It’s a G-thing, US mega investors say
Mbongeni Mguni | Wednesday August 9, 2023 11:28
Last December, I joined hundreds of delegates at the US Africa Leaders’ Summit called by President Joseph Biden and attended by more than 40 African heads of state, together with their private sectors. Stemming from that engagement, 75 new deals between the United States and African countries were closed for a total estimated value of $5.7 billion in two-way trade and investment.
At least $15 billion in commitments were made by business and government leaders at the Summit, as well as the additional $8 billion in private sector commitments and a further $1 billion in U.S. Government commitments made in conjunction with Vice President Kamala Harris’s visit to Ghana, Tanzania, and Zambia in March this year.
I subsequently wrote about how while Botswana has spent time and millions of pula fine-tuning its investment climate, and also curating Africa’s longest-standing image of peace, stability, prosperity, opportunity and economic liberty, the country plays second fiddle to the towering titans on the continent in terms of Foreign Direct Investment (FDI).
One major issue in FDI is the issue of scale, where Botswana’s population clearly dwarfs its continental peers. However, even in new tech, which does not necessarily require population, the country’s name rarely crops up whenever the global giants, such as the Googles, Metas, Twitters, Amazons and others, name their African headquarters.
The line-up is often the same: Nigeria, Kenya, Ghana, South Africa, and lately, Rwanda.
And so, more recently in Gaborone, at the US Africa Business Summit, the excitement of learning that US institutional investors with collective assets of $2.3 trillion were amongst the 1,300 delegates, was somewhat doused by the revelation that after Botswana, these investors would visit three other African countries conducting similar assessments.
The countries? South Africa, Nigeria and Morocco. Botswana was the second country the institutional investors visited on their tour. The first? Egypt. Are you worried yet?
The issue of FDI and how to attract it, has been something the country’s policymakers have wracked their minds about over the years. Foreign investor attention brings in capital, skills transfer, job creation, economic deepening, and for many countries the possibility that the investor will export back to their home country and generate valuable foreign currency.
For Botswana, FDI is perfectly attuned to government’s ambitions around economic transformation and the growth of a knowledge-based economy and it is a key accelerator of priorities such as value chain development.
Those who study FDI, such as Henry Loewendahl, say this elusive animal tends to hunt in certain territories and has a specific diet. Loewendahl, an FDI expert with 27 years experience having worked with over 150 governments and global corporations in 60 countries, previously told me that four factors drive the direction FDI flows in.
FDI is market seeking, where big populations such South Africa, Nigeria, Morocco and Egypt hold an advantage. It is also efficiency seeking where investors are looking for efficient locations, with skilled workforce and costs, from where to provide goods or services to the wider region. FDI can also be commodity or resource seeking, which is the most common in Africa. Lastly, it can be asset seeking where investors obtain strategic assets, whether tangible or intangible that may be critical to their long-term strategy but are not available at home.
These are some of the thoughts that were uppermost in my mind, following the revelation that the US institutional investors were not in Africa just for the Summit held in Gaborone.
For Batswana, FDI can be an emotional affair. Many vividly remember the events of Wednesday January 12, 2000 when 900 citizen jobs were thrown onto the street after the inglorious closure of the Hyundai assembly plant in Broadhurst. They also clearly remember how in September 2014, a shiny new Hyundai assembly plant was opened in Benoni, Gauteng with officials there hailing the massive job creation it would lead to.
Even today, the Hyundai episode remains singularly symbolic of the fact that South Africa casts a large economic shadow over Botswana, grabbing FDI, technology and skills with its larger population and better industrialisation.
And yet, at the Summit in Gaborone, the US institutional investors said all was not lost. Besides Loewendahl’s four factors for FDI, there was something else the investors were watching out for, in their decisions about the trillions of dollars they manage.
In fact, the US group was unique in several aspects. The investors represented mainly public pension funds whose members are ordinary working class American teachers, policemen, municipality workers, firemen and others. In addition, US investors are particularly sensitive to factors over and above Loewendahl’s four, which include climate change considerations, impact, ethics, fair wage remuneration, gender and others.
But, according to Joseph Boateng, chief investment officer of the Casey Family Programmes, there’s a key factor for FDI that Botswana can proudly boast of, something I think of as the G-thing: Governance. That is to say governance across political administration, natural resources management, institutions and the associated consistency and predictability of policy.
On the sidelines of the Summit, in between frenzied meetings and engagements, Boateng took time out to explain to me that the institutional investors were particularly eyeing this factor.
With assets of $2.5 billion Casey Family Programmes is the nation’s largest operating foundation focused on safely reducing the need for foster care in the United States. Jim Casey, the founder of United Parcel Service, established Casey Family Programmes in 1966 to help improve the safety and success of vulnerable children and their families across America.
“What your policy folks are doing is on the right track,” Boateng said.
“You have governance which works. I couldn’t say that for many places.
“As a long term investor, if good governance is not in place, I’m not inclined to go for it and I know that we have other investors who are like-minded.
“Telling your story, being out there, the whole diamond story where the nation was and where it is, is very powerful.”
He added: “I can tell you that anyone I have met who has visited Botswana whether on their own or business, they always tell me they’ll come back.
“There’s a reason why they say that and they don’t necessarily say that about other places they go.
“Personally, anyone that I have met who has been here, they want to come back.
“As an African I can make that comparison.
“The governance that you have, I’m not saying that anywhere is perfect, but it works.”
Boateng can confidently say any investor who comes to Botswana would want to return, because he also visited Botswana in 2015 and was back for the US Africa Business Summit. On his visit eight years ago, Boateng was able to touch base with Choppies and Letshego, two of the country’s success stories in the private sector.
“We visited Choppies and Letshego which has since expanded and talked about their expansion plan, which we currently have in some portfolios that we have.”
The G-thing is part of a factor that is increasingly determining the direction FDI flows in. Environment, Social and Governance (ESG) principles have become essential for not only institutional investors, but the members they represent, in the choices capital is deployed.
As many countries on the continent have polished up their investment climates, catching up to and in many cases beating Botswana on ratings such as the Global Competitiveness Report, the country is a nose-ahead in terms of ESG. Major economic entities such as Debswana and government’s own array of social programmes, have helped Botswana leverage its reputation for sound governance and institutions into a picture of a country serious about ESG.
The recent negotiations with De Beers that were keenly watched by the world, and President Mokgweetsi Masisi’s oft-repeated insistence that the deal had to be good for Batswana, have also helped the image of a country pursuing the greater good of its citizens in areas such as the extractives sector and private sector partnerships.
Even before ESG became the buzzword for investors, Botswana broke with the continental norm in the post-Independence minerals boom, by instituting a resource management policy where mineral revenues where spread out for country-wide primary infrastructure and services such as health and education.
Masisi recently touched on the distinction in mineral resources governance, during a kgotla meeting in Sese.
“You are getting royalties just that they don’t go into your pocket,” Masisi said in response to a question.
“This village was built through royalties. We have been saying the water supply will be increased and that there’s a new school being built, where do you think this money comes from?
“De Beers is paying royalties and that money is split in this way.
“If you want it go get into your own pocket, we don’t have that here. That is seen in countries that are crying, now wanting to look like us. Violent countries of war lords, dictatorships and terrorists.
“Those countries when you are there, there’s nothing like Botswana. If there’s a doctor there, if they haven’t shot him, they charge exorbitantly.
“The police also charge you. On the road, they have roadblocks, you pay to pass, there’s poor governance. “That’s where royalties go into pockets.
“For us, no royalties to any individual, royalties are a public good and they are for all of us.
“The royalties go to government and government takes care of you and others that you may not be personally able to take care of.”
Boateng said besides the G-thing, institutional investors also watch out for returns on capital and impact of their investments. Institutional investors also do not plough money directly into companies or commercial opportunities. Rather, they work through asset managers on the ground, which then means countries need to have the appropriate skills sets and depth in this regard.
Botswana has built up a wealth of skills in asset management, with many young Batswana handling billions of Pula in local pension fund assets across increasingly complex financial assets. The Botswana Stock Exchange, meanwhile, is expanding its continental and international linkages, while having already boosted its own trading technology such as through the world-class automated trading system.
“I’m looking for risk managers who can assess the risk versus the opportunity because they go hand in hand, whether it’s in the US, Europe or anywhere,” Boateng said.
“If you cannot assess the risk, forget it.
“I’m looking for the know-how, those who really know their craft and not just marketing stuff to me.
“Those who can execute, take stuff from the beginning to the end.
“I’m looking for partnerships, transparency, accountability.
“We always define what our measure of success will be at the outset because once you start making excuses as a manager, you’ve lost it.”
While investors will watch for scale, the new African Continental Free Trade Area deal provides a platform for countries such as Botswana to better position themselves as a seamless trading bloc, reducing the limitations of population. That potential has already been identified by some investors, such as Pasdec, the Malaysian firm manufacturing vehicle components in Lobatse. Through SACU flexi-trade arrangements, those components are built into vehicles in South Africa, which in turn are exported to the US under the AGOA arrangement, a classic example of regional value chains.
But the institutional investors are not the only targets Botswana should be looking at. The continent is awash with funds managed by various asset managers and targeting diverse opportunities. The country’s largest asset manager, Bifm, plans to pump up its Local Property Fund to P2 billion, from P1.3 billion, in the next two years. The fund has a 20% allocation for regional opportunities within SADC.
Prosper Africa regional director for investment facilitation, Jenna Diallo, told me that institutional investors invest into funds that tend to cover areas, rather than specific countries on the continent. Prosper Africa is the US government initiative to increase trade and investment between African nations and the United States. The organisation led the US institutional investors on their tour of Botswana and the four other African states.
“Institutional investors are not going invest at the firm level, and they don’t often invest in single country investments,” she said.
“The risk ends up being spread across different countries and even when you look at funds, they are not usually single country funds.”
She explained that by visiting the five African states, Prosper Africa was helping the institutional investors meet partners on the ground who gel with their investment objectives.
“One of the things we try to achieve with these delegations is to introduce these investors to potential partners on the ground, who have their boots on the ground in these various markets and use that proximity and their expertise to feel up good investments,” she said.
Botswana can feel hopeful that despite the frustrations of the past in attracting FDI, more investors are looking beyond the textbook factors and seeing opportunity for long term partnerships.