Ethiopia could save a billion dollar due to the global oil price fall according to Zemedeneh Negatu Managing Partner of Ernst & Young.
The significant decrease in oil price that has affected African countries either positively or negatively depending on whether they are oil importers or exporters was among several economic issues that were raised at the Emerging Africa Summit held at the UNECA on Thursday, January 29, 2015.
“While the global oil price drop has affected different African countries in different ways, Ethiopia is one of those countries that is benefiting from it” he said.
“Ethiopia, which is an oil importer, will save at least a billion dollar if oil price stays below 50 dollars per barrel for the next 12 months, as it is speculated. And luckily for Ethiopia, the price of its main export item, coffee, has gone up significantly in the world market in different exporting seasons. In addition to that, the very successful bond the country had issued in the international financial market has drawn satisfactory returns. You can see that Ethiopia is one of those countries that is actually benefiting from the simultaneous collapse of oil price and the increase in coffee prices,” Zemedeneh said.
Among countries that has been negatively affected by the oil price drop has been Nigeria which is an oil exporting country. “I was in Nigeria a month ago and there is a serious concern because the country is on the losing end of the situation. The issue needs to be analyzed based on who is importing what and who is exporting what, and that is how we actually should tell the African story of the impact,” Zemedeneh stated.
Listing further positive circumstances Ethiopia is in, he also said that he expected the yields on the Ethiopian Eurobond to be fairly stable.
The opportunities and risks of investing in Africa were among the many discussion points that were raised at the Emerging Africa Summit that lined up several high profile speakers well known in the finance, investment and economic sectors.
“The development of the economy in Ethiopia is significant; the size of the population is amongst the highest in Africa. There is a big agricultural economy here with a huge amount of opportunity. There is a lot of interest on Ethiopia from a lot of investors,” stated Colin Coleman, Managing Director of Goldman Sachs South African Office.
Coleman also stated that there is a significant amount of multinational and private equity firms who are interested in growing their African footprint. “The next 50 years in the world is going to be a very significant time for Africa and a real opportunity for the continent to make its mark in the world, in a way similar to China had done it 30 or 50 years ago,” he said.
According to an analysis by Goldman Sachs, Sub-Saharan Africa incremental growth could add 12 trillion dollars to the world’s economy in the next fifty years. Nigeria would be a 4 trillion dollar economy and South Africa would grow to a 2 trillion economy from the current half a trillion economy both.
“There is a lot of dynamism in the technology space, in communication, retail, consumer and oil and natural resource trades. Regional integration is very important because the markets of the various African countries are too small by themselves to compete. Infrastructure is needed to make people, goods and services move across Africa more seamlessly,” Coleman has commented of assignments that lay before Africa’s growth.
There is a growing interest in Africa from investors but that is not to say there are no risks, said Oumar C. Seydi, Director of International Finance Corporation (IFC) for Eastern and Southern Africa.
“There is still perception gap. We also have significant challenges such as Ebola which we are fighting very hard to tackle. The legal regulatory framework also has challenges we need to work on. We also still have skill gap despite there being a lot of improvement, and this is also the place where we have the largest number of countries that are classified as fragile and conflict affected. These are challenges that we continue to face and must address but, overall, the trend is very hopeful,” Seydi stated. He also stated that Ethiopia continues to be the sleeping giant and the country can be far more successful given the significant prospects that are coming to the country.
It was stated that investors need to keep in mind several things when exploring opportunities of investment in Africa. Among these is understanding that the continent is filled with countries with significant difference in their investment landscape. It was also stated that investors need to have an established presence to assess opportunities and get a clear view of the prospects within countries of their interest.