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June 07, 2012
Time for Investment in Africa Is Now
    by Robert Kropp

The second annual Ernst & Young survey of investment in Africa finds a distinct perception gap between the overwhelmingly positive responses of investors already doing business in Africa, and the possibly outmoded views of those who do not.

"The time for Africa is now," Mark Otty writes in the introduction to Ernst & Young's second annual Africa attractiveness survey.

The survey of more than 500 investors and business leaders includes compelling support for Otty's words. The number of foreign direct investment (FDI) projects on the continent has grown at a compound rate of 20% since 2007, the survey reports. In 2011 alone, South Africa attracted more than 150 FDI projects for the first time; and in Zambia, 26 investments totaling $2.3 billion led to the creation of more than 10,000 jobs.

Furthermore, the survey continues, intra-African FDI projects—new projects funded by African countries—have increased even more, growing at a compound rate of 42% since 2007. "Africans themselves are increasingly leading from the front by providing African solutions to Africa's challenges," the survey states.

The survey attributes increased investment in Africa by Africans to a number of factors. The spread of democracy and a decrease in political conflict has led to more consistent economic management and a growing commitment to address corruption. The eight Regional Economic Communities (RECs) recognized by the African Union should accelerate regional integration, without which, the survey warns, "Africa will remain structurally marginalized in the global economy and African countries will struggle to attract a greater share of foreign investment."

An especially positive development, the survey continues, has been the establishment of a Free Trade Areas (FTA) by three RECs. With a combined population of 600 billion people, the FTA will have a Gross Domestic Product (GDP) of $1 trillion and a long-term GDP growth rate of more than 5%.

For investors and companies doing business in Africa already, the survey found, the perception of investment in Africa is overwhelmingly positive. "Those investors with a business presence on the continent rank only Asia (and only slightly so) as a relatively more attractive investment destination than Africa," it states.

One recent example of an equity fund investing in Africa is the African Agricultural Capital Fund (AACF), a $25 million fund established last year by four members of the Global Impact Investing Network (GIIN) Investors' Council. The fund seeks to invest in environmentally sustainable agriculture projects that benefit the rural poor in sub-Saharan Africa.

And since 1994, Shared Interest has leveraged almost $100 million for projects in developmental microfinance, housing, small business, and agricultural cooperatives that benefit economically disadvantaged communities in South Africa.

A recent report on investment in sub-Saharan Africa found that per capita Gross Domestic Product (GDP) of the continent has grown for 15 consecutive years, and combined GDP is expected to reach $2.6 trillion by 2020.

Yet a perception gap among investors clearly persists. Those with no business presence on the continent continue to view investment there as unattractive, "comparable only to the former Soviet states as an investment destination." Major obstacles cited by those investors include an unstable political environment, corruption, and weak security.

The urgency of turning around the negative perceptions of many investors is underscored by the state of infrastructure on the continent, which remains "a major contributor to Africa’s underdevelopment," the survey states. "Its improvement, through investment in the transport, power and communication networks that physically enable regional integration, will help accelerate and sustain Africa’s growth and development."

Since the financial crisis in 2008, the survey continues, private investment in African infrastructure has consistently trended downward. However, "there seem to be major under-tapped opportunities for the private sector in areas such as power generation, transport (e.g., ports, airports and toll road concessions), ICT (information and communications technology), and water treatment."

"There has been a radical shift in mindset and positioning over the past decade, with Africans themselves increasingly leading from the front by providing African solutions to Africa's challenges," the survey concludes. "We anticipate increasing levels of collaborative leadership, particularly between African governments and those doing business in and across the continent."


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