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SA: Zweli Mkhize: Address by the ANC Treasurer General, to the Private Equity Mauritius 2013 Conference, Mauritius (13/09/2013)

13th September 2013

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"Programme Director
Honourable Arvin Boolell: Minister of Foreign Affairs, Regional
Integration and International Trade

Members of government of Mauritius
Members of the Diplomatic and Consular Corps
Private Equity Practitioners and the Investment Community

Fellow global citizens who are participants in the conference

I wish to thank government of Mauritius as well as the business
fraternity for the kindness and hospitality as you host this important
conference. Yesterday I had the privilege of meeting the Vice Prime
Minister     and expressed these sentiments and  I was honoured to convey
the best wishes to the Prime Minister

Greetings to all  from South Africa and I take this opportunity to thank
you on behalf of all South Africans for joining us and all your support
as we prayed for the global icon and the father of the New Democratic
South Africa Mr Nelson Mandela, the first President of our new South
Africa to get well. By God'grace he is out of hospital, recuperating at
home. The news of his ill health touched the whole world and united all
South Africans and the people of the world as we  began consider his
immense contribution and his lasting legacy of peace, justice,
reconciliation, democracy, human rights, inspirational leadership with
integrity. In short Madiba's life remains an inspiration for us to create
a better world order and banish violence, poverty, unemployment,
inequality, famine, diseases and ignorance. I believe the conference we
are in has as its focus in the building of economies that can assist us
in responding to the same challenges that Madiba's struggle sought to
resolve.

It is an honour to join you and participate in this year's installment of
the Private Equity Mauritius, when the world's economies are still trying
to find their footing subsequent to the worst economic and financial
crisis of 2008.

The global economic meltdown has been documented and discussed at various
conferences and platforms. This economic meltdown recorded many
casualties, from countries to economic regions, and from financial
institutions to investment houses.

Africa, apart from the humanitarian aid, was less affected by this
crisis largely because of the stage of the financial services sector,
which is less developed by global standards and thus does not have the
many financial derivatives that were credited for the financial crisis.
While Africa may have been less affected, she was not entirely insulated
from this crisis, with a large output from Africa being in the form of
raw materials and the large consumer for this output being the export
market.

The world today, Europe in particular, is facing a renewed debt crisis,
fresh concerns over a period of high unemployment, low returns on
investment, high risks, and low growth have become a daily discussion,
with many fearing this might become protracted in advanced economies. If
growth remains weak, unemployment rates and debt levels will be slow to
recede and consequently, the global recovery may continue to be fragile
for a number of years ahead. The big question in the investment community
is where the growth will come from. It is comforting to note that market
commentators and economists are pointing in one and one direction only,
Africa. The message from many capitals of the world is that Africa is
open for business!

The idiom "every cloud has a silver lining" could not have been so close
in respect of the financial crisis.  We have since experienced a
significant drive towards responsible investing, tighter lending
criteria, vigilant shareholders and boards of directors, the introduction
of various legislations and the evolution of a legal and regulatory
framework for private equity investment.

This cloud though did not have just one "silver lining" but two, the
shift of investment focus towards Africa and developing markets is the
second. With the global growth projected to remain subdued at about 3%
for the next few years, the smart money started to look for a new home,
and that home is Africa.

Africa and investment attractiveness

Historically Africa has always been seen in a bad light or treated as an
afterthought investment destination for a number of reasons, among others
the following:
• Political instability with associated lack of policy direction and
continuity;
• Risky investment climate with  extremely low growth rates when compared
to the rest of the developed world;
• The lack of infrastructure support; and poor perception based on
corruption.

How things have changed!

No more beggar nations pleading for scrapping of debts from IMF and World
Bank loans and the decimating impact of structural adjustments, but
confident masters of their destiny, Africa is calling for investments.

Instead of  regular coup de tat, which made military take over and
violent overthrow of a government in office; peaceful democratic
elections and post electoral stability is now the norm. The African Union
frowns at and isolates all regimes that assume control of government in
unconstitutional methods.

The message is loud and clear that political intolerance, genocide,
violence against citizens especially  rape and abuse of women and
children and any infringements of human rights have no place in a modern
Africa poised for a Rennaissance.

Gone is the era of rogue states who run rough shod over their citizens
and sustain their rule by repression. Unaccountable regimes have been
rapidly replaced by voluntary affiliation to the African Peer Review
Mechanism that makes all government learn from the past mistakes and
adopt best practices.

The advent of NEPAD and prescripts of the African Union have focused
attention to the building of infrastructure and promotion of economic
growth under  peaceful conditions which encourage intra African trade,
and integration of the regional economies.

While there remain numerous challenges to be solved, there is no doubt
that the leaders of Africa have demonstrated  immense commitment to
eradicate many other factors that undermined the full economic potential
of the African continent.

While the continent has always been endowed with vast natural and various
mineral resources, incompetent and corrupt leadership together with the
legacy of colonisation made an otherwise very rich continent to be
ravaged by poverty illiteracy and diseases.

All of that is now changing!

It is pleasing to note that the African continent is now fully committed
to the principles of democracy and to the advancement of various policies
geared towards economic growth, offering various incentives and support
to attract foreign direct investment. This together with the growing
middle-class, which is estimated to be in the region of 400 million with
over $1 trillion worth of consumer spending annually, presents a
compelling investment case for Africa.

Instead of Africa the land of the wretched of the earth, it is seen as an
emerging market of one billion people, who consume processed goods and
quality services as well as provide a reservoir of youthful skills for
the continent to grow for decades to come.

The recent discoveries of oil and gas, largely in East Africa, will
require significant capital investment to further explore and develop
these finds. Various sectors will benefit from the development of the Oil
and Gas sector including general infrastructure, engineering services,
support services and consumer goods sectors.


Quite clearly, growth is now being driven from different regions, as
opposed to the past wherein South Africa was the only dominant focus.

In a recent conference in London, the focus in Africa attracted a huge
number of global investors and fund managers in  a manner unprecedented
in this platform in the past.


The West Africa region led by Nigeria and Ghana continues to grow at
rates above 6% per annum. Food security and the need for basic goods
positions the fast moving consumer goods sector to be among the most
attractive sectors. As it is with any developing market, infrastructure
and large capital projects continue to offer significant opportunity
across the continent.

Kenya leads the growth in the East and countries such as Uganda, Rwanda,
etc recording impressive growth trends.  Inspite of many challenges,
Kenya's handling of a highly contested elections boosted the confidence
not only in the country but the entire region. I attended a meeting in
London soon after the outcome of the court judgement on the results, in
which the former Prime Minister Mr Raila Odinga told the audience that
Kenya was more important than who lost the elections. How refreshing!
Stability in the South Sudan has resulted in it being one of the faster
growing areas.

Many companies in Africa's less developed countries and indeed to some
extent in countries such as South Africa, Egypt and Nigeria, remain
family-owned businesses or owned by an entrepreneur facing challenges
relating to capital and capacity for expansion purposes. I believe this
is a great opportunity for private equity investors.

Anecdotal success stories emanate from different parts of the continent,
such as that government bonds from Rwanda were over subscribed on their
first entry into  the bond market.

When President Mahamba of Ghana addressed the Times Africa CEO Summit in
London and narrated the opportunities and progress, he received as
standing ovation for a brilliant presentation.

The strengthening of relations between Nigeria and South Africa will
assist in accelerating growth in the continent. South Africa is by far
the largest investor into Africa from within the continent.

The sooner the turmoil in Egypt settles the better for the whole
continent since it not only sets the Egyptian economy many years back but
the continent's trajectory of growth is bound to be affected.

Similarly the stability n the Great Lakes region has received firm
attention from the African Union, with a clear message that Africa
aspires for more order and and dignity as a way to usher in the era of
social development and economic growth.


South Africa and its resilience

The current media focus currently emphasizes on the challenges faced by
South Africa in the mining sector, especially during this bargaining
season  in which most unions are going through aggressive bargaining (as
it happens in two to three year cycle ). The current initiative by the
government to mediate dialogue in the mining sector, is already bearing
fruits.

Others have emphasized on the downgrading by the rating agencies, which
has affected many countries in Europe and elsewhere.  We have also seen a
mistaken interpretation of the currency devaluation which affected our
local currency.. Yet when seen in the context of the resurgent confidence
in the USA economy, clearly several countries were similarly affected if
not worse off than the rand.

Despite all the news of doom and gloom we often read, it is important to
state that South Africa remains a strong economy and  is considered to be
one of the most developed countries in the continent.

South Africa  benefited from its tight monetary policy which effectively
ensured that the financial services sector was insulated from the global
financial crisis. The banking system continues to be among the most
respected in the world.

The country also had the fortunes of having been awarded the rights to
host the Soccer World Cup in 2010 which necessitated significant
investment in infrastructure. This created a comfortable cushion for the
economy and helped to weather the storms of the 2008 global financial and
economic crisis. 

As a long term policy and the one that seeks to provide a long term
roadmap, the President of South Africa, his Excellency JG Zuma,  has
championed and launched the National Development Plan - ("NDP").

It represents  Vision 2030, a policy which defines a desired destination
and identifies the role different sectors of society need to play in
reaching that goal.  The NDP has been widely embraced as a source of hope
and optimism in the country.

The NDP aims to eliminate poverty and reduce unemployment and inequality
by 2030. According to the plan, South Africa can realize these goals by
drawing on the energies of its people, growing an inclusive economy,
building capabilities, enhancing the capacity of the state, and promoting
leadership and partnerships throughout society.

Thus the NDP gives clear policies and areas of focus for the next 17
years, allowing all the role players to plan and position themselves to
play a meaningful role and benefit from it. The NDP integrated with the
initiatives of the AU in terms of various infrastructure initiatives and
programmes of governance.

I believe we all have a role to play in the NDP, and that this role can
be extended to global investors as investment opportunities arise from
the NDP. The commitment of government is at he level of R3 trillion ( USD
300billion) an unprecedented quantum of investment in the history of the
country. The figure will be compounded when private sector commitment
come into stream, with large investment expected in the mining sector,
manufacturing and value addition and various social and economic
infrastructure projects.  Many of the NDP projects are already in
progress, making the NDP a practical programme rather than a pipe dream
or political rhetoric.

Private equity in South Africa continues to be a significant industry,
providing much needed capital to grow the economy. As at December 2012,
the South African private equity industry had approximately R127 billion
in funds under management, with the financial services sector dominating
at approximately 60% of the total funds. Sectors such as energy,
telecommunications, consumer goods and services, and healthcare remain
underexplored from a private equity perspective. This presents potential
opportunities for investors looking for exposure in these sectors.

Why should global private equity investors look into Africa?

According to Private Equity Africa: Emerging Markets Private Equity
Association, some of the themes in the private equity space in Africa
include:
• Private equity in Africa has seen steady growth with large deals being
concluded in South Africa and Nigeria. Transactions in other geographies
are focused on small to midcaps.
• The nature of private equity activity in Africa is advancing, with
increased investor participation bringing focus to operational value-add
- riding the wave of economic growth or financial engineering skills is
often no longer sufficient.
• Increased participation has also brought new sources of capital, beyond
the traditional development finance, as well as investor specialization.
• For vendors, the increasing number of investors has improved selection
criteria, leading to a preference for partners with operational
capabilities and networks.
• In spite of increased participation there is still much opportunity,
especially for investors providing corporate readiness to local firms
that are often founder run and do not meet the international operational
and governance standards.

Suoth Africa as destination for investment--outcome of independent
surveys:

South Africa has held steady in the face of severe global economic
uncertainty, and is confidently meeting its economic challeges.
International analysts believe that  several African countries, including
South Africa, are well placed to weather the global storm. South Africa
has a large economy and is widely recognised as having solid fundamentals
and sound and effective financial systems..

Global Competitiveness Index

South Africa was ranked as the 53rd most competitive country out of 148
surveyed in the 2013/14 World Economic Forum's Global Competitiveness
Index, making it the second highest ranked country in Africa after
Mauritius (45th), according to World  Economic Forum  September 2013

It took over Brazil to take second place among the BRICS' economies, with
China at 29 and Brazil dropping to 56th place (from 48).

According to the report, South Africa does well on measures of the
quality of its institutions (41st), including intellectual property
protection (18th), property rights (20th), and in the efficiency of the
legal framework in challenging and settling disputes (13th and 12th,
respectively).

The high accountability of its private institutions (2nd) further
supports the institutional framework.

South Africa's financial market development "remains impressive" at 3rd
place, the report says. The country also has an efficient market for
goods and services (28th), and it does "reasonably well" in more complex
areas such as business sophistication (35th) and innovation (39th).

However, the report notes that South Africa's strong ties to advanced
economies, notably the euro area, make it more vulnerable to their
economic slowdown and likely have contributed to the deterioration of
fiscal indicators: its performance in the macroeconomic environment has
dropped sharply (from 69th to 95th).

South Africa is rated first overall in terms of economic competitiveness
out of 38 African countries, according to the Africa Competitiveness
Report, which reviews the degree of competitiveness of Africa's economies.

Rated as being on a par with innovative countries such as India and
Brazil, South Africa is credited as having high-quality scientific
research institutions, strong investment in research and development, and
a significant level of collaboration between business and universities in
research.

South Africa is rated as the second most innovative African country,
firmly between with Tunisia in top spot and Senegal.

The report notes that while African economies have made important strides
in improving their economies in recent years, closer regional integration
is a crucial driver for enhancing competitiveness and for ensuring that
the continent delivers on its massive growth promise.


Doing Business report

South Africa's ranking: 39 out of 185 countries.
The focus here is about Regulations for Small and Medium-Size
Enterprises", annual survey of the time, cost and hassle involved in
doing business

South Africa was a strong performer when it comes to getting credit
(1st), protecting investors (10th) and payment of taxes (32nd).
39th in dealing with construction permits, and starting a business in
South Africa is also easier (53rd).



Emerging Markets Opportunity Index

South Africa has been ranked as the leading emerging economy in Africa
and the only country on the continent to be ranked in the top 15
worldwide, according to the Emerging Markets Opportunity Index based on
research by international advisory firm Grant Thornton February 2013


Overall, South Africa was ranked 14th out of 26 emerging economies, with
China, India and Russia claiming the top three spots.

Economic freedom

South Africa's ranking: 74 out of 177 countries
South Africa's economy is regarded as "moderately free", and  is ranked
sixth out of 46 countries in sub-Saharan Africa, according to The
Heritage Foundation January 2013

The Wall Street Journal and US think tank the Heritage Foundation, uses
10 benchmarks to measure the economic success of 179 countries, including
business freedom, trade freedom, fiscal freedom, government size,
monetary freedom, investment freedom, financial freedom, property rights,
freedom from corruption, and labour freedom.

South Africa's economic freedom score is 61.8. and its overall score is
slightly higher than the world average of 59.6, and a regional average of
53.7.

Global Gender Gap Index
The index, released by the World Economic Forum. 2012, ranks
South Africa: 16 out of 135 countries  according to how much they have
reduced gender disparities based on economic participation, education,
health and political empowerment, while attempting to strip out the
effects of a country's overall wealth.


Commissioned by HSBC Bank International, the Expat Explorer survey
explores the experiences and perceptions of expats while they work
abroad. South Africa was rated as the ninth best country out of 30 to
live in, falling in between Germany and Australia.

South Africa was rated among the top nations in terms of the ease with
which expats integrated into local society, which included lifestyle
factors such as making friends with locals, setting up bank accounts,
learning the language, and arranging healthcare.

Africa Attractiveness Survey
Source: Ernst & Young recently published a survey involving 500 top chief
executive officers globally which indicated that 41%  considered South
Africa to be top most destination for investments.  21% considered
Nigeria and Tunisia. 61% placed South Africa in the top three.

With an average growth rate in excess of 6% for a number of key African
markets, Africa presents an exciting investment opportunity for investors
who are keen to look beyond the traditional markets and willing to be
part of the solution to Africa's unique challenges and opportunities.
I strongly believe that with the political stability across Africa and
projected growth for Africa, the time is now for global investors to
consider our continent. I trust that as we continue to deliberate and
engage through forums of this nature you will begin to appreciate the
opportunities in Africa and make our continent an investment destination
of choice.

Thank you all."

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