Month: January 2011

M&A is back as CEOs start to put cash to work

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Dealmaking is back on the agenda as CEOs step up the hunt for ways to put a multitrillion-dollar cash pile to work, triggering the busiest January for M&A in 11 years.

There is still plenty to worry about at this year’s meeting of the global elite in Davos, from fiscal deficits in the developed world to inflationary risks in emerging markets to new political risks like Egypt.

But with economic recovery taking root in the United States and Germany, while China and India continue to barrel along, company bosses and dealmakers are no longer willing to sit pat.

“We’re seeing our clients beginning to invest,” said Jim Quigley, CEO of Deloitte Touche Tohmatsu. “There is significant capital still on the sidelines, but my M&A team is certainly no longer on the sidelines.”

Overall, multinational companies in developed countries are holding a record $4-5trn in cash, according to a report last week by the United Nations Conference on Trade and Development.

That money was built up as a buffer against a potential double-dip recession, or other systemic shocks, and it is beginning to look like a wasted opportunity.

The mood of confidence – as measured by surveys and conversations with business leaders – is palpably better at this year’s annual meeting of the World Economic Forum.

Fair conversations
“Equity valuations are coming back. There are more fair conversations between buyers and sellers,” said one European dealmaker.

Some companies have already plunged into M&A, like US health insurer Humana, which last month completed the $790m acquisition of Concentra, a Texas-based care provider.

“Clearly, cash has to be put to work. It can’t just sit on the balance sheet,” said Humana Chief Executive Mike McCallister. “We will continue to look for more opportunities.” He is not alone.

Global M&A activity so far this year has already reached $243bn, making it the most active January since 2000 and 47 percent ahead of the $165bn for all of January 2010, according to Thomson Reuters data.

“M&A is back and the volume of deals in the last few months has certainly picked up. But our survey also points (out) that the whole area of innovation is also back, which I think gives the best of all worlds,” said Denis Nally, chairman of PricewaterhouseCoopers (PwC).

PwC’s annual CEO confidence survey, released on Tuesday, showed optimism among CEOs had returned to almost the same level as before the financial crisis, with 48 percent of those questioned very confident about 2011 revenue growth.

Kissing frogs
“This is a good moment for M&A deals,” said Feike Sijbesma, CEO of Dutch group DSM, the world’s largest vitamins maker.

DSM last month agreed to buy US baby food ingredients maker Martek Biosciences for $1.1bn and, with more than $2.5bn available for acquisitions, Sijbesma hasn’t finished shopping yet.

A string of other companies also flagged their interest in acquiring rivals to drive their growth to the next level this week in Davos, including German software maker SAP, French outdoor advertising group JCDecaux, Russia’s largest steel producer Severstal, India’s No. 2 software exporter Infosys Technologies and Swiss drugmaker Novartis.

“The tectonic plates are moving and good companies need to be in the game, engaging in global M&A activity,” said Mark Foster, Accenture’s global head of management consulting.

Finding the right deal, however, remains as tricky as ever, according to Chris Viehbacher, CEO of French drugmaker Sanofi-Aventis, who is locked in a closely watched takeover battle for US biotech group Genzyme but is also open to other smaller deals.

“You’ve got to kiss an awful lot of frogs to buy a prince,” he said.

UK inflation leaps to eight month high, pressure on BoE

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A record monthly jump in prices drove British inflation to an eight-month high in December, piling pressure on the Bank of England to raise interest rates and show it is not letting inflation get out of control.

The Office for National Statistics said the annual rate of consumer price inflation rose to 3.7 percent from 3.3 in November – much higher than analysts’ forecasts for a steady reading, after prices rose a record one percent between November and December.

The pound shot up more than half a cent against the dollar to an eight week high, gilt futures dropped to a contract low and interest rate futures fell sharply as investors ramped up bets on when the BoE will start tightening policy.

Inflation has been at least a percentage point above the BoE’s two percent target throughout 2010, and rising inflation expectations among the general public and bond investors have caused markets to price in a first rate hike by mid-year.

Inflation is likely to climb yet higher in January, as an increase in value-add tax to 20 percent from 17.5 takes effect.

“The numbers are obviously a lot worse than expected. I think it does raise the risk that the Bank of England will have to move interest rates in the first half of this year,” said George Buckley, economist at Deutsche Bank.

The BoE forecast in November that inflation would average around 3.2 percent in the fourth quarter of 2010. More recently policymakers have said it could hit four percent early in 2011, due to January’s VAT rise.

The ONS said the biggest drivers of inflation at the end of the year were air transport, fuel, utility and food bills. Fuel costs rose at their fastest annual rate since July, and food prices showed their biggest annual rise since May 2009.

Oil prices are fast approaching $100 a barrel, far higher than the BoE assumed in its November Inflation Report.

But policymakers argue that the factors driving prices at the moment are temporary, and that raising interest rates in response risks derailing a fragile economic recovery.

The BoE had an estimate of the data when it made its decision to leave interest rates at their record low 0.5 percent in early January.

Credibility
Concern the Bank of England has lost its grip on inflation has risen to such a level that markets are increasingly pricing in an interest rate rise by the summer to prevent a full-blown credibility crisis.

“This raise is becoming much more difficult for the Bank of England; certainly there’s going to be a market expectation that they move much sooner rather than later,” said Ross Walker at RBS Financial Markets. “So I think you’ll start to see a May hike getting priced in quite soon.”

But Monetary Policy Committee member Paul Fisher said in an interview that although inflation was “very uncomfortable”, the BoE had made the right decisions on policy.

“We have to look through those short-term things, despite whatever unpopularity comes our way, to try and set the best policy rates for the medium term,” he told the Yorkshire Post.

The retail price inflation gauge, which includes more housing costs and is the benchmark for many wage deals picked up to 4.8 percent from 4.7 percent, in line with expectations, and the highest since July 2010.

With harsh public spending cuts about to bite, the government would probably be content for interest rates to remain at rock bottom levels.

But Prime Minister David Cameron did say he was concerned about price pressures “well outside what the Bank of England is meant to deliver.”

Henderson bags Gartmore, makes $122bn funds firm

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Anglo-Australian funds house Henderson is buying troubled British rival Gartmore, to create one of Britain’s largest retail asset managers with £78bn ($122bn) under management.

“By bringing across fund managers and integrating the (Gartmore) business onto our own platform we will be able to enhance margins significantly,” Henderson chief executive Andrew Formica said.

“Its recent travails should not overshadow the fact that Gartmore is one of the best known managers in UK fund management and its assets are performing well,” he said.

Gartmore, which listed at 220 pence per share in December 2009, suffered a litany of woes in its year as a public company, including the departure of star manager Guillaume Rambourg following a regulatory probe and the retirement of so-called “key man” Roger Guy in November.

Both exits spooked clients and sparked heavy outflows of assets. The Henderson deal will crystallise a 58 percent loss for investors who bought shares when Gartmore floated.

Staying on board
Henderson said Gartmore fund managers with collective responsibility for 84 percent of Gartmore’s assets under management had endorsed the deal, easing fears many could walk out under new management.

John Bennett, Gartmore’s star European equities manager, is among those who have committed to stay.

However, the marriage of the two companies may lead to departures. “Clearly there are overlaps and it is likely people will be affected. But it is too early to comment on the details,” a Henderson spokesman told Reuters.

Cannacord analysts said the transaction comfortably offered at least 10 percent earnings enhancement in Henderson’s 2011 fiscal year on an annualised basis.

Gartmore shareholders will hold around 22.5 percent of the enlarged group. Henderson has received irrevocable undertakings to support the bid representing 60 percent of Gartmore’s shares.

Institutional shareholders in Gartmore had advocated a quick sale, following the departure of fund manager Roger Guy, responsible for about 17 percent of its assets.

Competition: You can have too much of a good thing

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Competition makes capitalism work. By forcing firms to improve on service and price lest they be undercut by rivals, and by discouraging firms from abusing workers lest they leave, it makes the price mechanism work for the people. Neoclassical economists take these facts to their logical conclusion and see competition as practically a panacea for the world’s ills.

Reality is rarely so simple. The limitations of competition as a force for good are well-known. Consumers can be inadequately informed, making it possible for firms to take advantage of them, and they exhibit a range of behavioural patterns that can be exploited by the marketing industry. Likewise, the intrinsic difficulty of matching skills to positions and the costs associated with moving job may cause workers to stay with abusive bosses.

What is less well-known is that there are cases where competition can do outright harm. Most basically, it is unlikely that firms will respond to competitive pressures purely by improving service and cutting costs and prices. In a world where people have imperfect information and workers can’t always leave their employer, firms may be able to respond by cutting corners and abusing consumers and workers.

Companies may also respond to competition by reducing rates of investment so as to cut costs and boost profits in the short term, at the expense of consumer and public interests in the long term. This may not be rational even from the perspective of the firm, but people are not perfectly rational – especially when they are managers of a company under pressure from short-termist stockmarket investors.

Such short-termist behaviour is evident in the differential economic performance of Australia and New Zealand since the early 1980s. Until then, the two countries had near-identical GDP per capita. But New Zealand liberalised its markets – giving competition a freer hand to a greater extent – than its neighbour. The result was lower rates of investment by companies in New Zealand and a GDP per capita that was twenty-five percent lower than Australia two decades later. (The benefits to Australia of exporting primary commodities to China were an additional boost that largely came after.)

Excessive competition can be especially dangerous in financial services. Banks under tight competitive pressures can cut borrowing costs to the point where it fuels speculation and they may make unwise lending decisions in pursuit of yield. Asset managers in a strongly rising market, meanwhile, face only limited competitive pressures and can charge fees that consume much of the additional return generated for investors. Such fees create proprietary capital to further fuel speculation. And, after a market bust, many financial firms will be dead or hobbled; reducing competitive pressures on the survivors and leaving them free to take excessive profits once more.

How should regulators respond to these observations? Firstly, they should recognise that intense competition is to be desired only where it is accompanied by a strong regulatory framework to constrain unacceptable behaviour. Second, any measures taken to boost competition should always be accompanied by targeted incentives to boost real investment. Finally, in the financial services industry, since competition is of limited use here anyway, regulatory measures to ensure stability and orderly function should take priority over maintaining competitive markets.

Renault spy case shows rising economic conflict

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From what France calls “economic warfare” as it probes a Chinese link to industrial espionage at Renault to currency confrontation and commodity rivalry, economic conflict is increasingly impacting businesses. President Nicolas Sarkozy’s office has asked French intelligence to probe suspected industrial espionage at the car giant.

Renault suspended three executives at the start of January including a member of its management committee, with a source telling reporters the firm was worried its flagship electric vehicle programme – in which Renault together with Nissan is investing €4bn – might be threatened.

French industry minister Eric Besson told journalists the expression “economic warfare” was appropriate.

“What you’re seeing is a change in the nature of what war itself means,” Ian Bremmer, president of political risk consultancy Eurasia Group, told Reuters. “It’s not going to be so much a matter of bombs and missiles as deniable cyberwarfare, corporate espionage, economic struggles. That’s going to be a particularly difficult environment for Western corporates.”

Ultimately, he believes it will drive Western firms to build closer relationships with governments for protection to survive the rise of “state capitalist” powers like China and Russia.

Renault is far from the only suspected case. US cables released by WikiLeaks show diplomats blaming China for hacking into Google systems that prompted the internet giant to briefly quit mainland China.

Some analysts also suspect information theft may be helping China close the gap faster than expected as it builds a “stealth fighter” to rival Lockheed Martin’s F-22. Images posted on a number of websites showed what appeared to be a working Chinese prototype, although the US says China may still be years away from a truly working model.

Currency, commodity rivalry
Government-backed corporate espionage is nothing new. France itself has often been accused of doing much the same thing, including allegations of bugging business class seats on Air France jets in the 1970s and 80s. But the rise of emerging powers is seen quickening that trend.

It comes as the world’s emerging and developed nations continue to face off over relative currency strength and as growing demand for natural resources pushes food prices to record levels and oil back towards $100 a barrel.

Major powers are seen in increasing competition for resources. China – 4and to a lesser extent other emerging powers such as Russia, India, Malaysia, Brazil – have been expanding particularly in Africa. Beijing also says it will cut export quotas for its rare earth minerals vital to the production of much electronic technology, sparking a worldwide hunt for new sources. China produces some 97 percent of the world’s rarest elements, and the cut sent shares of producers elsewhere rising sharply.

While in state capitalist countries such as China and Russia the private sector, governments and intelligence agencies may be so close as to practically overlap, in western states they are much more divided.

“There is more attention being paid to the economic damage to national security but there is something of a disconnect between the US government and the private sector,” said Nikolas Gvosdev, professor of national security at the Naval War College in Rhode Island.

“The perception is (still) that the government handles ‘defence’ and the private sector handles ‘economy’.”

Corporate espionage “easy” for spies
Others say that while the rise of new economic powers will mean intelligence agencies shift some focus towards them, the main effort will remain preventing militant attacks rather than on corporate matters.

“I doubt this will become a priority for UK agencies other than defensively,” said a former senior British intelligence official on condition of anonymity.

“The UK is not by tradition state corporatist and there is likely to be little inclination to do the private sector’s work for it. Hard to say for other Western states as it is more a matter of political philosophy than capabilities – corporate espionage lies at the easy end of the spectrum.”

The WikiLeaks saga in which it is alleged one youthful US Army private managed to download the entire war logs for Iraq and Afghanistan as well as more than 250,000 diplomatic cables shows how the information age makes secret data easier to steal in vast quantities – particularly if one has an inside source.

Emergent Asset Management – one of the first funds to start buying up farmland in Africa to tap rising food prices – believes rising tensions will ultimately lead to war. It is launching a new fund later this year to track political strains.

Executive Recruitment Awards 2010

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Executive Recruitment Company of the Year – Argentina
Boyden

Executive Recruitment Company of the Year – Austria
Signium

Executive Recruitment Company of the Year – Belgium
Lancor

Executive Recruitment Company of the Year – Brazil
Fesa

Executive Recruitment Company of the Year – Canada
Davies Park

Executive Recruitment Company of the Year – Chile
CT Partners

Executive Recruitment Company of the Year – Colombia
Korn Ferry

Executive Recruitment Company of the Year – Czech Rep
Krajiceck Associates

Executive Recruitment Company of the Year – Denmark
SAM Headhunting

Executive Recruitment Company of the Year – Finland
Boyden

Executive Recruitment Company of the Year – France
JMB

Executive Recruitment Company of the Year – Germany
Odgers Berndtson

Executive Recruitment Company of the Year – Greece
Intersearch

Executive Recruitment Company of the Year – Hong Kong
Michael Page

Executive Recruitment Company of the Year – Hungary
EastEuroCo

Executive Recruitment Company of the Year – India
Russell Reynolds

Executive Recruitment Company of the Year – Italy
ASA Amrop

Executive Recruitment Company of the Year – Mexico
Stanton Chase

Executive Recruitment Company of the Year – Netherlands
Financial Assets

Executive Recruitment Company of the Year – Norway
EWK

Executive Recruitment Company of the Year – Peru
Tasa Worldwide

Executive Recruitment Company of the Year – Poland
Egon Zehnder

Executive Recruitment Company of the Year – Romania
George Butunoiu

Executive Recruitment Company of the Year – Russia
Alexander Hughes

Executive Recruitment Company of the Year – Serbia
Pedersen & Partners

Executive Recruitment Company of the Year – Singapore
Profile

Executive Recruitment Company of the Year – South Africa
Odgers Berndtson

Executive Recruitment Company of the Year – Spain
MC Asociados

Executive Recruitment Company of the Year – Venezuela
Maxecon-Signium

Demand grows for African assets

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The most important fact for any investment in any country within the African space is that they have someone on the ground 352 days a year monitoring and mentoring investment companies. At Wentworth International we have made two recent investments, the first being a natural resources company in Sierra Leone and the second in a UK registered company which has a 100 percent focus on Africa, with operations in both the east and west of the continent. We aspire to mobilise funds from international and African investors for deployment in the fast growing economies of Africa with an estimated GDP of $2trn. Investors realise that Africa is underpenetrated with untapped potential and provides interesting opportunities for investment growth returns for any investor willing to take the time to understand and pursue opportunities within this continent. To unlock this potential, FDI must be attracted to augment the low local investment and thus far, the private equity model has been used to satisfy these needs for capital.

Opportunity knocks for PE
We all hear about the BRIC countries but the smart investors are already moving on. These are the people who always drink ‘up river,’ the investment community who get in earlier than anyone else and those who make the greatest returns. We are seeing a whole range of new businesses to develop, focused on Sub-Sahara and North Africa. Those in the know are seeing exciting opportunities with Wentworth International. It is this new perspective that makes our business of so much interest. So the world’s leading investors are turning to Africa, the only major area of the world left to develop. Africa presents very strong fundamentals that underpin its growth prospects over the coming decades and by all standards is the prime investment area especially for those who would like to tap into its vast resources. Land as a resource is easily available for serious investors either through private purchase or through allocation by governments, some of whom are ready to attract potential investors by offering free or subsidised land in addition to giving tax breaks and holidays especially for investors whose proposals indicate they can generate employment and raise income for the country. Apart from land, Africa is emerging with a strong base of well trained human capital not only in technical areas but also in management and supervisory tasks and jobs. Most African countries have adequate skilled and semi-skilled human power at their disposal and the majority of these are yearning for employment. The continent has a population of 800m people (half of whom are under the age of 16) who have comparatively little infrastructure or telecommunications access. On the back of this, it is undergoing unprecedented economic growth with the World Bank forecasting a real GDP growth rate of 5.1 percent for Sub-Saharan Africa in 2011, versus 1.3 percent for the eurozone. This combination is leading to increased urbanisation giving rise to a growing aspirational middle class with improved levels of disposable income that are driving the demand for products and innovations. As a result, we can record a rise in the demand for consumer goods and services; this is enhancing the necessity for investment across traditional products and services. The sectors that are benefiting from this move include telecommunications, agribusiness, the financial and business services, real estate and basic industrial production.

Natural resources
In addition to land and human capital, many countries in Africa boast significant natural resources, which can be developed in a sustainable manner. These include wildlife and related tourist attractions, fresh water lakes, rivers, seas and coastal areas with marine and aquatic resources. Some countries have vast mineral resources waiting to be explored and developed such as oil and precious metals – Africa has 21 percent of the world’s gold and  46 percent of the world’s diamond deposits, as well as copper and iron ore).

Land investments excite Wentworth International, especially in terms of agriculture. Indeed this is a dilemma that a continent with such high potential for agricultural yields has high food insecurity and frequent food shortages and famine, necessitating importation of food items from outside the continent at high costs. There is therefore a  need to invest in the agricultural sector and those who venture into this will not only reap good returns but help Africa solve its chronic food problem.

Industrial investment in Africa is still very low compared to other regions of the world and yet with the growing economy of this region and the growing population, coupled with a fast urbanisation process, puts Africa ahead of other regions of the world in terms of prospects for future industrial investment, growth and in terms of potential for industrial goods market expansion.

In conclusion, there are many prospects for investment in Africa and it is in this regard that Wentworth International Partners was established. Wentworth’s objective is to focus on early stage companies that attribute more than 75 percent of their revenues from Africa within growth sectors exhibiting a clear upside potential.

We invest opportunistically, using a disciplined approach for selecting investments generated from a proprietary pipeline through long-standing relationships with key players in the region. Our mission is to be the leading premier Pan-African Investment Company with the vision to target investments in high-quality early stage enterprises with potential for regional growth. We seek to create successful partnerships with companies’ management in a variety of sectors; in order to create value for our shareholders while generating positive returns.

Wentworth International Partners is a company driven to find strong investments in Africa and support those with a positive vision for the country and her people.

Joyce Ollunga is CEO of Wentworth International Partners, the Nigeria-based investment company. For more information www.wentworthinternational.com

Mobilising impact finance

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World population is estimated at 6.8 billion people, of which close to two billion live in poverty, 925 million are undernourished, 2.6 billion lack basic sanitation, about one billion can’t read a book or sign their name and 443 million school days are lost each year due to water-related illnesses. Yes, the percentage of population living in poverty has been substantially reduced in recent decades, but China alone accounts for most (close to 90 percent) of the world’s poverty reduction since 1981. What’s more, staple food prices are increasing, while income inequality is rising: the poorest 40 percent of world population account for five percent of the world’s income, and 80 percent of the world’s population live in countries where income differentials are widening.

On the environmental front, global CO2 emissions have risen by 20 percent since 1997, with no post-Kyoto agreement in sight and the 2012 deadline fast approaching. To ensure global temperatures don’t rise by more than 2°C above pre-industrial levels, G8 countries would need to cut their emissions by 80 percent by 2050, which translates into investments of $1trn a year, of which $475bn is transfers to the developing world to help it adapt to climate change. Furthermore, the Kyoto framework does not cover deforestation, which is responsible for some 13 percent of CO2 emissions.

Impact finance seeks to address these imbalances by providing an expanding universe of profitable investment opportunities to investors, yielding double or triple bottom line returns.

Public sector needs the private sector
The world is progressively recovering from the financial crisis and a two percent contraction of the global economy in 2009. But the rising debt and need for budgetary cuts faced by most OECD governments has effectively shifted much of the burden of sustainable development funding to the private sector.

Total net official development assistance (ODA) from the OECD amounted to $122bn in 2008, representing 0.3 percent of the combined Gross National Income (GNI) of OECD donor countries. It fell short of the 2010 target of 0.36 percent of GNI to stay on track with the Millenium Development Goals (MDGs), let alone the 0.7 percent of GNI required in order to achieve the MDGs by 2015.

Private sector mobilisation is therefore essential to complement the development efforts of the public sector. According to 2008 data published by the Hudson Institute, private giving to developing countries reached $34bn from the US and $15bn from 13 other countries including most of Western Europe. That same year, remittances to developing countries totalled $325bn (World Bank), and foreign direct investments to developing and transition countries amounted to $735bn (UNCTAD 2009). In fact in 2008, says the Hudson Institute, “Global philanthropy, remittances, and private capital investment accounted for 75 percent of the developed world’s economic dealings with developing countries.”

Investment industry reengineering
With $111trn in global assets under management worldwide as of December 2008 (BCG 2010), the capital market pool is too large a resource to be ignored by sustainable development proponents. Some 6.3 percent of these global financial assets are invested in socially responsible investments (SRI), while more than 800 signatories managing $22trn subscribe to the concept of sustainability, broadly endorsing the United Nations Principles for Responsible Investment. Yet most of the actual practice focuses on doing little or no harm, and rarely provides the opportunity to measure the precise social and environmental impact of investments. Impact finance may be a good response to this quandary. It presents financially appealing investment solutions across asset classes, and funds viable and often scalable solutions for microfinance, affordable healthcare, education, alternative energy, and sustainable agriculture. As Bridges Ventures noted in 2009, “the sector stands poised both to address significant social and environmental issues and to chart a new course for the financial services industry to reclaim its stature as an engine of social and economic upliftment.”

Impact finance market
Impact finance was valued at $50bn in April 2010 by the Global Impact Investing Network (GIIN), which expects it to grow to $500bn by 2014. According to another forecast, “Over the next five to 10 years, impact investing could grow to represent about one percent of global assets under management” (Monitor Group 2009). But more recent data indicates impact finance may encompass financial assets worth up to $297.2bn already.

In December 2009, CGAP numbered 91 active Microfinance Investment Vehicles managing $6.2bn, a 25 percent growth over 2008, predominantly composed of mostly de-correlated and low-volatility Fixed Income, with an average return of USD Libor +250 bps in 2009. The ranks of microfinance borrowers have increased by 91 percent per year from 2004 to 2009 (Intellecap 2010), reaching $40bn in gross loan portfolios, and 2.5bn adults still don’t have access to financial services (McKinsey 2010).

Community investing in the US was valued at $41bn at the outset of 2010. As for sustainable agriculture, fair trade sales were valued at $4.2bn worldwide in 2009, a 15 percent growth over 2009 (Fairtrade Labelling Organisation 2010).

As for sustainable agriculture, fair trade sales were valued at $4.2bn worldwide in 2009, a 15 percent growth over 2009 (Fairtrade Labelling Organisation 2010). Regarding carbon finance, another impact investment segment, CDC identified 96 carbon funds with a total capitalisation of $16.2bn, in Equity and Private Equity vehicles mostly, while UNCTAD estimated FDI flows into renewables, recycling and low-carbon technology manufacturing amounted to $90bn in 2009. The global carbon market is worth $122bn, mostly thanks to the EU Emissions Trading Scheme (The Economist 2009), with an additional $163bn from green subsidies (New Energy Finance 2009).

Impact investing is attracting all types of investors: 19 European pension funds have disclosed microfinance investments of $555m (OnValues 2009), and Toniic, the US impact investment club, will launch its European chapter in 2011. Toniic was co-founded by RSF Social Finance, which since 1984 has provided social enterprises with $200m in loans, and the KL Felicitas Foundation, which has pledged its entire endowment to impact investing.

Impact finance hurdles
According to a recent survey by AlphaMundi Group, this new investment approach still faces a number of hurdles: a short history, a lack of standardisation and access to information, insufficient investor awareness and product benchmarking, liquidity constraints, and a more comprehensive regulatory support are all challenges being progressively resolved by the industry.

Further findings reveal that most impact finance asset managers specialise exclusively in this new type of investment, using debt and PE/VC instruments to fund deals of $1m on average (AlphaMundi 2010). They can broadly be assigned to two categories, the first composed of impact finance pioneers with at least six years of track record and $100m or more in assets, the second made up of new market entrants with less than five years of experience and under $20m in assets. Only half of the interviewees disclosed their financial performance, which on average was superior to five percent per annum for debt instruments and 10 percent per annum for PE in 2009. Half of the managers charge at least two percent management fees, and additional performance fees of 20 percent on average with a hurdle rate of six percent or more, to cover the costs of due diligence which typically takes three months from deal identification to disbursement, and of monitoring and reporting thereafter. Leveraging resources through co-investment could be a solution to reduce transaction costs, but only a small minority had ongoing co-investments at the time of the survey. All the interviewees invest directly into projects or impact enterprises, while half also invest through funds. The regions of greatest interest for the foreseeable future include Asia ex-Japan, Africa and Latin America. Interestingly, most impact finance managers expect microfinance to be supplanted by sustainable agriculture and alternative energy as the primary sectors of impact investment.

With regards to impact measurement, less than half of the interviewees used systematic measurement processes, and in most cases they do so in-house with a customised methodology. About half impact finance asset managers believe it would be useful to establish industry-wide label for impact investing, to catalyse market growth and facilitate fundraising, and 75 percent of them would be willing to contribute data to enable such a label should it exist. Fundraising is the second largest driver of cost for impact finance managers, after the expenses of investment screening and monitoring. Like any new industry, a majority of interviewees think it necessary to broaden investor awareness and appeal through special tax incentives, and AlphaMundi is now working with leading stakeholders across countries to secure sufficient regulatory support and crowd in the private sector.

Regulator support
Regulator response to this emerging investment approach is eclectic. According to the Council of Europe, 40 percent of its Member States have initiatives related to ethical finance, but only 20 percent have created a legislation supporting this type of activity. At the European Union level, three initiatives related to ethical finance are still pending approval, related to the need for companies to publish social and environmental assessments in their annual reports, and to the need of pension funds to disclose their ethical investment policies. More specifically, in the Netherlands, a 1995 directive on green investments paved the way for both revenue and capital gain tax rebates for sustainable, cultural, social, microfinance or developing country investments. In the UK, pension funds must integrate sustainable investment principles in their investment charter since 2000, and in March 2010 the government pledged $120m (£75m) to create a Social Investment Wholesale Bank in 2011. In the future, the bank may channel dormant assets to social enterprises in the UK and abroad. In Norway, the leviathan Government “Petroleum” Pension Fund was established in 1990 and currently manages $450bn and holds one percent of global equity. The Petroleum Fund has adopted new ethical guidelines and a green investment program in 2010. Belgium incorporated a private investment company in 2001, BIO, to channel €346m to date to SMEs and microfinance institutions (MFIs) in developing countries. BIO also provides grants and guarantees. Similarly in Switzerland, the government established the Swiss Investment Fund for Emerging Markets in 2005, which has channelled more than $400m to SMEs in 30 developing and transition countries to date. In Italy, the Central Bank supported the establishment of Banca Popolare Etica, which today manages a sustainable finance portfolio of €645m in savings and €601m in loans.

In turn, Banca Popolare Etica co-founded the European Federation of Ethical and Alternative Banks association. More recently in the US, the Obama administration announced the launch of a new funding facility for MFIs with an initial capitalisation of $150m in 2009, and gave a strong endorsement to the establishment of a Global Impact Investing Rating System (GIIRS). Last but not least, in Luxembourg a consortium of institutions, including the European Investment Fund, Banque de Luxembourg and Ernst and Young, presented a series of policy recommendations for the government to adopt supportive measures for the growth of impact finance in Europe as of 2011.

Impact finance outlook
The outlook for the growth of impact finance seems to hold much promise. The public sector needs private sector funding to co-finance the sustainable development solutions the world requires. It is imperative that we as a global human society adapt before certain tipping points are reached, be it in environmental degradation, hunger and illness or loss of human life, or inequality, poverty and failed states.

Impact finance complements the array of ODA, philanthropy and FDI instruments for development, and unlocks new sources of capital by blending financial returns and social incentives. As the numbers attest, both institutional and private HNWI investors have already begun including impact finance products in their investment portfolios, across private equity, equity and debt, and thereby contribute to the sector’s growth and emerging standardisation.

Tim Radjy is CEO of AlphaMundi Group. For more information www.alphamundi.ch

World Bank: Agriculture leads poverty reduction

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There is enormous agricultural potential in many parts of Africa. All the necessary natural conditions – good soils and climate, plenty of land and water – are present in many countries. There is no reason why Africa cannot be a major producer of agricultural products on a scale equal to that of South America. But it will take heavy investment by the private sector to realise this potential, and the reality is that there has not been nearly enough of it. As a result the potential remains largely unrealised.

Rapid growth of agriculture is the most effective means of reducing poverty in Africa. According to the World Bank the poverty reduction impact of growth in agriculture is three times greater than comparable growth in any other sector. But since there has not been rapid growth in agriculture the opportunity to reduce poverty has not been grasped. Rural Africa remains extremely poor.

Why has there been so little private investment in agriculture? It is certainly not a lack of finance per se. There is more international interest in investing in Africa now than ever before. New private equity funds focused on agriculture in Africa are searching for viable investment opportunities. The development finance institutions have under-utilised their capital allocations for agriculture in Africa for many years.

The real problem is not lack of finance – it is lack of sufficient profitable opportunities in which to invest. The reason is straightforward: agriculture in Africa is an infant industry. It lacks the infrastructure required for commercial agriculture – such as water supply for irrigation, electricity supply to the farm gate and feeder roads to access markets.  It has to incur start-up costs such as land clearing and trial planting, costs which do not have to be borne by its competitors. It lacks experienced managers and a trained workforce resulting in lower productivity and higher labour costs.

Above all infant industry by its very nature operates on a small scale and therefore does not benefit from the economies of scale available to international competitors. As a result in many cases unit costs are high and expected returns are low. Furthermore early stage agriculture is very risky. This raises the minimum return required by private investors. With low expected returns and a high risk-adjusted cost of capital it is not surprising that many early stage opportunities are not attractive to private investors.

But if the infant industry can ‘grow up’ there is no reason why it cannot be internationally competitive. As the infrastructure platform is strengthened and the benefits of scale economies and ‘learning by doing’ drive down costs, as the industry grows in size and matures over time, the returns on new investment will be attractive to private investors.

The challenge for the international community is how to get things started: how to deploy development assistance resources in ways that will overcome the barriers to entry, resulting in rapid growth of profitable commercial agriculture and thereby a rapid reduction in poverty.

Successful interventions should: be targeted at the market failures which create the barriers to entry; be catalytic, levering-into African agriculture new private investment in amounts many times greater than the amount of donor funding; and be time limited so that over the medium term public funds can be withdrawn, replaced with private capital and the proceeds re-invested in new early stage ventures.

The key to success is patient capital. Patient capital is long-term, low-cost, subordinated capital provided by donors and invested in the early stages of private sector agricultural ventures. It would be used to finance start-up costs, to part-fund the cost of infrastructure (such as irrigation assets) and to part-fund working capital required by small and medium-size enterprises (SMEs) and smallholder farmer organisations (SFOs), these being sponsors who would not otherwise be able to secure sufficient working capital from banks.

The long tenor and low cost of patient capital reduce unit production and delivery costs in the early years. This increases the incremental return on private investment in the venture. Subordination of patient capital reduces the risks faced by private investors. The result is to shift the opportunity ‘above’ the line in figure 1 making it attractive to private investors.

Patient capital should have ‘upside’ sharing to ensure that funders share in any unanticipated upside; and should be secured on the assets in the business to ensure that there are consequences for sponsors if they fail to comply with the conditions on which the funding was made. Conditions should always include undertakings to help integrate smallholder farmers into agricultural value chains and provide them with access to infrastructure on affordable terms.

Patient capital deployed in this way would be catalytic, levering-in large amounts of new private investment, and it would also bring transformational benefits for smallholder farmers, taking them out of poverty ‘at a stroke’.

How can patient capital best be deployed? The best approach is to create a public/private equity fund in which public sector donors (and private sector foundations and social impact investors) fund a tranche of patient capital and private investors fund a tranche of private equity expected to generate commercial returns. The low cost of the patient capital would lever-up private equity returns and the subordination would reduce the risks. The fund would invest both patient capital and private equity into a portfolio of early-stage agricultural ventures.

The fund would differ from a standard private equity fund in several respects. First the governance: the fund would have dual objectives. To invest in early-stage agricultural ventures that are expected to be socially and environmentally sustainable and generate commercial returns on the private equity tranche; and to deliver explicit poverty reduction objectives framed in terms that are quantifiable and can be monitored. The investment committee, made up of nominees of the funders of patient capital and private equity, would be responsible for ensuring that both of the fund’s objectives were met. Second, the incentives: the fund manager would be remunerated for achieving success which in this case means delivering the outcomes sought by both the patient capital and private equity funders. Remuneration should be linked to both the financial performance of the fund and the delivery of specific targets relating to development impact and poverty reduction.

As well as patient capital there is a need for two additional development assistance instruments. The first is social venture capital (sometimes called catalytic funding). This is concessional funding from donors used to co-invest alongside SME and SFO sponsors to make a greater number of very early stage opportunities ‘investment ready.’ The experience of InfraCo and AgDevCo shows that small amounts of social venture capital invested pre-financial close can not only be highly effective in catalysing additional private investment but also in structuring investments so that they achieve high development impact and strongly pro-poor outcomes.

The second is partial risk loan guarantees. Sponsors must have access to committed credit lines to fund working capital as well as equity if they are to grow their businesses rapidly. Debt providers are extremely nervous about extending credit to early-stage agricultural ventures when the sponsor has limited track record and collateral. The solution is partial risk loan guarantees which are instruments that transfer some of the credit risks from the lender to the guarantor for a fee. There are a number of credit guarantee facilities operated by donor agencies which perform this role including the USAID DCA programme and Guarantco, a public private partnership facility funded by European governments. However, if credit to support rapid growth of early stage agriculture is to be sufficient there is a need for more loan guarantee capacity, greater willingness to take risk positions on early-stage agricultural ventures with SME/SFO sponsors and pricing that recognises the need to keep the cost of capital as low as possible in the early years.

Social venture capital invested in the very earliest stages creates a larger number of investment ready opportunities. It is withdrawn as soon as possible after financial close and reinvested to create more investment ready opportunities elsewhere. The patient capital fund invests a blend of patient capital and private equity at financial close. Over time the patient capital is withdrawn and replaced with private equity. Loans made at financial close benefit from partial risk loan guarantees but over time as the guarantees lapse and lenders become more comfortable with the sponsors they extend new credit lines without loan guarantees. Once the infant industry has grown into a mature, profitable industry, all the finance required to continue to grow will come from the private sector.

In conclusion, there is a real opportunity for the international community to catalyse large-scale private investment and realise the great agricultural potential of Africa. In doing so, it will meet its primary objective of reducing poverty. It will also contribute to addressing the global food security agenda and to increasing the resilience of Africa to the consequences of climate change.  That really would be effective aid!

Keith Palmer is Chairman of AgDevCo and InfraCo. For more information www.agdevco.com

Shared norms for the new reality…

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Since 1971, the WEF has held its annual meeting in Davos-Klosters in Switzerland. Between 26-30 January 2011, key world leaders, including stakeholders from the business community, global governments, science, the media, religion and the arts – as well as members of civil society – will convene to discuss and form initiatives to address the most critical issues facing the world.

The annual meeting provides a forum to consider the mechanisms of existing ways of operating, as well as to examine potential new strategies that can have positive effects for the global community. The 2011 meeting will place particular emphasis on addressing the question of ‘how’ – that is to say going beyond theoretical debate by creating tangible ideas and feasible solutions to key global challenges.

Aims of the 2011 meeting
The theme for the World Economic Forum Annual Meeting 2011 is founded on four main pillars:

i) Responding to the New Reality
The New Reality can be defined as a world with many centres of power, characterised by a high degree of volatility and the frequent entrance and exit of players in an increasingly competitive global market. It also embodies rapidly-changing patterns in social behaviour, a worldwide dearth of commodities and natural resources, the changing nature and the role of governments, as well as new social and environmental demands on business.

There is a genuine need to anticipate and identify changes in the global balance of power. Furthermore, as economic interdependencies continue to deepen, business models mature, and new and disruptive technologies are devised, there is an increased pressure on global leaders to find ways of handling these challenges. Attendees of the 2011 annual meeting will gain a keen insight into these issues and – more importantly – will be given the opportunity to shape aspects of this New Reality.

ii) The Economic Outlook and Defining Policies for Inclusive Growth
Whereas the world is currently in economic turmoil, nonetheless a total meltdown of global financial and economic systems has been avoided. There remains, however, much uncertainty as the world continues to pay the price for pre-crisis exuberance and irresponsible behaviour. Economists and industry commentators alike are uncertain as to whether inflation or deflation will be more damaging for the global economy. Also, the old question of a double-dip recession still hangs like the sword of Damocles. Finally, now we are more used to the term ‘trillion’ than we are ‘billion’ when discussing the state of the global economy, there is growing concern for the fate of our future generations.

iii) Supporting the G20 Agenda
The future impact of the G20 depends upon its ability to safeguard the recovery and build the foundation for sustainable and balanced growth. There is also a pressing need to make international financial systems more resilient to risk. Overcoming these issues, together with ensuring that a clear set of values is shared among global communities, is a crucial step in building a more stable society. The G20 is one of the most important institutions in existence today when it comes to defining a new governance and multi-national leadership model following the global crisis.

Critical to achieving success in these areas also requires participation from economies outside the G20, specifically from those industries that play a major role in the creation of employment opportunities and market stability. Therefore, the G20 agenda should also look at the need for greater inter-dependence between the business community and governments and there is a great deal of work to be done to rebuild a partnership between business and governments.

Such initiatives are important to ensure global business remains innovative, enterprising and is able to sustain its ability to generate jobs. Similarly, they are essential in ensuring that governments do not become too engulfed by internal issues and constraints that they do not have the capacity to perform their key role of exercising global leadership. To this end, the 2011 annual meeting plays a major role, not only in promoting the issues on the G20 agenda, but also ensuring a high degree of public awareness of these vital issues.

iv) Building a Global Risk Response Mechanism
In an increasingly globalised society, it is impossible to avoid systemic and natural risks, but it is vital that global leaders are better prepared when it comes to risk-responsiveness, risk-awareness, preparedness and risk mitigation. Now more than ever it is crucial to share ideas and insights if the world is to respond effectively to these challenges. The understanding of systemic weaknesses can help bridge the gap between emerging risks and the ability to understand and respond to these risks.

Today, there is no formal system in place that offers the opportunity to share the best expertise and experience globally, so that all nations can make the best possible decisions when faced with a crisis. In order to help create such a system, the 2011 annual meeting will launch what will be known as the Global Situation Space, which will hopefully help all nations better understand and respond to endemic risks.

The wider agenda
In addition to these specific aims, the 2011 annual meeting will also place a number of ongoing points high on its agenda:

i) Energy Poverty Action
A joint initiative of the World Business Council for Sustainable Development (WBCSD), the World Energy Council (WEC) and the World Economic Forum, the Energy Poverty Action (EPA) partnership was launched at the WEF’s 2005 annual meeting and remains an ongoing concern. The EPA’s aim is to help develop scalable solutions to energy poverty and to cater for energy demand in areas that are currently not plugged into utility grids.

The inability to access sustainable modern energy services is something that affects many under-developed nations and in fact acts to constrain their growth and development. Globally, it is estimated that around three billion people lack access to sustainable and affordable modern energy, with the majority still dependent on traditional fuels – which in itself further diminishes the world’s natural resources and undermines the sustainability of rural communities.

Energy poverty affects poor people in every world region but nowhere more than in central and southern Africa. Here, in urban areas, access to electricity is limited to just 25-30 percent; but more strikingly, in rural areas, this figure is just six percent. To put this into perspective, almost three-quarters of Africa’s 700m people live in the rural areas of Africa.

The EPA’s approach to tackling these issues is to invest in local entrepreneurs and communities, providing them with both technical and financial resources to enable them to build and manage sustainable community-based energy companies. The EPA’s strategy is to encourage private investment to establish energy sources, especially for communities. Following this, public financing can be sourced to cover the ongoing costs required for technical assistance and the development of additional capacity.

The EPA partnership has to date achieved three key objectives. It has:
– Established a not-for-profit company that – alongside governments – jointly identified energy programmes and provides professional services to help implement each programme.

– Implemented a pilot electricity project in Lesotho and has rolled out additional programmes in the southern regions of Africa.

– Created a private-public funding model that can leverage public resources to tap into significant pools of private funding.

All told, if it is possible to demonstrate the commercial viability of such schemes, the EPA hopes to be able to encourage more entrepreneurs to come on board to help fund further initiatives. In short, the problem of access to energy supplies in rural areas is too big to be handled purely by public resources, and as such the intervention of the private sector is vital.

ii) The SlimCity Initiative
Launched at the 2008 annual meeting, the SlimCity Initiative aims to create a global forum wherein city governments and private sector organisations can exchange ideas on best practices in order to deliver resource efficiency within global cities. The focus of this exchange is firmly on the sustainable development of all aspects of a city, in order to achieve a reduced carbon footprint and increased resource efficiency. The initiative has a particular emphasis on the energy, mobility, engineering and construction, chemicals, real estate and IT industries.

The four cornerstones of the SlimCity Initiative are:

Smart grids
Smart grids offer huge benefits in terms of energy efficiency. They are also integral to the development of renewable energy, electric vehicles and new energy services. The so called digitisation of electricity looks set to become the core of the energy solutions and the low-carbon economy of the future.

Re-powering transport
The objective of the WEF’s Re-Powering Transport project is to enable the adoption of clean and secure energy sources for the purpose of transportation. This project brings together executives from the WEF’s Industry Partnership programmes across three of its defined sectors, namely: mobility (automotive, aviation and logistics), energy (oil and gas, utilities, alternatives) and chemicals. The project also looks at related areas including alternative fuels, energy efficiency, and electric transportation.

Retrofit financing and investment
Commercial and domestic buildings represent 40 percent of the world’s energy requirements, but with the world’s building stock currently turning over at a rate of only 5 percent per annum, and with new construction having been put virtually on hold, achieving reductions in energy use and carbon emissions largely depends on retrofit investment. A concept born out of the WEF 2010 annual meeting, the Retrofit Finance and Investment project aims to encourage collaboration between all parties within the construction industry to engender reduced emissions via retrofit.

Housing for all
This project gives industry leaders and experts the opportunity to voice their opinions on what they believe to be the most pressing current challenges and opportunities  facing the world’s lower-income housing market. The WEF’s aim is to raise awareness of the issue of sub-standard housing within the global business community, track the issue on both a business and  an economic level, and to report on suggested best practices and proposed government policies – principally those that create incentives for the private sector to become involved.

The SlimCity Initiative has an ongoing obligation to raise awareness and encourage communication in the field of urban sustainability and best practices between cities and the private sector. To date, the Initiative has registered some key successes, such as the development of SlimCity knowledge cards to identify key trends and best practices in the areas of smart energy, urban mobility and sustainable construction. These cards have been employed to enable high-level city workshops on urban sustainability across the world, in Chicago, San Francisco, Melbourne, London, as well as at global level discussions at the ICLEI World Congress 2009 and the World Bank Dialogue on Cities and Climate Change, 2009.

iii) The Disaster Resource Partnership
The number of natural disasters occurring globally each year has more than doubled in the last 30 years, due to a number of factors including climate change, a growing population base and increased urbanisation. As a result, it is estimated that in excess of 250m people are affected by natural disasters each year. In response to this, it is predicted that over the next few years the humanitarian response to such disasters will dramatically increase to a point where it becomes extremely difficult to manage. The recent earthquake in Haiti has highlighted the increasing importance of humanitarian assistance to natural disasters.

In recent years there has been a marked shift in the perception of the private sector in dealing with natural disasters. It has been one from donating money to help reduce the suffering in the aftermath, to one that actively helps deal with the consequences of the event. The private sector also has a great part to play in helping mitigate the risk of disaster both through prevention and preparation.

Examples of ways in which the private sector can help include:
– In the immediate aftermath of a disaster, a construction company already operating in the affected area is well placed to contribute labour, materials and equipment, and can also draw on networks and supply chains that can save lives.

– Following a natural disaster, the engineering and construction industries have specialised knowledge and technical expertise that is essential to the reinstallation of key infrastructure in the affected areas. Also, these industries can provide services such as damage assessment and seismic surveys in addition to helping with the project management of the rebuilding procedure.

– Finally, by involving engineering and construction firms early on in the relief and recovery processes means that they can contribute strategically to future planning and reconstruction, hence playing a critical role in minimising the effects of potential future disasters.

The WEF appreciates that one of the key things required is a revitalised understanding of the crucial role that the private sector can play in responding to natural disasters. As such, the WEF has established the Disaster Resource Partnership, a body that helps maximise the core strengths and existing capacities of the global engineering and construction community, so that resources can be rapidly deployed in the event of a crisis.

Equal billing
Shared Norms for the New Reality is a fitting maxim for the WEF’s 2011 annual meeting, as it seeks to bring together the shared values required to embrace a changing world that for the last 12 months has had its hatches battened firmly down as it tries to weather wave after wave of economic turmoil. However, Davos 2011 will not just focus on the current global financial crisis, and its enduring spirit of Entrepreneurship in the Global Public Interest assures us that the perennial global issues of poverty, energy and natural disaster relief will also take centre stage.

Lontohcoal set for IPO

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With some of the best engineers and geologists at its disposal and guided by a clear long-term business strategy, Lontohcoal is gearing up to become a major coal producer in Southern Africa. Add to this the acquisition of some of the mouth-watering assets in South Africa and Zimbabwe, Lontohcoal is on course to become a significant player in the coal industry in the next few years.

Established only three years ago, this South African coal mining company is going places. With flotation on the Hong Kong stock exchange planned for next year, this young company is destined for great things. Interviewed by South China Morning Post in October, Lontohcoal chief executive Tshepo Kgadima explained that “we are planning an IPO on the Hong Kong stock exchange in the first half of 2011. We are looking to raise $300m-$500m. Our advisors say the company is worth up to $1.5bn.” Samsung Securities (Asia) is advising Lontohcoal on its fundraising options and IPO plans.

Lontohcoal has three main assets in South Africa and one in Zimbabwe. The first is the Kwasa Anthracite Colliery, located on the north east of the town of Piet Retief in the province of Mpumalanga, South Africa. The mine is operational and is being developed to produce 70-80,000 tonnes per month. The second is Hlobane Colliery, situated in the small town of Vryheid in the KwaZulu Natal province of South Africa. This mine will be developed to produce 1.2m tonnes of anthracite per year, making it potentially the largest producer of anthracite in South Africa. The last of the South African assets is Lephalale, situated in the mineral-rich province of Limpopo, South Africa.

The asset in Zimbabwe is in Lubimbi, in Northern Matabeleland. The Lubimbi deposits are particularly important for the South African mining company. Over and above the cost effective methods demanded by open cast mining in this area, the lifetime of the Lubimbi mine is estimated at around 200 years, causing the company to look at long-term operational options. Engineers are currently engaged in scoping studies examining the feasibility of constructing a power plant and a coal-to-liquids plant at the site. When these plans are successfully implemented, not only will this make the company a significant player in the industry, it will mean a lot in terms of infrastructure development and job creation for communities living in the vicinity of the mine.

With a great sense of urgency and a stubborn determination to succeed in a sometimes hostile environment, Lontohcoal has been very busy in Lubimbi. Led by the soft-spoken former investment banker Tshepo Kgadima, the company has accomplished a lot in the past year. “We went on an aggressive drilling and exploration programme in Lubimbi, Zimbabwe, doing more drilling in just three months than had been done on the site in the last 30 years. As a result of this work, we have been able to add over 7.2bn tonnes of coal onto our reserves and resources. Of this, 1.3bn tonnes can be mined by open cast methods, and 35-40 percent of that will be coking coal,” explained Kgadima.

Aware that the biggest challenge facing any new mine is how to get the coal to the end user, Lontohcoal is currently engaged in feasibility studies to quantify the investment that will be required to create a suitable transport infrastructure. The company is budgeting on this work taking around three years. Meanwhile, the company is finalising a transaction to acquire a 51 percent stake in a port concession in Maputo, Mozambique, which will provide storage capacity for 800,000 tonnes of coal. All that is required is to increase the loading capacity on-site. This is the measure of the level of planning done by this emerging miner to become a serious player in the mining industry in the region.

With meticulous planning, Mr Kgadima explains that “in the short term, the plan is to bring the Lubimbi mine into operation and make the first shipment of coal in May 2011. Using the rail link as it is today, the company should be able to transport around 1.5m tonnes a year by truck to the local railway siding at Dete and then by rail to the port at Maputo. By the time we have developed and expanded the mines to produce something in the region of 10m tonnes of coal a year, the railway line should be ready to handle such volumes.”

Lontohcoal’s recent strategy has been to look to the east in response to the economic realities of the 21st century that global future growth lies in Asia. In this regard, the company has established solid partnerships with companies in China and Hong Kong. This is extremely important as the commercialisation of Lontohcoal resources requires partnerships with established companies with requisite financial resources and worldwide networks.

Despite the fact that Lontohcoal is a relatively small emerging miner, it has already accomplished a lot in a short time. It has invested considerable sums of money to develop its assets in South Africa and Zimbabwe.

The company is thinking big and is planning to become a continental player. Mr Kgadima emphasises that since the company’s launch, a number of South African private investors have come on board and that from the beginning of 2010 the focus has moved to wooing Africans to take ownership of the company. “At the moment we have 173 shareholders and their shares are unencumbered, which is a big plus for us as the South African black empowerment experience has been an unpalatable one where shareholders find themselves in a lock-in situation that makes a mockery of empowerment.”

The success of Lontohcoal will not only benefit its shareholders in South Africa, it is turning out to be a vehicle to change the lives of thousands of people in, inter alia, Zimbabwe, South Africa, Mozambique, Zambia and the DRC. The infrastructure that the company is going to help develop in Southern Africa will have a positive impact on the fortunes of many Africans seeking a better life. Lontohcoal will definitely make a worthwhile contribution to the economies of other African countries where it does business.

Although Lontohcoal is a South African company, its vision is to become a major player in  Africa in a quest for global conquest. The mission is to create a truly successful African energy company with the motto ‘Energy Supermarket to the World.’ The listing in Hong Kong in 2011 is a crucial milestone in the development of the company. “This is a very important move for us,” says Mr Kgadima. “It will give us access to the Asian investment markets and enable us to raise the $500m funding that we will need to develop large scale anthracite, coking and thermal coal mines. With all the actions we have taken, we believe we have positioned ourselves to become a large-scale mining company in the next few years.”