Our partners Banking & Finance, Competition & Antitrust, Mergers & Acquisitions and Commerce in Johannesburg present ten reasons to focus your attention on Africa’s business and investment opportunities in the coming year.
1. Green shoots visible – rising commodity prices
The pandemic has closed borders and halted trade, other than in basic necessities, across the continent and was the main reason for the decline in investment in 2020. A lack of available capital and acquisition finance, as well as difficulties in establishing prices in an uncertain market, also affected investment. Other reasons for the decline in investment include slowing levels of economic activity in major African economies, such as Nigeria and South Africa. However, green shoots are visible and market fundamentals signal a region with underlying resilience. The prices of raw materials rise and historic agreements return to the continent.
2. The launch of the AfCFTA
To date, 38 African countries have ratified the African Continental Free Trade Area (AfCFTA) agreement and 54 countries have signed it. The start of trading in 2021 led to increased investor sentiment as negotiators took note of early players in the deal. The AfCFTA opens up important growth opportunities for the continent, offering countries the possibility of diversifying their economies, increasing their production capacities and expanding the range of products made in Africa, in particular by stimulating the production of manufactured products. . Closer integration of neighboring economies offers a potential means of creating scale and competitiveness through the enlargement of the internal market, promoting development through greater efficiency. The AfCFTA also acts as an impetus for African governments to address their infrastructure needs as well as revise regulations relating to tariffs, bilateral trade, cross-border initiatives and capital flows.
There is an urgent need to identify and enable new sources of finance, outside of traditional lenders and international partners, to fill the infrastructure gaps in Africa, e.g. transport, energy supply, Internet access and data services, and education and health infrastructure in Africa. In the space of commodity finance in Africa, international banks have pulled out as they focus on managing their current liquidity and debt. As a result, development finance institutions (DFIs) are increasingly anchoring the infrastructure ecosystem in Africa. Local and regional banks, specialized infrastructure funds and private capital and debt also intervene to collaborate with DFIs and access returns. Multi-finance and blended solutions are expected to gain popularity as a way to reduce transaction risk and support a larger ecosystem of lenders.
4. Global interest
Trade data from China’s Ministry of Commerce showed that China’s trade with Africa has grown 20-fold in twenty years, strengthening China’s position as Africa’s largest bilateral trading partner. However, fewer infrastructure finance projects are expected from China in the future. Those that perform will be of higher quality, using sophisticated structures and new financing options, such as supply chain finance structures to deploy funds in the region. The United States is renewing its focus on creating impact and financing long-term strategic projects in the region, with the Export-Import Bank of the United States supporting infrastructure development on the continent. The United States recently announced the renewal of the Prosper Africa initiative (see our alert here), which focuses on improving reciprocal trade and investment between the two regions. The European Union has always been clear about its commitment to forging solid relations with African countries. Recently, DFIs from the United States, France and Germany collaborated to fund a substantial transaction in the health sector in Africa. The UK also plays an important role in terms of influence, investment and trade with Africa after Brexit. Following the key summits of 2020 and 2021, finance is redirected to Africa.
Investors with strong market positions and an appetite for risk capitalize on good deals in struggling sectors, such as retail, transportation, energy, construction, hospitality and leisure , and seek opportunities in successful sectors such as technology, healthcare and fintech. The oil and gas industry and secondary infrastructure sectors have faced significant strains, creating opportunities for buyers. Uninterrupted demand for technology has caused widespread cross-industry disruption, with the finance, energy, transportation, retail, agriculture and healthcare sectors all seeking opportunities to expand their technology infrastructure.
Digitization enables the development and harmonization of a regulatory framework to integrate Africa’s digital economies, crucial to be able to function in the post-pandemic environment. The African Virtual Trade Diplomacy Platform was implemented this year to enable parties of different time frames, languages ââand legal frameworks to meet in a secure online environment, thereby streamlining cross-border negotiations. Digitization is also helping lenders assess risk more accurately through access to previously unavailable data, before deploying capital to the region. This allows projects that otherwise would seem too risky to move forward.
Access to electricity on the continent is hampered by the lack of access to competitive financing, the dire state of utility infrastructure in Africa and the need to adapt energy policy and legislation to boost energy efficiency. investment. However, new systems and networks are designed around future environmental stressors and energy demand, without having to consider the limitations of the old infrastructure. With the use of mobile technology and the lack of existing electricity transmission networks, these developments provide an opportunity for African communities to access electricity by going beyond the traditional model of centralized electricity generation and transmission. New and cost-effective solutions that use renewable energy, green hydrogen, battery storage and smart energy technologies, as well as the global trend towards decentralized, carbon-free and secure energy supply that tackles climate change and stimulates economic growth, all lead to investment opportunities.
Before the pandemic, supply chains were already under pressure in Africa due to inadequate infrastructure, corruption and security concerns, poor logistics and onerous regulatory requirements. During COVID-19, these chains became longer and more vulnerable to breakage. When the AfCFTA became operational, she underscored the critical need for improved infrastructure and stronger supply chains to facilitate the free flow of trade across the continent. Last year, the African Union’s African Peer Review Mechanism highlighted the challenges of Africa’s supply chain and its overdependence on foreign trade, and suggested that the continent strengthen its capacity manufacturing to build a supply chain that could not be weakened by global bottlenecks. As a result, many African countries have started to assess ways to improve their manufacturing capabilities so that they can produce local components.
Competition policy continues to be viewed by regulators as a key driver of economic growth. Across Africa, competition policy enforcement is increasingly used as a tool to boost economic performance and promote the revitalization of trade and industry. Many jurisdictions have strengthened their competition and antitrust regimes by amending existing laws, introducing new laws and regulations, and renewing the fervor and political will to enforce the laws. These developments call attention to the continent’s collective enthusiasm for ensuring respect for competition, and its determination to promote and protect more efficient economies.
10. Environmental Social and Governance
As Africa reduces its overdependence on natural resources and increases its manufacturing capacity, it must ensure that it grows in a sustainable manner – by stimulating investment in clean energy projects, community development, wildlife protection, sustainable agriculture and low carbon development, for example. A commitment to environmental, social and governance principles is now a primary goal in the quest for post-pandemic funding, with access to capital for large projects almost certainly containing sustainability requirements.
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