By Africa.com | Created at 2024-11-14 19:20:15 | Updated at 2024-11-15 05:48:27
10 hours ago
In recent years, Africa’s investment landscape has been undergoing major changes. Experts assert that these changes may become significant for the global economy of the 21st century. Indeed, it seems that against the backdrop of Lagos skyscrapers and Nairobi’s tech hubs, a new chapter in the history of international investments is unfolding, where traditional views on the risks of African markets are gradually giving way to an awareness of their immense potential.
The renewable energy sector is rapidly emerging as a leader in Africa’s investment attractiveness. In 2023 alone, over $10 billion was raised for the implementation of wind and solar projects across the continent. Among the landmark investments in «clean energy» are investments in Mauritania’s innovative $34 billion green hydrogen production project and $6.4 billion in Morocco’s electric vehicle battery manufacturing.
“In the energy sector of several African countries, we observe a combination of key factors: colossal natural resources, growing domestic demand, and a favorable regulatory environment, — notes investor Vladimir Kokorin, co-founder of the international corporate travel service Tumodo and founder of the British BCCM Group. — This makes the African energy sector highly promising.”
The governments of many African countries are actively supporting this trend. Kenyan President William Ruto stated: “African leaders have endorsed the Nairobi Declaration, which sets the goal of increasing the continent’s clean energy production fivefold—from 56 GW in 2022 to at least 300 GW by 2030.” This undoubtedly reflects the aspiration of most countries on the continent for an energy transition and further sustainable development, which instills cautious optimism in investors.
In Nairobi’s “Silicon Savannah,” the story of Africa’s digital revolution is unfolding. The flagship local project M-PESA, processing transactions exceeding $300 billion annually—which surpasses Kenya’s GDP—has become one of the symbols of the continent’s technological breakthrough. Similarly, “Yabacon Valley,” an area in Lagos named for its active development of a tech ecosystem, hosts the headquarters of major companies and startups, including the payment service Paystack, whose $200 million acquisition became the largest in Nigeria’s tech sector, the online store Jumia, and the business incubator Co-Creation Hub. Mauritius also demonstrates excellent potential for digital transformation; 90% of the country is covered by high-speed internet, enabling it to become one of Africa’s most respected financial centers.
“Local innovations not only solve regional problems but sometimes create scalable solutions for the global market, — notes Vladimir Kokorin. — Investors who once regarded African startups as niche projects now see them as potential unicorns with international ambitions.”
According to the research firm Briter Bridges, the volume of venture capital investment in African startups grew from $1.31 billion in 2020 to between $2.9 and $4.1 billion in 2023. Technological innovations are penetrating all sectors of the continent’s economy: from agriculture, where drones and IoT solutions optimize yields, to healthcare, where telemedicine expands access to medical services in remote areas.
One of the turning points for investors was the creation of the African Continental Free Trade Area (AfCFTA). This ambitious economic integration project is intended to remove tariff barriers and create a unified regulatory environment for business, as well as to simplify cross-border capital movement. Here, a potential market of 1.7 billion consumers opens broad opportunities for investors.
“Regional disparities in trade that we are currently observing create good conditions for the development of new trade routes and logistical hubs, — continues Kokorin. — Investments in digital infrastructure and fintech solutions, which can significantly reduce transaction costs of intra-continental trade, look especially promising.”
World Bank experts predict that the full implementation of the AfCFTA agreement could increase the incomes of residents in African countries by more than 10%. The agreement promotes the development of the manufacturing sector and job creation, which is very critical for a continent with a rapidly growing young population.
According to experts, the key factor for AfCFTA’s success will be the ability of participating countries to effectively coordinate their actions and consistently reduce non-tariff barriers. Investors who understand this dynamic and are willing to adapt their strategies to local conditions will gain a significant competitive advantage.
Indeed, Africa’s investment landscape demonstrates significant regional heterogeneity. In 2023, North Africa recorded a 12% decline in foreign direct investment, primarily due to a slowdown in activity in Egypt. In contrast, East Africa, led by Rwanda and Kenya, has transformed into a dynamic hub for technology investments thanks to progressive business climate reforms.
According to experts, the African market now resembles China in the early 2000s: enormous potential with considerable risks. One of the keys to success is proper diversification.
Nevertheless, the challenges are substantial and pressing. Eighteen African countries have a debt-to-GDP ratio exceeding 70%, and infrastructure constraints continue to hinder economic growth. South Africa, the continent’s largest industrial economy, is struggling with an energy crisis, which impacts the region’s overall investment attractiveness.
Gabriel Schulze, CEO of Schulze Global Investments, offered a pragmatic view in one of his interviews: “The challenges are real, but they are not insurmountable. Often, what seems like an obstacle is actually an opportunity for innovative solutions and first-mover advantage.”
The year 2023 was indicative for understanding the complexities of the African market. A series of high-profile exits by international corporations—Unilever from Nigeria, the suspension of Nesquik production by Nestlé in South Africa, and Diageo’s sale of a controlling stake in Guinness Nigeria—led investors in 2024 to reconsider their approaches to working on the continent.
“These cases do not so much speak to problems in the African market as they demonstrate the need for a more flexible approach to doing business” — analyzes Vladimir Kokorin.
Nevertheless, despite existing challenges—from infrastructure limitations to regulatory complexity and political instability—Africa’s fundamental advantages remain quite significant.
“I agree with experts who believe that perhaps the world is now on the verge of an ‘African decade, — summarizes Vladimir Kokorin. — Investors who can properly assess risks and build a long-term strategy for operating on the continent will gain access to one of the most dynamic and promising markets in the world. Africa is not just a new chapter in the history of global investments; it is an entirely new book that we are only beginning to write.”
