Understanding Africa’s uniqueness is the key to rewarding investments in 2014

The investment prospects for Africa as a whole are exciting and offer the potential to provide great long-term returns, according to Josef Odili, head of Africa Manager Research at RisCura.

“The key is to have a thorough understanding of each country’s unique situation. A frontier market like Africa (excluding South Africa) has a very different dynamic to developed markets and it’s important not to invest without understanding this dynamic.”

For example, Nigeria has enjoyed strong returns over recent years, but there is some uncertainty in the short term given the election next year and the appointment of a new central bank governor this year. On the positive side, assertive actions are being taken to address the country’s shortfall of electricity. Reducing electricity prices from their current levels will be a significant boost to the economy.

Is Africa’s young population a risk or an asset?

Africa has more people aged under 20 than anywhere in the world and the continent's population is set to double to two billion by 2050.

Two analysts put forward rival arguments about what this means for the Africa.

Researcher Andrews Atta-Asamoah believes it poses a major challenge unless properly managed, while economist Jean-Michelle Severino argues it is a massive potential work force that can drive development.

Jean-Michelle Severino:

"Urbanisation is one of the most powerful growth engines the world has ever experienced”- Jean-Michelle Severino

Ghana’s Advance to Middle-income Status Requires Firm Policies

By Francisco Javier Arze del Granado 

IMF African Department

• Strong growth momentum amid significant short-term vulnerabilities
• Debt sustainability weakened by unexpectedly high fiscal deficit
• Higher borrowing costs, unreliable energy supply risk curbing growth

With robust economic growth of 8 percent, strong democratic institutions, and favorable prospects for oil and gas, Ghana is attracting significant foreign direct investment.

However, continued success will depend on strong political will to decisively confront Ghana’s short-term vulnerabilities, the IMF said in its regular review of the West African nation’s economy.

Mining and agriculture dominate Ghana’s exports, but construction and services now account for more than half of the country’s output, while a large majority of jobs remain in the informal sector. Ghana has made great strides in reducing poverty to less than 30 percent of the population and has recently reached lower middle–income status. Offshore oil production started in late 2010, with new discoveries to come on stream over the medium term.

Should we continue subsidizing energy?

Here is an article by Antoinette M. Sayeh that tackles head-on the issue of energy subsidies in sub-Saharan Africa.

For many years, countries in sub-Saharan Africa have spent large amounts on subsidizing fuel and electricity. For both sources of energy combined, this averages around 3 – 4 percent of GDP. That is about the same magnitude as public spending on health in many countries. Now we need to ask some important questions.

Is this a good use of scarce resources? 

Where does this money go?

Is it helping to support the livelihood of the poorest in African economies?

Is it helping to boost the country’s competitiveness?

The answers are largely, no. I believe this money can and must be used better to invest in the critical physical and social infrastructure required to sustain growth in sub-Saharan Africa. A recent IMF paper backs this up.

Tracking who benefits

Most of the fuel products are consumed by higher income groups. The situation is even more acute with electricity subsidies, as a large majority of the poor are not even connected to the grid.