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Africa Evolves, but it needs you - LBS Africa Day Conference 2010
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Africa Evolves, but it needs you - LBS Africa Day Conference 2010

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Presentation by Thierry Tanoh on May 8, 2010 at London Business School's Africa Day Conference.

Presentation by Thierry Tanoh on May 8, 2010 at London Business School's Africa Day Conference.

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    Africa Evolves, but it needs you - LBS Africa Day Conference 2010 Africa Evolves, but it needs you - LBS Africa Day Conference 2010 Presentation Transcript

    • Africa Evolves But it needs you Thierry Tanoh IFC Vice President May 2010
    • Here’s an ordinary map of the world
    • POPULATION
    • GROSS DOMESTIC PRODUCT
    • …Africa represents a very small part of the global economy  With the exception of South Africa, Sub-Saharan Africa has largely been off the radar screen for global investors. In many respects, this can be explained by its numerous small (often subscale) markets, challenging macroeconomics and demographics and history of instability.
    • Poverty at $1.25 a day (PPP) (% of population) 60 50 51 % 40 40 % 30 17 % 20 10 4% 8% 4% 0 East Asia & Pacific Europe & Central Asia Latin America & Caribbean Middle East & North Africa South Asia Sub-Saharan Africa 6
    • ENERGY CONSUMPTION (INCLUDING OIL)
    • CHILD MORTALITY
    • POPULATION LIVING WITH AIDS
    • TOTAL SPENDING ON HEALTH CARE
    • SATELLITE PHOTO OF EUROPE AND AFRICA AT NIGHT
    • SATELLITE PHOTO OF THE WORLD AT NIGHT
    • Africa 2009 • A relatively prosperous decade  Increasing political stability  Improved macroeconomic performance  Improved investment climate • The global financial crisis is a setback, but not a reversal of long term trend • Africa’s low level of development and infrastructure create opportunities for foreign investors
    • Long-term Story: More Stability and Growth Long term acceleration of growth in Africa GDP Growth - Africa GDP per Capita 7 1800 1600 6 Result of the Peace Dividend 1400 EAP 5 Constant 2000 US$ 1200 4 1000 800 Africa 3 600 2 400 200 South Asia 1 0 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 -1 Sub-Saharan Africa East Asia & Pacific -2 South Asia •GDP per capita now starting to rise, potential to achieve increases of other emerging regions 14
    • Africa has become more open to trade over time… Exports and Imports Rising Trade as % of GDP (2007) 38 100 36 90 34 80 32 70 30 60 % of GDP 28 50 26 40 24 22 30 20 20 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 10 Exports of goods and services (% of regional GDP) 0 Imports of goods and services (% of regional GDP) Africa MENA LAC EAP ECA SAS •Trade in Africa has increased significantly and continuously in the last 20 years, and the region is among the most open to trade in the world, second only to EAP in terms of trade as a share of GDP. Source: World Bank 16
    • …but Intraregional Trade in Africa is too low… 80 Intraregional Exports as a Share of Total Exports Intraregional Trade as a Share of Total Trade 2004-06 average 1960-2006 70 60 50 40 30 20 10 Africa 0 Africa Developing Developing Developed Developed America Asia America Europe Imports Exports •Despite a doubling in the last 20-25 years, intraregional trade in Africa remains too low, at less than 10% of total trade vs. over 45% in developing Asia •Colonial rulers followed an extractive and outward-oriented trade pattern and did not encourage trade links between African countries (UNCTAD – Economic Development in Africa Report 2009) 17
    • …and Africa’s Economies Are Small Relative to Other Fast-Growing Regions… Asia's largest economies dwarf those in Africa: Top ten economies in Africa vs Asia, GDP current US$ billions 5,000 4,500 Africa 4,000 Asia 3,500 3,000 2,500 2,000 1,500 1,000 500 - 18
    • Improving Investment Climate Sub-Saharan Africa has accomplished a rapid increase in the total number of reforms per year from just 16 in Doing Business 2006 to 67 in Doing Business 2010 Total Number of Reforms per Region 80 70 60 50 Sub Saharan Africa East Asia 40 South Asia Latin America and the Caribbean 30 Eastern Europe and Central Asia Middle East and North Africa 20 10 0 DB06 DB07 DB08 DB09 DB10 Source: IFC and World Bank
    • IMPACT OF GLOBAL FINANCIAL CRISIS 21
    • Global Crisis: Short-term Setback How is the Global Crisis Affecting Sub-Saharan Africa? On the downside •Falling commodity prices •Declining capital flows •Falling demand for commodity exports •Declining remittances •Declining tourism On the upside •Limited direct financial contagion •Relief for oil and food importers •Reduced pressure on food prices •V-Shaped recovery?
    • Lower GDP Growth Rates Across the Region Growth Differential - 2008 vs 2009 - Sub-Saharan Africa 20.0 15.0 10.0 5.0 % 0.0 Burkina Faso Botswana Niger Chad Cameroon Lesotho Uganda Mali Madagascar Senegal Kenya Malawi Togo Angola Benin Cape Verde Comoros Cote d Ivoire Ethiopia Gabon Rwanda Zambia Guinea Guinea-Bissau Sudan Namibia Zimbabwe Nigeria Tanzania Mauritius Ghana Mauritania Mozambique Sierra Leone Swaziland Eritrea Gambia, The Burundi South Africa Congo, Dem. Rep. Congo, Rep. Seychelles Equatorial Guinea Central African Republic -5.0 -10.0 -15.0 2008 2009 •Growth will decelerate significantly in 2009, but contractions are expected in only 7 resource dependent countries: Angola, Equatorial Guinea (oil), Botswana (diamonds), Seychelles (tourism), Namibia (mining, diamonds), and Zimbabwe (11-year contraction…) 23
    • Sharp Withdrawal of Foreign Credit in Q4 2008 BIS Lending to Developing Cross Border Claims – from Countries (% of total) mid-08 peak to end-08 trough Sub-Saharan Africa 2.8% Emerging Europe 12.2% Asia ex-Japan 39.8% Emerging Europe Asia 15.5% Latin America MENA Sub-Saharan Africa Latin America 29.8% Sub-Saharan Africa -60% -50% -40% -30% -20% -10% 0% Source: Standard Chartered 25
    • Remittances slowing down significantly… Growth Rate of Remittances to Source of Remittances to Sub-Saharan Africa Sub-Saharan Africa 60 Other 50 47.3 High Income GCC 8% 40 34.5 8% Western 30 Developing Europe Growth rate (%) Countries 10% 44% 20 10 6.5 4.4 US 0 31% 2006 2007 2008 2009 2010 -10 -8.3 -20 •In 2008, remittances were equal to 2/3 of FDI and ½ of ODA. They are projected to decline 8.3% in 2009 before recovering in 2010 •The fall in remittances is a result of the sharp contraction in the US and Western Europe (75% of remittances to Sub-Saharan Africa) 26
    • A mild recovery expected for Africa in 2010 Net FDI per Region 140 450 South Asia Forecasts 120 LAC 400 EE and Central Asia 350 100 East Asia and Pacific Middle East 300 80 Africa USD (Billion) USD (Billion) 250 60 200 40 150 Africa 20 100 - 50 1998 1992 1993 1994 1995 1996 1997 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 (20) - 27
    • V-shaped recovery? High Growth Interrupted by Crisis GDP Growth in Sub-Saharan Africa (% per year) 7 6 2011 = 5.2% 5 4 2010 = 3.7% % per year 3 2 V-Shaped Recovery? 1 2009 = 1% 0 -1 -2 Source: World Bank 28
    • IFC IN AFRICA 29
    • IFC in Sub-Saharan Africa Algiers Mediterranean Rabat Sea Beirut Jerusalem Amman Cairo Dubai Sana’a Dakar Ouagadougou N’Djamena Freetown Addis Abala Monrovia Lagos Abidjan Accra Douala Nairobi INDIAN Kigali OCEAN Kinshasa ATLANTIC OCEAN Lusaka Antananarivo Johannesburg Maputo IFC Hubs IFC Country Offices Cape Town 30
    • Focusing Where We Are Needed Most The strategic pillars for Africa, launched in 2004 • Enhancing support to SMEs (financing and advisory services) • Improving investment climate • Developing projects more proactively in the priority sectors (infrastructure, agribusiness, health and education) FY09 results for Sub-Saharan Africa • 32% increase in investment volume and 60% increase in number of projects compared to FY08 • 93 projects for a total investment of US$ 1.82 billion, more than 90% in IDA countries • Projects in 30 countries compared to 25 in 2008 31
    • IFC Rapid Growth in Africa: Evolution of investments in SSA 100 2000 Total financing 93 94 1800 Number of projects 87 Number of projects, IDA countries 1600 Number of countries benefiting from financing 1400 US$ Millions 1200 55 52 47 49 *projected 1000 38 800 32 28 30 30 26 27 27 600 25 20 21 17 17 400 13 10 9 1824 2,083 200 1379 700 1379 405 444 140 0 2003 2004 2005 2006 2007 2008 2009 2010* 32
    • Key Factors for IFC Business Success in Africa • Increased resources and focus on Africa • Focus on key sectors and impediments to investment  Investment climate  Financial markets  Extractive industries  Infrastructure • Information and communications technology • Power • Transport • Ports • Increased on-the-ground presence  Leveraging advisory services business to enter new markets 33
    • BUSINESS OPPORTUNITIES IN AFRICA 34
    • Where do We see opportunities •Health and Education? •Natural Resources •Agribusiness •Financial markets •Infrastructure 35
    • FDI is Critical for Africa Extractive Industries have been Primary Target for Foreign Investors • In Africa, FDI inflows in 2007 rose to a historic high of $53 billion. The inflows were supported by a continuing boom in global commodity markets. • Cross-border M&As in the extraction industries and related services continued to be a significant source of FDI, in addition to new inbound M&A deals in the banking industry. • Nigeria, Egypt, South Africa and Morocco were the largest recipients. These cases may illustrate a trend towards greater diversification of inflows in some countries, away from traditional sectors. 36
    • Fighting the Food Crisis in Africa • Rising food prices may send 100 million people back into poverty, especially in Africa. • More investment is required in supporting farmers’ infrastructure • Access to finance is critical • Technical assistance support is required to ensure success of investments 37
    • Africa Overview: Financial Markets Development – Market Size • With the exception of South Africa, African financial systems are small – relatively and absolutely – when measured by size of liquid liabilities. Financial Depth (liquid liabilities as a % of GDP (left) and log of liquid liabilities (right)) 38
    • Low Levels of Access to Financial Services Share of Households with Access to a Financial Account African households have a low level of access to financial services according to World Bank data for 2003-04. Only South Africa and Botswana have higher levels, similar to those in Italy, Chile, or Russia Source: Africa Competitiveness Report 2009 39
    • Access to services, in percentage of population (PPI, 2002/2006/2006) 100 91 90 89 88 90 87 87 84 82 78 80 74 75 70 58 60 49 Electricity 50 Improved water source 41 Improved sanitation facilities 40 36 35 30 25 20 10 0 EAP ECA LAC MENA SA SSA 40
    • Africa’s Infrastructure Deficit Upper Middle Income Sub-Saharan Africa Countries Access to Electricity 87 15 Network (% of pop.) Access to Improved 93 64 Water (% of pop.) Access to Improved 86 37 Sanitation (% of pop.) Road Density (Km 92 33 road/1000 people) Internet Users 13* 4 (per 100 persons) Africa’s poor infrastructure has direct impact on:  Health and education  Manufacturing productivity  Ability to move up the value chain  Ability to access markets 41
    • Transport Costs Hamper Competitiveness Inland Transport Costs and Port Handling Fees for Import and Export Monthly Labor Cost Per Worker ECA LAC South Asia East Asia ddddddddddddddddd dddddddddd Africa •Africa has the highest inland transport costs and •Labor costs in Africa are 10% higher than those in port handling fees for export and imports in the East Asia. South Asia has a strong comparative world, much higher than in East Asia, Latin advantage with almost 40% lower labor costs America, and South Asia •On top of higher labor costs, Africa is at a clear disadvantage on the level of skills •There is a clear case for investments in infrastructure and education. Africa needs to create its own class of higher skilled workers rather than relying on labor-intensive workers. Source: Africa Competitiveness Report 2009 42
    • Electricity: Africa’s Big Bottleneck Total electricity generation capacity, in million kilowatts:  Europe: 782 GW (1,308 W/per capita)  Sub-Saharan Africa (ex S. Africa): 27 GW (33 W/capita) Over 500 million people in Africa without power Business managers cite top 3 major constraints as:  Lack of confidence in courts  Lack of access to finance, or cost of finance  Lack of power Yet, only 7% of Africa’s huge hydropower potential has been harnessed; and only 57 MW out of 9,000 MW geothermal potential. 43
    • Power Outages are a Big Burden for African Firms Share of Working Hours Lost due to Power Outages 12% of working hours lost due to power outages •Twelve percent of working hours are lost due to power outages in Africa - another fundamental reason for the need to increase investment in infrastructure utilities Source: Africa Competitiveness Report 2009 44
    • Africa: Low Infrastructure Investment •Annual investment about US$10 billion p.a. •Estimated requirement US$20 billion p.a. – plus another US$17 billion p.a. for operations and maintenance •Of this US$10 billion, only about 30% has come from the private sector: Private Sector Investment in SSA 1990-2005 Telecoms Energy Transport Water Total Number of projects 146 82 82 22 332 $ million 32,769 7,649 10,031 146 50,595 …and 50% of the above amounts went to South Africa 29
    • Thank You 46