Sunday, January 6, 2013

The final frontier for investment opportunities

The final frontier for investment opportunities

Written by African Business Review   

As we begin the New Year with Africa's growth set to continue into 2013 and beyond, one key question is what and where are the opportunities for would-be investors, particularly those from diaspora communities? The world is waking up to the idea of Africa as a centre for economic growth and, in some ways, the final frontier for investment opportunities.

Many have overlooked the potential of the continent, partly because the media has tended to focus on themes such as poverty, famine, conflict and corruption – especially in sub-Saharan Africa. Although these problems still exist, this past decade has also been one of remarkable economic progress for many African countries. The media has in recent times caught up with this fact.

Market sentiment generally revolves around the BRICs (Brazil, Russia, India, China and South Africa) and Asian Tigers as being the world's most vigorous economies. These countries have certainly flourished in the past fifteen years or so and are now significant players in the global marketplace – rightly attracting huge amounts of investment, principally foreign direct investment (FDI).

Fast-growing economy

It may be a surprise to learn that six of the world's ten fastest growing economies during the last decade have been in sub-Saharan Africa. Overall economic activity in the region rose sharply in 2002-03, and growth has more or less remained above six per cent ever since – an expansion that was only briefly interrupted in 2009 by the global financial crisis. The continent is expected to see 5.4 percent growth this year, and more than six per cent each year for the next decade, approaching or exceeding the growth rate of Asia. Africa, in short, is the world's next emerging market.

Oil exporters, most notably Nigeria and Angola, have performed exceptionally well as investment has poured in. Metal and mineral exporters such as Botswana, the DRC, Gabon and Guinea have also enjoyed high growth rates thanks to steady infrastructure development and strong demand for those commodities. In East Africa, Rwanda's agriculture-based economy is expected to grow by eight per cent this year and continue at that rate for the next few years. Investment in sustainable growth through IT and education will support this.

Remittance transfers

Our company, Dahabshiil, takes much encouragement from such developments, particularly in East Africa. Dahabshiil was established in 1970 as a small trading enterprise, and became increasingly focused on remittance transfers during the 1980s. Today, Dahabshiil offers a global remittance service across 150 countries. We handle a significant share of the substantial remittances sent to the Somali territories each year by the diaspora.

It also provides money transfer and other financial services to people in many other parts of Africa, including Sudan, Uganda, Ethiopia, Djibouti and Rwanda. Diaspora investment represents the largest capital inflow for many African countries, often exceeding humanitarian aid. This flow of funding from migrants is a vital source of income that has helped to sustain and grow economies.

Of course humanitarian aid is still necessary, especially in crisis-prone areas. Dahabshiil provides services for many humanitarian agencies working in the Horn and East of Africa. Our company also does a great deal of humanitarian work in its own right. It remains imperative that development work continues.

The lifeblood Somali

Like in some other parts of Africa, the economic life of the Somali territories is dominated by the livestock trade. As is the case elsewhere on the continent, trade and commerce are the lifeblood of the Somalis, who have been remarkably successful business people. Somali livestock – including goats, sheep and camels – are highly prized and are exported to Saudi Arabia and other Middle Eastern countries each year for the Hajj, as well as during other periods.

Nevertheless, other sectors are also booming. Money transfer and telecoms have both experienced rapid growth and have developed side-by-side. Employing advanced leapfrog technology, Somali mobile networks – like those elsewhere in Africa – are cheap, efficient and reliable. Dahabshiil entered this market in 2008 with the acquisition of Somtel, a mobile telecoms and wireless internet firm.

Natural resources

Other African economies are driven by large reserves of natural resources. Exploiting these assets remains central to Africa's progress, but it can also cause a country's industry to become highly concentrated in one sector, making its economy more vulnerable to changing external conditions. Kenya is a good example of a country without any major mineral or fossil fuel endowments that is keeping pace with global trends and pursuing the ideal of a balanced economy.

Energy, construction and manufacturing are rapidly expanding industries across the continent, yet none of these markets would have experienced such growth without continuous remittance-based investment. Diaspora communities are often more willing to invest in what others may regards as fragile markets.

Their knowledge of the local terrain often enables them to better spot opportunities. Equally, diaspora communities are in a unique position to deliver skills training to local people, and to encourage them to stay within the country and aid its development. Finance, skills and knowledge from the African diaspora have been instrumental in the growth of the last few years, and will continue to be in the future.

A familiar presence

FDI underpins Africa's growth economies, be it investment from the diaspora or countries with vested interests. In the Somali territories, Turkey has been particularly active, pouring cash into construction. Elsewhere in Africa, China is fast becoming a familiar presence, investing heavily in energy and other sectors, the development of which will be critical in the next phase of Africa's economic rise.

Perhaps the most important of Africa's resources, however, is its people. The continent is home to the world's youngest population, with almost 200 million people aged between 15 and 25. The number of these who are pursuing secondary and tertiary education is fast rising.

This vast reserve of human capital will be central to the growth of new productive sectors just as it has been in China and India. Jobs must be created for them however – youth unemployment is currently high in many countries and was a major factor behind last year's unrest in North Africa.

That experience in particular illustrates how vital it is for education to keep improving and for governments, regional bodies, businesses and investors to work together to create the conditions most favourable for growth and the development of new markets. If we can achieve that, those 200 million young Africans will enjoy opportunities their parents and grandparents could never have imagined.

Source African Business Review

No comments:

Post a Comment