Investing in Africa: Opportunities and Challenges for the Next Five Years

Africa is a continent of immense potential and diversity, with a population of 1.3 billion people, a GDP of $2.6 trillion, and a land area of 30.4 million square kilometers. Africa is also home to some of the fastest-growing economies in the world, with an average annual growth rate of 4.6% between 2000 and 2019. However, Africa also faces significant challenges, such as poverty, inequality, conflict, corruption, climate change, and health crises. These challenges pose risks but also opportunities for investors who are willing to take a long-term and sustainable approach to investing in Africa.

In this article, we will explore three key trends that are shaping the investment landscape in Africa for the next five years, and how investors can leverage them to create value and impact.

• Digital Transformation: Africa is undergoing a rapid digital transformation, driven by the increasing penetration of internet and mobile technologies, the emergence of local innovation ecosystems, and the adoption of digital solutions across sectors. According to the World Bank, the number of internet users in Africa increased from 16% of the population in 2010 to 40% in 20192. Moreover, Africa has the highest mobile money adoption rate in the world, with over 280 million active accounts and $495 billion in transactions in 20203. The digital transformation is creating new opportunities for investors to tap into the growing demand for digital products and services, such as e-commerce, fintech, edtech, healthtech, and agritech. For example, Jumia, the leading e-commerce platform in Africa, raised $196 million in its initial public offering in 2019, becoming the first African tech company to list on the New York Stock Exchange. Investors can also support the development of the digital infrastructure and skills that are essential for the digital economy, such as broadband, data centers, cloud services, cybersecurity, and digital literacy.

• Regional Integration: Africa is moving towards greater regional integration, facilitated by the launch of the African Continental Free Trade Area (AfCFTA) in 2018, which aims to create a single market for goods and services, with free movement of people and capital, among the 55 member states of the African Union. The AfCFTA, which became operational in 2021, is expected to boost intra-African trade by 52% by 2022, and increase the continent’s GDP by $450 billion by 2035. The regional integration is creating new opportunities for investors to access a larger and more diversified market, with lower tariffs, reduced non-tariff barriers, harmonized regulations, and improved infrastructure. For example, Flutterwave, a Nigerian fintech company that provides payment solutions across Africa, raised $170 million in its Series C round in 2021, valuing the company at over $1 billion. Investors can also support the implementation of the AfCFTA and the resolution of the challenges that may hinder its success, such as political instability, security threats, and logistical bottlenecks.

• Sustainable Development: Africa is committed to achieving the Sustainable Development Goals (SDGs) by 2030, which are a set of 17 global goals that address the economic, social, and environmental dimensions of development. However, Africa faces significant gaps and challenges in meeting the SDGs, such as financing, governance, capacity, and data. According to the United Nations, Africa needs an additional $200 billion per year to achieve the SDGs by 2030. The sustainable development agenda is creating new opportunities for investors to align their investments with the SDGs and generate positive social and environmental outcomes, while also achieving financial returns. For example, Acumen, a global impact investing fund, has invested over $100 million in more than 40 companies in Africa that are advancing the SDGs in sectors such as energy, agriculture, health, and education. Investors can also support the measurement and reporting of the impact of their investments, and the development of the impact investing ecosystem in Africa, such as standards, platforms, and networks.

These are just some of the investing trends that will shape the future of Africa in the next five years. Investing in Africa is not without risks and challenges, but also offers immense opportunities and rewards for investors who are willing to take a long-term and sustainable approach to investing in Africa. Investing in Africa is not only a way to diversify one’s portfolio and generate returns, but also a way to contribute to the development and transformation of the continent and its people. Investing in Africa is not a choice, but a necessity for the future of the world.