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‘Competition for investments among African economies now aiding reforms’

By Femi Adekoya
26 September 2019   |   3:37 am
The growing competition for investment across the African continent is helping to promote reform, which in turn encourages greater investment, a new report on Africa Risk-Reward Index 2019 has shown.

The growing competition for investment across the African continent is helping to promote reform, which in turn encourages greater investment, a new report on Africa Risk-Reward Index 2019 has shown.

The report, which offers a comprehensive and up-to-date view of the highly-dynamic business investment landscape in Africa, showed that diversification increasingly equals success and economies can no longer rely on merely holding the most mineral resources.

The report added that Africa remains a desirable investment destination with a young and increasingly urban demographic, a wealth of natural resources, and a proven ability to leapfrog technologies in areas such as telecommunications or finance.

Though African investment has traditionally been dominated by its big economies, the report showed that the long-awaited emergence of intercontinental trade blocs is shifting the balance of power.

The fourth edition of the Africa Risk-Reward Index from specialist global risk consultancy Control Risks and independent global advisory firm Oxford Economics tracks the evolution of the investment landscape in major African markets.

The benchmark research recognises that elections in African markets can often fuel tensions and raise investment concerns. However, it also demonstrates how elections increasingly serve to stabilise Africa’s evolving political landscape.

“It is crucial to identify how elections can end prolonged uncertainty, provide legitimacy, and empower existing or new African leaders with the mandates required to push forward with reform or counter-reform agendas”, says the report.

“Do not get carried away by enthusiastic reform promises by assuming that reform-minded ‘strong-man’ leaders can push their way through free of any constraints,” Barnaby Fletcher, Associate Director Analyst at Control Risks, warns. “The real political lesson of recent years is to not underestimate the strength of counter-reform efforts by existing political structures, as well as the complexity of the undertaking, “ he explains.

The paper explores the huge potential significance of the introduction of the African Continental Free Trade Area (AfCFTA) in late May while raising some concerns about its implementation. It also analyses the significant progress made by regional blocs such as the strengthening East African Community (EAC).

“The current edition of the index shows a slight increase in reward scores for some of the continent’s largest economies, including Nigeria, Angola, and Egypt, as the economic recoveries in these giants gain traction. However, the highest reward potential remains centred in the East Africa region, with expanding services and infrastructure development-boosting demand and improving business environments,” says Jacques Nel, Chief Economist Southern & East Africa of Oxford Economics.

The comprehensive paper also tackles common misinterpretations of the external influences affecting African economies. Africa is no longer an even battlefield for U.S. and Chinese players as commonly thought.

Current U.S.-Africa totals $39 billion, while China-Africa represents more than $200 billion, and EU-Africa trade is now over $300 billion.

according to data revealed in the paper. The research also notes a surge of interest in Africa from smaller geopolitical players such as Russia, the Gulf states, Turkey, and India.

“The standard narrative of US-China rivalry in Africa had always looked like an over-simplification but is certainly outdated now. China’s engagement with Africa is undergoing a fundamental shift, the US is playing catch-up, and a host of other countries are seeking to expand their influence in an increasingly multipolar landscape,” explains Barnaby Fletcher, Associate Director at Control Risks. “Geopolitical objectives are being supported by a flood of development finance, creating both opportunity and competition for private-sector players.”

“Especially at a time of a trade war, which threatens to further depress Chinese demand for commodities and global demand for oil and gas, dependence on raw commodities exports is a serious weakness for an economy. It is for this reason that governments are competing to attract investment capital and firms in order to grow their manufacturing and services sectors, to supply goods and services to the many millions of Africans moving to the continent’s cities,” says François Conradie, Head of Africa Research at Oxford Economics.