Doing Business in Africa: The Emerging Market


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Doing Business in Africa: The Emerging Market

  2. 2. Africa,  a  con+nent  made  up  of  54  sovereign  countries,  consist  of  one  billion  people,  which  is  expected  to  increase  to  two  billion  over  the  next  40  years,  is  fast  emerging  as  the  next  fron+er  for  business  and  investment.  Once  referred  to  as  the  dark   or   hopeless   con+nent,  Africa  is   gradually   becoming  aArac+ve   for   trade   and  investment,  though  challenges  s+ll  remain.     Remarkably,  in  the  past  five  years,  the  Gross  Domes+c  Growth  (GDP)  rate  of  Africa  has   averaged   over  7%.  Six   out  of  the  ten  fastest  economies   of  the  world  is  African,   among   which   is   Nigeria.   Despite   the   slowdown   of   the   North   African  economies   (Algeria,   Tunisia,  Egypt   and   Libya)   as   a   result   of   the   Arab   Spring,  the  Interna+onal  Monetary  Fund  (IMF)  predicts  a  growth  rate  of  5.7%  for  Sub-­‐Saharan  Africa  this   year.  Several  African   countries   are   expected   to  grow   as   much   as   10%.  Indeed,  according  to  the  authorita+ve  Economist  Magazine,  Africa  could  be  on  the  brink  of   economic  takeoff,  much   like  China  30  years   ago  and  India  20  years  ago-­‐-­‐-­‐the  African  Renaissance.   Some  economic  indicators  give  further  hope  for  this  op+mism.  According  to  the   Standard   Bank,   60   million   African   households   have   annual   incomes   greater  than  3,  000  US  Dollars.  By   2015,  that  figure  is  expected  to  top  100  million.  Again,  300  million   Africans  earn  more  than  700  dollars  a  year.  Combined,  this   presents  a  formidable  middle  class  that  could  influence  demand  push  for  consumer  products  and  market.     1
  3. 3.   In   Africa   today,  produc+vity   has   been   rising   at   an   average   of   2.7%  a   year,  while  trade  between  Africa  and  the  rest  of  the  world  has  increased  by  as  much  as  200%   since  2000  AD-­‐over  $673.4   billion.  Infla+on   also   dropped   from   22%   in   the  1990s  to  just  8%  average  in  the  current  decade.  Similarly,  foreign  debt  declined  by  one  quarter  and  the  budget  deficit  by  two  thirds.   It  should  also  be  noted  that  with  the  end  of  the  Cold  War,  marking  the  end  of   ideological   wars,   coupled   with   the   influence   of   interna+onal   financial  ins+tu+ons   such   as   the   World   Bank   and   the   Interna+onal   Monetary   Fund   (IMF),  African   countries   have   come   to   accept   the   principle  of   market  economy,  with   a  view  to  transforming  their  economies  into  the  mainstream  of  the  global  economy.  To   this   end,   African   economies   have   undergone   structural   economic   reforms  especially  in  the  1980s  and  the  1990s.  LiAle  wonder  then,  that  African  economies  were  beAer  able  to  withstand  the  shock  of  the  global  economic  crisis  in  2008  than  the  economies  of  the  United  States  and  Europe.     Currently,   Africa   represents   just   10%   of   the   global   economy;   2.7%   of   its  output   and   1%   of   global   trade   but   poten+als   are   high.   According   to   the   World  Bank’s  Annual  Ranking  of   Commercial   Prac+ces,  36  out  of   46  Africa  governments  surveyed   made  things   easier   for   businesses   in   the   past   year.  This   gives   a   strong  indica+on   of   the   recogni+on   of   the   private   sector   by   African   countries   as   the  engine  of  economic  drive  and  growth. 2
  4. 4.   In   this   wise,   virtually   all   African   countries   have   undertaken   painful  priva+za+on/commercializa+on   exercises   at   various   +mes   with   a   view   to  transferring   state   owned   businesses   to   the   private   sector   for   ownership,   more  efficient   management,   as   well   as   for   higher   produc+vity   and   crea+on   of   more  employment.  In  this   respect,  in  Nigeria  for  instance,  over  a  hundred   state-­‐owned  enterprises   have   so   far   been   sold   to   private   businesses,   and   reforms   in   many  segments   of   the   economy   such   as   banking/finance,   agriculture,   oil   and   gas,  transporta+on,   power/electricity,   infrastructure,   etc.   have   either   taken   place   or  s+ll  ongoing.   Therefore,   with   a   deregulated   and   liberalized   market,   coupled   with   a  number   of   incen+ves   including   private   ownership   of   businesses,   repara+on   of  profit,   guarantee   against   expropria+on   of   investment,   among   others,   Africa   is  hungry  for  investors  and  eager  to  surpass  its  FDI  receipts  standing  at  $80  billion  in  2011.     Africa   is   equally   fast  puhng   to   rest  one   of   the   variables   that   drives   away  investors,  namely,  poli+cal   instability   and   civil   strife.  Africa  is   not   yet   a  haven   in  poli+cal   stability  but   whereas   only   seven   out  of   more   than   50   countries   used   to  hold   regular   elec+ons   in   the  past,  today   two   out   of   three  African   countries   hold  regular   elec+ons.   Last  year   alone,   as   many   as   18   African   countries   had   general  elec+ons.  This   disposi+on   indicates  a  deepening  of   democracy,  good  governance,   3
  5. 5. Rule   of   Law   and   respect   for   human   rights   in   the  con+nent.  The   situa+on   is   also  supported   and   encouraged  by  the  con+nental   umbrella  organiza+on,  the   African  Union  (AU)  in  prac+ce  and  through  its  founding  statute-­‐-­‐-­‐the  Cons+tu+ve  Act. Areas   of  interest  for  Africa  in  the  quest  for  Foreign  Direct  Investment  (FDI)  include   but   not   limited   to:   infrastructure,   manufacturing,   industrializa+on,  healthcare,   tourism,   telecommunica+on,   real   estate,   agriculture,   energy/power,  transporta+on,  the  Green  economy.   Mining:   Africa   is   s+ll   noted   as   one   of   the   richest   con+nents   in   mineral   resources.  60%  of  the  global  natural  resources   are  in   Africa.  The  con+nent  has  about  half  of  the  world’s  gold  reserves  and  a  third  of  its  diamonds,  not  to  talk  of  huge  reserves  of  copper,  coltan,  oil  and  natural  gas,  just  name  but  a  few.   In  par+cular,  several  African  countries  are  noted  for  their  mineral  resources.  For   example,   Angola   has   oil/natural   gas,   diamonds.   Guinea   has   more   than   one  fourth   of   the   world’s   bauxite   reserves.   Namibia   has     huge   deposits   of   copper,  diamonds,   lead,   silver,   +n,   tungsten   and   zinc.   Zambia   has   large   quan++es   of  cobalt,   copper,   lead   and   zinc;   South   Africa,   the   richest  African   state   in   terms   of  mineral  resources   has  huge  quan++es  of  an+mony,  chromium,  copper,  diamonds,  gold,   manganese,   nickel,   pla+num,   +n   and   uranium.   Ghana   has   gold.   Nigeria,   4
  6. 6. Angola,   Libya,   Algeria,   Egypt,   Equatorial   Guinea,   Gabon,   Cameroon,   Chad   and  Ghana  have  huge  reserves  of  oil,  natural  gas  and  other  solid  minerals. Africa   therefore   presents   a   good   investment   environment   for   explora+on  and   processing   of   as   well   as   value   addi+on   to   the   vast   quan++es   of   mineral  resources   available   within   the   con+nent.   Also   considered   appropriate   is   the  development   of   Africa’s   infant   or   non-­‐existent   petrochemical   industries   to  increase  Africa’s   refining  capaci+es  and   petrochemical  products   in  order  to   break  down  the  many  by-­‐products   of  petroleum  into  numerous   petrochemical  products  for  local  consump+on  and  export. Manufacturing/Industrializa2on:   Africa  was  a  by-­‐word  for  consump+on  of  industrial  products,  manufactured  in   the   colonial   metropoles.  Unfortunately,  decades   aker   independence,  much   of  the  situa+on  has  not  changed.  African  raw  materials  are  s+ll  being  converted  into  industrial   products   in   which   Africa   expends   much   of   its   foreign   exchange   to  import,  some+mes  paying  four  +mes   the  price  were  they   to   be   manufactured  in  the  countries  where  the  raw  materials  are  sourced.   Thus,   there   is   a   need   for   the   industrializa+on   of   Africa   and   the   ci+ng   of  these   factories   close   to   the   sources   of   the   raw   materials,   in   order   to   make   the  product  cheaper  both  for  local  consump+on  and    export. 5
  7. 7. Another   good   case   for   the   industrializa+on   of   Africa   is   the   poten+als   for  employment   crea+on,   import   subs+tu+on,   foreign   exchange   earning   and  development  of  technology. Infrastructure:   There  is  no  gainsaying  the  importance  of  infrastructure  to  the  development  of   any   na+on   or   con+nent.   The   different   regions   of   the   con+nent;   East,   West,  North,   Central   and   Southern   Africa   need   to   interlink   for   the  promo+on   of   intra-­‐African   trade,  commerce,    rela+onship  as   well  as   for   easier  movement  of  goods,  people  and  services  within  the  con+nent.   Today,  intra-­‐African   trade  has   increased,  though   standing  only   at  13%  from  6%.   Nevertheless,   there   is   s+ll   a   lot   to   be   done   in   the   development   of   inter-­‐regional  infrastructure  such  as  highways,  bridges,  air  routes,  waterways,  railways,  shipping  routes,  telecommunica+on,  among  others.   There   is   also   an   urgent  need   for   infrastructural   development  in   individual  sovereign   states   in   like   manner   in   order   to   boost   socio-­‐economic   development  and   enhance   interac+on.   The   interna+onal   financial   ins+tu+ons   such   as   the  African  Development  Bank  (AfDB),  the  World  Bank,  the  European  Union  Fund,  the  IMF,  etc.,  have   done  quite  a  lot  to   close  the   infrastructural   gap   but   interna+onal  investors   can   s+ll   do   a   lot   more   to   complement   these   efforts   on   government/ 6
  8. 8. private   partnership   basis.   They   are   likely   to   have   their   returns   on   their  investments  through  tolling  or  other  means  of  payment. Agriculture:   Many  African  economies   prac+ce  subsistence  agriculture.  Agriculture  is   not  only   a  major  employer  of   labor   but  in  many  countries   such  as   Burundi,  Rwanda,  Malawi,  Zimbabwe,  Ghana,   Cote   DIvoire,   etc.,   is   also   a   major   foreign   exchange  earner  as  well  as   plamorm  for  food   security.  Fortunately,  Africa  s+ll  boosts  60%  of  the   uncul+vated   arable  land   of   the   world.   In   other  words,  large   scale   planta+on  agriculture  is  s+ll  very  much  a  possibility  in  Africa,  capable  of  turning  round  many  mono-­‐economies  such  as  those  of  Nigeria,  Angola,  Equatorial  Guinea,  Gabon,  etc,  if  agriculture  is  taken  as  a  business  beyond  the  subsistence  level.   Africa  is   also   blessed   with  huge  expanse  of  water  bodies  such   as   lakes   and  rivers   which   can   be   used   for   irriga+on.   And   the   combina+on   of   appropriate  fer+lizers,   hybrid-­‐high   yielding   seedlings   and   good   irriga+on   can   transform   the  agricultural  landscape  of  Africa  to  a  highly  profitable  enterprise. Investors  are  therefore  encouraged  to  take  due  advantage  of   the  incen+ve  climate  within  individual  sovereign  states  for  a  meaningful  agricultural  produc+on.   Real  Estate:     With   a   fast   growing   popula+on   and   rapid   urbaniza+on,   from   30%   a  genera+on  ago  to  40%  currently,  the  need  for  the  provision  of  houses  for  the  large   7
  9. 9. popula+on   cannot   be   overemphasized.   From   Nigeria   to   Angola;   Egypt   to  Equatorial   Guinea;   Algeria   to   South   Africa,   etc.,   the   need   for   the   provision   of  modern   houses   with   the   appropriate   facili+es   can   hardly   be   underscored.   The  margin   of  profit  in   the  housing  sector  is   highly   aArac+ve.  Rather  than  keep   their  money  in  the  banks-­‐-­‐-­‐not  knowing  exactly  what  to  do  with  such  funds  in  the  face  of  the  challenging  real  estate  sector  in  the  United   States,  investors  can   be  wise  to  look  at  the  African  real  estate  market. Healthcare:   A   healthy   na+on   makes   a   wealthy   na+on   and   a   sick   popula+on   would  reflect  on   the   produc+vity   of   the   country.  The   World   Bank   es+mates   that  Africa  loses   as   much   as   $12   billion   to   the   malaria  scourge   on   the  con+nent.  HIV/AIDS,  polio,  tuberculosis,  stroke  and  other  ailments   are  also  prevalent  in   the  con+nent.  Amidst   this   scenario,   infant   and   maternal   mortali+es   are   high,   while   life  expectancy  is  low.   There   is   a   crying   need   for   the   provision   of   quality   health   care   from   the  primary   but  par+cularly  at  the  ter+ary   level  in  several  parts  of   Africa  through  the  provision   of   state-­‐of-­‐the-­‐art   facili+es   such   as   hospitals,   equipment,   skilled  personnel,   original   good   quality   pharmaceu+cal   products,     among   others.  Investors  who   therefore  direct  their  aAen+on  to  this  end  of  the  African  con+nent  would  likely  reap  huge  profits  from  such  decisions. 8
  10. 10. Transporta2on:   Transporta+on   appears   to   have   been   par+cularly   treated   under   general  infrastructure   provision   but   the   need   for   the   availability   of   waterways,   railways  and  airways  -­‐  linking  the  various  parts  of  Africa  cannot  be  over  emphasized.   Power/Energy:   Currently,  African  development  is   blighted   by   inadequate  power/electricity  supply-­‐   telling  nega+vely  on  GDP  growth  rate,  industrializa+on  and  other  areas  of  growth.   Fortunately,   Africa   has   enormous   poten+als   for   the   development   of  electricity  from  the  majes+c  rivers  such  as  the  Congo,  Limpopo,  Zambezi,  the  Nile,  Niger,  Senegal,  and  falls  such  as  Victoria  Falls  and  numerous  other  water  resources  could  be  tapped  for  hydro-­‐electricity.   Africa   also   has   a   lot   of   oil   and   natural   gas   for   use   as   raw   materials   for  thermal  plants,  not  to  talk  of  coal  that  can  also  be  used  for  electricity  genera+on.  From   countries   harboring   the   Sahara   and   Kalahari   deserts   too,   a   lot   of   solar  energy  could  be  tapped;  so  also  could   be  wind  energy   from  the   liAoral  countries  bordering  the  seas  and  oceans.   Doubtless,   the   solu+on   to   Africa’s   power   problem   will   contribute   to   the  accelerated   growth   of   the   con+nent   as   it   will   form   a   new   plamorm   for   socio-­‐economic  development  of  the  con+nent.   Tourism:   9
  11. 11. One  of  the  best  known  industries   in  Africa  is   tourism.  From  South  Africa  to  Tanzania   to   Kenya,   Egypt,   The   Gambia,   tourism   plays   a   major   part   in   the  economies  of  these  countries  and  earns  for  Africa  $44  billion  in  2010  alone.   From  the  flora  and  fauna,  safari  and  animal  and  bird  watching  to  sailing,  the  features  of  tourism  are  abundant  on  the  African  con+nent.  Africa,  being  the  cradle  of   man,   also   boasts   some   of   the   oldest   relics   of   ancient   civiliza+on   including  ancient  ci+es   like   Timbuktu,  pyramids,  carvings,  ar+facts,  ancient  poAery,  among  others.  Also   of   tourism   value   are   stretches   of   silvery   sand   beaches,  the   sun   and  the  sea,  unspoiled  and  pris+ne  forests  as  well  as  slave  relics  depic+ng  some  of  the  darkest  periods  in  human  history  and  of  man’s  inhumanity  to  man.   Most  of  these  tourism  sites   s+ll  remain  much  underdeveloped  and  cries  for  modern   day   infrastructure   so   as   to   create   access   to   them   and   to   provide  hospitality  to  visitors  and  tourists  alike.   Also   to   be   considered   are   majes+c   waterfalls,   which   can   be   explored   by  developing   appropriate   spots   around   them   with   a   view   to   making   them   tourist  aArac+ons.   Investors  can  therefore  conduct  their  market  surveys   to   iden+fy  areas   they  can   invest   in.   In   Nigeria,   for   example,   aArac+ve   incen+ves   include   ease   in   the  provision  of  land  by  state  governments,  tax  holidays,  rebates,  sok  loans  with  long  grace  periods,  tax  exemp+on  on  tourism  equipment,  provision  of  security.   10
  12. 12. It   has   been   es+mated   that   tourism   is   one   of   the   industries   capable   of  crea+ng   very   quick   employment   in   huge   numbers   from   the   tour   guard   to   the  driver   of   the   safari,   to   the   tour   operator,   to   sellers   of   souvenirs,   the   hotel  proprietors   and   workers,  entertainers-­‐-­‐-­‐among  the  many  mul+-­‐faceted   mul+plier  jobs  tourism  is  capable  of  crea+ng.   Telecommunica2on:   Perhaps,   one   of   the   fastest   growth   industries   in   Africa   is  telecommunica+ons,  par+cularly  mobile  telephone   and  internet  services.  Mobile  phone  is  revolu+onizing  communica+on  and  produc+vity   on   the  con+nent-­‐-­‐-­‐from  urban  centers  to  rural  hinterlands. Currently,  more  than  600  million  Africans  have  mobile  hand  sets  and  about  10%   has   access   to   the   internet.   In   Nigeria,   the   number   of   telephone   owners    jumped   from   a   mere   400,000   (mainly   landlines)   in   2000   to   84   million   people  today.  Importantly,  mobile  telephone  is  used  not  only  for  communica+on  but  also  for   other   produc+ve   purposes   such   as   business   tool,  crop   pricing,  alert   on   bank  accounts,  etc.  It  is  equally   used  for  fer+lizer   distribu+on   to    farmers   through   the  Input  Voucher  and  Electronic  Wallet  Fer+lizer  Programme  in  Nigeria There  are  s+ll   vast  opportuni+es   for  investors   in   this   field  especially   in   the  provision   of   cheap   but   quality   internet   services   as   well   as   the   provision   of   11
  13. 13. hardwares   such   as   mobile   phone   accessories-­‐-­‐-­‐recharge   cards,   and   mobile  networks.   On   this   note,   I  wish   the   mee+ng   a  successful   outcome   and   thank   you   for  your  kind  aAen+on.  Consulate-­‐General  ofNigeria,  Atlanta,June  7,  2012 12