High growth industries and an expanding SME sector bode well for Africa’s investors

Contributed by Miguel Damião Gago, Member of the Board of Directors, Fundo Soberano de Angola, Angola’s Sovereign Wealth Fund 

Innovation and investment in many of Africa’s high growth industry sectors and the region’s growing SME segment have continued unabated in 2017. Combined with forecasts of rising commodity prices, investors must now bear in mind that we are moving towards a sellers’ rather than a buyers’ market. This is a shift that signals good news for many of Africa’s national economies – investment in high-growth industries and renewed confidence in the energy and mining industries.

Looking ahead to the remainder of 2017, energy and non-energy commodity prices are likely to continue to rise. The World Bank, in its April 2017 Commodity Markets Outlook predicted that OPEC output controls will steady the price per barrel at around $55, with a marginal improvement to $60 in 2018 (although US shale oil output growth poses a downside risk). Natural gas and coal prices, however, are forecast to rise dramatically, with projections of 26% for 2017 and close to 10% next year.

For Africa’s major oil-exporting nations, the worst-case scenario is oil price stability – and for those that export some of the fastest-growing non-energy commodities, the outlook is highly encouraging. Agriculture, fertilizers, metals, and minerals are forecast to rise for the first time in five years in 2017, with metal prices set to increase by more than 16% by year-end.

This shift comes after several years of low prices and, in countries like Angola, a period of sustained investment in non-oil industries that offer long-term sustainable growth. Over the recent period of economic turbulence, we have seen stakeholders come together, including the government, private equity funds, and the country’s sovereign wealth fund, the Fundo Soberano de Angola (FSDEA). Right across the region, the focus has been on developing non-oil infrastructure with a two-fold objective of diversifying the economy and creating jobs for the local population. With this in mind, the FSDEA invested in various business-critical industries such as agriculture, timber & forestry and infrastructure that will act as a catalyst for future growth in Angola and the wider continent.

In fact, several countries have embraced new funding models, notably by entering into Public-Private-Partnerships (PPP’s). Nigeria presents a promising pipeline of PPP projects, at State and Federal levels all overseen by the PPP governing body, the Infrastructure Concession Regulatory Commission (ICRC). Nigeria currently has 37 active PPP projects worth around $10.5 billion. Angola’s first deep-water port, the Port do Caio in the Cabinda Province, is a game-changing piece of national infrastructure that is set to transform the entire continent’s trade and logistics routes. This is Angola’s first PPP project and indicative of the nation’s confidence in embracing private equity.

These large-scale projects are a critical component in the nation’s drive towards economic diversification and, for Cabinda, a major cash injection that supports immediate and long-term job creation. At the same time, the Angolan government has adjusted the minimum capital requirements for FDI as an added incentive to foreign investors.

Foreign money is also continuing to flow towards fast-growing industries such as agriculture. Grain traders in East and Southern Africa are set to benefit from trade deals with $100 million, which were signed in Zambia in 2017. The deals will see the export of 383,640 tonnes of commodities and strengthen intra-African trade flow across the southern and eastern parts of the continent: Zambia, Malawi, South Africa, Zimbabwe, Kenya, Uganda, Rwanda, and Burundi. In the west, the Angolan government is supporting sustainable wood fibre industries through its granting of a concession for 80,000 hectares of plantations and additional land bank areas to a private equity fund. The project utilizes existing but underutilized plantations, in addition to developing new forests to support the nation’s wood exporting and local processing capabilities. Multiplier industries will thrive as the project matures, jobs will be created and it will also serve to reduce Angola’s reliance on imported wood products.

The healthcare and hospitality industries also provide opportunities because they form part of the region’s business-critical infrastructure. These sectors fortuitously offer opportunities at a time of continued financial sector reform, indeed there is huge scope for growth in almost every sector. Angola’s new law for foreign investment ensures that the local business environment is more transparent for external investors. Strict enforcement of anti-money laundering laws, which came into place in 2016, has helped to build a greater level of confidence in the country and in October 2015 we saw Angola launch $1.5bn worth of sovereign debt bonds in a bid to broaden the range of external finance. Many African countries are currently undergoing structural reform, including in Nigeria where the Presidential Enabling Business Environment Council (PEBEC) is working to make the country more attractive to local and foreign investors.

Looking ahead, the second half of the year and beyond offers increasing opportunities, buoyed by commodity price rises and a continued push towards attracting foreign investors, right across the region. There is clear political will and clear momentum, particularly in fast-growing industries and in important areas of public investment. Given this progress, investors should be confident that despite the challenges right across the African continent, the region is one of the world’s most promising markets for the foreseeable future.