Investing in Africa: opportunities and risks explored at The Africa Debate

The Africa Debate, organized by Invest Africa Ltd and held in London from June 4-6, spotlighted a significant shift in Foreign Direct Investment (FDI) flows to Africa. This pivotal forum underscored the continent's potential for economic growth, job creation, infrastructure development, and technological progress. Despite historically low global FDI shares, new investment sources are emerging, and key sectors are expanding. The discussion focused on strategies for African nations to attract and promote investment, leveraging these changes to boost economic development.

Experts explored Africa's complex 2024 economic landscape. Post-pandemic challenges and geopolitical shifts have subdued growth prospects, yet there is cautious optimism with projected growth of around 4%. European efforts to build investor confidence through transparency and sustainability were highlighted. Additionally, the forum addressed Africa's climate finance shortfall and the need for sustainable supply chains.

Foreign Direct Investment (FDI) is pivotal for Africa's economic growth, job creation, infrastructure development, and technological progress. Despite the continent’s immense potential, Africa’s share of global FDI remains disproportionately low. Additionally, intra-African direct investment lags behind other regions, with investors often favoring international markets over opportunities within the continent.

However, recent years have witnessed a paradigm shift in FDI flows to Africa. New investment sources are emerging, and key sectors are expanding, presenting ripe opportunities for investment. This translates into African countries effectively attracting and promoting investment, leveraging these new dynamics to drive economic development across the continent.

In this context, experts have a clear message for those "eager to step forward and make things happen in Africa", and the message is categorical: "taking control of your own country's resources, without over-reliance on other nations, is crucial. Developing projects and infrastructure is key."

Amid challenges, Africa's investment outlook is showing signs of gradual improvement after a turbulent period, with growth projected to reach approximately 4% in 2024. Despite positive signals, including stabilized public debt ratios and significantly reduced inflation, persistent challenges remain, ranging from funding shortages to high borrowing costs.

Top ut it into context, Africa's economic landscape in 2024 is complex. The continent has avoided severe market turbulence amid post-pandemic challenges and geopolitical shifts, but growth prospects are subdued by instability and lackluster performance in major economies. Economic growth decelerated to 2.5% in 2023, with a modest improvement forecasted at about 4% in 2024, still below pre-pandemic levels. High external debt risk looms large for many countries. However, inflation is expected to recede, and prudent macroeconomic policies are bolstering fiscal balances in key markets.

Still, risk, as well as reward, is on: European efforts to build investor confidence are formidable, focusing not just on infrastructure but also on transparency in taxes, logistics, and adherence to sustainability standards. There is fierce competition for capital, which is relatively scarce compared to 2010. The cost of capital and local currency challenges are significant, yet the long-term view remains positive despite short and medium-term volatility.

As to the unfavorable side, Africa is experiencing a decline of 5% to 15% in per capita economic growth due to climate change impacts. Agricultural productivity is also at risk, with potential losses up to 2.9% by 2030 and 18% by mid-century. Despite these challenges, Africa receives only a fraction of global climate finance flows, which hampers its capacity to adapt and mitigate climate change effects. That is why it is important to emphasize tools like carbon taxation and sustainable supply chains, as well as aligning trade, investment, and climate agendas to achieve a climate-resilient and prosperous Africa.

The continent's vulnerability stems from over-reliance on external agents, prompting a strategic shift. Key topics included currency challenges, the unique issues facing small and isolated areas, and the need to promote industrialization and trade. Measuring the social impact of investments is crucial, ensuring that critical mineral management benefits Africa. Partnerships with local and international companies are vital to mobilize capital and promote prosperity.

However, we must not forget that Africa holds immense clean energy potential, with abundant reserves of critical minerals and solar resources. Despite this, the continent receives only 2% of global clean energy investments, and the processing of its transition metals is largely outsourced.

Efficient extraction and exploration of critical minerals are crucial. Regulatory frameworks, funding, and data are essential to attract investors. The focus of companies like Xcalibur Smart Mapping is on providing solutions, finding financing, and reducing risks. For example, mapping projects in Angola have attracted significant mining investments. Countries compete for funding, and better information provides a competitive edge.

As the world grapples with the climate crisis, Africa is key in shaping the global energy transition. The continent's reserves of critical minerals and solar resources are crucial. However, the processing of these resources is largely outsourced, depriving Africa of its benefits. The debate highlighted Africa's potential in the energy transition, the need for regulatory frameworks, funding, and partnerships to maximize resource use efficiently. The message is clear: Africa must take control of its resources, develop projects, and build infrastructure to ensure sustainable growth and prosperity.

The session on Morocco at the Africa Debate was one of the most highly anticipated events, drawing a full house. Attendees were keen to hear about Morocco's strategic positioning as a stable, energetic hub, not just in terms of resources, but also its vibrant society and renowned hospitality.

Morocco is transitioning from a popular tourist destination to an attractive business hub, focusing on two key sectors: energy and infrastructure. Significant investments are being made in green energy, with the goal of achieving 50% renewable energy by 2030 and decarbonizing industries. In terms of infrastructure, Morocco is leading in Africa with extensive developments in transportation, logistics, highways, and high-speed trains.

The event emphasized Morocco's ambition to convert initiatives, projects, and ideas into actionable plans. They highlighted the nation's talent and robust infrastructure, positioning it as a future hub for climate-friendly industrial energy. Strategic investments in research and innovation are aimed at ensuring a resilient energy future and exporting clean, competitive energy to allies in Europe and beyond.

The key question remains: how much funding is needed to build infrastructure that promotes investment? Morocco's potential in renewable energy is vast. The focus is on maximizing synergies between ecosystems, making the best contacts, and understanding why investment is worthwhile. Ensuring the creation of structures to support industries and initiatives is paramount. Implementation is key, and Morocco prides itself on doing things "the right way, quick, and with impact."

Morocco also ranks as the most attractive country in Africa for renewable energy investments. Already industrialized, its existing ecosystem can attract the necessary professionals within a few years. Visibility is crucial; people cannot invest in what they do not see. This can be achieved through partnerships and alliances with companies from various backgrounds, making Morocco's initiatives stronger and more visible on the global stage.

An especially intriguing segment of the Africa Debate was dedicated to female presence in the mining sector, exploration, and accompanying investments. The 'UK Gov't Business Roundtable – Empowering Women for Resilient Global Supply Chains' saw predominantly liberal country profiles standing out with their assertive discourse.

We were particularly positively surprised by the words of American Aubrey Hruby , who actively participated in various panels and side events during the Africa Debate. Hruby emphatically stated, “we must tailor actions not only to global equality goals but also to the specific circumstances of each country.”

The discussion highlighted the critical need to adapt regulations, initiatives, and governmental actions to the current development stage of the area they target. While sharing commendable and just global objectives, the measures to achieve these goals must be uniquely tailored to each country.

The Africa Debate underscored the continent's potential and the need for strategic investments to drive growth and sustainability. From renewable energy to infrastructure development, Africa is poised to play a crucial role in the global economy. However, overcoming challenges like funding shortages, high borrowing costs, and climate change impacts requires collaborative efforts, innovative strategies, and a clear vision for the future.

More information: https://xcaliburmp.com/