27 March 2013

Africa: Zim Not Benefitting From Africa's Growth

Photo: IRIN
Harare

column

AFRICA is fast emerging as a significant player in the global economic order and this point was acknowledged at the World Economic Forum held this year in Davos, Switzerland. Several parts of the continent are experiencing growth largely on the back of its rich natural resou-rces.

With the sluggish state of global economic growth, the world is facing unusual turbulence and turns to Africa in a quest for economic revival.

This week, leaders of the Brics — Brazil, Russia, India, China and South Africa converged in Durban for their fifth summit underscoring the rising economic importance of Africa. Signi-ficantly, newly-elected Chinese Presi-dent Xi Jinping is also making his maiden official visit to Africa which will also take him to Tanzania and Democratic Republic of Congo. In recent years, China has emerged as a key player in the unfolding African economic renaissance and has invested huge sums of capital in continent's rich resources base much to the chagrin and consternation of the West which has had historical ties to the continent through slave trade and colonialism.

The East African region is experiencing a boom as evidenced by the unprecedented interest shown by organisations to invest in the region. The East African economy has grown significantly despite the global financial and economic crisis. Further, the region offers a market of 140 million people with a further 120 million in three adjacent countries of Ethiopia, Mozambique and South Sudan. On the other hand, the Economic Community of West African States (ECOWAS) is a community of 15 states with over 300 million people and a forecasted GDP growth rate of approximately 6 percent.

In southern Africa, it is well-known that Angola was the world's fastest growing economy over the ten years to 2010 and it continues to be among the fastest growing economies on the continent. This growth has been fuelled, and will continue to be, by significant inflows of FDI capital attracted by Angola's substantial oil and just reserves. Outside its oil and gas potential, Angola is home to growing middle class and a diversifying economy which is attracting investors into sectors including but not limited to con¬struction, telecommunications, financial services and retail and consumer products.

In 2011, more than 15 African economies registered growth rates higher than 5 percent according to Accenture. In the next few years, sub-Saharan Africa is expected to grow by 5,3percent a year which makes it a highly attractive investment destination. On the other hand, FDI into Africa has been on a growth trajectory with projections that it could top US$150-billion by 2015 and creating 350 000 new jobs yearly.

Historically, the discourse on African economic development tended to focus largely on attracting FDI capital to the continent but this is beginning to shift. The continent is moving towards establishing a Continental Free Trade Area (CFTA) by 2017 and has tasked regional economic communities to drive the process.

The purpose of the CFTA is to boost intra-African trade which is at a measly 12 percent compared to inter-regional trade achieved by Europe (60 percent), North America (40 percent) and the Association of South-east Asian Nations at 30 percent. There is greater scope for intra-Africa trade and we are already witnessing this. For instance, South African companies are already in what one paper has called a "mad dash for their African pots of gold" spawned by the potentially huge African consumer market envisaged under the CFTA.

A number of top-tier South African companies are looking at acquisition opportunities mostly in East and West Africa. Old Mutual has set aside R5 billion to invest in Africa; Sanlam has reserved R500 million; MMI has earmarked R500 million while Absa is involved in a Pan-African acquisition of Barclays Africa worth a staggering R18,3 billion. Other South African companies such as Standard Bank, Liberty and Vodacom are already established on the continent and are looking at ways of strengthening their footprint there. Despite this huge appetite for investment opportunities by South African companies, Zimbabwe does not seem to be benefitting and this is worrisome considering the historically strong trade ties that used to exist between the two countries. Its exclusion in the Absa-Barclays Africa deal underscores its unattractiveness as an investment destination in the African growth story and serves as a reminder to policy-makers to do something urgently particularly in the area of doing business.

In the World Economic Forum Global Competitiveness Index 2012-2013, Zimbabwe is ranked at 132 position out of 144 countries. According to the country report: "Public institutions continue to receive a weak assessment, particularly related to corruption, security, and government favouritism, although overall the assessment of this pillar is better than it was just a few years ago. On the other hand, some major concerns linger with regard to the protection of property rights, where Zimbabwe is among the lowest-ranked countries, reducing the incentive for businesses to invest. And despite efforts to improve its macroeconomic environment — including the dollarisation of its economy in early 2009, which brought down inflation and interest rates — the situation continues to be bad enough to place Zimbabwe among the lowest-ranked countries in this pillar, demonstrating the extent of efforts still needed to ensure its macroeconomic stability. Weaknesses in other areas include health, low education enrolment rates, and official markets (goods and labour) that continue to function with difficulty".

A productive relationship between government and business is critical to unlocking value in the African context. A number of African governments are making progress towards creating more business friendly environments. For instance, according to the World Bank, of the 30 global economies that improved their business regulatory environment the most over the past five years, a third were in Africa.

More governments are encouraging private investment and implementing public-private partnership structures schemes as a means of financing infrastructure projects. A lot can be done to build on and accelerate this process, to further encourage investment, cross-border trade and positive economic development in a sustainable, win-win relationship.

Going forward, it is imperative that Zimbabwe resolves its political issues through a credible electoral process as was witnessed under the just-ended Referendum. The resolution of the political issue is critical to discounting the high political risk which is affecting the attractiveness of the country as an investment destination. The country has extremely strong fundamentals especially in its highly educated workforce, and rich mineral resource base in diamonds, Platinum minerals and gold and these should all put it in good stead to tap into the African growth story that is unfolding.

Anthony Jongwe is head of Business Advisory Services at a professional services firm based in Johannesburg.

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