Investment opportunities in Africa : a quick overview
Africa is increasingly offering solutions for long-term investment in products. For Serge Eric Menye, co-founder of Grassfields Ventures, it is necessary to look to African startups that continue to increase the wealth of local and foreign investors through successful investments.
By Serge Eric Menye, Co-founder of Grassfields Ventures
Around $5 billion was invested in African startups in 2021 and foreign direct investment (FDI) flows to Africa increased by 147%. This was the first major investment. In 2022, despite the global slowdown in venture capital, Africa was the only continent to maintain growth – albeit at a slower rate with the global slowdown. On the back of these strong figures, the future looks bright. The Africa Wealth Report 2022 estimates that private wealth in Africa will grow by 38% over the next decade, with Mauritius, Rwanda and Uganda growing by 60%, ahead of Kenya, Morocco, Mozambique and Zambia.
Africa is the most profitable region on the planet
It should also be remembered that the African continent is the most profitable region in the world, according to a report by the United Nations Conference on Trade and Development ; youthful population, an abundancy of labor for labor-intensive industrialization, lower production costs and raw materials that are integrated into value chains lead to benefits that far outweigh the cost of doing business.
There is no doubt that we need to look to Africa. There are still many challenges on the ground and investing there is not easy, given the structural deficiencies and endemic conditions that undermine the sources of attraction. However, the results are encouraging for those who are prepared to accept the risk associated to any investment. There are now 136,000 millionaires in Africa, according to HNWI. In the last four years, « unicorns » (startups valued at more than $1 billion) have emerged. In other words, the promise of a successful investment requires an upstream strategy and market knowledge because, unlike popular belief, Africa is not homogeneous, it is a continent of 54 countries, all different. The investor must determine where, when, how much and how to invest, with several areas brimming of opportunities.
Agrifood industry
As Africa’s population grows, so does its demand for food. Although the continent has considerable arable land, more than 50% of its staple foods – grain, milk, poultry and sugar – are imported. There is therefore a clear advantage in producing locally. Farming is all the more opportune as arable land is shrinking internationally due to concrete development and soil depletion. China, the leading agricultural producer, is losing more than 2,500 km2 a year. To counter this, it is buying up huge amounts of land on the African continent, and rich and emerging countries are following suit. In addition to traditional crops such as cocoa, tea, coffee, cotton, rubber and exotic fruits, Africa offers a favorable environment for agricultural products such as wheat and oils, which are in high demand on the world market. Demand for chilli, for example, remains unmet on the international market, which is looking for an additional 2 million tons a year. Lack of investment is the main obstacle to agricultural development.
Tourism
The hotel industry is very profitable business, a 4/5-star hotel costs between 10 and 100 times less to build
Tourism in Africa has experienced unprecedented growth over the last 10 years. With an annual increase of 6% before the arrival of COVID-19, it was the second largest growth market in the world after Asia. Hotels are a very profitable business, with a 4/5-star hotel costing between 10 and 100 times less to build, but with international prices and a high financial return. Eastern and Southern Africa, with its captivating landscapes and sites, offers a future for new forms of luxury travel, in wide open spaces, away from the crowds and noise. Much remains to be done, from the training of hospitality workers to recurring needs such as hotels.
The hotel industry is a very profitable field, a 4/5-star hotel costs between 10 and 100 times less to build
Green industry
This sector is arguably the continent’s largest single source of investment opportunities, with a very broad spectrum ranging from agriculture, energy, industry, health, tourism, livestock, cosmetics, wellness, waste, water and the construction market. The number of people potentially involved is indeed a very lucrative opportunity. Biofuels, biomass, solar kits and panels to make up for the lack of clean energy for electricity and cooking, smokeless mobility in the face of dramatic air pollution, recycling and biodegradable packaging for the food industry, which ravages both soil and water surfaces, are all solutions that are very poorly implemented on the continent.
Real estate
In Nairobi alone, the authorities estimate the annual demand for housing at 200,000
Population growth and the concentration of people in large cities are exacerbating the housing shortage in urban areas, with prices in some places approaching those in European capitals. Several countries in East and West Africa, including Kenya, Rwanda and Côte d’Ivoire, have introduced incentives for massive private housing programs, on top of the already low construction costs, to alleviate the housing crisis affecting the new middle classes who can pay rent but cannot find a roof over their heads. In Nairobi alone, the authorities estimate the annual demand for housing at 200.000 units, while the construction sector delivers barely 50,000 units per year.
Digital technology
Leapfrogging is defined as technological innovation that enables development by skipping stages. There is no better laboratory than Africa, which has become the benchmark. With nearly 80% of the population without a bank account or credit card but owning at least one mobile phone, the fintech sector, which offers mobile banking systems that allow people to pay, save, send or receive money, has captured 62% of investor funds in 2021, according to the Briter bridges report 2021. Despite a host of similar operators and projects emerging every day in drone delivery and taxi and motorcycle delivery services, the market is still under-tapped, the need for greentech, agritech, edtech, cleantech, logistics and e-commerce is immense.
