Although Africa’s biggest economies have adversely affected by the sudden fall in commodity prices over the past two years, analysts believe there is hope in certain niché investment avenues.
For examples, in metropolitan cities like Nairobi, Lagos, Accra, Kinshasa, Addis Ababa and Johannesburg, growth still continues to be positive and several investors are prospering in the retail, financial services, technology and construction sectors. This clearly proves that shrewd investors can still mint profits by recalibrating their strategy for the Africa markets. Experts believe that investors should seize opportunities by studying the situation city by city instead of taking a broader view on the continent as a whole.
BUSINESS OPPORTUNITIES IN SUB-SAHARAN AFRICA
It is a well known fact that Sub-Saharan Africa is urbanising faster than anywhere else in the world and city dwellers have higher disposable incomes.
“In the current economic environment, investors want areas where success is proven, growth is strong and will remain strong. Big African cities give you that,” said Jacob Kholi, a partner at Abraaj, a private equity firm with $9 billion under management. “It has become even more important to focus on these key cities than before,” he added.
Nairobi is the most attractive destination for foreign investment, according to a recent report by PricewaterhouseCoopers, followed by Accra, with Lagos and Johannesburg equal third.
Consumption per capita in Accra is 1.6 times greater than the average in Ghana, 2.3 times bigger in Lagos than the average in Nigeria, and 2.7 times larger in Nairobi than nationally in Kenya, Abraaj estimates.
Lagos, one of the world’s fastest growing cities and with a population of 20 million, expects economic growth of 7 percent this year, twice the pace of the country as a whole.
Even South Africa, which is grappling with youth unemployment of over 40 percent and could slip into recession this year, has areas where industry is booming.
“Looking around here, you wouldn’t know things were so bad,” said construction worker Sifiso Zwane in Johannesburg’s wealthy Sandton business district. “Rich people will always find a way to make more money,” said Zwane, with cranes filling the skyline behind him and billboards advertising new retailers like Krispy Kreme doughnuts and Hennes & Mauritz.
There are similar stories elsewhere.
This year, Kenya is set to unveil the Two Rivers mall in Nairobi, the continent’s largest shopping centre outside South Africa, with brands like Porsche, Hugo Boss and France’s Carrefour already booking space.
“The economy still has opportunities,” said Gabriel Modest, a jeweller who says demand for the gold necklaces and bracelets he sells remains strong. “Sometimes you have to treat yourself,” he added, ordering a bowl of muesli and yoghurt at an upmarket Nairobi coffee shop.
In Lagos, plans are in place to develop the vast multi-billion-dollar Eko Atlantic city, a Dubai-style gated community that will boast chrome skyscrapers, business parks, palm trees and a marina.
By 2025, Mckinsey estimates that more than 80 cities in sub-Saharan Africa will have populations of more than one million, accounting for 58 percent of the region’s growth.
This rapid urbanisation means Africa’s big cities will need more roads, hospitals and power stations, while growing numbers of new inhabitants will be buying consumer goods like instant noodles, washing powder and mobile phone cards.
Though some big companies like Massmart, Barclays and Nestlé have slowed expansion plans in Africa in the last two years they are still making healthy profits in the big urban centres.
“Our investment is focused on cities where we see the best opportunities even if the investment environment in the rest of the country isn’t as robust,” said Louis Deppe, partner at Actis, an emerging market-focused investment company. “The ‘mega-city’ trend is still very much on the cards.”
The share of Africans living in urban areas is expected to grow from 36 percent in 2010 to 50 percent by 2030, with cities expected to be home to 85 percent of the national population in some countries, according to the World Bank.
The rapid urbanisation of mostly the young and unemployed is placing a huge strain on infrastructure and will put pressure on politicians to direct more resources towards cities. Inequality in African cities is already among the highest in the world.
African governments with stretched public finances will need to improve housing and social safety nets in cities and diversify their economies to support rural areas in order to avoid an increase in inequality that could stir up discontent.
“In a more risk-averse world, ‘urban bias’ – where there are proven returns – is likely to be reinforced. Investors will look at urban areas,” said Razia Khan, head of Africa research at Standard Chartered. “This trend runs the risk of the rural electorate being marginalised – in especially unequal regions, it may raise political risks, and the potential for unrest.”
