Globally, emerging markets are enduring pressures which are prompting a review of original GDP forecasts. Despite this, Standard Chartered remains optimistic and excited by the growth opportunities both Africa and the Middle East present. In my new role as Regional CEO of Africa & the Middle East, I am looking forward to the challenges, diversity and growth targets these two regions will deliver over the next few years.
The 'Africa Rising' narrative has spurred some scepticism with claims of growth statistics being inflated. Should investors still consider Africa a source of positive investment returns for the future? Absolutely. Global pressures may have a marginal impact on forecast GDPs, but in the long term, we are confident Africa will outperform most other markets in growth. We are now seeing more investors in Africa, investing in Africa, boosting the potential for foreign direct investment in this rapidly evolving region. African investors nearly tripled their share of FDI projects on the continent over the last decade - from 8 percent in 2003 to more than 22 percent today.
In the Middle East, the long term growth outlook for the oil-rich Gulf Co-operation Council (GCC) is positive, despite ongoing regional tensions. The region is expected to be one of the world's fastest-growing in the next few years with an expanding GDP at an annual average of 4.1 per cent. Social and political challenges in the wider Levant and North Africa should not detract from the resilience and robustness of the GCC economies - the largest economies - which play an increasing role in regional integration. The GCC economies are benefiting from years of robust hydrocarbon dynamics and the increasing focus by the region on longer-term development objectives through diversification is a positive factor towards sustainable growth.
Although Africa and the Middle East are more diverse than they are similar, the regions share two key drivers when it comes to future economic potential: Demographics and the rapid expansion of trade corridors.
Dynamic demographics As the world's youngest region, Africa has the fastest growing middle class, with over 60% of the region's population under 25. In just two decades, Africa will have the largest workforce in the world, with Nigeria touted to be the fourth most populous country, globally. Although formal-sector job creation remains a challenge, other things being equal, this demographic profile should boost Africa's growth, driving consumer spending and asset prices, as well as boosting pension savings for further investment.
The 'Middle East North Africa' region or 'MENA' has the second-youngest population after Africa, with half of the region's population under 25. In just 5 years, the IMF estimates this population to rise to 720 million, up from 445 million in 2000. High expatriate populations in Gulf States reinforce the demographic structure and drive the need for sophisticated financial services.
Trading partnerships Trade remains a valuable source of income for both regions. Africa's trade corridors are widely known, especially with Asia - a region expected to surpass Europe as the continent's largest trading partner by 2020. The Middle East is also playing a more integral role in the world's trade corridors, with Dubai providing a conduit for some of the fastest growing trade routes. Trade between Africa and the Middle East now exceeds USD50 billion.
Interestingly, non-oil exports from the Middle East to Africa form the bulk of this trade route, as African nations import more capital goods and manufactured products. Gulf States also facilitate a number of trade partnerships between Africa and India. This tripartite relationship is currently valued at USD200 billion, but is expected to jump to USD2.7 trillion by 2030.
Although Africa's exports remain dominated by primary commodities, change has been more defined since 2001 with the rise in Africa's consumers. Interestingly, in the most recent period of growth, rising levels of private consumption were far more important than net exports in driving overall growth. Africa's oil-rich economies experienced the strongest rates of growth, but on balance over the last 10 to 15 years, most African economies saw an acceleration in GDP growth - whether resource-rich or poor.
Not without its challenges The ongoing war against the Islamic State across the Middle East, and Africa's sporadic terror attacks and political turmoil in select markets, may instil concern in some potential investors. However, governments are increasingly recognising that economic and political security go hand in hand. This has paved way to stronger regionalisation and collaboration, on an economic, political and security perspective.
Despite complex challenges, fundamental opportunities across both regions boast transformational benefits. Take, for example, Africa's rapidly evolving capital markets: In just three years, 12 Sub Saharan African sovereigns have accessed the Eurobond market, bringing over USD17 billion of development capital into the continent. Loan tenures are increasing, and more local banks are now participating in syndications, which were historically dominated by foreign banks - paving the way for broader participation, and longer yield curves.
The Middle East's appetite for enhanced Islamic Banking products is encouraging an innovative response from banks and financial institutions across the region. Growth potential in this specialised segment is high given the rapid expansion of the Muslim population worldwide, and the fact that only 1% of the globe's growing financial market is Sharia-compliant. Dubai is also committed to its plans to be the hub of Islamic Finance, globally.
In conclusion, while Africa and the Middle East share two fundamental motivators for future economic growth, they each demand a unique approach in accommodating diverse cultures, regulatory compliance and effective risk management. Financial institutions who embrace technology to improve delivery and access to their financial solutions, while providing relevant support in growth sectors - such as trade finance - will play a meaningful role in converting the economic potential of these dynamic regional neighbours, into a reality.
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