However, they are sceptical of the improved political stability, over-emphasise the importance of mining and commodity prices to these economies and do not have enough understanding of the enormous diversity of a continent of 54 individual countries.
Apart from South Africa (which is a rather developed emerging market), the rest of the African economies could largely be termed early-stage emerging economies, with each country at a different level of political and economic maturity. The result of this is that news flow about the continent regularly reports on smaller countries and economies where political and economic issues are often not dealt with in the same way as in larger more progressive countries.
The recent commodity and oil price slump has focussed attention on Africa’s resource reliability. Despite a similar collapse in commodities in the second half of 2008, growth in Africa’s GDP remained above 4% for both 2008 and 2009, at a time when most of the world was experiencing flat or negative growth. In addition, McKinsey has estimated that only 24% of Africa’s growth from 2002 to 2007, during a commodity boom cycle, was due to resources.
Although the current weak oil price negatively affects the oil exporters, most of Africa’s economies (making up more than 50% of the continents’ GDP too) are net importers of oil and petroleum products. Some large countries that will benefit from lower oil prices are South Africa, Egypt, Morocco, Kenya (and the rest of East Africa), Tunisia, Ghana and the Ivory Coast. These observations highlight the risks of considering the continent as homogenous, although the growth and development narrative is true in aggregate and over time.
On the political front, we have seen significant changes and improvements across the continent over the past few years. In 2013, well run Kenyan elections followed a new constitution that devolved more government functions and accountability to local county level, thus deepening the democracy in the country. This should lead to improved allocation of state resources and enhance the growth of this key East African economy.
“Even as the world has become easier and easier for businesses, Africa has improved faster”
Sub-Sahara African countries accounted for the largest number of regulatory reforms. 70% of these economies had at least one reform that improved the business environment. ‘Doing Business’ analysis from the World Bank.
“Many African businesses are expanding regionally or across the continent. Nigerian banks have regional strategies, with United Bank for Africa, for example, having 18 operations in other African countries, as far afield as Mozambique”
Not only is the political environment improving across Africa in general, but so is the business environment. A regular traveller to countries across the continent will notice this improvement from year to year, but the World Bank studies this in detail in their annual ‘Doing Business’ analysis. Their data shows that even as the world has become easier and easier for businesses, Africa has improved faster. Despite setbacks in some countries, we are encouraged by the trend in the leading economies and regional powerhouses where the pace of improvement tends to be increasing. More importantly, in the World Bank’s latest analysis, out of the top ten improving countries globally over the previous year, five were from Sub-Saharan Africa. Sub-Sahara African countries also accounted for the largest number of regulatory reforms in the year, with 70% of these economies having at least one reform that improves the business environment.
With all these positive changes happening across the continent, as well as the innovative and entrepreneurial nature of African businesses and governments, it is no wonder that the International Monetary Fund (IMF) expects that seven out of the ten fastest growing economies over the next five years will come from Africa. It is also not surprising that African businesses are investing in growth opportunities. This is evidenced by the use of stock exchanges to list and also to raise additional capital through rights issues, which are becoming more frequent. Many African businesses are also expanding regionally or across the continent. Nigerian banks have regional strategies, with United Bank for Africa, for example, having 18 operations in other African countries, as far afield as Mozambique.
We expect that these trends will continue across the continent. The improved (and improving) macroeconomics, combined with favourable demographics and increasing stability in political environments, should form the backdrop to a continuously improving operating environment for companies across Africa. The increasing urbanisation that we see (Africa as a whole is more urbanised than India and similar to that of China) and the rise of the middle class African consumer will lead to growth in disposable income and spending on goods and services.
In short, the continent of Africa can offer diversified and high growth investment opportunities and, of course, Africans themselves are already investing there.