Lessons from World Economic Forum on Africa: Investment opportunities, hotspots and pitfalls

Written by Christine Petré (1) Monday, 02 July 2012 08:14 

Looking back at the World Economic Forum on Africa one might conclude that the future for Africa is looking rather bright. However, issues of obstacles and pitfalls were obviously raised and it is with a constant caution that people discuss the African continent in positive terms. Regardless, many speakers highlighted that the balance is starting to shift from Africa being dependent on the rest of the world, to the rest of the world being dependent on Africa, a trend which is especially clear within the agriculture sector.(2) Paul Collier, a professor of Economics at Oxford University, began by highlighting that Africa is facing a great opportunity for economic growth but the window of opportunity of economic possibilities, which have partly been a result of trade and investments from the Asian economies, needs to be handled efficiently and cautiously.(3)

The importance of investments, good governance and savings were highlighted at the Forum. Another recurring theme was the importance of increased regional collaboration and the empowerment of small scale farmers and Small and Medium Enterprises (SMEs), as well as the necessity of keeping agro-processing within the continent. This paper outlines the main issues discussed at the Forum. The main sectors that will drive Africa’s economic growth and present investment opportunities, the hotspots for this growth and investment, as well as the challenges facing Africa’s economic growth identified at the Forum are discussed.     

Sectors vital to economic growth and investment opportunities

The World Economic Forum on Africa focused mainly on four sectors: agriculture, manufacturing, infrastructure and natural resources. The importance of technology within all of these sectors was specifically highlighted.(4)

Agriculture

Agriculture is a key area for growth in Africa’s future.(5) The feeling was hopeful and decisive, with statements such as “the world cannot feed itself without the African farmer,”(6) frequently being used. Key points included that the agriculture sector needs conclusive policies and governance, agro-processing needs to be kept within Africa and Africa needs to engage in the global supply chain, as well as care for the small farmers.(7) In these endeavours National Governments play a crucial role. It is essential for Governments to provide farmers with needed technology, seeds and fertilisers and also to invest in agricultural research to develop seeds and tools appropriate for different soils, thus contributing to sustainable agricultural development.(8)

It is important for Africa to engage in the global supply chain. Africa has the potential to increase the nutritional value of the global food supply more than many other regions in the world because of the diversity of crops cultivated on the continent. However, in order for African farmers to benefit from their valuable contributions to the global food supply, the value chain in agriculture needs to be addressed holistically. It is necessary to engage with the whole process, from seed all the way to the marketplace, and not to deal with each component separately. Doing so will mean that the most economic value can be added locally.(9) To ensure this, the importance of agro-processing was raised on several occasions. Africa cannot continue to be a primary producer. Instead of exporting juice concentrate and then importing the juice, or exporting cotton and then importing the cloth, Africa needs to be able to follow the whole value chain. Why export all these job opportunities? In order to deal with this issue effectively it is necessary to include local enterprises and the private sector.(10)

A national financial structure is also essential. There must be proper financing for each component in the supply chain. Transactional banking (in which Africa is doing a great job through mobile banking), savings and accessible bank branches are important factors. While the issue of capital itself was not of central concern, the need to keep capital within the continent was raised. Development of manufacturing and improved and increased infrastructure to facilitate intra-African trade, were identified as being critical to achieving this retention of capital.  

Much emphasis was placed on the important role that small-scale farming operations can play in the growth of African agriculture sectors. It is generally not the small farmers that are linked to most risk. As Berry Martin, Member of the Executive Board, Rabobank Group, Netherlands, explained, it is generally on investments in larger farming operations that Rabobank Group has lost money, not the small and medium investments.(11) It is therefore crucial to engage, integrate and transform the smallholder farmers in order that they may attract more investment. Smallholder farmers need to be organised, mobilised and empowered as a labour force in order to increase their capacity and competitiveness.(12)

Investments in African agriculture have not been limited to smallholder farmers but have also been in large scale farming, as can be seen in Saudi Arabian and Indian investments in Ethiopia,(13) which demonstrates the growth potential of the African agriculture sectors and their ability to attract foreign investment. In a reflection of the value placed on transforming agriculture on the continent, the ‘Grow Africa’ partnership of seven member countries, an African-led and country-owned multi-stakeholder platform seeking to accelerate investments and transformative change in African agriculture, was highlighted at the Forum.(14)

-Infrastructure

Despite the emphasis on the agriculture sector as an important area for economic growth and investment, infrastructure is considered a means to attaining an industrialised economy and achieving economic growth and transformation. Therefore the risks associated with infrastructure investments and the divide between private and public sector engagement was on top of the Forum’s agenda. While the speakers were often at odds on the issue of the division of private and public sector investment, they did agree that dialogue between the public and private sector regarding infrastructure development cooperation is essential.(15) As it seems unlikely that the private sector is capable of filling the infrastructure gap in Africa, the public sector will need to make the lion’s share of the contribution to infrastructure development. However, a common agenda between the public and private sectors can make infrastructure investment more attractive as such a partnership may minimise the risks and increase the returns on investment.(16)

-Manufacturing

The manufacturing sector is key to economic transformation in Africa. No country in the world has managed to improve its income status by relying on exporting raw materials without a strong manufacturing sector.(17) Manufacturing is so important to Africa’s economic future as it can contribute substantially to solving problems related to poor growth in terms of gross domestic product (GDP), unemployment and balance of payment issues.(18)

There has so far been little progress within the manufacturing sector in Africa. Nonetheless, William Hickey, Chief Executive Officer of the packaging firm Sealed Air, emphasised that Africa, with its market of close to 900 million people, has the capacity to become a manufacturing success. However, challenges to manufacturing success include a lack of infrastructure, scale manufacturing, regional collaboration and political stability.(19) Manufacturing projects need to undergo a transformation and attract more investors as financing remains a critical problem. Nevertheless, the European economic crisis and slow growth in a number of major economies around the world will have a significant impact on foreign investment in Africa’s economies. Long term investments will have to start at the national level for international investors to be willing to take any risks.

Other priorities for an efficient manufacturing sector include the need to integrate industrial policy with trade and investment policies. In addition, the Forum highlighted the need for strategic partnerships between the state and the business sector. Investment in human capital and a more highly skilled workforce are also essential for African manufacturing to become globally competitive.(20)

-Natural resources

On the topic of Africa’s natural resources, Economist Paul Collier began by comparing Africa to post-World War II Germany, when Germany was forced to establish strong rules and institutions, in order to make sure a war would never break out again. According to Collier, this is where Africa is today, in a situation where strong rules and institutions are essential to effectively handling challenges connected to new oil and gas discoveries, in particular.(21) The panellists also emphasised the importance of monitoring national policies within such areas as the mining sector. Good governance and transparency remain a crucial priority.(22)

In addition, Government saving is an essential element of natural resource revenue for African countries, together with domestic investment. Mining companies are, to a large extent, engaging with local communities by, for example, contributing to the local supply chain of goods and services in mining. Development corridors were also highlighted and the importance of combining sectors such as mining and agriculture.(23)

Future hotspots

During the Forum Angola and Ethiopia were identified as the two fastest growing economies in Africa. The two countries, Angola, which is resource-rich and Ethiopia, which is relatively resource-poor, are also the recipients of the largest infrastructure finance from China to Africa.(24)

However, hotspots should not be defined in terms of countries alone. Martyn Davis, Chief Executive Officer, Frontier Advisory, South Africa,  argued that hotspots should be project driven, sector driven and consumer capturing driven.(25) In the same way that national borders are artificial in themselves, the economies within these borders are artificial. One should thus not limit oneself to a national market but instead focus on where an economic activity is taking place. One such hotspot is in the borderline between Angola and Namibia – Namgola.(26)

The panellists called on regional cooperation in Africa in general and in east Africa in particular.(27) East Africa was described as a remarkable region. According to the Chief Executive Officer of GE Africa, Jay Ireland, eastern Africa is interesting due to the fact that it is not as resource rich as the west and the south and has therefore been forced to grow economies without natural resources. Cooperation within this eastern region is essential for building a stronger economic future for Africa.(28) Increased cooperation in Southern Africa would also be profitable. Indeed, it was even suggested that the ‘S’ in BRICS should represent southern Africa in order to efficiently be able to engage with its BRICS companions.

When the panellists were asked to pinpoint a few countries that currently serve as economically strategic hotspots they selected Ethiopia, Rwanda, Ghana and Kenya. Other countries mentioned were Sudan, South Africa, Zimbabwe, Nigeria and Angola. All countries were mentioned without consideration of political factors.(29)

Obstacles

In summary, a few of the pitfalls for growth and investment discussed at the World Economic Forum on Africa 2012 were the lack of economic diversification, influx of investments, technical expertise and Government regulations.

The recent impressive economic growth that Africa has been experiencing has been dependent on the high prices of commodities. Many African countries still need to diversify their economies to become less vulnerable to the volatile nature of commodity prices and demand on the global market.(30) For economic diversification increased investment is necessary as the growth of all economic sectors is dependent on investment as a source of funding. Furthermore, Africa remains heavily dependent on China, which continues to be a very important investor in and lender to Africa. However, a slowdown in China’s economic growth will negatively affect the African market and growth.(31)

In order to foster economic development productive employment is necessary. There is a short supply of technical expertise, technical training and educated technicians on the continent. To ensure that Africa has a sufficient skilled labour force to drive economic growth, the young African population needs to be educated, organised and structured.(32)

Governance will continue to play an important role in the economic future of the continent. Governments need to act responsibly and contribute to making the investment climate more attractive. Some panellists argued that Government regulation within some countries and sectors continues to restrain African growth.

Conclusions

A few of the recurring requirements for Africa’s continued economic growth that were mentioned at the Forum included improving the necessary link between the state and private businesses, increasing cooperation at a regional level and empowering small scale farmers and SMEs. Many speakers also discussed the importance of agro-processing and staying true to Africa throughout the production chain. 

Despite the many political, economic and social challenges that face Africa, the summit raised many economic possibilities, highlighting diverse investment opportunities. The mixture of speakers at the summit all spoke of the African continent with cautious positivity, emphasising that Africa’s economic future looks bright. 

NOTES:

(1) Contact Christine Petré through Consultancy Africa Intelligence’s Finance and Economy unit ( finance.economy@consultancyafrica.com).
(2) White, G., ‘Africa’s Investment Heatmap’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(3) Collier, P. ‘Beyond Minerals: Africa’s Future Economy’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(4) Macharia, M., ‘Africa’s Investment Heatmap’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(5) ‘Accelerating Infrastructure Investments’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(6) Sheeran, J., ‘Grow Africa 2012’ World Economic Forum 2012 website,
http://www.weforum.org.
(7) ‘Grow Africa 2012’, World Economic Forum 2012 website,
http://www.weforum.org.
(8) Kikwete, J.,‘Grow Africa: Transforming African Agriculture’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(9) Abdalla, Z., ‘Grow Africa: Transforming African Agriculture’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(10) Kikwete, J., ‘Grow Africa: Transforming African Agriculture’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.  .
(11) Martin, B., ‘Grow Africa: Transforming African Agriculture’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(12) Abdalla, Z., ‘Grow Africa: Transforming African Agriculture’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(13) Zenawi, M., and Kikwete, J., ‘Grow Africa: Transforming African Agriculture’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(14) ‘Grow Africa 2012’, World Economic Forum 2012 website,
http://www.weforum.org.
(15) ‘Manufacturing Growth’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(16) Brown, G., ‘Accelerating infrastructure investments’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(17) ‘Manufacturing Growth’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(18) Aganga, O., ‘Manufacturing Growth’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(19) Hickey, W., ‘Manufacturing Growth’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(20) ‘Manufacturing Growth’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(21) Collier, P., ‘Beyond Minerals: Africa’s Future Economy’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(22) Fofana, M., ‘Beyond Minerals: Africa’s Future Economy’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(23) ‘Beyond Minerals: Africa’s Future Economy’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(24) ‘Africa’s Investment Heatmap’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(25) Davis, M., ‘Africa’s Investment Heatmap’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(26) ‘Africa’s Investment Heatmap’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(27) ‘Rethinking South-South Relations’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(28) ‘Africa’s Investment Heatmap’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(29) Ibid.
(30)‘Rethinking South-South Relations’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(31) ‘Africa’s Investment Heatmap’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.
(32) ‘Rethinking South-South Relations’, World Economic Forum on Africa 2012 website,
http://www.weforum.org.

Read more:

http://www.consultancyafrica.com/index.php?option=com_content&view=article&id=1061:lessons-from-world-economic-forum-on-africa-investment-opportunities-hotspots-and-pitfalls-&catid=87:african-finance-a-economy&Itemid=294

 

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