Davos 2015 and the future of investments in Africa

Next week, presidents, prime ministers, chairmen, CEOs, financiers and the world’s leading strategists and entrepreneurs will descend once again on Davos in Switzerland for the annual World Economic Forum (WEF) meeting.

The forum brings together the planet’s foremost decision makers to discuss the state of the world – the good, the bad and the ugly, the innovative and the creative, what works and what doesn’t – and, hopefully, as a result, better understand the requirements for the future.

In 2015, the forum is meeting at a time when the global environment is immensely challenging. The EU is increasingly in disarray, struggling to align the cultural and financial challenges between the southern and northern member countries. The Middle East is worryingly unstable and divided. Russia is becoming more isolated and insular and the economic sanctions imposed are damaging to all. Lastly China, the great driver of economic growth, has slowed its pace of development and is taking a deep, introspective breath.

In this context, strategizing for growth in 2015 is extremely difficult. Those attending Davos have a lot to debate and consider and being ‘insightful’ about the future and making predictions is a formidable task.

The increasing instability of the traditional developed world and lack of structured growth is inevitably forcing global commerce to seek new markets to support their business. This is stimulating a renewed focus on the opportunities in emerging markets.

This changing of focus from the developed world to the emerging markets is not as illogical or speculative as it appears. It is not just a reaction to the frustrations of the developed world. There are fundamental economic conditions in play that justify the change in focus. Many of the criteria that are causing concerns in the developed world are less onerous for emerging markets and many of the perceived challenges with emerging markets (that were historically a disincentive to invest) seem less daunting in the context of current world events.

For the first time, Africa is becoming a significant participant in the global marketplace, a continent of tangible opportunities with increasingly credible economic status. Africa’s market dynamics make it an opportunity that global business cannot ignore. The momentum of growth is striking and unstoppable.

The population of Africa was over 1 billion at the end of 2014 and will reach 2 billion by 2050. The population is young and of a working age. They’re becoming more prosperous and have a high propensity to consume. Coming from a very low base, African consumers need everything. The burgeoning African middle class is estimated to reach 500m consumers by 2016. This is in stark contrast to the developed world, which has an ageing mature population with falling disposable incomes, a market that is spending less and a population that is declining in numbers.

Growth in GDP from Africa’s new emerging markets is, in many cases, now more than double that of traditional developed markets. Rapid urbanization, where 50 percent+ of Africa’s population is forecast to be urban within the next decade, is stimulating huge demand for goods, services and housing and in turn stimulating opportunities in employment and prosperity.

Global trade flows are realigning with the volume emphasis moving from the developed western world towards emerging markets.

The recent collapse of oil prices is a heavy blow to the oil dependent economies in Angola and Nigeria, but for the rest of Africa’s emerging markets, who are net importers, the fall in the oil price is a benefit. It reduces the cost of power, improves competitiveness and, most importantly, lowers the costs related to transport, logistics and travel. Traditionally, these are all barriers to economic development.

Africa has already proven that if the technology infrastructure is available, it has the ability and appetite to adopt it rapidly and leapfrog from a standing start to being a technology leader. The clearest example of this is cell phones. By the end of 2014, Africa had 880m cell phone subscribers (by comparison the USA has only 370m cell phone subscribers), which has transformed society and brought access to data, knowledge and accountability. There are clear indications that access to the Internet will have a similar logarithmic growth rate and a positive social effect, with forecasts that over 50 percent of Africans will be able to be online by 2025. This is a further significant socioeconomic driver for growth.

To support these developing demands, there is currently an infrastructure boom underway in Africa (although investment remains below what is required). Focused on infrastructure, FDI into emerging markets is a strong stimulus, creating employment and commerce. Investment in infrastructure itself stimulates economic growth. 

Africa, as an emerging market, has its share of problems: Ebola, Boko Haram, Al Shabaab, corruption, to name just the most media-related. But importantly, there is true and honest progress being made on a myriad of fronts. One trend that everyone at Davos should be able to understand is very clear. Year by year, step by step, the gap between the western world and emerging markets is contracting and the strength and appeal of the opportunities in emerging markets is getting stronger and stronger. There are more than 100 African attendees at Davos this year, a good opportunity for engagement.

Geoffrey White

White is Africa CEO of Agility. Agility will be hosting the ‘African Renaissance’ debate at Davos 2015.