People perceive risk in Africa as greater than it actually is
Lots of talk and intention, but unless Africa can pare down the risk factors that keep investors in the region on edge, transformational growth will take longer to achieve, experts said at the World Economic Forum on Africa.
Political leaders were at pains to reassure that the region is working on reducing its risk perception to private investors scouting for opportunities, especially in meeting the continent’s huge infrastructure deficit.
The demand for economic growth to alleviate local poverty was so big that there was “no room not to address the risk concerns of investors”, said South African President Jacob Zuma.
“Commitment from African leaders has never been so strong as it is now. We are giving political confidence to investors, our people are demanding growth, and the opportunities in Africa are huge,” he said, adding that public-private financing was a win-win situation for all.
Analysts project that the continent needs at least $100-billion a year to meet its substantial infrastructural needs.
“Africa could grow by an extra 2% if this [risk] bottleneck was addressed,” said former United Kingdom prime minister Gordon Brown. He said private investors were looking for a demonstration of commercial value and risk mitigation.
“There is a surplus of savings in other regions, and interest rates are generally lower, so we must build the opportunity in Africa,” said Brown.
“People perceive risk in Africa as greater than it actually is, but the narrative is changing.”
Potential investors often cite high political risk, excessive regulations and inefficiencies as among the greatest deterrents to funding public projects.
But project financing in Africa was actually safer than commercial lending, due to rigid feasibility studies, said former Standard Chartered Plc’s head of Europe, Middle East, Africa and Americas, Viswanathan Shankar
“We must make it easier for investors to get [in]to Africa, and engage,” he said.
A major attraction for private investors was the structuring of projects, said Patrick Dlamini, chief executive of the Development Bank of Southern Africa.
“Private investors want to see crystallisation of a project — how viable is it? How has the risk been mitigated? We cannot afford to have white elephants in Africa.
“There is enough money, all investors need is to see how well-prepared and well-structured a project is.”
Risk guarantors were ready to make African projects more attractive said the vice-president of the Multilateral Investment Risk Agency Keiko Honda, noting that “slicing risk” by various players was necessary.
“There is a lack of infrastructure, yes, but this should be seen as an opportunity by private investors,” she said.
Concerns around governance and security were also being addressed by African leaders said Zuma, as the continent sought to make itself more “user-friendly” for investors.
Infrastructure is seen as key to radically changing Africa’s fortunes, even as another panel said that the region has a once-in-a-generation chance to end poverty as a new post-Millennium Development Goals (MDG) order takes shape. But financing the plan to be presented before heads of state in September remains a major challenge, experts said.
The United Nations is currently developing the Sustainable Development Goals (SDGs) that will guide international development over the next 15 years, succeeding the MDGs that expire this year.
While the MDGs in theory applied to all countries, in reality, they were considered targets for poor countries to achieve, with finance from wealthy states. But this time, every country will be expected to work towards achieving the SDGs.
“The SDGs reinforce, buttress and give attention to Africa, making [their] ownership even more important,” said renown Nigerian economist Ngozi Okonjo-Iweala.
But the SDGs need clarity on how they would be financed to avoid the funding issue that plagued the MDGs, the panel said.
The Africa-focused development community will meet next month in Addis Ababa for a key summit to chart out how to finance the continent’s development, with donors talking of a shift from “billions” to “trillions” worth of investment in infrastructure.
That meeting should explore ways of building Africa’s increased ability to finance its own growth, Okonjo-Iweala said, with pledged international assistance being channelled towards areas that help increase tax revenue, such as tax reforms.
“We should double international assistance targeted towards building our own capacity,” said Okonjo-Iweala, who is also Nigeria’s outgoing finance minister. This would also help keep scarce resources in Africa, with at least $50-billion lost in illicit cash outflow from the continent each year, according to a recent research by a UN-mandated study group.
Bringing Africa’s private players into the SDGs and reducing their risk was crucial, as they had the needed liquidity in a world where the financing architecture has greatly changed in recent years, the panel concluded.