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Transmashholding Signs Major Egyptian Deal

Comments (0) Business, Transport

Summary: The deal between Egyptian National Railways and Transmashholding-Hungary Kft. looks like being the start of a long and fruitful relationship.

When Egypt’s first railway system was commissioned by the Regent of Egypt and Sudan, Abbas I, in 1851, he chose for it to be built by one of the 19th Century’s greatest engineers, Robert Stephenson. The vision was that Egypt’s transport system would rival the best transport systems globally.

Sadly, after many years of poor maintenance and management, Egypt’s rail system has in the last few decades become known as one of the world’s most dangerous. This has led to the Egyptian government making the decision to revitalise the entire infrastructure and rolling stock as well as investing in new routes. This was an important decision, not only in terms of improving safety but also in terms of economic development. Egypt’s rail network not only transports some 1.4 million passengers a day but is also a vital component in goods and container transport, especially when you consider that Egypt has the highest container traffic in Africa with almost 7 million units shipped annually. As most of this traffic passes through the Suez Canal, increasing rail capacity would help the country diversify its commercial transport networks.

1,300 passenger cars in 5 years with ENR Worth Over 1 Billion Euros

The announcement in September 2018 that Egyptian National Railways (ENR) had signed a contract with Transmashholding-Hungary Kft. (a Russian-Hungarian consortium) to produce and deliver 1,300 passenger cars represents a major part of the Egyptian government’s plans. Worth in excess of 1 billion Euros, the contract is for five years from the date of signing. Such a deal is also based on the close economic links between Egypt and Russia, and the choice of Transmashholding is no coincidence: the company led by an influential Russian businessman, Andrey Bokarev, is a world leader in railway manufacturing.

Transmashholding-Hungary Kft.’s production of the rolling stock represents a major part of Egypt’s planned investment in their railway systems, with over 3 billion Euros of total investment already announced. It is also the largest single contract ever agreed by Egyptian National Railways (ENR). Transmashholding-Hungary Kft. beat bids from companies from several other countries, including China, India, and Italy.

Production of the five different classes of passenger car will be split equally between the Hungarian side of the consortium, Dunakeszi Jarmujavito Kft., and the Tver Carriage Works in North-western Russia, which is owned by Transmashholding.Final assembly and fitting of the rolling stock will take place at a specially created plant in Egypt which will be a partnership between TMH International AG (part of JSC Transmashholding) and the National Organization for Military Production in the Arab Republic of Egypt. The plant will also enable maintenance of the new passenger cars.

A radical change for Egypt

Martin Vaujour, CEO of TMH International said: “This move could mean a radical change for the country because Egypt, despite being a very large country, has not really developed any railway industry at all.”

Even with such a massive project just signed, Transmashholding-Hungary Kft. is already looking to the future with plans to improve the connectivity of, and invest in, Cairo’s metro system which carries 4 million passengers per day. They are also looking at the potential of suburban trains for future projects.

With this initial contract signed at the beginning of Egypt’s redevelopment of their railway infrastructure and stock, future projects and involvement look promising for the Transmashholding-Hungary Kft. consortium.

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Making a Mark in Africa: Global Brands Dominate

Comments (0) Africa, Business

With Africa being one of the fastest growing markets for consumer goods worldwide, global brands have increasingly focused their efforts on the continent’s vibrant economies. Two major factors are worth noting here; Household consumption in Africa has outpaced GDP growth, and GDP growth across Africa is consistently outperforming global averages.

Consumer expenditure in Africa has been growing at a compound rate of 3.9% since 2010, reaching a total of $1.4 trillion in 2015, with that figure expected to reach $2.5 trillion by 2030. (1)

The planned Continental Free Trade Area (CFTA) is also due to be implemented by 2030, and if successful, will offer a single continental market for consumer goods and services as well as free movement of investments and businesspeople. This opens the doors to a potential 1.7 billion customers (based on projected population by 2030). 

African consumers tend to be loyal

With such ambitious plans and rapid growth, cementing a place as a major brand across the continent is a priority, not only for global corporations but also for African brands. 

Research has shown (2) that African consumers tend to be loyal to their chosen brands but also discerning in their choice of brand. While currently most consumer activity in Africa tends to still happen in informal market settings, there is, and will continue to be, a shift towards more modern shopping settings, including shopping malls and e-commerce, two sectors which will offer good growth potential at several levels. 

African brands have been declining year on year

However, the latest Brand Africa 100 ratings in May – published every year by African Business Magazine – show a continuing worrying trend, at least as far as African businesses are concerned. From a high of 25% of the list in 2013/14, African brands have been declining year on year and are now at a low of 14% from 17% in 2017/18. Asian brands have also suffered, falling 10% from the previous year. US brands saw the largest growth, up 17% to 28%, while the dominant European brands rose 2.5% to 41%. 

As you would perhaps expect, the leading brands are global household names, with Nike, Adidas, Samsung, and Coca Cola all retaining positions in the top 4 from 2017/18. The highest ranked African business is South Africa’s MTN Telecoms at 8th (down 2 positions from last year). The company operate in 21 African countries so far with more expansion planned, so their top 10 position should not only be safe but may improve again in future lists. 

Anbessa Shoe Share Company: the most impressive African performer

Ethiopia’s Anbessa Shoe Share Company, originally founded in the 1930s by an Italian expat, was the most impressive African performer. In the 2019 chart, it moved up 11 places to #12. As well as having around 65-70% of the Ethiopian shoe market, the company also exports to USA, EU, Middle East, Asia, and Africa.

There were only two new African names on this year’s list, South African retailer, Pick n Pay, who re-entered at #84, and Africa’s largest e-commerce firm. Jumia, who debuted at 74 after a successful launch on the New York Stock Market in April. 

With continued economic growth forecast as far ahead as 2030, African companies must now look at how they can compete with the global giants. 

(1) https://www.brookings.edu/wp-content/uploads/2018/12/Africas-consumer-market-potential.pdf

(2) Spivey L. et al. (2013) “Ten Things to Know About African Consumers: Capturing the Emerging Consumer Class,” Bcg.perspectives.

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Russia’s Return to Africa

Comments (0) Africa, Business, Featured

Once an important player on the African continent, Russia has renewed its aspirations for economic, military, and trade ties with several African nations. From Algeria to Zimbabwe, Russia is investing in energy and resource projects, lending military and diplomatic support to embattled African leaders, and once again positioning itself as an influential presence in the region.

Historical ties with Africa and shifting interests

During the height of the Soviet Union, newly independent African countries such as Mozambique, Egypt, the Democratic Republic of Congo, Somalia, Ethiopia, Angola, Benin and Uganda all received valuable materials and ideological support from the Russian superpower, including training and education to many of these country’s leaders. The Soviet Union’s influence across African states was widespread until the fall of the Berlin Wall and the dissolution of the regime in 1991.

Fast-forward to 2018, and Russia appears set to return to its influential position over the continent – yet with a very different approach and goal in mind. As African nations are opening up to being courted by new strategic partners, the time is ripe for new foreign entrants to make their mark on the continent. Russia is thus in a good place to re-establish itself across the region – and indeed appears to be doing so – via strategic investments in energy and raw materials.

Investment in Energy and Minerals – new opportunities arise

According to ISS Africa, trade and investment between Russia and Africa grew by 185% from 2005 to 2015. Whilst in 2017 alone, Russia’s trade with Africa rose by 26% to $17.4 billion. Senior fellow at the Carnegie Endowment for International Peace, Paul Stronski says there are many advantages for Russia engaging with resource laden countries on the African continent. With a shortage of minerals such as chromium, bauxite, and manganese, all of which are important to industry, Russia is looking for rights to extract minerals, oil, and gas in less complicated or costly places than Siberia and the Arctic, Stronski says. With a strong presence on the national soil and a proven expertise in raw material extraction, no doubt that CEOs such as UMMC’s Iskander Makhmudov will be setting their eye on the continent sooner or later.

Economically, the focus of Russian investment is on energy. Russian power companies, such as Lukoil (oil), Gazprom (gas), and Rosatom (nuclear energy) are already active across the continent, with most activity being in Uganda, Nigeria, Egypt, Angola and Algeria. Others, such as Kuzbassrazrezugol (a coal mining organization, and also a company Iskander Makhmudov has stakes in), are already global exporters and could very well aim to penetrate the African market in the future. Others, such as Transmashholding (also a company Iskander Makhmudov has interests in), already trade with Egypt and South Africa – admittedly some of the most developed markets on the continent.

According to energy news site Power Technology, a deal between Rosatom and Egypt’s Ministry of Electricity to create the country’s first nuclear power plant has already been finalized. As most large Russian corporations are fully or partially state-owned, Russian interest takes the form of public/private partnerships.

Indeed, although Russia’s main arms exports are to Asia, according to the BBC, sales to Africa continue to rise, strengthening Russia’s position on the continent.

A growing geopolitical influence…

Another reason Russia may wish to gain a foothold on the continent is that diplomatically, Africa is a geopolitical strategic landmark. African states comprise of the largest voting bloc across diplomatic, security and economic institutions, such as the UN Security Council. Therefore, holding influence over Africa could have a global reach. Other emerging economies, such as China and India, have also expanded trade significantly across the African region. According to US research group the Brookings Institute, China provided some $60 billion in financial support to Africa in 2018.  

Although Russia lacks the financial muscle of China, through strategic investments, military might and soft power, the country will see a gradual increase in influence across the African continent, according to ISS Africa research analyst Stephanie Wolters. She believes that, amid a new ‘scramble for Africa,’ it will be up to African leaders to exploit the renewed attention from Russia by brokering favorable deals on good terms, rather than fall victim to previous exploitation by Europe and the West.

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South Africa’s Gold Fields ties up with Canada’s Asanko in Ghana

Comments (0) Actualites, Africa, Business, Mining

JOHANNESBURG (Reuters) – South Africa’s Gold Fields will buy a near 50 percent share of Asanko Gold Inc’s Ghana subsidiary and take a stake in the Canadian miner in a $202.6 million deal announced on Thursday.

Investors were cautious, questioning whether the African joint venture would make a return any time soon and sending Gold Fields’ shares down nearly 6 percent, in an already weak bullion sector.

Gold Fields said in a statement that as well as acquiring half of Asanko Gold Ghana’s 90 percent interest in the Asanko Gold Mine, its Ghana subsidiary will also acquire associated properties and exploration rights in the African country.

Shares in Goldfields fell more than the broader bullion sector – which was down 2.8 percent – tumbling 5.9 percent to 46.01 rand by 0858 GMT.

“There’s always some execution risk, they are buying these things but can they actually make money out of it, is what the market is asking,” said Cratos Capital equities trader Greg Davies.

The deal includes an upfront payment of $165 million on closure of the transaction and a deferred payment of $20 million. Gold Fields’ subsidiary will also take a 9.9 percent stake in Toronto-listed Asanko for $17.6 million in a share placement.

The South African miner said the $203 million deal fitted in with its strategy to improve its portfolio by lowering all-in costs and extending mines’ lifespans to enhance cash generation.

Asanko, which is expected to produce 253,000 ounces of gold annually from 2019 to 2023 with a life-of-mine of at least 15 years, also has the potential to make further discoveries, Gold Fields said.

“The Asanko joint venture will give immediate access to low cost production ounces, increasing the quality of the Gold Fields’ portfolio,” the South African miner said.

(Reporting by Tanisha Heiberg and Nqobile Dludla; Editing by Susan Fenton)

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Djibouti plans new container terminal to bolster transport hub aspirations

Comments (0) Actualites, Africa, Business, Economy, Infrastructure

ABIDJAN (Reuters) – Djibouti is in talks with French shipping company CMA CGM to develop a new container terminal at an initial cost of $660 million as part of the tiny African country’s bid to expand into a sea and air transport hub for the continent.

Aboubakar Omar Hadi, chairman of the Djibouti Ports and Free Zone Authority (DPFZA), told Reuters on Tuesday that the authority hopes to award the concession in July. It was also prepared to buy out DP World’s stake in an existing container terminal to end a row with the Dubai port operator and avoid arbitration, he said.

Djibouti’s strategic location has led the United States, China, Japan and former colonial power France to build military bases there.

Its ports already serve as an entry point for cargo which is then sent by smaller vessels to ports along Africa’s eastern coast, but it is now seeking to become a sea-air transshipment hub for the entire continent.

To do this, Hadi said DPFZA was also planning to construct a $350 million airport and expand Air Djibouti’s fleet of cargo aircraft.

The new container terminal project could break ground as early as September with construction expected to take 24 months, Hadi said, speaking on the sidelines of the Africa CEO Forum in Abidjan, Ivory Coast.

“We are going to build DICT, Doraleh International Container Terminal. This is a new plan,” he said. “We are in discussions with CMA CGM.”

The port authority was not in talks with any other potential partners, he said. CMA CGM did not immediately respond to a request for comment.

Once operational, Hadi said the port terminal would boast an annual capacity of 2.4 million twenty-foot equivalent units (TEU), but subsequent expansion phases would bring that up to 4 million TEUs.

Fifteen percent of the project’s cost will be financed through equity. Of that, the DPFZA will contribute 85 percent, with its concession partner providing 15 percent. The rest will be raised via international institutions and banks.

“We are targeting trans-shipment,” Hadi said.

 

DP WORLD DISPUTE

Meanwhile, Hadi said the port authority was ready to end a dispute with DP World over its cancellation of a concession contract for another facility, the Doraleh Container Terminal, by buying out DP World’s 33 percent stake.

Djibouti ended the contract with the Dubai state-owned port operator last month, citing a failure to resolve a dispute that began in 2012.

DP World has called the move illegal and said it had begun proceedings before the London Court of International Arbitration, which last year cleared the company of all charges of misconduct over the concession.

“We are prepared to pay them their 33 percent of shares,” Hadi said. “There is no need for arbitration. We are going to buy their shares.”

 

(Reporting by Joe Bavier; Additional reporting by Gus Trompiz in Paris; Editing by Aaron Ross and Susan Fenton)

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South Africa’s Q1 business confidence rises 11 points to 45

Comments (0) Actualites, Africa, Business, Economy, Leaders, Politics

(Reuters) – South Africa’s business confidence rose in the first quarter by 11 points in a sign that the country’s economy is picking up pace, a survey showed on Wednesday.

The Rand Merchant Bank (RMB) business confidence index compiled by the Bureau for Economic Research rose to 45 points in the first quarter from 34 points in the fourth quarter but remained below the 50-mark separating the net positive and negative territories.

“First quarter confidence jump is driven more by the expectation that the recent (mainly) market-friendly political development will boost activity levels in future than an immediate improvement in the real economy,” chief economist at RMB Ettienne Le Roux said.

Business confidence was dented by policy uncertainty under the leadership of Jacob Zuma but economists say President Cyril Ramaphosa’s election as leader of the ruling African National Congress in December, and as president last month, has raised expectations that the country will make economic reforms.

South Africa’s economy grew more than expected at the end of last year as agriculture and trade recovered, data showed last Tuesday, boosting its chances of avoiding a potentially debilitating credit ratings downgrade.

Earlier in the month, The South African Chamber of Commerce and Industry’s (SACCI) monthly business confidence index (BCI) fell to 98.9 in February from 99.7 in January as exports, imports and retail sales fell.

“It goes without saying that the current uncertainty around land reform needs to be resolved as quickly as possible. If allowed to linger, the latest rise in the RMB/BER BCI (Business Confidence Index) could easily fizzle out with little or even no enduring positive impact on business capital expenditure and the economy at large,” Le Roux added.

 

(Reporting by Rahul B and Justin George Varghese in Bengaluru; Editing by Matthew Mpoke Bigg)

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Shell, Eni preempt any U.S. probe over Nigeria with filings

Comments (0) Actualites, Africa, Business, Economy, Europe, Leaders, Oil, US

LONDON (Reuters) – Oil giants Royal Dutch Shell and Eni have voluntarily filed to U.S. authorities internal probes into how they acquired a giant field in Nigeria as the companies seek to fight corruption allegations in Europe and Africa.

The filings, to the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), do not mean U.S. authorities are investigating Shell or Eni.  The move shows the companies are trying to preempt questions from the United States as they face one of the oil industry’s biggest-ever graft trials in Italy, to begin in May in Milan, a pending trial in Nigeria and an investigation in the Netherlands.

The case revolves around the purchase of a huge block off oil-rich Nigeria, known as OPL 245, which holds an estimated 9 billion barrels in reserves.

Italian prosecutors allege that bribes were paid in an effort to secure rights to the block in 2011. A number of top executives from both companies – including Eni Chief Executive Claudio Descalzi and former Shell Foundation Chairman Malcolm Brinded – will face trial.

Under Italian law a company can be held responsible if it is deemed to have failed to prevent, or attempt to prevent, a crime by an employee that benefited the company.

Both companies’ shares are traded on U.S. stock exchanges, putting their foreign dealings in the scope of U.S. authorities.

Shell and Eni, on behalf of subsidiaries, in 2010 entered deferred prosecution agreements with the DOJ over separate Nigerian corruption allegations.

Those pacts dismissed charges after a certain period in exchange for fines and an agreement to fulfil a number of requirements. They concluded in 2013 and 2012, respectively.

“A company’s disclosure of alleged foreign corruption to both the SEC and the DOJ in the U.S. typically means the company believed U.S. authorities needed to be made aware of this, and both agencies have the authority to prosecute under the (Foreign Corrupt Practices Act, or FCPA),” said Pablo Quiñones, executive director of the New York University School of Law program on corporate compliance and enforcement.

Quiñones previously worked as chief of strategy, policy and training at the DOJ’s criminal fraud section, a role that included helping to develop FCPA enforcement policy.

The SEC and the DOJ declined to comment on the company disclosures or whether they were looking into any allegations surrounding the block.

Eni noted its disclosure in an SEC filing, in which it said “no evidence of wrongdoing on Eni side were detected”. Shell has said publicly that it submitted the investigation to U.S. authorities and to Britain’s Serious Fraud Office.

Shell and Eni deny any wrongdoing. They say their payments for the block, a total of $1.3 billion, were transparent, legal and went directly into an escrow account controlled by the Nigerian government.

The companies and legal experts say the trial will last more than a year, with potential appeals stretching several years beyond that.

“The risk for companies is of a prolonged period of exposure to open court allegations from a state prosecutor of impropriety,” Anthony Goldman of Nigeria-focused PM Consulting said. “That will be painful and damaging.”

The Milan prosecutor charges that roughly $1 billion of the payments were funnelled to a Nigerian company called Malabu Oil and Gas, which had a disputed claim on the block, and former oil minister Dan Etete, who British and U.S. courts have said controlled Malabu. Reuters has been unable to reach Etete or Malabu for comment.

Shell has since said it knew some of the money would go to Malabu to settle its claim, though its own due diligence could not confirm who controlled the company. Eni said it never dealt with Etete or knew he controlled the company, but that the government promised to settle all other claims on the block as part of their deal.

“If the evidence ultimately proves that improper payments were made by Malabu or others to then current government officials in exchange for improper conduct relating to the 2011 settlement of the long standing legal disputes, it is Shell’s position that none of those payments were made with its knowledge, authorisation or on its behalf,” Shell said in a statement.

 

CONTROL AT RISK

The proceedings have also brought together investigators in several countries, with authorities in Nigeria and the Netherlands sending information to Milan.

A Dutch anti-fraud team in 2016 raided Shell offices as part of the investigation, and a Dutch law firm has asked prosecutors to consider launching a criminal case in the Netherlands.

“I’m not aware of many cases where this many jurisdictions have been at work for so long helping each other out. The amount of cooperation is very unusual,” said Aaron Sayne of the Natural Resource Governance Institute, a non-profit group that advises countries on how to manage oil, gas and mineral resources.

A case by Nigeria’s financial watchdog, the Economic and Financial Crimes Commission, against defendants including the former attorney general, ex-ministers of justice and oil and various senior managers, current and former, from Shell and Eni, will continue in June.

There has also been at least one effort to take away the asset. Experts say it is worth billions, and Shell has spent millions developing it. Eni intends to make a final investment decision this year on developing the block and said in corporate filings that the asset has a book value of 1.2 billion euros ($1.5 billion).

The Italian court does not have the ability to rescind rights to the block, and Nigerian oil minister Emmanuel Ibe Kachikwu has said the companies should continue to develop it.

But in a lawsuit filed by the Nigerian government against JPMorgan in London for the U.S. bank’s role in transferring money from the deal, it called the agreement that facilitated Shell and Eni’s purchase “unlawful and void”.

A JPMorgan spokeswoman previously said the firm “considers the allegations made in the claim to be unsubstantiated and without merit”.

Additionally, a Nigerian court last year briefly ordered the seizure of the block.

That decision was later overturned, and Shell and Eni say they are not worried about losing the asset. But the ruling and the language in the government’s suit against JPMorgan underscore the risk.

“It’s a nice, stable asset that could produce a lot of oil for a long time,” Sayne said.

($1 = 0.8127 euros)

 

(Reporting by Libby George; Additional reporting by Stephen Jewkes and Emilio Parodi in Milan and Ron Bousso in London; Editing by Dale Hudson)

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Spotify enters into the South African market

Comments (0) Actualites, Africa, Business, Economy, Entertainment and Lifestyle, Technology

JOHANNESBURG (Reuters) – Global music streaming provider Spotify launched its services in South Africa on Tuesday, marking its entry into Africa, where there is a rapid uptake of smartphones and improving telecommunications infrastructure.

The Swedish company, launched in 2008 and available in more than 60 countries, is the biggest music streaming company in the world and counts services from Apple Inc, Amazon.com Inc and Alphabet Inc’s Google Play as its main rivals.

The South Africa launch comes as Spotify prepares for a direct listing of its shares on the New York Stock Exchange, which will allow investors and employees to sell shares without the company raising new capital or hiring Wall Street banks to underwrite the issue.

“We believe South Africa is a wonderful country to start in,” Spotify Managing Director in Middle East and Africa Claudius Boller told Reuters on the sidelines of the launch.

“We looked at the technology landscape, we looked at the maturity and actually South Africa is seen globally as a very important music market.”

Spotify also has aspirations to branch out into the rest of Africa, Boller said, without committing to timelines or geographies.

An increase in connectivity across South Africa, helped by higher investment in infrastructure, as well as a growing uptake in credit cards and bank accounts has drawn global video and music streaming providers.

Its music streaming market is dominated by players such as Apple Music, Google Play, France’s Deezer and Simfy Africa, with only a few local operators such as mobile phone operator’s MTN and Cell C with MTN Music+ and Black.

Internet and entertainment firm Naspers also recently launched music streaming platform Joox, from China’s Tencent, in which it holds a 33 percent stake.

In its filing to list its shares, Spotify said its operating loss widened to 378 million euros ($465.32 million) in 2017 from 349 million euros.

($1 = 0.8123 euros)

 

(Reporting by Nqobile Dludla; editing by Jason Neely and Pritha Sarkar)

 

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Ivory Coast to reduce cocoa output over next two years

Comments (0) Actualites, Agriculture, Business, Economy

ABIDJAN (Reuters) – Ivory Coast’s Coffee and Cocoa Council (CCC) will suspend programmes for the 2018-19 season that boost cocoa output, it said on Friday, aiming to reduce production in the face of global oversupply.

The marketing board plans to halt distribution of higher-grade seeds and plants by chocolate makers, including Mars and Nestle, that develop hybrid species that they pass on to farmers to increase yields.

Those programmes helped to increase output in the world’s top grower to record highs last year but added to a supply glut that has depressed prices worldwide.

“Given the increase in global cocoa supply and falling prices since 2016/17, the CCC has decided to carry out a census of the coffee and cocoa orchards,” the CCC said in a statement. It did not say when the census would begin.

“Pending the finalisation of this census, we inform you of our decision to temporarily suspend any distribution of improved plant material, seeds, cuttings, etc, from the 18/19 season.”

Output in Ivory Coast has risen from 1.6 million tonnes 10 years ago to 2 million tonnes in the 2016-17 season because of higher yields, but global demand has failed to meet supply. The CCC expects production for the 2017-18 season to slip to 1.9 million tonnes, partly because of bad weather.

High-level sources at the CCC said the organisation wants to try to reduce output to between 1.7 million tonnes and 1.8 million tonnes over the next two years, affecting exporters and chocolate makers that also include Ferrero, Cargill, Olam, Cemoi and Cocoa Barry.

“Our goal is to control our production because these last 10 years, it is these programmes initiated by chocolatiers … that increased our production from 1.6 million to 2 million (tonnes),” a CCC source said.

Separately, the CCC has begun a three-year programme to uproot 300,000 hectares of cocoa infected by swollen shoot since January. The CCC source said that 25,000 hectares have been cleared already, which will also help to reduce growing capacity in the coming years.

 

(Reporting Ange Aboa; Writing by Edward McAllister; Editing by Jason Neely and David Goodman)

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South Africa’s RCL Foods expands in pet food to beat drought

Comments (0) Actualites, Africa, Business, Economy, Environment

RANDFONTEIN, South Africa (Reuters) – South Africa’s RCL Foods has completed a 123 million rand ($10 million) expansion at its pet food plant to help reduce its exposure to a poultry business hit by drought and cheap imports.

Food companies in South Africa have been struggling with an El Niño-induced drought that drove up the price of ingredients such as maize, while poultry farmers have also faced competition from Brazil, the European Union and the United States.

RCL is aiming to tap into the country’s 5 billion rand ($418 million) a year pet food industry, which is less exposed to individual commodities, as part of a strategy to diversify, CEO Miles Dally said at a plant visit late on Thursday.

“Ideally we would like less impact from things like drought and dumping,” he said.

“Our vision has always been clear, to create a major food business,” he added, referring to the pet food division.

RCL’s expansion in Randfontein, west of Johannesburg, will boost its pet food production to 12,000 tonnes per month from 7,000 tonnes.

The company, which saw first-half profit plunge 54 percent last year, this week reported an increase for the first six months of its current financial year, boosted by a decline in input costs and higher chicken prices.

The firm cited lower poultry imports, which were reduced in part by an outbreak of bird flu in Europe.

RCL’s pet food business, which has annual revenue of around 1 billion rand, aims to grow by as much as 20 percent per year, Dally said, adding the firm would look for acquisitions to bolster the business.

The company currently produces over 20 brands including Rainbow chicken products, Nola mayonnaise, Yum Yum peanut butter, Bobtail dog food and Selati sugar products.

RCL cut 1,350 jobs and reduced production by 50 percent at its Hammersdale factory in the KwaZulu-Natal province in November 2016 as the chicken imports and drought took a toll.

($1 = 11.9204 rand)

 

(By Tanisha Heiberg; Editing by James Macharia and Mark Potter)

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