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Denis Worrall on Africa’s changing business environment

Over the past three or four years and gaining momentum has been a significant change in international business perceptions of Africa.

Denis Worrall

In a way this started with China’s very considerable involvement in Africa some seven or eight years ago. The US and European countries began to take notice. Angela Merkel in particular told Europeans to get involved. The changes have been reflected in a number of key research documents. Standard Chartered, Citibank, Rand Merchant Bank and the auditing companies – notably Ernst & Young – produced reports highlighting the change in perceptions and also reality. Ernst & Young’s 2011 Africa Attractiveness Survey was captioned “It’s time for Africa!” And, of course, late last year The Economist came with its cover-story under the heading “Africa Rising”.

We at Omega Investment Research – because this is our beat – have naturally been aware of these changes, and so in organising our 14th Annual Euro-African trade and investment January series chose as the theme “Africa’s time to rise and shine is now!” And we have not been disappointed. Both the audiences in London and in Munich have validated this theme, as have the presenters – and they have been heavyweights.

Of course, the message is not all positive, and there are rough patches. Chris Hart, a preeminent South African economist, and somebody who is particularly effective in getting his message across to European audiences, spells it out as follows:

  • African countries don’t have the problem many developed economies have that so many people are dependent on government. In other words, the social welfare cost in Africa is not as great as it is in European countries and Japan.
  • The economic base of African countries has changed quite dramatically. They are no longer small economies. Angola, for example, has grown from an $8bn to an $80bn economy. The same is true of other Sub-Saharan African economies.
  • Whereas the solvency of many developed countries is under question, debt levels are much lower in Africa and, surprisingly, fiscal management in many cases has enormously improved.
  • The demographics favour Africa, with its largely young growing populations in contrast to the developed countries with their aging populations.
  • Although far from general, governance levels have nonetheless greatly improved. Successful elections are happening, with change increasingly occurring through the ballot box rather than through violence. Ghana and Zambia are two good examples. Corruption is also being pushed back.
  • Growth in Africa is tending to be a multi-sectorial phenomenon. African economies are no longer just single-commodity dependent economies.

Investec Bank’s Thabo Khojane, presenting in both London and Munich, puts the African growth story like this:

  • As evidenced by compelling growth rates.
  • Resulting from stability, reform, improving governance, rising labour productivity.
  • Africa has an abundance of resources … but not just commodities.
  • Emerging middle-classes are producing demographics favourable to economy development.
  • Strengthening ties with the BRICs; and
  • There are impressive investment case-studies.

The result is that world capital is increasingly taking note. African capital inflows have grown by 400% since 2000 and the rate of return on FDI in Africa is higher than in any other developing countries.

Oliver Griffiths, from the IFC’s office in Paris, presenting in Munich was equally eloquent in spelling out the business opportunities for German companies in Africa.

I said that the progress in Africa was uneven. While there has been dramatic progress there has also been backsliding. And this applies regrettably to South Africa – Africa’s most diverse and developed economy.

Almost at the same time as Omega’s workshops in Europe, the African Mining Indaba took place in Cape Town. This is a yearly event and over the past couple of years participants have become increasingly worried about mining investment policy and the handling of exploration licences, etc., in South Africa as a consequence of populist talk of nationalisation of mines and banks.The Minister of Mines has gone out of her way to give assurances, and Trevor Manuel, who probably carries as much weight if not more weight than the Minister with foreign investors, went to great lengths at this Indaba to assure those present that nationalisation was not going to happen. Unfortunately, there was talk of a “super tax” on mining and there was also talk of a central government mining company – talk which queered the pitch. We asked Peter Leon, a top mining lawyer in Africa, whether concerns regarding nationalisation had gone away. The answer is: “The government made an impressive case. But concern still lingers.”

There are also other things that affect international investors as far as South Africa is concerned. For much of 2011 we had an ongoing debate about possible limits on freedom of information. The issue is still unresolved. Last week, President Zuma made certain statements regarding the Constitutional Court and the need to evaluate its decisions in terms of transformation which demonstrate both that he doesn’t understand the importance of an independent judiciary or understand the full implications of constitutional democracy. Put differently, he seems to have about the same understanding of constitutional democracy and the independence of the judiciary and its supremacy in interpreting the constitution as the old National Party did. The Cape Times, in commenting editorially on his remarks, is correct when it says: “President Jacob Zuma’s remarks about the constitution in an interview this week are worrying. The President’s statements, leave the reader with the impression that he is unhappy with the current constitutional arrangement and would like to strengthen the power of the executive.”

What this government does not seem to realise is that statements of this kind adversely affect international perceptions of this country and put off investors. The country and the people don’t deserve this.

Denis Worrall is the chairman of Omega Investment Research. He can be contacted at: [email protected]


  • N

    Great article dennis, however I must comment that Africa needs to showcase the kind of change that carries along justice and fairness. We cannot have a “brutal” capitalism that does not have consideration for people. I know that investors scream “wolf” when these kinds of issues are raised, but possibly we will have the honour of experiencing a new version of capitalism- Social Capitalism. Africa is not alone in thinking this way. Last week i read that since 1985, canada blocked 1600 international investments into its resource sectors.Thats 5 investment opportunities yearly. Canada tries to ensure that its economic decisions are fair to its people and has managed to build a trillion dollar economy in the process. Mining and investment in Africa must not be done at all costs. There is currently lots of imbalance and exploitation, hence all the nationalisation talk. This cannot be wished away. These issues must be faced. Investors must commit to Social responsibility. If they refuse, then they are not the right investors. And we must not be afraid that they will take their money elsewhere! Truth is that there is no elsewhere! Africa has something that cannot be overlooked and ignored anylonger. They will invest regardless!

    • N

      sorry I wanted to say canada blocked 5 investment opportunities monthly.

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