Foreign Investors Are Not Letting Up on Africa

An Africa rising narrative captivated investors in the early 2010s since the region had experienced sustained growth from the turn of the millennium. By 2014, private investment funds focused on sub-Saharan Africa raised nearly $9 billion, with private equity capturing $6 billion of that total. This almost matched capital raised in the previous four years combined.

In the same time, FDI inflows into the continent also rose steeply from around $60 billion in 2010 to almost $80 billion by 2012. In a sign of shifting attitudes, public pensions, insurers, and endowments from the U.S. and Europe were entering the African PE space for the first time, joining long standing DFIs.

However in the last three or four years, the shine has dulled on the Africa story due to strained macroeconomic conditions caused by subdued commodity prices. Private sub-Saharan Africa in fundraising dropped by 60% in 2017 compared with 2015 highs, and FDI is back below 2010 levels.

Now, despite the hype around Chinese investment, U.K., U.S., and French investors still hold most of the FDI stock in Africa, and more so than China.

However, China does hold 14% of sub-Saharan Africa's debt stock, making it Africa's largest creditor. It has extended over $6 billion annually in commercial loans from 2000 to 2014 across 35 countries. But in 2015, Xi Jingping upped the ante by committing $20 billion worth of loans annually within the next three years.

China's investment has focused on big ticket projects in the power and transport sectors. For example, five African countries have all had their railway systems funded by China. These include Kenya, Ethiopia, Angola, Djibouti, and Nigeria.

While the Trump Administration doesn't appear to be very interested in investing in Africa, Congress is. U.S. AID, the U.S. Agency for International Development, has developed an African power program using using a public-private partnership model that has led to 80 projects in the last four years valued at more than $14.5 billion, and a third of those projects involve the U.S. private sector.

This year, Congress created the International Development Finance Corporation (IDFC) by integrating parts of U.S. AID into the U.S. Overseas Private Investment Corporation, otherwise known as OPEC. This will increase OPEC's lending capacity to $60 billion, double its current level, and it is highly significant for Africa since it comprises the largest share of OPEC's portfolio at 27%.

It seems that the world's superpowers have woken up to the commercial possibilities of an African continent imbued with good infrastructure.

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