Business

AFC Boss Explains How World Misunderstands African Market

President of Africa Finance Corporation (AFC), Samaila Zubairu, has pointed out that one of the challenges that the African market faces presently is that global investors do not have a clear knowledge of it and so misunderstand the depth of its opportunities.

Zubairu pointed out that the continent required urgent investment in infrastructure, which he estimated to be between $130 billion and $170 billion.

The AFC boss spoke in an interview on Politico, a German-owned political newspaper company based in the United States.

Responding to a question on the biggest misconceptions about the investment readiness of African countries, Zubairu said, “The first one is this risk perception of Africa and the ‘prejudice risk premium’ that we have to pay as Africans. There have been several studies done by a lot of the rating agencies, international rating agencies, that show that the only region with a lower default rate than Africa for project finance and infrastructure is the Middle East.

“Africa has the same default rate, at five per cent, with Western Europe — lower than North America, lower than Latin America, lower than Asia. Yet, Africa risk is priced much significantly higher than everywhere else in the world.

“Another thing that is not understood is the African market itself. It’s quite a huge market — very many young people, all are very aspirational. And they are all consumers.

“The only people that are looking at the African market are the Chinese and the Asians. They understand that there is a huge market here, and they actually make products for the market.”

Explaining what he meant by prejudice against the continent, the AFC boss said, “If you look at Latin America and their history of defaults and the history of restructuring, and the price at which they can access funding, it’s very different from Africa, which has very little history of default.

“So the cost of capital in Africa is higher than any other region while the evidence of default rates in Africa is lower than most other regions.

“Another example: political risk insurance. Very few claims in Africa, but Africa has the highest premium.”

Zubairu pointed out that in its fight to combat corruption in Africa, AFC had subscribed to most anti-corruption, anti-bribery, anti-money laundering provisions of the world, and tried to enforce them.

He noted that one of the ways to overcome the challenge of corruption was more development, stressing, “and I mean sustainable development.”

Zubairu said, “With that kind of wealth creation, there’ll be less incentive for corruption, which is why our view is that we should focus on structural transformation, focus on value addition on the continent, focus on creating that middle class that comes as a result of this.

“Because once you have those jobs, you have a middle class. Once a middle class increases in the country, even the political outlook of the country changes.

“Corruption is corruption. We must have very clear rules against it. But we also need to look at how to prevent the incentive for corruption from happening.”

Obinna Chima with Agency Report