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Business Trends and Opportunities in Africa

Africa is becoming increasingly attractive to international investors. Only Asia is ahead of Africa in terms of investor perception of future economic growth. Indeed, Africa’s share of new global foreign development investment (FDI )projects has steadily improved over the past decade and is forecasted to grow to US 150b in 2015 while Africans themselves are leading the growth in investment across the continent, according to study by Ernst & Young’s 2011 Africa Attractiveness Survey.

While the usual preferred investment destinations such as Angola, Egypt, South Africa and Nigeria still account for the bulk of FDI, other countries which were not initially the focus of international investors such as Sudan, Republic of Congo, Ghana and Mozambique are quickly rising.

As one can imagine, the reasons for Africa’s attractiveness are largely based on her immense natural resources. Indeed, Africa holds 40% of the world’s gold; 80% of precious metals (i.e: chromium and platinum); 10% of oil reserves and 60% of the world’s total uncultivated, arable land – a resource in short supply and sure to be in high demand given population pressure and increasing food prices. As for oil, new producers such as Ghana, Sudan and Equatorial Guinea are being added to the traditional power houses (Nigeria, Libya, Angola and Gabon) and that list is certain to grow as new oil reserves continue to be found. A U.S. government study show that 25 percent of the U.S. oil supply will come from Africa’s Gulf of Guinea by 2015. Finally, Africa is also home to the world’s largest producer of cocoa in Cote D’Ivoire and ranks first or second in the world as a producer of bauxite, cobalt, industrial diamond, phosphate, platinum, zirconium, etc.

And while investors have often focused on these traditional resources, they have overlooked Africa’s other achievements and assets. Indeed, Africa has a young population on which to lay the foundation for her future growth – the top 10 countries in with youngest population in the world are all in Africa. Some of the reforms undertaken on the continent are bearing fruit as evidenced by African economic resilience through the global financial crisis with the sub Saharan region rebounding and recording a growth rate of 5% in 2010; 5.5% in 2011 and 6% in 2012. Perhaps an even more telling sign of Africa’s economic strength and outlook is that from 2000-2010 the fastest growing economy was Angola – not China. During that same time, six African economies were among the fastest growing economies in the world (See Business Trends in Africa: Myths, facts and the way forward for more info on best countries and investment sectors)

It is important however, to not lose sight of the fact that Africa is a vast and very diverse continent and both economic progress and the business environment are uneven as evidenced by research from the World Bank aptly titled 50 things you didn’t know about Africa:

• Exports rose from $319.0 billion in 2007 to $413.7 billion in 2008, a 29.7 percent rise; conversely, imports rose less than exports, from $305.3 billion in 2007 to $372.1 billion in 2008, a 21.8 percent rise.

• In Mauritius there are 22 children per primary school teacher; the ratio is 91 per teacher in the Central African Republic.

• It takes 16.6 days average time to clear customs on direct exports in Cote d’Ivoire and 3.8 days in Gabon; conversely for imports it takes 31.4 days in the Republic of Congo and 4.4 days in Lesotho.

• In 2010, starting a business in Guinea requires 213 days for each procedure; it takes 3 days in Rwanda.

• South Africa has 924 mobile phones per 1000 people; Eritrea has 22 per 1000 people.

• The percentage of firms expected to give gifts to secure a government contract is the highest in Congo Republic at 75.2 percent and lowest in Mauritius 8.8 percent.

• Between 1990 and 1999 PPP GDP per capita growth was 15 percent ($1,158.9 to $1,327.8) for Sub-Saharan Africa; in between 2000 and 2008 it was 54 percent ($1,372.9 to $2,113.9).

• In Chad, 9 percent of the population has access to improved sanitation facilities; in Mauritius 94 percent have such access.

It is therefore important for businesses and individuals who plan to invest in Africa to be aware of the business areas and countries that hold the highest potential for return on investment as well as obstacles and associated risks of the business environment. You can learn more about sectors with high potential for return on investment and how to mitigate investment risks on the continent by accessing a presentation I made in Amsterdam on Business Trends in Africa: Myths, facts and the way forward.