Nigeria, Arsenal: cruel to optimists
Africa needs cash and quickly: economies are not keeping up with booming populations, which is a shortcut to instability. The African Development Bank now estimates that the continent needs more than $100bn a year just to finance and maintain its infrastructure needs. But, while there are investors from East and West looking for bigger returns abroad due to low interest rates at home, the difficulty of enforcing property rights is holding back serious investment in the continent.
The Federal Palace Hotel, Lagos, is the picture of potential. It has a prime lagoon-side spot, a casino, a renovated pool area and plenty of green space in a notoriously asphalted city. Despite this, the hotel is driving away investors because of poisonous legal battles amongst the owners, the Ibru family, over who owns what.
Drive in any direction out of the gates of the Federal Palace, and it is not long before you will find houses with ‘NOT FOR SALE’ written in red paint. Elsewhere, whole communities have been bulldozed out of waterfront areas because, despite living in an area for a generation, they cannot produce written land titles.
Certainty is needed when it comes to moveable assets, too. A lack of clarity over beneficial ownership of companies – who really owns it, rather than a shell company registered in the Bahamas – means that responsible pension funds from the US and Europe are staying away from investing in Africa.
That has consequences. Africa’s 54 countries received just $43bn in foreign direct investment (FDI) in 2017, a 13% drop from the previous year. The ASEAN grouping of 10 middling Asian countries received more than double that amount last year.
This is not science fiction
Trust and transparency matter if Africa wants to get serious long-term investors. Given the looming debt crisis on the continent, often driven by opaque and corrupt government spending, the pessimists may appear to be in the ascendant. But new advances in technology are keeping the flame alive.
The principles behind the cryptocurrency Bitcoin are distributed ledgers, where everyone can see who owns what and data is difficult to tamper with. Companies like Land Layby and Bitland are already using that technology for shared land registries in Africa. It is a way of creating that very transparency that gives comfort to private-sector lenders who may well be sitting on huge cushions of liquidity – see most African banks – but are fearful of lending due to identity opacity.
This is not science fiction. Letshego Microfinance Bank, for example, is rolling out its first loans facilitated by distributed ledgers in October (see page 30). Kenyan telecoms operators, too, are creating virtual financial histories for users of their mobile-money schemes, which, despite requiring a regulatory fix, could provide the blueprint for far greater lending to the poorer segments of society.
If Africa’s governments were able to provide similar levels of transparency – as some argue is already starting to happen in Nigeria, with the Treasury Single Account – then Africa would start to turn heads among the largest global fund managers.
This column first appeared in the September 2018 print edition of The Africa Report magazine