The eyes of the world are on Africa, with many CEOs believing it to be the site of the next big wave of development. As many as seven of the 10 fastest growing economies in the world are in Africa, and there is a huge population base as well as great mineral wealth. [hidepost=9][/hidepost]
Numerous multi-nationals have established bases here, but while others are itching to get in on the action too, they are delaying, unsure where exactly to sink roots first. Executives want to know which countries or region promise the best investment, but with 54 countries and 30m square kilometres of land this is not a simple question with a tidy answer.
Regional trade blocs
Africa has witnessed myriad political and economic liberations, in the course of which trade relationships between countries are established, broken, and re-established. While many African countries show tremendous growth, relations with next-door neighbours still count very much in the quest for stability and sustainable growth.
The continent has a number of functioning regional trade blocs. These are certainly needed as only a few nations have stable and sufficient infrastructure, connectivity, raw materials, labour, land mass and customer base when operating in isolation. The three most successful of these trade blocs are the East African Community (EAC), the Common Market for Eastern and Southern Africa (Comesa), and the Southern African Development Community (SADC).
While Comesa is the oldest and largest trade bloc and the EAC is the youngest and smallest, the SADC is the most integrated of the three. While these blocs also collaborate under the African Free Trade Zone (AFTZ), progress with this larger trade bloc is slow; for the next decade or so all three blocs will therefore remain relatively autonomous entities. At present the SADC is the most successful trade coalition, but the next spurt of economic growth will occur in the other two.
Of all the various African trade blocs Comesa has the largest number of emerging economies. The group is primarily focused on building regional infrastructure, particularly through the Eastern Corridor.
Language is one of its biggest obstacles, there being so many different official languages and dialects among the 19 member nations. It’s a challenging task to achieve efficiencies from this diverse set of countries.
The EAC, on the other hand, is a relatively small trade bloc, consisting of just five member nations, and it enjoys much greater integration and collaboration. The roughly similar stability and maturity of its countries in terms of their economies, politics and publics makes the EAC a favourable trade bloc for international commerce.
In terms of supply chains, the EAC still fares better than Comesa. While Comesa has the resource base, the slow pace of trade between its member countries is a matter of concern. The delaying customs setup is another, and the unavailability of technology and skills is yet one more. By contrast, technology among the EAC’s member countries is better and more uniform. Moreover, the growth rates of various sectors in the EAC (led by agriculture, then manufacturing and services) are among the strongest on the continent.
Compliance is an area of concern among all three of the blocs, and little as yet has been done to address this. But apart from this, the EAC is the most attractive destination for business, with Kenya in particular offering good rewards.
This article first appeared on the KPMG Africa Blog.