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What’s an African Company? Why Jumia’s Listing on NYSE Matters

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Last week, e-commerce company Jumia had its IPO on the New York Stock Exchange. The IPO saw the company offer 13.5 million shares thus raising $196 million at $14.50 per share. On the first day of trading, the stock rallied 75% closing at $25.46 a pop.  

This was quite impressive. Until it wasn’t for some on the continent.  

I am personally thrilled that a company whose main and only operations are on the African continent has listed on the NYSE. The internet is not exactly amused and the thorn is the question of just how African is Jumia. This stems from two issues. The company was founded by a bunch of French dudes. Its headquarters are in Germany, likely because of Rocket Internet, the investment fund that pumped millions of dollars in Jumia pre-IPO. Its technology team sits in Portugal and only the ‘non-core functions’ and customers are in Africa. The second issue stems from a misguided comment the company’s CEO made in an interview on CNBC, implying that Africa lacks a critical mass of developers capable of working at Jumia hence the decision to have tech ops sitting in Europe.  

I think the second comment is inaccurate. Africa does indeed have developers, equally skilled and this number keeps growing thanks to efforts by companies like Andela, Africa’s Talking and Moringa School, to name a few who are working to upskill developers or availing infrastructure to build scalable businesses. Indeed, there may be challenges with senior developers, capable of leading teams and building high-level technology but quick and substantive gains are being made mostly by returnees who have worked in big tech lending their hands in fast-growing technology companies on the continent.  

I choose to see the first issue from a different light, which my compadres have called ‘elitist’. I think much of what is being raised is indeed valid but filled with faux outrage. Companies with African founders face challenges raising huge amounts of funding despite having valid business models, recurring revenues and otherwise. This is no secret. That, however, does not warrant us looking down on a ‘pioneer’. In my opinion, Jumia listing is a great thing not just for technology companies working on the continent.

Investors  

A recurring issue has been a mismatch on both the demand and supply side with investments.  On one side, you have VCs and fund managers seeking out alpha on the continent, which they seemingly cannot find. Blackstone recently shut down its Africa facing operations, as did PE powerhouse KKR who could not find big enough deals to invest in on the continent. Those with skin in the game further complain about the lack of exit options.  

On the other hand, you have great African companies, solving complex problems from logistics, retail, infrastructure to healthcare than cannot quite marshall those big ticket size investments like their peers in the Western world would easily gather.

Jumia was a heavily funded company despite having cumulative losses nearing a billion dollars as it embarked to solve the problem of informal retail.  I feel Jumia’s IPO solves this inefficiency. A mix of big-time exits for the owners of capital means they will get aggressive with the market, seeking out deals,  allowing them to spew more cash into local companies, thus allowing those firms to grow and scale faster. Capital is a huge challenge for a business looking to deal with 55 regulators, 55 different clusters of customers and only deep pockets can solve this wahala. This deal means we can see more blockbuster deals like we did with Branch and Andela recently as there are multiple ways to cash out.  It would be great to have another 20 Jumia’s on the continent, with multi-millionaire founders, thousands of jobs created and overall growth of the economy.

Ecosystem

A key but often underlooked aspect of Jumia is the ecosystem it has created around its offering. Thousands of merchants previously offline or operating in fragmented internet spaces such as social network channels finally have structured environments through which they can sell their wares. I can speak of a businessman in downtown Nairobi who sells electronic goods on Jumia specifically, who has seen his business grow 6 fold over the last 24 months due to orders from the platform. Beyond this, Jumia outsources a large chunk of their services which, has seen a bunch of tech-enabled logistics firms, payments companies and others come up to serve these needs. These and other touchpoints show how expansive the company’s tentacles have been. It obviously has had a knock-on effect on the developer ecosystem in the continent. Working with new global technology standards, solving infrastructure problems at scale for companies in logistics, payments and exposure to continent wide markets makes our developers better. They will one day soon have their own Jumias at best or lead tech teams at a scale.  

Overall, I feel the yardstick in judging this company should mainly focus on how well it is serving the needs of the customers and how great an experience is being created  for the shoppers. I do not have the answers to the affirmative action questions on funding but I feel Jumia has done a great job of opening up retail which to a large degree is still offline. I think we can sit and complain about how African a company solving a complex problem on the continent is, or we can get in on the action by calling your broker and asking if they can help you get in early.

Then again, I am a small scale farmer. What do I know?  



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KISERO: What KCB-NBK merger means

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Columnists

What KCB-NBK merger means

A National Bank of Kenya branch. FILE PHOTO | NMG 

The Press statement by the Kenya Commercial Bank (KCB)announcing its move to acquire the National Bank of Kenya(NBK) through a share swap did not give much detail.

The statement only said that the deal would involve 10 ordinary shares of NBK for every one ordinary share of KCB. If it works, we will have seen the end of one of the most troublesome chapters in the country’s banking sector. Even though NBK has a weak balance sheet, it will bring to the table strong customer-facing assets for the combined entity. It has retained branches in exclusive locations at airports, ports of exit and entry into the country, giving it advantage when it comes to inter-trade business.

Secondly, it has over the years retained exclusive viable public sector clients. In the past, NBK was the designated bank for receiving landing fees for all aircraft landing and taking off from Kenya. It retains a substantial part of the business.

NBK used to be the banker for the largest employer in the country — the Teachers Service Commission. It still retains a substantial portion of the business. It used to be the designated banker for receiving payments to Kenya Revenue Authority and still retains a big chunk of this business.

So, what are the likely outcomes of the proposed merger? First, the government’s stake — now at 17 percent — is bound to increase with consequences for the corporate governance of the largest bank in the country.

The public float, a broad and impressive spectrum currently holding in excess of 80 per cent, may also suffer dilution.

When the details of the transaction are finally put out, it will be interesting to see how the vexing issue of the mainly government-owned preference shares in the books of the bank — which have always been the deal breaker for investors interested in buying the bank — will be treated.

NBK has a peculiar capital structure of having normal ordinary shares and at the same time preference shares with equity-like features that, unlike normal preference shares, allow these securities to share in the profit of the bank.

Indeed, transaction advisers hired in the past to sell the bank have advised that no sale transaction of the NBK is possible unless the preference shares are converted into ordinary shares first, and on a 1:1 basis.

Predictably, the National Social Security Fund (NSSF) has been opposed to the 1:1 conversion formula, arguing that such a move would dilute its current near majority 48 percent stake of ordinary shares of the bank.

This is because, when the 1:1 conversion formula is applied, the Treasury’s stake rises to 70 percent of ordinary shares from the current 23 percent, giving it power to make unilateral decisions on the future of the bank.

It will be interesting to see how the National Treasury and KCB will navigate through this shareholding quagmire.

With the shares of the NBK currently trading at its lowest multiples and at a steep discount on the book value, this transaction could put the government and the NSSF in a position where they can start realising a return on their investments in the bank.

The two investors have not been able to earn a return either by way of capital appreciation or dividends from the billions they invested in the company in nearly two decades. But more significantly, a takeover of NBK will serve as a strong signal that distressed State-owned banks will no longer be artificially kept alive even after they have long outlived their usefulness.

Indeed, many of the State-owned banks have been in poor financial health, only managing to limp along because of support and regulatory forbearance from the Central Bank of Kenya (CBK) .

A good number are currently suffering crippling liquidity problems, forcing them to resort to complete dependence on the CBK discount window for liquidity. In the interbank market, they are unable to access liquidity easily because the large banks are not willing to lend to them, choosing to deal only with their large peers.

How I hope that the proposed merger of NBK and KCB will just be but the beginning of structured changes that will eventually give us a long-lasting solution to widespread distress within the State-owned segment of the banking sector.



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Keter defies GDC board on chief executive new term

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Economy

Keter defies GDC board on chief executive new term

Energy Secretary Charles Keter. FILE PHOTO | NMG 

Energy Secretary Charles Keter has defied the board of Geothermal Development Company (GDC) in extending the term of the firm’s CE0.

Mr Keter has offered GDC boss Johnson ole Nchoe a one-year contract despite the board’s verdict to seek a new managing director.

Mr Nchoe, whose three-year term ended on Wednesday, sought a contract renewal. This triggered a board review that gave him a score of poor.

The board gave him a score of 39.6 percent for the six months to December and 39.8 per cent for the year ended June last year with both scores categorised as poor.

“He sought a contract renewal and we said no based on his appraisal,” said a GDC director who sought anonymity fearing reprisals from Mr Keter.

“The board spoke, but the CS had a final word that was contrary to the resolution of the directors.

“This is out of step with good corporate governance.”

Mr Nchoe, who was picked to head GDC in April 2016 on a three-year contract, previously worked at Kenya Power as IT and telecoms chief manager until 2013 when he joined a group of consultants in Liberia on a donor-funded plan tasked with helping the West Africa nation rebuild its electricity network.

He protested the poor review from the board, arguing it was designed to embarrass him.

“He felt strongly that the evaluation was designed to embarrass the person of the CEO and was inconsistent with the good board evaluation results,” said board minutes capturing Mr Nchoe’s protest.

The one-year contract extension is tied to the fact that Mr Nchoe will next April attain the mandatory retirement age of 60.

His predecessor, Dr Silas Simiyu, also fell out with the board, prompting his resignation in March 2015 after he was adversely mentioned in tender irregularities.

Eight months after Dr Simiyu’s exit, the board suspended six GDC managers including acting CEO Godwin Mwawongo, company secretary Praxidis Saisi and tender committee members Mr Abraham Saat, Mr Peter Ayodo, Mr Caleb Mbayi and Mr Nicholas Karume.



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UK forms special team to aid Kenya seize graft assets

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Economy

UK forms special team to aid Kenya seize graft assets

UK High Commissioner to Kenya Nic Hailey. FILE PHOTO | NMG 
 

The British government has formed a special team to help Kenya trace and recover assets that are proceeds of corruption and hidden in London.

High Commissioner to Kenya Nic Hailey said specialist UK government financial analysts and investigators have been posted in Nairobi where they are working with their local counterparts to bust suspected corruption syndicates.

Dozens of Kenyan State officials and business people have appeared in court since May on charges related to the alleged theft of hundreds of millions of shillings from public coffers in a new drive to tackle widespread graft.

“They are tracking every financial dealings of suspected individuals to block corruption networks,” Mr Hailey said, arguing the UK is committed to supporting Kenya’s efforts to nab graft barons and send them to jail.

“Where people are hiding money in the UK, or where we can help convict the corrupt in Kenya, we will give every possible support.”

Mr Hailey spoke when the newly appointed UK Director of Public Prosecutions Max Max Hill met his Kenyan counterpart Director of Public Prosecutions Noordin Haji in Nairobi and announced the progress of the new collaboration to help Kenya’s war on graft. Speaking at a press conference after meeting Kenyan officials, Mr Hill who is the head of the UK’s Crown Prosecution Service, the chief agency for conducting criminal prosecutions in England and Wales, said his office had embarked on investigations into corruption.

“We are pursuing several live cases but I can’t comment on them because they fall under different legal jurisdictions,” he said at a media briefing.

Mr Hill, who also met the Chief Justice David Maraga, vowed his UK office would do all it can to help Kenya trace its looted billions including those stolen during the Moi-era.

The Kenyan Judiciary has been on the spot for alleged delay in the handling of graft cases compared its UK counterpart.

“Our co-operation with Kenya also entails looking at the fight on corruption as a whole, including the justice procedure,” said Mr Hill.



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