How can Africa grow and stabilise its job market?

by Developed Africa 22. January 2017 12:47

Increasing employment opportunities

  • Sub-Saharan Africa faces a rise in the share of its working-age population (WAP). Population data indicates that the WAP in the sub-Saharan African region will increase by 70 percent from 466 million in 2013 to 793 million in 2030 (Lam and Leibbrandt, 2013).
  • Farming is the dominant occupation of most young Africans. The agriculture that will allow young farmers to prosper will have to draw on quality modern agricultural science – at present it does not.
  • Lack of access to finance for youth and particularly women entrepreneurs further limits growth and expansion opportunities.
  • A broader vision of high-quality education (one that fosters the full breadth of skills needed in a changing world) should be a priority in 2017.
  • Broadening access to education will ensure a steady supply of skilled workers into the labour market to support the transition to higher value added sectors.
  • it is important to diversify economic activity away from the current high concentration in traditional low value added agriculture, as it is in many African economies, to more productive activities such as agri-processing, manufacturing, and high-value added services.
  • For those young self-employed workers in the informal sector, there should be institutional mechanisms that ensure adequate access to credit, in light of the fact that these individuals are likely to be wealth and asset constrained.
  • Event to watch: African Union Assembly Meeting – January 24-31, 2017

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How can Africa manage the commodity slump and attract investment?

by Developed Africa 21. January 2017 21:40

 

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.

Mobilising financial resources

  • By early 2016, oil exporters’ current account surpluses had breached a 10-year low. The price of the commodity fell from $112 per barrel in mid-2014 to less than $39 in early January 2016. In 2017, policymakers will continue to face gloomy prospects.
  • Ghana’s growth rate is projected to rise substantially in 2017 following the opening of a new oil field. This may increase the country’s output by almost 50 percent.
  • Côte d’Ivoire, Ethiopia, Senegal, and Tanzania are expected to remain within the top five African countries with the highest growth rates in 2016 and 2017, based on current estimates.
  • Many social challenges that were once exclusively the domain of government budgets and aid groups can today be tackled with help from business
  • Enhancing agricultural productivity is not an outdated concept. Higher productivity would raise the income of farmers and free up resources for other economic sectors.
  • Fiscally vulnerable commodity-rich countries could reduce fiscal deficit by reducing government spending and increasing efficiency in 2017. They could also increase tax rates.
  • Countries like Nigeria and Angola could quickly mobilise revenues from non-commodity-related activities by increasing their VAT rates with relatively small side effects on economic activity.
  • Event to watch: The African Development Bank Group’s 2017 annual meetings – May 22-26, 2017
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Investor sentiment towards Sub-Saharan Africa to remain soft

by Developed Africa 8. December 2016 18:26

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’.

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Some More Myths About Africa

by Developed Africa 29. November 2016 18:08

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.

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Creating Investment Interest in Malawi

by Developed Africa 18. July 2013 09:00

Joyce Banda, the President of Malawi has made several big moves to entice FDI

Mrs Banda recently devalued the Malawian currency to leave it at K250 against the American dollar, which despite causing upset with those is Malawi, it was done with a purpose.

By devaluing the currency Banda hoped to encouraged foreign investors and has definitely increased exports because Malawian goods have become far cheaper, creating more interest.  

The recent article from Ventures, is an interesting read that highlights both the negative and positive aspects of Banda's moves. But importantly it notes that whilst the old President Mutharika might have scared off investors as well alienated his country, Banda has taken many steps to further privatisation and increase interest. In particular regard to the country showing its readiness for change, it is highlighted that:

Mrs Banda hopefully revived such efforts through further privatisation and mandated currency devaluation"

The article, whilst giving both sides to the argument, can be seen to argue that investors should be encouraged by the President of Malawi's efforts and should not fear investing in Malawi's future.

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UK Government to Knock Down Trade Barriers

by Developed Africa 17. July 2013 09:00

Justine Greening announced new UK investment into breaking down barriers to trade in Africa

It was announced on Monday by Justine Greening the Secretary of State for International Development that the UK is going further than just providing aid to Africa. It is going to break down barriers to allow for free and easy trade, allowing businesses within Africa to flourish.

We need to set the private sector free to create the jobs and incomes that the world’s poor desperately need."

The new deals are providing £27.8 million to Kenya and £30 million to Uganda and Rwanda through the TradeMark East Africa Programmes and promise to improve trade roads as well as modernising custom facilities. But not only this, the UK is also going to invest £7 million into International Trade Centre investigations into trade regulations and bureaucracy. 

This new announcement is very much what Developed Africa is advocating, and hopefully increased trading opportunities will encourage not only African businesses to go beyond what they have been able to do previously, but also will encourage UK investors to have more faith in opportunities and projects within Africa. 

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Categories: Development | Trade

Lack of Information Halting Investment in Africa

by Developed Africa 9. July 2013 09:00

Developed Africa is designed to allow clear, concise information about commercial Opportunities in Africa. A new survey by FTI Consulting suggests that such a service is absolutely vital:

...on the eve of President Obama’s visit to Africa to bolster U.S. - African trade and political ties, eight of every ten, or 80 percent of institutional investors surveyed in the United States are largely unaware of investment opportunities on the continent."

As Obama's visit to Africa has now ended, some commentators have recognised the lack of attention paid to the continent by investors and may seek to heed Obama's call to "come on down" to Africa. As highlighted by FTI Consulting, their research suggests that communication might be the defining issue for investment in Africa,

Africa has the potential to be a destination of choice for U.S. institutional investors given its abundant natural resources, eco-tourism potential and favourable demographics. Many African countries already are capitalising on their various assets and have been identified as high-growth geographies by institutional investors. However, it is critical to sustained economic growth that key African messages are continually heard, expanded and understood so investors are aware of the investment opportunities in during a time of great global trade competition. Our research showed there still is work to be done in this regard.”

While there are some good examples of African business reporting in the mainstream press, services like Developed Africa are an exciting, interactive way of combating the issue of communicating business opportunities from African based commercial entities.

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G8 Highlights Importance of Trade for Africa

by Developed Africa 20. June 2013 09:00

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.

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Categories: Business | Industry | Investment | Trade | Transparency