AFRICAN RESILIENCE IN THE NEW WORLD ORDER
Four key figures in African investment gathered together in November for The Africa Debate to discuss investment in the continent, both in the wake of the Covid-19 crisis and longer term. They considered the benefits of localisation, the challenges to greatly increasing manufacturing capacity and how best to support investors. By Neil Ford
Chinelo Anohu, from the Africa Investment Forum (AIF), said that investing in Africa is a “no-brainer” for the simple reason that returns were superior to any other region in the world. But the issue, she said during a high level panel, was that investors’ perceptions and expectations were skewed, and this is exactly what her organisation, the AIF, was trying to correct.
“There is no such thing as risk-free investment,” she explained. “And there is no such thing as an investment that is completely de-risked. It doesn’t happen anywhere. But this is the reason the AIF came to bear, to quantify the risks that are not understood by investors, especially those from outside the continent.
The lack of good quality data was acting as a deterrent, she argued, heightening perceptions of risk. Facts need to be presented in a manner that industry-wide investors can recognise, and this is what the AIF was helping put together. “Once you have a onestop-shop pointing out the issues that can bring light in terms of data, project preparation, and collating the right type of authoritative information, then Africa is the place to be.”
Such constraints had hindered investment in the past, and as a result it became too costly or unwieldly to bring projects to financial close.
Anohu agreed that there were other inherent challenges, such as the lack of infrastructure, but investors should look at this as an opportunity. She also argued that with so much talk of ESG factors becoming paramount to investors, Africa is the place that presents the opportunity of getting it right at the outset.
Daniel Mminele, Group CEO of Absa Group, agreed that some potential investors hadn’t invested in Africa because they hadn’t taken the time to study the risks and priced them accordingly. Even post-Covid, opportunities still exist in health, renewable energy, power, food, agriculture, transport, logistics and other sectors, he noted. Youthful populations, large markets and the scope for big infrastructural projects all create a lot of potential that can be tapped through greater regional integration, including via the African Continental Free Trade Agreement.
Sir Graham Wrigley, Chairman of CDC Group, an investment arm of the UK’s development fund, outlined four main reasons to invest in Africa: rapid demographic growth, rate of return, high levels of innovation and the benefits of taking a long-term view. However, there isn’t an abundance evidence of very high returns outside the natural resources sectors, he warned.
Agreeing with Anohu and Mminele, he said that the risks were much lower than many believed, with a default rate on infrastructural projects over the period 1983-2015 of just 2.7% in Africa, compared with 3.8% in Western Europe and 8.5% in South East Asia.
Chinelo Anohu, from the Africa Investment Forum (AIF), said that investing in Africa was a “no-brainer” for the simple reason that returns were superior to any other region in the world
Localisation and manufacturing
Africa’s infrastructure, health and transport needs are enormous, said Farid Fezoua, President and CEO of GE Africa. GE had decided to invest heavily in Africa a decade ago and was now starting to reap the rewards of its early investments, he said. Localisation makes a big difference and it is very
important to have your expertise attuned to the context on the ground. The benefits of this strategy had been borne out during the pandemic, when it would have been impossible to source expertise from the US or Europe, he said, arguing that localisation also helps you to manage risk and identify opportunities for longer term profitable growth.
Mminele added that the pandemic had interrupted global supply chains, with reliability - such as local production - becoming more important in relation to the previous focus on ultra-efficiency and price.
Fezoua said that the crisis had posed a big question for GE, which was whether to increase its manufacturing capability in Africa. This requires having a critical mass in terms of a local market that justifies the investment, so creating a much bigger market has been the biggest challenge, he said. The AfCFTA could help to solve that problem. Increasing manufacturing capability also requires building a strong supply chain, including for components, but there is no magic wand for creating this, he said.
“You can manufacture in China for China and for the rest of the world because you’ve got a big enough market there to make sure that your plants are going to be running. In Africa, if you set up your plant in one country it may not be enough to really justify that investment or make it work longer term in a sustainable manner,” he noted.
Mminele agreed that localisation had become more important because the pandemic had interrupted global supply chains, with reliability becoming more important in relation to the previous focus on ultraefficiency and price
The role of the Africa Investment Forum
Anohu said that it was gratifying to see international discussions about Africa move on from talk of aid to that of trade. The Covid-19 pandemic has been a huge setback for economic development, with a contraction in African GDP of between $173bn and $236bn.
The AIF is seeking to solve these problems through innovative solutions, using the integral knowledge of the African Development Bank and its funding partners. Part of the solution will be to raise domestic investors’ skin in the game, she said, including creating synergies between domestic and international investors.
The AIF’s focus has now shifted to identifying unified Covid response projects, including promoting manufacturing ventures across Africa by helping to raise capital to support them. Anohu said that there had been impressive levels of interest from investors both in Africa and across the globe in supporting the entire value chain in agribusiness and other sectors.
Fezoua said that it was important not just to develop projects in isolation but to work on entire ecosystems, including the public sector, development agencies and private lenders.
Private sector’s role
Mminele added that within an environment with strained fiscal resources, the private sector can bring its skills and financial resources, while governments can create an enabling environment. He gave the example of the South African government’s support for renewable energy since 2010, which had attracted more than R200bn ($13bn) investment in more than 100 projects. Absa and the African Development Bank have supported the strategy by selling and listing renewable energy bonds. Elsewhere, Rwanda is establishing a green investment bank.
AIF support for investors
It isn’t enough to ask investors to commit to the continent, said Anohu, it is also important to track deals and work with governments to ensure that there are concrete governance mechanisms to make sure that investments are looked after every step of the way. She pointed out that the AIF is working with highly innovative institutions to ensure that infrastructure projects are supported by much needed hard and clear contracts, which contain all the necessary clauses to protect investors.
She said: “You have to be pragmatic about investment. People want and have to invest, but you have to make it easier. Projects can be delayed due to constraints at a government level for example. Because of the convening power of the AfDB, the AIF can help overcome these challenges. We understand the requirements, both at an investor and government level. That’s why we invite people to invest on the platform, because we are well placed to provide for these issues and ensure that these governance issues are comprehensively covered.”
Mminele agreed, emphasising that it is up to both governments and the private sector to uphold standards in avoiding corruption.