The “Africa rising’’ narrative has been put on hold, due to a couple of macroeconomic factors impacting the economic growth of the giant countries of Africa. Gone are the days when investors throw money at just any industry, institution or idea simply because of its “emerging market context”.
Nevertheless, countries like Nigeria (currently in recession) and South Africa still lead the pack in terms of GDP and investment inflows (in Q3 2016) when compared to other African countries.
Africa’s largest economy, Nigeria, saw its recovery take longer than anticipated, largely due to investor caution, which resulted in weak investment inflows between 2015 and Q3 of 2016. An overvalued exchange rate led to a liquidity crisis, with many businesses unable to access dollars. In spite of the country’s macroeconomic environment in 2016, investment activities and opportunities for growth still exist.
The financial services sector had the largest amount of investment inflows as of Q3 2016, followed by the energy and telecom sectors.
What Attracts Investors
It is important to know that investments are all about taking calculated business risks and not just gambling in hope for high returns. Investors want to be assured that their calculated business risk would generate them good returns. In order to achieve this, investors are curious about three things:
- Corporate governance
- Leadership capability
- Attractiveness of the business
1. Corporate Governance
Corporate governance is the framework for attaining a company’s objectives. It involves balancing the interests of a company’s stakeholders (shareholders, management, financiers, suppliers and customers) as well as encompassing every aspect of management, from internal control to performance management.
The global financial crisis has elevated the importance of corporate governance, thus making it a critical factor when considering investment opportunities in emerging markets.
- Good corporate governance ensures board independence and transparency in decision-making
- Good industry-level governance can make up for country weakness in corporate governance
- Investors are willing to pay a premium for better-governed businesses.
2. Leadership Capability
Leadership capability is a scarce resource in both developed and emerging markets. It is one of the most important factors when creating and maintaining an organisation which achieves outstanding and sustainable results. Capable leadership is crucial to the success of any business because it results in sound decision-making and inspires employee performance.
Investors rely on the management’s ability to execute operation strategies and generate high returns. Thus investments in the training and development of management capabilities are essential to attracting investors.
3. Attractiveness of the Business
The attractiveness of a business refers to the operational and financial performance of that business. A sound operational performance consists of a strong market position, sustainable competitive advantage, ability to create value and avenues for continuous growth.