With several horses of the apocalypse galloping towards us – global recession, insecurity and potential climate disaster – it may seem an odd time to consider taking a positive long-term view of Africa. But it is not just a buying opportunity; rather a decision on being on the ground floor and helping with organic economic growth in the world’s fastest growing and most challenged continent.
A funny thing happens when you suggest it is time to invest in Africa. You get a positive reaction but then a series of reasons why not. The economies are too small, returns too low, there is a lack of bankable projects, conflict and lack of development. And given current global challenges, surely there is no space. All these views can be refuted by looking at Africa today. Many of these suppositions will be the reverse of the truth in the medium term. What is exciting about family office investment is that it can
be medium- and long-term. That is why family offices are in the frontline of bold and thoughtful investment in the continent. This can grow, and grow quickly, and win returns.
Africa is changing quickly. For the first time in human history, the population is growing faster than any other continent. By 2050 one person in four on the planet will be African. Africa is open to, and itself beginning to participate in, technological and economic development and is for the most part committed to entrepreneurialism and economic growth.
A continent on the move
Africa is hugely diverse, from Morocco to Mozambique, from Egypt to Sierra Leone, from South Africa through Congo to Libya. It has been fractured with minimal intra-Africa trade, but this is changing with the agreement of the Africa Continental Free Trade Area (AfCFTA). The AfCFTA will agree measures by governments on tariffs, customs and regulations. Change will be pulled along fast by private sector cross border activity – fintech, There are challenges. Population growth will mean that the African share of global poverty will proportionally grow. Climate change will hit African countries hard.
They will need special help with the transition, including a flexible arrangement on transitional energies such as gas. Economic shocks from disease and environmental change, and external shocks such as the conflict in Ukraine, will drive internal conflict in the most fragile countries, not least through pressure from price rises and lack of jobs. This will result in state failure, in some cases. But for the majority of African countries, it will increase pressure on elected governments to reduce rent seeking and improve governance. There will be a new technocratically able generation in charge.
Returns
A flip view is “why invest in Africa when you can invest in US tech stocks?” There are actually short-term prospects, but a strong portfolio is looking for long-term growth. There are some very attractive long-term bets among listed African companies, and some growth opportunities through private equity. Investors usually report higher returns than the global norm in projects. The challenge is finding the opportunities and bankable projects. That challenge is being met both by private sector funds but also gradually by the financial development institutions, such as Investment International of the UK (the former CDC), or the Private Infrastructure Development Group, private sector funds and private equity. Sectors which are already growing fast are telecoms, renewable energy, fintech, and agricultural technology.
ESG and sustainability
Perhaps the greatest drivers for private international investment in Africa are development and sustainability. All the United Nations Sustainable Development Goals apply to Africa. Every company I have met which is trading with or investing in Africa has an aim related to the development of that African country, whether in economic growth or social impact. More than a trillion dollars globally are now being raised annually for sustainable finance. There are challenges in directing those funds to Africa but we can be confident that the musculature of creating bankable projects is strengthening.
Investing in Africa is for the long term. Smart, imaginative investment in Africa will mean a real stake in the growth of the continent and a safer and more prosperous world. This is about what the world will look like, not what it has been, and catching the moment to work with those building Africa. It is a moral choice, but also a potentially profitable one.
