LOTS of talk and intention, but unless Africa can pare down the risk factors that keep investors in the region on edge, transformational growth will take longer to achieve, experts said at the World Economic Forum on Africa.
Political leaders were at pains to reassure that the region is working on reducing its risk perception to private investors scouting for opportunities especially in meeting the continent’s huge infrastructure deficit.
The demand for economic growth to alleviate local poverty was so big that there was no room not to address the risk concerns of investors, South Africa president Jacob Zuma said.
“Commitment from African leaders has never been so strong as now. We are giving political confidence to investors, our people are demanding for growth, and the opportunities in Africa are huge,” Zuma said, adding that public-private financing was a win-win situation for all.
Analysts project that the continent needs at least $100 billion a year to meet its substantial infrastructural needs.
“Africa could grow by an extra 2% if this [risk] bottleneck was addressed,” former UK prime minister Gordon Brown said, adding that private investors were looking for a demonstration of commercial value and risk mitigation.
“There is a surplus of savings in other regions, and interest rates are generally lower, so we must build the opportunity in Africa,” Brown said.
“People perceive risk in Africa as greater than it actually is, but the narrative is changing.”
Potential investors often cite high political risk, regulation and inefficiencies as among the greatest deterrents to funding public projects.
But project financing in Africa was actually safer than commercial lending due to rigid feasibility studies, Viswanathan Shankar, former Standard Chartered Plc’s head of Europe, Middle East, Africa and Americas said.
“We must make it easier for investors to get to Africa, and engage,” Shankar, who has now gone into private equity said.
A major attraction for private investors was the structuring of projects, Patrick Dlamini, the CEO of the Development Bank of Southern Africa said.
“Private investors want to see crystallization of a project—how viable is it? How has the risk been mitigated? We cannot afford to have white elephants in Africa.”
“There is enough money, all investors need is to see how well-prepared and well-structured a project is.”
Risk guarantors were ready to make African projects more attractive, Keiko Honda, the vice president of the Multilateral Investment Risk Agency said, noting that “slicing risk” by various players was necessary.
“There is a lack of infrastructure yes, but these should be seen as opportunities by private investors,” she said.
Concerns around governance and security were also being addressed by African leaders, Zuma said, as the continent sought to make itself even more “user-friendly” for investors.
Infrastructure is seen as key to radically changing Africa’s fortunes, even as another panel said that the region has a once-in-a-generation chance to end poverty as a new post-Millennium Development Goals (MDG) order takes shape. But financing the plan to be presented before heads of state in September remains a major challenge, experts said.
The United Nations is currently developing the Sustainable Development Goals (SDGs) that will guide international development over the next 15 years, succeeding the MDGs that run out this year.
While the MDGs, in theory, applied to all countries, in reality, they were considered targets for poor countries to achieve, with finance from wealthy states. But this time, every country will be expected to work towards achieving the SDGs.
“The SDGs reinforce, buttress and give attention to Africa, making [their] ownership even more important,” Ngozi Okonjo-Iweala, renowned Nigerian economist, said.
But the SDGs need clarity on how they would be financed to avoid the funding issue that plagued the MDGs, the panel said.
The Africa-focused development community will next month in Addis Ababa meet for a key summit to chart out how to finance the continent’s development, with donors talking of a shift from “billions” to “trillions” worth of investment in infrastructure.
That meeting should explore ways of building Africa’s increased ability to finance its own growth, Okonjo-Iweala said, with pledged international assistance being channeled towards areas that help increase tax revenue, such as tax reforms.
“We should double international assistance targeted towards building our own capacity,” Okonjo-Iweala, who is also Nigeria’s outgoing finance minister said. This would also help keep scarce resources in the continent, with at least $50 billion lost in illicit cash from the continent, according to a recent research by a UN-mandated study group.
Bringing Africa’s private players into the SDGs, including by reducing risk for such players was also crucial, as they had the needed liquidity in a world where the financing architecture has greatly changed in recent years, the panel said.