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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
