Top industries in Sub-Saharan Africa in which to invest

10 Apr 2016

As Sub-Saharan Africa navigates the aftershock of the impact of El Nino on crops and food produce, together with external factors of China’s slowdown, the drop in oil and commodity prices, Africa is called to rise to the challenge with increased focus and investments in infrastructure, fiscal institutions, fortifying human capital and diversifying non-commodity revenues.

We take a look at the top industries and countries in Sub-Saharan Africa in which to invest

According to a report by BMI Research, the following sector opportunities exist:

Gas-fired power and Infrastructure in Côte d’Ivoire

The long-term view on infrastructure remains optimistic. Côte d’Ivoire’s attractive public private partnership (PPP) investment profile and operating environment make it one of the top performing infrastructure markets in terms of growth and investment over the next five years. Driven by projects under the country’s USD22.8bn National Development Plan and large scale efforts to reform the business environment, a number of PPPs have been signed over recent months which will not only support growth in the construction sector, but also continue to build the market’s reputation as a safer investment destination – crucial for attracting the long-term investors needed for infrastructure. Real growth in the construction sector over the coming five years is forecasted at an annual average of 8.2%, which is robust at a time when other markets more exposed to the fall in commodity prices have had their growth slashed over 2015.

Mobile financial services (MFS) in all of SSA except Angola and Ethiopia

The long-term view on mobile towers in Côte d’Ivoire, Ghana, Nigeria and Tanzania remains positive. Going forward, however, MFS will outperform. The outperformance of operator-led MFS is due to the much lower barriers to access for consumers: mobile networks reach a much larger segment of the population than banks can profitably reach through bricks-and-mortar branches, while the high volume means operators can charge lower rates for processing money transfers and set lower minimum transaction values. Mobile operators have reported accelerating take-up of MFS in 2015, as consumers become increasingly familiar with the services, and as their MFS platforms become more sophisticated, offering cross-border remittances, savings, loans and merchant payments, on top of basic peer-to-peer transfers. These factors will sustain strong subscriptions and usage growth in 2016, with laggards like Nigeria rising to set the pace of take-up as mobile operators and banks have finally adapted to the country’s strict regulations. Angola and Ethiopia are the only two markets where MFS growth will not play out, owing to the limited competition in their mobile markets, which curtails innovation among mobile operators.

Oil production in Angola

Angolan oil output is set for strong growth over the next five years, despite the sharp drop in global oil prices. A spate of major projects is due to come online by 2019, bringing around 500,000b/d of additional capacity. New production and midstream infrastructure will be needed to support the increase in output, and with the bulk of new production concentrated in deepwater and technically challenging plays, growth will be heavily services-intensive. Local content requirements are minimally enforced, and given limited domestic capacity, the opportunities that accrue to the foreign private sector will be substantial.

Pharmaceuticals and Healthcare in Ethiopia

The long-term view on telecare in Kenya remains optimistic. Furthermore, Ethiopia is viewed as an emerging opportunity for investment within the pharmaceutical and healthcare industry, in view of its sizeable population, rapidly growing economy and stable political environment. The country has huge untapped potential and the main drivers of expenditure growth include the large underlying burden of communicable diseases, growing burden of non-communicable diseases, increasing urbanisation, rising income levels and the rapidly growing and ageing population.

Ethiopia’s government is taking an active role in promoting the development of the pharmaceutical and healthcare sectors and is facilitating foreign direct investment. Highlighting its potential, GlaxoSmithKline announced it intends to position Ethiopia as its pharmaceutical supply hub for East Africa in early 2015. Affordability levels are low, although there is a rising demand for high-value innovative products, driven by the emerging middle class.

The premium car segment in Kenya

In autos, the Kenyan premium car segment is favourable. While income inequality in the region is a barrier to entry for many volume car brands, it provides one of the biggest growth opportunities for those at the premium end of the spectrum. Premium car manufacturers were among the best performers in a record year for Kenyan vehicle sales in 2014. Net income per capita for the richest 10% of the Kenyan population has grown 28% between 2010 and 2014, to an estimated USD1,821, supporting this increased spending in the premium segment. However, real growth is set to come over the next five years, when the net income per capita of the richest 10% is expected to more than double.

Impressive growth over the past decade positions SSA as a viable investment option, taking into account the vagaries political instability and external factors both financial and physical which impact in varying degrees on each country.

SSA’s investment opportunities include a myriad of industries, together with its population growth and youthful population, one of it strongest differentiating factors compared to other emerging regions including China, India and Brazil, setting the Sub-Saharan African region apart from other emerging regions.

 

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