South Africa losing its crown in Africa
South Africa has been placed as the fourth most attractive investment destination in Africa, according to Rand Mutual Bank’s (RMB’s) recent Where To Invest In Africa 2024 report.
The case for channelling investments into Africa is well-supported, given that sections of the continent are flourishing and boast untapped resources.
Yet, Africa does not represent a single, uniform market. It encompasses a diverse array of economies, each with its own demographics, wealth distribution, and operational frameworks.
As a result, there is a spectrum of investment possibilities, ranging from exceptionally rewarding to notably risky.
The RMB study looks at the macroeconomic climate of 31 out of the 54 countries across Africa in an attempt to close the gap of “poor data and statistical capacity” of Africa for investors.
Top and bottom investment destinations
| Rank | Country |
|---|---|
| 1 | Seychelles |
| 2 | Mauritius |
| 3 | Egypt |
| 4 | South Africa |
| 5 | Morocco |
| 27 | Cameroon |
| 28 | Lesotho |
| 29 | Republic of Congo |
| 30 | Eswatini |
| 31 | Zimbabwe |
Overall, the two small island economies of Seychelles (1) and Mauritius (2) rank as the most attractive investment destinations on the continent according to the report, with the significantly larger economies of Egypt (3), South Africa (4), and Morocco (5) following.
On the opposite side of the spectrum, Zimbabwe (31), Eswatini (30), the Republic of Congo (29), Lesotho (28) and Cameroon (27) were the lowest-ranked nations measured for instability.
Each country was scored based on 20 metrics which fell under four pillars, namely:
- Economic performance and potential;
- Market accessibility and innovation;
- Economic stability and investment climate;
- Social and human development.
Long the continent’s economic powerhouse, the country’s GDP slipped into second place behind Egypt in 2023. “South Africa faces major headwinds that have seen other countries supersede it in a variety of consequential rankings,” said RMB.
Out of the 31 countries, South Africa ranked first in market accessibility and innovation, fifth in economic performance and potential, seventh in economic stability and investment climate, and 29th in social and human development.
Looking at the individual metrics that weighed down the country’s ranking, its lowest rankings (all at 31/31) are GDP growth forecast, income inequality and unemployment.
The woes, particularly within social and human development, have significantly soured investor appetite.
Citing “disastrous” unemployment figures as a major issue, RMB said that “the country has an economic and humanitarian crisis to overcome.”
Officially, over 30% of the country’s population is unemployed. This figure is worse among young people between 15 and 34 years of age, at 45.5%.
RMB Chief Economist Isiah Mhlanga said at the launch of the report that the social aspect of unemployment makes countries difficult to invest in.
If countries “are not stable from a social perspective, it becomes difficult to invest because the social operating environment is not conducive,” said Mhlanga.
This was echoed by Adrian Saville, a professor of economics and finance at Gordon Institute of Business Science, who said “it is society that gives (business) the ability to operate [and if] society is stumbling or stuttering, you are running an extractive exercise, and you will run out of runway
Additionally, the report pinpointed one of the “most stark among the drivers of economic decline,” sits in failures in South Africa’s electricity, rail, ports and roads infrastructure as significantly hampering the country’s investment feasibility.
“Foreign investors will likely wait for evidence that South Africa’s many reform plans and procedures to stabilise multiple dire metrics are gaining traction before investments turn a corner,” said RMB.
Despite facing significant challenges, South Africa remains a crucial hub for investment in Africa.
Its robust financial sector, diverse economy, and potential for infrastructure development make it a key player.
The top of the pile
The islands at the top of the list, the Seychelles and Mauritius, are seen as top destinations for investors seeking stability and growth opportunities in a well-regulated environment despite their smaller market size.
The report describes the Seychelles, with a population of just 120,000, as standing out for personal freedom, human development, integrity, and global connectedness.
Seychelles boasts a per capita income of US$29,772 and leads with the highest population growth rate in its category, albeit from a small base.
Nevertheless, the report notes opportunities for Seychelles to enhance its standing through innovation and reducing its dependence on imports. With an economy primarily supported by tourism and fisheries, the impact of the coronavirus pandemic highlighted its vulnerabilities.
“Diversifying, alongside improved innovation and lower import concentration, will girder Seychelles more strongly against external shocks,” said RMB.
RMB said Mauritius’s “economic freedom and innovation are the best on the continent, income per person is second highest, it is politically stable, respects personal liberties, and human development is high.”
Mauritius offers a diverse basket of exports, including information and communication technology, fishing, travel and tourism, insurance and finance.
However, “with a population of just over 1.26 million people, any business entering Mauritius will have access to fewer potential customers than it would in South Africa’s coastal metropolitan area of East London,” the report notes.
While these relatively small economies do boast some attractive incentives, “the limited size of the Seychelles’ and Mauritius’ markets is a barrier that many investors will not overcome, despite the many other positives,” added RMB.
The RMB’s assessment highlights Egypt as a promising yet challenging investment destination. Ranking third after Seychelles and Mauritius, Egypt stands out as the most prominent African economy, with a GDP of $394 billion in 2023.
Offering a substantial market with diverse opportunities in sectors like technology, manufacturing, and services, its strategic location and economic complexity further enhance its attractiveness.
Despite its significant economic size and strengths, Egypt faces serious challenges in personal freedom, ranking at the bottom on the global scale, which underscores the complexities of Egypt’s investment landscape.
The full RMB report can be found here.
Read: Market panic and weaker rand – what it means for interest rates in South Africa
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