UK investors eye up the continent’s burgeoning opportunities

There has never been a better time to invest in Africa. Foreign investment in African economies reached $87 billion in 2014. Seven of the world’s 10 fastest growing economies are in sub-Saharan Africa, which boasts a middle class totalling 350 million people, larger than the population of the United States. And in just six years’ time, Africa’s hundreds of millions of consumers of financial services, telecommunications, and tourism and retail goods will contribute more than five times as much revenue to the continent’s economic growth as the natural resources industry.

This information will be extremely obvious to those who attended the recent Global African Investment Summit (TGAIS), which was a huge success, with key implications for the future of investment in the continent. As Joao Pedro Mendes Rodrigues, the CEO of Mozambique Stock Exchange, explained before the event, “The Global African Investment Summit is more than an event, it is a bridge of wills, opportunities and interests between Africa and the rest of the world. On the one hand is the opportunity for the strategies of medium and long-term European, American and Asian investors. On the other hand, for Africa, there is the possibility of meeting the investment needs of African countries in what they consider to be their priorities and to contribute to sustainable economic development and the empowerment of its citizens.”

The summit attracted over 1,000 qualified global investors, including family offices, sovereign wealth funds, international DFIs, ultra high net worth individuals and pension funds. Furthermore, it allowed many would-be investors to join the global leaders and key players in the power, agriculture, financial services, capital markets, oil and gas and critical infrastructure sectors – a real window to African project origination and global finance. The purpose of the summit was to showcase what the continent has to offer from an investment point of view, and allowed those who attended to gain an insight into current and future developments in Africa in multiple ways. By providing face-to-face meetings with high-profile governmental decision-makers, members were able to identify key opportunities to determine long-term strategies, network with end investors who are seeking investment opportunities in the region, understand the legal requirements in entering into business partnerships and investment, network and forge partnerships with country specific stakeholders, and ultimately build business relationships.

The list of those who attended the summit goes to show just how important an investment Africa is at the moment – it boasted more than 70 bankable African projects seeking direct investment, and the attendance of global investors in control of a total of $235 billion, four African heads of state and 30 African ministers, as well as representatives of more than 100 private-sector African companies looking for investment and global partners.  

Indeed, endorsements for the event are everywhere. Speaking before the event, Cherie Blair CBE, the Chair of Omnia Strategy LLP said that she was “delighted that London will be hosting the second Global African Investment Summit in 2015.

Doing business in Africa should be about more than just the bottom line and my hope is that by bringing together global leaders and experts, we will generate creative and innovative projects and partnerships that will have a positive and long lasting impact to serve Africa’s prosperous future.”

Three of the biggest areas for investment discussed at the event were the agriculture, ICT and oil and gas industries – and the figures speak for themselves.  Indeed, the sub-Saharan region possesses 60 per cent of the world’s uncultivated arable land, yet currently is only responsible for about 3 per cent of global agricultural exports. There is huge potential to be exploited and this is why African agriculture has become an appealing sector for international investors. At an event in 2013 in Addis Ababa, Carlos Lopes, Executive Secretary of the UN Economic Commission for Africa said agriculture was the key to unlocking Africa’s growth potential. “Leveraging the continent’s agricultural sector is critical given our growing population and an ever-increasing demand for food,” he said. With the population of Africa projected to swell to 2.4 billion by 2050, food production must increase by 50 per cent, according to consultancy firm Accenture. This will require investments in technology, innovation, enhanced water management capacity and sustainable land tenure systems. In fact for the region to unlock the full potential of agriculture, Accenture believes that annual investment of $93 billion a year will be needed. If Africa can fully develop its agriculture sector, it may well become the most prominent player in the fight for global food security, undoubtedly the biggest challenge for mankind as the global population and food demand grow exponentially over the coming decades.

The growth in Africa is not just fuelled by agriculture however. Additionally, the ICT sector in Africa is flourishing as a result of the demands of Africa’s growing middle class for mobile phones, computers and internet connectivity. Now more than 720 million Africans have mobile phones, 167 million already use the internet, and 52 million are on Facebook, according to a report by consultants McKinsey. The biggest names in ICT are making significant investments in Africa. IBM has established several research centre in Nairobi, Kenya. Microsoft’s 4Afrika initiative is supporting the rollout of broadband in rural areas, encouraging innovation, and fostering the skills of young developers in their so-called ‘App Factories’. The McKinsey report has found that there is a dotcom boom in the region as a growing number of entrepreneurs undertaking web-based ventures – from e-commerce sites to mobile health technologies (it also states that Africa could generate e-commerce sales of $75 billion a year by 2025). Internet-driven growth is a focus point for African governments. The pervasive nature of ICT means its development has an enormous impact on everything from agriculture to banking. Mobile phones are giving millions of unbanked African access to financial services. The use of information technology is leading to more efficient healthcare and government services and more streamlined business models across all sectors of the economy.

Oil is another area with great potential. Investors’ attention has been turning to sub-Saharan Africa’s oil boom in recent years and many agree that it has the potential to become the next Persian Gulf. The flourishing oil and gas industry has been the chief catalyst for growth in countries across the region and will continue to be so, even while states try to diversify and look for more sustainable sources of revenue.

Sub-Saharan Africa produced nearly six million billion barrels per day of liquid fuels in 2012, which was about 7 per cent of total world oil production. In 2010 it was estimated that sub-Saharan Africa has 68 billion barrels of proven oil reserves – around 4.9 per cent of the world’s resources – and 229 trillion cubic feet of gas reserves (accounting for 3.4 per cent of the global supply). While global oil production is estimated to increase by 53 per cent between 2002 and 2025, in Africa production is expected to increase by a staggering 91 per cent, from  8.6 to 16.4 million barrels per day, according to the US Department of energy.

Nigeria and Angola have been the heavyweights of the region’s oil and gas industry; they have a combined output of 4 million barrels per day of crude and also dominate natural gas production. However new finds in counties such as Uganda, Kenya, Ghana and Niger means these countries will play an increasingly important role and are drawing the attention of worldwide investors. So while sub-Saharan Africa will become a prominent player in the fight for global food security, it is also poised to be an important pillar of global energy security.  

A key question which is often asked about investment in Africa is stability. There has long been a notion amongst investors that sub-Saharan Africa is an extremely difficult place to do business, which has undoubtedly deterred many. Indeed the region has a long way to go, however an enormous level of reform to improve the business climate has been implemented by governments across the region keen to attract foreign investment.

Out of the 50 economies making the most improvement in business regulation for domestic firms since 2005, 17 are in sub-Saharan Africa, according to the Doing Business 2014 report by the World Bank. The report also found that in 2013/14, more than twice as many African economies in the region made reforms, compared to 2005. Burundi, introducing four important reforms, ranked amongst the World Bank’s top ten most improved economies, making it the only low-income economy on the list.

One company that has been very satisfied with the business climate change is the world’s leading chemicals company, BASF, which has been expanding operations in sub-Saharan Africa. “We have set up subsidiaries in Kenya and Nigeria. Many things in Africa have changed for the better,” said BASF Chief Executive Kurt Bock when speaking about the company’s expansion plans last year.

Indeed one of the great challenges for many sub-Saharan African nations remains diversifying their economies away from non-renewable hydrocarbon and mineral resources. Governments across the continent are working to develop other sectors with potential – such as agriculture, ICT, tourism, renewable energy, and education – and are implementing reforms to improve the business climate in order to attract foreign investment.

This is a story that is repeated throughout Africa. There is no doubt that the region still faces grave challenges, but it is facing them head on. The message from savvy investors and analysts is clear: Africa is taking off. Make sure you get on board.