Sustainable investment in Africa: An overview

Africa, a continent on the rise, achieved relatively high economic growth during the past 15 years in spite of all the constraints, with its GDP expanding from an average of just above 2% during the 1980-90s to more than 5% during 2001-14. However, since 2013, the growth has moderated, largely due to the commodity price slump, and subdued external demand.

Regionwise, the growth remained the highest in East Africa, followed by West Africa and Central Africa, and was the lowest in Southern Africa and North Africa. Assuming gradual improvement in international and domestic conditions, growth is projected to accelerate across regions during 2016 and 2017.

Exports from Africa have been largely commodity based. This huge dependency on commodity exports has been a boon and a bane at the same time. In times of commodity boom in prices, the African countries stands to benefit and garner a lot of revenues. However, during times of slump in prices, the entire economy suffers drastically. For example, the share of ‘Mineral fuels, mineral oils and products of their distillation; bituminous substances’ alone in Africa’s overall exports stood at a phenomenal 45% in 2015 and was equivalent to about 20% of world exports of this particular category. Such high concentration of the export basket in overall exports exposes the African economies to the vagaries of commodity price cycles.

This Study, inter alia, explores the various opportunities for sustainable investments in Africa, which would not only lead to job creation but also facilitate a sustainable mechanism towards wealth creation in Africa.

In the mining and extractive industries, there have been numerous arguments towards diversifying away from commodity based economy. However, it is felt that such an exercise may not be possible in the immediate future, and hence the need of the hour is having a commodity based industrialization which facilitates value addition. In the crude oil sector, there is a scope of setting up refining capacities keeping the long term in view, while in the nonferrous categories opportunities could be explored in intermediate and mid to low end manufacturing.

Another area of focus which could lead to a significant improvement in African economy is agriculture. The continent has been dependent on the sector largely for its sustenance and livelihood. A good opportunity exists in the African agriculture sector wherein cooperative farming and contract farming could be encouraged. Such initiatives can lead to greater mechanisation, which in turn would facilitate development of regional and global value chains in agro products and food processing. Also required would be introduction of new agri equipment, which would significantly help in increasing productivity.

Besides concentrating on resource endowed product chains, there is an important aspect that requires immediate attention. As Africa gradually flourishes under surging economic and population growth rates, it also faces the challenge of ensuring that everybody benefits optimally from the gains of its progress. Two sectors which are critical in this context are energy security and healthcare. Both these would impact the continent’s productivity and translate into greater economic growth.

Access to electricity would help in businesses operating at higher levels of productivity, farmers running cleaner irrigation systems and processing machines that improve their yields and thus, their income. In rural communities, the farmers benefit from climate controlled storage solutions. At the same time, introduction of solar based electricity would catalyse movement away from fossil fuels as a source of energy of a large part of the population, thereby mitigating the ill-effects of climate change.

Healthcare is another area which requires serious attention. Many pockets of this huge continent do not have access to even basic health amenities. A general well-being of the community helps not only in having better health upkeep, but also improves the overall efficiency of the nation.

This Study envisages identifying areas of sustainable, responsible and impact investments in this remarkably huge African continent. The Study also appreciates the existence of a dual need in Africa. On the one hand, investments are required in an area which are its strengths, namely in minerals and agriculture, but there is a need is to establish forward and backward linkages so that there is value addition, and the local community benefits. On the other hand, there is also need for creating a sound power infrastructure which will sustain the growth paradigm of the African continent. This could essentially be facilitated through introduction of solar infrastructure, on grid and off grid, in a zone which is naturally endowed with almost 300 days of sunlight.

While the Study explores the huge opportunity available, innovative partnerships are also required towards creating sustainable investments. In this context, emerging economies which have largely been proponents of South-South cooperation, can lend their hand towards creating the requisite mechanism. BRICS economies (Brazil, Russia, India, China, and South Africa) in particular can act as instruments towards strengthening their investments in these identified sustainable areas. This Study has briefly highlighted the existing investments in Africa by the BRICS economies in areas like mining, agriculture and agro processing, solar, and healthcare. The Study surmises that sustainable and sustained investment in these sectors over a medium to long term horizon would not only induce better infrastructure, but also generate jobs for the young Africa. BRICS economies would also significantly benefit out of such investments.

» Download: Sustainable Investment Opportunities in Africa: Prospects for BRICS (PDF, 6.99 MB)