Out-Law News 2 min. read

South Africa ranked number one investment destination for UK in sub-Saharan Africa


South Africa has been identified as the top investment destination in sub-Saharan Africa for UK firms looking to expand, according to overall rankings in the Barclays Africa Trade Index.

The index, which combined “a wide range of measures to assess opportunity and openness” across 31 countries in the region, ranked nations “with the most open and potentially lucrative countries coming out on top”.

According to the index (21-page / 1MB PDF), “while South Africa is the standout performer in the overall index, Nigeria arguably represents the most exciting long-term opportunity for UK businesses in sub-Saharan Africa”.

Nigeria, ranked second, already imports around $2.4 billion in goods from the UK each year, making it the second largest market for exporters after South Africa, the index said. However, Nigeria’s performance in terms of openness (12th) and intra-African connectivity (16th) means that the country “still has a long way to go before it can hope to compete with South Africa as a regional trade hub or as a gateway to other African markets”.

The index said that “in order to achieve a higher degree of trade openness, Nigeria needs to address a range of business environment deficiencies that create great uncertainty and hidden costs for foreign firms, while investing heavily in transport networks and power provision to reduce non-tariff barriers to trade”.

Nigeria “is potentially a profitable market for UK-based companies that know how to operate in its complex regulatory environment and that can overcome the logistical difficulties posed by the inadequate infrastructure, for example, by providing their own power and water supplies”, the index said.

Kenya, which ranked third in the overall index, “plays the role of a regional leader, offering logistics routes and administrative solutions to facilitate cross-border trade, as well as pushing for regional policy on areas of policy, infrastructure and administration”. Kenya’s role as a central trade hub for East Africa “is evident in strong transport-related scores, particularly regional and global air connectivity”, the index said.

Intra-African investments are increasing, led by South African, Nigerian and Kenyan firms, with most investments to date in manufacturing, services, information and communications technology and consumer goods, the index said. “Between 2009 and 2013, the share of announced cross-border green-field investment projects originating from within Africa rose to 18% of the total, from less than 10% in 2003-2008.”

In terms of the UK’s trade with the region, the index said around £8.2bn worth of goods were exported to sub-Saharan Africa in 2013, “made up of high-value manufactured products including machinery and equipment, road vehicles and chemical products, as well as fast-moving food and beverages”.

According to the index, the majority of UK exports traded with sub-Saharan Africa are destined for South Africa, followed by Nigeria, Botswana, Angola, Kenya, Ghana and Senegal. “The UK tends to account for between 4-5% of total imports in these seven countries and has a foothold of between 1-3% in the fast-growing countries of Tanzania, Cote d’Ivoire, Ethiopia, Zambia and Cameroon.”

UK-based firms “have a distinct advantage” in Africa in terms of being able “to leverage cultural and linguistic commonalties and political connections”, the index said.

Earlier this year, a partnership was launched by the UK’s development finance institution (CDC) and the Norwegian Investment Fund for Developing Countries (Norfund), to acquire a “significant minority” stake in Globeleq Africa from the Actis infrastructure 2 fund. The funds said their partnership aimed to tackle “bottlenecks” that can interrupt infrastructure projects in the early stages of development.

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