Comment: Understanding the African investment challenge

The next five years look strong for African economies, but investors need to take more interest in particular cities and countries if they are to succeed.


Huge growth is forecast across many key sectors in sub-Saharan Africa including power generation and infrastructure, mobile technology, financial technology, agriculture, welfare, insurance, banking and tourism.

The connectivity levels between sub-Saharan Africans is growing exponentially as improved transportation, a more urbanised – and youthful – population, and grass-roots innovation, sweep the continent along a pathway of rapid modernisation. However, many investors keen on riding the wave of optimism about Africa in the new millennium have come unstuck, and many investment transactions are unfavourable to the local communities in which they operate.

One of the largest investors into Africa in recent decades has been China – which has utilised a variety of engagement strategies to form partnerships with more than a dozen governments. One of the major bottlenecks impeding growth in Africa is lack of infrastructure.

With China’s engagement the continent receives money, expertise and delivery of infrastructure in exchange for what China still requires in huge volumes (even during an economic downturn) – natural resources. The two-way trade between China and Africa has delivered many benefits.

A good example is Ethiopia’s Addis Ababa Metro system – the first of its kind in sub-Saharan Africa – which has transformed the lives of locals and provided a considerable boost to Ethiopia’s national economy. Very few other countries are willing to invest in these types of mega-project in Africa and China is leading the way in demonstrating that such projects can be delivered.

In Sierra Leone, China has also led the way in aid commitments to help rid the country of the Ebola virus, proving that engagement with Africa is not always based on a strategy for securing mineral resources at any cost to the continent.

Regulation is improving

Regulatory issues in Africa have also stumped many investors in the past, and yet most African countries have finally begun to get it right. Ghana, Kenya and Zambia have recently created far more welcoming investment environments, delivering greater clarity and transparency, and more reassuring levels of predictability.

Investors rarely object to paying the correct taxes, but want assurances that their money is being respected. Another key factor that has hindered previous investment is regulatory consistency.

Some regulatory environments can be challenging and perceived as harsh, but as long as they remain consistent for longer periods of time then investors will consider engaging more confidently. Constant chopping and changing of regulation and law to suit the whims of a government’s coffers is a very dangerous game – as the precautionary tale that has unfolded in Zimbabwe shows.

The outlook is strong

The next five years look particularly strong for most of Africa’s economies as improved governance, better intra-African trade and flourishing economic diversification takes hold. These bedrocks for stabilising many of the continent’s economies are further underpinned by the innovation and technology revolution that is occurring all over Africa.

Without the legacy of major established institutions, cemented over decades (or even centuries), financing and banking has also become a truly innovative, grass-roots industry that allows entrepreneurs to flourish and start-ups to dive into niche opportunities without hindrance. It’s this wave of optimism, now coupled with major socio-economic improvements and huge progress in technology uptake over the past decade – and supported by a young, hungry and urbanising workforce – that is driving many new international investors to seek out opportunities and to become involved in African projects.

Study the specifics

Foreign investors have to start thinking in terms of specific African countries, specific African cities, and specific African opportunities. What are the prospects of Mkushi District in Zambia? More sophisticated, nuanced, explanations of sub-Saharan Africa’s potential are seriously lacking.

We are talking about 54 countries here, each with its own unique economy. Each with different cultural norms, languages and business practices. Investor naivety and generalisation is a major fall point.

Rwanda, for example, has a prolific and rapidly expanding IT sector, while sustainable quarrying has proven highly profitable in Gabon. Elsewhere, Kenya has a booming lingerie market, and Ethiopia offers enormous potential in the luxury tourism market.

Each of Africa’s 54 economies offers a very diverse and differing investment opportunity, with almost limitless possibilities. Paul Hinks, CEO of American-based Symbion Power, became involved with African opportunities nearly four decades ago, but still finds it a complex and challenging place to forge business partnerships successfully.

“A key challenge for credible investors has been finding the right partners and access to good deals in Africa,” he says. “US investors can do so much more in Africa, and I think we’ll soon see more key people from the US partnering on the continent with global players, and of course with African entrepreneurs themselves.”

Rob Hersov is chairman, CEO and founder of Invest Africa.

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