Falling oil prices have applied strong downward pressure on key African economies, and major regions of the continent are starting to feel the pinch.
Nigeria’s economy contracted by 0.36% in the first quarter of 2016, stoking fears that an oil-driven slowdown could push Africa’s largest economy toward recession — and drag the continent’s broader economic health down with it.
Among policymakers, dialogue is increasingly shifting toward the need for rapid economic diversification. Their hope is that this shift will act as a means to generate sustainable, resilient growth and reduce the impact of external events. Only time will tell what effect these measures will have, but expectations are hopeful.
Despite the current gloomy mood, Africa has enormous potential for economic diversification and reduced reliance on commodities such as oil. The landscape is ripe for investing, as potential-laden markets like Nigeria, Gabon, Angola, and Zambia unleash new opportunities in previously ignored sectors.
Two industries, in particular, look ripe for expansion:
1. Agriculture: Budding Promise
Agriculture is a key source of diversification and investment opportunity. Not only does agriculture account for 60% of the entire continent’s jobs, but the sub-Saharan region contains 200-million hectares of untilled land (about half the untilled land of the entire globe) that is ripe for cultivation.
This creates enormous opportunities for investment across the value chain: enhancing access to inputs and production technologies, revitalisation of processing and packaging, as well as retail and marketing. Shifting demographics also provide ample runway for investment. Rapid growth in population and rising urbanisation rates necessitate more production and better farm-to-fork linkages.
In Angola and Gabon, agriculture has been earmarked as a top priority — something investors should quickly position themselves to benefit from. Gabon’s National Planincludes strategies for improving access to land and finance, leveraging partnerships among the government, private investors, and international finance institutions.
Several private-public partnerships have already come to fruition, signalling the government’s focus on revitalising the agriculture sector. In 2010, Olam International undertook a joint venture with Gabon, investing in a fertiliser plant and palm oil plantation. Five years later, Chinese multinational corporations announced an investment of US$650-million in food processing in Angola. With Angola reportedlyimporting as much as 90% of the food it consumes, this partnership should help to reverse this trend.
2. Manufacturing and Industry: Built to Last
Away from agriculture, manufacturing is catching steam in certain African markets.
Ethiopia is leveraging cost-effective labour and energy to steal the thunder from traditionally-favoured production hubs such as China and Vietnam. Ethiopia is becoming well-known for a rapidly growing textile industry, supported by favourable trade agreements, such as the Africa Growth and Opportunity Act, which have widened investors’ access to international markets.
In Zambia, the establishment of Multi-Facility Economic Zones is helping to elevate industry in the economy, especially as investors take advantage of the waning industrial capacity in Zimbabwe to extend their cross-border reach.
Historically, investors haven’t given much thought to these regions, but the markets have become increasingly pivotal in the African investment equation. Investors should also position themselves to take advantage of such favourable developments through well-researched market entry and expansion strategies. These could include:
- Establishing strategic partnerships with players in the local market;
- In-market presence, in which a representative of the entering company is dispatched to the destination market to give a greater sense of control;
- Franchising, in the case of ventures whose business model can be replicated with ease without compromising standards.
A Diversified Future
If these recent policy developments mean anything, it’s that Africa is steadily moving beyond the era of commodity-reliant economies.
Intra-regional trade is now the centre of the continent’s agenda, and this diversification of economies should help to grow Africa’s prospects far beyond expectations — as long as the right investors lend a hand.