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Private equity activity grows

Private-equity (PE) activity in Africa has increased significantly in the last 30 years


From a dozen or so active general partners (GPs) in the region in 1990, there are currently at least 140 GPs active in Africa. Between 2010 and 2016, GPs invested around US$25.6bn across sectors that ranged from consumer goods to water and sanitation.


GPs’ approach to investment in Africa is, in several ways, distinct from how the asset class functions in other parts of the world. For instance, PE fund raising and deal execution have a longer lead time in Africa than PE funds focused on other regions; the deal sizes are usually smaller; the average holding periods sometimes extend over eight years; and the exit options are weighted towards trade sales. Trade sales are associated with corporate buyers purchasing assets in their core line of business. PE, therefore, plays an important role in facilitating the presence and strategic expansion of corporates in the region.


Moreover, PE investment in Africa tends to focus on growth capital, helping investees to improve governance, and strategy, expand their footprint and (at times) contribute positively to the region’s broader commercial ecosystem, for example by deepening capital markets and expanding supply chains. The focus on growth capital is the opposite of the financial engineering accusations often directed at GP activities in other regions. Rather than buying a business, significantly increasing its debt levels, aggressively reducing costs and exiting after a short holding period, the GP approach in Africa centres on holding and scaling businesses with limited, if any, debt capital included in deal structures.


GPs operating in Africa have surpassed benchmark levels of return: between 2007 and 2015, they generated an average return well over 150% the MSCI Emerging Market Index. This notwithstanding, PE has low penetration relative to performance in other regions. Reforms have been enacted in some countries in the region in order to encourage Africa-based institutional investors to allocate capital to the asset class.


However, more remains to be done to harness fully PE’s potential to contribute to Africa’s socioeconomic development. Each investment counts: every 0.01% in concluded PE transactions as a percentage of African GDP (US$2.1trn) translates to over US$200m of much needed incremental annual investment in the region.


The impact of private equity


Capital to grow: PE plays a catalytic role in Africa. The general shallowness of African capital markets and the high cost of debt finance mean that PE plays an important role in helping to unlock and grow the potential of individual companies and ecosystems. Unlike in other regions, where transactions may be driven by a financial engineering objective, the asset class is primarily applied to fund enterprise growth in Africa.

 

GPs generally approach transactions by assessing the potential to expand a targeted portfolio company’s market reach and/or combine it with a complementary business or service offering. “We play at the larger end of the PE spectrum. Investments start at US$50m and may go up to US$250m,” says David Cooke, partner at Actis, a GP that invests in emerging markets. “Baked” deals—those that are acquired at scale and run efficiently—are not as common in the region.


 “We find very few baked transactions. We may take a successful national business and expand it regionally; everything we do is around growth,” adds Mr Cooke. Debt, when used in deal structures, is generally sparingly and judiciously applied. “We typically use a lot of equity, no more than one third debt,” says Nhlanganiso Mkwanazi, director at Medu Capital, a Johannesburg-based firm. “In the mid-market space, we want to generate investment returns by growing the businesses. The businesses need to have strong balance sheets, not onerous structuring, to enable them to grow effectively,” adds Mr Mkwanazi.


Geographic expansion and job creation


Various indicators point to the value of GPs’ involvement with their portfolio companies. For example, between 2009 and 2015, Africa-based PE investee companies grew their employment “Private equity in Africa is primarily used to support growth, whereas, in the developed world, it may have more of a financial numbers by over 15%, according to The African Private Equity and Venture Capital Association (AVCA). One of Actis’s South Africa-based investments, Food Lover’s Market, is adding an average of five new employees daily.

Fanisi Capital, a Kenya-based GP, has had success growing smaller enterprises into national and regional enterprises. “We do earlystage investments, sometimes with a single entrepreneur, and help to corporatise them,” says Ayisi Makatiani, managing partner at Fanisi Capital. He adds, “For example, we made an acquisition that had two pharmacies and helped to build it into a chain with 53 outlets.”


“While the typical size of our PE investments is between US$50m and US$100m, we will look at anything from US$30m to US$200m. In terms of size, we care less about where we start out, and more where we can end up. Our focus is on the capacity to grow and develop a company into a market-leading business of scale,” says Souleymane Ba, partner at Helios Investment Partners, a London-based GP that invests exclusively in Africa.


“We put investment and growth first, before anything else.” Bruce MacRobert, chairman, Consol Holdings Improving environmental social and governance (ESG) performance says ESG is a generic term used by investors to evaluate corporate behaviour. GPs, and the limited partners investing in their funds, prioritise investees meeting acceptable ESG standards. These standards include financial and non-financial indicators geared to measure how well a company is performing and give an indication of its long-term prospects. Energy efficiency, staff training and qualifications, green house gas emissions and litigation risks, as examples, form part of a host of ESG factors.


Often a GPs involvement in an investee results in a dramatic improvement in ESG performance. “All of our portfolio companies in some way are making life better for people and businesses in Africa,” says Dabney Tonelli, investor relations partner at Helios Investment Partners. “Through our investment activity we’re developing the next generation of business leadership potential, enhancing lives through access to information and technology, creating financial security, increasing financial inclusion, improving environmental care and quality and improving governance standards,” she adds.


Transactions: doing deals


The period 2010-16 for some GPs 2016 was their busiest year. “We do two to three deals a year, flowing from an annual pipeline of over 160 potential opportunities. In respect of transaction volumes, last year was our biggest year as a firm,” says Mr Ba. Out of 54 African countries, only five had a GDP that exceeded US$100bn in 2016, according to The Economist Intelligence Unit. Large PE transactions are, therefore, few and far between in the region.


Over the seven-year period, transactions greater than US$250m composed a little under half (US$12.5bn) of concluded deals. GPs biased towards larger deals generally do not conclude transactions that exceed US$250m. “The typical size of a deal is US$50m to US$100m,” says


Ngalaah Chuphi, executive director at Ethos, a In 2010-16, around US$25.6bn of PE transactions were concluded. The annual investment level averaged around US$3.7bn. However, this figure does not tell the entire story. For example, 2013 and 2014 stood out within the period: over US$12bn, or 48% of total value, was invested in those two years alone.

 

Three large telecommunications deals by IHS Towers, a company that builds and operates base stations, averaging around US$1.4bn each, and one US$630m deal by Helios Towers Africa, which also builds and operates base stations, accounted for around US$4.8bn of the total value of concluded deals.


Notwithstanding slower macroeconomic growth in the region, in 2016 the total amount invested by GPs was US$3.8bn or US$160m more than the average annual investment over the Larger deals dominate overall, but not in every year. Johannesburg-based GP. In fact, in the period 2011-16, only around 3% of PE-transaction volume involved deals valued at US$250m or more, according to Prequin, a firm that provides data on the PE industry. Deal mix: Regional focus


Over 1,000 PE deals were concluded between the beginning of 2010 and the end of 2016, according to data from AVCA and Prequin. Transactions that involved investees that operated across a single sub-region composed the largest share of deal value over the seven-year period. The Southern Africa region accounted for around 30% of completed transactions. South Africa is the largest and most sophisticated single PE market in Africa, accounting for around 22% of concluded transactions by volume and 13% of concluded transactions by value between 2010 and 2016.


West Africa contributed one-quarter of the capital invested in Africa PE transactions over the period, while accounting for around 25% of total transactions. The East Africa region contributed 18% of PE transactions, but just 8% of total deal value. Between 2011 and 2016, there may have been as few as seven concluded deals in East Africa valued at US$50m or more; other East Africa-based deals concluded over the same period averaged around US$8.5m per transaction, according to Prequin.

 

The smaller average size of East African deals suited Fanisi Capital, a Nairobi-based GP focusing on transactions in the range of US$3m to US$5m. “Africa is big, and it is complicated; that leaves opportunities for regionally based GPs like us,” said Mr Makatiani. He adds, “The challenge has been that East Africa has become very popular.

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Payless to partake in BSE’s Flagship Tshipidi program

28th June 2022
PAYLESS

Newly established wholly indigenous citizen owned retail chain Payless Retail (PTY) Ltd is set to partake in the first session of Botswana Stock Exchange (BSE)’s Tshipidi Mentorship Program (TMP) on Monday June 29th.

The TMP aims to train and capacitate SMEs so they can operate as corporates and eventually list on the local bourse. According to local bourse, BSE, the program aims to provide practical training to potential issuers through a comprehensive and interactive program that covers the key themes necessary to position a company to list on the BSE.

Payless Retail is a newly established supermarket chain whose mission is to become a convenient one-stop shopping destination as it is one of the Botswana oldest retailing brands.  It started off as Corner Supermarket in January 1976, and to date boasts of nine stores in, among others, Gaborone, Mochudi, Molepolole and Tlokweng. Payless was recently acquired by Ellis Retail Group, which is led by businessman Elliot Moshoke.

The takeover catapulted Ellis Retail to the envious position of being the first wholly indigenous owned major retail chain. “We jumped at this opportunity because it gave us a chance to prove to Batswana that the retail business is open and lucrative.”

The objective is to create a proudly Botswana retail chain that fully supports our national Vision, economic development and citizen economic empowerment ambitions,” Moshoke told BusinessPost.

He further emphasized that Batswana are capable and able to run large scale businesses hence they need to accept invite foreign investors who will come in to support us not take the business.
“Our win as Payless in the Fast Moving Consumer goods (FMCG) industry is a win for Batswana. We need their support in this difficult and challenging journey.

As you are aware, Payless is the only retail chain in the hands of Batswana ba Sekei. We need to take advantage of this to generate employment and create small businesses in retail and Agri businesses,” he explained.

The retailer has also partnered with Botswana Investment & Trade Center (BITC) on their #PushaBW campaign with a view to initiating earnest engagement with local producers to iron out bottlenecks and ensure seamless trading.

“Local producers have to be part of the phenomenal growth of the Payless brand. This will in turn facilitate employment creation and economic growth. We did this because we have the utmost respect for local manufacturers and producers,” he mentioned.

Payless is currently restocking all of its stores; a development that Moshoke says is testament to the retailer’s commitment to growing the brand and ensuring continuity of business. He further revealed that renowned retail suppliers like PST and CA Sales have reignited their trust in Payless, opening their doors for Payless as they have faith in the retailer’s new owners.

The takeover has reportedly saved more than 200 jobs and gave a new lease of life to the previously fledging Payless brand. According to a press release from the management team, the Payless work forces are also extremely excited about what the future holds. The TMP is a comprehensive and interactive program that covers the key themes necessary to position a company to list on the BSE.

The program is administered by experts within the listing ecosystem and seeks to bring the potential issuers closer to the listings advisers, investors and leaders of already listed companies.  “As a strategic initiative, the BSE decided to set up this mentorship program in a bid to assist SMEs to strategize, corporatize and acclimatize in order to list to access equity finance and expand operations,” said the BSE.

The TMP will avail to SMEs practical insights, knowledge and feedback from institutional investors, increased awareness of the BSE listing requirements as well as an intimate network of advisors and CEOs of listed companies. After training, Payless will graduate with improve governance structures and better knowledge of articulating its business strategy. The retailer will also gain increased visibility through BSE marketing platforms.

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BITC assisted companies rake in P2.96 billion in export earnings

21st June 2022
BITC-CEO-Keletsositse-Olebile

Despite Covid-19 interrupting trade worldwide, exporting companies in Botswana which benefited from the Botswana Investment and Trade Centre (BITC) services realised P2.96 billion in export earnings during the period from April 2020 to March 2021.

In the preceding financial year, the sale of locally manufactured products in foreign markets had registered export revenue of P2, 427 billion against a target of P3, 211 billion BITC, which celebrates 10 years since establishment, continues to carry out several initiatives targeted towards expanding the Botswana export base in line with Botswana’s desire to be an export led economy, underpinned by a robust export promotion programme in line with the National Export Strategy.

The main products exported were swamp cruiser boats, pvc tanks and pvc pipes, ignition wiring sets, semi-precious stones, veterinary medicines, hair braids, coal, textiles (towels and t-shirts) and automobile batteries. These goods were destined mainly for South Africa, Zimbabwe, Austria, Germany, and Namibia.

With Covid-19 still a problem, BITC continues to roll out targeted virtual trade promotion missions across the SADC region with a view to seeking long-lasting market opportunities for locally manufactured products.

Recently, the Centre facilitated participation for Botswana companies at the Eastern Cape Development Council (ECDC) Virtual Export Symposium, the Botswana-Zimbabwe Virtual Trade Mission, the Botswana-Zambia Virtual Trade Mission, Botswana-South Africa Virtual Buyer/Seller Mission as well as the Botswana-Namibia Virtual Trade Mission.

BITC has introduced an e-Exporting programme aimed at assisting Botswana exporters to conduct business on several recommended e-commerce platforms. Due to the advent of COVID-19, BITC is currently promoting e-trade among companies through the establishment of e-commerce platforms and is assisting local companies to embrace digitisation by adopting e-commerce platforms to reach export markets as well as assisting local e-commerce platform developers to scale up their online marketplaces.

During the 2019/2020 financial year, BITC embarked on several initiatives targeted at growing exports in the country; facilitation of participation of local companies in international trade platforms in order to enhance export sales of local products and services into external markets.

BITC also helped in capacity development of local companies to compete in global markets and the nurturing of export awareness and culture among local manufacturers in order to enhance their skills and knowledge of export processes; and in development and implementation of trade facilitation tools that look to improve the overall ease of doing business in Botswana.

As part of building export capacity in 2019/20, six (6) companies were selected to initiate a process to be Organic and Fair Trade Certified. These companies are; Blue Pride (Pty) Ltd, Motlopi Beverages, Moringa Technology Industries (Pty) Ltd, Sleek Foods, Maungo Craft and Divine Morula.

In 2019 seven companies which were enrolled in the Botswana Exporter Development Programme were capacitated with attaining BOBS ISO 9001: 2015 certification. Three (3) companies successfully attained BOBS ISO 9001:2015 certification. These were Lithoflex (Pty) Ltd, General Packaging Industries and Power Engineering.

BITC’s annual flagship exhibition, Global Expo Botswana (GEB) to create opportunities for trade and strategic synergies between local and international companies. The Global Expo Botswana) is a premier business to business exposition that attracts FDI, expansion of domestic investment, promotion of exports of locally produced goods and services and promotion of trade between Botswana and other countries.

Another tool used for export development by BITC is the Botswana Trade Portal, which has experienced some growth in terms of user acceptance and utilisation globally. The portal provides among others a catalogue of information on international, regional and bilateral trade agreements to which Botswana is a party, including the applicable Rules, Regulations and Requirements and the Opportunities for Botswana Businesses on a product by product basis.

The portal also provides information on; measures, legal documents, and forms and procedures needed by Botswana companies that intend on doing business abroad. BITC continues to assist both potential and existing local manufacturing and service entities to realise their export ambitions. This assistance is pursued through the ambit of the Botswana Exporter Development Programme (BEDP) and the Trade Promotion Programme.

BEDP was revised in 2020 in partnership with the United Nations Development Programme (UNDP) with a vision to developing a diversified export-based economy. The programme focuses mostly on capacitating companies to reach export readiness status.

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Inflation up 2.3 percent in May

21st June 2022
Inflation

Prices for goods and services in this country continue to increase, with the latest figures from Statistics Botswana showing that in May 2022, inflation rate rose to 11.9 percent from 9.6 percent recorded in April 2022.

According to Statistics Botswana update released this week, the largest upward contributions to the annual inflation rate in May 2022 came from increase in the cost of transport (7.2 percent), housing, water, electricity, gas & other Fuels (1.4 percent), food & non-alcoholic beverages (1.1 percent) and miscellaneous goods & services (0.8 percent).

With regard to regional inflation rates between April and May 2022, the Rural Villages inflation rate went up by 2.5 percentage points, from 9.6 percent in April to 12.1 percent in May 2022, according to the government owned statistics entity.

In the monthly update the entity stated that the Urban Villages inflation rate stood at 11.8 percent in May 2022, a rise of 2.4 percentage points from the April rate of 9.4 percent, whereas the Cities & Towns inflation rate recorded an increase of 1.9 percentage points, from 9.9 percent in April to 11.8 percent in May.

Commenting on the national Consumer Price Index, the entity stated that it went up by 2.6 percent, from 120.1 in April to 123.2 in May 2022. Statisticians from the entity noted that the transport group index registered an increase of 7.3 percent, from 134.5 in April to 144.2 in May, mainly due to the rise in retail pump prices for petrol and diesel by P1.54 and P2.74 per litre respectively, which effected on the 13th of May 2022.

The food & non-alcoholic beverages group index rose by 2.6 percent, from 118.6 in April 2022 to 121.6 in May 2022 and this came as a result of increase in prices of oils & fats, vegetables, bread & cereal, mineral waters, soft drinks, fruits & vegetables juices, fish (Fresh, Chilled & Frozen) and meat (Fresh, Chilled & Frozen), according to the Statisticians.

The Statisticians said the furnishing, household equipment & routine maintenance group index rose by 1.0 percent, from 111.6 in April 2022 to 112.7 in May 2022 and this was attributed to a general increase in prices of household appliances, glassware, tableware & household utensils and goods & services for household maintenance.

The prices for clothing & footwear group index moved from 109.4 to 110.4, registering a rise of 0.9 percent during the period under review. Bank of Botswana has projected higher inflation in the short term, associated with the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices and added that the possible increase in public service salaries could add also upward pressure to inflation in this country.

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