Urbanisation, infrastructure, resources draw Africa investors

April 26, 2012 (Business Report by Ethel Hazelhurst) -- Global investors are looking at Africa because of three megatrends, according to Tim Bashall, the KPMG head of strategy in Africa. He was speaking yesterday ahead of Africa Conversations, the fifth in a series of conversations around doing business in the continent, hosted by KPMG over the past 18 months.

The theme of yesterday’s discussions was investment in Africa. Bashall said there were three megatrends attracting investors to Africa.

“One is the natural resources story: mining; oil and gas; and agriculture. There is an insatiable appetite on the part of China, India and Brazil to industrialise and they just need all this raw material. That’s over and above demand from the rest of the world.”

The second megatrend is consumer demand from the population of 1 billion people, among them 350 million middle-income people.

Dapo Okubadego

“There is a huge wave of urbanisation which is creating a big consumer story for telecoms companies, banking, insurance and retail – fast moving consumer goods.”

As a result of both urbanisation and the growth in extractive industries, there was a “huge infrastructural change” which represented the third megatrend. Bashall said huge investment in infrastructure was needed to satisfy the needs of companies involved in extraction and the needs of consumers.

Dapo Okubadego, the KPMG head of transactions in Nigeria, said investors needed to understand there were not many large-scale businesses in Africa and that they had to pursue what he called “a roll-up strategy”.

“If you want scale you must take a long-term view; buy a few companies and build them up,” he said.

Okubadego also advocated looking at Africa as a portfolio – diversifying risk among different countries.

A third pillar of investing in Africa, he said, was to adopt “a value chain strategy”.

This involved looking for “complementary” partnerships or joint ventures. An example is a retail chain which requires a real estate partner to develop the shopping malls.

A fourth requirement was to take a “proactive and constructive approach in engaging with the regulator” so that governments were prepared to collaborate.

Finally, he said companies had to be prepared to develop human capital.

“You have to take an industry approach where you take an active interest in the curriculum of graduates coming out of university.” He also advocated setting up training schools in industries.

He noted that 40 percent of the population was under the age of 15 and 70 percent of the population under 35.

Bashall described it as “a very young population that is not as educated as in other parts of the world”.

Not all investment and trade with Africa is captured, according to Okubadego.

He said: “The figures are not collated because of the size of the informal sector in Africa.”

He noted a recent World Bank survey in Nigeria estimated that about 40 percent of economic activity was not captured because it was in the informal sector.

The retail sector in Africa was still almost entirely served by the informal sector so opportunities were there for the taking, he said.