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10 December, 2021updated 12 Aug 2022 15:29

Africa is emerging rapidly and can no longer be ignored by investors

In an excerpt from his book Africa Is Emerging: Hard Facts About Easy Market Entry, author Ndudi Osakwe warns investors not to underestimate the continent.

By Ndudi Osakwe

I was inspired to write my recent book, Africa Is Emerging: Hard Facts About Easy Market Entry, by the need to change the perception of Africa as a monolith. Africa is a continent made up of 54 countries, each with its distinct culture, history, system of administration, language, economy and so on. Therefore, understanding the character of the African space is a requirement for successfully doing business on the continent.

Despite having resource-based economies with attendant headwinds, Africa has undergone a lot of changes over the years through the concerted efforts of its various governments at driving change and promoting investments in their various locales.

The good news is that the world is now acknowledging that Africa, with its market of one billion or more people, can no longer be ignored. For instance, US President Joe Biden, in a video call to leaders of the African Union, reiterated the US’s desire to engage with Africa for greater trade relations and investment in its democratic institutions. Without a doubt, an informed investor can find the right fit as many of the perceived risks are overhyped. According to one analyst, Africa is not hell and it is not heaven either. It is a continent with a big, youthful population, with cities that are booming.

It is worthy of note that, in 2019, six out of the ten fastest-growing economies in the world were in Africa. This demonstrates the willingness of governments and the determination of the African people to improve their well-being. According to Said Ibrahimi, CEO of Casablanca Finance City and a firm believer in Africa, the continent has complicated economies, and its future growth will be built on opportunities unique to it. I am as hopeful as Mr Ibrahimi that Africa will be the motor of global growth in decades to come.

Africa is emerging.

Understanding Africa

Africa is not a country. It is not monolithic. The physical and human spaces vary from region to region and are also diverse within regions. Africa is made up of 54 countries, with a population of about 1.3 billion people from approximately 3,000 ethnic groups. It is culturally diverse. An estimated 2,000 languages are spoken within the continent.

The countries of Africa belong to various regional economic unions with some countries being members of more than one economic community. The blocs promote regional trade and enhance the easy movement of goods and persons.

The major economic blocs in Africa for the past few decades have included the following:

  • Ecowas: Economic Community of West African States
  • Comesa: Common Market for Eastern and Southern Africa
  • EAC: East African Community
  • SADC: South African Development Community

The regional economic blocs have coalesced into a single trade area for continent-wide integration referred to as the African Continent Free Trade Area (AfCFTA).

AfCFTA is the world’s largest common market, with a single set of trade and investment rules across 54 countries, from Egypt to South Africa, Senegal to Djibouti, with a combined GDP of more than $2.5trn, created to boost intra-Africa trade, achieve economies of scale and overcome the challenges of market fragmentation.

AfCFTA falls within the strategic framework of the Africa Union Agenda 2063, which is a blueprint and master plan to transform Africa into the global powerhouse of the future. The objectives include the following:

  • To create a single continental market for goods and services, with free movement of business persons and investments.
  • To expand intra-African trade through better harmonisation and coordination of trade liberalisation, as well as facilitation regimes and instruments across regional economic communities and across Africa in general.
  • To resolve the challenges of multiple and overlapping memberships to expedite the regional and continental integration processes.
  • To enhance competitiveness at the industry and enterprise level.

The message to international investors is simple: invest in one country, sell in all countries. According to a report by Rand Merchant Bank, Where to Invest in Africa, 2019, the following countries were ranked as top destinations in this order:

  1. Egypt
  2. South Africa
  3. Morocco
  4. Ethiopia
  5. Kenya
  6. Rwanda
  7. Tanzania
  8. Nigeria
  9. Ghana
  10. Côte d’Ivoire

Africa’s cities

Cities are the engine room of economic development in countries, an indicator of the well-being of nations, and they provide the enabling environment where connections take place, networks are built and innovative combinations are consummated (Florida et al, 2016). The AfrAsia Bank Africa Wealth Report 2021, published by Business Insider Africa in May 2021, ranked the top ten wealthiest African cities as follows:

  1. Johannesburg (South Africa)
  2. Cape Town (South Africa)
  3. Cairo (Egypt)
  4. Lagos (Nigeria)
  5. Durban (South Africa)
  6. Nairobi (Kenya)
  7. Stellenbosch (South Africa)
  8. Pretoria (South Africa)
  9. Casablanca (Morocco)
  10. Accra (Ghana)

The diversity, density and cultural creativity of the urban centres serve as a major draw for start-up talent. As a container of talents, the cities attract skilled persons, some of who are engaged in the growing knowledge economy and in start-up ecosystems. According to StartupBlink, the top ten start-up cities in Africa in 2021 are:

  1. Lagos (Nigeria)
  2. Nairobi (Kenya)
  3. Cape Town (South Africa)
  4. Johannesburg (South Africa)
  5. Cairo (Egypt)
  6. Kigali (Rwanda)
  7. Tunis (Tunisia)
  8. Kampala (Uganda)
  9. Accra (Ghana)
  10. Casablanca (Morocco)

Connecting cities in Africa by the Trans-African Highway is one of the priorities of the AfCFTA on its road to prosperity.

Africa’s underestimated potential

The majority of companies do not have Africa in mind when they set out to expand their operations abroad. It is not their first or even second overseas market consideration.

Africa’s potential as an emerging market remains underestimated. A report by the US Chamber of Commerce based on a boardroom survey of attitudes towards corporate investments in Africa noted that most companies require a strong and specific draw to make investment in the continent worthwhile. Africa is also grossly misunderstood, tainted by misconceptions and a reputation for risks, but in reality, default rates are often lower in Africa than elsewhere, according to the Financial Times. Moody’s adds that this is less than 6%, half the default rate in Latin America.

Over the years, experience has shown that many businesspeople are yet to fully understand the cultural nuances and the dynamics of doing business in Africa. Asides from funding considerations, the fact that there are very few commercial outposts in the huge continent does not helped matters. Ostensibly, the reports out of these outposts do not reflect the diversity of the continent.

Following the attention the continent is getting from the global business community and the recent normalisation of ties between Israel, Morocco and Sudan, it has become imperative to guide entrepreneurs and investors on the ‘where,’ ‘why’ and ‘how’ to do business in the emerging Africa. The reasons are not far-fetched:

A) A post-pandemic world creates the imperative for new markets.

B) Africa has the largest free trade area in the world and is open for business.

The continent that has been described as the final frontier is on its way to deliver on its enormous promise.

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