As Africa improves transport and telecommunications links, it’s creating countless opportunities for foreign direct investment.    

Author: Gilly Wright

Marc-Peter Zander, managing partner and CEO of XCOM Africa, a German-based consulting company focused solely on the African continent, predicts Nigeria and Kenya will become Africa’s first telecom, e-commerce and infotech hotspots in the next two to three years. But he warns foreign direct investors in all sectors to do their own detailed analysis and research, not follow blindly.

“I’ve seen financial services companies investing in Rwanda, and they suddenly realize that only one million people have a bank account—if you are selling banking products you’ll want to go to Nigeria with, its [larger] population and a lot of people with bank accounts,” Zander says.

Nigeria, in fact, is fast becoming Africa’s powerhouse, having overtaken South Africa as the region’s largest economy and biggest recipient of FDI. Much of Nigeria’s success is a result of the size of its population (170 million consumers), but the government has also helped by adopting innovative policies to encourage FDI.

The Nigerian Industrial Revolution Plan, for example, is a five-year program developed by the Federal Ministry of Industry, Trade and Investments in 2013 to diversify Nigeria’s economy and increase manufacturing’s contribution to GDP to 9% in 2015 and above 13% by 2017.

Zander says the policy is already reaping dividends and predicts Nigeria will become Africa’s top automotive production destination in five to ten years.  “We have already seen more than 30 licenses given out to companies for setting up  SKD [semi-knocked-down kit cars] and CKD [completely-knocked-down kit cars] operations in the region, and many companies have already announced plans to assemble cars in Nigeria, including Honda, Renault-Nissan, Kia, Volkswagen and Ford.”

We recognize that we won’t succeed, long term in Africa unless we and our clients have access to a large pool of people with the skills needed for 21st-century know- ledge work.

~ Naguib Attia, IBM

“The Nigerian government understood it needed to diversify away from oil, with the drop in the oil price,” he adds, “and they put the policy into play with an import duty and levy of 70% on finished vehicles, and a zero-percent duty for CKD vehicles. So I think this initiative has really been good.”

South Africa, meanwhile recorded a steep drop in FDI, as proposed legislation, including the Promotion and Protection of Investment Bill, the Expropriation Bill and a policy proposal on land reform, dented business confidence.

In North Africa, foreign direct investors are returning to both Morocco and Egypt, with EY noting that FDI projects were up 61% in Egypt and 52% in Morocco in 2014. Volkswagen says it chose Morocco over Tunisia—suggesting the importance of stability in restoring investor confidence.

FDI in Africa is forecast to overtake official development assistance in 2015. With increased FDI and continued macroeconomic growth, Africa, DHL’s Brewer believes, could become an economic powerhouse in the future. “The region abounds with untapped opportunities and has much scope for growth,” he concludes.

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