Tag Archives: Africa Rising

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:

The opening ceremony during day 2 of the AfDB Annual Meetings on 12 June 2019 in Malabo, Equatorial Guinea. (Photo by Edouard Richard)

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.

African Companies Foreign Listings

The listing of Jumia on the NYSE has elicited many discussions about how ‘African’ it is to qualify for the moniker of “first African tech IPO”.

London has been the listing home of many large African companies in the oil, gold, mining space for many years. It has also recently come to attract more banks, Eurobonds and Diaspora bonds. There are 119 African companies listed in London including top Nigerian banks while sovereign bonds of 11 African countries trade on the LSE.

Other recent listings have gone to foreign markets including:

  • Vivo Energy’s LSE listing in 2018, which was the largest IPO of the year in London.
  • In Nigeria, which is Jumia’s largest market, here’s an investor recap of all the listed ‘tech stocks’ on the Nigerian Stock Exchange which include Courteville, Triple Gee, NCR, eTranzact, CWG, Chams, and OMATEK.
  • After spinning off Multichoice, Naspers plans to list its international internet assets on the Euronext Amsterdam Exchange with a secondary listing in Johannesburg. The assets include companies like PayU, Souq, Flipkart (which was sold to Walmart in 2018), Tencent, and Mail.ru. It only makes 4% of its revenue in South Africa and accounts for 23% of the Johannesburg All-Share SWIX exchange. By listing 75% of the company in Amsterdam, this will reduce its weight in the South African exchange. Safaricom is in a similar situation in Kenya, accounting for about 40% of the value of the Nairobi Securities Exchange, but as its revenue is currently all from Kenya, a listing move away is unlikely.
  • Within Africa, the island nation of Mauritius is an attractive listing country and is considered a gateway to India and Africa for many venture funds. Listing there confers benefits including no capital gains or dividend taxes, and Mauritius can also grant residency to people who invest over $500,000.

Other foreign listings planned include:

  • Airtel’s listing of its’ business in 14 African countries is expected to be another large London blockbuster.
  • Kenya’s National Oil is a long-shot to be listed in London and Nairobi.
  • Dangote Cement which accounts for about a third of the Nigerian Stock Exchanges market capitalization plans a secondary listing in London later in 2019.
  • MTN is expected to list a share of its Nigeria subsidiary once a tax dispute matter is resolved.

AVCA 2019 private equity and venture capital conference in Nairobi

The 16th annual conference of African Private Equity and Venture Capital Association (AVCA) was held from 1st -3rd April 2019 at the Radisson Blu Hotel in Nairobi. A guest post by Marcela Sinda.

This flagship conference event for the African continent had a fantastic kick-off and turnout, bringing together private equity and venture capital investors who handle a portfolio of over $1.5 trillion in assets. This was according to Kenya’s Cabinet Secretary for Trade, Peter Munya who officially opened the conference on behalf of President Uhuru Kenyatta. The goal of this kind of conference, he said, is to expose investors to the diverse prospective investment markets across the Africa as the continent was now being looked at as any other region, with the focus being around checking due diligence, ethics, looking at best practices and asking the same questions around deal sourcing.

 

DFI’s Role: Kenya is an increasingly attractive investment destination and according to AVCA data, it is the 2nd most attractive country for private equity investments in Africa over the next three years and hence an obvious choice to gather the industry players for this conference. The African PE sector has been shaped for decades by DFIs, and at AVCA 2019, there was some discussion about new DFI strategies for investment across Africa. Maria Hakansson, the CEO of Swedfund, noted that, as a community, DFIs could do so much more when it comes to anti-corruption, e-waste management, customer protection principles etc. and that Africa’s portfolio is constantly outperforming in terms of impact compared to other regions portfolio.

Djalal Khimdjee, Deputy CEO of Proparco said SMEs in Africa are essential towards job creation and achieving the sustainable development goals (SDG’s) and that 60% of the 1.5 million jobs that have been created in Africa every month come from SMEs and venture capital firms. He said that PROPARCO and French development agencies had committed £2.5 billion by 2022 to support African MSMEs, including £1 billion through private equity investments. 

Mathew Hunt, Principal at South Suez Capital shared that one of the reasons why investors are in Africa and especially now is because of the tech-driven growth that’s been on the rise in recent years. Venture capital investments are new in Africa and only a handful of funds have grown successfully.  The role of African Development Bank, said Robert Zegers, their Chief Investment Officer, was to now help support the industry and act as anchor investors in these funds as a lot of development agendas can be achieved by generating value through VC’s and great businesses.

The narrative throughout the discussion panels was around the real opportunities Africa presents for investment with building blocks in place such as improved policies, the rise in middle-income earners, the Africa Continental Free Trade Area, and enablers such energy, improved infrastructure and technology as pathways that cater for development needs. The most attractive areas for P/E investment were perceived to be consumer-driven sectors (financials, FMCG, agribusiness, healthcare and technology).

Deals Galore: VCs are willing and able to take risks and are looking to invest much more than they did previously. According to the  AVCA report 2018, VCs invested $725.6 Million in 458 deals a 300% leap in the total funding amount and over 127% increase in the number of deals as compared to 2017.  VC fund managers, therefore, need to have great entrepreneurial skills to identify numerous opportunities and create great pipelines for growth and expansion. This is the first generation of PE owners and from the lessons learnt, a good company always attracts a buyer and a great way for VCs to approach funding private companies is to ask; ‘if everything works out, how big can this be?’. But investors ought to be cautious not to misconstrue Africa as a single country with regard to investments, rather, and instead start by breaking down the micro trends in each jurisdiction and analyse the different risks.

Investments, not Aid: Charles Mwebeiha of Sango Capital urged investors to look at Africa while investing, like any other region in the world noting that many times, investing in Africa is made to sound like some sort of assistance. He offered that the issue should be whether returns can be made and reiterated that with good strategies, there is money to be made in Africa.

Women: It was also highlighted that having a gender-sensitive lens when investing is an imperative for an inclusive and fair investment strategy and that, especially in Africa, the number of female entrepreneurs supported is a key metric. There is an even split between male and female entrepreneurs on the continent but less than 2% of those women are getting formal funding as they are often working in hidden, informal sectors.

Exits: A major area of discussion was around exits. Carlos Reyes of the IFC,  pointed out that; “to prepare companies for exits, we try to improve reporting standards, corporate governance and we look at the bench – so if the entrepreneur leaves, who can come in? The succession process is quite important.” Exits are not the easiest but they are not deal-breakers and good exits can be achieved. At Leapfrog Investments, they evaluate exits right at the beginning, by sitting down with the owners to try to understand their dreams for the future so as to align funding with their plans for exiting.

Predictions: And finally, taking a forward look at the sector five years into the future, George Odo, Managing Director of AfricInvest Capital Partners observed that there would be more capital raised from African economies, more policy changes required to mobilise pension funds, much more experienced fund managers, and also more EA players paying attention to Ethiopia.

Glossary
AVCA – Africa Venture Capital Association
EA – East Africa
PE – Private Equity
LP – Limited Partners
DFI – Development Finance Institution
IFC – International Finance Corporation
PROPARCO – A Development Financial Institution partly owned by the French Development Agency
SME – Small Medium Enterprise
MSME – Micro Small & Medium Enterprises
VC – Venture Capital

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.

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)