The COVID-19 pandemic already having a major impact on developed economies, particularly in the western world, mainly due to their dependence on consumption and services. As people are restricted to respect social distancing measures, all consumer behavior and spending habits had changed dramatically, causing a slow economic recovery that could last as long as two years or more.
Faced with low growth prospects, investors are advised to relocate their capital, one of the most talked destinations for future growth via capital relocation is expected to be Africa, with emphasis on the more economically established countries in the continent.
Source: The Conversation
According to numbers provided by Eurostat, the African population reached almost 1.3 billion people in 2017, more than double the population of the European Union, that’s approximately 512 million. Better demographics in Africa is an indicator that there will be an increasing number of people entering the labor force in years to come and thus more spending in the years to come.
This can lead to much better growth prospects, especially if we consider Europe had been struggling since the 2008 financial crisis. Considering the COVID-19 pandemic will also impact Africa, once the situation gets under control and confidence starts to build up, there will be a massive upside potential and major opportunities for Europeans to invest in African properties and funds.
The Eurostat Population Index for Africa is expected to continue its exponential increase by 2050, from 480 in 2020, to as high as 900. Western companies had already started to invest there during the past decade and are expected to increase their exposure as long as growth prospects in Europe won’t improve substantially.
If developed nations need to rely on consumption growth to generate economic expansion, African nations like South Africa, Egypt, and Ghana still have a lot of infrastructure projects which are pending at the moment. For international investors this is big news, considering business activity flourishes where such investments take place. Several companies and individuals had already shown great results by investing in Africa and are a great example of how foreigners can benefit from the African potential.
One of the most prominent names is Ofir Eyal Bar, a real estate investor and digital marketing entrepreneur with stakes in South Africa. Ofir was born in Israel and owns several properties, including residential and commercial real estate properties in Israel, as well as London. After leaving Israel for the US, he started investing in other kinds of real estate deals, including logistic warehouses in Western Europe and residential projects in South Africa.
“South Africa had been a major destination for foreign investors because it’s perceived to be one of the most reliable countries on the continent”, Ofir Bar referring to logic that first drawn him to the country. The fast-growing South African real estate market had drowned Ofir Bar’s attention a few years ago and he has been investing heavily in Cape Town ever since, including both residential and commercial projects.
With better growth prospects, a population of approximately 59 million people, and a huge touristic potential, the country continues to attract investors, especially now that the central bank had reduced interest rates, which should support continued growth in real estate.
Emerging markets with better growth prospects
Based on the same Eurostat figures previously mentioned, African Economies had been growing faster in recent years, even as compared to the best-performing EU country – Ireland. From 2016 to 2017, Ethiopia (10.3%), Ghana (8.5%), and the Democratic Republic of Congo (7.6%) were on top of the list in terms of economic growth, outperforming Europe by a large.
“Better growth prospects are clear and should continue to put African nations in a much better position when it comes to investors choosing where to allocate capital”, as Ofir Bar explains. In 2019, Africa’s economic growth has stabilized at 3.4%, according to the African Development Bank Group.
Although the initially expected figures for 2020 (3.9% growth) would be altered by the pandemic, in the near term, things look very promising. That happens because of a gradual shift from private consumption towards investments and exports. Investments account for more than 50% of the continent’s growth for the first time in a decade.
Keeping track of the downsides
“Some negative aspects must also be taken into account”, Bar is referring to some of the doubts many investors who planned to invest in Africa are bothered by, “one of those is the cold fact that only a third of African nations manage to achieve inclusive economic growth”, which of course could lead to reducing poverty and inequality. This is one of the main issues the continent is facing.
At the same time, since investors will be dealing with emerging markets, regulation is not as reliable as with the European nations. “There’s a lot of work to be done in this area”, Bar’s concluding, “but it will solely depend on the local political will, rather than external factors”. Still, foreign investors are fully aware higher returns come with associated risks, making Africa one of the ideal continents to invest, despite some of the drawdowns.
This article does not necessarily reflect the opinions of the editors or management of Downtown Africa