Africa’s economic growth is attracting the attention of bankers from all over the world. Nine of the world’s 20 fastest growing economies are located in Africa, which is the second fastest-growing region in the world after Asia. It is expected that sub-Saharan Africa will grow at an average rate of 5.7% this year.
The result of this growth is a huge opportunity for the bankers investing in the African market, who are drawn by the potential to get involved with increased mergers and acquisitions (M&A) activities on the continent. In fact, the number of deals occurring in Africa increased by 19% last year, whereas it decreased by 17% in China and 29% in India during the same period. Investment banking fees earned in Africa have doubled over the past 10 years.
Big international players are beginning to shift their operations to Africa from markets in other developing economies, which were previously booming but are now beginning to slow down and mature.
Deal-making activities in Africa are still in their early stages. In 2012, investment banking fees on the continent totaled $305 million. By comparison, three times as much was earned in Italy during the same year. In the first 9 months of last year, there were 43 deals in sub-Saharan Africa, compared to 179 in China and 154 in India. However, due to the high growth forecasts for African economies, these figures are likely to increase significantly and it is important for bankers and deal-makers who want to be competitive there in the future to begin establish a foothold there now.
Although much of the M&A activity that has taken place so far in Africa has involved commodity or telecommunications companies, there is great potential for investments in the retail or consumer sectors as well. These could prove to be very profitable given the rise of Africa’s middle class.
There are still many challenges facing the bankers investing in the African market, and it is likely that the benefits of the steps that are being taken to enter the market today will only be felt in the long term. This is because working in Africa requires dealing with unstable political situations, early-stage capital markets and underdeveloped infrastructure. However, because of the continent’s potential, financial players are currently laying the groundwork to make sure they can reap future benefits.
The challenges and opportunities embodied by Africa are a clear example of why foreign aid is not an expense but rather an investment. Any efforts by the international community to help overcome some of the challenges involved in doing business in Africa could be returned several times over in terms of the success of the international companies who are poised to expand their businesses there.
– Caroline Poterio Martinez
Photo: Invest Kenya