Window of opportunity opens up for Africa to attract UK investment

THE eurozone’s economic woes, resistance to the UK’s continued European Union (EU) membership and political wobbles in several competitor emerging economies have opened a window of opportunity for Africa to secure positive trade terms and stronger inflows of investment from British business.

So says Steve Varley, country managing partner for the UK and Ireland at global consultancy EY. The risk is that competitors will probably soon sort out their issues and Europe’s economy may be resuscitated before African governments take advantage.

EY’s latest Africa Attractiveness report, which gauges the attractiveness of Africa for foreign investors, shows UK-led investment in the continent grew steadily since 2007, and has now eclipsed all other sources to place the UK as the leading investor of foreign direct investment projects in Africa.

Varley said the first of many factors in favour of UK-based multinationals opening their wallets on this continent is relatively low valuations.

“I’m optimistic about UKAfrican trade and investment. On a relative basis, 50% of the UK’s exports go to Europe, but consumer demand continues to look weak there and confidence in the eurozone has been knocked in the last two years.

“We thought Germany would come out of recession, but it appears to be stumbling backwards, and a lot of our clients are searching for new markets and finding Africa really attractive.”

Sugan Palanee, head of markets at EY Africa, said though Africa posed some obvious challenges to investment, like ubiquitous infrastructure underspend, the prospect of elevated returns on deployed capital trumped other considerations.

“The attitude is, we can manage everything else.”

According to Varley, “if UK investors want to put their money into China, India or the US, I think they’d find higher valuations there. The depreciation of the rand has been very helpful.”

There are other considerations. “The US needs a change of

I’m very optimistic about UKAfrican trade and investment

administration, Brazil has just lurched through an election and has massive social unrest. I’m not optimistic about Brazil’s next few years.

“Russia has significant challenges politically and there is a lot of debt to be refinanced while they cannot get hold of dollars. India has a new leader and that will take a while to play out, while China is still a difficult place to do business and get your money out again,” said Varley.

With this backdrop, Africa’s rising consumer demand is a handy asset for negotiation, but Varley said Africa still lacked a powerful, convincing narrative with which to woo investors.

“China has done several things very well over the last decade, and one of them was to create a simple narrative of why you’d invest in China. Urbanisation is at a huge scale, with hundreds of millions of people moving to cities to become the new middle class that will buy consumer goods at huge scale.

“There needs to be an ongoing commercial narrative for Africa. Maybe it could be five supercities that could unite to sell the concept of urbanisation to boardrooms around the world, which is the trigger UK firms are looking for,” Varley said.