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Why your business needs to be in Africa

18Nov Posted by Tom Clive

Over the past twenty years most of the focus on growth and investment has understandably been on the BRICS – with Brazil, China and India, in particular, enjoying sustained GDP increases - often in the double digits. Casting aside issues over islands and space programmes, this growth has benefited everyone from the former Chinese subsistence farmer who now owns a textile factory to the househusband in Manchester who can buy his t-shirts at knock down prices.

The problem is that this “traditional” emerging growth is slowing. Despite long overdue reforms allowing foreign companies to set up shop in India, the investment climate here has faltered – largely due to the failure of promised economic liberalisation reforms to materialise. A similar trend exists in China, where the Communist Party’s recent proposal of new free trade zones in Guangzhou and the “383 Plan” of economic and social reforms marks an attempt to stimulate GDP growth back to elusive noughties levels.

Despite such efforts, the inescapable problem with such markets is that the cost of manufacturing or service out-sourcing has risen. As a result, the gaze of many investors is falling on Africa. It’s easy to see why. Most African counties are stable and their economies are growing at pace – with consumer spending set to double in the next ten years. Average GDP growth is around 6%, governance and transparency is improving. In fact, it’s predicted that the number of African countries with average incomes over $1000 will grow by 25 per cent over the next ten years.

Whilst it’s not quite a new “scrabble for Africa”, we are not far off. MasterCard is set to have distributed over ten million debit cards in South Africa alone by the end of the year and Vodafone’s African venture Vodacom trumped the Group’s UK profits by almost half a billion pounds in 2012. Last year, UK fund managers Duet Group and Vasari made the largest private equity investment in Ethiopia to date when it took a controlling stake in Dashen Brewery, an independent brewer, for $90m. Walmart are also keen to get in on the action.

Particularly interesting is the substantial investment from other “emerging” economies. Whilst the story of Chinese investment has been covered to death, less well known is that of the Indian private sector and state-owned-enterprises, such as Bharti Enterprises, Essar, Tata and Oil and Natural Gas Corp - India’s biggest oil explorer - who bought a 10% stake in a Mozambican offshore gasfield for $2.6 billion in August. Leading the drive from the other coast, Brazil has announced the cancelling of nearly $1 billion in debt and the country’s low-cost airline GOL has plans to establish three weekly flights to Nigeria. As the BRICS are well aware, these new markets are growing far quicker than the mature economies of the west and they are keen to get a piece of the action. Their efforts have been successful to such an extent that “inter-emerging” investment is arguably now dominating trade across the continent.

Whilst all this growth and opportunity is impressive, there is still much to be done. Poverty might be less visible in Africa’s capitals but it remains widespread – with the distribution of wealth uneven. One of the main reasons for this is that enterprise and entrepreneurship is often hindered by the state, and although corruption has definitely decreased, useless and expensive regulations and import duties make it hard for aspiring businessmen to help themselves. Even though it costs $5,000 to get a car from China to Tanzania, for example, it costs a further $4,000 to get it to neighbouring Uganda. This cost is not down to the price of petrol.

Despite this, things are very much moving in the right direction and creating new opportunities as they do so. Infrastructure is improving, but still not quickly enough – especially if the continent wants to make the most out of its agricultural potential (the continent has 60% of the world’s arable land – most of it unfarmed). Similarly, whilst the former leaders of Cape Verde, Botswana and Mozambique have provided the continent with a breath of fresh air by serving their terms and then standing down, there are still too many who find it hard to give up the trappings of power – too often downgrading their countries’ investment ratings as a result.

Whilst unqualified positives are few and far between, one that does stand out is the much eagerly anticipated Petroleum Industries Bill of Nigeria, which has been attempting to allow ordinary Nigerians to benefit from the exploitation of their natural resources for nearly ten years. Despite substantial opposition from oil companies keen to safeguard lucrative concessions, a positive end for Nigerians and their economy is in sight.

Although undoubtedly a mixed bag, the fact still remains that of the world’s ten fastest-growing economies in the past decade, six were African. This is hard to ignore. Whilst there have undoubtedly been “first-movers” who have reaped the rewards of no competition this, as The Economist points out, “may not last very long” as new ports and road links change economies of supply and through this evolve market dynamics.

What is for certain is that whilst already impressive, the pace of African growth will soon become remarkable. The key question for businesses is not if they should get involved, but when.

Tom Clive
Tom Clive

John has over 10 years’ experience in professional communications and has created and led integrated global campaigns for clients ranging from Asian and African national governments to Fortune 500 multinationals.

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