Why SA firms are changing their Kenya strategy Vital Education: Renewing Africa’s universities Ground Control: Nigeria looks to space How to start a $100m agribusiness Controlled Distribution UK & RSA Issue 05 \ November 2012
WHO WILL BUILD AFRICA’S FUTURE CITIES?
Business | Entrepreneurship | Innovation | Investment | Lifestyle
4 \ Contents \ November 2012
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CONTENTS 12
Regulars
Features
6 News and analysis
14
Recent developments from Sub-Saharan Africa
Can Nigeria take off into the space age?
SA is still the gateway Vassi Naidoo, Deloitte
Africa’s space odyssey Nigeria looks to the stars
30 Destination: Botswana Botswana, which has enjoyed half a century of growth, while avoiding the civil wars that have stricken many of its neighbours, often has been hailed as a model of good governance.
18
Vital Education Renewing Africa’s universities Andrea Pizziconi CEO of Christie Company and manager of Africa Integras explains how she is building university infrastructure.
24 Back to the Land
Comment
How to start a $100m agribusiness in Africa - Paddy Docherty explains.
10
Technology and the new industrial revolution
26
BBC’s Adam Shaw on how Africa can leapfrog development.
How foreign ownership of African land is on the increase.
12 SA is still the gateway to Africa
Final word
Vassi Naidoo of Deloitte remains positive for the future.
rule of law and prosperity Transparency is a prerequisite for economic success in Africa.
21 Understand your market
18
Vital Education Renewing Africa’s universities
“Local culture always rules. The local culture is going to drive what’s expected by the market.”- Andrea Pizziconi
A New Scramble for Africa
27 Good governance is key to
Business
“South Africa has a key role to play”
Why SA firms are changing their Kenya strategy to adapt to local culture.
21
Understand your market “In my view, they (South African firms) lost the battle for sustaining presence in what is a very competitive market upon initial entry” - Polycarp Igathe, MD Tiger Brands East Africa
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Cover Story Who will build Africa’s future cities? In Africa, Knight Frank are not estate agents, says Peter Welborn the company’s Africa Managing Director, their business is real estate consultancy, advising private clients and facilitating deals.
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6 \ News \ November 2012
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NEWS AND ANALYSIS:
NEWS IN BRIEF Recent developments from Sub-Saharan Africa
Tanzania’s strong economic growth must reach population – World Bank TANZANIA’S economy looks set to grow over the next couple of years, but the government needs to ensure the extra wealth reaches the Tanzanian people, who are mired in poverty, a World Bank report has warned. The mining, banking and telecommunications sectors should help Tanzania’s GDP to rise by as much as 7 per cent this year, next year, and in 2014. The developing natural gas industry should begin providing a boost over the next 7 to 10 years. Tanzania is aiming to be a middleincome country by 2025, but the report warned this would only be possible with careful budgeting and major policy shifts, involving agricultural commercialisation, diversification and urbanisation.
SA low-cost airline 1Time goes into liquidation A large number of South Africans, as well as many living abroad, will be left stranded on their Christmas holiday in South Africa following the announcement that 1Time airline has gone into liquidation. The low-cost airline has been under business rescue for a few months under the leadership of new chief executive officer Blacky Komani. However, 1Time has now been declared bankrupt and is in final liquidation. The airline owes various institutions, including Airports Company of South Africa, around R350m. 1Time’s website has been shut down. Customers who have booked flights will have to pay for hugely inflated peak period flights on other airlines, although those who paid by credit card may be able to get a refund.
Gunmen stage raid on Ivory Coast power station
Rand hits two week high after Obama victory
Gunmen stormed a power station near Abidjan, Ivory Coast, as part of a coordinated raid that also targeted nearby security facilities on Sunday 6 November. Around 30 armed men disarmed guards and briefly occupied the Azito power station. Nine gunmen were arrested and two were killed. One of the station’s turbines, responsible for producing around 15 per cent of Ivory Coast’s electricity, has had to be shut down due to damage caused by the raid. The attacks are being blamed on supporters of the country’s former President Laurent Gbagbo, who is currently awaiting trial for crimes against humanity following the country’s bloody civil war in which more than 3,000 people were killed.
The South African rand hit a two week high on Wednesday 7 November in the wake of US President Barack Obama’s election win. At 6.56 am, the rand was up by 0.3 per cent on its closing price the previous day, at 8.6050 to the dollar. Obama’s defeat of Republican Mitt Romney and re-election to the White House signals a continuation of current US economic policies. Following the election result, the dollar weakened, strengthening the rand and other emerging market currencies. However, the long-term effects are far from clear. The current policy of quantitative easing benefits the rand. However, US congress is deadlocked over the so-called ‘fiscal cliff ’, which if unresolved, could lead to a massive rise in taxes and cuts in public spending.
November 2012 \ News \ 7
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Gold Fields strike ends, but mining sector unrest continues Gold Fields has resumed operations after a 23-day strike, and has reinstated 8,500 dismissed workers at its KDC operations near Johannesburg. However, another operator, Village Main Reef, has now been hit by wildcat strike action, suggesting labour unrest in the mining sector is far from over. Workers at the company’s Buffelsfontein Gold Mine began a strike on Monday. The number of workers on strike is unknown, but Village Main Reef, one of South Africa’s smaller gold producers, has said it plans to seek a court order forcing miners back into work.
BBC explores high-tech solutions to African problems
Border controls cost Africa $20bn in food trade
Solar lamps, durable laptops and a bottle which filters bacteria from even the filthiest water all featured in a BBC Horizons programme which aired this month. The show examined how access to simple but effective technology solutions could eradicate fuel and water poverty in Africa. Solar lamps produced by German company Osram have allowed small businesses to trade for longer, school children to study at night and fishermen to fish more safely and profitably. The programme also looks at how effective design can be used to create technology suited to harsh environments, such as laptops provided to school children which use very little energy, or a water bottle which uses nano-technology to clean water, simply by forcing water through a filter with holes smaller than a virus.
Reducing the cost of food trade by reducing border controls and growing infrastructure could generate an estimated $20bn in annual earnings for African governments and reduce food shortages across the continent, the World Bank has claimed. The costs incurred from trade barriers can reduce overall food production. Farmers on holdings in Africa typically receive less than 20 per cent of the consumer price of produce for their surpluses, disincentivising production. Just 5 per cent of Africa’s cereal imports are now provided by African farmers. The Bank said rules and regulations are preventing African farmers from using higher yielding seeds and better fertilizers.
South African Finance Minister insists economy is not in crisis The South African government’s fiscal policy is “sustainable”, according to Finance Minister Pravin Gordhan’s medium term budget policy statement. The treasury have reduced spending in response to the forecast that the country’s debts will rise over the medium-term, and will be adhering to the budget ceiling set in February. Gordhan said that South Africa’s economy was “not in terminal crisis.” South Africa was recently downgraded by credit rating agencies Standard & Poor’s and Moody’s, which raised concerns about the impact social unrest, such as the ongoing miners’ strikes, on ANC economic policy.
IMF reduce restrictions on Zimbabwe The International Monetary Fund has relaxed its restrictions on Zimbabwe, meaning the country will now be able to receive technical assistance on tax policy and administration, public financial management and bank reform. Zimbabwe is still not able access funding from the IMF, but the move could help to normalise relations and could pave the way for funding in the future. Any lending program would depend on the progress of the unity government of President Robert Mugabe and Prime Minister Morgan Tsvangirai. The country still faces a huge debt burden with external debt estimated to be 113.5 per cent of GDP, around $10.7bn, at the end of year.
Africa in numbers
3
The number of African women to feature on the 2012 Forbes’ list of World’s 100 Most Powerful Women.
3,693
Average number of ounces of platinum lost per day while strike action continues at Anglo American’s operations.
227 million
Hectares of land sold, leased, licensed or under negotiation in large-scale land deals across Africa since 2001.
8 \ News \ November 2012
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NEWS AND ANALYSIS:
Mining unrest in SA opens door for Zimbabwe platinum production Unrest in South African mining sector gives Zimbabwe’s platinum industry opportunity to expand. by Milton Lindsay THE ONGOING unrest in South Africa’s platinum mining sector has opened the door for Zimbabwe to expand platinum production in the coming months, particularly if the crisis in South Africa remains unresolved. Officials in Zimbabwe, which is home to the world’s second largest platinum deposit behind South Africa, have estimated that
Zimbabwe’s platinum output for 2013 will increase by 3 per cent. There are a number of reasons that make Zimbabwe’s platinum industry an attractive place for potential investors, especially when compared to its neighbour to the south. Zimbabwe has some of the lowest production costs in the world, due in large part to the nature of its platinum deposits. Platinum in Zimbabwe is generally found close to the surface, allowing companies to use mechanised, open cast mining, which is significantly less expensive than underground methods, which are used in South Africa.
Moreover, industry analysts have said that platinum production in Zimbabwe has the potential to increase by nearly 10 per cent over the next few years. The future growth of the Zimbabwean platinum industry still faces a number of challenges domestically. Zimbabwe’s infrastructure is very poor, particularly its electric grid. Platinum production has historically been hampered by spotty electricity. However, investors say that the social and political issues in Zimbabwe presents the biggest obstacle for Zimbabwean mining companies. Many companies remain hesitant to invest in Zimbabwe because of the ongoing economic instability and uncertainty caused by the recent indigenisation legislation passed last year, which required foreign firms to hand over a 51 per cent share of its operations in Zimbabwe. While it is unlikely that Zimbabwe will surpass South Africa in platinum production in the near future, the investment prospects in Zimbabwe remain very strong. And if the social and political environment stabilises following the 2013 presidential election, Zimbabwe may in fact challenge South Africa as the world’s number one platinum producer.
Who will take the reins at Anglo American? CYNTHIA CARROLL’S resignation as CEO of Anglo American earlier this month leaves a hole at the top of one of the FTSE 100’s largest companies. There is much contention over who will follow her in this difficult role. Her successor will have to deal with continuing unrest at the platinum mines operated by Anglo American’s subsidiary company Amplats, where wildcat strikes by miners have severely restricted production. Highest on the list of potential candidates is Mick Davis, currently chief executive of Xstrata. Davis would certainly satisfy South Africa’s Minister of Mineral Resources, Susan Shabangu, who called for Carroll’s replacement to be a South African, as more than a third of Anglo’s assets are based in the country. Xstrata is negotiating a merger with commodities trader Glencore, and it is widely thought that the top job will be taken by Glencore’s CEO, Ivan Glasenberg, leaving Davis available.
However, Anglo American’s Chair, Sir John Parker, said the company “could not afford Davis.” Chris Griffith, head of Amplats and Alex Vanselow, formerly chief financial officer of BHP Billiton, have also been suggested. Peter Major, a mining analyst at Cadiz Corporate Solutions has said that given the importance of Amplats to Anglo American, moving Chris Griffith at such a difficult time might be unwise. Under Carroll’s leadership, Anglo American’s share price has fallen dramatically by 35 to 40 per cent. American-born Vanselow is widely thought of as someone who could reverse this, given his experience at a successful, diversified multinational. Carroll was the first woman to head up Anglo American, and so far all the names on the list to replace her have been male. Her departure will leave Alison Cooper, CEO of Imperial Tobacco, and Angela Ahrendts at Burberry as the only women at the helm of FTSE-100 companies.
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10 \ Views \ November 2012
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COMMENT: Adam Shaw
African opportunity: Technology could trigger a new industrial revolution by Rebecca Cooney “WE THINK of Africa as a victim continent when in many ways it’s actually more advanced than many of the economies that we would think to be better,” says Adam Shaw, business journalist and presenter of the BBC’s technology programme, Horizons. Shaw gives an example from his travels with the programme – a Kenyan farmer who routinely pays hundreds of workers by transferring the money directly between mobile phones. Here, he says, technology is developing to deal with what are traditionally seen as problems in Africa, such as distance. It’s difficult for a bank to build branches across Africa, so transferring money ‘on the go’ becomes the norm, using technology better than that available in the UK. “It’s ultimately a massive opportunity because [Africa could] start a new second or third industrial revolution, and at a much higher pace than we’re able to in the UK for instance, and without the inheritance issue. In the UK, we say ‘we’ve got this old infrastructure, we can’t just abandon it’. Well, they don’t have it, so they can start afresh and in that way it gives them a competitive advantage.” In terms of developing Africa’s economy, Shaw says: “Aid is clearly an important part of the mix... but what you’re trying to do is help develop self-sustaining economies and release the potential of Africa, its own capital and human resources. Just giving handouts isn’t the full picture.” But it’s not just about importing technology from the west. Shaw points to a “halo effect” surrounding technology in developing countries, where local developers take technology and use it as a starting point for ideas relevant to their own needs.
“We should be saying: well, maybe it’s a different environment, maybe they have different problems, so maybe there should be different solutions” “You have to look at continents like Africa and see them not just as the recipients of information and aid. It’s important to ask what is applicable in your environment, what ideas do you have to take this technology and change it and actually make something new out of it, which could benefit not just you but perhaps the country from which the idea originated.” Shaw highlights technology like the Lifesaver bottle – a water bottle, which uses micro-filters to make even the filthiest water safe to drink. It’s simple, inexpensive and flexible technology like this, which he believes has the potential to make a difference, rather than trying to replicate Western infrastructure. “We come into disaster zones, especially if there’s a crisis, and try and build sewage plants – and this is a ridiculous way of doing it – you don’t need to build an infrastructure. There’s loads of water around, it’s just dirty, so just bring in a
water bottle. It’s about making technology appropriate.” “We should be saying: well, maybe it’s a different environment, maybe they have different problems, so maybe there should be different solutions. That sort of approach is actually very compelling.” Shaw visited 32 countries with Horizons and noticed that many of the technologies being produced for and by the developing world often have the added bonus of being environmentally-friendly. “I think it’s very likely businesses are understanding that they have to have a sustainable argument. Not because they want to be good to the world, but because their own businesses will not have a future unless they take on board sustainable issues… I think that green agenda is changing, not dramatically, but it is noticeable. Hopefully it’s sustainable as well.” For more information, see: gatewaytoafrica.com/bbcinnovations
12 \ Views \ November 2012
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COMMENT: Vassi Naidoo
SA is still the gateway I AM OF the view that South Africa will still continue to be a gateway into Africa, notwithstanding the events of Marikana. I would say that even though it’s been a little bit delayed, the leadership have realised that Marikana has happened and therefore they have to deal with it. They have taken some action in order to call this enquiry [into the tragedy], and we need to make sure that Marikana is not a lost opportunity. I think that Marikana will obviously cause some change to happen, because it would be fruitless if everything else stayed the same. And I believe if leadership, broadly defined, takes the output of the enquiry and deals with it in a constructive and engaged way, we will get a better South Africa. South Africa is still a gateway into Africa, because it already has democracy. It has the constitution. It has institutions that work. It has fantastic accounting and auditing professionals. It has very stable financial institutions, and it has the fundamentals for people to set up shop and ensure that they could do business in Africa. There is concern with the downgrading of South Africa and with the so-called labour and political instability that exists. I’m of the view that the South Africans will work that out and it will be stabilised, but we’re going to go through some choppy patches. Since 1994, post-apartheid South Africa has done a terrific job to build the South Africa brand. Our miracle democracy, the growth rates that we achieved, the financial stability, the constitution, the rule of law, all that good stuff. And to some extent I think that that brand has been damaged by the recent incidents and South Africa certainly needs to take some action to rebuild that brand and re-instil that confidence. In terms of Africa, the West can choose to continue to do analysis and to continue to say there’s all these things that are wrong and as we do the analysis from the West, the Chinese and the Indians are just going to go and soak up the opportunities. And I
Vassi Naidoo: Partner, Head of International Markets Group Deloitte
believe that South Africa has a key role to play, not only for South African companies, but for global, western companies that have operations in South Africa to leverage it into the broader continent. The McKinsey research that came out on Africa recently talked about the 122m new consumers and 78m jobs that are going to be created in this continent. That’s twice the population of the UK that are going to be future customers and consumers and I would say the other opportunity for Sub-Saharan Africa has to be in the area of consumer business.
and process it elsewhere is not going to be sustainable. The only way that they’re going to get this right is by working with the governments in Africa to create manufacturing and processing capability and by working with government by embracing the societal contract to make a difference. People that want to go and make money in Africa are only going to be the people that think about Africa differently today, their thinking is going to be shaped by the history of what’s happened in Africa. If people are going to take what happened in Marikana as an example of the new South Africa, they’re going “South Africa is a place where you to lose. can go to make some money, but you You’ve got to go into these can’t go with the old way of thinking.” countries...understand what’s going on...work with the governments, civil society, the All these people have to be fed, they professional bodies and think about doing have to be clothed, they have to be housed it differently. and companies should be wise to look Let me be clear, I am not talking at embracing a model that has been about South Africa as a corporate social traditionally different to the way they’ve responsibility (CSR), if anyone goes into decided to go into Africa in the past. South Africa because of CSR, don’t go. The old notion of going there just to get South Africa is a place where you can go the coffee beans, to get the oil, to get the to make some money, but you can’t go reserves and the raw materials and come with the old way of thinking.
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14 \ Feature \ November 2012
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FEATURE:
Africa’s space odyssey – Nigeria looks to the stars Can Nigeria take off into the space age? by William Clarke NIGERIA’S NATIONAL SPACE Research and Development Agency (NASRDA), founded in 1999, launched its first satellite in 2003, but in the past two years the scale and ambition of its projects has increased. Africa’s most populous country, and its second largest economy, is quickly becoming a regional leader in satellite technology, and carving out a future as the high-tech hub of West Africa. NigComSat, an independent company providing communications satellite technology, successfully launched NigComSat-1R in December 2011, a replacement for the failed NigComSat-1 launched in 2008. The geostationary
NigeraSat2 and NigeriaSatX under test
satellite provides improved wireless and internet infrastructure across Nigeria, and the government estimates that $10m can be generated from satellite television provision. Meanwhile, imaging satellites such as the NigeriaSat-2 and NigeriaSat-X, launched in August 2011 from Russia, are helping to predict environmental disasters worldwide. The satellites were built in the UK by Nigerian engineers, and can provide high-resolution satellite images that are being used to map Nigeria, and to provide information to
The transition from manufacturing satellites to launching them is a daunting one, and the dream of an African-run spaceport may prove unfeasible, but it is clear that Nigeria’s space programme is no joke.
international disaster early-warning systems. Nigeria’s space program is not merely a vanity project of the sort that saw Uganda promise an improbable manned mission to space in the 1970s, under the aggrandising regime of Idi Amin. It is hoped that the training engineers have received in the UK will help Nigeria to bootstrap its domestic hightech industries. Investment in satellite technology will provide profitable satellite-imaging services, and grow the communications infrastructure for an increasingly net-hungry population. In the medium-term, Nigeria has even loftier ambitions. It plans to launch the first wholly Nigerian-made satellite in 2018, and to set up a Nigerian launch site in 2025, capitalising on the country’s proximity to the equator. Nigeria even has plans to send a probe to the moon by 2030. The transition from manufacturing satellites to launching them is a daunting one, and the dream of an African-run spaceport may prove unfeasible, but it is clear that Nigeria’s space programme is no joke. Nigeria is not the only African country to join the space race. South Africa, which led the continent in space ambitions during the apartheid era, restarted its space programme in 2009, and has launched two satellites so far. May 2012 saw the launch of the Ghana Space Science and Technology Centre (GSSTC), while the African Union completed a feasibility study for a pan-African space programme in 2010, although action has yet to be taken. Whether space programmes prove a prudent investment of national resources will be seen in the years to come, but they demonstrate a clear commitment across the continent to make African inroads on the final frontier.
November 2012 \ Cover Feature \ 15
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COVER STORY:
Who will build Africa’s future cities? by Jeremy Kuper IN AFRICA, Knight Frank are not estate agents, says Peter Welborn the company’s Africa Managing Director, their business is real estate consultancy, advising private clients and facilitating deals. The company has offices in all but two countries in Africa, and this gives them the ability to serve clients wherever they are in the world. If a company or government is looking for premises, from Luanda to Lagos, or Kampala to Kinshasa, Knight Frank can help. “We advise the US government on a huge amount of real estate in Africa. We will advise any governments on their diplomatic premises, houses, commercial premises,” says Welborn. “It’s whatever the client wants.”
Africa and apartheid
African alternative
The company has operated in Africa since 1962, creating a unique pan-African business. “We’re the only organisation that has the footprint and the reach in Africa because we were never in South Africa,” says Welborn. “Why not?” he asks rhetorically. “Apartheid. So we were everywhere else in Africa except for South Africa. Where did all the international organisations go? South Africa. We didn’t.” That, he points out, is a fundamental difference. “That’s the reason we have the footprint, the knowledge, the base and the coverage that we do have… because we built up a business in 60s, and the 70s, the 80s and the 90s in Africa, not in South Africa.”
Welborn puts the sudden emphasis on Africa’s rapid economic expansion into context. “It’s an alternative,” he says. “The rest of the world has slowed down… everybody. This is not the first time people have looked at Africa. This is an old story that’s brought out and re-analysed. Surely Africa presents opportunities and it always has done. But they are perhaps more challenging opportunities that need to be managed because of local infrastructure difficulties.” Part of the reason for Africa’s rebirth
16 \ Cover Feature \ November 2012
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BCEAO Tower, Mali
is the political and structural change in the last twenty years, particularly in Sub-Saharan Africa. Most of the region is democratic now, but the other important factor is the emerging influence of South Africa.
Impact of the new South Africa The idea that South Africa could ever become a gateway to Africa is relatively new, twenty years ago it was the “complete opposite,” says Welborn.
“The influence of South Africa is such that South Africans, for example from a retailing perspective, look at Africa, the capitals in Africa and the retail in those capitals in Africa.” “That retail has been developed in the last 10 years, and is dominated by South African retailers and investors. “So [it’s] the influence from South Africa since apartheid, and that’s not to say there isn’t influence from China and the rest of world, but it’s a really important influence from the same continent.”
“The value attributable to land, quite often in those capital cities does not bear any resemblance to the investment value. Because prices that are paid for land do not reflect its investment value, a higher price is paid.” - Peter Welborn Knight Frank
The African middle class One of the key opportunities in this emerging retail sector is the middle class in countries like Nigeria, Ghana, Kenya, Tanzania. There is still considerable scope for expansion. In Lagos there is still only one major shopping centre called The Palms, which is five years old, the question is why hasn’t it happened before… “Oil and dollars have been in Nigeria since before I went there. And I went there in 1979,” says Welborn. “But don’t forget in some of the countries like Nigeria, there always was that sort of wealthy middle class who travelled to London, Paris and New York. And actually all those imported goods were available on the streets in the markets, under the bridges. So those items were available, but you didn’t have the retail development that has taken place in the last… well five years in Nigeria,” explains Welborn.
November 2012 \ Cover Feature \ 17
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Putting together parcels of land The main challenge in African commercial property development is putting together parcels of land to create a large site. “It’s very difficult because of competing interests over the land and the value attributable to that land,” says Welborn. “The value attributable to land, quite often in those capital cities does not bear any resemblance to the investment value. Because prices that are paid for land do not reflect its investment value, a higher price is paid. You may say why is a higher price paid? That is just what happens for all sorts of reasons.” One reason is that landowning families will develop the land themselves. “Families own the land. Land has perhaps a greater meaning in Africa to the families,” explains Welborn. He gives Angola as another example of the idiosyncrasies of doing business on the ground in Africa. “Angola has the highest property rents in the world, just about. Because you can’t get a house to rent. There are so few developed because of issues relating to land ownership.”
Money is not enough There are a number of reasons why this is the case. “You’ve got to have local contractors who have the capability. You’ve got to have the ability to build to a particular standard. You’ve got to have local investors who are prepared to invest in those buildings.” The reason developers aren’t building more houses to increase supply in Angola is because it is complicated. He gives an example of one multinational client that wanted to build a Pan-African network, but couldn’t understand why they were unable to buy the plots and build themselves. “They’re not available. You can’t buy them, you can’t piece them together. If you did piece them together, the price of that land makes the business model not work. The prices are too high, because there are other drivers in Africa for land.” International companies want to have their own buildings for a number of
Rwenzori Court, Kampala
Central Bank of Sudan, Sudan
reasons, and as Welborn points out that the cost of those buildings doesn’t necessarily equal value. Control is one reason for this, as it can be a challenging environment in which to maintain equipment. “The life expectancy of those buildings, because of lack of maintenance, is such that a five-year-old building is more like a ten-year-old building, and will need refurbishment. Whereas a ten-year-old building should have another ten years left in its life, but actually the planned maintenance, and the upkeep, is such that it doesn’t happen… so you don’t necessarily want a third party managing agent.”
Costs are higher and so are the returns For all of these reasons, it generally costs more to build in Africa than it does in the developed world. “Don’t forget, all items are imported, except steel, sand and cement, and gravel. All your air-conditioning, escalators, light fittings, pumps, everything you see, all your finishes, are imported. So by definition you’ve got to first import and secondly maintain.”
Higher risks means higher returns “It’s all about risk. Reward and risk,” Wellborn accepts. “And the issue can be of course that where your returns in developing countries equal developed countries, there’s no point going to a developing countries to have rewards that are a hundred or two hundred basis points adrift from a developed country.” Ultimately, to some degree Africans are paying the price for their lack of land laws, lack of rule of law, lack of democracy.
“We’re the only organisation that has the footprint and the reach in Africa because we were never in South Africa,” The future Welborn is cagey about Knight Frank’s future projects. “We are looking to help local investors, local landowners, develop and build opportunities. And it’s just not malls, it’s blocks of flats, it’s office buildings. Improving the quality of the accommodation which is being presented to either be let or be sold – [it’s about] quality...” Having a vast network allows Knight Frank to service clients both onshore, on the ground in countries where the client wants to go to, and offshore, where they are currently based. “Our onshore businesses are hugely important, because without our onshore businesses we wouldn’t be able to help offshore.” This expertise allows Knight Frank to “draw experiences from elsewhere on the continent which will help the development succeed in another country on the continent. And that’s hugely important.”
Things happen differently in Africa As Welborn says, “it’s sometimes difficult to understand, things happen in Africa in a slightly different way. They don’t happen in London in the same way, so the most important thing is to understand and appreciate why things happen and work with your partners in the country you are in.”
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FEATURE:
Vital education – Renewing Africa’s universities Andrea Pizziconi, founder and CEO of the Christie Company, a commercial property company and manager of Africa Integras – an investment company building university infrastructure in Africa. by Jeremy Kuper “UNIVERSITY real estate markets are special, they have a resilient demand. Cities always pop up naturally around universities, regardless of what happens in the business cycle or in the political cycle,” says Andrea Pizziconi of Africa Integras, a commercial property company with a niche for building university infrastructure in Africa. “In the developed world higher education access is about 60 per cent. In India and China it’s north of 30 per cent and in Africa it’s four per cent. And if you take out South Africa, for many countries it’s less than two per cent, for example in Rwanda it’s less than one per cent,” she says. The World Bank funds primary schools
and secondary schools, this has led to an almost 100 per cent take up of primary education, but adds Pizziconi, “there is no large-scale multilateral funding policy for higher education like there is with the World Bank’s Universal Primary Education Policy. “Some Development Finance Institutes do it as one-off projects but it’s nominal compared to the demand. So what we looked at was the pipeline of students coming through primary and secondary schools, because after that they’re being cut off.” “Despite a huge consumer demand for education in Africa, there is often a lack of funding for university facilities as they are extremely capital intensive. However, as Pizziconi points out, “given the African population growth, even with the current size you would need 6 million additional university seats to get to ten per cent enrolment access, which would cost nearly US$10 or 11bn to construct.” “We looked at all the multilateral money in the world, various foundations, DIFD, the
“Our largest investment to date has been in Rwanda, an expansion of the university by more than twenty thousand seats. The final investment could be more than US$160m. But we’re beginning projects in Gabon and Ghana that will easily surpass that figure.”
World Bank, the African Development Bank, and there’s only about half a billion dollars in the next ten years being allocated to higher education facilities in Africa. That’s the best assessment,” she says. There’s a US$10.5bn funding gap for higher education facilities, which Pizziconi says “can only be filled with investment from the private sector”.
Challenges “One of the major challenges is land title,” says Pizziconi. “Obtaining free and clear land title and defending it is extremely difficult, and it’s a logical challenge because Africa is obviously a high-growth economy. If they give up land title to a foreign investor it’s a permanent loss to that country in some ways…it’s all about sharing equitably.” Therefore finding a balanced partnership with the universities is crucial.
Time is on your side “The timeframe from conception to completion involves years of planning and negotiation. You have to take the long-view and be prepared to wait for your returns, but the upside can be well worth the wait.” Pizziconi refers to this as “patient capital”. “Universities exist for hundreds of years and we will take a period of lease in order to recuperate that investment, but in the very long-term it is the universities that benefit from that asset we’ve created. If you look at a two-hundred year-old university, thirty years is nothing in their long-term history,” she says. “Rule of thumb is that it’s very difficult to close a deal in less than three years with governments in Africa. You have to have sufficient working capital to see the negotiation through. There will be many
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delays, but if you take a long-term view on the market, all of it makes sense.” Strong land laws are another precondition, as is a precedent for closing complex contracts. Sometimes deals collapse because of inadequate local laws relating to exclusivity and confidentiality clauses that protect intellectual property. “In these kinds of negotiations the private partner is obliged to do an enormous amount of technical work upfront and it’s very expensive work to do. It can be extremely frustrating to lose a deal in the eleventh hour. And many large-scale real estate transactions take millions of dollars to reach financial close and begin construction, so this period of the project can be very fragile,” cautions Pizziconi. However, on the flip side this means that deals are substantial. “Our largest investment to date has been in Rwanda, an expansion of the university by more than twenty thousand seats. The final investment could be more than US$160m. But we’re beginning projects in Gabon and Ghana that will easily surpass that figure.”
“Local culture always rules. The local culture is going to drive what is expected by the market, so you have to be deferent sometimes on individual issues even if it doesn’t make economic sense assuming the overall project economics remain attractive.” Gabon’s shining example Pizziconi was particularly impressed by her negotiations with Gabon. “They are very good at retaining third party advisors to help them with their transactions,” she says. “Gabon showed up with African diaspora lawyers from Canada, because they were bilingual, understood Africa and had Western transaction experience. They also retained financial transaction advisors, a third-party consulting firm to help them assess value for money, and that is the best way for a government to do this kind of project.”
Ghana Ghana is another country that is primed for business, she remarks. “Where[as] in some countries investors are still relying
on that government guarantee, there are some countries where the private sector has proven itself so sufficiently and the education market is so robust that you can actually see exciting opportunities without such a strong government component,” she explains.
Three principles “I always used to boil it down to three principles. I called it trust, culture and courage.”
Trust “Issue number one, no deal gets done until both parties trust each other.” This is often difficult for foreign investors to establish,
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“Obtaining free and clear land title and defending it is extremely difficult, and it’s a logical challenge because Africa is obviously a high-growth economy. If they give up land title to a foreign investor it’s a permanent loss to that country in some ways…it’s all about sharing equitably.” I can guarantee you a hundred percent in Africa is change. Things will change… assumptions will change.”
Politics…
which makes the need for local partners critical. You’re never going to sign a contract if they don’t trust you and you don’t trust them. What you need to do is find an intermediary that’s trusted by both sides. If you don’t have that, be patient so that relationship is eventually established.”
Culture The second principle is culture. “Local culture always rules. The local culture is going to drive what is expected by the market, so you have to be deferent
Waste-to-Energy and Water Facilities
Staff and Student Housing Mixed-Income Community Housing Universities
Primary Schools
Microfinance Enterprises
Secondary Schools
Health Facilities and Research Laboratories
Commercial Development
Africa Integras Mixed-Use Development Model
sometimes on individual issues even if it doesn’t make economic sense assuming the overall project economics remain attractive. You cannot force any kind of international culture onto a local real estate market,” explains Pizziconi. She gives as an example how it is not cost-efficient to build full concrete homes, but this is what many local African markets expect. “We could bring the cost of construction down if we did stud construction the way we do in America, and our homes often last for over a hundred years. But in Kenya and Nigeria, people will still bring a hammer with them, to knock on the walls, to make sure that it’s solid concrete before they buy the house. Local culture will rule, and will govern that decision. If you get that wrong you’ll be sitting on a lot of houses that can’t be sold.”
Courage Her third principle is courage. “That goes back to that patient capital. A lot of investors don’t go forward because they want every risk mitigated in advance,” she explains. “They really want to take the African risk profile and reduce it to something that’s familiar to them – and this is a risk return story, so you get higher returns because you take on higher risks. “You can mitigate eighty per cent of the risk. You’ve got to remember you’re not going to get everything in a tidy little bow, that’s not this market. My project manager always tells me; the only thing
According to Pizziconi, many investors miss the opportunity because they’re too fixated on the politics, “and they’re not looking at what’s happening on the ground. Life goes on regardless of the politics. People still need housing and they definitely need schools.” She gives as an example the Rwandan genocide. “You had a horrific event and one of the first acts of the country’s reconstruction was to fill the national university with ten times the students they had before the genocide – you have got to take the long-term view and then you’ll see how resilient the education sector is.” “There will be times when there is turmoil, but fundamentally Africans will always be part of their own solution and they will always seek out education.” She points out that political risk insurance is also available. “We are going very long on Africa,” says Pizziconi, who will be investing in Africa for the long-haul. “We’re taking projects that are a minimum of thirty years long, maximum fifty years long, so what we’re doing is we’re betting on the continent for most of my lifespan.” Regardless of the politics, economic upheavals and idiosyncrasies in the African marketplace, “the real estate market is one of the hottest opportunities on the continent,” she confides. “But you have to be fair about the allocation of risk and return for both parties. They have an asset that’s very valuable. Their land is valuable because it’s their future story. Having been dragged there originally by others, once I opened my eyes and looked around I saw opportunity everywhere.”
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BUSINESS LIFE:
Understand your market South Africa’s Altech to adjust their Kenyan business to the local culture by Washington Gikunju in Nairobi LIKE SEVERAL other South African businesses that have opened shop in East Africa’s biggest economy, Kenya Data Networks (KDN’s) entry into the lucrative Kenyan IT sector nearly a decade ago appeared set for big success, until reports emerged recently that the company was bleeding red. While announcing an impending management shakeup at the company, Tim Ellis, a Group executive of the JSE-listed Altech Ltd that owns 60.8 per cent of KDN, hinted strongly that the next CEO of Kenya Data Networks would not be a foreigner. “The perception that the expatriates do not understand the local market will not end and so we have decided not to renew these contracts upon expiry,” Mr Ellis told the Business Daily on 3 October, in an apparent reference to a planned replacement of the three top executives of the faltering Kenyan IT firm. Mr Ellis also said the data communications carrier was shopping for an equity partner to inject new capital into the business to help it rebuild its competitive muscle. The arrival of Kenya’s first ever fibre optic broadband internet connection in 2009 was ideally meant to be KDN’s watershed moment, but it marked the beginning of a fiercely competitive environment that has seen some nimbler players eat significantly into its market share and profit margins. Altech’s management appear keen to reverse KDN’s slide along a familiar path for some South African businesses that have ventured into Kenya. A few of the notable firms that have
Polycarp Igathe, MD Tiger Brands East Africa
beaten hasty retreats after burning their fingers in the Kenyan market include international beer maker Castle Breweries, fast foods chain Nandos, magazine publishers Media24, and cinema company Nu Metro. But with Kenya being Eastern Africa’s economic gateway, South African firms intent on expanding on the continent have had little choice but to try their luck in the country. Some have found success, like consumer goods producer Tiger Brands, pay-TV company Multichoice, clothes and lifestyle retailers Truworths, Woolworths and Mr Price. Critics have cited different reasons for the failure of South African companies that have made premature exits from the
“In my view, they (South African firms) lost the battle for sustaining presence in what is a very competitive market upon initial entry,” Polycarp Igathe, MD Tiger Brands East Africa
Kenyan market. They include ‘poor’ entry strategies, their insistence on having management teams that are heavy with expatriates, the failure to connect with Kenyan consumers who have strong brand loyalty and the competitive nature of Kenyan
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Kenyan consumers are very loyal to the more familiar brands produced by Kenyanowned businesses, which has made it more difficult for foreign firms to grab market share from companies that are already well established. entrepreneurs, who give the typically bigger South African firms a run for their money. Altech declined to discuss its turnaround strategy, or even comment on the mixed bag of fortunes that South African companies have encountered in Kenya. “Altech’s shares are currently trading under a cautionary announcement (and) we are therefore not in a position to provide any further details regarding our financials or our future strategies,” said the firm in a statement sent to GTA. The managing director for Tiger Brands in East Africa, Polycarp Igathe, was however blunt in his assessment of South African firms’ experience in Kenya. “In my view, they (South African firms) lost the battle for sustaining presence in what is a very competitive market upon initial entry,” said Mr Igathe in an interview with GTA. “This challenge is not unique to SA firms, it affects all operators in Kenya,” he added. Mr Igathe was at the helm of Kenyan consumer goods firm Haco Brands when in 2008 South Africa’s Tiger Brands came knocking with a take-over proposal. Chris Kirubi, a Kenyan business magnate and owner of Haco Brands, decided to let go and Tiger Brands acquired 51 per cent of the company, with Mr Kirubi retaining 49 per cent. A look at comments in the JSE listed Tiger Brands’ annual statements for 2011 shows the Kenyan subsidiary is on a growth path. Net sales for Haco Tiger Brands increased 14 per cent last year to R216 million ($25 million), while EBIT (earnings before interest costs) rose 8.5 per cent to R21.8 million ($2.5 million) over the 2010 figures.” The company attributed the growth to increased exports within Eastern Africa, but said a strong Rand was impacting negatively on its operations in the region. “Haco results in Kenya Shillings have been stellar over the period of Tiger Brands participation in the business,” said Mr Igathe, declining however to reveal the Kenyan unit’s performance citing
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regulatory restrictions. Tiger Bands is one of the largest producers of consumer goods in Africa, with fifty manufacturing facilities on the continent; forty-four of which are in South Africa and one each in Kenya, Ethiopia, Cameroon and Chile and two in Nigeria. Mr Igathe puts the firm’s performance down to having adopted the right entry strategy. “The secret of Tiger Brands’ success in Eastern Africa has been the joint venture partnership with Chris Kirubi in Kenya and Bizenu T. Buzuayehu in Ethiopia. The local partners have guided Tiger Brands into local nuances and operating practices,” said Mr Igathe. Commenting on the issue of having expatriate managers in their Kenyan units, Mr Igathe said Tiger Brands’ belief in Kenyan executives has helped to smoothen its operations in the country. He likened hiring an entire team of expatriate executives to putting a fresh water fish in salty waters and expecting it to thrive. Mr Igathe says, however, that Kenyan consumers are very loyal to the more familiar brands produced by Kenyan-owned businesses, which has made it more difficult for foreign firms to grab market share from companies that are already well established. The most prominent example of a South African company that was unable to break through the brand loyalty shell is Castle Breweries, which pulled out hastily in 2002 after encountering fierce competition from Kenya Breweries. After a distributorship agreement with Kenya Breweries that lasted nearly a decade ended last year, Castle Breweries has announced a second comeback into the
Nairobi Skyline
Kenyan market, partly through acquisition of a local company Keringet, a popular brand of bottled water. “It is much easier to fix, operate and grow (FOG) from an existing platform with cash flows and an operating management rather than a greenfield,” said Mr Igathe adding: “For instance, SAB Miller version 2 with Keringet is doing just fine, but it took them long.” With the right strategy, Mr Igathe believes South African firms can tap profitably into Kenya’s rapidly expanding middle class. The established tourism, coffee, tea and horticulture industry, and the new mineral wealth finds offer ever-expanding opportunities. “The only barrier to success is the ability to navigate the fresh water” if you are of the salt water variety, says Mr Igathe.
SA firms that have gained a foothold in the Kenyan market Altech Tiger brands Truworths
Woolworths Mr Price Multi Choice
The figures show that trade between the two countries went up 18.8 per cent last year to $872 million, from $734 million in 2010.
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FEATURE:
Back to the land How to start a $100m agribusiness in Africa by Jeremy Kuper “THE BASIC founding hunch behind Phoenix Africa, is that post-conflict countries in Africa – precisely because they’re so neglected – must offer attractive business opportunities because the risks are priced all wrong,” says Paddy Docherty chief executive of Phoenix Africa, a Londonbased agribusiness development company. “Everybody assumes that it’s incredibly difficult to do business there, almost impossible because they’ve seen Blood Diamond [the movie], or they remember news reports from civil wars a few years ago. The fact is of course a lot of these countries are nothing like as dangerous as one would imagine.”
Getting the funding Phoenix Africa is seeking investors to fund a $100m investment to develop 15,600 hectares of prime farmland in Sierra Leone, to grow rice for the local market. “One of the reasons why the numbers for our Sierra Leone project look very good is that at the moment they’re importing $100m of rice every year.” This, he says, is “obviously ridiculous.” “Because they’re importing so much and because they’re growing so little internally, the domestic rice price in Sierra Leone is always roughly $100 [per tonne] premium to the world price. We don’t want to export it. The domestic market looks very attractive.” “We hope that Sierra Leone will become a rice exporter like it used to be and Sierra Leone geographically is nicely positioned to export into Europe and America. But that’s in the long-term,” says Docherty. Docherty has signed an agreement to
operate in the Tikonko region, near the second city of Bo. “We’re working at the moment with four paramount chiefdoms. This is beautiful prime farmland along the Sewa River, which is perfect for rice. As far as I understand it’s been lying fallow for 20 years,” he says, since the civil war started. According to Docherty, the infrastructure in Sierra Leone is still pretty poor, but is steadily improving. A new Italian-built road now links Freetown to Bo, the second city and agricultural centre.
Commercial agribusiness “One of the biggest constraints for a local farmer to do proper fully mechanised, irrigated agriculture is lack of capital and I can’t imagine how a Sierra Leonian farmer would successfully raise millions of dollars to do farming in Sierra Leone. It’s hard enough for me sitting here with my top team to access that kind of capital. So for a local farmer it would be virtually impossible. That’s one of the reasons why there are these land areas lying fallow”. But, says Docherty, “this is what places like Sierra Leone need. I mean part of the problem with the development agency-led approach to African agriculture has been a focus very much on smallholder farmers and an assumption that African agriculture is all about smallholder farmers. Obviously smallholder farmers are important because they are the general population. One of the problems with that development agency-led approach is that by focusing on production at that smallholder level, the improvements are very incremental.”
“What somewhere like Sierra Leone needs is serious grown-up mechanised, irrigated agriculture which raises yields to six tonnes per hectare, or seven or eight tonnes per hectare. And that’s what we’ll be doing.”
Image by Bethany Clarke
Paddy Docherty, Phoenix Africa
“Take a smallholder farmer, give him a few extra inputs and some better seeds, then he might raise his yields from half a tonne per hectare to one tonne per hectare, for rice – the local staple in Sierra Leone. That’s a significant improvement in percentage terms, but that’s still a dismal yield and altogether it’s actually not that effective.” “What somewhere like Sierra Leone needs is serious grown-up mechanised, irrigated agriculture which raises yields to six tonnes per hectare, or seven or eight tonnes per hectare. And that’s what we’ll be doing. And that’s readily achievable. I mean if you’re doing it properly and if you’ve got the right seed type, proper irrigation, we could easily get six or seven tonnes per hectare,” Docherty explains.
Feasibility study Phoenix is in the process of carrying out their feasibility study. This involves looking at the land area, the water resources, the power access, the irrigation requirements and doing a full soil survey. This feasibility study generates all the data that an investor needs to see to make a decision. “We’ve got a number of development finance institutions [DFIs] lined up to come in at the operations level to invest. But in order to access that money I need to show them a feasibility study. They’re keen because all these DFIs have plenty of money to spend, but [there’s a] lack of projects to invest into,” says Docherty. “The uniform message that we’ve had from most of the big DFIs about Sierra Leone, is we absolutely love this, it ticks all of our boxes. It does everything we need to see
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“It feels deeply strategic industry to be getting into. Where is the global food security crisis in the next 20 years is going to be solved? African agriculture is the only answer.” happening in Sierra Leone, it’s exactly what we need to see happening… we’ll come in at the second stage.” The next step after the feasibility study is to raise the first $4m to build the team and the establishment, which will be followed by the Special Purpose Vehicle (SPV) round of financing to raise $100m. “Each of the land areas is being treated as a SPV, so there’ll be a top company and then special purpose vehicles…one for each land area. We haven’t raised the $4m yet that’s what I’m working on and that’s followed by the $100m,” says Docherty. The returns are projected to be around 30 per cent. The company expects to go cash positive in year three and break even in year five. The bulk of revenue will come from the sale of rice and rotational crops, and additional revenue streams will be captured through some added-value operations.
A modern scramble for Africa? “One of the issues that has been a problem in many African agricultural projects is over-ambition. You hear about insanely large projects, 500,000 hectares, which people signed with various governments. There are some in Ethiopia and Kenya for example,” says Docherty, rejecting any comparison between these land projects and his own venture in Sierra Leone.
Unused farmland Tikonko, Sierra Leone
Docherty points out that these other vast land areas usually don’t get developed, “because it’s just too much to try and develop at once. So we wanted to develop it in a sequence that allowed us to do sensible size land areas and do it properly. Not to do too much at once.” As far as food security is concerned, Docherty suggests this project will have a positive effect in Sierra Leone. “The land and the labour, they’re extremely good value.” His land costs in Sierra Leone are $8 per hectare. This he points out is far less expensive than much of Sub-Saharan Africa.
Future projects “Our focus will be always agriculture and complements of agriculture. But I’m keen on the overlaps between agriculture and financial services for example.” One project in the pipeline is a micro-finance bank in South Sudan which would be a rural micro-finance bank, lending to smallholder farmers,” says Docherty. “I’m also interested in the overlaps between agriculture and infrastructure and transport and so on. So in the Niger Delta we’d be looking at manufacturing agricultural inputs, because at the moment it’s a ludicrous situation which is typical of many countries in Africa, they are importing everything from Europe,” Docherty says. I mean it’s not complicated stuff, [producing] fish feeds, animal feeds and so on. This isn’t hi-tech stuff. This could easily be made in the country.”
Appetite for agribusiness Docherty believes there is a large appetite for African agribusiness amongst investors. “It feels deeply strategic
industry to be getting into. Where is the global food security crisis in the next 20 years is going to be solved? African agriculture is the only answer.” “Phoenix Africa is trying to position itself in the investment hierarchy, at the level below the typical private equity investment funds.” This he explains is because “there’s a kind of disconnect between capital that is allocated for doing African projects, or particularly African agriculture. I mean there’s quite a lot of money that’s available in theory, but then there’s a problem in deploying that capital because of the lack of projects.” “One very senior [exec] at IFAD told me that he has $100m to spend in Sierra Leone alone,” Docherty intimates, but says this executive can’t spend it and he can’t find projects to spend it on.” “The Soros economic development fund, they have a similar amount of money about $100m as well, which they’re struggling to deploy. They can’t find the projects to buy in Africa generally, but they have been looking for rice projects in Sierra Leone and they simply haven’t been able to find anything. They’ll need someone like us to actually create the projects that they can put their money into.” “With Phoenix Africa, we didn’t want to take a fund approach, but rather create our own businesses. So we’re not looking for businesses to buy or businesses to invest into. We’re creating our own project. And I think that will make us quite viable because there are far too few new businesses being created in this sector.” See page 26 for an analysis of mega-land deals in Africa
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FEATURE: Declining production
A New Scramble for Africa? by William Clarke ON WEDNESDAY, 10 October, the aid group Oxfam staged a symbolic “land grab” in Tokyo during the annual gatherings of the IMF and World Bank. Protestors flashed money, and rode toy diggers over a map of Africa to
draw attention to foreign ownership of African land, and the resulting effects on food prices. However, with the agriculture on the continent in dire need of investment, agribusiness must not be ruled out as a solution.
Ten countries with largest scale of land transfers since 2000 Sudan
A green revolution
3,923,430 ha 18 deals
Large-scale investment is widely seen as an essential step towards African food security, and to realise the ambition of a “green revolution” for Africa. However, while foreign investment can offer the capital to develop local agricultural infrastructure, there are increasing concerns about the effects that such foreign investment is having on domestic food production. Private investment can offer material benefits to domestic economies when correctly structured. Co-operatives or intermediaries can offer economies of scale, and farmer associations in Mali and Zambia have invested in agricultural companies, offering a sustainable and profitable model of agribusiness. If Africa is to experience a “green revolution”, foreign investment will play a key role. However, by overlooking their role in the domestic food supply, agribusiness risks inciting instability and disrupting the very infrastructure and civil networks on which they rely.
Ethiopia 5,345,228 ha 83 deals
Democratic Republic of the Congo 8,051,870 ha 10 deals
United Republic of Tanzania 2,194,975 ha 58 deals
Madagascar 3,779,741 ha 39 deals
Cameroon
Liberia
Benin
679,000 ha 6 deals
1,040,900 ha 710,340 ha 17 deals 9 deals
Zambia
Mozambique
2,273,413 ha 9 deals
1,983,127 ha 92 deals
Africa’s agricultural output has declined in the last twenty years. Failures of governance, lack of investment in infrastructure and technology, and the disruptive effects of political unrest have left many African countries as net food importers. The food supply is at the mercy of underdeveloped road and rail networks, and reverse migration from cities to the countryside has increased pressure on land. With food prices becoming more volatile, and increasing investor interest in agribusiness, land deals have been booming. Two-thirds of the land acquired by rich nation investors over the last decade has been Africa, where underdeveloped agricultural land can be bought at low prices, and in huge quantities. The lack of transparency surrounding large-scale land deals makes collecting information on the scale of the transfers problematic, but preliminary research by the Land Matrix Partnership suggests that as many as 227 million hectares have been sold, leased, licensed, or are under negotiation in large-scale land deals since 2001. Most of these deals have been made since 2008, and mostly to international investors. Half of the land is in Africa, and the majority of the land transferred will be used for agricultural projects.
Hectares of land Number of deals
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FINAL WORD:
Good governance is key to rule of law and prosperity – Andrew Feinstein Transparency is a prerequisite for economic success in Africa “THERE IS NO doubt that wealth has been slightly more widely distributed and that because of the earners at the very top and in the middle of the economic pyramid, the earnings of black South Africans have improved considerably,” says Andrew Feinstein, author, anticorruption activist and former ANC MP. “The one thing that I think you have got to be aware of is that, quite remarkably, since 1994 inequalities have actually increased. South Africa has always been a highly unequal society along racial lines, for all the obvious reasons, but that disparity now includes the small elite of well-connected black business people who are doing incredibly well.”
Inequality is growing The main problem however, is the growing divide between rich and poor. South Africa remains the most unequal
“In a democracy that has the objectives that ours does, I remain astonished that there aren’t more micro-economic interventions [and] attempts to stimulate business in very poor areas,”
society in the world. “Inequality is a recipe for disaster at all sorts of levels,” explains Feinstein. “I think that the nature of the growth in incomes in South Africa, while it is important that it is generally rising, is hugely skewed.” “In a democracy that has the objectives that ours does, I remain astonished that there aren’t more micro-economic interventions [and] attempts to stimulate business in very poor areas,” he adds. In his view, attempts to give poor South Africans a stake in privatisations “haven’t happened in any meaningful way. Of course the growth is to be welcomed, and there are a whole range of indications that the South African economy is in a better place than it was under apartheid. I think the nature and the structure of that economy remain deeply concerning still.”
South Africa remains the gateway to Africa Despite these structural problems, Feinstein considers South Africa “a very important gateway to Africa. I think because of the connectivity of the South African economy to the global economy, because of the service industries that we have, particularly [the] finance industry and telecommunications,” he says. Feinstein regards the issues of transparency and the rule of law as not just important in the context of South
African politics and business, but also in terms of their impact on business throughout the continent. “Why do I say that?” he asks. “First, government contracts are not awarded in a transparent and competitive nature.” “There has been the emergence of a whole class of people. Call them the tenderpreneurs if you’d like to, as has been coined in South Africa, who because of their political connections, or their political positions… are engaged with companies winning a lot of government tenders. I think that’s extremely bad in creating a competitive business environment, [and] in attempting to deliver government services.”
Rule of law is threatened by lack of transparency Feinstein finds the lack of transparency in the relationship between government and business even more disconcerting, because “then the very basis of the rule of law which business requires to operate is under threat…unless business is conducted in a more transparent, a more open and a cleaner way, that could be the
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direction in which South Africa and Africa is heading.” He is troubled by business making contributions to political parties in Africa. “I think what is crucial in enabling the sort of opaque, problematic environment that we have at the moment in South Africa is the fact that all contributions to political parties are kept secret. And I think that overlapping between party political funding and contracts, for instance, is a very tight relationship and inimical to good governance and good business practice,” he says. “Africa and South Africa reflects what is a global trend, but in perhaps a more blatant way, which is the way in which business and politics have become intertwined and enmeshed. And I would argue that they have become enmeshed in ways that are both detrimental to the way in which we are governed, but also to the ways in which businesses function.” “This sort of intertwining of business and politics undermines the effective functioning of the market and makes it extremely difficult to regulate the market in appropriate and meaningful ways. And this is a global phenomenon but one sees it quite starkly in countries like Russia and countries like South Africa,” says Feinstein.
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Young democracies and the arms trade The reason why he believes this close relationships is especially insidious in an African context, is that “the institutions of democracy aren’t as embedded in South Africa, or in a number of African states as they are in some of the world’s older democracies. Not that those older democracies don’t themselves have very serious problems, for instance in the UK and the US and Germany.” Feinstein gives the example of Germany, where “the relationship between the arms trade and party political funding historically is profound. But just because there aren’t the same level of checks and balances because the institutions aren’t as grounded as they are in some other countries, I think the effects of it are felt more profoundly in countries at a different stage of economic and political development,” such as in the Sub-Saharan region. The global nature of the arms trade leads in his view to “less accountability from governments to their citizens. This makes bribery easier. It makes a loss of accountability easier.” He points out that some western companies facilitate this opaque process of buying concessions by paying tributes to
African political networks, demonstrating their willingness to undermine good governance by participating in potentially corrupt activities.
African kleptocracies “The two worst examples that we could use in our neighbourhood would be Angola, which I would describe as a kleptocracy, and the Democratic Republic of Congo, where you have a state that is barely functional and which is taken advantage of by some extremely insalubrious business people and some major corporations. And it’s a characteristic throughout the continent.” “Another example would be Equatorial Guinea where you have a country that has a per capita GDP higher than France, but has one of the lowest human development indexes in the world. It has a ruling family, a ruling elite, of gargantuan wealth and companies are willing to participate in these sorts of arrangements.”
The paperback edition of Andrew Feinstein’s The Shadow World is out now in all good bookshops
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DESTINATION:
Botswana Botswana, which has enjoyed half a century of growth, while avoiding the civil wars that have stricken many of its neighbours, often has been hailed as a model of good governance.
Botswanan Economy
Currency: Pula Population: 2,029,000 GDP based on PPP: $29.707bn GDP growth 2012 (2011): 3.8%(4.6%) Head of Government: Seretse Khama Ian Khama Finance Minister: Kenneth Matambo Central Bank Governor: Linah Mohohlo
Botswanan Business
Language: English, Setswana World Bank Doing Business rank: 54 World Economic Forum Global Competitiveness rank: 79 Investment agency: Botswana Export Development and Investment Authority (www.bedia.co.bw) Stock exchange: Tel +267 318 0201 Key sectors: Mining and tourism Legal system: South African pluralistic system
THE LANDLOCKED country of Botswana is often hailed as a model of good governance. The former British protectorate of Bechuanaland has enjoyed half a century of growth and avoided the civil wars that have stricken many of its neighbours. Since independence, Botswana has achieved one of the highest average economic growth rates in the world, averaging about 9 per cent per year from 1966 to 1999. For the last thirty years the mining and diamond industry has been the basis of this growth, with more than half of government revenues coming from mining in 2005. Transparency International rates Botswana as one of the least corrupt countries in Africa. Despite elections that are widely judged to be free and fair,
Getting There
Airlines: South African airways, Kenya Airways Visas: Citizens of the USA, South Africa and the EU do not need visas Hotels: Approx. £70 to £130 a night
Photo Credit: Athena Lao
Zimbabwe Namibia
BOTSWANA
Gaborone
South Africa
the centre-right Botswana Democratic Party has held power and dominated the political landscape since the nation achieved independence in 1966. The current president, Ian Khama, is the son of Seretse Khama, the nation’s first president. He is also the great-grandson of King Khama III. Trade and tourism contribute significantly to Botswana’s economy. Botswana is a member of the Southern African Customs Union and has maintained strong diplomatic ties to South Africa since the end of the Apartheid-era. Agricultural development has lagged behind, although 80 per cent of the country is employed in farming, the sector contributes less than 3 per cent of GDP and only meets half of Botswana’s food needs.