Africa as a developing economy, offers many opportunities for investment in various sectors, with prospects of bumper returns on investments. Opportunities are rife in several sectors of the economy, with technology, finance, agriculture, energy, oil and gas, health, services, entertainment, solid minerals among many others, showing much promises. Referred to as the last frontier for investment, Africa is increasingly capturing the attention of the world’s business community, for its vast resources and potential for investments.
Africa as an Attractive Financial and Investment Destination
Investors are daily taking deeper interest in Africa’s economic opportunities. As a developing economy, Africa is seen by investment experts as harbouring a great repository of investment cakes, which many smart investors, both big and small are seriously exploiting daily. The rapid adoption of new technologies by many African countries, have widened the scope of this economic opportunities even further, and made the continent to become increasingly attractive for investors seeking new investment opportunities, beyond established markets.
The continent’s vast array of solid and liquid mineral deposits, huge but largely youth population. The continent’s population is predicted to quadruple from 1.19 billion in 2015, to 4.39 billion by 2100; and its human capital deposits have created potential for good return on investment and thus, have generated interest in its stocks, bonds, and raw materials, which are indices needed to build booming economies; just as the financial markets play a key role in both generating economic progress in Africa, as well as in boosting financial inclusion and empowerment of the African people.
According to a report by the UN Conference on Trade and Development, which states that between 2006 and 2011, Africa had the highest rate of return on inflows of Foreign Direct Investment, which it places at 11.4%, vis-à-vis that of Asia which is 9.1%, while Latin America and the Caribbean is 8.9% in. It noted that the global figure is 7.1%.
One of the key sectors, Agriculture and the extractive industries, has remained great drivers of national, regional and global value chains. As has been previously reported in many publications, and Africa is also home to 60% of the world’s uncultivated arable land. The continent produces 13% of global oil supply, and the growth recorded by oil and natural gas production between 1980 and 2012, has been nothing short of phenomenal with a rise from 53.4 billion barrels to 130.3 billion barrels for oil; and from six trillion cubic meters in 1980, to 14.5 trillion cubic meters in 2012, for natural gas. As of 2012, Africa controls 53.9% of the world’s diamond resources. In our previous article, ‘The Billion Dollar Gold Business in DRC and the Big Players in the Industry’, we reported that The Democratic Republic of Congo [DRC], has an immense wealth of natural resource deposits, including gold. In fact, DRC is estimated to be the second largest African country, sitting on top of $24 Trillion worth of natural minerals, which is almost twice the GDP of Europe, and the United States combined. Eastern Congo alone, accounts for up to $28 billion worth of gold deposits. Hence, DRC has remained a very attractive destination for gold mining, and have attracted the interest of many players from different countries, including Australia, which has more than seven companies operating in the country.
Consequently, companies originating from South Africa, USA, UK, Japan, China and Canada, all have major stakes in the rich gold deposit of DRC, to various degrees. Though despite its impressive untapped wealth, DRCs money market, failed to make it to the list of African Countries with the fastest Growing Financial Market.
Some companies have benefited from Africa’s economic boom. MTN Group’s, for instance have recorded a turnover of about $10 billion in recent time; while Dangote Group, have recorded a turnover of $4.1 billion from its various business operations; Sonatrach, have also gained an impressive turnover of $33.2 billion, from its oil and gas interest alone Of course there is a long list of companies taking advantage of the business opportunities in Africa, to record very impressive investment boom.
Africa Renewal, reveals that “Africa’s economic growth prospects are among the world’s brightest.” Noting that “Six of the world’s 12 fastest-growing countries are in Africa, (Ethiopia, Democratic Republic of the Congo, Côte d’Ivoire, Mozambique, Tanzania, and Rwanda).” IMF also noted that between 2018 and 2023, Africa’s growth prospects will be among the highest in the world.”
Africa’s investment climate is gradually becoming the best and most promising in the world, in terms of ROI. “Sectors where foreign companies could have a comparative advantage, such as banking, telecommunications and infrastructure, are among the drivers of current economic growth in Africa, creating clear investment opportunities for foreign businesses” Africa Renewal notes. Africa Financial Markets Index
According to Arrie Rautenbach, Chief Executive Officer of Absa, “Absa Africa Financial Markets Index, evaluates countries financial development based on measures of market accessibility, openness and transparency.” He posits that the aim of the index, is to show how economies can reduce barriers to investment and boost sustainable growth. The index has become a benchmark for the investment community to gauge African countries’ market infrastructure, and is also used by policy-makers, to learn from developments across the continent. He explains that the index now encompasses approximately 80% of the population, and gross domestic product of Africa
Over 40 indicators are considered across six main pillars:
• Pillar 1 – Market depth
• Pillar 2 – Access to foreign exchange
• Pillar 3 – Market transparency, tax and regulatory environment
• Pillar 4 – Capacity of local investors
• Pillar 5 – Macroeconomic environment and transparency
• Pillar 6 – Legal standards and enforceability
Pillar scores are based on countries’ relative performance for each indicator, which is rebased to fit a harmonized scale from 10- 100, Overall scores, are calculated as an average of the scores from each pillar.” The overarching purpose is to demonstrate how economies can reduce barriers to investment, while promoting sustainable growth.
Below are the 10 African countries with the strongest, most robust or booming financial markets, according to the Absa Africa Financial Markets Index.
South Africa, sits comfortable at the top of the list with an Index of 88, Market Depth Score of 100, Access to Foreign Exchange at 88, Market Transparency, Tax and Regulatory Environment is at 98, Capacity of Local Investors at 63, Macroeconomic Environment and Transparency is 79, while Legal Standards and Enforceability has a score of 100. According to Statisca, the Johannesburg Stock Exchange, with 366 listed companies, is the leading stock exchange in Africa by market capitalization, and is also the leading region in terms of number of banks products offered to customers.
Mauritius, follows closely with an Index of 77, Market Depth Score 56, Access to Foreign Exchange 75, Market Transparency, Tax and Regulatory Environment 94, Capacity of Local Investors 61, Macroeconomic Environment and Transparency 76, while Legal Standards and Enforceability is 100.
Nigeria, follows at third position with an Index of 67, Market Depth Score 56, Access to Foreign Exchange 60, Market Transparency, Tax and Regulatory Environment 88, Capacity of Local Investors 27, Macroeconomic Environment and Transparency 79, Legal Standards and Enforceability 90.
Uganda, has an Index of 63, Market Depth Score of 46, Access to Foreign Exchange is at 67, Market Transparency, Tax and Regulatory Environment 79, Capacity of Local Investors 14, Macroeconomic Environment and Transparency 86, Legal Standards and Enforceability 85.
Namibia, has an Index of 63, Market Depth Score 43, Access to Foreign Exchange 56, Market Transparency, Tax and Regulatory Environment 61, Capacity of Local Investors 100, Macroeconomic Environment and Transparency 76, Legal Standards and Enforceability 40.
Botswana, has an Index of 59, Market Depth Score 54, Access to Foreign Exchange 68, Market Transparency, Tax and Regulatory Environment 78, Capacity of Local Investors 57, Macroeconomic Environment and Transparency 87, Legal Standards and Enforceability 10.
Kenya, has an Index of 59, Market Depth Score 42, Access to Foreign Exchange 70, Market Transparency, Tax and Regulatory Environment 92, Capacity of Local Investors 18, Macroeconomic Environment and Transparency 76, Legal Standards and Enforceability 55.
Morocco, has an Index of 58, Market Depth Score 60, Access to Foreign Exchange 76, Market Transparency, Tax and Regulatory Environment 89, Capacity of Local Investors 29, Macroeconomic Environment and Transparency 70, Legal Standards and Enforceability 25.
Ghana, has an Index of 58, Market Depth Score 46, Access to Foreign Exchange 51, Market Transparency, Tax and Regulatory Environment 82, Capacity of Local Investors 22, Macroeconomic Environment and Transparency 60, Legal Standards and Enforceability 85. Tanzania, is the last on the table with an Index of 55, Market Depth Score 49, Access to Foreign Exchange 54, Market Transparency, Tax and Regulatory Environment 78, Capacity of Local Investors 15, Macroeconomic Environment and Transparency 81, Legal Standards and Enforceability 55.
In the words of Arrie Rautenbach, “With global financial markets likely to remain tight for the foreseeable future, it has never been more important to focus on Africa, as a destination for capital investment.”
