Strong economic growth, young populations, a swelling middle class and untapped consumer spending potential are making sub-Saharan Africa a key investment opportunity.
Global research firm, Euromonitor International, has identified five
African frontier economies, outside of the larger and relatively well
known markets of South Africa and Nigeria.
Kenya, Ethiopia, Ghana, Tanzania and Cameroon stand out for their
population size, relative maturity of their economies and economic
growth prospects – although challenges remain across Africa such as
skills and infrastructure
deficits and the development of labour-intensive sectors to
sufficiently absorb the number of new entrants to labour markets.
Despite risks, these frontier markets will offer attractive long term
investment potential as their economies develop from a low base,
outperforming many stagnant, crisis-hit advanced economies.
1. Kenya: government aims for middle-income status
After a relatively volatile election this year, the prospects for the
Kenyan economy are increasingly positive, which should attract investor
confidence and foreign direct investment (FDI). Agriculture,
hunting, forestry and fishing retains its importance – 28% of gross
value added (GVA) in 2012 – but the government intends to support
private sector growth by improving the legislative framework. This is an
important step in a country whose ranking in the World Bank’s Ease of
Doing Business Index has declined.
Risks of inflation remain amid strong domestic demand while high
unemployment (38% of the economically active population in 2012),
investment in infrastructure and reoccurring drought are challenges. The
government aims to make Kenya a middle-income, newly industrialised country by 2030 as part of its Vision 2030 plan, while the discovery of oil could prompt national oil production.
2. Ethiopia: targeting accession to World Trade Organisation
Ethiopia has experienced sub-Saharan Africa’s fastest average annual
real GDP growth over 2007-2012, of 8.7%, while it has the second largest
population in the region (behind Nigeria) at 86.6 million in 2012
providing major consumer market opportunities.
Progress in privatisation of land ownership and higher private sector
involvement will promote growth in the medium term but this is
underdeveloped as public investment in infrastructure remains a
fundamental driver of economic growth. Risks include high inflation – at
22.8% in 2012 – and global food price shocks.
has benefited from notable poverty reduction and has made strides
towards meeting the Millennium Development Goals, although per capita
incomes remain low. The country has strong potential for hydro and wind
power and the government is targeting accession to the World Trade
3. Ghana: stable growth to continue in the medium term
Ghana’s economy has enjoyed robust growth, thanks to sound governance
and an abundance of commodity resources including gold, cocoa and now
oil. The country has recently become an oil producer which should lift
economic growth in the medium term. As a result, Ghana has attracted strong capital inflows, especially to the oil industry.
Development of labour-intensive sectors is a challenge while a lack
of adequate water supply threatens sustainable economic growth and consumer health.
Ghana holds close trade ties with Europe, with 57.4% of exports going
to the region in 2012. This poses a danger to the external sector as
Europe continues to struggle to grow. In 2013, the country ranked 64th
out of 185 countries in the World Bank’s Ease of Doing Business Index,
making it the fifth easiest country to do business in across sub-Saharan
Africa, promoting opportunities for FDI in the private sector.
4. Tanzania: set to become a major natural gas producer
Real GDP growth has been driven by exports and the communications
sector and Euromonitor expects robust average annual real GDP growth of
7% in 2012-2017. Tanzania is gaining advantage from regional growth but electricity shortages are a major hindrance for businesses and consumers.
The agricultural-based economy is performing below its potential. The
quality of education is weak and the government faces the challenge of
fostering labour-intensive economic activity. Poverty has declined but
GDP per capita growth has been growing slowly at just US$586 in 2012
compared to $409 in 2007. Tourism
holds significant potential while privatisation is also under way. The
country’s natural resources are attracting investment in the mining sector. Tanzania could become a natural gas producer by 2020 amid recent offshore natural gas discoveries.
5. Cameroon: relative economic diversification boosts growth prospects
Agriculture, construction and services are driving Cameroon’s economy while mineral
mining and a pool of natural resources will boost growth in the medium
term, with production of diamonds and bauxite alongside an expected rise
in oil production. Services accounted for 46.8% of GDP in 2012.
The greatest obstacles to sustained economic growth are the incidence
of poverty and income inequality, the sizeable informal sector
(estimated to employ around 90% of workers) and underemployment. Export
market diversification is also needed as 46% of exports went to Europe
in 2012. Yet, Cameroon
benefits from stable politics, a young and growing population which
could inject opportunities into labour and consumer market development.
Infrastructure and electricity deficits restrain the business
environment but major infrastructure projects are under way. Cameroon
also has an ambitious target to become an upper middle income country by
Media Eghbal is the country insight managing editor at Euromonitor International.