52 This is Africa This is Africa 53

Perspectives

Bruno Wenn

POWERING PRIVATE SECTOR DEVELOPMENT

Since the start of the millennium and following almost two decades of low growth rates, economies

in sub-Saharan Africa have been gathering momentum. GDP growth averaged almost 6 percent, whereas during the 1980s and 1990s growth amounted to less than half of this.

The major reasons for this upward trend are two-fold. Firstly, the framework conditions have improved. Despite a few exceptions, the majority of African countries are increasingly characterised by good governance, political stability and more liberal economic policies which encourage investments. Secondly, increasing external demand for African commodities has boosted growth. Combined with a considerable expansion of the service sector, and particularly the financial sector, growth is on a broader and sounder footing. The lion’s share of this growth stems from private sector development.

While investors from emerging market countries in Latin America and Asia have already seized the opportunity to invest in Africa, German and other European companies are evidently more risk conscious.

Despite doubtlessly offering opportunities, Africa still faces challenges. One of the most pressing problems is poverty. Private sector development can play a vital role here through creating employment opportunities and reinforcing the upward spiral of positive growth. The development of small and medium-sized enterprises is of particular importance. Germany’s economic structure demonstrates this. German SMEs employ 60 percent of all employees and generate nearly 50 percent of the net value added of all companies. At the same time they are an engine for innovation and investments, and promote the next generation of professionals.

Poor infrastructure and a lack of access to finance both act as a brake on a growing private sector and poverty alleviation in Africa.

However, a one-off investment in infrastructure is simply not enough to trigger further positive economic development. Much more importantly, infrastructure has to grow in line with production and its changing requirements. Often transport and energy capacities, for example, lag behind the growth rate in Africa, undermining growth potential.

The provision of infrastructure has traditionally been a public responsibility. Private investors can, however, also make a valid contribution in this area. The recent cooperation agreement between the German Investment Corporation (DEG) and the Emerging Africa Infrastructure Fund, which finances private sector infrastructure projects with a total volume of some $620m, illustrates this. EAIF finances infrastructure projects in countries such as Nigeria, Cameroon, Uganda and Kenya.

To date the fund has made investments in around 20 private enterprise projects. Energy supply and telecommunications are two of the priority sectors. This includes power stations which utilise renewable energy such as water or geothermal power. Approximately half of these projects are financed in parallel by DEG, such as Olkaria III, a climate protection energy project in Kenya and the first private geothermal power station in Africa.

By virtue of these projects, the private sector is contributing to a more efficient, cost-effective and sustainable production of electricity – and that in

countries where power cuts are a predictable daily occurrence. The successful implementation of such projects facilitated the necessary institutional framework conditions for direct investments in energy. The way has been paved for subsequent investors.

The financial sector is another bottleneck. Primarily SMEs lack access to long-term finance – which is indispensable due to high market entry costs and the frequent loss-bearing phase until break even. Development finance institutions approach this challenge in two different ways. One option is providing direct long-term loans to companies whose regular commercial banks are unable to do so. A further type of direct support is the provision of equity. This form of finance generates leverage through mobilising third-party capital.

Given the critical size of many small and medium-sized enterprises in Africa, indirect financing tends to be more adequate in some regions. Here, local banks, which in turn focus on SME financing, receive loans or equity capital. Private equity fund commitment also falls under this category. An example for indirect financing is I&M Bank in Kenya. Since 2007 DEG, in cooperation with the French development finance institution Proparco, has been the equity capital provider and has facilitated further growth. Over the last few years the bank turned into a key player serving SMEs.

All in all, private sector development offers solutions to the infrastructure sector as well as entrepreneurial finance, supporting broad-based growth and poverty alleviation in Africa. With an experienced partner on hand, foreign and local investments in Africa promise to be successful – from a developmental as well as from an entrepreneurial perspective.

Bruno Wenn is chairman of the management board of the German Investment Corporation

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54 This is Africa This is Africa 55

Perspectives

Reem Al Hashimy

BUILDING PARTNERSHIPS

These are exciting times for Africa. The continent is increasingly seen around the world as a place of

opportunity for investment and business. Economic progress is taking root with annual growth averaging 5 percent over the last 15 years. Social progress is fast following in its wake. The fact that the continent has the planet’s youngest, fastest-growing and fastest-urbanising population is another attraction to countries and companies looking to the future.

This interest and optimism was underlined by the remarkable attendance at the Common Mar-ket for Eastern and Southern Af-rica Investor Forum held in March in the United Arab Emirates. Over 1,000 delegates from almost 75 countries travelled to Dubai to discuss how they could forge partnerships with the member countries of the Common Market for East and Southern Africa.

Under the patronage of Sheikh Mohammed bin Rashid al Maktoum, ruler of Dubai, we were delighted to host this prestigious event which

allowed the foundations to be put in place for

new commercial partnerships. But our own links with Africa and Comesa members are, by no means, a

new development.In fact, bilateral

trade between Africa and the states of the Gulf Cooperation Council has been increasing by 11 percent a year since

1980. The UAE was among the top 20 global infrastructure investors in sub-Saharan Africa in the decade from 1996.

Among the UAE’s largest trading partners in Africa are Comesa countries like Kenya and Ethiopia. They also include some of our fastest growing trade relationships such as our non-oil trade with Rwanda, Zambia and the Comoros Islands.

It is the sense of trust that these long and mutually beneficial links have fostered that is important for the future. The key to any successful relationship, whether among countries or in business, is a profound spirit of reciprocal obligation, a readiness to share knowledge, to share costs and to share risks. The relations between the UAE and Comesa countries are rooted in these principles. Even more important is the common commitment to investing in our future and the determination to find our rightful place in a globalised world.

Geography gives this relationship a new impetus and purpose. The UAE is uniquely perched at the centre point between the two great continents of Africa and Asia, where the fastest growing economies of the world today can be found. In 1987, emerging economies made up only 16 percent of global GDP. Today they account for 31 percent and that figure is forecast to rise to 41 percent in 2015.

With the new economic forces of China, India and Russia to the East and North and the resource-rich Comesa nations to the West and South, the UAE

– free-trading, open and multi-lateral – offers a natural staging post on what some people are calling ‘the New Silk Road’. As developing ‘South’ economies, we can serve as a tremendous source of support for each other. In the words of a high level forum delegate from a Comesa country, ‘do business with Dubai, do business with the world’.

The rapid and unprecedented shift in economic power can already be seen in trade with Gulf countries. Thirty years ago, the OECD countries – dominated by the developed economies of Europe and North America – accounted for almost 85 percent of our trade. By 2009, emerging markets already accounted for 45 percent.

But there are other reasons why deepening the relations between the UAE and Africa is to the advantage of both partners.

The UAE’s highly developed infrastructure and position as a pillar of financial stability in the Middle East region also provides an enabling environment for investment and trade.

One of the main challenges facing the Comesa nations is poor infrastructure. Bad transport links, for example, can slam the brakes on economic and social development. Infrastructure is, of course, one part of the economic picture that no country can outsource.

Long-term, we are building partnerships to modernise and expand Africa’s transport and energy through investment in major projects. But in the short and medium-term, having a world-class infrastructure hub close at hand in the UAE can and does solve problems for business people seeking to invest in Africa now.

Consultants, accountants, conferences and research reports are in unison vaunting the prospects

of the fast growing group of people that make up the African consumer. With consumer spending in 2008 forecast to rise from $860bn to a startling figure of $1,400bn by the end of this decade, the African consumer is causing a stir with producers and investment managers alike.

This is good news for all. At present, GDP per capita is one tenth of the world’s average, but by the end of the decade 128m households will have discretionary income, and companies in the West are paying close attention. Within the last few months there have been at

least two high profile businesses from Europe that have made significant investments into sub-Saharan Africa. Nestlé has recently invested $80m in a new plant in Nigeria and has pledged to invest $1bn over the next two years. The brewers are active too, with Heineken spending $163m on two breweries in Ethiopia and consolidating the independents in Nigeria, recognising the attraction of a country with 150m inhabitants and an economy that is growing at over 7 percent.

The retail sector is dominated by roadside kiosks in much of sub-Saharan Africa with only one US-style mall in Lagos, a city approaching 20m people, but shopping centres are currently being funded and look set to bring large grocery format shops to the city. The continent’s prospects have proved alluring for Wal-Mart, which has agreed to pay roughly

Strengthening the partnership between the UAE and Africa, of course, goes beyond its impact on growth, jobs and prosperity, crucial as that is. Developing bi- and multi-lateral trade links and inviting Comesa companies to take their place in the international market is, I believe, vital to accelerating social development as well.

The pace of change is creating huge challenges but also revealing immense potential. The UAE is ideally placed to reach out to Africa and be an even bigger part of its successful economic development. Our relationship has grown organically so far. But now the time is right to step up our efforts and develop a strategic path and common vision.

Her Excellency Reem Al Hashimy is minister of state of the UAE

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$1,400bnAfrican consumer spending is forecast to rise to 1,400bn by the end of this decade