This Week in Africa Finance

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Good day. In today's email : The Demand for an African Credit Rating Agency, Guan Chong Berhad Acquires 25% of Transcao Côte d’Ivoire, The $71.6m African Cultural Phenomenon and The Termsheet

1- Credit Rating

The Demand for an Africa Credit Rating Agency

The African Development Bank, Prosper Africa (a U.S. presidential initiative), and the United States Department of the Treasury have agreed to create an African online credit rating data platform with a $700,000 grant.

Why does this matter : Several African countries have recently been accessing international credit markets to issue Eurobonds, which have gained popularity and led to oversubscription from global investors. However, high borrowing costs, primarily stemming from low credit ratings, continue to be an issue for these African nations during times of economic reforms.

• The lack of accurate and comprehensive data and the inability of international credit agencies to fully capture the complexities of African economies does affect credit ratings of African markets and businesses, discouraging foreign investment and obscuring investment opportunities.
• Some international credit agencies, like Moodys, have taken active steps to establish a presence in Africa, notably through the acquisition of GCR Ratings, which has a strong foothold in key African economies, including South Africa, Nigeria, Kenya, and Mauritius.
• As African businesses and startups seek alternative financing, particularly in the private credit sector, developing fact-based risk profiles and assessments for sovereign and corporate bond issues becomes imperative to help improve the cost of debt.

The bottom line: While a credit rating agency focused on Africa has the potential to facilitate better access to international financing by providing more accurate credit scores for African sovereigns and corporations, the responsibility lies with African governments and corporate entities to furnish verifiable, timely, and comprehensive data, including historical information. This will help create unbiased insights that accurately reflect local realities and enhance investor confidence.

Further reading :  

• Moody's Completes Acquisition of African Credit Rating Agency GCR Ratings (Link)

2- M & A

Guan Chong Berhad Acquires 25% of Transcao Côte d’Ivoire for $28.9m

Guan Chong Berhad (GCB), a Malaysia-based cocoa manufacturer and the fourth-largest cocoa grinder globally, is poised to acquire a 25% stake in Transcao Côte d’Ivoire (Transcao CI), a Côte d'Ivoire -based cocoa manufacturer, for US$28.9 million.

Why does this matter: Côte d'Ivoire produces approximately 40% of the world’s cocoa. However, a substantial portion of its output is exported to international markets unprocessed, resulting in a loss of vital foreign exchange that could be derived from the value-added processing of cocoa beans into consumable goods. Notably, cocoa prices surged to record highs of $12,565 in 2024.

• Recently, GCB inaugurated Africa’s first cocoa bean grinding facility, which possesses a capacity of 60,000 tonnes. This plant aims to streamline the beans-to-ingredients cycle and mitigate supply chain risks, ensuring timely production and delivery to critical European markets.
• Transcao is primarily owned by the state-backed Conseil du Café-Cacao (CCC), the regulatory authority for cocoa and coffee in Côte d'Ivoire.
• GCB produces cocoa mass, cocoa butter, cocoa powder, and industrial chocolate, with an annual grinding capacity of 330,000 tonnes of cocoa beans and operational footprints across four continents.

The company has committed to hiring local personnel for essential commercial and technical roles in the acquisition deal.

The bottom line: GCB’s acquisition stake in Transcao presents mutually beneficial opportunities for all parties. Côte d'Ivoire must advance beyond the exportation of unprocessed cocoa beans, which yields diminished foreign exchange considering it is at the lower end of the value chain. By leveraging GCB’s technical expertise alongside Transcao's processing capabilities, there is a substantial opportunity to develop value-added cocoa products.

Talking Points

The $71.6million African Cultural Phenomenon

Lagos, Nigeria's economic and entertainment capital, has set a template for other African cities to boost their tourism industry, as demonstrated by the recently concluded Detty December.

Why does this matter: Despite high inflation and a soaring cost of living, the month-long event generated $71.6 million, which underscores the economic opportunities within Africa's tourism and hospitality sectors.

In Nigeria, vibrant cultural expressions such as Afrobeat and Nollywood contribute to a thriving entertainment industry and have successfully exported it beyond Africa's borders. However, Detty December elevated this experience, transforming Lagos into a bustling hub of festivities throughout December.

• The celebration drove substantial economic activity, fuelled by high-profile concerts featuring popular Nigerian artists, parties, and social events attracting large crowds of residents and international visitors.
• The hospitality sector also experienced a notable boost, as hotels generated $44m and short-term rentals received $13m worth of bookings. Restaurants and bars enjoyed significant business.
• Local vendors and small businesses benefited from increased trade as well with event organisers, performers, and venue staff; job opportunities were created at an essential time of the year .

The bottom line: Detty December has shown how well-organised African festivals can be vital economic drivers, especially during times of economic reform. As it showcases the unique vibrancy of African culture and highlights the tourism industry’s significant contribution to the economy , if effort is made to support businesses with the right government policy.

The Termsheet

Agriculture :

Sistema.bio, an Africa-focused company, which offers farmers biogas technology and financing has secured a $3.5 million investment from Novastar Ventures as part of its $7.75 million funding round. This new investment will support Sistema.bio’s product offerings and facilitate its entry into new markets.

Fundraising:

LoftyInc Capital Management’s Lofty Alpha Fund, a closed-end pan-African venture capital fund with a target size of $50 million, has secured a $6 million commitment from the International Finance Corporation (IFC).

Purple Elephant Ventures (PEV), a Kenya-based venture studio focused on the African tourism industry, has raised $4.5 million in seed funding from a group of investors that includes Klister Corp, Clear Creek Investment, Anthony Rock, Fede Pirzo-Biroli (founder of Playfair Capital), and Ian McCaig (former CEO of Lastminute.com).

Technology:

LemFi, the fintech startup has secured an investment of $53 million in its Series B funding round led by Highland Europe with participation from Left Lane Capital, Palm Drive Capital and Y Combinator.

Inua Capital the Uganda impact investor has made an equity investment into Flow Uganda, the startup offering liquidity solution to small businesses.

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