Assuming a gradual strengthening of the world economy and improvements in political and social stability in those African countries currently affected by conflicts, the African continent is set to record a projected +5% economic growth in 2015.
Foreign direct investments (FDI) and external financial flows play an increasingly important role in Africa’s development and economic growth prospects. Equally important is improved institutional performance and better governance. So, what are we going to see in 2015?
There will be more foreign investments and remittances from non-OECD (Organisation for Economic Co-operation and Development) countries that will continue to underpin the positive trend. For instance, the cash-rich Japanese and South Korean corporates will focus on acquisitions in Africa. Global investors will pool their assets in specialised structures in order to fund infrastructure projects in Africa, supporting and facilitating trade activities amongst African member states.
Although resource-rich countries will remain the prime destination for FDI’s into Africa, manufacturing and services will attract an ever increasing share of the 750+ new greenfield FDI projects.
Should commodity prices recover from its current lows; the growth outlook will be robust. Growth will further accelerate with stable macro-economic environments, large investments from BRIC countries and rising internal consumer spending. As from next year, the development agenda for Africa will target more equitable and socially-inclusive economic growth and structural changes, focusing on empowerment, governance, social transformation and gender equality. Rwanda will move to the implementation stage of its strategic programme to build its financial centre similar to that of Mauritius’.
The three main challenges remain:
1. Stagnating traditional European export markets
2. China’s growth is slowing
3. The falling oil price
All of the above are expected to negatively impact the growth outlook of Africa’s extractive industries.
If the Ebola outbreak is protracted or spreads, it will have dramatic consequences for economic activity in western Africa. This is likely to create disruption in transportation, cross-border trade and investments, supply chains and tourism in the West Africa region.
If the Ebola outbreak is contained, we can expect more FDI investments from Europe, more specifically French multinational corporations investing in English and Francophone West African countries.
Outlook by country
Growth in South Africa, the continent’s most advanced economy, has been lackluster in 2014, due to protracted strikes, low business confidence, and a depreciating rand. A slight recovery is expected next year with improving labour relations and gradually stronger exports. With more attractive opportunities outside South Africa, 2015 will see hungry South African corporates continue to acquire, consolidate and develop their pan-African businesses.
Nigeria, the continent’s top oil producer which overtook South Africa as the largest economy in 2014, may experience one of the most accelerated growths, forecasted at 7.3% in 2015. This strong performer is, however, heavily dependent on natural resources and is still vulnerable to global demand.
Another high performer is going to be Ethiopia where real GDP growth is expected to remain around 7%, owing largely to the strong performance of the agricultural sector, but also as electricity supplies increase. Production prospects look broadly favourable for the Ethiopian agricultural sector largely due to more investment in the sector along with higher income contributing to consumption growth. Investment in new sugar refineries will make sugar one of the most reliable agricultural exports.
2015 will also see the set-up of more sovereign wealth funds in African countries that will target opportunistic investments in the infrastructure, services, and agricultural sectors. Additionally, more pension funds and insurance companies will be allowed to invest offshore.
We shall see a stabilisation of a majority of the African currencies. More African economies will be able to tap capital markets with sovereign bond issuances in the Eurodollar market just like Kenya and Ivory Coast did in 2014.
And where does Mauritius fit in the equation? The island will continue to remain the most preferred international financial centre for facilitating investments and trade in Africa. Its existing double taxation and investment promotion treaty networks with African countries will grow and some previously signed treaties will be ratified, making Mauritius even more attractive as a financial hub for the continent. Not to forget that the increasing population of high-net-worth individuals (HNWIs) in Africa is growing rapidly. And these HNWIs will be looking for a platform of proximity, one which is responsive to their needs and requirements, to house their personal assets and for their wealth succession planning. Mauritius remains poised in 2015 to be the private banking centre of choice for affluent Africans.
Yogesh Gokool is the head of international banking at AfrAsia Bank Limited.