Growth prospects look good...

Could Africa be the next emerging economic giant, emulating the performance of the Asian tigers? The signs certainly are good, especially against a background of a struggling Europe and an uncertain North America; investor interest in Africa that is growing, especially in the so-called frontier markets as an alternative to traditional developed markets; positive business confidence; growing Chinese and Indian investment; and excellent growth forecasts outstripping any other region of the world.

According to the Africa Business Confidence Index (ABCI) for September the prospects for the manufacturing and non-manufacturing business sectors across Africa look promising. The index is a monthly measure based on feedback from senior managers, entrepreneurs or private sector professionals from 42 African countries – including South Africa – who make up the Africa Business Panel.

The ABCI’s September results indicate confidence and growth with an index of 51.3 and 53.3 points respectively for the manufacturing and non-manufacturing sectors. A level of 50 index points and above indicates expansion. The ABCI says it follows a similar methodology and logic as the PMI indices which set the global standard.

In the aftermath of the global recession and Europe's ongoing twin sovereign debt and banking crises, Africa increasingly offers investors a viable alternative to the developed world or expensive emerging markets such as the BRICS countries Brazil, Russia, India, China and South Africa.

A number of African “frontier markets” are becoming increasingly attractive to fund managers, especially with better banking systems, the emergence of stock exchanges, improved professional investor relations and systems, the entrenchment of democratic systems and practices, and more.

However, African markets have taken a beating in recent months, mainly due factors beyond their own control such as restrained international investors’ appetite informed by fears of the ongoing European crisis and a possible double-dip US recession. At the end of June 2011, the overall combined growth rate for all African stock markets was down about 25%. Nonetheless, the African markets are still being eyed with growing interest.

At present there are over 20 different stock markets spread across Africa, the biggest being in South Africa. The top performers singled out by analysts include Mauritius, Zimbabwe, Botswana, and Namibia, all within the southern African region, while Ghana was also performing well.

However, despite the growing opportunity Africa represents, there also still seem to be many negatives, including corruption, wars, undemocratic regimes, crime and more. But the picture has rapidly improved in many parts of the continent and continues doing so, say a variety of fund managers and analysts.

In a recent article in the Financial Mail Mark Mobius, chairman of Templeton Asset Management, is quoted as saying that investing in the frontier markets “is worth the effort”. The article also says Nigeria is one of Goldman Sachs’s “next eleven” countries — those it considers to have the potential to become economic giants along with Egypt.

The interest in Africa is bolstered by the rapidly expanding trade relations with India and China. Last year India’s Minister of Commerce and Industry, Anand Sharma, revealed that India planned on investing US$1 trillion in various parts of Africa in the next ten years. Prior to that India launched its “Focus: Africa” programme under the EXIM Policy 2002-07 in order to bolster its trade with sub-Saharan Africa, targeting countries such as Mauritius, Kenya and Ethiopia for the first phase of the programme.

China has become Africa’s major trading partner, leaving India about ten years behind in its wake. Beijing says bilateral trade between it and the continent now stands at a whopping US$117.3bn. That is a 43.5% increase on the previous year.

Twenty years ago China’s trade with Africa stood at a mere US$969.4 million. China has also become a major partner, assisting African countries to upgrade and build new infrastructure such as roads, bridges, railways and power stations in return for access to its markets and natural resources.

But India is also making great strides on the continent. Bilateral trade between India and Africa has grown from about US$969.5 million in 2001 to US$44.6bn in 2010, a figure Sharma hopes will increase to about US$67.2bn by 2012. Already some 250 Indian companies have invested in African countries – mostly in the fields of IT, telecommunications, chemicals and mining – with the number still growing.

Furthermore, the opportunities offered by Africa are further driven by an expanding middle class, which in turn is increasing the demand for goods and services, especially IT and telecoms. The African telecoms market is the fastest growing in the world and mobile telephony, for example, has led to other areas of rapid development, such as a ballooning mobile banking market.

Professional services provider Deloitte also says the outlook for Africa is very positive. In a recent presentation by Deloitte Western Cape in Stellenbosch based on extensive research by Professor Roger George and Dr Jacqueline Chimhanzi of Deloitte Consulting, the firm said economic growth on the African continent is expected to buck international trends by returning between 7 and 10% GDP growth in some markets over the next five years. The developed world, in stark contrast, can expect no more than 2% growth.

And at the recent Discovery Leadership Summit in Johannesburg, group CEO of Absa, the major South African banking group owned by Britain’s Barclays, pointed out that Africa and Asia can be the future of the global economy. Ramos said Africa would grow at an average rate of 7% a year over the next ten years, a growth rate that has never even been achieved on a sustained basis by developed countries, and one that would make Africa the most rapidly growing continent.

Ramos pointed out that fifty years ago most of Asia was at least as poor as Africa. However, by 2008 Asia's per capita income was double that of Africa, with Africa's per capita income having slightly doubled over the last 20 years, and Asia’s having increased 11-fold.

Ramos confirmed what many other analysts are saying, namely that Africa had an advantage over developed countries because of its rapid urbanisation, growing youth and rapid population growth. But she also pointed out that it would be futile developing mere pockets of excellence and that the human potential of all Africans need to be similarly developed.

However, Standard Bank group economist Goolam Ballim is somewhat less optimistic, having warned that there was “at least” a 40% probability that Africa’s growth could drop to about 2% over the next 24-month period as spill-over from the current problems in Europe and the US effect the continent.

That would place growth expectations well below the project 5.5% over the short to medium term and even further down from the 7% rate forecast by Ramos and others. It is also much lower than Standard Bank’s own 4% rate for two-thirds of the continent. But African growth levels above 5% were still possible in certain scenarios informed by the kind of solutions adopted to deal with the European crisis.

The bank had also identified five longer-term trends that could improve future growth rates for most African countries. These are continuing urbanisation; the continent’s expanded and more affluent population of 2 billion people by 2050; more sophisticated technology; exploiting the latent potential of Africa’s minerals and agriculture; and increasingly sophisticated financial sector.

Ballim further warned that many countries across Africa were not as well positioned to handle declining growth as was the case during the 2008-2009 financial crisis.

Even so, the prognosis seems to be generally good, and Africa may well anticipate good times ahead.