Before the global economic downturn of 2009, the majority of African economies had enjoyed notable economic growth. Average annual growth in 2006-08 amounted to about 6%, while the GDP per capita grew by almost 4%. The world economic crisis brought this period of relatively high growth to a sudden end. However, although the African economy has also been negatively impacted by the global economic downturn, the continent has, on average, maintained positive economic growth. According to the IMF, Africa will be one of the fastest growing regions in the world this year, with growth of 5.3% forecast for 2011.
The potential sources of the growth in Africa have been a point of discussion amongst analysts. In a survey conducted by KPMG amongst its clients in Africa, it is clear that businesses in Africa view natural resources within the mining and agricultural sectors to be the industries that would provide opportunities for growth in the region. Due to the size of the population in Africa and the gradual growth of disposable income, the potential business opportunities that might exist in the retail sector have also been discussed widely.
In addition, Africa's infrastructural needs and requirements also present opportunities for businesses. Studies performed on the investment requirements for Africa as an emerging market have provided some interesting feedback on the current infrastructural needs in Africa: the three sectors with the biggest funding needs include Energy, WWS (water, waste and sewage) and Irrigation.
In order to capitalise on the many, albeit diverse, opportunities that exist in Africa, it is necessary to explore the challenges that exist both from a people and a business perspective. Attracting FDI into diversified and higher value-added sectors remains an ongoing challenge for Africa's economies. The primary sector consistently remains the main focus of foreign investment. Africa predominantly exports primary products and imports manufactured products. African economies have not been able to harness the benefits of the commodities sector to increase the productive capacity throughout other sectors of their economy. This hampers the possibility of growth in the consumer expenditure related parts of the economy, such as retail and wholesale, smaller manufacturing industries and the housing market.
Reducing inefficiencies related to poor transport infrastructure, including maintenance of existing infrastructure and the provision of new transport infrastructure, remains a challenge for growth in Africa. For instance, only 29.7% of the African road network is paved. The continent's railway network is also very poor. These factors contribute to higher transport costs on the continent if compared to the rest of world. Recent estimates by the World Bank indicate that annual infrastructure investment requirement in Africa is about USD 93 billion over the next decade, more than double the previous estimate by the Commission for Africa.
A further challenge is the lack of a coherent regional approach to managing and harnessing partnership agreements, which could improve: apart from trade with other developing countries, the importance of trade between African countries themselves is also not efficiently managed.
Climate change also presents unique challenges for Africa, particularly due to the continent's dependence on sectors such as agriculture, tourism, fishery and forestry. Although the African contribution to total greenhouse gas emissions as a proportion of the world's contribution is negligible, its economies are among the most vulnerable to the negative impacts of climate change in the world: many African economies do not have the capacity to adapt, are geographically located in warmer areas and are also experiencing low rainfall levels or rainfall variability. It is, however, encouraging to see that businesses in Africa are responding to the challenges, with 53% of KPMG clients in Africa indicating in a recent survey that they have a clear environmental strategy in place and that the strategy is being implemented.
According to the KPMG survey, potential investors in Africa also view the reduction of political instability, a willingness of African governments to reduce corruption and a clear macroeconomic direction, as key ingredients to attract investment.
The unique challenges facing Africa do create an interesting environment for business to operate in, but, in spite of this, the view held by a lot of foreign investors is that the opportunity cost of not investing in Africa is becoming too significant to ignore. asa
Lullu Kruger, MCom, BCom (Hons), BCom (Law), is Senior Economist, KPMG Services (Pty) Ltd