The panel’s brief was to identify trends, possibilities and investment opportunities in Africa and to outline ways to improve the continent’s economic landscape. ‘Drawing on examples of success, the panel will explore a blueprint for the continent’s development in the next five to 10 years,’ the Cass promotional email stated. In addition, a recurring theme of the evening was the need to debunk myths attached by many external parties to some African regions on the risks and challenges of doing business there.
Panellists also aimed to provide understanding of real situations and encourage investment in the continent’s massive infrastructure and other developmental projects needed for Africa to realise its vast economic and human potential. Panel moderator was Tutu Agyare, managing partner of London-based investment manager Nubuke Investments. His team comprised Dr Jerome Booth, founder of UK private investment firm New Sparta; Gabriel Edgal, managing director and chief executive officer (CEO) of First Atlantic Bank; Tinashe Muyambo, head of the Africa consulting desk at Towers Watson; and Oludara Osibo, analyst for the African Private Equity and Venture capital association (AVCA)
Perception versus Reality
Overall, discussion steered away from the perceived pitfalls of operating in some regions of Africa, namely incidents of corruption, terrorism, crime and violence that often attract attention from the world’s media. These negative features were not denied, but it was stressed they should be seen in perspective. As an example, external opinions of the Democratic Republic of Congo (DRC) often dwell less on the country’s huge mineral resources and economic potential and focus on the apparently endemic violence of its eastern borders – although the areas of economic activity are far removed from the recent locations of warfare.
The Corporate Treasury Perspective
From a treasurer’s perspective, Africa presents a range of practical challenges in the form of exchange control regulations and often only limited or non-existent domestic money and forward foreign exchange markets. While South Africa has a highly developed financial market, relatively few other countries beyond Nigeria and Kenya have made significant progress in developing their own equivalent markets. Combined with poor internet facilities – it was mentioned that only 16% of Africans have reliable access today – conditions can be difficult for securing finance and for hedging earnings and assets. The panel strongly advocated partnering with qualified local experts and banks to help facilitate effective business at an acceptable level of cost and operational risk.
Economic Realities and Aspirations
Africa’s recent economic performance has been marked by stellar growth rates, despite the poor infrastructure and services of many regions. Richard Odumodu, visiting fellow, faculty of finance at Cass, commented that the operational environment also continues to improve. He quoted from the World Bank’s
Doing Business Report
for 2013, which found that of the 50 economies making the most improvement in business regulations for domestic firms since 2005, 17 are in sub Saharan Africa. This positive economic trend is set to continue in 2014, with the International Monetary Fund (IMF) forecasting 6% economic growth for the continent.
The region is presently experiencing declining aid-based monetary in-flows as a delayed reaction to the 2008 global financial crisis, with many donor countries continuing to apply austerity measures through cutting back grants. Tomorrow’s Africa panellists did not see this phenomenon as necessarily a bad thing, suggesting that what the region really needs is commercial finance for infrastructure development, combined with much increased education and training for a young and ambitious population; and, most importantly, venture capital finance for areas where African entrepreneurs are demonstrating real innovation – such as financial technology, sectors within the telecommunications industry, and in energy generation.
Africa’s young and energetic population provides a large and relatively low-cost labour force. Business investors need to think about how to identify and develop this vast human resource, by considering the local people who will manufacture the new products and deliver the new services, and creating a virtuous cycle in which success breeds further investment and development.
A clear message that emerged from the event was the real and positive investment opportunities in a diverse set of economic fields, over and above the classic African growth sectors of oil and mineral extraction and of telecommunications – especially in mobile phones and related technology. The needed investment should reflect regional consumers’ choices. There is substantial opportunity for domestic consumption to play a leading role towards driving growth in Africa’s emerging stable, better-regulated and above all competitive markets. Sustaining this growth will require improvements in the provision of liquidity and hedging tools – and also in developing bond markets to provide longer term financing.
A significant current investment opportunity is provided by one seemingly unlimited African natural resource, dependable amounts of sunshine, being harnessed in off-grid power generation – an innovative response to the vast demand for new energy generation that is central for supporting Africa’s continued economic growth.
Discussion moved to the sustained high level of investment in Africa by Chinese organisations, which was warmly welcomed by the panel. Western criticism of this phenomenon attracted scorn, panellists citing the recent business development visit to China by the UK’s deputy prime minister and London’s mayor.
The example of the growth potential of Nigeria was quoted, including a projection that its population of nearly 170m will double by 2050 to approach or equal the US (with 314m in 2012). This human potential, as much as present economic activity, is fuelling demand for regional investment in diverse areas including power, infrastructure, transportation, health care and education. It was pointed out that Nigeria’s reaction to the financial crisis was exemplary, cleaning out its financial sector and effectively closing ‘bad banks.’ A current highly attractive net interest margin of 7% was quoted to illustrate the strong current performance of the country’s banks. Nigeria seems to exemplify an African country where current positive economic and financial realities are radically out of step with some external opinion. Seen as a ‘hopeless case’ 10 years ago, today’s Nigeria is a rising, hopeful country with extraordinary resources and a young, adept population, keen for investment in all sectors.
Typically it has been the resource-rich countries such as Nigeria, Kenya, Ghana, Angola and Mozambique that have attracted most external notice, with their reserves of power, oil and gas and their developing industries and businesses. Looking beyond these, east African countries have embraced hi-tech industries, and will continue to do so. North African countries generally embrace innovations and developments in infrastructure, agriculture and the pharmaceutical industry. South Africa’s agricultural prowess and its evolved financial services sector point the way. Africa is estimated to have about half the world’s available arable land and the continent generally enjoys suitable climates to be able to feed the world if sufficient investment is committed. Such funding could provide positive opportunities for Zimbabwe and Malawi, for example.
Recent examples of western corporations investing strongly in Africa include Danone (US$ 300m), Diageo, Heineken, Google and IBM. Private equity investors have a vital role to play, especially in providing African small and medium-sized enterprises (SMEs) with vital capital injections and supporting sustainable growth over the medium term. The panel generally encouraged investors to partner with African organisations and individuals to research and develop new opportunities in context. Many global corporations’ African subsidiaries have local stock exchange listings, providing opportunities to invest in elements of African economic growth within familiar organisations, especially where ultimate ownership fulfils credit evaluation criteria for investments. An argument was made that the real investment yields and potential to be found in Africa demand a significant increase of inward investment, where opportunities substantially outstrip the future potential of the turgid western economies. Perhaps the real risk today is not to be in Africa.
Each panellist stressed the need to train and develop local people, to provide sufficient ‘Africa centricity’ to attract individuals with the necessary skills and potential and support new entrepreneurial commercial activities in harmony with local regulatory and business practices. It is important that local and regional factors are appreciated to maximise chances of success.
Returning to the practical concerns of treasurers and chief financial officers (CFOs), there is a broad need to see concerted action in cross-continent collaboration in areas such as developing banking and financial market systems, and continued modification of the regulatory environment to better facilitate investment and efficient business practice. Substantial African sovereign wealth funds are emerging as a direct product of the region’s economic success. The panel advocated that these funds should significantly step up their investment in African countries, to build external confidence and to recycle African capital into more African assets.
US$155m of South African pension fund money has recently been invested in Nigerian assets, as a leading example of the type of activity needed. More evidence of African institutions working together will encourage outside organisations to act. It is unlikely that any form of single African currency will emerge in the foreseeable future, given the tribulations of the eurozone, and the practical difficulties of economic, monetary and political union. The present regional unions are likely to persist.
Nelson Mandela, interviewed by
magazine in 2000, said: “I dream of an Africa which is in peace with itself. I dream of the realisation of unity of Africa whereby its leaders, some of whom are highly competent and experienced, can unite in their efforts to improve and to solve the problems of Africa.” The Cass panel presented many ideas whose realisation would provide many of the practical means to fulfil that dream.
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