US State Department to aggressively increase FDI in Africa.

Its about time we linked AGOA to FDI.  So far, US companies have played a more limited role in boosting AGOA exports from Africa. 

Regarding the linkage between AGOA and FDI, especially in the textile and apparel industry in SSA, an example is the textile and apparel industry in Lesotho, one of the largest in SSA, which has been boosted in recent years by the influx of Asian investors who have taken advantage of the AGOA program.

However this is not investment coming from the US.

See related article here.

Agency Banking- Reaching the Unbanked

The agent bank offers the same services as a real bank —cash deposits and withdrawal, disbursement and repayment of loans, payment of salaries, pension, transfer of funds, and issuance of mini-bank statements, among others.

The agent also facilitates new account opening, credit and debit card application, cheque book request and collection and is linked to Equity Bank’s systems electronically, eliminating the need for the commercial bank to have a branch in Ruaka to do business.

This is being replicated across the country, especially in rural areas, with Equity Bank saying that already 1,000 banking agents have started operating.

The Central Bank has licensed four banks, including Equity, to carry out agent banking business and approved 8,809 specific agents since last year.

Should the remaining over 7,000 agents roll out their services as expected early in the year, then this would deeply boost penetration of banking services in the country even as banks eliminate costs on physical branch expansion in areas with low volumes.

Agents may be able to play a role in a broad range of services, including account opening, cash-in and cash-out services (including cash disbursement of bank-approved loans and repayment collection), payment and transfer services (including international remittances and person-to-person domestic transfers), and perhaps even credit underwriting.

A major obstacle to financial inclusion is cost—not only the cost incurred by banks in servicing low value accounts and extending banking infrastructure to un-derserved, low-income areas, but also the cost incurred by poor customers (in terms of time and expense) in reaching bank branches. Achieving financial inclusion therefore requires innovative business models that dramatically reduce costs for everyone and thus pave the way to profitable extension of financial services to the world’s poor.

India's National Innovation Council

There is much we can learn from India on innovation (viewed as the transformation of knowledge into goods and services for the marketplace).  Realising that innovation is the engine for the growth of prosperity and national competitiveness in the 21st century, the President of India declared 2010 as the ‘Decade of Innovation’. To take this agenda forward, the Office of Adviser to the PM on Public Information Infrastructure and Innovations (PIII) developed a national strategy on innovation with a focus on an Indian model of inclusive growth. The idea is to create an indigenous model of development suited to Indian needs and challenges.

Towards this end, the Prime Minister has approved the setting up of a National Innovation Council (NIC) under the Chairmanship of Mr. Sam Pitroda, Adviser to the PM on PIII to discuss, analyse and help implement strategies for inclusive innovation in India and prepare a Roadmap for Innovation 2010-2020. NIC would be the first step in creating a crosscutting system which will provide mutually reinforcing policies, recommendations and methodologies to implement and boost innovation performance in the country.

One of the outcomes of this process has been a proposal to set up 14 new “universities for innovation” that will aim at stimulating economic growth.  Africa can learn a lot from India’s experiences, especially in regard to the importance of bringing technical knowledge to bear on development through a new species of universities.  These universities will aim at doing for India in the 21st century what its institutes of technology did in the last century.  India is showing Africa that the secret of economic success is not a secret: it lays in re-inventing the university system.

Africa should therefore no longer be an enclave reserved for mineral and raw material extraction.  There is alot of potential in the African continent however the limiting factors include Africa’s low level of training in engineering sciences and the lack of venture capital to turn ideas of products for the marketplace. On education, a new generation of technology/innovation schools directly linked to the productive sector, will be an effective way to move to the frontiers of technological innovation.

Useful discussion on innovation in Africa can be accessed here.

Structural Changes in the SA Aviation Industry

A new airline is reportedly seeking a certificate and air service licence issued by the Air Service Licensing Council in SA in order to gain admittance into the local South African airspace. This should be good news for consumers.

The Business Day carries the following excerpt:

"A NEW airline flying between Cape Town, Durban and Johannesburg may grace SA’s skies this year, adding to competition in a sector traded by at least three budget airlines and South African Airways.  Very little is known about the backers of Durban-based Velvet Sky, and a source who did not wish to be named said yesterday that it would be premature to comment on plans.....

SA’s airline industry is in a state of structural change, with premium national airlines such as South African Airways losing market share against no-frills competitors such as JSE-listed 1time and kulula.com.

Last month, low-cost airline Mango took over all the Durban-to-Cape Town flights from its parent, South African Airways. The move has been interpreted as part of a strategy by the national carrier to exit short-haul routes where it has lost market share."

Predictions: The Next BRICs and EAGLEs

There is much debate about the economic or political merits of South Africa's invitation to join the BRIC group of countries. The term BRIC (Brazil, Russia, India and China) was invented in 2001 by Economist Jim O’Neill, now the chairman of Goldman Sachs Asset Management. While path-breaking when coined, the concept of BRIC seems outdated today given increased growth differential among the four countries and given that the grouping is also not considered a structural concept since it depends on a country’s growth projections. 

Which countries were predicted to be the next BRICs? Goldman Sachs identified the Next 11 (N-11) countries that could rival the G7 over time, in the context of several important BRICs themes: energy, infrastructure, urbanisation, human capital and technology. The N-11 include Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey and Vietnam. 

Meanwhile, a new group of countries have been coined EAGLESs by BBVA. The EAGLEs, which stands for Emerging and Growth-Leading Economies include the four giant economies (China, India, Brazil and Russia) but also six more countries, namely Korea, Indonesia, Mexico, Turkey, Egypt and Taiwan. 

BBVA has also identified the Next 11 Eagles which which have common characteristics with the EAGLEs and could be included if their growth prospects (already very positive generally) improved in coming years. The 11 countries in the Nest are: Nigeria, Poland, South Africa, Thailand, Colombia, Vietnam, Bangladesh, Malaysia, Argentina, Peru and Philippines.

Some facts about the EAGLEs:

In terms of the criterion for inclusion, each of these ten countries are expected to contribute more to global GDP growth than the average of the countries which have long been considered the most relevant ones worldwide, namely the G7.

In other words, EAGLE countries are chosen because they will be the most relevant in terms of new generated business. The EAGLEs are expected to be responsible for 50% of all global growth in the next 10 years. That compares with 14% for the G7.

This is not only about China or the BRICS. The EAGLEs countries outside the BRICS will grow by almost 4 trillion the next decade, equivalent to 10% of world growth. That compares with 2.4 trillions for the aggregate of Japan, Germany, UK, France, Canada and Italy (six percent of world growth).

From an African perspective, Egypt appears to have made both lists (Next BRIC and EAGLE) while Nigeria was identified as a Next BRIC and potential EAGLE. Meanwhile South Africa was identified as a potential EAGLE but may now be the newest Member of the BRIC group.

Fragility of African Stock Exchanges

Reuters Africa

One of the biggest obstacles to investing in African stock markets is the paucity of listed companies and the limited number of shares traded on them. So the prospect of two fairly major delistings is not a particularly comfortable one for African exchanges at a time they are trying to encourage more companies to list and to capitalise on the growing investor appetite for Africa.

Bharti Airtel is delisting its Lusaka-listed Celtel Zambia unit – the second biggest company by market capitalization on the Zambian stock exchange – following a mandatory offer to buy out minority shareholders.

Meanwhile, Greek Coke bottler Coca-Cola Hellenic – the world’s second biggest Coke bottler – plans to buy out the Nigerian Bottling Company and turn it into a wholly-owned subsidiary in a $126 million deal. It already owned two-thirds of the shares.

In neither case is there a suggestion the parent company will not be planning to pump in more investment – quite the opposite in fact as Africa is increasingly seen as a place to get above average returns and with excellent growth prospects.  But taking the companies off the stock exchanges removes the chance for other investors to get that direct exposure to the African opportunities.

There was a chance South African retailer Massmart could disappear from the bourse too after WalMart announced a buyout plan, but the U.S. giant now intends to keep the Johannesburg listing – so Massmart investors can keep their participation in the expected growth it sees in Africa.

Overall it hasn’t been a bad year for African stock exchange listings given that we’ve seen Nigeria’s Dangote Cement – the biggest firm in sub-Saharan Africa outside South Africa – float its shares in a listing which valued it at $14 billion at the time (now nearer $12 billion).  That said, the free float – the proportion of shares held by investors likely to trade – is only just over 5 percent.

African stock exchanges certainly have their work cut out to encourage more companies to see them as the best place for raising finance. Questions have long been raised over whether Africa needs so many small national exchanges and whether it might not be to everyone’s advantage to have listings on fewer, bigger markets.

See previous post here.