The Time is Now for African Investment

Authors

Africa has a young population and is growing fast

Establishing and supporting businesses in Africa is twinned with risk; but this is not an uncommon partnership. High-risk endeavours usually have the highest rewards. African investment also includes the opportunity to have a positive impact on local and national infrastructure, SDGs, the economy, and the digital divide.

Africa is made up of 54 countries, according to the United Nations (UN). It is larger than the United States, China, India, Japan and the whole of Europe put together.

Most of these countries are underdeveloped, with poor infrastructure and degrees of governmental instability. It has been reported that Sub-Saharan Africa (SSA) was the world’s slowest growing region in 2021. SSA also has some of the most expensive 1GB basket prices globally.

There is a clear international focus on Africa. The second largest continent is receiving significant investment which is financing the roll-out of data centres, fibre connectivity in new areas, and the deployment of mobile networks in key markets.

Africa is home to 1.4 billion people, accounting for 16.72% of the world’s population. This is predicted to rise to 4.39 billion by 2100.

It is the most central continent in the world, making Africa the perfect hub for reaching the four corners of the world. It is also the most profitable region in the world. According to the Overseas Private Investment Corporation (OPIC), Africa offers the highest returns on foreign direct investment (FDI) globally. In fact, according to the recent UN Conference on Trade and Development, Africa’s return on foreign investment between 2006 to 2011 reached 11.4%— significantly more than the global average of 7.1%.

Currently, the top three recipient countries in Africa for FDI in 2020 were Egypt, The Republic of the Congo and South Africa. Since 1 January 2021, the African Continental Free Trade Area has been in effect, creating the world’s largest free-trade area with all 54 countries participating. This agreement essentially creates one single market allowing foreign businesses to reach markets that were once difficult to approach.

The median age across Africa is 19.7 years.

Africa has a young and growing workforce: a perfect condition for businesses wanting to invest. Africa is the fastest growing continent, and by the turn of the century will be the only region with population growth.

Six of the world’s 12 fastest-growing countries are in Africa (Ethiopia, Democratic Republic of the Congo, Côte d’Ivoire, Mozambique, Tanzania and Rwanda).

With almost 60% of the population under 25 years old, it is also the youngest continent. There is a surplus of workers that want and need jobs. Unlike other parts of the world, Africa is not in a candidate-driven market; it’s an employer market and that means your business can recruit the best talent, without facing fierce competition. A young and abundant labour market also has the advantage of lowering production costs. Foreign investment will hopefully have the additional advantage of raising wage rates in Africa and improving market efficiency.

Africa is the least-developed continent, barring Antarctica. With its fast-growing population, governments want and need infrastructure projects to support this budding populace. The opportunity for development is huge, and African countries are adopting various measures to attract investors.

Top five growing markets for foreign investment

We will take a look at five of the most important emerging markets in Africa: Nigeria, South Africa, Algeria, Ethiopia and Namibia. We make the business case for investment and also assess the matrix of opportunity versus risk.

Nigeria

Overview

• Nigeria is the largest market in Africa
• The main language is English
• The population is forecast to grow to over 410 million by 2050
• The legal system is based on the UK system
• One of Africa’s key oil producers, although currently held back by low production. The economy is heavily dependant on this sector and part of the current economic strategy is diversification
• The country is facing severe challenges such as rising inflation, high unemployment and widespread insecurity

MNOs

• MTN
• Glo
• Airtel

Opportunities

• There is a major drive to transform the energy and agricultural sectors through technology
• Key driver of international trade across all of West Africa
• The third largest movie industry after Hollywood and Bollywood
• Deployment of 5G technology and the Federal Government of Nigeria’s broadband penetration target of 70% by 2025 will attract additional foreign investment
• Nigeria plays an important leadership role in both West Africa and on the African continent. The headquarters of the Economic Community of West African States (ECOWAS) is in Abuja

Challenges

• Although the economy is predicted to grow around 3.2% in the next few years, this projection is subject to significant risks such as further declines in oil production and heightened insecurity
• Unfavourable regulatory changes are continuing to have negative effects on business
• Nigeria ranks 131 on the World Bank's Ease of Doing Business 2020 report — although this is improving year-on-year
• Unreliable power supply
• Poor transportation infrastructure
• Slow judicial system
  

South Africa

Overview

• South Africa is, in general, the most advanced, diversified and productive economy in Africa
• The country was hit hard by the COVID-19 pandemic. Poverty has reached levels not seen for more than a decade, while inflation has increased to a 13-year high
• Telecoms growth has decreased despite the boost in traffic during the pandemic. Future growth is expected to be driven by mobile and fixed-broadband digital services
• South Africa is a business incubator for new-to-market ideas which then travel to other Sub-Saharan African markets
• There is widespread use of English for business
• SA has a robust legal sector

MNOs

• MTN
• Cell C
• Vodacom
• Telkom

Opportunities

• Since 2015, over one-third of acquisitions in the African tech space have involved South African companies
• Significant CAPEX investment in new infrastructure required to evolve telco’s business models to compete with new market entrants
• According to the Global Connectivity Index, South Africa is one of the countries with the most potential in using ICT to boost growth and achieve several of the UN’s Sustainable Development Goals (SDGs)

Challenges

• Infrastructure issues continue to hold back the economy and lead to frequent power shortages
• The telecoms market has suffered from reduced profit margins over the last decade. Value-added services and new technologies will be required to realise new revenue streams
• The high cost of connectivity and mobile devices, particularly in the current recession and high unemployment, are a barrier to the uptake of new digital services
• According to the World Bank’s Doing Business project, South Africa’s rank in ease of doing business in 2020 was 84 out of 190
• One of the highest and most persistent inequality rates in the world

Algeria