Improving Africa's investment climate

Africa's investment climate has been a topic of discussion for many years, with infrastructure and stability being key factors that play a crucial role in attracting investments into the continent. Raj Kula Singam, Senior Counsel at Dentons, joined CNBC Africa to shed light on the current state of the investment landscape in Africa. Singam highlighted the importance of certainty and stability in the market before investors can confidently say that the continent is on an upward trajectory. One of the major issues affecting investor confidence is currency volatility, particularly in countries like Nigeria where uncertainty around the actual value of the currency persists. This uncertainty has led many investors to adopt a wait-and-see approach, further exacerbating the investment climate in the region. However, Singam also emphasized the importance of identifying problems and proactively seeking solutions, rather than waiting for external intervention. He cited the example of young entrepreneurs in Africa who have devised innovative solutions to address currency fluctuations, such as borrowing in local currency to mitigate currency risk. These solutions, though not glamorous, have the potential to unlock local capital for smaller, low-risk projects with shorter gestation periods, ultimately contributing to a more stable investment environment. Singam's insights underline the need for a shift in mindset towards proactive problem-solving and self-reliance in driving investment opportunities in Africa. While currency fluctuations may impact flows in private equity investments, foreign direct investments (FDIs) are generally less sensitive to currency fluctuations due to their long-term orientation. However, Singam noted that stability remains a critical factor for all types of investments, highlighting the importance of political, regulatory, and economic stability in attracting and retaining investors. Investors with a long-term horizon often factor in currency devaluation and fluctuations in their projections, demonstrating a willingness to weather short-term challenges for potential long-term gains. The discussion then shifted to the role of private equity in bridging Africa's infrastructure gap, particularly in countries like Nigeria where government resources alone are insufficient to address the vast infrastructure needs. Singam pointed out the significant interest from development finance institutions (DFIs) and private investors in funding infrastructure projects across the continent. However, the lack of 'cookie-cutter' bankable projects poses a challenge, as potential investors await viable investment opportunities with clear risk profiles and returns. Using the example of Nigeria's power sector, which has seen limited successful projects in recent years, Singam underscored the importance of replicating successful models like the Azura Power Plant to attract more private capital into critical sectors. Looking ahead, Singam identified B2B and B2C businesses as the most promising investment opportunities in Africa, particularly in sectors catering to the growing consumer base. Companies that offer innovative solutions to pressing issues, such as off-grid energy access through solar lanterns, or financial services tailored to local needs, are positioned for growth and investment. Singam's insights underscore the importance of problem-solving and customer-centric approaches in driving sustainable investments in Africa.