Category Archives: DRC

KCB buys DRC’s TMB

KCB Group Plc has completed the acquisition of DRC-based Trust Merchant Bank (TMB) and now owns an 85% stake in the bank that is estimated to have an 11% share of the Democratic Republic of Congo banking sector, after obtaining all regulatory approvals.

KCB will offer banking, insurance and trade finance services using TMB’s brand, 109 branches and customer relationships built over its 18 years. In 2021, the Banker named (Trust Merchant Bank) as the “Bank of the Year” in the DRC.

Kenya 2022 Investment Outlook from EFG Hermes

Managers at Kenya’s largest stockbroker, EFG Hermes, held a media briefing on the state of investing in Kenya in 2022. This is at a time that the Democratic Republic of Congo is about to join the East African Community, potentially doubling its market size from over 100 million to 200 million and making the region more attractive to investors due to the regional transports links.

EFG Hermes Head of Frontier Market Research, Kato Mukuru said Nairobi is now the capital of East Africa and that local banks have become regional champions such as Equity which is now the largest bank in the DRC. The next step should be a common currency in East Africa but he lamented that different African governments were unnecessarily chasing digital currency (CBDC) projects. 

EFG Hermes Kenya which has a 30% share of Nairobi Securities Exchange (NSE) trading activity, largely from institutional investors has now invested in wooing retail investors through an app they launched last August. The NSE has had shrinking liquidity, and the value of stock trades that used to be $8-10 million per day, is now at $2-3 million per day – and if liquidity can be pushed back up, other new products on NSE such as derivatives and day-trading will become more viable.

Excerpts

  • Overall EFG researchers think Kenya is on right track despite concerns about its debt, inflation and currency, the agriculture sector should keep the Kenyan shilling stable and compensate for increased energy prices – and they don’t expect currency depreciations movements like seen in Egypt and Pakistan.  
  • The government needs to have a privatization agenda to boost the NSE. Safaricom was listed at the end of post-election violence in 2008 when Kenya was at its lowest and that produced one of the most valuable companies in Sub-Saharan Africa.
  • East Africa needs to create more formal jobs. Kenya has 5M formal jobs for a population of 50M while Vietnam has almost 50% formal employment. It may take the government to initiate a more planned economy system that targets creating real formal employment that goes beyond agriculture as it can’t rely on informal jobs forever.
  • Tanzania’s late President Magufuli has shown that a country can transform within one administration. 
  • The way out of food inflation caused by the Russian war in Ukraine is by sourcing foods from other parts of East Africa e.g. start to eat matoke. The region is very resilient and will not be shocked as much as Egypt which is dependent on wheat imports from those states. The East African region is largely self-sufficient in food supply and Kenya, which may have droughts, could import other foods from Tanzania, Uganda or Rwanda. 
  • DRC is very attractive in terms of its resources and the EAC would be further boosted if Ethiopia also joined. Kenya has strong links through the Nairobi-Addis highway and LAPSSET projects in which Ethiopia has been invited to participate.
  • With its balance sheet, Safaricom has the capacity to take on debt for their Ethiopia venture. They borrowed $400 million locally for the license and they can syndicate that, or draw on vendors or DFI’s, to fund more while continuing to pay dividends to shareholders.

KQ & DRC

This was a significant week for Kenya Airways and its regional flight partnerships. Their JamboJet subsidiary started flights to Goma, in the eastern part of the Democratic Republic of Congo (DRC). JamboJet also resumed flights to Lamu on Kenya’s coast after four years.

Then Kenya Airways handed over two Embraer 190’s in a wet-lease to state-owned Congo Airways. This means it will be operated by Kenya Airways staff. The airline also launched a direct cargo flight between Lubumbashi and Johannesburg South Africa

In November 2020, KQ launched a Southern Africa cargo service, operating freighter flights from Johannesburg to Dar es Salaam (Tanzania), Harare (Zimbabwe) Lilongwe (Malawi) Lusaka (Zambia) and Maputo (Mozambique) Previously all freighter flights would have to operate through Nairobi.

The cargo business is still low but its significance will grow as passengers traffic is not expected to pick up for at least another year. Now Lubumbashi has been added to the KQ Southern Africa cargo network.

Equity buys BCDC, its second bank in DRC

Kenya’s Equity Bank Group Holdings has entered an agreement with some shareholders of Banqué Commerciale du Congo (BCDC) to buy a controlling stake in the bank with a view to consolidate it with its DRC subsidiary.

This comes a few years after Equity invested in DRC by purchasing a stake in ProCredit Bank. At the end of 2018, the DRC constitutes 8% of Equity group’s revenue, second behind Kenya’s 75% and ahead of Uganda, Tanzania and Rwanda. The DRC subsidiary had ~$558 million in assets, accounting for about half of its regional subsidies, with ~$13 million pre-tax profit.

The deal is yet to be approved by shareholders of the institutions, the central banks of Kenya and the DRC and other regulatory agencies.

The bank has nine branches in Kinshasa, four in the southern part of the country and sixteen others in the interior of the country (including Bukavu, Goma and Kisangani).  The main shareholders of BCDC are George Arthur Forrest  & family with 66.53% and the Government of DRC with 25.53%, as well as other shareholders who own 7.94% of the bank. In 2017, BCDC had deposits of $485 million, loans of $282 million and a pre-tax profit of $12 million, that was achieved despite challenges of currency fluctuations and bad debt provisions.

EDIT November 19: Equity Group will acquire 66.53% of BCDC by paying George Arthur Forrest $105 million for 625,354 shares, inclusive of dividends.

Equity Group plans to consolidate BCDC with Equity Bank Congo (EBC, formerly Procredit), and will pay KfW, the German development bank, $9 million for its 7.67% stake in EBC after KfW exercised a put option that the Government of DRC will have to approve.

Transaction advisors for the deal are Stanbic Bank Kenya and legal advisors are Anjarwalla & Khanna.

EDIT August 11, 2020: Equity Group announced the receipt of all approvals and completion of the deal on August 7. This was at a reduced price of $95 million, down from the earlier-announced $105 million to reflect the impact in COVID on world economies and the DRC. Equity now owns 66.53% of BCDC with the bank becoming a subsidiary of the Equity Group. 

Book Review – King Leopold’s Ghost

A quick reading of a fascinating book, by Adam Hochschild, about the history of the Congo between the years 1885 and 1908 when it was controlled by King Leopold II of Belgium.

Starting Out: The Berlin conference did not partition Africa, the spoils were too large at that point it took many more treaties. At the time of the conference, Europeans thought of African wealth in terms of coastlines, not the interior. Leopold got the centre of Africa while other nations focused on the coast as they did not realize how vast the Congo was.

Revenue: Etat indépendant du Congo (the Congo Free State) was a very profitable venture for Leopold thanks to ivory and rubber. The Congo was a private state of the King and got half the profits from concession companies. Records from one of them, the Anglo Belgian Indian Rubber Exploration Company, showed that ABIR spent 1.35 Francs per kilo to harvest rubber in the Congo and ship it to their headquarters in Antwerp where it sold for up to 10 Francs per kilo – and in six years to 1898 rubber prices had gone up thirty times. Transportation costs aside, harvesting wild rubber required no cultivation, no fertilizer and no capital investment, only labour, for which the concession companies brutally used the people of the Congo as slave labour.

Leopold kept the Congo profits as secret as possible so as not to stir up demands that he pay back sums owed to the Belgian government. To achieve this the Congo state did not publish a budget and it presented understated revenue reports.

Bonds: With time, Leopold was able to issue bonds that brought in as much revenue as rubber. He issued bonds worth 100 million Francs (half a billion in today’s currency). Some were for as long as 99 years and he knew paying back the principal would be someone else’s problems. He even wrote to the Pope, urging the Catholic Church to buy Congo bonds as that would promote the spread of religion.

Use of Funds The money raised with bonds was for development in the Congo but little of it was spent there. The funds went to build monuments, new palace wings, museums including at the seaside resort of Ostend, a golf course at Klemskerke, renovations to a luxurious home at Laeken etc. many of which he gave back to the country with great fanfare. There was also an incomplete World School of Colonialism in Belgium.

Negotiations Out: Once the extent of the atrocities done to the people in the Congo were exposed by authors, organizations and leaders in the UK and US, there was pressure for Leopold to sell. He argued that if Belgium did not take it soon, some powerful country might, such as France and Germany who were jealous of the rubber profits from Congo.

Negotiation began in 1906 but got bogged down as the Belgian Government could not get a full accounting of the state of finances in the Congo, and included some entities that had been incorporated in Belgium, Germany and France.

The End: Finally, it was agreed Leopold would give the Congo up to the Government of Belgium in exchange for them assuming 110 million Francs of debt. This comprised bonds that he had dispensed over the year to his friends and also included 32 million of bonds that he himself never paid back. They also agreed to pay 45 million Francs towards completing building projects of the King, with a third going to complete the one at Laeken. Leopold was also to receive 50 million as gratitude for his sacrifices made to the Congo, and the change of ownership took place in November 1908. After Leopold died, his family and the Belgian government continued to try to clean up issues to do with the Congo and a lot of records of the atrocities of the era were lost.

EDIT Extras: 

  • Versions of book, including kindle ones, are on Amazon.
  • The last comeprehensive book I read on the country was Michael Wrong’s In the Footstep of Mr. Kurtz about Mobutu Sese Seko and his years as President.