Ian Lee and Isabelle Low of IE Singapore’s Middle East and Africa Desk highlight the reasons behind Africa’s growth story, and how Singapore companies can benefit from this market.

Africa has experienced rapid economic growth over the last decade. The region’s real Gross Domestic Product (GDP) rose 4.9 per cent from 2000 through 2008 – more than double its pace in the 1980s and 1990s. While individual African economies face serious challenges such as poverty, diseases and high infant mortality, they collectively are now the world’s most rapidly growing economic region. Steps taken by the various African governments have been a key reason behind the continent’s growth surge.

Over the past decade, political and economic conditions have improved. Significant armed conflicts have ended, giving way to political stability necessary for economic growth. In terms of economic policies, macroeconomic conditions were improved. This was reflected in the reduction of the average inflation rate from 22 per cent in the 1990s to 8 per cent in the new millennium.

At the same time, foreign debt was heavily reduced by a quarter, and budget deficits shrunk by two-thirds. Microeconomic reforms were also undertaken to improve the business climate. In particular, African governments privatised state-owned enterprises, increased the openness of trade, lowered corporate taxes, strengthened regulatory and legal systems and provided critical infrastructure.

Structural changes have also catalysed the productivity of Africans, resulting in productivity growing by an average of 2.7 percent since 2000. While short term risks still exist, Africa continues to enjoy strong long-term growth prospects due to these internal changes. Furthermore, most of these risks can be mitigated using proper business insurance coverage.

Africa is associated with an abundance of resources. It possesses 10 per cent of the world’s oil reserves, 40 per cent of its gold, and close to 90 per cent of its chromium and platinum. Indeed, Africa benefited from the surge in commodity prices over the past decade.

Prices of oil rose from less than US$20 per barrel (S$28*) in 1999 to over US$145 in 2008. Similarly, prices of minerals, grains and other raw materials soared as well due to global demand. As demand for oil, natural gas, minerals, food, arable land and other similar natural resources grow, Africa will continue to profit accordingly.

Research has forecasted that the world’s consumption of liquid fuel will increase by 25 per cent over the next ten years. In fact, with demand for commodities growing the fastest in Asia and the Middle East, Africa is strategically positioned to trade with these regions. Singapore companies can hence find many opportunities by trading these resources, or by adding value to these natural resources.

Rapid urbanisation in the region is another contributing factor to Africa’s growth. By 2030, more than 50 per cent of Africans are expected to live in cities. Urbanisation at such rates is spurring the construction of more roads, buildings, water systems and infrastructural projects.

Africa’s annual private infrastructure investments have tripled in the last decade, averaging US$19 billion in the past 3 years. Yet, further investments are still required to improve the quality of life for Africa’s increasingly large urban population. Singapore, as an expert in providing urban solutions, can hence significantly contribute in this area.

Rapid urbanisation and an expansion of the labour force have also given rise to the middle class African consumer. By 2014, the number of households in Africa with an annual income of over US$5,000 is expected to reach 106 million. These households typically spend roughly half of their income on non-food items.

The increase in affluence among Africans and the rise of African urban consumers will generate more demand for local products, setting off a cycle of increasing domestic growth. Hence, retail industries located in Africa will continue to be in a good position to benefit from this phenomenon.

The prospects for Africa are brighter than before. Political stability is gradually being attained, and economic conditions have been looking up. Africa’s growth has also been catalysed by its abundance of resources, increasing urbanization and affluence among its consumers. Whereas many other economies around the world are still recovering from the global economic slump, Africa presents a promising alternative investment destination to the traditional markets.

*Exchange rate correct as of 30 June 2010