Russia’s invasion of the Ukraine is a game changer for the world’s economy. The first consequence we expect is de-globalisation: Developed countries are already devising strategies for becoming less vulnerable to disturbances in global supply chains. A second consequence will be commodities being again seen as a strategic resource. This means using fossil energies like oil and gas to fuel the current economy; mining for metals like nickel, copper and cobalt to enable the digitalisation of the economy and electric mobility; as well as farming wheat and corn to deliver food at affordable prices.
For the past twenty years, extractive industries were out of fashion in the developed world. Chinese companies were mostly involved with them while western ones kept their distance. Western companies did so for the sake of sustainability and a clean economy. The developed world also took the view that the African growth story should not be fuelled anymore by natural resources, but by a rising middle class, fintech founders and start-up entrepreneurs.
How different things look today. It seems that rising commodity prices will be the big game changer for Africa. In the past two years, the S&P GSCI All Metals Index has risen by 74%. In Africa, countries rich in raw materials will be the big winners of renewed investor interest in commodities. For countries lacking such resources, the challenge will be to lessen dependency on expensive imports and produce more domestically. And for the resource-rich countries, the challenge will be to transform raw materials into finished goods.
It is, for example, economic and ecological nonsense to export bauxite. Instead, African companies should themselves turn it into aluminium. Africa has an historic opportunity to use commodities as a major driver of economic growth – and hence its capital markets.
There is some very good news for Morocco’s royal family: The mining company Managem (ISIN: MA0000011058) increased revenues by 57% to MAD 7.4 billion (EUR 692 million) last year thanks to higher prices on commodities. Managem’s revenue growth is well above the average: According to BMCE Capital Global Research, the revenue of listed companies in Morocco was up by an average of 10% last year to MAD 251 billion (EUR 23.5 billion). Managem mines for copper, silver, gold, fluorite, cobalt, zinc and lead – a business that investors should be currently taking a very close look at.
Managem’s prospects are promising as most analysts expect commodity prices to go even higher. This, they say, is due to the long-term consequences Russia’s invasion of Ukraine will have on global supply chains. Since January, Managem’s share price has gained 29.3% to MAD 2030 (EUR 191.09).
Al Mada, the Moroccan royal family’s investment firm, owns 80.3% of Managem’s shares. The Moroccan pension fund Caisse Interprofessionnelle Marocaine de Retraites has another 5% stake in it. That leaves a free float of below 15% for Managem’s shares on the Casablanca Stock Exchange. This is too low in our view.
But back to Al Mada. It is one of the largest institutional investors in Morocco, with exposure to banking through a holding in Attijariwafa Bank (ISIN: MA0000012445); renewable energy through a share in Nareva; supermarkets via a holding in Marjane; and construction materials through a share in Lafarge Holcim Maroc (ISIN: MA0000012320). Much to our regret, Al Mada decided to delist from the Casablanca Stock Exchange in 2010. Since then, investors have not been able to participate in Al Mada’s success – as evidenced by its big bet on Managem.
MTN Group (ISIN: ZAE000042164) had a bumpy road on the Johannesburg Stock Exchange (JSE) last week. As the week began, MTN’s share lost more than 10% of its value. But in the days after, the share put on more than 5% to ZAR 182.29 (EUR 11.30). The reason for the rebound was a new assessment by US rating agency Moody's, which upgraded MTN’s credit rating outlook to “stable” from “negative.” The upgrade was part of Moody’s overall assessment of South African bond issuers.
Indeed, MTN has announced a substantial de-leveraging of its business, including reducing debt denominated in US dollars, improving the funding mix and selling more assets. We are waiting for MTN to provide more details on these last two points. In 2021, MTN reduced debt held by the holding company (Holdco) to ZAR 30.1 billion (EUR 1.9 billion) from ZAR 43.3 billion previously. “In line with our Ambition 2025, we are committed to faster deleveraging of the Holdco balance sheet. This gives us the financial flexibility to take advantage of the attractive growth opportunities we have identified,” commented CFO Tsholofelo Molefe.
A surge of 40% to KES 3.83 (EUR 0.0305) in just five days – Kenya Airways (ISIN: KE0000000307) has made an impressive comeback on the Nairobi Securities Exchange (NSE). To recall: The airline was particularly hit by the Covid-19 pandemic, prompting its exit from the blue-chip index NSE 20 in August 2020. But now its fortunes seem to be improving. For Kenya Airways has announced that in 2021, it reduced its pre-tax loss to KES 16 billion (EUR 127 million) from KES 36.6 billion in 2020. Kenya’s government has a 44.9% stake in Kenya Airways, while Air France-KLM owns another 7.1% of its shares.
According to CEO Allan Kilavuka, consolidation is key to driving aviation in Africa forward. He said last week: “We’ve started discussions with some of the major airlines in Africa, especially South African Airways.” Last year, the two airlines drew closer together after signing a memorandum of cooperation.
However, Kenya Airways will have to tread carefully, as it is still a member of the Sky Team alliance led by its shareholder Air France-KLM. South African Airways, meanwhile, is bound to the Star Alliance led by Lufthansa.