The robust economic growth, expanding market size and
various reforms have improved the attractiveness of
the continent to investors; Foreign direct Investment (FDI)
inflow increased by 5% to US$50 –billion in 2012,
even as global numbers fell, according to the 2013 World
Investment Outlook.
So, which trends can companies that are looking for growth
opportunities in Africa expect to see in 2014?
Trend 6
A deepening
banking sector
Regulatory reforms, the expanding middle class and
technological advancements have helped to grow the banking sector in Africa.
There are huge
growth opportunities that will allow the industry to undertake growth
strategies that can create positive value for the shareholders.
At current growth rates, the financial services sector
could make up around 20% of the continent’s collective growth domestic
product within the next decade, compared to 10% today,
with much of the new growth coming from retail banking.
Banks in Africa
have total assets of over US$4.2-trillion, the bulk of them idle and
underutilised.
Success in 2014 will largely depend on the capabilities
and business models of individual institutions, but improved economic
growth and
business environments in some markets like Namibia and Botswana make them more
attractive. The majority of the
population there
is reaching middle-income status. The larger economies of Kenya, Nigeria and
Ghan
a are seeing rapid economic growth and substantial gains
in banking and financial services sectors. These markets have all the factors
that support a powerful investment case.
However, they need to more improvement in financial
sector governance and infrastructure in order to lure more investors.
Partnerships could gain pace as companies seek to
expand their footprint across Africa. South Africa’s Nedbank is reportedly
planning to exercise its rights to buy
a stake in Togo-based Ecobank Transnational, which
operates in 33 African countries. Partnerships are invaluable. They provide a
partner who has deep knowledge of the target market and minimise risks.
Looking at regional and pan-African banks, the way
forward for them should be to shore up scale of operations to lower costs. There
are ways of
achieving this,
for example, using common technology platforms or regional operations centres,
and innovation in distribution channels.
I would hope to see more effort put
in 2014 to address the challenges that are holding back the growth of the
sector. Weak/ inadequate sector policy,
political instability, lack of
sector infrastructure, inadequate innovation and pool of professionals, and
governance issues – these are serious con
Professor Sunny Nyemah
Managing director, Bentley Kantor
Bullish
prospects for hospitality and tourism sectors
Leisure travel market: Several new airlines are
greatly assisting travel in some regions. This includes Fastjet, which has just
started operating from East Africa to South Africa.
ASKY has the largest route network in West
Africa, African World Airlines is expanding its service beyond the domestic
market in Ghana to regional routes, and so on.
All of
this aids intra-regional travel. However, I am less bullish about leisure
travel, particularly to those destinations where airfares are high. This is
particularly true in
West African
countries such as Nigeria, where airfares are high and visas are very
expensive and arduous to obtain.
The business tourism market: Africa’s economies
are forecast to grow, on average, at double the global rate. The business
market will definitely grow on the back of rapidly
growing-economies, huge consumer markets,
plentiful primary resources from oil and gas to iron ore, gold and other
minerals, land for agriculture, and a young workforce.
The
number of African business people travelling around the continent will also
increase with increased interconnectivity, and also with the promotion of
intraregional trade,
which
currently is at a very low level.
International interest: The hotel chains are
focusing very much on Africa at the moment, and need expansion on the continent.
Marriott’s recent deal with Protea is an
example of that. At the same time, investors see
the potential of the market, with so many markets underdeveloped. This applies
particularly to the quality market.
Major challenges: Challenges facing the
hospitality sector include funding, human resources, government policies,
taxation, operational costs, and particularly energy.
Funding: The international funding community is
getting more used to the idea of funding projects in Africa, but that doesn’t
mean it will much easier – hotels are
difficult to fund anywhere in the world,
particularly so in emerging markets. I don’t see it getting more difficult.
Opportunities for equipment suppliers: There are
major opportunities for suppliers, but import duties can be prohibitive. The
real opportunities, which the Chinese and Indians
are
exploiting, are to set up manufacturing plants in Africa.
Mid-market vs luxury hotels: In the capital
cities, the first opportunity tends to be the luxury segment, but once that is
full, and also in secondary cities, the opportunity is for
branded
mid-market hotels – Park Inn, Hilton Garden Inn, Novotel and the like.
Recognisable brands: It depends on how
competitive the market is, the size of the hotel, and the price that can be
charged in the market. Having a brand is most often a great
advantage in differentiating the product from
the unbranded supply, and commanding premium prices.
Self-catering
and short-let apartments: There is a big opportunity in many markets for
extended-stay accommodation. This offers a larger accommodation unit and guests
can self-cater
(although most guests use it only for
tea-and-toast).This kind of accommodation gives the guest more of a home
feeling than a busy hotel can. However, the international chains are very
reluctant to bring their extended-stay brands
like Staybridge (IHG) and Homewood (Hilton) to Africa. Brands like Residence
Inn (Marriott) and Hyatt House are looking at opportunities, as are
specialists
in that market such as Frasers Hospitality.
Trevor
Ward
Owner ,W Hospitality Group
Vernon Page
Director, W Hospitality Group
Trend 8
Growing consumer base expands retail and
property sectors
The rapidly growing young middle class is pushing up demand for
consumer goods. The continent, which has the highest growth rate in the world,
will have the population of almost two billion by 2050,
according to the United Nations Centre for Trade and Development.
This presents huge opportunities for, residential and commercial (retail and
mixed-use) property developments across the continent.
Demand in fast moving consumer goods sector (FMCG) and key
industries such as cement will continue to experience a boon in tandem with the
increasing size of the middle class.
Local and international retailers, and food and beverage companies
will continue to implement their expansion strategies next year.
Walmart’s investment in South Africa’s Massmart gave the US
retailer a gateway into Africa. The chain is now reportedly scouting for
partners in the rest of Africa.
International investors and retail chains
have entered North Africa, Southern Africa and West Africa. However, East
Africa, with a market of about 133 million consumers,
has been a hard nut to crack and is now in
the radar of private equity. Massmart’s bid to court Naivas - Kenya’s fourth
largest supermarket, has reportedly failed. Analysts think a PE deal
could happen sooner than expected. Perhaps a
fund would exit to Massmart?
Trend 9
ICT continues boom
Africa’s
telecommunications industry has been one of the fastest growing sectors. A
new report by consulting firm, McKinsey & Co,
reveals Africans spending time on the Internet
could add US$300-billion to the economy by 2025. More than 720 million have
mobile phones, 167 million already use the Internet,
and 52 million are on Facebook. Internet
penetration is low at 16% of the one billion people on the continent.
Substantial investment in infrastructure and the uptake of low-cost smartphones
and
tablets has enabled millions to connect for the first time. McKinsey notes that
there is a growing wave of innovation as entrepreneurs and large corporations
alike launch new web-based ventures.
Our
Kenya-based firm targets companies that are primarily engaged in innovation and
are driven by ideas. Unfortunately, we have not found a large pipeline of bankable
ideas and companies in
Africa due to lack of adequate support systems
in public and private sectors. This highlights the imperative need to focus on
the ones we encounter to identify, develop and nurture them to succeed.
The
ambition and the attitude is shifting as the focus on a national level
highlights the importance of growing the society on new enterprises and the understanding
that all big enterprises were once small.
Cities
like Nairobi are dynamic places for entrepreneurs. We have had 500 applications
to our start-up program. Since we are not sector specific, we can have an open
mind towards any
opportunity
that is scalable and potentially sustainable.
There
are many entrepreneurs in Africa even if they don’t think of themselves as
such. Solving problems in an emerging market requires an interesting set of
skills that makes many people
well
suited for some kind of entrepreneurial activity . However, the lack of
visions, contacts, risk taking and mentorship means there is little output by
local entrepreneurs. Organizations like
ourselves
are acting as the missing link, and raising awareness of the problems and
mobilising human resources to solve them.
Shift
in start-up funding: Funding trends are increasing steadily if not
exponentially as evidenced by the various competitions and support programs.
There is great global interest in investing in African innovations.
This is because the developed markets are
saturated and Africa, as the ‘final frontier’, receives a lot of venture
capital-interest as it promises high yields for investors and high social.
There
is a lot of money for innovations in Africa. The challenge is attracting
capital from international investors and financing not only for large
infrastructure projects, but also for new services and products
targeted at the growing number of middle class
consumers.
Otto
Werneskog
Managing
director, New Leaders of Africa Investment Group
Trend 10
Growth of infrastructure bonds as an asset class
Africa’s large infrastructure deficit is a top
priority for governments across the continent. Big i n f r a s t r u c t u r e
projects are in the pipeline while others have already been developed to
enable faster extraction of natural resources and to foster economic growth.
Going forward, it is estimated that by 2050, Africa will have a number of
cities with a population in excess of ten million people. About 40% of
Africans currently live in urban areas. By 2050, more than 60% of the
population will be urbanised.
There is clear need for massive investment in
infrastructure. African Union’s NEPAD, through the Program for Infrastructure
Development in Africa (PIDA) estimates regional projects will require at
least US$68- billion by 2020.
Amidst low private sector participation and
absence of long-term banking finance, governments have been mulling infrastructure
bonds issue to bridge the funding gap. As a result, new infrastructure bonds
have given a big boost to the development of African energy, road and rail
networks. This trend is set to continue in 2014.
Going forward, there is tremendous scope to
develop the infrastructure bond market, and Africa could take cues from the experience
of other emerging countries like Malaysia and Chile where the governments
created an investor friendly environment by ensuring political stability, low
inflation and capital markets reforms.
Various countries have issued or planning
infrastructure bonds. Sub-Saharan Africa appears to be on the right track and
aims to strengthen the pension and insurance sector, which is the most important
domestic institutional investor, by establishing independent pension regulators
and investment guidelines. Reforms should also include incentivising private
sector, promoting public private partnerships, sector regulation, proper
tariff setting framework and efficient governance. Maintaining macroeconomic
stability and getting a credit rating will also boost investor confidence.
Michael
Kimondo
Head of treasury operations, Fusion Group
Source: Frontier Market network
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