From political instability to FX illiquidity, investing in Africa is not without its challenges. However, with untapped markets, high growth rates and a young population with an increasing spending capacity, investment opportunities on this vibrant continent are also in abundance. So, how do European firms navigate this unfamiliar territory? Ultimately, it’s those who sow the seeds of local partnership that will better understand the risks and reap the rewards.
Africa is open for business. With the continent emerging as a hub for international investment and economic opportunity, its corridors leading towards more developed markets are going from strength to strength. But Africa’s dynamism is not without its vulnerabilities.
First, to many businesses used to operating in European markets, it can be a wholly unfamiliar territory. Across the continent’s banking, trading and foreign exchange landscape, the lie of the land is quite alien to that with which many organisations are familiar from their experience in more mature, Western markets. And when it comes to business and treasury responsibilities, such as currency hedging, it can be difficult to ensure adequate protection against the distinct challenges of the African marketplace while making the most of the opportunities available.
Second, political stability is key to enabling a country to develop deeper laws and regulations to protect its developing financial markets, commercial interests and capital controls. The challenge Africa presents is that changes in regime can often result in alterations to currency regulation. Even where regimes are more stable, rules can sometimes suddenly change in arbitrary or non-market-driven ways that will be unfamiliar to those used to navigating European markets. With political and regulatory nuances varying from country to country, steering through individual markets becomes incredibly tricky without a guide. As well as providing greater visibility for these risks, being partnered with local banks automatically gives better access to regulators and on-the-ground expertise, which makes it much easier to do business locally and surmount any rules-based challenges.