Wide Range of African Sectors Attractive to Investors, Survey Says

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Written by Richard Finlayson, senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Investing in Africa can involve high risks, but profitability can be strong as well, with competition in some sectors relatively low. At this point, Africa appears to be relatively well-positioned, with Asia being the only emerging region ahead in regard to investor perceptions, reports Ernst & Young (E&Y) in their first "Africa Attractiveness Survey." However, this investment window may not remain open for long.

The survey combines an analysis of African investment over the last decade with a survey of 562 global executives on their views about how and where investment will take place in the next decade. Financial directors made up 65% of the respondent total.

In the last decade, Africa has seen an 87% increase in inward foreign-direct investment, from 338 new projects in 2003 to 633 in 2010. Africa remained an attractive investment through the global downturn and has managed to maintain its relative share of global investment flows. Strong growth is expected in new African projects from 2012 onward, with foreign-direct investment inflows forecast to reach $150 billion by 2015.

"There has been a fundamental shift in the global economy over the past few years, with emerging markets not only dominating investor attention and capital flows, but also playing an increasingly strategic role in defining the global economic agenda," said Mark Ottey, the area managing partner for Ernst & Young Europe, Middle East, India and Africa.

Over the last decade, investment from emerging markets into Africa has increased rapidly from 100 new projects in 2003 to 240 in 2010, representing an annual growth of 13%. Emerging market investment now comprises 38% of the total foreign-direct investment in Africa, up from 30% in 2003.

Developed regions, such as Europe and North America, are more ambivalent, and a large proportion of survey respondents from these regions appear to believe that Africa's progress has stalled over the last few years. North American respondents are more optimistic about Africa's long-term investment potential with Europeans remaining relatively pessimistic. Investors from the developed regions still represent the largest proportional investment into Africa, and the survey says that it is critical that this investment go into a diverse range of sectors beyond natural resources.

A key difference appears to be that emerging market investors regard Africa as critical to sustaining their own growth, whereas developed market investors see it as a potential future market that still needs to grow. In reality, both views represent only part of the total picture, says E&Y.

Although the majority of respondents view the extractive industries--mining and metals (44%), oil and gas (21%)--as major areas of investment with the greatest growth potential over the next few years, a more diverse range of sectors is beginning to emerge as attractive investment options. Tourism (15%), consumer products (15%), construction (14%), telecommunications (13%) and financial services (9%) feature strongly as offering high growth potential.

The E&Y survey shows 74% of emerging-market investors believe that Africa has become a more attractive investment destination over the last three years, and the same investors are increasingly positive about Africa's long-term investment potential. Further investment in the continent is being considered by 42% of the respondents, and another 19% will maintain their existing operations. Companies that have invested and already have integrated Africa into their overall investment strategy are particularly positive.

"Foreign-direct investment has a particularly important role to play as a future source of longer term capital for reinvestment in infrastructure initiatives and as an accelerator of sustainable growth across Africa," said Ajen Sita, a managing partner at E&Y Africa. "There is far more to come. Although the African share of global foreign-direct investment has grown over the past decade, we believe that it does not reflect the increasing attractiveness of a region that has one of the fastest economic growth rates and highest returns on investment in the world." For more information, see May 19, 2011, article - World Bank Points to Signposts for Global Growth through 2025 in Emerging Economies.

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