WHY INVEST IN AFRICA – WHY NOT ! ?
The conversation about Africa is shifting from one of “deficits” and “gaps” to one about opportunities, prospects, ventures and creativity. That’s not news to companies that have paid close attention to the continent and invested there. The fast growing youth population, the urbanization expected to drive over 50% of Africans to cities by 2050, and Africa’s formalizing economy are all well known.
These trends and other developments have driven a half century or more of growth in Africa, and will continue to do so. It’s important to acknowledge that Africa tests an investor’s patience.
Time horizons and return models that fit other markets don’t always work in there. Even the most experienced, sophisticated companies can be forced to recalibrate like Nestle did in 2015.
Deficits remain. What’s important is that investors now realize there is money to be made for those bold enough to help close the gaps.
As that takes place, the promise of greater prosperity for Africans and African businesses will be realized. Why is it a good time to invest?
Africa needs ‘connectors’
Missing across much of sub-Saharan Africa are the roads, rails, ports, airports, power grids and IT backbone needed to lift African economies. This lack of infrastructure hinders the growth of imports, exports, and regional business.
Companies that can connect Africans and markets can prosper. Sub- Saharan Africa is plagued by power outages – almost 700 hours a year on average – sapping productivity, adding cost and leaving businesses captive to back-up and alternative power options. Massive investment is leading to major upgrades and expansion at African ports and airports, but much of Africa’s growth potential depends on in-country and intra-African road, rail and air.
African trade barriers are falling and intra-African trade holds enormous potential.
With the 54-nation Continental Free Trade Area – Africa’s own mega-trade deal – even the smallest African economies could see a lift. If duties are lowered and incentives introduced, manufacturers could see benefit from setting up production and assembly operations in multiple African countries. That could lead to development in electronics, machinery, chemicals, textile production.
An increase in local beneficiation in the commodities sector could be a driver of growth – processing local commodities (such as minerals, coffee, cotton) in country rather than exporting them in raw form.
That said, it will continue to be a challenge for regions with poor power and infrastructure to compete as global manufacturers.
Customers are changing
With the growth of Africa’s middle class, we’re seeing development of new expectations. Educated, urban professionals are young, brand-aware and sophisticated in terms of their consumption. The largest economic forces in Africa are small to medium enterprises, working to meet this new demand and competing with global brands.
Africa leads the world in mobile adoption, which continues to offer the biggest cross-sectoral economic opportunities. Mobile payment networks, pioneered in East Africa, opened the wired, global economy to poor, unbanked city and rural dwellers. Companies i.e. such as Novartis are using mobile communications to manage their supply chain and mobile initiatives have achieved huge successes.
Africa is diversifying
African economies are finally beginning to diversify beyond commodities, though this is still in the early stages. Africa is seeing a returning diaspora that recognizes the potential and opportunities in their own countries. This population supports local economic growth with their skills and talent, by acting as “first movers”, investing back in their communities.
Africa can lead in sustainable development
In energy, technology, supply chain design and other areas, Africa has the ability to look at what works elsewhere then fashion its own answers. It can openly embrace new technology and ideas, with no historical imprint from which to break free. It can develop flexible fuel grids that generate power with a mix of abundant wind, solar, hydro and bio energy, alongside conventional fuels such as oil and gas, which are also abundant. Nowhere on Earth is there as much unused or poorly used arable land, so look for big agricultural breakthroughs and productivity gains in food production in Africa. Business leaders are hungry for vibrant new markets and consumers know the reality: globalization means there are too few remaining frontiers. As the developed world matures, and becomes increasingly difficult to trade in as a result of factors from legislation to terrorism, opportunities for corporate growth are limited. Africa is still such a