Tag Archives: Africa Rising

Barclays launches the Africa Financial Markets Index 

Barclays launched their first edition of the African Financial Markets Index (AFMI) that ranks and compares the depth of financial markets in seventeen African countries. The countries were score against six broad pillars of (1) Financial markets depth, (2) Access to foreign exchange,  (3) Market transparency & the regulatory environment, (4) Macroeconomic opportunity, (5) Enforceability of agreements and (6) Capacity of local investors.

South Africa came out on top of the AFMI with 92 out of 100. It was classified as a highly developed market but (with a) challenging macroeconomic outlook; It was followed distantly by Mauritius (66), Botswana (65) and Namibia (62).

Kenya was ranked fifth (59), just ahead of Nigeria (53) Ghana (49) and Rwanda (48), and Kenya was found to be the most sophisticated in East Africa due to innovations and reforms by the Nairobi Securities Exchange (NSE) and the Capital Markets Authority (CMA).  Kenya’s scores were quite consistent across the six pillars with recent developments including the de-mutualization and the IPO of the NSE, the launch of a first exchange-traded fund by Barclays Kenya, and the launch of the M-Akiba bond.

Kenya is the seventh largest stock exchange by market capitalization and sixth by bond listings. But George Asante, Managing Director and Head of Markets at Barclays Africa said that Kenya lacked deep-pocketed market-makers who could broker deals, and take price risks and also that Kenya needed to develop a primary dealership network. He added that the participation of local investors in long long-term investing was quite limited and local investors are critical as they buffer volatility caused by foreign investors. Assets were concentrated among buy-and-hold investors, rather than pension funds and insurers. Kenya’s domestic institutional investors have $12.6 billion of assets but this only works out to  $173 per capita and he suggested that Kenyan markets and regulators needed come up with more securities listings, instruments, and innovations.

Barclays Bank of Kenya Managing Director Jeremy Awori said that “The AFMI will be produced annually to drive conversations, track progress and address gaps in financial markets.” Already countries like Rwanda and Morocco want to use the index data to improve their financial markets.  At the tail end of the AFMI was Egypt, Mozambique, Seychelles and Ethiopia. Ethiopia was scored as “a fast-growing economy but with no financial markets depth or local investor capacity.”  

Guests at the launch included Jeffrey Odundo, CEO of the NSE, and Paul Muthaura, CEO of Kenya’s CMA. Muthaura said the CMA had a master plan to make Kenya a choice destination for capital flows by 2023, while Odundo said the NSE has broadened its  revenue and product base (by introducing REIT’s, ETF’s, M-Akiba and next derivatives, and a new law to govern securities lending), and was working to make Kenya more visible. They are active members of the Africa Securities Exchange Association and will host a “Building African Financial Markets” seminar in Nairobi in April 2018. They also plan to join the World Federation of Exchanges.

The AFMI report can be downloaded here from the Official Monetary and Financial Institutions Forum website; OMFIF produced the report with Barclays Africa

Barclays Africa Macro Economic Report

Africa is poised for third wave of growth that could return it to the Africa rising heights that preceded the global financial crisis. These are some of the highlights from a report released by Barclays Africa in Nairobi on their macro economic outlook for 2017-2018.

Barclays Africa Chief Economist Jeff Gable said that global growth was 3.7% and is at its strongest in 5 years with the growth synchronised in all regions – US, Europe (strongest in a decade), Asia (recovering from 2017), and Latin America (coming out of recession). Global concerns include the politics of rage and nationalism waves, US political uncertainty (with President Trump),  China’s economic adjustments and fluctuations in commodity demand.

Africa has shown itself to be resilient and is receiving foreign direct investments (FDI) flows at levels not seen in a decade. South Africa gets the top share of FDI (followed by Morocco, Egypt,  Nigeria, Kenya), with most deals coming from the USA – 91 investments (followed by France, China, UK, Dubai) but with the largest source of funding, by far, from China ($36 billion).

Gable sees African countries as better able to address macro economic conditions this time around, such as through making infrastructure pay off by focusing on smaller affordable achievable projects (such as Uganda oil and Tanzania gas), diversifying commodity-driven economies, and managing foreign exchange and debt with the lessons learnt from the earlier dip. He expects that a majority of African countries will continue to grow at a faster pace than in recent years and that average growth will be 4% across the continent.

Some risk concerns are that not many African countries can afford to pay for what they are spending and they are exposed to continued outside borrowing at a time that Sub-Saharan Africa credit ratings are declining and there are discussions about uncertain macro economic policies from Angola, Mozambique, Nigeria, Tanzania South Africa, and Zambia as well as other discussions on political strains in Ethiopia, Kenya Tanzania, Uganda, Zambia, and Zimbabwe.  Another concern is that climate change will disproportionately affect Africa. 

Earlier in the day, Barclays Bank of Kenya Managing Director, Jeremy Awori cautioned on the year-old interest rate cap law in Kenya that had constrained private sector growth, and bank earnings He said banking industry earnings had shrunk 8% as at the third quartet of 2017,  compared to average growth of 15% in previous years and that private sector credit may have shrunk during the year.

Barclays Africa Macro Economic Report launch.

Other highlights of the Macro Economic Report:

  • Kenya’s credit rating has been stable since 2010, but Moody’s are now reviewing it for downgrade (due to to large deficits, high borrowing costs, and policy uncertainty). What concerns Moody’s is not Kenya’s debt size, but its replacement of long-term concessionary debt with short-term commercial debt.
  • Barclays Africa forward exchange rate forecast for the Kenya shilling to the US dollar is 106 at the end of 2018, 108.5 in 2019, and 110.8 in 2020.
  • Interest rate caps have been tried in many countries besides Kenya. The intent is the same, but Kenya’s Central Bank won’t be able to do anything about interest rate caps until next year.
  • For Kenya, tourism and agriculture (after the drought) are moving up, but manufacturing is lagging, and the Purchasing Managers Index (PMI) showed dramatic improvement in December 2017 after plunging to lows in October 2017 during the election season.

The annual Macro economic report was produced by the Barclays Africa research desk. It will be followed by another release by Barclays – of their Africa Financial Markets Index which is a survey of 17 African stock markets.

Economic Forecasts from Citi, Barclays, World Bank, Brookings, Oxford

A roundup of recently published economic forecasts, reports, and surveys.   

AfDBThe African Development Bank’s interactive platform, #MapAfrica, maps the locations of the bank’s investments in every country across Africa.   

Also the AfDB launched their 2018 African Economic Outlook report. 

Barclays: In Nairobi this week, Barclays Africa launches the 2017/18 macro-economic report as well as the Africa Financial Markets Index,  which is a survey of 17 African stock markets.

Citi: Citi Research has just published two reports on frontier markets and one on food inflation in AfricaCiti found that frontier markets did better than developed markets and that Kenya did well (36% return on equities) despite the banking interest cap law and the prolonged election season which has now ended.

Citi’s forecasts of top picks for frontier markets in 2018 are Sri Lanka, Romania, and Kenya and they see weaknesses for Argentina, Morocco, and Egypt. The Citi rankings consider six factors: macro growth, macro imbalances, monetary factors, valuations, earnings momentum and price momentum for their forecasts. Citi also ranked five top stock for frontier markets BGEO Group (Georgia), Humansoft (Kuwait), IDH (Egypt), KCB (Kenya) and MHP (Ukraine). For KCB they like the growth profile of corporate and salaried customers from which the bank will grow market its share even if the banking law remains the same.

The Citi forecasts also looked at the Kenyan currency (shilling) which has remained stable relative to other African currencies and how it will continue to do so even with the country’s balance of payments deficits and heightened politics. But they found that one problem with making Kenya predictions is that a significant portion of inflows that offset the current account deficit is classified as other flows, and their timing is not predictable. They assume that the inflows are from the East and Central Africa region that sees Kenya as a safe haven, despite the politics of the second half of 2017. Another finding was that devaluation of currencies have a bigger impact on food inflation in sub-Saharan Africa but Kenya which had drought and food security issues in 2017 is able to draw on food production from its neighbors (Ethiopia, Tanzania, Uganda) that keeps food inflation in check even though the food trade data is not captured in official statistics.

World Bank: Meanwhile the World Bank is taking heat after one of their economists admitted that the WB “Doing Business” rankings for Chile had been manipulated for political reasons. The Doing Business reports are cited by leaders of several countries such as Kenya, Rwanda, India as indicators of their good performance in office, But this one admission of political interference could trigger fall out as to the credibility of other reports, country economic forecasts, growth statistics, inflation measures and discussions with governments that the World Bank does.

The Oxford Business Group: The Oxford forecasts reviewed the year Kenya in 2017 in which growth was expected to be about 5% (down from an initial forecast of 5.8% for 2017), but still above the sub-Saharan Africa average of 2.7%. It noted the mixed agriculture performance was due to the drought that affected maize, sugar, tea. Also that Kenya’s Supreme Court decision to nullify the presidential election set a good path for the country in 2018 despite the added cost of staging two elections in 2017 affecting the government’s ability to meet budgetary targets and which later resulted in Moody’s considering a downgrade of Kenya’s debt rating.

Brookings: The Brookings forecasts are contained in Foresight Africa, an Africa-focused report  that celebrates Africa’s growth and highlights priorities for the continent. For Kenya, it contains a sum up of the ability of the country to leverage technology and innovation for things like revenue collection and uptake of products and mobile bonds (M-Akiba), M-Tiba, and IFMIS. It mentions that Kenya can balance the impact of special economic zones and infrastructure from China against politics and that the successful launch of the SGR in May 2017 could one day serve Uganda Rwanda, Burundi and even Tanzania South Sudan and Ethiopia. It has special sections on the 2017 Kenya election and the M-Akiba bond (“The KSh 150.04 million (approximately $1.5 million) uptake of the M-Akiba bond was mainly dominated by small investors who invested less than KSh 10,000 (approximately $100)”)

Carrefour in Kenya

Majid Al Futtaim had grand plans for the Carrefour franchise in Kenya which they have since accelerated as other supermarket chains have encountered financial difficulties. This was revealed at a media session by Majid Al Futtaim managers at their Two Rivers Mall office,  located at their second hypermarket in Nairobi. The company which is the leading operator of malls in the Middle East and North Africa holds franchises for Carrefour stores in 38 countries, including 14 in Africa.

Their Country Manager for Kenya, Franck Moreau said they had an initial target to open 5 hypermarkets and 10 supermarkets within 5 years but that has all changed now. When Majid Al Futtaim decided to invest in East Africa, back in 2012, local retailers like Nakumatt and Uchumi were doing quite well. The took up a 20-year lease at Two Rivers, opened their first Kenya store at the Hub in May 2016, and in the last two months, they have signed on to replace Nakumatt as the anchor tenant at two large malls in Nairobi – at TRM on Thika Highway and the Junction Mall on Ngong Road. 

They operate decentralized hypermarkets with each store doing its own ordering, deliveries, storage, handling, marketing, maintenance, payments, and human resources all at the store sites. The financial aim is to create value and market share while meeting or exceeding budgets, and going by current trends in e-commerce, they target to have 15% of online sales in the next two years.

Majid Al Futtaim operates 220 stores in 15 countries, serving 200,000 customers a day. They plan to reach at 500 stores in 5 years with the “great moments, every day, for everyone” theme through innovation in customer service, being a great employer, and working with local suppliers as they take the hypermarket store and adapt it for different countries, customers and cultures.

For Kenya, 1,000 unique products items are imported by Carrefour to differentiate the stores from other supermarkets, and 29,000 other items are sourced from 650 Kenyan suppliers that they work with. Moreau said 50% of their customers at Two Rivers are from the neighbouring Ruaka area who come to shop at Carrefour for the quality, fresh, and available range of products for different classes. But he added that one unique Kenyan thing was a distrust of ‘promotions’ (buyers think there is something wrong with the products on sale) and they are the only supermarket chain asking suppliers for to give continuous and permanent promotions.

The conversion of malls stores to fit the Carrefour model takes time and large investments which Moreau  estimated was five times more than what other local retailers spent on their stores and that it will take about nine months to convert the spaces they are taking over at the Junction and TRM  to full completion, by which time they will have over 1,100 employees in Kenya.

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.