5 things to know about building business in Africa

Corporate and investor interest in Africa commands the attention of the highest echelons of global business. The theme of  the 2015 World Economic Forum on Africa, Then and Now: Reimagining Africa’s Future, has my fellow delegates and me reflecting upon our continent’s remarkable turnaround.

Over the past decade and a half alone, Africa’s economy has grown nearly three percentage points faster than global GDP. Fuelled by an influx of Foreign Direct Investment (FDI), rapid urbanisation and an emerging middle class, African countries – including Mozambique, Zambia and Ethiopia – are forecasted to grow at a faster rate than many other emerging economies in the next five years. It’s no wonder then, that Africa sits at the forefront of many corporate growth strategies.

We see this with our own global corporate clients, who are eager to increase their presence in Africa, and tap into the resources and opportunities. Yet issues related to infrastructure, urbanization, accessibility, transparency and political unrest have challenged corporate entry in the past. While these have been improving over the last few decades, investors and corporates alike remain cautious as they explore options in Africa.

Ahead of the Africa meeting, JLL released a report to highlight market fundamentals that businesses must consider when developing their real estate footprint in Africa.

Align with the middle class… and young people

Urbanisation and Africa’s emerging middle class are critical drivers of growth. At least 370 million Africans (or 34% of the continent’s total population), are now considered middle class, according to the African Development Bank. While the definition of middle class remains relative, it’s clear that this dominating demographic exists largely in cities: the number of African cities with a population over 5 million is expected to more than double from seven in 2015 to 17 in 2030. And, international corporations are increasingly congregating in the hubs that attract this educated, working-age population.

Important to note is that this population is young and rapidly growing in size. Already representing the world’s largest youth demographic, Africa’s working-age population is expected to double to 1 billion in the next 25 years, surpassing both China and India.

Influx of FDI

Africa’s share of global FDI has soared from 8% in 2013 to 17% in 2014. While Asia Pacific still accounts for the majority of FDI inflows, Africa is the only region in the world to see significant growth in its share of global FDI flows since 2003 – more than doubling from $62.5 billion to $128 billion in 2014.

Back in the early 2000s, mining, oil and gas accounted for over 60% of this FDI. But by 2014, this fell to 17% as other sectors surpassed the extractive industries, most notably, manufacturing.

More than mining: now service sectors and manufacturing

Oil and gas remain a significant focus in Africa for overseas investors, but business services now top the FDI sector list, followed by manufacturing and sales, marketing and support industries. Retail and construction also feature in the top ten, and both have seen a surge in response to the demands from to rapid urbanization and consumer spending.

Explore fin tech

Mobile phone penetration and mobile banking are creating pockets of technological excellence and expertise, with Nairobi emerging as a driving force in this area. Elsewhere, Accra’s ICT (information communications technology) sector is strong, while Addis Ababa is emerging as a hub for IT start-ups.

Not surprising is Johannesburg maintaining its position as the continent’s leading financial hub, given its strong domestic banking sector and status as the regional headquarters of many international banks. Casablanca, Lagos and Nairobi are consolidating their positions as regional banking hubs, while Port Louis (in Mauritius) is evolving as an offshore banking hub.

Choose a hub

Identifying a commercial center point or hub is the crucial first step for a business entering Africa, with many choosing to invest in a key city and expand into other territories thereafter. The JLL City Hierarchy in the report points to the following up and coming African cities:

• Johannesburg and Cairo stand out as the most globally connected cities on the continent, with deep corporate bases, strong financial systems and relatively developed commercial real estate markets.
• Lagos, Nairobi and Casablanca shore up demand in West, East and North Africa and an increasing number of corporates are basing their regional or continental HQs in these cities.
• Meanwhile, Gaborone and Port Louis are emerging as specialized regional hubs for commodities trading and financial services, and feature among the group of JLL’s “rising star” cities.

The World Economic Forum on Africa 2015 takes place in Cape Town, South Africa from 3-5 June.

Author: Anthony Lewis, Director, Capital Markets, JLL Sub-Saharan Africa

Image: A general view of the Johannesburg Stock Exchange building in Sandton August 13, 2014. REUTERS/Siphiwe Sibeko