Stronger UK-Africa trade and investment ties can turbocharge growth for both regions
With Brexit fast approaching, the UK government and British companies are looking to bolster their ties with non-European states.
This ambition is demonstrated strikingly by the UK government’s hosting on 20 January of the inaugural UK-Africa Investment Summit, which aims to bring together UK and African leaders, businesses and entrepreneurs to help drive investment, jobs and growth.
They are right to focus on this region as a major potential prize of their newly found independent trading capability. There are a huge variety of complementary opportunities for UK business and investors to build operations or invest in sub-Saharan Africa, which has attractive economic growth potential and a fast-growing emerging middle class. According to the World Bank, sub-Sahara’s GDP has more than quadrupled in the past 20 years to $1.71trn, aided by a boom in population and life expectancy which has seen the region pass the population milestone of a billion people.
Telecommunications, infrastructure, renewable energy, agriculture and fast-moving consumer goods are sectors with the most potential for greater involvement from UK firms. East Africa, in particular, is a region undergoing rapid expansion. The many sectors and businesses operating in the rapidly growing economies of Kenya, Uganda, Ethiopia and Mozambique are in need of capital investment and provide many opportunities, particularly supporting Mozambique’s fast-growing natural gas sector, to UK businesses looking to expand their operations.
Trade is also a massive opportunity considering that the African Continental Free Trade Agreement will come into effect in July 2020. The new trading bloc will boost intra-African trade and also open up an opportunity to the UK – the opportunity to negotiate with the African Union (AU) as a single trading bloc is big.
While multinational UK-based firms with African links are exploring more opportunities in Africa, so too are small and medium-sized UK firms that have never done business in Africa. Naturally, a lot of this interest is being driven by Brexit and the realignment, or expansion, of trade focus, and this interest will have strengthened following the election result in December 2019. To many mid-sized UK firms, African trading partners may very likely wish to see a trade deal swiftly put in place between the UK and AU, as they will see additional opportunities for business with the UK post Brexit. Both regions are looking at Brexit as an opportunity to transact more business.
Sustainable finance solutions will be an important component of expanding the UK-Africa investment corridor, as Africa looks to plug a massive funding gap in key areas such as infrastructure, energy and agriculture. To attract capital from the UK and elsewhere, African governments should consider measures to improve the ease of doing business and should ensure cost reflective tariffs to strengthen the business case for investment.
Providing funding for such large initiatives plays into a major strength of the UK – its large, diverse financial services ecosystem and preeminent financial centre.
London is expected to remain a key financing hub for African corporates and projects for the foreseeable future. In 2018, we helped raise over $18.8bn of capital for our African clients from global markets, of which UK investors accounted for roughly a third.
African businesses see London as a vital fund-raising gateway, connecting global capital with fast- growing businesses. Major flotations last year from the likes of Helios Towers and Airtel on the London Stock Exchange (LSE) – representing some of the biggest London IPOs of 2019 – speak to this. We expect an acceleration of LSE listing activity from African businesses this year and beyond.
It is important not to underestimate the asset that the City of London represents. London is such a vital financial hub and has the potential to increase rapidly its relationship with African corporates. It has liquid and mature financial markets, similar time zones to Africa, trusted judicial systems and a common language (particularly for Anglophone countries).
Further to this, we know that there is significant appetite amongst UK investors to buy into Africa, as showcased by the recent South African $5bn eurobond, the largest issuance out of sub-Saharan Africa. UK investors accounted for $900m, or 18%, of the total issuance.
The potential for stronger trade flows between the UK and sub-Saharan Africa is not hyperbole. Africa is our home, and we help to drive her growth. We can see significant opportunities for reciprocal growth, driving a deeper integration between African markets and the UK economy, linking African businesses to capital – both debt and equity – and assisting UK businesses as they expand into African regions.
We hope that this investment summit represents the first of many and helps pave the way for a wide and deep trade deal between UK and the AU, unlocking greater prosperity for all participants.