According to the Heritage Foundation, there are only five countries in the world that are defined as free. What would surprise many people, is that the counties they rank as free are not what most people would consider the top five. Countries like the UK and USA, while ranking high, do not fall within the band the Heritage Foundation defines as free. They only include Hong Kong, Singapore, Australia, New Zealand and Switzerland as free.
But often, what investors want to know, is not the exact score but what is changing, because change is what can create value, especially when others may not see these changes.
Another surprise for investors would be the Africa scores; Africa, with its 57 countries, has countries in all segments of the survey except for those fabulous five. The only five countries in the world that the Heritage Foundation defines as free. But, what is most startling is change. Of all regions in the world the Sub-Saharan Africa region is the most improved region. Africa now has a country, Mauritius, in the top ten free countries in the world. What is also interesting, is that the region as a whole scored pretty well in areas such a trade freedom, fiscal freedom, government spending and monetary freedom. The region is still low-ranked on scores for investment freedom, financial freedom and freedom from corruption. But, in what may be a surprise for many people, Sub-Saharan Africa is in good company in these categories alongside the other emerging markets in Asia and Latin America. In general, while Sub-Saharan Africa has improved, the world ranking fell back slightly. There are now eight African countries that rank higher than the world average. While another 20 are in the same category as the average of the world.
While figures are important to tell us where we are going, it’s what happens on the ground that makes the difference between one investment destination and another. Nigeria is a country that scores close to world average; it’s a country that emerged a few short years ago from decades of military rule. In the past week, the government has been instrumental in making changes which, while necessary, are hitting consumers in the pocket — they now have to pay much more for fuel than in the past as a generous subsidy has been reduced with the intention of removing it. This precipitated a week of strikes and demonstrations in the country as the unions fought the government. The result is an agreement between the government and unions to reduce the subsidy in stages and to begin a number of investigations into corruption issues in the fuel sector.
The fact, that the government security forces acted with restraint throughout this week (there were a couple of incidents but in a huge country with 160 million people these were small in context) and that the government has agreed with the unions’ demands to launch probes into corruption, points to active democracy at work. Something that a few years ago, no one would have thought possible in Nigeria. It’s this type of change in Nigeria, together with others that are not as visible, such as huge changes in the electricity sector, that make us optimistic about Nigeria as an investment destination. In the electricity sector, the Minister, one of a whole group of excellent people appointed by the President, has started unravelling the state institutions that have stood in the way of reform in the sector. While it’s a long difficult path to deal with a country with a huge electricity deficit, it’s a huge step in the right direction. To give a flavour of how much needs to be done, the electricity network in Nigeria provides enough electricity to run an Airport in a developed country, to run the whole country. This has been a tremendous added cost for organisations from banks to factories. One of the biggest costs banks in Nigeria have to bear is the cost of diesel to run their generators. Improving the supply of electricity will have a marked effect on efficiency in the economy and on people’s lives. As governments in Africa step-up reform, we expect to see more countries climb the rankings of organisations such as the Heritage Foundation.
But more importantly, we expect to see much more accountable government and many implementations that will improve efficiency and growth in Africa.
Important notice
Renaissance Asset Managers does not represent that this information is accurate or complete and it should not be relied upon as such. Opinions expressed herein reflect the opinion of the asset manager and are subject to change without notice. We recommend that you seek you own independent legal and financial advice where necessary. This has been issued by Renaissance Asset Managers (Guernsey) Limited who are licensed to carry on controlled investment business under the Guernsey Financial Services Commission (GSFC): Reference Number 2008335.
