Southern Africa Post COVID-19: Investment Destination of Choice

“This will be Africa’s century”: Tony Blair, the former Prime Minister of the United Kingdom and current Chairperson of the Tony Blair Institute for Global Change, said in a live broadcast in July to global investors and private sector leaders hosted by “Invest Africa” to discuss post-Covid 19 Africa. He was more right than he may even realise considering the copious amount of evidence backing that assertion. More so, the southern tip of the continent.

Tony Blair with the President of South Africa Ceril Ramaphosa

As the world emerges from the global Covid-19 pandemic, investors are wondering where the smart money is and more and more are now gravitating towards Southern Africa. Key markets across that region are becoming increasingly attractive destinations for FDI (Foreign Direct Investment) and savvy investors stand to benefit – if only they could look beyond the difficult minefield of African challenges like development gaps and politics.

Amidst a turbulent 2020 it has become even clearer – Africa needs investment and investors need Africa. And the southern tip of the continent looks to be a very attractive destination. Up to this point FDI has largely followed colonial relationships, while China’s massive influx across the continent over the last decade was fuelled by the dual geopolitical objectives of securing raw materials and increasing its sphere of influence.

With the slowing of economic activities globally it has made investment decisions even more critical than before as investment money has been reduced significantly at source and so are the returns margins at destination.

There is an apparent need to look beyond usual way of investing like tradition and history to the purest reasons of profit and repeatability. With this new thrust very few places on the globe offer bigger and better opportunities than Southern Africa right now regardless from which angle one assesses it from.

Considerations for investing in this area can be done by country, listing the inherent advantages that make them individually more attractive than elsewhere. The assessments can be done by sector, or industry, looking at why I posit Southern Africa as one of the most eye catching investment destination at present.

It offers growth opportunities for most sectors comparable or much better than similar sectors even in well developed economies.  The valuation can also be done by investment option and the results will still confirm this assessment. These options include Direct Investment into African Stock Exchanges, Direct Investment into Private Companies or Investments in Africa, as well as Investing in Africa via Africa Focused Funds.

Now, I will expand on all these to give a thorough focus.

Southern Africa is an attractive investment destination by countries. Historically, this region is comparatively speaking, very peaceful as the last major war was in the late 1990s in the Democratic Republic of Congo. Save for militant skirmishes in Mozambique and civil unrest movements in others, nothing can be classed in the category of full blown conflagrations. Business thrives under environment of lawful order and peace.

The Southern Africa’s 15 constituent member countries combined are the world’s most natural resource rich area in the whole wide world. Fact. For the most un-mined gold, diamonds, platinum, chrome and even the 17 rare earth minerals, the southern tip of Africa is your unrivalled choice. Zimbabwe alone is said to hold close to 25% of all known opencast extractable diamond reserves in the world!

Emmerson Mnangagwa, Zimbabwe’s president, left, speaks during a news conference with Sergey Ivanov, chief executive officer of Alrosa PJSC, in Moscow, Russia, on Monday, Jan. 14, 2019. Mnangagwa, who became president in 2017, sees diamonds as a key way to help revive Zimbabwe’s mining industry, which suffered years of decline under his predecessor Robert Mugabe. Photographer: Andrey Rudakov/Bloomberg

And the natural resources extend to the biggest man-made fresh water body, the Kariba Dam straddling Zimbabwe and Zambia, the expansive sandy beaches zipping down from the Indian Ocean coastline from Tanzania, Zanzibar through Mozambique right down to Cape Town. Here the ocean meets its colder sibling the Atlantic Ocean in a union visible to human eye in an amazing sight to behold and the coastline u-turns back northwards right up to Angola. Half of Africa. A world in one. One can slide on desert sand dunes in Namibia and three hours later be sliding a white slalom on snowy mountain peaks of Lesotho in the same month of August. 

Expansive forests with all manner of exotic trees and plants for logging and medicinal beneficiation are most abundant here. The resources and diversity of flora and fauna is so widespread Madagascar’s alone has been found to consists of more than 12,000 species of plants of which around 83% are found nowhere else in the world! The same goes for wildlife game animals for which Africa is most known for and I won’t expand here, suffice to say that those animals are predominantly domiciled in this southern area of Africa.

The attractiveness of the area as an investment destination is as well aided by other human numbers for individual countries like literacy rates, including per capita number of people with college degrees. A key number as any investor will need a pool of employable staff to run their projects on the ground.

Also because of their thirst for FDI the countries have different legislations to attract and keep investments, like Special Economic Zones (SEZ) where laws are relaxed for investors and administrative assistance is given. Some, like Mauritius, have low tax regimes of max 15% and no taxes at all for some tax heads like capital gains tax. These deliberate legislations are replicated in various forms or another in most SADC countries, for instance tax holidays for new investments and the like.

The assessments that Southern Africa provides a compelling pull for investment right now can also be done by sector or industry. While no industry has truly been spared the marauding impact of Covid-19, some sectors in this region offer recession-proof, tech-enabled, hedging against fledging and stuttering investments made elsewhere.

In fintech, Southern Africa offers some of the highest mobile penetration rates in the whole continent. GeoPoll listed most countries in the region consistently above 70% people own mobile phones and in fact South Africa polled the highest the whole of Africa at 91%. This is a key statistic for Africa as most of its people are not banked and mobile transactions become the natural alternative.

In Zimbabwe, Postal and Telecommunications Regulatory Authority of Zimbabwe (Potraz) says mobile operators handled in excess of USD 8 billion in “cash-in” transactions in 2019. Not insignificant for a nation whose Gross Domestic Product (GDP) is USD 24 billion. That represents a third of economic output of the nation! SADC is pre-oiled for service and thus for investment.

Not that it’s a surprise that SADC fintech is primed for investment. Even prior to the Covid-19 pandemic, this sector was the largest destination for venture capital investment in Africa, attracting over 50% of the $1.34 billion raised by African startups in 2019 according to Toby Shapshak of Forbes (Jan 2020). 

Through tech-based solutions, companies in Africa have pioneered mobile money and introduced new approaches to online payments, lending and investments in a region where retail banking and consumer lending remain underdeveloped. COVID-19 is likely to further accelerate this trend as more people manage their finances digitally.

In the energy sector, Southern Africa is such a rising giant perhaps it is a big travesty that we did not delve into it first. As such, unsurprisingly, record investment is pouring into this industry and will continue to do so in the foreseeable future.

This July 2020 Mozambique got a USD 20 billion investment from seven countries to extract, liquefy and export natural gas, lead by operator, energy company, Total. The US, Japan, UK, Italy, Netherlands, South Africa and Vietnam came together to make this investment as they recognise that the world is moving to cleaner energy and gas burns much cleaner than oil based petro fuels.

 Liquefied natural gas (LNG) is the cleanest fossil fuel and its combustion does not emit soot, dust or fumes. It generates 30% less carbon dioxide (CO2) than fuel oil and 45% less than coal, with a twofold reduction in nitrogen oxide (N0x) emissions and almost no environmentally-damaging sulphur dioxide (SO2) emissions. LNG is cheap as well at current USD74/tonne compared to Oil even at current depressed prices of USD36/burrell (about 136kg)

This is by far the largest ever investment in the entire continent of Africa in a single project and it was made in this Southern African country. In light of these stratospheric numbers being bandied about in this project it boggles the mind to learn that talk in the Zimbabwe corridors of power says the country has a potentially bigger untapped gas field in its Lupane region than that of Mozambique.

The second largest investment in any African country to date is (by no coincidence) in the same region and same sector. SADC and Energy respectively. It is the Congo Hydro Power Project. The Grand Inga Dam project is actually the world’s largest proposed hydropower scheme. It is the centrepiece of a grand vision to develop a continent-wide power system, according to International Rivers, an online source.

The mega-project is a priority project for a number of Africa development organizations, including the New Partnership for Africa’s Development (NEPAD), SADC, East African Power Pool and ESKOM, Africa’s largest power utility. The proposed dam is the fourth and largest of a series of dams that have been built or are proposed for the lower end of the Congo River in the Democratic Republic of Congo (DRC) and will generate 40,000 MW, 27% of the current continental installed power of 147,000 MW. The project will consume USD $18 billion.

Still on the subject of sustainable energy, Africa as a continent is unrivalled for solar energy harvesting potential, with only Australia perhaps coming close by being second. This statement on its own holds gravity for days for whichever investor is looking to enter into this sector, therefore I will not attempt to clarify any further.

Other human industries in the region show similar promise like the social development sectors of education, health and the like. Traditional classroom learning has taken a backseat in the face of the pandemic, causing acceleration in the adoption of e-learning as schools attempt to minimise interruptions to learning for their students. Investment in development of solutions to enable students to continue learning while at home is thus apparently needed here more than anywhere else from gadgets to networks.

Tanzania’s Ubongo recently launched its Ubongo Toolkits platform, a large library of quality, African-made early learning materials and educational resources for kids aged 0-14, covering various topics from early numeracy, pre-literacy, and social and emotional skills to engineering, science, and technology.

Meanwhile, Kenya’s Eneza Education has partnered with telco giant Safaricom to offer a government-accredited curriculum designed and refined for feature phones. If these technologies take hold across countries searching for solutions to scale quality education, they may spur more widespread use of digital tools in the classroom and remote learning in the post-Covid world and untold returns for whoever is investing in same.

In health, Africa’s fragile health systems can only cope with a small number of infected patients due to the number of limited hospitals and the lack of enough medical personnel. Investments here can help the region bridge these healthcare gaps by providing software for self-assessment and symptom checking freeing doctors to attend to severe and urgent cases. Investments may even be in actual building of health facilities or in equipment used within them right down to consumables of the facilities.

Finally, having looked at Southern Africa’s appeal as an appealing investment destination by countries, then by industry , we now look at it by investment options. These options include Direct Investment into African Stock Exchanges. For investors who do not envisage involving themselves in setting up businesses or day to day operations of entities can purchase tradable instruments on the region’s many markets. SADC has the continent’s biggest stock exchange, the Johannesburg Stock Exchange. 

Of the top 10 best performing stock exchanges in the whole of Africa, 6 are from the SADC region vis Zimbabwe (which was number 1 in Africa) Malawi, Namibia, Mauritius, Botswana and Tanzania, in that SADC order. Goes without saying that the area is a mouth watering proposition for those to whom stocks is their investment vehicle of choice.

Also an investor can opt for Direct Investment into Private Companies as well as Investing in Africa via Africa Focused Funds. As alluded to elsewhere in this piece, individual governments have put in place legislations to improve efficiency and ease of doing business especially for investors. Add to that an employable reasonably educated demography and an insatiably ready market (if one can differentiate their products from the usually cheaper Chinese imports), one gets an environment primed for profit for whoever pours money in.

One can invest via an Africa Focused FundIf Africa follows in the footsteps of Asia there could be substantial economic gains for investors. Most countries in the region have an investor focused governmental linked department, like the Zimbabwe Investment Development Agency (ZIDA) in Zimbabwe or Zambia’s Development Agency. This option allows the investor to let the experts make investment choices for them by investing in an Africa fund. But the global investor universe has yet to really focus on the apparent (at least to us Africans ) opportunities and there are only a few specialist investment companies that allow you to invest into a fund specifically focused on African investments. Many of these attend the annual AFSIC – Investing in Africa conference in London. 

This is not to say investing in the region, or in Africa in general is for the faint hearted. The inherent hefty rewards always come married to unmitigated and usually uniquely African challenges.

For example, potential investors and stakeholders across the continent have expressed frustration with seemingly incoherent and often contradictory policies both within the countries and across economic zones. Enthusiasm for the prosper Africa wide initiative, which aim to unlock opportunities to do business in Africa have often been tempered by a restrictive travel problems in the continent where transport networks are severely curtailed and governments overly suspicious of each other or plain disregarding economic cooperation resulting in even visa restrictions among many. There are also the perennial power shortages from electricity to petro fuels and the scourge of nepotism if not outright corruption.

When you put together these undesirables of funding and  infrastructure deficiency affecting communication, transport and therefore turn around times, crippling lack of clear actionable information on almost all critical information and government departments spewing out contradictory regulations one gets a big swirl of objectionable thoughts on investing in Africa.

However not many places in the world can offer growth opportunities of at times above a 100% per annum and repeatable over several years. Senior investment bankers in the world’s most developed nations get lauded and are feted with bonuses and plaques on the walls for a 5% return per annum, yet Africa offers exponentially higher.

Investments on the continent in the era of COVID-19 will surely require a more sophisticated understanding of each African nation – knowing the difference between Zambia and Zimbabwe, the Democratic Republic of Congo and the Republic of Congo, is a good start. Yet as a number of key indicators suggest, investors that are willing to learn more about the dynamic and rapidly evolving continent will quickly be able to move beyond misconceptions, decipher real from perceived risks and identify lucrative opportunities blossoming across the continent, particularly in the Southern region.

Perhaps even more encouraging is the establishment of the groundbreaking African Continental Free Trade Agreement (AfCFTA), poised to be the world’s largest free trade agreement in terms of participating countries. As an inter-African single market for goods and services it will effectively stimulate production, streamline trade, liberalise tariffs and promote a breadth of promising investment opportunities, and make money for many investors who jump on the bandwagon, both local and international.

Indeed this may turn out to be Africa’s year after all, as Mr Blair envisioned. The caveat for this to be realised, he averred, was that the quality of governance was the key determiner of a countries’ success. When it comes to governance, he said, “There is no mystery. It is clear what works and what does not.” The real challenge lies in implementation – it is not enough to have the systems of democracy; countries must also embody its spirit through the creation of effective and independent institutions. The message is quite apt for Africa. This may indeed turn out to be the continent’s century.

ADMIRE MAPARADZA DUBE is a Financial Analyst currently engaged in the United  Kingdom. He has over 17 years experience in this sector covering FMCGS, Agribusiness, Banks and a Tax Authority in four countries spread over three continents.He is a CFA (CHARTERED FINANCIAL ANALYST) Charter holder, Banking degree, MSc Development Finance among other certificates and is a PhD student with London South Bank University (LSBU). He writes analysis pieces on financial matters and the subsequent social impact.

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