Africa on the move – navigating and capitalising on Africa’s emerging investment opportunities

Updated: Nov 15, 2019

Africa on the move – the skyline of Angola’s capital Luanda represents a sharp contrast to images often associated with the continent.

What is your mental map of Africa? Is it an opportunity which reflects the fact that the world’s five fastest growing economies in 2019 are located on the continent, that Ghana is the world’s fastest growing economy (expected to expand by 8.79% in 2019 as predicted by the IMF), and that growth rates for African economies overall are forecast to be more than double those in advanced economies?

Or, does it fall within the often-prevailing narrative which sees the African continent as a place of corruption, poverty and conflict – to be avoided by business and best reserved for safari holidays and NGO poverty relief efforts?

No doubt, the continent has had, and continues to have its challenges. These challenges are widely reported. However, there is an increasing counterbalancing story that needs to be told about a continent that is on the move, brimming with opportunity for growth and investment.

A closer look at relevant demographic indicators reveals the velocity of change taking place across the continent:

  • GDP growth - in 2018, Africa accounted for 5 out the world’s 10 fastest growing economies (with five African economies again leading the global growth statistics in 2019).

  • Population growth – by 2050, Africa’s population is expected to grow by another 1 billion and will comprise 25% of the world’s population.

  • Rapid urbanization - by 2023, 50% of Africans are expected to live in cities, with over 89 cities of 1 million + inhabitants to exist on the continent by 2030.

  • Growth of the middle class - today, Africa has more middle-class households with incomes exceeding US$20,000 per year than India, predicted to grow to 128 million middle-class households by 2020.

  • Growth of Africa’s working age population - 53% of income earners in Africa are 16-34 years old (median age of 20 across the continent), and by 2034 Africa will have more working age citizens than either China or India.

Given these demographic trends, McKinsey have labelled Africa as a 1.2 billion-person market on the cusp of transformative growth. This transformational growth is also being driven by two further macroeconomic factors: reform and technology.

Africa’s 55 diverse countries have been making rapid progress across various metrices such as living standards, the growth of the middle class, reduction of corruption, the strength of institutions and the rule of law, as well as implementation of business friendly policies.

This, in conjunction with macroeconomic trends identified above, generate exciting new growth opportunities across a vast range of sectors (in addition to traditional areas within the mining and oil & gas sectors). For example:

  • Financial services (traditional and within the FinTech space)

  • Consumer and retail

  • Telecommunications

  • Power and energy projects (including renewables)

  • Housing and property

  • Healthcare

  • Education

  • Advanced and value-added manufacturing

  • Agriculture

  • Media and entertainment

  • Tourism

As with any investment into dynamic, rapidly expanding growth markets, there are relevant risks that need to be identified and navigated in order to succeed. Common strategies in this regard include:

  • Political / regulatory risk: a carefully determined point of entry / market entry strategy based on the identification of favourable laws, strong institutions, an ability for regional expansion, and accessing international treaty protections).

  • Financial / currency risk: obtaining local financing where possible to protect against currency fluctuations, establishing intermediate holding companies in countries with favourable tax treaties (i.e. dual tax/bilateral investment treaties), and relying on specific legislative protections offering capital repatriation protections to foreign investors.

  • Business / industry risk: active investment strategy (i.e. management, knowledge/technology transfer), even where only minority stakes in a business are acquired, relying on locally sourced talent and using applicable incentives under local content and employment requirements as an advantage rather than viewing it as an obstacle.

Global investors are increasingly recognising the unique opportunity to invest in bankable projects in the continent and equipping themselves with the right strategies to take advantage of those opportunities while managing risk. Indeed, $67 billion worth of deals across the continent were negotiated in the recent Africa Investment Forum held in South Africa and there was 11% growth in FDI in 2018 (where the global average is 4%). As the forces of people, technology and reform continue to combine to accelerate growth in the continent, there is a deepening sense that Africa, as an investment destination, can no longer be ignored.

About the Authors

Written by Dominik Kleemann and Joshua Bell, who are Senior Associates at Hamilton Locke. Hamilton Locke has expertise in advising on debt and equity investments into the African continent and other emerging markets.

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