If 2016 shows us anything, it is that volatility and uncertainty has become the ‘new normal’. When I last published an article in TMI a year ago, I emphasised that doing business in Africa was a marathon not a sprint, and that corporations may therefore take a long view when shaping their strategy. In 2017, this is even more important, and the trends, challenges and opportunities that characterised 2016 are likely to prevail for the year ahead.
Strength amidst volatility
Unexpected political outcomes in the UK and the US resulted in uncertainty in developed markets, but even greater unpredictability in emerging markets. It is not yet clear, for example, how trade and aid to Africa will change under Donald Trump’s presidency, and how supportive the new administration will be of US corporations operating in Africa, particularly with regards to repatriation policies. Bearing in mind the reliance of commodity-producing nations in Africa on USD, and large FDI flows from USA to Africa, the continent’s fortunes are very vulnerable to future US policies, with these vulnerabilities exacerbated by economic and regulatory policy within the region.
In this environment, we have seen a picture of ‘two Africas’ emerging. Half of the continent, Africa’s 23 commodity-producing nations, including Nigeria and Angola, have seen a sharp slowdown in growth and commodity exporters are finding it difficult to anticipate the end of the current cycle, which is being shaped by event risk to a degree rarely seen before. Some corporations and governments that depend on commodities have delayed investment decisions and realigned their growth expectations, exacerbated by the rising inflation. For companies that rely on low oil prices operating in these countries, the immediate prospects are more favourable; however, they need to consider the overall health of the economy, the regulatory environment and the level of infrastructure investment.
For the remaining 22 countries in Africa, however, growth remains highly respectable at an average of 6.5% in 2016 (source: IMF). Similarly, the IMF forecasts that countries such as Côte d’Ivoire, Ethiopia, Kenya and Senegal in West Africa, and Ethiopia and Kenya in East Africa could see growth of 6 to 8% over the next two years (source: IMF), amongst the highest rates of growth globally.