For obvious reasons, global businesses constantly avoid regions of high-security risk, but the problem is exacerbated when local investors are uprooted as a result of rising instability.
Statistics from Global Competitiveness Report contained in the Africa Investment Notes for February shows an increase in the extent to which the threat of terrorism imposes costs on businesses operating in selected African countries between 2010 and 2015.
The vertical is greater in countries like Egypt, Kenya, Nigeria, Senegal and Tunisia, all of which have recently faced high insecurity threats. Should widespread insecurity continue, the reform of already complicated investment climates of many African countries becomes more difficult to handle.
Africa Investment Notes is a monthly investment newsletter for people, governments and businesses focused on the African continent. Its purpose is to convey strategic investment data, information and insights to both foreign and domestic investors, entrepreneurs, corporate entities and government actors within the African business space so as to support best practice, capital growth and investment throughout the continent.
It is a service of Pedestal Africa Limited – an Africa focused enterprise which operates a private equity portfolio, media and IT holdings and an investment advisory service.
The report notes that the attention of investors and entrepreneurs, hoping to participate successfully within the African business environment, is increasingly drawn to certain business realities.
It notes that though the venture capital landscape of many African economies remains dominated by companies headquartered in the West, there is growing consciousness of the need for local direct investment (LDI).
Intra-African and in-country investors will be the beneficiaries of the search by policymakers for innovative venture capital that prioritises the needs of Africans, according to Africa Investment Notes.
For instance, it further notes that while foreign direct investment (FDI) in the African region hit a record $60 billion in 2013, five times 2000 levels, FDI projects in the region declined and fell by about 8.4% in 2014. In that same time, Intra-African investments nearly tripled their share of FDI projects over the last decade, from 8 percent in 2003 to 22.8 percent in 2013.
The rising demand for Intra-African investment creates a virtuous circle that encourages greater foreign investment. The convergence of local and foreign investments is supported by strong macroeconomic growth and outlook, improving business environment, a rising consumer class, abundant natural resources and infrastructure development. Continued focus and investment in market-leading infrastructure will better connect Africa to the rest of the world, and create more opportunities for African businesses, allowing them to trade across borders and with new target markets.
In the last half-decade, many businesses and governments across Africa, have struggled with expanding entrepreneurship. The convergence of unemployment with other problems of falling commodity prices constantly begs innovative solutions including those that appear to have a social dimension.
Unlike elsewhere, Africa is made up of many diverse economies without a singular or unifying regulatory body. Thus, differentiating colonial histories, religions, languages, currencies and political systems of the myriad societies is a key element for business success. But, new trends are evolving. Despite the absence of a one-size-fits-all approach, businesses need to understand that policymakers across Africa are scrutinising investors for specific sustainability ambitions.
Long-term social and economic impact on the local economy is the new popular yardstick for foreign companies and entrepreneurs. This does not mean that companies are expected to operate as charities in Africa but that they should bring something useful and lasting, driven by local innovation, to the table. To make this a reality, firms must look towards Venture Capital Companies that are driven by more than profit, and that can help them build a business that is relevant and sustainable.
Many governments across Africa, particularly those currently faced with challenges of the commodity crash and economic hardship should consider entrepreneurship funding as an innovative way to boost the local economy. New kinds of government-driven Venture Capital with deep interest to support enterprise, innovation and diversification of the local economy can help create jobs. High levels of youth unemployment, one of the toughest challenges of the 21st century, reinforce the compelling case for creative solutions to Africa’s social and economic problems.
Iheanyi Nwachukwu
