Investors in Africa look beyond extractives

This year’s Africa Investment Report brings to mind the new edition of Marcelo Giugale’s excellent book, Economic Development: What Everyone Needs To Know.

If you sometimes wished you had bought property in Mumbai, Shanghai or Rio 10 years ago, the World Bank senior adviser writes, a decade from now you will no less regret not having bought in Abidjan, Dakar or Nairobi today.

Fully 40% of announced greenfield FDI into Africa last year went into real estate, the report tells us, with the same proportion being invested in construction. This represents a shift: in previous years, extractive sectors have tended to top the African FDI charts.

Now we are starting to see a different dynamic. Do the latest numbers merely reflect a cyclical downturn in energy and other commodity prices or do they signal a lasting trend towards a more diversified basis for African growth? My hope and belief is the latter.

If you had to identify the single most important reason to be bullish on Africa’s prospects in the 21st century, it would have to be rapid urbanisation, of which the new data is a telling indicator.

Africa’s urban population is expanding by 15 million a year, according to the UN. That is how many people live in greater New York, Los Angeles and Chicago combined. No region’s cities are growing faster.

As Sir Paul Collier, a professor of economics at the University of Oxford, has written, “a successful city massively raises the productivity of ordinary people. It is the miracle of productivity that has lifted countries now in the OECD from the poverty that characterised the entire world until two centuries ago.”

US commerce secretary Wilbur Ross says investors are encouraged by the sight of “cranes dotting the skylines” of Africa’s cities, and he is right. Global private equity and sovereign wealth funds – along with home-grown investors – are pouring billions of dollars into business and industrial parks, retail complexes, logistics facilities and housing across the continent.

An encouraging example is BlackIvy, a US permanent capital company, which is developing much needed residential communities and an industrial park in Ghana as well as a cold chain logistics platform in Tanzania.

It is true that sub-Saharan Africa’s GDP growth is well off the pace from what it averaged during what Mr Collier has called the “benevolent decade”. During the early 2000s, debt relief, buoyant oil prices and surging Chinese demand for raw materials combined to push the region-wide average to not far shy of 6%, the Great Recession of 2008-2009 notwithstanding.

A modest recovery to 2.2% is projected by the IMF for this year – from 1.4% in 2016. These comparatively low headline figures are hardly nourishing the “Africa Rising” narrative.

However we should bear in mind that highly aggregated numbers often hide more than theyreveal. Africa, we need to keep reminding ourselves, is not one country. Economies like Nigeria and Angola that have come to rely excessively on oil exports may be hurting.

Others like Kenya, Tanzania, Uganda and Rwanda in the east and Senegal and Côte d’Ivoire in the west, are growing at more than respectable rates. Indeed, those same IMF projections have Ghana – fresh off its seventh consecutive peaceful election since

independence – projected as the third-fastest growing market in the world in 2018 at 9.2%. The oil exporters are getting the message as never before: they have no choice but to diversify.

We also need to be clear that Africa’s rise will be anything but seamless, uniform, swift or painless. While urbanisation can revolutionise economies, managed badly it can create cauldrons of poverty, violence and revolution.

Managing it well, while critically important, is not a sufficient condition for the region’s takeoff. The single largest constraint is the historical curse of economic Balkanisation.

De-fragmenting the continent’s economies into a single market for goods, services, skills and innovation remains a distant dream for now, but at least it is a shared one and firmly on the agenda.

On a sub-regional basis it is starting to be realised, its benefits demonstrated vividly by the East African Community.

What is most encouraging, though, is that Africa now has a partner with the resources, motivation and will to finance the infrastructure needed to connect and power the continent and its cities.

That partner is China, whose government, state-owned and private businesses and entrepreneurs now see Africa not just as a source of raw materials, but, much more importantly, as a vast new market and low-cost manufacturing base for Chinese products.

For this to be Africa’s century, African economies must be connected and diversified. Investment patterns give hope we are headed in the right direction. As Marcelo Giugale suggests, time to buy in Nairobi.

By Rosa Whitaker

Rosa Whitaker is president and CEO of The Whitaker Group and a leading expert on African trade, investment and business. She was Assistant US Trade Representative for Africa in the administrations of presidents William J. Clinton and George W. Bush.