In Africa, Investment Opportunities Abound – And Not Just for China

January 29, 2019

Editor’s Note: A version of this article was originally published by The Interpreter, which is published by the Lowy Institute, an independent, nonpartisan think tank based in Sydney. War on the Rocks is proud to be publishing select articles from The Interpreter.

Why should the world take note of Africa, a continent so often viewed as unprogressively violent? Yes, some corrupt despots in Africa played a role in projecting this image, yet many more African countries are on the road to economic growth and democratic governance.

It might be a work of fiction, but the message from the Marvel films about the African nation “Wakanda” conveys an important truth. In one film, King T’Challa tells an assembled delegation of the United Nations that he wants to share his country’s wealth and advancements with the rest of the world, only to be snidely asked what the nation could possibly offer. Throughout the film Black Panther, the viewer is constantly reminded that the world believes Wakanda to be a poor, third-world nation (the archetype of Africa), ignorant of the incredible wealth which, once tapped, will benefit everyone.

So to the real world. In Davos, the International Monetary Fund announced that Africa is projected to grow at 6 percent per annum, yet a downturn in world economic growth is forecast for the next two years as the US and China resolve a trade war. The latest World Economic Outlook warns growth will slow to 3.5 percent in 2019, down from 3.7 percent in 2018, picking up to 3.6 percent in 2020.

The good news is that in 2019, like in 2018, sub-Saharan Africa will be home to several of the world’s fastest-growing economies. The region’s growth numbers will be led again by Ethiopia, Rwanda, Ghana, Côte d’Ivoire, Senegal, Benin, Kenya, Uganda, and Burkina Faso, who remain in the top 10. Tanzania joins that group this year, replacing Guinea.

The global population is forecast to reach 9.9 billion by 2050 – a 29 percent increase – with most of that growth in Africa, where the population is expected to double to 2.6 billion. If demography is destiny, as has been said, this trend augurs well. Or as Brahima Coulibaly, director of Brookings’ Africa Growth Initiative, put it:

About half of the world’s fastest-growing economies will be located on the continent, with 20 economies expanding at an average rate of 5 percent or higher over the next five years, faster than the 3.6 percent rate for the global economy.

The world is starting to become aware of Africa’s geopolitical importance. Chinese activities in Africa may grab the most headlines, but the reality is that the region is receiving more attention from its traditional partners, as well as new entrants. From trade to security cooperation to diplomatic presence, the international community is strengthening its ties to Africa.

Between 2010 and 2017, more than 65 countries increased overall trade with sub-Saharan Africa. In 2016, India became the region’s second largest trading partner. Russia and several Eastern European countries, including Bulgaria and Serbia, have doubled their trade with African counterparts. In addition to China, East Asian countries such as Indonesia and Thailand have considerably increased trade with the region. Last year, amid the ongoing Brexit debacle, the United Kingdom announced £8 billion worth of investments to Africa by 2020 from the public and private sectors.

Australia’s two-way goods and merchandise trade with Africa was valued at $7.6 billion in 2017, according to the Department of Foreign Affairs and Trade, with 172 Austrian Securities  Exchange-listed companies doing business in Africa. This could grow, substantially.

African countries are leveraging on increased investments. Kenya announced the construction by the U.S. construction giant Bechtel of a superhighway between the capital of Nairobi and the port of Mombasa. In combination, the new U.S.-funded superhighway and additional Chinese-supplied railway infrastructure will leave Kenya better equipped for international trade.

China’s presence in Africa is often wrongly associated with the Belt and Road Initiative and a misconception that the Chinese government coordinates all the activity. It is true Chinese construction firms are involved in dozens of billion-dollar projects in African markets, such as the $4 billion Addis Ababa-Djibouti Railway already in operation. In terms of foreign direct investment growth rates, China foreign direct investment increased by 24 percent between 2010-2014, while U.S. foreign direct investment grew by only 10 percent.

Yet McKinsey estimates that there are over 10,000 Chinese-owned companies operating in Africa, the bulk of which are small firms. There is plenty of competition among Chinese companies fighting for the same large-scale infrastructure contracts in the region. And it is here where countries such as Australia can be competitive.

Since the increase in Chinese activity in the region, African governments have refined their negotiating tactics to better advance development objectives, as seen in Kenya and Tanzania. Local content and job training are often included as part of contract negotiations.

Australia has not been left behind. The 2017 Foreign Policy White Paper recognized Africa’s critical role to global economic growth, security and human development. Australia has diplomatic relations with all 54 African U.N. member states and regional economic blocs.

Australian business should look further than the minerals sector and join the race to be a part of what is being called the fourth industrial revolution in Africa. Watch Black Panther. It may not be a hidden technological paradise, yet Africa beckons with opportunity for economic growth in the infrastructure, finance, technology, agriculture, and climate change sectors.

 

Jacqueline Zwambila is the former Zimbabwe Ambassador to Australia and New Zealand 2010–2013. She is a consultant on Africa Relations and Diplomacy in the trade and development sectors. She writes in her personal capacity.

Image: Sebastián Losada