11.9.2012

How China's Approach Beats the West's in Africa

Harvard Business Review Blog | by Stephan Richter | September 3, 2012

U.S. Secretary of State Hillary Clinton's recent 10-day tour across Africa represented a strategic caving-in of sorts. In many of the places she visited, the Chinese had gotten there first. In fact, China is everywhere in Africa these days, both exploiting the continent's vast natural riches and pursuing infrastructure projects long promised but never quite delivered by the West.

Building railroads from inland areas to the coast, with the eventual prospect of a network that spans sub-Saharan Africa? Putting in highways at affordable prices across the continent? Constructing state-of-the-art office complexes, within budgets that African nations can afford?

These are all goals that African leaders have pursued for a long time. In the past, a toxic combination of corruption, murky ties between ex-colonizing countries (and their business elites) and the new rulers, and overly complex planning structures derailed project after project. Given the ability to deliver projects on time and on budget, the Chinese offer Africa's governments and people a clean-cut deal: If you work with us, we will build it - period. No ifs, ands, or buts.

Given that Africa's economic growth has long been stunted by the lack of a dependable internal transportation infrastructure - within countries and among them - this is more than a tempting offer. It represents an opportunity of historic proportions.

Yes, the continent has airports and cell phones galore, but due to the wholly insufficient rail and highway infrastructure, trade is still hampered in a manner reminiscent of Europe before 1820. In that sense, the initiatives undertaken by the Chinese in Africa now are the historical equivalent of what the Napoleonic wars brought to a country like Germany. They are a long overdue wake-up call to get rid of outdated traditions in order to advance to the age of modern commerce and trade.

Without making light of the drawbacks of how the Chinese operate, including the fact that they rely mostly on their own workforces even for projects deep in Africa's interior, theirs is a vision that is very distinct from that of the West over the past 50 years.The formula the West applied to post-independence, post-1960 Africa was one that focused on democracy-building over market-building. The Chinese approach it just the other way around. And whatever the preferences of Westerners, it is clearly Africans who have to make the choice of whether to go with democracy first or markets first.

In the abstract, it is always preferable to focus on democratic structures. However, in countries where poverty is still rampant, an uncomfortable counterargument can be made, based on the track record of the past 50 years. In much of Africa, political growth remains as stunted as economic development. Political maturity - in the sense of a robust enough democracy for elections to result in actual power change - for the most part only works in countries like Ghana, where economic development is already advanced and broad-based.

Focusing on market-building first can empower a budding middle class - which provides a check to the vestiges of often clan-based political and economic feudalism. In this approach, economic development leads political development. That is pretty much how things transpired in Europe over the centuries. There, economic empowerment led the merchant classes to demand increased political rights, which eventually put the continent on the road to full-blown democracy.

For Westerners. it is confounding to see that theirs somehow ended up being the "ideological" approach. Focusing on ideology, mind you, was supposed to be the Communists' gig, due to their inability to offer anything meaningful in terms of material goods.

And yet, it was the United States that peddled democracy and human rights - a.k.a., broadly speaking, ideology. Faced with the negative fallout of that, Secretary Clinton has recently sought out a more balanced approach, focusing on business (and opportunity) over human rights (and hectoring).

Meanwhile, the Chinese have kept building bridges, railroads, and conference centers. Ironically, it is the Chinese - not the Americans - who can make a compelling case that their focus in Africa has been not on spreading ideology but on the practical business of securing natural resources and creating future customers and trading partners.

Such a customer focus, of course, runs fully counter to Marxist doctrine. Better yet, the Chinese can call on the estimable Adam Smith as the crown witness for their strategy in Africa. In assessing the economic strategies of great empires, he wrote:

To found a great empire for the sole purpose of raising up a people of customers may at first appear a project fit only for a nation of shopkeepers. It is however a project altogether unfit for a nation of shopkeepers - but extremely fit for a nation whose government is influenced by shopkeepers.

And indeed, as the African continent proves, the Chinese Communist Party is spreading its wings around the world via commercial, rather than military, means. It is thus very much a government influenced by shopkeepers, one that uses their vast range of activities for its own alliance-building purposes.

Read Full Article On HBR Blog

 

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10.9.2012

SA Most Competitive In Africa

Sept 5, 2012 | Business.iAfrica.com

South Africa remains the most competitive economy in sub-Saharan Africa, according to the World Economic Forum's Global Competitiveness Report 2012/13 released on Wednesday."South Africa is ranked 52nd this year, remaining the highest-ranked country in sub-Saharan Africa and the third-placed among the BRICS economies," the WEF said in a statement.BRICS refers to the Brazil, Russia, India, China and South Africa group of large emerging market economies.

South Africa ranked 50th in the 2011/12 report.The country benefits from the large size of its economy, particularly by regional standards, the WEF said. It ranks 25th out of 144 economies in the world in terms of market size."Particularly impressive is the country's financial market development (third), indicating high confidence in South Africa's financial markets at a time when trust is returning only slowly in many other parts of the world," the WEF said.

South Africa did well on measures of the quality of its institutions and on intellectual property protection (ranking 20th), property rights (26th), the accountability of its private institutions (2nd), and its goods market efficiency (32nd).

South Africa does "reasonably well in more complex areas" such as business sophistication (38th) and innovation (42nd), benefiting from good scientific research institutions (34th) and strong collaboration between universities and the business sector in innovation (30th)."These combined attributes make South Africa the most competitive economy in the region."The WEF said to improve its competitiveness, South Africa needed to address some weaknesses."South Africa ranks 113th in labour market efficiency (a drop of 18 places from last year), with rigid hiring and firing practices (143rd), a lack of flexibility in wage determination by companies (140th), and significant tensions in labour-employer relations (144th)."The country also needed to increase its university enrolment rate to better develop its innovation potential." Combined efforts in these areas will be critical in view of the country's high unemployment rate of almost 25 percent in the second quarter of 2012."

Although South Africa's infrastructure was good by regional standards, it needed upgrading (63rd).The WEF pointed out that the poor security situation remains another important obstacle to doing business in South Africa. "The high business costs of crime and violence (134th) and the sense that the police are unable to provide sufficient protection from crime (90th) do not contribute to an environment that fosters competitiveness."The health of the workforce -- ranked 132nd out of 144 economies -- was concerning.
Switzerland tops the overall rankings, with Singapore second, and Finland in third position. They are followed by Sweden, Netherlands, Germany, the United States, the United Kingdom, Hong Kong and Japan in the top 10. Among the BRICS, the People's Republic of China (29th) continues to lead the group. Brazil is ranked 48th, South Africa 52nd, India 59th and Russia 67th.
Link To Article

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28.10.2011

World Bank approves $250 mln for S.Africa's Eskom

Reuters | Oct 28, 2011

The World Bank on Thursday approved $250 million in funding for South African power utility Eskom to develop a wind and solar plant as part of a push to boost sources of clean energy.

The World Bank said the funding through its Clean Technology Fund will finance a 100-megawatt solar power plant in Upington in the Northern Cape province and a 100-megawatt wind power project at Sere, north of Cape Town.

"The loan will help Eskom to implement two of the largest renewable energy projects ever attempted on the African continent," the bank said in a statement.

Eskom, a major supplier of energy to South Africa and neighboring countries, is keen to reduce its carbon footprint.

The state-owned utility is spending billions of dollars to build and upgrade existing coal-fired power plants to meet immediate energy needs, and wants to diversify the energy mix toward cleaner sources of energy.

Last month, Eskom signed two loan agreements worth $365 million with the African Development Bank to develop the Sere and Upington projects. For more see .

Eskom said it hoped to begin construction of the Sere wind project early next year.

The World Bank came under fire last year for approving a $3.75 billion loan for the development of a coal-fired plant in South Africa, but Eskom said the project was necessary to ease the country's chronic power shortages.

South Africa hosts global climate talks in the port city of Durban between November 28 and December 9 on a new globally binding climate pact to succeed the Kyoto Protocol from 2013. Part of the discussions are on designing a fund to help developing countries tackle climate change.

Link to Online Article: Reuters

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21.9.2011

Web boutique "My Asho" brings African fashion to global market

CNN | Sept 21, 2011

 

From color-popping dresses to bold prints and shapes, Afro-centric designs have been storming catwalks in recent years, catching the eye of fashionistas across the world.But for many international consumers, especially those with no access to shops dedicated to African brands, it can often be hard to get their hands on designer garments from the continent.As a result, more and more African designers are taking their lines to the web in a bid to reach out to a larger market. And while many are setting up their own websites, others rely on internet boutiques which have more experience navigating the online market.

One such store is My Asho -- launched in June 2009, this UK-based web boutique carries the work of established and up-and-coming African designers, giving them a chance to showcase their creations to a wider audience.

Founder Dolapo Shobanjo says she started My Asho -- taken from the Yoruba word "aso" which means cloth -- when she realized that African designers were not getting the promotion they deserved.

"I contacted the top designers, I spoke to them and asked them about their struggle and how difficult it is for them," says Shobanjo. "That's really how it got started, so to create that credible infrastructure is to show the global demand for the products and that will kick start the productions."Today, My Asho stocks a variety of womenswear, children's clothes and accessories from more than 30 African designers. Shobanjo says she is very careful when it comes to selecting new designers, making sure they have high professional standards.

"We're very happy to add new people in the site but we have to ensure that the designers we add are serious," she says.

"There are a lot of people out there who claim to be African designers but it's more like "oh, I have a tailor who can sew very well and who can copy items," so we have to distinguish between copy-cats and people doing this as a hobby."

One of the designers featured on the site is Erzumah Ackerson who runs clothing label Bestow Elan. She says My Asho is an ideal platform for her work, helping her to make her creations more visible as well as boost demand.

"I think there's still an element of investment that still needs to be done so we are recognized on an international as well as mainstream platform but I think My Asho is a perfect platform because since I've been on there, I've had a lot of international buyers and got into mainstream magazines."And as this digital expansion is helping create more demand, many African designers are now having to keep up in their supply.

Titi Ademola, a Ghana-based designer who is the founder of the KIKI Clothing brand, says the biggest challenge for many fashion designers is manufacturing.

"You get a lot of excitement from so many places but once you get an order, how do you manufacture in large quantities?" says Ademola.

"So, that's the issue that I'm facing, trying to focus on quality control and trying to ensure that you consistently provide quality and appealing garments to other companies and other markets," she adds.

With clients in more than 50 countries, Shobanjo's goal is to create a sustainable business model for My Asho. At the same time, she also wants her company to help her continent by supporting local African communities where the clothes are manufactured.As a result, Shobanjo's prioritized working with ethical brands that show a commitment to fair labor practices and create opportunities for their communities.

"I'm supporting Africa, helping it grow and creating jobs but it's not to say that a certain percentage of x is going to here because I don't think that is a sustainable business model," says Shobanjo."I think it is better to create from the start ethical principles and work with designers who pay their tailors well, who are investing in helping their communities grow and then once you grow as a business then you know that they will also grow as well."

Link to Online Article: CNN

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11.8.2011

Young Entrepreneurs Link Africa To Top Global Business Thinkers

Business Daily Africa | Aug 4, 2011

Early this year, Christian Haukaas, a 2011 IESE graduate, worked with two of Kenya’s leading innovative young companies, Craft Silicon and Pamoja Media.

Christian undertook a market study and business plan consultancy for Craft Silicon, which provides back-end business solutions for banking institutions. At Pamoja Media, he constructed an innovative mobile-accessible platform that helps to improve yields for smallholder farmers. As a result, Joshua Wanyama, CEO of Pamoja and TED Fellow, has turned the web advertising agency into a multi-purpose firm, creatively bringing his company’s technical savvy to bear on Kenya’s agricultural realities.

When Harvard management expert Michael E. Porter sets out for yet another African tour, he will lead workshops where some of these entrepreneurs will discuss their projects.

Hosted by the Tony Elumelu Foundation (TEF), a not-for-profit organisation that promotes business leadership in Africa, the workshops will target the first-class of interns who have gone through the inaugural African Markets Internship Programme (AMIP) that has placed some of the world’s brightest young business students in executive suites in African-owned businesses.

Prof Porter, a TEF founding patron, is recognised as the father of the modern strategy and one of the most influential thinker on management and competitiveness.

“Our African Markets Internship Programme combines two ingredients that could put Africa on the fast-track to transformation: top-tier students whose talents we bring to bear ... and the world’s keenest business minds, such as Michael Porter, whose ideas have shaped national markets and triggered regional development,” said founder of TEF and chairman of Heirs Holdings Tony O. Elumelu.

Prof Porter will lead two strategy workshops with the interns and the host business CEOs in which they will discuss projects and lessons from the programme. The sessions will include a focus on the industries represented in the 2011 programme, such as media, agriculture, private equity.

The workshops to be held in Nigeria, pairs students from Africa’s top business schools with students from elite business schools in Europe and the United States.

“Over the next few years, Africa will approach a turning point in its economic development,” Prof Porter said. “Its key business leaders could reinvent capitalism on both a local and continental scale if they are able to unleash innovation.”

Efe Odeleye, programme manager for TEF’s AMIP says: “This new generation of entrepreneurs and business leaders can be found at both ends of AMIP, as interns and host businesses. They represent the diversity and depth of African innovation and talent.”

Over her internship in Nigeria, Julia Otis, a Yale School of Management first year student, interned with NN24 where she undertook an extensive market study to determine the cable news station’s audience, reach and perception in their quest to become “the African CNN”.

CEO of NN24, Anthony Dara, called her work “critical, timely and key to redefining our image and honing our viewership base.”

Eleven host businesses are located in Nairobi, Lagos, all led by individuals in their 30s or 40s. In Lagos, Brandeis University International Business School first-year student and banker, Azuka Okofu, helped his host business, E-Motion Advertising to close a multi-million dollar investment deal with the Swiss government. E-Motion controls prime advertising real estate along four kilometres of one of Lagos’ most valuable expressways that cuts through the heart of the commercial centre, Victoria Island. “We could not have done it without him” remarked CEO Simdul Shagaya.

Cameroonian AMIP intern, Zekebweliwai Geh, Harvard Kennedy School first year, will bring his experience from his work at the IFC to Injaro Investments, a Ghanaian private equity firm.

“The internship creates a pipeline of talent to serve Africa’s interests and opens recruitment opportunities for African firms. The internship also takes on global significance,” says Jerry Parkes, MD of Injaro Investments.

Link to Online Article: African Business Daily

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11.8.2011

African Business Confidence Grows

New Vision | Aug 3, 2011

The Africa Business Confidence Index (ABCI) for July shows growth in both manufacturing and non-manufacturing sectors in Africa.

The difference compared to June in the indices for manufacturing and non-manufacturing shows a decrease of 2.2 and 4.4 percentage points respectively.

The index measures business confidence in the manufacturing and non-manufacturing private sector throughout Africa. Results are published on a monthly basis.

The July ABCI results indicate confidence and growth with an index of 51.7 and 56.0 for the manufacturing and non-manufacturing sectors respectively. A level of 50 and above indicates expansion. Business professionals from 30 countries in Africa participated in the survey, making the results a reliable gauge and early indicator of the underlying economic activity on the African continent.

The ABCI follows a similar methodology and logic as the PMI indices, which set the global standard. Members of the Africa Business Panel are business professionals and entrepreneurs working in Africa’s private sector.

Link to Online Article: New Vision

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4.8.2011

mLab Southern Africa Opens Membership Applications

it news Africa | July 28, 2011

mLab Southern Africa, a new regional incubator for entrepreneurs and innovators with a focus on mobile technology, has announced that applications for membership has opened. mLab will only be launched officially in Pretoria on 15 September, but mobile developers and startups may apply to become members.

mLab SA provides incubation support to mobile developers and entrepreneurs through the following services: subsidised office space with meeting rooms – to allow members to benefit from being part of the mobile startup community; training and accreditation on mobile technologies and entrepreneurship; business mentoring and coaching; business intelligence, such as privileged access to market research information and knowledge repositories; testing of mobile apps and services in dedicated test bays; and organising regular events for networking and knowledge sharing. The mLab SA will also assist members in accessing finance, whether it be in the form of grants, seed capital, angel investors or venture capitalists.

Members benefit from shared services offered at the mLab SA, such as reception, internet and test bays, because this allows entrepreneurs to lower their burn rate – how quickly they spend their startup capital – and so extend the survivability of their ideas.

mLab SA, and the recently opened mLab East Africa, in Nairobi, are the first of a number of mLabs to be launched around the world as part of the Creating Sustainable Businesses in the Knowledge Economy programme, supported by infoDev (World Bank), the Ministry of Foreign Affairs of the Government of Finland and Nokia. mLab SA is also generously supported by the South African Department of Science and Technology. While the head office will be in Pretoria, a number of satellite offices will be established throughout the region. A Cape Town satellite office is in the process of being established.

Southern Africa was chosen as a region to locate an mLab because of the enormous potential of mobile technologies for supporting business development, social development and job creation in the region. In South Africa, mobile penetration is around 100%, and 39% of urban South Africans are now browsing the internet on their phones. Mobile phones touch almost every aspect of peoples’ lives, and the potential for improving areas such as healthcare and education has already been successfully demonstrated.

But while there exists an enormous mobile opportunity in the region, there are still challenges to creating a sustainable business or organisation in mobile. Competition is stiff; the mobile landscape is highly uneven across different technologies, user groups and countries; and mobile developers are scarce and expensive. Added to that, a startup business or organisation is very vulnerable. It needs business, technical and financial support, and can benefit greatly from acceleration and incubation.mLab SA offers three types of membership: Community, which is free and which anyone can join, and Silver and Gold, for which interviews are necessary. Silver and Gold members pay a fee to access the core services of the mLab SA at the facility in The Innovation Hub, and receive more structured support from the mLab SA team and it’s partners. Support services will either be delivered directly by the mLab SA, or through external providers to which members will be pointed, e.g. the Bandwidth Barn’s business mentoring program.

Applications can be submitted via the mLab SA website, where further information regarding membership can also be found.

Link to Online Article: it news Africa

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28.6.2011

Visa Acquires South African Mobile Payments Company Fundamo

American Banking News | June 14, 2011

Visa Inc. (NYSE:V) announced today the acquisition of Fundamo, a privately held mobile financial services company based in Cape Town, South Africa, for $110 million in cash.  

Joseph W. Saunders, chairman and chief executive officer of Visa Inc said, “Combining Visa’s unparalleled network scale, global reach, extensive product suite and established financial institution relationships with Fundamo’s expertise in delivering mobile financial services in developing economies presents us with an important long-term opportunity to grow our business and drive financial inclusion in key geographic markets. We are pleased to add Fundamo’s industry leading technology solutions to our portfolio.”  

Fundamo has over 50 active mobile financial services deployments and operates in more than 40 countries, including 27 countries in the Africa, Asia, and Middle East Region. The company currently has 5 million registered subscribers and has the potential to reach more than 180 million.  Hannes van Rensburg, CEO of Fundamo said, “Mobile network operators and financial institutions will now be able to take advantage of Fundamo’s trusted mobile financial services platform backed by Visa’s high standards for security, reliability and scale.”  The acquisition is expected to close today, and will be slightly dilutive to Visa’s EPS for its fiscal year 2011.

Link to Online Article: American Banking News

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16.5.2011

Has Africa’s time come? E&Y thinks so.

FT.com | May 4, 2011

As executives and politicians descend on Cape Town for Africa’s World Economic Forum, Ernst & Young has a succinct message for foreign investors – “It’s time for Africa.”

In a new report, Africa Attractiveness Survey, the professional services company is forecasting that foreign direct investment into the continent will reach $150bn by 2015, up from less than $100bn last year. While that remains below a 2008 peak when FDI topped $200bn, the mineral-rich continent looks set to becoming increasingly attractive long term to international investors, particularly in emerging markets, E&Y reckons.

“Although the African share of global FDI has grown over the past decade, we believe that it does not reflect the increasing attractiveness of a region that has one of the fastest economic growth rates and highest returns on investment in the world,” says Ajen Sita, managing partner for Africa at E&Y.

Afro-optimists have been predicting “the year of Africa” for some time, on the belief that a continent better known to some for conflict and corruption has been making steady progress along the bumpy road towards stability and better governance.

Africa has also benefited from Asian demand for its abundant commodities. Its economies have been growing at an average compound rate of 5 per cent a year for the past decade – twice that of the developed world.

Yet the upbeat E&Y report suggests there are still sceptics who need convincing that Africa’s time has really come.

African respondents were the most positive about the continent’s progress over the past three years, with 86 per cent saying things had improved; 74 per cent of investors from other emerging markets said Africa had become more attractive.

But “developed regions such as Europe and North America are more ambivalent, as a large proportion of respondents from these regions appear to believe that Africa’s progress has stalled over the last few years,” the report says.

A significant minority of respondents from North America and Europe (16 per cent and 9 per cent, respectively) felt Africa had deteriorated during the past three years, while 46 per cent believed it had neither improved nor deteriorated.

And it is the age-old barrier of political instability that appears to be the dominant factor among more pessimistic respondents.

The report says:

Africa is high on the agenda of investors, with 43% considering investing further in the region and an additional 19% of business leaders confirming they will maintain their operations on the continent. … However, one-third of investors are still not considering investing in Africa. Despite 23% of them focusing on their local market and not considering international expansion, the reasons companies give for not wanting to invest in Africa are instructive in order to shape recommendations for the future. The most common barrier raised by business leaders surveyed is the instability of the political environment. Access to customers and the level of infrastructure (transport, logistic and telecommunication) are also cited as areas of concern. Corruption and security issues are considered as major barriers by one out of five of our respondents.

The report also notes that many new FDI projects between 2003 and 2010 were concentrated in 10 of the huge and diverse continent’s 53 nations – South Africa, Egypt, Morocco, Algeria, Tunisia, Nigeria, Angola, Kenya, Libya and Ghana.

The north Africa members of that clique have been at the heart of the revolutionary unrest that has swept the Arab world. Nigeria has also been plagued by post-election violence – although voting in the continent’s most populous state was credited with being among its most transparent.

Elsewhere, Ivory Coast lurched perilously close to civil war earlier this year and remains vulnerable to further violence, while on the eastern side of the continent Uganda – once a darling of western donors – has endured bouts of unrest as the government cracks down on opponents.

Africa has managed to maintain its “increased share of FDI compared with other regions” through the economic crisis, E&Y notes, although it is still a meagre percentage of the global total, ranging from 3.6 per cent of new FDI projects in 2003 to a high of 5.2 per cent 2008 and 4.5 per cent last year.

Investment is also diversifying away from extractive industries, with more inflows going to sectors such as tourism, construction, telecommunications and financial services.

The hope is that the positive trends outweigh the negative and Africa can start to match its obvious potential.

The report says:

The levels of risk in investing in Africa can be high but levels of profitability are high too, with competition in some sectors comparatively low. This investment window may not remain open for long, but it suggests that Africa actually appears to be relatively well positioned, with the only emerging region clearly ahead in terms of investor perceptions at this point being Asia.

“There are of course parts of the Continent where there are real and perceived barriers to investment due to political instability and corruption. These are obvious challenges but those investing in Africa and Africans themselves have much to be positive about,” Sita says.

“We are confident that Africa is on a sustainable growth curve and that FDI rates will steadily grow. However, to accelerate and take advantage of this growth process, governments and investors – foreign and domestic – should act now. The earliest to do so, and the canniest, will benefit the most.”

Link to Online Article: FT.com

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16.5.2011

South African Credit Growth Slows as Consumers Cut Debt

Businessweek.com | April 29, 2011

South African credit growth slowed in March as consumers took advantage of low interest rates to reduce debt in Africa’s biggest economy.

Borrowing by households and businesses rose an annual 5.1 percent, down from 5.4 percent in February, the Pretoria-based Reserve Bank said on its website today. The median estimate of eight economists surveyed by Bloomberg was 5.9 percent.

The Reserve Bank cut its benchmark interest rate three times last year to a 30-year low of 5.5 percent to help support the economy’s recovery. Consumer spending, which accounts for two-thirds of demand in the economy, has picked up gradually, while manufacturers are still holding back on investments.

“Credit markets are going to remain fairly tight,” said George Glynos, managing director of Econometrix Treasury Management in Johannesburg. “There is no underlying demand for credit. We probably won’t see a rate increase well into next year.”

The rand was at 6.6195 against the dollar as of 9:24 a.m. in Johannesburg from 6.6050 before the data was released. The yield on the R157 government bond, due 2015, was unchanged at 7.62 percent.

Consumers’ disposable income grew at a slower pace of 5.3 percent in the fourth quarter, compared with 5.5 percent in the previous three months, the central bank said on March 22. Growth in spending on durable goods such as furniture eased to 6.9 percent from 13.4 percent in the period.

Governor Gill Marcus left the key interest rate unchanged for a second meeting in March, saying that rising gasoline and food costs were the biggest threats to inflation. The bank aims to keep the inflation rate, which reached a nine-month high of 4.1 percent in March, inside a range of 3 percent to 6 percent.

The broad M3 measure of money supply increased an annual 6.5 percent in March, down from 7.6 percent in February. The median estimate in a Bloomberg survey was for M3 to expand 7.8 percent.

Link to Online Article: Businessweek

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16.5.2011

Yes, There Are Tech Startups in Nigeria. Here Are My Favorites.

TechCrunch | May 13, 2011

Last week I wrote about Computer Village, where many of the gadget-hounds in Lagos go to get their gadgety fix. But what about new technology being developed in the country? The city’s tech entrepreneur scene is small, but several people are working on changing that.

Oo Nwoye– or @oothenigerian as he’s known on Twitter– is one of the more enthusiastic champions of this nascent scene. (That’s him on the left.) I met him two years ago in London, where he cornered me at an event and made a case for me going to Nigeria, so he was one of the first people I contacted when I finally did.

Since then, he’d moved back home. He’s working on a to-be-determined startup and spending the meantime trying to galvanize a startup community. He organized a fantastic demo day to give me a taste of what people are working on.

In the days leading up to the pitches, I spoke with half a dozen tech entrepreneurs in Nigeria who had a lot of complaints about the ecosystem. There was the ever-present emerging market complaint of not enough venture capital, but the entrepreneurs also complained about the extremely high costs of doing business in Nigeria given how small the online market is so far, the spotty infrastructure, and the lack of enough developers who want to work for startups instead of the big oil companies.

Victor Asemota (pictured at Demo Day with me to the left) moved to back to Nigeria after starting his mobile technology services company in Ghana, lured by the juicy 150 million person population. He pays the same amount for his office space in Nigeria that he used to pay for a house and a comparable office space in Ghana. More galling: Because the infrastructure is so poor in Nigeria, he also has to provided his own power and water backups. “I have to build my own city just to live here,” he said, exasperated.

Asemota also talked about a bigger challenge to building a tech company in Nigeria: The stigma of illicit 419 scams. He’d negotiated a deal with a customer in Florida one time and was wrapping up the meeting by handing the man his business card. Simply seeing that he was from Nigeria killed the deal instantly, Asemota says. The man wouldn’t even keep his business card. I noticed at the end of our dinner, when Asemota handed me his card it listed his company as located in Ghana. And, he says, ground down by the frustrations of doing business in Nigeria, he’ll probably move back there.

So I entered Demo Day halfway through my trip, desperately looking for some hope. I found the first glimpse of it, appropriately, in a guy wearing an Obama Hope T-Shirt. His name was Gbenga Sesan, and he runs a organization called Paradigm Initiative of Nigeria. It takes small delegations of Lagos’s techies into less developed and frequently more violent parts of Nigeria to convince 13-year-olds to get interested in computers. “If you don’t start at 13, they can’t be millionaires by the time they are thirty,” he says.

Another group called Co-Creation Hub immediately caught my attention. It is building an incubator to help entrepreneurs with business advice, funding and mentoring. Their focus is using technology to solve real problems Nigeria faces, not just copying what people read on TechCrunch. It welcomes more than just coders, but teachers, doctors, or anyone from any background that has a dramatic idea of how to make life in Nigeria better. A new co-working space to be opened later this year will operate like an open living lab for social change.

I love that strategy. I always advise entrepreneurs if they want to build a Western-facing consumer Internet company to move for the Valley; it will just be easier. But if they want to be pioneers in their own markets, focus on the problems and endemic strengths there. (And probably read sites like TechCrunch a little less too.)

So right away between Nwoye’s evangelism, Paradigm Initiative of Nigeria’s efforts to build a young generation of coders and Co-Creation Hub’s cushy nest for social change, there was a pretty impressive mix of people actively working to foster an ecosystem. Things were looking up for Nigerian entrepreneurs. The demos started, and I was impressed by many of the companies too. They ran a tight ship doing pitches of no more than five minutes, and there were only a few copy-cat Western Web ideas in the bunch. My favorites are below. I should mention there was also a Garage48 hacker event over the weekend in Lagos that I wasn’t able to attend.

TT Sağlık Gyst: This was one of two truly long-term, big-idea, swing-for-the-fences startups I saw in the country. (I’ll write about the other one on Saturday.) Sim Shagaya (pictured to the left) has a Harvard MBA, but don’t hold that against him. After studying in the US and bouncing around the tech and banking world, he returned home to build a traditional old media billboard business.

He’s now leveraging the cash-flow of that to build two exciting new media companies. One is a daily deal site called DealDey. The other is super exciting. It’s called Gyst, and it’s a very local business directory search engine. He hires a bunch of kids throughout the country and gives them each a smart phone with a camera. They go door-to-door, manually getting information and GPS coordinates on every small businesses in the city, gathering the information in a database. Amazingly, nothing like this exists in Nigeria– no Yellow Pages, no local search engines, no 411 service. Like most emerging markets, many cities in West Africa don’t even have a formal system of streets and addresses or a working postal system.

This is an insanely expensive and ambitious project, and it’s 100% bootstrapped by the parent company. The opportunity is huge. It’s Google on a local level combined with Yelp, JustDial, SMSOne, Gigwalk, and a bunch of other exciting companies who rethink cost effective ways to amass huge amounts of local data in one easy-to-access place. “It will take a long time to show the true value of this business, but we’re willing to wait,” Shagaya says. Right now the company has 20,000 business listings, and its ultimate ambition is to index every city in West Africa with more than one million people. And the company will make all that information completely free for users. Whoa.

There are obviously huge synergies between these three businesses. A daily deal site that is tied to billboards and the region’s onlycomprehensive small business directory is a lot more powerful and exciting than a run-of-the-mill Groupon clone. It’s a textbook example of how industries develop in parallel, not serial, in emerging markets, utterly transforming how they develop. Imagine if Clear Channel, Google and Groupon were all the same company. And I love the ambition: Shagaya said he is focused on building nothing less than the Naspers of Nigeria.

Naspers– the South African media conglomerate– is not only one of the most dominant new media companies in Africa, it’s investing in the most important new media companies in the emerging world. One of their companies, DealFish, was even a sponsor of this Demo Day. It’s about time a continent as big as Africa has more than one new media powerhouse. This company is one to watch.

Skoola: This company has taken several years of Nigeria and Western Africa’s standardized tests and converted them into a basic test prep app that can run on any mobile phone, smart or dumb. I asked how big the market is and the whole room laughed. This is the test everyone takes if they have any ambition of higher education.

The business– which is so clear that the entrepreneur pitched in under three minutes– is a no brainer on a lot of levels. More people have phones in the developing world than toilets so it’s the ideal medium, and it’s a way to kill time sitting in traffic and further your education at the same time. It’s a perfect example of how to build a mass market product in a country like Nigeria: It’s distributed on the broadest possible platform, solving a problem a huge percentage of the population has, and priced for volume at less than $.30 per test. The company is working on French translations so neighboring West African countries can use the product too. I’m amazed I haven’t seen something like this in India. I’m sure it already exists. If it doesn’t, it should.

Traffic Nigeria: Speaking of the need to kill time in traffic, this company uses crowd-sourcing to monitor the traffic in Lagos, delivering results over the Web or SMS. Nigerian traffic is not the worst I’ve seen in the emerging world, but it’s pretty awful. As the entrepreneur put it dramatically, “You’re dying gradually sitting in this traffic, and we want to increase Nigeria’s life expectancy.”

I like the idea of attacking a local problem like this, but I’m not convinced crowd-sourcing is the right way. One entrepreneur I talked to later suggested that Traffic Nigeria should charge people for the updates (many people would gladly pay if the information was solid) and then pay motorcycle cabs or delivery guys to report once an hour or so on traffic conditions on their already traveled routes. That could be an instant local hit, and again, something that should exist in the rest of the developing world too.

But the entrepreneur behind Traffic Nigeria seemed sharp, and I have no doubt if the crowd-sourcing approach doesn’t pan out, he’ll iterate his way to a better method. The company is wisely tapping into something people feel passionate about: Everyone in Lagos talks about how brutal the traffic is and routes, meetings, days and plans are all orchestrated to avoid it at all costs.

Several other companies I met were working on important building blocks for any local Web ecosystem. My favorites in that category were Pagatech, a pretty sophisticated company that turns mobile phones into electronic wallets, and Bloovue, a Nigerian-localized ad network that hand-holds small businesses as they start to advertise on the Web and mobile devices. One cool thing about Bloovue is you can build an ad easily on a mobile phone; a small business never has to touch a computer to advertise online. The company cited the example of a woman named Judy the Cheesecake Lady. After one ad ran on Bloovue’s network she got six calls for cheesecakes within twenty minutes, and sixty calls over the next few days. She’d never considered advertising online before, and was stunned by the rapid results.

So that’s the raw, hopeful side of the Nigerian tech scene. This weekend I’ll post two stories about my brushes with the country’s no less entrepreneurial tech underworld.

Link to Online Article: TechCrunch

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11.4.2011

Diaspora Bonds Can Tap Into Migrant Wealth, Say Economists

CNN | April 7, 2011 | By Teo Kermeliotis

African countries can raise up to $10 billion a year by tapping into the savings of nationals living abroad, leading economists have said report released last week by the World Bank and the African Development Bank said sub-Saharan African countries such as Kenya, Nigeria and Ghana can potentially mobilize the wealth of their nationals scattered across the globe by issuing "diaspora bonds."

World Bank lead economist Dilip Ratha, the main author of the "Leveraging Migration for Africa: Remittances, Skills, and Investments" report, says there are about 30 million African migrants living outside their home countries, who are estimated to have more than $30 billion in annual savings.Most of these savings are kept in bank accounts outside Africa or invested in migrants´ host countries. "If a fraction of this money was tapped through diaspora bonds, then that could amount to $5-10 billion a year," says Ratha, pointing out that the figure is likely to be even higher.

"We don´t know whether African diaspora members would only want to invest 10, 20 or 50% of their total savings," he says. "The estimate we´ve put together is an underestimate -- the true size of savings that diaspora members have is probably significantly larger."It´s a patriotic discount in a way that one can tap into.--Dilip Ratha, World Bank economist

Ratha says migrants´ emotional ties with their home countries, coupled with attractive interest rates, can entice overseas communities to buy diaspora bonds.

"It´s a patriotic discount in a way that one can tap into, plus the fact that diaspora members have lower risk perception about their country (than foreign investors) and better information," he says."Also, a more tangible benefit that they have, compared to the foreign investors, is that they do have local currency needs," he adds.

Diaspora bonds could provide a lifeline to countries struggling for access to capital and funds for infrastructure development, according to Ratha.

The practice of wooing wealthy migrants in high-income countries through bonds is not new. Israel and India have issued such bonds in the past, often in periods of financial difficulties, raising more than $35 billion.

Last year, debt-ridden Greece unveiled plans to raise up to $3 billion by targeting its wealthy communities abroad.

In Africa, a similar effort was launched by Ethiopia in 2009, although without much success, because of perceived political risk, according to Ratha.

He says there are several hurdles that need to be overcome for these bonds to be effective.One problem is that the recognition of migrants as a resource for growth is relatively new in Africa. "There hasn´t been a concerted and recognized effort to mobilize diaspora resources in any manner," Ratha explains.

Another difficulty is that a country issuing bonds must provide investors with extensive information, including transparency details and regular reports during the time that the bond is outstanding.But perhaps the most significant obstacle is governance problems and the diaspora´s perception of political risk in the country issuing bonds.

"That is a problem in many countries," Ratha says. "The minimum condition is, of course, the diaspora has to feel that there is enough credibility of the borrower on the other side and the money will be used properly and that the money will be paid back in the end."The money locked away in the banks here, in foreign countries, can be used to develop Ghana.--Hannah Apeah-Kubi -- Ghanaian living in UK

But would migrants be interested in buying diaspora bonds if they were issued?Joseph Alajemba, the general secretary of the National Association of Nigerian Communities in the UK, says diaspora bonds are a welcome idea, as long as the funds would be used to improve areas such as infrastructure and health care and are not mismanaged.

Alajemba, who lives in Cardiff, Wales, says: "If the money is going to be channeled into areas visible, that we can see, not just like the other type of money that comes in and is being hijacked from individuals, then definitely people would be willing to buy the bonds."For Ghanaian Hannah Apeah-Kubi, who´s been living in the UK for 29 years, diaspora bonds are a good idea that she says could help in the development of her country if they are purchased by enough people.

She says she would buy such a bond if she could "part with some money I wouldn´t need immediately but can be put away for such purpose."She adds: "The money locked away in the banks here, in foreign countries, can be used to develop Ghana."

In their report, the World Bank and the African Development Bank say that recorded remittances into Africa increased fourfold between 1990 and 2010, reaching almost $40 billion last year.The report urges African governments to first strengthen and then maintain their links with their nationals abroad to realize the full economic benefits of migration.

Link to Online Article: CNN

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11.4.2011

OPIC Issues Call For Proposals For Impact Investing Funds

OPIC | March 31, 2011

Agency´s $250 Million Commitment Will Leverage Hundreds of Millions More in Investment

The Overseas Private Investment Corporation (OPIC), the U.S. Government’s development finance institution, today issued its first-ever call for proposals to catalyze support for ‘impact investments’ – a fast-growing sector that is drawing investors with the promise of targeting and delivering social and environmental impact to emerging markets while at the same time generating profits.

The OPIC initiative, which aims to commit $250 million in OPIC financing, represents the largest U.S. Government commitment to international impact investing to date.

The OPIC call invites proposals from qualified fund managers and other financial intermediaries to establish investment funds designed to create a portfolio of social and environmental impact investments in the emerging markets where OPIC operates. The call is open to equity, debt and hybrid strategies. Deadline for the submission of proposals is May 12.

The call for proposals may be found on OPIC’s website.

Strategically, the call will build on the promising work of innovators in the social impact investing field, support its financial intermediaries, and utilize OPIC’s debt, insurance, and guarantee products to attract a wider pool of investors than has been seen to date. In advance of the call, OPIC and investment advisor Cambridge Associates invited input and ideas – including perspectives on innovative structures and measurements of social performance – from investors, advisors, entrepreneurs and other parties in order to optimize its design.

“Private capital has an important role to play in helping solve development challenges, especially when development budgets are under pressure.” said OPIC President and CEO Elizabeth Littlefield. “With this call, OPIC seeks to catalyze the field’s growth, by encouraging innovation, mitigating risks and committing capital to attract more private investment.”

Link to Online Article: OPIC

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4.4.2011

Change Of JSE Guard

www.iol.co.za | March 30, 2011

The recent annual results of the JSE to December last year were overshadowed by Russell Loubser announcing that he was standing down as the chief executive of the JSE at the end of this year.

This was a sad moment for the JSE as for the past 15 years Loubser has been a successful and innovative leader who led the JSE from strength to strength.

He never failed to make courageous decisions when necessary. During his term he led the JSE from being a small, backwater local exchange to becoming a recognised and respected international player. It is significant that he took the decision to stand down not because he thought it was time to go but because he felt that it was important for the JSE to elect a new leader to take it through the next decade.

We have been successful I believe in choosing the new leader. Nicky Newton-King has been groomed for this position as deputy chief executive under Loubser for the past eight years.

Newton-King, a lawyer, was a partner at Webber Wentzel Attorneys before joining the JSE 15 years ago. Together with a number of other high-quality candidates she underwent a rigorous vetting process and was the JSE board’s unanimous choice.

The JSE will therefore be in capable hands in the foreseeable future and I also look forward to following Loubser’s future career path with great interest.

The financial results for 2010 are now history but I would like to point out that they were achieved in a difficult trading period and were a tribute to all concerned.

For the record, the exchange reported a 9 percent rise in operating revenue for the year to December of R1.3 billion with net income after tax at R378 million, compared with R366m the previous year. I was particularly delighted that we managed to increase our dividend to R2.10 (in 2009 it was R1.92) as I am well aware that there are a number of JS Limited shareholders who look to the JSE for their income.

Readers may not be aware that Loubser is both a director and the treasurer of the World Federation of Exchanges (WFE).

The WFE is the association of 52 regulated exchanges around the world that develops and promotes standards in markets. WFE exchanges are home to more than 45 000 listed companies.

Obviously Loubser is highly regarded in international stock exchange circles as well as in South Africa. It is therefore fitting that in his final year as the JSE’s chief executive that the WFE has voted to hold its 51st general assembly and annual meeting in Johannesburg, from October 11 to 13.

This assembly represents the largest and most widely attended gathering of global exchange leaders. It is also attended by a number of prominent international business people and government dignitaries. I personally regard this as a milestone in South Africa’s business history and is something that Loubser and I have been lobbying for over the past 12 years.

Soaring commodity prices led to a buoyant and optimistic mood at this year’s Mining Indaba in Cape Town. For local delegates it was gratifying to experience the global interest in the resource-rich African mining sector. A delegate told me it was “like lions fighting over a kill”.

Clearly there is an increasing appetite for Africa as an investment destination as low yields in developed countries prompt investors to search for high returns in previously unexplored emerging markets.

I believe that Africa contains more than 30 percent of global mineral reserves but has less than 5 percent of the global exploration and extraction budget. What does this mean for stock exchanges on the continent and, more pertinently, for South Africa’s ability to attract new investment?

When global fund managers consider putting funds into a new destination they look for a number of criteria including a sound, business-friendly economy and, for listed investments, a stock exchange with regulatory and operational standards that meet international benchmarks. Exchanges must have a predictable set of rules, fair operating schemes and smooth and transparent operating systems. If these factors aren’t present other investment destinations will be found.

A major hurdle for investors wanting to put money into Africa is the difficulty involved in transacting on a large number of small exchanges, some with as few as five listed companies and each with its own regulatory system – often very different from the regulatory systems investors are used to. For multinational institutions the effort required to investigate each market is not always worth the effort given the low number of potential investment opportunities and the relatively high costs of executing trades in these markets.

As the largest exchange in Africa the JSE has always believed that it has a pivotal role to play in the development of capital markets throughout the continent. We have positioned ourselves as a gateway for investors worldwide wishing to access opportunities throughout the African continent and have developed the strategic links and technological capacity to do so.

In February 2009 we established our African Board, a listing venue for companies domiciled in Africa or with assets on the continent.

Because we realised that turf issues are a major stumbling block we encouraged companies to dual list on the JSE as well as their local exchange as this will offer them increased liquidity in their shares and visibility to more investors through exposure to the JSE’s large local and foreign investor base. Moreover we will share our revenues with the local exchanges.

We have also launched a series of indices to track the performance of top issuers across the continent and are developing a hub and spoke model of linking and routing orders and data to and from African exchanges.

South Africa is blessed with staggering mineral wealth. For more than a century our economy has been built on these vast resources. Our mining industry is well established and resourceful with a high degree of technical expertise and an ability to mobilise capital for new development. It has contributed greatly to the establishment of our country’s secondary industries. Resource stocks comprise about 40 percent of the JSE’s value.

However if we wish to benefit from the momentum created by foreign interest, create jobs on a sustainable basis and not miss out on the next commodity boom the government must be proactive.

The best input the state can provide is to sort out once and for all a transparent regulatory framework for the mining sector, thereby creating an environment for the mining sector to flourish.

Second, it needs to accept that a market economy, with all its imperfections, is the only kind that works. It has had very little success with state-owned mining groups such as Alexkor and should remain a facilitator and not try and be a player on the field. It has enough on its plate in trying to fulfil its core obligation of rendering public services.

Once these issues have been addressed I have no doubt that the minerals under our feet will keep our economy robust for at least another hundred years.

Humphrey Borkum is the chairman of JSE Limited.

Link to Online Article: www.iol.co.za

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4.4.2011

South African Banks Poised to Lead Stock Rally With 40% Advance, RMB Says

Bloomberg | March 30, 2011 | By Sikonathi Mantshantsha

Banks will lead a rally in South African stocks that may last 18 months as record-low U.S. interest rates spur emerging-market gains, according to RMB Asset Management, one of the nation’s three biggest fund managers.

Lenders may jump 40 percent because valuations as low as 10 times annual earnings compare with multiples of 15 for the FTSE/JSE All Share Index, according to RMB. FirstRand Ltd. (FSR), the second-largest South African lender by market value, trades at 10.2 times earnings, compared with 13.9 for the MSCI Emerging Markets/ Financials index, data compiled by Bloomberg show. The stock gained the most since December today.

“Banks are truly cheap at the current valuations,” Wayne McCurrie, a portfolio manager who helps oversee 110 billion rand ($16 billion) at the Johannesburg-based company, said in an interview in Johannesburg yesterday. Stock gains will be spurred by earnings growth of as much as 30 percent, he said.

Africa’s biggest stock gauge may climb 10 to 15 percent over the next year-and-a-half as the global economic recovery boosts corporate earnings while the Federal Reserve avoids tightening monetary policy, McCurrie said.

RMB’s outlook contrasts with a more bearish view from Investec Asset Management, South Africa’s biggest independent money manager. South Africa’s stocks are “significantly overvalued” as the surge in metals prices in the past two years boosted Anglo American Plc and BHP Billiton Plc, Sam Houlie, who oversees about 120 billion rand ($17.5 billion) as head of South African equities at Investec, said on March 25 in Cape Town.

Household Debt

FirstRand’s shares jumped the most since Dec. 6, rising 3.2 percent to close at 19.90 rand in Johannesburg, while Absa Bank climbed 2 percent to close at 137.25 rand, the highest since Jan. 26. Standard Bank Group Ltd., Africa’s largest retail bank by assets, advanced 2.3 percent to 104.75 rand, the highest closing level since Feb. 4.

FirstRand, based in Johannesburg, has tumbled 8 percent from its peak on Jan. 13 and Absa Group Ltd. (ASA), the biggest retail lender, has dropped 5 percent to value its shares at 11.98 times annual earnings, data compiled by Bloomberg show. Johannesburg- based Absa’s bad debt, which rose almost fourfold between 2007 and 2009, fell 33 percent to 6 billion rand last year, the bank said in a statement last month.

Growth in borrowing by South African households has slowed to 5 percent from as much as 27 percent in 2006 as the country recovered from the 2009 recession. The nation’s benchmark interest rate of 5.5 percent, the lowest in 30 years, and an inflation rate of 3.7 percent, 50 basis points above the slowest pace in 5 1/2 years, will boost prospects for increased lending by banks, according to McCurrie.

Bad Debt Unwinding

Standard Bank Group Ltd., Africa’s biggest lender, said its personal and business unit returned to profitability and registered a 5 percent advance in new mortgages for the year through December. The Johannesburg-based company has gained 7.8 percent since March 15, lifting its valuation to 13.9 times annual earnings, data compiled by Bloomberg show.

“There’s huge bad debt unwinding in the banking sector and that’s why we think the banks will rise,” said McCurrie.

Share gains will be spurred by company earnings growing about 30 percent next year, he said.

Anglo American, which makes up 11 percent of the All Share index, has lost 11 percent since Feb. 15 as metal prices fell on concern Japan’s earthquake would stem demand. The London-based company’s stock is valued at 9.1 times earnings, while BHP, the world’s biggest mining company that comprises 13 percent of the index, is trading for a price-to-earnings multiple of 12.5.

Commodity shares “are very good, but the shares aren’t cheap,” McCurrie said, adding RMB isn’t buying diversified base-metals producers including Anglo American and Melbourne- based BHP.

Link to Online Article: Bloomberg

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4.4.2011

Interview: E&Y´s Adrian Macartney Talks Of African Ventures

WSJ.com | March 21, 2011 | By Divya Guha

The bulk of the money entering Africa, until recently, was through aid programmes. Now companies from across the globe want to tap the continent´s rich resources and untapped consumer potential. The gross domestic product per household across Africa has more than doubled in the last 15 years. Ernst and Young´s Adrian Macartney, leader of transactions advisory services (Africa), spoke to Divya Guha of Mint about the shift in perception.

Edited excerpts:

Why is Africa an exciting place for Indian businesses to look for acquisition targets? Are Indian multinational companies factoring Africa into their long-term growth strategies?

Africa is on the agenda of many countries, not just India. The continent is approaching one billion people in population, it has a growing middle class, growing level of wealth, greater disposable income, a growing number of cities approaching a million people.

The downside is that the geographic mass, the sheer spread of people, is far greater than in India. This will be a challenge.

What are the success rates of businesses in Africa?

It would be premature to comment at this time. However, it would be worthwhile to observe the performance of investors such as Bharti, Godrej and Essar.

What´s the downside?

No different from any other — lack of ability to penetrate the market and scale up, and operating in a market that (at the moment) is too small.

What is the main reason for the rise of interest in Africa as a growth hot spot?

Africa is rich in minerals, yet has traditionally underinvested in infrastructure. Combining this with the factors mentioned earlier, Africa offers an opportunity for sustained growth over coming years compared to stagnant markets in Europe and North America. Like many developing markets, projected growth in GDP is significantly higher than mature markets.

How many of these businesses are looking at acquisitions as a means to strategic growth versus survival? How does this compare with deals to Africa from other markets (say Europe or the US)?

Most businesses are looking for growth, not necessarily survival. Africa offers the opportunity for long-term growth. Europe and the US are not growing, so in order to deliver growth to shareholders, it is important to look for growth elsewhere. International clients, whom I have worked with, whether already having a presence in Africa or entering the market for the first time, see Africa as offering growth opportunities.

In terms of comparing it to other markets, they are not very different. Africa has become a more competitive playground, capital is available and, of course, Indian companies will have to compete with them. This includes China, which competes extensively in the infrastructure and natural resources space. Opportunities abound, but competition will rise as it becomes more focused.

What challenges does Africa face in attracting business? And what might India offer the region?

One of the things Africa needs is the ability to manage a low-cost environment. Indian companies have experience of this. Africa competes with many other emerging markets for foreign direct investment. The largest challenge is a lack of knowledge of the realities of business on the continent. Indians coming in and providing a low-cost, high-quality product will capture market share. But consumers are sophisticated in today´s market and will quickly see through poor quality.

Culturally, Indian companies might be a little closer to Africa. In terms of their shared colonial histories, Indian companies will have a unique cultural understanding of the market as well; they will understand the need to work with communities, perhaps better than some competitors.

To what extent are they looking at acquiring established African brands?

In the consumer products sector, local brands are particularly important as they allow a new player an entry to the market. This can then be used to leverage other products into the market. This is not quite the same for other sectors where it is possible to introduce brands directly.

To what extent is lowering costs their main motivation? Which sectors are most motivated by this?

This applies differently in different sectors. Many companies requiring resources are seeking to secure off-take agreements (an agreement between a producer and a buyer to buy or sell portions of the producer´s future production) and manage their long-term business through integrating the value chain. Other companies are seeking to secure ranks to market (significant market share) for their products. These companies are seeking growth. However, the ability to cut costs is what makes Indian companies attractive to the African market.

What proportion of Indian companies do you think are just testing the waters as opposed to being serious contenders?

There are many serious contenders—some slower, some faster. Each company needs to make the assessment around whether or not Africa is the best use of their capital. Indian companies are competitive and they are seeking to secure their long-term growth. Many have the skills and abilities to go offshore and where they don´t, there are sufficient skills in the market to assist them.

How will the deals be financed—retained earnings, private equity, public listings, debt or accruals?

If we look at the years 2005-08, there were many debt-financed deals. Then (after) the economic crisis, liquidity dried up, capital was scarce and the money that was available, debt, was more expensive. Now people will see more equity-financed deals. A number of funds in Africa are starting to see that they have some capital available to start investing. They will have to see exits to see more capital. South Africa is seeing a number of companies raising equity. Certainly, our expectation is that the resources sector is looking attractive for initial public offers.

I think there is probably a move towards looking for the right opportunity and finding the right structure for that, a joint venture maybe, rather than take the risk alone. There is a fair amount of debt in India, but there are many Indian companies that have a significant amount of cash and find no problem in raising finance. There´s a trend towards more sharing and partnering rather than 100% ownership.

Which are the relatively more mature countries in Africa? Do they get their fair share of attention from investors?

People know a fair bit about South Africa and Nigeria, but then it tails off. People use broad brushstrokes to paint Africa. They are worried about political risks and these issues are based on a lack of understanding and are often out of date. Go out and find out the latest details rather than base your views on reports from two years ago. Your experience in Egypt will be completely different from Tanzania. Rwanda is a country that has completely transformed itself in a very short space of time.

Current, up-to-date and reliable information is what is required. This is best summed up by the chief executive of a large listed company who insisted on taking his entire executive team on a walk through the city streets of a target to taste, smell, see and hear the sounds of consumers in that city. That seemed a sensible approach to me.

Link to Online Article: wsj.com

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4.4.2011

The Emerging Markets That Banks Should Go Into Next

Forbes | March 9, 2011 | By Richard A. Lumb

There is a rush to find the next financial growth markets. Our picks: South Korea, Mexico, Turkey, South Africa and Indonesia.

For investors and businesses alike, the key to success is often getting in on the ground floor of a market before it takes off. For investors, that has meant getting in early on great companies like Microsoft and Google. For financial services firms with global ambitions, it has meant planting the flag years--if not decades--ahead of the pack, as new markets develop. Aflac, for instance, has profited immensely from the toehold it established in Japan in the mid-1970s. And Citibank´s early bets on emerging markets have helped make it the world´s largest provider of credit cards.

At the world´s top 15 global banks, most of the profits now come from emerging markets. Thus many financial services firms are following the fashion of investing heavily in the BRIC economies--Brazil, Russia, India and China--but some are contemplating what lies beyond. When thinking of the less-than-obvious countries where an investment today might realize venture capital-like returns in the future, there are five markets that Accenture ( ACN - news - people )´s financial services industry group believes have the most potential: South Korea, Mexico, Turkey, South Africa and Indonesia.

Most of them require a strong stomach for political and economic risks of the kind we´ve seen in Egypt recently. And each of these growth markets has its own unique regulatory and cultural conditions that firms must understand going in. What they all have in common is that they are poised to grow well above the global average and have strong legal systems and open banking systems that are not controlled by the government. Not least, these markets also have comparatively low penetration rates in financial services, creating plenty of upside and opportunity for Western financial firms hoping to stake a claim. In some cases, the growing popularity of mobile banking has lowered the barriers to entry. The fact that an estimated 20% of Kenya´s gross domestic product was moved by cellphone in 2010 shows that foreign firms don´t necessarily need to spend billions on costly branch networks to compete in the developing world.

Some of these markets, particularly those in the Middle East, carry higher political risks and regulatory restrictions, and taking market share from the incumbent players will require time and money. But the ongoing liberalization of global trade and financial markets should help lower these barriers naturally--creating opportunity for financial services firms that invest today. Here is the case for each of these markets:

Mexico

Although Mexico is one of the top five nations in Latin America in per capita GDP, the majority of Mexicans still don´t use banks. In fact, only a quarter of all citizens here have a financial account, vs. 43% in Brazil and 60% in Chile. That´s because many Mexicans--perhaps put off by chronically high fees and poor service at banks--have become adept at getting credit from alternative sources. Half of the country´s vast unbanked population uses department stores as its primary source of credit, compared with just 10% using financial institutions, according to the World Bank. A 2009 survey by Accenture and AMECE, Mexico´s electronic commerce standards association, revealed that 43% of the mid-sized businesses polled said they didn´t plan to use banks for any financing during the next two years.

This provides an opening for newcomers. And the industry´s current profitability--the average return on equity here has consistently topped 12%--means there is plenty of margin to go around. That´s because the share of the population that is in its peak earning years--29 to 49--is expected to rise from 37% in 2005 to 45% in 2030. That means the pie should grow for all players.

South Korea 

The financial services market in South Korea has historically been dominated by the "chaebols," those giant conglomerates such as Samsung and Hyundai that even have their own securities divisions. But recent trade concessions negotiated by the U.S. are expected to provide further openings for international competitors.

As U.S. firms expand into South Korea, they´ll find an insurance market that´s bigger than Spain´s, a capital market that´s bigger than Italy´s, and a banking industry that is larger than Hong Kong´s. They will also find a country that´s been an early adopter of new technologies, including mobile banking. Already, more than one out of five new auto insurance policies are sold online or over the phone, and roughly 1.4 million cell phones are expected to serve their owners as "mobile wallets" by 2015. That could give Western firms a quick way to build market share without investing in costly real estate.

Turkey 

This nation, at the nexus of Europe and Asia, boasts a relatively high literacy rate and a young population. Combined, that makes for a technologically savvy public that conducted 148 billion online bank transactions in 2009. Its financial system, once dominated by state-owned banks, has undergone liberalization--only two banks remain with large government-owned stakes--and a 2007 mortgage law has stimulated residential lending. Looking forward, the pieces are in place for an increase in borrowing. Inflation and interest rates have dropped, the corporate sector is relatively unleveraged, and rising middle-class incomes will provide more opportunity for household borrowing. Our biggest concerns are a large fiscal deficit and growing issuance of government bonds that, if not checked, could crowd out private borrowers.

South Africa 

This is another nation where technology could serve as a game-changer in the financial services sector. South Africa´s dispersed population means that there is one bank branch for roughly every 16,500 people--as opposed to one branch for every 3,100 in the U.S. As a result, expanding in financial services has been a costly proposition, and one made more difficult by the historic regulatory barriers between banks, life insurers and stockbrokers. But like South Korea, South Africa is a technologically savvy market. There are now 54 million mobile phones in use among the nation´s 50 million citizens, giving South Africa a mobile penetration rate of 108%. Right now less than half the adult population has a bank account, creating an opening for banks that can use mobile technology to serve the vast number of "unbanked" consumers--as well as a potential inroad to the whole of Africa.

Indonesia 

The economic contagion that engulfed Indonesia in the late 1990s is now a distant memory, with the economy growing, inflation falling and the banking sector relatively sound. That´s partly because in the wake of that crisis regulators sold stakes in government-owned banks to foreign businesses, which provided the badly needed capital to stimulate lending and growth and raised the bar on banking services. Foreign institutions still hold just 14% of Indonesian bank assets, and the recent push by regulators to promote consolidation may provide yet another opening for foreign banks looking to enter through acquisition. Indonesia´s legal and regulatory systems can be difficult for outsiders to comprehend, and corruption persists as a cost of doing business here. Still, many foreign players may conclude that the benefits to be gained from penetrating the world´s fourth most populous country ultimately will outweigh those risks as its economy rises. And the fact that only a fifth of Indonesians have bank accounts but nearly half have mobile phones provides another opportunity for foreign institutions to use mobile banking services as their entrée.

Although none of these five countries can match the scale of China, India, Brazil or Russia, they nonetheless could provide attractive long-term returns for Western financial services firms that are able to move in quickly and decisively. That will require patience, which can be in short supply in an era when success is measured a quarter at a time. But as companies such as Aflac ( AFL - news - people ) and Citibank have proven, the payoff over time can be exponential.

Link to Online Article: Forbes

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4.4.2011

Aspen Network of Development Entrepreneurs Releases Second Annual Impact Report

ANDE | March 29, 2011

ANDE’s findings on the small and growing business sector reveal a “hot field” fueled by increased membership and additional investment 

The Aspen Network of Development Entrepreneurs (ANDE), a global network of more than 110 members working in 150 emerging and developing countries, today released its second annual Impact Report at the Shell Foundation headquarters. The report launch marks the second anniversary of ANDE and follows its daylong member meeting, bringing together global leaders from the small and growing business (SGB) sector.

Judith Rodin, Ph.D., president of the Rockefeller Foundation, was in attendance at the launch to help celebrate ANDE’s progress and share her insights on the impact investing space. "ANDE is playing a crucial role in building the impact investing sector, and the Rockefeller Foundation is proud to be a founding partner in this innovative work. We look forward to continuing to work with ANDE to better understand the importance of small business entrepreneurs in the fight to alleviate poverty," said Dr. Rodin.

The ANDE Impact Report is a comprehensive assessment of the state of the SGB sector. It shares lessons learned about supporting and sustaining SGBs in emerging markets andaddresses areas where improvement and mobilization are needed to further promote entrepreneurship to achieve poverty reduction around the world. 

“Increasingly, the development community is recognizing that market-based approaches offer a more effective model for providing key products and services to needy populations. Meanwhile, the traditional investment community is recognizing the potential of making financial returns while improving society. This convergence is leading to a greater understanding of the power of SGBs as well as increased capital flows into the sector,” stated Randall Kempner, executive director of ANDE. The report includes research that demonstrates between 2001 and the first half of 2010, 199 funds have announced a total target investment raise of $10.6 billion to invest in emerging market SGBs.

ANDE members are making strides to help build an investment community that is committed to both social and financial success. Over the past year, ANDE has grown by 37 members, reaching an additional 18 countries. Collectively, ANDE members manage 63 funds devoted to SGBs and have invested more than $900 million across 2,500 investments. Through capacity development and direct equity or debt investment, ANDE members have supported over 11,100 SGBs, with $80 million also being provided in capacity development activities in 2010.

In the report we learn about several SGBs supported by ANDE members which have expanded their supply chains and increased revenue, such as: Ecotact, which deploys payper-use toilets and showers in Kenya, growing its customer base exponentially from 4.3 million users in 2009 to 6 million in 2010; Nandan Biomatrix, which provides energy and income by converting jatropha plants into biofuel in India, reaching 15,000 households; and Better World Books, which recycles used books, saving more than 200,000 trees and 6,400 tons of books from landfills.

Link to Full Report: ANDE 2010 Impact Report

Link to Video: The ANDE Story

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3.3.2011

Carlyle to launch fund for Africa

Financial Times | March 2, 2011 | By Henny Sender

Carlyle plans to launch a $750m fund to invest in Africa, a continent long neglected by the large international buy-out firms, people familiar with the US private equity group said.

David Rubenstein, the group’s co-founder, has a reputation for being a pioneer in raising and investing money in frontier economies.

Mr Rubenstein was among the first buy-out executives to raise money in Libya and has oil money going into Carlyle funds from resource-rich African nations such as Angola.

The soon-to-be-launched Carlyle fund would be overseen by a team of three with a presence in Johannesburg, Zimbabwe and Nigeria, these people added.

Carlyle already has a significant presence in north Africa, as well as a dedicated private equity fund for the Middle East and north Africa.

Many parts of Africa are now enjoying better prospects than at any time in recent history due largely to a rush for resources led by the Chinese.

“The majority of Americans don’t pay enough attention to Africa,” one source close to Carlyle said. “It has been China that has been the catalyst for economic activity in Africa.”

Carlyle’s fundraising machine is by far the most powerful of any of the large private equity groups. But speaking at a conference in Berlin on Tuesday, Mr Rubenstein referred to a difficult fundraising environment, a complaint echoed by executives at all of the significant private equity groups. For example, in 2007, at the height of the boom, Carlyle raised $30bn, a figure it is unlikely to come close to today.

“We have seen more investment and more exits, but fundraising lags behind,” Mr Rubenstein said. Yet, he added that he expected fundraising to improve due to low interest rates and the thirst of pension funds in particular for yield. But even when the pension funds and sovereign wealth funds increase the money they give to the buy-out firms, the fees they pay are likely to be dramatically smaller, Mr Rubenstein said.

The sovereign wealth funds in particular are becoming less passive, seeking to invest alongside the private equity groups, hold separate accounts with them or invest directly and avoid paying fees.

Today, Carlyle has numerous specialised funds and has also been growing through acquisitions, bringing its total assets under management, whether direct or indirect, to almost $150bn. These new funds and acquisitions, such as its deal to acquire Alpinvest, which invests in private equity on behalf of its own investors, comes as Carlyle is moving towards a public listing, following Blackstone and KKR, and also Apollo, which will soon list.

Link to Online Article: ft.com

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2.3.2011

Bank: China’s Africa Investment to Jump 70% by 2015

WSJ Blog | February 25, 2011 | By Dinny McMahon

Think China’s pumping a lot of investment into Africa? You ain’t seen nothing yet.

Chinese President Hu Jintao, right, shakes hands with Nigerian President Olusegun Obasanjo at China’s Beijing Summit of the Forum on China-Africa Cooperation in 2006.According to a forecast statement from South Africa’s Standard Bank, Africa’s largest bank, investment from China into Africa is likely to hit $50 billion by 2015, up 70% from 2009.

Outward investment by Chinese businesses has only started to ramp up in recent years, with capital generally flowing into the world’s second largest economy as a much faster clip than it flows out. In January the Ministry of Commerce said total overseas investment by Chinese companies in nonfinancial sectors was $59 billion last year–barely larger than Standard Bank’s 2015 forecast for Africa alone.

Meanwhile the bank forecasts China-Africa bilateral trade to double in four years to $300 billion from $150 billion last year. In the past 15 years, China-Africa trade has doubled every three years, the bank said in the statement .

It also predicts that Africa’s gross domestic product, or the total value of good and services produced in a region, is likely to double to about $3 trillion in 2015 from $1.5 trillion now.

“Trade and investment routes into Africa are being recalibrated as economic momentum shifts to the East,” said George Fang, Head of Mining and Metals, China. “Through trade and direct investment, China is broadening its resources supply base with Africa as one of its key partners.”

Mr. Fang’s enthusiasm is understandable. China’s banks have only a handful of branches between them throughout Africa. Moreover, Standard Bank is in a unique position to take advantage, with Industrial & Commercial Bank Ltd. holding a 20% stake in it. Standard Bank’s investment banking operations are already benefiting from that relationship, and it looks like they may even benefit a tad more down the road.

Link to Online Article: WSJ Blog

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2.3.2011

Africa’s Expanding Middle Class Drives New Freedom Fight

iol.co.za | February 27, 2011 | By John Matisonn

This year’s Arab revolutions could bring higher oil prices, and greater instability in African countries, but also greater economic opportunities with Africa’s economic outlook better than it has been at any time since the end of colonialism. It will be some time before the effects of the recent turmoil become clear, and analysts are struggling to find relevant pointers to the future. Some have seen similar risks in South Africa’s economic policies.

Oil prices are already rising, as is to be expected, especially now that oil-producing Libya has joined the list of unstable countries. But analysts also point to tension between King Abdullah of Saudi Arabia and US President Barack Obama, as an indication that the character of the next oil crisis could be different.

The Saudis’ fury at Obama’s willingness to let go of erstwhile Egyptian president Hosni Mubarak showed in a telephone call between the two leaders. Afterwards, King Abdullah had his aides brief colleagues on the bruising encounter and promised to replace the $1.3 billion (R9.3bn) of direct US military aid to Egypt, with Saudi support.

The importance of this encounter could be great, given that in the last major oil crisis, in 1979, it was Saudi Arabia that came to the West’s aid by boosting its oil output by 30 percent. That support is no longer to be taken for granted.

Closer to home, political analyst Moeletsi Mbeki has warned that South Africa’s “Tunisia Day” would be in 2020. He arrived at that date based on the Chinese estimate that its current minerals-intensive industrialisation phase would be concluded around that time. It is also true that China’s one-child policy will ensure that around that time, the country’s ageing population and low birth-rate are likely to slow Chinese demand for African commodities.

Mbeki pointed to the decline in South African life expectancy from 65 years to 53 years since 1994, the loss of jobs in agriculture and mining, and the country becoming a net food importer for the first time as indicators that the ANC government shares unfortunate characteristics with vulnerable north African governments.

That fear emerges in a variety of ways. At a meeting at UCT this week, students who support the ANC were most keen to ask speakers what the lessons of Egypt were for South Africa.

ANC MP Pallo Jordan pointed to the most obvious difference, that South Africa is a democracy, where the ruling party can be voted out of office by its citizens. It also has a more independent judiciary and media, and diversified civil society, elements north African countries are well behind in building. He said there was resentment among South Africans, but argued that it would be targeted at business for failing to employ black school and university leavers.

South Africa has hundreds of service delivery demonstrations each year. Analysts are divided about the political consequences of these protests. While protesters still do not see a viable alternative to the ANC among political parties, some social protests are linked to more radical civil society groups. The uprising of demonstrations in Egypt, Tunisia, Libya and Morocco followed economic reforms that have improved economic growth in those countries. For that reason these appear to be revolutions of rising expectations – fuelled by a growing middle class that now has the resources to seek fulfilment of other needs, such as freedom of expression and political representation.

While this revolution surprised most Western analysts, a McKinsey & Company study of Africa’s economy, written before the start of the current Arab revolution, casts light on the underlying economic forces driving change in Africa.

McKinsey categorised four African economies as the most advanced and diversified. Three of these – Egypt, Tunisia and Morocco – are facing a revolution. The fourth is South Africa. What led McKinsey to unite these four countries as the four most advanced on the continent is their level of advancement in diversification of their economies and exports per capita.

It classified countries based on a single commodity, such as oil in Nigeria, differently because their levels of economic diversification and sophistication are lower.

The four countries are already broadly diversified, with manufacturing and services totalling 83 percent of their combined gross domestic profit (GDP). Domestic services like construction, banking, telecommunications and retail have accounted for more than 70 percent of their growth since 2000.

“They are among the continent’s richest economies and have the least volatile GDP growth,” the study says.

With high urbanisation, their cities have added 10 million people in a decade, and real consumer spending has grown by 3 percent to 5 percent annually since 2000. Urbanisation has prompted a construction boom, creating 20 percent to 40 percent of all jobs in the past decade, and consumer-facing sectors like retailing, banking and telecommunications have grown rapidly.

While these trends are most advanced in the four leading countries, they are part of a continent-wide change. GDP rose by 4.9 percent a year from 2000 to 2008, more than twice the level of the previous two decades. “Africa’s collective GDP growth accelerated over the past decade, reaching $1.6 trillion in 2008 – a level similar to Brazil’s or Russia’s.”

The study is extremely optimistic for African growth, pointing to a major turnaround in African economies since 2000, after decades of falling growth, investment and productivity. The four “diversified” economies show the hallmarks of much of the progress on the continent.

It finds that there has been a surge in growth across most African countries since about 2000. Only a third of that growth is based on the growth in commodities. The balance is attributed to internal changes, notably negotiated ends to military conflicts, improved economic policy including privatisations, and better regulation and legal frameworks.

Urbanisation has contributed to growing consumption. Growth is fuelled mainly by a rising urban middle class.

Labour costs remain higher than those in much of Asia, but the changes described have fuelled a “productivity revolution”, enabling companies to achieve economies of scale, face increased competition and employ new technologies. After declining through the 1980s and 1990s, productivity began growing in 2000, escalating to 2.7 percent for the 2000 to 2008 period.

Foreign investment has expanded and trade has shifted from Europe to Asia and intra-Africa, and non-resource countries match the growth rates of resource-rich countries. Foreign investor confidence has been enhanced by an overall reduction in budget deficits, interest rates and inflation.

Among the challenges and opportunities, the study lists improving education and health, and taking advantage of the vast tracts of arable land not fully utilised. World food production may need to rise by 70 percent from its 2005 to 2007 levels, and Africa has almost 600 million hectares of potentially suitable land that is not under cultivation. This represents about 60 percent of the world’s total available cropland.

Link to Online Article: iol.co.za

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2.3.2011

Africa Seen As Investment Hub For Renewable Energies

engineeringnews.co.za | February 18, 2011 | By Chanel de Bruyn

As developing economies, South Africa and other African countries have the potential to attract strong international investor interest for the renewable-energy sector.

Africa and South Africa fall within the target zone of international investors and South Africa consistently scores high in terms of providing a conducive business and legal environment. South Africa’s energy sector is significant to the economy, as it constitutes 15% of the gross domestic product and relies heavily on the energy-intensive mining industry, says international lawyer and special adviser to the Energy Indaba Greg Nott.

Among South Africa’s strengths as a destination of choice for investors are the size of its economy, the efficiency of its financial markets, good business practices and its innovative nature. Further, international credit agency Fitch changed South Africa’s credit outlook from negative to stable in 2011, citing improved economic growth in significant sectors of the economy and resilience in the wake of the global financial meltdown, explains Nott.

“The country’s capital expansion programme got another boost in January when State-owned power utility Eskom sold $1,75-billion worth of ten-year bonds on the international market. The bond issue is a strong indicator of international investor appetite for emerging-market debt and adds certainty to the funding of Eskom’s projects. The bond offer was two-and-a-half times oversubscribed,” he says.

Further, renewable energy is recognised by government as essential to the continued sustained growth of a modern, developing economy and Presi-dent Jacob Zuma supports the call for green technologies and industries to respond to climate change.

“These are some of the factors that impact on the decision- making of corporate leaders in their strategic investment decisions,” he says.

He adds that the Department of Trade and Industry has singled out power generation, the distribution of electricity generated by independent power producers, energy infrastructure, alternative energy, solar water heating, concentrating solar heating and wind and biomass energy as significant investment opportunities in South Africa.

Nott notes that Zuma has emphasised the need for substantial investment, skills development and technologies to grow this sector and the economy. The country also serves as a gateway to Africa, as a significant player in the power sector of the region.

Initiatives on both the demand side and supply side are required. On the supply side, Eskom is actively developing renewable- energy investments, which include the Sere Wind Project and a solar thermal project in the Northern Cape. This project will unlock enormous solar potential in the country. Besides renewable projects, there are also plans for the roll-out of advanced clean-coal technologies and nuclear energy, he explains.

Legal policy plays a significant role in providing a strong framework for the establishment of an enabling environment that is needed to grow the renewable- energy sector. While South Africa has created the broad policy framework to enable investors to consider it an attractive investment destination, more needs to be done to harness the opportunities provided by the regulatory environment, he says.

“The recent activity in the renewable-energy market shows heightened interest by investors, despite what some critics may see as a less-than-perfect legal environment,” adds Nott.

The Energy Indaba will feature experienced legal experts who will tackle these issues.

“Hopefully, the deliberations can result in a constructive dialogue that further addresses the refinement of the enabling environment to the satisfaction of all who may have an interest in the market,” he says.

Meanwhile, Nott highlights that the skills shortage in South Africa, which also impacts on the renewable-energy sector, is not an issue that government alone can deal with. He urges the private sector to also contribute to alleviating this shortage.

“In 2009, the Renewable Energy Summit organised by the former Department of Minerals and Energy, now the Department of Energy, acknowledged and recognised that there was a need to implement skills development and training in the energy sector. The call was made for all stakeholders, including the government, tertiary institutions, industry associations and the private sector to work together to develop appropriate skills and training. This programme of action also called for knowledge management and awareness campaigns to give effect to the resolutions of the summit,” he adds.

Further, on January 13, govern- ment also launched the new national skills development strategy, which calls for partnerships among all stakeholders to develop skills. The strategy links skills to career paths and, because the need for skills is high on the agenda of all players in the energy sector, the Energy Indaba is expected to give effect to a programme of action.

The application of renewable technology has the potential to alleviate many of the challenges faced by African citizens on a daily basis. Access to energy is essential for poverty alleviation and the stimulus of economic growth. The Indaba has again secured the support of the World Energy Council through its hosting of the Africa regional meeting as an ancillary meeting to the main conference.

Nott notes that the regional meeting will address issues such as the alleviation of poverty and access to energy by means of innovative funding solutions, subsidies and private-sector initiatives linked to the various interests in the region.

Rural areas will only be able to tap into the growth in renewable energy if their cause is deliberated and made a priority. The Energy Indaba intends to provide a platform for innovative ideas to tackle the rural energy challenge, he says.

Nott believes that every African and South African needs to educate themselves on renewable-energy alternatives and stake- holders should make it a priority to have awareness programmes in place.

Besides these, consumer behaviour can play a significant role in the productive and efficient use of energy resources. The Energy Indaba is positioned as one of the drivers in promoting a change in consumer behaviour for the better in Africa and South Africa.

Nott will chair a session at the Energy Indaba that will look at new renewable- energy opportunities in Africa. This session will draw on the experience, expertise and knowledge of advisers, bankers and businesspeople.

Link to Online Article: engineeringnews.co.za

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24.1.2011

NextThought Monday: Why Africa is Open for Business

NextBillion | January 24, 2011 | By Michel Bézy

Link to Africa Infographic: Wall Street Journal

Recently, I was asked to present the business perspectives in Africa to students of one of the top business schools in the US. When I asked the students at the beginning of my presentation if they would be interested in doing business in Africa, the great majority didn´t raise their hands. When I asked the few who raised their hands what type of business they would engage in Africa, their answer was working for an NGO or a microfinance organization. While this sample is not statistically valid, I think it represents the general perception of Africa in the U.S. as a region where there are no businesses in which to invest, except for philanthropy. For many, Africa is a region of famine, wars, poverty, and sickness. This stereotype is reinforced by the news media in the rare Africa news they chose to broadcast. In addition, most Americans never visited Africa and most likely will not. Therefore, any information that is received about Africa is taken for granted.

But in the last decade, things have been changing. Better governance, investments by Eastern countries, the end of wars, and the resolution of the debt crisis have all resulted in significant progress in supporting businesses and the resulting maturation of the business climate.

You will find more than 9 million search results from Google by typing "investing in Africa." But beyond interesting anectdotes many noteworthy papers and books have been published on the subject of "investing in Africa" in the recent years, including:

Paul Collier, author of the influential book, "The Bottom Billion," published "Now´s the Time to Invest in Africa" in Harvard Business Review in 2009.

The McKinsey report Lions on the Move notes: "Today the rate of return on foreign investment in Africa is higher than in any other developing region".

The annual flow of foreign direct investment (FDI) into Africa in 2008 increased to $62 billion, from $9 billion in 2000.

Wal-Mart Stores announced a cash offer of over 2 billion USD for a majority stake in the South African retail company Massmart Holdings, one of South Africa´s biggest retailers.

The CEO of the Rwanda Development Board makes the case for Rwanda in the Independent, a local media: Rwanda is now open for business.

My friend Ryan Allis, CEO of iContact, speaks about Why invest In Africa? in his Dare Mighty Things blog and provides good links for investments in Africa.

An interesting interactive graphic "The New Gold Rush" recently published by The Wall Street Journal shows how the rise of a new consumer class is shifting the balance in Africa.

So how much more information does one need to be convinced that Africa is a worthy investment? Obviously, the continent is a complex grouping of 53 independent countries and clearly the business environment required for investments is not homogeneous. The growth of individual countries across the continent will differ greatly.

The risks of investing in Africa remain high, just as they are for most emerging markets. But the perceived risk is much greater than the real risk. And once the risk goes down, the returns won´t be as good.

It is therefore important to carefully select the countries where to invest.

The McKenzie report cited above provides good economical information on the African market. The report provides a ranking of countries in 4 categories:

1) Diversified economies: Africa´s growth engines: South Africa, Egypt, Morocco and Tunisia.

2) Oil exporters: They have the continent highest GDP per capita but the least diversified economies: the three largest producers are Algeria, Angola and Nigeria.

3) Transition economies: Rapid growing economies but agriculture and resources sectors account for as much as 35 percent of GDP and two-thirds of exports: Ghana, Kenya, Senegal

4) Pre-transition economies: Their economies are very poor, with annual GDP per capita of just 353 USD: RDC, Ethiopia, Mali

A recent book "Emerging Africa: How 17 Countries Are Leading the Way" by Steven Radelet published by the Center for Global Development (Read the NextBillion post on this book here) provides a more in depth view of the success of some countries called Emerging Countries: "These countries are putting behind them the conflict, stagnation, and dictatorships of the past and replacing them with steady economic growth, deepening democracy, improved governance, and decreased poverty. Five fundamental changes are at work: (1) more democratic and accountable governments; (2) more sensible economic policies; (3) the end of the debt crisis and changing relationships with donors; (4) the spread of new technologies; and (5) the emergence of a new generation of policymakers, activists, and business leaders."

The 17 Emerging Countries are: Botswana, Burkina Faso, Cape Verde, Ethiopia, Ghana, Lesotho, Mali, Mauritius, Mozambique, Namibia, Rwanda, Sao Tome & Principe, Seychelles, South Africa, Tanzania, Uganda, and Zambia.

You may be surprised not to find oil exporting countries like Nigeria, Angola in the list of performing countries. That is because the book is evaluating more than just the GDP growth. It analyzes important indicators of development like average income per capita, agricultural production, investments, productivity, trade (imports plus exports), infant mortality, political rights and civil liberties, strength of democratic institutions, governance (rule of law, regulatory quality, government effectiveness, control of corruption, accountability, political stability), cost of starting business. In all these indicators without any exception, the Emerging Countries are outperforming the rest on the continent, including the oil exporters.

Micheal Lalor, a director at Ernst & Young SA, explains what the key considerations for investors should be in the face of the upcoming polls; plus where to start if you are planning an African foray.

So, about one third of the countries are moving in the right direction, but they are facing many remaining challenges to stay true to that course. Here are some of them:

Demography

Africa has 14 percent of the world´s population, over one billion people. It is estimated that by 2050 it will increase to almost 20 percent up from 7 percent in 1950. By 2040, Africa´s labor force is projected to reach 1.1 billion, overtaking China´s or India´s. About 44 percent of the African population is under 15 years old, making it the youngest population in the world.

Education and infrastructure

Demography will have significant implications on the need for productivity and growth to create new and diversified economic opportunities for this growing workforce and provide employment to all these people. Africa has the potential to become an important resource for labor-intensive industries, but this requires major investments in appropriate education to develop a skilled workforce that can compete in a global economy. It also requires major investments in infrastructures to support the economical development. The ICT infrastructure in particular is critical as it will be a key engine for the development of the private sector (see my post in NextBillion).

Healthcare

Only 9 of the 53 African countries for which the WHO shows data have life expectancies of 50 years and over while the world average is 67.2 years. The figures reflect the quality of healthcare in these countries as well as other factors including ongoing wars and HIV/AIDS infections, particularly in sub-Saharan Africa with adult prevalence rates ranging from 10 to 38.8 percent. Governance

While much progress has been accomplished, African countries are still below average in world rankings of governance. Strengthening of the progress is needed to further improve the business climate.

Adapting to climate change

Everyone understand how agriculture is depending on the climate. But weather variability has even more impact in Africa. African farmers know too well how weather changes may affect their crops. But there are other weather changes: the increasingly erratic weather patterns due to the climate change in the world, that also impact Africa. I address that challenge in my posting of August 26, 2010 in my Africa Oye blog.

In summary, Africa is open for business, but as any smart business man or woman, you need to do your homework first to figure out where to invest for better return at lower risk.

But probably the greatest challenge resides in the U.S. and the Western world. That challenge is to change the perception of Africa and encourage young entrepreneurs and investors to look at Africa as a place to do business. Business is probably a better way out of poverty than philanthropy. And I can´t wait for Business Schools to lead the way by developing curriculums on business in Africa.

Link to Online Article: NextBillion

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21.1.2011

Top 10 risks South African businesses will face in 2011