Reasons why Africa next business destination for other nations
Africa is still a continent of commodities — with its forests, oil fields and mines — and demand for commodities has plummeted.
Africa now offers the world’s highest rate of return on investment. “Africa, usually the poorest performing region in the world economy, is now likely to be among the best-performing,”
The continent now has huge potential.” Or as Stephen Hayes, president and CEO of the Corporate Council on Africa, puts it, “Africa offers more opportunity than any place in the world.”
Africa still has its Darfurs, Somalias, Congos and Zimbabwes. But commodity prices are higher than they were in the 1990s. Most Africans are not middle class, but most also no longer live in extreme poverty. The World Bank says the percentage of Africans living on $1.25 a day or less dropped from 59% to 51% from 1996 to 2005 and has decreased further since.
The sub-Saharan Africa is still experiencing growth, a remarkable fact considering that the continent is a net exporter of primary commodities. By adopting sound macroeconomic policies over the past two decades and sector reforms, many African economies have already shown that they can sustain a trajectory of economic growth.
The continent has become the second most attractive investment destination in the world – ranking just behind North America — as investors are looking beyond the more established markets of South Africa, Nigeria and Kenya. Increased investment and industrialization will help to unlock the potential for job creation and poverty reduction in African countries.
Organization for Economic Cooperation and Development, review that foreign investment in Africa reached $48 billion, overtaking foreign aid for the first time. That gap has only widened, reflecting a quadrupling of foreign investment since 2000. As the senior adviser in Africa for the International Monetary Fund (IMF), David Nellor, noted in a report last September, sub-Saharan Africa today resembles Asia in the 1980s.
“The private sector is the key driver,” financial markets are opening up.” War is down. Democracy is up. Inflation and interest rates are in single digits. Terms of trade have improved. Crucially, said Nellor, “growth is taking off.” The IMF puts Africa’s average annual growth for 2004 to ‘2018 at more than 6% — better than any developed economy — and predicts the continent will buck the global recessionary trend to grow nearly 3.3% this year.
With rising production costs in Asia, manufacturers have been looking at countries such as Ethiopia, Kenya and Rwanda. Today, China, Turkey and India are the top three job creators in Africa’s manufacturing sector.
In an industrial zone outside Addis Ababa, the Chinese-owned Huajian factory — which opened in 2012 and became profitable in its first year of operation—reportedly plans to expand its workforce to 30,000 as part of a $2-billion investment, one more indication that “made in Ethiopia” could become the next “made in China.” But can Africa become a global outsourcing hub? Only if the right conditions are in place.
Africa is now a business destination is China’s new love for it. While the old superpowers still agonize over Africa’s poverty, the new one is captivated by its riches. Trade between Africa and China has grown an average of 30% in the past decade, topping $106 billion last year.
As trade volumes increase, demand for container traffic will increase by an average of 6 to 8 percent over the next 30 years according to the African Development Bank. Inadequate power supply remains the most serious infrastructure challenge. Regular power outages cost the African economy as a whole between 1 and 4 percentage points of GDP. Further, only one in three Africans has access to electricity, and those with power access typically pay up to seven times more than consumers elsewhere.
Africa Agriculture and agribusiness are expected to become a $1-trillion industry by 2030. Kenya is now the third-largest exporter of cut flowers in the world, with the industry employing more than 500,000 people. According to the Kenya National Bureau of Statistics, the floriculture industry exported 136,601 tons of product in 2018 and now accounts for 1.3 percent of the country’s GDP. But Kenya is adding more than half a million people to the labor force every year, so massive job creation is required.
By 2040, Africa will likely have a larger workforce than China or India.
According to the McKinsey Global Inst, the share of workers in stable employment will rise from 28% today to 32% by 2020. The growing African workforce of tomorrow underscores how crucial it is to continue to support economies on the continent today.
With more than half of the current population under the age of 18, there is incredible potential for growth and change in the workforce. The private sector is a key partner in delivering on our shared global agenda, bringing capital, jobs, skills, and innovation to help address development challenges.