EY Africa Attractiveness 2012

Growing BeyondBuilding bridgesErnst & Youngs 2012 attractiveness surveyAfrica

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Building bridgesErnst & Youngs attractiveness survey 2012Africa Contents 3 Welcome to the second edition 4 Foreword 9 Executive summary 12 Bridging the perception gap 13 The emerging African narrative 13 Perceptions are improving 14 But a clear perception gap remains 15 What is contributing to the perception gap? 16 19 Perception versus reality 22 The African growth story 24 Looking forward: factors sustaining growth 29 Articulating a complex investment case 30 A radical tactical shift: Africans leading from the front 31 32 Key sub-Saharan economies are growing their investments 35 Intra-African trade is also growing substantially 36 African solutions to African challenges 38 Building blocks: Regional Economic Communities 40 A bold vision of the future: the Tripartite Free Trade agreement 41 Infrastructure: connecting the dots 42 Funding infrastructure in Africa: how big is the gap? 44 What about the private sector? 45 Fostering productive government-business relationships 46 Africa’s strengths and challenges for different categories of investors 48 The FDI outlook for selected African countries 54 Conclusion 56 Methodology 57 Ernst & Young in Africa Ernst & Youngs 2012 Africa attractiveness survey Building bridges 1

Introduction “You cant remake the world Without remaking yourself Each new era begins within. It is an inward event, With unsuspected possibilities For inner liberation. We could use it to turn on Our inward lights. We could use it to use even the dark And negative things positively. We could use the new era To clean our eyes, To see the world differently, To see ourselves more clearly. Only free people can make a free world. Infect the world with your light. Press forward the human genius. Our future is greater than our past. Extract from Ben Okri, Mental FightPicture: Pelicans and algae bloom in the drying eutrophic Lake Mtera. Tanzania.Cover picture: aerial View of Herd of African Buffalo. Botswana, Okavango.2 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Welcometo the second edition Mark Otty, Ajen Sita, Area Managing Partner, Europe, Middle East, Area Managing Partner, Africa, India and Africa, Ernst & Young Ernst & YoungLast year we launched our inaugural Africa attractiveness Among the key priorities in our view is the deepening ofsurvey. While we already knew from our own experience the physical, economic and emotional ties that connectthat levels of interest in Africa were rising, the overwhelming us as Africans. Building bridges across geographicalresponse to the publication took us by surprise. It did, boundaries to create substantial economic regions will be increasingly critical to our ability to compete effectivelyeconomic growth and growth in FDI over the past decade, in a shifting global economy.the time for Africa is now. Ultimately too, organizations like ours that are believersOur recent Strategic Growth Forum Africa, which brought in the African growth story must put our money where ourtogether over 300 African and international business and mouths are. That is why we are investing so heavily in growinggovernment leaders, reinforced the message that there our own integrated presence and capacity across the continent.is a new story emerging about Africa; a story of growth, As an integrated African organization with a physical presence in 32 countries, and leveraging our global brand and reputation, we are now able to increasingly provide our clients with greaterHowever, despite growth and progress, our 2012 editionof Africa attractiveness survey reveals that a perception navigating the challenges and complexities of doing businessgap remains between those already doing business in Africa, across the continent.who are believers in the emerging African growth story,and those who have not yet invested and continue to We remain excited and very positive about Africa. We are optimists, but we are realistic optimists - our perspectiveand corruption. As a result, and while FDI projects continue is deliberately a glass half full rather than half empty one.to grow strongly, Africa still lags behind most other regions This is partly a response to the Afro-pessimism that hasin capturing the imagination of many international investors. been dominant for too long, but mainly because we believe that it takes a positive mindset to succeed in Africa. If youWe need to bridge this perception gap by telling new storiesabout Africa, stories of economic growth and opportunity, the time to build bridges, physically and metaphorically.democratic progress, and human development. We need tochange the stereotypes and demystify Africa. We need to As we present our second edition of the Africa attractivenessrewrite the news headlines. survey, we thank all the decision makers and Ernst & Young professionals who have taken the time to share their insightsHowever, in telling these stories, we should also not shy with us.away from the challenges that remain if we are going tounlock Africa’s vast human and economic potential. Welcome! Africa is open for business. Lets build! Ernst & Youngs 2012 Africa attractiveness survey Building bridges 3

Foreword Foreword by His excellency, Deputy President of the Republic of South Africa, Kgalema Motlanthe Africa’s economic performance over the past decade has outstripped any previous period, and current forecasts are that Africa’s economy as a continent will grow at about 5.5% this year. The big question is whether this performance can continue and for how long. To answer this question we have to examine the factors that have contributed to Africa’s strong growth performance in recent years. Africa is an exporter of natural resources and the price of and demand for natural resources have been strongly driven by growth in China, as well as a few other major developing countries. Secondly, the quality of our macro-economic management has improved enormously, as has the quality of economic leadership in African governments. One of the most important reasons for this sustained growth was that debt levels were low in Africa. The other key macroeconomic variables were within reasonable levels too.4 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

But we are not resting on our laurels, being fully aware thatgrowth story is about rising domestic consumption. This African growth has to be driven forward. It is our ambitionshows that growth is not entirely unbalanced and not purely that by June 2014, 26 countries with a combined populationdependent on resource exports. Also contributing to the of nearly 600 million people and a total Gross Domestic Productimproved economic performance in Africa is the emergence (GDP) approximately US$1.0 trillion will be united in a singleof accountable and democratic governments. And, yet, Africa free trade area.investment projects last year. It seems that the African growth However, we are not naive to believe that by simply removingstory has not yet been fully understood. trade tariffs we will create an integrated regional economy.Many investors still view Africa as being a more challenging trade than tariff barriers. There are three main non-tariffplace to do business in than other emerging market regions; barriers.this despite the fact that in the World Bank’s most recentEase of Doing Business rankings, 14 African countries rankedahead of Russia, 16 ahead of Brazil and 17 ahead of India. the movement of people, goods and services across borders.Similarly, Africa is often perceived as being inherently corrupt. At many borders in Africa there are unnecessary delaysWhile corruption no doubt remains a big challenge in Africa,14 African countries rank higher than India, and 35 higherthan Russia, in Transparency International’s Corruption border, and weak border infrastructure — not enough space,Perceptions Index.The policies of the South African government strongly support The second non-tariff barrier is poor infrastructure. Road,economic growth in Africa. In practice, our most obvious work rail or power facilities are sometimes substandard, slowing down transport and worst still, making it cheaper for coastaland peace keeping. But we also provide a considerable amount countries to import items from far across the oceans thanof technical assistance through government departments purchase them from their neighborsand state owned enterprises.Our development banks — the Industrial DevelopmentCorporation and the Development Bank of Southern Africa cases, neighbors produce largely similar products and there is no great reason to trade among each other. The solutionof the economies of numerous sub-Saharan African countries. is to strengthen the competitiveness in African economiesSouth Africa’s infrastructure — our roads, railways, airports in a range of industries. To overcome this challenge we needand harbors — offer many services to African markets. top class education and skills development, microeconomicWe are conscious of this and are constantly improving their reforms and even stronger macroeconomic management.owned enterprises continue to expand their contribution On their own, governments would be hard put meeting the objective of effecting regionally integrated economies.new infrastructure. In Africa we need civil society to play a more energetic role in driving the agenda of African integration forward. In thisThe South African private sector has had a huge impact regard, we in South Africa need to work a little harder to raiseon African development since the end of isolation in 1994, awareness of the great achievements of our continent.and it has done so in a range of sectors. Banking,telecommunications, pay-tv, hotels, the retail sector, There is no doubt that Africa is a place replete with possibilities.business services, construction, mining, farmers and On its part, South Africa clearly understands that its growthagribusiness — in all these sectors South Africa has invested and development can only happen in the context of anand raised productivity levels and increased the competitivetemperature. Ernst & Youngs 2012 Africa attractiveness survey Building bridges 5

Key findings FDI projects in Africa have grown at a compound rate of almost 20% since 2007 1. The number of Foreign Direct Investment (FDI) projects in Africa grew 27% from 2010 901 857 747 to 2011, and have grown at a compound rate of 675 close to 20% since 2007. 421 2. Despite this growth, there remain lingering negative perceptions of the continent — but only CAGR=19.4% among those who are not yet doing business in Africa. 2007 2008 2009 2010 2011 Source: fDi Intelligence, data as of 3 February 2012; Ernst & Young. 3. The story of Africa’s progress, not just in economic but also in socio-political terms, needs Africa by numbers 4. This broad-based progress is underscored by a substantial shift in mindset and activities 54 sovereign states 3 of the top 5 fastest growing investors into new among Africans themselves, with increasing 1 billion people projects in Africa are African intra-African FDI (which has expanded by 42% US$2 trillion Africa’s US$400 billion since 2007). South Africa’s infrastructure collective GDP (more than program India, less than Brazil) 5. Regional integration is critical to accelerated and sustainable growth. Creating 20% compound growth in FDI projects 2007-11 US$85 billion funding for African infrastructure in 2010 larger markets with greater critical mass will not only enhance the African investment proposition, it is also the only way for Africa to compete 7 African countries among 35 African countries the 10 fastest growing effectively in the global economy. ahead of China on the EIU’s economies in the world Democracy Index 2010-15 6. Bridging the infrastructure gap will be a key enabler of regional integration, growth and 5.5% Africa’s share of global FDI projects 35 African countries ahead of Russia on Transparency International’s development. It also remains a key challenge and Corruption Perception Index opportunity for investors. 26 states form the Tripartite Free Trade Agreement 17 African countries ahead of India on the World Bank’s Doing Business Index6 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Top15 African country destinations attract 82% of new FDI project since 2003 New projects % share of total 924 827 17.916.0 563 537 10.9 10.4 328 317 307 282 6.3 207 6.1 5.9 178 5.5 141 134 128 119 96 4.0 80 3.4 2.7 2.6 2.5 2.3 1.9 1.5South Egypt Morocco Algeria Tunisia Nigeria Angola Kenya Ghana Libya Uganda Tanzania Zambia Mozambique Bostwana OtherAfrica countries in AfricaSource: fDi Intelligence, data as of 3 February 2012; Ernst & Young. FDI is flowing into a diverse rangeProject investment from developed and emerging markets have grown strongly of sectors - manufacturing and 563 infrastructure-related activity account 538 for a significant proportion of FDI Emerging Markets 490 Developed Markets 425 New projects (proportion, 2003-11) Other 342 338 1,5% 319 Manufacturing 291 292 24,6% 257 250 240 211 185 127 129 50,9% 99 Services 13,0% 72 Infrastructure-related 9,9% Extraction 2003 2004 2005 2006 2007 2008 2009 2010 2011Source: fDi Intelligence, data as of 3 February 2012; Ernst & Young. Capital (proportion, 2003-11)Intra-African FDI has grown at a compound rate of 42% since 2007 Services Other New projects from non-African emerging countries 16.2 4,0% 0,2% 16.9 New projects from 205 16.3 Manufacturing African countries 14.8 Extraction 29,9% Intra-African % share of total 174 27,6% 145 137 10.1 133 136 140 121 8.0 7.7 110 8.3 91 94 38,3% 72 Infrastructure-related 6.4 54 Source: fDi Intelligence, data as of 3 February 2012; 48 36 35 Ernst & Young. 27 18 2003 2004 2005 2006 2007 2008 2009 2010 2011Source: fDi Intelligence, data as of 3 February 2012; Ernst & Young. Ernst & Youngs 2012 Africa attractiveness survey Building bridges 7

Executive summary8 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Executive summaryIn 2011, Ernst & Young’s inaugural Africa attractiveness survey declared “It’s time for Africa!”.countries continuing to enjoy strong economic growth, there has also been a surge in the numberof FDI projects across the continent — up 27% from 2010. This stellar performance forms part ofa longer term trend that has seen FDI projects grow at a compound rate of almost 20% since 2007,and by 153% in absolute terms since 2003.However, despite these positive numbers, there remains a lingering concern that Africa’s potentialwill not be unlocked until three key challenges are met:1. Turn around perceptions in the international community.Africa is still viewed as unstable, corrupt and generally riskier than other regions.2. Accelerate regional integration.This is key to promoting greater levels of regional investment and trade. Regional integration will make itmass and more coherence.3.Poor infrastructure is currently a major contributor to Africa’s underdevelopment. Its improvement,through investment in the transport, power and communication networks that physically enable regionalintegration, will help accelerate and sustain Africa’s growth and development. Ernst & Youngs 2012 Africa attractiveness survey Building bridges 9

Executive summary1. Perception versus realityBridging the perception gap Our survey of more than 500 investors In stark contrast, respondents with So there is still work to be done.and business leaders highlights the no business presence in Africa were Africans, and those with a passionstubborn perception gap that continues overwhelmingly negative. for Africa need to better articulateto hamper efforts to attract investment In fact, for these respondents, the and “sell” the story of growth andinto the continent. continent is viewed as by far the least investment opportunity.While awareness of its qualities is attractive investment destination in In this report we highlight some of thegenerally improving, Africa is still viewed the world. They cite risk factors such as key messages. Africa’s economic outputas a relatively unattractive investment political instability, corruption and security has almost tripled since 2003, and thedestination compared to most other as major obstacles. IMF forecasts that seven of the 10 fastest-geographical regions. growing economies in the world over This represents not so much a gap, This year, we have taken our analysis as a chasm between perception and reality. story is not just about economic growth.one step further, and split the responses The facts tell a different story — one of It is also about a long-term process ofbetween those already doing business reform, progress and growth. These trends political, regulatory and social reform.on the continent and those yet to make are repositioning the continent and individualan investment. African economies as viable alternativesThe results are startling. Those already to other emerging market investmentdoing business on the continent were destinations that are often viewed in a faroverwhelmingly positive, ranking Africa’s more favorable light. It is a positive storyrelative attractiveness above every other that demands telling and retelling. We haveregion except Asia (and even then, only been subjected to negative stories aboutmarginally so). Africa for far too long.2. Competing in a global economyPrioritizing the regional integration agenda The single biggest priority over the states. Many of these countries have small economies, with the highest potential ofnext decade should be the acceleration populations, underdeveloped economies, becoming the world’s largest economiesof the regional integration process. limited capacities, low per capita income in the 21st century.Simply put, if this process does not levels and few resources.intensify, Africa will remain structurally An even more positive development ismarginalized in the global economy and the agreement between the 26 memberAfrican countries will struggle to attract recognized eight Regional Economic states for three RECs to establish a Freea greater share of foreign investment. Communities (RECs) and these should Trade Area (FTA). form the building blocks for accelerated This area will represent an integrated Africa is now competing in a reshaped regional integration. market with a combined population ofglobal economy. Economic productivity Of these, the East African Community 600 million — a total exceeded amongand capital are shifting west to east, (EAC) is arguably leading the way. It is nation states only by the populations ofand from north to south. making good progress toward the creation China and India. This FTA will have a totalAs the spotlight moves from developed to of a market of close to 150 million people, GDP of US$1t, which would put it on a parrapid-growth economies, we believe that a combined GDP approaching US$100b, with Mexico and South Korea, the largestAfricans have a unique opportunity to and an economic growth rate in excess rapid-growth economies after the BRICs,break the structural constraints that have of 6% over the past decade. These key and a long-term GDP growth rate inlong marginalized the continent. This will, numbers would put the EAC in the same excess of 5%.however, only be achieved by fashioning category as Bangladesh and Vietnam, bothgreater regional coherence from the listed among Goldman Sachs’ so-calledcurrent patchwork quilt of 54 sovereign “Next 11”, the countries, after the BRIC10 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

3. Achieving the regional integration processBridging the infrastructure gap Ultimately, though, regional integration The AICD estimates that US$30b The only disappointing aspect of is already being provided each year by infrastructure investment patterns overinfrastructure, both to connect markets African taxpayers and service users. the past few years has been the decliningand to generate enough electricity to Meanwhile, analysis from the Infrastructure contribution of the private sector.support the development of manufacturing Consortium for Africa (ICA) suggests that, We estimate that up to 40% of all FDI capitaland other industrial sectors. in 2010, external funding for infrastructure invested in the continent since 2003 has beenIn a study conducted by the Africa from groups such as the G8, development for infrastructure-related projects. However,Infrastructure Country Diagnostic (AICD), there has been a sharp decline in both theit was estimated that the investment just over US$55b. Therefore, investment number of projects and capital invested sincerequired to bridge the gap between levels of in 2010 was around $85b — not far off the 2008. While this decline is undoubtedlyinfrastructure in Africa and those in other US$90b that is required. caused by several factors, it appears thatemerging markets would be about US$90b there are major unexploited opportunities inannually for the decade from 2010 to 2020. areas such as power generation, transport, ICT and water treatment. Looking forward Africans leading from the front These are clearly not the only challenges Africa faces as it seeks to unlock its full potential. However, progress in these three areas will drive FDI, sustainable economic growth and human development. What gives confidence about Africa’s future is the emergence of a generation of outstanding political and business leaders across the continent.Africans themselves are increasingly leading from the front by providing African solutions to Africa’s challenges. This trend is illustrated not only by our report’s perception survey, which reflects ever increasing confidence and optimism among Africans, but also by the rapidly increasing levels of intra-African investment. This is a critical but perhaps underappreciated element of the emerging African growth story. In the past decade, we have seen the advent of the ‘African Renaissance’, and a re-energizing of the African Union. There has been a sharp decrease in political conflict and democracy has spread. Sound economic management and a growing commitment in many countries to tackle corruption has helped more African businesses to become successful multinationals, which compete not only in Africa but across the world. It is critical that this leadership translates into more engaging and productive relationships between governments and those doing business in the continent. Business is a key partner in the task ahead. For example, businesses must invest in capital projects, pay taxes, create jobs, develop skills, encourage enterprise, facilitate technology transfer and promote corporate social investment. Many African governments are creating more business- and investor-friendly environments. However, there is still scope to accelerate this process. Ernst & Youngs 2012 Africa attractiveness survey Building bridges 11

Bridging theperceptiongap“Until the lion has his own storyteller, 73% of respondents anticipate that Africa’s attractiveness will the hunter will always have the best improve over the next three years part of the story.” 20% growth in FDI projectsAfrican Proverb since 2007 Over 50% of the projects have been in service-related activities (excluding manufacturing, infrastructure, agriculture and extraction)12 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Bridging the perception gapThe emerging African narrativeA new African narrative is emerging. state-owned enterprises privatized, Furthermore, widespread reform,Political, economic and regulatory regulatory and legal systems strengthened together with steady improvements inreform — processes that began in the and many African economies have opened political governance, the commodities1990s — continue to reshape the continent. up to international trade. boom, substantially increased levels of disposable income, urbanization andproviding the relative stability required These structural changes have helped a rapidly developing services sector, havefor economic growth and development. invigorate markets and commerce, creating contributed to a continued and, what an environment that is increasingly we believe to be, a sustainable growth conducive to business and investment. path for Africa.Perceptions are improvingOverall, this year’s Africa attractiveness Over the past three years, has your perception of Africa’ssurvey paints a reasonably positive picture attractiveness as a place to do business... ? 1%our respondents say that their perception 23%of Africa as a place to do business in has 28% improvedimproved over the past three years (only Improved11% say their perception has deteriorated). 60% Detoriorated 2%This view further improves when looking 11% 9% 37%forward. Some 73% of respondentsanticipate that Africa’s attractiveness willimprove over the next three years, while Source: Ernst & Young’s 2012 Africa attractiveness survey.only 4% believe that it will deteriorate. Total respondents: 505.Of those who believe that Africa’s growth Over the next three years, do you think the attractivenesspositive, half have a dedicated Africa- of Africa as a place for companies to establish or developstrategy in place, and 92% have an active activities will...?business presence on the continent. 2% 19% improve 26% 1% Detoriorate 4% 4% Improve 73% 47% Source: Ernst & Young’s 2012 Africa attractiveness survey. Total respondents: 505. Ernst & Youngs 2012 Africa attractiveness survey Building bridges 13

Bridging the perception gapBut a clear perception gap remainsThese results signal that we are moving in Significant difference in investors perceptionthe right direction. However, comparingAfrica as a place to invest and do business in Business presence in Africa No business presence in Africaversus other geographical regions shows that Yes No Europe Asia North Americaa perception gap continues to exist. This kind Respondents 313 192 108 22 41of comparison is critically important, as the Former Soviet States 33.5 -23.6 -35.5 7.3 -22.9 Central America 19.9 -20.7 -25.0 1.9 -32.0As much as individual economies compete Eastern Europe 19.6 -26.8 -33.8 -1.5 -30.1to attract FDI, so too do regions. Middle East 11.4 -20.3 -34.9 -17.6 2.9 Latin America 17.3 -28.9 -27.3 -31.2 -39.1When comparing Africa to other regions Western Europe 17.1 -37.3 -44.2 -25.8 -39.8(both developed and emerging), Oceania 14.4 -33.8 -40.8 -19.4 -35.6Africa is viewed as relatively unattractive, 3.5 -43.4 -45.3 -39.3 -48.4in comparison to most other regions in Asia -6.1 -43.1 -42.5 -42.7 -48.4the world, comparable only to the formerSoviet states as an investment destination. Index of compared attractiveness 14.5 -30.9 -36.6 -18.7 -32.6 Source: Ernst & Young’s 2012 Africa attractiveness survey. Total respondents: 505.At face value, these results present some The index indicates the relative attractiveness of Africa compared with other regions (a positive score means more attractive, a negative score less attractive).concerns. While perceptions of Africa’sattractiveness are improving when comparedwith other regions, Africa still has much The relatively negative overall comparisons rank only Asia (and only slightly so) asground to make up relative to other parts of of Africa with other regions mask an a relatively more attractive investmentthe world. It is, however, interesting to take overwhelmingly positive perception destination than Africa.this research one step further in order to among those who already have a businessfully appreciate the extent of the perception presence in Africa. In fact, the positive In stark contrast, respondents withgap that exists between those already doing sentiment is so strong that those investors no business presence in Africa arebusiness in Africa and those who are not. with a business presence on the continent overwhelmingly negative; to the extent that it actually distorts the overall result. In fact, for those respondents with noRelative to the following markets, is Africa more or less business presence in Africa, the continentattractive as an investment destination? is viewed as by far the least attractiveFormer Soviet States 17% 32% 20% 13% 17% investment destination in the world.Western Europe 16% 26% 28% 19% 11% Breaking these negative perceptionsEastern Europe down to account for regional differences, 13% 32% 29% 13% 14% potential investors from Europe are the leastCentral America positive about Africa’s relative investment 12% 31% 28% 11% 17% attractiveness. North American investorsNorth America 11% 25% 25% 24% 15% are somewhat less so, ranking Africa as moreOceania attractive than the Middle East, and Asian 11% 27% 29% 20% 17% investors rank Africa ahead of the formerLatin America Soviet states and Central America and on 10% 30% 27% 13% 20% a par with Eastern Europe.Middle East 10% 32% 30% 12% 16%Asia 8% 23% 35% 23% 11%A lot more Quite more Quite less Not attractive Can’tattractive attractive attractive at all saySource: Ernst & Young’s 2012 Africa attractiveness survey. Total respondents: 505.14 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

What is contributing to the perception gap?The survey results reveal that negative What impact would the following changes have on Africa attractiveness?perceptions of Africa are primarily related Political stabilityto political risk factors. When asked to 9% 3%1% 87%identify the key barriers to investing Curb on corruptionin Africa, respondents with no presence 82% 10% 6% 2%yet, and who have overwhelmingly Ease of doing businessnegative perceptions of Africa compared 67% 23% 7% 3%to other regions, cite an unstable political 48% 23% 22% 7%environment, corruption and weak security One-stop border postsas major obstacles. 28% 20% 5% 46% Harmonized taxation between countriesIn fact, when the question was turned 43% 29% 21% 6%around and framed more positively — ”What A common currencyimpact would the following changes have 32% 26% 37% 5%on Africa attractiveness?” — and directed Exclusive concessioning 27% 32% 25% 16%to all respondents (i.e. both those doingbusiness on the continent and those not), High Medium Low Cant impact impact impact saypolitical stability and curbs on corruptionagain came through very strongly. Other Source: Ernst & Young’s 2012 Africa attractiveness survey. Total respondents: 505.notable areas for improvement includedimproving the ease of doing business, In your opinion, what measures should be implemented to curb corruption?factors relating to more coherent regional Cant sayintegration, such as one-stop border posts 4.2% The corruption is notand tax harmonization. Other so important in Africa Help to implement 0.7% 0.3% economic liberalization 14.1% 49.4% Punish those 19.5% guilty of corruption Increased awareness on laws and regulations 25.2% Effective implementation of existing regulations 35.5% Effective anti-bribery 29.1% and corruption initiatives Stronger guidelines on corporate governance Source: Ernst & Young’s 2012 Africa attractiveness survey. Total respondents: 494. Respondents could select 2 possible answers. Ernst & Youngs 2012 Africa attractiveness survey Building bridges 15

Bridging the perception gapSince 2007 in particular, and even allowing Africas total FDI by projectsfor the negative impact of the global 901economic downturn, there has been strong 857growth in the number of new FDI projects in 747Africa (at a rate of almost 20% compound 675growth). The trend continued last year withthe number of projects close to the peak of 469 476 4212008, and a year-on-year growth rate of 339 283and the growing attractiveness of Africa as CAGR=19.4%an investment destination. 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: fDi Intelligence, data as of 3 February 2012; Ernst & Young.Global FDI trend for new projects At the same time however, the entire 5.5 continent still only attracted 5.5% of the 901 5.1 global FDI projects in 2011. While this is 5.2 857 a solid increase from the 4.5% of last year 675 4.3 747 and is, in fact, the highest proportion of 4.5 476 421 global FDI that Africa has ever attracted, 3.5 469 3.7 283 the African growth story. 339 3.2 2.7 17,306 15,136 15,589 14,763 12,871 13,073 10,478 10,903 9,551 2003 2004 2005 2006 2007 2008 2009 2010 2011 Global total African total Africas % share of totalSource: fDi Intelligence, data as of 3 February 2012; Ernst & Young.16 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

In fact, in 2011 the entire continent of as China. And since 2003, Africa has onlyAfrica attracted fewer FDI projects than attracted 4.3% of global FDI projects,India and a little more than half as many compared with India’s 6% and China’s 10.5%.African FDI into new projects vs. BRIC1,8001,600 China1,4001,2001,000 India 800 Africa 600 Russia 400 Brazil 200 0 2003 2004 2005 2006 2007 2008 2009 2010 2011Source: fDi Intelligence, data as of 15 March 2012. Ernst & Youngs 2012 Africa attractiveness survey Building bridges 17

Bridging the perception gapAfrican election calendar 2012 Country Election Date Algeria 10 May 2012 Angola August or September 2012 Burkina Faso May 2012 Cameroon June or July 2012 Cape Verde Local May 2012 Chad Local 06 February 2012 Democratic Republic of Congo Provincial Assemblies 25 February 2012 Senate (indirect) 13 June 2012 Egypt Peoples Assembly Shura Council Presidential Local April 2012? Gambia 29 March 2012 Ghana Presidential 1st round 7 December 2012 28 December 2012 Guinea 2012 (postponed from 29 December 2011) Guinea-Bissau Presidential (ad hoc, death of encumbent) 18 March 2012 2012 Kenya postponed to 4 March 2013 by High Court order from 14 Aug 2012 Lesotho 26 May 2012 Libya Constituent Assembly before June 2012 Madagascar late 2012 (postponed from 13 April 2011) Presidential late 2012 (postponed from 1 July 2011) Mali Presidential Mauritania before 31 March 2012 (Postponed from 24 April 2011) before 31 March 2012 (Postponed from 16 October 2011) Mauritius Rodrigues Regional Assembly 5 February 2012 Republic of the Congo June 2012 Senegal Presidential 17 June 2012 Sierra Leone Presidential, House of Representatives and local Seychelles May 2012 Togo October 2012 Zimbabwe 2012 (postponed from 2011)Source: Electoral Institute for the Sustainability of Democracy in Africa (Updated March 2012)18 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Perception versus realityWhy does this chasm in relative perception African regime trendsexist? Why are so many of those already 3 2increasing their investments into the 1continent? What do they understand that 0those with no current business there do not? -1One key factor is the perception gap between -2negative historical beliefs about the continent, Africa Average -3and the positive reality of the African growth -4story over the past decade. As a result, many -5investors still seem to approach Africa with -6greater caution than they do other rapid-growth markets and regions. 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Source: Polity IVWhile it is important that we acknowledgethe factors that are inhibiting investment into as Chad, the Democratic Republic of Congothe continent, it is also important to be clear autocracy, is remarkable. Today a number of (DRC), and Sudan, and those with a higheron the facts. The perception is that Africa states, including Botswana, Ghana, Kenya, dependence on a single, easily controlledis often more politically unstable, more Mauritius, Namibia, South Africa (SA) and commodity, such as Angola and Nigeria.corrupt and more challenging to do business However, perceptions that corruption isthan anywhere else in the world. The facts, average African state is in positive territory rampant across the continent, or thathowever, tell a different story. on the democratization scale. African countries are inherently more corrupt than other rapid-growth markets, Africa is rapidly democratizing To put this in context, whereas in 1990 the do need to be challenged.African democratization is very real, with the large majority of African states would haveone-party state increasingly the exception, Certainly, the extent to which corruption israther than the rule. Most African countries a major issue varies widely. Several southernhave transitioned, or are transitioning two states in the entire continent (Eritrea African countries, island nations such astoward, some form of participatory Cape Verde and Mauritius, as well as Ghanademocracy and this process of political contrast, in South East Asia alone, China, in West Africa and Rwanda in East Africa,liberalization has been accompanied by all rank relatively well on various measures of as such. corruption. On Transparency International’sthe continent. most recent Corruption Perceptions Index, Similarly, on the Economist Intelligence for example, there are 14 African countriesLast year alone saw a number of democratic Unit’s Democracy Index 2011, African that rank higher than India and a remarkableelections, perhaps most notably the countries such as Cape Verde, Mauritius 35 higher than Russia.successful referendum in South Sudan, the and South Africa, rank ahead of developedNigerian election and the peaceful transfer European countries such as France and Similarly, some of the subcomponentsof power in Zambia. In fact, whereas Italy, let alone being well ahead of all of the of the World Economic Forum’s Globalbetween 1960 and 1990 there was only one Competitiveness Index 2011–12 makeinstance of an African leader or ruling party emerging markets (including Argentina, for interesting comparisons. For example, Colombia, Indonesia, Malaysia, Poland, based on a 2011–12 weighted averagethe Berlin Wall more than 30 ruling parties Thailand and Turkey). score on “Irregular payments and bribes”,or leaders have been changed through a Botswana, Cape Verde and Rwanda all rankdemocratic process. Corruption: a challenge but not ahead of the USA. These three countries, pervasive as well as Gambia, Mauritius, Namibia andThis progress is illustrated in the graph Along with political instability, corruption South Africa, rank ahead of Brazil andabove. Drawing on data from the Polity IV is another commonly cited risk to doing China. Sixteen African countries — includingproject, which measures country regime business in Africa. There is no disputing the Ethiopia, Mozambique and Zimbabwe — ranktrends over time, we have captured the fact that corruption remains a big challenge. ahead of India, and a total of 19 are aheadtrend for all African countries since 1960. This is particularly evident in states with a of Russia.The upward trend since 1990, when the more unstable political environment, such Ernst & Youngs 2012 Africa attractiveness survey Building bridges 19

Bridging the perception gap It is getting easier to do business Just as many people seem to automatically Viewpoint assume that Africa is the most unstable and corrupt region in the world, there is often The socio-economic impact of private an automatic assumption that Africa is the most challenging region in the world investment in Africa in which to do business. Zahid Torres-Rahman, CEO, Business Action for Africa There are undoubtedly very real inherent challenges. Perhaps most prominent Business has an interest in Africa Many companies are doing very good is the sheer size and complexity of the developing and poverty being tackled. business in Africa but the development continent, combined with the relative That’s a given. But what is the most community has not yet fully appreciated underdevelopment of many of its countries. effective way in which the different the development potential of business. Although Africa is sometimes conceived parties can contribute to the solution? At the same time, I think when business of as if it is a single country, it is a vast looks at development they look at continent, comprising 54 sovereign states. Corporate Social Responsibility (CSR), This corresponds to 54 different and often How you can which is fundamentally the wrong place. fragmented sets of rules, regulations, enhance your This is not about CSR — this is about stakeholders and markets. development doing business. The complexity of growing and operating impact When talking about the development in Africa is compounded by the fact that through impact of business it’s not about social relatively few of these individual markets running a successful projects but rather how you can enhance are likely to provide the kind of scale that your development impact through can make them commercially attractive business running a successful business. — at least in the short term. Both growth For example, when companies source and risk management are therefore framed In the case of business it’s by doing locally they derive a whole range of by the challenge of effectively “connecting business responsibly and effectively. business benefits such as reduced risk, the dots” across multiple operations I don’t argue against aid — it’s needed reduced costs and better supply chain and territories. Beside the issue of scale, in certain cases like humanitarian management. The positive development underdevelopment also means that one emergencies — but aid is not the most impact of that can be huge — for example, effective path to development. The most in agricultural value chains, by giving one may not have even considered in other effective path to development in Africa small holder farmers access to long term is business. The right infrastructure, markets and to the inputs needed for investment climate and regional trade increased productivity. Going forward in logistics, communications, transport and integration are the critical factors businesses need to remember that and energy. which are much more important to innovation — finding new markets and Africa’s future. consumers — is a key driver for However, within the framework of these development. Doing good by doing good challenges, it is getting easier to do business business should be their key mantra. across many parts of Africa. There are a number of African markets that compare very well with rapid-growth markets in other regions. Using the World Bank’s Doing Business research as one key indicator of trends, many African economies have made substantial progress. Among the 30 economies globally that have improved the regulatory environment for business the sub-Saharan Africa. And during that period, 13 African countries have been featured in20 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Share of economies in sub-Saharan Africa with at least one countries rank ahead of China, the highestDoing Business reform making it easier to do business ranked BRIC country, 14 ahead of Russia,(%) 78 16 ahead of Brazil and 17 ahead of India. 67 The highest ranked African country, 61 63 Mauritius, is ahead of Austria, Belgium, 59 52 France, the Netherlands and Switzerland. South Africa, the next highest African country, is ranked above the majority of 33 emerging markets. In comparison with Ernst & Young’s portfolio of 25 Rapid-Growth Markets (RGMs), South Africa would rank sixth in terms of the relative ease of doing business (only DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 behind South Korea, Saudi Arabia, Thailand,Source: World Bank, Doing Business 2012. Ranked by Doing Business report year. Malaysia and the United Arab Emirates). Ghana, also included, together with Souththe World Bank’s Top 10 business reformers This kind of progress is translating into Africa, Nigeria and Egypt among the 25list. In 2011, 78% of governments in sub- a steadily improving performance by many RGMs, would rank 13th (ahead of all theSaharan Africa — a record number — changed African countries in the World Bank’s Doing BRIC economies,1 as well as the likes oftheir economy’s regulatory environment to Business rankings. In fact, in the 2012 Indonesia and Turkey).make it easier to do business. Doing Business rankings, eight African 1. Accounts for mainland China and excludes Hong Kong. Viewpoint Shaping markets of tomorrow Charles Brewer, Managing Director, Africa, DHL At DHL we are shaping the markets of take days for DHL to obtain the necessary The biggest issue in Africa is the physical customs release and on-forwarding from infrastructure itself — whether you move a logistics company in the world, but the the authorities. This example — one of product across border by road, train, plane leading one in Africa too — we have over 34 many — shows how the emotive political or ship. This doesn’t, in my opinion, prevent years of experience as a pioneer relationships between countries play into growth but is a fairly unique challenge that and innovator on the continent. the logistical challenge of doing business working in Africa creates — it adds to the in Africa. cost of doing business. I’ve been in Africa for about a year and there hasn’t been a single week without an Africa provides For example, in Mali, the two largest cities overwhelmingly enthusiastic and positive a very dynamic share a joint population of just over two experience. However, there million people but there are over twelve also hasn’t been a single week without but sometimes million people who don’t live in those cities a frustrating moment — Africa provides very challenging that, for the most part, have never a very dynamic but sometimes very environment touched or seen one of our products. challenging environment. And it means you So the challenge is getting your product can’t always play by the playbook… However, Africa is not always alone with into those markets but, equally, it is its challenges. I spent eight years in an enormous opportunity as well. An interesting local example is the political Asia-Pacific and that region has certainly tension between South Sudan and Sudan. evolved. Only ten years ago, doing business We’re therefore concentrating on a ‘go to’ Many countries don’t recognize South in China or India was considerably more strategy which targets the 80 — 90% of the Sudan as a shipping destination so, in error, complicated than it is today. For example, African population who live outside they send their goods through to India has twenty eight states, and each one of urban centres. If you can tap into this Khartoum. And, rather than promptly can work autonomously, which creates market, and create the infrastructure and reshipping the goods to South Sudan, it can major logistical challenges. accessibility, then the sky is the limit. Ernst & Youngs 2012 Africa attractiveness survey Building bridges 21

Bridging the perception gapThe African growth story Africas economic output (GDP, US$ billions, current) 2,545 2,389 2,239 2,103 1,977 1,855 1,702 1,566 1,472 1,324 1,137 987 840 696 516 554 562 553 567 587 568 575 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: IMF, WEO Database; expected 2011; forecasts 2012-2016.When political liberalization and regulatory to average 4%–5% growth over the nextreform are combined with disciplined decade, the second-highest regional growth (Ethiopia, Mozambique and Nigeria areeconomic management and, of course, rate after ”Emerging Asia”, according to on both lists). Further, The Economista sustained commodities boom, it should Oxford Economics.perhaps be less surprising that Africa the average African economy will growhas enjoyed such a sustained period of It should perhaps be unsurprising then faster than its Asian counterpart.3economic growth. In fact, over the past that the growth rates of many individualdecade, African economic output has more African countries have been impressive Given recent growth, it should perhapsthan tripled. According to The Economist, and sustained. According to research done be unsurprising that returns on investmentin eight out of those 10 years, Africa has by The Economist, six African countries in Africa have been among the highestgrown faster than East Asia.2 have been among the 10 fastest-growing (if not the highest) in the world. This is not economies in the world over the past a new trend. One of the key conclusionsLooking forward, economic growth prospects decade; and seven African countries are of a 1999 United Nations Conference onlook positive, with sub-Saharan Africa set forecast to be among the 10 fastest- Trade and Development (UNCTAD) report4Economic growth prospects: 2011-20 Worlds ten fastest-growing economies(Annual growth, GDP in 2005 US$) Annual average GDP growth, %Emerging Asia Country 2001-10 Country 2011-15 Angola 11.1 China 9.5Sub Saharan Africa China 10.5 India 8.2 Myanmar 10.3 Ethiopia 8.1Middle East & North Africa 8.9 Mozambique 7.7Latin America Ethiopia 8.4 Tanzania 7.2 Kazakhstan 8.2 Vietnam 7.2US Chad 7.9 Congo 7.0 Mozambique 7.9 Ghana 7.0Eurozone Cambodia 7.7 Zambia 6.9 Rwanda 7.6 6.80 1 2 3 4 5 6 7 Source: The Economist, IMF.Source: Oxford Economics. 3. “The Hopeful Continent”, The Economist, December 2011. 4. “Foreign Direct Investment in Africa: Performance and2. “The Hopeful Continent”, The Economist, December 2011.22 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Viewpoint Embracing the opportunities Donald Gips, US Ambassador to South Africa I look at the story of Africa and to a trade and investment destination, and that investment and job creation increase the United States and it is starting to an increasingly important trading partner dramatically. change. There are more Americans for the US. certainly coming to South Africa and they This rising prosperity in Africa will open can see there is potential. And when you However, while the perception of Africa new markets for American goods and talk to American businessmen, is changing, we think that governments create jobs in both regions. More and more which is what I spend a lot of my time and business people can do more. people understand that the 21st century doing, they talk about the potential and the As Ambassador, I’ve made it a personal will be the African Century. profitability. Sure there is risk, but the priority to promote Africa to the American potential rewards are commensurate with business community. While many US that risk. businesses understand — and have The US has been the leading investor embraced — the opportunities, there into Africa in terms of the number of This rising are others for whom the perception of FDI projects since 2003, with the difficulties of doing business on the companies like Coca Cola, IBM, prosperity continent outweigh what they see as Hewlett-Packard, Chevron and in Africa the benefits. Exxon-Mobil leading the way. will open Although there was a relative decline For some US businesses, the path to in US investment in the first half of new markets investing is as simple as getting past the 2000s, since 2007, investment stereotypical and alarmist headlines. by US-based companies in FDI Many African governments are raising the For others, specific support will be projects has grown at a compound bar to make it easier to do business and required to address some of the perceived rate of 21.4%. Walmart’s US$2.4b are welcoming economic investment. Huge and real challenges to doing business acquisition of a majority stake in strides have been made across the on the continent. South African retailer Massmart and continent, from the large-scale efforts such as regional trade zones to country-specific Working together with governments and Government to participate in a efforts to streamline bureaucracy and business associations like the American US$10b power sector upgrade are improve access to small and medium Chamber of Commerce, we need to further indicators that US investment business resources. Africa is rapidly address these concerns and both change activity is likely to continue growing. re-inventing itself from an aid recipient the perceptions and clarify the rules so GDP growthfrom FDI into Africa was higher than in most Unweighted annual average, %other host regions in the world. Among the 6examples cited was the case of USA FDI intoAfrica, which averaged a 29% rate of return Asian countriesbetween 1990 and 1997, substantially 5higher than any other region duringthe same period. This assertion of highinvestment returns from Africa is supportedby several more recent studies.5 4 African countries 3 25. These include Boston Consulting Group, “The African Challengers: Global competitors emerge from the overlooked continent”; Warnholz, “Is Investment in Africa 1970s 1980s 1990s 2000s 2011 - 15 the Time to Invest in Africa,” Harvard Business Review, Feb Source: The Economist, IMF. 2009; “Lions on the move: The progress and potential of Excluding countries with less than 10m population as well as Iraq and Afghanistan. African economies,” McKinsey Global Institute, June 2010. Ernst & Youngs 2012 Africa attractiveness survey Building bridges 23

Bridging the perception gapLooking forward: factors sustaining growthand an ever-improving environment for doing business, but also because of three key leadindicators: improvements in human development trends, growing levels of disposable income Development: human development The declining rate of poverty in Africa numbers are trending up 60Improvements in the quality of life are not Sub-Saharan Africaonly a key indicator of the ultimate impactof economic growth, but also of its long-term sustainability. While there is obviously 50still a long way to go, the signs are thatprogress is being made in the areas ofhealth, education and general welfare in 40many parts of Africa. An analytical study byXavier Sala-i-Martin and Maxim Pinkovskiy 38%backs up the view that the quality of life in 30Africa is steadily improving.6 In their paper,African Poverty is Falling… Much Fasterthan You Think!, they reveal that there 1990 1995 2000 2005 2010 2015has been a sharp and widespread reductionin poverty and income inequality in Africa Actual $1.25/day Projected $1.25/daysince 1995. Source: Development Prospects Group, World Bank.Human Development Index (HDI) value - Africa The steady overall improvement in human development is illustrated by the upward trend in the United Nations’ Human Development Index 2011, particularly over the past two decades. As a result, 0.498 and according to the World Bank: 0.492 0.482 0.468 0.496 0.488 “Progress on the Millennium Development 0.475 0.422 0.437 countries (such as Cape Verde, Ethiopia, 0.391 Ghana and Malawi) are likely to reach 0.405 most of the goals, if not by 2015, then 0.371 soon thereafter. Africa’s poverty rate was falling at about 1 percentage point a year, from 59% in 1995 to 50% in 20051980 1985 1990 1995 2000 2005 2006 2007 2008 2009 2010 2011 (see graph [above]). Child mortality rates are declining, HIV/AIDS is stabilizing, andSource: Human Development Index (HDI) value: HDRO calculations based on data from UNDESA (2011),Barro and Lee (2010), UNESCO Institute for Statistics (2011), World Bank (2011) and IMF (2011). primary education completion rates are rising faster in Africa than anywhere else.”76. African Poverty is falling,..Much Faster than You Think!, Bureau of Economic Research Working Paper 15775, 7. Africa’s Future and the World Bank’s in Support to It. The February 2010. World Bank,24 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Patterns of growth in household income for African countries Markedly getting poorer Remaining roughly static with Remaining roughly static Growth of the working a tendency to greater poverty poor/middle market Algeria, Burundi, Chad, Congo, Eritrea, Côte d’Ivoire, Madagascar, Sierra Leone, Democratic Republic of Congo Cape Verde, Equatorial Guinea, Liberia, Gabon, Guines-Bissau, Zimbabwe Somalia Libya + + + + 0 0 0 0 - - - - 0-5 5-10 10-15 15-20 20-25 25-30 30-35 35-40 40-45 0-5 5-10 10-15 15-20 20-25 25-30 30-35 35-40 40-45 0-5 5-10 10-15 15-20 20-25 25-30 30-35 35-40 40-45 0-5 5-10 10-15 15-20 20-25 25-30 30-35 35-40 40-45 45+ 45+ 45+ 45+ Working poor and Remaining roughly static with Generally getting Markedly getting af uent growth a tendency towards greater af uence more af uent more af uent African average, Gambia, Namibia, Benin, Cameroon, Central African Angola, Burkina Faso, Ethiopia, Ghana, Egypt, Mauritius, Morocco, Seychelles, Sao Tome & Principe, South Africa, Republic, Comoros, Djibouti, Kenya, Guinea, Malawi, Mauritania, Mozambique, Sudan, Tunisia Swaziland Lesotho, Mali, Niger, Senegal, Togo, Nigeria, Rwanda, Tanzania, Uganda Zambia+ + + +0 0 0 0 - - - - 0-5 0-5 0-5 0-5 45+ 45+ 45+ 45+ 5-10 5-10 5-10 5-10 10-15 15-20 20-25 25-30 30-35 35-40 40-45 10-15 15-20 20-25 25-30 30-35 35-40 40-45 10-15 15-20 20-25 25-30 30-35 35-40 40-45 10-15 15-20 20-25 25-30 30-35 35-40 40-45 Market segments (US$ Household income in thousands)Source: C-GIDD , Ernst & Young. Money talks: Africans are becoming When remittances from the diaspora of Distribution of the African population wealthier African workers are incorporated into the by income (including remittances)Africa’s population today totals over one analysis, a substantial potion of the poor (2010)billion people with combined consumer population moves into the lower-middle Poor High incomespending approaching US$1t. This constitutes (>$20 per day) (<$2 per day)an already substantial, but also growing, day) — 24% in 2010 according to African 36.5% 18.8%market opportunity. Ernst & Young’s Upper middleanalysis of consumer growth trends over by income this way gives a broader ($10-$20 per day)a 10-year period, from 2005—15, reveals "consumer class", i.e. middle-class grouping 10.8%a market underpinned by both short- and (US$2–US$20 per day), which makes uplong-term potential. In general, there is roughly 40% of the African population. 9.9% Lower middlea slowdown in growth rates among the 24.0% ($4-$10 per day) Floating classvery poor, high growth for the mass market These patterns are translating into ever- ($2-$4 per day)and moderate growth among the more increasing levels of disposable income, often Source: The Middle of the Pyramid: Dynamics of the Middle Class in Africa, African Development Bank data and indicators such as GDP per capita. (AfDB), April 2011.Based on this analysis, there are onlya handful of countries, such as Algeria, We anticipate that consumer growth will services, growing intra-African trade andEritrea and Zimbabwe, which show a accelerate over the next 15 years. Thisdistinctly negative pattern. By contrast, process will be driven by rapid urbanization, the economies on the continent arethe pattern across a broad range of countries population growth and continued expected to provide a multiplier effect tois one of a marked trend toward greater socioeconomic development. Rising the emerging potential evident in African domestic demand for, and consumption of, consumer markets today. an ever-broadening range of products and Ernst & Youngs 2012 Africa attractiveness survey Building bridges 25

Bridging the perception gapAfrican vehicle ownership in global context 500 400 As a proxy measure for the rising consumer market and middle-classMillions units 300 income growth expected in Africa, EU the Institute for Security Studies has forecast a rapid rise in African 200 vehicle ownerships — becoming USA India a larger market than India, Africa the USA or EU by 2045. 100 0 2008 2012 2016 2020 2024 2028 2032 2036 2040 2044 2048 Source: Africa futures 2050, Institute for Security Studies (ISS). Viewpoint Government and business have aligned objectives Jeff Nemeth, President and CEO, Ford Southern Africa Ford has operated in Southern Africa capital inflows and outflows are very easy. Looking forward, it is important to for 96 years and has been manufacturing But in our conversations with policy- remember that both government and on the continent for 88 years. So we have makers, we have also been pressing the business have aligned objectives. a long history with various forms of South African government to ensure We would rather grow our business and government, particularly in the southern that the country’s industrial sector is supply base in South Africa because that half of the continent. globally competitive. Our leads to more customers and will help sell latest product is a Ford Ranger and our cars. We believe in jobs and skills We create we are exporting it to 148 countries. growth; we need both to grow our a lot of jobs Our challenge is exporting it at a business. While we are driven by profits on competitive cost level. We have been behalf our shareholders, at the same time around us working with the government on there is huge scope for alignment with and so we are transportation because logistics costs government and to help each other out. As are our single biggest cost. As such, long as we find that space and work an important the logistics service has to be at global together both government and business industry to government cost levels. can be successful. in that regard And when it comes to the African The auto industry and government work continent as a whole, we have encountered Almost 30% of FDI capital invested closely together. Ours is one of the most some challenges regarding the regulations into Africa since 2003 has gone highly regulated sectors in the world — - not only their onerous nature but also the into manufacturing activities. CO2, safety, and manufacturing variation that exists in enforcement — from Manufacturing has, in turn, regulations. We are also a great engine for country to country and within countries. contributed 40% of all new FDI- manufacturing industrialization — we We always strive to abide by the related jobs on the continent over create a lot of jobs around us and so we are regulations but the problem is a lot of our that period. Of that, the automotive an important industry to government in suppliers and people we deal with are sector has been the single biggest that regard. forced into informal channels because of contributor, creating over 100,000 the heavy tax codes and regulations, new jobs. One of the things that is good about and because they are not enforced doing business in South Africa is that consistently. 26 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

continued with greater levels of investment beyond a dependence on commodities into less capital intensive sectors, resulting in FDI into economic activity - ShareErnst & Young’s 2011 Africa attractiveness a growing number of FDI projects in relation of annual total % share of projects and Capital Value (2003-11) to the capital amounts being invested.of FDI as a key trend. We believe this isan important lead indicator of a broader We have also dug a little deeper into the Manufacturing kinds of projects and sectors receiving 24.6% 29.9%will continue to lessen Africa’s dependence capital investment. At a high level, thereon natural resources and, by extension, Business services 20.5%commodity prices. This year, the trend has between 2003 and 2011: 1.1% Sales, marketing and support 17.9%1. Over 50% of the projects have been in service-related activities (excluding manufacturing, infrastructure, agriculture and extraction). 1.3% Extraction 9.9% 27.6%2. Almost 70% of the capital invested into Africa (and nearly 40% of new FDI projects) has gone into manufacturing-type and infrastructure-related activities(and not extractive activities, as many people may assume). Construction 6.1% 24.5% Retail Infrastructure 5.9%3. Manufacturing activity alone accounts for 40% of all new FDI-related jobs in 0.8% Africa since 2003. Logistics, distribution and transportation 3.0% 2.2%4. ICT and Internet infrastructure Of the investment into manufacturing, a large proportion of the capital has gone 2.2% into natural resource sectors such as oil and gas and mining. 4.5% Electricity 1.7% 7.2%FDI into Africa(2003-11) New projects 230,566 Capital value 901 857 Source: fDi Intelligence, data as of 3 February 2012; Ernst & Young. 747 675 Growing diversi cation 469 476 421 339 106,225 95,413 95,274 283 91,734 88,928 82,43964,120 43,339 2003 2004 2005 2006 2007 2008 2009 2010 2011 Capital value (US$ millions) New projectsSource: fDi Intelligence, data as of 3 February 2012; Ernst & Young. Ernst & Youngs 2012 Africa attractiveness survey Building bridges 27

Bridging the perception gapThe last point relating to investment Jobs created 52.0in manufacturing in relation to natural % share of total (2003-11) 45.4Sixty-four percent of FDI capital invested 39.5into the manufacturing sector in Africa 37.9 38.2 36.8 38.4from 2003–11 (which constitutes almost 33.920% of the total new manufacturing 28.6projects) has gone into processing 24.9 23.4extractive sectors, as opposed to simply 20.4 17.4 18.5 17.2 16.7 16.6extracting resources from the ground andshipping these raw materials to foreignmarkets. While this may not represent 7.1marker in Africa’s continued and evolving 2007 2008 2009 2010 2011 Sum of 2003-11growth path. Infrastructure-related Manufacturing Extraction Source: fDi Intelligence, data as of 3 February 2012; Ernst & Young.Manufacturing investment into African sectors (2003-11)Ranked by projects Food and tobacco 150 Metals 139 Automotive OEM 112 Building and construction aterials 96 Beverages 82 Chemicals 77 Coal, oil and natural gas 68 Textiles 63 Electronic components 61Industrial machinery, equipment and tools 56 Automotive components 49 Plastics 33 Minerals 30 Paper, printing and packaging 29 Pharmaceuticals 29 Consumer products 28 Aerospace 26 Consumer electronics 23 Alternative/renewable energy 22 Rubber 18 Non-Automotive Transport OEM 15 Ceramics and glass 14 Communications 13 Business machines and equipment 10 Wood products 7 Medical devices 6 Engines and turbines 4 Biotechnology 4 Warehousing and storage 2 Business services 2 Software and IT services 2 Healthcare 1 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 Capital value (US$ millions) New projectsSource: fDi Intelligence, data as of 3 February 2012; Ernst & Young.28 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Articulating a complex investment caseAfrica certainly has all the makings of landscape to attract a greater proportion of However, it is not only about sellinga compelling investment case — natural the investment that will accelerate growth the story. The investment case is complexresources, rapid economic and population and development. because Africa is not a single country,growth, maturing political systems, a rapidly it is a continent. Substantial challengesimproving environment in which to invest The bottom line, though, is that in this remain to be addressed if we are to createand do business and investment returns contest for international capital and a compelling proposition that can competethat are second to none. This is not wishful resources, better stories are still being with the BRIC economies. But as the nextthinking; it is supported by a diverse body told about other markets. Despite high section highlights, Africans are leadingof evidence. optimism, high growth and high returns, from the front. With this active leadership the perception gap still exists and the to the fore, we anticipate that the mutuallyWith rapid-growth markets not only African continent as a whole still attracts reinforcing processes of regional integrationdominating investors attention and capital fewer FDI projects than India and far fewer and infrastructure will elevate Africa than China. There is clearly still work to into the premier league of investment be done by Africans — government and destinations.economic agenda, the competition for FDI is private sector alike — to better articulateintensifying. African countries must position and “sell” the growth story and investmentthemselves appropriately in this shifting opportunity for foreign investors. Ernst & Youngs 2012 Africa attractiveness survey Building bridges 29

A radical tacticalshift: Africansleading fromthe front“If you have the courage 42% the astonishing growth rate of Intra-African FDI since 2007 and determination and know when to take Top 20 investors into the rest of the continent between a radical tactical shift, 2003—11 include Kenya, Nigeria and South Africa then virtually nothing is impossible on this 26 African states participating in the Tripartite Free Trade continent.” AgreementLewis Pugh, Ernst & Young Strategic Growth Forum,Cape Town, March 2, 2012. US$93b p.a. required for the decade from 2010—20 to close the infrastructure gap with other developing regions30 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

A radical tactical shift: Africans leading from the frontGrowth in intra-African investment continuesEmerging markets vs. African country investments into Africa (2003-11)New projects 16.2 16.9 205 16.3 14.8 174 145 137 10.1 133 136 140 121 8.0 7.7 110 8.3 91 94 72 6.4% 54 48 36 35 27 18 2003 2004 2005 2006 2007 2008 2009 2010 2011 New projects from New projects from Intra-African % share of total non-African emerging countries African countriesSource: fDi Intelligence, data as of 3 February 2012; Ernst & Young.In last year’s survey, we highlighted a This means that over a period in which the annual number of FDI projects intoAfricans about investing and doing business the substantial growth of intra-African Africa has more than doubled — from 339in Africa. This year’s survey reinforces this investment. Between 2003 and 2011, in 2003 to 857 in 2011 — intra-Africanview. A very high proportion of African there has been 23% compound growth investment, as a proportion of the totalrespondents have positive views on in intra-African investment into new FDI number of projects, has also more thanthe progress already made and on the projects. This growth is accelerating; doubled. As a result, in 2011 intra-Africancontinent’s attractiveness as a place to since 2007 the growth rate has been investment accounted for 17% of all newinvest and do business, both now and an astonishing 42%. FDI projects on the continent.into the future.Picture: aerial view of a zebra herd splashing across a marshy grassland. Okavango Delta, Botswana. Ernst & Youngs 2012 Africa attractiveness survey Building bridges 31

A radical tactical shift: Africans leading from the frontKey sub-Saharan economiesare growing their investmentsTop African destinations for new FDI project investment (2003-11) New projects % share of total 924 827 17.9 16.0 563 537 10.9 10.4 328 317 307 282 6.3 207 6.1 5.9 178 5.5 141 134 128 119 96 4.0 80 3.4 2.7 2.6 2.5 2.3 1.9 1.5South Egypt Morocco Algeria Tunisia Nigeria Angola Kenya Ghana Libya Uganda Tanzania Zambia Mozambique Bostwana OtherAfrica countries in AfricaSource: fDi Intelligence, data as of 3 February 2012; Ernst & Young.The growth in intra-African investment 2003—11. Importantly too, in the last four from Kenya and Nigeria into the rest of theis being led by the respective regional years, all three of these African countries continent has grown at a faster rate thanpowerhouses of Kenya, Nigeria and South have been growing their investments from anywhere else in the world, at 77.8%Africa. All three of these African economies and 73.2% respectively, while South Africanare ranked among the top 20 investors in terms of compound growth of new FDI investment has grown at a rate of 64.8%.into the rest of the continent between projects. Over this period, investment32 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Africas top 30 investors growth in projectsCountries ranked in order of cumulative new FDI projects (2003-11) US 21.4% 12.5% France 3.5% 10.5% UK 26.8% 9.8% India 46.2% 5.2% UAE -4.5% 4.2% South Africa 64.8% 4.1% Spain 3.0% 4.1% Germany 20.9% 3.7% Canada 28.4% 3.5% Portugal 8.2% 3.1% China including Hong Kong 11.7% 3.1% Switzerland 2.4% 2.5% Japan 38.0% 2.5% Italy 16.1% 2.2% Australia 4.7% 2.2% Kenya 77.8% 2.0% Nigeria 73.2% 1.6% Netherlands 18.9% 1.4% Saudi Arabia 65.5% 1.3% Russia -4.5% 1.2% South Korea 82.1% 1.0% Sweden 25.7% 1.0% Kuwait 7.5% 0.8% Togo 18.9% 0.8% Ireland 13.6% 0.8% Luxembourg 31.6% 0.8% Egypt -38.5% 0.7% Turkey 49.5% 0.7% Tunisia -100.0% 0.7% Brazil 10.7% CAGR (2007-11) 0.6% Contribution to total (2003-11)Source: fDi Intelligence, data as of 3 February 2012; Ernst & Young. Ernst & Youngs 2012 Africa attractiveness survey Building bridges 33

A radical tactical shift: Africans leading from the front Viewpoint The Ecobank success story Arnold Ekpe, CEO, Ecobank Having historically been constructed We remain committed to a flexible strategy seems impossible until it is done.” along geographic lines, in 2010 we also which utilizes both organic Today, Ecobank is recognized as a major reorganized the group into three business and inorganic means of growth, with financial institution across the continent units: a corporate banking unit to focus the ultimate aim of being top three but when the concept of a privately-owned on multinationals, a retail business to in each of our markets. We believe independent African institution was first focus on domestic consumers and local that this approach allows us to react to mooted in the 1980s, the idea was corporate, and an investment banking — a market that continues to grow. considered almost crazy. which we branded as Ecobank Capital. However, Africa’s fortunes are tied closely We had a clear vision and mission from to other parts of the world and the inception. Our founders did not set out to We remain continent will not be immune to the create a carbon copy of other banks — they committed Eurozone crisis for example. The banking set out on a different track. They wanted to a flexible sector must also confront fresh challenges something that was pan-African from the such as new regulations, high up front start, inclusive to customers and be able to strategy which funding and risk costs and the need to make a difference. We have since refined utilises both generate shareholder returns. Ultimately, the model — we now say we want to build a organic and inorganic those banks which can reshape their world-class pan-African bank with world- portfolios, build stronger regional class operations and services, supported means of growth networks and innovate successfully. by strong corporate governance, strong Looking forward, I think the greatest compliance and strong ethics. opportunities will lie in the mass retail Ecobank was the second largest segment. Less than 20% of the African investor across Africa by FDI project We are now present in 32 countries. population has access to formal banking numbers (41) between 2003 and Ecobank operates as one bank, with facilities — which represents a huge 2011 — 98% of those investments common branding, policies, processes and opportunity. We are looking to empower have been made since 2007. technologies across our entire network Africans and want to contribute to the — risk management, finance, operations economic development of the countries Top 20 investors into Africa by and IT functions have all been centralized. in which we operate by providing wider number of projects (2003-11) Ecobank today employs 20,000 people access to finance. This will lead to more (Parent company): (1) Banco BPI , from 14 nationalities in more than employment and, over time, a more (2) Ecobank Transnational, 1,400 branches and offices across Africa, developed economy. the Middle East and Europe. (5) Kenya Commercial Bank (KCB), Size matters in banking as fundamentally Banking is a specialized and cyclical it is a commodities business. Critical mass (9) Coca-Cola, (10) Total, business; financial institutions need to is essential in Africa where operating (11) Credit Agricole, (12) Banco be strong enough to withstand external costs are very high relative to customer Comercial Portugues (Millennium shocks but flexible enough to capitalize volumes. We shifted our strategy to build BCP), (13) Accor, (14) Toyota on the upturn when it inevitably comes. scale in key markets as scale generates If we were to create a pan-African banking economies. It enables us to hand major Group, (17) Hewlett-Packard , force, we realized we had to adopt a transactions and establishes Ecobank as (18) Inditex, (19) France Telecom, diversified business model — transforming a systemic player in the markets in which (20) Chevron Corporation. Ecobank from what was predominately we operate. Source: fDi Intelligence. a wholesale business to a more balanced portfolio of banking activities.34 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Intra-African tradeis also growing substantially Total intra-Africa bilateral trade (US$ millions)a broader process of Africans connectingand working together to take ownership oftheir own destiny. What the numbers tell usis that intra-African trade, as a proportionof Africa’s overall trade, has remained .9% = 16 GR CAat around 12%. This remains a very low ica Afr ra-proportion when compared with intra- Int 99,325 103,908regional trade proportions in other parts ofthe world. Intra-Asian trade, for example, is 87,163over 50% of total Asian trade and for Latin 76,870America the proportion is close to 30%.8 67,293 55,136Percentage of Intra-Africa trade 44,566relative to Africas total 36,564 30,788 Year % 19,700 16,273 19,583 2002 13,2 9,674 12,676 5,569 6,530 8,619 4,681 2003 12,6 2002 2003 2004 2005 2006 2007 2008 2009 2010 2004 12,0 North Africa Sub-Saharan Africa 2005 11,5 2006 11,9 Source: Economic Commission for Africa (ECA), Compendium of Intra-African and Related Foreign 2007 11,7 Trade Statistics - 2011. 2008 11,8 2009 13,4 However, we should also recognize that While there remains considerable potential 2010 13,1 Africa’s total trade numbers over the past (and, we would argue, an imperative) to decade have grown considerably, and so, further accelerate this growth, the trend as the graph illustrates, total intra-African is still notably positive. trade has actually trebled since 2002, growing at a compound annual rate of almost 17%.8. The Centre for the Study of African Economies at Oxford University Ernst & Youngs 2012 Africa attractiveness survey Building bridges 35

A radical tactical shift: Africans leading from the frontAfrican solutionsto African challengesEver-increasing levels of intra-African Overall average score for globalizationunderscore a growing trend of Africans 4.30providing African solutions to Africa’s 4.25challenges. This is a critical but perhaps 4.20underappreciated element in the emergingAfrican growth story. In a post-Cold War 4.15context, and particularly over the past 4.10decade, a growing number of outstandingleaders in government, business and civil 4.05society are emerging. 4.00 2008 2009 2010 2011 2012 2013 2014 2015As we look forward, it is important that Source: Globalization Index 2011.African leaders across government and Note: The Globalization Index measures the extent to which the 60 largest countries by GDP are connecting to the rest of the world in five key categories relevant to business.business continue to drive toward solutionsthat will support accelerated growthin both investment and trade in general,but also in intra-African investment and per capita income levels, small populations comparative advantages, integrated regionstrade. We believe the single biggest and limited capacities and resources. can develop common solutions and usepriority over the next decade should be As a result, there are relatively few marketsthe acceleration of regional integration. in Africa that in themselves offer any kind ofSimply put, if this process is not accelerated, scale or critical mass. In the midst of a global economy that isAfrica will remain marginalized in the global being reshaped, with growth and capitaleconomy and African countries will struggle At the same time, doing business acrossto compete for a greater share of foreign borders on the continent can be unnecessarily to east, Africans have a unique opportunityinvestment. to break the structural constraints that have different (and often fragmented) sets of marginalized the continent for decades,We have no doubt that African economies rules, regulations, stakeholders and market if not centuries.will continue to grow over the next decade. dynamics that need to be navigated.However, in a context of increasingglobalization, where the ability of economies Deeper integration throughout the continentto compete in a globally interconnected would enable greater levels of trade,environment is ever more important, growthwill always be structurally constrained and sustainable growth and would alsounder current conditions. This is because create larger markets that are far morethe continent is simply too fragmented; attractive to foreign and domestic investors.a patchwork quilt of 54 sovereign states, Furthermore, by pooling human, capital andmany of which have small economies, low natural resources and leveraging different36 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

ViewpointCritical building blocks Lamido Sanusi, Governor of the Central Bank of Nigeria A significant part of the banking system governance and risk management.growth, and for over a decade has been was on the point of collapse. We didfeatured among the fastest growing a proper examination of the bank’s books banking industry — we have shown otherseconomies in the world. It has critical mass and we found out that 10 banks were how it can be done.with 167 million people, it is the 8th largest short of capital. We stepped in, removedproducer of crude oil in the world and has the management of those banks and As we look forward though, the realsubstantial gas reserves. However, a lot still discovered there was margin trading and challenge is lessening our dependenceneeds to be done to enable the country to also outright theft, with money having on government as the major driver ofbecome one of the top twenty global been taken out of the country with no the economy. Until we move away from thiseconomies by 2020. intention of it ever being paid back. and hand more of this activity to the private sector there will remain So we had to set up an asset management opportunities for corruption. Ultimately, Nigeria is corporation to recapitalize the banks and like all countries, we need a civil society conducive we recovered 200 pieces of real estate that holds politicians to account. That is to private in Dubai, Johannesburg and four private when government knows it has to deliver. jets. It’s extremely easy to run a bad bank investment for a very long time — until there is an external shock. And the financial crisis brought out years and years of fraud that While corruption remains a keyA healthy and well functioning banking had been covered up in these institutions. challenge across many countries,sector is one critical building block towards African leaders like Mr Sanusi aresustaining and accelerating growth in tackling the challenge head on. He experience in context. First, fraud andis a major source of short to medium term corruption was not endemic; it was a tiny banking sector since his appointmentfunds, and has actively contributed to in 2009, and is widely credited with establishing a foundation for an bankers, as a whole, agreed to place 0.3% environment where business canadequate working capital and only of their balance sheets into a specialthe banking system can fill this gap. account to fund 66% of the banking bailoutOur response to the impact of the global — unlike in many countries where the system has been built around foureconomic crisis in 2009 was therefore not taxpayer bore the brunt of the financial pillars of enhancing the quality ofonly a test of our commitment more cost. banks, establishing financial stability,generally to creating an environment enabling a healthy financial sector We had a crisis, and we fixed it. We have evolution and ensuring the financialinvestment, but more specifically, to ensure done everything that the British and sector contributes to the realthat the productive sector has access to Americans are still talking about. We are economy. As a result of his efforts,this critical source of funding. one of the few if not the only country to Mr. Sanusi has won numerous hold the industry to account for what accolades, including being named the it did. We have held people responsible, top central bank governor in thethe world financial crisis — it was more the we have broken up universal banking, world by Banker magazine, Forbessecondary effects such as the crash in oil we forced bank CEOs to leave office magazine’s Africa Person of the Year,prices. When I took over as governor of after 10 years, we have compelled them and one of Time magazine’s 100 to adopt IFRS, embrace the Basel III most influential people in the worldwe had huge macro-economic issues. Accord, and overall we have improved last year. Ernst & Youngs 2012 Africa attractiveness survey Building bridges 37

A radical tactical shift: Africans leading from the frontBuilding blocks:Regional Economic Communities Regional integration has been on the The Abuja Treaty recognized Regional 1. Creating regional blocs in regions where agenda for many years Economic Communities (RECs) as the such do not yet exist — scheduled toThe 1991 Abuja Treaty divided the building blocks for integration. Although have been completed in 1999 there is an array of different groupingsAfrica, West Africa, Southern Africa, East across Africa, there are only eight that are 2. Strengthening of intra-REC integrationAfrica and Central Africa, in preparation for and inter-REC harmonization — scheduledestablishing the combined African Economic (AU) and considered the building blocks of to have been completed in 2007Community (AEC) in six phases over 34 the AEC (see maps on following page).years (1994—2027). The ultimate result 3. Establishing a free trade area andwas envisaged as an economic union with There are different perspectives on the customs union in each regionala common currency, full mobility of factors relative progress that has been made bloc — to be completed in 2017of production and free trade among all toward the creation of an AEC since thecountries on the continent. Subsequently, Abuja Treaty was signed. On one hand, 4. Establishing a continent-widethe creation of the African Union (AU) it may appear to be a slow, stop-start affair, customs union and thus also a freein 2003 and the adoption of the New with very little substantial progress being trade area — to be completed in 2019Partnership for Africa’s Development made. However, it should be recognized(NEPAD), with regional integration as that the process was always envisaged, 5. Establishing a continent-wide Africanone of its core objectives, have brought out of necessity, as long-term one. Common Market or ACM — to begreater focus and urgency to the regional Broken down into six stages, the process completed in 2023integration process. remains more or less on track according to this timetable: 6. Establishing a continent-wide economic and monetary union (and thus also a currency union) and pan-AfricanWhich of the following trade zones offer the most potential for doing business Parliament — to be completed in 2028in Africa? 7. Ending of all transition periods by 2034Economic community of Central African states 33% 10% 14% 28% 6% 8% at the latestEconomic community of West African states 47% 8% 15% 16% 8% 6%East African community 46% 6% 17% 18% 6% 8%Arab Maghreb Union 47% 9% 12% 25% 4% 4%Southern African development community 67% 5% 5% 13% 7% 4% We already have We are actively We are interested We are not We are unaware Cant presence there considering investment in investing interested of this market saySource: Ernst & Young’s 2012 Africa attractiveness survey. Total respondents: 138.38 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Leading the way: the East African Having established its own customs union with the highest potential of becoming the Community in 2005, followed by a common market in world’s largest economies in the 21st century.Arguably the most successful example of 2010, good progress is being made towardregional integration is the East African implementing the free movement of labor, For most investors, the investmentCommunity (EAC). There has been a long capital goods and services. What this means proposition offered by a combined andhistory of cooperation under successive integrated EAC, offering an emergingintegration arrangements in the region that offer no real critical mass, you have market-type investment proposition on adating back as far as 1917, but the EAC a market of close to 150 million people, par with those of Bangladesh and Vietnam,was itself established in 2000 by Kenya, a combined GDP approaching US$100b and is clearly far more interesting and attractiveTanzania and Uganda. Burundi and Rwanda an economic growth rate in excess of 6% than anything that the individual memberjoined in 2007 to complete its current over the past decade. These key numbers countries could offer. would put the EAC in the same sort of category as Bangladesh and Vietnam, bothIn the decade or so since its establishment, listed among Goldman Sachs’ “Next 11,”the EAC has made tremendous progress. those countries, after the BRIC economies,REC pillars of the African Economic Community The Common Market for The Economic Community Eastern and Southern Africa of Central African States (COMESA), whose 20 members The Inter-Governmental Authority on Development The Arab Maghreb Union The Southern African The Community of Development Community Sahel-Saharan States (SADC), whose 14 members The Economic Community of West African States The East African Community (ECOWAS), whose 15 members Ernst & Youngs 2012 Africa attractiveness survey Building bridges 39

A radical tactical shift: Africans leading from the frontA bold vision of the future:the Tripartite Free Trade agreementAn even more positive development is the This initiative elevates the regional co-operations and non-tariff barriers,agreement between the Heads of state integration process to a new level and will as well as the movement of businessand government of 26 African countries in persons. These discussions are scheduledOctober 2008 to establish a free trade area of the negotiations focuses on trade in(FTA) — now referred to as the Tripartite goods, addressing issues such as tariff intention being that the FTA is in effectFTA (T-FTA). This initiative will expand liberalization, rules of origin, customs from June 2014.intra-African trade, promote collaborationbetween the RECs and facilitate jointresource mobilization and projectimplementation. Proposed free trade areaperspective in the context of emergingmarket benchmarks, the T-FTA will constitutean integrated market with a combinedpopulation of 600 million people (onlyChina and India have larger populations),a total GDP of US$1t (which would put iton a par with Mexico and South Korea, thelargest rapid-growth economies after theBRICs), and a long-term GDP growth ratein excess of 5%. COMESA members: Burundi, Comoros, DRC, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, South Sudan, Sudan, Swaziland, Uganda, Zambia and Zimbabwe. SACD members: Angola, Botswana, DRC, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. EAC members: Burundi, Kenya, Rwanda, Tanzania and Uganda.40 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Infrastructure:connecting the dots Viewpointboth in terms of accelerating intra-Africantrade and investment and in creating Mobilizing savings for infrastructurea coherent regional bloc to compete withthe BRICs, what will ultimately bring it to Brian Molefe, CEO, Transnetlife is investment in infrastructure — both toconnect markets and to generate enough Africa requires spending of more than overseas. We’re going to have to thinkelectricity to support the development of US$90b a year on its infrastructure but carefully about our own savings andmanufacturing and other sectors. this investment is not going to be funded leverage those — rather than wait for capital from external sources alone. Our own to arrive from overseas. Africans need toA study conducted by the Africa governments on the continent have to find take their fate into their own hands.Infrastructure Country Diagnostic (AICD) a way of mobilizing our own savings so— a partnership of institutions including that we, as Africans, can make such Our biggest risk is pessimism. Wethe African Union Commission, the African investments. have a host of challenges but I remainDevelopment Bank, the Development Bank confident. We will be able to buildof Southern Africa, the Infrastructure Young infrastructure but to do that youngConsortium for Africa, NEPAD and the Africans need Africans need to become more audacious:World Bank — reveals that the continent’s audacity, audacity, audacity.infrastructure lags behind other developing to becomeregions. When comparing low-income moresub-Saharan African countries to otherlow-income countries, the gap is all too audaciousevident. This is particularly so in the density It is important to remember that Transnet recently announcedof paved roads, coverage of telephone infrastructure around the world has been a R300b (approximately US$40b)landlines and power-generation capacity. led by governments. For example, the infrastructure investment program electrification of the United States was the aimed at a major shift from road toA comparison with South Asia — with result of President Roosevelt deciding that rail transport, significant expansiona similar per capita income — is particularly the country needed to be 100% electrified. of port and pipeline infrastructurestriking. Whereas in 1970, sub-Saharan Africa will have to follow a similar route. and dramatic improvement in exportAfrica had almost three times more We are not going to be able to rely heavily capacity for coal and iron ore. Aboutelectricity generating capacity per million on the private sector to deliver our R200b of the funding will be frompeople than South Asia, by 2000 South infrastructure programmes — not even the operating cash flow, with the balanceAsia had moved far ahead — and it now traditional institutions. We are going to of the capital requirement financedhas almost twice the generating capacity have to look to ourselves to deliver this. through bond issuances, commercialper million people. Similarly, in terms of paper, bank loans and a combinationpaved roads and telephone lines, Africa’s Most African countries have a government of FDI, export credit agency capitalstocks were once on a par with South Asia, pension fund and these have significant and term notes.but over time have also fallen behind. resources, some of which are investedAfricas infrastructure deficit Clearly some decisive and focused action is Normalized units sub-Saharan Other sub-Saharan Africa as Africa low- low-income percentage of other necessary not only to arrest the decline but income countries countries low-income countries to also dramatically close the infrastructure 30 134 22% gap. Otherwise, any efforts at regional 137 211 65% integration will do little to accelerate growth 10 78 13% in trade and investment, either intra-Africa 55 76 72% or with the rest of the world. 2 3 67%Generation capacity (MW per 1 million people) 37 326 11% Source: Africa Infrastructure, A Time forElectricity coverage (% of housholds with access) 16 41 39% Transformation; Africa Infrastructure CountryImproved water (% of housholds with access) 60 72 83% Diagnostic (AICD) - The International Bank for Reconstruction and Development / The WorldImproved sanitation (% of housholds with access) 34 51 67% Bank, 2010. Ernst & Youngs 2012 Africa attractiveness survey Building bridges 41

A radical tactical shift: Africans leading from the frontFunding infrastructure in Africa:how big is the gap?In terms of funding requirements, the AICD Capital expenditure Operating expenditure Totalestimates that an annual investment of US$b, p.a. 2010-20 US$b, p.a. 2010-20 US$b, p.a. 2010-20 ICT 7 2 9US$93b would be required for the decadefrom 2010—20 to close the infrastructure Irrigation 2.9 0.6 3.4gap with other developing regions. About Power 26.7 14.1 40.8two-thirds of this sum would be for Transport 8.8 9.4 18.2construction and rehabilitation and one- Water Supply and Sanitation 14.9 7 21.9third for maintenance. This covers Total 60.4 33 93.3a range of infrastructure needs, including Source: Africa Infrastructure, A Time for Transformation; Africa Infrastructure Country Diagnostic (AICD) -power generation, transmission lines, The International Bank for Reconstruction and Development / The World Bank, 2010.road and rail networks, water and sanitationand broadband access and much else.This number represents just under 15% of What is immediately striking about the It is also important to note that there hasthe region’s GDP and more than twice theamount that was originally estimated by US$30b of it comes from domestic sources, for African infrastructure projects since thethe Commission for Africa in 2005. primarily — the African taxpayer. The data for the AICD report was collected. remaining US$15b would be from external The most substantial increase has come sources such as development institutions from the Infrastructure Consortium forthat the AICD report estimated that and private sector investors. Africa (ICA), an initiative launched in 2005,approximately US$45b was being spent whose members include the G8 countries andannually in Africa on infrastructure. Thisis higher than was previously thought, External support to African infrastructurebut is only approximately half of what is 55.9 + 30 from domesticactually required to close the gap. However, 55.9 African sources = US$85.9bwhile this may appear daunting, relative to 4investments made in some key emergingmarkets, it does not seem insurmountable. 9For example, during the mid-2000s, Chinawas spending approximately 14% of GDP 38.9on infrastructure investment, in 2007 Brazil 37.3 36.5 2.5 2.9 13.8launched a four-year, US$300b plan to 2.8 5modernize roads, ports and power plants, 4.5 5and India began implementing a plana couple of years ago to spend US$500b 11.4 17.5 15this year’s Budget Speech, South AfricanMinister of Finance, Pravin Gordhan, 29.1announced a list of 43 major infrastructure 20projects with a combined value of R3.2t, 13.7 12.4approximately US$400b. Some R845m(over US$100b) of which has been budgetedfor energy, transport and logistics projects 2007 2008 2009 2010over the next three years. ICA Private sector China Other Total Source: Infrastructure Consortium for Africa (ICA) Annual Report 2010.42 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Infrastructure-related number of projects by value and sector — up to 2012(US$ millions) 47 38 31 25 22 22 20 18 18 15 15 14 14 12 11 10 9 9 8 8 7 6 5 5 5 5 5 5 4 4 4 4 3 2 1 1 1 <$100m $100m $500m $500m $1000m $1000m $5000m >$5000m 126 projects 150 projects 70 projects 68 projects 19 projectsPorts Power and transmission Rail Roads and bridges Mining, oil and gas Airports Other ConstructionSources: BMI, EIU, Nedbank, Web Search, Factiva Press Search, World Bank; EY Analysis.“Construction” includes residential, commercial and industrial construction. “Other” includes Defence, Health, Education, Public Transport & Telecoms.Projects that are in the “completed” or “cancelled” stages are not included. Projects for which the value is unknown are not included.multilateral institutions such as the AfricanDevelopment Bank and the World Bank.The ICA is working to scale up investment for Viewpointinfrastructure development by coordinatingthe activities of its members and other Focusing on infrastructuresuch as Arab, Chinese and Indian partners. Sarah Dunn, Southern Africa Head, Department For International Development (DFID)This has resulted in considerable growth ininfrastructure investment over the last few There is no doubt that one of the with the private sector to maximiseyears — ICA investment alone has grown greatest factors of underdevelopment effectiveness of projects. Doing feasibilityover 2.5 times since 2007 to almost US$30b and a constraint to doing business in and preparation work is important in thisin 2010. Africa is weak infrastructure. context.When one also factors in the growth in At DFID we select which infrastructureChinese infrastructure investment in Africa programs to focus on and support. Successful(which had grown to approximately US$9b We look at what can truly be executiona year by 2010), and makes the reasonable transformational, and our focus is on requires regional infrastructure. There areat least remained at the US$30b level, opportunities as a lot of extractive effectiveit is reasonable to conclude that in 2010 industries are set in landlocked areas. partnershipsand 2011 we have been very close to the However, successful execution requiresapproximately US$90b required annually effective partnerships. We work closely However, better infrastructure is notto close the infrastructure gap. with national governments and the the only factor to sustained future growth. regional economic communities, who There are a range of other issues such as identify and ultimately own the projects. lifting the regulatory burden which also We also need to work more cleverly need to be focused on. Ernst & Youngs 2012 Africa attractiveness survey Building bridges 43

A radical tactical shift: Africans leading from the frontWhat aboutthe private sector?African infrastructure-related sector investment 149trends and impact 114,890 111,030 95 86 81 61,844 72 66 57,342 61 49,842 44,856 43,052 41,348 32 31,418 31 27,158 24,253 24,467 20,949 11,471 6,301 8,176 4,096 6,687 2003 2004 2005 2006 2007 2008 2009 2010 2011 Capital value (US$ millions) Jobs created New projectsSource: fDi Intelligence, data as of 3 February 2012; Ernst & Young.The only disappointing aspect of been into infrastructure-related projects, debt crisis. However, given the substantialinfrastructure investment patterns over there has been a steep decline both in the and coordinated growth in ICA support,the past few years has been the overall number of projects and capital invested China’s outlay, and African governmentsdecline in private sector investment. More since 2008. themselves making substantial infrastructure investments, there seem to be majorbeen a disappointing downward trend since There are without a doubt several factors under-tapped opportunities for the private contributing to this performance, not least sector in areas such as power generation,our estimates, up to 40% of all FDI capital of which have been the global economic transport (e.g., ports, airports and toll roadinvested into the continent since 2003 has context and the ongoing European sovereign concessions), ICT and water treatment. Infrastructure-related investment by top sector engagement (2003-11) 187,750 193 % Share of total capital invested FDI 29% 55% = Real estate 14% = Coal, oil and natural gas 11% = Communication 106 104 16% 15.5% 59 47,165 39,254 7% 47 9% 40 25,214 17,101 6% 10,570 Hotels and Real estate Communications Transportation Alternative/ Coal, oil and tourism renewable energy natural gas Capital value (US$ millions) New projects Share of total infrastructure–related new project Source: fDi Intelligence, data as of 3 February 2012; Ernst & Young.44 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Fostering productivegovernment-business relationships Many African governments are makingof private investment in infrastructure, paying taxes, developing new skills and good progress but there is still much scopemore African governments also need to transferring new technologies, is critical to to accelerate this process, and to ensureprioritize the implementation of Public- promoting sustainable growth and opening sustainable progress for all stakeholders.Private Partnership (PPP) frameworks up opportunities for all members of society.long-term relationships. More broadly, it iscritical that relationships between business How are you planning to invest? What is the maximum equity share youand government in Africa become more Expansion of facility would be willing to sacrifice to your localengaging and productive. 32% partner? Joint venture/alliance Cant sayOur survey results and broader engagement 24% Its not with 12% a local partnerwith our multinational clients reveal a strong Increasing labor force 14% 6% 0 to 49willingness to share equity with local African 38%partners and a commitment to making Acquisition 11%a long-term difference to the economiesand societies in which they operate. Green eld investments 44% 8% 50 to 100 OtherBusiness, both local and international, 2% Source: Ernst & Young’s 2012 Africa attractivenessmust be viewed as a key partner in survey. Total respondents: 45. Cant saydeveloping solutions to Africa’s critical 10%challenges and as a key driver of economic Source: Ernst & Young’s 2012 Africa attractivenessand social development. A vibrant private survey. Total respondents: 191. TanzaniaTripartite North-South Corridor Dar es Luanda Salaam KolweziOne notable initiative already routes: linking the port of Dar Angola Mzuzu Lubumbashilaunched under the Tripartite Es Salaam in Tanzania to theArrangement is the Tripartite copper belt in Zambia and into Malawi Ciudade Lilongwe de Nacala Zambia Lubumbashi in the DRC, and Lusaka BlantyreInvestment Program, a model then down through Zimbabwe“Aid for Trade” pilot program. and Botswana to Africa’s Harare MozambiqueWith initial funding of US$1.2b largest and busiest port, Zimbabwe Beira(a large proportion coming Durban, in South Africa. Namibia Francistown Bulawayofrom the African Development In effect, the Corridor system, WindhoekBank and the Development with its spurs, will service eight Botswana Walvis BayBank of Southern Africa), countries, Tanzania, the DRC, Gaboroneand strong support from the Zambia, Malawi, Botswana, Pretoria Maputo JohannesburgSouth African Government Zimbabwe, Mozambique and Swazilandamong others, actions are South Africa. It is a significantbeing taken to fast track this step forward in physically South Africa Lesotho Durbanproject. This program supports connecting a critical masssome of Africa’s busiest trade of signatories of the T-FTA. Cape Town Ernst & Youngs 2012 Africa attractiveness survey Building bridges 45

A radical tactical shift: Africans leading from the frontAfrica’s strengths and challengesfor different categories of investorsA set of assumptions about Africa’s strengths and challenges underpins these growth projections.Countries can position themselves more competitively, and help focus investment for optimalreturns, if they understand these factors and work strategically within the framework ofopportunities and constraints.Essentially, incentives for investments in Africa can be grouped into four categories:1. Resource seeking: pursuing cheaper orbetter inputs for production 2. Market seeking: tapping into the growing 3. achieving operational excellence through outsourcing, 4. Strategic motives: advantage in a new marketprocesses consumer and other new shared services centers, etc. or securing parts of the market-making opportunities supply chain Viewpoint The relationship between government and business Elias Masilela, CEO, Public Investment Corporation, South Africa The government needs the private sector Another critical factor is the level of human who have been very successful, yearn to to thrive and pay taxes, whilst on the skills available to government and private go into government because they know other hand, the private sector looks to sector. I have observed that the level of that they can contribute to changing the government to provide the right professionalism in both sectors has been environment in which they live. investment environment. This means compromised because, as professionals, that the relationship between government once we find ourselves on one side of the In South Africa this principle does not and business is imperative. In particular, divide, the tendency is to be narrow in our yet exist. To most professionals, the two from a South African perspective, the key thinking. When in government, we tend to sectors are seen as vastly different priority is to make it stronger because be preoccupied with government policy to worlds, that have nothing in common. there is currently not enough trust the extent of ignoring the inherent needs To the contrary, the two sectors should between the two entities. It does not make of the privates, which allow it to achieve have complementing objectives, sense for business to sit on the sidelines what it exists for, namely, making profits,. processes and characteristics. and wait for government to generate policies that get fed down to them. They Working together The private sector perceives are part of the system and need to be part inefficiencies in the state, and and parcel of the formulation of those to deliver a stronger government gets frustrated policies. What we also know is the ability economy will help with what it perceives to be of business to maximise profit depends on tendencies of the private sector the right environment to be in place. bridge the differences to focus purely on the short that currently exist term profit motive and not on The fundamental basis for this discussion is the long term sustainable needs Whereas, in the private sector we worry understanding where the role of of the countrys production process. only about profit maximization, almost at government starts and where it ends, These polar positions need to be brought all cost, to the detriment of the long term defining those goods and services that together through genuine, open and frank gains of the economy and with unfortunate need to be produced by the state, those engagement, particularly around the disregard for policy. In the US and other that need to be produced by the private mutual priority of the country’s delicate economies, they have done very well with sector, and avoid any overlaps which are an economy. Working together to deliver the application of the principle of revolving unnecessary cost of capital and time to the a stronger economy will help bridge doors. Many people in the private sector, economy. the differences that currently exist.46 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Africas strengths and challengesIn terms of each of these factors, Africa has strengths and challenges, which are summarized in the tables below: African FDI Strengths Challenges Resource Well endowed with natural resources Low education levels seeking In the majority of sub-Saharan African countries, world. Indeed African countries make up eleven out of education levels are low but improving. Examples from Latin America and Asia show that vast progress toward South Africa, Ghana and Tanzania are in the top twenty 100% secondary education can be made within 25 years. gold producers and Zambia and DR Congo are in the top twenty copper producers. Often when a country grows fast, inequality also grows Large labor force and the African countries must ensure that FDI The working age population is forecast to grow much faster in Africa over the next ten years than in emerging Asia or in Latin America. Very competitive cost base Unit labor costs are expected to remain low in the next open up opportunities for other emerging markets in Africa as low-cost producers. Market Large consumer market for certain products and Market size seeking services The majority of economies in Africa are very small relative to countries in other regions of the world and the sub-Saharan market is very fragmented. have a mobile phone, up from barely any a decade ago. This number will continue to rise very fast. GDP per capita Many of the high-growth sub-Saharan African countries The tourism market is potentially very large Tourism already accounts for more than 20% of export per capita incomes compared to emerging countries in revenues in many African countries, including Ethiopia, other regions, despite enjoying fast growth in recent Egypt and Tanzania, and many countries have large years. This is partly due to high inequality in many potential to exploit with appropriate investment. countries. Raising consumer spending Though the consumer base in Africa is large, current incomes are low and this will limit the market size for sales of consumer products initially but the potential for growth in consumption remains substantial. Proximity and historical/cultural/linguistic links Infrastructure seeking to the EU Transport and telecommunications frameworks are In 2011, more than 50% of exports from Cameroon, underdeveloped relative to other emerging regions such Morocco, Mozambique and Tunisia went to the Eurozone. as Asia and Latin America. But this has been improving and will continue to do so. links with Europe. By 2020, Europe’s exports to Africa and the Middle East will be around 50% larger than its Ease of doing business exports to the US. Many countries in sub-Saharan Africa rank lower than emerging Asia and Latin America in the World Banks Straddles time zones across Asia, US, EU Doing Business Index. However, the survey revealed that Africa shares part of its working day with Asia, the US 36 of 46 governments improved their economy’s and the EU. regulatory environment for domestic businesses in 2010-11—a record number since 2005. Strategic Growth potential Political stability-Democracy motives In the near term, establishing political stability is a key medium and longer term, strengthening the foundations of democracy and improving the environment for business, should help to boost potential growth in a number of sub-Saharan African countries.Source: Oxford Economics. Ernst & Youngs 2012 Africa attractiveness survey Building bridges 47

A radical tactical shift: Africans leading from the frontThe FDI outlook for selected African countriesSource: Oxford Economics. Angola Positive factors for investors are Egypt’s sector, and could mark a shift toward more large, relatively well-educated population,Angola is one of the leading destinations sizeable domestic market and proximity tofor FDI capital in Africa, attracting more Europe.than more than US$58b between 2003 Overall though, Cameroon is expected toand 2011. Over 80% of this FDI has been receive a relatively small amount of FDIin oil, and Angola’s substantial oil andmineral reserves will continue to be the US$1b p.a., with approximately 8,000 new years, with approximately 40,000 new jobsmain attraction for investors over the next jobs created as a result. created as a result. However, the downside risks to this forecast will remain high in the near-term until there is greater politicalHowever, the country’s growing middle Democratic Republic of resolution.class will also be attractive to investors Congo (DRC)looking for new markets, and investmentinto sectors such as communications, The DRC’s oil and mineral reserves Ethiopiaconstruction and real estate are likely to will continue to be the main attractiongrow too. for foreign investors, as demand in Ethiopia has the second largest population the developed world rise and capacity in Africa (and the 14th largest in theKey challenges remain weak infrastructure constraints are met in other producers. world), and has consistently been oneand high perceived levels of corruption, and of the fastest growing economies in thethese will hinder efforts to increase FDI to However, low human capital, high world for over a decade. Although the largea wider range of sectors. bureaucracy and an unstable political majority of the population remain poor, situation, with the possibility of renewed the potential that exists in the market isAs a result, most FDI in Angola will be attracting investor interest.focused on the natural resource sectors to limit FDI to non-resource sectors of thefor the foreseeable future. economy. However, in the medium term, it is gold, recently found natural gas reserves, and the possibility of oil in the Rift basin that will attract the bulk of investment.years, with approximately 30,000 new jobs years, with approximately 13,000 new jobscreated as a result. created as a result. average about US$1.2b p.a. over the next Cameroon Egypt jobs created as a result.FDI capital from 2003-11 has amounted Political tensions have lowered the outlookto US$15.5b, with the main focus on for FDI in the short-term but once this Ghanaresources (about 50% on fossil fuels and uncertainty is resolved, the potential forabout 30% metals). structural reforms to improve the economy Relative to its African counterparts, Ghana should provide a boost to growth and pay has a sizable resource endowment; theCameroon’s oil reserves will continue to dividends in terms of higher FDI. country has plenty of mineral, gas and oil reserves. We expect continued investment Recent government reforms to bureaucracy in the oil and gas industries, contributing toinvestments in the sector beyond that have improved the institutional(barring new discoveries). environment but these reforms have faltered amid the political uncertainty. Increasing oil revenues should indirectlyThe country’s relatively high levels of human boost other sectors. This is particularlycapital and cheap labor force should also Although oil output is expected to fall as true of infrastructure, although ifdraw investors. In fact, in 2011, a large reserves mature and run dry, the fossil fuels managed correctly, it could also help fundproject worth almost US$2b was announced sector is still expected to attract investors improvements in sectors such as healthcarein the food and beverage sector. This and education.investment, which should create 3,000 new48 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

environment, with democracy well average about US$290m p.a. over the nextestablished and adhered to. will change this dramatically), with jobs created as a result (the relatively highHowever, Ghana needs to continue to approximately 16,000 new jobs created as proportion of new jobs being because of theinvest in infrastructure, human capital and a result. focus on the service sector).projects. Mauritius Morocco Mauritius is politically stable, has a well- Morocco’s oil reserves provide some pull forwith approximately 45,000 new jobs developed infrastructure network, a highly investors, but it’s well educated, relativelycreated as a result. educated workforce, a comparatively high cheap labor force is arguably its best level of income, tax friendly policies and resource. low levels of bureaucracy, all of which are Kenya attractive to investors. Coupled with this the country’s proximity to Europe and recently-signed tradeHistorically, Kenya lacks the natural Mauritius is also not only the highest ranked agreements with the EU make it anresource base that makes many other African country on the World Bank’s Doing attractive location for multinationalsAfrican economies attractive, but the Business rankings, but is also ahead of the looking to service the EU market.recent discovery of oil in the north-western likes of Switzerland, Belgium, France, theTurkana region by Tullow may change that. Netherlands and Austria. These attractions are underpinned by good governance and sound macroeconomicKenya does have a relatively well educated On the downside, Mauritius is an island policies, and good progress has been madelabor market, a rapidly growing consumer nation, with limited natural resources and in improving the environment for doingbase, and is a strategic trading hub in East a small population of about 1.3 million. business.Africa. FDI during the 2003–11 period has therefore only amounted to US$4.4b; not Since 2003, investment into MoroccoThe diverse population of over 40 different has been relatively diverse, with the maintribes has resulted in a relatively unstable size, but not one of the major players in this sectors for FDI being real estate, oil andpolitical system, although recent changes to sense in Africa. gas, and tourism (together accounting forthe constitution should reduce the potential 64% of the total).for civil unrest. years, Mauritius is expected to receive only modest amounts of FDI. Larger average about US$5b p.a. over the nextrelatively low, much of the investment opportunities elsewhere, in particularthat is made has gone into labor-intensive in countries with high natural resource jobs created as a result.industries such as the communications endowments will be more attractive tosector. investors. Ernst & Youngs 2012 Africa attractiveness survey Building bridges 49

A radical tactical shift: Africans leading from the front Mozambique Christian south, will serve as an impediment witnessed in the recent peaceful transfer to some investors. of presidential power. A range of economicAfter emerging from two decade of civil reforms have also fostered a stablewar, Mozambique has consistently been However, Nigeria is making great strides in macroeconomic climate.one of the fastest growing economies many areas, with notable reform initiativesin the world for longer than ten years. Further improvements could be made in terms of healthcare, education and theto the education system and the country’s management of the economy. business environment.infrastructure, albeit from a low base.Mozambique’s key attraction for investors average about US$23b p.a. over the next average about US$1.4b p.a. over the nextis resources such as coal, iron ore, and, inparticular, natural gas, reserves of which jobs created as a result. jobs created as a result.already stand at over 127b cubic meters.From 2003-11, more than 2/3rds of FDIwent into extractive activities. Rwanda South Africa Relative to many of its African South Africa (SA) is Africa’s largestaverage about US$1.4b p.a. over the next counterparts, Rwanda’s resource economy, it has a sizable domestic market endowment is poor; the country has no with growing levels of disposable income,jobs created as a result. a comparatively well-educated labor force, and its labor force is small and relatively and an institutional environment that is poorly educated. conducive toward business. Nigeria However, offsetting these negatives is SA’s substantial resource endowmentNigeria has been the largest recipient Rwanda’s institutional environment. has meant that South Africa has been aof FDI in Africa over the last decade, The government has actively tackled popular destination for FDI for a numberwith announcements totaling almost corruption in recent years, and the of decades. This trend has continued overUSUS$116b in 2003-11 (around 9.0% business environment is extremely the period 2003-11, although FDI capitalof GDP). 80% of that FDI has been in the friendly. Rwanda has been among theoil and gas sector. Nigeria’s substantial oil fastest reforming countries in the world, into oil rich countries like Nigeria andreserves will continue to attract funds over and is not only the 3rd highest ranked Angola.the medium term, and we expect the bulk African country on the World Bank Doingof FDI to be concentrated here. Business rankings, but is also in the top quartile of countries globally. and capital investing capacity, but alsoHowever, the large domestic marketand diversifying economy is creating nature of the SA economy, with the serviceopportunities for FDI in other sectors such average about US$450m p.a. over the sectors now contributing more than 65% to GDP.real estate and tourism will provide plenty new jobs created as a result.of opportunities. There is also a large andrelatively cheap labor force to draw on. Senegal directed toward (generally less capital intensive) manufacturing and services. Asto its secondary school enrolment but Relative to many of its African counterparts, a result, SA is the leading FDI destinationthere is still potential to do more. Weak Senegal has a sizable resource endowment. in Africa in terms of project numbers.infrastructure and relatively high corruption We expect continued investment in mineralwill limit some of its growth potential. extraction to form the bulk of Senegals FDI average about US$10b p.a. over the nextIn addition, political risk factors relating torecent terrorist activity and the potential for new jobs created as a result.civil unrest between the Muslim north and democratic system of government, as50 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

A potentially attractive resource at the Tanzania country’s disposal is its highly skilled labor, average about US$1.7b p.a. over the next especially when it is coupled with Tunisia’sTanzania is forecast to be one of the proximity to the EU market. And although jobs created as a result.fastest growing economies in the world the domestic market is small, the country’s well-established infrastructure network,well educated labor force, and is politicallystable. As a result it is attracting increasing good economic governance and business Zambia environment conducive to business make itinvestor attention. an attractive location for multinationals. Zambia is another African economy forecast to be one of the fastest growing inOver the period 2003-2011, Tanzania The uncertain political situation is likelyhas attracted US$13.2b of FDI, with the robust democracy (with a peaceful transferbulk going into resources (Tanzania has it will take time for investment levels to of power in last year’s election) and alsofairly sizable gold reserves), but with offers one of the more business friendlycommunications and alternative/renewable environments in Africa (ranking ahead ofenergy also attracting substantial FDI. years, with approximately 17,000 new jobs all the BRIC economies too on the World being created as a result. This forecast is Bank’s Doing Business rankings). however highly dependent upon a path of continued economic and social reform by Investment into Zambia is still dominated byUS$2.2b p.a., with approximately 28,000 the new government. copper, and the copper mines will continuenew jobs created as a result. with global demand expected to keep prices Tunisia Uganda high for the foreseeable future. FDI announcements for Uganda totaled Outside of the minerals sector prospectsUntil the eruption of political instability at US$17.4b in capital investment between for FDI are more limited, although given thethe end of 2010, Tunisia had experienced 2003 and 2011. positives mentioned above, multinationalspolitical and economic stability over the are already being attracted into other partspast 20 years, building one of the largest Looking forward, Uganda’s substantial of the economy.middle class populations in the region and mineral resources and the recent discoverysuccessfully diversifying the economy awayfrom over-reliance on agriculture. Foreign investment over the medium term. And years are forecast to average aboutinvestment has been substantial, amounting the country’s relatively well-educated US$1.9b p.a., with approximately 27,000to US$63.3b between 2003-11. labor force, low levels of bureaucracy and new jobs created as a result.Although Tunisia’s oil reserves are modest service sectors like communications andaround 308m barrels), global capacityconstraints mean they will continue toattract investors. Since 2003, however, the Some challenges for FDI are the relativelybulk of FDI focus has been in the real estate weak infrastructure network, the country’ssector, accounting for almost 60% of total small domestic market and the possibility ofcapital investment. rising political tensions. Ernst & Youngs 2012 Africa attractiveness survey Building bridges 51

A radical tactical shift: Africans leading from the front Top5 country investors of Top 5 country investors of Top5 sectors of Relative % sector new FDI projects new projects by job created new FDI projects contribution to project (2003-11) (2003-11) (2003-11) total Angola Portugal United States Financial services 42,6% United States Portugal Coal, oil and natural gas 8,9% UK Germany Business services 6,0% Spain China Beverages 6,0% South Africa UK Transportation 5,0% Cameroon United States United States Metals 28,6% South Korea Canada Coal, oil and natural gas 25,0% France Australia Communications 7,1% UK India Building & Construction Materials 7,1% France Financial services 7,1% DRC Australia Canada Metals 44,3% Canada Australia Financial services 14,3% UK United States Coal, oil and natural gas 5,7% South Africa UAE Minerals 5,7% UK Beverages 4,3% Egypt United States UAE Financial services 15,3% UAE Kuwait Coal, oil and natural gas 9,8% France United States Software and IT services 7,3% UK Saudi Arabia Textiles 6,7% India India Food and tobacco 6,4% Ethiopia India UAE Financial services 12,7% China China Food and tobacco 12,7% United States Turkey Textiles 11,1% UAE India Automotive OEM 9,5% Malaysia Germany Beverages 6,3% Ghana United States United States Financial services 21,9% UK Metals 16,3% UK India Communications 10,1% South Africa Canada Business services 9,0% India Australia Food and tobacco 6,7% Kenya United States India Communications 16,9% India UK Financial services 15,0% UK United States Software and IT services 8,7% South Africa China Business services 5,8% Japan Spain Consumer Electronics 5,8% Mauritius India United States Financial services 19,6% France India Business services 16,1% United States France Software and IT services 12,5% UK South Africa Hotels and tourism 10,7% South Africa UK Real Estate 5,4% Morocco France France Business services 12,1% Spain Spain Hotels and tourism 10,6% United States UAE Textiles 7,6% UAE United States Software and IT services 7,4% UK Japan Real Estate 7,3%52 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Top5 country investors of Top 5 country investors of Top5 sectors of Relative % sector new FDI projects new projects by job created new FDI projects contribution to project (2003-11) (2003-11) (2003-11) totalMozambiqueSouth Africa Portugal Coal, oil and natural gas 22,9%Portugal India Metals 11,5%UK United States Food and tobacco 11,5%India South Africa Building & Construction Materials 6,3%Brazil UK Financial services 6,3%NigeriaUnited States United States Coal, oil and natural gas 18,2%UK Malaysia Financial services 9,4%South Africa India Communications 9,1%India UK Business services 8,5%France South Africa Food and tobacco 6,8%RwandaKenya Kenya Financial services 44,9% UAE Communications 11,6%Uganda Mauritius Hotels and tourism 5,8%United States India Software and IT services 4,3%India United States Coal, oil and natural gas 4,3%SenegalFrance UAE Software and IT services 15,1%United States Luxembourg Automotive OEM 9,4%UAE South Africa Metals 9,4%UK Iran Business services 7,5%Luxembourg China Hotels and tourism 7,5%South AfricaUnited States UK Software and IT services 12,3%UK United States Financial services 10,2%Germany Germany Business services 8,3%India Australia Automotive OEM 7,3%Australia Switzerland Metals 7,0%TanzaniaUK Canada Financial services 28,1%India UK Metals 10,2%Kenya Australia Communications 9,4%South Africa South Africa Beverages 6,3%Canada India Coal, oil and natural gas 5,5%TunisiaFrance France Software and IT services 9,8%Italy UAE Textiles 8,5%Germany Japan Business services 8,2%United States Italy Coal, oil and natural gas 7,9%UAE Bahrain Electronic Components 7,9%UgandaKenya UK Financial services 29,1%UK Kenya Communications 13,4%South Africa South Africa Food and tobacco 10,4%India United States Coal, oil and natural gas 9,7%UAE Germany Business services 5,2%ZambiaSouth Africa Canada Metals 35,3%China China Financial services 15,1%India UK Communications 5,9%Canada South Africa Chemicals 5,9%UK India Food and tobacco 5,9% Ernst & Youngs 2012 Africa attractiveness survey Building bridges 53

ConclusionConclusionWhy we are positive about Africa’s futureoptimism; pointing to the very real challenges that still remain. Yes, we are optimists, but we arerealistic optimists — our perspective is deliberately a half full glass rather than a half empty one.This is partly a response to the Afro-pessimism that has been dominant for too long, but mainlybecause we believe that it takes a positive mindset to succeed in Africa. If you set out expectingHowever, ours is not a point of view informed by anecdotes and wishful thinking — the facts speakfor themselves:1. Levels of FDI, a critical driver of 4. The regional integration agenda isgrowth and development, are increasing. being prioritized.The number of FDI projects into Africa has grown at a compound While we would like to see even greater urgency and acceleration,rate of almost 20% since 2007 and increased 153% in absolute there is no doubt that the regional integration is being pushedterms since 2003. Between 2010 and 2011, the year-on-year hard by the AU and that several of the RECs are making goodgrowth was 27%, and FDI project numbers are now almost back to progress. The tripartite FTA represents a potential paradigm shift for Africa, and has the potential to create a market withcrisis. the potential to rival the BRIC economies.2. Although a perception gap remains, 5. Substantial investment is alreadythere is a compelling growth story to tell. being made in infrastructure.The story of Africa since the end of the Cold War is one ofsustained and sustainable economic growth. The continent’s investment into key projects across the continent has acceleratedoverall economic output will have grown more than fourfoldbetween 2000 and 2015, with the majority of the fastest growing estimated US$85b in funding for infrastructure, close toeconomies in the world over that period being African. the US$90b required to bridge the infrastructure gap. This year the South African government alone announced an infrastructure3. Africans are taking ownership of program in excess of US$400b.their own future.African leadership is illustrated not only by the perception surveyoptimism among Africans, but also by the rapidly increasing levelsof intra-African investment. In the period between 2003 and 2011,there has been 23% compound growth in intra-African investmentinto new FDI projects (437% growth in absolute terms), with thecompound growth rate accelerating at 42% since 2007.54 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Ultimately, what brings it all togetherfor us is the emergence of a generationof outstanding leaders in many Africangovernments and in businesses acrossthe continent. There has been a radicalshift in mindset and positioning overthe past decade, with Africans themselvesincreasingly leading from the frontby providing African solutions to Africa’schallenges.Looking forward we anticipate increasinglevels of collaborative leadership,particularly between African governmentsand those doing business in and acrossthe continent. We expect FDI, and privateinvestment more generally, to grow evenmore substantially and serve as a keydriver of broad-based and sustainablegrowth and development.Ke Nako! It’s time! Ernst & Youngs 2012 Africa attractiveness survey Building bridges 55

AppendixMethodology1 The attractiveness of Africa for foreign investors 2 The perceptions and outlook of Africa and its competitors by foreign investorsOur evaluation of the reality of FDI in Africa is based on fDi Markets.projects. Joint ventures are only included where they lead to a newand other equity investments are not tracked. There is no minimumsize for a project to be included. However, every project has to via telephone interviews, based on a representative panel of 505create new direct jobs. international decision-makers. The companies with internationalWhile general FDI data is widely available, many analysts are tree which is one of the worlds leading and longest-establishedmore interested in evaluating the number of projects in physical business information company. Finally, this information has beenassets, such as plant and equipment, in a foreign country.invaluable insights as to how inward investment projects areundertaken, in which activities, by whom and, of course, where.To map these real investments carried out in Africa, Ernst & Youngused data from fDi Markets. This is the only online databaseand countries worldwide. It provides real-time monitoring ofinvestment projects and jobs creation with powerful tools to trackProfile of companies surveyed Profile of companies surveyed: job title Profile of companies surveyed:Geography sector respondents Africa Financial director Oceania 2% South and 59% Sector Respondents Asia East Central 3% 10% Europe Chairman/President/CEO/Managing director/ Private and business services 22% Senior Vice President/COO 2% Retail and consumer products 18% 17% Sales and Marketing Director Real estate and construction 7% 8% High-tech and telecommunication 11% Northern Europe America Director of strategy Raw material 11% 61% 22% 6% Transportation and automotive 10% Director of development 4% Life science 8% Director of investments Energy and heavy industry 7%Size 2% Less than 150m euros Agriculture 2% Cant say (less than 204m$) OtherMore than 1.5b euros 7% 36% 4% Cleantech 1%(more than 2.04b$) Private equity 1% 14% Total 100% 43% From 150m euros to 1.5b euros (from 205m$ to 2.04b$)56 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Ernst & Young in AfricaOur footprintAlthough the risks in investing in Africa Today, we are able to navigate successfullymay appear high, risk can be managed, through the complexity that our clients are through:and the rewards can be great. That is why experiencing across the geographies and thewe are investing in growing our integrated diversity of market sizes and sophistication. Consistent quality standards everywhereAfrica presence and capacity to serve our We do this through our Africa Business A “single point of contact” serviceclients who are also investing in and across CenterTM: its sole purpose is to assist clients The best Ernst & Young resourcethe continent. We now enjoy an integrated in making their investment and expansion irrespective of country locationrepresentation in 32 countries across decisions in Africa.Africa, described in the media as “oneof the biggest changes in the accountingprofession in more than 100 years.” Tunisia Morocco Algeria Libya Egypt Western Sahara Mauritania Cape Verde Mali Niger Chad Sudan Eritrea Senegal Gambia Burkina Fasso Djibouti Guinea-Bissau Guinea Benin Somalia Togo South Sudan Sierre Leone Côte Nigeria dIvoire Ethiopia Ghana Central African Liberia Republic Cameroon Equatorial Guinea Uganda Congo Kenya Sao Tome Gabon Rwanda and Principe Democratic Republic Burundi Seychelles of the Congo Tanzania Angola Comoros Malawi Zambia Mozambique Zimbabwe Mauritius Madagascar Namibia Botswana Reunion Swaziland Lesotho South Africa Ernst & Youngs 2012 Africa attractiveness survey Building bridges 57

AppendixAfrica Business CenterTMHelping companies navigate the To further support our activity on the Publicly available data, as well as ouropportunities and challenges of doing continent and in strategy co-development own surveys are depicted in heat maps,business across the African continent. with businesses, the Growing Beyond competitive footprint views and comparison Borders™ software is an Ernst & Young tables across the map, to help companiesAfrica is receiving unparalleled developed and owned software that visually make business decisions and grow beyondattention from large global companies, maps data through the lens of the world’s their current borders.with the substantial opportunities in oil geography, in a highly intuitive manner.and gas, mining and agriculture closely It helps to navigate the challenges andfollowed by consumer-driven demand in opportunities in doing business acrossthe areas of consumer products, telecoms, the globe.and others. http://www.ey.com/ZA/en/Issues/Business-environment/Africa_Business_Center_2011Strategic Growth Forum — Africa A clear theme and strong message running and optimism of a range of business leadersForum (SGF) in Africa, held in March this throughout the forum was that there is a from Ecobank, Diageo, DHL, Standard Bank,year, attracted more than 300 attendees new story emerging about Africa; a story of Tullow Oil, Ford, Chevron, BAT, Equity Bank,including CEOs, leading entrepreneurs, Engen, Notore, Educomp, IBM, Transnet, among various others; we heard froma passion for unlocking value in Africa to We heard that 7 of the 10 fastest growing leaders in government about concreteensure she achieves her potential. economies in the world over the next 5 years steps being taken to create environments will be African; we heard of the successes conducive to investment and doing business. Read more: http://www.ey.com/ZA/en/Services/Strategic-Growth-Markets/Strategic-Growth-Forum---Unlocking- value-to-grow-beyond-the-possible58 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Contacts Country Name EmailAlgeria Philippe Mongin philippe.mongin@fr.ey.comAngola Joao Alves joao.alves@pt.ey.comBotswana bakani.ndwapi@za.ey.comCameroon Joseph Pagop joseph.pagop.noupoue@ey-avocats.comCongo ludovic.ngatse@cg.ey.comCôte dIvoire Jean-Francois Albrecht jean-francois.albrecht@ci.ey.comDRC ludovic.ngatse@cg.ey.comEgypt Emad Ragheb emad.ragheb@eg.ey.comEquatorial Guinea Erik Watremez erik.watremez@ga.ey.comEthiopia zemedeneh.negatu@et.ey.comGabon Erik Watremez erik.watremez@ga.ey.comGhana Ferdinand Gunn ferdinand.gunn@gh.ey.comGuinea Conakry Rene-Marie Kadouno rene-marie.kadouno@gn.ey.comKenya Gitahi Gachahi gitahi.gachahi@ke.ey.comLibya Waddah Barkawi waddah.barkawi@jo.ey.comMadagascar Gerald Lincoln gerald.lincoln@mu.ey.comMalawi Shiraz Yusuf shiraz.yusuf@mw.ey.comMorocco El Bachir Tazi bachir.tazi@ma.ey.comMauritius Gerald Lincoln gerald.lincoln@mu.ey.comMozambique Ismael Faquir ismael.faquir@mz.ey.comNamibia Gerhard Fourie gerhard.fourie@za.ey.comNigeria Henry Egbiki henry.egbiki@ng.ey.comRwanda Allan Gichuhi allan.gichuhi@rw.ey.comSenegal Makha Sy makha.sy@sn.ey.comSeychelles Gerald Lincoln gerald.lincoln@mu.ey.comSouth Africa Ajen Sita ajen.sita@za.ey.comSouth Sudan Patrick Kamau patrick.kamau@ke.ey.comTanzania Joseph Sheffu joseph.sheffu@tz.ey.comTunisia noureddine.hajji@tn.ey.comUganda Muhammed Ssempijja muhammed.ssempijja@ug.ey.comZambia henry.nondo@zm.ey,comZimbabwe Walter Mupanguri walter.mupanguri@zw.ey.com Ernst & Youngs 2012 Africa attractiveness survey Building bridges 59

AppendixFollow us on Twitter at EY_AfricaPublications Eye on Africa Africa mining investment environment survey Issued quarterly focusing on issues relating to doing business across the continent, This report compares 13 mining taxation, investment climate and people. African countries in terms of their growth potential and investment environment. Women of Africa Private equity roundup — Africa Women make up just over 50% of Africas PE roundup is a series focusing on private growing population and their under- equity activity in emerging markets. representation in social, political and economic spheres must be addressed if Africa is to leverage fully its promise and potential. We need to harness the power of Africas women to drive economic growth and social development in Africa. Africa Oil & Gas: A continent on the move Africa oil and gas: a continent on the move. Oil and natural gas development will continue to play a vital role in Africa as many African economies are resource dependent. Ernst & Young’s Rapid-Growth Markets Forecast 2012 makes clear that a new global economic order is emerging Spring edition, April 2012 As emerging markets produce a vast new consumer class and manufacturing moves to new production centers, the patterns of global trade are being redrawn. Africa is well placed to benefit from this transformation. FDI can be a catalyst for accelerated growth and development, but Africa is currently only attracting 5% of global FDI projects. By convincing skeptical investors, integrating its economy and developing its infrastructure, Africa can close the gap between potential and reality.60 Ernst & Youngs 2012 Africa attractiveness survey Building bridges

Ernst & YoungAssurance | Tax | Transactions | AdvisoryAbout Ernst & Young ContactsErnst & Young is a global leader in assurance, tax, transaction Michael Lalorand advisory services. Worldwide, our 152,000 people are united Lead Partner Africa Business Centerby our shared values and an unwavering commitment to quality. Ernst & Young South AfricaWe make a difference by helping our people, our clients and our Tel: +27 83 611 5700wider communities achieve their potential. Email: michael.lalor@za.ey.comErnst & Young refers to the global organization of member firms Sarah Custersof Ernst & Young Global Limited, each of which is a separate Africa Marketinglegal entity. Ernst & Young Global Limited, a UK company limited Tel: +27 11 772 3300by guarantee, does not provide services to clients. For more Email: sarah.custers@za.ey.cominformation about our organization, please visit www.ey.com.© 2012 EYGM Limited. Africa Press RelationsAll Rights Reserved. Tel: +27 11 772 3151 Email: fathima.naidoo@za.ey.comED none Sandra SassonEYG No. AU1165 EMEIA Marketing Tel: +30 (0)210 2886 032 In line with Ernst & Young’s commitment to minimize Email: sandra.sasson@gr.ey.com its impact on the environment, this document has been printed on paper with a high recycled content. Bijal TannaThis publication contains information in summary form and is therefore intended for EMEIA Press Relationsgeneral guidance only. It is not intended to be a substitute for detailed research or Tel: +44 (0)20 7951 8837the exercise of professional judgment. Neither EYGM Limited nor any other member Email: btanna@uk.ey.comof the global Ernst & Young organization can accept any responsibility for lossoccasioned to any person acting or refraining from action as a result of any materialin this publication. On any specific matter, reference should be made to theappropriate advisor. This report has been produced in collaboration with Oxford Economics, one of the world’s leading providersThe opinions of third parties set out in this publication are not necessarily the opinionsof the global Ernst & Young organization or its member firms. Moreover, they should of economic analysis, advice and models.be seen in the context of the time they were expressed.Growing BeyondIn these challenging economic times,opportunities still exist for growth.In Growing Beyond, we’re exploringhow companies can best exploit theseopportunities — by expanding intoinnovate and taking new approachesto talent. You’ll gain practical insightsinto what you need to do to grow.Join the debate at www.ey.com/growingbeyond.

EY Africa Attractiveness 2012

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