African countries too small to establish enough scale to diversify to great extent
Diversification has been a watchword for African economies, but what are they actually doing about it? The 2014 oil price drop was felt by many African economies, which discovered that they were over-reliant on natural resources. The need to avoid a repeat and to find more revenue streams to support industrialization has made diversification a critical objective of these governments.
‘’Historically most African countries have relied on monoculture or at least export of primary products and natural resources’’ says Andrew Skipper, head of Hogans Lovells in this recent report. ‘’The challenge is many countries is to build infrastructure and get power in place for them to implement their universally acclaimed aspirations’’ It is a process that has already begun. Skipper notes that in May 2018, oil-producing Nigeria’s other industries accounted for 91% of its GDP, led by agriculture, and agribusiness is one of the main sectors of interest for countries looking to expand their range, along with entertainment, tourism, education, health and fintech.
The limiting factor is scale, he explains ‘’Most individuals countries in Africa, with obvious exceptions, are too small to establish enough scale to diversify to any great extent’’ The signing of the African Continental Free Trade Agreement AfCFTA in 2018 in part intended ‘’to provide sufficient scale from intra-Africa trade to encourage diversification’’ says Skipper. ‘’By driving official intra-African trade from its current low base of around 15% to something even approaching the European Union’s 67% this should lead to diversification.
Interest in the education and healthcare sectors are linked due to interest from universities in the United States and elsewhere, says Washington, DC-based Hogan Lovells partner William Ferreira. ‘’This interest in Africa is much greater than simply the nuts and bolts of an education programme,’’ he says, identifying investment in ‘’treatment and care programmes, public health programmes-HIV and AIDS in particular, clinical trials- because these schools have medical schools- and capacity building programmes’’
That includes public or private sector investors funding the establishment of physical infrastructure, supply chains and providing specialist knowledge. The United States, with its large private education sector, has been a particular player in this regard, including distance education companies selling courses and software. Ferreira has seen particular activity in Nigeria and South Africa, with ‘’a tremendous amount of interest in Zambia’’ and it is a sector which he only expects to grow in the coming years, saying governments are beginning to see ‘’how important it is to have a vibrant education sector, because not only is that important for the vast numbers of youth across Africa, but it has been proved to be an economic engine across many other countries’’
He continues ‘’When there are strong vibrant universities, they have relationships into industry and they have relationships across borders, and there are economic opportunities that come from that’’ Few sectors have generated as much buzz over the past few years as fintech. There has been soaring interest in a wave of start-ups tackling a range of social and business problems, most notably providing banking to people who could not previously access it. Nigeria, Kenya, Uganda and Rwanda have led the way on this, followed by South Africa, and corporations including goggle and IBM are investing in the technology.
James Black, Hogan Lovells counsel in London, notes that with the market still dominated by start-ups, the capital in Africa does not yet match the 54 Billion US Dollars in the Americas or 34 billion US Dollars in Europe, according to a recent KPMG report, but ‘’give that a few years and there will be a huge amount of investment from investment banks, from retail banks and angel investors and the like’’
The other main area of interest has been in financial services for small and medium-sized enterprises, explains Amina Boshoff, a partner in Johannesburg, ‘’on boarding costs for banks have increased over the past decade. It has become more and more difficult for traditional financial institutions to finance small borrowers’’ this has created space for new technology-focused banks and alternative lenders to operate.
Professor Angela Itzikowitz, of the University of the Witwatersrand, says the arrival of the digital banks shows the demand for reduced costs and alternative approaches and that banks are now competing with mobile operators. ‘’while consumers do not have bank accounts, unbanked or under banked, they all have cell phones’’. This places a premium on interoperability, a big focus for mobile operators at the moment.
‘’some of the players are on a fairly robust acquisitive drive, acquiring fintechs, says Itzikowitz, highlighting Goldman Sachs’ investment in mobile banking company JUMO, which operates in many countries across Africa. ‘’coupling the fintech activity with the investment driver is the agency banking model, where banks are partnering with non-bank fintech companies and allowing the companies to conduct banking activity on the back of the bank’’
‘’South Africa is really well placed to get a lot of that investment directed towards it’’, says Black, pointing out that it is English-speaking and has a ‘’focus on rule of law and a well-established legal system as well as a fairly stable economy and being fairly stable politically’’
Meanwhile, recent developments have further changed conceptions of what is possible. ‘’Block chain has brought a fresh breath to the whole industry in terms of the transparency of the technology and reducing that costs of operation’’ argues Alice Blazevic, an associate partner with Ugandan firm. The technology is allowing fintech companies to bypass banks for online money and bringing transparency. ‘’taking care of financial inclusion’’ she says
However, unhelpful attitudes from government were pervasive early on this space too, says Blazevic. ‘’It was the private sector companies that were pushing and they received a lot of resistance at first,’’ due to a lack of understanding about what the technology was and fears due to ‘’a misconception between block chain and crypocurrency’’’’. Time shave already begun to change, however, and ‘’there has been a complete turnaround’’ with governments becoming more helpful, particularly in Uganda, which now has block chain associations and academics.
The need for good regulation is not exclusive to this sector, with Skipper pointing out that all industries ‘’need to have well-developed regulatory structures that are sufficiently advanced to deal with the relevant sector’’, with a particular need for ‘’certainty of policy, rule of law and relative stability in security and currency terms’’ ‘’So many of the shareholders who are buying share in this fintechs are actually foreign companies’’, says Blazevic, and she expects to see more growth in the near future.
‘’I t is definitely not going back in terms of the mainstream financial sector, that is now completely gone, because right now the experience people are having in the financial sector, it doesn’t make sense to go back to the traditional’’ That need to leave the traditional behind is one which will pervade many industries if they are to flourish and allow African countries to diversify.
Business
LLR transforms from Company to Group reporting
Botswana Stock Exchange listed diversified real estate company, Letlole La Rona Limited (“LLR” or “the Company” or “the Group”), posted its first set of group financial statements which comprise the Company and Group consolidated accounts, which show strong financial performance for the six months ended 31 December 2023, with improvements across all key metrics.
The Company commenced the financial year with the appointment of a Deputy Chairperson, Mr Mooketsi Maphane, in order to bolster its governance and enhance leadership continuity through the development of a Board and Executive Management Succession Plan.
At operational level, LLR increased its shareholding in Railpark Mall from 32.79% to 57.79% and proudly took over the management of this prime asset.
The CEO of LLR, Ms Kamogelo Mowaneng commented “During the period under review, our portfolio continued to perform strongly, with improvements across all key metrics as a result of our ongoing focus on portfolio growth and optimisation.
“We are pleased to report a successful first half of the 2024 financial year, where we managed to not only grow the portfolio through strategic acquisitions and value accretive refurbishments but also recycled capital through the disposal of Moedi House as well as the ongoing sale of section titles at Red Square Apartments. The acquisition of an additional 25% stake in JTTM Properties significantly uplifted the value of our investment portfolio to P2.0 billion at a Group level. Our investment portfolio was further differentiated by the quality of our tenant base, as demonstrated by above market occupancy levels of 99.15% and strong collections of above 100% for the period”.
The growth in contractual revenue of 9% from the prior year’s P48.0 million to the current year P52.2 million, increased income from Railpark Mall, coupled with high collection rates, has enabled the company to declare a distribution of 9.11 thebe per linked unit, which is in line with the prior year.
In line with its strategic pillars of ‘Streamlined and Expanded Botswana Portfolio’ as well as ‘Quality African Assets’, the Group continuously monitors the performance of its investments to ensure that they meet the targeted returns.
“The Group continues to explore yield accretive opportunities for balance sheet growth and funding options that can be deployed to finance that growth” further commented the CEO of LLR Ms Kamogelo Mowaneng.
Ms Mowaneng further thanked the Group’s stakeholders for their continued support and stated that they look forward to unlocking further value in the Group.
Business
Botswana’s Electricity Generation Dips 26.4%
The Botswana Power Corporation (BPC) has reported a significant decrease in electricity generation for the fourth quarter of 2023, with output plummeting by 26.4%. This decline is primarily attributed to operational difficulties at the Morupule B power plant, as per the latest Botswana Index of Electricity Generation (IEG) released recently.
Local electricity production saw a drastic reduction, falling from 889,535 MWH in the third quarter of 2023 to 654,312 MWH in the period under review. This substantial decrease is largely due to the operational challenges at the Morupule B power plant. Consequently, the need for imported electricity surged by 35.6% (136,243 MWH) from 382,426 MWH in the third quarter to 518,669 MWH in the fourth quarter. This increase was necessitated by the need to compensate for the shortfall in locally generated electricity.
Zambia Electricity Supply Corporation Limited (ZESCO) was the principal supplier of imported electricity, accounting for 43.1% of total electricity imports during the fourth quarter of 2023. Eskom followed with 21.8%, while the remaining 12.1, 10.3, 8.6, and 4.2% were sourced from Electricidade de Mozambique (EDM), Southern African Power Pool (SAPP), Nampower, and Cross-border electricity markets, respectively. Cross-border electricity markets involve the supply of electricity to towns and villages along the border from neighboring countries such as Namibia and Zambia.
Distributed electricity exhibited a decrease of 7.8% (98,980 MWH), dropping from 1,271,961 MWH in the third quarter of 2023 to 1,172,981 MWH in the review quarter.
Electricity generated locally contributed 55.8% to the electricity distributed during the fourth quarter of 2023, a decrease from the 74.5% contribution in the same quarter of the previous year. This signifies a decrease of 18.7 percentage points. The quarter-on-quarter comparison shows that the contribution of locally generated electricity to the distributed electricity fell by 14.2 percentage points, from 69.9% in the third quarter of 2023 to 55.8% in the fourth quarter. The Morupule A and B power stations accounted for 90.4% of the electricity generated during the fourth quarter of 2023, while Matshelagabedi and Orapa emergency power plants contributed the remaining 5.9 and 3.7% respectively.
The year-on-year analysis reveals some improvement in local electricity generation. The year-on-year perspective shows that the amount of distributed electricity increased by 8.2% (88,781 MWH), from 1,084,200 MWH in the fourth quarter of 2022 to 1,172,981 MWH in the current quarter. The trend of the Index of Electricity Generation from the first quarter of 2013 to the fourth quarter of 2023 indicates an improvement in local electricity generation, despite fluctuations.
The year-on-year analysis also reveals a downward trend in the physical volume of imported electricity. The trend in the physical volume of imported electricity from the first quarter of 2013 to the fourth quarter of 2023 shows a downward trend, indicating the country’s continued effort to generate adequate electricity to meet domestic demand, has led to the decreased reliance on electricity imports.
In response to the need to increase local generation and reduce power imports, the government has initiated a new National Energy Policy. This policy is aimed at guiding the management and development of Botswana’s energy sector and encouraging investment in new and renewable energy. In the policy document, Minister of Mineral Resources, Green Technology and Energy Security Lefoko Moagi stated that the policy aims to transform Botswana from being a net energy importer to a self-sufficient nation with surplus energy for export into the region. Moagi expressed confidence that Botswana has the potential to achieve self-sufficiency in electric power supply, given the country’s readily available energy resources such as coal and renewable sources.
Business
MMG acquires Khoemacau in a transaction valued at P23Bn
MMG Limited, the Hong Kong-based mining company specializing in base metals, has successfully concluded the acquisition of Khoemacau Copper Mine, a state-of-the-art, world-class copper asset nestled in the northwest of Botswana.
On Monday, MMG announced that the acquisition of Khoemacau Mine in Botswana was finalized on 22nd March 2024. “This acquisition enriches the company’s portfolio with a top-tier, transformative growth project and signifies a monumental milestone in the Company’s journey,” MMG communicated in an official statement published on the Hong Kong Stock Exchange.
Upon completion of the acquisition, MMG remitted to the Sellers an Aggregate Consideration of approximately US$1,734,657,000 (over P23 billion), a sum subject to potential adjustments post-Completion.
In addition to the Aggregate Consideration, MMG, in accordance with the Agreement, advanced an aggregate amount of approximately US$348,580,000 (over P4.5 billion) as the Aggregate Debt Settlement Amount, to settle certain debt balances of the Target Group (Cuprous Capital/Khoemacau).
On November 21, 2023, Khoemacau announced that the shareholders of its parent company [Cuprous Capital] had agreed to sell 100% of their interests to MMG Limited.
MMG is a global resources company that mines, explores, and develops copper and other base metals projects on four continents. The company is headquartered in Melbourne, Australia, and has a significant shareholder, China Minmetals Corporation, which is China’s largest metals and minerals group owned by the Government of the People’s Republic of China.
On December 22, 2023, Khoemacau Copper Mining (Pty) Ltd received the approval from the Minister of Minerals and Energy of Botswana regarding the transfer of a controlling interest in the Project Licenses and Prospecting Licenses associated with the Khoemacau Copper Mine, a result of the Acquisition.
The Botswana Competition & Consumer Authority (CCA) on January 29, 2024, notified the market that it had given its approval for the takeover of Khoemacau Copper Mining by MMG Limited.
On January 29, 2024, the CCA issued a merger decision to the market, stating that after conducting all necessary assessments, it was ready to proceed.
The Competition Authority affirmed that the structure of the relevant market would not significantly change upon implementation of the proposed merger as the proposed transaction is not likely to result in a substantial lessening of competition, nor endanger the continuity of service in the market of mining of copper and silver ores and the production, and sale or supply of copper concentrate in Botswana.
Furthermore, the CCA stated that the proposed merger would not have any negative impact on public interest matters in Botswana as per the provisions of section 52(2) of the Competition Act 2018.
Earlier this month, Minister of Minerals & Energy, Lefoko Maxwell Moagi, informed parliament that his Ministry was endorsing the Khoemacau acquisition by MMG Limited. He noted that not only was the company acquiring the existing operation but also committing to an expansion program that would cost over $700 million to double production, create more jobs for Batswana, and increase taxes and royalties paid to the Government.