This week, Kenyan analysts Exotix Capital warned that the sooner a government can be formed in Kenya, the quicker can economic growth be put back on track. With that said they say the country will be better off. Exotix Capital says another positive catalyst would be the hoped-for dilution, or even lifting, of the interest rate cap law post-election, which has dismally stifled credit growth.
Recently, the Washington DC based International Monetary Fund (IMF) slashed the initial growth forecast for Kenya by a quarter of a point from 5.3 percent to 5.0 percent from its last projection in April. The IMF forecasts growth over the medium term to range between 5 percent and 6 percent. The Fund has cited the election and qualified the changes to political unrests which claimed dozen of lives, according to Kenyan media. Reports indicate that because Kenyatta’s opponent Raila Odinga refused to participate in the court-ordered rerun, claiming elections would not be any fairer than the first. Political analysts who weighed in cautioned that Kenyatta’s victory would most probably likely to worsen Kenya’s political crisis than resolve it.
Garry Juma the Head of Research at Motswedi Securities says these political unrest, so long as they deteriorate, will result in increased risk of doing business for investors like the BPOPF, and several other listed companies on the Botswana Stock Exchange (BSE). “This is so much bad for Africa, because if you invest so much, cost are fixed while the top line is affected.”
A couple of weeks ago, BPOPF Chief Execute Officer (CEO), Boitumelo Molefe revealed that the fund has interests investments in Nigeria and Kenya both of which are synonymous with political unrests and terrorism.
BPOPF, according to Molefe is investing through Harith General Partners and Vantage Mezzanine Fund in Nigeria and Kenya.
Harith General Partners identifies itself as an investment firm specializing in investments in infrastructure projects in energy, transport including road, rail, ports and airports, information and communication technology, water and sanitation, power, clean energy, wind energy, and telecommunications sectors. The firm is known for investing in the African region. Without stating why, Harith says it focuses on Kenya for clean and wind energy mostly investing in public private partnerships (PPP), making equity investments between $10 million (over P105 million) and $100 million (over a P1 billion) in its projects. Harith often bites off a minority stake between 20 percent and 49 percent depending on the scale of the project.
In 2016, Molefe says investment channeled through Harith were worth P11 million. This increased to P18 million this year. Vantage Mezzanine Fund II’s investment were worth P28 million and P71 million in 2016 and 2017 respectively.
Vantage specializes in mezzanine financing in all stages focusing on middle market, mature, buyout, and medium sized companies, according to the company’s profile. Further the company says it also provides expansion capital, early stage capital, replacement capital, and invests in management buy-out (MBO), buy-ins, and re-leveraging or refinancing. “The fund invests in all the sectors and does not target primary agricultural businesses subject to significant weather-related volatility; businesses not complying with local or international labour, environmental and other laws; businesses selling weapons or munitions; businesses producing or selling products subject to international bans or phase-outs, hostile takeovers, loss-making operational turnaround opportunities, start-ups such as technology start-ups or junior mining businesses, alcohol other than wine and beer and casinos and gambling.” Vantage predominantly invests in companies based in Africa with a 35 percent allocation to opportunities outside South Africa. It has mostly been pervasive in the Nigeria, one of Africa’s hegemony with its own homegrown political turmoil.
In total BPOPF investment into Harith and Vantage was P39 million and P90 million in 2016 and 2017 respectively. When asked to comment about the impact, the CEO confidently said BPOPF is not the owner’ of those investments but merely one of the several limited partners.
Juma says the impact of deteriorating political unrests on these funds would depend on how much exposure they have to these countries, especially Kenya. “If the exposure is significant then they will lick their wounds and continue. I depend who has exposure and what exposure.”
BPOPF’s investments outside were motivated by the fact that the fund is overweight with listed equities, prompting need for alternative investments. BPOPF is the single largest institutional investor on Botswana’s listed equities, and has been feeling most of the heat when the capital market underperforms. BPOPF is invested has a stake in big stock of the First National Bank of Botswana, Furnmart, Sechaba Breweries, Sefalana, Botswana Insurance Holding Limited and Engen, G4S to name a few. Most interestingly BPOPF also indirectly has a stake in Letshego and Wilderness through fund managers. Both of which have significant stakes in Kenya. Motswedi Securities argues that for Letshego, the huge obstacle is the interest cap more than political unrests. The new amendments capped banks lending interest rates to no more than four percent above the Central Bank Rate (CBR) which was at 10.5 percent. While analysts argues that the rates are not directed to Letshego, they believe that the lender is relatively prompted to underprice to lure borrowers.
Elsewhere, Wilderness operations in Kenya recorded a decline of 62 percent of profit following the inclusion of low season for the period. CEO Keith Vincent says with the volatile election environment in Kenya, the downturn in performance was expected and with the continued electoral uncertainty there could be further impact.
Ultimately this may reflect in BPOPF’s investments. “We are more worried about listed companies which operate in Kenya,” Juma says.
Exotix Capital reckons that what Kenya has witnessed is, to some degree, a repeat of the 2007/08 election which caused real Gross Domestic Product growth to plummet from nearly 7 percent to just 0.23 percent.
Things got off to a bumpy start in September 1, after claims of vote rigging and manipulation. Kenya’s Supreme Court voted 4-2 to officially annul the results of the 8th August General Election, when Kenya originally declared incumbent candidate Uhuru Kenyatta the winner. The Supreme Court then declared the election irregular ordering a re-run. Kenyatta emerged victorious again.