Government Guarantee to Kenya Airways and Shareholding Increase

Today the Kenya government signed guarantee deals to secure Kenya Airways (KQ) continued financial support from EXIM Bank US, and a consortium of Kenya banks and also converted its debt to more equity, significantly altering the ownership structure of the airline.

The Government had advanced loans of Kshs 4.2 billion and $197million to KQ, and the debt conversion will see a 19.1% increase in their shareholding. Aside from, that Kenyan banks, which were owed $217 million, received a 38.1% shareholding in KQ in exchange for $167 million of that debt.

The $267 million government debt and bank conversions are part of a series of complex restructuring deals. The resultant shareholding of KQ will be Kenya Government 48.9%, Kenyan banks 38.1%, KLM 7.8%, and other shareholders will have 5.2%, after a  massive dilution that shareholders approved at an EGM in August 2017. Not all bank and all government debts were converted as that would have seen the government stake go above 51% and they wanted KQ to remain a private company, not a state/parastatal one. The restructured board will comprise 3 directors from the Government, 2 from the banks, and KLM will have 1 representative.

Treasury Cabinet Secretary Henry Rotich said that the guarantee and restructuring by the government was not a bailout and the Government expected repayments of dividends from KQ within the next decade. The Government had been faced with two options with regard to KQ one of which (folding the airline) it could not pursue, and it chose the other, to support the airline, for which, the Cabinet confirmed through an independent business case study by the Seabury Group, that the airline could, through shareholder support, be turned around and have a viable future. He said the capital optimization would enable the airline to trade on its own balance sheet.

Transport Cabinet Secretary James Macharia said that aviation sector, led by Kenya Airways,  contributes 10% to Kenya’s GDP and was a central engine that supports other economic activities like investments, horticulture, and tourism. Also by having a strong KQ, this would strengthen the case to make Nairobi’s JKIA airport a regional hub and his Ministry was in the process of finalizing plans to add a second runway and expanding existing terminals to enable the airport to serve 12 million travelers a year.

The bank shareholding will be through KQ Lenders Co, a special purpose vehicle that will be managed by Minerva Fiduciary Services of Mauritius and the agreement was signed by Madabhushi Soundararajan a career-banker, as director.

Idea Exchange: Startup Roundup

Recent and upcoming startup events around Africa

AVCA Nairobi: The African Private Equity and Venture Capital Association (AVCA) cordially invites you to an informal evening of networking over cocktails on Wednesday, 22nd November 2017 5:30 – 9:00 pm Sarabi Pool & Supper Club Sankara Nairobi. AVCA Members and Qualified LPs: FREE, Non-AVCA Members: £25

ABLAA Africa: 7th All Africa Business Leader Awards will feature winners from West, Southern and East Africa at the AABLA Finale on November 30th in Sandton, which will be broadcast on CNBC Africa on December 7th. West Africa will be represented by Alloysius Attah, Co-Founder and CEO of Farmerline (Young Business Leader of the Year), Oluwatoyin Sanni, Group CEO of United Capital Group (Business Woman of the Year), Mustapha Njie, CEO of TAF Africa Homes (Entrepreneur of the Year), Guaranty Trust Bank (Company of the Year) and Herbert Wigwe, CEO of Access Bank (Business Leader of the Year).

Startups that use drones are welcomed.

The Airbus BizLab initiative in Africa, launched in August this year, targeted African startups innovating for future applications in the aerospace business. Startups that use Unmanned Aerial vehicles (UAVs), satellite Operations and Imagery, 3D Printing, Smart sensors, Internet of Things (IOT), smart energy and Artificial Intelligence (AI) were encouraged to apply. There were 11 finalists who were shortlisted included Aerobot Technologies – Kenya, ESIPPS International – Uganda, Kuunda Three Dee – Kenya, Maisha – Ethiopia, QTRON Industries – Kenya, Swahili Box – Kenya, Savannah Circuit Technologies – Kenya, Startup Lions – Kenya, Track Your Build – Sierra Leone, UAV Kenya – Kenya and the overall winner of the Airbus Bizlab  was lluminum, an Agri-tech startup that uses connected sensor technology with its solar panels to automate and enable remote control of greenhouses. Illuminum greenhouses will get a 10-day trip to Europe to meet with Airbus experts as well as present to Airbus Executives and investors.

I Love Black People Tour & Pitching Competition: Blockchain startup BitMari has teamed up with the National Society of Black Engineers to bring you a unique opportunity to tackle financial challenges across the global African Diaspora and has been inviting undergraduate students, graduate student, and professionals across all fields, including developers, designers, product developers, and entrepreneurs, plus businesses that want to embrace the idea of social innovation or initiatives that combine a positive mission with business. Students can now enter the pitch competition and win up to $5,000 for sending a youtube link with a 60 seconds pitch on an idea that uses Bitcoin technology which will qualify them for a hackathon at the end of November.

Innovate Ventures, the leading Somali tech and business startup accelerator launched in partnership with VC4A, Telesom the Work in Progress! Alliance, had their second cohort of 10 startups from Somaliland and Somalia graduate from their programme. This year’s accelerator saw over 400 applications received and the seed investment given doubled from $15,000 last year to $30,000. First place went to Bilan Baby, a startup that sells baby furniture, accessories and baby clothing as well as maternity products. Bilan Baby received $7,000 in seed investment. Second place went to SAMS, an agritech marketplace for farmers and buyers and Almijet, a digital printing company who received $5,000 each. Finally, Brandkii, an online marketing and advertising startup, received $3,000. Further investment was provided to Muraadso, an e-commerce startup and last year’s winners; they received $10,000.

Kenya Bankers Catalyst Award nominees include Barclays, Commercial Bank of Africa, Cooperative Bank, Diamond Trust, Equity, KCB, Kenya Women’s Finance Trust, Lendable /Levanter, National Bank, NIC, Prime, Safaricom, Standard Chartered, and Stanbic among others.

MasterCard Foundation sponsored ‘Client at the Centre’ Prize which highlights best practices in financial services where client satisfaction is a priority. Jumo, a South African based company beat close to 100 financial services firms to win the$150,000 prize in recognition of its innovative and impactful low-cost financial services that serves poor people. The winner was picked by a 400-person audience during the ongoing Mastercard Foundation’s Symposium on Financial Inclusion  2017 Symposium on Financial Inclusion in Accra, Ghana. The other two Prize finalists were ftcash, one of India’s fastest-growing financial technology ventures which aims to empower micro-merchants and small businesses with the power of digital payments and loans, and Destacame, a free online platform in Latin America that empowers users by giving them control over their data to build their financial capabilities and to access financial products.

Orange  announced the winners of the 7th Orange Social Entrepreneur Prize 2017 in Africa and the Middle East. 49 local winners who were drawn from Orange’s 17 subsidiaries in Africa and the Middle East were entered into the international contest. The winning projects this year were: 1st prize was awarded to Manzer Partazer in Madagascar, a startup that aims to reduce food waste by sharing excess food from restaurants, hotels or supermarkets.  2nd prize was awarded to City Taps which has developed a solution which bridges the gap between water services and the most disadvantaged citizens.  3rd prize was awarded to eFret.tn in Tunisia a website that links up foreign exchange senders with transport and transit professionals in Tunisia .Also a Special Content Prize was awarded to Génie Edu in Cameroon, an e-learning platform which aims to help students having problems by providing online video courses and Internet users were also invited to choose their “User Favourite” project and this was the Malagasy project Majika that facilitates access to renewable electricity and support for rural entrepreneurship.

Reuters Journalism Training Programme (Middle East & Africa): The Reuters Journalism Programme is an opportunity for recent graduates, early career reporters, or professionals with proven experience who are looking to switch careers into journalism. The programme in 2018 will consist of 6 months of formal and on-the-job journalism training, initially in our London newsroom, followed by one of our other main reporting newsrooms or bureaus in the Middle East or Africa.

 

USAID: Enterprises within the Kenya Innovation Engine (KIE), a USAID-funded program Feed the Future initiative have leveraged $8.2 million worth of private sector investment, and created more than 6,000 jobs at the business and farm level. In the course of implementation, in order to ensure sustainability, KIE-supported enterprises formed 56 strategic public-private partnerships with progressive local and international organizations such as Safaricom, Equity Bank, Microsoft Corporation and VISA. Over 670 innovation applications received in four solicitation waves and over $4.2M invested in a total of 26 awards made to date. Project awardees: Stage I (proof-of-concept): M-Farm; Quest Agriculture; The Real IPM Company; University of Nairobi; Virtual City; Kenya Medical Research Institute (KEMRI); Maseno University; Caytree Partners; and Kenya Network for Dissemination of Agricultural Technologies (KENDAT). Graduated to Stage II (pilot-roll-out): Arid Lands Information Network (ALIN), Kenya Livestock Marketing Council (KLMC), iProcure, Amtech Technologies; Wanda Organic; and Kenya Biologics. Direct entrants at Stage II (pilot-roll-out): Lachlan ; Indicus Kenya.; Value Farms and Takaful Insurance.

Village Capital is launching the Fintech Africa 2018 program in collaboration with PayPal. The U.S. headquartered VC firm is recruiting a cohort of 12-14 early-stage fintech startups to go through a three-month investment-readiness program, early next year. They are recruiting from Ghana, Kenya, Nigeria, Rwanda, South Africa, Tanzania, and Uganda and are looking for startups that address insurtech, pensions and savings, cooperative finance, and financial literacy; leverage data for credit scoring and consumer insights; and apply fintech to other sectors of interest: agriculture, energy, education, and health. Two startups will be peer selected by fellow entrepreneurs to receive $50,000 investment each. The deadline for applications is November 24.

XL Africa: Twenty of the most promising African digital start-ups will take part in the XL Africa  residency, the flagship initiative of the business accelerator launched last April by the World Bank Group’s infoDev program. The residency will conclude with the XL Africa Venture Showcase, a regional event organized in association with the African Angel Investor Summit.  With support from African investment groups, XL Africa will help the startups attract early stage capital between $250,000 and $1.5 million. Selected from a pool of over 900 applicants, the startups participating in the event are: Aerobotics (Data, South Africa), Asoko Insight (Data), Coin Afrique (Marketplace, Senegal and Benin), Edgepoint Digital (Jamii) (FinTech – Insurance, Tanzania) , Electronic Settlement (FinTech, Nigeria), Lynk Jobs (HR, Kenya), MAX (Transport, Nigeria), ogaVenue (Venue Platform, Nigeria), Ongair (SME Services, Kenya), Pesabazaar.com (FinTech, Kenya), Prepclass (EdTech, Nigeria), Printivo (Printing, Nigeria), Rasello Company (SME Services, Tanzania), Rensource (Energy, Nigeria), Sendy (Delivery, Kenya), Snapplify (Publishing, South Africa and Kenya), Sokowatch (Delivery, Kenya), TalentBase (HR, Nigeria), Timbuktu (Travel, South Africa), and Tizeti Network (Connectivity, Nigeria)

Deloitte on African Art and Finance

The value of African art can grow tremendously over the next decade with investment and support from buyers both within Africa, and others who live beyond the continent, as well as from African art schools, governments, museums, galleries, art professionals and banks to stimulate and support more interest in African art.

These are some of the findings from the Art & Finance Report 2017 that was unveiled at Deloitte’s 10th Art and Finance conference at the Italian Stock Exchange in Milan this week and which estimated that the value of art owned by Africans collectors was $12.7 billion in 2016 and that it  could grow to $20 billion by 2026. This still accounts for less than 1% of the global art market currently estimated at $1.6 trillion with an annual turnover of $50 billion.

Some key findings of the report which looked at the global art markets include:

  • The art market should be self-regulated and there is great support for art to be part of wealth management offerings to customers at more private banks.
  • Banks need more specialists to properly value and manage art markets.
  • Art can be used as collateral, enabling art collectors and galleries to realize liquidity without having to make unfavorable sales to meet short-term cash-flow needs. See this on how to borrow against art.
  • Art as an investment class poses risks that are no different from others that banks manage and have to guard against, including vices like price manipulation, insider trading, money laundering and terror financing.
  • The top categories in the global art market are  “post-war & contemporary art”, followed by “modern & impressionist art”, “Chinese & Asian art” and ” jewels & watches”.

Some excerpts from the report on the African art market include:

  • International dealers and auction houses like Bonhams and Sotheby’s are seeing a gradual shift in the African contemporary art buyer base from mainly African art collectors to a more international and diverse group of art collectors.
  • London experienced a 12.5%  rise in African art auction sales between 2015 and 2016, with Bonhams controlling a 65% market share.
  • Sotheby’s London joined the African art auction trend in 2017 with its first auction focused purely on African contemporary art. It achieved total sales of over $3.6 million and 79 of the 116 lots were sold.
  • In 2017, record-breaking hammer prices recorded at auction for contemporary art were achieved by Nigerian artist Njideka Akunyili Crosby, whose work sold for less than $100,000 at auction in 2016. However, less than a year later, the artist’s piece “Drown” sold for a record-breaking US$1.1 million at a Sotheby’s auction and a few months after that, her 2012 painting “The Beautiful Ones” sold for US$3.1 million at a Christie’s London auction.

There is currently an inter-section of art, wealth, and technology with the possibility that bitcoin / block-chain can be used to assist banks and financiers with tools to help with transparency authentication, copyrights and ownership of art objects and there are already platforms such as Blockai, Ascribe.io, Chainmark, and smArtchain etc. in use.

The greatest demand for African art is currently from high net worth individuals in Nigeria and South Africa, which are the two largest economies in Africa. The report also notes that there is increasing demand from corporations such as the Nigeria Stock Exchange

Elsewhere In Kenya, Stanbic was working on investor management portfolio offerings that include wine and African art, while Nigeria has Access Bank in Nigeria. There are also other innovations coming up in African art and finance from leading banks and galleries in Kenya, South Africa and Europe.

Nairobi Supermarket Shoppers and Economics Trends

Chris (@blackorwa) has a blog on Kenya supermarket buyers, deciphering consumer patterns and habits of Nairobi shoppers by analyzing and decoding their discarded supermarket receipts.  This is an interesting experiment, in which they actually paid street kids to dig and dive for recipes in the garbage. They based their search for trends on a previous study at Walmart to draw out patterns of shoppers.

some interesting findings

  • Supermarkets not within malls have 61%  of their customers buying less than 3 items and spending Kshs 200 (~$2) on average.
  • M-PESA is yet to dominate retail – it was used for just  3.6% of supermarket transactions, with cards (credit/debit) used for 1.8% of transactions 0  as cash is still king at supermarkets. Safari com hopes to change that with 1tap which makes it faster to make purchases.
  • On a typical weekday, a small well-positioned supermarket does 2,350 transactions with a value of about Kshs 360,000. This translates to about Kshs 10.8 million in revenue a month.
  • Margins are thin, and supermarket profit are determined by controlling labour expenses.
  • Cooked food, mineral water, and bakery drive a lot of sales – they have the highest sales volume and greatest profit margins.

Take  a look at it the study

NASA Post-Election Economic Boycott of Brookside, Bidco, Safaricom

Last week, Kenya’s opposition movement, the National Super Alliance (NASA), who boycotted the repeat presidential election held on October 26, announced an “economic liberation programme” and called on their followers to boycott the products of three companies Bidco, Brookside, and Safaricom.

What’s the link?

Brookside Dairies is associated with the family of President Uhuru Kenyatta. The company was started in 1993 and Brookside has grown to control about  44% of the processed milk market in the country, ahead of New KCC and Githunguri Dairies.

Brookside has acquired several dairy companies and still sells milk under their original brands including Tuzo, Molo Milk, Ilara and Delamere.  While the NASA statement mentions that when Jubilee took over milk farmers were getting Kshs 35 per litre while consumers paid Kshs 72 per litre, and that today farmers still get Kshs 35 while consumers pay 120 per litre, the economics of milk prices is a complex one, not attributed to the processor alone. Brookside collects milk from over 160,000 farmers every day.

Safari com: MP’s from the NASA side have  accused Safaricom, arguably Kenya’s most successful company, and some of its employees who they publicly named, of enabling  incorrect election results to be transmitted during the August 8 elections, something which the company has denied and also expressed concern that their employees had been needlessly endangered as they did their jobs and the company merely fulfilled a contract to support the 2017 Kenya general election.

NASA MP’s have gone ahead to public switch from using Safaricom to rival Airtel, even as Safaricom dealers warned of dire effects for their employees and communities.

Safaricom has 6 of its 45 shops in the Western/ Nyanza Region which is the bedrock of NASA support. Whether this is a turning  point for Airtel in Kenya as a company which has branded as Kencel, Celtel, and Zain and which has steadily lost ground and value to Safaricom over the years, remains to be seen.

But members of parliament from ODM (the main party in NASA)  have in the past voiced critical comments about some of their issues with Safaricom from even before the 2017 election –  especially during debate on the gambling and sport betting bills in the last parliament, earlier this year.

Here are some comments by Nicholas Gumbo, the then-Member of Parliament for Rarieda and Chairman of the Public Accounts Committee in the National Assembly.

Then-Member of Parliament for Gem and Deputy Minority Leader, Jakoyo Midiwo threatened on more than one occasion to introduce legislation to break Safaricom.

Bidco: The edible oils company is probably the most vulnerable of the three brands, and was likely targeted because its group chairman Vimal Shah, is the chairman of MKenya Daima an offshoot of the Kenya Private Sector Alliance (KEPSA), of which he’s a past Chairman, and which has throughout the election season been championing for respect of the election outcomes, grievances to be addressed in the constitutional ways (through the courts), for politicians to be careful about their public utterances and for normal business life to resume. KEPSA recently released a statement that read:

This is why we have consistently called Kenyans’ attention to the disastrous economic consequences of the present uncertainty which affects all Kenyans. The Private Sector having reviewed the loss and has estimated it to be about 10 per cent of the GDP equivalent to Kshs 700 Billion

Earlier this year, Bidco announced plans to become a billion dollar turnover (Kshs 103 billion) company by 2021 (their current turnover is Kshs 25 billion) by diversifying into the production of fruit juice, soft drinks, and cereal products.