Africa is on the move, and most international businesses are not aware of the continent’s investment opportunities. Although in the past there have been gaps, there has been a sea change and some investors who were patient enough have reaped from their hard work.
Africa is formalizing its economy in a bid to attract more investors, both local and foreign. The continent also boasts a growing young population, with urbanization expected to drive over 50% of Africans to cities by 2050.
One major caution while investing in the fastest growing economy is that the region will test an investor's patience. That is not to say that investors should hold back. On the contrary, economists believe it’s time for investors to channel their money into Africa due to a number of factors that are falling into place including the increasing middle-class population.
Tarek Sultan Al Essa, Chief Executive Officer and Vice-Chairman, Board of Agility, Kuwait expounds on six reasons why investors should consider investing in Africa, in an article which is part of World Economic Forum’s Africa series dubbed ‘Agenda in Focus: Africa’.
Africa needs ‘connectors’
Africa lacks adequate roads, rails, ports, airports, power grids and IT backbone which are key to lifting African economies. The insufficient infrastructure hinders the robust growth of imports, exports, and regional business.
Power connectivity in Africa leaves business captive to back-up and alternatives power supply which sometimes is more expensive than electricity itself. While there is a massive investment by nations to expand African ports and airports, much of Africa’s growth potential depends on in-country and intra-African road, rail and air connections. Inadequate roads and rail network have caused Africa major losses with up to 50 percent of African fruit and vegetables getting spoilt before reaching markets.
There’s a soft infrastructure deficit, as well. Outside of South Africa, the data and information critical to decision-making by businesses are missing or hard to obtain – credit and risk information, market data, consumption patterns, you name it. Lessons from Dubai and Singapore tell us that once an infrastructure race is on in a rapidly expanding market, being the first-mover is a significant advantage for investors.
African trade barriers are falling and intra-African trade holds enormous potential
While some major trading blocs are on the verge of disintegration such as the European Union, Africa’s trading blocs are increasingly strengthening.
If duties are lowered and incentives introduced, the 54-nation Continental Free Trade Area could provide a great opportunity for manufacturers. This will make setting up businesses in multiple African countries easy. That could lead to the development of electronics, machinery, chemicals, textile production and processed foods.
Africa’s share of global trade stands at a meager 3 percent. To increase on this, the continent’s commodity and consumption-led economies must begin to produce a broad array of goods for home markets and export.
And an increase in local beneficiation in the commodities sector could be a driver of growth – processing local commodities (such as minerals, coffee, cotton) in a country rather than exporting them in raw form. But to make this a reality, the region must boost its power and infrastructure to compete as a global manufacturer.
Customers are changing
The Africa’s middle class is fast-growing. The modern middle class is educated, brand-aware, professional and sophisticated in terms of their consumption.
Retailers and consumer brands want to anticipate and drive buying preferences in fashion, home, and lifestyle products, but they know they need international standard supply chains if they are to meet demand. The largest economic forces in Africa are small to medium enterprises, working to meet this new demand and competing with global brands.
When it comes to mobile adoption, Africa leads the world. What’s more, the adoption of mobile payment which was pioneered in Kenya opened the wired global economy to poor, unbanked city and rural dwellers.
Companies such as Novartis are using mobile communications to manage their supply chain; Olam has used mobile to reach out to new African suppliers and farmers. These mobile initiatives have achieved huge successes.
Mobile is the area where Africa has pushed beyond the boundaries in the developed world, and African tech incubators are pushing to innovate. And there is more to come.
Africa is diversifying
More than ever, African economies are beginning to diversify beyond commodities, although this is still in the early stages.
Africa is witnessing 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.
At the same time, African countries are beginning to place bets on non-commodity areas where they can be competitive. And they are packaging themselves to appeal to a broader set of investors. Recognizing they can no longer count on growing investment from China, every country now has what are called “Investment Promotion Agencies”, which act as one-stop shops for investors, assisting with registration, taxes, and other steps in establishing companies locally.
Africa can lead in sustainable development
Africa has the potential for sustainable development by exploiting existing opportunities in energy, technology, supply chain design and other areas. It can also go ahead and 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 bioenergy, 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. Thus, venturing into agriculture can be a major breakthrough leading to 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. There are too few places where entrepreneurs and businesses with ideas and an appetite for risk can bring value and find long-term growth if they are persistent, creative and determined. But there’s something else they know: Africa is still such a place.
Tarek Sultan Al Essa is a co-chair at the ongoing World Economic Forum on Africa 2016 in Kigali, Rwanda.
Image credit: Reuters