Canada Missing Out on the African Opportunity

by Letlotlo Lefoka 0

The economic challenges Canada has faced as a result of the beating taken by the oil and gas sector has highlighted the need to diversify the country’s economy. Integral to this diversification is a need to broaden trade and exports beyond the United States, which accounts for nearly 75 percent of Canada’s trade.

Trade deals with South Korea and Europe, as well as the Trans-Pacific Partnership and recent signals of the exploration of a trade deal with China are welcome moves towards trade diversity. But perplexingly, Canada has shown no interest in one growth market that offers trade and investment opportunities – Africa. Bluntly, Canada lacks a coherent African investment and trade strategy, so the country is losing out on a growth market that offers customers and deals for Canadian firms.

The numbers speak for themselves. As reported by Bloomberg, over the last decade Africa has had the fastest economic growth in the world.

Despite recent slowdowns attributable to global macroeconomic factors, the regions GDP is expected to average 4.4 percent this year. Long-term, the continents growth looks favourable, buoyed by a young, exploding population – the fastest growing in the world, urbanisation and rising incomes.

These factors explain why Chinese investment in Africa has surged in recent years. No doubt this development contributed to U.S. President Barrack Obama holding the U.S. Africa Leader’s Summit in 2014. A move designed to shore up relations with the continent to ensure that the U.S. could be a partner on Africa’s growth and that American firms could reap the benefits this growth offers.

This begs the question, where is Canada in Africa?

Consider beleaguered industry giant Bombardier. Rather than bailing out the firm, why not aggressively pursue new customers in Africa instead? Bombardier has already seen financial benefits from Africa’s growth. The firm delivered rail signalling solutions for Ethiopia’s new 400 km rail system and supplied 19 aircrafts to Ethiopian Airlines.

There are plenty more such deals to be had. Johannesburg is expanding its commuter train service with 48 new coaches. Bombardier, the current supplier should be a lock for the deal but the firm faces stiff competition. The firm’s C-Series jet whose orders have fallen short of targets could be sold to African customers where air passenger growth is 6.1% compared to the global average of 5.8%.

Africa’s passenger numbers are expected to double to 300 million in the next two decades, according to the International Air Transport Association. This growth will be fueled in part by the entry of low cost carriers that are competing with national carriers.          

These are a handful of examples of trade and export opportunities that Africa offers to one Canadian firm alone. No doubt other firms and sectors stand to gain as well, from infrastructure development to energy, retail and notably banking and financial services. That growing middles class will need loans, credit cards and wealth management services.

Despite these opportunities Canada’ presence in Africa remains woefully inadequate. Canada’s diplomatic presence in Africa is dwarfed by Brazil. Frustratingly for Canadian businesses, Canada has tax agreements with only a handful of African countries.

This means Canadian firms repatriating funds received from African deals are subject to withholding taxes and thus rendered uncompetitive as their bids can often be 25 per cent higher than their competitors.     

Trade Minister Chrystia Freeland should fill up a challenger jet with Canadian executives and business leaders and head to Africa. There are trade and investment opportunities to be had and if Canada doesn’t get in the game it will miss out on access to markets and customers our economy needs.

Letlotlo (Coco) Lefoka is an MBA Candidate at the Rotman School of Management at the University of Toronto.