inwith the herd after the fact? That is thequestion a lot of private investors need toask themselves when considering whichway they would most prefer to access thegreat “African growth storyNew Markets Investor94

New Markets Investor95Q3 2015

Q3 2015New Markets Investor96