RisCura's Andrew Slater gives his first-hand experience of Africa, and reflects on the investment opportunities there.
Karibu! I didn't see a red convertible Ferrari this time, as I mentioned in my last blog. In fact, I didn't see a sports car of any kind. And with good reason: the state of the roads, especially after the rains, presented challenges for 4x4s in certain places. But I did see lots of cars. Lots of cars, and most of them were bought new in the last few years. And there were premium brands like Lexus and Range Rover. It wasn't like that five years ago. One businessman I met said that although the long-distance roads have improved in the sense that the delaying potholes have gone, the volume of traffic has increased exponentially so that average speed continues to fall.
I have just come back from a visit to Nairobi, Kenya, to see listed equity and private equity managers and get a sense of the business pulse. Three days of meetings were set up, Monday to Wednesday. Then Tuesday was announced as a public holiday for the inauguration of new President, Uhuru Kenyatta. Meetings were rearranged, at a push, to just Monday and Wednesday. Then rearranged, successfully, again on the fly as I came to realise that the paradigm that makes Google work back home (and so dominant at the expense of everyone else) doesn't copy across to Nairobi. While Google maps said it was a 10 minute drive, it actually took an hour. StreetView also neglected to mention that the last kilometre was an almost impassable mud bath.
My last meeting was with a finance director of an insurance company. Some things don't change. On seeing I was an actuary the usual jokes were rolled out. I guess pensions are pensions wherever you go! Their life business is growing phenomenally fast, tapping into the emerging middle class. And they have a savings product you access via your mobile phone.
A week later when I was back in London a story appeared on the BBC website: "Africa's economic growth to outpace average." It was picking up on the latest Africa's Pulse report from the World Bank. One paragraph is worth quoting in full:
"While the extractive industry sector dominates in terms of the value of overall FDI flows, investment in the services sector, notably among infrastructure-related projects in construction, transportation, electricity, telecommunication and water, has been expanding. In addition, some of the larger economies with a growing middle-class such as Nigeria, South Africa, Kenya and Ghana, are increasingly attracting investment flows to their rapidly expanding consumer sector: i.e. retail and consumer banking. The contribution of the service sector to economic growth is large in both resource rich and resource-poor countries. Africa is an attractive investment destination: The United Nations World Investment Report, 2012 reports that data on the profitability of United States FDI shows a 20% return in Africa in 2010, compared with 14% in Latin America and the Caribbean and 15% in Asia."
Uhuru Kenyatta provides a nice example of how your frame of reference can distort reality. In the UK the news story is all about the will he / won't he be summoned to the International Criminal Court (ICC). I asked all my taxi drivers in Nairobi about this. They all said the same: 50% of the population strongly support Uhuru Kenyatta and 50% strongly do not. But they all support the new (two years' ago) constitution for Kenya and if the judges (who were vetted publicly on TV) ruled that the election result was fair then that is the final say on the matter. And amongst the business community the ICC cloud was generally seen as positive as it will catalyse further improvements in governance and transparency. The inauguration passed peacefully and without protest. Perhaps the Kenyans were taking advantage of the clearer roads to go for a drive in their new car. I certainly saw plenty of them in the local national park!
Written by Andrew Slater, managing director, RisCura
aslater@uk.riscura.com
