Over the last decade, many economists have argued that markets in Africa are booming. Now confronting the possibility of the “commodity super cycle” collapsing, a few economists have surmised that the sub-Saharan “Africa rising” narrative of the past decade is ready for its curtain call. We believe the reality lies more in the middle ground between these two narratives. GDP growth from 2001-14 was impressive, driven mainly by a bullish commodity market averaging above 5%, although over the last two years growth has declined. However, 2017 is poised to challenge the assumption that sub-Saharan Africa’s growth rate will continue to decline.
Aside from strong commodity pricing, the economic growth of the last decade in sub-Saharan Africa was also driven by reforms and business friendly domestic policies across the continent. When compared to other regions in the world, doing business in Africa is becoming cheaper as regions become more economically integrated and infrastructure improves. Given the diversity of the African continent and its 54 separate countries, it is difficult to generalize, as publications often do when declaring, “Africa is rising” or prophesying its doom. Just looking at sub-Saharan Africa from a regional perspective, let alone market-by-market, shows that neither narrative holds true across the board. For American business, now could be the time to start investing in some of the African continent’s strongest performing regions, if done knowledgeably and strategically.
Experiencing GDP growth between 6-8% in 2016, East Africa is currently seeing the highest growth of the 4 sub-Saharan regions. Lower oil import prices, reformed business environments, and a focus on infrastructure investments are driving GDP growth. Examples can be found in Ethiopia, Kenya, and Rwanda. In the 2016 Doing Business report by the World Bank, both Kenya and Rwanda improved their rankings. The World Bank ranks Rwanda as the 2nd easiest place to do business in sub-Saharan Africa and Kenya as the 5th. Both are moving toward becoming manufacturing hubs and are only being held back from more rapid growth by power shortages, which they are working to address.
West Africa has the 2nd highest growth, though this was dented by the recent Ebola epidemic and the decline in commodity prices. However, looking closer at the region, there are countries that still perform relativity well such as Benin, Côte d’Ivoire, and Senegal. Africa’s largest economy in 2016, Nigeria, was particularly affected by the slump in oil prices but is still on pace to be Africa’s strongest economy in 2017, due partly to anticipated rises in the oil price and ongoing market reforms.
The decline in commodity prices has most heavily affected Central Africa. Given that it is one of the most resource rich regions on the continent is it easy to see why it is in third place when it comes to growth. However, improved security and continuing normalization of international cooperation by several countries could lead to an up-tick in the economic fortunes of certain countries in this region, albeit uneven. For example, in the Republic of the Congo the government decided to decrease spending on infrastructure in response to the drop in oil revenues, which lead to most of the drop in this country’s growth. Conversely, Gabon’s decision to continue its investment programs lead to a boost in growth despite lower oil revenues. For businesses entering such markets, having access to sources that can provide keen market analyses is key for success.
Southern Africa showed the weakest growth in Africa in 2016, stemming partly from decreased commodity prices and exacerbated by drought, power shortages, and governmental mismanagement. Like West Africa, growth within this region is expected to increase slightly in 2017 driven by a recovery in commodity prices. A positive note for companies seeking business in this region, is that Southern Africa dominates the top 10 list of countries in the Doing Business report – Botswana 3rd, South Africa 4th, Zambia 7th, Lesotho 8th, and Namibia 9th. In these countries companies can expect stable growth promoted by established governments and mature economies.
In 2017 and beyond, markets across Africa are continuing to grow economically, politically, and demographically. For U.S. companies there are plenty of opportunities to grow with sub-Saharan Africa. The experts at ISI can help you to discover the markets with the greatest potential for your company.
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