Leverage, Leap, Lead:

There is a general forecast that, the major world economies like the USA, China, Japan and the UK may slowdown in terms of growth in 2019. However, not much has been said about the impact of this expected slowdown on Africa. Will these major economies drag African economies along with them, or will Africa rather benefit from those investors looking for higher returns in frontier and emerging markets, as appears to have been the case in 2008 to 2011?  These are some of the questions that will agitate the minds of business leaders in Africa in 2019.  In addition, business leaders in Africa will have to overcome the challenges that come with the on-going changes at the national and continental levels aimed at transforming Africa.

Thriving in Africa in 2019, therefore, may very well depend on the successful implementation of strategies that will enable a business ride the storm of the disruption that comes with transformation. In particular, SMEs and startups in Africa will have to implement their own corporate transformational activities that leverage technology, alternate finance mechanisms, growing intra-Africa trade, fin-tech and urbanization. To do so, they will have to identify and implement the appropriate strategies to enable them adjust quickly and survive Africa’s integration into the digital age.  On the other hand, multinationals and global giants operating or seeking to operate in Africa, must recognise the growing role of African SMEs in the value addition and supply chain process.

Invariably, many of the global events of 2018 will continue to trend for the better part of 2019 and should be of concern to Africa business leaders. The following may be pertinent.

China-USA Trade War

China is far ahead of the rest of the world in terms of trade and investment in Africa but China’s relationship with other countries could also have an impact on Africa businesses. Pertinent among these, is the trade war between the USA and China.  There is a truce as at date of going to press but it is uncertain whether this truce will last. What will be the effect of a full-blown USA-China trade war on business in Africa?

Forum on China-Africa Cooperation (FOCAC), AfCFTA and China-Africa Trade

China has pledged U$63b under FOCAC to Africa. What will be the extent of implementation of FOCAC projects in 2019 and what are the opportunities that will emerge from FOCAC beyond 2019?  About thirty (30) African countries have also signed up to China’s one trillion dollar Belt and Road Initiative. At the same time, China-Africa trade is likely to surpass the $260b mark in 2019 even if China’s economy slows down.  This coincides with the AU’s pursuit of the continental free trade agenda. Will an increase in China-Africa trade support or threaten the expected implementation of Africa’s own continental free trade agenda? The Continental Free Trade Agreement Declaration was initiated in March 2018 in Rwanda and some countries have started implementing the free movement protocol. Additionally, the single air market is also being fashioned albeit with initial hiccups. This new multi-trillion dollar market is yet to start, and it is envisaged that the minimum of 22 countries required will be attained by the end of 2019, when some of the largest economies would have gone through their elections. Business leaders ought to examine the point of convergence of FOCAC, AfCFTA and growing China-Africa trade.

Brexit and Events in Europe

The potential of Brexit happening is another example of global events to watch. Beyond the talk about Brexit and what will happen to the UK economy, businesses in Africa need to look at the Africa impact of Brexit.  This is because the UK is a major trading partner of many African countries, especially Anglophone Africa. In addition, the UK through DFID supports a number of development programmes in Africa.  The exit of the UK from the EU is also expected to adversely affect the EU as a trading block. Africa businesses must therefore anticipate diverse scenarios of UK-African trade as well as Africa-EU trade in a post-Brexit era.  More so, if the UK’s GDP suffers a dip in the post-Brexit era as has been predicted, the impact in Africa will be felt in diverse ways.

Another development in Europe that should engage the attention of African businesses is the impending change of political leadership in Germany. African countries like Rwanda and Ghana who have seen a surge in German investment in recent years, ought to focus some attention on the impact of the exit of Angela Merkel (as Chancellor in 2019), on Germany’s Africa policy.

Power and Free Zones

Energy is a defining catalyst for the industrialization and modernization of every economy. Africa lags behind in the availability of power, even though it continues to attract investments in the areas of power generation, transmission and distribution and lately in the areas of renewable energy and off-grid solutions. If Africa is to industrialize, power to industry tariff must be cheaper than it is at present, in order to make value added products competitive. The benefits of power sector reform projects such as those being implemented in seven (7) African countries, pursuant to the Power Africa Project initiated by President Obama, will begin to show in 2019. Coming alongside this, is the increase in the number of free zones and special economic zones opening up in Africa with Ethiopia taking the lead. If these continue, industrialization starting with light manufacturing will see a steady growth in 2019 and beyond.

Emerging Oil Economies

Many African countries have recently emerged as oil economies in addition to the existing giants – Libya, Nigeria and Angola. The new ones include Ghana, Uganda, Kenya and Liberia. Many of these countries have been implementing local content measures that have become both an opportunity and a source of concern to businesses. To what extent will local content lead to the growth of indigenous companies and what are the compliance and cost implications to multinationals operating in the oil and gas sector in Africa?

On the other hand, the price of oil will be an area of concern to both businesses and policy makers. Experts believe that in 2019, oil prices may fluctuate. If it does, it may throw the financial projections of some African governments out of gear, or on a positive note, give higher than expected income. For example, Nigeria’s 2019 budget forecast a $60 per barrel for its crude oil export.  What will happen if there is a drastic deviation on either side of the $60 mark.  Besides oil prices, there is likely to be a fair amount of attention paid to the thirteen (13) African countries including Nigeria, South Africa and Algeria who will hold political elections in 2019.

Leveraging to Leap and Lead

The above, coupled with other regional and worldwide events, will present both opportunities and threats in 2019.  Undoubtedly, some of the events of 2018 will form the basis of the socio-economic events of 2019.  For businesses operating in Africa, this comes at a time when technology based disruptive events, are affecting every sector and changing traditional ways of doing business.  It is feared in some circles that the fast rate of global digitization may leave many African businesses unprepared for the new era. It is key that businesses implement strategies that enable them transform with the ongoing transformation. In so doing, it is important to realise that business strategy depends on the rung of the ladder the particular business occupies. Accordingly, businesses must learn to leverage their own strengths and the positive aspects of emerging developments.

The above are some of the many factors that have informed our 2019 outlook at AB & David Africa.  Of course, this outlook is also informed by our twenty (20) years existence as a firm advising businesses across Africa countries and the success we have attained in this regard. Having been part of the transformation story of many businesses on the continent, we are very much aware that the world is not waiting for Africa. Accordingly, businesses in Africa must learn to leap from where they are into the fast-evolving new Africa. It is our hope at AB & David Africa, that business leaders with foresight will take the appropriate measures to leap and lead the pack in spite of the challenges.

 

David Ofosu-Dorte

Senior Partner

AB & David