FEATURE ARTICLE

Chamberlain S. Peterside, Ph.DMonday, June 27, 2005
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Cpeterside@aol.com
New York, NY, USA

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AFRICA – OPEN FOR BUSINESS
...DEMOCRACY ON THE MARCH, IS THE ECONOMY ON THE MEND?


…Every Little Progress Counts.

frica - Open for business (https://www.africaopenforbusiness.com/) is the caption of a new documentary film that premiered in New York City at Time Warner Plaza this April. It profiles ten companies and their leaders around the continent who are surviving and thriving in the face of daunting obstacles.


There is indeed a myriad of problems facing Africa today and most of it is well documented in the international community. Simply put, everyone – politicians, academicians, celebrities and activists at last have something they can all agree upon; that Africa as the frontline of global backwardness needs help. For the most part all hands are now on deck, conceptually.

Achieving the UN Millennium Development Goal (MDG) of halving the number of people living in poverty in Africa by 2015 for now remains a pipedream, due to insufficient financial resources. It’s a well-known fact that more than 70% of the population (over half a billion people) in Africa survives on less than $1 a day. In some Southern Africa countries like Lesotho, Botswana, Swaziland AIDS has become the number one killer of able-bodied population, ravaging the livelihood of families. Infant mortality in most African countries is still at early 20th century level of Western Europe.

Available statistics reveal that as much people die in Africa every week that died in the Asian tsunami. Life expectancy in West Africa, notably Nigeria, Sierra Leone, and Liberia has been falling precipitously and averages less than 50 years. Going by UN quality of life index the continent is home to 33 of the world’s poorest countries. Violence and religious unrest in Nigeria, Southern Sudan (Dafur), Congo, Ivory Coast and Somalia, Rwanda continues to threaten the fabric of those nations according to US National Intelligence Report.

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When you have been down for so long as Africa, every bit of good news like this film is progress. Judging from the reaction of the divers audience, this documentary truly struck a positive chord.

Since 1960, when a handful of African countries gained political independence, they have all been battling with a myriad of unending problems to meet the yearnings of their citizens for a better life. According to published reports, per capita income and quality of life wise, some Africa countries are today worse-off than 30 years ago. The analogy is often drawn between African countries and their Asian counterparts that were considered poor in the 1960s. Just to give you some perspective:

  1. Legend has it that the first palm seeds planted in Malaysia 40 years ago was brought from Nigeria. But today, Malaysia is the largest producer/exporter of this indispensable cash crop as well as other manufactured goods.

  2. Statistics reveal that South Koreans on the average had a lower standard of living than Sudanese in the 1960s, yet South Korea is now an Asian Tiger with a robust industrial-base, as Sudan remains enmeshed in ethno-religious conflict.

  3. China was a net importer of food unable to carter for its teeming population. It now has one of the fastest growing economies in the world, as less populated African countries grapple with disease, hunger and poverty.

A country like Nigeria is rated only next to Venezuela amongst OPEC countries in terms of how poorly it has utilized its oil revenue since the last 30 years. Economic mismanagement, power tussle and myopic leadership have all contributed to incessant social unrest, political instability and dismal life standard for Africans. But look around today and you would notice that some of them have indeed begun to make gradual strides in the last 5-10 years. Recently released report by the International Monetary Fund (IMF) showed that in 2004, African countries on the average grew at 5.4%, which was the highest rate in nearly a decade.

…Gains of Deregulation.
Democratic reform, privatization and deregulation is dismantling state monopolies and opening up new markets. Tiny Botswana now boasts of over $10 billion in foreign reserves and commands a higher sovereign credit rating than Japan and Germany, according to international rating agencies. Foreign revenue from value-added textile exports in Malawi, Lesotho, South Africa and Uganda is at an all time high, thanks to the US legislation - African Growth And Opportunity Act (AGOA).

Low tele-density (ratio of phone lines to population) has created untold opportunities all around the continent as the worlds telecom market experienced a slump. Countries like Nigeria, Egypt, South Africa, Kenya, Mauritius and Uganda are known to have some of the highest per capita expenditure on cell-phone usage. MTN and Vodafone of South Africa have been in the forefront of exploiting those opportunities.

Heightened exploration and discovery of large crude oil deposits in the deep sea of Gulf of Guinea in West Africa will increase export capacity of petroleum in the world market. By 2015 Africa could account for 25% of US energy consumption according to published reports. In the last few weeks the G-8 has announced a sweeping $40 billion debt relief package for 18 Highly Indebted Poor Countries (HIPC) that would free up resources for domestic investment in infrastructure and social programs.

Most exporting countries in the region like Nigeria, Angola, Botswana, Uganda, Kenya, South Africa, Lesotho, Malawi and Mauritius have recorded exponential growth in revenue and foreign reserves. As higher revenue accrues from exports these countries are experiencing an unexpected turn-around in their economic fortunes. No less enhanced by more stringent and disciplined fiscal policy and crackdown on corruption.

On a continental scale all is not rosy. Critics argue that even the modest gains are yet to translate into better life for the populace – rightly so. The fact that these reforms are occurring in countries that are notorious for ineptitude and stagnation in of itself is welcome news. This documentary simply reflects the resilience and subtle progress that is already being achieved. All across the continent evidence suggests a new wave of political optimism not seen since the 1960s. Entrepreneurial zest is fanning growth. …The New Growth-Drivers.

Some of these changes so far are internally driven; Africans both within and outside the continent are now the new foreign investors in their homeland. Foreign private remittance was estimated to top $12 billion in 2004 according to the Governor of the Nigerian Central Bank Charles Soludo speaking at the World Bank/IMF Spring Meeting in Washington DC.

South Africa is now considered the largest foreign investor in several African countries in the Southern, Central and Western Regions, accounting for the bulk of capital flow into the telecom, information technology, and infrastructure sectors in those markets. The level of interest by foreign investors and Africans in the Diaspora in what is happening in the continent is now growing.

Over the last few months several Western Media organizations like New York Times, Washington Post, Newsweek, Wall Street Journal, The Economist, Financial Times and CNN featured reports on the revival occurring within the political and economic terrain in the continent. Only recently I had spoken in a CNN Interview – “In the Money” about the need for a new accent on trade and investment to support Africa’s recovery. Sub-Saharan Africa: Economic Trends

Demographic Trends

(Courtesy of Which World? Scenarios For The 21st Century)

A very vivid example of recent bold strides is the ambitious foray into Africa/Nigerian market by none other than Sir Richard Branson, with the launching of Virgin Nigeria Airline, potential interest in V-Mobile Network, Nigerian Railway Corporation and Lagos Light Rail project. His overtures could be considered a calculated risk given the history of the African markets.

Any discerning investor in Richard Branson’s position with substantial war chest and track record of successful (gambles) investments might be tempted to stake part of his future in the most unexplored continent with enormous potentials and dilapidated infrastructure. With luck and tenacity you could make a killing over the long haul rather than playing safe in more competitive environments and contend with minimal return.

Assuming Richard Branson’s business strategy in Africa doesn't pan out, (which is highly unlikely), how much does he stand to lose? Maybe his standing in the Forbes Magazine global list of wealthiest people. Indeed, Mr. Lakshmi Mittal, sitting atop the second largest steel empire and the most expensive home in the world, has proven that by looking into depressed regions and acquiring undervalued assets (in this case steel production facilities) in emerging markets like Kazakhstan, Poland, Czech Republic, Trinidad & Tobago, your risk premium is higher, but you are likely to build substantial wealth in a relatively short while. Africa presents exactly that kind of opportunity for international investors.

…On The Mend
Not every observer of this trend believes that the continent has turned the corner. Despite the skepticism, it is safe to say that transformation in a handful of countries like Ghana, Nigeria, Botswana, Kenya, Mauritius, Namibia and South Africa might simply be irreversible. Fundamentally, the gain of any smart economic policy regime takes a while to trickle down to the grassroots. It will be naive to think that all would be smooth sailing from now on. However, sustained political reform and predictable market environment can only help solidify this modest progress being made.

If you ask me, I'd say that these times call for some deep introspection and long-range analysis by adventurous investors as to how and when to get involved in that sea change.

Chamberlain is the Founder & President of New Era Capital Corp. and MyCompleteFinance.com, a New York based financial services group. He was previously a Financial Advisor in the Global Private Client Group, of Merrill Lynch.