Africa missing out on global trade opportunities
Chilo Ketlhoafetse | Monday August 22, 2022 06:00
Whilst the bigger economies are putting in place measures to remedy living conditions and boost trade among themselves, Africa seems to be a bit slow in executing its agenda and paramount to this have been issues around corruption and governance.
We need to come to acknowledge how global trade has lifted many countries and their people from poverty, through job creation, industrialisation of sectors and services, and ease of access to affordable products.
This is well evident in countries such as China, Mexico, and Brazil just to name a few. Africa genuinely yearns for prosperity, particularly being a continent with significant natural resources and a young, eager workforce. There truly is potential to move it out of poverty and youth unemployment.
A starting point towards tapping into this potential that’s yet to be harnessed would be to capitalise on perhaps the strongest opportunities presented by top economies within the continent.
In a publication by Rand Merchant Bank (RMB), African economist, Daniel Kavishe, released a list of 2021 Top 10 investment-attractive African economies based on their operating environments and general ease of doing business. The methodologies applied therein were retrospective to prior years' outlooks on the prospects of Africa's economy but thereon changed due to the COVID-19 pandemic.
The results showed a need for government readiness to intervene, not on the pandemic itself but other future economic shocks that have now come to light in 2022. The research thereby creates an overall perspective for global investors seeking opportunities within the African continent.
Having a glance at the top five, there would be quite a lot of potential here looking at the value propositions and they are as follows. Egypt topped this list based on its market share relative to other African economies, particularly in the manufacturing of pharmaceuticals and additionally, the economic growth induced by tourism post-pandemic.
Morocco seconded this list largely due to political stability that builds confidence in private sector development of which the national Gross Domestic Product (GDP) is set to grow by 3.2 percent in 2022 and probably set to be a major investment hub both in Africa and globally. South Africa came in third primarily highlighted by the depth of its financial services sector relative to other African economies, but also the robust manufacturing and retail bases that rapidly grew during the pandemic as South Africa supported Southern Africa's food security during the time.
This resilience and diversity make it quite attractive to invest in.
Rwanda coming in fourth place was a testament to strong economic policy reforms that have resulted in that country signing double taxation treaties with several countries and even registering investment projects valued at more than a billion dollars. This reflects a strong base for prudent governance needed in African economies.
Last in the top five was Botswana with an excellent credit rating. Although it's quite a small economy, government efforts are accelerated and executed, particularly with the use of fiscal and monetary policies to drive investment opportunities underpinned by low levels of corruption and improvements in labour productivity that will induce consumptive growth over the next few years.
There is an excellent value proposition that centres around synergy within the African continent and this emanates from finding congruence among African leaders to best find the most sustainable means to induce intra-African trade and participate in global trade. Among some of the current challenges that face Africa's investment grid would be corruption and governance that worry investors and everyone is well aware that there is a great need for transparency and accountability.
In the context of trade, technological solutions may be necessary to deter dubious practices. Trade barriers and tariffs as well contribute greatly to redundancies that deter growth in Africa and whilst the free trade agreements have now been agreed upon by African leaders, execution is quite slow and this could result in efforts made taking up to a decade before they come to fruition.
Above all, the lack of adequate logistical infrastructure deters the growth prospects and ease of intra-African trade. Africa has 16 landlocked countries and unless we have the proper road and rail facilities, coupled with telecommunications and technological infrastructure, some of these trade agreements will not make sense as the costs of moving goods from one region to the other remains exorbitant and this would make industrialisation and job creation a whole lot harder.
I think the publication by RMB is a great start to identifying Economic Zones in Africa to match make market needs and harness opportunities between demands and supplies amongst different economies. It also offers a benchmark to African leaders themselves on best governance practices and best use of economic instruments and policies to attract foreign direct investment within Africa. One fear I have though is our readiness to support and facilitate these investments due to the models they present as to whether or not they will deliver long-term benefits. To put into perspective would be the cycle of debts to support economic stimulation due to poor execution of foreign investment and their partnerships and this could, unfortunately, lead to loss of national strategic assets as we see within some nations.
*Chilo Ketlhoafetse is a Chartered Accountant and seasoned finance specialist focusing on economic issues affecting the local business environment. Commentary and interactions can be sent to ctketlhoafetse@gmail.com and Twitter @chilo_ket.