Investors must understand African markets
The two headlines that starred in The Economist’s famous U-turn – from 2000’s ‘The Hopeless Continent’ to 2011’s ‘Africa Rising’ – have framed the highly-dogmatic debate over the credibility of Africa’s recent economic growth. While headlines are polemical in nature, problems emerge when the content itself is bereft of balance and nuance.
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Those who write off the idea of ‘Africa Rising’ as an exaggeration that pays scant regard to the infrastructure deficit on the continent and the lack of strong manufacturing sectors make the mistake of comparing Africa to Western developed markets rather than considering different avenues of development. Moreover, they fail to understand that what is being argued is that Africa is showing signs of development rather than claiming to be the finished article.
Conversely, those who have propagated the image of Africa as a region that is undoubtedly experiencing a comprehensive economic transformation have been just as guilty in failing to provide an account that presents the true diversity within the continent.
As often is the case, accuracy, in this dispute, lies somewhere between the two conflicting narratives. At Invest in Africa, we look to present an even-handed and fact-based image of Africa. We understand that although there are risks to be mitigated there are also significant opportunities that can be very successful with the right approach.
The positive messages coming out of Africa can often be country, city or even sector specific. When relying on a fact-based conversation around Africa’s economic potential, one can see that while some markets may be immature and not yet ripe for investment, there are others that offer compelling propositions to any investor willing to engage with the right approach.
These impressive markets have been cultivated by a formula of improved macroeconomic policies, entrepreneurial nous and innovative partnerships between multinational companies and local cooperatives.
The cocoa industry in Ghana, for instance, was moribund for many years and almost collapsed in the 1980s. However, a number of key reforms such as price liberalisation and the creation and maintenance of important infrastructure, as well as structural factors such as the rise of global cocoa prices, have led to Ghana’s cocoa sector becoming world-renowned for its quality.
A similar story has taken place in certain areas of Ethiopia’s manufacturing sector. At the turn of the century, Ethiopia’s shoemaking market was flooded by cheap Chinese imports. However, the local industry has reclaimed its market share and is even exporting its domestically-produced shoes to developed countries.
In the light of fierce international competition, the sector was able to reinvent itself by improving the quality of its products, marketing and management.
This change owed itself, again, to liberalisation but, more importantly, to those indigenous entrepreneurs who set up new enterprises that could compete internationally as well as partnerships between multinational firms and local Ethiopian companies to ensure the transfer of management and technical skills.
These two examples highlight compelling opportunities that have presented themselves as a result of improvements in macroeconomic policies as well as the emergence of local entrepreneurs providing innovative solutions to new and pressing challenges.
These examples also illustrate that Africa is not one market. It is made up of 54 countries, each of which has significant regional diversity as well as diversity across economic sectors. Moreover, while there are examples of sectors that have thrived and have great potential to flourish, there are also, as with any rapid-growth market, sectors that are currently stagnant. However, there is a general trend toward better macroeconomic policies in Africa and the cultivation of more business- and investment-friendly environments.
The challenge for investors now is to navigate the landscape so that key opportunities are identified and risks mitigated. At Invest in Africa, we help companies do this by working with those who have already successfully invested in Africa, such as Tullow Oil and Ernst & Young, to improve the business environment and inspire more investors into the continent.
With increasing economic stability and investment incentives in place for those looking to do business in Africa, there are many significant opportunities within certain sectors. Furthermore, investors, today, must look past the divisive headlines and take the time to truly understand markets in Africa. Doing this will not only allow them to fully understand the nature of the compelling investment opportunities Africa offers, but it will also provide a basis on which one can successfully operate on the continent.
Article by Will Pollen
The writer is the Director of Invest in Africa. This article first appeared in ‘This is Africa’.
Email: www.investinafrica.com