Is Africa truly ascendant, as its strong growth performance over the past decade suggests? Or is the continent’s potential still hobbled by poverty, disease, glaring infrastructure weaknesses and poor governance? Both narratives can be heard in Washington this week as heads of state and senior officials from 50 countries attend the first-ever U.S.-Africa Leaders Summit.
The meeting, convened by President Barack Obama after his trip to Africa last year, has attracted an A-list of U.S. financial and corporate executives eager to increase their exposure to the continent and its growth potential. Africa is home to six of the ten fastest-growing economies in the world, and its rapidly expanding middle class and vast resource wealth are attracting increased investor interest.
At a U.S.-Africa business forum on Tuesday, Aliko Dangote, the billionaire president and CEO of Dangote Group, Nigeria’s largest industrial conglomerate, announced deals with two leading U.S. private equity firms. Dangote will team up with Blackstone Group to invest $5 billion in power infrastructure in Africa, and it will partner with Carlyle Group to invest in oil refining, agriculture and financial services. Dangote said the latter investments could amount to $1 billion.
Carlyle has been looking to expand in Africa, attracted by the continent’s growth potential and low volume of private equity activity to date, which should mean better valuations, said the firm’s co-CEO, David Rubenstein. Only about 1 percent of the global private equity industry’s assets are in Africa, he estimated, adding, “We think the industry will take off.”
U.S. companies took advantage of the summit to announce $14 billion of investments in Africa, including a $5 billion commitment by Coca-Cola Co. to expand its bottling and distribution network on the continent, support water sustainability projects and increase its sourcing of local fruits and tea; and a $2 billion pledge by General Electric Co. to invest in power infrastructure in Algeria and Nigeria, and provide railway and power equipment in Angola.
Yet even as corporate executives poured into Washington for the summit, several recent developments served to temper the enthusiasm. The outbreak of the deadly Ebola virus in several West African countries, which prompted the leaders of Liberia and Sierra Leone to stay home and skip the summit, was the most obvious. Concerns about social and political stability — including the threat posed by the militant Islamic group Boko Haram in Nigeria and now Cameroon, where the terrorist group last week abducted the wife of a deputy prime minister — were also voiced at many of the gatherings of officials and investors held in conjunction with the summit.
Almost as troubling are signs of economic distress in some of the continent’s onetime star performers. Ghana announced on the eve of the summit that it would seek assistance from the International Monetary Fund to cope with a financial crisis caused when a sharp rise in its budget deficit triggered a dramatic drop in its currency, the cedi — 40 percent so far this year. Ghana was one of several African countries to suffer from the financial instability emanating from last year’s U.S. taper tantrum. With the Federal Reserve nearing the end of its quantitative easing program and many analysts moving up their expectations for the first U.S. rate hikes, the climate for African countries could get tougher still.
It all adds up to a more differentiated and less rosy picture than seemed likely a year ago, when President Obama decided to call the summit.
Investec CEO Hendrik du Toit said country and company selection are more important than ever today. Security concerns have risen in much of North Africa and parts of central Africa; reform momentum has stalled in countries such as Kenya and Nigeria; and valuations across much of the continent have increased in the past five years, notably on Nigerian banks, one of the most common plays among institutional investors. The Nigerian market, the region’s largest after South Africa, has doubled since the end of 2009. “The easy gains have been had,” said du Toit.
Leaders themselves drew attention to the differences, if only to distinguish their countries from some of the continent’s hot spots. “Africa is not one country — we’re 54 different countries,” President John Mahama of Ghana told a business conference at the U.S. Chamber of Commerce. Just as the crisis in Ukraine doesn’t define the state of wider Europe, he added, “if Somalia is on fire, it doesn’t mean the whole of Africa is in flames.”
The need for massive infrastructure investment, especially in the power sector, and greater regional cooperation dominated many of the meetings in Washington.
The World Bank estimates that Africa needs to invest $100 billion a year in roads, railways, ports, power plants and other infrastructure to sustain strong economic growth — virtually double the current rate of spending. Power generation is the most urgent need. Africa has about 80 gigawatts of generating capacity, roughly equal to the installed capacity of Vietnam. An estimated 600 million of Africa’s 1 billion people don’t have access to electricity, which amounts to “energy apartheid” for the continent’s poor, as Bank president Jim Yong Kim put it.
Kim took a step toward filling that energy gap on Tuesday, announcing that the World Bank is committing $5 billion in financing and investment guarantees for power-generation projects in six countries: Ethiopia, Ghana, Kenya, Liberia, Nigeria and Tanzania. Those countries are part of Power Africa, a program launched by the U.S. government last year that seeks to marshal public and private capital for power projects and drive investment-friendly regulatory reforms of the energy sectors in those countries. Kim said that “80 gigawatts is just a crime. We’ve got to get that number up quickly.”
Dangote said his company and Blackstone were eager to begin putting their $5 billion to work in the power sector as rapidly as possible. “We’re going to be very, very serious and very aggressive,” he said.
Heirs Holdings, the Nigerian investment vehicle of entrepreneur Tony Elumelu, last year bought the Ughelli power plant under a Nigerian government program to privatize the power sector; after just seven months of operation and upgrading efforts, the plant’s output has tripled, to some 450 megawatts. But Elumelu told the business forum that African governments need to do more to encourage greater investment in the sector. His recommendations: Ensure stable regulatory and investment regimes so investors can plan for the long term, and harmonize rules across the continent, or among regional blocs, so investors can develop regional grids. “We need to invest in countries and across borders,” Elumelu said.
Closer regional cooperation is vital both for the power sector and to create economies of scale that will attract a broader range of foreign direct investment.
Ghanaian President Mahama described how his country is seeking to become an energy provider for West Africa and develop closer commercial ties within the Economic Community of West African States (ECOWAS), the 15-nation bloc he currently chairs. With power demand at home growing by 8 to 10 percent a year, Ghana is spending $500 million over five years on hydro and natural-gas plants in a bid to double its energy production. “That would give us a comparative advantage and help us to not only meet our needs but become a net energy exporter,” Mahama said. The country is also spending $1.2 billion to expand its main port, Tema, to handle the fast growth of imports into Ghana and neighboring countries.
Mozambique’s president, Armando Guebuza, appealed for investment to boost his country’s port capacity; the current bottleneck is stalling efforts to develop Mozambique’s big coal resources. The country has the capacity to produce 100 million tons of coal a year, but its port can handle only 6.5 million tons.
Notwithstanding its problems, Mozambique demonstrates the potential of resource wealth for transforming some African economies. A consortium led by the country’s Empresa Nacional de Hidrocarbonetos and the U.S.’s Anadarko Petroleum Corp. is expected to spend some $25 billion — a sum two thirds larger than Mozambique’s gross domestic product — to develop a massive offshore gas field and make the country a major exporter of liquefied natural gas.
The summit represented an attempt by the Obama administration and corporate America to play catch-up with China, which has invested heavily in resource projects across Africa over the past decade. China’s trade with Africa hit $210 billion last year, compared with $85 billion for the U.S., according to Investec, and China’s FDI in Africa reached an estimated $20 billion in 2012.
“We kind of gave Africa to the Europeans first and to the Chinese later,” said Jeffrey Immelt, chairman and CEO of GE, adding that it was time for U.S. companies to make up lost ground and take advantage of Africa’s growth potential. Dow Chemical Co.’s Andrew Liveris said U.S. companies have plenty of experience in building offshore supply chains and employment, providing local benefits that many Chinese resource-extraction deals lack. “We bring value chains, and we bring training,” he said.
Follow Tom Buerkle on Twitter @tombuerkle.
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