TRADE & INDUSTRY
Investment Prospects for Africa in a Post Covid-19 Era
BY JIM COLEMAN , CEO : DE CARNYS CAPITAL AND DCC AFRICA
The covid-19 pandemic has created an interesting conundrum for the investment world . As global economies attempt to go back to some normalcy following extended periods of economic inactivity , investors are also faced with critical decisions on the best markets and asset classes to invest their capital . In these uncertain times , what we do know for certain is that the pandemic has left even the world ’ s largest investors wary and even more risk averse .
Navigating uncharted waters with the UK , now almost certain not to have an agreed trade deal with the EU by 31st December the UK ’ s official withdrawal from the European Union has created a unique set of challenges for its relations with its sovereign neighbours and the rest of the world . In the backdrop of negotiations by the EU and UK Parliaments to map out rules on trade , immigration , aviation , security and access to fishing waters , the covid-19 pandemic has weighed significantly on the UK economy . Unemployment , already rising rapidly , is projected to rise to over 3m by the end of 2020 . New cases of Covid are running at over 2500 per day again causing the government to re-introduce social gathering restriction of only 6 people including children . The onset of winter is expected to cause a significant increase in new cases of Covid .
Noting the dramatic hit on the economy , trends point towards consequences more severe than experienced during the 2008 global financial crisis and the odds seem to be increasing . With a steep decline in GDP figures not seen in over 40 years , the International Monetary Fund forecasts a general decline of 8 % across the world ’ s advanced economies and 10.2 % for the UK with slow recovery . It is therefore not surprising that most countries are preoccupied with national re-building projects geared to stimulate local economic investment and activity .
As a result , investor appetite for risk has declined significantly over the crisis period . This has raised considerations around how this will impact Africa – home to some of the poorest , and some rapidly developing nations in the world – in particular . De-globalisation , according to the World Economic Forum is set to further marginalise the continent with funds tracking the currencies of the major trading nations . Therefore , with the entire continent ’ s GDP less than that of the UK , there is little to no tracking in this sphere . With the exception of the South African Rand , most funds have no knowledge of African currencies so don ’ t have interest in African economies . With UK- Africa trade at only 2 % currently , it remains to be seen how far the former will be willing to invest in Africa ; following its exit from the EU , the UK is likely to look towards crafting new approaches towards trade , aid and investment . To its advantage , Africa has a burgeoning human capital in its increasingly young population : The United Nations Economic Commission for Africa asserts that by 2050 , the teeming numbers of young Africans will form over a quarter of the world ’ s labour force . In theory , this is set to unlock great potential for the continent in the next decade and may afford the continent better bargaining power in future .
However , without radical restructuring and policy reform , led by experienced leadership who have the continuous support of political overlords , even the expected increase of youth participation in economies may be fleeting . Despite low levels of Foreign Direct Investment into the continent , Africa has historically given better return on investment as compared to other regions in the world , and therein lies its investment case .
However , with investors increasingly in survival mode and avoiding potential melt downs , the challenge rests on Africa to prepare itself as fertile ground for investment . To attract and sustain FDI , African countries need to demonstrate strong management and transparency , especially within its banking sector . Governments also need to play their part with clear plans to improve collection of taxes , employment , education , health services , water and waste processing .
With the advance of technology , different commodities are becoming important . Core commodities will remain steady but still cyclical . There will be new commodities which will cause upheaval to the status quo . Some may have greater longevity than others as the advance in nanotechnology gains pace . Now , more than ever before food has become increasingly important and factors such as climate change and population growth have exacerbated the problems .
That Africa holds great potential goes without saying . While the Covid-19 pandemic has undoubtedly dealt Africa several blows – including lower trade and investment as well as a continental supply shock affecting domestic and regional trade – there may be room for innovative investment opportunities in the future . These include live entertainment and related broadcasting ; as well as hubs that provide links to trusted service providers such as private banking , lawyers , accountants , medical care , clothing , life- style , vehicle rental , entertainment . africa . com
Jim is a senior banker , treasurer and director with over 35 years ’ experience of financial markets in the UK and internationally , including NatWest Markets , Lloyds Bank and Abu Dhabi Commercial Bank and is a director of several businesses . He holds a degree in mathematics from the University of St Andrews , an MBA from Imperial College Business School and is a Fellow of the Association of Corporate Treasurers .
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