Investment

African outlook 2021: Reflection on 2020 and looks ahead.

By ‘Seye Akanmu-Bode

President Uhuru Kenyatta of Kenya.

African nations have mostly escaped the heavy death toll and hospital bed shortages faced by Western countries, but the COVID-19 pandemic has dealt a disproportionately severe blow to the continent’s economic ambitions. Fortunately, robust collaboration between African public and private sectors, and particularly innovative financing measures from African development institutions have helped to address what Kenyan President Uhuru Kenyatta described as an urgent need for fiscal space.

The Africa Center noted the early impact of the pandemic with the leadership of the Africa Centres for Disease Control and Prevention and the World Food Programme highlighted the early successes and agency of African stakeholders in tackling the crisis. The likelihood of greater pan-African collaboration in the wake of COVID-19 was a key finding of the Center’s report on great power competition in Africa in the post-COVID landscape.

COVID-19 did not slow the pace of political developments in Africa last year. Sudan’s transitional government achieved a watershed when the US State Sponsors of Terrorism (SST) designation was finally lifted and a massive aid package was bestowed on the nation in exchange for normalization of relations between Khartoum and Tel Aviv.

It is certain that the new Biden administration will be challenged by the need to repair and reinvigorate key bilateral relationships on the continent (including Ethiopia, Nigeria, and South Africa), and there is a major question mark over how many of the former administration’s initiatives will be abandoned. Prosper Africa’s launch was problematic, but in concert with the launch of the new US International Development Finance Corporation (DFC) and its equity capability, it signaled a concrete shift in US priorities to “trade, not aid” that was long overdue.

  • African markets have an advantage in 2021 and beyond, says Renaissance Capital’s Global Chief Economist Charlie Robertson, because the continent has been the least hurt by COVID-19 relative to other regions (a story similar to that of the 2008-2009 global financial crisis). Consequently, low interest rates in the West could push more institutional investors to chase high yields in Africa by increasing portfolio exposure in African fixed income and equities.
  • Getting Africa to “catch up” is the wrong framing, says AfroChampions Co-Founder Edem Adzogenu. To him, the attitude must rather be: “can you turn in a completely different direction and perfect another model that passes the others but also learns from them.”
  • The African Continental Free Trade Area (AfCFTA) can be a “game-changer,” says the Africa Finance Corporation’s Chief Economist Rita Babihuga-Nsanze, but there is still a lot of work that needs to be done to build an enabling environment, especially when it comes to infrastructure.
  • While China will remain a key financing partner, the scaling back of Belt and Road Initiative lending will provide space for new international lenders and other financial institutions to support the continent’s growth ambitions, says Standard Chartered Bank’s Chief Economist for Africa Razia Khan. According to Babihuga-Nsanze, African development finance institutions can play a critical role in closing the financing gap that emerges.
  • Chinese growth—not lending—is going to lift the whole continent, says Robertson, but African countries need to invest in the right infrastructure. China’s GDP is likely to grow about $2.3 trillion next year and another $2.3 trillion the year after: equaling the size of the entire African market. This growth could help drive commodity price increases and create a lever for wealth creation in Africa, lifting the whole continent. Yet, key to cashing in on this Chinese growth will be Africa’s ability to build infrastructure to enable it, while forgoing projects that do not.
  • Value addition and industrialization are two critical trends, according to Babihuga-Nsanze. The post-COVID reset will provide a push to shore up local supply chains and double down on the building of local industrial parks, which can promote investment.
  • Ghana is a market set for growth, Khan and Robertson agree. But Nigeria must make good on its diversification promises, while South Africa’s political reforms will have investors watching.  
  • Observers are missing the huge SME-driven informal sector, notes Adzogenu, as well as the huge creatives space. For African Development Bank Chief Economist and Vice President Rabah Arezki, the bottom-up wave of fintech and innovation will transform the continent, including in rural areas where growing digitization could be critical for improved agriculture. To Africa Center Senior Fellow Aubrey Hruby, digitization is the single most significant trend coming out of 2020 for Africa.

While the author agrees with the above positive projections in Africa, it is hoped that the continent would have realised the need to develop its health care system because if the continent had witnessed half of the infections recorded by the USA and Europe, the fatalities would have been enormous and overwhelming for the health workers who faced shortages of kits and equipment to treat Covid-19 patients. It is expected that insecurity would be tackled greatly this year with Nigeria , Cameroon and Ethiopia readily coming to mind here. Without security, foreign investment will surely dwindle.

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