Primed for trade, investment and mutually beneficial partnerships, Director Raju Jaddoo highlights six trends driving Africa's economic potential and how international financial centres are helping to catalyse growth across the continent.
At the time of writing it is unclear whether African nations will be successful in containing the coronavirus pandemic. Its impact on global markets has been dramatic and is already being felt throughout Africa. Commodity prices have tanked and fiscal outlooks are being heavily revised while tourism, aviation and other staple industries crucial to Africa's prosperity are inevitably suffering. Yet, as a potential global recession looms, the fundamentals of the continent's investment opportunities remain.
Africa has drawn high levels of interest from a diverse range of external partners in recent years - in 2019 it was home to seven of the ten fastest growing economies. From governments to pension funds, entrepreneurs to high-net-worth individuals, investors are being attracted by a number of converging trends that with their funding, could unlock Africa's economic potential:
- A young and increasingly educated population – Africa is the youngest and fastest-growing continent in the world - over 60 per cent of its population is under twenty-five years of age. Its current population is set to reach 2.2 billion by 2050 and by some estimates, Africa's working age population will grow by approximately 450 million people between 2015 and 2035, providing the continent with a huge source of labour. Africa's youth is also increasingly educated; the share of workers with at least secondary education is forecasted to reach 52% in 2030.
- A rapidly urbanising continent – Africa's urban population is predicted to double over the next 25 years, making it the fastest urbanising region in the world. Between 2015 and 2030 alone, over half a billion additional housing units are expected to be needed in order to satisfy demand. This is equivalent to building 40 million new houses every year. As a catalyst for development, more urbanised environments will call inter alia for improved logistics, transportation, social, commercial and public infrastructure.
- Surging consumer expenditure – With an expanding middle-class enjoying rising levels of discretionary income, consumer expenditure on the continent is expected to hit $2.5 trillion by 2025. The 'Power 5' markets of Egypt, Nigeria, South Africa, Algeria and Morocco are home to two-thirds of the continent's consumer class and both consumer and business spending is expected to reach a combined total of $6.66 trillion by 2030, up from $4 trillion in 2015. This increase is set to benefit sectors such as leisure, transport, insurance, health, education, tourism and apparel.
- Manufacturing potential – Thanks to its large educated labour force, Africa has the power to ramp up its manufacturing potential to cater for import substitution as well as grow its export industries. In support of its productive capacity, Africa is also intensifying efforts to address its infrastructure deficit. Since the beginning of the century, it has doubled its annual investment in infrastructure to around $80 billion a year.
- Untapped agricultural and resource wealth – Despite growing concerns over food security, Africa is home to 60% of the world's uncultivated arable land. The potential for agribusiness can also be amplified by the contribution of new technologies. Many of the world's largest reserves of precious metals are also located in Africa, while sizeable reserves of oil and gas feature across the continent.
- The world's most dynamic fintech scene – Growing broadband access, mobile connectivity and the rapid adoption of technologies are turning Africa into a fertile ground for innovation and its fintech and start-up landscapes are rapidly evolving. With more than half of the world's mobile money accounts located in Africa, mobile-enabled transactions could add $300 billion to the continent's GDP by 2025.
As socio-economic changes are accompanied by technological advances, emerging economies are set to experience a significant rise in economic power. In Africa, the successful implementation of the African Continental Free Trade Area will integrate a market of 1.2 billion people with a combined GDP of over $3.4 trillion. However, the full socio-economic impact of the coronavirus pandemic is yet to become clear. There are difficult times ahead in the short to medium term but amid this shift, international financial centres (IFCs) such as Mauritius, Jersey and the UAE continue to play key roles in mobilising investment and development finance into Africa.
Catalysing growth: IFCs
IFCs provide legally secure, tax neutral locations for private investors and public-private co-financing, with funds being combined from multiple sources and then invested into markets such as Africa. From mobilising foreign direct investment and facilitating private equity funds, to acting as intermediaries to development finance institutions' funds, IFCs play a crucial role in overcoming barriers to investment in order to catalyse market growth. They often double up as innovative hubs that make it easier for emerging entrepreneurs to succeed. Yet, as recognised by the World Bank, in terms of investments into developing markets the international community needs to move the discussion from billions to trillions. Nowhere is this more true than in Africa, and if it's to realise its potential, IFCs are essential conduits for its growth.
Give your growth ambitions the best chance of success
We help companies and funds prosper in Africa and work with you to protect and enhance the value of your investments. Our clients range from individual entrepreneurs to large multi-jurisdictional corporations and funds with significant cross-border activities. Operating from key IFCs such as Jersey, Mauritius and the UAE, we bring a full range of investment-enabling solutions to corporate, institutional and private investors looking to channel investments both to and from Africa.
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