Why companies invest in Africa?
Within the next 10 years, consumer spending in Africa is expected to reach 2.7 trillion U.S. dollars. In fact, over 20% of this spending will occur in Sub-Saharan Africa. This excludes Africa’s largest markets such as Nigeria, Ethiopia, Sudan & several countries in South Africa and East Africa. The continent is also experiencing mass urbanization. Experts have linked urbanization to further increases in consumer spending. Therefore, Africa has the potential to become the next big international market and source of investment. Although, international companies often avoid investing in Africa due to reports of corruption, unsafe business environments and poor government policies. Several organizations and government initiatives have now implemented strategies to eliminate these concerns, reduce poverty and promote investments, which is why companies are investing in Africa.
Global Competitiveness Index:
North Africa: Algeria, Egypt, Mauritania, Morocco, Tunisia
Sub-Saharan Africa; Benin, Botswana, Burundi, Cameroon, Cape Verde, Chad, Cote d’Ivoire, Ethiopia, Gabon, Guinea,
Kenya, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritius, Mozambique, Nambia, Nigeria, Rwanda, Senegal, Seychelles, Sierra Leone, South Africa, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe.
Top reasons to invest in Africa.
The conversation about Africa is shifting from one of “deficits” and “gaps” to one about opportunities, prospects, ventures and creativity. That’s not news to companies that have paid close attention to the continent and invested there. The fast growing youth population, the urbanization expected to drive over 50% of Africans to cities by 2050, and Africa’s formalizing economy are all well known. These trends and other developments have driven a half century or more of growth in Africa, and will continue to do so.
1. Africa needs ‘connectors’
2. African trade barriers are falling and intra-African trade holds enormous potential
3. Customers are changing
4. Digital transformation
5. Africa is diversifying
6. Africa can lead in sustainable development
7. Profitable Companies
8. Expanding Economy
9. Growing Workforce
10. Low Correlation Amongst the Markets
11. Low Debt Levels
Foreign Direct Investment in Africa
Foreign direct investment (FDI) comes in different forms,
1. Merger and takeover activity
2. Land purchases by overseas investors – known as land grabs
3. Fixed capital investment involving building new factories, assembly plants and distribution centres
Motivations for FDI in Africa
1. Higher profits and a stronger position and market access in global markets
2. Reduced technological barriers to movement of goods, services and factors of production
3. Cost considerations – a desire to shift production to countries with lower unit labour costs
4. Forward vertical integration (e.g. establishing production platforms in low cost countries where intermediate products can be made into finished products at lower cost)
5. Avoidance of transportation costs and tariff and non-tariff barriers
6. Extending product life-cycles by producing and marketing products in new countries
7. The urge to merge – the financial incentives created by the global deregulation of capital markets is making it easier to achieve acquisitions and mergers and thereby encouraging the external growth of a business.