Paid attention to what’s happening in Africa lately?
The continent has the fastest-growing youth population in the world, an urbanization rate that’s “expected to drive over 50% of Africans to cities by 2050,” and a rapidly formalizing economy, not to mention huge amounts of natural resources. These trends are driving and will continue to drive economic growth on the continent, according to The World Economic Forum.
And it’s all currently undervalued. The stage is set for an economic boom for investors with a long-term approach.
No doubt, Africa has an eye on the future.
The African Continental Free Trade Agreement (AfCFTA) has been signed by all but one African country. The agreement’s goals include boosting intra-African trade from 16% to 60%, as well as attracting $4 trillion in investments and consumer spending to the continent.
This growth could make for a variety of strong investment opportunities. Here interested investors should know.
What are Africa’s emerging markets?
Africa is not shy about its opportunities for investors. African countries are working toward attracting more diverse investment with “Investment Promotion Agencies” in every country to help investors with registration, taxes, and requirements for establishing companies locally.
That said, investing in Africa varies largely by region. South Africa, for example, is the largest producer of gold, platinum, and chromium in the world. It is also home to sizeable agricultural and banking sectors. Conversely, many countries in Northern Africa are known for their “extensive crude oil reserves.”
Remember, this is a continent, not a country. There is much variety across all of Africa.
According to a 2020 ranking of the best countries to invest in in Africa by Rand Merchant Bank, Egypt ranks number one, South Africa ranks number three, Kenya ranks number four, followed by Rwanda, Ghana, Cote’d Ivoire, Nigeria, Ethiopia, and Tunisia. That’s the baseline, but what does it all mean for investors?
South Africa tends to attract foreign investors because of its well-developed legal framework, its adoption of international standards, its developed infrastructure, and its clear banking regulations. Additionally, the country possesses many opportunities across sectors, including agriprocessing, automotive, fishing, banking and financial services, mining and minerals, chemicals, textiles, and tourism. South Africa’s stated goal is to attract $100 billion in foreign investments by 2023.
But South Africa is not alone. Consider the example of Rwanda.
Following the end of the country’s 1994 genocide, Rwanda developed its ambitious Vision 2020 plan which established many initiatives for the country, including prioritizing its healthcare system, which resulted in the life expectancy rising from 29 in 1994 to 67 in 2016. Additionally, Vision 2020 prioritized the education system, raising the expected number of years a child attends school from 6.2 years in 1995 to 11.2 years in 2017.
These socioeconomic changes have had a huge impact on the country. For example, Rwanda currently ranks number 3 in terms of internet connectivity throughout Africa. This is an important factor when you consider that Kigali ranked the second most popular destination in Africa in 2019 for international conferences and events by the ICCA (International Congress and Convention Association), only following Cape Town, South Africa.
In 2018, Rwanda attracted $2.006 billion in domestic and foreign investments, surpassing its goal by $6 million. This was a 20% increase from $1.675 billion in 2017.
Unlike other regions of the world, many African countries are relatively new to the process of attracting investments, which makes these opportunities ideal for investors with a long-term investment strategy.
Why invest in Africa?
Put simply, Africa’s population is booming. Deloitte estimates that some 200 million Africans, which amounts to roughly 20% of the population, are between the ages of 15 and 24. That number is expected to reach 321 million by 2030.
Africa also has a growing middle class. According to McKinsey, household consumption is expected to reach $2.1 trillion and business spending is expected to reach $3.5 trillion by 2025. That is a total of $5.6 trillion in business and investment opportunities.
There’s also huge potential for agriculture, with abundant arable land that isn’t utilized as efficiently as it could be. Even more, because of a lack of storage and infrastructure, “up to 50% of African fruit and vegetables spoil before reaching markets.”
Perhaps most interesting, Africa is a world leader in mobile adoption. For example, Paga, one of Nigeria’s biggest mobile money operators, entered the market in 2012, when “financial service inclusion levels were poor, but mobile penetration levels were encouraging.” Since then, it has recorded over 6.6 billion in transactions. In 2019 alone, it recorded over $2 billion in transactions.
Paga isn’t alone. Paystack, an African fintech startup, launched in 2016. The online payment platform allows African businesses to accept payment from all over the world. In fact, in 2018, Nigeria “accounted for 29% of the total VC deals on the African continent.”
While many areas in Africa are lacking infrastructure, including roads, rails, ports, airports, power grids and IT, Africa’s quickly changing and growing tech landscape is allowing it to skip some traditional steps to economic growth. For example, the adoption of mobile money systems brought millions onto the grid through mobile banking systems, even though they’d never interacted with conventional banks.
Beyond payment, tech innovation has managed to help governments perform basic functions more effectively, from distributing public services to collecting taxes. Even more, tech innovations have led to “app based logistics and delivery firms, mobile money firms that bank and lend, domestic social networks and even betting applications,” modernizing the fabric of Africa.
How to invest in Africa
Like any overseas investment, Africa is not without risk. However, it’s easier than ever to start investing in Africa, especially with ETFs and mutual funds available to U.S.-based investors. A search on Magnifi suggests that there are a number of options available for investors interested in tapping fast-growing economies in Africa.
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