A traditional, informal means of saving, stokvel investment societies continue to bind communities in South Africa and is a multi-billion dollar industry. Their capital is trust, and their currency a central fund that spawns new opportunities.

In this house in Centurion in Johannesburg on a winter afternoon, there’s song, food, camaraderie and joy. And one common component that binds the women: stokvels.
For most South Africans honoring the traditional mode, this is the word synonymous with savings schemes that they have come to trust over generations.
And like this meet we are witness to today, it stands for a union in which a group of people who know and trust each other enter into an agreement to contribute a fixed amount of money towards a common pool.
The group of people we are meeting are the Akanani Sisters, stokvel members who occasionally come together, bantering over a hot meal and listening to music.
“The whole purpose of the stokvel is so that we may come together as ladies and mothers made of different age groups, so we may build and advise one another on life matters. It is not just about collecting money, we cry and laugh together,” says Bahedile Mooke, one of the members.
Stokvels, the traditional South African savings scheme with 11.5 million members in 810,000 groups contributing R50 billion ($3.76 billion) annually to the economy, is often overlooked.
“If you speak of something that is outside of that framework, then that is something else,” says Mizi Mtshali, the Chief Executive Officer of the National Stokvel Association of South Africa (NASASA).
The Akanani Sisters stokvel was formed in 2015 by three family members who gathered on a monthly basis. The group, however, is not registered with NASASA and does not save their money through financial institutions. However, they are looking at registering with NASASA as a precautionary step.
<img loading="lazy" decoding="async" class="aligncenter wp-image-37025 size-large" src="https://www.forbesafrica.com/wp-content/uploads/2018/08/Stokvel-958-683x1024.jpg" alt="" width="683" height="1024" srcset="https://cms.forbesafrica.com/wp-content/uploads/2018/08/Stokvel-958-683x1024.jpg 683w, https://cms.forbesafrica.com/wp-content/uploads/2018/08/Stokvel-958-300x450.jpg 300w, https://cms.forbesafrica.com/wp-content/uploads/2018/08/Stokvel-958-600x900.jpg 600w, https://cms.forbesafrica.com/wp-content/uploads/2018/08/Stokvel-958-200x300.jpg 200w, https://cms.forbesafrica.com/wp-content/uploads/2018/08/Stokvel-958-768x1151.jpg 768w, https://cms.forbesafrica.com/wp-content/uploads/2018/08/Stokvel-958.jpg 1366w" sizes="(max-width: 683px) 100vw, 683px" />
<blockquote>“We got tired of meeting only when there were funerals, so we decided to start a small stokvel even if it was just for groceries,” says Sibongile Motsoeneng, treasurer of the Akanani Sisters.</blockquote>
This afternoon, they are six professionals from Johannesburg who are close friends.
“Society forces you to always put money aside – I don’t play around when money has to be paid, because we all want to be happy at the same time,” says Motsoeneng.
The monthly premium for the stokvel is R1,300 ($98) for which R500 ($37.6) is set aside towards groceries and rest distributed among the members at the end of each year.
“Our groceries are not like other stokvels, where you see them buy maize meal in large quantities. We buy groceries as per our personalized everyday needs. So the grocery would last us for about six months and one would just add on meat and other small things on a monthly basis,” says Motsoeneng.
In addition to their stokvel, they contribute a R300 ($22.5) towards each other’s birthdays for buying presents, and R2,000 ($151) for their occasional weekend holiday trips.
Nonzolo Soldati, the chairperson of the stokvel, says they drew up a constitution which dictates the size of the contributions, when the accumulated money is to be paid out, and the roles and responsibilities of the members that have to be abided by.
“If you fail to pay your monthly premiums for more than three months, that would mean you forfeit your portion of your groceries and savings at the end of the year. Also, if you fail to attend the monthly gatherings, you are fined R50 ($3.76),” says Soldati.
“We used to deposit the money in the bank, but now we no longer do so because of the exorbitant bank charges,” says Soldati.
Through these stokvels, the members’ lives have changed, as they are not unduly stressed by financial woes come January. Their finances are in order and they also don’t feel the pinch of food price hikes through the year.
Apart from the groceries they purchased last year, they each saved R17,000 ($1,280), which is nothing unusual, according to Mtshali.
<blockquote>“On average in South Africa, a stokvel consists of 20 participants and they can save [as much] R50,000 ($3,765),” says Mtshali.</blockquote>
Investing in stokvels is not without risk however. Unlike the formal financial institutions, the only security members can bank on is trust. As a result of its unregulated nature, fraud in stokvels is common.
Ask one of the Akanani Sisters members, Bongiwe Mncube, who lost all her money. She was scammed in a burial society in Kempton Park.
“We lost two people [to death] in our community in the space of two months. That is when we realized that all the money we were ‘putting away’ was not there,” says Mncube.
They were able to pay for the burial of the first bereavement, but when it came to the second, they were scraping for funds.
“We last knew that we had money, but when we went to check the bank statement, we were surprised to find out that money was not being deposited for a couple of months. So I walked away because I had no leg to stand on,” says Mncube.
Mtshali says such stories are the reason why stokvel associations must register with NASASA so they can check the legitimacy of such societies. So, should the unthinkable happen one day, the participant is able to press criminal charges.
The word stokvels is believed to have originated from the term ‘stock fair’ used to describe auctions run by English settlers in the 19th century, but as the industry is becoming the leading form of savings and investment in South Africa, it is referred to in multiple ways, such as social clubs, gooi-goois, investment clubs, kuholisana, and makgotlas. The stokvels available vary according to the needs of the members.
“As much as there are holiday stokvels and property, social and party clubs, but grocery, burial society and saving clubs are still the most dominant,” says Mtshali.
Ponzi schemes and pyramid schemes have also camouflaged as stokvels.
“What has happened over the years is that a lot of operators have started abusing the word stokvels…They use that word to attract customers for whatever product they are looking to sell,” says Mtshali.
While stokvels may seem like an informal way of making money, it is serious business. Members do their homework, deliberate about which companies to invest in and make investment decisions. And the best part about it is knowing there may be a financial windfall one day. It’s cash that is built on trust and binds communities.
<h3>Stokvel Homes?</h3>
<div id="attachment_37023" style="width: 210px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-37023" class="size-medium wp-image-37023" src="https://www.forbesafrica.com/wp-content/uploads/2018/08/Nicholas-261-200x300.jpg" alt="" width="200" height="300" srcset="https://cms.forbesafrica.com/wp-content/uploads/2018/08/Nicholas-261-200x300.jpg 200w, https://cms.forbesafrica.com/wp-content/uploads/2018/08/Nicholas-261-300x450.jpg 300w, https://cms.forbesafrica.com/wp-content/uploads/2018/08/Nicholas-261-600x900.jpg 600w, https://cms.forbesafrica.com/wp-content/uploads/2018/08/Nicholas-261-768x1151.jpg 768w, https://cms.forbesafrica.com/wp-content/uploads/2018/08/Nicholas-261-683x1024.jpg 683w, https://cms.forbesafrica.com/wp-content/uploads/2018/08/Nicholas-261.jpg 1366w" sizes="(max-width: 200px) 100vw, 200px" />Nicolas Manyike</div>
Nicolas Manyike’s property stokvel leads to new investment opportunities.
Land ownership is a burning topic in South Africa, which is why publicist and businessman Nicolas Manyike founded Property Stokvel Investment, a stokvel that aims to buy and rent out properties, encouraging black people to be property owners.
Manyike, who grew up poor in the Mpumalanga province of South Africa, watched his mother struggle with accommodation, yet she was a member of various grocery stokvels.
“My mother was in a lot of grocery stokvels and we would eat up all the food, then the struggle would continue. So I always thought ‘how about we use the same concept but for something that has long-term benefits for us as a black community’,” says Manyike.
He decided to rework the stokvel model to have long-term benefits.
“We need to shift our mind-set around stokvels,” he says.
He worked on his idea, through drafting the constitution and coming up with the two phases that will create the members enough capital to be able to purchase land.
“The first phase is to get 100 members that would contribute R2,100 ($158). The R100 (7.52) is for administration purposes. So that we could accumulate R1 million ($75,300) in 10 months that we will use to purchase property, or a franchise that will create profit for the members,” says Manyike.
It is only in the second phase that individual property will be bought for each member.
Manyiko says that ownership of the house will be registered in the stokvel’s name until all participants are house-holders within two years.
Property Stokvel Investment currently has over 80 members and is not registered with NASASA. Manyike believes stokvels do not need to be registered as they are self-regulating.
“All stokvels in South Africa are self-regulated. NASASA is more focused on grocery stokvels. We are bound by our constitution,” he says.
“We are banking with Nedbank as a club account and we have a committee, once we have a 100 members we will increase the number of people in the committee,” says Manyike.
Purchasing property in South Africa is a struggle due to increasing home loans and interest. Could stokvels be the future of acquiring property?
<h3>Download A Stokvel</h3>
<div id="attachment_37024" style="width: 310px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-37024" class="size-medium wp-image-37024" src="https://www.forbesafrica.com/wp-content/uploads/2018/08/Stokfella-129-300x200.jpg" alt="" width="300" height="200" srcset="https://cms.forbesafrica.com/wp-content/uploads/2018/08/Stokfella-129-300x200.jpg 300w, https://cms.forbesafrica.com/wp-content/uploads/2018/08/Stokfella-129-600x400.jpg 600w, https://cms.forbesafrica.com/wp-content/uploads/2018/08/Stokfella-129-768x512.jpg 768w, https://cms.forbesafrica.com/wp-content/uploads/2018/08/Stokfella-129-1024x683.jpg 1024w, https://cms.forbesafrica.com/wp-content/uploads/2018/08/Stokfella-129.jpg 2048w" sizes="(max-width: 300px) 100vw, 300px" />Tshepo Moloi</div>
Tshepho Moloi says he has championed the future of stokvels.
Imagine being a stokvel member and never having to meet? Well, that is what the future of stokvels looks like based on an app designed by Tshepho Moloi, the founder of StokFella.
“Most businesses are bought out of frustration of people saying that we could do better. I wanted to start an investment stokvel but the administration behind it was a bit of a headache,” says Moloi.
Moloi went home to Soweto, where he grew up, and observed a burial stokvel that was in existence for two years and had developed into an investment and grocery stokvel.
“I found out that the common problem is maladministration… So that is how the birth of StokFella came about,” he says.
StokFella, is a smartphone-based app that seeks to help stokvels organize, manage, communicate and be more efficient in growing their wealth.
“By doing that, it gives them access to economic opportunities. So they grow from point A to point B,” Moloi says.
In just two years, the app has 5,000 active members and is user-friendly for all age groups and LSMs.
“When stokvels want to be endorsed by us, they need to come to our offices so that we may conduct due diligence on them. However, those that just want to use the app could just download it,” says Moloi.
The main challenge StokFella faced during its initial stages was with the paperwork of regulatory laws and reaching the right market.
“But I am happy to have championed the future of stokvels. Honestly, it is not a unique solution but our implementation is how we have been able to get far,” he says.
“If 10 years from now, we still have a R49 billion ($3.69 billion) industry, then we have not done our job!” says Moloi.
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Stokvel-943

The Social Capital of Stokvels

As soon as I graduated from university there was an invitation from the managing director of a top Nigerian engineering company to join the organization. There I learned the business of construction and after four years of strategic support work I left to start my own building engineering service firm with a partner. It looked easy!
In Nigeria, starting a new enterprise seems like a piece of a cake and it’s very convenient for people to suggest you should “start something on your own”.  Lagos, where I live, has an annual government revenue one of around $1 billion. With this kind of cash seemingly flowing through the streets, it is assumed it is easy to finance one’s start-up.
My partner and I started our business with our tiny fund – around $320 – and within a few months, had invested most of it on marketing. We didn’t have a car to drive around Lagos so we used taxis to get to meetings. We pushed on until we eventually landed a construction site deal. This process taught us how unsupportive financial institutions in our part of the world can be.
The average entrepreneur in Africa finds it difficult to get their idea to market because of ridiculous interest bearing loans. As we began to talk to our banker for financial support, it became clear that the banking sector was not going to be of much help. We did not have a property, in a choice part of the city, to guarantee the loan which in itself attracts over 20% interest.
With time running out, and needing to get our workers and equipment to site, we resorted to a desperate measure. Desperate people do desperate things. In this case it was a ship sinking decision for us. A private investor offered us a short-term loan with a monthly interest of 15%. We assumed all would work out; we had millions to get people and equipment to site, and substantial work could be done to impress our client. Within 30 days, we would be paid and refund our creditor. It was unrealistic.
In an environment where uncertainty is high, relative to other part of the world, such a straight-line strategy requires many back-up plans. Our company defaulted and the loan extended to a third month, with an accumulated interest of 45% on every million naira. We defaulted because our client delayed payment. He couldn’t pay us because his funds were not released. That circle of failure is the undoing of many businesses.
In a society where moneylenders and investors place an emphasis on the reputation of an entrepreneur, one needs to have a plan to protect this. The harshness of the African business environment triggers desperation and keep entrepreneurs focusing on short-term plans. This needs to change; the longer a business’s plans are considered, the better it will be. There are other strategies that work with raising fund. In south-western Nigeria, Yoruba parlance says that “it is from home that treasures are taken out”. The interpretation is that success begins at home.
Many business owners that I have had the opportunity to talk to use their relationship with family and friends to raise funds, equipment and other resources. The benefit of this is that family is more willing to forgive you and this type of loan usually comes without interest. However, this strategy is limited on a continent where around 70% live below the poverty line.
This provides a huge opportunity for capital ventures and angel investors. It provides opportunities to bridge the poverty gap and create wealth on a continent that is thought to be the next global investment destination. To truly realise this opportunity, the purse of an entrepreneur shouldn’t be bullied.

Desperate People Do Desperate Things

The Kigali City Tower (KCT) in Rwanda’s bustling central business district is a shining example of the country’s rise from the ashes of conflict, the tragedy that killed 800,000 in the genocide against the Tutsi 22 years ago.
The elevators of the high-rise KCT are busy, going up and down without respite as the day progresses.
On the first floor, they open to the Rwanda Stock Exchange (RSE), which on any given day is a hive of activity: young men and women in red blazers indulging in light banter on the trading floor, still using marker pens and dusters on the white boards in front of the reception area.
But this stock exchange of seven staff members is on its way to becoming fully-electronic.
“By the end of the year or even before that,” says the RSE’s Chief Executive Officer, Pierre Celestin Rwabukumba, a Rwandan national, seated in one of the glass offices to the left of the reception.
At 42, Rwabukumba is perhaps one of the youngest stock exchange heads on the continent, but it does not take too long to know this is a man on a mission to contribute to the economic development of the country he came home to 12 years ago after a stint on Wall Street in the United States.
An economics graduate from the University of Buffalo in New York, he decided to return home to develop industry in his own country.
“I decided to chip in,” says Rwabukumba, simply.
And he wears many hats. Also Chairman of the East African Securities Exchanges Association, he is Co-Founder and Chairman of the Kigali Cement Company, which produces, markets and sells cement in Rwanda and neighboring countries. He is involved in investment projects ranging from real estate, poultry and agro-processing to energy.
Yet, when the RSE was incorporated in 2007, in a small office on the fifth floor of the Ecobank building, Rwabukumba was the only employee – all he had was a blank paper and a desk to start with.
“I did everything myself, I was running the whole thing,” he chuckles.
The RSE was officially launched in January 2011 when it moved to its current premises and started with four listed companies. Currently, it has seven (three local companies and four cross-listed from the region) including Bralirwa, Bank of Kigali, KCB Bank, Nation Media Group, Uchumi Supermarket, Equity Group Holdings and Crystal Telecom.
The RSE has a market capitalization of $3.6 billion. The Nairobi Stock Exchange, the biggest in the East African region, sits at $21.24 billion.
“We are small and efficient,” says Rwabukumba.
“We are young, flexible and that makes us different. We try to be as innovative and tech-savvy as possible… We have had a lot of milestones; there is a lot to be proud of.”
The RSE operates in financial markets, corporate finance, investment analysis and portfolio management, international finance and business laws. It aims to lead Rwanda to become a regional financial center.
Robert Mathu, Executive Director of Rwanda’s Capital Market Authority (CMA), echoes Rwabukumba’s optimism.
“Rwanda is a very young economy compared to the rest of East Africa. We had to start from scratch 22 years ago. The country has registered consistently high economic growth,” he says.
In addition to the stock exchange’s efforts, CMA is promoting the capital market by creating awareness among the public, also motivating institutional reforms and development.
Mathu says the services industry is Rwanda’s next avenue of growth, those like financial services, logistics, tourism and ICT.
“It is the plan of Rwanda to use the wider East African market as a platform to access long-term capital and diversify economic growth into the area of services, away from the traditional areas like agriculture,” he says.
“We need to develop skills capacity, but we have a long-term plan and are in the process of developing a master plan.”
And this fits in nicely with Rwanda’s own overall master plan.

‘Small And Efficient’

It’s a familiar scene on a hot day in Accra, the capital of Ghana. The alleys are packed with women, carrying children on their backs, selling vegetables and fake Louis Vuitton bags while men sell anything they can get their hands on. Here, you could be sold a drug that could kill you.
The danger is counterfeit drugs that masquerade as healers but threaten to do the opposite.
Victoria Amponsah claims fake drugs almost robbed her of her unborn child like a thief in the night. The day she was diagnosed with malaria she also learned she was two months pregnant. She went to the nearest pharmacy, in Accra, and bought prescribed anti-malarial drugs she thought would save her and her child.
“That evening, I took the medicine. After about two to three hours, I started shaking and vomiting. I felt weak. I called a cotenant and showed her the drug and she said ‘I know this drug, its ok’. But when she [took out the pills from the box] she said ‘this is not the drug that is supposed to be in this box,’” Amponsah told the NGO, United States Pharmacopeia (USP).
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<div id="attachment_5209" style="width: 310px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-5209" class="size-medium wp-image-5209" src="/wp-content/uploads/2017/05/Bright_Pharmacy_Lonart_Phone_2015_hi-res-300x200.jpg" alt="" width="300" height="200" />Bright B. Simons is the brain behind mPedigree, a technology that&#8217;s used to counter counterfeiting of pharmaceutical products, wax prints and other products that are prone to piracy. Accra, Ghana.</div>
She was rushed to the hospital where a doctor confirmed the drug she took was fake. She managed to complete her pregnancy, but this was not the end of her struggle.
Near the end of her pregnancy, she almost died from a fake version of oxytocin, disguised in convincing packaging. Within 30 minutes of administration, Amponsah was sweating, shaking, vomiting and bleeding.
“I was bleeding so bad. [The doctors] were scared and didn’t want me to move,” she says.
She nearly lost her baby and was hospitalized for two days. For months later, she had to return to the hospital often, for checks.
“Sometimes I hear stories of a person who was fine, gave birth and the next minute the person has died and you find that they gave the person an injection and they died from it. I didn’t know it was that bad,” says Amponsah.
It is the poor, like Amponsah, that suffer. According to the Dutch Malaria Foundation, malaria is responsible for the death of one child dies every 45 seconds, but a third of malaria drugs sold in Africa are fake.
“My son was my biggest present; the center of my life. He is all I have… I am hoping that globally people understand that our lives are more important than the little money they will make out of bringing a fake drug out. [I hope] people will understand that it’s not all about money. It’s about life… the smallest thing, like just a tiny drug which is bad can cause so much damage in one’s life,” she says.
Amponsah and her son Denzel are among the few lucky ones. Over 30% of antimalarials in Africa contribute to nearly 450,000 preventable deaths each year, according to a report in the medical journal The Lancet. Fake tuberculosis and malaria drugs kill an estimated 700,000 people a year, according to the International Policy Network.
The manufacturers of this fake medicine make it look like the real thing. Mario Ottiglio, the Director of Public Affairs, Communications and Global Health Policy of the International Federation of Pharmaceutical Manufacturers and Associations (IFPMA), says fake medicine thrives in countries with weak regulation.
“In areas of infectious disease, like malaria and tuberculosis, fake products with incorrect dosage of ingredients can result in antimicrobial resistance to genuine treatments. At a global level, analysis of reports over a five-year period, from 2005 to 2010, indicates that incidents of fake medicine increased by 122 percent, while diversion and theft increased by 66 percent,” says Ottiglio.
In 2009, 84 Nigerian children were killed by toxic chemicals that were laced with teething medications for babies. In 2012, Angolan custom agents busted counterfeiters importing what turned out to be one of the largest fake medicine imports in history, when containers shipped from China to Luanda, the capital of Angola, were filled with over 1.4 million packets of a fake version of the antimalarial drug, Coartem.
“In 2013, the World Health Organization (WHO) launched a global surveillance and monitoring system… Thus far, 48 percent of cases reported [to the system] have been in the African Region,” says Ottiglio.
A study published in the International Journal of Tuberculosis and Lung Disease found one in every six pills in Africa to be fake. Furthermore, a survey conducted by the National Institute of Health, which examined over 2,600 malaria drug samples across 21 sub-Saharan African countries, found 20% of these drugs were fake and a third were of poor quality.
Ottiglio says the first line of defence is to always buy medicine from licensed and certified sellers. People can check the packaging of the product for spelling mistakes or grammatical errors. Check for expiry dates and that the details on the outer package match up with the inner packaging. Those who are familiar with the medicine can check that the pill looks correct, is not discolored, degraded or doesn’t have an unusual smell.
Even with checks, there is still a problem. Some fake products are almost visually identical to the genuine ones. Often it’s difficult to tell the fake from the real thing.
Patrick Lukulay, Vice President of Global Health Impact Programs at United States Pharmacopeia, says during the outbreak of Ebola in Liberia, there were fake drugs on the market purporting to cure Ebola and people were attracted to them.
“The drugs most counterfeited though are lifestyle drugs such as Viagra and Cialis&#8230; Antibiotics and antimalarials are heavily counterfeited also because of demand for these drugs and the tendency for people to self-medicate. ARVs (antiretrovirals) are also counterfeited because of demand and the fact that people might seek to buy them in private settings for confidentiality purposes instead of getting them free from public facilities,” says Lukulay.
These drugs, according to Lukulay, are made in countries that have developed capacity for pharmaceutical manufacturing and packaging, such as India, China, Vietnam and Malaysia.
He says the ingredients used for fake drugs are usually cheaper versions of legitimate ingredients. An example is diethylene glycol, which is toxic but 10 times cheaper than the legitimate pharmaceutical grade ingredient, glycerine.
“They may also include impure cheap raw materials, such as over-sulphated chondroitin sulphate, the one found in blood thinner, heparin, a few years ago that killed people in the US,” says Lukulay.
<img loading="lazy" decoding="async" class="alignleft size-medium wp-image-5208" src="/wp-content/uploads/2017/05/20160801_091625-300x169.jpg" alt="" width="300" height="169" />
Unfortunately, the problem grows at an alarming rate. Lukulay estimates the counterfeit drug market is worth over $75 billion per year.
Like many problems in Africa, it is seen as an opportunity by private money.
In Ghana, entrepreneur, Bright Simons, says he has developed a program that is helping to curb the counterfeit drugs.
In 2007, he launched mPedigree, a company that has created software manufacturers can use to label their product packaging with a random code hidden beneath a scratch-off covering. If a consumer wants to know if their product is fake or not, they can just scratch off the covering and SMS the code to a toll-free number. They will then be notified whether the product is authentic.
Simons claims his services are used by around 100 million people per year in 12 countries, from India to Uganda.
“Our biggest frontier now is predictive analytics, in particular the use of our EarlySensor technology to predict hotspots and flashpoints of emerging counterfeit activity by looking at large data sets across time and space. If we can predict retail points that are likely to be targeted by counterfeiters by disrupting upstream distribution networks, we can actually stop counterfeiting from even getting to the level of the consumer,” he says.
This will help prevent the suffering that Amponsah experienced. She at least lived to tell her story; many more were not so lucky.

A Deadly $75-Billion Business

Plans for Nairobi to enter the Global Financial Centre Index (GFCI) – a ranking of the competitiveness of financial centers around the word – finally appear to be on track, following the recent introduction of the Nairobi International Financial Centre (NIFC) Bill. Although the city is yet to be included in the global rank, it’s already among 16 associate centers expected to join the index in the near future.
One of the key roles of the NIFC will be to attract international financial services and multinational corporations to grow and develop the market for financial services in the region. It will help all NIFC-licensed firms to generate new and sustainable revenue streams. On this front, Nairobi is already playing host to several representative offices of global lenders, such as HDFC Bank, Nedbank, First Rand and Bank of Kigali. In addition, the NIFC will provide access to local and regional investment opportunities. Business can be transacted inside or outside Nairobi, in local or foreign currency. This is to allow businesses to operate both locally and internationally. For this reason, plans are already underway to make Nairobi Africa’s first clearing house for the Chinese yuan.
According to the GFCI ranking, for Nairobi to become an international financial center, it will need to enhance five key areas of competitiveness: financial sector development, business environment, infrastructure, human capital, and reputational and general factors. With this in mind, it was encouraging to hear the Cabinet Secretary for the National Treasury, Henry Rotich, propose changes for the local debt market during this year’s budget speech. To start with, market players will now see the introduction of electronic bond auctions which will spare investors from the current manual process of submitting paper bids, the separation of retail and wholesale components of the market and the introduction of primary dealers and market makers. It is likely to attract international portfolio funds looking to investment in the region.
Furthermore, Rotich, through the Financial Services Authority (FSA) Bill will set the stage for mergers across the existing non-banking regulators. The move is expected to address issues around consumer protection, existing regulatory gaps and issues of market conduct. Once enacted, Nairobi’s international status is expected to become even more essential. Some leading institutions have already taken notice. Ecobank Transnational is now planning to upgrade its Nairobi office to be the regional hub of operations for 18 countries. Similarly, global financial services firm, SWIFT, plans to open a regional hub in Nairobi.
A further indication of Nairobi’s increasing competitiveness is the improving business environment. In the 2016 FinAccess survey, Kenyan’s access to financial services stood at 75.3%, up from 66.7% in 2013. But, issues revolving around corruption and rule of law are also key. Kenya would not be an ideal international financial center if its people are corrupt, lazy and lawless. In view of the current financial scandals that have rocked some of the major financial centers, such as the Panama Papers scandal, it’s obvious that reputation is a vital asset that needs to be protected. In fact, reputation has become more important than reality. It is no surprise to see Athens and Moscow at the bottom of the global ranking.
While Nairobi gears up for a leap forward, its efforts so far have attracted attention. Kenya was ranked number 42 out of 140 countries by the World Economic Forum Global Competitiveness Report 2015/16 in financial market development. In 2015, the country was also ranked first in the world for leveraging technology to drive inclusion by the Brookings Financial and Digital Inclusion Project (FDIP).
Looking at this trend, it is safe to say that it’s only a matter of time before Nairobi catches up with the big boys.

Giant Leap Forward

The Dar es Salaam Stock Exchange (DSE) PLC was set to list on its own main board on July 12 after raising TZS10.1 billion ($4.6 million) in an IPO. It received bids totalling TZS35.8 billion, or 4.8 times oversubscription, for its TZS7.5 billion offer of 15 million shares at TZS500 each which closed on June 3. The DSE had a “green shoe” option to take up to 10% extra and applied to Tanzania’s Capital Markets and Securities Authority to boost this to 35% with the result that it was able to take an additional TZS2.6 billion. Staff took up their full allocation of 3% of the shares.
The Tanzanian bourse is set for a boost in activity after telecoms firms were ordered to list up to 25% of their shares within six months from July 1, in terms of the government’s Finance Bill 2016 and an amended Electronic and Postal Communications Act in June. DSE CEO, Moremi Marwa, said there would be enough liquidity: “The combined 25% of all telecommunications companies’ balance sheets is about $1 billion… Our current market capitalization is TZS22 trillion and annual market turnover is exceeding TZS750 billion. Treasury bonds and bills issued per annum at DSE normally exceeds TZS2.5 trillion and they are normally oversubscribed, meaning there is more liquidity to invest in less risky assets than instruments available.”
The DSE plans to use IPO proceeds to enhance its core operating system, introduce new products and services and for “strategic and operational purposes”. One in two Tanzanians have learned to use mobile financial services, according to a FinScope survey, and investors can use phones to apply for some DSE share offers.
In May, the Botswana Stock Exchange issued a tender for its valuation as it becomes demutualized, for-profit company, BSE Ltd, and works out how to convert the proprietary rights owned by stockbrokers and its government subvention. The Casablanca Stock Exchange is also demutualizing and mulling an IPO – its shareholders include banks 39%, brokers 20% and the Caisse de dépôt et de gestion (CDG) 25%. Johannesburg and Nairobi were Africa’s first securities exchanges to complete the steps through demutualization, IPO and self-listing.
Enko Capital runs the $83-million Enko Africa Private Equity Fund, which focuses on pre-IPO investments, and says Kenyan IT company, The Copy Cat, which operates in four East African countries, and Nigerian interior design company DO.II Designs are considering IPOs. Nigeria’s government is working on privatization of eight state-owned companies: Port Harcourt Refining Company, Peugeot Automobile Nigeria, Nigerian Ports Authority, Nigerian Telecommunications, Nigerian Railway Corporation, Bank of Agriculture, Federal Airports Authority of Nigeria and the Bank of Industry.
Innscor Africa Holdings spun off and listed Axia Corporation on the Zimbabwe Stock Exchange (ZSE) in May. Axia has three operating subsidiaries – logistics and warehousing Distribution Group Africa, furniture and appliance retailer TV Sales &amp; Home, and auto spares retailer Transerv – and $40.6 million market capitalization. Innscor’s previous unbundlings and listings were Simbisa Brands in November and Padenga Holdings in 2010 as the conglomerate focuses on light manufacturing. It was the ZSE’s second listing in 2016 after GetBucks in January.
West African utility group, Eranove, postponed its IPO and listing on the Paris-based Euronext exchange. Its owners include private equity firm Emerging Capital Partners (56%) and insurer AXA (19%) and its four core subsidiaries which supply water and generate and distribute power in Côte d’Ivoire, and distribute water in Senegal.
Miguel Azevedo, Citigroup’s Head of Investment Banking Africa, says the IPO drive will continue in 2017 as capital-raising moves from debt to equity. Bond sales have been hit by rising yields and declining local currencies.
“Sometimes entrepreneurs, all they want is debt, no equity, just debt. This crisis showed them that this can be very expensive. It makes sense to bring in some more equity,” says Azevedo.
His tips for exciting industries include consumer goods, banking, power and infrastructure.
“I see the growth profile of the continent, and in the blocs, is still there. The opportunity in Africa is still there.”
He forecast that multinationals expanding in Africa would aim to take significant positions in companies, rather than outright purchases.
“The base case is buying around 50% with an agreement to buy the remainder.”
Private equity will remain very active and there could be more consolidation among leading firms.

Entrepreneurs Move  From Debt To Equity

What happens when the world’s mighty ratings agencies downgrade your country to a non-investment grade, the dreaded so-called junk status?
High interest rates, slow growth, capital flight and inflation are some of the problems that come with a downgrade; in short, everyone from a street vendor to a corporate executive will feel the pinch.
So how does a downgrade happen?
“Ratings agencies analyse a sovereign’s performance over past economic and political cycles, as well as factors that indicate greater or lesser economic flexibility in future economic cycles, to determine the country’s creditworthiness,” says Gardner Rusike, Sovereign Credit Analyst at Standard &amp; Poor’s, one of the three big agencies.
“Sovereign ratings can improve when a ratings agency takes a forward looking opinion that an individual country has a willingness and ability to service its debt on time and in full.”
Ratings agencies, Standard &amp; Poor’s (S&amp;P) and Fitch have South Africa at BBB–, a notch above sub-investment grade, while Moody’s has the country two notches above.
Most economists say, for South Africa, junk status is a when and not an if. But for now finance minister, Pravin Gordhan, says the country is breathing thanks to Moody’s and its two notches.
“We live in a very volatile world and for us this is coupled by our own structural concerns. We should make the right noises, building consensus and confidence to attract investment from both South Africans and international investors,” he says.
Moody’s issuing South Africa’s Baa2 long-term government bond, in May, says the first driver for the confirmation was the agency’s expectation that South Africa’s economic growth will gradually strengthen after a trough this year, as the various supply-side shocks, that have suppressed economic activity since 2014, recede.
The other two agencies, Fitch and S&amp;P are expected to report on their ratings in June.
Professor Jannie Rossouw, Head of the School of Economic and Business Sciences at the University of the Witwatersrand, says junk status for South Africa was not necessarily inevitable.
“Politicians have a tendency to make reckless statements in an election year. As for South Africa, it matters what will happen in the forthcoming municipal elections and how the Independent Electoral Commission will conduct the August 3 municipal polls. We also need the right policies, such as on immigration, media freedoms, as investors require information to make investment decisions,” says Rossouw.
Hanns Spangenberg, Senior Economist at NKC African Economics, says while a drop to junk status could have significant implications for the South African debt market, much of the damage has already been done.
“In fact, according to our model, South African bonds (rated BBB-) are currently priced between a BB+ and a BB-rated bond (i.e. one to two notches lower than its actual rating). This indicates that a downgrade to junk status has already been priced in,” he says.
He says it may not be that bad.
“While a downgrade will probably have some effects, we do not anticipate massive capital outflows from South Africa if the country’s rating is downgraded to junk status, not as a direct result of the downgrade, and not significantly more than the emerging market sphere is already facing this year.”
Rossouw says South Africa needs decisive government action.
“There has been some actions from the government that could trigger ratings downgrade, this include the cabinet reshuffle of 9 December, 2015 (when the country had three finance ministers in four days). We can’t afford such irresponsible actions. Government should stick to its budget and should not borrow more than what is budgeted for.”
South Africa’s Deputy President, Cyril Ramaphosa, warns of hard times if there is a downgrade.
“South Africans have taken the bull by the horns and they are doing as much as possible to try to move the needle in the right direction. We should not be downgraded. We are very positive and robust, clearly we are doing as much as we can,” Ramaphosa told Eyewitness News.
If downgraded, South Africa will join Russia, Brazil, Bulgaria, Greece, Indonesia, and Turkey. It will mean these countries – facing economic headwinds and struggling to lure investment – will have a new competitor from the southernmost tip of Africa.

The Junk Dunk

As international investors became more familiar with the continent, international listings and debt offerings by African companies increased as the need for capital to power investments intensified. Record low interest rates globally created an issuer-friendly debt market over the past five years, while foreign equity markets also made it easy for African companies to list. By 2013, over 100 sub-Saharan focused entities were represented on the London Stock Exchange (LSE), with a total market capitalization of $70 billion which accounted for roughly 5% of Africa’s total market capitalization.
This year, the much anticipated listing of Dangote Cement on the LSE is expected to be the latest African-based issuer. As a result of this trend, many emerging market equity players have come to prefer gaining exposure to African companies via developed world exchanges as opposed to investing via the issuer’s local bourse.
Nonetheless, due to the increase in interest rates in the United States (US) and subsequent weakening of local currencies relative to the US dollar and other major funding currencies, this trend is likely to dissipate this year as repayment of foreign currency denominated bonds has become more expensive. Moreover, the implosion of developed equity markets means investor appetite for international listings may not be sufficient. For this reason, since raising capital is a continuous process, this could the perfect opportunity for Africa’s capital markets to rise up and lure more African companies from the grip of international bourses. London has remained a leading destination for African companies listing abroad for over 60 years, according to LSE. Needless to say, work is clearly cut out for the more than 23 African stock exchanges to improve their platforms to succeed in this.
Perhaps the place to start is solving the challenges of illiquidity, high trading costs and small-sized markets. In my view, the last two require the integration of regional stock exchanges, such as what has been done successfully by the BRVM in West Africa and what the East African Community (EAC) is seeking to do. In this regard, the Johannesburg Stock Exchange (JSE) could consider relaunching the Africa Board, implementing the lessons learned from the initial failed attempt in 2009. Considering the economic size of many African nations, it’ll be very expensive to operate such an exchange.
On illiquidity, there will be need for more investor education and more listings for change to occur. Surely, something is not right when the second biggest equity market in sub-Saharan Africa, Nigeria’s stock market, has a daily turnover of less than $30 million. The Nairobi Securities Exchange has 61 listings, but just 10 of those constitute roughly 90% of its annual markets liquidity. Further progress would also require African countries to harmonize their trading laws and accounting standards, set up convertible currencies and establish free trade among members.
Despite this, African capital markets have been growing and gaining recognition over the years. At the end of 2015, total market capitalisation stood at $1 trillion, up from $113 billion in 1992. African equities are now included in emerging frontier indices and Africa-focused benchmarks indices, such as the Russell Frontier Index (RFI), MSCI Emerging Markets Africa (excluding South Africa) Index, S&amp;P Africa Frontier, S&amp;P Pan Africa, and FTSE ASEA Pan Africa Index. According to PwC’s recent 2015 Africa Capital Markets Watch, over the past five years alone, there were more than 100 initial public offers (IPOs) and 336 further offers (FOs), raising a total of $41.3 billion. Furthermore, African equity markets have seen a surge in Africa-focused equity funds, such as JPMorgan’s Africa Equity Fund and the Old Mutual African Frontiers Fund, which invest directly in equity and equity-related securities of companies domiciled or listed on an African exchange.
Given Africa’s economic prospects and volatility in global capital markets, now is the time for Africa to establish its exchanges in order to offer its home-grown enterprises the services that they need, while also tapping into the growing portfolio allocations toward the continent. For Africa to emerge as an important player in the world of capital markets, a well-established capital market is necessary to provide a better alternative to its well-known rivals.
They say a journey of thousand miles start with a step – thankfully Africa has already made several steps and is closer to its destination.

On The Right Path

I am currently rereading my investment bible, Security Analysis written by Benjamin Graham and David Dodd. The book is still as relevant as it was in 1933 when it was first written.
What stands out in the book is the need to buy stocks at discounted prices, or those which are undervalued. Such stocks are usually difficult to get these days as investors have more information today than they had in 1933. However, I took a good look at the Nairobi Securities Exchange (NSE) and noted that there is more than meets the eye.
The fact is; we are experiencing a bear run.
This year has been a difficult one at the market. The NSE All Share Index (NASI) began the year at 162.9. By the time of writing, it had dropped to 147.6. This was a reprieve considering that, by August 27, the NASI had fallen to 137.5. To date, the market has shed off 9.39% in one of the longest bear runs.
This is in contrast to the 2014 performance where the NASI closed the year with a 19.9% gain, coming second only to Dar es Salaam on the continent.
There are many reasons why the NSE is shedding value. Firstly, the government introduced an unpopular capital gains tax which worked against the market from day one. The tax has since been abolished.
Secondly, and more importantly, the international investment climate is still recovering from the 2009 recession. Investors are still very jittery and, at the slightest provocation, they move their money to safe havens. Internationally, most investors believe the United States (US) is the safest place for their money and so, at the slightest tension, there will be a capital flight to the US.
This year began with uncertainty around the Greek problem and a subdued Chinese economy. These two factors drove foreign investors to believe that they should be cautious and most of them sold their holdings and took their money to the US. This strengthened the dollar, driving the forex rates of other currencies through the roof, the Kenyan shilling included.
If there is bad news in the market, to the effect that a considerable number of investors are selling, other investors will also sell without knowing why. It has a ripple effect. The international pressures caused only half the paper loss, the other half was due to fear and panic by other investors.
Nevertheless, prices of many counters have gone down. It is naturally a loss to many, but is there a silver lining in this dark cloud?
To understand this, one needs to check the best performing industries of last year. The champions of 2014 were the insurance industry and the agricultural sector. In 2015, the major gainers of 2014 are in the red. Britam has shed off 41.5% since January. CIC Insurance, the best price gainer in the sector in 2014, has shed off 26.04% this year. Pan Africa Insurance suffered the most, having lost 45.42% in the year.
There is no doubt that the insurance industry is expanding in Kenya, with the growing middle class requiring a wide array of insurance services. Furthermore, actions by companies like Britam create an investment appetite as the adjustments herald a growing stock. Yet these companies have lost significant value and present a great opportunity to a long-term investor looking for discounted stock.
But the attraction is not only in insurance. Housing Finance, ARM Cement and Total Kenya are all in the red, presenting opportunities for growth.
The end of the year is approaching and many investors are looking for value investments that will make 2015 worthwhile. If Security Analysis is anything to go by, then there is a real opportunity in the Nairobi bear run.
Tellingly, bear runs present investors with a great opportunity to buy choice stocks at prices much lower than the actual value. So while many are making a flight from the bear, embrace it and give it a bear hug, it might make you rich.

A Bear Hug That Could make you rich

The performance of African markets was strong last year, with money raised by companies doubling to $10.9 billion. Buoyed by a 40% jump in terms of volume of offers, 2014 saw the highest level of activity in African equity capital markets (ECM) over the previous five years, according to a PricewaterhouseCoopers (PwC) report: IPO Watch Africa 2014.
The report showed a total of 90 initial public offerings (IPOs) which raised $6.3 billion between 2010 and 2014. Secondary offers, on the other hand, raised a total of $31.1 billion, representing 83% of the total capital raised and 27% of the transaction volume in the same period. The resurging interest tops a five-year high, recorded in 2010, when African exchanges raised $7.6 billion in fresh equity capital.
Growth in the size of the capital markets highlighted the shift from commodity-based to a broader range of sectors, most notably financial services. During the 2010-2014 period, financials accounted for almost half of the companies raising new capital. Last year, this figure stood at 57%. Within the same year, four out of the top 10 IPOs by proceeds were financial stocks, according to Dealogic, an international financial services information provider.
The report also revealed a new trend – the growth of regional stock exchanges. The research indicated a greater share of capital was raised in markets outside of South Africa, which itself accounted for only 32% and 44% of total IPO capital raised in 2013 and 2014 respectively, a departure from its more prominent position in previous years. Last year, money raised by companies on other African exchanges increased by 66% to $1 billion compared to the previous year. However these stock exchanges still have a long way to go. In the five-year period under review, the Johannesburg Stock Exchange (JSE) accounted for 78% and 64% of capital raised and transaction volume respectively. Ranked first in the world by the World Economic Forum’s 2014-2015 Global Competitiveness Report for its regulatory framework, it is easy to see why the JSE continues to dominate the Africa’s capital raising landscape.
Most notably, a number of the top 10 IPOs in the past two years had an international component, either foreign companies raising capital directly on African exchanges, or African companies marketing shares to international investors through dual listings or sales to qualified institutional buyers abroad. Since 2010, nine African companies have listed outside the continent, raising a total of $370 million while only one non-African company listed in the continent, raising $107 million. This trend highlights an increasing global integration of businesses in the region and the interest of international investors in Africa.
Regional exchanges need to continue building on the strong momentum of last year. Already, 2015 is shaping up to be a positive year for equity capital market activity in Africa. Nigeria has recorded two capital raisings in January alone; an IPO and a secondary offer. Ongoing harmonization of regional exchanges and liberalization of capital markets through legislation are necessary to keep the momentum going. This is essential to uphold investor confidence and attract new players, such as the private equity funds. To date, the most common means of exiting these funds has been through a sale to corporates, which accounts for about two-fifths of exits, according to the African Private Equity &amp; Venture Capital Association.
Furthermore, improving social conditions, rising urbanization and the adoption of new technological advances are important factors in driving regional exchanges forward. These transformations must be matched with political stability and more effective economic and fiscal policies in order to deliver stable regional exchanges. In addition, improving liquidity and quality of information is crucial. The latter has been blamed for international public companies being hesitant to list on African stock exchanges and foreign investors investing in domestic listed companies.
No doubt, as these measures are steadily implemented, Africa’s rise in the international capital markets is assured.

The Rebirth Of Africa’s Capital Markets

We meet Arunma Oteh on a Friday evening in Johannesburg. For a person whose day has started at 3AM and been relentless since – filled with high-level meetings and interviews – she is remarkably energetic. In fact, the former Director-General of Nigeria’s Securities &amp; Exchange Commission (SEC) is all charged up.
The canary yellow Tahari suit she is wearing ably complements her striking personality as she speaks with both alacrity and wit.
Her five-year term at the SEC ended in January this year, the same month she turned 50. How does she feel?
“Fifty is the new 16,” laughs Oteh.
“I have to say I knew I would enjoy being 50, but I couldn’t have imagined how enjoyable it will be. It’s like I am walking on air. You kind of feel you can literally do whatever you want!”
Going forward, Oteh says her objective will continue to be to serve her country, and Africa. She feels “blessed” for all the opportunities she has had so far to impact society. In her years at the SEC, she had driven the transformation of the Nigerian capital markets and helped grow investor appetite.
“I come from a family [where] my parents have spent their lives serving, so I am usually attracted to opportunities that help me serve,” she says.
Oteh speaks with passion about Africa, about security, capital markets, infrastructure, e-commerce and governance. She also speaks keenly about topics such as women’s empowerment, youth – and music. For the record, Oteh is a huge fan of American singer Beyoncé.
“My next Whitney Houston is Beyoncé. She is amazing and stunning. Look at what she has achieved!”
In this interview, Oteh speaks about Africa’s future and why she is so excited to be a part of its growth story. Excerpts:
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What does the future hold for you?
I am looking at a number of incredible and exciting opportunities, and taking my time to deliberate and determine which one has the most impact. There is so much I want to do, and could do.
I thought about focusing on an initiative that helps people develop their financial capability, as I do think raising financially-responsible citizens has far-reaching impact. If you understand the discipline of managing your money, it’s almost like managing your life.
Also, can you imagine if this continent decided that by 2020, every African will be knowledgeable from a digital point of view? Can you imagine what it could do? It will accelerate the economic development of the continent.
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What does legacy mean to you?
Whatever you do, be the best you can be. It takes one person at a time to make a difference. I want young people to realize their potential. I want to see Nigeria become truly one of the most industrious countries in the world. I want to see Africa be the place where no one writes those articles about wars, disease and famine, and [where] people are writing about being inspired by all the entrepreneurial opportunities here.
I am currently angel-investing in companies that are owned by young people making a difference. Paga, a payments administration company, is one of them.
I like the e-commerce area. When I look at what has happened with innovation in the mobile phone space in Kenya, when I see examples of how certain sectors of Nigeria have transformed…I sort of think that you can be the next Obama, you can be the next Mark Zuckerberg, you can be the next Beyoncé. It’s really up to you to put in the effort. The common theme is hard work, vision and determination to change the world.
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You have previously co-edited a book, African Voices, African Visions. Is there another book in the offing?
Everyone says I should write a book – I am sure I will write several. I think writing books is a way to keep your legacy alive. I have very specific views on issues, and the way to communicate it globally is to write. I would like to write books on leadership. I also feel passionately about capital markets, and I do think not many people understand it.
My first experience of capital markets was sitting around the dinner table with my father, who would make us read annual reports to him. I hated it, but God was planting a seed in me for what I have done today.
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What is the way forward for capital markets in Africa?
So much needs to be done, so much has happened. I think we had eight or nine stock exchanges in 1989 and today, we have over 20. We have bond markets that are doing well around Africa in many places where we didn’t have bond markets. A lot of progress has been made. But the future is brighter than where we are, because we have got so much to do as a continent…And we are not going to be able to do it if we don’t have capital markets that can mobilize resources. We would not be where we should be as a continent if the ordinary person thinks the only way to save money is in a bank account or under the pillow, whereas there is the possibility of him being part owner of a company. We have not democratized ownership of shares; the average American owns a mutual fund that can fund the education of his children and issues of health. We are not there yet. So the possibilities for Africa are immense.
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When do you think this will happen?
There are a few factors that will either make us move quickly or slowly. The first one is the realization that domestic resource mobilization is what is going to help achieve some of those goals, so if you have leadership of countries that understand why capital markets are important, then we will make progress. If we have the right regulatory environment, you can attract both domestic and international investors&#8230;If we get security right, if we get the politics right, if we get the macroeconomic environment right, those things will happen.
The role of regulation is very critical. It should be tough because [the person then] feels his money is safe. Without creating a market where there is trust and integrity, it’s not going to happen.
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Who have you been most influenced by?
I was profoundly impacted by those who sacrificed their lives for the war against Ebola. My most memorable example is Dr Stella Ameyo Adadevoh. During my time as DG of SEC, and in 2012, we established an integrity award to a deserving Nigerian, and as a way to reinforce the importance of integrity to the development of world class capital markets. Dr Adadevoh was the 2014 awardee for SEC’s Integrity Award. She took risks with her life to limit the damage done by the first index Ebola case in Nigeria that arrived on a flight from Liberia.
I have also been influenced by Dr Ian Crozier who decided to go back to Sierra Leone after surviving the Ebola disease; as also the staff of Médecins Sans Frontières and other NGOs that work in difficult places when they don’t have to.
By a huge margin, my biggest influences were my parents. I believe early foundations are critical to who you become. I also want more parents to spend more time bringing up their children. My emphasis on character and standing alone came from my parents. Those who knew them said they were not surprised at how I reacted to the House of Representatives Committee on the Capital Markets inquisition in 2012.
Other influences have been Nelson Mandela, Bill Gates, Madam Walker, Oprah Winfrey, Beyoncé and Bono.

DSC_0284

‘The Possibilities For Africa Are Immense’

If South Africans had more electricity, they could see him on TV. Chris Yelland, the electrical engineer turned energy journalist entrepreneur, is the scourge of Eskom, South Africa’s nationalized power utility. His voice is critical, outspoken and more consistent than the electricity supply from Eskom.
“When I started Energize magazine [1997], a lot of doomsayers said to me ‘what the hell do you want to start a new magazine for?’ they also said ‘what more can you say before you run out of hot stories?’. Energy at that time was a boring subject. There was not a lot of interest. People just assumed when you switched on the plug and flicked the switch, electricity would come out the wall. Fortunately for us, and by chance, energy has become a hot topic. It actually affects everybody. Not just industry, not just commerce, but the man or woman in the street. We’ve had to learn that behind the plug lies a multi-billion-rand industry,” says Yelland.
Yelland has had a lot to talk about over the last 10 years. Eskom has the capacity to provide 41,194 megawatts (MW). Its aging fleet of power stations, many built 30 years ago, runs at 33,000MW, and cannot match the current demands of 38,000MW.
For many years South Africans have been smug towards electricity. A common joke told locally was: What did Zimbabweans use before candles? Electricity. Now, that joke, and the smugness, has come home to roost.
The short term solution is ‘load shedding’; in English, this means scheduled power cuts. They are words that mean shops close, mines shut down and computer nerds cringe at losing their unsaved data. According to Yelland, load shedding is a vicious circle; as the power utility pleads with the country to use less energy, it hampers its operations.
“Electricity consumption at this moment is at a seven-year low. Ever since 2008, [when load shedding first was implemented], it’s been going down. This means Eskom’s sales are going down. Their revenue is going down but their costs are going up. In the last six months of 2014, Eskom declared a profit of R9.3 billion (around $800 million), but that was over the winter period, when their prices are nearly double the summer period because demand for electricity is high. In the second six months of 2015, their projected profit is going to see a loss of R9 billion ($780 million). It’s going to wipe out the entire profit for the first six months of the year. Why? “Because they haven’t got enough electricity to sell. They are throttling the economy telling people to use less,” says Yelland.
A four-year delay in coal power plant projects Medupi and Kusile has made matters worse. The projects which were due to be completed in 2013 and 2014 were expected to bring around 10,000MW to alleviate the grid. The delays mean their price tags, estimated at R69.1 billion ($6 billion) and R80.6 billion ($7 billion) in 2007, have now nearly doubled to R154.2 billion ($13.3 billion) and R172.2 billion ($14.9 billion). Alone, they amount to an annual loss of R30 billion ($2.6 billion) in electricity sales.
“All 12 units will be online by 2020 at the earliest, if nothing further goes wrong. They are not a short term solution to South Africa’s needs,” says Yelland.
The power crisis has also meant Eskom spends around R1 billion ($86.7 billion) on diesel every month to run open-cycle gas turbines. Ironically, the country doesn’t have the infrastructure to run on gas, which the turbines are designed for and which would be a cheaper, cleaner alternative to diesel, says Yelland.
There is light in the gloom. A thousand megawatts is generated by renewable energy projects, built by private companies and then sold back to Eskom at set tariffs.
“The success stories are not government success stories, they are private: private capital; private technology; built, owned and operated privately; and then generated into the grid,” says Yelland.
What’s more, a study by the Council for Scientific and Industrial Research (CSIR) in South Africa, found that the cost of the renewable energy projects was less than the cost of the blackouts, and didn’t cost the tax payer a cent.
“In fact, it’s contributed towards reducing costs, meaning we had to spend less on diesel. Of course that’s only valid on shortages like the wave we have had at the moment. If we weren’t using diesel, if it was a normal country with a surplus of energy, [renewables] would cost us,” says Yelland.
Renewables do have a downside and are not the solution to Eskom’s crisis. The sun and wind are not constant. At any given time the 1,000MW of energy supplied will most likely produce 250MW.
“This is rated output, that is what is expected when the sun is blowing full blast and when the wind is blowing full ball. For every 100MW of renewable energy of capacity, you have to build an equal amount of conventional, mid-merit plants, to back up and provide power when the wind is not blowing or the sun is not shining. If you are trying to deliver 100MW and the sun goes behind a cloud, you can’t just switch off half of your customers,” says Yelland.
In the short term, Eskom’s crisis is further threatened by a R3-billion ($260 million) bailout to enable it to purchase diesel for the next month. Yelland believes Eskom needs to restructure.
“Eskom’s structure is the same structure as when it was set up 80 years ago. The world has changed since then. Other organizations like Sasol are not state-owned enterprises any longer. I believe if Eskom took on strategic equity partners, and listed on the stock exchange, it would raise significant capital resources without the need to raise tariffs. We need to inject new blood into something that is currently something akin to that of a dinosaur. [Eskom] is slow moving, ponderous and unable to adapt to the changing environment. If things carry on like this, it will go extinct just like the dinosaur did,” says Yelland.
You could argue that dinosaurs, when they were around, had more power.

The Scourge  Of The Dinosaur  In The Dark

Coal mines are the rock upon which South Africa’s power parastatal, Eskom, has been built. They mine 120-130 million tons for Eskom to burn every year. In 2015, the rock that supports 83% of South Africa’s power is crumbling.
The power utility is facing a dim future, through a decline in coal investment.
A senior coal analyst at XMP Consulting, Xavier Prevost, says at least six big coal mines could close down or decrease production by 2020.
“A decline in coal production calls for creation of more mines and failure to do so means all coal-fired power stations will have to close down which will affect electricity output,” said Prevost.
Prevost, who has more than 30 years experience in the coal sector, says too much coal in the market has driven down the prices as demand has fallen.
Countries, like the United States, exporting coal into the international market has also brought down prices, he adds.
Some of the big coal companies in South Africa include: BHP Billiton; Xstrata Coal; Glencore; Anglo American Thermal Coal; Sasol Mining and Exxaro Resources. Their costs rise as coal prices fall.
They supply Eskom with low-quality coal known as middlings, a by-product of the coal washing and beneficiation process. This coal contains about 35% of ash, resulting in low energy output.
Last year, South Africa’s Minister of Mineral Resources, Ngoako Ramatlhodi, said there was coal for export and coal of a lesser quality, which stays in the country.
“[The low-quality coal] we would want to keep for our power stations,” said Ramatlhodi.
Ramatlhodi, however, does not seem to acknowledge that cheap coal means lower electricity output.
To make matters worse, new mines are scarce. In the past six years, there have been fears over mining legislation, the decline in prices, increased competition from the United States, Indonesia, Australia and India and also lingering political rhetoric around nationalization.
Prevost says it’s not too late for South Africa to avert the coal crisis.
“Government has a 90 percent chance to make this better or worse through collaborative efforts between the departments of energy, finance and mines,” he says.
Addressing the media at the Eskom offices in Johannesburg in January, the new Chief Executive Officer, Tshediso Matona, painted a bleak picture saying the power utility can’t cope.
“New generating capacity and other levers are needed in order to ease the pressure on the system,” he said.
Matona says Eskom is like a car running on empty.
“We have arrived at a point that does not allow us to ignore the health of our plants. Our reserve margin is so thin, that every incident creates a major systems issue and could also have safety implications for the plant.”
According to Matona, the problem with Eskom is delayed maintenance and he says most of its ageing power stations face breakdowns.
“We know the problem and we know the solution,” he says.
The big question can be put in one word: When?

The Coal Hole

There were fewer miners at the Mining Indaba this year and more mining service companies to make up the numbers among 7,000 delegates. Everyone is trying to cut costs as commodity prices tumble.
“It’s been a lot quieter this year,” admits one of the organizers.
“The investors are there, but the group is getting smaller and smaller,” says one delegate who asked not to be named.
“I think the opportunities are like the gold rush of 1849 in America,” says Robin Saunders, the head of Clearbrook Capital, an investment company looking to sink billions into African mining on behalf of rich families in Europe and the Middle East.
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There were plenty of strident young mining nations from across Africa selling their minerals. This optimism couldn’t disguise the pain of the hosts; decades of battering and disinvestment leaves South Africa, where once 40% of the world’s mining was carried out, struggling to cling onto 5%, according to KPMG.
Investors are fighting shy of South Africa because of three big problems: power, rather the lack of it, strikes and fears over regulation.
The power shortages that have plagued most mines in South Africa has cost Harmony – the country’s third largest producer – 50 kilograms of gold in the last quarter to December 31,  worth around $1.87 million, according to CEO Graham Briggs. It meant production at Harmony fell 10%, in the last quarter of 2014, to 271,963 oz.
“What happens is we have communication from Eskom that we have to cut our consumption by 10% or sometimes as much as 20%. This means we have to stop milling and hoisting, which impacts on our production,” says Briggs.
Like most large South African mines, Harmony is in a cleft stick. It consumes 2,600MW at its South African operations – enough to power a city and more than half the output of a large coal-fired power station. This means, like most mines in South Africa, it can’t risk the capital to build a generator or power plant large enough for its needs.
South African mining minister, Ngoako Ramatlhodi, just over a year into the job, sees himself as riding to the rescue. Even so, he brushed over the glaring power problem; merely talking about private power producers and getting power from the Grand Inga dam, in the Democratic Republic of Congo, in 2023. It could have been 2093 for all the difference it makes to the mines.
Ramatlhodi’s speech was full of reassuring words for foreign investors: the rule of law was to be respected; the government was prepared to get tough on violent wildcat strikes and the country was open for business.
He wasn’t so clear cut on the regulation front. There was plenty of confusion over the amendments to the Minerals and Petroleum and Resources Development Act – the law that governs mining that is going back and forth through Parliament. President Jacob Zuma sent the amendments back saying they were unconstitutional.
One of the bones of contention is the proposal of so called developmental pricing – that is, lower prices for commodities like iron ore and coal to help stimulate the South African economy. A year ago the miners negotiated so called ‘mine gate prices’ similar to import parity pricing, where transport costs are taken into consideration, leaving the producer with a fair profit margin.
The problem is there is a strong voice within the ruling party for developmental pricing to be written into law. If so, the minister could be handed the power to declare minerals strategic; meaning miners would have to accept government prices and have to ask state permission to export. It could bring down the price of coal for Eskom, with it the cost of electricity, which is likely to be popular with voters.
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But among foreign investors it is likely to go down like a lead balloon laden with ten tons of coal. They are likely to see it as the state tinkering with the economy, laced with uncertainty, at a time when investors are looking for long term stability.
“It doesn’t feel like we are getting clarity,” says Wickus Botha, a mining analyst with EY.
“How long is it going to take to get these regulations through Parliament? It is not going to happen overnight. For the next two years it is going to be very difficult.”
In many other countries in Africa, these fears are far away. Many miners are making hay from Abidjan to Maputo as the hunt for investors overcomes shortcomings in infrastructure and financial systems.
One of them is Mark Bristow, the CEO of Randgold Resources, who has spent 20 years building mines everywhere from Mali to the Democratic Republic of Congo. His company’s results, released at the Mining Indaba, shows this penchant for the byways of African mining is paying off. In its Q4 figures, the company recorded record year-on-year production, up 26%, to 1,147,414oz in a company that is debt free and has paid a dividend at a time when the gold price is falling and most mining companies have forgotten what a dividend is. Bristow says his company is making a 20% real return on investment and is looking to invest in South Sudan and Kenya.
“Risk is in the eye of the beholder, as long as you have a good relationship with the stakeholders it is fine,” he says.
Elsewhere, Côte d’Ivoire, famous for agriculture, has a golden dream. The West African nation plans to open a gold mine every year for the next five years as part of its economic diversification, according to mining minister Jean-Claude Brou.
Gold mining in Cote d’Ivoire has grown rapidly in five years. In 2009, the country produced seven tons of gold; in 2014, it mined 18.6 tons. The country plans to increase production to 30 tons in the next five years.
“That is a very conservative target,” says Brou.
One last cautionary tale for African mining; there was a lot of talk about the increased mining royalties in Zambia and Zimbabwe and the threat they pose to investment.
From the gloom came a voice of sweet moderation from Ghana. The West African nation mined 4.4 million oz of gold in 2014 earning 40% of the country’s foreign currency.
In 2006, Ghana imposed a 5% royalty and mining minister Nii Osah Mills says his country plans to keep it at that rate for at least another 10 years.
“We were thinking recently of increasing the royalty, but we decided against it because we felt it would be disruptive to mining. So, no one is fleeing Ghana and that is a vote for us,” says Mills.
A dash of pragmatism that could help Ghana keep its place as the world’s 9th largest gold producer.

Four Frantic Days  Full Of Fear

It takes weeks to secure an appointment with Nigeria’s high-profile Director-General of the Securities &amp; Exchange Commission (SEC). And when we do, it’s on a public holiday.
Walking into Arunma Oteh’s office in the country’s capital Abuja is like walking into a trophy store: shiny medals, mementoes, plaques and trophies take up an entire wall.
One glance is enough to convey the success of Nigeria’s tough-talking chief capital market regulator. A career she couldn’t have imagined.
As a child, Oteh wanted to be an inventor. A proud workaholic, she puts her discipline down to her sound upbringing.
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“My parents were really stern but also loving, and for my two sisters and I, the constant quest for knowledge and excellence was firmly rooted in this background. They had such a great sense of character and the courage to be different and standing up for what was right regardless of the cost. I believe they instilled this in me. My childhood is really what has made me who I am today,” says Oteh.
It was tough being the daughter of a father who had exalted expectations. Once, she ran home elated, report card in hand. She had big news.
“Dad, I did it, I came first in class!”
One look at her report, and her father said: “Great, but next time, you have to be first plus plus.”
Such was Oteh’s family. They looked down on mediocrity and believed in brilliance. Hailing from the southeastern part of Nigeria, Oteh grew up in Kano, northern Nigeria.
Oteh’s mother, a nurse, wanted her to become a medical doctor, her father, an engineer, wanted her to take on his profession. But Oteh had other interests. She recalls fondly her obsession to become an inventor. Computer science was in its infancy in the 1980s; she loved the sciences and believed she could become a pioneer. So she studied computer science.
In 1984, Oteh graduated top of her class and faculty from the University of Nigeria in Nsukka, after which she taught computer science to first year university students as part of National Youth Service Corps (NYSC), a compulsory government program for Nigerian graduates.
After NYSC, she went to Lagos and was interviewed for jobs. The offers came thick and fast, and she decided to work for Centre Point, a stockbroking firm, because she admired Dennis Odife, the owner of the company and a highly respected businessman.
“I was impressed with what he had done with the company and what he had become. It was an amazing decision and defined what I ended up doing later in life. I was hired at the time to start the management information systems department but few months into that role, he thought it would be good for me to work in corporate finance. That’s how I got into finance and got really excited about it too,” says Oteh.
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Oteh’s fascination for her new found career grew and she explored the next step for growth. Her mentor, Odife, had been to the prestigious Columbia Business School in the United States. And she saw this as a must.
She started reading up about business schools and applying in her first year at Centre Point. The acceptance letters poured in. And she made it through the selection process at Harvard Business School.
“My father had always said, if you do well, you can always get what you want,” says Oteh.
Oteh worked in the United Kingdom for some time and flew to Harvard in September 1988. Here, she found herself surrounded by intelligent people and erudition.
“Business school was amazing. The case study methodology employed at Harvard also helped hone my skills in decision-making and problem-solving. This is an environment that prepares you to take on the world. I was very interested in finance. As the first Nigerian woman in the Harvard Business School MBA program, my class mates were quite wowed and thought I was a princess.”
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It all led to a career as Director-General of the SEC, a post she has held since January 2010.
This is merely one of the many hats she wears. She was also elected Chairperson of the Africa Middle East Regional Committee (AMERC) of the International Organization of Securities Commissions (IOSCO) in June 2010. She is a member of the Nigerian Economic Management team and serves on the board of a number of organizations including the National Pension Commission (PENCOM) and Asset Management Corporation of Nigeria (AMCON).
Today, Oteh is charged with transforming the Nigerian capital markets and unlocking the country’s economic potential.
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Her appointment four years ago came at a crucial time, on the heels of the global financial crisis. Nigeria’s stock market had fallen 70% from its peak in March 2008. Investor confidence was low. There was need for change and a tough regulator.
By the time she started, Oteh already had a wealth of experience and believed she had the panacea.
Her message to the people was to save and invest wisely. To the policy makers, she preached against depending on short-term bank finance, and in favor of medium and long-term finance to fund infrastructure.
“Having that crisis helped, because people had seen what could go wrong. The environment to support a tough reform agenda was present as they could see the importance of a regulator that would do its job. When I joined, the vision was for the SEC to be the best regulator in Africa and I said, ‘best regulator in Africa?’ That’s not ambitious enough. Our aim should be to be the best regulator in the world. Nobody invests in a particular market because they love it. They are more interested in the safety and security of their funds. In that case, it is important to build a market that can stand globally acclaimed. This isn’t possible without integrity,” says Oteh.
Oteh was ready to put her money where her mouth was in an arduous revamp of the Nigerian capital markets.
It wasn’t going to be easy.
“That led us to alleging that 260 individuals and entities had carried out different forms of market abuse. The second thing was to focus on the Exchange. Nigeria had one operational exchange and being a visible symbol of our market, it was very important to ensure that we address the challenges of the Exchange because then, we develop the industry of fund and asset managers and develop the fixed income bond market to the point where it became easier for people
to borrow.”
Thanks to her efforts, today, she has the likes of the International Finance Corporation (IFC), which launched a successful bond last year. She has also been able to regulate over-the-counter markets.
“We have two platforms, the National Association of Securities Dealers (NASD), which targets unlisted securities so there is more efficient trading in those securities or the platform sponsored by the financial market dealers association which does wholesale trading in Federal Government bonds. Also, introducing new instruments like Islamic finance products, and encouraging real estate investment trusts,” she says.
With all these feats and more under her belt, Oteh believes there is still more to do, and with careful execution, it’s only a matter of time before all her boxes are ticked.
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There have also been some dark days along the way for Oteh, as in 2012, the board of the SEC had directed her to go on compulsory leave, following a probe into the near collapse of the capital markets and allegations of misappropriation of funds and disharmony in the apex capital market regulator.
Oteh fought the system tooth and nail and went to great lengths to expose inadequacies in the structure, accusing the Chairman of the House of Representatives of the Nigerian capital market of corruption and unaccountability in a heated exchange at the public inquiry.
Following a two-month suspension, Oteh was cleared of all allegations and went back to her job as Director-General.
“I was angry that a system that is so well-endowed was being managed irresponsibly. I had also built a longstanding career and reputation over 22 years anchored on excellence. I knew there would be risks attached to fighting back and that I would be misunderstood but I also felt that standing up for what was right, far outweighed any costs attached for me. If I didn’t do it, who would?” she told FORBES WOMAN AFRICA.
Prior to her appointment at the SEC, Oteh was Vice President of the African Development Bank (AfDB), and was at the forefront of internal reforms that scaled up the bank’s response to Africa’s development challenges.
She had also served as the bank’s Group Treasurer for five years, managing a portfolio of assets and liabilities worth billions of dollars. In her years at AfDB, she restored its ‘AAA’ rating by Standard &amp; Poor’s.
“Some of my most fascinating experiences were that people were just so excited to hear about Africa – there was such a curiosity about the continent. At the time, AfDB was a ‘AAA’-rated institution and we would go to sell AfDB bonds in Japan. People were relatively familiar with why we were so highly rated. So, most people felt very comfortable with the credit when you sold bonds – they knew there was no risk,” she says.
Oteh had also started the Euro currency programmes while at AfDB.
This great adventure with AfDB began post-Harvard, following a year’s project with the Harvard Institute for International Development assessing the competitiveness of manufacturing in West Africa. She had interviewed at AfDB where she got hired into the West and North Africa portfolios in 1992. She covered Nigeria, Egypt, Ghana and Sudan, traveling in these countries.
After being away from her home country for 22 years, Oteh, a proud patriot, believes there is no place like Nigeria. She is highly optimistic.
“There are no countries that have taken the bold steps we have in the financial sector in the last few years,” she says.
As her current term draws to an end in January 2015 – and that’s also when she will be turning 50 – Oteh and her team, are working tirelessly still, raising the bar and repositioning the face of the Nigerian capital market globally. It is yet to achieve demutualization and this is a direction the institution would like to steer towards.
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Oteh is also passionate about mentoring young girls, and advocacy. She holds a strong view on women’s place in society, drawing attention to the low number of women in key positions and boards.
“Equal opportunities should exist in the work place. A meritocracy where the best suited and qualified individual gets the job is also as vital.”
She also believes in a great support system and that young women should have self-belief.
“Successful leaders should pave the way for younger women to climb the corporate ladder through mentorship and coaching,” she says.
On career and family, Oteh, who acknowledges devoting her life to career, says she wouldn’t do it differently.
They call her the ‘Iron Lady’ for her tough decision-making.
“If leading change, being passionate, resilient and decisive about a great course is what makes me an iron lady, then I proudly raise my hand up high to that tag,” says Oteh.
She has come a long way from Kano. Oteh is not telling us what her plans are post her current assignment, but we are sure to hear more about her in the news.

Tag: Capital

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