Paul Busharizi, interviewed Dr Ahmed Heikal, founder and chairman of Qalaa Holdings, the continent's biggest investment company, which runs RVR, about his thoughts on investing in Africa --- its challenges and prospects.
The theme of the conference continues with the narrative that Africa is on the rise. However, in recent years we have had multinationals express concern that the continent's rising is still many years down the road, what is your experience?
As far as Africa is concerned, you have demographics that are favourable. You have resources that are available. You have better governance: that is – by and large –taking hold, with more or less much better governance across the entire African continent. And, finally, you have a reverse brain drain. You have a lot of people who are coming back from Europe into Africa. Those four factors mean that Africa is going to continue to do well – although it will be challenged because of low commodity prices across the board, and a much reduced debt capacity of governments as a result of lower commodity prices, causing pressures on currencies throughout the continent. Something that we’re already seeing starting from Nigeria, Angola, Kenya, Uganda, and across the board, you have pressure on currencies for commodity-producing countries across the continent.
My view is positive, on the short term you would be surprised, because whether it be the pressures in the Middle East or the pressures in Africa, this is a dynamic whereby the competitive landscape will be less competitive. Meaning that people who are already established with businesses inside this part of the world will find themselves with relatively low competitive pressures, and businesses will be able to grow in the confines of their existing businesses. I’m sure that is not positive in the long-term for the region as a whole, or for Africa as a whole. But I think that there is a dynamic at this point in time whereby the existing businesses will be able to benefit and get larger within the confines of their existing investments. We have a region that is growing at very healthy levels. It is just that political risk is high thus affecting capital availability.
About $100b is required annually in new investment for the continent to bridge its infrastructure deficit soon. Some people argue that money can be raised on the continent, we have just not invested enough in resource mobilisation. What is your take on this and what would it take for us to raise this monies on the continent?
With the continent set to become home to the world’s largest working-age population at about same the time as China’s population begins to decline, there’s never been a better — or more important — time to invest in infrastructure. You would almost-literally be buying in at the bottom of the market. The question is, how?” And the answer is to raise funding beyond the “usual” suspects. We are now witnessing the increased involvement of Development Finance Institutions (DFIs) in the region. Because there is very little growth globally, everybody wants to encourage growth, particularly in Africa so you will find a lot of the existing DFIs – I’m speaking here about the IFC, European Bank for Reconstruction and Development, FMO, China Exim, NEXI, JBIC, Korean Exim Bank, the US Exim Bank, etc. – all of whom want to get in on financing the region’s development are interested in financing the right opportunities in Africa. The prospects for the global economy are very low growth in the coming period. This is why we are seeing people go outside their normal geographies. As a result, financing will be available for Africa and the more stable parts of the Middle East.
In our experience however, attracting these types of investors is only possible when you de-risk the investment first and show your potential financial backers not just that you’re serious by committing from your own balance sheet, but that the project is one that could fly. You need to bring in the right expertise to run the project, abide by international environmental and sustainability standards, and make sure that the infrastructure project in question presents a win-win scenario that allows governments and regulators to back it from the word go.
As a businessman from the continent what would you say is the biggest challenge doing business on the continent and how can this challenge be resolved?
Obviously there are enormous challenges that people need to be on the lookout for. One is the direction of money in emerging markets in general. Obviously with the expected rise in interest rates in the US, money flows out of emerging markets. That cannot be good for emerging markets as a whole, or for our company specifically, that’s not something we like to see. The demographics of the region are extremely worrying especially with high unemployment. The social stability, the social fabric of society are going to be stretched thin. Unemployment is very high. Income inequality is going to rise even further than it is right now. So I think there are certain dynamics that are cause for worry. So, the risks in this part of the world are definitely there, the key to success is to try to minimise and manage the associated risks.