On Thursday, April 20th, CFA Society New York hosted its Managing Risks in Africa program. Servicing both the potential and pitfalls frontier investors face, this event serves as a crucial chance for those either interested or already involved in private deals in Africa to analyze various methodologies associated with managing risk. This event brought together upwards of 100 attendees and featured notable panelists and speakers from various executive positions associated with investments and operations in Africa, along with various other frontier markets.
The discussion focused on the very real risks that investors are faced with when considering Africa as an investment, and how managing these risks with a realistic and open-minded approach can lead to a high potential for growth of a firm with the right tools. Some of the potential benefits include utilizing the massive population that constitutes the younger generation between 15 and 24 through proper educational training programs and exposing potential risks before they can even arise with the simple mindset of solely looking and listening, rather than allowing for pre-conceived notions to dominate your investment practices. Beginning with an introduction from Stéphane Brabant, Co-Chairman of the Africa Group at Herbert Smith Freehills, Brabant spoke to the idea that while investing in Africa may be a challenge, such risks can be mitigated through a variety of factors, and to never step foot in Africa would be the true pitfall of a company. This is followed by a panel, moderated by Stephen B. Murray, Co-Head of Africa at Aldwych and featured panelists Peter Leon, Partner and Co-Chairman of Africa Practice Group, Ken Flechler, Chief Administrative Officer of Pike Corporation, Justin Chinyanta, Chairman and CEO of Loita Group, and Walter H. Kansteiner, Senior Director of Africa for ExxonMobil.
With investments in Africa becoming more and more prominent in the world of investment management, it is becoming imperative to both learn how to properly enter into such a vast frontier market, as well as being able to assure a future for your company in Africa long after the initial deal is done, said Brabant. In past decades, Africa’s risks were not only numerous, but unfamiliar to investors, causing for both greater confusion as well as conflict of interests as whether to even enter the space. However, in today’s geopolitical landscape, these conflicts such as terrorism, climate threat and famine have unfortunately become widely recognized household terms globally. Tackling the wrongful assumption that as investors we should solve all of these problems, Brabant addresses the counter-argument that it is the job of an investor is to assure that a team is not only prepared for crises, but have the ability to identify where the conflict originated from, a preventative measure avoiding a similar conflict in the future.
The panelists then began to speak in regards to some of the investment management strategies to not only help hedge risk for their respective firms, but set themselves apart from competing companies. There was a consensus regarding the fact that in the last decade, especially, many challenges have transcended from a sole country’s problem to a transnational one, such as the relationship between health and disease, causing managers to think how to mitigate and share the risks of such problems most effectively. Additionally, the panelists related many of their points to the opening remarks from Brabant, citing stories of training programs used to most accurately utilize the masses of talented people in these African countries, and how important it is to adjust your company’s pre-conceived notions of doing what only helps you to incorporating your investments for the overall benefit of your company. Chinyanta then brought in the presence of China and FDI into the discussion, describing their presence as so impactful because they embraced two very important concepts; that they were there to understand what those they were working with actually wanted, and a fair way in which they could work out the payment, stressing the importance of fairness to a future of a company.
To further expand upon the idea of partnership in these investment relationships, Leon brought up the idea that even an approach to a potential investment has changed, now with new focus on factors such as environment and very realistic problems needed to be addressed often to even gain the right to work in that space. Murray then interjected in agreement, stating that if you gain the ability of knowing what motivates those in your partnership, you’ll not only be a much better negotiator, but be able to develop a much better business model overall.
Of the content shared at the event, a couple of main points stood out for investors of all sorts. Firstly, in order to best mitigate risk, risk must be shared across the partnership established, whether it be local, state, or global partners to better improve transparency and therefore, stability. Additionally, if you as an investor are to truly make your mark on the potential that Africa clearly demonstrates, you must be ready to accept that the only thing you know going in, is that you don’t know, and be ready to commit to the local culture and customs to build a stronger partnership. Ultimately, an investment is only as strong as both sides’ personal investment in the project, which will be the guarantee to success for the future of investments in Africa, a future that appears to only be the beginning. The night then concluded with closing remarks from Stéphane Brabant, in which he surmises the importance of each of the points made by the panelists and how imperative the investment in Africa in the upcoming decade will prove to be.
Investing in a frontier market such as Africa is crucial to both the infrastructure and economy of Africa itself, as well any investor looking to the future. This event was intended to allow investors to gain further insight into how to manage their risks in Africa through various legal and social methodologies.
CFA Society New York would like to thank its sponsors at Herbert Smith Freehills.