Oct 26 2020
The New Investment Case for Africa

Over the past decade, economic growth and development in Africa has been driven in part by private foreign investment into African economies. This approach builds on traditional aid and trade support programs to ensure African countries have the resources they need to produce goods and services for export. New programs (such as the United States’ Prosper Africa initiative and the United Kingdom’s commitment of an additional USD 4.5 billion in investment in African markets by 2022) serve to highlight this growing approach.

Although African countries’ continued growth and development will also rely on other forms of investment, including those from local capital markets, and aid for other development priorities via social programs and governance, increased foreign investment is a critical component on the journey to self-reliance.

There is currently an estimated USD 70 trillion in idle private capital currently under management that could be channelled into African markets, generating financial returns alongside social outcomes. But to unlock this capital, investors need to understand the opportunities available to them.

Though many arguments in favour of Africa’s investment potential are focused on it being home to six of the world’s ten fastest-growing economies, this investment case needs to be updated to reflect the pre- and post-COVID-19 trends that are making African markets increasingly attractive to investors.

Investing in a resilient and diverse Africa

Palladium and the Center for Industrial Development recently collaborated on this update in The New Investment Case for Africa. The report finds that even before COVID-19 jolted the global economy, African markets were not only remarkably young and entrepreneurial, but also increasingly urban, connected, and integrated. The result is an economy in which opportunities are multiplying as the cost of doing business falls.

In addition, COVID-19 has reduced the relative risk of African markets in comparison to other hard-hit emerging and developed markets, while also highlighting dramatic improvements in economic resilience and diversification in many African countries.

“We envision investment opportunities in sectors previously ignored by international investors, but are now growing due to the impacts of COVID-19,” says Roland Pearson, Palladium Director of Innovative Finance. “We also see local and regional investors’ interest piquing in agriculture, along the value chain from primary production to processing and export. Domestic demand for agricultural products has remained fairly consistent, and impediments on the movement of international capital and goods have created openings for local and regional players.”

Beyond these continental and regional trends, the report also identifies five particularly promising emerging sectors that investors should be actively tracking in Africa. Financial services, education and healthcare technology, creative industries, and renewable energy have all grown rapidly in recent years, attracting investments from companies such as Mastercard, Netflix, and Universal Music Group. COVID-19 is poised to accelerate growth in many of these sectors, as people shift their activities online in response to remote work and social distancing protocols.

Aid programs focused on mobilising investment into emerging markets will only be effective if they clearly communicate to investors the benefits of doing so, and provide them with the information and tools to understand and mitigate the risks in those markets. Though these will differ between countries, sectors, and even individual firms, investors must first be aware of the general opportunities that African markets present, and feel comfortable that taking a closer look at those opportunities will pay off.

Palladium Economic Growth Director Amanda Fernandez has seen first-hand that once investors get a better understanding of a particular market or sector, they often realise that their perceived risk does not match with reality.

“Efforts like this report help to build that baseline familiarity and comfort that these markets are worth looking at more closely,” she says. “Once investors get over that hump and start to compete for space in areas that are new to them, it can really transform the market in a sustainable way.”

Download the report and contact info@thepalladiumgroup.com to learn more.