While African opportunities are catching investor’s attention thanks to factors such as favourable demographics and abundant natural resources, persistent structural issues and operational challenges continue to stifle capital flows to the continent.
Between January and August 2021, foreign investors announced greenfield projects in Africa worth an estimated $13.6bn, down by 21% from the same period of 2020, according to the latest figures from investment tracker fDi Markets.
In 2020 as a whole, the Africa region received its smallest share (5.2%) of global capital expenditure since records began in 2003.
“A few very fundamental structural impediments continue to bedevil Africa prospects,” Goolam Ballim, the chief economist at Standard Bank, tells fDi. He notes weak institutional foundations across the continent such as the rule of law, property rights and the effectiveness of investigative and prosecutorial bodies.
Another major hurdle to investment in Africa is inadequate infrastructure and logistics networks. Sub-Saharan Africa has the lowest quality of trade and transport-related infrastructure of all world regions, according to the World Bank.
But with the African continental free trade area set to reduce barriers and potentially open up the market across the continent, real-estate developers are bullish, particularly in Africa’s largest cities.
Geoffrey White, the CEO of Agility Africa, the largest developer and operator of warehouses across the Middle East and Africa region, said in a panel at the AFSIC investment event in London on October 11-12 that he has seen more multinationals seeking to set up their first presence on the continent as they realise its favourable demographics.
“We are building a platform that enables them to access the African market easily,” he added. While Agility has operational warehouse parks in Ghana, Nigeria and Mozambique, Mr White said that the developer is acquiring sites in major cities in other markets such as Nairobi in Kenya, Dar es Salaam in Tanzania, and Luanda in Angola.
Mr White continued that he is “baffled” that building a warehouse often takes twice as long in Africa as other markets, saying that means investors have to put more capital in construction before leasing.
“I think that is a big disincentive for foreign direct investment and goes back to our concept of having warehouses available that [companies] can move into the next day,” he said, noting that better margins in Africa compared with other regions help pay off these higher construction costs.
An area high on investors’ minds is the continent’s solar and wind potential and the need to supply the estimated 600 million Africans that have no access to electricity. More than 80% of the continent’s electricity is currently generated using fossil fuels.
“The opportunities in renewable energy, especially in Africa, are phenomenal,” said Aryeh Green, chief strategy officer at multinational renewable energy company Gigawatt Global, at a presentation at AFSIC on October 12.
In 2014, the Netherlands-based renewables company built sub-Saharan Africa’s first utility-scale commercial solar field in Rwanda. Mr Green said that Gigawatt Global will announce the completion of its second solar field in Burundi in the coming days.
However, similar to warehouses, renewable energy projects often take too long to execute on the continent. Mr Green said that Gigawatt Global’s team has been working on a project in Nigeria for seven years. Meanwhile after finalising its Rwanda project, it took almost six years to bring its Burundi project to fruition.
While Mr Green noted that international organisations such as the World Bank and UN have helped mitigate the risks of investing in Africa, there is still a “reticence on the part of the financial community to put their money where their mouth is.”
While there is significant divergence between African economies, there is continued concerns amongst investors about low Covid-19 vaccination rates, high public debt burdens and political instability.
“We have seen that, unfortunately, a lot of the countries are subject to different shocks and don’t weather them well ... it is not a uniform picture across the continent,” said Kawtar Ed-Dahmani, managing director for the emerging markets sovereign debt team at Barings Asset Management, in a panel at AFSIC.
“Over time we need to build more resilience, institutional capacity and fiscal space,” she added, noting Africa has “huge potential” if a more enabling environment is created for the private sector. Africa’s population is forecast to double from about 1.3 billion people today to more than 2.4 billion by 2050, according to UN estimates.