Africa: open for business. The potential, challenges and risks.

The Economist Intellegence Unit (EIU) highlights the potential, challenges and risks for doing business in Africa over the next few years. In early 2001 The Economist referred to Africa as "the hopeless continent" trapped in a seemingly endless cycle of debt,low commodity prices,war, coupes,corruption, poverty , famine and bureaucratic  inefficiency. Although wars and disease persist Africa has survived the worst world recession since the 1930's remarkably well. Much of this has to do with debt write offs in 2006 and 2007. The EIU notes that African GDP has outpaced world growth since the start of the last commodity boom in 2001, reaching 6% in mid-decade. In 2011-12 Africa is expected to grow faster than any other region or country in the world, apart from China and India—and this is more than a just a commodity story.The EIU  reports cites modest inflation,steady exchange rates, and a smaller debt burden. The growth prospects are good and the number of African consumers is rising and investors can no longer ignore this vast continent of 54 countries and growth in some areas is forcaste to hit 8-9%.

More African countries are becoming oil producers. Nigeria,Angola and Mozambique have been joined by Ghana,Kenya and Tanzania and Uganda.East Africa will be the fastes growing region and  African non oil countries will become an increasingly important food supplier to global markets.Mining is also a big revenue earner. Countries without major resources but with a strong reform record, such as Rwanda, will also join the ranks of high growth achievers.  In contrats to the 1980's and 90's commodity prices are now robust ,economic management is better and there are increased  private capital flows.

This change has been assisted by two driving forces, the first is increased demand from large economies like India and China which are growing rapidly and require more energy resources especially oil and minerals.Emerging market demand will help keep African countries' commodity prices high. This a complete reversal of the 1980's when Africa was weighed down with debt and trapped in low commodity prices. Now it is the West and thedeveloped world which is faltering. The second driving force is increased urbanisation in Africa and a corresponding commercialisation and an increase of demand for goods and services. The level of growth will vary from country to country  and different factors including  democracy and governance, the state of infrastructure and the pace of deregulation. As with the Arab Spring, in Subsaharan Africa corrupt dictators have to give way to responsible government.

Africa is one of the youngest and most populated markets in the world with half its population under 24 years of age.By 2050, Africa’s population of
2bn will have overtaken that of India (1.6bn) and of China (1.4bn). The percentage of young  15 year olds will have risen to 45%  and they will require increased services incontrast to the aging polulations of the West. About 40% of Africa's population now lives in cities and this will increase especially amongst the young. The EIU sees increased consumerism and points to the mobile telecommunications revolution. Africa needs more entrepreneurs and small businesses. Money transfer systems like M-Pesa and M-Kesho are providing useful alternatives to traditional banking.

Regional trading blocs and regional integration are advancing in Africa The main blocs are SADC (South), EAC (East), COMESA (East/South) and ECOWAS (West). The main obstacles are non-tariff barriers, incompatible regulations, clashes over common  external tariffs and weak infrastructure connections. The East Africa Community looks promising and  The UEMOA (West) and the CEMAC (Central), as part of the Franc Zone, already have single currencies (linked to the euro). One of Africa's great problems in past decades was non convertible currencies which made it difficult for investors to repatriate profits. FDI is picking up in Africa particularly in banking ,telecommunications and retail. China is now the leading investor on teh African continent and this will become increasingly important for African economies, provided China can maintain its economic growth momentum.

There are of course risks in doing business in Africa including weak fiscal and monetary policies, high inflation, volatile currencies, high taxes,nationalisation issues, skills shortages, inadequate infrastructure and red tape.  Business climates vary from country and corrupt despots still abound, Africa remains one of the most difficult operating areas in the world and regional conflicts are still far too common. Democracy is advancing but slowly. Tribal divisions are still a factor. Africa is on the move and theer have been positive developments in the last two dcades. Stable and continuing policy reforms,democracy and political develoipment are key but countries like Zimbabwe and Cote d'Ivoire can go backwards very quickly. The sheer resilience of the African people who have withstood Aids,poverty and war is remarkable and they deserve to succeed. However whether they have the collective discipline and will to stay the course remains a question.