The region’s gross domestic product (GDP) of $1.3 trillion contributes ~20% to the continent’s $6.8 trillion GDP, after West Africa’s as the largest contributor at 26.3%.
Southern Africa’s three biggest economies — Angola, South Africa, and Zambia — contribute about 81.9% of the region’s GDP, while Lesotho, São Tomé and Príncipe, and eSwatini together account for 1.2%.
Regional integration in Southern Africa dates back as far as 1910 with the creation of the Southern African Customs Union (SACU), formed by Botswana, Lesotho, South Africa, Swaziland, and Namibia. The Southern African Development Community (SADC) was established in 1980, with free trade area status (SADC-FTA) awarded in 2008, becoming fully-fledged by 2012. Currently, of all Southern African countries only São Tomé and Príncipe is not a part of the SADC-FTA, making this economic community the region’s most important.
The Common Market for Eastern and Southern Africa (COMESA), which was formed in 1994 and became a free trade area in 2000, is home to some Southern African countries (except Lesotho, Mozambique, Namibia, São Tomé and Príncipe, and South Africa).
As the region takes the necessary steps to improve its integration, this will soon be a reality with the region now nearly a complete free trade zone, with it having to focus on eliminating unnecessary nontariff barriers to foster its full integration, developing regional growth poles to share the benefits from integration across the region, creating special economic zones and innovation hubs to nurture nascent industries and promote economic diversification.
Regional integration through the creation and complete harmonization of regional economic communities carries both internal and external benefits to Southern Africa by boosting regional economic growth, facilitating and increasing exports, increasing competitiveness and expanding opportunities for trade and investment, while also improving social conditions.
Despite the challenges, Southern Africa is a region that presents diverse opportunities, where knowledgeable and locally and regionally savvy investors can expect healthy returns.
Southern Africa presents itself as an excellent investment opportunity, but investors require local knowledge
The prospects for African economic growth has enticed investors looking for opportunities with high returns since the early 2000s. With its population expected to reach 1.5 Billion in 2025, progress needs to be made towards addressing key socioeconomic regional issues such as poverty reduction and improved worker productivity as well as vital business needs, such as investment in power and rail infrastructure. To succeed, investors need to recognise and acknowledge the region’s diversity, identify hot economic prospects and remain aware of local economic and political factors to determine the best investment opportunities.
The region is ripe with opportunities from key sectors, investors now need to take a global data-driven and locally insightful approach to enable them to identify the real trends across the region’s industries and uncover the best investment opportunities:
The region has also been proactively addressing its competitiveness as a destination of foreign investment. Since 2012, sub-Saharan Africa has been the region with the highest number of reforms each year. In 2019, a record 107 reforms were implemented across 40 economies in the region, with some overall benefits already coming to light as a result of the improvements:
- The average time and cost to register a business, has declined from 59 days and 192% of income per capita in 2006 to 23 days and 40% of income per capita in 2019,
- The average paid-in minimum capital has fallen from 212% of income per capita to 11% of income per capita in the same period.
Africa's growth is an integrated mix of 4 dimensions: demographics, regulatory, political and economics
Emerging and frontier markets are characterized as those “starting from a lower base and rapidly catching up” (Aldo Musacchio and Eric Werker in “Mapping Frontiers Economies”, Harvard Business Review, December 2016). The lower base from which these countries start, the high levels of demographic growth, and the capacity for introducing “quantum leaps” in innovation, make these markets a target for unprecedented attention from the business world.
Africa and Southern Africa, in particular, have been strengthening their bases for sustainable growth, with a combination of increasing institutional maturity, openness to foreign investment, and a focus on innovation. The region has been confirmed as one of the leading areas of world growth for the coming decades by a variety of business indicators. It is an investment opportunity that is almost too big to be ignored by investors who, if they want to succeed, need to position themselves appropriately to be able to take part and enjoy successful investments with high return potential.
Turning potential into sustainable business opportunities in emerging and frontier markets requires a highly specific set of skills, that we at HCP have been able to gather.
Success in the region is not just down to the quality of the opportunities. Of equal importance is the quality of the team and their ability and preparedness to deal with some of the region’s key challenges:
- Insufficient deal readiness and the need to address the lack of international business practices and forward-looking strategies;
- The need to manage relations with the public sector and other stakeholders, through the development of finely tuned non-market strategies, in-depth knowledge of local regulations, and the ability to navigate local processes;
- Familiarity and know-how of the local context;
- Proven track record in the core markets, that guarantees the experience, with insight to identify profitable opportunities, understand the socioeconomic and political backgrounds of these markets and to be able to implement winning strategies.
The HCP team possesses a diverse and complementary skillset supported by many years of working in an array of diverse markets. Through its successful investment in and implementation of numerous businesses, this team has shown it has the necessary in-depth knowledge of the region as well as the necessary skills, dexterity, and pragmatism to address the challenges faced by investors in the region.