Unlocking potential: The Africa Effect

As the world economy flounders, one market in particular is bucking trends. Vision charts Africa’s economic renaissance and highlights the countries getting in on the foreign direct investment ground floor

Time was when to get from one African country to another by air you had to detour through Europe, your route determined by your destination country’s former colonial power. So, to access a West African country from East Africa, or Southern Africa from North Africa, you had to transit through London, Paris or Lisbon.

This continued to be the state of air travel in Africa for around 40 years after most countries gained independence in the 1960s. Today, though, the picture is different. For those same journeys, the continent’s burgeoning business travellers are far more likely to fly an African carrier between African capitals.

The IMF projects Sub-Saharan Africa will grow at 5.8 per cent this year and 5.1 per cent in 2016. Africa represents one of the fastest growing telecommunications markets in the world

The web of air routes across the continent created by the likes of Egypt Air, Ethiopian Airlines, Kenya Airways, Royal Air Maroc and South African Airways symbolises just how much the private sector, government and other dealings between the continent’s 54 countries have multiplied in the past decade. It also offers a glimpse into the income flowing between these countries as many of the passengers on these flights are Africans. Such indicators have not gone unnoticed elsewhere in the world – notably among the emerging economic superpowers and ‘South-South’ economies.

China has become a major investor on the continent, operating primarily through state-owned companies. It is capitalising on long-standing trade relations with Africa, which for decades has been a destination for Chinese goods. Now, Chinese companies are playing a far larger role in the continent’s development, building its infrastructure – from roads to telecommunications equipment – not to mention buying up stakes in its oil fields.

India is not far behind. Indian conglomerates with an existing presence on the continent have increased their investments, while other privately owned groups that previously had no involvement in Africa have started to play catch-up and are making serious inroads into the market. The biggest investment so far has been Indian telecoms giant Airtel’s 2010 buyout of the African arm of Zain telecommunications. In a deal worth US$10.7bn Airtel acquired Zain’s operations in 16 African countries.

Gateway to Asia

Similarly, the UAE has moved beyond supplying a number of African countries with crude oil to investing in logistics, telecommunications and developing its own air routes across the continent via Emirates and Etihad. Dubai has been a gateway to Asia for Africa and vice versa for decades. It is now a key stopover for African airlines flying to China, India, Malaysia and other Asian destinations. Meanwhile, Emirates and Etihad, already key carriers for Africa-Asia business, are increasing their Africa destinations to capitalise on the rise in traffic.

In the case of China and India part of the renewed interest in Africa is, of course, the fact that the continent holds a significant amount of the world’s natural resources – resources required by both countries to sustain their ever-expanding economies and to service the needs of their growing middle-classes.

But that’s not the whole picture. China, India and the UAE are also seeking to tap into a market that – at a time of deep global economic uncertainty – is not in recession and is forecast to continue expanding irrespective of less encouraging developments in Europe and North America.

The figures speak for themselves. According to The IMF’s World Economic Outlook 2011, in terms of economic growth Sub-Saharan Africa will be second only to ‘Developing Asia’, which includes China and India, between now and 2016. The IMF projects Sub-Saharan Africa will grow at 5.8 per cent this year and 5.1 per cent in 2016.

Major exports

Much of that growth is down to the continent’s main exports – primary commodities such as crude oil, minerals, vegetables and flowers. Key oil exporters include Nigeria, Angola, South Sudan, Algeria and Gabon, while South Africa, Ghana, Guinea, Botswana, Congo and Tanzania are major exporters of gold, diamonds, bauxite and other minerals. Liberia is the principal exporter of rubber, an important industrial commodity.

Elsewhere, a significant growth area for the continent has been telecommunications. The International Telecommunications Union says mobile phone subscriptions in Africa rose to 248 million in 2008, up from 11 million in 2000. The organisation says Africa recorded an annual increase in mobile phone users of 47 per cent between 2003 and 2008 making it the fastest growing market in the world. The global average for the same period was 23 per cent.

Etisalat is the number four player in the Nigerian mobile phone sector, the largest market on the continent. The Mombasa cable actually terminates in the UAE emirate of Fujairah. Looked at one way, that bundle of optical fibres is a perfect metaphor for the burgeoning connectivity between Africa, Asia and the newly dynamic South-South economies.