Return to the Promised Land 2013

Africa

VENTURES AFRICA – It’s Friday, 19 October 2012 and I am seated on board Qatar Flight 585 from Johannesburg to Qatar, final destination being Shanghai where I was to attend a development programme on Hi-Tech Business Incubation funded by the Chinese Ministry of Science and Technology. Tucked in the seat pouch in front of me is the Time Magazine, November 2012 issue on China and its new leader, Xi Jinping. Global economics and politics being a favourite read, I thought this particular issue was fitting for this trip.

The aeroplane lines up on the runway preparing for take-off and we are slightly delayed for reasons unknown at this point. As usual (for those frequent flyers) the plane gathers speed and soon we’re in the air. It is so funny that at this time the plane seems to hit turbulence immediately on the ascent. Strangely, the first thing that comes to my mind is the year 2012. In-printed in my mind is that 2012 is a year of self-induced stagnation.

Like many I have been on numerous flights but never experienced such turbulence before. On more occasions than any of us on this particular flight care to remember, ‘she’ literally nose-dived a few times. What seemed like forever was probably about an hour long reflection on what the worst could be!

Despite the global recession starting in 2008 and running along in up until 2012 where certain economies hit double dips, this first hour of the flight was a fitting example of what it must have been like for economists, politicians, business owners, shareholders and fund managers. Watching markets dive, then experiencing little spurts of growth. This turbulence was the effect of cloud heavy thunder cloud build up, pretty much common for the Gauteng region of South Africa. Just a little niggle compared to the rest of the flight over Africa towards Doha, Qatar where I would board a connecting flight to Shanghai, China.

This experience was a stark reminder of the African experience during the recession, up until this time. African economies had some challenges here and there but enjoyed a steady trajectory in fiscal growth. Coincidently and gratefully the rest of my trip to Shanghai was just as pleasant.

Having to write about investment opportunities thus brought back to memory (albeit two months ago) the most amazing business and personal travel experience to date. Importantly, I thought that if we were to consider investment opportunities for Africa, we should use as a guide the Chinese thought patterns. This can actually feel proverbial!

I’d like to think of investment opportunities in two spheres of thought;

– Sustainable Investments (Headwind), and

– Tail-wind Investments

Where has China made $101 billion in Foreign Direct Investments (FDI)?

In addition $750 million has been proposed for agriculture and general development aid and approximately $50 million for supporting small and medium sized business development.

Sustainable Investments

The Chinese government, well most of some of the officials I have spoken with, all confirm with delight and enthusiasm, that the very first agenda item for government, is agriculture. China has 1.3 billion people and they need to be fed. Food security is thus pertinent to future stability of China and its one party government which by the way has just over 8 million members.

China has thus embarked on sustainable investments that yield headwinds due to the nature of their returns;

– Sovereign debt to African countries

– Infrastructure loans

– National Industry and sector investments in natural resources

 

China, using structured thinking has applied its foreign direct investment programme to securing niche partnerships with African countries using its vast cash reserves. Industries that China has targeted and secured include;

– Oil/Gas

– Rail/Road

– Hydroelectric Dams

– Mining (Iron Ore, Copper, Uranium and Gold)

– Airports

– Port Construction

Given China’s desire to not only sustain their economic power, it has managed to out manoeuvre current major investors in Africa by securing access to strategic resources. Securing these investment also position African countries as well as China by identifying and insulating the ‘live wires’ that caused developed nations like the US and those in the Eurozone to experience severe supply shocks.

Tailwind Investments

So, yes I am giving names to investments – it’s 2013 so let’s be different!

Tailwind investments are investments that cost much less than sustainable investments where the ROI is ‘period’ dependant. China has thus been fairly clever to leverage from braking into other micro markets. For example, in South Africa Standard Bank sold a major stake to Industrial and Commercial Bank of China (ICBC). A major feat in the African financial sector as Standard Bank is Africa’s largest Bank Group. In 2013 China will also make a major investment into the mining sector.

Additional sectors that China has made investments in for much faster returns are; agriculture, civil construction, manufacturing, aid, water. Very poor Africans communities are benefiting from this entrepreneurial approach by the Chinese Government and private companies.

So, albeit that China is not the largest investor in Africa, she certainly has attained a footprint in the most significant and sought after resources industries the world currently has to offer. Significantly we need to remember the ‘Red-back’ is rising. China is making significant investments in Africa, is one of th Richest countries in the world, had some of the most critical advancements in technology, medicine, textiles, chemical and agricultural sectors and they are only ranked 107th in the Economic Freedom Index.

Secondly, and this should not be taken likely. I took time to look at the World Economic Forum programme, held in Davos each year. The first is for registration, concerts etc and then down to business on the second day. Here is the first Agenda Item: China’s Growth Context.

World leaders are paying attention to their growth. We should also be paying attention to their investment strategies, as te world returns to the promised land!