Is Africa a Breadbasket or a Basket Case? Why You Should Invest and Do Business in Africa

The media by its nature is a hostage of time. Africa has its 15 seconds. And that 15 seconds is Mugabe, a dictator. - African billionaire, Dr. Mo Ibrahim, Forbes Magazine.

Happy Tales from the ‘Dark Continent’

The author with self-made African billionaire, entrepreneur and philanthropist, Dr.Mo Ibrahim. Feb 2008.

In an era when ‘doing good in Africa’ is exploited by attention-seeking celebrities and politicians, you may be forgiven if you didn’t know that in the latest edition of Forbes Magazine’s list of the world’s billionaires, two self-made native sub-Saharan African businessmen, a Nigerian and a South African made it to the list for the first time in more than twenty years of Forbes world richest rankings. Including Egyptian and South African family business dynasties quickly pushes the number of Africa’s dollar billionaires closer to ten.

Not bad for a continent with 34 of the 50 UN estimated least developed countries. In many African countries, annual per capita income hovers around 200 USD, with a significant majority of some countries’ population living on much less than a dollar a day. Furthermore, according to estimates by Jeffery Sachs, Africa’s share of global income has dropped consistently over the last century. In 1820, a European worker earned roughly trice what an average African worker did. Fast forward to the 21st century, an average European now earns twenty times what an average African does. In light of such daunting stats how have numerous businesses managed to thrive in Africa and the continent managed to add its modest 2 cents to the list of world billionaires?

Part of the answer can be deciphered from the occupations and locales of Africa’s billionaires. These men from Nigeria, South Africa and Egypt (in order of increasing combined net by nation) have been involved in commodities trade, manufacturing, telecommunications, construction, mining and lumber, retail, insurance and hotel service. Though mining and lumbering have traditionally been the mainstay of most African economies, Africa’s booming population and high fertility rate, along with increasing liberalization have created growing domestic markets for other sectors like manufacturing, construction, telecommunication, retail, banking, insurance and hotel services. This transformation has been supported by increasingly sophisticated indigenous financial markets which though far from Wall Street can still allow the kind of IPOs that recently helped Nigeria’s Aliko Dangote net his estimated 3.3 billion USD.

While these three countries—Nigeria, South Africa and Egypt—are not your BRIC nations (unless you throw in the terminal‘s’ for South Africa), there is a strong expectation among bullish Africa investment analysts and investors that they will lead Africa’s rapid growth and penetration into the global economy. What is needed is greater global investor awareness and confidence about Africa’s potential as a business and investment destination. As Mo Ibrahim, a self-made African billionaire who made his money in the booming African telecom industry lamented in an interview with Forbes, “There are 15 times more analysts covering Indian companies than covering African companies, and 11 times more analysts covering Chinese companies than African companies. Can someone please switch on the light and enhance our knowledge of this place a little bit?”

Risk

Risk is just a board game. Like for any emerging market, risk of investing in Africa is present and quite high in many instances but as argued by Kim Jaycox, CEO of Emerging Markets Partnership’s Africa Fund, the largest fund investing in Africa, perceived risk far exceeds actual risk. And without risks the reward is simply not as good. Africa Open for Business, director Carol Pineau’s influential documentary featuring ten business people on the African continent, strongly makes the point in all the cases of the entrepreneurs interviewed. In one extreme case, a private domestic airline company managed to thrive in Somalia which has no official government and is overrun by warlords and criminal factions. While one would rightly hesitate to invest in present day Zimbabwe with inflation rate beyond sky-rocketing, several other countries in Africa provide secure and lucrative avenues for investment and impressive returns.

And corruption? Mo Ibrahim answers it well, “I’m a little bit puzzled and annoyed when my friends in the West start to lecture me about corruption in Africa. Who are the partners in corruption? Are the Africans corrupting each other? I don’t think so.” While corruption is certainly a problem in Africa it is important to bear in mind that the same could be true anywhere and there are many firms and investors who have made it without following the bandwagon.

As with the telecoms example, while profits may level of in some sectors, the shear market size of over 900 million potential consumers can result in high overall profits (Between 1999-2004, cell phone use in Africa grew by 58% per annum and only 35% in Asia, the next largest market. This growth may however be leveling of). The UN trade agency, UNCTAD and the Overseas Private Investment Corporation (OPIC) both estimate that Africa offers the highest return on direct foreign investment in the world, more than any other region in the world. Other sectors now show impressive growth even though petroleum and minerals previously undergirded this high return. Overall, the UN’s Economic Commission for Africa (ECA) and the African Union (AU) forecast a 6.2% growth for Africa in 2008,up from 5.8% in 2007.

With regard to oil, Africa’s strategic interest to the global economy has grown. In a few decades the continent may provide more petroleum to the US than the Middle East currently does. The leading oil importer to China is Angola, a nation known more for its war-torn past than anything else. Both Indian and Chinese firms are getting in on the action in Africa often sweeping the stakes before European and American firms move in.

Development
Trade or aid? The debate has raged among Africa development experts for decades. What appears evident is that most African nations will fail to reach the 2001 UN Millennium Development Goals, especially the goal of halving poverty, without massive capital investment in the domestic private and public sectors. Aid will not do it. “Aid is like a painkiller, it may stop the symptoms but will not cure the disease” says Mo Ibrahim, whose Mo Ibrahim Foundation offers a 5 million USD annual prize to icentivize good leadership in Africa. His foundation is also involved in other philanthropic projects on the African continent. “For me, it’s about putting my money where my mouth is” he says, “I made the money in Africa and I must put it back where it belongs.”

Apart from the direct social impact many top firms and philanthropic investors in Africa strive to make, new jobs, technology and skill transfers and several positive transformations inadvertently result from business investments in Africa. Africa’s need for investments and organizations with a triple bottom line mission appears endless; businesses that are committed to making economic, environmental and social impact on the continent are highly needed.

Gold Rush?

For a continent that has provided setting for the slave trade, most brutal colonial expeditions in history and several cycles of blood-fueled mineral and resource plunder, is there cause for alarm over a mad investment rush? Maybe. Maybe not. While the dealings of some businesses and investors in Africa are far from ethical it is also true that others have made substantial and lasting impact which will linger for long.

For one thing income inequalities within and across African nations is grotesque and a majority of people on the continent may not benefit from the spoils, especially without caring and resolute political leadership. But the alternatives to strong private sector involvement in business and investment are almost always worse. For Africa to start thinking about equitably sharing its pie it must first have a pie and a significant one at that. This is why the question of equitable distribution, though important, may be secondary to economic growth and capital accumulation.

As with any investment decision, doing ones own prior research is key. Whatever you decide it helps to remember that despite what the media would like you to believe, Africa can excel and more than ever before it is ready and open for business.

Author: Atta A. Addo. Blog: http://www.ghanaunite.blogspot.com/