Project specialist provides a roadmap to success in Africa

Managing and understanding risk is key when evaluating projects in Africa, says Kiran Fakir. An energy management consultant in the SADC and adviser to Eskom and government on ICT, strategy and restructuring, Fakir offered his insights at a recent Institute of Advanced Studies seminar on dealmaking in Africa. “There’s plenty of opportunity,” said Fakir, who produced convincing statistics to illustrate the continent’s vast untapped potential. “It has 55% of the world’s cobalt reserves, 90% of the world’s reserves of platinum, and 60% of the world’s uncultivated arable land. It’s also had 15 consecutive years of economic growth and weathered the economic downturn better than most. “In addition it’s earned more than a trillion dollars in petroleum exports since 2000 and the level of foreign direct investment from 2000 to date is more than US$51 billion.” But it’s a market not to be taken lightly – and the issue of ethics is always a tricky one. “You need to make sure that what you are doing aligns with the values of your company and growth requirements of your shareholders,” said Fakir. Companies that apply a western business ethos will come up against the Chinese where agency fees or fees for introduction are commonplace. “As a westerner entering into the market you tend to label that as bribery and corruption. It’s therefore key that in entering the African market you understand what you will and won’t do and you must understand the impact of that,” says Fakir. It’s also important to take a holistic approach. “There are coal concessions that are there for the taking but the issue is how you take that coal out. You need to look at projects from an integrated perspective – taking into account related issues that would make the project a success. Issues around security are high cost and high project lead times and then there are your economic and political risks, your deep pockets – the list is endless.” The question of corporate governance is an additional concern, but here the Mo Ibrahim Index of African Governance is a valuable tool, says Fakir. It uses indicators across four main categories to assess each country. These include safety and rule of law; participation and human rights; sustainable economic opportunity; and human development. According to Fakir, it is the most comprehensive collection of qualitative and quantitative data that assess governance in Africa. Top of the list for good governance is Mauritius, followed by Seychelles, Botswana, Cape Verde and South Africa in fifth position. Somalia is bottom of the list with Zimbabwe in position 49. There’s also a huge variable in the scores of the top players compared to those at the bottom of the list – 83 for Mauritius compared to 8 for Somalia. Professor Paul Collier of Oxford University points out that the Index shows just how large the differences are among Africa’s 53 countries. “Although all share the same continent, from the perspective of governance, the best (the five countries with scores over 70) are on a different planet from the worst (the 12 countries under 40). “It’s imperative that you understand the index,” says Fakir, who believes there are several key considerations that will provide the best chance of success. “Do your homework, know the business you are after, know where this business happens, understand the value chain, know your risk and return appetite, and most importantly get answers to issues you don’t know about. “It’s also very important to have the right local partner.” Clearly the challenges are immense – but so are the opportunities.