Energy is the key driver of Africa’s economic development, according to a new study.
Titled “Financing Africa’s Growth on the Horizon of 2020: Perception of International Investors,” the study contends that cheaper and accessible solar, gas, or oil energy sources will enable investors to produce goods that are price-friendly to consumers.
“These renewable energies have an advantage because they can create huge numbers of jobs required to operate them and provide electrical power to remote areas lacking main grids,” Havas Horizon, study conductor, says.
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This conclusion jibes with that of the 21st Conference of Parties to the United Nations Framework Convention on Climate Change (UNFCCC) held last December. At the time, the UNFCC concluded that its member countries, including those in Africa, will depend on renewable energy sources to a great extent for power generation and the reduction of prices and climate change.
For the Financing Africa’s Growth study, Nigeria, Ivory Coast, Kenya, Morocco, and South Africa are singled out as the four most-promising African players in the energy sector for the 2016-2020 period.
It further notes that financial services, retail, and construction are other promising sectors of the African economy. In particular, the financial sector is expanding rapidly due to the four main financial markets in African cities, including Johannesburg in South Africa, Lagos in Nigeria, Casablanca in Morocco, and Cairo in Egypt.
Furthermore, interest in the construction, retail, and telecom sectors has been spurred due to the purchasing power and consumption of the middle class.
“Growth in private consumption increased from 1.6 percent in 2014 to 2.7 percent in 2015, which would suggest significant development potential for these sectors in the medium term,” the study notes.
Investors have also not written off other sectors, such as transport and agriculture. Transport relies on the rise of road, rail, and port infrastructure on the continent. Examples include the Trans-Maghreb Highway in North Africa and the West African Rail Scheme and West African Power Pool.
The strength of agriculture lies in its ability to provide import-export revenues and be Africa’s largest source of employment due to the food processing sector.
The case for the agricultural sector is further boosted by the UN Economic Commission for Africa (UNECA). It estimates that African countries spend almost $30 billion annually on imported processed food products.
Furthermore, the study finds that Ethiopia, Nigeria, and Morocco are three African countries with the potential to attract investors.
For instance, 52 percent of the respondents interviewed in the survey note that Ethiopia stands out because it brands itself as a “world-class industrial hub.”
“This is due to an average growth of 8 percent over the last 10 years; a constant improvement in competitiveness; a population of over 90 million, thus making it the continent’s second-most populous country; and an ambitious policy of industrialization,” notes the study.
As for Nigeria, the report notes that its strength lies in its high population of 175 million people and a growth of infrastructural projects, which should decrease its reliance on oil.
The fact that investors consider Nigeria second to Ethiopia points to recent global trends. In 2013, the Nigerian Bureau of Statistics found that the country is Africa’s biggest economy due to oil export revenues when it finished rebasing its economy.
However, the World Bank notes that with the fall of global oil prices in 2015, the economic growth of Nigeria and other oil exporters has slowed down.
The third country that the study notes is Morocco, despite its conflict with its nationalist movement Polisario Front over who are the real occupants of the North West desert coast of Africa. According to the BBC, the conflict over Western Sahara dates back to the 1970s.
“Morocco has a rising economic growth of 4.5 percent, an attractive tourist destination, a successful export manufacturing industry, and sustainable development strategy,” reads the study.
Morocco is also likely to be the next host of the 22nd Conference of Parties of the UNFCC.
Despite this positive outlook in these African economic sectors, the study warns that investor confidence isn’t set in stone due to fluctuations in the prices of raw materials, regulatory barriers, political instability, health-related risks, terrorism, and climate change.
Specific cases include the Ebola pandemic in West Africa, political instability in Somalia, and climate change, which has adversely affected countries such as Guinea Bissau, Sierra Leone, Nigeria, and Democratic Republic of Congo (DRC).
African countries are being proactive, though, in countering these disadvantages. For instance, the economic consolidation of countries, such as Ethiopia, Ghana, Ivory Coast, and Rwanda are important for international trade.
In addition, regional and continental organisations are focused on a unified legal and regulatory environment. In particular, the Organisation for the Harmonization of Business Law will focus on removing regulatory barriers hindering investment in member countries.
The study notes that these actions have caused most of the investors surveyed to confirm their intention to maintain or even increase their level of investment in the next few years.