South Africa’s capital markets still a cut above the rest
South Africa’s fall to third place in RMB’s 2020 Where to Invest in Africa report reflects the country’s constrained levels of growth, but the report also highlights that it remains Africa’s bastion of a well-developed financial and capital market. The Johannesburg Stock Exchange is Africa’s most liquid stock exchange where in excess of US$1.4bn is traded daily. This is significantly higher than the Cairo Stock Exchange (Egypt), which trades US$44m a day, underscoring the depth of South Africa’s capital markets.
South Africa also ranks highly on other measures of financial market depth such as private credit as a percentage of GDP, demonstrating that consumers have access to a wider range of financial instruments relative to other African countries.
Although South Africa’s Ease of Doing Business ranking has slipped in the last few years, it remains one of the Top 10 easiest operating environments in Africa. This has allowed international companies to still view South Africa as a gateway to the rest of the continent.
These positives must, however, be viewed in light of the mounting risks: South Africa is struggling with uninspiring growth rates. Against a backdrop of modest demand and persistent electricity constraints, our GDP growth outlook for South Africa is forecast at 0.6% and 1.0% in 2020 and 2021. The recovery from previous years, while muted, is premised on a gradually improving global economic outlook and more accommodative monetary policy.
RMB’s Investment Attractiveness Rankings Top 10
“After nine years of publishing, we never fail to be both pleased and surprised by the extent of improvement in countries that are not necessarily perceived as strong investment destinations.”, says co-author and Head of RMB Global Markets Research, Nema Ramkhelawan-Bhana. This year, Guinea, Mozambique and Djibouti recorded the strongest gains in the rankings, with notable advancements in their operating environments.
The rankings are as instructive on the downside, identifying countries that have either stagnated or outright deteriorated in one or more aspects of our methodology. South Africa, Ethiopia and Tanzania are among the more prominent countries to have taken a tumble. A deterioration in the ease of doing business has contributed to their relative underperformance and, in addition, South Africa is enduring a cyclical downturn.
Tanzania’s fall from grace has reshuffled the top ten investment destinations, with Tunisia returning to the fold at number ten while Côte d’Ivoire and Ghana edge ever-closer to the top five. North Africa remains dominant with Morocco displacing South Africa in the rankings, rising to second place.
Here’s our Top 10:
- Egypt: The enormity of the market paired with a sophisticated business sector relative to other countries makes Egypt the most attractive investment destination in Africa. The improvement in Egypt’s business environment, facilitated through government programmes, combined with the progressive increase in investment from the private sector has enhanced economic growth and assisted in repositioning Egypt on the global investment map.
- Morocco: While only Africa’s fifth-largest market, Morocco’s expected growth rate of 4% over the medium term and its greatly-enhanced operating environment has served the country well since the Arab Spring. Its reintegration into the African Union and accession to the Economic Community of West African States (ECOWAS) have enhanced its investment appeal.
- South Africa: South Africa has slipped another place in this year’s rankings, stymied by depressed levels of growth and a lack of structural reform. Yet it remains Africa’s hotspot for portfolio investment. With many countries facing severe liquidity constraints, South Africa’s financial markets and level of financial inclusion are still a cut above the rest.
- Kenya: The above 5% expected growth rates, helped by favourable weather and political reconciliation after 2017’s disputed elections, has propelled Kenya one spot higher than 2019. The economy benefits from diversity as well as a sustained expansion in consumer demand, urbanisation, East African Community (EAC) integration, structural reforms and investment in infrastructure, including an oil pipeline, railways, ports and power generation.
- Rwanda: Rwanda has the second-best business environment in Africa. According to the World Bank’s operating environment scoring, the country has more than doubled the efficiency of its business environment in less than a decade. The government has also invested heavily into its domestic industries, while FDI has increased over the same period, pushing Rwanda to being one of the five fastest-growing economies on the continent.
- Ghana: The growth outlook is strong, concentrated around the oil and gas sector. Non-oil growth will pick up again, supported by pro-business reforms and a steady improvement in power supply. Political stability will remain underpinned by Ghana’s strong democratic credentials. Regardless of a recent deterioration in its operating environment rankings, Ghana remains one of the easier business environments in Africa.
- Côte d’Ivoire: Côte d’Ivoire is one of the more diversified economies in francophone Africa. Its strong growth rates are supported by the government’s pro-business reforms and a relatively stable political context. Large infrastructure projects, particularly in transport and energy (financed by foreign investment, aid inflows and the government) also support the country’s strong position in our rankings.
- Nigeria: Nigeria retains its top ten ranking due to improved macroeconomics, supported by recovering oil prices and production. As the largest economy in Africa in nominal terms, the possibility for investment cannot be overlooked; and with the largest population on the continent, domestic demand continues to rise. Resources and favourable demographics are attracting strong flow of FDI. The liquidity crunch has subsided since 2017 as commodity prices have recovered and changes in FX regulations have been implemented.
- Ethiopia: Ethiopia is the fastest-growing economy on the continent. With a population of almost 100 million people, demand for goods and services is rising significantly. The prohibition of foreign ownership in key sectors is still a constraint for investment, but this is slowly changing. The government has announced shake-ups across industries, including plans to open up the once closely-guarded telecommunications and power monopolies.
- Tunisia: Tunisia re-enters within the top ten supported by a reasonable market size and favourable operating environment. The government’s encouragement of foreign investment, through its new simplified investment code, has made the country increasingly attractive to multinational manufacturers.
Rand Merchant Bank’s ninth edition of Where to Invest in Africa is returning to its roots — the sectors we believe are key to unlocking the continent’s growth potential:
- Information, Communication & Technology
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