Egypt has knocked South Africa (SA) from its long-standing top spot regarding investments in Africa, according to a recently released Rand Merchant Bank (RMB) ‘Where to Invest in Africa report for 2018.
This is the first time SA has not been in top spot since the report was initiated seven years ago. Nigeria, on the other hand, has for the first time not featured in the Top 10. This is due to the erosion of its short-term investment appeal by recessionary conditions, according to the report.
The report focuses on the main sources of dollar revenues in Africa, which allows it to measure the most important income generators and identify investment opportunities. The 2018 report also balances economic activity against the relative ease of doing business.
Egypt displaced SA largely because of its superior economic activity score, while SA has shown sluggish growth rates, which have deteriorated markedly over the past seven years.
While the report found that SA also faces mounting concerns over issues of institutional strength and governance, some things still count in the country’s favour. These include the rand, equity and capital markets, which the report points out are still “a cut above the rest” compared to many other African nations facing liquidity constraints.
One of the conclusions of the report is that Africa could find itself hovering on the brink of disaster if it continues to depend on its current economic fundamentals and does not usher in economic diversification. This involves understanding the need to adapt to the prolonged slowdown in commodity prices and sluggish levels of production growth.
Morocco retained its third position for a third consecutive year, benefiting from a greatly enhanced operating environment since the “Arab Spring” which began in 2010.
“Surprisingly, Ethiopia, a country dogged by socio-political instability, displaced Ghana to take fourth spot, mostly because of its rapid economic growth, having brushed past Kenya as the largest economy in East Africa,” according to the report.
Below are the top 10 African countries to invest in 2018:
- South Africa
- Cote d’Ivoire
The research shows, furthermore, that Uganda is steadily closing in on the Top 10 though market activity is likely to remain subdued after a tumultuous 2016 marred by election-related uncertainty, a debilitating drought and high commercial lending rates.
According to the report, although Botswana, Mauritius and Namibia are widely rated as investment grade economies, they do not feature in the report’s Top 10 mostly because of the relatively small sizes of their markets. Market size has been a key consideration in the report’s methodology.
“From a global perspective, African countries are still at the lower end of the global-performance spectrum, which continues to be dominated by the US, UK, Australia and Germany,” the report states.
“Some countries have been more nimble and effective than others in managing shortfalls,” explains Nema Ramkhelawan-Bhana, RMB Africa analyst and an author of the report, adding, “But major policy dilemmas have ensued, forcing governments to balance economically prudent solutions with what is politically palatable.”
RMB Africa analyst and co-author of the report Celeste Fauconnier adds that over the past three years, some African governments have had to implement deep and painful budget cuts, announce multiple currency devaluations and adopt hawkish monetary policy stances – all as a result of a significant drop in traditional revenues.
According to Nema Ramkhelawan-Bhana, African analyst of RMB, “Africa’s importance to the global economy is reflected in a number of noteworthy publications that have been distributed by respected organisations in recent years and we understand that no two businesses are alike and that they regard macroeconomic, political, social and operating variables differently.”
Governments are gradually coming to the realisation that diversification is necessary to foster meaningful growth. But transformation cannot be achieved in isolation. Structural reforms and greater private sector participation are crucial to unlocking Africa’s potential. RMBs analysis of sectoral developments — specifically in the spheres of finance, infrastructure, resources and retail — strongly support this point of view.
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