Positioned at the tip of a continent of an estimated 375 million middle class consumers, South Africa, with its sophisticated capital markets, well-regulated financial governance and investor-friendly policy direction is well placed as a destination for investors to launch into the rest of Africa, says Kenny Fihla.
As many African countries look to diversify their economies away from a reliance on commodities and natural resources, foreign direct investment will play an increasingly critical role.
To this end, Africa has aligned itself far more with an outward strategy around foreign direct investment to help secure a sustainable economic future.
Much of Africa's future growth will emanate from infrastructure development and improvement projects. From transport, to human settlements, water and sanitation to renewable energy and Information Communications Technology (ICT), the continent has an infrastructure deficit that has caught the interest of international investors - from China, to the USA, and the Middle East.
Projects of the required scale and magnitude, however, require long-term funding solutions. South Africa's capital markets are expected to drive many of these projects, with debt capital market or securitisation funding generally best placed to serve this need.
As South Africa actively courts foreign direct investment to boost its economy after a difficult period in its local political and economic environment between 2007 and 2017, the country's capital markets are again receiving well-deserved attention from international investors. Backed by a sophisticated legislative framework and investor-friendly financial regulations, the country is one of the few on the continent with significant enough scale to absorb the higher levels of global investment currently considering Africa.
Over the last ten years, the ‘Africa Rising' narrative has seen many of the continent's countries enjoying double digit economic growth, putting them on a firmer footing in terms of solid and sustainable development. Indeed, in assessing Africa's position in the new world order out of the 10 fastest growing economies identified by the World Bank, six of these are African.
One of the biggest challenges for investors on the continent, however, has been the fragmented regulatory and legislative environments which exist in different African countries. Regulatory harmonisation and coherent policies across Africa's many governments remain vital to attract and sustain investment flows and foreign direct investment. Investors and corporates alike demand a constructive framework of strong governance, certainty and a conducive environment to investment, particularly in sectors that help to lead economic growth such as health, power and infrastructure.
This is why the African Continental Free Trade Area (AfCTFA) agreement involving 49 countries is a monumental deal for the continent. The AfCTFA looks set to evolve from a framework agreement into a set of meaningful commercial relationships across the African continent. In short, it represents a marketplace of 1.2 billion people across all the 55 nations comprising the continent.
South Africa is again able to help investors optimise the benefits of improving regional and cross-continental trade links. With the foundations in place to help unlock industrial development, economic diversification and growth, regional harmonisation is likely to result in increased intraregional trade and value chains that could move the continent to higher and more complex levels of production.
South Africa continues to be one of the largest contributors of foreign direct investment into the rest of the continent, and its participation in bilateral relations is expediting Africa's agenda to be heard globally. BRICS and G20, of which South Africa is a member, have helped Africa's developmental agenda be heard directly from representatives of the continent itself. This direct participation enables Africa to have a far greater hand in determining its own future.
But in order to attract further investment, both business and political leaders need to address the gulf in confidence between international and local financial markets and the need for greater international investor commitment to help develop local markets attract investment for growth.
South Africa's active capital markets operate at an appropriate level of effectiveness and maturity and provide an opportunity for investors to tap into rich pools of liquidity and capital on the continent. Its debt capital markets have remained resilient against tough global market headwinds which have affected many other emerging markets.
As some of the world's dominant economies retreat from an economic system founded on globalisation and multi-lateral trade relations, investors can no longer neglect Africa as it actively pursues a more co-operative model in its pursuit of sustainable and real economic growth.
South Africa remains poised to capitalise on renewed international investor interest as a hub for investors to pursue new investment and trading routes into the continent. In return, long-term, patient capital has much to gain from investing in South Africa to reap the benefits of a progressively connected Africa, as well as the Africa's increasing integration and role in a new global geopolitical landscape.
Kenny Fihla is chief executive of Standard Bank Group Corporate & Investment Banking
