The African Economic Safari: Booming Onwards

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African economy is gearing up for unprecedented boosts thanks to boosts in the form of vital FDI, PEs and SWFs.

"Sardegna 2" is Kenya's version of Italy's Sardegna - a beatiful beach streching from Watamu to Majungu, with white sand and sparkling blue waters.
“Sardegna 2” is Kenya’s version of Italy’s Sardegna – a beatiful beach streching from Watamu to Majungu, with white sands and sparkling blue waters.
60 percent of the world’s fastest growing economies are African economies including Nigeria, South Africa and Kenya

The National Bureau of Statistics quite recently published the report on the Nigerian economic rebasing endeavour which put the West African country’s GDP ahead of South Africa, making it the largest African economy. Following suit on this important developmental trend is the latest published result of the United Nations Conference on Trade and Commerce (UNCTAD) survey regarding FDI, PE and SWF trends in the entirety of Africa.

About SWFs

Sovereign Wealth Funds (SWFs) are investment-based equities and funds that are owned by the state. They are set up based on the surplus of balance of payments, official operations involving foreign currencies, returns received from privatisation operations and returns received from exports. The most significant objective of SWFs in an economy is to ensure its overall stability with respect to revenue generation and export activities.

Africa and SWFs

According to the latest UNCTAD survey results, it has emerged that FDI which had tapered off substantially in BRICS countries last year, dropping by about 18 percent, picked up intensity in the African countries. This increase in the FDI was the tune of about five percent that saw a monetary rejuvenation crossing US$ 50 billion.

This has prompted several SWFs and leading private equity (PE) companies from across the world and including those from Middle East and North Africa (MENA) to invest in the African region with more focused emphasis with the understanding that such investments will yield more returns in the time to come.

The survey results of UNCTAD have also in turn allowed one of the leading global market consultants KPMG to pinpoint the expected economic trends in Africa and the singular advantage that the region offers to investors. The following are the key summarised points:

  • The biggest incentive that Africa offers to the global economy at large is the huge reserves of natural resources that have made it near indispensable
  • The Sub-Saharan African countries are perceived to be the biggest recipients of the increases in FDI and PEs thanks to their continuous striving to improve their economic status
  • Since 2002, the biggest contributor to the increase in the overall GDP of the continent has been natural resources which have contributed to about US$ 24 billion to the total GDP of the region
  • The second-highest contributor has been the infrastructure sector which has contributed around US$ 15 billion to the total GDP beginning since 2002
  • Complementing these stronger trends is the growing middle-class sector across the African region which is expected to increase the overall revenue of the region to about US$ 14 trillion by way of increased demand for consumer goods and services
  • According to estimates, 60 percent of the world’s fastest growing economies are African economies including Nigeria, South Africa and Kenya
  • The GDP in the African region has averaged about five percent in the past three years and about one-third of the African countries have recorded GDP figures over six percent last year
  • Better reformatory measures to allow for more focus on overall development of the African region
  • Estimated increase and improvement of the regional work-force which will provide more substantiality to the region’s economic improvement endeavours

Problems and Threats to the African Economic Safari

Despite these lucrative opportunities, the African region still presents a few problematic areas that need to be sorted so as to avoid impairment to the region’s economic development. The biggest area of concern when it comes to the African region is that the region is still comparatively more volatile in terms providing ease for investors in case they want to withdraw operations in the region.

Likewise, the problems of governmental instability and sectarian violence also plague the African region which could impact the appeal of the region for the potential investors. It is also important for the potential investors to note that while the quality of the indigenous work-force is definitely expected to increase, in the present, they will have to put their own handpicked team of experts so that their intended purpose is served without any work-force problems to hamper it.

Conclusion

In spite of the problems and threats that the African region poses to investors, it is important for investors to know that the region is one that is undergoing tremendous changes on all footings. It is thus necessary for them to understand that these problems can – and have been – resolved fruitfully with productive successes for the investors and as such the region is deserving of all plaudits of credibility that have been coming its way. Like with any country, even the African countries require constant checking and inspections so as to ascertain all procedures are being followed and there is no threat of their operations being jeopardised.

Photo-Simone D/Flickr

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