By Michael Lalor, 25 September 2014
He said that economists had identified 24 SSA country markets with the potential to grow at more than five percent per annum until 2030 versus just four in Asia, once and for all dispelling the scepticism with which many analysts view post-colonial Africa.
Lalor’s presentation to attendees at the 2014 IIC, hosted by Sanlam Investments, was based on the EY Attractiveness Survey: Africa 2014. The report investigates key trends in Africa and offers insights into conducting business there. With a 164 year presence on the continent and a footprint in 33 African countries there are few better placed than EY to offer such comment.
“Our report highlights a dramatic improvement in Africa’s relative attractiveness as an investment destination, from 8th of 10 global regions in 2011 to 2nd in 2014,” he said. This explains the approximate 19.5% compound annual growth in foreign direct investment (FDI) project flows into Africa – mostly SSA – since 2007.
The EY Attractiveness Survey: Africa reflects on four key trends that are playing out in the African investment space at present. The first of these is a significant shift in momentum towards SSA over North Africa.
“Political turmoil in North Africa and the impact of the global financial crisis mean that the SSA region accounted for 82% of new projects and 80% of capital values in the latest period,” said Lalor. New FDI hotspots include Mozambique and Zambia (in Southern Africa); Kenya, Tanzania, Uganda and Rwanda (in East Africa) and Ghana and Nigeria (in West Africa).
The second trend is that Africa is finally backing itself. While Western Europe remains the largest investor, Africa’s share of total FDI in Africa has risen from 8% in 2003 to 23% in 2013.
“The assumption is that African growth is commodities-driven and not sustainable; but the reality is that emerging services sectors and the emerging African consumer are underpinning investment,” he said, introducing sector diversification as the third trend.
The number of projects in technology, media and telecommunication (20% of total projects); retail and consumer (17%) and financial services (15%) now outstrip those in mining and resources by some way. The fourth and final trend is the emergence of so-called urban hubs, or an increasing focus on strategic cities rather than countries.
These four trends explain why the return on investment (ROI) from investment in Africa is among the best in the world. The JSE has returned 41.9% over five years and the Nairobi stock exchange an impressive 103%. “The returns on investment in private equity in SSA have been fairly impressive too,” said Lalor.
For multinational firms looking to establish a footprint in Africa the challenge is how to achieve critical mass across the continent’s 54 country markets with due consideration for how different each of these markets are.
Planning, patience and partnerships are integral to successful investment in Africa and three qualities that EY believes Sanlam has exhibited by its thorough and deliberate execution of brand strategy in the Africa countries it operates in.
“Sanlam Investments sees Africa as an untapped continent that offers numerous opportunities for diversified financial services companies,” said Sanlam Investments CEO, Johan van der Merwe. “We have been extremely pleased by our initiatives on the continent and remain committed, with the right partners, to improve financial services penetration in new markets.”
“Our growth in Africa and other emerging markets hinges on achieving a balance between our existing businesses and new opportunities – the secret for success in emerging markets is to be patient and flexible and to approach each country with due consideration for its culture.”