Investors are increasingly looking for good opportunities to back tech innovators, consumer goods providers, real estate firms and other companies based in emerging markets. Many are eyeing China, Brazil and India – but there are compelling reasons why investors should look to Africa, states Joseph Rutakangwa, co-founder and CEO of Rwazi.
With domestic financial markets still roiled by high-interest rates and hit-or-miss corporate earnings, many investors will look to emerging markets this year for returns that have been elusive on Wall Street.
But one of the world’s top banks is warninginvestors not to buy indiscriminately, as opportunities vary widely region by region.
It’s probably never a good time to buy anything indiscriminately, and luckily, there is no reason to do so in this era of increasing data availability. Investors can look before they leap — and this is exactly what they are doing.
Scouting various corners of the globe for the most compelling opportunities, the same names come up repeatedly: China, Brazil, India and Vietnam. These countries have promising political and business narratives that suggest well-run companies based in these regions will prosper in the months and years ahead.
But a name that comes up far less often is Africa. It will be coming up more often in the future because the continent has its own narratives that investors should be paying attention to. Even though African startups have been raising impressive amounts of capital in the past several years – even as other regions were dealing with a funding slowdown – public-market investors have often overlooked the continent when assessing emerging market opportunities.
But this is changing. As more market intelligence reaches investors from a part of the globe that has been too often associated with instability, civil wars and political corruption, compelling investment opportunities in Africa are coming into clear view.
The Challenges of Investing in Africa
Africa is made up of 54 countries, which makes it a complex landscape for investors right from the get-go (The EU, by comparison, has 27 member countries). Added to that is the fact that regulations in Africa differ from country to country.
Some African nations have infrastructure challenges that can hinder business, while others have unclear reporting requirements that make the corporate landscape opaque and difficult to predict.
And added to these legitimate concerns are misconceptions about African nations and businesses that keep many investors on the sidelines when they could be prospering.
The continent has been viewed as a place of rampant political corruption, crumbling infrastructure and bloody civil conflicts. Many investors see Africa as a place where promising companies will have limited growth potential and little access to the capital they need.
But the question these investors should ask themselves is this: If Africa was changing for the better, and compelling investment opportunities were beginning to arise across the continent – would you even know about it?
Unfortunately, many investors have come to accept the status quo, and that information about Africa and its many economies is hard to come by. No insight, no investment.
This is what is beginning to change. Market intelligence is beginning to shine a light on Africa’s many promising investment opportunities.
The Opportunities that Africa Holds for Investors
There has been a shortage of specialized research and analysis on African economies, companies, and investment opportunities, making it difficult for investors to assess the potential risks and rewards of investing in these markets. But for more than two decades, the World Economic Forum has pointed out that half of the world’s fastest-growing economies are in Africa. The shortage of information and analysis is being remedied with improved data availability, and certain sectors are emerging as Africa’s best potential for return on investment:
- Technology and innovation: Africa’s technology sector is growing rapidly, with many innovative companies developing new products and services to tackle real-world problems and meet the needs of consumers. Additionally, African startups benefit from first-mover advantage, low operating costs, and favorable demographic trends. Despite the global slowdown in 2022, African startups raised record sums from VCs in the US, Europe, and elsewhere. This trend is expected to continue. Talent development and the empowerment of female tech developers have been major drivers of the exponential growth of Africa’s tech sector, the World Economic Forum has said. The continent has even produced seven unicornsor startups valued at over $1 billion.
- Consumer goods and services: With a middle class that has tripledto 313 million people over the past three decades, Africa presents investment opportunities in consumer goods and services, such as retail and consumer healthcare. Strong economic growth, a move toward salaried jobs and away from agriculture are primarily responsible for the growth of Africa’s middle class. This trend has moved faster in recent years, and it is one that investors can capitalize on once they understand it. Tunisia, Morocco and Egypt have a particularly strong middle class, while Ghana, Botswana, Namibia, Mozambique, Rwanda, Burundi, Malawi, Kenya, and South Africa also show strength.
- Agriculture and agribusiness: Though the continent has a growing middle class and fewer farmers than in the past, it still has a growing population and an increasing demand for food. Africa presents significant investment opportunities in agriculture and agribusiness. This can include investment in farmland, agricultural inputs, processing, and AgTech. According to market analysts, Sub-Saharan Africa has the most needs, which begin with fertilizer, seeds, and irrigation but do not end there. Infrastructure companies that can reinforce roads, storage facilities, ports and power grids in the region can also prosper from Sub-Saharan Africa’s thriving agricultural operations.
- Real estate: With urbanization and population growth in many African countries – especially in the Sub-Saharan region – there is a growing demand for residential and commercial real estate. This presents opportunities to invest in real estate development projects and benefit from rising property prices. Many of the investing techniques that are tried-and-true in the Western world, including long-term rentals, real estate investment trusts (REITs), vacation rentals and lease options, can bring comparable returns in the African market. For investors that want to take a cautious approach, analysts advise REITs and other real estate funds.
Tapping Into the African Investment Potential on Time
Beyond identifying the hottest growing sectors, investors want to narrow down their investment prospects to the hottest names within those sectors. This involves understanding the underlying fundamentals and growth trajectories of these companies and of the economies in which they operate. It involves learning about the regulatory environments and overall economic outlooks of various African nations.
If it sounds like picking winners will require a lot of work and research, that’s because it will. There are no shortcuts when it comes to savvy investing. But the good news is that doing these types of deep dives on opportunities in Africa – which until recently was next-to-impossible – is now possible. Rapidly improving data quality and availability is making it so.
This means that if an investor is willing to put in the time on research, they can become an early mover in a market that is growing more promising all the time. Economic conditions are improving in many African countries as infrastructure improves and a new, tech-savvy generation joins the workforce or launches new companies. Many offer supportive business environments, favorable tax policies and access to capital.
Many investors mistakenly believe that African companies lack growth potential, stability and transparency. These are the investors who fail to realize that Africa is actually made up of 54 distinctly different economies, each with their own unique opportunities and challenges. And most are growing rapidly. Investors who cling to past perceptions are in danger of missing the boat, while those who make use of newly available data will prosper.