Africa News blog
African business, politics and lifestyle
African agricultural finance under the spotlight
Africa is turning into a fashionable post-crisis investment destination as investors regain their confidence and start to focus on the continent’s lack of direct involvement with the global market’s volatility drivers and trouble hotspots. Africa is benefiting not only from a resumption of international debt and equity flows; it is also a beneficiary of international efforts to maintain the flow of trade finance via multilateral guarantee programmes – 45 issuing banks from 27 countries in sub-Saharan Africa have joined the IFC’s trade finance programme, for example.
At the same time, bilateral and multilateral development agencies are actively investing via an assortment of public and private-sector channels; the international capital markets pipeline is building – sovereign debt offerings on the docket for Nigeria, Senegal, Tanzania, and Zambia with Libya believed to be looking – while the slew of private equity and hedge funds being raised this year for Africa are seeing healthy interest from public-sector and private LPs.
Investors are focusing broadly on Africa’s relative political stability, improving governance, more conducive policy and regulatory environment, as well as more transparent foreign investment regimes. At the macroeconomic level, above-average growth and low levels of government and corporate indebtedness add to the appeal. What’s key to much of the capital flowing into Africa is that it is supplemented by a support network of capacity building, advisory services, training, technology transfer, and infrastructure benefits.
From a sector diversification perspective, the emergence of new technologies such as mobile telephony and Internet broadband are creating interest beyond the traditional natural resource plays; the telecoms and services sector was the dominant Africa FDI recipient in 2009.
In its World Investment Report 2010, UNCTAD noted that Africa still trails at the bottom of future investment destinations relative to the rest of the world. But that could be about to change as foreign governments and private investors reset their investment horizons and start to look at Africa from a different perspective. Plus: Africa has an abundance of one commodity that is becoming ever more fiercely fought over: agricultural land.
Rising levels of international investment capital in African agriculture and agribusiness have taken the investment thesis directly into the intensely political arena of global food security and land rights. It will remain there as long as food security remains a top agenda item for the likes of China, India, Saudi Arabia, UAE, South Korea and many others.
The notion of foreign investment in agriculture as a key to Africa’s food security, particularly when it is aimed at supporting smallholder agriculture and sustainable farming, is a relatively straightforward one. The acquisition of huge tracts of African agricultural land by foreign governments (directly or through sovereign wealth funds), and by multinationals, investment banks, hedge funds, private equity firms and speculators creates a slightly more convoluted picture.
Banking on Africa
Mining companies are looking more cautiously at South Africa after a brouhaha over shady deals. Media and diplomats are nervous of measures they fear could curtail press freedom. South Africans in general are wondering how much damage an ongoing public sector strike will do and whether it is a sign of worse labour unrest to come.
But global banking giant HSBC certainly seems to be taking a positive long term view of Africa’s biggest economy with its talks to buy up to 70 percent of South Africa’s Nedbank in a deal that could be worth more than $8 billion.
HSBC wouldn’t only be getting a strong presence in South Africa, though.
It would be getting a solid foothold on a continent set to be among the world’s fastest growing in the years to come and where it is coming from behind against well-established emerging market rivals Standard Chartered and South Africa’s own Standard Bank.
Particularly important for HSBC would be helping its Asian customers do business in Africa. Although Nedbank does not by itself have the presence across Africa that some of its rivals do, it has an alliance with West Africa-based lender Ecobank spanning the continent.
It’s hard to tell to what extent a bid for Nedbank is a bet on South Africa and how much on the rest of Africa – South Africa’s top businesses are finding it increasingly important to be strong in the rest of the continent in any case. What can be in no doubt is the intensity of the looming competition among local and global banks across Africa.
I am a South African living in Bahrain, I bank with the HSBC in Bahrain. Well let me tell you they are nothing like the HSBC in the UK ( I used to bank with them when I lived in the UK). The service I receive in Bahrain is shocking, the worst bank I have ever banked with. Lets hope that their service will be better in South Africa
Time for an Afribond?
“Europe possibly needs an Afribond,” commented one contributor this week on the Thomson Reuters chatroom for fixed income markets in Kenya.
A nice quip from Henry Kirimania of The Cooperative Bank of Kenya and a reminder of just how much better placed Africa is now in terms of its debt burden than it once was and particularly in relation to what might now be regarded as the world’s Heavily Indebted Formerly Rich Countries.
“It used to be that when you thought about highly indebted countries, you thought about those in our part of the world,” Maria Ramos, head of South Africa’s Absa Bank told the recent World Economic Forum on Africa. “You can’t any longer.”
By global standards, African debt has also performed fairly well during the crisis over Greece. Although the yield on Ghana’s Eurobond spiked when concerns over Greece reached fever pitch before the EU and IMF safety net announced at the weekend, it has been on a steady downtrend and has fallen back somewhat this week.
Ghana, set to be the world’s fastest growing economy next year after it starts pumping oil later in 2010, is especially well placed, but debt yields have been falling elsewhere in Africa too.
Rising commodity exports, helping to feed Asian demand, generally better economic management, increased political stability and technological change such as the explosion of mobile phone networks have all helped to put Africa on a sounder footing than it was before.
Where should Africa turn for funds?
A few days back, I had the pleasure to moderate a lively debate on investment prospects in Africa involving private sector panellists and representatives of the World Bank and International Monetary Fund. The tone was upbeat, but discussion turned heated when it came to debt restructuring in Ivory Coast. While it might sound obscure (and I won’t go into all the details) it raised broader questions about the role of the international financial institutions in Africa and how that may be reinforced by the global financial crisis. The concern of some in the private sector was that foreign investors with exposure to local debt in Ivory Coast looked set to suffer the same restructuring terms that holders of foreign debt would have to bear – with the approval of the IMF. Their argument was that this would discourage foreign investors from buying local bonds in Africa. The IMF came back robustly, saying it was only playing by the rules in Ivory Coast and suggesting that investors make closer checks before putting in their money. But private sector participants were unclear where this might leave them in future, particularly at a time many African states are eyeing bond markets again. Some voiced broader concern over how the international financial institutions see the private sector’s role. Before the credit crisis, a number of African countries had begun turning to international capital markets. But Eurobond plans were put on hold when global markets seized up and the institutions stepped back in to provide emergency help to hard-hit countries. Amounts have been substantial even compared to the $10 billion in concessional financing promised by China over three years. The IMF board approved a $1.4 billion standby loan arrangement for Angola this week. The question now is how this may change the longer term balance in sources of finance for African states. Is the private sector overly wary of institutions that are simply doing their best to give emergency help now and fend off future debt crises? Or are those institutions muscling back in to impose their dominance in telling African states how they should go about managing their debts and getting the finance they need? How will Chinese money affect the balance?
Pictures: A money dealer counts the Nigerian naira on a machine in his office in the commercial capital of Lagos, January 13, 2009. REUTERS/Akintunde Akinleye; Dominique Strauss-Kahn, managing director, International Monetary Fund (IMF), is introduced at the International Economic Forum of the Americas conference in Montreal, June 8, 2009. REUTERS/Christinne Muschi
I think the World Bank is doing quiet well in granting loans to the developing countries, especially in Africa, but as some of my colleagues said, their loans are driven more by geopolitics instead of economics. A lot of strings are attached to these loans that make it difficult for the recipients to operate freely with the loans. The World Bank should relax some of the strings they attach and give the recipients some room to operate with the loans.
Mr. Mullin has assembled a good article that is timely given current trends in African countries and the fact governments are changing. Public/private/Partnerships are taking hold as the preferred route to raise finance for the required investment. Just examine the litany of new investment fund listed by Mt Mullins. Most have some eement of public institution participation – be it World Bank institutions, US Government or European governments. In the meantime, CHina is busy establishing food security-and is investing apace.