Britain's exit from the European Union on 31 January creates an imperative for the UK to forge a new set of international alliances and trading arrangements.
The UK-Africa Investment Summit on 20 January is one chapter of this new economic diplomacy.
Fresh from the Africa Investment Forum in Johannesburg in November, Britain’s Trade Commissioner for Africa, Emma Wade-Smith, was hopeful about the continent’s ability to create jobs and build infrastructure for the coming generations.
Job creation “can’t be something that only governments do,” Wade-Smith told The Africa Report at the UK Department for International Trade offices in Johannesburg. “The answer has to be to invest in small and medium-sized companies. That’s where the job creation lies.”
Part of the solution to onboarding small businesses will have to be “policy driven”, Wade-Smith says. That means helping bring informal traders into the formal economy. Women entrepreneurs often face an uphill struggle in Africa, she adds, despite the research showing that women often generate better investment returns.
According to an Association of Chartered Certified Accountants report, Africa’s infrastructure investment gap stood at $45.5bn in 2018. By 2040, that’s expected to increase to $1.59trn, with Africa needing to increase investment by 39% to close the gap.
“The mega-cities of the future will be in Africa,” Wade-Smith says. But while investment in African infrastructure has been increasing, most of this has come from African governments and China. The private sector will have to take a much bigger share of the burden if there is any prospect of the gap being closed. Two-thirds of the urban space that Africa will need in 2050 will have to be built over the next 30 years, according to a report from the European Investment Bank, but high levels of national debt hamper investments in infrastructure.
British state investment is focused on the mining sector.
The UK’s Africa Infrastructure Board, launched in 2018 and co-chaired by the British government and industry, promotes the UK as a partner to develop mining projects and the associated infrastructure around them. Loans through the UK Export Finance export credit agency can be made for projects including transportation, mining and construction, though they must include at least 20% UK content.
Bringing added value
For companies that are interested in Africa it might be necessary to make some “modifications”, Wade-Smith says, such as building local supply chains and under standing the need to engage in skills provision. Jaguar South Africa’s apprentice programme, for example, provides three years of on-the-job training as it seeks to address the country’s shortage of qualified technicians.
Wade-Smith stresses that the size of the market is a key parameter for potential investors in Africa. “UK companies want to know the size of the consumer population” as well as the level of access to neighbouring markets. She cites TradeMark East Africa (TMEA), which works with governments, the private sector and civil society organisations to reduce barriers to trade, as an example of how market access can be facilitated.
Brexit may breathe new life into the Commonwealth. The vision of the emergence of a British-driven global vehicle that can help to throw off the chains of protectionism is clouded by the prospect of Britain leaving the European Union free-trade zone. In terms of scale, the Commonwealth pales into comparison with the EU.
Yet the Commonwealth, which has 19 African members, is one of the UK’s largest trading partners.
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The UK is already the largest EU goods-export destination for Commonwealth member South Africa, the second-largest for Kenya, and the third-largest for Malawi and Zambia. “It pays to be in the Commonwealth,” Wade- Smith says. “There are countries that have expressed interest” in joining, she adds.
More broadly, she believes that investing in Africa requires a shift away from “traditional capitalism”, which focuses firstly on the bottom line, to include consideration of the wider benefits. The UK is focused on becoming the investment partner of choice for African nations – in terms of its quality offer – focusing on the positive impact British investment can create.
There is £34bn of UK investment stock in Africa, but, in itself, equity has little real impact on the ground: “Building relationships is more important.”
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