3 SA cities make list of Africa’s best cities for business growth

2013-11-17 06:00

Cape Town, Joburg and Durban have again made the list of the 29 African cities that present some of the best opportunities for business growth.

Nairobi, Luanda, Accra, Lagos, Maputo, Cairo and Lusaka are also among the cities that have managed to stay on the Economist Intelligence Unit’s list.

New to this year’s list are Kinshasa, Ibadan (Nigeria) and Harare.

According to the report, per capita expenditure was higher in all the African cities studied than in their respective nations.

Citizens in cities spent 94.4% more, per capita, than their countrymen as a whole.

Africa has become the next frontier for growth for many companies.

The report punts a familiar story of Africa’s growing middle class as one of the major reasons behind this growth story.

“Africa’s people are its biggest asset. One day, its workforce could be as dynamic and vital as Asia’s – especially compared with that of aging Europe,” the report said.

Another reason cited was the growing diversity of Africa’s economies.

“To date, Africa’s growth story has revolved around commodities. However, east Africa is a good example of a region that has managed to achieve high growth rates without relying on significant commodity resources,” the report said.

Despite all the challenges with investing in Africa such as lack of skills, poor transport networks, red tape and corruption, countries are more interested than ever into expanding into Africa.

“Companies looking to expand into Africa need to concentrate their strategy where growth and demographics are most favourable – in major cities. It is not enough to plan a strategy around nationally-forecasted growth, but rather to have critical forecasting and business information on a particular city,” according to the report.

Ajen Sita, the CEO for Ernst & Young Africa, said the size of the continent could make investment a challenge.

“It is no longer enough to just look at numbers when one considers which markets to enter on the continent. The sheer size of the continent can prove daunting, and different sets of rules, regulations, stakeholders and market dynamics exist across each of the continent’s 54 countries.”

A report released this week by Ernst & Young showed that foreign direct investment into sub-Saharan Africa has grown at a compound rate of 22.3% between 2007 and last year.

The research by Ernst & Young also dispelled the rhetoric that South Africa was fast losing its status as a gateway into Africa and that there have been robust growth in levels of foreign direct investment projects in South Africa.

According to the report, over the period 2007-2012, foreign direct investment projects into South Africa grew substantially at a compound rate of 22.4%, well above the average for the African continent as a whole.

This growth is also off a relatively large base in comparison to most other countries; in fact, last year, South Africa attracted more than twice as many foreign direct investment projects as any other country in Africa.

But the report sees a strong probability that there will be a dip in foreign direct investment for this year because of factors such as labour unrest, ratings downgrades and the current account deficit.

But the report does anticipate that growth in the global economy will begin to pick up next year, and the long term outlook for South Africa’s growth (around the 4% mark) is relatively positive when benchmarked against a selection of other developed and emerging economies.

“Our relative optimism in this regard is based on several factors, but perhaps most notably, the government’s track record of sound macroeconomic management (which, we believe, is sometimes far too casually discounted) and the comparative policy certainty provided by the National Development Plan [NDP],” said Michael Lalor, lead partner for the EY Africa Business Center.

“In this context, we expect growth in [foreign direct investment] into SA to resume in 2014. This is partly because investor interest in Africa will continue to grow, and also because SA remains an attractive investment destination when compared to other African markets.

“This is the case because on any kind of objective risk versus opportunity analysis of African markets, SA will be among the best positioned markets for the foreseeable future.”

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