Author Archives: bankelele

AfDB Economic Outlook – 2019 AEO for East Africa

This week saw the launch of the 2019 East Africa Economic Outlook Report in Nairobi by officials of the African Development Bank (AfDB), led by Gabriel Negatu, the Director General of the East Africa regional office. This was the second in the series, after the first was well received and, the reports will now be an annual publication of the Bank.

It looked at growth prospects and economic policies, of countries in the region – Burundi, Comoros, Djibouti, Eritrea, Ethiopia, Kenya, Rwanda, Seychelles, Somalia, South Sudan, Sudan, Tanzania, and Uganda – their challenges, and particularly progress in the area of regional integration that the AfDB has made a theme of its reports and activities for 2019.

Some key findings in the East Africa AEO are:

  • Fast growth in the East: East Africa at 5.7% leads growth on the continent due to policies of some countries to diversify their economies – Ethiopia and Rwanda which grew at over 7% in 2018 balance lead in manufacturing and services, while Kenya and Tanzania balance services and agriculture. Countries like Kenya (coffee/teas 29% of export and flowers 10%) Ethiopia (coffee 33%) Rwanda (mineral 41% and coffee/tea 38%) have diverse exports while others like South Sudan (mineral fuels – oil at 98% of exports), Somalia (live animals 71%) and Eritrea (ores/ash/slag 97%) are more dependent on single commodities.
  • There is a disparity in the fast growth, whose quality is low, leaving poverty, unemployment and inequality to persist in regional countries. There is also fragility in the nations of South Sudan, Somalia, Comoros and even Ethiopia.
  • Rising debt is a concern: The levels are at over 30% of GDP in most East African countries (over 166% in Sudan) and that, coupled with low deposit resource mobilisation is a risk. Some countries will need to make structural reforms before they slide back to pre-HIPC debt-relief levels of the 90’s and they should consider limiting imports to capital goods while promoting local manufacturing of consumer goods which also creates jobs. 
  • Integration concerns: The AfDB report sees regional integration in East Africa as having mixed performance; intra-regional trade is 8.3% which is below the continental average of 14.5%, and except for Comoros, East African countries all do less than 12% trade in the region. Also that Informal trade at border crossings is as high as 50% of what formal trade it. The report looks at how to accelerate intra-regional trade through the removal of tariffs, simplification of export rules, one-stop border posts that share data between countries,  sensitizing populations, and building better infrastructure (many border exits are single file which creates bottlenecks).
  • Security pays: The Ethiopia-Eritrea peace agreements in 2018 have opened up access to Eritrea ports and will ease Ethiopia’s trade by lessening the burden on congested Djibouti than handles 80% of Ethiopia’s goods. “Feedback from Ethiopian Airlines reveals that, following the Ethiopia-Eritrea Peace Agreement, the airline is saving up to $10 million a month in fees that were previously paid to contiguous countries to use their airspace“. That said, Burundi, Somalia, South Sudan and even Ethiopia are considered to be fragile states.
  • Intra-Africa trading opportunities: The goodwill from, and ratification of, the African Continental Free Trade Area (CFTA) in 2018 is expected to boost trade among African countries. But there is concern that few of the regional bodies that are supposed to promote trade are useful; they are under-budgeted and defined by personalities, not policies. 

The 2019 AEO for East Africa is published in English, French, Amharic and Kiswahili languages, and along with other regional reports, for West, Central and South Africa, some are also published in Arabic, Hausa, Pidgin, Yoruba and Zulu to ensure stakeholders are able to understand and discuss economic and policy issues.

CIA Economic Data on Kenya and its President in 1978

Excerpts from a declassified CIA document from August 1978. 

The Economic Intelligence Weekly Review issue, dated 24 August 1978, was published two days after Kenya’s first President Jomo Kenyatta, who had led the country since independence in December 1963, passed away.

The document is meant for US government officials and was done in a format that is useful to them. It has economic indicators, industrial material prices, and contains data from sources like the IMF, and the Economist (their index of 16 food prices). There are also charts on Inflation, unemployment, trade patterns (imports and exports), unemployment rates, interest rates etc. in different countries that are classified by segments such as the Big Seven (US, Japan, West Germany, France, UK, Italy and Canada), other OECD, OPEC (oil-producing nations) and also Communist countries, and other ‘World’ countries.

There are detailed write-ups in the CIA weekly review on:

  • The black market in Cuba: Hustling of consumer goods is vibrant, reflecting shortages of consumer goods. Most consumer goods are rationed except a few luxury items like rum and cigarettes. It also notes that aggregate personal incomes in Cuba are up 38% since 1973 and have reached the rank and file of Cuba, with no evidence of appreciable corruption among top-level officials.
  • The USSR has borrowed more than it needs to build a pipeline. It obtained $2.5 billion, which was $1 billion more than required, from the CEMA International Investment Bank (IIB). Five Eastern European countries helped build it, and in exchange, they will receive gas annually, while sales of natural gas to Western Europe are expected to yield $750 million to $1 billion. The IIB borrow funds in European markets and on-lends them to Eastern European countries at rates better than the countries could obtain on their own. Items paid for with the loan funds included equipment bought from West Germany, Italy and France.
  • Concern about Poland debt payment problems despite a shrinking deficit: For a third year, Poland had to borrow $4 billion and could face a financial crunch or debt rescheduling. Cutbacks of available industrial materials have been severe, affecting production, while debt service payments are now double what they were in 1976 – amounting to 60% of Poland’s exports to the West, compared to 37% in 1976. 
  • The USSR is engaging with Iraq and India.
  • On Kenya, it looked at the transition era and economic stakes of the Kenyatta family, whose inner circle controlled key economic posts and had extensive commercial and agricultural investments, and land tracts around the country. 

The CIA found that the substantial economic investments built over 15 years would deter them from unconstitutionally challenging Acting President Daniel arap Moi, even as they predicted that the Moi-Njonjo group’s (Njonjo was Kenya’s Attorney General and a key ally of Moi in the transition phase) efforts to increase the economic pie could cause disenchantment with the Kenyatta clan.

It was expected that economic pressures would cause the government to push for redistribution of the country’s wealth as it also noted that the family is big in two activities – charcoal and ivory whose exports were banned. At the time, Kenya was considering applying to the IMF for assistance with its balance of payments in the coming years as oil prices had risen, key foreign exchange earners like coffee and tea were slumping, and there was a need to modernize the military while Kenya had also lost its top destination market – Tanzania with the collapse of the East African Community.

It is an astonishing amount of economic data, from fourty years ago – so what does the CIA collect today on different countries and economies?

See also this story from the Standard newspaper. 

TEF 2019 class unveiled

The fifth cycle of beneficiaries of the Tony Elumelu Foundation (TEF) entrepreneurs program was unveiled on Friday, March 22 in Abuja, Nigeria.

This year 216,000 applied to join (up from 151,000 in 2018), with 90,000 being women during the window that opened on January 1. After an extensive shortlisting process, 3,050 entrepreneurs, from 54 African countries, were selected to receive $5,000 capital for their business ventures, 12 weeks of tailored training, and the opportunity to attend the annual TEF Forum in July 2019.

Over the years, more strategic partners have come forward to assist the Tony Elumelu Foundation to expand the impact of their ten-year $100 million program that aims to empower 10,000 entrepreneurs and create 1 million jobs and in 2019, partners are providing funding support for 2,500 entrepreneurs.

The African Development Bank (AfDB) is sponsoring 1,000 entrepreneurs (a commitment worth $5 million) and matching the support of the Tony Elumelu Foundation this year. Also, the United National Development Program (UNDP) is sponsoring 754 from 45 countries, while the International Committee of the Red Cross (ICRC) is sponsoring 180 entrepreneurs from conflict-hit countries. Others are Seme City (from the Federal Republic of Benin), the US Consulate in Lagos (sponsoring 20), the Anambra State Government, Indorama, and the Government of Botswana (sponsoring 20).

Present at the unveiling, that was livestreamed around the world, was Aisha Buhari, the First Lady of Nigeria, and Tony Elumelu, who founded the Program. Others were the Foundation CEO Ifeyinwa Ugochukwu, her predecessor Parminder Vir, TEF partner representatives, and the media.

Also at the event, a team of evaluators from Accenture explained the selection and short-list process they had done since the application deadline of March 1 2019. They also provided a breakdown of applications by country, gender, business stage, and business industry, with the highest number of applicants for 2019 engaged in agriculture, ICT and education sectors. They also highlighted trends in the program over the years including the overall increase in the number of female applicants.

All the applicants are now part of TEF Connect, which, with over 600,000 members, is the largest social network of African entrepreneurs. On the Connect platform, they can chat with fellow business owners in different African countries, access mentors, learning materials and network and share business ideas.

Reading the Kenya Rugby tea leaves

The Kenya Rugby Union held its annual general meeting on March 20. On the agenda too was the election of officials, including a new Chairman.

Officially called the Kenya Rugby Football Union (KRU)  the AGM came after a tough year, for the sport. Kenya does relatively well in international rugby, with its colourful ‘Sevens’ team featured on television broadcasts and with a loyal fan following around the world. The sevens team is currently ranked number 14 (after finishing number 8 in 2018)  and sometimes features Collins Injera, the all-time top try scorer.

But the team and the sport is rankled with management and funding issues, and while some corporations have supported different rugby series, competitions, and programs, there are still issues of team selection, coaching support and player welfares. During one series in Paris, the sevens team covered up logo of their shirt-sponsor, Brand Kenya, in protest over not receiving their allowances by the time they started their matches, and that drew the wrath of Kenya’s Tourism Minister, Najib Balala, who angrily cancelled their sponsorship contract, only to reinstate it a few days later.

AGM: The meeting was held after members overruled a request from the Government for them to postpone the AGM. The financial accounts of the Kenya Rugby Football Union (KRU), audited by PFK auditors, were shared with members at the meeting.

What do they tell us about the state of rugby?

Income: The income for 2018 included national squad income of  92 million (down from 117M in 2017), annual competitions income of 80M (up from 17M in 2017), World Rugby 21M and World Rugby sevens team support of 20M. There was also other income from jersey sales of just Kshs 736,000.

The annual competition income included 35M from Radio Africa and 9M  from Stanbic. East African Breweries donated 24M and 15M in 2018 and 2017 respectively while tickets sales in both years were 5.5M and 11.6M respectively. 

Of the national squad income in 2017, 97% of that (Kshs 113 million) came from Sportpesa, who later withdrew all sponsorships in protest at the Government increasing taxes on sport betting companies.  The 2018 income was more balanced, with Kshs 52M from the Government, and 20M from Brand Kenya as, to their credit, the Government fulfilled a pledge, at least for rugby, to plug the hole left by the Sportpesa departure.

In 2018, they also got 18M from Bidco, and enjoyed use of a vehicle that was donated by Toyota Kenya and containers from Bollore Logistics. Sponsorship income in 2017 included Kshs 20M from Wananchi (Zuku), Tatu City 5M, 4M from Bidco and a 2M bonus payment from Sportpesa

Expenses: In 2018, Kshs 132 million was spent on national squad operations (comprising 65M for the sevens team and 57M for the 15’s team), and 38M on competitions (comprising 10M each for club subsidy and the Safari Sevens tournament, and 8M each for international matches and the national sevens circuit). On rugby development, 10M was spent while 40M went towards administrative expenses (including 21M of salaries and 6M million on marketing and agency – which was down from 20M in 2017).

OverallThe Kenya Rugby Football Union (KRU) took in Kshs 227 million in 2018 and spent the same amount to end with a Kshs 527,104 surplus. The year before it took in 212 million and spent 247 million, resulting in a deficit of Kshs 36 million.

KRU has an accumulated deficit of Kshs 61 million, on its balance sheet with current liabilities of Kshs 120 million far greater than its current assets of Kshs 47 million. KRU had a negative bank position of minus 1.9M in 2018 (comprising a cash balance of Kshs 661,822 and overdraft of 2.5 million. They are owed 47M in receivables but owe 118M in trade payables (62M) and accruals of (50M)

These items were flagged by the auditors who also noted that KRU does not have a tax exemption certificate and the Society has made no provision for the payment of corporate tax.

Elections and Way Forward: The campaign manifesto of Sasha Mutai, one of the candidates for Chairman, was circulated online a few weeks before the election. In it, he articulated his plans including, short-term ones of settling the KRU debt, encouraging more (tax-eligible) corporate sponsorships, ensuring salaries are paid on time, supporting programs to nurture more women and schools rugby, increasing broadcast coverage and improving player welfare (including providing health insurance). His long-term goals include building an affordable national rugby stadium at Kasarani and to have Kenya qualify for the 2023 Rugby World Cup in France.

After the votes were counted, George Gangla was elected to succeed Richard Omwela as the  Chairman of the Kenya Rugby Union. He received 33 votes against Sasha Mutai 20 and Asiko Owiro who got two votes.  Geoffrey Gangla is the CEO of Genghis Capital, an investment bank while Omwela is Chairman of Scangroup and a managing partner at a leading law firm – HH&M.

Jumia IPO – Prospectus Peek

Edit April 12: Jumia lists on the NYSE

EDIT March 29 2019:  Mastercard Europe SA has agreed to purchase 128;50.0 million of our ordinary shares in a concurrent private placement at a price per share equal to the euro equivalent of the IPO offering price per ordinary share. Based on an assumed IPO offering price of $14.50 per ADS, which is the midpoint of the price range set and an assumed exchange rate of $1.1325 per 128;1.00, this would be 7,810,364 ordinary shares (corresponding to 3,905,182 ADSs). We will receive the net proceeds from this Concurrent Private Placement.

  • Mastercard Europe SA has agreed to purchase €50 million of our ordinary shares in a concurrent private placement at a price per share equal to the euro equivalent of the initial public offering price per ordinary share.
  • Certain of our existing shareholders have the right to subscribe for additional ordinary shares at nominal value depending upon the initial public offering price and the number of shares placed in this offering. Assuming a placement of all offered ADSs at the midpoint of the price range, these existing shareholders may subscribe for 18,157,245 ordinary shares against payment of €18.2 million.
  • The chairperson of our supervisory board, Jonathan Klein, has indicated an interest in purchasing an aggregate of up to $1.0 million in ADSs in this offering at the IPO price.

Posted March 15 Reading the F-1 filing for Africa Internet Holding GmbH, the Africa e-commerce company that will now be known as Jumia Technologies AG after it applied to list its shares on the New York Stock Exchange (NYSE) under the symbol “JMIA”.

Not much about the management at Jumia has been shared since Rocket Internet was dissected in Bloomberg story on their formula for Africa.  “Rocket sends three people to a different country to start a business: a CEO, a CFO, and a COO. The CEO builds the team, does the marketing, and drives sales. The CFO manages the revenue growth and cash burn. The COO makes sure we have a big enough warehouse and that the packages get delivered… and .. (the brothers) didn’t feel bad about copying. They had this feeling like they have to make Germany great again, so they only care about building big companies.

Why Africa?: The company (Jumia) is Africa Internet Holdings, registered in Germany. Jumia sees Africa as a market with 1.2 billion people (Jumia is in countries with 55% of this population), GDP of $2 trillion and 453 million internet users (Jumia is in countries with 77% of these internet users) and (they) believe that this younger generation, born into an “online” world, is increasingly seeking access to a wider choice of food, consumer goods and entertainment options as it becomes increasingly connected to, and aware of, global consumer trends.

They now have 4 million active customers, 81,000 active sellers, handled 13 million packages in 2018 and had 54% of transactions done on Jumia Pay which they introduced in Nigeria in 2016 and Egypt in 2018.

Ownership: The company was incorporated in June 2012. Shareholders in December 2018 were Mobile Telephone Networks Holdings – MTN (31.28%), Rocket Internet (21.74%), Millicom (10.15%), AEH New Africa eCommerce I (8.86%), 6.06% each for Atlas Countries Support and AXA Africa Holding, Chelsea Wharf Holdings (5.51%), CDC Group (4.04%), Rocket Investment Funds (3.48%) and Goldman Sachs (2.83%). A new shareholder, Pernod Ricard, came on board investing €75 million cash in January for 7,105 shares which became 5.1 million shares in a capital increase in February 2019 and they are entitled to more shares if an IPO happens within 18 months of their investment.

Governance: Jumia has 2 Co-CEO’s – Jeremy Hodara and Sacha Poignonnec who are both co-founders of the Company. There is also Antoine Maillet-Mezeray, the CFO – and the three, who all reside in Germany, comprise the management board of the company.

As part of the IPO, a supervisory board has been formed and it includes Gilles Bogaert (CEO Pernod Ricard SA), and Andre Iguodala, an NBA player with the Golden State Warriors. Other are Blaise Judja-Sato Jonathan D. Klein, Angela Kaya Mwanza (UBS Private Wealth), Alioune Ndiaye  (CEO Orange Middle East and Africa), Matthew Odgers (MTN Group) and John Rittenhouse.

Employees: The Company has a total of 5,128 staff including 1,213 in Nigeria, 572 in Egypt, 686 in East Africa and 183 in South Africa. Also, an ESOP (stock option plan) was set up in 2019 that will award options to key management of Jumia. The three members of the management board had total compensation of €1.04 million in 2018, and the two co-CEO’s each have 2.2 million shares as underlying options that were granted in 2016.

Assets: The Company has no real estate. It is headquartered in Berlin where they lease office space along with other spaces in Dubai and Portugal. They also have leased warehouses in Lagos, Cairo, Nairobi, Casablanca, Abidjan, and Cape Town.

Significant subsidiaries are CART (Nigeria), ECART Ivory Coast, ECART Kenya, ECART Morocco and Jumia Egypt.

Financials: For 2018 they had revenue of €130 million. Of the revenue, €66 million from West Africa, €378 million from North Africa, €15 million from South Africa and €10.8 million from East Africa (Kenya, Uganda, Tanzania, Rwanda – up from €4.6 million in 2017. In February 2016, they had exited Tanzania and sold their four Tanzania subsidiaries to co-CEO Hodara who wanted to run them himself.

In 2018, the goods they sold cost €84 million and Jumia also spent €94 million on administrative expenses (including €48 million on staff), €50 million logistics, €47 million on selling and advertising, and €22 million on IT expenses (including 12 million staff)

As a result, in the year 2018, they lost €169 million, compared to a loss in 2017 of €153 million. As at December 2018, the company had cash of €100 million and accumulated losses of €862 million.

Taxation: There are potential tax liabilities that have not been assessed over and above the €30 million in pending and resolved matters.  Their effective tax rate was 0.5% in 2018 and 7.4% in 2017.

The company has accumulated tax losses of €358 million including €145 million in Nigeria, €61 million in Egypt, €39 million in Kenya (~Kshs 4.5 billion), €28 million in South Africa and €25 million in Morocco.

Jumia Filing Matters: 

  • Filing costs about not confirmed but there will be a $12,120 SEC registration fee and an estimated $15,500 FINRA filing fee.
  • The public offer price is not known, but the maximum value after the listing is estimated to be $100 million.
  • Underwriters are Morgan Stanley, Citigroup Global and Berenberg
  • Ernst & Young auditors since 2014 and have provided two years of audited results.

Growth Strategies: 

  • Leverage their e-commerce platform to grow the consumer base in each market.
  • Drive consumer adoption and usage through increased consumer education as they continue to strive to deliver a positive online shopping experience
  • Increase the number of sellers and level of seller engagement
  • Develop Jumia Logistics in to better serve consumers and drive economies of scale.
  • Increase the adoption of JumiaPay.  They have agreements, through partners, in Nigeria, Egypt, Ghana, and Ivory Coast to offer JumiaPay, but they don’t offer the full JumiaPay wallet range of services possible, which would require additional eMoney permissions in every country (e.g. Morocco would require €1 million in core capital and €450,000 for Ivory Coast). In Kenya, where they currently operate as a direct lender, they are preparing a new licensing application for JumiaPay.

Risks cited in the Jumia offer:

  • One caution cited is that (US) investors may have difficulty enforcing civil liabilities against us or the members of our management and supervisory board – (as) we are incorporated in Germany and conduct substantially all of our operations in Africa through our subsidiaries.
  • We do not expect to pay any dividends in the foreseeable future.
  • We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
  • We face competition, which may intensify.  Current competitors include Souq.com in Egypt (affiliated with Amazon), Konga in Nigeria and Takealot, Superbalist and Spree, which are all part of the Naspers group, in South Africa. Also .. some of our competitors currently copy our marketing campaigns, and such competitors may undertake more far-reaching marketing events or adopt more aggressive pricing policies.

€1 = Kshs 115 (Kenya shillings)