In­vestors head East as com­mod­ity boom with­ers

CityPress - - Business -

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.”

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