Infrastructure projects and free trade zones to drive African high growth

Africa offers the highest returns on investment of any region and is home to seven of the ten fastest growing economies in the world. The Economist projects that WEF Africa hosts Ethiopia’s economy will grow at 8.1% between 2011- 15 making it the 3rd fastest growing economy in the world. Over the last decade the continent’s economic output has tripled while sub-Saharan Africa is set to grow at about 5% for the next 10 years, second only to emerging Asia as the fastest growing world region.

Yet, according to Miller Matola, Chief Executive of Brand South Africa, “Africans have not defined their economies and growth prospects to the world but have allowed international bankers, political analysts and credit ratings agencies to take the initiative and write up, or sometimes even belittle, the African growth story”.

Speaking in Addis Ababa, Matola said Africans were now demonstrating greater confidence in their continent. “According to recent Ernst & Young research three of the top five fastest growing investors into new projects in Africa between 2003-2011 were the African economic power houses: South Africa, Nigeria and Kenya.” South African investment into Africa has grown at a rate of 64.8% in this period.

Explaining the many factors behind Africa’s phenomenal growth since the turn of the century, Matola said these included greater democratisation and stability, economic reform, urbanisation, improved uptake of ICT and financial services, a younger, growing and more affluent population, and the on-going resources boom.

To encourage further continental growth South Africa is orientating its government policies, regulations and institutions to support African investment and integration.

According to Matola, the world is slowly waking up to the massive projects underway to build new roads, rail, ports and other infrastructure that link previously isolated countries and regions, and that is accompanied by the expansion of free trade areas which will eventually encompass the whole continent.

“Over the last decade South Africa has been the leading foreign direct investor in Africa though it is now being joined by China and other developing nations. Now our state institutions have been authorised to invest – particularly in infrastructure and industrialisation” said Matola.

The Industrial Development Corporation (IDC), South Africa’s Government-owned development finance institution has expanded its remit to include African investment and has established relationships with development finance institutions and regional forums in 34 African countries. It will consider new or existing companies within Africa with funding needs up to R1billion (USD125million).

South Africa’s Public Investment Corporation (PIC) – which mainly manages government workers’ pensions and has over R1trillion (USD125billion) in funds – has set 10% of its funds aside for international investment, of which half of which will be in Africa. Of this 40%-60% (up to USD3.8billion) will be earmarked for private equity.

According to the recent Ernst & Young 2012 Africa attractiveness survey, foreign direct investment projects in Africa grew 27% between 2010 and 2011. “Unsurprisingly,” said Matola, “the report found that people already doing business in Africa were extremely positive. There are lingering negative perceptions – but only amongst those who are not yet doing business in Africa. Executives who don’t do business here, those who have the least exposure, and one presumes the least knowledge, are the most negative about Africa.”

To participate in the African growth story Matola said South Africa was investing heavily to improve its competitiveness and reduce unemployment. “Over the next few years we are spending hundreds of billions of dollars on regional and South African infrastructure. This will enhance our advanced network of roads, ports, rail and communication networks which offer a trade link for the landlocked countries in southern Africa to the world, making South Africa a regional transhipment hub for sub-Saharan Africa.”

According to Matola no country in Africa can reach its full potential by working in isolation. “As South Africa we will leverage our membership of BRICS to increase trade and investment into Africa and support the African Agenda.

“African countries should also promote their regional as well as their national advantages. Investors are very excited about the pending 26 African nation free trade area covering Southern, Central and East Africa. By June 2014, nearly 60% of the economy of Africa with a combined GDP of $1trillion and encompassing 600 million people will be a single free trade area. Already we are creating the urban development corridors, the networks of interlocking regional infrastructure, and the reducing the non-tariff barriers which will unlock these huge markets”

South Africa with its sophisticated and well-regulated banks, capital markets and services sectors is being used as a deal-making, financial and professional services hub for the entire region to provide access to capital for African businesses and support inward investment and trade.

Matola said there was an uplifting optimism in the air of Ethiopia’s capital. “There is a strong feeling that the continental progress in good governance and the more than decade long growth spurt can be made sustainable. African countries and businesses seeking investment must tell their own story or risk being misunderstood by potential investors and supporters”.

“Africa’s time has come” he said, “Its time the world knew”.

About Brand South Africa

Brand South Africa, previously known as the International Marketing Council of South Africa, officially changed its name to best align with its mandate of building South Africa’s nation brand reputation in order to improve its global competitiveness.