A MESSAGE FROM OUR MANAGING PARTNER
2018: A DEFINING YEAR FOR AFRICA
Among other things, the African continent is popular for its unique weather especially the heat and humidity. Due to increasing levels of global warming, one can expect it to get hotter in coming months. Similarly, the business environment within the African continent requires one to roll up her sleeves in order to navigate its complexities and peculiarities. Although similarities are present among the individual economies of the countries, working across the African continent is not a one size fits all approach and not for the weak at heart.
2018 is a defining year for firms looking to do business or scale up their business efforts in Africa. 2017 was a good year relative to 2016 as several African countries recovered from slow growth supported by favourable commodity prices, improved growth globally in countries like China and internal reforms geared toward improving the business environment.
At , in 2017, we had the opportunity to work on exciting projects in the Health, agribusiness, fast-moving consumer goods, telecoms, manufacturing and mining sectors. A lot of what we do also revolve around government relations and policy analysis. We provided our clients with strategic research, advocacy, market analysis, policy analysis, stakeholder management, risk analysis, due diligence and project management services; We monitored policy reforms at different spheres of government in select African countries, while providing strategic advice on topical issues of importance to enable our clients to achieve their business objectives in 2017
We are optimistic on the growth prospects in a number of Africa countries in 2018. Our analysis shows a likely uptick in growth in Africa, with some estimates predicting an annual growth rate of 3.8% relative to a rate of 2.6% in 2017. The resurgence in growth is likely due to an expected increase in commodity prices, which will help in mitigating foreign exchange pressures experienced in 2016, in countries like Nigeria and Angola. The rise in commodity prices is also expected to provide support for growth in Ghana, which some experts believe will grow at close to 8% in 2018. In non-commodity exporting countries like Kenya, Senegal and Ethiopia, investments by government in key infrastructure, as well as efforts to improve the business climate, will drive growth in these countries.
Firms and businesses interested in doing business in Africa will need to take into account expected political developments in Nigeria and South Africa, which are likely to affect policy decisions that affect the economy in these countries. Nigeria, for example, will be moving into an election cycle in anticipation of the Presidential and state elections scheduled for the 1st quarter of 2019. We expect a good number of key stakeholders in the Federal and State governments, including current President, Muhammadu Buhari to begin preparations towards running for elected office in 2019. We expect programs and policy initiatives will be carried out to generate visible short to medium term benefits to the electorate across Nigeria.
The election of Cyril Ramaphosa as President of South Africa brings a renewed sense of confidence and optimism in the South African Economy. He would need to carry out a number of immediate reforms and changes to simulate the South African Economy. If there are delays in carrying out economic and social reforms, it will lead to further unrest and loss of confidence in the south African Economy.
Although the Sahel continues to have major security concerns (Mauritania, Mali, Burkina, Niger, Chad and CAR) the EU and US have firm plans to support and help address some of the security concerns. However, we have seen solid growth in a few of these countries. The World Bank is predicting Senegal and Cote Ivoire are expected grow at by at least 6% this year making them two of the fastest growing economies on the continent.
For the fourth consecutive year and the fifth time in six years, Francophone sub-Saharan Africa has the continent’s best performance according to the World Economic Outlook (World Bank, 2018). This group of 22 countries recorded overall a growth of 3.2% (3.9% excluding the very special case of Equatorial Guinea), while the rest of Sub-Saharan Africa recorded a rate of 2.1%.
The growth of Francophone sub-Saharan Africa thus increased compared to 2017 (2.8% or 3.6% excluding Equatorial Guinea). At the same time, the gap narrowed with the rest of sub-Saharan Africa whose growth had been more than three times lower (0.8%). In 2017, 4 of the 5 countries with the highest growth in the continent were in Francophone Africa, namely Cote d’Ivoire, Djibouti, Senegal, and Guinea.
This increase is mainly due to the relative stabilization of the situation in some Central African countries still highly dependent on hydrocarbons and more marginally by a slight increase in growth in Francophone East Africa.
In the CFA zone which includes 14 of the 22 Francophone countries, growth increased from 2.7% in 2016 to 3.1% (or from 3.8% to 4.1% excluding Equatorial Guinea). This average is again driven by the West African Economic and Monetary Union (WAEMU/UEMOA) which continues to be the continent’s largest growth area (> 6% per year).
We are optimistic about prospects in Burkina Faso, Cote Ivoire, Benin and Senegal Stable governments with clear growth plans, stable commodities prices (particularly Gold and Cotton) and improving infrastructure makes Francophone Africa a ‘must-explore’ region for 2018.
In countries such as Nigeria, we expect the government to avoid policy measures, such as the elimination of petroleum subsidies or increases in taxes or tariffs, because of the cost to the electorate these measures will impose. Our stakeholders and clients will need to monitor these policy reforms and plan accordingly. On the regulatory environment, the need to generate new sources of revenue given the decline in revenues from natural resources will lead to tougher actions by government on improving tax and regulatory compliance by private sector entities.
For prospective investors with interest in engaging in Africa, several areas to consider are health care, data gathering, security, information technology, food industry and the small-scale manufacturing Sector. A rising population, increase in foreign reserves and reforms aimed at expanding insurance coverage could help in encouraging innovative health solutions for investors in the region. Dwindling external reserves in countries like Nigeria and Angola in 2016 encouraged policy measures aimed at improving backward integration, in their bid to conserve foreign exchange. We expect government policy measures in these countries to be driven on improving processing of raw materials locally and in creating job opportunities in the manufacturing sector.
One advice we provide to our clients in Africa is to avoid a one size fits all approach given the peculiarities inherent in different countries in Africa. It is important to study, monitor each African country you are investing in or plan to invest in. Ask a lot of questions, work with credible partners, understand the laws of the land, macroeconomic conditions, as well as the socio-political environment. It is important that each firm plans accordingly considering the political, economic and social complexities of the African market. This will provide a more sustainable guide to investing in Africa in 2018.
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