The bil­lions Africa needs are avail­able

Sunday Times - - Business Opinion - Andile Khumalo Khumalo is an en­tre­pre­neur and a CA (SA)

Istopped by the Africa In­vest­ment Fo­rum hosted by the African De­vel­op­ment Bank (AfDB) in Sand­ton this week, try­ing to catch a glimpse of what the lat­est was on the ef­forts to in­crease in­vest­ment into the con­ti­nent.

The Africa In­vest­ment Fo­rum is an un­prece­dented gather­ing of pen­sion funds, sov­er­eign wealth funds, cap­i­tal mar­kets, project spon­sors and in­sti­tu­tional and fi­nan­cial in­vestors seek­ing to in­vest in Africa.

The pres­i­dent of the AfDB, Ak­in­wumi Adesina, was un­equiv­o­cal about why the po­lit­i­cal and busi­ness lead­ers of Africa were there. “We want in­vest­ment in Africa to land on a smooth land­ing strip that’s very or­gan­ised. The role of our lead­ers is very crit­i­cal. We are see­ing our lead­ers as CEOs of their own cor­po­rates. We are not here to dis­cuss aid. We are here to dis­cuss in­vest­ment.”

How­ever, the peren­nial chal­lenge for Africa has al­ways been the dis­pro­por­tion­ate in­vest­ment it re­ceives com­pared to other de­vel­op­ing re­gions. The con­ti­nent is said to have re­ceived an aver­age of $8bn a year in the past five years in in­vest­ment, while Latin Amer­ica re­ceived $45bn a year.

Adesina re­it­er­ates the point in his as­sess­ment of the flow of pen­sion fund monies un­der man­age­ment. “I am not scared about the num­bers that I hear when peo­ple are talk­ing about the fact that we need to in­vest around $170bn for in­fra­struc­ture-re­lated in­vest­ments. And, of course, Africa can­not de­velop with­out elec­tric­ity, roads, rail, ports and the like — we all agree on that.

“The is­sue is the money. The global pen­sion funds and sov­er­eign wealth funds un­der man­age­ment add up to $56-tril­lion. To close the in­fra­struc­ture gap in Africa, to power Africa, feed Africa, rein­dus­tri­alise Africa, in­te­grate Africa and im­prove the lives of Africans, we have cal­cu­lated that we need to in­vest $170bn — I’m sorry, that is 0.3% — of the to­tal pen­sion fund and sov­er­eign wealth funds un­der man­age­ment glob­ally,” Adesina said.

“And so you have an asym­met­ric lo­ca­tion of cap­i­tal — the cap­i­tal is out there and the needs are here. And we know that where you have a deficit the aver­age rate of re­turn is go­ing to be high if you can man­age the risk. So if we can just get 1% of to­tal as­sets un­der man­age­ment to Africa, we will close that gap in no time.”

The more the de­lib­er­a­tions con­tin­ued, the clearer it be­came that a num­ber of fac­tors con­trib­ute to the slow pace of redi­rect­ing cap­i­tal to Africa, para­mount among which are ac­tual risk and per­ceived risk. The ac­tual risk is­sue lies in get­ting in­fra­struc­ture pro­jects to bank­able stage. In a per­fect world, the coun­try seek­ing the in­vest­ment would pro­vide the ini­tial “eq­uity” fund­ing re­quired to get pro­jects “in­vest­ment ready”. How­ever, many coun­tries in Africa do not have th­ese funds, and this de­rails the ef­forts.

The per­ceived risk is what for­eign in­vestors in Europe, Asia and the US think of Africa. Their per­cep­tions of poor gov­er­nance, con­flict and no rule of law are con­stantly fed by a me­dia res­o­lute that only neg­a­tive African sto­ries sell. It is this nar­ra­tive that needs to lead the change if we are ever go­ing to have a chance of get­ting to Adesina’s 1%.

The rate of re­turn will be high if risks are man­aged

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