Nigeria is among the countries that are leading the charge in Africa’s economic revolution. The increasing flow of foreign direct investment, and investment by African into other regions of Africa, could launch the continent to greatness over the medium future according to a new report by Ernst & Young. Nigeria itself, reports Frederick Mordi, is on track to join the Brics.
In his famous speech titled The Regeneration of Africa, which he delivered at the Royal African Society in London in 1906, one of the foremost pan-Africanists, Pixely Isaka Ka Seme, envisioned a new Africa that like the phoenix, will rise from the ashes of its dark past and soar high above its peers in other parts of the world. “The regeneration of Africa,” Ka Seme predicted, “means that a new and unique civilisation is soon to be added to the world.”
The current scramble for Africa by both local and international investors is perhaps a fulfilment of Ka Seme’s prediction made over a century ago. Indeed, perception about Africa as a business destination has improved dramatically over the past few years and the continent is now an investor’s delight. The facts and figures prove this.
Nigeria, the second-largest economy on the continent, offers an interesting case study in the ongoing African renaissance. Nigeria’s large market, growing middle class and rapidly transforming economy continues to attract international investors, who find these opportunities irresistible.
Experts, who gathered recently in South Africa for an investment forum, predicted that the GDP in Nigeria and South Africa may reach $2.6 trillion by 2020, the year Nigeria aspires to join the premier league of the top 20 global economies, going by the current growth rate.
Based on this and other projections, experts have predicted that Nigeria may soon join the Brics (Brazil, Russia, India and China and South Africa), nations. Brics is a term used to describe emerging economies that have the potential to rival the G8 (group of eight industrialised) nations.
Nigeria’s Finance Minister and Coordinating Minister for the Economy, Dr Ngozi Okonjo-Iweala confirmed that Nigeria has what it takes join the Bric nations during a recent interview by the British Broadcasting Corporation (BBC). The Finance Minister, who made a spirited attempt for the post of the World Bank President recently, however admitted that even though the fundamentals are right, infrastructural constraints, such as epileptic power supply, hinder growth.
She said: “When we solve those problems, we are going to be in the low double digits and that will parachute Nigeria into the Brics.”
That Nigeria and other African countries are on the upward growth curve was underlined by the recently released Ernst & Young’s 2012 Africa Attractiveness Survey with the broad theme: ‘Building Bridges’. The survey stated that foreign direct investment projects in Africa doubled from 339 in 2003 to 857 in 2011. The report also observed that intra-African investment projects rose significantly from 27 to 145 within this period, while it forecasts that FDI into Africa will hit $150bn by 2015.
African GDP, the survey added, will grow between 4% and 5% per annum in the next decade, making Africa one of the fastest-developing economies in the world.
The report, which was produced in collaboration with Oxford Economics, one of the world’s leading providers of economic analysis, advice and models, is a follow-up to Ernst & Young’s inaugural Africa Attractiveness Survey released for the first time in 2011, and it believes this is Africa’s moment.
“One year later, we are even more confident that Africa’s time has arrived,” the report added. “With many African countries continuing to enjoy strong economic growth, there has also been a surge in the number of FDI projects across the continent — up 27% from 2010. This stellar performance forms part of a longer-term trend that has seen FDI projects grow at a compound rate of almost 20% since 2007, and by 153% in absolute terms since 2003.”
Attributing the significant FDI inflow into Africa over the last decade to rising optimism among investors, the report analysed figures going back to 2003, and sent a questionnaire on 505 global executives for their opinions about global investment trends. Ernst & Young also used data from FDI Markets, an online database tracking cross-border greenfield investments covering all sectors and countries worldwide. Based on its findings, the survey believes Africa is set to join the club of preferred investment destinations of the world.
The report said: “In the last decade Africa has seen an increase in inward investment from 339 new projects to the continent in 2003 to 857 in 2011 (an increase of 153%). Investment has come from across the world, with strong growth in project numbers from rapid-growth markets and developed markets alike, with projects from the former increasing from 99 to 319 and developed markets projects from 240 to 538 since 2003. Intra-African investment has also been a key driver of this growth.”
In spite of this good story coming out of the continent, Ernst & Young observed there are still lingering stereotypes of Africa, mainly among those who are averse to taking risks. Africa, the report noted, is seen as politically unstable, and more corrupt when compared to other regions. The report also said regional integration has yet to be fully achieved in Africa as free movement of people and goods across the continent remains a challenge. Regional integration will make it much easier to conduct cross-border business, and create markets with greater critical mass and more coherence, it further explained.
The report, which also blamed poor infrastructure on Africa’s underdevelopment, believes that massive investments in the transport, power and communication systems will promote rapid regional integration, and fast-track growth.
The Area Managing Partner, Ernst & Young Europe, Middle East, India and Africa, Mark Otty, explained: “With rapid-growth markets not only dominating investor attention and capital flows, but also playing an increasingly strategic role in defining the global economic agenda, the competition for global FDI is intensifying. African countries must position themselves appropriately in this shifting landscape to attract a greater proportion of the investment that will accelerate growth and development.”
In his foreword to the 64-page report, Deputy President of the Republic of South Africa, Kgalema Motlanthe, agreed that Africa’s economic performance over the past decade has outstripped any previous period.
He said: “The big question is whether this performance can continue and for how long. One of the most important reasons for this sustained growth was that debt levels were low in Africa. The other key macroeconomic variables were within reasonable levels too. Although the risks in investing in Africa may appear high, risk can be managed, and the rewards can be great.”
Perception of Africa improving
Addressing the issue of perception, which appear to be a recurring theme, Ajen Sita, Managing Partner, Africa, at Ernst & Young, pointed out that a greater percentage of the respondents believe Africa’s investment landscape has improved greatly, as opposed to the minority that still hold fast to preconceived notions about the continent.
Overall, he said this year’s survey paints a positive picture reflecting growing investor confidence in Africa’s prospects. According to him, 60% of survey respondents say that their perception of Africa as a place to do business has improved over the past three years, while 73% anticipate that Africa’s attractiveness will improve over the next three years. Only 4% believe it will deteriorate.
Among those who believe that Africa’s growth prospects in the near term are significantly positive, half, he added, have a dedicated Africa strategy in place, while 92% have an active business presence on the continent. Those who do not have business presence in Africa are the ones that are the most sceptical about doing business on the continent, the report added.
Sita said: “Despite high optimism, high growth and high returns, the perception gap still exists and the African continent as a whole still attracts fewer FDI projects than India and far fewer than China. There is still clearly work to be done by Africans – government and private sector alike – to better articulate and “sell” the growth story and investment opportunity for foreign investors.”
According to the report, Nigeria, Kenya, and South Africa are championing the growth in intra-African investments in their respective regions. It ranks the three economies among the top 20 investors into the rest of the continent between 2003 and 2011.
Sita added: “There has been a radical shift in mind-set and positioning over the last decade, with Africans themselves increasingly leading from the front by providing African solutions to Africa’s challenges.”