According to the various reputable forecasters, the African economy is expected to reach total Gross Domestic Product (GDP) of USS 2.6 trillion by 2020.

Real GDP in sub-Saharan Africa alone grew an estimated 4.7 percent and projected to increase to 5.3 percent in 2014.In addition, the continent also has the fastest growing labour force in the world.

 Today, there are more than 500 million people of working age (15 to 64) in Africa, and is expected to pass 1.1 billion by 2040 – to be larger than China and India.

The World Bank ‘Doing Business In’ Survey for 2012 – seen as a benchmark for rating the world’s business environments – tracked Morocco as the top reformer globally during the survey period, with Sao Tome and Principe, Cape Verde, Sierra Leone and Burundi also among the top 10 reformers.

Changes in domestic policy in these countries improved the process of dealing with construction permits, protecting investors and paying taxes, among other areas.

The rest of the world is keenly taking note of the fact that African countries are trying to improve their business environment as a strategy to attract more Foreign Direct Investment (FDI).

One of the key investment drivers is the increasing prevalence of peace, democratic elections and improved governance.

Foreign direct investment is expected to see a rise between 2014 and 2015. As there has been an established linkage between foreign direct investment and economic growth, the ultimate question would be whereand how to invest in Africa?

In other words, where is FDI going in Africa? Before we analyze these fundamental questions, let’s take a look at the main drivers of investment in Africa: Infrastructure, resources and consumer demand.

Infrastructure

Global Cities and governments needs to be globally competitive in the face of rapid urbanization. Power, transportation (roads, rail, ports, etc), hospitals and schools command the biggest needs for infrastructure. The current spending on infrastructure in Africa is about US$45 billion a year. About US$90 to US$100 billion a year is needed, which is a huge funding deficit. This means there are substantial opportunities for the private sector to either invest alone or in partnership with government.

Resources

Africa’s resources are in demand! This is not only restricted to the extractive industries such as mining, and oil and gas. Agriculture is a dominant economic sector in Africa, and concerns around global food security make the continent’s fertile, uncultivated land an enormously important resource.

Consumer demand

Through the phenomenal rate of urbanization, Africa has a growing population of very young, ambitious, often well-educated, globally minded people who are increasingly moving into middle-income brackets.

 The telecommunications sector has seen the number of cellphone users on the continent grow from 11 million in 2000 to about 400+ million today, while internet users have increased. Undersea data cables are currently being laid at an unprecedented rate, providing exponential bandwidth growth which will drive communications and internet access, particularly through mobile devices.

The banking industry is expanding with growing income levels, increased urbanization and imperatives of financial inclusion. AfDB has demonstrated that successful projects can be undertaken in African countries and has raised its capacity to finance private enterprises and Public-Private Partnerships (PPPs).

Who must invest and in what?

There are several sectors looking to Africa for opportunity. These include companies operating in mature economies with low or no growth, that need to find new ways to grow, companies operating in the high-growth Brazil, Russia, India and China (BRIC) markets, looking to fuel their growth, companies looking for intra-Africa trade opportunities and companies already operating in Africa that are looking to expand their footprint on the continent. 

There is a need for personal banking services, small and medium-size business financing, micro-finance, development finance and opportunities for trade finance houses.

 The food and drinks sector needs to expand to keep up with the rapid rate of urbanization and the needs of this growing middle class, as does the retail sector. Formal retail penetration is among the lowest in the world throughout most of Africa, providing significant opportunities for the sector.

 Considering investing in Africa?

When considering the opportunities and challenges in Africa, it is important to remember:

 Africa is a continent and not a single country. There are 55 countries at different stages of development with different agendas. However, the majority of these belong to regional groupings, which implies different cross-border arrangements between states, depending on membership of these groups.

 Africa is not isolated and is rather, an integral part of the global interconnected world. This implies that, whatever happens in the global economy affects Africa, and issues in the developed world impact Africa just as things happening in Africa affects the whole world..

 Finally

The key issue here is the risk/reward balance which investors need to understand. Investment-grade countries like South Africa, Botswana and Namibia might offer lower returns than seen elsewhere on the continent, though this is associated with a lower risk. Other countries with higher risk like Nigeria, Tanzania and Kenya could offer higher rewards in return.

 Regardless of who the investor is, Africa continues to offer numerous opportunities in the post-global financial crisis world, though the options are as varied as the countries themselves.