Africa’s economic challenge
Harare – The leader of Africa’s biggest economy believes the continent “is rising and is a continent of hope…(and) has a bright future.” Bankers think Africa is where there is “plenty of opportunity”.
Yet there are challenges in terms of the regulation of the private sector as well as infrastructural development.
These issues came from the recently held World Economic Forum annual meeting in Davos, Switzerland.
The independent think tank says the World Annual Meeting has for the past 40 years been “the foremost creative force for engaging leaders in collaborative activities focused on shaping the global, regional and industry agendas”.
This year’s theme was “Resilient Dynamism”.
South African President Jacob Zuma, who was in Davos among other leaders, including heads of Guinea, Ethiopia, Nigeria, Rwanda, Tanzania, Kenya and Mauritius, saw the prejudice against Africa as an investment proposition but noted the continent is on the rise and has a “competitive edge”.
He pointed out that the rate of return on foreign investment in Africa is higher than in any other region in the world.
In a statement this week, he said: “The reality is that Africa is becoming a remarkable success story.
“In 2010, six of the world's 10 fastest growing economies were in Africa, and seven African countries are expected to be in the top 10 over the next five years.
“Africa's output is expected to expand by 50percent by 2015. Africa's Gross Domestic Product (GDP) per capita stood at US$1 630 in 2010.
“It is expected to increase to US$2 200 by 2015, at a real annual growth rate of 5.7 percent, resulting in a 30 percent rise in the continent's spending power.
“Africa's consumer sectors ‑ goods, telecom and banking, among others ‑ present the largest opportunity and are already growing two to three times faster than those countries belonging to the Economic Co-operation and Development.”
He said Africa's advantages included “extraordinary” mineral wealth, agricultural potential, a young working population and a growing middle class with considerable and growing purchasing power.
“Almost each African country has been working hard, introducing wide-ranging measures that improve the climate for investment ‑ both foreign and domestic,” he said.
He also said Africa was encouraging foreign investment in the massive infrastructure programme that we have embarked upon in Africa.
This includes the programme for Infrastructure Development in Africa and the Presidential Infrastructure Champions Initiative, with the flagship programme being the North-South Corridor, championed by South Africa.
Stakeholders such as mobile phone network boss Bharti Airtel are on record as saying insufficient infrastructure spending remains “the biggest risk” to Africa's economic growth
President Zuma says the African Union has launched an ambitious programme towards continental integration espoused in the “first step” of the Tripartite Initiative that draws together countries of Eastern and Southern Africa.
He said: “By 2015 we expect to establish a free trade area amongst these countries, combining the markets of 26 countries with a population of nearly 600 million people and a combined GDP of US$1 trillion.
“Importantly, this will form the basis for an Africa-wide Free Trade Area, which could create a single market of US$2.6 trillion.”
• Perception vs Reality
President Zuma does not quite buy into the idea that Africa is a risky environment for business.
“It is important to emphasise that the so-called ‘risks’ in investing Africa are often more perception than reality,” he said in the statement.
“When Moody's analysed the performance of 20 years of project finance loans, accounting for about 45 percent of all projects financed since 1983, they found that only one project out of 92 in Africa had defaulted.
“Estimates from the African Development Bank suggest that companies participating in infrastructure investments in Africa can earn commercial rates of return from 5 to 10 percent in the water sector, 17 to 25 percent in the power sector and 25 to 30 percent in telecoms. Across sectors, infrastructure investments average returns of between 15 and 20 per cent.”
The above stats are buttressed by the fact that returns on foreign investment in African infrastructure are higher than in any other developing region.
African independent power projects, for example, have earned their investors internal rates of return of up to 25 percent, compared with 15 percent in Latin America and 12 per cent in Eastern Europe.
“There is a lot more that is happening in the continent, for example the many conflict resolution and peacemaking missions,” said President Zuma.
But in Davos, President Zuma had to face some discomfiting moments that would put to test his optimism for Africa.
One report said he was trying to downplay the violence surrounding miners' strikes in his country last year when almost 50 people lost their lives.
He promised he was dealing with the matter of labour relations “because it cannot go back to a situation that created the impression that there's no governance of this matter.”
The market that has got bankers attending the World Economic Forum at Davos this year excited is Africa.
“One market where we see plenty of opportunity is Africa,” Reuters this week quoted Peter Sands, Standard Chartered's chief executive, as saying during an interview.
“It's a part of the world that doesn't get so much focus because everyone, quite rightly, is all excited about India and China and the whole ASEAN region.”
Reuters reported that Chinese banks were among the first to make their way into the continent, with ICBC ‑ the world's biggest bank by market value ‑ having bought a 20-percent stake in South Africa's Standard Bank in 2007.
Since then, the report noted, other banks have started making their way into the region, mostly to facilitate trade between Africa and resource-hungry China.
Agriculture and oil exploitation are some of the opportunities in Africa.
A Deutsche Welle report noted: “In other sectors, too, investors marvel at the opportunities the African continent has in store for them.
“That also applies to the extension of mobile telephony and Internet services.
“Sunil Mittal, the founder and CEO of the Indian telecom firm, Bharti, has been active across Africa for 17 years.”
Mittal is quoted as saying Africa is “really the last real bastion of big growth”, with 500 million people connected and 500 million are yet to be connected.
“And those who are connected want to move up to the next level of mobile Internet. And that's what excites investors like us,” said Mittal.
• Private Sector to Fix It?
While African leaders may trust themselves to lift the continent from its challenges the private sector has thrown in the gauntlet: the sector can “fix” Africa's problems.
Graham Mackay, executive chairman of South African brewer SABMiller, spoke in Davos in a session called “De-Risking Africa”, which also featured Nigerian and South African presidents.
Mackay believes Africa’s growth would be boosted if the continent were to be open to more foreign investment.
He said: “Trust in economic growth to solve the problems of the continent…Economic growth comes from the private sector: business will fix it, if it's allowed to.
“If you look at some of our operations in more rural parts of Africa, and you see the conditions that have to be endured: these are heroic endeavours in many cases.”