An Africa invisible to Blackstone is winning back investors

The region experienced growth in inflows of FDI last year, thanks to a revival of interest in South Africa and a more stable environment in Egypt

By Vernon Wessels / BLOOMBERG

The African investment roller-coaster shows just how hard it has been to make bets on the continent pay off.

After two years of declines, the region experienced growth in inflows of foreign direct investment (FDI) last year, thanks to a revival of interest in South Africa and a more stable environment in Egypt.

Yet, foreign interest has been fickle, underscoring the difficulties for policymakers to attract investors for the long haul. New York based Blackstone Group LP is scaling back in Africa after less than five years. Bob Diamond, the former Barclays plc chief, is turning his attention elsewhere after six years of struggle to get his banking venture off the ground.

“Over-sized bets, misunderstandings about the scale and nature of customer demand in sub-Saharan African markets and too-high expectations have led to mistakes,” said William Attwell, the head of sub-Saharan Africa research at DuckerFrontier in London, an advisor to multinational firms. “The opportunistic approach is an inadequate approach.”

Africa and developing economies in Asia were the only regions to attract more FDI in 2018, according to United Nations Conference on Trade and Development (UNCTAD) estimates. With 54 countries spread over an area bigger than the US, China, India, parts of Europe and Japan combined, trends are never uniform. Nigeria, which vies with South Africa as the region’s biggest economy, has had FDI declines for three straight years, thanks to endemic corruption, unpredictable policies, lower oil prices, and deep-seated poverty.

Estimated inflows of US$40 billion (RM164 billion) in 2018 are a fraction of the US$1.19 trillion that moved globally, creating a gap for those willing to navigate challenges from regime changes and poor tax collection to foreign-exchange and skills shortages. Some flows to the continent may have been hampered by the collapse of Abraaj Group, once among the most influential emerging-market buyout firms. The Dubai-based company ran a near-US$1 billion sub-Saharan Africa fund and investors are now seeking a new manager.

Carlyle Deals
Washington-based Carlyle Group LP, which closed its US$700 million sub-Saharan fund in 2014, is still doing deals on the continent even after being scorched by a Nigerian bank purchase, recently investing US$40 million in online travel agency Wakanow.com Ltd. That’s a different approach to its New York-based rival, Blackstone, which blanked out Africa in slides showing its global footprint at a September presentation.

Paris-based Societe Generale SA, which has operations in 19 African countries, has ambitions to double its share of revenue from the region to 10%. Egyptian billionaire Naguib Sawiris told Bloomberg TV recently that he is “very bullish” about Africa, especially in consumer financing. He intends to push the management of his Sarwa Capital SAE unit to expand to provide loans to individuals and small-business owners on the rest of the continent.

Asked about the political risk in Africa, the Orascom Investment Holding SAE chairman said: “Right now, if you compare them to the European mess or the American situation, Africa is in pretty good shape.”

Renault SA is considering an assembly plant in Ghana, joining Volkswagen AG and China’s Sinotruk International Co Ltd. The country last year overtook Nigeria, an economy six times its size, as the largest recipient of FDI in West Africa. Mercedes-Benz AG will invest €600 million (RM2.76 billion) expanding its South African plant, while Dubai-based DP World Ltd is still looking at the continent even after having its stake in a port in Djibouti nationalised.

South African President Cyril Ramaphosa, who is on a drive to secure US$100 billion in new investments to undo years of policy missteps and plundering under his predecessor, is finding that he doesn’t need to rely on traditional partners like the US or UK. Saudi Arabia has pledged to invest US$10 billion in Africa’s most industrialised economy, and China US$15 billion. The country’s first deepwater discovery announced last week by French oil major Total SA may also lead to a rush of activity.

“African governments have a lot more choice and FDI partners are changing,” said Ronak Gopaldas, a director at Signal Risk. India and Japan are showing more interest in the continent and US investments led by the private sector aren’t tapering despite President Donald Trump’s “America First” push. “That’s creating opportunities and policymakers need to be strategic in who they partner.”

FDI Acceleration
Progress toward the implementation of a free-trade accord and a greater emphasis on boosting Africa’s manufacturing industry will lead to an acceleration in FDI, UNCTAD said.

South Africa took the chunk of FDI to sub- Saharan Africa in 2018, grabbing an estimated US$7.1 billion from US$1.3 billion the prior year. Rolling blackouts by Eskom Holdings SOC Ltd is risking growth though, with Moody’s Investors Service Inc saying the troubled utility remains a risk to the country’s credit ratings.

Investments in Nigeria slid 36% to US$2.2 billion, although new oil and gas projects could lead to a recovery this year, UNCTAD said. Growth in Africa’s largest oil producer accelerated to 1.93% last year, the Abuja-based National Bureau of Statistics said yesterday, from 0.8% in 2017 and a 2016 contraction.

Ethiopia, despite a 24% fall in investment to US$3.1 billion, kept the top FDI spot in East Africa, it said.

While the outlook for 2019 is slightly more positive, driven by steady increases in consumer demand, government spending and investment, there are still risks if the global economy stalls, said Attwell of DuckerFrontier.

Uneven growth also means companies need to stay focused, with the biggest opportunities to capture consumers concentrated among lower-income earners in countries with tepid inflation, he said, highlighting Kenya as receiving a lot of investor interest.

“We’re on an indelible march for Africa,” said Stephen Bailey-Smith, an investment strategist at Global Evolution Fonds AS, who has been tracking emerging markets for more than 30 years. “There is no shortage of interest in expanding on the continent.” — Bloomberg