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The risk of ignoring Africa when investing
By David Israelson
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For Charles Field-Marsham, it’s been a new dawn in Africa for a while. He thinks more Canadian investors should feel the same way.
“I’ve owned a stockbroker business in Kenya for 20 years now,” says the Canadian entrepreneur and founder of Kestrel Capital Management Corp., an investment bank specializing in sub-Saharan Africa.
He is keen to dispel what he sees as many myths – the misconception that Africa is a permanent trouble spot good only for extracting resources, rife with corruption, war, disease and spam e-mails from deposed princes asking for your PIN number.
Not so, Mr. Field-Marsham says. There are huge investment opportunities in areas such as infrastructure, consumer products, transportation, communications and financial services. And while there is risk in any investment, sub-Saharan Africa is less risky than one might think.
“I’m always amazed at how adventurous Canadians are in the natural resources sector, whether it’s oil, gas, gold, precious metals or agriculture. They’ll invest all over the world, including in Africa,” he explains.
“But if you go down to Bay Street and ask investors to invest in an African bank, an African brewery or an African telco, which may be 50 per cent owned by a British PLC, has been operating for 20 years and has paid dividends for 18 years, they’ll say, ‘No, no no.’ ”
The doubters are wrong, wrong, wrong, Mr. Field Marsham says. The countries south of the Sahara Desert, with a collective population of more than 800 million people, offer some of the best opportunities on the planet these days.
Here’s what you might be missing if you haven’t paid attention to sub-Saharan Africa:
- The region’s GDP is expected to rise by a robust 6 per cent per year over the next decade.
- There’s a growing middle class across the sub-Saharan area – last year The Economist reported that real income over the previous decade has increased by 30 per cent.
- Consumer power is growing – in 2000, fewer than half of sub-Saharan households earned $2,500 (U.S.); by next year this is expected to be nearly 70 per cent.
- Sub-Saharans are better educated, healthier and more urban than in the past. Nearly 15 per cent of sub-Saharans live in cities with more than a million people (compared with 19 per cent in Europe) and secondary school enrolment jumped by nearly 50 per cent from 2000 to 2008.
- Life expectancy in sub-Saharan Africa has grown by 10 per cent; child mortality, malaria and HIV infection rates are down.
With prospects like these, why aren’t more investors rushing to sub-Saharan Africa?
It’s partly because of outdated ideas about the region, Mr. Field-Marsham says.
“During the Cold War, the Soviets were propping up a bunch of dictatorships and the Americans, British and French were propping up another bunch. When the Cold War ended [in the early 1990s] there was no need to prop them up any more, so the International Monetary Fund came in and brought in structural changes.”
The region went through “gut-wrenching structural adjustments,” as protected and state-run industries and sectors were privatized and competitors were invited in, Mr. Field-Marsham adds. Then, starting in the early 2000s, there was a resource boom, fuelled largely by China’s demand for raw materials.
With this demand somewhat settled, resources today account for only 20 per cent of sub-Saharan economic growth, Mr. Field-Marsham says. Meanwhile, there’s a lifestyle and consumer revolution under way.
“In Kenya in 2000 there were 300,000 fixed telephone lines for 30 million people – with one telephone company, owned by the government,” he says. “Telecommunications was privatized in the early 2000s and four multinationals were invited in. Today there are 32 million telephone lines.”
Similarly, in 2000 roughly 20 per cent of Kenyans had a bank account, but today the country is the world leader in mobile banking, Mr. Field-Marsham adds.
A 2012 report by Ernst & Young, Africa by Numbers, agrees that it’s time to think differently about African investment.
“Decades of stagnation, political turmoil, war and economic mismanagement led to deeply engrained prior beliefs about Africa – this mindset is compounded in the Western world by a humanitarian sensibility that can be both patronizing and a deterrent to serious business and investment interest,” the report says.
“This cannot be the frame of reference, otherwise it will infect every decision that has to be made. There has to be a strong belief in the African growth story; that Africa is good for business and investment; and that business and investment is good for Africa.”
Miles Morland, a pioneer investor in African markets, says the region “is cursed with the fallacy, that it is somehow different to the rest of the world. It’s not.”
Mr. Morland’s Britain-based firm, Development Partners International, has a $500-million (U.S.) fund invested in eight countries in different industries: banking, fast foods, telephone towers, micro-finance, insurance, pharmaceuticals, food processing and modular housing.
“Successful African investors divide into two categories: resource investors and investors in companies providing goods and services to the growing middle classes, the area we focus on,” he says.
But isn’t Africa still corrupt and dangerous? It can be in some places, but it’s changing, Mr. Field-Marsham says. He was as unnerved as everyone else by the deadly attack at Nairobi’s Westgate Mall in September by al-Shabab, a Somali-based militant group linked to al-Qaeda. “In most of Kenya I feel completely safe,” he says, though he admits that security is still an issue in many parts of sub-Saharan Africa.
As for corruption, Mr. Morland says, “I would trust a handshake in Africa further than a lawyer’s agreement in the U.S.”
There are still some gaps to bridge between the way Africans and non-Africans consider certain types of business deals, Mr. Field-Marsham says. For example, many countries have strict limits on foreign land ownership, because of bad experiences with colonialism.
But it’s Westerners who have the most to learn about a promising, sophisticated and still under-noticed market, Mr. Morland says.
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