Renaissance Capital’s 2nd Annual Emerging Markets Investor Conference in Hong Kong, held at the tail end of last year, came at a particularly important juncture for Africa in terms of foreign investments, especially in the mining sector. African Banker editor Anver Versi attended the meeting.
Renaissance Capital is the first and probably still the only financial group specialising in delivering financial, investment and management expertise to emerging and frontier markets. Although its roots are in Russia, it has become, as it likes to say, ‘resident, not a visitor’ in Africa.
Renaissance is one of the major shareholders in Africa’s multinational, Ecobank; it is the driving force behind the Tatu City urban development project in Kenya and in similar projects in Zimbabwe, Ghana and several other countries. It won African Banker magazine’s Best Investment Bank in Africa award in 2010 and has been involved in several deals – as broker, joint book runner, chief advisor or issuing house – worth billions of dollars.
Renaissance bucked the general trend of other major financial groups by betting its shirt on emerging markets – and has made a fortune for itself and the companies it is involved in ever since. “We are living in a world of accelerating change and economic development. The changes to the structure of the global economy are leading to changes in politics and geopolitics,” says Stephen Jennings, the CEO of Renaissance Group. “There will be market shocks, emanating primarily from economic stress in the West, and these will create disruptions and opportunities.” It is these opportunities that Renaissance has been quick to identify and cash in on. Its strategy has always been to anticipate need and work towards satisfying it.
The Hong Kong conference was primarily aimed at the global mining industry, which has to factor in a daunting number of issues when making investments. First, there is the scale of investment, typically between $700m to $1bn; then there is the gestation period, which could be between three and seven years before commissioning and, finally, there is the vital question of the volume of demand, and the prices prevailing, when mining products finally make it to the market.
Then there is the question of the investment environment in source countries. How easy or difficult is it obtain licences and other authorisations? What is the attitude of the government and the public? How safe is the investment from nationalisation? Will the goalposts be moved in future if the project is a success? Will the deals made be honoured even if there is a change of government?
The undercurrent of the discussion centred on China, primarily, and India and Russia, and their need for resources to continue fuelling their incredible growth. As long as these emerging markets continued to grow, there would be a demand for resources. Conversely, the end user also required assurance that resources would be available as and when required. This explained the heavy investment in extractive industries by emerging markets such as China, India and Russia. Hong Kong, with its proximity to mainland China, thus becomes the natural point of reference for investment funds. It has now become the world champion in terms of issuing IPOs.
These were the issues that formed the core of the conference. This was a heavyweight gathering, with Rilwanu Lukman, the former secretary-general of OPEC and now advisor to a host of bodies, including the Nigerian government, leading the African presence, which included Tokunbo Akindele, head of corporate finance Oando Exploration and production; Ambrosie Bryant Chukwueloka Orjiako, chairman SEPLAT; and Philip Ihenacho, chairman Seven Energy.
Charles Robertson, global chief economist of Renaissance Capital, said that, contrary to belief in the West, the risk of investment in the Eurozone was high and could get worse if the EU was unable to hold together.
Robert Friedland, the founder and CEO of Ivanhoe Mines said it was clear that the ‘cheap money (low interest rates in the West) would flow to resource-rich countries like Nigeria or Russia. While there was doom and gloom in Europe, “What is really important is that Africa is developing. The developing world is the only rational place to put your money.”
Artem Volynets, CEO of EN+ Group, dismissed speculation that the crisis in Europe would affect China. “China is doing exactly what it said it would do a year ago.” He predicted that we would see another 15 years of growth in China before it tapered off. “Growth will come from Africa, China and India.”
Lukman said the relationship between China and Africa was very good and that although Chinese exports were slowing, its domestic demands were growing. It was not feasible, even under the best conditions, for Europe and the US to grow infinitely: “Africa is starting from a low base, so the potential for growth is huge.” On a relative basis, oil prices were not exceptionally high but because of events in Iraq and Libya, there was a tightness in the market.:“What is making fuel prices expensive is not the price of crude but the taxes that governments charge. However, there is a danger of the emerging markets overheating – oil prices can be used to monitor growth.”
On the Frontier Oil panel, Nigerian Ambrosie Bryant Chukwueloka Orjiako, the chairman of SEPLAT, said that there had been a major transformation in the industry with indigenous players beginning to take control in various aspects. “Shell has encouraged indigenous companies to fill in the gaps left by the majors,” he said. Tokunbo Akindele of Oando added that “we are beginning to see the emergence of African oil majors – both upstream and downstream.” The majors were leaving “land and shallow water to the indigenous companies.” Oando was on course to raise production from 10-20,000 bpd to 100,000 bpd in the near future but access to finance was not the same for them as for international oil companies. He said the biggest change that had occurred with the advent of indigenous companies in the sector was that “we are engaged with the local communities and have excellent relations with them”.
Arnold Meyer, Renaissance’s head of real estate, Africa, said that the common denominator of Africa’s 54 countries was that virtually all were experiencing rapid urbanisation: “Rural areas are being left behind only for agriculture.”. The question was how to provide food, water, sewage, power, housing, office space and recreation facilities. “Governments cannot provide all the infrastructure required – this is where Renaissance comes in.”
Meyer described one of the most exciting urban developments in Africa today – the Tatu City project outside Nairobi, which will have its own facilities and provide state-of-the-art living and working space in both high-density and low-density areas. Several other similar projects in other African cities were at the planning stage.
The Hong Kong conference was full of optimism and Africa was at the centre of it.