“1:5 – it is estimated that in 30 years’ time, one in every five children will live in Africa, and the continent will have the largest working-age population. Foreign direct investment overall is still quite low, accounting for less than five percent into emerging markets, so there still are plenty of opportunities.” – PriceWaterhouseCoopers

In 1970, the first year that Foreign Direct Investments into the continent was officially documented and data became available, the total amount of FDI inflows that year was $1.26 billion. However, as at 2010 that annual figure had risen to $55.04 billion. This represents an increase of 4,247 percent. Has Africa not done well?

How about giving Africa some perspective in terms of relative performance? Yes we have a long way to go in certain areas, but many focused individuals are making inroads and progress for the continent. When we factor that Africa has a life expectancy of 56, terrorism, an unsettled MENA region, power crisis, corruption and a failed state of Somalia, you may be forced to ask, What do investors see in this continent?

Perspective renders a more positive view though. Here’s why;

Africa’s population is just over 1.072 billion people, roughly 15 percent of the global population. China and India also have over one billion people each in their respective countries, making three emerging market continents a massive third of global population. Do not forget, Africa’s has one more card up its sleeves; it has arguably the world’s youngest population. In this regard, much of the FDI is accumulating between these three areas, with Africa maybe proving even more attractive.

Africa also shines in the following areas;

• In 2013 saw 19 full electoral democracies, up from just 3 in 1990.
• In 2000 there were just 16.5 million mobile phones and today there is in excess of 650 million people on the continent connected.
• From the year 2000, FDI increased from $10 billion to $650 billion in 2013.
• The Achilles heel of Africa, AIDS, saw related deaths fall 32 percent between the year 2005 and 2011.
• There were 33 percent less deaths from malaria since the year 2000, thanks to the many NGO’s that have invested heavily, especially the likes of the Gates Foundation.
• Since the year 1990, there has been a 38 percent decrease in the mortality rate of children younger than five years of age.
• 60 percent of the world’s uncultivated arable land is on the African continent, making it a potential haven for food production.
• In addition, over 30 percent of the world’s known mineral resources sit under African soil.
• Much of Africa is also well exposed to direct sun rays making it ideal to harvest direct solar energy. This has been happening in recent years.
• Africans are communicating better. There has been an average of 40 percent growth in the African telecom industry, compounded over the last five years.

Further to this impetus of African fortune, “South Africa has climbed two spots to become the 13th most attractive destination for foreign direct investment”, that’s according to the A.T Kearney Principal, Cecily Carmona.

The positive downward trend

So, despite all the challenges and hardships, the risks of doing business in Africa are on the decrease. Sub-Saharan economic growth is forecast at 5.2 percent and business across many parts of the continent is booming. Contributing to this is the positive increase in democratic sentiment and practice in fostering a progressive energy diversification as seen in countries like Nigeria where electricity privatisation has taken precedence. Energy availability means that businesses can now save more, with most foreign players prioritizing this as a necessity for investments. Just look at the amount of foreign companies residing in South Africa, arguably Africa’s biggest energy producers.

Another reason for this attraction is the availability of liquidity in African markets. Considering that debt capital is more expensive from outside the continent, investors seek acceptable levels of internal funds and credit available from external sources. This has been the driving force for mergers and acquisitions across sectors and countries in Africa. South Africa is a prime example of restricted credit liquidity due to the sovereign and financial institution downgrades in recent months. However, investors are sitting back on South Africa at the moment, primarily due to the slow growth forecast, international sentiment on governance, market and labour unrest in critical sectors and the exposure of debt of the country and its citizens.

Compare this with other emerging regions: according to the World Bank Enterprise Surveys, up to 46 percent and 34 percent of South Asian and Latin American firms reported difficulties in obtaining their desired levels of credit (WBES 2013). The lack of access to credit in these countries makes illiquid, and hence undervalued, local firms attractive acquisition targets for more liquid firms that are based in developed markets.

Glaring Barriers 

Further to this one can also deduce that Africa needs inter-investment. The continent needs to fix up certain issues related to corruption and illicit outflows that will allow her plug infrastructure deficit of at least $40 billion annually.

The impact of this is enormous. By halting outflows, regional investments will increase – in theory at least. This is the incentive foreign investors seek – a country willing to invest in itself, showing domestic market confidence. With domestic confidence and local investments on the increase, this adds to the liquidity of the market, not only through credit but through ownership – shares buying.

Most attractive

The top three sectors that appeal the most to foreign investors at the moment are technology, media and telecoms (TMT). This is followed by the retail and consumer products sectors and then the financial services segments riding off the back of these. New markets include real estate, hospitality and construction sectors. These newer attractions have seen market growth climb over 50 percent.

Contrary to increasing popular perceptions about Africa and her people, not only do we have growth orientated investment opportunities to offer, we have a workforce, aptly described by Andrew S Nevin, Partner, Africa Advisory; “Africa’s business people are making it in extraordinarily conditions – the business equivalent of distance training at altitude.”