Zambia Daily Mail by Online Editor on 5/19/13
By WALA CHABALA
GOLDMAN Sachs, a full service global investment banking and securities firm, has ranked Zambia as the most promising country in Africa out of a survey of 14 African countries whose economies must grow quickly.
While in the past, only gross domestic product (GDP) growth rates have been used to come up with such rankings, in the case of Goldman Sachs, a more robust approach, combining Growth environment scores (GES) and capital accumulation has been used to favour Zambia in the scientific survey.
Zambia’s scores are expected to rise further following the recent decision by Government to plug the consumption subsidy black-hole that has in the past bled the country of trillions of tax-payers’ money due to wrong targeting.
The money that will eventually be unblocked from the consumption subsidies is expected to be directed into development projects that will create jobs and reduce poverty.
In a report entitled: “Africa’s growth story: Emerging frontier market economies” released in April this year, Goldman Sachs uses the GES approach which uses 18 variables grouped into
• Political Conditions
• Macroeconomic Stability
• Macroeconomic Conditions
• Human capital
• Technology and
• Microeconomic Environment to produce a more robust ranking method for the performance of African economies.
The highly scientific GES captures important features of the economic, political and institutional environment under which an economy will be expected to fulfil its economic growth potential.
According to Goldman Sachs, “The combination of our GES and capital accumulation fits well with the text book version of a unified theory of economic development and growth.”
While acknowledging that the African continent’s 54 countries present diverse economies,14 African countries were identified as high potential economies ripe for stronger capital deepening.
Among the 14, five (Zambia, Ghana, Rwanda, Angola and Mozambique) combine high potential and strong track record and Zambia is ranked in the lead because it improved the most in the growth environment scores over a decade and a half, up to 2012.
According to Goldman Sachs, Zambia under President Sata and the Patriotic Front administration and Rwanda experienced the strongest progress, followed by Ghana, Angola and Mozambique, respectively in decreasing order.
While it is the role of the government to drive the reform agenda, capital deepening should be driven by the private sector, which is hardly the case in Zambia where the government appears to take the lead through road projects and the construction of infrastructure such as stadiums and universities.
The emphasis the government is giving to infrastructure development, redirecting resources from consumption to capital formation and monitoring balance of payments, should go a long way to assist with capital deepening in the economy, according to the analysis.
The construction sector is expected to help a great deal in propelling Zambia even further forward in terms of boosting the economy and to become an even more preferred investment destination, if the over-subscription of the sovereign debut bond is anything to go by.
The Goldman Sachs report is also different from other ranking exercises that have been done in the past as it sees the African growth story as a sustainable one because it is underpinned by improvement in the GES, which raises the potential for performance and make the identified countries ripe for stronger capital boosts.
As such, stronger growth is expected from the selected 14 countries with the top ranked five being Zambia (in the lead again), Ghana, Malawi, Nigeria and Kenya.
But the African economies still have significant work to do, Zambia being no exception, in terms of access points for investors to participate in the African growth story. Outside South Africa, equity markets on the African continent remain rather small by global standards.
Goldman Sachs concludes that for investors, the question is ‘how’ rather than ‘whether’ to participate in the Zambian and African economy, “given that financial markets are developing only slowly.”
The analysis comes at a time when sections of the Zambian opposition have criticised the government for alleged lack of direction even as the Sata administration rolls out countrywide road and university projects that are expected to create more jobs in addition to the 195,000 jobs already created in under two years.
President Sata has constantly stated that he is interested more in real poverty reduction and job creation rather than economic statistics that tip Zambia’s GDP growth as being robust.
The latest top ranking is expected to make Zambia a more attractive destination, given the reputation of accuracy that Goldman Sachs holds on the international investment arena.
Zambia is Africa’s top copper producer targeting about 2 million metric tonnes of the commodity by 2015 as investment in the sector continues to grow on the back of favourable copper prices.
The author Dr Wala Chabala is the chief executive of the Securities Exchange Commission of Zambia (SEC) who is also a regular Zambia Daily Mail economic analysis contributor.
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