African trends 2017 - how business needs to plan for the changing continent

A new set of dynamics is shaping African economies and their business environments. The pressures for structural reform have never been greater. This year is likely to shed more light on which African economies fall into the reformist camp and which are laggards.

Even the countries with little-diversified, structurally weak economies grew rapidly last year, buoyed by the positive sentiment in global markets and strong demand for their resources, from China in particular. However, in the different regions of Africa, fundamentally different factors were driving the continent’s seemingly synchronised growth.

Here are some key take-outs:

Selecting a gear in multi-speed Africa

The majority of Africa’s economies grew rapidly during the commodity super-cycle, providing fuel for the popular Africa Rising narrative. However, the end of the super-cycle and the oil price slump in July 2014 have led to a more realistic view of the continent – a Multispeed Africa. Furthermore, the economic prospects of the respective Regional Economic Powers (REP) can sharply affect the respective regions’ real GDP growth prospects.

• The repricing of Africa’s economies

The ‘repricing’ of assets across many African economies could well position them to attract more foreign direct investment (FDI) over the medium term. In the short term, a likely trend going into 2017 is the restructuring and sale of public utilities and state assets. Lessons learnt from struggling countries may inspire other governments to take a closer look at their own debt sustainability, which may promote privatisation in an effort to stimulate sustainable growth.

• Realising potential: the imperative of Africa’s economic diversification

Due to a lack of diversification, a large share of Africa’s economies remains dependent on the vagaries of commodity prices determined internationally. However, there are a handful of countries that have relatively more diversified export baskets, which have cushioned them from external shocks. A possible driver of economic transformation in Africa is the potential presented by the shifting value chain of production in Asia.

• Planning for the changing continent: a business view

There are several key considerations for business operating or entering Africa in 2017. These range from the structural reforms that are creating investment openings to diversification efforts that are set to facilitate industrial growth. Similarly, business needs to be aware of industry consolidation and the different growth dynamics of each distant region, and the necessity to alter strategies that incorporate shifting growth paths.

Dr Martyn Davies, managing director of Emerging Markets & Africa at Deloitte Africa, also leads the Africa firm’s China and Japan Services Group. Over his career he has been an adviser to a large array of multinational firms on their market entry and engagement strategies in Africa. He has also conducted a large amount of advisory work on behalf of the public sector.

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