Africa’s frontier economies offer lucrative investment opportunities amid political uncertainty

“Many smaller African countries are not economically viable unless they are able to offer something compelling to investors,” he says. “Rwanda has been able to craft an economic comparative advantage and is succeeding because it has an implementable vision and strong leadership. Ethiopia has made itself extremely attractive to Asian investors in particular – both in manufacturing and infrastructure. Its next challenge is to open its market for services.”

The problem is that rather than integrating with the rest of the continent, East Africa is being drawn into Asia’s economic orbit, while Morocco and other North African countries most often look to European markets. Oil-rich Angola and Nigeria are dangerously prone to fickle commodity markets and have been slow to diversify from their dependence on a single-export commodity. The pan-Africanist dream of Robert Sobukwe, founder of the Pan African Congress, and Kwame Nkrumah, Ghana’s first president, is fading in front of our eyes, sundered by the lure of juicier markets elsewhere.

“Until recently, Africa was seen as a consumer play, which explains why global fast-moving consumer goods giants such as Unilever, Nestlé and Procter & Gamble have been so active across the continent,” says Davies. “It’s clear that the next big opportunity in Africa is to provide services that governments would normally offer – such as education, healthcare and infrastructure, and especially access to power. This is a case of the private sector providing public goods and services, which are ordinarily the domain of the state.”

Companies such as Curro and Netcare, offering private education and healthcare, ultimately stand to benefit hugely from the growing need for these services across the continent, says Davies.

South African companies venturing north of the Limpopo have had mixed success. Of the banks, Stanbic has built a formidable African business, but companies such as Woolworths and Tiger Brands have been less fortunate, both choosing to scale back their presence in Nigeria.

But as one door closes, another opens. Davies is heading to Nigeria with the African Association of Automotive Manufacturers, comprising executives from automotive equipment manufacturers, to explore opportunities to expand industry in that country. Just a few years ago, consumer companies would have dominated this kind of investment. Now the industrialists are becoming more interested in Africa’s frontier economies, potentially a sign of things to come.

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