Weekly Investor Update (April-WeekThree-2024)

14 min Read April 19, 2024 at 5:00 PM UTC

Monday

Nigeria’s inflation rose 33.2% in March despite currency gains

Despite the naira’s recent strength, Nigeria’s inflation has surged to a 28-year high, surpassing analysts’ expectations. The National Bureau of Statistics reported a 33.2% annual increase in consumer prices in March, up from31.7% in February.This unexpected rise contrasts with predictions based on thenaira’s robust performance, which has made it the top-performing currency in April so far. Despite recent interest rate hikes aimed at curbing inflation, including a 600 basis points increase in March, headline inflation continues to rise.Food prices, in particular, remain a significant driver, with food inflation accelerating to 40.01%. These developments underscore the persistent challenges facing Nigeria’s economy, despite efforts to address them through monetary policy adjustments.

The Central Bank’s decision to raise interest rates to 24.75% in March signaled a strong commitment to addressing inflation, a move that is now yielding promising results. Recent data released by the regulator indicates a significant increase in foreign inflows, reaching $2.3 billion in February. This rise is attributed to renewed interest from foreign investors and an uptick in overseas remittances. Impressively, this first-quarter figure for 2024 exceeded the total received throughout 2023, signaling growing confidence in Nigeria’s economic prospects amid efforts to stabilize the financial landscape. Regarding inflation, Central Bank Governor Olayemi Cardoso expressed optimism that prices would moderate by May, coinciding with the next monetary policy meeting.

SocGen to sell Morocco banking, insurance units for nearly $800m

Societe Generale has inked a deal to offload its 57.67% stake in Société Générale Marocaine de Banques, along with its subsidiaries, to private investorSaham Group.Sogecap, the group’s insurance arm, will also divest its interests inLa Marocaine Vie.This move aligns with Societe Generale’sbroader roadmapoutlined in September 2023, aimed at streamlining operations, enhancing synergy, and fortifying the Group’s capital base. In December, we reported that it wouldsell its subsidiaries in Burkina Faso and Mozambiqueto the pan-African banking groupVista Group.Valued at €745 million ($792 million), the transaction is anticipated to bolster the Group’s Common Equity Tier 1 (CET1) ratio by around 15 basis points upon completion, slated for the end of 2024.

Societe Generale’s divestment in several African businesses, alongside previous sales in countries like Congo Brazzaville, Equatorial Guinea, Mauritania, and Chad, underscores a broader strategic shift in its operational focus under CEO Slawomir Krupa’s leadership. This decision aligns with the bank’s goal of optimizing capital allocation. Societe Generale’s move reflects a wider trend among European banks, with Barclays, Standard Chartered, and BNP Paribas also reducing their presence in Africa. Barclays’ exit from South African bank Absa after nearly a century, Standard Chartered’s withdrawal from five African nations, and BNP Paribas’ gradual retreat from sub-Saharan Africa all signal a reevaluation of priorities and a shift towards more strategic market allocations.

Kenya’s Pula gets $20m Series B to offer insurance to African farmers

Pula, an insurtech startup based in Kenya, has raised $20 million in a Series B funding round led by global investment managerBlueOrchardthrough itsInsuResiliencestrategy, with participation from the IFC’s $225 million venture capital platform, theBill & Melinda Gates Foundation,Hesabu Capital, and existing investors.Founded in 2015, Pula provides small-scale farmers with access to agricultural insurance. By offering protection against losses stemming from pests, diseases, and extreme weather conditions, the startup aims to bolster the resilience of farmers in the face of unpredictable agricultural challenges.Pula operates across 22 countries, leveraging a network of over 100 partners to reach farmers. Through its digital actuary platform, which analyzes historical data such as weather patterns, Pula embeds insurance offers into farm input costs or credit, eliminating the need for direct insurance sales to farmers. The recent investment will fuel its plan to extend insurance coverage to 100 million smallholder farmers.

Agricultural insurance plays a pivotal role in emerging markets like Africa, where small-scale farmers play a significant role in food production but face numerous challenges in accessing insurance coverage. Despite their crucial contribution to the food supply, only a small fraction of these farmers, approximately 1%, have access to agricultural insurance. Barriers such as high costs, limited awareness, and lack of access further exacerbate the situation. Research conducted by Pula in various African countries where it operates has highlighted the transformative impact of agricultural insurance on smallholder farmers. On average, farmers who are covered by agricultural insurance have been able to increase their investment in their farms by 16%, leading to a substantial improvement in yields by 56%. Additionally, access to insurance has enabled these farmers to bolster their household savings by up to 170%, providing them with a much-needed financial safety net against agricultural risks and uncertainties.

Citi sees gold hitting $3,000 as investors seek hedge amid uncertainty

Gold is expected to surge to $3,000 per ounce over the next six to 18 months, driven by increasing investor inflows and anticipation of potential interest rate cuts by the Federal Reserve, Citigroup Inc. forecasts. This bullish projection joins a chorus of Wall Street banks that have revised their forecasts upward.On Monday,gold pricesachieved another record close, with the most-active June contract settling at $2,383 per ounce, marking a 0.37% increase. By 1 p.m. Singapore time on Tuesday, prices had risen further to $2,387 per ounce, suggesting sustained bullish sentiment.Analysts, led by Aakash Doshi, have revised their estimates, anticipating an average price of $2,350 for 2024 and a significant upward adjustment of 40% for their 2025 prediction to $2,875 per ounce. They expect trading to regularly challenge and surpass the $2,500 mark in the second half of the year, reflecting growing confidence in gold’s potential for further price appreciation.

Gold, renowned for its value as a hedge against inflation, typically thrives during periods of economic uncertainty when investors seek refuge from riskier assets like equities. Amidst escalating tensions in the Middle East, triggered by Iran’s launch of over 300 drones and missiles toward Israel (most of which were intercepted by Israel’s Iron Dome air defense system), demand for the safe-haven asset surged. Furthermore, gold prices often exhibit an inverse relationship with interest rates. As interest rates decline, gold becomes more attractive compared to fixed-income assets such as bonds, which offer lower returns. This relationship adds to gold’s appeal, particularly in environments of falling interest rates. Last Friday, bullion prices soared to an all-time high of $2,448.80 per ounce intraday, underlining the heightened demand for gold amidst geopolitical uncertainties and declining interest rates.

Africa sees sharpest decline in private capital deals since 2012

Amidst a backdrop of uncertainty, volatile market conditions presented significant obstacles and ramifications for deal-making on a global scale, inevitably influencing the course of private investments.In particular, the year 2023 witnessed a downturn in global private capital investment activity, characterized by a 35% decrease in deal volume and a 22% decline in deal value.Africa was not immune to these challenges. Fueled by the negative global spillovers, the continent saw its first decline in deal volume since 2016, marking the sharpest drop in 12 years with a 28% year-over-year decrease while total deal value fell 22% to $5.9 billion.

In 2023, persistent economic uncertainty loomed over private capital activity in Africa, extending the challenges encountered in the previous year. Despite navigating the economic headwinds of 2022 with limited success, Africa’s private capital landscape faced yet another demanding year, impacting deal-making across the continent. Inflation emerged as a significant concern in Africa, reaching an average of 17.8% in 2023, the highest recorded in over a decade. This upward trend was driven by global factors such as increased food and energy prices, compounded by domestic issues including fiscal challenges, disruptions in agricultural supply chains, and depreciation of national currencies against the US dollar.

BOA Mali rewards shareholders with $4.6m after 135% profit jump

BOA Malishareholders are set to receive long-awaited rewards after the subsidiary of the BOA group saw a remarkable134.84% surge in profit, reaching 5.78 billion FCFA ($9.4 million) in 2023.In response to this impressive performance, theBRVM-listed bank has decided to allocate a generous dividend of 2.84 billion FCFA to its shareholders.This allocation, representing a distribution rate of 49%, translates to a net dividend per share of 144 FCFA after the deduction of a 7% tax on Securities Income (IRVM). Considering the share price on April 5, 2024, at 1,595 FCFA, the dividend yield stands at an attractive 9.03%.

The underlying trend in BOA Mali shares is currently upward, with the stock experiencing a 10% gain in the month leading up to April 8, rising from 1,300 FCFA to 1,595 FCFA at the close of April 5, 2024. It’s noteworthy that the stock reached its highest price in one year, with its Relative Strength Index (RSI) indicating a neutral zone at 57.80%. Overall, shareholders may view these developments optimistically, considering BOAM’s strong performance in both the short term and year-to-date.

South Africa inflation slows more than expected in March

Inflation in South Africa declined to a two-month low in March, yet this is unlikely to prompt policymakers to reduce borrowing costs due to expectations of a short-lived decrease attributed to rising oil prices.Statistics South Africa, based in Pretoria, reported a 5.3% year-on-year increase inconsumer prices for March, down from 5.6% in February. This figure aligns closely with the median estimate of 5.4% from an 18-economist Bloomberg survey, while analysts surveyed by Reuters made similar forecasts.Despite slowing inflation, theSouth African Reserve Bank(SARB) opted to maintain its main interest rate at 8.25% last month. The bank justified its decision by highlighting the need for a restrictive policy stance to address elevated inflation expectations.

Inflation, characterized by the persistent rise in prices of goods and services over time, has become a pressing issue for many countries globally, including those in Africa, over the past year. Its effects can be diverse and multifaceted, ultimately eroding the purchasing power of individuals, influencing economic dynamics, and presenting challenges for governmental authorities. SARB Governor Lesetja Kganyago recently indicated in April that policymakers in South Africa are considering adjustments to the bank’s current inflation target range. Presently set between 3% and 6%, discussions aim to align the target more closely with international standards and practices observed by peer institutions.

Clean cooking-focused Africa fund reaches second, third close

Spark+ has completed the second and third closings of theSpark+ Africa Fund, an impact debt fund designed to boostclean cooking in sub-Saharan Africa. The latest close resulted in current Assets Under Management (AUM) of $64 million.During the fund’s second closing in July 2022, theEuropean Commissionparticipated by investing in the catalytic tranche through a collaboration withIFU, the development finance institution of Denmark, which also acted as the first closing investor.In the subsequent third closing in September 2023, the US InternationalDevelopment Finance Corporation(DFC), the development finance institution of the United States, contributed to the senior debt tranche.

Traditional fuels like wood and charcoal present considerable environmental challenges, including significant contributions to carbon emissions and deforestation. Compared to LPG (liquefied petroleum gas), charcoal and wood have carbon footprints that are 50% and 74% larger, respectively. Moreover, up to 30% of global deforestation is attributed to charcoal production alone. Embracing clean cooking solutions is crucial for addressing these issues, and tackling some of the most significant sources of emissions, pollution, and deforestation in the developing world. Transitioning to clean cooking solutions, such as LPG, can have a transformative impact on both household well-being and broader societal welfare. Beyond reducing health risks associated with indoor air pollution, clean cooking solutions also offer the added benefit of saving valuable time for households each week.

Decline in Orange CI stock forces BRVM pullback after bullish run

Following a 0.37% increase to 219.15 points the previous day, theBRVMComposite index experienced a downturn, falling by 0.51% to 218.03 points on Tuesday. This decline was primarily driven by a prevalence of 18 stocks in decline compared to 7 increases.Orange Cl(-1.36% to 10,850 FCFA) andSitab(-7.50% to 6,290 FCFA) were key contributors to this retreat. Similarly, the BRVM 30 (110.04 points) and BRVM Prestige (102.33 points) indices also saw declines, dropping by 0.37% and 0.34% respectively.Among the worst-performing stocks at the end of the trading session were Sitab, SAPH (-7.34% at 2,020 FCFA), andSucrivoire(-4.35% at 440 FCFA). Conversely, the top performers includedNei-ceda(+2.33% to 660 FCFA),Vivo Energy(+1.96% to 780 FCFA), andBOA Bénin.

On Monday, the BRVM Composite index surged by 0.37% to reach 219.15 points, a level not seen in nearly two years. Similarly, the BRVM 30 index improved by 0.49% to 110.45 points, while the BRVM Prestige experienced a slight depreciation of 0.19% to 102.68 points.As trading continued on Tuesday, the volume of transactions totaled 294.21 million FCFA, involving the exchange of 114,885 securities. The majority of trading activity was observed on BOA Niger, accounting for 61.53 million FCFA, which represented 20.92% of the total volume transacted. This was followed by BOA BF with 34.20 million FCFA and Onatel with 25.13 million FCFA.

Regional central bank BCEAO more than doubles profit to $513m in 2023

In 2023, the BCEAO, the central bank of the WAEMU states, reported a significant increase in net profit, reaching 315.6 billion FCFA ($513 million), marking a surge of 152% compared to the net profit of 125.3 billion FCFA recorded in 2022.Theapex bankperformance can be attributed to the favorable direction of income generated by the institution. Total net income grew 64% to reach 549.9 billion FCFA, primarily driven by a substantial rise in interest income, which more than doubled (+124%).However, revenues from foreign exchange operations witnessed a decline of 49%. Conversely, operating expenses saw a moderate increase of 11%, capping an impressive performance for theWAEMUbank.

The central bank’s robust financial results come as no surprise, as banks typically thrive in high-interest rate environments. However, beyond this, the positive outcomes reflect broader monetary stability within the subregion, supported by a pegged currency although an increasingly stronger US dollar impacted foreign exchange earnings. The West African Economic and Monetary Union (UEMOA), comprising Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo, benefits from the stability provided by the CFA Franc, which is pegged to the euro. This arrangement fosters monetary cohesion and facilitates cross-border trade and investment within the region.

Kenya to issue Africa’s first sustainability-linked bond worth $500m

TheWorld Bankis assisting Kenya in issuing Africa’s inaugural sustainability-linked bond by the year’s end, as the East African nation diversifies its external funding channels.Projected to amount to $500 million, this bond will incorporate pre-established sustainability performance targets. Isfandyar Zaman Khan, the lead financial sector specialist at the World Bank Kenya, indicated that the bond issuance is slated for November.Kenya is poised to become the pioneering African sovereign to introduce a sustainability-linked bond (SLB). The proceeds from this issuance are earmarked to address the country’s budget deficit.Meanwhile, last October, Egypt issued theMENA’s first panda bondsof the same size.

This initiative underscores Kenya’s commitment to sustainable financing and marks a significant milestone in Africa’s evolving financial landscape. Following in the footsteps of Chile, which raised $2 billion last year, and Uruguay, the Democratic Republic of Congo is considering the issuance of a sustainability-linked bond, mirroring Kenya’s endeavor to broaden its funding base.Apart from the sustainability-linked bond initiative, Kenya intends to expand its funding options through the issuance of other bonds, including the Japanese Samurai bond and the Chinesepanda bond. The East African nation will also secure an IMF loan. These funds will be utilized to repurchase a portion of the 2014 Eurobond, which is due to mature in June of this year.

Folklore Group secures $3.4m to scale fashion e-commerce platform

The Folklore has secured $3.4 million in seed funding to facilitate the expansion of its business-to-business (B2B) wholesale platform. The funding round was led by venture capital firmBenchstrength, with participation from existing investors such asTechstars,Black Tech Nation Ventures, andSlauson & Co.Founded by Amira Rasool in 2018,The Folkloreinitially operated as an e-commerce retailer with the primary objective of creating economic opportunities for African fashion designers. Over time, the company has broadened its scope to encompass marginalized communities globally.The transition to a B2B wholesale platform marks a strategic pivot for The Folklore, enabling the introduction of a diverse array of new services. These include The Folklore Source, The Folklore Capital, and The Folklore Hub, which collectively enhance the company’s ability to foster growth within the fashion industry.

Startups focused on African fashion are tapping into a growing global demand for African designer goods, riding on e-commerce. Africa’s e-commerce opportunity is estimated to be $19.8 billion, and in terms of general e-commerce activities on the continent, McKinsey & Company estimates consumer spending to reach $2.1 trillion by 2025. That presents an opportunity for startups to promote African fashion globally, especially with consumers increasingly switching to online shopping amid the raging Covid-19 pandemic.

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.