KPMG talks investment into Africa ahead of BRICS Summit 2013
KPMG recently hosted a roundtable discussion, lead by its Global Chairman, Michael Andrew, ahead of the Fifth BRICS Summit taking place in Durban this week. This Summit is expected to include a substantial focus on Africa – looking at how the BRICS high growth markets are converging in Africa through investments and partnerships, aiming to leverage the continent’s vast natural resource and mineral reserves for their own continued development.
Andrew opened the discussion by describing the current global economic climate. He indicated that investor confidence was looking more positive in the wake of a very challenging 2012, with clear change in investor behaviour becoming more evident. Because developed economies are not expected to yield much growth in the near future, emerging markets such as the BRICS are garnering increasing attention.
“You’ve now got CEOs asking ‘How do I get growth?’ And the answer is new products, new services and new markets,” said Andrew.
He indicated that some of the factors influencing investors’ choice in new markets are a need for financial services support, access to resources and growing consumer markets.
Selecting markets for investment
According to Andrew, companies are conscious of the fact that they cannot simply replicate existing business models in emerging markets, leading to a cautious approach to selecting markets for investment.
“Investors are looking closely to distinguish between those emerging markets that are making the hard economic reforms, and those that are not.”
This tendency has lead to increased foreign direct investment (FDI) into Mexico, Indonesia, Nigeria and Turkey (MINT) due to recent positive reforms in these countries. BRICS nations have already begun to respond to this by addressing some of their own regulatory and governance challenges to attract more FDI. Andrew did not expect BRICS countries to lose their advantage, though, as the size and scale of these markets mean that investing in them is an imperative.
Andrew indicated that programmes such as South Africa’s National Development Plan were generally applauded globally.
“Most global businesses [at the World Economic Forum in Davos] were supportive of that programme,” Andrew said, though he did admit that policy implementation remained a challenge in South Africa as much as in other nations, both developed and developing, as they are all facing their own challenges at present.
South Africa: gateway into Africa
South Africa’s role as a gateway into the rest of Africa, and whether or not Africa as a whole would benefit from this country’s inclusion in the grouping, formed a key part of the roundtable discussion.
“We are seeing a huge amount of interest in Sub-Saharan Africa, and we are getting more enquiries about Africa than any other market in the world at the moment. An interesting question for South Africa is to what extent it acts as a corridor into the rest of Africa.”
Asked what South Africa’s strengths were as a member of BRICS, Andrew indicated that strong mining and tourism sectors were key, as South Africa holds vast quantities of sought after, high value minerals. Its well-diversified economy, including a strong motor manufacturing industry, is also important.
Africa’s emerging market
The BRICS Bank, which is being established following agreement by BRICS leaders at the last Summit, also formed a key topic of discussion. Questions arose around whether the Bank would benefit Africa as a whole.
“Anything that can give you a big capital base that is directed towards emerging markets is a good thing. If you look at the infrastructure requirement across Africa…having an equity provider [like this] I think is actually a very important thing.”
Andrew also indicated that the BRICS nations seemed to be prioritising Africa for investment, showing a lot more interest in the continent than in any other emerging market. Africa would need to develop policies and strategies to ensure it made the most of this interest, and was already beginning to do so in several countries.
Asked what the major areas of interest in Africa are, Andrew named consumer markets, telecommunications, resources in terms of food and energy, infrastructure, supply chain and logistics, mobile technology, and financial services.
“With growth across the continent projected to exceed 5.5 percent this year, and foreign direct investment in sub-Saharan Africa having increased by about 50 percent since 2005, the story in Africa seems clearly focused on growth and opportunity.”