Problems investors face when investing in Africa

Is investing in Africa a good choice? What are the problems investors face when investing in Africa?

The Africa continent has been known over the years for its natural resources. There’s copper in the Democratic Republic of Congo, crude oil in Nigeria, diamonds in South Africa, cocoa, and even gold in Ghana.

These natural resources open up investment opportunities for market investors. There are so many unexploited industries to look at when investing in Africa, from agriculture to agribusiness, mining, and housing.

There is no doubt that investing in Africa is a good decision for investors but if you do have doubts about the huge potential of investing in Africa, then this interesting statement by The Economist will clear your doubt.

In May 2000, The Economist used Africa as its cover and described her as a hopeless continent. By December 2011, they used Africa again and wrote Africa rising.

Prime Minister Shinzō Abe also saw the growth in Africa’s economy when he visited the continent in 2014. He spoke about it during his visit to parts of Africa; “Africa has now become the continent that carries the hope of the world through the latent potential of its resources and its dynamic economic growth”

The economic growth over the last twenty years has been tremendous and Africa shows no sign of stopping even in 2021 because more investors are seeing the opportunities and investing in Africa.

Being an investor in Africa is a good choice but some risks can hinder investment opportunities. Let’s discuss the risks you might face when investing in Africa.

Here are some problems you might face when investing in Africa

1. Corruption

It is no surprise that corruption is coming first here. The Africa continent is laced in the fabric of corruption.

Despite the numerous untapped resources in Africa, corruption is constantly soiling the relationship of the continent with investors.

From accessing basic needs like schooling, medical care, and food to security forces, all of it requires you bribing someone.

According to the 2020 Corruption Perception Index by Transparency International, Equatorial Guinea, Sudan, South Sudan, and Somalia are among the lowest scorers which means these countries are the most corrupt in the continent while Seychelles, Botswana, Cabo Verde are among the highest scores.

Countries like Angola, Côte d’Ivoire, and Tanzania are seeing significant increases in beating corruption while Congo, Malawi, and Zambia drown in the pool of corruption.

Here’s an interesting stats on the giants of Africa.

In Nigeria, 44% of public service users paid a bribe in the previous 12 months and even though the government set up an anti-corruption agency, their effectiveness is yet to be seen.

2. Inadequate infrastructure

Another big hindrance when investing in Africa is inadequate infrastructure. The erratic electricity supply has made too many investors turn away from the continent and that has prevented the continent from reaching its full potential.

Businesses need adequate infrastructure to survive and boost the economy. High-quality roads, safe ports, air transports are required for the smooth flow of goods and services. All of these are not in proper efficiency in most African countries.

Government promises to make sure all of these are put in place during campaigns but they never implement them once they are elected.

The inadequate infrastructure might be one of the biggest hindrances when investing in Africa because there is so much to be fixed. You’d agree that it is too large for one administration to complete and in countries like Nigeria, there is no continuity in government projects.

3. Government Instability

The political situation in Africa is deteriorating and this is causing an increase in political violence. Africa politicians seem to see the office as a means to enrich themselves so they would do anything to get there.

Political unrest has been on the rise and citizens are beginning to protest against the government.

The protest against bad governance in Nigeria altered businesses for months and caused the loss of lives and properties.

The ongoing Somalia civil war that started in 1991 grew out of resistance to the military junta. Other countries like Libya, South Sudan are also still struggling with civil wars.

All of these are concerns of investors who are actively or seeking to invest in Africa.

4. Insecurity

In countries where there is no war, there is little or no protection for lives and properties. In Eastern Africa, Alshaababs militia are making countries like Somalia, Kenya, and Yemen unbearable and extremely risky to do business.

In Nigeria, Boko Haram among other groups like the Fulani herdsmen is terrorizing citizens, making it hard for investors to do business.

The rate of insecurity in Africa countries is alarming and sadly, it is on the rise because it does not seem like the government is serious enough to curb insecurity.

5. Inflation

There is constant inflation in the price of foods and services in the continent due to factors like an increase in oil price in the international market, high demand for goods and services, high taxes.

In East Africa, constant prolonged droughts and famine are responsible for inflation and a rise in the prices of agricultural products.`

The poor economic performance also affects prices and causes inflation. When investing in Africa, inflation is something you should watch out for.

6. Lack of adequate labor force

The Africa continent’s population is equivalent to 16.72% of the world’s population, the continent ranks number two among continents of the world ordered by population.

This high population is leaving more people in extreme poverty. According to OECD, from 2019-2020, the number of people living in extreme poverty in Africa is projected to jump by approximately 8% which is nearly 520 million Africans.

Many Africans have zero access to quality education and this is a loss to the labor market. There are not enough people to be employed because of a lack of education and a lack of skill to handle technical areas.

The economy poorly absorbs labor into the market and this poor absorption of labor is also due to lack of education and subsequently, this causes an increase in unemployment.

7. Access to financing

Many Africa countries have a double deficit which means they are debtors to the rest of the world. Nigeria is an example.

Over the long term, Nigeria’s currency has been seen to depreciate. This is what happens when a country has a double deficit.

A depreciated currency causes a lack of inconsistent inflow of international currencies like the US dollar and this subsequently leads to new foreign exchange restrictions designed to shield the currency.

Most times, these new foreign policies make it increasingly difficult for investors and business owners to repatriate capital or pay for imports.

Even with all of these problems stated above, investors still troop into the continent. You might ask yourself why that is. That’s because of the benefits.

Benefits of investing in Africa

1. Large population

Africa’s population represents approximately 17% of the world’s population which is about 1.3 billion people. This creates a huge opportunity for consumer goods.

So, investing in consumer goods like banking and agriculture isn’t a bad idea at all. There’s so much to gain.

2. Natural resources

The natural resources in Africa are so enormous, ranging from coal, gold, crude oil, diamond, and more. All of these resources make investing in Africa a good choice.

Many of these resources remain untapped even today due to a lack of infrastructure and financing.

3. Relatively undeveloped

There is so much potential in an undeveloped region like Africa. Enormous opportunities for growth and money.

4. Digital Transformation

Africa is the leading continent when it comes to adopting mobile transformation and it continues to offer the biggest cross-sectoral economic opportunities. Companies such as Tecno mobile have a huge market in Africa.

Companies have used mobile initiatives to achieve huge successes. Olam for example used mobile to reach out to new African suppliers and farmers. Mobile payment networks which were pioneered in East Africa opened the global economy to poor and rural dwellers.

Africa has pushed beyond boundaries in the developed world, and it is a great opportunity for investors looking to invest in Africa.

What’s the biggest problem you can face when investing in Africa? Keep reading.

Conclusion

Just like every other business, investing in Africa comes with its

own challenges. Knowing these challenges will help you get prepared for the

journey ahead.

Other problems that might hinder you when investing in Africa are

tax rates and regulations, public health.

Some reports agree that access to financing is the biggest problem investors face but I think the biggest is corruption.

Corruption, the epic destructor of the economy is the cause of many of the other problems. A country that fails to tackle corruption would destroy its own economic freedom and would fail to grow.

A corrupt administration will have a problem growing the economy of the country because doing business in such an economy will only lead to a loss.

Most Africa countries struggle with corruption so, if you are thinking of investing in Africa, corruption, as well as other problems stated earlier, is what you are likely to face.

However, speaking to the right people can help you eliminate most if not all of those problems. Investment advisory firms are perfect for situations like this. Shikana group is one of the most sought after investment advisory firms in Africa.