Why Verdant Capital's Edmund Higenbottam is bullish about Kenya

Kenya's diversified economy makes it resilient to shocks in the face of tough economic conditions.

The year 2015 was a turning point for many African economies that rely heavily on the production and export of commodities for their fortunes. 

The Africa rising narrative – fuelled by the continent’s middle class, rising consumerism, and a relatively young population – was dimmed by the sudden shift in the continent’s economic growth outlook on the back of the oil and commodity price slump. That was followed by wild swings in local exchange rates.

Africa’s largest commodity producers and exporters such as Nigeria, Angola, Equatorial Guinea and Algeria, whose oil proceeds account for more than 70 percent of exports, were hit the hardest and faced serious economic headwinds.

An African country that was largely insulated from the commodity price meltdown was Kenya, which is one of East Africa’s largest economy. This is because Kenya’s economy doesn’t rely on recent oil findings, but it’s supported by the agricultural sector (accounting for more than 30 percent of its gross domestic product (GDP)), tourism and financial services sector with the proliferation banking technology such as mobile money payments. 

As oil-exporting countries deal with economic anxieties, low oil prices are good news for an oil importer like Kenya, which allows it to spend less and can redirect excess funds into critically needed infrastructure such as roads, bridges, and energy.

The diverse nature of Kenya’s economy has helped it to pull in GDP growth of more than 5 percent between 2015 and 2017, according to World Bank figures, which project growth of 5.5 percent for 2018.

It’s Kenya’s resilient economy that has prompted more investors to be bullish about the country while being cautious about the oil-rich western part of the continent, said Edmund Higenbottam (pictured), the MD of Verdant Capital, a specialist corporate finance firm.

“East Africa has been very good for us in 2018. Our work in Kenya has been across the financial, telecoms, chemicals and agricultural sector,” Edmund told Mergers & Acquisitions (M&A) Africa.

Edmund is a highly experienced M&A professional and investment banker with a career spanning more than 18-years in different jurisdictions such as London, Johannesburg, Lagos, and Dubai. He has completed more than 50 transactions throughout his career at various firms including Verdant Capital, Morgan Stanley, Deutsche Bank, and Renaissance Capital.

Verdant Capital operates in two segments; M&A advisory services and financial institutions, where it arranges private credit for institutions and specialist banks. The firm operates from offices in Johannesburg, Mauritius, Accra, and Kinshasa. Its team of 15 M&A professionals advises on transactions with an average size of between $10 million and $150 million – ranking Verdant Capital as a middle-market player.

Edmund is optimistic about the East Africa region, specifically Kenya, playing a big role in Verdant Captial’s growth ambitions. “In terms of our big M&A and credit new assignments, which we expect to start the work in 2019, two-thirds of them are in East Africa and one third are based in South Africa. We do see east Africa growing and being part of our business,” he said.

Ease of doing business

Kenya is open for business. Fears of violence following Kenya’s elections in August 2017 have died down and a recovery in several African economies is underway, supported by a rebound in commodity prices, the introduction of sound trade and investment policies.

Working in Kenya’s favour is that it’s relatively easy for foreign and domestic investors to start companies, said Edmund. Kenya is also starting to compete with the Southern part of Africa as a gateway into the continent for foreign multinationals wanting to host their African headquarters given its proximity to Europe. 

But this doesn’t necessarily mean that investors have written South Africa off.

“South Africa is by far the most consistent M&A market in Africa. South Africa is a two-way market; whether the market is going up or down, there is still deals to be done. If you look at frontier markets such as Egypt, Kenya, Nigeria, Pakistan, and Bangladesh, they are one-way markets; meaning that when the market is going up, deals get done but when the market goes down and business confidence starts going down, nothing happens,” he said.

Like all markets, Kenya has its pitfalls such as concerns about security because of the country’s history of terrorist attacks. “If you go out of hotels, you usually have airport-type security. It does add to the time it takes to do about business especially if you want to get around Nairobi for example,” said Edmund.

But once M&A professionals find their way around these issues, the country can be extremely rewarding.  Elaborating on the complexities of dealmaking in Kenya, Edmund cites a $60 million credit transaction that Verdant concluded for Letshego Holdings, a Botswana-headquartered microfinance company.  The deal involved eight investors and was split approximately equally between investors in Kenya and a holding company in Botswana (Letshego Holdings).

In such complex deals, where there are many parties and competing interests, Edmund said investors need to take cognizance of cultural differences and various ways of doing business. “Africa, with 54 countries, has different economies and people. Generalisations are dangerous. People are people whether you are Kenyan, South African, American or Indonesian. There are more commonalities than differences in people. We must be careful than making generalisations.”