Tag Archives: Africa Rising

AFMI 2020 shows African financial markets resilience

The findings of the 2020 African Financial Markets Index (AFMI) report were highlighted in Nairobi today for a year in which countries face economic and medical challenges from COVID-19.

The fourth edition of the AFMI report by the Absa Group and the Official Monetary and Financial Institutions Forum (OMFIF) now measures 23 countries that encompass two-thirds of the continent’s population and 80% of its GDP. The countries are ranked by six assessments of investment attractiveness and this year, Eswatini, Lesotho and Malawi were added to the Index. 

South Africa remained on top, followed by Mauritius, and surprisingly Nigeria, which, along with Morocco, Ghana and Seychelles, made great strides to improve. Kenya, which was number three in 2019, dropped to number seven this year. Overall, 14 of the 23 countries scored above the median mark, a great improvement from the first index when only 6 of the 17 countries achieved this.

COVID-19 has had different impacts on African countries, but as Jeremy Awori Absa Kenya CEO said, even with the slowed-growth in the first half of the year, much was still expected from the continent that has a rising middle-class, and rising urban population. He added that growth would come from developing open, transparent and well-regulated financial markets.

Absa Economist, Jeff Gable said Africa cited some developments on the continent towards financial inclusion and making exchanges accessible to retail investors. These included Eswaitni’s automated trading platform and the Nairobi Securities Exchange’s revamped mobile app for retail investors with Dar es Salaam also working on a similar one. He spoke of moves to encouraging more funds to invest within the continent that saw Lesotho require its pension fund managers to invest locally (currently just 3% of assets are in the country), the launch of a derivatives market in Nigeria, and Ethiopia drafting legislation for a stock exchange.

In terms of sustainable finance, Kenya had its first green bond, Egypt had the first one in the MENA region, and Nigeria is working on its third green bond. Also, the African Development Bank was one of the first institutions to issue a financial instrument to fight the COVID-19 pandemic as it issued a $3 billion social-bond tranche. 

Danae Kyriakopoulou of OMFIF spoke of Kenya’s drop which was mainly in the “access to foreign exchange” measure where which it was ranked tenth after having topped the pillar just two years ago. This was partly due to the perception of the currency exchange rate. And on market transparency, she said that Kenya has few firms that have global credit ratings, compared to Nigeria, South Africa, and Mauritius.

She added that a strong local investor base was a source of long-term capital and a financial markets shock absorber of volatility, and that Namibia has the highest pension assets under management per capita on the index.  In terms of protection of minority shareholders, Kenya does well on that but it also needs to adopt enforcement of international financial master agreements (ISDA) as a key area of improvement. Kenya is also part of a pilot Africa Exchange Linkages Project to promote intra-African investment flows between the stock exchanges of Nairobi, Johannesburg, Casablanca, Egypt, Nigeria, Mauritius and the BRVM in West Africa.

George Asante, Head of Global Markets at Absa, said that the impact of COVID-19 was not as drastic on African financial markets as they had developed more resilience through having regulators work in uniform. This was in comparison to the 2008 global financial crisis which had a big disruption on African markets resulting in bond yields shooting up 30%. But he cautioned that African governments should work hard to remove the uncertainties that are still in the prices of their bonds, to attain lower borrowing costs in future.

The 2020 AFMI report by Absa Group and OMFIF can be downloaded here.

Mauritius and the EU Blacklist

This week, the East Africa Venture Capital Association (EAVCA) organized a talk about Mauritius that’s facing a European Union financial transactions blacklist.  

Some excerpts:

  • Mauritius has set itself up as a financial hub that attracts and deploys investments across Africa. It has become the place of choice to operate through and 90% of investments into East Africa are done through Mauritius (60% are from the EU). The significance of this is that one panelist said that the Mauritius ban was worse than COVID.
  • Mauritius has complied with 35 of the 40 clauses (including the big 6 important ones), and 53 of the 58 recommended actions on Anti-Money Laundering (AML). There’s high-level commitment to correct the remaining ones, led by the Prime Minister, and the nation has a timetable to address the outstanding issues in 2021. 
  • The blacklist prohibits European investments in new funds in Mauritius, with the ban also affecting all European Investment Bank (EIB), funding, investments, lending and operations. The ban is not retroactive, so they have agreed on a grandfather period, till 31 December 2021, during which funds can continue to operate and by which time they hope the country will be removed from the list. But from October 1 2020, European funds can’t make new invests in funds structured in Mauritius. They have two options – focus on funds not established in Mauritius or invest through parallel structures (institutions that are set-up to co-invest along with funds in Mauritius) 
  •  No African country will benefit from Mauritius troubles as there are few alternatives to that country. Malta and Ghana have also been listed – so likely bases are now Dubai, or within the EU (Netherlands, Ireland, Luxembourg, France) itself.  
  • Kenya and Mauritius have been working on a taxation treaty for 8 years. Kenya has signed 14 tax treaties (including with Canada, France, Germany, India, Norway, UK, Zambia and South Africa), most before 1987, but none had raised as much attention as the proposed Mauritius DTA, as it is which is a low-tax country. Uganda and Rwanda already have Mauritius DTA’s. Kenya’s Parliament opened public participation on a new Kenya-Mauritius treaty for the avoidance of double-taxation in terms of cross-border transactions (property, profits, royalties, dividends, technical fees etc.) and the deadline for comments is October 5 202. But the treaty does not apply to most Kenyan investment firms as a 2014 KRA law change requires 50% of ownership to be in another state to qualify.  

AfDB plan virtual annual meetings for 2020

In just over a week, the African Development Bank Group (AfDB) will stage its 2020 annual meetings from Abidjan, Cote d’Ivoire which is the headquarters city of the bank.

The 55th annual meeting of the Group will run from August 25 to August 27. They had initially been planned to happen in May 2020. But because of the surge of coronavirus infections and travel bans across the continent, they were postponed.

The 2019 annual meetings were held in Malabo, Equatorial Guinea and saw thousands of guests, including Presidents, bank governors, finance ministers, and representatives of civil society, media, policy, and the private sector descend on the island of Bioko for a week of engagements.

But this year, as with all major global events, delegates will instead meet virtually and online. The 2020 meetings will feature a reduced schedule that will focus on closed statutory meetings of the Governors of the Bank who represent 54 African countries and 27-non-regional members of the Group.

A key agenda item will be the election of the President of the AfDB. Nigeria’s Akinwumi Adesina has served one term as President and is up for re-election. He is the only candidate, so far, and has the support of many countries including host Cote d’Ivoire and his native country. Last month he was vindicated by the findings of both a board investigation and an independent panel of international experts that investigated allegations in a whistleblower complaint. 

There will also be the annual meeting of the African Development Fund,  and some familiar sideline events, such as the African Banker awards.

Some notable nominees include the Access acquisition of Diamond Bank, the Airtel Dual Listing and the  MTN Nigeria IPO for deal of the year (Equity) and the Access Bank green bond for deal of the year (Debt). Also the Acorn Green Bond, Nouakchott port financing, Port of Maputo, and the Tanzania standard gauge railway are all in contention for infrastructure deal of the year.

Helios & Fairfax to partner on Africa investments

July 2020 saw the announcement of a proposed strategic transaction between Helios Holdings and Fairfax Africa Holdings to create a new entity known as the Helios Fairfax Partners Corporation that aims to become the leading pan-Africa focused listed alternative asset manager with unique capabilities to invest across the continent.

Helios will contribute some management and performance fees it currently earns in exchange for 46% of the venture while Fairfax will retain control of the combined entity.

Helios, founded in 20004, manages $3.6 billion of assets, as Africa’s largest private equity fund with stakes in Nigerian oil (49% of Oando), e-commerce (Mall for Africa), payments (Interswitch) and South African telecom tower firms.

Helios will be the sole investment advisor to the partnership on all deals including Fairfax’s purchase of a stake in Atlas Mara for $40 million. The Co-Founders and Managing Partners of Helios, Tope Lawani and Babatunde Soyoye, will be Joint CEO’s while the current CEO of Fairfax, Michael Wilkerson, will become the Executive Chairman of the new entity.  

In Kenya, Helios first made a splash in 2007 buying 25% of Equity Bank and then going on to sell its stake in 2015 netting $500 million. They have since been involved in deals such as the Acorn green bond, Telkom Kenya, Wananchi Group and Vivo Energy.

Current investors in Helios include CDC which has invested over $100 million, and the IFC. Fairfax Africa shareholders will be asked to approve the deal that has been unanimously approved by a special board committee, that was advised by Alvarium, and have it completed in the third quarter of 2020. The partnership will be listed on the Toronto Stock Exchange, where Fairfax shares currently trade.  

Merger deals in Eastern & Southern Africa (COMESA)

An interesting list of merger statistics was published by the COMESA Competition Commission which regulates trade between member states in the Common Market for Eastern and Southern (COMESA) region.

Most of the proposals involve companies in Kenya Mauritius Zambia Zimbabwe Uganda and Rwanda and are mainly concentrated in energy, banking and agri-business.

It showed that there were 46 deals in 2019, compared to 45 in 2018, and that last year the Commission approved 37 mergers with unconditional clearance and 6 others with conditions. Some were covered earlier, but some notable ones last year include:

Airline/ Oil/Energy/Mining M&A

  • Acquisition of shares by Azura Power (Mauritius) in Thika Holding, Thika Power and Thika Power Services. The target, Thika, is registered in the British Virgin Islands and generates electricity from heavy fuel oil and provides related support services. Azura is acquiring 90% from Melec and the other 10% will be held by Africa Energy Resources Plc.
  • 100% of Iberafrica Power E. A. (“Iberafrica”) has been acquired by the Africa Infrastructure Fund via a Danish partnership. Iberafrica owns and operates a 52.5 MW heavy fuel oil Nairobi power plant and has a PPA with Kenya Power and Lighting Company that will expire in 2034.
  • Matador (managed by the Carlyle Group) intends to acquire between 30 – 40% of the shareholding in CEPS, the parent of a group of companies that supply fuels and fuel derivatives products, with operations in Egypt and Kenya.
  • KenolKobil Plc is acquiring 10 petroleum retail outlets in Zambia from Samfuel.
  • Engie Afrique S.A.S. is acquiring Mobisol Kenya and Mobisol Rwanda which market, distribute and sell solar home systems and related appliances in Kenya and Rwanda.

Banking and Finance: Finance, Law, & Insurance M&A

  • MyBucks (formerly New Finance Bank), a Malawian bank, is acquiring 100% of Nedbank Malawi, which has 11 branches and 50,000 customers. Mybucks is a subsidiary of Frankfurt-listed fintech MyBucks SA which intends to consolidate the two banks.
  • The acquisition of 66.53% of Banque Commerciale de Congo by Equity Group Holdings Plc (covered here).
  • The acquisition by Access Bank Plc of 100% of Transnational Bank Plc (covered here)
  • The proposed acquisition by Banque Centrale Populaire (BCP) of Banque Malgache de l’Ocean Indien (BMOI),a Malagasy commercial bank with 19 branches.

Agri-Business, Food & Beverage M&A

  • PepsiCo is acquiring Pioneer Food Group of South Africa which supplies various grocery products, beverages and breakfast cereal products in the COMESA region.
  • Actis International, through Neoma Managers (Mauritius), is acquiring the management rights held by Abraaj Investment Management (in provisional liquidation) that represent a controlling interest in firms that are in the manufacturing, casual dining and healthcare sectors.
  • Vivo will acquire shares comprising 50% of Kuku Foods Kenya, Kuku Foods Uganda and Kuku Foods Rwanda. Vivo distributes and markets fuels and lubricants across Africa, while Kuku Holdings, incorporated in Mauritius, operates “KFC” quick-service restaurants franchises in Kenya and Uganda, while Kuku Foods Rwanda is not yet operational.
  • The acquisition of a controlling shareholding in Almasi by Coca Cola through its affiliate Coca-Cola Sabco (East Africa).
  • The proposed merger involving Pledge Holdco, an affiliate of TPG and Maziwa, which is controlled by Bainne Holdings. The target owns subsidiaries that sell dairy products in Kenya and Uganda.
  • Zaad BV will acquire a 40% stake in EASEED, a seed firm with interests in Kenya, Tanzania, Ugandan, Rwanda and Zambia, with an option to acquire an additional stake in the future. EASEED is newly incorporated, owned and controlled by a Kenyan national, Mr. Jitendra Shah.
  • A merger between the Finnish Fund for Industrial Development Cooperation and Green Resources AS, a Ugandan operator of East Africa’s largest sawmill (in Tanzania) as well as other electric pole and charcoal manufacturing plants in the region.

Pharmaceutical, Health and Medical M&A

  • TPG Global LLC and Abraaj Healthcare Group Hospitals. (AHG) which owns subsidiaries that provide healthcare services at hospitals and medical clinics in Kenya (Nairobi and Kisumu).

Logistics, Engineering, & Manufacturing M&A

  • A joint venture involving Bollore Transport & Logistics Kenya, Nippon Yusen Kabushiki Kaisha, and Toyota Tsusho Corporation was incorporated in Kenya in January 2017 and will result in Bollore NYK Autologistics that will provide inland transportation, storage and distribution of new or used vehicles arriving at any other port in Kenya and any vehicles manufactured and/or assembled in Kenya.
  • The formation of a joint venture between CFAO (a wholly-owned subsidiary of Toyota Tsusho) and tyre-manufacturer Compagnie Financiere Michelin SCmA (Michelin) that is intended to develop a distribution network to promote tyre sales and tyre-related services in Kenya and Uganda.
  • The proposed merger between Augusta Acquisition B.V., a subsidiary of Uber International, and Careem Inc, a technology platform in the greater Middle East. Uber has operations in Egypt, Kenya and Uganda while Careem operates in 125 cities across 15 countries, including Egypt and Sudan. The COMESA Commission found Egypt is where there was an overlap of the two companies in and approved the deal with some interesting conditions on fares, safety, surge pricing, driver compensation, data sharing, among others.

Real Estate, Tourism, & Supermarkets M&A

  • A proposed merger involving African Wildlife Holdings partnership and Wilderness Holdings. Wilderness operates under various brands including Wilderness Safaris, Wilderness Air, Governors’ Camp Collection and Governors’ Aviation in Kenya, Rwanda, Zambia and Zimbabwe.
  • A Mauritius private equity fund, through Amethis Retail, intends to acquire a minority stake in Naivas International and will indirectly gain control of the target’s Kenyan subsidiary, Naivas, a family-owned, leading supermarket chain with 58 stores. In Kenya, Amethis has invested in and indirectly controls Chase Bank, Ramco Plexus and Kenafric.

Telecommunications, Education, Media & Publishing M&A

  • The proposed merger involving Airtel Networks Kenya and Telkom Kenya, in which Telkom Kenya end up with a 49% shareholding in a renamed Airtel-Telkom was approved as it was not likely to affect competition within COMESA.
  • The acquisition of 100% of Eaton Towers Holdings by NYSE-listed ATC Heston. Both have operations in Kenya and Uganda.
  • Raphael Bidco Ltd, which is owned by CVC Funds, is acquiring joint control of GEMS, an international education company. It is listed as being active only in Egypt, but there are GEMS schools in East Africa.