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Are ICOs Relevant In Africa?

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Initial coin offerings (ICOs) see companies create their own digital tokens and sell them to the public.

They are like initial public offerings (IPOs), but investors take no equity in the business, and rather invest in the potential value of the token.

They are proving attractive to firms and investors alike, with over 230 companies raising almost $4 billion in such a way in 2017.

“Initial coin offerings allow companies an easy way to raise capital while bypassing many of the regulations and requirements associated with initial public offerings. ICOs also allow companies to tap into the hype around cryptocurrencies and crowd-sourcing,” says George Etheredge, Research Analyst in the Digital Transformation Practice at Frost & Sullivan Africa.

But are ICOs relevant in the African context? It’s early days, but a number of startups have recently given them a whirl. Nigerian remittances platform SureRemit netted $7 million, while South African company and property investment portal ProsperiProp secured $200,000.
ProsperiProp founder Llew Morkel says ICOs offer entrepreneurs an opportunity to dip into a global source of capital without having to go through formal channels like banks or venture capitalists.

READ MORE: Why it’s in everybody’s interests to regulate cryptocurrencies

“Investor institutions require the entrepreneur to commit to a period of exclusivity while the funder conducts their due diligence. In the event where the application is rejected, the entrepreneur has to start over, often costing valuable time to market. This cycle is discouraging,” he says.

The lack of regulation in this space makes it easier to fund starved African businesses. But it’s also the main drawback of ICOs.

“It’s far easier for groups to set up ‘fake’ ICOs. The general hype around the crypto space may cause investors to be insufficiently diligent,” says Etheredge.
This is likely to mean the space becomes the focus of more regulation as time passes.
“One factor here will be those parties that currently make money from the way things are done at the moment will have powerful incentives to lobby for regulation. This is a pattern in most disruptive industries, just look at Uber,” says Etheredge.
Getting the legal ducks in a row was one of the challenges for ProsperiProp.

“It’s important for an ICO to move inside the guidelines of each country’s legal framework. The country’s framework not only protects the ICO investor but also the entrepreneur,” says Morkel.

READ MORE: Forbes’ First List Of Cryptocurrency’s Richest People: Meet The Secretive Freaks, Geeks And Visionaries

With all the noise around ICOs, and awareness of potential scams, marketing is key. Wala CEO Tricia Martinez says trust, transparency and community are key elements.

“We quickly recognized that in order to gain trust you must be transparent. And the only way to build a community is by being transparent. Once we gained the trust of the individual and were transparent our community began to grow,” she says.

Africa’s foray into the world of ICOs have been tentative thus far, but those that have made the jump expect more to follow. SureRemit co-founder Adeoye Ojo says they are about more than just capital.

“There needs to be a real utility for the underlying token being distributed. Many businesses are rushing to tokenise without a proper plan to sustain the new economy they are creating. This isn’t unique to Africa,” he says.

Martinez agrees.

“ICOs shouldn’t be used as a funding mechanism. Only if there is a real use case to build a token economy should an entrepreneur look at this as a potential channel,” she said.

Yet the potential for token sales to provide access to funding cannot be ignored.

“The good thing is that barring countries that have some strict financial regulations about ICOs, almost anybody can participate. This allows projects, including African ones, to have exposure to a diverse audience who can both back and be first users of the product,” says Ojo.

Eugene Mutai, bitcoin ‘miner’ and software developer, uses the LBRY web site at his home in Nairobi, Kenya. Photographer: Luis Tato/Bloomberg via Getty Images

This diversity, however, also means the usage of ICOs by African companies will depend on how these strategies perform globally.

“They are attractive in an African context as they can, for now, get past regulatory and bureaucratic red tape. However, Africa is some distance behind wealthier areas with respect to crypto adoption,” says Etheredge.

Yet all the signs are that crypto, in Africa and globally, is on the rise. Much of the future of ICOs in Africa may hang on the level of success experienced by first movers like SureRemit, Wala and ProsperiProp. For now, it’s a question of riding the wave and seeing where it goes.

– By Tom Jackson

Economy

Cash-strapped South African Airways Expands Emirates Code Sharing

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South African Airways (SAA) said on Tuesday that it had signed a deal with Emirates to expand an existing codeshare agreement, in a rare bright spot for the cash-strapped airline.

The state-owned carrier, which has not made a profit since 2011 and survives on government handouts, said the agreement would see the two airlines leverage each other’s route networks, cargo services and flight schedules to boost passenger flows.

South African President Cyril Ramaphosa has been at pains to stabilize ailing firms like SAA, but the extent of their financial difficulties has meant slow progress.

SAA, which hopes to turn a profit by 2021 by cutting jobs and routes, expects to make another large loss this financial year, despite a recent government cash injection of 5 billion rand ($350 million).

“The expansion of our commercial relationship will further strengthen key focus areas of the implementation of our turnaround plan,” SAA Chief Executive Vuyani Jarana said. -Reuters

– Alexander Winning

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Economy

South Africa’s mining and manufacturing sectors show slight growth

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Report shows positive growth in the mining and manufacturing industry as both sectors  show slight figures of recovery in third quarter


South Africa’s mining and manufacturing industry shows slight growth in production and sales, but could decline in the near future.

The October 2018, StatsSA report shows both sectors have had figures of recovery from the start of the first quarter.

The mining production overturned a three-month decline with a 0,5% year-on-year growth in the third quarter, with gold being the lowest contributor.

Senior economist, Elize Kruger from NKC African economics, says despite  growth in the mining sector there is nothing to be excited about.

Protest action that started on gold mines in mid-November added to the pressure that the sector has been under over the past months.

A protected wage strike at Sibanye-Stillwater’s gold operations started when The Association of Mineworkers & Construction Union (AMCU) made a demand of  R1,000 annual increases in wages for mine workers.

The National Union of Mineworkers, Solidarity and United Association of SouthAfrica on  the other hand accepted R700 in the first two years and R825 in the third for most of their members.

The Johanessburg based mine urged striking workers to return to work by December 15, 2018. 

“Novemember and December could be impacted by the strike action that we see in the gold mining industry. The fourth quarter data is likely to remain depressed despite the October numbers,” she says.

Gold is the largest negative contributor at -15,1% thus contributing -2,3%percentage points to the overall figures.

Furthermore, increases in electricity prices that will take effect early 2019, will tighten the pressure on the industry adding to headwins faced on a global scale.

“Alluminum sector is impacted by the US import tarrifs increases and the threat of electricity price increases in the order of 15% ,” says Kruger.

The 15% increase is a strategy put in place by the electricity public utility, Eskom, to settle financial constraints.

The request made to the National Energy Regulator of South  Africa will be effective for three years if approved.

The manufacturing industry grew by 3,0% with eight out of 10 sectors showing positive growth rates over the last three months.

According to Kruger, the strong levels of the rand exchange rate put in a helping hand in the manufacturing production and sales sector.

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Current Affairs

In an African First, a Cannabis Expo…without Cannabis

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Andre Kruger’s stand at Africa’s first ever cannabis exposition displayed an indoor growing tent, complete with state-of-the-art lighting imported from the United States and fittings for a high-tech hydroponic irrigation system.

What it didn’t have, however, was a cannabis plant.

The four-day expo, which opened in South Africa’s capital Pretoria on Thursday, was a stark illustration of the legal grey area the nascent industry occupies in the continent’s most developed economy.

In September, the Constitutional Court decriminalized the use and cultivation of cannabis in private space. But the decision did not legalize its trade or distribution. Even displaying cannabis in public remains legally dubious.

So exhibitors at the expo got creative. Kruger, whose company Sombrero Hydroponics has seen a spike in customer inquiries since September, used two artificial poinsettias as stand-ins.


“People just feel more comfortable now, because they don’t have this added thought in the back of their mind thinking, ‘What if the cops stop at my house?” he said.

“They’re coming out of the closet, in this case the tent.”

Hundreds of expo-goers bought tickets and were already queuing before the event opened, but not everyone agreed with the ground rules.

Cannabis activist Steven Thapelo Khundu handed out cannabis buds from a plastic bag at the expo entrance, encouraging attendees to bring them inside.

“Free Ganga Free! Free Ganga Free!” he shouted as security forcibly removed him.

Under the court decision, lawmakers have two years to amend the country’s cannabis laws, but the industry isn’t waiting.

South Africa recently established a legal framework for licensing growers. The local unit of Canada’s Canopy Growth, which in August received a $4 billion investment pledge from Corona beer maker Constellation Brands, is among the early applicants.

“I don’t think most people realize just how big the cannabis industry is in Africa already, in South Africa already,” said the Cannabis Expo’s co-founder Silas Howarth.

International companies are, for now at least, seeking licenses to produce cannabis for export. But Gerhard Naude, the founder of healthcare company Go Life International, believes a fully legal domestic industry is now only a matter of time.

“I think there will be a few licenses awarded, and very closely regulated. I think in two years we’ll definitely have a license, for the use of medicinal cannabis in any case,” he said.

Itumeleng Tau, who said he’s been growing marijuana for around 20 years, is among a wave of underground cannabis entrepreneurs who are hoping the pending legal changes will allow them to bring their businesses out of the shadows.

The expo was an important first step, he said. But the absence of any actual cannabis was strange.

“It’s something very, very wrong … It’s like we came to a party but there’s no music.” – Reuters

  • Joe Bavier

READ MORE  | Beyond the plumes of smoke the weed economy on a high

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