Neil Harvey of Renaissance Capital: Africa is the new Russia.

Renaissance Capital is a relatively new entity to Africa. It made a name for itself in Russia and the CIS in the late 1990s and the 2000s becoming one of the region's biggest deal makers and most influential investment banks. Its founder and CEO, Stephen Jennings says that if Russia was the opportunity of a lifetime, Africa is the second opportunity of a lifetime. But the reception to Renaissance has been mixed with some accusing it of being too aggressive. It has also ruffled the feathers of the more established foreign finance houses and alarmed one of Africa's major multinational banks. How does the balance sheet on Renaissance read? Omar Ben Yedder tries to uncover the real Renaissance in this interview with Neil Harvey, CEO, Africa & Middle East of Renaissance Capital.

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African Banker: What is your role at Renaissance Capital and Renaissance Group?

Neil Harvey: I sit on the board of the main Renaissance Group, and I also run the group's businesses in Africa and the Middle East. Also, I have some global responsibilities, global being for us Russia, the Commonwealth of Independent States (CIS), Central Asia, Ukraine, Middle East and Africa; that is our world, as it were.

We also have distribution centres in London, New York and Dubai. I have some responsibilities in terms of the liquidity, funding and risk on a global basis for the investment bank, Renaissance Capital, but most of my time is spent on running the group in Africa.

African Banker: Is there a Renaissance way of doing things; a Renaissance model?

Neil Harvey: There is a business model which works in emerging markets. We are headquartered in an emerging market; we are not headquartered in London or New York, and that is the big difference. We started in emerging markets--we didn't take a business model that worked in the US or Europe and adapted it to emerging markets; we actually built our business model in emerging markets. We are able to originate, execute research and structure on the ground--and that makes a big difference.

We do delegate authority, so the businesses we are building in Africa aren't going to be run out of Moscow but out of Lagos, our headquarters for the region. That is a different business model.

Being on the ground is very, very important. If you are researching a company from New York or London you can never really do it in the same way as if you're on the ground and close to the company, close to the market and close to the regulators. So I think that does make a difference.

The fact that we invest our own capital alongside the investment bank, through Renaissance Partners--our principal investment arm--enables us to leverage a lot of the contacts and insights that we have to make profitable, principled investments.

We've also got the best people. Look at our board in Africa and compare that to Goldman's or Deutsche Bank's.

We don't have people who go to the African markets just to retire. We have attracted the best local talents in those markets.

In Africa, we went from zero staff to 100 in 11 months. Very few organisations can move that quickly. The facts are that we can take decisions quickly, we are a private company and we don't have a big bureaucracy. I think all of these contribute to make the Renaissance model unique.

African Banker: Have you been well received by investors and the various regulators on the ground?

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Neil Harvey: Investors definitely. Miles Morland, speaking at our London conference said: 'we have been waiting for somebody to take this market, take the bull by the horns and deal with it'.

There is no other investment bank focusing on the African market across all products with a local approach. Most investors are enthusiastic because we are bringing new products, new companies and we are bringing research that has never been done before.

Africa is a place where you need to spend a lot of time with people, explaining to them your objectives and what you're trying to achieve.

What we are trying to do to is to improve the capital market, and improve liquidity. We are bringing new risk capital to the region. We are educating international investors about the region.

We got our licence in Kenya, which came through much quicker than we expected. We have already received SEC approval in Nigeria. We are buying into brokerages in a number of other countries in the region.

African Banker: Who do you see as your competitors?

Neil Harvey: If you look at debt and structured debt, then our competition is Credit Suisse, Merrill Lynch, Citibank. That would include Stanbic and JP Morgan Chase to some extent.

If you look at equities, our competition comes from Morgan Stanley, JP Morgan Chase and Deutsche Bank in equity capital markets.

If you look at local operations, in Nigeria competition would be IBTC (which has been bought by Stanbic), Vetiva, Chapel Hill, Afrinvest and BGL--all local firms.

African Banker: Has Renaissance Capital got the balance sheet to underwrite IPO's or large M & A deals or infrastructural projects?

Neil Harvey: If you look at the capital market side, yes, no problem. We are number one in Russia--ahead of Deutsche, ahead of Morgan Stanley, ahead of Credit Suisse.

If we can be number one in Russia, which is one of the largest markets in the world, there is no reason why we can't be number one in Africa.

Plus, we have got a partnership with the Royal Bank of Scotland (RBS), which we use when we require a stronger balance sheet. We have done that this year, for example in the VTB transaction in Russia. On the debt side, there are certain deals that the likes of Citi and Credit Suisse could execute that we might not be able to. So I think we've got a slight competitive disadvantage there in terms of our balance sheet, although we will, if required, broaden our RBS co-operation to Africa over time, so that will change.

In terms of mergers and acquisitions, that hasn't really been an issue. A lot of what is happening in terms of mergers and acquisitions is intermediating cross-border flows from the Middle East, Russia or South Africa into Africa.

What people want is our insight, our product expertise, our relationships and contacts on the ground and our knowledge of doing business in Africa.

BP uses Renaissance in Russia as their advisor. They are not doing that because of our balance sheet, they are doing that because we have the insight on the ground. And it is the same in Africa.

On the debt side it can be constraint, but then again, what most of these banks do now is sell this risk off to hedge funds and we can do the same. We are not totally constrained, it just means that we can't warehouse things quite as long as some of our competitors.

African Business: What do you see as the similarities between Asia, Russia and the CIS with Africa?

Neil Harvey: The similarities are that you've got corruption, you've got barriers to entry in these markets and you've got to learn how business gets done in those countries.

If you learn how to do business in Korea, which I had to when I built the business there for Credit Suisse, then you can learn how to do it in Africa. But there is a learning curve, because every country is different.

In terms of style, how you do business in Africa is actually more similar to Asia than it is to Russia. Russia is quite aggressive; you've got to face each other down; negotiating tactics are pretty brutal.

But in Africa it is much more about relationships, it is much more face to face time and that is what Asia is like too. It is about listening to people, it is about building relationships.

I find doing business in Africa quite easy--I was born in Africa, I was brought up in Africa, my family has lived there for three generations.

The differences are that Africa has a strong legal system already although it is sometimes not applied completely correctly, which is similar to the system in Russia. There is probably better human capital in Africa than there was in Russia in the early 1990s when there was nobody who knew anything about capital markets or banking. But in Africa there are quite a few people, because the local markets are quite developed. Another similarity is the fact that domestic markets are quite significant.

But the real issue is that the business doesn't work if you are based in New York and London. You really have to be on the ground. You have got to be there for a long time. And then they learn to trust you.

There is no doubt there will be setbacks in Africa, and we are expecting that but we will continue to invest through setbacks, we won't be scared away by them. We have seen what investing through difficult cycles does and in Africa it won't be one straight line, there are going to be backward steps.

African Business: But you see the scope for wealth creation in Africa as similar to that in Russia?

Neil Harvey: Exactly, it's like you've seen the movie before. In 1998, X5 which is now a multi billion dollar supermarket company in Russia started up from scratch. In Nigeria, there aren't any supermarket companies. In five years time, do you think there is going be a major supermarket chain in Nigeria? Absolutely. Who's going to build it? I don't know. But if we find that guy, we would like to invest in him. It's not going to be Walmart, it is not going to be Tesco!

African Business: Is the middle class benefiting in Africa?

Neil Harvey: Growth is trickling down. If you look at the statistics, poverty rates are declining. Sure there are problems with wealth concentration and the elite. But the economy is gaining momentum, and that's the best thing you can do for the impoverished classes.

There is a need for Africans to help themselves by growing their markets, developing these markets, growing their own companies, employing people locally. That is what it is going to take Africa from what it has been before to a new paradigm.

African Banker: Has Renaissance seen a positive return on its African investment?

Neil Harvey: Yes, so far the business has paid for itself. That is the nice thing, that we are building enterprise value for the firm. It has not cost us anything--we are actually making money.

African Business: Outside of finance, oil and gas, minerals and telecoms--the big four--where do you see Africa's growth coming from and which countries or regions offer the best prospects.

Neil Harvey: Retail, real estate, building materials, agriculture, these would be the sectors driving Africa's growth. And Nigeria is the big opportunity. I think Nigeria is going to be 70%-80% of the market. It is already a $70bn stock market economy. Kenya comes a close second.

But this is a regional phenomenon--the whole African region is growing. We are not investing into Ghana or Zambia or Zimbabwe because of where those markets are now, we are investing because of where we think they will be in five to 10 years time. So I think that even though the markets are always going to be much smaller than Nigeria they will become more significant in their own way over time.

In terms of geographical space, Russia, China and India all fit into Africa. If you look at the population basis, Africa's is 925m. Then look at the GDP per head. If these trends continue you are going to see a massive market, not only in Nigeria, but in the whole region.

Take a look at the market caps (diagram right): the figures have risen $12.9bn in 2000 up to a projected $240.9bn in 2010.

The same is true with regards to turnover. If you look at Nigeria, the 'BRIC' in Africa, 52% of sub-Saharan Africa's market capitalisation, excluding South Africa, is in Nigeria. And it is going to be about 65% by 2010, and turnover might be as high as 86%.

So Nigeria is going to be a big market. That gives you an idea of the potential if the trajectory continues on its current path of growth.

African Banker: You are obviously bullish regarding Zimbabwe--is that why you choose Harare as a Renaissance base?

Neil Harvey: Well, I'm Zimbabwean, so that is one of the reasons. I am an optimist, in the sense that I hope there will be positive change there, and we are betting on that positive change.

But you have to remember that Zimbabwe was the second largest market outside South Africa in Africa just 10 years ago.

It is not unfeasible that it could be a very significant market again.

African Business: Do you see a lot of consolidation with companies growing and becoming regional players?

Neil Harvey: Yes, just look at the Ecobank Group. They have got a pan-Africa banking model. They want to be the world class African bank, operating in middle Africa. They are in 20 countries.

There are retailers in Kenya who are taking their business models to Nigeria and applying them very successfully.

There are Nigerian banks that are expanding successfully into the region. There are mining companies and cement companies that can do what they are doing in their home markets and across the region. That indicates that it is the local entrepreneurial African businesses that, over time, will become the successful businesses, not the multinationals.

For example, I think there will be an African cement company emerging that will be bigger than Lafarge.

That is what we saw in Russia. It is the Russian entrepreneurs that built these businesses. Not the BPs, not the Shells, not Tescos ...

African Business: And you won a seat on the Kenyan stock exchange. What does that mean exactly?

Neil Harvey: It means that we have got an investment bank licence, and we have got a securities licence so we are able to operate in both of those markets.

We are the first foreign bank to be allowed on the Nairobi stock exchange, and that has to be viewed as a pretty significant development.

Sub-Saharan Africa Market Capitalisation 2000 to 2010

(red bars are estimates)

2000   12.9
2001   12.4
2002   14.5
2003   24.4
2004   30.1
2005   38.4
2006   58.3
2007  108.9
2008  132.5
2009  178.2
2010  240.9

Source: Renaissance Group

Note: Table made from bar graph.

Sub-Saharan Africa Turnover Capitalisation 2000 to 2010

(red bars are estimates)

2000   0.6
2001   1.0
2002   0.9
2003   1.6
2004   2.3
2005   2.9
2006   5.3
2007  14.0
2008  19.5
2009  30.1
2010  46.5

Source: Renaissance Group

Note: Table made from bar graph.