Increasing employment opportunities
American research group The Brookings Institution has just published its annual Foresight Africa project - a series of reports, commentaries and events aimed at helping policymakers and speculators stay ahead of developments impacting the continent.
Ernst & Young, the global consulting giant, said that it expects investor sentiment towards Sub-Saharan Africa to remain soft, as foreign direct investment will slow over the next few years.
In the year-end update to its Africa Attractiveness Programme released on 7 December 2016, EY said the weakening investor sentiment towards SSA will be due to heightened geopolitical uncertainty around the world and greater risk aversion rather than the region’s deteriorating economic fundamentals. Beneath the averages and headlines, the growth dynamics across different individual countries and sub-regions are very mixed.
“Companies already doing business in Africa will continue to invest, but will probably exercise a greater degree of caution and be more discerning,” EY said. “Some of them will invest at a slower pace, looking to consolidate operations and drive profitability; while others are likely to double down on their investments, using this period of economic slowdown to further strengthen positions in key markets.”
EY further said that although SSA’s growth forecasts for 2016 have fallen to a two-decade low, the growth dynamics across different individual countries and sub-regions are very mixed. Outside of the sub-continent’s three biggest economies – Nigeria, South Africa, and Angola – many bright spots can be seen in the East, Francophone and North African regions. “Economic recovery in Angola, Nigeria and South Africa is likely to be a tough and gradual process,” EY said. “However, a diverse group of other economies – including Cote d’Ivoire, Senegal, Ethiopia, Kenya, Tanzania, Mozambique and Egypt are expected to sustain high growth rates over the next 5 years.”
The 'heatmap' below provides a snapshot of macroeconomic resilience across some of the key sub-Saharan African economies, and illustrates just how variable economic performance is across different parts of the continent. The color of each block represents the longer-term position for that metric - green being positive and red negative. The color of the circle in the block represents the current trend.
It is clear from this illustration that the three largest economies in sub-Saharan Africa - Angola, Nigeria and South Africa - remain under pressure. In the six months since March 2016, the position of Angola and Nigeria in particular has deteriorated, with the Nigerian economy entering a recession and Angola forecast to register zero growth this year. Sustained low oil prices, and the subsequent deteriorating terms of trade that both economies have experienced since 2014, have led to a growing current account deficit and rising government debt levels. Although growth in South Africa remains low, there have been some improvements in key macro-economic indicators in the past six months - including the current account deficit and a somewhat stronger currency. This indicates at the very least that the economy has stabilised, and may in fact be a signal of a gradual recovery.
At the same time, and in contrast to challenging economic conditions in the big three, many of the East African and Francophone economies have remained resilient. Kenya, Ethiopia, Tanzania, Cote d'Ivoire and Senegal are among the African economies still expected to grow in the high single digits this year and next (and through 2021).
This partly has to do with the major exports of many of these economies being less impacted by declining terms of trade. In addition, investment in infrastructure, domestic consumer spending and the continued evolution of services and manufacturing, continues to spur growth in these economies.
The key to overcoming weak global demand lies in enhancing diversification policies. Economies that span a broad range of sectors tend to fare stronger in such periods. Nigeria and Angola provide strong evidence of reliance on a single commodity, as both economies either face or are already in recession. The resilience in certain African economies reinforces the need to accelerate the process of diversification in others. Diversification clearly requires structural economic reforms, and each country is at a different point along this path. This provides enormous opportunity for growth across the region, as investors respond to pragmatic policy reforms and seek opportunities across growing consumer, services and industrial sectors.
This article is an abstract from EY’s ‘Africa Attractiveness Program 2016: Year end update’.
Euler Hermes debunks five more myths about Africa
Myth 6: No-one is going to finance African growth
Once the oil aftershock has worn off, Africa will resume growing at an average +3% a year. Some countries still post record growth rates higher than +5%, despite the hard shock. In addition, the financing and rebalancing of growth, including investments to be made, will be the key to a sustainable takeoff. The mix of funding will be crucial. In addition to external resources, particularly from foreign direct investment (FDI), some countries are already able to finance at least part of their growth with budgetary resources. This is the case in South Africa, Egypt and Senegal where they account for 25% and 30% of GDP in 2016. Household confidence and investor confidence will be indispensable to collect savings.
Nevertheless, the way ahead will be thorny: (i) budgetary revenues make up only 14.5% on average of the African GDP, compared with 30% in developed countries; (ii) FDI is only 2% of GDP, compared with 2.4% in developed countries.
Myth 7: African consumers are not bankable
Consumption growth in Africa is well under way. In 2016, Africa reports the highest consumption growth rates, led by Cote d'Ivoire (+6%), Uganda (+7%) and Nigeria (+5%), compared with +1.4% in OECD countries or +2% in Pacific Asia. Consumption development in Africa is driven by the continent's exploding urbanization: by 2045, African towns will be flooded with 24 million people, compared with only nine million in China and 11 million in India.
But African consumption development should follow a different path from that of developed countries. The wealth effect and internet access add to the volume growth of African consumption.
Consumers in Africa are going to skip some steps and force business sectors to reconsider their approach. This is especially striking in distribution, financial services or transports: for example, 70% of Moroccans have internet access (55% in China), and 14% of Kenyans use contactless payment cards (60% of French are still and always using bank checks).Euler Hermes has worked out a proprietary consumption potential indicator combining these three determinants. The verdict is final: Nigeria, Kenya, Morocco, Egypt and South Africa are the leading pack, followed by Ghana, Ivory Coast, Tanzania, Sudan and DRC.
Myth 8: It's hard to work with African companies
Given the payment terms granted by foreign suppliers to African companies, it is indisputable that stronger confidence would free considerable resources for growth. Out of EUR 800bn of goods imported every year by Africa, approx. 60% are paid cash. If transactions were settled at 30 days, this would free EUR 40bn of working capital requirements, equal to the GDP of Tanzania, or to 1.6% of the GDP of Africa.
This situation engenders a sort of vicious cycle for African companies. Their cash flow suffers from the multiplication of cash payments, and this makes them more exposed to possible economic risks. As for domestic trade, this calculation in a country like Nigeria generates EUR 10bn of additional cash flows: a foot on the ladder for growth-seeking SMEs.
Myth 9: Agriculture is a thing of the past
Agriculture is the driver of econom ic growth in Africa: it remains the first contributor to employment and lifts millions of people out of poverty every year. Nevertheless, what is needed is a true green revolution to accelerate the catalyst role of the farming sector, by focusing productivity, market access and technologic contents.
In terms of growth by value of agricultural exports from 2005 to 2015, Ethiopia and Ivory Coast (+30%), Kenya and Rwanda (+20%) have specialised in high-value cash crops. Other countries, such as Zambia, Senegal and Morocco, have managed to use mechanisation and technology to increase agricultural productivity.
Myth 10: It's hard to find entrepreneurs and talents in Africa
Education levels are increasing in Africa. In particular, access to university education in Cameroon has grown from 4.6% in 2000 to 13% in 2013. However, even in South Africa, the most proficient student, the percentage of youth entering university is only 20% by age group. Furthermore, official statistics on entrepreneurship are disappointing: in South Africa, just to make an example, only two companies are set up every 1 000 inhabitants.
These low figures mask the rampant informal entrepreneurship that is set to remain the basis for human capital development in the short term. Therefore, attention should be focused just on this entrepreneurial environment, apart from access to education. In Nigeria and Uganda for example, the towns of Lagos and Kampala have only recently reformed their registry system, a big problem for all those wishing to start business.
Since setting out to promote African business opportunities we think we’ve learnt quite a lot about the dos and don’ts of investing in African projects – mostly don’ts, unfortunately! One of the dos, however, is the real need for proactivity. It would be nice to think that you can set out your stall of opportunities and that investors and businesses will beat a path to your door, but it doesn’t often happen that way. Absent an obvious arbitrage, political risk and credit risk mean that in most cases projects need a lot of extra selling to US and European prospects. That additional selling isn’t simply promotion per se; it also means structuring, explaining and financing business opportunities optimally.
That’s why Alex Glover of financial consultants Riviere Noir (rivierenoir.com) and I have decided to combine our resources to jointly offer consultancy services that will genuinely help viable African projects get started, and help companies and investors from outside Africa identify and tease out the advantages of opportunities in Africa. Between us we have the insight, hands-on skills, flexibility, experience and – crucially – contacts to do this.
Contact info@developedafrica.com for more information.
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We spotted an interesting article in Corporate Financier Magazine in which Deloitte's support for investment in Africa, especially from the UK, is highlighted by their Director of Research Chris Gentle.
As we recently highlighted in the post about Ernst and Young's Annual Attractiveness Survey of Africa, there is a lot of negativity towards doing business in Africa coming from those who are not currently involved, compared to positive feelings towards interaction with those who are. Gentle noted his concern with the UK's lack of investment in global services markets. More specifically, Gentle is worried that the UK does not perform as well as it should in the fast growing markets of the world - and as we know seven of the ten fastest growing economies are in Africa. He had the following to say:
This is an issue which needs to be addressed, It will require a combination of business investment, practical help for mid-sized firms looking to break through and targeted government support for our successful industries"
Deloitte have also published other materials furthering their support for UK involvement and investment in Africa, their online leaflet highlights the fact that Africa has experienced widespread, significant growth in the last decade and looks likely to go from strength to strength in the coming decades. This growth makes the continent home to a fantastic host of opportunities which Gentle thinks the UK has a great chance to invest in. Developed Africa exists to promote and support increasing interest and investment in Africa. Hopefully Gentle's statements will encourage others to do the same.
#Africa needs a new type of philanthropy that understands the power of private sector solutions. — Tony O. Elumelu, CON (@TonyOElumelu) June 24, 2013
#Africa needs a new type of philanthropy that understands the power of private sector solutions.
Really interesting article from the founder of Standard Trust Bank in the Christian Science Monitor. Tony Elumelu writes about the way in which commercial investment has far reaching and long lasting impact in Africa, particularly in terms of job growth.
Experience teaches that connecting the private sector to economic development is the most effective way to build wealth and resources in local economies, and ensure sustainable development. Philanthropists, nonprofits, and nongovernmental organizations can help achieve this self-sufficiency if they harness their resources to create change in the private sector. Donor funds flowing into Africa annually are many times the $5 million investment that started our bank, but have they created equivalent impact? Philanthropy and development aid can, and should, be components of Africa’s growth strategy. But perhaps it is time to rethink how that capital is deployed and to focus more on sustainable private sector solutions."
Experience teaches that connecting the private sector to economic development is the most effective way to build wealth and resources in local economies, and ensure sustainable development. Philanthropists, nonprofits, and nongovernmental organizations can help achieve this self-sufficiency if they harness their resources to create change in the private sector.
Donor funds flowing into Africa annually are many times the $5 million investment that started our bank, but have they created equivalent impact? Philanthropy and development aid can, and should, be components of Africa’s growth strategy. But perhaps it is time to rethink how that capital is deployed and to focus more on sustainable private sector solutions."
Initial investment for business ventures is a new area for development that needs more focus. That is not to say that aid and traditional development do not achieve a huge amount of good in many areas - health, emergency response, education. In fact, Elumelu calls for a hybrid model that seeks cooperation that best utilises the skills of both businesses and non-profits,
Private investors are willing to take risk, but are often wary of taking the full brunt of development risk in emerging regions. Philanthropic dollars can help in many ways, from co-investing with the private sector, to partially subsidizing operations until businesses can achieve profitability and sustainability, or subsidizing management training to help specific businesses gain the skill sets they need for growth."
[Read the whole article here]
The recent G8 summit held in the UK saw Prime Minister David Cameron directly address the importance of industry in Africa.
Cameron announced new G8 partnerships with developing countries that would focus on ensuring that African states get the full benefit from commodity trading, notably from extractive industries, with hopes that new commitments will encourage much greater profits than the traditional aid model currently in place. A huge part of this project centres on transparency and the importance of clear information in business deals. Cameron wrote in a letter to other G8 leaders,
Too many developing countries are held back by corruption – and this can be reinforced or even encouraged by poor business practice and a lack of transparency from those that trade with them."
[Read the full letter here]
This is an encouraging signal as it clearly emphasises a business-led development strategy. It is particularly worthy as it comes from the Prime Minister of Britain, traditionally an aid focused country. We urge other G8 members to take up this new call for investment and partnership, not just handouts.
“A new, inclusive way of doing business in Africa,” Ben Oguntala, CEO of Developed Africa
This website is a new kind of resource for anybody interested in Africa. We foster partnerships between people with big ideas and those searching for new opportunities in a rapidly developing market. We believe that commercial engagement with and investment in African projects is the best way for the continent to develop. The problem is the information deficit that makes companies outside Africa hesitant to do business on the continent.
There are many myths and preconceptions about working in Africa. Much of this stems from the lack of easily accessible information on proposed projects. This website will make such information incredibly easy to search and digest. It also provides a platform for Opportunity Providers to gain a new platform for their ideas.
For too long, development in Africa has been dominated by Western-backed, donor-dominated non-profit models. While these mechanisms have achieved some successes, the development of commercial partnerships is the next step, allowing greater sustainability and initiatives that truly reflect the needs and desires of the people. The aid model creates a systematic imbalance between donors and recipients and a bias against the treatment of African opportunities as serious commercial projects. Developed Africa’s objective is to bring balance to the relationship between developed and developing countries by providing a platform on which all parties can engage as equals.
Please sign up if you have an idea for an Opportunity or are interested in browsing our database for new investment ideas. Check back regularly on the News tab for updates and discussions.
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