Kenya’s capital prowess in the Top 250 Companies in Africa 2020 list has waned this year, with three companies failing to secure their presence from 2019, leading to the reduction of combined market capitalization from Sh2.1 trillion to Sh1.6 trillion.
According to a report published by Africa Business Magazine this month, Kenya saw a total of only 11 companies making it to the prestigious list, down from 14 last year.
Companies listed in this year’s rankings are Safaricom, Equity Group Holdings, East African Breweries, KCB Group, Co-operative Bank of Kenya, Standard Chartered Bank, I&M Holdings, British American Tobacco, KenGen, Diamond Trust Bank and NCBA (formerly NIC Group).
The 11 appeared in positions 10, 82, 90, 92, 110, 120, 158, 178, 190, 225 and 228 respectively while Bamburi Cement, Absa Bank Kenya and CFC Stanbic Holdings missed out.
The three could not even secure a slot in East Africa’s top 20 companies where Jubilee Holdings and Britam Holdings appeared in position 18 and 20 respectively. While South African companies dominated the list, East Africa’s business behemoth Safaricom recorded an improvement from position 14 to taste the pride of being among the top ten companies in the continent, with a market value of Sh1 trillion.
But Kenya’s more liquid currency fell back as global investors raced for safety, as the Nairobi Securities Exchange All Share Index also fell by over 12 percent.
“This was despite relatively good prospects for leading companies, including the many banks where restrictions on interest rates have been lifted, meaning more lending and more profits, which initially sparked rising share prices,” says the report.
In April 2020, credit rating agency Agusto said, due to the economic shockwaves caused by the coronavirus, it expects Kenya’s growth to slow to 3.5 percent in 2020, down from an average of 5.7 percent a year for the past decade.
“The coronavirus crisis will damage tourism and farming – including a 50 percent cut to flower exports to Europe. Growing waves of locust swarms are expected to have terrible impact on food production and there are budget deficits and debt distress,” states the report.
However, Kenyan companies have demonstrated resilience, with employers proving an environment for staff to work from home as millions of masks get manufactured.
Mushrooming digital solutions has also been witnessed in a nationwide effort to transform education, agriculture, finance, education, transport and energy sectors as innovators prepare for the ‘new normal’.
Technology, according to the research, is the most profitable business for the next decade, as it ranked first, followed by finance, mining, media while telcos closed the list of the top five promising ventures in Africa.
Tech commanded a 19.9 percent wealth share, and the rest recorded 15 percent, 14.7 percent, 10.8 percent and 7.7 percent respectively. The top company in the list was South Africa’s Prosus, a technology giant that entered the rankings for the first time, and had a market capitalization of Sh11.9 trillion.
There has been an irresistible rise of the telecommunications firms, with both usage of digital services and mobile money being major beneficiaries from the virus crisis in Africa and worldwide.
“Safaricom of Kenya and Nigeria’s Paga were among mobile money firms that took a hit to earnings when they removed fees on low-value transfers to move customers away from using cash. But that is only accelerating an underlying trend towards mobile money and analysts expect that activity will pick up strongly after the crisis,” the report observes.
Other top-ranking telecom firms are Vodacom Group of South Africa at position 7, same as last year, and Morocco’s Maroc Telecom at position 8.
“MTN Group in South Africa is down to number 20 but MTN Nigeria is the second highest new entrant, joining the ranking at number 23 after its May 2019 listing on the Nigerian Stock Exchange.”
Airtel Africa was another high-flying new entrant at position 37, after its Sh75 billion initial public offer on the London Stock Exchange and dual-listing in Nigeria in July 2019.
The hardest-hit sectors by Covid-19 are retail and wholesale, which have seen companies cut down their spending, killing informal sector day-to-day livelihoods from sales and services, especially food to feed hungry populations.
According to the International Monetary Fund (IMF), less diversified economies will be hit the hardest, reflecting the impact of lower commodity prices and containment efforts.
“Among the non-resource-intensive countries, those that depend on tourism are expected to witness a severe contraction because of extensive travel restrictions, while emerging market and frontier economies will face the consequences of large capital outflows and tightening financial conditions.”
Manufacturing and construction have also been severely affected while agriculture remains resilient, especially subsistence farming which provides most informal sector jobs and food for rural families.
A sharp slowdown in the global economy has collapsed global oil prices – with Brent crude down to its lowest level in decades. Many African countries were still adjusting to the effects of the 2014 commodity price shock.
“The crisis means cuts in remittance cash from overseas as Africans abroad join the floods of newly unemployed across developed economies and can no longer afford to send as much money back to family in Africa.”
The World Bank reported in April that due to the Covid-19 crisis, “remittance flows to the sub-Saharan Africa region are expected to decline by 23.1 percent to reach Sh3.7 billion in 2020, while a recovery of 4 percent is expected in 2021.”
Abebe Aemro Selassie, Director of the IMF’s African Department says the region is facing plummeting global growth, tighter financial conditions, a sharp decline in key export prices, and severe disruptions to economic activity from the measures that have had to be adopted to limit the viral outbreak. “Consequently, we now project the region will shrink by 1.6 percent this year… This is the lowest growth number that we can find for the region going back at least to 1970,” he said.
In terms of regional comparison, North African markets score the biggest gains, increasing the total number of companies in the ranking to 83, up from 70 in 2019.
Tunisia has seven more companies bringing its total to 12, after falling from seven in 2018 to five last year. Morocco has added four to reach 30 companies on the list while Egypt has added two to reach 41.
In terms of companies on the top 250 list, Egypt and Morocco are second and third ranked after South Africa, as last year.
In Southern Africa, South Africa still leads due to its long British rule which saw many firms spread worldwide and grow their market capitalization through overseas primary listings.
But its 2020 listing share went down because other African markets have been growing more strongly – at least before the crisis hit. South Africa now has 100 companies on the list, down from 109 in 2019.
“The region has been facing its worst drought in decades, possibly a century. Grain production was down 30 percent across the region and 53 percent in Zimbabwe and livestock numbers have fallen. Drought has hammered economic growth, including in countries such as Zambia which were already hurting with two years of sliding copper prices,” the report says.
Zimbabwe is down from nine companies on the list in 2019 to two this year. Mozambique’s only inclusion last year Brewer Cervejas de Moçambique has dropped off this year.
Zambia, Botswana have also lost companies on the listing. West Africa has a regional total of 27 companies in the list, with combined market capitalisation of Sh3.3 trillion, down from Sh3.6 trillion a year ago.
“The dynamic Nigerian market and ongoing diversification in the economy away from oil are reflected in a good number of new entrants. Telco MTN Nigeria soared into the Top 250 ranking at number 23. West Africa’s second biggest cement firm, Bua Cement, joined the ranking at number 34. Diversified agricultural and foods business Flour Mills of Nigeria joined the ranking at number 222.”
The report reveals that, despite the diversification successes, this year’s rock-bottom oil prices will cause havoc, particularly to Nigeria’s economy. In late April, the Nigerian National Petroleum Corporation warned it may shut down oil production if low prices persist.
“We can’t keep producing if there is no market to sell to. It is a global thing,” said Kennie Obateru, NNPC Group general manager, public affairs.
“Although the total market capitalisation of all the region’s companies is down from last year’s Sh9.8 trillion to Sh7.8 trillion this year, the share of the total is up marginally to 13.2 percent,” the report notes.
It sums up that the total value for all 250 firms on the list this year is Sh59.7 trillion, down 20 percent from last year’s total of Sh74.8 trillion. “But last year had seen a 16 percent fall compared to total market capitalisation of Sh88.7 trillion in March 2018 and this year’s total value is 37 percent below peak value of Sh94.8 trillion in 2015.”
An indicator of the scale of the cutback in Africa is the number of lost jobs. In mid-April, international consulting firm McKinsey estimated that in the formal sector, which employs around 110 million people across Africa, between 9 million and 18 million jobs may be terminated and there could be pay cuts for another 30-35 million workers.
But 100 million jobs are thought to be “vulnerable” in the informal sector, which it estimates accounts for three-quarters of Africa’s 440 million jobs. However, the report notes that there is hope for African firms.
One of the most positive long-term business prospects for many companies on the list, it explains, could be more cross-border trading and investment through the African Continental Free Trade Area (AfCFTA), the world’s biggest trading bloc by number of countries, which came into force in May 2019.