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By Nwakego Linda Eyisi in Nigeria.
The fastest growing sectors in Southern Africa (SADC) are mining, information communications technology (ICT), services, construction, and agriculture. Zimbabwe, South Africa, Namibia, Tanzania, Angola, Mozambique, and Zambia are major global producers of copper, gold, platinum, and diamonds.
Apart from South Africa, mining sectors in this region are not mature and so they have comparative advantage in commodities production. This region of the world holds the largest reserves of copper, gold, diamonds, and cobalt.
Increasing demand for commodities on the international market has driven expansion in mining, particularly in the last decade. China and India need commodities for energy security and their manufacturing sectors. Brazil and Russia are also investing heavily in energy and biofuels.
In addition to demand from the BRICS, Europe and North America need to expand manufacturing to reduce government debt. Also quantitative easing and low interest rates will continue to push up demand and price for commodities. The only setback for mining in this region is threats of a super tax and nationalization of mines in South Africa and Zimbabwe, this will dampen investor appetite for the region’s metals.
Telecommunications (ICT) is another successful growth story in this region. Liberalization of this sector has ushered in foreign investment and improved productivity – cell phones and computers are an important infrastructure for individuals and businesses. This has created jobs for the middle class and increased revenue to government. Mobile banking is a new growth area for this sector and is set to further bridge the infrastructure gap and improve productivity. Globacom, Mobile Telecom Networks (MTN), and Vodafone are some multinationals active in the region.
As an economy grows, investment in new infrastructure is needed to maintain the flow of investment. Poor infrastructure remains a threat to economic growth in this region. For example, South African manufacturing has not been able to operate optimally because of inadequate railroads. However, new ports and road networks are under construction in the region. Countries like Namibia and Lesotho spend a significant amount on public works.
Business and individual demand for homes and offices are up. Luanda, Angola is one of the most expensive places to rent office space in the world, hence the reason to increase investment in construction of offices.
Finance is also another high growth sector in this region. Southern Africa is growing, businesses are expanding, and new ones are coming on board. For investment and growth to continue banks need to extend loans to the real sector. Africa’s middle class is growing and a healthy consumer class is emerging so that margins for businesses are very attractive. Even though poor infrastructure has reduced credit growth, opportunities abound through innovation like mobile banking.
Policies to liberalize finance sectors will also increase credit growth and profitability for banks in this region. Right now South African Banks like NedBank, First Rand (FNB), and Standard Bank are active in the region. Global brands like Bank of America, HSBC, Deutsche Bank, and Barclays are active in the region, but are more focused on services like investment banking and trade transactions rather than retail.
Agriculture and mining are the largest sectors in this region. Tanzania, Zambia, Zimbabwe, Madagascar, Mozambique, Malawi, Botswana, Angola, and Namibia all have either sector as the largest contributor to GDP. This is due to large reserves of metals, fertile soils, and the role that agriculture plays in a developing economy plus food production being a source of livelihood for Africans.
Apart from South Africa, agricultural production is largely subsistence and credit is not readily available to farmers because of perceived risks. However, (for food security and trade reasons) countries across the region are making policies to make agriculture a major foreign exchange earner. India, Brazil, and China are also investing in food production in the region. [ more ]
Nwakego Linda Eyisi is co-founder of Encompass Analytic of Nigeria, a research and business intelligence firm serving clients like MTN of Nigeria. Nwakego is an economist.