Investment
7 THINGS TO KNOW ABOUT AFRICAN BUSINESS MARKET
To invest profitably in one of the fastest growing markets in the world, one needs to be well informed about its business environment.
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Obi Gospel
Editor
Founder of IABC Africa
27th June, 2019
5 mins read
Opinions expressed by IABC contributors are their own.

Without any doubts, the African Business Environment is one of the fastest growing markets across the world, and it attracts lots of Foreign Direct Investment, particularly in Nigeria, South Africa and Kenya. 

However, if you are willing to invest in Africa, it is imperative you understand some key things about the emerging market so as to be able to make informed decisions and make the most of your investment in the region.

So, what are these things you need to know about?

They are listed below:

 

1. AFRICA IS MADE UP OF 54 YOUNG AND THRIVING MARKETS

Africa is not a single market; it has more than 50 countries spread over a land mass that is larger than the USA, India, China, Japan, and all of Europe…combined! If you intend to invest in Africa, it is much more important for you to understand the key differences among these markets as they will be helpful to you in making sound financial and investment decisions. There is also a need to understand market growth patterns, as there are some African markets which are not large or dynamic enough or have an enormous risk potential. Some of the key factors to consider include investment climate and protection, governance, infrastructure, and if possible available exit strategies for larger investments. Additionally, it is imperative to gain some insights about key issues like strategic local partnerships, cross border trading, as well as the economic trade regions exciting in the African continent.

 

2. MILLIONS OF PEOPLE WITH THE SPENDING POWER TO MATCH

In recent times, the African continent has experienced tremendous growth in the number of middle and upper classes bourgeon. However, this rapid growth also comes handy with a huge boost to the purchasing power of the continent’s population.

According to the World statistics, Africa comprises of over 1.2 billion people, and the World Economic Forum forecasts that the figure will increase to 1.7 billion come 2030. The forum also predicts that the consumer and business spending set would reach a minimum of $6.7 trillion by then. In a similar event, the UN as well opines that sub-Saharan Africa will account for about half the increase in the global work force.

As a result of this, smart investors are already lobbying to invest their funds in the region with the hope of yielding higher income in the nearest future.

 

3. ENORMOUS AND AFFORDABLE RAW MATERIALS

Africa is enormously blessed with legions of natural resources, and more importantly most of these resources are yet to be exploited. This is why lots of investors are putting more of their funds in the manufacturing industry.

Additionally, Africa is renowned for her very huge land mass, most of which are yet to be exploited. This therefore creates an ample opportunity for investors to invest their funds into the relevant sectors, including agriculture, mining, manufacturing, etc. 

These enormous lands can be used for large-scale farming, and the good news is that manufacturers need not to import any raw materials as they are readily available and relatively affordable. Again, these most of these lands are very fertile, meaning that it will yield more harvest without any extra efforts or funds.

However, it is important to note that vast majority of the farmers in this region are being forced to giveaway or sell off their farm produce at relatively low prices due to excess competition at the local market.

This challenge is really an opportunity in disguise for the potential investors as they will be able to buy most raw materials at a very cheap price.

 

4. RETURN ON INVESTMENT IS SIGNIFICANTLY ABOVE THE GLOBAL AVERAGE

On the average, the global return on investment (ROI) ranges between 5-10% while that of Africa is a bit higher than that with an estimate of 15-25% ROI. However, there are a number of firms making a whopping 30 – 35% ROI on certain projects right in the land of Africa, meaning the environment is conducive enough for investors with sound plans and strategies.

 

5. ENORMOUS POTENTIAL FOR GROWTH

The whole world is currently experiencing rapid advancement in the technological sector, and the African continent is not left out as well. In fact, vast majority of the countries in this continent are already beginning to realize the enormous opportunities that come with Technology-related sectors, including Telecommunications, internet, general ICT, etc. 

The aforementioned sectors are at their growing stage in Africa, and they are yet to be fully exploited. For instance, most of the businesses operating in this continent are still using the traditional, analogue processes, compared to the potent, digital processes being used in many other continents.

Fortunately, the ICT sector in Africa has lots of potentials and any smart investment made therein can never go wrong. If you are willing to invest in Africa, then the ICT sector is a very good industry to start with.

 

6. WIDE AVAILABILITY OF QUALIFIED, AFFORDABLE LABOR

There are lots of tertiary institutions in Africa and each of them turns out millions of graduate year in year out. The major issue is that there is wide spread of job scarcity in the region, and most of the graduates are roaming the streets with the hope of getting a good job very soon. 

The high unemployment rate in Africa is what birthed the excessive number of Africans migrating to the foreign countries in a bid to search for greener pastures. 

This increased migration rate clearly shows that the cost of labor in Africa is quite low, especially when compared to some other continents in the world. 

However, smart investors can exploit this opportunity by situating a conglomerate business in this particular region so as to attract and retain vibrant, qualified personnel – even for a relatively affordable cost.

 

7. RISKS CAN BE MITIGATED TO A SIGNIFICANT LEVEL. 

Yes, emerging markets can be very rewarding at times, yet they also come with greater risks. This is a normal thing to emerging markets, so don’t shy away from the fact! The plain truth is that you tend to face some challenges when investing in emerging markets like Africa, but the good news is that there are certain measures you can take to mitigate the risks to a significant level.  To start with, make sure you invest only in less risky African market, don’t choose a volatile industry, seek alliance with reliable local industry partners, and also try adopting a multi-market entry strategy. By so doing, you will be able to make the most of your investment in Africa.

 

THESE FACTORS AND MORE ARE WHAT MAKE THE AFRICAN CONTINENT A VERY GOOD SPOT FOR INTENDING FOREIGN INVESTORS.

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