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.