Africa needs to improve liquidity to attract investment, RICS Summit Africa 2019 hears

Posted On Friday, 12 July 2019 16:22 Published by
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One of the key ways for Africa to attract significant external investment is to improve levels of liquidity across the continent. 

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Nigeria was one of the keynote speakers at the recent Royal Institution of Chartered Surveyors (RICS) Summit Africa 2019 in Johannesburg.

With a powerful line-up of over 18 influential speakers and lively panel discussions, the event attracted more than 250 executives and professionals in the built environment sector from across Africa. The Summit’s principal sponsor was Broll Property Group, while other key sponsors and partners included the Green Building Council South Africa (GBCSA); International Finance Corporation (IFC); and, CBRE Excellerate.

Presenting on the macroeconomic outlook of Sub-Saharan Africa, Nigeria-based Teriba said he sees liquidity as the “magic bullet” to attracting further investment in Africa, in addition to strengthening currencies and growing economies on the continent. 

“African countries need to strive for improved levels of liquidity, which is intrinsically linked to growth and stability. Africa needs to effectively run the global liquid race to court investors,” he said.

Teriba noted that in the last half decade Africa has struggled with growth, largely because of “illiquidity”, while it has also struggled with exchange rate stability as a result of external illiquidity.

“Over the years, Africa’s peers have learnt to grow the economy, deepen domestic liquidity, stabilise exchange rates and deepen external liquidity... It’s time for Africa to learn from other leading economies and boost liquidity levels on the continent,” he said.

He explained that external liquidity is required for stability, and stability is required for domestic liquidity. In turn domestic liquidity is required for growth. “Africa must ensure that there is adequate international and external liquidity to restore growth and stability and the sequencing of the strategy is vital.”

Teriba highlighted domestic liquidity as a percentage of GDP for certain African countries in 2017, which are listed below.

Morocco - 119,4%

Algeria - 80,5%

South Africa - 72,2%

Kenya - 36,7% 

Angola - 32,2%

Ghana - 26,1%

Sunday - 24,7% 

Tanzania - 21,5%

Nigeria - 19,5 %

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“Domestic liquidity as a percentage of GDP is a rough measure of the extent to which the domestic banking system can finance the economy or GDP. Hence, around 20% liquidity in Nigeria or Tanzania for example, means the banking system is so shallow that only a fifth of current economic activities can be financed by banks,” he noted.

“More than 100% (liquidity) means the banking system is deep enough to finance all current economic activities and also have funds to prospect for the future, such is the case for Morocco, Malaysia or China,” he added.

According to Teriba, in order to achieve economic growth it is imperative that countries reorder economic policy priorities in this regard.

“If African countries can unlock liquidity, growth and stability can be restored… When you are trying to drive change, government is the key. If you convince the government, there will be progress, but if you do not convince them, no matter what the project is, you might as well be building castles in the air,” he enthused.

Land Assets

He said research showed that more than 50% of the “unlockable value” of countries was “sitting in the ground” in land assets.

“We need to get governments to appreciate the value sitting in the ground. There are two issues - getting the money or investible funds and finding the opportunities for investment. African governments need to do a lot about both and this conversation is crucial,” he added.

Teriba highlighted how just one country in Africa has more than R200 billion in liquidity; just four have more than R100 billion, while another four have liquidity of R50 billion or more. He reiterated that Africa needed to join the global liquidity race to grow Foreign Direct Investment (FDI) as well as remittances. 

''Financial globalisation has changed the trends of foreign resource inflows into developing countries, with a shift away from financial aid and towards investment in the continent since the mid-1990s,” he said.

Foreign Direct Investment and Remittances

“Until the early 1990’s official development assistance (ODA) or foreign aid was the largest inflow of financial capital, twice the amount of any other capital inflows to the continent. FDI, remittances and Foreign Portfolio Investment (FPI) eventually overtook ODA as countries embraced financial globalization,” he explained.

Despite this growth from the mid-nineties, Teriba noted that some leading African economies like Nigeria are in what he calls “the FDI and remittances relegation zones”. He said Nigeria had much bigger shares in FDI and remittances than it currently has to its credit.

Teriba advised African governments to address this problem by strategising to grow FDI and remittances as a key goal. “There is a need to develop a national plan to join the global liquidity race, (in order) to regain and grow FDI and remittances market share. The plan should have clear key performance indexes for central banks, finance ministries and the African Commission.”

Engage African Diaspora

He also urged African governments to “engage the Diaspora to invest in Africa”.

“Leading emerging markets have recognised the role of the Diaspora as catalysts of financial globalisation… These governments have Diaspora bonds to attract record levels of private-to-government remittances from non-resident citizens,” Teriba explained.

“Nigeria has been left out of this as remittances have remained a private-to-private affair. China and India each attracted only US$7 billion more than Nigeria in 2006, but each now attracts US$50 billion more than Nigeria,” he said.

He noted that the Nigerian Government finally “heeded calls to join the race” by issuing its first Diaspora bonds in early 2018. But it issued “just US$300 million”, in a country that has recorded US$20 billion in private-to-private remittances annually over the past decade, according to Teriba.

“Nigeria must join the race for massive private-to-government remittances from its non-resident citizens and narrow the gaps between it and China and India,” he said.

Last modified on Friday, 12 July 2019 16:39
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