Investors and executives are starting to become more positive on Africa as an investment destination, although some still see barriers keeping them from investing.[hidepost=9][/hidepost]
For its 2011 Africa attractiveness survey, Ernst & Young interviewed decision makers from companies around the world. The findings show that 68% of respondents believe that Africa has become a more attractive business destination.
Most of this optimism, however, comes from respondents based in emerging markets and the continent itself. 74% of investors in other emerging markets believe that Africa has become more attractive. Of the African decision makers interviewed, 86% believe the continent has made progress in the last three years. Respondents from more developed regions such North America and Europe were less enthusiastic, with 46% saying that Africa’s progress has stalled over the last few years.
Despite current excitement about the potential that the African consumer holds, highlighted in reports such as McKinsey & Company’s Lions on the move: The progress and potential of African economies, most respondents feel that the extractive industries such as mining and oil and gas hold the most promise. “This perhaps reflects a more general perception that Africa’s economic growth over the last few years has been largely driven by the commodities boom, but it underlines the increasing strategic importance of Africa’s rich resource base,” notes Ernst & Young.
Investors interested in the continent need to have a long-term view. 71% of the respondents believe that Africa will only offer high growth potential over the longer term (more than three years).
Africa is, however, not a homogeneous market and there are vast differences between the more than 50 countries. Most respondents believe that South Africa is the most attractive business destination on the continent. “This is perhaps unsurprising, given that South Africa is the most developed economy and perhaps the well-known country on the continent,” says the report.
The survey found that perceptions of the attractiveness of individual territories are greatly influenced by the country of origin of the survey respondent, and often by historical or cultural links. “For example, Morocco is regarded positively by many French respondents; South Africans tend to be more positive about Anglophone African countries (including, interestingly, being the most positive of all respondents about the attractiveness of Nigeria); Indians are positive about South Africa and Kenya, both of which have sizeable Indian minority populations and strong historical ties.”
These perceptions about the relative appeal of individual countries, however, do not correlate with actual foreign direct investment, which is distributed across a far greater range of countries.
Political instability in Africa is the biggest worry for foreign investors. Other barriers to investing in the continent include corruption, weak security and poor infrastructure.