Africa News blog

African agricultural finance under the spotlight

Africa is turning into a fashionable post-crisis investment destination as investors regain their confidence and start to focus on the continent’s lack of direct involvement with the global market’s volatility drivers and trouble hotspots. Africa is benefiting not only from a resumption of international debt and equity flows; it is also a beneficiary of international efforts to maintain the flow of trade finance via multilateral guarantee programmes – 45 issuing banks from 27 countries in sub-Saharan Africa have joined the IFC’s trade finance programme, for example.

At the same time, bilateral and multilateral development agencies are actively investing via an assortment of public and private-sector channels; the international capital markets pipeline is building – sovereign debt offerings on the docket for Nigeria, Senegal, Tanzania, and Zambia with Libya believed to be looking – while the slew of private equity and hedge funds being raised this year for Africa are seeing healthy interest from public-sector and private LPs.

Investors are focusing broadly on Africa’s relative political stability, improving governance, more conducive policy and regulatory environment, as well as more transparent foreign investment regimes. At the macroeconomic level, above-average growth and low levels of government and corporate indebtedness add to the appeal. What’s key to much of the capital flowing into Africa is that it is supplemented by a support network of capacity building, advisory services, training, technology transfer, and infrastructure benefits.

From a sector diversification perspective, the emergence of new technologies such as mobile telephony and Internet broadband are creating interest beyond the traditional natural resource plays; the telecoms and services sector was the dominant Africa FDI recipient in 2009.

In its World Investment Report 2010, UNCTAD noted that Africa still trails at the bottom of future investment destinations relative to the rest of the world. But that could be about to change as foreign governments and private investors reset their investment horizons and start to look at Africa from a different perspective. Plus: Africa has an abundance of one commodity that is becoming ever more fiercely fought over: agricultural land.

Rising levels of international investment capital in African agriculture and agribusiness have taken the investment thesis directly into the intensely political arena of global food security and land rights. It will remain there as long as food security remains a top agenda item for the likes of China, India, Saudi Arabia, UAE, South Korea and many others.

The notion of foreign investment in agriculture as a key to Africa’s food security, particularly when it is aimed at supporting smallholder agriculture and sustainable farming, is a relatively straightforward one. The acquisition of huge tracts of African agricultural land by foreign governments (directly or through sovereign wealth funds), and by multinationals, investment banks, hedge funds, private equity firms and speculators creates a slightly more convoluted picture.

Is Ethiopia’s development plan too “ambitious”?

Ethiopia’s Prime Minister Meles Zenawi seemed to anticipate this week exactly what a lot people were thinking about his government’s plan to double the poor country’s GDP and wean it off food aid within just five years.

“I think that this is a very ambitious plan,” he said.

“This is indeed an extremely ambitious plan,” a few minutes later.

And, once more for luck, “We have put in place a high-case scenario which is clearly very, very ambitious.”

So far, so ambitious.

But, after those disclaimers, a man many see as Africa’s most economically literate leader didn’t shy away from saying he thought Ethiopia could get there.

New Africa about much more than football

The first World Cup in Africa also highlights a dramatic change driven by forces more powerful than football.

While the competition may help change Africa’s image in the minds of any outsiders still fixated on cliches of bloodshed and famine, those in the know long ago spotted Africa’s emergence from no-go zone to frontier market and are seeing the returns.

If you had put $1,000 in Nigerian or Kenyan stock markets at the start of the year, you would have made a profit of around $150. If you had done the same with the U.S. benchmark S&P 500 index, you would be nursing a loss.

Global fund trackers EPFR reported a 40th consecutive week of inflows to African equity funds this week. India’s Bharti Airtel completed a $9 billion purchase of Zain’s African operations in another vote of confidence in the continent.

“It’s not to denigrate the World Cup for a moment, but it’s not what defines Africa in 2010. What should really be defining Africa is Zain buying Bharti’s assets,” said African affairs commentator Joel Kibazo.

“I think there is still a false image of Africa even in South Africa, never mind the rest of the world, about the rest of the continent. The fact is, it has really been getting ahead and there are more people with money to spend.”

Half of the world’s 10 fastest growing countries will be in Africa in 2011 according to the International Monetary Fund.

West must change approach to Africa

Tom Cargill, Assistant Head of the Africa Programme at Chatham House, writes on the West’s relationship with Africa:

French President Nicholas Sarkozy put it best this week, when he spoke of the increasing important of Africa in Global Affairs: “Africa’s formidable demographics and its considerable resources make it the main reservoir for world economic growth in the decades to come.”

This is indeed the principal finding of our new Chatham House Report ‘Our Common Strategic Interests: Africa’s role in the post G8 World’. Yet so far there is very little evidence that Western policy makers, publics, or most importantly, businesses, are waking up to the opportunities that are slowly draining away from them with each passing day.

For the past ten years, fundamental change has been taking place across large parts of Africa. Growth rates and stability have increased. Political, regulatory and security reform have deepened. Increasing investment from China, but also Brazil, India, Turkey, South Korea, Argentina and other ambitious emerging powers has acted for the most part as an accelerant.

Even the global financial crisis has in some ways hastened this process, for while in the short and medium term it had a devastating impact on millions across Africa, it has also revealed the true ebb of power from East to West, and encouraged the new economic actors of the G20 to chase access to the 40 percent of the world’s mineral resources, and 1 billion consumers gathered in Africa. Almost as important is the 25 percent of UN General Assembly votes that are represented by the continent’s 53 countries.

Meanwhile, many Western countries seem trapped in a humanitarian conception of Africa.

Popular media coverage and policy judgement is overwhelmed with a perception that Africa is simply a problem continent with little strategic value, except as a space where largess is shown and good things done to make up in some small way for the messy reality of international diplomacy.

African poverty falling faster than thought?

The old image of an Africa doomed to get ever poorer has certainly lost credence over the past decade even if it is a view still held by some.

Well, according to a new study, Africans are getting wealthier more quickly than previously believed and the poorest continent’s riches are also spreading beyond the narrow confines of its elite.

“Africa is reducing poverty, and doing it much faster than we thought,” the study by U.S.-based economists Xavier Sala-i-Martin and Maxim Pinkovskiy said.

“The growth from the period 1995-2006, far from benefiting only the elites, has been sufficiently widely spread that both total African inequality and African within-country inequality actually declined over this period.”

The research, which assesses poverty levels and income distribution from 1970 to 2006, lends weight to a belief among local and foreign investors that Africa is finally getting its act together 50 years after shaking off the colonial shackles.

The study, published by the private, non-profit U.S.-based National Bureau of Economic Research, also challenges the suggestion that strong African growth over the last decade or more has done little to alleviate grassroots poverty due to the countervailing effect of equally strong population expansion.

Going by an inflation-adjusted $1 per person per day yardstick, the study, using statistical analysis pioneered by the two authors said 32 percent of Africans were in poverty in 2006, compared to 42 percent in 1995 and 40 percent in 1970.

Africa-Asia ties flying high

Investment from China and other Asian countries was an important factor in several years of unprecedented growth in Africa before the global downturn hit.

It is very much seen as a critical driver for Africa’s future growth prospects as well.

China has repeatedly emphasised its commitment to Africa through the global troubles and is emerging even more solidly implanted on the continent now. Other Asian countries are also pushing hard, as a recent high-level Indian visit showed.

As one of the main links between Africa and Asia, Ethiopian Airlines offers an interesting indicator as to how the ties have held up and are expected to grow.

Early last year it was talking of cuts, but it is now at 14 flights a week to China and 12 to India. It is planning flights to more destinations in both countries.

Unlike many airlines elsewhere, it also managed to double its profits in its last business year.

How to win business in Africa?

African countries are often being told what they need to do to win more investment and expand their economies, but there is always a question as to whether making the changes will really deliver the rewards.

The lesson from top reformer Rwanda seems to support the argument that it is worthwhile.

Registered investment leapt 41 percent to $1.11 billion in 2009 in spite of the particularly difficult global environment. It is expected to rise 20 percent this year. And that is in a small, landlocked country not noted for immense resources, still recovering from the genocide of 1994 and some neighbours that might best be described as unstable.

Rwanda has long been a darling of donors because of its reforms and no doubt also because of guilt over the world’s failure to prevent the mass killings, but this isn’t aid money – it is investment in businesses to generate money and jobs.

Rwanda recently became the World Bank’s biggest business reformer on its Ease of Doing Business Index , leading 10 countries in regulatory reform – the first time a country from sub-Saharan Africa has done so.

It is interesting is to look at where Rwanda ranks particularly highly compared to some other African economies – and notable that this includes areas that involve protection for investors and ensuring the rule of law as well as curbing bureaucracy.

Lessons for coup makers?

President Barack Obama’s decision to end trade benefits for Guinea, Madagascar and Niger shows some stiffening of Washington’s resolve to act against those seen to be moving in the opposite direction to demands for greater democracy in Africa.

But the fact that new benefits were simultaneously extended to Mauritania may also give a lesson in how would-be coup makers should best behave if they want to get away with it.

In the first three countries, there is no clear idea as to how they will return to a form of government more acceptable in the eyes of Western countries or those of their neighbours.

Guinea and Madagascar in particular both look in real danger of much greater turmoil.

In Mauritania, President Mohamed Ould Abdel Aziz overthrew an elected president in 2008 – the country’s first freely elected president – but managed to get elections organised and himself voted into office by July, although the ballot was condemned by his opponents.

Perhaps crucially for the Western support, he also swiftly promised to cooperate in fighting al-Qaeda in the Sahara.

Uncertainty over transitions in both Guinea and Madagascar has stoked internal instability as well as costing foreign assistance.

Africa’s century?

World Bank President Robert Zoellick ended a visit to Africa this week with the pronouncement that this century belonged to the continent’s development despite damage to economies from the global financial crisis.

Those who remember what were flagged by some at the time as “Africa’s decades” in the 1980s and 1990s may have cause for scepticism given that in many countries they turned out disastrous despite early hopes.

But Africa’s economies had been growing at an unprecedented pace before the global financial crisis struck.

Zoellick acknowledged the immediate challenge required more resources to bolster regional integration as well as investments in energy, infrastructure and agriculture.

He said Africa deserves more attention and should be made a priority at international meetings like the Group of 20 developed and developing countries in the United States next month.

To make the case for more resources from donors, whose budgets are being strained by the financial crisis, Zoellick said Africans need to show they can use aid effectively and improve governance

Will African countries be able to show they can use aid effectively enough? Will this really be Africa’s century? If it is, then how auspicious is it for it to be kicked off with foreign aid?

Zuma’s time to deliver?

Poor South Africans have called upon newly elected president Jacob Zuma to keep his election promises on service delivery. The past week has seen a number of protests flaring up across South Africa against what protesters called poor service delivery.

In one township in the country’s Mpumalanga province residents barricaded the entire township, burning tyres, throwing stones at policemen and calling for the head of the local mayor, whom they described as “good for nothing”. “There is no development. You can see for yourself,” one resident told journalists. He spoke of alleged neglect and apparent self enrichment from local government officials.

Locals also complained about being “overlooked” for jobs in the local municipalities in favour of people from outside.

Demonstrations lasted nearly the whole day on Wednesday 22nd July. Later in the afternoon the local municipal council came to address the crowds who-for-a-while refused to listen to their elected officials. One thing they wanted clarified was whether their brothers and sisters- arrested during the last two days of protests would be released before they could listen to whatever the town council’s meeting had concluded. Ninety-nine residents had been taken into police custody.

Siyathemba Township is but one example of this recent surge in protests against perceived lack of service delivery. The challenges of getting access to water and sanitation facilities, health care, employment, and electricity fifteen years into democratic South Africa are being brought up, albeit via the protests.