Spotlight on Cameroon

Things are looking up in the land of Bikutsi and Makossa.

The Africa Rising story often features a few high profile countries that have dominated investors’ attention: Ghana, Kenya, South Africa, Nigeria and a few others are where most of the deals seem to happen.

Meanwhile, flying under the radar is Cameroon. Lately we are seeing an increase in business and entrepreneurial activity in the public and private sectors that leads one to think that this market deserves a closer look.

ECONOMIC AND POLITICAL PROFILE

The Republic of Cameroon is officially a democracy with executive, legislative and judicial branches of government. Paul Biya has been president since 1982.

Like most of Africa, the economy is based on natural resources, chief among them, timber, aluminum, agriculture (particularly, cocoa, palm oil), and oil & gas.

In addition there are hints of entrepreneurial activity that could lead to a larger private sector contribution to the nation’s economy.

RECENT ACTION

Just this year we’ve encountered several examples of entrepreneurial ventures and development initiatives that could be attractive to investors:

  • Ovamba is a financial services company that uses an innovative lending model to provide short term capital to small and medium sized businesses.
  • An American entrepreneur has made a big bet on palm oil in Cameroon. His business produces substantial volumes and has strong support from the local community.
  • We have been made aware of a major initiative by government to improve the Cameroonian infrastructure. Contractors an financial investors can select from dozens of projects in several sectors including transport, agribusiness, and electric power.

COMPETITIVE ADVANTAGES

Anglophone meets Francophone. Though mostly French speaking, Cameroon has a significant English speaking population, making partners, and staff available for both language groups.

Bridge to West and Central Africa. Cameroon often identifies and is identified by others as a Central and West African nation. For this reason, and due to its location Cameroon can serve as a base of operations for Central or West Africa.

On the verge of becoming an LNG exporter. Oil and gas are fields have been developed on and off shore on the West African coast. Cameroon is a part of the west coast African oil story. LNG reserves are large enough that Cameroon may soon become a gas exporter.

POTENTIAL RISKS

President for life? President Biya his held office for 35 years. The country seems stable so far, but one wonders about the succession plan and whether an orderly transition will occur.

Anglo & Franco living together. The combination of Anglophone and Francophone that is a source of strength for Cameroon can also be a source of division and instability. So far that has not occurred and we consider this to be a minor issue.

We would love to hear from other business people about their experiences and impressions of the business climate in Cameroon. Your comments are welcome.

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Risk Management for African Private Equity

PE investments in Africa generally fall into the alternative investments group. As such they compete for a share of investors’ allocation to the alternative investments category along with frontier market regions. Our challenge as Africa-focused fund managers, consultants, and advisors is to attract more of this capital to Africa, thereby contributing to Africa’s development, and the success of our enterprises. Ultimately we would like to see African deals shed the “alternative” label.

One topic we constantly confront is the risk—both real and perceived of deals associated with Africa. It is therefore important for us to provide sound risk analysis and risk mitigation strategies to aid clients, LPs and other investors in their capital deployment decisions. Risk can be classified as political, economic (e.g. currency), and operational (e.g. supply chain).

What is the best approach for risk analysis?

Several well known rankings of world economies are a starting point for risk analysis. (see table) These include:

  • World Bank Doing Business ranking,
  • World Economic Forum Global Competitiveness Index,
  • Transparency International’s Corruption Perceptions Index,
  • JLL Global Real Estate Transparency Index.

The highest ranked African countries are usually in the middle of these rankings.

While these rankings and the data within them are a good preliminary indicator, do they tell the whole story? How do we find the growing business based in a less attractive country, but positioned to expand into other markets? Is political risk really a deal killer or are there circumstances in which business will get done anyway? Are there industries investors should avoid even when macro indicators look promising? Our ability to address these issues should lead to more nuanced assessments of risk and guide investors to better results.

How do we mitigate risk to make deals bankable?

Can PE firms take a leadership role in risk management using a holistic approach that recognizes the link between legal, political and financial risks?

Can management teams be “coached up “ to make a deal bankable? There are a number of ways PE firms and consultants can add value to make deals more attractive. For example:

  • Improving accounting and financial management, process improvements
  • Access to training such as online compliance

Probably the most important risk mitigation tool Africa-focused PE firms have is their knowledge and experience in African markets. This local knowledge is obtained in a variety of ways. Obviously Africa based firms have local knowledge built in at least for their home country and usually for their region as well. Other firms can rely on African professional staff and on local partners on the ground who can provide useful market intelligence.

Some conclusions to share with prospective LPs and other investors:

  1. Several African markets compare favorably with other emerging/frontier markets in Latin America and Asia according to the rankings:
  • Transparency of Kenya’s real estate sector exceeds that of Chile and Ukraine.

  • Cape Verde and Liberia are less corrupt than Brazil or the Czech Republic

      2. PE firms and advisors are highly knowledgeable about the African business                    environment and have access to excellent market intelligence. This                              enables them to educate and guide the investor community in                                      making realistic assessments of risk. 

I would encourage practitioners to continue the discussion on how to improve          investors’ understanding of risk management in Africa. We welcome your                insights on this blog and elsewhere.

Your firms’ local knowledge, both in-house as well as in your networks on the ground make you the right people to guide LPs toward profitable deals.

GLOBAL RANKINGS OF KEY AFRICAN MARKETS

WEF GCI

WORLD BANK DOING BUSINESS

TRANSPARENCY INTERNATIONAL

JLL REAL ESTATE TRANSPARENCY

ALGERIA

87

156

108

ANGOLA

182

BENIN

124

155

95

BOTSWANA

64

71

35

41

BURKINA FASO

146

72

CAPE VERDE

110

129

38

COTE D’IVOIRE

99

142

108

104

ETHIOPIA

109

159

108

GABON

108

164

101

GHANA

114

108

70

85

KENYA

96

92

145

61

LESOTHO

120

100

83

LIBERIA

131

174

37

MAURITIUS

45

49

54

58

MOROCCO

70

68

90

71

MOZAMBIQUE

133

137

132

101

NAMIBIA

84

108

53

NIGERIA

127

169

136

83

RWANDA

52

56

54

80

SENEGAL

112

147

64

SOUTH AFRICA

47

74

54

SWAZILAND

111

TANZANIA

116

132

116

99

UGANDA

113

115

151

90

ZAMBIA

118

98

87

57

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Strengthening Private Investment in Africa

AAII1

Norton Rose Fulbright law firm was the scene last Tuesday for the Africa Alternative Investment Intensive. The forum was part of a series of conferences on the African investment landscape organized by Africonomie.

Investors such as Abraaj, Capri Africa, and Sarona Asset Management were represented. In addition, several important players in the African financial ecosystem were in attendance. These include PWC’s Mauritius office, IGD Leaders and PAN Diaspora Capital Management.

The AAII was a gathering of practitioners bringing their real world experience. It was an opportunity to share ideas and insights aimed at fostering a healthier African investment climate. Here are some of the topics:

 

Attracting American Capital to Africa

Obi McKenzie of Black Rock had constructive recommendations for fund managers. A fund’s track record is a big selling point. New funds without much of a record are encouraged to pursue funds of funds. A useful sources of leads is the National Association of Investment Companies.

Encouraging US pension fund managers to consider African investments

Donna Sims Wilson, president of the National Association of Securities Professionals gave a presentation on the NASP Africa Initiative. It is a USAID funded initiative known as Mobilizing Institutional Investors to Develop Africa’s Infrastructure, or MiDA. The goal is to expose US public pension plan sponsors to co-invest with African fund managers in Africa’s infrastructure.

Risk mitigation

Several times during the conference presenters pointed out various risks that must be managed either with insurance products or deal structuring. Currency risk was a topic of particular concern. Risk management in African investments will be address in more detail shortly in a subsequent post.

Startups & smaller deals

This is a segment of the market that the financial community has not really addressed. There were audience questions during the day about funding the “missing middle” deals of roughly $500k to $1 million. A panel on Smart Capital and the future Innovative Technologies in Africa identified several themes such as mobile technology.

Impact investing and ESG issues

Panels on ESG related risks and delivering sustainable energy addressed social an developmental impacts of investing. The very definition of ESG and how it is measured were among the topics discussed.

Last week’s Africa Alternative Investment Intensive continues the conversation and sets the stage for the next AAII gathering next month in London.

AAII2

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Africa embracing alternative finance

This is one of a growing number of options becoming available to African entrepreneurs.

The Emerging World

A majority of businesses in Sub-Sahara Africa are small and medium-sized enterprises, also known as SME’s, and represent 90% of all businesses and produce 80% of all jobs throughout the continent.  Most of these enterprises lack access to finance stunting growth and business development.  The International Finance Corporation, IFC, estimates that up to 84% of SME’s in Africa struggle to get adequate financing from formal investment channels such as banks and other financial institutions, resulting in a credit financing gap of $140-170 billion annually. This has created a market need for alternative sources of financing.  Alternative financing platforms have stepped up to meet this need using crowdfunding and peer-to-peer (P2P) lending.

Piattaforme-di-crowdfunding-in-Africa

Let me first start out by explaining exactly what crowdfunding is. Crowdfunding raises capital for a project or a venture by collecting small amounts of money from a large group of people.  There are different types of crowdfunding opportunities. …

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Small Biz Challenges

In the Kokolemle section of Accra, I met a group of female farmers and entrepreneurs pondering a move into agribusiness. Their issues—access to capital, access to markets, finding affordable office space, defending intellectual property—are all issues my small business clients in Boston have wrestled with. Some of the obstacles are a bit more extreme. However, many of the same skills, along with a dash of cultural sensitivity can address these problems.

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Adventures in Ghanaian Real Estate

Time to catch up on my Ghana journaling. On my second Tuesday in Accra, my good friends and colleagues at Emos Consultancy arranged for me to meet with the managing director of NTHC Properties. This is the property development arm of National Trust Holding Company, one of Ghana’s oldest and largest investment firms.

The MD is a long time veteran of the Ghanaian property industry He pointed out that the high end of the market is not yet saturated but could eventually get there. Meanwhile there is nearly insatiable demand in the affordable segment serving the middle and lower middle of the market. This expert suggest improving existing properties to minimize cost rather than starting brand new developments. This strategy underpins NTHC Properties bear tern strategy.

The following day I met with in Asian entrepreneur regarding two vastly different ventures. One that provides affordable housing in the agribusiness sector. The other is a luxury apartment complex. Both projects have elements of risk as well as strong upsides. Thankfully, land title does not appear to be an issue. There are other challenges to work through. We are looking forward to providing our expertise to help shepherd these projects to completion under the right conditions.

 

 

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3 Things I Learned Today in Ghana

1. It’s great to have friends in country

Not only for the hospitality, or the insights and view from inside, the ability to trust people to do what they say they’ll do is invaluable.

2. Projects are not always what they seem to be

A simple capital raise can reveal a need for a variety of consulting services.

3. There’s nothing like on the ground presence.

I spent most of today with the management team of a Nigerian construction firm setting up in Ghana. Today they were looking for office space. Tomorrow they meet key decision makers whose influence can determine who wins contracts. American companies need to show this level of commitment or else be beaten to the punch by bold competitors from Africa, Asia, and Europe.

I was also reminded why I made this trip. I’m grateful for the opportunity to see first hand the changes that say much more than the macroeconomic statistics. Now I’m  better prepared to explain this exciting and growing market.

 

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Ghana Today–a Story of Growth and Struggle

I arrived in Accra yesterday morning for my first visit in several years. While I’m here to meet with partners, colleagues,  and prospective clients, I’m also anxious to see see up closely of the changes I’ve been reading about.

A different Accra greeted me immediately. The airport arrival area was cleaner and much more orderly than before. On the way to my hotel I saw several new office buildings including the brand new Octagon. There’s also the fabulous new Movenpick. This enormous building is clearly designed for big event and caters to an international clientele.I’m  right around the corner at the Accra City Hotel, which has replaced the old Novotel on Barnes Rd. The arrived of these new premium properties are recognition of Accra as one of the premier meetings destinations in West Africa.

Later that day, during my ritual stroll around the neighborhood, I could see that much of the old Ghana remains. There’s the chaotic bustle of Makola market. The tro-tros still offer dirt cheap transportation along with new City buses tant world ont besoin ont of place in DC or Mexico City.

During the next two I will explore the current state of Ghana’s development,  focusing on energy, infrastructure, and the country’s efforts to lessen its dependence on raw commodities and become a more industrialized, higher value economy. Along the way I will highlight potential investment opportunities and suggest ways Ghana’s companies and governments can become more investor friendly. Stay tuned!

AccraCityHotel

Movenpick

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Caribbean communities on the front lines of climate change adaptation

A key step is to understand how private for-profit initiatives can align with current thinking regarding resilience to maximize pro-climate impact and lead to healthy sustainable returns to investors.

caribbeanclimate

Photo Credit: Stuart Claggett

Newly-released analysis from CDKN has identified a series of approaches to help community-level organisations to increase climate resilience. The analysis focusses on the Caribbean, but has widely applicable lessons for community-based adaptation in other parts of the world. Will Bugler and Olivia Palin explain further:

The research acknowledges that the success of adaptation measures is highly dependent on local context, and shows how multi-level governance approaches can deliver locally-appropriate adaptation actions. By using approaches and methods such as network analysis, community-based vulnerability assessments and a ‘local adaptive capacity framework’, the research suggests that communities can improve the efficacy of climate action at the local level. What’s more the analysis also finds that more co-ordinated action at the local level can lead to increased influence on regional and national decision making.

The new analysis draws on outputs from three CDKN-funded projects spanning a decade’s worth of applied research…

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