City population will attract investors to EAC – experts

As global business leaders look to Africa’s demographic boom for cheap labour and reliable consumers, the East African Community (EAC) and other regions in sub-Saharan Africa stand the chance of becoming world class centres of business with the right investments.
Expanded Kigali City. Good infrastructure and big city population is being seen as the next drivers of economic development. (Timothy Kisambira)
Expanded Kigali City. Good infrastructure and big city population is being seen as the next drivers of economic development. (Timothy Kisambira)

As global business leaders look to Africa’s demographic boom for cheap labour and reliable consumers, the East African Community (EAC) and other regions in sub-Saharan Africa stand the chance of becoming world class centres of business with the right investments.

Experts say that investments in the right infrastructure for a seamless movement of people, goods, and services across regions, as well as quality education for a population that is predominantly young and ready to work and spend on goods and services can greatly attract top global investors.

South Africa-based economist Stanley Subramoney, Strategy leader of PwC’s South Market Region, says that with the right education, Africa’s young population is able and eager to take on the challenges of the 21st century.

And his advice for the EAC is to stay unified, make education a priority, and keep investing in large infrastructure projects.

Up-scaling cross-border communication and building railways have been identified as key to successful trade within the EAC bloc, which boasts a population of about 140 million and a combined GDP of more than $100 billion.

“For the EAC region to be successful it is important that the region operates as one economic bloc, harmonize its policies and make cross border trade easier. The movement of people, goods and services across the region should be seamless,” Subramoney said in an e-mail to The New Times.

PwC, a leading global network providing assurance, tax and advisory services, said in its latest ‘Global Economy Watch’ report that “CEOs around the world are increasingly recognising the untapped potential of sub-Saharan Africa”.

With the emphasis on the economic potential of emerging mega cities in Africa, the report highlighted that appetite for world business leaders to invest in Africa is driven by the continent’s “unparalleled demographic edge or demographic dividend”.

“By 2040, Africa is expected to have the biggest labour force in the world and experiencing faster economic growth than any other region,” the report says.

While most major corporations are already active in at least one of the four largest cities in sub-Saharan Africa – Lagos, Kinshasa, Nairobi and Johannesburg— PwC economists say that it’s the ‘Next 10’ biggest cities in sub-Saharan Africa that should also be exciting foreign investors.

Among the ‘Next 10’ cities, economists mention Dar es Salaam and Luanda, which could by 2030 have bigger populations than London has today.

Their report says that the population of the ‘Next 10’ biggest cities in sub-Saharan Africa are projected to almost double by 2030, growing by around 32 million people.

PwC economists say that cities are the typical entry points for businesses trying to expand into new overseas markets, because they enable closer interaction with customers in a relatively small geographic space, which in turn helps contain distribution costs.

“The report projects that economic activity in the ‘Next 10’ cities could grow around $140 billion by 2030. This is roughly equivalent to the current annual output of Hungary,” Subramoney says.

And the economic potential that emerging African cities present is what brings analysts’ attention to the need for investments in infrastructure because organised cities require good infrastructure to be sustainable.

Experts say that Africa faces a huge deficit in infrastructure, with estimates for infrastructure deficit across the continent currently put at 93 billion dollars per annum with a funding gap of approximately 30 billion dollars.

Subramoney says that African countries need to find various ways to fund their infrastructure projects because they need it to remain relevant in a fast changing world.

“To remain globally competitive, African countries need world class infrastructure to not only attract foreign direct investments (FDI) but regional and local investments. Clearly countries do not have huge cash available to fund this and accordingly they have to borrow in the market,” he said.

The economist said that the right mix of debt should be secured at the most competitive rates and at a repayment period that is affordable, while models like public private partnerships, public- public partnerships, strategic partnerships or even innovative and smart partnerships should be considered to roll out infrastructure.

Among other economic phenomena in Africa that are starting to appeal to the global investment community, PwC’s ‘Global Economy Watch’ mentioned the ability of a growing number of African countries, particularly Kenya and Rwanda, to raise financing for infrastructure projects on the international capital market.

PwC’ advisor, Dr Roelof Botha, said the fact that Kenya and Rwanda have recently managed to sell government bonds globally at single-digit yields is a sign that issuing sovereign bonds is one way African countries can avoid loans with excessive debt servicing costs.

Apart from rapid urbanisation, demographic edge, and ability to raise money on international markets, other attractive developments in sub-Saharan Africa  cited by PwC include trends of high rates of GDP growth, new discoveries of mining and energy resources like gold and gas, substantial investment in infrastructure and capital formation by the private sector, and sustained growth in per capita incomes.

 

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