By Standard Bank has said that Africa offers U.S. multinationals a compelling trade and investment opportunity thanks to the rapid economic growth rates being experienced across the continent along with burgeoning population growth and increasing urbanization.
According to the statement issued by the bank today, economic growth in sub-Saharan Africa has exceeded five percent a year for more than a decade now giving the continent a 4.1 percent share of global gross domestic product (GDP), up from 3.4 percent in 2000. By 2050 one in four of the world’s population will reside in Africa with at least 60 percent of the continent’s people living in urban centers.
“Trade with African economies and investment in Africa offer big rewards but it requires sound local knowledge, strong local partnerships, and a long term view,” said Mr. Sim Tshabalala, Chief Executive of Standard Bank Group, Africa’s largest bank by assets and market valuation. “In that sense the U.S. plan to revitalize its commercial and trade links with Africa couldn’t come at a more opportune time.”
The renewed U.S. interest in Africa is embodied by President Barack Obama’s Power Africa Initiative which was launched last year and aims to double access to power in six partner countries in sub Saharan Africa: Ethiopia, Ghana, Kenya, Liberia, Nigeria and Tanzania. The U.S. government has committed more than $7 billion in financial support and loan guarantees to the project over the next five years. That commitment has been doubled by the almost 30 private sector partners who have pledged $14.7 billion in project finance through direct loans, guarantee facilities, and equity investments for Power Africa.
Nevertheless, the U.S. still has some catching up to do. While they’re a major investor in Africa, particularly in information technology, manufacturing, resources, power, and financial services – trade flows have advanced on a much gentler trajectory.
Although U.S.-Africa trade doubled from about $50bn in the early 2000s to $110bn in 2013 it still lags China whose trade with Africa exceeded $200 billion last year. Yet it is precisely China’s emergence as Africa’s largest trading partner which underscores the potential value on the continent for U.S. firms.
Foreign direct investment into Africa has increased dramatically in the last decade and a half, and continues to grow. In 2013, FDI to Africa increased by 9.6 percent to an estimated $56.6 billion, representing 5.7 percent of global FDI. FDI is forecast to exceed $60 billion in 2014. Total foreign inflows to the continent reached $186 billion in 2013, and are expected to top $200 billion in 2014.
Emerging economies – and the BRICS in particular – are seizing the African opportunity. In 1992 China, India and Brazil accounted for just three percent of Africa’s global trade compared to 25 percent today. A wide range of firms from India, Brazil and South Africa are also expanding quickly in Africa, often with strong support from their governments.
Yet, while the U.S. may be arriving late to this party, the world’s biggest economy still offers unrivaled commercial and industrial excellence in many key fields. The vibrancy of U.S. multinationals, with their proven track records, industrial processes, established retail networks and brands, are of immense attraction to the ongoing consumer revolution taking place across Africa.
U.S. firms are also increasingly interested in the commercial opportunities in Africa. Major private equity firms, including the Carlyle Group, have launched Africa-focused funds valued in the hundreds of millions. Leading U.S. technology companies are investing in new ventures and start-ups across the continent. IBM has invested at least $100 million, with new Innovation Centers in Lagos and Casablanca. Microsoft and Intel Capital are embarking on partnerships with African tech companies, and Google is working on delivering broadband to remote communities.
“Africa has come a very long way from its era of aid-dependence,” said Mr Tshabalala. “The rapidly emerging middle class in Africa is driving large-scale diversification of Africa’s economies which offers immense opportunities for companies willing to invest.”
In Nigeria the middle class has swelled by 600 percent since 2000. Today, Nigeria is home to 4.1 million middle-class households, containing 11 percent of the total population. Other economies doing particularly well on this measure include Angola, where 21 percent of households are considered middle class followed by Sudan (14%) and Zambia (10%).
The number of mobile phone users in Africa has multiplied 33 times since 2000 and in the next five years it is likely that almost every African adult will have a mobile phone. Over 50 percent of urban Africans are already online, a figure that is likely to grow rapidly over the next decade.
“While there is still a lot to be done the overall direction that Africa is moving in is overwhelmingly positive,” said Mr. Tshabalala. “U.S. companies can do very well in Africa provided they put in the effort to understand the continent’s markets in detail, rather than looking at the continent as a single, homogeneous entity.”