By Nicola Mawson
Africa is a continent that is characterised by famine, variously floods or droughts, inequality, corruption, and unemployment – especially as urbanisation increases.
What many may not see is that it also offers attractive investment opportunities for individuals, and not just for countries such as through China’s Belt and Road Initiative.
Brookings explains that these investments in infrastructure are motivated by economic and strategic interests. That’s no surprise.
Isaah Mhlanga, RMB’s Chief Economist, commenting in the bank’s 2024 edition of its Where to Invest in Africa report said that investors should not heed headlines that deride Africa as an investment destination. The report surveyed 31 countries and was developed in collaboration with the Gordan Institute of Business Science (GIBS).
Concurring with RMB’s view that Africa, with varying degrees of risk, is an investment destination is Investing in Africa, which is holding a conference on this exact topic in October in London. A blog on its page states that: “The continent’s rapid economic growth and burgeoning middle class are creating a wealth of opportunities. Yet, identifying the best place to invest in Africa can be a complex task.”
The trick, both RMB and Investing in Africa state, is working out where to invest. Mhlanga explained in the report that there simply isn’t enough data, which is what this year’s change in methodology aims to help solve.
“It is difficult, if not impossible, to perfectly characterise a country’s investment potential using one all-encompassing indicator due to the many factors that drive investment attractiveness. Therefore, there is a need to constantly update methodologies from those that are based on fewer dimensions of a country’s structure to those that have more encompassing dimensions that capture a country’s complexity in a better way,” said Mhlanga.
Mhlanga explained that Africa should not be seen in a homogeneous light. “Africa is not a country. It is a complex and diverse continent of 54 countries that differ in economic performance and potential, market accessibility and innovation, economic stability and investment climate, as well as in social and human development – all of which are factors that have been proven to determine a country’s progress and therefore its investment potential.”
RMB points out that investment decisions must take into consideration both a country’s economic performance as well as its operating environment.
The scorecard for the 2024 issue highlights 31 countries that collectively represent 92% of the continent’s economic activity (measured by GDP), and more than one billion people (three quarters of the continent’s population). It draws on publicly available data sets from global institutions, including the World Bank, the IMF, the African Development Bank, the United Nations, and the International Labour Organization.
RMB and GIBS’ model is built based on 20 metrics across four measurement pillars:
- Economic performance and potential
- Market accessibility and innovation
- Economic stability and investment climate
- Social and human development
Methodology aside, RMB has classified countries according to the potential risk and reward, with its own twist on naming conventions:
‘Highflyers’ are large and well-established economies that offer stability and a range of investment opportunities, such as Nigeria, South Africa, Egypt and Ethiopia
Those ‘Cleared for Take-off’ are countries with high economic growth and innovation potential thanks to factors like a young population and abundant resources, including Senegal and Côte d'Ivoire
‘People Potential’ are markets with a young and growing demographic, creating a sizeable consumer base and a future workforce, such as Kenya, DRC and Uganda.
‘Global Connectors’ are more advanced economies with a strong international presence, such as Morocco, Mauritius, Tunisia and Seychelles
Finally, ‘Low-Base Boomers’ are smaller markets with high potential for explosive growth but a corresponding higher degree of risk, including Rwanda, Mozambique, and Benin
The winners in the report, if we can call them that, are the hot tourist destinations of Seychelles and Mauritius. Perhaps best known for idyllic beaches, sparkling blue water, palm trees and cocktails, the two islands may not have the largest economies, but their economies are attractive for investors.
RMB’s report stated that Seychelles leads the rankings thanks to “high levels of personal freedom, human development, and a stable economic environment”. According to the US Department of State, the island – with a population of almost 100 000 – encourages foreign investment in a way that develops its natural resources, infrastructure, and an increase in productivity levels as long as investments are environmentally sound and sustainable.
Despite scoring lower on economic size and potential, Mauritius is known for innovation, economic freedom, and high GDP per capita, said RMB’s report. “It continues to be a top destination for investors seeking stability and growth opportunities in a well-regulated environment.”
The island’s government states, on its website, that it wants to become a high-income economy and facilitates and encourages both local and foreign talents, know-how and investment into the country.
RMB’s report includes other countries, such as Egypt, which offers a substantial market with diverse opportunities in sectors like technology, manufacturing, and services. South Africa remains a crucial hub for investment in Africa and, despite its challenges, it has a robust financial sector, diverse economy, and potential for infrastructure development. Morocco, which is close to Europe, benefits from connectedness, innovation, and economic stability positions it as a top investment destination.
“The richness of Africa’s diversity makes fully analysing its nuance and contrast a challenging task, but an important one when it comes to understanding the varied markets that make up this vast regional economy,” Mhlanga said.
BUSINESS REPORT