Charles Robertson, global chief economist at Renaissance Capital says the majority of business people in the West are not falling over themselves to invest in Africa. He discussed this and other issues with How we made it in Africa editor-in-chief Jaco Maritz.
Africa is currently attracting significant hype from certain quarters. As someone who’s based in the UK, how would you describe the interest from European companies to do business in the continent?
European businessmen are primarily focused firstly on Europe. Secondly, maybe on America. Thirdly, China. Fourthly, potentially other markets like Australia or India. Africa is not high on their agenda. And why? Because the whole continent of Africa’s GDP is under US$2 trillion – similar to Russia. So in terms of your world rankings of where you care about, Africa ranks low. And that $1.7 trillion of GDP in 2010 is split between over 50 countries. Each market in itself, except for South Africa, Nigeria and north Africa, is small. It is not easy to access and it takes a while for companies to begin to recognise the opportunities that are coming. In terms of getting new investments coming in, it is happening. You see Walmart buying Massmart so that they can get access to Sub-Saharan Africa. You see it in the telecoms world. Portfolio investors are getting more and more interested – people who buy equities and bonds. Africa is becoming something, which five years ago was ‘unknown’ and it is now ‘little-known’. And we are on our way to being quite ‘well-known’, but not yet. It takes time and the bigger these economies get, the more attention they will capture.
What are your thoughts regarding the continent’s business climate?
There are some examples of amazing progress – Rwanda is the most obvious. What they are showing is that it can be done in Africa. Governments in Africa can make it easier and easier to set-up businesses, to run businesses, to pay tax. And that I think is setting a very positive example for other countries. It is not being copied in every country. There are always going to be countries that choose a different route. But it is setting an example, which I think is helpful. I suspect it is not being recognised fully at the moment. A lot of surveys about Africa are done by people who don’t necessarily know of the country, but they might have an opinion on the country. It is quite different for those working and travelling there, who are seeing progress and seeing effort is being made and the successes being achieved.
In a recent research note you expressed some concerns about the Kenyan economy in the short-term. Why is this?
I think one of the positives in Kenya for the last few years was that banks have been lending a great deal of money. That has helped support fast growth. The difficulty is, when banks lend too much money you get a situation like what we are currently seeing in the West. In Kenya we are nowhere near that. But nonetheless, that level of borrowing has increased a lot in the last few years, and it is quite likely that some of the investments and some of the lending have not given the return on the borrowing that they should have done. Perhaps there has been a bit too much excitement about the real estate sector, for example. Banks today are going to cut back their lending in Kenya. Equity Bank just earlier this week raised the interest rate on the loans that they are giving. KCB is going to be cutting back on its lending as well. So there is going to be less loan growth in Kenya. And now in the next 12 months is when we might start to see some problems emerge, for example a fall in real estate prices, which have just been going up and up and up for years. It always becomes a bit of a shock when that stops happening. That can create a bit of short-term negativity.
You are, however, very optimistic about Nigeria . . .
I love countries that have low debt. And I get very worried by countries with high debt. Nigeria has got about the lowest external debt in the world. It has got an extremely low level of government debt and private sector debt is pretty small as well. In total, we are talking 40% to 50% of GDP is government and private sector debt in Nigeria. In the West it is 300%. Nigeria is under less threat from debts. This suggests there is scope for Nigerians to borrow again. They believe in investment and the growth story. That is something to be optimistic about.