NABA Summit Summary: Plenary session II – Infrastructure and financing opportunities in Africa
Panel Discussion: Africa’s infrastructure deficit equals opportunities
The topic of this panel debate was the opportunities that the African Infrastructure deficit opens up for, and how companies can tap into this.The moderator, Mr. Mark Eddo asked Ms. Helen Hai to share some of her experiences with setting up a manufacturing company for shoes in Ethiopia. Ms. Hai explained that soon after she set up her shoe manufacturing business in Ethiopia, Helen learned that investing in Africa is less about business and more about development. The focus on job creation was emphasised by the minister of industry in Ethiopia to Ms. Hai and she decided to make this a central part of her business. Helen also drew parallels between the development in China over the last 10 years, and the potential for growth in Africa if its leaders focus on the important things, like job creation.This stance was supported by Sir Collier who went on to say that business has changed in Africa over the last decades; what used to be called doing business is now termed rent seeking, and it is illegal. According to him, what we are seeing in Africa is a shift from this old style of rent seeking to the conventional business style of just being competitive. Innovation and entrepreneurship in Africa will eliminate poverty.
The environment for doing large infrastructure projects is improving
– Mr. Mark Davies, NorfundMark Davis from the Norwegian private equity firm also shared sir. Colliers belief that the business environment in Africa is changing. Electricity is becoming a bigger priority among african governments. It is a key constraint to growth. This is sinking in across the continent. Several African top politicians are really trying to give their citizens access to energy without resorting to corruption.
South African government has done a great job in de-risking the environment for infrastructure investments
– Mr. Alhaji Sani Dangote, Dangote GroupMark Eddo introduced the Nigerian Dangote Group which has been successful due to its willingness to invest in new products and sectors that others were not willing to enter into. The Dangote group has been trading in flour, sugar, cement, oil and gas. According to Mr. Alhaji Sani Dangote, the Group’s Vice President, there are great opportunities in Nigeria for those willing to consider new opportunities. The Dangote group focuses on the producers and suppliers to make sure they benefit and grow.
We believe that until you can bring in the private industry it will be hard to alleviate poverty
– Mr. James Mworia, Centum InvestmentsJames Mworia highlighted the great opportunities that lie in African infrastructure. Investing in Africa is good business as the return rates are very high, around 30 %. Investing in Africa is an executive game: are you able to execute the opportunities that are presented.Further, demand in Africa is based on real consumer demand. There are about 50 cities in Africa with a population above 1 million. Unfortunately, there have been very little infrastructure investments in these countries, even in transport communication. This represents great opportunities for those who are interested. There is definitely room for private players, not just public.
Africa is misperceived on the risk front
– Sir Paul Collier, Centre for the Study of African Economies, Oxford UniversityCollier claimed that “Russia is Africa plus risk”. There is a significant personal risk if a relationship goes sour when doing business in Russia. This is not the case in Africa.There are millions of dollars to earn from getting urbanisation right. Example: build buildings of several storeys with offices for businesses on the first floor. The danger is if Africa continues urbanising the way it is today. The cities will then end up looking like donuts – with a huge donut of slums in the middle. If you get the urbanisation and city planning right the cities will look like pyramids: high buildings in the middle. The private sector can drive this development.Ms. Helen Hai has supported the government of Ethiopia in finding businesses that are interested in investing in Ethiopia’s first Industrial centre. She has noticed that the business cultures in Europe and China are very different; the chinese are willing to jump at an opportunity, not study it at length from outside like in Europe.
You see a tiger in front of you – you jump on the tiger!
- Ms. Helen Hai, China Africa ConsultingMr. Alhaji emphasized the importance of bringing together parastatals like the customs and excise and immigration services so that they see investors and their needs in order to create a good environment for companies investing in Africa.Helen told a similiar story of trying to import a machine to make holes in leather shoes: she had to bring in people from customs and excise to inform them of who she is and her company’s business in Ethiopia.When asked if she could comment of the claims than Chinese investments are not only positive for Africa’s development, Helen Hai suggested that instead of asking the western media how they feel about Chinese investments in Africa, one should ask the African governments that do business with chinese investors. How do they feel? That is what matters. 
Panel Discussion: Financing infrastructure
This session’s moderator, Mr. Jolyon Ford, asked how the situation is today and what needs to happen for funding to be available for such projects.Mr. Jyrki Koskelo, Head of Strategy at Atlas Mara Group, outlined some of the changes that affect infrastructure development in Africa. He stated that there is an ongoing transition away from the public sector towards the private sector with regards to the funding of infrastructure projects. According to Jyrki, Norway is one of the few countries that recognizes that the private sector is key to development while other European banks are retreating. As European banks retreat, there will be less money available for investment in Africa. Europe used to account for 85% of investment in Africa. Mr. jyrki stated that money for investments must to come from capital markets.Mr. Jyrki stressed the need to address what he terms “the mega issues”: Firstly, there is a lack of bankable projects and this results in the prices going up to much because there are too many actors that are willing to invest in the few viable projects. Local financial markets should create more bankable projects. Secondly, regulatory framework needs to be consistent. He believes that if a lot of money would start coming in, the interest rates would slowly start to go down.In terms of development: This task will be fulfilled by Africans themselves as they have the relevant knowledge to build this continent. We have to find ways to support them and work together with them.
What type of tool can you create so that the Norwegian sovereign wealth fund will start investing in Africa?
- Jyrgi Koskelo challenging NorwayWhen asked about the state of Sub Saharan investment funds on the African continent, Mr. Charles Boamah, the Vice President of Finance at the African Development Bank, stated that there are a few but that none of them are of any significant size. He said that he does not worry about borrowing money to invest in infrastructure, as he is more concerned on what the money is spent on. Investing in infrastructure will result in jobs and thus economic growth.Boamah on the need for innovative thinking on the topic of financing infrastructure development: “Conventional approaches are not working fast enough”Jolyon Ford asked if there is a risk that there will be a new debt crisis as African governments are investing and borrowing so much money for infrastructure. Mr. James Mworia answered that he was not worried about a debt crisis as private actors are taking part of the risk and government are not providing sovereign guarantees. Private capital will reduce the risk of debt problems. The level of debt is at a low level and the economies have grown considerably over the last 10 years.Jolyon Ford, the moderator and also Associate Fellow at Chatham House, agreed that private partnerships need stronger regulatory frameworks, plus you need a capable government to set up PPPs.Fredrik Lindblom, partner at DLA Piper, went on to say that although it appears that the term “PPP” has become the magical word which will solve everything, you will not see infrastructure projects working without institutional investors creating structural regulatory chance. Mr. Lindblom argued that there is a lack of capacity on the base of government, for instance, there are no standard solutions when building airports, hospitals etc. In addition, people are not adequately trained. We need people from governments in Africa to deliver the security for investments.
There are a lot of opportunities for smaller projects
- Mr. James Mworia, Centum InvestmentsMr. James Mworia, CEO Centum Investments, disagreed with Lindblom’s remarks regarding the need for regulatory reform. He argued that the current regulatory framework is adequately mature as it is. The first PPP came into place in 1995. Today there has not been a single default on any single one of them, and this proves that the framework is mature enough. Practice proves to disagree with the opinion that the framework is not mature enough. The regulatory framework differs from country to country in Africa. There are measures and institutions available to reduce financial risk when investing in African Infrastructure. This takes away some of the perceived political and financial risk.Furthermore, there are PPAs that exist and players can plug in. The absence of infrastructure creates opportunities. For instance, access to water from the tap is almost non-existent. There are opportunities to build water infrastucture.Jolyon Ford asked the panelists what they think of the new BRIC bank players?Mworia stated that we see a lot of appetite with private players to invest in Africa, i.e. Brazil and China. For Russia, however, the barriers to access Africa are higher.
Infrastructure deficit is not only an African issue
- Fredrik Lindblom, DLA PiperWhen asked how Norwegian actors can support the African industrial development in a win-win concept, Mr. Lindblom claimed that an actor like NORFUND is a risk investor, and that its investments are not just about money, but also on how to deal with projects. Such players are vital. A pension fund/institutional investor will not be able to invest on the operation stage as this is too risky for such a player. Substantial regulatory change will be necessary for institutional partners to get involved. And they should get involved and play a larger role in the future. But they are not able to this at the moment. This will not take place until some time in the future.No standard PPP contract will be able to work with all different business ventures/sector and investors.
Summary by Johanne Walthinsen