Africa still has immense potential despite challenges

Tuesday November 10 2015

By Sunil Kaushal

Globally, emerging markets are enduring challenges prompting a review of gross domestic product (GDP) forecasts. However, Africa continues to exhibit potential and great optimism.
The ‘Africa rising’ narrative has spurred some scepticism with claims of growth data being inflated but investors still consider the continent a source of positive investment.
Global pressures may have an impact on forecast, but in the long term Africa is likely to outperform other markets as more Africans invest in the continent.
African investments have nearly tripled their share of FDI projects rising from 8 per cent in 2003 to more than 22 per cent.
Currently, Africa has two key drivers - demographics and expansion of trade corridors that have exhibited great potential.

Dynamic demographics
As the world’s youngest continent, Africa’s middle class profile is growing rapidly with more than 60 per cent of its population under 25. The profile, even in the absence of formal-sector jobs, boosts growth, drives consumer spending and asset prices, as well as boosting pension savings for further investment.
Trading partnerships
Trade remains a valuable source of income for Africa with new partnerships seen through Asia and the Middle East, which provides the continent with an annual income of more than $50b (Shs183 trillion).

Apart from the oil-rich economies, Africa in general continues to experience growth, but on balance.
But of concern are sporadic terror attacks and political turmoil in select markets, even as governments across the continent increasingly recognise that economic and political security go hand-in-hand.
This could pave way to stronger regionalisation and collaboration, on an economic, political and security perspective.
Africa boasts transformational benefits such as the rapidly evolving capital markets whereby in just three years, 12 sub-Saharan African countries have accessed the Eurobond market, bringing over $17b (Shs62.2 trillion) of development capital into the continent.

Loan tenures are increasing, and more local banks are now participating in syndications.
In conclusion, while Africa is driven by the two fundamentals, there is need to provide unique approaches to accommodate diverse cultures, regulatory compliance and effective risk management.
Financial institutions that embrace technology to improve delivery and access to their financial solutions, while providing relevant support in growth sectors - such as trade finance - will play a meaningful role in converting the economic potential of the continent, into a reality.

Sunil Kaushal is the Standard Chartered Bank regional chief executive officer for Africa & the Middle East.