Improved regional stability and economic development bodes well for investors in West Africa
Nigeria’s central role in the success story of West Africa is well known, but other West African states are starting to show that the West African story is not all about Nigeria.
The Fraser Institute’s annual survey of mining companies published earlier this year reflected that the perceptions of mining companies of doing business in countries such as Sierra Leone and Ivory Coast is improving. Accra and Abidjan were identified as cities of opportunity for investment. Most of all, West African countries are proving to be resilient in the face of challenges, which highlights their potential for continued growth and stability in the long term.
Historically, West Africa has been characterised as much by its political risk as by its potential for growth. This has changed. Dangerous conflict zones such as Liberia and Sierra Leone are now more stable economic hubs, with growth rates driven in large part by their mining sectors. And perceptions to doing business in the region are following suit.
In the Policy Perception Index (PPI) published earlier this year West African countries’ ranking has improved substantially. Ivory Coast showed the most significant improvement of all the jurisdictions in the survey, moving from the 105th (in the bottom 10) in 2013 to 61st in 2014. Sierra Leone also showed marked improvement, moving from 96th to 80th. Ghana, Burkina Faso and Ivory Coast rank in the top 10 African jurisdictions.
The appeal of Accra
Ghana is increasingly being singled out as an investment destination. Mining projects continue to attract financing – Asanko Gold’s Obotan gold project is one such example – and office and retail real estate developments reflect the growing demands of business and consumers alike. Accra ranks 6th out of the 20 African ‘Cities of Opportunity’ identified by PricewaterhouseCoopers in its March 2015 report. The survey ranks African cities based on their current development and future potential, location, and time considerations – both the time taken to establish a business and the time taken to achieve a return on investment. Unsurprisingly, Lagos features on the list, as does Abidjan, but of the West African cities, Accra ranks highest.
The clear opportunities and improvement in perceptions of West Africa belie the ongoing challenges the region still faces. Insufficient infrastructure and access to power, and regulatory uncertainty ranging from environmental to social to permitting issues, continue to be barriers to investment. Fiscal barriers such as onerous exchange control, tax and royalty regimes can lower returns on investment and make structuring debt transactions more complex, which can make it harder to attract development capital.
Despite these apparent obstacles, it is often through the perceived barriers to investment where Africans show their resilience and ability to turn an obstacle into an opportunity. One of the main contributing factors to the increase in PPI rankings for both Ivory Coast and Sierra Leone was the more favourable perception of dealings with the local communities and labour force. This clearly reflects the importance of businesses and local communities working together to develop the region.
The ebola outbreak in the region highlighted the need for flexible solutions to practical problems, to deal with the humanitarian aspects as well as to mitigate the impact on commercial operations which could ultimately amplify the disease’s long-term economic effects. Lessons were also learned from it which can and will be put into practice in the future. One example of this is the increased attention which contractors and employers will now pay to provisions on ‘non-destructive force majeure’ events in their contracts. Mining companies in particular will now appreciate the importance of making sure that an epidemic like Ebola does not cause an entire supply chain to unravel as each contractor terminates its contract for force majeure.
Power shortages, another of the current hot topics whenever African development is mentioned, also provide opportunities for growth: more prospects for IPPs and other generation projects, which will bolster mining and local economies, in turn creating more jobs, a growing middle class and increased demand for natural resources.
Building on the foundations
The building blocks for growth in West Africa have been laid, and developments are certainly under way. The perceived challenges of doing business are being accepted, practical views are being taken to the risks involved, and capital is being directed to the region.
For example, despite currency controls which may have discouraged investment in mining in Burkina Faso, Roxgold reached financial close on its financing of the Yaramoko project with BNP Paribas and Société Générale, and True Gold partnered with Franco Nevada and Sandstorm Gold to finance its gold project.
Investors, particularly in mining, should be adopting the African mindset, viewing the ‘barriers’ to development as potential new avenues for expanding and diversifying.
In many ways, the view on African development needs to be a long-term one, but whether the focus is on current projects or long-term growth, the outlook is certainly positive.