Written by Kurt Davis Jr.
Jan 06, 2020
Top prediction for Africa in 2020: Younger Africans will be more vocal. They’ve seen how protests led to the removal of leaders such as Robert Mugabe in Zimbabwe. Ghana President Nana Akufo-Addo addresses the G20 Investment Summit on the sidelines of Compact with Africa (CwA) in Berlin, Germany, Nov. 19, 2019. (John MacDougall/Pool via AP)
The African tech industry will continue its boom. Recent research by African banking group Ecobank suggests the fintech industry alone will be worth more than $3 billion this year. Other analysts suggest the number is much higher.
Interswitch, founded in 2002 by Mitchell Elegbe, was valued at $1 billion+ in 2019. This valuation will spur further IPO discussions for the Nigeria-based company, especially as the African tech space itches for a “new” big name on the international scene following Jumia’s lackluster stock performance in 2019.
Other tech companies to watch include ride-hailing service Bolt, energy and consumer finance company M-Kopa, and fintech company Lidya among many others.
All the positive news, however, must be tempered by the rising challenges. First, there will be more threats to fintech and overall tech data security in 2020. The upside to Africa’s advancement is the leapfrog effect with technology. The downside can be the lack of security preparation for each stage. Secondly, companies will have to be creative as they begin to attract more of Africa’s financially insecure. Lidya, for example, is tapping into Central European countries, Poland and the Czech Republic, for lending to small businesses, which will ultimately diversify their customer base and reduce some of their financial risk.
Predictions for Africa: Generational wars will be the backdrop to African politics
Africa’s future depends largely on the ingenuity and entrepreneurship of its youth. This young population will also be the future consumer base and labor force. Thus, it should be no surprise that younger populations are becoming more vocal about their concerns. Social media and a high level of social connectivity for that matter for this generation help to facilitate expression of frustration and communication among like-minded youth. Young leaders have also seen how protests have succeeded in the removal of regional leaders, including Robert Mugabe (Zimbabwe), Abdelaziz Bouteflika (Algeria), and Omar Hassan Ahmad al-Bashir (Sudan).
Predictions for Africa: Several elections in 2020 will test the patience of this emerging youth movement. Cote d’Ivoire’s presidential election is already shaping up to be a battle of the old guard — one current and two former presidents above the age of 70. Burundi President Pierre Nkurunziza recently faced protests from the younger generation who don’t want him to seek another term. Other leaders will face pressure from so-called political or establishment outsiders seeking quicker change (Bobi Wine in Uganda) or more radical change (Julius Malema in South Africa). Regardless of political views or stances, African leaders will have to find a way to make younger generations feel more included in voting and policies.
South Africa will be the economy to watch (but maybe not for the right reasons)
A significant amount of capital has exited South Africa with foreign investors selling off more than $10 billion in 2019. Local and foreign investors have soured on the market with a dim economic look for many companies and a growing chance that the country my lose its last investment-grade rating. Government-run electricity public utility Eskom, which is struggling to service its $30 billion of debt, and South African Airways, which is in business rescue, are the more-discussed economic cases in the country. But the country has seen numerous companies struggle across the retail and construction sectors.
President Cyril Ramaphosa is facing increasing public criticism from supporters who expected more change in a shorter period. He will need some factors (out of his control) to go his way, including easing of global trade tension and a price bump for commodities. An improved economic situation for local trade partners Zambia and Zimbabwe would also help the South African economy. In other words, Ramaphosa may be banking (no pun intended) on economic changes that he (and his country) sadly have been waiting for too long. Many analysts accordingly think a junk rating from Moody’s may be inevitable in 2020. S&P and Fitch lowered their ratings on South African debt to junk in 2017. Thus, if Moody’s joins them, then you can expect $15 to $20 billion of more capital to exit South Africa with many foreign investors required to invest only in investment-grade credits. This would throw the South African economy into chaos, though there is a small contingent of observers who think this may force economic and policy changes that could not be implemented in South Africa in good times.
Predictions for Africa: Ghana will face a setback in its challenge to Nigeria
This has been the “Year of Return” for Ghana.
Many investors started the year waiting for a Nigerian election to pass before business picked up in the country. Then it passed and nothing really changed. President Muhammadu Buhari won re-election and the economy continued to stumble along the same course. The 2-to-3-percent growth projected for 2019 is not enough for Africa’s largest economy and most populous country. The economy was burdened by lower oil prices (sub-$70 and sub-$60) with nearly 70 percent of the government’s revenue dependent on the sector. A major drop in foreign direct investment in 2018—around 45 percent—does not appear to have reversed in 2019.
The Ghanaian 2019 story, by contrast, has been significantly different with foreign investors and tourists flocking to the country. Foreign direct investment grew in 2019 and similar results are expected for 2020. Ghana’s oil sector furthermore grew up in the low oil price environment (in the last few years) thus its energy sector is better adjusting to the current market than its Nigerian counterparts. Foreign investors also find (maybe unfairly) navigating Ghanaian regulatory and economic policies easier than Nigeria. All that said, Ghana now faces an election in 2020. History sadly shows that the country overspends in election years and this usually hits the economy at some point. Thus it is no surprise the IMF has softened its growth expectation for 2020 for the country. Ghana’s healthy democracy is also very competitive and will sadly consume some of the economic and political bandwidth that could/should be focused on the economy. You can expect Nigeria to regain some international stature and goodwill during that time.
Listen to GHOGH with Jamarlin Martin | Episode 33: Dr. Gina Paige
Jamarlin talks to Dr. Gina Paige about African Ancestry, the company that used DNA to pioneer a new way of tracing African lineages and helped 500,000+ people reconnect with their roots. They discuss whether acquiring a knowledge of self and reconnecting with the motherland is the key to scaling African-American cultural optimization and economic empowerment in America. They also discuss whether folks with resources can be “about that life” with no curiosity to visit the motherland.
Predictions for Africa: Year-of-Return-style advertising by another country
The success of Ghana’s advertising for the “Year of Return” has been amazing. The Ghanaian government’s initiative to encourage African diaspora to visit Ghana and invest brought many people to the African continent for the first time. It had some hiccups with numerous individuals not knowing that they required visas and yellow fever shots before arrival. Ghana solved this problem by creating a special visa for such individuals and providing yellow fever shots at the airport on arrival.
Let’s see if Kenya, South Africa, Senegal or Ethiopia can pull off a similar act.
Kurt Davis Jr. is an investment banker with private equity experience focused on Africa, the Middle East, and Turkey. He earned an MBA in finance, entrepreneurship and operations from the University of Chicago and a J.D. in tax and commercial law at the University of Virginia’s School of Law. He can be reached at kurt.davis.jr@gmail.com.