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EXCLUSIVE INTERVIEW: Stephen Jennings speaks to Front Row Group on Investment Opportunities in Africa


In November last year, Stephen Jennings sold out of his Russian-based Renaissance Capital, ending his association with the investment bank he founded in 1995. Now he is focussing his considerable business energies on the emerging markets in Africa, and gives the Front Row Group an exclusive interview.

Africa: A Modern, Middle Class Act

Stephen Jennings acknowledges that there are some ingrained negative perceptions of Africa, whether they be of war, famine or infant mortality, but these are not shared by the active investment community.

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"Investors have a more nuanced perception. There's a very big difference between investors who are engaged and active in Africa and investors who are on the side lines and perhaps thinking about it. The people who are engaged know that conflict and war, though there are one or two pockets left, really aren't an issue in Africa. They also acknowledge rapidly rising incomes, falling infant mortality, rising primary and secondary school enrolment and the rapid build of infrastructure,

"People who are engaged and on the ground know there is profound and broadly-based change taking place and laugh at some of the perceptions which are deeply ingrained in many outsiders. I think there is still a racist element - though it is not politically correct to say so - which does colour peoples' thinking. Ninety-nine per cent of information most westerners have received about Africa over their lifetime has been unequivocally negative and there are certain players, like the aid industry, that have big vested interests in perpetuating that image. The information people have been receiving has been very unbalanced and very negative, particularly with regard to the changes of the last ten years."

Sub Saharan Africa notably escaped the financial rigours of the 2008 recession. Stephen Jennings believes there are two main reasons for this.

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"Sub Saharan Africa was the only region in the world that didn't have a single quarter of negative growth in 2009 and in a lot of these countries - even the oil exporters - the dip in growth was quite mild and very short. The first reason for that is that there was a tremendous underlying momentum of change and modernisation which wasn't anything to do with what was happening in the rest of the world. It's to do with improved governance, investment, confidence domestically, and this is what gave these countries a resilience that the rest of the world didn't have.


"Secondly, from a financial standpoint, Africa was less leveraged and less inter-connected with the global financial system, so the potential for financial contagion was much less than in any other region of the world."

Stephen Jennings believes that African governments are beginning to develop the right policies to energize markets. "

What I have heard many, many, times is that governments in Africa may not have improved very much but governments are intervening less and staying out of the private sector. A lot of the change that has happened in Africa has been driven by private sector investment, and more private sector dynamism. This is partly because governments have stepped back, privatised, and haven't intervened as heavily as they did in the past in certain industries. "

At the same time, there are improvements in governance. You can see that in the measures of corruption and governance. The very recent World Bank ‘Ease of Doing Business Survey' confirmed that the business environment of Sub Saharan Africa is improving faster than anywhere else. What's happening is that as the private sector is getting stronger as the middle class is getting stronger. The electorate is becoming much more assertive in terms of the demand it is putting on the politicians. Africa is now into a virtuous cycle of development of broadening the middle class, accountability of politicians, and hopefully, continuous improvement of policy on the back of that."

The rapid development of the Sub Sahara can be put in an historical context, he believes. "

Sub Saharan Africa is just doing what the rest of the world has done, in the case of the West starting with the Industrial Revolution in the eighteenth century, in the case of Asia not until the 1960s and 70s. There is a global process of convergence in which very few countries are not participating in one way or another. The tendency is that the later you embark on that process, the easier it is to converge and the faster you can converge. The kind of growth rates that Asia has seen have never been experienced in the West, because Asia was able to borrow ideas and technology and follow many things that had been pioneered over a long period of time in the West. "

Africa, in principle, can go even faster. So in terms of forms of governance, technology and management models, they can learn the lessons from everybody else's mistakes and the fact that they are so poor and have such a low starting point means they have the potential for very high growth. "

If you take out South Africa, the rest of the continent is growing at 6 to 7 per cent but I would say good growth for the region would be north of 10 per cent. With reasonable governance most of these countries - and some of them are growing at 8 or 9 per cent now - could grow at 10 per cent or more."

"There is a complex interaction between politics and economics over a very long period of time, so exactly which countries win, and which grow at 5 per cent rather than 11 per cent, is extremely difficult to forecast. What we do know is that there is a very broad pan-continental convergence and modernisation process and most of the countries in the region are part of it."

So is this a surge or lift off? Mr Jennings refers to the data.


"If you study the data closely, the acceleration of growth and the improvement of macroeconomic indicators started in the 1990s and has been continuously improving and broadening across these countries since then. The region maintained robust growth through a major global crisis, the largest since the Great Depression, so it's clearly not a short-term surge and clearly not a commodity cycle. This part of the world is converging and catching up with the rest of the world."

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The best investment opportunities, he believes, will lie with the consumer demands of the new middle class. "

Africa is going to be the fastest growing region in the world and has the most favourable demographics in the world, so I view the most attractive business opportunities as the things that will be leveraged to the emergence of one of the biggest middle classes in the world - including real estate and all kinds of consumer products and technologies. "

The natural resource side will also be very big because Africa is under-explored and under-exploited. There will be vast natural resource businesses built, but the most successful businesses in my view will be those which will be built around this consumer and demographic revolution. The richest man in Africa is already richer than the richest man in Russia, which is really telling you something. He's not in the oil business; he's in the cement business. And obviously cement is based around construction and the huge build-up of the middle class."

He believes the nature of investment will be extremely diverse.

"The preconception is that these countries are in need of foreign management and foreign capital but the reality is that most of the new businesses will be built and financed with domestic capital and that's exactly what's happening now. But, because Africa's very big and very fast growing, it's going to attract all of the major forms of global capital.

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"Foreign direct investment is very important and robust across many countries, and not surprisingly a lot of that FDI is coming from other emerging market countries, most notably China and India but also from Brazil, Malaysia, other Asian countries as well as South Africa. Private equity is relatively advanced given the overall development of the markets and there have already been large PE groups engaged with Africa so there are already quite sizable pools of private equity.


"With the public markets, we've seen on the debt side a plethora of bond issues at attractive yields over the last year, so that's bringing down the cost of capital for these countries and extending yield curves. In terms of portfolio equity, the strongest equity markets in the world over the last couple of years have been in Africa. The flows aren't massive, but investors are obviously waking up and engaging and realising there is an attractive investment opportunity.

"All of these pools of capital make for another transformational change. Africa won't be capital starved; Africa is going to have the same access and availability of capital as any other fast-growing region of the world."

Stephen Jennings believes Africa's economic momentum will have staying power.

"History tells us that when you start to converge, you get on that escalator of improved incomes, improved governance and improved infrastructure. Development economics isn't able to explain in a very predictive way what happens because the details are not very well understood. But broadly, you get into a whole series of virtuous cycles, with one change reinforcing another and there's a whole process of modernisation. It's very messy, it's very organic. It's not necessarily text book or top down, but it's very broadly based and tends to be very powerful and sustainable.

"The elite and the upper middle class in these countries are beginning to realise there's no reason at all why they shouldn't belong to the middle income group of countries. That means they want to invest at home so capital flight is reducing, they want their children to come back and work at home but, most importantly, they understand that they are not middle income countries because of corruption and very poor governance. So the pressure for improved government regulation, improved transparency becomes stronger and drives this ongoing change. "

I think Africa will be very much like Asia. Certainly if you look as a whole at the growth rates over the last ten years, Africa is on a sharper trajectory than India has been. So I don't see why Sub Saharan Africa shouldn't grow at least as fast as Asia, or even grow faster, as it has the benefit of learning from the Asian experience."

He reasons that investors should look at the region over the next 20 years.


"In terms of reported GDP - though GDP numbers can be very inaccurate - it's between $1500 and $2000 per capita. I think in 20 years the most successful of these countries will be middle income countries. We know from Asia there will be very wide dispersion. There's a massive difference between Singapore with $50,000 per capita GDP and Indonesia with $3000, even though they came from the same starting point, and the same thing is likely to happen in Africa. As a whole these countries will become normal, stable and, in most cases, democracies.

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"The other thing that will happen is that some of the economies will become very large. Nigeria has the potential within 15 years to become a bigger economy than Russia or Brazil. We know in terms of demographics that by 2050 it will be the third largest population in the world. This not a bunch of small rag tag countries. Some of them will become globally significant economies in the same way as some of the Asian countries have."

Which countries would he predict will become the most successful over this time?

"It's very hard to pick winners. Asia tells us that some countries that look favourable initially but don't follow through and don't have the leadership to modernise themselves. "

I do like Nigeria. I think Nigeria is one of the least understood countries that I have ever worked in. Of course there has been the war in Biafra, and Nigerians are also associated with scams and schemes, but few outsiders really understand Nigeria. Yes, there has been tremendous corruption in the oil and gas industry, and all these problems are very well publicised, but it's also one of the fastest growing economies in the world over the last decade and that growth is not by accident. It has been sustained, notwithstanding the problems in the oil and gas sector.

"It's going to be a very big economy. It has the huge advantage of scale, and in a lot of areas of reform they have been world class. Nigeria's minister of finance is the former number three from the World Bank. She's probably one of the top performers in the world. There have been a lot of positive changes, most recently the privatisation of the electricity industry, but it gets lost with issues like Boko Haram and the conflict in the north of the country and these do get a lot of publicity. I think people are blinded by their preconceptions and some ongoing negative issues.

"Stylised preconceptions are part of human nature but can be very misleading. Ireland went from the poorest country in Europe to the second wealthiest in a generation. Ireland has a higher per capita income than Germany or the UK. Thirty years ago people used to joke about the Irish and what a poor place it was, but they don't joke any longer. Africans, too, are going to prove people wrong."

The article was written by Katherine Bergen on behalf of Front Row Group.

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