Transcript Opportunities

Sanjeev Gupta
Managing Director-EMERGING MARKETS
March 2006
Property Investment in Africa
A Multi Pillar Approach
The case for Domestic Savings to work
with Global Finance
JULIUS NYERERE – ex PRESIDENT OF TANZANIA said
Africa’s problems are:
 Poverty
 Ignorance
 Disease
AFRICA HAS BEEN PLAGUED BY
 Disease
 Illiteracy
 Conflict
 Segregation
 Bias
 Exploitation
 Hunger
 Poor
Governance
You name it ….
The IMF & WORLD BANK
wants African states to
EMBRACE A PROGRAMME
DIRECTED AT:
 Privatisation
 Liberalisation
 Financial
Market Development
Supported by Democracy & Good Government
MY PERSONAL VIEW IS
African needs a blend of:
 Economic
 Labour
Reforms – YES
Reforms – YES
 Property
Rights - YES
BUT IT ALSO NEEDS DESPERATELY
 A savings
culture
 A deployment
of those savings
If there is to be sustainable growth
Change has to come from within….
PROPERTY DEVELOPMENT
A perspective on the issues in the African Continent
Typical Realities- Property sector in Africa
Residential
Industrial & Commercial

Rural to urban migration

Absence of quality covenants

Demographic pressure

Short period leases

Gradual erosion of extended family
support

Abnormally high yields

Periods of over/under supply

Volatile demand

Weak property rights
Typical Realities- Property Sector in Africa
Financing Constraints
 Limited

or non existent domestic savings
Fledgling or absent mortgage markets
 Self-
or informal funding
 Absence
of long-term finance
 Exacerbated
by short term `opportunistic` thinking
WHAT THEN DO WE NEED?
3 THINGS
 SAVINGS
– Domestic
 DEPLOYMENT
of those savings
INTO DOMESTIC INVESTMENT
 BRING
foreign funding to work in tandem and
``kick start`` the process
BREAK THE CAMEL`s BACK!!!!!!

The need is to break the Vicious Cycle of:
DÉJÀ VU
ENTITLEMENT
AID
LOW SAVINGS
DESPAIR
LOW INVESTMENTS
GUILT
POOR GOVERNANCE
CRISIS
UNEMPLOYMENT
DROUGHT
BREAK THE CAMEL`s BACK!!!!!!

And create (through sensible intervention) the Virtuous Cycle
SAVINGS
CONSUMPTION
EMPLOYMENT
CAPITAL
DIVERSIFICATION
INVESTMENT
ECONOMIC
DEVELOPMENT
WHERE IS AFRICA…
In terms of Savings and Domestic Investment?
WHERE IS AFRICAN SAVINGS?
Facts about Savings
Issues to consider

Individual Discretionary Savings
Low or Non Existent

History of Low employment or
“disguised” Employment

Contractual Savings often state
owned & misallocated

Real wages have not kept with
Inflation

Government Savings Zero or
misused

Faith in financial products ZERO

Access to Banking & Insurance
Limited

Corporate Savings not reinvested
but “exported”

Investment prudential guidelines
restrictive & anti market forces
CASE STUDY 1 - BOTSWANA
Facts
Opportunities

Highly Developed Contractual
savings but low discretionary savings

High total savings - 40% of GDP

Government is a major
Financier

Financial (Equity) Markets small - 25% of GDP

Institutions have generous offshore allowance (70%)

Public Private Partnerships

Diversification possible into
Mining, Tourism, Infrastructure

Regional Finance-Investments
CASE STUDY 1 – BOTSWANA (cont)
Problems



No Government urge
to involve private Sector
Prudential guidelines
not encouraging
Effect

Limited availability of long term capital

Local entrepreneurship limited

Expensive Bank Debt main
source

Economy dependent on
Government spending
High yielding T Bills

Preponderance of Government
Subsidised projects
CASE STUDY 2 - ZAMBIA
Facts



Poor legacies – long term
savings
Opportunities

Attract FDI

Attract DFIs

Invest in local opportunities

Privatise pension schemes

Fiscal stimulus to save
Discretionary savings low
Investment opportunities
abound – Tourism,
Agriculture, Services
CASE STUDY – ZAMBIA (cont)
Problems
Effect

State Schemes still state
held

Much vaunted “Privatisation”
ended up in Giant Trust

Private Schemes small

No Domestic Capacity

No incentive to save

No economic Multiplier

Poor Banking & Life
Insurance Access

Opportunities going away

Limited DFI play
Case Study- Nigeria
Facts
Poised for exponential growth

Underdeveloped Contractual
savings-15% of GDP but expected
to be a multiple of GDP by 2010

Discretionary saving low

Financial Markets small< 25% of GDP
Opportunities

Infrastructure opportunities
abound

Pension funds can provide long
term finance
Case Study-Nigeria
Problems


Underdeveloped Mortgage
markets
Directed largely to `affluent`
section

Short period-high rates

Confusion- Land rights &
Bureaucracy

Rigid Investment Guidelines
Effect

Short tenancies

No quality developments

Lack of Developers and
Construction Companies
Case Study-Kenya
Facts



Poor legacies – long term
savings
Opportunities

Attract DFIs

Invest in local opportunities

Privatise state pension schemes

Fiscal stimulus to save
Discretionary savings low
Investment opportunities
in Tourism,
Agriculture, Services
Case Study-Kenya
Problems
Effect

State Schemes still state
held

Limited Domestic Capital &
Capacity

Private Schemes small

No economic multiplier

Limited incentive to save

Opportunities going away
WHAT DO THEY HIGHLIGHT?

Savings limited domestically

Where available -not utilised well

Sequenced approach to Forex, Tax, Asset allocation, etc missing

Investment Opportunities available but not harvested

Regional cooperation non existent at this stage

Reliance & Presumption on AID- Bail Outs – continues
CAN THIS BE RESOLVED??
YES - THROUGH

Global DFI’s

Global Funds

AID

Foreign Governments
In order to :
`

Act as a `CATALYST`

Facilitate the PARADIGM shift

Make it a VIRTUOUS cycle
But needs to be underpinned by
 Generate
Domestic Savings
 Encourage Active
 Deploy
asset allocations
Domestic Savings into Domestic Capital
GENERATE DOMESTIC SAVINGS HOW?
 Access
 Tax
to Banking and Insurance products
& other Fiscal Incentives
 Privatise
State Schemes
 Corporate
 Redirect
– Profit retention and reinvestment incentives
Government spending
ACTIVE ASSET ALLOCATION – WHAT?
 Encourage
Pension & Life schemes to go beyond
immediately-available low risk assets (quoted equities, T-Bills)
 To
invest in Private Equity, Property and Infrastructure funds
 Shareholder
Activism as necessary
DEPLOYMENT OF SAVINGS INTO CAPITAL INVESTMENT
 Adopt
Long term horizons
 Local
focus – including into SMMEs
 Co-invest
 Mobilise
 Provide
with Global agencies
Bank (debt) markets
Technical & Mentoring Support
The SOLUTION
Focus on Community Issues


Develop communities
Tourism, Infrastructure development -all inclusive
Lobby for Policy Changes




Active Investing by Life & pension funds
Modernise Land Tenure & Ownership Rights
Banking Industry- Mortgage Products & Retail Reach-MUST
Stimulus to save & invest
Create a Partnership Culture





Involve Global agencies and provide `UMBRELLA` Finance
Tie in with domestic institutions & funds
Assist with technical & Implementation Capacity
Mentoring- not ``dabbling``
Develop Real Estate Bodies, Laws, Regulations
THE MULTI PILLAR APPROACH- A COMPELLING
STORY
 Involve
 Work
Global DFIs, NGOs
with Domestic Private Sector & Domestic Funds
 Empowerment
of local people through ownership , skills
transfer, employment &local content criteria
 Take
Policy makers `along`- use the Clout
CONCLUSION
Remember – Nothing is as Powerful as an Idea whose
time has come
Let us as a continent stop “meddling” and trying out the
same things – and wait for different results – That is
INSANITY
thank y
u