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Investor insights 11 September 2019

Address by Jacko Maree at TICAD 7 conference

Japan-Africa business forum, Yokohama, Japan, 29 August 2019

I would like to express my deep appreciation to Jetro and Japan for this exciting day where we can exchange thoughts on business relationships and opportunities between Japan and Africa.

Firstly a few macro-economic observations:

Despite the global economic slowdown, it is likely that Sub-Saharan African growth will accelerate in 2019.

  • In recent years the non-oil economies have shown resilience, expanding at more than 4% annually; meanwhile the oil-rich economies have emerged from recession aided by the large increase in oil prices from 2016 lows.
  • Structural forces, like favourable demographics, urbanization and industrialization, and rising incomes and a growing middle class, remain intact and will continue to play out across many African economies, presenting a host of opportunities for trade and investment. Consider that by 2050 it is forecast that Lagos (population) will be bigger than any Chinese city, and Africa will have a quarter of the world’s largest 100 cities.
  • Africa requires more and better infrastructure, better connecting people and communities to markets and ideas. Physical infrastructure is essential for economic diversification, propelling agriculture, manufacturing, services, trade and even human capital enhancements, while elevating incomes. Herein lies a host of opportunities for Japanese companies
  • Meanwhile, incremental improvements in economic management, ease of doing business and competitiveness across Africa will continue to improve the resilience of Africa’s economies, enhance growth and lift the potential growth rate, and create a better climate for Japanese partnerships. Already tremendous gains in countries like Rwanda, Kenya, Uganda, and Ivory Coast since 2010 point in the right direction. Half of Africa’s economies expanded above 4% in the decade through 2018. In my country President Ramaphosa - as part of government’s economic reform agenda - has pledged to improve SA’s rank in the World Bank’s annual global Ease of Doing Business survey to within the top 50, from 82 in the latest assessment.
  • The African Continental Free trade Area (AfCFTA) is another medium-to-long-term opportunity for Africa. It is well recognized that intra-Africa trade is exceedingly shallow at around 10-12% of Africa’s global trade. The free trade zone has the potential to serve as a shot in the arm for pockets of African manufacturing to rise, servicing local and regional markets.
  • Japan’s long engagement with Africa positions it well to play a role in a new wave of African growth and industrialisation. Japanese trading houses, like Itochu, Marubeni, Mitsui, Sojitz and Sumitomo have been remarkably successful in Africa for many decades. A number of Japanese brands, led by Honda, Toyota, Nissan and Toshiba are already ranked as the top 100 brands in Africa. In the 20 countries where Standard Bank operates there are around 1000 active Japanese companies, but most of their attention has been on South Africa, East Africa and Nigeria. The time is now ripe for Japanese corporates to build on this momentum and consider greater investments in the rest of the continent.

 Looking at Japan-Africa trade data:

  • Japan-Africa trade levels have since dipped over the past four years, totalling USD17bn last year – the same level as in 2005.
    • Compared to BRICS-Africa trade growth, Japan has lagged.
    • Since 2001 Japan-Africa trade has grown by 93%, while BRICS-Africa trade has lifted by 1,100%.
    • Of course, China dominates BRICS-Africa trade flows.
    • Last year China-Africa trade totalled USD204bn, 12 times greater than Japan Africa trade.
  • But, China’s generalised slowdown, its rebalancing away from investment led growth, de-risking of the financial system, and emphasis on the Belt and Road initiative, along with distraction of the Trade War has already created a somewhat less assertive China in Africa. While we expect China to remain deeply engaged in Africa’s economic trajectory, a more selective and focused engagement is likely to emerge, and China will also be more willing to accommodate partnerships than before.

Now looking at some specific success factors for Japanese companies doing business into Africa:

It is often difficult for Japanese companies and African companies to conclude sound and profitable transactions because of barriers like the long distance, language issues, local business practices, legal systems and so forth. Japan is one of the most developed economies and cultures in the world, while most African countries are still finding their way. In many cases it might make most sense to form a partnership, rather than being purely transactional.

In Standard Bank’s case, we had the on the ground presence in Africa, but we had no effective way of tapping into the major Japanese corporations to understand their banking and strategic needs. It was just too difficult to navigate, especially as so many Japanese companies have many diverse divisions with separate decision making. So, we structured a formal strategic partnership with Mizuho in 2012, where they used their network in Japan to link into our network in Africa. It has been very successful Mizuho and ourselves, and this week we have expanded the relationship even further. Over the years we have done something similar with ICBC in China which has also worked out extremely well. Having said that, partnerships of this sort require utmost trust on both sides and hard work to maintain and grow.

Another critical factor is commercial risk appetite. We find that in many complex projects on the continent, Japanese companies quickly ask for a Government guarantee. The reality is that it is often more important to really concentrate on structuring the transaction in such a way that the underlying commercial cash flows are even more certain than having a government guarantee. Structuring transactions properly in complex environments is absolutely fundamental and often requires good professional advice.

Corruption is another big issue which is often raised with me. In every country in the world there is some corruption, but in our experience, it is always possible to find enough good business with trustworthy and ethical counter-parties. In the long run it is always best to do straightforward business and walk away from corrupt government officials or businesses.

A final important issue is being truly relevant to the country in which you operate. All governments and communities are sensitive to foreign operators. As Standard Bank, we always prefer to have local chief executives in country, not foreigners. In the case of Japanese companies on the continent, this is generally not the case. Of course, you always also need the correct balance of head office people and controls. 

Turning to my other role as an Investment Envoy for our President, trying to attract local and foreign companies to invest $100bn into South Africa, the messages from potential investors are clear and consistent. Companies making fixed investments want to be able to earn a fair return taking a 10- or 20-year view. So, they need to be confident of the rule of law, be certain of policy knowing that things will not keep changing, and to operate in a relatively “business friendly” environment. They want to benefit from our country’s growth, not be the engine of that growth - that is our responsibility. They need to be appreciated for the technical skills, the jobs and prosperity they create. 

Sadly, this is not the attitude in many African countries and as African business people it is a message we need to keep repeating to our governments if we want more foreign investment, particularly from Japan.

Thank you