imagine africa

Investors challenge and Interest in Africa

Africa │ Private investment does matter because someone has to pay for the technology and its industrial applications.

To a certain degree, there is a clear correlation between the rates of investments and economic growth. Even beyond just rates, the productive allocation of investments largely matters. In most African countries investment rates are relatively low despite returns being high. This already gives us an indication of why many countries were left behind and did not converge according to classic economic theory. But even when countries managed to achieve strong economic growth (such as Ghana, Tanzania and Ivory Coast) there is little evidence of private investment rates being the cause.

Private investment does matter because someone has to pay for the technology and its industrial applications. And with technology firms can scale up as a result of technological advancements.

But what explains the low investment rates despite Africa exhibiting attractive rates of return?

Bluntly, risks such as political unrest, civil strife, currency risks, corruption, low purchasing power, or infrastructural deficits are good first guesses to explain for the low investment rates, however, that is not enough good justification to not invest. In Nigeria for example, there are more than 200 international employers in operation, of which 50 of them are multi-billion in size. Others such as the Tolaram group have proved to be successful and generated a gross $1 billion from Nigeria alone against all odds. It's more than just risks, its uncertainty that defines an investor's confidence, and hence the success of their investments.

ADIC Is Also Changing the Narratives

This is Egypt.

This is Egypt

"Egypt, a country linking northeast Africa with the Middle East, dates to the time of the pharaohs. Millennia-old monuments sit along the fertile Nile River Valley, including Giza's colossal Pyramids and Great Sphinx as well as Luxor's hieroglyph-lined Karnak Temple and Valley of the Kings tombs. The capital, Cairo, is home to Ottoman landmarks like Muhammad Ali Mosque and the Egyptian Museum, a trove of antiquities."

Egypt growth is driven mainly by investment and private and public consumption, as well as by net exports, which contributed positively for the first time in two years. This positive performance reflects the government’s reform efforts to achieve fiscal consolidation, more inclusive growth, and an improved business environment.

At Africon a German-based consulting firm, we have interacted with more than 70 investors with interest to enter the African markets, one thing defined their decision-making, and that was information. Their interest lied beyond the risks they learned about from newspaper. As data availability is very scarce in Africa, investors asked us to analyze the markets and explain country dynamics, including the risks. "I don't mind investing, in places where there is high risk, I just want to know what that risk" As one investor once addressed in a meeting.

Essentially, it's a not risk that is impeding investors from investing, but rather the lack of information in the first place – including the information of the risk. It is not the corruption index ranks that limited investors from going into Africa, but not knowing the channels of operation. It is not the low growth of market demand, but the understanding of customer processes. And finally, it is not an absence of supply chains, but rather the intelligence on the existing network. Of course, there remain valid arguments for the low investments rates such as the inadequacy of infrastructure or the absence of skilled labor, but hands-on market Intelligence is a good starting point to offset a number of the myths and perceptions that have for long clouded investors' confidence to enter African markets. Besides entering, information also plays a crucial a role in successfully operating. Ultimately, it all comes down to how companies adapt to a new style of operations built on facts and contacts.

It is also important that improving trust rate works in favour of the business environment and it makes business development processes to be shorter. Africa has a low trust rating and that is a big factor for long processes in closing deals here. The 2007 Pew survey found that in countries where people generally trust one another, there is also more confidence in the integrity of political leaders. The obvious situation is that many African political leaders are coming to the reality of the trust issue. In South Africa, the exit of former President Jacob Zuma was as a result of the negative impact of low trust environment his administration created. He was pressurised to step down and eventually the ANC political party made a choice of a new President.

Written by Victor Mamora and Mohammed Al-Salafi

 

Event Location

  Stadt Zürich
Wasserversorgung
Street: Hardhof 9
City: 8021 Zürich
Country: Switzerland

About ADIC

The African Development & Investment Convention (ADIC) is a one-stop-shop and access point to entering the African market. It is an annual convention devoted exclusively to promoting Africa as an investment and trade hub through public-private partnerships, project-investor matching, and showcasing of bankable projects across all sectors.

Contact

DCG Switzerland
Alte Zugerstrasse 4
    8820 Wädenswil ZH.
    Switzerland
 +41 43 833 0214
+41 43 833 0215
info[at]afidep.com

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