Durban: Now is the Time for US Investors

In the realm of global investment, Africa constitutes perhaps the final frontier with its untapped potential across diverse sectors. As a rapidly growing and under-served marketplace, the continent is unmatched for 21st Century opportunity. So, why haven’t more investors beaten a path to Africa’s door to date?

Among the continent’s vibrant cities, Durban stands out as a strategic gateway for US investors aiming to capitalise on Africa’s economic growth. With its unique blend of infrastructure, location, economic diversity, and business-friendly environment, it presents a compelling case for US investors to consider.

Durban’s geographical location plays a pivotal role in its status as a gateway to Africa. Situated on the eastern coast of South Africa, Durban serves as a key international port city with easy access to major maritime trade routes. The city boasts the largest and busiest port in Africa, facilitating efficient trade and commerce not only within the country, but also across the continent. This connectivity enables US investors to establish a strong foothold in Africa and utilise Durban as a logistical hub for their operations across multiple African markets.

Durban’s economy is characterised by its remarkable diversity, encompassing manufacturing, tourism, finance, and services. The region offers a range of investment opportunities for US investors – around logistics and logistics management, petrochemicals, automotive and allied industries, ICT and BPS, agri-processing, life sciences, financial services, energy, tourism asset development and mining, and more besides.

Additionally, Durban is a popular tourist destination with a thriving hospitality sector, further diversifying the economic landscape. This mitigates risk for US investors by reducing reliance on a single sector and providing multiple avenues for growth.

Moreover, Durban benefits from having a large and diverse talent pool equipped with a range of skills, from engineering and technology to finance and management. Coupled with its status as a major educational hub, this ensures that US investors have access to a well-trained workforce to support their ventures. It is an advantage that serves to reduce the challenges associated with finding and developing the necessary human resources for business growth.

An oft overlooked key to successful investment ventures is cultural understanding. In Durban, however, the cosmopolitan population and rich cultural diversity provide US investors with a unique opportunity to establish connections and build relationships across various communities. This understanding of local markets and cultural nuances is crucial for tailoring products and services to meet the needs of diverse consumer bases across Africa.

By leveraging Durban as a launchpad, US investors can tap into the vast opportunities that Africa offers, while also benefitting from the city’s well-established infrastructure and conducive investment climate. As Africa’s potential continues to unfold, Durban stands ready to facilitate and amplify the success of investors venturing into this dynamic continent.

Durban’s pre-eminent status really becomes apparent when investors are assessing risk, potential returns, and alignment with their strategies.

Durban is an order of magnitude better than other locations across the continent in respect of political stability and its regulatory environment, with well-defined property rights, consistent rule of law, and effective contract enforcement that would not be out of place in the developed world. Meanwhile, its stable political environment fosters investor confidence and reduces the risk of abrupt policy changes that could adversely affect investments.

US investors need to be reassured regarding economic growth and market potential, and with Durban they will be. This is because the region can demonstrate sustained economic growth, diversification, and a burgeoning middle class. What’s more its gateway status to rapidly growing consumer markets both within and beyond South Africa offer opportunities for companies to introduce and scale their products and services, potentially leading to substantial returns on investment.

The US has the largest economy in the world and within its industrial and commercial ranks boasts the titans of global energy, technology, healthcare, agriculture, and manufacturing. It is small wonder then that US investment antennae are pointing firmly towards Africa as the next big thing providing scope to sustain their position atop the summit of world commerce. Durban’s unrivalled transport links into the African interior and phenomenal port facilities add to its interest for those US investors focused on those sectors with export potential, especially those with an interest in Africa’s abundant mineral, oil, and gas reserves.

US investors essentially seek African investments that offer a combination of political stability, economic growth potential, favourable regulatory environments, infrastructure development, sectoral opportunities, access to resources, investment incentives, risk management, local partnerships, and alignment with ESG considerations.

Durban ticks every box.

Not only does it offer geographic and logistics infrastructure advantages for new-to-market companies, but its relatively transparent legal processes and widespread use of English in business add up to it being a low-entry threshold country. What’s more, with a rapidly growing tech-oriented middle class, Durban can be an incubator for innovations that can then be expanded to other Sub-Saharan markets beyond the national borders. And given the established presence of South African agencies and companies across the continent, finding the right partner for third markets is a low-risk exercise.

US companies will further find that Durban-based firms are receptive to the concept of partnering, whether via agency, licensing, joint ventures, mergers and acquisitions, or some form of reciprocal arrangement to access the US market in return. In short, the opportunities are many and the can-do attitude is strong here.

The spirit of entrepreneurship and innovation that prevails across the Durban region equates to unrivalled opportunity for US investors seeking the best gateway into Africa and the greatest new market on Earth.

Rwanda: The Land of a Thousand Opportunities

Rwanda, the small but mighty nation in the Great Rift Valley of central Africa, is known as ‘the land of a thousand hills.’

Perhaps a more appropriate moniker would be ‘the land of a thousand opportunities’, for here, a can-do attitude is helping to pioneer an ambitious and forward-looking new narrative that seeks to harness the unfulfilled potential of the continent and has Rwanda on a fast track to becoming the Singapore of Africa.

No longer are African nations defined by their dependent and subordinate relationships with this or that global power, but rather, setting their own agendas and striking partnerships with any number of suitors as they see fit.

Africa is the future. Rwanda is at the forefront of that future and the world is waking up to that fact. Soon those that would court Rwanda will be beating a path to its door for a piece of the action. The wisest investors are getting in early to share in this inevitable bounty and eyeing up returns no other region on Earth can hope to deliver.

Rwanda offers up some of the most fertile conditions for investment and has undertaken a process of diversification that has financial services and fintech at its heart, but which has also created myriad opportunities in transport and logistics, health, manufacturing, infrastructure, energy distribution and transmission, off-grid energy, agriculture and agro-processing, affordable housing, tourism services, ICT, mining, construction and real estate.

Over recent years, a series of legislative and regulatory developments have helped Rwanda both improve the business climate and in turn, FDI flows.

This included a 2021 law to attract talent and to promote innovation and diversification, as well as laws around insurance, central banking, capital markets, collective investment schemes, foundations, trusts, data protection and digital assets, alongside enhanced dispute resolution mechanisms.

Yet, perhaps the most significant piece of legislation was the 2015 investment code, which brought in tax breaks and other incentives for investors, while removing obstacles such as limits on foreign ownership or control.

As a result, international companies establishing their headquarters or regional office in Rwanda can now benefit from a preferential corporate income tax rate of 0%. Meanwhile any investor can look to rate of 15%, a corporate income tax holiday of up to 7 years, exemption from taxation on capital gains and of customs tax for products used in Export Processing Zones, as well as VAT refunds.

In addition, new measures are in place designed to lead to greater coordination between the various institutions governing and regulating FDI, while ongoing liberal policies from Rwanda’s Kagame administration are helping to make Rwanda a trade and services hub. Beyond financial services and fintech, aquamarine, ruby and sapphire resources have also been identified as untapped future commodity drivers of Rwanda’s prosperity, while it has been determined that the country’s significant tourism potential must also be capitalised upon.

Rwanda is, of course, not without its challenges, and those presented by landlockedness, low human resources capacity, poor infrastructure, political instability in neighbouring countries in the Great Lakes region, and the high dependence on commodity prices are perhaps the most acute. Yet despite this, and like so many countries that have experienced national trauma, so has followed a rebirth that has allowed for a new dawn.

Modern Rwanda is on a mission, and this has found particular expression in the restructuring of the local banking and financial sector to make it the preferred destination for sophisticated and compliant financial services and cross-border financial transactions within Africa.

Institutions, capital markets, regulatory, legal and compliance frameworks have all been subject to deep dive reforms, while the Rwanda stock exchange is rapidly growing in stature. In parallel, there has been marked progress around AML and CFT, while Rwanda can also point to numerous double taxation avoidance agreements (DTAAs).

The Kigali International Finance Centre (KIFC) is set to transform Rwanda’s capital into a globally renowned financial hub and will act to drive the creation of highly skilled employment in that sector. Its existence is set to help cement Rwanda’s status as a safe and compliant jurisdiction for those looking to structure and domicile investments in Africa.

Durban = Double Digit Growth Opportunities

South Africa is the premium springboard into the African continent, offering a platform into one of the world’s last frontiers of double-digit growth opportunities.

So says Russell Curtis, CEO of Invest Durban. Here is a man with reason to be passionate about the metropolitan region he is tasked with attracting new investment into, alongside retaining and expanding that which is already there.

Part of Invest Durban’s mandate is to promote the destination internationally. This has seen the CEO recently take his message to North America, an untapped source market for FDI that is now coming to understand all that South Africa has to offer.

Global-wide interest
Previously, perceptions around South Africa, its far-flung nature and the sheer size of the North American domestic market meant investors there had not looked much beyond their own backyard. However, thanks to outreach initiatives like Russell Curtis’ mission, this is changing. Alongside increasing interest form Asian investors and the traditional strong flows from Europe, Durban is buzzing.

In addition, the CEO oversees Invest Durban’s advocacy remit which extends to policy to create the right facilitation and enabling environment to drive investment. Investors should take note that across all indices, audits indicate the organisation is exceeding expectations and targets set by independent actors including the World Bank.

Curtis recognises that global trade is dominated by the multinationals. One of the messages he wants to get out there is that Durban has a very large resident base of them, which translates into an uninterrupted buffet of opportunities for investors to tap into. Whether it’s providing ready access to things the transnational corporations currently import into Durban, or value added to products and services, such as enhanced processing capacity for the metals and mining sector, the possibilities are many and profound.

Higher risks, higher rewards
The Invest Durban CEO is clear that investors are aware African investment hotspots such as Durban have higher risks, but at the same time come with higher reward potential.

By any measure, the last two or three years – with Covid and two major floods in quick succession visited upon the region – have seen Durban’s investment allure challenged. Yet, still investors keep coming, and that’s because it constitutes one of the premium investment gateways into South Africa’s market and that of Southern Africa beyond.

Inevitably, industrial and tourism infrastructure development slowed somewhat as capital had to be diverted to address immediate challenges regarding wastewater treatment and electricity distribution. However, looked at through another lens, this has acted to bring forward conversations and action about the need for more robust PPPs to develop and manage such facilities.

Turning challenges into opportunity
There is a recognition that no one stakeholder has the resources and leverage to fix things, and so it has forced everyone together. Over last 2/3 years business leadership has not wasted some of the crises visited upon Durban to engage with the parastatals and the SOEs on a much more robust and direct level to develop a partnership approach to address challenges and capitalise on opportunities.

Strategically, investors are able to look beyond these temporary phenomena and integrate the potential for regular choppy waters into the African business case. It’s a medium to long term business view that’s adopted.

Specifically with reference to securing a reliable power supply, existing commercial and industrial investors are increasingly investing in their own power generation, such as PV to inure themselves from the vagaries of the National Grid. In addition to being risk mitigative, this is also serving to create an additional asset class and income stream for certain businesses.

Meanwhile, Transnet National Ports Authority have already shortlisted a number of global consortiums to co-invest at an equity level in the port system. This move towards equity-based PPPs with the port authority along with outright concessioning of certain elements to the private sector marks a paradigm shift from the playing field that has existed since the dawn of democracy. And according to Russell Curtis, this is just the start of a process that will see a greater number, spread and diversity of partnerships with business at both an equity and operating level.

Tourism asset development
Durban has been especially successful in attracting investments into the ICT/BPO space, but where it has not been so strong, according to Russell Curtis, is in tourism asset development. Part of the reason for this is undoubtedly Covid–related, which has seen the likes of British Airways drop it from its routes, but it also relates to Durban’s airport having formerly been strategically classified as a spoke, rather than a hub facility, meaning fewer direct international flights and so a lower profile among international tourists and potential investors. As such a lot of work is going into expanding the number of both scheduled and charter flights into Durban from traditional and new markets and in drumming up resources for new assets across the region, through the likes of tourism investment symposiums. With its 100km of uninterrupted golden sands and warm Indian Ocean seas, tourism is a hugely underdeveloped sector here.

While the South African market has sufficient scale in its own right to attract and justify investment, once established, investors are increasingly broadening their horizons and looking to access the wider African market of 1.3 billion people. In this endeavour they are assisted by a free-trade oriented cross-border marketplace across the continent. This means African companies can be at the forefront when it comes to capitalising on these exciting new markets.

Durban’s USPs
A big determinant of greenfield investment is the context of the environment in which expats may find themselves. In this regard, Durban scores highly, offering for multinational executives a balanced lifestyle of business and pleasure. Durban has the industrial capacity, it has the robust port and logistics distribution network, but it also offers an unrivalled quality of life, and when it comes to choosing where to invest this, can make all the difference. The city is also attracting a significant pool of skilled labour from elsewhere within South Africa for the same reason.

For the increasingly important remote working dynamic, Durban has fantastic fibre connectivity that’s competitively priced, which is also why it’s proving to be such a draw for all sorts of ICT-focused industries. Shared services is an exemplar of Durban’s cost competitiveness – with investors able to draw on a talent pool that exists at scale, numbering some 13 million people across the KwaZulu Natal Province, with 4 million of those concentrated in the Durban metropolitan area. It is why Toyota’s African car plant is here and also the Toyota Wessels Institute for Manufacturing Studies, which is looking to develop Africa’s next generation of manufacturing leaders.

On the education front, Durban can point to the University of KwaZulu Natal, which is the second largest direct contact university in Africa with 45,000 students and incorporates the Nelson R Mandela School of Medicine.

Another important yardstick for investors is the region’s capacity to retain labour. Despite competitive labour costs, Durban has markedly low staff turnover and a stable labour base. This equates to increased productivity as people stay in jobs for longer, so reducing retraining and recruitment costs.

The fact of English being the official business language is a potent draw for investors commercially, legislatively and contractually. For those with an international outlook the lack of language barriers makes for a rewarding customer experience, and also helps to build trade bridges with other anglophone economies in Africa.

Awash with opportunity
As to the premium opportunities right now in Durban for investors, the Invest Durban CEO is particularly keen to draw the spotlight onto the untapped potential of the health, pharma and life science arenas. Durban enjoys a rich history at the forefront of African medicine, so to tap into that would be to resonate with the majority market before moves to scale with global certifications.

In addition, Russell Curtis speaks frequently of the huge potential in the contact centre space, which is already attracting significant interest from big global tech, alongside those in financial services and healthcare. Meanwhile, in Durban’s public sector infrastructure space there exists vast market demand around areas such as digital infrastructure and potable waste-water treatment. A financing gap translates to PPP opportunities for global players with the relevant expertise.

South Africa: Staff Concluding Statement of the 2023 Article IV Mission

Washington, DC: An International Monetary Fund (IMF) team led by Papa N’Diaye visited South Africa on March 1-17 to hold meetings with the economic authorities and other counterparts from the public and private sectors for the 2023 Article IV annual consultation. Discussions focused on policies to ensure macro-financial stability and the far-reaching reforms needed to durably lift potential growth, create jobs, reduce poverty and inequality, and facilitate the transition to a greener economy.

South Africa’s economic and social challenges are mounting, risking stagnation amid an unprecedented energy crisis, increasingly binding infrastructure and logistics bottlenecks, a less favorable external environment, and climate shocks. A recovery in the services sector supported job creation in 2022; however, employment remains below pre-pandemic levels and unemployment close to record highs, on the back of already high poverty and inequality. In addition, the economy remains exposed to external shocks and capital flow volatility, in the context of tighter global financial conditions, and volatile commodity prices related to Russia’s war in Ukraine. The elevated public debt significantly limits the fiscal space available to respond to economic and climate shocks and meet social and developmental needs. Long-standing rigidities in product and labor markets, and governance and corruption vulnerabilities also weigh on growth and employment prospects, threatening social cohesion.

The country’s large external asset position, low levels of foreign currency debt, diversified economy, sophisticated financial system, and flexible exchange rate regime are sources of strength, supported by the South African Reserve Bank’s (SARB) pro-active monetary policy that has kept inflation expectations anchored. These features provide a favorable base for growth, as fiscal and structural challenges continue to be tackled, including through Operation Vulindlela. On the policy front, the government has made important headway on domestic revenue mobilization, removed licensing requirements for embedded power generation, announced a plan to create a mechanism for private sector participation in transmission infrastructure, completed the spectrum auction, and has taken steps to improve third-party access to the country’s ports and freight network. Anti-corruption measures in response to the judicial recommendations of the Commission of Inquiry into Allegations of State Capture have also been announced in October 2022. This progress is welcome and needs to be sustained, but further reforms are urgently needed to durably lift potential growth, create enough jobs to reduce unemployment, absorb new entrants into the labor force, and reduce poverty and inequality.

Outlook and Risks
Growth. The near-term growth outlook has deteriorated. Real GDP growth is projected to decelerate sharply to 0.1 percent in 2023 mainly due to a significant increase in the intensity of power cuts, as well as the weaker commodity prices and external environment. In the medium term, growth is expected to rebound, though only to about 1½ percent per year, with income per capita likely to stagnate as a result. This is because of long-standing structural impediments, such as product and labor market rigidities and human capital constraints, offsetting expected improvements in energy supply, higher private spending on energy-related infrastructure, and a more supportive external environment.

Inflation. Headline inflation is projected to fall back within the SARB target range (3-6 percent) in the second half of 2023. Lower food and fuel price inflation and the SARB’s less accommodative monetary policy stance are key factors behind this decline. Inflation is expected to reach the target range mid-point of 4.5 percent in 2024 and remain there through the medium term.

Current account balance. The current account is projected to move to a sizable deficit of 2.3 percent of GDP in 2023 and to deteriorate further to about 2½ percent in 2024, on the back of softer commodity prices, weaker external demand, and higher energy-related capital imports. As these factors dissipate and logistical constraints are alleviated, the deficit is expected to improve somewhat to around 2 percent of GDP over the medium term. Portfolio inflows are likely to stay volatile, while FDI inflows are anticipated to remain low.

Fiscal balance. Despite recent improvements, fiscal accounts will remain under pressure with the overall balance projected to widen to a deficit of about -6½ percent of GDP in the fiscal year (FY) 23/24, and deteriorate further through FY25/26, reflecting the Eskom debt relief operation (which entails a capital transfer), continued transfers to other loss-making state-owned enterprises (SOEs), spending on the Social Relief Distress (SRD) grants, and increased interest payments. The deficit is expected to narrow after FY26/27 assuming improved conditions at Eskom, though public debt would continue to rise.

Risks. External downside risks include a deeper and more protracted global slowdown, further weakening of commodity prices, and a shift in global investors’ sentiment away from emerging markets. Domestically, downside risks include delays in addressing the energy crisis and Eskom’s and Transnet’s operational and financial weaknesses, slower-than-expected progress or reversal in reforms and policies, including fiscal consolidation, and increased political uncertainty. On the upside, decisive implementation of structural reforms combined with fiscal consolidation would help boost private investment, and ultimately employment and growth over the medium term. Similarly, stronger-than-expected private sector participation in the energy sector could improve the growth outlook.

Safeguarding macro-financial stability
Fiscal policy. The mission supports the government’s objectives to reduce debt vulnerabilities and create the conditions for higher growth, as articulated in the 2023 Budget and the October 2022 Medium-Term Budget Policy statement (MTBPS). While the MTBPS and the recently tabled budget make provision for some risks and contingencies, risks to the fiscal outlook are substantial. South Africa’s public debt is among the highest in emerging markets and is set to continue rising on current policies. This leaves limited fiscal space to respond to adverse shocks, including from contingent liabilities from SOEs, social spending needs, and climate events. It also exposes the government to increasing borrowing costs, diverting limited resources away from more productive capital and social spending.

Achieving the 2023 Budget objectives will require, relative to the IMF Staff baseline, stronger fiscal consolidation efforts in a context of a credible medium-term framework. The mission welcomes the significant reduction in the fiscal deficit relative to 2019, driven by the efforts to contain public spending and saving windfall revenue from higher commodity prices. As the revenue windfall fizzles, decisive efforts to reduce public spending as a share of GDP will be needed to stabilize and subsequently bring down the public debt ratio, which is estimated to reach about 70 percent of GDP by the end of FY22/23. The mission recommends continued efforts to reduce the public sector wage bill, costly and inefficient subsidies, and transfers to poorly performing SOEs, while protecting well-targeted social spending and productive public investment.

Improving spending efficiency, including for SOEs, would facilitate fiscal adjustment and reduce the adverse near-term impact of fiscal consolidation on growth. Over the long term, it will maximize the returns on capital and social spending, especially if combined with structural reforms to boost private sector investment.

Broadening the tax base by continuing to strengthen revenue administration and reduce tax gaps and tax expenditures is also important to complement an expenditure-based consolidation. Strengthening the fiscal framework by introducing a debt ceiling to complement the nominal primary expenditure ceiling, addressing deficiencies in public procurement, and improving public investment management would also benefit fiscal consolidation.

Monetary policy. The pace of withdrawal of monetary policy accommodation has been adequate and needs to remain data dependent. The SARB’s decisive increases in the policy rate have helped bring down headline inflation and keep inflation expectations anchored. However, further tightening would be warranted if the ongoing energy crisis and tighter global financial conditions threaten to de-anchor inflation expectations.

The inflation targeting framework has served South Africa well. As conditions allow, the framework could be enhanced by formalising the SARB’s focus on the midpoint, instead of targeting a range, and by lowering the target. Such conditions will present themselves as fiscal consolidation and structural reform efforts advance. Communication will be of the essence to ensure that refinements to the monetary policy framework are well understood by the market and other stakeholders. The successful shift to the new Monetary Policy Implementation Framework is a good example of effective communication.

Financial sector policies. The financial sector remains resilient, though there are pockets of vulnerabilities. Greater holdings of government debt increases the financial system’s direct exposure to sovereign risk; this should continue to be monitored closely. Fiscal consolidation should be the main line of defence to alleviate risks from the financial sector-sovereign nexus. Complementary prudential measures could be considered in due course, taking into account risks of procyclicality and potential unintended negative effects on financial institutions’ balance sheets.

Financial sector oversight is strong, reflecting a commitment to independent supervision and the implementation of international standards. It would however benefit from closing gaps in regulation and further strengthening supervision. This could be done by implementing the FSAP recommended measures, such as pivoting towards a more structured and intrusive approach, with a recalibrated mix between on-site and off-site supervision and a greater focus on governance and less reliance on third party auditors; adopting and operationalising the new bank resolution and deposit insurance legislation; and stepping up crisis preparedness. Greater financial sector competition and an enhanced credit information system could further expand access to credit by SMEs and promote financial inclusion more generally. Financial inclusion should continue to be promoted through digital technologies although risks to financial stability need to be closely monitored and mitigated. Embedding the taxonomy of green economic activities and guidelines on climate-related financial disclosures would strengthen sustainable finance.

Grey Listing by the Financial Action Task Force (FATF). FATF has placed South Africa on its list of jurisdictions under increased monitoring (grey list) and has identified eight key areas with strategic deficiencies in its anti-money laundering and counter-financing of terrorism (AML/CFT) framework. FATF has recognised that South Africa has made significant progress on many of the recommended actions to improve its system including the passage of two key Acts of Parliament addressing technical compliance deficiencies, demonstrating the authorities’ strong political commitment. Exiting the grey list will require South Africa to continue to implement the agreed FATF implementation action plan in a timely manner. International experience suggests that the adverse impacts of grey listing increase the longer a country remains on the list. Therefore, the mission encourages stakeholders to continue working together to exit the list as quickly as possible, and closely monitor the impact of the grey listing on capital flows and the financial system.

Structural reforms to achieve job rich, inclusive, and greener growth
More reforms are needed to address South Africa’s long-standing structural impediments to growth. Experiences in other countries suggest that successful implementation of structural reforms require a gradual and sustained approach, well-targeted compensatory measures conditional on reform implementation and with clear sunset clauses, leveraging of independent institutions, early engagement with stakeholders, and effective communications. Reforms should aim at improving energy security, fostering private investment, promoting good governance, and creating jobs. To this end, urgent action is needed to:

Restore energy security. This will require attracting private sector participation in the electricity market and addressing Eskom’s operational and financial deficiencies. Conditions attached to Eskom’s debt relief operation should ensure material improvement in the company’s operation and establish its long-term viability, if strictly enforced. Eskom’s operational viability also hinges on stopping further accumulation of municipal arrears to Eskom and making the electricity tariff setting mechanism fully cost reflective.

Implement the Just Energy Transition Investment Plan . Achieving South Africa’s ambitious climate goals requires changing the carbon intensity of consumption and production, including through the carbon tax and other complementary measures, while providing well-targeted support to affected workers and communities. The ongoing energy crisis provides a window of opportunity for an expedited rollout of renewable energy in South Africa.

Alleviate transportation logistics bottlenecks. Decisive actions to improve Transnet’s operational efficiency and its commercial viability are crucial. Promoting private sector participation in the transport sector would help increase capacity and boost exports.

Rationalise SOEs. Inefficient SOEs represent a heavy burden on the budget, siphoning away public resources from other social and infrastructure expenditure priorities. They also hinder economic growth through lower productivity and private investment. There is room to rationalise–as appropriate—SOEs with overlapping mandates and/or where the rationale for their mandates does not have a sound public finance basis. SOEs that remain as such need to have a clear, representative, and transparent governance structure, and operate with hard budget constraints, in competitive markets, and with proper autonomy and regulation.

Foster competition and regional integration. Reducing the regulatory burden and other entry barriers is key to foster competitive product markets and promote private investment, especially for job-creating SMEs. Deeper regional trade integration would benefit South Africa. The African Continental Free Trade Area is a good opportunity for South Africa to build on its industrialised economy, exploit economies of scale, and improve productivity and growth.

Tackle high structural unemployment. The mechanism for setting the national minimum wage should strike the right balance between reducing in-work poverty and enhancing the job prospects of disadvantaged groups. Labor market reform aimed at introducing greater firm-level flexibility in the collective bargaining system and streamlining the enforcement of employment protection legislation are necessary steps to boost job creation. Improving the quality of education, along with facilitating high-skilled immigration, are key to address skill shortages. Additional policies to durably raise employment and lower costs to job creation include supporting school-to-job transitions, promoting vocational training, improving the employability of the inactive population, and making job search more effective. Interventions to increase entrepreneurial capacity, lift the education level, and reform social housing policies would increase the participation in economic activity of people living in remote and traditional settlement areas.

Promote good governance. South Africa’s economic future depends vitally on state capture being tackled forcefully. Criminal prosecution and enforcement of sanctions against corruption offences need to be strengthened and credible and effective deterrence mechanisms established. Anti-corruption agencies need to be equipped with sufficient legal power, capacity, and operational autonomy to prevent political interference. The new procurement legislation and regulations under preparation are an important opportunity to address some of the deficiencies in the public procurement process. They should help centralise procurement and increase the standardisation of processes and transparency requirements in line with international good practice.
Address gender disparities. Implementation of the Gender Responsive Budgeting Framework should gradually advance as planned; and efforts to decisively tackle gender-based violence should continue.

Newly Formed Investment Council To Enhance Egypt’s FDI Attractiveness

Egyptian President Abdel Fattah Al-Sisi issued on Thursday decree No. 141/2023 to form the Supreme Council for Investment.

The Council shall be formed and headed by the President of the republic, with the membership of Prime Minister, Governor of Central Bank, and Ministers of Defence and Military Production, Justice, Planning and Economic Development, International Cooperation, Finance, Interior, Communications and Information Technology, Local Development, Public Enterprises Sector, and Trade and Industry. Other members include the Head of General Intelligence, Chairperson of Administrative Control Authority, Chairperson of Egyptian Exchange, Chairperson of the Suez Canal Economic Zone, CEO of General Authority for Investment and Free Zones, CEO of the Sovereign Fund of Egypt, Chairperson of Federation of Egyptian Industries, and Chairperson of Egyptian Federation for Investors Associations and Institutions.

The council aims to create a better investment climate and to provide guidance and support to achieve that. It will also create the general framework for legislative and administrative reforms in the investment environment, approve policies and investment plans that determine the priority investment projects in line with the country’s public policy, economic and social development plans and applicable investment systems.

Minister of Finance Mohamed Maait said that the Egyptian government is mobilising all its energies to create a more stimulating environment for production and export, to make optimal use of its strong infrastructure and promising economic sectors with preferential benefits, added that these stimulating measures and initiatives, including the formation of a Supreme Council for Investment to attract more investments.

For his part, Head of the Building Materials Division at the Federation of Industries Ahmed Abdel Hamid said that the Supreme Council for Investment is an important step and at an appropriate time to start reforming the economic sector, especially in industry and agriculture, the development wings of any advanced economy in the world.

Abdel Hamid added, “Monetary and exchange rate policies alone are not sufficient and are not beneficial, and therefore an urgent economic policy package that is completely far from the prescription of the International Monetary Fund is necessary. Besides, industries must be provided by all they need of gas and petroleum materials at competitive prices, while removing all obstacles facing industry, as industrial and agricultural sectors are the most important source of hard currency.”

Ahmed El-Shennawy, member of the Board of Directors of Egyptian Real Estate Council, and Deputy Chairperson of Sustainable Development Committee at the Egyptian Businessmen’s Association stated that the decree to form the Supreme Council for Investment enhances Egypt’s attractiveness and business climate for investment and investors.

El-Shennawy said that there are important messages for the strong formation of the council under the leadership of President El-Sisi and the membership of all ministries and agencies concerned with investment to issue required decisions quickly. Furthermore, real and effective endeavor to solve problems and remove investment obstacles, but to achieve its goals, integration and participation in forming the council between the government and businessmen. Therefore, the council should include civil society and the private sector to present all obstacles and challenges with different points of view to reach a clear, specific and implementable vision, especially in light of the current economic conditions and the terrible and rapid price increases.

He elaborated that the state must develop strategic plans based on unconventional and out-of-the-box ideas to get out of the current crisis through encouraging mechanisms to attract local and foreign investments, provide, and exploit all investment opportunities such as high foreign exchange rates. Nevertheless, all obstacles and challenges must be removed by providing a safe and stable investment environment and more flexible legislation and laws in order to increase production.

Mohamed Attia Al-Fayoumi, Treasurer of the General Federation of Chambers of Commerce and President of Qalyubia Chamber of Commerce commented that the council is a very important and timely step because it will contribute to eliminating obstacles facing investment operations, especially bureaucracy in various concerned authorities and ministries. In addition, it will have a major role in coordinating policies between these various agencies and preventing conflicts in their businesses, which is in the interest of investment and economic climate in general.

Al-Fayoumi said that the formation of the Supreme Council will ensure the speedy implementation of required economic reform plans in light of successive political and economic turmoil the whole world is witnessing, which greatly affected the comprehensive economic development plan in Egypt, like the rest of the world.

The existence of this authority, represented in the Supreme Council for Investment, under direct leadership of President El-Sisi, will lead to deliberate and effective decisions, and obligate all parties to implement them, which contributes to attracting more foreign investments, and evidence that the state is serious about a solution for problems of investors and overcoming the obstacles facing them. Furthermore, the council aims to expand the volume of participation between public and private sectors, and a clear and direct message to foreign investors, that the state is determined to change the investment climate and provide opportunities for all, according to Al-Fayoumi.

He called on the Supreme Council for Investment, with its new formation, to quickly issue laws and decisions that would purify the investment climate in Egypt, overcome current challenges at the local and global levels, encourage industry and production, and issue urgent laws and decisions that ease burdens on manufacturers and encourage investment.

Focus On Botswana

Botswana is a small country with a population of about 2.35 million (World Bank, 2020) and nestled between South Africa, Namibia, Zimbabwe and Zambia. Its central location in southern Africa enables it to serve as a gateway to the region. 

Botswana has historically enjoyed high economic growth rates and its export-driven economy is highly correlated with global economic trends.  Development has been driven mainly by revenue from diamond mining, which has enabled Botswana to develop infrastructure and provide social welfare programs for vulnerable members of the population.

“The World Bank classifies Botswana as an upper middle-income country.”

Botswana is a stable, democratic country with an independent judiciary system.  It maintains a sound macroeconomic environment, fiscal discipline, a well-capitalized banking system, and a crawling peg exchange rate system. In November 2021, Moody’s revised its credit rating for Botswana from A2 to A3 with a stable outlook.  Ratings are highly influenced by Botswana’s continued dependence on diamonds, which contribute to at least a quarter of Botswana’s GDP and are susceptible to external shocks which places the country at a much higher risk.  The diamond industry has however been experiencing a recovery, setting Botswana on a positive trajectory.

Botswana has minimal labour strife. Corruption in Botswana remains less pervasive than in other parts of Africa. The Government of Botswana (GoB) created the Botswana Investment and Trade Centre (BITC) to assist foreign investors.  Botswana offers low tax rates and has no foreign exchange controls. 

The BITC’s topline economic goals are to promote export-led growth, ensure efficient government spending and financing, build human capital, and to ensure the provision of appropriate infrastructure.  GoB entities, including BITC, use these criteria to determine the level of support to give foreign investors. The GoB has committed to streamline business-related procedures, and remove bureaucratic impediments based on World Bank recommendations in a business reform roadmap. 

The GoB also established the Special Economic Zones Authority (SEZA) to streamline sector-targeted investment in Botswana’s different geographic areas. The Ministry of Investment, Trade & Industry (MITI) is developing a Trading Service Strategy to facilitate economic diversification and is also working on the African Continental Free Trade Area (AfCFTA) Implementation Strategy.

Due to COVID-19-related economic shortfalls, Botswana drew down heavily on its foreign exchange reserves and government savings.  Interventions like the Economic Recovery and Transformation Plan (ERTP) and the Reset Agenda augmented the short-term economic relief package that included wage subsidies, tax amnesties, waivers of certain levies due to government, loan guarantee schemes to support firms’ access to bank credit, and provision of food relief.  The president’s Reset Agenda seeks to adjust some priorities in light of new and unexpected challenges and to find smarter ways to implement projects in a timely manner and within stipulated budgets.  The ERTP aims to reinforce support already given to affected businesses and also to take advantage of opportunities that have emerged because of the pandemic such as digital services and e-commerce.

Botswana is committed to reducing greenhouse emissions to 15 percent by 2030 through renewable energy projects already underway and listed in the Integrated Resource Plan (IRP).  Botswana also adopted a Climate Change Policy in 2021 which seeks to promote access to carbon markets, climate finance, and clean technologies.

Material drawn from the US Trade Administration Investment Climate Statement on Botswana 2022.

African Tourism United To Transform Sector For Growth And Opportunity

Tourism leaders from across Africa came together late last year to rethink the sector and its central role in driving growth and opportunity across the continent.

The 65th meeting of the UNWTO Regional Commission for Africa brought together around 25 Ministers of Tourism and high-level representatives from 35 countries as well as leaders from the private sector. Taking place in Tanzania just days after UNWTO celebrated World Tourism Day, the Commission meeting embraced that day’s theme of ‘Rethinking Tourism’, with a focus on innovation, branding, jobs and education and partnerships.

“But we must look beyond just the numbers and rethink how tourism works so that our sector can deliver on its unique potential to transform lives, drive sustainable growth and provide opportunity everywhere in Africa”

Welcoming delegates, UNWTO Secretary-General Zurab Pololikashvili provided Members with an update of the Organization’s activities and accomplishments in the 12 months since the previous Commission meeting. He said: “Tourism in Africa has a long history of bouncing back. And it has shown its resilience again. Many destinations are reporting strong arrival numbers. But we must look beyond just the numbers and rethink how tourism works so that our sector can deliver on its unique potential to transform lives, drive sustainable growth and provide opportunity everywhere in Africa.”

Tourism recovery underway in Africa
The Regional Commission of Africa meeting was held as tourism’s recovery gets underway across the continent. According to UNWTO data, for the first seven months of 2022, international arrivals across Africa were 171% up on 2021 levels, driven largely by regional demand. To help Members capitalize on the sector’s return, and to build greater sustainability and resilience, UNWTO is prioritizing jobs and training alongside greater and more-targeted investment in tourism.

Short-term recovery and long-term transformation
Discussions at the the Commission meeting focused on both the immediate and longer-term recovery of tourism across the continent, including through redefining the roadmap of the UNWTO Agenda for Africa 2030. Key topics highlighted by the high-level participants included accelerating tourism for inclusive growth, advancing the sustainability of the sector and the role of public-private partnerships in achieving both of these goals. Alongside this, the heightened relevance of air connectivity, including low-cost air travel within Africa, as well as the pressing need to support small businesses (SMEs) in gaining the digital tools and knowledge they need to compete, was also discussed.