More Africa Trade and Investment in 2023?

             For the past several years, proponents of Africa have trumpeted the rising gross domestic product (GDP) in some African countries as the growth of their economies seemed to signal a major turnaround for the continent and its people. The African Continental Free Trade Area (AfCFTA) gave hope that a strong, united African market was just around the corner. Yet, the major boost to African countries broadly has been stymied by COVID-19, conflicts and other challenges. One hopes these challenges can be overcome in this new year.

Kearney, a global management consulting firm with offices in more than 40 countries worldwide, first stated in its Global Retail Development Index (GRDI) of 2021 research report that Africa would be “retail’s next gold rush” as Asia’s growth slows. “Driven by growing, young, urban, and increasingly more affluent populations, Africa’s aggregate potential as an emerging retail market far outweighs problems associated with investing in what can still be risky and challenging individual nation-state economies,” according to the report, which also predicted that by 2050, the global population is expected to increase by two billion, and Africa will be home to most of these new lives.

Based on an average annual growth rate from 2020–2025, United Nations Urban Agglomerations data projects that, with growth rates ranging from 5.14% to 6.46%, Africa will be home to 17 of the world’s 20 fastest-growing cities – four of them in Nigeria (Lagos, Gwagwalada, Lakoja and Potiskum). Other cities on the list include Kinshasa, Kabinda and Bunia (Democratic Republic of the Congo), Luanda and Uige (Angola), Dar es Salaam and Songea (Tanzania), Nairobi (Kenya), Accra and Kumasi (Ghana), Kampala (Uganda), Bujumbura (Burundi) and Tete (Mozambique). Some are major urban areas that will be among the world’s largest cities, while others are small towns that will become cities.

This urban and peri-urban growth seems to bode well for expanded markets for foreign products and in most circumstances would attract companies looking for new markets.

“This year’s GRDI report illustrates how much, and how fast, markets can change and the critical role consumers play in driving that change,” said Greg Portell, global lead in Kearney’s consumer practice, in a statement. “What we see in Africa, for example, are multiple examples of modern retailing, underpinned by digital technologies and cooperative governmental policies, leapfrogging traditional models in response to the opportunities created by dramatic population increases, escalating urbanization, and the emergence of an expanding middle class.”

At the end of 2022, Business Insider and the Africa Collective initiative, taking into consideration that sub-Saharan Africa’s recovery has been abruptly interrupted in recent years, estimated that commercial activity has bounced back, lifting GDP growth in 2021 to 4.7 per cent. But when fully calculated, growth in 2022 is expected to slow sharply by more than 1 percentage point to 3.6 per cent as the result of a worldwide slowdown because of tighter global financial conditions and a dramatic impact of global inflation into a region already wearied by an ongoing series of shocks, including the effects of the Russia-Ukraine conflict. Nevertheless, they found seven African countries whose economic growth should lead the way on the continent:

1. Senegal

Senegal’s economy is set to expand the most in sub-Saharan Africa next year, according to the IMF in its World Economic Outlook. The emerging oil and gas exporter’s output is expected to grow 8.1% in 2023, compared with the projected 4.7% expansion in 2022, after producing its first gas from the BP-backed Greater Tortue Ahmeyim field in the third quarter of 2023.

2. Niger

The economic outlook is favorable over the near and medium term, with growth projected to accelerate from the estimated 6.5% in 2022 to 7.2% in 2023, led by agriculture and supported by the new “3N” agricultural initiative — Les Nigériens nourrissent les Nigériens — continued public investment in infrastructure and increased foreign direct investment in the extractive sector. Growth in oil, which has been negative in the last two years, should reach 20.6% when final 2022 numbers are calculated and 86.2% in 2023.

3. Rwanda

According to the IMF, Rwanda’s economy will grow at 6.7 in 2023, showing accelerated growth from the estimated 6.0 in 2022. Interestingly, all the East African Community countries are projected to post growths higher than the sub-Saharan African average of 3.6 per cent, which declined sharply from the 4.7 per cent posted in 2021, according to the IMF.

“We expect real GDP growth to accelerate in 2023. We expect high base effects and moderating global food and fuel prices will see headline inflation gradually decelerate to 8.9% by the end of 2023. This will likely improve consumer confidence, supporting household spending and business conditions. Moreover, we expect strong tourism growth as the hospitality sector's ongoing development and a high Covid-19 vaccination rate (as of October 16, 69.5% of Rwandans had received at least one dose) encourages rising tourist arrivals.”

4. Congo DRC

The economic outlook for the Democratic Republic of Congo is encouraging despite the Russia–Ukraine conflict, with GDP growth in 2022–23 reaching 6.7%, driven by mining and recovery of non-extractives. According to African Development Bank, priority investments should continue to support internal demand. Improvements to transport and logistical infrastructure are set to support the resumption of non-extractive activities, services and industries, stimulating export and tax revenue. Furthermore, the 2023 elections are forecast to increase public spending but slightly lessen the budget deficit from about 1.6% in 2022 to 1.5% in 2023.

5. Côte d’Ivoire

Côte d’Ivoire’s economy remained amongst the few Sub-Saharan African economies that maintained growth in 2020 despite the Covid-19 pandemic, and in 2021, GDP growth accelerated to an estimated 6% (IMF).

The Russia–Ukraine conflict could negatively impact the outlook for 2023. However, the West African nation is expected to benefit from investments and reforms in the Côte d’Ivoire 2030 Strategic Plan, the National Development Plan 2021–2025 and a more stable sociopolitical environment. Accordingly, growth should rebound to 6.7% in 2023, driven essentially by agriculture, industrial activity, buildings and public works, transport, commerce, telecommunications, investment and consumption.

6. Benin

Benin has one of the strongest economic growth rates in the West African Economic and Monetary Union area, with an estimated growth rate of +7.2 % in 2021, an increase of +3.4 percentage points compared to 2020. Despite the exogenous shocks linked to COVID-19 affecting some key sectors of the Beninese economy, the country has been able to count on the good performance of sub-sectors such as port activities, agricultural production and tourism. According to forecasts, the growth of the Beninese economy is expected to reach +6.2 %.

7. Togo

After a slowdown in GDP growth to 1.8% during the COVID-19 pandemic in 2020, the country rebounded to 5.3% in 2021, reflecting progress in the services sector. On the consumption side, household spending and public and private investment have strongly contributed to the recovery. Public investment was expected to remain strong in 2022 due to the "Togo Roadmap 2020-2025" implementation, gradually declining in favor of private investment over the next few years.

            Only DRC is among both the urban and economic growth leaders. So, what will this mean for U.S.-Africa trade and investment? American investors are notoriously skittish about putting money and equipment, not to mention employees, at risk in places that are not stable. Coups, civil unrest, high crime and confusing or difficult regulatory and legal environments discourage the commitment of potentially millions of dollars in projects in such countries. This is exacerbated by the ongoing dearth of information about commercial and social environments in African countries.

            Add to that the overall difficulties in registering and operating foreign-owned businesses in Africa and an ongoing brain drain of educated potential workers, and you have a situation in which American and other foreign companies interested in doing business in Africa are more reluctant to enter these markets than one might think given growing middle-class urban populations and demonstrably improving economic growth. In fact, African Renewal, a United Nations publication reported last summer that Africa is experiencing an FDI paradox:

“Africa’s labour and natural resource endowments are insufficient to attract financial capital. Other endowments count. Critical among these include low public capital (e.g., low infrastructure like energy, roads, rails and airports); low human capital (e.g., absence of skilled, educated and healthy labour force); and low institutional capital (weak security and judicial systems, weak property rights, and poor regulatory and standards),” the publication’s article stated.

Positive statistics alone will not assuage the concerns many investors and businesspeople have about entering African markets. There is too much as stake for American and other foreign companies financially to take risks they may not feel they need to make – risks that could be ruinous to their own futures. Money can be made anywhere in the world. Even now, with popular Asian economies and others experiencing economic downturn, African governments and private sectors must work together to create more attractive commercial environments in their homelands.

Trade and investment are not a right, they are an earned benefit.