A recent article in The Economist has sparked diverse reactions from our clients. While some view it as a confirmation that Africa is an underappreciated investment opportunity, others see it as an attempt to deflect from structural challenges. Both perspectives carry some truth, and as the article highlights, the lack of data exacerbates misconceptions.
Historically, governments or policymakers telling investors they are wrong rarely changes narratives or perceptions. Markets create their own stories, and Africa’s lack of transparency and data fuels these often unfavourable explanations. However, this is not the sole challenge.
One overlooked issue is the mismatch between Africa’s investment opportunities and the scale of global capital. While there is demand for assets like Eurobonds (evidenced by Nigeria’s recent issuance, oversubscribed fourfold), most African investment opportunities remain small, fragmented, and dispersed across numerous countries. The effort required - amplified by ever-higher compliance and ESG demands - often outweighs potential returns. For example, local custody fees in Africa are up to 10 times higher than in OECD markets, many international banks avoid opening offices on the continent, and frontier market banking services are dwindling. These challenges are not insurmountable - India, despite its complexities, attracts significant investment - but replicating such solutions across 54 African countries is daunting.
Size is a defining factor in global financial markets. The critical question is how to create an opportunity set that commands international attention. Some might argue Africa’s $1 trillion annual climate finance need reflects sufficient scale, but “need” does not equate to “opportunity.” Most bankable African deals, outside hydrocarbons and mining, are small, constrained by the economies they operate in. For instance, Nigeria’s GDP, Africa’s largest after South Africa, has contracted by 60% over five years. While measurement methodologies may be flawed, the real question is: how can African markets grow substantially?
Economic growth at 7% annually would double an economy’s size in a decade. Even then, by 2035, Africa’s largest economies would still lag behind mid-sized OECD nations. However, collectively, Africa’s GDP could surpass $6 trillion by that time, comparable to France and the UK combined.
Regional integration offers the fastest path to creating larger, more compelling markets. While there are promising initiatives in electricity and transport, progress on trade barriers remains slow, hindered by protectionism and distrust. West Africa faces potential fragmentation, and the East African Community struggles to gain momentum. Enhanced regional trade is a win-win strategy, creating markets large enough to attract global investors.
This requires political will, underpinned by support from the development community. Transparency and data are essential, but nothing speaks louder than the sheer size of a market. Integration could position Africa to rival India, shifting narratives from risk to opportunity.
