4 TRENDS That Are Shaping Wealth Creation in Africa in 2019

Over the past few years, Africa has emerged as an exciting investment destination.

Despite being afflicted by concerns of political and economic instability, currency and commodity price fluctuation infrastructure deficiency and questionable governance, the continent continues to attract investors eager to diversify their portfolios and dip into sectors and industries which, despite challenges, have significant capacity for growth and high returns.

Africa is comprised of a range of distinct investment destinations, with a multitude of cultures and business practices, as well as differing political and economic circumstances.

Creation of better jobs, sustainable growth, and reduction of inequalities need to be at the forefront of policy-making in order to improve well-being and boost industrialisation.

Africa is a resource-rich continent, and it is the world's fastest-growing region, experiencing average annual GDP growth of 4.6% for the period from 2000 and 2016.

For the current five-year period until 2022, Africa's real GDP is projected to grow at 3.9% annually, and this growth is determined by three current trends on the second largest continent: the push, the pull, and the startups.

The Push Factors

First and foremost, the past decade has been characterized by an increase in migration in Africa as a result of a multitude of complex "push-pull" mechanisms. Some of the "push" factors include conflict, terrorism, poverty and political instability as well as a lack of socio-economic and decent work opportunities in countries of origin.

Migration from Africa commonly evokes the picture of a continent fleeing from its evils towards the European Eldorado. Africans deciding to leave their home countries for a dream of a better life in Europe is likely to be part of the explanation, one also needs to examine the prevailing living conditions in the large and heterogeneous sub-Saharan region.

Critical factors that are presumed to lead to migration run on macro, meso, and micro levels. Macro-level causes are structural drivers that, in principle, affect each potential migrant. These causes include a country's demographics, its geographic location, climatic events, economic wealth and performance, established political arrangements, security issues, and migration policies. Micro-level conditions include both the long list of an individual's features (age, gender, health, language, ethnicity, etc.) as well as the resources available to him or her (notably, finances and skills, including education). The meso-level category accounts for those elements connecting the individual with the broader society, such as an extended family group, ethnic, religious or regional communities, and more extensive social networks, comprising those powered by the internet and the new social media.

It is well-documented, that migrant networks connecting "migrants, former migrants, and non-migrants in origin and destination areas through bonds of kinship, friendship, and shared community origin … decrease the economic, social, and psychological costs of migration, thus favouring the probability that a specific person will embark on the journey,” explains a study “OUT OF AFRICA WHY PEOPLE MIGRATE”, edited by Giovanni Carbone.

The Pull Factors

The second trend is that the appeal of increased economic opportunities or quality of life, among other factors, in African countries, has become a significant "pull" factor for migrants. Furthermore, International migration features a robust regional dimension with most movement occurring within Africa.

The paradox is: At the same time as Africa's abundant supply of severe problems provokes thousands to depart, these same problems motivate entrepreneurs and investors overseas who are excited by the opportunities these problems present.

Over the past few years, Africa has emerged as an exciting investment destination.

There is a marked increase in the number of middle- class families and acres of unused fertile land which has been attracting investments from around the world into telecoms, consumer, and financial services. Giants like Heineken and Coca Cola have already set their mark on the continent and have enjoyed a (very) positive ROI.

What do investors look for?

Unique problems which they have the answers to.

Startup Finance

According to recent reports, there was an almost four- fold increase in total funding received for African startups in 2018. The number of funding deals more than doubled, and startups on the continent are increasingly recipient of big-ticket rounds of over $5 million. Last year, 30 startups raised individual rounds higher than $5 million in 32 deals valued at $626.9 million.

In total, African startups raised a record $725.6 million across 458 deals, the 2018 venture investment report by WeeTracker shows.

Fintech startups received the most investment in Africa in 2018, according to WeeTracker's report. Across 93 deals, fintech accounted for 40% of total funding raised and also accounted for five of the top ten largest deals.

While funding from local investors is growing, most of the funds came from investors outside Africa: from China, Japan, the EU, and the US.

And who are these global investors?

They range from global investment banking giants like Goldman Sachs, The International Finance Corporation, Swiss-based venture builder Seedstars, Investment AB Kinnevik Sweden, Helios Investment Partners, to international development funds such as The Tony Elumelu Entrepreneurship Program, Omidyar Network Founded by billionaire Pierre Omidyar, Bill & Melinda Gates Foundation, Chan Zuckerberg Initiative, and global tech companies like Microsoft, Uber, Opera, Google, Airbnb, IBN, Stripe, and Chinese Tencent.

"Like any market, it's driven by supply and demand," said Yele Bademosi, managing partner at Microtraction, the early stage investment fund that was also the most active investor in 2018 per WeeTracker's report.

Data backs up his sentiments. WeeTracker's report showed a healthy inflow of grants and prize money along with a remarkable rise in Venture Capital.

So far, six key industries have been favoured by the investor deal flows, and the balance is skewed toward tech-based startups. They are fintech, agritech, clean energy, eCommerce, education technology, and healthcare.

Mobile Economy, Fintech

Right now in Africa, no other emerging industry is attracting as much international capital and backing as fintech.

According to sources, in 2018 alone, fintech startups in Africa raised $284.6 million from investors. Across 93 deals, fintech accounted for 40% of total funding raised and also accounted for five of the top ten largest deals.

In Africa, a mobile phone is not just a communication device but also the primary channel to get online, as well as a vital tool for access to various life-enhancing mobile- based platforms and services, such as mobile money and the cellular IoT (Internet of Things).

By using mobile phones and the internet, fintech entrepreneurs across the continent are deepening financial inclusion and unlocking incredible market opportunities in financial services. The opportunities, ranging from processing payments and money transfers to savings and accessing credit, hold long-term appeal to investors.

Here are some facts:

Around 250 million African mobile users have a smartphone, and the number of mobile internet subscribers in Sub-Saharan Africa has quadrupled since the start of the decade.

Six new 4G networks were launched in the first half of 2018. There are now 120 such networks in the region.

New networks and cheaper smartphones are helping drive the transition to mobile broadband but getting online is still expensive.

According to the World Bank Group, Sub-Saharan Africa, with about 350 million unbanked adults, whose most commonly reported barrier is the distance to financial institutions being second to lack of funds in the first place, accounts for 17 percent of the global total.

South Africa, Nigeria, and Kenya remain at the forefront of startup activity in the fintech sector. The biggest deals for 2018 included the $70 million Series B funding for US- based Branch International and mobile lending app Tala which closed a $65 million investment. Nigeria-based Cellulant, Paga, Paystack, and Lidya attracted a total of $72.4 million, and South African mobile financial service Jumo and Yoco landed with $68 million.

Other promising African startups offering cash management, lending, credit assessment, conversational agent, savings and payment services include the online saving platform Piggybank.ng in Nigeria, the Ivorian Cinetpay mobile money payment hub, and the Ugandan small business loan mobile service Numida.

Economic data puts African fintech's contribution to the economic output of sub-Saharan Africa at an estimated $40 billion, with a projected rise to $150 billion by 2022.

However, digitizing payments and migrating cash payments to accounts is not without challenges.

Up-front investments in payments infrastructure, payment recipients understanding how accounts work and can be accessed, and guaranteeing a reliable and consistent digital payments experience, will demand time, skills, and resources. Education of new account owners on the fundamental interactions in a digital payments system is just as important.

Healthcare

This is the sector which offers plentiful opportunities for resolute entrepreneurs and investors who are passionate about healthcare and humanity. Healthcare opportunities present longstanding potential to create a deep-rooted impact in local communities on this continent that has approximately 15% of the world's population and bears roughly 25% of the global disease burden.

According to the United Nations Economic Commission for Africa, while several African governments have increased the proportion of total public expenditure allocated to health, overall health financing remains a significant constraint to effective health service delivery. Total spending on healthcare in Africa remained within a narrow band of five to six percent of GDP in 2000 to 2015, on average, though in per capita terms it has almost doubled from US $150 to $292 (expressed in constant PPP (Purchasing Power Parity) dollars.

Health spending in Africa remains mostly inadequate to meet growing health financing needs and rising healthcare demands, creating a huge financing gap.

Foreign investors are attracted by the winning proposition offered by the extensive calibre of African pharmaceutical market.

The World Bank has reported that between 2005 and 2012, Africa acquired 70,000 new hospital beds, and recruited 16,000 doctors, and 60,000 nurses. Coupled with existing infrastructure, this resource now totals one million hospital beds, 500,000 doctors, as well as 1,250,000 nurses, suggesting that the highest demand will be for healthcare services, mainly in-patient services.

The most significant influx of investment so far has been focused on building and improving physical capacity in the form of hospitals and clinics. The International Finance Corporation (IFC), which has invested in Hygeia in Nigeria and the MP Shah Hospital expansion and redevelopment project in Nairobi, Kenya, and its partners are currently the largest investors in private healthcare in Africa and implemented a strategy to invest US$1 billion in 2017.

There are also steps being taken to move the African biotechnology industry in the right direction.

In April 2018, the Cape Innovation and Technology Initiative, together with energy sector entrepreneur, Michael Fichardt, and Dr. Nick Walker, an innovation scientist at Next Biosciences, signed a collaboration agreement with the Centre for Proteomic and Genomic Research, to launch OneBio.

This biotech incubator, offering a six-month incubation programme including three boot camps, virtual workshops, expert coaching sessions, and tailored online content., aims to support South African and Zimbabwean biotech startups at the convergence of laboratory work and computational science, working on solutions aimed at driving change in Africa.

This incubation programme is free of change for participating startups and valued at over R350 000 per business.

Heads Up: Renewable Energy and Real Estate

Currently, the demand for energy far exceeds supply in Africa; hence, the rush of investors towards this gold mine. Many companies and investors have started slowly testing green energy models on the continent, which could well prove highly profitable in the long run.

An academy to train professionals in the renewable power sector has been launched in Nigeria, making it the first Sub-Saharan country to possess such a facility.

The race to spread solar power across Africa is now a multi- billion-dollar leading industry that continues to attract entrepreneurs and investors from both within and outside the continent.

As Africa presents a clean, open and vital resource for business opportunities in solar power, there is an increased demand for off-grid solar solutions.

The combined impacts of rapid urbanisation, high population growth, and robust economic potential mean that Africa's real estate sector remains an attractive space for entrepreneurs and investors.

There is a variety of exciting segments in Africa's real estate sector – from affordable housing and office spaces to retail and industrial property opportunities along with a growing demand for apartment hotels. The rise in demand for the latter comes from an increase in global business travel, with a market in excess of $1.2 trillion dollars annually.

In recent years, new apartment hotel projects that have entered the market include the Executive Residency by Best Western in Nairobi, Marriot's Residence Inn in Accra, the Novotel Suites in Marrakech, and Radisson Blu's Hotel and Residences in Cape Town and Maputo.

Business opportunities are waiting for smart, ambitious, and creative entrepreneurs and investors in Africa.

However, the global economy is predicted to indeed experience a deceleration in the coming years, hindered in part by trade uncertainty, rising inflation, and tightening Chinese credit, which is all likely to hurt sub-Saharan Africa's prospects for growth.

While some of these challenges will be difficult to avoid, others could be addressed domestically. Tackling corruption, investing in business infrastructure, increasing the average purchasing power through growth in wages and jobs are critical to continued economic development in Africa and to prove incentives for investors in the long run.