Investors must look past the headlines on Africa

THE two headlines that starred in The Economist’s famous aboutturn — from 2000’s “The Hopeless Continent” to 2011’s “Africa Rising” — have framed the highly dogmatic debate about the credibility of Africa’s recent economic growth. While headlines are polemic by nature, problems emerge when the content itself is bereft of balance and nuance.

Those who write off the idea of “Africa Rising” as an exaggeration that pays scant regard to the infrastructure deficit on the continent and the lack of strong manufacturing sectors make the mistake of comparing Africa to western developed markets rather than considering different avenues of development. Moreover, they fail to understand that what is being argued is that Africa is showing signs of development rather than claiming to be the finished article.

Conversely, those who have propagated the image of Africa as a region that is undoubtedly experiencing comprehensive economic transformation have been just as guilty in failing to provide an account that presents the true diversity on the continent.

As often is the case, accuracy in this dispute lies somewhere in the middle of the two conflicting narratives. Although there are risks to be mitigated, there are also significant opportunities that can be very successful with the right approach.

The positive messages coming out of Africa can often be country-, city- or even sector-specific. When relying on a factbased conversation on Africa’s economic potential, one can see that while some markets may be immature, there are others that offer compelling propositions to any investor with the right approach.

These impressive markets have been cultivated by a formula of improved macroeconomic policies, entrepreneurial nous and innovative partnerships between multinational companies and local co-operatives. The cocoa industry in Ghana, for example, was moribund for many years and almost collapsed in the 1980s. However, a number of key reforms, such as price liberalisation and the creation and maintenance of important infrastructure, as well as structural factors, such as the rise of global cocoa prices, have led to Ghana’s cocoa sector becoming world-renowned for its quality.

A similar story has taken place in certain areas of Ethiopia’s manufacturing sector. At the turn of the century, Ethiopia’s shoe-making market was flooded by cheap Chinese imports.

However, now the local industry has reclaimed its market share and is even exporting its domestically produced shoes to developed countries. In the light of fierce international competition, the sector was able to reinvent itself by improving the quality of its products, marketing and management. This change owed itself, again, to liberalisation but, more important, to those indigenous entrepreneurs who set up new enterprises that could compete internationally as well as in partnerships between multinational firms and local Ethiopian companies to ensure the transfer of skills.

These two examples highlight compelling opportunities that have presented themselves as a result of improvements in macroeconomic policies, as well as the emergence of local entrepreneurs providing innovative solutions to new and pressing challenges.

These examples also illustrate that Africa is not one market.

It is made up of 54 countries, each of which has significant regional diversity, as well as diversity across economic sectors. While there are examples of sectors that have thrived and have great potential to flourish, there are also, as with any rapidgrowth market, sectors that are stagnant. However, there is a general trend towards better macroeconomic policies in Africa and the cultivation of more business- and investment-friendly environments.

The challenge for investors now is to navigate the landscape so that key opportunities are identified and that risks are mitigated.

With increasing economic stability and investment incentives in place for those looking to do business in Africa, there are many opportunities within certain sectors. Further, investors today must look past the divisive headlines and take the time to truly understand the markets in Africa.

Doing this will not only allow them to fully understand the nature of the compelling investment opportunities Africa offers, but it will also provide a basis on which companies can successfully operate on the continent.

Pollen is the director of Invest in Africa. This article first appeared in This is Africa.