Tapping Africa’s investment potential
One of the problems with recent investment discourses is that Africa is commonly thought of — and referred to — as a homogenous destination. Furthermore, the continent is generally perceived as be as a gigantic importer of capital, given its general nature of development.
And while there is sufficient knowledge about some of the opportunities that are available, the thesis is normally framed in the context of being that of investment inflows and within a regulatory regime euphemistically referred to as “caveat emptor”.
Nothing could be further from the truth. Africa, more so than any other continent, represents a kaleidoscopic number of countries and cultures. While on the whole, the continent is resource rich, there have been success stories in countries such as Botswana with their advanced regulatory regime and purchasing power parity levels equivalent to that of many first world countries.
Moreover, given the sophisticated investment mindset, in recent years, there has been an export of capital from these countries to other parts of the world. It has been the source of some amusement for me with investors in southern Africa, the kneejerk response has historically been that it is too volatile. This is exactly how investors in Dubai have long reacted when the topic of investing in southern Africa was invoked.
In most cases, the problem has been about an asymmetry of information, something that both governments have taken steps to overcome. In this context, Dubai has been viewed with increasing interest, especially in light of the reforms put in place in the real estate and financial sectors, reforms that have moderated the price cycle and made the asset class more favourable for institutional investors.
From pension funds to publicly listed Reits (real estate investment trusts), recent conversations have been about allocating money to real estate in Dubai and the UAE, with a view to capitalise on the higher than normal rental yields on offer, in tandem with regulations that have made the city more transparent as a destination to invest in. It is pertinent to note that these conversations have not been limited to real estate alone. Indeed, there have been agreements ranging from F&B to gemstones and retail signed in recent months.
Given the sluggishness that has been witnessed in the domestic economy over the last year, there has been even more scepticism expressed by traditional investors about factors such as oversupply in a number of sectors, including in real estate. It is exactly these factors that have led to an increase in confidence by foreign investors in southern Africa.
Dubai’s advantage has always been its open borders approach that has allowed for a free movement of goods, people and monies. It has built on this strength with a superior infrastructure. It is therefore of some puzzlement that companies — from real estate to retail — that have looked for capital for their various projects have for the most part ignored the potential that Africa, in particular the southern part, has to offer. From the vantage point of the stable long term investor, Dubai has all the benefits these investors are looking for. It is likely the trickle of foreign inflows that have already started will turn into a torrent. Domestic players would do well to capitalise on this trend.
■ Uzair Razi is Chief Investment Officer at GCP group.