Africa’s chance to shine amid global turmoil

Published: 08 April, 2009

By Alhaji Aliko Dangote

The world economy has dominated media headlines for more than six months now, with continuing uncertainty as to the true size and scale of the crisis that has engulfed almost every corner of the globe.

Much has been said about how the African continent will be impacted by the ongoing crisis, some negative and some positive. I believe that while we are certainly not experiencing ‘business as usual’, the crisis presents opportunities for African businesses that may not have been available 12 months ago.

First of all, let’s look at the impact the credit crisis is having on Africa. We are already seeing the inevitable capital flight from our stock exchanges as investors liquidate their assets and hoard cash. It has been estimated that more than $5bn of international investment was removed from the Nigerian stock market last year and the Nigerian Stock Exchange has had a difficult start to 2009. The low price of oil and other commodities is affecting the budget stability of a number of African markets, including Nigeria, and the exposure of African banks, particularly in Nigeria, to margin lending has caused the first crisis in the banking sector since the consolidation process took place. Hence, we are experiencing some of the same issues as the rest of the world. Access to credit is more difficult and existing credit lines from banks are being withdrawn.

Despite this, the International Monetary Fund and other global institutions believe that while growth will slow down, African economies will continue to achieve circa 3.5 percent growth on an annual basis, despite the scale of the recession internationally. In fact, Africa is likely to be the highest growth region in the world over the next 12 months. We have become considerably closer to the international economy over the past 10 years, but remain isolated enough to ride out the crisis more easily than many others. Many improvements have been noticed in the way Africa is seen in the world. The real improvements – mobile telecommunications, banking, mining, capital markets, mortgages, inward investment and democracy – have led to the creation of a large, demanding and growing middle class.

Personally, I do not believe that African companies need be as pessimistic about the future as many others are. I see opportunities for African companies to take advantage of the current situation. Many of the most successful African companies outside of the commodities sector deal with consumer markets within African countries. Supply, and in particular, penetration, has not yet met demand and has a long way to go. The consumer market for my company’s products, which include sugar, cement, flour and salt, will continue to exist and the recent devaluation of African currencies against the US dollar makes it considerably more expensive to import, demonstrating the importance of increasing local production capacity. This is a chance for African companies to take ownership of a real manufacturing sector and to develop a production base that will supply the products that we need from local sources.

Investing in investing
To sustain rapid growth, Africa will need to substantially raise the rate of investment. In recent years it has averaged only around 20 percent of GDP, whereas the rapidly growing Asian economies invest above 30 percent.
Corporate sustainability has survived the downturn
As we begin to look beyond the economic downturn to recovery and global growth, it has perhaps never been more timely to examine the state of corporate sustainability. Despite the downturn, we see corporate commitment to environmental, social, and governance issues remaining exceptionally strong: 93 percent of CEOs in our recent survey see sustainability as critical to their company’s future success.
Sub-Saharan markets remain in lower league
Given South Africa’s showing in the recent World Cup it would appear that Africa in 2010 is a lot like the US in 1994 – better at hosting the tournament than playing. Similarly, sub-Saharan stock markets in 2010 are a lot like the S&P 500 in 1994: poised for five very strong years of appreciation.
For mining firms being big matters
Despite the recent recession, mining fundamentals remain strong, fuelled by robust demand from urbanising economies, especially China’s, and by constrained supply for many metals and minerals.
Few reasons for Africa to fear EU’s fund directive
Much has been written in the financial press about the draft EU directive on alternative investment fund managers. The usual focus is on the directive’s potential impact on remuneration and the additional regulatory burden it seeks to impose. A lesser-told story is the potential impact of the directive on Africa-based funds, whose investments play a key part in the economic development of the continent, particularly with regards to infrastructure. We look at the history of the directive and how it might affect Africa-based funds.

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