The Africa Investment Report 2015 – An FDI destination on the rise

By Adrienne Klasa –

EXTRACT

The narrative of Africa as a continent on the rise over the past decade stands in contrast to a global economy that has been battered by anemic developed market growth following the 2009 financial crisis.

Africa’s rapidly growing economies stand out from the crowd. Now we are reaching another inflection point: commodity prices have fallen off, as has demand from China as growth slows. Both have profound implications for African economies.

The key question now is how to convert a 10 year boom into a longer-term growth trajectory.

Investors are already taking note of opportunities in Africa. Not only is interest high, many enterprises are putting their money where their mouths are – as reflected by the $87bn in foreign investment that flowed into the region’s 54 economies in 2014.

Foreign investors are a growing force in the economic transformation of Africa, a role that is expanding beyond the traditional focus on energy, mining and raw materials. Our numbers reflect this. Manufacturing is now the leading business function for foreign investors, and is expanding rapidly in previously overlooked markets such as Ethiopia. This is a role that is set to increase as international interest in the region rises, and as the UN’s Sustainable Development Goal framework enshrines the central role of private capital in the global development agenda this September.

The jump in manufacturing investment activity in a region that has long been an exporter of raw materials without much value added activity is particularly exciting. Moving Africa’s economies up the global value chain generates jobs and wealth for a burgeoning population that, for the most part, has yet to touch the benefits of the boom years.

Mining and energy extraction continues to lead foreign investment into Africa. Enough has been written elsewhere about the risks of the so-called ‘resource curse’ for countries’ economies. Resource revenues can be a window of opportunity for economies seeking to diversify and restructure – if managed properly. The track record of many governments in the region in this regard is not strong.

Lack of diversification is also a risk for investors in these markets. Current policy and currency volatility in key economies such as Nigeria, Angola, Ghana and South Africa are directly linked to dramatic falls in global commodity and oil prices. This might be a moment for investors to reexamine the efficacy, and profitability, of over-focus on extractives over the longer term.

Speak to investors already on the ground in the region and two pieces of advice are nearly unanimous. The first is: identify the right local partners. Many African markets remain challenging and poorly understood. Having local knowledge and talent on side is a make or break factor.

The other is to invest for the long term. The challenging nature of African markets means that they require strategic commitment to crack. Who is thinking creatively about risk? Who is taking the right factors into account? These are questions that need to be deeply explored with every investment.

A wise, and successful, executive with a long track record of investing across Africa once told me: “The road to hell is paved by the quarterly profit report.”

In order to unlock the exciting opportunities Africa’s largely under-served markets offer, this adage is particularly true. The business case for entering these markets is compelling, and increasingly well known. Creative, socially aware business strategy will be key to success.

Download the full report here.

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