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8 Insights – 8 African countries
Shaping the African economic transformation -
“Africa rising” has become a commonly used expression by mainstream media when it comes to finding a stunning headline to portray the continent’s ongoing growth. Although the African growth story is still being written, is the emergence of the continent really all about growth?
Based on its local expertise, Ecobank Securities and Asset Management believes that Africa’s emergence is less and less just about only growth but more and more about the abilities of some key countries to transform the continent. There are a number of countries that have been recording relatively high levels of growth during the last decade but few transformative changes have been noticed on the ground, while other countries’ growth performances are clearly reflected by tangible transformation on the ground with consistent and continued improvement in different global indicators. -
In this regard, Ecobank Research has identified the top eight countries that have the potential to drive the change of the African continent from a pure growth story to a transformation story – comparable to the Asian Tigers in the 80s. These countries have been selected through a long process of scoring and ranking based on each country’s performance in various economic, social and political areas. We call them the Ecobank Africa 8.
The Ecobank Africa 8 is the group of countries that we believe are the locomotives behind the transformation of Africa.
As one of the leading financial institutions in Africa, and with the largest footprint on the continent, one of our goals is to promote investment in Africa. In that sense, the ultimate purpose of the Ecobank Africa 8 is the creation of an African Macro Fund by the Ecobank Securities and Asset Management team that will allow international investors to invest in a Fund, through Debt or Equity (Publicly listed or Private) investment vehicles. -
How did we come up with these 8 countries?
Based on their performance in various criteria, we have ranked 34 Middle African countries where Ecobank has a presence. We selected 15 criteria and have given each country a score on a scale of 1 to 20. For each criterion, the scores are the result of one or several scores recorded by each country in various sub-criteria. Our team has set up some of the sub-criteria using data collected from leading international institutions’ (IMF, World Bank, AfDB, etc) databases but we have also used existing indicators released by the same institutions, and have revised some of them based on our on-the-ground local knowledge. Effectively, our experience in the banking industry in each country and the various discussions with the policy makers and the private sector has helped us in the selection process. -
1. Growth Acceleration
This criterion is meant to show the acceleration of economic growth in each of our 34 countries. We calculated the annual average growth over two different periods of time – from 2000 to 2006 and from 2007 to 2013. We then calculated the difference in basis point between the average growths of the two periods. The greater the difference, the higher the score.2. Business Environment
The business environment criterion aims to reflect the progression made by each of our 34 countries when it comes to “Doing Business”. We have used the World Bank Doing Business Ranking and calculated the differences in each country’s ranking between 2008 and 2013.3. Transforming Economies
Transforming Economies deals with industrialisation and, more specifically, with the evolution of the weight of the industry sector in each country’s GDP. For each country, we calculated the difference between the contribution of the industry sector to the GDP in 2013 and to that of 2005 and then scored the countries based on that difference. The higher the difference, the better the score. -
4. Regional Powerhouse
Regional powerhouse is a criterion that scores a country based on the size of its economy (GDP) in the regional GDP. Ecobank takes into consideration five regional clusters in Africa: UEOMA, WAZM, CEMAC, EAC and SADC. The largest economy of each cluster has been granted the highest score. The five countries are respectively: Côte d’Ivoire, Nigeria, Republic of Congo, Ethiopia and Angola. Due to the size of their economies, these countries are playing a considerable role in the transformation of the region they belong to.5. WEF Competitiveness Index
For the competitiveness criteria, we have used the World Economic Forum Competitiveness Index. We then calculated the evolution in the index for each of the countries between 2006 and 2013.6. Macroeconomic Environment
The macroeconomic environment is defined by various factors. We have selected four sub-criteria, which are price stability, external reserves, fiscal balance and current account deficit. For each of the sub-criteria, we have scored the countries on their performance over the ten past years (2003 –2013) and then calculated the average score – which is the final score for the macroeconomic stability criteria. -
7. Financial Strength
To demonstrate the financial strength of our selected countries, we have scored them based on the evolution of Domestic Credit provided by the financial sector in % GDP over the ten past years. In addition to this sub-criterion, we gave extra points to the countries that have a Stock Exchange based on market capitalisation, as this reflects the ability of a country to mobilise local financial resources and savings.8. Institutional Strength
Concerning the institutional strength criterion, we have used the Regulatory Quality index of the World Bank Worldwide Governance Indicators. It captures the ability of a government to formulate and implement sound policies and regulations that promote private sector development. We calculated the evolution in each country’s score over a ten-year period of time and then scored this evolution on a scale of 1 to 20.9. Political Stability
This criterion aims to portray the political environment of our countries. We have used the political stability index of the World Bank Worldwide Governance Indicators. It measures perceptions of the likelihood that the government will be destabilised or overthrown by unconstitutional or violent means, including politically motivated violence and terrorism. -
10. Attractiveness
To measure the attractiveness of the selected countries as an investment destination for international investors, we used the amount of Foreign Direct Investment inflows in 2012. In UEMOA, Niger attracted 33% of 2012’s FDI, Nigeria is the destination of 53% of WAZM’s, Republic of Congo is 42% of CEMAC’s, Uganda and Tanzania equally shared 70% of EAC’s and Mozambique 52% of SADC’s.11. Infrastructure
For this criterion, we used the African Infrastructure Development Index (AIDI) developed by the Africa Development Bank (AfDB) to monitor the status and progress of infrastructure development in Africa. The AfDB to proxy infrastructure development has used five components: electricity generation, telephone subscriptions, paved roads, access to water and access to sanitation.12. Logistic Performance
To complement the AIDI (which doesn’t capture all the impact of infrastructure on trade), we selected the World Bank Logistics Performance Index (LPI). “The LPI helps countries identify the challenges and opportunities they face in their performance on trade logistics and what they can do to improve it. It is based on a worldwide survey of operators on the ground – global freight forwarders and express carriers – providing feedback on the logistics friendliness of the countries in which they operate and those with which they trade.” -
13. Competitive Advantages
We have identified the key sectors that give some of the countries certain competitive advantages in comparison to the others. For example, a country like Kenya with a fully operational port and railway system, as well as solid telecom, banking and tourism sectors, has considerable competitive advantages. Angola, which has not only a port but also diamond and oil and gas industries, has competitive advantages as well.14. Consumer Spending
To measure the evolution in consumer spending over the past decade, we used as a proxy the International Monetary Fund (IMF) Import of Good and Services in percentage of GDP. We calculated the difference between this figure in 2004 and 2013 for each country, and then scored the countries based on that difference. This proxy captures the evolution of a country’s purchasing power and demand for imported goods and services.15. Urbanisation
Our urbanisation criterion aims to score the 34 countries on a scale of 1 to 20 based on their urbanisation rate in 2012. Since we are looking for countries that are going to drive the transformation of the African continent, urbanisation is a key element.