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SUSTAINABLE INFRASTRUCTURE IN AFRICA Challenge Funds – 5 Year Perspectives

SUSTAINABLE INFRASTRUCTURE IN AFRICA Challenge Funds – 5 Year Perspectives. Garry WHITBY. PROSPECTS FOR AFRICA. Growth last year was 5.1% on average IMF estimates growth to be 5.3% this year Africa needs growth of 7% to meet the MDGs, over next 10 yrs.

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SUSTAINABLE INFRASTRUCTURE IN AFRICA Challenge Funds – 5 Year Perspectives

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  1. SUSTAINABLE INFRASTRUCTURE IN AFRICA Challenge Funds – 5 Year Perspectives Garry WHITBY

  2. PROSPECTS FOR AFRICA • Growth last year was 5.1% on average • IMF estimates growth to be 5.3% this year • Africa needs growth of 7% to meet the MDGs, over next 10 yrs • Investment in Africa yields highest global returns: • 4 times that of G7 countries • 2 times that of Asia • 65 % more than Latin America Last year African equity delivered returns in excess of 30%

  3. GROWTH MATTERS FOR BUSINESS IN AFRICA • Current total GDP for APRM countries USD 400 Bn; - consumers spend USD 250 Bn • If 5% growth is maintained, GDP will be USD 560 Bn; - consumers will then spend USD 350 Bn • To reach the MDGs, growth needs to be 7%. At this level, GDP will be USD 640 Bn; - consumers will then spend USD 400 Bn Investment Climate Facility Fast growing consumer market will create many new opportunities for businesses in Africa

  4. LANGUAGE OF DEVELOPMENT New funds and interest from G8 in Africa’s development should be seen asan INVESTMENT in Africanot “aid” to Africa WITH ALL INVESTMENTS THERE NEEDS TO BE A RETURN • A commercial return to enhance shareholder value • A socio-economic return to justify the use of G8 investments

  5. COMMERCIAL V SOCIAL RETURNS High Private Sector Space Donor Space Commercial return Market / social impact LOW

  6. PRIVATE SECTOR INVOLVEMENT IN AFRICA • Where is your future growth coming from? • Traditional markets (comfort zones) are becoming saturated • Constant pressure to deliver best possible returns on investment • Internal and external barriers to enter new markets Sir Richard Branson“For too long business has been sidelined in the development debate … but Africa presents one of the great new market opportunities” Bending the Arc

  7. GROWTH MODEL FOR THE PRIVATE SECTOR Business of tomorrow Sustainable growth Revenue Optimization Revenue Business of today Decline with No Innovation -3 -2 -1 Today 1 2 3 4 PlanningHorizon

  8. PRIVATE SECTOR: ENGINE FOR GROWTH Use G8’s doubling of funds to Africa as investment in Africa, commercialise development programmes. Use same principles that drive commerce to drive development Private Sector only likely to commit on an appropriate scale if there are strong commercial incentives With the right process of engagement, the private sector are willing and motivated Key is to identify interested niches and to have instruments that facilitate effective partnerships and to assist old players develop new player mindsets and competencies

  9. AFRICAN SUCCESS STORIES – CHALLENGE FUNDS Challenge Funds are new development tool, (process of engagement) funded by DFID They challenge the private sector to innovatively think about new products and services which have a socio-economic spin off, but on commercial grounds, ensuring their sustainability Challenge Funding is about making marginally viable initiatives viable, by joint funding between donors and the private sector to invest in business initiatives that have a commercial and social benefit. An investment which shares costs and risks An investment to create enterprises which offer a social return, add to shareholder value by creating wealth and contributing to growth

  10. BUSINESS LINKAGES CHALLENGE FUND • Supports private sector partnerships that promote commercial benefits and help reduce poverty through a range of activities that: • increase access to markets • transfer technology • improve competitiveness • address policy and regulatory environments • Success to date: • positive progress to commercial viability • greater access to markets • genuine skill tranfers • reduction in red tape

  11. BLCF SUCCESSES 1 Thandi Fruit - South Africa Largest SA fruit exporter teamed with emerging farmers, provided extension services, market advice and distribution network. Thandi now marketed in Middle & Far East, Russia, EU, US and UK (J Sainsbury, Tesco and Coop) Turnover increased from R 273K to > R 60 M

  12. BLCF SUCCESSES 2 Cotton Seed - Malawi Pre-treatment of seed, building and developing a high quality and better yielding national cotton crop Development of cotton crop to support 180,000 farmers Crop increased by 265%. Exports increased from USD 5.5 M to USD 13 M

  13. BLCF SUCCESSES 3 Private Sector Initiative – Tanzania Facilitating business linkages between SMEs and large corporations such as BP, Tanzania Breweries, Tanga Cement Bringing corporations together to share experiences with SMEs and involve them in their supply chain. Corporate participation increased from USD 21 M to > USD 45M

  14. BLCF SUCCESSES 4 MOCIT - Mozambique Privatisation and rehabilitation of citrus estates Training of local community to grow, pack and export quality grapefruits and oranges to UK and US Export to UK achieved and new variety of grapefruit being introduced

  15. BLCF SUCCESSES 5 Mondi- Black Gold Forest – South Africa Utilisation of forestry timber waste for charcoal, working with marginalised communities. Developing entrepreneurs to manage small businesses which clear the forest, producing solid fuel for national and export uses. Selling price doubled, entrepreneurs earnings increased by over 33% in first year, received international environmental award.

  16. FINANCIAL DEEPENING CHALLENGE FUND International companies have explored new markets: Deutsche Bank Created a Commercial Micro Finance Facility to invest through commercial banks in MFIs, success of which has attracted additional investors Vodafone Leverage existing networks to introduce cell phone banking which provided access to banking for many people for the first time, but was also so commercially viable, Vodafone are looking at other social enterprises Tata AIG Developed low cost life insurance product and delivery mechanism, the success of which has encouraged other parts of the organisation to look for similar commercial initiatives

  17. CHALLENGE FUND LESSONS LEARNT Critical Success Factors: Ensure there is a commercial return Seek out useful partnerships Top management in projects from the outset Align or bring about change in corporate culture Ensure genuine risk sharing Little previous donor partnership Process is competitive Sector focuses www.financialdeepening.org www.businesslinkageschallengefund.org

  18. CONCLUSION We all need to think differently about the way we do business and deliver services G8 funds should be seen as an investment, not charity Use the same principles that drive commerce, to drive development DFID’s foresight to partner with the private sector has been proven to work Private sector activity in Africa is enhancing shareholder value Commission for Africa, G8 commitments present an opportunity for private sector to jointly invest in Africa The future for private sector investment in Africa is bright Wealth creation (for shareholders and African stakeholders) go hand in hand with poverty eradication

  19. gwhitby@deloitte.co.za

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