1
Overview of Africa’s Development and
Opportunities for Foreign Direct Investment
Mwangi S. Kimenyi
Senior Fellow and Director
Africa Growth Initiative
The Brookings Institution
Washington, D.C.
2
Outline
•
Introduction: Africa and its People
•
Trends—Population, Democratization
•
Regional Integration
•
Recent Economic Growth Performance
•
Business Climate
•
Foreign Direct Investment In Africa
3
Introduction
• Africa is a huge continent.
» Roughly 1 billion people.
» 54 countries recognized by UN.
» 16 landlocked countries.
» Land mass of 30 million (sq. km)
– Brazil 8.4 million (sq. km)
– DRC 2.2 million (sq. km)
– Nigeria .9 million (sq. km)
4
Introduction
• Thousands of ethnic groups.
• These ethnic groups have more than 10 million people
» Hausa, Yoruba, Oromo, Igbo, Akan, Amhara, Somali, Ijaw,
Kongo, Fula, Shona, Zulu
• Many of these ethnic groups have their own language (or dialect of
a language) and culture
• There are an estimated 2,000 languages spoken in Africa, in six
major linguistic families
5
Demographics
•
Demographic boom.
»
•
Half of the world's future pop. growth will be driven by Africa.
–
Not because of higher fertility (which is declining).
–
Because of longer life expectancy.
“Youth Bulge”
6
Demographics
•
•
Potential positive: “demographic dividend”
»
Africa's adult population was 460 million in 2010.
»
It is expected to be 800 million by 2030.
»
Children and elderly (dependents) will be relatively few.
Potential negatives:
»
Lack of jobs
»
Radicalization of youth, political instability
»
Crime
7
Middle class consumerism
•
•
Burgeoning middle class, ready consumers
»
Currently, there are 85 million households that make more
than $5,000 per year
»
By 2020, there will be 128 million households
Commercial hubs on the rise
»
•
In 2020, the household spending of Alexandria, Cairo, Cape
Town, Johannesburg and Lagos will total 25 billion dollars
Urbanization (associated with economic growth) on the rise
»
Today, 40% of Africans live in cities. By 2030, this will
increase to more than 50%
8
Democratization
•
Africa has “democratized” to some extent, especially in the 90’s
»
In 1989, there 3 democracies; in 2008, there were 23
•
“Democracy has become the norm rather than the exception”
•
Practice of elections has become entrenched
»
In 2013, there are elections to be scheduled in 22 countries
Negatives (long-standing leaders, non-competitive political systems)
»
Zimbabwe
»
Equatorial Guinea
»
Gambia
9
Democratization
10
Governance
On the whole: better governance
Factors:
Governance Score of SSA
51.0
1) Safety/Rule of
Law
50.0
49.0
2) Human Rights
48.0
3) Sustainable
Economic
Opportunity
47.0
46.0
45.0
4) Human
Development
44.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: Mo Ibrahim Foundation
11
Decline in Violence and Conflict
•
•
According to Uppsala Armed Conflict Data Program:
»
African civil wars in late 2000s are half as common compared
to mid-1990s
»
Mass killings are on the decline
»
Current wars are more likely to be fought on state periphery
Problem areas:
Mali, CAR, DRC, Sudan
Terrorist threats of Al Shabaab, Boko Haram
12
Imperative of Regional Integration: Big
continent but small economies
• Huge land mass, lots of borders  Barriers to trade, strengthening of value
chains, etc.
» Border delays in trading are up to three times as long in Sub-Saharan Africa.
• Economies of Africa are quite small, comparable to US cities
African Country
Sudan
Kenya
Ghana
Ethiopia
Tanzania
Côte d’Ivoire
Cameroon
Uganda
GDP(Mil)
62,046
31,409
31,306
29,717
23,057
22,780
22,394
17,011
U.S. Metropolitan Area
Boston
Los Angeles
Columbus
Ann Arbor
El Paso
Madison
Oklahoma City
Kansas City
Data Source: World Bank data, http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP.pdf
U.S. Department of Commerce, Bureau of Economic Analysis, http://www.bea.gov/regional/gdpmetro/
GDP(mil)
313,690
735,743
93,353
18,566
27,025
35,615
58,339
105,968
13
Size of African economies
• Sub-Sahara’s 2012 GDP= 1.3 trillion (USD)
» Roughly the same size as Spain’s GDP
» Brazil’s 2012 GDP = 2.3 trillion (USD)
14
•
Regional Integration
Africa has many different regional economic organizations (RECs)
»
Community of Sahel-Saharan States (CEN-SAD)
»
Common Market for Eastern and Southern Africa (COMESA)
»
East African Community (EAC)
»
Economic Community of Central African States (ECCAS/CEEAC)
»
Economic and Monetary Community of Central Africa (CEMAC)
»
Economic Community of West African States (ECOWAS)
»
West African Economic and Monetary Union (UEMOA)
»
West African Monetary Zone (WAMZ)
»
Intergovernmental Authority on Development (IGAD)
»
Southern African Development Community (SADC)
»
Southern African Customs Union (SACU)
15
New Developments in Integration
• EAC, COMESA, SADC Tripartite
» Tripartite FTA will span three existing regional economic
communities - COMESA, EAC, SADC - 26 countries in total.
» Expected completion: 2014
» Tripartite FTA would evolve into…
• Continental Free Trade Area
» African Union endorsed a plan to set up a Continental
Free Trade Area (CFTA) by 2017.
16
IT revolution
• Afro-barometer findings (of 34 countries):
»
72% of respondents own mobile phones.
»
Essentially universal access in Senegal (98%) and very
high access in South Africa, Ivory Coast, Kenya (93%
each)
• Rise of mobile money
»
74% of Kenya pop. uses mobile money
»
31% of Kenyan GDP transacted with mobile money
(2013)
17
Investment Climate
•
Significant improvements of the business regulatory environment
»
»
Rwanda as case example
–
In 2006, it ranked 58th in the world for ease of starting a
business in 2006.
–
By 2011, it was ranked 8th.
–
Has been named “top reformer” several years.
Other strong performers include Burkina Faso and Ghana
18
Investment Climate
•
According to the Doing Business 2013
»
Of the 50 economies making the most improvement in
business regulation for domestic firms since 2005, 17 are in
Sub-Saharan Africa
»
From June 2011 to June 2012, 28 of 46 governments in SubSaharan Africa implemented at least one regulatory reform
making it easier to do business – a total of 44
»
Burundi, with four reforms, ranks among the 10 economies
globally that improved the most in the past year across three
or more areas
19
Investment Climate
•
“Distance to frontier” shows how far an economy is from the best
performance achieved by any economy
20
Economy
• History
»
African per capita GDP growth rate was 0.89% per annum
between 1950 and 1992
»
Most post-independence African governments adopted antimarket policies
»
Between 1960 and 2000, there have been about 80 violent
changes of governments in the 48 sub-Saharan countries
21
Recent Economic Performance
•
Africa is the world's fastest-growing continent.
•
IMF: Over the last five years, Africa grew almost 5% per year
•
»
Advanced countries grew about .5% per year
»
Latin America grew about 3.3% per year
Diverse set of countries have experienced economic growth
»
•
E.g. coastal countries (Senegal, Mozambique) land-locked
(Burkina Faso), commodity exporters (Zambia, Nigeria)
Africa’s GDP is projected to rise 6% each year for the next
decade
22
Economic Growth
Sub-Saharan Africa
GDP per capita (current US$)
1600
1400
1200
1000
800
600
400
200
0
Source: World Bank Development Indicators
23
Growth Story
Real GDP Growth in sub-Saharan Africa
2004 - 2008
2009-2011
Oil Exporters
8.60
6.00
Middle Income
5.00
2.57
Low Income
7.30
5.77
Fragile
2.50
3.20
Total SSA
6.50
4.43
24
Growth and Poverty Reduction
•
Between 1999-2012, poverty rate fell from 58% to 43%
»
~ 1% point per year
% of SSA population below $1.25 a day (PPP)
70
60
50
40
30
20
10
0
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2010
25
Growth and Poverty
Source: World Bank Poverty Database
26
Drivers of Growth
• Improved policy environment—
macro management
• Improved institutions of governance
• Reduced conflict
• Investment Climate
• IT Revolution, Human Capital
27
Drivers of Growth
• High global commodity prices have
spurred African growth
• Non-resource rich countries have also
experienced sustained growth (e.g.
Burkina-Faso, Ethiopia, Rwanda,
Tanzania)
• New Partners-BRICS
• Regional Integration
28
Foreign Direct Investment in Africa: Trends
and Opportunities
• FDI Flows to Africa still low from a
global perspective
• Significant FDI flows go to the
extractive sector
• FDI to Africa increasing, New
partners
• Many opportunities unexploited
29
FDI inflow (2012)
Range
Country
Above $3 billion
Nigeria, Mozambique, South
Africa, DRC, Ghana
$2.0 to $2.9 billion
Morocco, Egypt, Congo,
Sudan, Equatorial Guinea
$1.0 to $1.9 billion
Tunisia, Uganda, Tanzania,
Algeria, Liberia, Mauritania,
Zambia
$0.5 to $.9 billion
Ethiopia, Madagascar, Niger,
Guinea, Sierra Leone, Gabon,
Cameroon
$0.1 to $0.4 billion
Ivory Coast, Zimbabwe,
Mauritius, Namibia, Senegal,
Chad, Mali, Botswana, Kenya,
Lesotho, Togo, Malawi, etc. etc.
30
Top 5 Africa recipients of FDI
inflows (USD billions)
31
FDI flows
• In 2012, global FDI fell by 18%, but FDI
flows to African countries increased by
5% (to US$50 billion)
• Investment in extractive industries is the
most important driver of FDI to Africa
• Projects in manufacturing and services
registered investment increases
32
FDI Breakdown
FDI inflow to Africa 2012
West
23%
34%
Central
East
11%
South
13%
20%
North
33
FDI to Malawi
•
Brazil’s sole investor in Malawi (Vale) accounted
for 26% of total FDI
Brazil
34
Top 20 investors in Africa, 2011
(millions of US dollars)
FDI flows
35
Top 20 investors in Africa, 2011
(millions of US dollars)
FDI stock
36
US - Overview
•
Only 1% of U.S. foreign direct investment goes to Africa
•
US FDI in Africa is concentrated in mining and extractives
•
67% of US FDI in Africa in the manufacturing sector goes to
South Africa
•
U.S. engages in a degree of commercial diplomacy
»
Has 11 trade and investment framework agreements with subSaharan countries
»
Has 6 bilateral investment treaties with sub-Saharan countries
37
US - Overview
38
US - Overview
39
US - Overview
40
US - Overview
41
US - Overview
•
Interest in FDI from US private equity firms is on the rise,
although still small
Largest FDI deals by US-based Private Equity Firms in Africa
Year
Value ($
million)
Acquiring
company
Acquired
Company
Industry of
Acquired
Company
2007
3,502
Bain Capital
Edgars Consolidated
Stores
Retail stores
2009
1,277
Paulson & Co
AngloGold Ashanti
Ltd
Gold, ore
1997
1,261
Investor Group
Telkom South Africa
Communication
42
Japan - Overview
•
Japanese FDI in Africa was $460 million in 2011
»
•
In comparison, China’s was $3.17 billion
Prime Minister Shinzo Abe has aggressively pursued commercial
diplomacy with African countries
»
Has called for greater roles of public-private partnerships to
leverage investment
»
Has pledged billions in official development aid so as to pave
way for greater investment
43
Japan - Overview
•
Japanese FDI in Africa was $460 million in 2011
»
•
In comparison, China’s was $3.17 billion
Prime Minister Shinzo Abe has aggressively pursued commercial
diplomacy with African countries
»
Has called for greater roles of public-private partnerships to
leverage investment
»
Has pledged billions in official development aid so as to pave
way for greater investment
44
Brazil - Overview
•
Brazilian private investment in Africa began in the 1980s
•
Although Brazilian FDI to Africa is relatedly limited, it has been on
the rise in recent years.
»
Concentrated in infrastructure, energy, and mining sectors
»
South Africa and Angola are most common destinations
45
Brazil - Public institutions
•
Brazilian Development Bank (BNDES) plays an important role in
the promotion of FDI
»
Emphasizes commercial and infrastructure-related investment
»
Offers incentives and disbursements to companies in SubSaharan Africa
–
•
E.g. Has helped businesses in the African ethanol industry
in Angola, Ghana and Mozambique
Brazilian Caixa Econômica Federal (Caixa) has supported the
development of housing projects in Angola and Mozambique
46
Brazil - Public institutions
•
Brazilian Development Bank (BNDES) plays an important role in
the promotion of FDI
»
Emphasizes commercial and infrastructure-related investment
»
Offers incentives and disbursements to companies in SubSaharan Africa
–
•
E.g. Has helped businesses in the African ethanol industry
in Angola, Ghana and Mozambique
Brazilian Caixa Econômica Federal (Caixa) has supported the
development of housing projects in Angola and Mozambique
47
Brazil - Players
Some major players:
Odebrecht
Andrade Gutierrez
Camargo Correa
Petrobras
Vale
48
Brazil - Odebrecht
•
Construction company with most number of projects in Africa
(2011 WB Publication)
»
Present in South Africa, Angola, Botswana, DRC, Djibouti,
Gabon, Liberia, Libya, Mozambique
»
Partners with governments, other foreign companies, other
Brazilian contractors in Africa
»
Engages in projects relating to oil and gas exploration,
infrastructure, construction of residential condominiums, urban
planning, diamond mines, and food distribution.
49
Brazil - Odebrecht
•
Undertaken numerous business activities in a variety of contexts
»
Construction of the Capanda dam in Angola
»
Building the Letsibogo dam in Botswana
»
Drilling for oil in the DRC
»
Providing oil-well services in Gabon
»
Constructing container and fuel terminals in Djibouti
»
Constructing a coal mine at Moatize, Mozambique (with Vale)
and settlements for families displaced by the mine
50
Brazil - Camargo Correa
•
Construction company
»
Opened offices in Angola in 2006
»
Hired as the contractor for projects including urban planning
and building housing, roads, and power lines
»
Involved in constructing the Mphanda Nkuwa hydroelectric
project on the River Zambezi in Mozambique.
»
Part of a consortium which is building a coal mine at Moatize,
Mozambique.
»
One of the company’s largest projects involved a consortium
of foreign and local companies producing cement
51
Brazil - Petrobras
»
Energy sector
–
Invested in Angola’s oil and gas sector as of 1979
–
Since 2008, has taken a more assertive posture than
historically.
–
Prospects for and extracts oil, especially in deep waters,
with operations in Angola, Libya, Nigeria, and Tanzania.
–
Recently acquired a 50 percent stake in a 7,400 square
kilometer block off the Benin coast to search for light crude
–
Acquired a 50 percent stake in a block for exploration in
deep waters in Namibia
52
Brazil - Andrade Gutierrez
•
Construction company
»
Has projects in Angola, Algeria, Cameroon, the DRC, Guinea,
Equatorial Guinea, Libya, Mali, Mauritania, and Mozambique.
»
Done business in Africa since 1984
»
Activities include building roads and housing, and urban
planning
53
China - Overview
•
Difficult to ascertain Chinese FDI data for certain.
»
Reasons include lack of transparency, propaganda
»
Represents only FDI that has been officially reported to govt.
of China
»
FDI that goes through Hong Kong is not reported
»
Chinese FDI statistics exclude financial sector investment
–
E.g. Purchase of 20% of Standard Bank of South Africa
possibly excluded from FDI numbers
54
China - Overview
•
However, by all measures, Chinese investment is big and getting
bigger.
•
One measure: Chinese Stock in and Flows to Africa (USD $ bil.)
‘05
‘06
‘07
‘08
‘09
‘10
‘11
’12
Flow
.39
.52
.16
5.49
1.44
2.11
3.17
2.52
Stock
1.60
2.56
4.46
7.80
9.33
13.04
16.24
21.23
55
China - Public Institutions
•
Chinese government and enterprises are closely connected
•
State- and privately-owned enterprises benefit from govt.
financing.
»
China-Africa Development Fund - equity fund that supports
Chinese enterprises investing in Africa
–
By the end of 2012, agreed to invest US$2.3 billion in 61
projects in 30 African countries
–
Already invested US$1.8 billion for 53 projects.
–
E.G. in a joint venture with the Govt. of Ghana and Bosai
Minerals Group for creating a proposed alumina refinery
56
China - Span of investments
•
Over 2,000 Chinese enterprises are investing and developing in
more than 50 African countries and regions
»
In agriculture, mining and building industry, processing of
resource products, industrial manufacturing, finance,
commercial logistics and real estate
»
South Africa is the leading recipient of Chinese FDI. Followed
by Sudan, Nigeria, Zambia, Algeria.
»
Between 2009-2012, Chinese enterprises' direct investment
volume in Africa's manufacturing sector was US$1.3 billion. By
the end of 2012, this figure was US$3.4 billion.
57
China - Span of investments
•
Malawi’s President Joyce Banda went to China in June to sign
two contracts:
»
A $600 mil USD contract with China Gezhouba Group
Company for a 1,000 mw thermal power plant for southern
Malawi
»
Contract for the upgrading and construction of new power
transmission lines with Tebian Electric Apparatus for central
Malawi
58
China - Public Institutions
•
Chinese undertakes heavy-handed form of commercial diplomacy
»
By the end of 2012, China had signed bilateral investment
treaties (BIT) with 32 African countries, and established joint
economic commission mechanisms with 45 African countries.
»
Had agreements with at least 10 African countries to help
investors avoid the issue of “double taxation”
»
In 2012, had an estimated 50 commercial attachés and
associated staff in 48 African countries
»
Holds discussions, such as Forum on China-Africa
Cooperation (FOCAC, with African governments regularly
59
India
•
India’s total FDI stock in Africa was ~US$14 billion in 2012
•
India has a diversified portfolio that includes textiles, small- and
medium-sized enterprises, social services (health, education) etc.
•
Indian FDI in Africa has traditionally been concentrated in
Mauritius.
»
Why? Mauritius has offshore financial facilities and favorable
tax conditions.
60
India
•
Indian FDI in Africa has also invested in Côte d’Ivoire, Senegal,
Sudan, etc.
•
In 2010, the Indian company Bharti Airtel purchased the African
telephone network Zain for $10 billion (USD)
61
Turkey
•
Many Turkish companies, including small and medium-sized
enterprises (SMEs), are heading to Africa
»
•
Associations like the Turkish Confederation of Businessmen
and Industrialists help facilitate such investment
Small Turkish business are now among the biggest furniture
producers in Africa.
»
Sanat Mobilya is one the biggest furniture companies in
Nigeria and in Malawi.
–
It employs 80 people in its factories, mostly Nigerians.
–
It teaches furniture-making skills to the local people
62
Turkey
•
Members of the Rwanda Active Businessmen Association
representing the agro-processing, textile, food, steel and furniture
industries will visit Istanbul, Turkey in March
»
To boost trade and investment between Turkey and Rwanda
»
To share and learn from each other’s experiences on how to
improve production processes
63
South Korea
•
Korean FDI to Africa was $16.9 USD million in 2001 and 373.6
USD million in 2009.
64
South Korea
•
Korea’s FDI is concentrated
in Madagascar, Nigeria,
Libya, South Africa,
Mauritius, Egypt, Ghana and
Angola.
»
•
These eight countries
account for > 95% of
Korea’s investments in
Africa for 2003-2008.
Investment flows to natural
resources: nickel in Madag.,
crude oil in Nigeria.
65
Iran
•
•
Diplomacy
»
Iranian Foreign Minister: “The President of the Islamic
Republic of Iran attaches great importance to improving all-out
relations with Africa”
»
Iran Vice President: Iran will build a hospital, a power plant
and a major water project in Mombasa, Kenya.
Iran has diversified areas of international interest, in part because
of Western sanctions
»
Has agreed to share technology with Nigeria to produce
electricity.
»
Iranian car manufacturer, Khodro, opened a factory in Senegal
66
Emerging Africa: Opportunities for
Mutually Beneficial Engagement
•
There are still many constraints for doing business in Africa
but there has also been major improvements
•
Growth prospect for Africa look good and the youthful
population presents a great opportunity
•
For many countries, governance and improvements in
investment climate unlikely to be reversed
•
There is a new scramble for Africa particularly by emerging
economies
•
Brazil has a comparative advantage on account of a
smaller cultural divide
67
Emerging Africa: Opportunities for
Mutually Beneficial Engagement
•
Africa presents many opportunities for Brazilian investors
specifically in:
-
Natural resource sectors—Extraction, value addition,
manufactures
-
Closing Africa’s infrastructure deficit-construction
-
Agricultural transformation
•
Exploit the youth bulge/raise productivity
•
Partnership with local private sector and even governments
68
Strategic positioning
•
Brazilian investors should think long term
•
Provision of job opportunities is the priority for
African (China has a bad record in this area)
•
Capacity building is key for durable partnerships
•
Focus on the development of communities—
health, education-broad corporate social
responsibility
•
There are challenges but opportunities are
greater
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