Africa as an important participant in the global economy

FDI, also known as foreign direct investment, has been virtually solely concentrated in Africa on the exploitation and export of natural resources for over a century. However, the momentum has changed after the turn of the 2000 and the tendency has finally changed in recent years. Global investors are more likely to visit Africa for their people’s promises than for their actual property.

Oil and mining now have a comparatively proportion of long-term foreign investment, with most investors focusing on telecoms, retail, and services. Over half of the FDI in the last seven years has been in the extractive industry.

In the 46 jurisdictions in sub-Saharan Africa, this tendency is much stronger. Between 2005 and 2011, almost half of the regional total investment was over one year—but the reverse is true in the following seven years (from 2011 to 2018, as the latest data is available for the 2018 year).

This investment trend mirrors the progress that occurred after the conclusion of the Cold War in the 1990s in governance and stability. Democratic institutions and fewer people who live below the poverty line are formed and acknowledged. These transformations are young and delicate, and nations are making progress at varying paces.

Often in Africa, FDI originates from government-controlled undertakings and international or bilateral institutes which, especially in big infrastructure projects such as harbors and railways, are more than merely business concerns. However, although the improvement of Africa’s investment climate is only one of a number of drivers for the shift, it has self-intensive consequences, because, whatever the motive of one investor, one might utilize it when building a port or a road.

Markets untapped in Africa

The short-term economic prognosis of Sub-Saharan Africa was strongly mixed, even before the world economy was swept by a coronavirus. According to the estimate by the International Monetary Fund, GDP growth would increase by 3.6 percent by 2020 – a decimal point more than the world forecast – but it then fell to 1.6 percent.

Debt loads are increasing, as in 2010, several prominent African governments accepted bilateral loans –  typically at interest rates lower than trade finance but greater than multilateral charges. By 2020, the national average deficit stood at 4% over the prescribed 3% standard.

Debt relief deals were being negotiated, but many of the hotspots of the FDI in Africa might be eliminated for not being anymore impoverished – most of them are classified as medium-income nations.

The assistance fund in Kenya was funded by volunteers, including President Uhuru Kenyatta, to reduce salaries. Mid-April, Ken Ofori-Atta, Ghanaian foreign minister, outlined the problems for the Financial Times: ‘I lost more than $1b of income in a single fell blow as household taxes continue to decline, aggravated by the loss of productivity and employment,’ he said.

According to the World Bank data, the business conditions in most of the African countries started recovering during the last 15 years. The main reason behind this is the increasing trend of foreign direct investments. There are several markets and industries which had a decisive role in the defining of the going up in FDI. One of the main industries among others is Forex trading. Forex trading in Africa is quite popular, which is proved by the fact that the number of people trading with Forex brokers in Africa increases through time, as the brokers are trying to make promotions for their customers, like bonuses, to attract them. Those bonuses, of course, aren’t eligible for only African investors and foreign investors are able to claim them, as well. Because of these campaigns, the volume of foreign direct investment increases as well, which has a positive effect on the African economy.

The pandemic is a major issue for financial loads. Most African Eurobonds have been offered on back loaded repayment schedules and in the next few years, chunk payments are due. If the pandemic declines the hunger of refinancing deficits for global bond investors, certain countries might fight to refinance it. Ghana was well placed, with two-thirds structured in maturities between 15-41 years, in February selling the US $3b in Eurobonds, right before the emergence of the virus.

Year to year, however, for many investors, pandemics and other events are regarded as transient factors, which are not so important as fundamental conditions.

Matthew Stephenson, the Leading Politics and Community for International Trade and Investment for the World Economic Forum says: “FDI is truly attracted by big and stable middle-class economies with decreases in discretionary income. “Countries without them must be separated either by unusual resources or locations or by a legislative system that’s extra-friendly.”

Demographics are an even more long-lasting structural element pushing FDI with policy stabilization. The median age for the region is 18, 14 years less than other continents. According to Darricker Bricker, the author of Empty Planet, Africa’s sole birth rate stays above substitute rates. “This tendency is not for this week or this year – for a generation it is locked in,” he adds.

African cities as a part of economic strategy

As investment spreads to other industries in Africa, entrepreneurs are also thinking of novel methods for their position. Rational investments are less typically centered on economics at a country level and more often focused on metropolitan centers, corridors, and regions. Leading cities, including Lagos, Nigeria, Johannesburg, and Kenya, stand out for their financial centers, middling customers, and connection. They have the highest level of finance and technology in Europe.

According to data from Fraym, an American advisory firm, Africa’s biggest cities account for 80 percent of customers with discretionary earnings in acquiring goods like automobiles, TV, and appliances. Luanda, Angola, Ethiopia, Tanzania are among the top sub-Saharan Africa cities.

As a metropolis with consumer power, Kinshasa, the capital of the Democratic Republic of Congo, stands out. It is on the west side of the country, and on the eastern border it is 2,000 kilometers from the war. “Because of a more wide storyline, Kinshasa is an untold story,” said Ben Leo, CEO of Fraym. “There is an enormous amount of consumer power in Kinshasa.”

Cities have, especially given the statement made in 2019 by the African Continental Free Trade Area, potential as key anchoring in regional investment policies. “Well, 2019 will be recognized as Africa’s year of commerce,” Eyinla said. “We are going to be on a long trip. ‘The biggest free trade area in the world is a monumental engagement.’

At a time when investors are examining global supply networks, the transaction is also a signal to them. 52% of the CEOs stated the pandemic caused them to contemplate shifting a number of their duties in the EY Global Capital Confidence barometer in March 2020. “Africa can play a greater role in the production and supply chain prospects in the East,” Wolfenden said.

The poll also showed that 36 percent of firms have accelerated their expenditures in automation, suggesting that both technology and other areas will have to compete with Africa. “The supply lines may be seen coming back to the U.S. and Europe because companies are looking very carefully about providers coming to be too far away from customers.”, Eyinla adds.

The number of mobile telephone users in Africa has increased by 2,500 percent, between 2000 and 2012 and is one of the most significant of these factors.

Africans are using them for trade and communication, therefore generating a new value chain. From the 729 new FDI investments in Africa, 18% were the biggest proportion for any single industry in the technology, media, and entertainment (TMT) sector.

The oldest and most famous instance of telecoms producing a supply chain is M-Pesa, the Kenyan mobile money network. It was built to transmit money and flourished in a marketplace. It may be used by Kenyans for buying insurance, paying for a barber, borrowing, or funding solar electricity.