While Barclays has revealed plans to exit its African exposure other international firms are attracted to the continent like a magnet.
Slowing economic growth in Africa, soft commodity prices, and monetary policy tightening in the US have impacted heavily on the region, but a recent study says, in spite of this investors prefer the continent.
The region has attracted a number of international investors largely due to the Africa rising narrative. Africa remains one of the fastest growing economic zones in the world. In 2016 the region’s GDP is forecast to grow 2.4 per cent.
The report also sheds light on how global firms’ African operations performed financially in the last year, executives’ expectations for commercial performance over the next five years, where their firms are investing, which markets excite them the most and the challenges they’re facing operating in the region.
The Economist Corporate Network’s “Dampened growth, resilient optimism: the 2016 African Business Outlook Survey” says 37 per cent of respondents say African operating margins are higher or significantly higher than their firm’s global averages.
The report gathers insight from over 120 senior executives responsible for Africa-based commercial operations.
According to the survey, over 50 per cent of respondents said their firms will invest more in their Southern, East and West Africa-based operations.
The survey also noted 21 per cent of respondents expecting Africa-based revenue to comprise between 11 per cent and 40 per cent of sales by 2021.
“Nigeria’s importance as a primary market is expected to increase over the next five years, while South Africa’s expected to decline,” read part of the statement.
Herman Warren, director of The Economist Corporate Network in Africa, says, Executives indicated that their firms were looking through the current economic slowdown.
“There was a clear view that the region’s contribution to their firms’ revenue is set to increase over the next six years, and Nigeria, for example, will be the top market for business across sectors by 2021. Currently South Africa holds the top spot,” added Warren.
Around 31 per cent of executives reported profits sourced from the region were largely in line with their firms’ global averages. Thirty-seven per cent, however, indicated that Africa-based profit margins were higher than those generated by their firms’ operations in other regions.
Executives cited a number of operational challenges that they contend with in the region: Corruption, lack of appropriate skills, bureaucracy, regulatory hurdles, infrastructure deficits and personal safety loomed large.
Some executives surveyed indicated that their firms would consider relocating their operations or downsizing as a result of issues unrelated to their firms’ commercial viability. The main issues cited in this regard were due to people, infrastructure and safety-related factors.