Africa has many natural advantages, says Kandeh K. Yumkella, Director General of the United Nations Industrial Development
OVER the past decade, Africa’s economies have expanded rapidly with annual GDP growth of 5.3 per cent between 2000 and 2008, over twice the OECD average.
While much is made of the boom in demand for extractive commodities, the shifting dynamics in global food markets are fuelling even greater investment opportunities in African countries.
The recent extreme weather patterns around the world, and the bursting of the credit bubble have highlighted the underlying trends propelling agriculture as the next business frontier. Forecasts also point to significantly higher prices of food and agrobased commodities for the foreseeable future.
Africa is well-placed to capitalise on these trends. The continent has vast resources in terms of arable land – with almost 60 per cent of the world’s total, only a fraction of which is developed – and a per capita water resource of 4,600 square metres, compared to 3,000 square metres in Asia.
On top of these natural advantages, stable macro-economic conditions over the last decade and significant investment in infrastructure are conducive to a favourable investment climate.
According to World Bank figures, Africa currently offers ‘the highest returns on foreign direct investment of any region in the world’.
These conditions have not gone unnoticed: numerous investment funds are considering to enter or expand in African markets, and their focus is increasingly turning to agribusiness, including agro-processing.
Moreover, there is growing recognition among policymakers on the continent that adding value to Africa’s huge reservoir of resources is imperative to translate growth into sustainable development.
Last March, I attended a conference in Abuja. At the event, African heads of state and government adopted the African Agribusiness and Agro-industries Development Initiative (3ADI), an ambitious plan to generate employment, income and food security in Africa by developing agribusiness and agro-industries.
This initiative shows the determination of Africa’s leaders, as articulated by Sierra Leone’s President Ernest Bai Koroma, to turn African agriculture into a “serious business”.
As ever, the early entrants will be the biggest winners. For example, the CDC, UK’s development finance institution, announced in November 2010 their plan to invest about $300m a year in coming years in African companies because the continent is registering high economic growth rates and it has become easier to do business in Africa.
Building on existing relationships is a worthwhile strategy for investors new to the continent. For example, the strong links on development cooperation with the United Kingdom led to the first Sierra Leone Trade and Investment Forum, held in London in late 2009.
Whatever the strategy, it is clear that the next generation of emerging markets will look a lot more like lions than tigers – and investors should prepare for their roaring success.