Apaltry rate of investment in infrastructure has dimmed the otherwise bright future for our continent.
Decades of self-serving economic policies, political agendas and some may say cynical or ‘feel good’ aid flows to Africa clearly have not delivered much. Yet, there is a new sense of enthusiasm and positive energy from Africa. The new generation of Africans is seizing the future.
The people are moving and the opportunities are endless for Africans. Entrepreneurs from around the world are engaged, but the picture has flaws; the story is oversimplified. The basic needs are still missing. Where are the ports and harbours, railways, roads, power plants and electrical and water distribution to support growth?
It is Africa’s diversity that makes it so rich, but it is also this diversity that remains the biggest hurdle to the growth that is eagerly expected.
Africa comprises 53 diverse countries – historically impacted by colonial era and cold war foreign ideologies; diverse languages, inefficient bureaucracy, nationalist inward-looking focus and economic protectionism. The continent often lacks experience when it comes to major infrastructure delivery and attracting private sector or foreign development investment.
Enter the World Economic Forum (WEF) and many other NGOs and Develop Finance Institutions (DFIs) who seek to usher in a better world.
WEF is a private institution respected as an influencer and incubator in helping the world understand the future.
The focus on Africa, in the last decade, has done good and raised the economic profile of the continent around the world.
WEF has no implementation resources or infrastructure delivery capacity but are good at investigation, evaluation and think-tanking. Ideas may abound but when does planning turn into delivery? Many highly qualified professionals with great ideas meet annually with apparently limited visible progress when it comes to the hardware on the ground.
In 2013, WEF stated that “with an expected annual growth of 5 percent in 2012-2013, sub-Saharan Africa continues its transformative journey from a developing continent to a hub of global growth. According to the World Bank, almost half of Africa’s countries have attained middle-income status. At the same time, the continent’s positive outlook is threatened by fluctuating commodity prices, rising inequality and youth unemployment.”
At that session, much time was spent on the identification of target and priority infrastructure projects and 51 were shortlisted. The work done on the projects list was commendable, but there were crucial missing factors preventing the realization of the funding and construction of these projects.
The ability to attract large scale DFI funding to the extent required, which is put at $75 billion by 2040, is still elusive due to three factors: the absence of upfront ‘at risk’ funding of early project feasibility studies that can attract full project funding from private, public and DFI sources; a lack of political will and technical knowhow.
At this year’s forum, it’s encouraging to see all three of these key factors firmly on the agenda. There is a realization of the need to have a regional integrated view and that non-returnable funds are made available, to enable project preparation to be effective which will lead to funding and implementation.
My birthplace in Zimbabwe and my own personal African infrastructure adventure, over the last 30 something years, has given me valuable first-hand experience of the immensely difficult task of getting major projects through to implementation, both from a private and public sector perspective.
My personal experience with WEF goes back to the event in Cape Town in 2010. I attended with a special interest in the economic growth drivers and capacity building within Africa’s infrastructure.
In a number of DFI forums, my colleagues and I stressed that while projects may be much needed, project financing funds will not flow unless there were crucial additional funds made available that paid for the early detailed feasibility studies, including the designs and accurate technical scoping, budgeting and funding mechanisms and ultimately project management.
At last, we may be seeing the DFIs and the many agencies seeking infrastructure solutions for Africa coming together to get the African vision moving.
WEF would have thus played a strategic role in unlocking the potential. Africa is waiting.

Africa Is Building At Last

It was the dual meaning of a few words that tripped off the tongue of the Somaliland foreign minister as he talked about the economic future of Africa that turned my blood cold.
“Africa shouldn’t miss the boat,” says Mohamed B Yonis.
The stark image that stabbed into my mind was that of Africans risking their lives on leaky boats crossing the Mediterranean in the desperate hope of a new life in Europe – a journey that has taken 2,000 lives this year. A new life? The odds are against it; even the survivors are likely to end up as sweated labour at best; trafficked labor at worst.
I was even more upset to see a magazine at the conference with a survey suggesting a large number of Africans say they would risk the tricky crossing of the Mediterranean even if it cost them their lives; a sad statistic close to the weeping heart of Africa.
A sobering thought amid the gathering of the rich and powerful in Cape Town where there were many signs of light and growth in Africa. Among the 1,200 delegates were investment fund managers from across the world.
“We like what we see and are here to invest,” says one partner of a $68-billion New York investment fund.
Infrastructure is likely to be the big business of the future; in the past, the World Bank estimated Africa needs at least $93 billion a year spent in infrastructure. Those in the know in Cape Town say this is barely enough to touch the sides of the infrastructure gap.
Former head of South African intelligence, Moe Shaik, has been doing his bit with the pan-African investment operation he is running for the Development Bank of Southern Africa (DBSA). Shaik says he gathered $404 million (R5 billion) in investments into everything from roads to oil and gas pipelines in the last year. Shaik also says the DBSA contributed $150 million in raising $750 million for a sovereign wealth fund in Angola that will be used to build roads and infrastructure as well as making plans for a new coal fired power station at Mamba, near the Zambezi River, in southern Zambia. He believes state coffers can no longer afford infrastructure.
“Government needs to create an environment where capital can come in and build. But African governments also need to set up mechanisms where they can supervise infrastructure projects in their country so they can be done properly,” he says.
Patrice Motsepe, Africa’s 14th richest man, worth an estimated $2.3 billion according to FORBES, agrees.
“I have always emphasized that we need to bring the private sector in and that the partnership be a partnership between the government, the investment communities, both local and international, and that always gives me comfort that these projects make sense, that they are sustainable,” he says. “The environment has been put in place and we are making progress in Africa in comparison with various other investment countries.”
The head of state in the host country, South Africa, believes the continent is well on the way.
“There is the issue of infrastructure, all types of infrastructure that is actually changing the face and the landscape of the continent. This is what we are attracting. Those huge sums of money; we were therefore discussing the financing of these projects, how ready the projects are; some of the projects have been presented and are now ready to be financed and there is an interest of all financing institutions both locally and internationally,” says President Jacob Zuma.
With the optimism in Cape Town came caution. There are still doubts about political stability and corruption. Now, I have heard corruption compared to many things down the years, but never to crocodiles in the Kenyan bush.
“You know, when wildebeest migrate north to greener pastures in the Masai Mara game reserve, the crocodiles lie in wait for them in the rivers. So the wildebeest have to know where to cross otherwise they are going to lose a leg. The crocodiles are corruption,” says Bharat Thakrar, the head of East African advertising giant, Scangroup.
“It used to be limited to the police and small government offices, but now corruption is creeping into private business in Africa.”
Blair Glencorse, is fighting corruption with his NGO Accountability Lab in Liberia and was at WEF Africa.
“Where there needs to be enforcement, the key issue is to make sure it is part of a larger strategy to build transparency, open up information and build channels of exchange between citizens and governments – so it is not politicized. There are countries of Africa which are making some progress along these lines like Botswana and Ghana,” he says.
Hope and crocodiles collide; Africa has its work cut out before WEF Africa in Rwanda next year.
<h4>The Fresh Face of $2 Billion</h4>
Africa is changing fast and has a fresh face. Ten years ago, it would have been unthinkable; 20 years ago, unimaginable in an often patriarchal Africa. One of the freshest, not to mention powerful, faces at the World Economic Forum (WEF) on Africa in Cape Town runs $2 billion in investment at the age of 38.
Ngugi Kiuna grew up in Nakuru in western Kenya, the son of a managing director of a company selling tractors and a mother who sold animal feed. He went to boarding school in England and studied chemical engineering at Imperial College, London, before earning a PhD in composite structures of aerospace applications.
In August 2013, Kiuna became the head of investment banking for Africa at Rand Merchant Bank. He runs $2 billion in assets in Nigeria, Kenya, Namibia, Ghana, Lesotho, Swaziland, Tanzania, Zambia Angola and Botswana.
“Most of the countries we deal with are single B rated by the risk people. We also do a lot of work with private entities. The sovereign element is there and if you have it there is less of a risk. The sweet spot for us is three- to five-year investments. Off our own balance sheet, we can do longer, with the support of development finance, up to 10 years,” he says.
It means Kiuna oversees the financing of aircraft for Air Namibia, the building of roads in Angola and investment in locomotives in Mozambique. It is investing in Cenpower – a new 300MW gas power plant – in Ghana. In Kenya, it has helped tie up a deal, this year, to plough $350 million into a new 450-kilometer oil pipeline between Mombasa and Nairobi. It will take over from the old pipeline that’s been pumping oil since the 1960s.
Most of the people Kiuna meets, in his extensive travels across the continent, are old enough to be his father.
“I was with the minister of finance in Gabon, we were talking about the government infrastructure plan and strategy about borrowing, you could see all along there was something in his mind he wasn’t comfortable with. I said ‘minister, I know I look too young…’ He burst out laughing. I said I am not as young as I look, it broke the ice. After that, the nature of the conversation changed,” he says.
“I think people are generally embracing but obviously some are surprised by how young I am, but people are much more open minded to the younger generation. I think it is also a function of the technology age, you have younger people becoming billionaires these days.”
At WEF in Cape Town, Kiuna rubbed shoulders with many others with billions to invest.
“We saw there is continued buzz and interest in Africa; a lot of new people, new faces and new companies ready to invest. There is also a lot more intra-Africa dialogue; people talking about projects, people collaborating on projects. The amount of trade in Africa is nowhere near what it should be. Thirdly, power in Africa, we need to get that right and let’s hope we can. There have been power projects too big and too complicated to execute. So, we need to scale down projects to a size where it’s easier to be financed and done.”
His greatest fear for Africa?
“Political stability and transparency; these are all matters we have to get right… The biggest fear is around transparency around elections cycles in Africa. The recent elections in Nigeria, Kenya, Zambia and Namibia show we are getting there.”
“Wherever I travel on the continent, I am always inspired by the number of people who have started their own business. I dedicate what I do to them.”
Words wise beyond their years.
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Crocodiles,  Money And Hope

The sharpest minds in world business are in Africa to take stock of the last quarter of a century and help unravel the great knot of economic problems of the continent. The future of our grandchildren depends upon it.
At the heart of the issue is how the continent is going to get Africa’s fast growing working population to work. The World Economic Forum estimates that working population will double to one billion strong – that’s more than three times the population of the United States – by 2040.
Many of these young workers will be young, restless and savvy; they will be plugged into social media and will know what they are missing out on. Few in Africa will need a reminder that the devil makes work for idle hands; those who remember the death and violence of the Arab Spring in North Africa or the xenophobia in South Africa.
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The only way to mop up this growing lake of unemployment is through economic growth. Regional growth in Africa has remained steady at around 5% – at a time when most of the world has struggled with poor growth.
But double-digit growth is needed now to help draw the young, bright and talented into the workforce. Given Africa’s fight for foreign investment, with the rest of the world’s emerging economies, this growth rate, is likely to prove a mountain to climb.
“Even the world’s fastest growing economies are struggling to grow at 7.5%, so the chances of double digit growth for Africa are almost zero. I think the continent is more likely to be looking at 4.5% to 5%,” says George Glynos, an economist with ETM Analytics in Johannesburg.
For growth to happen, infrastructure is needed in Africa like a drink in the desert. Broadband, rails, roads and ports; a list that trips off the tongue, but the reality is more complicated.
In May 2013, all of us in Cape Town for WEF Africa heard how the World Bank estimated Africa needs $93 billion a year worth of infrastructure. Even at the time, most people in Cape Town thought this figure was a drop in the ocean and they were probably right.
Raising that kind of money may prove difficult with a shallow investment pool and institutions short of money. The Development Bank of Southern Africa admitted in Cape Town that it could only hope to raise 5% of the infrastructure bill, even though it predicted the BRICS nations would invest $50-75 billion over the next decade.
Furthermore, African states have to compete with nations around the world, who are also suffering from crumbling infrastructure, for investors. The exception may be the Chinese who are prepared to pour money into African infrastructure in return for resources and business.
The three magic letters to bring in the necessary billions, according to the experts, are PPP. In English, that is Public-Private Partnership, marrying investor’s money with state coffers to build the infrastructure that economies need. It sounds easier than it is. Many have the romantic idea that governments can sit down with private business, shake hands and agree. Not so. Governments and private business tend to work at different speeds. Governments in Africa can take many months to pay bills and their approach to business can differ.
“Private enterprise always needs to make sure the financing is sound before going into a project with government. If you look at the attempt in South Africa to boost the electricity grid by using PPPs it has proved difficult because the pricing is low. With all the will in the world, nothing will happen until you get the pricing right,” says Glynos.
Most agree that the governments of Africa have to work harder.
First, transparency in processes enables swifter decisions and execution; second, shared value and clear understanding of incentives across the value chain drives buy-in; and third, building a culture of trust between stakeholders is paramount, enabling bottle-necks to be addressed as they arise,” says Euvin Naidoo, a South African banker and strategist who is a WEF Global Young Leader.
Power, or the lack of it, is likely to be one of the big issues at WEF. South Africa, the largest power generator, has been struggling through the winter because of maintenance and breakdowns.
Linda Olagunju, the CEO of DLO Energy Resources who will be a speaker at WEF, believes it is time to integrate Africa’s power business by region.
“It is time for us to stop thinking about what each country is doing individually and start thinking of the progress of investment in power as a region,” she says.
Olagunju believes this could be helped by a legal framework for each region to ease cross-border power transactions and set up uniform bidding processes to help attract private money. She also believes renewable energy should be encouraged.
One of the big issues to be discussed at WEF Africa, is the pledge that the continent’s regions would agree to integrate infrastructure by region. That is, one country has the best airport; while its neighbors have good ports and roads so, between them, they can move trade through. This makes sense but it could be fraught with conflict as each country, naturally, wishes to have the best of everything. At WEF Africa 2013, leaders agreed to negotiate; this year’s gathering will hear back from them, I am sure many people can’t wait.

The Devil  In The Detail

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When Atlas Development &amp; Support Services, an African-focused company involved in oil and gas exploration, listed its shares on the Nairobi Securities Exchange late last year, it showed that recent discoveries in East Africa are creating a stir.
Since the discovery of significant quantities of oil in Uganda in 2006, more discoveries have followed in quick succession, especially in the past five years. In fact, more hydrocarbons have been discovered in the past three years than anywhere else. As a result, oil and gas has become one of the top sectors, rated by investment value, in the region.
Not so long ago, East Africa was considered a sleepy backwater for the upstream oil and gas industry. It has now become a main area of focus for exploration. Efforts by Tullow Oil, one of the exploration and production giants, have so far delivered around 1.7 billion gross barrels of oil in Uganda and over 600 million in Kenya. While onshore exploration has opened up oil plays in these countries, offshore exploration success in Tanzania has heralded a major new focus on the development of the region as a liquefied natural gas (LNG) hub. Significant gas finds in Mozambique are expected to make the country the second-largest exporter of LNG in Africa, after Nigeria, by 2025. In 2012, one third of all global oil and gas discovered was in Mozambique.
Some of the projects are going to have massive transformative impact on the region. Kenya, which launched the world’s largest single turbine geothermal power plant in 2014, is set to generate 30% of the country’s additional power over the next 20 years according to the United Nations Environment Programme. The renewable energy project will also potentially reduce the cost of energy across the country by as much as 50%. The country is considered to be one of the most promising geothermal prospects in the world. In an article by The Guardian, geothermal is described as “the darling of on-grid solutions” for the country and according to the Geothermal Energy Association, the country “will become the world leader if its planned projects are completed on time”.
Similarly, gas finds are expected to transform the economies of Tanzania and Mozambique. Access to the lucrative Asian LNG market has significant benefits for the two countries and could act as a catalyst for meaningful economic development. The windfalls are expected to be used to deliver substantial social, economic and infrastructural improvements. In addition, as Africa starts to focus more and more on securing adequate supplies of crude oil and liquid fuels to satisfy growing local demand, it will boost foreign exchange flows, distribution of wealth, infrastructure development, stability and security of supply.
As exploration gains momentum, the lack of proper developed infrastructure remains a challenge. It is estimated that between $60 billion to $70 billion needs to be invested to strengthen the sector. The future development of the industry is dependent on this. Fears around the shale oil revolution dampening demand for East Africa’s oil, as cited in the 2013 PwC report on shale oil, should ease up as considerable demand still remains from nations such as China and India. Other key challenges the industry is grappling with include a shortage of oil and gas workers, political interference, uncertainty and delays in passing laws.
There is potential for the energy sector to overcome these challenges. The pace of regulations is keeping in step so the region stays in touch with its competitors and investment remains attractive. Wider economic and political factors could also work in East Africa’s favor. If the region continues to build on the current momentum and creates investor friendly policies, there is no doubt that the sector is bound for greater heights.
As the last true oil and gas frontier, East Africa has already taken off. The journey for a brighter tomorrow has begun.

The Last Oil And  Gas Frontier Takes off

Agriculture has become an increasingly crucial issue for African governments. Poor infrastructure and lack of long-term finance have been fingered as the culprits blocking Africa’s path to food security.
Africa’s last decade belonged to telecommunications. To achieve meaningful development, the next decade must witness massive investment and progress in the education, healthcare, electricity, water, road, rail and air transport sectors. This means economic diversification, urban decongestion and its economic gains, namely, rural development, inclusive growth, innovation, heightened productivity and spiraling employment.
Solid infrastructure will boost knowledge and agro-produce exchange between African nations.
Beyond infrastructure development and food security concerns, expanding food production will also have a positive impact on local and regional labor markets, as more people are absorbed into the agribusiness value chain.
Small scale farms produce 80% of the food consumed across Africa. Consequently, the agribusiness value chain is a short one, delivering little value to national economies. According to the African Export-Import Bank, Africa’s global share of food processing is less than 20%.
The paucity of processing, trading and retail mechanisms has restricted Africa’s agribusiness sector to the bottom of the socio-economic pyramid. The current practice of just cultivating-to-sell restricts the value chain to a primary commodity-level activity. Service providers involved in input supplies (seeds, fertilizers, machinery), packaging, exporting, transportation, processing, and converting basic produce into finished goods are urgently needed to extend the value chain. De-risking the sector might also require the establishment of public and private-sector initiatives which enable farms and agro-allied concerns to access bio- and agro-technology, financial credit and risk assurance.
According to the World Bank, Africa’s agriculture sector could be worth $1 trillion by 2030 if infrastructure and financing challenges are overcome.
Slightly over 60% of all the uncultivated arable land in the world is in Africa. In Nigeria, only 40% of its 84 million hectares of arable land is cultivated. These productivity gaps can become Africa’s competitive edge.
Coming out of the 23rd AU Summit of Heads of State and Government in Malabo, Equatorial Guinea, last July, African leaders adopted the Malabo Declaration, reinforcing a decade-old commitment (the 2003 Maputo Declaration) to end hunger and cut poverty in half by 2025.
To meet this lofty goal, the leaders reaffirmed their resolve to devote at least 10% of their national budgets to agricultural development. Only 10 countries have so far met this target. The Malabo Declaration raises the bar of focus and commitment to smallholder farmers and rural communities across the continent, says One.org, a campaigning and advocacy group which helped to galvanize pan-African and global support for the pact.
Africa’s leaders however stopped short of agreeing on a common formula for measuring the 10% target. Whichever way one looks at this matter, the key point is that the local and international appetite for Africa’s agribusiness sector has picked up.
Embedded in the declaration are a set of risk management and strategic corporate social objectives namely, operationalization of the African Investment Bank; increased support for intra-regional trade; adoption of climate-resilient farming strategies; responsible private sector investment; youth inclusion and employment targets; and mutual accountability for results.
Hopefully, Africa’s next decade will be fruitful. Ethiopia, South Africa and Kenya seem well adjusted to the nuances of commercial and small-scale farming, producing and exporting excellent quality coffee, wine, citrus, vegetables, tea and flowers.
In Nigeria, an     Agricultural Transformation Agenda (ATA) has transformed a once comatose sector into an engine of growth. Food imports declined from $19 billion in 2011 to $4.35 billion in 2013; bank lending to the sector as a share of total loans has also risen from 0.7% to 6% within two years. Over $4 billion private sector investment commitments has also been attracted to Nigerian agriculture over the last three years.
Earlier this year, Aliko Dangote, president of Dangote Industries, reached out to Kenya for agro-expertise. The Kenyans initially hesitated, pointing at Boko Haram and Ebola as the reasons why they feared coming to West Africa. But when they were offered a remuneration package that was too sweet to refuse, they accepted the challenge. They are now supporting Dangote’s sugarcane fields in Nigeria.
Money talks and agriculture is a multi-billion dollar business.

YOU CAN GROW MONEY  AFTER ALL

The economic and political transformation of a country directly correlates with the education level of its demographics. With national priorities like health care, infrastructure, housing etc, it’s impossible for countries to manage supporting the entire value chain of education, from primary to secondary to vocational and tertiary. Add infrastructure and skills-development to the need for integrated research-based learning synonymous with quality education and what you have is a glaring resource gap.
This dilemma is consistent across most countries in the world, particularly those with low GDP per capita. Rather than concerted efforts, governments have spread themselves thin trying to do everything with limited resources. This has unfortunately resulted in mismanagement, no accountability, corruption and disillusionment. The intangible destruction of long-term wealth creation is in excess of the annual financial allocation as there is a widening gap between skills needed and the output from the efforts.
A growing question therefore is: where does a government allocate its resources and how does it integrate private sector investments? The answer is complex and not a one-size-fits-all solution.
During my travels in Africa over the last ten years, I have interacted with heads of state, ministers of education, regulators, and educational faculty. The maze of bureaucracy, legislation and processes created using historic models of education is shocking. It’s small wonder no one is willing to grab the bull by its horns and bring changes to help Africa leapfrog into the future rather than dwell in the past.
I will reflect on the tertiary sector. Looking at Africa, South Africa excluded, one sees a lack of good quality universities. It’s no surprise to see some 400,000 students going abroad for post-secondary programs annually, with nearly 300,000 originating from sub-Saharan Africa. With continuing growth of populations, economic output, and school and post-secondary enrolment rates, it’s expected one in five outbound mobile students will originate from Africa within the next 20 years.
It’s evident the business models of universities globally factor international students as a revenue source. These students pay higher fees. The irony is poor African countries are in many ways subsidizing the education of students of developed countries. The most unfortunate impact of this dichotomy is less than half the students return to the continent to add any value to the country that not only paid for their education but also subsidized their peers and for their pains, suffer a
brain drain.
Let’s put this in the context of the future. United Nations’ world population projections see it increasing to 9.6 billion by 2050, up by 2.4 billion from the current population. More than 50% of this growth will come from Africa (source: The Size of it, The Economist; June 18, 2013). Africa’s population will increase from about 10% of the world’s population to over 20% by 2050. It will undoubtedly have the youngest population on the planet and if transformation in the education sector is not made on a war-footing, the outcome is going to be catastrophic.
To cater to the population and given the overflow in current institutions, there is need to establish between 450 to 500 colleges and universities in Africa over the next 10 years. This growth needs investments in billions of dollars that governments clearly do not have. Firstly, legislation needs to be amended for foreign universities to establish on the continent. This is just one step to build capacity.
There are multifold advantages of bringing quality education brands to the continent. Firstly, these institutions are highly-ranked and bring with them best practices, systems, faculty, research capacity and world-class curriculum. The model should entail that the quality of academic delivery and entry requirements on the African campus should be the same as the home campus. It should allow students to transfer freely between various campuses for a global experience. The accreditations of these institutions should be based on degrees being offered by the home campus.
Secondly, there will be a slowdown of students going abroad focused mainly towards specialized training and not routine undergraduate or post-graduate courses. This will help retain skills in the region and conserve the foreign exchange drain. Thirdly, over time, the African branches of foreign universities will attract global students. Given the lower costs, excellent weather and natural beauty of Africa, there is no reason why education cannot become part of the continent’s export ecosystem. This will become increasingly important as universities in developed countries find it difficult to invest in new facilities owing to costs.
Another step governments must institute immediately is an offset program. All large defence, infrastructure, energy, mining and other contracts given to international or local companies should require a contribution towards setting up an international university in the country either through direct investment or through a centralized education fund. Similarly, all students sent to foreign universities through state funding must require the beneficiary university to offer some of their programs.
The other vital need is innovation. Education is no longer going to be about land and building. Consumption patterns of education are changing and with technology and broadband infrastructure development will emerge the opportunity for African states to bring about the latest delivery platforms. Changes from innovations are already being implemented by well-established universities in developed countries. Partnerships with them will help shorten the learning curve.
These illustrations demonstrate the need for the education ecosystem in Africa to be catalyzed. This can only happen through proactive steps for dynamic reforms from our leaders.
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&#8211; Rakesh Wahi is Vice-Chairman and
Co-founder of ABN Group.

HIGHER EDUCATION  IN AFRICA  AND THE RESOURCE GAP

At the beginning of August, Africa’s richest man according to FORBES, Aliko Dangote, signed an energy infrastructure partnership with the world’s two largest private equity firms, American-based Blackstone Group and Carlyle Group.
Dangote made a commitment to invest a combined $5 billion by 2019 with New York-based Blackstone in power projects in sub-Saharan Africa and formed a joint venture with Carlyle to invest an unspecified amount in Nigerian oil and gas ventures and other African projects.
This is one of many examples from the continent, showing a step in the right direction in the private equity space for companies hoping to implement projects that require copious amounts of capital.
Private equity refers to shareholder capital invested in private companies. Firms seeking private equity funding often want to finance business expansions, develop new technologies, and complete acquisitions of other businesses among other reasons. The size of the private equity market has grown steadily since the 1970s. Africa accounts for around 1% of private equity investment worldwide, says the Chief Executive of the Carlyle Group, David Rubenstein.
Patrycja Kula, a Business Development Manager at the Johannesburg Stock Exchange, says private equity is also good for the stock exchange. She gives Alexander Forbes, the pension fund giant that delisted in an R8.2 billion buyout in 2007, as an example. It was a R9.7 billion-company when it relisted, showing that private equity helps a lot.
Although the South African private equity industry is small in comparison to those of the United States and Britain, it is well established and locally significant. It may be argued, according to the Southern African Venture Capital and Private Equity Association (SAVCA) Industry Performance Survey in 2013, that the country has one of the most sophisticated private equity industries among emerging and developed markets, with different funds at all stages of business development, from start-up venture capital funds through to late-stage and buy-out funds.
According to the World Bank, African nations need an extra $50 billion a year to ease energy shortages and transportation bottlenecks. Since the mid-1990s, financing for African power projects has averaged around $1.2 billion a year. This is split between public and private money.
In South Africa, the report on the Economic Impact of Venture Capital and Private Equity in South Africa in 2013 emphasized the benefits of private equity and venture capital transactions to the development of the country’s economy. It stressed that they are not confined to investee companies. Besides providing access to capital, Aubrey Shabane, the Manager of the Development Bank of South Africa’s Private Equity &amp; Direct Equities unit, says these investors bring dynamism, a depth of operational experience, huge financial acumen, strategic partners and foresight.
“As we face several economic challenges, including exceptionally high and persistent unemployment, it is rewarding to note the effect of this type of investment on job creation,” says Shabane.
“Companies with private equity and venture capital investors clearly do create employment and those in our survey indicated they have grown their staff by around 40 percent in the two-year period covered by this research.”
According to the KPMG and the SAVCA survey on the industry’s performance in the country over 2013, the private equity industry has R162.2 billion in funds under management, an increase of 16.9% from 2012. It adds that R58.6 billion of the funds under management are in undrawn commitments at the end of 2013, meaning that R46.1 billion is available for future investments in South Africa and R12.5 billion for the entire African continent.
This report also notes that private equity is an important source of Foreign Direct Investment, both indirectly via the raising of offshore money by local fund managers and by direct co-investment by foreign investors.
Speaking at the SAVCA Gordon Institute of Business Science for Private Equity in Illovo, Johannesburg, Stuart Bradley, a Senior Partner at Phatisa, a private equity fund manager investing in Africa, says that private equity is the most expensive way of getting funding or capital and should be a last resort for any business. Bradley adds that it is advisable for businesses to try other avenues first, like internal cash generation, family and friends, banks, mezzanine finance or even defer projects.

An Expensive Necessity  For Africa

At last, Nigeria’s rough ride through the dark tunnel is coming to a slow but steady end. Slightly over 10 years since successfully privatizing its telecommunications sector, the country looks set to repeat the feat in its moribund power sector.
Ongoing power sector reforms have now given birth to lingering pains on the sector’s value chain, generating anxiety, high hopes and renewed expectations from a citizenry that has become accustomed to living in the dark ages.
A few years ago, Nigeria’s investment climate was considered not attractive enough for inclusion in the BRIC (Brazil, Russia, India and China) group of nations. Fair enough. Today, the latest buzz word is MINT, for the grouping of Mexico, Indonesia, Nigeria and Turkey. The target year for MINT is 2050. All of this is fancy talk for most people in Africa’s most populous nation. Why wait for 2050? What matters most to them is the short-term fix. They yearn for the simple bliss of a regular and affordable supply of electricity, as they continue to ask why a resource-rich country should continue to lack light. They reckon that regular power supply would unleash their enterprising spirits and catapult their nation’s fortunes well ahead of the BRIC or MINT states within a decade. And they could be right.
Jim O’Neill, the man who coined the BRIC acronym and the former chairman of the asset-management division of the Goldman Sachs Group, agrees. The size of the Nigerian economy would double in six to seven years if the country’s perennial power outage is sorted out, he says.
Aliko Dangote, Africa’s leading industrialist and president of the Dangote Group, can only imagine what Nigeria could achieve with a consistent power supply.
“Can you believe that this country has been growing at seven percent with no power, with zero power? It’s a joke,” he says.
Nigerians have lived with the ‘no power or poor power’ status, in part due to a lack of political will by previous governments and the Nigerian factor—a euphemism for graft, nepotism, neglect of state-owned assets and underinvestment.
Industrial, commercial and domestic consumers of electricity have therefore resorted to producing their own electricity using gas, generators, solar panels and inverters. The Federal Ministry of Power estimates that these off-grid methods account for up to 6,000 megawatts (MW), against the 4,500MW generated and supplied by the grid. Global Business Intelligence estimated that Nigerians spent around $455 million on generators in 2011. Added to this ignoble expense is the negative impact to health, wellbeing and the environment.
The successful sale and handover, last November, of 11 distribution companies (Discos) and four generation companies (Gencos), formerly owned by the defunct Power Holding Company of Nigeria (PHCN), to Nigerian and foreign investors completed the first phase of the power sector privatization process.
Following the positive market reaction to this, the Nigerian government decided to partially privatize a further 10 Gencos with a combined installed capacity of 5,000MW, located mostly in the Niger Delta region and known as the National Integrated Power Project (NIPP). The federal, state and local tiers of government own these Gencos and have invested more than $8 billion in them through a special purpose vehicle, The Niger Delta Power Holding Company (NDPHC). The sale of an 80% stake of these Gencos is expected to be completed by the end of 2014.
For the Nigerian authorities, the ongoing sale of its power sector assets is expected to rake in more than $10 billion and new regulatory responsibilities, as successor companies struggle to comply with Post Acquisition Plan and budget agreements.
For the new investors, industrial spats, costly infrastructure revamps, bank debts, consumer agitation and hopefully, consumer satisfaction and corporate profits lie ahead.
For consumers, the entire exercise has resurrected hope. Their angst and heightened expectations has now been redirected to the new players.
For starters, the $24.7 million, three-year contract given to a Canadian firm, Manitoba Hydro International (MHI) in 2013, to manage the country’s electricity transmission system is being reviewed by the authorities over allegations of non-performance and over extension of MHI’s management. MHI is expected to upgrade the human and technical assets of the Transmission Company of Nigeria (TCN), one of the successor companies of the unbundled PHCN.
Transmission is crucial to the success of the industry. The last time there was a grid enhancement was in 1987. The Transmission Company of Nigeria (TCN) is the only PHCN company still owned by the government and is considered the weakest link in the country’s electricity network. The network currently has the capability to distribute less than 6,000MW of electricity and covers less than 40% of the country’s land area. Experts have warned that unless the government revamps the transmission leg of the value chain, the entire privatization exercise might end up in a cul-de-sac.
Upon completion of MHI’s work schedule in 2016, Nigeria’s transmission network should be capable of moving about 20,000MW of electricity and cover more than 80% of Nigeria’s land area. The minister of power, Chinedu Nebo, says around $3.7 billion in funding is needed for the transmission system to reach this target.
Alex Oti, managing director of Diamond Bank, says Nigeria’s banks are willing to lend more cash to the industry, notwithstanding the bank’s collective contribution of over $4.5 billion to the sector since the commencement of the privatization exercise.
The government says it needs $2.8 trillion (N464 trillion) for infrastructural development in the power sector in the next 30 years, under its National Integrated Infrastructure Master Plan.
Government has also stated that the energy sector will require $880 billion (N144 trillion) during the period while the power sector will need $10 billion (N1.6 trillion) for generation and distribution in the next five years to add 5,000MW to the national grid. It added that the transmission network needs $1.5 billion (N240 billion) over the next five years.
To overcome investors’ fears about the technical capability and credit worthiness of the PHCN successor companies, government has created the Nigerian Bulk Electricity Trading Plc (NBET), a state-owned independent off-taker, underpinned by an $800-million partial risk guarantee from the World Bank. Capitalized with $550 million and chaired by finance minister Ngozi Okonjo-Iweala, the NBET will purchase power from Gencos before reselling to Discos, thereby avoiding potential defaults. This is, however, meant to be a short-term measure, as successor firms begin to enforce new electricity tariffs driven by their respective investments and market forces.
Adeola Adenikinju, the director at the Centre for Petroleum, Energy Economics and Law at the University of Ibadan says Nigeria is moving into uncharted territory.
“Very few countries have surrendered their power sector to the private sector the way we have done. We cannot afford any regulatory laxity or incompetence. We must learn from some of the regulatory lapses that we currently experience in the telecommunication and airline industries.”
The next three to five years will be the litmus test for the sector. Success will be determined by how well new investors navigate through the maze of gas supplies, gas prices, political risks, the domestic and international economic climate, access to capital, revenue projections, the quality of inherited assets and liabilities, and interest and exchange rates.
Nigeria is expected to benefit from United States president Barack Obama’s Power Africa initiative, a five-year, $7-billion partnership between the US and the governments of Ethiopia, Kenya, Liberia, Nigeria, Tanzania and Mozambique. An additional $9 billion is expected to be added by the private sector. Already, Nigerian businessman and chairman of Heirs Holdings, Tony Elumelu has backed the plan with a pledge of $2.5 billion.
The Africa Development Bank (AfDB) has also earmarked close to $3 billion for Africa’s power sector over the next five years.
In February 2014, the Nigerian government signed a $350 million power financing deal with General Electric to support the construction of small-scale power projects across the country.
The Nigerian power industry may be awash with funds but no one can predict if projections to generate over 10,000MW of electricity by 2015 and 40,000MW by 2020 will be met. The director-general of the BPE, Benjamin Dikki, has given the market a two to three year period before power supply stabilizes.
“Expectations will need to be managed for the public to understand that the power sector cannot be built overnight and that this country is recovering from decades of underinvestment and corresponding crumbling infrastructure,” he says.
“This will be a defining year for this sector and one in which Nigerians will either begin to applaud the emergence of the proverbial light at the end of their tunnel or curse their stars,” says Peju Adebajo, the managing director of Mouka, a Lagos-based manufacturer of foam products.
“Whichever way the pendulum swings, both realities will not be cheap. Billions of dollars will either have been money well spent or lost, and the opportunity to improve the political economy and human development index of a fourth of Africa’s population may also have been either fast tracked or stunted.”

Ease The Power Pain Please

Munhava, an area in Beira, Mozambique, is tense. The protests begin at midday with burning tires and the opening of the first shebeens. Acrid smoke hazes across the sky in the searing heat. By 2PM the mob has resorted to violence
Now, in the humidity of dusk, it is eerily calm as we wait patiently for darkness and the first wheezes of diesel generators from the more upmarket dwellings in the near distance.
The air is rich with fried fish, excrement and kerosene. A vivid stench of poverty framed by the sea. Across the slum, in a small landfill, scavengers rake over debris and waste before burning the rest. The laundry swinging on the line in front of me is trackmarked with soot.
A small riot on the ragged edge of Mozambique’s second largest city may not seem like a big deal but the dispute, aimed at the local municipality, was over what is arguably the most contentious issue facing African slums today—electricity.
It echoes a pattern of unrest we are seeing from Kibera in Kenya to Khayelitsha in South Africa and across the Sahel. Electricity is fought for and fought over in the poorest corners of the world. All around us in Munhava, makeshift cables and wires hang dangerously from tin shacks, so tightly packed they blend into each other. For those without the savvy to misappropriate electricity from the local provider, EDM, there is little option but unreliable and inefficient sources of energy. Somali store-owners pile their wares high with firewood, charcoal, candles, kerosene, battery-powered flashlights and palm oil. The deeper scandal is evident on these humble wooden counters across which the poor hand over the little they have for scant solutions. According to some estimates, the poorest of the world pays 20% of the world’s lighting bill, but receives only 1% of the benefits.
Kerosene and paraffin swallows 25% to 30% of a family’s income in Munhava. There are other costs too. Across from where I sit, the one-room shack, lit by kerosene at dusk, will probably have concentrations of pollution up to ten times the level that is considered safe.
At dusk each day, throughout sub-Saharan Africa, some 600 million people, or around 66% of the region’s population, prepare for the darkness and life without electricity. In rural communities, that number climbs to a remarkable 85%.
Sipping a warm beer from a broken refrigerator, I reflect that darkness has dogged even my recent travels across the world. On the road into Beira, I  reflect on the need for mainstream debate around energy poverty in Africa.
Energy is needed to reduce the world’s greatest child killer, acute respiratory infection. Up to 1.6 million people worldwide die from exposure to excessive levels of smoke in their homes from cooking fires. A quarter of all these deaths occur in Africa.
When I travel across Africa and ask people from all backgrounds what they need from electricity, the answer is often as simple as a light at night or a simple stove.
Yet when I sit in squatter homes in Kinshasa, where power is available but subject to rolling blackouts that can last days and weeks, and ask the same question, I am given insight into the new Africa. There is a need to power laptops, televisions, refrigerators and air conditioners.
No two situations are the same in Africa. But whose needs get priority? It appears the latter, the aspiring consumers. Today, the direct link between economic growth and electricity on the continent is finally placing this issue on the international agenda.
Last year, the United States president, Barack Obama, launched Power Africa, an initiative that will commit $7 billion over the next five years to support the energy needs of Ethiopia, Ghana, Kenya, Liberia, Nigeria, and Tanzania.
The human cost of work productivity in Africa due to the lack of access to electricity cannot be underestimated. If a population lacks adequate access to power it blocks any significant economic progress and in turn stability. It’s an issue that makes me think about the burgeoning youth population. With the competitive edge that technology provides, unreliable access to electricity hinders African youth.
Today, young people in Africa make up almost 40% of the working population, yet 60% are unemployed. Increasing energy access has the potential to boost sustainable development, as well as build human capital on the African continent. Without electricity, hopeful entrepreneurs are not able to gain access to market information and technologies to expand their businesses and schools are not able to prepare students for a knowledge-based economy.
In many ways, Africa has two key energy problems: there are many millions of people who have no grid extended to them, and won’t have in the foreseeable future, and the energy production in most countries is insufficient to meet the demand of those already on the grid, let alone those not yet connected. That is why power failures are so common in developed Africa.
But what are the solutions? Accelerating access to energy, particularly clean, renewable resources such as wind, water, the sun, and biomass among others, is ideal. It reduces pollution that contributes to climate change, while promoting Africa’s productivity and economic growth.
Such initiatives have the potential to make a difference in the lives of millions of Africans but it still isn’t enough. Collectively, the private and public sectors must work together more to strengthen Africa’s technical infrastructure to expand access to energy.
Everywhere, I read of radical solutions, from oceanic wind farms to mass solar power programs in the Sahara and hydropower on the Congo River to a scheme initiated by Harvard University alumni to extract energy from ordinary soil.
Some investors are backing jatropha, a plant whose seeds produce an oil for burning in generators. There is also an effort to tap geothermal energy. The Great Rift Valley, from Eritrea to Mozambique, could produce 7,000 megawatts. Kenya hopes to get 20% of its energy from geothermal sources by 2020.
To understand the existing and realistic scope of alternative energy solutions, I recently visited the Bisasar Road landfill site in Durban, South Africa. I was there to produce a short film around a project that converts landfill waste, a form of biomass, to methane gas and in turn electricity.
In Durban, trash is quietly and effectively making enough energy to sustain 3,800 households. Peter Seagreen, the sprightly 74-year-old mechanical engineer in charge of the Durban site, says converting trash to electricity would have been beyond imagination when he was growing up as a ships engineer. Bounding around the site like a teenager, he marvels at the technology at his disposal but bemoans the lack of knowledge around its potential.
“We are converting rubbish into electricity yet the local community barely realizes we can achieve this. It’s a miracle if you ask me. It also makes me wonder why this is not being expanded across Africa. We are the only ones doing this, yet Africa isn’t short of landfill waste.”
Arguably the most exciting thing about the prospect of creating electricity from gas is the dividend it could provide for gas-rich nations like Mozambique, Tanzania and potentially South Africa. The possibility of gas pipelines powering and empowering remote communities with electricity from similar turbines is attractive. It is a game-changing dynamic that could liberate rural areas.
Of course the argument between robust and pragmatic solutions to energy poverty, and the role gas could play in it, are tempered by the debate around global warming and fossil fuels.
But, time is not on our side. Over the border from Mozambique, in Malawi, the booming charcoal trade is relentlessly damaging the nation’s reputation as an evergreen country. Malawi has the highest deforestation rate in the Southern African Development Community (SADC) region. The disappearance of forest cover has also resulted in massive soil erosion and siltation in low-lying areas, leading to flooding that has been disrupting operations at Malawi’s biggest hydroelectric dam, the Nkula Hydroelectric Power Station.
Then again, in Malawi and elsewhere in the SADC region, charcoal’s attractiveness to impoverished locals is not difficult to understand. A sizable bag in an urban area costs around $7. For an average family of seven, this might last them nearly a week, but if they were to use electricity for all their cooking and heating, they would probably spend more than $15 during this time. Not to mention the high cost of electrical cooking appliances such as hotplates and heaters. A new hotplate costs around $30, beyond the reach of ordinary Malawians, most of whom live below the poverty level of $2 a day. In contrast, charcoal stoves, made in China, are around $2.
What the success of the Durban project shows us is that we should be looking towards expanding energy solutions that are already in place. Landfills, often in the heart of African cities, form a center point for the poorest of the poor. Using them to generate electricity, a proven science, could open the door for other more practical solutions.
Today, the fundamental obstacles to energy have been researched and established. The barriers, while complex, can be overcome, and international co-operation can help. Technology is also on our side. We do know how to build power systems and meet energy demand efficiency. What is required is a political prioritization. Energy access must become a continent-wide priority.
Innovation could provide the best chance we have to transform the energy landscape but it is also sobering to think that around 90% of the world’s designers, our greatest minds, spend all their time working on solutions to the problems of the richest 10% of the world’s customers. What if they were to use their expertise to solve the greater problem in the developing world?
African townships draw in and absorb young people from rural areas. They are also places of unbridled ambition and hope, not necessarily idleness and squalor.
In ‘Shadow Cities’, a book that describes a tour of slums across the globe, Robert Neuwirth recalls that New York’s Upper East Side was once a shantytown. He suggests that all cities start as mud. But, in the modern connected technological world we know, the odds are stacked against the slum dwellers when there is no energy to power ambition.

In Need Of A Miracle

The world’s leading industrial goods manufacturers are turning to resource-rich nations in Africa, Latin America, Asia and the Middle East for their next phase of growth.
Industrial behemoths like 3M, ABB, Alstom SA, Caterpillar, General Electric (GE) and Siemens AG have all built up their presence in these fast growing territories. The economic logic for both countries and companies is simple: development, trade, more market share, more revenue and more profit.
In GE’s case, African countries that produce large amounts of oil, natural gas, metals and other commodities also need electric turbines, oil production gear and other heavy equipment to improve the petroleum, energy, healthcare, transportation and water sectors. Company-to-government and joint venture (JV) agreements have been GE’s preferred method of doing business here. A raft of manufacturing and manpower training facilities aligned to its projects across the continent are expected to benefit from GE’s global research and development spend, which totaled $3.9 billion, $4.6 billion and $4.5 billion in 2010, 2011 and 2013 respectively.
The Connecticut-based company acknowledges that its growing footprint in Africa and other emerging markets is not entirely risk-free but is nevertheless critical to its long-term growth objectives.
John Rice, GE’s vice chairman, has stated on several occasions that GE likes to cast a wide geographic net because orders for its products come intermittently. GE currently generates more revenue from Latin America than in China and India combined.
The company’s order book in Africa may soon rival its Latin America portfolio. Its focus appears to be just in time as African governments search for credible global players with core engineering capabilities to help develop state-controlled assets in critical economic sectors.
Nigeria’s local supplier base is expected to grow from 10 to 100 over the next decade and it is working with the government and private sector to add 10,000 megawatts of power to the national grid. These sectors are also helping to modernize and expand Nigeria’s railway fleet and network. And guess which engines run on most of Africa’s smoky locomotive trains?
“The big change for GE in Africa occurred when we bought a company called Vetco Grey (in 2005), which is the oil and gas equipment business,” Jay Ireland, the president and CEO of GE Africa tells FORBES AFRICA.
“That gave us a footprint in Nigeria and Angola that we didn’t have before. That’s now part of GE Oil &amp; Gas.”
The IMF forecasts sub-Saharan GDP growth of 6% in 2014, up from 5% in 2013. Inflation is forecast at 6.3%, the lowest annual average for the region in 30 years. According to the World Bank, consumer spending accounted for more than 60% of sub-Saharan Africa’s economic growth last year. For the first time in memory, the rewards of doing business in Africa seem to outweigh the risks.
GE’s recent investment in Nigeria reflects its grand ambitions on the continent. According to Ireland, the company’s proposed manufacturing facility in the south eastern coastal town of Calabar will eventually cost the firm $1 billion and an additional $750 million will be pumped into the project over the next five years to galvanize local sourcing of goods, services and labor, including an expansive human capital management and development agenda that will have a positive impact on the host community and country.
Eventually, more than 2,300 direct and indirect jobs are expected to evolve out of the new factories. Calabar is a historic location, known for its annual month-long carnivals. With GE in tow, the calm, rustic town will lose its serene mood. And as the local economy begins to boom, centuries-old agricultural practices will give way to engineering and manufacturing jobs.
“We want to be in Nigeria… we will be part of a duty-free zone in Calabar… where we can attract employees and impact the community and the environment positively,” says Ireland.
These are grand ambitions. GE’s work on the continent is cut out and the competition to repair Africa’s decrepit infrastructure is fierce. But, Ireland is a laconic but thoughtful man. This trait may be what the company needs to tackle the difficulties of doing business on the continent. It is an interesting time to be in Africa.

Renewed Focus In Africa

If you are somewhere in Africa with a cell phone signal right now, one man’s job is done. If you’re without one, the same man promises to hook you up .This is at the heart of the business of Issam Darwish, the Lebanese-Nigerian who grew up in war and rose from a desk job to become one of Africa’s powerful telecom tycoons.
When he got his first job, he was so poor, that his boss had to lend him $8,000 to buy a car so he could get to work. From creating billing systems for a handful of dollars a week to leading a telecommunications infrastructure company in Africa—Darwish is now a man with a wealth of $200 million as valued by the FORBES wealth unit in the United States. He has walked a long road and you believe him when he says he has a lot longer to walk yet.
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Ambitious, maybe, but this is the hallmark of a driven, self-taught entrepreneur who once dreamt about winning the Nobel Prize for physics in Oslo when he was a teenager.
Darwish is a bubble of energy, one who hates the rigidity of business suits, yet wears one well. As he goes down memory lane while in his corner office in Lagos, he is as sharp and eloquent as a business man, yet as relaxed and witty as a next door neighbor.
It’s a story that began in Beirut in Lebanon. This is where Darwish was born on the cusp of the brutal civil war that was to tear the country apart. He was born to a fairly wealthy family, but with no silver spoon in his mouth.
In the turmoil of civil war, Darwish’s father lost everything. The family believed education was the way out. His father took two jobs and his mother did embroidery work to keep their children in private schools in Lebanon. Darwish senior encouraged his children to read and rewarded them for finishing books.
Luckily, young Darwish was an inquisitive bright spark. He nurtured an interest in electromagnetic fields, quantum mechanics and relativity.
“I was always the best in my school. I graduated from the best university—The American University of Beirut in Lebanon—and I wanted to do physics, I loved the sciences. When I did my SATs (the standardized tests for college admission in the United States), my grades were so high the dean of engineering called and encouraged me to do engineering instead. So, I opted for computer and communications engineering. I was among the first set of engineers who graduated from that program with distinction, barely aged 21,” says Darwish.
<div id="attachment_2503" style="width: 210px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-2503" class="size-medium wp-image-2503" src="/wp-content/uploads/2017/04/120724-300-200x300.jpg" alt="" width="200" height="300" />Lagos Nigeria, July 2012: IHS tower sites Photograph by Mike Goldwater</div>
“I also understood the value of money at an early stage in life. During the war, I remember my father would give me some money before I left for school [and] I’d have to decide whether I would use that money to eat at school or to take the bus back home. I had to make a decision between the two every day.”
Darwish is thankful for these realities.
“As a young person growing up in a war-torn area, our minds were cultured, but not our existence. You’d hear the fighting, see people die, you can’t go to school for weeks because fights have broken out, you experience the effects of war firsthand and you begin to appreciate the basic things in life, like electricity, water, fresh air and ultimately life,” he says.
By 1992, he was armed with an engineering qualification and a desire for more. Darwish toyed with the idea of furthering his studies with a Master’s degree in the United States (US). As he applied, he looked for ways to occupy himself.
As luck would have it, a group of Lebanese businessmen returned to Beirut with a partnership with MCI—one of the largest telecoms carriers in the world back then. They wanted to set up a network in Lebanon and offered Darwish the job of creating a billing system.
“I joined the team. While I was there, there was also a satellite station present and I was fascinated with this. I’d work on the billing system during the day and come back at night, with the permission of the CEO, just to learn more about how it works. That was my first hands-on experience in telecoms. In a short space of time, I could now operate the station by myself.”
Soon, Darwish was managing the satellite systems at MCI. He played an instrumental role in setting up the first Lebanese mobile network, after a GSM licence was won, in his role as network manager for Libancell—now called MTC Touch.
Darwish may be Lebanese by birth, but he is a true Lagosian at heart. His Nigerian citizenship is expected to come through this year and has already been awarded a chieftaincy title, ‘The Adimula of Erin Ile’ by the traditional king, in Kwara State, northern Nigeria. He knows how to navigate the streets, from Victoria Island to Lekki, with his eyes closed; he can even hold his own in pidgin—the informal lingua franca spoken in Nigeria and parts of West Africa.
“Lebanon is where I come from but Lagos is home. When I’m away, anywhere in the world, I think about Lagos more than I think about Lebanon. This is where I became a man; this is where I’ve lost money, made money, made friends. Most of my friends are Nigerians. This is home for me.”
The call of Lagos came many years ago. Following a streak of successful network set-ups in his region, investors approached Darwish to set up a mobile network up in Nigeria; things weren’t going too well with the license holders and they needed someone to sort it out. This coincided with another offer from Britain, but Darwish plumped for Nigeria.
In 1998, he brought in around 40 expatriates and trained at least 500 Nigerians in technical, billing, sales and marketing in his role as deputy managing director of Motophone, Nigeria’s first GSM operator.
“We created a network in six cities, together with Motorola and Ericsson. We started selling, we had thousands of people coming to our points of sale, people started buying… the license was soon revoked however, due to transitions in political structure that affected the financial commitments made by the license holders. This lasted five or six months. We settled our liabilities and left things there.”
This was an unpleasant setback in a difficult market. In those days, infrastructure was thin on the ground. It had 400,000 fixed telephone lines and a mere 2,000 to 3,000 cell phones. Telecommunications was mostly for the rich; power supply was sporadic, security was a problem, the ports were in chaos and diesel shortages could go on for weeks.
“Every logistical aspect was a nightmare but we found a way to set things up. We had to import generators, there was also a lack of skilled manpower—most of the skilled Nigerians were out of the country working overseas,” he says.
In 2001, the Nigerian government privatized telecommunications and auctioned the licenses. There was then a need to build sites to power these networks. This was a big break for Darwish and gave birth to the leading telecoms infrastructure company, which he co-founded—IHS.
“We had built some sites in the past. My partner, brother and I decided to invest some money in this and build a few sites. In the beginning, I had to borrow money from my father. My partner invested and we borrowed some money from the banks with an interest rate of 24%. It was staggering but that was our seed capital. We, however, made very good margins because we delivered on time and delivered quality. Motorola gave us our first contract and we learnt a lot from these guys. Soon, we started running the management of the sites as well, the business moved into site management, which was recurring.”
The cost of setting up these towers back then, was between $250,000 and $300,000. Today, they range between $150,000 and $250,000. To cover itself, a country like Nigeria requires around 20,000 of these sites. Power and security, or the lack of them, are thorns in Darwish’s side. Each tower needs at least two generators, automatic transfer switches, regulators, a massive supply chain to make sure diesel is bought at the right price and quality. This alone costs around $3,000 to $4,000 a month.
IHS currently has around 4,000 towers in Nigeria and more than 10,000 across Africa, with operations in Nigeria, Cameroon, Côte d’Ivoire, Sudan, South Sudan and recently, Zambia and Rwanda. It is working on tripling that number.
The rapid growth in demand wasn’t expected in the early years. It meant, when Nigeria tried to catch up, there was a mushrooming of towers.
“In Lebanon for instance, when we started with the GSM networks, people thought we’d have 50,000 subscribers in three years. We had 350,000 by the end of the first year. In Nigeria, people thought about a million subscribers; by the time they started selling, they realized everyone wanted a phone line. They started setting the towers up everywhere without the right planning. All the service providers were just scrambling to have these towers everywhere, so this was a good period for us,” says Darwish.
In the US, the mobile industry was built on the idea of sharing towers and competitors became partners to lower their costs. This wasn’t the case in Africa. Darwish’s team had to convince operators it was the way.
“The idea of sharing didn’t even exist back then. They all had the capital and the sites, but the management of the site was a headache. They started pushing the management aspect to us. We started pushing the idea of sharing. By 2008 and 2009, with the financial crisis, output became low, capital became scarce and people started thinking differently and sharing became an attractive idea. It was more innovative and valuable,” he says.
Darwish is impressed with the booming growth of the telecommunications sector in Africa and sees voice calls becoming obsolete.
“The future is the smartphone; this is a fact. Africa has not caught up yet because the operators need to invest the capital to ensure that the tablet gets cheaper and cheaper. Africa won’t progress technologically without the smartphone and tablet playing a key role. The continent has not been able to build the kind of infrastructure it requires to satisfy the penetration levels in voice and broadband that it requires. The average age of the population in Nigeria, for instance, is about 22 to 23. It is a young population with a burgeoning middle class. This massive consumer market is being created and growing in size and this enables us to experience the great growth pattern and the need to satisfy and cater for this group,” says Darwish.
On his work with IHS, he says: “This is not a sexy business—it is a hardcore, roll up your sleeves, be an engineer, jump into the mess, see how to fix it, be patient and connect with the grassroots type of business and I love every bit of it. You’re not going to find a lot of engineers who are also good businessmen.”
In 2009, IHS was listed on the Nigerian Stock Exchange and over the past year has raised more than $1 billion of  capital equity from the likes of the IFC, the sovereign wealth fund of the South Korean government—the country’s first deal in Africa—and Investec in South Africa. In December, IHS acquired new towers in Rwanda and Zambia, through MTN.
Darwish is looking at more than just telecommunications and has an eye for investment in real estate in the US, Beirut and Dubai.
He is currently involved in setting up incubator programs for aspiring tech entrepreneurs to develop a content platform. Everything from social networking, mobile money, music and fashion using digital information is his new area of interest.
“Content is another area I’m investing in. I’ve created a team to look into this. The more power I create on the broadband side, the more relevant the content will become.”
Darwish is also engaged in community upliftment.
“I like to see things being built. Improving the quality of people’s lives is what ultimately drives me. As long as this is your drive, you’ll always be successful and this is why anything I invest in must be something that involves the transformation of people’s lives.”
Darwish has founded other companies in the US and Middle East, including Vorex—a software provider for small enterprises in the US.
Darwish credits a handful of names that inspired him to become a successful tycoon.
He says he learnt a great deal from Raphael Udeogu, the former managing director of Motorola in Nigeria, about proper corporate governance processes, systems and operations. Bashir El-Rufai taught him about having faith in people and the value of goodwill. He also refers to his partner, William Saad, and his brother, Mo Darwish, as strong pillars that have been highly instrumental to the growth and sustenance of IHS from the beginning.
“When we started IHS, we set a goal to be the leading tower infrastructure service provider on the continent in 13 years. We were young and passionate, and it is due to Issam’s passion, leadership, wisdom and skills in all areas of management, engineering, finance and relationship management… that we were able to achieve all we have,” says Saad.
IHS, with an average monthly turnover of $28 million and which now employs people of 19 different nationalities, has ambitious plans to become the largest tower leasing operator on the continent.
“We’ll be investing heavily in Nigeria this year. We invested roughly $1 billion last year, in Nigeria, Cameroon and Ivory Coast in building our sites and buying from operators. This year, we’ll probably invest more than $850 million and are also looking at Zambia, Rwanda, Senegal and Guinea. I want to drive IHS and content to the next level.”
Through war, education, bureaucracy and new terrains, Darwish has emerged as a formidable warrior in the telecommunications industry and has ambitious plans to push the envelope even further.

Bus Or Food?  The First Crossroad On The Path To Being A Millionaire

Women are itching to get involved in Africa’s multibillion-dollar infrastructure industry.
It is no easy task. The sector is historically dominated by men, financial institutions turn up their noses at women attempting to access money and established companies are favored for big deals.
But Leading Women of Africa (LWA) is determined to help women not only get their foot in the door, but become the ones formulating the plans and signing deals. LWA is a network of 18,000 contacts, mostly in Africa, which links women in different countries. “If you are not on the table, you are on the menu,” says LWA president Madelein Mkunu.
LWA launched Women in Infrastructure Development in Africa (Wida) at the third Corporate G20-Africa Investment Conference in London in July. The initiative is starting to create a space for women to engage with infrastructure stakeholders in the public and private sector. “We want to support a mechanism that will increase the number of women-owned companies that are in the infrastructure sector. Also at a policy level and at a legal framework level&#8230; because that is where everything needs to start; where women need to be recognized.”
Wida aims to ensure that women’s agendas are taken seriously by institutions and by the Program for Infrastructure Development in Africa (Pida).
Pida was set up to accelerate the delivery of Africa’s current and future regional and continental infrastructure projects in transport, energy, information and telecommunications technologies, as well as trans-boundary waterways. It promotes regional economic integration by bridging Africa’s infrastructure gap. The con-tinent is the least integrated physically and economically, with intra-regional trade and global trade at 10% and 3%, respectively.
Pida, which will run until 2040, is supported by the African Union (AU) Commission, the New Partnership for Africa’s Development (Nepad), the African Development Bank (AfDB), the United Nations Economic Commission for Africa and the Regional Economic Communities.
African governments are increasingly focusing on infrastructure development to grow their economies. It is estimated that poor infrastructure alone saps the continent of 2% economic growth every year.
Earlier this year, the AfDB launched a $500 million development fund to sponsor feasibility studies of large infrastructure projects across sub-
Saharan Africa. Mkunu says the LWA is in talks with the AU, Nepad and AfDB, and that Wida has been well
received all round.
“At the G20 summit… there was a strong push by the LWA, Pida department and Nepad Business Council for more women representation in infrastructure development.
“We did not expect for them to be so receptive, because we know that the issue of women and infrastructure is a new issue we are bringing up. You know, nobody really ever thought that women would be interested in this sector. We were kind of amazed about how they were willing to listen to us.”
For the LWA, it makes business sense to focus on infrastructure. The industry is growing at a rapid pace, and if Africa is serious about development, much still needs to be done.
According to Pida, only 30% of people on the continent have access to electricity, while 34% have access to roads. Internet penetration in Africa stands at just 6% and only 4% of available water resources are developed. The total cost of implementing all the projects that Pida has identified to address projected infrastructure needs by 2040 will amount to $360 billion.
“For us at LWA, yes, we do agree that the economic empowerment of women needs to start at the bottom. Women have to put food on the table and send their children to school. However, when we look at the sustainability of women’s economic empowerment, it actually involves women getting access to real projects.
“Let’s just look at the next 30 years and Pida’s goals for 2040: we don’t want to be left behind. We want to get in there while they are planning. We don’t want, by the year 2040, that they realize, ‘oh women again have been left behind’,” says Mkunu.
One woman who is grabbing the bull by the horns is South African property developer Belinda Moleko. Moleko has gone where no African has gone before. She is spearheading a $500 million project to design and build a small town near Mount Kilimanjaro in Tanzania.
Last year Moleko approached the Tanzanian government for a piece of land to develop. The government agreed and gave her land near Kilimanjaro, to take advantage of the high number of tourists who flock to Africa’s highest mountain, and therefore attract international investors.
“Through LWA, I presented myself to say: ‘I can do this type of thing. You offer me the land, you offer me payment guarantees, I will offer you performance guarantees’,” she says confidently.
“I was very lucky with Tanzania. They said: ‘Belinda, I will give you the MOU (memorandum of understanding) to develop 20,000 houses. We want you to create a whole new (town), like they do in South Africa.’”
The first phase of the project will see the local municipality moving its employees on site. Currently they have to travel daily from Arusha, which is about 100 kilometers away. A total of 1,400 houses with sanitation, electri-city and running water are due to be built by March next year. The town will eventually have all the amenities of a modern urban space, including schools, a library, hotels and parks.
“I’m going to leave a legacy that a woman came in and changed the face of Africa forever,” Moleko says intently.
But her dream has not been without obstacles.
“I could see there is a problem of housing, there is a problem with sanitation and that somebody needs to go in there and change it. But with this huge project on this table… I’m still finding it difficult, I cannot do it alone. I find that all the people I’m interviewing,
99 percent of them are men, and cannot believe that a black woman from South Africa has landed this project. They look at you as if to say: ‘you must have done something to deserve this’.”
One of Moleko’s major headaches has been access to finance, a common problem for women in the construction industry as well as in other sectors.
Commercial banks and even development finance institutions believe that women are more of a risk than their male counterparts. And that is even though Moleko has 20 years’ experience in the industry and her company, Bella Casa, built the first housing cluster in a South African township, Tembisa, near Pretoria.
“Take this project in Tanzania now. I have contacted banks here, and the first thing is: ‘what sureties do you have?’ I don’t have sureties, but I have a project that can give me sureties. I’m yet to see a bank that supports women without those conditions.
“I have seen ladies getting a small tender of about R100,000 ($10,000)&#8230; She gets that tender, knocks at the bank (door) to say government has given me a tender to supply them A, B, C, D. That tender even expires. That is why you see a tendency of people selling tenders to sell that project because it’s either you settle for a R1,000 ($100) or you lose.
There is no bank that wants to listen to you. They just aren’t friendly from the reception up.”
Moleko says another concern is that many women do not know how to put together a business plan, but banks and development finance institutions refuse to help them.
Although the AfDB has launched its development fund for infrastructure, Mkunu says the LWA will eventually set up its own fund to help women in infrastructure.
Moleko credits South Africa’s Trade and Industry Department for enabling her to move on the Tanzanian project. She approached the department’s gender desk to fund a $1.7 million feasibility study. After nearly five months of thorough checking, the department agreed.
But as Moleko says, governments cannot support infrastructure development on their own. Public-private partnerships, a buzzword gaining traction on the continent, are essential.
Although they look good on paper, in practice these partnerships leave much to be desired. Often projects are not completed because of logistics, non-payment by government, or even because companies run off with the cash. There are also very few systems in place to monitor what is being done, and unfinished projects are common across the continent.
Although Moleko is facing her biggest challenge so far, she believes her town will not be another half-baked project, and that once she has proved her mettle, the world is her oyster.
“We hope that from this project, all the other projects I have identified in Rwanda and Kenya, they will open themselves up.”
As a woman, Moleko’s journey has not been easy.
“In our industry, you have to be strong. It forces you to change yourself, your culture, your mannerisms, your ‘womaness’, and beat the man at his own game.”
She offers unequivocal advice for women wanting to enter the industry or those wanting to further their careers. “I always tell ladies wherever I speak: ‘Take off that apron! Don’t knock, kick (down) the door!’ Gone are the days of wanting to play housewife, cleaning. Create jobs by getting a helper to do it. Get out of your cocoon and go out there.”

Women demand a slice OF THE INFRASTRUCTURE PIE

Tryphosa Ramano has always had a passion for infrastructure and money. So when she got the opportunity to become the chief financial officer (CFO) of South Africa’s Pretoria Portland Cement Company (PPC), it was a no-brainer.
“Money and figures turn me on. But I always say: to what extent can you put money into perspective?”
Ramano, a qualified charted accountant, got her taste for infrastructure while she was the financial director of women’s empowerment group Wiphold. In 2007 there was a shortage of cement in South Africa. The group decided to import cheaper cement from China to undercut the country’s major cement producers. The Wiphold project is still in operation, but its 300,000-ton capacity is nowhere near PPC’s eight million.
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Ramano was in two minds when she was offered the CFO position at southern Africa’s leading supplier of cement in 2011. PPC was already established and did not excite her like a new project did.
“I thought, I mean this an old company; an old image. And you look at that elephant (PPC’s logo), that elephant looks tired,” she jokes.
“But eventually I thought: you know what, with my experience, something can be done. Because normally when you are on the outside, you can help… with new ideas. And you can learn from the experienced
ones. But when you combine it, it becomes brilliant because they are used to doing things.”
Ramano broke barriers when she joined PPC. The year before, it had celebrated its centenary as a company listed on the Johannesburg Stock Exchange (JSE) – an accomplishment that not many businesses across the globe can brag about.
Her appointment as PPC’s first woman CFO was welcomed across South Africa as a step in the right direction for women’s empowerment.
The company, which was formed in 1892, has been dominated by men over the years, but it is part of an industry that is slowly transforming.
“The industry is very tough. When I came in, I was the first woman on the executive. I had a chat with the CEO (chief executive officer) on how PPC can recruit women… because women don’t want to be where it’s not sexy. So far we have seen a number of changes,” she says.
In many regards, PPC is considered to be a leader in transformation in the construction industry. And this is largely thanks to Romano’s drive to have women at the boardroom table as well as at the bottom end.
She has set up a women’s forum specifically aimed at helping to transform PPC. In 2011, women held 18% of leadership positions in the company; just two years later, that figure has grown to more than 20%. The short-term target is 30% by 2016.
The forum’s other objectives include a pilot child care facility at PPC’s head offices in Sandton, Johannesburg, and developing a pipeline of leadership using mentoring, coaching and development programs for women in management.
PPC’s drive to transform its workforce through the women’s forum makes business sense. According to research by accounting firm Grant Thornton, companies that want to consistently outperform their rivals on the stock market, or improve sales, can do so by putting more women on their boards.
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It attributes this to the leadership behavior that women bring to the workplace, including participative decision-making, role-modeling and developing staff.
Stronger stock market growth is more likely with higher proportions of women in senior management positions. Grant Thornton’s International Business Report has found that companies with a greater proportion of women on their boards outperformed rivals, with 66% better returns on invested capital, 53% better returns on equity and 42% better sales.
Some of the firsts for PPC include that its mining planner is a woman and it has a woman dump truck driver.
Intakes into its graduate development program are mostly women, and 20% of procurement goes to women-led businesses.
The company has also redesigned overalls to make them more comfortable for women, and has implemented several diversity projects. One of these focuses on helping men to work alongside women because they are not used to members of the opposite sex being their bosses or even their equals in the workplace.
“It has been difficult for them to embrace you… but they don’t know how. Sometimes you do something, they realize you are sensitive. Sometimes, you know, you say something and they don’t understand you,” Ramano explains.
However, she firmly believes that there is no reason to ape what is considered traditional male behavior in the workplace. She maintains that if women are authentic and true to themselves, they will earn respect.
She says she often tells the women employed at PPC’s plants that they should take care of themselves and be aware of their appearances.
“Don’t be shabby. Look good and look nice; people will treat you based on who you are. Don’t be fluid.
“And I always say to women: when you (are in the boardroom), you must be visible. God gave us hips; move them so that you can have space, so that they can know that you are there,” she advises.
Ramano has had to hold her own throughout her working life, in a career that has included senior posts in both the public and private sector. She reportedly took a 30% salary cut when she moved from Rand Merchant Bank to the National Treasury.
Ramano says she chose to leave the private sector because at the time she was young, ambitious and impressed with what the government was doing with privatization and state-owned entities.
“When the opportunity came, I thought: this is a great opportunity for me to see how the government does their budgeting, how they plan for the country. I wanted to understand the macroeconomic aspect rather than reading it as an economist.”
Ramano also participated in the listing of state-owned telecommunications giant Telkom on the JSE and the New York Stock Exchange, realizing proceeds of more than $400 million to the South African government. One of her proudest achievements is closing national carrier South African Airways’ $600 million hedge book and implementing the airline’s turnaround strategy in 2004/05.
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Ramano has served on a number of boards, including Real Africa Holdings, Adcorp Holdings, Old Mutual Property Investment, the Financial Services Board, the African Union External Board of Auditors and the National Research Foundation. She is currently president of the Association of Black Securities and Investment Professionals (Absip), as well as the African Women Chartered Accountants’ Forum.
It is difficult to believe that she has any time to relax, considering all of the hats she wears. The FORBES WOMAN AFRICA interview is an apt example. It was done while Ramano was eating lunch on the sidelines of an Absip conference she was co-leading.
Ramano says she is fiercely independent and tries to do as little as possible on weekends. She enjoys spending time at the nursery and in her garden.
“I love my flowers, I prune my roses. They are blooming; the Icebergs and the Just Joeys.”
Ramano’s staff are never far from her mind. She has a large vegetable garden, which keeps them in constant supply of spinach. And although numbers are her thing, at a recent PPC event she delighted 250 women by giving them jewelry she had made with her own hands.
Ramano is the ultimate multitasker. She is as confident in the boardroom as she is around her girlfriends when she lets her hair down. Women who occupy leadership positions are often under pressure to conform and underplay their feminine side.
Ramano will have none of this. As CFO of PPC, she is at the top of her game, but she knows that she had to start somewhere, hence her commitment to developing and nurturing women who are still coming up through  the ranks.

Cement’s first lady Tryphosa Ramano

With its fifth round of democratic elections slated for next year, South Africa has much to be proud of as it looks back on the achievements of the past 20 years. Thanks to reconciliation efforts, the Rainbow Nation navigated a difficult political and social transition with poise—something many countries have attempted, but rarely with such success.
Its films have won Oscars, its stadiums have hosted World Cups and its leaders have won Nobel prizes. Since 1994, the economy has transformed dramatically, absorbing 3.5 million new jobs and with a quarter of the continent’s GDP, it has successfully held the crown as the largest, and arguably most sophisticated and open, market in Africa.
However, the country still has one of the highest gini coefficients in the world, at above 0.63, indicative of the lack of inclusive growth. Unemployment is high and infrastructure is beginning to grapple with increasing demand. With South Africa’s GDP growth projected at roughly 2% for 2013, it is only a matter of years before Nigeria, expanding at rates of 7%, overtakes it as the continent’s economic heavyweight.
As a result, assessing the current state of the country and its performance requires a nuanced understanding of both the strengths that provide it with such potential and the weaknesses that threaten to undermine its progress.
The country’s fundamentals are in rude health. South Africa has a number of key competitive advantages. With more than $2.5 trillion worth of mineral reserves and the potential for commercial shale gas production, it boasts enormous natural wealth. Its business environment is among the strongest on the continent, with low interest rates, clear investor rights and a comparatively streamlined bureaucracy.
South Africa’s political system is fairly robust, and while the successive victories of the African National Congress (ANC) have caused complications of their own, the levels of voter turnout regularly exceed 75%, which is up to 10 percentage points higher than Britain.
The relative quality of infrastructure also provides an excellent base for expansion—South Africa’s national utility provider Eskom, which does nonetheless grapple with high demand, still accounts for just under half of all the electricity consumed in Africa.
Similarly, the penetration rate for financial services—an indicator of both consumption and potential for leveraged growth—in terms of the percentage of the population that has access to formal credit products is nearly three times the continental average. South Africa’s regulatory frameworks for its banks—which include the four largest in Africa—are among the most robust of any Organization of Economic Co-operation and Development (OECD) countries, and were rated third globally by the World Economic Forum (WEF) in terms of soundness for 2013-2014.
However, in spite of all these attributes, South Africa’s long-held position as the gateway into Africa is increasingly under challenge. The country’s sophistication is in part responsible for this. It is among the most-globally integrated markets in Africa, which has left it highly exposed to the continuingly depressed levels of export demand in key markets like the European Union, as well as to portfolio outflows which have left the rand vulnerable.
While the benchmark interest rate, unchanged at 5% for several consecutive quarters, is being kept at historical lows in an effort to stimulate lending, it still exceeds the average repo rates available in much of Europe, North America, and Japan; in turn attracting yield chasers.
But there are also stubborn challenges. Much of the country’s physical and social infrastructure is aging and in need of revamping. South Africa’s electrification rate—at 75% nationally—is the highest on the continent but a narrowing gap between supply and demand has led to load-shedding, which has constrained output and emphasized the need for new base load capacity. High levels of youth unemployment have led to social unrest. Wealth inequality is still high, but with a debt-to-GDP ratio that rises to 60% with off-budget commitments, the ability of the government to pay for social grants and benefits to the current 16 million recipients is becoming increasingly strained.
These challenges are taking their toll.
South Africa’s overall growth is expected to increase modestly in 2014, but still remain below 3%. The expected changes to poverty and unemployment levels are expected to remain minimal.
In the latest WEF Global Competitiveness Report, South Africa fell one spot from 52nd to 53rd out of 148 nations surveyed. The change in ranking reveals a mixed bag of both positives and negatives. With the overall score bolstered by top-five ratings in areas such as financial market development (3rd); auditing and reporting standards (1st); and accountability of its private institutions (2nd), but dragged down by an educational system (146th); labor market efficiency (116th); and burden of government regulation (116) that are rated poorly and place in the bottom 50.
A glance at the some of the country’s key sectors helps illustrate both the country’s potential and its weaknesses. With minerals accounting for around 60% of exports, the sector serves as a barometer and proxy for how the performance of the wider economy. South Africa is the largest producer of platinum group metals in the world, and in the top five for a host of other minerals and metals, including coal and gold. However, labor unrest, rising costs and slowing demand have contributed to more constrained output and concerns over mine closures.
The automotive sector provides a similar example. Constituting around 6% of GDP and 12% of exports, and hosting manufacturing and assembly plants for major international car makers like BMW, Mercedes, Toyota, General Motors and Volkswagen, automotives is often cited as an industrial success story and referenced as an example of what the country can achieve through targeted and proactive legislation and cooperative engagement between government, business and labor. Yet, the automotives industry is coming off a month-long strike during which exports fell 75%, costing manufacturers $2 billion.
For South Africa to unlock its potential, structural reforms are needed. Key to this will be the effective implementation of the National Development Plan (NDP) which is intended to form the strategic base for policymaking until 2030. The initiative seeks to rein in further rises in recurrent spending, while channelling more funds towards specific capital expenditures.
Alongside the New Growth Path (NGP), an economic policy focused on job creation, and sectoral policies such as the Industrial Policy Action Plan (IPAP), the NDP offers significant scope for mitigating the country’s weaknesses and encouraging a significant increase in secondary and tertiary activity. It will not be easy, but it offers a clear road map to strengthening South Africa’s comparative advantages in a more inclusive and sustainable manner.
Ultimately, assessing South Africa is all about context. Both its potential and accomplishments are vast, and many developed economies in the world would happily swap balance sheets. Over the past two decades, South Africa has seen its share of up and downs, although the pros have outweighed the cons. The outlook for the coming years may be murkier, and the obstacles more intransigent and complex, but the country’s healthy fundamentals and past performance provide reason for optimism.

Is There Still Gold At The End Of The Rainbow?

The fallout of the Arab Spring brought its fair share of highs and lows, and while Egypt and Tunisia have had to grapple with some very worrying challenges, perhaps no country has embodied the elation and the trepidation of the new political landscape as Libya.
The political upheaval of the Arab Spring complicated the region’s economy. Economic grievances were a significant factor in the uprisings, but the resulting instability drove away foreign capital, dragged down output and spurred a rise in unemployment. However, Libya, nearly three years into the post-Gaddafi era, has seen some encouraging progress made in terms of restarting the economy and fostering a broader and more inclusive base for growth, but continuing unrest and the stubborn problem of armed militias continues to limit gains. There is no doubt that the country offers significant potential for investors, but the question remains: at what cost?
On the face of things, Libya ought to face the most grueling uphill struggle to restart its economy, given its prolonged conflict and the historical lack of any centralized governance structure. However, with proven oil reserves of 48 billion barrels, making up for around 3.5% of the global total, and a relatively small population of 6.5 million, the country has a wide range of policy options at its disposal to restart long-term sustainable growth—far more so than Tunisia or Egypt.
This is due in large part to the country’s natural largess. In 2012, oil accounted for 78% of GDP, 98% of exports, and 95% of all fiscal revenue. Oil exports also foot the bill for a vast system of regressive subsidies, which for electricity and fuel can be anywhere between 11% and 14% of GDP annually. With production averaging 1.5 million barrels per day (bpd) in the first half of 2013—up from a low of 30,000 bpd in 2011 and just short of the pre-revolution levels—revenues are also funding the country’s large public sector wage bill, which is estimated to cost roughly one-fifth of GDP but is a necessity, given the urgent need to expand employment and reduce the country’s poverty rate of almost 33%.
While the country’s resources give it a comfortable tool to jump-start growth and minimize short-term unrest, Libya’s broader performance over the past 18 months has also been comparatively strong. In July 2012, the country went through relatively peaceful general elections and by early 2013, headline indicators were impressively robust. The country saw real GDP growth of 95.5% in 2012, although this figure was distorted by the economy’s contraction of 60% in 2011. Nonetheless, the IMF is projecting 17% growth for 2013—the highest on the African continent—followed by more stable growth rates of 7% set to take place until 2017.
The strong growth has managed to recoup some of the capital that was withdrawn during the height of the country’s conflict. Outflows in 2011 were unsurprisingly significant. Most companies shut down operations completely and in some cases evacuated staff in a frenetic rush. The drop was all the more noticeable given the country’s star status in the preceding years. The end of United Nations sanctions in 2006 brought about an impressive growth in foreign direct investment into the country, in spite of caps on ownership requirements and the outsized-role of the state in directing activity. While post-Gaddafi Libya still grapples with a cumbersome bureaucracy and a burdensome regulatory framework for new investments, some of the less risk-averse companies have started to move in.
Oil is obviously one of the ripest attractions for foreign investors, particularly since Libya’s government is planning outlays of $10 billion over the next few years to boost overall production to 2.2 million bpd. Firms have been quick to move back in and the government moved quickly following the end of fighting to reaffirm the validity of existing contracts. Some companies—like Italy’s ENI, who holds signifcant stakes in the upstream sector—even resumed activity as early as mid-2011, although given the burdensome requirements of the previous regulatory code and the lacklustre rate of discovery, there are expectations that terms of some exisitng contracts may be renegotiated.
Foreign capital is also coming into the country’s long under-developed tertiary sector. While the state-dominated banking industry has nonetheless been grappling with a post-conflict jump in NPLs and decline in asset quality—and more worryingly, legislation in January 2013 that banned interest on all transactions in the country—there is abundant liquidity and no shortage of possible clients, which has attracted investors like Qatar National Bank, who acquired a 49% stake in Libya’s Bank of Commerce and Development.
Finally, infrastructure—which was a major recipient of foreign investment under the previous regime—is an area that offers enormous potential due to the volume of work needed. There is a need for capital in everything from sanitation to transportation to electrical transmission, and even property—particularly residential and commercial. There is less than 100,000 square meters of gross leasable area for grade A commercial property in Tripoli, a figure expected to grow tenfold over the medium-term. The new investment commitments and strong headline indicators represent the country’s highs but there are still plenty of lows that it must grapple with, both in the short- and long-term. The past 18 months have seen some notable and encouraging advancements, but a rosy outlook is far from assured.
One of the greatest challenges has been maintaning security and overall stability. The country’s loosely-organized militias were central to Gadaffi’s ouster, but controlling them after the revolution has proved to be problematic. Some of the larger militias in both Tripoli and Benghazi have resorted to kidnapping and extortion, in part to help pay wages, while armed groups have also used explicit threats and displays of force to pressure the government into passing favorable legislation, such as a ban on former government employees holding public office. Targeted attacks on diplomatic and government buildings in 2013 have also led to foreign embassies and corporations evacuating their staff again.
Recent months have also seen a troubling eruption of broader civil unrest, including strikes by workers, street protests and militia groups, primarily over insufficient and inadequate political representation or economic exclusion.
In August, a number of refineries, ports and pipelines were forced to shut down as a result of workers downing tools and militia blockades. Offloading and receiving capacity was already hurt by the damages incurred to key ports during the 2011 fighting, and given the heavy reliance on both imports—which account for 75% of food staples—and export earnings, recent port stoppages are weakening the overall economy further.
The lost earnings could amount to $4 billion a month and the damage in terms of output and attracting capital is a concern and could have longer-term implications. Concerns over supply reliability may force the country to discount its oil price in future contract negotiations, and some operators, like the United States-based Marathon Oil recently announced that they are exploring a potential sale of their stake in a local consortium.
Libya currently finds itself at a critical juncture and how things play out over the coming months will have a significant impact on the country’s long-term prospects. Libya has the ability to emerge from the fallout of the Arab Spring in far better shape than either of its neighbors, but with the stubborn problem of militia violence and continuing unrest, it looks like a challenging task.

Tag: Infrastructure

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