Installation of a turbine at the Beles hydroelectric plant in western Ethiopia

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afrol News, 14 January - IMF analysts hold that foreign direct investment, particularly from Africa's new trading partners in Asia, will "strengthen and demand for African bonds is set to increase."

According to IMF analyst Shawn Ladd, Africa is to see a strong rise in investment this year and in the years to come. Mr Ladd however foresees the strongest rise in investments in Africa to originate in Asia, above all China.

African trade is already shifting toward the dynamic emerging markets, notably China. Trade between China and Africa has been expanding rapidly, growing by an average of 30 percent a year over the past decade, and likely exceeded US$ 100 billion in 2010, according to IMF estimates.

Economic analysts, investors, and the media are increasingly able to single out countries in sub-Saharan Africa with good track records and prospects that inspire investor confidence, such as those globalisation researcher Steven Radelet has dubbed "emerging Africa".

These 17 "emerging" countries include Botswana, Burkina Faso, Cape Verde, Ethiopia, Ghana, Lesotho, Mali, Mauritius, Mozambique, Namibia, Rwanda, Săo Tomé and Príncipe, Seychelles, South Africa, Tanzania, Uganda and Zambia. They could expect the strongest growth in foreign investments if keeping up their good track record and positive development.

In turn, half a dozen African countries that had plans to tap international capital markets before the crisis hit in 2008 are dusting these plans off and seeking private financing, notably for ambitious infrastructure investment programmes, according to Mr Ladd.

"This development will contribute directly to building critically needed African infrastructure. Establishing a benchmark bond yield will also help speed the development of capital markets and financial services for the African private sector," the IMF analyst holds.

With new financial resources, African countries can fund transformative investments, he adds. "Solid investment projects, especially in transportation and power, could radically improve growth prospects and the ability to efficiently deliver public services," Mr Ladd argues.

The needs are massive. The World Bank has estimated that in sub-Saharan Africa alone the total financing needed is US$ 93 billion a year, of which a third still remains unfunded.

"Besides more financing, tackling the infrastructure gap will take a concentrated effort to improve how public investment projects are selected and managed," Mr Ladd holds. Many African countries have only recently emerged from comprehensive debt relief and would need to be mindful of the debt-sustainability ramifications of new financing.

There were however foreseeable pitfalls to this optimistic outlook. If growth in Western and Asian economies falls short of expectations, the effects would be felt in Africa. "This is potentially worrisome because most African countries have yet to rebuild the policy buffers that helped to mitigate the adverse effects of the last crisis," the IMF analyst warns.

Notwithstanding the rapid gains of the last decade, poverty, often extreme, remains pervasive in sub-Saharan Africa. "In far too many places, more rapid growth has not yet translated into local employment opportunities, a better social safety net, or a higher quality of life," Mr Ladd holds.

By staff writer

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