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Shift in intentions towards Africa - WEF

Cape Town - Africa suffers from a severe deficit in infrastructure, said Standard Bank group CEO Sim Tshabalala at the World Economic Forum (WEF) Africa in Cape Town on Thursday.

He was one of the panelists discussing catalysing capital for Africa.

Tshabalala said Africa has amongst the lowest investment GDP ratios in all the regions - about 22%.

“This suggests that we need to execute projects and investments that are developmental in nature and that give rise to terms that adequately remunerate those who are willing to invest in those projects,” said Tshabalala.

He said investors would do well to partner with local players, and cited three examples where this is working extremely well.

The first is President Barack Obama’s Power Africa initiative, where $7bn is being leveraged for power energy infrastructure on the continent. Standard Bank is involved in a number of these projects in four countries, namely Nigeria, Tanzania, Ghana and Kenya.

The second example is the Renewable Energy Power Producers Programme in South Africa. Here Standard Bank and its competitors have entered into partnerships that have made a significant difference to ending South Africa’s power deficit, said Tshabalala.

The final example is the clean development Mechanism where governments have access to carbon trading products offered by banks and thereby helping to generate revenue.

One example is the Nelson Mandela Municipality in Port Elizabeth which, through this mechanism, has been able to provide the local community with 110 000 solar water heaters.

No lack of desire

On the economic front, it is clear that there is no lack of desire for opportunities in Africa, Makgotso Letsitsi, partner and head of advisory of KPMG in South Africa said at WEF on Thursday.

"There has already been a shift from “intentions toward Africa” to solid commitment and significant mergers and acquisitions activity," he said.

Funds have been raised and closed, and portfolio investments identified. Many corporate boards have formally approved their company’s Africa investment strategies, allocating both capital and key individuals to make these strategies happen.

In contrast to this huge advantage, there are some implicit and explicit risks and challenges to the investor entities pursuing opportunities on the continent.

In considering opportunities and challenges in Africa, Letsitsi said it is important to remember that Africa is not a single economy, but there are 54 countries at different stages of development with different needs and agendas.

When scanning local environments for legal, regulatory, social and cultural dynamics, it is also crucial that the investor companies consider geopolitical risk and map out appropriate strategies for dealing with such risk.

"The key take away for me was the need for leadership agility in dealing with geopolitics pertaining to the investee country, and to balance the observation of the local regulatory and governance frameworks with compliance with the global company policies and strategies," said Letsitsi.

"Another notable consideration is that global companies need to adopt a longer term sustainable view to conducting business with local companies, contribute to development and harness human capital locally. And, more importantly, take a local citizenship stance in their approaches."

African investment market

A survey of opinion leaders carried out by global business advisory firm FTI Consulting ahead of WEF Africa suggests that an overwhelming majority expect growth in M&A activity in the region to continue in the coming months.

Telecommunications and infrastructure are viewed as the leading investment sectors, with East and West Africa likely to be the most popular destinations for investors.

Half of those surveyed view the business opportunity that Africa offers as important but risky, while a third of the business leaders attending this year’s WEF Africa, believe the continent is essential to their strategic growth prospects. Further, 88 percent say they believe investment activity across Africa will rise with the same number saying that they expect an improvement specifically in sub Saharan investment activity.

Other key themes from the survey show that East and West Africa are seen as the best investment opportunities, that telecommunications and that infrastructure projects are likely to dominate

Most respondents see an uptick in M&A activity and most see Nigeria to become the gateway.

Investors, nevertheless, believe that businesses need to become more effective communicators and that African governments should be more realistic about what investments can achieve.

“This survey confirms that Africa remains important as an international investment destination though there is much that needs to be done by both governments and businesses in Africa to ensure they understand what the international investment community is looking for from African countries," said Max Gebhardt, managing director of FTI Consulting Strategic Communications practice in South Africa.

"There also needs to be a greater focus on enhancing intra-African investment and M&A.”

Two large focus areas

“Two large focus areas at this year’s WEF have been leveraging Africa’s talent and driving the continent’s competitiveness," according to Louis Otieno, legal and compliance director at Microsoft 4Afrika.

"At Microsoft, we believe the key to a competitive knowledge economy lies in developing and investing in world-class skills. Africans are natural born innovators and entrepreneurs."

Through its 4Afrika initiative, Microsoft is empowering them with the right hard and soft skills to now take these innovations and startup businesses to market, both locally and internationally.

"By enabling this intra-Africa and global trade – through improving access to broadband and devices, developing world-class skills and promoting innovation – we are fast-tracking Africa’s economic development and position as a valued player in the global supply chain of value-added goods and services,” said Otieno.

Global significance

Geoffrey White, CEO of Agility Africa, said about griculture and energy in Africa that the continent is becoming of global significance in the world energy and agriculture sectors.

"The investments that are being committed to develop new oil and gas resources are in excess of $100bn and these transformational developments will establish East Africa as one of the world’s leading sources of gas in the coming decade and at highly competitive global prices," said White.

As for agriculture, 50% of the world’s unused arable land is in Africa. With the world population increasing from 6 to 9 billion and the improvement of global diets as societies prosper this unused land bank will become an essential part of the global food supply.

"The missing link is the infrastructure and logistics network to manage, deliver and export the goods to support these new markets," said White.  

Agility has commenced a five-year plan developing a network of seventy, 100 acre, Agility Distribution Parks (ADPs) across the continent, bringing international standard logistics infrastructure with undisturbed power, IT connectivity and security for tenants to support the increasing trade flow requirements of Africa as it develops. The first of this new network of logistics parks opens this year in Accra, Ghana.

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