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Infrastructure

Infrastructure

Africa is on the move

Globalisation is not passing Africa by. Investments in the continent are turning out to be increasingly attractive, according to Joseph Mbuyi, Director of the KfW IPEX-Bank Representative Office in Johannesburg. He finds the continent's development encouraging.

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Joseph Mbuyi is director of the KfW IPEX-Bank Representative Office in Johannesburg and has his eye on the market and an ear for his clients.

Africa – over one billion people live on this continent which makes up more than one fifth of the planet's entire land surface. Many of them still live in poverty, but change is in sight. The African population is making increased attempts to stimulate their own economic development and participate in the move towards globalisation. In fact, this large continent is becoming an increasingly promising trade partner, sales market and investment location for German and European exports. It is true, however, that Africa's 55 countries mean it cannot be seen as one homogenous whole.

Key topics for investors, such as, infrastructures and established institutional conditions like legal security, reliable payment transaction systems or a functioning tax system, are very different in many African countries, particularly in sub-Saharan Africa. And even if relatively advanced economic conditions such as those in South Africa, Kenya, Tanzania and to some extent Nigeria are created, high fluctuations in the exchange rate and, in particular, corruption scandals, appear to frighten away international investment.

Financing experts from KfW IPEX-Bank

Joseph Mbuyi and Christian Bevc speak about the enormous potential for growth in Africa and the infrastructure desperately required there (KfW Group/Bernd Kliebhan).

Still, the West would do well to look more closely and with greater interest at the area of the continent south of the Sahara. And it should not only keep its eye on one of the largest, most developed economies in there: South Africa. The country certainly offers excellent conditions for the private sector with its substantial number of natural resources. It also has a diversified industry and a regulated financial sector with an independent central bank. Given South Africa's situation, it is no wonder that many companies use the country as a spring board into the African market, primarily into countries of the Southern African Developing Community (SADC) which together include more than 240 million people.

And yet other countries in sub-Saharan Africa also offer attractive opportunities for direct investment and exports. For European, and German companies especially, the region entails an interesting growth market in which their product quality is met with particular appreciation. The key to tapping into these countries is to hedge exports and projects using reliable cover instruments from state export credit agencies (ECAs). Most European ECAs are very supportive of investments in this part of the continent. In addition to business risks, they also provide hedging for political risks. A loud and clear signal for the European export industry.

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Number of people employed by German companies in Africa

Opportunities for investment are also available through the cooperation of financing partners with local, regional and multinational banks. These partners are able to present themselves as intermediaries for large-volume, commercial financings. The Rwandan airline company benefited in 2016 from a special structuring form (on-lending). KfW IPEX-Bank provided the Trade and Development Bank (formerly the Eastern and Southern African Trade and Development Bank – PTA Bank) with a loan for two wide-body Airbuses. The Trade and Development Bank in turn channelled the funds as debt capital to the local airline RwandAir.
These kinds of supranational financial institutions, such as the PTA Bank founded in 1985, aim to make funds and services available for developing the economy in eastern and southern Africa. Their solid balance sheets and good prospects make it easier for suppliers and investors to gain a foothold in African countries.

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KfW IPEX-Bank supports European exports to and German direct investment in Africa.

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Although the countries located in sub-Saharan Africa are still in a very heterogeneous stage of development, and are facing large, key issues such as health, security and education, it is quite clear that these markets require large amounts of investment on the one hand, yet offer enormous sales opportunities on the other.

Key issues regarding local infrastructure and energy can seldom be solved without the involvement of foreign economic partners. Sub-Saharan Africa is already busying itself with the construction and expansion of transport routes and mobile networks, renewable energy use such as wind and solar power, waste disposal and processing or raw material utilisation. Africa is still at the starting line when it comes to many of these issues, which is an incredible opportunity for the economy and society.

Published on KfW Stories: Monday, 26 June 2017