This article was written by John Sullivan (partner) and Mariam Akanbi (associate).
The Asia – Africa relationship has generally
focused on a discussion of the relationship
between various African countries and
China. However, as well as China, Singapore
is reacting positively to Africa’s improving
investment climate despite the effect of low
commodity prices.
The rise in investments
Africa has emerged as the leading destination
for foreign direct investment (“FDI”) globally
with significant investment from the UK, US
and China. As a result of the increase in
viable long-term opportunities in industries
that Singaporean businesses have significant
experience in, more and more investment
relationships between African jurisdictions and
Singaporean companies are being explored.
Some notable Singaporean investments have
spurred an interest in Africa. In 2013, Temasek
reportedly became a significant shareholder
in Seven Energy, an oil and gas group based
in Nigeria. In the same year, Pavilion Energy, a
subsidiary of Temasek, was reported to have
made its first acquisition in the continent by
acquiring a stake in three gas blocks off the
coast of Tanzania.
It has since been reported that investments into
Africa from Singapore have been growing at
more than 11 per cent annually since 2008.
Notable recent examples of indirect
investment include those of sovereign
wealth funds (“SWFs”). In March of this year,
the Government of Singapore Investment
Corporation (“GIC”) was reported to have
invested USD100 million in two Africanfocused
private equity funds - Actis Real
Estate Fund III and RMB Westport’s Real
Estate Development Fund II. Though,
GIC does not currently have a significant
investment portfolio in African jurisdictions,
these investments could see the beginning of
a change of tactics for the SWF.
There is also a history of Singaporean family
offices investing in mining assets in certain
jurisdictions in Africa.
Trade relationships
Singapore has one of the highest trade to
GDP ratios and its growing partnership with
African jurisdictions may reflect a motivation
to achieve greater diversification among trade
and investment partners. The government’s
international trade initiative with Africa is an
example of ‘the powers that be’ seeking to
take advantage of another opportunity. The
role of Singapore’s International Enterprise
(“IE”) so far has been to foster relationships
between African and Singaporean companies.
IE Singapore is part of the State’s Ministry of
Trade and Industry. In 2013 the body opened
two overseas centres in Johannesburg and
Ghana to facilitate business links between
Singapore and the African countries. IE also
launched the Africa Singapore Business
Forum (the “ASBF”) in 2010.
The ASBF is a biennial event attended by a
number of business and government leaders
seeking to improve relations between the two
regions. The next ASBF is due to be hosted in
Singapore this August and aims to discuss the
strategic growth of both regions.
Focus on East Africa
The East African region has emerged as
a viable trade partner for Singaporean
companies. In 2014 the Singapore Business
Forum and IE Singapore organised a business
mission to Tanzania and Kenya with the
objective to promote bilateral economic
cooperation and trade and investment
opportunities. The business mission resulted
in the signing of two memorandums of
understanding between Kenya and Singapore.
At the time the group director for Middle
East and Africa at IE Singapore stated "East
Africa's geographical proximity and historical
trade links with Asia make the region a natural
gateway into Africa for Singapore companies”.
Since then, in April this year, Singapore’s
minister of trade and industry announced two
East African ambitions; the intention to use
the Dar Es Salaam Port in Tanzania as a trade
link between the two states, with the offer of
exchange programmes for Tanzanians to work
at Singaporean ports; and a desire to share
bilateral trade experience with Uganda, with a
particular emphasis on agriculture.
The East African connection is also boosting
the energy sector in both Singapore and
East Africa. Singapore is growing as an oil
and liquefied natural gas (“LNG”) trading hub in Asia and countries such as Tanzania and
Mozambique are undergoing development
to take advantage of their natural gas
supply. With both regions facing the Indian
Ocean, Singapore could play a bridging
role, connecting LNG producers in East
Africa to buyers in Asia, according to some
commentators.
Infrastructure investment
The lack of infrastructure in the majority
of the African nations coupled with the
increasing middle class offers many prospects
for investment in African infrastructure by
Singaporean investors.
Recent transactions have shown that
Singaporean companies may be able to
leverage off of their commercial experience
in areas such as ‘urban planning’. Both
Surbana International Consultants and Jurong
International played a role in the urbanisation
and industrialisation of the Singaporean
landscape. In May 2015, Surbana entered into
an arrangement with the Democratic Republic
of Congo (“DRC”) for an urbanisation plan for
DRC’s capital city. This arrangement would
be one of a number of projects that Surbana
has worked on since 2005 in different
African jurisdictions. The two companies
have since merged and it has been reported
that Surbana Jurong sees Africa as a land
of many opportunities amid strong demand
for infrastructure, affordable housing and job
creation through industrialisation. Since the
merger, further contracts in Gabon and Ghana
have been secured bringing the value of
contracts for the last quarter of 2015 and first
quarter of 2016 alone, to S$30 million.
A relationship that is not
without its difficulties
Whilst the opportunities are there, some
work still needs to be done with regard
to the co-operation frameworks between
African jurisdictions and Singapore. One
key concern that has been noted is the lack
of free trade agreements. In addition, the
availability of bank finance can be a barrier
for some Singaporean SMEs where projects
are not seen as bankable, though with more
successful cross border transactions this
trend should change.
However, despite these difficulties, progress
is being made: developmental experience is
being shared through training programmes
and study visits. IE Singapore continues to
promote overseas growth of Singaporebased
companies and international trade.
Some bilateral investment treaties have been
negotiated and the Ministry of Trade continues
to host delegates from African governments
supporting cooperation wherever possible.
Singapore also has double taxation
agreements with key jurisdictions in Africa
such as Mauritius and South Africa.
Conclusion
Despite the economic slowdown in some of
the major African jurisdictions, investment from
Singapore to African jurisdictions presents
a promising opportunity for Singaporean
companies and African entities. With the
need for infrastructure development, financial
resources and expertise, this opportunity
could prove mutually beneficial. Although the
international framework between Singapore and
African jurisdictions is not yet at an advanced
stage, bilateral treaties are being agreed.
The aforementioned, coupled with the various
cooperation arrangements will make for a
robust base to solidify a Singapore – Africa
investment relationship.
Finally, Singapore’s experience in the
investment needs of these developing
economies from other economies in the Asia-
Pacific region such as India (significantly within
the infrastructure sector) should serve to be an
enabling factor for the growth of the Singapore
– Africa investment narrative.
R. Tan, ‘More S'pore firms trying to expand reach into
Africa’, 20 May 2015
R. MacPherson, ‘Singapore’s Approach to Africa:
Promising, But More to Do’, 19 April 2016
J. Khoo, ‘Africa beckons, as Surbana Jurong eyes
40-60% of revenue from overseas
More articles from Made in Africa Issue 15:
Permanent Capital Vehicles - Are they worth it?
UNPRI publishes a standardised DDQ on responsible investing
Made in China? Financing Nigeria's infrastructure
Financial regulation in South Africa - New developments
Africa mining M&A in 2016 and beyond