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Welcome
to AFRICABIZ, 
Welcome
to Africabiz Online Synopsis
RSS Feed edition. Previous issue available at this
link
Dear faithful reader,
FINANCING
IS AVAILABLE TO CARRY OUT PROFIT-ORIENTED PROJECTS IN
AFRICA
Since
the publication online of Strategy
For An African Country five years ago, we received many feedback. Most of
the times people deemed it impossible for African countries to set up developing
schemes capable to generating double-digit
economic growth rates on a sustained basis for decades running. The main argument
raised is the lack of financing.
To give a complete answer to the matter,
we are finalizing a book - about how Africa could quickly bridge the developing
gap - to be published this year 2004 and that covers several aspects of Africa's
developing. The financing problem is extensively discussed in said book and several
avenues to finding solutions explored.
Considering the number of requests
for information and solicitation to invest regularly received about "Business
Opportunities In Africa" (monthly published in the opportunity bulletin available
online at http://africabiz.org/),
the author of this article asserts there is plenty of financing available around
the world - in addition to funds from the institutional bodies such as the World
Bank, the IMF - to finance projects in SSA countries as far as they are profit-oriented.
Of course, the problem of
collateral to securing needed funding is the main hindrance. Lenders are not
ready to take the risk to financing a project without the certainty to be paid
back. For that purpose, Lenders used to request Collateral and Security from Borrowers
- that are irrevocable third-party guarantee against any loss. Unfortunately guarantee
and collateral offered by SSA countries are simply not acceptable to lenders because
- due to the "weakness" of African countries' economies and political instability
or uncertainties prevailing in said countries - they are not credit worthy.
Indeed, since the dawn of the independences' era, providing acceptable "guarantee"
and collateral to Lenders has been a major roadblock for SSA countries' governments
and entrepreneurs; and, often, well-planned profit-oriented projects end-up in
limbo. A good example is the railways track that should link Bangui, the capital-city
of the Central African Republic,
to the ports of Pointe-Noire (Congo
Brazzaville) or Douala (Cameroon).
That project, designed since the beginning of the 20th century, which is vital
for the economic development of the landlocked country, had never been carried
out - for lack of financing. There are numerous examples of the kind all around
the African continent.
AFRICAN COUNTRIES SHOULD
MAKE USE OF FINANCIAL ENGINEERING TECHNIQUES
In fact, the
problem of Guarantee or Collateral to securing loans on the international money
marketplace is no more an insuperable hindrance. African decision makers are just
not well acquainted with existing "financial engineering" techniques
to solving the problem - exactly as they have deemed impossible targeting double-digit
economic growth rates over several running years.
Indeed, there are
"financial engineering" techniques to arrange for "Financial Guarantee"
Collateral or Security to be delivered (on behalf of Borrowers) by reputable triple
A rated international insurance companies. Firstly on the condition projects involved
are profit-oriented (and have foreign equity partners); and, secondly, seasoned
experts - specialized in putting together complex financing schemes - are hired
to assist putting in order the loan's paperwork.
According to experts
from Fox-Pitt, Kelton - Investment Bank - the insurance companies now have up
to US$ 50 billion in excess capital to guarantee projects. Only a major bear market,
combined with several years of poor result, could suppress that excess of capital.
Therefore, the problem existing now is much capital chasing too little business.
(For more on the matter, you may search The
Financial Times online' archives for an article by Andrew Bolger, dated Monday
September 4, 2000.)
There are other kinds of "financial engineering"
techniques similar to "Financial Guarantee" to arrange loan packages in the range
of several million US$.
Till now, SSA countries had not systematically
used these financial engineering techniques to raising money to carry out developing
projects. For lack of information and knowledge, they have either made use of
"classic" borrowing from bilateral aid donors or concentrated on the assistance
provided by international financing organizations - the IMF and the World Bank.
To have access and benefit from these innovative financing techniques,
African countries need to create political, social and economic environment suitable
to attracting Foreign Direct Investment. Namely:
| 1-
Establish non-ambiguous Investment Law.
2- Establish a legal system that
is not spoliatory to local and foreign investors.
3-
Avoid changeable or fluctuating rules to setting commercial and business disputes
and erratic strategic decisions like the seizure of lands, from white farmers,
staged by Robert Mugabe in Zimbabwe.
Such moves scare away investors from SSA countries.
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The "soft" approach adopted by South Africa's decision makers to promoting "Black
Empowerment" (that is the sharing of the economic power by South Africa's Blacks)
is more reassuring to the international community of investors than the brutal
method of invading and seizing farms belonging to Zimbabwe's White farmers.
Matthew Martin and a team of experts in financing matters published in 1999
(Publisher: Fondad, The Hague, The Netherlands), a book titled: "Private
Capital Flows to Africa. Perception and Reality" to reach the following
conclusion:
"New data from African countries show that private
inflows, particularly foreign direct and portfolio investments, are large relative
to their economies, and therefore of critical concern on formulating economic
policy." (See-Matthew Martin et all's book back cover-page.)
In other words, there is plenty of financing available but only few attractive
profit-making projects. A conclusion in line with Andrew Bolger's article previously
mentioned.
However, since September 11, 2001 - the
date of the airliners' bombings on New York City's Twin Towers and on the
Pentagon at Washington, D.C. - the financing marketplace is a bit fidgety. Foreign
Direct Investment shrank significantly. The last United Nations Conference on
Trade and Development's Year 2002 Annual Report revealed that Foreign Direct Investment
plunged by 21% in 2002, dropping substantially for the second year in a row. The
main trends per regions reading as follows:
- Africa: - 41%.
- Latin America: -33%
- Asia: - 11%
- Eastern
Europe: +15% | Nevertheless,
there is hope for betterment in 2004 as Unctad's report continues stating that:
"Investment flows were likely to rebound in 2004", but it warned that would
depend on the economic recovery and investor confidence.
EVERYTHING
BOILS DOWN TO INVESTORS CONFIDENCE
Yes, everything boils down
to investors' confidence. When investors and financiers have confidence in a country's
Investment Law and projects involved, they easily grant financing.
On
August 8, 2003, Ghana's Cocoa Board (GCB) secured US$ 650 million loan package
to buy cocoa for the 2003-2004 cocoa's harvest. The credit, the highest in the
history of the Board, is repayable within a year. A syndication of four leading
banks arranged it - Barclays Bank PLC, Royal Bank of Scotland PLC, Standard Chartered
Bank and Natexis - Banques Populaires. The loan is the 11th successive such credit
provided by international financial banks. A similar arrangement raised US$ 300
million in 2001 and U$ 420 million in 2002.
Based on everything written
in above paragraphs, one can see that finding financing to carry out developing
schemes that could generate double-digit growth rate is not a problem. Funds are
available if following conditions are met:
| 1.
The transaction is transparent. No hidden ropes or favoritism to granting contracts.
2. Projects included in the developing schemes profit-oriented.
3. The (good) perception the international community of investors has about
the country of implementation. |
Other kinds of engineering techniques to financing developing projects in sub-Saharan
African countries will be exposed in the book - about how Africa could quickly
bridge the developing gap - to be published soon.
Thus, we can see
there is no insuperable hindrance - for African countries - on the road to sustaining
double-digit economic growth rates. Financing could be arranged - as explained
in above paragraphs - to carry out suitable developing schemes to reach the double-digit
target.
From now on, only will remain the poorest dwellers of the world
the populations of African countries, which rulers would not be bold enough to
plan for the "unthinkable" that
is to target double-digit economic growth rates - over lengthy period of 10,
20 and 30 years running.
"CONTRIBUTOR'S
GUIDELINES" are
available here. We invite you
to contribute to AFRICABIZ ONLINE MONTHLY ISSUE - with articles related to
"How Africa Could Bridge The Developing Gap".
Many
thanks for subscribing to Africabiz. See you on March 15, 2004.
Dr. B.M. Quenum
Click here to get email address
|
| Business
Opportunities
TROPICAL ROOTS AND
TUBERS PART V: BRIEFS ON A MEDIUM-SCALE CASSAVA FLOUR'S
PRODUCTION UNIT
Rare are industrial
concerns established in SSA countries that transform Cassava into value added
products - as reported in the
diagram available here.
On
the online monthly page of AFRICABIZ are listed four processed cassava's
products, which highlight the fact that cassava could be an important components
- an Economic Catalyst - to the Integrated Economic Development Scheme
 -
OPERATING DATA
Briefs
on the preparation of fresh cassava prior to the production of chips and pellets
are reported in previous issue.
And operating conditions to producing
cassava ships on a small-scale basis are posted here. Let us consider a small-scale
cassava flour production unit operating under following conditions:
| -
8 Operators for 4 hammer mills / per 8 hours shift - 2 shifts.
- 4
Hammer mills - 25 hp each - that processes each 300 kg of dried chips per
hour. (-2% loss) to producing 1,176 kg per hour of cassava flour of 10% Moisture
Content (MC)
- 8 handlers per shift - to feeding the mills and handling
cassava flour bags.
- Daily production of cassava flour: 1,176 kg
x 8 x 2 = 18,.816 kg = or 18.816 metric tons.
- Monthly production
(26 days) = 18.816 x 26 = 489.216 metric tons and yearly production
(over 10 months): = 4892.160 metric tons.
- Raw material (dried
cassava ships purchasing price):US$ 40 per metric ton
- Cassava
flour selling price: (ex-works) = 58.65 US$ per metric tons. |
Based
on above conditions the following operating data are obtained: (For
more on the Investment's items click here)
| | Amount
US) | |
INVESTMENT
| |
Total
investment | 25,000 |
| OPERATING
COSTS | |
Operating
Expenses: Raw material
purchasing (dried cassava chips), 50 kg and 25 kg woven plastic bags,- production
costs - insurance - utilities - staff and hands / management salaries - amortization
- interests on loan. Etc.
| 250,000 |
| PRODUCTION
COST PER METRIC TON OF FLOUR |
| 4892.160
metric tons of cassava flour from 4990 metric tons of sun dried cassava's chips
= | 51 |
| GENERATED
REVENUES* | | Cassava
flour: 4892.160 x 58.65 = | 286,925 |
|
GROSS PROFIT |
| GROSS
PROFIT | 36,925 |
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