KPMG convened a special debate with a panel of expert business leaders to discuss Africa’s attractiveness as an investment destination, the complexities of doing business in Africa and whether real money could be made in pursuit of the wealth of opportunities on the continent. The panel discussion titled ‘Investing in Turbulent Times – The Great Africa Business Migration’ was broadcast live across sub-Saharan Africa by CNBC-Africa from a live audience in KPMG’s offices in Parktown.
The African Development Bank estimates that African annual expenditure can reach US$2.2 trillion by 2030 provided the continent sustains an average annual growth rate of over five percent. Africa benefits enormously from, firstly, its wealth in natural resources and the global demand for them, and secondly, from an already vast and growing middle class (with a total population already around one billion) that is driving consumerism. Countries on the continent recently have also been successful in implementing far-reaching economic as well as political reforms, adding to a more conducive business and investment climate.
Maria Ramos, Chief Executive of Absa and Chief Executive of Barclays Africa, points out that despite the recent global financial crisis, “Africa has come through very well”. It is important, however, to remember that Africa is a big continent with very diverse countries and different levels of economic maturity that still lack essential preconditions to business success, such as infrastructure and education. “While Africa is benefitting from a continuous flow of Foreign Direct Investment (FDI), two aspects should not be overlooked: first, domestic investment fuels national economies and also further attracts FDI. Second, inter-African trade needs to be further developed to make the African continent internationally more competitive.”
Too many barriers between African countries still exist, making economic integration a challenge. Due to a lack of infrastructure, education and energy supply, Africa only features in the middle of global economic competitiveness rankings. But it is catching up. One shouldn’t forget that it also took Europe a long time to establish the European Union.
The ‘Great Africa Business Migration’ has clearly taken off, suggesting a promising economic outlook despite starting from a low economic base. Analysts see the economic potential in Africa, global companies are investing increasingly in the continent and existing players are spreading their reach by investing in other countries across the continent. As Michael Andrew, newly appointed Chairman of KPMG International, put it: “I believe a window of economic opportunity exists.” He also encourages Africa to study the emergence of Asian economies and learn from their lessons. “The same discussions we are having in Africa right now were held in Asia many years ago.”
Andrew highlights that FDI into Africa can be divided into three phases: first, India and China have started to buy into natural resources while opening African national markets to low-cost consumer goods manufactured in India and China. Second, Western economies have begun to explore investment opportunities at a pan-African level, recognising the importance of Africa in the future. And third, the possibility of inner-African trade zones is being developed to allow Africa to compete with other parts of the world. “The trend around the world is creating larger trade zones,” says Michael Andrew.
While it is widely recognised that Africa must extend its existing infrastructure, a special focus should be put on infrastructure related to telecommunications, the legal environment and the financial sector. This would generate far-reaching change in terms of how businesses operate and perform on the African continent.
The panellists highlighted the importance of the banking sector for continuous economic growth in Africa, accompanied by adequate regulatory frameworks. “We need regulatory frameworks to move us forward,” argues Tonye Cole, CEO of the Sahara Group. “Unfortunately, the time it takes to put these policies into place in Africa is far too long. We have a strong political will to put policies into place but we are too slow to implement them.” This is an on-going conversation and engagement between business, government and regulators, while the regulatory framework becomes increasingly complex.
Progress has been made regarding the enforcement of regulatory frameworks, especially since businesses from Africa are increasingly operating in a global context and are therefore obliged to follow global agreements. “We are starting to get this right in a lot of African countries,” says Absa’s Maria Ramos.
Professor Nick Binedell, Founding Director of the Gordon Institute of Business Science, pointed out that by 2040 the African workforce will be the biggest in the world, highlighting the requirement for quality education. He knows that the African continent is still falling short in providing world-class education systems, forcing many Africans to go abroad. Without strong schooling systems emphasising mathematics and science, it will be difficult to build up African innovation – which is crucial to the future success of Africa – and even to ensure the employability of this growing workforce.
Professor Binedell also highlights the importance of making African countries attractive to the outside world: “We need to strengthen economic diplomacy to look after African interests. We must develop African businesses to support our increasingly important position in the world.”
To do this successfully, all panellists agreed, strong political leadership is fundamental and essential.