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The African Tiger- Africa’s Evolving Investment Landscape
In 2000, The Economist ran an editorial focusing on Africa entitled ‘The Hopeless Continent’. Twelve years later in 2012, the publication revisited the topic- this time the editorial read ‘Africa Rising’. With some of the fastest growing economies in the world and a land rich with resources, Africa is no longer broken but open for business. As the region attracts more attention and investment, BritCham- CBBC invited a series of experts to share their knowledge on the opportunities in the region and its growing relationship with China. Kobus Van Der Wath from The Beijing Axis gave a rundown of the Sino-Africa relationship twelve years after the first Forum on China-Africa Cooperation and gave insights into how their relationship has evolved over the years. Milton Osborne, Partner at law firm Norton Rose, Beijing, drew on the key information businesses need to know before entering the continent, and finally, Economist Ding Yonghua drew on his wealth of experience in the region to give a practical account of challenges and opportunities.
An Evolving Region
Africa is continent under dramatic change, increasing political stability and availability of technology means that its people are becoming empowered. Its resource boom is contributing to increasing investment, growth of infrastructure and a new distribution of wealth. As the global economy changes, the lines of winners and losers are being redrawn- investors and governments are becoming increasingly interested in Africa which the IMF predicts will be home to at least 7 of the world’s top 10 fastest growing economies in the next decade.
China’s role in Africa has received much attention as well as an increasing amount of scrutiny. China’s growth over the past 20 years has meant a need for resources, of which Africa is an important suppler. Despite media headlines of a new colonial era, the relationship is more of a partnership; Africa has the exports that china needs and Chinese capital is needed in Africa, especially at a time when the developed world is weak. This resource and supply link is the core of the relationship which has led to a proliferation of services and new business ventures. China’s ability to provide finance to Africa has meant it has become a relatively new player in the region and special Chinese economic zones in Africa are driving the commercial phase. China still lags behind the old colonial powers like the UK, France, Spain, and Netherlands for amount of investment in the region, and currently stands as Africa’s 9th largest investor with around 2000 Chinese companies registered (including State Owned Enterprises and private companies). Its investment is concentrated in a few countries like South Africa and the Democratic Republic of the Congo, with mining, lending and commercial services the main drivers. In the next few years China is expected to overtake the Netherlands and ascend to Africa’s biggest investor-the National Development and Reform Commission aims to have USD $150 billion outflow to Africa by 2013.
What Businesses Need to Know
One key message is that businesses should go in with country- specific assistance. The African region cannot be treated as one homogenous entity; its 54 countries have different cultures, histories and legal & political frameworks. It is essential to have people on the ground with local knowledge and be aware of which legal system is followed, how disputes are recognised and the main investor rights & restrictions that are in place. Similarly, as foreign exchange controls exist throughout the region, businesses need to be aware of whether they can get their capital out. Things can change quickly in the region and political transition can affect business deals were are already in place.
Opportunities and Challenges
As a resource rich region with a huge potential market, cheap labour, and good ecological environment there are a range of opportunities and the door is slowly opening for investment. Africa is experiencing an increasing culture of political and legal stability which is giving businesses an increasingly favourable operating environment. However, investors do need to be patient-similar to China’s opening local governments are cautious, but on the whole there are many incentives for business and local government and people are welcoming. The biggest areas of growth and potential in Africa will be in necessities: agriculture, industry, infrastructure and housing- not just resources.
Whilst the opportunities may be obvious, there are of course challenges, but these are similar to those experienced in any developing country and many to those experienced in China. As Africa holds assets that are needed world wide, there will be increasing competition for resources especially as an increasing number of businesses look to enter the region. Transparency issues can be a major headache and different approaches to legislation between government departments often leads to conflicting messages and low efficiency. An area that can be of particular annoyance is purchasing land for development, which can see many stakeholders claiming ownership for the same plot of land. In order to avoid paying multiple parities it is essential to find the correct owner, something which a partner on the ground can assist with. In certain areas infrastructure can be poor or non existent. If there is no municipal electricity or water supply, companies have to make their own arrangements. Security is often a major concern for businesses entering the region, however this is often not as bad as perceived and the overall environment is improving.
Key Messages- Knowledge is Power
Challenges and opportunities will vary depending on the region, sector of investment and local legislation. All of our experts stressed the importance of seeking assistance from those with experience on the ground, carrying out feasibility study and looking into opportunities in development zones that offer incentives. Investment opportunities do not just lie in the resource sector, other areas like agriculture, housing and tourism are also growing. Businesses should enter the region with a give-and-take attitude, those that go in with a short-term view are unlikely to succeed as local governments are increasingly looking for businesses that will add value to the region economically and ecologically.