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10 Reasons Why You Should Invest in Africa

10 Reasons Why You Should Invest in Africa

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Published by Olivier Lumenganeso

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Published by: Olivier Lumenganeso on Aug 02, 2010
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12/28/2012

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10 reasons why you should invest in Africa
 
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10 reasons why you should invest in Africa
Africa is a land of opportunities in the 21st century. Global investors should not be bogged down by the continent’slong dark history. Africa is shining at present. They should be able to seize the portfolio of opportunities thecontinent is offering. Persistent and high economic growth, the commodity price boom, macroeconomic stability,reduction in political instability and internal strife, conducive macroeconomic policies, and deepening regionaleconomic integrations anchor growth and maturity of opportunities in the continent.
By
Olivier Lumenganeso
, economist, financial strategistJuly 2010
or years Africa has been known as the continent with beautiful landscapes, exotic animals and rich naturalresources. As a region to invest money in, Africa was mostly seen as unexplored territory.Only in therecent past, has the second
 
largest continent in the world begun to move into investors focus due to itsinteresting investment opportunities. Undeniably, Africa has witnessed, since the beginning of the newmillennium, significant economic growth, strongly outperforming OECD (Organization for Economic Cooperationand Development) members, for example. This improvement is largely attributable to high commodity prices,better economic policies and political reforms implemented by the African governments, a growing middle classand the end of hostilities in a number of countries. It comes as no surprise that experts from the InternationalMonetary Fund (IMF) state that Africa is now “at its best period of sustainable development and low inflation”.Here below we present 10 reasons why global investors should be interested to invest in the continent.
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A continent in the move
frica, indeed, is a vital region of the world. With close to a billion people (15% of global world population)and vast natural resources, the region’s opportunities and accomplishments are frequently overshadowedby crises, conflicts, and chronic poverty. More than one in eight people on earth live in Africa. More thanhalf of these men, women, and children live in abject poverty. The continent attracts less than 1% of global capitalflows and accounts for less than 2% of world merchandise trade (exports and imports), 3% of world exports of commercial services, 4% of global gross domestic production (GDP), and 5% of net capital inflows to developingregions. As a result, Africa is not a primary destination for global capital. But without significant amounts of capital, Africa’s development objectives will not be achieved. While these challenges are daunting, recent datashow that global capital flows into Africa can be enhanced significantly. This potential reaffirms that Africa’schallenges do indeed have solutions.Yes, Africa is a continent with great challenges, tremendous opportunities, and unappreciated accomplishments.Since 1990, for example, 42 of the 48 countries in sub-Saharan Africa have held multi-party elections, and most Africans today have the right to choose their leaders at the ballot box. But on the other hand, Africa has fallenbehind the rest of the developing world in many dimensions of development. Life expectancy has decreased withthe rise of the HIV/AIDS pandemic. The average African is poorer today than he or she was two decades ago,and the number of people living in poverty has increased steadily during the past 20 years (although the share of  Africa’s population living in poverty has remained largely unchanged). These broad trends, nevertheless, masksignificant differences across the continent.Nevertheless,while some countries remain mired in conflict and economic stagnation, nearly a dozen haveachieved economic growth rates of 5% or more in the last ten years. An increasing number of these countrieshave successful, profitable, and export-oriented private investments.These successful investments suggest that Africa provides many opportunities for external capital to generate attractive returns and for some Africancountries to emerge as examples-both political and economic-for the rest of the continent to follow. Despite thisimportant progress in some parts of Africa,the continent is still perceived as risky, and that perception in manycases is higher than warranted. As a result,even those African countries that have significantly improved their investment climates experience difficulty in attracting substantial new investment.
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10 reasons why you should invest in Africa
 
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Better political landscape and business climate
he political landscape of Africa has also undergone significant positive and lasting changes over the past 15years. Several African countries halted their deadly hostilities, creating the political stability necessary torestart economic growth. Governments moved from armed military structure to pluralistic political system. In1985, 37 out of the 53 countries in Africa had undemocratic and authoritarian governments. At present only 11countries still have governments that came into office without due process. Since 1990, for example, 42 of the 48countries in sub-Saharan Africa have held multi-party elections, and most Africans today have the right to choosetheir leaders at the ballot box.Doing business in Africa was once perceived as a difficult and complex undertaking. The reasons: the numerousprocesses associated with conducting business, combined with a fragile investment climate and inadequateinfrastructure. But with political reform, it is reasonable to expect economic freedom and growth.With fewer conflicts, more democratic elections, and economic growth rates that gradually have begun to compete with thoseof other developing regions, Africa is proving itself again a continent of positive change. Together, all thestructural changes helped fuel an African productivity revolution by helping companies to achieve greater economies of scale, increase investment, and become more competitive. We believe the journey to prosperity in Africa has begun. It is unfortunate that the focus on backsliding and setbacks in a few countries overwhelms theencouraging picture in the rest of the continent.
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Solid and buoyant economies
frica is the least developed continent in the world. The combined GDP of the continent in 2009 was USD1.6 trillion, USD 2.2 trillion based on Purchasing Power Parity (PPP). This compares with the combinedWorld GDP of USD 58.1 trillion (PPP) and that of China USD 4.9 trillion (PPP). The continent has shownremarkable economic growth since 2001 with continental annual average economic growth in excess of 5%,among the fastest-growing parts of the world between 2001 and 2008, with average growth of 5.6% a year. Whilethe commodity boom played a role, stable macroeconomic conditions coupled with structural reforms, includingthe privatization of state-owned enterprises and lowered barriers to competition and foreign investment,underpinned the impressive growth. It was accompanied by large amounts of foreign direct investment (whichmore than tripled during these years), including inflows from emerging Asia (China and India or CHINDIA herebelow) and from the Gulf countries. In sum, foreign investment has diversified in recent years as a number of  African governments undertook structural reforms to make their economies more attractive.
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10 reasons why you should invest in Africa
 
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Even though Africa was hit by the recent global financial and economic crisis, and growth slowed sharply in 2009,to 2.5%, the continent avoided the recession. The impact of the crisis varied across regions and countries, thoughon the whole the decline in growth was less severe than expected, allowing for a faster recovery. In sharpcontrast to other parts of the continent, southern Africa has been directly affected by the global crisis because itsresource-rich countries are dependent on exports. The group of middle-income countries in North Africa, despitetheir close integration with the European Union, fared much better, partly because of their less open capitalaccounts and more diversified economies. The IMF is forecasting that Africa will achieve 6% of real GDP growthin 2011.Growth at this pace qualifies Africa as a fast-growth emerging market and reflects a steady improvementover the last 10 years. This improvement, again, is the result of a number of factors, including a massivereduction in debt, falling interest rates and falling inflation. Less easy to quantify but no less important, most African countries are now stable and their people are beginning to experience personal and economic freedom.Yes, the key reasons behind this growth performance surge included government action to end armed conflicts,improve macroeconomic conditions, and undertake microeconomic reforms to create a better business climate. African governments increasingly adopted policies to energize markets.They privatized state-owned enterprises,increased the openness of trade, lowered corporate taxes, strengthened regulatory and legal systems, andprovided critical physical and social infrastructure. Next, Africa’s economies grew healthier as governmentsreduced the average inflation rate from 25% in the 1980s to 6% after 2000. They trimmed their foreign debt byone-quarter and shrunk their budget deficits by two-thirds. Compared with the 1970s, many governments in Africahave shown a more prudent fiscal approach to the commodity price boom in recent years. In sum, the Africanfiscal position has improved from a deficit of 2.7% of GDP at the start of the decade to a 1.9% surplus in 2008.

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