Egypt leads a new list of Africa’s most attractive countries to foreign direct investment (FDI), according to the latest Rand Merchant Bank (RMB) Where to Invest in Africa 2019 ranking, which was released in September. The ranking analyses the business and operating environments in 53 of Africa’s 54 countries (excluding Somalia due to a lack of data) to arrive at an assessment of FDI opportunity for the year ahead.
The report, currently available to RMB clients and becoming available to the general public in January 2019, focuses on infrastructure, one of the most crucial considerations when doing business in Africa, according to RMB.
The ranking is based on a 50% weighting for the economic activity score (comprising market size and market growth) and 50% relating to the operating environment (including corruption perception, global competitiveness ranking, and economic freedoms). It forecasts investment attractiveness for a three-to-five-year period.
Celeste Fauconnier, Africa analyst for RMB, shared her thoughts on the top ten at the recent Business of Africa Conference held at the Gordon Institute of Business Science in Johannesburg, South Africa, on 26 September 2018:
While still a difficult environment compared with Morocco and Tunisia, “it is easier for European and Middle Eastern companies to invest there than in … sub-Saharan Africa”, Fauconnier said. For the past two years Egypt has been the largest market in Africa in dollar terms, ahead of Nigeria and South Africa, and the country continues to improve its investment, legal, and business environment. Egypt also ranked at the top in the 2017–2018 report.
2. South Africa
There is no growth, the country is going into technical recession, and the market is no longer Africa’s largest, “but South Africa is still one of the best business environments and is still among the top five recipients of FDI in Africa”, according to Fauconnier. South Africa holds steady in second place.
The changes in the business environment made after the Arab Spring were such that Morocco has retained its third-place rank for the fourth consecutive year and, said Fauconnier, “it’s going to become a strong financial market in North Africa”.
Ethiopia remains in fourth position. The government is making major investments into sectors such as agriculture and telecommunications, as well as a national airline, and the country should grow at a rate of above 8% for the next five years. Said Fauconnier: “In the next five to ten years it’s going to be the next big country in Africa.” Government debt has increased significantly, but this could see Ethiopia relaxing its approach to outside investment in the coming months.
5, 6, and 7. Kenya, Rwanda, and Tanzania, respectively
These East African nations are perennials in the top ten. Previously, Kenya ranked sixth, Rwanda eighth, and Tanzania seventh. Rwanda stands out due to the reforms enacted since 2004 and its open business environment. Despite its small size, landlocked position, and unstable neighbours, Rwanda “is going to be an economic stalwart in the next few years”, said Fauconnier.
The dip in oil prices forced Nigeria out of the top ten last year for the first time in 15 years, but a market of 200 million people cannot be ignored and Nigeria has bounced back. FDI continues to flow in, meaning “this should be an economy which stays in our top ten”, Fauconnier said.
Ghana boasts an “easier business environment than the rest of sub-Saharan Africa [although] corruption levels are still relatively high”, said Fauconnier, contributing to its drop from fifth place. However, strong growth is expected, and improvements are being made to the financial and services sectors in particular.
10. Côte d’Ivoire (Ivory Coast)
Holding onto tenth place, the West African nation is showing strong growth, which is supported by infrastructure development. The currency is pegged to the euro, so currency volatility does not come into play.
Rounding out the top 20 were, in descending order, Tunisia, Mauritius, Botswana, Uganda, Algeria, Senegal, Zambia, Cameroon, Burkina Faso, and Angola.
Of these, Zambia and Angola deserve special mention. Zambia (steady at 17) has seen slack demand for copper (its main export) and rumblings that the country has not divulged its actual debt levels, despite assurances to the contrary by the government and the International Monetary Fund.
Angola (20) fell to 27 last year due to the collapse of oil prices. But with oil now back on track, coupled with a recent change in government, “it is a much more business-friendly environment”, said Fauconnier. With more transparency expected from the government of João Lourenço, along with a massive consumer market that is heavily reliant on imports, Angola is worth watching.
— Cara Bouwer is a freelance writer based in South Africa. To comment on this article or to suggest an idea for another article, contact Drew Adamek, an FM magazine senior editor, at Andrew.Adamek@aicpa-cima.com.