There is no doubt that business is increasing in West Africa. While the usual obstacles and barriers remain, from infrastructure development to political stability and terrorist threats, the majority of the countries in the region have experienced growth over the last 5-10 years and optimism for further growth remains in most quarters. One question that has occupied commentators though is whether any one (or more) countries in the region might emerge as a hub for business in the region, whether in one or more industry sectors. Certainly the region is large enough to suggest the possibility for hubs emerging. The region has a population of 245 million albeit 65% of the same live in rural areas. Obviously the area is highly prospective for mining activity - but there is no suggestion of a regional hub in that industry emerging to date.
On the other hand a recent study published under the auspices of the African Development Bank, the OECD and the United Nations (African Economic Outlook 2014) reported that “Africa is the world’s fastest growing but least globally integrated continent”. The study went on to posit that the reasons for this were principally (a) lack of legal architecture for regional integration, (b) poor physical infrastructure, and (c) trading relationships built on links with the rest of the world rather than regional neighbours. The study went on to note that several of the African regional groups (including that in West Africa) trailed the five-nation East Africa Community in promoting and establishing integration.
The answer to the question might turn to some extent on what we mean by “West Africa”? Perhaps the most obvious answer here is to look at the membership of the Economic Community of West African States (“ECOWAS”). This body includes 15 core countries. Other references to the region occasionally include Chad and Cameroon, countries further to the East but perhaps with significant economic ties to Nigeria and elsewhere. Some other definitions include Mauritania but that country is possibly more usually grouped with the Maghreb jurisdictions of North Africa. As will appear later in this article Morocco is also attempting to position itself as a potential hub for the region but, again, it is more usually grouped with other Maghreb countries and of course is located on the northern edge of the West Africa block. Also of relevance is the fact that eight countries in the region (Benin, Burkina Faso, Cote d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo) are members of the West Africa Economy and Monetary Union (“WAEMU”) and thereby share a common currency, a common central bank, a development bank, a regional stock exchange and a common banking regulator. ECOWAS also has plans for a single currency.
There are possibly more obstacles to the development of a business hub in West Africa than other regions. First there are significant cultural differences - arising from varied ethnic, religious and historical backgrounds. Second, local infrastructure - while improving restricts the ease of movement around the region. In addition, the economies of various countries in the region are hugely different from the mixed free-market economies of countries such as Ghana and Nigeria to countries almost entirely dependent on limited numbers of commodities. Political issues may also present an obstacle - particularly in the case of those jurisdictions with unitary party/dictatorship governing bodies who may have limited interest in seeing influence being exerted by other countries in the region.
There is modest literature or study on the topic of the establishment and growth of regional hubs in West Africa. The growth of hubs elsewhere, such as London, Singapore and Hong Kong would suggest that ease of communication and life style quality are important factors. A benevolent regulatory environment for business growth is also obviously important (currently of critical importance to London in the context of the financial industry). Experience would also suggest that once hubs are established there is a virtuous circle surrounding them and it becomes increasingly difficult for other cities in the relevant region to mount competition for hub status (upmost here are the repeated attempts of cities such as Frankfurt and Paris to mount a challenge to London for the status of principal finance hub in Europe).
Possibly the most interesting recent study on the topic was that conducted by the IMF earlier this year and entitled “Making Senegal a Hub for West Africa”. The study was published in the context of a government sponsored development plan to promote Senegal as such a hub. Furthering some of the points referred to above the study noted several categories where improvement would need to be seen before becoming a hub would be a feasible objective. These included strengthening the fiscal framework, external stability (principally the current account deficit and exchange rate), export diversification, the establishment of social safety nets to assist those living below the poverty line and improved infrastructure (in particular with respect to power supply). Of interest, the study was principally focused on the prospects for economic growth - the premise being that such growth would enable Senegal to act as engine for growth in the wider West Africa region and thereby become a hub for broader activity in that region. The time horizon for the targeted economic growth and emergence as a regional hub was 20 years. The IMF study estimated that this would require an annual growth rate in the region of 7-8% in the short term (almost double that achieved in the recent past - in fact West Africa as a whole has only seen 2.5% growth over the last three years while the population has been growing by 2.2% per annum). In Africa as a whole only two countries (Ethiopia and Angola) have experienced double digit growth over the period 2005-2013. Growth based on FDI aimed at export industries rather than growth based on an increased debt burden was highlighted by the report.
Size might be expected to define a likely hub. The bigger (and more successful) the economy the more people who are attracted to the country in question. Nigeria has a massive advantage here. GDP in 2013 was almost $500 billion. GDP for Morocco in the same year was almost $200 billion. Contrast these numbers with Senegal (approximately $25 billion), Mauritania (approximately $9 billion) and Cote d’Ivoire (approximately $43 billion) and the imbalances are clear. On the other hand this did not prevent Singapore rising as a business hub for South East Asia but that needed a highly focused and long-term initiative from central government to create the right environment to encourage offshore investment (including regulatory regimes and a crack down on corruption).
In December 2014 CNN ran a story relating to the experts view on the “Nine finance hubs of the future”. The sole city selected in Africa was Casablanca. Given its geographical location Casablanca is aiming to act as a financial hub for North, West and Central Africa through the establishment of the Casablanca Finance City Authority (“CFCA”). CFCA is working to build a technology infrastructure and legal environment which will encourage the presence of foreign lenders wishing to do business with Africa. The CFCA, originally established in 2010, has attracted companies such as BNP Paribas and AIG. A similar article in the Financial Times in July of last year noted that in March 2014 the CFCA was included in the Global Financial Centres Index for the first time, ranking 62nd overall and second in Africa. Half of the applicants for entry to the CFCA have been from Europe, 14% from the US, 7% from the Gulf and the remainder from Africa. Advantages of CFCA membership include tax incentives, streamlined visa and work permit process and free management of assets in foreign currencies. There are perceived to be two existing financial hubs in Africa, Johannesburg and Mauritius. Neither of those has an obvious nexus with West Africa, particularly Francophone West Africa. In the finance sector Senegal has also recently been making efforts to be seen as a hub for Islamic finance
Mention should also be made of hubs outside the financial sector. Notwithstanding power generation issues as a result of failing rains and gas supply issues Ghana has been spoken about as a potential hub for purposes of power transmission. Of possibly greater significance however is the reported establishment of Nigeria as a regional hub for petrochemicals and fertiliser. The Nigerian National Petroleum Corporation expects this to occur by 2017. In addition it appears that Nigeria will attempt to establish itself as an aviation hub (although the jury seems to be out as to whether this will be in Abuja or Lagos).
It is clear that the creation of business hubs for the West Africa region is at an early stage. As the CNN article referred to above noted “You have to be a successful city in order to be a successful financial center”. The same observation might apply to business hubs generally - to act as a hub people need to see the city in question as a good place to live as well as to conduct business. The sheer size of Nigeria would suggest it as an obvious hub for industry - albeit it seems unlikely to make a stamp in the mining sector. Cultural differences with other countries in the region may also act as a brake on its potential as a hub. It seems more likely that a variety of hubs by industry sector will be created - maybe Nigeria for energy and possibly Morocco for finance. Even this will take time given the overall level of economic growth and development. A single hub across multiple industries seems much further away.
This article was first published in Mining Journal on 1st May 2015