THE LOOMING INVESTMENT AVALANCHE

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Great! The FDI is really going to start rolling in! Wait…should we be saying that? It seems like the African Renaissance it here, or we’re at the brink of it…a cause for celebration! Or is it? Over the past few years there has been an ever increasing interest in Africa as a truly viable investment destination worthy of serious consideration by Fortune 500 companies and the like. Africa is slowly being seen as a ‘fairly reasonable’ place to do business. With fewer wars, more democratically elected governments and relative peace in most countries, it seems the dust is beginning to settle and the entirety of Africa’s potential (beyond raw materials I mean) is truly beginning to get note. A seemingly sunny prospect for Africa many think…but frankly I’m very nervous. Why? Well because we’re ill-prepared for the looming investment avalanche hurtling towards Africa with ever increasing speed, intent and ability. We just aren’t ready. These are some of the reasons behind why Africa is starting to be taken more seriously…and why I’m nervous:

1.       Seems like there is nowhere else to go, really

Europe check, North America check, Oceania check, Asia check-ing, South America check-ish, Middle East kinda check, Africa…Africa…There you go, we’re (still) wide open. Yes other emerging markets are clearly competitors but at the end of the day we are the last frontier where there is genuinely an abundance of land, minerals and people STILL not really integrated into global markets, not really a point of profit for the world economy, not TRULY exploited if you will. We’re among the Bottom Billion, the low income markets that are vulnerable and waiting to be properly researched and effectively utilized. Africa. Yes it is still not the most attractive place to do business, but the situation on the ground is improving and there are lucrative investments to be made. Ask Dangote.

2.       The old catch: Raw materials…yaawwn

No big deal here. An old story. We are abundantly blessed with raw materials and there seems to be an equal abundance in new natural resource discoveries. Uganda and Kenya now officially have oil; the latter has coal as well. And as suspected, FDI is streaming in because of it. Already, ‘France’s Total said it signed a production sharing contract with the Kenyan government to explore for oil in 2,000-3,500 metre deep waters’.[1] We didn’t even have to go hunting for the investment. Our governments just made the announcement and a queue of potential investors magically appeared.

3.       China

Africa used to be Euro-America’s territory…and everyone knew that. Then in comes China with its deep pockets and deeper determination to get what it wants out of Africa. ‘Oh be Sinophobic!’, EuroAmerica cries, ‘They’re just here to exploit you!’….ummmm and YOU weren’t? You were in Africa to practice altruism were you? It seems like China has woken everyone up, even those that never used to take Africa seriously, like Brazil, ‘The recent announcement by Brazil’s leading investment bank, Banco BTG Pactual, of a $1 billion Africa investment fund – the biggest in the world – to aid the country in competing with China for Africa’s huge mineral resources and growing consumer market, demonstrates the massive untapped trade and investment potential on the continent’[2]. Egaaad! Clearly China’s presence in Africa seems to be getting under everyone’s skin and their presence has catalysed everyone else to look to Africa and make money off the continent before the Chinese take it all.

4.       Innovation

Scarcity breeds ingenuity.  Just the other day I was reading about how, ‘Africans kid do more with less’ as the resource constraints in which many live force them to be creative and solve problems with limited resources[3]. There is merit to this theory if you look around Africa. I saw a documentary years ago that showed how Peugeots cars run on Renault (or was it Citroën) engines in the Congo. The ingenuity of the mobile money transfer system, M-Pesa, here in Kenya has gained worldwide recognition and accolades. ‘Well done Africa’, we seem to be being told, ‘You’re making something out of yourselves despite the fact that you are so poor’. (Ok that’s me being cynical). But the point is that there is innovation on the continent, from how we use technology to how we manoeuvre around huge potholes on our roads…and the world seems to be beginning to realize the potential of that capacity to innovate.

5.       We’re ripe for the picking

All investors are self-seeking utility maximisers, assuming otherwise is naïve I think. The sad reality is that other parts of the world seem to have a tighter grasp and control of their nations and resources than Africa has. We still seem to come across as sitting ducks, and that is a tempting option for many. Some are attracted to Africa because we’re so vulnerable. We’re low hanging fruit and our innovation, resources and energy will be plucked with little benefit to Africa as a whole if we’re not careful. Governance issues are rife, the levels of corruption on the continent are well-known, levels of poverty notorious and these all conspire to create a vulnerable continent. I am not saying that the situation is not improving, it is, and Africans are doing an immense amount to improve the continent. However there are curious juxtapositions we need to expose and understand. Yes, our economies are growing but what does that really mean if it’s jobless and inequitable ‘growth’? Yes, more educated Africans are choosing to work on the continent  but this is often for foreign companies which then makes one wonder the extent to which ‘Africa’ is truly benefitting. Yes, the numbers of university graduates are rising but most end up unemployed or under-employed thereby limiting the ability for Africa to effectively tap into their full skills set and potential. Poverty, I think, is the ultimate crippler because it creates desperation and severely limits options.  So instead of working for an African Think Tank, the African is somewhere bleak breaking stones for a living…leaving a vacuum that is often taken up by foreign think tanks (who often hire Africans) to essentially figure out how to get the most out of Africa in the most efficient manner possible. Yes. We are ripe for the picking…and many are coming a-picking here.

So yes I am nervous about the looming avalanche[4]. And the main concern is with the African governments which are often critical in large investments made on the continent. Their behaviour seems to indicate that either they haven’t learnt anything about making smart deals despite the numerous opportunities presented to them by decades of post-Independence financial interactions OR they clearly understand the dynamics but choose selfishness instead. Greed is a vicious animal. But alas, behold the avalanche is here.


[1] Reuters (2012), ‘Total signs Kenya oil exploration contract’ http://www.reuters.com/article/2012/06/27/total-kenya-idUSWEA523120120627

[2] Epic Communications (2012), Africa Day – Increasing Global Investment In Africa Demonstrates Need For Development Finance, http://www.epiccommunications.co.za/newsroom/africa-day-increasing-global-investment-africa-demonstrates-need-development-finance

[3] Olopade, Dayo (2012), ‘African Kids Do More with Less’, http://dayoolopade.com/2012/06/26/african-kids-do-more-with-less/

[4] My next post will get into more detail as to why Africa is not ready…and what we can do about it (hopefully).

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