Africa has become the most profitable region in the world.
The UN Conference on Trade and Development notes that between 2006 and 2011, Africa had the highest rate of return on inflows of Foreign Direct Investment. UNCTAD predicts that FDI inflows in Africa would rise in 2020, in line with trends from 2018 when Africa’s FDI inflows increased by 11% to US$46 billion.
Meanwhile, the African diaspora is important. According to the African Development Bank, there are about 140 million Africans living abroad. About one third of them are middle class and savings of this diaspora is estimated at $50 billion. The majority are ready to inject these monies in their country of origin.
Well, the best time to invest in Africa is now. However, foreign investment has not flowed as quickly as expected because of the risks. We admit that risks and profits are inseparable. Yet, we offer this brief exposition into the African market.
Investing in Africa depends on the region. Northern Africa (Algeria, Egypt, Libya, Mauritania, Morocco, Tunisia) holds extensive crude oil reserves. Libya, for instance, holds Africa’s largest oil reserves and the eight largest reserves of the world. Meanwhile, South Africa has a strong mining industry. South Africa is the worlds’ largest producer of gold, platinum and chromium.
The most cost-efficient countries to invest in however are Egypt, Morocco, South Africa, Kenya and Rwanda. Egypt remains Africa’s most appealing country with its demographic market and growing industries. Morocco recently rejoined regional bodies in a bid to improve its investment appeal. South Africa is Africa’s most liquid market. Kenya is currently benefiting from a stable political environment, expansion in consumer demand and urbanisation. Rwanda continues to climb on the Ease of Doing Business charts. A honourable mention is the populous Nigeria which still accounts for the most investments in its startups – 29% of Africa’s total venture capital deals in 2018.
Here is another look at our shortlist of Africa’s most emerging sectors. First, agriculture contributes the most to Africa’s GDP. That is, 15% and about $100 billion annually. The sector holds tremendous potential since one-quarter of the world’s arable land is in Africa. The markets face challenges in form of access to capital, infrastructure and technology. However, governments and foreign donors are collaborating for more investments.
Second, the financial sector is outgrowing GDP in many African countries. Financial reforms are largely responsible for this. An example is Nigeria’s banking reform of 2004 to 2006 that forced consolidation and reduced 89 banks to 25. African banks are expanding beyond their native countries and creating new products along the way.
Importantly, food, beverages, toiletries and appliances – goods with low-costs, low shelf-life and high demand present great opportunities in Africa. Food and beverages take the largest share of total spending for African households. The low-income and middle-class households have an estimated disposable income of $680 billion. As Africa’s middle-class expands, so will consumption.
Finally, the telecommunications sector is Africa’s most competitive as world-class players vie to reduce price and improve offerings. Africa has the fastest growing mobile market in the world with over 170 million mobile users. Electricity, infrastructure and affordability present challenges. Telecom providers can scale these hurdles by investing in their network outreach and providing affordable pricing models.
Opportunities abound in infrastructure, real estate, e-commerce, entertainment, fintech and so on.
Many risks await the diasporan investor. The most predominant of these are the doing of Africa’s governments. Corruption, and uncertainty regarding policy can frustrate foreign investment. Corruption may result in repetitive costs and worse, nationalization. Governments often pass absurd laws that deviate from its declared objectives and stifle startups. Regime changes may result in lengthy periods of political instability.
Lack of infrastructure also presents a unique challenge. Access to electricity and good roads may prove fatal. In addition, regional conflicts and civil unrest raise security concerns.
Yet, with its 1 billion inhabitants, Africa represents approximately 14.72 of the world’s total population. This presents clear opportunities for consumer goods. The bulk of this population is youth, the labor force is large and relatively cheap.
Africa enjoys enormous deposits of natural resources. These include gold, platinum, uranium, iron ore, copper and diamond reserves. Africa holds 10% of the world’s oil reserves and 60% of cultivable land. Yet, only 10% of this land is being cultivated. Much of Africa’s resources are untapped due to local challenges with infrastructure and financing.
In addition, Africa is relatively underdeveloped. First, opportunities will arise in infrastructure. Second, as the per capita income of individuals and households increase, there will be more spending.
Interestingly, African countries have signed the African Continental Free Trade Agreement (AfCFTA), a regional trade deal which aims to boost intra-African trade from 16% to 60% by 2022. Also, to attract $4 trillion in investments and consumer spending. Foreign investors will benefit from the integrated markets and lower tariffs which are objectives of AfCFTA.
On the cover of the May 2000 edition of The Economist, Africa was tagged as “The Hopeless Continent”. In December 2011 however, the same cover read “Africa Rising”. Again, it read “Aspiring Africa” in March 2013. A lot has happened in 20 years, and a lot will happen in future. The best time to invest in Africa is now. Volition Blue can help with deal flows. We uncover credible African deals for foreign investors. We also connect Africans to international investment opportunities.