Investment Options for Africa in 2017

This article was initially published by Edgar Muzvidzwa in the Financial Gazette of 12 January 2017.

AFRICA is faced with many possible investment partners in 2017 who have different objectives and investment models.

Among them is China, which continues to emerge as one of the most consistent source of foreign direct investment to Africa; with Zimbabwe having been one of the beneficiaries of the Asian giant’s foreign direct investment (FDI) projects, for example, the construction of the new Victoria Falls Airport to the tune of US$150 million and the refurbishment of the Kariba Dam at an estimated cost of US$294 million, among others.

With China’s business volume in Egypt alone having grown to US$6 billion by end of 2016, Chinese President Xi Jinping, announced that the Asian country plans to reach US$100 billion FDI into Africa by 2020.

As at end of 2013, its overseas direct investment into Africa reflected a total of US$26 billion.

Chinese companies have partnered with African companies to boost telecommunication infrastructure, diversify technology and increase manufacturing capacity in many countries such as Ethiopia, Rwanda, South Africa and Nigeria, to name a few.

They have also been involved in resources extraction in countries like Zimbabwe and Angola.

The BRICS countries, an abbreviation for Brazil, Russia, India, China and South Africa yet another potential source of investment, have established their New Development Bank with an initial authorised capital of US$100 billion. In 2017, the bank is increasing its lending pool by US$2,5 billion, making it another source of funding to member countries and other developing countries.

The bank is funding infrastructure projects meant to meet the sustainable development aspirations of millions of people in developing countries.

Africa needs to consider engaging the New Development Bank for South-South support as the bank understands the needs of developing countries to a large extent. The bank has promised to establish global, regional and local partnership with the new as well as established multilateral development banks and with market participants. The New Development Bank’s vision is not restricted to funding infrastructure requirements, but envisages building a knowledge-sharing platform among the developing countries to promote sustainable development.

Africa is confronted by a global situation that is changing in a disruptive manner. But, herein lie some opportunities.

The Brexit vote in the United Kingdom and the election of the Republican Party’s Donald Trump in the United States have political and economic implications to the whole of Africa because the nationalistic inclination of the Brexit vote and the US elections outcome mark a divergence from globalisation to some extent.

The UK’s European Union exit may mean the fortification of its Commonwealth grouping. This can be of benefit to African countries that are members of the Commonwealth bloc. It is time that African countries, Zimbabwe included, be quick to see opportunities in such developments.

The UK’s inclination towards stronger ties within the Commonwealth in 2016 was evidenced by the increase in the number of visits by members of the royal family, especially Prince Harry, to countries in the aforementioned group. It is high time that Africa established policies which focus on best interests for the continent and individual countries than keeping in the rigid foe and friendship hegemony of the past century. Strategies for economic investment and growth should evolve without permanent friends and enemies.

Trump’s coming into power may mean reduction in aid and FDI from US into Africa. The US has been providing support to Africa for many years as exemplified by the Africa Growth and Opportunities Act of May 2000 under President Bill Clinton and the President’s Emergence Plan for Relief, under president George W. Bush. President Barack Obama’s initiatives included the Power Africa Initiative and the Electrify Africa Act, 2015 which targets bringing electricity to 50 million people in sub-Saharan Africa by 2020.

However, with the idea of wanting to outwit China in Africa, the US may want to increase its dominance in African economies, where China has since been making major inroads. Some American companies, especially General Electric (GE), are currently increasing investments in Africa. These may be affected to a more or less extent by the incoming Trump administration.

GE has established green field investments and brown field investments that provide end-to-end solutions to African countries since 2009 to date. According to GE chief executive officer Jeffrey Immelt: “The global giant has established a number of facilities in east, west and southern Africa to train people, carry out research and development and set up manufacturing units. GE term this ‘localisation’ and they have brought supply chains closer including both the simple and complex processes.”

GE has a manufacturing plant in Onne, Rivers State in Nigeria. In South Africa, GE has a facility in Pretoria, which supplies Africa’s largest freight and logistics company, Transnet, with locomotives that are locally assembled. In Kenya, the global giant is working with the country’s Ministry of Health in an arrangement which resulted in a radiology tranche of Kenya’s Managed Equipment Service programme. The company has seven years to deliver and install the technology and train the users. This is being financed by GE and two commercial banks, which exonerated the government from sourcing for large initial capital expenditure. GE has already equipped the radiology departments at 97 of 98 hospitals across 47 counties, with over 560 trained health workers.

If Zimbabwe and other African countries are serious about investment projects then they should consider engaging with companies like GE.

The flexibility in the business terms and magnitude of end-to-end solutions that GE provides is what should be exploited by our countries. According to Immelt, the company has a unique model for Africa. To date, the company has received orders for 436 trains from Transnet, South Africa’s state-owned transport company. Mozambique bought 125 new locomotives from GE and in Africa an airplane powered by GE or one of its partners takes off or lands every two minutes.

According to the company, GE is transforming the electricity industry in Africa by creating a digital power plant, the world’s largest and most efficient gas turbine and is upgrading software to make power generation and distribution much more reliable.

Africa is endowed with a lot of natural resources and rich soils which can be exploited for minerals, oil, gas, fruit and crop products, which can be traded and whose proceeds can be used to finance infrastructure development, industrial development and energy transformation. Oil-rich countries include Nigeria, Libya, Ghana, Angola, Sudan and South Sudan among others.

Gas deposits are being identified in many African countries. Some of the countries that have discovered gas deposits include Nigeria, Ghana, Tanzania, Zimbabwe, Mozambique and Malawi among others. South Africa and Zimbabwe have a lot of minerals including gold, tin and platinum. Botswana, Angola and Zimbabwe are rich in diamond deposits.

The United Nations Sustainable Development Goal number seven aims to “ensure access to affordable, reliable, sustainable and modern energy for all”. Africa needs to invest in energy transformation to increase access to energy sources for economic production, lighting, heating, cooking and transport among other needs.

In 2014, the International Energy Agency (IEA) projected that “every US$1 invested in power supply would generate more than US$15 in incremental gross domestic product”. In the same year their records showed that “in sub-Saharan Africa, as a whole, only 290 million out of 915 million people had access to electricity and that 730 million people relied on solid biomass for cooking.

Electricity access rates for sub-Saharan Africa were 32 percent in 2012, up from 23 percent in 2000. Electricity constituted seven percent of final energy consumption, some 10 percent less than the global average.

Total electricity in the residential sector represented 27 percent, while industry represented 50 percent. The average cost of generating electricity was US$115 per megawatt-hour. The high cost was attributed to transmission and distribution losses due to poor maintenance and inefficient system design and operation.”

Africa can partner with the African Development Bank (AfDB), which has come up with a number of energy projects including the New Deal on Energy for Africa, a transformative partnership to light up and power Africa by 2025. According to AfDB, sub-Saharan Africa has seen rapid economic growth since 2000. This has led to a 45 percent increase in energy use – four percent of the world’s total according to IEA (2014). The largest consumption was in South Africa and 45 percent of the capacity was coal (mainly in South Africa), hydro 22 percent, oil 17 percent and gas 14 percent (mainly Nigeria). The continent has vast solar, hydro, wind and geothermal potential, but these renewable resources are being exploited at very low levels.

There are other international partners who are prepared to work with governments and private organisations and individuals committed to finding solutions in energy transformation. Recently Bill Gates announced the launch of Breakthrough Energy Ventures that will invest more than US$1 billion in scientific research that have the potential to develop cheap and reliable clean energy to the world. This is the next step from the Breakthrough Energy Coalition, a group of entrepreneurs, business leaders, and institutional investors committed to help bring promising new zero-emissions energy technologies to markets. According to Gates “an investment in a true energy transformation requires governments, research institutions, businesses, and private investors to work together”.

The importance for investment in energy development in Zimbabwe and the whole of Africa cannot, therefore, be over-emphasised.

In Zimbabwe we celebrated the government partnership with Group 5 for the construction of the Plumtree-Harare-Mutare highway, but the Beitbridge-Harare-Chirundu road needs urgent attention. Infrastructure development is key in attracting investors. A lot needs to be done by the Infrastructure Development Bank of Zimbabwe and other stakeholders in the country to ensure that national plans are implemented.

Edgar Muzvidzwa is a business management consultant and can be contacted on [email protected] and on [email protected].