“Africa is a continent with extraordinary challenges, and it’s a copout just to wait for governments to deal with them. If you see a problem, then think about how you can solve a piece of it” — Strive Masiyiwa, chairman of the pan-African company Econet Group.
Africa’s slow progress can be a cause of concern for prospective investors. However, investing in the emerging sectors will long-term benefits to those willing to wait. Strong demographics, rising sectors and abundant resources are some of the long-term growth opportunities. There are several investment opportunities for those who want to bring about a positive change in the conditions of the continent, while achieving long term yields from the same. According to RMB Investment Attractiveness Rankings, the best countries to invest in are Egypt, Morocco, and South Africa.
Agriculture
Agriculture is one of the top sectors in Africa with an immense growth potential. The sector contributes to over 15% of Africa’s GDP and has shown a good growth rate due to prior government policies that prioritise the sector to retain its sustainability and competitiveness. The top earning agricultural products are coffee, cocoa, maize and wheat with Ghana, Nigeria, South Africa, Ethiopia and Uganda as the top producers.
Large areas of arable land, increasing use of technology, massive youth dividend, increasing government support and a large demand base makes agriculture an attractive sector for investment despite the problem of erratic rainfall pattern in some places.
By the year 2050, it has been predicted that Africa’s population will almost double with a growth rate of 2.7% per annum. To meet the growing needs of the population, substantial investment from its global peers is absolutely necessary. That will also help the sector to grow and enhance its status as a global competitor, help in economic diversification and also mitigate the prominent problems of undernourishment, poverty and hunger that exist in the region.
Manufacturing
Africa possesses an abundance of raw materials which can be easily turned to manufactured products for greater reliance on local products and increased exports of the same. The top three manufacturers in Africa are South Africa, Morocco and Egypt.
The growth of manufacturing can greatly drive economic growth and development in Africa. However, the sector faces challenges like lack of skilled-workforce, infrastructure gaps including low power supply and inadequate regulatory measures to address the prominent challenges. The import to export ratio of manufactured products in Africa is very high as Africa mostly exports unprocessed commodities. The growing manufacturing sector is making great advances in this aspect. It has already increased the total export goods from 18.7% in 2012 to 35.6% in 2017 and caused a significant decrease in imports implying greater importance to domestically manufactured products.
There has also been a shift in the focus of FDI projects from dominant extractive industry to consumer-facing industries like retail, technology, media, etc. This trend is expected to continue in the near future.
Retail
The African Development Bank is expecting the current 350-million-strong middle class to grow to under one billion by 2040. The growing middle class demography is contributing to the growth and modernisation of the retail sector which is greatly devoid of supply competition and requires investment to meet the growing consumer base. The market for essential goods constitutes the majority of consumer spending owing to the low-income levels in the economy and as the income-level status is not expected to undergo a drastic change in the recent future, the comparatively smaller market for luxury products will have a low growth rate.
As a large amount of consumer spending in Africa taking place in informal markets, due to absence of prominent formal retail presence, is unaccounted for, Africa is projected as an economy with low household retail-spending despite that not being the case.
“The Brookings Institute’s latest analysis on trends of the African consumer market shows that consumer expenditure has grown at a compound annual rate of 3.9% since 2010 and reached US$1.4 trillion in 2015. This figure is expected to increase to US$2.5 trillion by 2030.”
There are several cyclical challenges related to the retail sector, like low GDP growth, high inflation, dwindling credit extension. The challenges can be used as opportunities to enhance the growth of the sector by focusing on the development of the retail infrastructure and modern logistics spaces to satiate the demand for high-quality space from retailers looking to expand in Africa.
Finance
Finance is one of the top sectors in Africa which regulates the funding of all the other sectors. Financial innovation guarantees the diversification of banking sector services and facilitates the incorporation of capital market instruments to reduce investment risk.
Rwanda, The Gambia and Senegal have shown massive progress in financial system rankings. However, there has been an overall decline in Africa’s global financial standing from 2017 – 2018 due to a fall in the pace of reform of this sector.
The impact investing industry has shown substantial growth and is quite relevant as several countries in Africa lie below the global average score for Human Development (0.8) with declining levels of official assistance. The industry has made abundant impact across a wide range of sectors like Healthcare, Agriculture, Housing, Education and others. This provides ample opportunities for investment in several initiatives which will reap both financial and environmental returns.
Some of the prominent threats to this sector include underdeveloped market infrastructure due to limited funding, difficulty in gathering viable investment to meet financial and social targets, limited capital supply, unclear regulatory environment, inconsistent impact-measures and so on. These might prove to be a disincentive to many and hinder their investments. However, a far-sighted investor might implement innovative measures to meet the pending gaps and turn these challenges into opportunities to optimise social and environmental investments.
Infrastructure
Infrastructural inadequacy causes a huge hindrance to investment and growth in all sectors of Africa. There is a wide gap between the infrastructure needs of the continent and the amount being spent on fulfilling the need. There is an urgent need to bridge the gap through sufficient investment to meet the growth needs of Africa.
In countries like East Africa, Ethiopia and Tanzania, infrastructure investments in the form of new roads, energy support, transportation networks and others have led to guaranteed growth and transformation of the prevailing sectors. Construction has been primarily responsible for high economic expansion in Egypt. Infrastructural developments lead to employment generation via contractors, boosting aggregate demand. Investment in infrastructure by foreign players can prove to be very beneficial as it would provide the required sophistication to the local industry by supplying goods needed for large projects.
Real estate has evolved significantly, providing higher returns on investments, thus, becoming increasingly attractive to potential investors. Despite having a good growth potential, real estate has certain risks attached to it like complex legal considerations, such as property ownership rights, social instability resulting from inequality, and others. However, the growth drivers like sustained high demand driven by urbanisation, improved capital regulation, technological advancements in banking leading to a boost in investment rates, and expected GDP growth supporting the demand for housing easily overshadow the challenges.
Conclusion
For many years, Africa’s growth potential has been understated and misunderstood. It has been treated as a non-friendly investment destination due to the several challenges posed. However, there has been a worldwide lack of understanding the ease of converting the insurmountable challenges to opportunities. Africa’s growing population and prevailing problem of excess demand needs to be met via increased investment and innovation which will in turn lead to increased employment, decreased poverty and increased infrastructural development. Thus, despite Africa’s slowing global growth, if the prevailing challenges are addressed adequately, growth is inevitable.
