An Investor’s Plan to Transplant Private Health Care in Africa (NYT)

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NAIROBI, Kenya — The eyes of the private equity investor lit up as he strode across the empty floor of a recently built hospital here. There was not much to see: a stretch of unfinished concrete, and steel bars pushed into a corner. But Khawar Mann of the Abraaj Group, an investment firm based in Dubai that specializes in developing markets, saw something else. Room for more patients — and a nice return on his investment. “You could squeeze another 50 beds in here, easy,” he said. “That will really improve profits.” Abraaj is trying to do something that hasn’t been tried before: build a global network of hospitals across cultures and in some of the poorest parts of the world — including India, Pakistan, Ethiopia and here in Kenya. Mr. Mann’s new fund has just bought a fast­growing hospital in India and is now trying to export its business model to Africa. Even in rich countries with sophisticated medical markets, it can be tricky, given vastly different regulatory regimes and national quirks, for a hospital to go global.

By Landon Thomas Jr. (NYT)

 

Few have done it. Abraaj, however, is betting that Indians, Nigerians and Pakistanis, who in many cases have annual incomes of no more than $1,000, will dip into their savings to pay for an angioplasty or some other necessary, but not necessarily cheap, procedure. The process is further complicated by cultural differences. The Abraaj­owned hospital chain in Hyderabad, India, for instance, is run by a doctor so revered locally that he approaches “guru” status. Some patients refer to him as a god. As a business model, that might not scale. Still, India, Kenya and other less­developed economies share crucial similarities. Government­run hospitals offer cheap or even free care, but they can be extremely overcrowded and grim. With personal incomes rising, Abraaj thinks an emerging middle class of teachers, small­business owners, call­center workers and others will be eager to pay private doctors for better care. Metropolitan Hospital, located in the rough eastern section of Kenya’s capital, is no Mt. Sinai. The operating theaters are rudimentary. Some rooms, while clean, lack curtains for windows and patients alike. Outside, children play barefoot soccer on a stony field in a suburban sprawl that not long ago displaced the big game that once grazed here. But in a country where the main afflictions are malaria, meningitis and road accidents, the 150­bed hospital has become a destination for people willing to pay for decent medical attention. And then there is the rapid rise of unfamiliar ailments in poorer countries — diabetes, heart disease and obesity. They, too, are a byproduct of booming economies and rising wages, which enable unhealthier diets. “Nairobi is a sweet spot for us,” Mr. Mann said. “There is a big population that is growing. You have emerging middle incomes. And there is a massive need for health care.” He was in town to — he hopes — clinch a deal to buy Metropolitan for the $1 billion health care fund that Abraaj started this year. Mr. Mann is not the only one with this idea: Eight other private equity investors have visited recently, according to Metropolitan’s chief executive.

Abraaj’s fund includes money from the Bill & Melinda Gates Foundation, the medical parts companies Philips Healthcare and Medtronic, as well as other big institutional investors. “There will be some heavy lifting ahead — $1 billion is a lot of money to deploy in these types of markets,” said Maria Kozloski, who oversees private equity investments at the International Finance Corporation, the finance arm of the World Bank, which has also invested in the fund. “The opportunity is compelling, but it’s going to take some time.” The fund’s size also reflects investors’ appetite for new ways to invest in emerging markets — an asset class that represents one­half of the global economy — after four years of so­so returns in publicly traded markets. Abraaj is not well known in the usual private equity circles of New York and London.

But with $10 billion under management, among the most any private equity firm has invested in these markets, its name is well traveled in the Middle East, South Asia and Africa. For years now, its founder, Arif Naqvi, has been pushing the notion that the best way for long­term investors to benefit from core emerging market themes — growing urbanization and consumption — is through long­term private equity investments that target specific business sectors, as opposed to volatile stock and bond market bets. The health care fund, which Mr. Naqvi conceived, is a prime example. Most emerging market investors tend to get their exposure via public stock and bond markets, for instance, by buying shares in Brazilian oil companies or Russian government bonds. But these investments tend to be extremely volatile, shooting up and down in tune with ever shifting risk perceptions in a given country. Abraaj, by contrast, tries to spot investment ideas less likely to be whipsawed by the headlines. In an interview, Mr. Naqvi cited a recent investment in a Turkish dairy company — made at a time when Turks were protesting against their president, Recep Tayyip Erdogan. “Turks will drink milk irrespective of who governs them,” Mr. Naqvi said Selling beer to thirsty Ethiopians or dairy products to Turks is a fairly simple proposition. And it gets at the core thesis of investing in these markets, which is to take advantage of young and growing populations in rapidly developing economies. The trick, of course, is to pick the right companies — because there is no quick and easy way to dump a stake in a private company, as you can with a stock on a public exchange. On the Hunt for Hospitals It is this fundamental challenge — finding the right company, with the right management team — that has kept emerging market private equity funds from growing like their larger peers in more developed markets.

After all, it can be hard to get a true reading of your business partner in Jakarta, Indonesia, if you are sitting in New York, London or Hong Kong, as is the case with most private equity shops. Abraaj tries to solve that by being based in Dubai and maintaining 20 regional offices, in places like Cairo and Karachi, Pakistan. Its principals also hail from these markets. In addition to Mr. Naqvi, who is from Pakistan, the firm’s senior partners are citizens of Egypt, Ghana, India, Mexico and Turkey. The 48 ­year ­old Mr. Mann is typical in this respect. Born in the dicier precincts of Birmingham, England, to parents who had recently immigrated from Pakistan, Mr. Mann went to Cambridge, won a scholarship to the Wharton School and dropped his plan to become a doctor, switching to law and finance. Today he lives in Dubai and spends at least three weeks a month searching for hospitals and health clinics to buy in places like Ethiopia, Nigeria and Pakistan. He wears the tightfitting suits of a money­center banker, carries a fancy handbag and converses fluently in Urdu and Hindi. Mr. Mann, who works with a large team of bankers and health professionals in managing the fund, cuts a striking figure in Nairobi, pacing the halls of the two hospitals he’s scouting out — Metropolitan and Nairobi Women’s Hospital. Nairobi Women’s is one of the city’s largest private hospitals, originally founded by an ambitious entrepreneur, Dr. Sam Thenya, to provide care to women experiencing domestic abuse. With his slick suit and practiced smile, Dr. Thenya seems more a deal maker than a doctor. Both he and Mr. Mann caused a bit of a stir, rushing up and down the hospital’s spartan hallways and bursting into crowded patient rooms. Mr. Mann brimmed with questions about how to get doctors to see more patients and provide them with more profitable services. In a laboratory where blood samples from patients are analyzed, Mr. Mann asked how long each test took. Between 15 to 30 minutes, he is told. “That’s good,” he replied. “You want to get the tests back as quickly as possible.” Then Mr. Mann poked his head into the room housing the hospital’s single CT scan machine. The room was empty but for a bored­looking attendant hunched over a computer. These machines are a rarity in Kenya, and for hospitals looking to maximize profits, they are crucial pieces of equipment. Mr. Mann asked the doctor how many scans he performed in a day. About seven, came the reply. He shook his head. “You could be making a lot more money out of that machine,” Mr. Mann said. “You could be doing as many as 15 to 20 patients a day. A machine like this can really drive profitability.” ‘Not Mother Teresa Stuff’ Mr. Naqvi, in marketing Abraaj’s health fund, has insisted that its emphasis will be to have a positive social impact first and make money second. He refers to this mix of capitalism and social good — a bit majestically — as “partnership capital.” Nevertheless, both he and Mr. Mann know that any vision of a benevolent health conglomerate will not materialize unless they can find hospitals that are financially sound.

 

Perhaps the greatest tension for Abraaj to resolve is pricing. Few patients in India or Africa have health insurance. In Kenya, 67 percent of health expenditures are paid out of pocket. And in India — the fund’s central focus — that number is 60 percent. This makes for extremely price­sensitive patients. For example, the Hyderabad hospital chain that Abraaj recently bought, Care, has a business model that relies on patients paying $3,000 for a heart bypass operation, even though average income per capita in India is half that amount. (In the United States, similar treatment might cost $40,000, although insurance would help.) “Look, this is not Mother Teresa stuff — we have a responsibility to our investors,” Mr. Mann said. “But in this case, I really think that you can do good and make money.” That has been a driving philosophy behind Care Hospitals, India’s fifth­largest private hospital group. Founded by a team of Hyderabad cardiologists in the 1990s, Care has been a darling of private equity investors for the better part of 10 years. Last year, when Care again hit the market, Abraaj had to beat out a scrum of competing institutions. The Guru Will See You Now When Mr. Naqvi hired Mr. Mann to head the new fund in 2014, their first challenge was to find a country, and a hospital, that would serve as the driving force for the project. Because of India’s 200­million­person middle class and its wealth of doctors and surgeons trained to world standards, it was a logical place to start. Mr. Mann had long been aware of the niche that Care had carved out for itself, with its 16 hospitals serving a wide area in and around Hyderabad and other parts of central India. Mr. Mann knew, too, that to make the dream work across countries and continents, it would not be enough to swoop into Nigeria, buy the best hospital he could find and hope for the best.

Read more at NYT.com

What kind of coffee is produced in Africa?

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What kind of coffee is produced in Africa?
Most African countries produce Robusta coffee, with a few having a mix of both Robusta and Arabica varieties. Countries producing Arabica coffee, especially the Colombian Mild will have a windfall in export earnings, which may lead to increased investments to boost output.
african coffee growing regions

Africa is home to many of the finest African coffee beans in the world, fromEthiopia and Kenya in the East to Rwanda where top quality Arabica beans are cultivated to West African countries including Senegal and Cameroon where robusta coffee beans are mostly grown.

We’ll look briefly at some of the regions in this article: Ethiopia, Uganda, Kenya, Tanzania and Malawi. Though to be fair, coffee beans from Africaare widely cultivated throughout the continent, and even grows wild in many areas.

Ethiopia: Harrar, Ghimbi and Yirgacheffe

Ethiopia has three main regions that produce African coffee beans: Harrar, Ghimbi and Sidamo, or Yirgacheffe. Harrar beans come from small farms and are dry-processed. They are labeled “longberry” for large and “shortberry” for small or Mocha (which is the size of a peaberry).

The Ethiopian coffee has a strong dry edge, wine-like to fruity acidity, a rich aroma and heavy in body. In the best crops, you can smell blueberries or blackberries. Ethiopian is often used in espresso blends in order the capture the aromatics in the crema (the thin layer of foam atop an espresso).

Ghimi and Yirgacheffe produce washed coffees. The Ghimbi beans grown in western parts are more balanced, heavier and longer lasting body than the Harrars. The Yirgacheffe coffee bean is the most flavored of all the Ethiopian beans, grown in the southern part of the country. Mild, fruity and aromatic, you may see it labeled Sidamo, which refers to the district where it is grown and harvested.

Uganda: Shade grown

Uganda produces mostly Robusta beans that are typically used in instant coffees but the Arabica beans it does produce are similar to Kenyan coffee. The best Ugandan coffee comes from the western slopes of Mt. Elgon called Bugishu.

Robusta has been in Uganda for centuries and wild varieties of it still grow in Uganda’s rain forests. Both Robusta and Arabica trees are grown in the shade of banana trees and harvested about twice a year. 300,000 farmers grow coffee, which makes up 95% of the country’s exports.

Ugandan farmers grow mostly Robusta since it is easier for farmers with little money for equipment and none to hire help. The more well-off farmers can afford to farm Arabica, which is more work and more expensive but also pays off better. Ugandan Arabica is of medium intensity, sweet with a hint of the rustic, has a good body that is husky yet clean and makes an interesting espresso.coffee-2lbs-back-FOR-AMAZON-product-mockup coffee-2lbs-front-FOR-AMAZON-product-mockup

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Uganda: Uber launches in Kampala (IT News Africa)

Following the success of Uber in many other African cities, the company revealed that it is excited to launch its ride-sharing platform to the people of Uganda in Kampala.

By Darryl Linington

Uganda: Uber launches in Kampala. (Image Source: http://bellinghamwins.bobpritchett.com/)

At launch Alon Lits, General Manager for Uber Sub-Saharan Africa stated that: “We’re really excited to be launching Uber in Kampala, a world-class African city. We are inspired by the city’s rapidly developing infrastructure and spirit of entrepreneurship and look forward to giving people in the city an affordable, easy and flexible choice to move around the city safely and reliably.”

“At Uber, we are proud to connect millions of global citizens every to affordable and reliable rides. By offering a friendly and reliable complement to existing transport options, we can help improve urban mobility in Kampala. We are mindful of the city’s current traffic congestion, and we aim to be part of the solution in improving it, while creating new, fruitful opportunities for drivers. Ultimately, we hope to reduce the strain on the city’s roads, and minimise the environmental impact of traffic congestion that is part of a growing economy.”

Lits concluded by saying: “Uber is part of a broader evolution in transportation. It is a new and exciting platform that is changing the way we travel and shaping the future of cities across the world. Kampala is a progressive, forward-thinking city that is ready for safe, reliable and efficient transportation and we are so excited to be launching here.”

To celebrate Uber’s launch in Kampala, Uber will be providing free rides for all Ugandans to enjoy in the city of Kampala. Free rides can be accessed on the Uber app between 1pm Thursday 2 June 2016, and midnight on Sunday 5 June 2016.

Read More at IT News Africa

(AfDB) Annual Meeting: “Africa must think big, act big and deliver big.” (The Africa Report)

The African Development Bank’s (AfDB) Annual Meeting in Lusaka got its official start on its second day and confirmed the principle that big personalities mean big waiting around.

By Marshall Van Valen in Lusaka

Sierra Leonean Kelvin Doe built his own radio station out of electronics waste at age 13

The marquee at the convention centre was filled to capacity as a group in a nearby hall waited an hour and twenty minutes for the heads of state due to launch the ceremony to arrive. The sitting around was punctuated by wailing sirens as official convoys belatedly showed up.

Following on from the ‘big’ theme, AfDB president Akinwumi Adesina opened the meeting by setting out the stakes: “Africa must think big, act big and deliver big.”

A group of African leaders – including Chad’s President Idriss Déby, Nigeria’s vice-president Yemi Osinbajo and host Zambia’s President Edgar Lungu – followed with a roundtable about energy and climate change.

They reached a consensus that while preserving the environment is important, governments must develop electricity production with the resources that are on hand, be they coal, peat or uranium. The moderator tried to hold those leaders to account and challenge them on what they are doing about the lack of electricity in their respective countries.

While there where banners of Zambia state electricity utility ZESCO – with the motto ‘Powering the Nation’ – that lined the road to the AfDB conference site, President Lungu was left explaining why a drought has lead to “severe power rationing” that is hurting industrial activity and leading people to invest in expensive and polluting technology, like diesel generators.

The AfDB approved finance of $70m for the rehabilitation of the Zambia and Zimbabwe’s crumbing Kariba Dam in late 2014, highlighting the lack of regular spending to improve the electricity infrastructure.

So now there are other ads competing with ZESCO’s advertising. Some of Stanbic Bank’s Lusaka billboards offer loans of up to 100% for generators to fight load shedding.

Agriculture and youth were other major themes of the day, and one moment broke through the talk of challenges and struggles. Adesina invited Sierra Leonean Kelvin Doe – who at 13 built his own radio station out of electronics waste and was then invited to an academic programme at the prestigious Massachusetts Institute of Technology – to the stage to congratulate him on his ingenuity.

With tears in his eyes, Doe shook hands with the line of presidents and other leaders, eliciting ahs and applause from the audience. However, at a later session on youth and appointment, Doe stood up to point out that there were very few young people at the meeting and to ask the assembled gray-haired leaders to engage with those who are not as big as them.

Read the original article on Theafricareport.com : Big and small affairs at the second day of the AfDB’s Annual Meeting | North Africa

Africa’s CEOs look to innovation and technology to boost growth (IT News Africa)

Africa remains one of the preferred frontiers for investment opportunities and doing business, according to a report released by PwC Africa. Growth and foreign direct investment has continued in Africa amid the recent global economic uncertainty.

By Staff Writer (IT News Africa)

Africa’s CEOs look to innovation and technology to boost growth. (image credit: accountancyage.com)

This is confirmed by PwC’s Africa Business Agenda survey, which shows that Africa and the emerging markets remain a vital growth opportunity for CEOs. The Africa Business Agenda compiles results from 153 CEOs and includes insights from business and public sector leaders from across Africa.

Hein Boegman, CEO for PwC Africa, says: “CEOs in Africa are ramping up their efforts to innovate and find new ways to do business on the continent in a move to stimulate growth in a challenging and uncertain global business environment.

“The global financial and economic crisis has revealed Africa’s vulnerability to a number of external economic shocks. These include the decline in commodity prices fueled by the economic slowdown in China; a marked decline in the demand for commodities; and the collapse in value of the emerging market currencies against the US-dollar in anticipation of an interest rate hike.

“Notwithstanding a multitude of challenges, many of which are cyclical, we remain confident that Africa’s prospects remain positive. Africa’s business leaders have the opportunity to pursue new business opportunities on the continent, more particularly in the light of rapid innovative and technological advances that have the potential to transform and shape industries.”

Africa’s CEOs are critically aware of these issues and the impact they may on their businesses. CEOs believe global economic growth is unlikely to improve and will stay the same in the short and mid-term; nonetheless they remain confident that there are opportunities for growth over the next 12 months (78%), and 9 out of 10 believe they can deliver growth in the next three years.

The global business environment has become increasingly complex and challenging. The report shows that CEOs in Africa share many of the same concerns with their peers globally. The top three concerns include exchange rate volatility (92%), government response to fiscal deficit and debt burden (90%) and social instability (80%).

CEOs in South Africa have similar concerns as their counterparts on the continent, with the report showing that there are uncertainties about government response to fiscal deficit and debt burden, social instability, and high unemployment or underemployment.

Across the continent, shifting demographics, rapid urbanisation, rising disposable income and technological change are all influencing growth opportunities and strategies. Africa’s CEOs rank technological advances (75%), demographic shifts (52%) and a shift in global economic power (58%) as the top three defining trends that will transform their businesses over the next five years. In addition, new advancements and breakthroughs in frontiers of R&D are opening up more opportunities for businesses.

Our survey of CEOs reveals four common priorities among Africa’s business leaders: diversification and innovation; addressing greater stakeholder expectations; effectively leveraging growth catalysts like technology, innovation and talent; and measuring and communicating shared prosperity.

Catalysts for growth
In Africa, the environment is constantly changing and the growth opportunities are unparalleled. After more than a decade of urbanisation, Africa is poised for a digital revolution. Increasingly, organisations are using technology to challenge business models and disrupt competitors in markets. Technology was seen by CEOs in the survey as the best way of assessing and delivering on customer expectations by implementing customer relationship management systems (69%), interpreting the complex and evolving needs of customers through data and analytics (56%), and improving communication and engagement by means of social media (58%).

Corporate governance has also brought IT to the fore. In South Africa, the draft King IV report recognises that information technology (IT) has become an integral part of doing business today.

Going forward, CEOs in Africa indicated that they will be more actively looking for partners, while keeping an eye on costs. Partnerships and alliances feature prominently in their plans, with more than half of Africa CEOs (56%) planning to enter into strategic alliances over the next 12 months. In addition, 16% say they intend carrying out cross-border merger and acquisition (M&A) activities in the next year. Looking at investment prospects, China (22%), Kenya (22%), Uganda (20%) and South Africa (18%) remain the countries Africa CEOs view as most important for growth in the next 12 months.

While many organisations across the globe are expanding or seeking to expand in Africa, the availability of key skills stands out as a key concern for CEOs both in Africa and South Africa. More than half of Africa’s CEOs expect to increase their headcount over the next year. ‘The talent trends that we are seeing suggest that the market is becoming more and more competitive,” Boegman adds. As a result companies are having to review their talent management strategies. Around half plan to invest more in their leadership pipeline and focus on developing their institutional culture.

Stakeholders’ expectations
Across Africa boardroom agendas are changing, with many additional focus areas being brought to the table. The corporate landscape continues to undergo constant change, with companies being confronted by shareholders and other institutional investors who demand explanations around financial reporting and performance. In the process business is encountering a range of challenges in responding to wider stakeholder expectations. These include: additional costs to doing business (62%), unclear or inconsistent standards or regulations (45%), and customers’ unwillingness to pay (35%).

Dion Shango, CEO for PwC Southern Africa, says: “More successful companies tend to be collaborative and collective in their engagement with stakeholders. Business leaders need to have a business rationale for engaging and collaborating with stakeholders, while being acutely aware of the risks posed by not engaging with all relevant stakeholders.

“One of the most significant benefits of engaging and collaborating with stakeholders is that an organisation may be able to engage new markets in Africa and speed up the introduction of new products and services.”

Trust is also emerging as an important differentiator in the business community. Building trust helps organisations to attract investment and build stakeholder loyalty. It is concerning to note that 65% of Africa CEOs are somewhat or extremely concerned about the lack of trust in business. Corruption is also seen as a major threat by businesses (86%). The private sector has taken the initiative to fight corruption by calling on government and regulators to enforce legislation and codes of business practice.

Communicating shared prosperity
It is positive to note that Africa CEOs are increasingly recognising the importance of reporting on non-financial matters. In addition, most Africa CEOs surveyed not only believe that success is dependent on more than just making money, they also believe that their organisatiions should do more to report on the broader impact of their activities and how these activities create value for stakeholders.

Shango concludes: “Africa and South African CEOs have built on the experience of the past few years and are better prepared to deal with the host of challenges and uncertainties. CEOs have and also continue to reshape their business strategies to take advantage of new opportunities for growth, both in existing and new markets.”

Read More at IT News Africa

Investing in African banks (The Banker (Africa))

Having undergone a series of consolidations, and operating in a region with a young, largely unbanked population, Africa’s banks are attracting the attention of investors from all over the world. However, choosing where to invest remains a challenge.

By James King | 4/01/2016 9:00 am

As investment opportunities go, banks in Africa are a good bet. Today, the growth momentum of the continent’s banking sector is attracting the interest of international lenders, private equity groups and sovereign wealth funds, among others, who are looking to capitalise on the high returns on offer. With growing frequency, these investors are executing big-dollar deals to gain an all important foothold in the continent’s market.

This trend marks an encouraging departure from the resource-dominated investments of previous years. In a reflection of Africa’s social and economic development, investment flows are becoming more diverse as new growth stories begin to emerge. For the continent’s financial services sector, and its banks in particular, these developments bode well.

Opportunities abound

“The Africa opportunity has traditionally been thought of in terms of natural resources. More recently, it has become a consumer-driven play, propelled by the dynamics around urbanisation, income growth and consumption,” says Philip Lindop, head of African investment banking at Barclays Africa.

These changing investment preferences have emerged as awareness of the opportunities in the African banking sector have grown. Over the past decade, the continent’s regulators have tightened up capital requirements, leading to a consolidation of lenders in many jurisdictions. According to Mr Lindop, this has created a greater number of top-tier institutions suitable for acquisition.

Indeed, many banks across Africa are still in need of additional funding. Slower economic growth across the region in recent years, coupled with lower commodity prices and a more stringent regulatory environment, are all feeding into the banks’ need to recapitalise. These trends have emerged as many global lenders, particularly from the US and Europe, have been winding down their presence across Africa.

“When you consider who will be investing in these opportunities, it’s unlikely to be some of the bigger European banks. Many of them have sizeable non-performing loan positions to deal with so I doubt they will be putting an Africa strategy at the top of their agenda,” says Linklaters’ Mr Bedford.

Filling the void

As the demands of Basel III requirements, as well as other regulatory burdens, take their toll, a new wave of investors are looking to fill the vacuum. This includes one of the world’s largest private equity firms, the Carlyle Group, and the Middle East’s largest bank by total assets, Qatar National Bank. Collectively, this new cast of players are leaving their mark on the landscape of Africa’s financial services sector. In doing so, they are capitalising on one of the most dynamic growth stories in the world today.

“A few years ago it was primarily South African banks that were looking to expand across the continent. Now there is clearly interest from non-African investors too,” says Chris Low, group managing director of Letshego, a financial services group with a presence across sub-Saharan Africa.

Indeed, data from Dealogic points to the growing interest from overseas investors. Between 2010 and 2015, a total of 59 mergers or acquisitions involving non-African investors and African banks occurred. The total value of these deals hit just over $7.5bn.

Investors are also making the most of the attractive prices on offer as, for a number of reasons, the valuations of banks across Africa have declined in recent times. “In particular, weaker oil prices, tighter monetary policy, more stringent regulations and political dynamics have played their part. These more attractive valuations have stimulated investor interest, specifically [in terms of] private equity and some international banks,” says Adesoji Solanke, a sub-Saharan Africa banking analyst with Renaissance Capital.

Long-term prospects

While attractive valuations have played their part, most investors are keeping an eye on the longer term fundamentals underpinning Africa’s banking sector. According to data from the World Bank, just 34% of adults in sub-Saharan Africa have a bank account, up from the 24% recorded just three years earlier. Additionally, the number of people aged 18 or under is expected to hit 1 billion by the year 2050, while the continent’s total population is expected to hit 2.8 billion by 2060.

On the ground, the prospects are even more promising. “In aggregate terms, banking penetration is extremely low across the continent. But when you remove east and southern Africa from the equation, you find that lending is driven by corporate activity elsewhere. So when it comes to retail lending, the figure is even lower,” says Mr Lindop.

As The Banker’s Top 100 African Bank’s ranking (see page 56) makes clear, the returns enjoyed by the continent’s top lenders are enviable. In 2014, the return on assets of the continent’s biggest banks by Tier 1 capital was 2.2%, while their return on capital was 27.6%. This performance was achieved as total asset growth hit 5% and aggregate Tier 1 capital growth climbed by 3.6% for the year.

“Considering the fundamentals underpinning many African economies, if you can invest in a well-managed and solvent bank with a solid balance sheet then some highly profitable exit routes are likely to open up,” says Mr Bedford.

The hunt for attractive exits is underpinning the recent drive by a number of private equity groups to secure a position in Africa’s banking sector. In November 2014, the Carlyle Group invested $147m in Nigeria’s Diamond Bank, equivalent to a stake of about 18%. This follows a massive spike in interest from the private equity sector in Africa more generally. According to the Emerging Markets Private Equity Association, about $4.2bn was raised to invest in Africa in 2014 alone.

QNB’s move

In general most investors, including banks and other investment vehicles, have an eye on securing longer term operational control of their acquisitions. “On the whole I would expect most investors to pursue minority stakes in African banks only as an entry point. These will likely be executed with the option to pursue a majority stake through another route further down the line,” says Mr Low.

In September 2014, Qatar National Bank (QNB), the Middle East’s largest lender by total assets, bought a 23.5% stake in Ecobank Transnational Incorporated (ETI), the bank with the largest footprint in Africa, in two successive transactions at a value of $220m and $283m. This followed QNB’s 2013 acquisition of Société Générale’s Egyptian unit for $2bn in 2013.

QNB has set itself a target of becoming a “Middle East and Africa icon” by 2017. This strategy is driven in part by increasing competition in the bank’s home market. Meanwhile, the collapse in the price of oil has forced the Qatari government and government-related entities to withdraw some of their deposits, slowing overall deposit growth, as non-essential capital spending has also been cut. These trends, and others, have led to lower growth opportunities in the domestic market.

QNB’s overseas loan book is expected to grow by about 25% per year between 2014 and 2017, compared with just 6% in Qatar, according to research from HSBC. As such, most analysts expect the lender to aggressively pursue further international expansion. Indeed, various sources believe the Qatari lender will ultimately seek to gain full control of ETI in the coming years. How this might transpire, in light of South African lender Nedbank’s recent acquisition of a 20% stake in Ecobank, is being carefully watched.

Diamond’s search 

Meanwhile, former Barclays chief executive Bob Diamond has led a push into the African banking sector through investment vehicle Atlas Mara. In partnership with Uganda’s Ashish Thakkar, whose Mara Group holds a 20% stake in the venture, the ambition is to create sub-Saharan Africa’s ‘premier financial institution’. To achieve this, Atlas Mara is buying up positions in some of Africa’s most promising banking markets.

To date, the group has made five acquisitions with a value of about $500m, providing it with a presence in seven countries. With further acquisitions expected, the aim is to be present in 10 to 15 African countries in the coming years. Yet, the case of Atlas Mara also exposes some of the challenges facing foreign investors who are entering Africa’s banking market.

Since an initial public offering on the London Stock Exchange in December 2013, Atlas Mara has lost about half of its share value. A number of factors have contributed to this decline, from lower commodity prices, to regulatory pressures, to slower economic growth across the region.

“Investing in Africa is difficult since the operating environment changes significantly from one jurisdiction to another. You have to have an understanding of the practical reality on the ground and that takes time,” says Mr Low.

What is more, getting to grips with issues of risk management and loan quality is a further stumbling block. A number of banks in the so-called tier-two and tier-three smaller economies still suffer from legacy non-performing loan positions, while the regulatory environment in these jurisdictions can often be difficult to navigate. Though investors can look to enter more developed markets, this approach comes with its own challenges.

“Investment opportunities in Africa are difficult. You can either enter a market that is more developed and better regulated but face tougher competition, or you can invest in more frontier destinations where operating conditions are more challenging and business volumes are lower but where there is a clearer path in terms of the competition,” says Stuart Bedford, a partner with Linklaters in London.

Tech advancements

Moreover, Africa’s banking landscape is characterised by a high degree of technological innovation. This has emerged partly as a result of the entrepreneurial dynamism that colours much of the continent. But it also has a lot to do with the structure of many markets. Here, both the physical and human geography of a number of African countries lends itself to particular products and services geared around mobile banking.

“Investors need to consider issues around technology and innovation very carefully. It is clear to us that some of the mobile and non-traditional banking channels being developed in Africa are more advanced than in most markets around the world,” says Mr Low.

As such, a further challenge facing investors is combining cutting-edge technology and a low-cost base so that they are able to provide these services in a commercially effective way, according to Mr Low. Data from the World Bank indicates that Africa leads the world in terms of mobile money accounts. About 12% of adults in sub-Saharan Africa have such an account against a worldwide average of 2%.

Above and beyond these operational considerations, issues of regulatory and political risk remain paramount. The sacking of South Africa’s finance minister, Nhlanhla Nene, in early December 2015 is a case in point. Arguably one of the most highly respected public sector figures on the continent, Mr Nene was abruptly relieved of his position by South Africa’s president, Jacob Zuma, in favour of little-known candidate who in turn was replaced just a few days later.

With speculation that the move was politically motivated, it has cast a dark shadow over the continent’s second largest economy. Moreover, that such an incident could occur in the most politically and economically developed state in sub-Saharan Africa speaks of the difficulties to be encountered elsewhere for investors and financial institutions alike.

“Banks are now deemed to be systemically important to both economic development and financial inclusion across the continent. Clearly, strong and independent regulators and institutions are required to oversee their development,” says Mr Lindop.

Where to choose? 

Looking ahead, as opportunities remain abundant, selecting an appropriate investment in Africa may be the biggest challenge of all. “This broader [investment] trend is set to continue. In Nigeria, for example, you have a situation where, unless there is an ease in the capital regulations, some banks will be looking for additional capital in testing market conditions,” says Mr Solanke at Renaissance Capital.

Here, the continent’s investment potential requires weighing up the various pros and cons behind each opportunity. This includes considerations around operating in different economic communities and political zones, including the Southern African Development Community, as well as issues around investing in Africa’s linguistic, demographic and economic centres of power. In the case of the larger banking markets, including South Africa, Nigeria and Kenya, which fall under many of these categories, growing investor awareness has stoked fierce competition.

As margins in these more dominant economies compress, a greater number of longer term opportunities may open in Africa’s smaller markets and among its less sizeable lenders. “Looking forward, there is a lot of opportunity in some of the smaller economies, particularly in the East African Community. [But] there can be a high risk in terms of buying into tier-two and tier-three institutions in Africa,” says Mr Low.

Nevertheless, there may be other ways for investors to tap into the continent’s rising consumer wallet. With larger markets and traditional banking operations expected to become increasingly competitive in the coming years, microfinance lending has the potential to emerge as a new investment opportunity. According to the Microfinance Information Exchange, the number of active microfinance borrowers across sub-Saharan Africa was 4.7 million in 2013, while the gross loan portfolio stood at $7.1bn across the countries that reported data.

A number of microfinance private equity funds now straddle the African continent, while dedicated microfinance providers continue to grow in terms of their reach and scale. But beyond the business case, the implications of greater financial inclusion for the continent’s social, economic and political development are commensurately large. Providing greater numbers of people with financial services will in turn lead to the formalisation of regional economies as well as increased and more inclusive growth.

What is more, greater levels of foreign investment can only help to stimulate, as well as accelerate, the development of products and services in the continent’s financial sector. A broader suite of financial offerings will promote consumer engagement with the continent’s banking sector and create a strong cycle of inclusion, growth and prosperity. With the prospect of further international investments into African banks remaining likely, the outlook for the continent’s financial services sector, as well as a more inclusive growth model, is positive.

Read More at the Banker.com

Watly: The computer that provides clean water, energy, internet access (CNN Africa)

(CNN) Touted by its creators as the “world’s largest solar-powered computer,” it could offer a quantum leap for development across rural Africa.

By Kieron Monks, for CNN

The Watly machine, created by an Italian-Spanish start-up of the same name, resembles a futuristic space capsule. But its mission is to provide electricity, clean water, and Internet services that could transform lives and economies across rural Africa.
Around 625 million people in Sub-Saharan Africa are currently without electricity — more than two-thirds of the population — while 39% lack access to safe water.
“This is an infrastructure solution for people without access to three fundamental pillars of civilization,” says Watly founder Marco Attisani. “We are (taking) people to the heart of the 21st century.”

Patented technology

The system works by capturing solar energy through photovoltaic panels on the surface of the Watly module, which is converted into electricity through an internal 140 kwh battery.
This powers a patented water treatment system that uses a graphene-based filtering process, before the water is boiled and then distilled. The process can deliver 5,000 liters of safe drinking water each day.
The battery also powers a connectivity hub that provides wireless internet access within an 800-meter radius, and a charging station for electronic and mobile devices.
During its 15 years of service, one Watly can reduce emissions to the tune of 2,500 tons of greenhouse gases, equivalent to 5,000 barrels of oil, its makers say.
Watly has already tested a prototype in rural Ghana, and the next step is to roll out units across the continent, starting with Nigeria and Sudan.

Local partners, international investors

In July, Attisani will present the final design of a scaled up 40-meter, 15-ton machine to potential customers and investors.
“We have support from big corporations but I cannot say their names yet,” says Attisani, citing interest from leading mobile phone and energy companies.
The project has also received 1.4 million euros from the European Union’s Horizon 2020 research funding program.
“The project could have a huge social and economic impact especially in Africa,” an EU spokesperson said. “It aims to bring clean energy and clean water to people in countries that are in desperate need of both vital resources… and ultimately contribute to raising the living standards of potentially millions of people.”
Attisani stresses the need to involve local NGOs and civil society to drive widespread adoption.
“No technology can change the world without a human factor,” says the entrepreneur. “Local partners will care for the logistics, spread the word, play a role in education, and leverage functionality.”

Empowering economies

Beyond subsistence needs, the machines could power a surge of economic growth.
“We expect Watly to be a starting point for local entrepreneurs to start businesses,” says Attisani.
Within eight years, the company hopes to install 10,000 units across Africa, and estimates this will create 50,000 jobs. Many of these will relate to construction and maintenance of the machines and their products, while others will come indirectly through businesses benefitting from a reliable supply of vital services.
Attisani believes the model of providing services through localized, sustainable modules could have far-reaching consequences.
“There are going to be hundreds of companies developing technologies similar to Watly,” he says. “This could create a new economic paradigm worldwide.”
Read more at CNN Africa

Kenya’s $13 billion railway project is taking shape (CNN Africa)

(CNN)It’s been billed as the most ambitious project in Kenya since it gained independence in 1963.

By Phoebe Parke, for CNN

Planned extent of railway

Now, the first section of the east African nation’s $13.8 billion railway is nearly finished.
Originally planned to link Mombasa and Nairobi, the decision was made to extend the line to the market town of Naivasha in 2015, and 75% of civil works have reportedly been completed. This first Mombasa-Nairobi stretch will be completed by June 2017, consulting firm CPCS told CNN.
It is hoped that the track will shorten the journey between the two cities from 12 hours to four hours. Passenger trains will travel at 120km/h, and freight trains will be able to carry 25 million tonnes per year, according to the International Railway Journal.
Eventually, the East Africa Railway Masterplan will link Mombasa with other major east African cities such as Kampala, in Uganda, and Juba, in South Sudan.

Investment from China

The East Africa Railway Masterplan is being managed by the East Africa Community; an intergovernmental organization of six partner states; Burundi, Kenya, Rwanda, South Sudan, Tanzania, and Uganda, which aims to create a politically united and secure East Africa.
Management consulting firm CPCS advised the East Africa Community on the financial, legal and economic impact of the project.
The railway is being built by the state-owned China Road and Bridge Corporation (CRBC), 90% of the ongoing development of the Mombasa-Nairobi section is being financed by The Export-Import Bank of China.
The hope is that this new railway will reduce congestion on Kenya’s crowded road network, and promote tourism.
This railway is the most expensive of a series of construction projects in Africa.
According to Deloitte, more than $131 billion was spent on transportation construction on the continent in 2015; by 2025, $200 billion is expected to be spent on the continent’s roads, and another $7 billion dollars on African airports.
China has been investing in other projects in Africa, including a mega port in Lamu, Kenya, and a manufacturing zone in Ethiopia.
Read More at CNN.com

Could Cryptocurrencies be the next big thing in Africa? (IT News Africa)

Mobile money is booming in Africa, and digital currencies are at a close second, due to the same reason: 30% of Africans lack access to traditional financial services such as bank accounts and credit cards.

By Eran Feinstein, Chairman of 3G Direct Pay Group

 

Consequently, they are mostly limited to cash transactions, which impede on their ability to choose where to make purchases and do business. Cryptocurrencies play an important role in the development of technology-driven markets, and as Africa shifts a large portion of its business to technological and virtual endeavors, it is only natural that cryptocurrencies should become significant.

New research from PricewaterhouseCoopers reveals that the acceptance of the cryptocurrency, Bitcoin, has achieved critical mass and, as such, is positioned to disrupt the payments market. For Africa, cryptocurrencies hold many benefits, such as:

Pan Africa – Connecting Africans
Currently, each African country has their own currency, and Africans are unable to even complete transactions in other African countries within the same system, such as M-Pesa: a user in Ghana cannot send an M-Pesa payment to another user located in Kenya, for example.

Economic growth in Africa is often hindered by the lack of regional trade that cryptocurrencies can enable without necessitating the adoption of a single currency such as the Euro. As a decentralized currency with no real authority, cryptocurrencies would enable less expensive and more widely accepted cross-border transactions between African countries than the currently popular mobile payments. While mobile payments are more well-established and trusted in the region, and they do allow for cross-border transactions, they are costlier than cryptocurrencies and do not work across all borders.  Cryptocurrencies enable swift, cheap transactions that will broaden markets and possibilities, both for the individuals and the countries, and contribute to Africa’s growth.

The World at Africa’s Fingertips
Cross border transactions are currently incredibly expensive for those who are lucky to have the ability, but as 30% of Africans do not have a bank account or credit card, world markets are unavailable to them. The surge in usage of mobile phones has introduced Africans to alternative forms of remittance, which have, in turn, been a tremendous boost to business and individuals. However, mobile payments still rely heavily on currencies such as the Dollar or Euro, as well as African eWallets, such as M-Pesa, all of which cause very high currency exchange fees. Cryptocurrencies are decentralized, and thus, have no exchange fee, as they are accepted worldwide, thus both saving the user fees and enabling them to purchase products and services from other countries, which were previously unavailable to them.

Additionally, freelancers will be able to accept payments in the cryptocurrency of their choice, thus facilitating cross-border work. Freelancers will no longer be limited to business in Africa and will be able to work with clients worldwide, as receiving payments will no longer be a challenge. Payments can be sent and received quickly, anywhere in the world, 24/7, without having to account for banking holidays, currency exchange rates, banking fees, and more.

Security, Trust, and Transparency
Cryptocurrencies have no central authority figure, such as a government, and transactions are transparent. While personal information is never revealed, each person has a unique address where their transactions are listed. As such, cryptocurrencies are safe against identify theft, and merchants cannot add fees without the customer’s’ knowledge. Anyone can view all transactions at any given time, but cryptocurrencies are cryptographically secure, meaning they cannot be manipulated by any person or government. Cryptocurrencies cannot be seized and funds cannot be frozen by governments or financial intermediaries, so users can be confident that they have complete control over their money. For many Africans, this level of security and transparency is precisely what they need and demand.

Risk in cryptocurrencies is very low; since transactions do not carry any personal information, cannot be reversed, and are encrypted, the chance of fraud for merchants is very low. Bitcoin carries multilayer protection, including physical access to the computer, meaning the chance of theft is significantly lower than other currencies. Consequently, merchants will be able to do business in higher-risk areas. This also means that companies and individuals that may have been hesitant to work with some African countries will now have the ability to confidently expand their offerings to Africa, as well.

Creation of New Services
The introduction of cryptocurrencies like Bitcoin in Africa can spark numerous technological advances to support its usage. Ideally, people will be able to elect to receive their salary in the cryptocurrency and financial institutions can issue cryptocurrency-backed credit cards. Tipjars, both virtual and physical, can also have an ability to be cryptocurrency-based, which can broaden usage capabilities.

Advances in the field are already taking place in Africa: A Ghana-based IT company has recently created a bitcoin-producing farm, adding capacity to the global pool, thus promoting Bitcoin development in Africa. Companies such as BitPesa enable Africans to convert Bitcoin received overseas into local currencies.

Disadvantages of Cryptocurrencies
While cryptocurrencies boast a plethora of advantages, at the present time, very few businesses, in Africa and worldwide, currently deal with them. As such, adoption and growth in Africa is severely hindered. However, as more international companies begin to accept cryptocurrencies, Africa, too, will be able to reap the benefits. Likewise, cryptocurrencies are currently very volatile, with very few coins available and demand rising daily. However, volatility is expected to decrease with time.

Additionally, public awareness of cryptocurrencies in Africa is currently very low. As people are not aware of them, they have yet to demand their acceptance at local business. However, with an estimated million Bitcoin wallets in Africa at the end of 2015, with nearly one third being used by Kenyans, the potential of cryptocurrency in Africa is clearly high. Therefore, lack of awareness is only a temporary issue.

Finally, since cryptocurrencies are anonymous, it has been known to be used for illicit purposes. Nonetheless, while traditionally Bitcoin was viewed as a black market currency used to cover up illegal activities, its widespread adoption by respected companies has given it validation and enabled it to grow.

Cryptocurrencies can potentially transform Africa by enabling an increasingly open trade in the continent itself and worldwide. Cryptocurrencies facilitate cross-border transactions by providing users with one lone currency and little to no fees. Additionally, the security and transparency of the network will provide Africans with the trust that they do not feel with their local financial institutions. With so many Africans lacking bank accounts and electing to utilize mobile payment platforms like this one instead, cryptocurrencies will undoubtedly transform into the largest game-changer for African economies in the upcoming decade.

Read More at IT News Africa