As the pieces rearrange themselves on the chessboard of geopolitics and economics, Africa and Singapore find themselves playing in adjacent squares.
In a sign of this deepening connection, Singaporean Prime Minister Lee Hsien Loong (pictured above outside the South African parliament with President Cyril Ramaphosa) embarked on a symbolic journey to Africa in May this year. His visit, marked by substantial agreements and tangible demonstrations of commitment, testified to the burgeoning ties between the city-state he governs and Africa. This growing liaison, with Singapore standing as a top-ten investor in Africa, has sparked a charm offensive that seeks to demystify perceived risks associated with Africa’s markets.
Africa, a continent marked by its youthful dynamism and promise, has captivated the strategic interest of Singapore. Prime minister Lee has called for businesses to venture into uncharted territories and explore new markets against a backdrop of a challenging global environment.
Yet Singapore is no stranger to transforming challenges into opportunities. In the 1970s, Singapore was a city with a solitary skyscraper and scarce infrastructure. Today, it boasts one of the world’s most recognisable skylines, a testament to its remarkable journey from a struggling former British colony to a global leader in various industries.
‘World’s most powerful passport’
This success story resonates powerfully in Africa, a continent with vast untapped potential and a common desire for transformative growth. Singapore’s claim to issue the “world’s most powerful passport” is a manifestation of possibilities when risk is decoded and opportunities seized.
In the face of Africa’s promising markets, G. Jayakrishnan, executive director for South Asia, Middle East and Africa at Enterprise Singapore (ESG), advocates for a westward shift in focus for city-state firms: “Singapore is a small place. We’re just 715 square kilometres and 6m people in size. So, for the companies in Singapore to grow to any kind of significant scale, they have to grow outside of Singapore, they have to go out and they have to internationalise,” Jayakrishnan says.
“The allure of Africa lies in its demographic dividend, rich natural resources, and vibrant private sector. Its robust entrepreneurial base makes it an attractive market. With developmental needs in infrastructure, education, and manufacturing come challenges. However, these challenges signify opportunities and business prospects,” says Jayakrishnan.
Trade relations between Africa and Singapore have seen a steady increase, with the exchange amounting to $14.38bn in 2022, and Singapore’s foreign direct investments into Africa totalling an estimated $21bn by the end of 2020, according to ESG data.
The seeds of robust economic ties have begun to bear fruit as evinced by prime minister Lee’s recent six-day visit to South Africa and Kenya, where strategic agreements in information and communications technology, sustainability, and skills development were inked. This solid foundation is bolstered by more than 100 Singapore-based entities that have already invested in Africa.
However, the surface has only been scratched. The space to grow in Africa’s frontier markets present a big opportunity for Asian investors to step forward.
The growth is striking; in 2018, only 60 Singaporean companies operated in Africa. Now, more than 155 companies are doing business on the continent.
Ranveer Chauhan, chairman of the NTU-SBF Centre for African Studies at Singapore’s Nanyang Technological University, characterises the city-state’s engagement with Africa over the past decade as productive and steadily growing.
Despite the contrasting business approaches – Singapore’s structured modus operandi versus Africa’s agility – the shared language of business and common sense unites both. The region, home to at least 1.2bn people and rich in natural resources, holds an immense potential for entrepreneurship and remains a largely untapped market, ripe for exploration and exploitation.
“Africa is a massive opportunity, and the best way to realise it into your profit and loss statement, without discouraging your investors, is to approach it sensibly, bit by bit,” says Chauhan.
While numerous firms are intrigued by the prospects, several Singaporean entities have successfully navigated the choppy waters of economic volatility, political tumult, and complex regulatory landscapes, illustrating the potential rewards for those willing to take the plunge investing in Africa.
Among the Singaporean trailblazers, several firms have stood out over recent decades. Singtel, a leading telecommunications company, has expanded its African presence through strategic partnerships.
Sembcorp Industries, a utilities and marine group, has made significant strides in Africa’s energy sector. Tolaram, starting as a textile trader, boldly ventured into Nigeria about 30 years ago, introducing and popularising instant noodles under the brand name Indomie, and has since diversified into various sectors. Olam, a multinational agribusiness company, has significantly impacted Africa’s agricultural sector.
Yet these major firms are only part of the story. Smaller entities and startups also have a critical role to play in Singapore’s engagement with Africa, says Chauhan.
The transformative impact of digitalisation on Africa’s economy is undeniable. Rapid technology adoption in various sectors, including fintech, cybersecurity, and logistics, is facilitated by the lack of legacy systems. Companies such as Gozem and Thunes are capitalising on this potential, utilising technology to improve efficiencies and expand their consumer base. Furthermore, digital solutions have enabled quick, low-cost cross-border remittances, significantly bolstering Africa’s economy.
As the continent continues to shift away from its traditional reliance on commodities, this digital rise presents a burgeoning market that, as Jayakrishnan suggests, Singaporean businesses are likely to engage with more in the coming decade.
While Africa’s vast diversity and scale offer expansive opportunities, they also present formidable challenges for Singaporean firms. It’s easy to be daunted by the continent’s size and development disparities. Furthermore, less-than-encouraging macro indicators, hidden costs due to regulatory hurdles, and currency depreciation issues can be significant obstacles. Firms have to create robust business models that factor in these costs and accommodate a sometimes turgid pace of change.
Meanwhile, in Singapore, the political landscape is experiencing a potentially crucial shift, with the People’s Action Party, which accounts for 79 of 103 seats in Parliament, rocked by recent scandals. Therefore, as Singaporean businesses expand into Africa, they not only navigate a complex foreign terrain but also a potentially evolving home front.
As new markets emerge, Singaporean companies are seizing opportunities to leverage their expertise and diversify their global reach. Carbon trading, a relatively new domain, is one such sector that Singapore is tapping into. A key development is the nearly finalised carbon credits cooperation agreement between Singapore and Ghana. This partnership aligns with Article 6 of the Paris Agreement, which sets out rules to make international carbon markets work. The partnership places both countries at the forefront of innovative solutions for emissions reduction.
The promise of free trade
Furthermore, with the advent of the African Continental Free Trade Area agreement, there are significant manufacturing opportunities. Singapore’s manufacturing prowess positions it well to support ventures in this region, further diversifying its global footprint.
With Africa encompassing 60% of the world’s arable land, the continent offers abundant opportunities in sustainable agriculture. As the call for greener practices echoes louder across the globe, Singaporean firms are positioned to drive impactful contributions to this crucial sector.
In a world where multilateralism is increasingly under assault, Singaporean firms are embracing a vigorous approach to expansion in Africa. This reflects the city-state’s broader commitment to fortifying global partnerships and underscores the recognition of Africa’s untapped potential.
“Singapore is a country held in high regard in Africa – and that is an advantage. We should go there and we should go quickly,” Jayakrishnan concludes.
Read more about the growing relationship between Singapore and Africa
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