Africa's FDI trickle to turn into a torrent
There has been an increase in confidence by foreign investors in Southern Africa
One of the problems in the investment discourse is that Africa is commonly thought of and referred to as a homogenous destination. Furthermore, the continent is generally perceived as being as a gigantic importer of capital, given its general nature of development, and while there is sufficient knowledge about some of the opportunities that are available, the thesis is normally "framed" under the context of being that of investment inflows under a regulatory regime that is euphemistically referred to as "caveat emptor".
Nothing could be further from the truth. Africa represents a kaleidoscopic number of countries and cultures. While on the whole, the continent is resource rich, there have been success stories in countries (such as Botswana) which have advanced regulatory regimes and purchasing power parity levels equivalent to that of many first world countries. Given the sophisticated investment mindset, in recent years, there has been an export of capital from these countries to other parts of the world.
It has been the source of some amusement for me that when I have spoken to investors in Southern Africa, the knee jerk response has historically been that it's too volatile, which is exactly how investors in Dubai have long reacted when the topic of investing in Southern Africa has been invoked. In most cases, the problem has been about the asymmetry of information, something that both governments have taken steps to overcome in recent years.
In this context, Dubai has been viewed with increasing interest, especially in light of the reforms that have been put in place in the real estate and the financial sector; reforms that have moderated the price cycle and made the asset class more favourable for institutional investors. From pension funds to publicly listed real estate investment trusts, the conversation in recent months has been about allocating monies to real estate in Dubai and the UAE, with a view to capitalise on the higher-than-normal rental yields that are currently on offer, in tandem with regulations that have made the city more transparent as a destination to invest in.
It is pertinent to note that these conversations have not been limited to real estate alone; indeed there have been agreements ranging from F&B to gemstones and retail, with a flurry of agreements that have been signed in recent months; a mere fraction of what the potential is.
Given the sluggishness that has been witnessed in the domestic economy in the last year, there has been even more scepticism that has been expressed by traditional investors about factors such as oversupply in a number of sectors (ranging from real estate to retail). It is exactly these factors that have led to an increase in confidence by foreign investors in Southern Africa. Though that may sound somewhat paradoxical, it reveals a mindset of sophistry; conversations about investment inflows are against the backdrop of a moderated price cycle, under the context of growth that is more visible and in a regulatory regime that is more transparent than most first world jurisdictions.
Dubai's advantage has always been its open borders approach that has allowed for a free movement of goods, people and monies. It has built on this strength with a superior infrastructure; it is, therefore, puzzling that companies (from real estate to retail) that have looked for capital for their various projects have for the most part ignored the potential that Africa (and in particular Southern Africa) has to offer. From the vantage point of the stable long-term investor, Dubai has all the benefits that these investors are looking for; it is likely that the trickle of foreign inflows that have already started will turn into a torrent in the next few years. Domestic players would do well to capitalise on this trend.
The author is the chief investment officer of GCP Group. Views expressed are his own and do not reflect the newspaper's policy.
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