EY's attractiveness survey Africa 2014 Executing growth EY’s attractiveness surveys EY's attractiveness surveys are widely recognized by our clients, the media and major public stakeholders as a key source of insight on foreign direct investment (FDI). Examining the attractiveness of a particular region or country as an investment destination, the surveys are designed to help businesses to make investment decisions and governments to remove barriers to future growth. A two-step methodology analyzes both the reality and perception of FDI in the respective country or region. Findings are based on the views of representative panels of international and local opinion leaders and decision-makers. Emerging Markets Center The Emerging Markets Center is an EY Center of Excellence that quickly and effectively connects you to the world’s fastest-growing economies. 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For further information on emerging markets, please visit: • emergingmarkets.ey.com Follow us on Twitter: • @EY_EmergingMkts Attractiveness Cover: A view of the EY Africa Öagship ofÕce in the Kandton business district, Bohannesburg, Kouth Africa. www.ey.com/attractiveness EY's attractiveness survey: Africa 2014 Reality Contents @ow FDI in Africa compares with global trends. 02–03 Invictus Nelson Rolihlahla Mandela 04–05 Foreword Bay Nibbe and Ajen Kita 06–09 Executive summary 10–51 Perception Reality Good progress, despite setbacks @ow investors view Africa's 13 — FDI in Africa in 2013: a mixed picture countries, cities and sectors. 20 — Kub-Kaharan Africa’s share of FDI rises 28 — Intra-African investment momentum builds 31 — Consumer-facing industries rise in prominence 34 — More FDI Öows to large urban clusters in the key hubs 38 — A view of: Africa Infrastructure Investment Managers, British American Tobacco, Bharti Airtel, Coca-Cola Kabco, D@D, Ecobank and GE 52–77 Perception A giant leap forward in Africa's relative attractiveness 55 — Africa’s regional attractiveness has increased considerably 56 — Africa’s improving prospects drive investor optimism 57 — Kouth Africa: Africa’s most attractive destination, acting as a gateway 59 — Africa’s urban clusters are largely aligned to key hub economies Strategy 61 — Resources remains key, but infrastructure and consumer- facing sectors are catching up fast execution 62 — Africa’s perception gap continues to linger Kuccessfully executing growth strategies in Africa. 64 — A view of: IBM, Mara Group, Nestl, Kanlam, KCF and Tullow Oil 78–95 Strategy execution EY's 7-P model 81 — Despite progress, Africa remains a challenging place to do business 82 — Patterns of growth are becoming evident 84 — Critical success factors for effective strategy execution 96 — Methodology 98 — EY in Africa Executing growth 1 2 EY’s attractiveness survey Africa 2014 www.ey.com/attractiveness In remembrance Nelson Rolihlahla Mandela 18 July 1918 – 5 December 2013 Lo lhe dedicaled freedom Õ_hler& Kon& @usband& >alher& ?randfalher& ?real%_randfalher& >riend& Aclivisl& African& Allorney& Amaleur boper& Nobel Heace Hrire oinner& Gralor& Heacemacer& >irsl blacc hresidenl of a democralic Koulh Africa& Recihienl of over 250 _lobal aoards& @ero& Moral and holilical _enius& 4...4& Consensus builder& Diberalor& Ne_olialor& Kymbol of human ri_hls& Klalesman& Oe hay lribule lo Nelson Rolihlahla Mandela$ uLala Madiba$ a man oho oill never be for_ollen& Invictus Out of the night that covers me, Black as the pit from pole to pole, I thank whatever gods may be For my unconquerable soul. In the fell clutch of circumstance I have not winced nor cried aloud. Under the bludgeonings of chance My head is bloody, but unbowed. “I am fundamentally Beyond this place of wrath and tears Looms but the Horror of the shade, an optimist. Whether that And yet the menace of the years comes from nature Finds and shall Õnd me unafraid. It matters not how strait the gate, or nurture, I cannot say. How charged with punishments the scroll, Part of being optimistic I am the master of my fate: I am the captain of my soul. is keeping one’s head Oilliam Ernest @enley pointed toward the sun, one’s feet moving forward.” Nelson Mandela Executing growth 3 Foreword Investing in the African opportunity it was widely hailed as one of the Jay Nibbe Ajen Sita best organized and most successful Chair of Global Chief Executive tournaments ever. Over the past four Accounts Committee, OfÕcer, EY Africa years, this perception gap has been EY a consistent theme in our reports. Despite the tremendous progress the continent has made in the post- Cold War and postapartheid era, and despite consistent economic growth over the past decade, perceptions about the continent often remain stuck We welcome you to the fourth edition in the past. The good news this year of the annual Africa attractiveness is that this appears to be changing. survey. When it was Õrst decided to Among our survey results, what really embark on this project in 2010, as stands out is the perception of Africa’s part of EY’s series of attractiveness attractiveness as an investment surveys spanning over a decade, it was destination relative to other regions: somewhat experimental. @owever, the from being ranked 8th out of 10 response to our Õrst and subsequent regions in our Õrst survey, to 5th in editions has been so overwhelmingly each of the last two years, Africa positive that this has now become an ranked 2nd overall this year. This ongoing annual project. This response remarkable progress in a short space demonstrates both the increasing of time shows how the image of Africa levels of investor interest in the has begun to change. continent, and the great need for reliable data and thought leadership @owever, at the same time, the that can support decision-making. number of greenÕeld and signiÕcant expansion (brownÕeld) FDI projects In 2010, we had just hosted the in Africa in 2013 declined for the Õrst FIFA World Cup on African soil. second year in a row. Perhaps the Despite pretournament concerns shift is not quite as dramatic as the about the ability of an African country improving perceptions suggest? It is to prepare for and host a World Cup, important to go beyond this headline, 4 EY’s attractiveness survey Africa 2014 www.ey.com/attractiveness “... we remain convinced that the African growth story is a compelling one” and to distinguish between trends in not yet. Those already active on the Companies like these are embracing North Africa and sub-Kaharan Africa continent are more positive than ever Africa’s uncertainty, complexity and (KKA). While FDI Öows into North about its prospects, and rank it as by volatility, understanding that these Africa have declined signiÕcantly, far the most attractive investment are common challenges across most those into sub-Kaharan Africa continue destination in the world today. Those emerging markets. They are actively to grow — by 4.7% last year, and at a who are yet to invest are far less balancing the three tensions that all compound annual growth rate (CAGR) enthusiastic, ranking Africa as the least- companies face in doing business in of 19.5% since 2007. Regional hubs, attractive investment destination in the emerging markets: namely, long-term such as Kouth Africa, Nigeria and world. The gap could hardly be wider. versus short-term focus3 proÕt-taking Cenya, together with emerging high- versus sustainable growth; and growth economies, such as Ghana, To further dispel some of the persistent managing the whole versus optimizing Mozambique, Zambia, Tanzania and myths, and to bolster the conÕdence the parts. Most importantly, these Uganda, are at the forefront of rising of those considering investing in companies are establishing strong FDI levels. Africa, we shine a light this year on competitive positions in key markets 14 companies that we consider to be and are poised to beneÕt from the Given all the positives that we have among the continent’s growth leaders. continued growth we anticipate over observed and analyzed over the past This group includes some of the largest the next decade. four years, we remain convinced that and most admired companies in the the African growth story is a compelling world, as well as several home-grown In our Õrst edition of the Africa one, and it should be attracting even African multinationals. Kome of these attractiveness survey, we declared, greater numbers of FDI projects. companies have roots in Africa that go “It is time for Africa!” We also said that Africa’s share of global FDI projects back over a century, most have been there was a window of opportunity has grown steadily in the past decade, operating here for decades, while a few to act before others woke up to the but remains at less than 5% of global are relatively new entrants. A common African opportunity. That window is Öows. Over this period, India alone theme among them all is that they now narrowing, and the cost of entering has received a higher proportion than are investing in new opportunities, African markets is already beginning the entire continent of Africa. The creating jobs and executing growth to rise. Companies with an already- perception gap continues to slow the strategies in Africa. Kince 2007, these established presence continue to acceleration of FDI Öows into Africa, companies have invested in over 200 expand and entrench their advantages. and it is illustrated once again this year FDI projects that have created about In our opinion, the risk of missing this by the marked contrast in perceptions 33,000 new jobs with a combined value window is likely to be far greater than between those who are already doing of close to UK20b.