Africa is calling you to fill the gap! If the thought of starting your own African business does currently not look like the right option for you, investing from afar is something you should seriously consider. Just a couple of years ago investing in Africa was still regarded as an undertaking by a risk-hungry few. Today, investing money into Africa’s new emerging markets has become much more popular. But negative perceptions about Africa remain to be among the key factors that keep many investors away to this day. Are you one of those who are inhibited by worry? Here are 7 market insights that may help you start moving, so you can make the most of Africa’s huge opportunities:
1. Almost 87 % of company CEOs operating on the continent say Africa is highly attractive
This is a finding of a study by Ernst & Young in 2014 and it just confirms: Foreign firms operating in Africa’s challenging environment right now, don’t regret it. A staggering 87% of CEOs operating on the continent already believe that Africa will be hugely attractive in future, but only 51% of those who are not operating in Africa share that view – as a result only around 10% of the latter group has developed an investment or market entry strategy for Africa. Well, those operating on the ground have certainly seen it all for themselves and their confidence in Africa’s investment climate is a good sign.
2. Return on Investment much higher than global average
The global average for return on investment (ROI) lies somewhat between 5-10%, in Africa that lies between 15-25 %. There are many firms in Africa who make an astonishing 30 – 35% ROI on certain projects. Think about it – that has to sound like a good financial plan!
3. Prepare an investment strategy: Africa comprises of 54 diverse markets
We often refer to Africa as it was one market, but fact is that the continent comprises of 54 countries spread over a land mass that is larger than the USA, India, China, Japan, and all of Europe…combined! I find it unbelievable just writing this….! It is therefore absolutely vital that you understand some of the key differences among these markets to make informed decisions when investing. If you have 54 countries to choose from, you need an investment strategy and understand market growth patterns, as some markets in Africa are simply not large or dynamic enough or have an enormous risk potential. Ideally, you would start with an industry in mind – then chose the best African market for this industry. Factors around investment climate and protection, governance, infrastructure, and possibly available exit strategies for larger investments are important aspects. But in Africa it is equally important that you gain insights into issues around strategic local partnerships, cross border trading, and the economic trade regions that exist in Africa – among other. Start informing yourself and then plan carefully before implementing anything.
4. South Africa, Nigeria, and Kenya….there is more to investing in Africa
South Africa, Nigeria, and Kenya clearly remain Africa’s investment powerhouses in Sub Saharan Africa and around 40% of all foreign direct investment projects are launched in these three countries. Having said that there are markets in the proximity of these three powerhouses that are very investor friendly and that have overall a great business environment; Think for example of Rwanda in the East, Ghana in the West, or Botswana in Southern Africa. Think outside the box, be more strategic about your long-term investment goals and make the most of investment-friendly markets in Africa that make your life easier.
5. East African Community (EAC) is a top investment destination
The EAC is Africa’s smallest economic trade region, but unquestionable one of the most effective and popular. The EAC and its member states enable you to access a population of 150 million people in a single market. Dynamic markets like Kenya, Uganda, Tanzania, and Rwanda are all part of the EAC and there are discussions for Ethiopia to join in future.
6. Fast moving consumer goods and agriculture to overtake mining
Mining has been Africa’s largest industry attracting a lot of FDIs in the past and while the sector is still very attractive and offers ample opportunities, it is projected that Fast Moving Consumer Goods (FMCG) and Agriculture will make up the largest industries in about a decade or so. Both industries will be closely coupled to manufacturing, value addition, and job creation on the African continent fulfilling crucial aspects towards the continent’s development. For small to medium scale investments, FMCGs, agriculture, ICT, energy, and real estate will be among your top industries to invest in Africa.
7. You can mitigate the risks for your investment in Africa
Emerging markets offer great opportunity, but they also pose greater risk. This is the nature of emerging markets, don’t shy away from them! It could be argued that the risks you are facing in Africa are not all so different from the risks you would find in other emerging markets, having said that, challenges do exist and they need to be managed. Now, here is an important point: contrary to the understanding of many, you can actively mitigate risk for your investment in Africa. How? Choose a less risky African market for your investment (oh yes, they do exist!), choose a less volatile industry, find reliable local industry partners, and work towards a multi-market entry strategy are the steps for you to take.
Have you thought about investing in Africa? What are your worries, experiences, or the questions you need answered? Let’s continue our discussion below!
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