Is Africa the New Market for the Future?

Is Africa the new market for the future?

"Tsamina mina Zangalewa Cuz this is Africa" was the theme of the football world cup that was organized in South Africa last year and it is common perception and believe among the people that the same theme would guide the business and corporate milieu of the entire African continent in the coming decade and century. To answer the question: "Is Africa the new market for the future," it would be appropriate to borrow the phrase of USA president Barrack Obama-"Simply absolutely". No country in the world with a focus on future growth trajectory and potential market drivers,can afford to ignore the African continent.

1. Backdrop:

Africa is the victim of extreme generalization- with regard to the precarious safety and security concerns, unhygienic social conditions etc. And as Mark Twain had once commented-all generalizations are false-so is the case with Africa. Africa traditionally has been portrayed as a continent fraught with civil war, grappling with AIDS and other epidemics, and a continent known for its notorious pirates, predator like smuggling and drug mafias etc. In this backdrop, the tremendous business potential that the entire continent holds is sometimes underappreciated if not fully ignored.Although the vast oil and diamond reserves of Africa have always enticed the outside world, it has not been adequately translated into a systematic business model or an organized delivery mechanism.

2. Emerging Trends:

The mindset of people is changing andwe have seen that in recent time increasingly more and more investments are going to Africa.In 2006 foreign investments in the continent overtook foreign aid for the first time. Mobile subscriptions in Africa rose from 54 million to almost 350 million in the five years to 2008 - the quickest rate of growth anywhere in the world.

Although, Asia is still preferred over Africa as FDI destination, the acknowledgement of Africa as a future business center has started emerging.

Trend of FDI inflows to Africa in past, can be analyzed from the graph given below:

From 2004 to 2008, the FDI inflows to Africa had been consistently increasing. In 2008, due to global economic crisis, net FDI inflows have taken a reverse path. However, the prospects for future remain bright for Africa. Over the next five years, "The Economist" recently projected, "The average African economy will outpace its Asian counterpart." In 2010, percentage share of Africa in global new FDI project (Refer the graph given below) was around 4.5%. It had touched 5.2% mark in 2008-the height of global financial turmoil, signifying the continent as safe bait.

2.1.Diversification of FDI inflows to Africa:

Traditionally, petroleum sector was the major if not the only recipient of the FDI. Major oil exploration giants of the globe have their presence all across the continent. However, the trend is changing because of the booming middle class.According to a report by Mckinsey, 50 million middle-class households (defined as those with per-annum income of at least $20,000) are the residents of the continent. Wal-Mart's foray into African market through 51% acquisition of South Africa's retail company Massmartand Bharati's acquisition of African assets of Zain at a record $10.7 billion transaction signify this underlying change in trend. Nestle has expressed its desire to invest in Africa in coming years. Moreover, an UNCTAD report in 2010 notes that the service and telecom sector has become the major recipient of the foreign investment.

According to the findings of "Africa attractiveness survey-2011", conducted by Ernst &Young(E&Y), Total capital investment as a proportion of new FDI projects in Africa, has decreased over time, indicating the diversification in the investment.

2.2. Economic Performance in recent times

According to "The Economist", from 2000 to 2010, six of the world's 10 fastest-growing economies were from sub-Saharan Africa. Collective GDP of the continent was $1.6 trillion and is expected to reach $2.6 trillion in 2020. There are many silent performers in the continent whose achievements and illustrious performances are underreported. E.g. Botswana has maintained one of the world's highest growth rates since independence in 1966, and is the continent's largest continuous multi-party democracy.

According to E&Y's attractiveness survey-2011, Intra-African investment is growing strongly, underlining a growing sense of self-confidence and belief in the potential of the continent.

3. Initiatives of Governments

Although, South Africa is the most prosperous state of the continent and the hub for major global financial transactions, other countries are also gearing up to jump into the fray. Slew of measures have been taken by the governments of various African countries to improve the business scenarios. Corporate policies have been revised to meet the expectations of the potential investors.The New Partnership for Africa's Development (NEPAD) was adopted by the African leaders in 2001 to streamline their efforts towards the uplift of the image of Africa and to enhance Africa's growth, development