SHARM EL-SHEIKH: While day one of this week’s COMESA forum presented investment opportunities by highlighting key sectors of interest, day two focused more on doing business, pointing to the obstacles facing the region’s ability to attract and maintain investments.
One word kept coming up throughout the day’s sessions: corruption.
Samih Sawiris, chairman and CEO of Orascom, said that one of the first things to look at when scouting investment opportunities is “how sustainable the [country’s] legal system is and how often the rules of the game change.
“Often for a quick fix politicians will implement ad hoc rules and regulations. If you develop this reputation, you will lose in the long run. Don’t get lured by a quick round of applause because the damages will be long-term, he advised.
“If I can’t do business without bribery, it’s better not to do business in that area, Sawiris said.
Even in countries with perceived high rates of corruption, “you can still manage to do business without resorting to bribery, he said. “In these cases, either team up with the government or stay alone.
“The level of corruption in Egypt does not [impede] people from doing business . we know these claims [about rampant corruption] are not true, he said.
Speaking on the same panel, Festus Mogae, former president of Botswana, said, “Poor people are not corrupt. When we became urbanized and sophisticated, corruption began to rear its ugly head, and then we created the corruption agency. Corruption is always there so you have to always be on the lookout.
Still the same panelists were quick to point out the many positive sides of doing business within the COMESA bloc, which includes 19 member states since its inception in 1994.
While it’s easy to have a pessimistic point of view when comparing Africa to other regions, said Andreas Proksch, director of GTZ in Africa, “outstanding examples like Botswana exist.
Testament to that is the inclusion of three African countries ranked among the year’s top reformers, with Rwanda taking first place and Egypt as well as Liberia in the top 10.
One of the clear distinguishing factors when speaking of Africa, however, is the finance sector. “Access to finance and the cost of financing are the most important challenges to growth; more important than corruption, Proksch said.
Only 20 percent of African households have access to the formal finance sector, he said before quickly adding that this is slowly changing with the emergence of banks and products such as mobile banking gradually opening up the market.
Only around 10 percent of Egypt’s population is banked.
The fact remains, however, that “consistency and predictability are key along with stability and transparency, he said.
Insuring investments
One way of mitigating risks and easing the fears of those wary about doing business in the area is by insuring trade and investment.
Two of the biggest players in the region offering this service – the African Trade Insurance Agency (ATI) and the Export Credit Guarantee Company of Egypt (ECGE) -signed a memorandum of understanding on Tuesday which is expected to boost intra-African trade.
Stewart Kinloch, acting chief executive officer of ATI, explained that with the use of insurance, “we can provide credit enhancement to receivables that can be used by local banks to gain finance.
The agency has a single ‘A’ rating from S&P, which is the credit rating automatically attached to the prospective project, “unlocking financing at better rates.
“Any project we support, banks view it as a single ‘A’ credit rating, as opposed to associating the project with the country’s rating, which in the case of most African countries is lower.
Ola Gadallah, managing director of ECGE, said that their service “facilitates financing of projects with support of our insurance backing . [and allows] exporters to focus on real business while we focus on financing and mitigation of risks.
The company was launched 15 years ago and offers services to Egyptian exporters including credit insurance, import and export factoring, debt recovery and information.
The company offers short- and medium-term financing of up to seven years.
With a combined portfolio of $450 million, their partnership is meant to spur more domestic and foreign direct investment into Africa.
Speaking after the signing ceremony, Gadallah said ECGE’s Africa portfolio has grown from 10 percent in 2008 to 25 percent. ATI on the other hand, has seen business double each year since 2008.
According to a report by the Infrastructure Consortium for Africa, the continent needs spend $93 billion on infrastructure annually. “In 2009, over 80 percent of our political risk cover went to support infrastructure-related projects.
Politically-speaking
At press conference on the sidelines of the forum, leading business players answered questions from the press about their experience in the COMESA region.
Responding to a question from Daily News Egypt about how political stability is factored into their risk assessment of potential projects, the panelists disagreed on whether high-risk investments have the potential of high returns, or are an unpredictable gamble.
Nigel Chanakira, founder and CEO of Kingdom Financial Holdings, said Zimbabwe has largest political risk, which has deterred FDI. “In terms of consistent returns, the more stable countries attract higher FDI, just as in the case of South Africa, he said.
However, he added, while risky, investments in Zimbabwe can prove quite profitable, and “not many bankers take risk; high risk means high returns.
Samih Sawiris disagreed, saying that he would call this “gambling. “The main reason why there isn’t a lot of investment is the lack of stability in COMESA countries, he said. That’s why, “natives have a better chance to live with these risks and react in a way that mitigates these risks.
“Africa is the closest area we can invest in with little competition from other investors, he added, and the best way to offset risks is to deal solely on legal terms, be tough in initial negotiations and make sure it’s all covered by country’s laws.
Chris Kirubi, chairman and executive director of International House Limited, said people need to stop taking media reports at face value and instead visit these countries to assess for themselves.
“We have to become competitive, he added, “Once you remove borders, it will bring automatic challenges, they [countries] will want to attract investments so they’ll want to do better.
Amr El-Barbary, managing director of Citadel Capital, said the private equity firm was the first to go south, investing heavily in Sudan, Ethiopia, Kenya and Uganda in sectors such as agriculture, infrastructure and energy.
