Rising Africa: Place your Bets

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While the world economic growth is gradually slowing down, new emerging markets evolve on the map, Africa is one of the fastest growing spots representing unprecedented number of business opportunities. As for now six of 10 fastest growing economies are African countries with Gnana, Ethiopia and Côte d’Ivoire being the leading performers; the continent’s average growth rate is estimated at 3.2% comparing with world’s 3% this year, and according to the IMF forecasts, Africa average growth rate will continue rising up to 4.2% by 2024.

The continent, experienced vast transition in the recent two decades, now is the one of most diverse and dynamic 1.4bn dollars markets. Given the specifics that African population is extremely young – 75% are under the age of 25, – and the projections that it will roughly double by 2050, changing regional landscape, fostering socio-economic development, increasing urbanization rate and driving technology innovations to meet all the continent’s needs, Africa will be able to unlock its economic and investment potential to transform the continent into well-balanced, profitable and sustainable market.

Diverse and Dynamic Continent
At the same time, the continent remains deeply unequal and culturally diverse. Holding a strategically crucial geographic position, Africa is a continent of 54 countries, majority of which gained their independence only in the second half of the 21st century, and are still undergoing severe consequences of colonial past. Rich in mineral resources continent approximately poses 30% of the world known natural resources, which still are the major pillar for African economies – the problem African countries have been struggling since the official end of colonial period. In addition, Africa is a home for numerous tribes, nationalities and ethnic groups which have different customs and languages. This diversity makes Africa an attractive and vibrant destination, but on the other hand, continent’s cultural diversity is a serious challenge for social and political stability, especially when the issue of cultural identity sparks ethnic tensions, coups, famine, refugee crisis and unleashes contention over the natural resources control.
Nonetheless, the African economies have been rapidly growing since1990s, the problem of the continent’s development keeps being an important challenge for the global economy. Along with the fact that Africa gathers six of the 10 fastest growing economies and it is the second fastest growing region after Asian markets, Africa also is the most unequal continent with seven of the 10 most unequal economies in the world. African socio-economic diversity represents one of the major threats to its development and stability. The average level of GDP per capita (purchasing power parity) remains relatively law (3,500 international dollars in 2016) contrast to the global 15 thousand international dollars. In addition, only 38% of continent’s population has access to electricity, the penetration rate for internet is less than 10%. Africa’s lack of infrastructure adds 30–40% to the costs of the goods affecting the whole private sector, FDI flow and manufacturing capacity of Africa. The continent extremely rich in mineral resources and human capital has one with the lowest levels of productivity due to the poor infrastructure. All these challenges plus critical levels of public debts of major economic performers make the African continent looks like a very risky place to invest, and its economic potential is yet to be discovered.

An emerging market:
unlocking the potential
The combination of metrics for economic growth is yet not the only term to decode an opportunity on the emerging market, and the potential Africa offering now is real. The core idea here is the specific combination of opportunities and risks for operating a business. Increasing awareness of potential investors over the local context is a key to improve the chances to succeed.
The phenomenon of ‘rising Africa’ evolved in the beginning of 21st century when annual average growth rate of the continent reached 4.7–5% placing Africa at the second rank after Asia. However the socio-economic development of the African continent, including poverty reduction and famine, still remain unsolved issues on the international scale, the recent economic developments in the African economies show particular trends – Africa’s emerging economies prove to be capable to quickly recover after strong political and economic perturbations. Recently African continent was shaped amid two important processes – Arab spring in 2011 and oil prices collapse in 2014 that sparked serious slowdown, migration crisis and structural reforms all over the continent. Most economies of the continent have almost recovered, moving to the next level of economic development and significantly improving business environment. As for now the average growth rate is 3.2% and it is expected to continue growing up to 4.2% by 2024 compare with the global 3,6%. Apart from the fact that six of the 10 fastest growing economies are in Africa, five of the 10 most improved in terms of operating business countries are also African, according to the World Bank’s 2019 Doing Business Report. Moreover, governments of the African states are aware of the current problems and conducting significant structural reforms to facilitate regional and international trade, attract more foreign investors, diversify their economies and implement Sustainable Development Goals agenda.
In the postcolonial period the international community has always been an active player to the continent in different dimensions. Africa became number three recipient of Official Development Assistance from the US, the EU and international institutions. The FDI flows make significant part to meet the continent’s demands.  In 2018 FDI flow to Africa increased by 11% reaching 46bn dollars, which, though, is only 3.4% of all global FDI flows. At the same time, the major recipients of more than 50% of these flows are few largely commodity abundant countries such as Nigeria, Angola, Egypt and Ethiopia. Another prominent recipient of investment is the second economy of the continent – South Africa. However, nonetheless, South Africa and Nigeria together make more than 50% of the whole continent’s economy in terms of GDP volume, the current trend shows that top-performers of the African continent are non-commodities intensive economies, where the sector of services and value-added goods makes a significant share of the GDP – Ghana (52.2%), Rwanda (46.4%), Côte d’Ivoire (41.6%), etc. This statement illustrates that the usual pattern of economic development in Africa is dramatically changing. The extreme dependence on commodities export revenue creates volatility risks, unleashing economic diversification potential and pointing out the need of urgent structural reforms to set new business environment and risk-management models for possible investors.

Key opportunities to invest
African economies are at the hedge of crucial transformation which would decide how the continent live, buy and operate for the next decades. With fast economic growth, increasing young population, manufacture development and new economic reforms, Africa is becoming one of the most promising investment opportunities of today. Here below we suggest key sectors to transform a stirring opportunity into sustained and profitable business, which the continent extremely needs to face all its challenges, improve infrastructure and secure jobs for the growing African population.

Consumer market
African population is the fastest growing in the world. It is 1.3bn people now, and this figure will double by 2050, generating new business opportunities in the consumer market, especially in food, pharmaceuticals, healthcare and education to meet strategic continent’s needs. According to the recent forecasts, incomes will rise across the continent, and by 2030 African people and businesses are expected to spend more than 6.6 trillion dollars annually. With increasing income, Africa will have one in five world’s consumers which are expected to form unique middle class.
The two major trend for consumer market development in Africa are young population – key income earners are people between 16-34-year-old who are definitely more sophisticated and globalized to become household decision-makers. The second trend is urbanization, as more than a half of the African population will live in the cities by 2025. Given the fast urbanization and creation of the biggest free trade zone in Africa under the Africa Continental Free Trade Area (AfCFTA), the continent will represent borderless 1.1bn working population consumer market. At this point, it seems more profitable and secure for investors to focus not only on countries, but also on cities.

Infrastructure development
Besides consumer market, infrastructure develop­ment is an essential priority for Africa. More than two third of the population still has no access to the electricity, only 10% of the Africa’s road system is paved, and only one third of the population has access to it. This lack of infrastructure creates an additional 30-40% to the costs of the goods traded across the continent, affecting human capital development, private sector and productivity capacity. However significant progress has been made recently, as annual spending on infra­struc­ture development have reached 80bn dollars, twice as big as than in the early 2000s. African governments reinvest the revenue from commodities export, but still it is not enough. These problems affect not only consumer demand, but also the whole supply system. This represents a significant opportunity for business and entrepreneurs to take advantage and take part in building necessary roads, railways, etc. to close the African infrastructure gap and map the continent on the global trade map. Recently, China has become the most notable player in this field – China participated in 200 infrastructure projects, being an investor to 1 in 5 projects and constructor in 1 in 3.

Financial sector
Developing consumer market and infrastructure change the way people live and spend. Although, the majority of the African low-income population still lives without formal saving and access to credit, using informal retail platforms, the consumer patterns are changing, and new robust consumption requires more sophisticated sectors to support Africans ability to act as a modern consumer. In Africa there is a huge demand for innovative approaches in financial services, especially given the rapid ICTs spreading across the continent. Despite low financial service inclusion level, Africa is booming with mobile banking and microfinance. For example, in Kenya a mobile operator company launched mobile phone-based money transfer and financing services in the country in 2007. It still has fast growing subscriber base and, more important, it enabled unbanked and under-banked users to have a secure means of remitting and receiving funds. In Nigeria, the biggest country’s mobile operator Paga, entered the niche of electronic finance services and by now it processed 57 million transactions worth almost $4m.  Almost one third of the total Venture Capital (VC) deals in Africa were closed in Nigeria in 2018. As a result, mobile banking spread to many other countries of the African continent, substantially boosting the level of financial inclusion.
Young, urban and entrepreneurial Africa is making progress towards a greater inclusion to the global economy. The continent is full of opportunities for business and entrepreneurs ready to see the challenges and yet unmet needs of the continent as an opportunity to set profitable and stable entity, operating risks in the local context.    

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