HENDRIK du Toit, founding chief executive of South Africa’s Investec Asset Management, now co-CEO of the wider Investec Group, made interesting remarks this week about Chinese investment into Africa.
He said world investors need to take a leaf out of China’s book, embracing African infrastructure as an investment opportunity, taking advantage of risk mitigation tools and addressing the huge gap in risk perception between emerging and developed markets.
Du Toit said people need to realise Africa has now moved beyond the time when aid and corruption drove the investment narrative; when it was called the “hopeless continent” and when sustainability wasn’t even part of an investor’s vocabulary. He said Africa has come a long way since then. The millennium heralded rapid growth across the continent. At about 3%, default rates on African infrastructure are some of the lowest in the world. Africa has the fastest growing population and is seeing a wave of innovation and entrepreneurship sweeping across the continent. This has been strongly enabled by mobile phone technology which has directly facilitated a financing revolution.
Countries like Zimbabwe which are trying to come out of the woods and catch up with the rest of the continent following decades of misrule an mismanagement need to take the correct path from the start.
Zimbabwe is currently under close scrutiny by investors from around the world after recent political changes. However, government needs to have a good model and strategy. The country must compete for investor dollars by fully embracing the ease of doing business. This requires good and strong political leadership, policy consistency, the rule of law, property rights, depth in local capital markets and reforms. Most importantly, for sustainable growth and associated economic and financial benefits to come, the country must have a good economic vision and model. Things don’t just happen in a vacuum. There must be an economic blueprint and model in place to guide policy and implementation.
Four sources of capital flows drive Africa’s development: domestic revenues; remittances, aid and Foreign Direct Investment. This is what also drives Zimbabwe. However, it needs to find the right balance between aid and investment.
American economist, specialising in economic development and a professor of economics at New York University, William Easterly, and Dambisa Moyo, a Zambian-born international economist, have vociferously argued against the aid model. Moyo says aid is bad and encourages corruption, fuels civil wars and leads to bad and unaccountable governance. She has instead suggested enhancing of trade, investment and capital markets to promote economic growth.
Conversely, American economist Jeffery Sachs and billionaire Bill Gates say aid works and when properly designed can deliver vital investments in health, agriculture and education. Similarly, Paul Collier has contended smart aid can help build the necessary human capital and strengthen institutions of governance critical to making non-aid financial flows more effective.
All these are important insights. Zimbabwe needs to find the right model and balance to make the most of this window of opportunity. Du Toit has a great point.