Created and developed by Quantum Global Research Lab, the latest edition of the Africa Investment Index (AII) has been released with the aim of “providing investors in Africa a guide to which countries and markets are most attractive for investment in the short to medium term.”
the AII covers all 54 countries in Africa and primarily uses six different factors in order to determine its ranking system:
- Growth: domestic investment as a proportion of gross domestic product (GDP), size of the economy and level of economic growth.
- Risk: mainly focuses on risks across exchange rates, credit ratings, external debt and current account ratios.
- Demographic: i.e population.
- Liquidity: looking as real interest rates and the level of excess money supply.
- Business environment: ease of doing business, compiled by the World Bank.
- Social Capital: “Facebook penetration rate”, a proxy measure that accounts for the level of networks, knowledge and connections in the country.
The AII is constructed by utilising these macroeconomic, financial and social factors in order to determine a single number to rank these countries by. Each indicator receives equal weight in the index.
Quantum Global Research Lab have also highlighted that the AII is highly correlated with other indicators that measure the investment performance of a country, namely the Ease of Doing Business and Global Competitive Index, with a positive correlation been illustrated with these two indices.
Commenting on the Index, Head of Quantum Global Mthuli Ncube said:
“Despite considerable external challenges and the fall in oil prices, many of the African nations are demonstrating an increased willingness to achieve sustainable growth by diversifying their economies and introducing favourable policies to attract inward investments.
With a population of over one billion people and rapidly growing middle class, Africa clearly offers significant opportunities to invest in the continent’s non-commodities sectors, namely financial services, construction and manufacturing amongst others. However, structural reforms and greater private sector involvement are crucial to unlocking Africa’s true potential.”
Botswana tops the AII ranking, making it the most attractive country in Africa for investment, despite experiencing a drop in the United Nation’s World Happiness Rankings due to falling education standards and rampant corruption.
The country has one of the best credit ratings in Africa (and also among Frontier Markets) alongside Mauritius and Namibia as being the only three nations on the continent with investment grade sovereigns. It also boasts an impressive current account surplus of around 17%, although it is expected to decline slightly over the next few months due to an uptick in imports and infrastructure spending.
Botswana also managed to score high on the ease of doing business, where it is ranked as the 3rd best country in Sub-Saharan Africa behind Mauritius and Rwanda.
Morocco, the 5th best Frontier Market in 2016, performed well in risk factors such as import cover and ease of doing business. For the latter factor, the North Africa country has made considerable strides over the past few years to improve its ranking, moving up from 128th in 2010 to 68th in 2017.
Morocco’s credit rating was also a positive in the AII. Ratings agency Fitch has also given the nation a stable outlook and other agencies, such as Standard & Poor’s and Moody’s, are expected to follow suit. Further good news for Morocco can be found the Cloud Atlas’ new African ETF where the country is the largest constituent in the fund (30%).
Egypt completes the top 3 after scoring well in the growth factor, demographic factor, liquidity factor and ease of doing business.
Growth for Egypt is predicted to stand at 4% in 2017 before increasing to 5.4% in 2019. A boost in liquidity stemmed from floating the pound last year while also making significant improvements in increasing the ease of doing business in the country, especially with the likes of emerging economies such as India. It has also been announced that Egypt will continue to push for more foreign investment by offering generous tax discounts for non-domestic companies.
South Africa, Zambia, Ivory Coast, Algeria, Tanzania, Namibia and Burkina Faso completed the Top 10. In total, the Top 5 managed to attract $13.6 billion of Foreign Direct Investment inflows in 2016. The most improved nations over the last three years were Burkina Faso, Rwanda and Swaziland.
On the other end of the spectrum, Somalia, Eritrea and Central African Republic were the worst performers in the index. Equatorial Guinea, Tunisia, Seychelles and Nigeria experienced the largest declines in the ranking over the last three years, with the latter at risk of being removed from MSCI’s Frontier Market Index later this year.
Africa Investment Index: Complete Ranking
Below shows the complete ranking for all 54 countries:
|36||Sao Tome and Principe|
|52||Central African Republic|
(source: Quantum Global report)