Nigeria dropped seven places to 13 as the most attractive investment destination in Africa in Rand Merchant bank’s seventh report on ‘where to invest in Africa’ while South Africa also ceded top spot to Egypt.
This is the first time Nigeria will not feature in the top 10 most attractive investment destinations report by Rand Merchant Bank (RMD), one of the largest financial services group in Africa, because the country’s short-term investment appeal has been eroded by recessionary conditions.
Nigeria’s economy only slipped out of a bruising recession in the second quarter of 2017, after contracting for six quarters. The extractive sector grew 1.6% year-on-year as against -11.6% YoY last year, on the back of an increase in oil production to an average of 1.9mn b/d, as against 1.8mn b/d over the same period.
“Over the past three years, some African governments have had to implement deep and painful budget cuts, announce multiple currency devaluations and adopt hawkish monetary policy stances – all as a result of a significant drop in traditional revenues,” says Celeste Fauconnier, RMB Africa analyst and co-author of Where to Invest in Africa 2018 .
Egypt, North Africa’s biggest economy is on the path of growth narrowing its budget deficit sharply over the past year by cutting government spending, introducing a value-added tax (VAT) to replace a previous ineffectual goods and sales tax and introducing a new business-friendly investment law.
“Some countries have been more nimble and effective than others in managing shortfalls,” says Nema Ramkhelawan-Bhana, also RMB Africa analyst and an author of the report. “But major policy dilemmas have ensued, forcing governments to balance economically prudent solutions with what is politically palatable.”
These reforms accounts for Egypt displacing South Africa as Africa’s top investment destination because of its superior economic activity score and sluggish growth rates in South Africa, which have deteriorated markedly over the past seven years.
A release by RMB says that South Africa also faces mounting concerns over issues of institutional strength and governance, but in its favour are its currency, equity and capital markets which are still a cut above the rest, with many other African nations facing liquidity constraints.
Neville Mandimika, RMB Africa analyst and contributor to Where to Invest in Africa 2018 said, “The last three years have sounded an alarm, amplifying what is now a dire need for the economies of Africa to shift their focus from traditional sources of income to other viable alternatives.”
According to the report, Morocco retained its third position for a third consecutive year having benefitted from a greatly enhanced operating environment since the “Arab Spring” which began in 2010.
Ethiopia, a country dogged by socio-political instability, displaced Ghana to take fourth spot mostly because of its rapid economic growth, having brushed past Kenya as the largest economy in East Africa. Ghana’s slide to fifth position was mostly due to perceptions of worsening corruption and weaker economic freedom.
Kenya holds firm in the Top 10 at number six. Despite being surpassed by Ethiopia, investors are still attracted by Kenya’s diverse economic structure, pro-market policies and brisk consumer spending growth. A host of business-friendly reforms aimed at rooting out corruption and steady economic growth helped Tanzania climb by two places to number seven.
Rwanda re-entered the Top 10 having spent two years on the periphery, helped by being one of the fastest reforming economies in the world, high real growth rates and its continuing attempt to diversify its economy.
Tunisia occupied the ninth position on the back of advancing political transition and an improved business climate achieved by structural reforms, greater security and social stability.
Cote d’Ivoire slipped two places to take up the tenth position, despite a low business environment score which was compensated its government’s significant strides in inviting investment into the country leading to a strong increase in foreign direct investment over the years, making it one of the fastest growing economies in Africa.
Uganda’s outlook is marred a tumultuous 2016 and related uncertainty, debilitating drought and high commercial lending rates. Botswana, Mauritius and Namibia, widely rated as investment grade economies, did not feature in the Top 10 mostly because of the relatively small sizes of their markets. Market size is a key consideration in the report’s methodology.
The report warns that African economies could hover on the brink of disaster if it continues to depend on its current economic fundamentals and does not usher in economic diversification.
Where to Invest in Africa 2018 also includes 191 jurisdictions around the world, and measures Africa’s performance relative to other country groupings. “The unfortunate reality is that African countries are still at the lower end of the global-performance spectrum, which continues to be dominated by the US, UK, Australia and Germany,” said RMB.
