Ideal Tax Operation

USD 33bn investment from the U.S. is just a start, says KPMG

Success of European, Indian and Chinese investment has woken a sleeping giant

The United States has committed to invest USD 33 billion in Africa -this was the message from the recent U.S. Africa Leaders’ Summit hosted by the U.S. Department of State. The U.S. government and private companies have ostensibly recognised that European, Indian and Chinese have successfully ventured into Africa are now showing significant interest in investing in Africa.

“The USD 33 billion holds significant symbolic importance as tangible proof of the commitment by the U.S. to invest into Africa,” says Anthony Thunstrom, Chief Operating Officer for KPMG’s Global Africa Practice (GAP). “While China – as one keen investor in Africa, for instance – may have been more bullish in the past and has committed to investing significantly more in Africa, in reality, however, the sum is nowhere near what will actually be injected into the continent. However when these investments come to fruition, rather this will be the catalyst for the needed competitive drive from other U.S. companies and funds to come to Africa.”

Thunstrom further states that U.S. interest in Africa is unsurprising as there were indications as early as a year ago. “Twelve months ago, our GAP senior leadership team undertook a road-show within the U.S. where we met with around twenty of the largest companies and/or funds with a potential interest in Africa and, based on our interactions with these Chief Executives, I’m encouraged by what now appears to be an accelerated embracing of Africa opportunities by the U.S. private sector. In fact, at the time we were there, we witnessed a fundamental shift in openness by the U.S. to investing in Africa and in many instances there was not only a real interest to invest, but even a sense that they had already missed some opportunities in Africa and didn’t want to leave it too much longer before establishing their presence on the continent.”

Following on from this road-show, in June this year KPMG’s GAP hosted an Executive Forum on Africa that drew together roughly a hundred CEOs of global manufacturing companies, including some of the largest industrial diversified manufacturing companies from the U.S., where this forum unpacked the opportunities and challenges of investing in African markets. Thunstrom says: “Interest in Africa was very clear by all who attended and the South African government viewed this as an important opportunity to encourage foreign investors – Finance Minister Nhlanhla Nene, who was newly appointed at the time, made his first public appearance to speak at this Forum, which was in itself significant.”

Investment drivers

Resources – specifically mining, minerals and metals – have always been viewed as the primary reason to invest in Africa. However, Thunstrom adds: “More recently this has shifted towards both oil and gas, which continues to significantly change the geo-political importance of Africa from an energy security perspective. Whilst mining, oil and gas will continue to attract significant investment, private sector investment appetite has also shifted significantly towards consumer demand opportunities and a full range of infrastructure builds.”

Driven by a combination of Africa’s billion-plus population and rapid urbanisation – with more than fifty-two cities of a million people already and, Africa’s youthful age demographic – it is said that these combined factors will produce more than 500 million new consumers with disposable income over the next twenty years. “This means that there are very real and significant opportunities for companies in sectors such as, healthcare, banking, insurance, education and ICT services. Yet, equally, there is an unquenchable demand for a wide range of consumer goods that provides specific opportunities for both retailers and local manufacturers. However, all of these opportunities require investment into infrastructure,” adds Thunstrom.

Africa’s infrastructure deficit is well known – where the current spend on maintaining existing infrastructure is estimated to be less than half of what is needed and this doesn’t take into account demand for new infrastructure on the back of urbanisation and opening up new natural resource and/or retail opportunities.

Thunstrom further states: “It’s not surprising then that more than 80% of the enquiries that our GAP team receives from both corporate investors and Private Equity houses relate to these growing consumer and infrastructure demands. And practically, we have assisted a number of companies and funds to explore their market entry strategies into Africa, including the prioritisation of individual countries or markets, investment valuations of potential local partners or acquisitions and the overall structuring of their Africa operations.”

“There is certainly some speculation that the sudden interest in Africa by the U.S. is driven more by growing concerns over the geo-political influence that China may have in Africa, as an offshoot of their investments. However, in my view, the interest and investment by the U.S. private sector is being driven by the success that European, Indian and Chinese private companies have, and continue to, experience in Africa – and for me, this is what has woken the sleeping giant,” concludes Thunstrom.

About KPMG

KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 155 countries and have more than 155 000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG member firm is a distinct and separate entity and describes itself as such. 

About KPMG in Africa

  • KPMG serves 54 countries across Africa with offices in 33 countries.
  • KPMG members firms in Africa achieved combined growth of 13.1% in 2013, and 25% in Q1 2014
  • KPMG launched its Global Africa Practice in 2012 which is dedicated to helping international business enter Africa and African businesses capitalise upon global opportunities.
  • In 2012 KPMG announced a five year US$100 million African investment plan.
David Okwara

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