IMF Urges Georgia to Create Buffers to Withstand Expected Risks

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Growth in the eight countries of the Caucasus and Central Asia (CCA) is expected to remain fairly robust, but policymakers should be mindful of inflation risks and take advantage of the strong recovery to rebuild policy buffers and prepare for any downside risks that might materialize, the IMF says in its latest assessment.
According to the Regional Economic Outlook for the Middle East and Central Asia, released October 26 in Dubai, the CCA is set to grow 5.6 percent in 2011 and 6.2 percent in 2012 (see table). For the region’s oil- and gas-exporting countries, the expansion is driven by high oil and gas prices, while the oil- and gas-importing countries are benefiting from the continued recovery in Russia, a key trading partner.
However, external risks to the outlook in the CCA region have increased and derive from a heightened perception of fragility in the global recovery, the report noted.
“For the CCA, a sharp decline in global growth could mean a fall in commodity prices, a decline in export demand, and a decrease in remittances and capital flows to the region,” David Owen, Deputy Director of the IMF’s Middle East and Central Asia Department told a press conference in Almaty, Kazakhstan.
“If these external risks do not materialize, however, we foresee good prospects for the region, with fairly solid growth,” he added.
Oil and gas importers need to address external vulnerabilities
The growth outlook for region’s oil- and gas-importing countries—Armenia, Georgia, the Kyrgyz Republic and Tajikistan—is favorable. Activity has picked up strongly in 2011, reflecting a recovery from last year’s fall in agricultural production in Armenia and a rebound from the Kyrgyz Republic’s contraction resulting from civil unrest. Continued global recovery, including in Russia, is also benefiting the region by boosting both trade and remittances. The IMF forecasts growth at an average of 5.3 percent in 2012 for the oil and gas importers.
Driven largely by high food prices, inflation has been rising since mid-2010 (see chart). In response to surging inflation, governments throughout the region tightened monetary policy, but additional tightening is still needed in some countries, such as the Kyrgyz Republic and Tajikistan, the IMF assessment says.
With the recovery gaining speed, CCA oil and gas importers should aim for fiscal consolidation to rebuild fiscal buffers that were depleted during the global financial crisis, to help safeguard their economies against future shocks. Such fiscal adjustment—which has already begun in Armenia and Georgia—would also help rein in large external current account deficits, the IMF report states. Maintaining exchange rate flexibility and accelerating the pace of structural reforms to boost competitiveness will also help reduce external vulnerabilities.
Oil and gas exporters face risk of inflation becoming entrenched
The oil and gas exporters—Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan—are growing fast. This growth, coupled with an accommodative policy stance, poses a risk of overheating. Although international food and fuel prices are moderating, core inflation is projected to rise in 2012 in all of the CCA oil and gas exporters.
Given this risk, monetary policy should exit from its accommodative stance, the report recommends. However, monetary policy has only limited traction in most of the region’s countries, so policymakers should aim to enhance its effectiveness by fostering financial deepening, enhancing central bank independence, improving the capacity of monetary policy tools, promoting more competition in banking systems, and avoiding unnecessary government intervention.
For 2011, all of the region’s oil and gas exporters are maintaining an expansionary fiscal stance. To limit inflationary pressures and ensure stability, however, governments need to exercise caution over spending increases, cut nonpriority spending, and avoid further increases in hard-to-reverse items, such as wages and pensions, the report observes. Over the medium term, measures to enhance the transparency, quality, and efficiency of public spending, as well as to raise non-hydrocarbon revenues, would also contribute to fiscal consolidation.
“If, however, global growth deteriorates sharply, then tightening of macroeconomic policy might have to be put on hold,” the report cautions.
Fostering employment, inclusive growth
The reliability of unemployment estimates in the CCA is uncertain, but available data suggest that unemployment is high.
In Azerbaijan, the unemployment rate is near 10 percent, and in Armenia, it stood at 19 percent in 2009. Georgia’s unemployment rate in 2009 was about 17 percent, according to official estimates, but alternative estimates put unemployment in the range of 20–30 percent. In all countries, youth unemployment is even higher.
Creating jobs and fostering high and inclusive growth is therefore a priority for governments in the region, the report says. The key components of the medium-term reform agenda to address this challenge include policies that aim to improve the business environment; ensure equal access to public services; enhance transparency, governance and institutional quality; boost regional trade integration; and address skill mismatches between job-seekers and available jobs.

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USA to grant aid of USD602 million to Mongolia

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Finance Minister S.Bayartsogt, US Ambassador to Mongolia Jonathan Addleton and representative of US Agency for International Development (USAID) Chuck Hovell signed change of intergovernmental agreement of the USA and Mongolia in the Government House on Friday.
The USA will additionally grant USD6.2 million in frame of development aid to Mongolia. The change of the agreement has focused to aid USD4,3 million to support of economic growth including help to private sector and increase its competitiveness intensifying economic strategic policy.
USD1.9 million will finance a project “To Strengthen Transparency and Governance” with the aim of increasing the Government transparency and responsibility along administration reform, corruption fight and judicial strengthening.
The U.S Government has been assisting Mongolia in deepening the democratic reform and forming the free-economic system. Since 1991, the USAID has granted financial aid of amount USD 214 million. The intergovernmental agreement on granting non-refundable aid of USD 285 million from the US Millennium Challenge Account was signed in 2007, and it has been realized so far.

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Kazakhstan was included into three high growth economics

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Kazakhstan now is in the top three fastest growing economies in 2000-2010, reported today "Kommersant," referring to the report of Ernst & Young (E & Y) "Outlook for emerging markets" (EM) prepared by the Institute with the assistance of Oxford Economics. As indicated, 25 major markets with the highest growth rates were selected as fast-growing markets. E & Y is confident that the EM role will only grow: by 2020 their share will account for 50% of world GDP at purchasing power parity, 38% of global consumer spending and 55% of the world's investment in fixed assets. It was indicated that in addition to countries BRICS (Brazil, Russia, India, China and South Africa) the top 25 includes some countries in Eastern Europe, Latin America, Asia Pacific, Africa and the Middle East. Over the past decade, annual growth in the EM has averaged 5.8%, which is three times higher than that in major economies (U.S., UK, Japan and the eurozone in the chart are shown for comparison). "It should be noted, however, that despite all the growth in the country with the BRR will long remain poor: GDP per capita at purchasing power parity in China is only 16% of the U.S., India - 7%, on average, EM - 27%", - was stated in the message. As noted, the fastest growing economy in the last ten years was Qatar, whose real GDP grew annually at an average of 13%. The next in the lead is China (including Hong Kong), Kazakhstan and India. Russia in the top 25 is in tenth place with almost 5% average annual GDP growth. Foreign direct investment in EM decade increased from $ 205 billion to $ 444 billion and now stands at around 50% of the world total. The leader of this indicator (per capita) is Qatar with nearly $ 1.6 thousand per capita investment. This is followed by Chile, UAE, Saudi Arabia, the Czech Republic and Kazakhstan. Russia is on eighth place with $ 300 of investment per capita. Significant reserve of EM are human resources. A total of 25 countries with rapid growth in living 4.2 billion people, or 60% of the total world population. A growing population - a reserve labor force and source of demand for goods and services. It is expected that from 2010 to 2020 the number of working-age population in the RDB will increase by 268 million people (9.4%). At E & Y noted that in contrast to developed economies RDB not faced with increasing costs for an aging population.

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NBU invests over 10.3bn soums to Nukus Textile LLC.Uzbekistan

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National Bank for Foreign Economic Activity of Uzbekistan (NBU) invested over 10.3 billion soums to Nukus Textile LLC.
Nukus Textile LLC was founded by NBU on the base of bankrupt enterprise Katex and handed over to management to NBU Invest Group OJSC.
The bank invested over 10.3 billion to improve solvency of the enterprises. In particular, it spent 8.7 billion soums to repair and purchase equipment and 1.3 billion soums to fulfill turnover funds.
In December 2009, the enterprise resumed production of medical bandages and in October 2010, it launched production of ready-made garments.
The enterprise produced medical bandages and ready-made garments for 768 million soums and exported products for US$258,000. The company has two shops, which realize 20-30 ready-made garments.
Currently, the modernization of equipment is underway and it is planned to launch production of cotton yarn with the capacity of 3,000 tonnes a year. The company signed agreement with Rieter Machine Works Ltd. to supply spinning equipment. It is expected that all equipment will be received in November.
Till the end of 2011, the enterprise is planning to create knitting and dyeing capacities, as well as expand sewing capacities. The company signed agreements for US$2.9 million to supply various equipments.
According to business plant, the annual capacity of cotton yarn production will be 600 tonnes, dyed stockinet – 530 tonnes and ready-made garments – 5 million units.

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Vietnam borrows $1b from US-based bank to develop wind power in Mekong Delta region

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Deputy Prime Minister Vu Van Ninh has recently approved Vietnam Development Bank (VDB) to sign a credit commitment letter to borrow $1 billion for wind power development in the Mekong Delta region in 2011-2015 period.
The loan will be financed by the Export-Import Bank of the United States (EXIM Bank).
Some coastal provinces in the Mekong Delta region such as Bac Lieu, Soc Trang and Kien Giang have potential for wind power development.
Till February 2011, Vietnam had 21 wind power projects studied to conduct in central provinces of Binh Thuan, Ninh Thuan, Binh Dinh and Lam Dong with designed capacity of over 2,000 MW.
Recently, the prime minister issued a decision on preferential mechanism for wind power development, including incentives on investment capital, taxes and fees, land infrastructure and electricity price support for grid connected wind power projects.
In the master electricity plan VII, the total capacity of electricity sources using renewable energy will be 5.6% by 2020 and 9.4% by 2030.
                                                                                       
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Zimbabwe to experience more mergers and acquisitions

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Zimbabwe could soon experience an avalanche of mergers and acquisitions as companies seek to recapitalize while foreign-owned firms also restructure to meet indigenisation requirements.
As companies face challenges due to the liquidity crunch, many have resorted to mergers and acquisitions.
In the first seven months of the year, the Competition and Tariff Commission approved five acquisitions.
Analysts say some of the acquisitions are aimed at vertical integration, as a way of ensuring access to raw materials – without recourse to cash, as one way of beating the liquidity challenges.
Statistics indicate that acquisitions approved during the period under review included Mr Shingi Mutasa’s FMI Zimbabwe and BP Shell and another involving Pioneer, Unifreight and Swift.
During the period, FBC Holdings acquired 49,2 percent of Eagle Insurance. Engen Zimbabwe was acquired 100 percent by Chevron Zimbabwe.
The latest deal was the acquisition of Makro by OK Zimbabwe Limited.
The deal between FMI, the majority shareholder in AIM-listed Masawara, BP and Shell Zimbabwe, encompasses the latter’s entire local assets.
The assets include 73 fuel retail sites and storage facilities with a holding capacity of approximately 59,5 million litres of petroleum products across 10 centres.
In the Pioneer deal, the ZSE-listed firm will take over the US$900 000 Unifreight debt secured on trucks, US$1,5 million for the purchase of the Swift brand over five years and US$711 000 for Unfreight’s IT systems, payable over three years.
After completing the acquisition, the transport and logistics firm will see the value of its asset base increase by US$12 million to US$30 million.
The transaction between FBC and Eagle Insurance saw the banking firm increasing its stake to 72,5 percent. FBC Bank had a 30 percent stake in the insurance firm, sharing with Zurich of South Africa.
FBC’s involvement in insurance to date has been through FBC Reinsurance. However, the acquisition of Eagle Insurance gives it a direct foothold in the industry.
As part of indigenisation, a consortium led by businessperson Moses Chingwena acquired 51 percent of Engen in a corporate finance deal, which paved the way for Engen to own 100 percent of Caltex/Chevron in Zimbabwe.
OK Zimbabwe has already started to benefit from the Makro deal with the new OK Mart contributing 8,3 percent to total group revenues of US$89 million in the first quarter of the year.
OK Mart was expected to make losses for the first three months but managed to recover in the third month and was already breaking even.
The group is expecting growth as it continues with its refurbishment exercise financed from previous fund-raising initiatives and internal resources.

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Mergers and Acquisitions.Vietnam

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                            Mizuho to Become Vietcombank Partner


Date: 3 October                                                Industry: Commercial bank
Target: Vietcombank                                          Deal Type: Purchase of stake
Bidder: Mizuho Corporate Bank Ltd.                   Share%: 15%
Seller: -                                                            Deal volue (USD): 567.3 M

Details: 

Mizuho Corporate Bank Ltd. Friday signed an agreement to buy a 15% stake in the Joint Stock Commercial Bank for Foreign Trade of Vietnam, or Vietcombank, for roughly $567.3 million.
Under the deal signed in Hanoi, Mizuho Corporate Bank will buy 347.6 million new shares from Vietcombank for 34,000 dong a share.
The purchase makes Mizuho Corporate Bank the sole foreign strategic shareholder of Vietcombank, Vietnam’s largest listed bank by market capitalization. The Japanese lender is expected to make the payment for the share purchase in the first quarter of next year.
Mizuho Corporate Bank will offer Vietcombank technical assistance, training and business opportunities.”
 
Companies overview:

• Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) is a Vietnam-based financial institution.

The Bank is engaged in the offering of commercial banking services for individual and corporate clients, such as account opening and credit card issuing. It is also involved in international clearing, foreign exchange dealing and money transfer.

Other activities of the Bank include documentary discounting, guarantee, clean collection, financial leasing and securities dealing.

As of December 31, 2010, it was a state-owned bank with three subsidiaries in Vietnam, two subsidiaries overseas, four joint ventures, two affiliates, one representative office in Singapore and 71 branches in Vietnam.

• Mizuho Corporate Bank, Ltd. is a financial institution registered with the Director of Kanto Local Finance Bureau No.6, and a member of Japan Securities Dealers Association, The Financial Futures Association of Japan and Type II Financial Instruments Firms Association.

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ADB president: Mongolia's development shold benefit everyone.Mongolia

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Mongolia has a bright future but needs to continue economic reform and to ensure that the fruits of development are extended to all its people, Haruhiko Kuroda, president of the Asian Development Bank (ADB) said Monday. A delegation led by Mr Kuroda is visiting Mongolia in conjunction with marking the 20th anniversary of the Mongolia-ADB cooperation and the 10th anniversary of the opening of the ADB Permanent Representative in Mongolia.
Mr Kuroda has given a speech at the ADB-Mongolia Partnership forum called "A Roadmap for a Happy, Healthy, and Harmonious Mongolia" in Ulaanbaatar to mark the anniversaries.
Mongolia is at “the threshold of prosperity”, Mr Kuroda said, noting that the Mongolian economy has grown by an average 7 per cent a year since 2003, with the USD 4 billion Oyu tolgoi mining agreement helping improve Mongolia's economic prospects. Per capita gross domestic product has more than tripled to USD 2,200 in 2010 from USD 638 in 2004 and foreign direct investment has soared.
“While high economic growth is desirable, further efforts must be made to make economic growth more inclusive. This means ensuring that the benefits from high economic growth are distributed more broadly, and that people have equal access to opportunities and basic social services,” Mr Kuroda said.
As of 2008, an estimated 35 per cent of the population was still living below the official poverty line. Inequality remains high within cities and between those living in urban areas and those in the countryside.
Mongolia's longer-term future depends on how well it manages its mineral revenues. Mongolia must also promote policy and institutional reform anchored in good governance, and pursue closer integration with the global economy. “This integration will help generate the private sector-led economic growth needed to sustain development,” Mr. Kuroda said. Since Mongolia joined ADB in 1991, ADB has extended 45 loans totaling USD794.7 million to Mongolia, as well as 12 Asian Development Fund grants of just over USD170 million. The ADB also provided technical assistance support amounting to USD86 million and grants under the Japan Fund for Poverty Reduction of USD31.5 million.

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UK firms to invest £2m in Nigeria

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TWO United Kingdom companies, in conjunction with their Nigerian counterpart, have pledged to invest a whooping £2 million to set up a manufacturing firm in the country.
The move, by the firms was part of the outcome of the recent visit by the British Prime Minister, David Cameron, to Nigeria, where he tasked British companies willing to invest in Nigeria, to came on board, because of the stability in investment climate and return on investment.
The British companies Europe-Ex Stock Limited and Multiplex Engineering Limited and Amizo Services Limited, yesterday, agreed to float a jointly owned business known as EES Manufacturing Nigeria Limited in Nigeria.
According to the Director of the EES Manufacturing Nigeria Limited, Graham Evans, the fund would be used to strengthen its market base in the country, adding that plans are afoot to ship in some of its technological equipments in Britain to the country, so as to start manufacturing locally.
He said the company’s target is to supply a wide range of products and onsite services to some core Nigerian companies operating in the manufacturing, power distribution, rail, water utilities, food and drinks, oil and gas sectors.
He added that the company would also undertake projects in construction, maintenance and equipment supply to major companies in the country.
Evans explained that the three companies also have an “efficient, reliable and cost effective proven global freight delivery system.”
The company’s director also stressed that the new company would be engaging in stocking of substantial amount of products, as well as manufacturing, assembling and installing additional products locally for United Kingdom companies.
He said the company has earmarked to supply and stock over 30 other brands and manufacturing some products for some companies in the country.
“When the workshop has finished, we would have already spent about 1.5 million pounds or 2 million pounds. That will take us to at least two years, because some of the very specialised tested equipment for high pressure valves and so on, need a lot of safety implications, so it will take us a lot of time, but quality takes time.
He continued: “We have already had discussions with some of the oil companies and several of our existing food producers in Nigeria. We want to still provide stocking service and service of product onsite, as well as new products to all of their sites scattered around Lagos and Port Harcourt and beyond. So, we are looking forward to start operating soon.”
Mike Purves, director, United Kingdom Trade and Investment said the UK and Nigeria bilateral trade relationship was very significant to his government for a number of reasons, adding that “We have had a long time trade relationship with Nigeria, and we are keen to broaden that in many variety of ways.”
He said the recent visit of David Cameron to Nigeria, would open a vista of opportunities for both countries, pointing out that President Goodluck Ebele Jonathan and David Cameron, signed a communiqué with the mission to doubled Nigeria’s bilateral trade with Britain by 2014.
He said the communique signed was a challenge to the two countries, but what the UK trade and investment was after is to see more British companies coming to establish businesses in Nigeria, because of the high return of investment.

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Local market resilient despite possible recession.Botswana

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The local bourse, the Botswana Stock Exchange (BSE) continued its rally despite the increased economic troubles hitting Europe in recent weeks. Though the European and American markets had unstable trends and the Johannesburg Stock Exchange (JSE) only being reignited momentarily last week, the BSE saw significant buying and selling of shares.
Volumes increased with 3.7million shares worth P9.8m exchanging hands during the week, an improvement from 3.5million shares worth P6.4m that were traded the previous week. Market analyst, Garry Juma says this is just another show of the slow reaction to world events that the market has. He is of the view that should there be any change, they will be hit only much later. “However the situation is fluid so we’ll wait and see.” On the investment side pertaining to the possible downturn, Bifm Chief Investment Officer, Stephen Mills noted that the issues in Europe are worrying for the world. “No, this is not merely a bump in the road. This is more serious,” said Millis.Mills further noted that however, “we believe, at this stage that a global recession should be averted but that the most likely outcome is for modest growth (below trend growth in the developed world) with the majority of the economic growth emanating from the developing world.
We need to keep an eye on commodity prices, particularly oil. The higher this key commodity remains, the more difficult decent global growth in the short term will be.” He said about the possibility of another global recession.
Meanwhile, according to the Motswedi Securities weekly assessment, the market has seen increased trading post independence holiday. “Notable volumes were in Letshego and the newly listed property stock NAP. Letshego traded 1.2million shares amidst higher bids and offer prices.” Motswedi says Letshego’s movement comes after the share prices tanked and a cautionary statement coming out which may have reassured some investors.
“Some institutional investors are placing some ‘buy’ orders as they are of the view that the stock has been over punished and is now underweight.” As such observers will watch the stock closely as Letshego will be presenting their interim results on 13 October 2011.
“The market will be hoping to get some clarity and direction on management strategy going forward given the removal of the salary deduction code with effect from 01 December 2011.” The assessment stated.
Meanwhile G4S continues its good run as the security company traded 154,543 shares on increased buying. “G4S which is generally regarded as a defensive stock is now up 25% since its 10:1 share split on the 26th of September.” The appetite for the G4S stock is still rising as investors seem not too worried about the high stock price. “The stock is now trading at a P/E ratio of 10.2x, against the market average of 9.8x and some investors are still attracted by its attractive dividend yield.” Motswedi’s assessment revealed.

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Sri Lanka-UAE trade ties gets stronger.Sri Lanka

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UAE has emerged as Sri Lanka’s main trading partner in the GCC for exports as the once war ravaged country emerges out of the shackles of internal conflict.
Sri Lanka has an annual trade of Dh 2.20 bn with the UAE and according to the country’s Consul General M. M. Raheem; plans are on to further boost the partnership. Addressing a section of the UAE based businessmen yesterday Raheem said his country has seen a notable rise in the arrival of foreign investors. In 2010 alone 14 per cent of all tourist arrivals in Sri Lanka was for business related activities compared to 8 per cent in 2009.
The country offers a significant growth potential at almost 8.2 per cent per annum, he said. “Our stock markets are considered as one of the safest in Asia during the last 12 to 24 months registering about 3 per cent growth,” he added.
In March next year the country plans to organise EXPO 2012, an initiative to promote trade investment and tourism.
According to Janaka Rathnayake, Chairman and CEO of Sri Lanka Export Development Board, the EXPO was last held about 17 years ago and is being resurrected as his country is aggressively moving forward to show the world that it means business.

Mergers and Acquisitions.South Africa

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Naspers, Heunis sell MXit stake

Date: 23 september                                               Industry: Information Technology
Target: MXit Lifestyle                                              Deal Type: Purchase of stake
Bidder: World of Avatar                                          Share%: 90%
Seller: Naspers, Herman Heunis                             Deal volue (USD): 60.39 M

Details:   
Media holding group Naspers [JSE:NPN] along with MXit founder Herman Heunis have sold their shareholding in the social networking service to Alan Knott-Craig Jnr's World of Avatar for an undisclosed amount.On Thursday MXit announced that World of Avatar, headed by Alan Knott-Craig Jnr, the son of the former Vodacom CEO, had signed a binding agreement to purchase 90% of MXit. The remainder would stay in a staff trust.
Knott-Craig Jnr said the deal just had one regulatory notification to meet before being finalised, and then he would take over as MXit CEO in early October.
"The deal is pretty much done. We have big plans in mind, but the first thing is to consolidate a little bit and make sure the ship is steady. Things are not going to change overnight, the idea is to grow MXit at 10% per month and to really go big into sub-Saharan Africa," he said.
Knott-Craig acknowledged that MXit was seeing increased competition from other mobile social networking services such as Whatsapp and BlackBerry Messenger, but that MXit would continue to evolve and grow.
"The main reason why we bought MXit is because it is the largest digital community in Africa. We will keep an eye on the competition and what we can learn from them," he said. Heunis said that the deal had the full support of Naspers due to a pact made between the two to sell their shareholdings together.

Companies overview:

• MXit Lifestyle (Pty) Ltd. operates an Internet community to discover and share chat rooms, games, movie clips, music, and sports. It offers Moola, a virtual currency to download music, play games, touch base with new and old friends in chat zones, get wallpapers and skins, and do shopping. The company’s services include Tradepost to buy skins, wallpapers, ringtones, and music; visit chat zones; play games; enter competitions and fill in questionnaires; and find out the latest weather, news, and sports results.
• Naspers Limited is a multinational media company with principal operations in electronic media and print media. The Company through its operating subsidiaries, joint ventures and associated companies, is engaged in the operation of pay-television and the provision of related technologies, the operation of Internet and instant messaging subscriber platforms, e-commerce platforms and the publishing, distribution and printing of magazines, newspapers and books. It has operation of Internet platforms (focusing on commerce, communities, content, communication and games).

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Services top list of fastest growing mid sized firms. Kenya

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The middle segment of Kenya’s economy shifted significantly in the past 12 months, leaving the services sector as the top-most driver of growth.A survey of more than 240 medium-sized firms found that services toppled telecommunication to become the sector with the highest number of fastest growing companies in the 2011 listing of Kenya’s Top 100 SMEs.
Service firms dominated this year’s list in terms of representation and revenue growth.
But construction maintained its position as the most lucrative segment of the economy with an average annual rate of return on equity (ROE) of 81 per cent.
It was followed by services with a ROE of 58 per cent while transport while hospitality were third and fourth with 52 and 41 per cent respectively.
ROE is a measure of how much profits a company generates with shareholder money.
The Top 100 SMEs survey, which entered its fourth edition this year, recognises the fastest growing medium-sized companies with annual turnovers of between Sh70 million and Sh1 billion.
It is conducted by the Business Daily, a publication of the Nation Media Group and KPMG — a consultancy firm.
Mr Philip Muema, a tax partner at KPMG and director of the Top 100 project, said transport firms posted the highest revenue growth at an average of 48 per cent, followed by ICT, hospitality, and service with 40, 34, and 34 per cent respectively.
“There is a lot of spend in the services sector,” said Mr Muema. “Demand for transport, ICT, hospitality, and professional services is rising in tandem with population growth, expansion of the middle class and the uptake of new gadgets and products,” he said.Mr Muema spoke during this year’s Top 100 Club members’ conference held at the Strathmore Business School in Nairobi.
Transport minister Amos Kimunya, who was chief guest at the conference, said the government was working on one-stop licensing shops to cut the cost of doing business in Kenya.
The shops should be ready and operational by end of next year and would be replicated in all counties.
A total of 246 firms went through the rigorous vetting process that includes presentation of three years audited financial results — same level as last year — though up to 300 entries were received.
Growth of the services and transport sectors is linked to rapid urbanisation and expansion of the middle-class in the past seven years that has created a huge demand for consumer goods.This year’s Top 100 survey confirmed the growing importance of medium-sized companies as key drivers of Kenya’s prosperity. The sector accounts for 60 per cent of the country’s labour market.“These companies represent a major part of the economy that play a critical role in job creation and a source of the tax revenues needed to finance development,” said Mr Linus Gitahi, NMG’s chief executive.
The Top 100 companies have an estimated combined annual turnover of nearly Sh100 billion or 10 per cent of the country’s Budget.
The survey found that the companies have an average staff size of 110, up from 103 last year.
Majority of the firms said they planned to hire more workers in the near term to support their expansion plans and growing demand for specialists such as auditors.
Most are looking to the region for expansion opportunities with Uganda as the most favourite destination, having attracted the interest of 54 per cent of the firms. Tanzania was second with 48 per cent, while Rwanda is third with 37 per cent.
The majority of the firms surveyed — or 74 per cent —have annual turnovers of between Sh70 million and Sh400 million, while four firms graduated to Club 101 — having crossed annual turnover threshold of Sh1 billion.
These are Express Automation, Prime Fuels, Manji Foods, and Vitafoam limited.
The top 100 winners in this year’s survey will be unveiled at a gala dinner at Carnivore Gardens Nairobi this evening.
The survey is sponsored by Standard Chartered Bank, software firm Sage Pastel, the Nairobi Stock Exchange (NSE), research firm Synovate and Strathmore Business School.

Mergers and Acquisitions.Vietnam

Frontiersinsight                                                                                         Vietnam 

Vinaconex sell stake in VCS

Date: 14 september                                               Industry: Construction & Engineering
Target: Vinaconex Advanced Compound Stone         Deal Type: Purchase of stake
Bidder: -                                                               Share%: 17%
Seller: Vinaconex                                                  Deal value (USD): 6.36 M


Details:

Construction company Vinaconex earlier this month sold 5.3 million shares in its subsidiary Vinaconex Advanced Compound Stone Company, reducing its holdings from 22 per cent to just 5 per cent.
Vinaconex also withdrew capital from a number of subsidiaries and affiliates, including Cam Pha Cement Joint Stock Company and Vinaconex Company.
VCG shares on Friday declined 2 per cent on the Hanoi exchange to VND14,500. Meanwhile, VCS shares closed unchanged at VND24,900.

Companies overview:

• Vinaconex Advanced Compound Stone Joint Stock Company is a Vietnam-based manufacturer of construction fixtures and materials. The Company manufactures compound tiles for construction and interior design purposes. Its products include tiles made from quartz-resin, marble-cement, or natural quartz-cement compound. The Company is also involved in the merchandise of industrial equipment and supplies, as well as construction and the provision of installation services to property projects. Through subsidiaries, it is engaged in mineral mining and stone masonry activities.

• Vietnam Construction and Import - Export Joint Stock Corporation (Vinaconex) is a Vietnam-based construction and engineering company. It constructs commercial, industrial and residential structures, as well as provides architectural, design and engineering services. The Company is also engaged in the trading of construction materials, fixtures, machinery and vehicles used in the construction industry. Apart from real estate operations, it is involved in electricity trading, water treatment, mineral mining, petroleum trading and financial investment. Through its subsidiaries and affiliates, it offers vocational training and educational services, and is engaged in hotel and supermarket operations, food and beverage trading transportation and farming activities.

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Introduction- a little bit about Nigeria- political, economical position

When Joseph Rohm, manager of the T. Rowe Price Africa and Middle East fund visited the capital of Nigeria, Lagos, for the first time, he was followed everywhere by guards carrying firearms. The situation is a complete opposite now, he walks the streets absolutely unguarded. “I feel safer in Lagos than I do in Johannesburg,” said Mr. Rohm, who is a native of South Africa.

The big players in the investment industry have created mutual funds and exchange-traded funds that pull most of their money in frontier regions. Mr. Rohm’s fund had begun in 2007 and is one of the older offerings. At the end of April, it had invested three quarters of its finances into countries such as Nigeria, Kenya and Qatar. For the 12 months through June, it had returned 17 percent.

According to the UN classification, Nigeria is a middle-income nation with developed transport, communication and financial sectors. It has the second largest stock exchange on the continent as its economy is one of the most developed ones in Africa.

Multinationals that seek the next big growth opportunity should focus their attention toward Nigeria. With a population of approximately 140 million people and a forecasted GDP growth rate of 7.3 percent in 2011, Nigeria has become the consumer market with the highest-potential in Africa, especially considering its increasingly confident and brand-conscious middle class.

A great quality of frontier-markets that Nigeria shares, is that at a time when the Western Economies are struggling, the US exchange rates are sagging and several of the leading emerging markets (such as Brazil, China and Russia) have faltered these years after surging in 2009- is that the growth in Nigeria is stable and is not as much affected by recessions due to its limited dependency on credits.

According to the Central Intelligence Agency, Nigeria holds the world’s 10^th largest oil reserves in the world. For a very prolonged period of time, the riches produced unrest, especially in the oil-producing Niger Delta, where residents rebelled against what they saw as too small a share of the profits. Lately, a chain of democratic transitions has stabilized the delta and the country as the government switched form a military dictatorship to a more democratic one. At the same time, policy makers in Nigeria and other similar countries have tamed hyperinflation and liberalized trade. That combination of resource wealth and macro stability acts as a strong attracting agent for investors.

In the Nigerian economic profile, petroleum plays a central role as a major industry as it places itself as the world’s 12th largest petroleum producer. This supports the country as we can see that the industry accounts for almost 80% of the GPD share and above 90% of total exports from Nigeria. Due to the surge in international oil prices during 2007-08, Nigeria managed to reap an annual GDP of $352.3 billion.

Even though the country has had an increasing demand for key industries and has been experiencing rapid economic growth, there are still challenges present for foreign corporations that wish to enter the Nigerian market; unfinished distribution networks and shortages of skilled labor are some of the examples. There are three benefits and challenges that are relevant to those companies that do decide to act on the opportunity of investing in Nigeria: organic/Greenfield entry, join venture /partnership or merger and acquisition. Scenario planning could also act as a helpful tool for corporations looking to assess their options.

SME Investing Nigeria

Nigeria is in a great position for SME investors from all over the world as she records an annuals 6% economic growth. While most investors from Europe and the Northern America have largely been frightened by negative media propagandas of the country in the past, Asian entrepreneurs took the challenge and proved the negative Western press to be incorrect. Today, Asia (mainly China) is the largest group of global SME investors all over Africa. Having mastered the Nigerian economy terrain, they attempt to push new grounds of investment while the Europe and Northern America remain envious of their investment returns. An interesting fact is that most of the early Asian SMEs in Nigeria had begun as merchant traders and retailers of consumer goods. Today, they have expanded to small scale manufacture and food packaging consumer products that are now being exported beyond even the African market. One can find a myriad of success stories that derive inspiration and faith in the Nigerian economy.

A little bit about Africa

Investor interest in the sub-Saharan Africa (SSA) Frontier Markets had high levels of interest before the global financial crisis.

These sub-Saharan countries received considerable volumes of capital inflows, following the steep rise in private capital flows to other emerging and developing countries in the middle of the past decade. Although the flows has have a brief reverse during the climax of the crisis, the low interest rates in more developed countries and a decrease of global risk aversion have renewed interest of investors to scour the globe in search of attractive investment opportunities. A list of following questions are interesting to answer:

· To what extent has the resurgence of global capital flows translated into a resumption of private capital inflows, especially portfolio inflows, to sub-Saharan Africa FMs?

· Do global push factors or local pull factors dominate in steering investor interest?

· Why have some sub-Saharan African FM countries garnered investor interest, while others—including some larger countries—have been sidestepped?

· Which policy options are most suitable for sub-Saharan Africa FM countries to use at this juncture to address any resumption of large capital inflows?

It is important to understand the determinants of and scope for private capital inflows of sub-Saharan African countries for a number of different reasons. Firstly, such flows are increasingly the main source of external financing for many countries in the region. The weakening in the fiscal accounts of most advanced countries because of the crisis also implies that the prospects for sustaining even current levels of official financing are doubtful. Secondly, private flows tend to be more volatile than others. At times flows are large relative to the size of the economy, complicating macroeconomic management.

The main findings are the following:

· The overall trend of capital flows to sub-Saharan Africa’s FMs mirrors trends elsewhere, with strong inflows before the global crisis and a sharp decline during the crisis.

· Postcrisis, and in 2010 in particular, more differentiation is evident. Private investors, possibly still smarting from the global financial losses of recent years, seem to be distinguishing between markets. Thus, country-specific pull factors govern the pattern of flows across regions and countries. In a few of the region’s FMs (Ghana, Mauritius, and, to a somewhat lesser degree, Zambia) portfolio flows picked up markedly in 2010. But in others, there is little sign of resumption in inflows.

· For fixed-income investments, market participants identify yields as the key driver of inflows. Thus, the monetary policy easing that was undertaken by many of the FMs may have reduced the incentives for inflows. Exchange rate volatility is another factor that seems to have played a role in some countries. For equity portfolio flows and foreign direct investment (FDI), a range of other factors contribute to the expected return and riskiness of the investment and influence whether inflows have resumed.

· The region’s FMs outperform other groups—including FMs in other regions, other sub-Saharan African countries, and even select emerging market countries—on a number of indicators of institutional quality, growth prospects, and macroeconomic outcomes. As the contribution of official financing continues to diminish, improvements in many of these areas could help other sub-Saharan African countries to attract private sources of financing for investment and growth.

· Two of the region’s eleven FMs have opted for capital controls in response to the volatility of portfolio inflows, but most countries have continued to rely on macroeconomic policies and macro prudential measures to respond to pressures from current and prospective inflows.

I believe when taking into consideration the position Nigeria holds and the sub-Saharan Africa maintains, including all its nuances, Nigeria can be a very “interesting” market for investments, generally like most frontier markets.

Frontier Markets - core ideas and the positivism

An essential part of creating profitable investments is knowing the factors effecting the business. That stays true for frontier markets also. Conditions, risks, possibilities and the basic outlay of the financial environment are what make up the major body of those factors.

What are frontier markets, and what “sauce” goes with them?

Frontier markets are the generally less developed countries from the general cache of emerging markets. These countries are spread out all over the world, they include Armenia, Azerbaijan, Mongolia, Vietnam, Nigeria, South Africa and many others.

They tend to have 3 similar points that defines them.

1.        Frontier Markets have a rather high level of difficulty of entry for foreign investors

2.        They tend to have a high presence of risk factors (which are from both the economical and  political perspectives)

3.        And they have a potential for great returns or crushing declines

As for the question of what major industries create the main players in the market- banks are usually among the biggest companies an any emerging market. Banks and financial service companies make up approximately 65% of the overall frontier index, while Oil and Gas are the next largest sector weighing in at around 13%.  Quite a few of the frontier countries are endowed with a rich supply of commodities. As one would assume, the type of commodity depends on the geographical position of the country. For example it’s mining for Mongolia, Kazakhstan also unearths oil, minerals and metals, while Argentina sells corn, soybeans and wheat, Nigeria plays a major role in potato exports and Vietnam is the current leader in manufacturing.

So in all honesty, when looked at the general description of frontier markets, they don’t look very attractive for investments… So why get involved with them at all? Well, simply speaking, very big profits! All this business has much to give back for all the risks taken. It’s just important to invest wisely.

There are just so many ways for an economy to develop itself, same goes for a specified market. Nils Taube- a former Junto presenter and master investor suggests to look at the way companied and trends have acted in the U.S. and Europe and place your bets on similar trends unfolding in frontier countries. This should also give you an idea of the general direction of the development.

Still not enough to be convinced that frontier markets are worth a shot?

Frontier markets offer investors the opportunity for greatly diversity within their portfolios. Many experts believe that some of these markets are undervalued because they are so rich in commodities and natural resources. They also have much lower labor costs.

China has been the pulling growth engine of the world for at least the past decade and many believe that it is more like two decades. But as the country develops itself, the Chinese people have growing power and influence versus the government as their wealth begins to rise. As a result the wages of the Chinese people will further rise because the government will not be able to effectively combat labor unions and workers as severely against labor and wage dissent. Already in China workers are organizing better benefits, hours and wages through different means of persuasion. Where will this bring the economy? This will cause increase production prices and slowly will start causing Multinational Companies who have their production based in China, to look for alternative countries, countries with a more disoriented labor protocol, cheaper prices and lower labor.

The economic recession that wreaked chaos in the developed areas of the world and on some of the emerging markets should have far less impact on frontier markets. Leveraging and lending that are everyday tools used in developed markets does not exist or is far more restricted by economic reality in the frontier countries. If a similar situation was to occur again, a frontier market should be able to maneuver itself around the flows much better than small and medium sized businesses in the developed markets.

Frontier markets are quite insulated from outside politics, leaving much room to work in, not restricted by socio-economic limits that have become general practice in the world. The only thing to look out for is that frontier funds usually rely heavily on oil or gold, and these are sensitive to fluctuations of outside sources.

I enjoy the idea of frontier investing due to my optimism when it comes to global trade, overseas markets and the great opportunities it presents. They always have great room for growth and diversity, which the developed countries seem to lack. For example, the Vietnamese economy is growing at a rate of around 9% per year, it’s a cheap place to do business- cheaper than most of Asia, and it’s easier because of the lack of numerous restrictions present in most developed countries. 

Author: Azizbek Mukhamedov

Analyst at FrontiersInsight.com

A new line of investing opportunities

A decade ago, global investors hardly ever invested in countries such as China, Brazil and India. Today, those very global investors who have not invested in these emerging giants feel like they are letting the hottest money-making opportunities pass them by. Yet, as India and China have become an everyday issue for global investors, there are a group of countries that attract the true Adventurers of the financial investments world. The International Finance Corporation refers to these countries "frontier markets."  

For those who are not acquainted with the term, frontier markets are the smallest, less liquid and less developed countries that make up a significant part of emerging markets. One could describe them as emerging markets which just started to “emerge” recently. Examples of such countries are Mongolia, Vietnam, Kazakhstan, Nigeria and Armenia. Though I have to admit, even with that explanation, it’s a little difficult to distinguish the Emerging markets from Frontier markets with a hundred percent certainty.

Since frontier investing is a rather new subject, many professionals disagree to which countries actually make up the sector. Different managers and index providers include different names in the list. For example the Claymore E.T.F. has included Chile and Poland in its lists, and also had mentioned them being the top five holding, though neither has made it to the list provided by the MSCI Frontier Index; the MSCI has included very diverse countries such as Argentina, Kenya, Romania, and Kazakhstan.

Generally, frontier markets can be identified by a few major qualities such as a high level of difficulty of access for outside investors, high presence of risk factors (both political and economical instability) and the potential for gigantic returns and devastating declines.

Of course, presence of high earning causes one to wonder how risky the general business is. And the risks involved in this enterprise are quite substantial to say the least. There are a number of risks associated with investing in frontier markets, such as political instability which can at times cause mayhem to the situation. Of course, factors like corruption and diplomatic tolerance on the other hand could play a rather positive role for investments. In the smaller frontier markets, liquidity adds to the list of risks. At times selling shares is a much harder process than acquiring them.

To many, it is easy to get entranced by the high returns generated by fast growing markets. But no successful investor has been through a successful business life without at least a few let-downs. 

I would suggest a few of the things to keep in mind while trespassing on this field:

Firstly, the "booms" of the frontier markets are rather exaggerated by the media. The growths are a lot higher and the falls are a lot lower than in reality. In 2005, equity markets in the Gulf area were considered to be the best-performing markets in the world. But in 2006, the Saudi market had halved. It is advised to look for a similar trend in other countries.

Secondly, frontier markets are tiny and illiquid. It may often be surprisingly easy to buy shares in the market, but they could end up being almost impossible to sell for months at a time. Inactive sale periods are not exactly uncommon in the market.

Thirdly, there's always the risk that the frontier markets won’t meet expectations and grow into developed markets, at least not for the time being

And finally, frontier markets are only attractive when they are cheap to invest in. Unless you get a great deal, it is in some cases not worth the time or risks taken.

On a more positive note, frontier markets tend to be much less influenced by global conditions and sure pack a nice crunching return rate at the end of the day.

Should people invest into frontier markets?

Well, many already do and are happy with it, but many are also just standing on the side lines watching the process. A word of advice from someone who’s been more than just interested in the matter- frontier markets are definitely worth at least some attention and taking a look in to.

Author: Azizbek Mukhamedov

Analyst at FrontiersInsight.com