USA heightens the war for the African Market
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The USA has stoked the fires for fierce competition for Economic and Political Influence in Africa. New legislation, to be signed into Law soon, will double US Corporate investments in Africa to $60 billion.
The Build Act also creates a government agency to lead the effort. The agency, International Development Finance Corporation, IDFC, will do more than its predecessor because it will buy a stake in development projects in Africa.
That makes it the pathfinder for and driver of corporate America’s entry into Africa for, by buying a stake, IDFC will oblige Corporate America, whose understanding of Africa is minimal, to take the risk and enter the continent’s development agenda. Some commentators have already placed Kenya, South Africa, Nigeria, Ghana, Zambia, and Ethiopia on the radar because they are considered low-risk countries.
These countries are also on the investment radar of the eastern dragons led by China, but also increasingly, Japan. As of now, the battle for economic alliances is between China and Japan. With the entry of the USA, the battle is a triumvirate. Japan’s investment in Africa is estimated at $35 billion.
However, with the US’ Rambo- like entry into the arena, Japan slides to position three but is expected to throw a few punches of its own to make its presence felt. By upping the US investment flow into Africa to US$60 billion, the Trump administration has matched, dollar-for-dollar, China’s recent offer of US$60 billion for infrastructure development.
At this rate, we expect another round of increases in investment commitments to Africa. There is room for more investors in the continent which the UN Economic Commission for Africa has slated as the next economic growth pole. It should, for it is the last frontier of emerging markets.
Africa's economic prospects are brightening presenting mouthwatering opportunities for investors anywhere in the world. These are Africa’s pluses: a young and growing population. Researchers say that by 2040, Africa will have the youngest and well-educated population anywhere in the world.
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A report by Bloomberg back in 2014 said this growing population is an asset -not a liability. Being healthy and well-educated, it forms a large pool of labour in the world and also a large market for goods. The report also said that in 2014, Africa’s growing middle class spend $1.3 trillion on consumption. It projects that consumption expenditure will grow to $4.2 trillion by 2030. Of these, says the African Development Bank, Agriculture and agribusiness will gobble up $1 trillion, leaving a huge balance for other goods and services.
There are many opportunities open for investment in the manufacturing, agriculture, housing, energy, and transport sectors.
In the energy sector, estimates show that the current demand for power in sub-Saharan Africa is about 100GW of which 22 per cent or22GW, is supplied by hydro. This means that 78% of electricity in Africa is provided largely by thermal sources including diesel-powered generators and Coal.
By 2040, electricity demand will rise to 385 GW, and Hydro will generate only 100GW of this, leaving the bulk of the demand to be supplied by other sources. Hydro, despite being a plentiful resource in Africa, is surely the bottleneck to economic progress in the continent. There’s, therefore, an opportunity for investment in green energy sources to bridge the gap.
Wind and geothermal are proving the most popular and are growing into industry within the sector. In just about five years, Wind is emerging as the top industry in the energy sector. So far an estimated 4300MW are already on stream and more are in the pipeline.
South Africa is the leader in the wind industry with 1170 MW already on the grid. Construction for another 700MW is set to begin later this year and come live by 2021. South Africa targets 8GW of wind-generated power by 2030. Others are; Morocco 920MW; Egypt 750 MW; Ethiopia 320 MW; Kenya 26 MW. Morocco is targeting 2GW of wind power by 2030.
Kenya, a late entrant in the wind industry, is expected to leapfrog Ethiopia soon when the 310 MW Lake Turkana, the largest wind farm in Africa, will connect to the national grid. This will raise the total wind-generated energy to 336MW. The commissioning of this project will raise Africa’s wind power capacity to 4300MW. Kenya’s wind potential is said to be 3GW.
There is also the geothermal power of which Kenya is the leader in Africa. Already 700MW is on the national grid. The potential is estimated at 10GW meaning that we’ve just scratched the surface.
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Africa’s agriculture and agro Business stood at US$ 310 billion in 2014, and it is projected to hit US$1 trillion 12 years down the road. Of this amount, Africa imports $35 billion worth. At this rate, estimates the Africa Development Bank, imports of Agricultural produce will hit $110 billion in 2025.
Therefore, Africa must work hard to produce an extra 174 million tons of food by 2025, says the Bank. It has taken the lead in creating Stable Foods processing Zones which will make agriculture a profitable venture.
The Dragon is already the continent’s largest economic partner, and the leader in infrastructure financing, where it controls 50% of all EPC projects, says the Mckinsey &Co, report.
Although China trails in the stock of FDI in the continent with only $32billion in 2015, fourth after the USA $79 billion, Britain at $71 billion, and France $70 billion, the potential of China tipping the scales is high because its rate of FDI growth at 25 per cent is way higher than its closest rival, South Africa at 13 per cent.
The US and UK trail at 11 percent and 10 per cent respectively. But with the Build Act, the US FDI rate will accelerate, perhaps standing neck-to-neck with China in the near future, or beating it hands down. Commentators at home are urging the US to up its act and beat China in the game.
In terms of Infrastructure Finance, China is way ahead of the pack with $21 billion committed in 2015 while the rest are below five billion dollars. But even China’s investment is way below Africa’s needs estimated at $160 billion a year in the next decade in order to build a sufficient stock of infrastructure needed to spur industrialization in the continent.
A recent Brookings Institution report shows that in many parts of Africa, tradable services in agriculture, information technology, and tourism are driving economic growth. Kenya, Rwanda, Senegal, and South Africa have emerged as IT front-runners.
The Americans are uncomfortable with the Chinese producing their IT Software and hardware. Some want the production of the same to be returned home. The conditions at home have not changed much, therefore companies departing China could end up in Africa.
Then Konza City, our own Silicon Savannah, could turn out to be the hub of IT services in Africa, leading in outsourced services as automation of manufacturing globally grows apace.
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