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Finding Opportunity In Crisis, Africa’s Future Depends On It

Author: Thoko Modise, Head of Communications at Brand South Africa

The 59th Board of Governors meeting of the African Development Bank and the 50th edition of the Africa Development Fund takes place at an interesting time for the global and the African economy. 

On May 16 this year, the Dow Jones Index hit 40 000 points for the first time in its history, boosted by, among a range of factors, news that inflation in the United States is slowing and that a rate cut in the US may be on the cards, by the last quarter of this year. 

This would mean that the global economy is over the cost-of-living crisis sparked by the war between Russia and Ukraine in February 2022, and would markedly change the outlook for Africa and the World. 

Following its recent Spring Meetings, the International Monetary Fund foresees a “tepid and pricey recovery” for Sub-Saharan Africa. Growth in Sub-Saharan Africa is expected to rise from 3.4 percent in 2023 to 3.8 percent in 2024, with nearly two-thirds of countries anticipating higher growth. Economic recovery is expected to continue beyond this year, with growth projections reaching 4.0 percent in 2025, according to the IMF. This outlook allows the African Development Bank to look for investment and growth opportunities on the continent.

The theme of this year’s meeting, Africa’s transformation, and the reform of Global Financial Architecture, emphasises the role that Multilateral Development Finance Institutions in unlocking investment potential to attract private investments to various growth opportunities. 

Within this theme, Brand South Africa, and the  BRICS  Business Council (SA Chapter), will seek to explore opportunities for investments in Africa from BRICS Plus countries, which joined the bloc in  January this year. These are Egypt, Ethiopia, Saudi Arabia, Iran, and the United Arab Emirates. 

Trade patterns between BRICS Plus countries and Africa have not evolved significantly, given how new the relationship is. China remains one of Africa’s biggest trading partners. This is, to an extent is reflected in South Africa’s trade with China, which remains its largest trading partner.  In 2022, China accounted for 9,4% of South Africa’s exports and 20,2% of South Africa’s imports, according to the South African Revenue Service (SARS). 

A key source of opportunity presented by Sub-Saharan Africa is that the region is host to a range of minerals required for the energy transition. These range from cobalt to nickel, lithium, rare earth minerals and for battery storage technology, platinum. 

According to the International Energy Agency, between 2022 and 2050, demand for nickel will double, while demand for cobalt triple and lithium rise tenfold. From the Democratic Republic of Congo to Mozambique and South Africa, Sub-Saharan Africa is estimated to hold about 30 percent of the volume of proven critical mineral reserves. These present an opportunity for global investors to invest in the region. 

The meeting also takes place as US lawmakers propose to extend the African Growth and Opportunities Act (AGOA) to 2041. The proposed extension shows that the trade pact is working, for all parties, not just the exporting countries. It also reminds us that it is trade, not aid, that will transform Africa’s development. 

South Africa, which reclaimed its place as the continent’s largest economy according to the IMF, is expected to reach growth of 0,9% this year, according to the IMF. The Fund says Sub-Saharan countries must do three things to boost growth: fix public finances without undermining development, use monetary policy to promote price stability, and implement economic reforms. South Africa is doing all three and economic reforms are beginning to present investment opportunities. 

The news of a pending exit of Shell from its South African downstream business presents an opportunity for a Pan African player to enter the South African market. Puma Energy, with significant storage capacity in the neighbouring ports of Matola and Beira in Mozambique, which had started establishing retail sites in recent years, is one such player. 

South Africa has, in recent years been engaged in economic reforms in sectors ranging from energy, telecoms, and logistics reforms that are beginning to bear fruits. The South African parliament recently passed the Electricity Regulation Amendment Bill. The bill effectively ends  Eskom’s 100-year monopoly in electricity generation and allows the entry of players from the continent and beyond. 

South Africa’s energy has already created opportunities in renewable energy, where installed capacity exceeded 10 MW in 2022, while installed solar capacity stood at 6 MW at the end of 2023, thereby reducing strain of the grid and starting to alleviate loadshedding. 

One of the key features of South Africa’s investment attraction strategy is collaboration with neighbouring countries. In the Medium-Term Budget Policy Statement last year, the government announced plans to create Electric Vehicle original equipment manufacturing capacity in Southern Africa. 

Making the announcement, Finance Minister Enoch Godongwana noted, “Part of the broader strategy includes collaborating with other African countries to develop battery production capacity on the continent, by pooling the critical-mineral resource base that Africa is endowed with.”  

In the Budget in February this year, the government announced an injection of R 943 million into Electric Vehicle battery storage. This investment must crowd in foreign direct public and private sector investment to stimulate the EV industry. 

Lastly, South Africa’s freight and logistics operator Transnet has recently released a Draft Network Statement, which sets out the terms, including the cost, of opening South Africa’s rail network, the largest on the continent, to third parties. 

The statement is being taken through a public participation process by an interim regulator, who will then endorse Transnet’s proposed tariffs or set its own. This process will create opportunities for the rail operators, including in areas such as wagon and equipment leasing as freight carrier operations. 

These are some of the opportunities to be presented at this meeting of critical voices in global Multi-Lateral Development Finance Institutions, which play a critical role in funding the development of the continent. 

Thoko Modise writes in her capacity as Head of Communications at Brand South Africa