These are Sub-Saharan Africa’s 3 brightest spots for doing business
Though the past year has been particularly hard on Africa’s frontier markets, the continent is likely to maintain its robust economic growth overall. This potential should remain attractive to both local and foreign investors.
Africa is viewed as a highly challenging environment to do business in. Despite this, however, Africa’s growing frontier markets have become increasingly significant to the world’s economy. Comprehensive economic reforms, improving business environments, effective political reforms and good governance have all promoted foreign investment and contributed to Africa’s economic growth.
While the low price of oil is certainly a major headwind for African markets, the International Monetary Fund forecast indicates that African economies will regain their growth momentum as the real GDP growth in the region will rebound to 4.3 percent in 2016, after it fell from 5.0 percent in 2014 to 3.75 percent in 2015.
Here are the economic prospects of three of the brightest lights in sub-Saharan Africa today.
Nigeria is one of the most resilient markets in Africa. No country has gained more influence on the continent in recent years than the West African state. Indeed, despite external shocks, Nigeria has been able to maintain a reasonable level of economic and political stability.
Robust growth rates and strong macroeconomic stability have driven global investors’ attention to Nigeria’s economic environment in recent years. Between 2012 and 2013, Nigeria received the largest amount of portfolio inflows in sub-Saharan Africa. Currently, Nigeria maintains its status as Africa’s largest economy. Political stability and a successful democratic election last year have also improved Nigeria’s potential to attract viable foreign investment inflows.
While Angola, one of the largest oil exporters in Africa, seems to be struggling for lack of diversification, depressed prices on oil notwithstanding, Nigeria is more diversified than first thought. Sectors such as construction, services, transport, retail, and communications contribute to the GDP significantly.
Moreover, successive governments since 1999 have made a sustained effort to diversify the economy, even though a lot can still be done in the manufacturing and agricultural sectors by Nigeria’s new administration. Lower oil revenues also presents renewed incentives to intensify these diversification efforts.
Kenya’s diversified economy continues attract robust local and foreign investments leading to sturdy economic growth and stability. Following Shilling depreciation by 12% in 2015 and subsequent recovery in the fourth quarter, the central bank and treasury management has kept inflation in check and the Shilling remains stable. Tax revenue, meanwhile, continues to increase and IMF’s debt sustainability analysis indicates that Kenya remains at low risk of debt distress.
Kenya’s economy has seen significant expansion in recent years. Service, industry and manufacturing sectors contribute 75% of the country’s GDP. There has been real performance in tourism and telecommunications.
As the most advanced economy in East Africa, the government remains resolute on developing the national infrastructure and the power sector. With a renewed focus on agriculture and tourism, Kenya’s GDP growth is forecast at around 6% in 2016. And as an oil importing country, Kenya benefits from the low price of fuel.
In spite of security risks, Kenya’s political stability in recent years has contributed to the inflow of foreign investments. The government continues to strengthen the security administration in the wake of recent terrorist attacks.
Mauritius, one of the bright spots of Africa, is largely an upper middle income economy having developed from a low-income to a middle-income diversified economy. Boasting a friendly investment climate with good governance and a free economy, it maintains its position as the most competitive economy in sub-Saharan Africa. While the Mauritian economy maintained real growth of 3.2% in 2014, growth is forecast to strengthen to 3.6% in 2016 on the back of increased domestic investment and stronger external demand.
Regulatory efficiency, high levels of transparency, competitiveness, and the rule of law have all contributed to Mauritius’ ranking as the 8th most free economy in the world – and the highest in investment freedom – out of 183 countries globally.
Without exploitable natural resources, successive governments in Mauritius have succeeded at reducing the country’s dependence on sugar and textiles exports by promoting other sectors. Tourism, financial services, marine agriculture, seafood-processing, marine pharmaceuticals, marine tourism, Information Communications Technology (ICT), renewable energy, education and training have developed into important sectors of its economy. Each of these sectors contributes significantly to the GDP of Mauritius.
Political stability, economic diversification, trade exposure, wealth and productivity have contributed to the country’s highly rated economic competitiveness that continues to attract significant investment from local and foreign investors. This has resulted in the World Bank’s 2013 Ease of Doing Business Report ranking Mauritius 19th worldwide out of 183 economies – and first among African economies – in terms of ease of doing business.
Long-term outlook for sub-Saharan Africa
Africa offers many opportunities for profitable investment in a range of sectors. While poor infrastructure, instability and corruption continue to inhibit short-term growth in some African countries, the continent remains an attractive destination for local and foreign investment, especially those willing to take risks in the search of greater returns.