private investing in africa in the era of sustainable
TRANSCRIPT
Private Investing in Africa in the Era of
Sustainable Development
Aniket Shah SDSN
What is Africa? Africa is Not a Monolith
1) The con4nent of Africa consists of 54
countries with highly varying growth models, human development levels, language, culture and more.
2) Despite recent growth, Africa is s4ll less than 3% of global GDP and 2% of publically investable assets.
3) The African con4nent is experiencing a growth spurt, but a) this has happened before and b) human development is not improving sufficiently.
4) The Africa growth model will need to take into account inclusiveness and environmental sustainability from the beginning. This is different than prior growth processes.
What is Sustainable Development? Sustainable Development Requires Highly Func4oning Public and Private
Sectors 1) “Sustainable Development” is not
a new concept: Gro Brundtland ar4culated this concep4on in “Our Common Future” Report in 1987
2) What is different today compared to 1987 is we have a) more sophis4cated technologies, b) much more global wealth and c) a more inter-‐connected world. All three give more poten4al as well as challenges
3) We must move beyond “public” vs “private” debate: we need both
Key Conclusions 1) A mul(-‐part financing framework is required for sustainable
development in Africa. This includes, but is not limited to, private capital.
2) There is enough capital in the world to achieve sustainable development in Africa. Global investment landscape will impact private capital flows to Africa.
3) Private investors need to look “beyond GDP growth” and “natural resources” for long term returns
4) Africa must develop local savings pools for local investments – can’t only rely on external, Eurodollar financing
5) Physical and financial infrastructure must be built first: otherwise Africa will not be able to absorb capital
6) Foreign sovereign investors’ role must be understood and guided towards sustainable development.
7) Public-‐private partnerships are cri4cal to achieving sustainable development in Africa
1) Africa requires a mul4-‐part financing framework for Sustainable Development
• A mul4-‐part financing framework for
Sustainable Development is required. This will include: • Global Funds and Global
Partnerships • Climate Financing (private and
public) • Infrastructure Financing (private
and public) • Development Aid • Financial market transparency
Interna4onal Financial Flows to Least Developed Countries
1) Africa requires a mul4-‐part financing framework for Sustainable Development
Source: UN Report of the Intergovernmental Commifee of Experts on Sustainable Development Financing
1) Africa requires a mul4-‐part financing framework for Sustainable Development
Global shorgall of ODA in rela4on to commitments has been over $5 trillion since 1970 and $2.4 trillion since 2000. Had commitments been kept, human development and inclusive growth would have improved throughout Africa, which currently receives approximately 38% of global total ODA.
2) Global Investment Landscape and Africa Key Characteris4cs of Today’s Investment
Climate 1) Low yielding environment has forced
investors to channel capital into riskier assets.
2) “Shadow banking” sector growing quickly and moving capital beyond public regula4ons
3) Global savings pool in secular growth as growth of middle class consumer means growth of middle class saver
All of these characteris4cs mean a growing amount of interna(onal and domes(c capital moving to Africa. Source: IMF WEO
2) Global Investment Landscape and Africa
In 2013, Rwanda issued a $400m Eurobond yielding 6.625% (10 year dura4on). This is the price the US Government borrowed
money in 2000 and GE could borrow in 2010. This is encouraging as well as risky.
3) Private investment needs to move beyond “growth stories” and natural resources.
There is no direct rela4onship between GDP growth and investor returns. Investors need to look at broad-‐based development
(human, ins4tu4onal, capital market) for long term poten4al of profitable returns.
3) Private investment needs to move beyond “growth stories” and natural resources.
Foreign Investment in Africa 1) Foreign investment into Africa has
reached mul4-‐decade highs: FDI in 2013 into Africa was $57 billion.
2) FDI is very “lumpy”: a large majority if foreign private capital (both FDI and porgolio flows) go to Egypt, Nigeria, South Africa and Sudan are focused in extrac4ve industries. Most na4ons get very lifle, if any, private capital.
3) Risk/reward concep4ons from porgolio theory make porgolio investors focus on short term, high reward profits and not long term investments
Source: World Bank
4) Development of local savings pools for local investments is cri4cal for Africa
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
EGYPT
GHAN
A
MORO
CCO
SEYC
HELLES
KENYA
TUNISIA
SENEG
AL
MOZA
MBIQUE
TANZA
NIA
IVORY
COAS
T
ZAMBIA
UGA
NDA
ANGO
LA
RWAN
DA
NAM
IBIA
CONGO
GABO
N
NIGER
IA
Planned Eurodollar bond % GDP Eurodollar bond % GDP Non Eurodollar bond debt % GDP
-‐40.0
-‐20.0
-‐
20.0
40.0
60.0
80.0
100.0
120.0
140.0
USD
bn (con
stan
t Dec 2013 prices)
Zambia
Uganda
Tunisia
Tanzania South Africa Rwanda Nigeria
Namibia Mozambique Morocco Mauri4us Kenya
Ghana
Gabon
Egypt
Côte d'Ivoire
African Balance Sheets Are Looking OK For Now Development of Local Currency Markets Will Be Vital
Source: IMF/Investec Asset Management Source: IMF/Investec Asset
Management
4) Development of local savings pools for local investments is cri4cal for Africa
Corporate bonds
International access of LCU bonds
T-Bill markets
Short dated LCU bonds
Yield curve & liquidity building
Limited activity/not covered
Eurodollar bonds
Fixed Income Ac4vity S4ll Highly Concentrated
Source: IMF/Investec Asset Management
5) Physical and Financial Infrastructure Needs to be Developed With Sustainable Development in Mind
African Infrastructure Challenge
1) The investment gap for African
Infrastructure is currently $50 billion per year (total of $93 billion of investment needed).
2) We must bring bankable projects to the market. The capital is there. These projects need to be build with a “sustainable development” framework of growth-‐enhancing, socially-‐inclusive as well as environmentally sound
3) Risk capital is essen4al: this can come from philanthropic community too. MDBs are essen4al given human capital. These need to be re-‐capitalized and scaled
Source: AICD
5) Physical and Financial Infrastructure Needs to be Developed With Sustainable Development in Mind
Source: World Bank
African Infrastructure Challenge 1) Between 2003 and 2013, Sub-‐
Saharan Africa has closed 158 project finance deals with debt totaling USD 59 billion
2) This represents a very small por4on of the global project finance market: over 2003-‐2013, over 5,000 projects closed worldwide and raised total debt of USD 2 trillion
3) 4 countries accounted for 70% of all project finance deals in Africa.
4) Huge investment opportunity for broader African infrastructure
5) Physical and Financial Infrastructure Needs to be Developed With Sustainable Development in Mind
Financial Architecture of Africa 1) The total market cap of Africa stock
exchanges is approximately $1 trillion. This is the same size as the market cap of Google and Apple combined.
2) Not enough African companies are coming to public market given very shallow public markets and highly accessible private capital. This is problema4c for Africa’s long term inclusive growth
3) Africa savings needs to be u4lized in Africa. It does not make sense for large capital to be sent overseas, invested in overpriced US and European assets that have no development value for Africa.
Source: Bloomberg, 2013
6. Role of Foreign Investors Must Be Understood and Guided
US From aid to commerce
Increasingly complimentary rela(onship
China Investors of first
resort
Brazil A knowledge partnership
Europe Major trader
partner and aid provider
● China-‐Africa trade is heavily concentrated in commodity-‐based economies. There is an argument that the strong appe4te for natural resources in China, as well as the impor4ng of low-‐cost manufactured goods from China, is impeding the diversifica4on of many African economies.
● The SEZs are a major element of China’s involvement in Africa. It exemplifies an ‘eastern’ economic development model as opposed to the neo-‐liberal policies of Western organisa4ons.
China-‐Africa economic rela0ons are driven by strong Chinese government support for investment and business expansion in Africa.
Chinese trade with Africa
Chinese investments in SEZs in Africa
6. Role of Foreign Investors Must Be Understood and Guided
Source:IMF
7. Public-‐Private Partnerships are Cri4cal to Private Inves4ng in Africa
Time to move beyond “public” vs “private” debate -‐> development needs both
Source: UNSDSN. Jeffrey Sachs and Guido Schmidt Traub Background Paper on Financing for Sustainable Development
7. Public-‐Private Partnerships are Cri4cal to Private Inves4ng in Africa
SDGs and Investment Prospects for Africa
SDGs will lead to “high-‐quality development” within Africa and other regions. Countries that follow this development path will be able to tap a wider stream of public and private capital, ensuring broad-‐based, environmentally-‐friendly development and sustainable growth. If host-‐countries and investors use the SDGs as a guide and scorecard, it will be possible to mobilize a lot more high-‐quality investment.
SDSN and Financing for Sustainable Development
• The Sustainable Development Solu4ons Network (SDSN) was launched by UN Secretary General in 2012 and is directed by Professor Jeffrey Sachs.
• The SDSN is providing technical advice on the Financing for Development Summit hosted in Addis Ababa in July 2015.
• The SDSN is leading four Working Groups to provide recommenda4ons to the Summit’s Co-‐Facilitators and Hosts: • Working Group 1: Public Private Partnerships and Pooled
Financial Mechanisms • Working Group 2: Climate and Infrastructure Finance • Working Group 3: Mobilizing Resources from Public and
Private Sector • Working Group 4: Financial Regula4on for Sustainable
Development
SDSN and Financing for Sustainable Development
If you would like to be involved in our work, please be in touch:
Aniket Shah SDSN [email protected] + 1 908 310 8358