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Johannesburg Stock Exchange partner African Development Bank to spur cross-border investments in Africa

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The Johannesburg Stock Exchange (JSE), working with seven African exchanges, the African Development Bank and the African Securities Exchanges Association (ASEA) hosted the African Exchange Linkage Project (AELP) Engagement Forum, designed to bolster investments into the continent.

The joint initiative will facilitate cross-border trading and settlement of securities across participating exchanges in Africa. It also seeks to unlock Pan-African investment flows, promote the diversification needs of investors and address the lack of depth and liquidity in Africa’s financial markets.

In his opening remarks, Emmanuel Diarra, Manager of Capital Markets and Development at the African Development Bank stated: “The African Development Bank has a long history and partnership with the African Securities Exchanges Association. This partnership compliments the Bank’s interventions toward the development of deep and resilient capital markets in Africa.”

 “The Bank will continue to enhance its work with regulatory institutions, institutional investors, stock exchanges and other capital market stakeholders to strengthen regulatory frameworks, broaden market participation and product offerings, as well as improve the dissemination of capital markets data for transparent pricing mechanisms” Diarra said. 

The AELP, which started in 2016 with only four exchanges, has since expanded to seven participating exchanges. They are the JSE, the Egyptian Exchange, Stock Exchange of Mauritius, the Casablanca Stock Exchange, Nairobi Securities Exchange, the Nigerian Stock Exchange and Bourse Régionale des Valeurs Mobilières which serves Francophone West Africa. The long-term goal is for all 27 African stock exchanges to join the Project and increase Africa’s competitive advantage compared to other emerging markets.

The seven Stock Exchanges participating in the first phase of the AELP represent about 85% of Africa’s securities market capitalization.

The AELP has aligned its goals to include the creation of a central trading platform linked to exchange trading systems; the free flow of trading information between linked exchanges; broker access to the linked trading platform, and the creation of products based on securities from the allied exchanges.

Also Read: Interview With Amadou Diallo, CEO of DHL Global Forwarding Middle East & Africa

Anne Clayton, Head of Public Policy at the JSE said: “The AELP is a great addition to many collaborative initiatives around Africa. As the JSE, our focus is to enable sustainable and inclusive growth and development, not only in South Africa but on the continent as well. There is great interest within Africa for investment, and the AELP provides an opportunity for alignment of exchanges within the continent, therefore collaborations with key stakeholders will continue to be at the centre of securing a growth path for Africa.”

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A ‘second renaissance’ for African payments post COVID

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African payments is fast becoming a ‘gold-standard’ for payments worldwide, and COVID is set to accelerate both the value and funding available to this segment across the continent. Since M-Pesa launched in Kenya, the proportion of Africans (particularly East Africa) paying by mobile has exceeded every other emerging region. In Africa, perhaps more than anywhere else, ‘mobile first’ has given way to ‘mobile only.’ 

Another attraction is, perversely, COVID. Digital businesses across the continent are normalizing the use of payment technology and money transfer in the informal economy (i.e. the part of the economy that is neither taxed nor monitored by any form of government) out of sheer necessity. To encourage the shift, leaders such as Kenya’s largest teleco, Safaricom, have implemented tactics such as a fee waiver for M-Pesa (East Africa’s leading mobile-money product), to reduce the physical exchange of currency and drive increased adoption.

Across the continent there is a renewed drive to reduce reliance on cash. Meanwhile payment data value is only now being leveraged, which sets the stage for creating another ‘value peak’ for emerging African payments vendors in the near future.

This is a perfectly ‘natural’ response for economies with large informal sectors, still-low average  transaction values, and a large proportion of transactions for essential goods and services. The IMF, in its April 2020 World Economic Outlook, recommends countries with large informal sectors further develop their digital payments systems. These systems “may provide an opportunity to improve the delivery of targeted transfers to the informally employed.”

In the coming ‘renaissance,’ what are African payment players doing to differentiate and position themselves for the next stage?

Insights from Leading African Payments Players

Hybrid and Pure-Play Payment Players

African payments companies take two broad forms.  The first is ‘pure play,’ generally based on Payment Service Provider (PSP) functionality. These vendors run a defined set of services and leverage partnerships to achieve scale. The second are hybrid vendors, who are more vertically integrated, usually offering a broader range of services off their core technology stacks:

  • Examples of pure-play: Direct Pay Online, Interswitch, Paystack, Flutterwave.
  • Examples of hybrid: Cellulant, Pesapal, Paga, Jambopay

The definition is important to distinguish as it impacts strategic direction of any company, which would also directly affect the set of longer term buyers or investors for each of the companies.

Winning SMEs & Agent Distribution/Network

Winning in African payments generally means winning the SME sector. There are very few true enterprise corporates, and a significant number of sole-proprietor businesses across all sectors.  The fragmentation of the potential customer base is so much greater than in other fast-growing regions that many payments companies need to adopt a broader ‘ground game’ to target, connect, engage, and maintain a broad SME customer base, often across quite different markets.

To effectively target SMEs, direct selling, agent distribution or agent networks are crucial for payment players, particularly in West Africa, due to the lack of infrastructure. Over the last 10 years, M-Pesa’s rise was closely associated with Safaricom’s dominance in Kenya (70% mobile market share), its broad and tied agent network across the country, and the focus applied to rolling out this service broadly. 

In West Africa, the continent’s largest prize, the market is deeply fragmented, ATMs are virtually non existent or not functional (Nigeria has < 20,000 working ATM’s), and for many of Africa’s 1 billion+ population agents of various forms are the main or only means of transacting effectively. Companies such as Paga and Kudi already demonstrate the requirement for, and value of, developing and maintaining a broad enough agent network on which to drive scale and reach.

Broader number of use cases

Creating and maintaining an agent distribution network is expensive.  The ‘quid pro quo’ are a broad range of use cases enabled as a result, and the first-mover margins available to payments companies which can scale this way.  Across the continent, agents are used for cash in/out, remittances, bill pay, payment for utilities and power, and the purchase of basic goods and services.  While many of these remain cash transactions that are then converted to digital, increasingly payments companies are linking services to make transactions end-to-end digital.

Another benefit for creating broad based agent/direct distribution is that payments companies often can achieve higher margins on transactions than almost anywhere else.  Its not atypical for take rates to be 2x+ what they would be in more competitive markets like India, and even at those levels they are still far below other alternatives. For example, the avg cost of transferring $200 via a bank transaction can exceed 10%, and in remittances many emerging digital players can charge 2x ‘normal’ take rates and still reduce the cost to consumers significantly vs traditional services such as Western Union.

Digital works for payments companies, and for consumers, and the higher take rates are simply a function of the challenges and costs of reaching such a distributed, informal customer base.

Data Value

In developed markets, data value is nearly always under-leveraged within payments providers.  Many have built legacy systems that cannot easily adapt to actioning data insights to deliver value to customers, and increase margins significantly. An African ecosystem only now being built has the incalculable benefit of ‘starting with a clean sheet of paper’ in terms of realizing the value of data earlier and more completely.

As a result, intelligent leverage of data and insights from an early stage could vault the strategic value of payment players to an entirely different level than current valutions. And since in the data monetisation game, ‘better data always beats better algorithms’, it is our view that many African payments companies are sitting on a large and growing ‘gold mine’ of proprietary insights on customer and SME behavior which can be leveraged in many ways to drive margins. 

In time, many payments vendors will have greater insight into consumer spending habits to deliver targeted offers via mobile in a way which is simply impossible to envision in developed markets, where that ecosystem is already dominated by much larger incumbents. For example, both Square and Stripe have introduced and expanded significantly in the financing area.

Square extended almost $700m SMEs loans per quarter in Q4 2019, highlighting the massive market potential. The point is that through the value of data and insights, many African payments companies can grow value well beyond pure payments value, because what they are ‘seeing’ are truly unique insights.

Capital Efficiency & Unit Economics

Because of structural inefficiency in Africa (‘reinventing the wheel’ is by definition required as there is no ‘wheel’ of infrastructure that functions successfully today) there is a degree of inherent capital inefficiency presumed to be required to get to minimum size to scale.  Second, targeting SMEs and consumers is inherently more expensive than enterprise sales, with higher churn, greater cost to acquire and service, and a still-limited ceiling on realistic customer lifetime value.

Also Read: Viero: A SaaS Platform Enabling Entrepreneurs Create Food Delivery App Without Code In 60 Seconds

We see that emerging African payments leaders go through different stages of capital inefficiency.  For most, there is a multi-year period of greater inefficiency, as basic vertical integration is built. However, once companies pass a ‘tipping point’ of scale, rising take rates, and the leverage available from layering on additional services and use cases quickly turns that inefficiency into a highly capital efficient set of assetsIt is particularly important to distill, frame, and articulate these metrics as investors / buyers value a ‘perpetual motion machine’ that targets, acquires, services and ‘up-sells’ customers.

Having a well-crafted set of unit economics also underscores the value of the existing and prospective customer base, and validates the ‘ground game’ execution strategy of local distribution across Africa. Buyers of equity can also rationalise paying more upfront because there is no significant $ required to subsequently drive customers to profitability.  This transition from inefficiency to hyper-efficiency is a key element of story telling for African payments companies to sell equity at rising prices.

Conclusion

Africa presents maybe the biggest payment opportunity in the world today. For companies with some degree of scale, they have already done much of the hard work to generate long term embedded value, and only now are many starting to see the benefits of high marginal unit economics.  With more capital, and compelling equity stories to tap the next generation of larger investors, we see several potential ‘unicorns’ emerging in the space in the next 5 years. M-Pesa and Interswitch are only the tip of the (value) iceberg.

Credit: Magister Adivors

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Paxful in strategic partnership with global cryptocurrency exchange OKEx

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Paxful Co-Founders Artur Schaback and Ray Youssef

The partnership offers more bitcoin payment options for users in developing regions as P2P trade surges in South Africa and Nigeria

Paxful, a leading peer-to-peer bitcoin marketplace that aims to bring financial inclusion and access to the underbanked and unbanked in developing countries, has joined forces with OKEx, one of the world’s largest and most diverse cryptocurrency spot and derivatives exchanges.

The strategic partnership will offer several payment methods for new and existing OKEx users to buy bitcoin with over 160 fiat currencies through Paxful’s Kiosk. Users will have access to in-demand payment methods such as bank transfer, gift cards, online wallets, and many more. Overall, the partnership will integrate over 100 million users allowing them the freedom to utilize Paxful’s existing infrastructure and payment options while enjoying the benefits of OKEx’s advanced technology and diversified product suite.

“To help grow the crypto community, industry businesses are increasingly collaborating to uplift each other in providing more options for their users. We admire OKEx’s work and know that our values and strategy are aligned. With this partnership, not only do we open new opportunities for customers on both platforms and increase functionality, but we jointly contribute towards strengthening the overall ecosystem and help make crypto more accessible as a real-world payment method by expanding to different geographic markets,” commented Ray Youssef, CEO, and co-founder of Paxful.

As a result of the new integration, Paxful and OKEx provide easier access to the global cryptocurrency market specifically in the regions of South Africa, and Nigeria, but also in Kenya, Vietnam, Russia, Indonesia, Thailand, UK, India, Argentina, Canada, Chile, Korea, Germany, France, Japan, Poland, Turkey, Ukraine, and Venezuela.

“We’re delighted to partner with Paxful and share very similar goals about onboarding more people to cryptocurrency. Through this partnership, we can reach more users in developing regions using Paxful’s existing infrastructure and payment options and give them exposure to the benefits of OKEx’s advanced technology and diversified product suite. This is a great step forward for us and the crypto space in general,” said Jay Hao, CEO of OKEx.

Removing borders and limitations

With an unbanked population of more than 60%, Africa is a major focus for both Paxful and OKEx. In addition, the continent is also spearheading cryptocurrency adoption around the globe with key drivers being high inflation rates, weak national currencies, inadequate financial infrastructures, and growing economic uncertainty stemming from the COVID-19 pandemic. All these conditions are combined with a growing population that is largely young and digital-oriented.

As bitcoin offers more convenient, and fast alternatives for financial transactions, use, and ownership of the cryptocurrency are significantly increasing amongst African consumers.

“Aside from being a decentralized, efficient, and a borderless payment method, one of the most striking features of bitcoin is that it’s considered to be an excellent means of preserving wealth in many countries, especially in uncertain times. It’s often compared to precious metals, specifically gold, in terms of storing value,” Youssef added.

A recent report identifies that bitcoin is of keen interest to many in Africa. Kenya topped the list with 94.7% of all cryptocurrency-related searches attributed to bitcoin, while Nigeria and South Africa had high percentages of 89.4% and 89%, respectively.

Also Read: Viero: A SaaS Platform Enabling Entrepreneurs Create Food Delivery App Without Code In 60 Seconds

Nigeria and South Africa increasing trade volumes

Nigeria and South Africa are emerging as key hubs of the crypto economy on the continent. Nigeria’s use of bitcoin has surged exponentially with recent statistics showing that between May and June this year, the country recorded more than $35 million (R604 136 750) in peer-to-peer bitcoin trades, while rival South Africa saw a transactional value of $7 million (R120 827 350).

The surge in trade volume is attributed to various elements, including uncertainty in the ‘traditional’ economy, increasing education about the crypto-economy, and the emergence of various virtual currency marketplaces in Africa yielding more income-generating opportunities through bitcoin.

For South Africa, Africa’s most advanced economy: overall, the year-on-year increase in trading volume for bitcoin currently stands at 994%. The trading volume for bitcoin was approximately $14 483.48 (R250 000) for the week of June 22, 2019, compared to the trading volume of almost $434 504.27 (R7.5 million) recorded for the same period this year, equating to a year-on-year increase of more than 2800% trading volume for the week.

For more information or to access the Paxful Kiosk on OKEx, users can visit the OKEx website

Source: Paxful

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Hospitality & Tourism

African Hotel pipeline resilient despite unprecedented challenges

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HTI Consulting CEO Wayne Troughtong

Acknowledged as one of the African continent’s leading hospitality investment experts, Wayne Troughton of HTI Consulting shared unique insights in the firm’s first ‘Virtual Hotel Club’ held in early July, a dynamic and informal Pan-African digital platform that saw 295 registrations across 15 countries.

Data was gathered from a survey that covered 14 regional and international operators active in the African hotel space (41 hotel brands and 219 projects currently under development). These included the likes of Hilton Worldwide, Marriot International, Radisson Hotel Group and Accor Hotels, amongst others.

Development sentiment largely positive

According to Troughton, whilst the African hospitality industry is facing unprecedented challenges and obstacles in light of the global pandemic, he noted that development sentiment remains optimistic amongst the majority(57%) of hotel owners as reported by operators on the continent.

“Despite closures and significant performance declines, long-term investment fundamentals for the Sub-Saharan region remain positive despite significant short to mid-term challenges currently impacting the sector,” he said.

“Of a total 219 hotel projects currently In Sub Saharan African pipeline a large proportion (68%) of these projects are proceeding as planned, with only 18% currently on hold for a limited period,and 13% on hold indefinitely.” he stated.

“Concerns amongst hotel owners are, of course, still apparent and, for several, a ‘wait and see’ approach relates to factors such as uncertainty around travel ban lifts in various markets, how to restore guest confidence, and the impact of Covid-19 on hotel valuations. However, the optimism displayed by many owners generally relates to understanding of the sector and adoption of a longer-term outlook,”he explained.

Outlook geared to opening doors

Despite the current environment, construction related businesses in several countries resumed activity as early as possible after lockdowns eased,commented Troughton.

“Encouragingly, this has resulted in 21 projects (representing 2946 hotel rooms in 15 African countries) still expected to open in 2020, with 52% of projects expecting short-term delays of 3 -6 months,” he said. “Longer term delays (9-12 mths or 12 mth+) are typically being seen on those projects that were in earlier (or planning) phases of development,” he stated.

“These delays can generally be attributed to uncertainty around how long travel lockdowns will continue. However, around 30% of projects under construction don’t expect COVID-19 to cause any delays to their ongoing development,” he said.

Hotel owners are clearly taking a long-term investment outlook and are expecting COVID-19 to be largely neutralised prior to their hotels opening. This relates particularly to those in the early stages of planning.

Angola – Luanda (Image by: Kirsten Hill)

Development pipeline remains healthy

Of the overall Sub Saharan Africa Development pipeline there are 219 branded hotels (representing 33 698 hotel rooms) across 38 markets.

“East Africa remains the region with the strongest hotel pipeline, followed by West and then Southern Africa. East Africa has 88 branded hotels currently in the pipeline, West Africa sees 84 branded hotels in its pipeline with Southern Africa sitting on 47 hotels,” stated Troughton.

Of the 21 hotels total projects expected to open doors in 2020, East Africa (40% of total supply), will see 1,134 rooms come on board, with the top cities being Antananarivo (22%), Dar es Salaam (20%) and Addis Ababa (20%).

West Africa (47% of total supply) sees 719 rooms planned to enter in 2020 across major cities including Accra (28%), Bamako (28%) and Cape Verde (24%).

Southern Africa (23% of total development pipeline) sees 963 rooms planned to enter in 2020, with South Africa – Johannesburg (71%) and Durban (21%) – seeing the predominance of activity, followed by Zambia.

Over the past three months HTI Consulting has engaged in numerous discussions with hotel owners who, Troughton states, have navigated different cycles during COVID-19 from survival (as hotels closed) to cost containment, defining hygiene safety protocols, staffing plans and ultimately, reopening strategies.

As several economies slowly start to open, so too have many hospitality businesses who are remaining positive and committed to the industry and demonstrating the determination necessary to over coming current adversities.         

Doing the deals

“Despite pressured economic environments and tough decisions, many hotel operators have, been able to successfully conclude and sign deals with owners during the lockdown period. A total of 15 new hotel deals were concluded by 7 operators in 8 countries, from the period March – June,” stated Troughton of HTI Consulting.

Feedback indicates these deals were close to fruition prior to the COVID crisis, with owners showing strong sentiment to continue with the projects. Further feedback from operators indicates these deals were also typically signed in primary African cities such as Abidjan, Accra, Lagos and Durban that boasted strong and diverse hospitality markets prior to the crisis. These locations are also likely to recover at a quicker rate than secondary nodes, believes Troughton. 

“Select operators who indicated that no deals were signed during this period pointed out that opportunities remain rife and that new enquiries are continuing to come through,” he said,

“It is anticipated that a lag will occur, with new owners typically being more cautious and awaiting to see how recovery unfolds,” he said. “Concerns have also been raised by owners around access to finance going forward as well as the willingness of the banks and financial institutions to fund hospitality projects at this point in time,” he continued.

“Whilst we haven’t seen any distressed sales at this point, with banks largely keeping hotels afloat, this may well change depending on the time frames we’re looking at to a return to ‘new normal’ as well as the potential resurgence of the virus in certain areas. The next 2 – 3 months will prove to be crucial, as many hospitality businesses do not have plans in place to ensure sustainability post this period.”

Opportunity sees operators doing it differently

“In several instances, feedback from large operators indicates a distinct shift towards conversions over greenfield development going forward, with a more flexible approach to the renovations and PIP costs.”

“Some operators are viewing this time as an opportunity to finalise forward planning during lockdown,” said Troughton “In several instances they have been able to take advantage of government support during this period in order to ensure they are able to streamline and accelerate internal approval processes, create more flexibility around brand stance, enhance their ability to pitch their products correctly to the local market and offer greater value and affordable experiences along with analysing fee structures over a select period.”

Also Read: Africa Rising: Why Project Managers Are Critical to Africa’s Future

“Whilst lockdowns have placed many hospitality businesses and investors in a stalemate position over the past few months, we’ve noticed a positive change over the past few weeks as more as more hospitality businesses resume activities and we see a significant uptick in the commissioning of hospitality advisory assignments,” noted Troughton.

Future Outlook

“It is reasonable to assume that a more cautious approach will be taken by hotel owners and investors in evaluating their investment strategy,” he said.

“Independent hotel owners mayindeed find it more difficult than the larger international brands to weather this current scenario. This too because branded hotels, and their new highly publicised hygiene protocols, may make for a more secure market and therefore allow them to see a more effective bounce-back and recovery.”

Hilton Addis Ababa (Image by: Kirsten Hill)

“Additionally those markets that are strongest in the area of domestic business travel (and then domestic leisure) should be amongst the first to recover.Indeed, focusing on the local market is what helped Asia recover from the SARS epidemic in the early 2000s.”

“For those owners and operators taking the the time to understand the changing markets we are facing, and willing to adapt to drive new demand, the medium to long-term outlook remains good,” stressed Troughton. “At HTI Consulting we continue to believe in the tourism potential in the region and strongly encourage further support from governments and brand managers to allow owners to minimise further losses and support recovery,”

“Despite current challenges and the overall uncertainty that trouble us all, there will be better times ahead and the travel market will eventually emerge stronger and more resilient. As governments slowly roll back travel restrictions and prepare to reopen society, the future winners are those that build a future based on a strong risk mitigation approach and display flexibility and innovation,” he concluded.

Released by: Kirsten Hill for HTI Consulting

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