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Lagos: Notes from the “surprising, not simply rising” continent

 

Sarah Caddy

News broke that Nigeria has overtaken South Africa to become Africa’s largest economy as the 500+ delegates at the African Private Equity and Venture Capital Association’s 11th annual conference in Lagos returned home (in my case, to a Saharan sand-strewn London).

Africa’s most populous country’s government released revised figures that more or less doubled estimates for its GDP, testament to its increasingly diversified economy and growth of services that tap into the expanding consumer story. Most notably the telecommunications sector has increased from 0.8% of GDP to 8.6%.

Nigeria’s minister for economy and finance, Ngozi Okonjo-Iweala, is cited by the FT stating that the revision will “validate” the investment thesis to foreign investors increasingly searching for returns in the region.

They may not need reminding, however. AVCA/RisCura/SAVCA research released at the conference, downloadable here, noted that 24% of investors into private equity already find West Africa to be the most attractive region.

“What excites you about Nigeria?” asked William Wallis, Africa Affairs Editor at the FT in his interview with Michael Power, Investec, at the conference. “Its people are extraordinarily enterprising” came the reply. “Africa is not just the rising continent, it is the surprising continent.”

Though with Nigerian pension assets under management (currently NGN4 trillion/$25 billion) estimated (at the conference) to double in just three years, local – rather than foreign – capital may be the investment force to be reckoned with.

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Read more insights from the AVCA conference in Lagos from the Financial Times here.

Watch AVCA’s Chief Executive, Michelle Essomé, on CNBC Africa, which filmed live from the event, here.

 

Insight

Africa Trivial pursuit: What sector is the second largest employer in Nigeria?

 

Isabelle Alenus-Crosby

Believe it or not, it is culture, with agriculture claiming the top spot. Nigeria produces almost as many films as Bollywood, at more than 50 per week, with each film employing more than a hundred people. It is not surprising therefore that the Nigerian film industry (Nollywood) is worth almost US$ 4 billion.

Africa is rich in talent and creativity, but we don’t get to see much of it (yet). The pool of talent cannot be commercialised due to the lack of crucial infrastructure. Africa’s world of Music, Art, Fashion, Literature, Design isn’t managing to go global, yet it could be a vast contributor to the continent’s economy.

The African Arts Institute, the European Union and UNESCO’s National Commission (among others) have found that culture “contributes substantially to development at national level, fostering economic growth”. A 5-year study, concluded in 2013, found that culture could be as important as a source of income as tourism. And so, as of this year, and thanks to UNESCO’s findings, governments in Africa can now be “officially” persuaded to start giving priority to the type of infrastructure that will facilitate artists to bring their work to the masses.

I expect that Africa’s big transformation in the upcoming years will therefore not just be economic but also cultural. And I for one can’t wait to see what’s going to hit the world when it does.

Insight

Powering Nigeria

 

Sarah Caddy

“By 2050, there will be more Nigerians than Americans”. The wake-up call to the country’s capacity for prominence came from the BBC’s Komla Dumor (@BBCkomladumor), chair of a morning panel at EMPEA and This Is Africa’s most recent African private equity conference in London.

Komla was speaking to a converted audience; his panel on ‘Realising Africa’s economic promise’ focused almost entirely on the opportunities for investment in that country. The sector of preference was also clear, with Jan Rielaender, Economist at The Organisation for Economic Co-operation and Development (OECD) citing access to power as the leading concern for small companies – and drivers of growth – in Nigeria. With investors vying for the opportunity to provide capital, infrastructure and expertise to rehabilitate the Nigerian power sector following its privatisation process, it awaits to be seen how long it will take for a steady power supply to run. Predictions in the coffee breaks centred around the 4-5 year mark.

Speaking in a keynote session, Arunma Oteh, Director General, at the Securities and Exchange Commission, Nigeria also highlighted technology as a particular focus for fundraising. Well she might: Nigeria’s internet subscriber base grew from 200,000 in 2000 to over 44 million by 2010, and the country’s internet business is estimated to be worth $250 million. The fact that the future of the technology sector’s success also depends upon power infrastructure investment merely highlights that for now, the focus must be on powering up Nigeria.

Insight

Running the Numbers: Chinese Social Media and Dangote Industries

 

Tom Griffiths

Last week, we at Gong were treated to a lunchtime talk by Jonathan Smith of Hot Pot Digital. Jonathan runs a bespoke service, representing a number of the UK’s brands on Chinese social media sites like Sina’s Weibo (China’s Twitter-equivalent in both micro-blog format and number of users). His talk raised a question in my mind: what share of voice does African business news have on Chinese social media channels, as compared with Twitter?

China-Africa trade receives a lot of attention, both positive and negative, in English and French social media. Simply search for the words “China” and “Nigeria” on Twitter and receive a stream of news, statistics and viewpoints. This is of little surprise given China’s perceived importance in many of Africa’s economies. I was interested if a similar ‘conversation’ exists on Weibo.

The story I decided to test my hypothesis on was this week’s news that Dangote Industries, a Nigerian Conglomerate, intends to invest US$9billion in building the country’s biggest oil refinery along with petrochemical and fertiliser plants. Dangote Industries’ founder, Aliko Dangote, announced that his company will be putting up US$3 billion and seeking US$6 billion in loan capital.

My admittedly less than rigorous method of investigation was to compare mentions of “Dangote” on Twitter with mentions of “Dān gē tè (丹格特)” on Weibo over the 5th of September. Before going into the findings I would like to note that I recognise Twitter is widely used in Nigeria when compared with Weibo. I have looked at geo-tagged tweets from users outside of Nigeria to try to negate this bias however I realise any findings were always going to be heavily weighted towards Twitter.

The results: Weibo had only two posts that mentioned the story. Both simply stated the facts without commentary and provided a link to a longer write up. Both posts were made by petroleum industry trade publication’s Twitter accounts. Twitter, on the other hand, held a huge number of tweets on the news. Many of these came from Nigeria, however there were also many hundreds from Kenya, the US, Britain and Indonesia. Most tweets simply restated the facts, however a number commented on the potential job creation of the new factories.

The results were striking, even with the obvious bias in the experiment: 2 Weibo posts compared with thousands of tweets. It seems that the new Nigerian refinery just wasn’t a talking point on Weibo, despite the resource trade between China and Africa being so well publicised. However, as many African countries’ economies rise, will we see an increase in discussions on African business on Weibo?

It would be interesting to repeat the test on a piece of news that directly involves both China and an African country: an experiment for a later day.

 

Insight

Africa invests in Africa

 

Isabelle Alenus-Crosby

A growing number of African countries are rapidly joining the ranks of prominent investors across the continent.

According to the International Finance Corporation (IFC), the rate of FDI projects from emerging markets has grown at a healthy compound rate of over 21% since 2008 (triple the amount from developed markets). The top investors were still India, the United Arab Emirates and China at the start of 2013, but intra-African investment has become very impressive since then. Nobody knows Africa better than Africans, and continued political stability across the continent is making them trust their own. The beauty is that increased economic stability and growth is allowing them to help accelerate the African success story through rapidly increasing cross-border investments.

SA has been at the forefront of the growth in intra-African trade but Kenya, Ghana and Nigeria are also investing heavily this year. From 2014, it is expected that countries like Angola and Mozambique will join their ranks.

The star performers, so far, in 2013, are Ghana, Nigeria, Cote d’Ivoire, Kenya, Tanzania, Zambia, Mozambique, Mauritius, Ethiopia, Namibia, Botswana, Angola and South Africa.

THE World Bank’s investment arm will increase lending to sub-Saharan Africa by up to a quarter in 2014 as private sector companies continue to flock to the region. The IFC is expected to make new investments of USD 5bn and Japan will provide USD 2bn worth of financial support over the next five years to back Japanese-owned development projects on the continent. Europe and the United States are also expected to increase their investments dramatically according to the World Bank, which sees Sub-Saharan Africa’s GDP accelerating to almost 6% over three years, driven by investment and commodity prices.

Roughly half the IFC’s annual lending in the region goes to financial markets and institutions to help improve the flow of credit to smaller businesses, which employ most of Africa’s workers. Another third goes to infrastructure projects and natural resources investments. The expanding sets of SMEs is bringing real economic diversification and are giving rise to internationally competitive companies, thereby providing access to global markets, and consequently higher wages and salaries. This, in turn,  leads to the rapid growth of the middle-class and further political stability.

Even the most cautious investors have to admit that all the excitement surrounding Africa is grounded on solid analytical soil. The evidence might be that within a decade Africa will be its own biggest investor. I honestly cannot wait.

Insight

More good news for Africa: Consumer spending and private investment is up

 

Sarah Caddy

Consumer spending, which accounts for more than 60 % of Africa’s GDP, remained strong last year according to a World Bank report.

The trend was driven by declining inflation across the continent and improved access to credit in Angola, Ghana, Mozambique, South Africa, Nigeria and Zambia.  In addition, interest rates were much lower in 2012 than in 2011 and we witnessed a spectacular rebound in agricultural income thanks to stable weather conditions. Especially Guinea, Mauritania and Niger experienced good rains compared to 2011, but less crops failed in general across the continent compared to the previous years.

We also have to add the steady remittance inflows to the good news coming from Africa, currently estimated at $31 billion.

Not to be sneezed at are the increased investments that are supporting the region’s growth performance. In 2012, for example, net private capital flows into the region increased by 3.3 % to a record $54.5 billion; and foreign direct investment inflows to the region increased by 5.5 % in 2012 to $37.7 billion.

The World Bank report also mentioned that exports are increasingly helping the continent’s growth and that the traditional destination of these goods over the last decade is also changing. Since 2000, the overall growth of sub-Saharan exports to emerging markets and other African countries has surpassed that to developed markets. Africans are increasingly selling to and buying from other Africans, which is the best news of all.

Insight

The “Where and Why” of investing in Africa

 

Isabelle Alenus-Crosby

Gong recently hosted a breakfast meeting chaired by The Economist’s Business Editor, Robert Guest.

One of the topics discussed was that too much “ignorant” money is going into Africa simply because there are not enough listed companies outside of Nigeria. The big question is therefore “where to invest?”  Where are the various opportunities that tomorrow’s Africa presents, and what makes one country more attractive than another?

With 54 diverse markets offering unique prospects and challenges, most delegates had different opinions.  What they didn’t have however, was conflicting opinions. Most agreed that there are still only a handful of  good entry point to expand into Africa today.

Here are the top 5.

1. With a population of 170 million people, a growing middle class, and a reputable stock exchange, Nigeria is a notable market for those looking to target a large consumer base in Africa. With reformed petroleum regulations, Nigeria has also become an appealing market for multinational companies.

2. Ghana is doing incredibly well and has proven to be politically stable. The fact that Ghana and Nigeria have space programmes is a measure of how much these two countries are ahead of the game. The difference between Ghana and other countries is that everything (power, institutions, infrastructure) works. With the discovery of offshore oil, the country now really has everything to soon be claiming the number 1 spot.

3. Kenya is more business friendly compared to other regions on the continent. In addition, there is access to good human capital, excellent IT infrastructure, and IT skills.

4. Tanzania has always been politically stable and is therefore emerging as the most effective gateway for trade into Eastern, Southern and Central Africa. It has lucrative investment opportunities in infrastructure, privatization and value-adding facilities, and oil has recently been discovered off-shore.

5. Mozambique is developing at a rapid pace, has much oil and is also politically stable.

I should add that Ethiopia received an honourable mention at the Gong breakfast meeting; It has become Africa’s fastest-growing non-energy economy and Diageo and Heineken recently paid nearly $400m combined to acquire state breweries in the country. Ethiopia is not for the faint-hearted, however. Its population of 85 million people still ranks among the world’s poorest.

The conclusion was to watch what the diaspora is doing – and  they are returning first and foremost to our top 3.

Insight

The market that had bankers at Davos excited this year was Africa

 

Isabelle Alenus-Crosby

This is what Peter Sands, CEO of Standard Chartered, told Reuters at the World Economic Forum last Friday.

Many African politicians attended the Forum, above all to present their nations in a positive light and thus attract more investors.

The heads of state and government from Guinea, Ethiopia, Nigeria, Rwanda, Tanzania, Kenya and Mauritius all debated the future of their continent over dinner. The event was called an “Interactive Dinner Session”, and journalists were not allowed in. Only entrepreneurs and investors were. South Africa and Nigeria, the biggest economic powers in Africa south of the Sahara, didn’t feel the need to attend the dinner, but instead focused on promoting agriculture in their respective countries. Feeding Africa seems high on their agenda, following the expected population explosion. Nigeria intends to modernize its agriculture via large-scale investment programmes, knowing that its Human Resources are more important to the country’s future than its oil. The aim is to become self-sufficient and eventually an exporter.

One point where everyone agreed was that if Africa were to invest heavily into infrastructure, it could uplift all people still living in poverty.

Some studies suggest that some $100 billion (74.2 billion euros) would have to be invested each year to achieve real improvement, and African representatives at the Davos forum hoped to raise awareness for the issue. They argued that whoever fails to invest in Africa today, will be sorry tomorrow. And almost all attendees seemed to agree with them.

Finally, the European Central Bank president Mario Draghi ended the Forum by stating that “positive contagion” on financial markets was not yet feeding into the economy at large, but that the eurozone should see recovery in the second half of the year.

Good news all round…

Insight

Sign of the times: Nigeria’s very own Monopoly board game.

 

Isabelle Alenus-Crosby

A new report published by the World Bank has declared that as many as 38 of sub-Saharan Africa’s 48 countries could be regarded as ‘middle income’ by 2025.

Currently, 21 countries have middle-income status, and at least an additional 10 are therefore poised to transition to middle-income status over the coming decade on the back of prevailing growth rates.

In fact, if sub-Saharan Africa were one country, it would already be considered middle-income.

No wonder therefore that the Monopoly board game now has its first customised African edition (Kenya’s Kumiliki is a Monopoly rip-off).

Set in Lagos, Banana Island is the new Mayfair, and instead of simply going to jail, players are sent to “Kirikiri jail”, Lagos’s maximum-security prison. A fair warning for anyone deciding to mess with the city’s precious real estate sector. The chance cards include “for attempting to bribe a law enforcement agent, pay a fine”, as well as “You’ve been caught driving against traffic. Report for psychiatric evaluation”. The airport, bus station, shipping port and stock exchange stand in for the railroads and utilities of the original games set in Atlantic City and London.

The Nigerian metropolis is one of the fast-growing cities in the world and a new edition may already be called for in just a few years. In fact, most of “Makoko” no longer exists, making this brand-new edition already out-of-date. A clear sign of the times.

Insight

Developments in the insurance/reinsurance market – An African perspective.

 

Isabelle Alenus-Crosby

Demand for insurance and reinsurance continues to grow globally, but nowhere as quickly as in Africa.

Rating agencies are awarding stronger ratings to African Reinsurance providers despite the continuing economic crisis in the West.

The Economist states that seven African countries, including Nigeria, Ethiopia and Mozambique, are forecast to be among the 10 fastest–growing economies over next 5 years. Nigeria has by far the largest population in Sub-Saharan Africa, which, combined with being the second largest economy (after South Africa), gives it the highest potential for life insurance.

The middle class in each of these countries is fueling a growing demand for goods & services. Demand for insurance products, new or otherwise, should therefore follow. According to Continental Reinsurance “this urban consumer class, that is expanding faster that the middle class base anywhere else in the world, is the insurance industry’s biggest opportunity. However, with the exception of South Africa, little headway has been made in unlocking it”.

Africa has not escaped the general increase in the worldwide incidence of natural catastrophes that, according to an AON report, saw 900 occurrences globally in 2012, compared to 820 in 2011. The African continent experienced widespread flooding in Mozambique, Kenya, Tanzania, South Africa, and Nigeria, and severe drought in parts of the horn of Africa. The lack of insurance in these areas shows that the market is still very much in its infancy, and, with the exception of South Africa, should translate into immense potential.

“Unlocking” is certainly the key word.

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