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AB InBev to dominate top jobs after SABMiller deal

Comments (0) Africa, Business, Latest Updates from Reuters

LONDON (Reuters) – Anheuser Busch InBev managers will take all but one of 19 key positions following the brewer’s $100 billion-plus takeover of rival SABMiller, according to details of the transaction announced on Thursday.

The deal, sweetened last week to help make up for a drop in the British currency, has been approved by both companies’ boards but still needs to be voted on by shareholders, some of whom oppose the deal.

AB InBev is known for its cost-cutting and centralized control, which some analysts have said may be tough to impose on all corners of SAB’s business, with its joint ventures and equity stakes in markets such as Turkey and Africa.

AB InBev, the maker of Budweiser and Stella Artois, said the new company – which has yet to be named – would continue to be based in its home town of Leuven, Belgium, while its operations would be managed from New York.

SAB’s offices in Woking, outside of London, will be kept open for a transitional period, but its central London headquarters will be wound down. The bulk of SAB’s European businesses are being sold as part of the deal.

“It looks as if all the SAB group and regional HQs will be eventually phased out,” said Bernstein Research analysts.

The new company will be run by teams of “functional chiefs” and “zone presidents”, both reporting to AB InBev Chief Executive Carlos Brito. All but one of those 19 positions will be held by current AB InBev executives.

There was no mention of roles for SABMiller’s CEO Alan Clark or finance chief Domenic De Lorenzo in the new company.

Of SAB’s 576 corporate roles in the UK, 523 are in Woking and 51 in London.

AB InBev said SAB’s general counsel John Davidson, human resources director Johann Nel and managing director for Africa Mark Bowman, had agreed to stay for a transition period of at least six months to help with “integration, talent retention and stakeholder management”.

The new company will be organised into nine geographical zones, with existing SABMiller hubs in Miami, Hong Kong and Beijing phased out within a few months after deal closes, which is expected in October.

AB InBev has agreed to sell SAB’s western European brands Peroni, Grolsch and Meantime, to Japan’s Asahi. It has also pledged to sell SAB’s Eastern European business, which includes the Pilsner Urquell brand, though a buyer has not been agreed.

SAB’s joint ventures in the United States and China will be taken over by their respective partners when the deal goes through.

 

(By Martinne Geller. Additional reporting by Mamidipudi Soumithri in Bengaluru; Editing by Adrian Croft and Mark Potter)

 

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Uganda says to grant oil production licences to France’s Total

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KAMPALA (Reuters) – Uganda’s cabinet agreed on Wednesday to allow the energy ministry to grant three oil production licences to France’s Total, the presidency said.

Commercial crude reserves were discovered in the east African country a decade ago but production has been repeatedly delayed amid wrangling over taxation and field development strategy.

The absence of key infrastructure, such as a crude export pipeline, has also slowed progress to production.

According to a statement issued by the president’s office, the cabinet approved a request from the minister of energy to allow the issue of three petroleum production licences to Total E&P.

The licences cover the Ngiri, Jobi-Rii and Gunya fields in the Albertine rift basin, the area along the country’s border with the Democratic Republic of Congo.

The licenses will be valid for 25 years and can be renewed for an additional 5 years, the presidency said in the statement.

Total is the second oil firm to be offered a production license after one of its partners, China’s CNOOC.

Tullow Oil, which also co-owns fields with Total and CNOOC, has also applied for production licences and has been waiting for approval for years.

In April, Uganda agreed with Tanzania to jointly develop a pipeline to the Indian Ocean port of Tanga to help export Uganda’s crude reserves, which are estimated at 6.5 billion barrels.

 

 

(By Elias Biryabarema. Editing by Louise Heavens)

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Bettering Benin: Improving the Tourism Sector

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Pendjari National Park – Benin

Benin received a $50 million International Development Association credit to invest in its tourism sector that will, hopefully, add an additional 30,000 jobs.

In March 2016, The World Bank approved a $50 million International Development Association (IDA) credit to Benin to invest in its tourism sector. The IDA provides grants and zero-interest loans, via the World Bank, to the world’s poorest countries to increase business opportunities and, ultimately, reduce poverty and improve standards of living by improving various industries. The tourism industry is Benin’s second largest source of foreign exchange currencies and third largest employer behind agriculture and commerce. The investment is intended to reduce the vulnerability of Benin’s economy, given its high dependency on informal trade with Nigeria, and its reliance upon the cotton sector.

The five year project, Benin Cross Border Tourism and Competitiveness Project (CBTCP), is a part of longer-term 2013-2021 tourism plan. The overarching aims of the World Bank’s funding are to increase and improve the current touristic sites including the physical infrastructure, such as accommodation; to improve the skills of tourist-industry personnel; to effectively promote tourism through branding and targeted marketing schemes; and to improve the management of existing sites by reinforcing leadership frameworks. This project is slowly moving from conception to implementation: in mid-July, the government approved a decree that will establish the creation of the National Agency of Heritage and Tourism. The aim of this project, and its corresponding agency, is twofold. By increasing cross-border tourism and private sector investment, the World Bank hopes to move towards its goals of poverty reduction while boosting “shared prosperity.”

Benin capitalizes upon the ecotourism industry

Visitors to a cultural festival in Benin

Visitors to a cultural festival in Benin

Investment will occur in the country’s key tourist destinations, mainly Abomey-Calavi, Cotonou and Ouidah, and hopes to help more than 1,000 existing tourist firms. More than 20% of these firms are led by female entrepreneurs, a point which both the World Bank and government of Benin are emphasizing as part of a gender inclusive initiative. It is hoped that, by investing in these firms, more jobs will become available for both unemployed Beninese people, and for citizens currently working in less secure industries, such as the cotton industry.

Benin is poised to capitalize upon the ecotourism industry if it can appropriately monetize its natural resources into well-kept tourist destinations. In order to do so, however, Benin will have to make a concerted effort to appropriately allocate World Bank funds. The first step is to clean up the existing potential tourist attractions: Benin’s coastline has been damaged from decades of open defecation, lack of waste removal systems and failure of sanitation infrastructure to remove both human and manufactured detritus. It seems that, hypothetically, the newly created National Agency of Heritage and Tourism may be able create jobs for people both working directly in the tourism sector, and for people working on clean-up projects.

30,000 additional jobs

In fact, according to the World Bank Country Director for Benin, Burkina Faso, Cote d’Ivoire, Guinea and Togo, “if efforts are made to meet [Benin’s] potential, tourism’s direct contribution to the country’s GDP will be increased by up to 30%, and could generate an estimated 30,000 additional jobs.” Thus far, the tourism industry has failed to develop as rapidly as that of other West African nations, due in part to the inability of private tourism operators to apply for loans. As capital has become less concentrated with the proliferation of tourism providers, individual businesses have been unable to meet the minimum requirements in order to receive loans from local banks, let alone international financial institutions.

The CBTCP will encourage private commercial banks to extend loans to businesses that fall in the “micro, small and medium sized” enterprise (MSME) category. The CBTCP will use World Bank funding to mitigate creditor risks through “first-loss cover,” thereby shouldering some of the risk that banks have been unwilling to absorb.

The National Agency of Tourism and Heritage directly looked after by Patrice Talon

The biggest fear of both Beninese citizens and outside observers is that the funds will be inappropriately allocated without direct oversight: the National Agency of Tourism and Heritage is not, as one would expect, overseen by the Ministry of Tourism, but is directly looked after by the President, Patrice Talon. The government has not issued an explanation of why this is, but hopefully it will not cause any confusion in the allotment of resources.

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Ghana lawmakers back budget funding bill; breach terms of IMF deal

Comments (0) Africa, Business, Latest Updates from Reuters

ACCRA (Reuters) – Ghana’s parliament on Tuesday overwhelmingly rejected a core condition of a $918 million International Monetary Fund (IMF) aid deal on Tuesday, breaching the terms of a three-year programme meant to fix an economy dogged by high public debt.

The lawmakers passed the Bank of Ghana (BoG) Amendment Bill to allow central bank financing of the government’s budget deficit up to a ceiling of 5 percent of the previous year’s total revenue, instead of the zero financing demanded by the IMF.

Until now the bank was authorised to finance the deficit at up to 10 percent of revenue.

Implementation of the zero financing requirement is one of the targets the government was expected to meet in order for the Fund to conclude Ghana’s third programme review and disburse the next tranche of aid.

However, Deputy Finance Minister Cassiel Ato Forson told Reuters that, despite the law, the government will not finance its deficit with central bank funds.

“We have demonstrated enough that the government is committed to expenditure control and we will remain on course, irrespective of today’s decision by parliament,” he said.

 

 

(Reporting by Kwasi Kpodo; Editing by Aaron Ross and John Stonestreet)

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Global demand could boost lithium mining in Zimbabwe

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lithium mining

Companies explore deposits, seek investment as worldwide demand grows for “white petroleum” to power rechargeable batteries.

As global demand for lithium skyrockets, Zimbabwe may increase production of the so-called “white petroleum’’ that powers rechargeable devices including telephones and automobiles.

Tesla’s plans to mass-produce its Model 3 battery-powered car have stoked worldwide demand. Tesla estimated its production target for electric cars alone – 500,000 vehicles by 2020 – could require as much lithium as is already currently being produced.

Zimbabwe, the fifth largest producer of lithium on the planet, could increase its share of a growing market.

Premier African Minerals has begun looking for partners to expand its Lithium and Tantalum mining operations at its Zulu Project in Zimbabwe.

Investors sought

George Roach, Premier’s chief executive officer, said preliminary talks were aimed at identifying parties who might be interested in supporting development.

Premier’s flagship mine is the RHA Tungsten Mine in Zimbabwe and the company has mineral projects across Africa.

Meanwhile, another company, Prospect Resources Ltd., has secured diamond-drilling services for its recently acquired Arcadia Lithium Project in Zimbabwe. The project has set a target of extracting up to 18 million tons of 3-5 percent lithium.

The company said it has raised $2 million of $16 million needed to fast-track exploration.

During intermittent production between 1954 and 1972, the Arcadia mine produced more than 15,000 tons of mixed ore that contained lithium. The mining operation, just 25 miles northeast of Harare, also produces eucryptite, petalite and feldspar.

Australia leads production

Zimbabwe is the world’s fifth largest producer of lithium after Australia, Chile, Argentina and China. Other major producers are Brazil, Portugal and the United States.

Zimbabwe produced 900 metric tons of lithium in 2015. By comparison, top-producer Australia accounted for 13,400 metric tons, Chile for 12,900 metric tons, Argentina for 3,800 metric tons and China for 2,200 metric tons.

The consulting firm Stormcrow Capital projects global demand will outstrip supply by 2023.

Such projections are driving investor interest in lithium, which was the only commodity to increase in price last year. The cost has skyrocketed to $6,400 per ton globally and reportedly to as much as $13,000 on some orders in China.

Zimbabwean mining struggles

Increased lithium production could be a boon for Zimbabwe’s struggling mining sector.

The Chamber of Mines of Zimbabwe told a recent conference of mining executives that the sector is fragile because of low mineral prices on global markets.

The depressed prices, combined with liquidity challenges as well as power and capital shortages, have resulted in many mining companies struggling to break even.

The sector produces 10 percent of the nation’s gross domestic product and 50 percent of its foreign direct investment and export earnings.

Toindepi Muganyi, president of the Chamber of Mines, told delegates at the Mining, Engineering and Transport conference that the sector had contracted by more than 2 percent for the second year in a row in 2015. Total mineral revenue dropped from $1.9 billion in 2014 to $1.86 billion 2015, he said.

Recovery forecast

In addition to interest in lithium, prices for gold, platinum and nickel were on the rise, Muganyi said, predicting a recovery this year.

The Zimbabwean government in 2014 announced plans to build a lithium processing facility, which could lead the way to manufacturing batteries in the country.

Valentine Vera, metallurgy director in Zimbabwe’s Ministry of Mines and Mining Development said the metal had the potential to drive the nation’s economic growth as global demand grew. However, Vera said the country would need to draw significant investment in order to increase production.

Zimbabwe is a mineral-rich nation with resources that include platinum, gold, nickel, copper, zinc, lead, limestone and phosphates. The country has the second-largest deposits of platinum in the world.

Exploration for lithium is also under way in Mali. Birimiam Limited, a multi-commodity exploration company has significant interests in lithium deposits as well as gold deposits in the West African nation.

Niger, Namibia, Senegal and Ivory Coast also have lithium deposits.

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South Africa’s PPC shareholders pave way for proposed rights issue

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JOHANNESBURG (Reuters) – Shareholders in South Africa’s PPC on Monday overwhelmingly approved a proposal to issue additional shares for a planned 4 billion rand ($289 million) rights issue as the loss-making cement maker seeks cash to reduce debt.

PPC, which has pushed deeper into the rest of Africa as profit has slumped in its domestic market, is raising funds after a credit rating downgrade to “junk” status by ratings agency S&P.

The company proposed five resolutions, including the issuance of new shares, which were approved by virtually all shareholders who cast their votes at a special meeting.

Chief executive officer Darryll Castle said the approval from shareholders had prepared the ground work to make the rights offer possible.

“I think there’s reasonably high level of support for what we’re doing and for the need and necessity of it, and that’s what came through today,” Castle told Reuters.

PPC expects to complete the rights issue process during September, Castle added.

(Reporting by Nqobile Dludla; Editing the Tiisetso Motsoeneng and David Goodman)

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Is time the only thing that Buhari needs to rebuild Nigeria?

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Muhammadu Buhari

Nigeria’s president inherited a multitude of problems from the previous administration. Does he have what it takes to overcome them?

Nigeria’s President, former military ruler Muhammadu Buhari calls for time and space to achieve the objectives he laid out upon his election last year.

Buhari has openly declared his intentions for Nigeria’s future. He wants to build a country that future generations will be proud to inherit. This is rare in a continent where leaders frequently think in the short term – often selling off natural resources for instant personal gain, rather than investing in long-term solutions for Africa’s economic problems. Buhari’s Nigeria, he claims, is “for its children.” Whether these promises will materialize will depend on his ability to identify and build upon his past mistakes, and those of his predecessor.

Muhammadu Buhari comes from a large family; he was his father’s 23rd child, born in 1942 in Daura, Katsina state. He ruled Nigeria for 20 months in 1985 and has since lost three general elections to the People’s Democratic Party, which has dominated the political landscape in Nigeria since the end of military rule in 1999.

Winds of Change for Nigeria

Buhari’s perseverance has paid off and after waning public support for Goodluck Jonathan, he became the first opposition candidate to de-throne an incumbent leader in Nigeria. The issues inherited from previous governments will not be easy to overcome however, and continuing President Jonathan’s battle to contain the Islamic militants in the north will be Buhari’s biggest challenge.

Originally from Nigeria’s Islamic North, Buhari has alienated many from the mainly Christian south of the country by giving his support to Sharia law. Subsequently, he has had to strongly deny having a radical Islamist agenda. Deep-seated suspicion regarding his religious background and suggested support of Boko Haram has been quelled by a recent failed assassination attempt that left 82 dead, apparently orchestrated by Boko Haram forces.

Boko Haram, unemployment and rampant corruption to fight

Boko Haram

Boko Haram

He was previously mistrusted by the voting populace in the south, but President Jonathan’s failure to overcome the jihadi militia left Buhari with an opportunity to exploit. The 276 Chibok girls missing since 2014 have piled local and international pressure upon Nigeria’s administration. The Boko Haram crisis has left more than 20,000 dead and over 2 million displaced since 2009. Since his inauguration there has been a lot of posturing and even claims to have “defeated” the militant group, but terror attacks, kidnappings and suicide bombings are still rife, particularly in the North of the country. With an agenda to meet, but what appears to be little structural planning, it will take more than time or crude military suppression to overcome “the most deadly terrorist group in the world.”

Boko Haram is unfortunately not Nigeria’s only crisis. Buhari will also have to tackle large scale unemployment and rampant corruption. Buhari’s Deputy Prime Minster estimated that 110 million of Nigeria’s 170 million inhabitants are living in extreme poverty. He also noted that the majority of the wealth is going into the pockets of the nation’s privileged few. For Africa’s most populous nation, these economic issues add stress to the fractures caused by religious extremism and recent spates of violence. Making progress with these issues may also be the key to undermining the militant support among the population, with rampant unemployment being a key factor in their recruitment campaigns.

Buhari: an incorruptible and converted democrat for Nigeria

His biggest election promise is to tackle the fuel shortages that have blighted the population and stagnated the economy over the last several years. His plans are to increase production and improve distribution, while renegotiating terms with the rebel forces. In 2009 President Jonathan’s government agreed to pay militants $400 per month to stop their attacks on the fuel supplies. Once the money inevitably dried up, the attacks recommenced and the supply problems are now worse than ever. On paper, Buhari seems to be well placed to handle this crisis: he was the Minister for Petroleum and Natural Resources in 1976 and during his tenure heavily invested in pipelines and created 21 new petroleum storage units across the country. But his ability to negotiate with the Nigeria Delta Avengers is in contention; his rigidity and stubbornness are well known within the administration and beyond. Striking a balance between tackling the underlying issues, negotiations and strategic military moves will be key to eradicating the extremist violence that have dominated the political horizon in Nigeria.

Buhari claims to be a “changed man” and a “converted democrat,” taking full responsibility for all that happened during his short military rule in the mid-80s, and the part he played in the military coup that overthrew the democratically elected leader, President Shehu Shegari. If Buhari’s “incorruptible” and rare reputation for honesty holds true, he may be able to usher in a wave of change, washing away the culture of injustice and corruption, both in businesses and in government. He has appealed for time and patience, but will this be enough, or will the multitude of problems he faces just be too much to overcome?

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Tech Titans: The Battle for Africa

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Microsoft 4afrika initiative

The tech giants are busy building in Africa as the continent represents a golden opportunity to reach new customers while transforming African society.

We all know the names Google, Facebook, Microsoft, and IBM. These are the tech titans who have forged the modern world we inhabit and hardly entities that the general public associates with Africa. However, foresight and innovation enabled these behemoths to propel the developed world to a new future. Now, the tech giants have foreseen that Africa’s future is one of abundant potential.

The reasons behind this trend are actually rather simple. Africa possesses 7 of the world’s 10 fastest growing economies. As a whole, Africa is the fastest growing region on earth. For tech companies this has created two general fronts on which to engage the continent. Firstly, this growth has led to the emergence of the African middle class. Tech companies suddenly have a new market in which consumers are hungry for their products. Secondly, this new market has enormous potential to grow. With limited tech infrastructure, such as internet access and mobile networks, the adoption of new technologies is still very much in its infancy across huge parts of the region. If top companies generate the conditions for mass tech usage, they stand to gain an enormous new customer base while improving the lives of millions; a veritable win-win situation.

Africa, a new frontier for Google, Facebook, Microsoft, IBM

Microsoft was arguably the first global tech company to take a major active interest in Africa. Three years ago, the company started its 4Afrika initiative. The $75m program was designed to train thousands of Africans either for their own businesses or for the company’s 22 African offices. Simultaneously the program focused on getting affordable smart devices into the hands of millions of new customers. Amrote Abdella, the regional director of the 4Afrika project said, “In order to drive the knowledge economy, we need to drive connectivity so Africans can create and access content.”

As a result the company is experiencing strong growth in the region. However, rather than resting on their laurels, Abdella went on to explain why Microsoft intends to build on its successes: “Three years down the road one of the things that we have learnt is that the need and the demand on Africa is about doubling down on investments we are making around connectivity and smart services.”

Digify, Project Loon, Link… Ambitious plans for Africa

Project Loon

Project Loon

The connectivity race is on in earnest. Google first tested the African waters back in 2012, with an SMS based version of its Gmail service. Today, their efforts have intensified while becoming more imaginative. Google intends to utilize its cheekily named “Project Loon” in the region. Loon is a network of communications balloons positioned high in the stratosphere that can be strategically maneuvered to provide connectivity in remote areas where coverage is lacking. Data is then passed through the balloon network before being transferred down to the global internet.

Google has two other notable initiatives in the region, Link and Digify. Link has seen the installation of metro fiber optic Wi-Fi networks across Uganda and Kampala, with a further roll-out underway in Ghana. Digify is a major commitment to train 1 million Africans in digital skills. Google spokeswoman Michelle Atagana explained the strategy behind the project: “The idea is to improve people’s skills so that they can increase their chances of becoming employed or start their own businesses.”

Not to be bested, Facebook is focused on waging ambitious campaigns in the booming new market. In 2015, the social media giant opened its first African office in Johannesburg. Additionally, Facebook CEO Mark Zuckerberg highlighted plans to provide satellite internet to rural areas of sub-Saharan Africa. He explained why he felt the move was key by saying, “To connect people living in remote regions, traditional connectivity infrastructure is often difficult and inefficient, so we need to invent new technologies.”

Investing to impact

IBM has also been incredibly busy in Africa in recent years. The company has opened new research centers, invested in local businesses, funded a $60m computer skills program, and created new initiatives designed to drive the usage of big data, analytics and cloud computing. Dr. Kamal Bhattacharya, the director of IBM Research explained why the company is taking such a significant interest: “As scientists we believe that science and technology is an enabler to express your needs, it is an enabler to shape your own future. And this is why IBM is making this very significant investment into Africa.”

Where the tech giants go, immense progress and social transformation follows. Economically, Africa will benefit immeasurably as the continent gains skills and business is increasingly done in today’s tech space. Socially, Africans will be able to access a global treasure trove of information, use life changing services and communicate in a way never before possible.

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BMW looks to capitalize on the emerging African market

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BMW Rosslyn plant, South Africa

How BMW is planning to become the leading luxury car brand in sub-Saharan Africa.

BMW has recently announced big plans for a major expansion into the African market. The German automotive powerhouse has long been considering a major push across the continent, and hopes its new strategy will see it become a household name in years to come.

South Africa is the stage from which BMW hopes to address its new audience of African consumers. The company has actually operated inside South Africa longer than it has in any other country outside of Germany. BMW acquired its historic Rosslyn plant from South African manufacturer Praetor Monteerders back in 1975. Since then, BMW has firmly established its prestigious brand inside South Africa, but seen little success across the rest of the continent, largely due to economic factors. For the most part, the Rosslyn plant has been used to service export-markets in Asia and the United States.

Rosslyn revived thanks to a major face-lift

The Rosslyn plant, famed for its outstanding quality, even by BMW standards, is about to receive a major face-lift. Production rates at Rosslyn have for a number of years been limited by one curious factor: room. Space has been at a premium for some time, thanks to the increasing technological demands of making modern cars. The firm has been cramming new technology into the same old space for over four decades, forcing it to compromise while restraining productivity. However, the shackles are about to be ripped off.

In late 2015 BMW finally acquired a long sought after plot of land adjacent from the factory. They simultaneously announced a 6 billion rand investment in the company’s South Africa division. A large part of this investment will be used to build a state of the art body-shop for producing the new BMW X3, which is critical to BMW’s forward strategy. The new body-shop will be one and a half times the size of the existing facility. This should make the Rosslyn facility twice as productive, providing BMW with the resources with which to wage its Africa expansion.

Strategic moves for BMW

BMW has realized it needs a “boots on the ground” approach to lead the charge across the continent. As a result, the company has granted full autonomy to its South Africa division, while using the rest of the 6 billion rand investment to train new staff and improve supplier support services. South Africa CEO Tim Abbott explained why BMW is so invested in the expansion: “The real growth for us in the future will come from Africa.”

While BMW is an international powerhouse in developed countries, those markets are saturated. Not just in the automotive sector, but in industries worldwide, shrewd organizations are realizing that Africa is the final frontier, the last chance to grow their brand in rapidly emerging markets. BMW does not intend to be left behind. The firm intends to start its courtship of Africa by targeting markets in Nigeria, Kenya, Ivory Coast, Togo, Ghana, Angola and Senegal.

BMW busy paving the way for a successful launch

BMW X3

BMW X3

Pivotal to their strategy is the upcoming BMW X3. The X3 is a sturdy and powerful four wheel drive SUV, which also boasts the style and finish synonymous with BMW. The German giant believes that these qualities will make the car highly attractive in the African market. Tim Abbott said that “with the X3, we believe we have a vehicle that resonates with these countries.”

Whilst the X3 isn’t going to be hitting African streets until 2019, Tim Abbott explained that BMW is busy paving the way for a successful launch: “Our plan over the next three or four years must be to create a structured sub-Saharan environment for BMW vehicles so that when the X3 is ready, so are the markets.”

Abbott explained that the firm intends to do this by working with African banks to create new vehicle financing options in target countries. Additionally a scheme is underway to re-sell used BMW’s from South Africa and elsewhere in the new African markets, while working with African dealerships to enhance sales and services to Western standards.

Ultimately, BMW is looking to secure its place in Africa’s conscious as the premier luxury car brand. Armed with major investment and an airtight strategy, it would seem unwise to bet against them.

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South Africa’s growth outlook dilemma for central bank, treasury

Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – South Africa’s central bank could resume its rate hiking cycle despite a poor growth outlook, its head said on Friday, while its treasury reined in state companies to avoid ratings downgrades and a long economic slowdown.

Africa’s most industrialised country is on the brink of its first recession after contracting 1.2 percent in the first quarter as key sectors shrunk due to severe drought and falling commodity prices.

Governor Lesetja Kganyago said the central bank’s monetary policy committee (MPC) would raise rates if inflation, fuelled in part by a weaker rand, remained elevated.

The rand has weakened nearly 20 percent against the dollar in past 12 months as looming rate hikes in the United States, the threat of a downgrades to “junk” status and diminished business and consumer activity locally weighed on its value.

“Although the MPC remains ready to respond to renewed inflation pressures, it remains mindful of the weak state of the economy,” Kganyago said.

Headline inflation has been higher than the Reserve Bank’s (SARB) upper target of 6 percent since January, prompting it to lift lending rates by 200 basis points from early 2014 despite poor growth.

The bank sees growth averaging zero percent in 2016.

“The rand exchange rate has been sensitive to these developments, with elevated levels of volatility,” said Kganyago said, adding the next round of rating reviews in December were key.

South Africa is also in a fiscal bind, with government’s plan to boost growth to an annual 4 percent to tame widespread unemployment, poverty and the growing cost of borrowing facing a number of obstacles.

Finance Minister Pravin Gordhan on Friday warned state firms that they would have to live without state bailouts of around $35 billion as treasury focused on achieving the deep spending cuts it promised in the February budget.

“The key concern that ratings agencies and others would have is that as a result of levels of mismanagement, those guarantees shouldn’t be called out at any stage,” he said.

On Monday, Fitch announced it had downgraded South Africa’s local currency debt. Fitch and S&P Global Ratings now both have South Africa’s local and foreign currency debt ratings a step away from subinvestment.

Maya Senussi of Roubini Global Economics said local government elections on Aug. 3, where the ruling African National Congress is expected to face a stern test, could worsen the dilemma for government before the general election in 2019.

“The big danger is that fears about the 2019 general election will prompt populist measures from the ANC, exerting more pressure on the stretched Treasury and further delaying much-needed reforms,” the economist said.

($1 = 14.1600 rand)

 

(By Mfuneko Toyana. Additional reporting by Stella Mapenzauswa; Editing by James Macharia and Tom Heneghan)

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