Africa craves foreign investment - CNBC Africa

Africa craves foreign investment


by Chris Paizis (This advertorial is sponsored by Barclays Africa) 0

Africa needs foreign investment, and it’s not only up to governments to encourage this. PHOTO: Getty Images

Africa needs foreign investment, and it’s not only up to governments to encourage this. While there is a lot that governments can do, particularly in providing policy and regulatory certainty, the private sector has an important role to play in unlocking Africa’s opportunities.

Africa has huge advantages, not least a potential return on investment higher than most other regions. The downside is that it attracts less investment than it should because countries and institutions are often nervous about the risks they see in Africa.

This is where the private sector comes in. I call it “demystifying Africa” - demystifying Africa’s economies, demystifying Africa’s markets and demystifying Africa’s risks.

Foreign investors don’t have enough visibility about what is happening in Africa. The onus is on African-based companies to deliver that knowledge and vision to the rest of the world.

Companies operating successfully in Africa know local conditions and understand local risks. They are in the best position to explain the realities of working here. Financial institutions with international reach and strong African networks are able to bring African clients and institutions closer to international capital. This can be a big enabler of local growth.

Demystifying Africa is not so much about correcting misconceptions as it is about using a depth of local experience to bridge the knowledge gap with international clients. African companies in turn need to provide investors with accessibility and transparency on their financials, operations and risks.

The role of African governments in promoting the continent to investors is multi-faceted, but it comes down to the messages that governments send to potential investors.

Investors want to see strong and predictable local regulatory and legal frameworks. On the other hand, investors should not demand a “gold standard” of frameworks before they consider putting money into a country. The accounting and legal standards in frontier markets might not be the same as in South Africa, which has some of the highest standards in the world, but there needs to be a level of compromise. 

African markets have high growth compared to the rest of the world, and there are many opportunities to invest. With this high potential return comes risk, but risks are not uniform across the continent and can be addressed through strong local expertise. And the more investment and the more transactions there are, the more the process will help develop local markets and open doors to further investment.

Infrastructure development is one of Africa’s greatest needs and one of the most important ways to create jobs and spur economic growth. Business requires comfort and support to be long-term investors - a consistent message from governments as well as international support to underwrite risks goes a long way. The private sector likes consistency, development plans that go beyond the short term and a view of execution success.

Infrastructure development leads to regional integration, which is happening in Africa but not quickly enough. More commitment is needed from governments to make regional projects work. Alignment on thought and strategy is key, as is learning from mistakes made elsewhere.

It’s not only infrastructure where investment opportunities exist. Africa’s economies have been focused on commodities, but we’re now at an inflection point where trade will shift from commodity producers to those consuming commodities. Africa has come up with a number of innovative ideas - think of M-pesa, the mobile-phone based money transfer service, or Mauritius marketing itself as a financial services hub.

There are some compelling reasons to invest in Africa. The continent is experiencing real growth, albeit of a low base. It has a vast and young population that provides new markets and the opportunity for new and innovative products. There are new markets for many established firms and investors, and pockets of well-educated and eager workforces with real drive. The continent is culturally diverse and increasingly globally connected through technology.

Africa is more accessible than it’s ever been, and that’s a message that the public and private sectors can help spread to the world.

*Chris Paizis, Head of Markets Distribution for Greater Africa at Barclays