Business Leaders Series: Southern Africa
In the latest Business Leaders Series hosted by Hogan Lovells, a top team of business people and analysts looked at the way forward for Southern Africa and what the risks and opportunities might be for 2021 and beyond
In a panel discussion entitled “Southern Africa: Opportunities and prospects”, panellists were asked what key issues they are focusing on and how their respective organisations are facing the future to “build back better”. Richard Morgan, Head of Government Relations at mining giant Anglo
American, said while the pandemic was a big challenge for all businesses, the sector had enjoyed significant support from governments during this time and this had strengthened relationships overall.
He was particularly positive about the opportunities presented by green hydrogen for Southern Africa, in particular South Africa, which recently announced a “hydrogen valley” in its platinum producing areas. There was a strong future for many other minerals produced in Africa, including copper, he maintained.
Addressing the increasing calls for value addition to Africa’s minerals, he said this was a constant theme in the industry, which is understandable given that countries want a decent return from their natural resources. But, he added, the issue of how far to push local value addition is a lengthy process of negotiations. Just to create platinum was already a long beneficiation process, for example.
In addressing this issue, it is important to know who you are trying to compete with globally and ensure you are not propping up something that is not economically viable.
Hans Klopper, South Africa Head at BDO Restructuring, said most large companies in South Africa are sitting on large liquid assets, particularly in the natural resources and mining sectors. However, there appears to be no plan to spend them given policy uncertainty and other issues being experienced in the country.
One of the reasons why investment into South Africa was low was because of the existence of so-called “zombie” companies, which have introduced new levels of risk into the economy by trying to exploit the pandemic.
Juan Jose Gari, Head of Renewable Energy Projects, IEP Group, said they had experienced challenges during the pandemic related to logistics and travel in particular, given their reach into Latin America, Africa (primarily Angola) and Dubai.
Looking at future opportunities, he said they were excited about the future of agribusiness. In Angola the company has, for example, 5,000 hectares of crops under irrigation and is playing a vital role in helping the country to become selfsufficient in food. The country currently spends up to $500m a year on food imports.
Renewable energy is another exciting sector, he said, and there is much to be done in Southern Africa and in Africa in general. Angola, for example, has installed capacity of just 6,000 MW and few people have access to the grid.
“But there are a lot of good initiatives by the government, which is working hard to incentivise private investment. We believe Angola will become a powerhouse in the near future.”
Wayne Godwin, Senior Vice President, Middle East and Africa, JLL Hotels and Hospitality Group, said there had been many shifts during the pandemic in a sector that was one of the hardest hit. Investors are looking at different asset classes, but also at the longer-term fundamentals of the sector, which are still excellent, he said.
“It is a continent with just 1% of the world’s hotel rooms, but in 30 years’ time, it will have 40% of the global population. This demographic dividend is driving the business case going forward.”
The pandemic has been a call to action to governments to address issues affecting the success of the sector, for example making it easier to get visas and moving away from the nationalism of airlines to implement open skies policies. There is also a focus on improving the enabling environment. “Governments are recognising that the sector employs a lot of people, creates opportunity and is an economic enabler.”
Semoli Mokhanoi, Director of SADC and Head of Business Development, Mergence, said while many people were focused on the disadvantages of the
“The circumstances we face are quite unique.
We are dealing with a pandemic, premature deindustrialisation as a result of technology, climate change, and we are being asked to democratise and industrialise simultaneously” Ronak Gopaldas, Signal Risk
pandemic, private equity companies had looked at where the advantages might be. A key outcome in his opinion was the drive to become more sustainable and self sufficient.
He used the example of Lesotho, which depended on South Africa and imports for about 80% of its food needs ahead of the pandemic. But during a long period of closed borders, it had been forced to produce its own food. Schools, for example, had introduced farming projects and his company had facilitated links with retailers who could buy the surplus food they produced.
Going local requires a mindset change in Africa, because many people tend to believe that quality only comes from outside the continent. “The pandemic has taught us that this is not the case.” Collaboration between African countries has improved in the absence of international connections, as people and companies have been forced to take advantage of their proximity to regional resources.
Hogan Lovells Perspective: Legal Trends and Insights
Anele Ndamase, Head of Marketing and Business Development at Hogan Lovells, headed the session in which her colleagues talked about what investors are saying about the region and where their investment interests lie.
Laurie Hammond, Banking and Finance Partner in the Johannesburg office, said clients were focusing on a number of key sectors.
These include natural resources, with mining remaining a core are of interest in the region, particularly in emerging minerals that are driving the energy transition. Power is another area of interest, particularly in renewable energy. The firm, she said, is also helping many clients to adapt their businesses away from fossil fuels to greener resources.
There is also growth in the telecommunications sector. “As the continent moves towards 5G, we are seeing a lot of investment in fibre and data centres.”
There is also interest in hospitality infrastructure as hotels use the pandemic as an opportunity to refurbish their assets in anticipation of the resurgence of tourism.
Climate change is also a hot topic, particularly in the wake of COP26. She said she sits on the firm’s ESG board and there has been increasing interest in companies wanting to find out how they can incorporate this more into their investment focus.
Ben Higson, International
Corporate Partner in Hogan Lovells’ London office, said a number of large multinational corporations are focusing particularly on mining, energy and the energy transition as well as telecommunications. The approaches include greenfield investments, acquisitions and joint ventures.
A major challenges for investors is how to navigate the different regulatory regimes across the continent and understand how these may impact on their investments. These include government policy and regulation, bankability of projects and engagement with local authorities.
There is strong growth in Angola and Mozambique. In 2021, FDI of about $8bn was invested in those two countries and South Africa, with about half of that going into South Africa. The majority of investment has been coming out of France, and Asia to a lesser extent, with the rest from a variety of countries.
He said the pandemic had had a significant impact both practically and psychologically on the investment environment. Not only had lockdowns affected the ability of investors to travel to target countries, they had also made it difficult to do due diligence on assets and to negotiate and close deals in person.
FIRESIDE CHAT WITH JEAN CRAVEN, CEO, Barak Fund Management
Jean Craven said that Covid-19 had not changed the fact that there is always demand for capital on the continent, but although liquidity is coming back into the market as a result of stimulus plans elsewhere, not a lot has flowed into the African debt space. Demand, at this stage, far exceeds supply.
He said while some of the supply chain bottlenecks are improving, the drive for restocking around the world has led to huge demand for freight, which has led to a spike in freight prices globally. In some instances, the increase has been five-fold. “This will drive food inflation and inflation in other commodities.”
Looking at opportunities going forward, he said agriculture had remained fairly robust through the pandemic, with a stable and even upward trajectory for the sector across the continent. However, there have been supply chain challenges, not just as a result of Covid-19 but because of subsequent regulations dealing with health and safety.
He said the renewable energy space is quite congested and suggested there was more opportunity in the conversion space, “converting the worst to bad, the bad to better. Coal is not going to go away. It would be unrealistic to think we can just switch it off.” ■