South African investors have traditionally been rather tentative to enter African markets beyond the Southern African Customs Union (SACU – SA, Botswana, Lesotho, Namibia and Swaziland). Those that did merely traded whenever an order was placed. In this case there is no need for storage and warehouse facilities. However, in such a fluid market as East Africa there is a noticeable demand for goods and services. Although the informal market has conventionally formed the basis of service delivery, there has been significant growth in the formal retail sector.

A growing class of young professionals, and the number of increasing middle-income households have created a demand for internationally recognised brands and products as well as of services of global standards. Goods are typically competitively priced and may also be purchased on credit. However, despite the Indian presence in the region the cost competitiveness of South African suppliers is valuable. In addition, as more investors branch further inland into the land-locked state of Uganda, the renovation of Kenya-Uganda Railway is principal.

Kenya-Uganda Railway – derailed

In October 2006, just five hours before the signing of a financial agreement with international lenders (IFC and Germany’s KfW), the deal came tumbling down as a key partner in the consortium that was awarded the contract pulled out – the South African firm Grindrod. Nonetheless, Grindrod’s decision to leave made room for Sheltam in the syndicate Rift Valley Railways (RVR). The consortium paid the two governments US$ 5 million in concession fees - Kenya received US$ 3 million and Uganda got US$ 2 million.

The partners of the RVR consortium are Sheltham Corporation with 60%, Trans-Century with 20%, Babcock and Brown with 10%, and Industrial and Commercial Development Corporation Investment with the remaining 10%.

Rail, roads and sea are route-to-market points that invaluable to any investor. However, there is more infrastructure to consider. Apart from in Kenya, to say the least, substantial acquisitions can only be made from privatised state enterprises. Otherwise, investors have no choice other then starting cold.

SA’s successful retailers in East Africa

The vast majority of retailing in East Africa is conducted via small independent stores, traditional markets and hawkers. However, in the urban areas the scene is gradually changing. Most South African retailers therefore enter the market with blueprints of the prospective establishments and contract their construction. Accordingly, South African wholesalers such as Massmart, Metro Cash & Carry, Shoprite have successfully entered the market. Shoprite has six stores in Tanzania and another two stores in Uganda. As for its entry into the Kenyan market, it is alleged that Shoprite is negotiating a deal with Kenya’s recent Uchumi - since the store closed in late 2006.

Shoprite was also amongst South Africa top 3 performers on the Global Top 250 ranking of retailers:

• Pick ‘n Pay was the highest-ranked local retailer at 122nd;
• Shoprite was 123rd;
• Massmart came in 140th place.

Metro Cash & Carry, 2005’s highest ranked SA retailer, fell from 81st place to 230th. Fashion retailer Edcon was a new entrant in 246th place. Massmart and Edcon are also featured on the list of the 50 fastest-growing retailers since 2000:

• Massmart ranked 15th, with annual growth rate of 24.7 %
• Edcon ranked 32nd, with annual growth rate of 19%

Massmart has also been the listed the eight-largest diversified retailer in the world, placing it among groups such as Sears and the UK’s Marks & Spencer. Retailers are expected to turn to developing markets for growth, due to the limited growth prospects in the developed markets. The success of South African retailers in East Africa has uncovered the investment prospects of other sectors in the region. As such Telkom SA aspires to make its mark in the East Africa. Telkom is on course to acquire a 51% stake in Uganda Telecom (Ucom). In addition to growth in the ICT and retail industries, there is also increasing demand for South African security firms and suppliers of vehicle spare parts.

A country we expect to attract a great deal of attention in 2007 is Rwanda. For a post-conflict country, it is being hailed as a resounding success. Under the leadership of Paul Kagame, Governance is efficient, investment is pouring in and its growth prospects are strong. In 2006 the Rwandan Investment and Export Promotion Agency (REIPA) reaped investments to the tune of US$ 245.5 million.

Carine Kiala, Business Analyst, Emerging Market Focus

Regional business briefs

Two bidders are in the running for Zambia’s power project

Two firms are in the running for the construction of Zambia’s new power station. The project is part of a US$ 1.2 billion plan to address looming power shortages in the country. Energy and Water Development Minister, Felix Mutati, confirmed that Lunsemfwa Hydro Power Co. Ltd. and Olympic Hydro Ltd. have submitted bids to construct the Kalungwishi Power Station in the Copperbelt region bordering the Democratic Republic of Congo (DRC). South African state utility Eskom owns a majority stake in Lunsemfwa. The Minister also announced that the preferred bidder would be selected within the next three months. Zambia aims to fast-track all pending power projects in order the meet the rising demand especially from the country’s copper and cobalt mines, which require 50 - 100 megawatts in additional to power every year. The US$ 1.2 billion on energy upgrades will be spent over the next five years to modernise and construct new power stations. Financing came from China and Iran, amongst others.

Angola’s diamond production to reach 10 million karat in 2008

Diamond production in Angola is projected to reach 10 million karat until 2008. In 2006 the country produced 8 million karats. Chairman of the managing board of the Angola state diamond company - ENDIAMA, Arnaldo Calado announced the priority for the company this year is to commission the prospecting in provinces of Bi, Cunene, Huila, Kwanza-Sul, Malanje, Moxico Namibe, and Uige. Calado was speaking at the celebration ceremony of the ENDIAMA’s 26th anniversary. ENDIAMA Research and Production (a subsidiary of the group) will also commence independent production this year in Camazanza, northeastern Lunda-Norte. Explorations will be carried out over a 3,000 square kilometre extension.

Investment in Uganda – 100 percent increase

The Uganda Investment Authority (UIA) licensed 424 projects in 2006, worth almost US$ 1.7 billion. This is up from US$ 878 million in 2005. Executive Director of the UIA, Maggie Kogozi, announced to the press on Tuesday 9th January that the main sectors on the receiving end were transport, storage and communications – accounting for US$ 468.6 million. This was followed by finance, real estate and business services (US$ 351.6 million), and trade, catering and accommodation services (US$ 335.3). Kigozi revealed that Ugandans have been the most source of investment in 2006. In their respective order, succeeding investors are from the United Arab Emirates, India, Kenya, The UK, Pakistan, Malaysia, China, Canada and Mauritius. Prospects for 2007 are equally bright. The UIA hopes to attract projects to the tune of US$ 2.2 billion. Mining, oil explorations and agro-processing are expected to be extremely prosperous in 2007. Development will also be made in the ICT sector from the newly established Kampala Business and Industrial Park at Namanve.

Growing demand for health insurance in Tanzania

The National Health Insurance Fund (NHIF) plans to cover 45 percent of the population by 2015. With the country’s current population standing at 36 million, the fund currently supports only 1.3 million beneficiaries of which the core membership is 291 thousand. Despite improving health services in the country, NHIF Public Relations Officer Mr. Rehani Athumari listed challenges on Thursday 11th January including shortages of essential drugs in government medical centre and pharmacies, and inconveniences caused by unilateral hikes in the prices of essential drugs. Prices of drugs have increased 70 percent since 2002. The NHIF has since expanded its list of essential drugs from 445 to 555, including generics. As of December 2006 a total of 3,717 state medical centres are enlisted to cater NHIF members, of which 199 are hospitals, 356 health centres and 3,162 are dispensaries.

Liberia - Databank expands further in West Africa

One of Africa’s financial services providers, the Databank Group, is opening more offices in Liberia. With the acquisition process of a Liberian bank almost finalised, the new branches will be open for business in March 2007. The boardroom, named Ellen-Sirleaf Room, was opened by the Liberian President herself who served 5 years on the board before assuming her presidency in 2006. Databank also operates in the Gambia and is in the process of establishing a Databank in Nigeria. The Nigerian office is should be finalised by March 2007 given the type of services the bank sets to offer there. Databank intends to establish an African mutual fund, which will in future invest in other countries.

Kenyan oil pipeline deal concluded

The construction of the 358-kilometre oil pipeline from Eldoret in Kenya to Kampala is set to begin by August at a cost of US$ 78 million (Shs138 billion).The construction of the pipeline will be implemented by Tamoil, who will provide 51 percent of the total cost while Kenya and Uganda will both contribute 24.5 percent of the cost. Uganda's energy minister Daudi Migereko described the project as a major breakthrough, saying the current tariff on every 1,000 litres of oil is US$ 35 but the pipeline would reduce the tariff to US$ 20 per cubic metre. He added that when completed, the pipeline could eventually serve neighbouring countries such as Rwanda, Eastern Democratic Republic of Congo, Burundi and Southern Sudan.

SADC partners with Norway and the UK in energy development

SADC has partnered with Norway and the United Kingdom Department for International Development (DFID) for co-operation in the Energy and Transport sectors. The Deputy Executive Director for the Southern African Development Community (SADC), Joao Caholo, said that the two partners would assist SADC to realign its regional integration agenda and improve the efficiency and effectiveness of implementing its policies and programmes.

 

Regional business briefs

Disputing the Angolanisation of the Oil Sector

The "Angolanisation of the Oil Industry" will be the theme of the third conference driven by the Angolan Strategic Studies Centre (CEEA). The event will take place on Wednesday 7th March, in Luanda, as part of the cycle of events dubbed "Angola, today's realities, perspectives for tomorrow." The initiative is driven to address the country's deficiency in local technical staff and engineers. As the Government continues to sponsor training of its citizens in the USA, England, Brazil, Portugal and more recently South Africa, it aims to have them gradually replace the expatriate cadres. Although the oil sector is Angola's main source of foreign currency, the industry experts are predominantly foreign.

Mittal invests US$ 2.2 billion in Senegal

Steelmaking giant Arcelor Mittal is investing US$ 2.2 billion into a mining project in Senegal. The company will be developing an iron ore mine in the Faleme region. In addition, a new port and rail line will be built to join the region to the country's capital Dakar. Arecelor Mittal aims to produce between 15 - 25 million tonnes of iron each year. Production is set to begin on site, which holds an estimated 750 million tones in reserves. The Famele project will be an important and competitive source of iron ore supplies for the European plants. It will be one big step in the company's strategy of creating West Africa as a mining hub for iron ore supplies to it steel plants around the world.

Uganda: Government defends Jacobsen Deal

Finance Minister Dr Ezra Suruma has denied allegations of government mismanagement in the controversial procurement of the 50-mega watt thermal power project tender. Norwegian firm Jacobsen Elek tro AS won the tender in early 2006, against the likes of Elextromaxx and African Power Initiative. Since the Electricity Regulatory Authority (ERA) claimed Jacobsen's operational costs were the cheapest, ERA expected the project to be up and running in June 2006. However, contestation from competitors and a call for re-tendering by the Inspector General of Government (IGG) have delayed the process. Last year the government paid US$ 12 million to install a 50 MW of thermal generators. As the electricity crisis is prolonged, the Ugandan Government has committed another US$40 million to install another 50 MW by August 2007.

Nigeria: Amending a Petroleum Act

The Nigerian Government has begun amending the act concerning the Petroleum Technology Development Fund (PTDF). The amendment aims to redress the present regime of payment of 100 percent of signature bonuses to the PTDF, derived from the allocation of oil blocs. Since the bidding process of the oil blocs has become more competitive and transparent, and so it has also become a huge revenue earner. When amended the act will then reduce the resources flowing into the PTDF to a mere 25 percent of signature bonuses. Accordingly, any excess of US$100 million per annum is to be paid into the treasury.

Namibia lowers telecom coverage to restrict roaming

Namibia's communications radius is being reduced to 60 kilometres. Thousands of users of the country's recently introduced mobile phones service will not be able to roam from town to town as of next week. Namibia's major cellphone opera tor, MTC, claims it does not address the fundamental issue of not allowing roaming, or handover between calls, even in the same town. Handing over between calls is a licensed domain of two mobile operators in Namibia, for which they have paid license fees. Restriction thereof is not only an infringement, but also jeopardises MTC's value as well as what foreign investor Portugal Telecom paid for last year.

Mozambique receives US$25 million loan from African Development Bank

The African Development Bank (AfDB) has lent Mozambique US$ 25.58 million to finance an irrigation and farming project. The objective is to improve the efficiency of the Massingir Dam to a sustainable level. In turn it will facilitate the capacity of small-holder's down stream irrigation to maximise production. The rehabilitation will also include the reconstruction of the Xai-Xai Irigation Scheme, NORTH OF Maputo. An additional Auxiliary Spillway will be built at Massingir Dam to ensure its safety. Gates will be fixed and pumps installed at Chilaulene. This will prevent salt intrusion from high tides as well as protect irrigation infrastructure from the type of floods that occur in the region.
 

Apathy for West Africa is attributed to political risk management. Most countries in the region have been wrecked with either civil war, social, political or economic fragmentations for the last four decades. The tumultuous histories of Liberia, Sierra Leone and Ivory Coast are well documented, as is the ongoing tension in Africa's most populous country, Nigeria. Controversy surrounding the Presidential elections,  held on April 21st, has sparked violence and shaken investor confidence. However instability and conflict are not endemic to the West African region, as Ghana glows as a glaring exception.

Ghana has enjoyed an unprecedented level of political stability since it became the first African country to gain independence from colonial rule in 1957. Given the turmoil of its regional neighbors, this is no small achievement. However, for Ghanaians this stability has yet to convert itself into real economic prosperity. It is now that Ghana seeks to assume the position of a gateway to the West African region so as to attract new foreign direct investments that will jump start its local industrial capacity.

The Gold Coast Industries

 As a relatively small country, Ghana remains heavily dependent on its agricultural sector to fuel its domestic economy. Cocoa production accounts for nearly 30 percent of its export earning, generating even more than gold. As the country's two main export products, Ghana's poignant trade deficit is much a result of its lack of an industrial foundation.

Since he took over from Jerry Rawlings in 2000 President John Kufuor, has elevated the country's need for macroeconomic growth to the top of his cabinet's agenda. Ghana's free market economy now offers competitive FDI incentives, especially favourable towards secondary industries for export into the region. Galvanised by its strong standing in the Economic Community for West African States (ECOWAS), Ghana is indeed well positioned to offer this service to international investors.

Ghana's Gateway Project

The Gateway Project was launched in 1999 with the key objective of establishing value add processing and manufacturing capacity in Ghana. The project re-engineered all major frontline agencies, which investors would have direct contact - i.e. Ghana Immigration Service, Ghana Ports and Harbours Authority, Ghana Free Zones Board, and Customs amongst others.

In food and agri-business, international companies Nestlé and Unilever have already established major operations in Accra. Some of the incentives offered to foreign investors include: a ten-year tax exemption for foreign companies that intend to set up manufacturing and processing operations and industrial machinery and processing equipment are also tax-free.

However, while Ghana is perhaps the best place to set up a trading centre in West Africa, it still has its own challenges. Ghana is currently in the throes of a major power crisis, which is effectively crippling large-scale industry. Power is cut for 12 hours a day, on every second day. The construction of the new power plant, owned by Chinese company Cenpower, is set to begin in June 2007. The US$ 340 million project is a combined effort of Cenpower Generation Company Ltd, InfraCo and Reltub Company - a Ghanaian power developer. The plant will be located in the Tema Industrial Zone and will generate between 330 - 450 megawatts of electricity through a combined cycle gas fired power. Nigeria's N-Gas will supply the gas through the West African Gas Pipeline.

Ghana is gearing up for even more renewed international investment, especially with mounting excitement over its hosting of the African Cup of Nations in 2008. As for routing prospective FDI to Ghana, the country certainly has comparative advantage over its West African neighbours. In many ways, it is the region's weakness that constitutes Ghana's greatest contemporary strength. Furthermore, its sound environment of business makes it the ideal gateway to West Africa.

Carine Kiala, Business Analyst, Emerging Market Focus  

Israeli Aerospace Industries Ltd. /ELTA has signed a contract with the Republic of Congo (Brazzaville) to carry out a feasibility study for the establishment of an integrated maritime radio communication system. The Congo intends to use the system to monitor its territorial waters within the executive economic zones particularly with regard to trafficking of drugs, narcotics and firearms. The contract will enable the Congo to reinforce its authority in matters regarding maritime security and safety, improve the protection of maritime life, and help establish the territorial waters surveillance system in accordance with international maritime conventions on maritime safety and security.

Dar es Salaam: Port installs new initiative to clear congestion

Private companies can now run their own internal container depots (ICDs) at the Dar es Salaam Port. The move is aimed at minimising congestion at the East Africa's second largest port. The Tanzania Revenue Authority (TRA) will supervise the depots. The TRA has issued guidelines for private freight operators who intend to utilise the facilities. The guidelines will ensure quality service, fewer controls and a much smoother movement of cargo. This new initiative will mean a relaxation of rules regarding imports destined for Rwanda, the Democratic republic of Congo, Uganda, Burundi, Malawi and Zambia.

Malaysian companies paving new roads in Kenya

Kenya and Malaysia have signed an agreement, which may offer Malaysian firms new road construction work in the East African country. While on an official visit to Kenya, Malaysia's Prime Minister Seri Abdullah Ahmad Badawi met with President Mwai Kibaki at the Nairobi State House on April 18th. The countries signed a MOU in the planning and in implementation of road projects. With Malaysia's advanced technology in the field it was felt that Kenya could substantially gain from technology transfer, as Malaysian experts would provide training in infrastructure development. The two countries signed another MOU in science and technology, for Kenya to receive training in e-government and ICT.

Data confirms diamond reserves in Madagascar

Pan African Mining Corp. is pleased to report that an independent interpretation of geophysics data confirms strong diamond targets previously identified in geochemical sampling programmes. The high resolution, helicopter-borne, magnetic and radiometric survey was completed by Fugro Airborne Surveys (PTY) Ltd late last year. The survey indicated numerous counts of magnetic bulls-eye targets with signatures typically characteristic of kimberlite pipes. For Pan African the strong correlation between the stream sampling results and the independently selected geographical targets is very encouraging. The firm is an exploratory resource company, with approximately 10,000 square kilometres of diversified mineral properties as well as a further 5,500 square kilometres of uranium properties in Madagascar.

Kenya: Rift Valley Railways gears down

Recent assessments conducted by the Kenya Railways Corporation show that Rift Valley Railways Ltd (RVR) is not doing so well. The company is allegedly underperforming in several areas including revenues, goods train derailments and track maintenance. It has been almost six months since South African company Sheltam Rail PTY took a controlling interest in this rail network - it runs between Kenya and Uganda. The report claims that the only new additions to the RVR's fleet are five old locomotives. Magadi Soda, which gained operating rights from Kenya Railways Corporation for the Knoza-Mombasa line until 2023, has recently acquired five brand new locomotives. According to the report, RVR has recently imposed speed restrictions on the Mombasa-Malaba route, an indication that the track is not being maintained properly. These issues, amongst others, have raised scepticism about the Sheltam Group's capacity to run the multi-million dollar concession.

Millennium Bank invests US$ 1 Million in Angola

Millennium Bank Angola has invested nearly US$1 million to rehabilitate its latest agency in Angola. The bank's C.E.O., Antonio Henriques, was speaking at the inauguration ceremony of the new branch held on April 18th. Millennium Bank's most recent agency is located at Amilcar Cabrel, in Luanda. Over the next few months, the bank foresees expanding its activity to the southern Benguela province where it will open an agency in the provincial capital Benguela City and another in up the road in Lobito. Millennium has a social capital of US$ 25 million, and US$ 15 million in personal capital deposits. With 5 agencies already in Angola's capital city Luanda, the bank plans to have a total of 20 agencies countrywide by the end of 2007.

Mozambique: Lonrho Africa boosts investments in mineral water

One of Mozambique's largest mineral water companies, Aguas de Mocambique Lda (AdM) is to receive a 50 percent increase in stakes from Lonrho Africa PLC. Lonrho plans to buy out minority shareholders, following the purchase of a 34 percent stake at US$ 1.2 million. AdM has achieved an annual growth rate of 100 percent between 2003 and 2005. Sales in 2007 are expected to reach 3 million litres, compared with the 2 million litres it sold last year for US$1.04 million. AdM's most popular brand, Agua de Namaacha, has a domestic market share of 30 percent..