A few years ago, Mr. Acha Leke, the chairman of McKinsey & Company Africa, was invited to speak to a large South Korea conglomerate about investment opportunities in Africa. One of the company executives welcomed him with this memorable remark: “Our Chinese competitors are going in Africa, I don’t know what they are looking for, but we need to understand.”

The statement is illustrative of the growing interest for Africa among investors in developed economies over the last decade. However, save for some marginal entities in the mining industry, Canadian companies still ignore Africa in their global expansion plans, in spite of the many promising opportunities for external growth it has to offer:

  • Large and diversified market: When it comes to population and Gross Domestic Product (GDP), Africa compares to India, with 1.2 billion people and a GDP of US $2.3 trillion. Less than 20 years ago, Africa’s GDP matched that of Spain, albeit with a much larger population. This marked improvement demonstrates a steady pace of growth that the continent has maintained over the past 20 years (5-6 per cent on average; certain countries like Ethiopia were close to 10%). With over one billion people, Africa offers an abundant market that will be better connected with the newly enacted African Continental Free Trade Agreement. The middle class is also emerging; exceeding 20 million people, Lagos city has been identified as a middle-class hotbed.  
  • Young and educated population: Africa’s large population is also young. The median age is just19 years-old, compared to 42 in Canada. Education is improving: it is no longer surprising to see young Africans highly represented in the best universities internationally. Many recent graduates are relocating to Africa. Known as “Repats,” they are contributing to the ongoing change, bringing back with them experience from abroad. Moreover, in recent years, there has been a surge of investment in African education systems. New types of institutions adapted to Africa’s realities and local needs are emerging. The African Leadership Academy, which has two campuses in Rwanda and Mauritius, aims to train young Africans in different fields focusing on some Africa’s most urgent needs such as digital coverage and science.  
  • More to offer than natural resources: In the minds of many Canadian investors, the African economy is only geared towards natural resources. The majority of Canadian companies doing business there have, for instance, restricted their investment to the mining industry; however, Canadian skills could be leveraged in many other sectors. In 2018, it was estimated that the telecommunication sector represented nearly 10 per cent of African GDP and generated US $144 billion. Africa has more than 450 million mobile subscribers, which represents 44 per cent market penetration, indicating that nearly every second an African subscribes to a mobile device. In 2018, MTN Group, the pan-African mobile company located in South Africa, posted approximately US $8.3 billion in revenue. Also, McKinsey revealed in a study released in 2018 that more than 400 companies that operate in Africa have generated at least US $1 billion annual revenue.

State of Canadian investments in Africa

When compared to other developed economies, Canadian investments in Africa are modest and highly concentrated in the mining industry. In 2017, there were more than 110 Canadian mining companies performing activities in Africa with a combined asset value of CAD $26 billion. Roughly half of them are operating in West Africa. While Canadian gold giant Barrick Gold epitomizes the mining appetite of Canadian companies investing in the continent, many other junior mining companies continue to focus on African assets.

Beyond the mining sector, few Canadian corporations are exploring alternative African opportunities. However, there are signs the trend could be changing. In 2015, the National Bank of Canada acquired shares into a promising Ivoirian financial group NSIA. It now holds 24 percent of NSIA equity stake.

Even so, other developed countries have more diversified investments in Africa and have integrated the continent into their global expansion strategy. Vodafone Group, the largest telecommunication company in the United Kingdom (UK), holds an important stake in the Kenyan-based Safaricom, which is one of Africa’s largest and most innovative telecommunication companies. Safaricom is now sharing its successful experience in mobile banking with Vodafone Group to adapt to the European market. Likewise, Coca Cola Group has more than 145 bottling plants and over 70,000 employees in Africa. In 2019, Jumia Group, dubbed the Amazon of Africa and founded by two French investors having its main activities in Nigeria, was successfully listed on the New York Stock Exchange. China is also increasing and diversifying its investment in Africa; however, as of today, the United States, the UK, and France remain the largest foreign direct investors in Africa.

What to consider before investing in Africa

There is no single investment strategy that can be implemented across a continent of 54 countries. Nonetheless, there are many lessons to be drawn from prior experiences of foreign companies betting on Africa.

  • Be patient: Doing business in Africa is, in many respects, about being patient. Things take time. Africa is, by nature, a long-term project continent. A lot of infrastructure is missing, which in itself is a work in progress. To sustain its current economic growth, the African Development Bank estimates that the continent requires between US $130 billion-US $170 billion in annual infrastructure funding. Only half of that amount has been committed. Still, infrastructure funding has increased in recent years, with China playing a critical role in that change.  
  • Work with local stakeholders: One of the mistakes to avoid in Africa is to ignore local players. Sound partnership with local entities or advisors will inevitably help understand local business practices and culture. Details that Westerners might be inclined to ignore unequivocally matter in an African business landscape. From local traditions to regulations, local stakeholder assistance is an understated asset. It is best to conduct thorough due diligence in picking the right partners.  
  • Work with the diaspora: In addition to local stakeholders, Africans living in Canada are an underutilized asset for Canadian companies interested in the continent. Canadian schools are attracting more and more African students. Many of them end up staying to live and work in Canada. They can build bridges between their continent and Canadian companies. UK and French companies have been particularly successful at leveraging this approach.  
  • Understand the legal framework: Foreign investors need to pay careful attention to African laws and regulations, in matters ranging from corporate laws to taxation policies. For instance, 17 Francophone countries in Sub-Saharan Africa share the same legal system that governs a wide range of business law issues, known as OHADA (Organisation pour l’Harmonisation en Afrique du Droit des Affaires) Law. OHADA Law covers matters related to corporate law, guarantee/security law, insolvency law, etc. Anglophone countries such as Kenya or Nigeria also have an established business law framework highly inspired by the British legal system.  
  • Africa is a continent, not a country: There are 54 nations in Africa, each of which has its own socioeconomic environment. Nigeria, which is Africa’s largest economy, was colonized by the UK, retained English as its official language, and its population nears 200 million people, while its neighbour, the Republic of Benin, is a Francophone nation with fewer than 12 million people. Even so, their economies are highly integrated. Both countries will adversely feel any problem that arises at the border. Likewise, two major regional organizations cooperate in West Africa: the ECOWAS (Economic Community of West African States) is a common economic area, and the UEMOA (Union Économique et Monétaire Ouest Africaine) is a monetary union shared by eight francophone countries.

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