Investing in Africa

Investing in Africa

Africa is becoming an increasingly attractive hub for foreign investors in light of various economic, political and social reforms that are sweeping across the continent which have resulted into conducive business environment. The widespread development of critical social and physical infrastructure,  existence of  abundant natural wealth ,  improving political landscape and a young and  growing  educated middle class population have enhanced the attractiveness of Africa for foreign investment.

Reasons for investing in Africa
Africa may have the highest economic growth potential of any continent. The International Monetary Fund (IMF) projects that seven of the ten fastest growing economies in the world from 2011-2015 will be in sub-Saharan Africa and it expects Africa to take from Asia the title of the world’s fastest growing region.

 Natural Wealth
To invest in Africa is to invest in what the world needs. The continent is extraordinarily rich in minerals, energy resources and uncultivated arable land. Although less than half of its land has been surveyed, Africa is thought to hold more than half of the world’s gold, more than 40% of its platinum and vast deposits of copper, diamonds and iron ore. Large new oil and natural gas fields are being discovered on a regular basis in numerous locations, including offshore West Africa, offshore south-east Africa and along East Africa’s Rift Valley. According to the United Nations, Africa also holds more than 60% of the world’s uncultivated arable land, yet only 10% is currently planted.

African investments are cheap relative to their growth potential. Many investment opportunities on the continent are under-researched, under-appreciated and, consequently, under-valued.

Favorable Demographics
With about 40% of its population thought to be under the age of eighteen, Africa is the youngest continent in the world. In coming decades these young Africans will move into their most productive (and highest consuming) years, generating increasing demand for all manner of goods and services. As these younger and more educated people enter the workforce, consumer expenditures in sub-Saharan Africa are projected to rise from $600 billion in 2010 to nearly $1 trillion in 2020

Africa’s rising GDP
Africa is the second-fastest-growing region in the world, according to economic experts. The continent has been reawakening with new zeal for economic growth and development, and the rate of return on investment is higher than anywhere else in the world.

From 2000 to 2008, Africa’s real GDP rose by 4.9%, more than twice its pace in the 1980s and 1990s. In 2012, six of the continent’s 10 economies (Angola, Ethiopia, Ghana, Namibia, Nigeria, and Zambia) reported GDP growth rates of 5% or higher – it was as high as 8.5% for Ethiopia.

The World Bank in its latest semi-annual report, Africa’s Pulse, forecast an average 5.3% growth in 2014 up from its 5.1% projection.

Also, the IMF estimates that GDP growth in sub-Saharan Africa will hit an average of 6.1% next year, far exceeding the expected global average rate of 4%. It also says that seven of the world’s 10 fastest-growing economies for the period 2011-2015 will be African.

The reason behind this growth surge includes government action to end armed conflicts, improve macroeconomic conditions, and undertake microeconomic reforms to create a better business climate.

Doing business in Africa is now easier
Africa is now home to more international private firms. This is due to the increasing adoption of seamless business policies, lowered corporate taxes, and strengthened regulatory and legal systems in some countries.

The World Bank’s “Doing Business 2014: Understanding Regulations for Small and Medium-Size Enterprises” released in October 2013 reported that sub-Saharan Africa continues to record a large number of reforms aimed at easing the regulatory burden on local entrepreneurs, with 66 reforms adopted in the past year (June 2, 2012 – June 1, 2013).

Of the 189 nations surveyed globally, 18 African economies made the top 50 most reformed economies. Rwanda, Côte d’Ivoire, and Burundi are among the global top 10 improvers in making the biggest improvement in business regulations.

This year, Mauritius at 20 position, Rwanda 32, South Africa 41, Tunisia 51, Botswana 56, Ghana 67, Zambia 83, Morocco 87, Namibia 98 and Cape Verde 121 are testament to the growth in ease of doing business in Africa.

The report also showed that of the 47 economies in the Sub-Saharan Africa, 31 implemented at least one business regulatory reform in 2012/13.

Higher Demand
Africa is now in the age of consumerism with prediction of being the world’s leading consumer market by 2050. This is fueled by interrelated social and demographic changes that drive the continent’s growth engine, urbanisation and rise of the middle-class African consumer.

In fact, not less than 31 million of African households have joined the world’s consuming class since 2000.

Financial consulting firm, Deloitte, reported that more than one-third of Africans are middle class today and by 2060, continent’s middle class will encompass 1.1 billion people- about the current size of the population.

This rise will create more demand for local products and spark a cycle of increasing domestic growth.

By 2030, Africa’s top 18 cities will have total spending power of US$1.3-trillion, McKinsey & Co estimates. Cashing in on the potential, retail heavyweights like Wal-Mart, Massmart, Shoprite and Atterbury are taking advantage by building stores across the continent. Also, French retail giant Carrefour also partnered with the French distributor CFAO to open stores in eight countries across the continent by 2015.

Political Progress
Africa continues to become more open and democratic. In the early decades of the post-colonial era, peaceful changes in leadership were uncommon. Since 1991, however, peaceful transitions of power have occurred in more than 30 instances in sub-Saharan Africa. To be sure, the quality of many African democracies needs improvement, but the vast majority of Africans now cast their ballots in regular national elections and the move toward democracy is well embedded.

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