projected trade growth
FDI in 2022
Africa is expected to outperform much of the world in trade growth in the coming years. Predictions of the continent’s economic awakening are nothing new, but there are good reasons why this time it’s different.
Just 50 kilometers (31 miles) away from Rwanda’s capital of Kigali and a mere 15-minute drive from the much-anticipated (and nearly complete) Bugesera International Airport, the Bugesera Special Economic Zone (SEZ) has become an important economic and cultural hub. And it’s not the only one. There are more than 200 SEZs across the continent.
SEZs are significantly boosting foreign direct investment (FDI) into African countries. Rwanda is a prime example. Punching above its weight, the country is a symbol of optimism and part of an upbeat forecast backed up by the DHL Trade Growth Atlas 2022, which predicts that Sub-Saharan Africa will have the third-fastest trade growth among major world regions through 2026. Of the ten countries with the fastest projected trade growth, five are in Africa: Democratic Republic of Congo, Niger, Rwanda, Senegal, and Uganda.
It's no fluke, either. African startups reportedly attracted a record $3.5 billion in venture capital investment in the first half of 2022, bucking the global financial downturn elsewhere.
But haven’t we been here before? Stories of Africa’s economic awakening are nothing new. And we can trace some of the growth in 2022 to pandemic recovery. The Atlas demonstrates that Africa’s trade took a huge hit in the wake of Covid-19, meaning part of the acceleration reflects a recovery from that blow.
The other part of the story is that we expect Sub-Saharan Africa’s GDP growth to gain momentum, naturally propelling the region’s increasing trade flows even further. The African Continental Free Trade Agreement (AfCFTA) makes long-term prospects brighter still, bolstered by many countries’ efforts to improve import/export processes and infrastructure. It’s these improvements that local observers believe will make the difference.
Africa has been touted as the ‘next big thing’ time and again for two decades, but the predictions never panned out. In its Economic Development in Africa Report 2022, the United Nations Conference on Trade and Development (UNCTAD) revealed that in the past 20 years, one of the continent’s biggest obstacles to trade growth was the lack of export diversification. Africa was the world's second least export-diversified trade region during that time.
But things are different now. Rather than merely announcing grand plans, policymakers are putting their money where their mouth is this time. As a result, infrastructure is going up right before our eyes. For example, internet access in Rwanda puts many American cities to shame. In Senegal, they’re building a brand-new “smart” city. Across Africa, tens of thousands of kilometers of highway are under construction, with hotels and filling stations popping up along the way and creating mobility opportunities.
projected trade growth
FDI in 2022
The population of Africa is now 1.4 billion, with 60% under 25, according to UN statistics. Demand for everything – houses, cars, TVs – is on the rise. Add the availability of mobile money, which is more accessible across the continent than ever, and you have all the ingredients for growth.
What’s more, the business world is noticing and pouring tens of billions into the region. For example, there are Volkswagen (VW) assembly lines in Ghana and VW manufacturing plants in Rwanda, where the company is building new cars on top of existing production in Morocco and South Africa.
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Africa’s projected trade bonanza takes us back to ten years ago when Vietnam was on a similar cusp. There are plenty of comparisons. One of Vietnam’s main advantages was its proximity to China, where rising salaries hindered low-cost production, sending manufacturers looking for alternatives. Vietnam smartly leveraged the attention to attract FDI in high-value tech goods manufacturing, such as smartphones. We’re seeing similar developments in Africa.
The growing middle class also resembles Vietnam. In the last 30 years, it has tripled to 34% of the total population. Furthermore, the middle class comprises passionate consumers who prefer to buy in Africa rather than from abroad. That said, African salaries are still relatively low, so there are a lot of made-in-Africa products for export, creating massive opportunities. For example, Ethiopia’s fast-paced textiles-for-export manufacturing industry now has major international companies manufacturing or sourcing textile and apparel products from the country.
Logistics is arguably the critical link in Africa’s anticipated trade acceleration, which means logistics companies can capitalize on the explosive trade growth ahead. As the only company with air services to every one of Africa’s 51 nations, we are well-positioned to support the continent’s trade and GDP growth.
We’re also working closely with African entrepreneurs to help them access the global marketplace and increase cross-border trade. For example, our GoTrade initiative aims to support international trade and economic growth by increasing the number of small and medium-sized companies trading across borders. As a result, we’re helping a wide range of businesses expand abroad and bring in valuable new revenue – from tea and coffee makers in in Tanzania to fashion designers in Nigeria.
Another reason things are different this time is that many African governments, which have been obstacles to trade growth, are now on board. And we’re seeing steps to digitalize and simplify trade and customs processes.
What’s more, sophisticated talent in science and finance is being cultivated on the continent rather than brought in from abroad. For example, Senegal’s African Institute for Petrochemicals now trains local chemical engineers rather than importing them, which comes at a higher cost. In addition, Rwanda is quickly becoming a platform for tech. The Kigali Innovation Hub has been dubbed ‘the Silicon Valley of Africa,’ with young African talent now settling in Rwanda rather than traveling to the US to work. Meanwhile, the Africa Academy of Sciences is developing engineers locally in Senegal, Rwanda, and South Africa.
State-of-the-art cold chains are also in the works. The Addis Ababa Bole International Airport in Ethiopia is a great example, offering a more advanced setup than some European solutions. That’s attracting major manufacturers like H&M, Tesco, Gap, Belk, and Walmart to produce goods locally. The country’s dozen new investment platforms, all connected by air, mean products can arrive in America, Europe, or Asia the next morning.
Challenges elsewhere can also be a source of hope for Africa. The war in Ukraine and China’s restrictions on international travel in the past three years have brought a new sense of urgency to Africa’s policymakers and the desire to become self-reliant. For example, restrictions on agricultural goods like rice from India meant African countries had to produce what they needed to feed themselves.
Meanwhile, gas shortages have forced the EU to diversify its energy resources and knock on Africa’s door. While EU market demand tripled, gas production in Senegal and Mauritania increased tenfold, creating opportunities for equally higher revenue.
Businesses previously dependent on China are also turning to the African continent to mitigate risk. That’s because the new gas production has raised the demand for cheap electricity, the new supply of which is attracting manufacturers. Even Chinese companies, which previously exported 72% of the clothes bought by Africans, have moved production to Ethiopia and Egypt to remain competitive. Ethiopia is now a major exporter of shoes, for example.
Despite all the positivity, experts still advise caution. Governments across Africa must invest in durable peace, end troubling wars in some parts of the continent, and support this new shift.
That’s because more trade within Africa will bring stability to Africa. More economic interdependence lowers the likelihood of conflict and leads to more peace. It’s one of the many benefits of globalization.
Although the AfCFTA trade agreement, which began on January 1, 2021, is getting off to a slow start, it will, over time, reduce customs barriers between African countries, increase connectedness, and accelerate African growth.
Despite the media’s focus on political drama and conflict in Africa, insiders believe we are seeing the dawn of a new era – and that it won’t be a false dawn this time.
African youth today are as educated and competitive as their European counterparts. Forward-looking business leaders are pouring tens of billions into the region. And public policymakers are helping to pave the way.
It’s an exciting time to support this growth – to help connect Africa to the world and the world to Africa.
Published: April 2023