November last year I wrote a post about an extremely interesting report that portrayed Africa as an interesting business case; ‘Lions on the Move’ (actually one of the most read post here on our blog). I can only second what I said back then, the McKinsey report is a must-read if you consider doing business in/with Africa.
Just recently Ernst & Young published the ‘Africa Attractiveness Survey’; ‘It’s time for Africa’ which very easily can be compared to the McKinsey findings.
To me, the two extensive reports are a rather clear sign that the African continent is moving in the right direction… at a blazing speed, that is. The value of McKinsey and Ernst & Young putting such positive words on Africa is simply priceless!
Below, I have handpicked some key take aways from the Ernst & Young piece. Again, you should read the reports yourself…
In general, there is a positive perception of investing in Africa, particularly in the medium to longer-term (beyond 3 years). 43% of the respondents are considering investing further in the region and an additional 19% are confirming they will maintain their operations on the continent. However, 1/3 of investors are still not considering investing in Africa. The most common barrier mentioned amongst the respondents are;
- Instability of the political environment (can be correlated to the poll mentioned in my previous post where ‘Lack of govt. support & legislation’ came in second as to what makes it hard to be an entrepreneur in Africa)
- Access to customers
- Level of infrastructure (transport, logistic and telecommunication)
- Corruption and security issues (are considered as major barriers by one out of five of the respondents)
So there is definitely an interest in Africa seen from an investment perspective, but as with so many other things in life, there is a heck of a difference between ‘walk’ and ‘talk’! Situation is, that Africa currently only attracts less than 5% of all Foreign Direct Investments (FDI). To quote the authors of the survey (I could not write this part better myself): ‘…which we believe does not reflect the increasing attractiveness of the African growth story. Africa is unusual in this respect. Although Africa’s proportion of global FDI has grown to some extent over the last decade, it does not accurately reflect a region that has one of the fastest economic growth rates and highest returns on investment in the world. The market for FDI is clearly fiercely competitive, and there is work that still needs to be done, on one hand, to articulate and market the African investment proposition effectively to international investors, and, on the other, for investors to gain a granular understanding of the risk/reward factors of investing into and across different parts of Africa.’ Please read the bold part once more!
As Muhtar Kent, CEO of Coca-Cola puts it in the E&Y Survey: “Africa is the untold story, and could be the big story, of the next decade, like India and China were this past decade … The presence and the significance of our business in Africa is far greater than India and China even today. The relevance is much bigger.”
So where are the ‘less than 5% FDI’ going? There is an interesting shift in sectors over the analyzed period (2003 to 2010) where Financial Services went to the top, going from 11% of total FDI to 16%. On the other hand sectors dealing with natural resource like ‘Coal, oil & natural gas’ and ‘Metals’ went heavily back;respectively from 17% to 5% and from 11% to 5%. Interesting, also seen from a MYC4 perspective, as it fits very well with the ‘mantra’ we are taking point of departure in: ‘The African bank sector today and in 5 years, will not be the same!’
Good to see that investments in ‘Communications’ has quadrupled from 2003 to 2010 when one of the vital jobs to be done to turn around Africa is; ‘to articulate and market the African investment proposition effectively to international investors‘.
FDI can play a critical role in helping to accelerate and sustain growth but FDI also provides a positive ripple effect, including:
- Job creation — from 2003 to 2010 FDI was part of creating 1.6m new jobs in Africa (lack of jobs is said to be one of the biggest threats for Africa as a whole)
- Development of local suppliers
- Skills, technology and knowledge transfer
- Catalyst for economic diversification — helping African economies move beyond overdependence on natural resources
On page 38-41 the survey has provided a good overview of 17 African countries (the 5 countries we are active in are all on the list). The table includes;
- Top five countries investing in the country
- Top five sectors
- Some lines of general description about the business landscape
I will stop here, but let it be clear; I simply love this kind of reports – you get such a big piece of information-pie… at a glance.
Have you seen some piece of work that I need to throw myself over then please hint me…
“The best time to plant a tree is 20 years ago. The second best time is now.” African proverb