Thoughts on opportunity in Africa

There is growing awareness that Africa’s economy is changing, for the better. Instances of instability in some countries have reduced, albeit not been eliminated.  The population, large, young and dynamic, offers a competitive, willing workforce and provides a huge domestic market, which as we have seen in similar geographies (including Russia, China, India) eventually leads to sustained growth in consumption. World and Africa Free Trade Agreements have been established and should lead to increased commercial activity and wealth in the continent. Africa possesses massive agricultural and natural resources that will increasingly satisfy the domestic population as well as providing the opportunity for further growth in export earnings.

The shape of Africa’s domestic economies is changing fast with technological developments. Nigeria’s rebased and enhanced GDP estimates would probably be mirrored in other countries if they also updated the assessments. These increases in reported GDPs, while largely belated aggregations of the modern economy, will positively influence investment fund portfolio selections. 

All the above will lead to more inward investment over the next few years, which will be increasingly reflected in firm corporate plans.

So will it be all plain sailing from now on? No!

There are still improvements to the African investment climate that need to be addressed by Governments and the private sector.

Investors evaluate and invest on the basis of risk-adjusted returns. The higher the perceived risk the lower the investment offered for a given benefit. Russia and India currently share the lead for uncertain tax arrangements and this will eventually be reflected in lower external investments. Africa does not have such a reputation (in some cases being perhaps too generous) and should strive to retain this position. But others see corruption as a major constraint to investment, as they do in parts of Latin America and other geographies, and the Africa image requires enhancement, even if the reality is different. Some companies view the risk to their reputation significant enough to exclude investments in some African countries, which potentially limits Africa’s growth opportunities. Commercial risks, relating to inter alia commodity prices, can be managed by investors themselves, although operational risk mitigation may require efforts from both sides. Training programmes on aspects of Total Risk Management should prove valuable to both Public and Private sector organisations.

A historic challenge, that many developed country Governments have not yet solved, is effective project management. This is partly due to administrative officials not having sufficient internal capability to evaluate and subsequently control large public projects. In this case consultants with experience of the domestic challenges could be a useful support to public the bodies that let these contracts. Similar weaknesses have also been evident in some private company projects and training courses offering project management skills and tools should be more widely utilised.

A possibly more important task for African Governments is to plan infrastructure and stimulate the transition to the digital economy. Africa could leapfrog technical developments, avoiding legacy infrastructure that developed countries need to phase out, to enable wide and fast connectivity across the continent. This would enable Africa to utilise the new technology for important sectors including education (both schools and vocational), healthcare and agriculture.

Is managing these challenges sufficient? Probably not!

There needs to be a more disciplined sense of reality that is not always evident from African entrepreneurs and companies. It is too easy to become seduced by glossy brochures from consultants and self-interested third parties, offering rapid growth in wealth when the reality is that if something looks too good to be true it probably is.

Furthermore the growing, young workforce needs to lift productivity to the top quartile of emerging country levels. The digital revolution will support this although care needs to be taken to avoid creating classes of can do / don’t have / can’t do groups of the population. There is also a need for increased use of modern business and production processes to ensure Africa can compete in the many sectors where it has intrinsic competitive advantage.

In summary the current optimism surrounding Africa is justified. But there remains important work to be done to upgrade skills, increase confidence and deliver important pieces of infrastructure. There are companies that can advise and support that have relevant domestic experience and the large, well-educated African diaspora could be mobilised to help implement many of these requirements.  Both Public and Private organisations should continue to increase access to, and leverage of, these capabilities.