EY regular presentation - AMCHAM · Making choices EY’s attractiveness survey Africa 2015 . Page 2 Africa attractiveness surveys Background EY’s 2015 Africa attractiveness survey

Page 1

Making choices

EY’s attractiveness survey

Africa 2015

Page 2

Africa attractiveness surveys Background

EY’s 2015 Africa attractiveness survey

Using these qualitative

and quantitative inputs,

we continue to develop

insights and shape

viewpoints in support of

increased investment

into Africa.

Fifth annual Africa

attractiveness survey

Analysis of greenfield and

brownfield foreign direct

investment (FDI) project

flows into Africa for

various periods, going

back as far as 2003

Survey of over

500 business leaders

and investors from

30 countries to

ascertain the

perceived

attractiveness

of Africa as an

investment

destination

Page 3

Africa attractiveness surveys 2011 – 2015


It’s time

for Africa

Building

bridges

Getting down

to business

Executing

growth

Making

choices

2011 2012 2013 2014 2015

Page 4

Africa’s FDI landscape


Page 5

Actual FDI numbers FDI project numbers fall, but capital investment and jobs surge

Africa became the world’s second-largest

destination for FDI capital inflows in 2014.


FDI projects by world region (% change, 2014 vs. 2013)

-21.3%

-17.7%

-17.5%

-14.8%

-8.4%

14.0%

17.3%

Rest of Europe

Middle East

Latin America…

Western Europe

Africa

North America

Asia-PacificCapital

investment

136% YOY growth in FDI

value in 2014

FDI job

creation

68% YOY growth in FDI

jobs in 2014

Source: fDi Markets, February 2015.

Page 6

SSA: more capital, more jobs, fewer projects Southern, East and West Africa see slower FDI projects


Source: fDi Markets, February 2015.

FDI projects

down 11%

SSA

15% YOY drop in FDI projects

Southern Africa

West Africa FDI projects

down 23%

East Africa FDI projects

down 12%

► Some economies –South

Africa, Angola, Nigeria,

Ghana and Kenya –

received fewer FDI

projects.

► But Ethiopia and

Mozambique attracted

growing inflows of projects.

+42.7% +22.7% increase in FDI capital increase in job creation

Page 7

Diverse sources ensure ongoing resilience North America and Middle East expand presence


In 2014, at the source country level, the US regained its title as the largest

investor

Page 8

Real estate, hospitality and construction An emerging key growth sector in Africa


Top two sectors by % share Source: fDi Markets, February 2015.

Top 10 sectors by FDI projects (2014)

Top sectors FDI projects

(share in %)

Jobs created

(share in %)

FDI capital

(share in %)

Technology, media and telecommunications (TMT) 19.6% ||||||||||||||||||||||||||||| 6.4% ||||||||| 5.5% ||||||||

Financial services 18.1% ||||||||||||||||||||||||||| 2.0% ||| 1.2% |

Retail and consumer products (RCP) 14.1% ||||||||||||||||||||| 31.5% ||||||||||||||||||||||||||||||||||||||||||||||| 4.4% ||||||

Real estate, hospitality and construction (RHC) 8.0% |||||||||||| 33.6% |||||||||||||||||||||||||||||||||||||||||||||||||| 43.8% |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||

Business services 7.5% ||||||||||| 1.6% || 0.5%

Transport and logistics 6.3% ||||||||| 3.1% |||| 2.2% |||

Diversified industrial products (DIP) 5.3% ||||||| 1.5% || 0.3%

Automotive 4.1% |||||| 5.7% |||||||| 0.9% |

Coal, oil and natural gas 3.5% ||||| 3.7% ||||| 25.4% ||||||||||||||||||||||||||||||||||||||

Chemicals 3.3% |||| 2.4% ||| 5.2% |||||||

Page 9

How foreign investors see Africa


Page 10

Investor perceptions Africa’s attractiveness relative to other regions is down a notch


Source: EY’s 2015 Africa attractiveness survey (total respondents: 501).

Eastern Europe (0)

201 1

Africa

Asia (+31)

North America (+16)

Western Europe (+15)

Middle East (+8)

Oceania (+6)

Latin America (+2)

Central America (-4)

CIS (-19)

201 2 201 3 201 4

10

9

7

8

6

5

4

3

2

1

201 5

Markets more attractive than Africa Markets less attractive than Africa

Numbers in brackets indicate total attractive responses minus total not attractive responses.

Latin America (-1)

Eastern Europe (-3)

Asia (+26)

North America (+13)

Oceania (+5)

Western Europe (+5)

Middle East (-0.3)


CIS (-17) 10

9

7

8

6

5

4

3

2

1

Africa

Western Europe (-4)

Middle East (-10)

Asia (+16)

Oceania (+11)

Latin America (+8)

North America (+5)


Eastern Europe (-12)

CIS (-14) 10

9

7

8

6

5

4

3

2

1

Africa

Middle East (-15)

CIS (-17)

North America (+4)

Asia

Oceania (-2)

Latin America (-14)


Central America (-19) 10

9

7

8

6

5

4

2

2

1

Africa

Western Europe (-3)

CIS (-16)

Oceania (+3)

Asia (+1)

Latin America (-2)

10

9

7

8

6

5

4

2

2

1

Africa

North America (+1)

Western Europe (-1)



Middle East (-15)

Page 11

Investor perceptions But respondents from North America have a more positive view

Source: EY’s 2015 Africa attractiveness survey (total respondents from North America: 100


Page 12

Perception gap persists Those with an established presence remain overwhelmingly positive


Source: EY’s 2015 Africa attractiveness survey (total respondents: 501).

believe attractiveness

will improve over the next

three years

Africa is the second least

attractive investment

destination in the world

30% believe attractiveness has

improved over the past year

50%

Respondents who are not

established in Africa

believe attractiveness will improve

over the next three years

Africa is the most attractive

investment destination in the

world

believe attractiveness has

improved over the past year 66%

81%

#1

Respondents who are already

established in Africa

Page 13

Roadblocks to investment The top five perceived barriers to investing in Africa remain consistent


► Despite the “Africa rising” narrative and steady

growth in FDI inflows, there has been no quantum

leap in FDI into Africa.

► Respondents have highlighted political risk factors,

such as instability and corruption, as the top

barriers that discourage investment on the

continent. Source: EY’s 2015 Africa attractiveness survey (total respondents: 501).

Unstable

political

environment 55%

Poor basic

infrastructure 14%

Corruption 26%

22% Weak

security

Lack of highly

skilled labor 13%

Page 14

The headlines Perspective remains important


► Africa received the second most FDI capital in

the world, registering year-on-year (YOY) growth

of 136%.

► Sub-Saharan Africa (SSA) will be the second

fastest-growing region in the world this year,

with 22 economies growing at 5%+.

► Successful Nigerian elections are an

important symbol of the ongoing process

of democratization in Africa.

► Established investors remain

overwhelmingly positive about the continent’s

prospects.

Glass half full: “Africa rising”

narrative remains resilient

Glass half empty: economic and

political headwinds

► The World Bank and International Monetary

Fund (IMF) revised their 2015 GDP growth

forecasts down to their lowest since 2009.

► Ebola and terrorist insurgencies have had a

negative impact on perceptions.

► In this year’s survey we are seeing

deteriorating perceptions of Africa’s

investment attractiveness.

► Africa recorded 8.4% YOY decline in FDI

projects in 2014.

Page 15

Africa’s long-term growth


Page 16

Strong fundamentals remain intact We believe that the African growth story is real and sustainable


The African growth story is real 1988–2000 2001–12 2013–30

Above 5%

Between 0% and 5%

Less than 0% (negative)

GDP and Compound

Annual Growth Rate

(CAGR)

Number of economies growing faster than 5% a year

Sources: Oxford Economics database estimates; EY analysis, accessed in August 2014.

11

1 2 3 8

11 6

1 6

21

7 3 1

4

24

Asia-Pacific CIS Central and SoutheastEurope

Middle East SSA

1988-2000 2001–12 2013–30

As a region, SSA

had by far the most

economies growing

at sustained rates

of 5% over the past

15 years, and this

is forecast to

continue for the

next 15 years.

Page 17

Addressing structural transformation African countries still underperform on key competitiveness measures


Institutions

Infrastructure

Macroeconomic

environment

Health and

primary

education

Higher

education

and training Goods

market

efficiency Labor market

efficiency

Financial market

development

Technological

readiness

Market size

Business

sophistication

Innovation

Africa Southeast Asia Latin America and the Caribbean

Africa’s competitiveness performance relative to other regions

Source: Africa Competitiveness Report 2013, World Economic Forum, 2013.

Page 18

Toward inclusive, sustainable growth EY’s point of view


Page 19

More risk

Less risk

BEPS initiative momentum Substantial progress in OECD BEPS initiative:

► All workstreams have now reported back.

► Country-by-country reporting (CBCR) is expected to be introduced in relation to 2016 data.

► There has been a proliferation of domestic law changes.

► Progress fuels and informs continued press and NGO interest in tax planning.

What is the impact?

► Transparency workstreams (especially CBCR) change the risk and controversy environment.

► Substance workstreams may require a refresh of transfer pricing policies and documentation.

► Coherence workstreams change the overall approach to tax planning and tax risk management.

Trends and themes

► Increased focus on tax planning and risk management being:

► Aligned to tax policy

► Transparent

► Aligned to business and commercial substance

► General increase in source taxation.

What are companies doing?

Understanding the risk:

► Overall BEPS risk assessment

► CBCR template evaluation

► Peer benchmarking

Addressing substance workstreams:

► Transfer pricing and permanent establishment training

► Transfer pricing policy and documentation review and refresh

► Permanent establishment risk management policy review and refresh

► Greater use of unilateral and bilateral Advance Pricing Agreements (APAs)

Addressing coherence workstreams:

► Rebalance capital structure vs. supply chain

► Restructure finance structures impacted by BEPS measures

► Revisit Hub Cos.

► Business alignment

► Substance

► Transparency

► Sustainability

► Rulings renewal

Questions that boards are asking

► Is the effective tax rate predictable and sustainable?

► Are there unprovided exposures?

► What communications with the market may be necessary?

► Can the tax department manage the diversity of risk and increased breadth of stakeholder interest?

► What is the impact on me and my peers?

► Diverging responses may see “winners” and “losers” by reference to HQ, strategy adopted and geographic footprint.

► Changes may be needed to planning approaches.

► Do I understand the impact of BEPS changes on:

► Relationships with governments?

► Customers?

► Operating model?

Sample risk assessment by key territory

Intragroup financing is impacted by BEPS measures

Hub Co rulings and APAs must be based on full value chain transparency

HQs: global and regional

Hub Co

Main Op Cos

Base erosion and profit shifting (BEPS)

Page 20

Making choices EY’s 2015 Africa attractiveness survey


Download the full report at:

emergingmarkets.ey.com

Follow us on Twitter:

@EY_EmergingMkts

@EY_Africa

Page 21

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EY regular presentation - AMCHAM · Making choices EY’s attractiveness survey Africa 2015 . Page 2 Africa attractiveness surveys Background EY’s 2015 Africa attractiveness survey