Is Nigeria Set to Overtake ZA to be the Number One Investment Destination in Africa?

Rand Merchant Bank (RMB) has produced its third annual report: ‘Where to Invest in Africa: A guide to corporate investment.’ This shows that Nigeria has climbed to second place, behind South Africa, as the most attractive investment destination, with the suggestion that Nigeria could soon overtake ZA to fill the number one spot. ZA Confidential spoke to RMB’s Africa Analyst Nema Ramkhelawan-Bhana to learn more…..

ZAC: SA remains the most attractive investment destination in Africa. What is it that keeps us in 1st place?
NRB: South Africa is still the most attractive country in Africa on account of its considerable market size and moderately good operating environment. South Africa remains the dominant force on the continent. At US$608bn, it is 8% larger than Egypt, its closest rival in PPP terms, and comprises 17% of Africa’s total purchasing power. Its affiliation to SACU is also advantageous as the Customs Union is credited with bettering the living standards of its member countries by facilitating trade within and outside the area. Despite a worsening in its growth outlook, South Africa is ranked third in our supplementary regional methodology, underscoring its importance as a gateway into Africa. Its scoring remains relatively the same on both measures of attractiveness, reflecting its trade and administrative dominance within SADC and the SACU.

ZAC: You say Nigeria is snapping at our heels…. What are they doing right and we doing wrong?
NRB: Nigeria has overtaken Egypt to second position in our rankings. This strong showing comes from expectations of continued rapid economic growth. Based on the pace of improvement in the attractiveness score, it is possible that Nigeria will overtake South Africa within the next two to four years. This could happen sooner if the revisions to GDP, that are currently underway, result in an upward adjustment in the size of the Nigerian economy. Of the top 10 in Africa, Nigeria has the largest improvement in its attractiveness score. South Africa, a giant in terms of economic size, is likely to register sluggish growth (3.2% according to the IMF’s estimates) in comparison to Nigeria, offering substantial market size but not exceptionally quick market growth. Despite being at the forefront of our investment rankings, South Africa trails its larger African peers, recording an uninspiring average growth rate of 1.9% over the last four years (2009 – 2012). Confidence remains depressed, evident in a decline in business confidence and a moderation in private sector fixed investment growth in 2Q13. Concerns about labour market developments and political uncertainty continue to weigh on the private sector’s willingness to invest. This unease will also translate into a moderation in employment growth at a time when households are already showing strain, as seen in slowing retail sales growth and rising bad debts.

ZAC: Is SA’s BRICS membership a factor? Does it place it above our neighbours, or is it something that is of benefit to the region as a whole?
NRB: Our study does not take South Africa’s BRICS membership into consideration but the socio-political, trade and development opportunities arising from the grouping is certainly beneficial to South Africa as well as its regional affiliates.

ZAC: Many Africa economies are growing far faster than those in the developed world. Is this going to suck in increased investment?
NRB: Africa’s rapid expansion over the last decade is a sound justification for investment, especially when nominal growth rates are taken as a measure of commercial return. We anticipate continued growth in FDI especially if we consider that seven of the world’s top 10 fastest growing economies over the next six years will emerge from Africa. The region as a whole is forecast to grow by 5.8% in 2013 providing vast opportunities for investment.

ZAC: What would you like to see changed to bring more investment into Africa?
NRB: According to the World Economic Forum, access to financing; corruption and inadequate infrastructure are still the top three barriers to doing business in Sub-Saharan Africa, which need to be overcome to facilitate greater investment. Africa is at a critical moment in time when it needs to boost industrial development and curb its infrastructure deficit if it is to transform its growth spurt into a sustainable trend.

ZAC: Traditionally, a lot of investment into Africa would have been into the resources sector. What are the sectors which will attract the most investment in the future?
NRB: While oil and mining activities continue to enhance the growth prospects of countries which are richly endowed with mineral resources, non-resource sectors are also expanding, although from a low base. In last year’s edition, we graphically illustrated where FirstRand’s clients (around 800 surveyed) are heading into Africa and how their footprint has grown. It is incredible to see the extent and pace of expansion into the continent. We extended the analysis further and found it interesting that half of FirstRand’s clients in our subsidiary countries are retailers or automotive and logistics companies. Local logistics companies deliver consumer goods, and transport minerals and soft commodities either for processing or export. This is mainly due to improving infrastructure and supply chains borne of rising consumer demand. Financial and business services are increasingly being demanded, while the service companies are expected to follow suit. This reflects the gradual transition from resource to consumer driven investment.

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