Africa: a land of opportunities

For years now, the African continent has been touted as the destination of growth and opportunity for daring companies and entrepreneurs. And it is easy to understand why: its 1.11 billion inhabitants (as per a 2013 census) represent a massive market, and they are among the youngest on earth, with a median age of 19.7 (for a worldwide median of 30.4). Moreover, the continent also has abundant natural resources, such as minerals and fossil fuels, that could further the economic growth of the continent if adequately exploited. However, for all its potential, Africa also has its pitfalls and thus requires time, research and preparation before jumping on any business opportunity.

In recent years, the main story of “Africa Rising” has been tentatively replaced by one of “Africa’s Resilience”. Yet, even that language is now being tested to the downside. Sub-Saharan Africa risks losing its status as the second fastest growing regional economy as lower commodity prices have placed significant strain on many countries’ export and fiscal revenues and restrained economic growth more broadly. Drought conditions during 2015 in much of Southern Africa have further hurt economic growth, curtailing agriculture output and placing significant strain on hydro-based electricity production in several countries. Barclays Research estimates that economic growth slipped to 3.7% for sub-Saharan Africa in 2015, well down on 2014’s 5.0% and the weakest in more than 15 years.

On an expectation of better weather conditions, a normalization of electricity supply, and a modest recovery in key commodity prices, Barclays projects SSA’s economic growth to recover to 4.5% in 2016, though at present risks seem predominantly to the downside.

Aside from the immediate and negative impact of the less favourable commodity, foreign direct investment and global funding environments, two key questions will need to be answered in 2016 with regards the sub-Saharan economic outlook. First, for those countries for which commodity exports are an important story, to what extent will the lower commodity prices of today result in delays/cancellations of previously planned fresh investment in new projects? Second, to what extent can countries’ economic growth diversify away from a reliance on commodity production and commodity-related investment and shift towards local activity in the manufacturing, agriculture and/or services sector? The answers to these two questions will dictate whether “Resilience” is a suitable phrase or whether the sub-Saharan economy might face a further growth deceleration.

Yet, all is not doom and gloom for investors in Africa. Indeed, its emerging markets are extremely interesting, for investing in them can play an important role in a diversified portfolio, in particular one with a long-term time horizon. That is because growth prospects for emerging markets are much higher than those for developed economies, and its major risks are associated with potentially high returns. And some sectors really do stand-out for long-term investment prospects.

The first of those is tourism. According to the United Nations World Tourism Organization, tourist arrivals into Africa in the year 2012 exceeded 50 million and are likely to keep on increasing in 2016. These are the kind of numbers investors should be taking advantage of, through business opportunities such as accommodation or parks, as well as in terms of foreign investment in partnership with governments on national park concessions.

Another promising sector is infrastructure development, for despite the significant improvement of infrastructure on the continent, there are still huge deficits that have been impacting the smooth running of trade and export activities. According to the World Bank’s 2008 Africa Country Infrastructure Diagnostic study, the continent requires about US$80 billion annually to cater for infrastructure needs, while the financing capacity of individual countries remains limited. Thus, private investors can participate in businesses and ventures linked to power supply, water resources, air, roads or railway systems.

The third and last investment opportunity we will look into is the rise of e-commerce on the African continent. Internet penetration is rapidly spreading across the African continent and this represents huge potential since several countries already have an e-business environment similar to that of European countries (according to research by the Africa Internet Group (AIG)). Nowadays, Internet facilitated trading is one of the keys to Africa’s growth, thus presenting excellent business opportunities in online shopping, electronic funds transfer, supply chain management or electronic data exchange.

Africa offers excellent investment opportunities for entrepreneurs, small businesses, conglomerates and foreign investors. The recent strides taken by the Africa Union as well as specific countries through strategic partnerships with developed nations like China will surely encourage swift infrastructure development, thus enabling more sustainable business transactions. Thus, despite its challenges, we believe that the African continent is ripe for the taking for the visionary entrepreneurs.