African renaissance: Opportunities for Sri Lankan companies

26 June 2013 05:00 am - 0 - {{hitsCtrl.values.hits}}

A A A

Sub-Saharan Africa has become one of the fastest growing regions in the world. The 1990’s was seen as the “lost decade” for the continent and Africa was written off as a basket case. Since then, there has been a “silent revolution” (Michel Camdessus, former Managing Director of the IMF). Conflict has abated, the macroeconomic policy framework has been strengthened and the investment climate has improved.

In 2012, Sub-Saharan Africa recorded growth of 4.7 percent. About a quarter of the countries in the region grew at 7 percent or higher. The following were among the fastest in the world; Sierra Leone, Niger, Cote de’Ivoire, Liberia, Ethiopia, Burkina Faso, Rwanda, Mozambique, Zambia and Ghana.

Robust expansion
Shanta Devarajan (until recently World Bank Chief Economist for Africa and currently Chief Economist for Middle East and North Africa) has stated that, “the broad picture emerging from the data is that African economies have been expanding robustly and that poverty is coming down.” While the aggregate numbers hide a great deal of diversity in economic growth and performance across countries, the region as a whole is expected to record growth of more than 5% per year in the years ahead fueled by commodity prices and strong consumer spending.

FDI has also been increasing. While such investment has tended to be dominated by extractive industries, other sectors such as infrastructure-related projects in construction, transport, electricity, telecommunications and water have also been attracting FDI. Some of the large economies, such as Nigeria, South Africa, Kenya and Ghana, have been attracting increased investment into their growing consumer sector, particularly retail and banking.

It is noteworthy that US companies enjoyed a 20 percent return on investment in Africa in 2010. The corresponding figure for Asia and Latin America were 15 percent and 14 percent, respectively.

Donna St Hill, Consultant/Equity Strategist currently working in Africa, has stated that the improvements in Sub-Saharan Africa’s economic indicators over the past decade have been “nothing short of remarkable”.

In the last 10 years, Africa’s trade with the rest of the world has increased 200 percent; inflation has averaged 8 percent; FDI grew by 25 percent in 2011 and foreign debt decreased by 25 percent.

It is also noteworthy that according to the latest Transparency International ranking only 7 of the 54 countries fall into the category of “serious concern” when it comes to corruption. St Hill argues that a number of African countries are on an upward path economically, politically and socially.

Opportunities for Lankan companies
While Sub-Saharan Africa enjoys the prospects of increased growth in the medium-term, FDI is expected to play a significant role in driving this. There are attractive investment opportunities across the continent. This raises the question whether Sri Lankan companies can benefit from this renaissance. It would be important to choose the country and the sector carefully. Some local companies have already established a presence in Africa in areas such as mini-hydro power generation and port management.

St. Hill has identified a number of sectors that have the potential for FDI. These include the following which could be of interest to Sri Lankan companies.

· Construction: the entire continent is being rebuilt. There are opportunities all across Africa. China has played the dominant role so far. However, as African countries seek to broaden their economic relationships, opportunities are opening up for other players. Collaboration with South African companies are said to offer good prospects. South Africa is the centre of excellence for construction and building design on the continent.

Tourism: continues to be a crucial sector in a number of African countries, including several English-speaking nations in East and Southern Africa. Opportunities are likely to exist in the area of hotel management, where Sri Lankan companies already have an international track record, as well as in investment in the sector.

Wealthy Africans are also looking for more ‘exotic’ destinations. This could offer opportunities to attract inbound tourists from the region.

Food and beverages: As incomes rise in Sub-Saharan Africa, the fast moving consumer goods sector will experience the same growth. Investment in the retail and logistics sectors could enable Sri Lankan companies to infuse capital and managerial expertise to expand operations of potential African partners.
Financial services: Sri Lanka’s well developed financial services sector can look for opportunities to tie-up with rapidly expanding African financial institutions.

Conclusions
There are, of course risks involved in investing in Africa ranging from country-specific ones to currency related risks. Some of these can now be mitigated by political risk products structured by multilateral institutions (e.g. the World Bank’s Multilateral Investment Guarantee Agency [MIGA]) and bilateral development agencies.

As in the case of any frontier market, both the potential risks and rewards are high in African countries. However, the rates of return enjoyed by investors in Africa seem to justify a careful examination of the potential for developing business opportunities for Sri Lankan companies to take advantage of the African renaissance.

In this connection, it is important that both existing diplomatic missions as well as the new ones that are being opened in Africa should attach high priority to economic diplomacy i.e. the promotion of trade, tourism and investment.

Order Gifts and Flowers to Sri Lanka. See Kapruka's top selling online shopping categories such as Toys, Grocery, Kids Toys, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,Astrology, Courier/Delivery, Medicine Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka

Comments - 0

Add comment
Comments will be edited (grammar, spelling and slang) and authorized at the discretion of Daily Mirror online. The website also has the right not to publish selected comments.

African renaissance: Opportunities for Sri Lankan companies

Comments - 0

Add comment

RECOMMENDED

‘Spike in blast fishing’ poses renewed threats to Sri Lanka’s marine ecosystems

UDA owned land in Thalawathugoda; UDA Minister Prasanna Ranatunga under the spotlight for forceful occupation of reserved land

Loss-making SMIB faces political pressure in recovering loans

Baltimore Bridge Collapse: MV Dali, SL authorities anchored in mystery?

Has Sri Lanka become a potential hub for the illegal wildlife trade?

Spotlight on Moragahakanda Development Project Moragolla villagers lose livelihoods and down to one meal a day

Ambitious Sri Lankan jobseekers ‘trafficked into Ukraine war zones’

Most Viewed in News

New Visa procedure implemented

Street food vendor arrested for verbally harassing foreigner

Ranil Wickremesinghe caravan moves on despite barking dogs

Gota fires back at Cardinal, rebuts allegations

Complaint lodged over Piumi Hansamali's possession of Gota’s Range Rover

Sri Lankan among NASA’s new crew for next simulated Mars journey

MIRROR CRICKET

Is Chamari Athapaththu Sri Lanka’s greatest cricketer ever?

Athapaththu back atop ICC Women’s ODI Batting Rankings

Chamari Athapaththu sets big goal for T20 World Cup

How does CSK get best out of Pathirana?

TODAY'S HEADLINES

Foreign powers intensify surveillance on Presidential elections as strategic interests take centre stage

New uterine loop for monkey birth control

Sajith avoids reception hosted for Iranian President

Do not be afraid to use weapons, Minister Alles tells police

Pakistan lose key players for last two T20Is against New Zealand

Sri Lanka secures third spot in South Asian Kurash Championship 2024

Athapaththu back atop ICC Women’s ODI Batting Rankings

Army forms committee to probe Diyatalawa Fox Hill Supercross accident