January 31, 2018

Clyde & Co / East African Investor: January 2018 Update

Clyde & Co has the largest presence of any international law firm in East Africa. From our hub in Dar es Salaam, Tanzania, we act as international counsel on transactions across the East African region. Our team has the ability to advise across the full spectrum of corporate transactions, including cross border M&A and private equity investments and exits.

Key recent developments in East Africa:

Ethiopia

Fairfax Africa fund plans to build USD 4 billion oil refinery

In collaboration with various Asian partners, the Fairfax Africa Fund (Fairfax) is intending to build an Ethiopian refinery with a total investment cost of USD 4 billion.

The project has completed the feasibility study stage and a site has been earmarked in Awash town, 221km east of Addis Ababa.

It is expected that the refinery will have an initial processing capacity of 120,000 barrels per day, with the potential to expand to 240,000 barrels per day. This will be sufficient capacity to serve the entire East African Region.

Electric Ethiopia-Djibouti rail line begins commercial operation

On 03 January 2018, the 756km electrified railway line running from Sebata to the Port of Djibouti was opened for regular service. The completed project is the longest electrified railway in Africa and was built at a cost of USD 4.2 billion with the majority of the financing received from Export-Import Bank of China.

The service is expected to significantly improve Ethiopia's cargo transport (95% of which passes through Djibouti) as the rail line will cut cargo delivery time between Djibouti Port and Addis Ababa from 2 days to 12 hours.

USD 220 Million textile plant to be constructed

On 16 January a cornerstone laying ceremony was held in Dire Dawa for a USD 220 million textile plant that is being constructed by China Civil Engineering Construction Corporation.

Construction is expected to take 30 months and the factory will process raw textiles once commissioned, employing approximately 3000 Ethiopians.

The factory will be located inside the Dire Dawa Industrial Park, one of a number of industrial parks being constructed by the Ethiopian Government to encourage trade in the country.

Rwanda

Airtel to acquire Millicom Rwanda

Bharti Airtel has recently received regulatory approval form the Rwanda Utilities Regulatory Authority to acquire Millicom Internationals Cellular's Rwanda unit, Tigo Rwanda.

Following the acquisition, Airtel is expected to be the second largest carrier by revenue in Rwanda with a customer base of 5.9 million subscribers.

The combined network of the two companies will serve customers with voice/ data services, global roaming and mobile banking services.

Volkswagen to invest in Rwanda

Volkswagen has announced a USD 20 million investment in Rwanda with the construction of a local assembly plant which is expected to begin production in the second quarter of 2018.

The plant (which will be located in the Special Economic Zone) will have a production capacity of 5000 cars and is expected to employ 500 – 1000 Rwandans.

In addition to vehicle assembly, Volkswagen intends to roll out mobile solutions in country which will involve community car sharing and a ride hailing app which will be development in conjunction with a local tech firm Awesomity Lab.

French investors visit Rwanda to explore opportunities

Earlier this month, former French president Nicholas Sarkozy visited Rwanda with a delegate of French investors.

The investors were met by Paul Kagame and subsequently held a closed door meeting with senior officials from the Rwanda Development Board (RDB) to discuss investment opportunities in the country including hospitality, transport, logistics, music and tourism.

It is understood the Bollore Logistics was one of the participants and may be seeking to expand its operations in the country.

Tanzania

Law Set for aendments n anticipation of Uranium Mining

A review of Tanzanian legislation, which commenced in 2016, has completed and is expected to set in new laws and regulations for the entire nuclear energy legislation framework.

The amendments have been accepted by the Tanzanian Atomic Energy Commission and have now been forwarded to the ministry and other stakeholders for additional input.

The aim of the amendments, which are expected to reach the Cabinet towards the end of 2018, are to facilitate uranium mining in the country with a view to tapping some of the significant reserves which have been discovered in the Ruvuma region.

Tanzania to become one of Africa's largest poultry producers

Tyson Foods and Irvines are working on a joint venture to develop a poultry breeding site in the Arusha region and hatching factories on the coast. This investment will make Tanzania the fourth largest poultry producer in Africa and will alleviate dependency on imported poultry (which is currently sourced from Brazil and the USA).

Irvines has confirmed that once fully operational, the facilities will raise between 500,000 and 2,000,000 broilers per month.

In addition to producing poultry, the firms will be assisting the Tanzanian Government with enhancing its biosecurity to protect against avian flus.

Air Tanzania to take delivery of three new aircraft

Air Tanzania is to take delivery of two C Series (CS300) Jets from Bombardier in June 2018 followed by a Boeing 787-8 in July 2018.

The C Series are expected to be used to open up a number of five or six regional routes in Southern and West Africa whilst the B787-8 will be deployed on longer intercontinental routes (to China and India initially).

To further develop the airline, Air Tanzania will undergo IOSA certification in 2018 which will allow the carrier to develop commercial partnerships.

Uganda

Raya Holdings to Invest USD 24 million

On 29 January 2018, Raya Holdings for Financial Investment (RAYA) announced to the Egyptian Exchange that it would be investing USD 24 million in a Ugandan agricultural products factory.

The total cost of the project is expected to be USD 70 million with other partners yet to be named.

It is understood that RAYA has signed an initial memorandum of understanding and that further negotiations are now underway.  

Uganda receives USB 94.5 million loan from AfDB

AfDB has provided a USD 94.5 million loan to Uganda to fund construction of a highway project linking Kenya to Uganda.

The project is expected to take four years to complete and will run the 118km between Kapchorwa and Kitale with the additional construction of a new border post at Suam to facilitate intercountry transport and trade.

Once completed, the project is expected to boost trade in the productive regions of Bugisu, Karamoja and Sebei which are known for their agricultural products.

The AfDB will bring (through the project cycle) engineering, environmental and economic expertise to ensure the project is completed to its full potential.

Cotton growing industry to be revived

On 17 January 2018, the Ugandan Trade Ministry and SAA Investments (a Turkish investment vehicle) signed a memorandum of understanding to develop Uganda's cotton industry.

Although the exact nature of the potential investment is not yet clear, SSA Investments has confirmed that it has been conducting in-country studies since 2014 and that the proposed business structure has the potential to benefit up to 200,000 people.

Turkey has significant experience in the cotton industry (which has been expanding since the 1920s). This, combined with SSA Investments' financial resources, is expected to regenerate Ugandan cotton producing and processing.

Kenya

JP Morgan eyes Kenya entry

JP Morgan is considering entering the Kenyan market as it looks to take advantage of East African deals and to provide support for large multinationals operating in the region. According to Mr Dimon, the bank's CEO, a Kenya entry would seek to fill gaps in specialised areas that are not locally available to serve its multinational clients.

This development is part of a USD 20 billion investment plan world-wide and is expected to involve the deployment of innovative financial products which are not currently available.

Kenya's financial and banking sector has seen renewed interest since March 2017 when the Central Bank of Kenya lifted a licensing moratorium.

Japanese firm wins Sh 2.3 billion road tender

World Kogyo Kaihatsu (WKK) has been awarded the tender to complete the dualling of a 2.412 kilometre stretch of road in central Nairobi. Expected to complete in 2020, the new road will alleviate congestion in what is a notoriously busy part of Nairobi.

The project is being funded through a Sh 1.4 billion grant from the Japanese government and will involve building four vehicle lanes, service lanes (comprising pedestrian and cycle routes) and a specialised bus lane. The project will also incorporate an intelligent traffic light system at major intersections to allow for longer periods of traffic flow.

Devki Group to construct two cement factories

Narendra Raval, the Kenyan tycoon who runs the Devki Group (East Africa's largest building material company) has announced the construction of two new cement factories in Kenya. The first plant will have a capacity of 750 million tonnes of cement per annum and will be situated in Kilfi County whilst the second plant will be located in Nakuru (and is expected to have a similar capacity).

The two new plants are part of Raval's aim to reduce the cost of building in the country whilst simultaneously improving product logistics with reduced delivery distances from factories to building sites. Since its entry into the cement market, the Devki group has reduced the cost of a 50kg bag of cement from USD 7 to USD 5 suggesting the reduction of building costs is coming to fruition.