Weighing up Africa’s investment potential

South African law firm Adams & Adams highlighted key factors, that include challenges as well as investment opportunities in key sectors, one should consider when looking at investing on the African continent.

A recent survey conducted by the firm, through its Adams.Africa Advisory unit identified seven key challenges facing businesses wanting to enter the African marketplace:

• Ease of doing business

Most respondents flagged the ease, or lack thereof, of doing business in Africa as a key challenge. Contributing factors include the lack of procedural awareness and the hierarchy of systems, all of which affect and prolong the commencement period of a business.

Other contributing challenges include delays in securing construction permits, lengthy periods of registration, and credit to tax payment mechanisms.

Businesses need to understand the working environment on the ground by assessing areas other companies have found most challenging. Risks can further be reduced by gaining insight into all the various business components, from property registration to credit accessibility.

• Ineffective regulations and corruption

According to the firm, understanding a legal landscape can be challenging especially in Africa with its rigid regulatory environments that are prone to corruption.

When entering the market, businesses need to avoid adopting a ‘one-size-fits-all’ blanket approach, as this does not constitute a recipe for success.

Businesses need to familiarise themselves with the legalities of a country to minimise risk and potential susceptibility to corruption.

• Difficulties in establishing local partnerships

Establishing partnerships rooted in trust is critical to the survival of operations.

Treating Africa as a single entity continues to be a major setback for many multinationals. To counteract this, businesses need to understand the supply chain movement, market, consumer trends, and competitive landscape analysis.

Successful market integration provides businesses with increased flexibility, allowing for adaptation in diverse markets.

• Ineffective intellectual property (IP) policies

IP protection is problematic for most businesses. Despite not being fully compliant and aligned with international protocols governing IP protection, more African nations are focusing on improving their IP legislature.

• Limited market size

Consumer spend is being driven by increasing urbanisation rates seen across the continent, particularly in countries that are still in the early stages of development, creating greater demand for a wider range of manufactured goods.

It is estimated that 1.7 billion Africans will require food, beverages, access to pharmaceutical products, healthcare services, education, and security, among others by 2030.

However, the lack of research within local markets has led to inconsistent assumptions being made about industries and countries. The firm suggests investors should develop appropriate strategies based on sound research within their respective markets.

• Inadequate infrastructure

Inadequate infrastructure continues to be a major obstacle in Africa achieving its true economic potential. The continent is seen as one of the globe’s fastest-growing hubs, presenting opportunities for investors who need to look past the traditional Western view of the continent as a homogenous block.

Areas of concern in Sub-Saharan Africa, for example, include transportation, communication, power, and water infrastructure.

Additionally, only 26.5 per cent of Africans have access to the internet, with connectivity further hindered by recurrent power outages and high data costs. Detailed research on infrastructure and resources can help in the understanding of the nuances and opportunities each region presents.

• Lack of access to capital and funding

Access to funding remains an inhibitor to the continent’s development and directly impacts the growth potential of the continent.

The development of domestic and regional capital pools can be increased by improving partnerships between the public and private sectors.

Adams.Africa Advisory has pegged investment opportunities in five sectors that are set for take-off, namely:

• Agriculture,
• Energy,
• Healthcare,
• Telecommunications, and
• Transport

Minimise risks

The firm added that Africa is by no means a simple investment, but if done right can be the most rewarding yet. Businesses need to prepare before taking the plunge. This requires continuous analysis and staying up to date with ever-evolving trends and developments while investing in developing local partnerships.