Views, ideas, inspiration, vision and practical tips for a better more prosperous Malawi

Investment and Economic Development in Africa: An Investor’s Perspective.

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The Q & A’s continue and my guest today is an investment professional and new business consultant. Mr Kurt Davis Jnr thank you for taking time to do this.

1.    As an investor who has invested in Africa in the past, if you were to summarise your experiences, what has been your African experience? The African continent is one of daily change and opportunity.

You must be flexible, adaptable, and open. Being a finance or operations expert is great. But if you cannot tailor your expertise to meet the need of dynamic and constantly changing environment, you will likely fail.

2.    Most African countries (including Malawi) which were former colonies of European countries gained their independence around early to mid-1960. Similar time as say Singapore, which gained independence from Britain in 1963. While Singapore is now considered a developed nation with the third highest per capita income in the world, most African countries continue to struggle economically. In your view, why do African countries continue to struggle economically when most of their Asian counterparts have managed to achieve a form of economic development?

The reality is that there are many similarities between some African countries and some Asian countries but there are many differences at the same time. For example, South Korea benefited from unlimited U.S. aid money during the 1960s and 1970s as the U.S. government worked endlessly to ensure that South Korea would not become a Communist country. It would be a mistake to ignore how that early financial start backed by U.S. technical assistance pushed the country ahead of its peers in Asia and Africa during that time.

3.    While there has been visible progress in some parts of Africa, when one travels in other parts, especially the rural areas, the story of poverty, deprivation and suffering is the same. If it’s not wars and ethnic violence, then it’s disease and poor healthcare, or famine and hunger, else it’s lack of resources, a poor education, poverty, corruption…the list goes on.  After over 50 years of foreign intervention and billions in aid, what in your view is preventing African countries from getting their act together?

Many countries have ‘gotten their act together’ but the process is a process. Development is not an overnight thing. Additionally, similar to my point on South Korea, timing is a factor and so is amount of money. There are many factors to consider in why some countries have not achieved their development goals in their expected time frames.

4.    The BRIC countries have been flagged as models of economic development. What important lessons do you think people in African countries can learn from the rise of the BRIC countries, in particular China, India and Brazil?

There are many lessons that can be learned on managing high growth sectors and economies. For example, choosing how to invest government monies in specific sectors and projects is a complicated process but China, India and Brazil offer some lessons on what to do and not to do. It would be the failure of African countries and the world to not take note. At the same time, it is always important to consider the differences and adjust for them. For example, India and China are both bigger populations than the entire African continent. Thus, you can only compare China to Nigeria to a certain extent.

5.    As an investor, what kind of industries and technologies do you invest in, and what indicators in an opportunity make it an attractive investment opportunity?

The strongest sectors for growth are agriculture/agribusiness, fast-moving consumer goods (FMCG), infrastructure (including energy and power), the financial sector (especially in East Africa and West Africa), and mining (including mining logistics).

6.    One of the problems that has been cited as holding back the growth of Africa is the relatively low levels of Venture capital investment into Africa, when compared for example with the investment that has been flowing into South East Asia or South America. One explanation for this is that there are relatively fewer Start-ups in Africa that are worth investing in; that the risk of investing into Africa is simply too high? In your view, why can’t more business owners in western countries invest in Africa?

There is still an unsubstantiated fear about investing in Africa. Many potential investors will cite corruption or overall lack of growth opportunity as a reason to avoid Africa. This is obviously not indicative of what is actually happening on the ground. Yet, the old adage that perception is reality remains. Changing perception sadly is harder than changing reality. Over time, perception of Africa should match the true reality of growth and potential on the ground.

7.    In your view, how important is the role of Education to the Economic Development of a country?  What about Security and Infrastructure (including airports), are they serious determinants to attracting investors?

Education is huge. Companies across the continent struggle to find qualified talent. It is imperative that countries develop the talent pool necessary to support their emerging economies. For example, the development of geologists in energy-booming countries could ensure a true transfer of knowledge between foreign developers and local individuals and also ensure that foreign companies have a local pool of candidates to hire from.

Security is less of a concern. Despite the recent terrorist attack in Nairobi, security is as much a concern in most African countries as it is in other emerging markets. Still the African continent must still overcome outdated perceptions with the general public. But for an investor, security should not be the highest concern these days.

Infrastructure is still a barrier in some African countries. But this barrier offers great opportunity for investment. Energy investments, for example, could provide a triple bottom line benefit through great returns for investors, social benefits, and environmental benefits (especially with renewable energy).

8.    It is no secret that corruption is a big impediment to economic development in Africa. And whilst circumstances may be different from one African country to the next, in your experience, what creates, feeds and sustains a culture of greed and corruption across Africa?

I would completely disagree with the concept that there is a unique culture of greed and corruption across Africa. Corruption sadly rears its ugly head in many parts of the world. But to say the African continent is unique or excessive in this sense would undermine the entire discussion. Some countries must make greater efforts to combat corruption and are doing so with results already showing.

9.    Bureaucracy has been cited as holding back Africa’s developmental progress. How much is Africa losing as a result of bureaucracy? In our article here, we theorised (giving an example of Singapore) that cutting out excessive bureaucracy could act as a massive catalyst to Malawi’s economic development since in such an environment it would be much easier for investors to be able to start companies and do business. In your view, to what extent does such a theory hold water?

Bureaucracy can be a problem. But it is only one of the problems in the overall scheme of things. Each country in Africa must choose a combination of rules and regulations that account for local culture, ideology and thinking, and country policy objectives in order to achieve success. One level of bureaucracy could be excessive for one country but appropriate for another.

Kurt Davis Jnr PhotoKurt Davis Jr. is an experienced private equity investment professional and new business consultant. He possesses an expansive knowledge of Africa and strong deal/transaction experience from work with Schulze Global Investments, a private equity firm in Africa, Asia and South America, with Kukula Capital, a venture finance fund manager in Africa, with the African Development Bank, a development finance institution in Africa, and with Swicorp, S.A., a private equity fund manager with US$1.4 billion under management for the Middle East and North Africa (MENA) region. His sector experience includes agribusiness, fast-moving consumer goods (FMCG), heavy industry, infrastructure (including energy), manufacturing, natural resources, real estate, and telecommunications. Mr. Davis provides consultancy and advisory services to investors interested in Africa. He has spent time in 25+ countries on the African continent with some of this experience encompassed in his writings on Africa. +Mr. Davis holds a Master in Business Administration (M.B.A.) focused in Finance, Operations Management, and Entrepreneurship from the University of Chicago Booth School of Business and a Juris Doctorate (J.D.) concentrated in Tax Law and Corporate Law from the University of Virginia School of Law. He has passed CFA Level I and II. He is also a licensed attorney in the state of Massachusetts and the state of New York in the United States of America. Mr. Davis is open to expertise and information requests. He can be reached at Kurt.Davis.Jr@gmail.com

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About Sang N.

Writer, Entrepreneur & Activist. Interests: History, Entrepreneurship, Business, Motors, Architecture, Aviation, Travel, Food and Art.

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This entry was posted on September 30, 2013 by in Business Ideas, Inspiration and tagged , , .
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