Africa is full of opportunities for savvy investors

David Renwick, Head: Investment Banking Division, Absa Corporate and Investment Banking, looks at long-term investment opportunities in Africa as countries seek resilience in the wake of global crises

African countries offer many investment opportunities to savvy investors even as the continent continues to manage the economic headwinds presented by the pandemic and the Russian war in Ukraine. Key long-term trends that are attracting capital to Africa include opportunities arising from the energy transition and sectors linked to a growing consumer base.

Renewable energy is one of the top investment drawcards as African countries benefit from the broader energy transition globally, a trend that is likely to accelerate as more governments improve policy and regulation in the sector. South Africa is a leader in this regard, with its relatively high levels of industrialisation, but also because of the great strides that have been made recently to improve the regulatory framework and policy certainty.

The energy transition will also drive growth in mining select commodities linked to renewables and there is also a possible ramping up of investment in the gas sector as many start to consider it to be a transition fuel. The multiplier effects of investment in these sectors are significant, boosting economic growth and offering a range of specific benefits such as job creation and skills development.

African fintechs are another area of investment opportunity. Even though capital flows to this market segment are starting to come off the highs of last year, underlying growth is being driven by factors such as demand for financial inclusion in countries with a high number of unbanked consumers, and the rapid penetration of mobile telephony and data.

The heightened interest of large telecommunications companies and banks in fintech is also buoying demand for investment as they seek new customers and market segments on the back of increasingly sophisticated technology.

Agriculture is an opportunity

In the tech space, agriculture is another opportunity. The various crises of the past few years have put the spotlight on Africa’s economic vulnerability and lack of resilience to exogenous shocks. One response has been to shorten supply chains by bringing production closer to domestic markets and also to look at how to build more resilience in agriculture as well as health.

Tech advances in both areas will be invaluable on this journey.

And then there are opportunities arising from Africa’s consumer sector, which has long been a drawcard for investment on the back of fundamentals such as growing urbanisation, an expanding middle class with increased per capita incomes and changing consumer profiles.

Increasing demand for consumer goods and services will be boosted by the drive to tackle trade barriers as the African Continental Free Trade Area gains momentum.

Green shoots and growth

Quality African assets will remain attractive, and we are already seeing capital inflows from merger and acquisition deals as global giants look to increase their African exposure and footprint.

Undoubtedly, the continent is also battling economic headwinds. As countries were recovering from Covid-19, they were hit by the fallout of geopolitical events, which include spiralling inflation and rising interest rates as well as food shortages. Some have turned to the IMF for assistance. The jump in dollar-based interest rates is also putting pressure on emerging markets.

Some governments are proactively managing their challenges and charting a path to recovery, such as Zambia. But many are just fighting fires, without the time or resources to restructure their economies.

Notwithstanding ongoing challenges, there are many green shoots and growth is on an upward trend. Absa is well positioned to take advantage of this. Although we have a footprint across 12 countries, our core strategy is to deepen our regional presence beyond that footprint and to really understand where capital is being deployed, by who and why as we continue to be part of Africa’s growth story.