In 2018, investors won’t be looking to Nigeria with much appeal

Africa has so far been a destination  for most international investors because of its natural resources and high return on investment prospect regardless of the challenges facing the continent. Investing in Africa differ based on the region as Each region has its peculiarities, although majority of these regions are known for their extensive crude oil reserves.

Over the past 3 years, Africa’s economy has been dwindling, mainly due to drop in tradition revenues, resulting in deep and painful budget cuts. Some governments went as far as currency devaluation and adoption of hawkish monetary policies all as a result of a significant drop in traditional revenues, says RMB Africa analyst and co-author of Where to Invest in Africa 2018 Celeste Fauconnier.

Where to Invest in Africa 2018 includes 191 jurisdictions around the world, measuring Africa’s performance in relation to other countries groupings. However, the seventh edition of where to Invest in Africa, one of the most important findings by Rand Merchant Bank’s (RMB) notes that the African continent could find itself hovering on the brink of disaster if it does not diversify its economy but continues to depend on its current economic fundamentals (oil).

This report illustrates how subdued levels of economic activity have diluted several scores on the index when compared to last year, and how this economic activity resulted in some interesting movements within the Top 10. With the theme “Money Talks” the report “follows the money” on the African continent, focusing on the main sources of dollar revenues in Africa which allows it to measure the most important income generators and identify investment opportunities.

South Africa bows to Egypt, Nigeria not much of a deal

For 3 consecutive years South Africa has been the most popular destination to invest in Africa. Mainly because of its raw materials and mining; the country is the largest producer of gold, platinum and chromium in the world, its currency, equity and capital markets which are still cut above other African countries.

However, there is an exemption this year as South Africa stepped down for Egypt to take its place as the country with the largest investment opportunity. This was possible because of Egypt’s superior economic activity score and South Africa’s sluggish growth rate which have deteriorated markedly over the past seven years.

Morocco retained its third position for 3 consecutive years having benefitted from “Arab Spring” which began in 2010. Despite Ethiopia’s dogged socio-political instability, it was able to displace Ghana and take the fourth spot. This was made possible mostly because of its rapid economic growth after Ethiopia took over from Kenya as the largest economy in East Africa.

Ghana’s slight drop to fifth position was mostly due to perceptions of worsening corruption and weaker economic freedom. Still balancing at top 10 is Kenya in sixth position, investors are still attracted by Kenya’s diverse economic structure, pro-market policies and brisk consumer spending growth.

A host of business-friendly reforms aimed at rooting out corruption and steady economic growth helped Tanzania climb by two places to number seven. Having taken a two-year break Rwanda is back on the top 10 chart at the eight position. Considering it is one of the fastest reforming economies in the world, with high real growth rates and its continuing attempt to diversify its economy.

Making great strides in advancing political transition while an improving business climate through structural reforms, greater security and social stability Tunisia made it to number 9. Cote d’Ivoire slipped two places to take up the tenth position. Although its business environment scoring is still relatively low, its government has made significant strides in inviting investment into the country leading to a strong increase in foreign direct investment over the years resulting in one of the fastest growing economies in Africa.

Unfortunately, for the first time Nigeria does not make the cut amongst the top 10, this is largely because of recession and its short-term investment appeal. Botswana, Mauritius and Namibia are widely rated as investment grade economies, but they do not feature in the Top 10 mostly because of their relatively small size markets – market size has been a key consideration in the report’s methodology.

Uganda on the other hand, is steadily closing in on the Top 10 though its market activity is likely to remain subdued after a tumultuous 2016 marred by election-related uncertainty, a debilitating drought and high commercial lending rates.