Private equity, a recent financing option for businesses in sub-Saharan Africa, has been gaining remarkable traction over the past decade. This activity involves investment specialists providing equity funding and strategic advice to companies with a high growth potential then selling down their stake several years later at a capital gain. In sub-Saharan Africa, the private equity industry is made up of around 200 players of all sizes who, in 2014, raised $ 4.1 Bn in new investable funds* - essentially from international institutional investors. In 2014, private equity companies owned a pool of assets amounting to 0.12% of the GDP of sub-Saharan Africa** and deployed $ 7 Bn worth of new investments*** in the region.  

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Alongside the R&D carried out by the public sector and universities (see the previous Letter), the African research and innovation community shows remarkable dynamism and diversity.  

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Africa has returned on the world’s radar screen due to its solid growth performance since the turn of the century. However, broadening and accelerating growth to reduce extreme poverty will require robust homegrown scientific research, technologies and innovation.  

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Talking about the emergence of African economies has become in recent years a cliché of governments’ communication. It may be useful to go back to the basics of this notion to clarify its meaning and stay focused on evidence-based analysis.

The concept of emergence, made popular at the turn of the century, initially referred to certain capital markets and ended up being applied to whole economies, by extension.

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The 2012 PISA* report has just been released by the OECD, a think tank of industrialized countries. This tri-annual study evaluates the competencies of youngsters at the end of their compulsory education (aged 15 to 16) in mathematics, reading and sciences. The last survey tested 510 000 students from 65 countries, 31 of which are non OECD members.  PISA provides, among other things, a measurement of a country’s education system and makes it possible to compare it in time, with its own past performance, and space, with that of similar countries. It is an essential element in the toolkit of decision makers allowing them to run, in a pragmatic and transparent way, the evolution of the educational system in terms of performance, resources consumption and fairness from both a social or gender perspectives.  

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The Franc Zone (FZ) brings together France and 14 sub-Sahara African countries in a common monetary area. This institutional device (fixed exchange rate CFA Franc/ Euro, pooling of foreign exchange reserves and guaranteed convertibility between the two currencies) defines the backbone of a singular economic, legal and cultural space. The FZ was designed to enhance the macro-economic stability of its African members and promote economic growth, through low inflation rates and an attractive regime for foreign direct investment. Forty years on, has the Franc Zone met these expectations?  

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Driving through any city in sub-Sahara Africa provides immediate evidence of the pervasiveness of the informal economy (IE). From the ubiquitous street vendor to the domestic worker, from the large business under-reporting its employees to the craftsman working alone or with a handful of aides, the IE spans a broad array of situations. On average the IE accounts for 40% of the GDP and 60% of the non farm labor in Black Africa*.  

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Can today’s Africa produce manufactured goods for exports? Can the continent become tomorrow one of the world’s manufacturing hubs and then move on to secure a position as an industrial powerhouse in its own right?

Sawa Shoes started answering these questions since the company opened for business in 2009.The founding idea was to build a brand of fashion sportswear shoes, 100% “made in Africa”, which would be sold in the developed world while retaining value creation on the continent. Hence, the shoes are designed and produced by a workforce of 100 people in Cameroon, West Africa, using raw materials sourced locally as well as from other African countries. The company has experienced rapid growth and its shoes are now available at trendy stores in London, Berlin, Paris, Barcelona, New York, San Francisco, Hong Kong and Tokyo.

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From 2001 to 2007, year of the outbreak of the global financial crisis, the Greek economy grew by 4.3% on annual average, more than 1% above the Eurozone average growth rate. However, this growth, led by private consumption and infrastructure projects largely funded by the European Union, proved unsustainable over time.

Essentially, from 2001 to 2010, Greece compounded a budget deficit of 9% of GDP p.a. with a current account deficit of the same magnitude*. Shielded by its Euro membership, the country initially found it easy to finance these twin deficits by borrowing on the international capital markets. Unfortunately, the 2008 recession drove lenders to reassess the credit risk of a country combining fundamental structural weaknesses (poor productivity and macro-economic management in a fixed exchange rate regime) with a massive debt burden of 160% of GDP.

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The consistent increase of GDP per capita that occurred over the last decade in Africa paved the way for the rise of local companies now at various stages of the globalization process.

The Boston Consulting group – a strategy consulting firm – recently drew up a list of 40 African companies it dubbed the “Challengers”. While hailing from diverse industries or countries, these national or regional champions share a lot of common characteristics. Often active in the mining or financial industry, they harness Africa’s comparative advantages to generate both high growth rates and strong profitability.

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