ROCKY ROAD TO PROSPERITY

Infrastructure development is the bedrock of social prosperity, according to José Filomeno de Sousa dos Santos, Chairman, FSDEA.fund)

ROCKY ROAD TO PROSPERITY

The eyes of the world have been on Africa throughout the last decade, as more and more investors and businesses target their investment activities at countries in the region. In 2013 alone, numerous companies entered Africa to exploit what many commentators describe as an ‘oil bonanza’.

Looking at a map of Africa is akin to looking at a who’s-who of oil companies. Gabon is playing host to Addax Petroleum, Total, and Perenco, a leading oil and gas exploration company. Angola and Nigeria are oil and gas economies. Angola, specifically, hosts several oil companies which include Sonangol, TOTAL E&P Angola, Chevron and Esso. These companies will soon be supported by the completion of Africa’s strongest crane, which will have a capacity to lift 2,500 metric tons. Angola’s oil accounts for 2.6 per cent of US imports and 12 per cent of China’s.

These are boom-times for Africa, whose economies are projected to grow by 4.5 per cent in 2013 and accelerate to 5.3 per cent in 2014, according to a new report by the Organization for Economic Cooperation and Development (OECD). Between 2000 and 2010, Angola grew faster than any other country. Three African nations, Algeria, Angola and Libya appear in the Mundi Index top 20 biggest oil producing nations, ahead of Qatar and the United Kingdom. Multilateral debt relief to countries in Sub Saharan Africa provide much breathing space and puts them on a level pegging with other developing nations. These factors, tied in with Africa’s growing population, suggest that investors have everything to gain by investing in Africa. Sustainable investment is required

Striking growth figures and vast oil projections ignore a different kind of reality on the ground. More importantly they ignore a worrying fragility to the current economic progress. An unplanned expansion of population leads to greater hunger, poverty and inequality, according to the OECD report produced in conjunction with the African Development Bank. The report issues a stark warning that, “growth has been accompanied by insufficient poverty reduction, persisting unemployment, increased income inequalities and in some countries, deteriorating levels of health and education”. Reports such as these suggest that non-oil investment opportunities offer a far more sustainable future for Africa.

The deficit of infrastructure in the region is an obstacle to achieving the diverse economy that Africa needs. Urgent action is required by investors and governments, and collaboration to develop key infrastructure needed to help Africa realize its potential.

This urgency is exacerbated by the number of young people in the region. Demographics show that the average age in Africa is 18 years. Forty per cent of Africans are younger than 14. The fate of the region lies in the hands of this young population. The question is how can nations with developing democracies, war legacies and decades of political instability rise to the challenge of sustaining their current economic growth? The key to preserving Africa’s wealth for future generations is to build a diverse economy. Unlocking human potential now and in years to come means building an ecosystem that supports enterprise and promotes hard work. Before any of that can happen, however, basic infrastructure must be developed throughout the continent.

Moody’s announced in May 2013 that Sub Saharan Africa needs at least US$90bn of spending on basic infrastructure development citing, ‘underinvestment in infrastructure, with energy, water system and sanitation networks requiring the most funding’. The lack of investment in infrastructure has a direct impact on the GDP performance of sub Saharan African countries. Moody’s estimates that per capita GDP growth drops by 1 per cent and annual productivity by 40 per cent for each year that the region misses the requisite infrastructure investment. Without infrastructure people cannot bathe, drink clean water, or drive to work. Without these most basic of services a nation will not be able to properly equip its people with the education and skills needed to compete on the world stage. Sanitation and access to healthcare facilities will save lives and improve the quality of life for millions. Public transport will usher in an era of mobility, opening up communities, linking towns to cities and giving millions of

Forty per cent of Africans are younger than 14 years. The fate of the region lies in the hands of these millions of very young people.

people new education and job opportunities. An educated, working population enables a country to thrive.

Education to produce diversity Adequate education is vital in nurturing human development and innovation. Innovative thinking is necessary in delivering the economic diversity that is crucial as the global market becomes so competitive. In particular, the global goods and services market is fiercely competitive and is essential in driving forward economic growth. Whilst sub Saharan Africa is currently rich in natural resources, the reality is that each nation’s GDP rises and falls with the tide of global commodity prices. This leaves those who are dependent on natural resources highly vulnerable. Meanwhile, countries in the Middle East, particularly the Gulf region, are investing heavily in education and infrastructure.

The fascinating thing about infrastructure is the enormous impact it has on social development. Angola is a country that needs infrastructure urgently. Its 27-year civil war ended in 2002 and destroyed most essential services throughout the nation. The Angolan government is taking advantage of the economic boom by rebuilding what was destroyed in the war but this is a monumental challenge. Houses must be built; roads re-laid to provide access to work; food, water and other essentials are in high demand. Angola is picking up the pieces of a crisis that left around 15 million landmines across the country and an average life expectancy of less than 40 years old.

Opportunities and the FSDEA This critical need for infrastructure provides investors with an enormous opportunity. In Angola the government’s drive towards re-building the country is now supported by the Fundo Soberano de Angola (FSDEA), a US$5bn sovereign wealth fund that has been set up to promote Angola’s social and economic development and to achieve long-term sustainable returns that will benefit the people of Angola.

Ordinary working people in Angola are now seeing investment in public works and social development. Taps with access to running water have been installed in isolated parts of the country that suffer from water isolation. In the country’s capital city, Luanda, education has become a major priority with new schools and universities being built and thousands of new teachers being trained. The significant and lasting impact that infrastructure can have on the lives of citizens is exemplified by the rebuilding of the Cunene River Bridge in Angola, which was destroyed during the civil war. It is a strategically important bridge, linking the main cities of Lubango and Ondjiva. Prior to its reconstruction, travel between these cities was nearly impossible. After the bridge was destroyed citizens built a number of temporary, dangerous structures.

Today, a 900 meter long, four lane highway stretches across the river. The new bridge has transformed the lives of hundreds of thousands of Angolans. Such a measure not only increases the scope of opportunity for education and employment but it has a significant impact on communities and families.

The new bridge stands as a source of pride and achievement for Angolan nationals in the region. It also makes transporting goods and services possible for small businesses that were previously unable to reach across the river. The Cunene River Bridge in Angola stands as testament to what can be achieved when government and private organization work together to address the basic needs of ordinary citizens.

Investing in hospitality One component of the FSDEA strategy is to support the government’s aims of promoting social development, economic diversity and innovation. One such social initiative in Angola is the development of a new ‘Hotel School’, which will provide a wide range of training and employment opportunities for Angolans wishing to work in the country’s burgeoning hospitality sector. There is already strong demand for well-trained employees in the sector. It is projects like these that must be replicated across the whole of sub Saharan Africa if countries wish to enjoy sustainable growth and stable economies.

The funding piece of the jigsaw is, as always, a major problem. A report in the Financial Times in June 2013 suggests that in order to meet development targets, the region needs infrastructure financing of US$93bn every year until 2020. The African Development Bank (AfDB) is launching a multi-billion dollar infrastructure fund, which will raise equity before issuing debt in the form of bonds. The fund is already backed by Nigeria, Mauritius and South Africa – and the AfDB has identified a pipeline of 176 projects worth in excess of US$144bn across the key infrastructure sectors of energy, transport, ICT and water. This new financial injection will provide significant help to the nation building that is now taking place across the region. The people and economies of sub Saharan Africa – as well as those who invest in it - will for the first time reap the rewards of a healthy, diverse and sustainable economy.

These are very complex times for Africa. Whilst on paper the solutions may seem clear, the context makes development very difficult. A third of African countries continue to suffer from conflict, a reality that blights the landscape for nations that have found peace and stability. This provides a noisy backdrop to an already difficult situation for many nations. Progress has been made in many ways, perhaps most of all in an understanding within the minds of governments that stable, growing economies rely on communities and a cohesive society.

Countries in Sub Saharan Africa are beginning to understand that the unlocking of human potential is the true key to economic success. Without infrastructure there is no mobility, security, health, education or potential for human development. All African nations need to understand that these are the very basic tenets of a growing, sustainable economy – tenets that all societies need to embrace if they wish to provide opportunities for all of their citizens.

Whilst Sub Saharan Africa is currently rich in natural resources, the reality is that each nation’s GDP rises and falls with the tide of global commodity prices.