Africa’s bond market has experienced resurgence in the last decade. This is largely due to a decade of economic growth due to reforms, better macroeconomic management and fiscal stability.
The fourteen countries that make up the CFA zones in west and central Africa in addition to Ghana, Kenya, South Africa and Nigeria amongst others have all issued government and corporate bonds in the past decade. These bonds will be primarily used to fund infrastructure projects across the continent.
Apart from government bonds most of the trade and investment between Asia – primarily China is also centered on infrastructure. Foreign investment coming to Africa is amongst others targeting infrastructure allied sectors like construction and real estate.
Also construction growth in Nigeria will be the fastest of all markets, according to the latest ten year forecast from Global Construction Perspectives and Oxford Economics.
The new study says China will overtake the US as the world’s biggest construction market by 2018, but that the fastest growth will happen in Nigeria.
China will be the second largest economy by 2025 and Nigeria will be among the top 20 economies by 2020 says Goldman Sachs. The expected boom in construction in both countries is driven by economic growth.
Why are African governments investing substantially in Infrastructure?
The general perception in the media today is that Africa has little or no infrastructure and that is why governments across the continent are spending significantly to improve it. This statement is flawed because infrastructure development usually depends upon economic growth.
The amount of infrastructure a country has at any given time depends on the level of economic growth and development. You cannot build state of the art ports or cargo airport for instance if there is no economic growth to justify it. African countries are known to have invested money on white elephant projects in the past only for the economy to contract afterwards due to resource misallocation.
The truth is that African countries have experienced about a decade of solid economic growth and will continue to outperform the west and rival emerging markets in Asia from 2010 and beyond. This has put pressure on existing infrastructure so that government has to build new ones.
In the seventies and eighties African economies were not growing, some were even experiencing negative economic growth so there was no need for new infrastructure. Today we know that fortunes have reversed and this is no longer the case.
For instance when a country is experiencing sound economic growth it means that imports and exports will increase. This means that government will need to build new ports or expand existing capacity. It also calls for efficiency in running of ports.
Shoprite which is a South African grocery chain is looking to expand into major cities in Nigeria that will necessitate the building of railways to supply groceries fresh and on time to stores across the country. Nigeria’s beer market is one of the largest in the world. SABMiller, Nigerian breweries and Guinness are making plays to tap into the nation’s profitable beer market. Already SABMiller is buying and resuscitating old plants. It will put pressure on existing power infrastructure and necessitate the building of new power plants. Imagine this scenario occurring in other sectors of an economy not just retail!
Five years ago Kwara state government in central Nigeria imported human capital from Zimbabwe to boost agricultural production. By next year Kwara state is expected to start exporting agricultural produce and is currently building a cargo airport to meet that need.
The mortgage market in North Africa, Nigeria, Ghana, Angola, and Kenya amongst others will also grow significantly from new construction as a result of rural urban migration and a growing middle class amongst others.
As African countries continue to grow solidly in the coming years expect new roads, railways, seaports, houses, airports etc to spring up around the continent.
It is the increasing prosperity of Africa evidenced by past and anticipated future growth that is driving the boom in infrastructure development.
