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It’s the infrastructure, stupid!

26 January 2015 Paul Clark, Ashburton Investments

Although Africa will have its very own “World Economic Forum for Africa” in Cape Town in June, it certainly did get quite a lot of attention in Davos.

Kofi A. Annan, who was the 7th Secretary-General of the United Nations and an African himself, while referring to global problems that need urgent resolutions, touted Africa as part of the solution to food security. He said, “Africa, with the world's most uncultivated arable land, has the potential to help end the global food security and nutrition crisis.”

However, he cautioned that while Africa's governments have recognised their responsibility to put in place the policies and investments which will enable the continent's farmers, big and small, to provide the food needed – they need to deliver the improved infrastructure.

Sunil Bharti Mittal, the chairman of India’s Bharti Enterprises - a large investor in African telecoms, reiterated the need for infrastructure and said during a panel discussion, “in the absence of infrastructure, you are losing a lot of GDP growth. Africa needs to build its infrastructure and for this, you need to have much more alignment from within.”

South Africa’s president, Jacob Zuma, added that the lack of infrastructure on the continent is also to blame for poor intra-Africa trade. This is an important area of growth for the continent and President Zuma confirmed this by saying, “if we don't have intertrade, if we don't open our borders, if we don't increase the economy among ourselves, we are not going to succeed."

As Africa’s political and macro-economic environment improves and business conditions get better in general across the continent, it is important not to allow some of the negative situations to cloud ones view of the bigger picture.

As Oscar Onyema (head of the Nigerian Stock Exchange) pointed out at Davos, "most of the challenges that we are facing are quite isolated, in isolated pockets. And those pockets are not necessarily the geographies that drive African economy."

In the World Bank’s latest “Doing Business” report they point out that out of the top ten improving countries globally over the previous year, five were from Sub-Saharan Africa.

Sub-Saharan Africa countries also accounted for the largest number of regulatory reforms in the year with 70% of these economies having at least one reform that improves the business environment.

So Africa is reforming from within and improving its operating environment and, as investors across the world look for investment opportunities, the improvement in Africa’s infrastructure challenges will be a key area for future returns.

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