However, Africa remains a complex and challenging environment in which to do business, and making well informed choices about which markets to enter and via which mode is crucial. This is according to EY’s Africa by numbers: Assessing risk and opportunity in Africa report, released today.
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The report seeks to stress the importance of having fact-based conversations about Africa, informed from a basis of rational analysis rather than anecdotes and conjecture. It is a follow up to EY’s flagship Africa attractiveness report, and profiles eight of the most popular investment destinations across different parts of the continent, assessing their top five investors for FDI, top performing sectors, FDI outlook, and providing a breakdown of active infrastructure projects. The diverse group of countries, most of which have experienced strong compound growth in FDI projects over the past five years, are:Cameroon, Egypt, Ethiopia, Ghana, Kenya, Mozambique, Nigeria and South Africa.
EY Africa CEO Ajen Sita says: “It is no longer enough to just look at numbers when one considers which markets to enter on the continent. The sheer size of the continent can prove daunting and different sets of rules, regulations, stakeholders and market dynamics exist across each of the continent’s 54 countries. This report provides a useful and factual guide to support companies in shifting the emphasis from developing a growth strategy for Africa to accelerating the execution of that strategy.”
A related report by EY, entitled Positioning South Africa in the context of the Africa growth story, draws on the data from Africa by numbers to assess how South Africa is doing from an FDI perspective relative to other African markets. Contrary to perceptions that South Africa is losing ground both in terms of its gateway status and competition for FDI, the EY research shows that there remains an overwhelming preference for South Africa as a business and investment destination and that there has been a robust growth in levels of FDI projects into South Africa. Over the period of 2007-2012, FDI projects into South Africa have grown substantially at a compound rate of 22.4%, well above the average for the African continent as a whole. This growth is also off a relatively large base in comparison to most other countries; in fact, in 2012, South Africa attracted more than twice as many FDI projects as any other country in Africa.
Michael Lalor, lead partner for the Africa Business Center at EY, says: “There has been strong growth in FDI projects into many parts of sub-Saharan Africa over the past five years, and this is indicative of the continent’s rising status as an investment destination. Our analysis shows that South Africa has been very much part of this story, and remains by far the most important destination and hub for investment into the continent across a range of sectors.”
The longer term outlook remains relatively positive
Although the trend in South Africa’s FDI numbers has been positive, there is a strong probability that we will see a dip this year. Factors such as labour unrest, ratings downgrades and the current account deficit, will have an effect. At the same time, the ongoing malaise affecting the global economy directly affects the South African economy and will also negatively affect FDI flows. The report, however, does anticipate that growth in the global economy will begin to pick up in 2014, and the long term outlook for South Africa’s growth (around the 4% mark) is relatively positive when benchmarked against a selection of other developed and emerging economies.
Lalor further comments: “Our relative optimism in this regard is based on several factors, but perhaps most notably, the government’s track record of sound macroeconomic management (which, we believe, is sometimes far too casually discounted) and the comparative policy certainty provided by the National Development Plan (NDP). In this context, we expect growth in FDI into South Africa to resume in 2014. This is partly because investor interest in Africa will continue to grow, and also because South Africa remains an attractive investment destination when compared to other African markets. This is the case because on any kind of objective risk versus opportunity analysis of African markets, South Africa will be among the best positioned markets for the foreseeable future.”
Positioning South Africa in the context of the African growth story
However, highlighting some of these more positive aspects of South Africa’s relative positioning as an investment destination is only part of the picture. In a global context in which investor focus has shifted decisively towards emerging markets, the African growth story is difficult to ignore. South Africa’s attractiveness in a global and emerging market context therefore becomes all the more compelling when positioned relative to the rest of the African continent.
South Africa does provide a stable platform from which to invest and do business in other parts of the continent. South Africa’s comparative advantages – for example, a strong services-based economy, a relatively large domestic economy, strong financial framework and robust democracy – make it an attractive entry point for foreign investors, particularly those that are still wary about investing in Africa. In the context of changing global dynamics and the shift in capital flows towards emerging markets, a South Africa that is purposely integrated and provides a stepping stone into other parts of Africa could genuinely rival the BRICs in the imagination of international investors.
In this context, South Africa is also playing an increasingly important role as a source of FDI for other, faster growing African economies. South Africa is ranked fifth overall in terms of investing in FDI projects in the rest of Africa since 2003 (i.e. overall, South African-headquartered companies have invested into the fifth most FDI projects on the continent in the past decade). These numbers are also increasing steeply, with compound growth of 57% in South African-originated FDI projects into the rest of Africa since 2007. In fact, when one strips out investment from other countries into South Africa itself, South Africa became the single largest investor in FDI projects in the rest of Africa in 2012.
In conclusion, Sita says: “It is imperative for government and business to work together to drive the consolidation and implementation of the NDP in South Africa. It is through close collaboration that we can agree on a common purpose and agenda, accelerate regional integration and drive investment in regional infrastructure. It is through this that South Africa can maintain its status on the continent and play a greater role in positioning Africa as a great investment destination in the global context.”
Source: How We Made It in Africa
It is hard to imagine South Africa losing its leading position in Africa within the foreseeable future. What will likely happen, however, is the rising of regional economic powers. Angola will share that stage with South Africa in Southern Africa, most analysts would agree.
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