New address for Investment Africa

Most foreign investors think that Africa is an impoverished and chaotic continent and investing there is not sensible. However, the numbers say otherwise. Economists, global companies’ spokespersons and industry representatives agree that the market of the future is in Africa.

 

Unstable political environment, corruption, security threats, problems in transportation and infrastructure, issues about legal regulations and a weak telecommunications infrastructure concern those who want to invest in Africa. In spite of this, Africa is on the economists’ advice and entrepreneurs’ investment list with its economy with an annual growth rate of 5 percent, encompassing one billion consumers demanding quality and luxury commodities and spending $600 million in a year. Holding the world’s most rapidly growing middle class, the continent is also in the spotlight for investors due to the fact that it owns 60 percent of uncultivated land in the world. In recent years, reforms have been gathering speed, leading to an increase in the number of countries with high potential for investment. The countries in question offer many opportunities to foreign investors with their growing economies, young populations, rising middle class, reserves of natural resources, urbanisation moves and new foreign partnerships defined at the level of strategic partnerships. 
 
In addition to reforms made by governments in a large part of Africa, regional economic communities call to private entrepreneurs for investment by forming larger scale markets, applying incentive policies and preparing detailed investment reports pertaining to the continent. Especially larger scale markets formed within the scope of COMESA, EAC, ECOWAS and SADC make investments more attractive. Moreover, African Development Bank gives financial support to investment projects.

In Africa, gross national product per capita almost doubled in the last decade. In the next five years, 7 of the 10 most rapidly growing economic powers in the world will be in Africa.
 
“Golden field” for investors
Referring to the continent’s potential on direct foreign investments (DFI), the World Bank compares Africa to China 30 years ago and India 20 years ago. The increase in DFI is parallel to the policies of the countries in the continent. The use of production revenues in infrastructure investments can directly affect DFIs. According to a UN report, raw material production in Tanzania, Zambia and Angola this year will contribute to the black continent’s growth. In Africa, gross national product per capita almost doubled in the last decade. In the next five years, 7 of the 10 most rapidly growing economic powers in the world will be in Africa. From this perspective, the chance of success for investors looks good. China, India and Brazil have already seen this situation. Experts wonder about Europe’s actions on the face of these developments; looking at the growth numbers in Africa, they assert that Europe could only dream these numbers. Africa’s potential is also covered in many politicians’ narrative. China’s former ministry of foreign affairs Yang Jiechi’s description of Africa as a “golden field” in terms of foreign investments during an official visit to Namibia, Japanese Prime Minister Shinzo Abe’s call “Now it is time to invest in Africa” during his speech at the 5th Tokyo International Conference on African Development and US President Barack Obama’s messages supporting large scale investments during the US-Africa Business Forum last August strengthened the investment potential in the continent. Monty Jones, President of European Marketing Research Centre (EMRC) also called for investment in the continent with his speech during a meeting of Africa Finance and Investment Forum (AFIF) held in Cologne where he said: “Africa’s star is shining. We should also acknowledge that the black continent was dormant until now. However, now it has made a breakthrough. This is the best time for investors coming to Africa.” Jones also said, “I am saddened by the fact that Australia and New Zealand, countries very far from Europe, export to the continent more than all African countries. We are practically neighbours with Europe. Africa should intensify relations with Europe. I am sure that Europe wants this too. This will be an advantage for Europe as well,” emphasising regional advantages. 
 
In addition to all these statements, business forums which have become an indispensable part of summit meetings, large scale events organised annually like The World Economic Forum Africa and New York Forum Africa and organisations intended for various sectors play an important and effective role in terms of promoting opportunities in the region.
 
Africa’s star is shining. We should also acknowledge that the black continent was dormant until now. However, now it has made a breakthrough. This is the best time for investors coming to Africa.

Africa through the eyes of foreign investors
Considering factors like infrastructure, consumer profile, local workforce costs and qualified workforce for investment, foreign investors agree that Africa has a great potential in the medium and long terms. Research reveals that in the last decade investors have been approaching Africa more optimistically and there has been an improvement in terms of confidence. This development leads to an increase of investor countries and companies. Because foreign investors that operated in the African market in relation to their own governments’ incentive oriented aids in the past, implement their decisions more bravely today. Chinese investors take the lead. According to data from the Chinese Ministry of Commerce, until 2005 China had only 52 recorded projects in Sub-Saharan Africa. In 2011, this number rose to 1586. Bruno Wenn, Chairman of German Investment and Development Corporation (DEG) notes that claimed corruptions and non-transparent organisations in Africa lead to caution from German companies, however he also adds that this does not reflect all the facts. “Corruption in Africa is not as high as painted. The statistics from Transparency International reveal that Africa is in a better position than BRIC countries. We should consider these assessments,” Wenn says. It is noted that German companies are more worried about unqualified workforce in Africa. The second reason that makes German investors hesitant is the existence of in adequate infrastructure like energy, water and sewage systems. Wenn stresses that despite all these problems, German investors’ interest in Africa is rising: “An increasing number of German companies think about what kind of market Africa will become in the future. This is a new issue not much contemplated before. In the past, Africa was seen as a market sending raw materials. However, the issue of Africa becoming an increasingly large market for commodity sales is a new assessment.” 
 
Africa, encompassing predominantly small and medium size businesses, has an important place in international companies’ growth strategies. Seeing Africa as a rising market and currently operating in 26 countries in the continent, IBM aims at expanding its operations throughout the continent by increasing its visibility in new markets. Foreign executives play a key role in IBM’s growth strategy and the company tries to benefit from members of the African diaspora as much as possible. 
 
Considering factors like infrastructure, consumer profile, local workforce costs and qualified workforce for investment, foreign investors agree that Africa has a great potential in the medium and long terms.
 
GSM companies’ favourite
While energy giants like BP, Shell and Total guide the oil and gas sectors in Africa, more and more companies gravitate towards the continent due to positive results from continuing exploration efforts. For instance, Tullow Oil that has been operating only in Senegal and Ivory Coast in Sub-Saharan Africa until 2000s conducts operations in 18 Sub-Saharan countries including Gabon, Equatorial Guinea, Congo, Ghana, Kenya and Uganda as of 2014. Another energy giant, General Electric stands out with recent new investments in the continent’s southern, eastern and western regions, particularly in Republic of South Africa and Nigeria. Effects of economic development in Africa are also visible in communication sector. Studies show that mobile phone users in the continent will rise to 1 billion until 2016. This leads to companies especially from the Asian continent to see Africa as the new address of investment. India-based Bharti Airtel that entered the African market in 2010 carries services to 17 countries and expands its field of operation with new investments. On the other hand, Vodafone makes extensive investments in Egypt, Republic of South Africa and Kenya. All the GSM companies in the continent take significant steps to bring low-cost communication services to consumers. 
 
Nestle, which first came to Africa in the 1880’s and formed a new organisation in 2008 in the continent, aims at doubling its annual revenue (currently $3 billion) in the African market by 2020. The company that invested more than a million dollars for more than twenty projects in the last decade improves its local production standards and expands its distribution network. Working in more than 40 countries, Nestle founded a Shared Service Centre in Ghana to support these efforts. Nestle also established an organisation called “Equatorial African Region” to closely monitor 21 countries that have growth potential. Within the scope of this project, the company opened new factories in Luanda and Kinshasa and expanded the facilities in Nairobi and Harare. 
Another investor with a deep-rooted history in Africa, British American Tobacco increased its investments in Republic of South Africa, Nigeria, Kenya, Zambia, Zimbabwe, Uganda and Ghana as part of production operations. A leader in its sector that carries services throughout the continent, DHL generated the highest revenues and profits worldwide from the Sub-Saharan region in 2013. 
 
Although investment directed to African countries vary according to region, country and sector, Republic of South Africa in the south, Nigeria in the west, Kenya in the west and Morocco in the north stand out as the most important investment centres.
 
Prominent sectors and cities
The notable increase in the number of companies operating in Africa has significantly contributed to the current picture. Although investment directed to African countries vary according to region, country and sector, Republic of South Africa in the south, Nigeria in the west, Kenya in the west and Morocco in the north stand out as the most important investment centres. Countries where more and more investment is made each year are led by Ghana, Democratic Republic of the Congo, Mozambique, Zambia, Tanzania, Uganda and Rwanda. Johannesburg, Cape Town, Nairobi and Lagos are the leading cities in terms of attracting investment. In North Africa, Casablanca and Cairo are the first choices. Infrastructure, consumer profile, qualified workforce and costs are the main reasons for said choices. On the other hand, investors also closely monitor cities with rapidly growing populations and the rise of the middle class. In this respect, cities like Accra, Abidjan, Luanda, Dar es Salaam, Tangier and Tunis are most prominent. 
 
According to interviews with investors, mining and metals, oil and natural gas, agriculture, infrastructure, consumer products, financial services, information and communication are the leading sectors with the highest potential for investment. While the Republic of South Africa has been called the gateway to Africa in terms of investments for many years, today this tradition has started to change due to an increase in the number of addresses. Analysing the continent more closely, foreign investors prefer African countries in sectors where they are relatively advantageous. All these developments reveal that preconceptions about Africa are changing. 


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