Investment in Africa a Growing Phenomenon

 

            Since the days of media bad-mouthing of Africa as a ruined continent, the last decade or so has seen the promotion of Africa as a land of economic growth and great potential.  The question is: will American investors beyond those in the extractive industries follow other investors from around the world and invest in ventures in African countries?

            Investment in Africa is one of the four legs of America’s Prosper Africa initiative, along with U.S. exports to Africa, African exports to the U.S. and African investment in the U.S. (more on that last one in a future blog post).  Prosper Africa will have its work cut out for it in overcoming an innate reluctance of American investors to take a chance on investment on the continent despite good rates of return on investment there. 

            The Voice of America reported in February 2020 that in 2019, the last normal year before the COVID pandemic, the rate of return on all inward foreign direct investment in developing African countries was 6.5 percent, higher than the rates in developing Latin America and the Caribbean at 6.2 percent, and also higher than the 6 percent return in developed economies.  A report by the UN Conference on Trade and Development (UNCTAD) stated that between 2006 and 2011, Africa had the highest rate of return on inflows of Foreign Direct Investment: 11.4%. This is compared to 9.1% in Asia, 8.9% in Latin America and the Caribbean.

Yet the reluctance of Americans in the business community to invest in Africa is deep-seated.  When I worked for the Corporate Council on Africa back in the late 1990s, there was a widespread saying that illustrates this reluctance: “Capital is a coward and only goes where it feels comfortable.”  We shall see if non-extractive investors have overcome this financial timidity over the last two decades.

            Meanwhile, according to a just-released report by UNCTAD, foreign direct investment (FDI) into Africa showed a strong rebound in growth last year of 147 percent to an estimated $97 billion compared with $39 billion in 2020.  According to the report, the total for the region more than doubled, albeit inflated by a single intra-firm financial transaction in South Africa in the second half of 2021. The report cited FDI to South Africa had jumped to $41 billion (from $3 billion in 2020) due to the $46 billion share swap between the South African multinational Naspers and its Dutch-listed investment unit, Prosus.

            Much of the continent’s investment opportunities beyond oil and mining remain largely unknown to American investors.  Companies such as M-Net, the South African cable television giant, and Shopright Checkers, the supermarket chain expanding across the continent, are not written about much in the United States, so any interest in getting in on their expansion has gone unnoticed.  Yes, both these companies are from South Africa, but there are non-South African companies that have been good investments for quite some time.

            For example, the Ashanti Goldfields Corporation is a gold mining company based in Ghana that has been producing since 1897. During the turn of the century in 1900, the Ashanti Goldfields Corporation was among the most important gold mining companies listed on the London Stock Exchange.  In 1996 , the company was listed on the New York Stock Exchange to raise new capital – the first African company to appear on Wall Street.  Some years back, while going through the listing of my 401K investments, lo and behold, there was Ashanti Gold.

            South African Breweries (SAB), established as Castle Brewery in 1895, was listed on the London Stock Exchange in 1898.  Except for periods of unwise financial alliances, this company has been growing for more than a century.  In 2002, SAB acquired Miller Brewing, forming SABMiller plc.  At that time, an African firm owned the second largest brewing company in the United States.  Until the company sold its interests in SABMiller to the multinational Anheuser-Busch InBev SA/NV in 2015, I used to enjoy saying my favorite beer – Miller – was African owned.  What if U.S. investors more broadly understood the financial opportunities of investing in SAB before it acquired Miller or before AB InBev acquired it?

            Beer is exceedingly popular throughout Africa, and breweries and bottling operations are considered good investments if managed and marketed properly.  However, there are other investment opportunities that could be quite profitable as well if managed and marketed well:

·         Agriculture: This sector represents up 15 percent ($100 billion annually) of the entire continent's GDP and is also the largest economic sector. It would involve growing and processing of produce, as well as packaging.

 ·      Infrastructure: African infrastructure saw a rise in compound annual rate at 17% recently and is predicted to grow even further through the projected success of the African Continental Free Trade Area and its need for roads, trains, airports and seaports, water delivery systems and electric power.

 ·        Financial Services: The rise in household income in Africa is resulting in increased demand for financial services like banking, insurance, mobile payments, and loans and credit.  Increased funds flow through somewhere, and young Africans, like their counterparts worldwide, want to be able to make financial transactions anywhere and anytime.

 ·       Information Communications Technology:  Telephony and data communications becomes ever more important in a connected world.  If information is power, then the power of business depends upon rapid exchanges of information, and modern telecommunications undergirds all successful business these days.

 ·     Health care: As the Ebola, Zika and COVID waves have indicated, Africa is only now catching up to the development of comprehensive health care systems that span both urban and rural areas, maintains environments necessary to prevent further medical brain drain and integrates technology to diagnose and treat diseases.  Not only will enhanced health care systems reduce mortality and persistent disease in Africa, but it also acts to attract investors who then can trust the health care available to their employees.

 ·      Tourism: It has been said that business people come to the continent first as tourists and then return as investors.  If that initial experience of moving through airports, locating comfortable hotels with modern amenities, transporting easily to destinations and finding satisfactory sights and entertainment is not available, then that second visit may never happen.  With its ancient monuments and abundant wildlife, not to mention its cultural attractions, tourism in Africa has ample room to expand to new markets, such as the United States and elsewhere in the Western Hemisphere.

 ·      Entertainment: Nollywood, the Nigerian movie industry, has long been the leader in producing African films, rivaling sheer production numbers of Hollywood in America and Bollywood in India.  However, the South Africa film and television industries have grown to the extent that it now is the main African contributor to cable television networks.  Even film industries in countries such as Tanzania are making a bid to be recognized as producers of filmed entertainment.  These current and budding industries need capital to provide for the ever-growing global market for films and television programming from the continent.

So, even though the investment opportunities in Africa are not well-known, they do exist.  Perhaps the Prosper Africa initiative’s efforts to promote U.S. investment on the continent will be the catalyst for better informing American investors of the opportunities available in African countries.  Such opportunities are not that difficult to find if properly marketed, but African business people who want foreign investment must understand what the investor wants and not just what they want.  Completing the due diligence on investor requirements will help African companies be more competitive in earning FDI.

If this can happen, African businesses can get the capital they need, and American and other foreign investors can earn the higher returns that are possible in Africa.  That is the definition of a win-win scenario.

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