buying guides for african women
auhtor
Jonna M.
Business
09 / 2020

Reasons To Invest In Africa

african business

Investing in Africa sounds like an unprofitable risk majorly because of the uncertainties in the continent’s economies. However, Africa recently encountered multiple developments ranking it as one of the fastest growing continents. Given its background decades ago, its improvements spurred attention on the multiple benefits that investments could offer. Imperatively, being informed about the areas where this continent flourishes gives investors an upper advantage and a ground opportunity to start up investment plans. We’ve put together some viable reasons to invest in Africa, which would play important roles for several investment agendas. More importantly, this article unlocks the potential that Africa possesses, providing enough momentum for the right sources to make profitable moves. 

The Diversification of Africa

In recent times, Africa has shown its remarkable stance on the subject of diversification. This is essentially productive since it influences the choices of commodities consumed in most areas. Over the years, the lack of diversification left Africa susceptible to downfalls in economy, especially single trade countries that depend on export trades to survive. However, the increasing diversification has led to an increase in productivity, reducing susceptibility to economic crashes. Diversification is particularly important for successes in investments. With constant skill acquisition, reduction in tariffs, better macroeconomic policies, and commitment from the government to diversify their economies, most nations in Africa are making productive decisions to allow future investments. 

Observing statistical data, it’s easy to note that factors like real GDP has risen over the past decade, twice the amount than it did before. As the economy is thriving, other sectors such as telecommunications and banking are gaining grounds and creating room for other sectors to blossom. Though some African economies still face some potential threats with the rate of poverty and corruption, Africa is still regarded as one of the most rapid-growing continents. We can conclude that Africa’s growth is as a result of positive changes in internal structures, reassuring many that Africa has great potential. With investment promotion agencies being developed in nations across the continent, investors now have an easy way to establish their businesses.

Room for Sustainable Developments

Sustainable development is crucial in Africa especially due to the thriving need in the continent. In a nutshell, sustainable developments can be made in multiple ways such as alleviating poverty and hunger, providing quality education, and etcetera. A plausible reason to invest in Africa is the adequate room for sustainable developments available. In diverse ways, these changes are bound to leave long lasting changes in regions of Africa because of the inadequacy of resources to cater for these needs. More so, areas such as industry, innovation and infrastructure would make positive developments towards economic growth and more. Africa is a continent that can easily embrace new implementations, which makes sustainable developments a brilliant idea.

Since Africa is a continent with no previous technological influences, it’s quite easy for innovative ideas to be implemented in major regions across the continent. More importantly, with several other resources readily available in Africa that can complement the growth of industries, the building of infrastructures, and the development of new ideas, investments can thrive adequately. Several African governments have made credible steps for the implementation of sustainable developments in their nations, especially in the area of education and health care, pushing towards economic growth and a lasting positive change in the lives of many. 

Digital Transformation

Africa has been identified as a booming mobile market based on its stance in digital transformation. The rate at which the continent Africa is adapting to technology is bewildering, having the highest internet access growth rate as at 2018. More so, Africa has a phenomenal tech start-up system, which provides multiple benefits for businesses to thrive. This transformation has further improved interaction in businesses and formed a module for proper communication between the government and its people. Digital transformation poses many benefits for economic growth and creates an avenue for future investments. On the subject of trade benefits, Africa has one of the largest consumer base willing to adapt to technological implementations.   

Notwithstanding the lack of experienced engineers to duly implement infrastructures that would aid in digital transformation, Africa remains a willing continent to further improve their expertise. Investing due to digital transformation is a profitable move because of the rising impact it has on the continent as a whole, such as renewable energy, the use of drones, boosting GDP, networking and enhancing job creating resources. There are also a lot of untapped opportunities waiting to be explored, making Africa a reservoir of countless investment benefits.

Potential for manufacturing and industrialization

The manufacturing sector of a nation is key to assuring economic growth. Most of the booming economies around the world implemented this strategy, which proved effective in multiple ways. More essentially, industrialization can promote structural change and empower an economy towards developments. It also greatly tackles unemployment and alleviates poverty for the nation to thrive. Although this hasn’t been the case for the continent Arica, the potential for manufacturing and industrialization cannot be refuted. According to statistics, manufacturing is Africa from businesses would reach an estimated level of $666.3 billion in the year 2030, which shows a bewildering potential. This greatly increased from the last projected status in 2015 rated at $201.28 million. 

The potential that Africa possesses is an opportunity for investors, especially in the long run. Since African governments have realized the importance of manufacturing to boost economic developments, multiple strategies have been put in place to achieve investments in infrastructure and to help nations reach a peak in economic complexities and productivity. Most African nations have implemented policies to aid manufacturing and industrialization, creating more opportunities for other countries apart from the regional masters in the Global Manufacturing Competitiveness Index. Also finding new ways to tackle obstructions to manufacturing and industrialization, Africa can be noted as the next largest manufacturing center.

Availability of Raw Materials

Africa is known for its vast availability of raw materials. In a nutshell, Africa holds 90 percent of the available platinum and cobalt in the world, 50 percent of gold, over 60 percent of manganese and a lot of other useful natural resources. However, proper economic growth has been shunted due to the export of these raw materials rather than focusing on the semi-finished or finished products. This has limited Africa’s potential in adding value and expanding their horizons. More essentially, industrialization has a major role to play in economic developments with the availability of natural resources rather than depending on external sources. With major developments in manufacturing and industrialization happening across African nations, the availability of these raw materials proves more efficient. Investments are bound to take positive turns, and thrive on the growth of the economies. 

Notable hindrances to proper industrialization with the available resources have been considered, such as a lack of integrated African markets to attract investments. Taking appropriate measure towards removing hindrances, it’s safe to say that an avenue for quality investments are being prepared. More essentially, these natural resources are quite affordable, meaning that manufacturing investors don’t have to import materials for their companies to thrive. Since there’s a vast area of unexploited resources in Africa till date, there’s room for developments in more ways than one. 

Expansion of Urban Consumers

According to research, Africa has had an enormous rise in urbanization over the past few years. This has surpassed some developed nations, which proves that Africa indeed has some potential. Statistics show that as at 1980, 28 percent of Africans lived in urban areas. As of today, up to 40 percent now live in urban areas, which is a credible amount given Africa’s population slated at one billion. Astonishingly, this is higher than that of India, and is measuring up to China. With this rate of growth, Africa is said to have surpassed or attained a 50 percent mark in a few years. Urbanization in Africa leans towards an increase in urban consumers, causing an increase in the demand for new and improved commodities. With multiple opportunities created, room for profitable investments are available. More so, it is expected that in a few decades, Africa’s big cities would have reached an incredible spending power of $1.3 trillion. Statistical data was taken on the number of cities with more than a million people and Africa had up to 52 cities, closely measuring up to Europe. All things considered, Africa’s rise in urban consumers who are willing to embrace new products, opening doors for plausible investments  

Expanding Labor Force

The expansion of Africa’s labor force at a bewildering rate is mostly caused by the rapid urbanization occurring in the continent. This has proved efficient in increasing productivity in more sectors than one. As people are moving to cities, there is a change from agricultural work to city work. Africa has recorded up to 500 million people that are eligible and willing to work, which is rather large in comparison to a lot first world countries. This expanding force is one major factor that has greatly increased the GDP in Africa, and based on thriving circumstances, Africa is expected to reach an astonishing 1.1 billion people eligible to work in a few decades. Though education is a major hindering factor to the proper expansion of labor force, Africa still shows great potential. Another factor that hindering the adequate expansion of labor force is the lack of job opportunities available in the continent. With the number of graduates increasing, the labor market suffers incredibly due to the insufficiency of job opportunities. This opens the door for investments to be profitable, since labor force is available and certainly affordable in such regions. 

Demand for Improved Infrastructure

As a result of urbanization, the need to construct good roads, provide adequate water supply and multiple other facilities to guarantee quality living in such areas, is rising. This has created a thriving demand for better infrastructure, pushing an avenue for investors to have a stance. Over the years, private investments on infrastructure tripled to billions, which was also sponsored by several actions African governments made. Partnering up with developed countries to invest in infrastructure has caused several African economies to grow, and more importantly, has created an irrefutable demand for advanced infrastructures for an economic boost. Seeing that multiple African countries are in dire need of medical facilities, schools, buildings, and etcetera, the availability of business opportunities are seemingly increasing each day.  Real estate is another profitable investment that can be ventured in, due to rise of middle-class households, which have an income of 20,000 dollars or more. This rise has given birth to more demand in improved household structures and buildings. 

Lack of Debt

 Some developed nations are facing multiple financial challenges that could be detrimental to their economies. This has caused a lot of investors to look for countries which have far less debt than others, which is in Africa. The debt of a nation is usually measured with a debt to GPD ratio, and from statistics, Africa has a lot of nations with debts less than 20 percent in comparison with other countries like Greece or Japan that have over a 100 percent. With a lack of debt in the nation, businesses are bound to thrive, making Africa a hotspot for multiple investments. Countries with debt issues are also bound to encounter low interest rates, which would push investors to look for alternatives. 

Fast Growing Countries

According to statistics, there are up to 12 fastest growing countries in the world and amazingly, Africa tops the list with a total of six out of the 12. These countries include Ethiopia, Democratic Republic of Congo, Cote d’Ivoire, Mozambique, Tanzania, and Rwanda. Also, Africa as a whole is projected to have one of the highest growth prospects in the world in just a few years. Sectors that are boosting Africa growth include telecommunications and banking, which without a doubt has experienced phenomenal growth over the past decades. More importantly, these sectors and more provide a solid advantage for foreign investments to thrive properly. More business opportunities are also spurring from the rising sectors in Africa making it a viable place to invest.

Youthful Population

Africa has one of the largest youthful population in comparison to other continents. They are not being overwhelmed by pensions and taking care of the elderly, and having such a vibrant and young population comes with many benefits. The most profitable is the younger generation consumer base brewing in almost all regions of Africa, open to advanced and innovative ideas, products and services. Investing in such an area would be a profitable experience because Africa is projected to have quadrupled in population as at 2100 up to 4.39 billion. Since the market size is increasing, demands are bound to increase as well. Another beneficial factor is on the subject of labor force. The median age of most countries in Africa show the availability of labor force, especially of a youthful population, which is a contributing factor to any investment to be made in such areas. Hourly wage rates in Africa are incredibly low, which means that the labor market can effectively be improved with more businesses.

Purchasing Power Parity

Africa is known to have great purchasing power which is one reason why businesses tend to thrive in that region of the world. As of today, the total spending power of consumers and businesses is ranked at $4 trillion. The business environment in Africa seems to improving as much more opportunities are rising. Household consumption alone in Africa is projected to reach an astonishing $2.5 trillion in just a few years. With rising incomes around the continent and almost half of the population reaching a middle class or upper class level, there is bound to be a rise in purchasing power parity even more. With such lucrative opportunities flooding this continent, it’s imperative for investors to take advantage of such avenues and introduce new products into consumer markets.

Brand Loyalty

Brand loyalty is one factor that Africa is known for. Amazingly, about 58% of consumers in Africa would most likely stick with a brand they are familiar with and may even purchase it at a higher price. This is an incredible opportunity for investors especially if they are able to win over a large consumer market with their products or services, which would lead to a thriving business. It has also been established that Africans tend to choose quality over other factors when purchasing products. This leans to the fact that a large population of Africans are looking for modern experiences as urbanization is rapidly taking place.  With major cities spread across the continent, having more than 1 million population in 52 of them, there is a significant growth of demand in these areas. As of 2015, 89% of the demand was generated from the top markets in Africa. Both the low-income and middle-class population are said to have a household income of $680 billion, meaning that businesses have an upper advantage if the can duly make use of these opportunities. More so, a lot of significant products all around the continent has exhibited tremendous growth in sales due to this rapid growing consumer base.

China’s Investment Benefits

As can be seen, China’s investment in Africa provided multiple benefits especially for their booming economy. China’s investments created a major impact on the African market especially in the area of technology. CCTV was introduced into Africa which was embraced quite effortlessly. Another major contribution was with cable subscriptions which provided a cheaper option for the African population, having content that drew most Africans closer to the Chinese. Next, the Chinese broke the world of technology with their investment in mobile phones. Affordable options such as Tecno and Huawei were provided as suitable substitutes to the expensive options like Apple. This stood as a major breakthrough investment the African population embraced the affordability of the products. China’s primary desire was to secure a profitable hold on the available resources in the continent as well. This has helped in the establishment of their economies especially in the area of mining. China also extended their focus throughout major sectors of the African market including infrastructure and transportation. Chine realized the importance of natural resources for economic growth and their investments have seemed profitable in more areas than one. 

The Expansion of Democracy

Most African nations have adapted to the democratic rule of law, meaning that these countries are increasingly safe to reside and do business in. More importantly, investing in these nations now seem more profitable than it did some decades ago. Democracy doesn’t just guarantee economic growth, but assures investors of a safe environment for their businesses to grow.  Statistics also show that doing businesses in free or partly free countries are more profitable than countries considered ‘not free’. Not Free states are prone to having more corrupt practices and unforeseen circumstances that can affect the normal balance of a business. Nonetheless, since most African countries are identified as free or partly free, investments have room to flourish. 

High Price to Earnings Ratios

Price-to-earnings ratio is used to measure the present share price of a company with respect to the earnings. This is important in making investment choices as a high or low price-to-earnings ratio tells if the company is thriving or needs more growth. A high price-to-earnings ratio dictates high earnings in the future with a certainty of the company thriving. This occurs when the share price rises faster than the earnings or is expected to rise. On the other hand, a low price-to-earnings ratio dictates the share price falling, while the earnings remain unchanged. According to research, African companies have an average price-to-earnings ratio of about 9 percent, which shows great potential for a business. This can be compared with the S&P 500, which has its price-to-earnings ratio at 16 percent. Though African countries have low ratios, this suggests that the company would most likely exceed earnings forecasts despite expectations being moderate, which stands as a great factor for profitable investments.

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