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| Then: May 2000 |
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| Now: December 2011 |
As I plan my week to attend the BRICS Summit, I am reminded of my remarks as a panelist at Columbia University's African Economic Forum held on 01 - 02 March 2013 in Columbia Campus, New York.
Thought I'd share:
"I am an Entrepreneur, a trained Accountant and former Banker. Like most African entrepreneurs I am a capitalist with a social conscience. You cannot be an African entrepreneur and not be as concerned about her socio-political future as you are about her economic potential.
"I am an Entrepreneur, a trained Accountant and former Banker. Like most African entrepreneurs I am a capitalist with a social conscience. You cannot be an African entrepreneur and not be as concerned about her socio-political future as you are about her economic potential.
I am certain that many of us here today have seen many statistics and read many reports about the current and prospective future state of Africa.
The basics of economics tell us that consumption, real savings and investment drives economic growth. The glue that ties all these together is Finance. The question is how do we attract the right finance, at the scale required.
Since the best finance follows the best investment opportunities, ours is to make the Africa investment case an attractive one. For this to happen, we need entrepreneurs such as James Mwangi, Adrian Gore, Stephen Saad, Patrice Motsepe, Aliko Dangote to continue having access to fairly-priced, well-structured financing to prove the case to foreign investors.
By its very nature, debt is premised on collateral. I do not think that secured lending is the model that will facilitate new entrepreneurs to spawn new businesses, create new industries and create sustainable jobs. I think more and more equity-type structured funding from Banks and Development Funding Institutions (DFI's), Venture Capital, is the type of funding that will achieve this.
Institutions such as The African Development Bank, The World Development Bank, The Industrial Development Corporation of South Africa, Development Bank of Southern Africa, The Land Bank, The National Empowerment Fund etc are our best immediate opportunity to support the development of the African entrepreneur today.
Venture Capital is also a much needed model, as our entrepreneurs continue to struggle to secure seed capital to develop their ideas. This capital is often small in quantum yet not available from Banks who would, once again, prefer secured lending.
DFI's have supported and continue to support feasibility studies, and market research work that entrepreneurs typically need to do prior to embarking on a new project. If we cannot find a sustainable way to fund early stage entrepreneurship then we will struggle to facilitate the creation of more Dangotes and Motsepes.
Outside of retail banks, DFI's can have a "game changing" impact on the development of entrepreneurs and infrastructure in our continent, which in turn will not only grown economies but also facilitate foreign investment.
However there are many challenges that contribute to our currently, less than ideal investment pitch for Africa to foreign investors.
For starters, we are not The United States of Africa. We have 54 sovereign states in our continent. This means many fragmented rules, regulations, stakeholders, markets and thousands of languages and cultures. Yes, as a continent we have been said to represent 1 billion people, $2 trillion in total GDP, but this is not a homogenous market although efforts are under way to forge a Free Trade Agreement that attempts to address this in some way.
Furthermore, Intra-African trade, as a proportion of Africa’s overall trade, has reportedly remained flat over the past 10 years at around 12%. This is very low proportion when compared with intra-regional trade proportions in other parts of the world. Intra-Asian trade, for example, is over 50% of total Asian trade and for Latin America the proportion is close to 30%. This also does not help our investment case.
We have also often heard about the challenges around a lack of integration of systems that allow the movement of people, goods and services across borders. We know about our poor infrastructure which actually makes it easier and cheaper for neighbouring countries to import goods from across the oceans than from their neighbours.
These challenges have historically limited the banking industry's appetite for mother Africa as an investment destination. However things are changing. Very quickly.
Just recently, the shareholders of ABSA, South Africa's 2nd largest bank overwhelmingly voted in favour of ABSA acquiring Barclays' operations in the rest of the continent. ABSA paid approximately R2 billion for Barclays' African interests, based on expected growth from the continent. This has reportedly increased Barclays' stake in ABSA from 55,5% to 62,3%. Why would ABSA and Barclays do this? As one article put it "ABSA and Barclays are seeking to boost profit by combining products and customer bases across a continent with faster growth rates than developed nations". Simple as that!
Nedbank also announced that it expects to convert its $285 million loan to Ecobank to equity in the bank with the largest footprint in Africa, somewhere between November 2013 and November 2014. In comparison, Ecobank has branches in 32 African countries, while the South African Bank is active in Lesotho, Swaziland, Namibia, Malawi and Zimbabwe.
We also had Old Mutual, one of the largest insurers in Africa announce that it has deployed R5 billion towards investing in its Sub-Saharan business.
These are just a few examples of a financial services industry that is starting to see the continent as a compelling investment opportunity. I expect many other industries to follow suit.
The average African's role in maintaining this momentum is to continue to tell the positive African stories. Recent research by Ernst & Young showed a stark contrast in the investment potential of Africa between those already doing business in Africa and those who have not, with the latter still associating her with instability, conflict and corruption.
Outside of retail banks, DFI's can have a "game changing" impact on the development of entrepreneurs and infrastructure in our continent, which in turn will not only grown economies but also facilitate foreign investment.
However there are many challenges that contribute to our currently, less than ideal investment pitch for Africa to foreign investors.
For starters, we are not The United States of Africa. We have 54 sovereign states in our continent. This means many fragmented rules, regulations, stakeholders, markets and thousands of languages and cultures. Yes, as a continent we have been said to represent 1 billion people, $2 trillion in total GDP, but this is not a homogenous market although efforts are under way to forge a Free Trade Agreement that attempts to address this in some way.
Furthermore, Intra-African trade, as a proportion of Africa’s overall trade, has reportedly remained flat over the past 10 years at around 12%. This is very low proportion when compared with intra-regional trade proportions in other parts of the world. Intra-Asian trade, for example, is over 50% of total Asian trade and for Latin America the proportion is close to 30%. This also does not help our investment case.
We have also often heard about the challenges around a lack of integration of systems that allow the movement of people, goods and services across borders. We know about our poor infrastructure which actually makes it easier and cheaper for neighbouring countries to import goods from across the oceans than from their neighbours.
These challenges have historically limited the banking industry's appetite for mother Africa as an investment destination. However things are changing. Very quickly.
Just recently, the shareholders of ABSA, South Africa's 2nd largest bank overwhelmingly voted in favour of ABSA acquiring Barclays' operations in the rest of the continent. ABSA paid approximately R2 billion for Barclays' African interests, based on expected growth from the continent. This has reportedly increased Barclays' stake in ABSA from 55,5% to 62,3%. Why would ABSA and Barclays do this? As one article put it "ABSA and Barclays are seeking to boost profit by combining products and customer bases across a continent with faster growth rates than developed nations". Simple as that!
Nedbank also announced that it expects to convert its $285 million loan to Ecobank to equity in the bank with the largest footprint in Africa, somewhere between November 2013 and November 2014. In comparison, Ecobank has branches in 32 African countries, while the South African Bank is active in Lesotho, Swaziland, Namibia, Malawi and Zimbabwe.
We also had Old Mutual, one of the largest insurers in Africa announce that it has deployed R5 billion towards investing in its Sub-Saharan business.
These are just a few examples of a financial services industry that is starting to see the continent as a compelling investment opportunity. I expect many other industries to follow suit.
The average African's role in maintaining this momentum is to continue to tell the positive African stories. Recent research by Ernst & Young showed a stark contrast in the investment potential of Africa between those already doing business in Africa and those who have not, with the latter still associating her with instability, conflict and corruption.
This is despite the fact that in the World Bank's most recent Ease of Doing Business rankings, 14 African countries ranked ahead of Russia, 16 ahead of Brazil and 17 ahead of India. This is also despite the IMF listing 7 African countries in the 10 Fastest Growing Economies between 2010-2015.
We need to change these stereotypes and demistify Africa.
We need to change these stereotypes and demistify Africa.
Like the Ernst & Young's Sustainability Report puts it: "Africa is a compelling investment proposition as it has natural resources; rapid economic and population growth; maturing political systems; a rapidly improving environment to do business and investment returns second to none".
We must play our part in re-inventing Africa from an aid recipient to a trade and investment destination.
AK
Source: Building bridges - Ernst & Young's 2012 Attractiveness Survey
AK
Source: Building bridges - Ernst & Young's 2012 Attractiveness Survey
I can't help but wonder. Is it really a question of inadequate financial infrustractures, or is it African execution that is flawed. 54 states&even more cultures/language within them, yes. But there's only one Business culture/language. Why can't we speak that language, instead of the dialects of greed and corruption.
ReplyDeleteThere is no doubt: the greatest business opportunities for growth are in mother Africa! Having said this, doing business in Africa is not for the faint hearted! What might be a simple transaction in Europe, the US or even in South Africa can end up being quite challenging in the rest of the continent. We need to find ways of quickly overcoming these obtasvles because it is opportunities galore! This is the future of the world!
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