First published in Henley & Partners’ The Africa Wealth Report 2024
Despite challenges, Africa remains a leading destination for investment in commodities and clean energy. Local and global investors must approach African investments with a blend of enthusiasm and caution. Meanwhile, African policymakers aiming to attract foreign direct investment should emphasize opportunities in continental trade.
Investment Trends by the Numbers
It is challenging to discuss Africa, a continent of 54 diverse countries, as a homogeneous entity. The investment landscape varies significantly across the region.
After a two-year hiatus due to the Covid-19 pandemic, Africa saw a robust return to the investment scene in 2022. According to the EY Africa Attractiveness Report, foreign direct investment surged by 64%. South Africa led with 157 projects, followed by Egypt (149), Morocco (71), and Kenya (63). In terms of investment value, Egypt topped the list with USD 107 billion, trailed by South Africa (USD 27 billion), Morocco (USD 21 billion), and Zimbabwe (USD 5 billion). The major investment hubs were in North and Southern Africa.
Investment trends among Africa’s high- and ultra-high-net-worth individuals have been shaped by economic growth, political stability, regulatory environments, and sector-specific opportunities. Private equity and venture capital investments have notably increased in real estate, technology, infrastructure, hospitality and tourism, healthcare, renewable energy, and consumer goods. Furthermore, impact investments are rising as more investors become socially conscious and committed to giving back.
However, several obstacles have impeded this investment resurgence, including broader geopolitical issues like the Russo-Ukrainian war.
Current trends and prevailing patterns in African Investment
Like other global markets, African investment has faced increased macro and market volatility since 2023. Many African nations grapple with economic challenges such as inflation, depreciating currencies, and high debt levels. In 2023, 18 countries had a debt-to-GDP ratio exceeding 70%, with several in financial distress.
Macro-level experts highlight several megatrends affecting Africa that savvy investors should consider to minimize risk and identify opportunities. Negative trends include rapid population growth, urbanization, and climate change. Positive trends encompass greater regional collaboration through the African Continental Free Trade Area, expanding digital capabilities, and increased entrepreneurial innovation.
A key driver of entrepreneurial innovation is Africa’s large and growing youth population. By 2050, 60% of the continent’s estimated 2.5 billion inhabitants will be under 25, representing a significant human resource opportunity. However, if not harnessed for wealth creation, this demographic could pose a serious threat, especially with high unemployment levels.
Investing in Africa has its challenges
Investors must be mindful of potential challenges, which vary by country or region. These include security concerns such as political unrest, civil conflict, terrorism, kidnapping, and crime. Political and regulatory risks also arise from regime changes, arbitrary legal systems, and policy inconsistencies. Other challenges include infrastructure deficits, particularly in transportation and energy, currency volatility, and issues with data transparency.
The bright side of investing in Africa
Despite challenges, there are many promising African investment opportunities for discerning investors. A report by the Economic Intelligence Unit in December 2023 predicts that Africa will grow at the second-fastest rate among major global regions in 2024, driven by the services industry.
Key areas of investment opportunity include:
- Abundant human resources: Africa’s population, currently 1.3 billion, is projected to nearly double to 2.5 billion by 2050. Nigeria alone is expected to have 400 million people, surpassing the US as the world’s third-largest country by population, making Africa a vast consumer market.
- Agriculture: About 23% of sub-Saharan Africa’s GDP comes from agriculture, yet two-thirds of its arable land remains undeveloped.
- Solid Minerals: In 2019, minerals and fossil fuels accounted for over a third of exports from at least 60% of African countries. Nigeria plans to offer investors at least a 75% stake in a proposed solid minerals corporation.
- Stock Market: Top-performing African stocks, especially in telecommunications, have seen significant gains, with some shares rising 76% between July 2020 and 2021.
Mitigating risks
To counteract inflation, several countries, including South Africa, Kenya, Nigeria, and Egypt, have raised and maintained high-interest rates. Some investors, particularly in finance, insurance, and brokerage, stand to benefit from the correlation between high interest rates and growth. In Nigeria, the floating of the naira is expected to enhance the economic environment and increase investment appeal by reducing market distortions.
African industries to watch out for
In the foreseeable future, cleantech, energy, infrastructure, financial services, health tech, and agriculture are expected to attract the highest levels of investment. Additionally, international investment in locally based digital skills is increasing.
Policymakers must develop policies that incentivize the private sector to bolster capital markets. Without strong capital markets, attracting necessary investments, particularly international investment, will be challenging.
Finally, investing in Africa requires a nuanced approach. Investors must combine global investing expertise with a clear understanding of local circumstances to maximize opportunities.
