Africa is a continent of immense potential and opportunities. It is home to 1.3 billion people, 60% of whom are under the age of 25, and has a fast-growing middle class that is expected to reach 1.1 billion by 2060. Africa also has abundant natural resources, a diverse cultural heritage, and a vibrant entrepreneurial spirit.
But Africa is also facing many challenges, such as poverty, inequality, conflict, climate change, and poor infrastructure. These challenges create both risks and opportunities for investors who are willing to look beyond the stereotypes and see the potential of the continent.
Investing in Africa is not only a moral imperative, but also a smart business decision. According to the World Bank, Africa’s GDP growth rate is projected to rebound to 3.4% in 2021, after contracting by 2.1% in 2020 due to the COVID-19 pandemic. This is higher than the global average of 2.9%. Africa also offers access to a large and growing consumer market, with a projected spending power of $2.5 trillion by 2030.
Moreover, investing in Africa can have positive social and environmental impacts, as well as financial returns. By supporting sectors such as renewable energy, agriculture, health, education, and digital innovation, investors can help create jobs, improve livelihoods, reduce emissions, and foster inclusive development.
There are many examples of successful investments in Africa that have generated both profits and impact. For instance, M-KOPA, an African fintech platform that provides digital financial services to underbanked consumers to low-income households, has raised about $245 million from investors such as Generation Investment Management and LGT Venture Philanthropy. M-KOPA has reached over three million customers across Kenya, Ghana, Uganda, and Nigeria, and has created over 10,000 jobs.
Another example is Jumia, an e-commerce platform that operates in 14 African countries. Jumia has raised over $1 billion from investors such as Goldman Sachs and MTN Group and became the first African tech company to list on the New York Stock Exchange in 2019. Jumia has over 6.8 million active customers and offers a range of products and services, from fashion and electronics to food delivery and travel.
These are just two of the many stories that illustrate the potential of investing in Africa. Of course, investing in Africa is not without challenges and risks. Investors need to do their due diligence, understand the local context and regulations, build trust and partnerships with local stakeholders, and adopt a long-term perspective.
What are the risks investing in Africa?
Political risk: One of the most prominent risks in Africa is political instability and uncertainty. Many African countries have experienced civil wars, coups, ethnic conflicts, and authoritarian regimes that have undermined the rule of law, governance, and human rights. These factors can affect the security of investments, the enforceability of contracts, the protection of property rights, and the transparency of regulations.
Moreover, some African countries have weak or corrupt institutions that can hamper the business environment and create barriers to entry and exit. Investors should conduct thorough due diligence on the political situation and legal framework of their target markets and seek local partners who can help them navigate the complexities and risks.
Economic risk: Another major risk in Africa is economic volatility and vulnerability. Many African economies are dependent on commodities exports, which makes them susceptible to fluctuations in global prices and demand. For example, the recent slump in oil prices has severely affected the revenues and fiscal balances of oil-producing countries such as Nigeria, Angola, and Algeria.
Furthermore, some African countries have high levels of debt, inflation, and currency depreciation that can erode the profitability and competitiveness of investments. Investors should diversify their portfolios across different sectors and regions and hedge against currency and inflation risks.
Social risk: A third risk in Africa is social unrest and conflict. Africa has a diverse and heterogeneous population with different cultures, languages, religions, and ethnicities. This diversity can be a source of richness and innovation, but also of tension and violence. Some African countries have witnessed social protests, strikes, riots, and insurgencies that have disrupted economic activity and threatened social cohesion.
These events can be triggered by various factors such as poverty, inequality, unemployment, corruption, human rights violations, environmental degradation, or political grievances. Investors should monitor the social climate and engage with local communities and stakeholders to understand their needs and expectations and to contribute to their development and well-being.
But the rewards can be worth it. Investing in Africa can offer attractive returns, diversify portfolios, and contribute to the sustainable development of the continent. As former UN Secretary-General Kofi Annan once said: “Africa is not a problem to be solved but an opportunity to be seized.”
