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Looking to invest in Africa? The 7 sectors driving growth : The Standard

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The year also saw the launch of Vivo Energy, both the largest African IPO in London for a decade and the first company from the Companies to Inspire Africa report to float on the London Stock Exchange. [Courtesy]

The London Stock Exchange (LSE) prides itself on linking globally minded investors to ambitious, growing companies from around the world.

One of the key ways it does this is by raising awareness on the opportunities in emerging markets, and presenting these to an investor base that’s seeking exposure to new geographies and opportunities.
It’s for this reason that the LSE Group launched the Companies to Inspire Africa report. The report raises awareness on growth opportunities by identifying “Africa’s most inspirational and dynamic private, high-growth companies to a global market”. The report is now in its second iteration.
The 2019 issue lists 360 companies (with 75 companies repeated from the 2017 report) from 32 countries across the continent.
Biggest sectors
The Eastern Africa region has the largest share of companies at 147, with 66 from Kenya, 31 from Uganda, 14 from Rwanda, 15 from Ethiopia, 11 from Tanzania, eight from Mauritius, and one each from Somalia and Madagascar.
With 97 entries, Nigeria is the country with the highest number of high-growth potential companies, according to the report, at 97.
Consumer services, industry and agriculture are the three biggest sectors in the report, accounting for 50 per cent of featured companies.
The LSE has become an important source of ‘patient capital’, which allows businesses to focus on innovation and growth, rather than have to stick to the strict debt repayment schedule offered under traditional financing.
“Over 100 companies and nearly 40 African bonds are now listed on London markets, gaining access to a global investor base. In 2018, we saw issuances from Nigeria, Kenya, Egypt, Angola and Ghana, as well as corporates such as Seplat, Absa Bank and FirstRand Bank,” LSE CEO David Schwimmer says in the foreword to the report.
“The year also saw the launch of Vivo Energy, both the largest African IPO in London for a decade and the first company from the Companies to Inspire Africa report to float on the London Stock Exchange.”
On average, the companies listed in the 2019 report employ 350 people, and registered an average compound growth rate of 46 per cent (up from 16 per cent in the 2017 report).
From Western Africa, 130 companies made the cut, while Southern Africa had 47 companies, Northern Africa 26 and Central Africa six.
Based on where these companies have invested, the LSE report identified the following seven sectors with high potential for growth across Africa.
1. Agriculture
The agricultural sector is an engine for job creation in Africa. It accounts for about 60 per cent of total employment in the sub-Saharan region, while the share of jobs across the food system is potentially much larger.
While expanding land under cultivation has boosted African agricultural production, it has come at an environmental cost.
Technology has the answer to intensifying agricultural production sustainably without harming the environment, whether by providing access to finance for farmers, powering cooling systems for fresh produce or improving communication with markets.
2. Consumer services
Africa is widely viewed as offering the final frontier for consumer growth.
The business environment is improving across the continent; infrastructure is being strengthened, while growing numbers of consumers are earning more and purchasing products and services that support their aspirations.
The rise of mobile communications is fuelling consumer growth and resulting in a major shift towards online shopping, which is set for massive expansion as mobile usage soars.
It is estimated that the value of online shopping will hit $75 billion (Sh7.5 trillion) by 2025.
3. Manufacturing
Manufacturing offers a significant opportunity for Africa to generate a large number of jobs and reduce political and social instability.
It is expected that four strands of economic prosperity – infrastructure, institutions, human capital and technology – will drive manufacturing-led growth in Africa, ensuring the continent is more resilient to economic shocks and less dependent on natural resource exports.
Africa’s manufacturing and engineering sector has a key advantage over foreign developed markets as it’s not weighed down by infrastructure legacy issues.
4. Financial services
Demand for financial services in Africa is being driven by broader economic progress.
Today it has the second-fastest growing banking market in the world (taking retail and wholesale banking together).
A notable feature is the staggering growth in the number of people becoming banked.
Competition in Africa’s challenging and competitive banking landscape is increasingly fierce, and tomorrow’s leaders need to be able to demonstrate innovation and technological know-how.
5. Technology and telecoms
Africa’s mobile phone usage has gone up 344 per cent between 2007 and 2016.
The application of information and communication technologies, particularly in mobile telecoms, has had a major impact on the socioeconomic transformation of Africa.
As its mobile market begins to mature, African service providers are moving from securing subscribers towards encouraging data consumption and mobile banking.
This has fuelled a parallel expansion in innovators and entrepreneurs looking to ride the mobile wave, and has opened up an array of uses for mobile phones in business, healthcare and education.
6. Healthcare and education
As African cities enjoy better logistics, infrastructure and healthcare capabilities, urban households have more purchasing power and are quicker to adopt modern medicines.
African governments are increasing health spending to meet the United Nations Millennium Development Goals, while new technologies are also providing opportunities to monetise and democratise healthcare.
Opportunities exist by tapping into the digital revolution, with information and communication technology transforming education by expanding access to high-quality educational content.
7. Renewable energy
Africa has an abundance of natural resources: a large coastline with significant wind and wave power resources, and greater solar resources than any other continent.
While unreliable power supply has been an obstacle in accelerating economic transformation, African nations have the opportunity to protect the people, environment and future economic development with a range of renewable energy sources.
Many small-scale solar, wind and geothermal plants provide energy in rural areas; for example, solar power can help with daily needs such as small-scale electrification, desalination, water pumping and water purification.

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Double-edged tax measures to grow EAC local industries

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By JAMES ANYANZWA
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PATTY MAGUBIRA

By PATTY MAGUBIRA
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East African finance ministers converged on tough taxation measures aimed at protecting local manufacturers from “unfair imports competition,” in their spending plans for the coming year, made public on Thursday.

Most of the tax measures, contained in the budget statements for the 2019/2020 fiscal year, were approved during the ministers’ pre-budget consultations in Arusha in May.

Higher taxation of imports is aimed at driving consumption of cheaper locally produced goods, spurring the growth of manufacturing and creating jobs that ultimately improve living standards.

Proponents of the proposed measures are in line with the EAC Industrialisation Plan that seeks to transform the region into a globally competitive, environment-friendly and sustainable industrial sector that is capable of significantly improving the living standards of the people by 2032.

“The recommendations aim at pushing the regional industrialisation policy, creating jobs and improving East Africans’ living standards,” said Philip Mpango, Tanzania’s Finance and Planning minister.

Uganda, Tanzania, Rwanda and Kenya are focusing on improving the competitiveness of local industries by protecting them from cheaper imports through taxation and other policy measures.

Despite the good intentions, experts have warned that these tax measures — which are also applicable to goods coming from EAC member states — could stand in the way of integration, as each country becomes inward-looking in a bid to build its industrial capacity.

Already, trade spats, especially between Kenya and Tanzania, have seen Dar es Salaam block Kenyan products from its market. The partners have also failed to agree on a reviewed common external tariff, so the finance ministers have used the contentious stay of application window to secure preferential tax treatment on various goods whose production they believe requires protection to grow.

Customs tax measures, which take effect from July 1, target key sectors such as horticulture, timber, metal and allied, pulp and paper, textiles and leather, agro-processing and diaper manufacturers.

In Tanzania, among the measures Dr Mpango announced is abolishing the 10 per cent Customs duty on raw materials for the production of baby diapers, while retaining   the 25 per cent duty on imports of the same to promote local production. He also abolished the 25 per cent Customs duty on tools used for adding value to gemstones and removed the 10 per cent tax on raw materials used in vegetable packaging for a period of one year.

To protect the horticulture sub-sector, the minister increased duty on imported horticultural products to 35 per cent from 25 per cent. 

Tanzania also scrapped the 20 per cent Customs duty on seeds packaging materials and aluminium alloys to improve the quality of seeds, encourage local production of cooking pans and create jobs.

The policy changes are expected to protect Tanzanian manufacturers, attract investors to the local production of packaging materials and promote exports of vegetables to shore up the country’s foreign reserves.

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Tanzania has also introduced a 25 per cent duty on imported paper and a further 10 per cent duty on plastic products used for making door and window frames. Raw materials, spare parts and machines for textile and leather products have been exempted from Customs duty.

In Kenya, Finance Minister Henry Rotich retained the ad valorem rate of import duty on iron and steel products to protect the country’s producers of metal and allied products from continued stiff competition posed by imported subsidised iron and steel products.

Mr Rotich is seeking to maintain an import duty of 25 per cent on paper and paper products for a period of one year to protect manufacturers of these products. CET on these products is fixed at 10 per cent, but Kenya last year sought a stay of application to impose a tariff of 25 per cent for a period of one year.

“On matters relating to Customs, I have proposed measures intended to make our products more competitive while at the same time protecting local industries from unfair competition,” said Mr Rotich.

Kenya has also reduced import duty on raw timber to 0 per cent from 10 per cent to ensure that manufacturers of furniture and other products have adequate supply of raw materials. Nairobi has also retained an ad valorem rate of import duty at 25 per cent on all imported timber products to protect the timber and furniture industry from a proliferation of cheap finished products and to enhance local production.

The Kenya Association of Manufacturers reckons that the country’s industrial growth has stagnated at a GDP contribution of 10 per cent over the past 10 years, with a decline to 9.2 per cent in 2016.

“The growth and development of any country is dependent on the ability of its industries to compete regionally and internationally,” said Phyllis Wakiaga, the association’s chief executive. “Hence promoting the competitiveness of local industries should be prioritised.”

In Rwanda, Finance Minister Uzziel Ndagijimana has   reduced import duty on a range of raw materials used in industry to 0 per cent instead of 10 per cent or 25 per cent, and those used in manufacturing of textile garments and footwear to zero per cent instead of 10 per cent or 25 per cent

Dr Ndagijimana also maintained a 4 per cent duty per kilogramme of second-hand clothes, instead of $2.5 per kilogramme, and $5 per kilogramme for used shoes, instead of $0.4. He also retained import duty rate of 25 per cent for 70,000 tonnes of sugar instead of 100 per cent or $460 per tonne, whichever is higher.

Rwanda has also tried to increase the competitiveness of its industries through provision of basic infrastructure such as the on-going construction of Bugesera Industrial Park.

“We intend to increase the production in different sectors and enforce policies to create additional jobs,” said Dr Ndagijimana.

In Uganda, Finance Minister Matia Kasaija said promoting agro-processing will be the basis for the country’s industrialisation and job creation.

Mr Kasaija said the manufacturing sector can now meet domestic demand for basic products like cement, tiles, light steel and consumables such as sugar and soap, and that the next phase of manufacturing will be to produce goods for exports.

“This strategy is built on the rapid industrialisation of our economy linked to high productivity,” he said.



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Alcohol producers oppose 15pc duty increase

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Alcohol producers oppose 15pc duty increase

Treasury CS Henry Rotich said the higher excise was necessary in order to address the fall in excise revenue. FILE PHOTO | NMG 

Alcoholic beverage makers have opposed the 15 percent increase in excise duty on wines and spirits in this year’s budget, saying it is detrimental to the industry’s growth and will hurt the fight against illicit brews in the country.

The Alcoholic Beverages Association of Kenya (ABAK) said in a statement that such arbitrary tax hikes leave legitimate players in the industry facing uncertainty in their investments and business planning.

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On top of the 15 percent hike, the excise is also due to be adjusted upwards in line with inflation at the beginning of the next fiscal year.

“The proposal by the CS also reverses the desired sense of predictability in taxation for the industry that came about with the introduction of the inflationary adjustment via the Excise Duty Act, 2015,” said Abak chairman Gordon Mutugi in a statement.

Treasury CS Henry Rotich said the higher excise was necessary in order to address the fall in excise revenue as a percentage of GDP from three percent in 2004 to two recent in the 2017/18 fiscal year.

The duty on a 750ml bottle of wine goes up by Sh18 to Sh136, while duty on a 750ml bottle of whisky goes up by Sh24 to Sh182.

He also put up the excise on cigarettes by 15 percent, while introducing a 10 percent duty on amounts staked on bets.



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Uhuru legacy projects get $4.3b despite slow progress

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By NJIRAINI MUCHIRA
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The Kenya government’s pet projects under the Big Four Agenda — critical to President Uhuru Kenyatta’s legacy — were allocated $4.3 billion from the $28 billion 2019/2020 budget.

In his speech in parliament this past week on Thursday, National Treasury Cabinet Secretary Henry Rotich said this year’s budget “lays a strong foundation for achieving the president’s Big Four agenda.” The allocation represents less than 14 per cent of the total budget.

The projects are supposed to ensure universal health coverage, affordable and decent housing, to increase the manufacturing contribution to the economy from 9.8 per cent to 15 per cent and guarantee food and nutrition security by 2022. However, the majority of these projects are behind schedule.

Universal health coverage got $906 million; manufacturing $40.8 million; affordable housing $183 million; and food and nutrition security $177 million.

Despite the increase in allocation, analysts say the amount substantially falls short of the resources required for successful implementation.

In a statement, Layla Liebetrau of the Route to Food Initiative project lead, said Mr Rotich’s budget was not responsive to the needs of Kenya’s smallholder farmers, who despite consistently producing over 70 per cent of its food, are worst affected by poverty.

The government introduced tax measures projected to generate an additional $360 million for the exchequer, but with far-reaching ramifications for poor Kenyans.

These include increasing corporate gains tax from five per cent to 12.5 per cent, expansion of the withholding tax scope targeting people like security guards and those offering cleaning and fumigation services, catering and sales promotion.

The government also once again imposed punitive sin taxes, such as excise duty on betting activities at the rate of 10 per cent of the amount staked and 15 per cent on cigarettes, wines and spirits.

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However, in efforts to ease the burden on manufacturers and enable the country to regain some competitiveness, Mr Rotich reduced the rate of value added tax withholding from six per cent to two per cent to help reduce the build-up of VAT refunds, which have badly affected cash flow in businesses.

“The large accumulation of VAT refunds has impacted negatively on the cash flow and liquidity of our manufacturers and the business community at large,” said the minister.

Other notable measures include the retention of Customs duty for metal products at 25 per cent to protect local companies; extending the 25 per cent duty on paper and paper board products for another year; reducing import duty on raw timber from 10 per cent to zero and retaining import duty for finished timber products at 25 per cent.

Small businesses and traders got an assurance that Treasury would settle verified pending bills of $97.3 million owed by the national government within a fortnight, that inspections of imports will only be done at the point of export and suppliers of goods and services will be paid within a maximum of 60 days.

It was clear that the government is keen to accelerate the implementation of the Big Four projects.

Being critical enablers of the Big Four, the Cabinet Secretary allocated a whopping $3.2 billion to infrastructure projects like roads, railway, ports and energy and $3.1 billion to security agencies.

A major challenge for Kenya will be raising the required funds given its ballooning recurrent expenditure, shortfalls in revenue collections, a huge deficit and widespread corruption.

Mr Rotich said the government will effect austerity measures including rooting out ghost workers, standardised fleet management and renegotiating office leasing contracts.

In the coming financial year, the government projects revenues to the tune of $20.4 billion and expenditures of $27.2 billion, leaving a deficit of $5.9 billion, which it anticipates to finance through external and domestic borrowing.



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