State funds such as China Investment Corporation have been buying energy and resource assets in Africa for years, but other institutions, as well as wealthy individuals, are following suit. Some are increasingly looking at the Middle East as a natural channel through which to do so.
AsianInvestor spoke on the topic to Lynda Chalker*, founder of Africa Matters (AML), a London-based consultancy that facilitates foreign investment in African businesses.
What advantages do Asian investors have when investing in Africa?
Asian countries have invested in rapid expansion infrastructure and education, both of which are major challenges for Africa’s economic transformation. There are good lessons to learn from South Korea and India on establishing industrial conglomerates that go on to be global powerhouses.
There are also the lessons from the mistakes made along the way as well, such as how investors in Asia weathered natural, health and economic challenges that African countries can learn from.
Also, Asian countries have experience managing multi-ethnic societies. The multicultural diversity in Nigeria is similar to that in India, as is Ghana to Malaysia and South Africa to Indonesia.
Which countries offer the greatest untapped potential?
Nigeria, Mozambique, Ethiopia, Uganda, Kenya and Tanzania, Cote d’Ivoire, and Senegal are some of the countries with the greatest untapped potential. They each have unique comparative advantages.
‘Africapitalism’ is an increasingly used term – what does it refer to?
Africapitalism is about Africans owning the challenge of development and arriving at uniquely African solutions with global impact. It is a view that communicates the point that Africa is more than a captive consuming market or a source of primary resources. It is about putting capital in the Africans’ hands and then empowering them to meet the business and economic needs of their societies.
Current practices by Chinese-owned companies, however, have not met this desire, possibly as a result of misunderstanding those unstated needs. There is an opportunity with the Chinese workers coming over to Africa, understanding that partnership in Africa will require some commitment to intellectual and technical transfer.
What are governments in Africa doing to attract foreign funds?
Road shows and investment forums, both in-country and abroad have proved very good platforms for governments to showcase their countries’ investment opportunities. Some are strengthening their investment authorities and establishing 'one-stop investment centres'.
Ghana last year enacted the Ghana Investment Promotion Centre Act. One of the objectives was to encourage, promote and facilitate investment in the country. We are beginning to see countries establish more sovereign wealth funds on the back of new gas and oil discoveries.
What challenges should foreign investors be prepared for in Africa?
Infrastructure gaps remain one of the most daunting. Inadequate power, poor road and rail networks, congested ports and a small aviation sector are others. Other challenges include weak governance and regulatory frameworks an inadequately skilled workforce. Corruption can vary from outright demand for gratification through commissions and bribes to cronyism and other rent extracting avenues.
What benefits can foreign investors gain from investing in Africa?
Their capital produces broad-based benefits for the countries they are investing in. It can impact the bottom line significantly.
The citizens of the African countries have expectations and hopes of development and, with information being more accessible, have a good idea of what sector peers are capable of. Groups will hold investors accountable for meeting these expectations within and beyond the rule of law.
A company or investor going into any of these markets not only wants good relations with the government and the community where they intend to base their operations, but they also want motivated employees who will serve as a brand or culture ambassadors. This reduces employee attrition rates and encourages workers to own their training and skills development.
Engaging with the community from its grassroots to national government level is necessary to align the objectives of all these stakeholders with the investors’ goals.
* Chalker will chair the third annual Africa Investment Summit, which will examine the latest sub-Saharan African trade and investment opportunities for Asia’s largest corporations and asset owners. The summit will take place from November 13-14 in Hong Kong.