Sven Richter of Rennaissance Capital on Africa

Financial Mail interview with Sven Richter, head of Frontier Markets, Rennaisance Capital:

What brings you to SA?

We have US$130m invested in Africa out of the $2,5bn managed by Renaissance. We have recently opened our third office, in Johannesburg, to complement our offices in Moscow and London. I will be managing a frontier market fund, which we will launch later this year, and I expect that African shares will make up about 50% of the fund.

So you are positive on Africa?

Compared with emerging markets in Asia the stock markets are cheap. And the fundamentals are good. Not many people know that there are more households earnings $20000/year or above in Africa than in India. Nigeria is expected to be one of the 20 largest countries by GDP in 2020.

What about stock market liquidity?

You might remember the New Star Heart of Africa Fund, which was unable to sell its underlying shares fast enough to meet redemptions in 2008. We want to avoid such a crunch in our sub- Saharan African Fund, which excludes SA. The JSE trades about $1bn/ day, the other African markets in aggregate trade $40m on a good day. Even if that increases to $100m over the next few years the fund needs to be capped at $300m so that we can be confident that the portfolio can be sold in 10 days.

What about the prospects for African unity?

I am not expecting the African Union to drive this. But it could develop from the three economic unions which represent the east, west and south of the continent. Improvements in ports and infrastructure will also help drive African development. Until now, it was more cost-effective for Nigeria to import sugar rather than bring it down from the north of the country to the coast. But as road and rail links improve, the economics of using Nigerian sugar have improved.

As Africa is 53 different countries it must add complexity.

Of course it does, but it is also a mistake to see China as one country. The contrast between rich coastal cities such as Shanghai and the underdeveloped interior is as stark as anything in Africa. There are parallels between Africa today and China a generation ago.

What companies are best placed to benefit from the emergence of Africa?

As in my days in the Templeton emerging markets team I like the consumer shares. Breweries are still a great investment. Telecoms are getting expensive and probably won’t show the growth they did in the past. Bank shares are a better way to access the consumer and there are a lot of them. Financials make up 58% of the fund.

What about natural resources?

Very few natural resources shares are listed in the region. Energy and basic materials make up less than 2% of the benchmark. Most of the listed companies in the African resources sector are listed in London, Sydney or Toronto. About 5% of our portfolio is listed in Western markets.

So what are your main stock picks?

Though it needs more rain, Kenya is looking stable macro economically. The two largest shares are Kenya Commercial Bank and its competitor Equity Bank. There are five Nigerian banks, with the largest holding in Access Bank; two Nigerian brewers; and New Mauritius Hotels, which manages 25% of the hotel rooms in Mauritius.

And does your fund invest in Zimbabwe?

Yes. There are some cheap, well-run businesses, some of which have externalized the bulk of their business, such as Seedco, a world leader in the seed business. Innscor is an excellent broad-based consumer business with a leading position in retail, milling and snacks. Other great businesses are the brewer Delta Corp and Econet, the cellphone business.

Essar goes big in Zimbabwe

Harare - A unit of India's Essar Group will invest an initial $750-million to restart production at Zimbabwe steel firm ZISCO, in one of the biggest foreign investments in the country, Zimbabwe's industry minister said.

Essar Africa Holdings last November agreed to buy 54 percent in Zimbabwe Iron and Steel Company (ZISCO), with the government keeping 36 percent and 10 percent owned by minority investors.

“Essar will complete all work in regards to resuscitation of Zisco. The initial investment for this phase will amount to $750-million,” Industry and Commerce Minister Welshman Ncube said at a ceremony on Wednesday, when the deal was officially signed.

ZISCO is the first privatisation under a power-sharing government formed in 2009 by bitter rivals President Robert Mugabe and Prime Minister Morgan Tsvangirai.

The investment would come as a boost for a country struggling to attract foreign investment the government says is needed to fix the economy after a decade of decline and hyperinflation.

Once a major foreign currency earner, ZISCO is now saddled with about $240-million in debt, which Essar will take over.

Ncube later told journalists that Essar Africa would not pay for the shareholding in ZISCO, which he said had a value of $45 million.

The Zimbabwean minister said ZISCO, which shut in the last two years, is expected to produce 1 million tons of steel a year, which would be sold locally and the excess exported.

“Our intention is that in the next 10 to 15 months we start producing steel,” Ravi Ruia, Essar Group vice chairman told journalists.

The government has said ZISCO's privatisation is excluded from an empowerment law, which compels foreign-owned firms including mines and banks eventually to sell at least 51 percent shareholding to local blacks. Ruia said Essar would eventually want to build a power station to guarantee uninterrupted supply of electricity to the steel maker. - Reuters

Zimbabwe tops Africa's literacy rate

HARARE, July 14 (Xinhua) -- Zimbabwe has overtaken Tunisia to become the country with the highest literacy rate in Africa, according to statistics from the latest UNDP Digest.

Tunisia had held pole position for years with Zimbabwe second- best and number one in Sub-Saharan Africa.

But according to the UNDP Digest, Zimbabwe's literacy level jumped to 92 percent, up from 85 percent while Tunisia remains on 87 percent.

The achievement is despite the country's education sector suffering from brain drain and lack of resources over the past decade.

A senior government official told the Herald on Wednesday that the increase in literacy levels is due to government's heavy investment in education over the years.

Permanent Secretary in the Ministry of Higher and Tertiary Education Washington Mbizvo said the government has promoted conventional and open distance learning in its quest to achieve education for all.

"The latest statistical digest was published last month and shows our country surpassing all African countries. This is because we have been able to make all people access education including those in resettlement areas. "

" Despite hardships, education facilities are present in most parts of the country," he said.

While acknowledging that education infrastructure has deteriorated, Mbizvo said the quality and culture of education in the country has improved."

"Zimbabweans have always been eager to learn," he said.

"The government has expanded the number of teachers' colleges to 13, producing 2, 500 teachers per year," he said, adding that other countries in Africa produce between 200 and 400 teachers annually on average.

"This has seen other countries like Namibia requesting us to train teachers for them and this shows that we are well-recognized on the continent," Mbizvo said.

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Zimbabwe on the road to recovery

Harare - Zimbabwe's tobacco-selling season opened on Wednesday with beneficiaries of President Robert Mugabe's land reform programme forming the majority of those who brought their bundles to be sold at market.

Agriculture Minister Joseph Made said the farmers who cultivate small plots were expected to deliver the bulk of the crop, saying it was vindication of the controversial expropriation of thousands of white-owned farms.

"This is a clear achievement of our land reform programme," Made said at the opening of the auction sale in the capital Harare.

"It is expected that during the marketing season more than half of the tobacco will come from small-scale farmers, that is communal and A1 (small-scale) farmers who now constitute 82% of the total registered farmers," he added.

Long, winding lines of pick-up trucks and lorries carrying massive bales formed outside the Tobacco Sales Floor, with some the farmers having arrived at the auctions as early as 3:00 am.

Vanessa Kabukuta, a 51-year old grower, expressed satisfaction at this year's price.

"The price is better, not bad," she told AFP.

"This year I decided to bring my crop earlier because last year the prices dropped to less than $3.00 per kilogramme midway through the season."

Kabukuta brought 23 bales to sell at the opening of the sales, up from 14 last year.

Another farmer Tendai Muchakagara, 43, sat on top of the bales of tobacco as he waited for the start of the sale.

"The price is not that bad, but as you know the early bird catches the fattest worm," he said. "I will bring the rest midway in the season. I will use the proceeds to buy fertiliser and other chemicals."

Zimbabwe's farming sector used to be dominated by white-minority landowners before Mugabe embarked on his land reform programme a decade ago.

The often-chaotic campaign has seen 4 500 farms expropriated by the state after being seized by people claiming to be veterans of the liberation war.

Mugabe has justified the programme as a means to address colonial imbalances but critics say it contributed to the country's economic collapse, with few of the small farmers having either the necessary tools or training.

Tobacco production and earnings declined sharply in the years immediately following the start of the programme but it has begun to recover.

This year Zimbabwe is expected to sell over 170 million kilogrammes of the golden leaf, up from 123 million kilogrammes last year. Last year, the crop earned the country $384m.

Government figures show that China bought 40% of the total tobacco exports from the southern African nation at an average price of $2.88 per kilogramme.

Tobacco accounts for more than 50% of agricultural exports, which amounts to about 30% of Zimbabwe's total exports.

Source: Fin24