INVESTING IN AFRICA
Why Now?
May, 2008

Africa
At a Glance
Africa
Key Facts Economy
GDP (at current price) – USD 954.221 Bn in 2006
World's second-largest continent
• Land area – 29.36 MM sq km • Forecast to grow 6.2 % in 2008
• 57 countries FDI: total FDI inflow USD 36 Bn in 2006
• FDI inflows increased 24.4% annually from
Second most populated continent
2000-2006
• 896.6 MM people (2005)
Note: 1This figure is a sum of GDP (at current price) of 50 African nations
Source: “Africa Development Indicators”, World Bank, October 2007; AllAfrica website; World Investment Report 2007, United Nations Conference On Trade
And Development 2007; World Economic Outlook Database, April 2008, IMF
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Africa
Executive Summary
Global interest and investment in Africa has been increasing rapidly over the past few years
as witnessed by the ~20% y-o-y growth in FDI in 2006. This is driven by:
1 Large, untapped mineral resources and oil & gas reserves
• Africa accounts for 30% of mineral resources and has the 3rd largest oil and gas reserve in the
world
Government investment and FDI incentives to promote long-term economic growth
2
Favorable business environment with modern communication networks, improving transportation
3
and strong banking sector in key African countries
Sizeable young and educated population that speaks Western languages and is an attractive labor
4
pool for a new wave of outsourcing
• 50% of African population is under the age of 20
• North Africa has the 2nd highest net enrollment ratio1 in the world
Improving social environment, particularly in North Africa due to reduction in poverty, illiteracy and
5
infant mortality
While there are still significant risks associated with investing in Africa, for companies that are
looking to the future, now may be a good time to investigate opportunities
Note: 1Net enrollment ratio is the ratio of the number of children of official school age (as defined by the education system) enrolled in school to the total
number of children of official school age in the population
Source: Grail Analysis
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Africa
Large Untapped Mineral Resources
1
Africa accounts for ~30% of the world's mineral reserves but only 7% of the world’s major
metals production
Niger
World's third largest producer Copper Belt (DRC,
Uranium Estimated reserves – more than
Angola, Zambia) 34% of the world’s reserves
Cobalt
53,000 tons
10% of the world’s reserves
Copper
Gabon
3% of the world’s reserves
Manganese
Zambia Largest producer; supplies 20% of the
Cobalt
Largest producer of diamonds (by
world's cobalt
value) in the world
In 2003, the output of Orapa Diamond
Botswana
Mine was 25% by weight and 30% by
Diamond
value of global output
The mine is owned by Debswana, a
Gold 40% of the world’s reserves
partnership between the De Beers
and the government of Botswana 80% of the world’s economically
Botswana, Zimbabwe Manganese mineable manganese ore reserves
and Mozambique
90% of global reserves; produces 50%
South Africa
Africa accounts for 5.5% of the world’s Chromite
of the world's Chromite ore
Coal total reserves. 85% are in Zimbabwe,
Botswana, and Mozambique
Heavy 19% of the world’s Zirconium reserves
Metals 30% of the world’s Titanium reserves
55% of the world’s reserves
Platinum
Source: MBendi; “BP Statistical review of world energy”, British Petroleum, June 2007; African Diamonds Website, South Africa Info Website
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Africa
Large Untapped Oil & Gas Reserves
1
Africa has the world’s third largest Oil & Gas reserves, with Libya, Algeria and Nigeria
together accounting for ~80% of the continent’s total reserves
African Oil & Gas Reserves – Estimates by Country, 2007
Reserves (2007 Estimates) As % of World Reserves
Eurasia
REGION Oil (in Bn Gas (in Tr Oil Gas
North Europe
Barrels) Cubic Feet)
America
Middle East 739.2 2,566 56.1% 41.5%
Asia & Oceania
North America 213.3 276.9 16.2% 4.5%
Africa
Africa 114.1 484.4 8.7% 7.8%
Central & South America 102.8 240.7 7.8% 3.9%
Middle East
Eurasia 98.9 2,014.8 7.5% 32.6%
Central &
South America
Asia & Oceania 33.4 419.5 2.5% 6.8%
Europe 15.8 180.3 1.2% 2.9%
World 1,317.5 6,182.6 100% 100%
African Oil & Gas Proved Reserves Estimates by Country, 2007
African Countries Oil Reserves (Bn Barrels) Gas Reserves (Tr Cubic Feet)
Libya 41.5 52.7
Nigeria 36.2 181.9
Algeria 12.3 161.7
Angola 8.0 2.0
Egypt 3.7 58.5
Note: 2007 estimates from Oil & Gas Journal; rounded off to the nearest decimal point
Source: Oil and Gas Journal; United Nations; International Monetary Fund; Energy Information Administration
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Africa
Government Initiatives to Promote Oil & Gas Sector
2
Some African countries are undertaking initiatives (such as tax incentives, joint ventures with
foreign companies, etc.) to further promote the Oil & Gas sector
UN Security Council and US lifted sanctions in 2003 and 2004 respectively
Libya Political
US companies are now able to buy oil as well as invest in Libyan oil companies
Licensing rounds In 2005, the sale of oil exploration licenses led to an investment inflow of USD 500 MM
Investments In 2007, Colony Capital acquired 65% of Tamoil (Libyan overseas oil retail arm)
Nigeria 77 deepwater and inland blocks offered in 2005 and 44 blocks in 2007
Licensing rounds
Right of refusal given to companies who plan to invest in Nigeria’s infrastructure
Tax breaks and government incentives allowed under Marginal Field Development Program (as
Investments reported in April 2007)
Local ownership (currently 10%) in hydrocarbon industry to be increased to 70% by 2010
In 2004, the country joined ‘Extractive Industry Transparency Initiative’ (EITE) to provide greater
Gabon Political
transparency within the oil industry
The government plan to boost investment by giving favorable terms for foreign investment
Licensing rounds
New licenses will lead to an increase in oil production
Lenient tax system which encourages foreign investment
Investments
Exemption from value-added tax on certain aspects of oil exploration
National Petroleum Commission was established in 2005 to allocate new oil contracts, ensure equal
Sudan Political sharing of oil revenues and resolve duplicate oil contract issues
Sudan is planning to join Organization of Petroleum Exporting Countries (OPEC)
Joint ventures with foreign companies (from China, India, Malaysia, Canada etc.) to provide
Investments
technical and financial resources
Source: Oil and Gas Journal; United Nations; International Monetary Fund; Energy Information Administration
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Africa
Government Investment to Promote Tourism
2
Over the next decade, North Africa is expected to witness the third highest growth1(5.7%) in
direct contribution to GDP from the travel and tourism industry
10 MM tourists came to Egypt in 2007, and arrival
7.4 MM tourists came to Morocco in 2007 Morocco
is expected to increase to 14 MM by 2011 (8.8%
(12.9% increase from 2006), and arrival is Egypt
North Africa CAGR)
expected to increase to 10 MM by 2010
Growth is being fueled by increased emphasis on
sea tourism, desert tourism rather than traditional
culture tourism
Sub Saharan Africa
Kenya, Uganda
& Tanzania
Jointly market and promote the countries as a single
tourist destination
South Africa
Host of the 2010 Football World Cup
Jointly prepared a plan for tourism & wildlife
Establishing a new international airport at Durban by 2009 development in 2006
Travel & Tourism – Growth Indicators
Expected Growth3, 2007-2017E
Travel and Tourism Statistics
Africa World
Direct Contribution to GDP 6.6% 5.4%
Overall Contribution to GDP2 6.6% 6.1%
Direct Employment Generated 2.1% 1.3%
Overall Employment Generated 1.8% 1.3%
Note: 1Real growth adjusted for inflation; South Asia and Central & Eastern Europe are expected to be 1st and 2nd highest growth regions respectively 2Overall
contribution includes the impact from Travel and Tourism on other sectors of the economy as well; 3Growth is in CAGR
Source: North & Sub-Saharan Africa Travel & Tourism by WTTC, 2007; South Africa, Kenya, Morocco Tourism Websites; Egypt News Website
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Africa
Government Initiatives to Promote FDI Inflows
2
In 2006, 40 African nations undertook 57 new initiatives aimed at improving FDI inflows in
the region
Government Measures to Promote FDI Inflows
Tunisia Privatization of telecommunications industry in process
Algeria
Libya Banking sector to be completely privatized by 2009;
Tunisia Sahara Bank- first Libyan bank privatized in 2007
Morocco
Approved concessions (lease) to foreign companies to
Ethiopia operate its railways
Egypt
Set up Advisory Council to promote investments
Strengthened investment promotion agency
Kenya Allowed foreign ownership of telecommunications
Eritrea industries
Mauritius Opened legal professional services to FDI
Uganda
Ghana Swaziland Permitted FDI in insurance
Reduced average property registration time from 274 to
Tanzania
80 days
Nigeria Permitted investments in banking industries
Zambia Privatization of cement, steel and aluminum industries in
Foreign investment promotion
Mozambique process
through tax reductions
Burkina Faso Created one-stop shop for new businesses
Specialized investment
zones or parks Lesotho
Morocco Permitted foreigners to own land
Tax reductions and
Specialized investment Botswana
Algeria Privatization of banking sector in process
zones or parks
Permitted investments in banking industries (wholly or
Egypt and Congo
partially)
Others (Burundi, Botswana,
Allowed foreign ownership of telecommunications
Namibia, Burkina Faso,
industries (partial or full)
Cape Verde and Ghana)
Source: World Investment Report 2007, United Nations Conference On Trade And Development 2007
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Africa
Growing FDI Inflows in the Region
2
FDI inflow in the region grew at a CAGR of ~24% over the period 2000-2006, facilitating
investments in the Oil & Gas, Tourism, and Services Sectors
USD 36 Bn FDI inflow to Africa in 2006 (19.9% increase from 2005)
• Key investment areas included Extractive Industries (Oil and Mining), Transport, Storage and Communications Services
• USD 18 Bn worth of cross-border M&A acquisitions of African enterprises
Rise in FDI inflows in 33 African countries in 2006
• 101 African countries received about 90% of the total FDI inflow; 8 countries received at least USD 1 Bn
Reasons for surge in Foreign Direct Investments include:
• Increased interest in oil (high demand and constantly increasing prices), mining and other natural resources
• More M&A deals due to favorable regulatory frameworks and policies
• Favorable business climate established through government policies and international support
FDI Inflow – Key Sectors and Regions, 2006
Foreign Direct Investments, 2000-2006
% share in FDI
Region Sectors Invested In Example Counties
Inflow
40 Egypt, Libya, Tunisia,
Agriculture, Communications, Construction,
North Africa 66%
4% 35.5
24. Manufacturing, Tourism, Oil and Gas Algeria, Sudan
29.6 Nigeria, Ghana, Cape
30 Oil, Mining, Services, Tourism
West Africa 19%
Verde
USD Bn
20.1 Equatorial Guinea,
Services (including infrastructure), Oil and
18.3 18.0 Central Africa 11%
20 Mining Exploration Chad, Congo, Cameroon
13.7
Oil and Mining Exploration, Railways, Tanzania, Uganda,
9.6
10 East Africa Services (Telecommunications, Agro Kenya, Ethiopia
processing, etc.)
4%
0 Zambia, South Africa,
Southern
Banking, Telecommunications, Mining Angola
Africa
2000 2002 2004 2006
2001 2003 2005
Note: 1Egypt, Nigeria, Sudan, Tunisia, Morocco, Algeria, Libya, Equatorial Guinea, Chad and Ghana
Source: World Investment Report 2007, United Nations Conference On Trade And Development 2007
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Africa
Strong Mobile Communication Networks
3
Africa is dubbed the ‘least wired region’ (highest ratio of mobile to total telephone
subscribers of any world region) and this trend is likely to continue
Annual Average Growth Rate in Mobile Subscribers, 2001-2006
REGION Annual Average Growth Rate in Mobile subscribers as % of total
Mobile Subscribers, 2001-2006 telephone subscribers, 2006
Africa 50.9 87.1
Asia 27.2 64.8
World 23.1 67.7
Americas 20.1 65.0
Europe 17.4 70.4
Oceania 11.9 66.5
In 2006, Africa had the highest ratio of mobile to total telephone subscribers (221 MM telephone subscribers, 198 MM
mobile subscribers)
• 45% of villages in Sub-Saharan Africa have access to mobile telecommunication services
Africa is the fastest growing region in the world in terms of mobile network penetration
• Mobile subscribers expected to almost triple by 2011
• Mobile penetration expected to reach 42% by 2011
• Mobile service revenue is expected to reach $25 billion in 2008
• Largest mobile markets are Nigeria, South Africa, Egypt and Morocco
Source: International Telecommunication Union; Africa Analysis; Tekrati; Cellular Online; World Bank
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Africa
Improving Transportation Infrastructure
3
Boom in key sectors are driving the need to develop the Transportation Infrastructure of
Africa
Travel and Tourism
Improving Railways Building World Class Systems
South Africa: 2010 Soccer World Cup – an opportunity to
• Railways are an economical mode to move bulk
develop public transport
commodities and get African goods to market
• Major investments across all transport systems
• National governments across Africa have been inviting
rail experts, technologists and investors (such as the Funds allocated by the SA government
US Railroad Development Corp and the local Trans • Public transport and non-motorized transport
African Railway Corp) to offer advice and management infrastructure – ZAR 9 Bn
skills to help improve the existing rail systems
• Upgrading of airport infrastructure – ZAR 5.2 Bn
• Development of road network – ZAR 63 Bn
• Bus and passenger rail systems – ZAR 5 Bn
Africa’s transport infrastructure is being developed with support from…………
Domestic initiatives such as privatization in aviation, maritime, land and rail transport systems
International investments to support African transportation networks which will further facilitate local, regional and
global trade in the region
Source: World Bank; BuaNews; The U.S. Trade and Development Agency; South Africa Department of Transport
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Africa
Financial Services Reform and Foreign Banking Presence
3
Banking system reforms and foreign bank presence in many African countries lends
credibility and stability to the financial services sector
Over 32 different licensed banks
Recent government reforms to
Egypt • Raise minimum capital requirements
• Restructure and privatize public sector
banks
• Improve regulatory supervision
Recently completed a major overhaul of its
banking system by reducing the number of
banks from 89 in 2004 to 25 in 2006 Total 45 banks in the country
Nigeria
Four foreign banks operating in Nigeria – Sector dominated by two foreign banks
Kenya
Citigroup, Standard Chartered Bank, Barclays and Standard Chartered Bank
Stanbic Bank and Ecobank
Several foreign banks also have partial
local ownership
~35 banks including the branches of
foreign banks
Sector dominated by four banks –
South Africa
Standard Bank, ABSA, First Rand Bank
and Nedbank
Two of the large four banks anticipate a
20% increase in their branch network by
2010
Source: “Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets”, PWC (2007)
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Africa
Favorable Destination for Next Wave of BPO (1 of 2)
4
Africa has advantages in terms of labor cost, telecom infrastructure, language capabilities
and time zone, which make the region attractive to BPO companies…
Improved telecom infrastructure leading to lower internet costs…
• The Eastern Africa Submarine Cable System (EASSy), a 9,900 km long optical submarine cable between Durban
and Port Sudan, is expected to be operational by the end of 2008
• According to World Bank, the new cable could cut internet costs in Africa from as high as USD15,000 per megabit
second per month to as little as USD500 within five years of operation
Availability of workforce at lower costs as compared to Asian countries…
• 50% of Africa’s 933 MM1 people are under the age of 20
• The rising labor costs in India are driving outsourcers to look to lower cost regions like Africa
• Africa has a large underemployed population that can be retained at highly competitive rates
Significantly large population with multi-lingual capabilities…
• Due to strong history of colonial rule, the education system of several African countries is based on those of
their former colonial masters
• Languages such as Dutch, English, French, German, Italian, Portuguese and Spanish are spoken in Africa
Favorable Time Zone…
• The time zone of North Africa is closer by 3-4 hours to the US and Europe than India/China
• Proximity reduces the need for overnight shifts and makes it an easier location from which to support both
regions
Note: 1Estimated for 2007
Source: Department of Trade and Industry, South Africa; Computer World Industry Articles
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Africa
Favorable Destination for Next Wave of BPO (2 of 2)
4
Countries such as Egypt, Ghana and South Africa hold a lot of potential as compared to
India and the Philippines which are relatively mature and have higher wages and
infrastructure costs
Tunisia
Morocco Literacy /
Egypt 71% of adult population is literate
Language
Skills
English speaking call-centers An Egyptian inbound customer
Cost
service agent is half the cost of a US-
Senegal Advantage
French speaking call-centers based agent
Ranked 12th in a list of top offshore
Outsourcing outsourcing destinations worldwide2
Examples 655 agent positions in 2004; expected
to increase to ~3,800 by 20093
Kenya
58% of adult population is literate
Literacy / 82% of adult population is literate
English is the official language and Botswana
Language ~9 MM citizens speak English as their first
used in government, business and the Literacy /
Skills Madagascar language
educational system Language
Language-skilled staff supports other
Skills
European languages such as French,
Stable Ghana has free press, independent
German, Dutch and Italian
Democratic judiciary, apolitical military, and an
Government active civil society
In 2007, government launched BPO-
Ghana South Africa specific incentives (Investment Incentive
Outsourcing services cost 25-30% less
Cost Government
Grant and Training & Skills Support Grant)
than in India1
Advantage Incentive
to attract BPO investments and create
employment opportunities
In 2000, Affiliated Computer Services
Inc. started operations in Ghana and 1,300 call centers and 80,000 call center
Outsourcing
currently employs more than 1,800 Outsourcing positions in South Africa
Examples
people to process health forms for Examples 40,000 graduates each year are
Aetna and other insurers employable in the BPO industry
Note: 1As quoted by an executive of a Ghana call center; 2Rank as per Global Services Location 2005 by AT Kearney;
Source: Foreign Dispatches Articles; CorpWatch Articles; Offshoring Times Articles; USAID; UNICEF; Company Websites
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Africa
Improving Social and Economic Environment (1 of 2)
5
North Africa has made considerable progress with respect to poverty, education and health;
Sub-Saharan Africa is improving (especially in education), but still lags behind
POVERTY and HUNGER PRIMARY EDUCATION CHILD MORTALITY MATERNAL HEALTH
Percentage of Population Living Total Net Enrollment Ratio Under Five Mortality Rate Proportion of Deliveries Attended by
on Less Than USD 1 a day, 1990-2004 in Primary Education, 1991-2005 per 1,000 Live Births, 1990-2005 Skilled Healthcare Personnel, 1990-2005
CAGR CAGR CAGR CAGR
75
200 80
18 5
48 100 95
47 1990-2004 1991-2005 1990-2005 1990-2005
90 16 6
46
46 90
82 150 60
In Percentage
In Percentage
In Percentage
In Numbers
44 80 45
42 40
70
88
42 100 40
41 70
-0.9% 1.9% -0.7% 0.5%
57
60 54
3 50 20
2 35
1
2
-4.3% 1.1% -5.9% 4.3%
0 0 0 0
1990 1999 2004 1991 1999 2005 1990 2005 1990 2005
North Africa’s 0.2% poverty gap In 2005, North Africa had the During the period 1990-2005, the North Africa experienced the
ratio1 is second lowest (i.e. second highest enrollment ratio under five mortality rate in North highest growth rate in the world
second best) in the world in the world Africa decreased at the highest for the proportion of deliveries
rate of all regions in the world attended by skilled personnel
On the other hand, Sub-Saharan Sub-Saharan Africa recorded the
Africa’s 17.5% poverty gap ratio1 highest growth rate for net For Sub-Saharan Africa, the However Sub-Saharan Africa
is the highest (i.e. worst) in the enrollment ratio during the period under five mortality rate has had the lowest percentage of
world 1991 to 2005 decreased since 1990, however deliveries attended by skilled
in 2005 it was still the highest in personnel in 2005
• In 2005, however the region
the world
had the lowest enrollment
ratio in the world
Sub-Saharan Africa North Africa
1Poverty
Note: Gap Ratio expresses the total amount of money which would be needed to raise the poor from their present incomes to the poverty line, as a proportion of the
poverty line, and averaged over the total population; figures are from 2004
Source: ‘The Millennium Development Goals Report 2007’, United Nations
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Africa
Improving Social and Economic Environment (2 of 2)
5
Many African countries have experienced major improvements in key development
fundamentals such as education, health and poverty
In 2004, large scale
Elimination of school fees
Niger
reforestation and national policy
drove dramatic increase in
reforms led to improved
enrollment
livelihoods and reduced
vulnerability to droughts For example, in Tanzania
Kenya, Uganda & Tanzania the net enrollment ratio
increased to 94.8% in 2005
from 66% in 2001
The national investment
program launched in 2005 is
expected to provide drinking
water to 82% of rural
households and 98% of urban
In 2006, the country introduced ‘Road
households by 2015 Senegal Map for the Reduction of Neonatal and
Maternal Mortality’ aimed at 75%
reduction in maternal deaths and 50%
Burundi
reduction in neonatal mortality by 2015
The program provides free medical
Ghana
In 2005, the government implemented
care for mothers and children
Zambia
a national school feeding initiative;
program fed 500,000 students
throughout the country in 2007
In 2005, government introduced ‘voucher
program’ (subsidies) for purchase of
Malawi fertilizers and seeds; as a result
In 2006, government
agricultural productivity doubled in
abolished fee for basic rural
2006-07
health services
Source: ‘Africa and The Millennium Development Goals, 2007’ by United Nations; “Senegal”, African Economic Outlook, 2007
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For More Information Contact:
Chip Brewer
(cbrewer@grailresearch.com)
Zachary Wills
(zwills@grailresearch.com)
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