Egypt, Ethiopia and Rwanda are up, and South Africa, Nigeria and Algeria are down, while all of Africa is at a crossroads in economic development, according to the newest edition of Rand Merchant Bank’s “Where to Invest in Africa 2018” report. By Arthur Friedman

Photo credit: Tara Donaldson


“The last three years have sounded an alarm, amplifying what is now a dire need for the economies of Africa to shift their focus from traditional sources of income to other viable alternatives,” said Neville Mandimika, a Rand Merchant Bank Africa analyst and contributor to the report.

The report’s Investment Attractiveness Index, which balances economic activity against the relative ease of doing business, illustrates how subdued levels of economic activity have diluted several scores on the index when compared to last year, resulting in several shifts within the Top 10.

“Over the past three years, some African governments have had to implement deep and painful budget cuts, announce multiple currency devaluations and adopt hawkish monetary policy stances, all as a result of a significant drop in traditional revenues,” said Celeste Fauconnier, Rand Merchant Bank Africa analyst and co-author of the report.

Notable omissions from the top 10 this year are Nigeria and Algeria, which have fallen from numbers six and 10 to numbers 13 and 15, respectively. Ethiopia and Rwanda, on the other hand, have climbed three and four places, respectively.

Probably the most notable change is that South Africa, once considered the fifth of the BRICS–those developing economies with the most potential–has fallen from first place for the first time since the inception of the report in 2012, ceding its place to Egypt, now considered Africa’s most attractive investment destination.

Egypt displaced South Africa largely due to the North African country’s superior economic activity score and South Africa’s sluggish growth rates that have deteriorated considerably over the past seven years. South Africa also faces mounting concerns over issues of institutional strength and governance, though in South Africa’s favor are its currency, equity and capital markets, which are still a cut above the rest, with many other African nations facing liquidity constraints, Rand noted.

Morocco retained its third place position for a third consecutive year, having benefited from a greatly enhanced operating environment since the “Arab Spring” that began in 2010.

Ethiopia, a country dogged by sociopolitical instability but still a favorite of many foreign investors, including U.S. and Chinese apparel and textile firms, displaced Ghana to take fourth spot, mostly thanks to its rapid economic growth, having moved past Kenya as the largest economy in East Africa. Ghana’s slide to fifth position was mostly due to perceptions of worsening corruption and weaker economic freedom, the study said.

Kenya holds firm in the top 10 at number six. Despite being surpassed by Ethiopia, investors are still attracted by Kenya’s diverse economic structure, pro-market policies and brisk consumer spending growth.

A host of business-friendly reforms aimed at rooting out corruption and steady economic growth helped Tanzania climb two places to number seven. Rwanda re-entered the top 10 after spending two years on the periphery, helped by being one of the fastest reforming economies in the world, high real growth rates and its continuing attempt to diversify its economy.

At number nine, Tunisia has made great strides in advancing political transition, while an improved business climate has been achieved by structural reforms, greater security and social stability, the bank noted. Cote d’Ivoire slipped two places to take up the 10th position. Although its business environment scoring is still relatively low, its government has made significant strides in inviting investment into the country, leading to a strong increase in foreign direct investment over the years and resulting in one of the fastest growing economies in Africa, the study said.

For the first time, Nigeria does not feature in the top 10, with its short-term investment appeal having been eroded by recessionary conditions. Uganda is steadily closing in on the top 10, though market activity is likely to remain subdued after a tumultuous 2016 marred by election-related uncertainty, a debilitating drought and high commercial lending rates, the report noted.

Though Botswana, Mauritius and Namibia are widely rated as investment grade economies, they do not feature in the top 10 mostly based on the relatively small sizes of their markets.

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One of the most important findings of the seventh edition of “Where to Invest in Africa” is that the African continent could find itself hovering on the brink of disaster if it continues to depend on its current economic fundamentals and does not usher in economic diversification.

The theme for Where to Invest in Africa 2018 is “Money Talks” and this edition “follows the money” on the African continent to evaluate aspects crucial to each country’s economic performance. The report focuses on the main sources of dollar revenues in Africa that allows it to measure the most important income generators and identify investment opportunities.

Nema Ramkhelawan-Bhana, also RMB Africa analyst and another report author, said, “Some countries have been more nimble and effective than others in managing shortfalls. But major policy dilemmas have ensued, forcing governments to balance economically prudent solutions with what is politically palatable.”

Ronak Gopaldas, another Africa analyst at the bank and report co-author, noted that recent years have exposed a number of African nations to severe economic stress, especially that of liquidity shortages.

“Unfortunately, there is no quick fix to infuse into a context as complex as this and traditional forms of revenue will remain a reality for many years to come,” Gopaldas added.

Where to Invest in Africa 2018 also includes 191 jurisdictions around the world and measures Africa’s performance relative to other country groupings. The findings are that African countries are still at the lower end of the global-performance spectrum, which continues to be dominated by the U.S., U.K., Australia and Germany.