Foreign investment in Africa has been on the rise in recent years, and some experts say the continent has the potential for highly profitable returns. But many businesses remain unaware of the current opportunities and African countries lag behind the flows of capital into other developing regions. At the Africa Investor summit on the New York Stock Exchange this week, a panel of global institutional investors and pension fund managers met with African Capital Market leaders to discuss the opportunities and challenges facing economic growth and international investment in African markets.
Financial experts say the African continent remains among the world's most risky places to invest, but the prolonged economic slowdown in western markets has prompted investors to seek new opportunities.
Several African countries have worked their way into the global dialogue as emerging markets generally defined as nations with social or business activity in the process of rapid growth and industrialization. According to the financial publication McKinsey Quarterly, over the past two years, an upturn in national growth rates was mirrored in the increased profitability of companies operating in Africa.
The most optimistic about Africa's financial future compare its current investment climate to that of countries like Brazil, Russia and China over the past two decades.
Former U.S. Treasury Secretary Robert Rubin says he sees limitless potential.
"I think the tradition impression of Africa is that major opportunities are in the extractive industries, natural resources," he said. "Clearly natural resources are an important part of the African economy and will remain so for a long time to come. But I think people focus on less, are less aware of is that Africa now has developed tremendous opportunities in media, telecommunications, infrastructure, retail activity, transport. In all of the dimensions of a modern economy."
From an investor's perspective, several countries in particular are considered new frontiers of growth. Nigeria, the world's eighth largest crude oil producer, has a projected growth rate of 4.8 percent for 2010 and the Nigerian Stock Exchange is now the second-largest in sub-Saharan Africa - but it is still less than 10 percent the size of the region's top exchange, South Africa. Obstacles remain, among them the country's decrepit power grid and jitters over Nigeria's upcoming presidential elections which analyst say could divide the country along religious lines.
According to Johan de Bruijn, a portfolio manager at Emerging Markets Management, Kenya is another dynamic player.
"We think that the Kenyan economy is extremely innovative and there's lots of countries there that are on the forefront of technology," said de Bruijn. "They have had a number of sub-sea cables landing so we think telecom international broadband costs will come down, internet penetration will rise up as well."
The United States is currently Africa's largest trading partner, followed by China, which has invested heavily throughout the continent.
Eddy Njoroge , the Managing Director of Kengen, Kenya's largest utility generator, says it is looking for joint venture partners, and has inked a deal with a South Korean company to create a coal plant.
"We have a huge expansion program. We are currently at about 1500 megawatts. We hope to be 3000 megawatts by within the next three years or so. By 2030 we hope to be over 10000 megawatts," said Njoroge. "So we'll be looking for a lot of partnerships. We know that. I n all sorts of forms. Joint venture partners. We're looking at in terms of the shareholding we want the government to sell, we're hoping to get a strategic investor into the company."
Ghana is set to become the continent's newest oil exporter. The country's stock exchange currently has a bout 35 listed companies. Ekow Afedzie, the Deputy Managing Director of the Ghana Stock Exchange, says the country's stable government, expanding Growth Domestic Product and falling inflation makes it an attractive place for investors.
"When it comes to the market itself, the stock exchange in Ghana has been doing quite well over the years," said Afedzie. "This year the market has gone up about 30 percent in dollar terms. Last year it was down, but the year it was up about 58 percent. When most markets were down all around world our market was up like 58 percent."
Experts say a lack of liquidity and a lack of diversification are the greatest challenges facing African economies. Other challenges include political instability, a lack of infrastructure and the reliance by many African nations on commodities for economic growth.