A fuel attendant handles Kenyan shilling notes at a petrol station in the capital Nairobi March 15, 2011.NOOR KHAMIS
Sir Bob Geldof's latest incarnation says something about Africa's changing place in the world. Not for the first time, the Irish rock star turned campaigner for aid and debt relief in Africa has been seeking to raise as much as $1-billion. This time, however, he hopes to champion investment in a continent that he had tended to portray as a basket case in perennially urgent need of alms.
His transformation into private equity guru has not been seamless. The former Boomtown Rats and Band Aid frontman has struggled since the global financial crisis to raise sufficient financing to close his fund, 8 Miles, named after the distance between Europe and Africa at the straits of Gibraltar. But Sir Bob's journey nevertheless chimes with a turnround in global perceptions.
With many of its 48 economies rebounding from the crisis faster than the rest of the world, sub-Saharan Africa is increasingly viewed as an opportunity rather than a burden. It is rising rapidly up the agenda for global investment managers and is talked about as never before in almost every big financial centre.
For the past few years big names including Jamie Dimon, chief executive of JPMorgan Chase of the U.S., have been popping up in places such as newly oil-rich Ghana. In London, Helios Investment Partners, an investment firm founded by young Nigerians, is poised to close subscriptions to a $900-million fund, so far the largest private equity fundraising exercise to target Africa. This comes as the much bigger Carlyle Group of the U.S. is backing the continent for the first time, setting up in South Africa and Nigeria - the two biggest economies south of the Sahara.
The perception that Africa has reached a turning point - one qualitatively different from previous false dawns - stems from a combination of global and regional circumstance. "If the politics can be managed, there are the talent and resources in Africa for this story to be real," says Michael Turner, managing director in east Africa of Actis, a UK fund backed by pension funds, sovereign wealth funds and international development institutions. "The more people become confident with that idea, so the more the other big players will start to come in, especially now that big US institutions like Carlyle are coming."
PEAKS UNMATCHED
Talk about Africa among investors has yet to translate into the kind of inflows seen before the financial crisis. In 2007, the value of stocks traded on the Nigerian exchange was about $70-million a day. The figure today is nearer $18-million.
Large global emerging market funds are not trading African equities to the extent they have done in the past. Private equity activity is picking up but has not yet fully recovered either.
The Emerging Markets Private Equity Association says fundraising for sub-Saharan Africa peaked in 2008 at $2.24-billion. In the first quarter of 2011 it reached only $156-million.
Growth has been spurred by market liberalization and improved public management of finances as well as a boom in the commodities that Africa has in abundance. Perhaps the biggest factor has been the engagement of emerging powers including India and Brazil but led by China. Asian demand for African resources has engendered a revival in the terms on which the continent trades.
Africa has about 10 per cent of global oil reserves, possibly more. South Africa has 40 per cent of the world's gold. The continent has more than one-third of all known cobalt reserves; base metals abound. China in recent years has sources almost half its imports of alumina, copper, iron ore and oil from Africa. The continent's agricultural potential is barely touched.
But the story is no longer just about resources. The commodity price surge has coincided with the rapid expansion of banking, telecommunications and other services formerly weighed down by the dead hand of the state. This and the sluggish pace of recovery in the developed world have encouraged investors from elsewhere, including Europe and the U.S,. to look at Africa with different eyes.
"GDP was 2.9 per cent during the crisis and is now back at 5.5-6 per cent. If you look at the demographics, the resource endowment and improved policy environment, Africa looks like an attractive investment destination," says Graham Stock of Insparo Asset Management, a London-based hedge fund. "By contrast, the picture in the developed and other emerging markets does not look as rosy."
Consumer spending is also rising at more than twice the rate of developed countries. The phenomenal growth in telecoms has pointed to a market that few consumer groups and service industries had thought about much before - and one that, if north Africa is included, now exceeds 1bn people.
"The question for executives at consumer packaged goods companies is no longer whether their firms should enter the region, but where and how," A.T. Kearney, the management consultancy, wrote in recent research that found west African subsidiaries achieving nearly twice the profit margins of their parent groups. Other research amassing at investment banks and international financial institutions highlights the potential for Africa - or at least parts of it - to become a significant driver of global economic expansion in coming years.
No one sensible believes that the road will be smooth for all of sub-Saharan Africa. But in almost every sector demand outstrips supply. "The reality is Africa is probably 30 years behind China and 20 years behind India on the developmental curve in that regard, so I think the Chinese and Indians will start to look at parts of Africa as potential sites for low-cost manufacturing and outsourcing and things like that," says Michael Lalor of Ernst & Young.
KENYA
A case study in the power of mobile telecoms to drive national growth
From personal banking conducted via mobile phones to software applications that predict the arrival of Nairobi's honking matatus - minibus taxis - through the notorious traffic jams, Kenya is a showcase of the benefits of a lively and innovative telecoms sector.
Competition among providers is fierce, spawning price wars and ever cheaper calls that in turn drive business. One result is that Kenya's telecoms sector is the fastest-growing part of the economy, boosting overall national performance. An expected 6 per cent growth in gross domestic product this year will owe much to the industry, according to the World Bank. Without it, average annual growth rates would have hit only 2.8 per cent since 2000, rather than 3.7 per cent.
Unsurprisingly, Kenyan telecoms inspire both other African nations and investors. The sale of Celtel International, a Sudanese company with operations in the country, sold to MTC Kuwait for $3.4-billion in 2005 and to Bharti Airtel for $10.7-billion last year, showing that highly profitable exits from African companies are possible.
It also showed the availability of disposable cash. "When mobile and data came to the market there was very much a feeling that it was just for top people, but there has been a massive expansion," says David Somen, strategy director of AccessKenya, in 2007 the first telecoms company to list on the Nairobi Stock Exchange.
By mid-2010, 21 million active phone numbers were shared among Kenya's 40 million people. There is room for growth: only about 10 per cent of Kenyans have web access. While mobile and internet access is spreading to the poor elsewhere in the continent, two things set Kenya apart: the success of mobile banking and the roll-out of undersea fibre-optic cable that has brought high-speed affordable internet.
Such innovation has boosted the national economy. Since the 2007 creation of M-Pesa, Safaricom's mobile money-transfer system, financial services have exploded. Nearly 70 per cent of adults have access to financial services, compared with less than 5 per cent in 2006. People can now transfer money to rural relatives and pay bills using their mobiles. In 2010, 15 million Kenyans transferred an estimated $7-billion, equivalent to 20 per cent of national GDP, through the system.
Experts are trying to replicate this phenomenon throughout the continent, as Kenyan telecoms and financial companies try to eliminate even their most rural agents' need for cash.
At the World Economic Forum for Africa held in Cape Town this month, Maria Ramos, chief executive of Absa, a South African bank majority owned by Barclays of the U.K., observed that whereas a decade ago such meetings focused on aid and Aids, the conversation was now about investment and growth. "You walk around here and the mood and the meetings are all about what is causing blockages for further investment: where are the best models in the world for getting customs to work, how do we improve our competitiveness?" she told the Financial Times.
Ms. Ramos has recently taken responsibility for Barclays' expanding Africa operations under the stewardship of Bob Diamond, group chief executive, who has described Africa as "maybe the most exciting opportunity" worldwide.
The numbers are still comparatively small. Africa accounts for only about 5 per cent of global foreign direct investment flows. The World Bank predicts FDI into sub-Saharan Africa in 2011 will reach $40.8-billion, up from $32-billion last year. But by 2015 the number of new African consumers will equal the total number in Brazil today, some analysts predict, as the middle class expands and domestic consumption increases accordingly.
"We have had massive interest across the board, Chinese clients, Indian clients, American clients, Middle Eastern clients, European clients, says E&Y's Mr Lalor. We have hosted more than 100 companies in our African business centre in the last year talking about their growth strategy. In any other year before that we would have been lucky if there were five or 10."
Yet much of the talk of a turnround is still about what might be, rather than what already is. Some of the basics remain much the same.
East Asia's share of world exports grew spectacularly from 3.3 per cent in 1980 to 8 per cent in 1995, and then to 14 per cent by 2008. Sub-Saharan Africa's share, meanwhile, showed little advance, varying within a range of 1.3-1.6 per cent. Nor has the composition of exports changed much, driven as it has been by raw materials.
There was a buzz when the Africa Development Bank suggested this month that one in three Africans are now middle class. But this included people spending $2-$4 a day - hardly likely to afford a car or fridge - and the fine print of the AfDB report showed that when stripped of this "floating class", who are vulnerable to falling back into poverty, the proportion of middle-class Africans last year was still only 13.4 per cent, below what it was in 1980.
The latest annual review by the Africa Progress Panel headed by Kofi Annan, former UN secretary-general, opens on the sober note that "progress, stagnation and discouraging regression continue to co-exist on the continent". In spite of Africa's recovery, growth remains low quality, is not accompanied by "much needed structural transformation and diversification" and is therefore not providing the necessary jobs.
Dambisa Moyo, a Zambian economist, says many African governments still fail to take some of the most obvious steps to facilitate investment. Although it takes just three days to register and open a business in Rwanda, for example, that compares with 213 for Guinea.
"Governments have a responsibility to provide public goods, create a policy environment that encourages people to invest and make sure there is a regulatory framework that penalises people for bad behaviour but also steps in when the market fails," Ms. Moyo says. "Quite clearly Chinese and other emerging countries have been able to deliver these three things. But if you look at African countries they are still not delivering."
A testament to governance shortcomings can be found in the scale of capital flight. Global Financial Integrity, a Washington based non-governmental organisation, estimates that $358-billion flowed out of Africa through corruption, trade mispricing and other illicit activities between 2000 and 2008.
Nor, for those investors who do suddenly fancy dipping their toes into Africa, is entry that straightforward. Infrastructure shortfalls, in spite of an accelerating program of road and railway building carried out in many places by the Chinese, remain a brake on growth, while markets are fragmented and risk levels hard for newcomers to gauge.
"Once you want to allocate capital to individual opportunities, it becomes quite tough navigating your way through the individual political regimes and political volatility," says Chris Derksen of Investec Asset Management in South Africa. "You can talk in high-level terms about 1bn consumers but you go and actually try to get exposure to that billion and it's not that straightforward."
But in the larger economies, where governments have relinquished control over important sectors, Africa has already provided huge opportunities. In the case of telecoms in countries including Kenya and Nigeria, this has added a percentage point to overall GDP growth each year during the past decade. If the same is done with power - for example in Nigeria, the continent's largest market, which limps along on an electricity supply that would barely serve a small European city - the potential for transformation would be greater still.
"In most areas where the private sector has come in, those who can crack the operational code are making interesting returns," says Tope Lawani, the co-founder of Helios. But as he also puts it: "African governments have got better at getting out of the way. They haven't on the whole got much better at doing what they are supposed to do." Until they do, the pace of change is likely to remain slower than it could be.