G8 ACTION PLAN FOR AFRICA What does it really mean for the continent?

1. G8 ACTION PLAN FOR AFRICA What does it really mean for the continent? Garry WHITBY

2. PROSPECTS FOR AFRICA • Growth last year was 5.1% on average • IMF estimates growth to be 5.3% next year • Africa needs growth of 7% to meet the MDGs, over next 10 yrs Africa’s Star Performers: Mozambique 7.8% Ghana 5.8% Tanzania 6.4% Uganda 5.9% Ethiopia 6% (est) Mauritius 5% (est) 20 Countries had growth < 5% 13 Countries had growth between 3 and 5% Most Attractive countries to do business: South Africa, Nigeria, Egypt & Morocco (because of the size of their markets)

3. CONDITIONS FOR GROWTH • BETTER GOVERNANCE, FISCAL CERTAINTY, STABILITY & PEACE • Not always possible • Nor a prerequisite • IT IS A BUSINESS DECISION • What are the risks • What are the returns Niall Fitzgerald: “ ..the reality is that investors can choose if, and where they invest … investors have choices…” WEF, Cape Town, 2005 PRIVATE SECTOR NEEDS BETTER ACCESS TO GLOBAL MARKETS AND TRADE TO PROSPER

4. TRADE OR AID • IN 1980 AFRICA HAD 6% OF WORLD TRADE • NOW LESS THAN 2% • IF AFRICA COULD GRAB 3% OF WORLD TRADE, THIS WOULD MEAN USD 70 BILLION ANNUAL INCOME • Against USD 25 billion in G8 commitments • Against USD 200 billion in North subsidies • Protectionism keeping out African goods • Subsidies of Western inefficiency WTO TALKS IN HONG KONG THIS DECEMBER HAVE TO YIELD RESULTS FOR AFRICA

5. LANGUAGE OF AID • AID IS SEEN AS CHARITY • CHARITY AS HAND OUTS THIS CREATES NEGATIVE IMPRESSION OF AFRICA • NEW FUNDS AND INTEREST FROM G8 IN AFRICA’S DEVELOPMENT SHOULD BE SEEN ASAN INVESTMENT NOT AID WITH ALL INVESTMENTS THERE NEEDS TO BE A RETURN • A COMMERCIAL RETURN • A SOCIO-ECONOMIC RETURN

6. PRIVATE SECTOR PERCEPTION OF AID There is a need to change the language we use, especially to attract support from the private sector: Donor Language:Private Sector Language: Philanthropic Commercial Poverty Alleviation Wealth Creation Sustainability Viability AID/Charity Investment Pro-poor Mass market Challenge of poverty Challenge of economic growth Ownership, participation Share/stake holder empowerment value Only then will we succeed in attracting private sector participation.

7. APPROACH TO THE PRIVATE SECTOR • How do we get private sector involvement in Africa’s development? • Where is their future growth coming from? • Markets in their comfort zone are becoming saturated • The poor have disposable income if products and services are affordable, accessible and available • If poor are meaningfully engaged in the economy, they can form a powerful market, they are resilient, value conscious consumers • Can they make the transition from the comfort zone to the mass market? • Are Western styles of management appropriate in Africa? Eradicate assumptions and paternalism • Can they think differently about their clients, about new clients?

8. GROWTH MODEL FOR THE PRIVATE SECTOR Sustainable growth Mass market Revenue Optimization Revenue Comfort zone Decline with No Innovation -3 -2 -1 Today 1 2 3 4 PlanningHorizon

9. PRIVATE SECTOR: ENGINE FOR GROWTH The growth of Africa, and business, will depend on the future growth of African enterprises This requires an improvement in the investment climate NEED TO CHANGE THE PERCEPTION OF AFRICA AS AN INVESTMENT DESTINATION Use “Aid” as investment in Africa, commercialise development programmes. Use same principles that drive commerce to drive “Aid” Successful projects in Africa are ones owned and managed by Africa and Africans, with African professionals leading the vision and devising the implementation strategies –NEW AFRICAN ENTREPRENEURS

10. INVESTMENT IN AFRICA • Investment in Africa yields highest global returns: • 4 TIMES THAT OF G7 COUNTRIES • 2 TIMES THAT OF ASIA • 65 % MORE THAN LATIN AMERICA • Last year African equity delivered returns in excess of 30% Need to tell the success stories AU/NEPAD Investment Climate Facility

11. AFRICAN SUCCESS STORIES - CHALLENGE FUNDS Challenge Funds are new development tool, funded by DFID They challenge the private sector to innovatively think about new products and services which address the mass-market – Dr C K Prahalad’s “Fortune at the bottom of the pyramid” But on commercial grounds, ensuring their sustainability Challenge Funding is about making marginally viable initiatives viable, by strategic co-funding of start-up costs An investment which shares costs and risks An investment to create enterprises which offer a social return, create wealth and contribute to growth

12. CHALLENGE FUND SUCCESSES 1 Thandi Fruit Land transformation and ownership Teaming of corporate muscle with small entrepreneurs and growers. Mentorship, capacity building and export advice to lucrative markets Thandi now marketed in Middle & Far East, Russia, EU, UK and US

13. CHALLENGE FUND SUCCESSES 2 Medicine 2 Africa – Wellness Centre Pharmaceutical Distribution to rural communities Use of Pharmatainers and training rural retailers, local pharmacy trade, community groups, SME telecomms providers Modern technology used in rural, poor areas in containers to provide essential drugs at discount prices. Challenge Funds no longer needed

14. CHALLENGE FUND SUCCESSES 3 Fuel Cell Technology Energy supply to rural Africa Pilot implementation of fuel cell technology in remote rural Africa to run medical, communications equipment, water pumps, radios, televisions and computers First H2 fuel cells in rural areas – laid ground work for further commercial investment

15. CHALLENGE FUND SUCCESSES 4 Fynbos Project Cultivation and commercialization of fynbos Bringing research and development to local farmers to produce commercial quality fynbos for pharmaceutical, food, beverage and cosmetics industries Personal growth in rural farmers, emerging farmer of the year, broadening of commercial practice into rural communities

16. CHALLENGE FUND SUCCESSES 5 Private Sector Initiative – Tanzania Facilitating business linkages between SMEs and large corporations Bringing corporations together to share experiences with SMEs and involve them in their supply chain Catalytic smart-investment enables partnering, best practice in SME partnering re-designed, replication in Africa

17. CHALLENGE FUND SUCCESSES 6 Malawi Cotton Seed Introduction of improved seed varieties, pre-treatment, building and developing a high quality and better yielding national cotton crop Development of cotton crop to support 250,000 farmers Crop increased by 265%

18. CONCLUSION The future for Africa is bright It is in the hands of Africa and Africans; growth will come from enhanced private sector activity A strong private sector is critical to achievement of the MDGs Aid should be seen as an investment, not charity Need to use the same principles that drive commerce, to drive Aid in Africa Poor are resilient, value conscious consumers if products and services are affordable, accessible and available We all need to think differently about the way we do business and deliver services Wealth creation will eradicate poverty Profit motive is not the problem, but its equitable distribution is …… If profit is all we focus on, then we will fail in Africa

19. gwhitby@deloitte.co.za