Investing in Africa?. It is reported that Africa is one of the most profitable regions of the world in terms of investment compared to other global markets. This might be true because of the high rate of consumption by its ever-growing population. Investing in Africa comes with a lot of benefits but there will be challenges as well. In addition to this, there are a lot of opportunities that are yet to be tapped by investors both in Africa and internationally. Tapping into those opportunities can go a long way in developing the region as a whole while serving the global market as well.
It is also important to note that investing in Africa cannot get any better because now is the best time to invest. There is solid growth in the natural and human resources and the right combination can lead to economic development in the countries of Africa due to an increase in the standard of living. To gain high returns of investment, investors should ensure they make thorough research in the countries they wish to invest in.
FACTORS TO LOOK OUT FOR WHEN INVESTING IN AFRICA
Before an individual or a group of people embark on a project, they undergo several kinds of research on that project and create a plan with key performance indices that will show if they are achieving their set goals. Feasibility and viability studies are also carried out to ensure that the project is actually achievable. They also look at how much it would cost and what they would benefit from in the long run to see if the project is profitable or not. This also goes for investors who are looking into Africa but have less knowledge on how to achieve that goal. Factors to look out for include:
Capital: Capital is a vital factor of production when it comes to establishing any business at all and most businesses fail due to a lack of substantial capital. Capital is not restricted to money and funds, it also includes people and machinery. Human capital has a positive correlation with business growth and development. The more advanced your human capital is, the better the level of production.
Human capital can be influenced by education and health services. An African country where education and health are a priority with adequate investment by the government and private sector will be a better destination for investment than another African country with less investment in human capital. In addition to this, a country that supports innovation and technology will be welcoming to investors than other countries that still run a crude system.
Infrastructure: One of the main reasons why governments embark on infrastructural projects is to encourage investment and entrepreneurship. This is because a country with better infrastructural facilities has the ability to attract more investors. The right infrastructure can reduce the cost of production. Good roads, constant electricity, good transportation systems, strong communication networks and so on can be of benefit to both investors and business owners.
It will not be wise for investors who wish to invest in the production of goods and services that require an adequate power supply to settle in a country that lacks it yet charge for it at a high price. This could mean a loss for such investment as the cost of production will be high because of the expenses in getting an alternative power supply. Furthermore, due to poor internet and communication networks, potentially profitable deals can be lost which could be detrimental to the growth of the business.
Financial Services: Access to finance can influence investment in a particular country. Interest rate is the amount charged for borrowing money. In a country where savings is encouraged due to low inflation and exchange rates, interest rates will be high because more people are motivated to save money. Investors, on the other hand, will be willing to borrow from financial institutions so they can finance their businesses which will lead to more investments. In a situation where the financial climate is poor in a country, savings will be less attractive and investment will be non-existent. Investors should ensure they carry out their investments in countries with low inflation and high productivity.
Moreover, a country with a favorable exchange rate attracts foreign investors better than other countries with poor exchange rates. The exchange rates can influence the worth of goods and services that are transferable internationally. Countries with unfavorable interest rates experience high costs of goods and services that are imported and this could include machinery for production.
Government: One key indicator to look into before investing in any country in Africa is the influence of the government. Government policies are instrumental to the development of any country. A government can either encourage or discourage investment through its policies. A country that imposes high taxes with a majority of its citizens still struggling with low income cannot attract investments. In addition to this, international relations among neighbouring countries are also crucial to investment.
Countries that do not have trade barriers with their neighbors tend to gain the attention of investors than other countries that claim to be private because an open border leads to more market share. Furthermore, if the government invests in its people and structure, through the financing of education, health, and infrastructure, the ease of doing business in such countries would be encouraged.
Market: For any business, the major objective is to make a profit. Profit can only be made when the revenue exceeds the cost. And for this to happen, there must be a large market willing to demand whatever goods or services are produced and financed by both the manufacturers and investors. The market in Africa is very high due to the population rate in many African countries. Compared to other regions of the world, the African population is dominated by youth who have access to smartphones and internet services. This makes it possible for suppliers to reach out to more customers especially with services that involve technology. Wants may differ among African countries generally so investors need to know what products to offer to the markets they are investing in.
HOW TO START INVESTING IN AFRICA
Firstly, make your personal research on the region. Africa is known to be a continent with a high level of dependence on natural resources. These natural resources are categorized into sectors like agriculture, mining, tourism, and energy resources. Industrialization and manufacturing are also on the rise because of the need to process these raw resources into final products for consumption. While North Africa and South Africa are majorly into manufacturing, West and Central Africa are dominated by agriculture and East Africa is the home for tourism and mining.
One of the easiest ways to invest in Africa is through Exchange Traded Funds (ETF). Investing in African mutual funds is less expensive than building a portfolio in other foreign stock exchange markets. To have a clearer understanding of this, there is a need to make more research on the African stock markets.
Secondly, identify countries that can pose fewer risks to investments. The ease of doing business index is a good way to point out African countries that are worth putting money in. A country with high political instability and insurgency cannot be a good destination for investment. African countries have been doing well in terms of managing political instability because it hinders economic development. Infrastructure also gives room for investment. An investor can only benefit from high returns when the country encourages investment through socio-economic and socio-political improvement.
Thirdly, get the services of expert investment consultants who are experienced in investing in the African space. These consultants have a better understanding of the business atmosphere and they will guide you on what decisions to make and what sector to venture into depending on the region you wish to invest in. Investment consultants can also be a liaison between you and the government of the country of your choice and get you the necessary license you need to execute your investment plans. These investment firms have financial and legal teams who can carry out effective financial studies on the sector you wish to invest in and produce a standard business model which can help you make your choices better. You might not have full knowledge of business compared to their experience, it is wiser to leave that to the expert and avoid losing more in the long run.
In conclusion, it is said that Africa has the capacity to meet up global standards in terms of economic development. By 2030, the middle and upper class will contain over 40% of Africans who would be able to afford goods and services due to the increasing demand in the region. With government stability and a high population of young people in their 20s and 30s, who contribute a large number of the labor force, investment is set to increase over time. There is no better time to invest in Africa than now.