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Seeking economic solutions for Africa

Rwanda and Ethiopia’s economies are developing, showing signs of promise.

With international focus and investment shifting more towards developed countries, Africa needs to find organic solutions to expand its economies, now more than ever before.

Speaking at the Standard Bank-sponsored event titled Africa: A collaborative approach, in Rosebank on Thursday, PwC business strategist Jorge Camarate, presented results of a PwC CEO survey in which 80 African CEOs were interviewed.

He said that companies were gearing themselves towards change and growth, he indicated that CEOs were still sceptical in their overall view on Africa.

“Companies are looking at developed markets as a hedge; in times of uncertainty, they see a presence in the UK and US as a stable source of funds.”

South Africa and Africa as a whole have experienced slow economic progress coupled with pronounced uncertainty, both economically and politically. Foreign investors are finding the uncertainty unattractive and slowing in their investment into African nations.

Some East African nations, however, are gearing towards change and development of their economies.

Brand communications specialist, Musa Kalenga said that as of recently, East African countries have been showing signs of development and change. Rwanda and Ethiopia specifically, have been making positive political turns. 

Camarate added that East African markets have grown increasingly interesting because of perceived independence from the commodities cycle, which makes it “very attractive” for investments.

Growth opportunities are therefore available within Africa, and it’s necessary that Africa doesn’t only rely on foreign investment.

Collaborative approach required

Camarate said organic structures and joint ventures are options to consider to propel the economic development of African nations. This therefore means looking at the possibilities of more African nations investing within Africa.

Kalenga said it would be ideal for Africans to invest in Africa, however the global movement of money, capital exposure and capital concentration, makes it difficult to achieve.

“As a starting point, Africans should absolutely be investing in Africa and they should do so in such a way that we are all driving towards the same end, but I think that road is a short road because of where capital sits and what it takes to get capital into the continent,” he said.

The issue with foreign investment, refutes Kalenga, is that it has become like an aid.

“It’s like a crutch that is used to continue to perpetuate some of the things we are trying to get out of,” he added.

Kalenga said while foreign investment might help kick-start VC firms and seed funding opportunities within Africa, it is important to note how the money is used and what the implications are.

“In ten years’ time, we are going to see that Africa hasn’t moved forward and we going to be asking why. I think the more important conversation is the membrane that manages how the money comes into the continent. And how that is deployed to make sure that it has the correct impact,” he added.

Solutions for Africa’s economic expansion has many factors and dynamics at play. Brandon Katz from Catalyst Solutions, spoke at the event on R & D incentives and cash grants, more specifically, the section 12J tax incentive.

Katz described the incentive as something to encourage high-net-worth individuals and companies to invest into smaller businesses, and in return, Katz explained, if an investor has 45% tax bracket, if he invested R100 in a company he could claim back R45.

“The incentive would significantly reduce his risk in investing into a company here, and in effect he’d only be investing R55, which makes it ideal for investing in start-ups,” he added.

Katz said the incentive is equally suitable for investing in movable assets, like trucks, cranes, machinery and solar panels.

The incentive basically sees an investment into local start-ups, small- or medium-sized business with a guaranteed return for to the investor.

Homegrown and regional investment form part of the solution to economic expansion of African nations. Camarate said the local business environment therefore has an important role to play in economic expansion.

He said local businesses need to find creative solutions that serve the broader population, because more of the same is not going to solve the problem. In addition, technological solutions also need to be embraced.

“There needs to be that kind of thinking in terms of how do we use technology and ideas to help develop, potentially elsewhere but in the context that can allow us to serve the African population,” he said.

The advantages of using Africa to make Africa grow is that they have a better understanding of the local business environment needs and can approach the market with the right expectations in mind. However, another part of it is about bringing in new ideas.  

“If the solution stays within the region, how much access to these new ideas do we have? The beauty of global investors is in some ways being able to access thinking, the innovation, the ideas that are being done elsewhere,” said Camarate.

Therefore although cutting foreign aid and investment would be ideal for Africa, the possibilities for further growth might be cut short and the solution may lie in integrating the two options intelligently to build a wholesome solution.

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