SOUTH AFRICA: CONFERENCE PROMOTES INVESTING IN

UNCLAS SECTION 01 OF 03 PRETORIA 002194

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: EFIN EINV ETRD ECON PREL PINR XA SF
SUBJECT: SOUTH AFRICA: CONFERENCE PROMOTES INVESTING IN
AFRICA

REF: A. PRETORIA 1959


B. 2004 PRETORIA 5105

C. PRETORIA 2161

(U) This cable is Sensitive But Unclassified. Not for
Internet distribution.


1. (U) Summary. South African-based Investec Asset
Management hosted a May 4th conference in Johannesburg
focused on improving the investment climate in South Africa
and Africa. About 250 people attended the posh conference
which touted such high profile speakers as Cyril Ramaphosa
(former ANC head),Hernando de Soto (Peruvian economist),and
Maria Ramos (Transnet CEO). Many speakers reinforced the
theme that Africa was poised to enter a new era of
prosperity. The audience was encouraged to invest in Africa
and spread the good word. Panel discussions addressed the
problems of attracting foreign direct investment and South
Africa's policy on Zimbabwe. Other speakers presented
suggestions on ways to attain sustainable economic growth and
push this new era forward. De Soto made a strong pitch for
creating a legal framework to provide property rights to
those outside the formal economy. Ramaphosa and others
emphasized the need to invest in infrastructure, trade
issues, and the African people. End Summary.

Investment Conference Makes a Hard Sell for Africa
-------------- --------------


2. (U) The largest asset manager on the African continent,
Investec Asset Management, hosted a conference on "Investing
in Africa" on May 4 in Johannesburg. The South African-based
firm manages R270 billion ($45 billion) in assets and hosted
about 250 fund managers, brokers, and journalists for the
one-day affair focused on improving the investment climate in
South Africa and Africa as a whole. Beyond the high-tech
presentations and pomp and circumstance of waterfalls,
massage chairs, and shoe shine stations laid the message of
improving Africa's image abroad. According to Investec Asset
Management CEO Hendrik du Toit, investors need to seize this
opportune moment across the continent as we are on the verge
of an "African Renaissance."


3. (U) After an emotionally moving film detailing South
Africa's sordid political history, Du Toit opened the
conference arguing Investec's role in South Africa's
transformation. Founded in 1991, Investec has been part of
the momentum carrying the country and continent forward, Du
Toit claimed. He added that while Africa was not perfect,
90% of African countries were open for investment. He went
on to point out the urgency of capitalizing on the current
world focus on Africa. All eyes were on Africa as a result
of the Commission for Africa, the G-8 Summit agenda, and the
New Partnership for African Development (NEPAD).

Ramaphosa Touts Africa's New Era
--------------


4. (U) Cyril Ramaphosa, former Secretary General of the ANC,
former Member of Parliament, and current businessman,
delivered the conference's keynote address. Ramaphosa opened
with great optimism, stating that Africa is "on the cusp of a
new era," as it was positioned better than ever towards
growth and "great promise." He went on further to say that
this was the "most decisive moment since the end of
colonialism." He emphasized that this realization all
depends on the stakeholders' attitudes that lie in the public
and private sector.


5. (SBU) Since the end of the Cold War, Ramaphosa stated that
mostly positive changes have been spreading across Africa.
He stated that Namibia, Mozambique, South Africa, and Angola
all gained freedom, two-thirds of African countries have had
multi-party elections in recent years, and civil wars have
been reduced from 15 to nine. However, many challenges
remained, most notably in Cote d'Ivoire, Sudan, the
Democratic Republic of Congo, and Burundi. (Comment: Only
later in the discussion did Ramaphosa admit that the Zimbabwe
situation needed attention. End comment.) Ramaphosa added
that South Africa was stepping up to the plate to face
Africa's remaining challenges along with its central role in
the African Union (AU) and NEPAD. He stressed the importance
of the AU's peer review mechanism and the positive influence
that African countries could have on their neighbors.


6. (U) Ramaphosa summed up his address on a positive note,
stating that a "new era is dawning" in Africa. He cited
USAID-funded Afrobarometer's survey that one-half of Africans
thought life would improve in the year ahead and a BBC survey
that nine out of 10 Africans were proud to be African.
Ramaphosa also thanked British Prime Minister Tony Blair and
other G-8 leaders for their focus on Africa.

Nagging Problems: Lack of FDI and Zimbabwe
--------------


7. (U) South Africa historically has attracted high levels of
capital inflows compared to other emerging markets. However,
portfolio investment has dominated South African capital
inflows, leaving the country with relatively low levels of
foreign direct investment (FDI). During a panel discussion,
discussants questioned whether crime, inflation, currency
volatility, and Zimbabwe prevented South Africa from
attracting more FDI. Brian Molefe, former political activist
and CEO of the Public Investment Corporation (which manages
public sector pension funds),disagreed. Crime, inflation,
and currency volatility were largely under control, he
thought. As for Zimbabwe, Molefe asked rhetorically, "What
else can we do? Should we invade the country?" He went on
to say that according South Africa's Department of Foreign
Affairs (DFA),Zimbabwe held free and fair elections. "We
have to respect the opinion of our DFA officials," he said,
and should rather focus on communicating South Africa's
successes to the world.


8. (U) Other panel members were hopeful that the
Barclays/ABSA deal would be the start of a new trend in FDI
(ref A). Given recently relaxed foreign exchange controls
(ref B) and assuming the South African Government could
minimize rand volatility after the Barclays/ABSA deal, most
agreed that the outlook for attracting FDI to South Africa
was improving. However, the investment environment still has
room for improvement. A recent International Monetary Fund
(IMF) Survey noted that further trade liberalization,
privatization, and removal of remaining capital controls
(such as repatriating export proceeds with a specified time
period) would improve South Africa's attractiveness to
foreign investors.

De Soto's Pitch For Property Rights
--------------


9. (U) Renowned Peruvian Economist, Hernando de Soto,
addressed the conference on the fundamental importance of
secure property rights as a precondition to economic growth.
His widely acclaimed book, "The Mystery of Capital," served
as the basis of his presentation. De Soto asserted that a
legal framework was necessary to unlock economic value, and
without this, the creation of further economic growth would
likely not occur. This notion of property extended beyond
the actual value of real estate to credit and capital, which
were ultimately predicated on the value of property. In
addition, property ownership provided the very basis of
economic activity, including home and business addresses, the
government's population census, and legal protection of
individual wealth. All of these fundamental notions
supported economic development.


10. (U) De Soto admitted that he did not know a lot about
South Africa, but he did know that its two economies were not
unique to the developing world. De Soto's work in Mexico,
Egypt, and Tanzania proved that the majority of the "second
economy" homes were owned outside of the formal legal
framework. Developing countries needed to first be conscious
of the need for legal reform and then act to rectify the
problem. If successful, formalizing property ownership would
lead to secure financial transactions, collateralization of
debt, better debts and tax collection, the growth of an
insurance industry, better quality housing, etc. (Note: De
Soto is set to co-chair with Madeleine Albright a United
Nations Committee on property rights for the poor. He was to
meet South Africa's Minister of Housing Lindiwe Sisulu during
his visit, but he was unsure if he would be asked to assist
in assessing South Africa's legal framework for property
rights. End Note.)

Investment in Infrastructure, Trade, and People Needed
-------------- --------------


11. (U) Throughout the conference, speakers espoused
strategies and solutions for improving Africa's investment
climate and economic growth. Ramaphosa advocated for
increased investment in infrastructure, human capital, and
free trade initiatives, to achieve sustainable, prosperous
growth. He stated that 20% of investment in Africa was
foreign, but that Africa needed more, especially in
infrastructure. Ramaphosa added that Africa needed to join
the arena of world trade by lowering its tariffs and other
barriers to trade. Noting that the United States would
purchase 25% of its oil from Africa over the next ten years,
he urged exporting countries to use this to fuel an economic
boom instead of political conflict. Finally, Ramaphosa
stressed the need for improved education and healthcare in
Africa. He was concerned that an estimated 70,000 skilled
workers were leaving the continent each year, and that more
African scientists and engineers were working in the United
States than in Africa.


12. (U) Speaking on the opportunities and risks of investing
in Africa, Anglo Gold Ashanti President Sir Sam Jonah (a
Ghanaian) echoed the "pro-Africa" theme of the conference.
Jonah advocated that companies should procure locally, uphold
labor standards, not seek special tax treatment, increase
transparency, and treat employees as stakeholders. He argued
that the rewards were large for first movers in
public-private partnerships, and that African countries were
becoming more "hospitable" to foreign investors. At the same
time, Jonah noted Africa's lack of infrastructure and the
extra red tape of doing business in Africa.


13. (U) Maria Ramos, CEO of Transnet (state owned enterprise
parent of national railroad, port, airline, and pipeline
companies),spoke about the dire need for infrastructure
across Africa, and her plan to revitalize the transportation
infrastructure in South Africa (ref C). Transnet's strategy
was already set in motion and included focusing on core
businesses, restructuring debt, improving corporate
governance, and investing in human capital.

Comment
--------------


14. (SBU) The Investec conference selected an ambitious
mandate to fulfill. The conference succeeded in oozing
positive vibes about South Africa and Africa as an investment
location. However, a lot of work still has to be done to
turn words into actions. Infrastructure, human skill
development, and legal frameworks supporting property rights
have a long way to go in order to realize the full potential
of Mbeki's "African Renaissance." At the same time,
conferences like this one do serve the purpose of
invigorating South Africans with positive messages about
their country and continent. This conference was one effort
in the struggle to attract more foreign investment to the
continent.
HARTLEY