Next Growth Frontier for Global Capitalism
In the past, Africa has been painted with a negative perception by many, which has created a distorted, one-dimensional view by individuals in the West. Even Africa’s ancestors have taken place in the poor imagery of Africa by narrating stories about the negative stereotypes of Africa to the future African youth leaders of today, which in turn harms the continent’s growth. Africa has always been viewed through prism of disease, starvation, war and corruption.
Fast-forward to the 21st century, and it seems that the negative perception of Africa may be changing. What was once coined as a hopeless continent is now known as the new leading edge for global capitalism. Very few investors gave Africa the attention it deserved, but with growth across the continent increasing and vast demand for vigorous investment, capital is now rolling into and across Africa at an exceptional rate. According to the text The Changing Dynamics of International Business in Africa written by Ibeh, White, and Adeleye, Foreign Direct Investment (FDI) has tripled, from $15 billion in 2002 to $46 billion in 2012; real income per person has increased by over 30 percent; and the number of countries that are democratic has nearly doubled (Adeleye, 2015).
In addition to the surge of economic growth from other countries, Africa has also witnessed growth through the creation of businesses developed by their own people. Intra-African FDI is growing faster than FDI from any other region and has increased over 30 percent since 2007; in a similar vein, in the 2003-2013 period, there were more greenfield investments from African firms, (994) than there were from Asian (including Chinese and Indian) firms (959)), according to FDI Markets (Adeleye, 2015). Africans who have moved away from their homeland are also coming back to invest in Africa. There is a major surge of African entrepreneurs who are launching viable businesses that address social challenges and economic growth.
Abstract
In this research, we will explore Africa’s Foreign Direct Investments (FDI) and the continuous economic growth that is taking place. Once upon a time, Africa was never considered a place of economic opportunity. In recent years, those views of Africa started to shift. Africa is positioning itself to become one of the fastest growing areas in the world, and it is projected to continue to grow upward in the future. Even though barriers such as instability, corruption, and poor infrastructure still exist in Africa, there has been a widespread of improvements that make Africa an attraction to foreign investors. There have been some political and social reforms across the continent, as well as more educated, English speaking workers in various countries across the continent. There has also been in a boost in African entrepreneurs and their spending powers. This research will uncover investment opportunities that take place today, the top playmakers in Africa’s FDI, and the challenges that plague the growth of Africa’s economy.
Introduction: Next Growth Frontier for Global Capitalism
In the past, Africa has been painted with a negative perception by many, which has created a distorted, one-dimensional view by individuals in the West. Even Africa’s ancestors have taken place in the poor imagery of Africa by narrating stories about the negative stereotypes of Africa to the future African youth leaders of today, which in turn harms the continent’s growth. Africa has always been viewed through prism of disease, starvation, war and corruption.
Fast-forward to the 21st century, and it seems that the negative perception of Africa may be changing. What was once coined as a hopeless continent is now known as the new leading edge for global capitalism. Very few investors gave Africa the attention it deserved, but with growth across the continent increasing and vast demand for vigorous investment, capital is now rolling into and across Africa at an exceptional rate. According to the text The Changing Dynamics of International Business in Africa written by Ibeh, White, and Adeleye, Foreign Direct Investment (FDI) has tripled, from $15 billion in 2002 to $46 billion in 2012; real income per person has increased by over 30 percent; and the number of countries that are democratic has nearly doubled (Adeleye, 2015).
In addition to the surge of economic growth from other countries, Africa has also witnessed growth through the creation of businesses developed by their own people. Intra-African FDI is growing faster than FDI from any other region and has increased over 30 percent since 2007; in a similar vein, in the 2003-2013 period, there were more greenfield investments from African firms, (994) than there were from Asian (including Chinese and Indian) firms (959)), according to FDI Markets (Adeleye, 2015). Africans who have moved away from their homeland are also coming back to invest in Africa. There is a major surge of African entrepreneurs who are launching viable businesses that address social challenges and economic growth.
Landscape
There was a flicker of GDI in the 60s in Africa. There were two periods of growth for Africa that took place between 1961 and 1975 and a second surge from 1995 to present, with some challenges and stagnation in between. The growth that took place between 1961 and 1975 was driven by domestic savings, which increased considerably in the immediate post-independence period, reaching an annual growth of 23.5 per cent of GDP (United Nations, 2007). The surge came to an abrupt stop when the oil crisis in 1979 hit Africa. Soaring oil prices and high interest rates for sovereign debt eased the fare of many countries (Sennett, Santi, 2015). The oil industries became noncompetitive and were low in quality and production. Industries became unsustainable, and many African countries started to borrow loans from abroad, thus leaving African countries crippled by debt.
Despite the crisis the Africa faced in the 20th century, in the beginning of the 21st century Africa started to witness positive economic growth.
According to Balbo (2015), The 2015 impact investor survey conducted by J.P. Morgan and the GIIN shows that global impact investors are allocating a larger portion of their portfolio to sub-Saharan African to any other region, and even more plan to increase allocations to sub-Saharan Africa than to any other region.
Balbo also stated in the text that according to the Department for International Development, impact investment in sub-Saharan Africa surpassed US $11.6 billion in 2014 alone, equal to 22% of global impact investment. (Sennett, Santi 2015). Countries leading the way with investments activities are Nigeria, South Africa, Egypt and Morocco. Investments are also surging heavily in high-growth economies such as Ghana, Tanzania, Mozambique and Tanzania.
Foreign Direct Investment Impact on Africa
One of the biggest impacts on Africa’s GDI is it’s foreign direct investment going in from other countries. Many countries from the North American region, the Middle East and Europe have focused their attention on Africa.
United States FDI Impact
Currently, the United States leads the way as far as investments go with Europe right behind them. Since 2007, the US has launched 700 FDI projects across the continent, pouring in US$52.7b and creating nearly 98,000 jobs (EY, 2015). Projects from the US almost doubled compared to UK and South African investors. More projects in business services, clean tech, and chemicals were created. In August 2014, leading American companies including Coca-Cola, Blackstone Group and Carlyle Group announced more than US$14b investments in Africa at the first US-Africa Leaders’ Summit (EY, 2015).
UAE FDI Slowly Emerging
The UAE stands as the fourth largest source of FDI projects in South Africa in 2014 (EY, 2015). The Middle East has been focusing their investments heavily on Africa, leading to many jobs being created. Many companies from the Middle East have focused their investments primarily in North Africa, and have built ties with North African countries like Egypt and Morocco. Investors from the Middle East have been very active in infrastructure projects in Africa, including telecommunications, and have focused a lot more on power generation. According to the EY Journal, Gulf companies have invested at least US30b in African infrastructure over the past decade. The EY Journal also states that going forward their investments are now expected to average US5b a year (EY, 2015).
European Investors Remain Strong in FDI
European investors continue to remain heavily active in Africa’s FDI, and continue to remain as on of the top nations contributing to Africa’s economical growth. Historic business, language and cultural ties enables European nations to continuously remain dominant in Africa’s FDI. Most investments from European nations center around Technology Media Telecommunications (TMT), transport logistics, and Consumer Product and Retail (CPR). Following these top investments from European nations are financial and business services.
Morocco remains a popular destination for European nations. The French focus heavily on investments in the country Morocco. According to the EY survey, the French initiated 49 projects (+28.6) creating 12,373 jobs and providing a chunky 14.8% of African FDI capital inflows (EY, 2015). Most of these projects were heavily centered upon TMT, transport logistics, and CPR. The Portuguese have focused most of their investments in Mozambique, due to their cultural and language ties. More than 70% of their investments stemmed from financial services.
Investing Within: Intra-Africa
One of the most significant contributors to the growth of Africa’s FDI has been Africa itself. South Africa leads the way in Intra-Africa investments. The share of African countries in South Africa’s outward FDI assists nearly doubled between 2004 and 2012, to 21%. (Kruger, Strauss 2015). In addition, South African firms accounted for one third of all intra-African Greenfield investment projects between January 2003 and January 2014, with the remainder coming from Kenya (14%), and Nigeria (12%), followed by Togo, Egypt, Mauritius, and Unisia (20% combined). (Kruger, Strauss 2015). Boosting of Intra-African trade, healthy competition among African countries, and working collaboratively will continue to enhance capacity and boost Africa’s economy.
There has been a surge of intra-African firms within the last decade. South African firms’ investment in countries such as Mauritius, Mozambique, Swaziland and Zimbabwe, for instance, is over 10 percent of the host country GDP; South African multinationals such as MTN, SABMiller, Standard Bank, Telkom, Dimensions Data, Massmart, Nampak and Shoprite now have a presence in at least a dozen African countries, as do Nigerian firms such as Dangote and UBA; Mali-based Bank of Africa has operations in 14 countries; and Togo based Ecobank has established a significant footprint across the region, with operations in 33 countries (Adeleye, Ibeh White, 2012).
China: Expanding Ties to Influence GDI
China has been engaged in Africa for so many years. Their engagement can be dated back to the 1960s when China began financing production projects such as farms, factories and highways in a few African countries. Today, China currently ranks number seven among Africa’s foreign investors, but they are ranked as the number one trading partner in Africa. China’s trade with Africa reached US$210 billion, almost double the figure of US107 billion 2008. Over the past decade, the China-Africa trade has grown rapidly at an annual rate of 29 percent. FDI will only continue to grow rapidly due to China’s friendly business approach with African leaders. According to the EY survey, Premier Li Keqiang made an eight-day tour of African nations, announcing several trade, investment, energy, and development agreements. These close economic ties that China has made with African leaders enables them to continue to make modest in investments in African countries.
Investment Opportunities
There are many investment opportunities that are currently being taken advantage of in Africa. The nature of the investment depends on what the nations are more likely to be interested in, as well as the ties they have with African nations. Fore example, the UAE has close ties to a lot of North African countries, allowing them to invest heavily in oil, mining, and power generation. Investments in real estate and hospitality have gained an attraction, especially from intra-African investors. Many hotel chains are increasing, especially in countries like Ghana, Nigeria, and South Africa. Many different types of investments are taking place in the African nation, yet there are particular categories that have contributed to most of Africa’s GDP.
Technology Media Telecommunications
TMT has been one of the major keys in the economic productivity and efficiency across the African nation. Advancements in mobile technology and the freeing of telecommunication markets in African nations across the continent, has caused Africa to be considered fastest growing areas in the TMT market. As of September 2010, the total number of subscriptions as measured by the number of mobile connections reached 620 million in Africa, surpassing Latin America, becoming the second largest mobile market in the world after the Asia Pacific. (Chavula, 2012).
Sub Saharan countries like South Africa, Kenya, and Nigeria have been the most effected by TMT growth because of the investments activity. As depicted in Figure 1, you can see a positive trend in gross domestic product (GDP). This positive trend may have been resulted from change economic policies overtime with telecommunications infrastructure. In Figure 2, from the year 2002, the use of Internet and cellular phones started to vastly increase. In 2011, over 50% of the Sub-Saharan African population used mobile phones, and over13% of the population used the Internet.
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South Africa leads the way in TMT investments, followed by Morocco, Kenya and Nigeria. Business technology group IBM announced February 2014 that it will open innovation centers in Morocco and Nigeria, working on big data analytics, and cloud computing (EY, 2015). In addition mobile subscriptions and data have slowly risen in Africa. The RISE of mobile subscriptions and data trafficking are creating opportunities for education, health and banking through the internet (EY, 2015).
Financial Services
Financial Services is the second largest sector of investment activity in Africa. It continues to increase and is heavily driven by intra-African investments. The building of regional banks, access to credit, and private equity firms have paved the way for more jobs, safety networks, and poverty reduction. According to the EY Journal, in 2014, African companies introduced 40% of cross border financial service projects. In the EY Journal, it states that South Africa’s largest banks, Barclays Africa, FirstRand, Medbank and Standard Bank have all pursued Africa-wide expansion strategies over the past several years, as have Ecobank, which is headquartered in Togo, and Attijariwafa, which is located in Morocco (EY, 2015).
Agriculture
Agriculture in Africa is foreseen as one of the major investments in the next upcoming years. It is the home of many of the world’s natural resources, widely known for its palm oil, rubber, coffee and cocoa plantations. Majority of the African population derive their income from farming. Therefore agricultural development is convolutedly connected to all economic development in African nations. According to the EY Survey, the World Bank predicts that African agriculture and agribusiness will generate sales of US$1t by 2030 (EY, 2015). In the same survey, it was also predicted in a United Nations report that FDI in African agriculture and agribusiness will grow more than fourfold in the decade to 2020, to reach US45b a year (EY, 2015). Investors are starting to realize the importance of farming to Africa’s economy, and are already looking to come up with innovative technology to improve transport links, facilities for package and storage, and wastage.
Challenges
Even though Africa is rising in an economic stage, there are many negative barriers that discourage investment in Africa, making it unattractive to investors. One of the biggest challenges that remain in the continent of Africa is the political instability. Much has improved since the 1960s, but unstable politics continue to trouble Africa. There remains still high frequency of wars that stem from politics, ethics, and religion. Countries like South Sudan, Central African Republic, Burkina Faso and Gambia have been dealing with a lot of social and political unrest. Even Nigeria, who is considered on the primary nations as far as economic growth is concerned, has been going through their own social unrest with the presence of the major terrorist group, the Boko Haram.
Poor infrastructure still remains in Africa and hinders economic growth in the nation. Many businesses suffer from not having reliable power, which makes it hard to do business via offices and Internet access. This leads to poor productivity, which then in turn leads negative cash flows. Poor infrastructure also affects trade activity within African nations due to poor quality of transportation.
Another challenge is high protection from certain African nations. Barriers to trade and FDI has been classified as a constriction to increasing FDI flows to Africa. Tensions have arisen in some between some African countries and migrants from other countries. These tensions have also been outspoken by African politicians.
It is important that Africa works to fix the barriers that hinder their potential economic growth. If not, Africa will remain sidelined in the global economy, and African nations will struggle to compete for greater share of FDI. The good news is that the challenges that African faces have stirred up investment interests from countries. Certain nations have already started to tackle some of the barriers that Africa faces, and are using them as an opportunity to come up with innovative technology and advancements to improve some of these challenges.
Conclusion
Africa is no more considered a dark continent with a vast land of no opportunities. With more foreign trade being conducted within countries, and political and social reforms taking place, Africa continues to remain a top attraction to foreign investors. There are so many investment opportunities in Africa. This is due to the rich natural resources that he country provides, as well as the improvement of education and the increased in labor skilled workers. If African leaders can deviate solution to fix the problems that still hinders the nation, the economic growth of Africa looks very promising. Therefore, it is imperative that these negative barriers that hamper Africa’s potential growth are eliminated.
References
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Africa attractiveness survey 2015 - Making choices - ey.com. (n.d.). Retrieved December 12, 2016.
Chavula, H. K. (2012). Telecommunications development and economic growth in Africa. Information Technology for Development, 19(1), 5-23. doi:10.1080/02681102.2012.694794
Donou-Adonsou, F., Lim, S., & Mathey, S. A. (2016). Technological Progress and Economic Growth in Sub-Saharan Africa: Evidence from Telecommunications Infrastructure. International Advances in Economic Research, 22(1), 65-75. doi:10.1007/s11294-015-9559-3
Kruger, R., & Strauss, I. (2015). Africa rising out of itself: The growth of intra-African FDI. Columbia FDI Perspectives, (139), 1-3. Retrieved December 12, 2016.
Reclaiming policy space: domestic resource mobilization and developmental states. (2007). New York: United Nations.
Santi, E., & Sennett, L. (2015). Impact investing in Africa. Principles and Practice of Impact Investing: A Catalytic Revolution, 328-343. doi:10.9774/gleaf.9781783534067_19
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