In vesting in Africa: a future of boundless opportunity experts speak.

Author:Discussion, Panel
Position:OUR FUTURE MADE IN AFRICA - Discussion

There is no doubt that the pragmatic consensus is that Africa has the highest economic growth potential of any continent in the world today and that positive factors on the ground make investment opportunities in Africa incredibly diverse. For example, over 40% of its population is under 35 years old, making Africa the youngest continent in the world. This means, in the next 50 years, this generation will generate an enormous demand for all manner of goods and services. Consumer expenditure in sub-Saharan Africa is projected to rise from the $600 billion in 2010 to $1 trillion by 2020. But while the business and financial world is abuzz discussing how they can position themselves and take advantage of investment opportunities in Africa, scepticism about investing on the continent continues to linger. Why?


New African in conjunction with Invest In Africa, a Tullow Oil initiative, convened a Panel Discussion with economic and investment experts, to discuss how investment in Africa in all different forms, and the right political climate, will help drive Africa's future, to ensure it is made in Africa, by Africans. The Panel included:


CHARLES ROBERTSON--Chief Global Economist, Renaissance Capital and author of The Fastest Billion: The Story Behind Africa's Economic Revolution; WILLIAM POLLEN--Director, Invest in Africa, the London-based company that gives practical advice and support to new investors and companies looking to do business in Africa; CHRIS CLEVERLY--co-founder, Made in Africa; ERIC-VINCENT GUICHARD--Founder and CEO, Homestrings; GUYLUNDY--Founder, Accelerate Cape Town; MICHAEL LALOR--Senior Partner, Ernst & Young; Jo FORD--Senior Analyst, Oxford Analytica and ACHALEK--a Director at McKinsey & Company.

We share excerpts of the discussion which took place at Tullow Oil offices in London, moderated by ANVER VERSI, the editor of our sister publication African Business. Photography by KARISHMA MEHTA

ANVER VERSI: Charles, if we can start with you, can you set the scene by letting us know why you wrote your book (The Fastest Billion: The Story Behind Africa's Economic Revolution) and why you are so optimistic about Africa's future over the next 50 3rears.

CHARLES ROBERTSON: I think what's gone crucially right has been governance. The people running so many of the most successful countries in the world, and most of them the fastest growth flows, are in Africa, and that is because they are running policy much, much better than they used to. Government debt is one of the metrics which is causing a crisis in western Europe and to some extent a big problem in the States. Government debt in sub-Sahara was around 70% to 80% of GDP ten years ago--that's now halved to about 35% to 40% of GDP.

Ten years ago governments were having to choose whether to pay back people they owed money to in the west or spend money on education. As a result of the debt burden halving they don't have to make that choice any more, you can actually focus on infrastructure, on improving education, and I think this is a fundamental part of what's gone right.

Budgets are being run far more responsibly; instead of the deficits of 20 years ago, many governments have been running surpluses. So [there is] good fiscal policy, good debt policies at a time when commodities have boomed. Indeed China's taking a vast amount more stuff out of Africa, but let us put things into context. Only one in seven exports go to China, Africa's exports are actually very diversified around the world, so they've been able to take advantage of growth everywhere.

Foreign direct investment has picked up very significantly since the late 90s, back in the 70s and 80s no one invested in Africa. Since 1996 that's changed dramatically. Sub-Sahara gets about 2-4% of its GDP as FDI. Compare that to China which only gets between PA and 2% of its GDP as FDI. Sc) Africa has become a place to invest. And there are lots of other statistics I could put out there, mobile phones, the ease of doing business reforms. But the big differentiator today is demographics. The number of young Chinese is going to drop by 20% to 30% this decade, the result of that is you've got double-digit wage increases in China and slowing growth. South Asia's capped out but sub-Saharan demographics will continue to be brilliant for the next 30 to 40 years. In fact there's going to be more young people in sub-Saharan Africa than there are in East Asia by 2040.

So you've got this booming demographic, that's all very well but to me what's crucial is that the demographic is educated, or more educated than it was. If you go back to 1975 the number of young kids at secondary school was 9% in sub-Sahara. Despite the debt crises of the 80s and the 90s governments were able to invest enough in education that now 30% of kids across sub-Sahara are getting a secondary school education--that's not good enough, but it's a huge improvement.

AV: William, at Invest in Africa alongside Ernst & Young, you're working on the Africa Attractiveness report. What are your thoughts on FDI?

WILLIAM POLLEN: Well interestingly we've just seen a sneak preview of some of the findings from theexciting Africa Attractiveness report which Mike will no doubt touch on, but not surprisingly the trends increase and I think it's something that's going to continue. I don't think it's any more a question of the amount of FDI, I think it's more where is it going and what is it going to do? Is it going into shorter term plays, primarily commodities, or is going into longer term underscoring the demographic growth that you're seeing. is the infrastructure being put in place to support that growth so that in 20-30 years' time we are not just seeing growth driven by trading prices or equity prices but driven by the actual demographic. So if it's going into infrastructure, education etc, then I think it has huge potential to deliver on the promise.



I wouldn't be surprised it we see investment flows continue to grow from Asia and to remain relatively low from Western Europe and the USA. Some of that I think is a result of the situation requirement we find ourselves in here in western Europe and in the States in terms of the financial scope and the amount of capital available. A lot of that I suspect is also still driven by perception and the idea that Africa is so much more risky and the idea that Africa is one place, all those cliches.



ACHA LEKE: Let's keep in mind that Africa offers the second highest return on FDI of any region in the world. That's one of the reasons we've seen huge increases in FIX, from less than $10bn in 2000 to upwards of $80bn today. And while Africa's oil, gas, and mining sectors have historically attracted the majority of new foreign capital, new investments are also being made in banking, tourism, textiles, construction, telecommunications, and other sectors. This also translates into substantial benefits for the recipients of FDI--the countries themselves. Foreign companies supply not just capital--but also new management methods, skills, and technology, and they increase competition in the local market. As a result, businesses improve the quality and variety of products and services they offer and may even lower prices. This in turn boosts demand for the products and can spur job growth.


AV: Michael, at the moment from what I know 83% of FDI into Africa comes from traditional partners, that's Europe, US and Japan, do you think that the slowdown now in Europe is going to affect the rate of FDI into Africa?

MICHAEL LALOR: We need to start to discern between M&A and portfolio flows which are not job creating and greenfield projects, so in other words new investment corning into the continent into new projects creating new jobs. The job creating aspect of this investment is important from our perspective.

And for that category of investment we've seen, certainly over the last five years, significant growth in investment from India, fairly decent growth and investment from China, although the Chinese investment often comes in different forms as you would know, and from a few of the other emerging markets like Korea, the GCC. But interestingly the biggest growth we've seen over the last five years has come from African countries investing in other African countries, which again for us is a very positive trend. It's part of that growing self-confidence that we as Africans seem to have in the continent and in the future of the continent. In fact the single largest investor in FDI projects in Africa last year or part of South Africa was South Africa itself, so the number one investor in FDI projects for last year outside of Africa was South Africa, ahead of any of the other investors into the continent, which in and of itself is quite an important factor as far as we are concerned.



CHRIS CLEVERLY: I think one of the key statements that's just been made is in relation to South Africa being the main investor in terms of FDI and I think for people to invest into Africa they need to know what Africa is and what it is about. And I think one of the most interesting developments has been the $22bn financial guarantee and facility that's being mentioned by the African Development Bank in regard to providing support for infrastructure throughout Africa. Infrastructure is the key. That in itself will encourage a lot of FD1 investment and will actually start to connect and join up all the other potentialities for growth within Africa. I just want to throw out one quick question for Charlie because he said something that was quite intriguing which was that Africa will overtake Asia earlier than 2040 and I was just wondering firstly when that was likely to happen and the other question I would like to ask him as well was in...

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