Many papers have been published on the subject of "investing in Africa" in the last years.
- You will find over 9 millions hits in Google for "investing in Africa".
- Paul Collier, author of the influential "The Bottom Billion" book, published "Now's the Time to Invest in Africa" in Harvard Business Review in 2009.
- The McKinsey report Lions on the Move says: "Today the rate of return on foreign investment in Africa is higher than in any other developing region".
- The annual flow of foreign direct investment (FDI) into Africa in 2008 increased to $62 billion, from $9 billion in 2000.
- Wal-Mart Stores announced a cash offer of over 2 billion USD for a majority stake in the South African retail company Massmart Holdings, one of South Africa’s biggest retailers.
- The CEO of the Rwanda Development Board makes the case for Rwanda in the Independent, a local media: Rwanda is now open for business.
- My friend Ryan Allis, CEO of iContact, speaks about Why invest In Africa? in his Dare Mighty Things blog and provides good links for investments in Africa.
- An interesting interactive graphic “The New Gold Rush” recently published by The Wall Street Journal shows how the rise of a new consumer class is shifting the balance in Africa.
So how much more information do you need to be convinced to invest in Africa? Africa is a complex continent grouping 53 independent countries and clearly the business environment required for investments is not homogeneous across the continent and the growth of individual countries across the continent will differ greatly.
It is therefore important to carefully select the countries where to invest.
The McKenzie report cited above provides good economical information on the African market. The report provides a ranking of countries in 4 categories:
1) Diversified economies: Africa's growth engines: South Africa, Egypt, Morocco and Tunisia.
2) Oil exporters: They have the continent highest GDP per capita but the least diversified economies: the three largest producers are Algeria, Angola and Nigeria.
3) Transition economies: Rapid growing economies but agriculture and resources sectors account for as much as 35% of GDP and two-thirds of exports: Ghana, Kenya, Senegal
4) Pre-transition economies: Their economies are very poor, with annual GDP per capita of just 353 USD: RDC, Ethiopia, Mali
Africa has 14% of the world population, over one billion people. It is estimated that by 2050 it will increase to almost 20% up from 7% in 1950. By 2040, Africa’s labor force is projected to reach 1.1 billion, overtaking China’s or India’s. About 44% of the African population is under 15 years old, making it the youngest population in the world.
Education and infrastructure
Demography will have significant implication on the need for productivity and growth to create new and diversified economic opportunities for this growing workforce and provide employment to all these people. Africa has the potential to become an important resource for labor-intensive industries but this requires major investments in appropriate education to develop a skilled workforce that can compete in a global economy. It also requires major investments in infrastructures to support the economical development. The ICT infrastructure in particular is critical as it will be a key engine for the development of the private sector (see my paper in Next Billion).
Only 9 of the 53 African countries for which the WHO shows data have life expectancies of 50 years and over while the world average is 67.2 years. The figures reflect the quality of healthcare in these countries as well as other factors including ongoing wars and HIV/AIDS infections in particular in sub-Saharan Africa with adult prevalence rates ranging from 10 to 38.8 percent.
While much progress has been accomplished, African countries are still below average in world rankings of governance. Strengthening of the progress is still needed to further improve the business climate.
Adapting to climate change
I address that challenge in my posting of August 26, 2010 in this blog.
In summary, Africa is open for business, but as any smart business man, you need to do your homework first to figure out where to invest for better return at lower risk.
See you later alligator!