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Sat 2 Apr 2016 06:13 PM

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Finding Africa's diamond in the rough

There is much chatter about investing in Africa these days but navigating one of the world’s newest business environments is no easy task. Robert Hersov, founder of the exclusive networking club Invest Africa, says he is the man to bridge the links.

Finding Africa's diamond in the rough
Hersov has developed close relationships with businesses across different African regions.

Robert Hersov declares himself the “unelected mayor of Africa”. For years, the South African native says, he has trumpeted the continent, spurring businessmen abroad to invest there. But it was only recently that he himself trusted his homeland.

“All my family live in Africa, in various parts. For many years I tried to externalise my life, my education, my wealth, because in the 70s, 80s, 90s, there was a big question mark over Africa: is it collapsing? Is it turning into the inevitable corrupt, inefficient, basket case that everyone expected? So I decided to make my life an international life but I was always drawn back to Africa,” Hersov says.

Although he is still based in London, three years ago Hersov cleared his slate to create Invest Africa and now spends his waking moments encouraging and assisting hundreds of foreign investors to move into Africa. Through the exclusive club he created in 2013, he and fellow advisors including entrepreneur Ashish J Thakkar, former Barclays chief executive Bob Diamond and former UK ministers, introduce members to African heads of state and helps to seal deals worth tens of millions of dollars.

“We’re creating the bridge between the UAE and Africa and I’m the mayor,” Hersov says the morning after a dinner party for prospective members in Dubai.

The emirate is set to become one of the most important pillars of that bridge. Invest Africa recently launched a new office to target the growing number of Asian and Gulf businesses using Dubai as a launch pad into Africa due to its proximity and efficient business environment. About 50 members based in the UAE already have signed up and Hersov says that figure will double by the end of April. He expects 125 to be “the right number”.

The emirate, paired with Abu Dhabi, is the new frontier for investing in Africa, he says.

“The UAE, and particularly Dubai, has become the second most important centre for investing in Africa; the first is London [because] all the funds and financial institutions are there, but increasingly the second most important is Dubai,” Hersov says.

“A number of businesses from Asia and South Asia are setting up offices here and investing in Africa. So you’re getting a lot of strategic investors and operating investors using Dubai as an important financial platform for investing in Africa. They’re [also] starting to influence the Gulf investors; more and more people are talking Africa, more and more people are having success in Africa and that’s why we’re here.

“I’m very keen to build Invest Africa in Dubai and Abu Dhabi because this is such an important centre for investing in Africa and the Gulf investors are showing real interest. The trend is up.”

With a consumer market of 1 billion people, Africa has become the second most attractive investment destination globally, ranking just behind North America, according to the World Bank. A record $87bn of foreign direct investment (FDI) flowed into most of the region’s 54 economies in 2014; $60bn of that went to Sub-Saharan Africa, five times the 2000 level, according to the World Bank.

Hersov says FDI into Africa slowed last year due to the downturn in China — which has by far led investment into the continent — the emerging market currency crisis and lower oil and gas prices. However, interestingly, intra-Africa merger activity increased fourfold to $20bn.

But even as China pulls back, creating greater opportunities for outsiders, the Middle East falls far short of its potential in Africa. A growing number of commentators, including investors, suggest that Arabs, particularly in the Gulf, have had it too easy at home to be concerned with Africa. But the lower oil price, which has seen a slowdown in local construction and government spending, is compelling them to gradually shift their sights south. Hersov says Arab markets have been sufficiently lucrative that navigating an entirely new and different business environment has so far not been warranted, and secondly, the “perceived” risk, as he prefers to describe it, has been considered too high.

“The Middle East has been exceptionally generous to Africa, but a lot of it’s been based on aid,” Hersov says. “African prime ministers and presidents have come here cap in hand and the Middle East, particularly the UAE, has been extremely generous. The problem is there’s no focus on return on investments, there’s no discipline in investing, it’s just aid and what Africa wants is investment, not aid. Hospitals get built, but they don’t get opened, projects get financed but there’s no decent management so there’s no sustainability or continuity, and it’s been handouts. I think that’s changing.”

Hersov says Africa presents a wealth of opportunities for Gulf investors, particularly in agriculture. A lack of water means the majority of food products are imported to the Gulf, and Africa’s close proximity and expansive arable land makes it an attractive location to plant the region’s food security.

For example, Saudi Arabia’s water shortage has caused the government to ban the farming of some products in the kingdom. Some Saudi dairy farmers have looked abroad to cultivate alfalfa used to feed cows, that then produce dairy and meat products, but their lack of interest in Africa has left open a huge whole of opportunity for other investors.

“Alfalfa requires three things — land, sun and water,” Hersov says. “If you’re right next to the Nile in Sudan, you’ve got infinite amount of land, infinite amount of sun and almost infinite amount of water because Sudan barely uses its allocation of the Nile. I’ve got Lebanese and Sudanese friends who are building large alfalfa operations in Sudan for export to Saudi, the Middle East, the Gulf — it’s a great business, very profitable.

“Sixty percent of the world’s arable land is in Africa. So we have an extraordinary opportunity in Africa to monetise our arable land.

“A lot of the challenges there are to do with logistics - the bad rail system, the bad road system - how do you get the product from the farm to the market, locally and internationally. But that also presents investment opportunities.”

Yet still more work is required to convince some Arabs of the benefits of investing in Africa, and Hersov says that is also part of his responsibility.

“We’re here to evangelise Africa in the right way, to say, ‘look there’s risk and there’s perceived risk and the perceived risk is way higher than it ought to be and the real risk is way lower than you think it is’,” he says.

“I would much rather invest in [particular] countries in Africa than ever invest in Brazil, Russia or China. Remember BRICS [Brazil, Russia, India, China and South Africa]? The only country in BRICS that’s investable right now is India. You’d be absolutely crazy to invest in Russia and China right now, crazy. And anyone who has is probably writing-off their investments, you’d just get eaten alive there.

“But in Africa, in most cases, you have recourse to Anglophone or Francophone law, there is very little abrogation of contract at all in Africa; once you agree to a deal with the government or agree to a deal in the market, people stick to it.”

While Brazil and Russia have sunk into recession and China’s growth has slowed from double-digits to about 7 percent annually, Africa has continued a steady pace at an average 4-5 percent. The World Bank says macroeconomic policies and sector reforms that have emphasised economic diversification, improved productivity and the adoption of policies that aid the poor in the past two decades have proven that many African economies can sustain economic growth independent of the commodities super-cycle.

Five African countries were among the top ten improvers globally in the 2015 Doing Business rankings and, overall, Africa accounted for the largest number of regulatory reforms — 75 of the 230 worldwide.

But Hersov agrees it would be remiss to imagine there are no risks in Africa.

“There’s the currency risk, there is corruption and bribery, but it’s small scale. It’s way worse in Russia and China,” he says.

Violence and extreme poverty in some parts also are blinding potential investors unable to differentiate between the 54 countries that make up the vast continent.

“That’s the big problem we have — we’re one giant continent of 54 countries. It’s just too hard,” Hersov says. “What happens is you get Ebola in three countries in West Africa and people cancel holidays to Cape Town. How dumb is that?”

“My dream is to be able to package the African story in a way that everyone can understand and not just the sophisticated. Who knows where the Gambia is? Or Guinea Bissau? How’s anyone going to know where those countries are or care about them, to be blunt. But how can I tell the African story to make it clear and organised and efficient and transparent for the average person? It’s a very hard story to tell.”

Many governments are working to promote their countries but getting the message to stand out amongst the noise is difficult.

“It’s very hard. Take the Namibian government — a country [with a population of 2 million]. How do they tell their story versus Rwanda [11 million], versus Senegal [14 million]? It’s very hard to get their message out,” Hersov says.

Now-infamous charity advertisements that have made images of starving children synonymous with Africa make Heslov’s job even more difficult.

“That does Africa no good whatsoever,” he says. “We should be showing modern buildings, well-built roads, ports that are humming along, products that are being sold and great technological developments that are happening in Africa. That’s the new Africa.”

Democracy — typically a key component of a business-friendly country — has improved. A generation ago about one-third of African countries were democratic, today two thirds are, although countries such as Zimbabwe and Uganda arguably are wrongly included in the count. Leadership and governance have improved in the past decade, and there have been numerous experiences of peaceful political transitions.

However, the Ibrahim Index of African Governance, established in 2000 by Sudanese billionaire Mo Ibrahim to highlight African leadership and to hold heads of state to account, shows overall governance progress in Africa has stalled since 2011, following year-on-year progress between 2000-2008.

Notably, while the sub-categories human development and participation and human rights both improved between 2011-2015, safety and rule of law and sustainable economic opportunity — key areas for business — declined.

But Hersov insists the continent on the whole has matured and the return of thousands of Africans is evidence of that.

“There’s a wonderful thing happening with Africa right now, as countries improve, as governments improve, as democracy takes hold, as countries become more investable — and it’s all down to leadership — people are returning,” Hersov, himself one of them, says. “These Africans that have been educated abroad, built their skill base abroad, want to come home, are coming home. This reverse diaspora brings skills beyond belief, which will improve Africa even more.”

The momentum also is gradually seeing the word spread across the seas.

“What’s happening now is you have savvy Gulf investors realising that actually you can make extraordinary returns in Africa at much lower risk than the perceived risk. And therefore there are great investment opportunities driven initially by food security and [the question of] what can’t we produce ourselves that we have to have … and now its expanding to other investments like real estate,” Hersov says.

“So initially it was other people using Dubai and Abu Dhabi as an investment platform, now it’s the locals seeing the opportunity in Africa and gearing up. And it is shifting away from aid. Africa is saying ‘we want investment not aid’ — it’s coming from us. So that excites me a lot.”

As interest grows, Hersov expects Invest Africa to bloom accordingly. The organisation has about 350 members across its offices in London, New York City, Johannesburg, Geneva and Dubai. It leads four or five in-country trips annually, taking 10-15 pre-qualified, high level investors from among its membership.

Hersov says the success of the trips so far has spurred great interest from both sides. For example, Ripasso Energy won a licence to expand its solar and base load power business into Namibia following an Invest Africa trip to the south African country in January. A trip to Ghana saw $25m worth of investment into equipment leasing business MonuRent, while an initial $5-10m was committed to agriculture in Zimbabwe following an Invest Africa trip there in 2013.

“Every trip we’ve done has resulted in investment. So when we contact a minister and say [we’re] coming to town, they open their doors,” Hersov says.

“One condition of visiting the country is we have to meet the president or prime minister, because once you’ve been at least welcomed by the president or prime minister it’s a lot easier, the doors open, the ministers meet you; you’ve been blessed, you’ve been endorsed.”

On that note, while Invest Africa spreads across the continent, there are particular countries Hersov refuses to do business with.

“We’re unlikely to go to Angola, because President [José Eduardo] dos Santos is unlikely to make the effort to meet us, so why should we bother?” he says. “Not Zimbabwe until Mugabe disappears, and not South Africa until we get rid of Zuma. Zuma is a complete impediment to FDI. He is a bad person and needs to be removed.”

Elsewhere, word of Invest Africa is spreading and doors are opening, he says.

“Because they know we represent investors primarily, they know that meeting [Invest Africa members] is pretty important because in many cases when we do trips to Africa, conferences in their country, events in their country, people then engage with ministers and business people and go ‘oh this is an interesting country, I should do business here’, so we bring FDI in country and it turns into important investments for the government.”

As they say, it is often not what you know but who you know. For many Invest Africa members, just one of those handshakes could be the beginning of a new dawn.

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