comms@pedestalafrica.com +234 809 761 1111 Africa Investment Notes | Q1, 2024 Read now
Mixed Quarters:
Q3 2023 was a mixed season for Africa, while Q4 looks to open new investment vistas. Major global economic and diplomatic forums focused on energy transition and positioned Africa more positively as an investment destination, particularly for transition driven energy and mining investment. But some setbacks occurred in natural disasters in North Africa and political upheavals in the Sahel. Conversely, West and East Africa hold positive outlook.
Future Sweet Spots:
The sweet spots for investment are the gap in public infrastructure, population growth related sectors such as property and digital, and energy storage targeted resources such as lithium mining, with policy momentum in key countries like Nigeria. Domestic gas projects and uses are a new vista say recent International Energy Agency roadmap.
Oil Heading Up:
The inching up of price due the war in Europe and the latest Middle East upheavals ensure that traditional energy investment, especially in brownfields, which offer quicker turnaround time, remain attractive. On this score, Nigeria offers several rich pickings, especially as the country’s OPEC quota gap leaves money on the table.
Warming Events:
World Bank and IMF historic meetings in Morocco signpost a renewed global interest in the region’s capital gaps and as an investment destination, while new governments in Nigeria and Kenya rev up engagement with the investing world.
1. Global Interest Rates Versus Regional FDI
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EU raised interest rate to 20-year high of 4% in September, targeting
to reduce inflation and potentially reducing capital available for Africa. Key FDI and institutional investing target sectors into the region are oil and gas, mining, commodities, and more recently, digital, especially fintech which has drawn outsized venture capital post-Covid.
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China reduced requirement of banks to hold cash, increasing amount of money available for lending (targeting to stimulate local economy) and potentially tipping FDI into Africa in favour of China.
2. Economic Diplomacy: G20 and BRICS in Focus
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The African Union was admitted as a bloc into G20 at the September
meeting, bringing the region into better view, but also potentially increasing transparency, fiscal and ESG scrutiny. Nigeria is pushing for individual membership, one of its selling points being that it is the region’s largest economy, but also one of the weaker ones in terms of capital liquidity and other FDI considerations, although emerging reforms (e.g., floating the currency and ending petroleum subsidy) by the apparently a more business-friendly new government may help to encourage investment.
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Prior to the G20 meeting in India, SA hosted BRICS, and admitted new members. Although only SA is a member of this informal grouping, it provides an aspirational target for many African countries such as Nigeria, allowing many investment analysts a framework to look at criteria such as ease of doing business, political stability and transparency, a criterion for rationalizing investment performance. Without such it would be difficult to make the point that size of GDP, population and huge oil exports alone do not confer investment attractiveness, without the other desirables. This offers incentives for policy makers to aim for the right things.
3. Oil Price Heading Towards $100
- A combination of recent events has helped to push up oil price despite concerns about softening demand from China. The protracted war in Europe, and the latest tensions in the Middle East due to Israel-Hamas War have topped kept the outlook towards a possible $100/barrel by year end. This should be good news for established and emerging producers in the region, especially exporters like Nigeria and Angola. But it also means higher retail fuel price in the local economies, a lagging but critical indicator for already fragile local economies, particularly for sectors like public transportation and food prices, which have potential to stare social unrest. However, it opens investment opportunities in sectors like gasoline to CNG conversion and refining, which also have multiplier job creation effect.
4. Energy Transition Investment Picking Up
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Energy transition and low-carbon energy investment will come into
sharp focus in run up to COP 28 in Dubai. Indicative of this momentum is the September launch of a pivotal Energy Pact for Africa by the International Energy Agency, strongly featuring pathways to investing in renewables on the continent and more African countries applying to join Agency.
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As a pointer, Djibouti has kicked off the development of a 50MW windfarm, the equivalent of over 250,000 tonnes of CO2 removal per year, hoping with it to become the first country in Africa whose grid is entirely based on renewable sources. This privately funded $122m investment will is closely followed with another 45MW project by a consortium led by Africa Finance Corporation and will enable Djibouti free itself from dependence fossil fuel powered power and renewables imported from neighboring Ethiopia.
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The Djibouti project follows the 2022 flag-off of a 500MW wind farm in Egypt, the second largest in the World, signifying that Africa is capable of large-scale energy projects when policy and capital align.
5. Minerals Bull Season Continuing: But Is Region Prepared?
- The global interest in electric vehicles and other storage applications is driving a demand for commodities like lithium in Africa. But weak mining regulation, security and lack of capital remain hurdles for Africa to leverage this huge opportunity. Room to improve includes cadastral administration, targeted financing, post-mining refining , mining aggregation and exchange will help, as will improved ESG. Nigeria seems set to recover lost momentum in solid minerals with the launch of Solid Minerals Roadmap by an energetic new minister and confidant of the President. Although it still lacks specificity, the government has promised to follow up with additional guidelines to encourage investment at scale.
6. High Food Inflation Refocusing Investment Interest in Agriculture
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The Russia/Ukraine war and the resulting chokehold on grain exports have kept the pressure on food prices. Russia, refusal to renew the agreement to allow exports and the continuing drought in East Africa has exacerbated it, eroding disposable income in high population countries like Nigeria. Interim palliatives have included food distribution, but medium-term policy push has scoped in incentives for increased production of staples like potatoes and rice. Nigeria has launched a 5-Year Roadmap aimed to increase potato production through measures like seeds supply and financing. This opens a set of incentive-led opportunity to invest in potato farming.
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But more strategically noteworthy is the continuing trend of digitally enable agro-based entrepreneurship, through innovations such as digital aggregation, and microfinance.
7. Focus: NNPC’s Performance Gaps Offer Investment Opportunities
- Nigeria’s national oil company, NNPC is lagging its peers in production and reserves, the key performance indicators, despite having been privatized in 2022. Despite the country having the largest reserves in Africa, the production volume has dropped below 1m per day leaving about 500,000 barrels of its OPEC quota unused.
Deals:
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Fidelity Bank, one of Nigeria’s top 10 commercial banks acquired the UK business of its competitor Union Bank for an undisclosed amount. Union’s divestment is seen as part of its restructuring after strategic acquisition by a minion Titan Trust Bank in 2022.
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Nigeria’s upstream petroleum regulator announced in September that 42 unnamed companies won its gas flare commercialization bid round. This program involves the recovery of flared gas from oil fields by licensed third parties to be used for domestic power, cooking, and other commercial applications. This is considered a positive move to reduce carbon emissions at the oil fields and create jobs in the resulting businesses.
Disasters:
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Coups in Niger & Gabon in Q3 have raised questions about political
stability in the Sahel Region, and created distraction for the new government in Nigeria and some other African countries
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A major earthquake in Morocco and a destructive flood in Libya both in September, have created a new humanitarian crisis in those countries and revealing that much of public infrastructure and response capability remain fragile in both obviously challenged and seemingly more stable African countries. The infrastructure gaps are also investment opportunities particularly if concessions are on offer.
Key Business Events
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World Bank and IMF annual meetings in Morocco in October 9-15 are
the first in Africa since Kenya in 1973, reflecting a renewed interest and opportunity to include in financing Africa as growth continent on the agenda.
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Nigeria Economic Summit October 23 offers opportunity for the new government to step out and engage the private sector on key economic priorities and policy direction.
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Tanzania Mining & Investment Forum starting October 25 will aim to refocus discussions and deals towards the East Africa region’s mining, energy, and infrastructure sectors.
About Pedestal Africa
Pedestal Africa Limited (pedestalafrica.com) is a specialized investment promotion firm that works with global investment networks to design, promote and deliver large scale investment programs in Africa.
Founded by senior technocrats with over 75 years combined executive level pedigree in international corporations such as ExxonMobil, British Gas, Petrobras and more, our focus is on energy and infrastructure development particularly in Sub-Saharan Africa. We have expertise in energy, infrastructure projects, international law, investment financing, project design, policy development, business strategy, corporate law, and commercial negotiation.
Our role is typically to assist government or private partners define priori8es, convert policy to investment ready programs, and take them to capital markets. Thereafter, we draw linkages with the best available expertise in policy-to-project design, investment targeting and capital raising networks across the globe. We anchor our work with deep understanding of the priorities of the developing economies such as Nigeria.
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