Globally, businesses have become aware of Africa’s investment opportunities. Implementation costs have been high because Africa is fragmented into many different countries in various stages of political and economic development. Although geographically large, the continent is often viewed as a fairly small economy in the global investment arena. Africa’s developing economies were historically run too poorly to offer adequate risk-adjusted return on investment.
Alongside global injections of technological knowledge and burgeoning local talent, stabilizing infrastructures, and improved political organizations are changing the face of Africa for investors. Public ratings, such as the World Bank’s Doing Business surveys, documented the development of functional African governments and put pressure on those that have yet to foster a business friendly climate. Over the past 15-20 years, much of Africa has experienced uninterrupted growth. During the global economic crisis, Africa proved to be remarkably resilient. The middle class in sub-Saharan Africa has expanded rapidly. Greater access to the internet, growth of the mobile phone, and an increase in access to education are boosting the percentage of the population with disposable income to spend.
Invest in Africa, but Where in Africa?
Global companies have interest in which countries or regions promise the best investment. With 54 countries and as many languages, dialects, and government structures, companies often focus on organized trade blocs for business opportunities rather than individual countries. These are the three major regional trade blocs in Africa:
- Common Market for Eastern and Southern Africa (COMESA) is comprised of 19 countries including Burundi, Ethiopia, Kenya, Madagascar, Malawi, Rwanda, Sudan, Uganda, Zambia, Zimbabwe, Egypt, and Libya.
- East African Community (EAC) is 5 countries: Kenya, Tanzania, Uganda, Burundi, and Rwanda.
- Southern African Development Community (SADC) consists of 15 countries including Angola, Botswana, Malawi, Tanzania, Namibia, South Africa, Democratic Republic of Congo, Seychelles, and Madagascar.
Open the Door to Technology
In this global economy, business and investment development are both tied to technology. The historical dearth of electronic facility in Africa has found the big technology companies investing in Africa. Often, it is not enough to just provide hardware and software; support systems are also required to ensure user success. Large technology-based companies have taken various steps to invest in the continent.
In October 2013, IBM opened a research facility in Nairobi; and, according to IBM, it is the first research facility that conducts both applied and exploratory research on the continent.
IBM has initially invested resources in Kenya. The investment activities are supported by IBM’s search and hiring of top talent of African origin. The company’s efforts are dedicated to helping solve challenges to facilitate further investment.
Microsoft’s 4Afrika initiative focuses on encouraging innovation, increasing access to technology, and building skills in the local workforce. The company backs projects across the continent including access to training, roll-out of broadband in rural areas, infrastructure, agriculture and healthcare. It has established hubs designed to nurture young developers creating apps for the Windows phone platform.
To support further investments, the company established the Salesforce.com Foundation, the philanthropic arm of the customer relationship management and services technology giant. The Foundation was started with an initial investment from the company, and it provided access to Salesforce.com software, which is licensed to non-profits and staff members volunteering for the Foundation.
The first project in Africa for the Foundation was to donate refurbished hardware and pay for internet access for a school in the Kibagare slum in Nairobi.
Bring Private Equity Investors
Private equity investors have Africa, including the Carlyle Group, TPG Capital, Helios Investment Partners, Emerging Capital Partners Private Equity, and others. What they have found many times is big profits from small deals. A typical private equity investment of $100 million or less — often less than $10 million — is parlayed into companies that range from banking to yogurt to cell phones. About 52 percent of African private equity investments in 2013 were less than $10 million, and 76 percent were less than $50 million, according to data from the African Private Equity & Venture Capital Association (AVCA).
Nonetheless, challenges and risks remain. Some countries are plagued by civil unrest or outright warfare, and they are broadly afflicted by unreliable court systems, weak infrastructure, and political corruption. Despite these impediments, there are tremendous opportunities for long-term investors seeking to participate in the changing African investment landscape.