Life After COVID-19: Which Sectors Are Set To Thrive In Africa? - Business Media MAGS

SA Mining

Life After COVID-19: Which Sectors Are Set To Thrive In Africa?

In the wake of COVID-19, Africa has the chance to transform what much of the world sees as insurmountable challenges into monumental opportunities.” – Christopher OH Williams, president of African Leadership University.

By: Alan Witherden, Business Development Director at Ocorian

The COVID-19 pandemic has had the world on its knees, forcing countries, from the most industrialised to the least developed, into prolonged sanitary lockdowns and upending whole economies. As a result, the world has now stepped into recession, one of a scale far greater than the financial crisis of 2008, and potentially comparable to the 1930s Great Depression.

Alan Witherden

With less than 2% of the world’s recorded COVID-19 cases to 21 May 2020, Africa, which accounts for 17% of the world’s population, was far less affected than many dreaded. However on the economic front, the pandemic will severely dent the continent’s growth trajectory. According to the World Bank, sub-Saharan Africa is heading towards its first recession in 25 years, with average GDP growth predicted to nosedive from 2.4% in 2019 to -2.1 to -5.1% in 2020, depending on how long the pandemic lasts. The economic powerhouses of the continent, Nigeria and South Africa are predicted with economic contraction in excess of 8%.

Africa as a whole, whether by luck or circumstance, has contained the deadly infection compared to countries with more sophisticated health systems. In so doing, Africa has, in our view, sown the seed for the future resilience of its economies.

True, the continent – as the rest of the world – will be reeling for some time. Most African countries have limited fiscal space to sustain measures to bolster economic recovery. However, from lessons learnt from Africa’s handling of the COVID-19 crisis and the shape of things to come, in the short to medium term the continent will be teeming with investment opportunities to grab.

First, in sectors having emerged unscathed and stronger from the crisis; second, in traditional “backbone” industries that will need strengthening to make them fit to withstand similar shocks in the future. In the long run, the inherent attributes that have put Africa on the radar of investors across the world will once again come into play for the continent to rise anew.

What sectors to keep an eye on?

Technology-enabled sectors as pillars of resilience COVID-19 has been a strong revealer of the power of technology to support local and regional value chains, enabling the cost-effective delivery of a host of services to consumers confined in their homes.

Specifically relevant in these times have been the digital education initiatives deployed in many countries, in the likes of Kenya’s Eneza Education in partnership with telco giant Safaricom. In a post-COVID era, more online education platforms can help programmes and curricula achieve scale, reaching out to larger student populations at a lower cost, without the traditional brick-and-mortar investments. Initiatives to build leadership and entrepreneurial skills will also be critical: “We are catalysing the next generation of consequential entrepreneurial-minded African leaders needed to unlock this new era of opportunity,” says African Leadership University president Christopher OH Williams, a client of Ocorian.

Undoubtedly one of Africa’s most resilient sectors to the current crisis, the financial technology industry (fintech), with its mobile-enabled payment platforms, has been providential in ensuring that large volumes of transactions could still be processed, hence supporting vital economic activity from isolated farmers, small enterprises and self-employed individuals. Before the pandemic, fintech was already thriving in Africa. According to WeeTracker, in 2019, fintech attracted more than 50% of the $1.34-billion raised by African start-ups.

In the health sector too, technology was put to good use, evidenced by the self-monitoring COVID-19 triage tool developed in Nigeria and the drone-enabled delivery of medical supplies in Rwanda.

Whether in financial services, education, health or other technology-enabled sectors, digital applications deployed successfully under COVID-19 are unlikely to be scaled back once the crisis subsides. For the security they offer, these sectors may be vital for investors looking to build a recession-resilient portfolio in Africa. COVID-19 has revealed, more clearly than ever, Africa’s potential for technology-driven innovative investments.

The manufacturing sector: strengthening local and regional value chains

With the pandemic disrupting international supply chains, many countries in Africa have resorted to quick-fix home-grown solutions, especially to ensure production of life-saving COVID-related medical equipment and supplies. Textile factories abandoned export-oriented production lines to supply local communities with masks; in Nigeria, a military facility helped alleviate the shortage of oxygen; South Africa issued a tender for the production of ventilators. Examples abound of such emergency conversions, which reflect the potential for African industries to respond to local demand swiftly.

In more generic terms, the pandemic has shed light on the necessity to substitute local manufacturing for imports, wherever possible. A strong African manufacturing industry is also a pre-requisite to the success of the impending African Continental Free Trade Area (AfCFTA). The protocol on the trading of goods within this unified market of 1.2 billion consumers was slated to commence on 1 July 2020. As a lever of trade and economic recovery, the AfCFTA implementation agenda is expected to receive priority attention from African governments after the pandemic.

Investing in security: food and health sectors poised for growth

COVID-19 will not only tip the scale for locally produced goods. More compelling even will be the urge to ensure food security. This is expected to drive investments across the full agribusiness and food-processing value chains. “Vertical integration and category diversification have proven to be key to sustain the volatility experienced across the food industry. We see opportunities in basic food products post COVID-19 as these sectors are recession-resilient, despite suppressed demand,” says Joel Bryce, chief investment and strategy officer of PhilAfrica Foods, also an Ocorian client.

Similarly to the rest of the world, Africa woke up from the pandemic with the realisation that its economic prosperity depends, first and foremost, on the health of its people. At the beginning of the coronavirus outbreak, many African countries found themselves at the bottom of the Global Health Security Index.

Investments in the health sector, including in pharmaceuticals, will get an unprecedented boost. Biomedical Emporium, an Africa-based company and a client of Ocorian, sees “great opportunities in the design and development of diagnostic testing kits, multifunctional cocktail drugs as well as over-the-counter treatment therapies”. On a larger scale, many countries on the continent, including Mauritius, South Africa, Kenya and Ghana, were already growing their health sector to become a backbone industry. Investment opportunities will remain plentiful, also as the health sector benefits from new technology applications such as telemedicine.

Will the situation differ according to countries?

The individual capacity of countries to rebound will depend on a host of factors altogether: their growth history and dynamics before COVID-19; the effectiveness of their governance and business frameworks; the strength of their relations with international donors, investor communities and bilateral and multilateral economic partnership agreements, among others.

Understandably, countries that were already on a sturdy growth path, with improvements in ease of  doing business and an effective governance framework, will stand a better chance to win back investor confidence in a post-COVID-19 era. Oil-dependent economies and countries with very high levels of external debt will face protracted hardships with a much slower recovery. Based on such criteria, it is reckoned that Morocco, Rwanda, Ethiopia and to a lesser degree Côte d’Ivoire and Ghana could be blessed with a less painful recovery in the short term.

Should we expect a change in the way we do business?

This coronavirus crisis is akin to a paradigm shift which many, across business, government and civil society, hope will bring about a more sustainable, inclusive and green society. The World Economic Forum has called on Africa and the rest of the world to fight the current economic plight with “stakeholder capitalism”, on the premise that new rules for community engagement will help companies recover faster. In Europe, it is a European Green Deal, ushered in by the European Commission, on which rests the hope of a competitive, inclusive and climate-neutral 21st century.

This new paradigm, we think, will also permeate the investment philosophy of private equity funds on the continent, with possibly more so-called impact funds becoming the norm and host countries making it mandatory for individual investors to factor in ESG (environment, social, governance) considerations in their decision making.

Africa’s recovery will be Africa-led, with its home-bred entrepreneurs and investors poised to benefit first-hand from this new era of opportunity. South African investors are well placed to be part of the journey.

There are already significant investments by South African companies in many African countries, as evidenced by the 180 or so companies served by Ocorian. While there are a number of large, JSE-listed entities that Ocorian represents, most of their clients are owner-managed businesses seeking to expand their horizons into Africa. They are well equipped to do so, leveraging on their local success and unique knowledge of the economic, environmental, societal and political conditions prevailing on the continent. With a stagnating economy and political uncertainty, the incentive to take advantage of business opportunities on the continent could be timely now.

©iStock

You might be interested in these articles?

Related Post

You might be interested in these articles?

Related Post