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Whither Africa? Gently recovering

Proshare

Tuesday, May 23, 2017 9:20 AM / FBNQuest Research

The African Economic Outlook 2017 charts a slow recovery in African growth from an estimated 2.2% in 2016 to 3.4% this year and 4.3% in 2018.

The outlook, which was launched yesterday at the annual meetings of the African Development Bank (AfDB) in Ahmedabad, thoughtfully charts the growth without Nigeria: 3.0% last year, rising to 3.6% this year and 4.1% in 2018.

The projections are not comparable with the IMF’s for example, since the latter covers North Africa with the Middle East.

The outlook expects only a small increase in external financial flows to Africa this year, from US$178bn to US$180bn. It sees remittances as providing US$66bn, FDI US$58bn and official development assistance (once known as aid) US$51bn, with portfolio investors supplying the balance.

Given their size, it is surprising that more African governments do not energetically chase and facilitate remittances. One exception cited in the report is Ethiopia, which provides discounted airfares and duty incentives for entrepreneurs from its diaspora. It has also issued yellow cards which give the diaspora the same rights and benefits as domestic investors.

Remittances to Ethiopia have increased by a factor of 12 since 2000, compared with an average sixfold rise elsewhere in Africa.

The outlook, which is a joint collaboration of the AfDB, the OECD and the UN Development Programme, identifies a shift in external flows from aid to what it terms blended finance. It sees this trend deepening with contributions from state revenues, pension funds and even sovereign wealth funds.

The outlook’s special theme and sub-title is Entrepreneurship and Industrialisation. It cites market research showing that 75% of Africans view entrepreneurship as a “good career choice” and that 42% are potential young entrepreneurs.

However, 40% of Africans surveyed abandon entrepreneurship out of necessity. Further, those that persevere tend to work in retail, which requires limited credit.

Procurement can often account for as much as 50% of public spending. The law in Algeria, Morocco and Tunisia stipulates that at least 20% of public procurement is reserved for SMEs.

In our view the most revealing table in the outlook shows the top investing companies in Africa by capital investment for 2015-16. Outside the energy sector there is not one familiar Western multinational. Companies from Asia and the Middle East predominate.

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