Tag Archives: africa

Why Impact Investments will ensure a brighter future for Africa

Identifying the worlds most pressing issues can be a challenge. At GCP Solar we focus on providing safe and sustainable light solutions to the 400 million people living in Africa without light. The Head of Impact Investing Initiatives at the World Economic Forum (May 2014), Abigail Noble discussed the challenges of impact investments. Currently the average private equity deal is around US$36m and the average investment impact deal is around US$2m. For private equity firms to fully engage in impact investing it costs more to do. There is the bottom line measuring their fiscal performance financial profit, and then the second bottom line measuring the performance in the terms of positive social impact. Moreover, as the size of the deal is smaller, more consideration is needed in the terms of fee structures and due diligence.

Should impact investors anticipate market returns? Yes – a range of returns can be expected such as patient capital, whereby an investor will be willing to make a financial investment in a business with no expectation of turning a quick profit, substantial rewards will come further down the road. The Acumen Fund, a non-profit global venture fund that uses entrepreneurial approaches to solve the problems of poverty, are cautious about stating that they’re opting for the long-view, some investors only make 0-1% returns. Impact private equity firms like LeapFrog make +20% quartile of returns. Leapfrog invests for the NextBillion, investing in high-growth companies in Africa and Asia, as well as delivering financial services to emerging consumers. These investors need to consider their priorities in the terms of social impact and legacy; are there equity needs in the short-term? Or can a longer perspective be taken?

One could then argue that if impact investments focus more on financial returns, could less profitable investments with strong social impacts be left behind? Noble argues that there is a risk. Given positive selection bias impact investment deals that target the highest returns will receive the most capital and the most effective investors in juxtaposition with those with lower returns. Noble describes how philanthropic capital and development is integral, once investors start to realise that targeting social and environmental returns can actually boost and make more long-run, stable, financial returns. For example, when looking at climate change, the Arab Spring, social unrest, youth unemployment or social inclusion, these can all affect the financial market. By the by, the more stability in social or political institutions, the better the business climate. Noble indicates that the “real way” to create a stable market economy would be to focus on social and financial returns in the long-run. GCP and GCP Solar’s basic focus towards Africa and African investments identifies that investments are long-term opportunities as well as a socially responsible and ethical investments.

Bloomberg Philanthropies $5m impact investment into Little Sun, creators of solar-powered lamps

The former New York Mayor, Mike Bloomberg announced Bloomberg Philanthropies would make its first ever impact investment of $US5m into Little Sun, creators of solar lanterns in the off-grid lighting population in Africa. The ‘Little Sun’, is a solar-powered LED lamp developed by Danish artist Olafur Eliasson and created by engineer Frederik Ottesen, it provides safe and affordable light and hopes to replace kerosene as the favoured light source in Sub-Saharan Africa.

The impact investment will be by way of a low interest loan to enable Little Sun to expand its efforts to distribute its portable solar-powered lamps.

The Little Sun is an artistic looking light, the flower-shaped lamp that includes a 6cm by 6cm single cell mono-crystalline solar module, and when utilized in substitution to kerosene lights it also helps keep the environment safer.

Kerosene is not only expensive, costing about 20% of the average person’s income to maintain, but also demonstrated to have highly negative affects to users health and the environment. Incidentally, inhaling four hours worth of kerosene fumes is equivalent to smoking forty cigarettes.

The Little Sun lamp is currently available to be purchased in Uganda, Kenya, Burundi, Nigeria, Ethiopia, Senegal, South Africa and Zimbabwe. 

Bloomberg Philanthropies’ mission is to ensure better, longer lives for the greatest number of people. The organization focuses on five key areas for creating lasting change: Public Health, Environment, Education, Government Innovation and the Arts. Bloomberg Philanthropies encompasses all of Michael R. Bloomberg’s charitable activities, including his foundation and his personal giving.

To read more about little sun please press here, or Bloomberg Philanthropies press here.

U.S set to invest up to US$498 Million in Ghana’s Electricity Network

Bloomberg announced on 4 August that the U.S is set to invest as much as $498.2 million, over an initial five year period, to improve Ghana’s electricity network. This is part of an effort to encourage private investment and help the West African nation become a regional energy hub.

The Millennium Challenge Corporation is an independent U.S agency focusing on foreign aid, it will provide $308.2 million to enhance generators and power lines in the region. If certain targets are met in Ghana, a further $190 million will be made available, which the government corporation didn’t specify.

Ghana’s President John Dramani Mahama described how “energy is increasingly becoming a constraint to growth in Africa”. He is currently attending the U.S. Chamber of Commerce in Washington. Fifty African leaders have been invited to the White House by Barack Obama to discuss investing into the Sub-Saharan continent. The U.S.-Africa Leaders Summit hopes to unlock opportunities, stimulate growth and create an enabling environment for the next generation in Africa.

Ghana plans to invest $37.4 million of its own fund in the power initiative, which Millennium Challenge said will help generate more than $4 billion in the nations energy sector. These ideals embody the mission of GCP Solar, to help spread sustainable energies and provide energy security to those at the base of the pyramid. Through establishing investments in the energy sector this will hopefully nudge African governments in other areas such as human rights, such as girls, women and gays establishing good governance. Similarly GCP Solar hopes having access to safe lighting will help businesses prosper and enable personal development.

For the full article please press here

Should investors head to Africa or Asia in the hunt for returns?

Sub-Saharan Africa is set to grow at around 6 per cent a year, faster than India. Asia, excluding Japan, is projected to grow at 7 per cent, but these rates are regularly revised down.

Fifteen of the world’s 29 fastest growing economies in the world are in Africa.

Africa is now where the Brics were a decade ago, signalling huge growth potential.

Ten of Africa’s 54 countries have a GDP per capita greater than China, while 17 are greater than India.

Africa is at an earlier stage of its development than Asia. As Asia shows, returns come in the early years. £1000 (€1193) invested in Asia in 1988 was worth £4016 five years later – equivalent to 27 per cent annualised growth. The same sum invested in 2008 is worth just £1517 today – a more pedestrian 7.5 per cent.

Africa’s growth today is investment-led, not sparked by a surge in mineral prices, as happened in the 1970s. Foreign direct investment into Africa increased fivefold since 2000 and 5 per cent in the last year. Growth includes countries like Ethiopia which do not have significant mineral wealth. Rwanda, without natural resources, has been able to sustain a growth rate of 8 per cent thanks to sensible economics. Africa’s resource-rich states are better managing their wealth: Botswana used its diamond wealth to develop quickly, growing from one of Africa’s poorest countries at independence in 1966 to become a democratic, stable, and upper middle-income country.

Africa’s total stockmarket capitalisation grew from $245bn (€180bn) in 2002 to more than $1tn in 2010. According to African economic expert Paul Collier, returns on investment in Africa are higher than in other regions: the average return on capital for companies was two-thirds higher than that of comparable companies in China, India, Indonesia, and Vietnam.

Africa has a median age of 20 years compared to 30 in Asia, and the number of working age people will double to 1.1bn by 2040. With rising costs, Asia is no longer the low-wage factory of the world. And entrepreneurial Africans are returning to establish businesses on the continent. Africa has more cities of over 1m population than Europe and has more $20,000+ earners than India. All this is powering consumer facing service sectors, sectors where growth is not correlated with the rest of the world – a tempting combination.

Agriculture is a key sector for growth. Africa has 60 per cent of the world’s uncultivated arable land. Food distribution is improving as transport infrastructure develops and agricultural policies improve. The agriculture sector can diversify into processing. Africa is a big exporter of raw agricultural products.

With its richness of resources, young and growing populations and a greater commitment to political and economic reforms, it would be a brave and likely foolhardy choice to ignore the growth potential of Africa in the decade ahead.

Africa Renewable Energy Fund gets US$ 65 million equity package

The Board of Directors of the African Development Bank (AfDB) approved on Wednesday, November 13, a US $65-million equity investment package in the Africa Renewable Energy Fund (AREF) comprised of US $25 million from its statutory resources, US $35 million from the Sustainable Energy Fund for Africa (SEFA) and US $4.5 million from theGlobal Environment Facility (GEF). AREF is a private equity fund that will invest in small- to medium-sized renewable energy projects in Sub-Saharan Africa (SSA), excluding South Africa, with a targeted fund size of US $150 million to $200 million.

The resources needed for Africa to adapt to climate change and embark on low-carbon growth paths are estimated to range from US $22 billion and US $31 billion per annum between now and 2015. However, few pan-African infrastructure funds have scope to make clean technology investments, whereas there is a dearth of funds that are dedicated to renewable energy investment or that have an investment focus targeting SSA.

AREF will have a significant impact in facilitating greater private capital inflows into clean energy technology industries across Africa, while lowering greenhouse gas emissions currently associated with the energy sector. By investing in clean technology solutions, AREF will assist Governments in meeting their renewable energy (RE) and carbon emission targets, while contributing to job creation, income generation, increased delivery of services and Government revenues.

AREF has been set up to contribute to the investment needs and, through the demonstration effect, catalyze the additional investment required to build sustainable RE industries across SSA. The AfDB played a key role as the lead in the fund’s conceptual development, including the structuring of the fund and selection of the fund manager. AfDB and SEFA are co-sponsors and anchor investors in the fund each bringing a US $25 million equity participation. SEFA will additionally provide US $10 million to AREF’s Project Support Facility (PSF) to prepare and structure bankable projects. Lastly, the Global Environment Facility (GEF) will invest US $4.5 million in equity from an AfDB-managed public-private partnership platform program.

Berkeley Energy LLP (BE), AREF’s manager, established in 2007, raised a US $110 million Renewable Energy Asia Fund (REAF) in 2009 and deployed 80% of its capital within three and a half years. The REAF investment remit is substantially similar to AREF, with the BE team demonstrating over 60 years of relevant project development experience in emerging markets, including experience within the team of delivering operating energy assets in Africa.

The AREF mandate, aligned with the AfDB’s Ten-Year Strategy for 2013-2022, is focusing on energy security and inclusive green growth as the pathway to sustainable development and creating broad-based prosperity. The fund is also well aligned with the Bank’s Energy Policy, the Banks’ Clean Energy Investment Framework and Climate Change Action Plan, which aim to help its member countries to transition to a cleaner energy mix and support investments to reduce Africa’s vulnerability to climate change.

Harvard Business Review outlines 7 reasons why Africa’s time is now

The latest edition of Harvard Business Review outlines 7 reasons why Africa’s time is now. Here they are:

  1. It’s a huge market opportunity,
  2. it is becoming more stable,
  3. It will soon have the World’s largest workforce,
  4. Mobile is expanding,
  5. Intra-African trade is in its infancy,
  6. 20% of Government spending goes into education, and
  7. it contains most of the world’s uncultivated arable land.

 

 

General Electric to expand its investments in Africa

US-based multinational General Electric has indicated that it is in the process of expanding its investments into sub-Saharan Africa as part of the recently announced Power Initiative. General Electric can point to a 100-year record of involvement in Africa and has operations in several sub-Saharan African countries, one of which is Nigeria where it has already identified projects in which it can participate.

In the past year, General Electric and the Federal Government of Nigeria have signed several memoranda of understanding agreements outlining cooperation in the energy, healthcare and rail transportation sectors. Ground breaking for a US$250 million manufacturing facility in the port city of Calabar in Nigeria took place on 18 June 2013. General Electric Nigeria’s president and CEO, Lazarus Angbazo, is of the view that Nigeria is a country where the General Electric portfolio – the full General Electric portfolio – fits perfectly in terms of the needs of the country and the capabilities of the country.

Angbazo further indicated that General Electric intends to invest up to $1 billion over the next five years, including the aforementioned $250 million, with the balance to be spent in services and support.

Africa beats BRICS on LP charts

Limited Partner (LP) investors have selected Sub-Saharan Africa (SSA) as the most attractive investment region, the first time the region has beat the BRICs, according just released research from the Emerging Markets Private Equity Association (EMPEA).

SSA has catapulted to the top of LP charts, from number five in the previous annual survey, stealing attention from Brazil, China and India – which have historically dominated LP attention. Southeast Asia and Latin America ex- Brazil came in second and third, respectively, on the attractiveness index.

None of the BRICs made the top-three slots on the index – the first time this has been observed in the survey’s nine-year history. LPs are concerned that the BRICs have become very competitive, on the back of an increased supply of funds.

India is particularly being shunned for high deal entry valuations,  causing the country to continue on its downward slide, falling from sixth to ninth place on the index. The Middle East and North Africa region has dropped to last place. However, Brazil has seen the greatest fall in recent years since being ranked as the most attractive market for investment in 2011.

The LPs seem to be ready to back their increased appetite for SSA with actual commitments, with about 54% saying they plan to expand or make new commitments to the region.  This is compared to Southeast Asia and Latin America, ex-Brazil, which respectively came in second and third at 49% and 46%. SSA is also poised to see the largest influx of new investors, followed by Turkey and Southeast Asia, according to the survey.

LP reasons for trekking to SSA include the rise in the number fund managers with a track record, significant investment opportunities, low entry valuations, and fast-growing markets. Others also believe SSA is last frontier for global investing on the back of strong demographics, economic growth and improved regulations.

Improved appetite for Africa has also been helped by the growing number of LPs that are further along in executing their emerging markets private equity strategies. As such, a number are now diversifying beyond the BRICs, suggesting a maturation of portfolios. This is compared to previous years, when the bulk of the LP community was new to emerging markets and therefore selected the BRICs as their initial stop.

“We seem to be entering the next stage of growth for the asset class as track records begin to develop across SSA, Southeast Asia and parts of Latin America,” said Nadiya Satyamurthy, senior director at EMPEA.

LPs are in part being motivated by SSA returns expectations, as their confidence in the rest of the emerging markets dampens. The majority of LPs have  cut  their return expectations  for nearly all emerging market regions they are currently invested in, with the exception of  SSA,  where 64% anticipate net  returns of  at least 16% . This is compared to 57% who indicated the same expectations in 2012.

SSA’s political risks have also become less of a worry for LPs, with only 36% citing this as a deterrent – a significant drop from 66% in the previous survey. The investors are now also a lot less concerned about the low number of established GPs focused on the region, with only 36% expressing this as a concern- a decline from 50% in 2012.

LPs are on the other hand increasingly favouring General Partner (GP) teams that can demonstrate strong operational expertise in target sectors – a trend across all emerging market regions. The investors are also weighing in the length of the working relationship among GP team members, when selecting funds.

However, the LPs are less concerned about the presence of an anchor investor and the names of the other LPs in a fund. For SSA, the LPs continue to favour regional funds, as compared to country-specific funds – a trend observed in other emerging markets regions.

Overall, nearly 60% expect raise their commitments levels to emerging markets up to 2015.  The LPs continue to believe that emerging markets private equity will outperform developed regions.

EMPEA surveyed 112 LPs, with disclosed global private equity assets under management of nearly $430 billion and undrawn commitments of over $180 billion. The pool included public and corporate pension funds, insurance companies, sovereign wealth funds, banks, asset managers, endowments, foundations, family offices, development finance institutions, multilateral organizations and funds of funds.

See full survey here.

Africa will need about US$93 billion every year for the next 45 years to develop the needed infrastructure

Many African countries are starting to increase their infrastructure investment with some allocating up to 10% of the GDP to infrastructure projects. This is however, not enough.

Poor transport, communications and energy infrastructure is slowing down Africa’s economic development and has hampered the growth of various sectors like agriculture.

Click here for further details.

Africa estimated to have more than 735 million mobile telephone subscribers by the end of 2012

Much has been written about the stunning growth of mobile telephony in Africa. It is estimated that the continent will have more than 735 million subscribers by the end of 2012.

However, a large percentage of the mobile phones in Africa are very basic models with no internet connectivity, and subsequently no access to social networks such as Facebook.

This is set to change. Mobile operator Orange has launched a service that will allow users to access Facebook from even the simplest handsets.

“Facebook is already well established in Africa, since it already has 40 million users. On the other hand, most of these users are on fixed connections. And Facebook has made a huge priority of developing mobile users. Today the people who use Facebook on their mobiles are mainly people … who can afford to pay the price of the mobile web. Our concern at Orange is really to offer customers a solution which allows them to access Facebook from absolutely any device,” said Pauline Hirsch, partnerships manager at Orange.

This service is made possible through technology called USSD (short for Unstructured Supplementary Service Data), which is currently used by all GSM mobile phones to send information across a 2G network. USSD is already used on the continent for services such as account information and callback services.

Orange says that no special applications are needed to use Facebook via USSD. Users only need to type a specific code into their phone to open a Facebook via USSD session and enter a PIN code to access the service securely. According to the company, users will be able to update their status, make comments, and invite new friends.

France Telecom, owner of the Orange brand, first launched the Facebook via USSD service towards the end of 2011 in Egypt. The company today announced that the service will start in Côted’Ivoire this month, with other African countries to be added throughout 2012. It expects that over one million subscribers will use the service in the first year. France Telecom has a presence in 15 African countries.

Chinese mobile phone company Tecno explains why it only does business in Africa

China-based mobile phone manufacturer, Tecno Telecom Limited, exclusively does business in Africa. Last year, the company released the first ‘made in Ethiopia’ smartphone. Tecno vice president, Arif Chowdhury was in Nairobi recently and told How we made it in Africa’s Dinfin Mulupi about the firm’s expansion strategy and its plans to move all of its manufacturing to Africa.

How and why did Tecno enter the African market?techno300

The company started in 2006 in Hong Kong with our first research and development centre in Shanghai, China. For two years, our business focused on the South Asia market. After studying the markets in South East Asia, Africa and Latin America, we found out that Africa would be the most lucrative market for us. We began operations here in 2008 before eventually stopping our business in Asia to exclusively focus on Africa.

Today, Tecno does business in Africa only. We want to be the mobile king of Africa. The continent receives a lot of imports but the products are not always modelled to fit demand here. We ensure our products meet the local demand because they are solely produced for the African market. We are present in 12 countries in East, West and Central Africa where we currently control an average of 20% market share in each of the countries. This year we are going to explore the Southern and Northern Africa markets starting with South Africa and Egypt. We are also going to strengthen relations with technology giants both in manufacturing and service provision to ensure quality in products and customer experience. We have no option but to have the best products. You can’t be a failure in Africa and go somewhere else. We have to make it here.

The African mobile market is dominated by global giants. How do you intend to become king?

Even Tecno is a giant. We fight with them with more localisation and customisation of devices. We are very focused on each of the countries we do business in and their demands. With the right product and communication you can compete with them. The competition is good because it forces all players to bring better devices, better features and better prices. This is the 21st century, anybody and everybody has a chance to make it. Creativity and innovation are, however, important. It is also important to know that just because a firm is successful in Europe does not mean they are guaranteed success in every other market. The question is: what value are they adding to this particular market?

Explain some of the trends you are seeing in Africa’s mobile market

The smartphone is the mobile device to watch this year. The prices are coming down and the sales volumes will increase. This is driving mobile internet access, which then opens up a lot of doors for innovation in that space. Studies indicate that most people now access the internet through their mobile phones as opposed to PCs. We are launching more internet series mobile phones to serve the growing demand. Our research from years back shows that the buyers of Tecno phones are mostly the youth and we have decided to [focus] on this market of people aged 17 to 35. The young people want to be unique. They want unique features that allow them to play and chat.

Tecno released the first ‘made in Ethiopia’ smartphone last year. Are there any plans to roll out plants in other African countries?

We are proud to say that some of the Tecno phones are already ‘made in Africa’. We started a plant in Addis Ababa two year ago and it is doing well so far. We chose Ethiopia because it is unique, looking at it from a strategic point of view. We found Ethiopia’s duty structure to be more attractive. We eventually plan to move our entire production to Africa since this is the only market we serve. We will start with establishing manufacturing plants in Kenya and Nigeria. This will depend highly on a lot of factors like the customs structure and government support we receive.

Some African countries are now past 100% mobile penetration. Are you expecting the mobile devices market to start shrinking?

For the next five to 10 years, we expect Africa to remain the fastest growing market in the world. For the countries that are past 100% penetration, there is still a market for phone replacement. Most countries are, however, still behind in terms of penetration and we therefore expect new subscribers there. We are confident that the market is still huge, and it will be so for the next couple of years.

What challenges do you face?

This is the fastest moving industry. A day in the mobile industry is like a week or month in other industries. We have to constantly launch new products and improve quality and service. The competition here is fierce. The counterfeit phones are also a challenge.

Describe the experience you have had while doing business in Africa.

People who have not visited Africa have the wrong perception of the continent. The challenges are not as bad as the media makes it appear. If you are sincere with the people, they will support you. No other part in the world has as much resources as Africa.

Wharton hosts African Investment Panel in Hong Kong

Yesterday (Monday, 6 May 2013) in Hong Kong, The Wharton Club of Hong Kong presented a dinner and African Investment Panel jointly with the Wharton Club of Africa (“WCA”). The dinner was attended by a select gathering who heard about specific investment opportunities in Africa from the panelists.

Click here for further details.

Africa’s top three airports rank higher than any airports in the USA

The World Airport Awards 2013 – recently released by Skytrax, a United Kingdom-based company specialising in airline and airport research – has ranked the top airports in the world, including those in Africa. The results show that South African airports take a considerable lead over other airports on the continent and, in some cases, the world.

These three South African airports all appeared in the top third of the global 100 list, beating well known airports such as the Dubai International Airport (33rd) and the Sydney Airport (31st). What is truly impressive is that all three South African airports were ranked higher than any American airport this year.

Click here for further details.

Why is Africa an important market for French beauty company L’Oréal?

Africa is a big and fundamental market for L’Oréal. In the last four years, Egypt, Nigeria and East Africa have come on line to join South Africa, Morocco and Ghana where L’Oréal previously had a presence.

Describe the opportunities and trends in the beauty industry?

The potential is huge. I spend time observing how people behave in the washrooms. I am fascinated that every single woman, whether an executive or cleaning lady, will come in with a compact and powder their face, line their eyebrows and apply lipstick. Every salon in Kenya offers manicures, whether it is in a shack or a five star hotel; it is just a question of price and quality. This was a luxury but now it is standard. Women are increasingly becoming more confident, are loud at home and hold higher offices. I think the next big thing is deodorants. The beauty industry can only progress.

Click here for further details.

 

 

Are the risks worth taking in African investments?

This article takes a general look at the risk and reward of investing in Africa.

Mining risk v rewards

Click here for further details.