SUSTAINABLE SUSTAINABLE INFRASTRUCTURE IN AFRICAINFRASTRUCTURE IN AFRICA

Challenge Funds – 5 Year Challenge Funds – 5 Year PerspectivesPerspectives

Garry WHITBY

PROSPECTS FOR AFRICA

• Growth last year was 5.1% on average

• IMF estimates growth to be 5.3% this year

• Africa needs growth of 7% to meet the MDGs, over next 10 yrs

Investment in Africa yields highest global returns:

• 4 times that of G7 countries

• 2 times that of Asia

• 65 % more than Latin America

Last year African equity delivered returns in excess of

30%

GROWTH MATTERS FOR BUSINESS IN AFRICA

Fast growing consumer market will create many new opportunities for

businesses in Africa

Investment Climate Facility

• Current total GDP for APRM countries USD 400 Bn; - consumers spend USD 250 Bn

• If 5% growth is maintained, GDP will be USD 560 Bn; - consumers will then spend USD 350 Bn

• To reach the MDGs, growth needs to be 7%. At this level, GDP will be USD 640 Bn; - consumers will then spend USD 400 Bn

LANGUAGE OF DEVELOPMENT

New funds and interest from G8 in Africa’s development should be seen as an INVESTMENT in Africa not “aid” to Africa

WITH ALL INVESTMENTS THERE NEEDS TO BE A RETURN

A commercial return to enhance shareholder value

A socio-economic return to justify the use of G8 investments

COMMERCIAL V SOCIAL RETURNS

Com

merc

ial re

turn

Market / social impactLOW

High

Private Sector Space

Don

or

Sp

ace

PRIVATE SECTOR INVOLVEMENT IN AFRICA

Where is your future growth coming from?

• Traditional markets (comfort zones) are becoming saturated

• Constant pressure to deliver best possible returns on investment

• Internal and external barriers to enter new markets

Sir Richard Branson “For too long business has been sidelined in the development debate … but Africa presents one of the great new market opportunities” Bending

the Arc

Planning Horizon

Decline with No Innovation

-3 -2 -1 Today 1 2 3

Reven

ue

4

Revenue Optimization

Sustainable growth

GROWTH MODEL FOR THE PRIVATE SECTOR

Business of today

Business of

tomorrow

PRIVATE SECTOR: ENGINE FOR GROWTH

Use G8’s doubling of funds to Africa as investment in Africa, commercialise development programmes.

Use same principles that drive commerce to drive development

Private Sector only likely to commit on an appropriate scale if there are strong commercial incentives

With the right process of engagement, the private sector are willing and motivated

Key is to identify interested niches and to have instruments that facilitate effective partnerships and to assist old players develop new player mindsets and competencies

AFRICAN SUCCESS STORIES –

CHALLENGE FUNDS

Challenge Funds are new development tool, (process of engagement) funded by DFID

They challenge the private sector to innovatively think about new products and services which have a socio-economic spin off, but on commercial grounds, ensuring their sustainability

Challenge Funding is about making marginally viable initiatives viable, by joint funding between donors and the private sector to invest in business initiatives that have a commercial and social benefit.

An investment which shares costs and risks

An investment to create enterprises which offer a social return, add to shareholder value by creating wealth and contributing to growth

BUSINESS LINKAGES CHALLENGE FUND

Supports private sector partnerships that promote commercial benefits and help reduce poverty through a range of activities that:

• increase access to markets

• transfer technology

• improve competitiveness

• address policy and regulatory environments

Success to date:

• positive progress to commercial viability

• greater access to markets

• genuine skill tranfers

• reduction in red tape

BLCF SUCCESSES 1

Thandi Fruit - South Africa

Largest SA fruit exporter teamed with emerging farmers, provided extension services, market advice and distribution network.

Thandi now marketed in Middle & Far East, Russia, EU, US and UK (J Sainsbury, Tesco and Coop)

Turnover increased from R 273K to > R 60 M

BLCF SUCCESSES 2

Cotton Seed - Malawi

Pre-treatment of seed, building and developing a high quality and better yielding national cotton crop

Development of cotton crop to support 180,000 farmers

Crop increased by 265%. Exports increased from USD 5.5 M to USD 13 M

BLCF SUCCESSES 3

Private Sector Initiative – Tanzania

Facilitating business linkages between SMEs and large corporations such as BP, Tanzania Breweries, Tanga Cement

Bringing corporations together to share experiences with SMEs and involve them in their supply chain.

Corporate participation increased from USD 21 M to > USD 45M

BLCF SUCCESSES 4

MOCIT - Mozambique

Privatisation and rehabilitation of citrus estates

Training of local community to grow, pack and export quality grapefruits and oranges to UK and US

Export to UK achieved and new variety of grapefruit being introduced

BLCF SUCCESSES 5

Mondi- Black Gold Forest – South Africa

Utilisation of forestry timber waste for charcoal, working with marginalised communities. Developing entrepreneurs to manage small businesses which clear the forest, producing solid fuel for national and export uses.

Selling price doubled, entrepreneurs earnings increased by over 33% in first year, received international environmental award.

FINANCIAL DEEPENING CHALLENGE FUND

International companies have explored new markets:

Deutsche Bank

Created a Commercial Micro Finance Facility to invest through commercial banks in MFIs, success of which has attracted additional investors

Vodafone

Leverage existing networks to introduce cell phone banking which provided access to banking for many people for the first time, but was also so commercially viable, Vodafone are looking at other social enterprises

Tata AIG

Developed low cost life insurance product and delivery mechanism, the success of which has encouraged other parts of the organisation to look for similar commercial initiatives

CHALLENGE FUND LESSONS LEARNT

Critical Success Factors:

Ensure there is a commercial return

Seek out useful partnerships

Top management in projects from the outset

Align or bring about change in corporate culture

Ensure genuine risk sharing

Little previous donor partnership

Process is competitive

Sector focuses

www.financialdeepening.org

www.businesslinkageschallengefund.org

CONCLUSIONWe all need to think differently about the way we do business and deliver services

G8 funds should be seen as an investment, not charity

Use the same principles that drive commerce, to drive development

DFID’s foresight to partner with the private sector has been proven to work

Private sector activity in Africa is enhancing shareholder value

Commission for Africa, G8 commitments present an opportunity for private sector to jointly invest in Africa

The future for private sector investment in Africa is bright

Wealth creation (for shareholders and African stakeholders) go hand in hand with poverty eradication

gwhitby@deloitte.co.za