What business can a small South-east Asian island state have with a massive continent located some 8,000 kilometres away?
Plenty, if Singapore’s experience with Africa is anything to go by.
Singapore companies are making an impact on the world’s largest frontier market, and starting to make their presence felt across this continent of 54 countries. They are helping to set up stock exchanges and electronic trading systems, planning entire townships, and building offshore oilrigs that are being deployed off the coast of Africa.
Investments by Singapore firms into Africa reached S$20.1 billion in 2012, an 11.2 per cent CAGR increase since 2008.1 Trade between Singapore and Africa has risen in tandem, at a compound annual rate of 11.7 per cent over the past five years, reaching S$14.1 billion in 2013. Even so, this accounts for just over 1 per cent of Singapore’s global trade. There remains much room for growth – especially with Africa primed for a sustained period of rapid development.
Transformed for high and resilient growth
One of the biggest transformations in Africa over the past 10 years has been the widespread achievement of political, economic and social stability across the continent. This has created conditions for not only high, but resilient growth. While pockets of instability and strife still exist, these are isolated and contained. Overall, African governments have made progress in managing inflation, strengthening national budgets and tightening security.
These changes have propelled Africa to become one of the world’s fastest growing and most promising frontier markets today. The continent’s GDP is projected to grow more than 5 per cent on average annually, ahead of expected global growth rate of 3.6 per cent2 . The International Monetary Fund forecasts that seven3 of the world’s 10 fastest-growing economies will be in Africa. These are expected to expand by more than 6 per cent a year (till 2015) alongside economic giants China and India. With growth in the G7 and BRICS slowing, frontier markets – many of which are in Africa – offer higher returns.
Sharing experience and expertise
As Africa stands at the cusp of a phase of rapid industrialisation and modernisation, Singapore’s development story has gained much interest among the continent’s governments and businesses.
Like many African countries, Singapore attained independence in the 1960s, and since then, the nation’s trajectory from Third World to First has been exceptional.
Africa is thus increasingly keen to tap on Singapore’s experience and expertise. This ranges from the development of industries to urban planning and the creation of robust public and private sector institutions.
At the same time, Singapore companies are looking increasingly to frontier markets to expand and diversify their global presence. This external focus has seen Singapore’s direct investment abroad expand, between 2003 and 2012, at an annual rate of 13 per cent to US$370 billion. It has also made Singapore the world’s 15th largest trading nation.
With this impressive track record, Singapore firms are poised to play a bigger role as active participants in Africa’s growth as they already possess solutions that address some of the continent’s most pressing growth needs.
Energy, water and connectivity
Africa’s burgeoning oil & gas industry holds tremendous potential for Singapore companies. The continent boasts a long list of oil producing countries, and this number is set to increase with recent discoveries of natural gas reserves in Tanzania and Mozambique. The window is open for partners with the technologies and practices to develop the industry, and as the world’s largest producer of oil rigs, Singapore is in a good position to capture these opportunities. We have a strong ecosystem of local companies that are global leaders in process and plant design, engineering procurement and construction, fabrication, offshore vessel operation and turnkey services.
Rapid urbanisation has thrown up many challenges to city administrators across Africa, one of which is water management. According to the World Bank, water demand in Africa is projected to grow 283 per cent between 2005 and 2030 – three times higher than any region.
Singapore’s own water shortage issues in the past have helped our companies innovate and develop new technologies in water recycling and desalination. These can be adapted and applied to Africa’s needs. Water management company Hyflux is building the world’s largest membrane-based seawater desalination plant in Algeria. Sembcorp Utilities is providing water treatment services and potable water to several parts of South Africa.
Landlocked countries and increasing pressure on existing infrastructure are making improvements in transport and logistics central to harnessing Africa’s full economic potential. Singapore can lend its considerable experience to develop solutions for seaports, inland container depots, warehousing, aviation hubs and single window customs clearance systems.
The Singapore-Africa partnership is a two-way street. More African companies are setting up in Asia and using Singapore as a base, drawing on the nation’s strong global connectivity and financial infrastructure. To date, there are over 10 African companies present in Singapore, including Angola’s national oil company, Sonangol; Algeria’s national oil company, Sonatrach, South African logistics company Grindrod, East Africa’s Export Trading Group and Nigeria’s Sahara Group.
Building ties that bind
Of course, risks and challenges exist. Barriers that hinder greater economic linkages include physical distance, a mutual lack of familiarity, counterparty risk, language barriers, and concerns over political stability and social tensions.
Several initiatives, coordinated among IE Singapore, the Singapore Business Federation, the Ministry of Trade and Industry, and the Ministry of Foreign Affairs, are underway to bridge differences in perception and understanding of both markets.
IE Singapore, for instance, opened two new Overseas Centres in Africa in 2013 – in Johannesburg, South Africa and Accra, Ghana. These offices proactively identify and facilitate two-way business interests.
Platforms have been created to facilitate ongoing conversation between both sides. Chief among these is the Africa Singapore Business Forum, a bi-annual event that has quickly evolved to become the premier event that brings top business and government leaders from Africa and Singapore together. Since 2010, the forum, organised by IE Singapore, has brought together close to 1,000 business and government leaders from 30 countries to develop opportunities and partnerships.
The newly established NTU-SBF Centre for African Studies is a welcome addition to this pool of resources. As a collaboration between the private and public sectors, it will apply the rigour of research and develop new perspectives to the growing Africa-Singapore relationship.
With the combined resources of the public and private sector aligned, the prospects look bright.
1 Singapore Department of Statistics
2 International Monetary Fund
3 Democratic Republic of Congo, Ethiopia, Ghana, Mozambique, Nigeria, Tanzania and Zambia