World analysts assert that perception of Africa as an under-developed continent is gradually losing its relevance –from the point of view of investing potential it occupies the leading positions in the world.
The world’s leading countries depend on the feedstock supplies.
It predicts the prognosis concerning the improvement of many developing countries, and the continent has about 90% of various metals, 40% of gold stock, and 10% of oil.
This is why Africa is so interesting for investors all over the world.
Let’s try to figure out how to invest in Africa.
How to invest in Africa learning its potential?
It had historically developed that investors perceived Africa like the “wild line”.
However, nowadays the continent is almost radiating with investing potential.
Violence and political reprisals gave place to the stable economic growth.
Africa has many peculiarities, which makes it equal with many developing markets, such as India or China.
First of all, Africa has plenty of natural resources in stock.
It is a massive continent, which is equivalent to the land masses of Europe, the USA, India, China and Argentina together.
It means Africa has lots of agricultural lands and huge stock of natural resources.
Inside African borders are hidden almost 40% of world’s gold stock and 30% of world’s mineral deposits.
Besides, the continent can boast of huge oil and natural gas stock, which people only now start exploiting in such countries as Mozambique and
Nigeria. It is another reason to learn how to invest in Africa.
It should be noted that population of Africa has only recently started to receive their share from these natural resources.
Speaking about these people, one can’t fail to mention Africa is similar to other developing markets by its huge population.
There live more than 1.1 billion people on the continent.
Almost 40% of them are people under 17.
This is the labor power, which is equal to the Asian one, and it can move Africa forward for decades and even to start a new wave of consumer’s demand if you learn how to invest there.
Taking into account the similarities of Africa and other developing markets, it’s rather easy to understand how the continent can bring profit to its investors.
According to the recent research of International Money Fund (IMF), seven out of ten most rapidly growing economies are located in Africa.
What’s more, the results of the current year have showed how much GDP in “Black Africa” increased.
It is almost 5% and it’s more than the average index among all developing countries.
Add to it their low level of debts and the increase of volumes of foreign investments, and the perspectives of Africa are sure to seem the best for long-term investors.
The peculiarities of how to invest in Africa
Regardless that the volume of foreign investments to the economy of African countries has increased for the last several years, the streams of coming to these countries are still small.
There are several key spheres, where it must still be done a lot.
If a company cannot receive resources of electricity, which are required for their enterprises to work, or if the price for electricity is too high, such enterprises will not be built there.
If the company cannot secure the transportation of the goods or products to the market or there are no providers because of bad transport, it will not think how to invest or build enterprises in the state.
One cannot deny the fact that electricity in African countries is too expensive, and in the rural regions there is a great lack of it.
It scares the foreign investors away and they do not want to know how to invest in Africa anymore.
The similar method concerns telecommunication industry.
If there is no reliable infrastructure, African companies won’t be able to compete with the companies from other developing states, where industrial and trading orders can be made by simple pushing several buttons on the computer terminal.
The representatives of business circles will not have any desire to invest more money, if at the preliminary level they were deprived from the possibility to get in touch quickly and easily with the central offices of their home companies.
In Africa investors have to import many equipment and materials, which are required to manufacture products there.
They use the services of sea ports.
Besides, the work of many ports in Africa is so badly organized that the imported goods may stay there for weeks, waiting to be sent.
Getting a permission to start working on a project in Africa may take you from a few months to a few years, while other regions of the world require several weeks or months.
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The economy of scale.
Foreign investors are still worried about the fact that inner markets in Africa are too small to maintain the investments somewhere else but for the mining industry or industries, which are based on using natural resources, which manufacture goods for export.
There are more than ten African countries in the Society of the South African development.
They are located in the south part of the continent and the general population is more than 150 million people.
In West Africa there is Economic society of West African countries, which includes 16 states and is represented by the market, where live more than 200 million potential consumers.
As for today, however, the integration speed is still extremely slow.
Bribery and corruption.
If you take the general picture, you may say that the level of corruption in the higher state levels of African countries is lower, however, in some states the corruption still exists, especially on “the working level”.
Some countries permit the companies to include in the non-taxable expenses those sums, which are meant to bribe foreign governments, where bribery is considered to be normal way of building business.
Corruption and bribery create the atmosphere of uncertainty.
There is nothing good about them, and besides, they are economically unreasonable.
Eventually, when you bribe somebody, you transfer this sum of money on the consumers’ shoulders.
The intellectual property rights, compliances and land rights have the most important meaning from the foreign investments’ point of view.
In Africa long ago established the idea that no one can own land, but he can work on it.
It works till an investor appears who starts developing physical infrastructure on this land.
It sometimes happens to be very difficult to convince people, who secure the project’s financing, as well as the participants of the project, in the appeal of building a factory or agricultural regulation on the land that does not belong to them.
One of the options how the problem can be solved is to learn how to get 50-year or 100-year license on using this current land parcel and only then invest money.
Even under high-cost economic conditions, your business can count on the profit.
Besides, nothing scares investors more than political instability and intestine war.
Not knowing the rules of the game and inability to predict the future development of events – these are, probably, the most serious factors, which prevent investors from investing in Africa.
The proof that this statement is true is lack of foreign investors in such countries as Liberia, Somali, Zaire, Rwanda and Burundi, as well as in other “unpredictable” countries, such as Niger, Cameron, Sierra-Leone and Gabon.
It gets completely clear that foreign investors prefer to stay away from the states, where open political fights take place and where there is a great possibility of political conflicts, as a result of which the conditions of business may change.
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How to invest in Africa (using the example of RSA)?
The RSA government is interested in attracting investments, that’s why the support starts at the legislative level.
There are no limits to open business in RSA neither in size nor in the amount of exported income.
Moreover, the state does not even claim to get a share in enterprise.
The main legal conditions, which simplifies starting business in RSA:
- The legal conditions for national and foreign investors are the same.
- The country does not control the prices on the manufactured goods.
- Foreign investors do not have any additional limits on building their business there.
- Aside from financial activities, entrepreneurs do not have to get additional permissions to export profit and dividends.
- There are no limits for foreign owning of the created and bought South African companies (but for the bank and finance sectors).
Besides, the state offer tax privileges to the companies, which work in the sphere of processing industry, labor-intensive manufacturing, and innovative manufacturing (if they brought the technologies, which were not known in RSA before).
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Businessmen, who plan to invest in Africa, will find it useful to learn the peculiarities how to open business in the most developed state of African region.
Business’s registration with the help of government programs.
The RSA government has launched the financial programs, which were created to help young companies.
The main condition to get financial help is that the business is going to work and invest in development of the country’s economy.
Different companies, which function in different spheres, help to maintain the new businesses.
Such programs do not only help national enterprises, but show how they can also assist foreign business, attracting investments this way.
Financial and legal sides of starting a business in RSA.
In order to open your business in RSA you must fulfill two conditions.
The first one is the cost of business on the country’s territory must be not less than 40 thousand dollars.
The second one is that enterprise must provide working places at least for 4 RSA citizens.
The document, which assures that a businessman has 40 thousand dollars, is added to the petition.
These two documents are filed to the Ministry of Home Affairs.
Moreover, you must add your short business plan.
This procedure is required to check the businessman’s previous convictions.
After filing the documents to the Ministry of Home Affairs, a businessman must transfer money to the account of any RSA bank.
This is how he gets residence permit.
Now he is able to move there and start his business.
Later, he registers in the Central Register of the Companies in RSA.
The documents left on the registration are reviewed within six months.
Together with the application form and the package of documents you pay tax fee.
Depending on the city the sum is different and it reaches 500 dollars.
Regardless of all financial and political risks, many businessmen are still interested in how to invest in Africa.
Correct planning allows minimizing risks, and dividing the financing on the conservative, stable and highly margin projects under any conditions.