Corporate investigations in Africa The country risk perspective Eunomix de-risks mining and resource investments in Africa www.eunomix.com
Page 1 Africa rising ► The rise of Africa is upon us! Your presence here, I hope, testifies to this ► There is much talk of an African Renaissance, even of an African decade, with the continent at long last joining Asia and Latin America in the club of emerging economies ► This ‘Afroptimism’ contrasts spectacularly with the Afro-pessimism of the 1980s, 1990s and early 2000s. Only ten years ago, The Economist famously described Africa as the hopeless continent. It recently expressed remorse for this mistaken call ► Many facts support the new outlook Corporate investigations in Africa: the country risk perspective
Page 2 Africa rising ► What a difference a decade make! 2000 2011 Corporate investigations in Africa: the country risk perspective
Page 3 Africa rising – the economics ► Average growth was 4.6% in the 2000s, up from 1.9% in the 1980s and 2.2% in the 1990s ► Today, six of the world’s fastest growing economies are in Africa ► The continent’s population is 1 billion, and is set to double by 2050. Its emerging middle class is still comparatively small at 320 million, but growing rapidly ► FDI into Africa has grown spectacularly ► Firms from the Old World are competing against those of the New New World for access to markets and resources ► Investment banks, private equity firms and hedge funds are flocking in, scouting the continent for opportunities Corporate investigations in Africa: the country risk perspective
Page 4 Africa rising – the economics ► What a difference a decade makes! Source: World Bank Source: World Bank Source: Unctad Corporate investigations in Africa: the country risk perspective
Page 5 Africa rising – the politics ► And it is not only about economics. Africa’s stability and governance record has significantly improved ► The 2000s saw a record low number of wars, civil wars and coup d'état ► There are now a majority of democracies, where they were the minority until the late 1990s ► There is greater freedom of expression, including a vibrant press, and access to cell phones. It is not an exaggeration to say that the cell phone has revolutionised Africa ► Human rights have significantly improved Corporate investigations in Africa: the country risk perspective
Page 6 Doubts of the Africa hand ► For an “Africa hand” like me, who resisted the strong calls to “go East”, back in 2000 these are exciting and lucrative times ► But in a world of speculative bubbles, this spectacular change of destiny is raising some discomfort with Africa hands: ► Richard Dowden, of the Africa Institute, wonders if the growth is sustainable without a larger middle class ► Diane Gammes, who has just released a book called ‘Business in Africa: Corporate Insights’, questions the data behind the hype ► As for me, while I see the sea change, from Dakar to Nairobi, I also see that the growth is shallow and the long-term conditions its sustainability remain largely absent Corporate investigations in Africa: the country risk perspective
Page 7 Unpacking the story ► A few facts stand-out from our own analysis: ► The six African star performers of 2010 had growth of between 8% and 13%, and maintained this in 2011, but: combined, these countries GDP represent less than 0.4% of the GDP of the USA, and less than 0.01% of the world’s. The global economic impact of their growth is negligible ► The top ten economies only represented the equivalent of 3.6% of the USA, and less than 1 percent of the world ► Sub-Saharan Africa’s total GDP was only 4.6% of the USA, and 1.3% of the world ► Of the star performers only Ethiopia and Liberia are not rent economies – dependent on either oil & gas or minerals (or both) for growth ► Most of the star performers are highly dependent on the rent for their growth: 60% for the Congo, 50% for Angola, 40% for Chad ► The 24 resource-rich countries account for 75% of the region’s economy, FDI, and contribute to its growth in the same proportion ► FDI is concentrated in resources (oil & gas and mining) and infrastructure Corporate investigations in Africa: the country risk perspective
Page 8 Unpacking the story ► Much ado about nothing? Corporate investigations in Africa: the country risk perspective
Page 9 Unpacking the story ► Much ado about nothing? Source: Unctad Corporate investigations in Africa: the country risk perspective
Page 10 Unpacking the story ► Why does this matter? ► Because a strong correlation between resources and growth means a great sensitivity to commodity booms and busts ► Because resource economies suffer from Dutch disease, and are therefore afflicted by low levels of agricultural and industrial development – Africa has systematically missed industrialisation, and appears to be set to continue to do so ► Because these economies require very little investment in social capital, and tend to encourage rent-seeking and predatory behaviours – economic and political – on the part of the ruling elite Corporate investigations in Africa: the country risk perspective
Page 11 Unpacking the story ► It should therefore be no surprise that: ► During the 1970s Africa grew at an average 4%; between 1970 and 1974 it grew at 5.6%, and then tumbled down – this was during a commodity boom, and after… ► That growth collapsed in 2008-09 for most countries, particularly the resource rich ones, and recovered after the massive Chinese fiscal stimulus pumped USD 586 billion in the economy, and fed a commodity guzzling construction boom – with many bridges to nowhere ► That the star performers of today and of the past few years do not have good democratic credentials and stellar human rights records ► That growth remains very skewed toward the few, has done little to create sustainable employment for the rapidly growing youth, and is not leading to the creation of a sound economic foundation Corporate investigations in Africa: the country risk perspective
Page 12 The fundamentals of transformation are weak ► Africa remains exposed to instability, from the top, from the bottom and from the middle ► From the top, democratisation is still partial and vulnerable to capture by the same old elite or by challengers who want power (the army captains who don’t know what they don’t know) ► From the bottom, the masses of poor and unemployed have much to lose to economic booms and busts, and are prone to riots of survivals and are easy pray to the populism of the typical African strong man ► The middle class is pushing for democratisation and economic reform, but it is still in minority and is highly dependent on the services sector, itself dependent on the resource rent. It is fragile! Corporate investigations in Africa: the country risk perspective
Page 13 The fundamentals of transformation are weak ► Still on his way, or finally on the way out? I’m still standing! Zimbabwe’s Equatorial Mugabe DRC’s Kabila Guinea’s Obiang Corporate investigations in Africa: the country risk perspective
Page 14 The fundamentals of transformation are weak ► Still on his way, or finally on the way out? A little help from my friends? Guinee’s Senegal’s Libya’s Gadhafi & Cote Camara Wade d’Ivoire’s Gbagbo Corporate investigations in Africa: the country risk perspective
Page 15 The fundamentals of transformation are weak ► Unsurprisingly , Africa still performs poorly in most key indicators of state performance: ► It does poorly in Doing Business, the Competitiveness Index, the different human rights indexes, World Health indexes. ► All of Africa’s states are considered weak states, many are fragile, a few are failed or collapsed: Weak states are defined by the Brookings Institution “as countries lacking the capacity and/or will to ► foster an environment conducive to sustainable and equitable economic growth; to establish and maintain legitimate, transparent, and accountable political institutions; to secure their populations from violent conflict and to control their territory; and to meet the basic human needs of their population.” (Brookings Institution, 2008) The failed state ’s degree of degradation is greater than the weak state’s: “Failure for a nation-state ► looms when violence cascades into all-out internal war, when standards of living massively deteriorate, when the infrastructure of ordinary life decays, and when the greed of rulers overwhelms their responsibilities to better their people and their surroundings.” (Rotberg, 2002) The collapsed state is the final stage of decay: “A collapsed state is a political black hole. The ► government, if it exists at all, provides no political goods of any kind, and to get by there requires either exposing oneself to all the risks of daily life or obtaining such goods privately from some non- governmental entity such as a warlord.” (Rotberg 2003) Corporate investigations in Africa: the country risk perspective
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