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Exploring the Economic Potential of Sub-Saharan Africa

With a market in the West proving to be slow to recover following the economic downturn of the last decade, there has been a trend for businesses to look towards emergent markets elsewhere as a means to improve immediate returns. In spite of the exciting opportunities that markets in Kenya, Nigeria and South Africa present, there are a number of myths that surround these economies that are still holding investors back. The Ashay Mervyn business focussed YouTube channel highlights the benefits of investing in emergent markets; this article has been created to try and dispel the myths of trading in Sub-Saharan Africa.

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Lack of Urgency

China’s economic growth towards the end of the 20th Century has been one of the most talked about topics in business but it has only been in the last 10 years that the focus has swung to emergent markets in Africa. While it can be said that it is easier for an emergent market to exhibit faster growth than established ones, this fact does not diminish the huge leaps in development that countries like Ethiopia and Ivory Coast has made.

One factor that is preventing expansive foreign investment in these nations however, is the thought that there is no immediate competition to drive growth even further. Certain sectors are already dominated by Asian corporations, while markets provide strongholds for domestic businesses. The lack of true competition might be a disadvantage now, but with the world’s attention turning to Sub-Saharan Africa it would make sense to see investment in the area as a long term solution in order to snap up market share while competition is slow.

Lack of Diversity

Africa is well known as a continent rich in natural resources – from fossil fuels to precious metals, and Nigeria in particular has made its mark in the oil and gas industry as it is the 11th biggest producer of oil. A secondary market has sprung up following the establishment of the nouveau riche oil producers, with a high demand for consumer products as a result of the extra disposable income. These two have dominated economic headlines for a long time, giving rise to the misconception that investors will struggle to create a diverse portfolio in Africa.

In actual fact, oil and gas is only responsible for 11% of Nigeria’s GDP a clear indication that the nation’s economy can provide a diverse and interesting market for foreign investors. Additionally, while there is of course a high demand for consumer products, the more an economy grows, the greater the demands on its infrastructure will be. Investors in construction, logistics and even healthcare will be able to find a market to invest in as these markets develop.

Lack of Stability

Some sub-Saharan nations have developed a poor reputation for political stability leading many investors to develop concerns regarding the economy.

However, despite recent political and social upheavals in Kenya and Nigeria, very few international corporations have suffered large losses during these relatively short periods. By developing contingency plans to offset these losses, future investors in Sub-Saharan Africa can still benefit from the rapidly expanding markets there.

Lack of Experience and Data

These two myths go hand in hand and although many investors will be put off by the idea of not having experience with trading in Sub-Saharan Africa the advantage is that particularly entrepreneurial and adventurous executives will enjoy the relative freedom of these markets. Relying on conventional data to predict buying habits in the future will also provide a unique challenge to foreign investors as emergent markets will demonstrate certain trends that most established markets will not.

For instance, as economies grow and more individuals have access to disposable income, they will look to buy fundamental items that most people in the West would take for granted. In order to stay ahead in Sub-Saharan Africa, it is necessary for investors to maintain a physical presence and analyse data from the area on a case by case basis.

All in all, the signs point to a bright future for many of Africa’s developing nations and investors should start occupying space in these expanding markets now to avoid being left behind in the future. It will take a different strategy to those used in the West but through analysing the right data and taking stock of current political affairs it is possible to see long term returns.