South Africa, Egypt and Nigeria together account for almost 50% of Africa’s US$3.5tr economy, making these three countries difficult to ignore as part of an expansion strategy.
However, these three nations also have weaknesses according to a recent report by South African-based Rand Merchant Bank (RMB). Although South Africa remains the dominant force on the continent, it is expected to have a slower rate of expansion over the next few years. Nigeria is expected to displace South Africa as the largest economy on the continent by 2014, but income disparity in Africa’s most populous nation might not reduce. Egypt, on the other hand, is plagued by rising inflation, structural institutional challenges and political instability which are likely to stall its rate of growth.
In its 2013/14 Where to Invest in Africa report, RMB identified six African countries that are “moving on up”. Five of these countries have purchasing power greater than $100bn, making them worthy of investors’ attention.
The report notes that Algeria accounts for 8% of Africa’s GDP and has grown consistently over the last decade owing to judicious macroeconomic policies. The North African country derives most of its wealth from hydrocarbon earnings, which have contributed to its strong fiscal position. However, Algeria is vulnerable to social unrest as a large percentage of its youth are unemployed.
“The government has introduced several political and economic initiatives to improve Algeria’s business climate. These measures are aimed specifically at bolstering citizen participation, strengthening government accountability and increasing non-hydrocarbon growth,” the report explains.
According to the report, Africa’s fifth largest economy has recorded favourable growth performances over the past 10 years. The IMF attributes Morocco’s success to sound macroeconomic and political reforms, which have helped the government contend with the slowdown in Europe – its main trading partner – and persistent social demands that emerged during the Arab Spring.
“Nevertheless, long-term economic growth is contingent on the implementation of extensive structural and fiscal reforms, aimed at improving productivity and the overall business environment,” says the report.
Angola’s economy grew to $128bn in 2012 from $32bn in 2000 due its oil resources.
“With an expected purchasing power of $138bn at the end of 2013, it is now the third largest economy in sub-Saharan Africa and the sixth in Africa. Yet it remains in the shadows of its oil-exporting rivals, adding a meagre 3.1% to Africa’s total market size.”
RMB notes that Angola’s economic structure is undiversified with oil accounting for nearly 80% of government revenue, 90% of exports and 47% of GDP thus exposing the economy to oil price shocks that could eat away at its market size.
The East African nation has come a long way from the droughts and food aid of the 1980s and early 1990s.
“Until recently, the economy was largely closed to foreign investors but the government has rapidly been opening it up. Investment opportunities have been bolstered by regulatory and administrative reforms such as reducing internal inefficiencies to facilitate cross-border trade,” says the report.
Prior to the political and social upheaval of 2011, RMB notes, Tunisia’s market size expanded from $50bn to $100bn in a matter of 10 years. Despite slipping below Ethiopia in terms of market size, Tunisia remains resilient.
“A stabilisation in its social climate has enabled a moderate recovery in production growth. Yet activity continues to underperform as a dubious political landscape slows the pace of economic reform, weakening recovery efforts.”
RMB explains that after a severe contraction in 2011, which more than halved the size of its GDP, Libya is set to crack the elusive $100bn mark by 2014.
“The IMF anticipates double digit growth over the next three years, though its forecast is highly correlated to hydrocarbon demand, which is set to slow by 2018,” says the report.