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European SMEs eye Africa

Africa’s economic growth is likely to continue in the coming year. The African Development Bank has projected a growth rate of 5.3% in 2014, from 4.8% this year. According to the bank, this growth confirms the continent’s “healthy resilience to internal and external shocks and its role as a growth pole in a distressed global economy”.

Africa’s attractiveness to international investors continues to improve due to expanding consumer markets, various structural reforms and economic growth. Marc-Peter Zander, the managing partner of Germany-based consulting firm XCOM Africa, says many European companies are interested in investment opportunities in Africa.

“This year alone we advised over 50 organisations and individuals on their Africa strategy and we foresee a strong increase on investment in Africa in 2014,” he says.

The investment drive into Africa by European companies is driven by two major factors: more risks in Europe as the economy declines, and the strong interest of small and medium enterprises (SMEs) and families in investing in Africa.

“With more risks in Europe, large organisations would rather take risks in growth markets. A CEO of a multinational told XCOM Africa that taking almost the same risks in markets with returns of more than 20% is far more attractive than taking similar risks in market with 2%-3%,” says Zander.

He cites multinational consumer goods company Unilever as a good example of multinationals that are opting to inject capital in African operations. “Unilever has stated, in an official company report, that ‘the crisis in the eurozone could have a material adverse effect’ on its business. So the company went ahead in 2013 to invest US$204m in a new plant in Kenya, and €75m in South Africa for a new plant and expansion of existing ones,” Zander says.

XCOM Africa has noted strong interest by European SMEs and families in investing in Africa. These investments are not as large as those of multinationals, Zander says, but, with the continuing interest, the investments could have a stronger impact on African economies.

“I am aware that several family-owned businesses in Germany met recently to discuss investment opportunities in Africa. With low returns on European stock markets and the decline of returns in real estate and properties, these families are searching for long term investments in growth markets. These investments may range from €1m-€20m and could perfectly meet the needs in Africa.”

If Africa can continue to tackle challenges such as inadequate infrastructure, corruption and political instability, Zander says we could see more European SMEs and family-owned businesses investing in the continent, from as early as 2014.

This article was first published by Frontier Market Network.

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