Algeria takes big leap backwards

Algeria has created an investment fund to nationalize subsidiaries of foreign groups who would decide to leave the country. Fifteen years after having liberalized its economy, Algeria is taking a step backwards. Algeria has stiffened conditions for foreign investment and for transfer of capitals, and appears ready to nationalize certain foreign companies. The Egyptian group Orascom, whose Algerian subsidiary Djezzy, has been targeted. Algiers notified Orascom of a tax adjustment of nearly USD600 million for the years 2005, 2006 and 2007. The Egyptian group is accused of having transferred hundreds of millions of dollars in dividends.

Besides Orascom, other foreign groups, particularly French ones, could be affected by partial or total nationalization moves, such as French banks Société Générale and BNP Paribas as well as Renault and Peugeot.

Shortage of currency in Malawi

A shortage of foreign currency in Malawi is beginning to undermine the fixedexchange rate policy that has been in place for more than two years.The kwacha has weakened slightly against the dollar. On the black market, the currency is trading at 190.

The shortage of foreign currency means Telekom Networks Malawi, the country’s second largest mobile phone operator, has halted expansion of its network because it was unable to import equipment.

Oil in Kenya?

Now they are even exploring for oil in Kenya. Africa Oil Corp's Bogal-1 oil exploration well operated by China owned CNOOC spudded on October 28, 2009. The well is expected to reach total depth of 5,500 meters within approximately 6 months.

Block 9 covers an area of 27,778 square kilometers in the centre of the Anza Basin. The Anza Basin is a NW-SE trending rift basin along trend with the prolific Mesozoic play of southern Sudan. The basin is over 580 kilometers long and 150 kilometers wide with a potential prospective area in excess of 50,000 square kilometers. Experts believe they may have proven the existence of natural gas and possibly oil.

Angola to open up new oil exporation

Angola plans to start exploring for onshore oil in the enclave of Cabinda sometime next month, according to state-owned oil company Sonangol. Sonangol will first carry out seismic studies in the regions of Necuto and Buco Zau to determine the existence of oil. Sonangol recently partnered with Esso to study the possibility of exploring for oil in the basin of River Kwanza, where studies had shown the existence of about 6mn barrels of oil. Earlier in the year, Sonangol said it was considering exploration in the Cassanje and Okavango river basins. Prior to the Angolan civil war, which began in 1975, Angola pumped around 80,000 bpd from the Kwanza river basin, but the war ultimately forced a halt in production.

Angola to

Angola plans to start exploring for onshore oil in the enclave of Cabinda sometime next month, according to state-owned oil company Sonangol. Sonangol will first carry out seismic studies in the regions of Necuto and Buco Zau to determine the existence of oil. Sonangol recently partnered with Esso to study the possibility of exploring for oil in the basin of River Kwanza, where studies had shown the existence of about 6mn barrels of oil. Earlier in the year, Sonangol said it was considering exploration in the Cassanje and Okavango river basins. Prior to the Angolan civil war, which began in 1975, Angola pumped around 80,000 bpd from the Kwanza river basin, but the war ultimately forced a halt in production.

Frontier markets update

The MSCI World Index of advanced -nation equities has surged 65% from this year's low on March 9, while the MSCI Emerging Markets Index has leaped 96%. The Reuters/Jefferies CRB Index of 19 commodities has added 33%.

Emerging markets have outperformed and have seen massive amounts of inflow. But when your main stream markets like Brazil (Bovespa +68%), China (Shangahai +64%), Russia (RTS +83%), South Africa ( Top 40 +24%), start to mature and look top heavy, investors will start looking towards 2nd tier and 3rd tier frontier markets that have been on the back burner. These frontier markets such as Ghana ( GSE -46%), Nigeria (NSE All Share -30%), Kenya (NSE -14%), Morocco (Madex -3.3%), should attract some fund interest and more inflow.

Ukraine - over the worst

Ukraine's economy is now recovering from a very low bottom, and real economic growth is likely by November. Ukraine's international reserves are at around $29 billion, one quarter of GDP. Ukraine runs no risk of default for the next year, even without IMF money. Its budget deficit is below the limit of 6% of GDP for this year. The bank country's restructuring is proceeding.

The only concern is that without a November IMF disbursement, financing the deficit will present a challenge.

Ukraine is approaching presidential elections. The two dominant presidential candidates are Yanukovych and Tymoshenko, while the voters have given up on the erratic Yushchenko, who regularly vetoes almost all government decisions even when they correspond to his own policies. The conventional wisdom is that Yanukovych will win the first round with a large but not absolute majority, while Tymoshenko is best placed to win the second round.

Ivory Coast acts on defaulted debt

The Ivory Coast has reached a deal to restructure Euro 2.2bn of defaulted sovereign debt with the London Club of commercial creditors. Holders of the six Brady bonds will be able to swap the debt for a new USD denominated bond maturing 31 December 2032. The exchange is scheduled to take place no later than 31 March 2010 and follows an agreement with the Paris Club of sovereign creditors earlier this year.

The Ivory Coast is going to offer a discount of 20 percent on the exchangeable debt. There will be 34 semi-annual payments on the new bond, starting from 30 June 2016. Interest will begin to accrue from 31 December 2009. The outstanding debt consists of three Euro-denominated and three dollar-denominated bonds maturing in 2018 and 2028.

MSCI Frontier Emerging Markets Index

The annual country review for the MSCI Frontier Emerging Markets and MSCI Frontier Emerging Markets APEX Indices is upon us. There will be no changes in the country composition of the MSCI Frontier Emerging Markets Index.

Following improved trading liquidity, Mauritius will be added to the MSCI Frontier Emerging Markets APEX Index, while Nigeria will be deleted from the index due to the introduction of restrictions and low liquidity in Nigeria's Foreign Exchange Market.
The MSCI Frontier Emerging Markets APEX Index is a tradable proxy index reflecting investment opportunities within the frontier markets and lower size spectrum of the emerging markets. It is designed to serve as a liquid proxy to the broader MSCI Frontier Emerging Markets Index.

Oando grows top line 59% y/y.

Oando reported better-than-expected results. Sales grew 12.9%59% y/y. Oando’s Q2 PBT ws N2.8bn as a result of a sequential increase in the PBT margin of 11 basis points. A higher-than-expected tax rate of 30% meant that net earnings actually only grew by 8.7%.

The upstream businesses as well as Gas & Power helped offset slight weakness in the marketing business.

Five bank CEO's fired in Nigeria

In a dramatic move, the Central Bank of Nigeria has fired the CEOs of 5 banks for allowing margin lending exposure to get out of hand. It has indicated that these banks will be recapitalised with a total of NGN 400bn in tier 2 capital. The affected banks are Intercontinental Bank, Union Bank of Nigeria, Oceanic International Bank, Finbank (First Inland Bank) and Afribank. .

Nigeria to support indigenous oil industry

Proposals in draft nigerian legislation designed to encourage “indigenous” producers looks set to become law. The change will effect the re-licensing some of the more than 300 fields that have been discovered but not yet developed.

It is expected that, the Nigerian company, Oando will be the biggest beneficiary.

Total output in Nigeria’s oil sector, sub-Saharan Africa’s largest, is at about 1.7mb/d at most, cut to just over half of capacity by unrest and funding issues.

Sugar continues to hit new highs

The sugar price is now close to its ‘81 Peak. Damaged crops from India to Brazil mean the world won’t have enough sugar for a second straight year. Global demand will exceed output by as much as 5 million metric tons.

Mauritius to introduce futures trading

A giant leap for a frontier market. The Stock Exchange of Mauritius will soon start trading in futures. The first futures contracts will be on the SEM-7 index and on some of the most liquid stocks traded on the official market. The SEM-7 is made up of the largest companies by market capitalization, including Mauritius Commercial Bank, Naiade Resorts, New Mauritius Hotels, and State Bank of Mauritius.

Nigeria sees decline in telephone lines!

This is not something that we have seen before. Nigerian active lines actually declined in April. If you consider this as a proxy for household consumption, that is not good news. Admittedly the fall was just 75,000. That said, we are used to hearing the number going up. In the previous months there had been increasesaroungg the one million level.

The Case for Frontier Market Fixed Income

Working Paper Series
Date posted: August 01, 2009 ; Last revised: August 01, 2009

Abstract:
Frontier market debt is becoming increasingly attractive as an asset class, supported by the economic development of the less developed emerging markets. Analysis of the constituents of this off-benchmark asset class shows that allocation to it can potentially result in higher yield and better diversification. The authors argue that frontier fixed income should be included in strategic asset allocation using a technique known as reverse asset allocation.

Keywords: Emerging Market, Debt, fixed income, frontier markets, asset allocation

JEL Classifications: B00
Citation

Broby, Daniel P. and, Bates, John., White Paper: The Case for Frontier Market Fixed Income(July 31, 2009). Available at SSRN: http://ssrn.com/abstract=1441894

Investment in Serbia

There are only seven companies in Serbia that rank in the top 500 in Eastern Europe. Investors look for more choice. Maybe with the future IPO's of JATA, Telekom and Galenika that will change. Of the 800 joint stock companies, which are listed on the BSE, only 34 have sufficient trading volume. For example, if I would now like to buy Messer Technogas, on the basis of the current valuation on the BSE, one would need a year to build a small position of around 100,000 dollars. This will change when Serbia develops active domestic investors, who buy and sell regularly. In the meantime, why would anyone buy such an illiquid company although it has value?

On the positive side, six-month bonds issued by the Ministry of Finance with a yield of 13.99 percent is not bad.

To see the rest of Daniel Broby's (CIO of Silk Invest) interview with Blic, Serbia's leading newspaper, see the following link.

http://www.blic.rs/ekonomija.php?id=101139

Silk Invest sees renewed bond issuance in Nigeria

The Nigerian banks are starting to pile into their local bond markets. Guaranty Trust Bank is seeking approval for a N200bn ($1.3bn) debt issue. This follows similar plans at First Bank (N500bn) and marks a much anticipated return for the banks who have dormant in issuance for three years. Likewise, Access Bank has also drafted plans to issue debt.

We would caution that a major credit risk is the potential for over-issuance of debt. In the interim, however, we look forward to observing the development of a much needed yield curve in Nigeria which will enable the banks to see longer term business objectives met as well as the potential for investors to play relative value investment strategies.

Global recession not impacting frontier markets

This is an interesting visual from the Economist..

Zimbabwe sees strong trading volumes

Accordins to Renaissance Capital, Zimbabwe is now the third biggest equities market in sub-Saharan Africa, based on turnover. Volume has jumped from USD 50,000 to USD 1.3 million per day. The market value of shares listed has jumped from a bargain basement USD 1bn to USD 4bn in seven months.

Air Arabia expects stong Moroccan growth

Air Arabia wants its Air Arabia (Maroc) to become as big as it is within five years. The Dubai-listed carrier, the Gulf Arab region's largest low-cost airline, plans to expand by three to four aircraft per year. Moroccan shareholders own 51% of Air Arabia (Maroc), including family-owned holding company Holmarcom. The remaining 49% is held by listed Air Arabia and a Bahraini bank. Air Arabia (Maroc) will help meet growing demand for travel to Morocco the government expects to exceed 2008's record 8m visitors in 2009 and is aiming for almost 10m tourists in 2010.

Africa shrugs off worst of equity market correction.

It is good to see that equity markets appear to have finished the short term correction. Take a look, however, at how robust Africa has been in the sell off!

Botswana’s gross domestic product plunges 22%!

Botswana's GDP fell by 22% compared to Q4 2008. The decline in GDP was due to decreases in mining and quarrying industry, water and electricity, general government, hotels and restaurants. Manufacturing fell by 15% while mining and quarrying industry contributed most to the decline at 68.6%.

Almarai delivers again...

Almarai delivered 2Q SAR287m net profit in-line. Lower There was a positive surprise on the operating expenses front. SG&A as a % of sales improved significantly from 19.3% to 17.7%. The company is increasing its focus on cost controls to offset slowing sales growth.

Almarai, although a Saudi company, is the largest integrated dairy foods company in the world!

IMF say Tunisia is prudent and strong

The IMF has just noted in a report the Tunisian economy’s resilience. It said it reflects a strong posture of structural reforms and prudent fiscal and monetary policy stances.

Tourism, remittances and FDI have held up far better than expected. In addition, reserves of USD 9 billion are considered high. The IMF predicts growth of 3%

Botswana cuts interest rates 150bps

The Bank of Botswana reduced rates by 150bp to 11.5%. It is expected that inflation will maintain a downward trend.

This is the third consecutive rate cut by the Monetary Policy Committee since rates topped, a total of 300bps.

Uganda's National Insurance IPO

Uganda will sell a 40% government stake in Uganda's National Insurance in mid-July to list it on the Uganda Securities Exchange. In 2005, Uganda sold a 60% stake in the company to Nigeria's Industrial and General Insurance company.

United Nations looks to African agricultural expansion

The UN believes that the savannah, spanning 25 African nations, could be used to boost commercial farming. A new report says that some 400 million hectares in the Guinea Savannah zone - stretching from Senegal to South Africa - are ripe for commodity production. At present, only 10 per cent of that area is actually being farmed.

Africa can now make use of new technologies and improved business climates

Auerbach Grayson open access to Iraq

Auerbach Grayson, a New York brokerage, has just become the first international company to trade in Iraqi securities.

Auerbach has signed an agreement with Rabee Securities, a Baghdad brokerage, through which it will provide research and trade execution.

Rwanda stock exchange starts

The first company began trading on the Rwandese bourse yesterday. Kenya Commercial Bank is currently cross-listed both Uganda and Tanzania and joins a number of Kenyan companies seeking to gain a regional presence.

New Saudi bond market opens

Saudi Arabia new bond market opened yesterday. Foreigners can tap the new investment tool in the Middle East's largest economy for the first time. The first bond session yesterday involved SR21billion (Dh20.5bn), including SR16bn bonds by Saudi Arabian Basic Industries CorporationSaudi Arabian Basic Industries Corporation and SR5bn by Saudi Electricity CompanySaudi Electricity Company.

Dubai and Abu Dhabi have spearheaded one of the largest bond issues in the region over the past two months.

The launching of a bond market in Saudi Arabia is the latest in a series of moves announced by the CMACMA to develop its financial market.

African debt

Interesting slide from African Economic Forum 2009.

New beginning in Arab US relations

President Barack Obama’s call for a “new beginning” in relations with the Muslim world set a nice tone for relations between the US and the Arab world. The address, form the golden-domed Grand Hall of Cairo University called on all to societi end the “cycle of suspicion and discord”.

Citing a verse in the Koran that tells Muslims to “speak always the truth,” Obama said that that to move forward, “we must say openly to each other the things we hold in our hearts, and that too often are said only behind closed doors.”

He outlined six friction points between the U.S. and the Muslim world:

Violent extremism
Iran’s pursuit of nuclear arms
Democracy in Muslim nations
Religious freedom
Rights of women

African Development Bank AGM

The Annual General Meeting of the African Development Bank was held on 13-14 May in Dakar, Senegal. The theme of this year’s meetings was Africa and the financial crisis.

At a general level, there was much discussion over the shape and timing of the world economic recovery, and concomitant impact for risk appetite. This discussion came from both sides, African policymakers and private sector investors.

There was some scepticism over the extent to which the recovery is sustainable and the degree to which optimism shown in the market had diverged from fundamentals. African policymakers, for their part, recognised the impact of the global crisis on Africa, after earlier periods of denial and complacency. Policy reversals were now seen as the biggest threats in the region, but so far signs for most countries were encouraging.

Air Arabia

Silk Invest has Air Arabia in its Arab Falcons fund. We met with the company's Director of Finance and Administration to review how things were going in the light of the recent uptick in oil prices (a big component in any airlines costs).

The company has a natural fuel hedge. In effect, when oil price is high, margins are down but revenues go up as the economy is strong. That said, the company hedged 50% of its fuel for this year at USD 55. Good news.

The biggest takeaways are that this is actually a different business model from the European low cost airlines. Firstly, only 30% of tickets are sold through internet. The company has an extensive general sales agent network that adds a fee to the basic prices it distributes. This is difficult to duplicate and is very powerfull in the GCC and India where internet penetration is low. Another big difference is that the Middle East does not close airports at night. As such, the company flys 24/7. Its planes fly 14 hours a day, the highest in the world. (that is twice most other airlines!!!) Its distances are longer on average, versus the small 'hops' in Europe. This means four flights a day, instead of six. As a result, turnaround times are less critical. The other big difference is that it is a 'dry airline'. As such, it does not get revenue from drink sales. By the way, this is not a negative, its customers like that! That said, it gets 2% revenue from excess bagage sales. The final difference is that Sharjah airport owns 17% of company, so new competitors flying our of Dubai can't compete on price as it gets discounted landing fees.

Equity bank grows into slowdown

Kenya’s Equity Bank results for the quarter to March 2009 saw operating income
rise 52% and Profit After Tax rise 26%.

There was a 59% fall in loan loss provisions but a 126% rise in staff costs. Needless to say, the cost income ratio rose to 64% compared to 60% for FY 2008. Total NPLs, worryingly rose by 164% against a bigger Total balance sheet(up 45% year)

The slowing domestic economy is starting to have an impact. Although the bank delivered a good bottom line progression, there were clearly growing pains in this set of results.

Safaricom slips despite higher revenue

Safaricom saw a 23.9% year on year decline in net profits to Kshs 10.6 billion, and a 30.5% decline in earnings.

Revenue was, however, up 14.8%, boosted by an 83% growth in revenues from SMS, MPESA and data, which accounted for 12.9% of the total revenues.

Revenue market share remained at a steady 83%. The weakness was largely down to a fall of 23% in ARPU.

Orascom Construction improves construction margins

Orascom Construction significantly beat expectations growing net profit by 40%. The margin imporved accross the board. The margin was a function of a higher than expected contribution from fertilisers on the back of stronger volumes and a higher margin reported by the construction segment.

Although construction suffered from lower bookings, it experienced significantly higher margins. These may well prove fragile in the current economic environment, but clearly they have already gone in the opposite direction of almost any other construction company anywhere in the world.

Afromedia IPO

Good to see IPO's resurface after so long.

Afromedia Plc, a pioneer and leading out-of-home media company is finally set to list on the Nigerian Stock Exchange. The company began as part of the UACN group in 1929. It is one of the most experienced out- of- home advertising agencies in Nigeria. The board has its Chairman as Onaolapo Soleye, former Minister of Finance.

The company would be listing 4,035,497,307 Ordinary Shares of 50 Kobo each at N2.92 per share on Monday May 18 2009.

Oman Telecom

Oman Telecom reported a slow down in service revenue of 2.5%. This was not offset by the strong 20% rise in net international interconnection income and 52% growth in local net interconnection income.

Insurance claims from last years cyclone helped. Earnings declined by 1.2%. Excluding the one off cyclone payments, profits were 10% lower yoy.

Egyptian remittances rise!

The doomsayers are wrong once again. The predicted collapse in remittances has not occured. Indeed, net remittances from Egyptians working abroad reached USD 2.3bn in Q1, up from USD 1.9bn a year earlier. Net unrequited transfers jumped by 9.9% y/y.

Is Kuwait's USD 5.2bn stimulus package sufficient?

Nassar Al-Kharafi, who controls nearly 16 percent of National Bank of Kuwait, the emirate’s biggest bank, and 10 percent of Global Investment House, has quesyioned the effectiveness of the countries $5.2 billion stimulus package. The 15-year guarantee against losses on existing credits and investments "won’t stave off economic catastrophe" he claimed in an interview with Institutional Investor.

Oman gives boost to construction

Oman's Economy Ministry awarded OMR 598mn (USD 1.55bn) in construction and infrastructure projects including the Muscat International Airport and the Al Duqm Master Plan. The plan will stimulate growth by 11%. This move underlys one of our observations in the region; namely that infrastructure spend will decouple the construction industry from the global cycle.

Oil and gas continues to contribute 45% to the national GDP.

The lure of Africa’s long term story

The Financial Times reported an upbeat story by Dr. Ayo Salami who maintains a market cap-weighted index of African Companies (sub-Saharan Africa excluding South Africa). Although the index was down 40% last year companies in the index grew their earnings per share by 32%.

Dr. Salami sees continuing growth in consumer demand and recommends companies like brewers, cement and food staples.

Orascom Construction Industries fertizer push

The fertilizer industry in Egypt is supported by the cheap natural gas and phosphate rock.

Orascom Construction Industries, one of the bigger players in the fertilizer market, has signed a deal with the Egyptian Financial and Industrial Corporation to make up to 78,000 tons of ammonia annually. The company currently operates plants capable of producing a total of 2mn tons of nitrogen-based fertilizers annually. The group also has an investment in a facility in Nigeria.

The Egyptian government has approved a strategy allowing ten new phosphate fertilizer plants in the country, worth some USD 1.8bn.

World Bank predicts Middle East growth at 3.9%

In its global economic outlook the World Bank predicts the Middle East region is will grow by 3.9% in 2009, versus 5.8% in 2008.

The bank predicts the global downturn will cause both commodity prices and inflation to decline. Oil prices are seen averaging USD 75 a barrel in 2009.

Benso Oil Plantation Limited of Ghana

Palm Oil, one of the third world's most traded commodities, has a bad year, falling 66%. It is not surprising, therefore, that Benso (part of Unilever Ghana) took it on the chin. First quarter profits slumped 56%. Still, it could have been worse. Only problem is Ghana is such an illiquid stockmarket that the stock will take time to react to underlying fundamantals.

Standard Chartered Bank Ghana

Full year results for Standard Chartered Bank Ghana were held back by numerous charges. Earnings only rose 0.5%. One off IT and restructuring charges of GHS 14.0m (US$11.0m) were made.

On the positive side, net interest income rose 19% and the loan book rose 60%.
The headline cost/income ratio rose to 61% but adjusting for the charges the cost/income ratio fell to 49%.

We visted the company last year and like the management and approach.

Silk Invest investment tour - Morocco

The Silk Invest Maghreb team spent a very constructive day visiting existing and potential investment in Cassablanca. The whole economy is still growing strongly and optimism is in start contrast to developed markets. The purchasing power of the lage farming sector has been boosted by record rains and hence crop yiels. Morocco's production of soft wheat, durum wheat and barley has doubled.

At the same time, Morocco is still seeing direct investment from Gulf countries and asset sales by the government. Indeed, the whole Silk route theme is very strong. Firms like Maroc Telekom and Attijariwafa bank, the two largest companies, are expanding into Africa. For example, Maroc Telekom owns majority stakes in Gabon Telekom and Burkina Faso's Onatel.

We did witness some weaknesses. These include the high unemployment, rapid growth in banking loan books and the 'informal' sector of the economy. That said, valuations were attractive and more importantly underpinned by strong earnings growth. Delta (infrastructure) is expected to grow earnings by 64% and consrvative Attijariwafa Bank by 26%.

Visit to Addoha

We visited Moroccan property developer Addoha. The company is Morocco's leading real estate firm that benefits from the government-backed social housing drive. The recent boom in leisure, hotel and high-end housing projects is driving earnings forward.

We were particularly impressed with the company's one-stop-shop, where all the services requires to buy a house are under one roof (including credit assessment and legal). Clearly, something banks and/or property developers can learn from wherever they are in the world.

Tunisia

African Oxygen faces challenging year.

African Oxygen, the Silk African Lions largest holding, is putting up a great show in the face of the economic downturn. Although profits are down by 10% on the back of a decline in operating margin, revenues increased by 18%. Although we expect further deterioration towards the end off the year, on the back of commodity prices, we are happy with the groups 32% gearing and expect the stock to perform well from here.

Is Angola planning a devaluation?

Angola's President Jose Eduardo dos Santos dismissed central bank governor Amadeu Mauricio with immediate effect. This could be a prelude to devaluation. Efforts to keep the kwanza stable have weighed on the country's foreign reserves, which have fallen to $13.96 billion from $18.9 billion at the end of 2008. The kwanza has been pegged at around 75 to the U.S. dollar in recent years.

Surprise cut in Nigeria benchmark interest rate

Nigeria cut its benchmark interest rate to 8.0 percent from 9.75 percent. The Monetary Policy Committee reduced the reserve requirement to 1 percent from 2 and lowered the liquidity ratio for banks to 25 percent from 30.

Liquidity is an issue for the banking sector right now with interbank lending rates at 18 percent.

Suez canal sees revenue slump

The Suez Canal's revenues fell 22% Y-o-Y to USD327 million. The number of vessels passing through the Canal fell 15%. Canal revenues have deteriorated rapidly since late last year due to declining global trade activity.

The canal is a major contributor to Egyptian economic growth, contributing 0.7 percentage points to Egypt’s 7.2% growth in FY2007/08.

Workshop on 'Risk Management in Islamic Banking'

The Central Bank of Bahrain 'CBB' will play host to a workshop entitled 'Risk Management in Islamic Banking' which will take place at the Bahrain Institute for Banking and Finance from 14 - 16 April 2009.

Brasseries du Maroc

Brasseries du Maroc is a Morocco-based company engaged in the beverage industry. It is specialized in the production and distribution of beer and a range of fizzy drinks. The stock trading on a 2008 PER of 17x with a yield of 5.9%.

Brasseries du Maroc just reported a 6% rise in sales to MD 2.09bn and operating profit up 11% at MD 494m. The company is bravely increasing its dividend by 23% on flat Profit after tax, the equivalent to a 100% payout ratio.

Euromoney Kenya

Finance Minister Uhuru Kenyatta joins Daniel Broby and others at the opening panel of the Euromoney Kenya conference.

Egypt update

Inflation in Egypt is set to decrease to single digits. The drop in tourism, Suez Canal receipts, exports, and remittances will slow the economy down, but growth is still expected in 2009. Meanwhile, the government collected an unexpectedly high amount of tax revenue in 2008 and the decrease in energy and commodity prices provided a boost. Conservative estimates and projections of GDP growth range between 3.5 and 4 percent despie the government targeting 5 percent growth

Standard Bank Group buys 33 percent of Troika Dialog

In a bold move Standard Bank Group of South Africa agreed to buy 33 percent of Troika Dialog for USD 200m (1x book value). Troika is Russia's oldest investment bank. It is highly respected in Russia and will make it look more like its competitor Renaissance Capital who are diversifying into Africa (the other way around). The deal will increase Troika’s capital base to more than $850 million, making it a formidable competitor to Renaissance. The financing of the deal were adjusted to fit in with South Africa's foreign exchange rules.

Ghanaian Stock Exchange to go electronic

The Ghanaian Stock Exchange will switch on an electronic system at the end of March. The new system will reduce risks associated with paper certification, and in the lang run will imporove liquidity.

Saudi Telecom predicts 140% market penetration

Saudi mobile telephone penetration could reach 140 pct accorind to Saudi Telecom Co

The company intends to use the international financial crisis is an opportunity to get acquisitions and licences. Saudi Telecom, which posted a 62-percent drop in fourth-quarter profit, has faced stiffer competition in its home market as it competes with Zain and Etihad Etisalat.

Saudi Telecom also says it expects its revenues to grow at the same pace as they did in 2008 as it taps into a growing market among Saudis for broadband Internet and enterprise services.

Dubai bail out

The Dubai government which has built up a $80bn debt whilst diversifying its economy, recieved a $10bn federal loan from the UAE – in effect Abu Dhabi.

The federal loan will be enough for Dubai to refinance its immmediate debt but Dubai still has to refinance or repay $15bn this year in maturing loans and bonds.

Logistics in the Gulf

Logistics in the Gulf is one of our themes. The Public Warehousing Company is one of the best ways to get exposure to it. The company, yeilding 11% and sitting on a p/e of 4.94, is involved in freight storage, distribution and transport services. The trade financing side of the company is currently taking a hit but third party customs services continues to see demand.

Brinkmaking, ice cream and steel

Brinkmaking, ice cream and steel in Algeria, Tunisia, and Libya! That's what Poulina group is investing in to capture the upside from the GDP growth in these growing markets.

Poulina is Tunisias largest industrial company. The Company also operates through a number of subsidiaries, such as El Mazraa SA, which is engaged in the food processing sector; Aster SA, which markets software products and provides IT services; GAN SA, which manufactures and markets household electrical appliances, and Unipack SA, which is involved in the packaging and printing sector.

The IMF expects Tunisia to grow 5.9%in 2009. One to watch...

Sappi

The South African maker of glossy paper continues to see falling demand, despite the currencies working in its favour. Hit by a double whammy of falling revenues and increasing costs, its stock is very out of favour at the moment. So much so, in fact, that it trades on a p/e of only 3.5 times.

Consumar

Morocco's sugar industry continues to be one of the few bright spots in the frontier market space. Indications are for a near doubling in full year profits, which still leaves room for some modest upside (comparisons are easy as last year the company took a charge for discontinued operations). Sales are growing by a more modest 2%.

Mauritius commercial bank

Mauritius commerical bank was allocated USD 5m out of the central banks USD 125m line to local lenders as part of the Islands small attempt to emulate the credit crunch bailouts. Despite this, the company has managed to report a rise in net income for the first half to US 57.7m.

The bank is well capitalised with a capital adequacy ratio of 15%, above the 10% minimum requirement.

Enterprise Insurance

With strong mid twenties growth in underwriting growth, Enterprise insurance looks set to justify its companies stock resilience. Enterprise Insurance is the pioneer in the insurance industry in Ghana having been in operation for the past 80 years. It takes its roots as a subsidiary of Guardian Royal Exchange Assurance Ghana Limited. The company is currently the only insurance company listed on the Ghana Stock Exchange.

Egyptian Financial and Industrial Co.

The confusingly named Egyptian Financial and Industrial Co., Egypts largest fertilizer company continues to see low twenties earnings growth. Unfortunatly for the company, Egypt plans to eliminate fertilizer subsidies by the end of the year, so 2010 might not be so good. That said, we still see growth coming through.

Matel PC Market

The Moroccan telecom and PC distributor, Matel, saw sales grow 3% last year. Despite this, it managed to translate the modest growth into a 26% increase in first half profit. Unfortunately, the stock market has been unimpressed so far, taking the stock down 31% year to date. That may be due to the tax investigation prior to Matel's merger with PC Market. Hopefully, when that is out of the way the fundamentals will re-assert themselves.

Barclays Botswana issues trading update

We are all getting so used to banks announcing profit warnings that it is refreshing to see one give a revised upside guidance. Barclays Bank Botswana have just released a trading update advising shareholders that they anticipates an increase of more than 50% in profit before tax for the year ended 31 December 2008, compared to profit before tax of BWP295 million for the year ended 31 December 2007.

The results are expected to be released on the 25th of March 2009.

Maroc Telecom profits up 18.5%

Maroc Telecom increased net income by 18.5%, nicely above estimates, on sales up 7.2%. The company forecast that 2009 would see a more modest 3% sales growth. The company (which represents 21% of the Moroccan stock exchange) bucked the global trend of falling prices, rising 4% yesterday and a further 1.7% today.

GCC update

The downturn has hit the region harder than expected but despite declining oil prices we still believe that the GCC will remain grow in 2009. Tighter liquidity will impact the region and budgetary adjustments will have to be made.

The question then becomes, will that growth be adequate to starve off political concerns. In that respect, the GCC countries with greater socioeconomic challenges, such as Saudi Arabia and Bahrain, will come under more scrutiny. The others, like Qatar and the UAE will have to carefully manage reserves.

First bank grows revenue 43%

Amidst all the gloom in the Nigerian finacial sector, First Bank reported a 43% increase in revenue and a third-quarter profit increase of 27 percent.

East African Breweries

East African Breweries posted a small but positive 4.7% increase in earnings on the back of a 12% increase in revenues. Rising raw materials hurt margins. The company, however, overcame a 400% increase in spirits taxes.

Egyptian International Pharmaceutical Industries Co

Egyptian International Pharmaceutical Industries Co has proved to be one of the more defensive names in our universe. With sales growing 'only' 11%, the stock sold off at the begining of the year but is now back on the recovery track.

Guiness Nigeria

Guiness Nigeria remains a well capitalised company, despite last years special dividend. Increasing cost of sales continues to be offset by an increase in sales, up by 11% year on year. The 2008 results were impacted by the launch of new Malta Guinness bottles and crates, but 2009 has no such extraodinary hit (that is predicatable).

Governor Chukwuma Soludo

The naira's 20 percent depreciation against the dollar, prompted the central bank governor to make an impromptu visit to London where Silk Invest was invited to a lunch briefing.

According to Governor Chukwuma Soludo currency-trading restrictions imposed last week are "temporary," designed to avoid the central bank running down international reserves.

Policy makers will allow the naira to trade within a band of plus or minus 3 percent, although he repeatedly failed to mention the target level. The idea appeears to have been to let the naira overshoot on the downside so that it could get some positive momentum back behind it.

Eland International Ghana Limited.

The West African country's National Investment Bank (NIB), which is majority owned by the Ghana state, guaranteed promissory notes issued in May 2007 by food trader Eland International Ghana Limited. The notes were due for repayment on Jan. 29, but no payment was made. The head of a state-controlled bank in Ghana has subsequently been charged with causing financial loss to the state. Gyimah had tried to initiate repayment of the $60 million promissory notes, but the payment stalled when documentation relating to the guarantee agreement between Eland and NIB could not be found.

Emaar Properties PJSC loss

Emaar Properties PJSC, the largest real-estate developer in the United Arab Emirates, reported a fourth-quarter loss and put new real-estate projects on hold. The net loss was 1.77 billion dirhams ($481 million) compared with a profit of 1.74 billion dirhams a year earlier. The fell a further 8 percent bringing the decline in 2009 to 19 percent, following an 85 percent last year.

Saudi reshuffle points to more liberal future

The King of Saudi Arabia had a government re-shuffle, dismissing two powerful religious figures, namely the chief of the religious police and an outspoken cleric. Also, he appointed a woman to serve as a deputy cabinet minister, responsible for female education.

The changes are particularly seen as a message to the religious harliners, particularly in the mutwa religeous police force.

The changes included a reconfiguration of the Grand Ulema Commission, an influential body of religious scholars from all branches of Sunni Islam. In the past, the commission had been dominated by clerics from the austere Hanbali school, but now moderates will be represented. There were also changes to the Saudi military establishment.

Dubai suffers 25.9% fall in hotel revenue

Dubai suffered a 25.9% revenue drop in December based on revenue per available room. The latest figure shows how rapidly the deceleration is taking place. In November, RevPar also decreased by 15.5 percent.

Imperial latest victim of sales slump

Imperial Holdings Ltd., South Africa’s largest automobile dealer, snnounced the worst car sales in almost two decades. Earnings per share before one-time gains fell to between 4 rand and 4.50 rand in the last six months.

Imperial booked a 485 million-rand ($48 million) profit from the sale of its 62 percent stake in Tourism Investment Corp. and a 394 million-rand foreign-currency gain from its European unit.

First Rand joins others in African expansion

Yet another bank has announced that it plans to create an African footprint. First National Bank, South Africa’s third-largest retail bank, is planning to open subsidiaries in Tanzania, Angola, Uganda, Ghana and Zambia.

OPEC maintains discipline

Saudi Arabia appears to be taking its outpu cuts seriously and is filling the role of swing producer in OPEC. Tanker loading indicated crude oil production of a bit above 8.0 million bpd. in Saudi Arabia. Qatar, Kuwait, and the UAE have also cut loading schedules for February in line with their OPEC output targets. This, combined with unexpected compliance from Venezuela, appears to be having some success in supporting the oil price.

Still, US demand continues to weaken and the price of oil in the short and medium term will remain driven by the gloabl economy.

Jordan has worlds second largest Uranium deposits

An interesting but not very well known fact: Jordan is second to Australia in its proven reserves of Uranium. That's USD 60bn of reserves!

BankMuscat sees 11% rise in net profit

BankMuscat, the leading Omani bank, saw a 29.8% increase in net interest income and a healthy 11% rise in its bottom line. We were impressed to see the cost income ratio decline to 35.6% from 40.7! Admittedly, this is due to the increase in income but it does show a focus on avoinding increasing costs which we like.

On the downside, there was a one off imparement charge.

Tiger Brands bids for AVI

Tiger Brands Ltd., South Africa’s largest food company made a formal offer to cquire AVI Limited. AVI has already rejected three offers from Tiger Brands. This time it may be different as Coronation Fund Managers Ltd., which owns a quarter of AVI, agreed to support Tiger’s bid.

Saudi Basic Industries has sharp surprise earning decline

Saudi Basic Industries Corp., other wise know as Sabic, the Middle East's largest listed company, reported fourth-quarter net profit down 95%. The number was below the bottom of analysts estimates. Net profits fell to 311 million Saudi riyals ($83 million), compared with SAR6.87 billion last year.

Kumba Iron Ore

Kumba Iron Ore, Africa's biggrest producer, announced that it will report healthy profits for 2008, however fourth quarter sales were hurt by week demand and the fall in the South African Rand.

Palm Hills development revalues property

Its not all bad on the property valuation side. Egypt's Palm Hills Development revalued its land from an older valuation. The new estimate is 70 percent more than a previous valuation.

African Investment Bank

The new African Investment Bank is expected to be operational as soon as November with an initial capital of US$4 billion, increasing to US$25 billion. South Africa, the largest investor, will be allocated at least US$4.4 billion shares. Nigeria will receive the second highest number of shares worth US$2.7 billion. The other major shareholders are Egypt, with US$2.1 billion, Algeria, Africa's third largest economy, S$2 billion and host country Libya, US$998 million.

African agriculture

African agriculture has become a hot topic since last weeks announcement that a U.S. investor lease large parts of South Sudan. This followed the news a few months ago that South Korea’s Daweoo Logistics secured rights to plant corn and palm oil in Madagascar.

Investor interest in farmland is focused on increasing food prices and demographics.
There is clearly room for improvement in the continent’s full agricultural potential. Mechanised agriculture and bigger farms will lead to major productivity gains. One word of warning however, land ownership could prove contentious. On the ground expertise is a must.

Zimbabwe issues trillion dollar banknotes

The Harare Herald reports that the Reserve Bank of Zimbabwe has introduced a new family of trillion-dollar banknotes in denominations of $100 trillion, $50 trillion, $20 trillion and $10 trillion.

Datatec Ltd warns

Datatec Ltd., the biggest computer services company in Africa, warned that it will see a full-year profit drop. Earnings per share will only be between 25 U.S. cents to 29 cents, down from 45 cents a share a year earlier.

The warning comes as a result of rapid appreciation of the dollar against a number of currencies including the rand.

Datatec sells communications and computer equipment for companies such as Cisco Systems Inc.

Orascom buys Cell One in Namibia

Orascom bought mobile-phone company Cell One in Namibia from Powercom for $59 million. Cell One has 198,000 subscribers and a 20 percent share of the Namibian market. Looks like they intend not only to be the biggest Telecom in the Arab countries we follow but Africa as well.


Orascoms stock is still up nearly 20 percent since mid-December.

Omani banking sector

Omani banking sector is strong and has not been affected by the current global financial crisis according to Hamoud Bin Sangour Al Zadjali, executive president of CBO.

Last year, the total assets of Oman's commercial banks rose 39.2 per cent to 13.7 billion Omani riyals (Dh130.15 billion). Aggregate deposits grew 38.7 per cent.

Capinnova Investment Bank launched

At a time when so many banks are going to the wall, it is refreshing to see a new bank created in the Gulf. Capinnova Investment Bank, owned by BBK, was launched as its Shari’a compliant investment banking arm. The new nank’s core business lines are Private Equity, Asset Management and Corporate Finance. Capinnova has an authorized capital of US$500 million and paid-up capital of US$125 million.

Kenya’s declares National Emergency

Kenya has declared a National Emergency because of the drought affecting the north and east of the country. 10 million people, some 30% of the population, are affected.

The crisis is affecting rural and non-industrialised parts of the country. The ports and tourist areas, as well as manufacturing centers, are so far unaffected. GDP is being downgraded, inflation is likely to to increase and the current account deficit will widen.

Lebanons network renewal attracts bidders

The Lebanese Telecom industry is set for a shake up with the expiry of MTC Touch and Alfa's license. Orascom Telecom Holding, France Telecom and Kuwait's Zain have all submitted offers their cellular networks.

Unusually, the Lebanese contracts are for one year and are subject to renewal only once. Lebanon currently has 1.3m mobile subscribers.

Naira interbank market suspended

In a suprise move the interbank market in Nigeria was suspended. The market opened today with an exchange rate of NGN 146.50 to the US$ but within half an hour this had detrriorated to NGN 153 to the US$.

More oil finds in Ghana

Our opinion that the oil potential in Ghana is far larger than officially disclosed was confirmed after Tullow Oil and Anadarko Petroleum made another discovery in their Jubilee field. The drilling showed the field extended far further to the southeast than previously thought.

Global Investment House defaults

Global Investment House, Kuwaits biggest institutional investor, defaulted on a $200m loan and had appointed HSBC to renegotiate its debts.Rumours were that the Kuwaiti government would bail them out but that appears not to have happened.

Fitch immediately cut its rating to C. and Standard & Poor's cut the group's rating to "speculative default", both a far cry from last weeks investment grade rating.

The biggest creditior is German investment bank WestLB

Oil volatility

Oil price volatility is on the rise again. Turmoil in Gaza, combined with output cuts by OPEC and the Russia and Ukraine added dispute is also driving oil prices up. Economic data, at the same time, continues to deteriorate and drive prices down. This all adds to volatility. Today, oil fell 8% since to US$46.58/bbl.

Crude inventories are at an eight-month high. Looks like the upside is limited.

HSBC begins coverage of African telecoms

HSBC has begun coverage of Kenyan telecoms, confirming our view that these markets will continue to attract attention despite the global slowdown. Safaricom Ltd., and Celtel Zambia Plc were rated “underweight”. AccessKenya Group Ltd., the only publicly traded Internet company in the Kenya, was rated “overweight”.

HSBC notes that handsets are becoming more affordable and that the roll out of fiber optic cables will drive internet broadband penetration.

South Africa

Daniel Broby is currently visiting Silk Invests South African office. He reports that the South African market appears to be 'relatively' resilient in the face of the global slowdown. That said, the JSE fell yesterday and today following six days of gains and the mood is deteriorating. Industrials are statring to experience negative sentiment. Arcelormittal reoported a decline in factory output and this only reinforces the message that manufacturing data has been in decline for two months now.

The rand is likely to remain vulnerable to risk aversion.

Anglo American PLC

Anglo American PLC, which represents about 10% of the South African index, has been one of the worst performers among the world's major diversified mining companies.It has now addressed issues with its under-performing management team. Chief executive officer, Cynthia Carroll, is focusing on cost savings which should help. The stock, however, will require In the scenario both a weaker South African Rand, and a stronger price for platinum, rhodium, palladium and diamonds in order to regain its comparative position against other majors.

Uranium One joint venture

South Africa's Uranium One has entered into a Joint Venture with Mitsui & Co., Ltd. of Japan. Mitsui has acquired a 49% interest in the Honeymoon project which they will jointly devleop.

Uranium One is one of the world`s largest publicly traded uranium producers,
with assets located in Kazakhstan, the United States, South Africa and Australia.

Saudi Hollandi Bank issues sukuk bond

Saudi Hollandi Bank has just issued an Islamic bond issue with a 10-year maturity. Pricing was 200 basis points above the Saudi Interbank Offered Rate 3.1925 percent for one-year maturities.

UAE Sunday trading

UAE stock markets will remain closed on Sunday as a mark of respect following the death of Sheikh Rashid bin Ahmed Al Mualla, former UAE Supreme Council member and ruler of Umm al-Quwain.

Egyptian rally attributed to foreign investors

The year end rally in Egypt was attrributed to Non-Arab foreign investors. Analysis shows that these investors accounted for more than 22 percent of the turnover in the market in the final days of 2008.

Kuwaiti banking sector robust

The Central Bank of Kuwait has announced that Kuwaiti bank assets are 40 billion dinars ($144 billion), their highest-ever average. Bank assets increased 12.6 percent n 2008. The figures included claims on the government which came to two billion dinars, as well as foreign assets (9.8 billion dinars), local interbank deposits (739 million dinars), and other assets.

The good news is only overshadowed by the fact that credit facilities are also on the rise.

New year message

After a dramatic year in 2008, we enter the New Year reaffirming our faith in the African and Middle Eastern story. At Silk Invest we have spent the year building our platform and planning the launch of our funds. The fact that financial markets faced unprecedented events and almost stopped functioning did not deter us. We believe 2009 will be another challenging on a macro and on corporate levels but we also believe that we are now well positioned to address these challenges. Our portfolio managers believe the key question for 2009 will be how to go re-engineer growth and improve fundamentals but they have strong conviction in the now attractive fundamental value that we find in our markets.

We shall be planning a number of marketing trips in early 2009 to highlight our view that Arab and African markets have very strong fundamentals and are well positioned to strongly outperform both developed as developing markets. In our opinion, the key catalysts for this are:

Growth - While predicting around 1% growth for the global economy, the World Bank still predicts growth of around 4% for both regions

Population - The population mix and its annual growth of 2-3% is sustaining the growth in demand in especially the consumer sector

Corporate earnings - Current market valuations price in a deterioration of earnings of close to 50% while most companies in the region are still expecting positive earnings growth

Trade - Although the global trade growth will be minimal in 2009 growth among developing growth is still strong

On the risks side, most investors mention the impact of lower potential commodity prices on these economies. While commodity prices may affect certain sectors or countries, we think that the overall impact is limited. First, most of these countries are in much shape due to the combination of low sovereign debt levels, strong financial reserves and the size of their wealth funds. Second, not all countries in this region are resources rich and in fact different of our key investment markets will benefit from lower commodity prices. Third, even in the commodity rich countries, lower prices will lower inflation pressure and will lower the costs of the petrochemical and logistics industries in these countries. Fourth, FDI may go down but remittances have historically been very resilient and have grown through different cycles.

Silk Invest is closing the year with an even bigger commitment to frontier markets. Over the last weeks we have strengthened our proposition by integration frontier markets hedge funds specialist Danfonds under our platform. Attached you can find a press release which we will send out to the media. Our new team of 15 specialists makes us the most credible proposition in the market and we hope it will allow us to strengthen our relationship in the coming year. We will contact you in the coming weeks to further introduce our team and in the mean time please also check our updated website www.silkinvest.com.

In conclusion our key hypothesis is that these frontier markets will show a strong corporate earnings quality and that investors will be less driven by panic but more by fundamentals.