Emerging market countries climbing on Africa bandwagon

In its economic outlook for October, the IMF contends that this year looks set to be another encouraging one for most Sub-Saharan African economies. The report says that the region’s economy is set to expand by 5.25% in 2011, reflecting mainly strong domestic demand but also of course, elevated commodity prices.

For 2012, the baseline projection is for growth to be higher at 5.75%, owing to one-off boosts to production in a number of countries.

There are, as always, some risks to the prognosis. Helpful as commodity prices can be to the region, the IMF notes that the increase in global food and fuel prices, now amplified by an acute drought in some parts, has hit the budgets of the poor and in a number of countries sparked rising inflation. And beyond this, hesitations in the global recovery threaten to weaken export and growth prospects. In particular, the projection for 2012 is highly contingent on global economic growth being sustained at about 4%. If growth in advanced economies slows further and curtails global demand, the region’s ongoing expansion is likely to face significant headwinds, with South Africa and others that are more globally integrated likely to be affected the most.

Reuters reported recently on Turkey’s push to increase investments into the continent, motivated no doubt by the resources and strong growth forecasts as amplified by the likes of the IMF. The Turkish Prime Minister Tayyip Erdogan visited South Africa on 4 October with a large business delegation, which was then the latest stop in a diplomatic drive after a landmark August visit to Somalia and a tour of North Africa.

Turkey is imitating Brazil in expanding its diplomatic footprint on the continent as a precursor to opening up new supply routes for its fast-growing, resource hungry economy. It now has 23 African embassies, equal to Spain and only just behind former colonial power Britain, with plans to open another half dozen in the near future.

The Sub-Saharan Africa outlook points to the fact that emerging countries – in particular China, India and Brazil – have rapidly increased their investments in the region. Chinese FDI to Sub-Saharan Africa, as a share of total FDI to the region, climbed from less than 1% in 2003 to 16% by 2008. Investments from India are also significant: by 2006, Indian investment stocks in Sub-Saharan Africa were almost as large as Chinese FDI flows in the region. With regards to destination, Chinese investment is the most geographically dispersed in the region, whereas most Indian investment is concentrated in Mauritius, and Brazil’s investment is focused on Angola, Mozambique, and more recently Liberia.

We expect more emerging market countries such as Turkey to join the bandwagon of emerging partner investments into Sub-Saharan Africa, and this bodes well for the continued growth of the continent’s economies.

Imara is an investment banking and asset management group renowned for its knowledge of African markets.