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EY Africa Attractiveness 2012

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EY\'s 2nd edition of Africa Attractiveness builds on the theme of the African growth story, while emphasising the need to bridge a perception gap that continues to exist among many potential investors not yet doing business on the continent. In so doing we highlight the various factors that are contributing to sustainable economic growth on the continent, specifically regional integration and reducing the infrastructure deficit.

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EY Africa Attractiveness 2012

  1. 1. Growing BeyondBuilding bridgesErnst & Youngs 2012 attractiveness surveyAfrica
  2. 2. Emerging Markets CenterThe Emerging Markets Center is Ernst & Youngs “Centerof Excellence” that quickly and effectively connects youto the worlds fastest-growing economies. Our continuousinvestment in them allows us to share the breadth ofour knowledge through a wide range of initiatives, toolsand applications, thus offering businesses, in both matureand emerging markets, an in-depth and cross-borderapproach, supported by our leading and highly globallyintegrated structure.For further information on emerging markets,please visit: http://emergingmarkets.ey.com
  3. 3. 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
  4. 4. 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
  5. 5. 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
  6. 6. 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
  7. 7. 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
  8. 8. 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
  9. 9. 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
  10. 10. Executive summary8 Ernst & Youngs 2012 Africa attractiveness survey Building bridges
  11. 11. 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
  12. 12. 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
  13. 13. 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
  14. 14. 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
  15. 15. 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
  16. 16. 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
  17. 17. 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
  18. 18. 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
  19. 19. 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
  20. 20. 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
  21. 21. 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
  22. 22. 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
  23. 23. 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
  24. 24. 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

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