INTRODUCTION

Welcome to Adansonia’s Izindaba. Izindaba is the Zulu word for “NEWS” and we hope that you will find the articles contained in the newsletter of interest.

In this edition:

• Adansonia Corporate Finance Launch;
• Adansonia participates in the South African Institute of Tax (“SAIT”) Workshops;
• Adansonia Country Report: Ethiopia – Open for “Cautious” Investment;
• Adansonia PE Opportunities Limited – Fund Update;
• Mauritian Regulatory updates;
• Adansonia signs South African Airways Corporate Agreement;
• Adansonia Cycle Tour 2018.

Please feel free to forward this newsletter onto anyone who may find it interesting, visit our website www.adansoniaholdings.com for more information on our services, and any comments can be directed to Brendon.jones@adansoniaholdings.com.

ADANSONIA CORPORATE FINANCE LAUNCH

Adansonia Corporate Finance officially launched its offering in Zimbabwe and Zambia in July. The key focus of the company is to facilitate investment into Africa, utilizing the range of M&A instruments i.e. debt or equity and leveraging off our network of asset managers and private equity firms around the world.

We wrap all our services in a flexible M&A service offering which may (depending on circumstances and client needs) include;

• strategic asset/country advice;
• valuations and preparation of necessary valuation reports;
• assistance in negotiations with debt providers and/or potential buyers/investors;
• referrals to other proven in country service providers and experts when local context is required;
• assistance during due diligence;
• project management of the M&A process from start to completion; and
• Capital Raising for private companies.

Our approach treats each engagement and its proposed fee structure as unique, and varies according to the complexity, amount of work required, and size of transaction. We are prepared to take some fee risk in undertaking certain projects where we have a good understanding of the strategic intent of the client, and a measure of confidence regarding the likelihood of success.

To date we have successfully raised $4 million for clients in this space and have a number of interesting mandates in the pipeline.

If you would like any further information in this service, please contact Mark Elliott on mark.elliott@adansoniaholdings.com

To view the presentations from the Zimbabwe and Zambian launch please click on the following links.

Adansonia Corp Finance – Zimbabwe

Adansonia Corp Finance – Zambia

ADANSONIA PARTICIPATES IN THE SOUTH AFRICAN INSTITUTE OF TAX (“SAIT”) WORKSHOPS

Brendon Jones was among the presenters and panellists for the SAIT Tax workshop held in Johannesburg and Cape Town in June. The workshops were aimed at igniting industry awareness, with both a South African and International perspective, of the current tax, wealth, succession and compliance landscape. An overriding message was that the worldwide advisory and compliance web is closing-in.

The workshop was presented by Keith Engel, SAIT’s Chief Executive and facilitated by Andrew Wellsted of RM Partners; presenters included Justine van Wyk, Rachel Bentley, Catharina Prym, Yann Mrazek, Roxanna Nyiri and was hosted by FNB Fiduciary.

To view Brendon’s presentation on Mauritius, click on the link below:

Adansonia Holdings Limited – SAIT Presentation

ADANSONIA COUNTRY REPORT: ETHIOPIA – OPEN FOR “CAUTIOUS” INVESTMENT

Background

This report is issued following a second visit to Ethiopia, between the 18th – 21st July, by Rudolf Pretorius and Brendon Jones to follow up on progress made with the two investments Adansonia PE Opportunities Limited made into the Ethiopian pharmaceutical and fast-moving consumer goods industries businesses. The trip was also planned to assess whether changes to the Ethiopian political and general business environment have been sufficient to create attractive investment opportunities for a number of our clients.

The Ethiopian economy

Ethiopia’s population and geographic location gives it strategic dominance as a jumping off point in the Horn of Africa, close to the Middle East and its markets. Landlocked, it borders Eritrea, Somalia, Kenya, South Sudan, and Sudan and tiny neighbour, Djibouti, which is also its main port. Ethiopia has a large population of about 102 million (2016), and is still growing at just below 3% per annum, making it the second most populous nation in Africa after Nigeria. It is the fastest growing economy in the region having consistently achieved GDP growth rates of between 8% and 10% since 2003. However, coming off a very low post communist base, it is also one of the poorest countries in the region.

Ethiopia is the only sub-Saharan country which was never colonised. It did however suffer from a period of extreme communism between 1974 and 1991, which destroyed the majority of the country’s economic capabilities, and left behind a generation with very limited skills.

Higher economic growth brought with it positive trends in poverty reduction in both urban and rural areas. In 2000, 55.3% of Ethiopians lived in extreme poverty; by 2011 this figure was 33.5% and the unemployment rate has decreased from 26% in 1999 to currently 16%. 70% of the population is below the age of 30.

In the past two decades, there has been progress in key human development indicators: primary school enrolment has quadrupled, child mortality been halved, and the number of people with access to clean water has more than doubled. While access to education has increased, learning outcomes and the quality of education are not keeping pace with it, and there are regional and gender disparities in basic educational proficiency. The weak education system and lack of skills was a common theme through-out all our discussions with private equity investors and businessmen active in Ethiopia.

Ethiopia’s only large city is Addis Ababa, with around twenty other significant towns across the country. Around 20% of the population is urbanised, one of the lowest urbanisation percentages in the world, and the country is urbanising at a rate of 4.5% per annum - that is approximately four million people per annum, or the current size of Addis Ababa each year! The rate at which urbanisation is taking place, was one of the most exciting prospects for business and the opportunity it represents.

The rapid rate of urbanisation and high economic growth rate is pushing more and more people into the consumer market however the low rate of industrialisation is causing imports to rise. The resultant imbalance in the current account has become structural, causing a chronic shortage of US Dollars for importers. Government has been actively promoting companies that are able to do import replacement, or create new export industries in an attempt to alleviate this problem.

Ethiopia has the biggest national airline in Africa, and although Government owned, is profitable. It is aggressively rolling out a strategy of becoming a main airline hub into Africa. It has a good arterial road system linking the cities and towns across the country, and the new Chinese financed rail link to Djibouti is about to be commissioned. It also has good power infrastructure, and it exports power to neighbouring countries from its hydro electrical dams in the Blue Nile. Government is very beaurocratic, and access to many key sectors of the economy to date has been reserved for locals, starving the economy from foreign competition and innovation. The observable level of corruption is relatively low.

Politics

The ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) that overthrew the communist DERGE regime in 1991 is still in power. It has kept tight control over political opposition resulting in sporadic outbreaks of protest over the past fifteen years, which was vigorously supressed. All this changed three months ago when the party elected a new young leader, Abiy Ahmed, in April 2018, who then became prime minister.

Since then, Abiy has electrified Ethiopia with his informal style, charisma and energy, earning comparisons to Nelson Mandela, Justin Trudeau, Barack Obama and Mikhail Gorbachev. The 42-year-old – who took power following the surprise resignation of his predecessor, has so far reshuffled his cabinet, fired a series of controversial and hitherto untouchable civil servants, reached out and made peace with hostile neighbours such as Eritrea, released thousands of political prisoners, lifted bans on websites and other media, ordered the partial privatisation of massive state-owned companies, and ended a state of emergency imposed to quell widespread unrest.

Abiy’s change in policy is designed to address Ethiopia’s critical shortage of foreign currency, a shortage of jobs for a huge number of graduates, significant environmental damage, ethnic tensions and a hunger for change. Our enquiries regarding his approval rating amongst Ethiopians is indicative that more than 90% of the population are supportive.

Investment outlook summary

Ethiopia presents a very attractive investment opportunity given its size, economic growth rate, rate of urbanisation, general lack of foreign competition, and relative stability, enhanced by the recent political changes.

That said, the consumer market is still in its infancy, the labour force and managerial staff pool is poorly skilled, currency shortages will persist for some time, and government policy implementation is beaurocratic.

So, our advice is to proceed only after very thorough market research has been done, and make sure enough foreign currency is on hand to fund imported capital expenditure and raw material requirements for the next few years. Lastly, it is imperative that competent senior expat management is relocated to Ethiopia to manage through these obstacles.

ADANSONIA PE OPPORTUNITIES LIMITED - FUND UPDATE

Adansonia PE Opportunities Limited (“APEO”) has now been operational for 2 years and has made 5 investments with total capital invested of USD 7.3 million. APEO’s investment objective is to generate above average returns from the investment opportunities introduced by the APEO directors through their involvement with various investment structures and/or corporate networks, mainly in Africa.

In summary, for the quarter ended March 2018, the net effect of valuation adjustments made during the quarter under review is a return of 3.1%. We received fresh capital subscriptions for USD 2.86 million during the quarter, of which USD400k was applied to increase our investment in Alphamin, and USD500k was invested into the largest operational subsidiary in the African Alpha fast moving consumer goods stable in Ethiopia in which we already have an investment.

APEO has recently committed to investing USD 1.5 million into a UK holding company which operates sports betting licences in a number of African countries including Kenya, Uganda, Nigeria, Ghana and Zambia.

For a full overview of investments to date, please click on the link below:

http://adansoniaholdings.com/reports/2018/APEO_2018.html

MAURITIAN REGULATORY UPDATES

Finance (Miscellaneous Provisions) Act 2018 (the “Finance Act 2018”)

The Finance Act which contains provisions for the implementation of the measures announced in the budget 2018-2019 was approved by the Parliament on 31 July 2018. However, we expect the Financial Services Commission and the Mauritius Revenue Authority to issue guidance notes and practice notes to substantiate the changes brought in the legislation.

The key amendments to the Global Business sector have been detailed in our previous communiqué sent to all clients on 27 July 2018. We wish to remind you of the following grandfathering provisions:

In terms of the GBC 2 licences issued post 16 October 2017, they can either apply for a Global Business Licence or an Authorised Company licence or alternatively wind up.

Some additional relevant amendments are:

1. Amendments to Limited Liability Partnerships Act 2016