3 March 2016

Africa: Why Africa Is Not Number One Investment Destination

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Much of Africa's perceived attractiveness to investors in comparison to other global regions has improved a lot over the past few years.

In fact, according to the 2014 Africa Attractiveness Survey by Ernest &Young, the continent moved from third last position in 2011, to become the second most attractive investment destination in the world, behind North America.

According to the findings, sixty percent of those who were asked indicated that there had been great improvement in the continent's investment attractiveness over the past year, which is up four percentage points in comparison to the previous survey.

Likewise, Ernest Young reported in 2014 that Foreign Direct Investment in sub-Saharan Africa increased by 4.7 per cent in 2013, and projected to continue on the upward trend.

In a similar breath, The Economist magazine established in 2011 that over the ten years to 2010, six of the world's ten fastest-growing economies were in sub-Saharan Africa.

Angola had 11.1% annual average GDP growth, Nigeria 8.9%, Ethiopia 8.4%, Chad 7.9%, Mozambique 7.9%, and Rwanda 7.6%.

In the period between 2011 and 2015, Ethiopia, Mozambique, Tanzania, Congo, Ghana, Zambia, and Nigeria all registered above 6.5% annual average GDP growth.

Now, even though I am not an investment guru, I am told that there remains a stubborn perception gap between those already operating on the continent and those who are not yet present.

In fact, recently, I read a piece by a financial markets reporter, Sara Sjolin, who observed that if a financial adviser offered his or her clients a chance to invest in a continent whose economies expected economic growth of 7% or above a year for the next decade, chances are most investors would jump at the prospect in a heartbeat.

However, Ms Sjolin crucially insisted that if the same financial adviser was to reveal that the country in question is located in sub-Saharan Africa, chances are that only the shrewdest amongst the investors would look beyond the woes of sub-Saharan Africa to invest.

The financial markets reporter cites conflicts in sub-Saharan Africa to be the major hindrance to many investors looking to invest on the continent.

But has Sjolin and other financial analysts got a point? It seems when you scratch beneath the surface, you indeed find that conflicts have greatly damaged sub-Saharan Africa's potential to become the number one investment destination.

Frankly speaking, you do not have to venture too far to establish why some of these investors are so quick to lose their nerves at the thought of investing in sub-Saharan Africa.

And although several inherent concerns have continuously placed the region at a disadvantage in comparison to other investment destinations across the globe, conflicts in particular have played a major role in derailing the much needed investments on the continent.

Political instability, terrorist attacks, and civil wars in many countries have been the key turn-off factor for many of the global investors.

For instance, in West Africa, Boko Haram, a terrorist group which operates predominantly in northeastern Nigeria has ensured that investors view Cameroon, Chad, Mali and Niger as nations likely to be hit by a barrage of attacks.

And although the West African nations recently formed a military coalition against Boko Haram at the beginning of last year, there remains a real threat and investor confidence cannot be assumed to be through the roof.

When you move to Central Africa, you will find that conflicts in the Democratic Republic of Congo, the Central African Republic, and now Burundi, have all added to an already glum outlook of the region stability wise.

In the East of the region, you do not need me to tell you about the ongoing troubles in the world's newest country, South Sudan. Similarly, Al-Shabaab, a jihadist terrorist group based in Somalia has caused a lot of havoc both in Somalia and neighbouring countries since 2006; with fatal assaults on Kenya and Uganda.

And it is such conflicts that have led financial markets reporters warn that investors will almost always remain uneasy to invest in sub-Saharan Africa so long as Africa continually generates conflict-related headlines.

In the United States, for instance, Miss Sjolin's indicates that according to David Snowball, publisher of the Mutual Fund Observer newsletter, only about 0.3% of the average portfolio is invested in sub-Saharan Africa. That is just $3 out of every $1,000, contends the financial markets reporter. Not impressive at all.

Ultimately, much as I am as optimistic as anyone can be for sub-Saharan Africa to achieve and sustain peace and stability, it is time that we tackled head on Africa's major development hindrance: conflicts.

Of course, I am not naïve to think that conflicts are unique to Africa. They are not. In fact, as I write this, there are conflicts in many parts of the Middle East and elsewhere.

Similarly, at the current rate, almost any country is vulnerable to a terrorist attack.However, the difference is that conflicts in Africa are a major recurring phenomenon that once put out in one country;they emerge elsewhere and continuously prevent the fulfilment of our continent's potential as a whole.

Sub-Saharan Africa has so far done well to attract investors. However, if conflicts such as the RENAMO conflict in Mozambique, South Sudan civil war, CAR conflict, Sinai insurgency in Egypt, conflict in Somalia, persistent wars in DRC, killings in Burundi, to name but a few, were to be eliminated permanently, I am more than confident that Africa would by all means become the number one investment destination.

The ball is in our court to change this narrative.

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