WEF Abuja will highlight that sustainable investment is key to Africa’s economic ascendancy
05 May 2014, Abuja, Nigeria – The unprecedented abundance of investment grade opportunities in Africa, together with maturing investment motives signify great potential for inclusive growth on the continent. However the capital mismatch conundrum needs to be addressed and the formal consideration and inclusion of a ‘social license’ to operate must become the norm if African nations and their people are truly to prosper. This is the view from KPMG’s Global African Practice ahead of the 25th World Economic Forum Africa (WEF) that will be held in Nigeria, Abuja, 7-9 May 2014.
Africa is one of the world’s fastest growing regions and it is set to remain so for the foreseeable future – with seven of the world’s fastest growing economies in Africa, accordingly to the International Monetary Fund. “While this growth certainly remains both important and impressive, the benefits of this growth haven’t really trickled down to the people – at least not yet,” says Seyi Bickersteth, Chairman of KPMG’s Global Africa Practice.
Bickersteth believes that a significant amount of the continent’s current growth remains resource dependent and leveraging available resources is a great place to start to boost economies – as commodities make great GDP figures – however, growth strategies cannot be solely resource dependent if African nations and their people are to reap the benefits of inclusive growth. Innovative partnerships between private enterprises – international and African alike – and governments that are underpinned by shared and long-term visions can make the difference.
So, how then will global desire to invest in Africa play out in the coming years?
According to Anthony Thunstrom, Chief Operating Officer of KPMG’s Global Africa Practice, “From an investor point of view, the ‘Africa debate’ has largely been settled. Recently, it’s been our experience that when discussing their Africa investment intentions or strategies, multi-nationals barely mention the ‘usual suspects’ – of corruption and political instability – but instead openly relay concerns that they may have already lost prime investment opportunities to their competitors. In fact, there is a palpable urgency among investors who are willing to accept that they may not be first, second or even third to enter a particular African market, but they certainly don’t want to be lagging too far behind their competitors – and sustainability is assumed from the start.”
While there is a focused stream of investment capital that has been raised and in many cases ring-fenced for Africa, Africa still has to clear some hurdles before “business-as-usual” can be assumed. In line with this, KPMG’s Global Africa Practice notes two key emerging themes that will remain prevalent for the years to come:
- The mismatch between attractive, bankable investment opportunities and the global capital available for investment in Africa, and
- Increasing demand from most African governments and their people for a clearly discernible “social compact” – where foreign investors need to be able to demonstrate their long-term commitment to the economic development of the country in which they invest, not just a short-term profit motive.
“From our perspective, and based on our own real-world interactions with global, regional and emerging local investors in Africa, there is a real capital mismatch conundrum,” says Thunstrom. “On the one side, there are record amounts of global capital that have been raised and committed for African investment and currently seeking a home and on the other side there are so many solid, successful Africa businesses that offer fabulous investment opportunities, but more often than not these parties have not been able to find each other or fully understand the potential that the combination of external investment and an already thriving local business can generate.”
Solving this mismatch between investment-seeking capital and identifiable investment opportunities will be vital to Africa’s future growth and this is where Market-Entry services come to the fore. In the medium- to long-term, increased efficiencies in local capital markets, action by governments and trade organisations to improve the ‘ease of doing business’ and incremental in-country improvements will all help address the mismatch. In the short-term, however, qualified intermediaries and market-entry experts must bridge the gap.
“Within our Global Africa Practice, for instance, we find ourselves devoting an ever increasing amount of time and resources to matchmaking – through introducing investors to suitable African partners – and in roughly ninety percent of cases a successful “marriage” results,” notes Bickersteth.
“While we have been inundated with requests for Market-Entry assistance from both our local clients – who are hungry for incoming investment partners – and global and regional clients eager to invest into Africa, the reality is that no organisation can ‘do it alone’. There is clearly room for other players, especially governments and their investment arms, to contribute meaningfully towards this progression and to ensure that the best local investment opportunities are identified early on and proactively taken to the global investment community,” continues Thunstrom.
Raw wealth alone, however, no longer defines a nations success and governments and businesses need to work together to achieve prosperity, and inclusivity. Africa’s billion-plus population, with its youthful demographic and deep awareness of historical injustices and global inequalities, places powerful upward pressure on the investment policies and regulatory environments adopted by African governments. Virtually any investment must take cognisance of local social conditions and must be seen to ‘make a difference’.
“Faith in the social compact is a powerful motive for sustainable investment. Resultantly, “impact investing” – that is dedicated to making a meaningful impact on emerging economies, while still earning attractive risk-adjusted rates of return – is becoming more prevalent,” adds Thunstrom.
“Just as important – and in fact, more so – as the adoption of sustainable strategies by outside investors, government leaders in African countries must put investment and energy into establishing effective policies and strategies of their own. When implementing these, governments must make ethical choices around re-investing funds back into the systems of their country, and at grass roots level, with a view of their country and its people’s long-term and prosperous future,” concludes Bickersteth.
These are expected to be the underlying messages throughout the discussions on the agenda for WEF regional summit. This event will bring delegates – from among the world’s leaders – to Africa to contribute to the discussions that are ultimately for everyone, but especially for the many people who look to government and business to fulfil their responsibilities to society.