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Africa’s growth: meltdown or slowdown?

Cape Town - Although growth in sub-Sahara Africa (SSA) has relatively slowed, two-thirds of the region's economies are still growing at rates above the global average, and will remain the second fastest-growing region in the world for the foreseeable future, after Emerging Asia, Michael Lalor, Africa Business Centre Leader of EY told Fin24.

He emphasised that the main reasons for a relative slowdown in SSA are not unique to Africa and are the same as those weighing down the global economy. These include a general slowdown in emerging market economies, and in particular the rebalancing of China’s economy, ongoing stagnation in most developed economies, lower commodity prices and higher borrowing costs.

At the same time, he said, EY research has shown a year-on-year increase in foreign direct investment (FDI) project numbers in Africa in 2015. This is against the context of the total number of FDI projects globally having dropped by 5%.

Africa was actually one of only two regions in the world in which there was growth in the number of FDI projects over the past year.

EY's Africa latest Attractiveness Index was launched this week and Lalor said it is clear that there is a longer term nature of investment in Africa.

READ: SA still most attractive in Africa for investments - index

"Uncertainty on the continent creates the need to see beyond current volatility and in that respect SA stands out in Africa due to the strength of our governance, financial institutions and our Constitution. SA's foundation is very strong relative to other African countries," explained Lalor.

Another tendency he pointed out, is a massive perception gap between people already doing business in Africa and who understand the risks and opportunities on the continent, compared to those not yet invested who are overwhelmingly negative.

Sugan Palanee, Africa Markets Leader at EY added that from an investment perspective, the next few years may be challenging. This is not because the opportunities are no longer there, but rather because these opportunities are likely to be more uneven than they have been.

"It is now more important than ever for organisations and investors, who sometimes place too great an emphasis on shorter term economic growth trends, to adopt a granular, fact-based approach to assessing investment and business opportunities for the long-term,” said Palanee.

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