Enter The Red Dragon
A significant event happened on the African economic landscape last week, when the Chinese bank Industrial and Commercial Bank of China (ICBC) bought 20% of Standard Bank. This is significant in a number of ways in that it represents the single largest foreign direct investment in Africa to date USD5.5 billion. Secondly, it shows the Chinese mean real business and they are not ready to give up on Africa. The Chinese have been busy investing in commodities in Zambia, DRC, Cameroon et c to secure raw materials for their growing industry back home. Now they have just bought a bank to make structured deals and trade financing easy for them! The purchase of the Standard Bank stake, gives them the financial avenues to structure deals in the emerging markets of Latin America, Asia, Africa and Middle East (of which Standard Bank is in more than 38 countries). In a single swoop, they will be in more than 38 countries! This is smart business by the red dragons. For all the big talk, America and Britain have been overtaken by China as the biggest investors in emerging markets.
Walking On The Wild Side
I remember watching the comic, Lion King, when Simba remarked that “I laugh in the face of danger. I walk on the wild side”. Simba was a young adventurous lion cub who decided to check out the “really cool place” as advised by his wicked Uncle Scar. The cool place was an elephant graveyard full of hyenas. Although risky, the adventure satisfied the curiosity of the young lion cub. Doing business in emerging markets is exactly not fun – the political, economic and regulatory environments are a minefield. Just think of MTN being asked to pay USD50 million mobile licence in retrospect for a small market like Benin! It is very risky. The flip side is also to think of MTN making more profit across the border in Nigeria than all its operations in Africa (including South Africa) and the Middle East combined. I have greatest respect for people like Strive Masiyiwa who are trailblazers who went to places like Nigeria when it was a lions den. They are the forerunners of a cadre of Afro entrepreneurs who we need to take this continent forward. When the West carry out due diligence of emerging market businesses, the results are negative. They walk away…not so for the Chinese, they run in! African assets are a real bargain when one looks at the price to earnings (PE) ratios. The West will see risk, the Chinese will see return. Even in portfolio risk theory, you learn that the investments with the highest risk, offer the highest return. Your risk appetite can determine how far you can go in life.