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New Corporate Growth Horizons in Africa

by Jeff Gable, Head of Africa Fixed Income and Macro Research, Absa Capital

In a business environment where growth potential in traditional markets has become harder to find, corporations in all industries, and headquartered in every region, are seeking new growth opportunities. While Asia, and to some extent Latin America, has been a focus for European and North American companies for some time, Africa has become the next region to command corporate attention. According to Ernst & Young’s Africa Attractiveness Survey, 2012, 73% of corporations noted that Africa will become a more important region compared with the previous three years, a third of which noted that it is a significantly more attractive region.

Growth and resilience

This statistic reflects corporates’ recognition that Africa has been the second fastest growing region globally for the past two decades, with a growth trajectory that is anticipated to continue in the coming decade and beyond.

According to the International Monetary Fund (IMF), over the next five years seven out of the top ten fastest growing economies globally will be in Africa, compared with six out of ten in the past 10 years. Not only is Africa’s growth potential attractive for foreign investors, but its resilience is also an important factor in its favour. During the 2008-9 global economic crisis, the majority of developed nations experienced recession or zero growth. While Asia fared better, four out of ten countries suffered recession, compared with only two out of ten in Africa. With significant volatility in many markets, companies in all industries are seeking greater resilience and predictability, which Africa is increasingly demonstrating that it can offer.

A wealth of natural resources

Inevitably, Africa’s wealth of raw materials and energy resources is a draw for multinational companies, with over 80% of the world’s platinum and chromium, 60% of diamonds and 40% of gold reserves. The International Energy Agency states that China is now the largest energy user in the world, with growing demand in most regions. Moreover, the pursuit of natural resources to produce technology components continues to be relentless. Consequently, global companies across a spectrum of sectors will increasingly be seeking to establish sources of raw materials and energy resources in Africa.