Nigerian GDP growth a sign of the lure that Africa holds
03 December 2013 | Talked About Features | The Stage | Jonathan Faurie
Recovery from the global financial crisis has been a top priority of many companies who are hoping to return to the days of endless streams of new business, which resulted in high profit margins. There are certain strategies which can be employed, one such strategy is to increase their footprint into Africa.
While the rest of the world was looking for ways to plug the holes that was caused by the crash during the financial crisis, certain developing economies were outperforming those of established markets. A coalition was formed between Brazil, Russia, India, China and South Africa (BRICS) whereby the economies that were not significantly affected by the crisis could strengthen their position as significant global economic players.However, these were not the only developing economies which were shielded from the crisis. While the rest of the world holds South Africa in high regard as Africa's most developed economy, growth in countries such as Nigeria and Angola is catching up to that of South Africa and will outstrip it by 2020.
Going back west
At the height of the ivory trade during colonial Africa, West Africa was developing at a rapid pace as the colonial superpowers of France and Britain were eager to establish their dominance on a continent which was largely undiscovered.
Nigeria was one of the nations which benefited the most as Britain saw it as an area of strategic importance. Because of this, infrastructure development occurred at a rapid pace and the country was fast establishing itself as the most developed nation in the region.
Since the ivory trade is now illegal, Nigeria has moved on and has developed its economy around one of the most sought after commodities in the world, oil.
Nigeria is Africa's top oil producing country and is thirteenth in the world in terms of global oil production with 2 525 000 bbl/day. And this is only set to increase. Nigeria's real gross domestic product (GDP) growth improved in the third quarter on the back of higher oil production as well as an increase in non-oil GDP growth.
Real GDP at factor cost expanded by 6.81% year-on-year in the third quarter of 2013, up from 6.18% year-on-year in Q2 and 6.56% year-on-year in Q1. The crude petroleum and natural gas sector contracted by 0.5% year-on-year in Q3, which was an improvement from the previous quarter's contraction of -1.15% year-on-year.
Angolan promise
The Angolan insurance market has been growing and developing since the country's liberalisation in 2000. During this time, there have been a number of visible market transformations, the most significant of which is the growth from one market player to its current 13 players.
KPMG adds that this growth reveals that the interest which this market has been generating, and its attractiveness for new investments, will only increase in the future with the number of players expected to increase further in the coming years. In the last few years the Angolan insurance sector has maintained a consistent growth rate with direct insurance premiums reaching $864-million with an average growth rate consistently above 15%.
While the oil and gas industries have been the major contributor towards FDI in Angola, an analysis of the evolution of the economy shows a diminishing influence of the oil and gas industries on the insurance sector. This reveals that it has the capacity to offer products which can serve and assure the various sectors and activities of the Angolan economy.
Risky business
While African expansion will play an important role in the future profitability of companies, this does not come without its risks. Since their independence, many African countries have experienced political turmoil which has often broken out in civil wars.
One such country is Zimbabwe. The rhetoric of its president, Robert Mugabe, has become increasingly worrying for international investors as violent land grabs set the scene for the country's indigenisation policy which seeks to empower local Zimbabweans.
This policy is based on South Africa's policy of Black Economic Empowerment. However, Mugabe is employing a baseball bat approach, which is scaring off foreign investors.
Reports show that Zimbabwean authorities say they have given foreign shop-owners, who are mostly Chinese and Nigerian nationals, an ultimatum to shut down their businesses by 1 January 2014.
A top official of the black empowerment ministry said only Zimbabweans had the right to run shops that have sprung up across the country and are termed foreign businesses targeted under the nation's black empowerment laws, the state-controlled Herald newspaper reported Friday.
South Africa has also had its fair share of turmoil over the past few years. Just after the debate over the nationalisation of the mining industry in 2011, there was the unrest which resulted in the Marikana mine stand-off between police and mine workers. There are also continuous undercurrents of civil disobedience following poor service delivery and laws which government is forcing on the public.
No country for scared men
It is clear that expanding into Africa needs to be done after considerable deliberation and significant risk assessment. However, companies which stand to benefit the most from this are companies within the financial services sector, especially those who offer liability insurance.
Some of the insurance products which are necessary in Africa include ransom insurance, riot insurance cover, general products liability, life insurance, dread disease insurance.
Editor's Thoughts:
The best strategy to employ when expanding into Africa is to get into markets as early as possible. A number of global and local insurance giants are in the process of executing African expansion strategies, and Allianz has indicated that 2014 will be a major year for its expansion plans. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
