Barclays : UK-Africa trade corridor to be fuelled by Sub-Saharan ‘sleeping giants’

• Sleeping giant' economies offer opportunity for UK exports to triple, reaching $3.6bn by 2020
• South Africa is the stand out performer in inaugural Barclays Africa Trade Index, followed by Nigeria and Kenya
• Consumer spending totalled around US$1trn in Sub-Saharan Africa economies with 4-5% growth expected over next 5-10 years
• Kenya cements position as hub for East African trade whilst region leads the way in adoption of one stop border posts

South Africa tops the inaugural Barclays Africa Trade Index: Openness and opportunity, followed by Nigeria and Kenya. Nigeria offers the greatest trade opportunity for UK businesses, largely due to its population of close to 180m, but Nigeria's relative level of openness need to be addressed in order to challenge South Africa's position.

The Index, which measures the opportunity and openness of 31 of sub-Saharan Africa's leading economies, also identifies a group of 'sleeping giants' which, after experiencing significant economic upheaval, are playing catch up and growing at a rapid pace. The 'sleeping giants'; Ethiopia, DR Congo, Mozambique, Ghana and Tanzania, are expected to provide UK businesses with the opportunity to increase exports three-fold, from US$1.2bn to $3.6bn, over the next five years as economic development continues and consumer spending increases.

With a combined population of around 270m, and average annual GDP growth of 7.3% over the past five years, these five countries represent a significant opportunity for UK exporters in the coming years.

The growth potential for the UK and other international producers across sub-Saharan Africa is considerable, with total consumer spending in the Sub-Saharan Africa economies reaching around US$1trn (£630bn) in 2014. It is expected to grow by a Compound Annual Growth Rate of around 4-5% over the next 5-10 years.

The Index reveals that 80% of UK exports to sub-Saharan Africa are currently going to South Africa together with Nigeria, Botswana, Angola, Kenya, Ghana and Senegal.

Over the past decade, sub-Saharan Africa has experienced a marked shift in trade flows from traditional partners in Europe, North America and the Middle East to faster growing Asian countries. The region received 19% of its imported goods from Asia in 2004 but this rose to 32% by 2013, largely driven by increased trade with China.

Commenting on the Index findings, John Winter, Chief Executive Officer, Corporate Banking, Barclays said: "Major African economies, such as South Africa, Nigeria and Kenya have been the primary focus of UK companies to date but with increased competition, especially from Asia, businesses need to diversify their trade and investment markets to broaden their horizons and compete more effectively.

He added, "By 2020, the five 'sleeping giants' that we have highlighted in our Report, will represent a population of circa 325m, comparable with the US and experiencing rates of economic growth that were once the preserve of India and China. Based on recent growth rates, household spending for these countries is set to nearly double, reaching over US$1,000 a year by 2020. Brands that start to establish themselves today will be well positioned for rapid growth by 2020."

Regional Connectivity

Kenya is cementing its position as a key hub for East African trade and as a gateway to the wider sub-Saharan African market. Increasingly open borders, along with improving transport links, help the country to rank third in the overall Index. Neighbouring countries, including Tanzania (5th in the Index) and Ethiopia (6th), also benefit from strong regional co-operation and accessibility to key transport and communications infrastructure in the region.

To aid cross border movement, a number of countries have started to adopt one-stop border posts (OSBPs) - a single customs check run jointly by neighbouring countries. East Africa has been an early adopter with seven operational or in development OSBPs in Tanzania, six in Uganda and Kenya, five in Rwanda, and three in Burundi. This is supplemented by significant investment in road infrastructure, including the Ethiopia to Djibouti Corridor; the trade corridor running from the Tanzanian port of Dar es Salaam and the Nacala corridor linking the DR Congo, Zambia and Malawi to the port of Nacala in Mozambique.

Historically, air connections across Africa have been extremely patchy, evident in the air transport sub-categories of the Index. Only six countries* score above 5 on a scale of 1 (weak) to 10 (strong) in terms of international air connectivity and seven countries** score above 5 on regional air connectivity. However, a growing number of connections are transforming the air connectivity of key markets. Ethiopia, for example, now has links to 33 African destinations and Kenya has 35, both well ahead of South Africa's 26.

Commenting on the state of regional integration across sub-Saharan Africa, Alan Winters, Professor of Economics at the University of Sussex explains: "Regional integration only makes sense up to a point. The important thing is the size of the market; ten years ago the sum total of the sub-Saharan African economies, other than South Africa, was equivalent in GDP terms to Belgium. If Africa develops into a very dynamic market, as it may well do, everyone will want to have a part of it."

John Winter concludes: "Sub-Saharan Africa has become a much more open and attractive opportunity for international trade and investment over the past decade, reflected by a sharp increase in trade and investment flows across the region. There are significant opportunities for UK business, although it is essential that UK firms continue to tailor their products and services to the diverse range of local needs, establish strong working relationships with local partners and align business plans with local development and integration objectives."