Investing and Doing Business in West Africa: Key Drivers and Perspectives

Investing and Doing Business in West Africa: Key Drivers and Perspectives Rolake Akinkugbe West Africa Specialist/Head of Energy, Ecobank Research West Africa Global Banking and Investment Forum, 5 November 212

Section 1 Investing & Doing Business in West Africa: Some Strategic Perspectives

Presentation Outline Macroeconomic drivers Key & Future Growth Sectors Trade Infrastructure (Transport & Power) Institutional Reforms Human Capital & Demographics The Trade Solution? The Ecobank Experience in West Africa

Macroeconomic drivers of investment in West Africa Real GDP Growth percent change 11 9 7 5 3 1-1 -3-5 East Asia Sub-Saharan Africa North America 5 6 7 8 9 1 11 12e Real GDP Per Capita US$, 2 prices 1 9 8 7 6 5 Oil exporters Oil importers 5 6 7 8 9 1 11 12e Sub-Saharan Africa continues to grow strongly both oil importers and oil exporters. Growth remains strong in real terms compared to North America for example. West Africa is micro-africa : oil exporters, oil importers, fragile countries, landlocked and coastal countries While the predominant categories: oil exporters, WAEMU zone, etc will enjoy relatively buoyant growth Sub Sahara Africa Real GDP Growth percent change 9. 8. 7. 6. 5. 4. 3. 2. 1.. 8 9 1 11 12e 13f CFA Franc Zone WAEMU Oil-exporting countries Oil-importing countries Landlocked Coastal However in 213, oil importers will see increases in real GDP growth rates while oil exporters will see decreases Primarily reflecting an expected moderation in global oil prices in 213 Landlocked countries in the Sahel have fled the impact of drought

Unbundling the groups presents a more dynamic picture ECOWAS Real GDP Growth percent change 7 6 5 4 3 2 1 Select ECOWAS Real GDP Growth Percent change 25. 2. 15. 1. 5. 5.4 3.4 5.2 Oil and gas production boost 4.6 5.8 6.12 8 9 1 11 12e 13f Iron ore production boost Dips in growth over the last 4 years attributable to financial crisis, instability in Cote d Ivoire (Simple) average real GDP growth in the ECOWAS will rise to around 6% in 213 Unbundling the groups presents a more diverse picture. Examples: Sierra Leone s resource driven surge in 212 The impact of drought in the Sahel The implications of political instability for growth Mali Growth still largely resource-driven for West Africa. -5. -1. 8 9 1 11 12e 13f Ghana Sierra Leone Mali Côte d'ivoire

Sector Components of GDP Asia: Components of GDP percent 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Agriculture Industry Services 42% 47% 11% 197 198 199 2 21 West Africa: Components of GDP percent Agriculture Industry Services 1% 9% 8% 7% 58% 6% 5% 4% 3% 31% 2% 1% 1% % 197 198 199 2 21 Key challenge is to transform this sector of the economy: It requires a 2 percentage point increase to match Asia Energy West Africa s energy exports have risen relatively steadily since the mid-198s, and now account for around 3.5% of daily global oil output. Clean technology Soft Commodities opportunities A region that s heavily dependent on food imports presents huge investment Mining & Metals - The number of active mines in West Africa came to 17, 69 in East Africa, 49 in Southern Africa, and 39 in Central Africa. West Africa s total is also well above the 21 companies actively mining the DR Congo. ICT - Currently, the West African region still lags behind Southern and East Africa in ICT infrastructure

The Consumer Sector The size of the food and consumer goods market in West Africa could reach US$6 billion by 22 Country Population (29) 21 Consumer Spending 22 Consumer Spending* The West African middle class has grown from 58 million in 2 to 1 million in 211, reflecting the successful implementation of economic and structural reforms over the last decade. The size of the food and consumer goods market in West Africa could reach US$6 billion by 22. Nigeria 151m $115bn $167bn Ghana 24m $15bn $29bn Senegal 13m $1bn $16bn Retail giants are seizing the opportunity, including Shoprite Holdings, Pick n Pay Stores, Massmart and Woolworths Holdings Ltd. Local players are expanding to catch up in what is becoming an increasingly competitive market. Consumer goods companies are growing but dirt roads, and inefficient rail systems and harbors make West Africa a logistical headache for consumer goods companies

Agro-processing in West Africa Key commodity export/processing hubs Cocoa: West Africa produces 7% of the world s cocoa, but processes only 2-4% of beans. Global demand is growing by 5% / year. Cotton: West Africa produces 15% of the world s cotton. An estimated 5 million to 1 billion USD is required to expand ginning capacity & textile production. Coffee: Growing production Sugar: Plantations are becoming multi-purpose (raw or refined sugar, bio-ethanol and/or cogenerated electricity). Over 3 billion USD planned investment from now to 215. Flour: Nigeria is emerging as Africa s hub for importing & processing cereals into flour, with a 1.25 billion USD projected investment. Cotton Grains Coffee Sugar Ports Cocoa 8

There are huge opportunities to finance West Africa s imports Petroleum products make up most of the value, but food is surging Imports by region, US$ m, 211 3, 2,5 2, 1,5 1, Imports of petroleum products, US$ m,211 Region Total ECOWAS 16,422 SADC 13,379 EAC 7,68 Total 37,481 5 - Wheat Rice Sugar Fertiliser Cement Maize ECOWAS SADC EAC Sources: Intracen, Ecobank Research. 9

Intra-African Trade ECOWAS fairs marginally better than the EAC Intra-regional trade, US$, 21 Region Total (US$ m) % of total trade AMU 7,187 3.2 CEMAC 631 1.6 CFA Franc Zone 5,552 7.1 COMESA 12,77 6.2 EAC 3,915 8.3 ECCAS 925.9 ECOWAS 15,262 8.9 SADC 28,419 12.1 WAMZ 3,949 9.9 Africa 86,184 1.9 SSA s trade with the world, 21 32% 2% 4% 13% 14% 35% Sources: Intracen, AfDB, Ecobank Research. EU China USA India Brazil Others Intra-regional trade totaled US$86.2bn in 21, just 1.9% of SSA s trade with world Most developed intra-regional trade occurs in SADC, ECOWAS & EAC In contrast ECCAS and CEMAC intra-regional trade is negligible Huge potential for boosting trade flows between major trade blocks, notably ECOWAS- CFA Franc Zone 1

Infrastructure in West Africa (Transport & Logistics) West Africa 212 Logistics Performance Index (LPI) (5 = highest 1 = lowest) Country Infrastructure Senegal 2.64 Ghana 2.52 Benin 2.48 Nigeria 2.43 Cote d'ivoire 2.37 Niger 2.28 Gambia 2.17 Guinea 2.1 Liberia 2 Mali 2 Burkina Faso 1.89 Togo 1.82 Sierra Leone 1.61 Guinea Bissau 1.56 The LPI measures the logistics friendliness of 155 countries, regards to trade facilitation The LPI highlights infrastructure shortcomings in West Africa, though picture is mixed SA is 3.42, but Senegal performs better than Tanzania (2.), Gabon (2.9), and even Botswana (2.9) Long-standing trade routes exist along the West African coast (Dakar-Lagos) and from coastal countries to the interior (Côte d Ivoire to Burkina Faso/Mali) 4 212 Logistics Performance Index (LPI) for West Africa s biggest economies vs. EAC & SA 3.5 Senegal 3 Ghana 2.5 Cote d'ivoire 2 Nigeria 1.5 Kenya 1.5 Tanzania Uganda South Africa Overall LPI Customs Infrastructure International Shipments Logistics Competence Tracking & Tracing Timeliness

Infrastructure in West Africa (Power) Commercial Energy Consumption Mix (%) - 21 1 9 8 7 6 5 4 3 2 1 Benin Cote d'ivoire Ghana Nigeria Togo SSA Renewables Nuclear Coal Hydro Natural Gas Oil ECOWAS region power supply & demand imbalances On average across each individual West African country, two inputs account for 9% of total generation capacity The issue is one of attracting investment into energy infrastructure. The West Africa Power Pool (WAPP) has been successful in attracting some investments in transmission West Africa s overall capital productivity lower than South America s primarily due to the low quality of power supply Own generation constitutes a significant proportion of total installed power capacity in the region as much as 51% in West Africa Significant opportunities exist in boosting the regional trade in electricity Expansion of transmission and generation facilities over the next 1 years will cost around US$3 billion, and at least half of that is expected to come from the private sector. Own Generation as a Share of Total Installed Capacity by SSA sub-region, 21 % of installed capacity West Africa 51% Southern Africa 6% Central Africa 2% East Africa 23% Infrastructure contribution by sector in West African economies (211) Mali Senegal Burkina Faso Benin 2 4 6 8 1 % contribution to total factor productivity (tfp) Power Customs clearance Transportation ICT Water

Institutional & Business Reforms in West Africa The challenges in West Africa are no longer hard historical challenges but soft risks. In the survey chart below, the following are ranked from a business cost and likelihood perspective and likely impact on business Power supply, regional trade barriers, bureaucracy, were deemed more likely Generic chart; much will depend on operating sector In addition to the opportunity, the West Africa region presents investors with a wide a variety of business challenges EXPROPRIATION WARFARE AND TERRORISM IMPACT POLITICAL UPHEAVAL CLASHES WITH LOCAL COMMUNITIES LABOUR DISPUTES CRIME CORRUPTION HIDDEN POLITICAL INTERESTS UNFAIR CONTRACTS / TAXATION POWER SUPPLY SHORTAGES REGIONAL TRADE BARRIERS FACILITATION PAYMENT DEMANDS BUREAUCRATIC BLOCKAGES LIKELIHOOD

West Africa: Business climate Senegal 2 15 Mali 2 Burkina Faso 2 1 15 15 5 1 5 1 5 Nigeria 2 Guinea 2 15 1 5 Côte d Ivoire 2 15 1 Ghana 2 15 15 1 5 5 1 5 Source: IFC / World Bank Ease of doing business Starting a business Getting electricity Getting credit Protecting investors 212 14

Doing Business in West Africa: The Facts and Figures Doing Business Rankings, 212 (1= easiest, 185 = hardest) Singapore Ghana Cape Verde Nigeria Sierra Leone Gambia, The Liberia Regional Average Mali Burkina Faso Togo Senegal Benin Niger Cote d'ivoire Guinea Guinea-Bissau 1 64 122 131 14 147 149 151 151 153 156 166 175 176 177 178 179-15 35 85 135 185 In 212, Sierra Leone was the only West African country, recognised in the top 1 economies with the most improved business environment (WB, Doing Business 212) Gap between top performers such as Ghana and rest of the pack is still wide, and regional average still low at 151 However OHADA* saw business start up costs have decreased by 67% of the average per capita income, while property registration times decreased by 28% In certain categories some West African economies are comparable to the world s best performers; starting a business in Senegal takes only 5 days, same as in Canada and faster than in France. Construction permits in Burkina Faso take only 98 days, 3 month faster than the European Union average. Burkina Faso closed the most gap to the frontier of best regulatory practices for local entrepreneurs out of any West African country *OHADA: Organisation for the Harmonisation of Business Law; Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Comoros, Republic of Congo, Côte d'ivoire, Equatorial Guinea, Gabon, Guinea, Guinea-Bissau, Mali, Niger, Senegal, and Togo

Demographics & Human Capital West African s are amongst the most mobile people in SSA West Africa: 32 million (212) 4 million (225) 5million (23) West Africa s working age population/labour forces could be 125 million by 225 Key challenging will be transforming youth bulge to the economically active to boost tax and consumer bases There needs to be a corresponding boost to the manufacturing base Around 32 million, could exceed 4 million by 225 West Africans who were at least 2yrs old in 196 now represent only 3% of the population By 25 West Africa will host more people than North America, and as many as Latin America or Europe Intra-regional migration is seven times higher than migration towards Europe Infact, outside of Nigeria, 15% of the region s population do not live in their country of birth West Africa offers a potential demographic dividend; wide market area, and a big consumer population to investors, but this dividend is not a given East Asia s demographic dividend accounted for up to a third of East Asia s economic miracle

Regional Trade: Key to improving investment conditions in West Africa? Intra-regional trade have been on the whole found to have a higher job creation impact than extra-regional exports; Benin, Ghana, Senegal, and Togo, who export manufacturing products to the region, have substantially higher productivity on their regional exports than their global exports. For many countries, in particular those with a high manufacturing share in regional exports, these effects can be expected to be stronger for regional than for global trade. The strongest impact were found to be in manufactured goods and STABILITY agricultural commodities that were exported regionally Help to tackle the growth without development problem. However, regional exporters do continue to face substantial trading costs in the region (vs. global exporters) Average productivity values (PV) of exports by destination region, 21 (US$) TRADE GROWTH JOBS With the exception of Burkina Faso, all countries in the region had a rather high PV for regional exports above $7,5. Also, the PV on regional exports to ECOWAS achieved the highest or second highest PV across all regions, often along with exports to the rest of SSA, for all countries but Niger.

The Ecobank Experience in West Africa We took the long-term view, and set up shop during one of the most difficult times in the West Africa s history the 198s (first mover advantage?) We embarked on a growth strategy that cut across Anglophone, Lusophone and Francophone Africa Admittedly, we had a large risk appetite, but also took the view that we would never leave any country, except forced out We found the opportunities in the gap between risk perception and reality Diversification was key to spreading and managing risk Present in 37 countries (35 in Middle Africa, operating in 32) Leading pan-african full service banking group International offices established in Paris (29), Dubai (21) and London (211) Listed on 3 stock exchanges: NSE, GSE and BRVM Now operate in 32 countries in West, Central, East and Southern Africa. Financing and promoting regional trade is a strategic focus on the business

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