The Scramble For Business In Africa

Via The Financial Times, an interesting report on how companies from Turkey, India, and China are looking for opportunities in Africa:

A Turkish company is generating part of Ghana’s power supply.  Another one just this month finished a flashy new terminal at the country’s international airport. A Philippine utility is about to take over running the Electricity Company of Ghana, the largest distributor in west Africa. Even Ghana’s biggest flyover, named after liberation hero Kwame Nkrumah, was built by Brazilians.

Ghana, one of the fastest-growing economies in the world this year, is a tiny microcosm of forces that are radically reshaping Africa’s interaction with the world. A new group of outside powers — from China to Brazil and from Russia to Turkey — is gaining a commercial and strategic foothold across a vast continent that was, until recently, dominated by former European colonial powers and the US.

In what some have called a “new scramble for Africa”, these non-western nations are sniffing out commercial opportunities and seeking to project themselves in a difficult but dynamic part of the world. While China has been taking the lead over the past decade, a host of other countries has begun to follow its path.

Whether it is states from the Gulf and the Middle East jockeying for influence in the Horn of Africa, Chinese companies locking up cobalt assets vital for electric cars in the Democratic Republic of Congo, or India replacing the US as the biggest importer of Nigerian crude, all over Africa new participants are making their presence felt.

Africans, understandably, object to the idea of a “scramble”, with its connotations of the 19th century, when European powers squabbled for a slice of what Leopold II of Belgium called this “magnifique gateau Africain”. Instead, many regard wider interest in their continent as a golden opportunity to catalyse a different phase of development by breaking away from what they regard as the paternalistic — or downright extractive — relationships they had with traditional powers.

Carlos Lopes, a development economist from Guinea-Bissau, says he has yet to meet an African leader who is not animated by the new possibilities opening up in an era that might be termed “post-post-colonial”.

“It gives Africans much more room to manoeuvre,” he says. “The level of ambition from leaders has gone up very much in response to these incentives to do more with infrastructure and financing and to dare defy western pressure. They are finding it very exciting.”

The changing patterns of engagement — which have led Washington and Europe to reassess their stance towards the continent — are reflected in trade. China supplanted the US as Africa’s biggest trading partner back in 2009. Last year, China-Africa trade was $170bn, off its 2014 peak but still nearly 20 times higher than at the start of the millennium. By contrast, US trade with sub-Saharan Africa was just $39bn

Where China has led, others have followed. From a lower base, several countries have seen their exposure to Africa rise dramatically. Africa-India trade jumped more than 10-fold from $7.2bn in 2001 to $78bn in 2014 — making India Africa’s fourth biggest trading partner, according to the UN Economic Commission for Africa. Between 2006 and 2016, the Brookings Institution calculates, African imports from Russia and Turkey rose 142 per cent and 192 per cent respectively.China has invested about $125bn in African countries in the decade to 2016, according to the China-Africa Research Initiative at Washington’s Johns Hopkins University. This month, some 40 African leaders travelled to Beijing to hear President Xi Jinping pledge $60bn more over the next three years.

Washington is watching this growing influence with alarm. Last year, China opened its first overseas military base in the tiny country of Djibouti, adding to the presence of the US and others. Djibouti, now heavily indebted to China, is a prime example of what some US critics have labelled “debt diplomacy”, in which Beijing is said to be parlaying loans into political influence. China has also been accused of using debt to take over entitiesin Zambia, including the national power utility. 

This August, several US senators wrote to Steven Mnuchin, the Treasury secretary, and Mike Pompeo, secretary of state, accusing Beijing of “weaponising capital” in Africa, as well as Asia, by using debt to create an economic world order in China’s image.

The growing sense that the US is losing influence on the continent helps explain President Donald Trump’s decision to back a big expansion of the Overseas Private Investment Corporation, a private sector focused development agency whose lending limit is to be more than doubled to $60bn. Legislation, which has bipartisan support, has already passed the House but is waiting Senate approval.  Backers of the so-called Better Utilization of Investments Leading to Development (BUILD) Act explicitly link it to national security and China’s growing influence in Africa.

Kwasi Prempeh, executive director of the Center for Democratic Development in Accra, says Washington is still too focused on threats in Africa and not enough on opportunities. “The US continues to be a player, but it’s caught in the post-Iraq era,” he says. “Its policy is driven by the ‘securocrats’.” Europe, too, has been slow to see Africa’s potential, say critics, and is only now trying to respond to the advances made by other countries.

Last month, Theresa May, the British prime minister, danced through a three-nation tour of Africa to drum up post-Brexit business and to assert Britain’s relevance. Because of the historical presence of UK-listed companies on the continent, including large interests in oil and mining, Britain is still the second-biggest investor in Africa in stock terms. It also remains a big aid donor. But what many drew from Mrs May’s visit — which, incredibly, included the first by a British prime minister to Kenya for 30 years — was how diplomatically disengaged London has become.“Poor Mrs May really has a lot of catching up to do,” says Mark Malloch Brown, a British diplomat and former deputy UN secretary-general under Kofi Annan. In the early 2000s, he says, “We started hearing complaints about what China was doing in Africa, grumbling from the British and the Americans. But, my God, they have created a competitive spur to the rest.”

There are signs that, belatedly, Europe is waking up to the diplomatic and commercial challenge. Last year, Germany launched what it called a “Marshall Plan with Africa”, pledging public money to companies investing on the continent. “We are going to create more security for ourselves and we will put an end to trafficking,” said German chancellor Angela Merkel, launching a scheme that has been slow to get off the ground. 

“They are responding to a domestic constituency agitated about the influx of migrants,” says Mr Prempeh. “They’re thinking: ‘If we can get these countries to be economically viable, either through direct investment or aid, then maybe we can stem the flow’.” He points to a commitment by Volkswagen to assemble 5,000 cars in Ghana as an example of such efforts.Emmanuel Macron, France’s president, has also sought to articulate a new vision for the continent. Stressing that he was born after African states had won their independence, he has urged a relationship shorn of colonial baggage. He has also stressed the commercial opportunities for French companies, including small and medium-sized ones, in the English and Portuguese-speaking parts of the continent, as well as in their traditional francophone stamping ground.

But, like Ms Merkel, Mr Macron’s motives for greater engagement are tinged with alarm. In a speech last December in Ouagadougou, capital of Burkina Faso, he warned of dangers that, he said, “could irreversibly sweep away Africa’s stability, and also Europe’s stability”.

Whether driven by fear or a sense of commercial and diplomatic opportunity, the wider variety of actors has presented African leaders with greater choice. “This has allowed for competition in a way we never had it before,” says Vera Songwe, executive secretary of the UN Economic Commission for Africa.

Part of the rising interest is opportunistic. “At the end of the cold war, the west very much withdrew and stopped asserting its interest in Africa,” says Howard French, a professor at the Columbia School of Journalism and an expert on Africa. “It has taken all this time for the vacuum that this created to draw in a panoply of new players. China is the most obviously important, but Malaysia, India, Vietnam, Turkey, Brazil, Russia and the Gulf states have all been drawn in,” he says. “I think something important is going on.”In spite of Africa’s well-documented problems, companies with a cheaper cost base than European or American rivals can often turn a good profit. “The Turkish decided years ago they wanted to do more business in Africa,” says Edward Effah, chairman of Ghana’s Fidelity Bank. “They opened embassies, opened up export-credit facilities and started more flights,” he says, referring to Turkish Airlines, which now operates routes to more than 40 African cities.

Many businesses also see longer-term commercial prospects in the African demographics that are causing concern over migration in European capitals. From 2018 to 2035, the UN predicts that the world’s 10 fastest-growing cities will all be African. With a median age of just 19, the continent’s population is expected to double to more than 2bn by 2050 and to double again by the end of the century.

Even without a big improvement in living standards, the increase in numbers virtually guarantees robust growth for decades. And some African countries are showing signs of gaining economic momentum. Of the world’s top 10 fastest-growing economies this year according to the World Bank, six are in Africa, including Ethiopia, a country of 105m people where China, Turkey and the Gulf states are all active.

Several countries, including Turkey, where President Recep Tayyip Erdogan wants to break out of dependence on European markets, have seen the logic of greater engagement. Mr Erdogan has visited 23 African nations since he became leader in 2003.

Just this June, the United Arab Emirates provided Ethiopia with $3bn in aid and investments, helping to avert a foreign currency crisis. A month later, Saudi Arabia promised President Cyril Ramaphosa of South Africa $10bn of investment, mainly in the power sector.

Russia, hugely influential on the continent during the cold war, is reasserting itself, striking military co-operation deals with the DRC, Ethiopia, Central African Republic and Mozambique, and agreeing arms sales to Nigeria and Angola. “We are well behind everyone, but it’s temporary,” Evgeny Korendyasov, a former ambassador to several African countries, told the Financial Times.

All this new attention, whether motivated by fear of immigration or terrorism or by commercial logic, is providing Africa with new opportunities, enabling governments to shop around for deals and play one suitor off against another. Recommended The Big Read African economy: the limits of ‘leapfrogging’

But there are pitfalls too. Civil society groups across Africa are seeking to keep their leaders in check, accusing many of cutting corrupt deals that are lucrative for them but bad for the country. Loans from China and other new arrivals often lack transparency, say critics, and the projects they finance cannot always make sufficient returns to pay back the underlying debt. 

Ms Songwe stresses the importance of striking good deals and sharing experience across the continent. She also says the move towards a continental free trade area, signed in principle this year, will strengthen Africa’s hand by creating the economic scale hampered by the Balkanisation of the continent.

“I would like to think that we on the continent know what we want and how we want it,” she says, dismissing the idea of a scramble. “Scramble sounds like the Wild West, but I don’t believe the continent is in the Wild West phase any more. We have moved towards clarity of purpose and objectives.”



This entry was posted on Tuesday, September 25th, 2018 at 2:27 am and is filed under Uncategorized.  You can follow any responses to this entry through the RSS 2.0 feed.  You can leave a response, or trackback from your own site. 

Leave a Reply

You must be logged in to post a comment.


About This Blog
Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.