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Africa – Do we really know it?
Following the World Cup in South Africa, Africa
has raised its profile significantly in our consciousness.
Not only has it left its mark with a stellar football performance by its nations and the unavoidable sound of Vuvuzelas, but it is starting to flex its muscles on the Global stage. It begs the question, do we really know Africa?
Successful Business
Africa’s top companies are emerging as competitors on the global stage, propelled by economies whose performance now rivals the Bric nations, according to the Boston Consulting Group (BCG).
500 African companies have grown at more than 8 per cent a year since 1998. The top 40 among them, ranging in size from $350m (€285m, £240m) to $80bn, are already regional players in mining, consumer industries and services, are now well positioned to look for opportunities beyond the African continent.
Exports have helped drive expansion, achieving a step-change from 3 per cent annually during the 1990s to 18 per cent since 2000, similar rates to China, India and Russia and is greater than Brazil.
The companies are drawn from eight countries which together represent 70 per cent of Africa’s GDP. Most are based in South Africa, Egypt and Morocco, with nine spread across Algeria, Angola, Nigeria, Togo and Tunisia.
The fastest growing nations on the African continent, according to BCG are: Algeria, Botswana, Egypt, Libya, Mauritius, Morocco, South Africa and Tunisia. Their collective per capita GDP, at $10,000, is already higher than the average for the Brics.
This should be a wake up call to western companies to the potential of Africa’s market of 1bn people and the emergence of potential partners and rivals from the continent.
So it is a continent harbouring successful businesses, but a key consideration for many is governance in African nations.
Country Governance and stability
Africa has an abundance of resources, both natural and human. The challenge is to harness these resources to transform the living standards of people across the continent and truly compete on the world stage.
Africa has huge potential: a youthful population, 30 percent of the world’s mineral reserves, and a wealth of renewable-energy sources. Yet in the past it has underperformed. The lack of development progress during the past 50 years can be put down to a failure of governance and leadership.
The Ibrahim Index of African Governance, a comprehensive ranking of African countries according to governance quality, helps identify progress in this area. Encouragingly, the index has shown a broad upward trend in governance performance since its start, so it seems that governance in Africa is improving overall, although as we know there are always exceptions to be taken into account.
A Ranking of African nations on Governance Issues
Safety and Rule of Law, country's rank on a scale of 1 to 100, where 100 is the best possible score (selected countries named)
Source: Mo Ibrahim Foundation
Countries like Morocco are grouped among other nations like South Africa and the Seychelles, countries generally perceived as having better run economies.
The unprecedented growth of community organizations has educated citizens about their rights and responsibilities and mobilized civil society to demand more accountable government. So Africa is heading in the right direction.
Stronger and more mobilized Consumer Voice
The past decade has seen mobile telephony revolutionize Africa. By 2009, there were 400 million mobile-phone subscribers where there had previously been very few functioning landlines.
The ability to communicate freely, easily, and cheaply has undermined the last vestiges of state control of information.
In Zimbabwe, for
example, citizen election monitors took photographs of the preliminary results at
polling stations in 2008. These were then sent, by citizen groups via mobile
phones, to a centralized database to produce a total. This information was instrumental
in ensuring that the government was not able to
completely falsify the election result.
Africa’s much-anticipated middle class is finally becoming a reality as more and more Africans escape the poverty trap and enjoy a greater degree of physical and financial security. That isn’t to say poverty doesn’t exist, but it is the middle classes who will arguably further Africa’s development.
A Wealth of natural resources
Revenues from commodity
exports have grown, not just due to price hikes but also owing to new resource
discoveries that high prices have triggered.
Yet this appears to be the tip of the iceberg. In the long-explored countries of the OECD, the average square kilometer of territory still has beneath it around $114,000 of known subsoil assets, despite two centuries of extraction and mining.
In contrast, the average square kilometer of sub-Saharan Africa has a mere $23,000 of known sub-soil assets. It is highly unlikely that this massive difference is due to a corresponding difference in what is actually there. It is more likely the difference in known assets, is more likely to indicate there is a wealth of undiscovered resources.
Until now Africa has lacked regional role models of economic success that so benefited Asia. But it is now starting to get them. Even in Rwanda, a landlocked, crowded country lacking in natural resources, a leadership committed to economic transformation has been able to sustain a growth rate of 10 percent.
Despite its long-time reputation as an oil-producing continent, Africa is now on industry radars as an important global frontier area. Many independent companies have explored in Africa and there is interest from bigger players.
Tullow Oil is one of the largest independent exploration and production companies in Europe and it is turning its attentions to Africa, where it has had a very high exploration and appraisal success rate.
Kosmos Energy, an independent private equity-backed US producer, has made headlines in this past year after ExxonMobil offered $4bn for Kosmos’s stake in the Jubilee field, Ghana – its main asset and one of the largest oil finds in the past decade off the coast of west Africa.
Kosmos believes west Africa is offers multiple premier exploration opportunities. It is targeting prospects not only in Ghana but also in Cameroon and Morocco – primarily targeting offshore oil operations in frontier and emerging basins.
Successful Economy and a potential Outsourcing location
Africa’s economic potential extends well beyond commodity exporting. Per capita GDP in China is already above the global average, so its days as the low-wage factory of the world are limited. Africa will soon be the last remaining major low-wage region.
Over the past three decades, offshoring shifted labor-intensive manufacturing from the OECD countries to Asia. In the next decade, expect the same process to begin shifting these activities from Asia to Africa.
It has an enormous coastline, more proximate to both European and North American markets than Asia is. Countries like Morocco are building their economic footprint through tourism as well. Take Plan Azur, the coastal tourist development plan, which forms part of Vision 2010, designed to significantly expand the tourist market and act as a driving force behind Morocco’s economy. Saidia, the first of 6 coastal resorts has already been built and officially opened by the King. Tourists are already flowing to a venue which has 3 golf courses, a huge marina-one of the largest in the Mediterranean, numerous shops, restaurants and other sports facilities.
The case for investing in Africa
Most
international businesses are still not attuned to Africa’s
investment opportunities. Information costs are high: Africa
is fragmented into many different countries, and even in aggregate the
continent is a fairly small economy.
The situation began to change during the period 1995–2005. Profound macroeconomic reforms tamed inflation and opened economies to international trade.
The regulatory environment facing international business has also improved. Public ratings, such as the World Bank’s Doing Business surveys, enabled African governments to benchmark their performance and began to put pressure on those that were under performing. As the global commodity boom built to its 2008 crescendo, many African countries were well positioned to harness the spike in their export revenues for growth beyond the resource extraction sector itself.
That upturn in national growth rates was mirrored in the increased profitability of companies operating in Africa:
· A survey of predominantly Manufacturing businesses for the period 2002–07, found that the average return on capital was around two-thirds higher than that of comparable companies in China, India, Indonesia, and Vietnam.
· Foreign Direct Investment from US companies, shows that they were getting a higher return on their African investments than on those in other regions
· Composite analysis of a series of surveys of several thousand manufacturing firms around the developing world found that, at the margin, capital investment had a higher return in Africa.*
What effect the Global Crisis?
The trigger for the Global Crisis had nothing to do with the African continent, but yet the crisis did not bypass Africa.
Its effect was to collapse commodity prices—for example, the price of oil initially tumbled by more than $100 a barrel. On a potentially more concerning level, the international appetite for risk collapsed, and since Africa is still generally viewed as the riskiest region, investors got scared. International banks tightened credit to African exporters, more so than to those in other regions.
These effects were severe. However, with a few exceptions—inevitable in a region with so many countries—Africa weathered the economic storms well. Globally, commodity prices rapidly bounced back and seem to have stabilized around levels higher than those in the decades before the boom, underwritten by growing Asian economies and their corresponding need for commodities.
Property
Buying somewhere with scope
for capital appreciation has become less of a reality with the Global economic
slowdown, as property markets around the world have changed. Continents like
Africa and nations like Morocco,
offer the opportunity to step onto the property ladder at an early stage of
this growth. With a population the size of just over half of the UK’s
at 32m, it represents a sizeable country. Vision 2010 is a powerful tool to
kick-start an upgrade of the country's infrastructure, boosting investment,
employment (anticipated to create over 600,000 new jobs) and education levels
among the population. All of which create wealth and jobs, which in turn helps
create demand for property in Morocco.
As the economies of Africa grow and businesses expand, more staff are needed, some of whom may be located near the enterprise and hence require accommodation. With a thriving economy and successful business, we all know wealth is generated. Citizens become more affluent and able to afford homes they may have dreamt of in the past.
As a continent’s and nation’s infrastructure improves and become more of a tourist destination with easier access, modern facilities and dedicated tourist resorts, then property on these resorts becomes more of a valuable asset.
Author: Louise Reynolds, posted 17th August, '10
Property Venture® is an independent, UK-based agent. We help time-strapped investors and holiday home purchasers, buy abroad by guiding through the buying process, so reducing the hassle. We visit the countries you buy in, so we can offer common-sense, grounded advice. Overseas members of NAEA. This means we have been subjected to the membership criteria and have signed up to follow the professional Code of Conduct established to help you, the potential buyer or investor, buy property with confidence
Sources: BCG, McKinsey, William Wallis, Financial Times, Mo Ibrahim Foundation, Paul Collier, CBE, Professor of Economics and Director for the Centre for the study of African Economies at the University of Oxford, Sheila McNulty of FT.
* Paul Collier and Jean-Louis Warnholz, “Now’s the time to invest in Africa,” in “20 breakthrough ideas for 2009,” Harvard Business Review, January 2009
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