Sub-Saharan African economies have enjoyed the second-fastest growth rate in the world for the past decade, and the trend looks set to continue, according to the Institute of International Finance (IIF).
The global association of financial institutions last week released its first regional report on Sub-Saharan Africa, covering seven countries - Cote d'Ivoire, Ghana, Kenya, Nigeria, South Africa, Tanzania and Zambia - that together account for 65% of the region's economy.
The release was timed to coincide with the IIF's inaugural Africa Financial Summit, taking place in Cape Town on Monday and Tuesday and bringing together more than 100 financial sector leaders from across the world to deliberate on the progress and prospects for African economies and financial markets.
The seven countries surveyed have, the report states, achieved an average annual 4.7% rate of economic growth since 2007, despite the global financial crisis of 2008-09.
"Many countries on the African continent have achieved great progress in stabilising their economies and consolidating their rates of growth," George Abed, director of the IIF's Africa and Middle East department, said in a statement.
"What is remarkable about this outcome is that it has been achieved during a period of unprecedented global financial turbulence. There are challenges ahead for Africa, but the trend of solid growth of the past decade looks sustainable over the medium term."
Foreign direct investment
The region's strong economic performance, the report states, has been underpinned by more democratic political processes and better macroeconomic management.
At the same time, capital flows into Sub-Saharan Africa have shifted from the public to the private sector over the past decade.
These have remained focused on foreign direct investment (FDI), primarily in oil, gas, mining and chemicals, but more recently in the telecoms and retail sectors. Between 2000 and 2011, FDI in the seven countries surveyed rose more than five-fold, from under US$3-billion to $15.5-billion.
However, attractive yields have also drawn in portfolio investors, especially in Ghana, Kenya, Nigeria and South Africa. In 2011 for example, the report estimates that inward portfolio investments totaled around $12.5-billion, more than half of which was directed towards South Africa.
"Capital accounts and markets have become more open and, together with better governance, this has facilitated a rise in portfolio investment in the past few years," the report states. "The stock of portfolio liabilities in the seven countries covered in the report rose from $21-billion in 2001 to $167-billion in 2010."
According to the report, foreign investors in the region have tended to focus more on bond than equities in the past few years, particularly in South Africa, due partly to the large yield differential between the country's government bonds and US and European treasuries.
"Fixed income activity has in addition been particularly strong this year, as foreign funds positioned themselves ahead of South Africa's inclusion in Citigroup's World Government Bond Index (WGBI), and Nigeria's entry into the JP Morgan GBI-EM bond index."
Previewing the challenges facing Sub-Saharan Africa, Abed cautioned that the region's recent strong performance had been helped by massive debt relief and a sustained commodity boom, but that "the future global environment may not be so accommodating.
"The prospects for continued growth in Sub-Saharan Africa remain contingent on greater economic diversification and on reducing dependence on commodity exports," Abed said.
"Progress on political stability remains fragile, and this needs to be reinforced by building strong institutions, cementing further the rule of law, and improving public accountability."