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Finance & Services

Southern African private equity seizes deal opportunities

In March, Zimbabwean private equity firm Takura Capital Partners acquired a majority stake in distressed agro-business Interfresh Limited, shortly after snapping up a 16% stake in diversified construction firm Radar Holdings.

A beneficiary of funding from the UK’s development investor CDC Group, Takura Capital was established in 1997 to target growing and struggling companies. Since then the investor has spread its wings throughout the Southern African Development Community.

Over the years, the fund has grown and revived companies including bread-maker Lobels, which nearly closed in 2011 due to financial difficulties, and Cairns Holdings, a former listed agro-manufacturer that went insolvent in 2012.

In 2015, Takura Capital invested in the country’s largest beef producer Montana Meats, and Talwant Trading, the franchisee for Fruit and Veg City Africa International.

Now, amid the regional economic havoc wrought by the Covid-19 pandemic, the firm and others like it see a renewed opportunity to snap up companies which it believes have a promising future despite current headwinds.

Despite Zimbabwe’s huge economic challenges, they believe the country offers immense opportunities for discerning private equity investors given gaping infrastructure and energy needs alongside emerging opportunities in manufacturing, mining and agriculture.

Takura Capital, together with Spear Capital, a medium-sized investor in consumer-based businesses, healthcare and education, and Vakayi Capital, which focuses on SMEs, form the local backbone of an expanding industry of private equity investors, many of them foreign, that spy opportunities amid the challenging Zimbabwean economy.

Untapped potential

The potential of private equity remains largely untapped in Southern African countries outside of South Africa. Three hundred and sixty-four deals worth $4.4bn were recorded in the region between 2015 and 2020, according to the African Private Equity and Venture Capital Association’s 2020 Annual African Private Equity Data Tracker, released in March, but 69% of the deals and 64% of the deal value were registered in South Africa alone.

The Covid-19 pandemic has not helped matters. Private equity final closes across Africa as a whole dropped to $1.2bn in 2020 from $3.8bn in 2019 as the pandemic hit. The region’s economies have been ravaged – Zimbabwe’s GDP shrank by 8% last year, South Africa shrank by 7% and Botswana by 8.3%. 

Still, there have been green shoots. The number of deals recorded across the continent rose to a high of 255 from 230 in 2019, with a value of $3.3bn and with early stage investments representing 49% of the total volume.

About 55% of the deals reported in 2020 were in technology-enabled companies, as digital innovation continues to gain traction across Africa. Southern Africa’s economies are expected to partially bounce back this year as vaccinations are gradually introduced, with Zimbabwe expecting growth of 3.3%, Botswana 7.5% and South Africa 3.1%.

Even in a tough environment, some firms have managed to engineer successful fundraisings. Secha Capital, a South Africa-based investor that invests in SMEs throughout the region, closed funding in 2020 of $30m. Its investments include energy startup IG3N and Cultura Fresh, a hydroponic farm, among other businesses. Meanwhile, Moshe Capital, a South Africa-based investor, launched a $23.5m investment fund targeting established businesses.

Chai Musoni, chief executive and co-founding partner with Patrick Makanza of Vakayi Capital, says there remains a huge demand for capital among small-scale businesses. While listed firms and other larger corporations find it easier to access financial support, smaller unlisted companies struggle, he says. Vakayi is reviewing a pipeline of about 15 companies with a view to investing $5m-10m.

“Different private equity funds have different strategies; our investment is from $100,000 to $1m per investment. Other funds may do larger deals ranging from $1m to as much as $5m or even more. There is a great future because as long as there are businesses the demand for capital will always be there. Private equity funds are more flexible in structuring investments and have greater risk appetite than banks,” he says.

As a provider of early stage growth capital, he sees lots of business requiring startup capital.

“It’s a risky part of the business growth cycle but can be managed by investing through innovative instruments. Currently the universe of funds in Africa and Zimbabwe especially is limited, so the strategies are limited. Private equity funds consider the quality of the management and the business model and also scalability to indicate the prospects of growth for a business.”

Nevertheless, challenges remain beyond the region’s sluggish economic growth. The AVCA Data Tracker highlights the region’s inconsistent foreign exchange policies as a significant bar to development. 

“Foreign exchange risk is acute in this part of the world. The cost of hedging tends to be punitive and therefore, if investing in a hard currency, one ought to be mindful of potential erosion in value on account of local currency devaluation. To a large extent this drives the quest for export-oriented business or business that can offer US dollar indexed pricing.”

Furthermore, political instability around Southern African elections can upset the predictability of business cycles for private equity portfolio companies, say the report’s authors.

“The political landscape in the region is characterised by instability in and around presidential election times, a phenomenon that adversely impacts business for at least two concurrent years. There is, therefore, commercial merit to supporting regional businesses; not just as a natural FX hedge but to mitigate against political risk.”

An economy in recovery?

Nowhere is this more true than Zimbabwe. In April, Zimbabwean finance minister Mthuli Ncube launched a global roadshow to win over investors, highlight policy changes and pitch the country as “an economy and investment destination in recovery”. In a sign that the country is keen to attract regional capital, the minister met with South African fund manager Allan Gray in a meeting publicised on Twitter. 

There are plans to take the roadshow to London and New York, but the country’s messaging on investment remains mixed – in the same month, Zimbabwean President Emmerson Mnangagwa vowed to take unspecified action against “sharks” in the financial services industry that he accused of profiteering. Until policy uncertainties are ironed out, the country’s investors and companies will continue to face a rocky road.

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Technology & Information

Africa-focused Andela shifts attention to South America

Tech firm Andela, which connects African software developers with global clients, is expanding its talent pool into South America.

The firm is hoping to capitalise on a surging demand for remote software engineers as companies around the world become more comfortable with remote working arrangements.

Over the past year, the pandemic’s normalisation of remote working has boosted the business models of companies such as Andela, says CEO Jeremy Johnson.

“This was already a trend taking place before the pandemic, but the pandemic accelerated it dramatically,” he says.

Currently, around 30% of the engineers that apply for Andela’s placements are from Latin America, while the company now accepts applications from 168 countries worldwide.

Andela launched operations in Nigeria in 2014 to help global companies overcome the severe shortage of skilled software developers and ran programmes to train African software engineering talent. Since then, the company has hired and developed more than 700 software engineers across the continent and hired them out to more than 180 global companies, including Viacom, Pluralsight and GitHub. High profile investors in the firm have included Al Gore’s Generation Investment Management, Mark Zuckerberg’s Chan Zuckerberg Initiative and GV (Google Ventures).

More time-zones and jobs

The firm says that expanding its frontiers beyond Africa will bring in more clients from different time-zones, and drive growth with greater diversity. But the majority of Andela’s talent is still African, with 30% of their placements currently coming from Latin America, says Johnson.

“Our DNA is very much rooted in Africa. We care deeply about the ecosystem overall,” he adds.

Yet the firm has faced challenges in Africa in the past two years after an initial rapid expansion. In 2019 it announced that it would wind down its physical campuses in Nigeria, Kenya, and Uganda and laid off hundreds of junior engineers after admitting that it could no longer find ‘meaningful work’ for them. The firm subsequently decided to focus on “experienced talent” including mid-level and senior software engineers. Around 135 non-engineering staff were laid off in mid-2020 in response to the pandemic, according to reports, and senior staff took paycuts. Johnson confirmed that the firm is not planning on opening further campuses. 

“We’re not planning on opening up new campuses ultimately because we’re able to move faster and connect opportunity more effectively when we don’t require people to come to a single location.”

Andela’s open plan campus in Nigeria

The continent’s infrastructure has increased the share of Africans working remotely. And while electricity has been a constant and early challenge, huge strides have been made in addressing power shortages, Johnson says.

In 2020, Lagos municipality laid 3,000 km of fibre optic cable in the city, while an additional 3,000km will be installed this year.

“This was a massive step forward for the tech ecosystem,” Johnson says. I think we’re seeing material progress that helps accelerate our progress in Africa.”

“We’ve in some ways helped push but also ridden this wave of tech innovation and development on the continent, because people recognise that this is an opportunity to bring the world closer together and create high quality jobs at scale and ultimately to create human potential.”

Categories
Trade & Investment

Africa’s ports shrug off Covid-19 and Suez crisis

Even as African economies struggle with the economic fallout of the Covid-19 pandemic, the future looks bright for the African port industry. The sector is in the middle of the biggest phase of expansion in its history, has attracted the world’s biggest port operators, and has coped surprisingly well with the downturn in global trade caused by the coronavirus crisis.

Moreover, while the African Continental Free Trade Agreement (AfCFTA) seeks to promote trade between African states, it should also encourage greater trade between the continent and the rest of the world, generating more business for port terminals across Africa.

Although Africa accounts for just 2.7% of global trade by value, that figure increases to 6% for global trade in seaborne cargo, because of the continent’s continued reliance on intercontinental trade rather than cross-border trade between neighbouring states.

It is therefore vital that African economies are able to make use of modern ports that are equipped with the latest terminal operating systems, cranes and other cargo handling equipment, while also providing deepwater berths to attract the huge container ships that dominate international trade.

The biggest port in Africa is Tanger-Med in Morocco, which has been developed over the past 15 years on a greenfield site and which has seized market share from ports on the other side of the Mediterranean Sea, including Algeciras in Spain.

It has total handling capacity of 9m TEU (20-foot equivalent units, as standard sized containers are known). Tanger-Med has now overtaken Port Said in Egypt and Durban in South Africa as the continent’s biggest container port.

The new generation of giant container ships only call at ports with a draught in excess of 16m, allowing the biggest ports to establish themselves as regional transhipment ports, where containers are unloaded for distribution to other ports in their region via feeder services.

This focus on depth and modern facilities has allowed Djibouti to become a regional hub, although the ongoing legal dispute between the government of Djibouti and former operator DP World has somewhat affected its reputation.

Mombasa and Dar es Salaam have traditionally dominated East Africa but now face competition from Lamu in Kenya. Construction work on the first three berths at the new port was completed in March but plans for the other 29 planned berths are dependent on further private sector investment, which looks unlikely to be forthcoming in the near future.

Competition for the role as regional transhipment port is most intense in West Africa. Although it might be expected that the Lagos ports in Nigeria would dominate, they are hemmed in by the biggest conurbation in sub-Saharan Africa and have maximum berth depths of just 12m. Moreover, progress on developing new ports 50km west and east of Lagos at Badagry and Lekki has been slow.

By contrast, deepwater container terminals have been recently developed at Tema in Ghana, Abidjan in Côte d’Ivoire and Kribi in Cameroon, to provide competition for Lomé in Togo. Operators such as APM Terminals, which owned by Maersk, and France’s Bolloré group have poured hundreds of millions of dollars into each facility.

The first phase of the Meridian Port Services terminal at Tema opened last June, increasing port capacity from 1m TEU/year to 2.5m TEU/year, making it the biggest container facility in West Africa.

Suez crisis

African ports rely on the shipping lanes that connect the continent to the rest of the world. The recent blockage of the Suez Canal by the stranded giant container ship Ever Given therefore had a profound effect on cargo transport.

The week-long blockage caused huge delays in the global movement of cargo, with over 400 vessels forced to wait, and was only ended through the combined efforts of a dozen tugs and teams working to dig out the side and bottom of the Canal under the bow of the ship.

A satellite view of the container ship Ever Given stuck in the Suez Canal.
A satellite view of the container ship Ever Given stuck in the Suez Canal. (Photo: Maxar Technologies / AFP)

Investigations into the incident are ongoing but it seems likely that strong winds and the sheer size of the world’s biggest container ships were factors. While oil tankers have traditionally been regarded as the world’s longest vessels, that title has now been taken by 20,000 TEU+ container vessels, such as the 400m long Ever Given.

Some vessels changed course to travel around the Cape of Good Hope because of the blockage. However, rounding the Cape is not generally a viable option for vessels sailing between Europe and Asia or the Middle East unless they need to stop at ports along the way, as it can lengthen the journey by around two weeks.

As a result, the incident is unlikely to have any long-term impact on shipping routes, although both the government and Suez Canal Authority have pledged to avoid a repetition. Work to widen the Canal completed in 2015 cost $8bn, so further expansion is unlikely, but it has been suggested that very long vessels could be barred from entering the Canal in the dark.

Bulk development

Most international coverage of the African port sector focuses on container terminals but the bulk sector is also crucial in enabling Africa to trade with the rest of the world.

Richards Bay Coal Terminal (RBCT) in South Africa’s KwaZulu-Natal province is the biggest bulk terminal on the continent and handles about the same amount of cargo by weight as the nearby port of Durban.

As might be expected, RBCT, which is owned by a consortium of South African mining companies, saw a fall in volumes in 2020 as a result of lower global demand for coal on the back of the global pandemic. Shipments fell to 70.2m tonnes last year, down from 72.2m tonnes in 2019.

This is a relatively modest fall but continues the downward trend from the 76.5m tonnes recorded in 2017, as the uncertain investment environment in South Africa continues to deter coal mine development.

The outlook for the Port of Saldanha on the west coast of South Africa looks brighter because of strong demand for the iron ore on which it relies.

The port of Beira in Mozambique.
Coal is loaded onto a ship in the port of Beira, Mozambique. (Photo: Mark Zannoni / Shutterstock)

In addition, operator Transnet National Ports Authority (TNPA) has said that it will open its new manganese export terminal at the Port of Ngqura in the Eastern Cape by the end of this year, allowing it to close the old manganese export hub at Port Elizabeth, 20km along the coast. 

South Africa is by far the world’s biggest manganese exporter, with shipments rising from 5m tonnes in 2010 to 11m tonnes last year, but even the new facility’s handling capacity of 16m tonnes/year may not be sufficient in the long term.

Ports in the Mano River states of Guinea, Liberia and Sierra Leone already handle substantial bauxite and iron ore exports but now the region looks set to benefit from one of the biggest ports ever built in sub-Saharan Africa.

The government of Guinea has sanctioned the development of the giant Simandou iron ore project by the Société Minière de Boké-Winning (SMB-Winning) consortium. The entire venture currently carries a price tag of $14bn-16bn, of which $1.5bn will be used to develop the deepwater port of Matakong in the far south of Guinea. If Phase 2 is developed as planned, it will become the biggest bulk port in Africa and one of the biggest in the world.

While the prospects for Simandou have never been brighter, they appear distinctly gloomy for Mozambique’s bulk port plans. The ports of Nacala and Beira were modernised and expanded to handle coal from Tete province in the far northwest.

Volumes have increased more slowly than expected as a result of rail problems, fragile international prices and the withdrawal of mining companies, but continued investment by Brazilian mining giant Vale underpinned further development. 

However, Vale revealed in February that it plans to sell its assets in the country because of global opposition to coal consumption, particularly of thermal coal. The futures of Nacala and Beira coal terminals now look insecure, while it seems unlikely that the planned port of Macuse, which was to have been Mozambique’s biggest port, will ever be built.

Categories
Finance & Services

Companies seeking trade-related funding continue to increase

A few months into the signing of the AfCFTA agreement and with much talk of incentivising the intra-African trade of goods and services, the number of companies seeking trade-related funding on the Orbitt platform continues to increase. So far, in 2021, 78 SMEs have approached the platform seeking a total of $1.4bn of trade-related financing.

Some 50% of the companies included a request for working capital to support them with increasing the efficiency of their day-to-day operations, while 25% included a request for asset finance to increase their operative or processing capacity. 

Most of the SMEs engage in cross-border transactions of some sort, and Orbitt has analysed these flows of goods and services. 

Of the SMEs being studied, 46% have their main operations in West Africa, 27% in East Africa and 15% in Southern Africa.

While 27% of the SMEs indicated that they export their goods and/or services from Africa to Asia, and the same number export to Europe, only 22% indicated any form of intra-African trading of goods and/or services. 

East African SMEs recorded more intra-African trades when compared with West Africa – 38% compared with 17%. Perhaps this can be attributed to the interconnectivity and ease of doing business in the East African region, combined with efforts to promote collaboration within the region.

This provides some hope that the efforts being made as part of the AfCFTA will yield similar results and promote intra-African trade.

The Orbitt perspective

With the continued increase in trade-related funding, more SMEs are raising not only trade finance but also requesting asset finance to increase their technical and operational capacity for value-added services in the region. 

More SMEs in East Africa are engaged in the intra-African trade of goods and/or services owing to the structural efforts to promote this in East Africa. 

We can expect the same increase in intra-African trade across the continent as these same structural issues are addressed with the AfCFTA now in place. 

Deal news

Mastercard to invest $100m in Airtel Mobile Commerce

Mastercard has agreed to invest $100m in Airtel Mobile Commerce (AMC), a wholly owned subsidiary of Airtel Africa. AMC is currently the holding company for several of Airtel Africa’s mobile money operations.

Triple Jump and LHGP back pay-as-you-go solar company

Solar home systems company Baobab+ has raised €4m ($4.8m) for the expansion of its activities in Senegal and Côte d’Ivoire from the EEGF, managed by Triple Jump, and the FEI-OGEF, managed by LHGP Asset Management.

Meridiam in $48m data centre deal

The Raxio Group, a pan-African data centre developer and operator, and Meridiam, a global asset and fund manager, have partnered to deploy a network of data centres across the continent. Meridiam will invest $48m to support the expansion.

Blockchain used for intra-African fertiliser deal

Moroccan fertiliser company OCP Group has executed the first use of blockchain for an intra-African trade finance transaction, in a deal facilitated by the TDB. $270m worth of phosphate fertiliser exports to an Ethiopian buyer were executed through a blockchain platform.

Uzima Chicken receives $3m follow-on debt from AgDevCo

AgDevCo has made a $3m follow-on mezzanine debt investment into Uzima Chicken Limited, a poultry company operating in Rwanda and Uganda.

Chinese car battery maker CATL buys stake in DRC cobalt mine

Chinese battery maker Contemporary Amperex Technology (CATL) has announced that its subsidiary Ningbo Brunp CATL New Energy Co will take a stake in China Molybdenum Co’s Kisanfu copper/cobalt mine in the DRC for $137.5m. 

The news on this page was brought to you by Orbitt www.orbitt.capital

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Trade & Investment

African development pioneers Bill and Melinda Gates to divorce

Bill and Melinda Gates, the billionaire philanthropists whose foundation has put African health, education and development at the heart of global policy debates over the past two decades, have announced that they are to divorce after 27 years of marriage.  

In a Twitter statement, the couple said that they “no longer believe we can grow together as a couple in this next phase of our lives” but confirmed that they would continue to work together at the Bill & Melinda Gates Foundation, the multi-billion dollar organisation at the heart of their philanthropic efforts in Africa, the developing world and the United States.  

The Seattle-based foundation says it has spent $53.8bn since 2000, including funding pioneering AIDS, malaria and tuberculosis research and treatment. Led by CEO Mark Suzman under the direction of Bill and Melinda Gates and fellow billionaire investor and philanthropist Warren Buffett, the organisation has African offices in Addis Ababa, Abuja, and Johannesburg. 

In the last year and a half, the foundation says it has committed more than $1.75bn to support the global response to Covid-19, including more than $680m in newly allocated funding to help slow transmission, support responses in sub-Saharan Africa and South Asia and fund the development and procurement of new tests, treatments, and vaccines. In response to the news of the divorce, African development workers have tweeted their support for the couple.  

The foundation is a multi-billion dollar donor to GAVI, the Vaccine Alliance, which is co-leading COVAX, the global effort to secure vaccines for developing countries which has begun to deliver millions of doses to poor African countries. In early February 2020, the Foundation provided a grant to help the Africa Centres for Disease Control and Prevention (AfricaCDC) scale up testing capacity across sub-Saharan Africa. The organisation is also a multi-billion dollar funder of the World Health Organization and its regional offices. 

Beyond Covid-19, the foundation has focused on agricultural development, financial services for the poor, education, water, sanitation and hygiene initiatives in Africa and elsewhere. In recent months, Bill Gates has turned his attention towards the battle against climate change, publishing How to Avoid a Climate Disaster, a book which offers his response to the global crisis. 

Microsoft founder Gates, 65, is the fourth wealthiest person in the world, according to Forbes, with a fortune estimated at $124bn. The Gates and Warren Buffett established the Giving Pledge, a commitment by billionaires to give away the majority of their wealth.   

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Trade & Investment

Africa’s ports improve as focus turns to hinterlands

At the end of March, a delinquent ship blocking a crucial artery in global trade showed how dependent the world is on functioning transport networks. Some 400 ships were held up when the container ship Ever Given was grounded for six days in the Suez canal. The cost to the world economy has been estimated at around $10bn a day.

If Africa is to develop a coherent internal market, improved logistics will be vital. Alongside wages and the cost of power, logistics determine the competitiveness of Africa’s goods. The success of the African Continental Free Trade Agreement (AfCFTA), which came into effect at the start of this year, is dependent on the efficient and cheap movement of goods, and requires huge investments to ensure functioning infrastructure. 

A lack of natural deep-sea harbours, long navigable river systems and the presence of dense vegetation have been natural obstacles to trade flows and have historically isolated Africa’s populations from one another. But fast-growing populations and economies, a more integrated global economy, and insatiable resource demand from Asia are once again changing Africa’s economic dynamics, and there is a renewed scramble to develop ports, transport and logistics. 

Creating investor appetite

Traditionally there has been an underwhelming appetite from investors and banks in developing African logistics infrastructure due to scepticism around the profitability of capital intensive investments requiring long-term commitments. 

Consequently, the entire supply chain of the continent has been affected by the lack of adequate transport assets such as roads, depots, ports and airports, a deficit which has constrained intra-African trade. Insufficient supply chain infrastructure and congestion drives up the cost of goods across national borders, meaning it is often cheaper and quicker to import goods from outside the continent, something that Jan Christoph Kalbath, head of Middle East and Africa at Louis Dreyfus Company, one of the world’s largest trading companies could not help noticing. 

But things are improving, particularly in ports capacity. A turning point was reached when private investors began to take part in modernisation programmes to increase capacities at African ports, says Stanislas de Saint Louvent, deputy CEO of Bolloré Ports. The modernisation work means that most of the ports on the Atlantic coast meet the highest international standards, he explains.

The main challenge now is located outside ports, stemming from traffic congestion. Bolloré Ports is focusing on improving hinterland connectivity by building efficient dry ports, developing railways, and supporting digital solutions to facilitate trade.

“We are developing our corridor strategy and multimodal approach to connect regions and promote intra-African trade that will bolster the socio-economic development of the continent,” says Saint Louvent. 

Danish shipping giant Maersk is also involved in financing and developing logistic assets. It has a strategy to invest in assets that will facilitate the trade of its customers and manage their supply chains efficiently, explains Marnus Kotze, the company’s head of logistics and services for Africa. The group has invested in a warehouse in the city of San Pedro, Côte d’Ivoire, to support its trading clients. 

The importance of finance

But Kotze says that several conditions need to be satisfied to realise large-scale network infrastructure projects beyond port developments. 

Logistic projects can generate substantial operating cash flows providing that revenues related to cargoes and freight movements are harnessed and captured properly, but debt repayments must be affordable and stretched to long tenures for the projects to be viable on a standalone basis. 

Shashank Krishna, partner at law firm Baker Botts, says infrastructure providers require deeper support from multilateral lenders, including in the form of direct financing or by attracting participation from other global investors in pooled facilities. 

“One of the major problems today when investing in Africa is the cost of financing, as interest rates remain extremely high. This calls for an improvement in international financing solutions bringing large companies access to better rates,” Krishna says. That view is also shared by Saint Louvent. 

Investors, they argue, also require long-term commitments from governments, which can take the form of equity contributions or concessions under a public-private partnership (PPP). 

According to Kotze, a new type of logistic service provider is emerging, and these new entrants are growing fast. These companies operate in the digital sphere and enable the virtual marketplace to connect cargo owners with asset owners and operators (like shipping lines, truck and warehouse operators), creating a competitive environment for the freight industry. 

For Mathieu Peller, chief operations officer of Meridian Africa, both an investor in and developer of infrastructure project on the continent, it’s important to take the long-term view, and the metrics – population growth, growth in regional trade, GDP growth – all point in the right direction, hence the rising interest in the ports and logistics space.

Integrated solutions

Given the substantial requirement to develop transport assets in Africa, the involvement of any kind of investors is welcome. A new African player has emerged operating across ports and logistics, infrastructure and industrial parks: Arise.

Arise came about initially from a joint-venture between Singapore-based trading firm Olam and the government of Gabon, through the Gabon Special Economic Zone (GSEZ). Having developed a successful working relationship and trust, the Gabon government then asked this entity to develop the country’s port infrastructure and the road from the GSEZ to the port. 

As its remit grew, GSEZ sought out investment capital, initially through the Nigeria-based Africa Financial Corporation (AFC), which took an equity stake in the project. In January 2020 it split its activities into three entities: Arise Ports & Logistics (Arise P&L), Arise Integrated Industrial Platforms (Arise IIP) and ARISE Infrastructure Services (Arise IS). Maersk acquired a 43% stake in Arise P&L, with the remaining equity being held by Olam and AFC, with 31% and 26% respectively.

The Arise verticals have identified many opportunities for economic growth in Africa that are hampered by the lack of appropriate connected infrastructure, says Alain Saraka, head of strategy for Arise IIP. 

The model is inspired by the success of the GSEZ, which plays host to a local industry where wood is transformed into veneer that is then exported via the port facility. Gabon has become the largest producer of veneer in Africa and since 2018 it has been the world’s second largest exporter of the commodity.

Arise IIP focuses on developing “plug and play” industrial zones with a strong ecosystem of local facilities and public administrative support to attract businesses. It adopts a two-pronged strategy to successfully develop industrial zones in various African countries. 

Firstly, it identifies the key natural resources and competitive advantage of the host country and how an added-value solution can be implemented. For instance, it focuses on commodities such as cotton, soya, corn and the manufacturing of local drugs. Secondly, it creates a strong partnership with host governments to successfully attract investors towards industrial zones projects. 

The involvement of a government can be under a PPP agreement framework, for example, or as a co-investor. This level of commitment from a government helps mobilise potential businesses with the knowledge that they will get sufficient government support to carry their operations on a long-term basis.

Following its work in Gabon, Arise IIP is expanding the model to projects in Côte d’Ivoire, Benin, Togo, Mauritania and Gabon. The market size for the construction of industrial zones in Africa is thought to be worth over $1bn. 

Meanwhile, related company Arise IS focuses on the development of logistics infrastructure that facilitates the movement of goods and people, including roads, airports, haulage services and rolling stock. Arise IS and Meridian have joined forces in the joint venture Société Autoroutière du Gabon (SAG) to develop a 780km east-west road. The asset will operate on a toll basis with heavy transports of goods a large source of revenues. Arise IS is also involved in the capacity expansion of Libreville International Airport.

A model for the continent

To develop the infrastructure will in many cases require partnerships. The construction and operation of the New Owendo International port of Gabon is being carried out by Arise P&L jointly with AFC, AP Moller and STOA. In Nouakchott, Mauritania, it is developing the container terminal alongside Meridian. 

The model is to identify a strong financial partner, such as the AFC, work with a country to help identify an industry with a comparative advantage, and integrate ports, hinterland infrastructure and transport projects with government approval and support. If successful, it is a model which could well be extended beyond the Atlantic seaboard.

Categories
Technology & Information

Review: How to Avoid a Climate Disaster by Bill Gates

Bill Gates, one of the world’s best-known billionaire philanthropists, has long focused on issues of poverty and development. Through their Bill and Melinda Gates Foundation, the Microsoft founder and his wife have been enthusiastic backers of efforts to combat preventable diseases and stalwart supporters of vaccination drives across the world.

But it was during his work on energy poverty that Gates first realised the magnitude of the climate change crisis, concluding that the profound energy needs of developing countries would need to be met without releasing further greenhouse gases.  

Since then, Gates has become a proponent of radical measures to reduce carbon emissions from the current 51bn tonnes released into the atmosphere annually to almost zero by 2050.

In 2019, he divested his holdings in oil and gas companies, and in 2020 started using sustainable jet fuel, but he was aware that the moves would have limited real impact on reducing emissions.

Getting to zero, he says, requires a much broader approach: “driving wholesale change using all the tools at our disposal, including government policies, current technology, new inventions and the ability of private markets to deliver products to huge numbers of people.”

With the help of experts in the fields of physics, chemistry, biology, engineering, political science, and finance, How to Avoid a Climate Disaster focuses on many of these solutions and how they can be harnessed in order to stop the planet’s slide to environmental disaster.

Along the way, he is not afraid to tell some home truths. Getting to a near net-zero carbon future in which we produce emissions, but are able to remove the carbon, will be really hard, he admits. Yet he retains an optimistic outlook and believes that change can be achieved. 

“We already have some of the tools we need, and as for those we don’t have, everything I’ve learned about climate and technology makes me optimistic that we can invent them, deploy them, and if we act fast enough, avoid a climate catastrophe.”

Key technologies

Throughout the enthralling book, Gates speculates on the possibilities offered by various technologies that will present the key to the zero emissions target over the next three decades, including the controversial option of nuclear energy.

He describes the research being undertaken by TerraPower, a company that he founded in 2006 which is running a laboratory that runs digital simulations of nuclear plant designs.

He writes: “TerraPower’s reactor could run on many different types of fuel, including waste from other nuclear facilities. The reactor would produce far less waste than today’s plants, would be fully automated – eliminating the risk of human error – and could be built underground, protecting it from attack… accidents would literally be prevented by the laws of physics.”

The TerraPower team are working with the US government on building the first prototype. Should it prove successful, it would be a step closer to what Gates holds as an overriding ambition: supplying affordable, reliable energy to both high-income economies and middle- and low-income countries.

It is not just nuclear energy – both fusion and fission – that Gates analyses, but other unusual and ambitious solutions that are gaining interest. These include capturing carbon with direct air capture (DAC) and then storing it safely.

Clean, reliable, affordable electricity is the Holy Grail of Gates’ thesis, allowing a move away from the use of fossil fuels to zero carbon generation.

One fascinating and challenging idea is the use of hydrogen. Green hydrogen is produced with clean energy sources – wind, solar, and biogas – and produced from natural gas using carbon capture. Inexpensive green hydrogen could enable other energy-intensive processes to become more environmentally friendly. 

“We could use electricity from a solar or wind farm,” Gates writes, “to create hydrogen, store the hydrogen as compressed gas and then put it into a fuel cell to generate electricity on demand.”

Gates argues that green hydrogen generation offers one way of achieving a carbon-free future, but says that only by committing to projects of significant scale will developers begin to understand the science behind the process and enable further success. 

Gates says he has already begun to back zero-carbon technologies with his prodigious resources. The billionaire is an investor in several of the ideas put forward in the book, and has persuaded wealthy peers to invest in Breakthough Energy, an organisation which has to date invested in some 40 companies with promising ideas.

The need for green solutions to “produce electricity, make things, grow food, keep our buildings cool and warm, and move people and goods around the world” is gaining interest from investors everywhere, he says.

The way to avoid disaster

Despite the monumental task at hand, Gates is at heart an optimist. He writes that he is “profoundly inspired by the passion I see, especially among young people for solving these problems”.

He notes that more national and local leaders around the world are committed to playing their part. In April, President Biden pledged that the US will cut carbon emissions by 50-52% below 2005 levels by the end of this “decisive decade” at a virtual summit of 40 global leaders, essentially doubling the previous US target.

Campaigners hope that China and India can be induced to commit to ambitious cuts ahead of the crucial COP26 meeting in Glasgow in November.  

Gates says that Covid-19 offers useful models of international cooperation, highlights the importance of science in a coordinated response, and shows the crucial work of tailoring zero-carbon solutions to the world’s poorest. 

“It’s hard to think of a better response to a miserable 2020 than spending the next 10 years dedicating ourselves to this ambitious [zero carbon] goal,” he writes. 

He concludes: “If we keep our eyes on the big goal – getting to zero – and we make serious plans to achieve that goal, we can avoid a disaster… We can keep climate bearable for everyone, help hundreds of millions of people make the most of their lives, and preserve the planet for generations to come.”

Categories
Energy & Resources

Ugandan firms eye contracts as first oil approaches

In the 1990s Edward Kabuchu and his brother were mining tungsten in western Uganda when they were approached by a foreign company looking for oil in the region.

Soon their own business, MSL Logistics, was providing the logistical underpinning of oil exploration in Uganda: bringing in fleets of vehicles along rutted roads, recruiting local workers, and organising camps which moved around with the prospectors.

“We’ve grown with the industry,” says Kabuchu in his expansive office in Kampala.

Kabuchu was understandably excited on 11 April when the Ugandan president Yoweri Museveni signed three milestone oil agreements with his Tanzanian counterpart, Samia Suluhu Hassan. After several years of stasis, the main construction phase of the project now seems just around the corner.

“The decision could not come any sooner,” says Kabuchu, who is currently discussing contracts with the oil companies. “The next seven to eight years are going to be good.”

Over the next few decades the French oil company Total and the China National Offshore Oil Corporation (CNOOC) plan to extract more than a billion barrels of commercially recoverable oil from the Lake Albert region of western Uganda.

The long-awaited development, including construction of a 1,443km pipeline to the Tanzanian coast, is set to begin this year, with first oil expected in 2025.

The project will bring $15bn of investment into Uganda, a country with a GDP of $38bn in 2020. The government says that over $4bn of that money will flow into the coffers of Ugandan companies, supplying everything from construction materials and transport to legal services and food.

But the oil industry – technical, specialised, and capital-intensive – has a track record of operating in enclaves, extracting resources without building strong linkages to local economies. Can Uganda succeed where other countries have failed?

Promoting local content

It has been a long, slow road to oil development since commercial reserves were first discovered in 2006. The Ugandan government and oil companies have repeatedly disagreed over tax issues and the construction of a refinery – a symbol of the “resource nationalist” approach which characterised Museveni’s negotiating position.

The same nationalist rhetoric motivates a slew of laws and regulations which try to promote local content in the oil industry. Oil companies must submit plans outlining how they will employ Ugandans, procure local goods and services and transfer technology.

They can only use contractors who are registered on the National Supplier Database. They must give first consideration to goods and services produced in Uganda by Ugandan companies, and 16 categories have been ring-fenced for Ugandan suppliers.

The results so far have been mixed. During exploration between 2010 and 2013, as regulations were still being drawn up, about 28% of oil companies’ procurement came from Ugandan providers.

Ahead of the next phase of development Total and CNOOC have presented contracts worth nearly $1.4bn to the regulator, of which $167m goes directly to Ugandan companies (though others may benefit as sub-contractors).  

Behind those statistics is a debate about what counts as a “Ugandan company”. The regulations classify a business as Ugandan if it is incorporated in Uganda, adds value in the country, uses local raw materials and employs Ugandans as at least 70% of its workforce.

“The definition looks at the value you’re creating in the country,” says Gloria Sebikari, a spokesperson for the Petroleum Authority of Uganda (PAU), which regulates the industry. “Ownership may be important, but it should not be the only parameter that defines a Ugandan company.”

But Julius Byaruhanga, a researcher at the Catholic University of Leuven and lecturer at Uganda Christian University, worries that the approach could backfire.

“A number of multinational companies are coming here, registering as Ugandan companies, employing 70% of Ugandans – but they are truck drivers, they are cleaners, those very low-paid positions – and they end up qualifying to be local,” he says.  

He adds that those Ugandan-owned companies which have won contracts tend to be part of an “insider network”, either with political connections or long-established relationships with the oil companies.

Bars to entry

New entrants face a host of challenges, from eye-watering interest rates to stringent international standards. During the exploration phase, for example, no domestic catering firms were able to meet the health, safety and quality requirements to win contracts.

An Industrial Baseline Survey of 25 sectors, commissioned by the oil companies in 2013, found that Ugandan companies were able to meet both quality and quantity requirements in only two sectors, security and cement. In transport, for example, only 200 trucks in a fleet of 2,500 met the stipulations.

A number of programmes are in place to build local capacity, from national content conferences organised by the PAU to a business incubator run by the Ugandan subsidiary of Standard Bank.

Patrick Mweheire, Standard Bank’s regional chief executive, remembers asking the first cohort of would-be oil contractors whether they had a work environment safety policy.

“Ninety-nine percent of them did not have that,” he recalls. “And guess what? The first question on the Total contract is: ‘Can you please provide your safety policy?’ So we saw a complete mismatch. The oil majors are never going to lower their standards, so we’ve got to raise our game.”

The government should do more to understand the capacity of local businesses, says Daniel Tusiime of SA Field, a company dealing in personal protective equipment. Businesses develop capacity with time, he adds. “No one goes into business to remain small.”

SA Field has set up a factory and acquired moulds from a British partner to manufacture more protective equipment locally, rather than importing it from abroad.  

False starts

The years of delay between exploration and production have given local businesses time to learn about the industry and build capacity, says Emmanuel Mugarura, chief executive of the Association of Uganda Oil and Gas Service Providers (AUGOS), an industry body. But the uncertainty was costly.

“Many Ugandans lost their patience and their interest,” he says. “People had invested, they had put in money, they had recruited people, they had bought equipment, they had prepared themselves – then there were two, three, four false starts.”

One company hit hard by the delay was Threeways Shipping, a haulage and freight forwarding business which works with the oil sector.

“In order to meet the requirements of the industry – levels of service, standards of equipment, certification of personnel and equipment, and other related requirements in the sector – we had to invest a lot of money in assets so that we would gain a foothold in the activity,” says Jeff Baitwa, its managing director.

Threeways spent $20m to prepare for oil, including purchasing a fleet of brand new trucks instead of the second-hand ones which usually ply Uganda’s roads. When oil development stalled the business ran into financial trouble and Baitwa had to lay off half the workforce.

“Many of us burned our fingers,” he says.

The signing of agreements in April has now put oil development back on track. For Ugandan businesses, the next five years will be crucial: four-fifths of the jobs that oil creates will be short-term positions during the peak of construction.

Mweheire the banker thinks, optimistically, that Uganda’s GDP could double by 2027. “Don’t obsess about the first oil. Actually when oil starts flowing the party’s ended. The party is the next three to five years.”

Categories
Trade & Investment

Our goal is to help turn around fragile states – WB’s Diagana

As the VP of the World Bank for West and Central Africa, what are your key objectives for the region?

The World Bank has a very long-standing presence in West and Central Africa through financial assistance to these countries. We support development projects and we provide technical assistance and advice.

Our new strategy is centered on ‘maximum impact’ – which means understanding the state of play and defining a proper diagnostic tailored to each country’s needs.

The pandemic, among other issues, has had an adverse economic impact on the countries in the region. You have a war chest of $38b How do you intend to spend it?

Before the Covid-19 global crisis, we had programmes and projects to the tune of $38bn across the 22 countries in the region. In response to the pandemic and all its adverse effects, we have allocated an additional $11bn. These special resources have been mobilised to minimise the impact of Covid.

We are helping countries to gain access to vaccines including providing them with budgetary support to purchase vaccines. We have been part of the process whereby the G7 countries have suspended debt service payments and we have focused our efforts on supporting jobs, education, agricultural production and tackling food insecurity. And, of course we continue to provide technical advice and support.

We have seen large increases in government spending and a spike in government debt. Some countries are calling for a reduction or cancelation of their debts. What is your view?

Debt is necessary to finance development and sometimes very high investments. It should be transparent.  The traceability of resources should be guaranteed and reporting done in a secure manner. These are the conditions for obtaining the expected benefits of debt.

We have seen over the past decade that the volume of debt has tripled on average in West Africa. This is not sustainable over time and we are working with African countries on a debt strategy that is much more development-oriented.

Debt should be used to finance sustainable investments and structured so that the repayment of the debt is financed by gains generated from these investments.

You oversee two regions, West and Central Africa each very different from the other. How do you align strategies and objectives when the regions have such different outlooks and challenges?

Let me start by saying that we work on a country by country basis. But at the same time, we also do have regional programmes.

As a matter of fact, countries can benefit from the experience of others, and adjust development policies and priorities accordingly. Countries do not, and should not, operate in isolation.

I should add that countries in the region have many challenges that are common to one another. For example, the issue of governance and strengths of institutions is a common trait. Another one is the strong dependence on commodities. A third challenge is a growing young population, and an infrastructure and support system that is not adequately adapted to their needs. The fourth is climate change, an issue that affects each of these countries.

Our remit is to work alongside these countries to help them progress and help them address some of these issues by providing both the financial support and also the technical assistance to do so.

The reality is that you are in charge of a region that is in crisis, especially when you look at what is happening in the Sahel. How do you go about prioritising issues to end this vicious cycle of poverty, jihadism, insecurity?

You are right – 11 of the 22 countries face conflict and institutional instability. Access to services is relatively low and poverty is high. We estimate that a quarter of the world’s population living in extreme poverty are from the region.

But it’s important to note that the World Bank and other partners cannot do this alone. To stop this cycle that you have mentioned, requires first and foremost a commitment from the countries themselves to change.

I see things from a different lens. Their situation is not inevitable. These countries have not always been fragile and each has very significant potential.

We see our role as an institution to help turn this potential into real opportunities, and ensure these assets are productive. What does this mean in real terms? It means supporting them in strengthening human capital, transforming agriculture, financing infrastructure, increasing access to energy, helping young people fulfil their potential – and that means providing access to quality education and to health services.

And this reflects our funding priorities – you will see that the bulk of the projects we fund revolve around these areas.

Over the next two years 2021-2023, we will be investing an additional $8.5bn in the countries of the Sahel specifically. Most of the funding will go into projects that will have a significant impact and contribute to breaking the cycle of violence and poverty. They will create jobs, provide people with access to basic services, and strengthen the local infrastructure and institutions.

While there are many immediate emergencies, building a country requires a number of actions that are taken over time. So how do you prioritise your interventions?

Development is a long-term agenda and we know it is not linear – we work in a constantly evolving environment. This is why our presence in these countries, our engagement and partnership with stakeholders are framed for the long run.

We have offices and teams in the different countries made of passionate experts who work in close collaboration with the authorities and civil society at large. Together we analyse and constantly evaluate our interventions to learn from our actions, scale up what has worked, and correct what has not.

We have the benefit of being an international institution, and we share best practice from around the world to see what can be replicated in Africa. You are right that it takes consistency and it is the work of many years.

We must avoid being fatalistic. There are countless examples of countries that were poor, that were considered hopeless by many experts and commentators and yet managed to build back from the brink and have made significant progress through sustained reform and with support from partners. This is why we must remain constant with these countries.

Without wanting to sound fatalistic, the development indicators in the Sahel are alarming. How can you send a signal of hope to young people when the entire area is in crisis?

You are right. For example, the rate of access to electricity is around 30% in the Sahel countries. We have made a commitment that in five years, the rate of access to electricity will double. Other reforms must be seen through and encouraged to give young people hope and to create the conditions for development.

We know that if the issues of governance and the stability of institutions are not assured, investments cannot develop and the private sector cannot play its role alongside the state and invest in priority sectors. Even the development gains achieved could be compromised.

How closely do you work with the different countries?

We have local offices in each country made up of local and international experts. These people know the countries and have a proven track record.

There is continuous dialogue between the national authorities and our staff. We ensure that there is complementarity between what we propose and what they propose, and we ensure that our interventions are anchored around national priorities of development.

Does the Doing Business Index have a role to play in fragile states wrestling with more immediate challenges.

The financing needs of countries are numerous, and it is not up to the state to do everything. Financial partners like the World Bank cannot afford to do everything either.

The Doing Business Index allows for countries to work on improving the conditions in which the private sector can operate, so that they can also play an active role and complement the work of the state and other partners.

We support countries through specific programs to implement reforms that improve the investment climate. This is essential to broaden the scope of partners who can come and invest in a given country, including in fragile states.

Categories
Energy & Resources

Port Harcourt rehabilitation causes controversy in Nigeria

On 17 March, the federal government of Nigeria approved $1.5bn for the rehabilitation of the Port Harcourt oil refinery.

The project, with Italian contractor Tecnimont, will be completed in three phases. The first, within 18 months, will take the refinery to 90% production capacity, with the second and final phases carried out within 24 months and 44 months respectively, petroleum minister Timipre Sylva told reporters.

The state-owned Nigerian National Petroleum Corporation (NNPC) will take a minority stake in the refinery, but will gradually step away from operating Port Harcourt after the rehabilitation project, managing director Mele Kyari said in an interview with Channels TV. 

“We bring in the private sector to take equity in this refinery and then we continue to grow that business from that perspective,” he said.

Nigeria has four government-owned refineries with a combined capacity of 445,000 barrels per day (bpd): one in Kaduna and three in the oil-rich Niger Delta region of Warri and Port Harcourt. The Port Harcourt complex consists of two plants with a combined capacity of 210,000 bpd.

However, the refineries have only been operating at a fraction of their capacity for decades, thereby making Africa’s largest producer of crude dependent on the importation of refined petroleum products for 70-80% of domestic consumption.

In 2020, the NNPC published an audited financial report for the first time in its 43 years of operation. The statements, which were for the year ending 31 December 2018, revealed that the refineries incurred a total loss of N154bn ($404m at the current exchange rate). 

The Port Harcourt refinery lost N45.59bn, the Warri refinery lost N44.44bn, and the Kaduna refinery lost N64.34bn. The audit revealed that Kaduna owed the NNPC about N424bn while the Port Harcourt refinery and Warri refineries owed N372bn and N157bn respectively. 

A 2019 study by the Nigeria Natural Resource Charter (NNRC) found the operational costs of the refineries to be among the highest in the world.

“Inefficient downstream activities – like Nigeria’s refineries – are less likely to help countries diversify,” says a report from the Natural Resource Governance Institute, a New York-based think-tank. 

“They often fail to deliver low-cost inputs to the wider economy. In addition, where downstream activities are inefficient, governments often use fiscal incentives to encourage in-country processing to take place anyway, which impacts public finances and can reduce countries’ ability to support diversification in other sectors.”   

Should the refinery be privatised?

Given the parlous state of the infrastructure, some oil and gas experts support the federal government’s move to rehabilitate the Port Harcourt refinery. Zakka Bala, an oil and gas expert, says the plan offers a chance to fix a vital national asset.

“I am supporting the fixing of the refineries because they are national assets,” says Bala.

“All the OPEC countries have state refineries. If other OPEC countries have a functional refinery, there is no reason why Nigeria should not have a functional refinery. 

“I do not have a problem doing away with national assets if they are not performing. But when you look at the current state of Nigeria, why should its refineries be handed over to a full-blown capitalist?

“If they genuinely want to go into refining, they should use their financial and technical competence to construct refineries.”

However, others express concerns over the plan to spend funds on a refinery that has haemorrhaged money for decades. They believe the best thing the government can do is to privatise the refineries as soon as possible. 

Joe Nwakwue, an oil and gas expert and former chair of the Society of Petroleum Engineers, says the Nigerian government took the wrong step when it approved the rehabilitation of the refinery.

“The Nigerian state has not run any commercial ventures profitably. Why do we think the refineries will be run differently if retained by the government? The state-owned refineries should be privatised using the most appropriate models. We need to get the refineries to work. Private sector capital and operational control is the most promising option.” 

Liberalisation of the tightly-controlled downstream sector could offer an opportunity for both state and private-owned refineries to compete. But there are worries that the government-owned refineries could struggle against private competition. 

Bala says that corruption and mismanagement hamper refinery performance, and argues that a management overhaul is necessary if political leaders want the refineries to start functioning on a competitive basis in a liberalised market. 

“All we need is effective management. Selling a national asset is not the key. The moment we remove or control corruption in Nigeria, the refinery will become functional. All we need to do is to do away with nepotism, political affiliation, sectarianism, and sectionalism. We can do this through sincerity on the part of the government.” 

Dangote waits in the wings

The Port Harcourt refinery is likely to face at least one major private sector competitor. The Dangote Group is constructing a 650,000 bpd integrated refinery and petrochemical project in Lagos, which is expected to be Africa’s largest oil refinery and the world’s biggest single-train facility. However, the facility has been delayed owing to an inability to source construction materials and the effects of coronavirus. 

When the refinery commences production in 2022, it will be able to refine Nigeria’s crude oil and meet internal demand of 471,500 bpd. Where that leaves a rehabilitated Port Harcourt facility – and its chances of attracting private sector capital after the rehabilitation project – remains to be seen. 

“The Dangote refinery project is a major boost to domestic value capture and utilisation of our oil and gas primary product,” says Nwakwue.

“It will make Nigeria a refining hub for Africa. It is commendable and will hopefully have a significant GDP impact because Dangote refinery’s vision is aligned with the re-industrialisation and domestic value capture/maximisation objective of the government.”