The Ernst & Young Africa Attractiveness Survey 2013 shows that despite the growth and optimism around Africa’s future, there are disparities in investor perceptions between those who are already doing business in Africa versus those that have not yet invested in the continent.
Recent reports have shown rapid growth in Africa, indicating an increasing middle class population, the establishment and growth of indigenous companies, and the entry of multinationals. Business leaders who have not invested in Africa, however, seem unmoved by the optimism and growth, and continue to view the continent negatively after decades of Africa being branded a continent of disease, war, corruption and poverty.
“Those with no business presence in Africa are far more negative about Africa’s progress and prospects. Only 47% of these respondents believe Africa’s attractiveness will improve over the next three years, and they rank Africa as the least attractive investment destination in the world,” says Ernst & Young.
The findings are based on a survey with over 500 global business leaders about their views on the potential of the African market.
The report says that those with established businesses in Africa are, however, overwhelmingly positive. They understand the real, rather than the perceived, operational risks; have experienced the progress made; and see the opportunities for future growth.
“Eighty-six per cent of these business leaders believe that Africa’s attractiveness as a place to do business will continue to improve, and they rank Africa as the second most attractive regional investment destination in the world after Asia,” notes the report.
The survey identified poor transport infrastructure and corruption as the major challenges bedeviling the continent.
“Infrastructure gaps, particularly relating to logistics and electricity, are consistently cited as the biggest challenges by those doing business in Africa. At a macro level, too, Africa’s growth will be inherently constrained until the infrastructure deficit is bridged,” the report says.
Ernst & Young is however optimistic, arguing that Africa has registered strong growth despite the infrastructure constraints. According to its analysis, in 2012 there were over 800 active infrastructure projects across different sectors in Africa, with a combined value in excess of US$700 billion. The large majority of infrastructure projects are related to power (37%) and transport (41%).
The survey indicates that South Africa is the most attractive African country in which to do business due to its well developed infrastructure, stable political environment and a relatively large domestic market. Morocco, Nigeria, Egypt and Kenya are also in the top five.
“A critical mass of African economies will continue on this journey. Despite the fact that there will undoubtedly be bumps in the road, there is a strong probability that a number of these economies will follow the same development paths that some of the Asian and other rapid growth markets have over the past 30 years. By the 2040s, we have no doubt that the likes of Nigeria, Ghana, Angola, Egypt, Kenya, Ethiopia and South Africa will be considered among the growth powerhouses of the global economy,” explains Ajen Sita, CEO for Africa at Ernst & Young.
While investment into North Africa has largely stagnated, foreign direct investment projects into sub-Saharan Africa have grown at a compound rate of 22% since 2007. Among the star performers attracting growing numbers of projects have been Ghana, Nigeria, Kenya, Tanzania, Zambia, Mozambique, Mauritius and South Africa.