Gateway to Africa November 2012

7/16/2019 Gateway to Africa November 2012

1/32Business | Entrepreneurship | Innovation | Investment | Lifestyle

WHO WILL BUILD

AFRICAS FUTURE CITIES?

Why SA rms are changing their Kenya strategy

Vital Education: Renewing Africas universities

Ground Control: Nigeria looks to space

How to start a $100m agribusiness

Controlled Distribution UK & RSA

Issue 05 \November 2012


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4\Contents \ November 2012 www.GatewayToAfrica.com

24 Back to the LandHow to start a $100m agribusinessin Arica - Paddy Docherty explains.

CONTENTS

18Vital EducationRenewing Africas universitiesAndrea Pizziconi CEO o Christie Companyand manager o Arica Integras explains howshe is building university inrastructure.

14Africas space odysseyNigeria looks to the stars

Can Nigeria take o into the space age?

21 Understand your marketWhy SA rms are changing theirKenya strategy to adapt to local culture.

27Good governance is key torule of law and prosperity

ransparency is a prerequisiteor economic success in Arica.

Features

12SA is still the gateway to AfricaVassi Naidoo o Deloitte remainspositive or the uture.

SA is still the gatewayVassi Naidoo, Deloitte

10Technology and the newindustrial revolution

BBCs Adam Shaw on how Aricacan leaprog development.

Comment

Business

Final word

30 Destination: BotswanaBotswana, which has enjoyed hal acentury o growth, while avoiding thecivil wars that have stricken many o itsneighbours, oen has been hailed as amodel o good governance.

6 News and analysisRecent developmentsrom Sub-Saharan Arica

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26A New Scramble for AfricaHow oreign ownership oArican land is on the increase.

Local culture always rules. The localculture is going to drive whats expectedby the market.- Andrea Pizziconi

In my view, they (South African rms)

lost the battle for sustaining presence inwhat is a very competitive market uponinitial entry-Polycarp Igathe, MDTiger Brands East Africa

Vital EducationRenewing Africas universities

Understand your market

18

21

12South Africa has a key role to play


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November 2012 \Contents\ 5www.GatewayToAfrica.com

Who will build Africas future cities?

In Arica, Knight Frank are not estate agents, says Peter Welbornthe companys Arica Managing Director, their business is real estateconsultancy, advising private clients and acilitating deals.

Cover Story

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Club South Africa

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6\News\ November 2012 www.GatewayToAfrica.com

NEWS IN BRIEF

NEWS AND ANALYSIS:

Gunmen stage raid on IvoryCoast power station

Gunmen stormed a power station nearAbidjan, Ivory Coast, as part o a co-ordinated raid that also targeted nearbysecurity acilities on Sunday 6 November.

Around 30 armed men disarmed guardsand briefy occupied the Azito powerstation. Nine gunmen were arrested andtwo were killed.

One o the stations turbines, responsibleor producing around 15 per cent o IvoryCoasts electricity, has had to be shut downdue to damage caused by the raid.

Te attacks are being blamed onsupporters o the countrys ormer President

Laurent Gbagbo, who is currently awaitingtrial or crimes against humanity ollowingthe countrys bloody civil war in whichmore than 3,000 people were killed.

Rand hits two week high afterObama victory

Te South Arican rand hit a two week highon Wednesday 7 November in the wake oUS President Barack Obamas election win.

At 6.56 am, the rand was up by 0.3 percent on its closing price the previous day, at8.6050 to the dollar.

Obamas deeat o Republican MittRomney and re-election to the WhiteHouse signals a continuation o current USeconomic policies.

Following the election result, the dollarweakened, strengthening the rand and otheremerging market currencies. However, thelong-term eects are ar rom clear.

Te current policy o quantitative easingbenets the rand. However, US congress isdeadlocked over the so-called scal cli,which i unresolved, could lead to a massiverise in taxes and cuts in public spending.

SA low-cost airline1Time goes into liquidation

A large number o South Aricans, as wellas many living abroad, will be le strandedon their Christmas holiday in South Aricaollowing the announcement that 1ime

airline has gone into liquidation.Te low-cost airline has been under

business rescue or a ew months underthe leadership o new chie executiveocer Blacky Komani. However, 1imehas now been declared bankrupt and is innal liquidation.

Te airline owes various institutions,including Airports Company o SouthArica, around R350m.

1imes website has been shut down.Customers who have booked fightswill have to pay or hugely infated peakperiod fights on other airlines, although

those who paid by credit card may be ableto get a reund.

Tanzanias strong economicgrowth must reach population

World BankANZANIAS economy looks set to growover the next couple o years, but thegovernment needs to ensure the extra wealthreaches the anzanian people, who are miredin poverty, a World Bank report has warned.

Te mining, banking andtelecommunications sectors should helpanzanias GDP to rise by as much as 7 percent this year, next year, and in 2014. Tedeveloping natural gas industry should beginproviding a boost over the next 7 to 10 years.

anzania is aiming to be a middle-income country by 2025, but the report

warned this would only be possible withcareul budgeting and major policy shis,involving agricultural commercialisation,diversication and urbanisation.

Recent developments fromSub-Saharan Africa


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November 2012 \News \ 7www.GatewayToAfrica.com

BBC explores high-techsolutions to African problems

Solar lamps, durable laptops and a bottlewhich lters bacteria rom even the lthiestwater all eatured in a BBC Horizonsprogramme which aired this month. Teshow examined how access to simplebut eective technology solutions coulderadicate uel and water poverty in Arica.

Solar lamps produced by Germancompany Osram have allowed smallbusinesses to trade or longer, schoolchildren to study at night and shermen tosh more saely and protably.

Te programme also looks at howeective design can be used to createtechnology suited to harsh environments,such as laptops provided to school childrenwhich use very little energy, or a waterbottle which uses nano-technology to cleanwater, simply by orcing water through alter with holes smaller than a virus.

South African Finance Ministerinsists economy is not in crisis

Te South Arican governments scal

policy is sustainable, according toFinance Minister Pravin Gordhansmedium term budget policy statement.

Te treasury have reduced spending inresponse to the orecast that the countrysdebts will rise over the medium-term, andwill be adhering to the budget ceiling setin February.

Gordhan said that South Aricaseconomy was not in terminal crisis.

South Arica was recently downgradedby credit rating agencies Standard& Poors and Moodys, which raisedconcerns about the impact social unrest,such as the ongoing miners strikes, onANC economic policy.

Border controls cost Africa$20bn in food trade

Reducing the cost o ood trade byreducing border controls and growinginrastructure could generate an estimated$20bn in annual earnings or Aricangovernments and reduce ood shortagesacross the continent, the World Bank hasclaimed.

Te costs incurred rom trade barrierscan reduce overall ood production.Farmers on holdings in Arica typicallyreceive less than 20 per cent o theconsumer price o produce or their

surpluses, disincentivising production.Just 5 per cent o Aricas cereal importsare now provided by Arican armers.

Te Bank said rules and regulations arepreventing Arican armers rom usinghigher yielding seeds and better ertilizers.

Gold Fields strike ends, butmining sector unrest continues

Gold Fields has resumed operations aera 23-day strike, and has reinstated 8,500dismissed workers at its KDC operations

near Johannesburg.However, another operator, Village MainRee, has now been hit by wildcat strikeaction, suggesting labour unrest in themining sector is ar rom over.

Workers at the companys BuelsonteinGold Mine began a strike on Monday.

Te number o workers on strike isunknown, but Village Main Ree, one oSouth Aricas smaller gold producers, hassaid it plans to seek a court order orcingminers back into work.

IMF reduce restrictionson Zimbabwe

Te International Monetary Fund hasrelaxed its restrictions on Zimbabwe,

meaning the country will now be able toreceive technical assistance on tax policyand administration, public nancialmanagement and bank reorm.

Zimbabwe is still not able access undingrom the IMF, but the move could helpto normalise relations and could pave theway or unding in the uture. Any lendingprogram would depend on the progress othe unity government o President RobertMugabe and Prime Minister Morgansvangirai.

Te country still aces a huge debtburden with external debt estimated to be113.5 per cent o GDP, around $10.7bn, atthe end o year.

3The number of African women tofeature on the 2012 Forbes list ofWorlds 100 Most Powerful Women.

3,693Average number of ounces of platinumlost per day while strike action continuesat Anglo Americans operations.

227 millionHectares of land sold, leased, licensedor under negotiation in large-scale landdeals across Africa since 2001.

Africa in numbers


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8\News\ November 2012 www.GatewayToAfrica.com

CYNHIA CARROLLS resignationas CEO o Anglo American earlier thismonth leaves a hole at the top o one othe FSE 100s largest companies.

Tere is much contention over whowill ollow her in this dicult role.Her successor will have to deal withcontinuing unrest at the platinummines operated by Anglo Americanssubsidiary company Amplats, where

wildcat strikes by miners have severelyrestricted production.

Highest on the list o potentialcandidates is Mick Davis, currentlychie executive o Xstrata. Davis wouldcertainly satisy South Aricas Ministero Mineral Resources, Susan Shabangu,who called or Carrolls replacement to bea South Arican, as more than a third oAnglos assets are based in the country.

Xstrata is negotiating a merger withcommodities trader Glencore, andit is widely thought that the top jobwill be taken by Glencores CEO, Ivan

Glasenberg, leaving Davis available.

NEWS AND ANALYSIS:

HE ONGOING unrest in SouthAricas platinum mining sector hasopened the door or Zimbabwe toexpand platinum production in thecoming months, particularly i the crisisin South Arica remains unresolved.

Ocials in Zimbabwe, which is home tothe worlds second largest platinum depositbehind South Arica, have estimated that

Mining unrest in SAopens door for Zimbabweplatinum production

Unrest in South African miningsector gives Zimbabwes platinumindustry opportunity to expand.

Zimbabwes platinum output or 2013 willincrease by 3 per cent.

here are a number o reasons thatmake Zimbabwes platinum industry

an attractive place or potentialinvestors, especially when compared toits neighbour to the south. Zimbabwehas some o the lowest productioncosts in the world, due in large partto the nature o its platinum deposits.Platinum in Zimbabwe is generallyound close to the surace, allowingcompanies to use mechanised, opencast mining, which is signiicantly lessexpensive than underground methods,which are used in South Arica.

by Milton Lindsay

Who will take the reins at Anglo American?

Moreover, industry analysts have saidthat platinum production in Zimbabwehas the potential to increase by nearly10 per cent over the next ew years.

he uture growth o the Zimbabweanplatinum industry still aces a numbero challenges domestically. Zimbabwesinrastructure is very poor, particularlyits electric grid. Platinum productionhas historically been hampered byspotty electricity.

However, investors say that the socialand political issues in Zimbabwe presentsthe biggest obstacle or Zimbabweanmining companies. Many companiesremain hesitant to invest in Zimbabwebecause o the ongoing economicinstability and uncertainty caused by therecent indigenisation legislation passedlast year, which required oreign rmsto hand over a 51 per cent share o itsoperations in Zimbabwe.

While it is unlikely that Zimbabwewill surpass South Arica in platinumproduction in the near uture, theinvestment prospects in Zimbabweremain very strong. And i the socialand political environment stabilisesollowing the 2013 presidential election,Zimbabwe may in act challenge SouthArica as the worlds number oneplatinum producer.

However, Anglo Americans Chair, SirJohn Parker, said the company could notaord Davis.

Chris Grith, head o Amplats and AlexVanselow, ormerly chie nancial ocero BHP Billiton, have also been suggested.

Peter Major, a mining analyst at CadizCorporate Solutions has said that giventhe importance o Amplats to AngloAmerican, moving Chris Grith at such a

dicult time might be unwise.Under Carrolls leadership, Anglo

Americans share price has allendramatically by 35 to 40 per cent.American-born Vanselow is widelythought o as someone who could reversethis, given his experience at a successul,diversied multinational.

Carroll was the rst woman to head upAnglo American, and so ar all the nameson the list to replace her have been male.Her departure will leave Alison Cooper,CEO o Imperial obacco, and AngelaAhrendts at Burberry as the only women

at the helm o FSE-100 companies.


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10\Views\ November 2012 www.GatewayToAfrica.com

COMMENT: Adam Shaw

WE HINK o Arica as a victimcontinent when in many ways itsactually more advanced than many othe economies that we would think tobe better, says Adam Shaw, businessjournalist and presenter o the BBCstechnology programme, Horizons.

Shaw gives an example rom his travelswith the programme a Kenyan armerwho routinely pays hundreds o workersby transerring the money directly betweenmobile phones. Here, he says, technology is

developing to deal with what are traditionallyseen as problems in Arica, such as distance.Its dicult or a bank to build branchesacross Arica, so transerring money on thego becomes the norm, using technologybetter than that available in the UK.

Its ultimately a massive opportunitybecause [Arica could] start a new secondor third industrial revolution, and at amuch higher pace than were able to inthe UK or instance, and without theinheritance issue. In the UK, we say wevegot this old inrastructure, we cant justabandon it. Well, they dont have it, so

they can start aresh and in that way itgives them a competitive advantage.In terms o developing Aricas economy,

Shaw says: Aid is clearly an important parto the mix... but what youre trying to dois help develop sel-sustaining economiesand release the potential o Arica, its owncapital and human resources. Just givinghandouts isnt the ull picture.

But its not just about importingtechnology rom the west. Shaw points toa halo eect surrounding technologyin developing countries, where localdevelopers take technology and use it asa starting point or ideas relevant to theirown needs.

African opportunity:Technology could triggera new industrial revolution

We should be saying: well, maybe its a differentenvironment, maybe they have different problems,so maybe there should be different solutions

You have to look at continents like Aricaand see them not just as the recipients oinormation and aid. Its important to askwhat is applicable in your environment,what ideas do you have to take thistechnology and change it and actuallymake something new out o it, which couldbenet not just you but perhaps the countryrom which the idea originated.

Shaw highlights technology like theLiesaver bottle a water bottle, whichuses micro-lters to make even thelthiest water sae to drink. Its simple,inexpensive and fexible technology likethis, which he believes has the potentialto make a dierence, rather than trying toreplicate Western inrastructure.

We come into disaster zones, especiallyi theres a crisis, and try and build sewageplants and this is a ridiculous way odoing it you dont need to build aninrastructure. Teres loads o wateraround, its just dirty, so just bring in a

water bottle. Its about making technologyappropriate.

We should be saying: well, maybe itsa dierent environment, maybe theyhave dierent problems, so maybe thereshould be dierent solutions. Tat sort oapproach is actually very compelling.

Shaw visited 32 countries with Horizonsand noticed that many o the technologiesbeing produced or and by the developingworld oen have the added bonus obeing environmentally-riendly.

I think its very likely businesses areunderstanding that they have to have asustainable argument. Not because theywant to be good to the world, but becausetheir own businesses will not have a utureunless they take on board sustainableissues I think that green agenda ischanging, not dramatically, but it isnoticeable. Hopeully its sustainable as well.For more information, see:

gatewaytoafrica.com/bbcinnovations

by Rebecca Cooney


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I AM OF the view that South Arica willstill continue to be a gateway into Arica,notwithstanding the events o Marikana.I would say that even though its beena little bit delayed, the leadership haverealised that Marikana has happened andthereore they have to deal with it. Teyhave taken some action in order to call

this enquiry [into the tragedy], and weneed to make sure that Marikana is not alost opportunity.

I think that Marikana will obviouslycause some change to happen, because itwould be ruitless i everything else stayedthe same. And I believe i leadership,broadly dened, takes the output o theenquiry and deals with it in a constructiveand engaged way, we will get a betterSouth Arica.

South Arica is still a gateway intoArica, because it already has democracy.It has the constitution. It has institutions

that work. It has antastic accountingand auditing proessionals. It has verystable nancial institutions, and it has theundamentals or people to set up shopand ensure that they could do business inArica.

Tere is concern with the downgradingo South Arica and with the so-calledlabour and political instability that exists.Im o the view that the South Aricanswill work that out and it will be stabilised,but were going to go through somechoppy patches.

Since 1994, post-apartheid South Aricahas done a terric job to build the SouthArica brand. Our miracle democracy,the growth rates that we achieved, thenancial stability, the constitution, therule o law, all that good stu. And tosome extent I think that that brand hasbeen damaged by the recent incidents andSouth Arica certainly needs to take someaction to rebuild that brand and re-instilthat condence.

In terms o Arica, the West can chooseto continue to do analysis and to continueto say theres all these things that are wrongand as we do the analysis rom the West,the Chinese and the Indians are just goingto go and soak up the opportunities. And I

COMMENT: Vassi Naidoo

SA is still the gateway

believe that South Arica has a key role toplay, not only or South Arican companies,but or global, western companies that haveoperations in South Arica to leverage itinto the broader continent.

Te McKinsey research that came outon Arica recently talked about the 122mnew consumers and 78m jobs that aregoing to be created in this continent.Tats twice the population o the UKthat are going to be uture customers andconsumers and I would say the otheropportunity or Sub-Saharan Arica has tobe in the area o consumer business.

All these people have to be ed, theyhave to be clothed, they have to be housedand companies should be wise to lookat embracing a model that has beentraditionally dierent to the way theyvedecided to go into Arica in the past.

Te old notion o going there just to getthe coee beans, to get the oil, to get thereserves and the raw materials and come

and process it elsewhere is not going tobe sustainable. Te only way that theyregoing to get this right is by workingwith the governments in Arica to createmanuacturing and processing capabilityand by working with government byembracing the societal contract to make adierence.

People that want to go and make moneyin Arica are only going to be the peoplethat think about Arica dierently today,their thinking is going to be shaped by thehistory o whats happened in Arica. Ipeople are going to take what happened in

Marikana as an example o thenew South Arica, theyre goingto lose.

Youve got to go into thesecountries...understand whatsgoing on...work with thegovernments, civil society, the

proessional bodies and think about doingit dierently.

Let me be clear, I am not talkingabout South Arica as a corporate socialresponsibility (CSR), i anyone goes intoSouth Arica because o CSR, dont go.South Arica is a place where you can goto make some money, but you cant gowith the old way o thinking.

Vassi Naidoo: Partner, Head of International Markets Group Deloitte

South Africa is a place where youcan go to make some money, but youcant go with the old way of thinking.


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14\Feature \ November 2012 www.GatewayToAfrica.com

NigeraSat2 and NigeriaSatX under test

NIGERIAS NAIONAL SPACEResearch and Development Agency(NASRDA), ounded in 1999, launchedits irst satellite in 2003, but in the pasttwo years the scale and ambition o itsprojects has increased. Aricas mostpopulous country, and its second largesteconomy, is quickly becoming a regionalleader in satellite technology, andcarving out a uture as the high-techhub o West Arica.

NigComSat, an independent company

providing communications satellitetechnology, successully launchedNigComSat-1R in December 2011, areplacement or the ailed NigComSat-1launched in 2008. he geostationary

Africas space odyssey Nigeria looks to the stars

FEATURE:

satellite provides improved wireless andinternet inrastructure across Nigeria,and the government estimates that$10m can be generated rom satellite

television provision.Meanwhile, imaging satellites such

as the NigeriaSat-2 and NigeriaSat-X,launched in August 2011 rom Russia,are helping to predict environmentaldisasters worldwide. he satellites werebuilt in the UK by Nigerian engineers,and can provide high-resolution satelliteimages that are being used to mapNigeria, and to provide inormation to

international disaster early-warningsystems.

Nigerias space program is not merelya vanity project o the sort that saw

Uganda promise an improbable mannedmission to space in the 1970s, underthe aggrandising regime o Idi Amin.It is hoped that the training engineershave received in the UK will helpNigeria to bootstrap its domestic high-tech industries. Investment in satellitetechnology will provide proitablesatellite-imaging services, and grow thecommunications inrastructure or anincreasingly net-hungry population.

In the medium-term, Nigeria has evenlotier ambitions. It plans to launch theirst wholly Nigerian-made satellite

in 2018, and to set up a Nigerianlaunch site in 2025, capitalising on thecountrys proximity to the equator.Nigeria even has plans to send a probeto the moon by 2030. he transitionrom manuacturing satellites tolaunching them is a daunting one, andthe dream o an Arican-run spaceportmay prove uneasible, but it is clear thatNigerias space programme is no joke.

Nigeria is not the only Aricancountry to join the space race. SouthArica, which led the continent in spaceambitions during the apartheid era,

restarted its space programme in 2009,and has launched two satellites so ar.May 2012 saw the launch o the

Ghana Space Science and echnologyCentre (GSSC), while the AricanUnion completed a easibility studyor a pan-Arican space programmein 2010, although action has yet to betaken. Whether space programmesprove a prudent investment o nationalresources will be seen in the years tocome, but they demonstrate a clearcommitment across the continent tomake Arican inroads on the inal

rontier.

by William Clarke

The transition from manufacturingsatellites to launching them is a

daunting one, and the dream of anAfrican-run spaceport may proveunfeasible, but it is clear thatNigerias space programme is no joke.

Can Nigeria take offinto the space age?


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November 2012 \Cover Feature \ 15www.GatewayToAfrica.com

COVER STORY:

IN AFRICA, Knight Frankare not estate agents, saysPeter Welborn the companysArica Managing Director,their business is real estateconsultancy, advising privateclients and acilitating deals.

Te company has oces inall but two countries in Arica,and this gives them the abilityto serve clients wherever theyare in the world. I a companyor government is looking orpremises, rom Luanda to Lagos,or Kampala to Kinshasa, KnightFrank can help.

We advise the US governmenton a huge amount o real estatein Arica. We will advise anygovernments on their diplomaticpremises, houses, commercialpremises, says Welborn. Itswhatever the client wants.

Who will buildAfricas future cities?

Africa and apartheid

Te company has operated in Aricasince 1962, creating a unique pan-Aricanbusiness. Were the only organisationthat has the ootprint and the reach inArica because we were never in SouthArica, says Welborn. Why not? heasks rhetorically. Apartheid. So wewere everywhere else in Arica exceptor South Arica. Where did all theinternational organisations go? SouthArica. We didnt. Tat, he points out, is aundamental dierence.

Tats the reason we have the ootprint,the knowledge, the base and the coverage

that we do have because we builtup a business in 60s, and the 70s,the 80s and the 90s in Arica, notin South Arica.

African alternative

Welborn puts the sudden emphasis onAricas rapid economic expansion intocontext.

Its an alternative, he says. he rest othe world has slowed down everybody.his is not the irst time people havelooked at Arica. his is an old storythats brought out and re-analysed. SurelyArica presents opportunities and italways has done. But they are perhapsmore challenging opportunities thatneed to be managed because o localinrastructure diiculties.

Part o the reason or Aricas rebirth

by Jeremy Kuper


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16\Cover Feature \ November 2012 www.GatewayToAfrica.com

is the political and structural changein the last twenty years, particularlyin Sub-Saharan Arica. Most o theregion is democratic now, but theother important actor is the emerginginfuence o South Arica.

Impact of the new South AfricaTe idea that South Arica couldever become a gateway to Arica isrelatively new, twenty years ago it wasthe complete opposite, says Welborn.

Te infuence o South Arica is suchthat South Aricans, or example rom aretailing perspective, look at Arica, thecapitals in Arica and the retail in thosecapitals in Arica.

Tat retail has been developed in thelast 10 years, and is dominated by SouthArican retailers and investors. So [its]

the infuence rom South Arica sinceapartheid, and thats not to say there isntinfuence rom China and the rest oworld, but its a really important infuencerom the same continent.

The African middle classOne o the key opportunities in thisemerging retail sector is the middle classin countries like Nigeria, Ghana, Kenya,anzania. Tere is still considerablescope or expansion. In Lagos there isstill only one major shopping centrecalled Te Palms, which is ve years old,the question is why hasnt it happenedbeore Oil and dollars have been inNigeria since beore I went there. And Iwent there in 1979, says Welborn.

But dont orget in some o the countrieslike Nigeria, there always was that sorto wealthy middle class who travelled toLondon, Paris and New York. And actuallyall those imported goods were availableon the streets in the markets, under thebridges. So those items were available, butyou didnt have the retail development thathas taken place in the last well ve yearsin Nigeria, explains Welborn.

The value attributable to land, quite oftenin those capital cities does not bear anyresemblance to the investment value. Becauseprices that are paid for land do not reect itsinvestment value, a higher price is paid. -

BCEAO Tower, Mali

Peter Welborn

Knight Frank


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November 2012 \Cover Feature \ 17www.GatewayToAfrica.com

The future

Welborn is cagey about Knight Franks

uture projects. We are looking to helplocal investors, local landowners, developand build opportunities. And its justnot malls, its blocks o fats, its ocebuildings. Improving the quality o theaccommodation which is being presented toeither be let or be sold [its about] quality...

Having a vast network allows KnightFrank to service clients both onshore,on the ground in countries where theclient wants to go to, and oshore, wherethey are currently based. Our onshorebusinesses are hugely important, becausewithout our onshore businesses we

wouldnt be able to help oshore.Tis expertise allows Knight Frank todraw experiences rom elsewhere on thecontinent which will help the developmentsucceed in another country on thecontinent. And thats hugely important.

Things happen differently in AfricaAs Welborn says, its sometimes dicultto understand, things happen in Arica ina slightly dierent way. Tey dont happenin London in the same way, so the mostimportant thing is to understand andappreciate why things happen and work with

your partners in the country you are in.

Putting together parcels of landTe main challenge in Arican commercialproperty development is putting togetherparcels o land to create a large site.Its very dicult because o competing

interests over the land and the valueattributable to that land, says Welborn.Te value attributable to land, quite

oen in those capital cities does not bearany resemblance to the investment value.Because prices that are paid or land donot refect its investment value, a higherprice is paid. You may say why is a higherprice paid? Tat is just what happens orall sorts o reasons.

One reason is that landowning amilieswill develop the land themselves.Families own the land.Land has perhapsa greater meaning in Arica to the

amilies, explains Welborn.He gives Angola as another exampleo the idiosyncrasies o doing businesson the ground in Arica. Angola has thehighest property rents in the world, justabout. Because you cant get a house torent. Tere are so ew developed becauseo issues relating to land ownership.

Money is not enoughTere are a number o reasons why thisis the case. Youve got to have localcontractors who have the capability.Youve got to have the ability to build to a

particular standard. Youve got to have localinvestors who are prepared to invest in thosebuildings. Te reason developers arentbuilding more houses to increase supply inAngola is because it is complicated.

He gives an example o onemultinational client that wanted to builda Pan-Arican network, but couldntunderstand why they were unable to buythe plots and build themselves. Teyrenot available. You cant buy them, youcant piece them together. I you did piecethem together, the price o that landmakes the business model not work. Te

prices are too high, because there areother drivers in Arica or land.

International companies want to havetheir own buildings or a number o

reasons, and as Welborn points out that thecost o those buildings doesnt necessarilyequal value. Control is one reason or this,as it can be a challenging environment inwhich to maintain equipment.

Te lie expectancy o those buildings,because o lack o maintenance, is suchthat a ve-year-old building is more likea ten-year-old building, and will needreurbishment. Whereas a ten-year-oldbuilding should have another ten years

le in its lie, but actually the plannedmaintenance, and the upkeep, is such thatit doesnt happen so you dont necessarilywant a third party managing agent.

Costs are higherand so are the returns

For all o these reasons, it generally costsmore to build in Arica than it does in thedeveloped world. Dont orget, all items areimported, except steel, sand and cement,and gravel. All your air-conditioning,escalators, light ttings, pumps, everything

you see, all your nishes, are imported. Soby denition youve got to rst import andsecondly maintain.

Higher risks means higher returnsIts all about risk. Reward and risk, Wellbornaccepts. And the issue can be o course thatwhere your returns in developing countriesequal developed countries, theres no pointgoing to a developing countries to haverewards that are a hundred or two hundredbasis points adri rom a developed country.Ultimately, to some degree Aricans arepaying the price or their lack o land laws,

lack o rule o law, lack o democracy.Rwenzori Court, Kampala

Central Bank of Sudan, Sudan

Were the only organisation thathas the footprint and the reachin Africa because we were neverin South Africa,


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Vital education Renewing Africasuniversities

FEATURE:

UNIVERSIY real estate markets arespecial, they have a resilient demand.Cities always pop up naturally arounduniversities, regardless o what happensin the business cycle or in the politicalcycle, says Andrea Pizziconi o AricaIntegras, a commercial property companywith a niche or building universityinrastructure in Arica.

In the developed world higher educationaccess is about 60 per cent. In India andChina its north o 30 per cent and inArica its our per cent. And i you take out

South Arica, or many countries its lessthan two per cent, or example in Rwandaits less than one per cent, she says.

Te World Bank unds primary schools

and secondary schools, this has led to analmost 100 per cent take up o primaryeducation, but adds Pizziconi, thereis no large-scale multilateral undingpolicy or higher education like there iswith the World Banks Universal PrimaryEducation Policy.

Some Development Finance Institutes do itas one-o projects but its nominal comparedto the demand. So what we looked at was thepipeline o students coming through primaryand secondary schools, because aer that

theyre being cut o.Despite a huge consumer demand oreducation in Arica, there is oen a lacko unding or university acilities as theyare extremely capital intensive. However,as Pizziconi points out, given the Aricanpopulation growth, even with the currentsize you would need 6 million additionaluniversity seats to get to ten per centenrolment access, which would costnearly US$10 or 11bn to construct.

We looked at all the multilateral moneyin the world, various oundations, DIFD, the

Andrea Pizziconi, founder andCEO of the Christie Company,a commercial propertycompany and manager ofAfrica Integras an investmentcompany building universityinfrastructure in Africa.

by Jeremy Kuper

World Bank, the Arican Development Bank,and theres only about hal a billion dollars inthe next ten years being allocated to highereducation acilities in Arica. Tats the bestassessment, she says. Teres a US$10.5bnunding gap or higher education acilities,which Pizziconi says can only be lled withinvestment rom the private sector.

ChallengesOne o the major challenges is land title,says Pizziconi. Obtaining ree and clear

land title and deending it is extremelydicult, and its a logical challenge becauseArica is obviously a high-growth economy.I they give up land title to a oreign investorits a permanent loss to that country insome waysits all about sharing equitably.Tereore nding a balanced partnershipwith the universities is crucial.

Time is on your side

Te timerame rom conception tocompletion involves years o planning andnegotiation. You have to take the long-view

and be prepared to wait or your returns,but the upside can be well worth the wait.Pizziconi reers to this as patient capital.

Universities exist or hundreds o yearsand we will take a period o lease in orderto recuperate that investment, but in thevery long-term it is the universities thatbenet rom that asset weve created.I you look at a two-hundred year-olduniversity, thirty years is nothing in theirlong-term history, she says.

Rule o thumb is that its very dicultto close a deal in less than three yearswith governments in Arica. You have to

have sucient working capital to see thenegotiation through. Tere will be many

Our largest investment todate has been in Rwanda,an expansion of theuniversity by more thantwenty thousand seats. Thenal investment could bemore than US$160m. Butwere beginning projects inGabon and Ghana that will

easily surpass that gure.


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November 2012 \Feature \ 19www.GatewayToAfrica.com

delays, but i you take a long-term view onthe market, all o it makes sense.

Strong land laws are another pre-condition, as is a precedent or closingcomplex contracts. Sometimes dealscollapse because o inadequate local lawsrelating to exclusivity and condentialityclauses that protect intellectual property.

In these kinds o negotiations the privatepartner is obliged to do an enormousamount o technical work upront andits very expensive work to do. It can beextremely rustrating to lose a deal inthe eleventh hour. And many large-scalereal estate transactions take millions odollars to reach nancial close and beginconstruction, so this period o the projectcan be very ragile, cautions Pizziconi.

However, on the fip side this meansthat deals are substantial. Our largestinvestment to date has been in Rwanda,an expansion o the university by morethan twenty thousand seats. Te nalinvestment could be more than US$160m.But were beginning projects in Gabon andGhana that will easily surpass that gure.

Gabons shining examplePizziconi was particularly impressed byher negotiations with Gabon. Tey arevery good at retaining third party advisorsto help them with their transactions, shesays. Gabon showed up with Aricandiaspora lawyers rom Canada, becausethey were bilingual, understood Aricaand had Western transaction experience.Tey also retained nancial transactionadvisors, a third-party consulting rmto help them assess value or money, andthat is the best way or a government todo this kind o project.

Ghana

Ghana is another country that is primedor business, she remarks. Where[as] insome countries investors are still relying

on that government guarantee,there are some countries wherethe private sector has proven itselso suciently and the educationmarket is so robust that you canactually see exciting opportunitieswithout such a strong governmentcomponent, she explains.

Three principlesI always used to boil it down tothree principles. I called it trust,

culture and courage.

Trust

Issue number one, no deal getsdone until both parties trust eachother. Tis is oen dicult ororeign investors to establish,

Local culture always rules. The local culture is going to drivewhat is expected by the market, so you have to be deferentsometimes on individual issues even if it doesnt make economicsense assuming the overall project economics remain attractive.


20/32


sometimes on individual issues even i itdoesnt make economic sense assumingthe overall project economics remainattractive. You cannot orce any kind ointernational culture onto a local realestate market, explains Pizziconi.

She gives as an example how it is notcost-ecient to build ull concrete

homes, but this is what many localArican markets expect. We could bringthe cost o construction down i wedid stud construction the way we do inAmerica, and our homes oen last orover a hundred years. But in Kenya andNigeria, people will still bring a hammerwith them, to knock on the walls, tomake sure that its solid concrete beorethey buy the house. Local culture willrule, and will govern that decision. I youget that wrong youll be sitting on a lot ohouses that cant be sold.

CourageHer third principle is courage. Tatgoes back to that patient capital. A lot oinvestors dont go orward because theywant every risk mitigated in advance,she explains. Tey really want to takethe Arican risk prole and reduce it tosomething thats amiliar to them andthis is a risk return story, so you get higherreturns because you take on higher risks.

You can mitigate eighty per cent othe risk. Youve got to remember yourenot going to get everything in a tidy littlebow, thats not this market. My projectmanager always tells me; the only thing

I can guarantee you a hundred percentin Arica is change. Tings will changeassumptions wil l change.

PoliticsAccording to Pizziconi, many investorsmiss the opportunity because theyretoo xated on the politics, and theyrenot looking at whats happening on theground. Lie goes on regardless o thepolitics. People still need housing andthey denitely need schools.

She gives as an example the Rwandangenocide. You had a horric eventand one o the rst acts o the countrysreconstruction was to ll the national

university with ten times the students theyhad beore the genocide you have got totake the long-term view and then youllsee how resilient the education sector is.

Tere will be times when there isturmoil, but undamentally Aricans willalways be part o their own solution andthey will always seek out education. Shepoints out that political risk insurance isalso available.

We are going very long on Arica, saysPizziconi, who will be investing in Aricaor the long-haul. Were taking projectsthat are a minimum o thirty years long,

maximum y years long, so what weredoing is were betting on the continent ormost o my liespan.

Regardless o the politics, economicupheavals and idiosyncrasies in theArican marketplace, the real estatemarket is one o the hottest opportunitieson the continent, she condes. Butyou have to be air about the allocationo risk and return or both parties.Tey have an asset thats very valuable.Teir land is valuable because its theiruture story. Having been dragged thereoriginally by others, once I openedmy eyes and looked around I sawopportunity everywhere.

which makes the need or local partnerscritical. Youre never going to sign acontract i they dont trust you and youdont trust them. What you need to do isnd an intermediary thats trusted by bothsides. I you dont have that, be patient sothat relationship is eventually established.

CultureTe second principle is culture. Localculture always rules. Te local cultureis going to drive what is expected bythe market, so you have to be deerent

Universities

Waste-to-Energyand WaterFacilities

Staff andStudent

HousingMixed-IncomeCommunity

Housing

PrimarySchools

SecondarySchools

MicronanceEnterprises

CommercialDevelopment

Health Facilitiesand ResearchLaboratories

Africa Integras Mixed-Use Development Model

Obtaining free and clearland title and defending it isextremely difcult, and its alogical challenge because Africa

is obviously a high-growtheconomy. If they give up landtitle to a foreign investor its apermanent loss to that countryin some waysits all aboutsharing equitably.


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November 2012 \Business Life\ 21www.GatewayToAfrica.com

BUSINESS LIFE:

LIKE SEVERAL other South Aricanbusinesses that have opened shop in EastAricas biggest economy, Kenya DataNetworks (KDNs) entry into the lucrativeKenyan I sector nearly a decade agoappeared set or big success, until reportsemerged recently that the company wasbleeding red.

While announcing an impendingmanagement shakeup at the company, imEllis, a Group executive o the JSE-listedAltech Ltd that owns 60.8 per cent o KDN,hinted strongly that the next CEO o KenyaData Networks would not be a oreigner.

Te perception that the expatriatesdo not understand the local market willnot end and so we have decided not torenew these contracts upon expiry, MrEllis told the Business Dailyon 3 October,in an apparent reerence to a plannedreplacement o the three top executives othe altering Kenyan I rm.

Mr Ellis also said the datacommunications carrier was shopping

or an equity partner to inject new capitalinto the business to help it rebuild itscompetitive muscle.

Te arrival o Kenyas rst ever bre opticbroadband internet connection in 2009was ideally meant to be KDNs watershedmoment, but it marked the beginning o aercely competitive environment that hasseen some nimbler players eat signicantlyinto its market share and prot margins.

Altechs management appear keen toreverse KDNs slide along a amiliar pathor some South Arican businesses thathave ventured into Kenya.

A ew o the notable rms that have

Understandyour marketSouth Africas Altechto adjust their Kenyanbusiness to the local culture

by Washington Gikunju in Nairobi

beaten hasty retreats aer burning theirngers in the Kenyan market includeinternational beer maker Castle Breweries,ast oods chain Nandos, magazine

publishers Media24, and cinema companyNu Metro.

But with Kenya being Eastern Aricaseconomic gateway, South Arican rmsintent on expanding on the continent havehad little choice but to try their luck in thecountry.

Some have ound success, like consumergoods producer iger Brands, pay-Vcompany Multichoice, clothes and liestyleretailers ruworths, Woolworths and MrPrice.

Critics have cited dierent reasons orthe ailure o South Arican companies

that have made premature exits rom the

Kenyan market.Tey include poor entry

strategies, their insistence on havingmanagement teams that are heavywith expatriates, the ailure toconnect with Kenyan consumerswho have strong brand loyalty and

the competitive nature o Kenyan

In my view, they (SouthAfrican rms) lost the battle

for sustaining presence inwhat is a very competitivemarket upon initial entry, -Polycarp Igathe, MD Tiger Brands East Africa

Polycarp Igathe, MD Tiger Brands East Africa


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22\Business Life \ November 2012 www.GatewayToAfrica.com

entrepreneurs, who give the typicallybigger South Arican rms a run or theirmoney.

Altech declined to discuss its turn-around strategy, or even comment on themixed bag o ortunes that South Aricancompanies have encountered in Kenya.

Altechs shares are currently tradingunder a cautionary announcement (and)we are thereore not in a position toprovide any urther details regarding ournancials or our uture strategies, said therm in a statement sent to GTA.

Te managing director or iger Brandsin East Arica, Polycarp Igathe, washowever blunt in his assessment o SouthArican rms experience in Kenya.

In my view, they (South Arican rms)lost the battle or sustaining presence inwhat is a very competitive market uponinitial entry, said Mr Igathe in an interviewwith GTA. Tis challenge is not unique toSA rms, it aects all operators in Kenya,he added.

Mr Igathe was at the helm o Kenyanconsumer goods rm Haco Brands whenin 2008 South Aricas iger Brands cameknocking with a take-over proposal.

Chris Kirubi, a Kenyan business magnateand owner o Haco Brands, decided to letgo and iger Brands acquired 51 per cento the company, with Mr Kirubi retaining49 per cent.

A look at comments in the JSE listediger Brands annual statements or 2011shows the Kenyan subsidiary is on a

growth path.Net sales or Haco iger Brands increased

14 per cent last year to R216 million ($25million), while EBI (earnings beoreinterest costs) rose 8.5 per cent to R21.8million ($2.5 million) over the 2010 gures.

Te company attributed the growth toincreased exports within Eastern Arica,but said a strong Rand was impactingnegatively on its operations in the region.

Haco results in Kenya Shillings havebeen stellar over the period o igerBrands participation in the business, saidMr Igathe, declining however to reveal

the Kenyan units perormance citing

regulatory restrictions.iger Bands is one o the largest producers

o consumer goods in Arica, with ymanuacturing acilities on the continent;orty-our o which are in South Arica and

one each in Kenya, Ethiopia, Cameroon andChile and two in Nigeria. Mr Igathe puts therms perormance down to having adoptedthe right entry strategy.

Te secret o iger Brands success inEastern Arica has been the joint venturepartnership with Chris Kirubi in Kenyaand Bizenu . Buzuayehu in Ethiopia. Telocal partners have guided iger Brandsinto local nuances and operating practices,said Mr Igathe.

Commenting on the issue o havingexpatriate managers in their Kenyan units,Mr Igathe said iger Brands belie inKenyan executives has helped to smoothenits operations in the country.

He likened hiring an entire team oexpatriate executives to putting a resh watersh in salty waters and expecting it to thrive.

Mr Igathe says, however, that Kenyanconsumers are very loyal to the moreamiliar brands produced by Kenyan-ownedbusinesses, which has made it more dicultor oreign rms to grab market share romcompanies that are already well established.

Te most prominent example o a SouthArican company that was unable to breakthrough the brand loyalty shell is CastleBreweries, which pulled out hastily in 2002aer encountering erce competition romKenya Breweries.

Aer a distributorship agreement withKenya Breweries that lasted nearly adecade ended last year, Castle Brewerieshas announced a second comeback into the

Kenyan market, partly through acquisitiono a local company Keringet, a popularbrand o bottled water.

It is much easier to x, operate andgrow (FOG) rom an existing platorm

with cash fows and an operatingmanagement rather than a greeneld,said Mr Igathe adding: For instance, SABMiller version 2 with Keringet is doingjust ne, but it took them long.

With the right strategy, Mr Igathe believesSouth Arican rms can tap protably intoKenyas rapidly expanding middle class.

Te established tourism, coee, teaand horticulture industry, and the newmineral wealth nds oer ever-expandingopportunities. Te only barrier to success isthe ability to navigate the resh water i youare o the salt water variety, says Mr Igathe.

Kenyan consumers are veryloyal to the more familiarbrands produced by Kenyan-owned businesses, which

has made it more difcult forforeign rms to grab marketshare from companies thatare already well established.

Nairobi Skyline

Altech

Tiger brands

Truworths

Woolworths

Mr Price

Multi Choice

SA firms thathave gained afoothold in theKenyan market

The gures show that trade between the twocountries went up 18.8 per cent last year to$872 million, from $734 million in 2010.


23/32


24/32


FEATURE:

HE BASIC ounding hunch behindPhoenix Arica, is that post-confict

countries in Arica precisely becausetheyre so neglected must oer attractivebusiness opportunities because the risks arepriced all wrong, says Paddy Docherty chieexecutive o Phoenix Arica, a London-based agribusiness development company.

Everybody assumes that its incrediblydicult to do business there, almostimpossible because theyve seen BloodDiamond[the movie], or they remembernews reports rom civil wars a ew yearsago. Te act is o course a lot o thesecountries are nothing like as dangerous asone would imagine.

Getting the fundingPhoenix Arica is seeking investors to und a$100m investment to develop 15,600 hectareso prime armland in Sierra Leone, to growrice or the local market. One o the reasonswhy the numbers or our Sierra Leone projectlook very good is that at the moment theyreimporting $100m o rice every year. Tis, hesays, is obviously ridiculous.

Because theyre importing so much andbecause theyre growing so little internally,the domestic rice price in Sierra Leone isalways roughly $100 [per tonne] premium to

the world price. We dont want to export it.Te domestic market looks very attractive.We hope that Sierra Leone will become

a rice exporter like it used to be and SierraLeone geographically is nicely positioned toexport into Europe and America. But thatsin the long-term, says Docherty.

Docherty has signed an agreement to

Back tothe landHow to start a $100m agribusiness in Africa

operate in the ikonko region, near thesecond city o Bo. Were working at the

moment with our paramount chiedoms.Tis is beautiul prime armland along theSewa River, which is perect or rice. As aras I understand its been lying allow or 20years, he says, since the civil war started.

According to Docherty, the inrastructurein Sierra Leone is still pretty poor, but issteadily improving. A new Italian-built roadnow links Freetown to Bo, the second cityand agricultural centre.

Commercial agribusinessOne o the biggest constraints or a localarmer to do proper ully mechanised,

irrigated agriculture is lack o capital and Icant imagine how a Sierra Leonian armerwould successully raise millions o dollarsto do arming in Sierra Leone. Its hardenough or me sitting here with my topteam to access that kind o capital. So or alocal armer it would be virtually impossible.Tats one o the reasons why there are theseland areas lying allow.

But, says Docherty, this is what placeslike Sierra Leone need. I mean part o theproblem with the development agency-ledapproach to Arican agriculture has beena ocus very much on smallholder armers

and an assumption that Arican agricultureis all about smallholder armers. Obviouslysmallholder armers are important becausethey are the general population. One o theproblems with that development agency-ledapproach is that by ocusing on productionat that smallholder level, the improvementsare very incremental.

ake a smallholder armer, give him aew extra inputs and some better seeds, thenhe might raise his yields rom hal a tonneper hectare to one tonne per hectare, orrice the local staple in Sierra Leone. Tatsa signicant improvement in percentageterms, but thats still a dismal yield andaltogether its actually not that eective.

What somewhere like Sierra Leone needsis serious grown-up mechanised, irrigatedagriculture which raises yields to six tonnesper hectare, or seven or eight tonnes perhectare. And thats what well be doing.And thats readily achievable. I mean iyoure doing it properly and i youve got theright seed type, proper irrigation, we couldeasily get six or seven tonnes per hectare,Docherty explains.

Feasibility studyPhoenix is in the process o carrying outtheir easibility study. Tis involves lookingat the land area, the water resources, the

power access, the irrigation requirementsand doing a ull soil survey. Tis easibilitystudy generates all the data that an investorneeds to see to make a decision.

Weve got a number o developmentnance institutions [DFIs] lined up tocome in at the operations level to invest.But in order to access that money I need toshow them a easibility study. Teyre keenbecause all these DFIs have plenty o moneyto spend, but [theres a] lack o projects toinvest into, says Docherty.

Te uniorm message that weve had rommost o the big DFIs about Sierra Leone,

is we absolutely love this, it ticks all o ourboxes. It does everything we need to see

by Jeremy Kuper

What somewhere like Sierra Leone needs is seriousgrown-up mechanised, irrigated agriculture which raisesyields to six tonnes per hectare, or seven or eight tonnes

per hectare. And thats what well be doing.

Image by Bethany Clarke

Paddy Docherty, Phoenix Africa


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November 2012 \Feature \ 25www.GatewayToAfrica.com

industry to be getting into. Where is theglobal ood security crisis in the next20 years is going to be solved? Aricanagriculture is the only answer.

Phoenix Arica is trying to positionitsel in the investment hierarchy, at thelevel below the typical private equityinvestment unds. Tis he explains isbecause theres a kind o disconnectbetween capital that is allocated or doingArican projects, or particularly Aricanagriculture. I mean theres quite a lot omoney thats available in theory, but thentheres a problem in deploying that capitalbecause o the lack o projects.

One very senior [exec] at IFAD toldme that he has $100m to spend in SierraLeone alone, Docherty intimates, but saysthis executive cant spend it and he cantnd projects to spend it on.

Te Soros economic development und,

they have a similar amount o money about$100m as well, which theyre strugglingto deploy. Tey cant nd the projects tobuy in Arica generally, but they have beenlooking or rice projects in Sierra Leoneand they simply havent been able to ndanything. Teyll need someone like us toactually create the projects that they canput their money into.

With Phoenix Arica, we didnt want totake a und approach, but rather create ourown businesses. So were not looking orbusinesses to buy or businesses to investinto. Were creating our own project. And I

think that will make us quite viable becausethere are ar too ew new businesses beingcreated in this sector.

Docherty points out that these other vastland areas usually dont get developed,because its just too much to try anddevelop at once. So we wanted to developit in a sequence that allowed us to dosensible size land areas and do it properly.Not to do too much at once.

As ar as ood security is concerned,Docherty suggests this project will have apositive eect in Sierra Leone. Te landand the labour, theyre extremely goodvalue. His land costs in Sierra Leone are$8 per hectare. Tis he points out is ar lessexpensive than much o Sub-Saharan Arica.

Future projectsOur ocus will be always agriculture andcomplements o agriculture. But Im keenon the overlaps between agriculture andnancial services or example. One project

in the pipeline is a micro-nance bankin South Sudan which would be a ruralmicro-nance bank, lending to smallholderarmers, says Docherty.

Im also interested in the overlapsbetween agriculture and inrastructureand transport and so on. So in the NigerDelta wed be looking at manuacturingagricultural inputs, because at the momentits a ludicrous situation which is typicalo many countries in Arica, they areimporting everything rom Europe,Docherty says. I mean its not complicatedstu, [producing] sh eeds, animal eeds

and so on. Tis isnt hi-tech stu. Tis couldeasily be made in the country.

Appetite for agribusinessDocherty believes there is a large appetiteor Arican agribusiness amongstinvestors. It eels deeply strategic

happening in Sierra Leone, its exactly whatwe need to see happening well come in atthe second stage.

Te next step aer the easibility studyis to raise the rst $4m to build the teamand the establishment, which will beollowed by the Special Purpose Vehicle(SPV) round o nancing to raise $100m.Each o the land areas is being treated asa SPV, so therell be a top company andthen special purpose vehiclesone or

each land area. We havent raised the $4myet thats what Im working on and thatsollowed by the $100m, says Docherty.

Te returns are projected to be around 30per cent. Te company expects to go cashpositive in year three and break even in yearve. Te bulk o revenue will come romthe sale o rice and rotational crops, andadditional revenue streams will be capturedthrough some added-value operations.

A modern scramble for Africa?One o the issues that has been a problem

in many Arican agricultural projects isover-ambition. You hear about insanelylarge projects, 500,000 hectares, whichpeople signed with various governments.Tere are some in Ethiopia and Kenyaor example, says Docherty, rejecting anycomparison between these land projectsand his own venture in Sierra Leone.

It feels deeply strategicindustry to be getting into.Where is the global food securitycrisis in the next 20 years isgoing to be solved? African

agriculture is the only answer.

Unused farmland Tikonko, Sierra Leone

See page 26 for an analysis

of mega-land deals in Africa


26/32


FEATURE:

ON WEDNESDAY, 10 October, theaid group Oxam staged a symbolicland grab in okyo during the annualgatherings o the IMF and World Bank.Protestors fashed money, and rodetoy diggers over a map o Arica to

A NewScramblefor Africa?

draw attention to oreign ownership oArican land, and the resulting eectson ood prices. However, with theagriculture on the continent in dire needo investment, agribusiness must not beruled out as a solution.

by William Clarke

DemocraticRepublic ofthe Congo8,051,870 ha

10 deals

Ethiopia5,345,228 ha

83 deals

Sudan3,923,430 ha

18 deals

Madagascar3,779,741 ha

39 deals

Zambia2,273,413 ha

9 deals

UnitedRepublicof Tanzania2,194,975 ha

58 deals

Mozambique1,983,127 ha

92 deals

Benin

1,040,900 ha9 deals

Cameroon710,340 ha

17 deals

Ten countries withlargest scale of landtransfers since 2000

Declining productionAricas agricultural output has declinedin the last twenty years. Failures ogovernance, lack o investment ininrastructure and technology, and thedisruptive eects o political unresthave le many Arican countries asnet ood importers. Te ood supply is atthe mercy o underdeveloped road andrail networks, and reverse migration romcities to the countryside has increasedpressure on land.

With ood prices becoming morevolatile, and increasing investor interestin agribusiness, land deals have beenbooming. wo-thirds o the land acquiredby rich nation investors over the lastdecade has been Arica, where under-developed agricultural land can be boughtat low prices, and in huge quantities.

Te lack o transparency surroundinglarge-scale land deals makes collectinginormation on the scale o the transersproblematic, but preliminary researchby the Land Matrix Partnership suggeststhat as many as 227 million hectares havebeen sold, leased, licensed, or are undernegotiation in large-scale land deals since2001. Most o these deals have been madesince 2008, and mostly to internationalinvestors. Hal o the land is in Arica, andthe majority o the land transerred will be

used or agricultural projects.

A green revolutionLarge-scale investment is widelyseen as an essential step towardsArican ood security, and to realisethe ambition o a green revolutionor Arica. However, while oreigninvestment can oer the capital todevelop local agricultural inrastructure,there are increasing concerns about theeects that such oreign investment ishaving on domestic ood production.

Private investment can oer materialbeneits to domestic economies whencorrectly structured. Co-operatives orintermediaries can oer economieso scale, and armer associations inMali and Zambia have invested inagricultural companies, oering asustainable and proitable model oagribusiness. I Arica is to experiencea green revolution, oreign investmentwill play a key role. However,by overlooking their role in thedomestic ood supply, agribusiness risksinciting instability and disrupting thevery inrastructure and civil networkson which they rely.

Liberia679,000 ha

6 deals

Hectaresof land

Numberof deals


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November 2012 \Final Word\ 27www.GatewayToAfrica.com

HERE IS NO doubt that wealth hasbeen slightly more widely distributed andthat because o the earners at the verytop and in the middle o the economicpyramid, the earnings o black South

Aricans have improved considerably,says Andrew Feinstein, author, anti-corruption activist and ormer ANC MP.

Te one thing that I think you have gotto be aware o is that, quite remarkably,since 1994 inequalities have actuallyincreased. South Arica has always beena highly unequal society along raciallines, or all the obvious reasons, but thatdisparity now includes the small elite owell-connected black business people whoare doing incredibly well.

Inequality is growingTe main problem however, is thegrowing divide between rich and poor.South Arica remains the most unequal

Good governanceis key to rule oflaw and prosperity

Andrew Feinstein

FINAL WORD:

Transparency is a prerequisitefor economic success in Africa

society in the world. Inequality is a recipeor disaster at all sorts o levels, explainsFeinstein. I think that the nature o thegrowth in incomes in South Arica, whileit is important that it is generally rising, is

hugely skewed.In a democracy that has the objectivesthat ours does, I remain astonishedthat there arent more micro-economicinterventions [and] attempts to stimulatebusiness in very poor areas, he adds.

In his view, attempts to give poor SouthAricans a stake in privatisations haventhappened in any meaningul way. Ocourse the growth is to be welcomed, andthere are a whole range o indicationsthat the South Arican economy is in abetter place than it was under apartheid. Ithink the nature and the structure o that

economy remain deeply concerning still.

South Africa remainsthe gateway to AfricaDespite these structural problems,Feinstein considers South Arica a veryimportant gateway to Arica. I thinkbecause o the connectivity o the SouthArican economy to the global economy,because o the service industries that wehave, particularly [the] nance industryand telecommunications, he says.

Feinstein regards the issues otransparency and the rule o law as notjust important in the context o South

Arican politics and business,but also in terms o their impacton business throughout thecontinent. Why do I say that?he asks. First, government

contracts are not awarded ina transparent and competitivenature.

Tere has been the emergenceo a whole class o people. Callthem the tenderpreneurs i youdlike to, as has been coined inSouth Arica, who because otheir political connections, ortheir political positions areengaged with companies winninga lot o government tenders. Ithink thats extremely bad increating a competitive business

environment, [and] in attemptingto deliver government services.

Rule of law is threatenedby lack of transparencyFeinstein nds the lack otransparency in the relationshipbetween government and businesseven more disconcerting, becausethen the very basis o the ruleo law which business requires tooperate is under threatunlessbusiness is conducted in a moretransparent, a more open and

a cleaner way, that could be the

In a democracy that has theobjectives that ours does, Iremain astonished that therearent more micro-economicinterventions [and] attemptsto stimulate business in very

poor areas,


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direction in which South Arica and Aricais heading.

He is troubled by business makingcontributions to political parties in Arica.I think what is crucial in enabling the

sort o opaque, problematic environmentthat we have at the moment in SouthArica is the act that all contributionsto political parties are kept secret. AndI think that overlapping between partypolitical unding and contracts, orinstance, is a very tight relationship andinimical to good governance and goodbusiness practice, he says.

Arica and South Arica refects whatis a global trend, but in perhaps a moreblatant way, which is the way in whichbusiness and politics have becomeintertwined and enmeshed. And I wouldargue that they have become enmeshed inways that are both detrimental to the wayin which we are governed, but also to theways in which businesses unction.

Tis sort o intertwining o businessand politics undermines the eectiveunctioning o the market and makes itextremely dicult to regulate the marketin appropriate and meaningul ways. Andthis is a global phenomenon but one seesit quite starkly in countries like Russia andcountries like South Arica, says Feinstein.

Young democraciesand the arms trade

Te reason why he believes this closerelationships is especially insidious in anArican context, is that the institutions

o democracy arent as embedded inSouth Arica, or in a number o Aricanstates as they are in some o the worldsolder democracies. Not that those olderdemocracies dont themselves have veryserious problems, or instance in the UKand the US and Germany.

Feinstein gives the example o Germany,where the relationship between the armstrade and party political unding historicallyis proound. But just because there arentthe same level o checks and balancesbecause the institutions arent as groundedas they are in some other countries, I think

the eects o it are elt more prooundly incountries at a dierent stage o economicand political development, such as in theSub-Saharan region.

Te global nature o the arms tradeleads in his view to less accountabilityrom governments to their citizens. Tismakes bribery easier. It makes a loss oaccountability easier.

He points out that some westerncompanies acilitate this opaque process obuying concessions by paying tributes to

Arican political networks, demonstratingtheir willingness to undermine goodgovernance by participating in potentiallycorrupt activities.

African kleptocraciesTe two worst examples that we coulduse in our neighbourhood would beAngola, which I would describe asa kleptocracy, and the DemocraticRepublic o Congo, where you havea state that is barely unctional andwhich is taken advantage o by someextremely insalubrious business peopleand some major corporations. And its acharacteristic throughout the continent.

Another example would be EquatorialGuinea where you have a country that hasa per capita GDP higher than France, but

has one o the lowest human developmentindexes in the world. It has a rulingamily, a ruling elite, o gargantuan wealthand companies are willing to participatein these sorts o arrangements.

The paperback edition ofAndrew Feinsteins TheShadow Worldis out now inall good bookshops


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30\Destination \ November 2012 www.GatewayToAfrica.com

Botswana

DESTINATION:

HE LANDLOCKED country oBotswana is oen hailed as a model ogood governance. Te ormer Britishprotectorate o Bechuanaland has enjoyedhal a century o growth and avoided the

civil wars that have stricken many o itsneighbours.

Since independence, Botswana hasachieved one o the highest averageeconomic growth rates in the world,averaging about 9 per cent per year rom1966 to 1999. For the last thirty years themining and diamond industry has beenthe basis o this growth, with more thanhal o government revenues coming rommining in 2005.

ransparency International ratesBotswana as one o the least corruptcountries in Arica. Despite elections

that are widely judged to be ree and air,

Botswana, which has enjoyed half a century of growth, whileavoiding the civil wars that have stricken many of its neighbours,often has been hailed as a model of good governance.

Botswanan EconomyCurrency: PulaPopulation: 2,029,000GDP based on PPP: $29.707bn

GDP growth 2012 (2011): 3.8%(4.6%)Head of Government: Seretse KhamaIan KhamaFinance Minister: Kenneth MatamboCentral Bank Governor: Linah Mohohlo

Botswanan BusinessLanguage: English, SetswanaWorld Bank Doing Business rank: 54

World Economic Forum GlobalCompetitiveness rank: 79Investment agency: Botswana ExportDevelopment and Investment Authority(www.bedia.co.bw)Stock exchange: el +267 318 0201Key sectors: Mining and tourismLegal system: South Arican pluralisticsystem

Getting ThereAirlines: South Arican airways, KenyaAirwaysVisas: Citizens o the USA, South Aricaand the EU do not need visasHotels: Approx. 70 to 130 a night

the centre-right Botswana DemocraticParty has held power and dominatedthe political landscape since the nationachieved independence in 1966. Tecurrent president, Ian Khama, is the

son o Seretse Khama, the nations rstpresident. He is also the great-grandson oKing Khama III.

rade and tourism contributesignicantly to Botswanas economy.Botswana is a member o the SouthernArican Customs Union and hasmaintained strong diplomatic tiesto South Arica since the end o theApartheid-era. Agricultural developmenthas lagged behind, although 80 per cento the country is employed in arming, thesector contributes less than 3 per cent oGDP and only meets hal o Botswanas

ood needs.

Photo Credit: Athena Lao

BOTSWANA

Gaborone

South Africa

Zimbabwe

Namibia


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Gateway to Africa November 2012