Nigeria, South Africa and Egypt are the top three African nations with the strongest industrialization development potential, according to a new report. 

The African Industrial Advance Index 2015, aimed at strengthening Sino-African trade relations and increasing Chinese businesses’ investment in Africa, was released by the China Africa Industrial Forum in February.    

Prospects and pitfalls 

Based on data from the World Bank, International Monetary Fund, International Telecommunication Union, African Development Bank and the African authorities, the index categorizes African nations into three groups: those with good, ordinary and poor industrial advancement prospects respectively. 

Nigeria, with its abundant natural resources, a large population and vast domestic market, is ranked as the country with the most promising industrial advancement prospects. 

South Africa ranks second thanks to its strong industrial base. Although it used to be an economic front-runner, its industrialization prospects have been clouded by economic stagnation in recent years. 

Industrial advancement prospects of countries in North Africa like Egypt, Algeria, Morocco and Tunisia are also promising because they are close to European markets and have close economic ties with Europe. However, political upheaval has undermined the benefits of their economic development in recent years. 

Although Mauritius and Seychelles are relatively small economies, they have optimistic futures thanks to their well-developed societies. However, when other countries’ industrialization advances, their rankings could drop. 

According to the index, the higher-ranking countries have better developed economies, larger markets and stronger economic influence. Therefore, they are ideal investment destinations. 

By contrast, countries in the bottom of the ranking attract the least investment. Given the fierce competition in future industrialization, these countries will face great challenges to catch up with others. 

Investor concern 

Despite the index’s optimistic evaluation of Nigeria and South Africa, investors remain concerned about their economic prospects. Plummeting international commodities and oil prices over the past year have clouded the economies of both. Heavily dependent on oil exports, Nigeria witnessed a drastic drop in foreign trade earnings and a depreciation of its currency. South Africa’s GDP increased by only 1.3 percent in 2015, the lowest since 2009. With a depreciating rand, the government’s solvency margin is reducing. Rating agency Standard & Poor’s recently warned that South Africa’s economic stagnation and financial crisis were threatening its economic security. If it did not implement effective policies to improve the situation, it would face a credit rating downgrade. 

Ample opportunities still 

Chinese businesses and African studies scholars, however, say that despite the current bleak situation, there are still plenty of investment opportunities in Africa. 

Dong Yifan, a researcher on African studies with the China Institutes of Contemporary International Relations, said the index reflects the future of African countries’ industrialization objectively. "To judge the advancement prospects of a nation, we should see not only factors in the short term, but also those in the long term," Dong told ChinAfrica . 

"Nigeria’s edge in respect of its vast market potential, political stability and rich natural resources will not be undermined by a short-term plummet in international commodity prices," the researcher explained. 

Chinese businesses in Nigeria also share this view. Ding Yonghua, General Manager of Lekki Free Zone Development Co., thinks Nigeria is still the African nation with the most promising economic prospects. "With a solid foundation, its economy will recover as long as adjustment policies are effective," Ding said, adding that when a country is in difficulty, it also means opportunities for foreign investors. 

Wang Duanyong, a researcher from the School of International Relations and Public Affairs of Shanghai International Studies University, maintains that the crisis facing Nigeria is not fatal. Statistics released by Nigeria’s central bank in January showed its GDP grew by 2.84 percent in the third quarter of 2015, with non-oil sectors, including the service sector, agriculture and trade, contributing most to the growth.  

"Oil export revenues form 80 percent of the government’s total income in Nigeria. A drop in oil prices, indeed, greatly reduced the income but will not change its GDP’s growing trend," Wang said.  

As for South Africa, Dong said that unless there were unpredictable issues, its medium- and long-term prospects are optimistic. "Fundamentally, it has the advantages of a relatively high domestic demand, solid industrial bases and a stable political system," Dong observed. 

In his annual State of the Nation address on February 11, South African President Jacob Zuma pledged to boost investors’ confidence. He said as an open economy, South Africa was prone to be influenced by external recessions. But compared with challenges, there were more opportunities in South Africa, given its complete financial system and sound investment environment. South Africa has been ranked as one of the 10 countries offering the most competitive financial services in the world by the World Economic Forum. Zuma said the country would maintain its edge and work to establish itself as the financial center of Africa. 

Aware of challenges 

African nations are well aware of the challenges they face and are making efforts to upgrade the economic structure and improve the investment climate. 

Ding said after the new government of President Muhammadu Buhari took office, Nigeria has made great efforts to adjust its economic structure and increase the non-oil sectors’ contribution to economic growth by issuing favorable policies. "This poses opportunities for Chinese investors," he said, adding that as long as investors make rational decisions and select an appropriate sector, they can succeed in Nigeria, which is open to foreign investment. 

South Africa is also trying to attract more investors by streamlining investment procedures and offering one-stop services to foreign investors.