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Analysis
Experts call for differentiated approach on African investment

Experts call for differentiated approach on African investment

Importance of 'catalysts' for private sector involvement in infrastructure projects 

by OMFIF

Tue 4 Feb 2014

An OMFIF telephone briefing call took place on Monday 3 February at 10:00-10:30 GMT.

The call focused on three issues:

  1. The consolidation of political and economic stability in Africa, particularly in sub-Saharan Africa
  2. Conditions for enhanced private sector investment in Africa, particularly in the infrastructure and resources-related fields
  3. The need for investors to take a differentiated approach across Africa to take account of country disparities

 

Among the highlights of the call were the following points:

'There is no one Africa. There are several Africas. Investors need to take account of very different conditions in north Africa after the Arab Spring – which has been caught up in general problems common with the Middle East – compared with South Africa, now one of the BRICS club of emerging market countries, and a range of resource-rich sub-Saharan countries many of which are managing their economies well.'

'There is a $35bn annual infrastructure gap in Africa on World Bank estimates. The gap cannot be plugged by public expenditure alone. Private equity in Africa is highly under-developed, making up only 0.1% of individual countries' GDP. Investors are still relatively tentative still given historical political volatility. Changing perceptions takes time, but an improved track record of political stability is helping.'

'Among the hurdles for private investors in Africa are regulatory and administrative factors and doubts about repatriation of profits. For instance, a lot of countries do not have double taxation agreements in place with investor nations. Making sure that you can get your money back easily is an important consideration.'

'Oil and gas investors play a very important role in countries like Tanzania, where BG and Statoil are making $1bn investments. These could build up over time to investments in the $10-$20bn region, large enough to develop a sizeable offshore field. The same is true of Mozambique, Uganda, Kenya, Sierra Leone, Liberia, Ghana and Ivory Coast among others. It is important to link up these investors with other private sector investors in non-resource projects such as construction and infrastructure.'

'A good cornerstone investor can be very important when private investors take a quite passive investment approach. This is where institutions like the African Development Bank can play a crucial role to give credibility to the due diligence process.'

'Two major initiatives have helped facilitate investment conditions in Africa. First, the Extractive Industries Transparency Initiative (EITI). This has promoted greater transparency as a step to fight corruption and is now compulsory for US investors under the Dodd Frank legislation. Second, the Natural Resources Charter brings together local stakeholders to help transform export revenues into development on the ground. Both can be a powerful catalyst to empower civil society in support of the rule of law and of stable investment inflows.'

'Africa is developing a middle class that can act as an important stimulus for harnessing domestic savings for capital investment. There is no reason why, given the improvements in underlying governance, the empowerment of civil society and the natural and human resources available in Africa, why the continent cannot become an attractive target for investors. Transparent decision-making around natural resources and infrastructure could help shield Africa from emerging market turbulence.'

The telephone briefing, part of OMFIF's Africa Focus 2014 brought together Minesh Mashru, Vice President, Equity and Infrastructure at Quantum Global, and Albert Bressand, Special Adviser at the European Commission, with a selection of OMFIF members from international locations.

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