africa
Is Eritrean policy shift just “tactical”?
Sep 10th
Eritrea’s arms seem to have been folded in a sulk for a long time now. The Red Sea state has, for some, taken on the black sheep role in the Horn of Africa family. But President Isaias Afewerki is looking eager to get off the naughty step.
His opponents say he was put there for good reason. Eritrea became increasingly isolated in the region after a 1998 – 2000 border war with neighbouring – and much bigger – Ethiopia.
Things have been tense between the two ever since – partly fueled by the fact that Eritrea only fully ceded from Ethiopia in 1993 after rebels led by Isaias and Ethiopia’s Prime Minister Meles Zenawi ousted a communist regime.
Eritrea has also fallen out with another neighbour, Djibouti. The two countries have been kicking each other in small but regular border clashes since 2008.
But the biggest blot on Eritrea’s copybook is its alleged backing of Somalia’s Islamist al Shabaab rebels – fast becoming an ulcer, not just for Somalia, but for the whole region. Analysts say Eritrea funds and trains Shabaab as a way of getting at Ethiopia, the West’s closest regional ally and a country that sent troops into Somalia in 2006 to run another Islamist group out of the capital.
The United Nations Security Council finally took action against Eritrea last December, imposing sanctions for its destabilising meddling in Somalia.
Eritrea reacted with what has become its typical scorn and fury, denying all charges.
But, in recent months, some analysts say they’ve detected a “softening”.
Isaias reached out to Djibouti and a peace deal was struck. He sounded more conciliatory tones towards neighbours in interviews. His foreign minister went on a serious hand-shaking spree on the sidelines of an African Union summit in Uganda.
And, last weekend, a meeting took place that surprised many. Isaias welcomed UN special representative for Somalia, Augustini Mahiga, to his capital Asmara for talks. The Eritreans could not have been more diplomatic in their statement afterwards.
“President Isaias pointed out that the UN has a higher responsibility to find a peaceful solution for the Somali issue and expressed Eritrea’s full support for the initiatives being taken by the world body,” a statement posted on an Eritrean government website said.
“Moreover, President Isaias expressed his conviction that the Somali issue would be resolved in a politically inclusive manner and emphasized the UN’s responsibility in creating conducive grounds for the Somalis to resolve their differences.”
Some analysts see the moves as proof that Eritrea – on the brink of a potentially lucrative gold mining boom – is worried about becoming isolated. It has also tried to forge friendships with Qatar, Iran, Israel and Egypt.
But when I recently asked Ethiopia’s Meles, now often rather theatrically referred to as the ‘arch-foe’ of Isaias, whether he thought the Eritrean hand was outstretched, and whether he would shake it, he seemed less sure than some.
“I don’t really see any softening of the stance of the Eritrean government and I doubt whether the Eritrean government at this stage is capable of making a u-turn,” Meles told me.
“It may be the case that it has gone too far and has burned too many bridges for it to make a u-turn. It may be the case that, if it were to do so, its hold on its domestic circumstances may be seriously weakened.”
For Meles, the Djibouti deal is a “too early to say” situation, the diplomatic glad-handing is “frantic” and “nothing new” and any change in policy is simply an attempt by Eritrea to remove “the noose of sanctions from around its neck”.
“There may be tactical shifts but I don’t see a strategic reorientation,” Meles said.
So is Meles right? Is the shift tactical? Or this a genuine attempt at realignment?
Nigeria horsetrading ahead
Sep 10th
Momentum appears to be building towards an election bid by Nigerian President Goodluck Jonathan, but the real political horsetrading has yet to begin if he is to carry the whole country with him.
Jonathan, in his trademark fedora and traditional caftan-like attire, has kept Africa’s most populous nation on tenterhooks for months, declining to say whether or not he plans to seek re-election in the polls due in January.
The stakes are high either way in a country that has seen repeated outbreaks of religious and communal violence, and his reticence is born of well-grounded caution, observers say.
Parts of the Muslim north will feel aggrieved if he announces a bid because, as a Christian southerner, they say he would be breaking an unwritten pact that power rotates between north and south every two terms.
But he is the first Nigerian leader from the Ijaw ethnic group in the restive Niger Delta, and a failure to stand would provoke protest in his home region, the heartland of the country’s mainstay oil and gas industry.
“Jonathan has continued to tread very carefully as far as making public his plans for the future, as he knows there will be tremendous blowback from his political opponents if and when he announces he will run,” intelligence firm Stratfor said.
“It is no secret that Nigeria’s northern elites oppose what they see as a southerner trying to usurp their rightful place in power. The level of protest that leading northerners have sustained so far is nothing in comparison to what it will be if and when Jonathan actually declares his candidacy.”
At a late-night meeting in the presidential villa on Tuesday, Jonathan told powerful state governors in the ruling People’s Democratic Party (PDP) that he intends to stand, one of the governors who attended the meeting said.
Imo State Governor Ikedi Okahim made the remarks in front of television cameras, and his comments were quickly broadcast on both state-run and private stations, leading many analysts to conclude it was a deliberate move to test the waters.
“(Okahim) was most likely preparing the ground for a possible formal declaration next week by the president … to gauge initial reaction,” said Kayode Akindele, a Lagos-based director at financial consultancy Greengate Strategic Partners.
“The president will only declare if he is confident of winning the primaries … There is a feeling of renewed swagger in the recent steps of the president and his close circle but real horsetrading of the PDP primaries commences next week.”
Jonathan kept his cards close to his chest in a message to Muslims on Thursday to mark the end of the fasting month of Ramadan, reaffirming his commitment to ensure free and fair elections and pledging to push ahead with reforms.
“With your continued support and goodwill, we shall, in the coming months carry forward our plans to further stabilize all sectors of our economy, improve national infrastructure and power supply,” he said.
His recent actions have been more telling than his words.
Jonathan replaced the heads of the armed forces, police and state security service on Wednesday, a day after the electoral commission announced the timetable for polls.
He named Major General O.A. Ihejirika as his new chief of army staff, the first time since Nigeria’s 1967-70 civil war that anyone from the southeastern Igbo ethnic group has held the top post in the most powerful branch of the armed forces.
Should the rotation agreement be upheld and the next presidential term goes to the north, the Igbo would feel their turn had come in 2015 when it rotates back to the south. A Jonathan win in 2011 would scupper that hope, and Ihejirika’s nomination is seen by some as a way of ensuring loyalty.
The election timetable announced this week says party primaries begin on Saturday and run to the end of October.
Jonathan has already been meeting former heads of state and other political heavyweights including his rivals in recent weeks, such as ex-military leader Ibrahim Babangida and former vice president Atiku Abubakar, both of whom have said they will run against him to seek the PDP nomination.
The state governors form a powerful caucus in the PDP and winning their support will be key to Jonathan’s chances of success. Those from his home region have already vowed to back him, but those from the north have stopped short of doing so, saying simply they recognise his right to contest.
Several northern governors were absent at Tuesday’s meeting with Jonathan, having travelled to Saudi Arabia to mark the end of Ramadan, This Day newspaper said, without naming its sources.
The newspaper said none of those present raised objections to Jonathan’s plans to run, but that they said another meeting should be held next week with all governors attending.
“Caution is an instinct that has served Jonathan well in a remarkable political career,” said Antony Goldman, London-based head of PM Consulting and a Nigeria expert.
“If he declares publicly, it will be because he is confident of winning and of holding the PDP together. His declaration is already so widely anticipated that any early leak, accidental or deliberate, is unlikely to have a significant impact.”
Africa funds win record inflows
Sep 10th
There is no shortage of signs of foreign investor interest in Africa as it transforms its image to one of rapid growth and away from the old stereotypes – with even Bob Geldof now planning a private equity fund.
Interesting data from fund trackers EPFR Global shows how that interest has translated into a pattern of net investment into African regional equity funds. You can read the Reuters story here.
Are the amounts huge? Not by global standards.
But they are an interesting indicator, particularly as Africa rebounds from the global financial crisis that saw many who had started to dip into the local markets pull back.
Not only is this more money than African regional equity funds have attracted before over a similar period, but it shows a consistency that was lacking in the past.
Can Africa compete?
Sep 9th
Africa’s rapid growth over the past few years is changing its image and has very much put it on the agenda of investors seeking higher returns than they can get elsewhere.
But the latest Global Competitiveness Report from the World Economic Forum suggests that African countries – and particularly its biggest economies – are at best stagnating and at worst backsliding when it comes to how well they can compete.
“An assessment of the competitiveness of African economies raises questions about how sustainable this growth will be over the longer term and highlights areas in need of urgent attention to allow Africa to achieve its full economic potential,” the report said.
The index measures how well placed countries are to compete on a range of categories and then calculates an overall score ranging from Switzerland’s 5.63 at the top of the table to Chad’s 2.73 at the bottom. The top performer in sub-Saharan Africa was South Africa on 4.32.
Looking at the chart, Nigeria is conspicuous by how far its score has slipped. South Africa and Kenya aren’t down much, but their performance is hardly impressive. Ghana and Mauritius did well. Far and away the greatest improvement in absolute terms is for Zimbabwe, but perhaps that shouldn’t be so much of a surprise given where it’s coming from – and it is still ranked 136 out of 139 countries on the index.
Could this be a sign that African growth and the current enthusiasm will run out of steam? Or are other forces more important?
It’s interesting to note that all the BRIC countries of Brazil, Russia, India and China – the large and dynamic emerging market powers – showed a significant improvement in competitiveness in the survey.
Angola throws back punches
Sep 7th
Tired of being criticised for being one of the world’s most
secretive governments, Angola is finally throwing back some
punches.
Top government officials, including the economy minister,
the finance minister and the head of the central bank, held a
news conference late on Friday to discuss the government’s first
200 days in power — the second news conference of the kind this
year.
“You thought we wouldn’t do this again,” said Carlos Feijo,
Angola’s powerful minister of state who is seen by many as the
president’s right-hand man. “Well, here we are.”
He then went on to speak non-stop for 40 minutes, describing
how the economy had improved in recent months, plans to pay
billions in debt to construction firms and the fight against
poverty and corruption before opening up the floor to questions.
Many journalists praised the government’s decision to hold
the news conference as a step in the right direction in a nation
where officials seem to be paid to keep quiet and where people
are afraid to openly criticise the president.
Greater transparency could also bolster Angola’s chances of
receiving more Western loans and placing debt with private
investors abroad, as it seeks cash shore up its finances after
the recent slump in oil prices.
Angola was ranked in the bottom 19 of 180 countries in a
Transparency International corruption study last year.
State-run daily Jornal de Angola hailed the news conference
a success in an editorial a few days later.
“The Angolan government has explained how public funds are
being managed so that Angolans continue to trust in those they
elected into government for four years,” said Jornal de Angola.
“It is important that all Angolans, whether or not they
voted for the ruling party, to be aware of the importance of
this extraordinary performance.”
The question is whether the Angolan government is serious
about increasing transparency or simply using the media’s thirst
for information to campaign ahead of the nation’s 2012
elections.
West Africa’s aerial shuttle busses
Sep 3rd
Try and get from Dakar to Monrovia, a hop of 1,000 km down the West Africa coast, and you are likely to find yourself passing through any number of the region’s airports before getting there over 12 hours later, and at least $1,000 poorer. One suggested flight route is, in all seriousness, go on Kenya Airways via Nairobi and back.
West and Central Africa was once served by Air Afrique, a much-cursed but vaguely-reliable French-backed outfit which provided links within the region and abroad before going bust in 2002. Now getting around the region hinges on a patchwork of smaller airlines with hit and miss connections that make travel slow and extortionately expensive.
Senegal claims to be a regional hub but its own airline went under after a row with partners. Mauritania’s national carrier is suffering after one of its planes crashed in Guinea and split in two earlier this year. Despite its crisis, Ivory Coast’s Air Ivoire still plies some routes, though flights are frequently cancelled or long-delayed.
Some steps are being made to improve things. ASKY, a Togolese company that has backing from Ecobank and Ethiopian Airlines, has started running some routes out of Lome but apparently is having trouble securing landing rights in Dakar and Abidjan, making it a less viable option for travelers.
The IFC, the World Bank’s private sector lending arm, has provided a $25 million loan to the Aga Khan Fund for Economic Development for lending to Air Burkina and Air Mali to help develop Africa’s regional aviation networks
Senegal is seeking to reinvent its national carrier, this time to be called Senegal Airways, potentially with help from Emirates, the Gulf airline that has just secured landing rights in Dakar.
And regional body ECOWAS has for years been trying to fill the void left by Air Afrique’s going bust.
So why is air travel in West and Central Africa so difficult, when eastern and southern Africa appear to have well-established airlines?
Will these new carriers be any more reliable or less costly than their predecessors? Will they last any longer?
How much is this hurting business in the region?
Should each of the countries seek to have a national carrier, or would the region do better by clubbing together to have a fewer, but more reliable carriers?
Hopes of a nation hinge on a document
Aug 27th
On July 7, 1990, fear spread around Kenya. It stretched from the capital, where the opposition had called demonstrations to press for a multi-party system and constitutional changes, right into rural areas.
When a lorry carrying packed milk, under a now long-discarded school-feeding scheme, approached a rural schoolyard during a break, schoolchildren ran into their classrooms because the black stacked crates looked suspiciously like the helmets of armed police.
Some schoolchildren were picked up by their parents from school, too anxious about their safety to let them stay in school.
Opposition leaders and their supporters were beaten up and arrested on the streets by police, forcing some to flee into foreign embassies and into exile in the ensuing crackdown by security forces.
Two decades later, a new constitution is being enacted. It could guarantee the survival of the country by protecting it from intermittent ethnic conflict, a political establishment susceptible to abuse, corruption and the skewed distribution of resources such as land.
The road to this point, for many people, was peppered with heartbreak, because several times the promise of a new constitution and the much-needed new start turned out to be false dawn.
For instance, in 2002, euphoria swept the country with the election of President Mwai Kibaki who, among other promises, ran on a platform of delivering a new constitution within a 100 days of election.
It was another false dawn. Politicians in the ruling coalition accused each other of interfering with the drafting of the constitution in a fight about where executive power should be vested, leading to rejection of a draft that was taken to a referendum in 2005.
The seeds of the post-election violence of early 2008 were sowed in that plebiscite.
Kenyans despaired as communities turned against each other, for backing the “wrong” presidential candidate in the December 2007 polls, shattering the nation’s image of a haven of stability in a region prone to conflicts.
Even after a peace deal was signed, the east African nation became a by-word for election rigging or flawed democracy.
Perhaps this tortured path to the new constitution can explain the patience of voters who braved long queues to cast their votes this month in favour of the charter.
But as the country ushers in the charter with a 21-gun salute, some voices, including one prominent presidential candidate for 2012, are warning the nation has to be vigilant during the implementation period to ensure this is not another false start.
What are your expectations for Kenya’s new constitution? Will the nation’s political class implement it faithfully?
(Photo: Kenya’s Prime Minister Raila Odinga reads the oath of office during the the promulgation of the New Constitution at Uhuru Park in Nairobi. Reuters/Noor Khamis)
Equatorial Guinea’s PR crisis
Aug 26th
Four months into a public relations offensive, Equatorial Guinea is still struggling to get good press.
The government of the tiny West African state, eager to shake a reputation as one of the most corrupt and repressive on the planet, hired a high-powered New York communications firm Qorvis in May in the hope of rebranding itself as a progressive nation and a good place to do business.
But, despite a volley of press releases since with headlines like “Equatorial Guinea Advances Public Health Through Education” and “Equatorial Guinea celebrates music festival”, the country continues to draw almost exclusively negative attention in the media.
Do a Google news search on Equatorial Guinea, and you’ll find stories like “Four executed in Equatorial Guinea coup plot” and “Equatorial Guinea: Human Rights Drowning in Oil”.
Earlier this year, the country made international headlines when the United Nations’ culture and education body suspended a prize sponsored by President Teodoro Obiang, apparently to avoid tarnishing its own reputation.
When the country hired Qorvis, political analysts said the rebranding effort would only work if it was backed by genuine reform – a serious crackdown on the corruption that has prevented its oil wealth from benefiting the impoverished masses, for example, or an opening up of political dialogue in a country run by the same man since a 1979 putsch.
This week, Equatorial Guinea was faced with another barrage of unwanted publicity. Human rights group Amnesty International announced four men were executed in the country on the same day they were sentenced for their alleged role in a coup plot, after thugs abducted them from their hiding place in Benin.
The government, while acknowledging capital punishment is practiced in the country – as it is in the United States and elsewhere – has yet to confirm or deny whether the men were killed and under what circumstances, allowing speculation to run rampant that Obiang’s iron-fisted rule remains intact despite the flurry of feel-good Qorvis press releases.
A source at Qorvis said he thought it was unfair newspapers were running with Amnesty’s statement without confirmation from Equatorial Guinea’s government. “It’s just crazy,” he said.
Is Equatorial Guinea being treated unfairly? Or is its PR campaign just a thin plastering over the cracks?
(Photo: Equatorial Guinea’s President Teodoro Obiang Nguema Mbasogo attends a wreath laying ceremony at Havana’s Revolution Square. Reuters/Enrique de la Osa.)
African agricultural finance under the spotlight
Aug 24th
Keith Mullin, Editor-at-Large of Thomson Reuters IFR, writes on prospects for the flourishing investment in African agriculture.
Africa is turning into a fashionable post-crisis investment destination as investors regain their confidence and start to focus on the continent’s lack of direct involvement with the global market’s volatility drivers and trouble hotspots. Africa is benefiting not only from a resumption of international debt and equity flows; it is also a beneficiary of international efforts to maintain the flow of trade finance via multilateral guarantee programmes – 45 issuing banks from 27 countries in sub-Saharan Africa have joined the IFC’s trade finance programme, for example.
At the same time, bilateral and multilateral development agencies are actively investing via an assortment of public and private-sector channels; the international capital markets pipeline is building – sovereign debt offerings on the docket for Nigeria, Senegal, Tanzania, and Zambia with Libya believed to be looking – while the slew of private equity and hedge funds being raised this year for Africa are seeing healthy interest from public-sector and private LPs.
Investors are focusing broadly on Africa’s relative political stability, improving governance, more conducive policy and regulatory environment, as well as more transparent foreign investment regimes. At the macroeconomic level, above-average growth and low levels of government and corporate indebtedness add to the appeal. What’s key to much of the capital flowing into Africa is that it is supplemented by a support network of capacity building, advisory services, training, technology transfer, and infrastructure benefits.
From a sector diversification perspective, the emergence of new technologies such as mobile telephony and Internet broadband are creating interest beyond the traditional natural resource plays; the telecoms and services sector was the dominant Africa FDI recipient in 2009.
In its World Investment Report 2010, UNCTAD noted that Africa still trails at the bottom of future investment destinations relative to the rest of the world. But that could be about to change as foreign governments and private investors reset their investment horizons and start to look at Africa from a different perspective. Plus: Africa has an abundance of one commodity that is becoming ever more fiercely fought over: agricultural land.
Agricultural capital
Rising levels of international investment capital in African agriculture and agribusiness have taken the investment thesis directly into the intensely political arena of global food security and land rights. It will remain there as long as food security remains a top agenda item for the likes of China, India, Saudi Arabia, UAE, South Korea and many others.
The notion of foreign investment in agriculture as a key to Africa’s food security, particularly when it is aimed at supporting smallholder agriculture and sustainable farming, is a relatively straightforward one. The acquisition of huge tracts of African agricultural land by foreign governments (directly or through sovereign wealth funds), and by multinationals, investment banks, hedge funds, private equity firms and speculators creates a slightly more convoluted picture.
The debate about large-scale African land acquisition by purchasers from all over the developed and developing world is well documented, and the pros and cons continue to be the subject of fierce debate. It’s either a cynical land grab that amounts to a new wave of exploitational colonialism or it’s the best opportunity Africa has had in decades to generate investment inflows that will fund lasting economic benefits.
The facts might help: Africa has about 12% of the world’s arable land but 80% of it is uncultivated, only 7% is irrigated (compared to 40% in Asia) and production yields are low. For all of the protestations of exploitation, the opportunity to develop and commercialise Africa’s abundant agricultural land offers a range of hugely compelling economic opportunities for Africa as well as for international investors. The issue is ensuring deals are structured properly. At the same time as international buyers need to respect principles of responsible investing, governments need to be more accountable, transparent and strategic in how they structure deals.
The fact that more than 13 million Ethiopians need food aid at the same time as the Ethiopian government is offering around 3m hectares of its most fertile land for the production of food for export is perverse. African governments need to raise their level of accountability and ensure at the very least that they improve and protect their own food security through quid pro quo side-agreements negotiated when they lease or sell their arable land to foreign interests; agreements that offer them a share of production intended for export for their own consumption.
Private sector focus
The focus of much of the new inward investment into agriculture is rightly on the private sector and on small and medium-sized enterprises, which have previously had little access to external finance. This approach is supported by the African Union’s Comprehensive Africa Agriculture Development Program (CAADP), established under the AU’s New Partnership for Africa’s Development (NEPAD). One of CAADP’s aims is to raise the capacity of private entrepreneurs as a key plank in the quest to build dynamic agricultural markets. African leaders have set themselves a goal of turning the continent into a net exporter of agricultural products by 2015.
At the G20 Toronto summit in June, leaders committed to exploring “innovative, results-based mechanisms to harness the private sector for agricultural innovation”. The Global Agriculture and Food Security Program (GAFSP) has a private-sector window to channel private investment into small and medium-sized agribusinesses and farmers in poor countries.
To get banks lending to the agriculture sector, the IFC established the Africa Agriculture Finance Project (AAFP), an advisory and investment programme. AAFP kicked off last year in Zambia and plans are afoot to widen it with up to 15 projects in the Central African Republic, Democratic Republic of Congo, Ivory Coast, Malawi, and Nigeria among others.
Nigeria is pushing ahead with its own scheme. In August, the central bank (CBN) and Kofi Annan’s Alliance for a Green Revolution in Africa (AGRA) unveiled the Nigerian Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL), a mechanism they say will help unlock billions of Naira of financing to serve the needs of farmers, especially smallholder farmers, agro-processors, agribusinesses and input suppliers in the agricultural value chain.
AGRA and CBN say they will work with commercial banks in Nigeria to develop innovative financing mechanisms aimed at providing farmers with affordable financial products, while reducing the risk of loans to farmers under other financing programmes offered by financial institutions. NIRSAL will build capacities of banks to expand lending to agriculture, deploy risk-sharing instruments to lower risks of lending and develop a bank rating scheme to rate banks based on their lending to the agricultural sector. Agriculture accounts for 40% of Nigerian GDP, yet the sector receives only 1% of commercial bank loans.
One of the problems is that African SMEs, particularly in the agricultural sector, are not yet on the radar screens of most foreign banks or capital markets investors, while domestic banks often lack the skills to nurture companies through the growth cycle. Risk-sharing via public-private partnerships, while not new, offers a way forward for SMEs and large companies.
The OPEC Fund for International Development (OFID) and the IFC are financing Export Trading Group (ETG), one of Africa’s largest integrated agricultural supply chain operators, through a risk-participation agreement. The funding will to help the Tanzania-based group to expand its trading and processing businesses and support development of agribusiness across the region.
IFC will assume the risk associated with US$40m of US$120m in syndicated loans from Standard Chartered Bank to ETG; OFID will assume risk for US$20m. ETG will use the proceeds to finance the trade of agricultural commodities in several African countries, including Tanzania, Zambia, Kenya, Malawi and Uganda, as well as in India. The increased purchases of commodities by ETG will also help increase economic activity and create employment in rural areas across the region.
OFID also signed two initiatives with Standard Bank. The first is a smallholder risk-sharing agreement to make agricultural finance more accessible to smallholder farmers and SME agricultural producers. The scheme is expected to assist up to 750 000 farmers and small business owners in Ghana, Mozambique, Uganda and Tanzania.
Under the three-year programme, a group of partners will provide the bank with a first-loss guarantee and assist with technical support. OFID is providing 50% risk participation on the remainder of the bank’s potential risk. The facility has made available up to US$50m in the first year, US$66m in the second year and US$100m in the third year. OFID is also sharing risk 50-50 with Standard Bank on a trade finance agreement on transactions of up to US$300m entered into with eligible banks in a number of African countries.
DFIs partner with private equity
If the provision of private African agricultural debt finance is increasing from a low base, the gap is being filled by multilateral and bilateral development agencies, increasingly working in partnership with private equity firms. The volume of cash being channelled into third-party Africa private equity funds is impressive.
The direct financial engagement of bilateral and multilateral development agencies with third-party privately-run financial vehicles that have an out-and-out mission to generate above-market returns certainly needs careful monitoring. The extent to which the development motive sits comfortably with the pure profit motive has long been a topic for debate.
MDBs and bilateral development agencies need to be transparent about this aspect of their business. They should publicise the returns they generate from investment in third-party vehicles, and be clear about what they do with those returns. Excess returns should either be re-invested back into the businesses they’re financing or be put into some form of profit-sharing with local stakeholders and communities.
Public money should only be invested in vehicles that sign up to rules of engagement around sustainability and other tenets of SRI, such as the UN’s Principles for Responsible Investing. When it comes to agricultural capital, LPs and fund investors should ensure investment vehicles support initiatives around responsible agricultural investment. The discussion note: “Thoughts on Principles for Responsible Agricultural Investment that Respects Rights, Livelihoods and Resources” enunciated by the FAO, the UN’s International Fund for Agricultural Development (IFAD), UNCTAD and the World Bank Group, was a good starting point. Responsible agro-enterprise investing is one of seven core principles laid out in the note.
The sponsors of the initiative say that investors should ensure that projects respect the rule of law, reflect industry best practice, are viable economically, and result in durable shared value. It adds that as key players in this sensitive arena, investors have a special responsibility to apply high standards in the design and execution of their projects.
At the very least, LPs have a responsibility to gain a detailed picture of how investment schemes are structured, what the investment style is, whose food security is being protected and how, and the extent to which investments have an SRI dimension or otherwise impact local communities, around issues such as contract farming, land expropriation, compensation and future employment prospects.
Multiple fund initiatives
In the meantime, the number of African agricultural private equity funds being raised continues apace. Easily the most ambitious private equity foray into African agriculture is the African Agricultural Land Fund (Agriland) raised by Susan Payne’s hedge fund Emergent Asset Management, in partnership with South African agricultural traders Grainvest.
The latest sub-fund launched in the second quarter of this year. From its initial launch in the fourth quarter of 2008, the fund is moving steadily towards its target of €3bn, having secured a large cornerstone early investment from a large European institution.
Agriland, which is SRI-compliant, will buy up agricultural land throughout Africa (its focus is sub-Saharan Africa south of Kenya) with the aim of increasing production yields through the introduction of progressive farming techniques, large-scale mechanisation and centralisation across the value chain. The fund will be diversified, with investment geared to crops, biofuels, livestock, game farming and timber.
The fund’s targeted return is 25% per annum, generated from a combination of soft commodity production yields and land price appreciation. The initial focus has been South Africa, but the fund has now acquired land in Botswana, Zambia, Mozambique and Swaziland.
Chayton Capital, the UK private equity firm founded by Neil Crowder and other former Goldman Sachs executives, is taking a similar approach. Chayton has embarked on building what it hopes will become one of the largest agricultural companies in Africa. Chayton Atlas Agricultural Company, operating through Chobe Agrivision, is initially investing US$50m in Zambia, and has an additional US$200m earmarked for investment over the next five years.
Chayton, a returns-driven financial investor, is targeting an investment horizon of up to 10 years, at the end of which it will exit via trade sale or IPO. To underpin its initial investment, Chayton signed a US$50m deal with the Multilateral Investment Guarantee Agency. MIGA’s conditional guarantee will enable the fund over time to acquire and develop up to 10,000 hectares of annual crop production, equal to around 120,000 tonnes of wheat, maize and soya beans. Production will be earmarked for domestic consumption rather than export.
Chayton will acquire five primary production farms, plus related businesses (a silo and elevator business, a milling operation, a soya extruding operation, and fertiliser blending). The fund will source ‘brownfield’ sites, i.e. farms that are under-managed, under-capitalised or in receivership and will increase capacity through better techniques, modernisation and mechanisation. The business will achieve economies of scale through vertical integration across the value chain. The project will employ around 1,650 Zambians.
As the project evolves, Chayton will look to expand its investment parameters into Botswana (which the MIGA guarantee also covers) and from there into Mozambique, Namibia, Tanzania and potentially South Africa.
Other Africa funds that have recently raised or are raising capital include:
· SilverStreet Capital, the investment management firm that focuses on Africa and the agricultural sector, is raising capital for the Silverlands Fund, a private equity fund that will invest in African agricultural businesses across the value chain around a core of farmland businesses in Southern and Central Africa. The fund will be Luxembourg domiciled and have a life of 10 years, with an option to extend for a further two years. Targeted fund size is US$350m and target return is 20%-25% per annum. Silver Street was set up in 2007 by Gary Vaughan-Smith, former head of alternative investments at ABN AMRO.
· Phatisa Group, the South African private equity and corporate finance advisory firm, is managing the African Agriculture Fund (AAF), which held its first close in mid-July at €200m and is targeting a final close of €500m. Founder sponsors were IFAD, the African Development Bank (AfDB), Agence Française de Développement (the French development agency), AGRA and the West African Development Bank. AAF will back private-sector companies that implement strategies to increase and diversify food production and distribution in Africa. It will invest in agro-industrial companies, and agricultural co-operatives that support small-scale farmers and respect the environment.
· South Africa’s Sanlam Private Equity and SP Aktif raised US$100m for Agri-Vie Fund and are already planning a second US$300m fund, to be launched in a couple of years to feed investor demand. The first fund invests in agricultural projects in South Africa, Botswana, Kenya, Tanzania, Uganda, Ghana and Nigeria. Backed by Development Bank of Southern Africa, Industrial Development Corp (the South African DFI using money from the EU-funded Risk Capital Facility that is co-managed with the EIB), and the WK Kellogg Foundation, the fund will invest in entrepreneurs in the agribusiness value chain, rather than directly in the farming industry. Agri-vie plans to invest up to US$25m in five projects in 2010. The fund invests equity and quasi-equity with a preferred position of 25% to 75%. It can arrange debt funding and is open to syndication and co-investment.
· Global Environment Fund (GEF), the US-based private equity firm, raised an initial US$84m for the GEF Africa Sustainable Forestry Fund (GASFF) and is targeting US$150m. The fund is focused on sustainable forestry in sub-Saharan Africa and is the first of its kind. It is a 12-year closed-end private equity fund dedicated to investments in forestlands or forestry-related companies and projects in Eastern and Southern Africa together with two countries in West Africa. The first close saw commitments principally from development finance institutions; CDC was a cornerstone investor with US$50m; the IFC committed US$20m. Private investors are expected to invest alongside the DFIs to get the fund to its target size. GASFF will target commercial returns and is expected to invest in and develop between five and 10 forestry businesses across sub-Saharan Africa. The forestry businesses will grow process and market timber products to meet growing global demand from industries including construction, energy, furniture and biofuel. The fund will start to make investments immediately, with an investment size typically between US$15m and US$30m. Focus countries will include Mozambique, Tanzania, Swaziland, South Africa, Uganda, Ghana, Malawi and Zambia.
· African Agricultural Capital (AAC) started raising capital earlier this year for the AAC Fund, an East African agricultural investment fund. The Uganda-based venture capital firm, set up by the Rockefeller Foundation, the Gatsby Charitable Foundation and Belgian investment company Volksvermogen sent out its private placement memorandum earlier this year. The US$25m Mauritius-domiciled closed-end fund is focused on providing capital to small growing businesses (SGBs) operating in the agriculture value chain in East Africa. The fund will invest between US$200K and US$2m in each business using a range of equity and quasi-equity instruments. AAC says its success criteria are to earn a minimum gross return of 12% per annum on funds invested, and to mobilise increased investment capital of at least an additional US$5m into the East African agricultural sector through partnerships with other investors.
· Private equity funds Sierra Leone Investment Fund and ManoCap Soros Fund are raising capital to invest in small companies in Sierra Leone, primarily in agribusiness and related services. Both have signed contracts with MIGA.
· Beltone Private Equity, a unit of the MENA-focused investment bank Beltone Financial, signed a partnership agreement with Kenana Sugar Company in Sudan with the aim of deploying up to US$1bn in large-scale agriculture projects across Egypt and Sudan. Beltone will provide investment management, corporate finance and strategic capabilities, while Kenana will add through technical know-how and operational expertise.
· Emerging Capital Partners, the Washington DC-based Africa-focused private equity firm, raised US$613m for ECP Africa Fund III at its final close in July. Over US$450m came from the AfDB, IFC, OPIC and CDC. The remainder came from new investors such as South Suez, the pan-African fund-of-funds manager. The fund’s mission is to generate above-market returns by taking controlling stakes or influential minority positions in high-growth companies through equity and quasi-equity investments such as convertible debt. The fund will focus on companies pursuing regional strategies and will invest across various sectors, including agriculture, natural resources, telecoms, financial services, transportation, and utilities.
· Advanced Finance and Investment Group, the private equity group based in Senegal, held the first close of the Atlantic Coast Regional Fund (ACRF) at US$84m last year and is building towards its US$150m target. ACRF is focusing on mid-size, strong growth companies, with a regional scope. Core investment countries will be Nigeria, Senegal, Côte d’Ivoire, Ghana, Cameroon, Gabon, DRC and Angola, but the scope of the fund’s investments will cover the Economic Community of West African States (ECOWAS), the Economic Community of Central African States (ECCAS), as well as Morocco, Mauritania, Uganda and Rwanda. Main investors in the fund are AfDB, CDC, EIB, FinnFund, and IFC as well as international investors such as Africa Re. The fund will make investments ranging between US$3m and US$15m and the sector focus will be agribusiness, transportation and logistics, financial institutions, telecommunications, mining and natural resources and manufacturing companies.
· Nairobi-based venture capital firm Amani Capital hooked up with the Norwegian Investment Fund for Developing Countries (Norfund) to establish the Luxembourg-based Fanisi Venture Capital Fund. The fund will target high growth start-up and established small and medium enterprises (SMEs). Fanisi expects to close at US$55m and will invest in high-growth businesses in Kenya, Rwanda, Tanzania and Uganda. The fund will invest widely across a range of sectors, including agribusiness, ICT, retail, financial services, real estate, health and tourism. The fund’s first close investors were Proparco (the DFI majority owned by the French government) and Finnfund, the Finnish government’s development finance agency. Other investors were the IFC, the Soros Economic Development Fund and the Barry Segal Foundation.
· The IFC Asset Management Company, set up last year by the IFC to manage third-party capital for development and run by former Goldman Sachs investment banker Gavin Wilson, launched a US$600m private equity fund called the African Capitalization Fund, with .support from the AfDB, EIB, the OPEC Investment and Development Fund, and the Abu Dhabi Development Fund. The fund will invest in the continent’s banking system, providing the resources it needs to continue financing the private sector.
· OPIC committed US$100m in co-financing to Cairo-based Citadel Capital. The funds will be co-invested with Citadel and its targeted US$500m MENA and Africa Joint Investment Funds in deals ranging from traditional buyouts to turnarounds, greenfields and growth capital opportunities throughout the Middle East, North Africa, and East Africa. Sectors of interest to Citadel Capital and its funds include waste management, transportation and logistics, manufacturing, and alternative energy. The firm will invest a significant amount of capital in Egyptian companies, which will be used as platform investments to expand throughout the region.
· Africinvest Capital Partners reached the fourth close of Africinvest II with commitments of €137m, and is planning for a final close of €150m. The Mauritius-based pan-African SME fund has the backing of a whole host of European DFIs as well as the IFC, AfDB and EIB.
Banking on Africa
Aug 24th
Mining companies are looking more cautiously at South Africa after a brouhaha over shady deals. Media and diplomats are nervous of measures they fear could curtail press freedom. South Africans in general are wondering how much damage an ongoing public sector strike will do and whether it is a sign of worse labour unrest to come.
But global banking giant HSBC certainly seems to be taking a positive long term view of Africa’s biggest economy with its talks to buy up to 70 percent of South Africa’s Nedbank in a deal that could be worth more than $8 billion.
HSBC wouldn’t only be getting a strong presence in South Africa, though.
It would be getting a solid foothold on a continent set to be among the world’s fastest growing in the years to come and where it is coming from behind against well-established emerging market rivals Standard Chartered and South Africa’s own Standard Bank.
Particularly important for HSBC would be helping its Asian customers do business in Africa. Although Nedbank does not by itself have the presence across Africa that some of its rivals do, it has an alliance with West Africa-based lender Ecobank spanning the continent.
It’s hard to tell to what extent a bid for Nedbank is a bet on South Africa and how much on the rest of Africa – South Africa’s top businesses are finding it increasingly important to be strong in the rest of the continent in any case. What can be in no doubt is the intensity of the looming competition among local and global banks across Africa.