Atta Africa Financial Update

Key commercial and political activity in Africa for private equity investors by DCE Partners, UK Private Equity advisors to Atta

Executive summary:  South Africa is a resilient economy

The 'mother city', the 'windy city', the 'city of gold' - all home to a country that at the moment is growing at a fraction of its neighbours. South Africa is posting GDP growth rates circa 1.3 per cent while the rest of the region is growing faster than 4%. The country is home to very well governed corporates, many of whom are listed on a liquid and transparent stock market. The reserve bank, the national treasury, the core financial institutions, are all highly regarded and seen as robust and reliable in the face of difficulty.

But the country needs to restore growth to a rate nearer 5% if it is to tackle the kind of broad based unemployment and social issues it faces. Around 8 million South African cannot find work against 16 million who are employed - this is amongst the highest in emerging markets.

Challenging factors affecting the economy include the inevitable US Federal rate increase (this is having the effect of further compounding selling pressure on the currency which is stoking inflation and creating a greater squeeze on the economy); China moving from an exporter and infrastructure led economy to a services and consumer based economy; and the falling prices of metals of which South Africa is a significant exporter of - an issue coupled with China's transformation (but partly countervailed by currency devaluation of around 20% against the dollar in 2015 which means on a currency adjusted based, mineral exports are not as hard hit as they could be).

Getting back to better times: address the misalignment of labour productivity and wage inflation; address the inefficiently of state owned enterprises such as China has done in the last two decades; do what needs to be done to get stability in the energy environment.

KenGen US$289 million issue will mainly pay Treasury debt

  • Listed power producing company, Kenya Electricity Generating Company (KenGen), hopes to boost its cashbook by a net of Sh8.6 billion (US$289 million) in the upcoming rights issue and lift itself from a liability position
  • KenGen’s plans to increase installed capacity from the current 1,611 megawatts to 2,122 megawatts by 2018 at a cost of US$1.75 billion
  • These include a 50-megawatt wellhead for leasing, three new 350-megawatt Olkaria geothermal projects, a 400-megawatt wind project in Meru and the rehabilitation of the Olkaria 1 plant

Energy and Shilling depreciation push Ugandan inflation to 9%

  • The depreciation of the Shilling in the last three months and last month’s increase in electricity tariff have continued to push inflation in Uganda upwards to 9.1 per cent
  • Bank of Uganda in October tightened its monetary policy by increasing the Central Bank Rate (CBR) to 17 per cent to control the anticipated rise in inflation