S UB -S AHARAN A FRICA

(SSA)

KE NAKO IT’S NOW OR NEVER

proposed by Matthieu Delouvrier February 2013

Megatrend: it is the dawn of SSA

Working-age population worldwide 7 000 000 6 000 000 5 000 000 4 000 000 3 000 000 2 000 000 1 000 000 0

7% 23% 14% 22% 34% 11% 33% 18% 21% 17%

More developed regions

Source: United Nations

China India ROW SSA

36% 28% 15% 9% 12%

2

SSA GDP is in top 20

GDP current

France Brazil India Spain

SSA

Mexico Korea Indonesia Turkey 2.6

2.4

1.9

1.3

1.3

1.2

1.1

0.9

0.8

Some references

(USD trillion in 2012)

GDP current PPP

India Brazil France

SSA

Mexico Korea Spain Indonesia Turkey 4.7

2.5

2.2

2.1

1.7

1.6

1.4

1.2

1.1

Source: IMF WEO Oct 2012

3

What do we see today?

4

SSA countries show the highest growth

Ten fastest growing countries*

(Annual average GDP growth rate in %)

2001-2010

Angola

China Myanmar

Nigeria Chad Ethiopia

Kazakhstan

Mozambique

Cambodia

Rwanda 11.3

10.5

10.3

8.9

8.6

8.3

8.3

8.0

8.0

7.8

2011-2015 (f)

Iraq

Ghana

China

Mozambique Guinea Rwanda Niger Zambia DR Congo

Cambodia 11.0

9.4

8.5

7.8

7.6

7.6

7.4

7.4

7.2

7.0

•

Countries with population above 10 million Source: IMF WEO Oct 2012

5

The trend is very supportive

GDP growth of SSA countries

(Annual GDP growth rate in %)

2 1 5 4 3 8 7 6 0 -1 -2 1980 1985

Source: IMF WEO Oct 2012

1990 1995 2000 2005 2010

Forecast

2015

6

Big industries are paving the way

Sales of SSA biggest companies (US $ bn) 600 500 400 300 200 100 0

CAGR

7.3% 5.7% 2007 South Africa

Source: The Africa Report - Top 500 African companies

2011 SSA (excluding South Africa)

. South Africa companies remain largely dominant.

. Oil and mining: 33.2% of sales.

. FTSE ASEA Pan Africa index increased by around 20% in 2012.

7

Technology (mobile) is breaking through

Mobile: the door to modernity

Source: MobileMarketingWatch

. Africa has twice as many mobile phones as the USA.

. Mpesa (Kenya) has become a global leader in mobile banking and is selling its technology to India.

. Mobile phone is decreasing costs, improving efficiency.

. Nigeria is distributing subsidized inputs to 1.5 million farmers through cell phones.

8

Entrepreneurs are building success stories

Mr. Dangote ranked 76th world richest*

*Source: Forbes

. Current activities: cement, sugar, flour, salt….

. Company expected to be listed on the London Stock Exchange in 2013.

. February 2013: signature of a strategic agreement with General Electric to collaborate on power, transportation and oil & gas.

9

Entrepreneurs are dedicated to the continent

Mr. Mo Ibrahim created his Foundation

. Mr. Mo Ibrahim made a remarkable success in mobile telecommunications with Celtel which was sold in 2005. . The Mo Ibrahim Foundation was created in 2006 to stimulate good governance and leadership in Africa.

10

The culture industry is not left over

NOLLYWOOD: the star of Afrotainment The second largest film industry in the world

. Second largest employer in Nigeria . 56% of movies in local language . Average DVD sale: 25-50,000 copies . 300 producers . Above 1,000 films per year . Average cost: US$ 20,000 per film 11

The middle class is driving growth

Middle class size in Africa (million) 350 300 250 200 150 100

157

50 0 1990

Source: African Development Bank

204

2000 +60%

326

2010

. Middle class expected to double in 20 years.

. Consumer spending (US$ 1tr) similar to India, higher than Russia.

. Passenger cars import in SSA increased by 25%+ in Q4 2011 (YOY) and 250%+ in Rwanda.

. Nestlé invested US$ 1 bn in 2011.

12

The overall security has improved

1980-89 Conflicts are regressing 2000-09

Source: Uppsala University

. The number of deaths by violence has decreased due to the reduction of conflicts and their intensity following the democratization of the continent.

. Successful coups in Africa were down from 20 during 1980-89 to 7 during 2000-09.

13

Growth is not inclusive enough

Extreme poverty headcount ratio (%)

Sub-Saharan Africa East Asia & the Pacific Required Millenium Development Goal progress

Source: World Bank 2012

. The ILO* estimates that between 2000 and 2007, the working age population grew by 96 million but only 63 million jobs were created.

* International Labour Organization

. Unemployment hits the youth.

. Most countries are not on track to achieve the Millennium Development Goals by 2015.

14

Political and civil rights are not progressing

Classification of countries

2012

18% 43%

2002

17% Free

Source: Freedom House

47% Partly free 39% 36% Not free

. During the last ten years, political and civil freedom has not improved significantly.

. On the other side, many elections held in 2011 showed that peaceful political alternation is possible.

15

What are the drivers of change?

16

Macro policies have produced results

Foreign exchange reserves / External debt 70% 60% 50% 40% 30% 20% 10% 0% 1990 Foreign exchange reserves / External debt

Source: IMF, World Bank data

2011 External debt / GDP

. Debt reduction strategies together with external trade oriented policies resulted in a dramatic improvement of SSA countries savings and solvency.

. All recent sovereign bond issues are oversubscribed.

. 9 sovereign wealth funds created. 10 to be created soon. 17

Foreign financing to SSA has surged

Destination of funds: public vs private

Source: IMF

. Foreign flows: x10 in 10 years.

. Remittances: over US$ 30 billion per year.

. Funds going to the private sector: average return on investment is the highest in the world.

18

Intra-African foreign direct investment is emerging

Number of projects

. The share of intra-African investment has more than doubled in the last 8 years at the expense of developed markets.

. Leading investors come from South Africa, Nigeria and Kenya.

19

There is a dramatic shift in trading partners

Destination of SSA exports

Excluding oil exporting countries Oil exporting countries

Source: IMF

. Current switch from Europe to BICs. Trade, not aid. Resources driven. . Intra-African trade still low despite efforts of economic communities.

. Diversification of partners has been an engine for growth: reduction of export volatility, better terms of trade, scale economies.

20

Investment in infrastructure has been crucial

The future new air terminal in Lomé, Togo

. Infrastructure contributed to 50% of SSA past growth.

. Current annual spendings: US$ 45 bn.

. Improving infrastructure halfway to regional best practice (Mauritius) would increase GDP by 4.4%*.

* World Economic Forum 2013 21

Africa has a buried treasure

A vast potential in underground resources Oil Gold Chromium

&

Platinum 10% 40% 80%

to

90%

Share of world reserves

Source: Mc Kinsey Global Institute, June 2010 . Africa is not richly endowed with major minerals like copper, lead, zinc.

. Africa’s mining sector accounts for just 10% of the world production.

. «African subsurface per ground km² is estimated at around $25,000 compared to $125,000 in developed countries»*, showing that Africa is underexplored.

* Collier and Venables, 2008 22

Africa can help feed the world

438 SSA: 45% of the potential available land 326 89 456 736

Global surface in millions of ha

2,047 46% 54%

Source: FAO, Fischer and Shah 2010

. Productivity can be boosted: no country in Africa is now achieving more than 30% of the potential yield on currently cultivated areas

(World Bank)

.

Potential arable land Cultivated land . Africa is ripe for a green revolution and the first stage of this revolution is the land rush we are witnessing now.

23

Labor productivity has been unleashed

Evolution of productivity

1 Used working age population (15-64) as a proxy for labor force Source: Conference Board World Economy Database; McKinsey Global Institute

. For the first time since the eighties, productivity of labor increased, and at a higher pace than labor force.

. This gives scope for increased per capita revenues.

24

Demography supports general productivity

Dependency ratio Non working population (<15;64<) for 100 people at working age (15-64) 100 90 80 70 60 50 Brazil Western Europe China India Sub-Saharan Africa 40 30

Source: United Nations

. Today, SSA has the worst dependency ratio. Twice as much as China.

. However, it is constantly declining since 1985, giving a boost to Africa’s competitiveness.

25

Urbanization is stimulating growth

The development of cities in Africa

. The advantages of the city: it is more cost-efficient to manage transport, food distribution and most services.

. Labor is available.

. If urbanization triggers higher productivity, it is a big challenge.

26

Efforts are made for better education

Secondary school gross enrolment rates

Source: United Nations, Renaissance

. SSA at the level of Mexico, Turkey in 1975.

. But there are still concerns about quality: facilities, teachers.

27

Better health fosters productivity

Fighting against malaria: a prominent example

In Ghana, the mining company AngloGold Ashanti invested around US$ 7 million in a comprehensive program against malaria with the following results:

2005 2009

Cases in AngloGold’s hospital

(number per month)

6,603 1,146

Drug expenditures

(US$ per month)

Work days lost

(number per month)

55,000 6,983 9,800 282

. In Africa, Malaria mortality rate was reduced by 33% since 2000.

. Life expectancy at birth in SSA: 49.5 in 1990; 49.7 in 2000; 54.2 in 2010.

. Experience shows that investment in water, sanitation and health yields between 4$ and 60$ per 1$ invested.

28

Trade integration is slowly taking off

Total bilateral African trade

Source: Ernst & Young’s 2012 Africa attractiveness survey. Total respondents: 505

2002 2003 2004 2005 2006 2007 2008 2009 2010

. Africa has integrated with the rest of the world, mostly selling commodities, faster than with itself.

. Nevertheless, intra African trade has grown at the same pace as all African trade at 17% a year for the last 10 years.

29

Perception is still a big obstacle

Perception of Africa relative to other regions

Africa is less attractive than … Africa is more attractive than …

Asia North America Middle East Western Europe Latin America Eastern Europe Central America Former Soviet States -50 -40 -30 -20 -10 Respondents with no presence in Africa 0

Source: Ernst & Young’s 2012 Africa attractiveness survey. Total respondents: 505

10 20 30 Respondents wth a presence in Africa 40

. For investors with no presence in Africa, the continent is still viewed as relatively unattractive against all regions.

. It is the contrary for investors having knowledge of Africa.

. Major factors: political instability, corruption, difficulty of doing business. 30

What to do next?

31

So many things to do! - The governance challenge

Millenium Development Goals Employment HIV Social protection Justice Gender equality Capital availibility Education Housing Fiscal policy Food Corruption Public management Security Competitiveness Health care Infrastructure Natural resources Regional integration Entrepreneurship

SSA needs faster, more inclusive growth

32

Implement a new public management method

SSA’s absorption capacity is far too low

SSA needs to implement countless projects to boost its development Foreign/local funds and partners are increasingly available   Despite this very favorable context, the result has been disappointing: too many projects take too long to implement when they do not fail.

Governments need to implement a new management

method focused on the rapid execution of development projects with the creation of highly specialized teams:

Project Delivery Squads

33

Innovate in infrastructure finance

Infrastructure density in SSA is weak 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

(as a percentage of the density of other low income countries) Source: Economic Commission for Africa, African Union 2012

. Another US$ 40 billion per year need to be mobilized. Possible sources: China, investment funds, local… . Principle: bottleneck hunting, defragmenting the space (create regional spaces), cost cutting.

34

Care about cities, strengthen local governments

Urban rural population are growing in SSA 2 000 000 1 800 000 1 600 000 1 400 000 1 200 000 1 000 000 800 000 600 000 400 000 200 000 — Urban = 36% of total Rural population Urban population

Source: United Nations data

. Urban population growth: 3.7%. . People need housing, water, power, food, jobs… . Urban planning, land use regulation, property rights… are urgently needed.

Revolutions come from cities

35

Africa is a continent, not a country A Country Assessment Framework to measure diversity

36

The macro environment

Insufficient Sufficient

Level of growth 80

1

Cape Verde Botswana

4

75 70 Seychelles South Africa Namibia Ghana 65 60 55 50 45 40 35 30 -5.0

Swaziland Mali Madagascar Senegal Guinea-Bissau Benin Malawi São Tomé and Príncipe Lesotho Zambia Burkina Faso Uganda Gabon Kenya Mozambique Tanzania Rwanda Gambia Burundi Comoros Togo Guinea Congo Ethiopia Cameroon Angola Côte d'Ivoire Niger Nigeria Liberia Equatorial Guinea

2

Chad Central African Republic DR Congo Eritrea Zimbabwe -2.5

0.0

2.5

5.0

Average

3

7.5

GDP growth (average 2011, 2012, 2013) minus current urban population increase

(Source: World Bank data) 37

The business environment

Low risk High risk

Resource curse 20

1

40 South Africa Rwanda Ghana 60 Botswana 80 Namibia Zambia 100 120 140 160 180 Kenya

2

Swaziland Uganda Ethiopia Lesotho Gambia Senegal Benin Madagascar Niger Guinea-Bissau Tanzania Togo Sierra Leone Malawi Zimbabwe Burkina Faso Côte d'Ivoire Mozambique Liberia Mali Cameroon Burundi Central African Republic Guinea Nigeria Angola DR Congo Chad 200 1 %

Bubble: size of GDP

10 % Weight of natural resources in the GDP

(Log)

(Source: World Bank Data, 2010)

Gabon Congo

4

Average

3

100 %

38

« The risk of not going to Africa is to find that it is too late to get there ».

Lord Boateng, former British High Commissioner in South Africa and director of Aegis Matthieu Delouvrier Swensee [email protected]

39

References

.

Africa’s natural resources in a global context

, Raf Custers & Ken Matthysen, IPIS, August 2009.

.

Land grab or development opportunity

?, Lorenzo Cotula, Sonja Vermeulen, Rebeca Leonard and James Keeley, iied, FAO, IFAD, 2009.

.

Sustainability and security of the global food supply chain

, Rabobank, 2010.

.

The World Health Report

, World Health Organization, 2010.

.

China, Africa and the International Aid Architecture,

Deborah Bräutigam, African Development Bank Group, April 2010.

.

Rising Global Interest in Farmland

, World Bank, September 2010.

.

Sub-Saharan Africa: Resilience and Risks,

Regional Economic Outlook, International Monetary Fund, October 2010.

.

African acceleration,

Société Générale, October 2010.

.

Top Banques

, African Business, October 2010.

.

The struggle underground

, The Africa Report, October 2010.

.

Anticipated trends in the use of global land and water resources

, F. Nachtergaele, J. Bruinsma, J. Valbo-Jorgensen, and D. Bartley, FAO, 2010.

.

China in Africa, A Macroeconomic Perspective,

Benedicte Vibe Christensen, December 2010.

.

Africa, The new frontier for growth,

Accenture, 2010.

.

Africa’s Infrastructure, A Time for Transformation

Développement, 2010.

, Vivien Foster and Cecilia Briceño-Garmendia, World Bank, Agence Française de .

Africa’s impressive growth

, The Economist, January 2011.

.

Fulfilling Africa’s Potential,

Goldman Sachs Global Economics, January 2011.

.

The Mining sector, an opportunity for Growth in Africa?

, Proparco, January 2011.

.

Africa‘s Future and the World Bank‘s Support to It

, World Bank, February 2011.

.

It’s time for Africa

, Africa attractiveness survey, Ernst & Young, March 2011.

.

Economic Report on Africa 2011

, Economic Commission for Africa, African Union, March 2011.

.

Africa Progress Report 2011

, Africa Progress Panel, April 2011.

.

Sub-Saharan Africa: Recovery and New Risks

, Regional Economic Outlook, International Monetary Fund, April 2011.

.

Africa’s pulse

, World Bank, April 2011.

.

The Middle of the Pyramid: Dynamics of the Middle Class in Africa

, African Development Bank, April 2011.

.

Foreign aid, trade and development, The strategic presence of China, Japan and Korea in sub-Saharan Africa

, Dr. Johan Lagerkvist, The Swedish Institute of International Affairs, April 2011.

.

Agribusiness for Africa’s prosperity

, UNIDO, May 2011.

.

Transformation through Infrastructure

, Issues and concept Note, World Bank, June 2011.

.

African Agriculture: From Meeting Needs To Creating Wealth

, Mo Ibrahim Foundation, 2011.

.

Private equity and investment in Africa

, Yingni Lu and John Battersby, SouthAfrica.info, July 2011.

.

Africa, The bottom billion becomes the fastest billion

, Renaissance Capital, July 2011.

.

Africa in 50 Years’ Time, The Road Towards Inclusive Growth

, African Development Bank, September 2011.

.

Rising Global Interest in Farmland

, World Bank, September 2011.

.

Sub-Saharan Africa: Sustaining the Expansion

, Regional Economic Outlook, International Monetary Fund, October 2011.

.

Growth and poverty reduction in Africa in the last two decades

, Andy McKay, University of Sussex, December 2011.

. Africa’s population, Miracle or Malthus, The Economist, December 2011. 40

.

World Investment Report

, UNCTAD, 2011.

.

Classement des Banques

, Jeune Afrique, 2011.

.

Yes Africa can

, World Bank, 2011.

.

The Africa Competitiveness Report 2011

, Africa Commission, World Economic Forum, 2011.

.

Will the lion roar in 2012?

, African Business, January 2012.

.

Growing with Africa’s consumers

, Bain & Company, February 2012.

.

Defragmenting Africa

, Marcelo Giugale, Huffington Post, February 2012.

.

BRICs’ Philosophies for Development Financing and Their Implications for LICs

, Nkunde Mwase and Yongzheng Yang, International Monetary Fund Working Paper, March 2012.

. Economic Report on Africa 2012

, Economic Commission for Africa, African Union, March 2012.

.

Building Bridges,

Africa attractiveness survey, Ernst & Young, March 2012.

.

Sub-Saharan Africa: Sustaining Growth amid Global Uncertainty

, Regional Economic Outlook, International Monetary Fund, April 2012.

.

How can Africa compete with China

, Marcelo Giugale, Huffington Post, April 2012.

.

Africa Losing Billions of Dollars Due to Trade Barriers

, Mohammed Suleman, allafrica.com, April, 2012.

.

The New Business of Africa: Markets and People transforming the continent

, Fair Observer, May 2012.

.

Jobs, Justice and Equity

, Africa Progress Panel, June 2012.

.

Waking up to the maths of malaria

, Ed Cropley, AlertNet, June 2012.

.

Sub-Saharan Africa Region

, Global Economic Prospects, World Bank, June 2012.

. Assessing Africa’s Policies and Institutions, CPIA Africa, World Bank, June 2012.

.

The Millennium Development Goals Report

, United Nations, July 2012.

References

.

African Economic Outlook 2012

, OECD, 2012.

.

Global Development Finance 2012

, World Bank, 2012.

.

Inclusive Wealth Report 2012

, UNEP, UNU-IHDP, 2012.

.

Assessing Progress in Africa toward the Millennium Development Goals

, MDG Report 2012, Economic Commission for Africa, Africa Union, African Development Bank, UNDP, 2012.

.

Africa Human Development Report 2012

, UNDP, 2012.

.

World Development Indicators

, World Bank, 2012.

.

World Investment Report

, UNCTAD, 2012.

.

Is Africa’s Recent Economic Growth Sustainable?,

Ifri October 2012 .

Global Trends 2030, Alternative Worlds

, National Intelligence Council, December 2012.

41