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Subomi Plumptre is Co-Founder of Volition Blue (US) and Volition Capital Investments (Nigeria).
Despite challenges, Africa remains a leading investment destination for commodities and clean energy. Both local and global investors need to approach African investments with a blend of enthusiasm and caution, and African policymakers aiming to attract foreign direct investment should focus on the opportunities in continental trade.
It is challenging (and problematic) to talk about a 54-country continent like Africa as one homogeneous area. Because the nations are varied, so are the investment opportunities.
Following a two-year hiatus due to the Covid-19 outbreak and associated closures, Africa made a strong reappearance in the investment space in 2022. Foreign direct investment increased by 64%, according to an EY Africa Attractiveness Report. South Africa led the way with 157 projects in 2022, followed by Egypt (149), Morocco (71), and Kenya (63). In terms of investment amounts, Egypt was at the helm (USD 107 billion), with South Africa (USD 27 billion), Morocco (USD 21 billion), and Zimbabwe (USD 5 billion) in tow. The biggest centers of investment were in North and Southern Africa.
Investment trends among high- and ultra-high-net-worth individuals in Africa have been influenced by factors such as economic growth, political stability, regulatory environment, and sector-specific opportunities.
Over the past few years, there has been a notable increase in private equity investments and venture capital, particularly in areas such as real estate, technology, infrastructure, hospitality and tourism, healthcare, renewable energy, and consumer goods. Additionally, impact investments are on the rise, with many players becoming more socially minded and willing to give back.
However, several obstacles have negatively impacted this investment rebound, including broader geopolitical issues such as the Russo-Ukrainian war.
Not unlike other major global markets, African investment has experienced increased macro and market volatility since 2023.
Many African nations are dealing with economic challenges such as inflation, depreciating currencies, and excessive debt. In 2023, 18 of the continent's nations had a debt-to-GDP ratio of more than 70%, with several of them in financial hardship.
In addition to these economic indices, macro-level specialists have highlighted several megatrends affecting Africa that astute investors should be aware of. This will help them to minimize risk and, more importantly, to identify opportunities.
Among negative megatrends are rapid population increase, urbanization, and climate change. On the plus side are factors like greater regional collaboration via the African Continental Free Trade Area, expanding digital capability, and increased entrepreneurial innovation.
One of the key drivers of entrepreneurial innovation is a wild card megatrend, namely Africa's relatively large and burgeoning youth population. It is predicted that by 2050, 60% of the continent's estimated 2.5 billion inhabitants will be under 25.
Africa’s young population suggests a huge human resource opportunity, which if not harnessed and developed to create wealth for Africa, may pose a serious threat — particularly when coupled with high levels of unemployment.
Some of the potential challenges that investors should consider, depending on which African country or region they are investing in, may include security concerns such as political unrest, civil conflict, terrorism, kidnapping, and crime. There are also political and regulatory risks arising from regime changes, arbitrary legal systems, and policy inconsistencies.
Other potential challenges to consider include infrastructure deficits, particularly in the areas of transportation and energy, and currency volatility, as well as issues around data transparency.
Notwithstanding the challenges, there are many promising investment opportunities for the discerning wealthy investor.
A report released by the Economic Intelligence Unit in December 2023 predicts that, Africa will develop at the second-fastest rate among major global regions in 2024, thanks to the services industry.
Key areas of investment opportunity in Africa are as follows:
Abundant human resources: Africa’s population, currently at 1.3 billion, is projected to almost double to 2.5 billion by 2050, by which time Nigeria for instance, is projected to have 400 million people — overtaking the US as the world’s third-largest country by population. Africa represents a large consumer market.
Agriculture: About 23% of sub-Saharan Africa’s GDP comes from agriculture, yet about two-thirds its arable land remains undeveloped.
Solid minerals: In 2019, minerals and fossil fuels accounted for over a third of exports from at least 60% of African countries. Nigeria plans to offer investors at least a 75% stake in a proposed solid minerals corporation.
Stock market: The top-performing African stocks in recent years are in telecommunications, where shares of the top performer jumped 76% between July 2020 and 2021.
To counteract inflation, several countries have raised and maintained high-interest rates, including South Africa, Kenya, Nigeria, and Egypt. Some investors stand to gain from this, especially those engaged in finance, insurance, and brokerage, where there is often a linear correlation between high interest rates and growth.
In Nigeria, the floating of the naira is projected to improve the economic environment and increase the appeal of investments by reducing market distortions.
It is anticipated that in the foreseeable future, cleantech, energy, infrastructure, financial services, health tech, and agriculture will receive the highest levels of investment. Additionally, international investment in locally based digital skills is increasing.
On the other hand, policymakers must develop policies that incentivize the private sector to develop the capital markets, for without a strong capital market, it would be difficult to attract the necessary investments, particularly international investment.
Finally, investing in Africa cannot be approached with a one-size-fits-all approach. To maximize any visible or perceived investment opportunities, the discerning investor must access a strong combination of global investing know-how and a clear awareness of the numerous local circumstances.
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