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As we come to the end of a traumatic year for the financial markets, the question is, where are the opportunities for the coming year? In a world where inflation is set to be persistent, and the cost of money is set to remain sustainably higher than it used to be, where can we find performance? The answer is in places where creativity is overcoming the lack of capital. Go where the money isn’t. One place the money isn’t is in Africa. While not an easy place to deploy capital, it is poised to be a place we will all wish we’d figured out how to be a part of its successes a decade from now.
Consider Rwanda. That nation has somehow managed to move itself from a brutal genocide to becoming what many are calling the Singapore of Africa. This transformation has happened in less than 25 years. It is an astonishing testament to the power of imagination. I recently met with some of Rwanda’s cabinet members and found them to be exceptionally savvy and switched on to reality. One explained to me that the choice was simple. They could continue killing each other or become an entirely new country. So, they became a new country. Decisions were taken that most would have considered utterly impossible. The crackdown on corruption has been ruthless. By 2017 Transparency International declared Rwanda to be the least corrupt nation in East Africa, 3rd in Sub-Saharan Africa, and 48th out of 180 countries. Today one hears of Silicon Valley firms creating spin-offs based in Rwanda because the policy environment is so inviting and because it is home to the largest and most creative pool of coders, probably anywhere in the world now. They also happen to be highly competitive. Former and current Palantir staff seem to be especially present in Rwanda, founding companies like Hence.ai, which creates software using Palantir Foundry to help lawyers all over the world better manage their consulting and customer relationships.
The policy steps Rwanda has taken produced dramatic improvements. Rwanda’s economy was growing at 14% before COVID hit compared to 2% in Sub-Saharan Africa. But, it’s the technological leaps into the future that are really impressive. Rwanda just signed an MOU that allows the country to tap into satellite-based wifi to connect more Africans to the net. Only 35% of Africans can currently access the net at all. Space-based internet connectivity would make access universal and is set to revolutionize Africa’s capacity to build, innovate and grow within a decade. This is all because Rwanda has such a robust, World Bank-supported digital inclusion strategy.
It used to be that nobody could raise venture capital in Africa. One African venture capitalist said, “There is Africa risk and venture capital risk.” “Don’t combine the two”. But more and more investors are combining them. Start-ups in Kenya raised over $1b in the first half of 2022, which is a 422% jump from the previous year. It’s impressive, considering the world started to pull back on investing during that time due to COVID and various macroeconomic troubles. This put Kenya in at the 4th largest recipient of global funding and the second-largest for deals that have been made public. The route to going public has been bumpy. Africa has begun to produce not just unicorns but businesses that can list in the US. The first African unicorn to launch via the NYSE was Jumia, The Amazon of Africa”. But, the share price collapsed by 70% after the listing. Let’s remember that this has also happened to many American firms as well. Remember Pets.com? So don’t be too hard on them. The point is that African firms will increasingly be listing in the US going forward. Jumia was recently restructured. According to the FT, it was achieving 3.%5 growth YoY and increased revenue by 18.4% to 50.5mn It narrowed its losses by 32.6% in Q3. Were it an American company, investors might have treated these results as a win. African firms still get discounted harder for the risk factor. That also means they tend to be more bottom-line-oriented and more creative.
But is Africa riskier? The idea that the West is safe for investing and Africa is not isn’t holding true very well anymore, given what’s happening in the industrialized world. Sam Bankman-Fried’s arrest, the sudden disappearance of many crypto kings, and the legal shenanigans of a former US President put paid to the idea that the West is safe.
Africa is taking steps to make the whole continent more productive. January 2021 saw the launch of the world’s biggest free trade zone, the new African Continental Free Trade Area (AfCFTA). It is expected that the new intra-continental trade could rise to $231b. If Africa could launch a truly Pan-African Airline, this number would be much higher. Rwanda is trying to be the regional hub. But, all sorts of infighting has blocked this possibility so far. Still, even without an airline, African countries have become more attractive to external parties for many reasons. The fact that the continent seems to have cleared through the COVID era relatively unscathed was encouraging to many investors. Then there is the serious money is now backing start-ups across Nigeria, Egypt, Kenya, and South Africa, which together got 92% of all the high-tech investment.
Diplomacy is also raising the value of Africa. Look at the new deal between Morocco and Spain which allows the two countries to “to resume normal passenger and goods traffic on sea and land crossings.” The two have agreed to end an ongoing diplomatic crisis and support Morocco’s plan to give autonomy to Western Sahara. The need for action on the so-called Sahel problem has intensified. For those who have not been following this, the jihadis in Algeria have been increasingly backed by President Putin’s un-uniformed private army, The Wagner Group. They have pushed across the Sahel from Libya to the Western coast of Africa. It seems clear that Iran and Russia are aligning in Algeria, supporting the Polisario Front. Remember that Morrocco and the Polisario Front have been in dispute for 46 years over the ownership of the Western Sahara. The UN had brokered a cease-fire between the two sides, but the Polisario Front ended its commitment to that deal in November 2021. So, the fight started again.
All this is why President Macron recently “accused Russia of “predatory” activity in Africa.” This part of Africa has become a huge consumer of small weapons and arms from both Russia and China. It is possible to think of the Sahel as a proxy fight between Algeria, which is backed by Russia, and Morocco, which is backed by the US. This is why we can expect relations between the US and Morocco to keep intensifying. Plus, Morocco has effectively replaced the loss of potash from Belarus. The world needs potash to grow plants, and can now Morocco is getting investments to supply it reliably
China has emerged as the principal guarantor of stability in the Sahel. This is a deliberate and effective strategy. They are building influence in the region by providing both weapons and security contractors or by using Russian security contractors. China pays for the secretariat of the G5 Sahel Security and Counterterrorism secretariat. China provided $45.46m to G5 Sahel joint forces. The G5 includes Burkina Faso, Chad, Mali, Mauritania, and Niger. Each has extremely valuable resources. Niger has 5%-7% of the world’s highest grade uranium and the 5th largest reserves in the world. Mali alone has 4m tons of lithium, 1.63 tons of bauxite as of 2017, which “translates into 572 tons of aluminum, 2 million tons of iron ore, 800 tons of gold, manganese, and 10 million tons of limestone. Chad has water, a particularly valuable asset in that part of the world. Note that Burkina Faso and Chad both had coups in the last two years. Mali had two. Niger has a “botched” coup attempt in 2021.
The Sahel and the upper half of the African continent have become a location for the Great Game of our time. The old Great Game was when the British and the Russians maneuvered against each other for influence in Afghanistan, Central Asia, British India, and Tibet during the 19th c. The new Great Game is occurring across a wider area that includes much of Africa.
China provides the physical and digital infrastructure, and Russia provides the security. Although China has deployed combat troops in Mali since about 2014 guarding the UN Mission there.
The American commitment to Africa is now intensifying. Today marks the start of President Biden’s effort to counter the other superpowers in Africa. Today is the launch of the Partnership for Global Infrastructure and Investment, which aims to hand out $55 billion now and to “mobilize $600 billion by 2027” for these nations. Some 50 African Heads of State are in Washington DC to receive the largesse. No doubt some of that cash will end up in investable businesses. A lot will end up in conflict zones. But Africa now knows that Washington is competing with China and Russia to influence Africa. The superpowers are going to be throwing cash at Africa. African nations are increasingly being asked to choose sides.
But President Biden knows that he can’t beat the Chinese and Russians at the new Great Game in Africa, so he has effectively asked President Xi for a truce. Most see it as a truce over Taiwan, but it’s really a truce over all the locations where they are competing for influence. The decision has been taken that Biden will run again, even though the announcement won’t come until next year (hints of Alzheimer’s or not). Xi gets the game. Leave the US alone so Joe can deal with his next Presidential race and use the time for China to deepen ties across the rest of the world. Get ready to watch Xi race around the world on trade missions. The first was his recent trip to Saudi. Americans don’t follow any of that. It’s a win for Biden that China falls away from American headlines even as China strengthens its presence in places like The Middle East and Africa.
Equatorial Guinea deserves our attention. That’s where the US and China are nose-to-nose, vying to create a physical foothold of presence. China is trying to build a naval base there. American Special Forces are concentrating on creating “multiple dilemmas” for China, according to the Commander of SOCOM (US Special Operations Command), Lt. Gen. Bryan Fenton. This is part of a broader shift that refocuses the use of US Special Ops on “great power competition”.
How timely, interesting, and disturbing that the most notorious African weapons dealer warlord, Victor Bout, was the one person President Putin wanted back on his team. President Biden just traded Brittney Griner, an American basketball player who had been held in a “Dickensian” Russian prison camp for having the residue of marijuana in her vaper, for Bout, the “Merchant of Death” who infamously created South Africa’s notorious biochemical weapons stocks and who served time in an Indiana prison for the last eleven years. Bout formally joined the “Ultranationalist Pro-Kremlin LDPR Party” just after being returned to Russia. Does all this tell us something about Putin’s plans for Africa?
Africa is set to remain deeply enmeshed in the modern Superpower confrontations. It is a proxy fight and inherently tied up in the confrontation between Russia and China, and the West. Russia is recruiting from Africa for the war effort in Ukraine. Is this a sign of weakness, as The Daily Beast suggests, or is it evidence that Russia is preparing to unleash more migrants on the EU? The EU senses that trouble is brewing, and the latter may be a problem. They are launching two “Team Europe Initiatives” to deal with any possible upsurge in migration from Africa to Europe. It is hard to dispute the idea that Africa is now caught up again in a new Great Game between the major superpowers. It is worth considering how all this will look in the rearview mirror of history when we try to understand what WWII looked like at the start. Some countries will become its new front line. Others will stay out of the fray and emerge stronger and wealthier. Now is the time to think through the possibilities and probabilities.
At the same time, African nations are making decisions that make it easier for entrepreneurs to flourish and for technological advances to occur ever faster. Now is a good time to think about what African capital markets will look like in a decade. I believe that there will be enough good stories and success to warrant time and attention today.
I am grateful to IOSCO (The International Organizations of Securities Commissions) to keynote their 47th Annual Meeting in Marrakesh in collaboration with the AAMC, the Morrocan Capital Market Authority under the High Patronage of His Majesty King Mohammed VI, and to the African Securities Exchanges Association for asking me to keynote their event in Abidjan in Cote d’Ivoire.
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