A chorus of positivity is helping drive growth across the continent in almost every sector


People had good things to say about Africa at the WEF annual meeting in January. Comments reflected the relative positions of attendees – businessmen such as Nigeria’s Aliko Dangote and financiers like Citadel Capital’s Ahmed Heikal were keen to highlight the continent’s exploding investment potential.

Leaders of global institutions, for example, Christine Lagarde of the IMF, pointed to the role of liberalised international trade in boosting African growth. Leaders of African states – Goodluck Jonathan of Nigeria and Ghana’s John Mahama – attributed successes to good governance and a ‘democratic dividend’. Winnie Byanyima of the NGO Oxfam sounded a cautionary note about rising inequality, environmental risks and persistent poverty.

The anthemic chorus of ‘Africa rising’ is playing strongly at the moment, and the optimism is backed by some impressive statistics. The three leading organisations that put out estimates for regional GDP – the UN, World Bank and IMF – all anticipate leading growth for the continent in 2014. UN projections in December 2013 have Africa’s GDP growing at 4.7% for 2014, rising to 5% next year. In January, the World Bank predicted growth this year of 5.3%, reaching 5.5% by 2016. The IMF comes in highest at 6.1% expected growth after 2013’s 5.6%.

These projections may change, and it’s a good idea to be cautious about aggregate GDP estimates. The figures do show sustained growth across many countries, and Africa has had an average annual GDP increase of 5% since 2000.

IMF data suggests that the greatest growth from 2013 to 2017 will take place in Zimbabwe (more than 10%), followed by Mozambique (more than 8%), and Angola, Ethiopia, Nigeria, Tanzania and Zambia (more than 6%). The World Bank currently counts 27 African states as middle-income countries, and argues that the number of African people living on less than $1.25 per day has fallen from 58% in 1996 to 48% in 2010.

To some extent this growth is the result of demographic change. There is the rapid expansion and a changing age profile of the population. According to the Harvard Business Review, Africa will have the world’s largest working age popula-tion by 2050, at 25% of the global workforce, and will overtake China by 2035. It has undergone rapid urbanisation, which changes the prospects for distributing consumer goods and investing in manufacturing. Around 40% of the continent’s population lived in urban centres in 2010, with this proportion expected to increase to 47% by 2025.

‘This demographic change and urbanisation is translating into real revenue and profit growth for many consumer companies. In Nigeria, companies such as Nestlé have expanded capacity to cater for the growing demand as more people move into cities. The growth has attracted foreign invest-ment into consumer names – we’ve seen SA’s Tiger Brands investing in UAC [Foods] and Dangote Flour [Mills] of Nigeria,’ says Thabo Ncalo, STANLIB Africa equity fund manager.

Growth has been driven by a spate of cross-border activity from states and the private sector, with the greatest increases coming from the BRICS countries. India’s imports from Africa grew by 32% in 2012, while the value of trade with China – Africa’s largest trading partner – was around $220 billion the same year.

Some inward investments relate to grand plans for infrastructure, such as the AU-Nepad Programme for Infrastructure Development in Africa, which anticipates investments worth over $360 billion by 2040, from the public and private sectors.

‘Developing Africa’s infrastructure [particularly energy] will also lead to further gains for Africa’s companies – which will expand and create further employment. Conversations with many Nigerian businesses reveal that lack of power is a huge burden on the economy. Fixing this problem will see much rapid economic growth’, says Ncalo.

Many countries remain focused on oil and minerals, still the biggest attraction for new investment in Africa. Ghana announced in January that it anticipates at least a $20 billion oil-sector investment over the next five years, mainly from international firms, with $1.4 billion of spending expected for its TEN oilfields this year. Large resource investments are flowing into Mozambique, as gas and coal fields are developed, and into copper, gold, phosphates and iron ore projects across the continent.


While the extractive industries remain central to Africa’s state economies, many other sectors are seeing accelerated growth. As a counterpoint to oil and coal, some countries have witnessed an explosion of investment in renewable energy.

Renewables investment in Africa and the Middle East jumped 228% in 2012 to $11.5 billion, according to recent UN Data. SA saw the eighth-highest level of investment worldwide, surging by an almost incomprehensible 17.598% to $5.7 billion. High levels of renewables spending also took place in Kenya, at around $1.1 billion –including for the 400 MW Menengai geothermal project – and to a lesser extent in Ethiopia, at $400 million.

Telecommunications continue to grow rapidly, aided by the integration of mobile payment systems such as Safaricom’s wildly successful M-Pesa application in Kenya, and its recent M-Shwari banking and credit addition. It’s expected that mobile phone penetration across sub-Saharan Africa will exceed 80% by 2015.

The expansion of phone ownership has taken place in tandem with a broader expansion in retail outlets, in particular the proliferation of shopping malls. Hyprop, a specialist SA-based shopping centre investor, said that it plans to invest R3 billion in malls across Africa over the next five years – R1 billion for expanding new venues in partnership with developer Atterbury Africa, and R2 billion for acquiring existing shopping centres.

Investment is steadily rising in agriculture and related industries. In February Senegal
secured $7.8 billion in investment commitments for agriculture, fisheries and agriculture support industries. China has voiced an intention to move some of its domestic overcapacity in metals refining to the continent, and is interested in making aviation and service-sector investments.

On the services front, Chris Ewing, Africa director at law firm Cliffe Dekker Hofmeyr, points to the growth of legal services requirements, fuelled by the continent’s broader economic expansion. He says this is evident in the firm’s involvement in more than 17 African states, through partnership with DLA Piper’s Africa Group and, in particular, to the opening of a new office in the DRC. The company has been involved in negotiating SA access to the $11 billion Inga III hydroelectric scheme.

‘Local law firms in Africa have developed considerably in recent years, but the firms are generally small and lack the resources in terms of numbers of lawyers, which investors need for large projects. An alliance with a global law firm is therefore a necessity,’ says Ewing.

According to the UN, private-sector foreign direct investment (FDI) inflows to Africa reached around $50 billion in 2012, with Mozambique, SA, Nigeria, the DRC and Ghana each receiving more than $3 billion. Africa’s share of world FDI remains miniscule at 3.7% of global direct invest-ments. UN data shows that 30 states received less than $400 million in 2012. Most of the biggest deals last year were in mining, except for Indian pharmaceutical giant Cipla, which completed its $548 million acquisition of SA’s Medpro, while European financial groups Rabo and Norfund spent $44 million on a 45% stake in the Ugandan development financier DFCU.


‘This demographic change and urbanisation is translating into real revenue and profit growth for many consumer companies’


There has been much activity on the financial side – notably in fund-raising via euro-denominated bonds by states such as Mozambique, Zambia and Rwanda, with high demand worldwide. Established banks are doing well too. Standard Chartered, who according to Bloomberg was the biggest arranger of syndicated loans in Africa last year, recently said it expects to sustain regional revenue growth of 16% over the next five years. In February the Industrial and Commercial Bank of China said it would spend $750 million for a 60% stake in the London-based trading arm of Standard Bank Group, intended as a vehicle for channelling funds into African trade and investment.

These developments bode well for Africa’s economic future. But problems remain. The World Bank notes that almost one in two Africans current-ly lives in extreme poverty, and by 2030 the majority of the world’s poor will be in Africa. Africa’s cities have the worst inequality in the world, and greater equality does not follow from greater GDP. In any case, Africa represents only 4% of global GDP.

There may be difficulties as liquidity recedes following the US taper-off of quantitative easing (QE), the policy that drove a lot of yield-seeking investment into Africa over past years. As the UN has noted, QE tapering could ‘lead to a sell-off in global equity markets, a sharp decline of capital inflows to emerging economies and a spike in the risk premium for external financing in emerging economies’. Thankfully, these effects haven’t yet been apparent to any great extent.

There are further challenges – concerns about the extent of land purchases by foreign investors, under opaque deals, and about trade agreements that may limit the rights of African smallholders to retain their own seeds. There is growth in Africa, but who is this growth ultimately for?

Jennifer Blanke, chief economist at the WEF, recently said: ‘Africa’s growth needs to be seen in the international context, where gains in economic growth belie an underlying weakness in its long-term competitiveness.’ Real competitiveness – in GDP size, living standards and income distribution – will be achieved if economic activity is channelled towards these objectives.

By David Bannister
Image: Gareth van Nelson/HSMimages