What does African trade finance look like in 2019?
What does African trade finance look like in 2019?
We spoke to writer Deepesh Patel, at Trade Finance Global, a leading global firm specialising in trade and receivables finance, about some of 2018's key events impacting future trade on the African continent.
At Trade Finance Global, the notion is that 2019 could be a tough year for Africa. The recovery from the oil crisis has been slower than expected, resulting in sluggish growth in oil-rich countries such as Nigeria and Angola. Other factors compounding this include continued corruption in the public sector and the IMF downgrading economies such as Zambia and Burundi. There are also a number of crucial elections throughout 2019 in countries like Nigeria, Senegal and South Africa. However, there are several macro-economic factors that could help catalyse some of the small to mid-sized economies, providing pockets of opportunity and growth in Africa.
New Year, New Africa?
2018 was a challenging year for even the strongest African economies. The recovering oil prices failed to take Nigeria out of its recession and for the first time in 10 years, South Africa entered its own recession.
Yet in an economy with 11 million square miles of land, (larger than China, Europe and the US combined) as well as $1.4tn in annual consumer spending (more than the population of India), what opportunities are there in Africa in 2019?
The rise of the middle class
Many smaller to mid-sized economies in Africa such as Cote d’Ivoire and Ghana have shown reductions in fiscal deficits, expansion in major projects such as infrastructure and experienced slight recoveries from oil revenues in 2018 - an industry that had seen stable growth up until a volatile last quarter in 2018.
Both countries are expected to experience emphatic growth in GDP terms, 8% and 7% respectively. But picking Ghana as an example, both oil and non-oil sectors are driving growth and it considerably reduced its debt position in 2018, resulting in a rise in GDP. This promising sentiment has been latched onto by Finance Minister Ofori-Atta, whose finance strategy has an ambition to establish Ghana as a key hub for investment and industry through oil production and refinement, agriculture, manufacturing and shipping services.
Key factors in Ghana’s economy, which we may also see in other promising economies such as Ethiopia and Cote d’Ivoire, will be the advancement and strengthening of the private economy, which consequently, will bolster the public sector – in healthcare, infrastructure and education.
A united economy
Resurgent nationalist movements in the US-China trade war, as well as polarisation and geopolitical turmoil around Brexit is not something we’ve seen, or predict in Africa. Quite the contrary in fact, the African Continental Free Trade Area (AfCFTA) now has 44 countries in Africa which support free trade and brings economies closer on the continent. In addition, easing immigration laws and allowing for visa-free movement is a trend which can only be seen as positive for all African nationalities.
Unlocking Africa's potential - Infrastructure
Infrastructure facilities in Africa have certainly helped lift cities and economies out of poverty, improving living conditions and catalysing economic development. Yet infrastructure across the continent is crucial to future prosperity, particularly considering the rate of urbanisation in Africa.
According to the Financial Times, of the top 30 fastest growing cities in the world, 21 are in Africa, with approximately 24 million people relocating to urban areas from rural areas every year. This staggering rise in footfall has the potential to stimulate urban economies, but major infrastructure projects are required in order to cope with demand. On this front, China has been a leading light in providing funding.
China's unrelenting and strategic investments into East Africa’s infrastructure systems form part of its One Belt One Road (OBOR) project. Often neglected by overseas investors, economies such as Kenya, Ethiopia and Tanzania have been earmarked for Chinese investment to establish a commercial and manufacturing centre that links up ports close to the Indian Ocean.
The most iconic of these investments (and the single biggest East African infrastructure investment in the last few years) is the Lamu South Sudan Ethiopia Transport corridor (LAPSSET). The $23 billion, 10 year project in the East African region involves the development of railways, pipelines and ports across seven key infrastructure projects.
Acha Leke, chairman of McKinsey & Company’s Africa region, recently talked about Africa’s manufacturing value doubling to $1tn by 2025, in his report Africa’s Business Revolution. A 14 million job project will certainly help economies in Nigeria and Morocco prosper as export hubs, drawing on expertise from Chinese firms and helping oil-reliant economies diversify, as well as take advantage of low oil prices.
Fixing the energy problem
With over 600 million Africans still without access to the grid, the most exciting opportunities come from off-grid energy and electrification in rural neighbourhoods. We’ve seen the revolution of solar energy kits and mobile phone finance, and now there is huge investment and growth in the off-grid energy sector, with over 100 companies now actively focussing on solar lanterns and home kit systems.
2019 will certainly be a year for stimulating economic growth in rural areas once they have access to power and the new possibilities arising as a result. Ultimately, access to electricity could bring over half a billion people online in the next few years and accelerate Africa's growth not just as a continent, but a genuine participant in the global economy.