More and more international investors are circling Africa as the continent’s governments, banks and companies increasingly turn their attention to the global capital markets, a leading investor body said yesterday amid growing signs that the growth outlook for the southern Africa region is improving.
Economic growth for southern Africa will exceed 5% next year according to the World Bank, after registering a 4.6% expansion on average in 2014, even with the poor performance of South Africa and the pursuit of various conflicts, epidemics and terrorism threats across the region.
The Institute of International Finance (IIF) expects such a trend to be sustained even though commodity exports prices will remain under pressure for five years. This would point to greater activity in the capital markets, it said.
“The strong growth performance will continue for several years despite the end of the commodity boom, the slowdown in emerging markets and China,” George Abed, director of the Africa and Middle East department at the IIF, told Emerging Markets.
There is mounting evidence of Africa-related activity in the international capital markets. Kenya is considering issuing a Samurai or a sukuk bond, following its debut issue of a $2bn Eurobond in June
“Maybe we are ripe to do other things,” Njuguna Ndung’u, governor of the central bank of Kenya, told Emerging Markets. He said the Kenya authorities had been invited by the Japanese authorities (for a roadshow) but no decision has been taken. “This is a fiscal decision,” he said cautiously as the move has to be sanctioned by the Treasury and approved by Parliament. “But the point is that the market has been treating us very well,” he said.
However, the region faces a challenge, according to the IIF. While half of the 10 fast growing countries in the world come from Africa, six of the least equal countries were also located in Africa, Abed said. “This is an issue of governance. It is a critical factor in absence of state institutions that may help engage the lower class into growth generating activities.”
MAGIC FORMULA
There has been some improvement in governance and a more skillful management in several South Saharan countries in recent years. But they still need a more dynamic private sector and a more investor-friendly regulatory environment. Policymakers are still looking for the “magic formula” to boost the yet incipient middle class (50 million individuals out of a 900 million-strong population), Abed said.
The World Bank has said that despite the impressive nominal growth figures in recent years, GDP per capita had only grown by 2.1%. Moreover, there has only been a relatively tenuous link between growth and poverty reduction.
Abed said that in the developing world as a whole the growth elasticity of poverty was 2.0 — where one point of economic growth led to a two-point reduction in poverty — but in Africa it was just 0.7 — where one percentage point of growth of GDP leads to a 0.7% percentage point in poverty.
“Growth is somewhat less effective at reducing poverty there than in the rest of the developing world,” said Francisco Ferreira, Africa chief economist at the World Bank.