JETRO Japan External Trade Organization : Results of JETRO’s 2016 Survey on Business Conditions of Japanese-Affiliated Companies in Africa

Between September and November 2016, the Japan External Trade Organization (JETRO) conducted its latest survey on business operations of Japanese-affiliated companies in Africa. The survey-conducted immediately after the 6th Tokyo International Conference on African Development (TICAD Ⅵ) held in Kenya on August 27 and 28, 2016-highlighted Japanese-affiliated companies' high expectations for African markets.

• Targets Japanese-affiliated Companies in 24 countries including South Africa, Egypt, Kenya, Nigeria and Morocco.
• Conducted between September 29 to November 11, 2016
• Response rate: 299 valid responses (80.2% response rate) out of 373 companies surveyed.

Summary of Results.

1. Future business outlook

Majority of respondents intend to expand business in anticipation of future

• Of respondents, 52.4% expect their business to expand in the next 1-2 years: high response rates can be seen in Ghana (75%), Kenya (68.6%) and Morocco (65%). Among the reasons behind expanding business, the highest was 'increased sales' (69.7%), followed by 'a high growth potential of the local market' (59.2%). This indicates Japanese companies' high expectations for African markets.
• Results indicate that Japanese-affiliated Companies intend to expand business regardless of the IMF economic growth rates for Sub-Saharan Africa showing deceleration-3.4% in 2015, estimate 1.4% for 2016 and forecast 2.9% for 2017 -compared to a previous growth spurt driven by a natural resources boom.

2. Business forecasts

Over half of respondents forecast surplus for 2016, despite slower economic growth

• 2016 operating profit forecast indicated 56.4% of companies expected a surplus, a 4.1-point increase from 52.3% the previous year. The manufacturing and sales sectors for transportation equipment parts are the largest number reporting a surplus, followed by a high proportion from communications, construction and transportation industries. By country, South Africa-home to a large number of Japanese companies engaged in the above industries-marked 69.9% and Ghana marked 70%, much higher than the average-rate.
• Respondents expecting their operating profits in 2016 to improve increased by 11.5-point since last year to 34.5%. 2017 business forecasts show the proportion of companies expecting improved profits further rose by 2.9 points to 37.4%.

3. Investment advantages

Highest marks given to market size and growth potential

'Market size and growth potential' marked at 65.3% as the biggest advantage in local investment environment. Looking at each country response rate, Nigeria (90%) and Egypt (86.1%) were especially high, both of which have a large population, along with Kenya (75.8%)-a business hub in Eastern Africa.

4. Investment disadvantages

Business environment remains harsh. Legislation and regulation implementation were cited as biggest issue.

Commonly-cited disadvantages in African investment environments were 'legislation and regulation implementation' (82.4%), 'financial affairs, financing or foreign exchange' (74.6%) and 'political and social instability' (73.9%). As concrete issues, 'complex administrative procedures,' 'exchange rate fluctuations of local currencies' and 'deteriorating security' were reported.

5. FTAs

While remaining low (15.4%), utilization rate is steadily growing

Among respondents, 15.4% (45 out of 292 companies) are utilizing either FTAs or customs unions, a huge surge since the 2007 survey marked at 5.6% (6 out of 107 companies). Numerous companies have utilized FTAs concluded within Africa and those between European and African countries.

6. Investment destinations

Kenya, Nigeria & South Africa continue to be highly attractive

• Companies maintain high expectations for Kenya, Nigeria and South Africa-ranked the top three investment destinations, since last year.
• Respondents highly praised Kenya's increasing business opportunities in the infrastructure industry. Nigeria's market size and growth potential and South Africa's well-developed function as a regional business hub of Africa.