Africa makes up around 20% of the earth’s landmass, and is home to approximately 16% of the world’s population. Nevertheless, Africa’s economies account for just 3% of the world’s GDP.
In the past, economic ties between African nations and strong economies outside of Africa have been fundamentally exploitative. Stronger, often Western economies drew value from the continent by enslaving its people and extracting its natural resources. This led to a deep economic stagnation and fragmentation in Africa that has lasted until this day.
The extractive approach to African economies has not only wreaked havoc in Africa; it has also impeded the establishment of mutually profitable business ventures that would have created value both on the continent and outside of it.
In recent years, however, several factors have come together to create a particularly auspicious time for the African private sector.
While some challenges still lie ahead, we believe that these are vastly outweighed by the opportunities. Now is the time to invest in Africa, for the benefit of all involved.
Africa has the world’s youngest and fastest growing population. Young people are generally more optimistic about the future, are more likely to believe that they can positively impact their country’s governance, and are more likely to start their own business. African youth are more confident about their ability to start a business than their peers in other regions, and are more likely to be involved in a business that is new or nascent.
African demographic trends also contribute to the growth of the African consumer market.
Increasing access to education and family planning resources will allow Africa to capitalize on the “demographic dividend” – an economically advantageous situation in which an economy’s working-age population is greater than its dependants.
Of course, Africa’s growing population may also present a tremendous challenge if the food supply, healthcare, and other critical goods and services do not keep up.
Facts about Demographics in Africa
Infrastructure in Africa is profoundly underdeveloped, and the shortcomings extend across numerous sectors, including roads, railways, electricity generation, water purification, sewage and waste management, and ICT frameworks. In addition to impeding human development on the continent, The lack of basic infrastructure raises the cost of travel, communication, producing and shipping goods, and generally poses an obstacle to African economic integration and expansion. Although state spending on infrastructure has increased in recent years, most African nations still do not have the funds necessary to build the required infrastructure and break the cycle of economic stagnation.
Foreign aid from OECD countries, which had traditionally funded large-scale infrastructure projects, has recently shifted instead to social infrastructure (e.g. education and health). Newer players such as China have stepped in to fill the gap, establishing an alternate model of infrastructure funding in Africa that is more commercial and less philanthropic, funding infrastructure projects in Africa through market-driven non-concessional loans, which provides funds needed for infrastructure development while delivering returns on the investment for the loaning country.
The private sector in OECD countries has traditionally avoided investing in infrastructure projects, due to the perceived risk and complexity involved. As interest rates have remained low across the globe, however, private investors have sought alternative profitable investment channels, and increasingly look to Africa as an investment opportunity that can offer financial returns while markedly improving the lives of millions of people on the continent.
The Infrastructure Consortium for Africa (ICA) has also played a major role in financing African infrastructure in recent years. The ICA has created opportunities for public-private cooperation that have proved successful in fulfilling some of the Africa’s infrastructure needs while providing investors with an attractive investment opportunity.
Private investors bring funds and business acumen, whereas government involvement can mitigate the risk involved and ensure that the resulting contract is fair and balanced. This increases the chances of mutually beneficial and successful projects that bring much needed infrastructure to the continent.
Facts about Infrastructure in Africa
The majority of the population of Sub-Saharan Africa owns a mobile phone, which allows them to call, text, and make and receive mobile payments. In 2020, 3G will overtake 2G to become the leading mobile technology in Sub-Saharan Africa, which will allow more Africans to access the internet regularly and efficiently.
Increased internet and mobile phone penetration create economic opportunity for Africans and for those wishing to engage economically with the continent by giving business owners the tools needed to research the market, find investors, and reach customers, while allowing consumers to find and pay for products and services online.
In addition, the increase in ICT adoption has spurred growth in the Fintech sector. Fintech services can allow Africa’s currently unbanked population to participate in economic activity beyond the confines of their village despite the shortcomings of infrastructure in other areas.
Facts about Technology in Africa
The African private sector is growing.
African household consumption has increased faster than GDP in recent years, and is expected to reach $ 2.1 trillion by 2025. Companies operating in Africa that are based in Africa or that operate out of a local African office are generally more successful than their foreign counterparts, so African companies or foreign companies with local business relationships are most likely to capitalize on the growing consumer market.
Manufacturing and agriculture are two particularly attractive sectors that can generate profits to investors, create economic opportunities for the expanding working age population, and help fill the needs of Africa’s growing population. Indeed, as the continent continues to industrialize and urbanize, manufacturing and processing of foodstuff and other goods is expected to increase to meet the local demand. The African Continental Free Trade Area (AfCFTA), launched in March 2018, will further encourage manufacturing on the continent by removing many of the tariffs that currently hinder intra-African trade. Private investments will be critical to unlocking Africa’s manufacturing potential.
The agriculture sector also holds major promise. Although 60% of the world’s arable land is in Africa, productivity is so low that the continent is a net importer of food. According to estimates, the current agricultural yields can be doubled or even tripled, but such an increase would require large investments in inputs (such as fertilizer and seeds) and in infrastructure. Since many African countries do not have the funds for such investments, the private sector can step in for the benefit of everyone involved.
Facts about Business in Africa
A larger share of the pie is staying on the continent – Of the entities doing business in Africa, companies that are based in Africa or local African offices of international companies report larger increases in revenue and profitability than their internationally based or located peers.
African Continental Free Trade Agreement went into force May 30th 2019. As of July 2019, 27 African countries had ratified the agreement and all African countries besides Eritrea had signed the CFTA.