Unlocking Africa’s Potential: Investment Opportunities In Africa

Have you ever considered investing in Africa but are puzzled about the menu of asset classes to explore amidst the volatile investment landscape on the continent? Welcome, to another informative episode of Treasure Trove with Nola, where I will unveil strategies to uncover hidden wealth opportunities across diverse investments. In this episode, we'll explore the investment landscape in Africa, with a focus on the real estate and agricultural sectors.

I’ll share the latest insights on property developments from @Veritasi Homes and other lucrative investment avenues. Together, we’ll dive into Africa’s investment landscape with bold vision and sharp insight, focusing on the real estate and agricultural sectors—two areas ripe with untapped potential. Let's embark on this journey to discover how you can capitalise on Africa’s growing opportunities!

Despite deep-rooted structural challenges and vulnerability to external shocks, most African economies have demonstrated remarkable resilience. Over the past four years, they have faced multiple overlapping external shocks, including persistently high food and energy prices driven by the ongoing effects of geopolitical tensions, climate change effects, and extreme weather events on agricultural productivity and electricity generation. In this context, Africa's average real GDP growth slowed to an estimated 3.1% in 2023, down from 4.1% in 2022, as successive shocks eroded post-pandemic recovery gains.

Source: Afreximbank Report (2024)

The World Bank's latest Africa's Pulse report highlights that increased private consumption and declining inflation are contributing to an economic rebound in sub-Saharan Africa, with growth projected to rise from 2.6% in 2023 to 3.4% in 2024, and 3.8% in 2025. However, the recovery is fragile due to uncertain global conditions, rising debt obligations, frequent natural disasters, and escalating conflicts. It was emphasised that transformative policies are necessary to address deep-rooted inequality, as the current growth trajectory is still below pre-2014 levels and insufficient to significantly reduce poverty.

Additionally, while inflation appears to be cooling, it remains higher than pre-pandemic levels, and many African governments continue to struggle with unsustainable debt burdens. The outlook for African equities is cautiously optimistic, driven by growth sectors like tech and consumer goods, though tempered by volatility and regional risks. Bonds remain attractive due to their higher yields, but rising debt and inflation could impact returns. Both asset classes present valuable opportunities for investors.

Despite Africa's macroeconomic environment, the continent presents a wealth of investment opportunities across various sectors. The continent’s dynamic landscape is appealing to businesses that are willing to navigate its complexities and capitalise on its growth potential. However, the profitability of these ventures is closely tied to the risks they entail, necessitating a strategic investment approach.

With Africa's vast and dynamic economies, investors face the critical challenge of choosing where to allocate resources for maximum returns. Critical questions arise: Which sectors in Africa are brimming with the most potential for growth and innovation? Which industries are poised to thrive in this diverse continent, from technology and telecommunications to agriculture, energy, and real estate? These are the questions that may define the next wave of successful investments in Africa.

As African economies continue to develop, the agricultural sector stands out as a key investment opportunity. Africa accounts for 60% of the world's uncultivated arable land, with the agricultural sector contributing nearly 35% to Africa's GDP and providing jobs to 50% of the continent’s population. The agricultural potential in Africa is widely recognised, yet remains largely underutilised. Despite this, Africa spends approximately $25 billion annually on food imports, as reported by the World Bankwhich is particularly paradoxical given that nearly half of all economic activity in Sub-Saharan Africa is connected to the agribusiness sector. Hunger continues to be a significant issue in many African nations, despite projections from the World Bank that agribusiness could expand into a $1 trillion industry by 2030.

As a firm believer in the growth potential of Nigeria's agricultural sector, I am deeply invested in this field through ARN Foods Nigeria Ltd. ARN Foods Nigeria Ltd is a trusted partner in commodity trading, with a bold vision to revolutionise the agricultural produce market in Nigeria and beyond. Agricultural products, as an asset class, represent a unique and essential segment of the investment landscape, especially in emerging markets like Africa.

Recent global supply chain disruptions and the ongoing challenges of climate change further reflect the importance of investing in local agriculture, particularly in regions like Africa, where governments are increasingly supporting the sector through favourable policies and infrastructure investments. One of the government's key policies is the Maputo Declaration. The Maputo Declaration, adopted in 2003, commits African Union members to allocate at least 10% of their national budgets to agriculture, highlighting its importance for economic growth, food security, and poverty reduction across Africa. The agriculture sector's contribution to Nigeria's GDP fluctuated across five quarters, peaking in Q3 2023 at 29.31% due to the harvest season and dropping back to around 21% in Q1 2024, reflecting typical seasonal patterns.

Agricultural products, as an asset class, present attractive investment opportunities due to the rising local and global demand, ensuring a stable market. Additionally, there is substantial potential for value chain development and expansion, where advancements in technology and efficiency can boost productivity and profitability. These factors make agriculture a promising asset class for investors seeking both stability and growth. While agricultural commodities are subject to price volatility due to factors like weather conditions and geopolitical events, this volatility also presents opportunities for investors to capitalise on market fluctuations.

Source: National Bureau of Statistics

Shifting our focus from agriculture to another equally promising sector, the African real estate market presents a compelling and lucrative investment opportunity. Beyond simple property transactions, real estate encompasses land, structures, and the associated rights, making it a cornerstone of both income generation and wealth preservation. Its value extends far beyond the physical buildings. It’s about creating shelter, securing income, and unlocking long-term investment potential. As a long-term asset, real estate is highly sensitive to interest rates, highlighting its crucial role in a diversified investment portfolio.

Its sensitivity is often highlighted as a key factor when evaluating the potential performance of real estate as an asset class. Consequently, real estate investments must command a substantial term premium which is the additional return that investors require to compensate for the increased risk. Properties that generate income are also subject to the credit risk (default in meeting contractual obligations.) of their tenants. Essentially, a fixed-term lease with a steady stream of payments functions similarly to a corporate bond (company's debt investment) issued to the tenant. It is however important that investors must not only possess the skills to effectively manage risk but also the ability to strategically manage the perception of risk.

Understanding the capitalisation rate, or CAP rate, is important in evaluating the potential of a real estate investment. It’s a key metric that assesses the return on an investment property, and it can be the difference between a good and great investment. Let me share the intriguing journey of one of my friends Adanna which perfectly illustrates this concept.

Five years ago, she made a strategic decision to invest NGN 120 million in a luxurious property in Lekki Phase 1, one of Nigeria’s most prestigious real estate markets. The investment wasn’t just about owning a property; it was about securing a future of financial growth. Each year, her investment generated a steady Net Operating Income, (the annual revenue produced by a property before deducting financing costs and taxes but after all operating expenses have been subtracted) of NGN 9 million which translated into an initial CAP rate of 7.5% and reflected the balanced risk-reward profile of her investment. But the real magic happened as the market began to thrive.

Over the next five years, the value of her property soared to NGN 150 million driven by the region's booming real estate market. As her property's market value increased given the constant NOI, the CAP rate compressed to 6%, signalling not just increased stability but also a substantial appreciation of her asset. By the fifth year, she had accumulated NGN 45 million in NOI and witnessed a NGN 30 million increase in her property’s value, hence, culminating in a remarkable total return of NGN 75 million. The property, now worth NGN 195 million, births the narrative of a solid investment! With the initial investment and returns rolling in, who wouldn’t be thrilled about that?

Adanna’s journey is a powerful reminder that in real estate, a well-calculated investment can lead to substantial long-term rewards, proving once again that the right property, in the right market, at the right time, can be a cornerstone of wealth creation. Real estate isn't just an investment, it's a powerful tool for wealth building. Adanna’s experience demonstrates how strategic property purchases can generate substantial returns through steady income and appreciation.

Through my work at @Veritasi Homes, I’m proud to help clients navigate the world of real estate investing. I’m even more thrilled to share that Veritasi Homes recently celebrated its 7th anniversary on August 7th, 2024, reflecting our journey from modest beginnings to becoming a powerhouse in the real estate sector, delivering luxury homes across Africa and empowering communities through initiatives that create new opportunities and drive meaningful change.

Our mantra at Veritasi since its inception has not only been about owning a home but also about the prestige and comfort of owning the perfect home. I’m very humbled and proud of the relentless efforts and commitment of our associates and stakeholders at the firm over the last 7 years in our impact on tackling the housing challenges in Africa and breeding opportunities. What began as a passion for bridging the deficit gap in providing affordable housing has transformed into a global firm with clientele in Africa and beyond.

Understanding the various dynamics in the African investment environment is important for any investor looking to enter the African market. By identifying the regions and industries with the highest potential, investors can position themselves to tap into the continent’s growing markets, driving not only profit but also sustainable development and economic growth across Africa. The exploration of where to invest, in what sectors, and in which countries will be pivotal in unlocking the full potential of the African continent and harnessing its abundant opportunities.

What’s your perspective on the potential of real estate as a high-impact investment opportunity in Africa? I’d love to hear your thoughts in the comments section. A heartfelt thank you to the 1,500+ subscribers who’ve joined us since the debut of Treasure Trove with Nola. If you’re eager to dive into the dynamic world of real estate, connect with me to explore how Veritasi Homes’ comprehensive marketing, advisory, and development services can unlock opportunities across Nigeria and Africa. Let’s transform your real estate aspirations into reality together.

References

1. Africa Development Bank(AfDB) (2024). African Economic Outlook 2024.
2. Afreximbank Report (2024). Transforming Africa’s Trade

World Economic Forum (2023). How Africa's New Free Trade Area Will Turbocharge the Continent’s Agriculture Industry