Most pundits report a comeback for M&A activity in Africa. However, reports indicate that recovery of M&A activity in Zambia continues to be slow notwithstanding the optimism.
Deal Volume – Reported Deals
As we move into the second half of 2022, the volume of reported deals is surprisingly lower than the numbers seen for the same period of 2021. The Competition and Consumer Protection Commission (CCPC), the anti-trust authority that approves mergers that are 15 million Kwacha (approximately USD 930,000) and above in terms of deal size, in its 2022 mid-year update, reported that it continues to experience a reduction in the number of merger applications received, and cites disruptions and previous uncertainty in the Zambian business environment and global economy at large brought about by the Ukraine-Russia conflict and the Covid pandemic.
The recent market update by the CCPC, reports a decrease in merger activity in the first half of 2022 (for the period 1 January to 30 June 2022) compared to 2021. According to CCPC there were 37 merger deals reported in the first half of 2022 compared to 46 in the same period of 2021, representing a 17 per cent decrease in reported deal volume.
M&A H1 Activity by Sector
In terms of sectors, Wholesale and Retail recorded the highest number of deals followed by Agriculture, Banking and Finance, Services, and Transport, manufacturing and ICT.
Smaller Deals
The reality is that, there are smaller M&A deals taking place that are unreported because they fall below the CCPC approval threshold in terms of deal size. However, the CCPC mid-year update gives a fair indication of the level of M&A activity in Zambia in the first half of 2022.
Opportunities remain
Despite the decrease in volume, inbound investment interest in Zambia continues to be strong, particularly mining and renewable energy assets continue to spur interest, with demand being driven by the demand for copper and decarbonisation. Macro-economic indicators such as inflation and interest rates continue to improve, creating a more conducive environment and enhancing investor confidence. However, more needs to be done to create a conducive environment to turn this interest into deal making. The recent approval of Zambia’s extended credit facility signals more investor confidence for deal making.
Local Content in the Insurance Sector
The Insurance Act of 2021, which is yet to come into force, saw the introduction of mandatory local content requirements that prescribe that 30 per cent of the equity of all insurance, reinsurance and insurance brokerage companies in Zambia be held by Zambians. Should the Insurance Act come into force this will catalyse M&A activity in this space.
Mining
Mining exploration assets upstream the value chain, continue to attract interest. However, the Mining Cadastre continues to be marred with challenges, slowing down transactions, which typically are smaller in terms of deal size.
Infrastructure, Transport and Logistics opportunity
We expect increased deal activity in transport and logistics driven by investment of private capital in transport and logistics assets such as roads and one stop border posts through private public partnership models.
Investment in developing transportation infrastructure and logistics to improve access to key regional markets such as DRC and more efficient routes to ports, will be key in attracting valuable M&A activity particularly in the Mining, Manufacturing, Agri and FMCG sectors.
A Bill to repeal and replace the ZDA Act has recently been approved by cabinet. One of the objectives is to increase both domestic and foreign direct investment into productive sectors. This could see the introduction of a new foreign direct Investment regime that will spur more deal activity.
GRZ Divestments and Reorganisation of SoE’s
The constitution of an adhoc committee to address the implementation of a turnaround strategy for Zamtel and the appointment of Rothschild & Co to undertake a strategic review of Mopani Copper Mines plc could be an indication of further opportunity for strategic equity investors.
Outlook
Notwithstanding the drop in volume, recent developments seen in respect of policies and relationships seem to point to increased investment opportunities in Zambia in the medium and long-term.
Published with permission from Moira Mukuka.