Since 2005, Africa has received more FDI than official development assistance. According to Ernst & Young’s 2012 Attractiveness Survey on Africa entitled ‘Building Bridges,’ the number of FDI projects rose by 27 per cent in 2011, with a total of 857 projects, a steep increase from 421 in 2007.
Social and demographic changes, such as urbanisation, an expanding workforce and a burgeoning middle class of consumers are creating new opportunities. Sustained, robust economic growth has led to a significant increase in the size of the African middle class, which the AfDB predicts will surge from 355 million in 2010 to 1.1 billion by 2060. This middle-class remains the key to future investments into non-extractive sectors. Consumer spending in Africa is predicted by the McKinsey Global Institute to reach US$1.4 trillion by 2020.
Despite the recession in the eurozone and growth slowdown in China, Africa continues to offer numerous opportunities. While minerals, particularly hydrocarbons, will probably attract the bulk of FDI over the medium term, new investment has arrived in non-resource sectors such as tourism, information and communications technologies, manufacturing, financial services, renewable energy, agro-production and construction.
Greener Energy: The continent boasts the capability to generate clean, renewable energy, which is pivotal in the global battle against climate change. Environmentally-friendly investors seek renewable sources of energy. Africa is well positioned for developing solar and hydropower, as well as producing biofuels. It has a similar water endowment to other continents, but captures much less for its own development. Thus, only 5-10 per cent of agricultural land is irrigated, whilst 90 per cent of hydropower potential remains untapped. As Lord Nicholas Stern, chair of the Grantham Research Institute on Climate Change and the Environment, explained: ‘Africa can, in coming decades, play a leading role in cutting global emissions.’
Agriculture: The growing demand for food, reflecting a booming global population, and fertile soil in much of Africa make the agricultural sector attractive for investors, especially state-owned entities from Asia and the Middle East, such as sovereign wealth funds and European private equity groups. The continent is endowed with almost 60 per cent of the world’s uncultivated arable land, and strategic investors have acquired over 134 million hectares of African land, during the last decade. Improved food processing and storage could help stabilise agricultural markets and encourage much-needed rural innovation. Investment in agricultural skills and infrastructure, for example, could prompt a green revolution. To make the agricultural system work efficiently (ie boost productivity), experts estimate that Africa requires additional annual investments of as much as US$50 billion.
Information and Communications Technology: Africa has made great strides by becoming the world’s second most connected region after Asia in late 2011, with 616 million mobile subscribers, according to UK-based Informa Telecoms & Media. Broadband penetration has also increased in the past five years, thanks to the continent’s efforts to develop high-tech industry, and is projected to reach 99 per cent of the population by 2060 according to an IMF survey. However, the ability to take advantage of new technologies depends mainly on human capital: a skilled workforce is essential for the adoption of new technologies and for globally competitive production. The region now needs a second round of investments to upgrade the Information and Communications Technology sector, and to expand mobile banking and internet access.
Of course, the ‘risk factor’ could be high, due to instability, conflict or natural disasters in some countries, but levels of profitability are high too, with competition in some sectors relatively low.
Encouragingly, Africa is currently ranked in the same category as South America and Eastern Europe in terms of attractiveness for investors – a marked improvement on a decade ago.
Regional GDP growth of 5.4 per cent in 2012 – exceeding both Latin America and Central Eastern Europe – offers a glimmer of hope to the global economy. By contrast, the IMF expects advanced economies to grow at best by 1.4 per cent. An efficient infrastructure, however, would make Africa an attractive destination for intra-regional trade and increased foreign investment.
By Guylain Gustave Moke
Sources: Foreign direct investment (FDI),
World Bank reports & forecasts
International Monetary Funds Reports & forecasts
Ernst & Young forecasts
Oxford University forecasts