Africans-Stop-Being-Poor
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1563-4108

AFRICABIZ ONLINE SYNOPSIS RSS FEED
Trading And Investing In & Out Africa

ISSUE 58 - VOL 1
FEBRUARY 15 - MARCH 14, 2004

Dr. Bienvenu-Magloire Quenum
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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.

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
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Guarantee and Collateral


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)

Items
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 PROFIT36,925

MORE ON ROOTS AND TUBERS
1- Roots & Tubers Market in Qatar
2- Roots & Tubers Market in Europe
3- Food Security: In Sub-Saharan Africa
In Latin America and the Caribbean
4- Roots and Tubers: A Vegetable Cookbook
by Kyle D. Fulwiler
5-
Tuber Crops
by N. M. Nayar

6- Roots, Tubers, Plantains and Bananas in Animal Feeding
Proceedings of the Fao Expert Consultation Held in Ciat, Cali, Colombia 21-25 January 1991
7- Pest Management for Tropical Roots & Tubers Workshop on the Global Status of and Prospects
8- The Tropical Tuber Crops
Yam, Cassava, Sweet Potato, and Cocoyams by I. Chukuma Onwueme

Adobe Acrobat Reader Is Available here

More on a medium-scale cassava flour production unit


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