The bold and the beautiful

As far as investing in Africa is concerned, fortune will favour the brave.

Ask any fund manager, investor or business development director and they'll all say the same thing: this is the time to invest in Africa. It's where it's "at" and continent is regularly touted as the ultimate investment destination.

It's easy to see why Africa is attractive and investors that have traditionally detoured around it are changing their stance.

Over the past decade the continent has been the second-fastest growing economy in the world according to the World Bank, with GDP increasing an average of five percent a year.

And even as the global economy has slowed, growth in Africa has largely remained on track, with the World Bank predicting the continent could be on the brink of an economic takeoff much like China 30 years ago.

So what's driving it?

At the World Economic Forum in Davos, African leaders said that political and economic stability had boosted the continent's profile.

"African leaders have collectively come together to do things that [are] going to make Africa to move forward. We have collectively dealt with the issue of democracy in the continent of Africa. We are entrenching democratic rule. We have taken a decision to grow our infrastructure; to grow our intra-trade. We are moving to integrate the five economic regions in the continent," said South Africa President Jacob Zuma.

Nigeria's Goodluck Jonathan agreed. "Before this time, the growth rate has been stagnant, just as Zuma said. But over the period the growth rate of a number of African countries is significantly above the world average. Countries like, of course, Ethiopia, Ghana, Niger, Liberia, though they are small economies. But in terms of growth it's quite significant. That shows a focus and a promise," he said.

Investors concur. "This is a great time in history to start investing in Africa. You have the entire continent which is open to you, very little competition, a political environment that is better than it was 20 years ago, and it will get better," the chairman of Citadel Capital, Africa's largest private equity firm, Ahmed Heikal, told CNBC's Access: Middle East in a recent interview. He said now is the time to invest in the continent and that over next three decades, Africa will flourish on the back of improved governance and political stability. "Africa has improved tremendously along this third dimension and it is what is getting the world to take notice," Heikal explained. "There are some countries that are mineral and petrochemical-backed, others that have demographics that are very favourable and therefore sectors like agriculture are important opportunities."

Africa is open for business. The 2013 Investing in African Mining Indaba – the world's largest mining investment event – provided proof and saw fund managers and analysts from around the globe flock to Cape Town.

"The core message about the continent today is that Africa is rising," said Bernard Sheahan, director of Infrastructure and Natural Resources for Africa and Latin America at the International Finance Corporation (IFC).

He pointed out that growth rates in Africa are well above the world average.

"There is increased political stability; we've seen positive political transitions in countries like Guinea, Senegal, and Ivory Coast. This means better economic governance, it is not perfect in some countries, but there are improved policy choices which points to progress in investment climate reform. Underpinned by social transformation in Africa, the continent is about to see a demographic dividend. Its population is growing faster than other regions."

A record 7,700 delegates attended the 2013 Mining Indaba, from 100 countries and six continents.

"There are rising opportunities and vast untapped resources in the infrastructure space in Africa," Sheahan said.

I think we can agree that Africa's natural resources are a big factor in the continent's growth potential; so too is the continent's rising consumer class.

According to the McKinsey Institute, household consumption is now higher in Africa than India or Russia, and it is expected to grow – it estimates that the number of African households with discretionary income is expected to jump by more than 50 percent to almost 130 million by 2020.

"Africa is increasingly being taken more seriously as an investment and business destination, but in many sectors, a window of opportunity does still remain open for establishing an early mover advantage," says Ajen Sita, Africa Managing Partner at Ernst & Young. "However, competition is intensifying and that window is closing.

"For companies and investors looking for long-term sustainable growth, we are in no doubt that the time to act on the Africa opportunity is now. Now is the time to invest in understanding markets, identifying partners, developing opportunities, configuring industries, building brands and establishing local credibility."

Africa has a billion consumers and within the next five years will be home to over 250,000 dollar millionaires.

"The opportunities for growth in this part of the world will be huge over the next seven years," Brandhouse CEO Gerald Mahinda told delegates at Ernst & Young's Strategic Growth Forum – Africa.

Yum! Restaurants International continues to expand its KFC footprint on the African continent and what it described as a "carefully considered approach" saw the number of KFC restaurants in new African markets grow to 63 at the end of 2012 - the figure excluding South Africa, Egypt, Morocco and Mauritius, which if included brought the total number of KFC restaurants on the continent to almost 900 outlets.

By the end of 2012 KFC saw stores operating in Angola, Nigeria, Namibia, Botswana, Mozambique, Lesotho, Malawi, Swaziland, Ghana, Kenya and Zambia.

It has plans to extend its reach to Zimbabwe, Tanzania and Uganda in 2013, with much longer-term growth plans to establish itself in the Democratic Republic of Congo, Ethiopia and Senegal.

"Africa is undoubtedly one of the fastest growing regions globally and KFC is fully committed to harnessing this opportunity and building a sustainable business model on the continent," KFC General Manager of New African Markets, Bruce Layzell said. "KFC has established a dedicated department to focus on all aspects of optimising business in Africa, from marketing and supply chain, to infrastructure and human resources."

Oil-rich Nigeria is one market where KFC has enjoyed success. And with it being Africa's most populous country and second-largest economy – where economic growth was around six percent every quarter in 2012 – it has ambitious plans to grow its operations there.

Nigeria ticks all the right boxes so far as investors are concerned and as its middle class grows along with the appetite for foreign brands, more foreign restaurants and lifestyle companies are entering the country.

"The good news is that Nigeria's economy is expected to grow even faster this year, driven by progress in the agriculture, banking and oil sectors, while high inflation rates should ease slightly," one investor told Africa Outlook.

Growth in the country is forecast at 6.75 percent compared with an estimated 6.61 percent in 2012, according to an outlook from the national bureau of statistics (NBS).

"Energy reforms ... banking sector, agricultural reforms and oil sector reforms are expected to drive higher growth during the period (2013-2016)," the report says.

GDP should expand by an average of 7.2 percent next year, 6.9 percent in 2015 and 6.6 percent in 2016.

The rapid growth of mobile subscribers is another big draw for investors.

In 2012 South African company Shanduka Group bought shares in MTN Nigeria - the largest mobile operator in Nigeria with more than 45 million subscribers and an estimated market share of 48 percent - worth R2.96 billion.

"This is Shanduka's most significant investment in another African country. It is a business that is well established within a market that has great potential for further growth. Shanduka will continue to pursue opportunities in other parts of Africa," said Shanduka Group CEO Phuti Mahanyele.

Investors are also eyeing Nigeria's power sector and the country is among the countries that are leading the charge in Africa's economic revolution.

"Nigeria's large market, growing middle class and rapidly transforming economy continues to attract international investors, who find these opportunities irresistible," an expert told Africa Outlook.

Many are predicting that Nigeria may soon join the Brics (Brazil, Russia, India and China and South Africa), nations, with the country's Finance Minister and Coordinating Minister for the Economy, Dr Ngozi Okonjo-Iweala confirming that Nigeria has what it takes join the Bric nations in an interview with the BBC. She admitted however that even though the fundamentals are right, infrastructural constraints, such as epileptic power supply, hinder growth.

"When we solve those problems, we are going to be in the low double digits and that will parachute Nigeria into the Brics," she said.

Nigeria isn't the only country worth looking at. The Fraser Institute placed Botswana ahead of other African nations in its 2012-13 Survey of Mining Companies which asked respondents to rank the jurisdictions in terms of their perceptions of performance across 15 key policy factors such as government policies, taxation, environment regulations, infrastructure and political stability.

According to the numbers, Botswana's overall score increased to 78.1 in the 2012-2013 edition of the study, compared to 76.9 in the 2011-2012 survey.

The score represents its highest in the survey.

It was fifth overall.

"Botswana is the bright spot in Africa. It is the highest ranked jurisdiction on the continent and has improved its score over the last five years," Fraser Institute researchers said.

Botswana was ranked the country with the lowest risk worldwide for changeability in the administration, interpretation, and enforcement of existing regulations as well as in the unpredictability of environmental regulations.

The country topped the globe for the absence of regulatory duplication and inconsistencies.

And Botswana was ranked seventh in the global survey for legal processes that are fair, transparent, non-corrupt, timely, and efficiently administered, while it was also ranked ninth for its taxation regime.

Investors are also eyeing Ghana, which has abundant natural resources, including timber, oil, silver and manganese, as well as cocoa and gold.

President John Dramani Mahama recently launched a project to build a $10 billion IT hub near Accra within three years.

Dubbed the City of Hope, it will have Africa's tallest building, and came with the assurance that government would partner the private sector to create jobs.

Mr Mahama said the private sector would spearhead development.

"Government has made investments over the years and it is now time for the private sector to spearhead job creation in Ghana and the entire African continent," he said at the project's launch.
"We can see that already in several sectors, including ICT [information, communications and technology] and telecom."

Local technology giant RLG Communications, which has pioneered Ghana's IT and communications sector, is playing an important role in the development, investing in City of Hope with the aim of making Ghana "globally competitive".

The IT hub will be made up of six towers, including a 75-storey, 270m-high tower, two 60-storey towers and three 42-storey towers.

It will also include a university, schools, shopping centres, offices, residential areas and a hospital, as well as social and sporting amenities.

Roland Agambire, Chairman of the AGAMS Group and CEO of RLG Communications Limited, said his dream of building the city was inspired by former President Kwame Nkrumah and Tetteh Quarshie, who exhibited a lot of patriotism by setting the pace for African leaders.

"While bringing modernity and excellence into the design of the City of Hope, all efforts have been made in incorporating the Ghanaian ingenuity and culture in the architecture as its inspiration," he said.

Kenya has launched similar project, dubbed "Africa's Silicon Savannah".

The $14.5 billion project will see the country build a new city intended to be an IT business hub.

It will take 20 years to build Konza Technology City about 37 miles from the capital, Nairobi.

It is hoped that more than 20,000 IT jobs will be created in Konza by 2015, and more than 200,000 jobs by 2030.

Konza is part of the government's ambitious Vision 2030 initiative to improve much-neglected infrastructure over the next 18 years.

Outside of Nigeria, Ghana, Botswana and Kenya, there is also an exciting future for Mozambique.

Investment in the exploration and exploitation of coal reserves in Mozambique has amounted to more than 3.8 billion euros over the past few years, says the country's Mineral Resources Minister, Esperança Bias.

In an interview with Radio Mozambique in Maputo she also reported that the country's coal production amounted to 4.9 million tons last year, the largest amount so far.

"There exist the conditions for the country, by 2020, to annually produce more than 50 million tons of coking coal and thermal coal," she explained. "Mozambique is being referred to having the potential to become one of the five biggest coking coal export countries in the world."

Mozambique also has vast oil and gas potential. Anadarko Petroleum Corp made significant gas discoveries offshore Mozambique in early 2012 and owns a 36.5 percent working interest in Area 1, the site of a series of significant gas discoveries in the Rovuma Basin, offshore northern Mozambique. The company estimates that Area 1 contains 100 trillion cubic feet of natural gas, about 30 trillion cubic feet to 60 trillion cubic feet of which is technically recoverable. It makes it one of the largest finds of the last decade.

It is Mozambique has that has really captured the imagination. Its deep waters are already peppered with rigs, and shiny new liquefied natural gas (LNG) plants will soon dot the coast to feed gas-starved Asian markets.

These investments really are just the tip of an iceberg. Will Africa have issues from time to time which will scare investors, which will worry investors? That's a fact of life. But fortune favours the brave...

Image: © Getty

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