Why Investors Should Look to Africa

by Nick Harriss, Founder and Chairman

Over the years many misguided pronouncements have touted the improved economic prospects of Africa, home to a large proportion of the world’s billion poorest people.

Many business leaders in the West remain sceptical about Africa. Past perceptions of matters such as:

  • corruption;
  • inefficient bureaucracy;
  • lack of transparency;
  • weekly enforced regulations;
  • insufficient/inefficient trade and investment incentive packages; and
  • cumbersome investment legislation and procedures

still linger on many potential investors’ minds.

However, the progress that has been made in reforming governments,achieving greater political stability, improved macroeconomic environment, and an energized business environment are becoming too significant to ignore. For example, several countries halted their deadly conflicts, reduced inflation, cut budget deficits, lowered trade barriers, cut taxes, privatized companies, and liberalized many sectors, such as banking.

Financial Reforms

Another perception about investing in Africa is that its financial sectors are inefficient, but unknown to many Africa’s banking sector has both grown rapidly and demonstrated an impressive record of innovation in the last decade.  A significant contributor to this growth has been financial reforms. For example in Nigeria, banking reform promoted a swift consolidation (from 89 to 25 banks between 2004 and 2006) that unlocked the sector’s potential—bigger banks with better capabilities has driven down their costs, allowing them to penetrate a larger portion of the unbanked population and to ride on the back of rapid economic growth.

Emerging Sectors

The banking sector is just an example of where out-dated perceptions do not match with the Continent’s new realities.  Africa is now home to some of the world’s fastest-growing economies and offers the highest risk-adjusted returns on foreign direct investment among emerging economies.

Telecom, mobile banking, retail, and consumer goods are only some of the sectors that are showing great promise. While mining and oil remain big businesses, infrastructure investment and the consumer market are also major growth areas.It is estimated that consumer goods and services, natural resources, agriculture, and infrastructure could together generate as much as $2.6 trillion in annual revenue by 2020, or $1 trillion more than today, measured in 2010 dollars

Africa’s Growth

Africa’s growth acceleration has beenwidespread, with GDP rising more rapidly in 27 of its 30 largest economies—both in countries with significant resource exports and those without. Rising revenues from oil, minerals, and other natural resources accounted for just 24 percent of growth from 2000 through 2008.

The Continent now has more than 1,400 publicly listed companies. It boasts more than 100 companies with annual revenues of greater than $1 billion. Telecom firms have signed up more than 316 million new mobile-phone subscribers in Africa since 2000—more than the total U.S. population, while Africa’s future economic growth likely will be supported by several long-term trends, notably the world’s increasing demand for many of thecommodities the Continent is blessed with.

Africa’s Promise

Many years have passed since investors updated their view of Africa’s promise. The time is ripe for investors to rethink sub-Saharan opportunities and simultaneously to help the region achieve its promise by contributing much-needed capital, business skills, and global connections, whilebenefiting from the high returns on these investments.

 

 

 

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