US is waking up to the potential of Africa, after years of leaving it to the Europeans and Chinese

Global Outlook

This just might have been the week when America finally woke up to the true potential of trade with Africa, the continent with some of the world’s fastest-growing economies and an abundance of human and natural resources.

The gains from trade with Africa long ago brought China and Europe – and, to be fair, some of the smartest American companies – to this vast continent with investment, infrastructure and feet on the ground, but the US has let its business dealings with Africa slip way behind both of those two major competitors in recent years.

China is now Africa’s biggest business partner, with roughly $200bn (£120bn) in trade in 2103 – more than double the trade that Africa did with United States, which is also behind Europe.

More than one million Chinese migrants have moved to Africa to help the cause. That speaks volumes.

What started as insatiable demand from China for Africa’s rich seams of commodities – which involved the Chinese moving in to build the massive infrastructure and transport links required to get the resources out of Africa – has developed into a much broader trading relationship in all sorts of goods and services.

Now, America wants to catch up. After all, Africa has the world’s fastest-growing middle class, and they will soon want the consumer goods and services that American companies can provide.

About 50 African leaders attended the US-Africa Business Forum in Washington this past week, and more than 90 US companies including General Electric, Coca-Cola, Morgan Stanley, Citigroup, Ford, Chevron, Marriott International and Lockheed Martin were present to talk about their investments.

The result was $33bn of economic commitments over the next few years and promises of a much closer trading relationship between America and Africa – and to be fair, it wasn’t all well-meaning hot air.

Among many deals done, Coca-Cola said it would invest $5bn in African manufacturing and water programmes, and the private equity group Blackstone signed an agreement with Nigerian conglomerate Dangote Group to jointly invest $5bn in energy projects in sub-Saharan Africa.

Muhtar Kent, chief executive of Coca-Cola, said: “As an organisation that has been part of the economic and social fabric of Africa since 1928, we and our local bottling partners have seen, first-hand, the great promise and potential of this dynamic, growing and vibrant continent.”

Coca-Cola also signed a letter of intent to launch “Source Africa” –  an initiative to secure local ingredients.

Mr Kent added: “In Africa, we believe we can do more to source agricultural ingredients locally, with significant supply potential that’s under-developed and under-utilised. 

“Tapping this potential could accelerate the growth of our business and Africa’s emerging economies, making our supply chains more cost-effective and enabling sub-Saharan Africa to supply more ingredients to growing markets in Africa and beyond.”

These are big commitments by big players who understand the promise of Africa.

However, a big theme at the summit was the challenge posed by the large parts of Africa that still have inadequate power supplies. About one third of Africans, roughly 600 million people, still do not have access to electricity.

To that end, the World Bank committed $5bn for energy projects in Ethiopia, Ghana, Kenya, Liberia, Nigeria, and Tanzania.

General Electric – one of the smarter American companies on Africa, which had revenues exceeding $5.2bn across 30 African countries in 2013 – announced another $2bn of investment across the continent. GE said it won more than $8.3bn of orders across Africa in last year.

“We gave it [Africa] to the Europeans first and to the Chinese later, but today it’s wide open for us,” said Jeff Immelt, chief executive of General Electric.

Wide open, as long as American companies have the right attitude going in. Investors in Africa need to concentrate on developing the potential of its human resources as much as extracting its natural resources and making big bucks.

Call it technology transfer, call it what you want – but the reward for Africa needs to be more than the billions of dollars paid by international companies for access to resources that may or may not trickle down to the people who actually do the work.

The opportunity is huge for all involved – but the African people have to win.

Dealers who played with fire – and got burnt

When big merger deals fall apart, there are many on Wall Street that lose out on a big pay day – and it’s not just the executives and companies involved in the deals.

The M&A boom came down to earth with a bump on Tuesday, at least temporarily, when around $100bn of proposed transactions — 21st Century Fox’s $70bn-plus proposal to buy Time Warner and Sprint’s reported interest in a roughly $30bn deal for T-Mobile US – both collapsed within hours of each other.

That brought the value of total withdrawn M&A total so far this year to $450bn, up 55 per cent on last year and the highest withdrawals year-to-date total since 2008, according to the research firm Dealogic.

That means potentially hundreds of millions of dollars of investment banking fees for Wall Street went down the drain, depending on how far along the negotiations had gone.

It also means that huge side bets made on the deals ended up on the wrong side of the tracks. According to Bloomberg data, options traders who were gambling on the proposed mega deals witnessed their bets going wrong – and then some.

Some Time Warner contracts lost the vast majority of their value after 21st Century Fox withdrew its takeover offer, and some options on Sprint tumbled after it terminated its plans to acquire T-Mobile US.

Options traders and arbitrageurs who made huge bets that the mergers would go through took a big hit.

Also, as stock markets have pulled back from their recent highs, the jitters have also affected the market for initial public offerings (IPOs) of stock, with several IPOs being delayed, according to Dealogic.

“If you want to dabble with fire, you sometimes get burned,” Robert Pavlik, market strategist at Banyan Partners, told Bloomberg. “If you’re an investor trying to make money doing merger arbitrage, this is the risk you run.”

Very few on Main Street will sympathise with those making the side bets on Wall Street; but the question everyone is now asking is: is this a pause in the action, or has the music actually stopped?