President of Africa Finance Corporation (AFC), Samaila Zubairu, has pointed out that one of the challenges that the African market faces presently is that global investors do not have a clear knowledge of it and so misunderstand the depth of its opportunities.
Zubairu pointed out that the continent required urgent investment in infrastructure, which he estimated to be between $130 billion and $170 billion.
The AFC boss spoke in an interview on Politico, a German-owned political newspaper company based in the United States.
Responding to a question on the biggest misconceptions about the investment readiness of African countries, Zubairu said, “The first one is this risk perception of Africa and the ‘prejudice risk premium’ that we have to pay as Africans. There have been several studies done by a lot of the rating agencies, international rating agencies, that show that the only region with a lower default rate than Africa for project finance and infrastructure is the Middle East.
“Africa has the same default rate, at five per cent, with Western Europe — lower than North America, lower than Latin America, lower than Asia. Yet, Africa risk is priced much significantly higher than everywhere else in the world.
“Another thing that is not understood is the African market itself. It’s quite a huge market — very many young people, all are very aspirational. And they are all consumers.
“The only people that are looking at the African market are the Chinese and the Asians. They understand that there is a huge market here, and they actually make products for the market.”
Explaining what he meant by prejudice against the continent, the AFC boss said, “If you look at Latin America and their history of defaults and the history of restructuring, and the price at which they can access funding, it’s very different from Africa, which has very little history of default.
“So the cost of capital in Africa is higher than any other region while the evidence of default rates in Africa is lower than most other regions.
“Another example: political risk insurance. Very few claims in Africa, but Africa has the highest premium.”
Zubairu pointed out that in its fight to combat corruption in Africa, AFC had subscribed to most anti-corruption, anti-bribery, anti-money laundering provisions of the world, and tried to enforce them.
He noted that one of the ways to overcome the challenge of corruption was more development, stressing, “and I mean sustainable development.”
Zubairu said, “With that kind of wealth creation, there’ll be less incentive for corruption, which is why our view is that we should focus on structural transformation, focus on value addition on the continent, focus on creating that middle class that comes as a result of this.
“Because once you have those jobs, you have a middle class. Once a middle class increases in the country, even the political outlook of the country changes.
“Corruption is corruption. We must have very clear rules against it. But we also need to look at how to prevent the incentive for corruption from happening.”
Zubairu stated further that there was need to fill the wide infrastructure gap in the continent, estimating that between $130 billion to $170 billion would be required.
He said, “The real spending that we need is for infrastructure that enables industrialisation to take place, because the big challenge we have on the continent is that we’re still operating the same business or economic model for the last two centuries that led us nowhere.
“We need to move away from exporting raw materials as primary produce to doing value addition.
“If we look at critical minerals: you have to do all that is required to do that mining sustainably. You need a road from that mine to either a rail line or to a primary road.
“From that road to a port. At that port there should be an industrial park that will do the processing and transformation, and then it can be exported.”
Responding to a question on the interest of American investors in African countries, the AFC boss said, “There’s a lot of conversations going on now, and I think that those conversations are timely, but not much has happened yet. We’re on the path for something to happen.
“What is required now is a lot more. For example, for these critical minerals to get to the market, a lot needs to be done.
“The difference with the US is that there’s no, like state agency, that can be asked to do things. You have to engage with different companies, and different companies have their own priorities.
“The challenge is while there’s a lot of talk about doing more, it just takes time for a company in Seattle or Texas or New York to take a decision to go to Africa.
“You look at the map of Africa, it doesn’t tell the story. It is far bigger than what you can see on the map, and to connect the continent is significant.”
Zubairu pointed out, “Investment from China in infrastructure has been going down partly because of the lockdowns and Covid, and also partly because of the challenge with some of the investments made in Sri Lanka, Zambia — basically a lot of issues.
“But they’re still engaged. They’re on the ground. They’re a big part of the economy now, because they’ve built quite a number of roads, they are interested in mines. And they’re a big market.
“If you look at bauxite, for example, it’s mainly China. If you look at iron ore, again, it’s mainly China. A lot of the crude oil as well, oil and gas, and that’s also China.
“China is quite active on the continent. There’s no doubt about it. But Africa is so huge and so vast — there’s room for everybody.
“We can’t be exclusive to one party. We have to be open to everybody. More importantly, we should be open to ourselves. It’s very important that we focus on how we trade amongst ourselves in that market.”
Zubairu said the toughest part of his job was to get the capital needed to do all the things required to be accomplished on the continent.
He said, “If we continue to export raw cobalt, raw lithium, nickel we might just get about $12 billion. But if we can move to battery and cathode precursors? That’s $240 billion.
“If we move from exporting cotton — let’s say half a million tons of cotton exported, it’s probably $2 billion. If we move to T-shirts, to towels, that is about $38 billion in value addition and significant jobs created. So it is getting the capital to do all of that — that’s my biggest challenge.”