Africa is far from being a homogeneous continent, with 55 countries all boasting different regulatory, tax and competitive environments. Transacting in Africa poses complexities that companies need to factor in. In light of this, KPMG convened a panel of experts for the sixth episode in its Africa Conversation Series, to discuss the most pertinent trends and challenges related to investing in Africa today. CNBC Africa broadcast the panel discussion, entitled Transacting in Africa, live across the continent while KPMG made the session available globally via live webcast.
John Geel, Head of Transactions & Restructuring at KPMG, noted that historically multi-nationals and larger listed South African companies have conducted investment into and across Africa. “However, we are now witnessing an increasing number of smaller companies undertaking investments due to improved growth opportunities and regulatory and tax regimes. This means that companies are now seeking out the right entity to transact with, negotiate details of collaboration and sign legal contracts.”
Coupled with this increased investment appetite, KPMG have also noticed that the banking sector on the continent has improved, and there continues to be consolidation and expansion appetite. In May 2012, KPMG Africa released the Africa Banking Survey to provide a better understanding of regulatory frameworks on the continent. The survey provides information in several areas including the commercial, legal and tax, and banking environments, as well as governance and reporting issues. Fourteen countries were analysed covering all African regions. Alan Field, KPMG Head of Tax & Legal, said, “Much depends on the kind of investment you are making and what kind of legislative framework exists for the investment in a particular country. Of course, banks need to examine this since they want a stable environment to reap investment rewards – so while some countries in Africa offer attractive investment opportunities, some are still complex.”
Recent over-banking trends in Africa have led to regulatory challenges, but these are increasingly being addressed. For Heloise Smith, Executive Vice President, Business Development, Standard Bank, companies and banks still need to manage risks carefully while investing. “More banks and companies are gaining a better understanding of the continent. However, there is always a trade-off between risk and return on investment. Banks still need to find ways of mitigating the risks.”
Despite the financial crisis of 2008, there is now more private equity available in Africa. As KPMG's Alan Field points out, “Private equity on the African continent is relatively new but has started to gain momentum and there are funders who are very excited about the opportunities. However, even with the increased awareness, capitalisation rules and regulations regarding extraction of funds are still missing. It is uncharted territory at this stage, but it is developing. Funders will compete about opportunities in Africa in the future.”
Substantive investment comes from China, now Africa's biggest trading partner. The panellists agree that China's engagement in Africa is increasingly to the benefit of Africans. China is an important partner in infrastructure development, which enables economic growth. Says Habil Olaka, Chief Executive Officer of the Kenyan Bankers Association, “Unlike the Chinese, many African companies have limited capacity to deliver on major infrastructure projects. In Kenya, we have seen increased side opportunities for local companies, and this helps people on the ground. African collaboration with the Chinese is a win-win scenario.”
Recently, regional blocks such as the Economic Community Of West African States (ECOWAS) and East African Community (EAC) have become stronger economic groupings, but panellists believe that besides reducing trade barriers and enhancing informal economic exchange, little impact is visible regarding foreign direct investment. Potential investors prefer to follow country-specific opportunities, rather than engage with a regional block. Investors into Africa may take advantage of gateway countries to access a region, for example South Africa for the Southern African region.
Carel Smit, KPMG Africa Head of Energy & Natural Resources, also a panel participant, added: “Investors want to see predictability and Africa has to provide the necessary frameworks. Africa is so rich with natural resources. As long as the world comes after these resources, Africa will do economically well. The world's population is growing rapidly and needs resources. A resource hungry world cannot ignore Africa.”
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