Business and Investment Opportunities in Africa

Access to finance is a major challenge for traders in Africa. But things are improving, as we report in this month's issue of FrontierInvest - banks are stepping in to fill the gap and are offering a wide range of trade finance products. 

Visit www.frontiermarketnetwork to view investment and business opportunities in various sectors and countries.

Six new sources of funding for mining companies

Traditional sources of capital for mining companies have dwindled in recent years. This has affected junior mining companies, forcing them to seek alternative sources of funding.

In its recent report Tracking the Trends 2014 - Top ten issues in mining, Deloitte,  said mining companies will continue to face challenging market conditions this year including rising costs, falling commodity prices, supply/demand imbalances, and decreased productivity levels. The key to success, according to the consulting firm, is innovation, which can help companies to lay firm bases for long-term growth and better position themselves for future success.

Many junior companies are struggling to find financing, even for strong projects. In an effort to survive, companies are seeking new sources of funding, including the following options.

Sovereign wealth funds

Although China dominates this market, other countries are entering the game. Indian investment houses are buying Australian coal to secure assets and supply
for both electricity and steel. Both Japanese and Korean investors are becoming more active in the sector. The Middle East also represents a significant source
of potential wealth. Although these investors have not yet committed, funding from countries like Qatar, Abu Dhabi and Saudi Arabia may not be far off.

Private equity

According to Preqin, a firm that studies private equity, eight mining funds raised US$8.5 billion in 2012 alone. Although private equity firms typically shy away
from the mining industry, interest may mount as valuations fall and competition from larger mining companies eases. That said, many analysts still believe the
sector is too big – and timelines too long – to sustain private equity interest.

Non-traditional stock options

As liquidity through traditional stock exchanges becomes scarcer, some miners are listing on non-traditional exchanges in Asia (including Singapore), the U.S.
and Europe. Hong Kong’s stock market remains open to miners with solid business cases.

Alternative financing

While major companies tap the bond markets with a range of high-yield and hybrid issues, others are seeking different sources of funding through royalty and streaming arrangements, off-take deals, joint ventures and equipment financing. Some Russian miners have had success tapping into the Eurobond market.

Pension funds

Pension funds typically have a long-term liability profile, which aligns nicely with the mining industry’s long-term assets and returns. The sector could see more
interest from this quarter as pensions look to mining assets as a potential hedge against inflation. According to Preqin, public sector pension funds accounted
for 18% of organisations with an interest in natural resource private equity in 2012, followed by endowment plans at 17% and private sector pension funds
at 11%.19 

Consolidation

By pooling their capital and resources, some companies may be able to lower their labour and equipment costs sufficiently to ride out current market
turbulence. Although transactions are down, companies that can present buyers with a strong rationale for their asset pricing are more likely to attract investor
interest. To position for these opportunities, companies must right-size their portfolios and ensure that key assets are capable of functioning as standalone
entities, both from a financial and functional perspective. They also need to better calibrate their balance sheets in preparation not only for sale but also
potential refinancing.

Expert advise on doing business in Africa

The investment potential of Africa is real, says five experts we interviewed for this report on doing business in Africa. However, companies need to overcome many challenges in order to be successful - from underdeveloped infrastructure, a fragmented retail landscape and unreliable market research to unclear and fickle government regulations, and limited pipeline of experienced managers.

"Understanding the market size and structure before you enter the market is critical to developing a proper approach when planning investments in Africa." - Hendrik Malan, operations director for Africa at Frost & Sullivan

"When operating in another country, remember you are a guest in that country and should behave accordingly." - Dianna Games, African business analyst and CEO of Africa at Work

"Africa's inadequate infrastructure poses a huge logistical risk. Successful companies invest in their own reliable support systems." - Jean craven, head of corporate finance at Export Trading Group

"Perceptions of investing in conflict-affected countries are changing, especially among investors who are seeking new frontiers for growth. Many of the conflict affected countries are enjoying rapid economic growth, albeit from a low base." - Colin Shepherd, the head of the IFC's Conflict Affected States in Africa Initiative

"We are investing in South Sudan because it represented an exciting investment destination, growing rapidly after years of civil war and under investment by the Khartoum government. When investing in such a place we look for investment opportunities that offer near term returns, given the risk profile." - Managing partner at Maris Capital, Charlie Tyron.

Download Frontier's complimentary eBook featuring these five experts and get insight on:

• What companies must take into consideration when planning investments in Africa
• Insight on the reality on the ground for investors in Africa
• Doing business in conflict and post-conflict countries in Africa
• Challenges and opportunities of operating in South Sudan

Register on Frontier to access a comprehensive database of investment projects and to establish business networks with thousands of registered members.

Top tourism investment and business opportunities in Africa

As Africa’s economies grow, the demand for hotel accommodation is also growing. 

New private sector lenders and equity investors have entered the scene in the last few years, an indication that the continent's tourism, travel and leisure sectors could be at the cusp of serious growth. 


View Africa's top tourism business opportunities and investment projects on Frontier Market Network, Africa's largest deal-making platform for business for business and investment in frontier markets. 

Top risks for African mining

Africa is considered the last great frontier for terrestrial mining. The continent holds over 30% of the world’s minerals, including 40% of its gold, 60% of its cobalt and 90% of its platinum group mineral reserves. Given that relatively little exploration has taken place, the true extent of the resources could be much greater.

The opportunities are vast, but there are significant risks associated with mining projects. Frontier interviewed seven experts from firms including PwC, StrategiCo and Core Consultants and asked them what they thought were the top risks facing mining companies in Africa.

Download this complimentary report now and you will learn:

• What the top risks facing mining companies in Africa are
• What countries present the most challenging environments to operate within
• How mining companies can mitigate against some of the risks facing them

Read the report to ensure you are reducing the risk when embarking on mining projects in Africa.

Top 10 trends to watch in Africa

The African Development Bank has projected a growth rate of 5.3% next year, from 4.8% in 2013. This growth, the bank says in its latest economic outlook, confirms Africa’s ‘healthy resilience to internal and external shocks and its role as a growth pole in a distressed global economy’.  

The robust economic growth, expanding market size and various reforms have improved the attractiveness of the continent to investors; foreign Direct Investment (FDI) inflows increased by 5% to US$50-billion in 2012, even as global numbers fell, according to the 2013 World Investment Outlook.  

So, what are the trends to watch if you are looking for growth opportunities in Africa in 2014?

Download our list of top trends for the year to find out exactly where the opportunities are.

Outlook for mining sector in Africa

2013 was a tough year for the mining sector in Africa. This was principally due to lower commodity prices, a drop in investor confidence due to lower returns over the last commodity super-cycle, and continued increases in operating costs. This was evidenced by a reduction in transaction deals and project and exploration funding.

So what does this mean for 2014 and where are we likely to see investment in Africa’s mining sector?

It is forecast that from 2010 to 2050, annual steel, iron ore and coal consumption will increase by 59.4%, 47.1% and 129.9%, respectively. With the continued expected growth in China’s demand for urbanisation, Africa with its abundance of natural resources will be at the top of most Asian investor wish lists.

African countries that will most likely benefit from investment in 2014 are: 

Country                            Resource

Namibia/South Africa	Uranium
Burkina Faso, Ghana, Guinea, South Africa	Gold
DRC, Zambia	Copper / Cobalt
Iron Ore / Magnetite	Cameroon, Guinea, Mauritania, Mozambique, Sierra Leone
Coal (Thermal and Coking)	Botswana (Thermal), Mozambique (Coking), South Africa (Thermal)

Steel and construction sector: Demand for acquisition opportunities in iron ore, copper, cobalt, hard coking coal and manganese is primarily determined by China’s urbanisation and steel industry. In addition, Africa’s infrastructure development will also drive steel demand.

Power generation sector: A key developmental constraint for Africa is the lack of power security. Thermal coal could present significant potential investment opportunities for Independent Power Producers (IPP’s). South Africa’s coal industry is expected to experience large growth in the near future motivated by Eskom’s demand for regional electricity generation and thermal coal potentially being declared as a strategic resource. On a global level, uranium demand is also expected to increase due to a requirement for cleaner energy.

Investment sector: With gold currently trading at around US$1200 per ounce and uncertainty around the US fiscal crisis, gold mines in Africa could represent an attractive investment opportunity. However, gold producers in Africa do have some of the highest costs of production, which could represent excellent value where costs can be significantly reduced.

Despite a tough 2013, a number of opportunities may present themselves in 2014 as major producers look to divest out of non-core and / or high cost assets. However, finding a possible suitor for these assets will be directly linked to the attractiveness of future returns of these assets. A number of African countries, such as the Democratic Republic of Congo (DRC), have high yielding deposits, but investors need to recognise that these potential high return investments come with significant risks.

Author: Werner Jacobs, senior manager, corporate finance and metals & mining at KPMG

South Africa’s biggest wind farm is nearly ready to deliver power

INSIDE TRACK is an opinion piece by a Frontier Market Network staffer. It will appear from time to time, as someone spots something interesting in the world of business and investment – and wants to comment on it.

The 5th tee of the St Francis Links golf course is a good place to be for a number of reasons, not least because if you are standing there, you are probably on holiday. It has always offered great views, but now it’s also a great spot to see the birth of a whole new economic sector.

Dotting the landscape behind Jeffrey’s Bay and next to Humansdorp in the Eastern Cape are fifty huge wind turbines, concrete evidence that South Africa’s renewable energy programme really is under way.

An industry that practically didn’t exist a couple of years ago is now up and running hard, attracting significant amounts of foreign investment and creating jobs.

A 75-megawatt solar photovoltaic power station started delivering electricity to the national grid on November the 12th last year, three months ahead of schedule. The Kalkbult plant in the Northern Cape was built by Norwegian company Scatec Solar.

South African solar company On Track Solar earned high praise from the luxury game lodge voted Number One hotel in the world in 2013, for installing a photovoltaic system that has made this Wilderness Safaris property 100% solar-powered. Each one of a total of 440 solar panels provides 250 watts of energy.

Mombo Camp in the Moremi Game Reserve in Botswana is 100km away from the nearest village and was voted Best Hotel in the World by readers of Travel + Leisure magazine.

Solar PV and wind are the two big winners in the South African government’s Renewable Energy Independent Power Producer Procurement Programme (REIPPP). Minister of Energy Ben Martins says that the programme has already attracted R150-billion in foreign direct investment.

The winning bids in the third window in the process were announced late in 2013, with Italian company Enel Green Power doing particularly well in the solar PV stakes; it had four projects approved.

Other countries in Africa are following suit. As Christopher Clarke, founding partner at Inspired Evolution Investment Management, says, “Many countries are now moving towards a more regulated procurement regime. An example is Get-Fit in Uganda or auction processes that are following the South African public procurement model. The broader African RE market will grow exponentially in 2014 off a relatively low base.” Clarke expects competition to be intense, with West Africa and East Africa leading the way.

Wind
Wind power is not universally loved. Some argue that it’s bad for bats and birds, and then there’s the aesthetic question of how metal towers look in a rural landscape.

Denmark produces huge amounts of wind power and the experience of the inhabitants of the island of Samsø is instructive. At first the mostly farming community didn’t like the idea: then they received shares in the power-generating wind turbines.

As the director of the Samsø Energy Academy, Søren Hermansen, told Scientific American, "If you own a share in a wind turbine it looks better, it sounds better." He said that it sounded like ‘money in the bank’. Denmark has a strong tradition of community involvement and sharing.

The Jeffreys Bay Wind Farm covers 3 700 hectares on both sides of the N2 highway east of Humansdorp. Each turbine is 80m tall and the blades are 49m in length. Sixty turbines are planned.

Globeleq is the majority shareholder in the farm, and will manage the operation with Siemens Wind Power, who are installing and commissioning the turbines.

Other shareholders include Old Mutual Life Assurance, Thebe Investment Corporation, Mainstream Renewable Power and the Amandla Omoya Trust which will carry out public benefit work for the local community. Murray and Roberts Construction and Conco are doing most of the construction.

St Francis Links’ 5th tee is in the midst of fragrant fynbos, it introduces a fine golf hole, and it offers great views over St Francis Bay and of the Kouga mountains. It also gives a fine vantage point to confirm that South Africa’s newest energy sector is up and turning.

For more see: www.frontiermarketnetwork.com