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.
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Grit divests from Letlole La Rona
Grit Services Limited, a member of the pan African real estate group, London Stock Exchange listed Grit Real Estate Income Group is divesting from Letlole La Rona Limited (LLR), a local real estate company established by government investment arm Botswana Development Corporation over a decade ago.
The Board of Directors of Letlole La Rona Limited this week announced in a statement to Unitholders that Grit Services Limited (‘Grit’) has informed them of its intention to exit its investment in the company.
Grit has been a material shareholder in LLR since 2019. On 07 March 2023, Grit sold 6 421 000 linked units, representing 2.29% of the Company’s total securities in issue, at a market value of BWP 22 537 710.
This trade follows previous sales of 6.79% in December 2022, as communicated to Unitholders on 10 January 2023, as well as a further sale of 4.78% (representing 13 347 068 linked units) on 24 February 2023 to various shareholders.
In aggregate, Grit has sold 13.9% shareholding in the Letlole La Rona between December 2022 and March 2023, resulting in current shareholding of 11.25% in the Company.
Letlole La Rona said in the statement that the exit process will take place in an orderly manner so as to maintain stability of the Company’s share price.
The statement explained that Grit’s sale of its entire shareholding in LLR is in line with its decision to exit investments where it does not have majority control, or where it has significant exposure to currencies other than US dollar, Euro or hard-currency-pegged revenue streams.
“Grit has announced similar decisions pertaining to certain of its hospitality assets in Mauritius recently. The Company would like to advise Unitholders that it remains focused on long-term value delivery to all stakeholders” LLR said
In July last year as part of their Go-to-Africa strategy Letlole La Rona acquired an initial 30% equity stake in Orbit Africa Logistics, with an option to increase this investment to 50%. OAL is a special purpose vehicle incorporated in Mauritius, owning an industrial asset in a prime industrial node in Nairobi, Kenya.
The co-investment was done alongside a wholly owned subsidiary of London listed Grit. The Orbit facility is situated on a prime industrial site on Mombasa Road, the principal route south of Nairobi center, serving the main industrial node, the port of Mombasa and the industrial town of Athi River and is strategically located 11 kilometers south of the international airport and 9.6 kilometers from the Inland Container Depot.
Grit shareholding in Letlole La Rona was seen as strategic for LLR, for the company to leverage on Grit’s already existing continental presence and expand its wings beyond Botswana borders as already delivered by Kenya transaction.
Media reports have however suggested that LLR and Grit have since late last year had fundamental disagreements on how to go about the Go-to-Africa strategy amongst other things, fuelled by alleged Botswana government interference on the affairs of LLR.
Government through LLR founding shareholder – Botswana Development Corporation has a controlling stake of around 40 percent in the company. Government is the sole shareholder of Botswana Development Corporation.
Letlole La Rona recently released their financial results for the six months ended December 2022, revenue increased by 4% to P50.2 million from P48.4 million in the prior comparative six months, whilst operating profit was up 8% to P36.5 million. Profit before tax of P49.7 million was reported, an increase of 8% on the prior comparative six months.
“We are encouraged by the strong results, notwithstanding a challenging economic environment. Our performance was mainly underpinned by annual lease escalations, our quality tenant base and below average market vacancy levels, especially in our warehouse portfolio,” Kamogelo Mowaneng, Letlole La Rona Chief Executive Officer commented.
LLR reported a weighted average lease expiry period of 3.3 years and escalation rates averaging 6.8% per annum for the period ended 31 December 2022.Its investment portfolio value increased by 14% year-on-year to close the period at P1.4 billion, mainly driven by the acquisition of a 30% stake in OAL in July 2022.
The Company also recorded a significant increase in other income, predominantly due to foreign exchange gains on the OAL shareholder loan. “We continue to explore pipeline opportunities locally, and regionally in line with our Go-to-Africa strategy and our interest remains on value-accretive investments,” Mowaneng said.
An interim distribution of 9.11 thebe per linked unit was declared on the 6th of February 2023 for the half-year period to 31 December 2022, comprising of a dividend of 0.05 thebe and debenture interest of 9.06 thebe per linked unit which will be paid to linked unit holders registered in the books of the Company at the close of business on 24 February 2023.
Stargems Group establishes Training Center in BW
Internationally-acclaimed diamond manufacturing company StarGems Group has established the Stargems Diamond Training Center which will be providing specialized training in diamond manufacturing and evaluation.
The Stargems Diamond Training Institute is located at the Stargems Group Botswana Unit in Gaborone.
“In accordance with the National Human Resource Development Strategy (NHRDS) which holds the principle that through education and skills development as well as the strategic alignment between national ambitions and individual capabilities, Botswana will become a prosperous, productive and innovative nation due to the quality and efficacy of its citizenry. The Training Centre will provide a range of modules in theory and in practice; from rough diamond evaluation to diamond grading and polishing for Batswana, at no cost for eight weeks. The internationally- recognized certificate offered in partnership with Harry Oppenheimer Diamond Training School presents invaluable opportunities for Batswana to access in the diamond industry locally and internationally. The initiative is an extension of our Corporate Social Investment to the community in which we operate,” said Vishal Shah, Stargems Group Managing Director, during the launch of the Stargems Diamond Training Center.
In order to participate in this rare opportunity, interested candidates are invited to submit a police clearance certificate and a BGCSE certificate only to the Stargems offices. Students who excel in these programs will have the chance to be onboarded by the Stargems Group. This serves as motivation for them to go through this training with a high level of seriousness.
“Community empowerment is one of our CSR principles. We believe that businesses can only thrive when their communities are well taken of. We are hoping that our presence will be impactful to various communities and economies. In the six countries that we are operating in, we have contributed through dedicating 10% of our revenues during COVID-19 to facilitate education, donating to hospitals and also to NGOs committed to supporting women and children living with HIV. One key issue that we are targeting in Botswana is the rate of unemployment amongst the youth. We are looking forward to working closely with the government and other relevant authorities to curb unemployment,” said Shah.
Currently, Stargems Group has employed 117 Batswana and they are looking forward to growing the numbers to 500 as the company grows. Majority of the employees will be graduates from the Stargems Diamond Training Center. This initiation has been received with open arms by the general public and stakeholders. During the launch, the Minister of Minerals and Energy, Honorable Lefoko Moagi, stated that the ministry fully endorses Stargems Diamond Training and will work closely with the Group to support and grow the initiative.
“As a ministry, we see this as an game changer that is aligned with one of the United Nations’ Six Priority Sustainable Development Goals, which is to Advance Opportunity and Impact for Diversity, Equity, and Inclusion (DEI). What Stargems Group is launching today will have a huge impact on the creation of employment in Botswana. An economy’s productivity rises as the number of educated workers increases as its skilled workmanship increases. It is not a secret that low skills perpetuate poverty and widen the inequality gap, therefore the development of skills has the potential to contribute significantly to structural transformation and economic growth by enhancing employability and helping the country become more competitive. We are grateful to see the emergence of industry players such as Stargems Group who have strived to create such opportunities that mitigate the negative effects of COVID-19 on the economy,” said the Minister of Minerals and Energy.