SRCF Q4 2016 Report

SRCF Q4 2016 Report

Dear MEDA Colleagues,

At the close of 2016 we reflect on a tumultuous year around the globe. With the market’s perception of elevated global risk today, capital is flowing towards home. For the most part, that means United States.

It is at times like these that the world needs more MEDA.

We believe that south-south trade will grow strongly, in spite of, and perhaps because of the retrenchment tendencies expressed by USA and Europe. But with current capital flows moving out of emerging markets, MEDA’s economic development and SME investment programmes are spot-on – both from a developmental and a financial return perspective.

We have said many times in our comments that it has been somewhat frustrating to see MEDA’s portfolio value grow, but not have that growth recognised in the financial statements. Because prevailing accounting principles do not allow MEDA to mark its investments to market, the financial statements have not been able to recognise most of the growth experienced by the investment portfolio. As of 30 September, for example, over $4.5 million of value remains unrecognised in the financial reports.

We are very excited to share therefore, that MEDA has negotiated a sale of 50% of its investment in Zoona Transactions International in Sub-Saharan Africa, and that this exit will allow MEDA to recognise a gain of approximately $1 million. This sale was only recently negotiated and is expected to close in early 2017.

On page 27 of this report you will see that Zoona is a prime example of the new wave of ‘fintech’ (financial technology) sweeping across the globe. This technology is often described as another leapfrog technology. Just as mobile telephony enabled Africa to leap across centuries of older communications systems, fintech has allowed developing countries to leap across the antiquated banking systems used in Europe and North America. Fintech makes banking quicker, cheaper and more broadly available. Zoona’s technology-based mobile payments platform does just that. Whereas banks are stuck in major urban centres, Zoona can set up almost anywhere. Whereas traditional banking systems can’t easily handle many small transactions, Zoona can serve almost anyone at any size. And just as Google has won the race in internet searches, Zoona is winning the race for mobile payments in Zambia, Malawi, and soon other countries as well.

MEDA was an early investor in Zoona, providing a convertible loan of $480,000. But that loan came with the ongoing counsel of Donovan Nickel, who had a career’s worth of experience as senior executive with HP (Hewlett Packard). As is almost always true in growing companies, capital alone doesn’t provide a complete answer. But capital combined with a safe and experienced set of hands can create magic. In Zoona, it has.

And that is why the world needs more MEDA.

We trust that this report provides a thorough understanding of MEDA’s investment portfolio, but we encourage you to call us to discuss any questions you might have.

Sincerely,
Gerhard Pries
CEO and Managing Partner
Sarona Asset Management