Tech giants fo­cus on Africa dig­i­tal in­vest­ment

Chronicle (Zimbabwe) - - Business -

THE ti­tans of Sil­i­con Val­ley are un­de­terred by the eco­nomic slump af­flict­ing much of Africa.

Face­book Inc, Google, Or­a­cle Corp and Uber Tech­nolo­gies Inc are at the lead­ing edge of turn­ing the world’s fron­tier mar­kets dig­i­tal. As the com­mod­ity crash buf­fets the con­ti­nent’s big­gest economies, the in­ter­est and in­vest­ments couldn’t come at a bet­ter time.

Al­most half of for­eign di­rect in­vest­ment projects in Africa last year were in tech­nol­ogy, telecom­mu­ni­ca­tions, fi­nan­cial ser­vices and con­sumer prod­ucts. The amount ded­i­cated to oil, gas and min­ing dropped to six per­cent — from al­most a quar­ter in 2005 — ac­cord­ing to EY, a con­sul­tancy firm.

“There’s been a big shift from an al­most ex­clu­sive fo­cus on ex­trac­tive sec­tors to those such as con­sumers and re­new­able en­ergy,” said Michael Lalor, the Jo­han­nes­burg-based head of EY’s Africa Busi­ness Cen­tre. “There’s a grow­ing base of con­sumer de­mand as that hap­pens.”

African growth has slowed since 2014 as wan­ing de­mand from China ham­mered prices of raw ma­te­ri­als from oil to cop­per and coal. Of the three big­gest sub-Sa­ha­ran economies, Nige­ria’s is shrink­ing and South Africa and An­gola are barely grow­ing.

In­vestors have adapted by fo­cus­ing more on the con­ti­nent’s young pop­u­la­tion and ris­ing mid­dle class as har­bin­gers of op­por­tu­nity. Coun­tries less ex­posed to com­modi­ties are reap­ing the ben­e­fits. The num­ber of for­eign di­rect in­vest­ment projects car­ried out by pri­vate-sec­tor com­pa­nies in Kenya rose to 95 in 2015 from 62 the pre­vi­ous year, the big­gest in­crease among African na­tions, ac­cord­ing to EY.

“Kenya is re­ally ben­e­fit­ing in terms of long-term in­vest­ment,” said Martina Bozadzhieva, an an­a­lyst at Lon­don-based Fron­tier Strat­egy Group, which ad­vises firms look­ing at emerg­ing mar­kets. “A lot of com­pa­nies see it as a much more re­li­able, less vul­ner­a­ble des­ti­na­tion than, say, Nige­ria or An­gola.”

In­vest­ment in West Africa’s Cote d’Ivoire, which the In­ter­na­tional Mon­e­tary Fund said will grow 8.5 per­cent this year, more than any­where else on the con­ti­nent, is also boom­ing. Heineken NV an­nounced a new brew­ery last year, French re­tailer Car­refour SA opened its first store in De­cem­ber and Burger King launched its first sub-Sa­ha­ran restau­rant out­side of South Africa there the same month.

To be sure, the gap be­tween prom­ise and re­al­ity has bruised ear­lier gen­er­a­tions of for­eign in­vestors in Africa. Heineken Chief Ex­ec­u­tive Of­fi­cer Jean-Fran­cois van Boxmeer said he was “pray­ing’ for higher oil prices to boost beer sales, while re­tailer Tru­worths In­ter­na­tional Ltd. pulled out of Nige­ria in Fe­bru­ary, cit­ing red tape and cap­i­tal con­trols.

Still, Face­book CEO Mark Zucker­berg just trav­elled to Kenya and Nige­ria on his first visit to sub-Sa­ha­ran Africa. In Nige­ria, where his per­sonal fund in June in­vested $24 mil­lion in An­dela, a La­gos-based start-up soft­ware de­vel­oper, he said he was “blown away by tal­ent and en­trepreneurs in this coun­try.”

In Kenya, he said he wanted to learn how busi­nesses were us­ing mo­bile money.

Or­a­cle said this month that Africa was a “pri­or­ity mar­ket” in which “cloud tech­nol­ogy will un­doubt­edly drive the next phase of growth for busi­nesses.”

Since launch­ing in South Africa in 2013, Uber has en­tered Nige­ria, Ghana, Uganda, Tan­za­nia, Kenya, Morocco and Egypt. Last year CEO Travis Kalan­ick named the con­ti­nent as one of his pri­or­i­ties, along with China and In­dia.

Though only 15 per­cent of African adults own a smart­phone, com­pared with around two-thirds of Amer­i­cans, there are still plenty of op­por­tu­ni­ties. That’s true even in mar­kets suf­fer­ing eco­nomic slumps, ac­cord­ing to Alon Lits, who heads Uber in sub­Sa­ha­ran Africa.

“At this stage, it’s prob­a­bly more of a mid­dle-class op­tion,” Lits said from Jo­han­nes­burg.

“But we’ve seen a huge in­crease in smart­phone adop­tion across the con­ti­nent. We’re see­ing con­sis­tent growth across all mar­kets. In a tough en­vi­ron­ment, if any­thing, peo­ple may look to get rid of one ve­hi­cle in the house­hold and look at al­ter­na­tives, re­mov­ing the bur­den of a fixed cost.”

While min­er­als, oil and gas will con­tinue to at­tract sub­stan­tial money from abroad, in­ter­net-based in­dus­tries will be­come more prom­i­nent over the next few years, ac­cord­ing to Adeniyi Ade­dokun, an eco­nomics teacher at McPher­son Univer­sity in south­ern Nige­ria.

“In­vestors need to di­ver­sify,” he said. “It’ll take time, but they are chang­ing their strate­gies. They’re fo­cus­ing on man­u­fac­tur­ing and con­struc­tion. And telecom­mu­ni­ca­tions is at­trac­tive due to the growth of broad­band and smart­phone pen­e­tra­tion.” — Bloomberg

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