Old Habits Die Hard

Windhoek – A large number of investors from Europe maintain negative perceptions of Africa as a risky investment destination, a recent survey by global professional services firm Ernst & Young reveals.

Analysts at Ernst & Young, in their second “Africa attractiveness survey”, challenge what they term a “stubborn perception” that continues to hamper efforts to attract investment in Africa.
The recently published survey highlights Africa’s growing economic competitiveness and the outlaying investment opportunities in infrastructure development and the abundant natural resources.
E&Y also highlights the positive impact that economic integration will bring to Africa’s growing economic cake, clearly stating that its “unbridled optimism” does not mean sweeping under the carpet the challenges that the continent is still grappling with.
E&Y admits that “Afro-pessimism … has been dominant for too long” and offers that Africa’s is a “positive story that demands telling and re-telling”.
“We have been subjected to negative stories about Africa for far too long,” Ernst & Young says.
The survey reveals that while awareness of Africa’s qualities are changing, the continent is still being viewed as a “relatively unattractive destination compared to most other geographical regions”.
Perceptions, though, amongst investors with a presence on the continent have changed for the better and they rank Africa’s attractive above every other region except Asia.
Those surveyed who do not have a presence on the continent have “overwhelmingly negative” perceptions of Africa.
“In fact, for these respondents, the continent is viewed as by far the least attractive investment destination in the world. They cite risk factors such as political instability, corruption and security as major obstacles,” E&Y says.
E&Y analysts challenge these perceptions and argue that reforms, progress and growth are repositioning Africa as a continent and in terms of the individual countries, which are viable alternatives to other emerging market investment destinations.
Regulatory and economic reforms that started at the turn of ‘90s are continuously reshaping the continent, E&Y contends.
The continent is now far more stable than it was decades ago and a raft of economic reforms and increased financial prudence in the public sector are contributing to lower inflationary pressures, low debts and budget deficits and the strengthening regulatory and legal systems means that most economies are opening up to doing business with international partners.
E&Y says these structural changes are helping invigorate markets and commerce, creating an environment that is increasingly conducive to business and investment.
Improvements in political governance, the commodities boom, rising levels of disposable incomes, rapid urbanisation and a developing services sector have contributed to a continued and a sustainable growth path for Africa, E&Y analysts say.
Of those surveyed, 60 percent said that their perception of Africa as a place to do business has improved over the last three years, though 11 percent said their perceptions had deteriorated.
Some 73 percent of respondents anticipated Africa’s attractiveness to improve over the next three years while only four percent believed it would deteriorate.
Of those who believe that Africa’s growth prospects in the near-term are significantly positive, half have a dedicated strategy in place and 92 percent have an active presence on the continent.
But in as far as Africa is compared to other regions, the perception gap is still strong, E&Y says.
“When comparing Africa to other regions, both developed and emerging, Africa is viewed as relatively unattractive, in comparison to most other regions in the world, comparable only to former Soviet states as an investment destination,” E&Y says.
In relation to other regions, the continent still has a lot of work to do to improve global perceptions. While investors with a presence in Africa rank only Asia as a relatively “most-attractive investment destination”, those without a presence are overwhelmingly negative “to the extent that it actually distorts the overall result”, E&Y says.
“In fact, for those respondents with no business presence in Africa, the continent is viewed as by far the least attractive investment destination in the world.
“Breaking these negative perceptions down to account for regional differences, potential investors from Europe are the least positive about Africa’s relative investment attractiveness.
North America investors are somewhat less so, ranking Africa as more attractive than Middle East, and Asian investors rank Africa ahead of the former Soviet states and Central America and on a par with Eastern Europe.”
Negative perceptions are centred around political risk factors, corruption, weak security, ease of doing business, local access to finance, tax regulations, and bottlenecks to movement of goods and people across borders.
The survey also reveals that even though FDI into Africa year-on-year rose by 27 percent, the whole of Africa only attracted a miniscule 5.5 percent of global FDI in 2011 up from 4.5 percent the previous year.
Africa attracted fewer FDI projects than India and a little more than half as many as China. Since 2003, Africa has only attracted 4.3 percent of global FDI projects, compared with India’s six percent and China’s 10.5 percent.
“One key factor is the perception gap between negative historical beliefs about the continent, and the positive reality of the African continent growth story over the past decade. As a result, many investors still seem to approach Africa with greater caution than they do other rapid growth markets and regions,” E&Y analysts say.
E&Y analysts challenge the overall negative perception of a politically unstable, corrupt and challenging business environment.
They argue that the continent’s democratisation is real and is characterised by a significant decline in armed conflicts across the continent.
While corruption is undoubtedly a major challenge in Africa and across the world, E&Y says the “perceptions that corruption is rampant across the continent, or that African countries are inherently more corrupt than other rapid growth markets, do need to be challenged”.
They cite Transparency International’s corruption ranking which recently ranked 14 African countries higher than India and 35 higher than Russia.
Based on a 2011-12 weighted average score on “irregular payments and bribes”, Botswana, Cape Verde and Rwanda all rank ahead of the United States. The three countries, as well as Gambia, Mauritius, Namibia and South Africa, rank ahead of Brazil and China. Sixteen African countries including Ethiopia, Mozambique and Zimbabwe, rank ahead of India and 19 are ahead of Russia. E&Y analysts have some choice words of advice to would-be investors in Africa.
“There are no doubt those that will accuse us of unbridled optimism, pointing to the very real challenges that still remain.
“Yes, we are optimists, but we are realistic optimists ‑ our perspective is deliberately a half full glass rather than a half empty one.
“This is partly a response to the Afro-pessimism that has been dominant for too long, but mainly because we believe that it takes a positive mindset to success in Africa. If you set out expecting difficulty and risky, you will find it.”
 

November 2012
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