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INVESTING IN AFRICA: RISKS AND OPPORTUNITIES

By Mark Paulsmeier, Group Chairman, the Paulsmeier Inc. Group2 June 2004

At present some commentators are calling for mechanisms to ensure investments in Africa are sustainable and comply with good corporate governance principles. Such mechanisms could lead to unnecessary regulation, red tape and interference. It is the Paulsmeier Inc. Group’s contention that sustainability is best ensured by the correct approach to venture capital business.

The Paulsmeier Inc. Group actively seeks governmental support to help create environments conducive to sustainable investment. Yet these mechanisms should not involve unnecessary regulation. After all, government interference and inconsistency are arguably the greatest cause of risk to infrastructure projects. They have been the reasons for losses amounting to billions of dollars in the US and UK, for example.

African governments should aim to attract the right investors – investors who are serious about affecting, for the better, the communities and environments in which they do business. They could encourage investments and projects that do justice to the legacy of venture capital business – committed capital, shared risk, responsible development, and a situation that best serves all parties’ interests.

The Paulsmeier Inc. Group’s international corporate network association, Professional Investors Group, has had such “mechanisms” in place since 1981. The Group has a stringent Constitution, and Professional Investors Group a Code and Conduct & Ethics that guarantees the Group conducts business in a sustainable and responsible manner that reflects corporate values and goes beyond compliances with external standards.

The Paulsmeier Inc. Group specializes in facilitating assistance and support to African governments, companies and entrepreneurs. Bernard Shaw Consulting alone has successfully raised venture capital funding for more than eight hundred and fifty individual projects, in receipt of investments exceeding US$1,75-billion.

Africa needs extensive funding for infrastructural development. Some estimates put this figure at US$250-billion for the period 2004 to 2014. Knowledgeable, experienced South Africans are seeing the opportunities, and they have invested an estimated US$1-billion a year on the continent since 1994.

The Paulsmeier Inc. Group has facilitated significant investments in venture capital intellectual infrastructure in Africa. These investments are set to generate considerable sustainable venture capital on the continent.

The bitter irony about investment risk in Africa is that sound deals rarely fail. Africa’s successes have involved spectacular returns. According to the UN Economic Commission for Africa, the average return on direct foreign investment in Africa is around four times that in G7 countries and around twice that in Asia.

Africa ’s successes are not widely known as they are often not publicized by the companies involved, and international sentiment tends to undermine news of emerging successes.

There are some real challenges to attracting financing to Africa, but the lack of infrastructure is always relative. A lack of corporate expertise and resources is not a problem, provided it is factored into the due diligence process and arranged accordingly – as the Paulsmeier Inc. Group does.

In many cases the Group is able to limit the risk of African projects to levels on par with the levels of risk in projects in developed countries. This is calculated risk and high returns rather than high risk and high returns. Yet some ignorant investors continue to think of investment in Africa in terms only of the latter.

The Group is unique in its bringing together, under one umbrella, the three components of venture capital business – matching the right kind of financing with the right projects with the right corporate expertise and resources to fulfill a project’s requirements. This allows the Group to turn project opportunities very successfully into sustainable business entities.

The Vision and Mission