Investments have always been considered to be sound financial decisions. Intending to get a significant return on investment, individuals stake their earnings in businesses, stocks, and other investment firms. So now you have decided to make that leap and join the league of the financially competent, your only stumbling block is deciding what and most especially where to invest. Well, you are in luck; this content puts you through the best things to do while planning to invest in Africa and gives you insight into one of the most profitable investment spots of the 21st century; Africa!
You might wonder why you should take the advice about planning to invest in Africa. You probably think all the best places are in the United States and Europe. This notion might have been true a couple of decades ago, now sadly, the market in the west is greatly saturated. Thus, leaving only Africa, Asia, and South America accounts for almost all of the remaining high-growth and high-impact investment opportunities available. Indeed, many of the best of these prospects exist in African countries such as Tanzania. Therefore, the potential is real and enormous, and it cannot be dismissed too easily. Africa has transformed from a “hopeless world” in terms of financial opportunities to an intriguing prospect for emerging market investors over the last 20 years.
WHY INVESTING IN AFRICA IS A GOOD BET
However, you should note that understanding the local political and socio-economic background and undertaking thorough due diligence is critical to unlocking this capacity and generating long-term returns on investments in Africa. Also, many smaller African businesses will benefit from the early engagement of the right financial and legal transaction advisors if they choose to place themselves as takeover targets or local partners for larger firms expanding across the continent. This is why the Shikana group has got you covered; we recognize that investing in anything, and planning to invest in Africa no less, can come at significant risk. At Shikana law group, an international law firm specializing in business and investment advice while also providing legal services inside and outside the boundaries of East Africa, we understand that. But, with this in mind, the Shikana group has compiled a list of things you can do while planning to invest in Africa.
So, if you own a business or are just an investment-seeking individual, then the Shikana group will be there with you through any decision you are inclined to make. This agreement would primarily benefit the investor group. Investments on the continent are set to become cheaper and more rewarding due to increased access to lower-cost inputs, integrated markets, and lower tariffs. For companies planning to invest in Africa, working with financial and legal transaction advisors who have a mix of best-in-class execution expertise, strong local connections, and robust on-the-ground networks is critical.
We want to see our customers take the big step toward financial independence, which is why the following things can motivate you to make the life-changing decision to invest in Africa and, subsequently, your future.
1 Accept the unknown and collect information.
When investing in Africa, you as an investor must understand the continent’s geopolitical and economic instability and various particular country’s and region-specific governance, compliance, and regulatory challenges. When transacting across borders in Africa, they must also contend with a crucial lack of infrastructure and weak integration.
You will need access to the right information and data to close deals on the continent. Instead of relying on consumer perception, real knowledge is required for transaction success. Having the right partners with global, international, local, and industry-specific expertise is critical in markets where there is a lack of reliable data.
2 Determine the sector you would like to invest in within Africa.
Agriculture and extractive industries are critical components of national, regional, and international value chains. Sixty percent of the world’s uncultivated arable land is found in Africa. The continent generated 13 percent of global oil in 2015, up from 9% in 1998. Between 1980 and 2012, oil and natural gas output increased dramatically: from 53.4 billion barrels to 130.3 billion barrels for oil, from six trillion cubic meters for natural gas to 14.5 trillion cubic meters in 2012. Africa also held 53.9 percent of the world’s diamond wealth as of 2012.
Over the next five decades, active investment in adding value to these resources and other extractive activities will form global economic activities.
3 Be wary of trade headwinds on a global and regional scale.
The recent escalating global trade tensions, which resulted, for example, in the United States (US) imposing 25% tariffs on all imports from China, with China threatening retaliation, have added to the risks of investing in Africa. Since China is Africa’s largest trading partner, tariffs on Chinese-made goods could have a knock-on impact.
The awesome thing to note is that when parts of the world tend to divide or transform inwards, African nations have an opportunity to band together and communicate with a single voice. Investors are keeping an eye on the African Continental Free Trade Area (AfCFTA), which began operations on January 1st, 2021. The agreement can help Africa’s trade and infrastructure growth by facilitating and harmonizing trade and infrastructure development. AfCFTA contains trade agreements, laws, procedures, and streamlined customs procedures and dispute resolution mechanisms to establish a common legal system for the continent and make cross-border trade and investment simpler.
4 Know how to invest.
African stock markets come in various varieties, and choosing the right one requires a thorough understanding of the market. If you’re a small investor who wants a taste of Sub-Saharan Africa, then you should consider investing in either mutual funds or an exchange-traded fund (ETF). If you’re looking for something a bit more intense, you can go through the direct access means.
- Direct Access: Opening a local brokerage account is the only way to gain immediate access to African stocks. This is a little more difficult because investors must shortlist stocks as well as stock exchanges.
- A mutual fund or Exchange-traded fund (ETF): Mutual funds are typically actively managed, meaning that they purchase and sell assets within the fund to beat the market and help investors benefit. ETFs are normally passively managed since they track a particular market index and can be purchased and sold just like stocks. Mutual funds, in addition to exchange-traded funds (ETFs), are the best bet for market investors new to investing in African firms.
- American depositary receipts (ADRs): They’re a decent way for US investors to select specific African stocks that trade on US exchanges.
5 Consider implementing the sustainable development goals.
It provides international companies with investment opportunities. Each SDG in Africa offers foreign companies business solutions and investment opportunities. Developing industrial strategies and clusters, fostering special economic zones, improving energy access, encouraging creative financing, and campaigning for value chain growth across countries would all provide excellent returns on investment for years to come.
6 Look into Infrastructure investment and regional economic growth.
Infrastructure development is critical to raising investment and allowing African economies to take advantage of their opportunities. Developing cohesive regional economic hubs by designing infrastructure that connects countries is an important part of this. This will make cross-border transactions easier and organically expand investment across African regions.
Bad infrastructure has cost Africa a total of 25% of its growth over the last twenty years, that is according to the African Development Bank (AfDB). Providing initiative opportunities in major projects in the power and infrastructure sector and related funding in Africa benefits both African governments and you, the investor, as it is said to help with project execution pace, which is an essential consideration for investors. Other notable benefits include the economic boost provided by the resulting infrastructure expansion, the development of new skills, and the creation of jobs.
7 Be prepared for volatility.
When investing in African countries, you can expect higher volatility, as with most emerging markets.
This more often than not refers to currency fluctuations because there are so many different currencies. Since it is such a large continent, you can also have unforeseen impacts – whether political or weather-related – on these markets.
8 Liaise with the right business partners.
To take control of this favorable investment environment, it is advisable that you establish strong working relationships with the best legal counsel, due diligence experts, and local advisors on the ground in Africa. Individuals who have specialized experience and understanding of the specific commercial challenges in their investment locations.
The Shikana group is the best option for you because of the team’s broad sector experience and willingness to collaborate across boundaries. We will assist investors in shaping, negotiating, and closing complex deals and ventures in unique circumstances across multiple African jurisdictions.
Investing, as previously said, is a big move that should not be taken lightly. The Shikana group can answer any questions you can have about your next investment opportunity at any time. However, while you’re here, we hope this content has convinced you of the advantages of investing in Africa right at this moment. You do not want to be in a ‘what if’ situation decades from now. When you could have taken the first step today, all you need to do is let the Shikana group take your hand as you embark on this journey of investment. It will undoubtedly be a decision that you will remember fondly and with no regrets.