Post by Sapphire Capital on Oct 26, 2008 5:12:49 GMT 4
Sovereign wealth moves into Africa
Source: Elizabeth Fournier, IFLR
October 16, 2008
Huge losses on western markets mean that foreign investors are looking elsewhere for new assets in which to pour their excess funds. And African countries could provide the secure returns that they are looking for
Huge losses on western markets mean that foreign investors are looking elsewhere for new assets in which to pour their excess funds. And African countries could provide the secure returns that they are looking for.
While the rest of the world heads toward recession, the African economy is growing. Changes in national laws have opened up the market to foreign investors, and made Africa a more attractive investment prospect.
“I think there will be a growing trend for sovereign wealth funds (SWFs) to invest in Africa,” said Wim Dejonghe, of Allen & Overy in Belgium. “We have seen growing activity all across the continent, and there are new opportunities for high-return investments.” Speaking at yesterday’s Africa Forum session, Can Africa Compete? Dejonghe outlined the rapidly expanding role of SWFs in the global economy, and urged African businesses to be ready to take advantage of this available capital.
The audience of lawyers at the International Bar Association conference in Buenos Aires seemed keen to engage in the debate over which investment opportunities appealed most to SWFs. Rafiu A Lawal-Rabana, of Ra Lawal-Rabana & Co in Nigeria, challenged the session’s optimistic outlook, and said that “unless there is investment into agricultural projects, the ordinary African will not benefit.” Dejonghe agreed that there was a “big debate over whether any benefits do go down to the general population,” and highlighted the problem in convincing SWFs to invest in smaller projects. Away from government initiatives such as infrastructure and tourism, lower-profile projects incur the same management costs but provide lower returns.
Geography could also be a challenge. Much existing investment has focused on northern Africa, which is attractive for its proximity to the Middle East, and neglected sub-saharan countries, where poverty is a bigger problem. It is here that lawyers and businesses must work together to devise solutions. Okudzeto said that lawyers in these countries “need to be proactive; not sit around and hope for projects to arrive on their doorstep”.
Speaking from the floor, Erik Richer La Flèche, of Stikeman Elliot in Montreal, Canada, told delegates that “if you want SWFs to choose African countries, it’s up to you to create the vehicles and business models that allow investment.” Others agreed that some restructuring of the African legal environment was necessary to make it more efficient at receiving investment.
La Flèche cited a study that had revealed that the best investment opportunities in African actually lay in small and medium-sized businesses, but that SWFs and similar investors were unaware of this fact. He also said that the time for one-way solutions to poverty was over, and that “investors are not interested in charitable models; what they want is a good investment opportunity.”
Dejonghe said that the key to attracting investors was to offer diverse, wide-reaching projects which engage with the country´s economy, and that this was how benefits could filter down to the general population. “They will not just build you a road without anything else; but link it to an economical activity like tourism, and you might have a deal.”
An estimated $3.3 trillion is currently managed by SWFs; more than hedge funds and private equity fund combined, and this figure is projected to rise to $12 trillion by 2015. While SWFs have historically been risk averse, there seems to be more willingness now to diversify investment and consider riskier assets, particularly as financial markets are increasingly insecure prospects.
Cash-rich countries such as Dubai and Abu Dhabi have transferred huge amounts of profit linked with oil to SWFs, and are setting precedents with their investment in the African economy. This month, Dubai World started a $100 million investment plan in Ethiopia, including mining, trade and real estate projects. The global investment group has also opened a regional office in Cape Town, South Africa, with plans to pour $1 billion into tourism and infrastructure over the next five years.
Following huge losses on the American markets, Chinese state banks are also looking to Africa for safer investment. A joint fund with African banks worth $6 billion has been developed to invest in various African economies.
Session chair Sam Okudzeto, of Sam Okudzeto & Associates in Ghana, called SWFs “a very exciting topic,” but warned assembled lawyers “it is important that we equip ourselves properly to make the most of this.” He described attracting SWF investment as a challenge, and said that lawyers must be ready to best advise businesses on creating opportunities that appealed to investors.
SWFs have been limited in the past due to their lack of transparency and accountability. They don’t disclose how they’re financed, who runs them, or what their long-term goals might be. This has led to unease over national security in the countries where investments are made, with fears that SWFs may be investing for political purposes.
In the US particularly, SWFs have attracted a protectionist reaction. In 2006 the US Congress blocked a bid by Dubai Ports World (DPW) to take over shipping company P&O. The deal would have included DPW taking control of six US ports, a move which was criticised as making the US more vulnerable to terrorists from the Middle East.
However, a new code of conduct devised in a joint initiative between SWFs and the International Monetary Fund (IMF) should increase transparency and reduce nervousness about foreign investment. The Santiago Principles, which were presented to the IMF yesterday, consist of 24 guidelines relating to governance, accountability and investment policies of SWFs worldwide. Though they will only be adhered to on a voluntary basis, Dejonghe said it was in SWFs’ best interests to stick to transparancy regulations in order to ensure investment opportunities.
Source: Elizabeth Fournier, IFLR
October 16, 2008
Huge losses on western markets mean that foreign investors are looking elsewhere for new assets in which to pour their excess funds. And African countries could provide the secure returns that they are looking for
Huge losses on western markets mean that foreign investors are looking elsewhere for new assets in which to pour their excess funds. And African countries could provide the secure returns that they are looking for.
While the rest of the world heads toward recession, the African economy is growing. Changes in national laws have opened up the market to foreign investors, and made Africa a more attractive investment prospect.
“I think there will be a growing trend for sovereign wealth funds (SWFs) to invest in Africa,” said Wim Dejonghe, of Allen & Overy in Belgium. “We have seen growing activity all across the continent, and there are new opportunities for high-return investments.” Speaking at yesterday’s Africa Forum session, Can Africa Compete? Dejonghe outlined the rapidly expanding role of SWFs in the global economy, and urged African businesses to be ready to take advantage of this available capital.
The audience of lawyers at the International Bar Association conference in Buenos Aires seemed keen to engage in the debate over which investment opportunities appealed most to SWFs. Rafiu A Lawal-Rabana, of Ra Lawal-Rabana & Co in Nigeria, challenged the session’s optimistic outlook, and said that “unless there is investment into agricultural projects, the ordinary African will not benefit.” Dejonghe agreed that there was a “big debate over whether any benefits do go down to the general population,” and highlighted the problem in convincing SWFs to invest in smaller projects. Away from government initiatives such as infrastructure and tourism, lower-profile projects incur the same management costs but provide lower returns.
Geography could also be a challenge. Much existing investment has focused on northern Africa, which is attractive for its proximity to the Middle East, and neglected sub-saharan countries, where poverty is a bigger problem. It is here that lawyers and businesses must work together to devise solutions. Okudzeto said that lawyers in these countries “need to be proactive; not sit around and hope for projects to arrive on their doorstep”.
Speaking from the floor, Erik Richer La Flèche, of Stikeman Elliot in Montreal, Canada, told delegates that “if you want SWFs to choose African countries, it’s up to you to create the vehicles and business models that allow investment.” Others agreed that some restructuring of the African legal environment was necessary to make it more efficient at receiving investment.
La Flèche cited a study that had revealed that the best investment opportunities in African actually lay in small and medium-sized businesses, but that SWFs and similar investors were unaware of this fact. He also said that the time for one-way solutions to poverty was over, and that “investors are not interested in charitable models; what they want is a good investment opportunity.”
Dejonghe said that the key to attracting investors was to offer diverse, wide-reaching projects which engage with the country´s economy, and that this was how benefits could filter down to the general population. “They will not just build you a road without anything else; but link it to an economical activity like tourism, and you might have a deal.”
An estimated $3.3 trillion is currently managed by SWFs; more than hedge funds and private equity fund combined, and this figure is projected to rise to $12 trillion by 2015. While SWFs have historically been risk averse, there seems to be more willingness now to diversify investment and consider riskier assets, particularly as financial markets are increasingly insecure prospects.
Cash-rich countries such as Dubai and Abu Dhabi have transferred huge amounts of profit linked with oil to SWFs, and are setting precedents with their investment in the African economy. This month, Dubai World started a $100 million investment plan in Ethiopia, including mining, trade and real estate projects. The global investment group has also opened a regional office in Cape Town, South Africa, with plans to pour $1 billion into tourism and infrastructure over the next five years.
Following huge losses on the American markets, Chinese state banks are also looking to Africa for safer investment. A joint fund with African banks worth $6 billion has been developed to invest in various African economies.
Session chair Sam Okudzeto, of Sam Okudzeto & Associates in Ghana, called SWFs “a very exciting topic,” but warned assembled lawyers “it is important that we equip ourselves properly to make the most of this.” He described attracting SWF investment as a challenge, and said that lawyers must be ready to best advise businesses on creating opportunities that appealed to investors.
SWFs have been limited in the past due to their lack of transparency and accountability. They don’t disclose how they’re financed, who runs them, or what their long-term goals might be. This has led to unease over national security in the countries where investments are made, with fears that SWFs may be investing for political purposes.
In the US particularly, SWFs have attracted a protectionist reaction. In 2006 the US Congress blocked a bid by Dubai Ports World (DPW) to take over shipping company P&O. The deal would have included DPW taking control of six US ports, a move which was criticised as making the US more vulnerable to terrorists from the Middle East.
However, a new code of conduct devised in a joint initiative between SWFs and the International Monetary Fund (IMF) should increase transparency and reduce nervousness about foreign investment. The Santiago Principles, which were presented to the IMF yesterday, consist of 24 guidelines relating to governance, accountability and investment policies of SWFs worldwide. Though they will only be adhered to on a voluntary basis, Dejonghe said it was in SWFs’ best interests to stick to transparancy regulations in order to ensure investment opportunities.