CEO’s Outlook - Transition and reform: Sub-Saharan Africa in 2022
Karen Taylor, CEO, Invest Africa
As Invest Africa concludes our 2022 Outlook Series, Africa stands at crossroads and the road ahead could prove challenging in a landscape still dominated by the impact of COVID-19. The region’s largest economies are all facing heightened uncertainty with political instability threatening both these countries and the livelihood of smaller states. However, the continent also represents significant opportunities for those businesses prepared to invest in understanding the markets they operate in and invest in the region’s economic and social development. Africa’s post-pandemic path is not yet set and the decisions that policy makers and businesses make now will determine whether the region is able to overcome the setbacks of the pandemic and meet its long-term development goals.
Regional Heavyweights in Transition
Analysts taking temperature of Sub-Saharan Africa in 2022 may well be concerned that the region’s economic and political heavyweights are facing particularly acute challenges in the wake of Covid-19 lockdowns and restrictions on movement of goods and people. In West Africa, Nigeria has been severely tested by the dual shock of the pandemic and the accompanying oil price collapse. With oil prices now recovered sufficiently to support growth, it remains to be seen whether Nigeria can take advantage of this more hospitable macro-economic environment to drive through reform or whether looming presidential elections at the start of 2023 will paralyse much of the domestic agenda. In Ghana, meanwhile, 2022 will be a pivotal year to restore investor confidence as the country faces a mounting debt burden. Investors will be watching closely for potential IMF programmes, reforms to reassure creditors and efforts to drive government revenue.
Looking to the East, the ongoing conflict in Ethiopia between the federal government and the TPLF casts a shadow over the region’s prospects. After a volatile year, the country enters 2022 in a state of suspension as it remains to be seen whether the launch of a national dialogue commission will prove to be the first step towards peace. However, the underlying causes of the civil war are not new and this should give some guidelines to businesses navigating the conflict. Business risk in Ethiopia continues to be defined by the long-standing tension between the federal government in Addis Ababa and the regions as well as complex bureaucratic structures and foreign exchange risk. Though these issues are eminently navigable for well informed businesses, the continued threat of an escalation of violence will hang over the country and wider region.
Kenya also faces a transitional year with elections this summer. For only the 4th time in the country’s history, the incumbent will not be on the ballot paper with Uhuru Kenyatta set to step down after his second term. In the words of the UK’s High Commissioner in Kenya, “it’s going to get heated” as both William Ruto and Raila Odinga look for an edge in a close run-off which may go to a second round for the first time in Kenyan electoral history. Though some violence is likely, analysts do not expect unrest on the scale of the 2007-08 elections. Whoever wins the presidency will take the reigns of a country with a thriving private sector that has seen significant investments in infrastructure and financial services. The continuation of this growth trajectory will be dependent on a peaceful transition of power this year.
Finally, the two economic giants in Southern Africa have faced particularly difficult pandemics. South Africa, being particularly connected internationally, has endured a higher burden of Covid cases and has suffered from targeted travel bans, which have also had a spillover effect into the rest of the region. The situation has not been helped by the fact that South Africa entered the pandemic with low growth and structural economic weaknesses. As the pressures of the pandemic have accentuated inequalities, the country has experienced heightened social unrest which is expected to continue into 2022. Angola similarly was ill-prepared for the crisis having entered the pandemic on the back of a sustained recession prompted by the oil price collapse of 2014-16, which has seen its debt to GDP rise from 33% in 2014 to 113% in 2020.
Ambitions to Reform
However, despite these challenges, Africa has an opportunity to take advantage of the shifts caused by the pandemic to double down on its efforts to create economic structures capable of supporting sustainable and inclusive growth. Throughout our 2022 briefing series, analysts have highlighted that the continent’s fundamental strengths remain. Enacting reforms to tackle the inequality and underemployment at the root of much of the instability across the region offers the best route a strong recovery. This is the aim of the African Continental Free Trade Agreement, which is now more important than ever. Struggles to secure vaccines, medicines and PPP throughout the pandemic has only reinforced the importance of investing in manufacturing and local supply chains.
Those countries that are able to enact policy reforms and attract renewed investment will find themselves in the stronger positions both to meet their development goals and to absorb any further waves of Covid-19. The election of Hakainde Hichilema to the presidency in Zambia last year was one such bright spot. The peaceful transition was welcomed by businesses within the country and internationally with the new government promising to reform the business environment, and open key sectors, such as mining, to investment. Tanzania, similarly, has taken important steps towards re-engaging with international investors under President Samia Suluhu Hassan, who took the reigns of power following the unexpected death of President Magufuli.
High-Growth Sectors Lead the Way
Some key sectors have also emerged from the pandemic on a strong trajectory. African tech, for example, has boomed despite Covid-19 disruptions and has benefitted from the increased uptake of digital solutions. In 2021, African tech companies raised a record-break $5 billion with a strong growth trend set to continue into 2022 through particularly strong hubs in Nigeria, Kenya and South Africa and growing interest in Senegal, Ghana, Rwanda and Tanzania. The rapid growth of mobile payments in Africa has shown the capacity of the region to leapfrog using technological advancements and analysts now point to digitalisation as a means improve the efficiency and transparency of revenue collection and cross-border payments. The Pan-African Payments and Settlement Scheme is an example of one such transformative technology which could support a rapid expansion of trade and investment in the region and create new employment opportunities.
With COP27 set to be held in Egypt in November this year, renewable energy is another sector expected to experience rapid growth across the continent. Africa boasts 40% of the world’s potential for solar production and yet only accounts for 1% of current production, meaning there is significant growth potential in a global landscape which increasingly prioritises sustainable investments. As Africa looks to generate the power it needs for economic development, increased investments in off-grid and renewable power will play an increasingly important role in the region’s energy mix.
Finally, Covid-19 has highlighted avenues for investment in the health sector, with increasing interest across the pharmaceutical supply chain. The scramble to secure vaccines and medicines throughout the pandemic has exposed the continents weaknesses in this area. We have already seen increased investment in healthcare delivery and local manufacturing and if this trend is sustained it will have an extremely positive impact on the region’s prospects. If one message has been clear coming in to 2022, it is that only by investing in long-term solutions now, can the continent secure a positive recovery trajectory.
By Karen Taylor, CEO, Invest Africa
