KPMG's Tim Bashall on investing in Africa
As a continent, Africa is of course diverse, with individual countries performing economically with different levels of success. There are however significant business opportunities across the continent, driven by an insatiable demand for Africa’s resources, a rapidly growing population with an unprecedented rise in consumer demand and the related infrastructural development that is urgently required in all areas.
African Business Review asked global professional services giant, KPMG, for the inside view. The company’s Head of Strategy for Africa, Tim Bashall, reflects on these mega-trends shaping Africa’s future…
Can you explain more about KPMG’s ‘Project Africa’?
Globally, business is recognising Africa as a high growth region of enormous investment potential. There are two mega-trends shaping ‘investment hungry’ Africa – the limitless global demand placed on Africa’s abundant resources and the consumer-based demand within Africa resulting from the rapidly growing ‘one billion plus’ population.
Unlike China as a self-evident High Growth Market, where investments are primarily outwardly focused, the interest in Africa is essentially from business in the more mature global economies looking to invest in Africa as well as existing African businesses looking to expand their reach across the continent.
KPMG is by no means a new entrant into the African markets. In fact, in some countries, we have been one of the leading professional services firms for well over 100 years. However, the rapid turnaround of Africa by the global business community from being practically ‘written-off’ to a current investment destination of choice, demands that we make further specific accelerated investments in key areas. To the benefit of our clients, this clearly also fuels our own growth and sustainability.
‘Project Africa’ is a KPMG vehicle designed to strategically focus our resources on the highest growth opportunities – i.e., the areas of most immediate and direct interest to our clients. It is therefore about investment in Africa, aimed at our clients requiring specific services (notably Transactions Advisory and Tax) in key sectors (such as Healthcare, Infrastructure and Telecoms) and with a common purpose (including an African advocacy role and key stakeholder communications).
Africais an essential part of KPMG’s global strategy, mirroring the global interest of our clients and our anticipation of what is yet to come. KPMG’s ‘Project Africa’ will ensure that we take full advantage of the opportunities the continent presents – for our clients and therefore ultimately the firm as a whole. The project represents a multi-million Dollar investment into Africa, with specific purpose and clearly articulated areas of focus. This strategic model has already served the firm well, such as with regard to our position in China, and reasserts our commitment to Africa.
What are your thoughts on the great Africa business migration?
While the animal migration patterns in Africa have been established over countless years, there is a new ‘Great Migration’ that has suddenly taken hold – that of big business and new investment. The parallels are obvious – a sense of urgency, the frenzy, preying on the weak and feeble, following the pack, a search for ‘greener pastures’ (new opportunities), ‘no going back’, those who don’t know will need to look to those who do know to help them, etc.
The great Africa business migration – into and across Africa by investors in search of ‘greener pastures’ – is therefore defined by:
- Opportunity– the last great frontier for attractive investment
- A sense of common purpose and urgency
- Challenges and potential danger, especially recognising the complexities of doing business in any number of the 55 very different countries that make up what is collectively Africa
- Strategy and Execution – i.e., actually making it happen: safely, profitably and sustainably.
The reality is that the ‘Great Africa business migration’ has begun – whether by existing players moving into new markets across Africa or by new entrants in search of resources to fuel their own growth. The question on every investor’s mind is how to take advantage of the Africa opportunity – confidently, comprehensively and on time.
What do you see as Africa’s biggest hurdles to investment in terms of companies venturing into the continent?
Many investors are still weary of the potential risks of putting money into Africa. Especially in a resource constrained world of choice, there is no obligation for investors to come to Africa. It is therefore essential that business is continuously reassured – and allowed to build their trust – that investments are secure, the regulatory frameworks are certain and that funds are able to be transferred in and out at least reasonably freely.
Business in Africa needs to be approached and understood on a country-by-country basis; the continent is not a single country such as China but rather made up of 55 quite different countries at varying stages of development and with different agendas. The complexities of doing business in each can vary quite dramatically. Key to mitigating the risks is to have a strong, relevant and capable local presence – and yet connected to world class best practices, tools and methodologies, and especially human resources.
Political risk and regulatory challenges are two of the main risk factors for many investors. According to a recent major KPMG survey (published as ‘Confronting Complexity’, reflecting the views of business across 19 African countries), regulation is singled out as the greatest cause of complexity in doing business in Africa. Information management, innovation and government oversight and shortage of skills are also listed high as drivers of complexity.
Infrastructure is also a significant challenge for potential investors. Africa has a history of underdevelopment of infrastructure. As an example, 40 percent of sub-Saharan Africa lives in landlocked countries with some of the lowest access to roads in the world. Investment in infrastructure remains a major challenge for Africa.
However, African countries have become increasingly stable and there are many promising examples of public sector reforms which have helped to improve the business landscape, including improving regulatory frameworks.
What do you think Africa can expect in the coming decade in terms of foreign investment?
There is a very compelling case for investing in Africa today, with a substantial overall increase in FDI targeted at Africa since 2000. In fact, a study undertaken and released by The Economist Intelligence Unit earlier this year confirmed that the continent can expect to see a huge FDI injection over the coming years. In this study more than half of the 158 institutional investors surveyed recognised Africa as the most attractive region to invest in over the next decade, with a third expecting to commit at least 5 percent of their portfolios to the continent by 2016.
There are various different forms of foreign investment into Africa, including:
- Investors that provide funding for infrastructure development and real economic growth. According to a United Nations Conference on Trade and Development report, 2011, FDI flows to Africa declined by 36 percent, mostly because of the global recession. This resulted in the widening of the gap in funding requirements for Africa and its infrastructural development
- Foreign investors pursuing yield through the various African bond and equity markets. These are investors seeking higher returns, escaping the low interest rate regimes currently in place in most developed countries.
Initiatives that focus on a collaborative approach and economic integration in Africa through bodies such as the New Partnership for Africa's Development (NEPAD), African Union (AU) and African Peer Review Mechanism (APRM) are all positive steps. The key is ensuring that the initiatives pay a dividend in attracting FDI to the continent. African countries are therefore beginning to understand the importance of trade between themselves and efficiently managing the process.
There is also the acknowledgement that to close the funding gap in FDI requirements, African governments will have to partner with private capital. Hence the need to create a business environment that is conducive to investment and protects investor interests.
What is clear is that Africa has swiftly moved from receiving charitable hand-outs and donor funding to being seen as a powerful investment destination of choice. This brings direct foreign investment into the continent – and therefore also high expectations of sustainable and profitable ethical business practices.
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