Awakening Africa Magazine

Economy

Top 5 Most Well-Guarded Secrets about the African Economy

2 Mins read

Africa’s economies are changing and becoming less reliant on extractive sectors thanks to a labour surplus, more stability, and technology.

For almost a century, most foreign direct investment (FDI) in Africa went toward extracting and exporting natural resources. The tendency has finally reversed in recent years after a change in momentum at the turn of the millennium.

Global investors now visit Africa more frequently for its people than for its physical assets because of the potential they hold.

Petroleum and mining currently make up a smaller portion of long-term capital inflows as investors focus more on the telecommunications, retail, and services sectors. According to a study, FDI from the extractive sectors has only exceeded 50% once in the previous seven years.

1. East African Economies

Economic growth can be easily proven by examining the yearly GDP during the past ten years. Some of the region’s major economic players exhibit sharp rising trends. Notably, three East African nations—Rwanda, Ethiopia, and Tanzania—will have the top 10 fastest-growing economies in the world by 2020.

According to a recent African Development Bank assessment, an upbeat economic prognosis for the area is predicted for 2022. The average growth rate for the 13 nations that make up East Africa is predicted to be 4.9%, up from the 0.4% recorded in 2020. This is fuelled by ongoing public infrastructure investment, increased agricultural performance, a move toward a more service-oriented economy, and tighter regional economic connectivity.

2. The Rise in Foreign Investment

According to UNCTAD’s World Investment Report 2022, released on June 9th, foreign direct investment (FDI) to African nations reached a record $83 billion in 2021. This was more than twice as much as stated in 2020, when the COVID-19 epidemic significantly negatively impacted investment in the region.

3. Promoting Policies to Energize African Markets

African governments have implemented more and more market-engaging policies. They improved commercial freedom, reduced corporate taxation, reinforced regulatory and legal frameworks, and provided vital physical and social infrastructure in addition to privatizing state-owned firms. For instance, between 1999 and 2006, Nigeria privatized more than 116 businesses, while Morocco and Egypt reached free trade agreements with significant export partners. These crucial early steps allowed a private business sector to form, even though many governments’ policies still need improvement.

4. China’s Role

With a 17 percent share of global commerce, China has surpassed all other trading partners to become sub-Saharan Africa’s largest commercial partner. Brazil has a 3 percent stake, and India has a 6 percent share.

5. Retail Sector

The African market has seen a fast expansion of mobile phones and mobile banking, but there is still a significant need for information and communications technology (ICT). Major corporations are betting on the continent and investing in R&D, including Google, Microsoft, Huawei, and GE.

What is remarkable is that there is broad agreement within African policy circles that this is Africa’s moment. Given the limited time for a change, the difficulty will be in swiftly executing the policy roadmap.

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