The author recalls that some 17 years ago, it was an uphill task to convince even the UNECA that investing in Africa was a good idea. Today investors are looking for a good reason not to invest in the continent. How has this complete about-face come about?
Antonio Carmona sits in Café Glasgow in the Mediterranean city of Tangier, Morocco, drinking coffee with a Spanish compatriot of his and Moroccan friends. He tells me he relocated his building materials business from Spain to Tangier in 2009, where he now works with a Moroccan partner. He is among thousands of Spaniards and Portuguese who have left their countries in the last few years to seek higher profits or employment in Africa, especially in Morocco, Mauritania, Angola and Mozambique.
Official figures show that 2,660 Spaniards registered for social security in Morocco in 2012 alone, slightly up from 2,507 in 2011, but the numbers actually living and working in the country are believed to be much higher. In Angola, government data indicates that the number of Portuguese living there has jumped from 21,000 in 2003 to more than 100,000 in 2012. In 1992, whilst teaching in the MBA Programme of Regis University, Denver, Colorado, I asked my students whether they would consider investing in Africa. I still remember the incredulous looks on their faces and whispers of “Africa!” and “In what?!”. These were mature students, with average work experience of 14 years, who knew business and a bit of the world yet their reaction to the idea of investing in Africa was typical in those days not only of Americans but people everywhere.
So I thought of organising a trip with them to The Gambia, but before we could do so I got an offer of a post-doctoral fellowship, in 1993, from the UN Economic Commission for Africa (UNECA) in Addis Ababa, Ethiopia, which I accepted. The UNECA, I believed, was the perfect place to expand my idea of promoting investment beyond the narrow borders of The Gambia to the rest of Africa. However, I was to discover that it was not going to be easy, because, even there, not all believed that Africa was marketable or the project was doable.
Nevertheless, I got administrative and moral support from the Trade Division to develop the idea and raise the money to organise a global conference on how to revive private investment (domestic and foreign) in Africa. One of the people I met during a promotional visit to Brussels, Athens and London, in 1994, was African Business’s editor, Anver Versi, who introduced me to a number of his colleagues in London. As he reminded me recently, his magazine has been covering the potential of the continent “well before the UNECA and others seemed to see the changes in Africa’s fortunes”.
With the appointment of Kinsley Amoako, a former World Bank director, as the new UN Under-Secretary-General and executive secretary of the ECA, in 1995, the project got the support of all the main stakeholders in and outside Africa. Private investors, donor agencies, financial institutions, consultants and political leaders (including African heads of state) from all over the world converged on Accra, Ghana, in June 1996, under the theme: “Reviving Private Investment in Africa:
Opportunities and Challenges”.
It was the first UN-sponsored conference of its size on African business and its success became a recurrent topic of the UNECA in those days. Speaking to African ministers of economic and social development in |Addis Ababa in 1997, Amoako said that the organisation promoted “Africa as a good business destination, reflecting our view that governments, the private sector and regional organisations all have a role in attracting private investment to Africa”.
Seventeen years later, investors seem more convinced about Africa for a number of reasons. First, the world itself seems to be increasingly less negative about Africa.
I doubt if one can provide a stronger evidence of this than the December 2012 cover story of Time magazine when it announced “Africa Rising” and described the continent as “the world’s next great growth engine”.
The Economist has made a volte-face and now says Africa is “the hopeful continent” rather than the “hopeless continent” it had earlier declared. The McKinsey Institute recently added that “Africa’s economic pulse has quickened, infusing the continent with a new commercial vibrancy”.
Second, private investment in Africa has shown a sharp increase since the last decade. The World Bank reported that in 2011, FDI flows to sub-Saharan Africa jumped 25% to an estimated $35.6bn. The Bank noted that the business climate is improving and favourable economic prospects are attracting investment flows in the telecommunications, real estate and retail sectors. FDI inflows rose again to $37.7bn in 2012 and are projected to rise, annually, until they reach $54bn by 2015. Given such statistics, it is not surprising that the latest edition of the Japanese-African conference, TICAD V was “different”, as reported in African Business (July 2013).
Domestic credit and investment have both shown positive trends. For example, unlike the levels before the mid-1990s, domestic credit to the private sector ranged high, from 54.5% of GDP in 2003 to 64.1% in 2010. Not only do Africans now seem to invest more in their own countries (internally), Africans are also investing in other African countries more than before. According to Ernst & Young, “Intra-African contributions to FDI projects continue a strong upward trend, recording a high compound rate of 32.5% since 2007, compared with 15% rate for (non-African) emerging markets project investment into Africa, and only 8.4% for developed markets over the same period”. The pioneer of large-scale intra-African finance is South Africa.
Third, in my meetings with potential investors, including the companies I advise, I have noticed a change in perceptions. Although there is still work to be done, it seems to me that people who now promote African business no longer deal with the cold shoulders and locked doors I had to face when promoting the 1996 project. There is a noticeable shift from “in what?” to “how, where and when?”.
In the sectors where I work (mining, petroleum, power and energy), the evidence is very clear. New mines and oil projects, some with capital expenditures well over half a billion dollars, have taken place or are being planned, sometimes in countries or places where even 10 years ago an investment only a fraction of this amount would not have been contemplated. Numerous countries, including Côte d’Ivoire, Gabon, Ghana, Madagascar, Mauritania, Mozambique and even postwar economies such as Liberia, Rwanda and Sierra Leone, have attracted large amounts of investment into non-traditional and traditional economic activities, in and outside extractive sectors.
That African economies are indeed changing now seems obvious to observers, because of the physical evidence. If the trends continue, many believe that Africa may one day become the subject of the type of positive attention that the East Asian Tigers received in the 1980s. In fact, the terminology of “African Lions” is very much in vogue. Based on present realities, the “Lions” have indeed started roaring. As The Economist pointed out, “After decades of slow growth, Africa has a real chance to follow in the footsteps of Asia” .
Even a casual look at most countries from Cape to Cairo reveals stretches of new real estate developments, mobile phone networks, internet business centres, supermarkets, financial institutions and tarred roads. As the World Bank observes: “A decade of strong growth had reduced poverty in sub-Saharan Africa, with provisional data showing that between 1996 and 2010, the percentage of Africans living on less than $1.25 a day fell from 58% to 48.5%. The progress made over the past 10 years, when growth picked up, has been impressive.”
Winds of change
What has brought about these changes? There are multiple factors, before and after the 1996 conference. First, we have to credit Africans themselves who have responded to the 1990s’ “wind of change” (which started in the former Soviet Union) by rising up in many countries across the continent.
Although it might have gone unnoticed in many circles, sub-Saharan Africa has had its own “Spring” long before the “Arab Spring”. As President Obama once stated, “Across Africa, we have seen countless examples of people taking control of their destiny, and making change from the bottom up.” Compared to the Arab world, the “African Spring” was, generally, relatively less violent and more gradual in most countries. Unlike even 10 years ago, most African countries today are run by elected governments. Although some of these elections have not gone unquestioned, nor are they indicative of unquestionable democracies, it is clear that the landslide victories of the 1980s and earlier (80% or more for the incumbent) are now things of the past. Instead, we now witness run-offs and incumbent presidents winning with little more than 50%.
Debatable as it might be, it is noteworthy that the conservative think-tank, Freedom House, considers 31 out of 50 sub-Saharan countries as “free or partly free” in its 2012 Freedom in the World report.
Africans, at home and abroad, have contributed to the changing landscape. In addition to sending huge amounts of remittances home ($23bn in 2011 alone), Africans abroad have started a relatively new phenomenon. Graduates from top schools and experienced professionals working abroad have returned home in large numbers to set up their own businesses, including multinationals such as Databank (Ghana), Reliance Bank (The Gambia), Cira Finance (Senegal) and Jumia (Nigeria).
According to a survey by Jacana Partners, last year, 70% of African MBA students at top Western schools have decided to return home after graduation, half of them to set up their own businesses. They give hope to those at home and motivate foreign investors to look at Africa more seriously.
Overall, the Western world (Europe and North America specifically) remains, by far, the biggest economic and political actor in Africa. These countries, including their financial institutions, are central in African development. However, the ‘Asian Factor’ (especially China) is a very significant contributor to the acceleration of economic growth in Africa and, in particular, the rapidly improving perceptions about business in the continent.
Some may even say that this factor is the most important external stimulus behind the combination of the growth surge plus the worldwide wave of attention on African business since the end of the last century. It came just when Africa had lost its Cold War political utility after the collapse of the Berlin Wall.
New suitor arouses jealousy
According to data attributed to the Beijing government, total inflows of Chinese funds (including FDI, developmental aid and export credits) have been more than $30bn per annum since 2008.
Coupled with intense political lobbying, these inflows have made China very attractive to African governments and Africa very attractive to China’s competitors.
Like a new suitor, China has stirred the jealousy in the West’s historic and hitherto very safe relationship with Africa. However, it is not only the Western world that has been stimulated by the Chinese into action for a bigger chunk of the African economic cake; India, Malaysia, Brazil, Japan, Korea, etc. all now want a bigger piece. Among these a quiet, but very important, country is Malaysia, which had already been active in Africa before the limelight fell on China. In fact, according to UNCTAD, Malaysia’s FDI inflows into Africa in 2011 ranked third among the top 20 investing countries in Africa, pushing China and India to fourth and fifth positions.
In terms of the 2011 FDI stock, China’s total of $16bn fell behind Malaysia by $3bn. In spite of all the good news, Africa still has a very long way to go. The race had begun in the independence decade of the 1960s. The continent is still a lot closer to the starting point than the finishing line.
Even an imaginary accomplishment ratio (what has been done to what has to be done) would leave much to be desired if we recall that the McKinsey Global Institute in 2010 projected that the collective GDP of Africa would reach $2.6 trillion in 2020. Impressive, but only equivalent to about a quarter of the collective GDP of the 24 developing economies of East Asia and the Pacific last year ($10.31 trillion).
Furthermore, while Antonio enjoys coffee in Tangier and Barack Obama prepares to lead the Western world’s challenge to Africa’s Chinese suitors, poverty, corruption, wars and coups d’état are still major concerns on the continent. Nevertheless, there has never been so much global optimism about Africa’s economic prospects since the end of the 1960s as there is currently.
Hope breeds optimism and optimism fuels action. The hope that Africa may do it and the optimism that it can, provide sufficient grounds for Africa to pull itself together more and for the world to lend a stronger supporting hand on the continent’s painful path to political stability and economic progress.
Dr Karamo NM Sonko is chairman of Heeno International and executive vice- president for Africa of the Sand-Sirocco Mining Group.