By Abdi Ali
Published September 15, 2017
A new survey shows that Ethiopia and Kenya present better opportunities for investment than any other African country.
The Africa Risk-Reward Index by by Control Risks consultancy and Oxford Economics forecasting and quantitative data analysts shows that socio-political and economic turmoil plaguing Africa’s leading economies in the north, west and south have led to doubts whether the balance between risks and opportunities in these markets is still favourable for businesses.
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The newly-published report presents Ethiopia and Kenya in eastern Africa as holding better prospects for investment across the continent. Ethiopia, the survey says, is one of Africa’s fastest growing economies and continues to offer strong prospects, outperforming every African peer with its high reward score of 8 out of 10.
The horn of Africa not only attracted US$3.2 Billion of foreign direct investment (FDI) in 2016, but its economic growth averaged 10% from 2010 to 2015 and although 2016 growth was slower at 6.5%, the expansion remains impressive.
The analysis notes that ‘the omnipresent role of government in the economy raises concerns relating to public sector efficiency and financial management’ and that the country’s ‘external debt is expected to increase to 38.7% of Gross Domestic Product (GDP) by the end of 2017’ that leads to a risk score of 5.8 out of 10.
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Kenya, to the south of Ethiopia, registered a GDP growth of 6.0% between 2010 and 2016. The 2017 growth forecast is at 5.4%. The country’s investment reward score is 6.7 out of 10.
The country’s relatively well-educated workforce, innovative service sector, government’s continued investments in upgrading critical national infrastructure, and deepening integration with its neighbours through the East African Community (EAC), all allow East Africa’s leading economy to act as a gateway into the larger East Africa region.
Current fiscal concerns and a political system that remains closely tied to ethnic affiliation, however, contribute to a risk score of 5.6 and reflects considerable room for improvement.
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Saying “The Africa Risk-Reward Index helps investors to identify some of the more hidden investment opportunities,” Paul Gabriel, Senior Analyst for Africa at Control Risks and lead-author of the report, says “Experienced investors – not only in Africa, but around the world – know that risk and reward are close companions.Real competitive edge can only be achieved when investors manage to stay ahead of the pack in knowing what’s next.”
But what could be amiss in Africa’s leading economies; South Africa, Nigeria and Egypt?
The Africa Risk-Reward Index shows that rising security risks and political instability in Egypt, economic downturn and militancy in Nigeria and escalating political risks in South Africa are affecting investment opportunities adversely.
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Though Nigeria scores 6 out of 10 on its appeal to investors, its risk score is 7.3 out of 10, the survey shows. A fall in oil prices and lower production due to insurgent attacks in the Niger Delta have slashed growth from 6.3% in 2014 to 2.7% in 2015 followed by a sharp contraction of 1.6% in 2016. The report forecasts a real Gross Domestic Product (GDP) growth of 1.1% in 2017.
South Africa’s risk score of 5.0 remains below the region’s average, but the reward score of 4.6 is also low.South Africa’s key institutions have gradually weakened over the past decade while economic prospects are closely linked to the outcomes of the governing African National Congress (ANC)’s national conference in December 2017. The predicted GDP growth of 0.5% for 2017 is below population growth and insufficient to reduce South Africa’s staggering 27.7% unemployment rate.
Egypt, on the other hand, has risk score of 6 out of 10 with Socio-economic grievances, government crackdown on the opposition and persistent militancy continuing to have an adverse effect business. The country’s reward score of 5.5 reflects the measures the government has taken since mid-2016 to address its fiscal problems. Its GDP growth is expected to slow in 2017 from 4.3% in 2016 to 3.8% owing to a slowdown in government and private consumption.