Weekly Investor Update (April-WeekOne-2024)

15 min Read April 5, 2024 at 5:00 PM UTC

Tuesday

World Bank to provide $1.2bn budget funding for Kenya

TheWorld Bankis set to greenlight $1.2 billion in budget financing forKenyaby the end of April, per a Bloomberg report, providing crucial funding for the East African nation’s efforts to reduce its dependency on commercial debt.This allocation falls slightly short of the $1.5 billion initially expected by Kenyan authorities. It complements previous disbursements from institutions like the International Monetary Fund and the Trade and Development Bank, an African lender.Kenya had designated the World Bank funds to support its budget for the fiscal year ending on June 30 amid efforts to diversify funding sources and strengthen economic stability.

Kenya’s utilization of the development policy operation facility marks its sixth instance in five years, reflecting the country’s reliance on this mechanism for financial support. The most recent approval by the World Bank amounted to $1 billion in 2023. The impact of elevated interest rates globally has led to macroeconomic challenges such as constrained credit markets, exacerbating Kenya’s vulnerabilities. These include reduced export competitiveness, elevated levels of public debt, and significant upcoming financing obligations. The World Bank anticipates providing Kenya with $12 billion in support over the next three years, potentially offering substantial relief to the East African nation’s strained financial circumstances.

Ivorian farmers set for major gains after 50% cocoa price hike

Ivory Coast has responded to demands for increased cocoa prices by agreeing to pay farmers more for their beans, following asurge in futuresto over $10,000 a ton over the past week.The world’s leading producer of cocoa will now disburse 1,500 CFA francs ($2.46) per kilogram for the mid-crop harvest until September 30, announced Minister of Agriculture Kobenan Kouassi Adjoumani in Abidjan on Tuesday. This marks a 50% payment hike compared to the main-crop season that recently concluded.Despite cocoa pricestripling over the past yeardue to disease and adverse weather causing a global market deficit, Ivory Coast’s official farmgate price had not reflected this surge until now.

The decision to increase cocoa prices comes shortly after cocoa farmers in Ivory Coast planned a protest in response to promises of a price hike from the country’s agriculture minister. Experts highlight the importance of reviewing cocoa farmgate prices, especially considering the significant loss of cocoa beans to neighboring Guinea through smuggling. Both Ivory Coast and Ghana, the world’s leading cocoa producers, have experienced a notable decrease in cocoa arrivals at ports due to factors like adverse weather, disease outbreaks, and smuggling activities. This has contributed to a global cocoa supply shortage over the past few years, leading to record-high cocoa prices reaching $10,000 per tonne on the world market. In its monthly Cocoa Market Report for February, the ICCO expressed concern about the unprecedented price surge and its potential implications for producers, companies, and consumers worldwide.

HAVAÍC leads $634,000 funding round in South Africa’s RNR

HAVAÍC, a prominent VC firm, has led a $634,000 follow-on investment round inRNR(Right Now Response), building upon its initial investment as the company’s inaugural institutional investor in February of the preceding year.RNR, based in South Africa, specializes in providing on-demand breakdown support to truck fleet managers and OEMs, leveraging its extensive nationwide network of vetted mechanics, electricians, and repair centers. Through its user-friendly app and web portal, RNR ensures breakdown visibility, offering live location tracing and tracking to swiftly assist drivers in getting back on the road.By swiftly mobilizing its nearby subcontractors, RNR not only enhances response times, mitigating costly towing and freight delays. With the newly acquired funding, it aims to expand its team and further extend its operations locally and across Southern Africa.

The “on-demand” economy is rapidly gaining traction across various sectors in Africa. This model, facilitated by technology platforms, allows for goods and services to be requested and delivered conveniently at the user’s preferred time and location. From transportation to food delivery, households and businesses are embracing the flexibility and convenience offered by on-demand services. Companies like Uber, Bolt, and Jumia Food have successfully penetrated African markets, disrupting traditional business models. However, the on-demand surge extends beyond ride-hailing and food delivery. Sectors like healthcare, home services, e-commerce, and even fleet management are also witnessing the rise of on-demand platforms, catering to the evolving needs of African consumers. This transition towards an on-demand economy underscores Africa’s potential for innovation and its adaptability to global digital trends.

Roam secures deal with Mogo to boost EV transition in Kenya

Roam, a Kenyan-based electric mobility company, has partnered with Mogo, an asset financier operating in East Africa, aimed at accelerating theadoption of electric motorcyclesin the region. Initially, this financing package will cater to riders in Nairobi.The collaboration not only facilitates the transition from conventional motorcycles toelectric onesbut also promises significant benefits for motorcycle riders, particularly boda boda operators, who are projected to increase their daily earnings by up to 30%.Positioning itself as the leading provider of electric motorcycles in Nairobi, Roam targets both individual boda boda riders and business-to-business (B2B) service providers. Under the deal, Mogo will extend financing options, requiring a deposit of KES 25,000 ($192) and daily repayments of KES 682 over 24 months. The package includes a motorcycle, battery, and charger, along with two helmets and vests, ensuring riders’ safety and convenience.

Despite facing numerous challenges such as weak electricity grids, inadequate charging infrastructure, and high acquisition costs, the momentum toward adopting electric vehicles (EVs) in Africa persists. Despite these obstacles, EV startups on the continent have been leading the charge in facilitating this gradual transition.For instance,BasiGohas been pioneering the introduction of commercial electric mass transport buses in Nairobi, Kenya’s capital, assisting operators in shifting toward more environmentally friendly transportation options. Meanwhile,Ampersand, headquartered in Rwanda, has been actively serving the burgeoning EV market, particularly in Rwanda and Kenya.

Adenia closes $470m Africa fund with US IDF, Norfund among backers

Adenia Partners, a private equity firm, has raised its largest Africa-focused fund to date, totaling $470 million. Notably, new investors such asNorfund AS, the US InternationalDevelopment Finance Corporation, and Canada’sFindev Inc. contributed to this fundraising milestone.Africa’s largest fund manager, thePublic Investment Corporation., which oversees around 2.6 trillion rand ($138 billion) in South African government-employee pension assets, has also backed the Adenia fund, alongside pension funds from Ghana and Kenya.This marksAdenia’s fifth fund, with Managing Director Alexis Caude highlighting an increase in the equity check size for targets to an average of about $40 million. This substantial fundraising underscores growing investor confidence in Africa’s private equity landscape and Adenia’s track record of success across the continent.

Adenia’s latest fundraising highlights the importance of international DFIs to the African private capital ecosystem, especially during a tougher market environment. According to research by the African Private Equity and Venture Capital Association (AVCA), the total value of African private capital fundraising in the first nine months of 2023 fell to $1.2 billion, a 40% decline compared to the year before. Along with this retreat in capital allocated to final closes, we saw a modest decline in the average fund size, and a concentration in fundraising, with the two large funds closed accounting for half of the total capital raised. Adenia focuses on buyout control. It takes majority stakes in more mature businesses that need more strategic and financial support to implement a growth plan.

Nigeria’s Dangote Refinery begins supply of diesel, aviation fuel

Dangote oilrefineryhas started supplying petroleum products, including diesel and aviation jet fuel, to the Nigerian domestic market, as reported by several local and international media.Abubakar Maigandi, the head of the Independent Petroleum Marketers Association of Nigeria, confirmed to Reuters that local oil marketers have set the price of diesel at N1,225 ($0.96) per litre after securing a bulk purchase agreement, which they will then augment with their mark-up.Situated on a peninsula near Lagos’s commercial hub, theDangote refinerystands as Africa’s most expansive refinery project, boasting a processing capacity of up to 650,000 barrels per day. It is led by Aliko Dangote, the continent’s wealthiest individual, with an investment exceeding $20 billion.

The Dangote refinery holds the promise of substantially diminishing Nigeria’s reliance on imported petroleum products. Despite being Africa’s most populous country and a top oil producer, Nigeria paradoxically imports the majority of its fuel. This anomaly is primarily attributed to the nation’s limited refining capabilities, a gap that the new refinery aims to bridge, heralding a transformative shift in the country’s energy landscape. Furthermore, a decision tolist the Refinery on the Nigerian Exchange Limited (NGX)is expected to draw a diverse range of investors, both from domestic and international markets. This listing is poised to enhance the liquidity of the Nigerian stock market and bolster its reputation as a prominent regional investment hub.

World’s biggest asset manager sees opportunity in Kenyan stocks

BlackRock Inc., the world’s largest asset manager, sees investment opportunities in Kenyan stocks, which have gone from the world’s worst performers in 2023 to thebest performersthis year. TheNairobi All-Sharestock index has surged by 48% when measured in dollars, rebounding from a 43% decline in 2023, where the index reached levels last seen in 2011.Emily Fletcher, co-manager of theBlackrock Frontiers Investment Trust, attributes this turnaround to changes in the country’s economic policy, emphasizingKenya’s significant shifts in both fiscal and monetary policy over the past two years.Despite facing criticism for soaring prices and increased taxes, President William Ruto’s government has seen inflation begin to decelerate, and the shilling has appreciated, making it the best-performing currency globally this year.Kenya’s bondshave also become more attractive as Ruto’s administration narrowed its fiscal deficit to about 4% of GDP and doubled its benchmark interest rate to 13% over the past two years.

Kenya stands out as a regional hub and production base for numerous companies, boasting East Africa’s largest brewer, mobile phone service provider, and banks listed on its bourse. The recent gains in the market have been predominantly driven by financial firms. Equity Group Holdings Plc, the nation’s leading lender by market value, has surged by 71% in dollar terms, while its competitor KCB Group Plc has seen a 64% jump. Safaricom Plc, Kenya’s largest mobile phone company, has also advanced by 55%. Remarkably, among the 63-member index, only one stock has experienced a decline this year. The index is currently trading at a price-to-earnings ratio of about 5.5x. In comparison, South African stocks are valued at 11.9x, and Nigerian stocks at 16.6x. South Africa’s benchmark stock index has recorded a 6.5% decline in dollar terms, while Nigeria’s remains relatively unchanged.

African startup funding declines in Q1 as VC downturn persists

A “funding winter”impacting African tech startups, mirroring trends globally, persists unabated as Q1 funding plummeted by over 50% to $310 million from $650 million in the same period last year.Initial hopes for a turnaround in investment in 2024 have been dashed by a disappointing Q1 performance, with funding amounting to just $310 million, a significant 52.3% decline from the $650 million raised by startups in Q1 of 2023, per data from Disrupt Africa. The rate of decline remained relatively consistent, with Q1 2023 funding decreasing by 57.2% compared to Q1 2022.The number of funded ventures in Q1 2024 marginally decreased compared to Q1 2023, dropping to 82 from 87. If funding levels persist at current rates, 2024 is poised to surpass 2023 in terms of declining funding for African tech ventures.

The optimism of the VC landscape in 2022 sharply contrasted with the sobering reality of 2023, as global funding plummeted by approximately half in the first half of the year. This significant downturn correlated with increases in interest rates, which had a chilling impact on fundraising activities. For every 1% increase in interest rates, there was a concerning 3.2% decline in VC capital. This tightening financial environment not only diminished the available pool of VC funds for startups but also rendered debt financing, a potential alternative, less feasible due to elevated borrowing expenses.

BRVM suspends trading of Solibra shares over regulatory non-compliance

Solibra, a subsidiary of theCastel Groupand a key player in the Ivorian FMCG sector for over sixty years, has seen its shares suspended from trading by theBRVM.The suspension, effective immediately for six months, comes as a result of the company’s alleged non-compliance with certain regulatory provisions, as stated in the BRVM’s press release. Local reports suggest that concerns over Solibra’s regulatory float and capital may have prompted this action.Active in the production and distribution of beer, as well as other alcoholic and non-alcoholic beverages, Solibra initiated a restructuring program in 2022. This program commenced with the termination of its contract withCoca-Colaand subsequently led to the sale of the AWA and Crystalline mineral water brands to theCarré d’Or Group.

Strict governance and oversight by the regional regulator, AMF UMOA (Autorité des Marchés Financiers de l’Union Monétaire Ouest Africaine), play a vital role in ensuring investor protections on the BRVM. Just three months ago, the regulator suspended trading of a listed firm,EVIOSYS Packaging SIEM(formerly Crown SIEM), due to non-compliance with listing rules, highlighting its commitment to transparency and compliance. Meanwhile, Solibra has recently seen a significant decline in financial performance. After achieving a net profit of 22.02 billion FCFA in 2021, profits sharply decreased to only 1.22 billion FCFA by the end of 2022, marking a substantial depreciation of 95%. However, there are indications of a reversal in this trend, as the company has demonstrated a notable improvement in results, with profits soaring by 251.1% to reach 11.07 billion FCFA by the end of June 2023.

Zimbabwe replaces dollar with new gold-backed currency ZiG

Zimbabwe has unveiled a new currency, the ZiG, replacing the battered dollar. The new currency is backed by a basket that includes foreign currencies,gold, and other precious metals, according to the new central bank Governor, John Mushayavanhu.Under the new currency system, banks are required to convert all their Zimbabwean dollar balances into ZiG. The denominations of the ZiG will be similar to those of other fiat currencies, with values such as ZW$1, ZW$2, ZW$5, ZW$10, and others.This transition comes as a replacement for the bond notes, which haveexperienced a significant declinesince 2019. The introduction of the ZiG aims to stabilize the currency and address the ongoing economic challenges faced by Zimbabwe. This move signifies Mushayavanhu’s first step in addressing one of the country’s longstanding crises.

Zimbabwe’s currency woes, spanning over two decades, trace back to the Black Friday of November 17, 1997. The crash of the Zimbabwe dollar, losing 72% of its value against the US dollar due to unbudgeted compensation to war veterans, triggered an enduring economic collapse. Despite attempts to revive the currency, including its official reintroduction in June 2019, confidence remained low. Previously abandoned in 2009 due to hyperinflation exceeding 500 billion percent, the Zimbabwe dollar’s recent reintroduction faced skepticism. The government mandated its use alongside a brief ban on foreign currency. However, widespread distrust, stemming from past economic turmoil, persists among businesses and the public, casting doubts on the currency’s sustainability.

Kenya plans to raise capital requirements for banks after Nigeria

Following the Central Bank of Nigeria’sheightening of minimum capital requirements for commercial banks, Kenya plans to bolster the capital requirements for its lenders. This move aims to address emerging risks in areas such as information communication technology and climate change.Despite boasting a robust financial sector and witnessing the expansion of its banks across the region over the past two decades, Kenya has observed some institutions facing pressure on their capital adequacy ratios in recent years.Kamau Thugge,Central Bank of Kenya Governor, highlighted the necessity of increasing the capital requirements for banks due to heightened risks, including those arising from climate change and cybersecurity. However, Thugge did not specify the potential size of the increment during a news conference.

Kenya’s central bank has expressed concerns about the escalating non-performing loans in the banking sector, which surged to 15.5% of total loans in February this year, up from 14.8% recorded at the end of last year. To address these challenges, a proposal to increase the capital requirements will be released for public discussion within the next month, by legal regulations. Individuals seeking to establish a bank are mandated to maintain a minimum capital of 1 billion shillings ($7.69 million). Existing banks are obliged to uphold a core capital of 10.5% to total risk-weighted assets and a total capital of 14.5% to risk-weighted assets. These measures are aimed at ensuring the stability and resilience of the banking sector amidst evolving economic conditions and emerging risks.

Ethiopia’s first-ever stock market records massive investor demand

TheEthiopian Securities Exchange(ESX) has reported overwhelming demand for its shares, with bids exceeding twice the amount offered to investors. Chief Executive Officer Tilahun Kassahun revealed that investors submitted bids totaling more than 1.51 billion birr ($26.6 million), surpassing the firm’s target of 631 million birr.Established in October 2023, ESX is poised to become Ethiopia’s inaugural fully-fledged securities market. It is backed by an investment arm of the Ethiopian government as its founding shareholder. The exchange commenced its operations in November 2023 with roadshows held in Addis Ababa, Nairobi, and London and hasissued licensing directives to operators.Among the 48 investors who participated in the capital raise are Ethiopia’s investment holding company,FSD Africa, theNigerian Exchange Group(NGX),Trade and Development Bank, 16 domestic banks, and 12 insurance companies. The public sector will retain a 25% stake in the bourse’s shareholding, with private shareholders holding the remaining 75%.

The heightened investor interest in the Ethiopian Securities Exchange (ESX) is fueled by Ethiopia’s intentions to privatize either fully or partially some of its state-owned enterprises, aligning with its broader efforts to liberalize the economy and attract foreign investments. The country’s ongoing market reforms, exemplified by Safaricom’s establishment of its inaugural subsidiary outside of Kenya within Ethiopia, have drawn the attention of both local and foreign investors. However, these reforms have faced challenges stemming from apprehensions regarding Ethiopia’s macroeconomic stability amid significant security issues. Despite these concerns, Ethiopia’s commitment to economic transformation and opening up its markets continues to generate optimism and interest among investors.

This material has been presented for informational and educational purposes only. The views expressed in the articles above are generalized and may not be appropriate for all investors. The information contained in this article should not be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product. There is no guarantee that past performance will recur or result in a positive outcome. Carefully consider your financial situation, including investment objective, time horizon, risk tolerance, and fees prior to making any investment decisions. No level of diversification or asset allocation can ensure profits or guarantee against losses. Articles do not reflect the views of DABA ADVISORS LLC and do not provide investment advice to Daba’s clients. Daba is not engaged in rendering tax, legal or accounting advice. Please consult a qualified professional for this type of service.