CHOGM Media Conference - COMAFIN II Launch

CHOGM Media Conference
Media Centre Conference Room
COMAFIN II Launch
March 3 2002

JOEL KIBAZO : Welcome to the launch of the new Africa - Commonwealth Africa Fund and I am delighted that we have the Presidents of Uganda, of Tanzania, and Malawi with us, along with the Commonwealth Secretary-General who will be sort of kicking off the proceedings. President Mbeki has been detained I understand but Secretary-General will have details of that.

MR McKINNON: Thank you very much Joel, your Excellency, the Presidents on the platform with me. This is the whole purpose of launching the new Commonwealth Fund for Africa and, as there are still discussions going on in the Executive Session, which President Mbeki is intimately involved in, concerning the future of the Commonwealth, he will be a little delayed but may I welcome these Heads of Government and our investors, the fund manager to launch this new fund for Africa and my special thanks of course to President Mkapa on my left of Tanzania who will be speaking on behalf of the region.

This is a pretty exciting moment in this whole project. The first fund for Africa was launched by President Mandela in 1996 and is now fully invested. On the strength of its success, Commonwealth finance ministers asked us to establish a second fund for Africa and very recently I met with Jim Wilkinson, the President of the World Bank and we agreed very much on the obvious: that private equity investment in African business was one sure way of enhancing economic development in the continent. It is about investment rather than aid and it helps to ensure that all the world's people can really share the benefits of globalisation. We agreed to work together. So now in collaboration with the International Finance Corporation of the world and the Development Bank of South Africa I am delighted to be able to announce the launch of this new fund for Africa. We've learnt a lot since we launched our first fund six years ago. There's more information available about pre-emerging markets. Project sponsors and host countries are better focused on issues of commercial viability and due diligence. Countries are learning to cope with private flows. There's something of a track record to make Commonwealth Africa ready for a second generation of funds. And, through the launch of this fund, we've succeeded in building a real global partnership.

Private capital goes best where conditions are best. This new funds investment and businesses in Africa will raise capacity levels through knowledge transfer to local fund managers as local business people have to up-skill to attract investment. It will improve living standards. It will provide jobs.

It will bring income for families and that means more education for children. That is a bottom line benefit in Africa. It will spur economic growth and innovation as local services - and it's all about a sea change that has occurred since 1990. This has multiplied while official flows have reduced. I make that point again. Private sectors flows have multiplied while official aid flows have reduced. The challenge of this reversal is the fact that private capital flows can be flighty and tend to concentrate in only the best economies. That means that countries with endowed handicaps do miss out and are vulnerable to capital flight. We can meet this challenge by building confidence in developing countries and by floating instruments to facilitate their access to private capital so there is adequate investment to enable these countries to integrate and share the benefits of globalisation, and this is where this new fund for Africa comes in. It will join other funds the Commonwealth has initiated.

We've four regional funds: Africa, South Asia, the Pacific and the Caribbean. They are unique in that they mobilize capital from around the world from official investment agencies. The investment strategy has focused on companies with potential to promote exports and generate foreign exchange, simulate entrepeneurship, create employment opportunities, facilitate technology transfer, support the transfer of ownership of productive assets to the private sector and this new African fund also constitutes an important example of the Commonwealth strength not only in south/south but in north/south relationships, public and private sector partnerships. It does provide tangible evidence of collaborated effort to promote sustained development in the region during the year when several concrete initiatives are expected to be announced within the framework created by Africans themselves through the new Economic Partnership for African Development. It does signal that within the Commonwealth we're moving ahead and helping countries to adjust and it certainly is something that we want to see succeed. We want to see supported. We want to see people get behind it. And it's now my privilege to invite President Benjamin Mkapa of Tanzania to speak on behalf of the beneficiary region which is, of course, the Commonwealth in Africa. Thank you Mr President.

PRESIDENT MKAPA: Your Excellency, Heads of State and Governors-General of the Commonwealth, the Right Honourable Don McKinnon, Ministers, ladies and gentlemen. I am greatly honoured to speak at this auspices occasion of the launch of the new Commonwealth fund for Africa during the Coolum Commonwealth Heads of Government Meeting in Australia.

Those of us whom Commonwealth Africa are pleased that it has been possible to have a success of funds of the Commonwealth African Fund Limited as published in 1996. We're pleased because we've witnessed, and some of our countries have actually benefited from the success of COMAFIN I, whose capital has now been fully invested and is earning reasonable rates of return for its shareholders. Tanzania is one of the seven countries along with Ghana, Kenya, Mozambique, South Africa and Zambia that benefited from COMAFIN1. With Com 1, $US63 million share capital through which 18 investments were made and three original projects undertaken across nine sectors; namely, telecommunications, financial services, transport infrastructure, manufacturing, tourism, property development, mining and agribusiness.

The Commonwealth deserves to be commended for this innovative way of building entrepeneurship in Africa and to provide capital necessary to move ideas from the drawing board to fruition, creating jobs for our people, passing on essential skills and knowledge, raising incomes and government revenues necessary for the war on poverty, and by investing in things like infrastructure helping to solve the supply constraints hampering construction over portable goods.

COMAFIN I therefore helps to fill to enormous gaps in Africa gaps to be a player in the world area economy and particularly in financing investments. It may be a small start, considering the magnitude of requirements and the size and nature of challenges that our continent faces. But it is a correct approach. We've started well and we must continue along that path.

I take this opportunity to thank those countries that contributed the share capital to COMAFIN I, namely the investment agencies from Brunei, Malaysia, Singapore, the United Kingdom, Botswana, Mauritius, South Africa and Zimbabwe. As we launched COMAFIN II, I ask my fellow heads of state and government to give serious consideration to make even token investments in the new fund that we're launching today , this I believe will enhance the concept of ownership and help our capital from other sources.

I also appeal to the rest of the world to take a keen interest in Africa. I am sure those foreign investors that came to Africa in COMAFIN I and other similar arrangements have seen that the reality of doing business in Africa is not as bad as the bad reputation given to our continent would suggest. Most African countries have gone to great length to design and implement far reaching economic reforms and prudent policies that address the macro- economic fundamentals and other supply side constraints and generally create a welcoming environment for private investments.

We ask the external world to respond to our own initiatives for development by bringing in much needed capital for viable projects with a potential to promote employment and exports, create new outlets and infrastructure, facilitate technology, transfer to local firms and support the transfer of technology of ownership of productive assets to the private sector Ladies and Gentleman, COMAFIN I was a was a pioneer private venture which has sought to assist private enterprise development in Africa in pursuit of objective, COMAFIN has aimed to continue to the economic development of the countries of the region and make a catalytic role in the organization of other finances for the private sector.

At the same time COMAFIN has sought commercial returns and shareholders through investment in profitable sustainable and competitive companies. This, I am sure, has strong demonstration effects for other foreign investors. Finally, let me assure you all of Africa's resolve in the context of the new partnership for African development, NEPAD, to do as much as it possibly can to address the problems that slow our development pace and, in particular, to create the political, financial, institutional and professional environment conducive to partnership for growth and profit.

But, difficult as it may be, we must win the war on poverty. It is not unrealistic of us to aspire for an African rennnaisance. We only have to keep on working it as Africans and we call for the practical support of external governments, institutions and investors in these efforts, and the Commonwealth has a pivotal role to play in this, that together we can move Africa from the depths of misery and set it on a path to sustainable growth and development for the good of its people and of the world.
As we say at home, it can be done provided we all play our part and I ask everyone to play their part. Thank you for your time.

MR McKINNON: Thank you very much President Mkapa of Tanzania. I would like now to call upon Mr Tom Barry who is at the end of the table on my far left. Tom Barry is of Zephyr Investments. They are the fund managers and that is the larger fund within the new fund we're talking about incorporating the larger World Bank Fund. So Tom Barry, it's over to you to convince these people just how good you are going to be.

MR BARRY: Thank you. I come here with great humility in the presence of the Commonwealth Heads of Government Meeting to support the launch of this ambitious effort and I thank you very much, the Secretary-General Right Honourable Don McKinnon and His Excellency President Mkapa for their words. I'm going to spend a few minutes describing what our program is and, as Don said, in hopes that we can have some of you join us. The secretariat has demonstrated its continuous and ongoing support for private sector support in Africa and to continue this will play a leading role as the Secretary-General said in the development of the second Commonwealth fund for private investments tentatively named South African Commonwealth Partners.

This is a private equity fund which means investments in the private sector, in businesses many times not listed on the stock exchange, to provide capital and management support to help those businesses grow, to be successful, to meet global competition. The list in this place shows what our aspirations are. Support African led businesses to achieve a critical mass, to meet the competitive need of globalisation. Support indigenous managerial skills. That is we want to support Africa-led, Africa-managed businesses. Support regional and un-African businesses. They're consistent with the emerging regional continent-wide economic co-operative initiative. NETAD was just mentioned, the most important one.

The fund will be anchored by the Development Bank of South Africa and will join forces with the World Bank, the International Finance Corporation, IFC and our goal is to be the premier pan African investment fund. We've a target size of $US150 million in committed capital to investment in private businesses in Africa led by the Development Bank of South Africa, a commitment of up to $25 million as the anchor. We want to provide this capital and combine it with managerial support to build regional businesses. It is important, as the Secretary-General and President said, to build managerial capacity in Africa for Africa-led businesses.

The fund will be formed and managed by Zephyr Management which has been active since 1994 in Africa when we were the formed and led the first private equity fund in south Africa after the all-race elections. The company has four offices strategically located in Johannesburg in Africa and in New York and London. We emphasis the majority of the investment personnel will be located in Africa. In our opinion there is no substitute for on-the-ground presence of professional help and building the management of the businesses.

This fund is designed to support economic development in the Commonwealth countries by providing foreign direct investment, building businesses to critical mass. This is essential in a global economy, promoting African ownership versus local businesses and developing fund management skills. We want to contribute to the building of best practices and management to meet global competitiveness and encourage economic activity between Commonwealth Africa and the global marketplace.

We say that success begets success. As President Mkapa said, successful and superior investment returns earned in Africa will be the source to stimulate further private investment into Africa. Our goal of building businesses across several countries will enable portfolio companies to reach critical mass. We must take an industry approach, not a country approach to help businesses build to competitive size. Economic size permits development and management skills, new products and services, research, to meet the competitive strength. It is Very important to be involved in the building of the businesses by supporting management and bringing managerial skills and development of local management.

The conclusion: our view is Africa is a continent with great economic potential. At this time there is a convergence of political friends and economic initiatives to promote private sector development. Commonwealth Secretariat leadership is mobilising financial managerial resources through this fund to accelerate development of private sector development. This initiative is going to be enhanced and enlarged by cooperation with the World Bank and International Finance Corporation.

The managers ourselves, is experienced private sector management in African investments. The purpose of the fund will be to broaden the stakeholder base, support African ownership, enhance global competitiveness and make the Commonwealth Africa economically stronger; and finally, as I said, the goal of the fund is delivering superior investment returns will attract further private capital investment in Africa. We invite you to participate and thank you for your interest.

MR McKINNON: Thank you very much Tom. We're open for questions and if President Mkapa or President Museveni are ready…

QUESTION: I'd like to ask President Museveni and President Mkapa whether they feel that the situation in Zimbabwe is having a negative impact on foreign direct investment and whether you're concerned that it should have a negative impact on the …

MR McKINNON: We all knew that was coming, didn't we.

MKAPA: Well, certainly the publicity that has been given to Zimbabwe is bound to have a negative effect on investment into that country. I am hoping that you people who will spread the word will make the distinction to your readers between Zimbabwe and all its neighbours so that it doesn't have a spill-over …

JOEL KIBAZO: … expert questions on the presentation and they're … just in case there are any sort of technical questions to do with the fund these two experts will be able to answer that.

QUESTION: I am just wondering if you want to explain what types of businesses or industry the fund would be particularly interested in investing in?

MR McKINNON: That's yours Tom

MR BARRY: For those of you who are here, when you are leaving we have some printed comments of my remarks and also some answers to questions. What we're looking for are businesses that can thrive in a private sector environment and will need international competitive standards. Some of the ones that are building in Africa today are transportation, are communications, telecommunications, there's business services, information technology, food and beverages; many of these are industries which you would recognize have been subject to growth and consolidation in other geographical regions in the world and ones which are now just starting to take off in Africa as the per capita income increases.

PRESIDENT MUSEVENI: President - the gentleman who was asking about whether the problem with Zimbabwe will not affect investment in Africa. The images which you keep highlighting may discourage some people but this matter is going to be discussed in the retreat. The Commonwealth will discuss the whole question of Zimbabwe in the retreat, which is tomorrow. We shall discuss it in a comprehensive way, not in a partial way like the one you presented in your newspapers. However, come back and say that Africa will be starved of FDI because if it is, then you will be starved of opportunities. Africa is a land of 750 million people now. The population is increasing very soon to one billion. As of now, these people are underconsuming. They consume much less than they should be consuming. It is in everybody's interest that this one billion people very soon should consume adequately so that they buy from other people in the world.

Don't think that FDA offering charity to Africa. It is in order to improve the business chances of everybody. Because of low incomes, if for instance you take milk, a normal human being should be consuming 200 litres of milk a year. Now Africans are consuming 30 litres a year by a fact of almost eight lower than they should be consuming. Beef is the same, textiles, cement, so by having nearly one billion people. Starved of jobs. They don't have jobs employment and you people, consuming while Africans are underconsuming. But how much more beef can you eat because you already eat too much. You can't eat 400 kilos. There is a limit, so in order to improve the business in the whole world … balance in the whole world , so this is not a charity to Africa, don't go and say , FID will make jobs to solve this problem so that you get investment in the whole continent - in the whole world so you all make money. You make money; you make money. Okay the Financial Times. The Financial Times you are talking there, just cheerleader cheering up problems. Okay.

QUESTION: Thank you, I'm sure we will see that verbatim in the financial times.

QUESTION: Mr Barry, are any Australian firms or the government expressed interest in this new fund?

MR BARRY: Today is a launch and is just beginning so we will be approaching the Australian Government soon. I hope you'll help us
QUESTION: With regard to the 16 point action program presented to the executive session yesterday by the Commonwealth Business Council, are you, Mr Mkapa, in favour of the 16 points being included in the final communiqué, including particularly the point which permits Commonwealth countries to tackle the issue of corruption, not only just tackle it but to have a peer group review so that money given to African states and other states which benefit from donations doesn't end up in Swiss bank accounts

MR MKAPA: Yes, I have endorsed those principles that are enunciated by the CBC. I ask you to give some prominence to the need for those who donate, who gives us assistance or lend to us, to make sure that they do not initiate or be party to corrupt practices.

QUESTION: My question is to the President of Tanzania. There's been some allusion to the problems in Zimbabwe discouraging investment but is it correct that your view is that the whole discussion of the political situation in Zimbabwe here at this Commonwealth meeting is premature and why do you think that discussion is premature?

MR MKAPA: The election is this coming weekend, to the best of my recollection. The campaign is on now. The discussion, I hope it will be balanced enough not to influence the result either way. No-one is rooting for any side in this election process. So I am hoping that if we discuss or analyse or pass information it will be not aimed at giving -rooting for anyone, any one side, because that would be pre-empting the prerogative for sovereign right of the people of Zimbabwe to make an unfettered choice about their leader and their government. That's the first thing I wanted to say. Secondly, I hope that we will not pass judgment before the results are out. We have observation teams there from national governments on the continent, from parliaments on the continent, from national teams from outside the continent: give them a chance to read the climax, political, administrative and so on, succinctly and adequately and make their judgment before we pre-empt their judgment. That's all I'm saying.

MR BARRY: If I may, two of the major financial supporters of the fund are here, Mr. Greg, Development Bank of South Africa and … of the World Bank IFC I'd like to invite them to make brief comment.

MR WHITE: Thank you Honourable Secretary-General Your Excellencies. The Development Bank of South Africa has been proudly a partner of the original COMAFIN initiative which was launched six years ago. Over the past six years we've watched the COMAFIN initiative unfold. Funds are fully committed its capital and we've learnt many lessons of experience. However, the overriding conclusion has been that Africa continent offers many exciting and sound investment opportunities which also contribute to sustainable economic development and a tangible improvement in quality of life of our people. We're greatly encouraged that COMAFIN full-time commitment status has not marked the end of the story but merely the end of the chapter.

The launch of a new fund today is a progression from modest beginning to more ambitious initiative that aims to broaden the partnership that has been established and to reach new heights. We are deeply committed to ensuring that the initiative goes ahead, thank you.

IFC REP: Firstly, the IFC would like to thank the Commonwealth Secretariat for inviting us to participate in this important forum and we would like to start by emphasizing the fact that the co-operation is committed to the Africa continent. I think this is pretty important. In Africa, IFC provides approximately 2.5% to the private sector compared to 4% globally.

The total IFC held portfolio is approximately US $1.4 billion and IFC finances accounts for about 10% of all private investment in the region. We continue to focus on three key areas across the region. Building the financial sector. Expanding the private provision of infrastructure. supporting indigenous entrepeneurship. It is important in that it will be the first pan African fund. We hope that this new fund will be an important vehicle for providing assistance to different types of companies. Priorities will be placed to those that are seeking to turn themselves into regional powerhouses to some strategic investors who can reward the efforts of a local partner such as the funds and to entrepreneurs who own assets including privatised assets but who need additional management talent or other help to scale up their businesses.

We also hope that this initiative will concentrate on catalysing technological know how and expertise for African key sectors and industries. IFC will invest up to 25% of the total capitalization of the funds and IFC stake is expected to mobilize further investment from the private sector and other investors interested in the region. We look forward to working with the Commonwealth investors in mobilising further funds in this initiative. Thank you very much.

JOEL KIBAZO: I will hand back to Secretary-general.

MR McKINNON: Thank you very much.

ENDS