With some of the fastest-growing economies in the world, African nations are playing an increasingly significant role in the global economy. The population is young and rapidly growing, and household incomes and consumption are projected to rise.
Digital and mobile access is rapidly increasing, the infrastructure gap is closing, and Africa is primed for mass industrialization.
With business environment reforms across the continent, the prospect of investing across Africa’s numerous and diverse countries is much different than it was in decades past.
US Ambassador to Kenya Meg Whitman has praised Kenya as the best destination for everyone travelling to Africa.
In her speech in August this year, Whitman said Kenya is the gateway to the East Africa market that is home to over 500 million consumers and the leading regional financial logistics hub.
“Kenya with its Silicon Savanna and super smart engineers is the region’s ICT hub. We feel Kenya is ready for lift-off as it diversifies,” said Whitman.
Kenya has attracted significant foreign direct investment and is a leading destination for venture capital on the continent. While venture capital flows decreased by 35% globally last year, total funding in Africa actually increased by 8%.
Even more impressive, while venture capital to Nigeria was down 36% and essentially flat in South Africa, funding to Kenya increased by 33%, one of the highest growth rates on the continent.
World Bank’s Report on Africa
Meghan’s remarks correspond with the World Bank report released this October that Kenya, Côte d’Ivoire, and Rwanda are among the fastest-growing African economies in 2023.
The World Bank report attributes the strong economic performance of Kenya, Côte d’Ivoire, and Rwanda to a number of factors, including sound macroeconomic policies, investments in infrastructure and human capital, and a diversified economic base.
In its Q323 Autos Investment Round-Up for the Sub-Saharan Africa (SSA) region, Fitch said that Kenya dominated as efforts to curb second hand car imports paid off with automakers pledging investments to add more models at existing vehicle assembly plants.
The firm expects East Africa’s powerhouse to face headwinds heading into 2024 and the market will likely experience a slowdown in autos-related investments in the near term.
It, however, maintains a bullish outlook for the market as Kenya is well positioned to supply its neighbouring countries and more markets in the SSA region amid the continent-wide free trade agreement that seeks to improve intra-African trade.
According to the Kenya Motor Vehicle Industry Association, locally assembled vehicles had a market share of 77.6% in the first seven months of 2023 when compared to a market share of 43.4% in 2017.
Opportunities in Kenya
Kenyan automakers are introducing more models, signaling a continued significant development in the country’s automotive industry.
CFAO Motors Kenya and the Associated Vehicle Assemblers jointly added a new model at an existing facility which assembles the Land Cruiser LC79 series, the Hino trucks and buses, the Hilux single and double cab pickups, and the Toyota Hiace mini-bus.
“Kenya also managed to attract investments into Electric Vehicle (EV) production. Roam has invested in a new facility that is dubbed the largest production plant of motorcycles in East Africa and will produce electric motorcycles in Kenya’s capital, Nairobi,” says Fitch.
The company aims to take advantage of the popularity of Boda Boda (two-wheeled transportation) to offer a product that promises lower running costs with Fitch saying “we believe electric motorcycles have further room to grow in Kenya as a feasible avenue for the market to introduce zero tailpipe emission transportation options.”
Rwanda on the other hand, has undertaken key economic diversification strategies which includes the development of a pharmaceuticals hub in capital Kigali.
Activity in the electricity distribution and transportation sub-sectors is also growing strongly, while the potential deepening of the country’s capital market would improve the infrastructure sector’s attractiveness to foreign companies.
Mining Prospects & Financing Challenges – 2023
The Zambian government is expected to make a final decision on the sale of Mopani Copper Mines this October, securing a new investor for the assets it bought from Glencore in 2021, according to a Reuters report.
Zambia’s Mines Minister Paul Kabuswe had initially said a new investor for the copper mines, which are struggling to make a profit, would be selected by the end of July.
The process has been delayed by complex negotiations, as it also involves Glencore, which Mopani owes money.
To date, Mopani has been funded by borrowings from Glencore’s subsidiary Carlisa Investments Corp. and other members of the Glencore group. Glencore has previously said it will not comment on the sales process as it has exited the assets.
Glencore exited Zambia and saw a sale of its stake in Mopani to Zambia’s state-owned mining company ZCCM for a sum of just $1 in 2020, through a deal that saw ZCCM take on $1.5bn worth of the mining operation’s debt.
Mining in Zambia
On completion, US$1.5 billion of debt will remain owed by Mopani to Glencore group creditors on three terms;
A. interest under the transaction debt will be capitalised for the first three years after completion, and thereafter will be payable quarterly at LIBOR + 3%
B. Principal outstanding under the transaction debt will be repayable under a dual mechanism.
C. 3% of gross revenue of the Mopani group from 2021-2023 (inclusive), and 10-17.5% of gross revenue of the Mopani group thereafter.
ZCCM has presented investment proposals to the government that include South African platinum miner Sibanye Stillwater, an investor from the United Arab Emirates (UAE) with links to International Holding Company (IHC), and China’s Zijin Mining Group (601899.SS).
The process is nearing completion, with ZCCM and the Zambian government expected to finally make the selection this month.
Zambia’s President Hakainde Hichilema wants new investors in Africa’s second-largest copper producer and aims to triple output of the metals key to the clean energy transition and to driving growth in battery electric vehicles.
DRC Economic Projection
Democratic Republic of the Congo (DRC) has been awarded a growth projection of 6.5% in 2023, down from an estimate of 8.9% in 2022, but significantly above forecasts of 3.1% for SSA as a whole, and 4.7% for East & Central Africa.
The 2023 projection, however, remains below the consensus forecast of 6.6% from Fitch, as well as the Congolese authorities’ forecast of 6.8%, reflecting political instability in the build-up to the general elections in December which will impact the currency, leading to increased import costs and weak private consumption.
DRC ranks 10th out of the 16 markets covered in SSA Mining Risk/Reward Index, but it ranks fourth in the rewards component, reflecting a mostly untapped and lucrative mining industry, notably in the copper sector.
Today, DRC accounts for 24.6% of the total allocated mining capex in SSA.
For example, investment in the Kamoa-Kakula joint-venture copper mine, owned by Ivanhoe Mines, Zijin Mining and Crystal River Global, will continue as part of the mine’s large Phase III expansion – with a pre-production capex of an estimated $3 billion – due for completion by late 2024.
High copper prices by historical standards will continue to encourage investment in the sector, with a forecasting average prices of $8,800 per tonne in 2023.
Africa’s population is between the ages of 15 and 24 years (continent’s relative youth – 20 percent) and comprises more than half of its workforce, thus posing significant problems for countries struggling to create enough new, paying jobs.
“Building up metals production, especially when coupled with investments into renewable energy supplies and green hydrogen production, then creating an industrial base with considerable forward and backward links across supply chains will generate high levels of indirect employment and support greater economic complexity and diversification,” says Nick Trickett, Business Development Manager for the Mining & Metals Industry Group.