Why investors are choosing Morocco over South Africa

South Africa continues to slide down the rankings of African nations that are most appealing to investors, now third on the continent.

Rand Merchant Bank has published its latest Where to Invest in Africa report, which aims to identify the African markets that provide the best investment opportunities.

The report shows a marked improvement in countries that are not typically perceived as strong investment destinations. This year, Guinea, Mozambique and Djibouti recorded the strongest gains in the rankings, with notable advancements in their operating environments.

However, there were also notable moves on the downside, with typically high-investment countries either stagnating or outright deteriorating in one or more aspects of RMB’s methodology.

South Africa, Ethiopia and Tanzania are among the more prominent countries to have taken a tumble, the group said. A deterioration in the ease of doing business has contributed to their relative underperformance and, in addition, South Africa is enduring a cyclical downturn.

Tanzania dropped out of the top 10 destinations, entirely.

South Africa is ranked as the top investment destination in Africa from 2011, when the report was first published, through to 2016. In 2017, South Africa dropped to second, losing its place to Egypt.

This was due mainly to sluggish GDP growth rates and mounting concerns over issues of institutional strength and governance at the time.

Those concerns have not gone away, with South Africa ceding its second-place position to Morocco.

“While only Africa’s fifth-largest market, Morocco’s expected growth rate of 4% over the medium term and its greatly-enhanced operating environment has served the country well since the Arab Spring. Its reintegration into the African Union and accession to the Economic Community of West African States have enhanced its investment appeal,” RMB said.

According to RMB Celeste Fauconnier, co-author of the report, after South Africa, Morocco has the most diversified investment opportunities on the continent, and has over the last few years boosted investment opportunities through many business environment changes.

Economic growth is also expected – above 5%.

“South Africa’s growth rates, meanwhile, have not been doing very well,” Fauconnier said.

“South Africa has slipped another place in this year’s rankings, stymied by depressed levels of growth and a lack of structural reform.

“Yet it remains Africa’s hotspot for portfolio investment. With many countries facing severe liquidity constraints, South Africa’s financial markets and level of financial inclusion are still a cut above the rest,” RMB said.

Egypt retained the top spot due to the enormity of its market, paired with a sophisticated business sector relative to other countries.

“The improvement in Egypt’s business environment, facilitated through government programmes, combined with the progressive increase in investment from the private sector has enhanced economic growth and assisted in repositioning Egypt on the global investment map,” RMB said.

The investment index is compiled by looking at two major indicators – economic activity (growth rates being a key factor, as well as market size) and the business environment (the ease of doing business and investing in a country).

RMB sources its own data as well as using global surveys and reports to compile its rankings.

These are the top 10:

  1. Egypt
  2. Morocco
  3. South Africa
  4. Kenya
  5. Rwanda
  6. Ghana
  7. Cote d’Ivoire
  8. Nigeria
  9. Ethiopia
  10. Tunisia

Read: South Africa’s inflation rate rose more than forecast in August

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Why investors are choosing Morocco over South Africa