EastAfricanInvestor

Bringing to the world East Africas potential

Winter 2011 | www.focusoneastafrica.com

Exclusive: EAI talks to Mazars Owen Koimburi

In this issue
ISSN 2046-8199

12 22 52

FDI 2012 Review Power: The only way forward GroFin: Preparing for success
UK 3.00 | Uganda shs 10,000 | Kenya shs 300 | Tanzania shs 6,000 | USA $5 | Europe 4

10-pAgE SpEcIAl REpORt: EA REAl EStAtE

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central to our editorial coverage, but we also take a broader view of what constitutes East Africa, drawing in countries such as South Sudan, Ethiopia, Sudan and DR Congo and our magazine presents a number of articles that provide a comprehensive outlook for foreign direct investment into the region in 2012. This is underpinned by a conversation with Owen Koimburi

Welcome
Dear Reader, It gives me great pleasure to welcome you to this, the very first issue of EastAfricanInvestor. Many of you will be familiar with this magazines predecessor, UgandanInvestor that met with a very positive response when we began publishing some 12 months ago. As with UgandanInvestor, we want to invite you to let us have your news, views and opinions. Indeed, it was as a result of feedback from the public that we decided to create EastAfricanInvestor. What you told us was that the Uganda Investor remit, considering the very rapid regional economic integration process that is taking place in East Africa, seemed rather limited and outdated. We listened, and after some thought agreed, so now you have a new magazine packed with the same incisive, lively articles that you have come to expect from us but now reporting from every part of the East Africa region. The East Africa Community is

of Mazars (Kenya), an international accountancy practice that has ambitious expansion plans for East Africa. We also have a focus on the regions booming real estate sector Pent up demand for housing and commercial office space presents a huge challenge for property developers, construction companies, utility providers and the financial sector. As we report, these challenges are being met successfully and offer huge investment potential. Elsewhere, we have a comprehensive round up of the various voice-overinternet-protocol (VoIP) offerings that provide telecom links over the worldwide web and Jane Bordenave examines the pros and cons of the various services while David Anderton looks at the regions capital markets and the prospects for two of East Africas most important commodities; gold and coffee. These stories and much more Edward Katende Executive publisher EastAfricanInvestor Edward Katende is also the Executive Director of Focus on East Africa await you as you delve deeper into the magazine. We hope you find reading them both informative and entertaining, but please write in to tell me what articles you find useful, or what you believe is missing from the magazines content. It would be particularly interesting to hear from investors in the region, to learn of their experiences and what we might do to lobby for East Africa investments to be better realised.

Publisher: Focus on East Africa Limited 100 Pall Mall, St James, London SW1Y 5NQ, United Kingdom Tel: +44 (0)20 7321 3768 Fax: +44 (0)20 7321 3738 Email: info@focusoneastafrica.com www.focusoneastafrica.com

Uganda: Focus on East Africa C/o Conrad Plaza, Plot 22 Entebbe Road, PO Box 21984, Kampala, Uganda Tel: +256 (0)772 507 200 Email: info@focusoneastafrica.com www.focusoneastafrica.com Editor: Stephen Williams

Special Correspondents: Moin Siddiqi, Neil Ford, Adrian Holliday, Heba Hashem, David Anderton, Ruari McCallion, Jane Bordenave Business Development & Sales: Rehema Naiga Rehema.naiga@focusoneastafrica.com Creative Director: Garry Smith Printers: Totum Solutions Ltd

The information contained in this publication is verified to the best of the authors and the publishers ability and has been obtained from sources the proprietors believe to be correct. However no legal liability can be accepted for any errors or loss arising from reliance on it. No part of this publication may be reproduced without the prior consent of the publisher. EastAfricanInvestor.

The environment is important to us. The EastAfricanInvestor is printed with vegetable based inks on FSC-MIX certified paper to ISO 14001 certification.

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contents

12

Winter 2011

22

34

Comment

Power

Diaspora

Business

03

Publishers welcome

22

The only way forward

36

GROW: A grass root approach

52 54 56

GroFin: Preparing for success

Digest

Region

06 11

A round up of the news

26

Special Report Real Estate

South Sudan

Ugandas informal economys woes

Agriculture

EA Oil & Gas

40 43 48

28

EAs Mortgage Market

VoIP: In the loop

cover story FDI 2012 review

KARI fights Ug99 threat

Capital Markets

12 16 20

32

Are you ready to strike gold?

Divided opinion

VIEWS: Mazars Owen Koimburi

Commodities

Kenyas Tatu City is launched

34 35

Goodbye Europe, hello New World!

GOlD: Set to stabilise

Finance & Economics

48

50

Pension funds reforms

COFFEE: Exports boom

New World Order

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Education
Rwandas solar school inaugurated
The Rwanda government and the European Union have inaugurated the first school in the

The AfDB and the government of Uganda have signed a loan agreement for US$60million to be used for community agricultural infrastructure.

country to be powered by solar photovoltaic energy. The Musenyi School located in the Bugesera District is part of a project dubbed Increase Rural Energy Access in Rwanda through Public-Private Partnerships (IREARPPP), a programme which is expected

will benefit a total of 300 rural schools in 27 different districts. The supply and installation of photovoltaic and electrical equipment for the project is co-financed by the EU that provided US$5.15million and the government which contributed US$2.7million.

Energy
Uganda sets up energy fund
Uganda has set up a US$8.6million fund to help finance new power projects. The fund, a joint project with the World Bank, is to be managed by the Uganda Energy Credit Capitalisation Company (UECCC) and is expected to help the private sector invest in electricity generation projects through loans. The projects include mini hydropower dams of up to 1MW, solar plants as well as other renewable energy projects to supply rural consumers. Statistics show only 12% of Ugandans are connected to the national grid, prompting the government to push through more projects to meet the energy shortfalls. The fund has a seed capitalisation of about US$7.2 million and a further US$1.44 million in the pipeline from developing partners. Ugandas banking industry has not been able to meet the financing needs of the energy sector investments, which are long-term in nature, UECCC general manager Specioza Kimera Ndagire commented, adding that her company will work with 10 banks that are participating in the administration of loans dispensed under this fund, to offer flexible terms for borrowers with 5-7 years repayment periods. Uganda aims to generate 3,800MW in the next five years, with a mix of the big hydro projects, such as 250MW Bujagali which comes on line by end of the year as well as 600MW Karuma, whose construction starts early next year. This capacity should shore up the existing 380MW Owen Falls Dam and several smaller hydro power dams countrywide, now at different stages of planning, procurement or construction. In addition, Ugandas sugar millers produce varying capacities of electricity from bagasse for their own use, the remainder of which they supply to the national grid. With UECCC, it is envisaged that up to five mini hydros will be established.

Mining
China takeover of Anvil Mining
Chinas state-owned Minmetals Resources has made a US$1.25billion takeover bid for Canada-listed Anvil Mining, indicating Chinas increasing appetite for acquiring resource assets outright. Anvils board has indicated its acceptance for Minmetals bid which values the companys shares at CUS$8 (US$7.57), representing a 30% premium. The companys main asset is the Kinsevere copper mine in the DR Congo that is expected to produce up to 40,000 tons of copper this year. Minmetals stated: Anvil Resources copper resources are an excellent fit with Minmetals strategy to build an upstream international base metals company. Minmetals is already one of Chinas largest metal commodity traders.

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Food

Kenyan mobile phone subscriber numbers rose 28% to 25million in 2010 while Safaricom, Kenyas largest telecoms operator and France Telecoms Kenya unit, Orange, plan to form a joint infrastructure management firm in the next three years.

Awards
Equity takes Africa Investor Award

Cadburys keeps Nairobi factory

Cadburys Kenya, whose UK parent company was acquired by US-based Kraft Foods, will retain Nairobi as its hub for the manufacture and distribution of food and beverages for East African markets. Nairobis country

director, Marion Gathoga, said its factory in Nairobi is currently undergoing a major upgrade that includes the establishment of automated production lines of dry power and food drink products as well as an ultra modern distribution centre. The investment will position Kenya as a focused manufacturer of food beverages supplying the broader East Africa market, she told the press.
Group chief executive Dr James Mwangi

Equity Bank Group has won the Africa Investor Award as the Best Initiative in Support of SMEs and the Millennium Development Goals. Group chief executive Dr James Mwangi received the award from the UK-based African Investor, an international investment research and communications group, during Septembers World Bank Annual Meetings in Washington DC USA, saying the bank would continue with its commitment to enhance its customer product and service offering that has the capacity to transform their lives and livelihoods. At Equity Bank, our commitment is to make banking convenient and accessible to all our people so that they can become agents of their social economic transformation. Meaningful progress can be achieved on the attainment of the Millennium Development Goals if organisations and institutions can develop pro-growth and pro-development products and services and then ensure that they are easily accessible and affordable. Equity has been at the forefront in promoting the growth of micro businesses to small medium enterprises in the East African region. By investing in the education, health, agriculture and business empowerment of our people, we lay a strong foundation for the future of Africa. A prosperous Africa will not only benefit its people but also contribute meaningfully to global trade, Dr. Mwangi added.

Banks
Credit Bureau for Tanzania
The Bank of Tanzania, Tanzanias central bank, intends to establish a Credit Reference Bureau (CRB) by the end of the year. The Bank of Tanzanias governor, Professor Benno Ndulu, says that commercial banks lending interest rates could drop to between 10-15% when the CRB comes into effect as more information for lenders will reduce loan defaults.

Communication
Econet drives Burundi 3G service forward
Econet Wireless (Burundi), having initialised the roll out of 3G services in Burundis capital Bujumbura, has now begun to extend network coverage to the rest of the country. The company has earmarked US$10million for the total project, which Econet Burundis chief executive, Darlington J Mandiwenga says will mean Burundi will be on a technological par not just with other African countries, but many developed countries too.

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Energy
Sino-German proposition for huge Tanzania power investment
The China National Machinery & Equipment Import & Export Corporation (CMEC) of China, and Siemens of Germany, have tendered Tanzanias President Jakaya
Tanzanias President Jakaya Kikwete

states that the two companies will use natural gas from Millionazi Bay, Mtwara, as a feedstock to generate 300MW of electricity and build a 1,100km power line from Mtwara to Singida region. The total cost has been put at US$684million to be jointly funded by the government of Tanzania and by a loan from Chinas Exim Bank of China. Later, the power will be run to the north-west regions of Kagera, Kigoma and Rukwa. Lindi and Ruvuma would, in due course, also be connected.

Kikwete with a plan for power generation for six regions of the country. The proposal

Agriculture
East Africa Agriculture gets a boost
A new Fund has been set up by a group of investors and a US government agency to stimulate growth in East Africas agricultural sector. USAid and others have already committed US$25million to launch the African Agricultural Capital Fund (AACF). Pearl Capital Partners, a Kampala-based specialised African agricultural investment fund manager, will be responsible for investing the funds in at least 20 agriculture-related small and medium-sized enterprises in East Africa over the next five years. A funding gap exists for small-cap agricultural businesses across East Africa, between large-scale commercial banks and microfinance institutions that this new fund intends to address by providing long-term capital to entrepreneurs who are building businesses in the agriculture sector that can deliver reasonable financial returns for investors. Besides targeting positive financial returns, the fund wants to have a significant social impact through the provision of employment, securing markets and improving products for smallholder farmers across East Africa. The fund manager will focus on building the skills of local management teams rather than introducing expatriat management expertise The co-investors in the fund are all members of the investors council of the Global Impact Investing Network, a nonprofit organisation dedicated to increasing the scale and effectiveness of impact investments and whose main funders are JP Morgan, the Rockefeller Foundation and USAID. Meanwhile, The East African Community (EAC) secretariat has started work on the budget for the financial year 2012/2013, this time targeted at improved agricultural production and implementation of the food action plan. According to the drafted priorities, the secretariat wants to target at least three projects working towards the implementation of the food action plan by 2013 as well as planning to harmonise and start applying all regional policies, regulations and standards on sanitary and phytosanitary issues by the same year. It is also planned that the intra-governmental organisation would have identified and strengthened five strategic agro-processing and agri-business for enhancing value chains. In the next financial year, the improvement of livestock marketing and trade, improvement of regional management of animal breeding, conservation and distribution will receive priority attention. Deputy Secretary General in charge of Finance and Administration, Dr. Julius Rotich has explained the need to also intensify regional infrastructure development and establish adequate and reliable energy supplies while strengthening popular participation and a common East African identity and political will behind the regional integration process.

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Energy
Uganda sets up energy fund
Uganda has set up a US$8.6million fund to help finance new power projects. The fund, a joint project with the World Bank, is to be managed by the Uganda Energy Credit Capitalisation Company (UECCC) and is expected to help the private sector invest in electricity generation projects through loans. The projects include mini hydro-power dams of up to 1MW, solar plants as well as other renewable energy projects to supply rural consumers. Statistics show only 12% of Ugandans are connected to the national grid, prompting the government to push through more projects to meet the energy shortfalls. The fund has a seed capitalisation of about US$7.2 million and a further US$1.44 million in the pipeline from developing partners. Ugandas banking industry has not been able to meet the financing needs of the energy sector investments, which are long-term in nature, UECCC general manager Specioza Kimera Ndagire commented, adding that her company will work with 10 banks that are participating in the administration of loans dispensed under this fund, to offer flexible terms for borrowers with 5-7 years repayment periods. Uganda aims to generate 3,800MW in the next five years, with a mix of the big hydro projects, such as 250MW Bujagali which comes on line by end of the year as well as 600MW Karuma, whose construction starts early next year. This capacity should shore up the existing 380MW Owen Falls Dam and several smaller hydro power dams countrywide, now at different stages of planning, procurement or construction. In addition, Ugandas sugar millers produce varying capacities of electricity from bagasse for their own use, the remainder of which they supply to the national grid. With UECCC, it is envisaged that up to five minihydros will be established.

Resources
Tanzania seeks super profit resource tax talks
Tanzania wants consultations with gold mining companies operating in the country to discuss how a super-profit tax might be implemented if parliament approves the proposed levy suggested by the countrys planning commission. The commission had reported that, considering the increasing trend in mineral prices, it is optimal to introduce a super-profit tax on the windfall earnings from the mineral sector. Companies including AngloGold Ashanti, the worlds third-largest gold miner, London-listed African Barrick Gold and Tanzanite One own mines in the country. Tanzanias gold output increased to earn US$1.5billion, ranking behind South Africa and Ghana and alongside Malis 44.6t in 2010. The Tanzanian governments revenues from the sale of gold in 2010 was a relatively paltry US$100million. US$600million recorded in 2010.

Uganda aims to generate 3,800MW in the next five years, with a mix of the big hydro projects, such as 250MW Bujagali which comes on line by end of the year as well as 600MW Karuma, whose construction starts early next year.

Taxation
Burundis tax revenues jump
Burundis imports rose 38% in the first quarter of the year while Burundis tax revenues jumped by a similar percentage, year-on-year, in the nine months to end-

Hospitality
Top Rwanda hotel on the market
Soprotel SA is tendering the Umubano Hotel, an 85-room four-star establishment in Kigali, to any reputable hotel operator, brand or consortium for acquisition and refurbishment. The Umubano, formerly known as the Laico Umubano, is situated in the embassy district of Kigali on Boulevard de lUmuganda, about 5km from the town centre and close to the Amahoro Stadium and Kigali Genocide Memorial Centre. In addition to an outdoor pool, Umubano Hotel currently provides a health club, a sauna, a steam room, and a fitness centre. Umubano Hotel also offers a restaurant, coffee shop/caf and two bars (one poolside). High-speed WiFi internet access is also installed.

September, climbing to Rwf352billion (US$557.5million). The rise in revenues is being credited to measures introduced to combat fiscal and customs evasion. The government has forecast that total tax revenues will rise to Rwf432.6billion (US$708.7million) this year, from less than US$600million recorded in 2010.

Continued on page 10 >>>

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Investment
A new fund is launched
Ugandas first national collective investment fund LIFT will be launched to address the need for appropriate funding structures that can match the huge economic development potential of various sectors. The logic is clear. Uganda is at a crucial juncture in its economic history with enormous potential gains from the extractive industry entering the economy. Huge investments will be required to fully capture these gains for Uganda, including developing appropriate infrastructure, real estate, agriculture and agroprocessing. Ugandas retail and commercial banking industry is not in a position to undertake capital intensive, long-term, real economic investments due to the unavailability of funding and/or regulatory constraints. The high cost of borrowing and stringent collateral requirements represent other challenges. Recognising that many enterprises will require a long-term equity partner with expert business management and technical capacities to grow their businesses into more competitive profitable ventures, LIFT intends to: Mobilise local funds to undertake long-term investments in key sectors of the Ugandan economy; Provide Ugandans with the benefit of participation in Public Private Partnership initiatives advocated for by the Ugandan National Development Plan; Accord investors an opportunity to take a leading role in Ugandas economic development; Target medium to long-term investments in real sectors of the economy; Develop sustainable local enterprise through equity funding as opposed to debt and ensure management excellence, robust governance structures, financial discipline and prudent risk management. LIFT envisages three classes of retail investments: Platinum (US$2,000 a year), Gold (US$1,000 a year) and Silver (US$500 a year). An institutional class will invest US$100,000 a year and corporations US$10million a year. Each shareholder may only purchase one investment class each year. All funds collected by LIFT will be ring-fenced, protected and maintained by a Capital Markets Authorised Custodian Banks whose approval is required before any disbursements are made.

Transport
TRL seeks fresh bids for railways
Tanzania is to invite fresh bids for a stake in its railway company, Tanzania Railways Ltd (TRL), after the collapse of a previous concession deal with Indias state-run Rites Ltd. The World Banks International Finance Corporation (IFC), which part-financed the Rites privatisation deal with a US$44million loan, has confirmed it will consider fresh finance for the TRL after Rites sold its 51% stake back to the Tanzanian government. The IFC has advised the Tanzanian government to make some improvements to the 2,700km network pending a new ownership structure. The government has earmarked US$1.16billion over the next five years to upgrade all the railway lines to a common operational standard.

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East Africa Oil & Gas

Ophir Energy
Ophir Energy, a London listed company made a successful all-share 118million (US$186million) premium on bid for Dominion share price. Petroleum in mid-October paying a 64% Dominions Ophir, which listed in July 2011, has Indian steel magnate Lakshmi Mittal as one of its biggest shareholders. The Ophir board said in a statement that the Dominion takeover consolidated Ophirs East Africa operations where it has already made three discoveries. Ophir is now one of the largest holders of exploration acreage in East Africa. Dominion had recently agreed to farm-out a 20% working interest in Block 7, deepwater Tanzania to a subsidiary of Mubadala Oil & Gas. Following the completion of that transaction, Dominion held an 80% working and interest and operatorship. Mubadala paid Dominion US$20million carried Dominions remaining 80% working interest in a new seismic programme expected to commence this year. Dominion had also signed a Production Sharing Contract (PSC) in the Lamu Basin giving the company a 100% working interest and operatorship. The PSC was signed between Dominion and the Kenyan Ministry of Energy in Nairobi. Dominion had agreed to reprocess existing 2D seismic data and acquire a minimum of 250sq permits with a 50% interest; a 5% interest from Cove Energy, which will maintain a 10% interest in the permits; and a 15% interest from Dynamic Global Advisors, which is selling all of its interest to Total. About one-tenth of the blocks are currently being covered by 3D seismic survey, the results of which will determine if the operator will drill one or more exploratory wells. benefiting from a US$10billion investment to begin production. The breakthrough was achieved after a week-long retreat to iron out various issues. In early October Ugandas parliament voted to delay Tullows proposed sale of assets to Total and CNOOC until the country had passed new legislation. In what appeared to be a politically motivated attack, Tullow was also accused of bribing Ugandan ministers in order to influence decision-making, something the companys chief executive, km of 3D seismic data in the initial twoyear exploration period. Dominion had negotiated the option of a second two-year period by committing to drill an exploration well. The acreage lies immediately to the north of Block L8 on the Davy-Walu structural trend, where the reportedly 1billion barrel Mbawa prospect will be drilled in mid 2012. Tanzanias current natural gas reserves are reported to have risen to more than 10 trillion cubic feet (tcf) from a previous estimate of 7.5 tcf following major gas discoveries in the countrys deep-water offshore region. Meanwhile, Brazilian stateowned oil giant Petrobras has agreed to grant 50% of its interest in two blocks in Tanzania to Shell Deepwater Tanzania BV for an undisclosed sum. Aidan Heavy, steadfastly and at times vehemently denied. Heavey described the allegations against Tullow as outrageous and wholly defamatory, demonstrably false and appear to be founded on misunderstandings about how the global oil and gas industry works. Tullow is also said to be considering legal action to protect the reputation of the company and that of its employees. The company, whose assets are mainly located in Africa, holds stakes in Uganda where around 2.5 billion barrels of oil has been discovered.
Lakshmi Mittal

Total control
Totals subsidiary, Total E&P Kenya BV has acquired a 40% stake in five offshore exploration blocks in the Lamu Basin, offshore Kenya, covering 35,500sq km in water depths of between 100m and 3,000m. Total will earn a 20% stake from Anadarko Kenya, which will continue to operate the

Tullow receives go-ahead

After long weeks of delay, Ugandas ruling party has voted to rescind a resolution which was blocking Tullows proposed farm-down of assets to Total and CNOOC. While the countrys parliament will still need to approve the motion, this is a significant development on the path to lifting the oil found in Ugandas Lake Albert region and for the country to start

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Profile

EAC: So many strengths, so many opportunities!

Owen Koimburi is a founding partner of Mazars (Kenya). He spoke to East Africa Investors editor, Stephen Williams about the strengths, weaknesses, opportunities and threats that the region holds for investors.
Owen Koimburi is a recognised specialist in financial management advisory services, capacity building and training, corporate governance and international financial reporting. Deloitte trained, he was a non-executive director of the Central Bank of Kenya and is a founding partner of Mazars (Kenya), established in 2010 and based in Nairobi part of the integrated audit, tax and advisory multinational US$10billion. Mazars now has offices in 61 countries and over 13,000 staff. Heading a 60-strong staff in Nairobi, Koimburi is responsible for the East Africa region, serving a varied portfolio of clients including major manufacturers, financial and institutions, co-operatives, organisations, local authorities, parastatals, charitable non-government sole proprietors and private companies so who better to discuss East Africas investment potential? It is clear that East Africas potential has not gone un-noticed at Mazars. Part accountancy practice, with a global turnover of more than of Koimburis brief in the short term is to help establish offices in Uganda Tanzania, Burundi and Ethiopia (there is already a branch office in Kigali, Rwanda) as well as possibly South Sudan. Meeting him on a visit to London UK, where his firm was sponsoring an East Africa Global Trade and Investment Forum, organised by Business in Africa Events, we talked about the regions strengths, weaknesses, opportunities and threats (SWOTs for short) in terms of mobilising investment for sustainable economic development. Beginning with the regions strengths, Koimburi identifies three major strengths from an investment perspective: the wealth of unexploited minerals in Tanzania; the oil being developed in Uganda and the potential of the renewable energy sector in Kenya. He was also quick to point out the inherent advantage to the regions trade potential of having access to the Indian Ocean. That in itself is a strength, we have ready access to world markets as East Africa is not landlocked.

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We also have political stability. OK, we had our problems in Kenya in 2007 and 2008, but in general we have a wellentrenched democratic process and each country has held elections in the past five years. The political stability is there and should not be overlooked. Then we have a developed infrastructure and economic connections with our traditional trading partners that have been in place for many years. They just need to be upscaled. But what, I asked Koimburi, of the shift in emphasis away from traditional trading partners towards the East, towards the Gulf, China and India? The focus might have slightly changed, having shifted towards new partners, he replied, but it is really just a matter of expediency because these countries have come in just as our traditional partners have been confronting their own challenges, if you look at Europe and the US. Furthermore, from a geographic proximity point of view, it is true that we are nearer to the Gulf, India and China and you also cannot ignore the fact

that these countries have not imposed as many conditions about governance, about anti-corruption measures etc. These are issues we know we have to deal with, but sometimes lets face it Western Europe and the USs conditionalities have often been extremely onerous in the face of fledgling democracies . As I say, we acknowledge that these are problems we have to deal with, but getting back to our strengths, the infrastructure is there. Trying to clarify what exactly Koimburi was trying to explain, I asked him if by infrastructure he meant physical infrastructure. It seems that he was being much more subtle than that. Plentiful human resources Yes, I am talking about physical infrastructure as a strength, but I also mean infrastructure in terms of intellectual knowledge. We have people who know how to run businesses efficiently, how to run industries properly. The other strength is our large

population, a young population, the majority under 30-years old, and to a large extent, especially in Kenya, well skilled all we lack is financial resources. But, I would argue, what we dont have in financial resources we have in skills, especially in information technology and, of course, a huge population. That is a strength in terms of representing a huge market for our manufacturing and services sectors. So, having explained what he thought were the major strengths of the EAC region, I asked Koimburi about weaknesses. There is no doubt that the perception of corruption is a major problem, a major weakness, he said, before adding this rejoinder. The political system has looked at it from the position that no country has the moral high ground to talk about these issues because, after all, the corruption money that has been siphoned off, the misappropriated money, does not exactly stay in East Africa. It goes to the capitals Continued on page 14 >>>

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Profile
of the Western economies, sometimes to be lent back to Africa! And there are other weaknesses, for example the markets. We do not have a well-developed financial sector and we do not have lot of say in global commodity prices. We are generally selling primary commodities but we know we have to move towards value addition for export markets if we want to prosper and stimulate employment. That led us neatly on to the opportunities that exist in East Africa for investment. I see so much potential in the region, especially in farming, agriculture and horticulture if we try to take it to the next level, to where we are adding value to produce, developing agri-businesses. On a related front, there is a lot of scope for developing transport, developing the basic infrastructure to get our products to market. It is true China has been assisting us to start to build modern roads now we need to organise mass transport systems, including rail. And I must mention the information communication technology sector there is so much pent up demand and that sector can underpin many service industries such as business process outsourcing with call centres, back office services and other enterprises. However, Koimburi sees each country of the East Africa region as having a slightly different investment potential. He talks enthusiastically about the minerals sector in Tanzania with unexploited deposits of precious metals and gems such as gold, diamonds and tanzanite standing out, but also

Financial services and real estate Financial services and the real estate sector also have huge growth opportunities. You know, I have seen some statistics that say that just 10% of the population own their housing. If you look at the emerging middle-class, they generally aspire to home ownership and I would estimate that, for example in Kenya alone with a population of 40million, about 50% are earning and about 40% of them could service a home loan. So I would estimate the emerging middle-class if that is the definition we use to be, comfortably around 10million, yet only about 1.6million actually have home ownership finance. We finally turned our attention to threats to the region that might be summarised as allowing the cancer of corruption to fester, exogenous factors such as terrorism or the fallout from the Eurozone debt crisis, and the possibility of not grasping economic opportunities. But we ended our conversation discussing the financial sector and capital markets. As Koimburi had, earlier, mentioned the financial sector and real estate in the same breath, I wanted to learn if he felt the banking sector could actually stimulate home ownership. I think what we actually need is intermediaries in the real estate sector because the financial sector is relatively undeveloped. Koimburi had already told me, without disclosing their identity, that his portfolio of clients included a fair number of financial institutions. Where I see growth in the financial sector is that a large percentage of the population are as being within the

On a related front, there is a lot of scope for developing transport, developing the basic infrastructure to get our products to market.
commercially viable deposits of uranium, nickel, copper and energy coal. For Kenya, Koimburi is bullish on the renewable energy sector, pointing out the support that government has placed in developing geothermal generation and building one of the largest wind farms in the world. It is also interesting to note the emphasis that the authorities place on renewable energy when it comes to approving giant projects such as Tatu City where all hot water is required to be solar heated. In Uganda, he identifies the prime opportunities agriculture and agribusiness sectors in Rwanda, the burgeoning ICT sector and in Burundi, as in Tanzania, it is natural resources, as well as agriculture, that excites him. You have all these opportunities in good measure in all countries. But you know, throughout the region, there are huge opportunities in tourism, whether you are looking at ecotourism or the traditional wildlife safari offerings, or hosting international conferences.

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East Africas large, well-motivated, youthful population represents a prime asset to the region

un-banked, they do not have access to financial services. As for the capital markets, Koimburi made an important point about raising capital he insists that companies should not go to the market simply to refinance but to raise capital for growth. If it is for refinancing, then it should be accompanied by serious restructuring Some companies might be tempted to go to the markets because they have got themselves into a liquidity problem. We need to identify such problems first, whether it is issues of management or of governance, so we deal with that before they go to the market. Nevertheless, Koimburi sees the capital markets as powerful engines of growth. My thoughts are that if we had a secondary market we could have a lot of family-owned companies listing. On another point, I have come to

believe that the Capital Markets Authority in Kenya, and similar authorities throughout the region, should not be there solely to provide capital as and when it is needed, but should also have a very strong research role to identify projects and gauge them in terms of raising capital. Furthermore, I should like to see a financial services regulator umbrella organisation established in Kenya and eventually across the region. Such an organisation, which has been discussed in Koimburis home market Kenya for many years, would undoubtedly give investors comfort. As he explains it: Equity capital is not just about enabling a company to refinance but it allows many more people be involved, to partake in the process, share in the rewards and, as importantly, to stimulate a culture of investment and savings.

For Kenya, Koimburi is bullish on the renewable energy sector, pointing out the support that government has placed in developing geothermal generation and building one of the largest wind farms in the world.

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fdi 2012 review

Goodbye Europe, Hello New World!

Are countries like China, India and regions such as south-east Asia and the Middle East replacing the traditional European investment centres of London, Paris and Frankfurt in terms of East African FDI? asks Adrian Holliday.

Charm, but not

arms

and

soft

loans

are

the 1960s, a huge engineering feat. Better understanding Last year the Ugandan Investment Authority named China as the leading FDI investor in Ugandas economy, displacing UK at the top, a position the UK had held for more than a decade. Under the Kibaki government, Kenya has also seen Chinese investment soar. Much of the investment is pouring into tourism, energy and manufacturing, as well as construction. In contrast, UK FDI is falling sharply, down to Ksh202million (US$2million) recently putting it sixth in the table. Compare that with Ksh19.6billion (US$193.75million) directed at Kenya in 2009. Developed economies have fully exploited traditional sectors like agriculture and are now focused on topend infrastructure businesses for which they charge relatively higher prices, Sammy Onyango, chief executive of

Deloitte

Eastern

Africa

commented

increasingly in abundance from investors necessarily from Western Europe and the US any more. Despite its enormous size, China is resource-poor. So no surprise she is getting into African FDI in a big way, and is less concerned with dealing with some of the continents more unsavoury regimes as a consequence. In some cases of Eastern Africa FDI, it is no sudden lurch. Look at Uganda and China: the two countries have maintained diplomatic relations since independence. Despite considerable Ugandan regime changes in the 1960s and 1970s, diplomatic relations remained constant. For example, roll back to 1971 and to the 26th General Assembly of the UN where Uganda voted for the restoration of Chinas seat in the world body. Perhaps Tanzania. even China deeper built has been the relationship between China and the Tanzam railway from Dar es Salaam to Zambia in

recently. He also made the point that emerging powers like China understand the risks of investing in Africa better and their projects and promises carry fewer conditionalities. But many Western countries like the UK and German have their own problems. Germany is wresting with huge Euro debt concerns and the British are struggling with public spending, or rather the lack of it. The mood to invest in places like sub-Saharan Africa is less than enthusiastic for many, given the homegrown pressures and problems. And it is not just the big new emerging powers like China that are getting into Africa. Turkey, Mexico, Iran, South Africa are all getting involved, says Tom Cargill from the Africa Programme at Chatham House, The Royal Institute of International Affairs in London, Continued on page 19 >>>

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fdi 2012 review

interest [in multinationals have shied away from Kenya in favour of Uganda and Tanzania over concerns about political tensions in general, and specifically over restrictions on foreign ownership. Look at 2010 inflows, for example. According to United Nations Conference on Trade and Development (UNCTAD) figures, Kenyan FDI levels suffered a massive drop, sinking from US$729million in 2007 to just US$141million in 2009. So, does that mean a permanent goodbye to many Western investors, letting increasingly powerful players like China replace them? That seems unlikely as investment cycles are just that cyclical. Because of the current European currency and investment woes, there is at the moment a conservative approach to investment, but that should fall away. However, many Western companies are only too painfully aware that if they do invest in an African country they can expect to receive disproportionate interest from Western NonGovernmental Organisations that could Tensions

expressing

renewed

Africa] as an investment destination. For example a country like Turkey is due to have 30 embassies across subSaharan Africa in the next 18 months. It is probably down to a combination of economic factors but also domestic and political push, because of [internal] tensions and whether Turkey is an Asian or European country. In Turkeys case, that split identity role can cause political complications for Turkish investors who want to invest in Asia or Europe. But by investing in Africa, they avoid all those problems. Turkey also sees itself as an emerging balancing power and seeks engagement in African states, adds Cargill. By comparison, a country like South Korea is much more business-focused. Of course, some UN Security Council politics will remain but if interest is sustained, then Western companies will, as they see the success of the new upstarts, become increasingly nervous of their waning influence. Key differences And there are other tensions. For example, although Chinese FDI may be positive for some, the benefits are limited if China flies its own foreign nationals in to work on the projects rather than employing local people a key part of FDI traditionally. Recently Chinas ZTE telecoms company was awarded a large contract to build fibre networks across South Africa and Burundi, but allegations are flying that the company will import its own foreign nationals to work on the projects. There regional are also some Some distinct Western differences.

Under the Kibaki government, Kenya has also seen Chinese investment soar. Much of the investment is pouring into tourism, energy and manufacturing, as well as construction.
companies have a strong record here, either. But there is certainly a difference in emphasis, especially in the light of the credit crunch where increasing numbers of public pension funds had to revaluate the ethics of where they were invested.

But China and India and other countries will not be having it all their own way. In last Septembers election, Michael Sata was elected as Zambias president. For some years Sata campaigned on an anti-China ticket. Many Zambians had become frustrated with Chinese attitudes to working conditions and Sata had made it clear that he would initiate capital controls to restrict foreign exchange earnings, as well as possibly expelling thousands of Chinese migrant workers from the country. Sata met Chinas ambassador to Lusaka shortly after being sworn-in following his election victory. We welcome your investment, Sata was reported as saying, but as we welcome your investment, your investment should benefit Zambians and not just the Chinese. China a country that has poured almost US$6billion of investment capital into Zambia in the last three years alone - has been warned.

well impact on their brand, when it is very possibly quite a small part of their operations, comments Tom Cargill. Its a question of reputational risk entering the investment analysis. But this, Cargill adds, also all stems from having a very low knowledge about the opportunities and possibilities in Africa. Asian companies do not have so much pressure in terms of corporate governance. There are fewer investors who exert as much pressure on issues such as human rights and environmental good practice. Not that Western

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fdi 2012 review

New world order

Its boom time but which parts of East Africa are seeing significantly higher inflows of FDI, and what is driving it? Adrian Holliday investigates.
FDI investment in Africa declining. FDI investment in Africa rising. FDI investment in Africa static. All fairly familiar headlines but in 2010, Africas total FDI share amongst developing nations dipped by 9%, according to a United Nations Conference on Trade & Development (UNCTAD) report. However, East Africa was a slightly different matter with FDI inflows hitting US$3billion, a 3% increase. And that upward path looks set to continue says Tom Cargill from the Africa Programme at Chatham House, The Royal Institute of International Affairs in London. Fascination East Africa is fascinating. I wish more investors and policy makers in Africa would understand how East Africa is developing. Because its on the Indian Ocean and part of that growing connection nexus of countries, like Tanzania, whose population is likely to be the fifth most populous country by 2100. On the technology side of things, Cargill goes on, East Africa is much more plugged in; further ahead in terms of its neighbours. East Africa is also way ahead in terms of having an integrated common market. It will overtake Southern Africa before too long and start to eclipse South Africa in the next decade. But there are also clear regional differences. In the recent past, some Western multinationals have shied away from Kenya in favour of Uganda and Tanzania over concerns about political tensions, specifically restrictions on foreign ownership. Look at 2010 inflows, for example. According to United Nations Conference on Trade and Development (UNCTAD) figures, Kenyan FDI levels sank from US$729million in 2007 to just US$141million in 2009. A massive drop. Look at the figures over a longer time frame - between 2005 and 2009 as the International Monetary Fund did - and Rwanda, Tanzania, and Uganda can all claim to be among the fastest growing economies in the world during this period, the IMF said in its Regional Economic Outlook report earlier this year. In the top-20 fastest-growing countries in 2005-2009, Uganda ranked sixth, Rwanda ninth and Tanzania sixteenth. Much of the growth is catchup from huge bouts of economic inertia and political instability in the last part of the 20th century. And economic

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growth and income levels would be even higher were it not for the regions high population growth. Real change But what about real on-the-ground change in terms of deals and strategy? A move by Indian investors to spend up to US$2.5billion buying or renting land in several countries, including Uganda, has drawn a lot of attention. This is an attempt to find land where a range of crops vegetables, maize, palm oil, for example can be grown for the booming Indian home market, and abroad. In August, Indian conglomerate Karuturi Global said it was prepared to spend up to US$500million in East Africa, acquiring hundreds of thousands of hectares of land for a mixture of sugarcane, cereals and palm oil. Karuturi Global has emerged as the worlds largest exporter of fresh cut roses on the back of its investments in Kenya and Ethiopia For many Indian investors, it is undoubtedly an attractive deal. Land is relatively cheap in Africa and buyers are welcomed as the deals invariably provide jobs. But Karuturis move, should it go ahead, is still a land grab, and a move that will worry many. In a UN report earlier this year, concerns about rich Asian and Western investors were again articulated strongly. Can central negotiate governments such manage and inward investment

way of binding agreements on local procurement, processing of produce, and payment of taxes, warns the UN. Given that these contracts are usually kept confidential, it is very difficult for performance to be scrutinised or investors held to account by government agencies, parliament, local people, CSOs, or media. Mixed bag Greater FDI can haul behind it a litany of concerns too environmental and more degradation, corruption,

FDI

concern about human rights abuses. So its mixed news, especially when there is considerable concern about many communities being able to feed themselves properly and sustainably. On the other side of the coin, such deals can develop local economies, with often a highly useful transfer of knowledge and skills. But East Africa will need to take a robust line taken on the contractual and pre-condition details. A weak state (and weak negotiators) can easily be taken advantage of, especially when rich investors wave large wads of Western, and increasingly Eastern, cash around. Yet there is no getting away from East Africas potential. The IMF recently reiterated its optimism on the region, upping its GDP forecast with low-income countries recovering the fastest. SubSaharan Africas recovery from the crisisinduced slowdown is well underway, with growth in most countries now back fairly close to the high levels of the mid 2000s, read part of the report. And in a recent Ernst & Youngs 2011 survey, the authors claimed the emergence of the East African Community (EAC) made this block of countries a compelling and accessible marketplace. So Western companies are plainly trying to figure out how to finesse rising population growth and opportunities for a cheap workforce balanced against education, skills, taxation and politics.

In the top-20 fastestgrowing countries in 2005-2009, Uganda ranked sixth, Rwanda ninth and Tanzania sixteenth. Much of the growth is catch-up from huge bouts of economic inertia and political instability in the last part of the 20th century.
investors, particularly Western

investors, should not expect East Africa to revert to greater democracy as it grows richer and more confident. This is the way the world is now, says Chatham Houses Tom Cargill. We already have it [a similar situation] in South America - immense riches and sophisticated economies taking place alongside shanty towns and deep poverty. None of these East African countries are going to be liberal democracies in the Western sense. They are establishing their own governmental systems, which may look arbitrary and authoritarian, but they are putting down roots fast and their economic competence is growing quickly.

competently, it asked? Their role is key to setting the terms and conditions for ensuring a proper balance of interests between local land users and investors, and enforcing such contractual agreements, the report said. Part of the upsurge is demand for food, feed and biofuels. Policies to substitute biofuels for petroleum and diesel for the EUs road transport sector, for example, are generating strong, and possibly unsustainable, demand for oil palm, sugar cane and jatropha. There is frequently little in the

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sector focus

Power

Powering East Africa the only way forward

Nearly 93% of Africas hydropower potential which accounts for one tenth of the worlds total remains unexploited, according to World Bank estimates. How is it then that a prosperous region like East Africa loses millions of dollars due to power shortages? To answer this conundrum Heba Hashem takes a close look and reveals robust developments and movements within the energy sector.
One cannot turn a blind eye to the expanding population in and rapid industrialisation of East Africa, nor the reoccurring droughts that are lowering the levels of rivers many of which are used for hydroelectric generation. The energy crisis is taking its toll on farmers, households, manufacturers, tourism, and trade flows, causing major financial losses across the region. However, a series of power plants are now approaching completion, and renewable energy sources are being tapped into like never before, signaling what could be the end of a power crisis. Power demand in Uganda is increasing a worrisome 10% annually, and insufficient energy supply is slashing the countrys economic growth by 2% each year. But the crisis is expected to ease after the Bujagali and Nyagak hydropower projects come online towards the end of the year. The first phase of Bujagali will generate 50MW, while Nyagak will produce 3.6MW, bringing an additional 53.6MW to the national grid. Once fully commissioned in April 2012, Bujagali will generate 250MW. Work on the upcoming 600MW Karuma hydropower plant is also scheduled to start early next year, as the government prepares to procure a contractor. To fund the project, the state will use around US$900million raised from capital gains taxes on recent oil transactions in the country, and a US$500million Eurobond is expected to be issued. On the border between Uganda and Tanzania, another hydropower plant is being constructed, comprising two generating units of 8MW each. The joint development of the 16MW KikagatiMurongo project will be implemented by an independent power producer, and will benefit both countries. Even sewage is being seen as a potential energy source. Ugandas Water and Sewage Corporation is starting a project at the Nakivubo Sewage Plant to capture methane gas and convert it into bio-gas for electricity for its own use; the excess to be fed into the national grid. International grants are

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Ambitious solar photo-voltaic projects are now taking shape

simultaneously playing a significant role in enhancing the regions economy. Norway has granted Uganda US$20million to connect 15,000 rural households by 2020 a move that promises to transform the lives of more than 100,000 people. Reluctant to invest in energy, the private sector has had trouble allocating funding from banks, who Energy usually Credit provide short-term loans. The recently established Capitalisation Uganda Company (UECCC)

the is

Belgian pumping

Development US$800,000

Agency into the

as cotton, coffee and tea. Considering the alternative route of renewable energy, the Tanzanian government appears to be hesitant. The government cannot risk investing public money in energy potentials whose outcomes are yet to be confirmed, acting commissioner for minerals in the ministry of energy and minerals, Ally Samaje, told a stakeholders workshop. At the same time, utilising energy sources such as coal require long-term development, including exploration, which requires a lot of money. This does not leave Tanzania with many options. Today, a staggering 93% of Tanzanians use wood and charcoal as their primary energy source, but the trend is likely to change with the countrys adoption of renewable energy. An ambitious US$1million solarphotovoltaic cluster project was commissioned recently by the EU, in which Camco International will install small-scale solar systems in 15,000 Continued on page 24 >>>

development of clean energy projects throughout Uganda, selecting Camco International for technical assistance. TANzANIA: Natural gas and solar on the agenda Tanzania plans to extend its grid connection to 29% of the population by 2015, a move that will require 2,046MW of new generation capacity. Although the government devotes around US$358million to power annually, energy spending needs to reach US$631million each year between now and 2015 for the country to achieve its goals. In July, national electricity supplier Tanesco reported alarming transmission and distribution losses of 26%; nearly triple the best-practice benchmark of 10%, forcing it to apply power rationing. For the gold-producing nation, this threatens the operations of gold-mining companies as well industries dealing in the processing of raw commodities, such

a new energy firm set up by the government to manage the countrys energy capitalisation trust and extend credit support will work on mobilising resources from the government and facilitating private-led energy projects. The fund has already attracted a seed capitalisation loan of US$6.8million from the World Bank; Ush1.2billion (US$70million) from the government, and Euros 250,000 (US$345,000) from the German Agency for International Cooperation. When it comes to renewable energy,

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sector focus

Power
with a Ksh100billion (US$991.6million) electricity project that will connect Rabai substation with Lamu. Starting this October, the 200KV line will take one year to complete, and should boost power supply in all surrounding areas. Kenya is one of the best examples of renewable energy deployment, with three quarters of its energy coming from hydropower and a further 11% from geothermal sources. The country is now creating one of the biggest on-shore wind farms in the world, comprising 353 giant wind turbines around Lake Turkana. The Lake Turkana Wind Power (LTWP) project will produce 300MW when completed in July 2012, adding 30% or more to Kenyas total installed capacity. A second wind-farm in the tourist town of Naivasha is also being studied. RWANDA: foreign investments to boost energy Rwandas homes in Lake Victoria region. This is part of the EUs plans to construct five renewable energy projects in the country, under a US$10.7million scheme that will connect thousands of rural sites to the grid using hydropower, solar energy, and biogas. Through the grant, a new hydropower plant at Msolwa will be built, and the Mawengi hydropower plant will be upgraded. Bordered by the Indian Ocean, Tanzania is actively working on exploiting Songo Songo Islands abundant natural gas estimated to be enough to meet nearly half of the countrys electricity demand. The US$258million project KENyA: a successful renewable energy model In Kenya, 48% of urban and only 4% of rural households are presently connected to the grid. The country recently reported transmission and distribution losses of 18%, almost double the best-practice benchmark of 10%. The Chinese have stepped in to boost power supply at the new Lamu Port, to further exploit this offshore field is operated by PanAfrican Energy Company, and will see a 229km pipeline connected to a power plant in Dar es Salaam. current installed capacity stands at around 79MW, of which it imports 14.5MW. But this capacity is planned to increase to 130MW by the end of 2012. Egypts Orascom Construction Industries will be investing US$130million over the next four years in the construction of a 50MW methane power plant at Lake Kivu, while a US$91.25million loan is being granted for the development of the Kivuwatt power plant in Kibuye. The first phase will involve gas extraction from Kibuye and will produce 25MW, increasing Rwandas capacity by 40%. Furthermore, the East African Power Pool (EAPP) is intending to install 350,000

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power connections throughout Rwanda before the end of next year, of which 225,000 have already been installed. BURUNDI: energy hungry and resource-poor Burundi experienced severe power rationing towards the end of September, as the country cut power supply to consumers to just four hours a day, following a serious fall in water reserves at the main hydropower plants. The landlocked nation of 10million people has suffered power outages since drought season began in July, pushing the government in September to raise electricity tariffs by 124%. According to CIA figures, less than 2% of the countrys population has electricity at homes. An additional 270MW will be needed in Burundi in the next five years to meet a 13% annual growth in electricity demand and to enable it in the exploration of nickel reserves, estimated at 4.2m tonnes.

Interconnecting East Africas grid One of the most visionary long-term solutions for East is Africas a power closedrequirements creating

US$800million. The second, the Kenya-TanzaniaZambia project, is a 400KV line that will be one of the longest when complete in 2015, funded by the Norwegian government at a projected cost of US$800million. And the third transmission cable will link Kenya with Uganda. Constructed back in 1955, the 132KV line will be upgraded to a 220KV double circuit line at a cost of US$60million. Other grid-connecting projects include a 220KB line between Uganda and Rwanda, and a 220KV line between Rwanda and Burundi. Such strides towards hydropower plants and renewable energy projects, along with well-planned grid interconnections, will soon lift the nations of East Africa out of their energy misery, and save the governments from falling into heavy debts owed to thermal power generators, as witnessed in the last few months.

circuit system in which power moves from the surplus to the deficit areas via high voltage cross-border transmission lines, such as the one being constructed between Saudi Arabia and Egypt. In fact, a grid-interconnection plan for East Africa was first proposed in 2005 by the East Africa Power Pool (EAPP), but remains incomplete due to a lack of finance. We have to look for alternative financing- bring in the private sector, donors, and independent power producers, says Jasper Odur, executive secretary of the EAPP. The EAPP is now working on three major interconnection projects: the Eastern African Interconnection, also referred to as the Ethiopia-Kenya Line, for which the design has been completed and a contractor is now being sought. The 500KV line should be complete in the next three years at a cost of

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south sudan

South Sudan: From virgin territory to the regions largest economy?

Rich in natural resources and valuable mineral deposits, the new nation of South Sudan holds immense opportunities for those with an entrepreneurial spirit. Where do potential business opportunities lie? And who has ventured into this incipient market so far. Heba Hashem reports.
Political stability and security in the new nation of South Sudan is likely to attract international investors, but with little infrastructure in place, there is great pressure on the new government to get things right quickly. This includes the construction of new roads, bridges, railways, and power supply. South Sudan is larger than Uganda, Rwanda, and Burundi put together, and the expanse of important roads that needs to be paved or rebuilt is massive and presents immense opportunities for construction companies. Real estate for the public and private sector is another area that desperately needs infrastructure. In Juba specifically, where numerous individual and corporate players are locating to tap the countrys economic potentials, there is a huge demand for residential accommodation and offices. In fact, the cost of accommodation in the capital of 2million people currently starts from US$100 per night for a standard hotel. The same type of hotel in Dar es Salaam would not cost more than US$40. Regional players venture forth Besides the development of infrastructure, a stimulation of industrial and commercial activities will lift the economy to a competing position. In the capital, small and medium businesses, including kiosks, restaurants, hotels, water suppliers, and internet cafes have already been set up, mainly by small entrepreneurs from Uganda, Kenya, Ethiopia, Eritrea, and China. The Chinese, in particular, are also involved Such figures imply deficits in a market where demand is greater than supply-even with the continuous construction work. Therefore, the infrastructure sector offers countless opportunities; from designing and supplying manpower, building execution equipment of and materials work. like steel and cement; to the actual construction Contractors who feel squeezed out by larger competitors in Tanzania and other countries will be pleased to find a place in South Sudan where the market does not appear saturated.

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South Sudan with food, manufactured goods, and specialised services. As an act of gratitude to the role that Kenya has played in the run-up of South Sudans independence, the new republic is welcoming and facilitating the establishment of Kenyan businesses. Every Kenyan company that makes an official approach is now getting free government land to set up their premises. Supplying commodities Most basic goods and food items are currently imported into South Sudan, including rice, maize, beans and bananas, mainly from Uganda and Kenya. The same applies to textiles, soap, and other goods. Similarly, many of the existing hotels, guesthouses, restaurants and bars have been established by Kenyans and Ethiopians. The only Tanzanian commodity that can be seen in Juba shops is Azam maize flour, in addition to the presence of some Massai herbal medicine traders which could originate from Tanzania, Uganda or Kenya. Although the Exim Bank of Tanzania is present, no other Tanzanian banks have extended their branches to Juba yet. Banking services like insurance, microfinance, consultancies, and others are still inadequate in relation to the demand for them. South Sudan has a wealth of natural resources, this other including oil, gas, gold, uranium, iron ore, copper, zinc, and important minerals; signalling opportunities for mining and exploration companies. Other potential investment segments include utilities, manufacturing, services, and agriculture development. With political stability ensured, it then becomes possible to plan and execute national development projects, and to attract foreign investments and partnerships with respect to infrastructure and skills development, Professor Ufo Uzodike, Head of School of Politics at the University of KwaZulu-Natal has observed. Uzodike adds that the positives are

KCB was the first international bank to be licensed to operate in South Sudan in 2006. It sees the best investment opportunities there in agriculture, telecommunications, construction, education and health.

some risks.

Kenyan investors have been providing South Sudan with food, manufactured goods, and specialised services.

numerous; South Sudan appears to have good prospects for rapid transformational development. As such, it should be relatively easy for the country to attract partnership arrangements, particularly in the most glaring areas of infrastructure, education and skills development, and industrial and commercial sectors. The opportunities are immense for those with an entrepreneurial spirit. But not without Smart players like KCB and UAP are making strong gains by entering South Sudan ahead of others. Moreover, traffic to South Sudan is expected to increase with the launch of Gulf Airs new service to Juba, which will launch in February 2012, operating three flights per week. With 75% of the former Sudans oil reserves now coming under South Sudan, the country is all set for major investment in social and infrastructure development. Needless to say, if and when South Sudan joins the East African Community (EAC), the business opportunities will be augmented, considering the market status of the EAC.

in large-scale businesses, one of which is the Juba Beijing Hotel. Kenyan banks such as Equity Bank and KCB Group were on the ground long before the independence of South Sudan became a reality. Due to the recently improved investment climate, KCB is planning to double its branches in the country. By 2015, it expects to have 30 branches and 100,000 customers; up from the current 10,000. KCB was the first international bank to be licensed to operate in South Sudan in 2006. It sees the best investment opportunities there in agriculture, telecommunications, construction, education and health. UAP insurance is another Kenyan firm that has it ventured would into nascent market. The company recently announced break ground on its South Sudans real estate plan, which includes residential homes and a 12-storey office block in a joint venture deal with the South Sudan government estimated at US$15m. UAP has been operating its insurance business in the country for six years now, and is hunting for more opportunities as it attempts to diversify its portfolio from the volatile stock market. Kenyan investors have been providing

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sector focus

Agriculture

KARI mitigates world wheat threat

Many small-scale farmers in Eastern Africa have given up growing wheat because of Ug99, the new strain of rust that was discovered in Uganda in 1998. But a new project has been inaugurated at Njoro, Kenya of field trials of hundreds of new varieties of high yielding, yellow and stem rust-resistant wheat. Stephen Williams has the details.

More than 200 farmers, scientists, industry partners, government officials and schoolchildren attended a field day at the Kenya Agricultural Research Institute (KARI) in Njoro in September to mark the launch of an important new initiative in the fight for East Africas food security. This field to day celebrates an opportunity improve agricultural

went on to say that Kenyas wheat supply does not meet the countrys demand. In 2011, Kenya will need 900,000tonnes of wheat, he said. Currently, we are on track to produce 300,000tonnes that means we are 600,000tonnes short. The event also celebrated KARIs participation in the international stem rust screening project known as the Durable Rust Resistance in Wheat (DRRW) project, and KARIs role as one of only two international stem rust screening nurseries. Participants saw new KARI releases of sweet potato, canola, linseed, cassava, maize and sunflower, witnessed irrigation improvements, including a 1000cu metre water tank and sprinkler system, and toured the 12ha of land set aside for screening international wheat germplasm for stem rust resistance. Much of the wheat was heavily infected

productivity, profitability and farmers livelihoods, said Gideon Ndambuki, Kenyas assistant minister of agriculture as he turned on a new irrigation scheme for field tests of wheat resistant to Ug99. The adoption of new technologies will positively impact productivity, the minister added. The minister further reminded the crowd that 80% of all Kenyans are employed by the agricultural sector, and the sector contributes 24% to the GDP. He

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with stem and yellow rust. KARI wheat breeders were particularly excited to showcase fields of two new high-yielding wheat varieties that are now available to farmersEagle 10 and Robin. Both varieties are resistant to yellow rust and Ug99, and show no signs of infection. Although the father of the Green Revolution, Norman Borlaug (who brought food security to India and parts of Asia) died before he was able to finish the job in sub-Saharan Africa, he came to Mau Narok in Kenya in 2005 and was shocked to see that most of the wheat varieties he thought were resistant to stem rust had succumbed to Ug99. As a result, he mobilised the Borlaug Global Rust Initiative (BGRI) project and the DRRW. Stem rusts spread In the intervening years, Ug99 has spread from Uganda to Kenya, Ethiopia, Sudan, Eritrea, Tanzania, Mozambique, Zimbabwe, South Africa, Yemen, and Iran. Ug99 threatens the breadbaskets

of Pakistan, India, and Bangladesh and is poised to infect wheat fields in the US, Canada, and Australia. Under the leadership of Cornell University, the BGRI and DRRW have put KARI-Njoro front and center in partnership with CIMMYT, ICARDA and 16 other project partners to mitigate the threat of stem rust Ug99. Scientists around the world nearly all of whom have spent time in KARI-Njoro are identifying new stem rust resistant genes, improving surveillance, and multiplying and distributing rust-resistant wheat seed to farmers and their families. KARI is a fundamental project partner, as scientists at KARI serve the world wheat farmers by screening promising wheat lines for resistance to Ug99. Wheat breeders from national agricultural centres from across East Africa and all over the world send seeds of their most promising varieties of wheat to KARINjoro to plant in the field and test against the Ug99 disease itself. So far, we have screened over 200,000

lines of the worlds wheat at Njoro, said Peter Njau, director of the DRRW project at KARI-Njoro. I cant say enough how much the global wheat community owes to Kenya, said Ronnie Coffman, the director of the DRRW project, who is vice-chair of the BGRI. Kenya and Ethiopia are shouldering the lions share of screening for a disease that threatens 70% of the worlds wheat varieties. New varieties bring hope In six short years, three new varieties of high yielding, stem- and yellow-rust resistant wheat have been introduced to East African farmers, three are in the pipeline, and 16 other varieties have been released or are in advanced testing by national partners in the rest of the wheat-growing world, according to Dr. Macharia Gethi, director of the KARINjoro research station. Now it is in the hands of farmers to adopt the new varieties and promote Continued on page 30 >>>

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sector focus

Agriculture

Photo: CONCERN

KARIs work is directly impacting the lives of Africas rural poor

them in their fields, said Ravi Singh, distinguished scientist for CIMMYT, who accelerates the wheat breeding cycle through the Mexico-Kenya shuttle programme, where stem rust resistant plants are selected and sent back to the international centre for maize and wheat improvement in Mexico for further testing. This season, 27,000 lines from 20 different countries are being tested against screening Ug99. effort This collaborative KARI in benefits

different countries is a direct outcome of the screening activities in Kenya. We are very happy to partner together to serve smallholder farmers and protect food security, said Katherine Kahn, the programme officer for the Bill and Melinda Gates Foundation. Along with the UKs Department for International Development, the Gates Foundation has invested more than US$68million in the DRRW project. During the field day, Dr. Ephraim Mukisira, the director of KARI, confirmed that KARI was embracing advanced science and technology in more than 500 agricultural projects. Technologies that are on the shelf at KARI need to move out to farmers, he said. He said all would

benefit from public and private extension efforts, and bankers and government policy makers who enable progressive agronomic and market infrastructures. Global development partners who work and serve farmers will lead to a new Africa, one that embraces science and technology, said Mukisira. The importance of wheat cannot be underscored. This field day has exposed us to the achievements of collaborative partnerships. You have ignited a process that will impact the lives of the rural poor and the entire population of the global community. I am sure that because of this work, next year bread prices will be half the price of today.

selecting lines that are best adapted to local conditions and resistant to stem rust. When found to be superior yielding, they can be directly released as varieties. Nineteen varieties released in eight

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finance & economics

Capital Markets

Divided opinion
East African capital markets have been variously affected by the current inconsistency in risk perception, suggesting that fundamentals in different equity markets have been analysed through different lenses, rather than through the oft blamed risk on/risk off movements. David Anderton reports.

A re-evaluation in both the quality of stocks held, and the possible structural risks that national markets contain, has been a key driver in the different performance of East African markets over the past six months. As global investor sentiment continues to be plagued by the lack of prospects for the resolution of concerns over default in the Eurozone, capital markets across the world have experienced unprecedented volatility, with uncertainty creating a swell of capital intent on seeking safety. Over the last quarter, East African equity capital markets have been caught up in these rising and falling waves of sentiment and have seen varying returns and considerable fluctuations in trading volumes. The lack of either direction, or consensus, from finance ministers across the developed world has led to a paralysis that has eerie echoes of the initial stages

of the financial crisis in 2007/8. The prospects of another catastrophic collapse of confidence has had a sobering effect on many within the investment community who were initially bullish over a return, post the sub-prime crisis, to business as usual. The VIX index, a measure of expected stock market volatility in the S&P 500, spiked sharply in early October demonstrating how uncertainty has re-emerged in global markets. On the continent as a whole, this process of risk re-evaluations during the past year has proven broadly positive with both direct and indirect investments into Africa increasing. With the relative improvement in companies risk-profile vis vis their counterparts elsewhere in the world, East African corporates have become more attractive, while some prominent emerging market competitors have become engulfed in controversy

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over accounting practices and alleged fraudulent activities. Equity markets in Tanzania have continued to outperform many other markets in the region with the Dar es Salaam stock exchange all-share index lifting 35 points, or 2.86%, to 1305 from the start of August to the middle of October. This movement is the latest continuation of confident expressions in companies listed on the exchange after an impressively positive six months for the index. In contrast to the signals from Tanzania, the Nairobi stock exchange 20-share index suffered significant losses over the past few months as markets responded to increased investor concern over the countrys greater exposure to fluctuations in international demand. Recent variability in the value of the Kenya Shilling has led to many investors to slowly move from equity positions into dollars in order to avoid overexposure to exchange rate risks. Fundamentals in East Africa are being driven by a number of core trends including an increase in the breadth and depth of consumer spending. Alongside this, as a growing middle class emerges in the region, the absolute amount of investment into capital markets is expected to grow substantially as more products are created to tap savings and pensions into productive capital. Despite mixed sentiment, the overall prospects for equity markets in East Africa remain supported by strong growth rates fundamentals. The regions growth rates currently stand between 4.2% in Burundi to 7% in Rwanda. Domestic consumption has also been increasingly robust as average incomes have reached record highs during the year. As the middle class in the region continues to expand, and the banking system penetrates further into society, the potential of the multiplier effect on funds that the institutions hold being re-invested and driven into consumption is immense.

Despite mixed sentiment, the overall prospects for equity markets in East Africa remain supported by strong growth rates fundamentals. The regions growth rates currently stand between 4.2% in Burundi to 7% in Rwanda.
Given these factors, and the likelihood expectations as positive sentiment

that domestic savings will also be channelled into either direct or indirect share purchases, both the depth and liquidity of these markets look set to increase. But one constraint needs to be resolved: The bar on non-citizens, even of East African community member states, investing in the Dar es Salaam market. If these factors were to occur and this constraint removed, East Africas capital markets would become more attractive not only to international investors but to larger corporates operating in the region that traditionally prefer bank debt to equity finance. Consolidation within the regions capital markets and harmonisation of regulatory structures have also been fuelling these trends, allowing both capital, equity information, and understanding to flow faster across the region. The East African Member States Securities Regulatory Authorities (EASRA) has mandated that this process should continue indefinitely, striving for greater prospects for the enhancement of markets through technology, regulation and innovation. Momentum has so far overshot prior

towards both export industries and consumer focused sectors, such as telecommunications, retail, banking and insurance services, bolsters investment further. However challenges remain in ensuring that turmoil in equity markets elsewhere has a limited contagion impact within the region. This is, of course, much easier said than done. Prospects for equity markets over the next few months will be heavily influenced by expectations for international demand, both from Western economic partners such as Europe and Eastern partners such as China. As prospects for recovery fluctuate, volatility in East Africas capital markets may significantly increase. Currently, performance is Chinas providing economic a buffer

against the fall in confidence in the US and European recovery and continual downgrades of sovereign debt. However if the situation continues to deteriorate, some economists and forecasters envisage a catastrophic outcome and that would spare no one from an unprecedented global financial depression.

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Commodities

Gold - set to stabilise

Up near 16% from August to September, golds continued rally looked set to continue almost indefinitely as investors sought out safe haven assets, partly as an attempt to protect themselves from mounting structural risk within the global economy, writes David Anderson. Both the growing amount of discord between those negotiating the terms of a second Greek bailout, and growing concerns within national governments in Europe of the scale and collateral damage from the recent crisis, has resulted in that resolution seeming further away than ever. Despite several better than expected results, such as US non-farm employment, many stakeholders are yet to be convinced that the most challenging period has passed. This concern has translated directly over the past six months into a significant rise in the value of the yellow metal with prices surpassing all-time highs consistently. Indeed, COMEX Gold futures rallied to an alltime high of US$1,912 per 100oz on the 6th September this year as heightened concern over the future of the euro area and, more importantly, the solvency of the US, translated directly into price movements However since that peak the price of gold has retreated significantly bringing it back down from the US$1,900 mark to near the US$1,600 mark. This unexpected change has in part been due to reassessments over the longevity of current price norms that the yellow metal has set, and many investors have looked to profit-taking, moving out of their positions into cash to take gains. A growing perception that there are structural differences within the global economy, separating risk levels, has led to significant reinvestment of capital into the emerging markets. For exporting countries in the region, such as Tanzania, Uganda and Kenya, this has presented a range of mixed signals. Although concern is likely to focus on a significant fall in the price of the metal as investors diversify in order to hedge against a sharp decline, this is likely to be misplaced. Rather the current pullback in price has been perceived by many as a return to some form of local equilibria after a significant overshooting due to the sudden movement of a high volume of capital into the asset. On the demand side, continued repositioning by both central banks and core institutional investors away from US dollar-denominated currency reserves has been a firm constituent in the maintenance of a base price for the pliable metal at around US$1,500. However, expectations that a price range of US$1,800-US$1,900 is unsupported have been compounded by continual displays of several bubble-like features, alongside a lack of foundational demand from either the jewellery sector or industry. Prospects for gold over the next few months are set to be determined by the outcome of both the Eurozone crisis talks and whether the US Federal Reserve (the USs central bank) embarks upon another round of quantitative easing (i.e. printing money). If the turmoil persists within the Eurozone and asset purchase programmes by central banks intensify, the metal is likely to return to its previous highs and perhaps surpass them, prior to another round of profit-taking occurring if gold surpasses the US$2,000 mark.

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Pouring coffee into international markets

As international exports in coffee October, has given up just under 25% of its value. Since the beginning of October, however, there has been a significant uptick in the price of the higher quality Arabica beans leaving them up 4.4% since the start of August. Despite this, increased volatility within the market has had a negative impact on many producers across the region. Indeed, in its monthly coffee market report the International Coffee Organisation (ICO) highlighted that on the supply side there were substantial downward pressures on price with an increase in exports of 11.7% in September year-on-year, bringing exports to their highest level on record. The ICO has also suggested that price levels will remain relatively firm over the long run due to a run down of inventories in exporting countries, with increased exports despite contractions in production. The ICO has further suggested that the current downtick in prices is a consequence of a number of investment funds liquidating their commodities positions, as a response to nervousness over the prospect for global economic recovery. Demand prospects for coffee, however, remains promising - especially with the growth of niche markets within the traditional consuming countries. Continual development of consumers throughout worlds emerging markets and even within exporting countries, has also added a welcome boost to demand levels. Evaluating both the demand side buoyancy and the expectation of supply side shortages, prices are well positioned to rebound over the medium term. reach the highest levels ever seen, prices have retreated across the board. Following many other commodities on the lurch downward into a somewhat unexpected trough, coffee prices have been illustrative of the kind of volatility that recent market conditions have been creating. A broad array of factors have been at play from both the supply side and the demand side such as forecasts of a relatively mild winter, compared to previous expectations of a harsh, crop destroying one - and expected constraints on the demand side from a lack of vitality in consumer expenditures across the globe. The price of coffee, one of the main export commodities within the East Africa region, has responded violently to these stimuli seeing both Arabica and Robusta varieties of the stimulant move in tandem through both the recent highs and lows. International Arabica coffee for delivery in December 2011 was, by the middle of August, up nearly 17%. International Robusta delivery in December 2011 also up significantly by mid-August, from that peak until mid-

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diaspora

GROW: Tackling rural poverty at the grass roots

It is not just multi-million investments that are flowing into East Africa but small NGOs are also making a real difference at a grass-root level in providing community services to some of the most vulnerable of rural peoples. Tace Bayliss profiles one such NGO, GROW based in eastern Uganda.
Food security and sustainable organic farming are high on the agenda of Winnie Williams, co-founder of Grace for Rural Orphans and Widows (GROW), an NGO she has helped establish in Tilling, a village in Ngora District in eastern Uganda. With her background in project management, a childrens service provider and social entrepreneur in the UK, Winnie has transferred and utilised many of the skills and innovative creativity she honed overseas in establishing and developing this initiative. GROWs roots were planted over a decade ago by Winnies parents Kevina and Joseph Egolet, both retired civil servants. Returning to their village in 1996, 15 years after being displaced by civil war and taking refuge in an Internally Displaced Persons Camps, the Egolets were accompanied by many women, girls and elderly people. Tragically, much of the adult male population had been killed during the conflict and young boys abducted to serve as child soldiers. The Egolets with other community leaders took charge in helping their fellow returnees. They contacted their daughters, now living in the Diaspora of the UK and North America and set about forming GROW as a vehicle for rebuilding lives. For so many years I have had a vision for an educational, health and spiritual establishment for the people in Tilling, my home village, Winnie, the Egolets eldest daughter, explains. During the war, she was in self-imposed exile in the UK and like so many Africans living in the Diaspora felt compelled to give back to her home country. The most urgent need was simply to send money back home to pay for food, medicines and school fees. Winnie began a small enterprise in London that taught African dance and drumming to schoolchildren, and fund-raising events in the UK and in Canada began to pay for school fees and medical bills in the village. She also held workshops to showcase African arts and crafts, culminating in a special event webcast live at Londons National History Museum, during its diversity season , that presented artefact exhibition, tree bark art and basketry. She taught how

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Orphans learn first hand sustainable farming techniques

Enter Arise Back in Uganda, the GROW project formed a strategic partnership with Arise that in such a short time has seen tremendous development for the people of Tilling village. Arise is a Canadian mission outreach project of the Christian Fellowship Assembly of Grande Prairie (CFA), Alberta, Canada founded by Ted and Lynn Vanderveen who personally donated a four wheel drive pick-up when they first visited GROW. This is invaluable for all the projects transportation needs. The Church has built a multi-purpose living and learning centre where the veranda doubles up as a nursery class for 25 children. Arise also employs and pays the salary of a project coordinator and some of the GROW project staff; helps pay for the running of the nursery school; contributes to income-generating

start ups such as GROWs poultry, bicycle and goat schemes; and during the recent droughts and floods generously contributed by providing funds for food produce and planting seasons programme. Now the widows and their families have developed sustainable farming and are not so impacted by adverse weather. Another of Arises aspirations is to build a secondary school as there is only one in the sub-county. It is already assisting students to continue their secondary education and members of the Canadian Arise team visit the GROW project every year to lend practical hands-on assistance through building relationships with the community.

Back in Uganda, the GROW project formed a strategic partnership with Arise that in such a short time has seen tremendous development for the people of Tilling village.

to design everything from gift cards to fashionable dresses using real tree bark, and also held events up and down the country during the UKs Black History Month and World Aids Day.

Continued on page 38 >>>

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diaspora

St Judes Arise contributed to the success of the visit to St Judes Farm, an initiative highly recommended to Winnie by the late Similola Towry-Coker, an exceptional project development consultant. St Judes is a rural training centre for intensive, integrated, organic farming based in Masaka in central Uganda where Josephine Kizza, its founder, shared her vast knowledge and experience of successful farming methods. In Uganda there is a lack of agricultural extension facilities, and many rural farmers depend entirely on the biased advice of pesticide and fertilizer salesmen who encourage farmer to simply use their products to boost production. At St Judes, some widows and church community leaders, led by Winnie, spent one week under the tutelage of Josephine. They left empowered and passionate about what they saw at the farm. A follow up second trip to St Jude has been planned for end of this year. The Tilling community have realised that the future lies in empowering their village We want to reach out to the community and beyond and equip them with sustainable skills, Winnie told the EastAfricanInvestor. The visit to St Judes has led to the implementation of the GROW Demonstration Farm. This has raised awareness and educated the community about sustainable, organic farming methods. Irrigation and water harvesting techniques, to reduce the effects of drought following heavy rains, are being researched to help an area prone to climatic extremes. GROW has come a long way since its

small beginnings in 1996. Some of the children speak of how, when they finish college, they want to be professionals in teaching, medicine and agriculture. And they want to see their village continue to develop. Health Initiatives Winnie has also leveraged some of her contacts back in the UK who have launched health education and access services for the rural population whose nearest health centre is four miles away. The initiatives are under the directive of three recently qualified English medics. Some of the services are HIV/Aids testing, sponsorship, and raising sexual, reproductive and nutritional awareness. Today, GROW is providing love and support for more than 40 children and a dozen widows. The GROW soap; apple mango, orange crops; and craft gifts, all income-generating initiatives, have seen a trickle of sustainable outcomes since the first start up donation by the late Similola Towry-Coker in 2007. Winnie has also been working with the children developing cultural music and dance art forms, so that performances can be used to fundraise for the project. There are huge needs in this part of rural Uganda, statistically one of the most deprived in Uganda, for community action to come alongside the people and lift them out of poverty and it is highly appropriate that it is Africans from the Diaspora, like Winnie Williams, that are leading the way.
Winnie Williams (standing) with her mother Mama Director Mrs Kevina Egolet

Fund-raising events in the UK and in Canada began to pay for school fees and medical bills in the village.

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East Africa Healthcare Investment 2012

Tuesday 17th to Thursday 19th April 2012. Speke Resort & Conference Centre, Munyonyo, Kampala, Uganda

World class healthcare solution providers will attend:

To position themselves as an industry leader in the healthcare sector To explore ways to establish successful PPP with East African government To obtain funding for investment, expansion and development Create a high-end business model to capture high net worth customers Collaborate with different partners to develop their healthcare infrastructure To create sales leads and deliver a return on their investment To generate new business for their company To promote their companys product & service offerings To foster their brand presence in the region To access the lucrative East African healthcare market To network with East Africas healthcare leaders This is the single most important marketing and business development event you can attend this year. If you need to know the latest opportunities in these areas you must attend. If you wish to access key decision makers in East Africas healthcare sector you need to be here. There are limited spaces.

Come to East Africa Healthcare Investment 2012 and learn how to:
Access lucrative healthcare markets and sectors successfully in East Africa Obtain funding for investments, expansions and developments Establish successful public private partnerships with East African governments Develop high-end business models to capture high-net worth customers Collaborate with different partners to set up healthcare infrastructures Integrate latest technologies to provide smart healthcare deliveries Provide alternative treatment models and services to gain competitive advantages Identify investments, expansion and new business opportunities across emerging healthcare markets in East Africa

Excellent Investment Opportunities:

Investors, owners and operators cant afford to miss out on learning about some of the emerging trends in East Africas healthcare market such as: Hospital and healthcare infrastructure Development Equipment, Supplies and Drugs International Wellness Programs Opportunities for mergers & acquisition Raising capital and strategic investments Sustainable Healthcare Healthcare real estate investment Investing in health education infrastructure Medical Tourism Attracting and retaining key staff The Future of Healthcare Insurance Public Private Partnerships in healthcare Cross Border Healthcare Healthcare development Creating Healthcare Clusters and Associations - When Regions Collaborate

Medical Technology such as the expanding role of E-Health & Telemedicine in Global Healthcare

Who will attend?

Government & regulatory officials Hospital design, construction and management Hospitals and healthcare providers Fund managers & Hedge Funds Private Equity & Healthcare Venture Capitalists Pharma / IT and Infocom/ Solution provider Insurance & legal Medical technology and equipment suppliers Business Consultants and Risk Consultants Investment banks/ Project Finance/ Institutional investors

Call us on +256779387100 or +442073213768 or sales@focusoneastafrica.com or edward.katende@focusoneastafrica.com

Hosted by Strategic Partners

focus on
EAST AFRICA
Trade | Investment | Partnerships

Ministry of Health

www.focusoneastafrica.com

special report

Real Estate

East Africas Mortgage Market Ripe for Investment

The opening of borders in East Africa has increased the mobility of people in the region, creating an unprecedented demand for homes and offices by both locals and foreigners. In anticipation of this rise in demand, many commercial banks are now willing to avail loans at affordable interest rates to property developers and investors. Heba Hashem reports.
Spurred by an expanding population and a high rate of rural-urban migration to capital cities and other major urban centres, financers are attempting to catch a lucrative real estate wave. In Rwanda, for example, the government estimates that by 2020 approximately 30% of the population will live in urban areas. The development projects that are underway, as well as those that are being planned, have created opportunities for interested investors because of the massive government support, Njeri Cerere, chief executive of the Kenya Property Developers Association told the local media. According to Cerere, Rwanda is currently the best emerging real estate market, where office block development is increasing thanks to the many business opportunities created by the Rwandan government. The country rose a record of 76 places in the recent World Bank Global Survey as an investmentfriendly destination. On the other hand, Kenya is ranked as one of the most expensive real estate markets- with housing costing much more than developed cities like Berlin and Cape Town. This is one of the reasons why the annual housing shortfall in Kenya is estimated to be between 150,000-200,000 units. In Nairobi alone, demand stands at 350,000 against a supply of around 50,000. As a result, Kenyas mortgage market has more than tripled in the last five years, growing from Ksh19billion (US$188million at current exchange rate) in 2006 to nearly Ksh61billion

The first US$7million was deployed in August and the other two tranches of between US$8million and US$10million will be released in phases.

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(US$604m) in May 2010 indicating an annual average growth of 34%. The number of new loans in the country has risen from just 1,278 in 2006 to nearly 6,000 in 2009, as stated in a joint report by the Central Bank of Kenya and World Bank. According to another report released in September by South Africa-based Centre for Affordable Housing Finance in Africa, Kenyas mortgage sector looks promising despite the fact that a limited number of Kenyans qualify for mortgages offered by mortgage firms and commercial banks. Suppliers of housing finance across the board have recorded healthy profits over the past couple of years because of the upward turn in the property market. The country is very well positioned to support the future growth of its mortgage market by tapping into its capital market, the report states, without specifying figures. Similarly, in Uganda, the annual housing deficit has reached 108,000 units, and in Rwanda 20,000 units, figures that indicate huge gaps within the regions housing and property sector. Regional banks refocus on mortgage As a result of this surge in property demand, financing is becoming easier to access. Kenya Commercial Group (KCB) recently announced it was refocusing its business on mortgage development, including retail mortgage. Having secured a Ksh9.6billion from the Corporation (US$95million) International loan Finance with one of Tanzanias parastatals, marking a formal entry into the countrys property market. In a partnership with the National Housing Corporation (NHCTZ), owner of Tanzanias prime land, KCB will spend US$30million on three real estate developments. The first US$7million was deployed in August and the other two tranches of between US$8million and US$10million will be released in phases. Investments will be utilised through KCBs mortgage subsidiary in Tanzania, S&L, and will see KCB take up three out of 10 housing projects planned by the NHCTZ. In its five-year strategic plan leading to 2015, the NHCTZ intends to construct 15,000 units. KCB is now inviting developers to come forward and utilise the finances to develop housing projects. It has started to offer credit facilities to real estate developers in Uganda, Rwanda and Tanzania, to help them supply new properties through its financing subsidiaries. This is similar to when KCB entered South Sudans housing market Continued on page 42 >>> in 2008 using a similar approach; a US$452million deal that saw it build 1,750 houses for civil servants. Another into the Kenyan mortgage group foraying is playground

Housing Finance (HF), which signed a co-financing deal with East Africa Development Bank to enable HF to handle larger real estate projects within the region. HF is also eyeing co-financing deals with its main shareholders- Equity Bank and Shelter Afrique- to enable it to finance the development of multi-billion projects. However, the increased competition in the homes lending market has seen HF lose its market leadership to KCB, which now has 29.7% stake in the loans market. HFs stake fell to 27.9% from about 40% in 2006, while CFC Stanbic has 10.7%, Standard Chartered Bank 8.2%, and Barclays Bank 5.1%. luring low-income borrowers Several targeting financial the firms have been low-income segment

(IFC) in August, the group is dedicating a part to mortgage lending. About half this amount will be channeled into our mortgage business here in Kenya and the region which is expected to expand by 24% by the end of this year, KCB director Joram Kiarie stated. The group has already signed three multi-billion shilling mortgage projects

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special report

of the lending, concentrating explains

Real Estate

In the last 12 months, real estate accounted for the third largest uptake of loans after households and traders.
market. Kenyas on With Family Ksh8billion Bank is who

(US$80million) set aside for mortgage homeowners

already own land and need financing to develop it, offering loans of between US$7,000 and US$14,800 to this group. In other words, the bank is reaching out to low-income consumers that other financers have often avoided. The lowincome segment has a huge potential for us because it involves small loans which will enable us to reach the masses, Peter Munyiri, the chief executive of Family Bank. Having modeled its business around micro-finance, the bank is eyeing new business lines that include corporate banking and home loans. It also plans to list its shares on the Nairobi Stock Exchange, after reporting a 15.4% growth to US$1.85million in half-year net profit. Meanwhile, UGAFODE has become Ugandas fifth microfinance deposit that hopes to broaden services for its low-end clientele. Operating as a microfinance institution for the last 16 years, UGAFODE is launching customer deposits, raising its minimum capital threshold, and offering money transfer services. In addition to that, it will offer more tailored loans, such as micro business, agricultural, school fees, and micro mortgage loans- the latter for which it will be the only provider. We have looked at the competitive advantage and have seen an opportunity. With over 75% of Ugandans unbanked, we hope to make a big impact in this sector, Wilson Twamuhabwa, the chief executive of UGAFODE says. The firm currently has about 10,000 customers, and expects them to reach 100,000 by the end of 2015. East Africas mortgage market is becoming increasingly appealing to both lenders and developers, as banks renew their focus on the lending market, giving special attention to personal loans and mortgage business. Amid rising optimism by previously over-cautious salaried workers, financers are now keen on providing housing to the regions growing middle-class population and others who can neither afford to buy nor construct a home. In the last 12 months, real estate accounted for the third largest uptake of loans after households and traders Compared to equities, bonds, and bank deposits, real-estate lending is becoming a profit driver for the regions commercial banks. Construction is also booming in the region with massive infrastructure projects underway, meaning that, in the medium-term, real estate investment promises potentially strong returns because the development of new infrastructure will inevitably drive up property prices.

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special report

Real Estate

Are you ready to strike gold?

The interrelated nations of East Africa are going through an economic transition. This development, along with the new investment and business regulation reforms, is expected to spell a new era for the property market. Heba Hashem reports.

With

the

upgrading the

of

transport of

seeing greater demand, and which districts are considered as the future hotspots? UGANDA: The office market takes-off As the global economy picked up pace, so did Ugandas real estate market. Kampala and Jinja remain the prime investment focus, with significant amounts of new office space coming to the market. According to Knight Franks Africa Report 2011, the main demand for office space currently comes from the oil and gas industries, following the recent discovery of oil. However, several companies in the telecom and banking sectors, who have been a primary source for office occupation, are planning to downsize, which could cause a 10-15% drop in rents. Meanwhile, office demand in Kampala is rising in unexpected districts. Traditional residential areas like Nakasero

Hill and Kololo which were once the citys most desirable residential suburbs are now seeing a rapid shift of use to offices, while housing estates, apartment blocks and townhouses are being built in older areas and new suburbs. Despite this, the country still lacks affordable, well-located housing, which if tagged correctly, can be leased and sold easily. Confidence in retail In Kampalas commercial business district, several shopping centres are either under construction or have been completed, including the Oasis Mall and Forest Mall. At the same time, smaller centres serving residential suburbs are becoming a trend, aiming to catch a portion of Greater Kampalas growing population. Confident in the countrys retail Continued on page 44 >>>

infrastructure, of electricity

improvement grids,

energy capacities, the interconnection expanding telecommunications, the opening of borders that came with the signing of the East Africa Common Market Protocol, we are witnessing increased mobility throughout East Africa. This is creating a large demand for offices and homes. Oil prospecting companies such as UKs Tullow and Frances Total are pumping billions of dollars into exploration, and the spill-over benefits are expected to intensify competition in East Africas home lending business, due to the size of the Tullows balance sheet, worth about US$2.35billion. Navigating a region that spans over 1.85million sq/km may not be an easy endeavour, which leaves us to wonder what the most promising sectors for development are, which properties are

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special report

Real Estate

The market for prime office space is booming

potential,

real

estate

firm

Tirupati

virgin market, where there is a huge demand for everything as long as it is well-planned. Business parks and warehouses in demand Tirupati also plans in to build 32 apartments Naguru, worth

Development has built several shopping malls, hotel complexes and residential projects across Uganda over the last few years. In Nsambya it is setting up a US$15million shopping mall, as well as another mall in Kansanga. Basically, we build and sell. So far we have made 500 Ugandans proud owners of residential and commercial property, Miraj Baroti, Tirupatis managing director commented to the local press, adding that his company is now expanding into Burundi. Speaking on how he rates Uganda as an investment destination, Baroti described it as a

US$8million, and a business park with 185 warehouses on the Northern by-pass a massive US$25million project that comes at a time when there is shortage in warehouses. Ugandas lack of modern warehouse space was highlighted in Knight

According to Knight Franks Africa Report 2011, the main demand for office space currently comes from the oil and gas industries, following the recent discovery of oil.

increased demand to importers and traders looking to take advantage of the

Franks Africa Report. It attributed the

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creation of the EAC Common Market. Once the development of the Kampala International Business Park in Namanve is completed, Kampala will be seen as a transit hub for East Africa and the Great Lakes region, the report states. To this end, new airline routes to Uganda will stimulate business. Airport

by an owner or developer when they sell their property. A new, so-called property tax stirred much concern lately. The Uganda Revenue Authoritys tax compliance measure turned out to be merely a tax-control procedure, aimed at taxing income that may have not been taxed in the past.

The

There also appears to be a high appetite for office blocks, with premium office developments taking place in 14 Riverside, Delta Corner and KMA Centre.

preference is County Home Developers Sh600million Runda View Apartments in Ruaka, Kiambu. The developer of Runda View took into consideration the gradual transformation of Ruaka from an agricultural area into a modern suburb, the presence of the Eastern by-pass and the nearby schools, shopping malls, hospitals, and churches. perfectly-located premises are already attracting Kenyas middle and high-income residents. traffic will most likely accelerate when Gulf Air and Qatar Airways launch their new services to the commercial hub of Entebbe. While Bahrains national carrier will operate four weekly flights from December, Qatar Airways will run daily flights starting November. The carriers will link several continents to Uganda and the larger region a boost that will undoubtedly reflect on the tourism and property markets. KENyA: Where taxing is applicable As for property taxation, Ugandas government currently enforces four types: the first payable on either the income arising from the sale or rental of a property, or on the transfer of a property; the second is on the rental arising from a rented property; the third applies on the sale, rental and/or leasing of commercial property; and the fourth is the capital gains tax payable on the profit made Choices based on location As the middle-class grows in the country and the diaspora population pours cash into real estate back home, Kenyas property market is changing direction. More Nairobi residents are opting for upmarket apartments, and the location seems to be a critical factor, with many preferring to be close to work and other facilities. A good example of this market Continued on page 46 >>> The new URA tax enforcement measure income is from supposed their to correct or situations where people have earned economic business activities, without paying tax on this income, and now attempting to spend the money on land, property or cars, explains Francis Kamulegeya, senior partner at accountancy firm PricewaterhouseCoopers. High appetite for business parks Business parks targeting light industrial users are increasing in great demand a result of Kenyas connection to the East African Marine System subsea fibre optical cable. Notable projects that have been completed include Sameer Business Park, Tulip House, and Royal Business Park all on the Mombasa Road. The government has already proposed the construction of a business park, having Nairobis demand for residential properties currently stands at 350,000 against a supply of around 50,000 indicating a substantial gap in the market. Being a long-term capitalintensive investment, returns from real estate are typically realised anywhere between three to five years, depending on the project.

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special report

Real Estate
acquired 1,000 acres along Mombasa Road, where it would create an ICT hub to attract internal and external investment and boost the ICT sector. There also appears to be a high appetite for office blocks, with premium office developments taking place in 14 Riverside, Delta Corner and KMA Centre. Recognising this opportunity, regional insurance firm UAP has started building a 22-storey office block in the capital at a cost of Ksh2.5billion (US$24.6million) The company expects the investment would earn it rental income of Ksh600million (US$5.9million) annually upon completion in 2013. Megacities and Africas Silicon Valley Part of Kenyas Vision 2030, the construction of megacities in Kenya, is drawing global attention. Konzas Malili City, a 5,000acre technopolis, is set to be Africas Silicon Valley. Tatu City on the other hand, will be an exclusive mixeduse community covering 1,035ha about 16km northeast of Nairobi. Due to scarcity of land for development in major towns, many developers are turning to the outskirts where land is still relatively cheaper. Amongst the top investors in Tatu City is Renaissance, a subsidiary of Russian investment bank Renaissance Capital. Kenya still needs to work on a few reforms especially ones related to foreign ownership. The country has been cited as an expensive destination for prospective property investors who have to part with 4.2% of property value to cover the cost of registration compared Portfolios diversified to include real estate Several including Kenyan CIC insurance Insurance, firms, British to Ugandas 3.2% and Rwandas 0.4%. Nevertheless, Kenya has some of the most business-friendly regulations for construction permits, and was the only EAC country to improve regulations for starting a business, according to World Banks Doing Business Report 2011. The country is currently undergoing massive infrastructure developments; building the regions first super-highway, a railway, an oil pipeline, a 300MW wind farm, and a fibre optic link to the capital of South Sudan, Juba, from the upcoming port in Lamu. RWANDA: Office blocks the largest market Rwandas largest market for investors is in office block development, thanks to numerous business opportunities created by the government. The main office markets lie in Nyarugenge and Muhima though most of their standards would not suit international organisations. Several redevelopment projects have been proposed and are now being studied. Only 5% of Kigalis residents own modern accommodation, but the growing population and urban movement will soon escalate the demand for housingestimated to be around 10,000 units per year in the capital, and 25,000 nationwide. The government is promoting higher density developments such as Kimihurura Gateway project, while Akumunigo and Kimichanga Development Zones are other districts in the city that are experiencing growth. Rwanda is in the midst of developing its new Bugesera International Airport, which when operational by 2015 will have the capacity to handle three million passengers annually, compared to just 330,000 in Kigalis Kanombe International Airport. The increase in traffic will open up Rwanda to the rest of the world, and by making Rwanda accessible, inevitably it catalyzes economic development, explains John Mirenge, chief executive of RwandAir. Nairobis Runda suburb, which would require Ksh6billion (US$59million).

American Insurance Kenya and Pan African Insurance are reviewing their business plans to encompass real estate. Diverting its focus from the stock market to the lucrative property industry, UAP has started injecting its money into real estate projects in Kenya, South Sudan, and Uganda the latter where it will develop a business park in Kampala worth about Ush1.8billion (US$64million). The firm plans to form a private equity division, in which it will acquire funds from wealthy individuals and institutional investors for long-term investments. Kenyas Centum Investment is also jumping on the bandwagon. Having 300 acres in Uganda alone, the company intends to use this area to construct integrated mixed-use developments. Like UAP, it is raising funds from banks and co-investors to finance real estate projects, including one on 100 acres in

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Suitable land for retail outlets is in healthy demand

Strong economic relations between Rwanda and China have advanced towards discussions of visa exemptions and free trade agreements as a way to encourage the expansion of Chinese investments. In a notable deal, New Century Development, a Chinese investment firm, acquired land in Kigali to construct a five-star hotel, a commercial building and a conference hall worth US$70million. China will also be funding six other investment projects in Rwanda. TANzANIA: limited retail and office space In Tanzania, gold deposits are luring foreign direct investment in the mining sector. As a nascent oil and gas economy, it comes as a surprise that the country has already attracted three big industry players; the latest being Royal Dutch Shell and Ophir Energy, that bought out Dominion Petroleum. Indirect benefits from such investments will ultimately energise the economy and contribute to real estate growth. Tanzanias largest commercial centre at the moment is its commercial capital

Dar es Salaam, where CBD, the Gardens and Al Hassan Mwinyi Road constitute the main office districts. Although most office space was completed within the last two years, vacancy levels remain very low. Considering that no new office space entered the market in the second half of 2010, and that the next development is not due until the end of 2011, a shortage in office accommodation is expected, leading to higher rents. Since the failure to complete Dar Village a mixed use development that would have entailed a hotel and retail units no other similar developments have been announced and the capitals largest shopping centre remains the Mlimani City Mall. Some new but restricted retail space should be ready by the end of this year in the city centre, specifically in developments such as Viva Towers and Uhuru Heights. Gap between supply and demand The Tanzanian Building Agency projected that last years demand of residential properties was estimated to

be beyond three million units, against a supply of just 8,000 units per year- an overwhelming gap in supply and demand. Among the challenges that could be obstructing real estate developers in Tanzania, are the slow pace of returns, complicated procedures when registering land titles, and securing bank loans. In addition, most of Tanzanias land is unviable for real estate investment because it is inaccessible and not surveyed yet, making it difficult to determine its value. The East African Community, with its combined population of 133.5million, will reap many rewards from the peaceful union it is creating among member states. Having harmonised ties, sound political relations will facilitate investment promotion, reduce business risk, and lift the region to a stronger and more stable economic position.

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special report

Real Estate

Tatu City and the lessons for urban development

Sub-Saharan Africa, with a rate of urbanisation second only to East Asias, is expected to reach tipping point in 2035, at which point the continent will have more than half its population living in cities. David Anderton reports.
In 2050, it is expected that over 1billion Africans will live in cites. However, with these new realities, an increasing level of concern has emerged over the sustainability of urban settlements both in Africa and across the world. Tatu City, a dynamic mixed-use development based 16km north east of central Nairobi, appears destined to provide an example of how new urban developments on the continent can be both sustainable, apply international best practice, and be profitable for the private sector to invest in, enabling governments to utilise the vast array of knowledge, experience and capital that investors and firms possess. Estimated to cost close to US$340million, Tatu Citys innovative urban environment is set to cover an area of 1,038ha and house over 60,000 residents. Another 30,000 visitors are expected daily for Tatus retail outlets that will provide a broad range of consumer goods; to participate in the tech hubs activities; or just to appreciate the positive green urban environment. Vision 2030 The government is keen to ensure that the social and economic realities of our citizens are at the centre of our policies. This is the main driver of Vision 2030, said Kenya Vision 2030 chairman, Dr James Mwangi at a ceremony endorsing the Tatu project as a vital part of the Vision 2030 project. The approach demonstrated by the developers of Tatu City evidenced that this is also at the heart of the master plan they have developed. The development also provides a broad range of investment opportunities Kenya Vision 2030, the governments agency economic overseeing the countrys blueprint, development

endorsed in mid-September the mixeduse residential and commercial project as a model for private development and municipality management in Kenya. The development of Tatu has also been in line with Kenyas planning for decentralised development zones across the region in order to alleviate the severe congestion in Nairobi.

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Developers and investors discuss Tatu City opportunities

both for international players and, more importantly, for local business to be part of a centrepiece of urban planning that will be showcased throughout Africa. Positioned as an example for other areas across the continent to emulate, Tatu City has many high expectations riding on its success. Basically if you see Nairobi as a pressure cooker, this is really just acting as a release valve for it. Something like this is just a drop in the ocean of what this city needs, suggests Arnold Meyer, head of real estate at Renaissance Partners, the investment bank developers of Tatu City. Nairobi is going to grow a million people in the next nine years, so you need five or six of these developments to relieve the pressure in Nairobi in any meaningful way. Cities in Africa are already facing significant challenges in attempting to meet financing requirements with limited municipal and national budgets. Against this backdrop, understanding the forces behind the development of Tatu City and how they could be effectively integrated to effectively promote sustainability and urban development.

Showcasing sustainability One of the most important aspects of the project has been its ability to showcase environmental sustainability within urban developments in Africa. Tatu City has written into the design plans for every building a requirement for rainwater harvesting. Alongside this, all hot water is to be solar generated within the design requirements for buildings. Meyer believes that these types of planning regulations could be utilised by African cities in order to promote further environmental developments. Many opportunities are also available for developers and the private sector to become increasingly involved in the management and construction of core urban areas. Renaissance Partners Meyer has mentioned being approached by the Rwandan government with regards to managing the growth and fruition of aspects of the capital, Kigali. Expectations for the development project are high and so is confidence, with talk about a project near double the size being undertaken in the DR Congo. Challenges remain in ensuring that the project is

kept close to its ambitious time line, with a large number of external stakeholders holding either assets or influence key to the success of Tatu City. Many things need to go Renaissance Partners way prior to its expected completion over the next decade. Up until now, all signs have been positive as construction begins to gain momentum. The project has also attracted the interest of the Nairobi Stock Exchange as a location for a new hub. Although discussions are at a nascent stage, according to Meyer, the expression of interest is an indication of just how much of an opportunity, a revelation, and an inspiration Tatu City is proving to Kenya and to the rest of East Africa. The Kenya Vision 2030s main aim is to accelerate transformation of our country into a rapidly industrialising middle-income nation and create global competitiveness by 2030, Kenya Vision 2030 director-general Mugo Kibati states, adding: As a flagship benchmark for urbanisation, Tatu City will reposition Kenyas property development and housing landscape, making it a reference point for other African countries.

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finance & economics

Pensions

Pension funds reform

The Ugandan pensions market is being shaken up by new reforms but do the reforms go far and fast enough, especially given so many constraints? Adrian Holliday reports.
Pension protection in Africa is Defining the terms Currently most Uganda government workers do not contribute to a pension as there is an existing government unfunded, defined benefit pension scheme in operation. But some of the private sector do contribute to a mandatory fund, called the National Social Security Fund (NSSF). This is where typically the employer contributes 10% and employees pay in 5%. The total overall 15% is sent to the NSSF, a stateowned company set up in 1985, to be invested on the behalf of all contributors. All fairly straightforward. Currently the amount of money controlled by NSSF comes just under US$1billion. Additional to that are between 50-60 private company schemes who control assets of a much more modest size. However, the investment performance of the NSSF, as Richard Byarugaba, managing director of NSSF acknowledges, has not been impressive. Which is why NSSF hired several new Fund Managers in 2010 to get the funds performance back on track. Part of the problem for the lack of performance, says Byarugaba, was that while some of The country has been increasingly garnering attention, be it from the UN or the World Bank. Near Uganda countries like South Africa have an increasingly strong pensions policy as part of their constitution. Even China is working towards a quasi-social pension policy that supports around 100million old people. Regular money, even modest amounts, can make a huge difference in old age. In Uganda, the issue is particularly pressing. particularly hard hit by the spread of HIV/Aids, which remains the leading cause of death. This has affected many people and in many cases means older people having fewer channels of support yet having the responsibility of raising their childrens children. Although both private sector and public sector workers have an integrated pension system to pay into, Uganda contains vast rural areas where many private workers receive no oldage support whatsoever. And many who do receive a pension, continue to work part-time in order to support themselves and their family.

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the fund (around 15%) was rooted in real estate, it was not invested in property on this land. Though [land] values have gone up, the fund has not really taken advantage of this. The fund has other constraints; one of the self-imposed limitations is that it cannot invest in equities outside Uganda. But recently the government permitted the NSSF to invest in the wider East African region, a welcome investment move, especially when a 28% inflation rate is making life very difficult for many Ugandans, particularly the elderly. Last year the state pension fund returned around 7% on members contributions. It [inflation] has gone crazy in the last five months, says Byarugaba. Some of that is to do with money supply and external factors from international markets; but the strengthening of the US dollar has meant that the local currency has been devalued. That impacts on food. Its a common problem. Underexploited? Longer term, there are certainly opportunities for newer pensions players to enter the market. The Ugandan annuities market remains underexploited, thinks Byarugaba, along with other alternative pension schemes and unit trust offerings. A combination of investing thats linked to international markets would help, as would serve to hedge against the exchange rate. If you offer products based on an international currency, that would certainly be an uptick. However, just how many players would be attracted to the market is unclear, especially given the very modest short term returns even if these would rise longer-term. More liberalisation of the sector may help. The Uganda Retirements Benefits Authority Bill 2010 now has an independent regulator to help manage the legal regulatory framework for the sector. Other changes include monthly

contributions, therefore undermining meaningful performance. Many simply do not see the current state pension infrastructure as having a real impact on their lives, especially in later years. Which also, inevitably, encourages evasion. There is also another problem that is not just worrying for much of Uganda and Africa, but is now a global phenomenon. It is the volatility and the huge fluctuations in commodity and share prices. Given the increasing amount of economic turbulence since 2008, stock market and investment returns have fluctuated widely. Invested wisely, steady investment returns, including dividend growth, can outpace inflation, in many instances. But stock market growth has been hit hard since the international credit crisis. And investors have increasingly

How much flexibility there will be for the some 400,000 NSSF members to transfer out of the scheme is, given liquidity concerns, not known. Land projects, shares, property these are not assets easy to eject from, especially if demand is high for change.

sum payments as opposed to being paid a lump sum on retirement. There is widespread feeling from both inside and outside the industry that the Ugandan pensions sector has been poorly managed for some time, and that more competition and growth will help free up the market. Crucially, the Uganda Retirements Benefits Authority Bill 2010 should break up the monopoly that the NSSF has enjoyed, demarcating more clearly the internal roles fund managers, trustees, employers, etc - of how the fund operates. Better transparency, better governance, higher quality auditing are the objectives. How much flexibility there will be for the some 400,000 NSSF members to transfer out of the scheme is, given liquidity concerns, not known. Land projects, shares, property these are not assets easy to eject from, especially if demand is high for change. longer-term performance Then theres also the problem of perception. Many Ugandan workers rightly view the long-term management of state pension with skepticism, and this skepticism translates into low

sought out other asset classes and strategies to deal with the problem, getting into, for example, commodity speculation, driving up inflation and prices for those at the bottom. Which hits many Africans, struggling to make ends meet, very hard indeed. Whether a widening of the pensions market could encourage some providers to chase riskier future returns is not known. Younger people particularly self-employed young Ugandans may have more time to see markets stabilise, but it could be some wait, with volatility increasingly looking like a force that will have to be reckoned with. Expectations will need to be realistic.

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business

GroFin

Preparing for Success

Throughout East Africa small and medium enterprises are playing a critical role in economic development, and capital and training are providing a step-up for East African entrepreneurs. David Anderton reports.
Small and medium sized enterprises (SMEs) are helping not only to drive economic growth in the East Africa region but also provide a broad range of opportunities for the population. However, several impediments to the expansion of these companies remain. These barriers are especially focused around SMEs obtaining adequate finance without compromising the viability of the business. By taking a dynamic approach, utilising both capital and best practice, many entrepreneurs in the region will be able to realise their full business potential and overcome many of the challenges currently faced, suggests Rishi Khubchandani, the general manager of GroFin Kenya. Historically SMEs across the world have faced a broad array of challenges in attempting to grow and expand in scale, or diversify into new sectors usually undergoing an incredible struggle to retain profitability during this phase. How SMEs can raise capital Indeed, this has resulted in an estimated 70% of businesses failing within the first year alone due to factors such as bankruptcy, managerial disputes and predatory competition. Being able to swiftly raise large amounts of capital as an infant enterprise can give many otherwise profitable companies, that may fall victim to capital shortages, the breathing room to navigate challenging economic times and volatility in demand for their services and products. Taking into account the context of sub-Saharan Africa, and the limits of the current banking infrastructure within the continent, the failure rate is estimated to be much higher. This is despite the broad range of business opportunities that can be derived from a more stable investment environment, improved governance and a growing consumer base which is expected to rival that of India over the next 20 years. Enabling businesses to capitalise on these opportunities in the region is critical, both to the continued strong economic performance of the East African nations and to ensuring that the benefits of high GDP growth trickle-down through employment to the rest of the population. However, capital and information shortages can often endanger the abilities of companies to

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capitalise on this growth-tackling issue is key to restoring vitality into East Africas SMEs, believes GroFins Khubchandani. Many business owners in this sector struggle to access the capital required to grow their business as they do not have the collateral or track record required to secure finance with a traditional finance institution, Khubchandani posits. Even if they are backed with the necessary finance, entrepreneurs often lack the education, skills, and access to information required to turn their entrepreneurial project ideas. Mentoring and augmenting skills Part of the answer to this immense challenge, he suggests, lies in augmenting the skills and talent of the entrepreneurial class in East Africa through programmes of mentorship and training, something that the GroFin framework was created to provide. Through the deployment of business support services, alongside required capital injections, the framework is part of a line of new initiatives for development that equip the job creating private sector with the tools to both stimulate the economy and tackle poverty directly. The objective is to not only address each entrepreneurs finance need but also to provide them with the guidance and business support necessary to formalise and grow their business. This unique approach is indispensable in tackling the challenges SMEs face on the continent, Khubchandani argues: It is through formalising the business and adhering to a clear strategy that the entrepreneur can create the platform required to sustain positive growth year on year, creating wealth and employment in his/her community. Previous provisions by development finance institutions and NGOs have enabled those in need of microfinance or large-scale investment packages to be able to gain significant ground in finding spirit into bankable

sources of finance, however there has been a continual dearth of assistance for those in the middle. Those seeking micro-finance loans are relatively well served by a plethora of micro finance institutions he points out. On the other hand, SMEs, which by their nature target larger and more sustainable economic and social growth opportunities, currently lack the necessary capital, institutional and environmental support to realise their potential contribution to growth and development. Taking a bold investment position GroFin has taken a unique position as a risk financier providing largely unsecured, risk capital over the long term to business owners who would not ordinarily qualify for a loan with a traditional bank. Whereas many lenders have avoided this segment of the market, the group has been able to make headway into showing that its model can be effectively deployed across the continent both to generate monetary returns and also amplify the developmental impact. Start-up businesses have a notoriously high failure rate, most often attributed to the lack of the entrepreneurs expertise in running a business Khubchandani says, suggesting that perhaps the analysis of failure so far has been misdirected. Competitive environments and government support also have a significant effect on the performance of start-ups within the countries we operate in. With GroFins ongoing support, 75% of start-up businesses we have invested in are still operating successfully. One example of GroFins success in Kenya has been with Lima Feeds, an animal feeds supplier, which has been able to grow from an entrepreneurial idea into a successful small business. After starting off as an arbitrage trader in animal and poultry feeds, Charles Gituka, the owner, noticed a gap in the market where producers could realise cost savings.

The objective is to not only address each entrepreneurs finance need but also to provide them with the guidance and business support necessary to formalise and grow their business.
However due to the lack of collateral he was unable to approach traditional financing institutions to support his idea. After an evaluation of his business plan, GroFin was able to give Gituka training in record-keeping and accounting, and how to adopt industry best practice allowing him to both increase productivity and operating margins across the business - and provide finance for some new machinery and vehicles. According to the Kenya Economic Survey 2011, out of the half a million jobs that were created in the country over the past year, 80.6% were within the SME sector, demonstrating the need to prioritise the provision of support to small and medium enterprises across East Africa. GroFin has been able to showcase a financing and support mechanism, demonstrating that with the right backing many more entrepreneurial businesses could be set to attain success in the region.

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business

Informal economy

The role of informal financial schemes in Uganda under tough economic conditions
Fast rising inflation and sharp rises in lending rates offered by commercial banks have drastically narrowed the credit choices for Ugandan borrowers, shifting the spotlight on informal lending. Our staff writer examines the implications.
Significant price increases for numerous goods and services, especially foodstuffs whose component rose by more than 40% in the overall inflation basket in August, partly pushing headline inflation to a record 28.3% have raised the demand for borrowing among average consumers who simply need funds to make ends meet. Average sugar prices, for example, jumped from an average of Ush3,500 (US$1.2) to Ush8,000 (US$2.8) in August on account of irregular shutdowns at three local sugar firms and massive hoarding activities by speculators, clearly illustrates the local consumers dilemma. Their misery has been compounded by the Bank of Ugandas (the countrys central bank) monetary policies that have hiked funding costs for commercial banks, escalating interest rates and dampening economic activity. A 7% increase in the Central Bank Rate (CBR) over the last three months, pushing the CBR to 20% in October, has elevated base lending rates- and costs for loans to a range of 24.5% - 28.5% compared to less than 22% in January. Stuck with stable, and in some cases, declining incomes, average borrowers find themselves unable to access loans on affordable terms, a challenge that has inspired the pursuit of informal credit to meet cash needs. More flexible procedures of access to funds, repayment and less emphasis on collateral have endeared many small borrowers to such schemes in the past, despite cases of weak management. Informal income schemes with provide the both savings and credit products for lowearners, majority generating interest rates of 5%-10% on members deposits and availing loans of less than Ush5million (US$1,770) unavailable from commercial banks as they are deemed uneconomical. These schemes are common among self-employed people, salaried employees in local firms with limited staff benefits and unionised workers but lack legal recognition and are unregulated. Tough economic conditions have created serious challenges for these

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Those lacking in lucrative assets might be forced to trim their credit exposure, preferring to finance a restricted category of productive ventures that enjoy shortterm gains, low capital injections and modest credit risks as opposed to common social pursuits like weddings. This would eventually enable them retain stable cash flows needed to finance future needs. Widespread tough economic conditions in the meantime have triggered more cases of malicious default. Intrigue, hatred and confusion linked to government programmes have killed our savings and credit association. Some have influenced access to resources provided through the Prosperity for All Programme in favour of their friends and cronies while locking out other members. To make matters worse, many women that borrowed money recently failed to pay and have vanished and this has demoralised the rest of us. That is the reason why my husband advised me to leave the group, bemoaned Atwooki Nyakairu, a former member of Kyambogo Twegatte Group, a self help financial scheme. Prevailing hard times have also

With surging costs of funds in the banking sector, large and small financial institutions have to contend with hard choices. Either maintain low interest rates and lose out on revenue margins, or hike interest rates while depleting the customer base. So far, protection of income flows has taken priority with almost all banks hiking base and prime lending rates.

While

Widespread tough economic conditions in the meantime have triggered more cases of malicious default.

base. So far, protection of income flows has taken priority with almost all banks hiking base and prime lending rates. Currently, the average base rate has risen to 24.5%, with Standard Chartered and Ecobank charging an exceptional rate of 28.5% compared to 23.5% in September. Standard Chartereds long history in the market and substantial corporate client base offers it more room for stable growth in earnings and market share, smaller banks are faced with more complex choices. A huge stream of corporate clients could allow Standard Chartered to sustain fairly high lending levels backed by higher collateral an equation that yields sizeable incomes and modest default rates. Such an income stream easily compensates for a notable drop in retail borrowers. Newer players like the pan-African group Ecobank have struggled to break even in Uganda due to high set-up and operating costs and a reliance on lowend customers to grow market share in a fiercely competitive market. Under a tight regulatory regime manifested in low industry nonperforming loans of less than 10% a year, such banks could be forced to trim exposure to more risky smaller borrowers. This might swell numbers of low-income earners seeking badly needed relief from informal financial schemes.

schemes. With dwindling disposable incomes, collection rates are projected to decline coupled with higher default levels. This scenario is likely to diminish loan sizes while exerting considerable pressure on liquidity levels, as more people seek to borrow money to finance domestic consumer needs due to inflation, a new trend captured in Bank of Ugandas (BOU) latest economic findings for September 2011. Liquidating assets to meet growing credit needs appears compelling for those endowed with attractive assets like commercial vehicles, but sustainability issues come into question with uncertain economic times. Though some informal schemes have seen their assets grow to more than Ush50million (US$17,569), the benefits of partial disposal could be washed away by prolonged, weak economic activity, dominated by falling incomes among their contributors.

disrupted revival of the old informal cash schemes. For instance, a small revolving fund established by a group of employees in a local media house stalled earlier this year on the back of rising costs of living that undermined regular monthly collections estimated at Ush1,000,000 (US$351). Though some members have hinted on reviving it, spiraling costs of essential items have overshadowed such plans. Others schemes have apparently failed to take off, with promoters besieged with the soaring costs of household items. Tough choices for commercial banks With surging costs of funds in the banking sector, large and small financial institutions have to contend with hard choices. Either maintain low interest rates and lose out on revenue margins, or hike interest rates while depleting the customer

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business

Telecoms

In The Loop
Staying in touch with your business contacts around the world has never been more important. Luckily, it has never been easier either, thanks to increasingly popular and sophisticated telecom technology. Jane Bordenave reviews some of the leading products.
With business in East Africa being conducted on an increasingly international level, whether within the East African Community or further afield, companies are needing to find innovative ways of keeping in touch. Traditionally, if you wanted to attend a meeting with clients or regional offices, you needed to get on a plane and fly out to see them. However telepresence technology is allowing organisations to share presentations, attend meetings or even participate in conferences without leaving their office. The range of telepresence programmes on offer is growing rapidly, allowing executives to choose which one is best suited to their needs or budget. With such a choice available, the East AfricanInvestor profiles some of the most popular programmes on the market to help you decide what is right for you. Ease of use: The Skype interface is very easy to use. You can easily search for other Skype users and add them to your contacts list, which appears in a sidebar of the main window. Telephone numbers you have recently called also appear in the same side bar and you can also add telephone numbers to your contacts list. Compatibility: Skype is available for both Mac and Windows operating systems. Flexibility: While on a Skype call, you can carry on using other programmes such as your web browser or word processer. ADVANTAGES Price: Skype is a free software that works on a plug and play basis you simply download it from the internet, install and you are ready to go. Additionally, Skypeto-Skype calls, i.e. calling another person also using the programme is free, while calls to telephones are often cheaper than using a mobile phone or land line. friends or family abroad, but does have business applications of its own.

Skype
When thinking of telepresence or video conferencing, many people will be familiar with Skype that was launched in 2003. It is often used for personal calls to

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Recording: Complimentary software is available to record all conversations. These range in price from free to approximately US$45 DISADVANTAGES limited video conferencing: If you are having a one-to-one, Skype-toSkype conversation, you can use video conferencing so that both participants can see each other. However, if you have more than one participant, video conferencing is not available, effectively turning it into a conference call. Video freezing: Even with the best broadband fibre-optic internet connection, the video can often freeze.

Skype for Business

Designed especially for business users, Skype for Business overcomes some of the disadvantages of Skype, particularly the limited video conferencing, while maintaining most of the advantages. ADVANTAGES Price: A basic version of Skype for Business is available free, although it is, to all intents and purposes, the same as normal Skype. However, there is a Premium package available that allows full video conferencing. The price is also reasonable: If you are an occasional user, you can purchase a day pass for approximately US$5. However, if you intend on using it more than once a month, a monthly subscription is available for under US$80 DISADVANTAGES Compatability: Unlike normal Skype, Skype for Business is only available on Windows. Three programmes are available: and such as audience polls and surveys, customised registration and practice seminars. As would offers be more expected, training GoToTraining GoToMeeting, GoToWebinar

GoToTraining. GoToMeeting is the most basic and cheapest package, allowing up to 15 participants. GoToWebinar can host up to 1,000 participants and GoToTraining can have up to 200. ADVANTAGES Three tier system: The three different packages allows you to select which software is best for your business. Features: All three packages include meeting scheduling, compatibility with Microsoft Office, one-click recording and switching between presenters. GoToWebinar also features functionality

functionality, such as tests and materials, a countdown timer and the option to charge for participation. Compatability: All GoToMeeting

software is Mac and PC compatible Ease of use: GoToMeeting interface is simple to use, although there are more steps to complete depending on which software you are using. Continued on page 58 >>>

GoToMeeting
GoToMeeting is a piece of software developed specifically for use in business.

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Telecoms
Price: The most basic GoToMeeting package only costs around US$45 month, which is very reasonable considering the functionalities it has. DISADVANTAGES Price: On the other side of the price coin is the cost of premium packages. The top of the range GoToWebinar software costs US$450 a month although annual payment brings the total price down by 20%. Compatibility: Chats can be used in conjunction with other chat software, such as AOL Instant Messenger. DISADVANTAGES Price: Of all the software included in this review, Microsoft Lync is the most expensive, costing between US$630 and US$3,600. If there was ever a need for cost-benefit analysis, this is it! Compatibility: Mycrosoft Lync is only compatible with Microsoft Windows operating system, although users of Mac and Linux can join in some calls or collaborations. Reliability: Polycoms products are designed to work well even at low bandwidth. This means that even if you do not have the very fastest internet connection, you can still get excellent quality video. Flexibility: Polycoms products can be used in most business settings, from small internal meetings to conferences and expositions. Some of its equipment can also be used with other manufacturers software. DISADVANTAGES Price: As you may expect, specialist equipment like this has a fairly special price tag too. Telepresence equipment starts from US$3,500 and upwards. a text-based chat programme, video conferencing and whiteboard to share visual presentations or ideas. Recording: All contacts can be recorded using built-in software. ADVANTAGES Range: Whatever kind of telepresence solution you are thinking of, Polycom will have it covered, from the very big through to products especially suited to SMEs. This includes hardware and software. conference call speakerphones through to cinema-style immersive video projections.

Microsoft lync
Microsoft Lync is what might be called a fully integrated solution. It offers video calls, voice calls, greater collaboration abilities, searches based on skills, instant messaging and full integration with Microsoft office. If you want to call someone who is also using Lync, you can see through Microsoft Outlook if they are available or not, for example. ADVANTAGES Integration: The previously mentioned integration with other Microsoft products is a real plus point and makes Lync an addition to your existing software. Functionality: Lync brings with it a swathe of different capabilities, including

Polycom
Polycom is a specialist company that produces a range of telepresence and voice communications solutions. While all the other products covered so far in this article have been solely computer, Polycom produces high-end teleconferencing equipment as well as its telepresence software, Telepresence M100. The products on offer range from to buy additional equipment, such as webcams or microphones or, in the case of Polycom, specialist software. However, overall, telepresence will almost certainly be a time and money saver, particularly in terms of costs incurred due to travel. It is also greener

Conclusion
There are many different products on the market and this is just an overview of the most popular solutions on offer. It is worth remembering that whichever option you choose, you may also have

than getting on a plane or in a car, helping to reduce your companys carbon footprint. What is certain is that telepresence is growing in popularity and it is becoming an indispensible tool in the global business community.

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Strategy. Results. Value

ased in Uganda, with offices in London and Abuja, Edes & Associates has built a reputation as a global, respected firm of financial consultants and advisors. With a strong, ethical working practice, we specialise in delivering tailored assurance and advisory services to public sector initiatives across Africa and other developing countries worldwide. We work with development partners, government institutions, Non Governmental Organisations and Public Private Partnership Initiatives, to enable them to obtain added value for their investments and to strengthen their capacity in delivering results. Using our extensive network of associates, we are able to deploy experts cost-effectively to deliver a tailored approach in the regions where our clients operate. To find out how we can partner with you to optimise service delivery, contact us at www.edesassociates.com Kampala kampala@edesassociates.com Tel: +256 414 250504 Abuja abuja@edesassociates.com Tel: +234 807 2830311 London London@edesassociates.com Tel: +44 845 272 5922