Agriculture not only improves Food Security but creates Wealth for Africans

An open letter to African Union Heads of State by Kanayo F. Nwanze, President of the United Nations rural development agency, the International Fund for Agricultural Development (IFAD)
Judging from the daily outpouring of commentary, opinions and reports, you would think that there were two African continents. One of them is the new land of opportunity, with seven of the world’s 10 fastest growing economies, offering limitless possibilities to investors. There is, however, this other image: a starving and hopeless continent, hungry and poor, corrupt and prey to foreign exploiters.
As Africans, we are tired of caricatures. But we are also tired of waiting. Waiting to be led toward the one Africa we all want: the Africa that can and should be. We know the real Africa, filled with possibilities, dignity and opportunities, able to face its challenges and solve them from within. Never has the time been more right for us to finally realize our full potential. It is within our grasp.
As a scientist, I am always interested in facts. Africa is a land rich in resources, which has enjoyed some of the highest economic growth rates on the planet. It is home to 200 million people between the ages of 15 and 24. And it has seen foreign direct investment triple over the past decade.
As the head of an institution whose business is investing in rural people, I know that you also need vision and imagination. At the International Fund for Agricultural Development we have banked on the poorest, most marginalized people in the world, and over and over again these investments have paid off. For people, for communities, for societies. And more than half of the people we invest in are Africans.
More than 10 years have passed since the Maputo Declaration, in which you, as African leaders, committed to allocating at least 10% of national budgets to agriculture and rural development – key sectors in the drive to cut poverty, build inclusive growth and strengthen food security and nutrition.
Today, just seven countries have fulfilled the Maputo commitment consistently, while some others have made steps in the right direction. Ten years is a long time to wait. In less time I have seen projects turn desert into farmland.
In just a few days in Malabo at the 23rd African Union Summit, I will join those of you, African leaders, who will gather to discuss this year’s focus of agriculture and food security. This is my call: Don’t just promise development, deliver it, make it happen now. Make real, concrete progress toward investment that reaches all Africans. Investments that prioritize rural people.
Our biggest resource is our people. To squander this is worse than wasteful. If we don’t act now, by 2030 Africa will account for 80% of the world’s poor. Is this the legacy that we want to leave for future generations?
The AU declared 2014 as the year of Agriculture and Food Security. And this is the year we look beyond the deadline of the Millennium Development Goals to a post-2015 world with new goals and targets to reach. I hope that this means that we will be dedicating ourselves fully to making agriculture a priority. GDP growth due to agriculture has been estimated to be five times more effective in reducing poverty than growth in any other sector, and in sub-Saharan Africa, up to 11 times. Ironically, it is countries that lack lucrative extractive industries and that have had to invest in agriculture who have found out what is now an open secret: agriculture not only improves food security but creates wealth. Small family farmers in some parts of our continent contribute as much as 80% of food production. Investing in poor rural people is both good economics and good ethics.
A full 60% of our people depend wholly or partly on agriculture for their livelihoods, and the vast majority of them live below the poverty line. It’s not pity and handouts that they need. It’s access to markets and finance, land tenure security, knowledge and technology, and policies that favour small farms and make it easier for them to do business. A thriving small farm sector helps rural areas retain the young people who would otherwise be driven to migrate to overcrowded cities where they face an uncertain future. Investing in agriculture reinforces not only food security, but security in general.
In an Africa where 20 states are classified as fragile and 28 countries need food assistance, the need for a real rural transformation backed by investment and not just words is critical – I have often said that declarations don’t feed people.
Investments must be focused on smallholder family farms. Small farms make up 80% of all farms in sub-Saharan Africa. And contrary to conventional wisdom, small farms are often more productive than large farms. For example, China’s 200 million small farms cover only 10% of the world’s agricultural land but produce 20% of the world’s food. The average African farm, however, is performing at only about 40% of its potential. Simple technologies – such as improved seeds, irrigation and fertilizer – could triple productivity, triggering transformational growth in the agricultural sector. It is estimated that irrigation alone could increase output by up to 50% in Africa.  Rural areas also need the right investments in infrastructure – roads, energy, storage facilities, social and financial services – and enabling policies backed by appropriate governance structures that ensure inclusiveness.
If we look at the countries that have met the Maputo commitment, we see that investing in agriculture works. Given that agriculture has become lucrative for private investors, and about 60% of the planet’s available uncultivated agricultural land is in Africa, there is no mystery why we hear about so-called ‘land grabs’. Opportunity draws foreign investors. There is nothing wrong with foreign investment. But it has to be managed, to the benefit of all.
What is a mystery is why, with such a vast potential and a young population just waiting for a reason to seize it, our African leaders do not announce that they will redouble their efforts to drive an inclusive rural transformation, with concrete commitments, that will make Maputo a reality. I hope that after the Malabo meeting, that will be a mystery no longer.
African economies have grown impressively. But it is time to stop focussing on GDP figures and instead focus on people. The majority of our people are engaged in agriculture, and the neglect of that sector must stop if we really want to realize the healthy, peaceful and food secure Africa that we know can be. It is not a dream; it is a responsibility.

BritAm and Swala Investments

Last week saw the announcement of two new regional investment opportunities – one a new bond offer in Kenya and the other – an IPO in Tanzania – that both close on July 4.

BritAm Bond: Kenyan financial group Britam announced a Kshs 6 billion ($69 million) bond  which will be in two tranches starting with an initial target of Kshs 3 billion.

 Some excerpts from the bond prospectus 

  • There is a green shoe option of Kshs 1 billion in the first tranche.
  • Funds raised will be utilized in private equity, ICT development and local and regional expansion projects.
  • The minimum investment is Kshs 100,000 (~$1,150) with multiples after of Kshs 50,000.
  • The 5-year bond (maturing in July 2019) pays 13% a year (6.5% every six months). So if you invest Kshs 100,000, you will get an interest payment of ($) Kshs. 6,500 twice a year.
  • The bonds will be listed at the NSE for easy trading.
  • At the end of 2013, BritAm had Kshs 47 billion of assets, revenue of Kshs 15 billion and a pre-tax profit of Kshs 3.1b. They had Kshs 3.7 billion in investment property and Kshs 6.1 billion in listed companies. They own 21% of Housing Finance, 10% of Equity Bank and 25% of the Acorn group. They are acquiring Real Insurance for Kshs 1.3 billion (825m cash and shares  for the balance).
  • The bond issuance will cost Kshs 57m shillings – and Dyer & Blair get about Kshs 36M of this as the arranger gets (27M) and for the Placement (9M).

Swala Energy: Swala Oil & Gas (Tanzania) aim to raise between TZS 1.6 billion ($969,000) if they sell 3.2 billion shares and TZS4.8b ($4.8 million) if they sell 9.6 billion shares at TZS 500 each. The Offer is conditional on the Company achieving a minimum subscription of 3,200,000 Shares under this Prospectus, to raise TZS 1,600,000,000 (before expenses of the Offer). The Company may decide not to allot any shares and repay all application monies or seek a no objection to proceed with the allotment, in case the minimum subscription is not attained.

  • The minimum subscription is TZS 50,000 ($30) for 100 Shares. You can apply online, but a physical application form must be received at the brokers by 4th July.
  • Swala has total assets of $1.8 million in 2013 (up from $75,000 in 2012). Revenue in 2013 was $285,000 (up from $62k)  and loss was $5.5 million for the year (down from $1.26m the year before).
  • They are fundraising as they plan to spend $3.5M next year and $6M the year after.
  • A London broker values the company at $52.3 million based on 50% interest in Pangani (an area of 8578 sq. km worth $25.1m) and 50% in Kilosa Kilombero (an area of 8838 sq. km worth $36.3m). Otto Energy is a 50% partner in both of these ventures. 
  • The Costs of filing will be between TZS 210M and TZS 248M ($150,000) with printing costing 32M, accountants 40m (~25,000 to BDO), technical specialist (Risc Pty) 40M legal (Asyla) 16m, nominated advisors 27M (~$16,000 to Arch Financial if $3m is raised) and the Dar es Salaam Exchange gets 27M.
  • The Swala Energy prospectus gives insights on Kenya oil deals that are rarely public and which are used as a basis for the valuation of these shares and for comparison as they are all in the East Africa Rift System E.g. Recent Kenya transactions (EARS ) include Marathon Oil bought aBlock 12A license from Africa Oil for $78.5M and a Block 9 license, Africa Oil bought a  Block 12A license from Tullow for $3.86M ($1,265 per sq. KM and Adamantine sold a Block 11B license to Bowleven for $10M ($1,429 per sq. KM).
  • In Tanzania, profits from oil are shared out as 45% government and 55% to the contractor when production is less than 12,500 barrels per day and when barrels are over 100,000 per day, the government gets 70% and the contractor 30%.
  • Swala has applied for approval to list on the Enterprise Growth Market section of the Dar es Salaam stock exchange (they need 100 shareholders so list).
  • Swala will go from holding 74% to 61%  and new shareholders all have 10% with convertible noteholders at 7%.
  • Tanzanian Applicants will be allocated Offer Shares in priority to all other Applicants. Any Offer Shares remaining thereafter will be allocated to East African Applicants. Offer Shares will only be allocated to Foreign Applicants if they have not all been acquired by Tanzanian Applicants and East African Applicants.

Budget 2014/15

Excerpts by @JGMBugua of today’s budget speech that was read in the Kenya Parliament, by the National Treasury Cabinet Secretary, Henry Rotich. 

  • Grumbles still rumbling through Parliament as members realize they have been snookered and the Waiguru motion is dead
  • Kenya Revenue Authority (KRA tax collection) target set at Kshs 1.1 trillion for the coming year i.e. ~$12.5 billion
  • Financial Services Authority to be established… We should be aware the FSA in the UK had to be split and some of its oversight functions returned to the Bank of England after systemic failures during the global financial crisis. The more apparent implication of establishing the Financial Services Authority is that it would likely see the collapse and merging of…the Capital Markets Authority, the Insurance Regulatory Authority, SASRA (for Saccos), the Retirement Benefits Authority and so on..
  • Three new airports to be built in Mandera, Malindi and Suneka (?)
  • Duty rates on import of iron and steel products increased from 0% – 25% – apparently to protect local industries
  • KRA ordered to stop demanding custom bond from importers of refined industrial sugar and wheat…Those barons lobbied hard
  • Import of inputs for seed processing exempted from duty.
  • Govt moves to block multinationals from evading tax through transfer pricing where the local subsidiary buys from its mother company at exaggerated prices hence reporting little or no profits. “To keep the relationship at an arms length…” Rotich
  • Stock market brokers win big as government and the Investor Compensation Fund forced to retreat and accept only 5% shareholding each in the demutualized stock exchange..Brokers to share 90%.

Kenya Euro Bond A to Z

Excerpts from the prospectus for the ‘Euro bond’ being floated by the Kenya Government. 

Advisors: Include two Kenyan law firms (Kaplan & Stratton, Anjarwalla & Khanna) and 3 UK ones. Citibank are the registrars and paying agents and lead managers are Barclays, JP Morgan, QNB, Stanchart and Dyer & Blair is a co-manager. The prospectus notes that while no person has a material interest in the offer, the advisers may perform banking transactions with the Kenya government.

Also, the Kenya High Commission in London is the processing agent and the Court of International Arbitration in London will resolve bond investor disputes. 

Anglo Leasing There is mention of the status of 18 contracts unearthed following a passport deal that was found to be irregular. The prospectus notes that 4 worth Kshs 19B were canceled (with Kshs 1B recovered?!), and 3 worth Kshs 6.8B were completed. Of the other 11 worth Kshs 30 billion, 2 were settled directly, 2 received payments of $16.4M in May 2014 after a court judgment, 6 had not started (but what happens?), and on the last one (security equipment to the NIS) the company has made a demand of Kshs 3B but has not sued. China:  Few mentions about the country in terms of trade balance, debt, and the railway. 

Denominations: The bond is  issued in denominations of $200,000 (~Kshs 18 million)

Dublin:  The bond will be listed on the Irish Stock Exchange   

Euro Bond: The phrase does not exist in the document

Interest Rate is not stated

Investors: The offer is meant for qualified institutional investors (QIIs) and bond notes may not be issued offered or sold in Kenya, South Africa, Qatar, UAE, Singapore, Hong Kong, or the USA.

Debt Performance: Total debt at the beginning of 2014 that is owed by the Kenya (central) government was $24 billion. Debt service is expected to drop from Kshs 200B this year to about Kshs 150 billion for the next two years.

Also, the Kenya government believes its current account deficit of (cited at $3.7 billion) is overstated citing, among other reasons; the shilling has remained relatively stable, the measures excluded unclassified services (which have quadrupled) and the amount of foreign direct investment (FDI) is under-reported (by up to 50%?!)

The government has guaranteed debts to among others; Kengen – $250M, Kenya Ports – $140M, Kenya Railways – $45M and the Kenya Broadcasting corporation $39M. Kenya has a history of debt re-schedules at Paris (1994, 2000, 2004), and London (1998, 2003) and has had some debts canceled by China, Holland, and Finland 

Purpose: Funds will be used for infrastructure projects and to pay off a $600M loan that matures in August 2014.  Some major infrastructure projects include railway expansion (new wide gauge railway will be built in 3 phases at a total cost of $13 billion) LAPSSET (with a new port at Lamu, railway, road, oil terminal & pipeline and resort cities at Lamu, Isiolo, Lake Turkana), 4 dams at a cost of $16.8 billion and the replacement of the Mombasa-Nairobi oil pipeline.

Risks  Insecurity is cited. Another is the ICC (International Criminal Court) cases for which the political implications of a conviction cannot be predicted. Taxes Payments will be made to bondholders without deducting any withholding taxes. However,   the prospectus has tax advice for US, UK and Kenyan investors who may be interested in buying the bonds. For Kenya investors, interest payable on the Notes has been exempted from income tax – but that is yet to be approved by parliament, who may revoke that)  

Euro bond document found via @alykhansatchu  

More at the WSJ who expect the Euro bond rate to be at about 7% 

Joi Ito in Nairobi

This week, Joi Ito was in Nairobi as part of a team from the MIT Media Lab where he is a Director. While here, he gave a chat on his time as an academic and an entrepreneur in the technology sector.

(Wikipedia excerpt about him:  Ito is a venture capitalist and angel investor and was an early stage investor in Kickstarter, Twitter, Six Apart, Technorati, Flickr, SocialText, Dopplr, Last.FM, Rupture, Kongregate, Fotopedia, Diffbot, and other Internet companies).

Some points from his talk

There’s a bit of luck in life: He is here because he survived, and because he is lucky. What’s worked for him may not work for anyone else, and while some successful people think they have a magic touch, it’s a bit of luck they have had in their lives.

Advice for young people: 1. Question authority 2. Think for yourself – don’t look for an answer, look for your own provocation, as there’s no single answer for anything

His Learning Process: Some people learn in universities, or apprenticeships, but he learns best when in conversation with other people, not when he is reading. E.g. he apprenticed in a pet store, and on a movie production set. His well-educated sister realized that her uneducated brother (Joi) was doing o.k. – so she studied him and found that the social context is an important reason for learning – and she published these as Hanging Out, Messing Around and Geeking Out

He said the reason women don’t code, is because there is no fun for them, while guys teach other code in a  context they enjoy, but which  girls’ don’t find to be fun and that has to change for. Earlier he commended the AkiraChix for what they’ve done in inspiring and enabling young girls to learn to code, and said they were far ahead of some US institutions that were still made dominated and had not made strides in inspiring girls.

His Mission in Life: This he found was to build community whether at Mozilla while running community commons, or working in a nightclub as a DJ (something he described as harnessing the flow, of the room, all without leading). 

He found that street gangs in Chicago had more compassion and willingness to help people in their community than kids who were competing and studying hard in his physics class at. university – and that he learned more about community and human values on the street than in a class.

Choosing the Right Partners: There’s an alchemy involved when creating a community – and he’s always failed when he picked a person for their skill over their personality. He said investors have ruined more companies than founders – so be very careful who you invest with…he also noted that you may inherit some members of a team /organization like founders who you can’t get rid of.

Agility over Planning  Trends are o.k., but trying to predict when something will happen is foolish, as there is so much complexity. Just be aware of what is happening (use a compass, not a road map), understand what you have, and what’s going on around you and figure out your next move – and if the code/plan is not working, dump it .. E.g. Youtube has gone through many iterations from 2005 when it was a dating site with video, then Flickr with video .. but they always want to be the biggest video site..

Joi Ito once sought $600,000 from a company to set up an ISP in Japan. And that company then spent $3 million on a study to tell them that they would not invest in an ISP (the cost of mapping is expensive, and don’t wait for all the info before making a decision).

Take Risk Early  He was $200,000 in debt when he was 18, as his mum was sick, but he was working in a  tough job at a Japanese company, and was eventually able to pay it back. He’s since taken lot’s of risks, and created a lot of companies that have failed and it’s better to do this early in your career. He was into video games as a kid, learned to code, run bulletin board systems and computer networking (which never made money). But when TCP/IP came out he realized that was the future and he went on to build an ISP, a search engine, then an app company…

Also, the cost of trying things is going down (Facebook and Yahoo grew out of dorm rooms, not out of big capitalized companies ) – and likewise the cost of failure is now cheaper so you can take more risks. What’s important is not to get rid of risk, but to take it well.

World Opportunity:  Joi Ito said he’s a bit negative about Japan which is becoming less relevant with an aging population, worse education system, and conservative politics – but then he’s on the board of Sony because he wants to save the company that’s going through a tough time

Kenya/Africa have young populations and growing consumers, and while there are issues (like incumbent Telco’s) there are also opportunities.  He compared that that to Silicon Valley which is saturated with 100 companies chasing an idea, each with $10m funding. He said it’s possible to connect the networks and thanks to easier communications companies here can find partners in China to enable them to overcome some obstacles.

Bio-Engineering the Future: One big future trend will be bio-engineering. There are now gene hacks being done by school kids, and the cost of hacking genes going down six times faster than Moore’s law. While Monsanto used to spend billions on genetic engineering, the future is not going to be about such big companies..the solution to malaria will not be from a rich guy at Harvard, but it may be from kids hacking solutions in Africa.