Africa, often perceived as a developing continent, is turning into a veritable pole of attraction for investors. With sustained economic growth, a young and dynamic population, and a wealth of natural resources, the continent offers unprecedented opportunities for investment funds. In this blog, Capmad explores why housing an investment fund in Africa could be the winning option of tomorrow.
Impressive economic growth
According to the World Bank report, sub-Saharan Africa experienced economic growth of 3.4 % in 2023, and forecasts for 2024 and 2025 are even more optimistic, with growth rates estimated at 4.1 % and 4.5 % respectively. This growth is fueled by a variety of sectors, including agriculture, information and communication technologies (ICT), and renewable energy. The ICT sector in Africa attracted more than 4.5 billion USD in investment in 2022, a figure that continues to grow.
A young and dynamic population
Africa is home to more than 1.3 billion people, nearly 60% of whom are under the age of 25. This young population represents a huge potential for consumption and innovation. Young Africans are increasingly connected, with Internet penetration reaching 40 % in 2023, fostering the emergence of start-ups and innovative companies.
Abundant natural resources
Africa is rich in natural resources, including minerals, oil, and gas. The continent possesses about 30 % of the world’s mineral reserves, including strategic resources such as cobalt, lithium and gold. The Democratic Republic of Congo holds more than 70 % of the world’s reserves of cobalt, a critical element for electric vehicle batteries. This resource wealth is attracting investors, who see Africa as an opportunity to diversify their portfolios.
A changing regulatory environment
Many African countries are undertaking reforms to improve their investment environment. Rwanda is praised for its efforts to facilitate business, ranking among the top 30 countries in the world according to the World Bank’s Doing Business report. Other countries, such as Kenya and Ghana, have also put in place investor-friendly policies, including tax incentives and special economic zones.
Locating an investment fund in Africa: The benefits
- Access to rapidly expanding markets: Hosting an investment fund in Africa provides access to high-growth markets with potentially high returns. Sectors such as agriculture, technology, and infrastructure are particularly promising.
- Tax advantages: Many African countries offer attractive tax regimes for investment funds. For example, countries such as Mauritius and Botswana have implemented favorable tax structures to attract foreign investors.
- Portfolio diversification: Investing in Africa allows funds to diversify their portfolios, reducing the risks associated with concentration in developed markets. The correlation between African and developed-country markets is often weak, which can provide protection against volatility.
- Social and environmental impact: More and more investors are looking to align their investments with the Sustainable Development Goals. Locating a fund in Africa helps support projects that have a positive impact on local communities and the environment.
Challenges ahead
Despite these advantages, domiciliating an investment fund in Africa is not without challenges. Investors have to navigate a sometimes volatile political environment, inadequate infrastructure and complex legal systems. Moreover, corruption remains a problem in some countries, which can deter investment.
Strategic opportunity for investors
Home to an investment fund in Africa represents a strategic opportunity for investors seeking to capitalize on the continent’s rapid growth. With a young population, abundant natural resources, and a changing regulatory environment, Africa is poised to become a key player on the global investment scene. While challenges remain, the potential benefits of doing so are undeniable. In the end, Africa may well be the winning option of tomorrow for bold and visionary investment funds.
