The rise of Africans Investing in Africa (AIA)
This article previously appeared on Huffington Post and is published with permission.
“Africans Investing in Africa is the best way forward for Africans to have ownership of their development process” write Ibrahim Sagna &Jacqueline Muna Musiitwa. “With a market place of over one billion people and all associated opportunities, there is little excuse not to invest!”
Foreign firms are not the only ones heavily investing in Africa’s numerous opportunities, shows the “Africa attractiveness survey 2013, getting down to business” published by Ernst & Young (E&Y). Increasingly, Africans, who were previously Missing In Action (MIA), are becoming Africans investing in Africa (AIA). Investments range from individuals in Africa, the diaspora, the private sector, governments, multilaterals and even social enterprises.
The rise of Africans investing in Africa (AIA) is not only a catalyst for attracting greater amounts of foreign capital, but is also a positive sign of growing domestic investor confidence. This is a welcome development needed to increase Africans’ wealth, but not without promoting sustainable development and inclusive growth. Thanks to technology, increased access to information, improved and more transparent legal and macroeconomic policies as well as lucrative returns, more Africans are investing not only in their countries, but across borders as well. This finding reinforces Vincent Le Guennou, Co-CEO of Emerging Capital Partners, a fund that invests heavily in Africa, comment that, “It is difficult to ask foreigners to come to Africa if Africans themselves do not invest there,”; this simply makes sense.
It is indeed time for Africans to look within and beyond their borders to realize Kwame Nkurumah’s words to the effect that until all of Africa is free (and in this case economic freedom is part of that), none of Africa is free. Africans invest in Africa for many reasons, including but not limited to pan-African sentiments, the promise of high returns on investment, the contribution to the development of the continent. The direct investment by Africans on the continent is following a growing trend as that from Europe, Asia and the United States. In value, investments by Africans in other parts of Africa, is still lower than foreign direct investment (FDI), which reached almost € 38 billion in 2012 (double the volume received ten years earlier).
Private Sector Trending
Nigerian tycoon, Tony Elumelu’s Africapitalism philosophy, which emphasizes the significant role the African private sector has to play in Africa’s development is increasingly more important for Africa’s growth. Africapitalism is, “The private sector’s commitment to Africa’s development through long-term investment in strategic sectors of the economy that create economic prosperity and social wealth.” Successful entrepreneurs like Aliko Dangote of Nigeria, Manu Chandaria of Kenya, Kone Dossongui of Cote d’Ivoire, Yerim Sow of Senegal and Ashish Thakkar of Uganda are effectively using their conglomerate clout and are leading the change with a new breed of AIA, one that sees no borders, seeks to service the African market and relishes diversification. Furthermore African brands can use their expansion within Africa as testing ground for further global expansion. The Sawaris’ increased investments activities across Europe and Asia, or Dangote’s upcoming investments in Europe, Asia and Latin America, or even Tony Elumelu’s Heirs Holdings investment foray into US technology companies are just a few testimonies of this.
AIA is not limited to African conglomerates. South Africa is the country with the foremost intra-African investments. According to Ernst & Young, South Africa is the champion of intra-African investment, with a total of 235 investment projects between 2007 and 2012, an overall increase of 57% during the period. Since 2003, nearly 46,000 jobs were created in the rest of the continent by South African companies. In 2012 alone, businesses and South African institutions led 75 distinct investments, amounting to 1.1 billion euros. Some of South Africa’s most notable and fastest growing brands are MTN, Standard Bank, Shoprite, Pick n Pay, Woolworths, Tiger Brands. South Africa is not the lone African country investing heavily in Africa and aggressively exporting home-grown brands and products. Kenya, Nigeria and Morocco are other notable intra-African investors. The most common sectors that receive AIA are banking, telecom, construction, retail, hospitality, raw materials, and food.
The Sovereigns Do Not Want To Miss Out
AIA is not limited to private enterprises. Africa has seen a steady rise in the number of funds, in particular sovereign wealth funds and pension funds. According to the calculations of the Russian investment bank Renaissance Capital, the total assets of the six largest African pension funds could reach € 465 billion in 2020, and most important of them, the South African GEPF (currently has 90 billion euros), already invests a significant amount in the rest of Africa. Furthermore, sovereign wealth funds are not limiting their investments domestically. For instance, Angola, which thanks to its oil revenues launched a fund of € 3.7 billion, announced that its first investments will target the hospitality industry in Sub-Saharan Africa. Furthermore, African development banks (both regional and domestic) such as the African Development Bank, the Eastern and Southern African Trade and Development Bank (PTA Bank), Afrexim Bank and so on play a significant role in investing in Africa.
Investing in Africa is no straight road
The AIA phenomenon has not come without controversy. The debate lingers as to who has an advantage over the other as far as investing in Africa, Africans or non-Africans. Lindsey Domingo at E&Y argues that Africans have an advantage over foreigners because Africans know the field because of experience in their own countries and the cross cutting challenges. Furthermore, Africans have developed a defined set of skills to approach such markets such as negotiation as well as perception of risk.
However, one must caution against generalizing operating environments in African countries. Every country has its own peculiarities, different legal systems, business cultures and so on. The most successful in investing in Africa are the ones that understand local environments yet bring value addition to such environments by making the markets more competitive. Furthermore, there are still numerous barriers that make investing across border prohibitive, e.g. prohibitive laws regarding the free movement of people, poor trade facilitation, corruption and so on. Additionally, sometimes AIA brings pre-existing geopolitical baggage for instance; some countries in Southern Africa have been resistant to the entry of South African businesses because of fear of unfair competition with domestic businesses. Further, companies such as Shoprite have had numerous legal issues because of its failure to adhere to local sourcing policies (Shoprite has since enforced its policy to establish and support local supply chains).
Take Away Home
All in all, AIA is the best way forward for Africans to have ownership of their development process. Additionally, AIA breaks barriers of nationality, ethnicity, race and allows all interested investors to focus on the important colour, green representing money. The trickle down effects on regional integration further encourage the development of regions rather than individual countries. As underlying tensions arise in some parts of the continent because with the rise of foreign partners who do not respect local laws and customs or benefit local communities, AIA provides an appropriate alternative. As doing business in Africa improves and technology becomes more widespread, more innovative platforms such as Homestrings, which connects the diaspora with investment opportunities in Africa will arise. Fading are the days when Africans sought security of their investments abroad. With a market place of over one billion people and all associated opportunities, there is little excuse not to invest!
By Ibrahim Sagna on February 24, 2014
By Ibrahim Sagna & Jacqueline Muna Musiitwa