Issue Briefs

Thematic Area: Trade, Investment and Resilient Supply Chains

Why Africa is the next big investment opportunity

Introduction

The G20 India Summit meeting took the historical initiative of including the African Union in the G20 grouping. The G20 India Leaders’ Declaration stated, “We commit to strengthen our ties with and support the African Union realise the aspirations under Agenda 2063. We also reiterate strong support to Africa, including through the G20 Compact with Africa and G20 Initiative on supporting industrialization in Africa and LDCs. We are supportive of further discussing the deepening of cooperation between the G20 and other regional partners.”

With this, a new era of G20 engagement with the African continent was set in motion. B20 India during the presidency year set up an Action Council on African Economic Integration: An Agenda for Global Business. The Action Council brought out the following key recommendations:

  1. 1. G20 should support the African continent’s ambition of strengthening human capital outcomes, with particular emphasis on gender empowerment, across health and education
  2. 2. G20 should introduce new or support existing initiatives to sustainably transform the agriculture sector in Africa through empowering smallholder farmers and increased mechanisation
  3. 3. G20 should support the structural transformation of Africa through initiatives that encompass 3 key policy actions around industrialisation, MSME enablement, and universal electricity access
  4. 4. G20 should enable existing and introduce new trade facilitation initiatives for intra-continental and global integration of the African single market
  5. 5. G20 should support the African Union’s vision of improving physical and digital connectivity, through developing the continent’s transport and ICT infrastructure
  6. 6. G20 should facilitate coordination and channelization of resources towards customized initiatives for African nations, driven by need and demand from within the continent

The Action Council, chaired by Mr. Sunil Bharti Mittal, Founder and Chairman, Bharti Enterprises, in its report highlighted that Africa’s population at over 1.3 billion people is expected to double by 2050. This presents an opportunity for global businesses in terms of growing consumer markets, young and growing workforce, and rising incomes. In addition, Africa is home to vast natural resources including land and minerals.

However, Africa’s share in global manufacturing and trade is low, with low per capita incomes across the continent. At the same time, the formation of the African Union and drafting of Agenda 2063 as well as the African Continental Free Trade Area (AfCFTA) introduce new pathways for growth and development.

Earlier too, the G20 had decided to focus on Africa and during G20 Germany, the G20 Compact with Africa (CWA) was introduced to encourage and facilitate policy reform measures and increased awareness of the role of the private sector. CWA is working on various initiatives and the inclusion of the African Union in the G20 grouping will impart huge attention on partnerships between G20 members and African countries.

Robust growth rate

The African continent represents the second-fastest growing region after developing Asia and is expected to see higher growth than the world average. As per African Economic Outlook (AEO) 2024, average real GDP growth in the continent stood at 3.1% in 2023, slightly below its achievement of 4.1% in 2022. The growth rate was impeded by global developments including high food and energy prices, weak global demand and extreme weather events, among others. Within this scenario, 15 countries recorded growth of at least 5% in 2023. The growth rate is forecast to rise to 3.7% in 2024, going up to 4.3% in 2025.

Further, as per AEO estimates the number of countries with over 5% growth will increase to 17 and 40 African economies will witness higher growth in 2024 than in 2023. 10 countries in Africa are expected to count among the world’s top 20 fastest- growing economies in 2024.

Trade

Due to geopolitical tensions, slowing global growth and moderated global demand, African exporting countries faced various shocks in their global trade. As per African Trade and Economic Outlook, total trade from the continent increased by almost 16% to USD 1.4 trillion in 2022. However, in 2023, this contracted by 6.3% to USD 1.3 trillion. Volatile commodity markets impacted Africa’s resource export performance.

As trade within Africa is less integrated, intra-regional trade comprises a low share of its overall trade. With the implementation of AfCFTA, this share is going up and in 2023, the continent achieved a peak of USD 189 billion in intra-continental trade, led primarily by Southern Africa and West Africa.

According to the World Trade Organization, Africa’s exports are envisaged to grow faster than those of any other regions at 5.3% in 2024. Imports too are expected to recover.

Investment

Foreign direct investments (FDI) to Africa also saw a decline by 3% in 2023 to USD 53 billion. This was reflected in the fall in number and value of project finance deals and flat cross-border merger & acquisitions sales. As per UNCTAD’s World Investment Report 2024, the countries with the largest FDI stock in Africa include the Netherlands at USD 109 billion, France at USD 58 billion, and the US at USD 46 billion.

According to UNCTAD World Investment Report, Africa received as many as six greenfield megaprojects valued at over USD 5 billion. It also received more than USD 10 billion for wind and solar electricity projects. In particular, Mauritania saw the announcement of a green hydrogen project while, Egypt, South Africa and Zimbabwe had large project announcements in wind and solar capacity. These energy investments were positive developments for the African continent during 2023, even as inflows contracted slightly.

Conclusion

Africa’s growth prospects remain bright and will be among the highest in the world. New sectors of opportunity beyond resources are emerging, including banking, telecommunications and infrastructure. The rise in digital and mobile connectivity, growing infrastructure construction and expanding consumer spending makes Africa an increasingly encouraging investment destination for global businesses.

It is expected that by 2025, Africans will spend USD 2.1 trillion, and the rate of return on foreign investment comes in higher than in other developing regions.
With these positive developments, B20 must focus on supporting businesses in accessing opportunities in Africa.