Jim Coleman, CEO: de Carnys Capital and dcc Africa
The covid-19 pandemic has created an interesting conundrum for the investment world. As global economies attempt to go back to some normalcy following extended periods of economic inactivity, investors are also faced with critical decisions on the best markets and asset classes to invest their capital. In these uncertain times, what we do know for certain is that the pandemic has left even the world’s largest investors wary and even more risk averse.
Navigating uncharted waters with the UK, now almost certain not to have an agreed trade deal with the EU by 31st December the UK’s official withdrawal from the European Union has created a unique set of challenges for its relations with its sovereign neighbours and the rest of the world. In the backdrop of negotiations by the EU and UK Parliaments to map out rules on trade, immigration, aviation, security and access to fishing waters, the covid-19 pandemic has weighed significantly on the UK economy. Unemployment, already rising rapidly, is projected to rise to over 3m by the end of 2020. New cases of Covid are running at over 2500 per day again causing the government to re-introduce social gathering restriction of only 6 people including children. The onset of winter is expected to cause a significant increase in new cases of Covid.
Noting the dramatic hit on the economy, trends point towards consequences more severe than experienced during the 2008 global financial crisis and the odds seem to be increasing. With a steep decline in GDP figures not seen in over 40 years, the International Monetary Fund forecasts a general decline of 8% across the world’s advanced economies and 10.2% for the UK with slow recovery. It is therefore not surprising that most countries are preoccupied with national re-building projects geared to stimulate local economic investment and activity.
As a result, investor appetite for risk has declined significantly over the crisis period. This has raised considerations around how this will impact Africa – home to some of the poorest, and some rapidly developing nations in the world – in particular. De-globalisation, according to the World Economic Forum is set to further marginalise the continent with funds tracking the currencies of the major trading nations. Therefore, with the entire continent’s GDP less than that of the UK, there is little to no tracking in this sphere. With the exception of the South African Rand, most funds have no knowledge of African currencies so don’t have interest in African economies.
With UK-Africa trade at only 2% currently, it remains to be seen how far the former will be willing to invest in Africa; following its exit from the EU, the UK is likely to look towards crafting new approaches towards trade, aid and investment. To its advantage, Africa has a burgeoning human capital in its increasingly young population: The United Nations Economic Commission for Africa asserts that by 2050, the teeming numbers of young Africans will form over a quarter of the world’s labour force. In theory, this is set to unlock great potential for the continent in the next decade and may afford the continent better bargaining power in future.
However, without radical restructuring and policy reform, led by experienced leadership who have the continuous support of political overlords, even the expected increase of youth participation in economies may be fleeting. Despite low levels of Foreign Direct Investment into the continent, Africa has historically given better return on investment as compared to other regions in the world, and therein lies its investment case.
However, with investors increasingly in survival mode and avoiding potential melt downs, the challenge rests on Africa to prepare itself as fertile ground for investment. To attract and sustain FDI, African countries need to demonstrate strong management and transparency, especially within its banking sector. Governments also need to play their part with clear plans to improve collection of taxes, employment, education, health services, water and waste processing.
With the advance of technology, different commodities are becoming important. Core commodities will remain steady but still cyclical. There will be new commodities which will cause upheaval to the status quo. Some may have greater longevity than others as the advance in nanotechnology gains pace. Now, more than ever before food has become increasingly important and factors such as climate change and population growth have exacerbated the problems.
That Africa holds great potential goes without saying. While the Covid-19 pandemic has undoubtedly dealt Africa several blows – including lower trade and investment as well as a continental supply shock affecting domestic and regional trade – there may be room for innovative investment opportunities in the future. These include live entertainment and related broadcasting; as well as hubs that provide links to trusted service providers such as private banking, lawyers, accountants, medical care, clothing, life- style, vehicle rental, entertainment.