The chilling terrorist attack on the Nairobi shopping mall, that has left dozens of people dead and more than 200 injured, is prompting warnings about growing instability in Africa, a favourite destination of late for investors seeking better returns in frontier markets.
Sure, Africa is enjoying a period of unprecedented economic growth. From 2001 to 2010, the International Monetary Fund said six of the world’s ten fastest growing economies were in Africa. The continent’s average external debt fell from 63% of GDP in 2000 to 22.2% in 2011, while average inflation stood at 8%, down from 15% in 2000. Africa’s growth potential is luring in foreign investors. In 2008-2011, sub-Saharan Africa received on average 4.4% of all funds invested in developing countries worldwide, and 3.1% of investment spending. Foreign direct investment has been on the rise since the early 2000s, increasing fivefold in 2000-2010.
The IMF in June forecast an economic growth of 5.4% in 2013 and 5.7% in 2014 for the economies of sub-Saharan Africa.
Kenya and several other African nations have attracted money from foreign investors seeking better yield in frontier markets, a subset of emerging markets. Franklin Templeton emerging markets guru Mark Mobius last month labelled Africa as the big player for frontier markets, particularly Kenya and Nigeria.
But there also remains an Africa, where poverty is a rule, not an exception. From 1990 to 2010, the number of people living in extreme poverty ($1.25 per day) across sub-Saharan Africa rose from less than 300mn to nearly 425mn, while the number living on less than $2 a day grew from about 390mn to almost 600mn.
This story of “exclusive growth,” far from being evenly spread, is also feeding into violent religious extremism. From Mali to Algeria, Nigeria to Kenya, such groups build on poverty, conflict, inequality or social exclusion to strike at state hegemony and international interests.
According to John Campbell, a former US ambassador to Nigeria, insurgents like those who rebelled in Mali last year, the Nigerian Boko Haram and the Nairobi mall assailants from Al Qaeda-linked Al Shebaab of Somalia could also be partly motivated by growing anger with what he called “pervasive malgovernance” in Africa.
For now, experts do not foresee a lasting economic impact or “structural threat” from the Westgate mall strike. The $37bn Kenyan economy had bounced back strongly from the 1998 bombing by Al Qaeda of the US embassy in Nairobi which killed more than 200 people. “Africa as a region has some of the strongest economic growth in the world today,” said Nathan Rowader, director of investments at US-based Forward Management.
Amid fears that the brazen Nairobi attack, Kenya’s worst terrorist violence in 15 years, could embolden other terrorist outfits to look for such high-profile targets to make a statement, the situation in Kenya is yet another grim warning of the heavy risks involved in volatile Africa’s frontier markets. With the latest terrorist raid, investors and analysts are increasingly wondering how much they factor in such instability into investment risks and their assessment of the region’s potentials.
