Foreign Investors Recognize Allure of Sub-Saharan Africa

By Stephanie McCrummen
Washington Post Foreign Service
Friday, August 29, 2008

NAIROBI -- To a growing number of foreign investors, sub-Saharan Africa represents much more than the ethnic clashes, coups, bouts of genocide and natural disasters that have scarred many countries in the region. It represents dazzling opportunities to make money.

"If you look at sub-Saharan African markets, they've given annual returns that are substantially better than most around the world," said Ayo Salami, a chief investment officer for Duet, a London-based financial group that inaugurated its first Africa fund in December. "Even this year, most of the economies around the world are not seeing very much growth -- 2 percent would look optimistic. Whereas in Africa, it's been around 6 percent for years. One of the fastest-growing economies in the world is actually Angola, yet the perception is that it's still in a state of war."

"You don't usually hear these stories," Salami added, "but there are signs that Africa is moving on."

Foreign investment is pouring into the continent at unprecedented rates, doubling in recent years to around $39 billion, according to U.N. figures. In recent months, some investors have even appeared convinced that Africa might be a safer spot to sink their money than the shakier U.S. and European markets.

"People are looking for diversification," said Hurley Doddy, chief operating officer of Emerging Capital Partners, a private equity group based in Washington whose investments in Africa have jumped from $400 million in 2000 to $1.5 billion this year. "A lot of the problems the U.S. economy is having, you simply do not have that in Africa."

Middle Eastern firms flush with oil money are increasingly looking to neighboring Africa, as are investors searching for the next India.

While the largest chunk of money is flowing to the continent's most developed countries, such as South Africa and Tunisia, a growing percentage is heading to sub-Saharan nations, including Ghana, Nigeria, Rwanda, Uganda, Botswana and Cameroon. Tourism and mining have benefited, but so have cellphone companies, soap manufacturers, coffee growers, banks, construction firms and other businesses more often funded by donor money.

Stock exchanges have also prospered. Where once there were five, there are now 18 exchanges across Africa -- tiny markets in such relatively stable, out-of-the-news countries as Namibia, Mozambique and Zambia, where annual returns have averaged nearly 15 percent since 2000 and have at times been as high as 144 percent in a given year, according to a report by the International Monetary Fund.

Rwanda, infamous for the 1994 genocide that killed nearly 1 million people, is now gaining a reputation as one of the most business-friendly countries in the region, with smoothly paved roads and wireless Internet access. The Middle Eastern firm Dubai World recently said it planned to invest $230 million in Rwanda's tourism sector.

"People are starting to see Africa much more as the land of opportunity than in the traditional paradigm of starvation and famine and war," said Alan McCormick, managing director of the Dubai-based investment group Legatum. "There are opportunities in a number of countries -- it's not universal, but it's there."

While the region has monumental deterrents to business -- including generally horrendous roads, spotty power supplies and entrenched corruption -- analysts say the surge in foreign investment reflects a number of fundamental economic changes.

Chinese investment across the continent -- in oil, agriculture, mines, roads, power and other areas -- has to some degree caused private investors to sit up and take notice, Salami said. But so have reforms undertaken by governments.

Inefficient state-owned companies, especially phone companies, are being privatized. Many countries have adopted policies to shrink their deficits and control inflation. And in Kenya, Uganda and Nigeria, banking reforms have spurred massive growth and investment in that sector, which is now able to offer mortgages, car loans and other services once unavailable to middle-income Africans.

James Shikwati, a Kenyan economist, said there are several factors driving governments to embrace the private sector: The Cold War is over, and capitalism won. Globalization is a reality. And with investors from India and oil-rich Middle Eastern countries looking for places to put their money, African governments do not want to be left out.

"We've moved from a stage where, at independence, there was a feeling that the government must deliver everything," Shikwati said. "Now, governments are quietly realizing that private enterprise can deliver more, and they're giving more space."

Since it was colonized, sub-Saharan Africa has often suffered from a striking dichotomy of perception, seen as the very heart of darkness on one hand and a treasure trove of natural resources and fast money on the other. Ruthless exploiters have always had their hands on Congo's rubber or Sierra Leone's diamonds, extracting resources with little benefit to local people and enjoying the profits overseas.

Shikwati and others cautiously suggest that the current situation is different. Enormous gaps between rich and poor persist in most sub-Saharan African countries, but there has been a slow trickle-down effect from the growing private sector, as jobs have been created in the cellphone industry, for instance, or tourism or banking.

Maggie Kigozi, executive director of the Uganda Investment Authority, attributes about 63,000 new jobs created in that country this year to growth in the private sector. Uganda has cut extreme poverty in half over the past decade -- down to 30 percent of the population living on less than $1 a day -- a fact that Kigozi also chalks up to private sector activity.

"We owe our success to that," she said. "Not to the World Bank, and not to nongovernmental organizations," she said, referring to aid groups.

In Uganda's capital, Kampala, Doddy's firm is helping finance the rapid expansion of a microfinance company called Blue, which makes small loans to government employees. The interest rates are high by U.S. standards -- around 20 percent -- and the money is paying for undertakings from home repairs to college educations.

But perhaps the most obvious value of the investment is in the dozen or so employees who now have jobs that pay about $300 a month, a decent starting income in Kampala. With commissions, some make as much as $2,000 a month.

"The companies we are invested in employ around 28,000 people, and 99.9 percent of those are Africans," Doddy said. "There is an important role for the World Bank and NGOs to play, but for the economy, the driver is going to be the private sector. That's what's worked in the rest of the world, and it's what's going to work in Africa."

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