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Africa Sees Opportunities in Islamic Finance

Posted in Corporate and Investment

More states in Africa seem keen on joining the global Islamic finance sector, which is projected to be worth $2 trillion by the end of 2014. According to Moody’s Investors Service, global issuance of sovereign Islamic bonds – also known as “sukuk” – is expected to increase 30 percent in 2014 to reach $30 billion.

In September 2014, South Africa sold its first-ever sukuk at a record low borrowing cost. The $500 million 5.75-year sukuk has been launched at a yield of 3.9 percent. Almost 60 percent of investors participating in the deal are from the Middle East. BNP Paribas SA, KFH Investment, and Standard Bank Group Ltd. reportedly arranged the sale.

Other sub-Saharan states have made or contemplated similar moves recently. In June 2014, Senegal raised $208 million through its first sukuk. Also, it has been reported that sukuk is part of Nigeria’s strategic framework through 2017. And Kenya may offer sukuk to broaden its investor base.

Islamic finance also has gained traction in North Africa, where states have introduced new regulations as they seek alternative funding. In July 2014, Tunisia passed a new law allowing the issuance of sukuk. In June 2014, Morocco’s lower house of parliament approved an Islamic banking bill. Now before the country’s upper house of parliament, the bill is being evaluated by Morocco’s Economic, Social and Environmental Council (CESE), which offered revisions in August 2014. Egypt has been keen on tapping into the sukuk market, but its sukuk law has stalled since 2013. The government reportedly plans to submit a revised draft law to the new parliament which may be elected later this year. According to Standard & Poor’s, the use of sukuk could help diversify investors’ base for some of the projects currently underway or in development for North Africa, including renewable energy, transport infrastructure, and communications. Still, the process is expected to be gradual.

As Africa creates its own footprint in the Islamic finance sector, it may see several new investors and opportunities in the years ahead.

Emerging Opportunities from the U.S.-Africa Leaders Summit

Posted in Corporate and Investment

When President Obama announced his intention to convene the first-ever U.S.-Africa Leaders Summit, policymakers, pundits, and other interested parties made numerous predictions as to how the historic event would fare, especially in comparison with the summits convened by China, the European Union, and others. Now that the activity of what came to be known as “Africa week” has settled down, it is time to take stock of what was achieved and what comes next.

So what was achieved at the U.S. Africa Leaders Summit?

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Transcorp Hotel’s $48.8M IPO Shows Nigeria Remains Leading Choice for Hotel Industry Investments

Posted in Corporate and Investment

At the start of this year, Financial Times declared Africa to be “the new battleground for global domination among hotel groups.”  The expected launch today of a $48.8 million Initial Public Offering (“IPO”) by Nigeria’s hospitality giant Transcorp Hotels indicates that Nigeria continues to be one of the top choices for investors in this industry.

The Nigerian hospitality industry is still in its infancy (contributing only one percent to the country’s GDP in the first quarter of this year) and is under-equipped to handle the rapidly expanding business travellers market that is an outgrowth of the country’s strong economic growth and billions in new investment dollars.  Transcorp Hotels and others have made clear that their focus is on capturing this market.  Already the owner of the largest number of hotel rooms in Nigeria, Transcorp Hotels plans to use the proceeds from its IPO to develop two new hotels in the commercial centers of Lagos and Port Harcourt.  Both properties will be managed by Hilton Worldwide with whom Transcorp Hotel has a partnership.

Foreign investors are equally interested in deepening their stakes in the Nigerian hospitality industry and its growth potential.  Last month, under its recently-acquired Protea Hospitality Holdings brand, Marriott International opened a new Lagos hotel which is specifically targeted to corporate travelers.  By 2018, it expects to open five more hotels in Abuja and Lagos.  Also active is Starwood Group which, by 2017, will invest $500 million to add five new hotels in Benin City, Ibadan, Ikeja, Ikot Ekpene, and Lagos.  This proposed footprint expansion is notable in that it extends beyond the country’s capital (Abuja) and commercial hub (Lagos).

Additional competition soon may come from Angola’s sovereign wealth fund (Fundo Soberano de Angola) which has finally progressed to investing its $5 billion in assets.  In a recent interview with Forbes, the fund chairman stated that the Sub-Saharan hotel industry would be an early priority.  Considering that the fund intends to target business travelers and “focus on three- to five-star hotels in Sub-Saharan African capitals and other commercial centers,” it is a near certainty that Nigeria will be the destination for some of the as many as fifty hotels in which the fund may invest in the next three years.

Solar Investment Booms in Sub-Saharan Africa

Posted in Corporate and Investment, Energy and Natural Resources, Uncategorized

According to the U.S. Agency for International Development, two out of three sub-Saharan Africans, approximately 600 million people, do not have access to electricity, instead relying on costly, environmentally unfriendly, and unhealthy forms of energy such as diesel generators and kerosene lamps and stoves.  With many sub-Saharan African countries receiving a high number of days per year with bright sunlight, the area is a prime candidate for the development of solar energy resources.  This fact has not gone unnoticed, with both private and governmental parties making investments in the development of solar energy in this region in the last 1-2 years.

Government-sponsored Initiatives.  On June 30, 2013 in Cape Town, South Africa, President Obama announced Power Africa — an initiative to unlock the substantial wind, solar, hydropower, natural gas, and geothermal resources in the region and enhance energy security, decrease poverty, and advance economic growth.  This initiative seeks to leverage U.S. strengths in energy technology, private sector engagement, and policy and regulatory reform, and the resources of the World Bank, the African Development Bank, African governments, and the private sector to add clean, efficient energy generation capacity in six focus countries —  Ethiopia, Ghana, Kenya, Liberia, Nigeria, and Tanzania.  As discussed in our blog post of August 8, 2014, the White House announced in August a significant expansion of Power Africa to achieve a goal of 30,000 MW of additional capacity to reach 60 million households and businesses across the continent, and $6 billion in new private sector commitments from investors such as Citigroup, Standard Bank and Standard Chartered Bank.  The Government of South Africa has also launched its own Renewable Energy Independent Power Producer Procurement Program (REIPPPP) to help South Africa achieve its energy generation goals and contribute to socio-economic and environmentally sustainable growth.  This program offers government contracts to independent power producers for the development of specified renewable energy resources.

New Private Sector Investments.  In addition to government programs, private investors are making new investments in the region, particularly in the off-grid solar sector.  For example, SolarCity has joined up with venture firms Vulcan Capital and Omidyar Network to invest $7 million into Off-Grid Electric, a Tanzania-based company providing solar lighting services in Africa.  Similarly, Bloomberg Philanthropies recently announced that it is offering $5 million in low-interest loans to Little Sun, a social enterprise which will help bring solar energy to off-grid Sub-Saharan Africa with low-cost solar lamps, which will replace lamps using kerosene.  Even Google is getting on the renewable energy bandwagon in Africa, investing $12 million in the $260 million Jasper Power Project, a 96-megawatt (MW) solar photovoltaic (PV) facility to be built near Kimberley in South Africa’s Northern Cape Province.

Benefits for the local economy.  In addition to the benefit of developing an environmentally friendly source of electricity, these projects stand to provide valuable employment opportunities in the local economy.  Indeed, the Jasper Power Project is expected to create approximately 300 construction and 50 permanent jobs in a region experiencing high rates of unemployment, as well as providing rural development and education programs by setting aside a portion of total project revenues for enterprise and socioeconomic development.  Similarly, the U.K.’s Blue Energy, which is building what is expected to be Africa’s largest PV power plant in Ghana, expects that the project will employ 500 local construction staff and a further 200 local people for continued operation and maintenance.  Some estimate that another 2,700 indirect jobs would be created from related construction and operations activities.

Although these projects and investments are in their early stages, there is great potential for Africa to improve its citizens’ access to electricity through these investments in renewable energy technology.

Short-Term Renewal of Ex-Im Bank Charter is Welcome but Brief Reprieve

Posted in Public Policy and Government Affairs

Included in the continuing resolution passed this week by  Congress was a measure which extends the charter of the U.S. U.S. Export Import Bank (“Ex-Im Bank”) through June 30th of next year.  Renewing the charter of Ex-Im Bank (which was set to expire on October 1st) was a hot topic of conversation this past summer including during the U.S.-Africa Business Forum of the U.S.-Africa Leaders Summit.  Thus this short-term renewal is a welcome (albeit brief) reprieve to an institution that provides important assistance to U.S. businesses looking to compete in Sub-Saharan Africa and other emerging markets .

Similar to the nearly sixty export credit agencies around the world, Ex-Im Bank provides businesses with loans, guarantees, credit insurance and other financing tools to support the trade and export of goods and services from the U.S. into foreign markets.  Sub-Saharan Africa is a priority region for Ex-Im Bank and, since 1999, the institution has assisted over $5 billion in transactions across the region.  Ex-Im Bank is especially important to small- and medium-sized enterprises since U.S. financial institutions often are reluctant to bear the risks and complexities of doing business in these markets.  With trade and investment becoming an increasing priority of the U.S.-Africa relationship, Ex-Im Bank has seen an expanding presence on the continent and, last year, it supported a record 188 transactions across 35 countries in the region.

Seeking to capitalize on this momentum, over the next two years Ex-Im Bank is set to commit up to $3 billion in financing in Sub-Saharan Africa in addition to an existing $5 billion commitment for Power Africa and a planned commitment of $1 billion for infrastructure projects in Angola.  Ex-Im also has plans to work with the Small Business Administration to target and assist small- and medium-sized enterprises who are interested or invested in the continent.

The short-term renewal is a welcome breakthrough after months of wrangling over the reauthorization of Ex-Im Bank.  The next steps must be to guarantee long-term renewal of an institution which is essential to helping U.S. exports stay competitive in a world where other countries “have adopted increasingly sophisticated export promotion plans and are offering national financing […] to support their companies’ deals in Africa.”

Ethiopia’s Grand Renaissance

Posted in Uncategorized

By any measure Ethiopia is experiencing impressive economic growth.  According to IMF data, GDP grew 8.7 percent in 2012, the country’s weakest year since 2009.  In 2010, GDP grew a blistering 12.6 percent, higher than all but a handful of countries worldwide.  Going forward, the IMF estimates Ethiopia’s economy will grow at 8.0 to 8.5 percent in the upcoming fiscal years.  Ethiopia’s Finance Ministry is even more bullish, predicting 11 and 11.4 percent growth in the next two fiscal years.

As Ethiopia’s economy grows, so too do its energy demands. Fortunately, Ethiopia is also blessed with some of the world’s greatest renewable energy resources.  As of 2010, nearly 90 percent of installed energy capacity came from hydroelectric power, and some estimates of the country’s total hydropower potential exceed 45,000MW, second in Africa only to the Democratic Republic of the Congo.  Despite this potential, Ethiopia has remained a net energy importer.  That may be set to change.

In Ethiopia’s northernmost region, close to the border with Sudan, a new structure is rising on the Blue Nile river that will shape Ethiopia’s — and East Africa’s — energy future: the Grand Ethiopian Renaissance Dam.  Its name is not modest, but neither is its potential impact.  Currently about 30 percent complete, the dam will become Africa’s largest, producing an estimated 6,000MW of electricity.  Ethiopia is largely funding the $4.7 billion project itself, through a combination of bonds and taxes.

There is no doubt that Ethiopia’s stunning growth is fueling its energy ambitions, including the ambitious Renaissance Dam project.  But it is not unreasonable to think that the Renaissance Dam itself will further drive Ethiopia’s growth.  The project has already created more than 10,000 jobs.  Moreover, a recent study of East Africa energy experts concluded that hydroelectric power provided the greatest potential to close the region’s energy gap — nearly two thirds of Africans have no access to electricity — and recommended greater investment.

To be sure, the project has not been without controversy.  Egypt and Sudan have expressed concern that the dam with have detrimental downstream effects, including to agriculture.  While relations have been icy since Ethiopia started construction in May 2013, the parties are continuing to work through the outstanding issues: a fourth round of tripartite was held last month in Khartoum.

Ethiopia’s torrid growth cannot continue forever, but if the Renaissance Dam is as successful as predicted, it is hard to see how the view from Addis Ababa will not be bright.

President Obama’s Response to the Ebola Crisis

Posted in Public Health, Public Policy and Government Affairs

According to the U.S. Department of Defense, December 30, 2013 was epidemiological week 1 for the current Ebola crisis in West Africa.  Since that date, more than 4,985 cases — 2,461 of which have resulted in death — have been confirmed or suspected.

Today, nine months after the epidemic’s outbreak, President Obama has made an overdue announcement that the U.S. will deploy an estimated 3,000 troops in an effort to stem the crisis.  The response is certainly welcome but it remains far from certain that an intervention by the U.S. military will be sufficient to defeat this deadly epidemic.

President Obama is right to characterize the Ebola outbreak as a top national security priority for the U.S., and the past is instructive for what we might be dealing with in this situation.

The last time that the U.S. declared a health emergency to be a threat to U.S. national security was in 2000, when the Clinton administration designated HIV/AIDS as a threat that could undermine governments, lead to conflict and weaken progress on democracy and economic growth.  At that time, the Clinton Administration doubled its budget request to combat HIV/AIDS internationally to $254 million.  However, it was not until 2003 when President George W. Bush requested from Congress $15 billion over five years that the U.S. began to turn the tide of that deadly pandemic.  It was still another two years before medicines became widely available to those infected with HIV and, in 2008, PEPFAR was reauthorized for $48 billion for another five years.

To date, the Obama administration has spent $175 million to address the rapidly spreading Ebola crisis in West Africa.  This is likely to be a fraction of the ultimate cost required to defeat this disease.  Recent estimates from the United Nations place the costs around $1 billion.

In addition to involving the U.S. military, President Obama has committed the U.S. to the construction of 17 treatment centers (each of which will have 100  beds) in Liberia and the establishment of a site to train up to 500 local health care providers per week.  In terms of containing this deadly disease, this “whole of government” response from the Obama Administration is a good, if belated, start.  However, key questions remain.

It is not clear how long the strategy will take to implement and, according to international health officials who spoke with The New York Times, 1,000 beds are needed in the next week alone to contain the spread of the disease.  It also is not clear how the U.S. will work with the governments of Sierra Leone and Guinea, as nearly half the cases reported come from those two countries, nor Nigeria and Senegal who also have reported cases.

Over the weekend, chief executives from 11 companies operating in Liberia, Sierra Leone and Guinea made an urgent appeal to the international community to pool its resources to fight Ebola.  It is an important development that the U.S. is moving forward with a more aggressive response to this plea.  Yet victory will likely require a “whole of community” response from all stakeholders, including governments, businesses, NGOs and others, who want to see the governments of West Africa defeat this deadly scourge.

Angola’s Sovereign Wealth Fund Is Underway

Posted in Corporate and Investment

Announced in 2008, established in 2012, and receiving the final installment of its initial endowment in June of this year, Fundo Soberano de Angola (Angola’s sovereign wealth fund) finally has progressed to investing its $5 billion in assets.  In a series of recent interviews, fund Chairman José Filomeno Dos Santos has been detailing how the fund’s portfolio will be diversified and answering questions about its governance structure.

The guiding principle of the fund will be to “[pursue] investments that generate long-term and sustainable financial returns” and, in turn, use that wealth “to promote growth, prosperity and social and economic development across Angola” and sub-Saharan Africa more broadly.  To accomplish these goals, up to one third of the $5 billion fund will be put into alternative investments across sub-Saharan Africa.  Through private equity-style special purpose vehicles set up as limited liability partnerships (in which the fund is one of the investors), the fund will identify and pursue opportunities in priority sectors such as agriculture, commercial real estate, energy, hotels, and infrastructure.  The other two-thirds of the fund will be allocated equally between “highly liquid securities such as cash, bonds and listed equities” and “opportunistic investments internationally: distressed assets that the fund could take advantage of, spin around and refocus.”

Although Chairman Dos Santos has international financial management experience, he also is the son of the sitting President which is a fact that has raised questions about the governance and transparency of the fund.  Chairman Dos Santos has asserted that the fund’s organizational structures has several layers of review and supervision.  In addition to a Board of Directors, a Fiscal Council, and an Advisory Council, the fund will have Deloitte serving as its independent auditor.  It also has signed on to the IMF-backed Santiago Principles which provide a set of voluntary principles and practices for sovereign wealth funds.

Notwithstanding these protections, additional concerns have been raised about the fund’s autonomy because its Board is appointed by the country’s President and its investment strategy is approved by the government.  Chairman Dos Santos’s response is that the fund “is a state entity, not a corporation that is owned by the state” and so its investment strategy operates within the bounds of the government’s own investment policies.  This relationship between the State and the fund leaves open the possibility that a future government could redefine the country’s investment policies and, in turn, the parameters of the fund’s investment strategy.

To date, the fund has appointed only one external manager, the Swiss-based Quantum Global Group.  Chairman Dos Santos says that the fund would like to bring on additional external managers but has had “quite a difficult time” finding ones with “the right experience in Africa.”

Looking Towards the Future of Pharmaceuticals in Africa

Posted in Public Health

Over the past six months, the Ebola virus has killed approximately 2,100 people in West Africa, creating an international health crisis and terrorizing communities in Guinea, Liberia and Sierra Leone.  The race to develop, produce and disseminate Ebola vaccines has proven to be immensely challenging.  Experimental but potentially life-saving drugs were produced in insufficient quantities during the crucial initial phase of the epidemic, forcing physicians to determine who would receive potentially life-saving medicine and who would not.  The WHO recently announced  that two possible vaccines will be available as early as next month, reflecting a remarkably rapid pace of drug testing that sharply contrasts with the often slow process of pharmaceutical research, development and patenting.  The urgent actions necessitated by the Ebola crisis point to the need for a more efficient, collaborative, and modernized pharmaceutical industry that is better equipped to devote additional resources to the research and development of pharmaceuticals in Africa.  In Sub-Saharan Africa–a region that accounts for 12% of the world’s population but that shoulders 26% of the global disease burden—such innovations are especially essential.

Throughout the global pharmaceutical industry, the research and development of drugs is progressing at a decreased rate while the cost of such development is rising drastically.  Some companies have responded to these escalating costs by establishing joint ventures and mergers that increase companies’ resources and promote cost reduction.

The use of e-information and mobile technologies is another means by which pharmaceutical companies can redistribute resources towards drug development in an informed, efficient manner.  The digital pooling of regional pharmaceutical data can maximize pharmaceutical companies’ understanding of the specific challenges that face Sub-Saharan Africa and reduce unnecessary expenditures.  While such measures would be beneficial in any market, they are particularly essential in the fast-developing countries of Sub-Saharan Africa, where patients exhibit a wide array of access to healthcare services, basic infrastructure, and medical knowledge.  Additionally, mobile devices can be used to track the sale of specific drugs in order to eliminate the use of counterfeit and expired medications; the use of counterfeit medications results in approximately 100,000 Africans’ deaths each year, and decreases pharmaceutical companies’ profits.

Lastly, mobile technologies may assist the industry in meeting Africa’s growing preventative care needs.  By 2030, non-communicable diseases (NCDs) that typically plague middle-class populations in the developed world will overtake communicable and parasitic diseases as the lead cause of disease-related mortality in Africa, particularly among Africa’s growing middle class.  If the pharmaceutical industry is to meet future Africa’s healthcare needs, it will need to better utilize monitoring devices and personal digital assistants–these items can play a key role in the preventative care of persons who may not have regular geographical or financial access to healthcare services.

The recent Ebola crisis has shed light on the importance of tailoring pharmaceutical resources to the needs of particular emerging healthcare markets.  In the future, knowledge-sharing, modernization, and an increasingly efficient business model will likely be essential to the success of pharmaceutical companies that provide drugs in Sub-Saharan Africa.

e-Curriculum Portal: Innovative Service Delivery in Nigeria’s Education Sector

Posted in Media, Internet, and Technology

As various African countries seek to engage their sizeable youth populations, this human capital investment will prove as important as the other types of investments being made on the continent.  The e-Curriculum portal in Nigeria demonstrates how the public and private sector can work together to ensuring that these youth have the skills needed to succeed in a modern economy.  The product of joint collaboration between the Nigerian government and leading Nigerian and U.S. ICT companies, the portal has the potential to revolutionize the delivery of education services in Nigeria and beyond.

The e-Curriculum portal is a new software platform launched by the Nigerian National Educational Research and Development Council (“NERDC”), a parastatal of the Federal Ministry of Education.  Focused on senior secondary school education in the country, the portal digitizes the nine-year basic education curriculum and makes it available on a browser-based online platform accessible to (and downloadable by) students, teachers, and the general public.  In addition to providing digital access to school curricula and learning materials, the portal will offer resources for teachers to compare and collaborate on work and lesson plans for students.

Leveraging the capabilities of the private sector, the NERDC developed the portal in partnership with Sidmach Technologies Nigeria Limited, a domestic ICT firm recognized for its innovations in the educational sector.  In addition, the portal will be powered by an Intel processor and run on a Microsoft Windows platform.  In explaining the benefits which Nigeria may realize from the portal, Microsoft Nigeria’s Education Director Patrick Onwumere noted that “the pace at which a nation’s economy develops is strongly tied to its ability to access and utilize knowledge, the achievement of which is largely attributable to the development and deployment of ICT.”

The e-Curriculum portal and other ICT-based innovations in the educational sector are likely to play an important role in converting the youth bulge into a demographic dividend.