Africa has great promise for investors stung by crisis
February 8, 2009
 By Vuyo Jack
The review cites International Monetary Fund (IMF) research that predicts a growth rate of 6.3 percent for sub-Saharan Africa, and more than 8 percent for Nigeria, Uganda and Tanzania.
This high growth trend is confirmed by research from the Economist Intelligence Unit, which says that out of the 20 fastest-growing countries, 15 are African.
Africa has begun to clean up its act, which helps investors to have certainty.
The Harvard paper looks at the data between 2002 and 2007 to see the pattern of returns from firms operating in Africa and compares that with the returns in other developing nations.
Its conclusion is that the average annual return on capital of African firms was up to 75 percent higher than that of comparable firms in China, India, Indonesia and Vietnam. These returns are due to low labour costs and efficient operations.
When one looks at African trade patterns, according to the IMF's trade data, the biggest consumer of African goods last year was the EU at about 40 percent, while the US consumed less than 15 percent, which is a decrease from the 1990s level of trade.
There was an increase in Africa's trade relations with China and the Middle East, but what is concerning is the lack of intra-African trade, which could hold potential for growing the continent's economy.
Most trade involves African countries exporting raw materials produced from their vast natural resources bases at relatively low prices and buying more expensive global products made with the same raw materials they exported.
Beneficiation programmes could create employment opportunities as well as produce transport cost savings by reducing imports of high-value end products.
This is a great opportunity for those investing in Africa.
The attitude towards global trade is cooling in most countries, according to the Pew Global Attitudes Survey, which measures the percentage of respondents who believe trade ties are good for their country.
The biggest drop in sentiment was in the US, followed by other industrialised countries.
This survey prompted delegates to the World Economic Forum to warn about governments moving towards protectionism to climb out of the current economic meltdown.
Governments will be increasingly protectionist in their approach to global trade, which does not bode well for the conclusion of the Doha round of trade talks.
An analysis of the flow of sovereign wealth funds shows that sub-Saharan Africa has not attracted more than $10-billion (about R100 billion).
This can only increase as opportunities in Africa crystallise.
Investment flows to Africa have been hindered by conflicts and the lack of infrastructure.
Opportunities to bring in the majority that have been excluded from financial services are big in Africa, which will help financial services firms to grow.
In Nigeria there has been a great improvement of its banking system, which is allowing the most populous country on the continent to bank the unbanked.
In Zambia, Tanzania, Botswana and Namibia more than 40 percent of the population are excluded from the financial system, which means that collective savings from those people cannot be effectively captured and put to use.
This is why initiatives like the financial services charter are important.
Namibia concluded a charter for the sector last November, allowing firms to mobilise savings into the economy in a structured way.
In a nutshell, there is good news about the development prospects for Africa.
The main challenge facing the continent is the political will to continue to be fiscally prudent and to forge intra-African trade ties without being too protectionist.
Political stability is a vital ingredient that will create certainty for international investors in projects that will foster physical and financial developments in Africa that cannot be easily uprooted.
But above all, Africa's people need to start doing things for themselves.
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