U.S. INVESTMENT FUNDS LOOK FOR OPPORTUNITY IN WEST AFRICA

UNCLAS SECTION 01 OF 03 DAKAR 000239 SENSITIVE SIPDIS STATE FOR EB/IFD/ODF, EB/ESC/IEC, AF/EPS AND AF/W TREASURY FOR AFRICA DESK E.O. 12958: N/A TAGS: EINV EFIN ECON BTIO SG SUBJECT: U.S. INVESTMENT FUNDS LOOK FOR OPPORTUNITY IN WEST AFRICA DAKAR 00000239 001.2 OF 003 ¶1. (SBU) Summary: Senegal's President and U.S. private fund managers organized a conference in Dakar with U.S. and regional participants on pension fund management and investment promotion February 9-11. While one of the themes, providing access to WAEMU-region pension funds for international investors was a non-starter, the conference was a successful venue for the exchange of ideas between U.S. and African public pension managers. It also provided an excellent introduction to Africa for a large number of U.S. private fund companies. Ambassador Bernicat underscored the need for improved fiscal management in Africa as a prerequisite for attracting new foreign investment. President Wade sarcastically "took note." End summary. ATTRACTED BY PENSION MONEY, BUT THERE'S A DISCONNECT -------------- -------------- ¶2. (U) More than 30 U.S. investment managers descended on Dakar February 9-11 to participate in a regional conference on pension fund management and investment opportunities. Titled, "Destination Africa: The New Capital and Investment Frontier," the conference was organized by Chicago-based M.R. Beal and Co., New York- and Dakar-based Peacock Investments, and the Government of Senegal (which, in its own promotional brochure titled the event "The 1st International Conference on Investment and New Technologies for Managing Pension Funds in Africa"). ¶3. (SBU) According to M.R. Beal officials, the genesis of this event was a discussion they had with President Wade more than a year ago, in which Wade claimed that public pension fund regulations had been changed in Senegal, and by extension, the entire West African Economic and Monetary Union (WAEMU)/Franc CFA Zone to allow those funds to be managed and invested outside of the zone. Conference organizers claim that within West Africa there is an estimated USD 100 billion in such pension money being held in local banks, including an estimated USD 1 billion by Senegal's public pension fund for private employees, IPRES. ¶4. (U) Many of the U.S. fund managers and consultants were motivated to attend the conference based on the possibility of pitching their services to authorities from Senegal and other West African countries in the hopes of tapping into these "undiscovered" assets. However, during the course of the conference it was established that the WAEMU laws, which also govern Senegal's public pension funds, have not been revised and in fact remain very strict on requiring these accounts to remain in commercial banks or other restrictive investments within the Franc CFA zone. In private conversations with U.S. participants, there was some disappointment expressed when the U.S. firms realized that African pension holdings, at least in the WAEMU region, were not free to move outside the continent. President Wade, in his keynote address to the conference's opening ceremonies and in press interviews, discussed how reforming pension law was something he was pursuing. EXCHANGING IDEAS ON MANAGING PENSIONS -------------- ¶5. (U) One valuable aspect of this conference was the opportunity for African pension managers to meet with experienced money managers and investment officers from the U.S. These U.S.-based experts included Joseph Haslip, Assistant Comptroller for Pensions for the City of New York; Dr. Louis Moret, Board Member, California Public Employees' Retirement System, and Darryle West, Chairman of Chicago Transit Authority's Investment Committee. Public pension fund managers from a number of African countries participated: Senegal, Benin, Burkina Faso, Cameroon, Cape Verde, CAR, DRC, Cote d'Ivoire, Gabon, the Gambia, Ghana, Liberia, Madagascar, Mali, Niger, Nigeria, Republic of Congo, Sierra Leone, and Togo. ¶6. (U) The feedback from these sessions was very positive. From the U.S. side, there was some surprise at the size of some countries' pension funds; from the African side, there was much discussion on how the U.S. funds diversify their investment portfolios and spread risk. INITIAL STEPS FOR POSSIBLE INVESTMENTS -------------- ¶7. (U) The other important dynamic of the conference was the networking that took place between the American private fund managers and African investment promotion agencies, African fund managers and promoters, and local business leaders. It became apparent early on that attracting potential U.S. investors to Dakar was the GOS's primary goal for this conference. In particular, the government is hoping that some private firms will be interested in participating in Senegal's ambitious infrastructure development goals. Participants also benefited from access to OPIC and U.S. Treasury officials throughout the conference. DAKAR 00000239 002.2 OF 003 ¶8. (U) Treasury's presentation at the conference focused on the potential for mobilizing Africa's pension funds to finance investment in the region's infrastructure, noting necessary legal and regulatory reforms and highlighting Treasury's capacity to provide some of the relevant technical assistance. ¶9. (U) The OPIC official observed that the need for private FDI in Senegal and neighboring companies definitely emerged as the focal point of the conference. This occurred despite the reality that most of the program was geared toward exploring the potential for U.S. fund managers to offer expertise and services to West African pension funds. OPIC's participation in the event reinforced its visibility in West Africa and Senegal and several projects were identified that OPIC could potentially support. Although OPIC has not financed any projects in Senegal, many of the West African conference attendees have had discussions over the past couple of years with OPIC on specific financing opportunities, particularly projects in the housing sector. In addition, OPIC is mobilizing up to $2.3 billion in capital for Africa through 11 OPIC-sponsored private equity funds that were approved by OPIC's Board in 2007 and ¶2008. ¶10. (SBU) During the conference, officials from several countries' respective housing agencies expressed interest in following up with OPIC regarding mortgage finance projects in their home countries. A few U.S. asset managers expressed interest in specific direct investment projects in Africa apart from their fund management businesses. In addition, several of the attending African investors have projects that warrant OPIC's follow-up, including: SAGEF Building System's housing projects in Senegal, a start-up movie theater chain in Dakar, and a Cape Verdean ferry transport project. According to the OPIC official, of the six to eight projects brought to his attention, about half are in the process of seeking U.S. equity capital or partners that would make the projects eligible for an OPIC loan. The others already have sufficient U.S. investor involvement to meet OPIC eligibility requirements. ¶11. (SBU) For many, but not all, of the U.S. fund managers, this was their first exposure to Africa and the continent's business and investment opportunities and realities. Because the majority of the U.S. private sector participants represented African-American-owned firms, the organizers also played up the possibilities of new linkages between Africa and its Diaspora in the U.S. By the end of the three days, our impression of the prevailing attitude from the U.S. side was that significant interest was generated, but the financial managers recognized that this visit represented a very preliminary step in what would be long-term efforts to gather information and analyze risk before any money under their management would come to Senegal or the other countries represented. There was greater interest expressed in the possibility of investing in one or more of the growing number of Africa-focused venture funds. AMBASSADOR SHINES SOME LIGHT ON INVESTMENT CLIMATE -------------- -------------- ¶12. (U) During her remarks at the opening of the conference, Ambassador Bernicat thanked the U.S. participants for their heightened interest in Africa and noted that the continent's development needs will only be met with the infusion of large amounts of private capital. The Ambassador also provided a much-needed "reality check" on potential problems for investors in Africa. In particular, the Ambassador underscored the need for reform of public finance management, including greater transparency and accountability and fair and equal application of national laws impacting the private sector and foreign investors. The Ambassador highlighted some well known specific reforms that are needed in Senegal as well as other countries: -- the judiciary should be well structured and well-trained to handle commercial disputes in a fair and balanced manner; -- labor laws need to protect workers while also ensuring that labor costs are competitive, that employer rights to dismiss underperforming or misbehaving employees are recognized, and that legal and bureaucratic requirements enhance, not slow, productivity; -- countries should have an office of the inspector general that is truly independent of the executive and fully operational to provide genuine oversight of government operations; and -- anti-corruption entities should be totally independent of the executive and legislative branches and have the authority to investigate and present cases for prosecution. ¶13. (SBU) The Ambassador also promoted the important role the DAKAR 00000239 003.2 OF 003 private sector needs to play, especially foreign investors and partners, in promoting reforms that encourage good governance, transparency, accountability, and other strong anti-corruption measures. Press reports noted that after the Ambassador's remarks, President Wade made an off-hand comment to the gathering, which translates as: "When she was speaking, I couldn't tell if she was offering recommendations or giving orders, but I have taken note." Largely due to Wade's apparent sarcastic remark, the Ambassador received a number of requests for the text of her remarks. COMMENT -------------- ¶14. (SBU) President Wade may have been upset that the Ambassador did not play the role of an overly-enthusiastic support of Senegal as an investment destination (though the organizers certainly did). However, the U.S. business people deserved to hear a clear-headed assessment of the potential difficulties they could face in Senegal. The fact that Wade was playing fast and loose with the truth about local pension fund laws underscores the need for this kind of honesty. ¶15. (U) While President Wade clearly wants to have some leeway for more creative investment options for Senegal's public pension funds, this is unlikely to happen anytime soon since such changes would first require that less restrictive regulations be promulgated by the WAEMU Central Bank. Such reform would also require significant technical assistance and training for the country's pension fund managers and enhanced laws on transparency and accountability for handling those funds. Still, this introduction to U.S. public pension fund systems is a welcome possible first step. ¶16. (SBU) The conference was clearly another "special project" on the part of Wade, but the turnout from U.S. private equity and fund managers was impressive. We are hopeful that useful contacts were made and that the U.S. experts will consider adding carefully selected African investments to their portfolios. These fund managers could also advise on new ideas for funding infrastructure and other needed investments. In the case of Senegal, which under its PSI program with the IMF cannot use non-concessional financing from outside the WAEMU region for government projects, attracting private project capital is an ever-present need. BERNICAT