That Africa is becoming pro-China in terms of trade and economic ties is no longer a boardroom discussion but rather a strategically executed plan in the public domain. The growth in the Sino-African relations is evident by the rise in trade volumes between the two partners from US$10 billion in 2000 to about US$198 billion in 2012. A white paper released by the Chinese government in 2015 shows that the trade volumes between the two partners are projected to reach about US$220 billion in 2014. Today, China is the leading trade partner with Africa.

That Africa is becoming pro-China in terms of trade and economic ties is no longer a boardroom discussion but rather a strategically executed plan in the public domain. The growth in the Sino-African relations is evident by the rise in trade volumes between the two partners from US$10 billion in 2000 to about US$198 billion in 2012. A white paper released by the Chinese government in 2015 shows that the trade volumes between the two partners are projected to reach about US$220 billion in 2014. Today, China is the leading trade partner with Africa.

The blossoming Sino-African relations however did not just emerge from the blues and flourished without tender care and nurturing. The journey has taken more than a decade of strategic positioning and calculated cooperation between China and Africa for the current trade ties to be established. It all dates back to October 2000 when the first Ministerial Conference on Forum on China–Africa Cooperation (FOCAC) was held in Beijing, China. Attended by about 44 representatives from Africa and 80 ministers from China, the output of the conference set the beginning of the growing trade ties today. Two important outcomes from the conference were the passing of the “Beijing Declaration of the Forum on China–Africa Cooperation” and the “Programme for China–Africa Cooperation in Economic and Social Development”.

Later on in December 2003, the Chinese government sent about 70 ministers to represent it in the second Ministerial Conference in Addis Ababa, Ethiopia. In attendance we had about 44 representatives from African countries; in a conference that passed the “Addis Ababa Action Plan (2004–2006)”.This action plan set the stage for the first FOCAC Summit in 2006 that was held in Beijing, China.

During the first FOCAC Summit attended by about 35 heads of state from Africa, the Chinese government announced a US$5 billion concessionary loan to Africa. The loan was meant to cement trade cooperation between the two partners in infrastructure development, agriculture technology among other support in strategic development sectors. In the same summit, the China-Africa Development Fund (CAD Fund) was announced and later launched in June 2007. The fund received its initial funding of US$1 billion from the China Development Bank with a vision of growing it to US$5 billion in the future.  The objectives of setting up this fund were to scout for and increase investment opportunities between China and Africa as well as transfer of financial and managerial advice.

Having set the pace in 2006, the Chinese government continued to strengthen its presence in Africa’s economic narrative by further announcing a US$10 billion additional concessionary loan to Africa in the 4^th Ministerial Conference held in Egypt in 2009. In addition, another fund was set up in the same year targeting SMEs in Africa with initial funding of US$1 billion. These two were among other development cooperation deals that were discussed in the conference including projects in clean energy, scientific and technological research, agricultural technology and cooperation in the medical sector.

The Africa-China formal relationship celebrated its 12^th anniversary through a Ministerial Conference held in Beijing in July 2012. This was then followed by the second FOCAC Summit held in Johannesburg, South Africa in December 2015. Today, it is estimate that about 1 million Chinese live in Africa with about 200,000 Africans living in China. Moreover, the Chinese government continues to increase its trade cooperation with individual African countries as it seeks to establish itself as the next global economic super power.

At the continental level, China’s commitment and determination to strengthen the Sino-Africa relationship was demonstrated through its funding (which was a gift) towards the construction of the African Union headquarters in Addis Ababa. Any time the African heads of states sit in this building, it will be a constant reminder of their long-term relationship with China; and it will forever be the symbol of China’s presence and dominance in Africa’ s economic, political and even military spheres. It is therefore not a shocker that most African heads of state today are turning their eyes to the East; while maintaining short strategic glimpses to the West to maintain cordially opportunistic relationships.

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After six years of a long wait, the US President and “son of Kenya” is “coming back home” on July 24^th 2015. When he was sworn in as the 44^th President of the United States of America on 20^th January 2009, every Kenyan went into jubilation with high expectations of increased economic ties between the US and Kenya. Whether their expectations were met is a discussion for another day; but Barrack Obama is jetting into Kenya this month for the Global Entrepreneurship Summit to be hosted in Nairobi.

After six years of a long wait, the US President and “son of Kenya” is “coming back home” on July 24^th 2015. When he was sworn in as the 44^th President of the United States of America on 20^th January 2009, every Kenyan went into jubilation with high expectations of increased economic ties between the US and Kenya. Whether their expectations were met is a discussion for another day; but Barrack Obama is jetting into Kenya this month for the Global Entrepreneurship Summit to be hosted in Nairobi.

This is not the first time Obama is coming to Kenya. He visited Kenya in 1988 and later on in 2006 as the Senator for Illinois.

However, this is the most significant visit he is making to Kenya; probably for his entire lifetime and for Kenya too. On a broad perspective, it is his first time to visit Kenya in his capacity as the US president and most likely his last as the president. This coupled with the fact that he is the first sitting US president to jet into Kenya makes his visit a kind of “maiden visit” by the white house to the country. For Kenya, it is the combination of receiving the most powerful man on earth into their country and the economic significance of the visit that counts more.

Global Entrepreneurship Summit brings together investors and entrepreneurs from all over the world to share ideas and innovations that spur economic opportunities. Launched by president Obama in 2009, the summit was hosted for the first time in Africa by Morocco in 2014. Kenya becomes the first sub-Saharan country to host the summit and second in Africa after Morocco.

Hosting such an international summit and considering the high level caliber of participants attending therefore makes it a huge economic opportunity for Kenya.

Negative perceptions

Following frequent terror attacks by Al-Shabaab on Kenya in the recent past, the country’s attractiveness to foreign investors had started declining. Travel advisories issued by the western countries including the US made the situation worse by instilling fear on foreigners who were seeking opportunities in the country. Tourism sector in Kenya accounts for about 12% of the GDP and with the terror scare, the sector has been on a downward trend in the recent past.

Moreover, after the current government in Kenya came into power in 2013, the US seemed to distance itself from it, since both the president and his deputy were ICC indictees. The president and his deputy were charged with facilitating the post-election violence that happened in Kenya in 2007/2008. By telling Kenyans that “choices have consequences”, the US president seemed to pass a message that economic ties between the two countries would be strained henceforth.

Opportunity to right the wrong

It is on this background that Obama’s visit to Kenya is now being viewed as a correction of the above two major negative perceptions which are detrimental to Kenya’s economic growth.

First, by the country hosting the GES, it sends a very strong message to the rest of the world that Kenya is the next frontier market and it can host such international forums peacefully. Obama’s personal physical presence in the country for the summit is a reassurance to foreign investors and tourists that indeed Kenya is safe for investment and tourism. In addition, the Kenyan government has put in concerted efforts to utilize this rare opportunity to showcase the best of Kenya and demystify any negative perceptions.

Second, Obama’s visit is a sign of rekindling relationships between the US and Kenya and a trust in the current government. This is a plus for the country since it is meant to boost investor confidence and result in more collaborative deals between Kenyan companies and international investors. The summit itself is a hub for such deals and Kenyan institutions are warming up to the investors already in town and those expected to arrive in the course of the week.

Never mind the fact that business around Nairobi will be slowed down during Obama’s visit, but the long-term economic benefits to be reaped out-weigh the few days’ costs. It is however up to the Kenyan government to take advantage of this opportunity and sell Kenya to the world for the few hours global media will be focused on the country.

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When the dollar starts to gain ground, it comes as a double-edged sword for economies in the emerging markets. Generally a strong dollar means more expensive imports for the emerging markets especially from the US. On the other hand, this means that exports from the emerging markets become cheaper in the US and other countries which prefer making their payments in USD.

But as it is always in the dynamic economic environment, there are numerous factors that always come into play and complicate the whole smooth picture.

When the dollar starts to gain ground, it comes as a double-edged sword for economies in the emerging markets. Generally a strong dollar means more expensive imports for the emerging markets especially from the US. On the other hand, this means that exports from the emerging markets become cheaper in the US and other countries which prefer making their payments in USD.

But as it is always in the dynamic economic environment, there are numerous factors that always come into play and complicate the whole smooth picture.

Countries within the emerging markets with protectionist’s economic policies might welcome the strong dollar as good news. This comes to back up their policies which tend to encourage more exports and reduce imports to their countries. The main motive is usually to protect the local companies and industries from an influx of imported cheap competing products. While increasing custom duties and other tariff measures are commonly used to achieve this goal, a strong dollar also perpetuates the same mission and hence it is a welcome dynamic.

In terms of exports, emerging markets may stand to gain from the strong dollar as their exports become relatively cheaper. Essentially, the expectation would be that there will be increased exports to the US and other countries paying using the USD. However, senior analyst Naeem Aslam from AvaTrade- the forex broker observes that based on historical trends, a bump in imports by the US in the short-run due to the strong dollar is unlikely. This he explains is due to the economic lag before US companies make changes to their procurement schedules; which are at times fixed on long term basis.

The same dilemma facing exports from emerging markets also faces their tourism sectors. With a strong dollar, it would be expected that more tourists will flock the emerging markets and enjoy leaner travelling budgets while there. However, with tourists taking time to plan for their travelling and getting leaves from their jobs, the strong dollar will not automatically translate to higher tourist numbers in the emerging markets. In Kenya, tour operators say they do not foresee a rise in tourism numbers based on the strong dollar due to the threat of terrorism that has led to tourist numbers going down by 25% for the past six months to date.

Another interesting dynamic are the USD dominated external debts that most emerging economies have. The Economist observes that about $4.5trillion of US debt stock out of America is held by companies in the emerging markets. As the dollar continues to be stronger, the dollar dominated debts get more expensive and this becomes a new headache for the emerging economies. An argument can be made about the emerging economies having both liabilities and assets dominated in the USD; but when all is said and done, the net impact is always that their liabilities exceed their USD assets.

Stock markets in the emerging economies could also look lucrative with the strengthening dollar. Popular traders in the markets claim that money is made when buying and not when selling. If that were to hold true in this case, foreign investors would rush to invest in the emerging economies’ stock markets due to the relative cheap stocks on a dollar basis. However, it turns out that the same investors will lose when cashing out their investments and converting them into USD from a depreciating currency. This further complicates the investor decision, leaving many in a dilemma.

There are many other factors at play in this scenario; but regardless which factors you choose to pick and analyze, the end results is an economic dilemma. However, there is an obvious lose on the side of emerging economies whose national policies are sometimes driven by policies made by the US and those whose currencies are pegged on the USD.

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Going by the growing investment opportunities in emerging markets, their popularity with investors from the developed economies is not dying down any time soon. Most of the investors are looking for high returns that their mature markets cannot offer, and hence finding prime investments in the emerging markets.

Going by the growing investment opportunities in emerging markets, their popularity with investors from the developed economies is not dying down any time soon. Most of the investors are looking for high returns that their mature markets cannot offer, and hence finding prime investments in the emerging markets.

Private equity investors lead the pack in the hunt for quality investments with clear exit strategies across Africa and other emerging economies. Africa presents a strong case that is luring many private equity funds to re-focus their lenses to the continent. Advancement in technology, political stability and the aggressive infrastructure development across the continent are a few of the many pros that are being highlighted in Africa-focused pitch books.

In 2013 alone US$3.2 billion of private equity investments were made in Africa; a 136% increase from the 2012 figure of US$1.4 billion; according to a report by EY titled “Private Equity Round Up Africa”. The same report shows a growing interest in other parts of Africa away from South Africa the former darling for PE funds targeting Africa. Between 2008 – 2010, South Africa received 57% of all the PE total deal value in Sub Saharan Africa. However, the trend is changing with the same economy receiving 20% of the PE investments in Sub Saharan Africa in the period between 2011 – 2013.

As much as there is an increase in funds being directed to Africa, the proportion of the global PE funds directed to Africa remains very insignificant. For the period 2007 – 2014 PE funds raised globally amounted to US$ 3.7 trillion; according to a June 2015 survey report by KPMG & East Africa Private Equity and Venture Capital Association. Of the total amount, funds earmarked for Africa were a mere 0.6% (US$ 22 billion); with East Africa taking a meagre 0.04 % (US$ 1.6 billion).

In terms of deal sizes, Africa still lags behind the developed economies by far. In 2013 the average PE backed deal size was US$30 million. In the US in Q1 2015 more than 50% of the deals were valued at more than US$25 million, with a significant number of deals falling in the US$100million – US$ 500 million bracket; according to a Q2 2015 report by Merrill Datasite –https://www.datasite.com/. That notwithstanding, Africa has experienced a doubling in the number of PE deals from 49 in 2011 to 98 in 2013.

Priority sectors for most PE funds have been banking and financial services with media & telecommunication infrastructure also gaining traction. Beside the service sector which takes up a bulk of the PE funds, the commodities also are getting a good share of the cake. Energy and natural resources also rank high for foreign PE funds focused on Africa.

Narrowing down to East Africa, the KPMG report on East Africa PE survey puts the number of deals between the years 2007 – 2014 at 79. Total deals value within the same period stood at approximately US$822 million bringing the average deal size to about US$10 million for the region.

Most of the PE funds were invested in the financial services and the FMCG sectors; supported by the bulging middle class in the region; which assures investors of scalability of their targets. Agriculture being the major economic activity in the region attracted 27% of the PE funds; though they were more focused on agri-processing as compared to the primary agriculture sector. Financial services attracted 14%, FMCG 11%, ICT 10% and healthcare closes the top five target sectors at 9%.

Going forward, Africa will leverage on its peace dividend and its faster growth rate compared to other economies globally to attract more foreign direct investments. As more local companies grow and become more stable, PE funds are likely to move in and find quality investments to deploy their dry powder in. The PE market in Africa is still nascent, but we can only look forward to brighter days ahead buoyed by the positive African economic growth narrative.

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A recent survey done by The Economist Group on 217 companies from 45 different countries revealed that about 65% of them; intend to expand to Africa in the next one decade.  Growth potential in most African economies coupled with the peace dividend from democratization of most governments drive the renewed focus on Africa. However, as many companies seek to set shop here, they are missing out on the fundamentals that will assure them of sustained growth within the continent.

A recent survey done by The Economist Group on 217 companies from 45 different countries revealed that about 65% of them; intend to expand to Africa in the next one decade.  Growth potential in most African economies coupled with the peace dividend from democratization of most governments drive the renewed focus on Africa. However, as many companies seek to set shop here, they are missing out on the fundamentals that will assure them of sustained growth within the continent.

At a high level, growth in Africa can be attributed to a set of positive change gaining momentum steadily across most of the countries. The peace dividend and good governance rank highest. These are supported by demographics with 50% of Africa’s population aged below 20 years; and about 40% of the total population living in urban areas.  Analysts project that the middle class will continue to bulge in Africa within the next decade; hence the growing consumerism which ultimately increases demand.

Intra-trade within the continent is growing rapidly with heads of states lobbying for more trade integration amongst the various regional trading blocks in Africa. Rise in technology is also pulling more investors to Africa; the continent had about 600 million mobile phone users by 2013. In addition, there is a wave of infrastructure development across the continent; with most governments allocating huge amounts in their budgets to roads and railways development.

All odds have it that Africa is one continent that every long-term investor would love to focus on now; before it becomes too expensive to buy-in. However, not everyone is getting it right when they are venturing into this part of the emerging markets.

In their October 2014 report entitled “When the growing gets tough”, Boston Consulting Group (BCG) recommends a shift of approach for executives who want to win over the emerging markets. According to the report, most countries in the emerging markets are transitioning from the super-high growth phase; and tapping major new revenue sources in the future will become harder than before. To deal with this growing challenge, BCG recommends that companies should build new capabilities, adjust their business models and improve their execution.

Companies intending to expand to Africa should first focus on refining their emerging markets footprint. Instead of thinking of approaching each country individually, they should cluster them and target the regions. This not only provides a wide target market but also helps in identifying synergies that can be derived from the regional blocks. However, this approach does not overrule country specific due diligence since each country has its own comparative advantages.

Quality is becoming the differentiator between the successful brands expanding to Africa and those that are failing. In the past companies from both the West and East could export substandard products to Africa tailor made to suit the small budgets for many African consumers. However, the tide is changing and consumers are now more informed on the exact quality they want in products they buy. Focusing on quality products and especially for the middle income bracket will give your company leverage over the rest in the growing African market.

Competition from local high growth companies is another factor foreign companies expanding to Africa have to keep in mind. Ignoring the companies in the emerging markets with significant market shares could lead to deluding forecasts, marking the beginning of your downfall.

Partnerships with local companies have changed too, with local investors in the emerging markets demanding for a significant shareholding and control in the mergers. Having locals have a seat at the board gives you a local resource person who understands the dynamics in the market much better. In addition, recruiting and retaining local talent is the pillar to your growth in the African market. The continent has great talent in all fields and tapping into their expertise and wide knowledge of the business environment in Africa can be one of the best investments you’ll ever make.

In a nutshell, African markets are not a hard nut to crack. However, a well thought out regional approach with focus on quality products and utilization of local talent will be the key determinant of who succeeds in the long run. 

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The recent university terror attack at Garissa on 2 April 2015 marked the highest number of deaths in one single terror attack in the history of Kenya. Surpassing the 67-recorded deaths in the Westgate attack on 21 September 2013, the 148 lives lost in Garissa went into records as the most horrible of all al shabaab attacks on Kenyan grounds.

Looking at it from my perspective, I see that in a slow but sure pace, the criminal masterminds of terror in Kenya are fastening their grip on our land and making great success strides each day.

The recent university terror attack at Garissa on 2 April 2015 marked the highest number of deaths in one single terror attack in the history of Kenya. Surpassing the 67-recorded deaths in the Westgate attack on 21 September 2013, the 148 lives lost in Garissa went into records as the most horrible of all al shabaab attacks on Kenyan grounds.

Looking at it from my perspective, I see that in a slow but sure pace, the criminal masterminds of terror in Kenya are fastening their grip on our land and making great success strides each day.

Terrorism explained

Terror could simply be defined as “extreme fear”; whereas terrorism can be described as “the use of violence and intimidation in pursuit of political aims.” From the foregoing, a terrorist therefore is “a person who uses terrorism in the pursuit of political aims.”

Borrowing from the definitions above and being logical in our analysis, you’ll infer that terrorism is an act of instilling extreme fear to the masses in order to cover some ill-motivated political mileage. Political gains on the other hand are and will always be the means to an end; where the end is economic gains. In essence therefore, terrorism is a ruthless means of getting access to economic resources or gaining economic dominance in a given region.

Terrorism, economic dominance & geopolitics

The big question would be; why should one engage in war and terror in order to gain access to the economic coffers of a given region? One could argue that the world being liberalized with global trade open to all, economies could use their comparative advantages to gain economic dominance whenever they want to. But that is not the case, since economic superiority is a competition where everyone wants to be at the top. This therefore calls for alternative means of gaining that economic dominance and access the economic resources of other regions in the world.

Terrorism comes in handy for the wealth-thirsty individuals who intertwine it with geopolitics to complicate it further in order to achieve this very purpose unlawfully. By using terror, the criminal masterminds instill irreparable fear and trauma in the minds of the masses that are left helpless looking for security from anyone who can offer it. This is at the core of the terrorists’ objectives and that is why they attack unarmed civilians in the most helpless and unexpected places.

The mission is always to kill in order to instill more fear to the masses, and then come back through a different door as the “saviors”. Next; in order for them to provide you with the security you direly need after a terror attack, they introduce economic and legal conditions that favor them and enable them to access your economic resources and gain economic dominance in your region. Mission accomplished!

In the meantime, geopolitics comes into play whereby the criminal masterminds ensure that countries in a target region are at constant conflict. This is meant to weaken collaborative actions towards eliminating terrorists in the given region, hence leaving one or a few countries fighting the enemy in isolation. In addition, when conflicts are fueled between countries, one of the rival states is likely to support terrorist actions as long as they are aimed at their opponents; thus making the war against terror an uphill task.

University of Nairobi explosion

In Kenya, the terrorists are gaining ground very fast, and if tough decisions are not made, the citizens are going to lose trust in the government security system and be left at the mercies of the terrorists.

The explosion of an electricity transformer at the University of Nairobi at 4am on 12 April 2015 left about 167 students injured and one, dead. The students were running for their lives thinking it was a terror attack similar the one at Garissa University College 10 days prior.

Students jumping out of hostels from as high as the sixth floor at night; is a good indication of the fear that has already gripped the society and perpetuated by the terrorists within Kenya. To the criminal masterminds of terror, this is already a big win and the government needs to intervene in order to curb the fear and create confidence in its citizens that they are safe.

Understanding the roots of terrorism

Many theories have been advanced explaining what goes on in the mind of a terrorist and why they tend to be so radicalized. In my opinion, we cannot understand the problem until we dig deep to know the root cause of the problem.

I subscribe to the school of thought that believes al shabaab and other militia groupings are just but toy-boys who execute orders from the real criminal masterminds of the terrorism strategy. The real terrorists are not the young radicalized boys and girls who end up dead in the mission field; rather the actual terrorists are the criminal masterminds who end up gaining economically from the extreme fear that grips the masses after terror attacks.

Therefore, to understand terrorism, and how to deal with it, we need to understand who the criminal masterminds behind the global terrorism strategy are; and there we shall find the solution to this perennial global problem.

The post The Economic Narrative of Terrorism in East Africa appeared first on Economy Watch.

The year 2014 was a great year for the United States economy. However, the year 2015 hasn’t been the same. While we are still not in dire straits, we’re not seeing the consumer spending and job growth that we saw last year. While many experts seem to be brushing the bad data off as healthy trends, I beg to differ. Unfortunately, I think that we may be looking the next major market correction dead in the face if things keep going in the direction they are. Here’s why…

The year 2014 was a great year for the United States economy. However, the year 2015 hasn’t been the same. While we are still not in dire straits, we’re not seeing the consumer spending and job growth that we saw last year. While many experts seem to be brushing the bad data off as healthy trends, I beg to differ. Unfortunately, I think that we may be looking the next major market correction dead in the face if things keep going in the direction they are. Here’s why…

Strong United States Dollar

The United States dollar has been growing in strength over recent years; seems like good enough news right? Well, in most cases it would be; however, with the US dollar’s strength where it is currently, it’s becoming more of a headache. The reality is that the US dollar is growing at a much faster rate than most dominant currencies around the world. The result is that exports are feeling the pain as domestically produced products are becoming more and more expensive overseas. In fact, several major companies blamed the strong US dollar and falling foreign sales for missed revenue expectations.

Consumer Spending

Currently, there are two major problems with consumer spending in the United States. The first is how much of the country’s GDP this figure accounts for and the second being the rate of growth in consumer spending.

• Consumer Spending & US GDP – When it comes to the United States GDP, consumer spending plays a massive role. It accounts for more than 68% of the entire country’s GDP. In any balanced economy, consumer spending is going to account for a large percentage of GDP, but this massive figure shows deeper concerns. The reality is that an economy cannot sustain notable growth without funds coming in from other nations. While consumer spending takes more of the GDP market share, it shows that net exports of goods and services are falling.
• Rate Of Growth – If massive growth was the reason that consumer spending was such a large percentage of GDP, it would soften the blow in my mind. However, that doesn’t seem to be the case. As a matter of fact, the most recent consumer spending report shows that in the month of February, the figure only gained by 0.1%; maintaining the slowing trend we’ve seen for 3 consecutive months.

Payrolls Took a Sudden Turn for the Worse

Another piece of data that I watch relatively closely when gauging the strength of the United States economy is monthly job creation.  While the data was positive in the beginning of 2015, the most recent data show that the figure is taking a turn for the worse. In the month of March, experts predicted the United States to add 245,000 new jobs. Instead, we saw meager growth at 126,000. Not to mention, wages are growing at about 2.1%; far slower than a healthier 3.5% rate.

Watching the Dow for Signs of a Mid-Year Correction

Image Source – anyoption

The Dow Jones Industrial Average is the blue chip index that I like to watch when gauging economic strength. My expectation is that volatility could increase in the last 3 to 6 months of the year. As all of the negatives we have seen recently start to pile up, the Federal Reserve may be in the process of increasing interest rates. The result could be a relatively large correction in the market as the United States economy adjusts before recovering.

Although we are in the midst of an all-time stock market high, other key economic indicators such as consumer spending, export sales and job growth have slowed. However, this can happen as the economy stabilizes.  I still feel there are strong headwinds that could hit the U.S economy hard in the coming year – headwinds that could lead to a big market correction.

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Gaining momentum since 2006, the impact investing concept is now 9 years old but it is yet to be well established in many emerging markets including East Africa. As opposed to the maturity expected of an industry after such a long period of time, this particular sector is still nascent in the region according to a report by Global Impact Investing Network (GIIN). The impact investing industry is facing a number of challenges both from the supply side (impact investors) and the demand side (local entrepreneurs) that are delaying its growth within the region.

Gaining momentum since 2006, the impact investing concept is now 9 years old but it is yet to be well established in many emerging markets including East Africa. As opposed to the maturity expected of an industry after such a long period of time, this particular sector is still nascent in the region according to a report by Global Impact Investing Network (GIIN). The impact investing industry is facing a number of challenges both from the supply side (impact investors) and the demand side (local entrepreneurs) that are delaying its growth within the region.

The research report by the Global Impact Investing Network (GIIN) on “Impact Investing in West Africa – April 2011” highlights salient issues that have parallels with the challenges the sector is facing in East Africa.

Challenges on the demand side (entrepreneurs)

On the demand side, the GIIN report highlights lack of relevant skills and access to information by many entrepreneurs as a barrier to impact investment. The many entrepreneurs in the West Africa region just like in East Africa are small businesses. Most of them lack the entrepreneurial spirit to build their business ideas into sustainable business models that can attract external investors. This combined with the unwillingness to give up equity in their businesses for fear of losing control makes it hard for investors to channel their money into the businesses.

Also barring investors from putting money into promising business ventures in the two regions is the unwillingness to convert from informal to formal businesses. With small well established businesses making decent incomes for their owners, many entrepreneurs do not see the incentives to formalize their businesses. In addition, in some countries the business formalization processes are long and complex; thereby discouraging entrepreneurs from scaling their businesses.

Deal sizes also happen to be very small in most cases hence discouraging the impact investors from deploying their money to the businesses due to high transaction costs. In West Africa for example the GIIN report records deal sizes of between $1,000 and $100,000; which are uneconomical for most investors. This coupled with the unwillingness by the impact investors to customize their investment policies and criteria to suit local businesses leads to many potentially viable ventures being left unfunded.

Challenges on the supply side (impact investors)

On the supply side, there was a challenge of lack of self-identification as an industry and clarity of what impact investing actually meant to the local people. The perception of pursuing social goals together with economic goals in a business could not be understood by local institutional investors and high net worth individuals. However, the tide is changing on this as more awareness is being created by the impact investing proponents in both regions.

The big challenge now for the investors is lack of local intermediaries with high expertise to develop the local businesses to be investor ready. Many businesses lack financial data and non-financial performance records that are essential in business screening before investing in them. It therefore becomes a hard and expensive venture for the investors to source for deals and start screening them from scratch with no organized financial records.

To fill this gap, management consultancy and other business advisory firms need to intermediate the processes and help bridge the gap for both the investors and the entrepreneurs. In East Africa, we have a leading strategic business consultancy firm Open Capital Advisors that started five years ago; and it is providing high quality intermediary services of preparing entrepreneurs to be investor ready as well as conducting due diligence for investors.

The other challenge the impact investors are facing is lack of clear exit strategies. With no tracking and documentation of successful exits in the past, new investors are treading cautiously as they look for viable businesses to invest in. Tracking and documentation of successful investments and exists in the industry could be the eye opener to many pessimistic investors; as well as build confidence in others to increase their current investments in the two regions.

In a summary, the major challenges facing impact investing currently are entrepreneurs who are not ready for investment, coupled with investors with rigid investment policies and criteria. There is therefore a dire need for intermediary business advisory firms on the ground to prepare the entrepreneurs for impact investing. On the other hand, impact investors need to flex their investment policies and criteria to suit the businesses available on the ground within the East Africa region.

The post East Africa mirrors West Africa’s Challenges to Impact Investing appeared first on Economy Watch.

Global oil prices are experiencing a free fall with the ultimate bottom resistance point predicted at $40 per barrel. Increased supply from all leading world oil producers is termed to be the core reason why we are experiencing the downward slide of the “black gold” prices. The ripple effect this has on the global economy has been accurately predicted to be a fall in fuel prices; which then leaves millions of consumers with additional savings to spend.

Global oil prices are experiencing a free fall with the ultimate bottom resistance point predicted at $40 per barrel. Increased supply from all leading world oil producers is termed to be the core reason why we are experiencing the downward slide of the “black gold” prices. The ripple effect this has on the global economy has been accurately predicted to be a fall in fuel prices; which then leaves millions of consumers with additional savings to spend.

In Kenya, everything now looks bright and the economy is poised for growth in 2015 at a rate probably higher than the International Monetary Fund (IMF) prediction of 6%. All economic factors are pointing towards the positive side of the Kenya’s economic narrative.

The Energy Regulatory Committee (ERC) in Kenya has revised the oil prices downward in line with the international oil price decline. Although the rate of the local downward adjustment might not mirror the rate at the international markets, the fact remains that the prices have dropped with larger margins than we have seen in the recent past. This then follows the global trend where consumers will have an extra coin from the savings to spend elsewhere.

In what might be more good news to Kenyans, the Monetary Policy Committee (MPC) also have revised the Kenya Banks Reference Rate (KBRR) downward to 8.54% from the previous rate of 9.13% set in July 2014. KBRR is a key component in the new system used by commercial banks in setting their lending rates; used in addition to other third party costs and margins that banks load to it. By MPC reducing the rate, then we have a clear signal for lower borrowing rates in the near future. 

As the year 2015 began, the inflation rate for Kenya was projected at an average of 5% having dropped to 6.02% in December 2014. This could have been one of the factors considered in lowering the KBRR; although the Central Bank Rate (CBR) was left untouched at 8.5%, a rate set back in April 2013. The CBR is the base rate that commercial banks in Kenya used to set their lending rates with before the introduction of the KBRR. 

With the inflation rate being forecasted to be within the “safe region” by the Central Bank of Kenya (CBK), the reduction in interest rate was therefore justified. This is further mirrored by the fall in the 91-day Treasury-Bill rate in Kenya to a resistant level of 8.5%.

The Kenyan producer therefore has a window to borrow more from the commercial banks for expansion of their businesses. That notwithstanding, the businesses shall also be making savings from the decreasing fuel costs and translate that to even more vibrant growth plans. Part of the beneficiaries of the business cost cutting due to lower oil prices shall be the employees who will take home a larger pay. In addition, we are likely to experience an upsurge in employment numbers as businesses expand during this period.

On the other hand, we have the Kenyan consumer who now is both saving and earning more. Fuel costs are declining for all including individual consumers who now will have that extra shilling to spend, save or invest. In addition, the businesses are doing well and if the employees get a salary increment things will have worked even better for them. Though a pay rise may be a grey area, a typical situation will be bonus compensation to employees in many companies. This will then result to increased income for the consumers generally across the economy.

A unique characteristic about the Kenyan economy is its youthful population and the bulging middle class. With the middle class come the poor spending habits for luxury without much inclination to savings and investments. This can be evidenced by the rising numbers of international consumer goods companies setting shop in Kenya; most of them quoting the rising consumerism as their pull to the Kenyan market.

We therefore have a very interesting scenario here. More money is being saved from the dropping oil prices, more money is being borrowed due to the falling borrowing rates and we have a population inclined more to spending than saving. 

In my opinion, the outcome is rather obvious. The consumers will have a higher purchasing power which will lead them to indulge in higher spending in the short-run. Their higher spending will then motivate the producers to also up their game from their side and with increased production; the overall Kenyan economy will be the winner.

However, all is not bright and smooth; the above situation is merely a reflection of the ideal way in which economic factors would fall into play. On the other hand we could experience demand pull inflation that would trigger higher interest rates in the economy and my projections would not be as perfect as they seem. The banks may not also respond to the lower KBRR as expected, thus still limit the outcome of my projections. 

Another aspect that is central to the whole economic drama is the foreign exchange; where the Kenyan shilling is losing ground to the dollar. CBK’s interventions in the recent past have not been able to stabilize it, a situation attributed to the temporal nature of the interventions which investors have mastered and tend to overlook. The weak shilling is however considered to be positive news for exporters and for the tourism industry which is one of the leading foreign exchange earners for Kenya. Currently, the shilling is trading against the dollar at the rate of USD/KES 91.36.

All in all, we keep our fingers closed and monitor the scenarios as they keep unfolding and as investors factor them into their investment decisions in 2015.

Falling global oil prices sparking Kenya’s economy to a vibrant growth is published with permission from Fie-Consult

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The impact investing space is growing in Africa and could be the trigger this developing continent needs for faster sustainable development. As the MDGs are being replaced by the SDGs in 2015, new development concepts and policies are being floated for Africa to adopt. Impact investing could be one of the best strategies if embraced and well implemented across the continent.

The impact investing space is growing in Africa and could be the trigger this developing continent needs for faster sustainable development. As the MDGs are being replaced by the SDGs in 2015, new development concepts and policies are being floated for Africa to adopt. Impact investing could be one of the best strategies if embraced and well implemented across the continent.

Most African economies have poor basic public services in terms of healthcare, education, infrastructure, water, energy, housing and technology. Efforts by the governments to improve the conditions in the past have been met with budget constraints and lagging implementation marred by corruption. 

Nevertheless, many African countries have in the recent past adopted the Public Private Partnerships strategy as a way of bringing on board the private sector into the national development agenda. There is also increased democratization of governments as well as concerted efforts to tackle the security scare in most African countries. Both these initiatives have led to an increase in Foreign Direct Investments to the continent and especially in Sub Saharan Africa. This has eventually contributed a great deal to improving the situation on the ground, but still left some social gaps unattended.

NGOs and other donors on the other hand have been doing a lot of work in Africa in trying to alleviate the poor economic status and fill the social gaps left. Major areas covered by donors and NGOs usually are in healthcare, education and sanitation. However, these interventions have been coming in terms of short-term projects that die out after a while, thus leaving the people drawing back slowly to their former poor economic state.

Based on the shortcomings from the donor dependency and the short-term effect of NGO projects, Africa therefore needs an alternative strategy to boost its economic development sustainably. It is on this background that impact investing is being advocated for; due to its focus on both financial returns and social good for the communities involved and the economy as a whole.

Gaining momentum from 2007, the impact investing concept has made major milestones both in terms of funds mobilized an invested as well as the geographical coverage. South Asia and Sub Saharan Africa are the current major target regions by the asset managers and investors in the impact investing space. The focus is on improving livelihoods, conserve the environment and help mitigate some of the chronic social problems in those regions.

That combined focus on social benefits and financial returns fits well to the challenges facing Africa as a continent. The capitalistic economies in most countries in SSA have resulted in a few individuals growing wealthier each day at the expense of social welfare of the masses. With the requirement under impact investing to specifically measure the social impact from investments; investors will then be obliged to factor in environmental and social benefits to their investment plans. This will ultimately help to sustainably deal with the social challenges Africa faces, even as the investors grow their wealth through financial returns.

Africa is a frontier market and the opportunities it presents can best be capitalized on when the social welfare of its population is at the core of the development agenda. Impact investing presents such a strategy that is all inclusive in terms of social benefits and financial returns. As we focus on having sustainable economic development, it will be a great idea to have governments in Africa embrace the idea and formulate legislation that supports impact investing.

Fueling sustainable development in Africa through Impact Investing is published with permission from Fie-Consult

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