3 key trends that will sustain long-term growth in Africa

A troubled murmur spread through the investment community in recent months, built on speculation that Africa’s economies are losing momentum after a decade of stellar growth. Turmoil in the foreign exchange market elicited doubts among investors as they watched the Nigerian naira, South African rand, and Zambian kwacha take a beating against the major world currencies. Economic growth in Africa’s largest economies — South Africa and Nigeria — decelerated to low single digits and stoked fears of stagnation and recession.

These challenges are real, but they’re not insurmountable. And they’re also only part of the picture.

Technology is revolutionising Africa’s economies, paving the way for gender and income equality, improved environmental conservation, and greater quality of life — all driving increased private consumption. Advancements are underway in virtually every industry, and investors must embrace the opportunities there instead of being spooked by the risks.

Here are three reasons for optimism:

1. Comparatively Stable Political Environments

Election cycles in 2015 and early 2016 have done a great deal to debunk the myth that Africa lacks the capacity for peaceful elections and stable transitions of power. Nigeria and Tanzania in particular emerged from heightened political temperatures with new governments in office and a focus on fiscal consolidation. The smooth transitions and emphases on economic growth reassured investors that these nations are on the rise. Both countries set a strong precedent for others that face elections in 2016 and 2017, such as Rwanda and Kenya.

Most African economies have struggled for decades to prove they’re politically stable enough for massive investment due to historical levels of civil strife and unrest. The new era of peace and relative prosperity heralds an exciting phase for investment on the continent.

2. Deepening Capital Markets and Growing Financial Centers

African governments stepped up their efforts to grow and develop their capital markets in the past five years. The Nigeria and Nairobi stock exchanges launched programs targeting emerging companies with strong potential for enterprise growth and focusing on regional integration, signaling Africa’s seriousness on this front. Casablanca and Johannesburg rank among the world’s 10 fastest growing financial centers. Meanwhile, Kenya is making a concerted effort to cement its standing as the regional financial center the greater Eastern Africa — these developments will raise Africa’s investment profile in the coming decade by easing access to capital for African companies and making it substantively easier for international investors to participate in the African capital markets.

3. New Resource Findings

Plummeting commodities prices in Africa frightened investors recently, and many now view extractive industries as albatrosses around some countries’ necks. While these slumps proved the importance of diversification, resources still have a role to play.

Countries such as Uganda, Kenya, and Tanzania are discovering resources that will tap new growth engines for the next several decades. Tullow Oil’s 2006 discovery of a petroleum reserve near Ghana’s coast turbocharged direct foreign investment into the country. Uganda and other economies could see similar scenarios, as they’ve reported finding vast reserves of minerals.

Investors should take note of these salient opportunities, despite the global economy’s short-term challenges. Emerging and frontier markets hold considerable long-term potential, particularly in Africa. Its markets possess vast untapped opportunities that have only begun to reveal themselves, and these will soon be key drivers of investment for the foreseeable future

Konstantin Makarov


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