African Emerging Markets - Essay Example

African emerging markets Introduction Over the recent years, investment made in the African continent by both international and Africans living overseas have been on the increase. Ideally, the African markets have the untapped potential that investors intend to harness. In essence, capital to run or invest in a certain business venture is the; fundamental aspect to which many Africans lack. In this reason, investors view Africa as a rich continent in terms of investment and potential development. These investment potentials make Africa an attractive region to make substantial investments in as the prospects of return are high. However, the Asian continent serves as Africa’s greatest threat in terms of foreign investment as the continent has intense aspects by European countries and other grown economies. For this reason, the Asian continent experiences rapid growth in terms of infrastructure and the economy unlike in Africa. On the other hand, investments in African countries by foreigners attributes to maintained peace while the countries that do not have peace experience minimal international investment. Therefore, this essay will indulge on why Africa has steadily been an emerging market as a potential investment destination by foreign investors. Background information on the African continent In the global population index, Africa boasts of having at least one billion inhabitants spread across the continent. Essentially, this figure comprises of all fractions of the population that include age, gender, among many other factors. However, the literacy levels are average with the percentage standing at sixty two. This means that the elite population is slightly above the half percentage meaning that it is not enough to sustain employment and investment. By 2008, the collective gross development profit for the continent combined was at least two million trillion dollars making it high, but with minimal income. In addition, the overall expenditure levels for the continent were eight hundred and sixty billion US dollars as at 2008. Despite these visible trends, analysts predict that Africa would increase profits and gross spending income by 2020. However, the achievement of these desired results squarely laid with the investments levels if made at a steady rate. For instance, the population of Africa will be at one point four billion people by 2020. Further, analysts predict that the gross development profit will also increase to at least two point six trillion US dollars by the same time. In excess, the levels for consumer spending will also go up to almost one point four trillion dollars. Therefore, these figures directly depend on Africa’s ability to attract investment from foreign investors as domestic investments may not help in the realization of this vision. Africa’s economic blocks Currently, the African continent has several economic communities that tend to look into the economic aspects of a region. In essence, the formation of these communities relies on certain aspects that include proxy between nations and also the economic activities existing within the region. However, these communities have heads that may range from presidents to ministers within their respective countries. Ideally, economic partnering by African states has been vital in ensuring regional growth rather than individual growth of a state. These trading blocks also have significance in reducing duty across members that have enhanced interstate trade. Objectively, these trading communities help in attracting foreign investments because of the policy frameworks formulated in their summits. Some of these policies include the establishment of common travel documents among member states within certain trading blocks to facilitate easy trade. In other communities, the imposition of agreed tax levels have also proved essential in attracting investments by interested investors. This is to mean that the investor perspective on the intended profit levels stands in their favor hence not inhibiting them. Some of these economic trading communities include the East African community, the Common Eastern and Southern African market, and the Development Community of Southern Africa (Dundas, 2011,:214). In October 2008, these weighty trading communities signed agreements to authorize African states to trade in a free zone. Essentially, this birthed the African Free Zone Trade, a single free trade area existing among twenty six African states under the three principal trading regions (Synott, 2004: 119). The estimated gross development profit within this newly created bloc stands at approximately six hundred and twenty four US dollars. In essence, the creation of this economic bloc assisted in member states that belonged to several other economic communities to have a single involvement with a trading community that has all the benefits of all other trading communities. In this regard, Britain had the highest beneficial chances presented by this trading zone. Membership stretched from Cape Town to Cairo hence widening the market capabilities for investors. In addition, the creation of this trading bloc served as an avenue for the expansive growth of infrastructure especially the road from Cape Town to Cairo. In addition, the incorporation of the trading bloc facilitated an increase in the exploration of resources that include vast markets, natural resources, and younger populations. In essence, the young populations act as vital contributors to the economies. Further, the opening of the zone facilitates African development by making it the preferred investment. Ideally, attraction to the need to invest by foreign investors is as a result of the infrastructural advancements provided by the trade zone. Moreover, the free trade zone is also encourages peace across the region through the incorporation of security schemes that encourage investment. Further, the formation of the trading bloc also gives member states the bargaining power when approaching international investment deals. This helps by allowing the member states to avoid falling into non-profitable deals or exploitation. Therefore, this economic community helps in facilitating harmony among African states hence promoting peace and stability. Expansion potential for the continent Arguably, Africa has proven to hold remarkably vast untapped resources and potential with many hidden development reserves. Objectively, the achievement of growth and desired stability depends on a certain number of factors. First, the ever growing consumer base for goods and services is crucial for international investors who have interests in making investments. Essentially, a growing population creates the challenge of increased demand for needful products and services leading to an increase in customer expenditure. Arguably, this trend has been visible in the period between the year 2000 and 2007. On the contrary, most African countries lack manufacturing companies hence creating the need to start investment companies in these countries. Remarkably, the African continent provides adequate markets for products and services enjoyed in the western countries. For instance, the telecommunications industry is an investment sector that many international investors have taken interest that has led remarkable strides across the region (Sievers, Marks & Naidu, 2010: 83). Another critical factor that attracts foreign investment is Africa playing homage to many natural resources that include minerals, oil, natural gases, and horticultural products among many others. Remarkably, other investors opt to develop a country’s infrastructure in order to acquire mining rights within their country of interest. Some of these foreign investors come from China and having immense accreditation for their contribution in global infrastructural development. Thirdly, the talent levels are visible due to the high enrollment by African youths and populations into institutions of learning. In essence, literacy boosts competition in the job market hence allowing investors to assure themselves of acquiring competent staff. Competency is efficient in ensuring that business organizations have the required staff. In comparison, Africa’s labor costs is drastically lower than that of Asia hence encouraging direct investment by foreigners. Moreover, African countries have also accepted the need to liberalize the investment structures set within their nations by making them more accommodative to foreign investments. In the past, many African nations had stringent measures surrounding investment structures, but have relaxed these regulations to attract more foreign direct investments. Despite the poor economic infrastructure, investors realize the potential of investing in these economies irrespective of their poverty levels. Ideally, investors tend to shy away from investment destinations that might frustrate the capital that they may pump into these economies. On the other hand, innovativeness in the continent has been substantive in ensuring that the investment interests are high. Innovativeness applies in all aspects of development especially communication as it helps in the invention of products and services that might make life comfortable for many (Morrison, Cooke & Campos, 2008:10). Therefore, the continent has hidden and unrealized development potential. China’s foreign direct investment in the African continent Arguably, China is the sole Asian country that has had vast investments in Africa as compared to many countries. Ideally, China has played a fundamental part in ensuring that Africa’s infrastructural development is a realizable dream. The investors from this country have ventured in Africa’s mining of oil and other sources. Further, this country has made Africa the prioritized destination for products made from the country. Some of these products include substitutes for electronics made in other countries by making and selling them at friendly retailed prices. On the other hand, China has also acquired many companies in Africa by making agreeable negotiations as to own and grow these companies. This has been through making mergers with industries in order to provide value added utilities to the African population. In a nutshell, Africa has at least ten oil rich countries that are mostly in the West African and some parts of Sub-Saharan areas of the continent. The oil producing countries contribute at least one hundred and twenty billion oil barrels to the larger oil supplying sphere. This forms ten percent of the global oil reserves with Nigeria and Libya being the principal contributors producing almost sixty five percent of the shares (Deinduomo, Amiri & Emiri, 2009: 349). In this regard, China has sought to establish more friendly ties with these nations in order for them to benefit from these resources (Manji & Marks, 2007: 143). For instance, China’s production abilities squarely depend on energy in order to assure continued productivity. Therefore, China is able to sustain the economy through oil exported from these countries. However, few factors stand in the way between an increase in investment and relative growth in these oil-producing nations. For one, there are a number of risks that these Chinese developers may have to counter, which range from political and civil war to poor governance and infrastructure (Aldosari, 2007: 1432). For example, the Libyan crisis elicited caution from potential investors as they were uncertain regard their safety and well being. Particularly, those interested oil excavation as they feared having to lose a significant chunk of their investment. On the other hand, some countries experience poor leadership through corruption and bias ways of allowing direct investments by these potential developers (OECD, 2008: 75). In essence, it is appropriate to encourage positive competition by allowing many investors venture in a country’s market as it allows for development and improved products and services. However, this is not the case in many African states as leaders allow investment as part of their own personal gain. This becomes detrimental to the overall economic development of the continent because investors flock regions that would support their interests. Sequentially, this creates concentration of investors in one region rather than spreading out in other regions. Remarkably, Africa and China have enjoyed cordial economic relationship to time dated back to the nineteen fifties and have improved on it through all known ways. By 2010, China had developed significant diplomatic ties with forty nine out of the fifty four African nations. Objectively, China has sought to keep the ties that it has with Africa to be as healthy as possible as the continent forms one the core investment sites. Moreover, China holds an intense desire to exploit new and untapped markets in Africa in order for the nation to continue growing economically (Rotberg, 2008: 207). Economically, China boasts of being a super economy by sharing the same class as the US and other known chief economies (Liaw, 2007:13). Subsequently, Africa has become one of China’s critical beneficiaries of overseas direct investment in recent times. However, the Chinese create limited job openings in their investments they tend to come equipped with their own workforce. Therefore, this limits the possibility of job creation within Africa as they may contract the Africans to do the heavy lifting hence limiting the creation of standard jobs. Factors hindering increased foreign direct investments Challenges and hurdle are an inevitable aspect surrounding all aspects of investments, but they may also work in favor to others through the offering of practical solutions. Essentially, poor road infrastructure is at the top of the challenges list due to the fact that most African areas are inaccessible through any form of transport (Page, 2003: 200). This makes it hard for investors to access potential exploration unless they open them up by building the connections themselves. Sequentially, this inhibits investors from venturing in the exploration as it is much costly for them (Broadman & Isik, 2007:329). In addition, the communication aspect of many African is poor because of bad communication reception either through the internet or telecommunication services. However, many nations have seen the implications of not having communication links that are of standard hence concentrating their efforts in making communication better. Additionally, energy and electricity are also the other vital aspects that tend to lower the chances of attracting more foreign direct investment. This is because the two serve as propellants to powering the industrial sector hence the lack of it discourages potential investment and economic stability. Lastly, poor hygiene and water scarcity in many urban set ups across Africa intensely affects investments opportunities as investors tend t view these regions as inhabitable. Therefore, the responsibility of enhancing growth squarely lies within the administrative authorities within the continent to make their infrastructure better so as to attract more foreign investment. The stepping out policy by China China’s former president, Jiang Zemin, termed the policy as Chinese corporations intense global seeking of natural resources and unprocessed materials that would feed an ever growing economy (OECD 2008, 157). In 2006, almost twenty two billion US dollars saw its way to Africa as an investment in the mining sector. The investment move also targeted the banking sector that witnessed the opening up of bank regions in Africa especially in South Africa. According to Maidment (2007), the move was as a result of converting dormant money reserves in China’s central bank and forming formidable investments across overseas markets. This was effective in enhancing return on investment made on various aspects of the economy. Ideally, the focus was on diversifying income generation avenues from three percent to a remarkable ten percent (Pigato, 2009:82). On the contrary, the policy’s crucial objective was to penetrate their respective markets rather than gaining control over the same. Subsequently, China’s investments reserves would reach tremendous heights due to the establishment of tangible assets rather than having money idling in bank accounts (Botchway, 2011:378). Conclusion Foreign or overseas direct investment has enabled Africa to make significant achievements in terms of economic advancement. In essence, these investments draw encouragement from the formulation of regional trading blocks that have applied attractive policies that complement economic growth. China stands as the principal investor into Africa by exploring the mining and infrastructural aspects of development. This makes the emerging markets in the continent acquire the view that they have potential in terms of attracting foreign investment recognition and destinations (IMF, 2009:29). Lastly, foreign investment solely depends on a nation’s ability to assure investor investment security hence political stability attracts investments from all quarters. Bibliography Abiri, K., Emiri, F., & Deinduomo, G. 2009. Law and petroleum industry in Nigeria: current challenges : essays in honour of Justice Kate Abiri. Lagos, Malthouse Press. Aldosari, A. 2007. Middle East, western Asia, and northern Africa. New York, Marshall Cavendish. Botchway, F. N. 2011. Natural resource investment and Africas development. Cheltenham [u.a.], Elgar. Broadman, H. G., & Broadman, H. G. 2006. Africas silk road: China and Indias new economic frontier. Washington, D.C., World Bank. Dundas, C. W. 2011. The lag of 21st century democratic elections. AuthorHouse. Harneit-sievers, A., Marks, S., & Naidu, S. 2010. Chinese and African perspectives on China in Africa. Cape Town, Pambazuka Press. International Monetary Fund. 2009. Regional economic outlook: Sub-Saharan Africa. Washington, D.C., International Monetary Fund Liaw, K. T. 2007. Investment banking and investment opportunities in China a comprehensive guide for finance professionals. Hoboken, N.J., John Wiley & Sons. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=315225. Maidment P. 2007.China’s Financials Stepping Out. Forbes.com . Available from http://www.forbes.com/2007/11/29/china-financials-banks-biz-wall-cx_pm_1129notes.html [Accessed February 8, 2013] Manji, F. Marks S.2007. African perspectives on China in Africa. Oxford [u.a.], Fahamu. Morrison, J. S., Cooke, J. G., & Campos, I. 2008. U.S. and Chinese engagement in Africa: prospects for improving U.S.-China-Africa cooperation. Washington, DC, CSIS Press. Organisation For Economic Co-operation And Development, & Source OECD (Online Service). 2008. China encouraging responsible business conduct. Paris, OECD. http://site.ebrary.com/id/10275442 Page K. 2003. Africa review. Saffron Walden, Essex, England, World of Information. Pigato, M. 2009. Strengthening Chinas and Indias trade and investment ties to the Middle East and North Africa. Washington, D.C., World Bank. Rotberg, R. I.2008. China into Africa: trade, aid, and influence. Washington, D.C., Brookings Institution Press. Synott, J. P. 2004. Global and international studies: transdisciplinary perspectives. Southbank, Vic, Social Science Press. Read More