erik: welcome to "the africa opportunity." i'm erik schatzker in cape town. we came here to south africa to give you a close look at the extraordinary potential and the enormous challenges this continent offers is is is and -- businesses and inventors worldwide. we brought together government and nongovernment leaders from around the globe to discuss debate and in some cases decide the future of african business. from infrastructure to agriculture to technology, how will africa attract the capital it so desperately needs but avoids the pitfalls of waste and conflict and corruption that

have left its promise unfulfilled? for the next hour, you'll find out on "the africa opportunity." ♪ in africa, the optimism is infectious. the natural resources seem limitless. the population is young, growing, and educated. yet today, the africa rising narrative is in doubt. squeezed and foreign investors are pulling back. is there a bull case to be made for africa? that is one of the questions we sought to answer in cape town. presidentald caprica, of the african development bank and now advises pdg, and sudanese billionaire. >> it is tough to make decisions for some countries, but africa has been there before.

people misunderstand what has been happening with this continent. 1990 was known as the lost decade or 10 years of mayhem and decline occurred. 0 two today, african economies are larger. now that is not going away because of the crisis. example, the an fourth fastest-growing countries in africa today have no fiscal dependence on commodities . there are a number of countries that have to make decisions on

economic status. there are adjustments. that adjustment you see right now. erik: why be so confident that they will make those adjustments because those opportunities to adjust have come and gone before but have not been made? a good policy is like a triangle. it has to be politically feasible. solutions, technical but from that point of feasibility, their issues everywhere. erik: he is hardly alone. is bullish view on africa widely shared by industry and government as i found out on the first panel of our business and economic summit in cape town. what excites me about africa

today is their acknowledgment that we need to do things differently, that we need to move a lot faster, that our populations are growing. we have a young population that is aspiring and ambitious and once in the economy and the opportunity to grow that economy is here and that is what excites me about africa. our own governments are beginning to accept that we need to indeed turn the corner and looking into the past and anding colonialism imperialism is old stuff. the young generation wants to see a growing economy. that's what excites me. >> africa is increasingly stable. it's increasingly democratic and it's increasingly willing to work with the private sector and create reform that is good for the business environment in africa is a continent, not a country, so there are wide variations on what i just said. but this is an agency that is

focused on partnering with african countries and countries around the globe that are committed to governments and are willing to undertake these reforms. for example, we are working in ghana and cote d'ivore. there's infrastructure on the continent over a decade and increasingly working in energy under president obama's power africa initiative. partners, weto our are seeing tough reforms. i mentioned the idea that we need cap more transparency, independent regulators, for .xample, and the energy space we are seeing movement on this. >> what we are trying to help country by country is to develop data sets they need to make a compelling argument for foreign direct investment, to help them create capital market efficiencies, infrastructure and technology to grow their capital markets, and basically facilitate greater visibility through our bloomberg news team

writing the kind of stories about the leadership and the economic challenges that opportunities that exist on the african continent. we have been here for a time,vely short period of but as we look to the future, we look at africa as a very important long-term growth opportunity. we also look from the perspective that we have about 400,000 users of our product every day. they want to know what is going on in africa the same way they want to know what's going on in china and russia, brazil, and lots of other places. we are the conduit for that information and the facilitator for people to get that data they need to make important investment decisions going forward. years,ver the past 55 slightly more than half a century, sub-saharan africa has grown in population at a dramatically faster rate than the world. look at that. pretty remarkable the statistics. we have heard of these figures before, but here they are for everybody to see. patrick, you are the insurance

guy, right? for arguments sake, you're the actuary among us. point ofhe actuarial view. how important are demographics to the gross story of africa? if you look at it, urbanization is the key here. africa at a much slower pace then china where it's driven from the center. the organization of africa generally speaking is an enormous trend. you look doubling of the population between now and just short of 2050. this is a very exciting market. the average size of families -- i was looking at this yesterday by 62 a family. this is back to what the irish were about six years ago and you know what they did. excitinga, it's a very

thing. it's not true across all of africa. you have to be selective. and 17mple growth rates of the sub-saharan african are 5% plus. you have to pick the ones you want to go after. the urbanization is not kind of urbanization or you just drive into lagos and it's like a teeming anthill in many ways. people are working and making money, but not living in the way and that perhaps that we are used to seeing the west. we have to tap into that and it will not be the traditional means of branched networks or ifa's or direct sales force is maybe in some of those countries. we have talked about what it's going to take for africa to education,ll case, infrastructure, further diverse

location of economic base, and you and i have talked about this. erik: your concern is implementation coul. why? >> we dig africa. literally, figuratively, we dig africa. [laughter] one thing i find challenging is that most of these african countries all have fantastic visions. they are very clearly articulated whether it's a national development plan or vision 2056. it doesn't matter if it they all have them. my dad used to say if you want your dream to come true, just make sure you do not oversleep. that is what i see in most of these cases. we see the strategy. we know what we need to do. we do nothing about it. i think those countries we see getting up and doing it are succeeding. ethiopia, and,

kenya. those that are getting off their butt are showing the world it is possible. countriesllenge our and our governments is let's get up and just do it. for every bull case, there is a bear case. that is next on "the africa opportunity." ♪

♪ rising remains a ing cry for bowles, but there's been a plunging in currencies and something growth in china, a trading partner for many african nations. at the bloomberg africa business and economics summit, bloomberg editor anthony squatting led a discussion on africa's challenges and potential solutions. the africaabout rising narrative and we need to ask the question now is africa rising dead? what's going on? what can we expect? >> i used to say there were four drivers for africa rising. cycle, commodities for the other was politics and policies, urbanization and demographics could i think this

cycle is gone. you now need the policies to address them. that is probably what you not getting in some of the places. this is really the key thing going forward -- the policies that governments will put in place to address that. i think the entrepreneurship is still there and we have everything to still have a very bright future in terms of business and development. antony: you've done a lot of research on the relationship between china and africa. economyhink the african in china -- are they doing anything to find new markets? >> we talk about headwinds and china is certainly an incredible gale force tailwind for the continent. something i've been looking out china'sld has been

resource gross model has been impending african growth. we have seen from 2000 to now is this parallel growth between sub-saharan africa and china at about 3.5 differential. correlation and now there's causation. use as anna if i may example, about a year ago, looking at the continent, things were good. they were very strong seminaries and parallels between the mass economic status of sub-saharan african countries as you mentioned and southeast asia. now we are seeing eye divergence on the economic side and are part of the world and policy reform structural reform. it's politically difficult to do

some reform in some economies. antony: do you see a lot of potential for stronger relations between the u.s. in terms of orde and africa opportunities elsewhere for africa to be building new partnerships? >> only 1% of u.s. exports find their destination in sub-saharan africa. it is about 6% of the export banks portfolio. we have much more engagement here. that's not surprising that capital markets are not as deep. there are less options. i think there are a lot more opportunities here than u.s. companies have taken advantage of. have been active in power and transportation and infrastructure. but there's still a lot more opportunities in every one of those areas. trip isur goals of this to encourage more u.s. companies to participate here and tap into it. it goes back to what miguel said .

the policy changes are what will be needed to attract companies here. it's not an easy place to do business. and companies have a lot of other options. in commodityhange prices is a unique opportunity because it encourages and may hasten they moved to some of these reforms and policy changes that have been needed for quite some time. antony: we were talking earlier about how africa and your organization would be involved in that. we talked about the slower than anticipated and limitation because of bureaucratic hurdles. is that what you're talking about? >> power africa is an important initiative that president obama launched here in 2013, committing $7 billion worth of capital for power projects here. that has been slower than we would like. we just have not seen the deals come through. i think part of that issue goes back to what miguel said. in terms of permitting and licensing and power purchase

beenments, they have not as easy to put in place in a number of countries and i think that has impeded some of the power generation here. antony: perhaps you can speak to that. you're dealing with a lot of people trying to invest in africa. are they frustrated? our african government starting to tear down bureaucracy? >> there are some challenges. i don't really think it is bureaucracy which is holding things up. i think it's really at the end of the day basically two things. it's the lack of progression on infrastructure side. and this is the really serious one to me, which is the long-term one. on the short-term one, you have some very wrong policies which have dramatic effects. if you do not have some certainty on the effect, even if

it is a progressive devaluation, but if you have an official nearly out of the black market, it goes nowhere coul. that affects the ability to invested i thin. i think investors still want to come. let me tell you the three investors i see want to come to africa. you have strategic investors, multinationals, still on africa because they see the fundamentals and demographics. issue is ae effects minor problem and some say they can live with that. on the opposite side, you have institutional investors that buy stock leases. those are off africa. the worst thing you can do is buy one stock today and then the following day have 20%

devaluation. those are definitely out of africa. asy actually look at africa one, which is very sad and very wrong, but that's how it works. in the middle, you have financial investors, private equities. they can deal with this. they will adjust their valuations and their mechanisms. but they can deal with some uncertainty and they are still present. over the short-term, there is some uncertainty, but still very positive that there are projects and opportunities in capital willing. much more coming up from the bloomberg africa business and economic summit. --s, a composition with conversation with one of africa's rising tech entrepreneurs when "the africa opportunity" continues. ♪

♪ africa is the world's second largest landmass after asia and it is home to more than a billion people in 54 countries, who among them, speak as many as 3000 languages. african celebrate their differences. many investors don't. the did to ring -- deteriorating economic outlook is divesting dollars. the punch by 31% in 2015, but africa is a continent, not a single country.

look at the economies of sub-saharan africa and that's clear. nigeria's gdp has searched and the financial crisis and so has ethiopia's. africans economy has and sudan has done no better. no countries are likely. is deadon the dead sea last, worse than venezuela. progress is crucial. made an index to track leadership in africa. he says that lie in the heart and improvement of african citizens. the eager human index has stalled since 2011. it is clear that enthusiasm for the africa opportunity has not stopped. over and over, business leaders at the bloomberg africa business in a comic summit i express

confidence and explain why did >. >> this is a time that we accelerate investment in africa and not pullback. we would be in 10-15 countries. nigeria, we are not a majority yet, so we clearly have more investing to do and we think the timing is very good. >> i think that the change in commodity prices is an enormous opportunity. economy had to diversify whether it's an saharan africa are som or sub-saharan africa. ultimately, it will not be a sustainable economy, but in many ways, this is good news. it is sooner better than later and i think diversification looking to leverage the five in manufacturing and textiles and other things will make it far more sustainable. africa,you think about

you have to look at it from a long-range view. we go through these cycles whether it's a commodity cycle up or down. the key is how people react number one. number two is how you are able to continue investing for the long haul. i think that is the key. >> this the great story about africa. if you look at the kinds of returns that we can get on something like a wind power investment, a wind farm, exactly, i was there yesterday. they were looking at a gross return of over 20%. even with a 5% deviation in currency and ignoring a big step down last year against the dollar or sterling, you have to say that that is still net after in expenses

returns are well in the double digits. erik: you're still looking at healthy double-digit returns. >> you have to be a patient capital investor. there's no way you can come in for just a short period of time. erik: up next, investors dig deep into the clinical challenges facing south africa. -- political challenges facing south africa. ♪

♪ erik: welcome back. nowhere does "the africa opportunity" seem real other than here in south africa. it is the confident's richest country. from everything from a thriving wine industry, the government is in shambles. the government is scrambling to balance its books. we sat down with a panel of

economic experts to talk about south africa's finances and the elephant in the room, the country's credit rating. >> obviously difficult times. chinese growth is slowing. we have seen a plunge in the last couple of years. >> we have also seen a possible downgrading perhaps i , will just kickoff and asked the representative, conrad. what do you make of the budget? does it leave south africa and a better or worse position? conrad: if i could get everybody not to use the term "downgrade," we call it noninvestment grade. what i would like to do is really look at what our concerns are and contrast it with the budget we have seen today. when you look at the negative outlook would put on our rating in december last year, it was a

triple b minus. that is the one that is at risk of dropping noninvestment grade. the key concern we have now is around growth and it is important for us when we look at growth that you have to bear in mind, this is a middle income economy, south africa. roughly about $6000 u.s. dollars per capita income. look at growth around 1% or less than 1% at the moment from a per capita income gross perspective, it looks pretty dismal. >> how much pain and predicament is self-inflicted and how much is external? >> that is a good question. there has always been this tendency to look at global environments and there is no question it is a very difficult time or emerging markets. a lot of big growth engines in the recent past are increasingly being called into question.

i think if your looking at south trajectory,growth this achievement of the very low growth rate, nothing seems to move in the south african economy out of that. that is actually at odds with a lot of what we did see from emerging markets over those crisis years. this seems to suggest the reasons are south africa-specific and i am sure there is not much anyone can do about the global environment but if we are looking at the structural rigidity this in south africa, things that are not helped in terms of investor confidence, and even allowing the country to generate job growth it desperately needs. there is a lot that is south africa specific and that needs to be taken on board if there is going to be any attempt to fix the issues.

>> can you sum up what you think is difficult to fix in the south african economy? what have we not dealt with yet? >> everybody has been saying it is the structure of the economy. you see a lot of key import into industrial production being owned by a few things. these are mainly formally state owned enterprises and you still e's in areas that are key import into production. people are talking about administered prices, that is still a big issue. south african markets tend to be uncontested. it is far -- it is hard to contest because they are far away. you also have the edit problem, -- problem of qatar.

particularly endemic practices in key sectors. infrastructure being one of them. i think the cost of infrastructure in south africa, many studies have been done and it's fairly high and part of the explanation is the tendency. seem to africa does have a problem passing legislation. things tend to spend a lot of time being debated. is that something that concerns you? >> when you look at business confidence, investor confidence in this economy, which is desperately needed to really get to a situation where we see investment forthcoming, where we see growth picking up. with the backlog we have, the blockage we have with regard to key legislation, bear in mind the mining minerals and petroleum bills has been in the

works for something like three years. in the mining sector, the charter now is being discussed in courts again. labor legislation is not coming through on secret balloting, on collective bargaining, trade agreements have been negotiated for a very long time, everyone who is familiar with the trade agreements will remember the drama around the agreement. all of these agreements, all these projects, legislative pieces are taking way too long. without often finalizing these projects, it is hard to see how investor confidence comes back and will support investment and growth in this economy. erik: in the words of standard and poor's, the situation is dismal. so what if s&p downloads the country to junk? matt winkler was the question to sec commissioner. >> a lot of times the market has already priced in what they

believed to be the credit risk or credit rating that is in there and maybe there is no movement. some concerns are that a downgrain in and of itself, even though it does not provide necessarily any new information to the market, there may be mechanical reasons for why the market would react. people worry about so-called cliff affects, when something gets downgraded. it goes from investment-grade to noninvestment grade and that is some concerns going here in south africa. erik: where is the growth in africa? energy, mining, agriculture. what about technology? that is next on "the africa opportunity." ♪

♪ erik: this is legos, nigeria. nobody would mistake it for the start up in silicon valley, what it is places like this where africa is creating its own generation of technological disruptors. this is where jason started with bloomberg businessweek calls the netflix of africa. do you love that comparison? >> i hate that comparison.

erik: it is a compliment, isn't it? >> yes it is, but i would like to be the logo of africa. we represent and capture african culture. we evangelize and we set african culture to the rest of the world. and africa as well. hopefully we can go beyond that description. erik: give me a sense of scale. >> in terms of the team we are 150 people. we have grown over the last five years. we have raised $35 million in venture capital. we have tens of thousands of subscribers around the world and we are the goto source for nigerian content. we are fortunate to be in that position. erik: the comparisons are inevitable, tens of thousands of subscribers against 43 million

four -- for netflix in america alone, 53 million for hbo. what is your potential market opportunity? >> africa is just different. pay-tv is much more immature here. payment is still a problem, there are so many problems for it so we are focused mainly on adopted. when you think about the scale of the incident -- internet, there are about 200 million people who have access to the internet. we have about 130 million active facebook users in africa. the majority of people who have access to computer power are accessed by smartphones. we expect to be right there with the right product in the right content for them. it is like listening to the telecom 20 years ago. it did not exist. now it is like 600 million or 700 million lines in africa. erik: do you worry that netflix

or time warner could muscle you out if they wanted to? >> of course i worry. i have to worry about it all the time. i think the amazing thing about places like nigeria, it is all about money. -- it is not all about money. companies that really do well in nigeria. it's not a capital thing it is a it is a very long-term planning. ,it's about comparative thinking . it is a completely different perspective. netflix today now does streaming, and our primary distribution venue is smartphones and we do downloads. erik: iroko's content is just as different as it's distribution. customers in nigeria are hooked on nollywood, the thriving film industry. what would you say is the

biggest barrier or obstacle to growth? >> it has to be collectivity. access -- free access to capital. it's very lucrative. it is a luxury. it is not essential. it is something which is really important to people. we are trying to make a luxury affordable to make payment that , much more frictionless. essentially, it is the size of the wallet. people's available money. erik: again, if we use netflix as a reference point because so many people are familiar with this service how viable or , valuable a business can he -- you build without high-capacity broadband because that is what it took to catalyze the streaming business in america? >> we are trying to build a

business where access is a challenge. we are thinking from a completely different framework. erik: comparing it to what netflix does in united states is dead wrong? >> we are android primarily. we are focused on downloads, so where everyone is going 4k, hd, we optimize things like how much video play can you get without destroying your battery power . those of the find -- kind of things we are optimizing for. erik: where might it work? >> using that comparison, our ambition is to make -- our prices about one a half dollars, we want to make that cheaper. $1.50 per what? >> $1.50 per month.

we want to get it where people can afford. it is bringing that luxury to become affordable. if someone has extra cash today, give them an opportunity to watch a movie or a piece of content. erik: did you do it in india, mexico? >> no. with content much it -- market is much more mature. index ago it is still controlled by telemundo, univision and the big companies. in india, they are controlled by big companies. very -- iions are mentioned nigeria is very different, it is not just capital, it has to be something else. would you bring in terms of structure. erik: as you have seen, africa has plenty of room to grow. but who is going to finance the future? that is next on "the africa opportunity."

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♪ erik: welcome back. i am erik schatzker. by now you get the picture. the growth opportunities in africa are almost limitless there is just one problem, , someone has to pay for it all. here in cape town at the bloomberg africa business and economic summit. >> we are a development platform at blackstone involved in infrastructure and power generation. we are working in typical project finance opportunities. there is no supply-demand issue for what i am doing. i'm building power plants. there is demand everywhere. it is a matter of, does the project fit the need of the

capital? is the product correct? i spend most of my time sitting between wall street and government in africa. translating with the other needs. ultimately that translation , process, if i let them get in the same room, goes right past each other. we don't talk about the good, i can do a contract on five pages of what the good is, i have another 500 pages of what could go wrong over the next 20 years . i have to work my way through figuring out why each side should take each risk so that things could go wrong are appropriately allocated. erik: why are we seeing the tap being turned off? >> generally what you see in most investment markets is a goes too much one way and then unwinds the other way. i think if you went back 2-3 years ago, the growth story in africa was there but probably

overhyped in investment markets. and now you have seen certainly some countries battling back in lower income commodity prices. there are some bumps in the road. when that happens, marginal investors change their outlook of what it provides long-term investors with is a wonderful entry opportunity. erik: what is a going to take to restore access to that capital? is it as simple as a turn in the commodity cycle or more complicated? >> i think you will see is different countries responding to macroeconomic challenges in different ways. if they respond appropriately, then i think you will see that lifting the current pressure we have seen from an investment point of view. erik: that is an optimistic assessment. investors don't always behave that way, do they? >> i agree i think it is a magic . of product with capital.

you often have people taking a product which is not right for the capital. i have met lots of african peers who are in development who go to blackrock or new york common and say i have a wind farm for you. a wind farm could have a 2 or 5 year development appetite and a pension fund cannot do that kind of work. big capital, pension funds, they need very diverse products and those products do not yet exist in africa. i do believe we are on a trend to creating them. i do believe as the sec commissioner was saying the , markets are starting to catch up with what the global capital is looking or. >> ultimately what we want if we believe in africa rising, is we want african consumers and businesses, particularly african entrepreneurs and small businesses, to have access to lending. without a robust and open financial services industry, that is not going to happen. it is not the investment into

private equity or big companies. it is really about the small businesses and the consumers. and for three or four years we've been facing and it -- and changing environment. china has been pulling back the source of financing coming from the chinese banks. let's be honest. the vast majority of the chinese lending in africa was to chinese companies. they were following their customers to africa. probably the right strategy. the south african banks, which have been a big part of any part of sub-saharan africa integration have been focused on the issues in south africa. the international banks who have been facing big issues around regulation and causing them to pull back some of their lending. the real thing is how do we get that business model that is prevalent in most of the sub-saharan african countries,

which is taking deposits and buying t-bills, and make it -- t-bills that yield 13%-50% and make it economically viable to be lending to small businesses. i think that is the big challenge. we need to get lending out into small businesses, entrepreneurs, into consumers. that will happen by investment in the financial services industry. it is also going to rely on the central bank governors and finance ministers to understand that they need to do things such as have different capital charges if the bank holds a t-bills versus holding lending to consumers. it means we have to have more of financelopment institutions helping with credit guarantees or first loss guarantees. we have to be thinking how can we get the financial services industry to economically lend to small businesses. erik: let's talk a bit about risk appetite.

you talk about power plants. more specifically, what are you looking for, where are you looking for it, and how perhaps, one thing and did not add is has that changed at all? us we need complex -- to be able to do complex deals, you need complex people sitting across the table from us. we are in a lot of countries, partially because the deals are multibillion-dollar deals, so it takes a lot of capacity, but also partially because countries are still developing that institutional capacity. i would suggest that there is going to be winners and losers over the next five years in africa, and the winners will be the ones who will look at some of the constraints as an opportunity. erik: what will it take for countries like nigeria and others among the more developed economies in africa to develop? to create domestic debt capital

market? >> ultimately what it takes is savings. they have now created a pension program where savings have to go into pensions, but that takes time. there is robust savings and a robust depository to be able to do that. i think nigeria knows where they need to get to. it is a question of how quick can they get there, and in the meantime they need to take certain risks. there are mechanisms to overcome this. it is a question of who will take the risk on what side. >> i think even more importantly going?we get the lending the lending platform going? i think the capital markets from a corporate, business point of view are equal important to the sovereign side. it begins with lending platforms. the traditional, domestic bank has a business model of deposit taking and t-bill investing.

in nigeria they started to address that through capital charges on banks holding t-bills. i think what is really cool here is that developing specialized lending units for agriculture, specialized lending units for women in banking, for the commodity area, putting the ability to hedge agricultural prices or currencies with it. all of that sounds innovative within africa, and it is innovative for africa but it , exists. we all know how to do it in so many other banking markets around the world. bringing these techniques to africa is not difficult. it is a great opportunity of a public-private partnership. >> did capital markets take a long time to develop? they require a sovereign yield curve to start building a yield curve above the sovereign. if you look at the vast majority of countries in africa,

the corporates are borrowing domestically and they are borrowing domestically in domestic markets in domestic currencies. only the multinationals who will be borrowing internationally required these yield curves. by far even in south africa has , the has a deep market, it is done in the bank market. erik: it takes an appetite for risk, but if you are hungry and patient enough, africa is a land of opportunity for business and investment. for bloomberg in cape town, south africa, i am erik schatzker. thank you for watching. ♪

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