Category Archives: Infrastructure

Absa Kenya on Wills, Trusts and Succession Planning

Absa Kenya has been holding thought leadership seminars since their rebrand in February 2020.

This week they had an investor education connect session on wealth management, with a focus on wills, trusts and succession planning which featured Madabhushi Soundarajan (Managing Director, MTC Trust), Peter Waiyaki (Partner at Mboya, Wangong’u & Waiyaki Advocates) and Anthony Mwithiga (CEO, Absa Asset Management).

Some excerpts 

Wills:

  • People don’t do wills because they think they have nothing – but anyone over 18 who has been working has something to give. 
  • Another excuse of some educated Kenyans is they think they are courting death or will be marked for death by their families
  • Can do a will in an hour or five years. It does not have to be expensive or complex.  
  • A will should have two things to help a will (i)  a residual clause. assets grow after the will make sure any other assets be distributed the way the old “any other assets  (you don’t have o make a new will (ii) creation of a testamentary trust. 
  • Let your family know where your will is kept. If two wills emerge, the latter one will be used. If a will is destroyed, it is not valid.
  • If someone remarries, it invalidates a will because they are considered to have new dependents. 
  • Do not include matrimonial property should not be in a will. Or joint owner – when someone dies the spouse inherits the full property. They should not be in the will. 
  • Also don’t put investment or trust property in a will.
  • Proof of dependence: wives and children do not need to prove they are dependents. This also includes conceived but not yet born and adopted kids. But parents or siblings of a deceased must prove they are dependent. Also in Kenya, a husband/man will have to prove  he was being supported by a woman.
  • Covid situation: Oral wills are only valid for 3 months and must be mentioned in the presence of two witnesses who are not beneficiaries. And for a written will, someone in a hospital, surrounded by relatives is not considered to have the freedom to write a will. 
  • Without a will, only the family of a deceased person can inherit from the estate. No gifts to charities, churches etc. are recognized. 
  • Do not put assets in a will that already have nominated beneficiaries elsewhere e.g. life insurance, pension funds. 

Trusts:

  • Have the philosophy of giving things up as you will nor carry your wealth to the grave – so start thinking about preservation.
  • Banks are getting worried about lending to trusts. 
  • A trust is not a legal entity, a foundation is a better legal entity that can be created to run a school or a hospital.
  • Most common are discretionary trusts and others are ones that founders can create to run businesses for their families
  • A trust is a lengthy document. In a trust, you can exclude rogue children. 
  • To set up a trust; define the objectives, the trust structure, the beneficiaries, the trustees (ideally a corporate) and seek professional advice. 

Investments:

  • Use professionals e.g. in a unit trust to administer investments if you are too busy. 
  • If you have a vision, take a lead and invest in it so that others will follow.  
  • the realty over the last five year is the property prices can go down, unbelievable to many investors of 15 years ago. Covid has hit offices and malls, but there are still investments in residential, logistic and warehousing ventures.
  • Attributes of an ideal asset; gives returns, it should grow, it should be liquid, be understandable and It should also be secure (legal ownership & from damage). Individuals and families have investment portfolios, as it is not possible to get one asset to full all these attributes. 
  • The investment universe encompasses money markets, treasury bills, bank deposits, and listed shares which now includes a New Gold ETF.  Also unlisted shares (shares in a business stems/OTC), real estate, and alternatives such as derivatives, commodities, currencies and infrastructure projects which is a new asset class open to pension funds.

Suggestions:

  • Everyone should discover what type of investor they are and what stage they are on the life journey to understand what to invest in. 
  • Think investments beyond Covid-19.
  • Write a will today; there is no way of running from your dependents –  except through trusts, which allow one to better organize estates.
  • The best non-taxable investment in Kenya is infrastructure bonds.

AfDB’s record capital call of $115 billion

The shareholders of the African Development Bank (AfDB) have approved an increase of its capital to support its future development finance and impact across the continent over the next decade.

Meeting in Abidjan, Côte d’Ivoire, in October 2019, the shareholders, representing 80 countries, approved an increase in the AfDB’s authorised capital, from $93 billion to $208 billion. At the end of 2018, the Bank had assets of $47 billion and $58 million of net income.

The voting power of shareholders includes Nigeria (9.3%), Egypt (5.6%), South Africa (5%), Algeria (4.2%), Morocco (3.6%), Côte d’Ivoire (3.7%) and Kenya (1.4%). African nations have a total of 59% of the voting powers, while other nations, including the USA (6.6%), Japan (5.5%), Germany (4.1%) and Canada (3.8%), have total votes of 41%.

The path to the seventh capital increase began back in January 2018 and has gone through several steps including interactions and progress review updates with shareholders and partners that were summarized at the 2019 AfDB annual meetings in Malabo, Equatorial Guinea.

The last capital increase was in 2010. Some of the highlights of the funding during the sixth period include the establishment of agro-industrial zones across Ethiopia and arranging $1 billion in finance for South Africa’s Eskom to expand its generation and transmission capacity. There was also the Sene-Gambia bridge, which was the realization of a 40-year dream to connect two countries, the 895-kilometers Addis-Mombasa highway and the expansion of Namibia’s Walvis Bay port to become a regional logistics hub.

A bank study of the impact of its $1.4 billion investments in East Africa region, between 2013 and 2015, found that this had resulted in the addition of $1.2 billion to the economies of the different countries and created over 380,000 jobs

The new funding, which will be called up from shareholders between 2020 and 2025, is intended to finance the Bank’s High 5 priorities and maintain its AAA rating with the top rating agencies. Over the next decade, the AfDB plans to double the funding efforts towards energy and agriculture, with targets to allocate 25% and 20% respectively, to the two sectors by 2031.

The Bank has lined up a three-year pipeline of projects to lend to, including $15 billion in 2020 and $13.6 billion in 2021. Some of the planned projects are targeted at improving continental transport networks, supporting climate change initiatives, and increasing access to electricity and water. One of them is a “Desert-to-Power” initiative that aims to transform the climate-fragile Sahel region into the largest solar zone in the world that will generate 10-gigawatts and impact 250 million people.

10 Points from AfDB 2019 in Malabo

The African Development Bank (AfDB) Group held their 2019 series of annual meetings from 11 to 14 June in Malabo, Equatorial Guinea with the theme of “Regional Integration”

Highlights of the meetings:

1. Fast growth is not Enough: A key theme of the week was that the stellar growth levels in Africa (over 4%) were still not enough to create enough jobs and produce sufficient food on the continent.

2. High 5’s:  Regional Integration is one of the development priority themes (‘ High 5s’) that the Bank had adopted at its 2016 meetings in Lusaka, Zambia alongside (to) “Light up and power Africa”, “Feed Africa”, “Industrialise Africa”, and “Improve the quality of life of the people of Africa.”

3. It is Capital Raising time for the Bank and is organs. There are advanced talks towards a 7th general capital increase, the first since 2010, for the African Development Bank, which will be concluded in September.

A few months ago, Canada provided temporary callable capital of up to $1.1 billion to stabilize the AAA rating of the Bank.

There are also ongoing negotiations for a 15th replenishment of the African Development Fund.

4. Visa Index: The Bank’s Africa Visa Openness Index ranks how accessible African countries are to visitors from within the continent in terms of requiring travel visas and tracks developments by different countries to improve the ease of travel for fellow African citizens.

5. Low intra-Africa trade:  Ahead of the African Continental Free Trade Area (AfCFTA) which comes into force in July 2019, the potential economic benefits of full implementation were highlighted, with the greatest beneficiaries of the increased trade likely to be countries in the Central Africa region.

Africa has 54 countries; Alone they are not very competitive, but together, under the Continental Free Trade Agreement, they are a market of $3.4 trillion

 

Also see the regional economic outlook reports by the Bank.

6. Debt levels in Africa: There was some discussion about the levels and types of debt across Africa and their potential burden versus the growth and infrastructure needs of individual countries. Also the Bank affirmed its support to help countries negotiate better financing terms, get better deals for extractive resources, minimize currency risks, and to enable them to mobilize their own resources domestically.

7. Asia-models for Africa: At the AfDBAM2019, Korea and India showcased their partnerships with the Bank including on agricultural transformation, enhancing food security and scaling financing across Africa.

8. Different forms of development finance by the Bank: 

  • Toward Financial Inclusion

  • Integration of Africa

  • The Environment

  • Food Security

  • Disaster Relief

  • Clean Energy

  • They also have plans for an affirmative action finance facility for women in Africa (AFAWA).

9. Transformational Infrastructure Projects funded by the bank include ports, highways, bridges and border-crossing stations across different countries.

10. Malabo Image: Host nation, Equatorial Guinea, used the forum to shed an image about the country that is full of old stereotypes to one of economic diversification, transformation and infrastructure. President Obiang attended the opening of the AfDBAM2019 which were chaired by the country’s Minister of Finance, Cesar Abogo, who is just 39 years old.

(a) Parallel events during AfDBAM2019: 

  • Africa Investment Forum last year which at its inaugural AIF forum in 2018 in Johannesburg secured  $38 billion of investments for 40 projects across Africa.

  • African Banker Awards

(b) Next meeting: Following these first-ever meetings to take place in Central Africa, the next annual meetings of the bank will be in a year’s time in Abidjan, Côte d’Ivoire – the bank’s headquarter city, where they the election of the Bank President will be the main agenda item.

China and Africa’s Infrastructure Developments

Excerpts from a piece by Andrew Alli, the former Africa Finance Corp (AFC) CEO, in his debut column for Quartz Africa on separating myths and realities of the role of China in Africa’s infrastructure developments.

China firms funded, built and operate Kenya’s new railway.

  • China’s was the fourth largest foreign investor in Africa spending about $40 billion in 2016, according to UNCTAD’s World Investment 2018 report, behind the US ($57 billion), the UK ($55 billion), and France ($49 billion).
  • Construction contracts are backed by Chinese financial institutions—like China Export -Import Bank and Sinosure – looking to support the exports or sales of Chinese products and services. The mission of these financing entities is to support jobs and income generation in China, as well as to support more strategic objectives of the Chinese government.
  • Chinese companies are surprisingly risk-averse when it comes to Africa – most Chinese financiers will not consider a project without insurance from Sinosure, the Chinese government-owned political risk insurer, or other similar institutions. In turn, Sinosure often requires a guarantee from the government of the country in which the project is located. (e.g. – with Kenya’s Standard Gauge Railway construction, the contracts specify that there will be insurance cover of 6.93% of the commercial loan – done by a Chinese firm, SinoSure, to take care of nonpayment). Sinosure insurance and other financing costs do not come cheap, which leads to the point that Chinese firms are not necessarily cheaper than firms from other countries – and while the bare construction costs of certain projects may seem cheaper, even after equalizing for quality, there are other costs that may apply including the insurance and other financing costs mentioned before, and costs associated with local content. 
  • It is true Chinese firms prefer to use all-Chinese inputs. If you want local workers and contractors, you will have to make that a negotiating point.
  • While some work done by Chinese firms can indeed be shoddy,  this doesn’t have to be the case.  For example, while a Western firm may tell you a bridge will cost you, say, $300 million. A Chinese firm may tell you that you can have a $300 million bridge, or a $250 million one.- and things that may be taken for granted in other parts of the world can be negotiable when dealing with a Chinese firm. You have to be careful to specify the quality that you want and the standards that you would like the project to be built to. You also need to be very specific about the environmental and social standards you want the project to adhere to.
  • For too long the number of firms willing to engage in, and finance, projects in Africa has been very limited, meaning that competition has also been limited leading to high prices and a lack of innovation. The increase in interest by Chinese firms has increased the amount of competition, forcing prices down overall and improving quality. The bleating of companies being forced out of cozy monopolies is probably one cause of the constant refrain we hear about the “dangers” of Chinese interest in Africa. We shaved the costs of that project in Ghana by over 20% from initial quotes by running a competitive process involving a Chinese firm.
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Missing Links

There are about 20 roads envisioned for Nairobi, known as Nairobi missing links that had been planned as far back as independence and in subsequent development plans for the City. These were designed to open up neighborhoods to development and ease transportations problems – but were never built.

These plans have remained on city maps and while land developers have generally avoided constructing on these set-aside areas, there has probably been encroachment on in the more densely populated areas, as indicated by the recent failure of fire-fighting efforts. In some cases the city council has licensed businesses to operate there but only as temporary occupants.

The Japanese International Cooperation Agency (JICA) is undertaking a study on the development of missing links “3 6 & 7” which are located on the western side of Nairobi to be an experiment for the rest of the City’s roads – and they will the projects for financing by the Government of Japan.

If approved, construction of the following roads (with bridges, pedestrian & cycle lanes) should begin in 2007:

  • a short road from the Westlands roundabout to Riverside drive
  • a road from Kileleshwa police station/Kasuku center to Methodist university
  • a road from Yaya center to Lavington area.