While the current reality is that many African countries have become reliant on foreign direct investment (FDI) to implement their development plans, the longer-term goal should be for these countries to become self-sufficient, says Thomson Reuters Africa corporates and partnerships head Kamal Patel.
In becoming self-sufficient, such countries should rely on a network of neighbouring countries and regional trade blocks to support their growth, he adds.
Seven of the world’s ten fastest-growing economies are located in Africa, with several countries on the continent making solid progress to reform policies and institute strong governance that is influenced by international best practices, he highlights.
As a direct result of this, there has been burgeoning investment in key sectors, including power, resources, agriculture, information and communication technology and infrastruc- ture. With an emerging middle class in Africa, fast-moving consumer goods and retail industries have also grown exponentially.
However, the global economic slump of the past few years has also resulted in a general slowdown in growth for a number of African economies. In addition, continued perceptions of high risk, regional conflict, political uncertainty and societal unrest in several regions have left many emerging African States competing with developed and developing economies for FDI that can bridge the financing gap for key projects.
“The good news is that Africa is still rife with opportunities, with growing interest from multinational and African companies in mining resources, establishing supply chain infrastructure, and building power stations and distribution networks.”
In addition to focusing on ease of doing business and incentive-based initiatives to attract FDI, Patel highlights that African governments should also continue to focus on intra-Africa trade and investment – pursuing intra-regional trade liberalisation, institutional integration and infrastructure development.
“If we look at the fragility of the world economy over the last ten years – where key events, including the global financial crisis of 2008/9, the slowdown in the Chinese economy, Britain’s exit from the European Union (Brexit), the US election and even the downswing in commodity prices, have all had an influence on FDI into Africa – we can recognise the systemic risk to relying solely on foreign trade partners for driving growth on the continent.” Maintaining sustainable growth in Africa is, therefore, as much reliant on growing intra-regional trade and investment, as retaining the level of FDI into the continent, says Patel.
He points out that Africa is already benefiting from intra-regional trade, highlighting that, while a large portion of intra-African trade is conducted by South African multinationals, Nigeria and Kenya are playing a significant role in the western and eastern regions respectively as well.
He stresses that increasing intra-African trade and investment will empower Africa to sway import and export trade in its favour. African countries predominantly export primary resources and import manufactured goods, but establishing investment and regional trading blocks, for instance, can create significant opportunities to grow processing, manufacturing and supply chain industries that will result in more goods being made in Africa, for Africa. “This holds huge potential to promote economic and inclusive growth in African economies.”
However, when expanding into new or cross-border territories, Patel points out that the complexities of managing risk controls across the business increase signifi- cantly, as do associated costs.
“Getting it wrong is simply too expensive, from a reputational and financial risk point of view.”
Africa comprises 54 individual States, with different geographies; resources; regulatory, tax and legal environments; and industries at varying degrees of maturity, he outlines, adding that “a blanket approach to doing business in Africa is not a strategy for success”.
To assist with this challenge, Thomson Reuters – a leading source of news and information for professional markets – partners with clients to provide them with immediate access to insights on crucial rules of engagement for setting up business in other countries and ensuring the long-term success of such operations.
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The solution can be rolled out and adopted by financial and banking institutions across Africa and will enable these institutions and their clients to get down to business far more quickly and efficiently while significantly reducing the cost burden of complying with KYC requirements in these markets.