Why You Should Invest In Africa Right Now
In more recent times, Africa has seized to be known as the ‘Hopeless Continent’ as tagged by The Economist in the year 2000 and is now more commonly viewed by a plethora of emerging market investors as ‘Aspiring Africa’; a term coined by the very same publication in March 2013. It is a highly profitable region of the world, as according to a report by the UN Conference on Trade and Developments, Africa produced the highest rate of return on foreign direct investments between the year 2006 to 2011 at an impressive 11.4%. Over the past two decades, the continent has experienced a great level of economic growth and has been able to offer a lot of international businesses that have been paying close attention to its growth, a wide variety of market opportunities and prospects.
Why should I invest in Africa?
It’s a good idea to invest in Africa, and the right time to do so is now. Why? Well consider this. If you bought a stock, you wouldn’t expect high levels of interest immediately. If you have invested in a good company, then all you need to do is sit and wait patiently as you watch your compound interest grow over the years. Investing in Africa is like buying stocks in a good company. The continent sports very strong indicators that point to even more growth in years to come. In fact, according to the International Monetary Funds Project, Africa is projected to be the world’s second largest economy in the next couple of years. However, if you need a little bit more convincing, here are a couple of positive indicators that support investment in the continent’s economies.
Young population: According to research done by Deloitte, Africa prides itself with having about 20 percent of its population; roughly about 200 million people, between the ages of 15 to 24. Even more interesting is the fact that this figure has been projected to rise to about 321 million by the year 2030; only 10 years from now. The young demographic is definitely a favorable factor for Africa as a working age population this large has been known to be linked with high rates of GDP growth. Besides, it is also imperative to point out that this demographic are also consumers of the newest and most popular goods and services, and you there is very much a market there.
Growing middle class and increasing willingness to spend: As at the year 2017, with a population of more than a billion people, Africans, both businesses and consumers spent about 4 trillion dollars. By 2025 as projected by Mckinsey, a total of 5.6 trillion dollars would be spent by households and businesses. When it comes to purchasing decisions, Africans are known to be loyal to brands that they love and are even more willing to spend more money on brands that are well known. Just like any other consumer, African consumers are interested in modernity and quality when it comes to shopping experiences, and with a large percentage of Africans living in urban areas with high levels of economic activity, its clear to see that there is an availability of business opportunities.
Need for connectors: One quite essential infrastructure that is lacking in several African economies is convenient, developed and easily available means of transportation. Across Africa, it is notable that railways, roads, airports and ports are highly underdeveloped. Because of this, the potential for growth of imports, exports and businesses are stunted as the transportation issue poses as a hindrance. As an international business, if you can come in and provide transport connectors that can link Africans and their markets, there is a high chance of business success.
Diversifying economies: It is not news that when it comes to oil exporters in Africa, the growth of this as an export has rapidly slowed down. As a result of this though, more and more African countries are moving away from depending on expendable resources for growth and are instead putting in the work towards attracting foreign investors. Smaller economies such as Tanzania and Senegal have managed to average at a 5.8% GDP growth per year between 2010 and 2015 after carrying out progressive economic reforms as a way to improve their competitiveness. The World Economic Forum stated that in every African country, there has been a development of an ‘investment promotion strategy’ that works to attract investors by creating ease of entry schemes for foreign businesses. More so, several sectors within the continent such as tourism and technology have been advanced in such a way that they now pose as great investment potential.
Is Africa a good investment?
You need all the facts if you really are looking to invest in Africa, so it’s important to note that when it comes to investing in Africa, it’s not all sunshine and rainbows. One of the major reasons why foreign investors are not quick to swoop in and invest in the continent is the fact that there are quite a number of risks when it comes to investing. Africa is made up of 54 countries and each of these nations have their own challenges unique to their economy such as changes in government, underdeveloped infrastructure and regulatory inhibitors. Some of these issues, depending on the country, can act as possible impediments to successful investments, however, when it comes to Africa, the risk perception by investors tend to be greater than the actual risk. Investing in Africa has several advantages and the hindrances perceived by foreign investors can typically be dealt with accordingly as most African nations are welcoming to profitable foreign investments and so are more likely ensure that international businesses experience smoother investment processes.
There are several benefits to investing in this vast continent as it is full of business opportunities that can drive growth for both your business and their economies. Some of these opportunities include Africa’s vast variety of natural resources. A lot of the natural resources are widely untapped with it priding itself in having 10 percent of the world’s natural oil and gas reserve, an availability of hydroelectric power that remains mostly unexploited and a natural supply of gold, iron, copper and diamond. In addition to enriched with all these natural resources, Africa also holds about 60 percent of the world’s land that is cultivatable. However, as at 2019, it was recorded that only about 10 percent of Africa’s tillable land was being cultivated, which poses as a great business venture opportunity for foreign firms. Acting as the icing on the cake is the continent’s supply of a large, cheap and relatively educated labor force. The working-class demographic is growing at a rapid rate and this high population of labor force can be profitably exploited by foreign investors looking to diversify in Africa.
What should I invest in Africa?
Africa with all its different countries have several investment opportunities for foreign businesses, however, to narrow things down for you, here are seven of the biggest and more profitable industries you can invest in.
Agriculture: In the sub Saharan region of Africa, agriculture accounts for over 60 percent of the total employment. The agricultural sector in Africa is an investment goldmine and one of the major industries you should look into if you want to invest. Cultivatable land continues to expand in Africa, which results in a growth in agricultural production. This however has a negative effect on the environment. There are technological solutions that can allow for increased agricultural production that doesn’t come at a cost to the environment, and so this is where your business can come in. investing in this sector by providing solutions to these issues is sure bring your business favorable results.
Manufacturing: Offering great market opportunities for international businesses, the manufacturing industries in Africa have the potential to bring about a huge number of job opportunities for the working-class population. Growth in this industry has been said to be driven by technology, infrastructure, human capital and institutions as so these are the four key things to explore if you’re interested in investing in this sector. More so, this sector has an added investment advantage which cannot be seen in most developed countries, in that it is not stunted by infrastructure related legacy problems.
Power: With over 1.2 billion in total population, Africa as a whole is still in hot pursuit of energy that is both affordable and reliable. Access to this kind of constant power is incredibly important as it is needed to both improve economic growth as well as cater to the needs of an ever growing urban population. The struggle with energy in several African countries comes in the form of expensive costs, constant power outages and very low capacity. Investing in the power sector can mean providing more reliable and affordable alternatives to power such as hydroelectricity and geothermal power. Liberia alone has six main rivers that drain over 50 percent of the country’s water, which presents itself as an opportunity for your business to invest in hydroelectricity.
Infrastructure: With a growing middle class and an increasing shift towards urbanization, several major cities in various African countries sport infrastructural opportunities for international firms. One example of this opportunity is the need for sufficient housing in these hot spot cities as more and more people are moving away from rural areas into more central cities. The increasing population in these urban areas do not match the available housing supply, and so this is where your business comes in to exploit this gap through construction. Also, with more firms looking for office spaces in the cities, your business can take advantage of the lack of adequate spaces by constructing these much needed infrastructure, meaning that while you provide the supply to match the demand, you get to benefit from your investments in the form of growing revenue and profits.
Retail: Already known for being a fast-growing industry in Africa, the retail sector is a highly profitable one to invest in. in several countries in Africa, consumers are more willing to spend on well recognized foreign brands, which poses as an opportunity if your business involves retail. With growing urbanization rates and an increasing population of working-class consumers with increasing levels of purchasing power as result of a growth in the middle class, it is not difficult to see how there are market prospects in the African retail sector. Noteworthy though is the fact that different countries within the continent have their own unique environments when it comes to consumers and their consumption, but as an investor, it is important to research on and understand the consumer behavior in all your target countries as well as their growth rates, consumer purchasing power and the total population of your target audience.
Healthcare: African consumers are increasingly experiencing higher purchasing powers compared to a decade ago and this has mostly been as a result of improving logistics and healthcare capabilities in various African economies. With more and more African countries increasing their health-related spending as a way to meet up with the United Nations Millennium Development Goals, more modern healthcare technologies are being developed that can bring about business opportunities to profit from the industry. Investing in this industry can work because there are several market opportunities that are present if you are willing to tap into the revolution of the digital and technological world as your business can develop transformational information and communication tools and technologies that you can use to exploit the growth potential in the health care sectors.
Telecoms and technology: Between the years of 2000 and 2016, the mobile phone usage of Africa has increased by a whooping 344 percent. This growth has been as a result the development of communication and development technologies across the continent and so has had quite a positive impact on Africa’s socioeconomic behavior. Due to the rapid growth of the mobile market in African economies, several network providers have risen in Africa and not only securing network subscriptions but also pushing towards encouraging subscribers to consume more data as well as make use of mobile banking. As an international business looking to invest in Africa, this sector is particularly attractive because you can take advantage of the vast market and provide some even more innovative ways of using mobile phone devices for consumers.
Which is the best country to invest in Africa?
Africa is a vast continent and made up of 54 countries, each of which has its own investment advantages. It is therefore almost impossible to pick just one country as the best to invest in, so instead, here’s a list of the top 5 countries in Africa to invest in with each of the economies holding impressive market potentials.
Egypt: Egypt is an especially attractive African country to invest in simply because of its large market that is paired incredibly well with its incredibly sophisticated business sector that is quite impressive when compared to other countries within and outside Africa. This country has experienced an improved business and economic environment as a result of strategically developed government programs as well as an increase in investment from private sector businesses that has led to an increase in its economic growth.
Morocco: Morocco might only be Africa’s 5th largest market, but don’t let that derail you as it hosts a great number of investment opportunities. This country has an expected growth rate of about 4% by the end of the medium term, and as it has recently joined as a member of the Economic Community of West African States (ECOWAS), it has been able to experience a well improved operating environment that has brought about many benefits to the country since the Arab Spring.
South Africa: If you don’t already know by now, South Africa is one of Africa’s most recognized hotspots when it comes to portfolio investments. Many Africa countries suffer from constraints when it comes to liquidity, but not South Africa, as this economy has a financial market as well as levels of financial inclusion that make it superior to other countries in the continent. This makes it a good country to invest in as its secure financial market is one that you can put your trust in.
Kenya: As at 2017, Kenya’s elections were completely disputed and so they faced a political reconciliation. This has acted to its benefit as the country was able to then accomplish a growth rate that was over 5%, pushing it to the top of the list of African countries to invest in. Coupled with a growth in foreign direct investments as well as profitable government investments, the increasingly diverse Kenyan economy is one to look out for. Plus, it doesn’t hurt that the country experiences favorable weather.
Rwanda: Known for having the second-best business environment in Africa, that alone is enough reason to invest in Rwanda. In less than 10 years, this country has succeeded in more than doubling the efficiency of its business environment according to the World Bank’s operating environment scoring. Its government has been proactive enough to heavily invest in its domestic industries which has led to a rapid increase in foreign direct investments over the same period.