MACRO FORCES ANALYSIS WITHIN AN INTERNATIONAL MARKET8
MacroForces Analysis within an International Market
MacroForces Analysis within an International Market
Recentand frequent global financial crisis has revealed that developedeconomies no longer hold investment monopolies. New and omnipresentrealism less allied to these markets are emerging. Thanks to acombination of this reality and macro trends that affect the globaleconomy investors are redirecting their investments to new markets.With this regard, Africa is presenting the world with new andemerging markets and especially sub-Saharan Africa. According toChristensen (2004), although China massive economic growth has thegreatest stories, the African economies are rising, boasting aprojected combined GDP of $2.6 trillion by the year 2020. Sub-SaharanGDP expected a growth rate of approximately 4.5%, which makes it thefastest growing economy automatically outpacing the averaged Asianregion growth rate of 4.3% annually.
Certainly,the sub-Saharan market is less developed, but its tremendous economicprogress is worth noting for investment purposes. Some countries inthis region such as Mozambique and Ghana are experiencing growthrates of up to 7.5 % that only China can match. Improvedmacroeconomic policies, stability in the political environment, acommitment by governments to strengthen the private sector and thecontinuous increase in investment in infrastructure and education arethe key factors contributing to this sustained growth (Taylor, 2012).Also, a majority of the countries in the region have liberalizedtrade since the 1980s and enhanced soundness in fiscal and monetarypolicies. As a result, debt share in exports has declined to levelscomparable to other regions, and credit rating has gained a positiveresponse.
Mostencouraging is the fact that this area is implementing reformsdespite the various difficulties experienced. Leaders in the regionshare a common belief that sustained growth is attainable through theprivate sector and harmonious assimilation with the global economy.Notably, two-thirds of the countries in the region recentlyimplemented reforms to streamline the path investors take while doingbusiness in the area (Christensen, 2004). More investments complementthese changes in both human and infrastructure making the region afocal point of doing things. These reforms are partly focusing onmaking outward orientation towards trade policies that are conduciveto faster economic growth, promote competition, encouraging technicalskills, improving access to business opportunities, and make resourceallocation more efficient.
Accordingto Piljak & Swinkels (2015), the economic environment is criticalin determining the potential as well as the success of a market andits opportunity. The sub-Saharan region’s economy is lookingpositive as evidenced by the fact private equity investors and othercompanies are making it a primary target to expand their investments.There is progressive growth in demand for goods and servicespresented by the ever-growing population of the region. Manycompanies operating in some industries such as footwear in Ethiopiaare already expressing positive stories. Evidently, this revelationproves that there is more demand to meet than is the goods to fulfillthe latter.
Additionally,governments in the regions are making investments in infrastructuressuch as transport, power energy, and communication network priority.Kenya is expanding its transport system by constructing new roads andrailway lines. The standard gauge railway intends to facilitate moretrade within East African countries while the northern corridor roadencourages marketing activities with the counterparts from the North(Piljak & Swinkels, 2015). This development subsequently buildseconomies of scale, lower the cost of doing business, attract foreigndirect and indirect investment, and accelerate economic growth anddevelopment
Taylor(2012), in his book of the wealthand poverty of nationstrongly argues that cultural factors affect the success of anyeconomy more than any other factor. He suggests that cultural valuessuch as hard work, broadmindedness, and integrity are the primaryfactors that make the difference. Further, Weber also suggested thatsocial values and attitudes play a decisive role in determining thesuccess of an economy. In the wake of this reality, sub-Saharanresidents are adopting these positive values and attitudes hencediscarding the archaic notion of relying on donors. In fact, anoverreliance on donor fund is notably declining while foreign directand indirect investment is on the rise.
Christensen(2004) argues that technology plays a significant role in emergingmarkets by stimulating economic growth. New and smart technologiesare emerging within the sub-Saharan region spurring the expansion ofthis market for investors. More governments are pushing free internetservices for citizens by establishing Wi-Fi hotspot areas within themain cities in the area. This initiative, further supported by theprivate sector as the web is becoming a fundamental necessity in theeveryday operation of business. For instance, Kigali in Rwanda hasfree Wi-Fi hotspot areas provided by government agencies inpartnership with Rwanda hotel and restaurant association and internetservice providers in the city.
Competitionplays a critical role in the operation of any markets by nurturinginnovation and productivity, which generate wealth and reduce poverty(Piljal& Swinkels, 2015). The author further points out thatanti-competitive behavior by firms portrays a clear sign of weakness.Governments in the sub-Saharan region are adopting models andpolicies that break down barriers to just competition and furtherestablishing fair playing grounds for investors. These policies areaiming at reducing obstacles to entry in any industry such that firmscan join a market when they identify business opportunities. More so,they also make it possible for companies to leave a market when theyare unable to operate efficiently hence safeguarding the rights ofentrepreneurs.
Onthe political scene, the sub-Saharan region has had its share ofpolitical upheavals that derailed its progress on the economic front.Unstable governments created through military coups led to massivecorruption and poor implementation of development policies (CentralIntelligence Agency, 2010). However, countries such as Nigeria andrecently Tanzania have derided fears that democracy in this region isforget. By more countries following suit then the area is showing agreat promise for better things to come into the political arena.
Accordingto World Bank (2016), sub-Saharan Africa market is showing manyopportunities being the abode of the fastest growing middle-classpopulation. Further, improved governance is showing massive trends byrelatively shifting from material exports to the booming serviceindustries. Local manufacturing industries at small and large scalein Uganda, unexploited rich mineral deposits in Liberia, the middleclass motivating the banking sector in Mozambique and the swift risein demand for the latest electronic gadgets in Nigeria present someof the opportunities in the region.
Despitea pool of possibilities in this area, there exist some challengesjust as any other growing economy expects to face. Some countries inthis region are facing corrupt governments, poor infrastructure, andregional civil wars. Also, some are facing the challenge of raisinggrowth, reducing poverty and addressing lower rates of growth, whichdents efforts aimed at combating persistent poverty (Taylor, 2012).However, significant economic reforms in this region are presentingmore opportunities that outweigh the challenges.
Thebanking sector in sub-Saharan African is presenting investors withmassive investment opportunities. This field is more attractive toprivate investments owing to the inefficiency of existing publicfinancial institution. By the year 2011, only 24 percent of adults inthe region had bank accounts but by the end of the year 2014, thefigure had risen to 34 percent (Piljak & Swinkels, 2015). Thistrend is made possible by the increasing competition from the growingnumber of private financial institutions. Ongoing structural reformssuch us emergence of African pan banks and mobile banking are makingthe region more lucrative for investors focusing on the bankingsector. The fact that the region is leading the world in the numberof mobile bank accounts makes it worth noting for future investments.
Mobilemoney banking portfolio presents the best platform to invest inbecause the region is experiencing increasing demand for mobilebanking services. Also, the World Bank (2016) point out thatexpansion in banking activities across borders, development of thepan-African banking network, increased number of mobile ownership andaccess to internet services within the region are further pushing updemand for mobile banking services.
Figure1. Account penetration in mobile money accounts for 10 percent ormore
Source:Global Findex database, World Bank
Fromthis figure, it is evident that East African countries boast a largerwidespread of about 20 percent of adults with mobile money accountswhile 10 percent have a mobile money account only. Pew researchcenter furthers reveals that mobile money banking is prominent inEast Africa with Kenya, Uganda, and Tanzania at 61%, 42%and 39%respectively having their citizens conduct mobile transactions. Mpesain Kenya and MTN in Uganda are the leading mobile money servicesleaving a huge market for other investors to venture into the region.
CentralIntelligence Agency. (2010). CIA Site Redirect. Retrieved March 26,2016, from http://www.cia.gov/cia/publications/factbook/index.html
Christensen,J. (2004). Domesticdebt markets in Sub-Saharan Africa.Washington, D.C.: International Monetary Fund.
Piljak,V., & Swinkels, L. (2015). Frontier and emerging government bondmarkets. EmergingMarkets Review,16(2),71-167.
Taylor,S. D. (2012). Globalizationand the cultures of business in Africa: From patrimonialism toprofit.Bloomington: Indiana University Press.
TheWorld Bank. (2016). World Bank Group. Retrieved March 26, 2016, fromhttp://www.worldbank.org/