Browsing: investing in Africa

For the longest time, Africa took a back seat in the world economy. Albeit for various reasons, some beyond the continent’s control, Africa was not recognized as an active economic participant by developed countries. However, there has been a paradigm shift in the past few decades as Africa has begun to forge its destiny and implement policies that benefit its economic status in the world. Africa has been recognized as the world’s second-fastest-growing regional economy with anticipated annual growth of about 3.9% by 2022. …

Much of the talk at the moment, and nearly always, is where we should invest in a world of recession, low-interest rates, unpredictable markets and a challenging socio-political climate. As open borders in East Africa close, open, close and re-open again and as Kenya prepares for yet another Covid-19 lock-down our own region is particularly challenging.  

I am a member of several international investment groups and so I am fortunate to hear the views, perspectives and experiences of many clever and visionary investors around the world. I have written here before about ESG investing – Environmental, Social Impact and Governance – the “do’s” of impact invest but I haven’t written about the “Don’ts”. And it strikes me that we should be talking just as much, perhaps even more, about where not to invest at the moment and in the future. …

Africa’s financial potential has become an interesting prospect for emerging market investors. Three decades ago a proposal to invest in Africa would have been considered ridiculous, but this is no longer the case. In fact, between 2006 and 2011, the continent was registering the highest returns on FDI at 11.4 percent, even higher than Asia at 9.1 percent, while the global average was 7.1 percent. To add to that according to the World Economic Forum, since 2000 "half of the world's fastest-growing economies have been in Africa. As western markets mature and foreign investments saturate in Asia, Latin America, Central and Eastern Europe, and India, Africa is fast becoming the most lucrative investment destination. The inefficient African markets are an excellent source of excess returns, given the level of perceived risks. …

Imagine an Africa where farmers can detect parasites in their livestock by a simple scan of a handheld machine. Where road networks allow swift transportation of produce to markets. Where farmers can access finance and be adequately insured against natural disasters by a simple click of a button.  

The reality across the continent is one of  underdeveloped, underserved rural areas. Women dressed in traditional garb carry buckets of water over long distances. There is no electricity or running water and very little internet access. According to World Bank statistics 56% of Africans live in rural communities. Recent trends have shown a high rural to urban migration rate. This migration has resulted in high urban densities, rising crime rates and overcrowding in the urban areas. Neither of these situations is amenable. Which brings into light the need to empower rural communities to support economic resilience in Africa. 

Also Read: COVID-19

Environmental, Social and Governance – three words that we now hear all the time when analysing and discussing investment. And three words that need to be an integral part of the due diligence for every investment decision. If you want to attract substantial investment into your business then you now need to make sure that your “ESG” story, policy and monitoring is solid and coherent.  

There was a time when “ethical” investment was its own niche. Those who aspired to be ethical, or had deluded themselves into believing that their ethics were central to their business practice, charged into ethical investing. “Ethical investment” was plastered all over investment products and people who thought ethical investment reflected their beliefs, morals and personalities bought into products that were not really intelligent, profitable or ethical! That seems a very long time ago. 

The next stages in the development of investment with

None of us particularly like money-lenders and few of us would want the stress and unpleasantness of being the type of money-lender that proliferates in cities like Kampala – leeching returns of 10% a month against assets pledged by desperate borrowers.  The reason that these bloodsuckers can exist is that access to credit on reasonable terms, or at all, from banks is still so difficult to get for most businesses.  

Also Read: Mobile money loans affecting banks’ lending – report

The fact is that there are some great businesses that cannot grow and often struggle to survive because cash-flow is such a huge problem. In Europe many businesses use “factoring” to improve their business cash-flow and reduce the time they spend trying to collect money. But the truth is that the banks that provide this service are so selective about the businesses they deal with and the invoices they process