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dela på twitter Cell C s avbrutna obligationsemission HUR ANVÄNDA DENNA MAGAZINE Cell C avbröt en planerad emission av 600 miljoner kronor i offshore-obligationer med förfall år 2021. Det var efter att Blue Label Telecoms tillkännagav att den hade för avsikt att köpa en 45 andel i mobilbolaget för R5,5 miljarder. Den internationella obligationen var ett av de villkor som förekom för att kapitaltäckningen skulle kunna gå vidare, men ansågs onödig när Cell C bestämde att det skulle kunna uppfylla sina maximala tillåtna lån på R8 miljarder utan det. Obligationen hade planerats med den uppenbara avsikt att minska skuldbelastade Cell Cs nettolåntagande från R20,7 miljarder till R8 miljarder. Trots att det rapporterats som ett medel för att rekapitalisera balansräkningen, hade det nya bindandet i verkligheten inte haft någon effekt att minska den totala hävstången, utan snarare att förlänga terminen för Cell Cs totala skuldförpliktelser. Divergent rating opinions Kanske för tidigt uppgraderade Standard Poors (SP) Cell Cs globala kreditbetyg från B - till B i oktober. Detta gjordes i väntan på en betydande skuldreduktion och förbättrad likviditetssituation, efter skuldfinansieringen och förlängt skuldförfallsprofil. dela på facebook vad som händer på kreditmarknaderna Som en del av den föreslagna ägarförändringen skulle nya och befintliga aktieägare bidra med R16 miljarder i fritt eget kapital och bruttoskulden skulle sjunka från R23 miljarder i juni 2016 till R10 miljarder. Cell Cs underinvesteringsklassificeras av en relativt svag marknadsposition i Sydafrika, vilket är en avlägsen tredjedel till behemoths Vodacom och MTN. Detta negativa kompenseras delvis av Cell Cs etablerade varumärke, vilket förbättrar nätkvaliteten och växande kundbas. Mobiloperatören planerar att göra betydande investeringar i sitt nätverk för att öka sin marknadsandel från 16 mobila kunder nu till 20 under de närmaste åren. Cell Cs-strategin har utvecklats till ett värdeförslag som fokuserar på nätverkskvalitet och kundservice, från dess tidigare strategi för aggressiv prissättning för att öka marknadsandelen. I motsats till SP valde Moodys att ta ett mer konservativt tillvägagångssätt och ändra riktningen av sin granskning på Cell Cs B3-värdet till osäkert, i väntan på slutförandet av kapitalomstruktureringen. Bedömningen återspeglar företagets 100 exponering för låg tillväxtmiljö i Sydafrika. Marknadens konkurrenskraftiga utmaningar är historiskt höga priser och låga bidrag från högre betalande kontraktskunder och Cell Cs övervägande mobilt erbjudande jämfört med konkurrenternas konvergerande produktstrategier. Moodys citerar också exekutionsrisken i samband med den nya strategin, vars misslyckande skulle undergräva några försök att minska hävstångseffekten. Den finansiella bilden Cell C har haft tuffa år ekonomiskt, även om tidvattnet tycks vända mer nyligen. Intäkterna under räkenskapsåret 2014 uppgick till R11,6 miljarder, med en nettoförlust på R4,9 miljarder. Intäkterna förbättrades till R13,2 miljarder 2015, men nettoförlusten ökade till R5,6 miljarder. Halvårsresultatet till juni 2016 visar att intäkterna uppgick till R6,96 miljarder, en ökning från R6 miljarder för samma period 2015. Och mer lovande var resultatet före skatt i juni 2016 positivt R2,8 miljarder jämfört med en förlust av R1,2 miljarder i juni 2015. När det gäller hävstångseffekt väntas den justerade skulden till EBITDA-siffran öka från 7,3 gånger 2015 till 4,5 gånger 2016 (justerad skuld inkluderar finansiella leasingavtal). Negativa fria kassaflöden väntas dock fram till 2018, på grund av de betydande kapitalinvesteringar som krävs för att bibehålla tillväxten. Transnet halvårsresultat Transnet släppte delårsresultatet för de sex månader som slutade den 30 september 2016. Halvårsintäkterna ökade med 1,2 till R32,6 miljarder, medan tillväxten sjönk från 6,4-talet för samma period föregående år. Detta berodde på den svaga ekonomin, med låg tillväxt och deprimerade råvarupriser som dämpade kundernas efterfrågan. Driftskostnader, varav en stor del är fast personal och energikostnader, ökade med 2,3 till R187 miljarder. Avskrivningar och finansiella kostnader ökade kraftigt, med 16,3 respektive 23,9, vilket resulterade i att nettoresultatet sjönk med 43,2 till 1,1 miljarder kronor. Transnets stora kapitalutvidgningsplaner har drivits ytterligare. Capex på kort sikt förväntas vara reaktivt baserat på bevisad kundbehov. Capex minskade därför med 41 till R9,4 miljarder. Den lägre kapitaltillskottet resulterade också i ett minskat finansieringsbehov, med en total skuld på 5,1 till R127,7 miljarder. Ny skuld på R11,8 miljarder höjdes och av detta var mindre än R400 miljoner från de börsnoterade obligationerna, eftersom de månatliga auktionerna begränsades. Detta är otroligt, eftersom spridningar på Transnets-obligationer har ökat under det gångna året bland negativa känslor om SOEs och allmänna marknadsförhållanden. Londa Nxumalo CA (SA) är en kreditanalytiker CIG är ett av få företag som trivs bra inom industrivarorutrymmet. Det släppte nyligen starka årliga resultat: intäkterna steg 26 till R4,5 billon (FY15: R3,6 miljarder) och vinsten ökade 16 till 255,3cshare (FY15: 220.7cshare). Emellertid har aktierna förlorat 32 under de senaste 12 månaderna. Det är svårt att fastställa vad som kan leda detta bearish beteende, men vi misstänker att följande kan vara möjliga orsaker. Dålig kontonomvandling. Även om CIGs tillväxtberättelse är imponerande, är den dåliga kontokonversionen en anledning till oro. Medan intäkterna har ökat med en genomsnittlig ränta på 36 per år sedan 2011 är mycket av det inte omräknat till kontanter eftersom gäldenärer har stigit och växer till 93 per år. Det beror delvis på att projekten har blivit större och tar längre tid att slutföra. Med ingen större lättnad som kommer från kreditorernas sida skapas likviditetsbrister, vilket tvingar koncernen att låna för att finansiera verksamheten. Fastän ledningen säger att bolaget har tillräckliga rörelsekapitalfacilitet från bankerna för att finansiera eventuella kortfristiga likviditetskrav, är det verkligen oroande, särskilt för investerare som kan förvänta sig utdelning. Projektbaserad affärsmodell. Till skillnad från sina jämnar (Invicta, Hudaco och Barloworld) som säljer en stor del av sina produkter till eftermarknaden (underhåll) där resultatet sannolikt kommer att bli återkommande på grund av kortare ersättningscykler är Concos affärsmodell i stor utsträckning baserad på orderboken. Det måste därför fortsätta att vinna nya kontrakt för att ersätta mogna. Den modellen tenderar att ha en positiv effekt på CIGs aktiekurs när investerare känner sig positiva om kraftutsiktsutsikterna. Med tanke på den förväntade avmattningen i SA-energisektorn, misstänker vi dock att vissa investerare kan börja minska sina innehav i företaget, förutse nedgångar i orderboken. CIG flyttar emellertid in i eftermarknaden och har etablerat en division för att rikta sådant arbete. Osäkerhet över SA: s förnybara energiprogram. CIG har under de senaste åren drabbats enormt av det oberoende kraftproducentprogrammet för förnybar energi (REIPPP). Nästan en tredjedel av Concos-intäkterna i FY14 och FY15 kom från förnybara energiprojekt. Eskom har dock ifrågasatt fortsättningen av programmet för förnybar energi. Detta har slagit Concos förnybar energi order bok, som sjönk till bara R400 miljoner jämfört med R1,1 miljarder förra året. Potentiell utspädning från emissionen. Investerare kan prissätta i en potentiell resultatutspädning från de planerade företrädesemissionerna. Företrädesemissionen syftar till att höja R750 miljoner som krävs för förvärvet av Conlog (diskuteras nedan). Det kommer att se bolagets emission 39 miljoner aktier. Med tanke på att frågan kommer att leda till en betydande ökning av antalet emitterade aktier verkar det rimligt att förvänta utspädning. Beräkningar från ledningen visar emellertid att förvärvet kommer att vara värdeskapande. Verksamhet: CIG är en diversifierad infrastrukturgrupp med en bred räckvidd över hela Afrika. Verksamheten sträcker sig från installation och underhåll av högspänningselektronisk infrastruktur till avfallshanteringstjänster och leverans av byggmaterial. Det verkar genom sina dotterbolag: Conco, West End Claybrick, Drift Supers och Angola Environmental Servicos Limitada. Upplysningar: Analytikern har ingen ekonomisk exponering för det diskuterade instrumentet. Åsikten representerar hans sanna uppfattning. För Intellidexs fullständiga ansvarsfriskrivning, metoder och definitioner, vänligen klicka här. dela på facebook HUR DU ANVÄNDER MAGAZINE Acquisition erbjuder löftet för CIG Conlog att lindra kassaflödesproblem Orin tambo, cfa intellidex Driftsmiljö mottaglig för inre och externa chocker Finansieringsutmaningar på Eskom kan se förseningar eller nedskalning av projekt Fördröjning i fortsättning av förnybar energi Program som orsakas av Eskoms Stark orderbok med god geografisk balans Ökad exponering för tillväxtsektorer och geografisk diversifiering ger kudde mot deprimerad ekonomi i Sydafrika Fokus på att öka sin verksamhet och underhållsarbete kommer att medföra betydande livränteintäkter Trots ovanstående problem tyder våra riskjusterade värderingar på att Aktien förtjänar en köpeskilling. CIG skärmar bra på värde och tillväxt. Dess värdeattribut är attraktivt: det är på ett framåtriktat pris: vinst multipel av 8,5 och en prisutveckling till ett tillväxtförhållande på 0,5, med stöd av ett bra underlag för tillgångar. Vi uppmuntras av CIGs förvärvsstrategi att rikta sig till företag som är mycket kontantgenererande, har potential att tillhandahålla livränteintäkter och skulle diversifiera verksamheten. År 2012 förvärvades 31 aktier i det angolska bolaget AES, som är inblandat i insamling, återvinning och bortskaffande av oljebaserat avfall som skapats under borrningsprocessen. Senare förvärvade Conlog vilka konstruktioner, tillverkar, marknadsför och distribuerar förbetalda och smarta elektroniska mätinstrument och lösningar. Dessa förvärv mildrar några av de frågor vi tagit upp ovan. AES och Conlog har olika driftsmodeller och utsätts för tillväxtdrivare som skiljer sig från de som påverkar Conco. Ännu viktigare är att Conlog har ett högt konverteringsförhållande och är lätt på rörelsekapital och kapitalutgifter, vilket vi tror kommer att minska de löpande kassaflödesproblemen. dela på twitter Nästa investeringsgräns: Vatten Klicka för att spela videor dela på twitter Ta reda på vad Fred Platt (VD, Accentuate), Warren Hurter (Director, FCP Energy) och Amy Jones (Director, Truter Jones Inc) var tvungna att säga om vikten av att förbättra infrastrukturen i Sydafrika. dela på facebook Det beräknas att R180 miljarder kommer att investeras i energiinfrastrukturprojekt i Sydafrika under de närmaste tre åren, medan ytterligare R250 miljarder kommer att ställas till förfogande för investeringar i väg - och transportinfrastruktur. Det finns en tydlig investeringsmöjlighet för dem som kan kapitalisera på dessa investeringar. Moneyweb och Financial Services Group Nedbank, värd en C-suite rundabordsspel förra månaden, syftar till att stimulera diskussioner på hög nivå kring investeringsmöjligheterna inom sektorn och hur kapital kommer att distribueras. dela på twitter Afrimat-aktiekurs (återhämtat) Intäkterna är i stor utsträckning transaktionella och sårbara för marknadernas konjunktur. Lider av välkända kostnader för energi och arbetsinsatser. Arbetsintensiv industri, utsatt för industriella åtgärder. Stark orderbok med god geografisk balans. Ökad exponering för tillväxtsektorer och geografisk diversifiering ger kudde mot deprimerad ekonomi i Sydafrika Fokus på att öka sin verksamhet och underhållsarbete kommer att medföra betydande livränteinkomst Diversifiering till i stort sett outnyttjad marknad för industrimineraler Produkter med bristande värde kan upprätthålla resultat i deprimerad miljö Agil affärsmodell gör det möjligt att etablera verksamheter snabbt på projektområden Hälsokassaflöde och stark balansräkning HUR DU ANVÄNDER DENNA MAGAZINE Afrimat är en av de mest konsekventa små kepsarna på börsen. Den har ökat sitt resultat med i genomsnitt 22 per år de senaste fem åren och deklarerat utdelningar var sjätte månad sedan notering för tio år sedan. Samtidigt som vi förväntar oss att koncernen fortsätter att lägga ut goda tillväxten och betala en god utdelning, visar våra värderingar att aktierna efter en 28 rally sedan vårt köpsamtal i maj handlas närmare våra uppskattningar av verkligt värde. Dess nyligen släppta resultat för halvårsskiftet till slutet av augusti visar att vinstsiffrorna hoppade 25, vilket övergick till vinstdisposition per effektiviseringsinitiativ, vilket gav rörelseresultatets tillväxt per aktie på 95,2c (1H16: 76c). Tillväxten drivs av diversifieringsstrategin samt kostnadsminskningar och överstiger tillväxten i omsättningen. Ledningen rapporterar att alla bearbetningsanläggningar är fullt operativa och arbetsförhållandena fortsätter att vara tillfredsställande. En utdelning av 20cshare (1H16: 16cshare) deklarerades. Afrimats olika uppfattning Driftsmiljö som är mottaglig för interna och externa chocker Finansieringsutmaningarna på Eskom kan se förseningar eller nedskalning av projekt Fördröjning i fortsättning av förnybar energi program som orsakas av Eskoms Orin Tambo, CFA Intellidex Vi värdesätter Afrimat på R28.95share, som faller i vårt hållområde. Våra värderingar baseras på följande utsikter: Stark omsättningstillväxt. Vi förväntar oss att Afrimats tillväxt på topplinjen ska drivas av högre försäljningsvolymer, ett bredare produktsortiment och prisökningar. Starka offentliga utgifter i landsbygdsområden på infrastruktur samt på andra små infrastrukturprojekt, såsom vattendistributionssystem och sanitetsprojekt, kommer att förbli nyckeln till att driva efterfrågan på gruppens byggmaterial. Det kommer att kompletteras av flera greenfieldprojekt som initieras runt om i landet och i Moçambique, och genom bidrag från olika förvärv. Expansion av rörelsemarginal. Afrimat ökade sin rörelsemarginal från cirka 12 år 2012 till 18 år. Detta har varit den största drivkraften för dess resultatutveckling. Nyckeln till den förbättringen har varit en förändring i produktmixen som har avyttrat marginella verksamheter samtidigt som man förvärvar mer värdefulla tillgångar, vilket resulterar i förbättrad effektivitet och kostnadsminskningar. Vi tror att fler fördelar med dessa initiativ fortfarande kommer att bli realiserade. Afrimat har också köpt företag under de senaste månaderna. Eftersom det integrerar dessa och utnyttjar extrakapaciteten, förväntar vi oss att rörelseresultatet växer före intäktstillväxten, vilket kommer att se att rörelsemarginalen expanderar till cirka 18,7 på medellång och lång sikt. Förvärv. Vi förväntar oss att förvärv fortsätter att spela en viktig roll i Afrimats tillväxt som de har gjort de senaste åren. Tidigare förvärv har medfört produktdiversitet, skapat nya intäkter och ökad lönsamhet. Afrimat är nu ett diversifierat företag som levererar industrisektorn med metallurgisk dolomit och kvartsit (till kunder som ArcelorMittal), kiseldioxid (glasmakare), keramik och kalk. Det har också nyligen kommit in på järnmalmsmarknaden, vilket sannolikt kommer att medföra utländsk valuta. Med tanke på Afrimats starka balansräkning och starka kassagenererande verksamheter, förväntar vi oss att det ska ingå fler förvärv. Nettoeffekten av ovanstående faktorer borde omsättas till 14 till 16 årlig vinsttillväxt under de närmaste fyra åren något under tillväxten under senare år men fortfarande mycket respektabel. En nyckelfaktor som ger Afrimat en kant över sina konkurrenter är dess positionering i förhållande till projektverksamheten. Aggregaten är tunga, så platsen nära användningsområden är nyckeln. Med mer än 35 gruvminor över hela landet kan Afrimat producera och leverera till lägre transportkostnader än många andra spelare. Det har också infört mobilutrustning som gör det möjligt att utnyttja möjligheter som och var de uppstår. Flera produktlinjer betyder många kunder. Affärsområde: Afrimat är ett gruvföretag med öppen gruv för industriella mineraler. Det levererar ett brett utbud av byggmaterial, allt från aggregat och betongprodukter till färdigblandning och industriella mineraler. Det ger också borr - och spränglösningar för bygg - och junior gruvindustri. Upplysningar: Analytikern har ingen ekonomisk exponering för det diskuterade instrumentet. Åsikten representerar hans sanna uppfattning. För Intellidexs fullständiga ansvarsfriskrivning, metoder och definitioner, vänligen klicka här. dela på facebook HUR DU ANVÄNDER DENNA MAGAZINE Vad vi tycker om företaget Väl positionerat inom en bransch med starka fundament En sofistikerad infrastruktur för att tillgodose medellång tillväxt i både detaljhandel och grossistverksamhet Bevisad finansiell statistik och spårning Mycket erfaren, grundare ledd ledningsgrupp Riskfaktorer Företaget är beroende av bild och rykte för varumärket. Eventuellt misslyckande med att upprätthålla ett gynnsamt varumärkesigenkänning kan ha negativ inverkan på resultatet. Mycket konkurrenskraftig industri kan göra det svårt att uppfylla sina tillväxtmål. Hälsovårdssektorn är högt reglerad. Bristande överensstämmelse eller lagstiftningsändringar kan ha en negativ inverkan på vinstdelningen på facebook Dis-Chem: Friska tillväxtmöjligheter. Affärsområde: Dis-Chem driver detaljhandelapotek men förutom vanliga föremål som personlig vård, näring och barnomsorg produkter, lagras även konfektyr, torr matvaror, hushållsartiklar och andra hjälpprodukter. Det har också en grossistverksamhet som betjänar tredjehands apotekshandlare och egna apotek. Trots att det är nytt på börsen är Dis-Chem allmänt trodde att den största aktören inom detaljhandelapoteket står för cirka en femtedel av den marknaden. Dess närmaste konkurrent är Clicks. Upplysningar: Analytikern har ingen ekonomisk exponering för det diskuterade instrumentet. Åsikten representerar hans sanna uppfattning. För Intellidexs fullständiga ansvarsfriskrivning, metoder och definitioner, vänligen klicka här. dela på twitter Den mycket förväntade noteringen av Dis-Chem ägde rum fredagen den 18 november. Koncernen öppnade handel med R23.36share men priset sjönk därefter till R20,55 och avvecklades till R21,48 när marknaderna stängdes. Nära 28 miljoner aktier värda över R600m handlas på sin debutdag. Nuvarande pris på R21.48share sätter Dis-Chem till ett pris: vinstförhållande (PE) på 28,1, vilket vi tycker är dyrt trots de tillväxtutsikter företaget erbjuder. Dess närmaste konkurrent, Clicks, som erbjuder liknande tillväxtmöjligheter, ligger på en PE på 26. Vi anser att Dischem bör värderas på ungefär samma nivå. Dis-Chem erbjuder tydligt investerarnas exponering för ett exceptionellt företag som har haft enastående tillväxt under åren. Den har tredubblat sin affärsbase sedan 2008. Intäkter och resultat före ränteskatt, avskrivningar (Ebitda) har ökat med en sammansatt skattesats om 20,8 respektive 21,6 under de senaste tre åren. Vi förväntar oss att Dis-Chem ska behålla denna fantastiska tillväxt. Ledningen har lagt fram en tillväxtplan för att fördubbla sitt fotavtryck de närmaste fem till åtta åren. Nya butiksåtgärder kommer att ha en betydande inverkan på intäkter, rörelseresultat och kassaflöde. Eftersom det ökar sin butikskalkyl, kommer det sannolikt att öka sina avgiftsbaserade intäkter genom de dispenserings - och logistiktjänster som det tar emot av läkemedelsproducenter för att distribuera sina produkter till sina detaljhandelapotek. Det kommer tillsammans med de kostnadsutspädningar som kommer sannolikt att komma från de mogna butikerna som öppnades de senaste tre åren, att driva vinstmarginaler. Trettio butiker, en tredjedel av befintliga butiker, öppnades de senaste tre åren. Tillväxtstrategi och dess inverkan på resultatet I centrum av Dis-chems är tillväxtstrategin det ambitiösa målet att öppna 100 butiker under de kommande fem till åtta åren. Baserat på detta mål måste gruppen öppna 13 till 20 butiker per år. Detta är redan på gång eftersom ledningen har säkrat 29 leasingavtal för nya butiker under de närmaste 18 månaderna. Expansionen kommer att bli tvåfaldig: öppna nya detaljhandelapotek och konvertera befintliga oberoende apotek till Dis-Chem-butiker. Dis-Chem äger även ett grossistföretag som, trots att det är en liten bidragsgivare nu, är redo att expandera. Målet är att fånga upp leverantörskedjorna för oberoende apotek och expandera till distributionsverksamheten, varigenom det skulle tjäna både grossister och återförsäljare. Dessa initiativ kommer att ha en betydande inverkan på Dis-Chems lönsamhet. Eftersom det ökar sin butikstalning kommer det att kunna utnyttja den befintliga huvudkontorets kostnadsbas och förbättra vinstmarginalerna. DisChem har under de senaste åren gjort betydande investeringar i huvudkontoret, som nu har en personalandel på 651. Ledningen anser att huvudkontorets kostnadsbas på cirka R316m per år är tillräcklig för att tillgodose sin medellångsiktiga tillväxt. Det innebär att det kan fördubbla sina butiker utan någon betydande ökning av de fasta kostnaderna, en faktor som vi förväntar oss kommer att öka marginalerna. Management säger att nya butiker normalt återhämtar alla kostnader som är förknippade med deras öppnande inom 18 månader efter handel och når löptiden inom fyra år. Vid förfallodagen beräknas varje butik på 1800m2 ha en omsättning på upp till R198 miljoner och Ebitda på cirka R15 miljoner enligt våra beräkningar. Det innebär att 20 nya butiker öppnas kommer att ha möjlighet att lägga mellan R2,2 miljarder och R4 miljarder till intäkter. Efter att ha funderat på de olika mognadsnivåerna för befintliga butiker och den planerade expansionsstrategin tror vi att den genomsnittliga tillväxten på 21 per år över de närmaste fem åren är möjlig. Hur ska Dis-Chem finansiera tillväxten Dis-Chems planerade butiker kommer att ha golvstorlekar från 1000m2 till 1800m2. Storaffären kostar cirka R22 miljoner, inklusive investeringar och rörelsekapital. Förutsatt att koncernen vill nå sitt mål på kortast möjliga tid (fem år), måste den spendera ungefär R240 miljoner - R400 miljoner på nya butiker varje år. Dessutom måste den renovera sina äldre butiker. Dis-Chem tenderar att renovera sina befintliga butiker vart sjunde år till en kostnad av 40 av den ursprungliga investeringen. Vi tittar på utgifter i regionen R500 miljoner per år på butiker. Dis-Chem är mycket kontantgenererande, med tillräckligt med pengar från verksamheten för att finansiera huvuddelen av expansionsplanen från interna resurser. Trots att koncernens kassaflödesanalys visar att verksamheten har blöder kontant under två och ett halvt år till slutet av augusti, anser vi att det finns gott om utrymme för att vända trenden. Dis-Chems utdelningsräkning på 2,1 miljarder kronor över den perioden åt cirka 90 av de pengar som genererats från handelsverksamheten. Detta, tillsammans med vad som verkar vara ett löpande rörelsekapitalhanteringssystem, orsakade nettoutflödet. Den första möjligheten kommer givetvis att vara att sänka utdelningsutdelningen. Ledningen indikerar att det kommer att begränsa utbetalningsgraden till 40. Baserat på vår resultatberäkning på R891 miljoner för FY18 kommer cirka R500 miljoner att redovisas som utdelningar, vilket är betydligt lägre än R1,1 miljarder betalade i FY16 och R890 miljoner som redan har betalats i 1H17. Det kommer att frigöra mycket pengar för att kanaliseras mot butiksutvidgningar. Värdering Vår diskonterade kassaflödesmodell visar Dis-Chem aktier är värda R19.11share. Vi ser ingen köpmöjlighet till det aktuella priset. Men chunky värdering innebär att det inte är något billigt. Orin Tambo, CFA Intellidex Dynamique-modellen bara NEDC kombinerad bränslecykel Ts och Cs gäller Klicka här för att spela video Rollover bilder för att förstora Den nya RENAULT Kwid låter dig leva för mer upptäckter, mer spänning och mer erfarenheter. Så varför inte göra det i stil Med sin crossover look, du är bunden att vända huvud längs vägen. Den 7 pekskärmsnavigering komplett med ett multimediasystem låter dig lyssna på dina favoritspår direkt från din telefon. Dessutom ger RENAULT Kwid dig platsen att vara exakt vem du vill vara, där du vill vara med sitt 300 l båtutrymme och bekväm stuga. utrymme för att vara exakt vem du vill vara, där du vill vara med sitt 300 l båtutrymme och bekväm stuga. Med sin SUV-inspirerade design markerar New RENAULT Kwid också lådorna med en jämn och ekonomisk körning med elstyrning, förarsidan airbag och bränsleförbrukning på 4.7l100km. Bo för mer i den nya RENAULT Kwid, från endast R1 999 per månad. Invicta Aktiekurs Invicta har imponerat på bottenlinjen med tvåsiffrig tillväxt under delårsperioden till slutet av september, och levererade på ett av sina löften i början av FY17 för att öka kostnadskontrollen. Tillväxten på topplinjen är dock fortfarande en utmaning, men den är fortfarande i enstaka siffror men bättre än i fjolårets tillväxt. Invictas hög exponering för den stagnanta ekonomin där den genererar mer än tre fjärdedelar av intäkterna, särskilt de konjunkturella sektorerna gruvdrift, jordbruk och byggande, är en utmaning. Det är uppmuntrande att ledningen har levererat några av de mål som anges i början av FY17. Vidare har den återställt rörelsekapitalet i sin verksamhet, vilket ger positiva operativa kassaflöden för första gången på mer än två år. Men den här typen av inkomsttillväxt är inte hållbar så länge som den dubbelsiffriga omsättningsökningen förblir ojämn. Nettoskuldsättningsgraden är fortsatt hög på mer än 115 men den är en förbättring jämfört med föregående årsskift 135 och minskades av förbättrade kassaflöden som gjorde det möjligt för Invicta att minska en liten del av sin asiatiska skuld. Utsikter Med tanke på huvudvaran hos de varor som levereras av koncernen är utsikterna fortfarande osäkra. Det finns emellertid tecken på att världsmarknadens råvarumarknader har bottnat medan de senaste regnbågarna har förbättrat utsikterna för jordbrukssektorn. Ledningen säger att det kommer att fortsätta arbeta med att förbättra interna effektivitet och förbättra kontantgenerering. För det ändamålet inledde den en omvänd strategi för sin asiatiska arm, Kian Ann, för att anpassa verksamheten till lägre aktivitetsnivåer och minska rörelsekapitalet. Detta kommer sannolikt att se ytterligare återhämtning av operativa kassaflöden. För att förbättra försäljningen pågår initiativ för att utvidga distributionsfotavtrycket till nya områden. I SA har byggandet av en expanderad monteringsanläggning påbörjats i Camperdown, KwaZulu-Natal. Och BMGs världsfördelningsanläggning i Johannesburg förväntas öppna i början av FY18, vilket kommer att medföra betydande kostnadsbesparingar och effektivitet. I början av FY17-ledningen har flera mål uppställts och det har gjort bra på att minska kostnaderna och minska rörelsekapitalet. Inkomsterna ligger dock under par. Vidare har det medelfristiga mål att uppnå omsättning på R25 miljarder år 2020 med cirka hälften av den som genereras utanför SA. Den tidigare innebär att Invicta måste öka intäkterna med en sammansatt årlig tillväxttakt på 30 på kort till medellång sikt, vilket är svårt att svälja med den nuvarande tillväxttakten på endast 8. Förvärv kan ge underskottet Invicta handlar med försiktighet påstående. Och medan den balanserade balansräkningen kan vara en hindring, har Invicta förbättrat sin kassaposition väsentligt. Det kan också behöva gå till aktieägarna för ytterligare kapital. Det skulle utspädning per aktie mätvärden. Men med stöd av sin ankare aktieägare, Christo Wiese, är det möjligt. Resultatöversikt Huvudsakliga vinstdrivningar har drivits av olika kostnadsminskningsåtgärder och justering av vinst från en tillgångsförsäljning under basperioden. Om effekten av engångsavkastningen på fastighetsförsäljning under föregående period avlägsnades (för beräkning av vinst) ökade rörelseresultatet 22. Förvärv bidrog med R19 miljoner eller 4 till tillväxten i rörelseresultatet, med balansräkningen tillväxt som kommer från bruttomarginalhantering och kostnadsbegränsning. Kapitalinstrumentet ökade intäkterna 4 till R2,38 miljarder och rörelseresultatet ökade med 21 till R219 miljoner. Rörelsemarginalen förbättrades till 9,2 från 7,9. Även om intäkterna i den lokala verksamheten var plana ökade rörelseresultatet 36 på grund av kostnadsbesparingen. Rörelsekapitalet minskade också och kassaflödet från verksamheten förbättrades. Svaga ekonomiska förhållanden i Asien resulterade emellertid i att Kian Ann-resultatet sjönk ytterligare. Divisionen Engineering Solutions ökade omsättningen med 13 till R2,35 miljarder och rörelseresultatet ökade 24 till R241 miljoner medan förvärv ökade försäljningsökningen med R175 miljoner (8) till R21million (11) till rörelseresultattillväxten. Rörelsemarginalen förbättrades till 10,3 från 9,3. På samma sätt förbättrades det operativa kassaflödet på grund av optimering av rörelsekapitalet. Segmentet byggnadsvaror ökade intäkterna 9 till R1,02 miljarder medan rörelseresultatet var platt med R45 miljoner. Rörelsemarginalen sjönk till 4,4 från 4,9 - långt bort från ledningsgruppens mål på 6. Investeringsuttalande Vi hade tidigare ett försäljningsanrop på räknaren, men aktiekursen ökade efter att den släppte ut dessa resultat på medellång sikt på grund av en överraskning i resultatposten. Efter att ha uppdaterat vår värderingsmodell mot bakgrund av de bättre än förväntade delresultatet verkar disken nu vara handel inom sitt eget värde. Aktiekursen kan komma att höjas från möjliga företagsaktioner, eftersom ledningen nyligen har utfärdat ett varningsmeddelande. Även om den har stor skuld, sitter Invicta på R957 miljoner i kontanter mer än dubbelt så mycket i 1H16. Också räkningen kan fungera bättre vid årsskiftet eftersom koncernen sannolikt kommer att släppa ut starka helårsbaserade mätvärden på grund av sina kostnadsbesparingsåtgärder som har resulterat i en ökad vinstmarginal. Vi ändrar vårt samtal för att hålla från att sälja. Hög skuldnivå Något lokalt och globalt perspektiv. Begränsade investeringar från nyckelkunder. Affärsområde: Invicta Holdings Ltd är ett investmentholdningsbolag med tre huvuddotterbolag: Bearing Man Group (BMG), Capital Equipment Group (CEG) och Building Supply Group (BSG) ). Dessa opererar mer än ett dussin divisioner som är involverade i import och distribution av tekniska förbrukningsmaterial, kapitalutrustning och byggmaterial. Invicta förvärvade 2013 Singapores Kian Ann Engineering för att leda bolagets expansion i sydöstra Asien. Upplysningar: Analytikern har ingen ekonomisk exponering för det diskuterade instrumentet. Åsikten representerar hans sanna uppfattning. För Intellidexs fullständiga ansvarsfriskrivning, metoder och definitioner, vänligen klicka här. dela på facebook Kostnadsbegränsningsinitiativ buttressing vinstmarginaler Förbättring av rörelsekapital och kontantposition Bolagsaktion i offsiet Förbättra utsikterna för jordbrukssektorn HUR DU ANVÄNDER DENNA MAGAZINE Invicta: Hålls gisslan med låg ekonomisk tillväxt Kostnadsbegränsning ökade vinsttillväxt Phibion ​​Makuwerere Intellidex Invicta har imponerad på bottenlinjen med tvåsiffrig tillväxt under delårsperioden till slutet av september, och levererade på ett av sina löften i början av FY17 för att öka kostnadskontrollen. Tillväxten på topplinjen är dock fortfarande en utmaning, men den är fortfarande i enstaka siffror men bättre än i fjolårets tillväxt. Invictas hög exponering för den stagnanta ekonomin där den genererar mer än tre fjärdedelar av intäkterna, särskilt de konjunkturella sektorerna gruvdrift, jordbruk och byggande, är en utmaning. It is encouraging that management has delivered on some of the objectives it set out at the beginning of FY17. Further to astute cost-containment, it has recovered working capital in its operations, generating positive operating cash flows for the first time in more than two years. But this type of earnings growth is not sustainable as long as double-digit revenue growth remains elusive. The net debt-to-equity ratio remains high at more than 115, but its an improvement from the previous year-ends 135 and was brought down by improved cash flows that enabled Invicta to reduce a small portion of its Asian debt. share on twitter HOW TO USE THIS MAGazine At the end of 2001, more than four times as much money was invested in local equity unit trusts as was held in multi-asset funds. Over the past 15 years however, this has reversed dramatically. There is now more than twice as much money held in balanced funds as there is in pure equity unit portfolios. Balanced funds have quite clearly become the preferred vehicle for South African investors. More specifically, multi-asset high-equity funds have become easily the largest local unit trust category. At the end of September, the Association for Savings and Investment South Africa reported that R428.7 billion was invested in these mandates, which is nearly half of all the money held in South African balanced funds. A large part of the reason that these funds have become so popular, is that the best of them have been able to produce equity-like returns, at much lower risk. Since most of them comply with Regulation 28 of the Pension Funds Act, they can also be used in retirement-funding vehicles such as retirement annuities. However, the popularity of these funds has also meant that more and more managers have wanted to compete in this space. However, the popularity of these funds has also meant that more and more managers have wanted to compete in this space. There are now over 200 multi-asset high equity unit trusts, making it rather difficult for investors to identify the ones appropriate for their needs. While past performance should never be used as the only indicator of a funds quality, it is a good place to start. And it is therefore worth looking at which of these unit trusts have produced the best longer-term returns. Taking a longer-term view, the table to the right shows the top ten funds in this category over the past ten years. There are only 41 multi-asset high-equity funds with track records this long. This excludes five of the top performers over five years the Truffle, Rezco Managed Plus, Nedgroup Investments, Personal Trust and Plexus unit trusts. Over this longer period, there are five funds with records better than the Alsi. At the same time last year, there was only one. That was the Rezco Value Trend Fund, which continues to be the top performer in this category over the long term. It also stands out for delivering annualised returns, more than 1.5 better than any of its peers. It is also notable that the Allan Gray, Coronation and Investec funds are all near the top of this list. These are three of the four largest funds in this category, which together hold 47.5 of all the money invested in multi-asset high-equity portfolios. This suggests that the average investor has done pretty well from investing in a balanced mandate. share on facebook The favourite favourites share on twitter The first thing worth noting is that the top 14 funds all delivered returns ahead of the JSE All Share Index (Alsi). This is up from just three funds that had out-performed the market over five years at the same time last year. To a large extent, this has to do with the relatively poor performance of the local equity market over the past 36 months. These balanced funds have done better than South African equities because they have been able to find alternative sources of return, particularly offshore. However, investors should also be aware that these 14 funds that beat the index, represent only around 17 of the unit trusts in this category with track records this long. The average fund has produced returns significantly below those of the equity market. This highlights just how difficult it is to select a manager who will be able to produce this kind of performance, as it is very difficult to tell beforehand who the winning managers will be. That said, the Truffle MET Balanced Fund stands out ahead of all its peers in this category over this period. It currently allocates only 43 of its portfolio to South African-listed shares, with 23 held offshore and over 6 in listed property. What is also remarkable is that it has delivered these strong five-year returns, even though it has been negative over the last 12 months. The Rezco Value Trend Fund has been a top-performer in this category for many years and continues to produce outstanding performance. At the moment it is also one of the most conservatively-positioned funds in its class, with just 20 allocated to local equity and nearly 60 of its portfolio in cash. Even so, it has also been negative over the last year, which illustrates just how difficult the current investment environment is. Another fund worth highlighting is the Nedgroup Investments Core Diversified Fund, which is a passive balanced fund. In other words, it only uses index-tracking products for its underlying exposures and therefore comes at low cost. It is exceptional that this strategy has delivered returns not only better than the Alsi, but better than 85 of the funds in its category. Taking a longer-term view, the table below shows the top ten funds in this category over the past ten years. SAs top multi-asset high equity funds Embracing both the letter and spirit of transformation successfully lands AB InBev - SABMiller combination in South Africa Anheuser-Busch InBevs (AB InBev) GBP79 billion combination with SABMiller represents the largest in the global beverages industry. It is also the largest foreign direct investment into South Africa to date. South Africa was identified as one of the four geographies in which regulatory approval was a pre-condition to the closure of the global transaction. South Africa contributed USD1 billion of SABMillers EBITA, representing approximately 15 of the companys group EBITA. South Africas complex economic transformation legislation, developed in support of the governments broader national development goals, required advisors experienced in South African legislation and conversant with national development principles. Central to this was established relationships with government and key labour and supplier stakeholders, says Frad Shoko, Head, Global Advisory at Standard Bank. These considerations saw AB InBev appoint Standard Bank as financial adviser in relation to Africa matters, joint transaction sponsor in respect of the inward listing on the JSE and listing of AB InBev, and foreign exchange provider on AB InBevs business combination with SABMiller. Regulatory approval was obtained following extensive consultative stakeholder engagement. The South African pre-conditions for the merger were twofold, namely South African Competition Tribunal approval, and receipt of exchange control approval from the Financial Surveillance department of the South African Reserve Bank. In practical terms this meant securing legislative approval from the South African Competition Tribunal and the South African Reserve Bank. In philosophical terms, however, AB InBev was required to understand and buy-in to a higher vision of the South African market. AB InBev consulted closely with a number of stakeholders, including various government ministries to understand and support - their visions for the development of the South African economy. By demonstrating their commitment to work within both the letter and the spirit of South Africas economic transformation agenda, AB InBev quickly secured Competition Tribunal approval. The listing on the JSE was carried out by way of a fast-track listing process available to corporates already listed on major exchanges elsewhere in the world. The process took 21 days from application to listing, a record turnaround time for the JSE. The process also involved ground breaking mechanisms to achieve fungibility and liquidity between Euronext and the JSE, explains Mr Shoko. The record time in which approval was granted, had a lot to do with how, supported by Standard Bank, AB InBevs supply chain and procurement teams developed a transformative supplier programme. This included a ZAR1 billion fund to support small-holder farmers while promoting enterprise development, local manufacturing, exports and jobs. The programme also included measures to reduce the harmful use of alcohol while promoting green and water-saving technologies. Each element of this far-reaching package of commitments required an understanding of the South African operating and regulatory environment, as well as insight into the objectives and priorities of key stakeholders in the country, adds Mr Shoko. Characterised as ground-breaking by the South African Government, AB InBevs commitment to the broader national development goals of South Africas transformation programme provides a benchmark to global businesses seeking to invest in South Africa. They also demonstrate the importance of a thorough approach to the regulatory processes and stakeholder engagement. Standard Bank is also present and fluent within all 15 African legislative environments which were pertinent to AB InBevs combination with SABMiller. From the outset AB InBev made it clear that Africa would play a vital role in the combined group. This, combined with the philosophical understanding and technical ability to land a transaction of this size in the South African market, made Standard Bank the obvious choice as an advisor for the African leg of this ground-breaking global beverages combination, says Mr Shoko. HOW TO USE THIS MAGazine Financial services companies on the JSE have been through a torrid time over the past 12 months. They have often born the brunt of South Africas political uncertainty. Nenegate in particular, saw a sharp sell off in these shares in December last year. Concerns around a potential credit downgrade also continue to weigh them down. While the FTSEJSE All Share Index is more or less flat over the past 12 months, the Financial 15 Index is down around 10. This is some indication of how the market views these companies at the moment. Managers of financial equity funds have therefore had a challenging time in putting their portfolios together. They have had to be very conscious of managing risk in this environment. The tables on the following page show which counters three financial sector fund managers have bought into, and which they sold out of, over the 12 months to the end of September 2016. The share must have had a weighting of more than 1 to be considered. The tables also show any notable and substantial changes to positions within the funds. The Stanlib Fund was the most active of the three, in terms of buying into new positions. It saw value in a range of counters, from the JSE to long-term insurer Alexander Forbes and asset manager Coronation. Coronation has been generally out of favour among investors as the markets have not been supportive of the business over the last two years. However, the share has shown recent signs of recovery. Although it is still below the highs it reached towards the end of 2014, it is up more than 40 for the year to date. Like the SIM Fund, Stanlib also holds a generous portion of its portfolio in listed real estate. Apart from buying into Capital Counties, the fund also has exposure to Growthpoint, Redefine and Resilient, with propertys total weight in the fund being over 10. share on twitter share on facebook The SIM fund managers have made a clear decision to increase their exposure to listed property. The fund only had minimal exposure to real estate counters in September 2015, but a year later it had grown to close to 10 of its portfolio. A good chunk of this was offshore, through the likes of Intu, Capital Counties and Investec Australia. The fund also bought heavily into RMB Holdings, which has property exposure through its interest in Atterbury. Although Discovery was the only stock they sold out of, the managers also substantially decreased exposure to a number of companies with a primarily local focus the likes of Sanlam, Nedbank, JSE and PSG. The fund also offloaded most of its holding in FirstRand, but this was offset through its buying of RMB Holdings at the same time. FirstRand is still by far the largest part of RMB Holdings portfolio. What top financial sector fund managers have been buying and selling HOW TO USE THIS MAGazine The Christmas decorations have gone up and Santa Claus is coming to town (or at least shopping malls are going to town with the tune). mind, the bank has focused on building targeted solutions for specific professions. For instance, it has built Mercantile Online Invest, which simplifies the management of trust accounts for lawyers, estate agents and forex intermediaries. This has seen deposits increase by R1.9 billion over the past 18 months. This month, Mercantile will be launching a unique offering for professionals initially focused on the medical sector - whereby the bank will help chiropractors, dentists, physiotherapists and others with the financing necessary to establish their practice. This offering is supported by the rental finance business, Mercantile Rental Finance, which has 10 000 clients and has seen its rental book grow from R30 million to R660 million in five years. These may not be big numbers, but in percentage terms Mercantile increased its deposits, lending and profitability by over 20 between October 2015 and October 2016 in a period when lending to SMEs has been flat. For Kumbier, developing targeted solutions for entrepreneurs comes naturally. My father set up a textile factory in the 1970s, my sister is a chiropractor and my brother has a business in the motor industry. As an accountant he has been exposed to entrepreneurs in diverse ways: Ive loved working with entrepreneurs whether buying and selling their businesses in corporate finance, providing business banking services or helping to grow a bank in Ghana all of these experiences have created a passion for entrepreneurs and growing small business. It is the time of year when starry-eyed children write to Santa or look to parents and grandparents in the hope of getting their hands on the latest gadget or toy. While adding an investment to a Christmas stocking may (literally) not have the same ring to it, it can be a great way to teach children about money, and get them interested in the investment process. Warren Wheatley, chief investment officer at TSS Capital, says it is an exceptionally good idea to give investments as gifts. In investing, the earlier you start the better, because of the benefits of compound interest, he says. Besides the obvious financial benefits, the mechanism of the gift allows for recurring gifts over the years and can facilitate the pooling of family resources. Friends and family can jointly contribute to a single investment structure at every gifting occasion, he adds. Lynette Wilkinson, Certified Financial Planner and retirement specialist at Chartered Wealth Solutions, echoes his sentiment. An investment is a gift that lasts and grandparents can participate in teaching their grandchildren the value of saving. Investments generally have a longer useful value than most toys would. As children grow older and see the value of their investment increasing annually, the excitement will grow, adds Martin de Kock, Certified Financial Planner and director of Ascor Independent Wealth Managers. share on facebook Investments in the Christmas stocking share on twitter Its also a great learning opportunity to teach children from a young age what saving and investing is all about. Generally there is a big shortage of financial skills among young children and even teenagers, because parents dont spend enough time discussing financial issues and basics with their children. De Kock says grandparents find joy in childrens reaction when they receive and open a gift. To still experience this joy it may be practical to buy a small and cheap gift along with the investment certificate. Parents and grandparents should take time to explain the long-term benefits of the investment and can consider using a maize seed as an example, De Kock says. You can grind the maize seed now and eat it as porridge, or you can plant the seed and harvest numerous maize seeds in a years time, giving you maize to eat and more to plant for a later harvest. There are numerous investing principles that can be explained, depending on the age of the child. An important principle is that of delayed gratification and saving for something bigger in the future, he adds. Wilkinson says she generally recommends a balanced diversified fund on a unit trust platform, that can also accommodate other funds if they want to have some money market exposure for shorter-term saving objectives. In her experience, getting children excited and involved in money and investment affairs will depend on the adults involvement in the investments. If they are interested they will pass that on to the children and be able to discuss it. Buying a tracker fund like Satrix or Coronations Top 20 fund, allows the adult to discuss the companies owned by the fund. As an investor, one can then point out where their offices are and what they do as part of an everyday experience. Wheatley says his son is a typical 11-year old who loves video games and is allowed limited access to social media. Since he constantly looks things up on the internet and watches YouTube videos all the time, it was easy to peak his interest in investments by looking directly at shares like YouTubes parent company, Google, as well as Amazon and Facebook. In short, we built a share portfolio made up almost exclusively of companies whose products and services he uses or wants to use. It also provides a mechanism to start teaching the basics of fundamental analysis by comparing the various companies. Start small Even if you prefer to go the traditional gift route, there are some interesting apps that could assist in teaching children about money and investments without necessarily having to invest. Standard Bank recently launched Kidz Banking, an educational app aimed at children between the ages of six and 11. In the investment space, SatrixNOW offers investors the option of buying a voucher as a gift. The minimum is set at R50. The depreciation of the rand has created significant interest in offshore investments, but although they are an integral part of a diversified portfolio and can offer access to sectors not represented in the local market, the decision should not be informed by short-term currency weakness. Equity markets are generally quite expensive and sudden rand strength may impact returns in the short term. This should be a long-term decision. CoreShares recently launched two exchange-traded funds (ETFs) that offer global exposure by tracking the SP 500 and the SP Global Property 40 indices. Getting children excited about non-traditional gifts There are numerous investing principles that can be explained, depending on the age of the child. A deadly serious business that requires a strategy HOW TO USE THIS MAGazine In a depressed economy where small businesses are being squeezed left, right and centre, Mercantile Bank has grown its assets under management by 55 between 2013 and 2016. It has done this by taking market share from the bigger banks. Our sole purpose in life is to grow entrepreneurs, says Karl Kumbier, CEO of the bank, which is owned by Caixa Geral De Depsitos, a Portuguese Government-owned international banking group. Just as Capitec focuses on the market less served, and Investec targets high net wealth individuals, Mercantile has created a niche, focusing on small and medium sized businesses only. SMEs have been badly serviced in the past and we believe we can make a difference, he says. Growth has had to come from market share because the sector is not growing. It is a tough environment for SMEs, Kumbier says. share on facebook Young, promising, enterprising, innovative There are numerous investing principles that can be explained, depending on the age of the child. share on twitter It has done this by taking market share from the bigger banks. Our sole purpose in life is to grow entrepreneurs, says Karl Kumbier, CEO of the bank, which is owned by Caixa Geral De Depsitos, a Portuguese Government-owned international banking group. Just as Capitec focuses on the market less served, and Investec targets high net wealth individuals, Mercantile has created a niche, focusing on small and medium sized businesses only. SMEs have been badly serviced in the past and we believe we can make a difference, he says. Growth has had to come from market share because the sector is not growing. It is a tough environment for SMEs, Kumbier says. Large corporates are paying late and small operators are struggling to collect debtors. On average, debtors days have moved from about 45 days to 50 days. But entrepreneurs are resilient. They are looking for new opportunities. Even if they are just covering costs at the moment, markets will turn, and the good companies will remain. While Mercantile will support any business with an entrepreneur behind it, from a hairdresser to Richard Branson, it is not a banker to startups, he says, acknowledging that it is very difficult for startups to raise money. Roughly eight out of ten start-ups will fail. But the two out of ten that are generating positive cash flow and are profitable we will provide them with solutions. While Mercantile banks thousands of SMEs, and is partnering with fintech companies and market disruptors such as Yoco, Forex People and SureSwipe, Kumbier acknowledges the company does not have a strong brand. We have 1 share of the market so we fly under the radar. Sometimes clients have been turned down by other banks before they come to us. This is not a deterrent, he says. If our credit committee which meets every afternoon at 4:30 - buys into the vision and business plan, clients can have an indicative answer by the next morning. In one instance, a security company with 2 000 guards approached the bank after being turned down by others. With the banks backing they have grown to the point that they have over 10 000 guards and are still growing. While total assets under management have grown from R7.5 billion in 2013 to R12 billion in 2016, Kumbier says that growing deposits is the challenge for small banks. With this in mind, the bank has focused on building targeted solutions for specific professions. For instance, it has built Mercantile Online Invest, which simplifies the management of trust accounts for lawyers, estate agents and forex intermediaries. This has seen deposits increase by R1.9 billion over the past 18 months. This month, Mercantile will be launching a unique offering for professionals initially focused on the medical sector - whereby the bank will help chiropractors, dentists, physiotherapists and others with the financing necessary to establish their practice. This offering is supported by the rental finance business, Mercantile Rental Finance, which has 10 000 clients and has seen its rental book grow from R30 million to R660 million in five years. These may not be big numbers, but in percentage terms Mercantile increased its deposits, lending and profitability by over 20 between October 2015 and October 2016 in a period when lending to SMEs has been flat. For Kumbier, developing targeted solutions for entrepreneurs comes naturally. My father set up a textile factory in the 1970s, my sister is a chiropractor and my brother has a business in the motor industry. As an accountant he has been exposed to entrepreneurs in diverse ways: Ive loved working with entrepreneurs whether buying and selling their businesses in corporate finance, providing business banking services or helping to grow a bank in Ghana all of these experiences have created a passion for entrepreneurs and growing small business. Yoco is a small business to watch Exchange-traded funds are catching on. Research by my firm, Intellidex, recently found that, after cash equities, ETFs are the most traded form of stock market investment among South African retail investors. share on twitter ETFs: Miracle product There are ways around this many ETFs rebalance at set intervals, such as quarterly. But still, as long as active investors know when ETF-related flows are going to hit the market, they can front run them. According to Bloomberg, ETF front-running costs the funds about 4.3 billion a year, an amount equal to double or triple the overt costs they charge investors. This is often not visible to investors, disclosed as the tracking error of the fund, rather than the charges that are actually levied. But when the all-in cost to investors is added up, the cost advantages of ETFs relative to actively managed funds becomes much less clear. The SEC is more worried about systemic risks around ETFs, such as their potential to exacerbate violent flash crashes in market movements. It was particularly concerned following major movements in August 2015, when 1 000 securities were suspended from trade in a single session after they triggered emergency volatility circuit breakers. That was largely blamed on ETFs. A much older criticism of ETFs, often mounted by the active fund management industry, is that they make dumb investment decisions, buying stocks that have been winners and become larger parts of indices, while selling losers. As a general investment strategy, that stands in conflict with value buying, picking up unloved companies whose prices have shifted too low and selling the stars. The criticism is that an index-tracking strategy is likely to systematically bias investors toward winners and against losers, so pushing share prices into bubble territory. Another criticism is that ETFs are, by definition, not active investors, so they play no oversight role over the companies in which theyre invested. ETFs dont vote on shareholder resolutions, let alone criticise management decision-making. For errant management, having a large passive investment base in your shareholding will make life very comfortable. A related criticism is that pricing of securities in a market with heavy ETF participation is going to be less efficient, in the sense that prices wont be as responsive to new information. For South African investors, the debates that are increasingly occurring in the US are interesting to watch, but the role of ETFs here has not yet grown to levels that provoke the same concerns. ETFs remain a clearly superior way to obtain broad exposure to an asset class without having to fear some of the downside risks worrying regulators elsewhere. Someday, however, that may no longer be true. share on facebook Of 6 300 respondents to an online survey of stockbroking account holders this year, 28 said they use ETFs compared with 20 two years ago. The growth has been supported by the fact that tax-free savings accounts, which became available from stockbrokers in March 2015, are only allowed to invest in the stock market through ETFs and unit trusts, and not individual shares. National Treasury argues that the instruments are lower risk than ordinary shares because they give investors exposures to portfolios rather than individual shares, which can be more volatile. ETFs appear to be a miraculous product. You get the benefits of tracking an index without the expense of having to pay a fund manager to look after it, or the hassle of trying to assemble a portfolio on your own. Costs are almost always under 1 per year and as low as 25 basis points for simple index trackers. Plus, unlike unit trusts, they can be bought and sold immediately while markets are open and prices are easily visible. Regulators here have long pushed for increased use of passive products like ETFs as a cheaper option for savers and pension funds. But, in places where such funds have had the most success, regulators are starting to worry. In the US, which has 70 of the worlds ETFs by value, ETFs hold 30 of all shares. The US Securities and Exchange Commission (SEC) recently began a full review of the industry, worried that the flow of funds into ETFs is contributing to market volatility. The problem with passive investing is that buy and sell decisions are automatic. For a typical index tracker, if a stock goes up in value the funds have to buy it, and if it goes down in value they have to sell it. So you can see how ETFs might exacerbate market movements, amplifying the impact of active buying and selling decisions. For active investors, those movements will range from irrelevant to a source of further profits. If you are able to anticipate the herd of buying and selling that follows movements in the market, you should be able to game the ETFs. One simple strategy would be to sell before the ETFs follow and then pick up shares as their selling subsides and ride the price back up as they follow suit. With enough active investors doing that, it would become impossible for ETFs to track an index very closely, lagging index movements. As it is, ETFs typically deliver a return slightly behind the index. As they grow, market distortions are appearingThe Forex miracle: Earn 600 per annum Trader makes effective annual growth of 10 840. Malcolm Rees nbspnbsp 16 May 2013nbsp23:30 JOHANNESBURG 8211 Last month Moneyweb reported on the investment scheme, NaxaInvest. which offered investors returns of 2 a day, ostensibly through trade in the foreign exchange market (forex). Following the report, the Financial Services Board (FSB) was quick to issue a statement warning investors to avoid the scheme as it was not an authorised financial services provider. Surprisingly, forex proponents have mounted a defence of Naxarsquos claims that returns in excess of 600 are possible through currency trade. One such forex guru is FSB-licenced Johan van As. ldquoSuccessful forex traders can do much better than the 2 profit per day offered by these schemes, rdquo he claims. Through his company ForexMasters. Van As offers clients three-day forex training programmes from his home, at a cost of R10 000. A hefty fee, perhaps, but not if the kinds of returns Van As claims to be able to help his clients achieve are possible. In defence of his claims, Van As has provided Moneyweb with the prospectus of PrivateFX. a privately-managed forex programme which claims to have generated a 716 compounded return in 14 months. He also claims that international forex guru Greg Secker charges R25 000 for two days of training and three hours of telephonic backup, in comparison. However, Van As warns: ldquocompanies trading on behalf of clients are very careful with their money management and risk-taking. ldquoTherefore the results are lower than an individual can do. rdquo Individuals raking it in Such individuals include Van Asrsquo client Adrian, who apparently deposited 337.60 into his trading account on July 11 2007, and claims to have made a profit of 9 133.00 within the following three months. Thatrsquos equivalent to an annual growth of 10 840. Moneyweb has a copy of his accounts, which indicate these growth rates to be accurate. Another such successful forex trader is Lourens Smit, an 80-year old pensioner, a Van As client. ldquoForex for the right man, if you are reasonably knowledgeable with figures, is a gift from heaven, rdquo he says. ldquoI am not prepared to guarantee this but I have made an average of 10 every month. I started with 8k and I worked it up to a very substantial amount hellip of quite a few hundred thousand dollars within less than a year, rdquo he said. ldquoThere is no way that anybody with all the experience in the world can teach you what is going to happen in the next five minutes. But there are trends to follow and there are 101 different methods you can employ to help you decide if this is a long shot or short shot, rdquo he says. A choir of champions ForexMasters is by no means a sole voice singing the song of fantastic forex returns. Instead it appears to be joined by an ever-intensifying choir of forex proponents. Through his twitter stream, Van As promoted the US forex software, forexdominator. whose creator, Cecil Robles, claims to be able to predict moves in the currency market with 84 accuracy. By purchasing the software forex investors ldquodonrsquot have to do practically anything except decide how much profit you want to make on the opportunities the software alerts you to and occasionally monitor your open tradesrdquo. The software is based on 25 000 of research and development and ldquoit does 99 of the heavy lifting for you, rdquo he claims. Greg Secker, has also been making his rounds in SA8217s motivational speaking forums, including at Sandton City, through the lsquoKnowledge to Actionrsquo campaign. Secker8217s promises of delivering the 8220greatest opportunity in the history of mankind8221 through rapid forex millions has been questioned by the UK8217s Guardian. which revealed that his trading subsidiary had net assets of just pound91 132 on 31 December 2010 and made a loss during the year of pound97.13. Locally, the investment platform Trading Results offers investors access to the fantastic returns generated by the US platform which shows a 931.13 gain since November 2011. Trading Resultsrsquo website had originally promised investors a 3 to 5 growth per month, but seems to have altered the statement since it was informed by Moneyweb that promising returns in excess of 20 per annum above the Repo rate is illegal according to the Consumer Protection Act. Vista ldquohave published their results since 2009 and have shown a growth of more than 60 per annum and last year they showed their growth of 100,rdquo says Trading Results director, Pierre Van der Walt. ldquoSo we say that we offer 40-60 growth which is less than that. rdquo While many forex trading platforms offer an easy and rapid gateway to untold millions Van As is a little more forthcoming regarding the risks involved. ldquoForex trading is not an easy activity, rdquo he says, although adding that ldquoit is also not too difficult. rdquo ldquoYou need to be a very disciplined person, you must have lots of patience, must be able to endure stress, must have a good understanding of the markets and must have a good method to interpret the market moves, rdquo he says. ldquoThe trader must be comfortable with the risk and must accept the fact that he can lose his money if he makes too many mistakes. ldquoIt takes time to develop skill in trading. There unfortunately is no quick-fix or get rich-quick recipe. rdquo However, even in light of Van Asrsquo warning, the apparent opportunity for laymen to generate returns which dwarf those achieved by professional fund managers does beg a certain obvious question. Why arenrsquot more investment managers placing clientrsquos money in Forex funds and why arenrsquot plethora of forex experts who offer training not simply entering the market themselves to generate the returns they promise instead of spending time delivering the expensive, but not fantastically expensive, training programmes they offer ldquoForex markets are unpredictable and volatile, so this means that there is potential to make a lot of money, but the opposite is also true, rdquo says Chantal Robertson, head of Specialist Sales at FNB. ldquoThe forex markets would be a high risk investment, and one would therefore expect to make a better return when compared to say an equity investment. However, ldquogiven the volatility of the markets, it is unlikely that massive returns would be achievable on a sustainable basis. ldquoA word of caution for all potential investors when being promised such brilliant returns is that they need to ensure that they are using a reputable firm. This is especially true when using a foreign trading platform. ldquoTypically individuals fund this by way of their foreign investment allowance, which is subject to the standard regulatory requirements. rdquo Tanya Woker, former vice-chairperson of the Department of Trade and Industryrsquos Consumer Affairs Committee has also warned that, as with NaxaInvest, promises of fantastic returns through investment opportunities such as Forex are commonly used as a front to lure investors into illegal get-rich-quick schemes such as Ponzis and pyramids. Robertson emphasises that FNB, as an authorised dealer, does not offer a speculative trading platform as a product. Jennifer Mbabazi Moyo El-hadj M. Bah Audrey Verdier-Chouchane African Development Bank The authors gratefully acknowledge the very useful comments provided by Steve Kayizzi-Mugerwa, Acting Vice-President and Chief Economist, AfDB Issa Faye, Manager, AfDB Research Division Zuzana Brixiova, AfDB Economics Complex and Xavier Boulenger, Joseph Coompson, Ken Johm, Benedict Kanu, and Damian Onyema, AfDB Agriculture and Agro-industry Department. In particular, they would also like to thank Charlotte Karagueuzian and Anna von Wachenfelt (AfDB Consultants) for their excellent research assistance. Agriculture persists as an important sector of the African economy. Although its significance in the economy varies widely across African countries, agriculture remains a vital sector for most countries. It contributes from 2.4 percent of GDP in Equatorial Guinea to 70 percent of GDP in Liberia, 1 providing an average of around 15 percent of GDP for the continent. The declining GDP contribution of agriculture to the economy is a sign of low productivity and limited value addition to agricultural commodities, as the sector provides employment for 50 percent of the labor force (see Chapter 1.1, Figure 4) 47 percent of these workers are women. 2 It is the main source of income for Africas rural populationestimated to represent 64 percent of the total. Africas agriculture is dominated by a variety of staple food crops (maize, rice, sorghum, millet, cassava, yams, sweet potatoes, etc.) and a few traditional cash crops (coffee, cotton, cocoa, oil palm, sugar, tea, and tobacco). The sector is also characterized by a high percentage of smallholder farmers (80 percent) cultivating low-yield staple food crops on small plots with a minimal use of inputs. These farms depend on rainwater, thus subjecting production to the vagaries of the weather. Despite its importance, agricultural productivity remains dismal, undermining Africas overall productivity and food security. The sectors productivity in Africa considerably lags other developing regions (see Figure 1 for cereal yields see also Chapter 1.1. Figure 5a) and, unlike other regions, Africa has not benefited from the green revolution. 3 In spite of its vast natural resources, including a huge expanse of arable land, Africa has the highest incidence of undernourishment (estimated at almost one in four persons) worldwide. Africa imports food staples valued at about US25 billion annually, essentially because food production, supply, and consumption systems are not functioning optimally. The level of value addition and crop processing of agricultural commodities is low and post-harvest losses in sub-Saharan Africa average 30 percent of total production, meaning that the region loses over US4 billion each year. 4 Moreover, the poor performance in agriculture undermines poverty reduction and inclusive growth. Despite its fast economic growth in the last two decades, poverty reduction in Africa has remained limited. The Millennium Development Goals Report finds that the share of people in sub-Saharan Africa living on less than US1.25 a day slightly decreased, dropping from 56 percent in 1990 to 48 percent in 2010. 5 The limited decrease in poverty is partly the result of the fact that growth has been driven mostly by low labor-intensive sectors such as mining, while agriculture played a minor role. A substantial body of the literature finds that agriculture-led growth has greater impact on poverty reduction than non-agriculture-led growth. 6 The agriculture sector is a key to achieving inclusive growth because, in Africa, it consists mostly of smallholder farmers, the majority of whom are women. 7 With higher agricultural productivity gender-equal access to land, seed, and fertilizer and overall better performance in rural economies, growth will reach the most disadvantagednamely women and youth. However, considerable effort is needed to ensure that institutions and mechanisms for inclusion are put in place, while at the same time pushing toward the development of large commercial farming. The slow productivity growth in agriculture is also constraining Africas structural transformation process and economic diversification. As reported in several studies on structural transformation, reliance on subsistence production and weak productivity growth in the agriculture sector prevents the workforce from moving out of this sector into manufacturing and services. 8 Globally, countries that have developed successfully are those that have shifted their resources from agriculture to manufacturing. 9 However, as indicated in Chapter 1.1 Figure 4, this is not the case for Africa, where labor tends to move more into services, in particular trade, rather than into the manufacturing sector. Given the low productivity in services and the prominence of the informal service sector, this current pattern of structural transformation will not yield sustainable income growth for the majority of people nor will it lead to economic development. 10 Inclusive growth and higher income for the majority requires higher productivity in labor-intensive sectors, including agriculture. As outlined in its 10-year strategy 201322, 11 the African Development Bank (AfDB)the first and overarching objective of which is to promote inclusive growthwill pay particular attention to agriculture and food security, to fragile states, and to gender. This chapter presents the ingredients needed to transform Africas agriculture in order to make it more competitive. The next section explains the missed green revolution in Africa and draws lessons for the continent from Asias experience. The following section analyzes the mechanisms for productivity improvements, with a particular focus on the role of information communication technologies (ICTs) in agriculture and the importance of land reforms. It also considers the opportunities and challenges of biotechnology for facilitating a quantum leap in productivity. The next section considers the role of value chains in unlocking markets for smallholders, who make up the bulk of agriculture producers in Africa. It begins with a discussion of Africas positioning and potential within global and regional value chains and then addresses the means for creating a conducive environment that fosters greater value chain integration. The chapter then outlines the AfDBs recent and planned future support of the agriculture and agribusiness sectors to enhance both inclusiveness and competiveness. Conclusions and policy recommendations are then discussed. Impediments to Africas green revolution The green revolution benefited most regions of the world, particularly East Asia, as it resulted in regional food surpluses within 25 years. Asia benefited the most, with significant increases in cereal yields (Figure 1) in East Asia and the Pacific, for instance, cereal yields almost quadrupled between 1960 and 1990. Driven by the political will to make their countries food self-sufficient, Asian countries doubled cereal production between 1970 and 1995, while the total land area cultivated with cereals increased by only 4 percent. 12 Drawing lessons from Indias experience, this success has been attributed to several factors. 13 First, the adoption of high-yielding seed varieties resulted in a substantial increase in food grain production, particularly wheat and rice. Second, the use of pesticides positively contributed to increased yields, albeit at the expense of the environment, discussed later in this chapter. Third, the availability and expansion of agricultural infrastructure facilities such as irrigation facilities, machinery, extension services, and broader infrastructure facilitiesincluding transport and communication as well as storage and warehousing facilitiesfurther supported the green revolution. Fourth, the expansion of better crop and soil management techniques, including multiple cropping practices, fostered the advance of the green revolution. Fifth, agricultural credit and land reform were crucial ingredients that enhanced agricultural productivity. Short-term credit facilities were provided by cooperative banks, while long-term credit was provided by development banks. This was done together with land reforms aimed at consolidating land holdings and giving farmers security of tenure, thereby enabling farmers to access credit facilities. However, the green revolution is more than a technology fix, and a supportive economic and policy environment remains vital to its success. Addressing the need for functioning markets to handle the surge in production went hand in hand with addressing the need to educate farmers about the new technology and to ensure that they both have access to inputs and receive a fair reward for their investments. In addition, government interventions were crucial to ensure that small farmers were included rather than left behind. 14 For instance, Asian governments formulated various pro-small farms policies including policies relating to credit, incentive prices for crops, and subsidized input prices. Consequently, the green revolution successfully reached poor and remote rural population on the Asian continent. In contrast, Africa did not benefit from the green revolution. Figure 1 reveals that cereal yields in Africa have been virtually constant during the period 196090. This lack of progresstogether with factors such as high population growth, policy distortions, weak institutions, poor infrastructure, extreme weather events, and political instabilityexplains why African countries are still dependent on food imports. While Asian countries largely increased cereal yields per hectare, African countries mainly expanded the area cultivated to enhance production. The increase in the land area cultivated, coupled with poor crop husbandry, resulted in extensive environmental problems such as nutrient mining desertification degraded soils and loss of forests, wetlands, and pastures. Moreover, this poses a challenge to Africas long-term agricultural productivity and the sustainability of its agricultural production. As a result, in the face of rapid population growth, sub-Saharan Africa imports about US25 billion of staple foods annually despite the continents vast agricultural potential, putting a strain on scarce foreign exchange reserves. This chapter next considers the main reasons for the missed green revolution in Africa, focusing primarily on ecological, technical, policy, and institutional factors before drawing lessons from past green revolution experiences in Asia and adapting them to Africa. Explaining the missed green revolution in Africa With regard to ecological factors, Africas soils vary by region and are, in general, very different from, and less fertile than, the Asian volcanic soils and alluvial valleys. Weather shocks such as droughts are frequent, and rainfall varies dramatically across Africa, with the northern half of the continent containing large arid areas. These ecological factors are a significant impediment to Africas agricultural development, given the continents low use of irrigation and overwhelming dependence on rain-fed agriculture. International research on high-yield crops did not focus on African staple foods and agro-ecological systems. Although the green revolution in Asia can be attributed to the extended use of irrigation, improved crop varieties, and expanded use of chemical fertilizers, the implementation of similar strategies in Africa has not been successful. 15 According to the World Bank, the heterogeneity of both agro-ecological conditions and crop production (maize, cassava, millet, sorghum, cassava, yams, sweet potatoes, etc.) suggests that outside technologies are often not directly transferable to improve the continents productivity. In other words, the productivity revolution in Africa needs a tailored approach and a more careful contextualization to better fit with Africas specific agricultural conditions. 16 This includes a focus on the development of technology more suitable for Africa that is aimed not only at increasing productivity of root and tree crop production systems but also at saving labor for cereal production. 17 Likewise, improved varieties have to be developed to take into account the African environment with its specific requirements. This has started happening with the development of NERICA rice (see also Box 2) and high-yielding varieties of cassava. Inadequate policies have distorted Africas agriculture sector, thereby constraining technology adoption. In the past, indirect and direct taxes distorted prices and prevented farmers from adopting modern inputs such as fertilizers. In addition, many African governments established agricultural marketing boards that purchased products from farmers at fixed prices and resold the products in domestic and international markets at prevailing market prices, while controlling exchange rate to protect the local market. This scheme served to control prices so as to ensure income stability to the farmers. The implication was a lack of incentive to invest in intermediate inputs such as fertilizers. 18 Policy and market failures account for the slow adoption of productivity-enhancing inputs such as equipment, fertilizers, and pesticides. Figure 2 shows that fertilizer use is still low in most countries. Voortman argues that several market and institutional factors have discouraged African farmers from using fertilizers. 19 First, underdeveloped markets (low volumes), high prices, and high transport costs have limited the availability of fertilizers. Indeed, as Chapter 1.1 documents, sub-Saharan Africas infrastructure deficit (mainly roads and electricity, as well as ICTs) is significant, particularly in small and landlocked countries. This impedes the provision and use of productivity-enhancing inputs. For example, as Gollin and Rogerson argue, poor transportation networks account in large part for the low productivity of Ugandas agriculture. 20 Second and most importantly, fertilizer costs have not been recouped because soil analysis has not been taken into account to determine the appropriate fertilizers. The popular fertilizers (nitrogen and phosphorous) developed for Asian and Latin American soils have had minimal or no effect on yield in Africa. 21 Indeed, the heterogeneity of African soils requires the usage of targeted fertilizer applications. Despite recognition of the importance of the sector in Africa, investment in agriculture has been neglected by African governments and donors. Although official development assistance has increased by about 250 percent between the 1980s and the 2010s, allocation to agriculture has halved. According to the Food and Agriculture Organization of the United Nations (FAO), on average, African governments reduced their spending on agriculture from 4.5 percent of total expenditure in 2001 to 2.5 percent in 2012, 22 despite their 2003 pledge to spend at least 10 percent under the African Unions 2003 Maputo Declaration target. Limited funding has prevented the development of research capability in biotechnology, the provision of adequate support for agricultural research, and private-sector participation in agriculture. Low investment in agriculture has partly led to overreliance on rain-fed farming with very little irrigation. The irrigated share of Africas cropland is less than a quarter of the world average. 23 Only 4 percent of crop areas are irrigated in sub-Saharan Africa in comparison, this represents only a small fraction of the Asian investment in irrigation, where 39 percent of the production area is irrigated in South Asia and 29 percent in East Asia. 24 In contrast, Africa has numerous river systems that are not fully exploited and significant groundwater resources that remain largely untapped. These groundwater resources are unevenly spread over a wide range of agro-ecological zones, especially in Southern Africa and some parts of North Africa. Irrigation on the African continent is also hampered by poor water management, which is one result of underdeveloped institutions. Furthermore, while Asias green revolution mainly focused on irrigated wheat and rice, sub-Saharan Africas main staples comprise a much wider variety, including maize, cassava, millet, sorghum, yams, sweet potatoes, and plantains. This wide range of food crops reinforces the argument that Africas agriculture needs to focus on its specific context, as discussed earlier. Furthermore, the lack of good governance and economic institutions in Africa, especially in the financial and insurance sectors, has hampered farmers ability to develop. The general low financial inclusion in Africa is even worse in agriculture, where the production cycle consists of high initial investment, a medium to long period of no cash inflow during the growing season, and large cash windfall after harvest. Many of the products offered by banks and financial intermediaries are inappropriate for smallholder farmers because loan repayment schedules do not take into account crop cycles. Modern financial servicessuch as microloans, credit registries, and value chain financingare therefore needed to improve access to credit to smallholder farmers. The challenges of providing acceptable collateral for agricultural lending are enormous. Moreover, most countries lack tailored insurance products. This means that adverse shocks, such as droughts, often lead to famine because farmers are unprepared to respond. In this context, micro-insurance is emerging as a valuable instrument for protecting farmers. Land governance pertaining to land access, distribution, and female ownership will be further discussed below in the section on mechanisms for productivity improvement. In many countries, land ownership is governed by customary laws this has resulted in high land inequality. Indeed, although women constitute the bulk of the labor force in the continents agriculture sector, rules governing ownership and transfer of land rights are unfavorable to women in Africa. 25 Box 1: Lessons for Africa from the Asian green revolution Some important lessons for Africa that can be drawn from the Asian green revolution include: Double green the agricultural revolution. Higher productivity came at the expense of environmental issues in Asia. The environmental effects of increased agricultural productivity in Africa depend heavily on the sources of productivity growth. Water - and soil-saving innovations undoubtedly have positive effects. However, such techniques are often achieved through the intensive use of manufactured inputs such as fertilizers and chemicals with negative externalities. Instead, productivity can be improved with best practices in terms of environmental impact at all levels of the value chain. Resilience to climate change will be an increasingly difficult challenge to tackle. Promote responsible farmers borrowing. In Asia, the technological dimension of the green revolution was supplemented by heavy government intervention through subsidies on inputs. However, these massive government expenses were not sufficient to limit farmers indebtedness. Green revolution packages ended up indebting a large number of smallholder farmers, eventually pushing them into landlessness and poverty. Develop rural non-farm activities to diversify income. The green revolution in Asia focused on rural farm activities. Kanu et al. highlight the importance of emphasizing rural non-farm activities to diversify income sources, finance on-farm investments, buy food, and stabilize household income during difficult times of drought or price shock. 1-1 To enhance its sustainability, income has to come from diverse sources. Sources: Based on Lapp et al. second edition, 1998 Kanu et al. 2014. The green revolution in Africa is not a lost cause. Africa can gain from productivity improvements with the right set of policies, institutions, and resources, while also drawing from the lessons of the Asian green revolution (Box 1). Today many organizations are working toward this goal. Among them is the Alliance for a Green Revolution in Africa (AGRA), founded through a partnership between the Rockefeller Foundation and the Bill amp Melinda Gates Foundation. AGRA is focusing on many of the issues highlighted above, including the development and distribution of high-yield seeds and the improvement of soil health, market access, and financial access. Other research institutions, such as the Africa Rice Center and the International Institute of Tropical Agriculture (IITA), are also working to develop high-yield crops. In general, international research funding and coordination among stakeholders in the agriculture sector have both expanded as the value-added of the green revolution for reducing poverty and eliminating hunger has been increasingly recognized. Some success stories are highlighted in Box 2. Box 2: Recent success in the development of high-yield crops in Africa In recent decades, research efforts have resulted in high-yield crop varieties. For the second most important staple food in Africa . cassava, productivity changed with the introduction of an improved drought-tolerant cassava variety in 1977. Along with continuous improvement in breeding and pest control, the cassava yields have increased by over 40 percent in the past three decades. West Africa has seen up to 60 percent in productivity gains, which has clearly helped to reduce poverty in the region. More recently Malawi and Rwanda have demonstrated rapid production growth it tripled in Rwanda between 2007 and 2011. 2-1 The introduction of modern, high-yielding varieties of maize in East and Southern Africa during the 1960s allowed the crop to develop into one of the continents major sources of calories. Over the last decade, maize production has been particularly significant in West Africa. Nigeria, for instance, has seen its maize yields rise steadily as farmers adopted improved varieties and hybrids, which are drought tolerant. Overall maize production in Africa has increased at an average 5.5 percent per year between 2000 and 2010, while areas harvested remain lower than in 1990, indicating an improvement in production technology. 2-2 Beans are another major staple in Africa, particularly in East Africa. Recently, nearly 10 million farmers in the region, especially in Kenya, Tanzania, and Uganda, have intensified production by relying on high-yielding climbing beans, which are more tolerant to warm temperatures. These improved varieties have brought about substantial productivity gains, as yields in Rwanda and Uganda increased 53 percent and 60 percent, respectively. 2-3 Moreover, in both the Democratic Republic of Congo and Rwanda, bio-fortified beans have been introduced to a wider audience, and by 2014 about one-third of the population in Rwanda farmed and consumed them. In 1999, the NERICA (New Rice for Africa) rice, especially developed for African conditions, was released to farmers. The NERICA ricea combination of African and Asian rice varietieshas proven to be drought tolerant, high yielding, early maturing, and resistant to Africans major pests and diseases. It is now cultivated on about 200,000 hectares across Africa. The rice yields in sub-Saharan Africa have increased significantly over the last years as yields grew by 30 percent from 2007 and 2012, and with a faster rate than the global average. 2-4 Efforts to develop other high-yield varieties of rice are underway for other types of soils. 2-5 The next section discusses ways to improve agricultural productivity by leveraging technology and reforming land governance. Mechanisms for productivity improvement in the context of the green revolution: Leveraging technology and land reforms The Comprehensive Africa Agriculture Development Programme (CAADP) is at the heart of the quest for agricultural productivity improvement in Africa. It was established by the African Union and the New Partnership for Africas Development (NEPAD) in 2003, with the goal of an annual productivity growth rate of at least 6 percent. 26 The program has four pillars: (1) land and water management, (2) market access, (3) food supply and hunger eradication, and (4) agricultural research. Since 2003, agricultural GDP has grown on average by 4 percent. Nin-Pratt et al. estimate that total factor productivity (TFP) for the 200110 period grew on average by 2.1 percent. 27 Although this is a considerable improvement over the 1.4 percent growth seen in the 1990s, it is still below expectation. Assuming the same growth rate of inputs as observed in the 1990s, Ludena estimates that a TFP growth rate of 4.4 percent is needed to achieve an output growth rate of 6.2 percent. 28 To bridge this gap, the important factors that contributed to the green revolution (as discussed in the previous section)including the introduction of high-yield varieties, irrigation, increased and better use of fertilizersare still pertinent. As aptly put by Hazell, there is an urgent need to bring the green revolution in an appropriately modified form to Sub-Saharan Africa. 29 Indeed, Africas agriculture should take advantage of recent developments in ICTs and genetic research, which have the potential to revolutionize the sector. Land redistribution policies are also crucial for improving productivity. Before discussing the role of ICTs and land reforms in these efforts, the chapter summarizes the various factors raised in the earlier discussion of the green revolution that are necessary to transform agriculture in Africa. The productivity drivers of the green revolution The introduction and development of high-yield crops is at the heart of Africas agricultural transformation. This was the most important factor in Asia and will also be the key driver of agricultural productivity in Africa. This development entails increased international and national research of plant breeding, taking into account the different types of soils on the continent. As pointed out above, research focusing on African agricultural conditions has increased, thanks to the work of various organizations, providing new hope for agriculture sector transformation. CGIAR (Consultative Group on International Agricultural Research) and AGRA, for instance, are working intensely to develop high-quality grains for African soils. Investments in research by international organizations and local government are highly beneficial. A US1 invested by CGIAR is estimated to yield US6 in benefits, while the same US dollar invested by governments in sub-Saharan Africa leads to US3 in benefits. 30 However, the discovery of new crop varieties will not lead to transformation if national governments do not increase their efforts to promote the adoption of these crops through effective extension services and the support of local bureaucracies. With the greater effects of climate change on weather patterns, irrigation has to increase substantially. Using an econometric model and data on 31 countries in sub-Saharan Africa, Fuglie and Rada find that that average yields in irrigated farms are 90 percent higher than the yields of nearby rain-fed farms. 31 You et al. estimate that internal rates of return on irrigation projects in Africa vary between 6.6 and 28.0 percent, depending on the type of irrigation and other conditions. 32 The estimates show a huge potential for irrigation in Africa. Beyond this, weather changes are increasingly unpredictable and Africa is severely hit in this regard. This means that reliance on rain-fed agriculture cannot continue and signals that Africa needs not only an increase in irrigation, but also needs to develop better mechanisms for dealing with climate variability. International organizations and national governments are working toward developing climate-smart agriculture to prepare the world to adapt and mitigate the effects of climate change for food security, which will certainly be of great interest to Africas agriculture. As soil fertility deteriorates, fertilizer use must increase. As noted earlier, fertilizers are not widely used for a variety of reasons, including market failures. Government interventions are, thus, needed to ensure availability of the right type of fertilizers, at the right price, and at the right times. Subsidies can be helpful, 33 but strong governance and farmer education are both essential for success. 34 Farmer field schools used for education and the provision of agricultural extension services are very beneficial for improving productivity and income. Furthermore, improved knowledge about the use of fertilizers lessens their potential negative impact on the environment. Davis et al. evaluate the impact of these programs in East Africa. They find an average increase of 61 percent in income, with varying degrees of success across countries. 35 In addition to fertilizers, farmers need to protect their crops from insects and pests through the careful use of insecticides and pesticides. Market access, regulations, and governance need to improve. As shown earlier in the chapter, policy failures have prevented Africa from benefiting from the green revolution, and thus policy needs to improve for the agriculture sector to yield significant benefits. Fuglie and Rada estimate that eliminating policy distortions in agriculture would raise output by 4.7 percent. 36 Improving rural infrastructure such as roads is also crucial to raising productivity. 37 Reducing shipping time and costs would significantly reduce losses in perishable food shipping and make exporters more competitive. As the next section will discuss, ICTs can enable and complement the above reforms. The role of ICTs for agricultural productivity improvement The rapid uptake of ICTs in Africa provides an important opportunity to improve the performance of agricultural value chains (AVCs) from the farm to the market. Indeed, ICTsincluding mobile telephony, radios, geographic information systems (GIS), and satellite imagery technologieshave been expanding in Africa. The likely contribution from ICTs can be viewed from the perspectives of potential stakeholders along the value chain: businesses and business organizations, farmers (smallholders, commercial farms, and trade agencies), researchers, and government departments. ICTs in agriculture can also be considered based on their applications along the stages of the production cycle: pre-cultivation, crop cultivation and harvesting, and post-harvest. 38 Several potential avenues are available at each stage for applying ICTs to increase agricultural productivity. The following analysis looks at various ICT applications at each stage of the agricultural production cycle and highlights successes. At the pre-cultivation stage, ICTs have several uses, ranging from land and crop selection to the development of crop insurance products they can also enhance land and water management and use. In fact, ICTs can be used for facilitating the process of land registration, allocation, and use for crop selection taking inventory obtaining weather information on the planting calendar and facilitating farmers access to credit. M-PESA in Kenya is a well-known example of a mobile technologybased payment system that is increasing financial inclusion even in rural areas. ICTs can help to develop crop insurance against adverse weather shocks and crop failures. An example of this is Kilimo Salama, 39 a mobile technologybased insurance on purchased inputs (certified seed, fertilizer, and crop protection products) that protects farmers against bad weather shocks. Mobile phones are used to scan the barcode of products purchased by farmers and M-PESA is used for payout at the end of the growing season in case of bad weather. Moreover, GIS and remote sensing (RS) are increasingly being used to ensure more efficient land use and water management. 40 GIS combined with RS has been used to support the assessment of land capability, soil conditions, crop condition and yield, flood and drought risk, groundwater contamination, and pest infestation. 41 For example, Egypt has developed a soil and terrain database for the Sinai Peninsula and other regions. Satellite imagery data and GIS have also been used in Ethiopia and Mozambique to enable land registration and crop inventories. India has many applications using GIS technology to support sustainable agricultural development. One of those applications is a cropping system analysis that identifies low-productivity areas. 42 At the crop cultivation and harvesting stage, ICTs also have other uses. ICTs can generate valuable information on land preparation and sowing, crop health, input managementparticularly the choice and use of fertilizerand pest and water management. ICTs can also be used to get information to farmers, particularly smallholder farmers who could otherwise be out of reach. In 2011, the GSMA mAgri Programme, in partnership with the Bill amp Melinda Gates Foundation, launched the mFarmer initiative to support the development of mobile agricultural value-added services (Agri VAS) in four countries: India, Kenya, Mali, and Tanzania. The Agri VAS, developed by mobile network operators, is designed to offer information on crop cultivation and market prices to farmers. 43 As in previous examples, at the post-harvest stage ICTs can provide market information that is crucial to improving market efficiency. A lack of sufficient informationincluding information on prices and market conditionsalong with price information asymmetries make it difficult for farmers to get fair prices for their crops. The uncertainty this causes can also discourage attempts to invest more in inputs and technologies. Efforts are being made on the continent to deal with information generation and dissemination issues within the context of commodity exchanges. For example, the Esoko Ghana commodity exchange (EGCI), 44 operational since 2005, publishes a weekly cash price index of commodities. Esoko has expanded in a dozen countries and provides price and knowledge data to farmers via mobile text messages. An even better known commodity market is the Ethiopia Commodity Exchange (ECX), which addresses the huge market inefficiency that prevented commodity buyers from interacting directly with sellers, and vice versa. Information was also asymmetrical on prices and product quality. The ECX disseminates information on products grades and prices and facilitates the coordination of buyers and sellers as well as the enforcement of contracts. All farmers in the country, including smallholder farmer cooperatives representing 2.4 million of farmers, are members of the ECX. They have access to price information, which is provided through a call center. Addressing the information asymmetry about the prices of crops in different markets has allowed farmers to have more marketing options and more bargaining power, and to increase their income by 10 to 30 percent. 45 Other potential contributions of ICTs in agricultural productivity improvement include the traceability of food and animals, which is important for participating in global value chains. Traceability entails displaying the lot number and the production facility name on each case of the product and recording this information on invoices and bills of lading. Data can be recorded and transmitted via different ICT platforms. 46 Recently an application that monitors cattle and provides valuable information, called iCow, was launched in Kenya. A related application is vetAfrica, which provides veterinary information. In addition, common information systems platforms linking all stakeholders are being set up in several countries as a way to share information and decrease maintenance costs. One example is Kenyas M-Kilimo, which comprises a database containing farmers information (land size, crop, language, etc.). Farmers can call to report problems and ask questions. Specific responses are tailored to the farmer whose information is already available in the system. Government extension services also use this system to provide farmers with customized solutions. Another recent scientific and technological innovation in the field of biotechnology and genetic engineering is having a profound impact on global agriculture. Below the potential of this technology for transforming African agriculture is considered. Opportunities and challenges of genetically modified (GM) crops The adoption of GM crops in Africa remains limited. In 2014, the AfDB and the International Food Policy Research Institute (IFPRI) published a report titled GM Agricultural Technologies for Africa: A State of Affairs. 47 The study examined the current status, issues, constraints, and opportunities presented by GM technologies in Africa. It noted that, although the use of GM crops is increasing in other developing countries, its adoption is very limited in Africa: only four countries (Burkina Faso, Egypt, South Africa, and Sudan) are currently farming some GM crops (cotton and maize). Some other countriessuch as Ghana, Kenya, Malawi, Mozambique, Nigeria, and Ugandaare piloting a variety of GM crops (banana, cassava, cowpeas, etc.). With the continents rapid population growth and the intensification of the effects of climate change on weather patterns, high-yield GM crops that are resistant to weather shocks represent an opportunity for Africa to address food insecurity. A majority of scientists argue that GM crops are safe to consume, and they also reduce insecticide use, greenhouse gas emissions, and soil-damaging tillage while enhancing farmers income and farm production without increasing the cultivated area. 48 A meta-analysis of 147 impact studies found that the adoption of GM crops (soybean, maize, and cotton) has, on average, reduced chemical pesticide use by 37, increased crop yields by 22, and increased farmer profits by 68. 49 A recent survey of members of the American Association for the Advancement of Science found that 89 percent of scientists argue that GM crops are safe to eat. 50 Despite the positive effects, there is still a debate on the safety of GM foods and a resistance to GM crops, especially from Europe. This debate has influenced perceptions in Africa and given way to extensive misinformation. For instance, in the midst of a famine in 2002, Zambia refused food aid that contained GM crops based on precautionary principles. 51 The positive benefits of GM crops do not mean, however, that they are a panacea for food security in the world. Food security depends not only on production output but also on distribution and availability at the right price. Moreover, yields of GM crops depend on farming conditions, and their benefits may not outweigh their costs under poor conditions. Other farming practices may increase yields as much as GM crops do. Another worry is that the seeds are controlled by a small number of multinationals, which means that farmers will always be dependent on purchased seeds. Adverse consequences of GM crops on biodiversity and gene flow need further research. 52 The 2014 AfDB-IFPRI report highlights the conditions necessary to increase Africas adoption of GM crops. 53 These conditions include increased funding for research and development to enhance biotechnology capacity and genetic modification. Regulatory systems also need to boost their capacity to inform decision makers. More outreach and better communication will ensure that Africans are well informed about the risks and benefits of GM crops. The next section explores how land reforms can address the issue of land access and distribution in Africa to improve agricultural productivity. Land reform for higher productivity and inclusion Africa has the highest area of arable uncultivated land (202 million hectares) in the world, yet most farms occupy less than 2 hectares. 54 This situation is a result of poor land governance and ownership that is based mostly on customary laws, which together have resulted in unequal distribution of land and uncertainty of tenure. With the introduction of land markets, land inequality and landlessness are growing in some countries, such as Cte dIvoire, Kenya, and Liberia, and in the Southern African region. From the 1998 household survey for Cte dIvoire, it is estimated that 5.56 percent of women own land versus 7.14 percent of men, and large land surfaces are concentrated in the hands of public employees. 55 The customary laws that often prevent women from ownership are a constraint to inclusive growth. Byamugisha sees land reforms as a pathway to shared prosperity in Africa. 56 Land reforms that clearly define property rights, ensure the security of land tenure, and enable land to be used as collateral and to be allocated more efficiently will be necessary in many African countries. Land allocation under customary laws often lacks the security of tenure and prevents owners from using their assets as collateral to access finance for purchasing inputs. Moreover, highly productive farmers may lack sufficient land to expand their production. Depending on the country, land reforms have to address access to land and distribution of land. Some countries, such as Cameroon, are using GIS systems to first register land before implementing redistribution mechanisms. The reforms should also ensure some form of tenure security that allows farmers to leverage their assets. Land reforms in African countries where colonial systems have resulted in high levels of inequality have succeeded to varying degrees. In some countries, mostly in Southern Africa, colonial systems expropriated large portions of land from the majority of the population for the benefit of a minority. Most of these countries undertook land reforms to redistribute land and address inequality, but failed. Zimbabwe tried land expropriation from white farmers to redistribute the land to black farmers. This has largely failed because the reforms transformed the country from a food basket and exporter to a food importer. The South African reforms that attempted to avoid those mistakes through a market-based and negotiated approach have, so far, failed to redistribute large areas of land as a result of an inefficient system and insufficient implementation of land transfer, which has left the country with high levels of land inequality and, according to the government, 50 percent of land transfer projects have failed. 57 Using a similar market approach, Namibia has been more successful in reallocating land. Over the last two decades, 8 percent of agricultural land has been transferred to black farmers in South Africa, while Namibia has reallocated 27 percent of its farm land. 58 One big difference in the two systems is that Namibia does not recognize ancestral land rights, and the state has the right of first refusal in any land sale in the country. Byamugisha holds out the land reforms in Malawi as a model of success for other countries to emulate. 59 The model is based on voluntary redistribution of large corporate estates to poor farmer groups with community-based land rights. The farmer groups are provided with funds to buy agricultural inputs in order to use their newly acquired land or diversify their production. The process has, thus far, helped 15,000 households, representing about 0.5 percent of total households, to gain land ownership. However, this success has yet to eliminate land misallocation in the country. Land redistribution policies should, however, not prevent market mechanisms from supporting the development of commercial large-scale farming. Adamopoulos and Restuccia found that the 1988 land reform in the Philippines, which imposed a ceiling on land holdings and restricted the transfer of distributed land, reduced farm size by 34 percent, and led to a decrease in agricultural productivity by 17 percent. 60 The effect of land misallocation is also found in Malawi. Restuccia and Santaeulalia-Llopis use micro data from the Malawi Integrated Survey on Agriculture collected by the World Bank in 201011 to study the link between land allocation and farm productivity. 61 They found that farm size was unrelated to farm productivity and capital, implying a misallocation of land. Overall, 78.3 percent of farmers in Malawi operate on less than 1 hectare and only 0.3 percent of the farms are larger than 5 hectares. The average plot size is 0.83 hectares. Land markets are practically nonexistent in the country, and most of the land is transferred through customary rights. This customary-based ownership and transfer system creates a misallocation of land, preventing more productive farmers from acquiring larger plots. An efficient redistribution of farm land would increase aggregate productivity by a factor of 3.6. This very large increase calls for the establishment of a land market in Malawi. Going forward, it will be crucial to harness the complementarity between smallholder and large-scale farming to reduce the overreliance on smallholders and expand much-needed commercial large-scale farming. Although a fringe of the latter offers mixed results about the complementarity between large-scale farming and smallholders, recent analyses suggest that there is room to harness such complementarity whereby large-scale farming can achieve better productivity. 62 Successful transformation of agriculture will require a recognition that, as stated by Collier and Dercon, smallholders are heterogeneous in potential and there is scope for large scale farmers as commercial enterprises, often in interaction with smaller scale farmers using institutional frameworks that encourage vertical integration and scale economies in processing and marketing. 63 If well regulated, large-scale farming could have positive spillover effects on smallholders including job creation, income generation, and the transfer of knowledge and know-how. The out-grower scheme model, where smallholder farmers supply products for a larger firm under pre-agreed mutually beneficial conditions, could be a potential mechanism to ensure such mutual benefits. This complementarity will be explored in the context of value chains, discussed in the next section. Enhancing the integration into agricultural value chains (AVCs) Increased globalization has created both challenges and opportunities for Africas agriculture these notably arise from the continents greater integration into AVCs. Thanks to globalization, African products can now reach larger markets. However, to take advantage of this potential, African farmers need to deliver higher-quality products at competitive prices and integrate international distribution channels by satisfying the norms and standards set out by their trading partners. 64 This is a serious challenge for smallholder farmers, who supply up to 80 percent of the food in sub-Saharan Africa, 65 but who need to enhance their capacity to meet international standards. Greater integration into AVCs is expected to boost benefits to small-scale farmers and facilitate the creation of agribusinesses for increased value addition in exported goods. The participation of small-scale farmers in AVCs will enable them to harness the interdependence among the different actors in the value chain, namely the suppliers of inputs and seeds, the farmers, the businesses providing technical support for the farmers such as agricultural machinery, the financiers, the wholesale producers of farm products, the processors, and associated sellers. 66 Consequently, participation in AVCs will facilitate small-scale farmers access to inputs, financing, and end-markets at the local, national, regional, and international levels, thereby enabling them to have a greater voice in the value chain and enhancing their economic returns. This will, in turn, facilitate the creation of modern integrated agribusiness value chain economies based on specialization. 67 Participation in such AVCs will enable firms to move up into higher-value activities, capture a greater share of value in global markets, and thus enhance the sectors competitiveness. 68 The discussion that follows will explore the potential of value chains to enhance Africas agricultural competitiveness. It reviews Africas global positioning as well as its potential integration into the global AVCs, which are both necessary for creating a conducive environment. The AfDB has made significant efforts to enhance the continents integration into AVCs, as discussed later in this chapter. Africas positioning and potential within global and regional value chains Even though Africas integration within global AVCs is limited, it offers scope for greater integration within the traditional cash-crop production chain. Africas general participation in regional and global value chain trade is discussed elsewhere in this Report (see Chapter 2.3 ). Participation in AVCs is even more challenging because international norms and standards keep evolving and are difficult to satisfy. Africa is a large global supplier of traditional cash crops (coffee, cotton, cocoa, sugar, tea, and tobacco) as raw material, which accounts for about 50 percent of Africas total agricultural exports. 69 These tend to be producer-driven chains with limited scope for functional upgrading, given the tight control by lead producers with higher-value activitiessuch as processing and manufacturingthat are carried out outside Africa. 70 Nonetheless, some scope exists for product differentiation and quality upgrading within the cash-crop production chains. In fact, product differentiation presents various opportunities for increasing agricultural income from cash crops, through branding and grading specialty coffee and establishing grading systems, for example, as well as by segregating different qualities for export. 71 The production of non-traditional crops, however, offers more scope for greater integration within the global AVCs. African economies have progressively diversified from the traditional cash crops and are increasingly engaged in the production and global sale of crops such as fruits, vegetables, fish, and flowers that belong to buyer-driven value chains. This has, in part, been the result of the proliferation of supermarkets seeking to consolidate their supply networks in order to exert more control over production processes. 72 Indeed, with Africas greater urbanization and growing middle class, rising consumption creates more demand for local products. 73 Functional upgrading can occur in such value chains as retailers seek ready-to-sell products more and more, thereby advancing processing and packaging activities further along the value chain. 74 Regional value chains offer great promise in facilitating the integration of Africas agriculture into global value chains and need to be supported. Meeting the standards required for integrating into global value chains will be a gradual process for Africas agriculture exporters. In the interim, gains can be made from integrating into regional value chains. Indeed, the agriculture sectors of some African countriesespecially Kenya and South Africa, which are major regional exporters of processed foodare increasingly being integrated into regional value chains. For instance, the Kenya fresh vegetable (especially green beans) and dairy export industries grew considerably in size and value-added in the 2000s and are now leading producers in Africa. This success is the result of the sound implementation of new processes and operations by private Kenyan businesses, as well as the support of the public sector. Given the nature of the smallholder-based agriculture in Africa, support will need to be provided to small-scale farmers to be better organized so as to enhance their productivity and ensure the timely off-take of produce from farm to markets. Indeed, the United Nations Economic Commission for Africa (UNECA) underlines the need to support small-scale producers through national and regional cooperatives or other farmer organizations in order to facilitate their access to inputs, financial services, and markets and to enable them to defend their interests in the value chain. 75 Five keys to a conducive environment for greater AVC integration This section presents five keys to creating an environment conducive to fostering greater AVC integration. First, the need to address poor domestic productive capacity and infrastructure in order to enhance Africas effective participation in value chains cannot be overemphasized. Africa is endowed with vast resources, but its low domestic productive capacity and poor infrastructure, as well as a focus on low-value-added activities, are holding back the continents effective participation in value chains. Indeed, Africas considerable endowments in natural resources and its competitive wages, as well as the significant potential of domestic and regional markets, have been well documented. 76 However, domestic productive capacity, in the form of skills and capital to produce on a large scale and meet required standards, is limited. The performance of the agriculture sector is also hampered by inadequate infrastructure, including unreliable energy, an ineffective urban-rural road network, inefficient ports, and a business and regulatory environment that overall is not conducive to doing business in agriculture make trade more costly. For instance, Bah and Fang show that, on average, Africas firms lose 25 percent of their output as a result of the poor business environment. 77 A 2009 report by the US international trade commission also shows that poor infrastructure (especially land and maritime transport and energy) is putting African exporters at a competitive disadvantage by increasing costs and compromising the quality of exports. 78 Addressing these shortcomings will be crucial for Africas beneficial participation in AVCs. Second, farmers need to be provided with appropriate financing schemes so they can make necessary investments and meet required standards for integration into global value chains. Limited access to finance hinders local farmers from undertaking the requisite investments to increase productive capacity and meet the quality requirements of integration into both regional and global value chains. 79 Aforementioned efforts at land reform, enabling farmers to have security of tenure, will need to be complemented by efforts to ensure that farmers are well organized through cooperatives, farmers unions, and associations to enhance their bargaining power, allowing them to obtain better financing terms. Improved organizational capacity on the part of farmers will also enable them to cooperate in working to meet the standards required for integration of value chains. Better access to financial facilities will need to be complemented by financial literacy training to avoid the over-indebtedness that accompanied the green revolution in Asia. Third, efforts should be made to encourage the connection of small-scale farmers with large commercial farmers through mutually beneficial contract farming (also called out-grower schemes ), thus enhancing the sectors inclusiveness. As large-scale farmers become better connected with AVCs, agribusiness initiatives will increasingly seek value additions to agriculture products and there will be a reduction in the export of raw material. In supporting these agribusiness initiatives, special attention should be given to out-grower schemes because they not only assist farmers to meet required production standards within the global value chain, but they also guarantee supply to leading firms. Contract farming usually involves a large agribusiness firm entering into contract with smallholder farmers, providing farmers with inputs on credit and extension in return for a guaranteed delivery of products. 80 Box 3 discusses the AfDBs role in supporting the transformation of Africas agriculture for inclusive growth. It provides some examples of inclusive AfDB projects in the agribusiness sector, including through private equity. Box 3: The AfDBs role in supporting the transformation of Africas agriculture for inclusive growth The AfDB Group has a long experience, going back to the late 1990s, of supporting African countries in developing their agriculture sectors. The AfDB views agriculture as key to the socioeconomic development of the continent. Between 2006 and 2014, the AfDB committed 198 operations in agriculture and agribusiness, amounting to a total of US6.33 billion. Prior to 2000, the AfDB endorsed the Integrated Rural Development approach to agriculture. In 2000, the AfDB adopted a new strategic framework embodied in the Agriculture and Rural Development Policy, which focused on addressing the critical bottlenecks of agricultural development, namely: high population growth rates, the poor state of infrastructure, declining trends in agricultural prices, persistent political instability, reliance on rain-fed agriculture, high post-harvest losses, the complex land tenure system, limited human and institutional capacity, and inaccessibility to credit. From 2010, the AfDBs operations in agriculture were guided by its Agriculture Sector Strategy (AgSS), covering the period 201014, with its principal objective being to guide the AfDBs operations to contribute to greater agricultural productivity, food security, and poverty reduction. Below are two examples of inclusive agribusiness projects supported by the AfDB. The Maryland Oil Palm Plantation Project (MOPP) is a US203 million agribusiness project. The AfDB approved US20 million for this project in 2013. MOPP entailed a 15,000 hectare greenfield palm oil plantation and milling project in Liberia. The nucleus plantation constituted 9,000 hectares, while 6,000 hectares were to be cultivated by local farmers in an out-grower scheme involving 600 farmers. These farmers are expected to receive financing for their inputs from MOPP, which they will repay once their product is sold. Access to modern inputs such as improved seed varieties and fertilizers, extension services, and access to finance is expected to improve the livelihood of these farmers. Approved by the AfDB in 2009, Agri-Vie is a US100 million private equity fund focusing on small - and medium-sized enterprises in the agribusiness and food sectors. The fund closed in 2010 with 65 percent of the commitments coming from development finance institutions and the rest from the private sector (life insurance, foundations). Agri-Vie has a proactive and collaborative relationship with investees and provides training and technology transfer to out-grower farmers. In terms of results, Agri-Vie has a continuous focus on driving selected impacts per investee in the following sectors: governance (reporting, policies, and controls), workers (employment, training, and development), and community relations and environment (environmental management practices). In terms of development outcomes, by the end of 2012, Agri-Vie Fund had impacted more than 890 small - and medium-sized enterprises, 2,900 farmers, and 312 non-farmer micro-enterprises. One of the feedbacks from the managers of Agri-Vie Fund is that investment in African food and agribusiness remains robust, which is an encouraging sign. Going forward, the new AfDB Agriculture Sector Strategy (AgSS) (20152019) will seek to build on previous AfDB work in agriculture by bringing the agriculture sector and agribusiness to the front of Africas structural transformation agenda. The AfDBs interventions within the framework of the AgSS for 201519 will be guided by two pillars: (1) agricultural infrastructure and (2) natural resource management. 3-1 The AgSS will embrace a value-chain approach and support innovative technologies to foster the development of value chains within the agriculture sector and its commercialization. It will promote agricultural commodity exchanges and improve access to finance for agricultural small - and medium-sized enterprises. It will also help to improve capacity building by providing specific vocational training to farmers and agricultural product dealers, for example. It will leverage mobile information services, allowing farmers to collect valuable data. It will promote best practices for investments in land, ensuring that private investments benefit rural communities. It will also pay greater attention to increasing gender mainstreaming in the AfDBs operations and programs. 3-2 The key features of the AgSS for 201519 are highlighted below. Infrastructure in agriculture: Supporting regional member countries to develop their infrastructure systems in the agriculture sector, including improving rural infrastructure, rural electrification, irrigation, water management, and leveraging information technology systems for agriculture development Agribusiness and innovation: Supporting the development of agribusiness and innovation, which includes commercializing agriculture by developing the agro-industry and value chains implementing measures to enhance agricultural trade, including promoting commodity exchange markets in the agriculture sector and developing low-cost technologies for primary processing that retains essential nutrients and Resilience and natural resource management: Promoting resilience and the sustainable management of natural resources, including managing the environmental impact of agriculture activities. Sources: AfDB, 2010 AfDB 2015, forthcoming. Compiled from the AfDB investment portfolio. Fourth, ICTs play a key role in fostering greater integration into value chains. As noted earlier, ICTs can reduce information asymmetry and improve market efficiencies throughout the different phases of the production process as well as in the post-harvest period. These information asymmetries extend beyond the local market into regional and global markets. ICTs can be employed to improve the marketing of agricultural products into regional and global markets, while at the same time being used to receive market information in a timely manner. Last, state intervention is crucial in supporting greater value chain integration. In the majority of poor development outcomes, coordination failure is one of the main culprits. As previously discussed, better integration into AVCs can be attained by organizing smallholder farmers in cooperatives and groups. African governments can play a vital role in facilitating the formation of those networks. Services can be leveraged for this purpose and provide information on how to better integrate AVCs. Governments should also invest more in infrastructure to improve the business climate, as its current state represents a significant competitive disadvantage for African exporters. International organizations can also help to correct coordination failures by bringing different stakeholders together and by boosting inclusive investments in the agriculture sector (see Box 4). Box 4: Grow Africas approach to developing responsible, sustainable, and inclusive private-sector investment Since its inception in 2011, Grow Africaa partnership platform created to catalyze investment and growth in African agriculture, founded by the African Union Commission, the NEPAD Agency, and the World Economic Forumhas established itself as a trusted platform for increasing responsible, sustainable, and inclusive private-sector investment in Africas agriculture. The network collectively works to ensure that investment commitments made by international and domestic companies in partnership with national governments are converted into investment on the ground. These investments are expected to increase farmers income and create local jobs. One of the most important aspects of the Grow Africa Secretariats work is using its convening power at the highest levels to support the development of strong, effective multi-stakeholder structures to enable the public and private sectors to work together to drive investments forward. The creation of a better coordination between private-sector agricultural companies and the public sector is a significant step toward accelerating the execution of investment commitments and bringing them to scale. Better coordination and alignment is required among different private-sector players, agribusinesses, and smallholder suppliers. Grow Africa is active in exploring, incubating, and disseminating best practice in innovative models for ensuring sustainable supply chains involving smallholder farmers. Agricultural corridors and agri-processing zones that coordinate investments into geographically targeted value-chain clusters can significantly speed up the implementation time for the individual investments within these geographic areas. To further these efforts and locate them on the global stage, in 2015, the World Economic Forum is introducing a Global Challenge Initiative on Agriculture and Food Securityone of ten institutional initiatives addressing major issues of global concern. 4-1 The initiative builds on the work of the New Vision for Agriculture, 4-2 and is intended to strengthen leadership commitment and catalyze country-led action partnerships, such as Grow Africa. Source: Grow Africa Secretariat. Recommendations and conclusions This chapter recalls the main factors that make agriculture in Africa one of the least productive globally while the rest of the world, particularly Asia, greatly benefited from the green revolution. The chapter also discusses the ingredients needed for a more competitive agriculture sector that will lead to faster structural transformation processes across Africa. Agriculture remains an important source of income for the majority of Africans and represents a large share of economic output in most countries in the continent. The sector consists primarily of small-scale farmers who cultivate a large variety of low-yield crops on small plots of non-irrigated land, using a minimal amount of fertilizers and pesticides. These characteristics make the sector very unproductive, leading to food insecurity and large imports of staple foods. The continent has not benefited from the green revolution that started in the 1960s, and that essentially focused on Asia and Latin America. The African continent was left behind for several reasons: (1) the development of high-yield crops focused on irrigated rice and maize, crops not very suited for African soils and ecological systems (2) market failures and infrastructure deficits have constrained the availability and access to productivity-enhancing inputs as well as the commercialization of agricultural production in Africa and (3) policy and institutional factors, characterized by the inefficient involvement of governments that resulted in distorted prices of both agricultural inputs and outputs as well as in low levels of technological innovation and adoption. In contrast to Africa, Asian governments have been heavily involved in the drive to revolutionize their agriculture sectors. In order to foster Africas green revolution, it is essential to address the factors above and simultaneously take into account the specificities of African conditions, including the continents variety of soils and appropriate crops. This will involve increased international and national research to develop and promote high-yield crops suitable for Africa. While international research efforts have greatly increased in recent years, national governments are failing to reach their target of devoting 10 percent of national spending to agriculture as agreed under the terms of the NEPAD-CAADP. Increased national spending should support better water management to intensify irrigation, reduce the continents dependence on rain-fed agriculture, and increase resilience to climate change. Moreover, governments need to put in a place a sound regulatory and institutional framework to minimize distortions and take advantage of new opportunities provided by the development of science and technology. Innovations in ICTs have several agricultural applications involving different stakeholders at different stages in the production cycle. Diffusion of market information, production knowledge, and geographical information are among the top applications that are being increasingly used in Africa but whose usage could be further enhanced. Since the large majority of scientists believe that GM crops are safe to eat, the technology has the potential to revolutionize Africas agriculture. Improved yield and resistance to pests can increase farmers income. However, skills in biotechnology are needed for a wide-scale adoption across the continent, as well as regulatory systems that ensure health and environmental safety and provide accurate information to farmers and customers. Taking full advantage of these technologies will require a number of countries to improve their land governance systems. Land access based on customary rights that disadvantage women, unequal distribution, and the absence of land markets are preventing the most efficient farmers from the opportunity to increase their production scale. Moreover, insecure land tenure limits farmers ability to use their land as collateral and thus to access credit markets. Land reforms accompanied with the development of financial instruments suited to the agricultural production cycle will improve the adoption of technology and expand the use of intermediate inputs. Finally the chapter acknowledges the potential of Africas agriculture and proposes mechanisms by which it can benefit from integration with regional and global markets. Indeed, integration in AVCs will help small-scale farmers adopt better production processes and garner higher prices for their produce. It also provides them with the opportunity to be linked with large-scale agribusinesses and diversify to higher-value crops, such as fruits, vegetables, fish, and flowers. However, meeting the high-quality standards in world markets is not easy, particularly for small-scale farmers. Thus regional AVCs can provide a stepping-stone that allows farmers to improve their production and marketing processes. This requires small-scale farmers to be better organized, for example in farmers organizations, and to link up with large-scale agribusinesses through out-grower schemes that establish production contracts between agribusinesses and small-scale farmers. Indeed, this has been promoted by the AfDB as a way to enhance inclusiveness as the sector increases the share of large-scale commercial farming. Strong support from governments and international organizations will minimize coordination failures among stakeholders and ensure that increased integration into AVCs benefits small-scale farmers, particularly women who represent a significant share in the agricultural employment breakdown. References Adamopoulos, T. and D. Restuccia. 2014. Land Reforms and Productivity: A Quantitative Analysis with Micro Data. Working Paper 525. Toronto: University of Toronto, Department of Economics. AfDB (African Development Bank). 2010. Agriculture Sector Strategy 20102014. Tunis, Tunisia: AfDB. . 2013. At the Center of Africas Transformation: Strategy for 20132022. Tunis, Tunisia: AfDB. Available at afdb. orgfileadminuploadsafdbDocumentsPolicy-Documents AfDBStrategyfor2013E280932022-AttheCenterofAfricaE28099sTransformation. pdf . . 2014. Global Value Chains and Africas Integration into the Global Economy. Chapter 2 in Annual Report 2013. Tunis, Tunisia: AfDB. . 2015, forthcoming. 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Baobab Africa, June 20. Available at economistblogsbaobab201306land-reform-south-africa . Entine, J. 2015. AAAs Scientists: Consensus on GMO Safety Firmer Than For Human-Induced Climate Change. Huffington Post, January 29. Esoko. No date. Available at esoko. accessed March 23, 2015. FAO (Food and Agriculture Organization of the United Nations). 2012. Smallholders and Family Farmers. Sustainability Pathways Fact Sheet. Rome: Food and Agriculture Organization of the United Nations. Available at fao. orgfileadmintemplatesnrsustainabilitypathwaysdocsFactsheetSMALLHOLDERS. pdf . . 2013. Save and Grow, Cassava: A Guide to Sustainable Production Intensification. Rome: Food and Agriculture Organization of the United Nations. . 2015. Government Expenditure on Agriculture: Experimental Series. Available at fao. orgeconomicessess-economicexpenditurefr. accessed March 3, 2015. FARA (Forum for Agricultural Research in Africa). 2006. Framework for African Agricultural Productivity Cadre pour la productivit agricole en Afrique. Accra, Ghana: Forum for Agricultural Research in Africa. Fuglie, K. O. and N. E. Rada. 2013. Resources, Policies, and Agricultural Productivity in Sub-Saharan Africa. ERR-145. Washington, DC: US Department of Agriculture, Economic Research Service. Gallup J. L. S. Radelet, and A. Warner. 1997. Economic Growth and the Income of the Poor. CAER Discussion Paper No. 36. Cambridge, MA: Harvard Institute for International Development. Gollin, D. and R. Rogerson. 2010. Agriculture, Roads, and Economic Development in Uganda. In African Successes: Sustainable Growth, S. Edwards, S. Johnson, and D. N. Weil, eds. Cambridge, MA: National Bureau of Economic Research. Grow Africa Secretariat. No date. Available at growafrica. accessed March 23, 2015. Hazell, P. B. R. 2009. The Asian Green Revolution. IFPRI Discussion Paper 00911. Washington, DC: International Food Policy Research Institute. Herrendorf, B. R. Rogerson, and A. Valentinyi. 2014. Growth and Structural Transformation. Handbook of Economic Growth 1 (2): 855941. IFAD (International Fund for Agricultural Development). 2010. Rural Poverty Report 2011, New Realities, New Challenges: New Opportunities for Tomorrows Generation. Rome: Quintily. James, S. 2013. Tax and Non-Tax Incentives and Investment: Evidence and Policy Implications. Investment Climate Advisory Services. Washington, DC: World Bank. Kanu, B. S. A. O. Salami, and K. Numasawa. 2014. Inclusive Growth: An Imperative for African Agriculture. Tunis, Tunisia: African Development Bank Kayizzi-Mugerwa, S. 1998. A Review of Macroeconomic Impediments to Technology Adoption in African Agriculture. African Development Review 10 (1): 21124. Kilimo Salama. No date. Available at kilimosalama. wordpress, accessed March 23, 2015. Kimani, J. M. P. Tongoona, J. Derera, and A. B. Nyende. 2011. Upland Rice Varieties Development Through Participatory Plant Breeding. ARPN Journal of Agricultural and Bioscience 6 (9): 3949. Klmper, W. and M. Qaim. 2014. A Meta-Analysis of the Impacts of Genetically Modified Crops. PLoS ONE 9 (11). Lapp, F. M. J. Collins, and P. Rosset, with L. Esparza. 1998. World Hunger: Twelve Myths, 2nd edition. New York and London: Grove Press and Earthscan. Lee, J. G. Gereffi, and J. Beauvais. 2012. Global Value Chains and Agrifood Standards: Challenges and Possibilities for Small Holders in Developing Countries. Proceedings of the National Academy of Sciences of the United States of America 109 (31): 1232631. Available at pnas. orgcontent1093112326.full. pdf . Leke, A. S. Lund, C. Roxburgh and A. van Wamelen. 2010. Whats Driving Africas Growth. Insights amp Publications, McKinsey Global Institute. Lewin, A. 2007. Zambia and Genetically Modified Food Aid. Case Study 4-4 of the Program: Food Policy for Developing Countries: The Role of Government in the Global Food System. Ithaca, New York: Cornell University. NEPAD (the New Partnership for Africas Development). 2013. Agriculture and Africa: Transformation and Outlook. Johannesburg, South Africa: NEPAD. Nin-Pratt, A. M. Johnson, and Y. Bingxin. 2012. Improved Performance of Agriculture in Africa South of the Sahara: Taking Off or Bouncing Back. IFPRI Discussion Paper 01224. Washington, DC: International Food Policy Research Institute. Nin-Pratt, A. and L. McBride. 2014. Agricultural Intensification in Ghana: Evaluating the Optimists Case for a Green Revolution. Food Policy 48: 15367. Nuffield Council on Bioethics. 2003. The Use of GM Crops in Developing Countries: A Follow Up Discussion Paper. Available at nuffieldbioethics. orgprojectgm-crops-developing-countries . Pabra (Pan-Africa Bean Research Alliance). No date. Available at pabra-africa. orgimpact. accessed March 23, 2015. Restuccia, D. and R. Santaeulalia-Llopis. 2015. Land Misallocation and Productivity. Working Paper 533. Toronto: University of Toronto, Department of Economics. Salami O. A. A. B. Kamara, and Z. Brixiova. 2010. Smallholder Agriculture in East Africa: Trends, Constraints and Opportunities. African Development Bank Group Working Paper No. 105. Tunis, Tunisia: African Development Bank. Singh, R. K. R. Murori, A. Ndayiragije, J. Bigirimana, J. M. Kimani, Z. L. Kanyeka, S. Surapong. Y. P. Singh, I. Ndikumana, J. Lamo, M. S. Mkuya, H. Tuskelege, and J. Rickman. 2013. Rice Breeding Activities in Eastern and Southern Africa. SABRAO Journal of Breeding and Genetics 45 (1): 7383. Svendsen, M. M. Ewing, and S. Msangi. 2009. Measuring Irrigation Performance in Africa. IFPRI Discussion Paper 00894. Washington, DC: International Food Policy Research Institute. Thirtle, C. L. Lin, and J. Piesse. 2003. The Impact of Research Led Agriculture Productivity Growth on Poverty Reduction in Africa, Asia and Latin America. World Development 31 (12): 195975. Timmer, C. P. 1997. How Well Do the Poor Connect to the Growth Process CAER II Discussion Paper No. 17. Cambridge, MA: Harvard Institute for International Development. UNDP (United Nations Development Programme). 2014. The Millennium Development Goals Report 2014. Available at undp. orgcontentundpenhomelibrarypagemdg the-millennium-development-goals-report-2014.html . UNECA (United Nations Economic Commission for Africa). 2013. Regional Integration: Agricultural Value Chains to Integrate and Transform Agriculture in West Africa. Addis Ababa, Ethiopia: UNECA. United States International Trade Commission. 2009. Sub-Saharan Africa: Effects of Infrastructure Conditions on Export Competitiveness, Third Annual Report. Investigation NP. 332-477, USITC Publication 4071. Washington DC, USITC. Voortman, R. 2013. Why the Green Revolution Failed in Sub-Saharan Africa. Available at rural21uploadsmediarural201303-S32-33.pdf . Wilson, J. P. 2005. Local, National, and Global Applications of Global Information Systems in Agriculture. In Geographical Information Systems: Principles, Techniques, Management and Applications, 2nd edition. Longley, P. A. M. F. Goodchild, D. J. Maguire, and D. W. Rhind, eds. New York: Wiley. World Bank. 2008. World Development Report: Agriculture for Development. Washington, DC: World Bank. . 2015. World Development Indicators (online). Washington, DC: World Bank. World Economic Forum, African Development Bank, and the World Bank. 2013. African Competitiveness Report 2013. Geneva: World Economic Forum. You, L. C. Ringler, U. Wood-Sichra, R. Robertson, S. Wood, T. Zhu, G. Nelson, Z. Guo, and Y. Sun. 2011. What Is the Irrigation Potential for Africa A Combined Biophysical and Socioeconomic Approach. Food Policy 36: 77082.How to Invest on the Johannesburg Stock Exchange South Africa is far and away the most economically developed of African states, and, as such, will likely be the continent8217s economic gateway for the foreseeable future. Truth be told, however, the Johannesburg Stock Exchange (JSE) isn8217t exactly the most bullish of markets these days. The MSCI South Africa Index has sunk more than 13 over the past 12 months after accounting for depreciation of the nation8217s currency, the rand. In fact, the market is now at its lowest point in nearly two years. But this isn8217t necessarily bad news for value investors. Falling prices mean an increasing number of bargains are on offer. Earnings multiples are dropping and dividend yields are rising. And because the Johannesburg Stock Exchange is one of the most sophisticated in the world, investors can scoop up these deals with a click of their mouse. The market8217s accessibility and convenience make it an ideal place for new Africa investors to get their feet wet. Here8217s how to get started. Comparison Shop South African Stockbrokers Your first step is to open an account with a South African stockbroker. Dozens of stockbrokers facilitate trades on the JSE, but only 12 offer online share trading to individual investors. Online trading platforms are still relatively new to Africa, and they8217re not a necessity to invest successfully there, but I find them more convenient. So, I limited my broker research to those that offer them. I sent an email to each one, asking them if they catered to foreign investors, how much of a deposit they required to open an account, what documentation was required, and for a copy of their fee schedule. Five of the brokers confirmed that they do take foreign clients and responded to my questions within three business days. I8217ve listed them below with their minimum initial deposit amounts, monthly administration fees, and my calculation of the cost of a hypothetical ZAR20,000 trade through each one. Minimum Initial Deposit Monthly Admin Fee ZAR50.00 (roughly 5.00) or monthly brokerage in excess of ZAR300.00 (roughly 30.00) ZAR235.96 (roughly 23.00) As you can see, commissions and fees are pretty comparable across all five brokers, but Anglorand requires a much larger deposit than its peers. Be aware that, for South African residents, value added tax is added to many of the above items. If you are not a South African resident, you should not be charged value added tax (VAT). If you do much trading, this can be a significant charge as it amounts to 14 of brokerage and fees. So keep an eye on your trading statements and ask your broker to refund any VAT should it appear. Discretionary vs. Non-Discretionary Accounts Note that some of these brokers offer discretionary accounts. Discretionary accounts give brokers the authority to make trades in your account without the consent of the account holder. They typically are managed in a way that the broker believes is the best way to achieve the investment objectives and acceptable levels of risk that you specify. It8217s like having your own personal portfolio manager. You might want to consider this option if you aren8217t interested in doing your own investment research. I8217m a bit of a control-freak, so I personally prefer non-discretionary accounts. I want to make my own investment decisions and don8217t like the idea that a broker could buy or sell my shares without my permission. If you8217re at all like me, make sure you open a non-discretionary or 8220execution only8221 account. What Documentation Will You Need To open an account be prepared to provide the following: Certified copy of your passport Bank details (i. e. a canceled check or a certified copy of a recent bank statement) Copy of a recent utility bill showing your physical address (not older than three months) Signed letter to your broker stating that you are not registered with the South African Revenue Service for tax in South Africa (some brokers may require your Social Security number) You will also need to fill out a form or three for the broker that you8217d like to open a trading account with. Here8217s a rundown as to what else is required by each one. Anglorand requires completion of a 12-page trading mandate (only the first six are necessary for non-discretionary accounts) and a three-page particulars schedule . Imara SP Reid8217s application is a 14-page monster. Fortunately, individual investors who wish to manage their own accounts can skip many of the sections. Nedbank, PSG Online, and Sanlam iTrade all offer nifty online registration applications. Find Nedbank8217s here, PSG8217s at this link. and Sanlam iTrade8217s right here . How to Fund Your Brokerage Account After opening your trading account, your broker will provide you with its bank details so that you can fund your account and begin buying shares. The most efficient way to do this is via wire transfer. If you havent sent an international wire before, I suggest that you take your brokers bank details to your local bank branch and ask them to walk you through the process. Theyll make sure that your funds arrive securely. Note that most US banks charge about 25 for outgoing international wires. Making a Trade The actual process of making a trade varies depending on the broker you use, but from what I8217ve seen their trading platforms look pretty intuitive. You simply buy and sell shares in a similar way that you would through an ETrade or TDAmeritrade account. Collecting Dividends In my experience, collecting dividends paid by your South African stocks is a piece of cake. If you bought the shares through an online broker, your dividends will deposited directly into your trading account. You can then decide whether to bring the cash back home or to reinvest them in the market. Clear as Mud Do you have questions about investing on the Johannesburg Stock Exchange that we haven8217t covered here If so, let8217s hear them in the comments Related Reading I8217m a young professional who wants to start investing in the stock market. A colleague has told me about satrix and that they offer minimum risk for investors. Is it safe in this day and age with our economy being so weak to start investing and is satrix a good choice for a beginner like me Your colleague is steering you in a sound direction, in my view. Satrix offers a number of ETFs and unit trusts which help diversify your risk while keeping costs low. There8217s not a lot of great economic news coming out of South Africa these days, but it8217s important to take a long-term view. I8217d advise that you invest a small, set amount at regular intervals (monthly or quarterly) in a diversified unit trust while you get your feet wet. Satrix offers two well-diversified unit trusts that you might consider (satrix. co. zaproductsunittrusts. aspx ). The Balanced Index Fund is diversified across South African and foreign stocks, bonds, and property. The MSCI World Equity Index invests in the world8217s largest companies, including Apple, Exxon, Google, and Microsoft and has very little exposure to the South African economy. Hope this helps and keep us posted on how things go for you Ryan Ryan I have a question to ask. Is it possible that while investing on the JSE that a person can be paid from the interest rates of the investment monthly Ryan Hoover says Good question. Yes, there are a few funds that pay a monthly distribution to their investors. You can find a list of a few of them in this article: Happy investing Ryan I own some South African shares, listed on the JSE, the certificates were issued in South Africa, can I trade them through a Canadian broker It would be worth asking them, but I suspect the answer will either be 8220no8221 or only for a very large fee. Tack. The shares in question are listed on the NY exchange. does that make a difference That may make it easier, and it8217s definitely worth a call to them. You might also check with a US broker, but I8217m guessing you8217ll likely need to work through a South African broker. Keep us posted on how things go What financial qualification do you have The reason i8217m asking is that you answer all questions correctly. Please send me your email i think communicating with you will be of great help in my journey to investing. I8217m currently doing research on investments and thinking that as a novice we should start with collective investments like ETFS or Unit Trusts for a small amount of money before dealing with common stocks. Looking forward to your kind co-operation. Dee wright says If u have shares in a company that company was deregistered. Could you advise what happens to the moneyyou have invested inthe company. Can u pls recommend a good stock trading trainer i may find around durban, trusted one. really want to do day trading Thanks for your question, Ndumiso. I don8217t recommend day-trading. It is high risk and high stress. Very much like gambling. Your odds of making money in stocks are best when you focus on the fundamentals of the underlying business. Think of yourself as an owner, and buy a business that is profitable, with low debt, and that is easy to understand. Then hold on to the shares and let the business work for you. All the best Ryan Ryan, thanks so much for posting I was wondering how to make such investments as Bonds and CD8217s (if available) with different FI8217s in Africa8230 Is there an institution in particular that you recommend Are there brokers that you can recommend. Is the process the same as it is here in the US For example, we can walk into the B of A (without a broker) and open a CD or Bond. Thank you very much for the info. I came across the info while I was doing my research on investing in shares. I would like to find out if one decides to open an account with maybe Nedbank stockbrokers, does one have the option to even buy shares like Calgro M3 What I mean is, does it limit you only to unit trusts Yes, you can buy shares of Calgro M3 (one of my favorite South African stocks, btw) or any other JSE-listed company through a broker like Nedbank. They will not limit you to unit trusts. Great question and happy investing Ryan Thank you very much, Ryan. Another one, I have a unit trust that I track every day. One day it goes up with R5 or more. The next day it8217s lower. I fail to understand how that works. Say I want to sell my units, do they come with a certain price that I do not know of Or will I cash out the balance that I see every day I love your site, Ry. Another excellent question, Brenda. Thanks Unit trusts are a collection of shares of many different companies. Every day the stock exchange is open, people buy and sell these shares. If the news about a certain company is good, the price of its shares will typically rise because investors believe that the company is more valuable than they previously thought. And, if the news is bad, the price of the shares will typically fall. It8217s a bit like owning a cow or a horse. If your neighbor sees that your cow is becoming very strong, healthy, and producing a lot of milk, he will probably be willing to pay you more for it. If, however, he sees that the cow is becoming sick or thin, he won8217t be willing to pay as much. A unit trust is like a herd of cows. Each individual cow (or share) has its own value. To determine the value of the entire herd (or unit trust), you sum the values of all the individual cows in the herd. And because the cows8217 (shares8217) value changes on a daily basis, so does the value of the entire herd (or unit trust). So, when you sell your units, you will be selling at the price that investors believe the underlying shares of your unit trust are worth on that particular day. Being French and living in South Africa, I was wondering about two things. 1. Is it possible to own a share account or to do online stock broking linked to a business account. The idea would be to own share via my consulting company. A way to invest the profits of my company. 2. Is it possible via the recommended brokers to own share on other markets. China, Nigeria, Ghana, France, USA. Thanks a lot for your answer Hi Ryan, on your list of doc requirements to open up an account, one of them says, 8216signed letter to state one is not a registered with SARS for tax8217 8230.I don8217t understand what would happen if one is I have a tax ref no 038 registered. The article is written from the perspective of a non-South African. If you are a South African and registered with SARS, you will just need to supply the broker with your tax number where requested. Xforex is a program for speculating on currency movements. This involves high risk and I don8217t advise including it in your investment approach. Much better to invest in shares of a great company at a reasonable price and hold them for the long-term. Hope this helps and happy investing Ryan I would really appreciate your help in the following. I purchased shares in protea holdings in 1973 I lost my certificates and after several house moves I found them again. I would like to know how to pick up my dividend cheques over all those years and also how to sell my holding. Thank you in anticipation. Skål. Alan That8217s a tough one. As I understand it, Protea Holdings was acquired by the Malbak Group in the mid-1980s. Malbak was then eventually acquired by Nampak about ten years ago. Lots of share unbundling happened along the way. Your best resource for tracking down the value of your shares and any dividends due you will be a local stockbroker. You can try one of the brokers listed in the article above or choose one from this list. If you aren8217t able to find a broker willing to assist, you might contact Nampak8217s share registrar. Their details are: Computershare Investor Services (Pty) Ltd 70 Marshall Street Johannesburg 2001, South Africa (PO Box 61051, Marshalltown 2107) Telephone 27 11 370 5000 Telefax: 27 11 370 5487 Hope this helps and please let me know how things work out Hi Ryan, thanks for your advice. I will keep you informed of the outcome. Skål. Alan Ryan Hoover says Thanks for your question and congratulations on what I presume is your retirement As you plan your next steps, you will first need to be clear on your average monthly living expenses. The following article can help you with that. When you know how much you spend in an average month as a retiree, I would set aside 12 months of living expenses in a savings account at your bank. This money should be available to you within a day or two. So, if, for example, you spend a total of R10,000month on housing, food, medical, transport, etc, I8217d suggest putting R120,000 in a savings or checking account. Next, set aside the money you will need over the next 2 8211 5 years in fixed-term savings accounts or CDs. Capitec Bank has some nice options here: capitecbank. co. zaglobal-onesaverates-and-fees. If your average monthly living expenses are R10,000, I would put R120,000 in a 12-month deposit account, R120,000 in a 24-month deposit account, R120,000 in a 36-month deposit account, R120,000 in a 48-month deposit account, and R120,000 in a 60-month deposit account. With the funds you have remaining after that, I would suggest investing in an exchange traded funds (ETFs) that provide some dividend income. Here8217s one that invests in a basket of the JSE8217s most consistent dividend-paying shares: This will help diversify your risk while still giving you the upside potential of investing in the stock market. I hope this helps and all the best to you Lumela hle Ryan Would also like to start investing and one broker said A software costs R16 000, and If I start buying shares for around R3000 as a lump sum will get around R900 per month which can be able to pay my debt if say i took a loan 8211 told them i dont want a loan nor credit Would either start with a lump sum or a monthly debit. Kindly advice as I would love to start investing trading in JSE - I dont have debts and dont want any. How does this software work. Tx in advance.. Ryan Hoover says Khotso, Alina Ho joang I would strongly advise you not to do business with this broker. It sounds like a scam. There is no reason for you to spend any money on software to begin investing, let alone R16,000. And, I8217m going to be blunt, if anyone assures you of R900 per month on a R3000 lump sum, they are lying or simply don8217t know what they are talking about. Run away from this broker, Alina. Run away If you want to begin investing. The cheapest, most efficient way to do so is to open an account with one of the reputable brokers listed above. Then, invest in a broadly-diversified ETF, like the Satrix 40. This will allow you to begin investing while keeping your risk and expenses low. As time goes on and you learn more about investing in shares, you can begin to invest in individual companies. But my advise is to never, NEVER pay for 8220trading software.8221 Hope this helps and thanks for the question Thank you so much for the info, kea leboha Ntate8230 plz clarify if you say the jse lost 11 such that an investment of 1000 is now worth 890 having lost 110.-an example. I thought a loss or return on investment depends on the performance of the particular stock you buy and not on the overall performance of the exchange or more accurately how does the overall performance of the exchange. i. e jse impact on a particular investment or stock coz yes the jse might have gone dwn by watever but can8217t I still come out victorious if I picked a well perfoming stock. hop u get the drift of my question. thanks Ryan Hoover says Great question, Mvelo. You are correct. It is possible that individual stocks can increase in value at the same time that the market (on average) loses value. When we say that the JSE lost 11, we8217re referring to the JSE8217s All Share Index, which is a measure of the performance of all stocks that trade on the exchange. I have been burnt so many times guy. I have tired all sort of money making scheme. From my experience investments that promises guaranteed returns of 10 or more are scams. Investments that ask for you to buy something upfront they are scams. Like those asking you to buy R18000 software. You can do fundamental and technical analysis with free news site like fin24.co. za bloomberg Reuters. When you are starting out as any investor keep your cost to minimal use free information on the net once you have made some profit you can invest in what Ryan offers like Stock scout. Guys believe me there is a lot of scams ponzi scheme out there. Latest being kipi, upliftingsa. org. Just search co HYIP on Google you will seek a lot of scams with high returns. If you are base in South Africa I would suggest using easyequities. co. za. Its similar to what big for banks offer in terms of online stock trading. The main difference being there is no monthly fees and you have access to JSE listed companies. If you like investing like me I would like to form some sort of club where we share Ideas. I am now only focusing on long term. my e-mail: ndlovu2nsGmail Ryan Hoover says Many thanks for this, Nhlanhla EasyEquities. co. za does look like a great, low-cost option to begin trading. Hi Ryan. How soon after investing does one start receiving the dividends that are paid out by the companies listed on the JSE Ryan Hoover says Great question. Some companies pay dividends twice per year (every six months), some pay only once, and some do not pay any dividend at all. Each company has a different schedule for when they make their payments. Foschini, for example will make their mid-year payment on Friday, January 8. Their final payment will be issued approximately six months from now. Note that you cannot purchase shares of Foschini today and expect to receive a dividend on Friday. In most cases, you must be on record as a shareholder roughly one month before the payment date in order to receive a dividend. So, before purchasing shares of a company, have a look at the 8220Investor Relations8221 section of the company8217s website. This will typically provide information on the company8217s dividend policy. Hope this helps and happy investing What is the percentage of whole South African population trading in JSE Ryan Hoover says That8217s a toughie. I confess I don8217t know, but I suspect it8217s a rather small percentage who directly trade on the JSE. A far larger number, however, have exposure to the JSE via pensions and savings plans. Charl Badenhorst says Hi Ryan It seems that you are not too keen on 8220day trading8221. Forgive my ignorance as I only have shares that were issued to me as part of my employment package. It is my understanding that if I invest for the long term I can only benefit from the growth of the share over that period 8211 say 5 years. It means that I will only be able to use the money I made after 5 years to buy more shares and wait another 5 years for them to grow. I will need a primary income with some spending money left over at the end of the month to continue to buy shares. If I dont have extra cash I cant buy8230. Whereas the day trading should (if I do it right) make small profits every day that I can then use to invest 8211 over 5 years or continue day trading. I8217m I missing the point I will retire in 5 years and want to continue playing in the stock market 8211 JSE as I am a South African citizen. Thanks for the fantastic talk site. Charl Ryan Hoover says Good question, Charl. The problem with day-trading is that on any given day a stock has pretty much a 50-50 chance of going up or down in value 8211 like flipping a coin. The problem is that you must pay a small commission to your broker each time you execute a trade. Therefore, just to break even, you must be right significantly more often than you8217re wrong. Only the lucky succeed in doing this. It8217s very similar to a trip to the casino. In contrast, when you hold a share for the long-term, you are acting more like the part-owner of a business. If you pay a fair price for shares of Woolworths, for example, and the underlying business performs well, the odds that the share price will rise over the next months and years are in your favor. Moreover, you pay your broker only twice 8211 when you buy the shares and again when you sell them 8211 which keeps your costs low. Share prices occasionally rise rapidly to valuations so optimistic that it makes sense to sell your shares after holding them for only a few months, but generally people should prepare to own shares of a given company for 5-10 years to give themselves the best chances of making a decent return. In your case, you may want to consider investing in shares that pay a consistent dividend. Some JSE-listed shares pay dividends on a bi-annual basis, and if the company is profitable, the dividend payout often increases from year to year. These dividends are paid as cash into your trading account for you to withdraw or reinvest in new shares as you see fit. Hope this helps and many thanks for the great question, Charl Hi Ryan I am a self employed young woman, I am interested in this stock exchange business, the thing is I8217m debt free, I8217m only planning to buy a house of which I8217m in the process, the problem is that I receive lot of money at once as I8217m in construction, I do the jobs with my savings so the profit I get 50 percent of it I end up using it carelessly. i want to invest let8217s say I spend 20000 a month without the savings for the business, where and how do I start besides the banks which broker can assist for a long term, also I want to invest for my son is 15 years of age also for a long term because I want him to start a business at 21 yrs. i know nothing about this please help. but your site is great thank you in advance I am in S outh Africa me and my husband we want to trade with Jse but we found unreliable brokers. We invested with one of Jse brokers Nov 2014 no statement when we google we cant get them any longer. Help us please Ryan Hoover says I8217m sorry to hear that, Tshedi. I would begin by reporting your situation to the JSE8217s Market Regulation Division at surveillancejse. co. za or call them at 27 11 520 7000. They should be able to advise on how best to track down your funds. hi I8217m looking to invest in Jose for the first time l don8217t have enough knowledge I8217m looking forward to invest R20000 and another thing I8217m a Zimbabwean what do I need, another question is that are those shares differentiated in terms of ordinary shares or preference shares. By joining and investing in a jse listed company, do you buy shares in the company and wait for a turnover or do you trade personally Ryan Hoover says As the investor, you ultimately decide when you would like to sell your shares. This may be when you believe the price on offer is higher than the shares are intrinsically worth, when you spot a better investment opportunity elsewhere, or simply when you need the cash.