<h2 class="wp-block-heading" id="h-topline">Topline</h2>



Microsoft’s third calendar quarter earnings were the most robust in the company’s five-decade history, though the Washington-based computing colossus indicated it may get less of a bump from the next generation of technological innovation in generative artificial intelligence moving forward.



<h2 class="wp-block-heading" id="h-key-facts">Key Facts</h2>



In its earnings report released Wednesday afternoon, Microsoft reported record $3.30 earnings per share and net income of $24.7 billion, beating average analyst forecasts of $3.10 EPS and $23.2 billion net profit, according to FactSet.



The firm brought in $65.6 billion in revenue for the three-month period ending Sept. 30, besting estimates of $64.6 billion and the prior quarter’s record $64.7 billion.



Sales in Microsoft’s cloud computing service Azure grew 34% year-over-year on a constant currency basis, also crushing projections of 30.7% growth for Azure, the most public-facing generative AI initiative for Microsoft.



But Microsoft shares dipped about 5.5% by 11 a.m. EDT Thursday, reversing an initial gain and pacing toward its worst day on Wall Street since Oct. 2022.



The selloff traces to Microsoft management’s more tepid guidance for the final quarter of 2024, as the company said it expects year-over-year growth for Azure to slow to 31% to 32% and for 18% to 20% growth in its AI-heavy intelligent cloud segment on a constant currency basis, down from 21% in the quarter ending last month, as well as anticipated operating losses from OpenAI, the Microsoft-backed startup behind generative AI chatbot ChatGPT.



The Microsoft stock losses weighed on broader indexes, with the S&amp;P 500 and tech-concentrated Nasdaq each down about 0.7%.



<h2 class="wp-block-heading" id="h-big-number">Big Number</h2>



$180 billion. That’s about how much market capitalization Microsoft lost Thursday morning, roughly the equivalent of Disney’s total valuation.



<h2 class="wp-block-heading" id="h-key-background">Key Background</h2>



Microsoft’s report was the latest in a crowded week for earnings, following Google’s Tuesday release and frontrunning Thursday afternoon reports from fellow tech titans Amazon and Apple. The first quarter of Microsoft’s 2025 fiscal year, this quarter was also the first since Microsoft&nbsp;<a href="https://www.cnbc.com/2024/08/21/microsoft-changes-reporting-to-boost-cloud-consumption-visibility.html" rel="noreferrer noopener" target="_blank">adjusted</a>&nbsp;how it reports its business segment performance, a shuffle analysts say should better&nbsp;<a href="https://www.cnbc.com/2024/08/21/microsoft-changes-reporting-to-boost-cloud-consumption-visibility.html" rel="noreferrer noopener" target="_blank">reflect</a>&nbsp;the competition between Azure and rival enterprise cloud computing service Amazon Web Services. But it’s a change which Bernstein analyst Mark Shmulik predicted may cause “confusion” among investors following this report as expectations recalibrate for Microsoft’s wide-spanning businesses. For example, Microsoft reported $24.1 billion in revenue for its intelligent cloud unit last quarter, a year-over-year decline for that segment despite more than 30% growth for the unit’s signature Azure offering. Microsoft is one of the most profitable companies in the world, with its $88 billion in net income during its most recent fiscal year trailing only Apple and Berkshire Hathaway among U.S. companies. Microsoft stock was up 87% over the last two years through Wednesday’s close, outgaining the S&amp;P 500 and rival Apple at 54% and 50%, respectively, according to FactSet data including reinvested dividends.



.

Microsoft Experience Center Ahead Of Earnings Figures

Microsoft Stock Slips To Worst Day In Years Despite Record Earnings

<h2 class="wp-block-heading" id="h-topline">TOPLINE</h2>



Several Wall Street experts are warning that despite moving higher in recent weeks, the stock market still has further to fall—with recent gains likely to be nothing more than a “bear market rally,” as investor concerns about Fed rate hikes and slowing economic growth continue to weigh on markets.



<h2 class="wp-block-heading">KEY FACTS</h2>



Despite an earnings season marked by profit warnings from major companies, the stock market has risen significantly from its low point on June 16, with the S&amp;P 500 gaining roughly 12% and rallying for the last three weeks in a row.&nbsp;



With stocks starting to recover from a brutal selloff in the first half of the year, investors are now debating whether recent gains are merely a bear market rally—with stocks set to hit new lows—or the start of a new bull market.



Analysts at Bank of America argue that it’s “premature to declare a ‘big low’ in the market,” predicting more downside ahead and advising investors to remain “tactically cautious,” especially as the Federal Reserve continues to hike interest rates for the foreseeable future.



The firm describes that many traditional indicators of a market bottom are yet to be triggered—such as rising unemployment, the Federal Reserve starting to lower interest rates, a slowdown in profit estimates and a decline in the two-year Treasury yield.



What’s more, the last three market lows occurred after investors began to sell stocks, which hasn&#8217;t happened just yet: Since the end of June, clients have been net buyers of equities rather than sellers, according to Bank of America.



The unexpectedly&nbsp;<a href="https://www.forbes.com/sites/sergeiklebnikov/2022/08/05/stocks-fall-despite-strong-jobs-report-as-investors-fear-bigger-fed-rate-hikes/">strong jobs report</a>&nbsp;last Friday, which investors worry will embolden the Fed to continue aggressively raising rates, also signals that the “recent bear market rally” will soon come to an end, according to LPL chief global strategist Quincy Krosby.



<h2 class="wp-block-heading">WHAT TO WATCH FOR:</h2>



The optimism about inflation peaking and a looming “Fed pivot”—where the central bank pulls back from its aggressive tightening of monetary policy—is certainly “<a href="https://www.forbes.com/sites/sergeiklebnikov/2022/08/02/heres-why-more-fed-officials-are-warning-that-the-market-is-getting-ahead-of-itself/?sh=56e9a86833d1">overdone</a>,” while “nonsensical behaviors” are also returning to the market, according to Vital Knowledge founder Adam Crisafulli. Both factors should “temper” investors’ near-term enthusiasm as they suggest further downside risks—though on the bright side, the U.S. economy is proving “more resilient than it’s being given credit for.”



<h2 class="wp-block-heading">CRUCIAL QUOTE:</h2>



“Investors are increasingly in a game of tug-of-war over bullish and bearish talking points,” says Nationwide chief of investment research Mark Hackett. “Confusion is driving investor decisions,” which generally leads to “directionless volatility,” he warns.



<h2 class="wp-block-heading">TANGENT:</h2>



What can investors do if the market does hit new lows? “Use bear market rallies to raise cash and rotate into higher quality assets,” according to analysts at Bank of America. “Keep dividend and bond coupon reinvestments paused and use tax-loss harvesting techniques ahead of better buying opportunities this year.”



<h2 class="wp-block-heading">FURTHER READING:</h2>



<a href="https://www.forbes.com/sites/sergeiklebnikov/2022/08/05/stocks-fall-despite-strong-jobs-report-as-investors-fear-bigger-fed-rate-hikes/">Stocks Under Pressure Despite Strong Jobs Report As Investors Fear Bigger Fed Rate Hikes</a>&nbsp;(Forbes)



<a href="https://www.forbes.com/sites/sergeiklebnikov/2022/08/02/heres-why-more-fed-officials-are-warning-that-the-market-is-getting-ahead-of-itself/">Here’s Why More Fed Officials Are Warning That The Market Is Getting Ahead Of Itself</a>&nbsp;(Forbes)



<a href="https://www.forbes.com/sites/sergeiklebnikov/2022/08/08/bed-bath--beyond-surges-nearly-40-as-retail-traders-pile-back-into-meme-stocks/">Bed Bath &amp; Beyond Surges Nearly 40% As Retail Traders Pile Back Into Meme Stocks</a>&nbsp;(Forbes)



<a href="https://www.forbes.com/sites/sergeiklebnikov/2022/08/03/dow-jumps-400-points-as-stocks-rebound-thanks-to-solid-earnings-upbeat-economic-data/">Dow Jumps 400 Points As Stocks Rebound Thanks To Solid Earnings, Upbeat Economic Data</a>&nbsp;(Forbes)



By Sergei Klebnikov, Forbes Staff

New York Stock Exchange Opens To Begin The Week

Some Experts Are Warning Of A ‘Bear Market Rally’—Here’s Why Stocks Could Hit New Lows

<h2 class="wp-block-heading" id="h-topline">TOPLINE</h2>



Shares of Netflix surged after the closing bell Tuesday despite the streaming giant’s disclosure in its second-quarter earnings report that it lost subscribers for a second quarter in a row, as the total was lower than investors had feared—with the company optimistic about adding back subscribers later in the year.



<h2 class="wp-block-heading">KEY FACTS</h2>



Netflix’s stock jumped nearly 7% to around $215 per share in after-hours trading, with investors cheering the better-than-expected second-quarter&nbsp;<a href="https://s22.q4cdn.com/959853165/files/doc_financials/2022/q2/FINAL-Q2-22-Shareholder-Letter.pdf" target="_blank" rel="noreferrer noopener">earnings report</a>.



The streaming giant reported that it lost 970,000 subscribers in the latest quarter—significantly less than the company’s previous forecast of losing 2 million subscribers—and management remains optimistic about adding back customers later in the year.



Analyst estimates for Netflix’s second-quarter subscriber loss had ranged from as much as 4 million subscribers to as little as 1.5 million, with some analysts citing the strong performance of season four of&nbsp;Stranger Things, which was Netflix’s most watched English-language show yet.



Investors were hoping for an improvement after a dismal first quarter, when Netflix reported its first subscriber loss in more than a decade (losing 200,000 customers) and shares&nbsp;<a href="https://www.forbes.com/sites/sergeiklebnikov/2022/04/19/netflix-shares-plunge-over-20-after-company-says-it-lost-subscribers-for-the-first-time-in-10-years/?sh=6c6311101650">plunged 35%</a>&nbsp;in one day.



Netflix reported mixed financial results for the second quarter: Earnings came in above Wall Street expectations, though revenue was weaker-than-expected at $7.97 billion versus a consensus analyst forecast of $8.04 billion, according to Refinitiv.



In order to offset recent slowdowns, Netflix is looking to introduce a cheaper ad-supported subscription plan, announcing last week that it will be partnering with Microsoft in order to do so—but Netflix COO Greg Peters said that the project is still in “very early days.”



<h2 class="wp-block-heading">CRUCIAL QUOTE:</h2>



“There’s very little not to like,” says Charles Lemonides, founder and chief investment officer of ValueWorks. “These results read like the negative news was just a tiny blip in the long-term growth story.” He remains highly bullish on the company, which he argues is still the “strongest streaming platform with the greatest ability to spend dollars on creating new content—and that’s a tough position to compete with.”



<h2 class="wp-block-heading">KEY BACKGROUND:</h2>



Netflix’s stock has cratered roughly 70% this year. Like other tech stocks, Netflix shares were especially hard-hit by concerns over surging inflation and rising rates, but a significant portion of the company’s recent struggles have revolved around slowing subscriber growth, which has spooked investors. Netflix&nbsp;<a href="https://www.forbes.com/sites/sergeiklebnikov/2022/04/19/netflix-shares-plunge-over-20-after-company-says-it-lost-subscribers-for-the-first-time-in-10-years/?sh=6c6311101650">lost 200,000 subscribers</a>&nbsp;globally in the previous quarter—far below the 2.7 million additions expected, which prompted a&nbsp;<a href="https://www.forbes.com/sites/sergeiklebnikov/2022/04/20/netflix-stock-crash-growth-story-is-dunzo-for-now-as-analysts-slash-outlooks/?sh=249317dd5187">wave of downgrades</a>&nbsp;from Wall Street analysts at the time.&nbsp;



<h2 class="wp-block-heading">WHAT TO WATCH FOR:</h2>



“While a meaningful 2Q or 3Q subscriber beat or miss might temporarily move Netflix shares post-earnings, we expect shares will revert to their trading range as visibility will remain low and the company’s pivot to advertising does not even begin in earnest until late 2022,” Credit Suisse analyst Douglas Mitchelson wrote on Tuesday.



<h2 class="wp-block-heading">FURTHER READING:</h2>



<a href="https://www.forbes.com/sites/sergeiklebnikov/2022/04/19/netflix-shares-plunge-over-20-after-company-says-it-lost-subscribers-for-the-first-time-in-10-years/?sh=3bad91591650">Netflix Loses Subscribers For The First Time In Ten Years, Shares Plunge 35%</a>&nbsp;(Forbes)



<a href="https://www.forbes.com/sites/sergeiklebnikov/2022/04/20/netflix-stock-crash-growth-story-is-dunzo-for-now-as-analysts-slash-outlooks/?sh=4629f9e45187">Netflix Stock Crash: Growth Story Is &#8216;Dunzo For Now&#8217; As Analysts Slash Outlooks</a>&nbsp;(Forbes)



<a href="https://www.forbes.com/sites/annakaplan/2022/07/13/netflix-partners-with-microsoft-for-ad-supported-service-amid-subscriber-losses/?sh=5825950b7ee9">Netflix Partners With Microsoft For Ad-Supported Service Amid Subscriber Losses</a> (Forbes)



By Sergei Klebnikov, Forbes Staff

In this photo illustration the Netflix logo seen displayed

Netflix Shares Jump Over 6% After It Reports Smaller Subscriber Loss Than Forecast

<h2 class="wp-block-heading" id="h-topline">TOPLINE</h2>



Stocks fell in volatile trading on Thursday, wrapping up their worst first half of a year since at least 1970 as the S&amp;P 500 remains in bear market territory, with investors continuing to sell off shares amid rising recession fears sparked by surging inflation and rate hikes from the Federal Reserve.



<h2 class="wp-block-heading" id="h-key-facts">KEY FACTS</h2>



Stocks finished lower: The Dow Jones Industrial Average fell 0.8%, over 200 points, while the S&amp;P 500 lost 0.8% and the tech-heavy Nasdaq Composite 1.3%.



With the second quarter wrapping up on Thursday, stocks posted their worst three-month period since the first quarter of 2020, when Covid pandemic lockdowns sent the U.S. economy into a brief recession.



The stock market also closed out its worst first half of a year in over 50 years, as surging inflation, rate hikes from the Federal Reserve and Russia’s war in Ukraine have all led to rising recession fears.



With the S&amp;P 500 down roughly 21% so far in 2022, the last time the stock market declined by that magnitude in the first six months was in 1970—but stocks reversed losses later that year and gained 26.5% over the following six months.



The market turmoil in 2022 has been widespread: The price of cryptocurrencies like bitcoin have crashed over 50%, while Big Tech stocks such as Alphabet, Apple, Facebook-parent Meta and Netflix have all lost a fifth in value—if not more, in some cases.



Despite the broad selloff this year, energy stocks like Occidental Petroleum (up 100%) have&nbsp;<a href="https://www.forbes.com/sites/sergeiklebnikov/2022/06/30/warren-buffetts-favorite-stock-soars-netflix-fumbles-these-are-the-best-and-worst-performing-stocks-of-2022/?sh=31ed863e70e2">notably outperformed</a>, along with some healthcare and consumer names such as pharmaceutical giant Bristol-Myers Squibb and beer company Molson Coors (both up around 20%).



<h2 class="wp-block-heading" id="h-crucial-quote">CRUCIAL QUOTE</h2>



“A global central bank effort to fight inflation is driving rising recession fears that have given Wall Street the worst half of the year since 1970,” says Edward Moya, senior market analyst at Oanda. “Added volatility from the final trading day of the quarter is especially crazy because so many investors are rebalancing their portfolios with recession stocks.”



<h2 class="wp-block-heading" id="h-tangent">TANGENT:</h2>



Cruise stocks were among the biggest decliners on Thursday, a day after Morgan Stanley&nbsp;<a href="https://www.forbes.com/sites/sergeiklebnikov/2022/06/29/carnival-shares-plunge-nearly-15-as-morgan-stanley-warns-of-potential-stock-wipeout/">warned</a>&nbsp;of weak demand and rising costs in the industry, with shares of Carnival, Royal Caribbean and Norwegian Cruise Line all losing 2% or more. Retail stocks were also hard-hit, following a dire profit warning from furniture chain RH.



<h2 class="wp-block-heading" id="h-surprising-fact">SURPRISING FACT</h2>



It took the stock market just 161 days to fall from its peak in January to a 20% decline threshold in June—well below the average time of 245 days in past bear markets, according to data from CFRA Research. Some experts say that could well be “<a href="https://www.forbes.com/sites/sergeiklebnikov/2022/06/30/warren-buffetts-favorite-stock-soars-netflix-fumbles-these-are-the-best-and-worst-performing-stocks-of-2022/?sh=31ed863e70e2">good news</a>” for markets, as a quicker descent into a bear market often tends to mean more “shallow” declines followed by an eventual rebound.



<h2 class="wp-block-heading" id="h-what-to-watch-for">WHAT TO WATCH FOR</h2>



Investors have had to “reassess valuations” given the risks of inflation, geopolitics, monetary policy and the rising risks of a looming recession, says John Lynch, chief investment officer for Comerica Wealth Management. “After a persistent march to new records last year, stocks have suffered severe technical damage that will take time to repair.”



<h2 class="wp-block-heading" id="h-further-reading">FURTHER READING</h2>



<a href="https://www.forbes.com/sites/sergeiklebnikov/2022/06/30/warren-buffetts-favorite-stock-soars-netflix-fumbles-these-are-the-best-and-worst-performing-stocks-of-2022/">Warren Buffett’s Favorite Stock Soars, Netflix Fumbles: These Are The Best And Worst Performing Stocks Of 2022</a>&nbsp;(Forbes)



<a href="https://www.forbes.com/sites/sergeiklebnikov/2022/06/29/stocks-are-crashing-but-history-shows-this-bear-market-could-recover-faster-than-others/">Stocks Are Crashing But History Shows This Bear Market Could Recover Faster Than Others</a>&nbsp;(Forbes)



<a href="https://www.forbes.com/sites/sergeiklebnikov/2022/06/29/carnival-shares-plunge-nearly-15-as-morgan-stanley-warns-of-potential-stock-wipeout/">Carnival Shares Plunge Nearly 15% As Morgan Stanley Warns Of Potential Stock Wipeout</a>&nbsp;(Forbes)



<a href="https://www.forbes.com/sites/sergeiklebnikov/2022/06/28/dow-plunges-nearly-500-points-recession-fears-resume-as-consumer-confidence-hits-new-low/">Dow Plunges Nearly 500 Points, Recession Fears Resume As Consumer Confidence Hits New Low</a> (Forbes)



By <a href="https://www.forbes.com/sites/sergeiklebnikov/"></a>Sergei Klebnikov, Forbes Staff

Markets Open After Falling More 800 Points On Tuesday

Stocks Close Out Worst First Half Of A Year Since 1970

Topline:&nbsp;Following his annual letter to Berkshire Hathaway shareholders over the weekend, billionaire investor Warren Buffett told CNBC in an&nbsp;<a href="https://www.cnbc.com/2020/02/24/warren-buffet-interview-live-updates.html" target="_blank" rel="noreferrer noopener">interview</a>&nbsp;on Monday that the coronavirus is “scary stuff” for businesses and investors, but that the outbreak has “not changed” his long-term optimistic outlook on stocks.



<ul class="wp-block-list"><li>Stocks plunged on Monday, with all three major U.S. benchmark indexes <a href="https://www.forbes.com/sites/sergeiklebnikov/2020/02/24/markets-plunge-dow-drops-900-points-as-global-coronavirus-outbreak-worsens/#353cf5f46658">losing more than 3%</a>, as a rising number of coronavirus cases outside of China stoked fears that the outbreak could turn into a global pandemic.</li><li>Speaking with CNBC on Monday morning, Buffett <a rel="noreferrer noopener" href="https://www.reuters.com/article/us-berkshire-buffett/warren-buffett-calls-coronavirus-outbreak-scary-stuff-but-says-he-wont-be-selling-stocks-idUSKCN20I1AB" target="_blank">called</a> the coronavirus “scary stuff,” saying that the outbreak is now “front and center” the main threat to U.S. companies and the economy.</li><li>He further <a rel="noreferrer noopener" href="https://www.cnbc.com/2020/02/24/warren-buffett-says-us-economy-is-strong-but-a-little-softer-than-it-was-6-months-ago.html" target="_blank">warned</a> that a “very significant percentage” of Berkshire Hathaway’s businesses—it owns more than 90, from American Express and Coca-Cola to Geico and Dairy Queen—could “very well” be negatively impacted by the coronavirus, though he remains optimistic about their long-term prospects.</li><li>More broadly, Buffett said that the U.S. economy is <a rel="noreferrer noopener" href="https://www.cnbc.com/2020/02/24/warren-buffett-says-us-economy-is-strong-but-a-little-softer-than-it-was-6-months-ago.html" target="_blank">still “strong,”</a> though it had become “a little softer” than it was six months ago: “Business is down but it’s down from a very good level,” he described. </li><li>Despite the coronavirus’ impact on markets, Buffett, who is famous for his long-term  investing, <a rel="noreferrer noopener" href="https://www.cnbc.com/2020/02/24/warren-buffett-doesnt-worry-how-current-events-will-affect-the-market.html" target="_blank">said</a> that investors shouldn’t panic by selling stocks based or get caught up in “today’s headlines.” </li><li>The Oracle of Omaha actually sees a positive in the ongoing market sell-off, <a rel="noreferrer noopener" href="https://www.cnbc.com/2020/02/24/warren-buffet-interview-live-updates.html" target="_blank">telling</a> CNBC that Berkshire Hathaway would “certainly be more inclined” to buy stocks at the lower prices caused by the coronavirus.</li></ul>



 What to watch for: Buffett also <a rel="noreferrer noopener" href="https://www.cnbc.com/2020/02/24/warren-buffett-says-apple-is-probably-the-best-business-i-know-in-the-world.html" target="_blank">spoke</a> to CNBC about some of his favorite investments right now. He called Apple, which is Berkshire Hathaway’s third-largest holding (with a roughly 5.5% stake) behind insurance and railroad companies, “probably the best business I know in the world.” Buffett added that he especially likes bank stocks, which are a big part of Berkshire Hathaway’s portfolio—with big names like Goldman Sachs, JPMorgan Chase and Bank of America among its top holdings. Buffett <a rel="noreferrer noopener" href="https://www.cnbc.com/2020/02/24/warren-buffet-interview-live-updates.html" target="_blank">called</a> banks “very attractive compared to most other securities I see.”  



Surprising fact:&nbsp;Buffett also recently spoke about the coronavirus to his “science advisor,” billionaire Microsoft founder Bill Gates: “I talked to him in the last few days about it, and he’s bullish on the long-term outlook for a universal prevention of it,” he&nbsp;<a href="https://www.cnbc.com/2020/02/24/warren-buffet-interview-live-updates.html" target="_blank" rel="noreferrer noopener">said</a>.



Crucial quote: “We’re buying businesses to own for 20 or 30 years,” Buffett, who Forbes estimates has a <a href="https://www.forbes.com/profile/warren-buffett/#3a87d5e14639">net worth</a> of $87.3 billion, <a rel="noreferrer noopener" href="https://www.cnbc.com/2020/02/24/warren-buffet-interview-live-updates.html" target="_blank">said</a> on CNBC. “We think the 20- and 30-year outlook is not changed by the coronavirus.”



Key background:&nbsp;Stocks&nbsp;<a href="https://www.forbes.com/sites/sergeiklebnikov/2020/02/24/markets-plunge-dow-drops-900-points-as-global-coronavirus-outbreak-worsens/#353cf5f46658">plummeted sharply</a>&nbsp;on Monday, amid news that the coronavirus outbreak has now infected more than 79,000 people globally and killed over 2,600. The number of cases outside of China surged over the weekend, causing concern among global investors as countries like Italy, South Korea and Iran emerge as new coronavirus hot spots. The Dow Jones industrial average fell more than 1,000 points, dropping 3.5% for its worst day since February 2018. The S&amp;P 500 similarly fell 3.5%, its worst drop since October 2018. Monday’s sell-off completely erased both indexes’ gains so far in 2020. The Nasdaq Composite index, on the other hand, declined 4%.&nbsp;



Tangent:&nbsp;Buffett was also asked about U.S. politics during his&nbsp;<a href="https://www.cnbc.com/2020/02/24/buffett-on-bernie-sanders-us-can-do-better-for-those-left-behind-but-cannot-kill-capitalism.html" target="_blank" rel="noreferrer noopener">interview</a>. The billionaire investor said he would “certainly” vote for Mike Bloomberg. “I don’t think another billionaire supporting him would be the best thing to announce,” Buffet&nbsp;<a href="https://www.cnbc.com/2020/02/24/buffett-on-bernie-sanders-us-can-do-better-for-those-left-behind-but-cannot-kill-capitalism.html" target="_blank" rel="noreferrer noopener">said</a>, “but sure, I would have no trouble voting for Mike Bloomberg.” While he said he sympathizes with Democratic front-runner Senator Bernie Sanders’ (I-Vt.) message about income inequality, Buffett doesn’t think socialism is the answer,&nbsp;<a href="https://www.cnbc.com/2020/02/24/buffett-on-bernie-sanders-us-can-do-better-for-those-left-behind-but-cannot-kill-capitalism.html" target="_blank" rel="noreferrer noopener">saying instead</a>, “I don’t believe in giving up the capitalist system.”



Further reading: <a href="https://www.forbes.com/sites/sarahhansen/2020/02/22/buffetts-letter-to-berkshire-shareholders-reveals-5-billion-in-stock-buybacks-and-plans-for-his-berkshire-stake/#140c5c2d39d4">Buffett’s Letter To Berkshire Shareholders Reveals $5 Billion In Stock Buybacks And Plans For His Berkshire Stake</a> 



&#8211;<a href="https://www.forbes.com/sites/sergeiklebnikov/">Sergei Klebnikov</a>, Forbes Staff, <a href="https://www.forbes.com/markets">Markets</a>.

Conference On Issues Affecting U.S. Capital Markets Competitiveness

Here’s What Warren Buffett Says About The Coronavirus And His Outlook On Stocks

Traders will be glad to see the back of 2018. Nearly $7 trillion has been wiped off world stocks, emerging markets have been trampled flat by a charging dollar and even gold and U.S. government bonds have lost money. 



A grisly combination of U.S.-China trade tensions, central banks turning off the money taps and cooling growth in former hot spots has wiped 10 percent off MSCI’s 47-country world stocks index .MIWD00000PUS — its first double-digit loss in any year since the 2008 global financial crisis.



Many places have fared far worse. Top Chinese shares&nbsp;<a href="https://www.reuters.com/finance/markets/index?symbol=.CSI300">.CSI300</a>&nbsp;have fallen 25 percent into &#8216;bear&#8217; territory, export bellwether Germany&nbsp;<a href="https://www.reuters.com/finance/markets/index?symbol=.GDAXI">.GDAXI</a>&nbsp;has shed 16 percent, and Turkey and Argentina have led emerging markets losses, down 45 and 50 percent respectively.



Add in a wild 35 percent plunge in oil prices LCOc1 since September, rises in Italian, Greek and now French borrowing costs that show euro zone worries remain alive, and a full scale cryptocurrency collapse, and it has been unequivocally brutal.



“After 10 years of low interest rates and quantitative easing I think we have to understand how some of this leverage in the market can unwind,” said Allianz Global Investors fund manager and global strategist Neil Dwane.



“What was a virtuous circle on the way up can become a vicious one on the way down.”



A fair bit of the year’s pain has stemmed from swift move up in U.S. interest rates and a pumped-up dollar .DXY, which has had its best year in three years.



As a result, the euro&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=EUR&amp;destCurr=USD">EUR=</a>, pound&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=GBP&amp;destCurr=USD">GBP=</a>, Canadian and Aussie dollars&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=CAD&amp;destCurr=USD">CAD=</a><a href="https://www.reuters.com/finance/currencies/quote?srcCurr=AUD&amp;destCurr=USD">AUD=</a>&nbsp;and Swedish crown&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=SEK&amp;destCurr=USD">SEK=</a>&nbsp;have all lost between 5 and 10 percent and though the Japanese yen&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=JPY&amp;destCurr=USD">JPY=</a>&nbsp;comes out largely unscathed, emerging markets certainly haven&#8217;t.



Argentina&#8217;s peso&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=ARS&amp;destCurr=USD">ARS=</a>&nbsp;and Turkey&#8217;s lira&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=TRY&amp;destCurr=USD">TRY=</a>&nbsp;have slumped 50 and 30 percent, while India&#8217;s rupee&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=IDR&amp;destCurr=USD">IDR=</a>, South Africa&#8217;s rand&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=ZAR&amp;destCurr=USD">ZAR=</a>, Brazil&#8217;s real&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=BRL&amp;destCurr=USD">BRL=</a>&nbsp;and Russia&#8217;s rouble&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=RUB&amp;destCurr=USD">RUB=</a>&nbsp;are all down between 10 to 15 percent. China&#8217;s yuan CNYUSD=R is in the red for a fourth year in five.



Emerging market shares meanwhile have hemorrhaged almost 17 percent .MSCIEF and JP Morgan&#8217;s EM local currency bond index has lost nearly 8 percent.&nbsp;<a href="http://tmsnrt.rs/2egbfVh">tmsnrt.rs/2egbfVh</a>



Dalton Investments emerging market portfolio manager Pedro Zevallos said the big falls meant many markets, including China were now cheap. “But right now it honestly feels like catching a falling knife.”



“And my concern going into next year is that the dollar will continue to strengthen.”



<h5 class="wp-block-heading">TECH PROBLEMS</h5>



As well as the escalation in global trade tensions this year there has been the realization among investors that the big central banks aren’t thinking about stimulating the economy anymore — they’re trying to rebuild their arsenals in case of recession.



But the year hasn’t been a complete write-off everywhere.



While the S&amp;P 500 and Dow Wall Street bellwethers are down the most since 2008, at around 5 percent their losses aren’t too bad, while the tech-heavy Nasdaq .NDX is clinging on for its 10th consecutive year of gains.



The FAANGs (Facebook, Amazon, Apple, Netflix and Google) have had rollercoaster year. As a group, they are ending 2018 worth roughly $2.8 trillion — more or less where they started it, but down some $800 billion or 24 percent from their late August peak.



There has been a big parting of the ways too. While Amazon (<a href="https://www.reuters.com/finance/stocks/overview?symbol=AMZN.O">AMZN.O</a>) and Netflix (<a href="https://www.reuters.com/finance/stocks/overview?symbol=NFLX.O">NFLX.O</a>) have surged 33 and 45 percent, repeated scandals over data misuse and fake news propagation have slashed 19 percent off Facebook (<a href="https://www.reuters.com/finance/stocks/overview?symbol=FB.O">FB.O</a>) shares.



Asia, Europe stocks slide after Fed rate hike



Asia’s equivalent BAT group, made up of Badia (<a href="https://www.reuters.com/finance/stocks/overview?symbol=600865.SS">600865.SS</a>), Alibaba (<a href="https://www.reuters.com/finance/stocks/overview?symbol=BABA.K">BABA.K</a>) and Tencent (<a href="https://www.reuters.com/finance/stocks/overview?symbol=0700.HK">0700.HK</a>), have all down somewhere between 18 and 25 percent.



<h5 class="wp-block-heading">CRYPTOCOLLAPSE</h5>



With China also the biggest consumer of industrial commodities, its misfiring economy has contributed to the respective 17 and 23 percent declines in the price of copper CMCU3 and zinc CMZN3, used in things like pipes and galvanized steel.



The big cryptocollapse has seen Bitcoin&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=BTC&amp;destCurr=USD">BTC=BTSP</a>&nbsp;crash 72 percent. There are now over 2,000 other digital currencies in circulation but their value has plummeted to $128 billion from over $800 billion in January.



But even traditional safe-havens have failed to provide much in the way of protection.



Another four U.S. interest hikes have cost Treasury bond holders US10YT=RR nearly 2 percent despite a better last few months and the euro’s fall puts German Bunds down 2.3 percent in dollar terms. Gold is 4 percent less precious.



Italy’s government bonds meanwhile have plunged 9 percent after an anti-establishment government took charge in Rome and the European Central Bank confirmed its huge bond-buying program will end this year.



“The question as we look into 2019 and 2020 is how much worse the trade/tech cold war and Brexit get,” Allianz’s Dwayne said. “That could tells us that maybe we are not going to see a traditional downturn but a significant one.” -Reuters



&#8211; Marc Jones

gettyimages-645015088-170667a

Markets suffer worst year since global financial crisis

It’s 5AM in the northern hills of Malawi where its tobacco is grown. Chifundo Ndilowe is awake and ready for the day. Dressed in grey shorts and a blue NBA vest, still filthy from yesterday’s long day on the farm, Ndilowe has hours of hard labor ahead. He is just 15 years old and has been planting and picking tobacco since he was 10.
“I came here in 2011 because rural life is hard. We were battling at home and I had to start contributing for us to survive. I stopped going to school to work. It is very tough working under these conditions because it is hot and we easily get tired and I am often sick,” he says.
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Ndilowe moved 567 kilometers from Mulanje to Mpherembe, 300 kilometers north of Malawi’s capital, Lilongwe, to work in a tobacco farm five years ago. It means long hours, missing school and breaking the law for little pay. He earns a little more than $140 and $280 a year depending on the harvest.  That’s less than $1 a day.
“We work for the year and only get paid after harvest. During the year, we get 20 kilograms of maize for 12 days because we don’t grow crops for consumption. They also give us salt and then we have to figure out the rest ourselves. I get to eat once a day and I take whatever is there,” he says.
Ndilowe is just one of an estimated 800,000 youngsters in the tobacco fields; voices that are seldom heard. One of an army of children who sweat for millions of cigarettes lit all over Africa.
A study on child labor in the tobacco industry in two areas of Malawi, Suza in the Kasungu district and Katalima in the Dowa district, found 57% of all children were being used as child labour in the tobacco fields.
George Kube, an adult tobacco worker, works with Ndilowe and two other children.
“There is no money for the children to go to school and if they don’t work to help we wouldn’t survive. We farm on two acres of land and the produce is auctioned to tobacco companies. You have to be very strong if you are going to do this job because sometimes we have to cut down trees and look for water,” says Kube.
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A study, published by the British Medical Association, says contract farmers, like Kube and Ndilowe, cultivating tobacco in Malawi, live below national poverty lines, while independent farmers operate at a loss.
“Even when labor is excluded from the calculation of income less costs, farmers’ gross margins place most households in the bottom income [groups] of the overall population. Tobacco farmers appear to contract principally as a means to obtain credit, which is consistently reported to be difficult to obtain,” says the study.
Tobacco farmers may struggle to make a living but tobacco manufacturers thrive. The world tobacco industry is worth billions of dollars. Cigarette retail values in 2014 were worth $744 billion and over 5.6 trillion cigarettes were sold to more than one billion smokers according to the Campaign for Tobacco-Free Kids. But, very few farmers make money from it.
The market is controlled by a few international companies; China National Tobacco Corporation, Philip Morris International, British American Tobacco, Japan Tobacco International and Imperial Brands. They buy tobacco from cheap emerging markets, like Malawi, for profit.
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For years, governments around the world have been trying to clamp down on smoking because of its health implications, through stringent laws and higher taxes, yet tobacco use is increasing in some countries, says Zambian economist Grieve Chelwa.
“African incomes have been rising over the last couple of years and we know that tobacco consumption responds to rising incomes. Further, tobacco companies have put in place strategies (subtle advertising) to take advantage of rising incomes.”
And they flourish.
This year, British American Tobacco (BAT) announced its revenue went up 8.1% at constant rates of exchange, cigarette volume from subsidiaries was 497 billion, up by 2.2%, cigarette market share in key markets increased by 40 basis points and its brands performed exceptionally well with cigarette volume up 9.8% year ending September 30.
BAT plans to merge with its US partner R.J. Reynolds Tobacco Company, the company behind the famous camel cigarette brand, in a deal valued at $47 billion. It hopes to create a stronger global presence and move into new ventures like e-cigarettes.
<div id="attachment_5471" style="width: 310px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-5471" class="size-medium wp-image-5471" src="/wp-content/uploads/2017/05/Grieve_Chelwa_picture-300x300.jpg" alt="" width="300" height="300" />Grieve Chelwa</div>
In its third quarter, Philip Morris International reported net revenues of $19.9 billion, up by 2.6%, net revenues, excluding excise taxes, of $7 billion, up by 0.8%, operating income of $3 billion, up by 0.6%, and operating company’s income of $3.1 billion, up by 1.2%. In Africa, companies thrive because of weak regulation.
The World Health Organization (WHO) has a 75% benchmark of tax on the retail price, yet the African average is way below. Nigeria taxes cigarettes at only 20% of the retail price. Chelwa says ideally increasing taxes to reduce tobacco use should work anywhere because of the law of demand, increasing price reduces demand.
“But, the important point is the increases have to be real-inflation adjusted increments,” he says.
In Africa, high tobacco taxes are rare. WHO says only 33 countries, with 10% of the world’s population, have introduced taxes on tobacco products of more than 75%. Tobacco tax revenues are on average 269 times higher than spending on tobacco control.
Tobacco companies are also good at finding new markets, with new smokers and weak regulations. According to an article published by The Lancet, a UK medical journal, tobacco use is declining in higher income countries, but nearly 80% of the world’s smokers live in low and middle income countries.
“Tobacco control regulations are not strong across most of the continent. Countries have ratified the Framework Convention on Tobacco Control (FCTC) but that’s all they have done. And sadly the tobacco industry is an important player in the setting of tobacco control policy in most African countries,” says Chelwa.
For years, tobacco companies argue they market merely to convince smokers to switch brands, but evidence published by the National Center for Biotechnology Information shows advertising drives smoking.
<div id="attachment_5483" style="width: 310px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-5483" class="size-medium wp-image-5483" src="/wp-content/uploads/2017/05/Christo-van-Staden-142-300x200.jpg" alt="" width="300" height="200" />Christo Van Staden</div>
According to a WHO study, smoking has increased in 27 countries over the past 15 years. Seventeen of these are in Africa. In Cameroon, smokers more than doubled from 7% in 2000 to 22% last year. Congo-Brazzaville has seen the biggest spike. Nearly half of Congolese men smoke. Last year, 22% of its people admitted to smoking regularly, up from 6% in 2000.
“Only 42 countries, representing 19% of the world’s population, meet the best practice for pictorial warnings, which includes the warnings in the local language and cover an average of at least half of the front and back of cigarette packs,” says WHO.
In South Africa, cigarette advertising is banned. There are also restrictions on point of sale product display, vending machines and sponsorship of events, activities, individuals, organizations or governments. Now, Health Minister Aaron Motsoaledi has pledged to take it further by strengthening the Tobacco Products Control Act.
Motsoaledi says there should be no branding, no logos and no colors on cigarettes to discourage smoking. If the law is introduced, all cigarettes will be in a brown package with graphics that show the damage they can cause.
This is worrying for the tobacco industry. Christo van Staden heads the only primary tobacco processing factory in South Africa, Limpopo Tobacco Processors, that processes 12 million kilograms of tobacco. He says the effects could be catastrophic.
“The biggest impact [of tougher regulations] is the increase in illicit cigarettes which is a huge dent in the business of BAT and in the whole market. About 20 to 30 percent of cigarettes in Gauteng are illicit and they are paid way below the price,” he says.
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As we meet, in Rustenburg, a two-hour drive from Johannesburg, Van Staden’s farmers have lost 30 hectors of tobacco to a passing storm. On this day, the sun blazes down from a cloudless azure sky. A sprinkler keeps the glossy lawns and flowers alive. Inside the factory, it is dark and you can hear a pin drop. The silence is almost tangible. There is no bustle and machines that usually crackle stand still. It is not tobacco season. All employees are upstairs in the offices working. Dressed in khaki shorts and shirt, Van Staden says tobacco farming is hard.
“For every hector, you need two people to work there and pick it by hand, it is very expensive. One hector costs about R130,000 ($9,500) to plant and the farmer needs to make at least 20 to 25 percent profit. Last year was a very tough year. There were very tough conditions and an average farmer did not make any profit at all.”
“Now they are supporting the local market but if they don’t get any benefit out of that, they have to compete with everyone else in plain packaging, then there is no reason for them to buy South African tobacco, they will literally walk out of here overnight and source their product from Brazil, India and China where they can buy a lot cheaper. We are not ready for that. We would close these doors,” he says.
For Van Staden, closing doors means 10,000 farmers lose their income. He thinks there should be more education about the dangers of tobacco and efforts to keep youngsters away from smoking.
“I am a non-smoker and will not advise anyone to smoke. Most of my staff members don’t smoke. Unfortunately, people smoke everyday but see the warning on the packets and turn a blind eye.  Because it’s such an unhealthy product, the governments around the world will try and eradicate it but I don’t think it will happen in the next 20 years. There are laws in this country that allow people to smoke and to close down the primary sector is not going to stop smoking overnight,” adds Van Staden.
South Africa will follow the UK, Ireland, Australia and France in banning branded packaging.
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In Uganda, 4,800 kilometers from South Africa, it’s even tougher. If you light up in bars, restaurants or hotels, you will be fined $60 or jailed for up to two months. Smokers must be at least 50 meters away from public spaces, such as schools, hospitals and taxi ranks.
Uganda’s new laws also ban the sale of electronic cigarettes, flavored tobacco for water pipes, the sale of single cigarettes and tightened rules on labeling, advertising and selling tobacco to under-21s.
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“We are strongly opposed to plain packing as we feel that there hasn’t been enough consultation and research on it. Our concern is the serious adverse consequences that it will have on the economy, jobs and investment; as well as potentially making counterfeit easier. It trounces fundamental intellectual property rights and freedoms guaranteed by the constitution,” says Joe Heshu, Acting Head of External Affairs at BAT.
According to Heshu, counterfeit cigarettes are a bigger issue. In 2015, South Africa’s Treasury lost R5.1 billion ($373 million) due to illicit trade. The trade accounts for about 24% of the market.
South Africa has been increasing tobacco taxes since 1994 and the big impact has been the reduction in consumption and prevalence, but Chelwa agrees there has been a minimal impact of the taxes on illicit trade.
“Illicit trade often has to do with tax administration and not taxes. Even if taxes were a cent, you’d still have illicit trade showing that it is not a tax level or tax rate issue but a tax administration issue,” he says.
On jobs, Chelwa argues “there are very few tobacco manufacturing jobs, very few given how mechanized manufacturing of cigarettes is.”
The big worry he says is in the field.
“Governments have to consciously find ways of transitioning tobacco farmers into growing other types of crops. This will require a lot of work,” says Chelwa.
Asked if he thinks cigarettes are killers, Heshu argues his company has launched e-cigarettes, which are supposedly less harmful products, in the UK, France, Germany, Italy and Poland.
“We are committed to the research and development of Next Generation Products (NGPs) and globally have invested over half a billion pounds during the past five years. There is a growing body of evidence that NGPs do pose significantly fewer risks than cigarettes.”
For now, tobacco companies continue to thrive. Only 29 countries, representing 12% of the world’s population, have completely banned all forms of tobacco advertising, promotion and sponsorship, according to WHO.
Some of Malawi’s tobacco, grown by the likes of Ndilowe and Kube, is shipped 2,000 kilometers south of Mpherembe. In South Africa, 19% of the population, over the age of 15, smokes according to the World Bank. That’s almost one in five people and it is dangerous.
Tobacco is responsible for six million deaths each year. Of those, 600,000 die from the effects of second-hand smoke. This number is expected to increase to eight million by 2030 if current trends continue, says WHO.
Alexandra chain smoker, Mpho Ndlovu, knows this, yet he goes through three packs of cigarettes a day.
“I have been smoking since I was 15. It started as just playing with friends at school because we knew we weren’t allowed to. It was a way of being cool. I got hooked and have been smoking for 40 years,” says Ndlovu.
What started as a game became a habit and then an addiction.
“Smoking helps me when I’m nervous and I just enjoy it. I have tried to stop many times but have failed. I know this might one day kill me but, at this point, there is nothing I can do.”
Ndlovu spends R110.50 ($8) per day on cigarettes. That’s R766.50 ($56) per week and R3,066 ($225) per month and R36,792 ($2,700) per year and R183,960 ($13,500) in five years. If he continues smoking the same number of cigarettes per day for another 40 years, at this current price, he will spend around $100,000 on cigarettes. If invested, he could buy a house.
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Ndlovu spends close to half of his R7,000 ($500) salary he makes working as a driver for a logistics company in Sandton.
“By the last week of the month, I would be out of money and sometimes I have to ask people if I can borrow or take some on credit from the spaza shop,” he says.
“When I smoke, especially on weekends, I drink as well. So the money I earn is never enough. My children get angry because they think I should be using the money on them. I don’t know how to stop.”
Ndlovu buys his cigarettes from Ntando Debeza, a hundred metres from his home.
Debeza’s spaza shop sells cigarettes, pipe tobacco, snuff, chewing tobacco, hookah and shisha.
“I make about R6,000 ($440)  a month from this small shop. Most of the money comes from tobacco sales but I also sell other day-to-day products like bread and milk. People come to buy and sometimes on credit and I collect money at the end of the month,” says Debeza.
This means Ndlovu’s debt grows. But, that’s not all. Smoking does not only affect the smoker. High levels of nicotine exposure from handling tobacco leaves may cause nicotine poisoning called Green Tobacco Sickness, with symptoms including nausea and vomiting.
Back in Mpherembe in Malawi, Kube says he is aware of the dangers of working in a tobacco field without protective clothing, and mostly its effects on minors. “I know children can get sick but what can we do? We need a lot of hands on the farm because this isn’t an easy crop to plant and prepare. It needs three times more people than corn but we don’t make enough money at all,” says Kube.
He is one of the few rural farmers who know this. And it gets worse. A 2009 survey in China revealed that only 38% of smokers knew that smoking causes coronary heart disease and only 27% knew that it can cause strokes.
“Among smokers who are aware of the dangers of tobacco, most want to quit. Counseling and medication can more than double the chance that a smoker who tries to quit will succeed. National comprehensive cessation services with full or partial cost coverage are available to assist tobacco users to quit in only 24 countries, representing 15% of the world’s population,” says WHO.
Cape Town-based entrepreneur Gareth Carter saw this crisis as an opportunity. He founded WeDoRecover, a company that helps patients who suffer from psychiatric and addiction problems.
“Finding the right addiction program to meet someone’s specific needs is a complex process. The crisis and chaos synonymous with active addiction are overwhelming and the multitude of choices in the marketplace adds to the confusion,” says Carter.
According to Carter, people who smoke are more likely to drink alcohol and vice versa. He says alcoholics frequently present with a co-morbid nicotine addiction.
“As many as 80 percent of people addicted to alcohol and other drugs are frequent smokers, but the bulk will die of smoking-related disease rather than alcohol and drug-related disease…”
The damage doesn’t stop there. Carter adds that major depressive episodes among adults are highest in those addicted to nicotine and lowest in those who have quit or never started smoking.
“With nearly 80 percent of the world’s one billion smokers living in low- and middle-income countries, this is a very real public health care problem for us in Africa. Making nicotine addiction prevention and treatment readily accessible to the youth counteracts a wide range of potential mental, physical and mood-disorder problems with far-reaching ramifications to families, communities and our economy,” he says.
Carter thinks if tobacco was “invented” today it would be classed with other illegal drugs. That’s not the case. The lucrative industry in Africa puffs on unfettered.

The Price  Of Puff

South Africa’s renewal of the African Growth and Opportunity Act (AGOA) with the United States (US) a few months ago seemed to be about local poultry, when in fact negotiations were about a wider range of exports from 39 predominantly sub-Saharan African countries.
All had to meet the criteria of good governance, sound democratic values and protection of property rights. Countries such as Zimbabwe and Swaziland did not make the cut. It also did not go unnoticed that sub-Saharan Africa accounts for around $1.6 trillion of Africa’s $2.4 trillion GDP. AGOA therefore gives the US economic reach into countries where it would ordinarily have no influence.
AGOA is not a gift. As South Africa discovered, its economic strength on the continent does not guarantee its AGOA membership, and the accompanying eligibility to trade at preferential rates with the US. If South Africa did not loosen its stance on the anti-dumping tariffs imposed on chicken imports from the US, it would feel the costs in more lucrative areas, such as motor vehicles and parts, and wine and citrus exports. In the end, South Africa agreed to take 65,000 tons of bone-in chicken imports per annum, free of anti-dumping duties, from the US. Concessions could, however, have been as high as 300,000 tons, threatening an industry in which almost a billion chickens are slaughtered each year for local consumption.
The arrival of 16,000 tons of US chicken, a few weeks ahead of the deadline in mid-March this year, allowed South Africa to retain its preferential access to the world’s biggest market, and benefit from the latest version of AGOA, which was extended until 2025.
The arm wrestle between the US and South Africa may have been prompted by pressures the Americans were facing elsewhere. The dollar was strong at the time and the US needed to find export markets for its chicken. There was also the issue of a trade war looming with its neighbors, Mexico and Canada, over meat-labeling legislation, where the World Trade Organization ruled in favor of these countries being allowed to retaliate with $1 billion in punitive tariffs.
Another plausible reason was Russia imposing its own sanctions on the US in retaliation for economic sanctions it suffered while attempting to Balkanize the Ukraine. With threats to its industry coming in fast and furiously, pressuring South Africa to make the concessions must have seemed an easy option.
With the focus on what concessions the South African poultry industry had to make, it was easy to lose sight of the shortcomings in South Africa’s domestic trade policy. The concessions shed light on the lackluster performance of the manufacturing sector, caused by the political economy tilting left, protectionist trade policy, restrictive regulation, and labor disruption.
The pending Private Security Bill on the local security industry, which could see 51% of US-based companies, like Chubb, G4S and ADT, sold to South African participants, was also a worry, as were plans to limit foreign ownership of property. While the knee-jerk response may have been to assume that greater local ownership translated to black economic empowerment, a more significant interpretation is that no private foreign entity has an equity interest in South Africa’s state defense and protection services, and by extension, neither should they have controlling equity interest in private security establishments.
Land restitution may also fall short of AGOA legislation. The still-to-be promulgated Regulation of Land Holdings Bill will not affect foreign ownership of residential property, but will prohibit ownership of agricultural land, which could instead be leased for between 30 and 50 years. A ceiling on land ownership would be set at 12,000 hectares, regardless of nationality.
The potential overhaul of intellectual property laws, which could impact the pharmaceutical industry, is also concerning. While it makes socio-economic sense to roll out cheap generic drugs to as many South Africans as possible, foreign-owned multi-nationals may see this as an infringement of patents on their own more expensive medication.
Although the controversy surrounding the chicken industry seems to have settled, South Africa is still vulnerable to the vagaries in US trade policy. Should the US feel aggrieved by any of its preferential offerings, they may be withdrawn much quicker than what was allowed under the older version of the agreement. South African policymakers should be more cautious when making decisions, especially those that affect US interests.

Playing Chicken  With The US

The Dar es Salaam Stock Exchange (DSE) PLC was set to list on its own main board on July 12 after raising TZS10.1 billion ($4.6 million) in an IPO. It received bids totalling TZS35.8 billion, or 4.8 times oversubscription, for its TZS7.5 billion offer of 15 million shares at TZS500 each which closed on June 3. The DSE had a “green shoe” option to take up to 10% extra and applied to Tanzania’s Capital Markets and Securities Authority to boost this to 35% with the result that it was able to take an additional TZS2.6 billion. Staff took up their full allocation of 3% of the shares.
The Tanzanian bourse is set for a boost in activity after telecoms firms were ordered to list up to 25% of their shares within six months from July 1, in terms of the government’s Finance Bill 2016 and an amended Electronic and Postal Communications Act in June. DSE CEO, Moremi Marwa, said there would be enough liquidity: “The combined 25% of all telecommunications companies’ balance sheets is about $1 billion… Our current market capitalization is TZS22 trillion and annual market turnover is exceeding TZS750 billion. Treasury bonds and bills issued per annum at DSE normally exceeds TZS2.5 trillion and they are normally oversubscribed, meaning there is more liquidity to invest in less risky assets than instruments available.”
The DSE plans to use IPO proceeds to enhance its core operating system, introduce new products and services and for “strategic and operational purposes”. One in two Tanzanians have learned to use mobile financial services, according to a FinScope survey, and investors can use phones to apply for some DSE share offers.
In May, the Botswana Stock Exchange issued a tender for its valuation as it becomes demutualized, for-profit company, BSE Ltd, and works out how to convert the proprietary rights owned by stockbrokers and its government subvention. The Casablanca Stock Exchange is also demutualizing and mulling an IPO – its shareholders include banks 39%, brokers 20% and the Caisse de dépôt et de gestion (CDG) 25%. Johannesburg and Nairobi were Africa’s first securities exchanges to complete the steps through demutualization, IPO and self-listing.
Enko Capital runs the $83-million Enko Africa Private Equity Fund, which focuses on pre-IPO investments, and says Kenyan IT company, The Copy Cat, which operates in four East African countries, and Nigerian interior design company DO.II Designs are considering IPOs. Nigeria’s government is working on privatization of eight state-owned companies: Port Harcourt Refining Company, Peugeot Automobile Nigeria, Nigerian Ports Authority, Nigerian Telecommunications, Nigerian Railway Corporation, Bank of Agriculture, Federal Airports Authority of Nigeria and the Bank of Industry.
Innscor Africa Holdings spun off and listed Axia Corporation on the Zimbabwe Stock Exchange (ZSE) in May. Axia has three operating subsidiaries – logistics and warehousing Distribution Group Africa, furniture and appliance retailer TV Sales &amp; Home, and auto spares retailer Transerv – and $40.6 million market capitalization. Innscor’s previous unbundlings and listings were Simbisa Brands in November and Padenga Holdings in 2010 as the conglomerate focuses on light manufacturing. It was the ZSE’s second listing in 2016 after GetBucks in January.
West African utility group, Eranove, postponed its IPO and listing on the Paris-based Euronext exchange. Its owners include private equity firm Emerging Capital Partners (56%) and insurer AXA (19%) and its four core subsidiaries which supply water and generate and distribute power in Côte d’Ivoire, and distribute water in Senegal.
Miguel Azevedo, Citigroup’s Head of Investment Banking Africa, says the IPO drive will continue in 2017 as capital-raising moves from debt to equity. Bond sales have been hit by rising yields and declining local currencies.
“Sometimes entrepreneurs, all they want is debt, no equity, just debt. This crisis showed them that this can be very expensive. It makes sense to bring in some more equity,” says Azevedo.
His tips for exciting industries include consumer goods, banking, power and infrastructure.
“I see the growth profile of the continent, and in the blocs, is still there. The opportunity in Africa is still there.”
He forecast that multinationals expanding in Africa would aim to take significant positions in companies, rather than outright purchases.
“The base case is buying around 50% with an agreement to buy the remainder.”
Private equity will remain very active and there could be more consolidation among leading firms.

Entrepreneurs Move  From Debt To Equity

Retail and consumer markets are buoyant in developing countries throughout the globe. Personal incomes in many of these regions have increased steadily over the years, prompting the emergence of a growing middle class. Africa is no different. According to World Bank estimates, our continent is home to more than a billion people, a figure expected to increase to more than 2.5 billion by 2050. Perhaps, more crucially Africa has one of the fastest growing youth populations in the world.
PwC recently released a report, So Much in Store, which is an in-depth study into sub-Saharan Africa retail and consumer goods industries. The findings are compelling. The report provides a five-year outlook by focusing on 10 African economies that PwC believes offer substantial opportunities for retail and consumer businesses looking to expand into African markets. These countries include: Cameroon, Ethiopia, Kenya, Nigeria, Tanzania, Zambia and Côte d’Ivoire. Despite a slowing Chinese economy, and subsequent lower commodity prices, having a knock-on effect on real GDP growth in a number of African economies, there appears to be a silver lining. African economies predominantly reliant on commodities are beginning to diversify.
The growing consumption of the middle class in Africa has been driven by several key factors, such as: an increase in internet usage and accessibility; ubiquitous use of social media; private healthcare; and budding retail property developments (malls). Consumers in sub-Saharan Africa in particular are becoming more brand conscious and aspirational; they are willing to satisfy their needs and wants at a whim provided they can afford it.
“Africans are becoming more connected to global trends than ever before as a result of growth in internet penetration and travel,” says Anton Hugo, PwC Africa Retail and Consumer Industry Leader.
There’s been a spike in the level of consumer discernment when it comes to their purchasing decisions, thereby stimulating retailers to create new products to meet this demand.
One issue highlighted by PwC is that there are several misconceptions about doing business in Africa. Like going into any new business venture, there’s no such thing as a one-size-fits-all approach. Firstly, Africa is home to more than 50 countries, with even more languages, including indigenous dialects. It’s integral that companies seeking to enter African markets get their hands dirty, on the ground, to gain an understanding of the region. A business can ill-afford going into any part of Africa with preconceived notions. Instead, firms should take the approach of immersing themselves into the culture of the local people to understand the dynamics of business in that country.
In addition, having the right strategy cannot be over-emphasized. Strategy can strengthen or decimate a business in an instant. Some firms fail to recognize a strategy that has been successful in South Africa, for example, does not necessarily translate to success in other African countries. Firms must formulate a unique and well-thought strategy for the different markets it aims to enter to avoid becoming another casualty, similar to Woolworths in Nigeria.
Despite the varying challenges that are slowing growth in the retail and consumer businesses in Africa, the PwC report assures companies that the opportunities far outweigh the impediments. There are enormous opportunities yet to be realized: retail trade in Africa is still largely concentrated in informal markets; the online retail industry is still in its infancy and intra-African trade is incredibly low.
“Each country in Africa has its own value proposition. Smart investing in Africa means investors need to understand key regions and local markets. Furthermore, investors need to note that there are specific risk factors underlying the development of Africa. Despite these risks, investors and retailers will continue to see the African market as a huge opportunity,” says Hugo.
When opportunities aren’t realized, they remain idle. Development in Africa and expanding African retail and consumer businesses in Africa will require collective action from business and governments. Governments need to invest in infrastructure, such as transport networks, in order to open more markets.
It will be interesting to witness the progress of the African retail and consumer business sector in the next five years. The odds are in its favor; now let’s see whether it can thrive.

Opportunities must be seized

As international investors became more familiar with the continent, international listings and debt offerings by African companies increased as the need for capital to power investments intensified. Record low interest rates globally created an issuer-friendly debt market over the past five years, while foreign equity markets also made it easy for African companies to list. By 2013, over 100 sub-Saharan focused entities were represented on the London Stock Exchange (LSE), with a total market capitalization of $70 billion which accounted for roughly 5% of Africa’s total market capitalization.
This year, the much anticipated listing of Dangote Cement on the LSE is expected to be the latest African-based issuer. As a result of this trend, many emerging market equity players have come to prefer gaining exposure to African companies via developed world exchanges as opposed to investing via the issuer’s local bourse.
Nonetheless, due to the increase in interest rates in the United States (US) and subsequent weakening of local currencies relative to the US dollar and other major funding currencies, this trend is likely to dissipate this year as repayment of foreign currency denominated bonds has become more expensive. Moreover, the implosion of developed equity markets means investor appetite for international listings may not be sufficient. For this reason, since raising capital is a continuous process, this could the perfect opportunity for Africa’s capital markets to rise up and lure more African companies from the grip of international bourses. London has remained a leading destination for African companies listing abroad for over 60 years, according to LSE. Needless to say, work is clearly cut out for the more than 23 African stock exchanges to improve their platforms to succeed in this.
Perhaps the place to start is solving the challenges of illiquidity, high trading costs and small-sized markets. In my view, the last two require the integration of regional stock exchanges, such as what has been done successfully by the BRVM in West Africa and what the East African Community (EAC) is seeking to do. In this regard, the Johannesburg Stock Exchange (JSE) could consider relaunching the Africa Board, implementing the lessons learned from the initial failed attempt in 2009. Considering the economic size of many African nations, it’ll be very expensive to operate such an exchange.
On illiquidity, there will be need for more investor education and more listings for change to occur. Surely, something is not right when the second biggest equity market in sub-Saharan Africa, Nigeria’s stock market, has a daily turnover of less than $30 million. The Nairobi Securities Exchange has 61 listings, but just 10 of those constitute roughly 90% of its annual markets liquidity. Further progress would also require African countries to harmonize their trading laws and accounting standards, set up convertible currencies and establish free trade among members.
Despite this, African capital markets have been growing and gaining recognition over the years. At the end of 2015, total market capitalisation stood at $1 trillion, up from $113 billion in 1992. African equities are now included in emerging frontier indices and Africa-focused benchmarks indices, such as the Russell Frontier Index (RFI), MSCI Emerging Markets Africa (excluding South Africa) Index, S&amp;P Africa Frontier, S&amp;P Pan Africa, and FTSE ASEA Pan Africa Index. According to PwC’s recent 2015 Africa Capital Markets Watch, over the past five years alone, there were more than 100 initial public offers (IPOs) and 336 further offers (FOs), raising a total of $41.3 billion. Furthermore, African equity markets have seen a surge in Africa-focused equity funds, such as JPMorgan’s Africa Equity Fund and the Old Mutual African Frontiers Fund, which invest directly in equity and equity-related securities of companies domiciled or listed on an African exchange.
Given Africa’s economic prospects and volatility in global capital markets, now is the time for Africa to establish its exchanges in order to offer its home-grown enterprises the services that they need, while also tapping into the growing portfolio allocations toward the continent. For Africa to emerge as an important player in the world of capital markets, a well-established capital market is necessary to provide a better alternative to its well-known rivals.
They say a journey of thousand miles start with a step – thankfully Africa has already made several steps and is closer to its destination.

On The Right Path

Private equity firms are becoming increasingly important in investing in thriving businesses and contributing to the development of African consumer markets. Numerous industry analysts are predicting that 2016 will see significant growth in this industry throughout sub-Saharan Africa as investors seek alternative asset classes to generate robust returns.
The private equity industry in South Africa has seen steady growth over the past decade and has attracted the cream of the crop of the banking sector, including investment bankers, merger and acquisition executives, management consultants and asset managers to name a few. Over the years, the number of these individuals who’ve elected to join private equity firms has increased. The audacious among them have opted to set up their own private equity funds to have autonomy over their investment strategies. The growing demand to recruit these executives, coupled with the increase in new private equity start-ups, indicates growth prospects for the industry at large. It also helps that the industry offers attractive remuneration packages and prestige that will elevate their career profile.
The Southern African Venture Capital and Private Equity Association (SAVCA) contends that although “&#8230;private equity is still under-represented in sub-Saharan Africa, the asset class presents an opportunity for investors to invest in a region that is experiencing strong economic growth and which is generating robust returns.” Some surveys have gone as far as predicting that around 80% of investors expect African private equity to outperform the African listed equity market in the next decade. This is a bold prediction, but one which cannot be dismissed.
Recent stats of the South African private equity industry are compelling. SAVCA reported in their latest RisCura-SAVCA South African Private Equity Performance Report that, “by mid-year 2015, the South African private equity industry delivered a ten-year internal rate of return (IRR) of 21.7%, up from 20.5% in March 2015. This performance compares with the 17.1% return from the FTSE/JSE All Share Total Return Index (ALSI) over the equivalent ten-year period.”
The reality of the matter is that the fast-growing African region presents countless opportunities for businesses and investors alike. When economies experience tangible growth they enable other industries and sectors to expand via the multiplier effect. For instance, Africa presently requires extensive investments in infrastructural development, energy, entrepreneurial support, skills development, research and development, and numerous others to drive economic growth.
Take a look at the need to improve transport infrastructure throughout Africa for instance. The construction of road networks, together with the upgrading of ports and airport facilities, will be done by engineering and construction firms. Some of these firms will be based in Africa and will require private equity partners that can provide the necessary financial and human capital support. Through this support, firms will have the backing and potential to grow exponentially.
The South African private equity market amounts to R170 billion ($10 billion) in assets under management, and although this may not typically appear large when contrasted with other asset classes, it is significant in the context of a niche asset class. SAVCA believes that the industry is maturing and this is demonstrated by the emergence of specialist private equity funds which are dedicated to focused industries or sectors depending on the scale of the fund. In addition, South African-managed funds have broadened their focus by exploring investments outside the country, indicating that the South African private equity market has developed over the years.
In the past, the private equity industry was largely concentrated in the developed markets in the United States and Europe. However, a number of emerging markets, such as South Africa, have seen significant growth over the past decade and, if future projections are anything to go by, the trend seems likely to continue.
Africa is teeming with opportunities for businesses to expand and private equity firms are the formidable partners that can bring this to fruition. Watch the space.

Watch this space

The performance of African markets was strong last year, with money raised by companies doubling to $10.9 billion. Buoyed by a 40% jump in terms of volume of offers, 2014 saw the highest level of activity in African equity capital markets (ECM) over the previous five years, according to a PricewaterhouseCoopers (PwC) report: IPO Watch Africa 2014.
The report showed a total of 90 initial public offerings (IPOs) which raised $6.3 billion between 2010 and 2014. Secondary offers, on the other hand, raised a total of $31.1 billion, representing 83% of the total capital raised and 27% of the transaction volume in the same period. The resurging interest tops a five-year high, recorded in 2010, when African exchanges raised $7.6 billion in fresh equity capital.
Growth in the size of the capital markets highlighted the shift from commodity-based to a broader range of sectors, most notably financial services. During the 2010-2014 period, financials accounted for almost half of the companies raising new capital. Last year, this figure stood at 57%. Within the same year, four out of the top 10 IPOs by proceeds were financial stocks, according to Dealogic, an international financial services information provider.
The report also revealed a new trend – the growth of regional stock exchanges. The research indicated a greater share of capital was raised in markets outside of South Africa, which itself accounted for only 32% and 44% of total IPO capital raised in 2013 and 2014 respectively, a departure from its more prominent position in previous years. Last year, money raised by companies on other African exchanges increased by 66% to $1 billion compared to the previous year. However these stock exchanges still have a long way to go. In the five-year period under review, the Johannesburg Stock Exchange (JSE) accounted for 78% and 64% of capital raised and transaction volume respectively. Ranked first in the world by the World Economic Forum’s 2014-2015 Global Competitiveness Report for its regulatory framework, it is easy to see why the JSE continues to dominate the Africa’s capital raising landscape.
Most notably, a number of the top 10 IPOs in the past two years had an international component, either foreign companies raising capital directly on African exchanges, or African companies marketing shares to international investors through dual listings or sales to qualified institutional buyers abroad. Since 2010, nine African companies have listed outside the continent, raising a total of $370 million while only one non-African company listed in the continent, raising $107 million. This trend highlights an increasing global integration of businesses in the region and the interest of international investors in Africa.
Regional exchanges need to continue building on the strong momentum of last year. Already, 2015 is shaping up to be a positive year for equity capital market activity in Africa. Nigeria has recorded two capital raisings in January alone; an IPO and a secondary offer. Ongoing harmonization of regional exchanges and liberalization of capital markets through legislation are necessary to keep the momentum going. This is essential to uphold investor confidence and attract new players, such as the private equity funds. To date, the most common means of exiting these funds has been through a sale to corporates, which accounts for about two-fifths of exits, according to the African Private Equity &amp; Venture Capital Association.
Furthermore, improving social conditions, rising urbanization and the adoption of new technological advances are important factors in driving regional exchanges forward. These transformations must be matched with political stability and more effective economic and fiscal policies in order to deliver stable regional exchanges. In addition, improving liquidity and quality of information is crucial. The latter has been blamed for international public companies being hesitant to list on African stock exchanges and foreign investors investing in domestic listed companies.
No doubt, as these measures are steadily implemented, Africa’s rise in the international capital markets is assured.

The Rebirth Of Africa’s Capital Markets

We meet Arunma Oteh on a Friday evening in Johannesburg. For a person whose day has started at 3AM and been relentless since – filled with high-level meetings and interviews – she is remarkably energetic. In fact, the former Director-General of Nigeria’s Securities &amp; Exchange Commission (SEC) is all charged up.
The canary yellow Tahari suit she is wearing ably complements her striking personality as she speaks with both alacrity and wit.
Her five-year term at the SEC ended in January this year, the same month she turned 50. How does she feel?
“Fifty is the new 16,” laughs Oteh.
“I have to say I knew I would enjoy being 50, but I couldn’t have imagined how enjoyable it will be. It’s like I am walking on air. You kind of feel you can literally do whatever you want!”
Going forward, Oteh says her objective will continue to be to serve her country, and Africa. She feels “blessed” for all the opportunities she has had so far to impact society. In her years at the SEC, she had driven the transformation of the Nigerian capital markets and helped grow investor appetite.
“I come from a family [where] my parents have spent their lives serving, so I am usually attracted to opportunities that help me serve,” she says.
Oteh speaks with passion about Africa, about security, capital markets, infrastructure, e-commerce and governance. She also speaks keenly about topics such as women’s empowerment, youth – and music. For the record, Oteh is a huge fan of American singer Beyoncé.
“My next Whitney Houston is Beyoncé. She is amazing and stunning. Look at what she has achieved!”
In this interview, Oteh speaks about Africa’s future and why she is so excited to be a part of its growth story. Excerpts:
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What does the future hold for you?
I am looking at a number of incredible and exciting opportunities, and taking my time to deliberate and determine which one has the most impact. There is so much I want to do, and could do.
I thought about focusing on an initiative that helps people develop their financial capability, as I do think raising financially-responsible citizens has far-reaching impact. If you understand the discipline of managing your money, it’s almost like managing your life.
Also, can you imagine if this continent decided that by 2020, every African will be knowledgeable from a digital point of view? Can you imagine what it could do? It will accelerate the economic development of the continent.
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What does legacy mean to you?
Whatever you do, be the best you can be. It takes one person at a time to make a difference. I want young people to realize their potential. I want to see Nigeria become truly one of the most industrious countries in the world. I want to see Africa be the place where no one writes those articles about wars, disease and famine, and [where] people are writing about being inspired by all the entrepreneurial opportunities here.
I am currently angel-investing in companies that are owned by young people making a difference. Paga, a payments administration company, is one of them.
I like the e-commerce area. When I look at what has happened with innovation in the mobile phone space in Kenya, when I see examples of how certain sectors of Nigeria have transformed…I sort of think that you can be the next Obama, you can be the next Mark Zuckerberg, you can be the next Beyoncé. It’s really up to you to put in the effort. The common theme is hard work, vision and determination to change the world.
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You have previously co-edited a book, African Voices, African Visions. Is there another book in the offing?
Everyone says I should write a book – I am sure I will write several. I think writing books is a way to keep your legacy alive. I have very specific views on issues, and the way to communicate it globally is to write. I would like to write books on leadership. I also feel passionately about capital markets, and I do think not many people understand it.
My first experience of capital markets was sitting around the dinner table with my father, who would make us read annual reports to him. I hated it, but God was planting a seed in me for what I have done today.
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What is the way forward for capital markets in Africa?
So much needs to be done, so much has happened. I think we had eight or nine stock exchanges in 1989 and today, we have over 20. We have bond markets that are doing well around Africa in many places where we didn’t have bond markets. A lot of progress has been made. But the future is brighter than where we are, because we have got so much to do as a continent…And we are not going to be able to do it if we don’t have capital markets that can mobilize resources. We would not be where we should be as a continent if the ordinary person thinks the only way to save money is in a bank account or under the pillow, whereas there is the possibility of him being part owner of a company. We have not democratized ownership of shares; the average American owns a mutual fund that can fund the education of his children and issues of health. We are not there yet. So the possibilities for Africa are immense.
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When do you think this will happen?
There are a few factors that will either make us move quickly or slowly. The first one is the realization that domestic resource mobilization is what is going to help achieve some of those goals, so if you have leadership of countries that understand why capital markets are important, then we will make progress. If we have the right regulatory environment, you can attract both domestic and international investors&#8230;If we get security right, if we get the politics right, if we get the macroeconomic environment right, those things will happen.
The role of regulation is very critical. It should be tough because [the person then] feels his money is safe. Without creating a market where there is trust and integrity, it’s not going to happen.
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Who have you been most influenced by?
I was profoundly impacted by those who sacrificed their lives for the war against Ebola. My most memorable example is Dr Stella Ameyo Adadevoh. During my time as DG of SEC, and in 2012, we established an integrity award to a deserving Nigerian, and as a way to reinforce the importance of integrity to the development of world class capital markets. Dr Adadevoh was the 2014 awardee for SEC’s Integrity Award. She took risks with her life to limit the damage done by the first index Ebola case in Nigeria that arrived on a flight from Liberia.
I have also been influenced by Dr Ian Crozier who decided to go back to Sierra Leone after surviving the Ebola disease; as also the staff of Médecins Sans Frontières and other NGOs that work in difficult places when they don’t have to.
By a huge margin, my biggest influences were my parents. I believe early foundations are critical to who you become. I also want more parents to spend more time bringing up their children. My emphasis on character and standing alone came from my parents. Those who knew them said they were not surprised at how I reacted to the House of Representatives Committee on the Capital Markets inquisition in 2012.
Other influences have been Nelson Mandela, Bill Gates, Madam Walker, Oprah Winfrey, Beyoncé and Bono.

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‘The Possibilities For Africa Are Immense’

In recent years, African countries have steadily emerged as strong consumer markets at a time when emerging economies are struggling with sluggish local demand. Fast-growing economies have greatly improved household incomes over the years as reflected by the rising household consumption expenditure.
Already international consumer businesses have taken notice of this and are planning to invest. A recent Deloitte EMEA survey: Consumer businesses priority markets for 2014-2015 ranked Africa third, behind the European Union and China, as an important market for investment this year by European consumer businesses. The survey confirmed a growing trend since the close of 2013, retail and consumer sectors are among the top three investment sectors by foreign direct investments.
No doubt, more households with discretionary spending means Africa’s consumer market is poised for even greater growth. Data from the World Bank shows that between 2000 and 2012, Africa’s household final consumption expenditure grew at an average annual rate of 10.7%, rising from $360 billion and reaching nearly $1.3 trillion. Consumer demand is now projected to add around $ 1.1 trillion to Africa’s Gross Domestic Product (GDP) by 2019, with Ethiopia, Uganda and Mozambique expected to be the fastest expanding markets. Clearly, rising prosperity is slowly becoming an important component in Africa’s future growth.
It is widely believed that much of the increasing demand is attributed to the growing middle class. Owing to their ever expanding varied tastes and preferences, this group has served as an important force behind the current consumer boom. Over the three decades ending in 2010, the middle class has grown by 3.1%, compared with the overall population growth of 2.6% effectively accounting for 34% of Africa’s population or 355 million people by the end of that year. It is forecast that by 2030, about half a billion Africans will join this class and a further half a billion by the year 2060.
Another important factor contributing to the African consumption story is the rapid urbanization. Migrations to bigger cities have created large clustered urban centers which are supporting growth in domestic demand. According to the United Nations (UN), Africa’s urban population as a percentage of the total population stood at 40% last year, up from 27% in 1980. The same research projects that urban population will grow to 47% by 2030.
Closely tied to urbanization is the young population. Younger Africans who form a large share of the rising middle class, are estimated to number at more than 200 million, or just over 20% of Africans. This dynamic demographic is expected to grow to 321 million by 2030 which translates into a 57% growth from 2010. Potentially, young African consumers are expected to account for even stronger demand for consumer goods in the future. Already demand from the 15-year-old to 24-year-old age group is driving growth of the modern retail and sales of branded goods. Interestingly, a recent Deloitte survey of this group revealed that the majority of younger consumers use mobile phones to access internet. Investors need an effective channel to engage with this group, especially across large markets.
In view of all this, it is highly probable that as wealth, which historically has been concentrated within the elite, begins to trickle down to the masses, the region will become a magnet for international capital. Evidently, for companies seeking to invest, it is clear that Africa is not suffering from a lack of demand, but perhaps from a lack of supply. With growth projected by the World Economic Outlook at around 7.7% annually to 2019 (this is twice the rate projected for advanced economies in the same period), potential investors can rest assured of a sustainable growing consumption trend.
Presently, the region is the second fastest growing economic region behind Asia. Certainly, it is undeniable that Africa is indeed an attractive consumer market that is worth tak

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