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Africa globe

Future prospects in Africa: a look ahead for investors

China has long been the dominant — and certainly the most visible — investor in Africa’s growing industries. But 2015 saw increased investments from other nations looking to get in on the continent’s rich opportunities. That trend will only increase in 2016.

India especially signaled a strong interest in Africa last year, holding a summit and extensive meetings with African leaders and trade officials. Africa’s stabilising political situations and expanding economies make it one of the most attractive long-term investment regions in the world.

Here’s what investors need to consider as they plan their 2016 strategies:

1. Diversification

Expect to see a shift toward non-extractive sectors. The pricing tumble in African commodities became a boon for non-resource markets throughout the region in 2015 because governments realised they needed to insure their economies against future slides. Chinese multinationals Hasan Group and Forever Green announced last October that they plan to invest US$650-million in the Angolan agriculture market. The initiative will target cassava, maize, and wheat production, and it indicates the vast opportunities in this sphere.

Read more: Africa is the new frontier of impact investing

Angola’s economy is at last emerging from the ravages of civil war and oil-driven neglect, and opportunities are particularly abundant in the agriculture industry. The country currently imports 90% of its food supply and is in need of domestic agricultural development. Investors would be wise to investigate openings there because the need is great and there are significant prospects for strong returns.

2. Clarity

Some investors shied away from African markets in 2015 due to fears of political unrest related to general elections in Nigeria, Ethiopia, and Tanzania. But all three saw relatively peaceful transitions of power, assuaging investors’ anxieties and providing a clearer view of the landscape going forward.

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Fiscal consolidation is likely to be a prime issue in Tanzania in 2016, while Nigeria expects to see continued economic improvements. Despite gradual liberalisation in some sectors, Ethiopia’s emphasis remains on strengthening domestic markets. The pharmaceutical industry has proven particularly strong for domestic investment and shows potential for further development.

3. Disruption to FMCG funds

A rate hike by the US Federal Reserve could derail cash flow to the Fast-Moving Consumer Goods (FMCG) sectors in most African markets. Such a move by the Fed would end the era of “easy dollars” and upset the FMCG mojo that’s been thriving for the past few years. In Kenya, consumption closely mimics diaspora remittances, suggesting that a slowdown in the latter will negatively impact buying rates among the growing middle class.

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Investors could see a mismatch between perceived and actual opportunity in the FMCG space, particularly in Kenya and Ghana. Monetary tightening in these countries may raise the cost of borrowing, further constraining buying prospects. Nonetheless, retail will continue as a major driver of investment opportunities in the region. Despite the potential immediate challenges, the growing formalisation of the markets in Kenya, Nigeria, and Ghana make them chief long-term investment interests.

Nothing in Africa is guaranteed except that early investments here will pay off handsomely down the road. Governments are investing in a wide range of industries, creating opportunities to build a diverse, thriving African portfolio. Investors will see impressive market openings revealed in the new year and should prepare themselves to make moves in these emerging economies.

Author Bio

Konstantin Makarov
Konstantin Makarov is the managing partner of StratLink Africa. With over 14 experience in financial markets, specifically emerging markets, Konstantin brings a holistic approach that addresses challenges faced by companies, fund managers, and family offices that are operating or considering investing in the emerging and frontier economies. More