The 'Africa Rising' narrative that took hold of the Continent's global image at the start of the new millennium was a welcome change to that which had come before it; a period where Africa's economy was cast as stagnant and unrewarding. 'Africa Rising' was swept along with a worldwide boom in emerging market investments, and there was a sense that the continent was stepping onto the path of ascent that Asia had walked in the previous decades.
The mistake was, perhaps, the expectation that such regions would develop at the same rate, or in the same direction. With growth faltering across sub-Saharan Africa since 2015, the 'Rising' narrative has been put to the test under the burden of poor commodities prices – particularly the decline of oil prices in 2015/16, which saw African giants, Nigeria and Angola, stumble into economic contraction.
Investors would not be blamed for questioning the effectiveness of their efforts in such a climate. But there were also those who went against the warnings of skeptics, and paid greater heed to trends of a booming middle-class and a huge demand for infrastructure investment. Today, economic growth in Africa is on the upswing and those like Fairfax Africa Fund, who began their investment in 2012, continue their commitment to investing in Africa.
With a planned oil refinery project worth $4bn, Fairfax's recent investments have drawn them to East Africa, with an ambitious infrastructure investment looking to provide Ethiopia and it's neighbours with 120,000 barrels of crude oil a day. Through financing as private equity and venture capital, the fund has created a profile of investments across manufacturing, agriculture and infrastructure - including co-investing in Hello-Cash, a leading mobile payment platform. By refusing to shy away from the challenges posed by investing in Africa, the fund has focused on high-performing sub-Saharan Africa nations and now enjoys a portfolio of companies employing more than 1,600 people - projected to reach 6,000 by 2020.
We spoke to Global Chairman of Fairfax Africa Fund, Zemedeneh Negatu, on Africa's changing role in the global economy, the fund's expanding portfolio in East Africa, and Zemedeneh's words of advice for those looking to invest in African markets.
You're featuring on our panel: Africa's Role in the Global Economy. How do you view Africa's part in developing the international economy?
Africa’s role in developing the global economy could be material if it focuses on three factors: first, there needs to be sustainable rapid growth by its largest economies including Nigeria, South Africa, Kenya and Ethiopia. Second, effective economic integration across the continent is imperative. Third, Africa has to migrate to value-added manufacturing including resource beneficiation.
Given this potential, it seems the Continent's economic role is often mischaracterised. What do you believe is often overlooked when considering Africa's global economic impact?
What’s often overlooked about Africa’s global economic impact is the fact that Africa is enormously wealthy driven by two key elements: millions of talented young people who can provide a huge workforce to power the global economy and second, the abundant natural resources the continent has, without which the modern global economy can’t function. For instance, a significant portion of the raw materials required to run electric cars or mobile phones is sourced from Africa. Unfortunately, these resources are exported raw, under-valuing Africa’s importance to the global economy. But, I am certain Africa’s migration to industrialization in the next 25 years will result in an economy bigger than the United States GDP today, which will make Africa a respected global player.
As a proud Ethiopian-American yourself, in your opinion, how is the African diaspora influencing the future of Africa in the global economy?
The African diaspora is already playing a significant role influencing the future of Africa in the global economy. For instance, talented Africans returning to the continent, especially from the industrialized countries, bring highly developed knowledge and expertise in science, medicine, technology, entrepreneurship and corporate governance. Furthermore, the African diaspora sends tens of billions of dollars of remittances each year to Africa contributing to the continent’s economic growth.
It was announced in January that Fairfax is to invest $4bn in an Ethiopian Oil Refinery. Does the fund have any other African projects on the horizon?
Fairfax is currently evaluating several opportunities across Africa, especially in West and East Africa. For instance, we recently entered a US $70 million manufacturing deal together with a large Singapore based company and a local partner, to produce building materials for export and local consumption. We are also actively looking at agro-processing, FMCG (fast moving consumer goods) and renewable energy opportunities. Our key investment guiding principle is that it must be in sub-Saharan Africa, in a country with high growth potential. Furthermore, the investment has to fit into one of our five key priority sectors, with special preference for manufacturing, infrastructure and agro-processing - and must be exportable. That’s one of the reasons we have already made several investments in Ethiopia. We like the 8% to 10% Annual GDP growth, the 100 million population (second to Nigeria) and the focus on value-added manufacturing for export.
Exciting prospects! Investing in Africa is not, however, without its challenges - what would be your key piece of advice for global investors looking to invest in Africa?
Think strategic not transactional. Plan for the long term. Invest in the community. Don’t try to quickly “flip assets”. Also, look at Africa as a work in progress with the “glass half-full” perspective. And, finally, don’t be discouraged by bumps along the way.
To hear more from Zemedeneh Negatu, join us at The Annual Debate 2018, where Zemedeneh will be speaking on our panel Africa's Role in the Global Economy.