Although Africa receives only a small fraction of global Foreign Direct Investment (FDI), inflows have increased since 2010. Sub Saharan Africa received 3.1% of world FDI amounting to $45 billion in 2013, up by 8% from 2012. The main investors in Africa were EU countries, the U.S.A., India and China.
While Africa offers great returns compared to most emerging market economies, it cannot be observed as a solitary performing body. The continent bears 54 distinct economies that are weighed with challenges and opportunities significant to their economic activities and operating environments; the two most crucial inputs to investment. These economies have continued to support their nations and the world at large with their invested natural produce resources, skills and labour, but what are some of the untapped investment opportunities in Africa?
Africa has a global comparative advantage in agriculture. It has more than half the world’s arable land, and vast water resources yet to be fully utilised. 60% of the world’s uncultivated land is in Africa. The continent contributes 10% of the world’s agricultural produce. Agriculture as an untapped investment opportunity is set to be a major growth driver over the next few years, surpassing mining and metals.
According to the 2015/2016 RMB report, governments are underinvesting in the agricultural sector, especially in terms of the shift from subsistence farming to agro-processing.
Economic development is inherently linked to technological innovation. And technology has made a distinct impact on the agricultural sector, particularly the growing usage of mobile phones. These provide real-time market prices of crops, instant weather information, and easy to access micro-insurance and financing, helping small-scale farmers increase their yields and skills.
At the forefront of this innovation, is Kenya, in its outstanding pioneering in mobile technology in Africa. An example of innovation in agriculture is M-Farm, a web platform that provides 14 000 registered farmers with the opportunity to buy and sell their crops, seeds, fertilizers and such inputs together. Farmers earn more for their crops and bulk buyers and sellers save in the reduced number of farms visited.
Reliable and affordable energy lies at the forefront of Africa’s pursuits, to elevate economic growth and sustain the needs of an increased urbanised population. According to RMB 2015/2016 report, over 55% of Nigerians do not have access to grid electricity, using costly backup generators. Roughly 80% of the East Africa region is without electricity. Almost 90% of Liberia’s population has no access to reliable electricity. Furthermore, It has a potential for investment in hydro-electricity due to six major rivers it has.
The opportunities in Africa’s geothermal explorations are abundant, and estimated at 7 to 15 GW. Though abundant, solar power is untapped and underused accordingly. Africa’s gaps in convention energy structures provide an opportunity for low-carbon solutions, especially since it holds more than half of the world’s renewable energy potential.
Mauritius, Seychelles, Namibia, South Africa and Morocco, reportedly have the best physical infrastructure in the continent. On the other end, Libya, Angola and Guinea are reportedly reflecting poorly in infrastructure. The lacking in infrastructural development is a problem that surpasses geographical boundaries and impacts the continent as the whole. There has been a 10 years’ stagnation in investment in infrastructure.
Egypt has taken on extensive infrastructural reforms, the government’s enactment of key reforms and a renewed focus on infrastructure, aligned with the country’s favourable demographic profile appealed to companies involved in real estate, hospitality and construction.
Retail is a fast growing sector in the continent, experiencing exceedingly impressive growth rates, and contributing to the income distribution expanding Africa.
Studies by auditing firms KPMG and Deloitte highlight countries known for strong retail markets in Africa, and their main characteristics to consider when investing in the retail market:
- Algeria; due to the country’s high wealth per person, high urbanisation growth rate and the concentrated wealth in urban regions.
- Ghana; due to the accommodating business environment, and popularity of shopping centres.
- Kenya; due to the country’s strong population growth, growth in the middle class, educator labour force, and the dynamic private sector.
- Morocco; due to country’s rise in urbanisation, the favourable age structure and the growing middle class.
- Nigeria; due to the large market size of the country, urbanisation, the growth rate, the privatisation of the power sector and the youthful population