Knight Frank: Key Investment Areas For Africa In 2023/24
Standout opportunities include data centres, manufacturing and infrastructure.
Data centres, manufacturing and infrastructure are key investment opportunities in Africa, along with agro-processing and ESG projects, according to the Africa Horizons 2023/4 report published by consultancy Knight Frank in August.
Increasing urbanisation and population growth are driving the expansion of the continent's cities creating a wealth of opportunities for investors.
The report notes that Africa continues to face significant challenges in attracting private sector investments but adds that public-private partnerships can play a major role in unlocking investment.
"Long-standing investment barriers include political instability, corruption, and inadequate road and energy infrastructure. However, there are also numerous opportunities for investment, particularly in agriculture, data centres, and manufacturing," Knight Frank says.
The rise of online retailing, the digitalisation of government services and the expansion of the financial sector are behind the strong growth in demand for data centres in Africa.
Citing figures from Africa Data Centres, Knight Frank states that the market is project to see compound annual growth of 15% from 2020 to 2026, reaching US$5 billion.
“We anticipate that 2023/24 will see more [mergers and acquisitions] activity…with all stakeholders seeking viable (power, fibre and permit potential) brownfield and greenfield development sites throughout the continent,” says the report.
It tips Kenya to emerge as Africa's next hyperscale market. The Kenya data centre market is projected to expand from US$190 million in 2021 to US$434 million by 2027. The growth will be supported by the government's plans to lay 100,000km of fibre optic cables by 2027 and establish 1,450 digital hubs and 25,000 free hotspots.
Another clear investment opportunity is manufacturing. Manufacturing accounts for about 11% of GDP across the continent, compared to more than 20% in Asia and 15% in Latin America. In West and Central Africa, the sector contributes less than 5% of GDP.
Knight Frank notes that major obstacles to the emergence of a flourishing manufacturing industry have been the lack of access to affordable and reliable energy and poor transportation and logistics infrastructure, which have discouraged international businesses from entering the market.
But many countries are now adopting policies to attract foreign investment into the sector and developing industrial parks and Special Economic Zones (SEZs) dedicated to manufacturing activities. These SEZ offer incentives and benefits for investors and provide access to basic infrastructure and utilities.
“Overall, the manufacturing industry in Africa has huge potential for growth and development,” says Knight Frank. “With the right policies in place, we expect to see the international investment taps open further, and the continent retains the potential to emerge as one of the most vibrant manufacturing centres in the world.”
The report adds that governments need to continue investing in infrastructure, education and technology to create a skilled workforce to drive the growth of the manufacturing sector.
Agro-processing, a sub-sector of manufacturing, has been enjoying investment in certain markets. Ghana for example, has shifted its focus from exporting raw cocoa beans to processing more cocoa in order to create jobs and value addition, while food processing now accounts for 24% of Tanzania's overall manufacturing sector.
But Knight Frank says Africa should not only be self-sufficient but also a prominent global food exporter. The report notes that agro-processing at the rural level in Africa is either nonexistent or still very rudimentary, with countries in sub-Saharan Africa facing post-harvest losses of up to 35-50% of total production due to inadequate infrastructure.
Infrastructure in general is another major investment opportunity for Africa.
"Infrastructure development is pivotal in driving progress across Africa, serving as a vital catalyst for enhanced productivity and sustainable economic growth. Despite the gains in improving regional transport infrastructure connectivity across the continent, Africa still faces infrastructure shortcomings," the report says.
According to Knight Frank, poor road, rail and port facilities contribute an additional 30-40% to the costs of goods traded among African countries.
Inadequate infrastructure has reduced national economic growth by 2 percentage points across many parts of the continent, and decreased business productivity by up to 40%, the report says, citing the World Bank.
With just 53% of roads in Africa paved and 28% of rural populations enjoying access to electricity, the infrastructure investment needs of Africa are significant. Investment in infrastructure such as roads, rail, ports, utilities and social projects is proven to increase economic growth.
There is also huge potential for ESG-focused investment in Africa, the continent currently lags behind the rest of the world in areas such as the issuance of green bonds. According to Knight Frank, Africa could capture 10% of the global green hydrogen market.
Top photo: Kenya construction (© Philippe Demande | Dreamstime.com)