Is there an investment opportunity in Africa?

September 17, 2008 by Brian Gondo ·
Filed under: Business

One of the privileges of my work is meeting people involved in business. This ranges from those in entry level positions to CEO’s and entrepreneurs. The reason why this is a privilege is because I’m always excited to learn something new about business; to understand the whole and its constituent parts; to learn about the motivation for success and the unrelenting pursuit of knowledge and excellence. The more I learn the more humbled I am by the determination, sacrifice and ingenuity that seem to characterize so many in our country pursuing entrepreneurial success. I’ve heard people say that if you can survive in an economic environment such as the one prevailing in Zimbabwe then you can survive, heck you can prosper anywhere!

That seems to be a fair point but I’m not sure about how true it is. The thought though has made me wonder if Zimbabwean entrepreneurs can/ will succeed across the continent. In the last decade precipitated by events at home Zimbabwean companies have pursued regional, continental and global markets with a passion rarely displayed before. A few years ago my employers facilitated a workshop for one of the big four accounting firms and in the course of a discussion with one of the participants it became clear that they regarded work done in some of the African countries as a central pillar of their business strategy.

As Zimbabwean business people have ventured further and further from the home country’s borders I’ve wondered whether we truly appreciate the vastness of the opportunity that lies out there. My fear is that often we are more of survivalists than anything else. Dare I say my feeling is that the opportunity presented by the continent of Africa is a once in millennium opportunity. If those where simply my thoughts then you would be forgiven to dismiss them even contemptuously. However, when Stephen Jennings says “If Russia was a once-in-a-lifetime opportunity, Sub- Saharan Africa (SSA) is a second once-in-a-lifetime opportunity.”

Jennings a New Zealand native and former banker at Credit Suisse First Boston (now just known as Credit Suisse) is the billionaire founder of Moscow brokerage Renaissance Capital. To put his money where his mouth is Jennings has put together a $1 billion fund to invest in Africa. Jennings views are also shared by another billionaire Prince Al-Walid bin Talal bin Abdulaziz al-Saud. The Prince who is a cousin of the Saudi King is most famous for investing $590 million in Citigroup in 1991 which at the time was seen as a risky bet. The value of that investment peaked at $10 billion before the current slump in the shares of US financial companies.

Al-Walid believes Africa is the next “big thing” and describes the continent as still sleeping. “There is a syndrome. Some African countries are not very stable- maybe two or three. But, unfortunately, people in the world amalgamate the whole African continent with one incident or problem. They say all Africa is not good. Okay, Zimbabwe has a problem. Burundi has a problem. But Senegal is excellent. Ghana, Kenya, Uganda, Zambia, Angola, Mozambique- you know, 95% of African countries are okay; there is no problem at all. And there is an opportunity that people are not seeing.”

So when two of the world’s most astute investors say there is a BIG opportunity in Africa who am I to disagree with them! The most ironic thing about the opportunity in Africa is not its existence but the ignorance of it by the natives. It reminds me of the words of geographer George Kimble that “the only thing dark about Africa is our ignorance of it.” The tragedy of Africa is not the disease, war or poverty but it’s that Africans are blind to the wealth of opportunity in their midst.

So what exactly is the opportunity in Africa. Here’s a quick snapshot:

Earlier this year the BBC ran a story indicating that the economic outlook for Africa was bullish, based on the fact that the continent had enjoyed a decade of 5.4% economic growth fuelled largely by rising commodity prices and declining instances of civil war.

John Page the World Bank’s chief economist for Africa had this to say about the budding economies of Africa: “For the first time in about almost 30 years we’ve seen a large number of African countries that have begun to show sustained economic growth rates that are similar to those in the rest of the developing world and actually today exceed the rate of growth in most of the advanced economies”

Table: Access to Basic Services

Service	1990s	2000s	% Change
Telephones (per 1,000 people)	21	90	328.6
Improved water (% households)	55	65	18.1
Improved sanitation (% households)	31	37	19.3
Grid electricity (% households)	16	23	43.8

Source: World Bank 2006

Though fragile, economic growth in Africa is putting more income into people’s pockets and creating rising expectations in a nascent middle class. This emerging middle class is unlike anything seen in the west though, as it largely inhabits the vibrant informal sector. This is a significant difference because it implies that for businesses to tap into this market they need to abandon the regimental thinking that dominates formal business modeled on western businesses.

However, given that Africa is so big and varied, remember we are talking about a continent with 52 countries, 2000 languages etc it’s important to remember that the variability of indicators is quite high. And even in each country the well being of different groups crosses the spectrum from dirt poor to developed world super rich.

So because of this let’s pick one country to illustrate some of the realities out there. OK so lets throw lots and see which name pops out of the hat……..Nigeria! OK the reason why I picked Nigeria is simply because research by investment bank Goldman Sachs contained in the Next Eleven Report projects that by 2020 Nigeria will be among the TOP 10 economies in the world! So if you are doing business in SSA then you should be in Nigeria. Here are more reasons why:

Within the last decade inflation has fallen from 28% to 11%, foreign exchange reserves have grown from under $6 billion to over $40 billion. Nigerian oil though a major source of internal destabilization is part of Africa’s strategic supply to the USA; at 18% Africa provides more oil to the US than the Middle East at 16%. This coupled with the current commodities boom is spurring strong GNP growth. Budgetary reforms have also ensured that government expenditure is no longer reliant on the current oil price. These reforms have resulted in greater inflows to foreign exchange reserves from oil revenues.

So for the astute businessman what are some of the opportunities in Nigeria? Well with a population of 140 million people and only 10% of that being banked and only 700 ATMs in the country that’s opportunity. Bank consolidation however has reduced the number of banks from over 89 to 25 banks. This explains why Stephen Jennings has bought a 25% stake in Ecobank a rapidly growing west African bank. If you are a banker why aren’t you in Nigeria?

When the CEO of Nigerian oil company Oando chose the Johannesburg Stock Exchange for his companys secondary listing he was asked if the Nigerian base of his operations would damper appetite for the firms stock his reply was three letters “MTN”. As former Nigerian Finance minister Ngozi Okonjo-Iweala put it MTN was quietly making over $300 million in profit for each of the 3 years she was in government. At the time Nigeria was the second fastest growing mobile phone market in the world after China. If you are in telecoms why aren’t you Nigeria?

So is Nigeria really a risky country? Is it that corrupt? Well risk is the flip side of profit and independent studies by the Economic Commission for Africa show that Nigeria like many other African countries is improving in good governance measures. Ratings Agencies such as Moodys and Standard & Poors have given Nigeria a BB- that’s in the league as the Ukraine and Turkey. So you decide if the perception is greater than the reality.

Invariably there are so many great stories of how people of enterprise are seizing opportunities across the African continent. One just needs to travel in countries surrounding Zimbabwe i.e. Zambia, Mozambique, Botswana etc just to see the opportunities out there. My only hope is that at this historic juncture of opportunity Africans are not once again passed by the boat. Zimbabweans though seem to have awakened to the opportunity within their country and externally at least for that we can thank the economic crisis at home.

Tell the world:

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Tags: [Entrepreneurship, Nigeria, Prince Al-Walid, Stephen Jennings, World Bank]

Comments

5 Responses to “Is there an investment opportunity in Africa?”

fungaijames on September 18th, 2008 6:19 am

Wow. I’m blown away. Robert Kiyosaki said the same thing about the opportunities in Africa and Zimbabwe in particular. My biggest fear is that fifty years from now Africa WILL be the place to be but the wealth will be in someone else’s hands.

fungaijamess last blog post..When the sun sets in Zaka
Brian Gondo on September 18th, 2008 9:00 am

That’s a very real possibility FJ. Often when I speak to my fellow brothers and sisters I’m reminded of the words by Mike and Mechanics of a beggar sitting on a beach of gold. Outsiders have already sized up the opportunity and most are well capitalised e.g have a look at Bain Capital’s buyout of SA’s Edcon. But there are stories that fill me with hope. Have a look at http://www.africaopenforbusiness.com. The biggest asset locals have is not capital but their knowledge of the local markets…they can be guerilla’s and hustler’s in ways that foreigners can’t
Chief K.Masimba Biriwasha on September 18th, 2008 10:10 am

I think it really boils down to character more than just opportunity. We must fashion characters that will help us to create wealth. We have stories of “many-girlfriended” business persons who end up just losing direction and are bent on self-satisfaction at the expense of creating real wealth.

Also, what amazes me is the disconnect with our rural areas. Our rural areas are reservoirs of potential and wealth yet we regard them as valleys of bones.

Seriously, we need a paradigm shift - a reformation, somewhat otherwise we are indeed beggars city on gold.

I recommend reading “Acre of Diamonds” to everyone, and following thoughts, words, ideas, feelings with action.

Aluta Continua. Africa Will Rise. This is our Century. Let Our Generation Lay the Foundation.

Chief K.Masimba Biriwashas last blog post..Quote of the Day
Brian Gondo on September 18th, 2008 12:24 pm

Indeed Chief the question of character is foundational you can’t build anything of lasting value without it, take note of the famous indegenous bus companies that died along with their owners. Those rural plains are treasure troves. And as with most change it starts with the man in the mirror
fungaijames on September 18th, 2008 2:34 pm

Thanks BJ. Just been to http://www.africaopenforbusiness.com and found this interesting fact: “According to the Overseas Private Investment Corporation (OPIC) and the UN trade agency, UNCTAD, Africa offers the highest return on direct foreign investment in the world, far exceeding all other regions.” Who would have thunk?

fungaijamess last blog post..When the sun sets in Zaka