The billions Africa needs are available
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