Africa: It’s not what you think!
3-Events Series by Africa Finance Corporation, Invest Africa, and Capital Club Dubai
There is no single narrative that fits.
And just when you think you’ve got it, it’s something else.
As you break it down, measure it, explain it… it changes.
All the cliches and paradoxes dance in the shadows of what’s true but not quite the whole story.
We present the Africa series.
Because we want to truly understand the continent unfiltered.
We will hear from entrepreneurs, policy makers, investors, corporates, and civil society.
We will share the Africa solutions.
Africa: Ground Reality and Transformation
Event 2: 9 February 2023
Transformation is not an event but a journey. And it starts with asking critical questions and the ability to have dialogues, explore options and frame choices that are sophisticated, breakthrough and innovative enough to create impact at scale.
Admassu Tadesse, MD & Chairman, TDB Group
Mohammed Dewji, Chairman, MeTL Group
Moderator Sanjeev Gupta, Executive Director, Board Member, AFC.
- The continent is coming together, and so the real challenge of the continent is unlocking the great potential it carries. It is critical to get the finance to flow into the real economy and the people involved in growing it, creating jobs, and reducing dependency on imports.
- The African population will be bigger than China and India combined. It has a demographic dividend aspect, but it can be a curse if the economic opportunities are not unlocked
- There is local institutional capacity in Africa today, which wasn’t there 20 years ago. Those institutions are being able to raise money successfully out of global markets and distribute it into Africa, and they are de-risking projects so that money can come in after the de-risking is over.
- There is a big opportunity for Africa to grow more food with its 40% arable land. There is also good water sources and a young population. However, it lacks the right mindset and need to create a proper framework for large investors to come into Africa.
- Africa must start value adding to its industrialisation ecosystem and processing its primary exports and manufacturing them into actual goods, instead of selling them as raw resources.
- The continent needs to be able to create strong incentives so that Africans can keep their capital in Africa.
- The overall returns on equity in Africa are amongst the highest in the world. The only thing you have to you do is get through the fear.
- There is a difference in the reality and perception of Africa, globally. The premiums that are imposed on Africa are incorrect and too high. It is quite sad to see how that the distorted narrative affects the world’s ability to assess the true ground reality and potential of Africa.
Sanjeev Gupta: The world needs to look at Africa very seriously because Africa is home to the solutions you seek.
Mohammed Dewji: I’m born and raised in Tanzania, and after graduation in 1998, I worked at Wall Street briefly, with JP Morgan in investment banking. However, I soon realised that this was not for me and there was a big opportunity back home. The low per capita income in Tanzania and rest of East Africa meant that people were only spending on necessities and so I built my business by supplying many fast-moving consumables such as toothpaste, soap, tea, sugar, oils, flour, bicycles, fuel, etc.
Admassu Tadesse: We are a development finance solution and have a lot in common with the African Finance Corporation. We do project finance, corporate finance, long term lending, which is critical for transformational projects, and why our industry is particularly important. But we also do a lot of trade finance, and therefore are a Trade and Development Bank. And we intend to be a more Pan-African than we’ve been in the past. The continent is coming together, and so the real challenge of our beloved continent is unlocking the great potential it carries. It is critical to get the finance to flow into the real economy and the people involved in growing it, creating jobs, and reducing dependency on imports. However, intermediation is a big challenge. Levels of savings in Africa are nowhere near what they should be. One day they will rise like the Asian story, but we’re very far from that. We need to boost African capital and blend it in a way to give more firepower to the entrepreneurs who are going to build the real economy.
Sanjeev Gupta: How did you find yourself and what would you like to see in terms of funding in Africa?
Mohammed Dewji: Liberalization of the banking sector in East Africa was delayed in general, but even more so in Tanzania which was socialist. At the end of 1998, I met the CEO of Barclays Bank Tanzania, who said they could give me a maximum loan of US$2mn (on capital of US$10mn). I could not build what I wanted to with that amount – unlocking finance was a big problem! I went to South Africa and was able to find funding from various institutions and banks there – over 300 million of syndication loans. I haven’t said this anywhere, but my success has come from unlocking that capital. This gave me the power to be able to build and grow the business.
Sanjeev Gupta: Looking at the current high interest rates, tight liquidity and high-risk premiums going forward, what is the outlook? What are the challenges of raising money?
Admassu Tadesse: It is an extremely volatile and difficult time for Africa and the world. We are in an anomaly at present, and we have been sitting with a structural problem in the African economic space for quite some time. There are challenging benchmarks and the lens through which lending is conducted and driven by ratings. Institutions like AFC and TDB have a very important role because we can bring intermediate capital at more efficient levels. We have a de-risking role to play. And we must build confidence to help other partners get involved.
Sanjeev Gupta: Can you break down these two important ways people can engage with Africa – derisking and disintermediation?
Admassu Tadesse: Since we are not dealing with family offices or private investors but with institutional money, it is very structured with many parameters, ratings, metrics, and committees. Another challenge is the difference in the reality and perception of Africa, globally. The premiums that are imposed on Africa are incorrect and too high. It is quite sad to see how that that sort of distortion affects our ability. The BRICS countries are exploring a different rating mechanism, to deal with an unfair world we live in. The African risk premium is higher than Latin America, which is incorrect, since there is not that much difference today in both continents ecosystems. However, African capital has been awakening. This is a silent revolution that has been happening. We’ve seen the commercial banking sector and the development finance industry completely transform over the past two decades.
We now have multibillion dollar institutions like AFC and TDB being able to give attractive returns on equity, including from a triple bottom line perspective. We create impact and emphasise decent financial returns for sustainability. In fact, the overall returns on equity in Africa are amongst the highest in the world. The only thing you have to you do is get through the fear.
Sanjeev Gupta: There is local institutional capacity in Africa today, which wasn’t there 20 years ago. Those institutions are being able to raise money successfully out of global markets and distribute it into Africa, and they are de-risking projects so that money can come in after the de-risking is over. There is a ‘prejudice premium’, which is not going to disappear, and we work around it.
Sanjeev Gupta: Can you share your plans regarding the potential and opportunities not realised as yet?
Mohammed Dewji: There is a big opportunity for Africa to grow more food with its 40% arable land. We also have good water sources and a young population. However, we lack the right mindset and need to create a proper framework for large investors to come into Africa. And of course, we need large amounts of capital. We are planning to grow grains like wheat in Tanzania, Kenya, Uganda, Rwanda, and Burundi. Why are we importing around 5 million tonnes of wheat? Sugar imports are controlled and imports taxed to protect local farmers. They should do the same for wheat. Besides wheat, we are also looking at growing maize, rice, and edible oils such as sunflower, soybean and potentially palm oil.
Sanjeev Gupta: What are institutions doing in terms of resolving the power and logistics challenge?
Admassu Tadesse: Mo talked about this huge potential in agriculture, but without logistics how are you going to move the produce? There is a massive rail and road infrastructure under development across the continent. In East Africa alone, three major rail networks are in advanced stages, with some operational. The standard gauge railway is huge, not only for Tanzania, but will connect the Tanzanian coastal seaboard to a few of the landlocked African countries. Africa is not just super rich in agricultural potential, but also in mining. However, they are very heavy transport dependent, and you need to be able to move large quantities and volumes efficiently.
Sanjeev Gupta: Africa needs infrastructure which needs demand that comes from industrialization. We must start value adding and processing our primary exports.
Mohammed Dewji: Why are we exporting raw resources and not adding value by processing and manufacturing them into goods for export? The Chinese take our cotton, make African clothing and sell it to us.
Sanjeev Gupta: Africa is projected to grow to 2 billion by 2030, and 70% of them are below the age of 20. How can we create more liquidity and capital for young entrepreneurs because that is a big deterrent to economic development, isn’t it?
Admassu Tadesse: The African population will be bigger than China and India combined. It has a demographic dividend aspect, but it can be a curse if the economic opportunities are not unlocked. It is happening slowly through innovations. The microfinance and SME financing space has seen clear innovations that have succeeded in finance. Many African banks have become successful banking the SME segment.
There are very high levels of growth coming out of Tanzania, Ethiopia, Djibouti, Kenya, Rwanda… We’re not at the 45% levels of Asia, but we’re in the 30% in several countries. We just need to be able to create strong incentives so that Africans can keep their capital in Africa.
Sanjeev Gupta: Not only is there domestic capital, but that capital is growing and institutions are providing ways for the savings to be translated into capital in a de-risked manner, because savings don’t automatically become capital. There has to be some mechanism through which savings become capital, and that is happening.
The good news is there is institutional capability and capacity to de-risk and develop projects and bring in investors. There is solidarity, regional cooperation, and synergies between countries. Bad news is that the perception is still a challenge as are some of the governance issues. Africans need to do more to change the narrative. One good thing that is happening is because of all the geopolitics is that the world has suddenly realized that Africa is important.