The global system is in uncharted territory, with decades-worth of events rapidly unfolding in a matter of weeks. America’s focus on reshaping supply chains to secure more favorable trade terms through the imposition of tariffs on various trading partners, including traditional allies, is sending shockwaves across regions and key industries.
From technological change and geopolitics to demographic shifts and geoeconomic reconfiguration, the global business landscape is unfolding rapidly. The ongoing cultural and structural shifts will have major implications for global trade and development. Not only will this protectionist stance and transactional style of economic nationalism unfolding across the world alter resource mobilization patterns, but the effects will also reverberate in the global business landscape for decades.
Quo vadis Africa?
Indeed, Africa stands at a pivotal juncture. To thrive under the emerging multipolar world order, nations and corporations must adapt and find ways to update existing political, economic, and technological playbooks. Nowhere is this more important than in Africa. To the extent that the evolving global landscape is expected to shape global private capital allocation for decades to come, complacency is not an option.
With a growing middle class, abundant natural resources, underexploited frontier markets, enormous demographic advantages, and its ongoing digital transformation, Africa holds enormous potential as a future economic and geopolitical powerhouse.
Business leaders and policymakers on the continent must devise a coherent and coordinated resource mobilization strategy that can help Africa to maximize its share of global capital flows.
A 2024 report by McKinsey corroborates how future trade reconfiguration could help drive the investment attraction efforts of emerging and developing economies. Since 2010, about 60% of greenfield investment has flowed into developing economies, albeit the direction of capital flows is shifting. The paper notes that “The largest leaps in the past two years were in Africa and India,” and these shifts involve varying trade-offs vis-à-vis geopolitical distance versus trade concentration.
To succeed, African countries and transnational firms need a clear understanding of the potential trade-offs of the different paths ahead. Given its young population and the ongoing digital revolution, connecting the continent to maximize its participation in global capital markets may shape the future of global commerce.
The private capital imperative
From Cairo to Cape Town, and from Lagos to Nairobi, the rise of the digital knowledge economy is generating a lot of hope for economic modernization across the continent. The ongoing global configuration points to a private capital-centric future in which traditional global development financing takes a back seat.
As digital entrepreneurship matures in Africa, capital allocators and other players in the global institutional investment industry across multiple regions can become key partners in fostering venture capital and entrepreneurial ecosystems. This will support growth-stage companies from the continent as they expand into global markets, in addition to nurturing existing established businesses as they adapt and innovate.
Relatively small and dispersed stock exchanges pose an exit challenge for private investors. Opportunities abound in Africa for institutional and retail investors interested in alternative investment opportunities for better returns and greater diversification. However, despite financial deepening and rapid digitalization, stock markets across the continent remain small and highly illiquid, with limited digital infrastructure.
Apart from making them unattractive to global investors, this limits greater liquidity and global visibility. Building a framework that creates an interconnected financial ecosystem that offers varied options for exits – while allowing key parties to maximize value without relying solely on local stock exchanges – has never been more important.
With the emergence of multiple power centres and rising regional tensions, African leaders must rethink and devise a pragmatic and fit-for-purpose resource mobilization strategy. A paradigm which prioritizes the development of capital markets for long-term financing, while also fostering the growth of equity markets for seamless access to capital to drive entrepreneurship and innovation.
If well leveraged, the ongoing shifts and retreat from deeply integrated global systems could open the floodgates of private capital inflows as international investors take advantage of the huge investment opportunities in Africa. To find success, a business-as-usual approach will not work. This opportunity must not be wasted.
The elephant in the room
Undeniably, foreign private investment in Africa faces several bottlenecks. From currency volatility due to fluctuating commodity prices to exchange rate risk and concerns about expropriation due to political instability, the apathy on the part of investors is genuine and logical in many cases. However, knowledge about specific private investment opportunities on the continent is limited in much of the developed world in many cases, leading to high transaction costs, asset mispricing, and missed opportunities.
For instance, the persistent negative perception of Africa as a risky investment destination in the Western world remains a deterrent. If not frontally addressed, this infamous badge of honor will continue to limit the continent’s ability to maximize its share of global capital flows.
Also, limited enterprise size poses a major challenge. As noted in a recent piece by The Economist, “Africa has too many businesses, too little business.” The obsession with micro-enterprises and informal workers without access to financing, markets, or regulatory support will not produce the kind of impact needed to deliver successful change.
To fix the continent’s unattractive investment environment and close the large economic gap between it and the rest of the world, Africa needs more large enterprises with the capacity to achieve productivity gains. Private capital must be front and centre of the debate.
Concluding thoughts
The ongoing global reconfiguration presents a once-in-a-lifetime opportunity to position Africa as the next great economic frontier. Will Africa seize the moment? As Albert Einstein famously said, “In the midst of every crisis, lies great opportunity.”
Seizing the moment will go a long way in addressing agelong structural imbalances that have hampered development for decades, in addition to maximizing the continent’s share of capital flows in the emerging multipolar world order. Ellen Johnson Sirleaf beckons: “If your dreams do not scare you, they are not big enough.”
Fred Olayele, founder and chairman of New York-based pan-African private investment firm, ECANY Capital, is a global economist, professor, and innovation leader.
Ameenah Gurib-Fakim, the 6th and first female president of the Republic of Mauritius, is a professor, entrepreneur, and biodiversity scientist.
Thomas Svanikier, founder and chairman of Svani Group and Africa Capital Ltd, the largest shareholder of Fidelity Bank Ghana Ltd, is a Ghanaian entrepreneur and philanthropist.
