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9 tips for investing in Africa

Nairobi City
Updated Tue, Oct 24, 2023

Africa is a promising economy for foreign investments but it is important to understand the tips for investing in Africa. Understanding the business dynamics that exist in the continent is the weapon that defines whether you make a sound investment, or flash your investment capital down the drain. We present you some of the key considerations for investing in Africa you should include in your checkbox before investing in the continent.

Do Some Research On the Market

Contrary to the beliefs of some, Africa is not a country but a continent consisting of several countries with distinct business environments and opportunities. Investing funds in an economy without doing due diligent is like signing a loss agreement and this also applies to the African market. While you can close your eyes and begin investing in some countries in Africa, others have unstable markets.  In addition, check records and reports on the market trends of the country and the growth potential of the market. This should also include market research on whether the industry you intend to invest in is growing, stagnating or declining. 

Research will enable you to identify potential business partners, competitors, market gaps and available opportunities in the industry. According to the United Nations Development Program (UNDP), Africa has a growing and youthful population that is expected to quadruple from 1.19 billion in 2015 to 4.39 billion by 2100, consequently increasing its potential as an expanding market. UNDP is among the institutions you can refer to when undertaking market research on the continent. This will help you make a sound decision on your investment. 

Does the country have Foreign Investment law?

You need to find out the laws on foreign investments that exist in the country you intend to invest in. Some countries have enacted laws that support foreign investments, which include tax reliefs and zero taxes on new investments. This is one of the key tips for investing in Africa that should be among your priorities. A country like Rwanda for example, has put in place zero levies on new business start-ups to promote growth of industries. On the flipside, some countries have enacted laws aimed at discouraging foreign investment with an aim of growing their own local investments. It is important to understand what their laws state about repatriation of profits, licenses and authorizations as well as tax exemptions.

Invest in African Companies With Strong Leadership

Political stability is a crucial component for the success of investments and is a key tip for investing in Africa that you must not ignore. While some African countries have strong leaderships which have provided conducive business environment for investors, others are prone to coups. Countries such as Mali and Central Africa Republic have been prone to political instability. This creates unstable environment for business startups. Additionally, some African leaders who are aligned to certain political formations in global politics do not fancy investors from some Western countries, including the US. Take your time to research the political leadership of an African country you intend to invest in and if their policies also resonate with your own goals for the business.

Beware of global and regional trade headwinds

Africa is one of the continents that gets affected by global trade headwinds and has felt its impacts over the years. Some of the global trade headwinds affect the shipment of vital supplies and can affect your investment. This is one of the key tips for investing in Africa. According to the World Economic Forum, developing countries including those in Africa are among those that are affected by global trade headwinds. Generally, global and regional trade headwinds are factors that may slow growth in trade. They may include global inflation and geopolitics.

Exercise patience

Rush at your own peril. Take your time to understand all the factors involved before putting your money in an investment in Africa. Exercising patience will enable you create partnerships with the right local partners, identifying the right people to fill any gaps that stand between you and your successful investment. Patience is a virtue that you will need before putting up your investment and after putting up your investment. Sometimes it may take you time before you start reaping profits and it is important that you exercise patience after setting up your business in Africa. According to the World Economic Forum, Africa’s economy is surging upwards and is in need of long-term investments. This means that you will have to exercise patience as a key tip for investing in Africa for the long term.

Security challenges

Security is important for creating a conducive environment for conducting business. There are some countries in Africa where security is not guaranteed because of terrorist attacks and gang violence. A country like Somalia, Mali and Central Africa Republic has struggled with insurgents for several years. This has seen some business premises and investments bombed by terrorists. Do a background check on the security situation in the country before investing your money into it.

Mind infrastructure gap

Infrastructure is an important component of business success. Lack of proper infrastructure on the other end can result into massive losses and is a major brick wall in the quest to register business success in some countries in Africa. While some African countries have good infrastructure, others have bad infrastructure and are not favourable for business. According to the World Bank, between 2014 and 2015, for instance, Sub-Saharan Africa experienced a slowdown in investment growth from nearly 8% to 0.6%. Before putting up your investment, explore the relationship between infrastructure available and economic growth. You need to understand how your investment will be affected by the infrastructure that is available in the country you intend to invest in.

Find a local counsel

You may be having an International counsel in your legal team but that may not help you in your effort to establish yourself in an African country. Take your time and find a local counsel who understands all the existing laws on foreign investments, taxations and other key legal requirements that you need to fulfil before establishing your investment. Different African countries have specific labor and taxation laws that only a local counsel can help you understand. Finding an experienced local counsel is a major milestone and is one of the key tips for investing in Africa. The counsel assists you in understanding deadlines for paying some of the taxes as well as penalties paid in the event you default.

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Corruption

Some African countries have very low corruption index and this may affect direct foreign investments. According to the 2022 Corruption Perceptions Index (CPI) developed by Transparency International, two African countries Somalia and South Sudan are among the most corrupt countries. In corrupt countries, it is common for government officials to demand for bribes. The danger of corruption is that it raises uncertainties and will also negatively impact your transaction costs and thus plunging you into huge losses.