Africa open for business potential, challenges and risks

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This document summarizes an Economist Intelligence Unit presentation on business opportunities and challenges in Africa. It finds that Africa is experiencing strong GDP growth, driven by rising external demand from China and India and increasing internal demand. However, the business climate remains challenging due to difficulties setting up businesses, skill shortages, complex tax systems, and weak infrastructure. While African economies are growing, regional integration efforts have faced issues and the continent still ranks poorly on measures of business environment.

Africa open for business:
Potential, challenges and risks
Pratibha Thaker
Editorial Director,
Africa and the Middle East
April 4, 2012

About the Economist Intelligence Unit (EIU)
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• Analysis and forecasting for over 200 countries
and territories
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automotive, consumer goods, energy,
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Visit www.eiu.com to register for free
macroeconomic information on 187 countries

Today’s Presenter
Pat Thaker
Regional Director,
Africa

The state of Africa: mapping growth
Data: Economist Intelligence Unit
• How is this
possible?
¾ China & India
¾ Oil & minerals
¾ Domestic demand
Real GDP growth 2012 (forecast)
• Angola is expected
to grow at 10.3%
• And all other
countries to grow
faster than the long
term global average
…
• … except for
Zimbabwe and
Swaziland
Above 9
8 to 9
7 to 8
6 to 7
5 to 6
4 to 5
3 to 4
-1 to 3

The engines of growth
• Rising external demand
– especially from China
and India – also good for
commodity prices
• Rising internal demand
– driven by urbanisation
and “consumerisation”

A Consumer boom
• Urban living and rising disposable
incomes will boost demand for
modern goods and services
• The rise in supermarkets and
other modern outlets
• Many competing demands for
available income – consumers are
price sensitive
• Small market for top-end products
– at least for now

FDI slips but will recover
• Key deals in 2010-11
• Bharti Airtel (India) buys Zain’s
African assets for US$10.7bn
• NTT (Japan) completes
takeover of South Africa’s
Dimension Data for US$3.2bn
• Walmart (US) buys 51% of SA
retailer Massmart for US$2.4bn
- after winning belated approval
from the competition authorities
• South Africa is one of the key
gateways to the rest of Africa.
FDI
90
80
70
60
50
40
30
20
10
0
2004 2006 2008 2010
US$bn
SSA North Africa

The impact of regional integration
• Larger markets & fewer barriers
• The SADC, Comesa, the EAC &
Ecowas – the main ones
• Key problems are non-tariff
barriers and weak infrastructure
links between members
• The EAC introduced a common
market in July 2010 but key laws
still need to be harmonised
• Proposals for a single African
trade zone are advancing will be
hard to realise
• Egypt linked to Africa via
Comesa – and via the Nile

The business climate
• Although improving, Africa is still the worst region in the world
to do business. African countries dominate the lower reaches
of the World Bank’s Doing Business In rankings
• Key obstacles include:
1. Cost and difficulty of setting up a business
2. Skills shortages and labour market restrictions
3. High taxes – and complex tax systems
4. Dealing with licenses – and registering property
5. Enforcing contracts

An African Spring?
• Some similar underlying conditions:
• Authoritarian governments & geriatric
rulers
• High unemployment & widespread poverty
• Corruption & excessive regulations
• But also key differences:
• Larger rural populations in SSA
• Less extensive use of the Internet & social
networking
• A slightly better democratic record
• But some countries are more at risk
than others

Africa: Open for business REPORT
Download full report from
www.eiu.com

Thank you.
Contact for more information:
Holly Donahue
Senior Marketing Manager
Economist Intelligence Unit
hollydonahue@economist.com
+44 (0)20 7576 8379

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