Investor interest in Africa on the rise

Kenyan companies eying the African market to grow revenues could lock in good gains this year, a new survey shows, citing growing leaders’ confidence in the continent and an improved business environment.

The quest for a piece of the African market by investors from within and without the continent is on the rise egged on by improved business environment, although political risks continue to taint the outlook, says a new report by PricewaterhouseCoopers (PwC).

This has left Africa’s captains of industry at a crossroads between feeling confident and being weighed down by the risks of doing business in the region––with at least 87 per cent of CEOs headquartered in Africa anticipating regional expansion in the next 12 months, the highest percentage among business leaders in any other region.

Their optimism contrasts sharply with that of global CEOs, whose confidence has plummeted from similar levels three years ago, following the global economic meltdown.

“There is a relative sense of confidence in many African countries, thanks to the muted impact of the global economic downturn. And in many ways the business environment continues to improve – driven by relentless economic, social and political changes,” says Philip Kinisu, Territory Senior Partner, PwC Africa Central adding that businesses are increasingly focused on growth within the region and tapping new consumers in their existing markets.

Among the risks much felt in Africa according to the polled CEOs are availability of key skills (80 per cent), energy costs (80 per cent) and lack of basic infrastructure (78 per cent).

“The region’s political instability is what dominates most risk agendas. Elections in 2010 and 2011 will test Africans’ faith in democracy and African leaders’ confidence in peace and prosperity. At an operational level, businesses are also wrestling with a set of persistent risks to growth,” said Mr Kinisu.

This is coming in the wake of revelations that Kenyan companies are increasingly setting their eyes on the East African market to grow their cross-border businesses, shunning other highly lucrative regions due to costly entry barriers.

As a result, the companies are missing out on the wider African markets especially in bigger economies such as South Africa, Egypt and Nigeria––even as firms from these regions continue to troop into East Africa, according to a recent survey by research firm Synovate.

As a result, most local companies have preferred to boost their footprint within East Africa.

“Most companies would want to be strong in their home markets which are yet to be fully exploited before they can think of expanding into other regions,” said Martin Oduor-Otieno Otieno, the chief executive at Kenya Commercial Bank which has branches Southern Sudan, Tanzania and Uganda.

Analysts blame this trend on high barriers of entry into the markets -- mainly the huge capital outlay needed, the high cost of doing business, cultural barriers, difference in legal systems and a desire by companies to consolidate their foothold in the domestic region.

“To address the risks inherent in doing business in Africa, companies are implementing operating models to ensure long-term survival and increasingly distinguishing between core assets versus those that do not directly or profitably serve their market segments or add value,” says the PwC report titled, ‘Africa at a Crossroads’ which features responses from a survey of 1,198 company leaders and government officials in Africa and around the world.

The report was released during the ongoing World Economic Forum on Africa in Dar es Salaam, Tanzania which ends on Monday.

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