CASE IN POINT | ECIC
by Alex Rose-Innes
Trade and Investment Opportunities in Africa
Alex Rose-Innes talks to Zanele Sogoni, Economist at the Export Credit Insurance Corporation of South Africa (ECIC), who has co-authored a publication on Trade and Investment Opportunities in Africa and finds out the reasons behind this ground breaking publication.
The African continent has achieved remarkable growth over the past decade, on average more than 5% a year between 2003 and 2012. The size of the African economy as a collective, has more than tripled and grown at twice the population growth rate. Foreign direct investments have grown at a compound rate of 12.3% since 2003. Political conflict has declined, economic growth is robust and economic management and governance has improved in most countries. All these factors have contributed to a marked shift in the global perception of the continent – from pessimism to enormous potential. Africa has indeed become a force to be reckoned with on a global level. As a result, the
Political, Economic Analysis Research Unit of the ECIC, of which Zanele is part, realised it to be right time to compile a much needed publication about existing opportunities on the continent.
The book highlights the four main factors which are responsible for the improved macro-economic performance. Firstly, sovereign profiles have improved, due to debt forgiveness under the auspices of the Heavily Indebted Poor Countries Initiative (HIPC) and the Multilateral Debt Relief Initiative (MDRI), which resulted in the average external debt on the continent falling from 63% of gross domestic product (GDP) in 2000 to 22.2% in 2012. This improved sovereign profile has allowed many African governments to have greater flexibility to invest in growth. Secondly, the increase can be attributed to rising domestic consumption (which accounts for 60% of Africa’s GDP). The number of middle class consumers in Africa has expanded by more than 60% to 313 million over the past decade and the prediction is that this trend is not in any way showing a changing pattern in the near future. Declining inflationary pressures, improved access to credit, lower interest rates and sustained remittance inflows, have increased real per capita incomes, thereby supporting consumer demand in the region and contributing to its resilience and robust growth in recent years. Thirdly, the demand for natural resources and higher commodity prices have boosted the external and fiscal accounts of commodity producing countries and finally, the region has experienced greater political stability during the past decade. The improved political climate has paved the way for a reduction in economic risk and has allowed normal economic activity to be re-established in many nations.
The key focus of the publication was to identify concrete export and investment opportunities at the level of upstream, midstream and downstream products and services. Market attractiveness in terms of size and growth potential came under scrutiny, with the study highlighting countries presenting good growth potential.
The ECIC publication puts into perspective the role of exporters in South Africa’s trade and investment policy, which is highlighted mainly in two documents: the National Industrial Policy Framework (NIPF) and the South African Trade Policy and Strategy Framework.
South African business has done well in realising the opportunities presented by the continent and has been at the forefront of foreign direct investment (FDI) in Africa – South Africa has emerged 5th in terms of FDI projects in Africa in 2012. South Africa is also the largest investor in Africa if investment into South Africa by other countries is stripped out from inward African FDI data. We have also emerged as Africa’s 5th largest trading partner. The African continent has accounted for more than 15% of South Africa’s export basket at the end of 2012.
For Zanele, the current production restraints in SA are also a problem together with the cost of finance. Interest rates in South Africa, like any other emerging market, are relatively higher than those in the US, Europe and China. And the cost of finance can have a huge impact on a company’s ability to produce at economies of scale, making them competitive. The ECIC, in collaboration with the National Treasury of South Africa, provide an interest make-up scheme to try and resolve this problem. This enables institutions to offer globally competitive interest rates on export transactions supported by the ECIC. It makes it possible for local exporters to compete in international markets based on their price and quality and not lose a potential transaction because a competing country’s government is offering excessively generous financing terms to close a deal.
There is no doubt that Zanele takes her role at ECIC very seriously. She understands the expectations placed on her and meets it with great skill and passion. Only small in stature, this lady is marked for great things and it is indeed comforting to realise that the financial future of this country can only be successful when placed in the capable hands of the younger generation.
At only 27, Zanele’s vision and commitment will not only benefit herself and the ECIC, but also many a future investor who would be given an opportunity for business success. It is no wonder that the ECIC is making inroads in the business arena. With their calibre of people, there is no doubt an increasingly important role for this organisation to play.