The race for the next ‘African unicorn’ is now underway as investors have become aware of the growing importance of the continent on the global early-stage investment ecosystem. As an indicator of recent trends, The Economist magazine, has run several cover stories on Africa for decades – one story in 2000 was headlined: ‘The hopeless continent’, another story in 2011 said: ‘Africa rising’ and more recently, in 2019, there was yet another story titled: ‘The new scramble for Africa and how Africans could win it’. So, here are some reasons why Africa has become more attractive for investors:
The African Opportunity
Africa is one of the most profitable regions in the world. A report by the UN Conference on Trade and Development (UNCTAD) states that between 2010 and 2014, Africa had the highest rate of return on inflows of Foreign Direct Investment (FDI) at 11.4%. This is compared to 11.1% in Asia, 8.3% in Latin America and the Caribbean. The global figure was 7.9%. The continent escaped the global decline in FDI as flows to the continent rose to US$46 billion in 2018, an increase of 11% on the previous year. However, the COVID-19 pandemic will severely curtail foreign investment in Africa in 2020 by an estimated 20 to 40 percent, mirroring the global trend.
Africa’s economic growth prospects are among the world’s brightest. Five of the world’s 10 fastest-growing countries are in Africa (South Sudan, Rwanda, Libya, Ethiopia, and Djibouti). Furthermore, between 2018 and 2023, Africa’s growth prospects will be among the highest in the world, according to the IMF. The sectors where companies could have a comparative advantage, such as banking, telecommunications, and infrastructure, are among the drivers of current economic growth in Africa—creating clear investment opportunities.
Africa’s growing, youthful population. According to the World Health Organisation prediction, by 2050, Africa will be home to 2.5 billion inhabitants — a quarter of the world’s population — of whom 1 billion will be under the age of 18 – that alone should command the attention of investors. Africa’s young working-age population and growing labor force, is one of the region’s highest potentials – with lower production costs, leading to benefits that far outweigh the cost of doing business on the continent. The hourly wage in Africa could be as low as 50 cents (for example, it’s US$0.27 in Mozambique, US$0.34 in Nigeria, and US$1.62 in Morocco) compared to US$10.49 in the UK, US$8.50 in Japan, and US$7.25 in the USA. An increase in foreign investments may help raise wage rates in Africa, improve labor market efficiency and generate additional resources for those left behind on the age ladder.
Africa now has the fastest-growing middle class and consumer market in the world. Seven countries – Nigeria, Ethiopia, the Democratic Republic of Congo, Egypt, Tanzania, Kenya, and South Africa – will soon hold half of the continent’s population, and 42 percent of Africans across the continent will belong to the middle or upper classes. According to the African Development Bank, by 2060, the number of middle-class Africans will grow to 1.1 billion and Africans living below the poverty line will be in the minority at 33%.
Africa’s large deposits of natural resources. Agriculture and the extractive sectors are cornerstones of national, regional, and global value chains. Africa hosts 60% of the world’s uncultivated arable land as well as approximately 30% of the world’s known mineral resources including one of the largest reserves of diamonds, platinum-group metals, cobalt, aluminum, chromium, and gold. Actively investing in adding value to these commodities, amongst other extractive activities, will shape global economic activities over the next decades.
The bourgeoning start-up ecosystem paints a very colorful picture of unicorns on the horizon. Forbes reports that in 2019, venture-capital funds invested about US$1.3billion in African start-ups, an increase of about 600% over the US$203million invested in 2017. Disrupt Africa’s African Tech Start-ups Funding Report, states that the year 2019 was a record-breaking one for African tech start-ups, the number of investors increased by 61 percent, with 311 companies securing US$491.6 million worth of investment. The report details how Kenya and Nigeria emerged as the premier investment destinations on the continent in 2019, attracting US$149 million and US$122 million in funding respectively.
Behold the African Opportunity
Stripe’s acquisition of Paystack made the headlines last month and it is very welcome. Hopefully, it paints a more promising picture of the opportunities that are present on the continent. Like Paystack, there are several more founders on the continent building companies that would power the continent into the next phase of its development.
At Diaspora Angel Network (DAN), we consider it a privilege to engage these bright minds on a daily basis – as we fund and mentor them on their growth journeys.
The African opportunity is here for those who will take it.
Diaspora Angel Network