“Africa is the most exciting continent on the planet” Former British Prime Minister Tony Blair.
Indeed, 2016 has been a tough one for those doing business in Africa. Average economic growth across Sub-Saharan Africa (SSA) was the worst in over 20 years.
For a decade, Sub-Saharan Africa (SSA) average GDP growth rate was close to 6%. In 2015, growth slowed substantially to 3.4%, and was even lower with SSA’s three largest economies, Angola, Nigeria and South Africa seen under pressure and are likely to remain so over the 2017.
Outside of these three economies, a number of bright spots remain, particularly in the East, Francophone and North African regions, where growth rates of 4% and above are still being achieved. Cote d’Ivoire, Senegal, Ethiopia, Kenya, Tanzania, Mozambique and Egypt are expected to sustain high growth rates over the next 5 years. This partly has to do with the major exports of many of these economies being less impacted by declining terms of trade.
In addition, investment in infrastructure, domestic consumer spending and the continued evolution of services and manufacturing, continues to spur growth in these economies.
Related; ‘Kenya among 10 markets expected to deliver superior returns in 5 Years’ – Credit Suisse
Investment slowed in most hub economies across SSA, including South Africa, Ghana, Nigeria, Kenya and Mozambique. Interestingly, Cote d’Ivoire continued its rise, with FDI projects increasing 28.6%. Technology,media and telecommunications (TMT) drew the most interest,particularly from French investors.
Ernst and Young anticipates that investor sentiment towards Africa as an attractive investment destination is likely to remain somewhat softer over the next few years. This has far less to do with Africa’s fundamentals than it does with a world characterized by heightened geo- political uncertainty and greater risk aversion. Companies already doing business in Africa will continue to invest, but will probably exercise a greater degree of caution and be more discerning.
Some of them will invest at a slower pace, looking to consolidate operations and drive profitability; while others are likely to double down on their investments, using this period of economic slowdown to further strengthen positions in key markets.
According to the Audit firm in its end year update, its quite possible that there will be a relative slowdown in investment in SSA over the next 18 months, as investors adjust their strategies. This is evident to some extent in the relatively slower FDI activity into Africa in the first half of 2016.
The Brexit result at the end of June, and resulting uncertainty in the second half of 2016, could further impact FDI into Africa, particularly given the strong role the UK already plays as a major investor in Africa.