In comparison to the ageing populations of the mature economies, Africa’s young population is a gift of human capital, giving it a major competitive advantage. Yet like most of the world, Africa’s growth prospects face challenges from far and wide. Commodity and oil prices, investor caution, slow global growth and a faltering Chinese economy present Africa with more than enough hurdles.
Unleashing the potential of human capital and the economic power it proffers requires a detailed analysis of not only external forces but what is happening within the African markets. How are governments engaging with their populations? What role can the private sector play – and what can be done to address the challenges faced by Africa that remain an obstacle to the enormous economic potential?
It is important to first recognise that despite all of the prevailing global economic headwinds, the potential is significant. Africa remains abundant in natural resources. Not only oil, mining and minerals – but fertile land that is supporting a fast-growing agriculture sector and enormous opportunities in areas such as clean energy and timber. Innovations in energy and water technologies are further developing the agriculture sector, which is the continent’s single biggest employer, helping farmers to yield stronger crops during a period of climate change. These innovators (and the industry they support), however, face man-made barriers to growth such as limited access to capital and weak supporting innovation eco-systems.
In many parts of the continent, national governments are addressing these challenges by supporting entrepreneurs through various stimulus tools such as incubators or government-backed VC vehicles. This is imperative if urban industrialization is to take off in Africa.
It is true that for some African countries, the collapse of oil and commodity prices has led to difficult spending decisions but many have redoubled their efforts to invest in business-critical infrastructure. As a result, small businesses are benefiting from a continued focus on infrastructure investment by national governments.
The advantage for investors is that infrastructure and the pursuit of a dynamic SME sector and supply chain are now the primary focus because these are the only logical steps towards a sustainable and diverse economy. Investment in these sectors and in infrastructure specifically creates a positive economic cycle.
There are huge opportunities to invest in countries that include Angola, Nigeria and Kenya across different high growth industries such as agriculture, forestry, hospitality, healthcare, mining and structured equity. And the multiplier effects for the national economy are vast – it offers significant opportunities for job creation and the development of a knowledge-based and highly skilled workforce across the continent.
Indeed, the current economic challenges provide foreign investors with new opportunities to partner with national governments through a range of financing options. These options are increasingly attractive since many African nations such as Angola have reduced their minimum entry requirements and liberalized their markets over recent years. In addition, it is likely that prices have bottomed out and we are transitioning from a sellers’ to a buyers’ market.
Investors therefore stand to gain from getting in early, through PPPs, and going through Buy and Build strategies. These investments allow businesses to get a strong foothold in national and regional markets and support the development of key industries – but given the complexities of the regional markets, investors do need to tread carefully.
International investors are wise to explore African opportunities through an investment firm that has its roots in the region and has a history of success within the continent. It is also important to source opportunities that offer realistic but attractive long-term returns in solid sectors such as agriculture, healthcare, timber and mining amongst others.
For instance, investment companies such as Quantum Global are taking advantage of the shift towards a buyers’ market and offering investors unique gateway opportunities to partner with African investors and institutions. A testament to this is Quantum Global’s partnership with the Angolan Government to develop 80,000 hectares of large-scale wood fiber plantations in the Planalto region of Angola. As part of this concessional agreement, Quantum Global aims to invest approximately USD 50 million to the new plantation establishment, infrastructure and wood processing industries over the next five years. Investments into timberland will bring much needed long term stability and jobs into the undeserved rural communities. It will also bring the continent’s artisanal timber sector, which employs thousands of people but remains severely unregulated, into the formal mix, thus enabling the sector to comply with more sustainable logging practices.
Another area where the private sector can join hands with regional governments is the power sector. Africa has the potential to become a leader in renewables by producing cheap electricity using natural resources. Most African nations realize the importance of developing the power sector and have subsequently opened their markets to private investors and adopted better regulations that encourage investments in the sector.
The combination of experience in the mature markets, adherence to global best practice and a deep understanding of how the markets work is a unique proposition and of great benefit to investors looking to source opportunities in the continent.
It is important, however, for investors to understand that Africa is a diverse collection of markets – it is yet to mature into a region that offers home-grown businesses an easy route to regional and international success. Many stakeholders are pushing for a more unified approach – but in a region that has such a complex history it cannot happen overnight. And this is why the expertise, guiding hand and capital provided by governments and the private sector are particularly important for African businesses.
We are moving through a period of significant economic change – but Africa continues to offer hope for future generations through its incredibly young workforce and their ambition for success. The marriage of private investment and strategic government policy will go a long way to supporting their future.