It is argued that Africa is the last frontier, with nine of the world’s fastest growing economies located in sub-Saharan Africa (SSA).
From 2012, Ghana is expected to deliver 8.5 percent real GDP growth, Nigeria will register 6.3 percent, 6.4 percent for Zambia and Zimbabwe will do five percent just to name a few. That’s against an estimated three percent average for the world as a whole.
Also encouraging is the improvement in current account balances across most of these countries.
Investment conditions in sub-Saharan Africa (SSA) in particular, where growth has averaged 5.6 percent a year, have significantly improved. Based on the IMF’s latest forecasts, six of the 10 fastest growing economies in the next five years will be in SSA. These include Ghana, Ethiopia and Tanzania.
Their economic growth rates will be underpinned by global demand and inflated natural resource prices; growing infrastructure spend and increasing population and urbanisation and the resultant rise in consumerism and mobility. Other important economic growth drivers will be the region’s access to and integration with international capital markets and a growing middle class.
As a result of these attractive economic fundamentals, capital flows to Africa are now estimated to exceed those of most BRICS countries, barring China.
As global demand for commodities continues on its upward trajectory, so too will the growth potential of the continent’s extractive industries (including mining, oil and gas).
Mining and metals, oil and gas, and the exploitation of natural resources are the top three sectors investors expect will offer the greatest growth potential in the next 10 years. Africa is home to 13 percent of global oil reserves; 50 percent of proven gold reserves; 60 percent of cobalt and 90 percent of the platinum reserves.
This potential is already reflected in listed companies as returns on African Exchanges have widely outperformed those of developed world indices over the past decade.
Infrastructure the key to unlocking Africa’s growth potential
But for SSA to deliver on its potential, the pace of infrastructure investment will need to be sustained. This should be possible given the current low level of debt to GDP ratios in several countries and the global search for yield, which has already enabled many African countries to issue bonds. Zambia recently issued its maiden $750-million Eurobond bond, which was 15 times oversubscribed after attracting offers of $11.9-billion.
Infrastructure investment in SSA is likely to take place in power and energy; toll roads; Information Communication and Technology (ICT); sea ports and airports; railway lines and water and sanitation.
While SA and Nigeria currently spend the most on infrastructure development in the region, countries such as Nigeria, Angola, Tanzania, and Uganda are expected to pick up the pace of their infrastructural investment; developing their roads, ports and air transport.
According to the most recent Global Competitiveness Report by the World Economic Forum, the countries with the weakest infrastructure development programmes are Uganda, Malawi, Nigeria and Angola.
Building African giants out of pioneers
Traditionally, industrial capacity has tended to be financed and constructed by western multinationals operating in capital-intensive industries. Now, during the last decade we have seen the emergence of some African-born industrial giants.
Article continues on page two: Is politics still Africa's Achilles' Heel?