Thursday, 31 January 2013

Big international appetite for African sovereign debt

THE APPETITE for African sovereign debt in the international capital market is growing. And Africa itself is salivating for more.  The conditions favour Africa. The continent needs money to finance its development programme.  Investors on the other hand are looking to diversify their portfolio. The result is a high demand for Africa’s sovereign debt.  Consequently, this year, the international capital market could witness some huge issues by African governments.

Data available to this publication shows that All sovereign debt issued by African governments in the last two years was 2011 and 2012 a number of sub-Saharan African countries have issued debt worth more US$2.2 billion-and all of it was oversubscribed.

Namibia, Nigeria and Senegal raised US$500million by issuing sovereign debt in the international capital market in 2011. Last year Zambia raised some US$750 million. The debt was subscribed at US11.9 billion forcing the country to up its uptake to $750 million from the initial $500 million. All borrowed at 5.5 per cent or thereabouts which is considered cheap.

This year even larger issues are expected. There reports that Kenya could issue a US$1 billion 10-year-Eurobond to finance its infrastructure expansion. Despite what are deemed political uncertainties, this being an election year, Kenya’s debt is expected in the market perhaps soon after the election on March 4th. Nigeria has also announced her intention to issue a US$1 billion Eurobond to finance the energy sector. Others considering throwing their hat in the ring are Angola, Tanzania, Rwanda, Uganda and Mozambique.
  Why has Africa become the darling of investors? Good house-keeping and robust economic growth in the half of the decade of 2010 has changed the perception of Africa risk. Also discovery of hydrocarbons and other natural resources is raising the investing profile and mitigating the risk profile.

Consequently, investors are snapping up African debt paper as returns are still better than in Europe. The rise in debt issuance by African countries is underpinned by relatively high risk-adjusted yields. Global investors inclined to diversify their asset portfolio are attracted by favourable yields offered by African assets, discounting the risk of low ratings for many of these countries.

Africa, according to experts, experiences a financing deficit of US$30 billion needed to finance infrastructure. Its annual requirement is US$90 billion out of which Africa raises US$60 billion from its resources. Given that sovereign debts are relative long-term in nature, governments are borrowing to bridge the gap.

 In the West, there is a huge pool of cash created by quantitative easing that has increased the flow of funds to emerging and frontier primary bond markets, fuelling a record inflow of capital to these regions.

Tuesday, 22 January 2013

Infrastructure: Opportunity galore in east Africa

Lamu Port: Advertised
LAPSSET US$23 BILLION, Konza Techno city $7 billion, Kenya Railways Upgrade $2.4 billion, Dar-Chalinze super highway$530 million, Kigamboni bridge $140 million, Kigamboni city $6.7 billion.  That is US$40 billion worth of business opportunities in east Africa. And there are more.

Even before the discovery of hydrocarbons in eastern Africa coast, governments were already investing in transport and energy infrastructure to support national productivity. The mainly agriculture based economies were already being diversified to include basic manufacturing, trade and services.

 Robust economic growth coupled with diversification spawned increased demand for more and better roads, Electricity, telecoms and Ports. Initial investments in expanding existing infrastructure exposed their inadequacy which led to massive investments in infrastructure.

Lake Turkana Resort City
The result:  huge infrastructure projects which only a few years earlier would have been dismissed as sheer fantasy are now out at the implementation stage. Such gigantic projects include; the Lamu port, South Sudan, Ethiopia transport corridor. This project includes a 32 berth sea Port at Lamu in Kenya, a 200Km oil pipeline from Juba in South Sudan to the Lamu Port, a 1700KM railway line and 1800km of highway linking the same destinations. It also includes a 120,0000bpd oil refinery.

Already Toyota Tsusho, the investment arm of Toyota Motor Corporation has placed a US$5 billion bid for the Pipeline. The Kenya government has advertised for the construction of three berths at the 32 berth Lamu Port.

A few hundred kilometers to the South west of Lapsset is the Northern Corridor, also comprising of a highway linking the Mombasa Port- also in Kenya -to Uganda, Rwanda and eastern DR Congo. The high way is complete but the railway line will be upgraded to high speed line beginning the second quarter of this year. The lunatic express will cost US$2.4 million and will support activity at the Mombasa port, which is also being expanded into a Mega Port.

Along the northern Corridor is the Konza technology city, christened Africa’s silicon Savannah. The US$7 billion city is meant to the Technology hub of Africa, lies right bang between the railway line and Mombasa- Malaba highway. Its ground breaking ceremony will be performed tomorrow.

Across the border in Tanzania are smaller but equally significant infrastructure projects. The Kigamboni Bridge now under construction will open the kigamboni suburb which will be turned into a resort city. The US$6.7 billion resort city will make Dar-es-salaam city a tourist hub of the country. Also slated for development in Tanzania is the 100KM Dar-Chalinze super highway which shall ease congestion at Dar-Es-salaam.
Kigamboni Bridge over the sea. Construction started

 So how are these projects business opportunities? Apart from the construction contracts, the projects will be leased to private sector contractors to manage. Already a concessionaire to operate the rolling stock on the Kenya- Uganda Railway is in place. However projections are that the concessionaire’s service will be inadequate once the upgrading of Mombasa Port is complete. The Upgrade will raise the Port’s freight handling capacity to 1.2million TEUs a year from the current 0.7 million TEUs. With a high speed Railway line, a huge chunk of the Cargo will be transported by rail.

The Lapsset Corridor, experts say, will operate at least 74 trains a day four of which will be passenger trains and the rest freight. The Northern corridor, experts say will need to operate a similar number of trains to ease congestion at the Mombasa Port. This size of rolling stock, analysts say, is beyond the capacity of a single concessionaire. Therefore there is room for two or three more concessionaires on both northern Corridor. On the Lapsset, at least four concessionaires will be required.

On the Port of Lamu, the other 29 berths will be built on PPP basis. In addition on this corridor are three resort cities at Lamu, Isiolo and Turkana which will also be developed on PPP basis. And so is Konza techno city. The government will provide the basic infrastructure such as roads, power lines, telecoms lines, transport infrastructure then let the private sector to develop the real estate and lease it to interested investors.

Thika Superhighway:Advertised  to be a toll road
 Already the tender for a contractor to manage Thika Superhighway as a toll road has been advertised.  The Kigamboni Bridge in Tanzania will follow suit after completion. The Chalinze toll road will also be built on a PPP basis.

Governments in the region have sweetened the deals by first investing in risks that the private sector has no stomach for.  The risks include the construction costs which the private sector probably won’t stomach, or will take ages to raise the required capital.

Thika super highway for instance was built by the government with loans from Africa development bank. Once leased , the burden of maintenance will be passed on to the concessionaire. Also the concession fees will be used to service the debt thus relieving the tax payer of the debt burden
The Kigamboni Bridge in Tanzania is financed by the Government of Tanzania and the local retirement benefits fund, NSSF. After construction it will turned into a toll-road managed by concessionaire.

This  investment model even in the electricity generation sector have become popular in east Africa since they enable quick implementation of development projects.The model also raises the return on investment for the concessionaires to anywhere between 15 and 24 per cent depending on the project.

Wednesday, 16 January 2013

Construction of KonzaTechno city begins

 Konza Technocity's Financial District: Designed
 to be a Financial hub
ALL LEGAL AND LOGISTICAL hurdles that frustrated the launch of Konza Techno City last year have been resolved. The ground breaking ceremony, which was postponed several times, last year, will be held next, week, January23rd. All missing links are now in place: The statutory authority to oversee the city’s development, the Konza metropolitan Development Authority and a management board are now in place.

After the ground breaking, the US$7 billion Konza Techno City will start rolling. First off the blocks will be work on the infrastructure, roads and water and waste water disposal systems. Already a Chinese government owned Construction Company, Shanghai Corporation for Foreign Economic & Technological Cooperation (SFECO) is eyeing construction of roads and other social infrastructure.

 A US$200 million multipurpose water dam funded by the Kenya government is under construction and is expected to be complete by October 2013. The dam will pump one million litres of water to the city a day.
Kenya-Uganda Railway borders the
 City upgrade starts in March 

Arguably the first city of its kind in Africa, Konza Techno city will comprise of a Central Business District, and BPO Park, a university, other schools; and a financial district. It will also host shopping malls, hospitals and residential estates.

 It is designed to enable Kenya to compete neck on neck with global giants in BPO, KPO and ITOs including India and China.  On the African continent, Kenya will compete with South Africa and Egypt.  Being the first city of its kind in the East Africa common Market bloc, Konza is likely to be the regional technology hub.

The city has generated a lot of interest among both investors and developers, hastening the pace of implementation. Reports have it that some 200 investors are eyeing space in the metropolis, dubbed Africa’s silicon Savannah.

The fast pace at which the building blocks of the city’s development are being put in place has critics confounded.  Since last August when an investors’ conference on the city was held, several contractors are in place. The Master Planner, HR & A advisors of New York is already in Place.  A Swedish government firm has bagged the tender to develop the science park and market it among investors.

Also on the queue for various segments of the project are other experienced developers such as Egypt’s Smart Villages and the Korea Business Centre. The intense interest in the project is not surprising, returns on investment are mouth-watering. For instance, return on leasing ranges between 12 and 15 per cent while capital gains rate is estimated at 20 per cent.

 The 20-year project will be developed in four five-year phases for a total estimated cost of US$7 billion. The first phase will cost an estimated US$2.3 billion of which infrastructure will cost US$1 billion. The rest will be spent on the development broken under: the ICT Park US$200 million, Residential US$975 million and the Central Business District will cost US$125 million. Each phase will last five years.

The second phase will cost an estimated US$1.7 billion of which infrastructure will cost $400million; the residential area will cost US$850 million while the CBD will cost another $100 million while the BPO will take another $300 million. The university, which shall be built at this stage, will cost some $50 million.

The third phase will cost an estimated $2.1 billion of which infrastructure will consume $600 million. The BPO will cost another $400million, CBD $300 million, Science Park $100Million and Residential $700 million.

In the final phase, BPO will cost $450 million, residential $250 million, Science park $100million while infrastructure will cost $150 million, says an analysis posted on their website, At the end of it all, infrastructure will swallow an estimated $2.1 billion while other developed will cost some $4.8 billion.

The city is ringed by transport and ICT networks making easily accessible from anywhere in the world. Konza Techno city is located 60KM south West of Nairobi, Kenya’s Capital city. It is also 50 Km away from Jomo Kenyatta International Airport, the aviation hub of east and central Africa.

It will be linked to Nairobi by Mombasa Road. The road also links Konza to the Port city of Mombasa to hinterland. Mombasa is 450 Km away from Konza. It is fronted by an international highway and three high speed fibre optic networks. There are reports that this could rise to four networks soon.

 At the back of the city is a Railways line that links Mombasa to the hinterland. The railway line will be upgraded to a high standard gauge line beginning the second quarter of this year, A high speed Railway link to Jomo Kenya international Airport, is also in the works.

Friday, 11 January 2013

Africa Rising: fact or fiction?

 CRITICS OF AFRICA's growing prosperity ask whether it is real arguing that it is exaggerated. Some critics say that the boom is a bubble that can burst at the slightest prick. African commentators on the other hand argue that Africa’s prosperity is understated, arguing that the impact of the informal sector, a key employment generator in Africa is underrated.

The critics point at the low level of industrialization as a pointer to under-development of Africa. There are some truths in the critics’ arguments. But their dissent seems to arise from the usual confusion between economic development and economic growth. No wonder they are used interchangeably because the both mean transition from one stage to another. The two terms sometimes generate the Chicken-egg sort of debate-which came first.

An hydro plant under construction in Uganda
However, the subject matter here is about Africa’s long economic boom. The truth is Africa is on the second decade of persistent economic growth, averaging 5.6 per cent a year. Experts, such as the World Bank project that in the next five years, the continent will be the fastest growing region in the world.  And according to the UN Economic Commission or Africa, UNECA, the continent is a potential economic growth pole of the world.

 A growth pole is a region whose economic growth causes other parts of the world to grow too.  Businessmen in Europe have bought this view and are positioning themselves to get a slice of the African action before the Chinese and other easterners take it all. Goto

So Africa has transformed itself from a “hopeless Case” to a potential growth pole.  Much of the  growth is Africa’s own doing supported by favorable commodity prices with the following positive results: per capita domestic revenue mobilization has risen to U$441 compared to Aid which has shrunk to $41 per capita. The continent is lifting an estimated 15 million people out of poverty a year. This means that so far an estimated 90 million have been lifted out of poverty. At this rate of growth, an estimated 120 million people will join the middle class by 2017.

But the critics are right in one respect-and this is a view shared by African experts. The continent right now depends on basic commodities to drive economic growth. That simply is not sustainable. Africa must diversify her economic base away from export of raw materials to exports of processed products. In addition it must delve into heavy and hi-Tec industries in order to produce most of her capital goods.
The newly found wealth is being invested in removing bottlenecks to industrialization- physical infrastructure, ICT and markets.  Every country in the continent has invested in   infrastructure- Roads, railways, Sea ports, electricity generation sources. In addition, the continent is breaking down the barriers of the past such as borders which frustrated growth in the continent.

A highway in Africa
Consequently, Africa is dotted with new highways connecting regions within countries and also connecting countries. It is ringed by 64,000KM of undersea fibre optic cables system and dots some 615,000KM of national backbones-all put in place in less than 10 years.
Investment in power generating sources such as hydro, wind and geothermal sources coupled with the frequent Oil and LNG discoveries in a variety of Africa countries will make the continent, energy secure and hence make it an manufacturing hub.

Keen African watchers aver that some Projects that were thought to be mere fantasies are now beginning to ok real. Among these projects is the proposed Equator Bridge, a high speed railway line linking the Port of Lamu on the Indian Ocean coast to Douala in the Pacific Coast. In between the project will include a segment called Lapsset linking the Port of Lamu in Kenya to Juba in South Sudan and Ethiopia.

Proposed Techno city in Kenya: Such project were
deemed pipe dreams just a few years back
The creation of trading blocks, have resulted in increase in intra - Africa trade which has risen from Nine per cent in 2008 to 11 per cent in 2011, says the UN economic report for Africa 2012.And these are exports of manufactured consumer goods. So vibrant is this market that Europe now ranks third as the leading export destination for African produce.  For example, inn east Africa, Uganda is the leading importer of Kenyan exports, having surpassed Europe and USA combined.
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Buoyed by these results continent is working towards further integration in a bid to create even larger markets for African manufactures. For starters, the Common Market for East and Southern Africa, COMESA, and three other trading blocs will merge into one by 2017 creating a huge trading block of 650 million people. COMESA is a very large block bringing together some 15 countries in eastern and Northern Africa. This integration will lead into even further industrialization as demand for manufactured goods from the larger Free-market grows.

So is Africa rising? Yes because economic growth means that the continent is creating new wealth each year and when compounded, the effect is a good life for the society. Does Africa need to diversify? Yes. And it’s already on step towards that goal.

Wednesday, 2 January 2013

The second scramble for Africa

The proposed Lamu  transport corridor in Kenya :
A potential beneficiary of the East-West rivalry

 AFRICA IS IN the middle of a long economic boom. And over the next five years, she shall be the fastest growing region in the world posting more than five per cent growth per year, says a World Bank report.

Consequently, Africa -“a hopeless Continent” just a few years ago- is now something of a village beauty-attracting plenty of suitors. Even the once cynical West is beginning to sit up and take note-with their cheque books on hand.

 And this new attention on the continent is taking the shape of a second scramble for Africa.This time around it is not the Berlin Conference seeking to dissect Africa into spheres of influence by Europe. Contrary to the first scramble that under-developed Africa, the second scramble  is a major competition to develop Africa by both East and  the West. The east is led by China, arguably Africa’s largest benefactor in the recent past. Although it is not clear how much China has sunk into Africa, estimates place the figure at nearly US$100 billion. This money has been used to build transport and energy infrastructure.

To some measure, China and the African Development Bank are rolling the West’s influence in Africa back. Initially the West sat back and chose to demonize China’s growing influence. This cut no ice with Africa and china was still welcome in Africa.

If you can’t beat them, join them, so the old adage goes. Europe has learnt the lesson pretty fast. Consider the following headlines: Norway wealth fund eyes more exposure in Africa; IFC to issues bonds in Africa. Consider this statement: “Group DML is 100% convinced that the major chances for European economic growth lay in Europe's front yard, namely AFRICA and nowhere else.Group DML has developed a new financing instrument to allow European contractors to compete heads-on with Chinese State Companies for infrastructure projects in Africa.”

These statements reflect a changed perception of Africa even by the Private sector in Europe. Africa is a land of opportunity … whoever strikes first is the winner. This is a truth China learned while the rest were napping. So perverse is Chinese presence that every project done by Chinese contractors is assumed to be funded by China.

proposed Kigamboni Bridge in Tanzania:
 Build by Chinese funded by Tanzania
This perception is so widespread that project financiers such as AfDB, have had to place huge bill boards on the project to Advertise that they are the financiers.  AfDB funded the 50 Km 8- lane Thika super Highway in Kenya  but many still believe it was funded by the Chinese.

The competition can only benefit Africa. Last year, Kenyans witnessed  such competition between the Chinese and the Japanese. Projects were approved and funds released even before the contracts had been advertised. This was the case Thewith the Japanese funding of the Southern by pass in Mombasa and the widening of Ngong road in Nairobi. The funds were released even before the contracts were advertised.  The World Bank, broke its own record when it approved a US$300 million project to build an over pass on uhuru highway in a record two months.

If IFC issues local currency bonds in 10 African countries, pension funds in the West, which perceived Africa as a bad business proposal will follow suit. IFC will be deemed as the underwriter. In addition, IFC bonds will remove a critical bottleneck in the growth of SMES in Africa. Most of these firms are below the regulatory threshold for listing companies in the local bourses, say experts. IFC can invest in these firms, wet nurse them until they reach the threshold then float its stake in the capital market.  Lack of capital for expansion has been the Achilles heel for most SMES in Africa.

Such moves are a vote of confidence in Africa and its capital markets, say economists. “Therefore it is for Africa to leverage this advantage to direct investment into critical sectors,” advised the UN-Economic commission for Africa. So far the continent is demonstrating a clarity of objectives.

The Proposed double decker highway in Nairobi Kenya:
 Avoid potential white elephants
So how did Africa turn from a” hopeless continent in 1985 to a hopeful one in 2013?” Good House Keeping, commodities boom and Africa’s own demographics. For a while now, Africa, a whole has posted growth rates way ahead of population growth driven by the commodities boom.

Between 2000 and 08, around a quarter of Africa’s growth came from higher revenues from natural resources.  Other factors include the growth of local enterprises which reduced profit repatriation. Africa has witnessed a rapid growth of highly profitable local enterprises, spread across all sectors, which boosted employment, tax revenue collection and domestic investment as they invested in further growth.   This saw per Capita domestic revenue collection rise to $441 compared to development which shrunk to US$41 per Capita. Consequently, implementation of development programming in Africa became feasible and certain, feeding further growth

 The growth of ICT in the continent is the fastest anywhere in the world. Fromm tiny 25 million handsets in 2000, mobile phone penetration in Africa is around 75 per cent. According to  a recent World Bank report, ICT contribute 7 per cent to Africa’s economic growth as there are now an estimated 700 million  handsets in the continent.

The second reason: economic growth. Over the past decade six of the world’s ten fastest-growing countries were African, says the Economist. “In eight of the past ten years, Africa has grown faster than East Asia, including Japan. This growth has added another 60 million to Africa’s middle class whose per capita is $3,000. This number is expected to rise to 100 million in 2015, says the Economist.

Third,demographics. Africa is the only continent which is not faced with an aging population crisis. Its young productive population is still growing. This creates the suitable conditions for further economic growth because of a large growing domestic demand for domestic goods.

The frequent discovery of oil and gas deposits in eastern Africa, the only region that was lagging behind in this respect, is also brightening the prospects for the region’s economy. The region has attracted quite a tidy sum in FDI to the hydrocarbons sector.