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Jeremy Amias, Vice President, Americas, Standard Chartered
New year, new opportunities
Describing 2020 as a challenging year seems an understatement, to say the least. While US businesses started the year uncertain due to continuing tensions between China and the United States, a new set of totally unexpected challenges emerged in March as a result of COVID-19. As we look to a new year, the question on the minds of many companies will be how to develop greater resilience and where to look for growth opportunities that will position them strongly for the future.
A recent survey by Standard Chartered of CFOs and senior financial leaders in Europe and America highlighted that growth outside the domestic market is a key focus for companies right now. However, entering a new market is never an easy undertaking. Cultural differences, contrasting operating styles, and mismatched regulatory expectations often present significant challenges. These may be some of the reasons why US companies do not rank Africa as well as other regions. Only 13% of those surveyed mentioned Africa as one of the top three markets for potential growth and only 2% ranked it as their first choice.
Moving in the right direction
Investors are cautious, despite the potential advantage of investing in Africa. The rhetoric of ‘Africa Rising’ is well known and the demographics speak for themselves: a young and dynamic workforce comprising more than 20% of the world’s youth population, and a combined population projected to reach 1.5 billion people in 2025. But alongside this, Africa also has a reputation that somewhere it is difficult to do business; in fact, only two African markets, Mauritius and Rwanda, are currently in the Top 50 in the World Bank’s Ease of Doing Business 2020 rankings (although it is worth acknowledging that no Latin American nation is in this group).
“Currently” is an important word to keep in mind here. We are on the cusp of a large-scale change that could make access to Africa a much more attractive proposition for American businesses. Chief among them is the upcoming implementation of the African Continental Free Trade Area (AfCFTA). Launched in January 2021, the AfCFTA will be a single market with a population of 1.2 billion people and a combined GDP of more than $ 2 trillion according to the United Nations (although other sources estimate that it could reach 3.4 trillion dollars). Dollars). While its main focus is greater collaboration within Africa, the creation of this bloc will make the region as a whole more competitive and accessible to outside investors by introducing far-reaching reforms that improve transparency, reduce red tape and simplify customs procedures.
Reforms in these areas should facilitate greater trade and investment opportunities between Africa and the rest of the world. Even before the AfCFTA goes into effect, we have already seen the positive impact that greater transparency and the trade corridors that can be opened when higher standards are adopted. In February 2020, Namibia became the first country in Africa to export red meat to the United States, the result of more than 15 years of negotiations on security and logistics. Thanks to this historic agreement, which is part of the Africa Growth and Opportunity Act (AGOA), Namibia can now access the substantial and lucrative US export market, and can expect beef export volumes to increase from 860 tons this year to around 5,000 tons by 2025.
When bilateral agreements of any kind are successful, they lay the foundation for further cooperation in the future. As formal negotiations between Kenya and the United States continue to create a bilateral Free Trade Area (in what would be the first agreement of its kind between the United States and a sub-Saharan African country), the United States has opportunities to strengthen ties. directly with particular African nations, as well as with the AfCFTA bloc as a whole.
As the saying goes, a high tide lifts all boats. If the expected reforms, whether coming from the AfCFTA or from bilateral agreements, can be implemented as planned in the coming months and years, the resulting improvements to the ease of doing business should help the region to love potential investors and create opportunities for Africans. US exporters and importers alike.
From mineral mining to data mining
Trading brokers are only part of the story. Foreign Direct Investment also offers mutually beneficial opportunities for investors and the industry looking to expand. Despite the pandemic, we just saw the largest FDI investment in Africa to date when in July, Total SA announced $ 14.9 billion of project finance for Mozambique LNG, the country’s first onshore liquefied natural gas project. This deal included USD5 billion in financing from the Export Import Bank of the United States, along with other export credit agencies, 19 commercial banks and the African Development Bank, and represents a resurgence of FDI flows into Africa, which they have been largely silent since 2014.
Oil and gas, natural resources and precious minerals have long been synonymous with Africa, but the continent represents much more than a supply of raw materials to extract. In recent years, many international companies have recognized the value that Africa has to offer when it comes to technology and innovation, from its young and tech-savvy population to its ability to overcome aging infrastructure by moving directly to technology. digital technology, as we have seen with mobile devices. payment solutions like M-PESA.
As Africa’s population grows over the next few decades, its emerging middle class will also grow – an audience of consumers who will want and expect the same access to online services and connectivity that is enjoyed in other parts of the world. The big players in global technology are already investing to capitalize on this growing audience and demand. On the infrastructure side, in South Africa, Microsoft has opened large-scale data centers with a focus on cloud-based business innovation. Google is currently in the process of branching out its Equiano submarine cable to extend connectivity to more countries in West Africa, while Facebook is building a 37,000 km cable in Africa that aims to deliver nearly three times the network’s current capacity. underwater.
And investing in talent is also a key focus. Google’s Grow with Google and Digital Skills for Africa programs aim to help young people develop skills in areas such as data science and cloud computing. Microsoft has launched the Africa Development Center in Kenya and Nigeria, which will see local engineering talent using data science, artificial intelligence, and machine learning to drive innovation in sectors like FinTech and AgriTech. Facebook also has its sights set on Nigeria, with a new office planned to open in Lagos in 2021 to nurture homegrown engineering talent and boost the company’s presence in sub-Saharan Africa.
Building for the future
The challenges we have seen in 2020 have shown that companies must become more resilient and take steps to better protect themselves from potential shocks. A key part of that is ensuring that supply chains are stronger. The early stages of the coronavirus outbreak highlighted the need for a tangible alternative to China, in particular as a supply base link and Africa is well positioned to fill that gap as well as being an area with a growing talent pool. that attract investors.
While the improvements we expect to see as a result of the AfCFTA and other reforms will not happen overnight, it’s worth noting that it also takes time to diversify a value chain, establish a talent pipeline, or meet needs. of a new audience. If these things converge in the coming years, that can give investors the peace of mind they need to rethink Africa as a growth market, if not for today, perhaps for the not-too-distant future.
