The enthusiasm about Africa’s status as the last investment frontier can be cooled by the thought that most of the capital is controlled outside the continent. The proverbial western hedge fund, it is feared, would soon pull out if investment from the proverbial Chinese oil company dried up.
But as global capital inflows proliferate, there are now signs that investment between African countries is growing.
Perhaps the purest example of this is the move by Kenya Commercial Bank to expand into the south of Sudan. Southern Sudan has been blighted by decades of war. It lacks even the most basic economic building blocks, such as roads. The war, however, is more or less over. So Kenya Commercial Bank, which is controlled by Kenyan investors, opened in southern Sudan in 2006. It has three branches there.
There are less extreme cases. Ecobank, for example, originally Togolese, is listed in Lagos, Accra and Abidjan, and has operations in no less than 13 African countries. Meanwhile, Nigerian banks such as Zenith and Diamond have been expanding into other west African countries. Some of them are even looking east to countries such as Kenya and Tanzania.
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“All the largest Nigerian banks are expanding internationally, both on greenfield sites and through acquisitions” |
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“The macroeconomic environment is better, and people want exposure to Nigeria. The banks are getting bigger,” says Emeka Emuwa, Citi’s Nigeria country head. “All the largest Nigerian banks are expanding internationally, both on greenfield sites and through acquisitions.”
In other sectors, Nigerian cement company Dangote is seeking to set up plants in east Africa and Algeria. Nigerian insurance firms IGI and Lead Way are also expanding regionally.
Net exporters
Cross-border investment within Africa was minimal only a few years ago. Nevertheless, Christopher Hartland-Peel, Africa equities analyst at frontier markets specialist Exotix, says Nigeria and Kenya are still the only net exporters of capital in the sub-Sahara African market (excluding South Africa). Moreover, in maintaining domestic control of most of its banking sector, Nigeria, says Hartland-Peel, is something of an aberration among sub-Saharan African countries. “The total assets of the banking sector in Kenya are overwhelmingly controlled by non-indigenous sources,” he says.
He continues: “Most of the money for new IPOs [in sub-Saharan Africa] comes from north America and Europe, particularly specialized Africa funds, and hedge funds that are switching from debt to equity instruments and looking for undervalued assets.”
In many of the most important sectors, such as banking, cement and mining, capital in Africa is still overwhelmingly controlled from Europe. Barclays, Standard Chartered, Lafarge and Anglo American typify the European names that continue to dominate industry in Africa. And Africa exports much more to north America, Europe and Asia than it does within the continent.
Western multinationals still lurk behind cross-border deals that appear wholly African. East African Breweries, for example, has recently taken control of other brewers in neighbouring Uganda and Tanzania. But that company is itself controlled by Diageo, a British multinational. Similarly, Senegalese telecom company Sonatel is opening in Guinea and Guinea-Bissau. But Sonatel itself is controlled by France Telecom.
Africa’s march forward, however, is being helped by other developing countries, such as South Africa’s Standard Bank acquiring Nigerian bank IBTC for $400 million recently. And Standard Bank itself is now part of China’s ICBC.
North Africa, helped by Gulf petrodollars, is beginning to look to sub-Saharan Africa as well. Moroccan group BMCE set up a London-based pan-African investment bank at the end of 2007. In part thanks to the acquisition last November of a Luxembourg investment vehicle called Bank of Africa, Medicap has operations in more than 15 African countries. Attijarawafa, another Moroccan bank, has had subsidiaries in Tunisia and Senegal for the past few years. Furthermore, at the end of 2007, Attijarawafa added to these with the acquisition of a majority stake in Senegal’s CBAO, the third largest bank in the CFA single-currency zone of Francophone west Africa.
“If Moroccan banks are heading south, it’s because there is a market for their customers,” says Joel Sibrac, chief executive of BNP Paribas’ Moroccan subsidiary, BNCI.
Multinationals, including Shell, Renault and Hewlett-Packard, are increasingly using Morocco as a base for operations in sub-Saharan Africa. But a number of subsidiaries of independent Moroccan companies outside the financial sector are looking to sub-Saharan Africa as well.
Advantages
North African countries have an advantage in cultural and linguistic ties to the Gulf, which is investing more in the Maghreb, particularly in real estate and energy.
Algerian national oil company Sonatrach, which also operates in Niger and Mali, has activities in Mauritania in collaboration with Qatar Petroleum. Meanwhile, Mo Ibrahim’s Celtel, originally Sudanese, was taken under the umbrella of Kuwait’s MTC in 2005, and maintains operations in 15 African countries.
Admittedly, there are few other examples of direct links between Gulf investments in north Africa and north African investments further south.
“The Middle East is a fairly new investor in Morocco. The main investors are France, Spain and the rest of Europe,” says BNP’s Sibrac.
Nevertheless, more investment from outside Africa, particularly from other emerging markets, is helping to build independent, pan-African industrial integration.
