Investing in Africa: Part One

As the 23rd annual World Economic Forum in Africa kicks off in Cape Town today, business, political, academic and other leaders of society are putting their heads together around one issue: how to turn Africa’s glowing promise into an attainable reality – for business, for politics and most importantly, for the people on the ground who remain notoriously excluded from the glimmerings of the African Renaissance.

The prospect of growth in Africa

Sub-Saharan Africa is expecting a 5% annual growth rate in 2012-2013, and World Bank data show that almost half of Africa’s countries have reached middle-income status. As this growth trend continues, the continent is a potentially attractive destination for domestic and foreign private capital, including private equity investments, which will further boost growth rates. But all of these glowing prospects are at the mercy of the effects of fluctuating commodity prices, a growing gap between rich and poor and a growing youth unemployment problem. What’s more, foreign investors are deterred by negative perceptions about investing in Africa, a lack of information gap about opportunities available on the continent, regulatory constraints and a shortage of local talent. What must Africa do?

It is widely agreed that three critical thrusts are necessary to strengthen Africa’s competitiveness, foster inclusive growth and build its resilience to the vagaries of the global economy:

  • Accelerating economic diversification
  • Boosting strategic infrastructure and
  • Unlocking human talent.

Accelerating economic diversification

Under this theme, this year’s Forum delegates will debate what conditions are required to make local industries globally competitive, which new growth models can deliver both structural reform and as inclusive growth, and how Africa’s new partners can unleash the potential of new markets.

Africa’s limited diversification and its associated dependence on commodities pose a significant threat to the sustainability of its upward economic trend. Economic diversification would increase the continent’s resilience and contribute to long-term economic growth and development. Diversification would also make far better use of the continent’s vast agricultural, mineral and human resources. Diversification examples include minerals processing and beneficiation, the expansion of manufacturing activities, the production and export of non-traditional agricultural and industrial products, and niche products in the service sectors.

The 2011 EOCD/UN report “Economic Diversification In Africa: A Review Of Selected Countries” contends that: “a conducive business environment, responsible management of natural resources and good governance are all indispensable”.

A combined effort is required

The report also argues that the challenge of expanding existing (or developing new) economic activities in underdeveloped sectors requires a combined effort by African governments, the private sector and the international community, as well as a regional approach to economic diversification in order to provide smaller economies with the benefits of larger domestic markets and economies of scale.

The study, which maps the state of economic diversification in the continent by considering the cases of Angola, Benin, Kenya, South Africa, identifies the private sector as playing a key role at the forefront of innovation, research and development and production. It also advocates new economic partnerships, including South-South co-operation and relations, to enable Africa to expand its economic options. Finally, it argues that infrastructure and human resources, being critical facilitators of trade, productivity and innovation, are key drivers of diversification.

David Okwara

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