While Africa’s 2015 GDP is down 1.2% from 4.6% in 2014, it is still among thefastest growing regions in world. As a continent with a population of over1.2B people, massive commodity repositories – 1/10th of the world’s oil, 1/3rdof its mineral reserves, and 2/3rd of the world’s diamonds – and approximately 60% of the world’s uncultivated, arable land, Africa is set to play an increasingly important role as capital continues to shift in the global economy. And as China’s middle class advances their ascent, driving the cost of manufacturing in the region higher, if Africa can effectively develop its infrastructure in the next 1 – 2 decades, it may be well positioned to take up the role of providing low-cost manufacturing to the world. With all of this in mind, if you are a multinational enterprise, or you have multinational clients, and are not keeping a close eye on Africa, you aren’t doing your job.
In an effort to keep their clients ahead of the curve on developments in Africa, each year Ernst & Young puts out their EY Africa Attractiveness Survey, outlining economic and political developments in the continent. Today we hear from Ajen Sita, EY Africa’s CEO, about some of the factors contributing to Africa’s economic growth and the expansion of their middle class. Please see a revised (and edited for readability) version of our exchange below:
On What Numbers To Watch
Parnell: Let’s talk about numbers. At a higher level, what would you say are the most important numbers that we should be paying attention to in Africa’s development? Projects? Capital flow? Job growth?
Sita: All of these numbers and more, really, because you have to understand what’s behind it. As an example, what we see in some markets, particularly in Nigeria and Angola, is that there’s been large amounts of Foreign Direct Investment (FDI) over the last three or four years. But they have typically been single large capital investments, whether it’s been in an oil field or anything in the resources sector, or any form of mining, oil extraction, or gas. Because they are usually single and large, they dominate the headlines due to the capital value involved. However, our experience is that those investments are not necessarily the largest job creators; rather it’s the smaller investments that have been having a more significant impact on that front.
So this is where FDI projects have come into play: Typically, the larger the number of projects, the greater the level of diversification. Markets that are receiving large numbers of projects also seem to have diverse economies. And it’s not just resource-based economies; they’ve got financial services, consumer, construction, retail – there’s a strong correlation between the number of projects and the number of jobs created.
To answer the question: we have to look at all of it. I certainly wouldn’t say that we don’t need single large capital investments. But you’ve got to look through that and say that in addition to single large investments, what Africa really needs is diverse investments, because those are the ones that create jobs.
On The Relative Importance Of Job Creation
Parnell: So you would say that the creation of jobs is most important in developing Africa?
Sita: From an Africa perspective, the continent clearly needs to create jobs. It has a dramatically growing population crossing the billion people threshold, with the added issue of it being an extremely young population; one of the largest youth populations in the world. Certainly over the next five to ten years, that youth population will also be of work-going age. When you have that demographic, you really do need fast growing economies and the jobs created by them, because you need to be able to absorb those young people into the labor market.
On FDI Decreasing While Capital Investment Increases
Parnell: So with FDI and jobs in mind, the EY Africa Attractiveness Survey2015 referred to FDI project numbers falling in 2015, but capital investment and jobs growing, which, on the surface conflicts. Can you expand on that?
Sita: That’s one of the anomalies in this report: Project numbers decreased quite significantly, but capital investment is at almost a five year high. That is largely attributable to the single large-scale investments in Ethiopia and Algeria, which have some large real estate housing construction projects, and some infrastructure projects – they have skewed the numbers. Once you’ve stripped out the big investment in Angola, Algeria, and Ethiopia, FDI projects are in fact down. And whilst we do celebrate the large capital, I would say there is also a real concern that the strong growth trajectory that Africa has been on for the last five years, from an FDI capital and projects perspective, has come off quite sharply in 2015.