Emerging markets have been at the top of multinationals’ agenda over the past few years. China and India are growing around three times faster than developed economies, while many African countries offer unexploited opportunities for long-term investments.
But when compared with other emerging markets, how does continental Africa match up to the likes of South America, Asia and the Middle East? And should it be doing more to compete for global investment?
According to Mark Barnes, KPMG’s high growth and emerging markets practice leader, the answer to this is subjective, and depends on country opportunities and the interests of individual companies. However, to better compete, emerging markets need to invest more in improving their business and investment environment.
Many African countries – but most notably Rwanda – have taken steps in the right direction. But in general they can do a lot more to improve their overall investment climate. In the World Bank’s 2015 Doing Business index, only three African countries made the top 50 ranking for the world’s easiest economies to do business. On the other hand, they made up 66% of the countries in the bottom 50.
Cross-border trade and ease of transporting goods also need to be improved, noted Barnes. And key to this will be the development of free trade agreements.
“You hear some interesting stories about having to transfer goods out of Africa in order to get them back into another country in Africa, which sounds ludicrous,” he said. “So ease of transportation of goods across borders is going to be a key part of Africa’s continental development.”
China and India improving investor image
While neither China, India nor Brazil feature in the World Bank’s top 50 easiest countries to do business, they are making strong, competitive strides.
China, which remains a very tightly government-controlled environment, has been taking steps to improve intellectual property rights, and towards the end of last year established its first specialised intellectual property courts.
In India’s case, the country still struggles with many of the common challenges that developing markets face – corruption, bureaucracy and insufficient infrastructure. “But at the end of the day we are seeing a slight renaissance now with the Mukherjee government. They recently put out a budget… It is a pragmatic budget which is laying out a business-friendly environment and has created a lot of renewed interest, around the world,” added Barnes.
Africa’s attractive population growth
One of continental Africa’s strongest differentiators to other emerging regions is its population growth.
Although Africa’s population is currently similar in size to India and China, and also characterised by a youthful population, what sets it apart is its growth rate. According to research from Standard Bank, by 2050 Africa’s population will be over two billion people, exceeding that of China and India. An estimated one in four workers in the world will then be African, whereas one in eight will be Chinese.
“If you can capture that population, particularly from an investment perspective, at a stage where you can educate and guide the right aspirations, then you potentially have a population that could drive a lot of innovation and support a lot of business investment,” argued Barnes.
Focus on manufacturing necessary
One of the lessons African countries can learn from China and India is in terms of developing manufacturing, noted Barnes. While it took the UK and the US a couple of hundred years to industrialise, China managed a manufacturing renaissance at a much faster trajectory – about 16 to 20 years. Barnes added that India is beginning to undergo this process, perhaps even faster.
With the deployment of new technologies and innovation, Africa’s industrialisation could also follow a faster trajectory if the right policies are implemented to support its development.