March – April 2016 Commentary

Africa investment illustration
Illustration by James Yang

Investment – The Final Frontier

Africa hasn’t been at the forefront of investment opportunities for businesses looking to expand their operations or boost their exports. So many countries, so many wars. But pockets of stability in nations such as South Africa, Ghana, Nigeria, Angola, and Algeria are drawing investments from large and small firms in sectors including automotive, real estate, technology, agriculture, and consumer goods.

Inside The NumbersEmery Matthews, managing principal of Real Estate Interests in Detroit, says emerging political stability in larger economies in Africa hold promise. “There are still many countries that are struggling with basic needs, but what you find in sub-Saharan Africa is a very young population, rapidly growing incomes, and cell phone penetration that is coming close to usage in mature countries around the world,” he says.

In 2012, Matthews began to notice that larger players in the real estate services industry were ramping up operations in South Africa and other politically secure countries. Last year, Real Estate Interests began to provide services in Africa to global companies like CBRE and JLL. The work includes site selection for industrial plants and office buildings, as well as property management, development and brokerage services, advisory work, and strategic planning.  

“African countries that rely heavily on oil revenue to fuel their economies are struggling, but you do find economic diversity in places like South Africa,” Matthews says. “Johannesburg is a global capital, and the real estate market there is fairly robust. Last year, we helped other companies working in Africa add 500,000 square feet of new projects, and (in 2016) we will service 1 million square feet in (new) transaction volume and another 1 million square feet in property management.”

Algeria, in northern Africa, has a population of 39 million people. It’s another country that’s drawing interest from overseas investors. Last November, the American Arab Chamber of Commerce hosted a conference in Dearborn to showcase Algerian products and services. Some 60 CEOs from Algerian companies were in attendance and touted investment opportunities in health care, transportation, infrastructure, agriculture, and energy. “Algeria is virtually an untapped market for U.S. businesses,” says Fay Beydoun, executive director of the American Arab Chamber in Dearborn.

Overall, there are 1.2 billion people living in Africa, and the median age is around 20 years old, as compared to 32 for the rest of the world. While providing basic services holds great promise across the continent, limited investment has held back potential growth. For example, Africa has large deposits of underground water and other natural resources, but the reserves are largely untapped due to a lack of investment capital and equipment.

Production stopped, factories shuttered, proud companies chopped up, sold off for scraps. And all of you, the men and woman who build these companies with your hands, would’ve been hung out to dry. – President Obama (on market conditions without the automotive bailout, during a visit to Detroit on Jan. 20)

Political instability also impacts growth. Few companies are willing to venture into places such as Libya until ISIS fighters have been removed and free-market principles are backed by an elected, effective government. 

“There is still quite a bit of risk in Africa, but American businesses bring unique talents, skill levels, and capital, and we can see opportunities that native populations might not realize,” Matthews says. “Just like Chrysler’s advertising tagline, Imported From Detroit, came from an outside ad firm, Western companies can add a lot of value in Africa and work with local businesses to stimulate economic growth.”

Crisis Management – Fixing Flint

In the weeks following the revelation of Flint’s water crisis, when government officials from the local, state, and federal levels failed to order the use of chemicals to treat water from the Flint River — thereby preventing lead from older pipes leaching into the system — few people stepped up to offer a solution. Rather, everyone from Cher to Michael Moore to presidential candidates to the mainstream media sought to cast blame.

While holding people accountable for their actions is a proper course of action to prevent a crisis from repeating itself, it doesn’t solve the current challenge. In fact, the coverage of the water crisis in Flint cast the entire city in the same light — it appeared that in a community of 100,000 people, no one had access to clean water. So what about the homes, businesses, and organizations in Flint that receive water from modern-day pipes? 

It turns out there are few, if any, problems. In late January, in a letter sent to parents of students and alumni, and made public, Robert McMahan, president of Kettering University in Flint, pointed out the campus was receiving safe water from the Flint system. The reason is the municipal water infrastructure that supplies the university is relatively modern, and the institution had taken steps in the form of daily tests to ensure the water is lead-free.

So how to address and fix the problem of lead pipes, which are often connected to older structures? Short of continually supplying water filters, the pipes will need new liners or must be replaced. 

Health Care – Obamacare RX

Remember President Obama’s promise in the lead-up to the passage of the Affordable Care Act that if you liked your health care plan, you could keep it? As it turns out, millions of people were forced out of their insurance plans and into new ones that were often more costly and restrictive. By measure of government regulations and coercion, the added money was needed to pay for people who lacked health care insurance.

Since passage of the health care act by a Democratic majority in Congress in 2010, it’s true more people who lacked insurance coverage are now protected. But to get there, insurance companies have lost billions of dollars, more than half of the not-for-profit co-ops as established by the law have failed, and middle class families and young people have largely ignored Obamacare.

To fix the system, government leaders, working with a new president, will need to embrace free market principles rather than rely on government edicts. For example, more expensive insurance plans should be taxed, giving people an incentive to stay healthy and keep premiums low, so as not to trigger added levies. Thus far, the Obama administration has delayed the rollout of the so-called Cadillac tax for political reasons (as not to negatively impact the 2012 Presidential election and 2014 Congressional elections).

Other improvements include using age-adjusted tax credits for those who lack employer coverage, reforming Medicare and Medicaid so more people can enroll in a private insurance option, and boosting health savings accounts. Rather than asking Americans to pay more for coverage via new taxes, the next administration should fix what ails Obamacare with new, market-driven solutions.