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Investing in Africa – an Interview with Aubrey Hruby

The COVID-19 pandemic has caused abrupt changes in demand and consumer behavior around the world. Small businesses are pivoting rapidly and looking for new sources of capital. Investors are trying to help their portfolio companies weather the storm. Those with dry powder to invest are looking for companies that can meet the changing needs of their communities, from healthcare to food security to remote connectivity.

For investors in Africa, these changes are closing some windows of opportunity and opening others. Prosper Africa spoke with Aubrey Hruby about the shifts she is seeing in the markets and the places where she sees opportunity for investment.

Hruby has been an investment advisor across African markets for the last 18 years. She has helped major investors — from U.S. multinationals to private equity funds to family offices — expand their business operations and find new opportunities in Africa.

Hruby is also a Senior Fellow at the Atlantic Council’s Africa Center where she heads up a research area focused on economic prosperity, economic development, trade, investment, entrepreneurship, and technology trends, all from a geopolitical perspective.

The following interview has been edited for clarity and length.

There are real risks associated with investing in Africa, but we also encounter quite a bit of misperception of risk. From your perspective, why invest in Africa?

Aubrey Hruby: First, there’s the demographic story. You are investing in long-term trends when you put money down in a market, and one of them is the incredible youth population in African markets. We’re at 1.2 billion people today, with the expectation that Africa will be around 4 billion by 2100. Those people are incredibly young. They will be the workers of the world. In Nigeria alone, there are 82 million people under the age of 20, and they are digital natives. They’re being raised in an environment of mobile connectivity, which means there’s an entire market opportunity there.

Second, you have the ability to unlock growth through addressing inefficiencies in the market. Most of Africa was rural for a long time and now it has become urban. Urbanization is passing the 50% mark and cities usually lead to an increase in productivity. Additionally, the free trade area that is underway — the African Continental Free Trade Area — which will allow for the free movement of goods and people and capital across borders, will help deal with some of the inherent fragmentation of the markets, which has prevented companies from being interested in investing because historically they have been very small markets.

There are real risks to investing in Africa — currency risks, commodity price risk, counterparty risks. Some of those you face in every market. But there is a misperception of the risk of investing in Africa. The investors who can see that and cut through the inflation of risk benefit from the opportunities because they’re seeing something others aren’t seeing. And in those cases, that’s where you find those returns that are above and beyond the risk-adjusted rates.

Why should African businesses and governments consider U.S. investors for partnership?

Hruby: U.S. investment has several values to African markets and African countries, one of which is job creation. There is an unprecedented imperative to create jobs in African markets. We’re talking about a job creation challenge at the largest level in human history — beyond what China or India had to create — because there are so many young people entering the labor market every year. Because of that, African countries need investment from everywhere, the U.S. included. They need all kinds of foreign direct investment and local investment to create those jobs.

Second, the U.S. brings a lot of tech transfer and local embeddedness — many American investors put down deep roots. The staff of Procter and Gamble’s Nigerian operations is 97% Nigerian. The first wave of American investors in African markets have been there for over a century — like Coca-Cola or GE — and they are part of a consumer goods story, a consumer-market story, an infrastructure story. There are American extractive companies in oil and other minerals, but we have more of a diversified footprint than other countries when it comes to U.S. foreign direct investment.

Additionally, private equity and venture capital firms with U.S. ties often back companies with deep operations on the ground and with some African ownership. You see more significant joint ventures and equity investments into African companies.

The U.S. tends to take a business-to-business approach, rather than a government-to-government approach, which China or other countries can be characterized as taking. So, it’s usually a business that invests off their own balance sheet and because of that, they’re seeing local opportunity.

You recently published a report, Making the Most of Prosper Africa: Leveraging U.S. competitiveness in African markets. What sectors hold the most promise for U.S. investors?

Hruby: One of the areas I have been very passionate about is finding an area where American competitiveness overlaps with African opportunity. The U.S. is a service-based economy and has been for some time. If you look at the breakdown of our own GDP, the things that we’re good at, the things that foreigners think we’re good at — meaning where they invest in U.S. companies and the things that U.S. companies rank highest on in the world—are often services. Therefore, we need to readjust how we think about our investment footprint in African markets vis-à-vis our geopolitical competitors, for example. Those sectors can be things like entertainment — Hollywood has a big international, global reach and a huge market — film, Netflix, music, etc.

We’re also very strong in the agribusiness space. We continue to innovate, probably because of the size of our country. We also have areas of finance, even after the 2008 financial crisis, where we continue to innovate. The tech and Silicon Valley scene is an area of strength and there’s a lot of interest in that among the entrepreneurial ecosystems in African markets. These are areas I’d like to see the U.S. double down on in terms of our strategic advantage.

What sectors are primed for investment and relevant to the COVID-19 response?

Hruby: In the COVID-19 environment — during the phase where we’re fighting COVID-19 and also in the phase of economic recovery — a lot of the sectors I just mentioned continue to be highly relevant. In fact, some of them excel in terms of opportunities. COVID-19 is fast-forwarding the need to digitize, the need for mobile payments, the ability for people to stream content, and the desire for people to play games. All of those things that overlap with the entertainment, tech, and digital spaces are even more in demand right now. In that sense, it’s fast-forwarding the opportunity. A lot of those investments don’t require the movement of goods or trade.

Now, will we see as many investments in the agribusiness space during this confined travel period? Probably not, mostly because U.S. companies won’t necessarily be able to travel and make new green-field investments during this period, but those that are there in the agribusiness space already may see more opportunities as the need for African food security increases, as they cannot import as much. They’ll be looking to local value chains to provide that food security.

What impact is COVID-19 having on the investment space in Africa?

Hruby: During COVID-19 it’s difficult to talk about brand new investments. There haven’t been that many brand-new investments from anywhere in the world, as people are cautious and are trying to figure out what’s happening in their home markets, and they are also unable to travel to do due diligence or look at new investments and opportunities.

However, you do see a lot of U.S. companies stepping up to help African governments and their African partners in the fight against COVID-19. From Coca-Cola to Citibank, from P&G to ExxonMobil, you’ve seen a lot of U.S. companies donate PPE [personal protective equipment] or help with sanitation. There is money flowing where there can be.

There are some major projects going forward, particularly from the large U.S. tech players. From Facebook, you see their participation in the 2Africa Cable Project — an undersea cable that will increase connectivity and will reach 23 countries in the region. You see Google being very active also with an undersea cable, but also through Project Loon, to create more wi-fi or rural 4G connectivity through high-altitude weather balloons. Microsoft has been very active in the datacenter space. When it comes to expanding mobile connectivity, access to wi-fi, and access to off-grid energy, COVID-19 is fast-forwarding digitization and the need for leapfrogging solutions.

How are African entrepreneurs and businesses helping their communities respond to COVID-19?

Hruby: Hundreds of African companies are stepping up, whether they be big companies or start-ups, to help in the COVID-19 response and economic recovery.

Vivian Nwakah from Medsaf is working with 400 clinics and hospitals on procurement and logistics to make sure the right medicines and PPE are distributed across Nigeria. She has been working to expand during this period.

Demmy Adesina is the founder of Rensource, which is looking at off-grid and home solar solutions to the energy problem. Solar home units allow people to work from home more effectively in Nigeria.

Another good example is in Kenya. There’s a coalition called Safe Hands Kenya that’s a start-up community like Koko Networks or Twiga that is working with established players like Chandaria Group, who are traditional manufacturers, to ensure that masks and soap reach individual Kenyans. You see the private sector stepping up, whether the multinational private sector that invests locally, or the local private sector, or even the start-up community. There has been a robust response.

Where can investors get support to invest in Africa?

Hruby: The last year in the U.S. has shown that we have new tools in our toolbox to encourage American investment in Africa, and that’s very exciting. The new U.S. International Development Finance Corporation is a game-changer. We’ve really expanded on what OPIC could do in the past. We’ve given it new tools and now it can support a lot more American investments into African markets. A newly active EXIM Bank is also eager to do more.

We’ve seen recent moves with the approval of a Senegalese project and a Mozambican project by EXIM bank. And you have the DFC willing to look at opportunities in telecom in Ethiopia and other emerging sectors with great import to the United States. The DFC and a robust EXIM bank are helping to support the tools that we need to mobilize additional capital. That’s been a great development in the last year and a half.

The Prosper Africa Initiative has the opportunity to mobilize different areas of the U.S. Government to better reach small and medium enterprises. I think all of us who work on this are eager to get past this confined COVID-19 period so that those new tools can be used to their maximum potential.