INVESTORS are flocking to Africa in droves, drawn by a fierce undercurrent of economic opportunity across the continent. Western Europe, China and the US have doubled down, while Singapore has begun testing the waters. Africa is currently turning an important corner in its development path, embarking on what could be a decisive transformational journey towards prosperity.
But with 54 markets in Africa at varying degrees of attractiveness and complexity, market entry into the continent requires patience, diligence, and a highly customized local approach.
Nevertheless, the verdict of many is that Africa will be one of the few regions globally presenting high double-digit growth possibilities. In 2015, cross-border merger-andacquisition (M&A) activity spiked to US$20 billion from only US$5 billion in 2014. Moreover, private equity investment grew 51 per cent, much of which was squarely focused on areas reinforcing long- term growth, such as telecommunications and financial services.
While most of the foreign direct investment (FDI) is originating from China and the West, Southeast Asian FDI in Sub-Saharan Africa is also on the rise. Investment reached US$18 billion in 2014 with Singapore emerging as a key player contributing over US$16 billion in FDI in 2013 and trade growth of 12 per cent reaching about US$10.2 billion.
Singapore's growing partnership with Africa may reflect a motivation to achieve greater diversification in trade and investment partners. With the highest trade-to-GDP ratio globally, Singapore's disproportionate reliance on trade can exacerbate consequences during economic slowdowns among primary trading partners. Reducing this susceptibility is encouraging economic integration with the distant corners of the world.
The recent ramp-up in Latin America could be an indicator of the trade levels, investment and government engagement to be expected down the road in Africa.
At the strategic level, perhaps Africa and Latin America are not too distant cousins. Both regions present an opportunity to achieve greater economic diversification in regions characterised by an abundance of resources and an emerging middle class. While on-the-ground dynamics can differ greatly, the typical Singapore company will require a comparable budget and encounter similar entry barriers during the expansion process.
Investment levels in Africa lag behind Latin America by about 15 years; however, activities that contributed to accelerating economic ties with Latin America historically are being observed in nascent stages in the Africa context.
International Enterprise (IE) Singapore, the Singapore government agency promoting trade and overseas investments, established country offices in 2013 in South Africa, and soon after in Ghana. Similar to IE Singapore's efforts in Mexico and Brazil, these two African offices will be foundational in proactively catalysing new investment activity.
Says G Jayakrishnan, IE Singapore group director for Middle East and Africa:"Singapore companies are taking concrete steps to participate more actively in Africa's growth. Given Africa's significant development needs, we see an opportunity to collaborate on and develop long-term solutions in many areas."
In the case of Latin America, the Forum for East Asia-Latin America Cooperation was inaugurated under then-prime minister Goh Chok Tong in 1998 to establish a link between East Asia and Latin America. Several years later, in 2004, IE Singapore established the Asean-Latin America cornerstone event, the Latin Asia Business Forum.
In the subsequent 10 years, Singapore's bilateral trade with Latin America grew at a compound annual growth rate of 21.2 per cent, reaching US$21.5 billion in 2013. During this period, Singapore also entered into free-trade agreements (FTAs) with Panama, Peru, Chile and Costa Rica, creating the second most robust Latin American FTA framework in Asia after Taiwan.
In comparison, there is a far less robust cooperation framework with Africa, although Singapore is beginning to move in a similar direction. Mirroring the successful Latin Asia Business Forum, IE Singapore also launched an Africa Singapore Business Forum in 2010 to help connect and to identify joint business opportunities.
While Singapore has yet to enact free-trade agreements with Africa, there have been bilateral investment treaties negotiated with Burkina Faso and Ivory Coast, as well as an air services agreement with Zimbabwe in 2014.
Singapore also shares developmental experience with African countries under the Singapore Cooperation Programme, recently signing a memorandum of understanding with the Republic of Rwanda in 2015 to "outline the basis for collaboration and the enhancement of future bilateral cooperation, as well as the mutual social and economic development . . ."
As recently as January 2016, the Singapore ambassador to the African Union, T Jasudasen, suggested that Ethiopia and Singapore "should consider signing a cultural cooperation agreement", proposing that Ethiopia's Minister for Foreign Affairs, Tedros Adhanom, should visit Singapore.
While Singapore does not match the level of scale as compared to the West or China, it does offer deep expertise that could address some of Africa's most pressing challenges. World-class capabilities in infrastructure, shipping, airports, energy, and water management correlate with challenges in Africa responsible for severe economic bottlenecks.
Indeed, as Africa begins a phase of rapid modernisation and shifts towards higher levels of industrialisation, Singapore's development story and brand resonate loudly.
Many in Africa view Singapore as maintaining a higher degree of political neutrality and ethical business standards. The perception of Singapore as a non-threatening actor in the continent will lend itself to deepening levels of trust, which could be significant especially when bidding for large-scale infrastructure or sensitive strategic projects.
According to IE Singapore, in 2013-2014 there were already more than 60 Singapore companies operating in over 50 countries in Africa. Projects spanned a wide range of sectors from agri-business, food & beverage, and oil and gas, to eGovernment services, information & communications technology, and transport & logistics. Considering the rise in trade and investment since then, the number of active companies and new projects is likely climbing.
One of the more widely covered Singaporean deals in sub-Sahara came from Olam International, making waves when it announced in January that it had bought Nigeriabased Amber Foods Ltd from BUA Group for US$275 million. The deal significantly enhances Olam's wheat production and processing presence in Nigeria.
While Singapore's engagement in Africa is relatively unfamiliar - being different from the common narrative around Chinese, American and European investment – the growing interest and seriousness is compelling. Singapore may not offer the same level of scale or political clout in the continent; however, there is early- stage progress in identifying specific areas of meaningful cooperation in an attempt to define the Republic as a value-adding partner.
This article was first published by The Business Times, 25 May 2016