INVESTMENT OPPORTUNITIES AND BUSINESS IN

Transcription

1 INVESTMENT OPPORTUNITIES AND BUSINESS IN THE AFRICAN CONTINENT World Services Group Spier Hotel, Stellenbosch, South Africa 13 October 2016 Dr Iraj Abedian PAN-AFRICAN INVESTMENT & RESEARCH SERVICES

2 Outline 1. Introductory Remarks 2. The Global and African Economic Landscape 3. Africa s Changing Landscapes: Commodity Exporters vs Importers 4. Africa: Investment Potential and Opportunities 5. Challenges to Doing Business in Africa 6. Concluding Remarks

3 INTRODUCTORY REMARKS

4 Introductory remarks 1. The global economy and Africa economy are plagued by some major structural imbalances and potentially disruptive under currents. 2. Structural blockages in Africa, especially infrastructure ones and poor human capital, continue to erode the continent s economic growth potential- the continent also labours under structural and policy constraints. 3. Among African countries, conditions for commodity exporters have deteriorated with the onset of the commodity price slump, affecting these countries economies negatively. 4. Economic growth is currently constrained by both local and global headwinds and growth forecasts for the continent have been downgraded, for example to 1.6% for 2016 by the IMF during July 2016 compared to the projected 4% during January 2016 for SSA.

5 Introductory remarks 5. The frequency of armed conflicts and terrorist acts has risen in the last number of years. Ongoing events in parts of Africa could further heighten domestic tensions, with increased disruptions in trade, tourism, and financial flows. 6. Notwithstanding these challenging factors, growth is projected to pick up in many African countries from 2017 and there are also numerous currently present and growing investment opportunities to be taken advantage of. 7. Africa s impressive economic turnaround during the 2000s saw average gross domestic product (GDP) growth more than double from just above 2% during the 1980s and 1990s to above 5% between 2001 and 2014.

6 Introductory remarks 8. The continent s diverse economies, growing population and growing incomes are some of the dynamics that present ample opportunities for doing business in Africa. 9. Although Africa s growth has benefited greatly from the commodity price boom, growth was not limited only to commodity dependent sectors. Evidence has shown that GDP was growing at similar rates in countries with and without significant resource exports. 10. The current changing global geopolitical risks could have material impact on Africa- and not all necessarily negative!

7 THE GLOBAL AND AFRICAN ECONOMIC LANDSCAPE

8 Weak global growth is persisting in The recovery in major advanced economies has stalled Global growth Source: World Bank

9 and activity in most emerging economies remains weak Manufacturing PMI Source: Haver Analytics and World Bank Note: Index numbers greater than 50 represent an expansion and vice versa.

10 Capital investment in the energy and mining sectors contracted sharply in 2015 amid weaker commodity prices Quarterly Capital Expenditures in the Oil and Gas Sector in Major Producers (Billions of dollars) Source: World Bank

11 however, investment has increasingly been geared towards non-resource based sectors Foreign direct investment to Africa: Resource-rich vs. non-resource-rich countries, Source: African Development Bank (AfDB), the OECD Development Centre and the United Nations Development Programme (UNDP)

12 Agriculture continues to play an important role in terms of value-added on the continent, yet its decline over the past four decades has largely been offset by the larger role of the service sector while manufacturing has been stalling Sectoral value-added by regions, (% total value-added), Sub-Saharan Africa Source: World Economic Forum

13 The African continent still contends with significant structural blockages Competitiveness score in context, Source: World Economic Forum

14 CHANGING LANDSCAPE: COMMODITY EXPORTERS VS IMPORTERS

15 The global economic slowdown, including the slowdown in China has had major negative implications for many commodity exporters countries, including African ones Impact of China s growth slowdown on commodity prices Impact of China s growth slowdown on commodity exporting and importing countries Source: World Bank

16 Terms of trade deterioration due to low commodity prices contributed to slowdowns in commodity-exporting countries, and Terms of Trade Source: IMF

17 many of Africa s net exporters of oil such as Nigeria are highly dependent on oil revenues, & this group has been severely affected by the low oil price African Exporter s Exposure to Oil, 2013 Source: KPMG

18 Oil prices remain low and have helped reduce inflationary pressures and current account imbalances for the approximately 40 net oil importers counties in Africa Brent crude oil prices, monthly, Jan 2014 Jun Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Source: IHS and PAIRS

19 The drop in commodity prices is already having a significant impact on commodity-exporting countries fiscus General government revenue, Billions Angola Republic of Congo Equatorial Guinea Nigeria Algeria Source: IMF World Economic Outlook Database

20 as well as their external positions Current Account Balance as % of GDP Angola Republic of Congo Equatorial Guinea Ghana Nigeria South Africa Zambia Algeria Source: IMF World Economic Outlook Database

21 AFRICA: INVESTMENT POTENTIAL & OPPORTUNITIES

22 Furthermore, Africa s growth path is diverging, with growth having decelerated in oil exporting as well as Arab Spring countries Real compound annual growth rate, % Source: McKinney Global Institute

23 Firms worldwide have seen massive growth in revenue over the past decades, with revenue growth shifting to emerging markets Global Firm Gross sales Source: McKinsey Global Institute

24 Africa s workforce is growing rapidly Projected workforce growth, : Sub-Saharan Africa, North Africa, China, India, Europe and the United States Source: African Development Bank (AfDB), the OECD Development Centre and the United Nations Development Programme (UNDP)

25 AGRICULTURE

26 Agriculture remains an important sector of the African economy: it contributes from 2.4 % of GDP in South Africa to 57 % of GDP in Central African Republic Agriculture, value added (% of GDP) for selected African countries, 2011 Central African Republic Sierra Leone Ethiopia Burundi Rwanda Ghana Morocco Angola Botswana South Africa Source: Gapminder dataset Note: Data for Rwanda, 2010 and for CAR, 2009

27 Low productivity and limited value addition to agricultural commodities has however resulted in the sector underperforming despite the huge demand for food in Africa and Worldwide Cereal yields by region, (Kilograms per hectare) Source: World Bank and World Economic Forum

28 Investing in Agriculture (e.g. equipment, fertilizers, and pesticides) has potential to result in higher yields and returns in the sector Fertilizer consumption in selected African countries, Source: World Economic Forum

29 With a population that has surpassed 7 billion and growing, the world needs more and more food. Africa can provide this as it attains its own green revolution. Africa represents about 60% of potentially available arable land in the world Additional available cropland, 2009 Source: Food and Agriculture Organisation, McKinsey Global Institute Note: Cropland is defined as land producing greater than 40% of maximum yield under rainfed conditions, excluding forest areas.

30 The potential for agriculture growth is however based on the amount of available cropland and potential to improve yields, these vary vastly across countries in Africa Agricultural land available for cultivation, million hectares, 2008 Source: McKinsey Global Institute

31 Both production and downstream processing offer large business opportunity in African agriculture Africa agriculture revenue potential, 2030 (USD billion) Source: McKinsey Global Institute

32 INFRASTRUCTURE

33 Africa currently spends less on economic infrastructure annually than the global average of 3.5% of GDP & needs to spend more to close infrastructure gaps Infrastructure spending, , annual average as % of GDP Source: IHS Global Insight; ITF; GWI; National Statistics; McKinsey Global Institute analysis

34 Infrastructure in Africa 1. Roads, ports, airports, rail, and telecom networks are the conduits of trade and mobility. Electricity fuels production, and clean water underpins public health. 2. Investment that modernizes and maintains these systems can propel economic growth, and hence open up more business opportunities. 3. Public-private partnerships have assumed a greater role in infrastructure, and they account for about 5 to 10 percent of total investment, and they will continue to be an important source of financing in the future.

35 Infrastructure in Africa 4. Institutional investors and banks have $120 trillion in assets that could partially support infrastructure projects worldwide. 5. Some 87 percent of these funds originate from advanced economies. 6. Matching these investors with projects requires solid cross-border investment principles. Impediments that restrict the flow of financing, from regulatory rulings on investment in infrastructure assets to the absence of an efficient market, have to be addressed. The most important step, however, is improving the pipeline of bankable projects. 7. In the recent past, increasingly specialized Private Equity Funds have entered the African infrastructure space.

36 The world s population in moving to cities, necessitating the provision of adequate urban infrastructure to meet the growing demand Urban Population Source: United Nations, Oxford Economics and pwc

37 By 2050 Africa s population is projected to reach 2.5 billion, and more Africans will live in cities than in the countryside by 2035 Urban population (% of total) Sub-Saharan Africa Nigeria South Africa Algeria Libya Source: Stats SA and PAIRS

38 City demographics are diversifying and fueling consumption growth Source: JSE and World bank

39 Different stages of development come with different infrastructure needs that need to be met through investments Four-stage urban infrastructure evolution Source: pwc

40 Infrastructure in Africa 1. Meeting the backlog will require deep policy restructuring, enabling private funding of some of the key infrastructure items such as energy, water, and some of the urban amenities. 2. Some policy makers are recognizing the need for planning and investing in African urban economies. Yet, the pace of progress is slow and ponderous. 3. Private investors have entered sectors such as energy, logistics and transportation. Much more potential exists for public-private partnerships.

41 CONSUMER BUSINESSES

42 Africa s growing share of global population is increasing Population as a share of total world population by region Source: UN data, Deloitte

43 and its GDP is rising fast.. Africa annual GDP, current prices, $ billion Source: World Economic Outlook, Deloitte

44 which all makes Africa an attractive market for consumer businesses Africa household consumption expenditure (current $, billions) Source: Deloitte

45 African consumer and business spending is worth $4 trillion, and is growing Consumer and business spending, 2015 Source: Oxford Economics; IHS; McKinsey Global Institute analysis

46 CHALLENGES TO DOING BUSINESS IN AFRICA

47 Access to financing, corruption and inadequate infrastructure come at the top as problematic factors for doing business in SSA Most problematic factors for doing business, sub-saharan Africa Source: World Economic Forum

48 as well as in North Africa Most problematic factors for doing business, North Africa Source: World Economic Forum

49 CONCLUDING REMARKS

50 Concluding remarks 1. Economic growth and overall activity remain lackluster in Africa and globally. Growth is however projected to pick up from Africa s diverse economies, growing population, escalating urbanization and rising incomes are some of the factors that present opportunities for doing business in the continent. 3. Sectors such as agriculture, infrastructure, consumer businesses have great potential to grow in the continent and therefore present great investment opportunity.

51 Thank you for your attention The End Tel: /7 Fax: