DRIVING through Lubumbashi, the Democratic Republic of Congo’s mining capital, it is difficult to believe more than $10bn of investment has flowed into the area recently.
The Congo’s fastest-growing city has become the victim of rampant urbanisation, with its population nearly doubling in a decade. It is now home to nearly 2-million people. But, on the face of it, the city is more faded colonial elegance than mining boom town — the result of years of unchecked urban degradation.
Heavy trucks laden with precious minerals destroy the roads as they head through the city to the border. There is little sign of new development in this boom/bust town, where occupancies in the city’s only five-star hotel provide a barometer of its fortunes.
The bulk of mining taxes flow to Kinshasa and little returns to Lubumbashi — in defiance of a revenue-sharing formula with the provinces.
But the governor of Katanga Province, flamboyant business tycoon Moise Katumbi Chapwe, has big plans to change the face of this city. On the table is a plan for Luano City, a 15-year, $4bn, 300ha mixed-use development on the outskirts of the existing city that he hopes will become a new city centre. The catalyst for realising this dream is US property magnate and international developer Preston Haskell, who immediately saw the opportunity and invested in it, signalling his confidence not only in the governor but in the juxtaposition of mineral riches and underdevelopment as a model for opportunity, and in the future of this region of the Congo.
Haskell was at the launch of the first phase of Luano City on Friday, an event also attended by mining bosses, executives from other local and international companies and the governor himself, who exhorted mining companies in particular to put down proper roots in the Congo by buying offices in the development. He has already committed the provincial government to relocating there in time.
The biggest mining operator in the country — Tenke Fungurume — has already snapped up the first office block. A Chinese company has signed up for the second and there are buyers for offices that are yet to be built.
Haskell is no stranger to complex and high-risk environments, coming to Africa after years of developing property in Russia. Now in his mid-40s, he says the opportunity he sees in Africa makes it likely that he will see out his career on the continent.
His first African investment was in South Africa — Cradle City, next to Lanseria Airport. He bought it in 2007, but was forced to put it on hold after the global downturn hit. Undeterred, he moved on to invest in a country most regard as one of Africa’s riskiest business environments, the Congo, and is planning to invest in development in Kumasi, Ghana’s mining hub.
He is sanguine about the cyclical nature of commodities. The combination of Katanga’s rich mineral deposits and good prospects of economic growth in emerging markets will make Luano City viable in the long term, he believes.
Situated next to Lubumbashi’s airport and a highway linking Lubumbashi to Zambia and rapidly growing mining nodes such as Kolwezi and Likasi, Luano includes more than 3,000 residential units, 300,000m² of commercial and light industrial space and 200,000m² for retail. Katumbi’s political support is important to the development’s success. His popularity suggests he has a long future in politics. But there are other factors that support the new city’s viability. The mines are generating employment and growth in supplementary businesses, while China is building new roads that will make movement easier between Lubumbashi and outlying mines.
There are many potential risks to long-term projects whose viability relies on the shifting sands of politics and commodity cycles, and it is easy to be cynical. But the Luano City project does show the potential for broad economic development on mineral riches, which has been largely dismissed by critics over the years.
• Games is CE of Africa At Work, an African business consultancy, and compiled the book Business in Africa: Corporate Insights.
JOSE Filomeno dos Santos, the son of Angola’s longtime president, is a very affable and charming person, I discovered at a meeting with him in Luanda last week. We spoke at the launch of Angola’s new sovereign wealth fund, Fundo Soberano de Angola, where it was announced that he has been appointed to the board of the fund along with the president’s economic adviser, Armando Manuel.
With a background in the world of finance and close connections right to the top of the political heap, Dos Santos seems eminently suited to a leading role in a country where these are highly prized assets. But the news of his powerful position on the board, which will define the fund’s investment strategy and oversee its activities and assets, was generally met with dismay by Angola watchers.
The compilation of the board is viewed by many people as a signal that the fund is not likely to be the hoped-for break from a past in which oil revenues earmarked for development were often squandered and diverted into private bank accounts.
The government is the sole shareholder and President Jose Eduardo Dos Santos will approve the fund’s investment policies based on recommendations from an advisory council that includes the ministers of finance, economy and planning.
Dos Santos is a member of a family that has exploited its access to state patronage at every turn to build enormous wealth.
A banker pointed out that it is not illegal or frowned upon in Angola to be employed by the state and have business interests simultaneously.
That situation is not unusual in a country where business and politics are tightly intertwined.
This is partly a consequence of the civil war in which trust was built in the trenches to keep the war effort going and many of the same people ended up with postwar spoils — key positions in government and business.
Politicians run their affairs largely unfettered by the inconvenience of independent institutional watchdogs and concerns about flouting internationally accepted business practices.
Angola’s president began the process of establishing a sovereign wealth fund after the 2008 economic crisis starkly exposed the shortcomings of the country’s fiscal management, policies, economic planning and reliance on oil, in effect bankrupting it.
The $5bn in the fund’s start-up kitty is less than two years’ worth of receipts from the sale of the equivalent of 100,000 barrels a day (Angola produces 1.8-million barrels a day).
This stream of revenue will continue to top up the fund as it builds up more assets through local and international investments.
A fiscal council will assess the fund’s performance and it aims to secure a rating from the Linaburg-Maduell Transparency index, developed by the Sovereign Wealth Fund Institute to measure the transparency of such funds globally.
The accounts will be audited by international auditors and the results reported in the Angolan media, and the fund will adhere to best practice in all its operations, according to its supporting documents.
In last week’s interview, Dos Santos seemed committed himself to the transparency of the fund, the redistribution of wealth and the need to improve social indicators. He had ideas about how the fund could improve people’s lives. He told journalists that he would be resigning as a director in Banco Kwanza, Angola’s first investment bank, in order to concentrate on his new responsibilities.
It is clear he knows what needs to be done. But talk is cheap. The question is how far he, his colleagues and associates in the fund, want to — or can — fight the system that many of them are inherently part of in order to bring about the change he speaks of.
If the sovereign wealth fund is to be a credible investor in a world of ever-tighter corporate governance codes and principles, it will have to show it can operate in a way that can withstand international scrutiny.
It may become another slush fund and that would — or should — embarrass everyone involved. But if all the safeguards and oversight that are built into the plan actually work, the fund has a fighting chance to deliver on its mandate. It is important to keep an open mind for now.
• Games is CEO of Africa At Work, an African business consultancy.
IF IT was easy everyone would be doing it,” a friend involved in African retail property development often says. He also says “the best development is the one that happens”, referring to the many plans of developers, funders and others who see the opportunity to build shopping malls in Africa frustrated by the myriad challenges involved.
Many targeted sites have remained pins on a map for years. But there has been a ramping up of interest in the sector lately, particularly from South African developers who are eager to supply world-class centres to retailers looking for early-mover advantage in growing markets outside SA.
The city centre of Lusaka is already overtraded, with three big shopping centres within a 5km radius. At least one more is planned on the city’s outskirts and others in mining towns.
But in other, larger markets, there is little critical mass. For example, in Lagos, a city of anything between 9-and 15-million people, depending on who you ask, there are only three retail malls. In Accra, up to 3-million people are served by one western-style mall.
There are high expectations for retail property development in Africa. In Ghana, about four malls are in the pipeline for the next two to three years and six in Nigeria — two of Africa’s fastest growing countries. Several are planned in countries such as Kenya, Mozambique and others, some as standalone malls and others as part of mixed-use developments.
Most of SA’s big retailers have ambitious expansion plans in African markets outside SA for anything between several dozen stores to more than 100 over the next few years.
Overseas brands such as Adidas and KFC are already in African shopping centres to the north and a few others are testing the waters with franchises. But a global survey of retailers by South African property management company Broll indicates relatively few are ready to take the plunge yet. Out of 326 companies interviewed, only a handful were looking at African markets at all and they had an interest in SA and North African countries but showed no appetite for the markets the South Africans favour — such as Kenya, Nigeria, Zambia, Mozambique and others. South African-based companies have moved into this space, beating a path for companies from other regions to follow when their appetite for risk increases.
But developers are not finding it easy, particularly in Nigeria, a key target for African expansion plans. As one old Africa hand says: “It’s not twice as difficult to develop a shopping mall in countries such as Nigeria as it is in SA; it is three to four times more difficult.” Problem-free land title is one of the challenges. Litigation from multiple claimants remains an ever-present threat. High costs of land and availability of large tracts of it in congested cities is also an issue.
The limited availability of long-term debt and a relatively low level of interest by international institutions in African property funds are among the challenges. Imported professional skills and inputs, power shortages and a range of other factors in the supply chain ramp up costs, so high rentals are needed to yield a decent return.
Ad hoc government policy is another issue. While Nigeria’s removal of clothing from a list of banned imports has opened up big opportunities for retailers, shoes — a big seller for fashion retailers — remain on the list in a vain attempt to protect the country’s ailing leather industry.
In Zambia, a recent government decision to prevent foreign currency being used for local transactions is a big concern for property companies, which index rentals to the US dollar. One expert says $500m of investment in Zambia’s property market has been put on hold as a result.
There is also the question of whether the emerging African middle class is as big as the experts maintain it is. Rapid urbanisation rates are pushing up potential consumer numbers but not necessarily incomes. These factors, among many others, are a brake on the desire of developers and retailers to build critical mass quickly in African markets. It may still be a while before their high expectations match the reality on the ground.
• Games is CEO of Africa At Work, an African business consultancy.
WHY are South African companies held to a different standard than those from other countries when operating in African markets? This issue was raised in a debate in Cape Town last week hosted by the Centre for Conflict Resolution, called “South African companies in Africa — exploitation or engagement?”
Surprisingly, many in the audience seemed hostile towards South African business expansion in Africa, falling back on well-worn arguments about colonialism, “corporate greed” and labour practices rather than examining the many advantages such expansion has brought to South Africa’s own economy and to many other economies.
The debate is by no means new. It began when business first started moving north of the border in the early 1990s. The rapid pace of expansion, the size and scale of the companies that easily dominated smaller local businesses, the high visibility of the sectors in which they operated and, yes, the behaviour of some brought unwanted attention to the South Africans. African newspapers had a field day criticising the southern giant for its “neo-colonial” activities. Non-governmental organisations quickly looked for evidence of exploitation of locals. And, unfortunately, sometimes they found it.
Since then a lot has changed. Companies now have much more experience in other African markets and have learned how to conduct themselves more appropriately — and increasingly have sought local partnerships. Many have brought capital, corporate governance, innovation and skills training. The South Africans are developing agriculture to serve their supermarkets and they have modernised the supply chain.
Despite accusations to the contrary, our multinationals are sought-after employers. Businesses on the continent actively pursue partnerships with South Africans and willingly take advantage of the goods and services they bring to these markets — despite critics portraying locals as hapless victims of corporate expansion.
And yet, the debate still lingers. South African companies do not do business in emerging markets differently to companies from other parts of the world. But they are expected to. There is a greater expectation of altruism and development beyond the bottom line. This is part of the baggage of being an African economic power.
I have no brief for companies that fail to observe local business culture; who are arrogant in their dealings; who may have exploited workers or local partners; who do not uphold the same standards elsewhere in Africa as they do at home; and who still believe that South Africa is an “exception” in Africa.
But it is true to say that much of the negative sentiment comes from people who are not in business at all. And many single out our companies’ activities for criticism while turning a blind eye to similar business practices by other multinationals and by home-grown businesses.
South Africa is not just another country with companies on the expansion trail. It is the continent’s economic power and the African voice in several key forums. This singles it out for attention and many mistakenly believe there is a conspiracy by South Africa to dominate the continent. The conspiracy was raised most recently with South Africa’s bid to occupy a top African Union (AU) post.
The AU battle was divisive and may still have an effect on business, which generally pays the price for government actions that are not well received by other African states. For example, when half-a-plane-load of Nigerians was deported earlier this year over alleged yellow fever certificate infractions, their government immediately threatened to force South African companies out of Nigeria.
Part of the reason this debate refuses to go away is because the true situation is not well communicated. Neither companies nor our government are telling the story very well of what benefits they are bringing to the rest of the continent, whether through investment, development or funding.
It is important that South Africa’s companies remember they are under particular scrutiny in other African markets. Good corporate governance and scrupulous business practice will provide a competitive edge and, hopefully, if business continues to pursue these vigorously, in time South Africa’s critics will see the considerable benefits our businesses are bringing to the continent.
A DECADE ago, regional airline Air Afrique, owned by nearly a dozen African governments, collapsed under a mountain of debt after 41 years of flying. The airline, launched by former French colonies that had gained political sovereignty, was owned by 11 states in Central and West Africa with few transport links to each other.
At its launch in Cameroon in 1961, heads of state said the airline represented the co-operation that was possible between independent states of Africa. Air France and independent French airline UTA had a significant stake in the enterprise.
For a long time it served its purpose of moving people around a region where governments could not afford national airlines and independent local airlines did not exist. But these governments had no experience of running a business and, over the years, the service declined as debts grew.
On the other side of the continent, East African Airways (flying from 1946 to 1977) had been established by Kenya, Tanzania and Uganda. It too folded with debts amid deteriorating relations between the participating states. In the late 1970s, all three countries established their own national airlines, making it redundant.
South African Airways (SAA) has been involved in two regional arrangements that both ended badly. The first was Alliance Air in East Africa and the second was a joint venture with former national airline Nigeria Airways. Both arrangements died a sad death amidst infighting and acrimony.
Given the history, it was interesting to read that two new regional airlines are in the pipeline. One is EcoAir, a project of the 15-member Economic Community of West African States. The other is Cemac Air, designed to serve six central African states that are members of the regional economic body Cemac.
The idea for EcoAir has been around almost since the demise of Air Afrique but has yet to get off the ground. Cemac Air appears to be at an advanced stage and it has signed up Air France as its strategic partner after it terminated an air services agreement with SAA, its original partner in the venture.
The rationale for both airlines is the fact that carriers operating in the region mostly offer an unreliable and expensive service and people struggle to move around the region by air.
The situation is different in East Africa, where African carriers are investing heavily in expansion and new entrants such as low-cost British brand easyJet are set to provide stiff competition for customers.
In West Africa, there are a number of privately owned airlines plying the region, particularly from Nigeria, but the penetration and frequency are generally low. Scheduling can be erratic and costs are high on many routes. Given the history, it is questionable whether such initiatives will be more successful than their predecessors. There is nothing to suggest that, despite the promises of bureaucrats that these will be private sector-run enterprises, the politicians won’t do what they do best — meddle.
It is government intervention in the market that generally accounts for the problems in, rather than the success of, such ventures. Look, for example, at the poor state of Air Malawi and Air Zimbabwe. SAA, too, is mired in debt despite being Africa’s top airline.
Despite the positive prognosis of African growth rates, aviation faces tough times, with increasing competition, punishing fuel costs, high airport taxes and declining tourist numbers. Low-cost airlines struggle to survive against protected national carriers. The aviation industry is also constrained by the fact that travel between countries is still based on restrictive bilateral agreements rather than the liberalised “open skies” policy that African governments have signed up to but failed to put into practice.
Air Afrique’s early success was based on the political co-operation that was a by-product of the heady days of independence. But now there is much less of it, as is highlighted by trade barriers and visa restrictions between countries and problems in getting regional infrastructure built.
Aviation is an ego industry for states. To run a regional airline properly requires recognising that good air links between states are a key driver of growth. It also requires recognising that there is no place for egotistical nationalism. That’s the hard part.
THE bottom 25 countries on a list of 105 ranked on food security are African, with the exception of Cambodia and Haiti. Burundi, Chad and the Democratic Republic of Congo are right at the bottom of the newly launched Global Food Security Index — as they are on many other indices measuring development and issues related to the human condition.
Despite it being a country with a wide divide between rich and poor, South Africa sits at a more respectable 40th place, joined in the middle of the rankings by Botswana, Ghana and most of the North African countries.
The index, an initiative driven by US science and technology multinational Du Pont and put together by the Economist Intelligence Unit, provides a way to assess individual countries on a variety of indicators, including food consumption as a share of household expenditure, agriculture infrastructure and food safety. It will be adjusted regularly to reflect food-price changes.
The index provides a means of measuring food security country by country. One can only hope that the low rankings of most African states will shame their governments into applying themselves to developing the agriculture sector. The index is intended to help political leaders understand the issues better and see where areas of policy intervention may be most useful.
Several of the countries near the bottom of the rankings, such as Mozambique, Ethiopia and Rwanda, will be among the fastest-growing economies in the world soon. Ethiopia, despite its poor human rights record, has been proactive in developing its agriculture sector and Rwanda is also improving agricultural output.
But in most African countries, leaders often pay lip service to agriculture, despite the fact the sector accounts for about 90% of economic activity. Food security is high on the list of global priorities as the world faces the reality of having 7-billion mouths — and counting — to feed. In Africa, with high population growth and urbanisation rates, many farmers are using the same farming techniques they used 100 years ago. Productivity and yields are low, and produce is wasted because of poor rural infrastructure.
Only a handful of African governments that signed up to the Comprehensive African Agricultural Development Programme in 2003, which was designed to achieve food security by 2015, have met their commitments to spend at least 10% of their annual budgets on agriculture. Nearly 30 countries spend less than 5%.
Over the past decade, global food prices rose twice as fast as inflation and food-price spikes in 2008 pushed 44-million people into poverty, according to the World Bank. Most of these are likely to be in Africa. It is estimated that more than $50bn a year is spent on food imports by a continent that has shifted from being a net exporter of agricultural products in the 1960s to a net importer. And yet fertile land is one of Africa’s greatest resources.
Good leadership, high investment in the sector and constant policy innovation have been the hallmarks of many Asian agricultural revolutions. In Africa, there has been a tendency to look for quick-fix solutions to the problems of agriculture rather than sustainable solutions. Food aid continues to pour into Africa, further undermining agriculture development.
Despite greater commercial development over the past few years due to mostly private-sector investment, agriculture remains the poor cousin of African development. It bears the brunt of poor operating environments and weak macroeconomic policy. It is also the victim of political exploitation and urban drift. The elites who make policy are focused on the urban opportunities. Rural populations are generally left to fend for themselves.
Companies such as Du Pont are looking at innovation to solve agricultural problems in emerging markets, but that is no substitute for political leadership. The geopolitics of food is now a global priority, and collaboration between the private and public sectors to address the issues is more urgent than ever.
As Africa’s politicians expend time and energy on finding ways to extract more revenue from mining, most are ignoring a much bigger resource that could, if managed properly, make Africa very rich. • Games is CEO of Africa At Work, an African business consultancy.
AS IF more evidence was needed of Nigeria’s attraction as a major consumer market, the opening of the new Shoprite store in the capital, Abuja, a fortnight ago was an unprecedented success. Shoppers told me amid the crush that the prices were much lower than the local markets and they relished the choice of goods.
More than 15000 people visited the store on the first day and the company described it as the best opening to date in Nigeria. Similarly, last year said its first Nigerian store, in the Ikeja City Mall in Lagos, enjoyed the second-best opening in turnover terms in the group’s history.
A number of South African retailers, including Pep Stores and , are expected to join the ranks of other local brands, such as Woolworths, Mr Price and Truworths, in setting up shop in Nigeria, although Pep, with plans for 50 stores, has opted for a street retail model rather than the malls because of high rentals.
The new Shoprite is located in the Grand Towers Abuja Mall, developed by SA-based Novare Equity Partners with its Nigerian partners. Once it is fully occupied, the centre will have 44 shops and restaurants, with the usual mix of local and international retailers, restaurants, pharmacies, cellphone companies and banks.
Abuja is one of Nigeria’s fastest-growing cities, with a relatively large and rapidly growing middle class of public servants, diplomats and others with average incomes higher than those elsewhere in the country.
The Abuja supermarket is Shoprite’s fifth store in Nigeria, where investors are clamouring for opportunities in the fast-moving consumer goods sector and customers with rising incomes are ready to part with their money. It’s a match made in heaven.
Coincidentally, on the same day as the mall launch, I also attended a dynamic presentation at the Lagos Business School on the Nigerian consumer market. Research, we were told, has found that the growing middle class has about 40-million people. That is almost the size of SA’s total population and more than the populations of most African countries.
The fast-moving consumer goods sector grew by 17,9% last year compared with 2010, with the food segment contributing more than half of that market. Telecommunications accounted for 29,3% last year.
Aspiration for top-end labels is a key factor in Nigerian retail, driven by a desire for status and exposure to international brands. Nigeria has more than 45-million internet users, making it the 11th-most “connected” country.
The experts predict 1000% growth in per capita retail sales by 2016, with very high growth in restaurants and bars as well as kiosks over the next five years. Modern retail is expected to grow by 25% over the period, from about 145 outlets to about 500. At the same time, banking and payment systems are destined to become more efficient, particularly with the growth of cellphone banking.
Despite this explosive growth, analysts seem to believe it will take about 10 years for Nigeria’s formal retail sector to resemble SA’s because of strong competition from other forms of shopping, such as markets.
There is also the question of rising poverty in Nigeria, where more than 80-million people are regarded as poor and living a subsistence existence. Incomes are also expected to be affected by government reforms in the fuel and power sector, where the rising cost of services is a byproduct of making the economy more efficient.
Other constraints to growth include the high cost of finance, difficulty in securing land, the poor operating environment for local industry, as well as government-imposed import bans and supply-chain challenges related to infrastructure deficits and stifling bureaucracy.
One often hears that the way to stimulate an economy is to pick winners by exploiting natural competitive advantage. In this case, the Nigerian government has a clear winner in plain sight and what it needs to do is remove the aforementioned obstacles to its further growth — in some cases by getting out of the way.
AT A dinner in Johannesburg a few weeks ago, hosted by the South African chapter of the Nigerians in Diaspora Organisation, former presidents and Olusegun Obasanjo recalled the early days of the Nigeria-SA relationship that goes back to the 1960s. The two men are seen as representing the “golden age” of the relationship. Obasanjo reminded the audience that Nigerian public servants had a percentage of their salaries docked for SA’s liberation struggle and provided thousands of scholarships for black South Africans to study in Nigeria. SA regarded Nigeria as one of the frontline states in the fight against apartheid, along with the countries in southern Africa.
They highlighted the importance of a strong relationship between the two pivotal states for the stability and prosperity of the continent.
Their remarks followed the deliberations of the first SA-Nigeria Binational Commission meeting in four years, held in May, where frank but cordial discussions were held to strengthen bilateral relations and to address the procedural “irritants” that led to the public fallout between the countries earlier this year.
A meeting in Lagos earlier this month attended by high-level diplomats, foreign affairs officials, academics and business people looked back at the history between the countries to see how resentments have developed and how they can be addressed. Political rivalries around leadership roles were discussed at length. The contest for a permanent African seat on the United Nations Security Council was largely dismissed on the basis that no such seat yet exists. But it was less easy to dismiss SA’s bid for the African Union (AU) Commission c hairmanship, especially with the second round of voting on the two candidates for the seat — and Gabon’s Jean Ping — scheduled for the AU summit next month. There is no doubt the relationship is at a crossroads. The timing of SA’s AU bid could not be worse.
Nigeria is adamant about its support for the informal convention that precludes five big states in Africa — SA, Nigeria, Egypt, Libya and Algeria — from standing for key AU positions. Clearly it also believed SA supported it too — until recently.
SA argues it has been nominated by southern Africa to stand for the position and it is not acting unilaterally. The country says its actions are not illegal. And they aren’t. But, as an international diplomat at last weekend’s meeting asked: “It’s not illegal, but is it wise?” Nigeria has made it clear that it intends to abide by the convention. This means it will support Gabon in the AU vote.
The issue needs to be handled carefully by the diplomats as it may be another thorn in the side of the fragile relationship, however the vote goes. Nigeria’s disapproval of SA’s bid for political influence at any cost and SA’s disappointment about Nigeria’s inflexible position will have consequences. It has the potential to damage trust.
I believe the AU needs all the help it can get and there is no doubt that the big states would bring more credibility and capability to the organisation. But this would require finding a way to work together rather than ending up in divisive rivalry over issues of little concern to most Africans.
If SA wins the vote, it is likely to be a hollow victory. It might compromise important partnerships on a continent where the country’s seriousness about its African agenda is already in question. If it loses, Nigeria will probably be blamed and negative sentiment towards that country could spread beyond SA into the southern region. SA could use its influence more strategically by helping to find another southern candidate for the position.
Whether the informal convention on big states’ participation in key roles serves the continent well is an issue that needs to be discussed — but not in an atmosphere of hostility and brinkmanship.
What is really driving SA in this? Could it be that it needs to prove to its partners in the Group of 20 and Brics that it has the leadership and influence in Africa they assume it already has?
THE skyline of Addis Ababa is a sea of high-rise construction projects that stand alongside the new buildings and hotels that dot the city centre. They are rapidly squeezing out the shanties and informal shops that crammed the city when I last visited it nearly a decade ago. The herds of goats that used to roam the streets of the city quite freely are now herded onto rickety pavements to avoid the traffic nightmare that snarls up the streets from dawn to dusk.
Addis symbolises the high growth rates Ethiopia has experienced over a decade and there is no doubt the country is an attractive investment proposition. With the second-biggest population in Africa at 85-million people, it typifies the type of market the myriad reports extolling Africa’s rising consumer markets talk about.
Global drinks company Diageo recently won the bid for a privatised brewery against some of its biggest international competitors — Heineken and .
The experts are predicting growth of 5,5% this year. The government is much more bullish. Its five-year growth plan has built in average real growth of at least 11% a year up to 2015. Prime Minister Meles Zenawi basked in the glow of his economic achievements when about 700 visitors flocked to Addis Ababa for the recent World Economic Forum (WEF) meeting held at the Sheraton Hotel, once an island of luxury in an otherwise impoverished city but now being joined by other big-ticket hotel names, such as Radisson Blu.
The service sector is the biggest driver of growth. The country is Africa’s bureaucratic hub, with a chunk of its services industries driven by business generated by the African Union (AU) and United Nations agencies, which have their headquarters there. As the political talk-shop headquarters of Africa, Addis Ababa in particular benefits from a considerable sums of African taxpayers’ money as the great and the good congregate in Addis Ababa to pontificate on the continent’s problems.
Zenawi has been busy. After years of Ethiopia being seen as a poverty-stricken land in a dangerous neighbourhood, he has driven economic restructuring, highlighting the benefits of inclusive growth. Last year, the WEF global competitiveness rankings put Ethiopia at 106, up from 119 in 2010 based on its strengthened institutions, labour market, macroeconomic environment and market size. Zenawi’s ambitious infrastructure programmes swallowed 59% of government spending last year. Zenawi has also prioritised agriculture development and voiced his determination to make Ethiopia self-sufficient in food.
Ethiopia spends 14% of its budget on agriculture — higher than the 10% the AU is pushing all African governments to spend on this key sector.
Zenawi came off well at the WEF event and at others where I have heard him speak. He is articulate, considered and engaged. Then again, he has had nearly 21 years in power to fine-tune his performance. His strong focus on development may set him apart from other African leaders who have overstayed their welcome — but his political practices do not.
He has little stomach for freedom of speech and has jailed thousands of journalists and political opponents. In the 2005 election, nearly 200 demonstrators were killed and at least 30000 people were detained. In 2010, with political opposition severely weakened, he won by a landslide. He relies on ethnic divisions to maintain his grip on power. Sound familiar?
The internet infrastructure is state-owned and the government blocks opposition websites and independent news sites reporting on the country.
More than 1-million Ethiopians live abroad and the country benefits from nearly $1bn a year in remittances, but a lack of trust in the government has undermined the success of using remittance bonds to fund new infrastructure. Zenawi’s style has become known as “developmental authoritarianism”. He scoffs at the suggestion that growth requires democracy and models himself on Asian leaders who have built successful economies while curbing political freedoms.
A looming problem is potentially the 30-million young people who make up Ethiopia’s population. As the continent changes, will they continue to accept the violation of their freedoms? Zenawi is clearly banking on the fact that they will, as long as he can create jobs at a fast enough rate to dilute this potential threat to his political survival.
TALK about investing in other African countries is a hot topic in South African boardrooms but even as companies start to think more seriously about opportunities in their hinterland, most of Francophone Africa is still a bridge too far for most.
The recent coups d’état in Mali, and in Portuguese-speaking Guinea Bissau, which is sandwiched between two Francophone countries, have not provided any comfort to businesses concerned about the risks of doing business in countries outside Anglophone Africa beyond those with strong links to southern Africa.
Military takeovers are nothing new in West and Central Africa, where most Francophone countries are located, although English-speaking countries in West Africa have contributed their fair share of coups d’état during the post-independence period.
Burkina Faso’s president, Blaise Campoare, who came to power back in 1987 through the barrel of a gun, is, ironically, a key player in trying to find a solution to the political crises resulting from the military overthrow of two of his regional counterparts.
SA’s mining giants, Randgold Resources and AngloGold Ashanti, are the biggest South African companies operating in Mali but there is little business interest in Guinea Bissau, despite the fact that we have a diplomatic mission there. Political turmoil in this tiny, poor country has held back investment, despite its location in a rich resources belt.
Language is also a key factor keeping South African companies back, alongside the different legal systems and business cultures that are part of the fabric of Francophone countries. There is also a lack of knowledge about opportunities and the overall environment in these countries.
Mostly as a result of persistent conflicts, the Francophone countries remain largely undeveloped, with exceptions such as Senegal and Cote d’Ivoire. Trading in these countries is also difficult, with complex regulatory environments, tortuous bureaucracy, a lack of adherence to due process and an obsession with politics that is more pronounced that in Anglophone countries, according to those who have done business in both regions.
The strong hold of France on politics and business in former African colonies has also been a factor in keeping South Africans and investors from many other countries out of these markets. France has been strategic in keeping its colonies close, and political developments in Europe have been almost as important to the fortunes of Francophone countries as events in the countries themselves. The CFA franc, the currency used in 14 French-speaking African countries, is an enduring symbol of colonialism. It was pegged to the French franc from 1948 and is now at parity with the euro — although this also offers currency stability across a big region.
Growth in the West African Economic and Monetary Union is predicted to reach 7% this year and although protracted crises in the region may reduce this number, there are large untapped markets across French-speaking Africa, which spans nearly 25 countries. As these markets mature, consumers are becoming defined less by national borders than by age, income and other measures.
A huge resource base, notably oil and gas, gold, bauxite and iron ore, has some of the world’s biggest mining investors streaming to countries such as Guinea, Gabon, Equatorial Guinea, Cote d’Ivoire and even Chad, which many regard as Africa’s most difficult market. The size of these investments is generating increased economic activity and spin-offs into the wider economies of these mostly underdeveloped countries.
There is no doubt that a strong stomach is still required for investment in most of these countries, where reform of the regulatory and business environments has been slow, where SA has limited influence, and where language presents an added barrier.
But as competition for business increases across Africa, Francophone countries present a good future opportunity and still offer advantages of being first to market