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