African Business Success is a Long-term Proposition

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African Business Success is a Long-term Proposition

Africa BusinessAfrica offers unmatched long-term business opportunities. Renaissance Capital Chief Economist Charles Robertson predicts that Africa’s aggregate GDP will grow from around $2 trillion today to $29 trillion by 2050, as the continent’s population doubles from about 1 billion to 2 billion. That implies compound annual GDP growth of 8% over the next 34 years and annual growth in per capita GDP of just under 6%, not far from the kind of growth rates China experienced over a similar period, from the early 80s until just a couple of years ago.

Even if we apply a discount to these predictions, this will be an amazing transformation. Already, we see many signs that this is happening: Kenya and South Africa leading the way in mobile payments systems; the ferment of IT startups and venture capital in Lagos; Ethiopia becoming a destination of choice for investment in manufacturing; shopping malls sprouting up all over the continent.

Although natural resources and extractive industries remain an important part of the story for many countries, foreign direct investment (FDI) has been flowing much more into manufacturing and services: in 2014, minerals and hydrocarbons accounted for only 25% of Africa’s inward FDI, while 33% went into manufacturing, 23% into infrastructure and construction, and 14% into services. An increasing share of this investment has been by African multinationals investing in other African countries – with a focus on manufacturing and services – as well as big investment flows from China and India.

Charles de Gaulle famously said, “Brazil is the country of the future. And it always will be.” And some of the current commentary on Africa echoes the euphoria that has periodically swept over otherwise sober-minded Brazil analysts and investors. With respect to Africa, it is refreshing to hear optimism in place of the despair that has characterized so much reporting about African famine, pestilence, poverty, and war, as if that were the whole story.

Pick any random collection of 55 countries, and some fraction of that number will be in deep trouble.  Africa’s 55 countries are no exception. But Africa’s emergence is real.  Even as we mourn over recent jihadist murders in Mali, Burkina Faso, and Somalia, we read that Nigeria’s new President Muhammadu Buhari, reorganizing his armed forces and mustering the support of Western and neighboring countries, has substantially degraded the capacity of the Boko Haram terrorists, while also cracking down on Nigeria’s famously endemic corruption.

Some of the challenges of doing business in Africa are well known: poor infrastructure, inefficient and sometimes stifling government bureaucracy, low labor productivity, a small industrial base, an inefficient agriculture sector, a huge informal sector – which goes together with a very small tax base – and high unemployment and under-employment.

But the opportunities are real and, in many cases, closely linked to the challenges. Governments are trying to reform business regulation. Capital is flowing into infrastructure development. The high proportion of the population working in agriculture is potentially a source of labor for industry and services, and may prove, as it did in China, a huge contributor to rapid economic growth. The fall in oil prices and the resulting depreciation of many African currencies, as well as the lousy performance of most African stock exchanges over the past several years, should not blind us to the many business and investment opportunities that are still there.

Doing business in Africa is not a get rich quick scheme. But for those who put in the time and effort to understand these opportunities, and the challenges that accompany them, the returns may be impressive.

About The Author

Managing Partner of Koios Associates, an advisory firm specialized in doing business in emerging and frontier economies. Over 25 years of experience in more than 60 countries in Africa, Asia, the Caribbean, Europe, North America, and the Middle East.

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