How the world misunderstands the African market

May 19, 2023

Welcome back to Global Insider’s Friday feature: The Conversation. Each week a POLITICO journalist shares an interview with a global thinker, politician, power player or personality. This week, senior foreign affairs correspondent Nahal Toosi talks with Samaila Zubairu, the president and CEO of the Africa Finance Corporation.

Follow Nahal on Twitter | Send ideas and insights to ntoosi@politico.com

The Conversation

Samaila Zubairu, president and CEO of Africa Finance Corporation, speaks.

Samaila Zubairu speaks at the U.S.-Africa Business Forum at the Walter E. Washington Convention Center on Dec. 14, 2022, in Washington. | Tasos Katopodis/Getty Images for Prosper Africa

While much of the attention on the opening day of the G-7 summit today is on Ukraine and China, the meeting also presents a potential opportunity for President Joe Biden and European leaders to try to improve ties with attendees from the African Union — at an especially sensitive time for relations between the continent and the West.

Those ties have frayed due to the global energy and food fallout from Russia’s war on Ukraine, as well as Chinese efforts to portray the West as indifferent to African needs. To counter Chinese and Russian competition, the Biden administration has stepped up its Africa outreach. But many African countries — wary of being treated as pawns — are refusing to simply side with Washington. Some, like South Africa, appear to be strengthening their relations with Moscow.

Still, despite some sore feelings, there remains tremendous interest on the African continent in what the United States in particular can offer on the economic front, according to Samaila Zubairu, the president and CEO of the Africa Finance Corporation, a multilateral development finance institution with a $10 billion portfolio.

While every African country has its own priorities, many crave more investment from American businesses, and they are puzzled as to why there isn’t more.

I spoke with Zubairu when he was in Washington earlier this year. Our interview has been condensed and edited for clarity.

I realize Africa is a very diverse place with dozens of countries, but in terms of patterns, what are the most important large-scale financing needs across the continent?

We urgently need infrastructure. There are several estimates that say $130 billion to $170 billion, depending on if you consider maintenance.

The real spending that we need is for infrastructure that enables industrialization to take place, because the big challenge we have on the continent is that we’re still operating the same business or economic model for the last two centuries that led us nowhere. We need to move away from exporting raw materials as primary produce to doing value addition.

If we look at critical minerals: You have to do all that is required to do that mining sustainably. You need a road from that mine to either a rail line or to a primary road. From that road to a port. At that port there should be an industrial park that will do the processing and transformation, and then it can be exported.

Are you seeing much interest from American companies and investing in African countries?

There’s a lot of conversations going on now, and I think that those conversations are timely, but not much has happened yet. We’re on the path for something to happen.

What is required now is a lot more. For example, for these critical minerals to get to the market, a lot needs to be done.

The difference with the U.S. is that there’s no, like, state agency that can be asked to do things. You have to engage with different companies, and different companies have their own priorities. The challenge is while there’s a lot of talk about doing more it just takes time for a company in Seattle or Texas or New York to take a decision to go to Africa.

You look at the map of Africa, it doesn’t tell the story. It is far bigger than what you can see on the map, and to connect the continent is significant.

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How does China factor into your work?

Investment from China in infrastructure has been going down partly because of the lockdowns and Covid, and also partly because of the challenge with some of the investments made in Sri Lanka, Zambia — basically a lot of issues.

But they’re still engaged. They’re on the ground. They’re a big part of the economy now, because they’ve built quite a number of roads, they are invested in mines. And they’re a big market. If you look at bauxite, for example, it’s mainly China. If you look at iron ore, again, it’s mainly China. A lot of the crude oil as well, oil and gas, and that’s also China.

China is quite active on the continent. There’s no doubt about it. But Africa is so huge and so vast — there’s room for everybody.

We can’t be exclusive to one party. We have to be open to everybody. More importantly, we should be open to ourselves. It’s very important that we focus on how we trade amongst ourselves in that market.

What are the biggest misconceptions about the investment readiness of African countries?

The first one is this risk perception of Africa and the “prejudice risk premium” that we have to pay as Africans.

There have been several studies done by a lot of the rating agencies, international rating agencies, that show that the only region with a lower default rate than Africa for project finance and infrastructure is the Middle East. Africa has the same default rate, at 5 percent, with Western Europe — lower than North America, lower than Latin America, lower than Asia. Yet, Africa risk is priced much significantly higher than everywhere else in the world.

Another thing that is not understood is the African market itself. It’s quite a huge market — very many young people, all are very aspirational. And they are all consumers. The only people that are looking at the African market are the Chinese and the Asians. They understand that there is a huge market here, and they actually make products for the market.

You said you think there’s a prejudice? Based on skin color?

(Laughs.) It could be. It could be.

What I mean by that is, if you look at Latin America and their history of defaults and the history of restructuring, and the price at which they can access funding, it’s very different from Africa, which has very little history of default. So the cost of capital in Africa is higher than any other region while the evidence of default rates in Africa is lower than most other regions.

Another example: political risk insurance. Very few claims in Africa, but Africa has the highest premium.

The Biden administration has pointed to corruption as a major global problem, a transnational challenge that it considers a national security threat, not just for us, but for every country. What does your organization do to combat corruption?

We have subscribed to most anti-corruption, anti-bribery, anti-money laundering provisions of the world, and we try to enforce that.

One of the ways to overcome this challenge is for more development to happen, and I mean sustainable development. With that kind of wealth creation, there’ll be less incentive for corruption, which is why our view is that we should focus on structural transformation, focus on value addition on the continent, focus on creating that middle class that comes as a result of this. Because once you have those jobs, you have a middle class. Once a middle class increases in the country, even the political outlook of the country changes.

Corruption is corruption. We must have very clear rules against it. But we also need to look at how to prevent the incentive for corruption from happening.

What's the toughest part of your job?

Getting the capital that I need to do all the things required to be accomplished on the continent.

If we continue to export raw cobalt, raw lithium, nickel we might just get about $12 billion. But if we can move to battery and cathode precursors? That’s $240 billion.

If we move from exporting cotton — let’s say half a million tons of cotton exported, it’s probably $2 billion. If we move to T-shirts, to towels, that is about $38 billion in value addition and significant jobs created.

So it is getting the capital to do all of that — that’s my biggest challenge.

Thanks to editor Heidi Vogt and producer Andrew Howard.

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