Global spotlight shifts to African economies

  • Written by 
  • 09/04/2014

According to many international economists and business leaders, Africa is shaping up to be the “new Asia”, already showing all the characteristics of the next powerhouse of global growth. With expert input from Henk Potts, Barclays director of global investment research, we explore the factors driving the continent’s vast potential.

The making of affluent Africa 2 of 4 Africa in the ascendancy

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Please read this important information before proceeding.

Africa is a rising force within the global economy. As growth has weakened within boom countries like Brazil and China, the opportunities presented by its 55 nations and over one billion people are being viewed with sharpened interest by economists, multinational companies and the continent’s highly diverse business community.

12 African economies are growing at 6% and have been doing so for at least 6 years.

Based on an upbeat outlook for the region for 2013 and beyond, Henk Potts, director of global investment research at international banking group Barclays, would certainly count himself in that group. “Africa continues to be a very exciting part of the world,” he says. “There are a dozen economies in Africa that are going to be growing at 6 % per annum — and have been doing so for at least six years.”

The 12 in that fast-lane today, at least according to the International Monetary Fund, are Burkina Faso, Côte d’Ivoire, the Democratic Republic of Congo (DRC), Equatorial Guinea, Ghana, Mozambique, Niger, Nigeria, Rwanda, Sierra Leone, Tanzania and Zambia.

Solid fundamentals

Such optimism – albeit tempered by an awareness of the complexity and the variety of risk factors that might accompany investments in certain African countries — is being driven by some solid fundamentals. “Infrastructure investment is very strong, productivity continues to improve, and trade from Africa with the rest of the world has increased 200% compared to where it was back in the year 2000,” highlights Potts.

And that is against the backdrop of unrivalled mineral wealth: African countries still hold the lion’s share in many key commodities — with half the world’s gold reserves and a quarter of the world’s diamonds. It also dominates in the supply of cobalt and phosphate rock, and controls 10% of global oil reserves, according to a recent UN report.

According to the IMF, the growth rates for at least four African countries will surpass that of China in 2013.

For Potts and other observers, though, the prospects extend well beyond raw materials — consumer demand is gaining momentum fast, he suggests: “The population is expected to double over the next 40 years, so consumption will be a key driver.” Indeed, according to research by management consultancy McKinsey & Co, Africa already has more middle-class households (defined as those with incomes of $20,000 or above) than across the whole of India. As a measure of that, consumer prices in sub-Saharan Africa rose by around 9 % in 2012.

At this stage, in the eyes of many market watchers, the broad African opportunity is not unlike that presented by Asia 30 years ago, with early-mover opportunities – in energy, telecoms, consumer goods, agriculture and many other areas – holding great potential. And with some of the BRIC countries (Brazil, Russia, India and China) having “fallen off a cliff” in 2012, says Potts, the outlook for Africa – and wealthier Africans – is going to look increasingly bright.

And that will give rise to a new set of star economies. According to the International Monetary Fund, at least four countries in sub-Saharan Africa will have sailed past that China’s predicted 8 % growth level in 2013. Which means analysts must already be scratching their heads to come up with a catchy acronym for Gambia, Zambia, Mozambique and the DRC.