Sentiments on Africa are changing. Whereas previously viewed as a ‘risky’ investment, Africa is now proclaimed one of the fastest growing economic markets with immense opportunity, and hesitation means missing out.
There are a number of investment trends fueling the African continent:
1) Regional investment. It is sometimes forgotten that Africa is a continent with a plethora of highly differentiated countries. For this reason, investors should not view Africa as a single entity to invest in. However,
investors are increasingly able to look at a larger reach than just a single country. Regional economic blocs provide investors with access to larger market. (Douglas)
2) A growing resource industry. These resources not only include oil, gas and minerals, but also agricultural investment.
“People are buying up significant agricultural interests in Africa really because that is the remaining arable land on the planet” explains Thunstrom.
3) Entry of a combination of both international industry and SMEs. Certainly multination companies are tapping in on the possibilities in Africa, but small and medium sized enterprises have also seen the benefits of entering the African context.
4) Increased investment by private equity. Although private equity is still relatively new in Africa, various firms have increased their investment in Africa, either by raising capital to enter the market, or have set up in Africa – primarily Nairobi.
5) Investment in infrastructure. Infrastructure investment is a trend for two reasons. Firstly, Africa suffers historically from an infrastructure-deficiency from post-colonial days and a number of civil wars. Secondly,
with the degree of urbanization that we’re seeing together with the pace that people are developing new mines, new oil feeds, new gas finds, the reality is that there is a whole lot of new infrastructure that wasn’t needed two years ago, that is going to be needed over the next 10 years (Thunstrom).
In the past 10 years, African markets have seen a huge interest from Chinese investors who, in order to fuel their own growing economy and population, require access to Africa’s vast reserves of minerals and other resources (Douglas).
6) Africa’s demographics and expanding population. With roughly a billion people on the continent, Africa’s population is close to China’s and India’s, and this population is young and urbanizing fast.
A growing middle class boosts the demand for consumer goods and in a few years time, “consumer demand will rival, if not surpass, anywhere in the world” (Thunstrom).
There is a lot of debate as to how you define the African middle class and you can debate about what the definition is, but the fact is its growing and it is increasingly urbanizing, which makes it possible for the fast-moving consumer goods (FMCG) sector and other service providers to get economies of scale because you are increasingly going to have cities in excess of 10 million people on this continent over the next few decades (Smith).
Population-related economic drivers and consumer increase are therefore the main economic drivers for future growth and reasons for investing in Africa.
These six trends for increased investment also constitute an opportunity, and hopefully Africa will be able to benefit from these investments.