• Tuesday, May 28, 2024
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BusinessDay

Attractive Africa

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 Over the past five years, foreign direct investment (FDI) to Africa has been increasing, according to a survey by Ernst & Young, a consultancy. Africa’s share of global FDI rose to 5.6 percent in 2012 from 3.2 percent in 2007.

Improvements in governance, public and social services, business environment, increasing trade and investment have contributed to growth since 2000. Despite a weak global economy, the continent is projected to grow by 4 percent in 2013 and by 4.6 percent in 2014. Africa’s attractiveness is not lost on investors; after Asia, Africa is the second best region to do business in world. 

Still, emerging markets, not developed markets, are the major source of FDI projects. E &Y says: “Investments from emerging markets into Africa has grown at a healthy compound rate of over 21 percent.” Coupled with a 33-percent compound rate increase in intra-African investment, mainly from South Africa, the attractiveness is not unique to foreign investors only.

This confidence of African business leaders is further confirmed by the YPO Global Pulse, a survey conducted by Young Presidents’ Organisation, a not-for-profit global network of 20,000 chief executive officers. According to the YPO Global Pulse, African CEOs’ are the most confident in the world. 

They expect sales will grow and remain strong, thanks to the emergence of a new consumer class and continued inflow of capital. Their outlook on fixed investment and hiring is also optimistic. Most African CEOs (85 percent) expect sales to grow by 10 percent over the next year. Over the same period, hiring, too, is expected to growth by 10 percent (especially in the services sector) while production: manufacturing, mining, and construction will increase by 19 percent.

Overall, there are perception gaps to mind. This can only be overcome with presence on the continent. Businesses established in Africa have a better grasp of risks; see the pace of growth and prospects. Lack of presence breeds negative outlook and delays investment decisions. 47 percent of respondents with no presence on the continent were of the view that Africa will be attractive in three years. The E & Y survey also revealed a reality contrary to perception: “Services accounted for 70 percent of projects in 2012 (up from 45 percent in 2007), and manufacturing activities accounted for 43 percent of capital invested in 2012 (up from 22 percent in 2007).”

Though infrastructure, (transport and electricity), as well as bribery and corruption, remain challenges, business is profitable. The infrastructure gap is also attracting investments: in 2012, E & Y noted 800 infrastructure projects across the continent. The $700 billion infrastructure projects were gulped by power and transport related projects, 41 percent and 37 percent, respectively. 

Taking interest in Africa’s growth goes beyond being “fashionable and trendy”. Those on ground buttress their attraction to Africa with comparisons to the impressive growth trajectory of Asian countries. Managing partners at E &Y comment the road ahead is bumpy. However, a critical number of African economies growing along the same path as emerging economies in Asia will power a continent-wide growth. Nigeria, Ghana, Angola, Egypt, Kenya, Ethiopia and South Africa were identified as “growth powerhouses”.