Opportunities continue to outweigh investment in Africa

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As the world emerges from the global pandemic, key markets across Africa are becoming increasingly attractive destinations for FDI and savvy investors stand to benefit – if only they could connect, write Kevin Nolan and Lambert Akwa of New York-based strategic communications firm KARV Communications.

Amidst a turbulent 2020 it has become even more clear – Africa needs investment and investors need Africa. For Europeans looking towards Africa, FDI has largely followed colonial ties, while China’s massive influx across the continent over the last decade was fuelled by the dual geopolitical objectives of securing raw materials and increasing its sphere of influence. 

More recently, in an effort to further their own diversification measures, Gulf states have invested heavily and predominantly across energy and infrastructure megaprojects. Americans have become increasingly engaged as well, but their involvement is often perceived as both ad hoc and inconsistent. 

Generally, there’s a need for those who seek to play a more active investment role to better understand the nature and range of opportunities on the African continent. This is especially pertinent in today’s global climate where the ongoing impact of COVID-19 has become a major impediment to investment priorities. The United Nations Conference on Trade and Development (UNCTAD) predicted that FDI inflows to Africa would rise in 2020, on track with trends from 2018 and 2019 when Africa’s FDI inflows increased by 11 per cent to US$46 billion. However, due to the spread of the coronavirus, the continent’s overall FDI inflows are expected to shrink by 15 per cent, with investments in energy, travel and tourism expected to be most hard-hit due to travel cancellations and bans. 

This expected decline is of course a major concern. Yet given that the overall investment landscape across the continent is maturing rapidly, and in ways that are inherently unique to Africa, an appreciation for its nuances is crucial in order to keep up with growing opportunities.

Other challenges remain, to be sure. For example, potential investors and stakeholders across the continent have expressed frustration with seemingly incoherent and often contradictory policies by the likes of  America’s current leadership on doing business in Africa. Enthusiasm for the Prosper Africa initiative, which aims to “unlock opportunities to do business in Africa” has been tempered by a travel ban impacting roughly a quarter of the population of Africa and disparaging remarks by President Trump.

Investments on the continent in the era of COVID-19 will surely require a more sophisticated understanding of each African nation – knowing the difference between Niger and Nigeria, the Democratic Republic of Congo and the Republic of Congo, is a good start. Yet as a number of key indicators suggest, investors that are willing to learn more about the dynamic and rapidly evolving continent will quickly be able to move beyond misconceptions, decipher real from perceived risks and identify lucrative opportunities blossoming across the continent.

New markets = new opportunities

While more traditional recipients of foreign direct investment on the continent, namely Egypt, South Africa and Morocco, continue to boast attractive returns across automotive, manufacturing and mineral extraction industries, closer examination of the continent will reveal that a number of ‘newer’ markets – and sectors – are proving to be attractive to global investors. Indeed, advancements in political, economic and legal reform have increased prospects for economic growth and the mitigation of risk often associated with investing in emerging African markets.

Notably, as a landlocked country with considerably less resources than some of its neighbours, Rwanda is looking to position itself as “the Singapore of Africa” through the creation of its Kigali Special Economic Zone and a sophisticated telecommunications sector that has gained the interest of Amazon, Facebook and Google. Togo has made great strides in ease of doing business, with the World Bank citing it as a top 10 reformer in the world, underscored by calls for additional investment across agribusiness in such industries as cashew and bamboo production. Similarly, Namibia, often dubbed “Africa’s optimist”, attracts foreign investors with a liberal investment framework and a commitment to becoming a global logistics hub, both of which have contributed to increased interest in its high-quality meat production and fishing industries. 

Perhaps even more encouraging is the establishment of the groundbreaking African Continental Free Trade Agreement (AfCFTA), poised to be the world’s largest free trade agreement in terms of participating countries. As an inter-African single market for goods and services it will effectively stimulate production, streamline trade, liberalise tariffs and promote a breadth of promising investment opportunities.

Commitment to diversification

While scholars continue to debate whether the discovery of abundant extractable resources is ultimately a blessing or a curse on the long-term health of an emerging market, one fact remains irrefutable: governments across the African continent must prioritize economic diversification measures to decrease overdependence on commodities and mitigate their vulnerability to macroeconomic swings. 

Among those who have made strides in incorporating more inclusive and durable growth are Angola, whose overdependence on oil – which accounts for roughly 95 per cent of its exports – has made it particularly susceptible to shifts in global commodity prices. New President João Lourenço has prioritised new fiscal thinking, including privatisation, structural reforms and investment incentives being put in place to attract interest in sectors with massive potential such as agriculture and real estate. 

Similarly, recognising the need for a shift towards sustainability – and, crucially, job creation – a number of other markets across the continent, including Cameroon, Ivory Coast, Mali and Senegal, have cited a need for early-stage capital for small-and medium-sized projects focusing on renewable energies. 

While governments across the continent enact measures to foster entrepreneurial ecosystems conducive to small and medium size business growth, the private sector itself is playing an active role in driving diversification as well. Uprise Africa, an equity crowdfunding platform based in South Africa, has established a game-changing tool to raise capital for local businesses by connecting them with investors abroad.

Uprise Africa’s head of post-investment management Mmangaliso Nxumalo noted: “With a well-regulated platform, global investors are not only made aware of unique business opportunities on the continent, but can invest with greater confidence knowing that they can access the structure of the company, financial modelling, forecasts and social impact – all critical factors when determining whether an opportunity is right.”

Rise of the African megacity

As a result of organic growth, an ever-expanding youth bulge, rural to urban and inter-Africa migration, estimates suggest that by 2050 Africa will be home to fourteen megacities – those with a population of more than 10 million. Yet while city planners (and daily commuters) may cringe at the prospects of such rapid urbanisation, savvy global investors see opportunity, underscored by the World Economic Forum suggesting that the continent needs to spend between US$130 billion and US$170 billion annually to satisfy basic infrastructure needs.

From Lagos to Kinshasa, Dar es Salaam to Addis Ababa, swelling populations are a driving factor for the need for massive upfront investment to address decaying infrastructure, wheezing power grids and outdated waste management systems. Some argue that smart cities such as Cantonments City in Accra and Vision City in Kigali may be the way forward, in that they incorporate the latest innovations green architecture and engineering to address these critical issues. 

Additionally, a number of governments with more sophisticated legal frameworks have recognised the value of combining public and private sector financing and expertise via large-scale public-private partnerships to implement forward thinking and sustainable megaprojects, such as Kenya’s Lake Turkana Wind Power project – Africa’s largest wind energy programme – or Tanger Med, now hailed as the pre-eminent public-private partnership that addressed port infrastructure deficiencies in the North African Kingdom. 

Thinking beyond the safari

Perhaps no prospect is more encouraging for the future of FDI in Africa then the fact that foreign nationals and members of the African diaspora are increasingly travelling to the continent, largely driven by easing of visa processes, increased travel options and a desire for adventure. While for some Africa remains exotic, unsafe or unknown, those that have spent time on the continent will have seen potential beyond the safari and taken note of its business-friendly environment, vibrant city skylines bustling with cranes and construction, tech parks and incubators, world-class restaurants, shopping and buzzing nightlife, all powered by robust service industries. And, of course, opportunity for growth. In short, global investors are witnessing first hand that perceived risk is greater than actual risk.

Feeling connected to the continent is also critical for investors. Ghana’s successful “Year of Return” national showcase campaign in 2019, marking the 400th anniversary of the arrival of African slaves in America, saw the country welcome hundreds of thousands of visitors, including some big-name celebrities, top tier global media coverage and roughly US$2 billion added to the local economy.  

Echoing this sentiment, Eche Emole, founder and CEO of Afropolitan Group, a San Francisco-based organisation dedicated to establishing meaningful connections between African American diaspora and Africa through music, events and organised trips to the continent, notes: “A number of investment-minded individuals have travelled with us and found that Africa welcomed them with open arms. These interactions can often lead to investments in key sectors such as real estate, healthcare and education. Our ultimate goal is for African Americans to serve as an informal VC fund for Africa, ideally where the investments are mutually beneficial.” 

Bridging the gap

As argued before, companies and investors need to be well informed before navigating post-pandemic, sometimes uncharted investment territories, no matter how alluring, as culture and geopolitics – not to mention regulatory matters – vary significantly between countries in Africa. As such, communications consultancies are playing an increasingly strategic role helping investors connect with the right stakeholders across the continent. Whether looking to participate in a Series A round of funding of a Zambian startup or when formulating a market entry strategy to sell FMCG in Senegal, well-informed counsel and deep local knowledge is essential.

These consultancies are also helping African organisations across the public and private sector shape their brand and messaging to create compelling narratives and position themselves as attractive prospects – crucial when looking to connect with the right investors. Yet both investors and those who are looking for capital on the continent should feel confident knowing that the complexity of investing in Africa, even in the wake of COVID-19, is clearly outweighed by available opportunities.

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