"Investing is most intelligent when it is most business-like" A South African-American Perspective
A South African-American Perspective
Thursday, September 22, 2011
Economic growth to shield Africa from global debt concerns
Monday, September 19, 2011
De Beers to shift its UK gem works to Botswana
The deal will see De Beers move its rough diamond sorting and trading division from London to Gaborone by the end of 2013.
Botswana’s government expects th e move will see the value of its diamond trading reach $6bn, all of which will go through its banks. It expects the number of businesses set up by diamond cutting and polishing firms to rise and it is pushing for jewellery makers to come to the country too.
The new deal with De Beers also sees the Botswana government securing 10% of the annual output of its diamond mining joint venture, Debswana, rising to 15% over five years.
The Botswana government wants to increase the value of rough diamonds to the local industry to $800m from $550m.
There are 16 cutting and polishing companies operating in Botswana and the government wants to grow that number, boosting employment and government coffers.
Botswana’s Minerals, Energy and Water Resources Minister Ponatshego Kedikilwe said the reason for this was to give the state an independent price and market verification system. Mr Kedikilwe said that the days when De Beers determined the direction of prices by stockpiling production were over and the state wanted to have its own understanding of market conditions.
Mr Kedikilwe said this was no reflection of the government’s confidence in De Beers as a partner. The government holds a 15% stake in De Beers along with Anglo American, which owns 45% and the Oppenheimer family, which has a 40% holding.
Under the new agreement, diamonds produced by Debswana will be aggregated in Gaborone with those from De Beers’ mines in SA, Namibia and Canada to be sold to the company’s 70 clients, or sightholders, as they are known in the industry.
"This agreement, and the tangible outcomes it will deliver, will enable Botswana to achieve its aspirations to be a major diamond centre engaged in all aspects of the business," Mr Kedikilwe said.
In the past, Debswana’s diamonds were sold to De Beers’ Diamond Trading Company, which mixed them with stones from its other operations and sold them at sights in London.
Nicky Oppenheimer, chairman of De Beers, said: "We welcome this. Anything that helps give confidence in the prices paid is something that De Beers is completely in favour of and it’s something we as partners, we need to work at closely together."
De Beers normally had five- year sales agreements with the Botswana government to buy Debswana’s production and sell it on to carefully selected clients.
Achieving a 10-year sales agreement with the government was important enough to De Beers for it to agree to shift its London operation to Gaborone.
"We were prepared to move here in exchange for a 10-year agreement," said Bruce Cleaver, executive director for strategy and business development at De Beers, who was the chief negotiator for the company. "It’s a bit disruptive to your business to do this every five years.
"We’ve got an arrangement where we’ve got what we want and the Botswana government has what it wants," he said.
De Beers produced 33-million carats last year and lowered its forecast for this year to 35-million carats from 38-million. At full capacity, De Beers is capable of producing 45-million carats.
MoneyGram expanding in Africa
Source: Business Report
South African companies continue expansion into Africa
Kraft Foods Highlights South African market, makes $150m investment
Khosla announced that the company is pouring $150 million into local manufacturing in Africa over the next three years for brands including Stimorol chewing gum and Cadbury Dairy Milk chocolate, of the $150m, R750m will be spent on its PE plant.
During his visit, Khosla also outlined his Winning through Focus strategy for the company’s $13-billion developing markets business … the company’s growth engine. This strategy tripled the company’s developing markets net revenues from 2006 to 2010 and is centred around three pillars: focus, glocal and people.
Focus is a big part of winning in a business with more than 100 brands in more than 60 countries. “We focus on just five categories, 10 power brands and 10 priority markets. South Africa is a priority market for us, where we focus on power brands like Cadbury chocolate,” said Khosla. Together, these 10 markets make up the majority of the growth in the company’s developing markets business.
Khosla’s second strategic pillar, “glocal,” combines the best of global and the best of local. “We encourage independent thinking and entrepreneurship among local leaders who understand the local market, while taking full advantage of our worldwide strengths in areas like technology, sales and marketing,” said Khosla.
People is the third pillar of Khosla’s strategy. Khosla expressed that he’s investing in the development of diverse talent and future leaders, who have the opportunity to gain experience not only in South Africa, but around the world. “South Africa is a great source of global talent. Regional and international mobility is a phenomenal development opportunity for our people,” said Khosla. With female leaders making up 50 percent of the local management team, three of whom are equity candidates, Khosla said, “South Africa’s diversity is a major competitive advantage.”
Southern Africa as the next "oil boom"
An estimated 11bn barrels worth of oil were recently discovered in fields around Namibia’s southern coast while American Oil Company Anadarko has discovered oil reserves off the coast of Mozambique.
Although these discoveries are not massive in global terms they are, especially the Namibian discovery, significant, and are likely to spark an intensification of exploration activity in the region which may result in yet more findings.
And SA, according to Deloitte’s global head for oil and gas, Adi Karev and his South African counterpart, Anton Botha, may stand to benefit significantly.
“There’s a saying in the oil and gas business that you can do two things when you explore (you can) explore next to the well that you have already found and your probability of finding more is higher, or explore further away in places you’ve never explored before and that probability is lower.
“The more we find in Africa, the higher the probability that we will find more,” said Karev.
In light of these discoveries, asked whether Africa could be the next oil growth story, Karev responded by saying “it is, without any doubt.”
Africa “represents a higher potential than it has in the past”, he said indicating that it has now become one of “multiple” regions with significant potential to benefit from an oil boom.
But “Africa is not the USA,” he commented as he graciously recognised that Africa is a continent, not a country and “there are countries that posses, within that context of higher promise (even) higher promise”.
That level of promise is related not only to the size and number of reserves, said Karev, but to the available levels of technological expertise and regional infrastructural capacity needed to exploit those reserves.
This is where SA stands to benefit.
“When you find oil in most developed economies where the environment for services is ripe and acceptable (and) in environments where you find oil in proximity to economies that are well developed, and SA is a well developed economy, there are a number of ‘circles’ (of benefit and growth) that come out of that,” said Karev.
The immediate benefit comes from the extraction of that oil and the engineering activities associated with that extraction and SA stands to benefit by leveraging its existing capacity to help in these efforts.
But it is in the down-stream support services required for oil (and gas) extraction that offers the primary opportunity for SA.
“The closer oil finds and gas finds come to the borders the greater the opportunity for us in SA to leverage the expertise that we have and the capabilities that we have,” says Botha.
“Oil services will boom in this part of the world … with SA having the ports, engineers, services and logistics … to support this industry that’s absolutely booming in Africa, I believe … that oil services (in SA) will boom,” he said.
The responsible exploitation of oil could be a game changer for Sub-Saharan Africa but for it to be a success there will need to bet a significant and “mature” buy-in from the region’s governing elite, say Karev and Botha.
Political instability and, dare we say greed, may pose the greatest risk to a potentially great opportunity.
“There are a number of ways that politics tends to impact the ‘appropriate exploitation of reserves’,” says Karev, “not the least of which is the recognition that you cannot run the exploration and production activities that are long term, very engineering oriented and need to be intensively managed (and) operationally controlled in cycles that mimic the cycles that are associated with political changes (in Africa and elsewhere).
“When you do you end up under-exploiting, you end up under-leveraging and creating inefficiencies”.
Ultimately, says Karev, the investment/extraction cycles associated with oil last upwards of four decades, political cycles fluctuate in a matter of years, creating a stable environment across these cycles is the challenge.
“What we have not seen in Africa is the ability of creating this arm-length relationship,” where politicians allow oil projects to run without too much interference while creating an environment of sustained support.
Tuesday, September 13, 2011
Sasol Say It’s Considering Building First Ever Gas-to-Liquids Plant in U.S
Sasol Ltd. (SOL), the world’s largest producer of motor fuel from coal, said it’s considering building what it says will be the first gas-to-liquids plant in the U.S.
The Johannesburg-based company may build either a 2 million metric ton per year or 4 million ton plant at Calcasieu Parish, Louisiana, it said in an e-mailed statement today.
“We believe Sasol’s proprietary GTL technology can help unlock the potential of Louisiana’s clean and abundant natural- gas resources,” Sasol said. The feasibility study will take about 18 months to complete, it said.
Sasol, which uses proprietary technology to make jet fuel, gasoline and diesel, is shifting production away from South African coal to natural gas overseas to help counter the effect of a strengthening local currency and as carbon-emissions rules make coal less attractive.
Thursday, September 8, 2011
Angola and Portugal - "Role Reversal"
Sep 3rd 2011 | LUANDA | from the print edition
THE airport at Luanda, Angola’s capital, is called “The Fourth of February” after the start of the nationalist uprising against Portugal, the old imperial power, in 1961. But that is not deterring the thousands of Portuguese flooding in every week. With Portugal’s economy sickly, a stream of professionals has been heading south to the former colony. Portugal’s foreign ministry says it registered 45,000 Portuguese citizens as resident in Angola in 2007-08. A year later the figure had jumped to 92,000. Not long ago, Angolans were fleeing a civil war, looking for a better life in Portugal.
Vying with Nigeria to be Africa’s largest producer of crude oil, Angola is awash with Chinese credit to the tune of $14.5 billion. The IMF reckons its GDP will grow by 7.8% this year and 10.5% next. Portuguese building companies such as Teixeira Duarte, Soares de Costa and Mota Engil have been switching from the home market to Angola’s. Portuguese banks dominate Luanda’s financial sector.
But the tables may be turning. Now Angolan state and private investors are eyeing Portugal. Angola’s Banco BIC, part-owned by Isabel dos Santos, the eldest daughter of Angola’s president of 32 years, José Eduardo dos Santos, is to buy Portugal’s Banco Português de Negócios (BPN) for $58m, a fifth of the original asking price of $260m. The IMF made the sale of BPN a condition for Portugal to get its recent bail-out of $113 billion.
After a recent visit to Angola by Portugal’s foreign minister, Paulo Portas, Angola’s government was said to be studying Portugal’s privatisation plans “very deeply”. Angola’s national oil company, Sonangol, buoyed by last year’s profit of $3 billion-plus, acts as the government’s main dealmaker and overseas investor. It has the biggest share (12%) in Portugal’s largest listed bank, Millennium BCP, and is sniffing for a stake in Portugal’s state energy firm, GALP. Earlier this year it bought a chunk of ESCOM, the African mining and property arm of Portugal’s Grupo Espirito Santo.
Apart from her stake in BIC Angola and BPN, Ms dos Santos owns just under 10% of Portugal’s Banco Português de Investimento (BPI), which runs Angola’s Banco Fomento de Angola (BFA); it has shares in several other banks. She has also bought a Portuguese cable-television provider, ZON Multimedia. Another of her companies, Condis, is teaming up with a Portuguese supermarket chain, Sonae, to launch a network of Continente outlets in Angola.
“Historically the Angolans worked for the Portuguese, but now it’s the Portuguese who are working for the Angolans,” says Paulo Pimenta, a Portuguese lawyer based in Mozambique. “People have to get used to it.” “This is definitely a first for Africa,” says Pedro Seabra of the Portuguese Institute for International Relations and Security, “that the dynamics between colony and master have been so inverted.”
Source: The Economist
Sunday, September 4, 2011
Not spent yet
Research into the demographic shifts occurring among SA’s low-income groups forecasts a new wave of consumption- fuelled growth.
Foreign investors often say that SA doesn’t have a growth story to tell, certainly not like China’s or India’s. But research by Bank of America Merrill Lynch (BAML) suggests otherwise.
“SA has a growth story,” insists BAML economist Matthew Sharratt. He’s part of a team of researchers who believe SA will reap a “demographic dividend” over the next few years as hundreds of thousands of households move above the poverty line for the first time. It will buoy consumer spending and elevate economic growth.
So confident is BAML that SA’s consumption story has legs that it is expecting the country to achieve above- trend GDP growth of 5% by 2013, driven partly by accelerating consumer spending.
Over the past 10 years, consumer spending has been driven by the emergence of the black middle class. In the future, BAML says, the most important new driver of SA growth will come from households moving from just below the poverty line to just above it, and from informal markets into formal ones.
“The near-term cyclical slowdown in global and SA growth may certainly delay this process,” Sharratt concedes, “but we’re talking about a structural evolution that has already begun.”
Between 2001 and 2010, the number of households in the D income category (earning R5000-R9999/month) grew from 1m to 1,9m — a rate of 7,2%/year. BAML expects this to accelerate to 9,5%/year between 2010 and 2013 as 600000 households move off the bottom rung — from the D Low (DL) category (those earning below R4999/month) to the D category (see graph).
Low-income households that migrate up the income ladder have a high propensity to consume. Because of the size of this low-income base — about 9,3m households fall below a poverty line of R4999/month — even a small amount of jobs growth at this level boosts overall spending.
Whether this trend accelerates, as BAML is positing, depends almost entirely on the pace of job creation among semi- and unskilled workers. It believes SA can plausibly create 600000 low-income jobs by 2013 or 2m jobs over 10 years, an assumption the researchers feel is conservative, given government’s ambition to create 5m jobs by 2020.
“People are too pessimistic about the ability of SA to grow and create employment,” says Sharratt. “If the economy averages 4% growth over the next few years, it can create this number of jobs based on past performance.”
Government’s focus on creating jobs, greater credit extension to low- income households and the continued provision of public infrastructure, especially housing, should also help.
Sharratt says the research has generally been favourably received by retailers, though some are sceptical of government’s ability to follow through on its job-creation plans and doubt the economy’s ability to create jobs, even with fiscal support. “Though we believe we have made conservative assumptions regarding job creation, a serious delay or failure could mitigate the shift in household mix we expect by 2013,” he concedes.
BAML has used a unique database of the number and purchasing power of SA households developed by the Fernridge Group, a consumer demographics research company. It performs aerial image mapping and geo-coding of households which allows it to count fast-changing household formation in informal settlements.
It finds the most recent official estimate, Stats SA’s 2007 Community Survey, understates the number of households by more than 10%. Fernridge arrives at a total of 13913907 households.
Moreover, BAML’s research suggests the number of households will grow by over 2% a year, driven partly by population growth but also by one of the fastest rates of household fragmentation in the world, as urbanisation continues.
But while growth in the absolute number of SA households looks set to sustain the momentum of consumer spending, it is the changing mix of households that will act as an additional turbo charge.
This is because household spending rises threefold on average as households migrate from the DL category to D.
DL category households typically live in a squatter shack, survive on social grants, have little access to credit and shop at informal outlets. D category households have one member permanently employed, live in basic formal housing, use formal retail at commuter nodes and qualify for microfinancing.
BAML concludes this migration will be the main driver of retail growth from 2010 through to 2013 and aggregate retail spend will rise by almost a third over this period from R605,5bn to R805,7bn.
As households shift from DL in 2010 to D in 2013, the big winners will be food and groceries (on which spending by this group is set to double); leisure, which the researchers maintain is set to grow tenfold in spending terms; and clothing, footwear, textiles and accessories, on which spending should jump fivefold (see graph).
Applying these trends to Soweto suggests its food and grocery spend will rise by R7,6bn by 2013 — a 42% increase. If formal retailers retain their 26% market share, it represents a gain of almost R6bn over 2010. If they make inroads into the informal and independent market, the upside could be much greater.
Given that Soweto’s current food and grocery spend of R5,2bn is equivalent to the entire food and grocery spend of Zambia, BAML thinks retailers rushing into Africa might be underestimating the opportunity right under their noses.
“It’s not all about moving into Africa,” agrees Pick n Pay chairman Gareth Ackerman. Having visited low- income nodes in Pinetown and Umlazi in KwaZulu Natal this past week, he’s been “blown away” by the vibrancy of trading in these markets.
“People are moving up rapidly in SA; there’s a shift from people shopping in informal to formal, branded stores,” he says. “We’re rolling out as rapidly as we can to these low-income markets. There are big opportunities here .”