Unlocking African growth through efficient infrastructure development

RMB announces its 2019 investment attractiveness rankings for Africa, with Egypt staying in the lead

In RMB's eighth edition of Where to invest in Africa, RMB Africa Analysts and co-authors of the publication, Celeste Fauconnier and Neville Mandimika, focus on the need for efficient infrastructure. They believe this is key to uncovering opportunities and unlocking Africa's growth potential.

Watch Africa Analyst Celeste Fauconnier as she shares some of the ranking’s highlights.

According to the World Bank, the lack of efficient infrastructure shaves up to 2.6% off African average per-capita growth rate, and places significant strain on human development. “The African Development Bank’s (AfDB) most recent estimation of infrastructure needs is between US$130bn and US$170bn annually, but the continent’s available capital is insufficient to achieve this.

The good news is that this shortfall represents an opportunity to businesses involved in the development or financing of infrastructure projects,” says Fauconnier.

In assessing the most attractive investment environments in Africa, RMB again considered two important conditions for viable investment – namely: economic activity and the operating environment.

While there were changes to this year’s Top 10, the top three countries from last year – Egypt, South Africa and Morocco, have maintained their positions in terms of investment attractiveness.  Egypt retained the stop spot – the largest African market in GDP terms, boasting the largest consumer market in the Middle East and North Africa. Its economy is diversified and receives large amounts of FDI. Explains Mandimika: “Strides have been made to improve the investment and legal business environment, and growth is forecast at 4%. The availability of hard currency to service debt and the depreciation of the Egyptian pound since its flotation in 2016, however, remain some of its challenges.”

South Africa has also retained its position –second in terms of investment attractiveness. According to Fauconnier, South Africa is currently a hot spot for FDI, with President Ramaphosa's efforts to build a US$100bn book of foreign and domestic investments project on track. “The country's currency and capital markets remain a cut above the rest of the African countries”. But she warns that subdued economic growth and the upcoming 2019 elections have created political party divisions, which hamper policymaking.

Still ranked third, is Africa's fifth-largest market, Morocco. With a growth-rate expectation of 4% over the medium term, Morocco's operating environment and investment appeal have been greatly enhanced since the "Arab Spring", the reintegration into the African Union and the accession to the Economic Community of West African States.

The report's analysis of individual African countries revealed that eleven African countries are forecasted to grow above 6%. Ethiopia is set to be the fastest-growing economy in Africa, averaging 8.2% for the next six years. The robust momentum is supported by improved macroeconomic policies and higher government investment in local industries and human capital. Private investment continues to increase after the resolution of the long-standing conflict with Eritrea. Other outperformers – and for similar reasons to Ethiopia – are Rwanda and Côte d’Ivoire. 

Certain sectors provide opportunities for long-term growth prospects. Resources will continue to play a leading role when it comes to attracting funds – particularly in the hydrocarbon, base and precious metals spheres. According to Mandimika, “The agricultural sector will become a more enticing investment target as agro-processing increases and global food demand spikes.” The all-important demographic dividend – especially the strong growth in population, urbanisation and GDP per capita – also provides growth prospects.

RMB also identifies other growth opportunities. From a fiscal perspective, Africa has low levels of revenue collection and the IMF estimates that sub-Saharan Africa could potentially collect an extra 3% to 5% of GDP in tax revenues by improving collection systems and broadening the tax net.  Says Fauconnier: “Private-sector investment has also been lacking. This could change through more business-environment reforms, increased infrastructure and financial-market development and trade openness.”

The report found no real improvements in operating environments across Africa. “Although findings reveal a slight improvement to the overall operating environment, access to financing, corruption, weak governance and inadequate efficient infrastructure remain problematic factors for doing business in Africa,” concludes Mandimika. The top five performers in terms of operating environments were Mauritius, Rwanda, Botswana, South Africa and the Seychelles. Mauritius is now in its 11th year of being the easiest business environment in Africa, and it keeps on improving.