Tag Archives: Emerging markets

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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8 WAYS TO ASSESS THE IMPACT OF #AFRICAN #TECH #STARTUPS

 

I. Jobs Created

  • We of course want to know the total number of jobs created by startups. In addition we need to understand the type of jobs created and how that fits with the profile of the national labor force. What are the salary levels and how do they compare to the local statutory minimum wage? Will these startups have a significant impact on their local labor markets?

II. Capital Raised

  • Are these startups attracting new capital to Africa?
  • Are they attracting foreign capital from other African countries?
  • Are they attracting capital from within their own countries?

III. Increase in Skills and Know-How

  • Are the startups introducing new technology or management practices
  • Are skills and know-how spreading beyond the universities to the general population?

IV. Return on Capital Invested

  • Have investors in African startups experienced favorable outcomes?

V. Export Revenue Within and Outside Africa

  • Are African startups exporting?
  • Are African startups enabling exports by other companies in their home countries?

VI. Supportive of African Business

  • In what other tangible ways have these startups helped foster the growth of African businesses?
  • Training
  • Access to customers
  • Access to capital

VII. Social Impact

  • Environmental
  • Education
  • Poverty reduction
  • Financial inclusion

VIII. Intangibles

  • Inspiration – Is there a 12 year old girl in a village saying “I want to be an entrepreneur too!”
  • Positive influence on government – Is there a community of entrepreneurs who can make their voice heard in the halls of government to strengthen the entrepreneurial ecosystem?
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3 Lessons from the 2015 Africa Business Conference at Harvard Business School

As usual there was a palpable spirit of optimism at this year’s Africa Business Conference at Harvard Business School. While the facts on the ground may not be as rosy, I did come away with several observations that will be helpful in current tasks as well as in plotting strategy in the medium and long term.

1. Storage and transportation of both inputs and goods for sale are critical to improving farm performance.

2. Institutional Private equity is well entrenched in Africa and the characteristics of a successful deal are increasingly well known. In the second panel on closing the electricity deficit the parameters for funding power projects were clearly laid out:

  • A quality PPA deal is required. This is the guarantee of cash flow that investors look for. They’re not all created equal. For example, local currency denomination is a deal killer since it adds currency risk to the equation.
  • The PE folks will also need a sovereign guarantee as an indication that the government supports the project.
  • As always a strong management team makes the deal much more attractive.

3. Startup capital especially for non-tech ventures is extremely difficult to find. Angel investors and venture capitalists are slowly finding their way to tech-related, high growth startups. For others, it’s tougher but there are a few possibilities:

  • Impact investors. If one can demonstrate measurable social benefit in addition to financial returns then a new set of potential investors becomes available. Many impact investors use the IRIS standard to assess social benefit. African companies would be wise to seek out experts who can help the make their case using IRIS
  • Multilateral/DFI capital. Organizations such as the African Development Bank and International Finance Corporation sometimes have special programs for ventures with attractive features such as environments sustainability.
  • Trade promotion agencies. Agencies such as the U.S. Export-Import Bank can often provide funding or lean guarantees for capital purchases that meet certain requirements.

As always the Harvard Business School Conference showed us an Africa on the move—not without its issues, but with opportunities for businesspeople to benefit themselves, their organizations and the African continent. Successful entrepreneurs will assemble a skilled team that can execute on their vision and achieve financial and social results.

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Major Africa Stock Market and Exchange Rate Changes in Q4-2014

Advansa International follows exchange rates and stock market indexes for several emerging and frontier markets. Exchange rates and stock indexes are recorded on the last trading day of the week. The tables below show changes from the last trading day of the last full week of the quarter for several key markets in Africa.

Table 1 

 STOCK MARKET INDEX TRACKER 4TH QUARTER 2014

AFRICA

COUNTRY

4TH QUARTER PCT CHANGE

GHANA-Local Currency

1.42%

GHANA-US$

2.83%

KENYA-Local Currency

-4.70%

KENYA-US$

-6.19%

NIGERIA-Local Currency

-15.66%

NIGERIA-US$

-27.06%

SOUTH AFRICA-Local Currency

-0.37%

SOUTH AFRICA-US$

-3.42%

WEST AFR. BOURSE-Local Currency

-1.91%

WEST AFR. BOURSE-US$

-6.05%

MSCI AFRICA-Local Currency

0.89%

MSCI AFRICA-US$

-2.52%

MSCI EMERGING MARKETS-Local Currency

-2.10%

MSCI EMERGING MARKETS-US$

-6.97%

Sources: Stock exchange websites, Financial Times, Advansa International data

Table 2

4TH QUARTER 2014 EXCHANGE RATE TRACKER

AFRICA

COUNTRY

4TH QTR PCT CHG

YTD

DEC PCT CHANGE

CFA AREA*

-4.14%

-11.66%

GHANA

1.41%

-25.86%

KENYA

-1.49%

-5.08%

NIGERIA

-11.40%

-13.27%

SOUTH AFRICA

-3.05%

-9.56%

TANZANIA

-2.07%

-7.42%

UGANDA

-3.88%

-9.18%

Sources: Financial Times, Advansa International data

*Includes most French speaking countries such as Benin, Cameroon, Cote D’ivoire, Guinea, Senegal, Togo and others

It was a rough year for emerging market stocks with the MSCI Emerging Markets Index losing 2.1% in the fourth quarter and 0.69% the full year 2014. African stock markets did better than emerging markets in Q4, though for the year the MSCI Africa index trailed emerging markets. Nigeria was the worst performer largely due to the fall in the price of oil. Its downward momentum continued into the first week of 2015 with the Global MSCI Nigeria ETF falling another 9%. Ghana was the strongest performer, up 1.42% in the 4th quarter, and 2.83% for the year.

All currencies in our table fell against the dollar in 2014, which diminishes returns (and increases losses) for foreign investors. This is partly a function of dollar strength rather than weakness of African currencies. The US economy finished the year strong and the dollar index was up from 99.1 at the end of 2013 to 102.8 at the end of 2014’s 3rd quarter. The currency depreciation also reflects the challenges to resource based emerging and frontier market economies that has persisted all year. A couple of currencies were especially weak. Ghana for example was down almost 26% in 2014. Aggressive action by the central bank, with the assistance of the IMF reversed the slide and the cedi has recovered, showing a slight gain in the fourth quarter. Nigeria’s naira showed the biggest loss of the quarter again influenced by the drop in the price of oil.

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Major Latam Stock Index & Exchange Rate Changes in Q3-2014

Advansa International follows exchange rates and stock market indexes for several emerging and frontier markets. Exchange rates and stock indexes are recorded on the last trading day of the week. The tables below show changes from the last trading day of the last full week of the quarter for several key markets in Latin America, and the Caribbean.

Table 1 

 STOCK MARKET INDEX TRACKER 3RD QUARTER 2014

LATIN AMERICA/CARIBBEAN

COUNTRY

3RD QUARTER PCT CHANGE

ARGENTINA MERVAL-Local Currency

62.64%

ARGENTINA MERVAL-US$

59.06%

BRAZIL BOVESPA-Local Currency

7.63%

BRAZIL BOVESPA-US$

-2.07%

COLUMBIA IGBC-Local Currency

-2.76%

COLUMBIA IGBC-US$

-9.96%

JAMAICA MAIN INDEX-Local Currency

3.44%

JAMAICA MAIN INDEX-US$

2.74%

MEXICO-Local Currency

4.71%

MEXICO-US$

1.33%

MSCI LATIN AMERICA-Local Currency

5.29%

MSCI LATIN AMERICA-US$

-2.62%

MSCI EMERGING MARKETS-Local Currency

1.44%

MSCI EMERGING MARKETS-US$

-2.13%

Sources: Stock exchange websites, Financial Times, Advansa International data

Table 2

3RD QUARTER 2014 EXCHANGE RATE CHANGE

LATIN AMERICA/CARIBBEAN

COUNTRY

3RD QTR PCT CHG

YTD

SEP PCT CHANGE

ARGENTINA

-3.57%

-22.99%

BRAZIL

9.70%

-3.27%

CHILE

-8.30%

-12.69%

COLOMBIA

-7.20%

-5.31%

COSTA RICA

1.30%

-6.98%

JAMAICA

-0.69%

-5.82%

MEXICO

-3.38%

-2.95%

PERU

-3.24%

-3.87%

TRINIDAD & TOBAGO

1.19%

-0.81%

Sources: Financial Times, Advansa International data

Emerging and frontier market stocks showed mixed results as the MSCI Emerging Markets Index rose 1.44%, Latin American stocks however mostly outperformed the broader emerging markets. The MSCI Latin America Index was up 5.29%. Argentina is obviously an outlier. One school of thought says that in Argentina investors are shifting to equities and away from fixed income which has driven the stock market to an unusually high level.

On Currency front, the US Dollar index rose from 99.316 in Q2 to 100.342 in Q3. The recent strength of the US dollar makes the region’s currencies appear weaker than they actually are. Still the real rose nearly 10% as Brazilian authorities raised interest rates.

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Major African Stock Market and Exchange Rate Changes in Q3-2014

Advansa International follows exchange rates and stock market indexes for several emerging and frontier markets. Exchange rates and stock indexes are recorded on the last trading day of the week. The tables below show changes from the last trading day of the last full week of the quarter for several key markets in Africa.

Table 1 

 STOCK MARKET INDEX TRACKER 3RD QUARTER 2014

AFRICA

COUNTRY

3RD QUARTER PCT CHANGE

GHANA-Local Currency

-4.18%

GHANA-US$

-3.87%

KENYA-Local Currency

7.92%

KENYA-US$

6.18%

NIGERIA-Local Currency

-3.24%

NIGERIA-US$

-3.86%

SOUTH AFRICA-Local Currency

-1.90%

SOUTH AFRICA-US$

-7.28%

WEST AFR. BOURSE-Local Currency

9.21%

WEST AFR. BOURSE-US$

2.28%

MSCI AFRICA-Local Currency

0.52%

MSCI AFRICA-US$

-4.41%

MSCI EMERGING MARKETS-Local Currency

1.44%

MSCI EMERGING MARKETS-US$

-2.13%

Sources: Stock exchange websites, Financial Times, Advansa International data

Table 2

3RD QUARTER 2014 EXCHANGE RATE TRACKER

AFRICA

COUNTRY

3RD QTR PCT CHG

YTD

SEP PCT CHANGE

CFA AREA*

-6.92%

-7.85%

GHANA

0.31%

-26.89%

KENYA

-1.74%

-3.64%

NIGERIA

-0.62%

-2.10%

SOUTH AFRICA

-5.38%

-6.72%

TANZANIA

-1.16%

-5.46%

UGANDA

-1.89%

-5.51%

Sources: Financial Times, Advansa International data

*Includes most French speaking countries such as Benin, Cameroon, Cote D’ivoire, Guinea, Senegal, Togo and others

Emerging and frontier market stocks showed mixed results as the MSCI Emerging Markets Index rose 1.44%, and the MSCI Africa Index was up 0.52%. Choppy commodities prices, and mixed economic performance lead to losses in some countries like South Africa and gains in others. The Nairobi Exchange in Kenya and the West Africa Bourse were the strong performers in Q3.

Currencies that were weak in the first half of the year—notably Ghana—have largely stabilized. Though most currencies are lower against the dollar, this is due more to a strong dollar than weakness elsewhere. The US Dollar index rose from 99.316 in Q2 to 100.342 in Q3.

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Major African Stock Index and Exchange Rate Changes in Q2-2014

Advansa International follows exchange rates and stock market indexes for several emerging and frontier markets. Exchange rates and stock indexes are recorded on the last trading day of the week. The tables below show changes from the last trading day of the last full week of the quarter for several key markets in Africa.

Table 1 

 STOCK MARKET INDEX TRACKER 2ND QUARTER 2014

AFRICA

COUNTRY

2ND QUARTER PCT CHANGE

GHANA-Local Currency

-1.42%

GHANA-US$

-18.45%

KENYA-Local Currency

-2.78%

KENYA-US$

-3.86%

NIGERIA-Local Currency

10.06%

NIGERIA-US$

11.33%

SOUTH AFRICA-Local Currency

5.62%

SOUTH AFRICA-US$

5.32%

WEST AFR. BOURSE-Local Currency

-2.17%

WEST AFR. BOURSE-US$

-2.99%

MSCI AFRICA-Local Currency

4.25%

MSCI AFRICA-US$

3.94%

MSCI EMERGING MARKETS-Local Currency

4.44%

MSCI EMERGING MARKETS-US$

6.22%

Sources: Stock exchangewebsites, Financial Times, Advansa International data

 

Table 2

2ND QUARTER 2014 EXCHANGE RATE TRACKER

AFRICA

COUNTRY

2ND QTR PCT CHG 

 

YTD JUN PCT CHANGE 

CFA AREA*

-0.81%

-0.99%

GHANA

-17.03%

-27.12%

KENYA

-1.07%

-1.94%

NIGERIA

1.27%

-1.49%

SOUTH AFRICA

-0.30%

-1.42%

TANZANIA

-1.09%

-4.35%

UGANDA

-1.85%

-3.70%

Sources: Financial Times, Advansa International data

*Includes most French speaking countries such as Benin, Cameroon, Cote D’ivoire, Guinea, Senegal, Togo and others

The big markets–Nigeria and South Africa performed well. Both markets were up in local currency and in dollars.It appears that the long term story–the demographic boom, the growing middle class, the improved political environment in some countries–are causing investors to look past current bumps in the road.

Despite lackluster growth, South African stocks have been strong. The country remains an attractive investment destination, its stock market being the largest and most liquid in Africa.

Nigerian stocks have proven attractive to investors and Boko Haram attacks and new competition from North American shale oil have not changed anyone’s thinking so far. Most of the market activity is in the financial services sector lead by such firms as Access Capital and Guaranty Bank. Consumer goods companies such as Nigerian Brew have also showed strength. The naira actually gained a little during the quarter and remains within the narrow range that has prevailed all year.

In Ghana, currency weakness continues as the nation has sought IMF assistance to help get its accounts back toward balance. Trading activity is as usual dominated by the large consumer and financial service companies such as Fan Milk, UT Bank, and EcoBank. The stock market has weakened, reflecting caution among investors even though the economy is still growing. Could be a chance to get in the market cheap.

In fact, the current period is a possible second chance for international investors to invest in African assets at favorable prices when exchange rates make deals affordable and much of the bad news is already priced in.

 

 

 

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Major Latam Stock Index & Exchange Rate Changes in Q1-2014

 

 

Advansa International follows exchange rates and stock market indexes for several emerging and frontier markets. Exchange rates and stock indexes are recorded on the last trading day of the week. The tables below show changes from the last trading day of the last full week of the quarter for several key markets in Latin America, and the Caribbean.

Table 1 

 STOCK MARKET INDEX TRACKER 1ST QUARTER 2014

LATIN AMERICA/CARIBBEAN

COUNTRY

1ST QUARTER PCT CHANGE

ARGENTINA MERVAL-Local Currency

16.22%

ARGENTINA MERVAL-US$

-2.65%

BRAZIL BOVESPA-Local Currency

-6.02%

BRAZIL BOVESPA-US$

-0.36%

COLUMBIA IGBC-Local Currency

5.11%

COLUMBIA IGBC-US$

2.59%

JAMAICA MAIN INDEX-Local Currency

-4.12%

JAMAICA MAIN INDEX-US$

-7.07%

MEXICO-Local Currency

-6.33%

MEXICO-US$

-6.56%

MSCI LATIN AMERICA-Local Currency

-1.61%

MSCI LATIN AMERICA-US$

-4.20%

MSCI EMERGING MARKETS-Local Currency

0.79%

MSCI EMERGING MARKETS-US$

-0.23%

Sources: Stock exchangewebsites, Financial Times, Advansa International data

 

Table 2

1ST QUARTER 2014 EXCHANGE RATE CHANGE

LATIN AMERICA/CARIBBEAN

COUNTRY

1ST QTR PCT CHG

YTD

MAR PCT CHANGE

ARGENTINA

-18.87%

-18.87%

BRAZIL

5.66%

5.66%

CHILE

-4.88%

-4.88%

COLOMBIA

-2.51%

-2.51%

COSTA RICA

-8.05%

-8.05%

JAMAICA

-2.95%

-2.95%

MEXICO

0.24%

0.24%

PERU

-0.91%

-0.91%

TRINIDAD & TOBAGO

0.47%

0.47%

Sources: Financial Times, Advansa International data

In the Americas as in Africa the correction in emerging markets has become clearly visible in the 1st quarter of 2014. The MSCI Latin America index lost 1.6% and several currencies lost value, with Argentina being the standout due to continued high inflation. Exports of commodities played a bigger role in Latin America’s growth story than in other regions. Consequently, declining exports to Asia have put pressure on the trade balances of the big exporters like Argentina and Peru. Rising interest rates have helped the Brazilian real recover from previous losses but slow growth has contributed to lower stock prices. The long term outlook among investors is optimistic, with the length and depth of China’s economic slowdown being a major risk factor. Long term growth can resume if the future brings:

  • Political reform or even change of governments in some of the more volatile countries.
  • Adopting policies that enhance the region’s human capital (i.e. promoting education and entrepreneurship) and position their societies to enter high value industries that are more inclusive, and less dependent on undependable commodity prices.

 

 

 

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Major African Stock Index and Exchange Rate Changes in Q1-2014

 

 

 

Advansa International follows exchange rates and stock market indexes for several emerging and frontier markets. Exchange rates and stock indexes are recorded on the last trading day of the week. The tables below show changes from the last trading day of the last full week of the quarter for several key markets in Africa.

Table 1 

 STOCK MARKET INDEX TRACKER 1ST QUARTER 2014

AFRICA

COUNTRY

1ST QUARTER PCT CHANGE

GHANA-Local Currency

11.37%

GHANA-US$

-0.80%

KENYA-Local Currency

1.76%

KENYA-US$

0.88%

NIGERIA-Local Currency

-4.72%

NIGERIA-US$

-7.45%

SOUTH AFRICA-Local Currency

0.48%

SOUTH AFRICA-US$

3.68%

WEST AFR. BOURSE-Local Currency

5.07%

WEST AFR. BOURSE-US$

4.88%

MSCI AFRICA-Local Currency

3.80%

MSCI AFRICA-US$

0.33%

MSCI EMERGING MARKETS-Local Currency

0.79%

MSCI EMERGING MARKETS-US$

-0.23%

Sources: Stock exchangewebsites, Financial Times, Advansa International data

 

Table 2

1ST QUARTER 2014 EXCHANGE RATE TRACKER

AFRICA

COUNTRY

1ST QTR PCT CHG

YTD

MAR PCT CHANGE

CFA AREA*

-0.18%

-0.18%

GHANA

-12.16%

-12.16%

KENYA

-0.88%

-0.88%

NIGERIA

-2.73%

-2.73%

SOUTH AFRICA

-1.12%

-1.12%

TANZANIA

-3.30%

-3.30%

UGANDA

-1.88%

-1.88%

Sources: Financial Times, Advansa International data

*Includes most French speaking countries such as Benin, Cameroon, Cote D’ivoire, Guinea, Senegal, Togo and others

2014 marks a change in investor sentiment towards the emerging and frontier markets. We see a shift from the mad rush into EMs of the past 3-4 years to people wondering if all the emerging market hype is a bit overblown. The announcement of tapering by the US Fed in 2013 was the trigger. In Africa the new outlook is manifest in continued currency weakness and retrenchment in several key stock indexes.

Every currency in our table lost ground in the first quarter. This is in spite of monetary tightening and rising interest rates across the board. Indeed, monetary policy in most of these markets has been fairly rational. On the fiscal side, however governments are finding it difficult to control spending. These are countries with young populations climbing out of poverty. They are at a developmental stage that demands rapid growth and are under tremendous political pressure to deliver social services and better infrastructure, all of which leads to deficits in the trade and fiscal accounts.

Ghana is a conspicuous example among this group. We see from the tables that Ghanaian stocks performed quite well while the currency was the weakest among prominent African economies. Many companies are performing well and investors anticipate future growth so stock prices are rising. However the trade benefits of the nascent oil sector have not materialized and have in fact generated additional imports as production ramps up. Thus the trade balance deteriorates. The resulting inflation on top of politically driven spending increases puts downward pressure on the cedi.

Yet it is these same characteristics that make the emerging markets such as Ghana attractive to investors. Among the larger markets that attract most of the trading volume, the currency issue is not as urgent. If this is a short term correction and if governments and investors don’t panic, then the long term trends will continue to imply growth and favorable investment outcomes.

 

 

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EMERGING MARKET INVESTING PART III – 5 KEY TAKEAWAYS FOR THE ENTERPRISE

For managers and entrepreneurs seeking private investment to fund an enterprise, the current environment is challenging, though still an improvement compared to prior decades. In Part III of our series, we offer 5 takeaways from 2013. These are concepts that are particularly appropriate to current market conditions and sensible in any period in the cycle.

1. Be mindful of the investing environment. We recall from Part I that private equity activity was down somewhat in 2013. Deals were down 7% and fundraising down 19% from the previous year. We know that the BRICS and other emerging economies have slowed down. So for the time being at least the emerging markets have lost some of their luster. All this has affected investor’s attitudes. Yet the long term outlook still looks good which is the message we stick to and the reason emerging economies still attract investor interest.

2. Owners and management should have a realistic understanding of the value of their enterprise, and where it fits into the spectrum of potential investments. They should also have thought through carefully their mission and objectives for the enterprise, for themselves, and for their communities.

3. Demonstrate the strength of the business model including evidence that the business or project can provide consistent cash flow. Examples include:

  • Signed contracts for current and future sales
  • For housing developments, a significant proportion of homes pre-sold either to residents or a large employer buying for its staff.
  • Offtake agreements for energy and power projects
  • Infrastructure projects that can collect tolls or user fees

4. Government support never hurts. Although most developing countries have improved business and political climates, they are still relatively difficult places to do business. It is therefore desirable to be on good terms with the relevant government bodies so. When everyone’s interests are aligned the red tape can be minimized.

The extent to which government backing is needed varies with the type of deal. For small startups it may not be necessary at all. In some cases the government is the customer then of course the company must be in a position to win a contract. In lieu of a contract, an MOU or government guarantee may be sufficient.

It should be noted that while government support is crucial, companies should avoid any activity that can be construed as corrupt as it will be an immediate turnoff to the investor. US investors are especially wary of running afoul of the Foreign Corrupt Practices Act. Any investor not appropriately concerned is probably one to avoid.

5. Strength of the management team. Investors look for relevant experience, a level of professionalism and an understanding of international performance standards. Most important, management and founders/owners should be prepared to act in the interest of building the value of the enterprise.

Current market conditions in emerging market PE investing indicate a plateau in deal growth. In this environment founders/owners should pay special attention to those factors that attract good investors. We think this is a short term phenomenon—a sensible pullback from the emerging market fever of the past few years. However the broader demographic, economic and geopolitical trends will continue to favor emerging markets in the long run. We believe capital will flow towards companies that have strengthened their foundations during the current slowdown.

 

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