Many in this investment field tend to focus on opportunities in emerging Asia, Latin America, and Eastern European markets. But one continent usually gets left out, and that’s Africa.
Smart investors are going behind the scenes and taking advantage of opportunities on the continent that really is the last frontier. In fact, the Chinese view Africa with such optimism that a majority of their foreign direct investment is in African countries. Suring from $75 million in 2003 to $5 billion in 2021.
Anyone who’s paid attention over the last couple of decades should know that it’s wise to follow where the Chinese are going with their money.
Following China’s lead, countries like The United Arab Emirates and Russia, along with much of the Western world, are also stepping up their investment efforts on the continent. The United States, for example, has doubled bilateral trade with sub-Saharan Africa since 2001.
Many businesses and investors are still relatively unaware of the opportunity in Africa. The continent is still a fairly small economy, fragmented into more than fifty countries, so it’s difficult to find good information. However, over the past few decades, several African countries have undergone economic reforms and become much better places to do business.
As with all frontier markets, investing in Africa has risks due to corruption and lack of transparency. However, if you’re willing to deal with the risks or do the homework to avoid them, the returns will be much greater than anywhere in the developed world.
African countries are the most profitable in the world, and a UN report stated that between 2006 and 2011, Africa had the highest rate of return on Direct Foreign Investment at 11.4%, compared with Asia, yielding 9.1%, and Latin America and the Caribbean at 8.9% during the same period.
The continent is rich in farmland and natural resources, and as the world’s population continues to grow, these resources will become more and more valuable. As Africa grows, its countries will need everything from telecommunication and transportation services to convenience products for a growing middle class.
Beyond commodity exports, as wages rise in Asia, Africa will be the last remaining low-wage region in the world, and being more proximate to North America and Europe than Asia will afford it the opportunity to grow its manufacturing base as well.
Africa is a large and diverse continent, and while there are bastions of opportunity, there are also places so corrupt and unstable that I would recommend that almost everyone stay away from them for now.
That being said, there are five countries in Africa that I believe show the most promise, and getting in now will be one of the wisest investments of this century:
Kenya’s location on the eastern shore of Africa positions it as a transportation hub and gateway to the continent. It’s the largest economy in East Africa and has a young, highly educated, English-speaking workforce. Because of this, it’s the regional headquarters for virtually all multinational brands in the area. Its capital, Nairobi, is the largest city between Cairo and Johannesburg.
Kenya is making huge investments in transportation, telecommunications, energy, and grid infrastructure. Finding an opportunity to invest in a complementary vertical would be where I would see opportunity in one of Africa’s more stable regions. Also, with high-speed internet, VC firms, a tech-savvy workforce, and a time zone compatible with Europe and Asia, Kenya is one of the top places in Africa to launch a startup.
With strong property rights, a mature, diversified economy, and improving infrastructure, Kenya is one of the top African countries to invest in or in which to start a business.
Ranked the 5th fastest growing economy in Africa, Ghana is one of the most stable countries on the continent, as a major gold and cocoa exporter. Although Ghana has been met with some macroeconomic challenges in recent years, the World Bank reported that it expects a recovery by 2025. English is widely spoken here, but we’ve found that it may not be the best place for entrepreneurship.
However, it is one of the most free market economies in Africa. Plus, foreign property ownership in Ghana is permitted, and real estate prices are still rather reasonable, especially compared with much of the continent. Ghana ranked in 6th place on our recent Real Estate Index, as it offers low property prices and attractive yields in a politically stable African nation. It is certainly an emerging market to watch.
Its capital, Accra, is one of the most livable frontier market cities in the world. There are enormous opportunities here for real estate, telecommunications, financial services, energy, and manufacturing.
Since the 1994 Rwandan Genocide, the country has recovered at an unbelievable pace. Fiercely anti-corruption President Paul Kagame has modeled himself after Lee Kuan Yew in hopes of turning Rwanda into the “Singapore of Africa.” It’s one of the easier countries in the world to do business in, as you can get a business started within one day.
The World Bank’s most recent update on Rwanda highlights how positive the future looks for the central African nation’s economy, which grew by 9.2% in the first quarter of 2023, following impressive growth the year before.
As a small country, it’s already having as much success in the startup and IT sector as any on the continent. It is home to several incubators and is already host to Carnegie Mellon‘s only campus in Africa.
While the country may not have as developed of an economy, skilled workforce, or access to the resources that others on this list do, it is investing in technology and infrastructure. If it stays the course, it has the fundamentals to succeed long-term.
A small island in the Indian Ocean, Mauritius is Africa’s answer to hassle-free, foreigner-friendly islands found in other parts of the world. Not settled until this colonial period, the country is multiethnic, multi-religious, multicultural, and multilingual.
Its government is consistently ranked highly for democracy and economic and political freedom. In fact, the Heritage Foundation ranks Mauritius as the 26th freest economy in the world, just after the United States, especially due to investment freedom. According to the World Bank, it is also one of the top 25 countries for doing business. As more money flows through Africa, look for Mauritius to become a Hong Kong of sorts as an offshore financial center.
In addition to being a hub for financial services, it’s also a beautiful island that attracts a large amount of tourism. Foreigners are allowed to own and develop property on the island and automatically qualify for permanent residency if they invest a minimum investment of $375,000.
Botswana is an economic case study in development success.
Rather than fall victim to the cycle of foreign aid and bad governance that has afflicted much of sub-Saharan Africa, Botswana has an average annual growth of 5.8%. The country has brought GDP per capita from just $70 thirty years ago to $6,650 in 2022, making Botswana an upper-middle income economy comparable to Chile.
Botswana has one of the lowest rates of corruption in Africa and one of the freest economies. Poverty has been reduced while education has become widespread. On the other hand, the economy is still vulnerable due to external shocks and its reliance on diamonds.
While much of Botswana’s economy is based on diamonds, it has a substantial financial reserve, and manufacturing is continuing to grow as its economy diversifies.
As its reliance on minerals wanes, there will be opportunities for growth in other areas, and as the country has proven that it’s a good bet for business, it will be one to look at in Africa. Would you like to learn more about what emerging markets in Africa and across the globe have to offer?
African investment opportunities are not for everyone. Maybe Eastern Europe or Asia would better meet your needs.
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