South Africa falls to the third-best investment area in Africa

South Africa falls to the third-best investment area in Africa

Rand Merchant Bank’s ninth edition of ‘Where to Invest in Africa’ – SA falls to third place and Tanzania drops out of the top 10.

This year, co-authors Celeste Fauconnier, Neville Mandimika and Nema Ramkhelawan-Bhana delve deeper into the traditional and alternative sectors driving African economies to reach ever-higher levels of economic growth. “We believe that the six sectors we’ve featured this year are key to inclusive growth across the continent,” says Fauconnier.

Contributor, Daniel Kavishe, adds that under the resources banner, “mining, energy and agriculture all offer vast opportunities for the savvy investor.” Turning to retail, Fauconnier says that it’s all about playing the long game. “While the middle class is not growing as fast as expected, the potential is still evident in the numbers.”

On the topic of finance, Ramkhelawan-Bhana stresses that “financial services play a critical role in securing Africa’s future. Without sustainable funding and commercial credit, project development in key areas such as infrastructure, healthcare, and energy projects remain concepts rather than reality”; she adds that “the ICT sector and internet access in particular, long-viewed as a luxury in Africa, are fast becoming crucial to inclusive economies.”

According to Fauconnier and contributor Chris Mabanga, manufacturing is set to take centre stage as the continent, with its advantage of an abundance of natural resources, is focusing on turning its raw materials into manufactured goods to boost exports and reduce reliance on imports. And, finally, Mandimika highlights that construction activity is surging as countries attempt to bridge the funding chasm between what’s needed and what’s actually being spent.

The Top 10

“After nine years of publishing, we never fail to be both pleased and surprised by the extent of improvement in countries that are not necessarily perceived as strong investment destinations.”, says co-author and Head of RMB Global Markets Research, Nema Ramkhelawan-Bhana. This year, Guinea, Mozambique and Djiboutirecorded the strongest gains in the rankings, with notable advancements in their operating environments.

The rankings are as instructive on the downside, identifying countries that have either stagnated or outright deteriorated in one or more aspects of our methodology. South Africa, Ethiopia and Tanzania are among the more prominent countries to have taken a tumble. A deterioration in the ease of doing business has contributed to their relative underperformance and, in addition, South Africa is enduring a cyclical downturn.

Tanzania’s fall from grace has reshuffled the top ten investment destinations, with Tunisia returning to the fold at number ten while Côte d’Ivoire and Ghana edge ever-closer to the top five. North Africa remains dominant with Morocco displacing South Africa in the rankings, rising to second place.

There is an even split of countries from the north, east and west within our top ten rankings, with only South Africa representing the southern tip of the continent, as a result of its dominance in terms of market size.

  1. Egypt: The enormity of the market paired with a sophisticated business sector relative to other countries makes Egypt the most attractive investment destination in Africa.
  2. Morocco: While only Africa’s fifth-largest market, Morocco’s expected growth rate of 4% over the medium term and its greatly-enhanced operating environment has served the country well since the Arab Spring.
  3. South Africa: South Africa has slipped another place in this year’s rankings, stymied by depressed levels of growth and a lack of structural reform. Yet it remains Africa’s hotspot for portfolio investment. With many countries facing severe liquidity constraints, South Africa’s financial markets and level of financial inclusion are still a cut above the rest.
  4. Kenya: The above 5% expected growth rates, helped by favourable weather and political reconciliation after 2017’s disputed elections, has propelled Kenya one spot higher than 2019.
  5. Rwanda: Rwanda has the second-best business environment in Africa. According to the World Bank’s operating environment scoring, the country has more than doubled the efficiency of its business environment in less than a decade.
  6. Ghana: The growth outlook is strong, concentrated around the oil and gas sector. Non-oil growth will pick up again, supported by pro-business reforms and a steady improvement in power supply.
  7. Côte d’Ivoire: Côte d’Ivoire is one of the more diversified economies in francophone Africa. Its strong growth rates are supported by the government’s pro-business reforms and a relatively stable political context.
  8. Nigeria: Nigeria retains its top ten ranking due to improved macroeconomics, supported by recovering oil prices and production. As the largest economy in Africa in nominal terms, the possibility for investment cannot be overlooked.
  9. Ethiopia: Ethiopia is the fastest-growing economy on the continent. With a population of almost 100 million people, demand for goods and services is rising significantly. The prohibition of foreign ownership in key sectors is still a constraint for investment, but this is slowly changing.
  10. Tunisia: Tunisia re-enters within the top ten supported by a reasonable market size and favourable operating environment.

Source: Joandra Griesel, Joandra.griesel@rmb.co.za 

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