Refocusing Investment: the African Diaspora Africa can take advantage of its status as an increasingly attractive location for foreign investment by encouraging its diaspora community. Long-term equity investors are often faced with a level of uncertainty and a series of questions about where best to invest capital for future growth. Which countries are showing signs of promise? Which sectors are poised to provide the greatest returns? As the economic climate in Europe and the US remains gloomy, investors are increasingly looking further afield to rapidly growing markets like Africa to deliver the high rates of returns to which they became accustomed during the boom years. A period of growth Natural resource wealth combined with strong demographic growth and improving geopolitical stability have all contributed to significant long-term investment opportunities in Africa. McKinsey reports that in 2008, African households spent $860 billion which exceeded household spending in both India and Russia. If the GDP growth rate in Africa remains at its current level of 5% to 6% per annum, McKinsey projects $1.4 trillion in household spending by 2020 and estimates that over half of households will have discretionary spending power. This forecast supports the thesis that growth in consumer-facing sectors will accelerate. As such, Africa’s consumer markets reveal attractive investment opportunities in a variety of sectors including telecommunications, banking, infrastructure, construction and consumer goods and services. Africa’s demographics, particularly the burgeoning size of Africa’s middle class establish a compelling argument for investing in the continent. Fears abound, however, that in the event of Western economies regaining a strong footing with higher rates of return for productive investments, these inward flows to Africa could reverse. In light of this, encouraging committed diaspora investment, which is less likely to be footloose and more likely to be interested in social impact, takes on added importance. Bringing skills, sending remittances For Africa’s economic development to continue, it is essential to fully capitalise on the skills and resources held by the African diaspora community. Many have been educated in world-leading academic institutions and gone on to gain top-class experience in relevant industries. Much like the Indian growth story of the last few decades, members of the African diaspora are returning home with the education, skills and talent which they amassed abroad. Aside from repatriating to the continent, members of the diaspora are also contributing to the African growth story through direct investment in the shape of remittance flows sent to family and friends. According to figures from the World Bank, annual remittance flows to the continent are in excess of $40billion and are growing at 10-15% year on year. In addition to this, there is an estimated $35 billion of annual savings held by the African diaspora. There is thus a large community of successful Africans that are contributing to African development both through repatriating to the continent to apply the skills which they acquired elsewhere and through direct remittances. Paving the way Despite the vast sums of money flowing back to Africa every year, there has until very recently been a lack of organised and transparent means for members of the diaspora to invest their money in a meaningful way whilst still benefitting from the returns made in the institutional asset management space. With many non-resident Africans able to invest substantial sums of money, mechanisms were needed so this money can be put to work in a measured way. To date, there has been little opportunity for investors to invest directly in locally-developed projects such as improvements in infrastructure, development of local broadband services, local capital markets and private equity. It is argued that government bonds are one way that non-residents are able to invest, especially in much needed infrastructure (power, transport and telecommunications). Government bonds, however effective in providing access to large-scale transformative projects (for example, Kenyas 12-year Infrastructure Bond paying 16% yield), do not offer direct access to development projects run by local companies. What African nations, and both resident and diaspora Africans need, is a way of enabling direct investments in projects which help strengthen the economy, have a developmental impact on the community and increase Africa’s standing as a high-growth investment destination. As well as facilitating direct investment into the continent from members of the diaspora who want to invest in their homeland in both profitable and impactful ways, resident Africans must take more aggressive measures in embracing African repatriates and positively incorporating them into the political and business classes. Cases in point There is a vast of pool of talent, experience and potential residing in the African repatriate community which remains largely untapped by the African continent itself. When this potential is recognised, it produces huge benefits for the economy at large. Below are some examples of these successful figureheads from the African repatriate community: Ngozi Okonjo-Iweala is a Nigerian-born Harvard and MIT-educated former World Bank Managing Director who worked in development. She recently returned to Nigeria as the new Minister of Finance. Prior to her appointment as Managing Director of the World Bank, Dr. Okonjo-Iweala also held the position of a Finance Minister and Foreign Minister of Nigeria. She is notable for being the first woman to hold either of those positions. Throughout her career, Dr. Okonjo-Iweala has worked to combat corruption, make Nigerias finances more transparent, and institute reforms to make the nations economy more hospitable to foreign investment. Ken Ofori-Atta, born and schooled in Ghana, studied at Columbia University and worked at Morgan Stanley and Salomon Brothers in New York in their Corporate Finance and M&A Groups before returning home to found Databank Financial Services Limited, one of Ghanas leading full service investment banking and asset management firm established in 1990. Databank was the first to introduce foreign investors to the Ghanaian stock market, the first to successfully arrange a merger on the Ghana Stock Exchange, and also launched the first mutual funds in Ghana. With Ken Ofori-Atta’s steer, and using the skills that were honed at the Ivy League and in Wall Street, Databank has democratised access to local capital markets for all Ghanaians. Alex-Handrah Aimé, with a degree in biochemistry from Harvard College, a Joint Degree with distinction from Stanford Law School and a MBA from the Stanford Graduate School of Business, moved to Johannesburg to head up the South Africa office of Emerging Capital Partners, a leading PE manager focusing exclusively on Africa. Prior to joining ECP in 2008, Alex-Handrah Aimé worked in the European Special Situations Group at Goldman Sachs, London, where she focused on sub-Saharan Africa proprietary trading investment opportunities. If we build it, they will come In conclusion, increasing degrees of democratisation and urbanisation in developing a consumer-oriented market, strong demographics, rising investment in infrastructure, and improving corporate governance and regulation, all bode well for the continued growth of Africa’ s investment story. However, in order to truly capitalise on all of these factors, Africans and their policy makers must take care not to overlook the power and influence of the African diaspora community and take bolder steps in welcoming these members, encouraging more efficient systems to make direct investment possible as well as embracing the repatriates into the political and businesses classes. Think Africa Press welcomes inquiries regarding the republication of its articles. If you would like to republish this or any other article for re-print, syndication or educational purposes, please contact: editor@thinkafricapress
Posted on: Thu, 20 Mar 2014 04:46:14 +0000
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