As the US and EU stagnate; China slows and India stalls, Africa is well placed to interest investors looking for returns. Africa needs help to capitalise on this opportunity. Some countries have worked with other foreign countries and Aid Agencies to leverage better these assets and the US; the EU and now the BRIC countries are working hard to develop their presence. Sometimes this is aid driven and then there is infrastructure investment in return for resources.
With a domestic market of about 900 million people, which is equivalent to 12 per cent of the world’s population and with 52 cities of over one million people, Africa today is almost as urbanised as China and presents ample business opportunities for foreign investors. Africa as a whole has drawn substantial interest and foreign direct investment (FDI) over the years. In 2008, FDI inflows to Africa reached a record high of US$88 billion (S$128 billion), an increase of about 27 per cent from US$69 billion (S$100 billion) in 2007 ¹. Africa has abundant resources: 10 per cent of the world’s oil reserves, 40 per cent of its gold, and close to 90 per cent of its chromium and platinum. Africa has benefited from the surge in commodity prices over the past decade. Prices of oil rose from less than US$20 per barrel (S$28*) in 1999 to over US$145 in 2008. Similarly, prices of minerals, grains and other raw materials soared as well due to global demand. As demand for oil, natural gas, minerals, food, arable land and other similar natural resources grow, Africa will continue to profit accordingly.
There is an old adage – giving a starving man a fish and feed him for a day; teach him how to fish and feed him for a lifetime. Many of the programmes sponsored by the above have been successful but, Singapore seems to be working in a different way.
Opportunities in Africa are no longer framed by the shipping of resources to the developed world. A tremendous boost will come from increasing African trade with Africa – South / South Trade. Currently, trade between European Union States is 60% of the total whereas only 10% of African trade is within the continent. And this means addressing the lack of infrastructure connecting African countries not just making it easy to leave it!
Lee Kuan Yew’s Autobiography, From Third World to First, traced the journey of the small island of Singapore from an inhospitable and broken island to its status as a global leader. It is a journey that many African countries aspire to make. Singapore’s GDP in 2011 was $240 billion with GDP having increased 80 times since independence. It is the fourth largest global financial trading centre; has the world’s largest transhipment port and, the LPI (Logistics Performance Index) for 2012 sees Singapore in top spot from 155 countries, followed by Hong Kong, Finland with Germany dropping from top spot and the Netherlands.
Back in 2010, speaking at the inaugural Africa Singapore Business Forum (ASBF) Lee Yi Shyan, Singapore’s Minister of State for Trade and Industry and Manpower, said that Singapore has collectively accumulated experiences in many areas that may help shorten Africa’s learning curve. These include expertise in urban planning, industry development, transport & logistics, public housing, environmental protection, water preservation and regeneration, healthcare and education.
Among the ASEAN countries, Singapore is the largest investor in Africa in terms of cumulative FDI. Based on a 2007 report compiled by the United Nations, Singapore’s FDI stock in the region is about US$3.5 billion (accumulative approved flows from 1996 to 2004). In addition, Singapore’s trade with Africa has been increasing year on year. Total trade grew at a CAGR of 12.9 per cent from 1999 to 2009. Last year, even in the midst of the global recession, Singapore-Africa trade still reached S$8.4billion.
- Trade in resources or, add value in country. Singapore is well placed to do both but many Singaporean companies are placing their emphasis on the latter.
- Infrastructure. Africa’s annual private infrastructure investments have tripled in the last decade, averaging US$19 billion in the past 3 years. Yet, further investments are still required to improve the quality of life for Africa’s increasingly large urban population.
- Ports. General cargo has increased by over 10% and containerised cargo by 9% over the past decade across Africa. African ports have yet to match international standards, there is an opportunity for Singapore companies to invest in developing these ports to raise their capacities in serving the expected increase in African maritime trade volume. Sub-Saharan Africa is the largest exporter of fuels among developing regions. In the last decade, export of fuels from Africa grew by an estimated 20 per cent annually. At the same time, Africa imports the largest quantity of agricultural goods worldwide. Across all types of cargo – containers, general, bulk (dry and liquid), and project – port volume is forecasted to surge in the next few years.
- Trade corridors. With 15 landlocked countries and a lack of border crossing infrastructure throughout Africa, transnational trade corridors are building momentum.
- Rapid urbanisation. By 2030, more than 50 per cent of Africans are expected to live in cities. Urbanisation at such rates is spurring the construction of more roads, buildings, water systems and infrastructural projects.
- FMCG. By 2014, the number of households in Africa with an annual income of over US$5,000 is expected to reach 106 million. These households typically spend roughly half of their income on non-food items.
- South / South trade. Currently, trade between African countries is 10 per cent – with compares with the EU at 60%.
One of the fundamental building blocks for Singaporean growth to date has been a highly trained Civil Service operating to the highest ethical standards. Far from the image of the faceless bureaucrat, Singapore has worked hard to re-write the rules on governance – for example with e Government. This is something that Ghana is already moving on.
Here are some Singaporean businesses working in Africa.
- Portek. Through its 100% owned subsidiary, Portek East Africa Terminals Limited, acquired a controlling stake in Magasins Generaux de Rwanda S.A (MGR), the operator of Rwanda’s main dryport which serves as a main gateway for imports and exports. And, in Algeria, Portek holds a 20 year concession to jointly operate the Bejaia Mediterranean Terminal SPA (BMT) in Algeria with Algerian Port Authority. BMT can handle up to 300,000 TEUs and is the only terminal in Northern Africa that has modern quayside cranes.
- CrystalLogic and TradeNet. Years ago, Singapore’s port was congested, corrupt and inefficient. Documentation clogged up the system everywhere and each cargo required a piece of paper with two dozen official stamps to be cleared. A nightmare.
- GMG Global Ltd (GMG) is a Singapore-based plantation group dedicated to long-term investments in Central, West Africa, and Asia. GMG is an integrated producer of natural rubber engaged in the planting, growing, tapping, processing, marketing and exporting of natural rubber. accounts for approximately 60% and 12% of Cameroon’s and Ivory Coast’s annual rubber exports respectively. In Ivory Coast, we are the second largest buyer of smallholders’ rubber since 2006.
- Wilmar. Another company seeing huge advantage in agro-industrial project, with palm oil, rubber, cotton and sugar businesses across Africa.
It is interesting to note how Singapore is developing its links with Mauritius; using it as a springboard into the region. Mauritius and Singapore share many similarities – both are small-island economies, dependent on international trade and boast a multi-racial population fluent in English. Both have also positioned themselves as gateways into their regions.
Crocodile, the Singaporean textile company, is one company who have found a base in Mauritius; partly due to rising costs in traditional supplier China and high cotton prices. Lim Keng Boon, assistant general manager, Crocodile International, said: “If I get my local source, I can manufacture here. I don’t have to pay the tax and it’ll be better that way – it’ll bring down the price further.” Mauritius’ established legal framework and stable government also provide safe harbour for Singapore firms.
Mauritius is not alone in seeing itself as the next Singapore. Rwanda has proclaimed its intention to be the Singapore of East Africa. It is not the first country to see itself as a logistics hub and will not be the last. But what is the Singaporean formula all about?
Fundamentally, its fortunes have been tied to global trade but, that has been a weakness as well as a strength. So, when the world caught a Lehman Brothers cold in 2008 Singapore could have panicked but since then, Singapore has done what it does best – adapted to emerging circumstances. It has looked for growth elsewhere and has upped its presence in Africa.
As illustrated above, there is much to learn from Singapore but perhaps the most important is their approach to education and learning. Every five years, Government administrators and teachers work with the private sector to rewrite Singapore’s educational syllabus making sure that the future is in the hands of a generation that has been equipped to build on success to date.
Any transformational project in Africa has much to learn from Singapore with so much knowledge of how best to accelerate the journey from Third World to First.