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Investment risks in Africa are a myth
January 28, 2013, 6:29 am

The world gathered in Davos, Switzerland this past week, for the World Economic Forum 2013 annual meeting.

South Africa was well-represented at the Forum by government and the private sector, and together we set out to market our beautiful country which has so many positive attributes.

While the audiences were warmly receptive to our message, we could not help but notice the subconscious prejudice against our beautiful continent, although this may have been unintended.

For example, the first session I participated in, was a panel discussion entitled; “De-risking Africa; What are African leaders doing to mitigate investment risks?”

This means Africa is still considered as an investment risk!

Fortunately fellow panelists and the audience agreed that viewing Africa as a risk was an erroneous exaggeration. Doing business can be a risk in any part of the world as recent developments in the developed North have indicated.

The reality is that Africa is becoming a remarkable success story. In 2010, six of the world’s ten fastest growing economies were in Africa, and seven African countries are expected to be in the top 10 over the next five years.

Africa’s output is expected to expand by 50 per cent by 2015. Africa’s GDP per capita stood at US $1,630 in 2010.

It is expected to increase to US $2,200 by 2015, at a real annual growth rate of 5.7 per cent, resulting in a 30 per cent rise in the continent’s spending power.

Africa’s consumer sectors – goods, telecom and banking, amongst others – present the largest opportunity and are already growing two to three times faster than those countries belonging to the OECD.

The rate of return on foreign investment in Africa is higher than in any other region in the world. This is not surprising given the competitive edge of the continent.

Africa’s advantages include its extraordinary mineral wealth and agricultural potential. It has a young working population and a growing middle class with considerable and growing purchasing power.

Almost each African country has been working hard, introducing wide-ranging measures that improve the climate for investment – both foreign and domestic.

Currently we encourage foreign investment in the massive infrastructure programme that we have embarked upon in Africa.

This includes the programme for Infrastructure Development in Africa and the Presidential Infrastructure Champions Initiative, with the flagship programme being the North-South Corridor, which South Africa has the honour to champion.

Domestically in South Africa, we have an infrastructure programme in place that will cost at least four trillion rand in the next 15 years. The continent is growing and is on the move.

Under the auspices of the AU we have launched an ambitious programme towards continental integration. As a first step, we have made considerable progress in the Tripartite Initiative that draws together countries of Eastern and Southern Africa.

By 2015 we expect to establish a free trade area amongst these countries, combining the markets of 26 countries with a population of nearly 600 million people and a combined GDP of US $1 trillion.

Importantly, this will form the basis for an Africa-wide Free Trade Area, which could create a single market of US $2.6 trillion.

It is important to emphasise that the so-called “risks” in investing Africa are often more perception than reality.

When Moody’s analysed the performance of 20 years of project finance loans, accounting for about 45 per cent of all projects financed since 1983, they found that only one project out of 92 in Africa had defaulted.

Estimates from the African Development Bank suggest that companies participating in infrastructure investments in Africa can earn commercial rates of return from 5 to 10 per cent in the water sector, 17 to 25 per cent in the power sector and 25 to 30 per cent in telecoms. Across sectors, infrastructure investments average returns of between 15 and 20 per cent.

In fact, returns on foreign investment in African infrastructure are higher than in any other developing region. African independent power projects, for example, have earned their investors internal rates of return of up to 25 per cent, compared with 15 per cent in Latin America and 12 per cent in Eastern Europe.

There is a lot more that is happening in the continent, for example the many conflict resolution and peacemaking missions.

Africa must systematically share its positive stories and deal with these negative perceptions and stereotyping.

Sadly, in many of the foreign forums that we participate in, some of the people who are most critical and negative about Africa, at times, tend to be Africans. North Americans or Europeans are battling economically currently but when their nationals speak anywhere in the world, they talk positively in a manner that says the problems are being solved.

We definitely need a new mindset in Africa and also in South Africa, a renewed patriotism and love of the continent and its people. I agreed to a suggestion by the South African business delegation at a meeting with South African business in Davos, that there should be a government-business lekgotla soon to tackle all issues relating to promoting economic development. At this session we will be able to work out a programme of the implementation of the NDP and discuss other major programmes of government.

The meeting will also assist to iron out any possible misconceptions.

Our country needs such an intensive dialogue.

From the 26-28 January, we are gathered in Addis Ababa, Ethiopia for the 20th Ordinary Session of the Assembly of Heads of State and Government of the African Union. The summit, taking place in the 50th year of the Organisation for African Unity, provides an opportunity to re-assert Africa’s position in the world.

We are proud of being part of this continent and will continue playing our role in its development and positioning in world affairs.

From Davos to Addis Ababa, we communicate one message, that Africa is rising and is a continent of hope. Africa has a bright future.

This article appeared in the South African Government website

The views expressed in this article are the author's own and do not necessarily reflect the publisher's editorial policy.