Emerging Africa Expected To See Rise in Investment

Africa's new trading partners seeking direct investment opportunities

Asset managers looking for countries that inspire investor confidence

Coherent macroeconomic policy, foreign exchange regimes vital

Foreign direct investment, particularly from Africa’s new trading partners in Asia, is expected to strengthen and demand for African bonds is set to increase.

Such diversification of financing sources for much-needed public investment would be welcome, but would also require a coherent macroeconomic policy and foreign exchange regime to cope with capital flow surges, especially if they have historically been prone to debt problems.

More private capital ahead

Advanced-industrial-country policy measures, albeit needed to shore up their own growth prospects, have led to historically low yields and, in some cases, significant increases in public debt. These trends, coupled with strong growth prospects in many emerging markets, have led investors to look further afield.

Economic analysts, investors, and the media are increasingly able to single out countries in sub-Saharan Africa with good track records and prospects that inspire investor confidence, such as those globalization researcher Steven Radelet has dubbed “emerging Africa” (see Box 1).

Countries that posted per capita economic growth of more than 2 percent for the period 1996–2008:

Botswana

Burkina Faso

Cape Verde

Ethiopia

Ghana

Lesotho

Mali

Mauritius

Mozambique

Namibia

Rwanda

Sao Tome and Principe

Seychelles

South Africa

Tanzania

Uganda

Zambia

■ Many of these countries are considering tapping international capital markets to fund ambitious public spending programs.

In turn, half a dozen African countries that had plans to tap international capital markets before the crisis hit in 2008 are dusting these plans off and seeking private financing, notably for ambitious infrastructure investment programs. This development will contribute directly to building critically needed African infrastructure. Establishing a benchmark bond yield will also help speed the development of capital markets and financial services for the African private sector.

But while such financing is welcome, it also comes with at least two requirements. First, countries will need to manage new debt carefully, limiting market financing to high-return projects, to avoid the risk of future debt crises. Second, these emerging African countries, as many emerging market economies have done before, will confront the...