Private equity funds, purchase of private equity businesses, direct buyouts or minority share acquisitions represent the most significant modes of Foreign Direct Investment (FDI) entry for Gulf investors interested in Sub-Saharan Africa.
So says a study, produced by the Dubai Chamber of Commerce & Industry in collaboration with The Economist Intelligence Unit, which analyzed Gulf investment into Africa.
The report says that investors from the gulf region mostly either co-invest with Private Equity funds, purchase private equity businesses, and participates in direct buyouts.
It also says that excluding South Africa, stocks and shares remain of limited interest to Gulf investors.
The study finds that malls and hypermarkets are emerging in a handful of countries.
According to it, East Africa was the most appealing region for non-commodity investment from the Gulf, with retail and hypermarkets, automotives, commercial banking and tourism considered key sectors. Manufacturing in Ethiopia, leisure, retail and tourism in Mozambique and Kenya, and education in Uganda were also popular with Gulf investors.
A number of factors that make gulf investment into these sectors particularly attractive: Demographic trends, growing consumer markets, economic stability and an improving business environment, as well as a resilience that has allowed it to withstand global recession and the current commodity price slump.
The study drew attention to the role Gulf airlines have played in opening Africa to international tourists, with Gulf investors owning around 20 hotels and resorts in Sub-Saharan Africa.
Points highlighted by the report:
- Gulf firms provided US$2.7bn in foreign direct investment into Sub-Saharan Africa in the first half of 2015, and a total of US$9.3bn from 2005-2014
- Nigeria, South Africa, Kenya and Uganda have attracted the largest number of Gulf investors—between 10-25 firms each
- Financial services, retail, tourism and logistics represent the most favored sectors by Gulf investors
- Gulf investors own 20 hotels and resorts in Sub-Saharan Africa
- Sub-Saharan Africa’s population will host a third of humanity by the end of the century
- National Bank of Abu Dhabi, National Bank of Qatar amongst the most notable investors in financial services sector; MAF Group and Landmark in retail
- Rani Investments and Kingdom Holdings of Saudi Arabia, as well as Kuwait’s IFA group are the most notable investors in tourism sector
- DP World, Kuwait’s Agility, and Aramex are the most active in the logistics sector; Julphar, Abraaj, Kuwait’s Al Bader group in manufacturing.
Analysis: Is this a Lafarge rebirth?
Lafarge Africa Plc, one of the biggest building and concrete solutions companies in the world’s three biggest Achilles’ heels.
Lafarge Africa Plc, a unit of LafargecHolcim Group – one of the biggest building and concrete solutions companies in the world, has had a pretty long run in the construction sector. With projected growth in urbanization and inevitable population expansion, the leading producer of building materials and construction solutions has its stake in the huge Nigerian housing market. The company had served customers in Nigeria and South Africa (now discontinued) for decades, their customer base cutting across individuals requiring small building projects to major construction and infrastructure projects. All of these do well to place the company as an active participant in the economic growth of Africa.
Yet, so much has plagued the company in the past few years, curtailing its success with avoidable losses and below-par profits. While it, no doubt, has a series of challenges to worry about – like most organizations – three of its biggest Achilles’ heels had been its failing South African operations, its incessant changes in its corporate leadership, and of course, the one pandemic threatening to rip the global economy to shreds – COVID-19.
Lafarge South Africa
The company’s experience with its South African subsidiary gives credence to the phrase, “If anything is not serving you well, cut it off.” After years of dragging the African cement-maker down, the subsidiary was eventually spun off in July last year – not before it incurred a final loss of N3.2 billion in the first quarter of 2019. It was only after, when Lafarge restated its accounts by adjusting figures from the discontinued operations from its books, that the company set off on a positive growth trajectory.
Following the sale of Lafarge South Africa Holdings (LSAH) in Q3, there was a remarkable improvement in gross and operating margins, clearly showing that the sale of LSAH was valued accretive to shareholders. For one, the total debt reduced drastically. Short term loans and long term loans also had a drop of 79% and 75% respectively in comparison with the first quarter of last year. Other financial assets increased significantly from N1.7 billion in 2019 to N4.8 billion in Q1 2020. Also resulting from the sale was the increase in EPS from Q1 2019 of 0.36 to Q1 2020 of 0.93.
Khaled El Dokani, CCEO of Lafarge Africa had stated, “Our turnaround and cost-reduction strategy in FY 2019 and the divestment of the South African business, have delivered strong results. The decrease in net debt has significantly strengthened our balance sheet and has placed us in a vantage position to face the future.”
Its Changing Leadership
In 2018 alone, the firm appointed four directors in the space of three months. 9 months ago, in September, former CFO of Lafarge Africa Plc., Bruno Bayet, resigned. Just a month later, the board had announced the appointment of Lolu Alade Akinyemi as the new CFO. Next, the group CEO, Michel Puchercos, also resigned leaving Khaled Abdelaziz El Dokani in charge. Even amidst the challenges of 2020, Jean-Philippe Benard resigned from being a Non-Executive Director in January 2020 and by April, the retirement of two Non-Executive Directors was announced, as well as the appointment of three new directors. The high turnover of its leadership means one (or both) of two things. The first is the possibility that there could be more than meets the eyes within the company and the second is the truth that the newer leadership will need time to adjust to the company’s operations before the wins.
Just when things started looking up, COVID-19 came with all its challenges and it didn’t help that the first carrier of the virus – an Italian man, had been visiting Lafarge Africa’s factory in Ogun State. The loss in the demand for cement with the stalled construction activities will pose an additional challenge for the organization. In the performance summary released alongside the financials, the company had noted that the pandemic “will adversely affect the company’s results in Q2, 2020.” This is also coupled with the burgeoning competitive landscape with bigger brands like BUA and Dangote owning larger market shares.
While the company seems to be moving in the right direction, it might take a while for things to pick up. At its current price of N11.65 juxtaposed with its indicative dividend yield of 8.58%, the company could serve as an easy buy capable of yielding dividend income while investors wait patiently and hopefully for its wins to come.
Covid-19 Update in Nigeria
On the 2nd of June 2020, 241 new confirmed cases and 15 deaths were recorded in Nigeria bringing the total confirmed cases recorded in the country to 10,819.
The spread of novel Corona Virus Disease (COVID-19) in Nigeria continues to rise as the latest statistics provided by the Nigeria Centre for Disease Control reveal Nigeria now has 10,819 confirmed cases.
On the 2nd of June 2020, 241 new confirmed cases and 15 deaths were recorded in Nigeria.
To date, 10819 cases have been confirmed, 3239 cases have been discharged and 314 deaths have been recorded in 35 states and the Federal Capital Territory having carried out 65,885 tests.
Covid-19 Case Updates- 2nd June 2020
- Total Number of Cases – 10,819
- Total Number Discharged – 3,239
- Total Deaths – 314
- Total Tests Carried out – 65,885
The 241 new cases are reported from 14 states – Lagos (142), Oyo (15), FCT (13), Kano (12), Edo (11), Delta (10), Kaduna (9), Rivers (9), Borno (8), Jigawa (4), Gombe (3), Plateau (3), Osun (1), Bauchi (1).
The latest numbers bring Lagos state total confirmed cases to 5277, followed by Kano (970), Abuja at 687, Katsina (371), Edo (336), Oyo (317), Kaduna (297), Borno (296), Ogun (280), Jigawa (274), Rivers (248), Bauchi (241), Gombe (164), Sokoto (116).
Kwara State has recorded 111 cases, Plateau (108), Delta (98), Nasarawa (80), Zamfara (76), Yobe (52), Osun (46), Akwa Ibom (45), Adamawa (42), Ebonyi (40), Imo (39), Kebbi and Niger (33), Ondo (28), Bayelsa (21), Ekiti (20), Taraba and Enugu (18), Abia (15), Anambra (11), Benue (9), while Kogi state has recorded only 2 cases.
Lock Down and Curfew
In a move to combat the spread of the pandemic disease, President Muhammadu Buhari directed the cessation of all movements in Lagos and the FCT for an initial period of 14 days, which took effect from 11 pm on Monday, 30th March 2020.
The movement restriction, which was extended by another two-weeks period, has been partially put on hold with some businesses commencing operations from May 4. On April 27th, 2020, President Muhammadu Buhari declared an overnight curfew from 8 pm to 6 am across the country, as part of new measures to contain the spread of the COVID-19. This comes along with the phased and gradual easing of lockdown measures in FCT, Lagos, and Ogun States, which took effect from Saturday, 2nd May 2020, at 9 am.
|Date||Confirmed case||New cases||Total deaths||New deaths||Total recovery||Active cases||Critical cases|
|June 2, 2020||10819||241||314||15||3239||7266||7|
|June 1, 2020||10578||416||299||12||3122||7157||9|
|May 31, 2020||10162||307||287||14||3007||6868||7|
|May 30, 2020||9855||553||273||12||2856||6726||7|
|May 29, 2020||9302||387||261||2||2697||6344||7|
|May 28, 2020||8915||182||259||5||2592||6064||7|
|May 27, 2020||8733||389||254||5||2501||5978||7|
|May 26, 2020||8344||276||249||16||2385||5710||7|
|May 25, 2020||8068||229||233||7||2311||5524||7|
|May 24, 2020||7839||313||226||5||2263||5360||7|
|May 23, 2020||7526||265||221||0||2174||5131||7|
|May 22, 2020||7261||245||221||10||2007||5033||7|
|May 21, 2020||7016||339||211||11||1907||4898||7|
|May 20, 2020||6677||284||200||8||1840||4637||7|
|May 19, 2020||6401||226||192||1||1734||4475||7|
|May 18, 2020||6175||216||191||9||1644||4340||7|
|May 17, 2020||5959||388||182||6||1594||4183||7|
|May 16, 2020||5621||176||176||5||1472||3973||7|
|May 15, 2020||5445||288||171||3||1320||3954||4|
|May 14, 2020||5162||193||168||3||1180||3815||4|
|May 13, 2020||4971||184||164||6||1070||3737||4|
|May 12, 2020||4787||146||158||6||959||3670||4|
|May 11, 2020||4641||242||152||10||902||3589||4|
|May 10, 2020||4399||248||142||17||778||3479||4|
|May 9, 2020||4151||239||127||11||745||3278||4|
|May 8, 2020||3912||386||118||10||679||3115||4|
|May 7, 2020||3526||381||108||4||601||2818||4|
|May 6, 2020||3145||195||104||5||534||2507||1|
|May 5, 2020||2950||148||99||5||481||2370||4|
|May 4, 2020||2802||245||94||6||417||2291||2|
|May 3, 2020||2558||170||88||2||400||2070||2|
|May 2, 2020||2388||220||86||17||351||1952||2|
|May 1, 2020||2170||238||69||10||351||1751||2|
|April 30, 2020||1932||204||59||7||317||1556||2|
|April 29, 2020||1728||196||52||7||307||1369||2|
|April 28, 2020||1532||195||45||4||255||1232||2|
|April 27, 2020||1337||64||41||0||255||994||2|
|April 26, 2020||1273||91||41||5||239||994||2|
|April 25, 2020||1182||87||36||3||222||925||2|
|April 24, 2020||1095||114||33||1||208||855||2|
|April 23, 2020||981||108||32||3||197||753||2|
|April 22, 2020||873||91||29||3||197||648||2|
|April 21, 2020||782||117||26||3||197||560||2|
|April 20, 2020||665||38||23||1||188||466||2|
|April 19, 2020||627||86||22||2||170||436||2|
|April 18, 2020||541||48||20||2||166||356||2|
|April 17, 2020||493||51||18||4||159||317||2|
|April 16, 2020||442||35||13||1||152||277||2|
|April 15, 2020||407||34||12||1||128||267||2|
|April 14, 2020||373||30||11||1||99||263||2|
|April 13, 2020||343||20||10||0||91||242||2|
|April 12, 2020||323||5||10||0||85||228||2|
|April 11, 2020||318||13||10||3||70||238||2|
|April 10, 2020||305||17||7||0||58||240||2|
|April 9, 2020||288||14||7||1||51||230||2|
|April 8, 2020||274||22||6||0||44||226||2|
|April 7, 2020||254||16||6||1||44||204||2|
|April 6, 2020||238||6||5||0||35||198||2|
|April 5, 2020||232||18||5||1||33||194||2|
|April 4, 2020||214||5||4||0||25||185||0|
|April 3, 2020||209||25||4||2||25||180||0|
|April 2, 2020||184||10||2||0||20||162||0|
|April 1, 2020||174||35||2||0||9||163||0|
|March 31, 2020||139||8||2||0||9||128||0|
|March 30, 2020||131||20||2||1||8||121||0|
|March 29, 2020||111||22||1||0||3||107||0|
|March 28, 2020||89||19||1||0||3||85||0|
|March 27, 2020||70||5||1||0||3||66||0|
|March 26, 2020||65||14||1||0||2||62||0|
|March 25, 2020||51||7||1||0||2||48||0|
|March 24, 2020||44||4||1||0||2||41||0|
|March 23, 2020||40||10||1||1||2||37||0|
|March 22, 2020||30||8||0||0||2||28||0|
|March 21, 2020||22||10||0||0||1||21||0|
|March 20, 2020||12||4||0||0||1||11||0|
|March 19, 2020||8||0||0||0||1||7||0|
|March 18, 2020||8||5||0||0||1||7||0|
|March 17, 2020||3||1||0||0||0||3||0|
|March 16, 2020||2||0||0||0||0||2||0|
|March 15, 2020||2||0||0||0||0||2||0|
|March 14, 2020||2||0||0||0||0||2||0|
|March 13, 2020||2||0||0||0||0||2||0|
|March 12, 2020||2||0||0||0||0||2||0|
|March 11, 2020||2||0||0||0||0||2||0|
|March 10, 2020||2||0||0||0||0||2||0|
|March 9, 2020||2||1||0||0||0||2||0|
|March 8, 2020||1||0||0||0||0||1||0|
|March 7, 2020||1||0||0||0||0||1||0|
|March 6, 2020||1||0||0||0||0||1||0|
|March 5, 2020||1||0||0||0||0||1||0|
|March 4, 2020||1||0||0||0||0||1||0|
|March 3, 2020||1||0||0||0||0||1||0|
|March 2, 2020||1||0||0||0||0||1||0|
|March 1, 2020||1||0||0||0||0||1||0|
|February 29, 2020||1||0||0||0||0||1||0|
|February 28, 2020||1||1||0||0||0||1||0|
Subsidy and PIB
Today, Oil prices are low, thus no need for the Federation to pay a part of your fuel bill, so no subsidy on imported PMS on retail price.
“There is no fuel subsidy anymore in Nigeria. It is zero subsidies forever. Going forward, there would be no resort to either fuel subsidy or under-recovery of any nature. NNPC will play in the petroleum marketplace, just like another marketer in the space,” – Mele Kyari, GMD NNPC, April 7th, 2020
Stepping back from the subsidy debate, it is important to clarify what the main issues in the debate are.
Is there a subsidy paid on imported PMS? Yes, Subsidy is pricing. Paying a subsidy on imported PMS means the Nigerian Federation (not just FGN) pays a part of your fuel cost. Removing subsidy means you the buyer pays all the fuel costs. Deregulation means that fuel “cost” is not decided by the FGN but by the seller. Today, May 2019, Oil prices are low, thus no need for the Federation to pay a part of your fuel bill, so no subsidy on imported PMS on retail price.
However, the NNPC GMD also said, “But we (NNPC) will be there for the country to sustain the security of supply at market price.” Translation? NNPC will keep importing PMS and there is no deregulation, the FGN will still fix “market prices”
What is subsidizing? The landing cost of petroleum products? Yes, but we are also subsidizing the infrastructural inefficiency of the government, e.g. demurrage arising from having limited offloading ports in Nigeria.
(READ MORE: NNPC reduces fuel price to N108 per litre)
The subsidy is not the problem, there is nothing wrong with subsidies. A government subsidy should be a tax cut to the poor, the vulnerable, and the economically backward. However subsidizing fuel imports is simply subsidizing imported consumption, while creating jobs outside Nigeria. So, subside local refining not imported fuel. This creates another problem. The subsidized locally refined petrol can find its way to Cameroon, Benin Republic even Senegal.
The only way to cut down the cost of paying subsidies is to reduce the cost of petroleum products, and the way to do so is to refine locally. To refine locally means that refining companies can buy crude oil forward contracts to feed their refineries. To open the crude buying process is to pass the PIB.
The PIB as originally drafted would allow a transparent and measurable process of ownership of the Nigerian petroleum assets. With the PIB regime, it is possible for a refinery to buy crude oil in advance, at a price it can negotiate with private crude supplies to feed its refinery stock. So long term, passing the PIB encourages local refineries. More local refineries will eradicate the need to import fuel and pay subsidy on “inefficiencies”.
The original PIB drafts also proposed certain new directions as below:
- PIB created a commercially viable National Oil Company, restructures the NNPC from a government-run entity into a private one that can raise private capital and not rely on FGN “cash calls”. By these, NNPC would sell 30% of its shares to the Nigerian public within 6 years. The Nigerian Gas Company would sell 49% of its shares to the Nigerian public.
- Created a new fiscal regime where royalties and taxes due are based on production, not terrain, and investment. Thus, Nigeria earns more when the International Oil Companies (IOCs) produces more.
- It introduced Company Income Tax to the industry. IOCs will have to incorporate in Nigeria as a company and pay 30% CIT and 50% Nigerian Hydrocarbon Tax based on rents and royalties. Both must be paid; one tax cannot be set off against the other.
- The PIB prohibition on flaring of natural gas beyond a “flare out date”. This is good for the environment and forces the IOCs to invest in Gas projects rather than burning it into the atmosphere.
- PIB has a relinquishing provision where oil blocks not utilized are reverted to the FGN for reallotment. This will free up acreages tied up by the IOC.
- The Production Sharing Contracts signed by Nigeria with the IOCs in 1993 was based on $20 a barrel. PIB allows Nigeria to review those terms and earn more.
Pass the PIB, this removes the need, in the long term, for the payment of subsidies
It is our problem, we can fix it.