SA remains highest ranked African emerging economy, but Nigeria vying for top spot
Grant Thornton’s recent report entitled “Emerging Markets Opportunity Index: high growth economies” has ranked South Africa as the leading emerging economy on the African continent, ahead of Nigeria in terms of potential investment destinations.
In terms of the results for 2012, South Africa is also the only African country to be ranked in the Top 15 emerging economies worldwide.
Although recent events in the mining sector have hurt our country’s reputation as a destination of choice for foreign direct investment (FDI) there are significant benefits that continue to attract investors.
The Grant Thornton emerging markets opportunity index brings together a number of key indicators incorporating the firm’s International Business Report (IBR) data with the emerging markets research from the World Bank, the International Monetary Fund (IMF) and the United Nations Human Development Report. Indicators incorporated include factors such as economic size, population, wealth, involvement in world trade, growth prospects and levels of development in order to rank the 27 largest emerging economies in terms of their potential for business investment.
SA has climbed one place to 14th in terms of global rankings in the Emerging Economies survey, maintaining its position as the highest ranked African economy, ahead of Nigeria which climbed nine places to 17th.
With Nigeria improving its ranking by nine places since the previous survey, South Africa will need to improve its competitive edge in order to maintain its leading ranking in the years to come.
The only other two African countries to be ranked in the Emerging Markets Opportunity Index were Egypt (22nd) and Algeria (26th).
The survey highlighted that inflows of FDI into SA’s local economy have been volatile over the past decade. They peaked at US$9bn in 2008 before the financial crisis struck, recovering to US$6bn in 2011. Inflows over the first half of 2012 were down 44% compared with the same period in 2011.
SA’s banking sector has long been rated among the top 10 globally and its financial system, one of the most developed in Africa, continues to grow. The Johannesburg Stock Exchange (JSE) is the largest securities exchange on the continent and ranks among the top 20 exchanges in the world in terms of market capitalisation. South Africa’s exchange control landscape is virtually non-existent so the ease of funds introduced and remitted is extremely comforting for foreign investors.
It is a well-known fact internationally that SA’s financial systems are sophisticated, robust and well-regulated while its economy boasts a world-class securities exchange. The government has identified massive infrastructure projects as key to boosting the economic growth rate, as well as creating employment, and it is spending billions of rand on getting the investment ball rolling.
Another key attraction for international investors is the country’s strategic geographic location. It acts as the gateway to Africa, a continent boasting many of the fastest growing emerging economies in the world. The country also offers world-class ICT and transport infrastructure, boosted by investment ahead of the 2010 FIFA World Cup.
International investors to get to grips with the regulatory complexities in SA because the country has a host of rules and compliance requirements.
Foreign companies looking to take advantage of what South Africa offers need to be aware that there are some negative administrative barriers as well as processes which lack consistency, efficiency and transparency – and which generally interfere with the operation of free markets.
This situation, however, is not unique to SA alone.
When business leaders were asked what they saw as the major challenges to the international growth prospects of their operations, executives stated over-regulation and legislation (red-tape) as the biggest constraint in terms of growth and expansion - nearly one in every two (45%) said it was a barrier. This was ahead of finding the right workers (35%), cultural and linguistic barriers (31%), logistics (28%) and access to finance (20%).
Like businesses in other emerging markets, SA businesses are bullish about business for the year ahead, according to the recent emerging markets opportunity index.
Looking ahead to 2013 the report revealed that 71 % of local businesses expect an increase in revenues in their businesses over the next 12 months and forecast growth for 2013 to 2017 is 4.1% (compared to 2.5% for 2012).
In terms of international expansion by SA business owners, 80% of South African businesses are looking at other parts of Africa for investment. In addition, 12% are looking to expand internationally, with 47% of these businesses looking specifically at countries around the world with better access to skilled labour when choosing an economy in which to invest.
Grant Thornton’s IBR results indicate businesses in emerging markets are far more confident than their peers in mature markets about the outlook for both their economies and their own operations over the next 12 months.
Ranking the emerging economies globally
When looking at other countries ranked in the survey mainland China remains way out in front at the head of the emerging economies index, by virtue of its strong economic growth rates and large consumer market. India, ranked in second place, also has a large population and is forecast to grow robustly over the medium term.
Russia is once again in third place, owing to high GDP per capita and strong exports, especially of natural resources. Brazil has moved above Mexico (5th position) in this year’s survey, to fourth position, thanks to strong GDP growth rates in 2010-11. Turkey, 6th, and Indonesia in seventh position complete a top seven which, taken together, are expected to account for 45% of global growth over the next five years.
Deepak Nagar is the national chairman at Grant Thornton South Africa.