Jack Hughes: Countries are making multibillion dollar bets …

Signed by every African country except Eritrea, the African Continental Free Trade Agreement (AfCFTA) is a step toward the creation of an African common market. If it lives up to its full potential — and it is powered by some of the fastest-growing economies on the planet — the AfCFTA could in time become the world’s most dynamic regional trading bloc.

It’s a tall order, but the leading economies in the G20 are betting it could happen — and they’re betting big. Britain, China, Germany, India, Japan, Russia, Saudi Arabia and the United States are all placing multibillion-dollar bets on sub-Saharan Africa: not humanitarian assistance but investments in an emerging economic union of 54 countries and 1.3 billion people with a projected gross domestic product of $3.4 trillion — compared with our own $2.1 trillion.

Canada can’t afford to miss out on an export and investment opportunity of that size, and, yet, the government of Canada can’t afford to match the big bets being placed by our deep-pocketed competitors — at least not dollar-for-dollar. Any Canadian effort to secure early-mover preferential access to this potentially mammoth-sized continental common market must be led by the private sector.

Some Canadian businesses have begun to explore opportunities in African countries that have been experiencing explosive growth, such as Ethiopia, Ghana and Côte d’Ivoire, all of which the International Monetary Fund has predicted could see real GDP growth of six to eight per cent this year. For context, it pegged Canada’s growth at just 1.5 per cent.

Investments by Canadian firms in these or other higher-growth economies represent “table stakes” tactical bets. To establish a strategic position in Africa we may want to partner with a gateway market. One option is South Africa, which the Harper government’s Global Markets Action Plan identified as being the African country with “the best potential for broad Canadian commercial interests.”

To be clear, South Africa won’t lead the continent in economic growth in 2019. It’s suffering from severe levels of debt and unemployment that are fuelling social unrest. But it remains the only African country in the G20 and the second-largest economy in the AfCFTA. It also has much to offer our energy, IT, telecom, manufacturing and agri-food sectors.

South Africa stands in dire need of new sources of foreign investment at a time when Canada, as always, should be looking to diversify its foreign investment portfolio. For their part, President Cyril Ramaphosa and Finance Minister Tito Mboweni are championing pro-growth measures and economic reforms designed to attract investors and attack unemployment.

Two months ago, Ramaphosa moved to reassure investors and reaffirm the independence of the South African Reserve Bank, his country’s central bank, by reappointing Governor Lesetja Kganyago for a five-year term. The decision not only preserved continuity and stability at the SARB, it was a sign Ramaphosa will push ahead with reforms despite opposition.

Two weeks ago, and in advance of his upcoming medium-term budget, Mboweni invited public comment on a bold economic policy paper detailing strong measures to reverse the country’s economic fortunes. These include modernizing network industries and infrastructure by reducing South Africa’s reliance on state-owned enterprises and increasing competition by reducing barriers to entry for new and smaller businesses.

The paper also urges a focus on labour-intensive sectors and service industries, while stressing the need for South Africa to better promote its exports and better position itself within global and regional supply chains. If implemented in full, the National Treasury projects that paper’s recommendations could increase average GDP growth by as much as 2.3 per cent and create more than a million new jobs over 10 years.

Canadian businesses interested in South Africa, including small and medium-sized enterprises, should seek out contacts in key sectors, explore opportunities for bilateral joint ventures, and undertake trade missions — all actions set out in the Trade and Investment Cooperation Arrangement which Canada signed back in 1998 with then-president Nelson Mandela.

If Canada partners with South Africa while taking steps to increase business investments in higher-growth African markets, we could at least keep up with other competitor-nations. It’s still very early days for both AfCFTA and South Africa’s reforms, but the riskier and eventually costlier gamble could be to ignore markets with such clear upside potential.

Mr. Hughes’ opinion article was first published in the Financial Post on 17 September 2019. (link: https://business.financialpost.com/opinion/countries-are-making-multibillion-dollar-bets-on-africa-and-canada-cant-afford-to-miss-out)