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
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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
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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
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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.


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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
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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

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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