Kenya and Ethiopia are on their way to becoming the African continent’s new investment heavyweights. With, in prospect, the possibility of supplanting the current giants of Nigeria, South Africa and Egypt.
This possibility is one of the main conclusions of the first edition of the Africa Risk-Reward Index report, drawn up by the global risk consulting firm, Control Risks and NKC African Economics, a majority subsidiary of Oxford Economics, specializing in in political and macroeconomic research in Africa and based in South Africa.
According to Control Risks, this new index, which is a continuation of its advisory activities on investment risk in Africa, provides current and potential investors with a synthesis of risks and opportunities in 25 countries in the region.
Thus, the Africa Risk-Reward Index lists each country’s performance relative to African peers and highlights how some of Africa’s largest economies are being overtaken by smaller competitors. The position of each country is defined by its risk and reward score; the size of its bubble representing the size of the country’s GDP.
To this end, the report stresses that some African economies cannot reasonably be overlooked by a serious investor. South Africa, Nigeria and Egypt, the continent’s heavyweights, are rightly on everyone’s radar. And the recent recovery in Nigeria and South Africa are good signs for business.
With regard to Nigeria, for example, the report estimates that, although the country remains attractive because of its raw materials, the drop in oil prices, coupled with the security disturbances, had a rather negative impact on its economy. “A drop in the price of oil and a drop in production (following an upsurge in militant attacks in the Niger Delta) led to a decline in GDP growth, from 6.3% in 2014 to 2.7% in 2015, while the economy contracted by 1.6% in 2016 ”specifies Control Risks.
As for South Africa, the report notes that the country’s good reputation for its institutions has gradually deteriorated. In addition, divisions within the ruling African National Congress (ANC) are expected to undermine the stability of policies in certain sectors, including energy. Moreover, “weak local demand, high unemployment, drought and hesitant global demand for South African exports resulted in real GDP growth of only 0.3% in 2016, the slowest since 2009” notes Control Risks.
As for Egypt, the Africa Risk-Reward Index report notes a certain political stability embodied by President Abdel Fatah al-Sisi. This, despite a series of economic and security challenges in the country. Indeed, according to Control Risks, the government’s crackdown on opposition groups, Islamist groups and persistent activism will continue to have an impact on the business environment. When on the other hand, high unemployment rates, especially among young people (nearly 40%) continue to pose a threat to the security environment.
In addition, Suez Canal revenues are down, due to low international trade volumes. Added to this, low oil prices. In addition, “the higher prices reduced the purchasing power of Egyptians, disproportionately affecting the 27% of the population living below the poverty line. Real GDP growth should therefore slow down in 2017 (to 3.8%, against 4.3% in 2016) due to this slowdown in consumption, ”argues Control Risks.
In the face of these heavyweights, the Africa Risk-Reward Index report highlights some countries such as Ethiopia and Kenya “which deserve a close look at the opportunities that exist now and in the years to come”.
Ethiopia, which attracted around $ 3.2 billion in FDI in 2016, more than Nigeria and double Morocco, is one of the continent’s future nuggets according to the report. The country has maintained itself as one of the continent’s most dynamic economies for over a decade and continues to offer strong growth prospects. “Annual real GDP growth averaged over 10% between 2010 and 2015. Although down from 9.6% recorded in 2015, growth still reached a significant increase of 6.5%. % in 2016 ”reveals the Africa Risk-Reward Index report.
For its part, Kenya, which is, according to Control Risks, “the most sophisticated economy” in East Africa, has made opening up to foreign investment a priority since 2020, with regulatory changes. aimed at attracting more investors. As a result, the relative diversity of the economy has shielded it from the negative economic effects of the recent decline in world commodity prices. “Kenya has also reached a period of strong GDP growth due to relative political stability. Real GDP growth averaged 6.0% in 2010-16, and we forecast 5.4% growth in 2017. The outlook remains positive, ”the report said.