The region’s GDP and relevant risk factors are improving – but with suspicion over China persisting, other global players are looking to get in on the act.
China’s Belt and Road Initiative (BRI) has massively increased investment in the recipient countries, boosting GDP. That fact is illustrated by improving scores for 45 of the 68 countries included in Euromoney’s Belt and Road Index (EBRI) spread across Asia, the Middle East, central and eastern Europe (CEE), and notably Africa, which now has a regional index score of 102.14.
An index value above 100 shows an improving investor environment based on its constituent factors – they are GDP and various economic and political risk factors compiled in Euromoney’s country risk survey.
Africa is now improving overall for the first time since Q4 2018, with Ethiopia, Egypt, Madagascar and Morocco leading the charge.
Most African economies were growing twice as fast as the European Union average in the decade preceding the crisis, notes M Nicolas Firzli, director of the G20 Pensions Forum and advisory board member of both the World Bank Global Infrastructure Facility (GIF) and the recently established African Green Infrastructure Investment Bank (AfGIIB), who takes a keen interest in all things BRI-related.
“The continent’s exceptional economic and demographic growth dynamics led many experts to talk of an ‘African century’, exemplified by the New Partnership for Africa’s Development (NEPAD) – the ambitious economic development programme spreadhead by South Africa, Algeria and Libya, which were once leading voices on the pan-African scene and are now among the worst-performing economies in the world,” he says.
Negatively, the Covid-19 crisis, combined with unprecedented inflationary pressures for food and energy, has had a devastating effect on most African economies in the past 18 months.
Firzli notes that in relative terms, the situation seems likely to deteriorate further in the short-medium term, quoting recent IMF and World Bank forecasts that Africa is likely to remain one of the slowest-growing areas in the second half of 2021 – far behind other developing economies, or the EU – with the situation improving sometime in the first half of 2022.
However, he notes that large jurisdictions such as Morocco, Egypt and Ethiopia have fared better than average, despite their relative weakness on the agricultural and energy fronts.
“These countries are doing fairly well considering the circumstances, notwithstanding the oil shock and heavy food import bills they now have to cope with,” says Firzli.
“Egypt (a military regime) and Ethiopia (which is engaged in a civil war with Tigray, its richest province) both managed to keep relatively high ECR scores, attracting steady investment flows from the EU, China, Israel and the Arabian Gulf; with UAE and Saudi sovereign wealth investors ramping up their investments in Egypt’s energy, fintech and real-estate sectors; Israeli private sector companies ever more active in Ethiopia’s telecoms and renewable energy; and China’s state owned enterprises (SOEs) deploying more capital across all sectors in both countries.”
Firzli states that Egypt and Morocco have a lot in common.
“They are large middle-income Arab-African countries, with diversified fiscal bases, strong central governments and longstanding ties to the west, which can shield them to some extent from the lingering Covid crisis,” he says.
Firzli notes that collapsing tourism and a chequered performance by the agricultural sector – due to recurring droughts – have weakened two traditional pillars of the Moroccan economy, “sending youth unemployment 20% to 30% higher in pauperized peripheral provinces (Sous, Tangiers), at the worst possible time.
“But Rabat is too important to fail and the country still has many geo-economic advantages, including the best technocrats in the MENA area: Morocco’s long-term growth prospects should improve steadily in the coming quarters.”
Getting in on the act
The BRI is not without its detractors. The lack of transparency and accountability in China’s focused big-ticket development projects are longstanding concerns. So, too, is China’s political influence, its militarization strategy and debt-peddling.
Additionally, there is unease over the environmental impact of large projects, the lack of benefit to local communities and the poor health and safety record of Chinese contractors.
Despite this, the BRI has developed infrastructure and bolstered trade, while improving connectivity, and for reasons that also involve strategic influence, it is no wonder that other global players are looking to get in on the act to rival China’s ambitions.
And in terms of potential, the CEE story indicates why.
“As predicted at the onset of the Covid crisis, the ‘Greater Balkans’ nations such as Romania, Bosnia, Croatia, Albania, Greece and North Macedonia have seen their country risk fortunes improve substantially in the past quarter”, says Firzli who expects the trend to continue in the second half of 2021 and well into 2022”.
Most countries in the region improved in the index in Q2 2021, with Bosnia-Herzegovina and Albania moving up a tier.
Many will continue to benefit from BRI projects as well as the birth of the G7’s Build Back Better World (B3W) global infrastructure initiative which aims to help out developing countries with the $40 trillion-worth of infrastructure it is estimated that they need by 2035.
This will benefit many regions, including those that are relatively under-developed in Europe.
As Firzli says: “The accelerating Sino-American interplay exemplified by B3W means that, going forward, south-eastern Europe will receive tens of billions annually in additional financing (debt and equity).
“This will guarantee solid growth prospects for that strategically located part of the Eurasian continuum.”