Investors head East as commodity boom withers
Investors previously interested in doing business in Africa are starting to look East as depressed commodity prices and slowing growth in China put the brakes on a two-decade-long growth surge on the world’s poorest continent.
Kenya, Tanzania and Rwanda are the countries in vogue at the World Economic Forum (WEF) annual confab of Africa’s business and political leaders, which began on Wednesday in Kigali. All three economies should expand at least 6% this year, double the subSaharan Africa average, according to the International Monetary Fund (IMF). Growth in Ethiopia, the investors’ darling at last year’s WEF Africa summit, is set to slow to 4.5% this year, from 10.2% last year, as a drought curbs farm output.
“Looking at east Africa, anything below 6% growth is considered a really poor performance,” Martyn Davies, the managing director of emerging markets and Africa at Deloitte Frontier Advisory, said at the summit.
“Low oil prices are a tailwind for growth in this part of the world,” he said.
Besides benefiting from lower energy costs, Kenya, Tanzania and Rwanda are reaping the spoils of developing their tourism, agriculture, services and manufacturing industries, and of improving their transport links and energy supply. East Africa has also been leading economic integration in Africa, helping promote regional trade. At the conference, Kenya’s President Uhuru Kenyatta said: “We have a much more diversified economy. Africa needs to move away from being commodity dependent.”
Nigeria, which relied on crude for more than 90% of export earnings in 2014, is a case in point. Its growth rate is expected to slow to 2.3% this year from a peak of 10% in 2009, according to the IMF. Growth has also tanked in commodity-dependent Angola, Ghana and Zambia. David Lipton, the IMF’s first managing director, said Africa needed to adjust to lower commodity prices, maintain spending on education and infrastructure, maintain flexible exchange rate regimes and foster domestic demand in the face of slowing global growth.
“Each country has to figure out how to adjust its stride,” Lipton said at the summit. “They can’t count on China the way they used to.”
Razia Khan, head of Africa economic research at Standard Chartered, said the factors that underpinned Africa’s growth surge, including a young and growing population, greater urbanisation, improved governance and greater macroeconomic stability, remain in place in many countries.
“Yes, it is a testing time,” she said in Kigali. “We think it is still a matter of Africa rising. It was never going to be a linear move up. I don’t think anyone should be thinking the outlook is dramatically different to what we have seen in the past.”
Africa attracted $71.3 billion (R1 trillion at the current exchange rate) of foreign direct investment last year, down from $88.5 billion the year before, accounting firm EY said in its 2016 Africa Attractiveness report, which was released on Wednesday.
Despite the fact that South Africa’s economy is set to grow less than 1% this year, EY ranked it as Africa’s most attractive investment destination, partly because it is so much more developed than its continental peers. Kenya was ranked fourth, after Morocco and Egypt, while Rwanda was ninth and Tanzania was 12th.
“From an investment perspective, the next few years may be challenging,” EY said. “However, most African economies are in a fundamentally better place today than they were 15 to 20 years ago. Overall growth is likely to remain robust relative to most other regions over the next decade.”