march 2006 sanjeev gupta managing director-emerging markets
TRANSCRIPT
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March 2006
Sanjeev GuptaManaging Director-EMERGING MARKETS
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Property Investment in AfricaA Multi Pillar Approach
The case for Domestic Savings to work with Global Finance
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JULIUS NYERERE – ex PRESIDENT OF TANZANIA said
Africa’s problems are:
Poverty
Ignorance
Disease
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AFRICA HAS BEEN PLAGUED BY
Disease
Illiteracy
Conflict
Segregation
Bias
Exploitation
Hunger
Poor GovernanceYou name it ….
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The IMF & WORLD BANK wants African states to
EMBRACE A PROGRAMMEDIRECTED AT:
Privatisation
Liberalisation
Financial Market Development
Supported by Democracy & Good Government
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MY PERSONAL VIEW IS
African needs a blend of:
Economic Reforms – YES
Labour Reforms – YES
Property Rights - YES
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BUT IT ALSO NEEDS DESPERATELY
A savings culture
A deployment of those savings
If there is to be sustainable growth
Change has to come from within….
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PROPERTY DEVELOPMENT
A perspective on the issues in the African Continent
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Typical Realities- Property sector in Africa
Residential
Rural to urban migration
Demographic pressure
Gradual erosion of extended family support
Volatile demand
Weak property rights
Industrial & Commercial
Absence of quality covenants
Short period leases
Abnormally high yields
Periods of over/under supply
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Typical Realities- Property Sector in Africa
Financing Constraints
Limited or non existent domestic savings
Fledgling or absent mortgage markets
Self- or informal funding
Absence of long-term finance
Exacerbated by short term `opportunistic` thinking
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WHAT THEN DO WE NEED?
3 THINGS
SAVINGS – Domestic
DEPLOYMENT of those savings INTO DOMESTIC INVESTMENT
BRING foreign funding to work in tandem and ``kick start`` the process
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BREAK THE CAMEL`s BACK!!!!!!
The need is to break the Vicious Cycle of:
LOW SAVINGS
LOW INVESTMENTS
POOR GOVERNANCE
UNEMPLOYMENT
DROUGHT
CRISIS
GUILT
DESPAIR
AID
ENTITLEMENTDÉJÀ VU
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BREAK THE CAMEL`s BACK!!!!!!
And create (through sensible intervention) the Virtuous Cycle
SAVINGS
CAPITAL
INVESTMENT
ECONOMIC DEVELOPMENT
DIVERSIFICATION
EMPLOYMENT
CONSUMPTION
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WHERE IS AFRICA…
In terms of Savings and Domestic Investment?
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WHERE IS AFRICAN SAVINGS?
Facts about Savings
Individual Discretionary Savings Low or Non Existent
Contractual Savings often state owned & misallocated
Government Savings Zero or misused
Corporate Savings not reinvested but “exported”
Investment prudential guidelines restrictive & anti market forces
Issues to consider
History of Low employment or “disguised” Employment
Real wages have not kept with Inflation
Faith in financial products ZERO
Access to Banking & Insurance Limited
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CASE STUDY 1 - BOTSWANA
Facts
Highly Developed Contractual savings but low discretionary savings
High total savings - 40% of GDP
Government is a major Financier
Financial (Equity) Markets small - 25% of GDP
Institutions have generous offshore allowance (70%)
Opportunities
Public Private Partnerships
Diversification possible into Mining, Tourism, Infrastructure
Regional Finance-Investments
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CASE STUDY 1 – BOTSWANA (cont)
Problems
No Government urge to involve private Sector
Prudential guidelines not encouraging
High yielding T Bills
Effect
Limited availability of long term capital
Local entrepreneurship limited
Expensive Bank Debt main source
Economy dependent on Government spending
Preponderance of Government Subsidised projects
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CASE STUDY 2 - ZAMBIA
Facts
Poor legacies – long term savings
Discretionary savings low
Investment opportunities abound – Tourism, Agriculture, Services
Opportunities
Attract FDI
Attract DFIs
Invest in local opportunities
Privatise pension schemes
Fiscal stimulus to save
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CASE STUDY – ZAMBIA (cont)
Problems
State Schemes still state held
Private Schemes small
No incentive to save
Poor Banking & Life Insurance Access
Limited DFI play
Effect
Much vaunted “Privatisation” ended up in Giant Trust
No Domestic Capacity
No economic Multiplier
Opportunities going away
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Case Study- Nigeria
Facts
Poised for exponential growth
Underdeveloped Contractual savings-15% of GDP but expected to be a multiple of GDP by 2010
Discretionary saving low
Financial Markets small- < 25% of GDP
Opportunities
Infrastructure opportunities abound
Pension funds can provide long term finance
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Case Study-Nigeria
Problems
Underdeveloped Mortgage markets
Directed largely to `affluent` section
Short period-high rates
Confusion- Land rights & Bureaucracy
Rigid Investment Guidelines
Effect
Short tenancies
No quality developments
Lack of Developers and Construction Companies
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Case Study-Kenya
Facts
Poor legacies – long term savings
Discretionary savings low
Investment opportunities in Tourism, Agriculture, Services
Opportunities
Attract DFIs
Invest in local opportunities
Privatise state pension schemes
Fiscal stimulus to save
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Case Study-Kenya
Problems
State Schemes still state held
Private Schemes small
Limited incentive to save
Effect
Limited Domestic Capital & Capacity
No economic multiplier
Opportunities going away
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WHAT DO THEY HIGHLIGHT?
Savings limited domestically
Where available -not utilised well
Sequenced approach to Forex, Tax, Asset allocation, etc missing
Investment Opportunities available but not harvested
Regional cooperation non existent at this stage
Reliance & Presumption on AID- Bail Outs – continues
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CAN THIS BE RESOLVED??
YES - THROUGH
Global DFI’s
Global Funds
AID
Foreign Governments
In order to :` Act as a `CATALYST` Facilitate the PARADIGM shift Make it a VIRTUOUS cycle
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But needs to be underpinned by
Generate Domestic Savings
Encourage Active asset allocations
Deploy Domestic Savings into Domestic Capital
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GENERATE DOMESTIC SAVINGS HOW?
Access to Banking and Insurance products
Tax & other Fiscal Incentives
Privatise State Schemes
Corporate – Profit retention and reinvestment incentives
Redirect Government spending
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ACTIVE ASSET ALLOCATION – WHAT?
Encourage Pension & Life schemes to go beyond immediately-available low risk assets (quoted equities, T-Bills)
To invest in Private Equity, Property and Infrastructure funds
Shareholder Activism as necessary
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DEPLOYMENT OF SAVINGS INTO CAPITAL INVESTMENT
Adopt Long term horizons
Local focus – including into SMMEs
Co-invest with Global agencies
Mobilise Bank (debt) markets
Provide Technical & Mentoring Support
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The SOLUTION
Focus on Community Issues
Develop communities Tourism, Infrastructure development -all inclusive
Lobby for Policy Changes
Active Investing by Life & pension funds Modernise Land Tenure & Ownership Rights Banking Industry- Mortgage Products & Retail Reach-MUST Stimulus to save & invest
Create a Partnership Culture
Involve Global agencies and provide `UMBRELLA` Finance Tie in with domestic institutions & funds Assist with technical & Implementation Capacity Mentoring- not ``dabbling`` Develop Real Estate Bodies, Laws, Regulations
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THE MULTI PILLAR APPROACH- A COMPELLING STORY
Involve Global DFIs, NGOs
Work with Domestic Private Sector & Domestic Funds
Empowerment of local people through ownership , skills transfer, employment &local content criteria
Take Policy makers `along`- use the Clout
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CONCLUSION
Remember – Nothing is as Powerful as an Idea whosetime has come
Let us as a continent stop “meddling” and trying out the same things – and wait for different results – That is INSANITY
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t h a n k y u