MARTIN SODERBERG: Where is Africa’s next investment frontier?

In the midst of a global commodities boom you would expect investment in Africa’s extractive industries (mining, oil and gas) to be on the up. But, while there is still interest from major players — witness Shell’s contentious seismic blasting off SA’s east coast — commodities make up a smaller and smaller proportion of the continent’s foreign direct investment (FDI) flow. In fact, research from EY shows that extractive industries accounted for less than 4% of FDI in 2020. 

Meanwhile, at the sharp end of the wedge are the growing number of technology-based start-ups receiving international funding. African start-ups raised $4.65bn in 2021, twice as much as in 2020. While that is a fraction of the $329.5bn North American start-ups raised through the course of the year, it points to a sector that is increasingly realising its value and is firmly on the radar of international investors. 

While there will be opportunities in technology, especially among early-stage start-ups, for some time to come any savvy investor should have at least one eye on what comes next.     

The case for sustainability 

There are a number of possibilities when it comes to identifying what that “next” might be. I would argue there is a strong case to be made for sustainability. This is especially true when it comes to environmental sustainability. Even though total emissions from the entire Africa are lower than the top 40 listed companies in Europe, there is still a lot of pressure on, and within, the continent to ensure that its development is as sustainable as possible. 

In part, that is because Africa is set to be disproportionately affected by climate change. In fact, it already is, with the UN pointing out that climate change is triggering food insecurity, poverty and displacement across the continent. There will be other effects too. Research released earlier in 2022 suggests a fifth of the continent’s heritage sites are at risk of being lost due to climate change.

Rising oceans are not the only climate-based threat to Africa’s heritage sites either. A project aimed at digitising tens of thousands of historic manuscripts from Timbuktu in Mali was completed this month, for example. Most of those documents were smuggled out of the ancient city while its libraries were under attack by insurgents. It is widely acknowledged that this conflict has been worsened by climate change.    

At the same time, large swathes of the continent still have a lot of ground to make up when it comes to growth and development. Within that context, it seems absurd that a continent that accounts for less than 3% of global carbon dioxide emissions should be punished for the rest of the world’s indiscretions.

Embracing changemakers 

But within those very real constraints there is opportunity. While there are obviously possibilities for investors looking at low- and zero-carbon energy on the continent, that certainly is not the only available avenue when it comes to sustainability. Investing in already existing businesses that are willing to make changes can make a much more immediate effect.

We have seen that with a number of our portfolio companies. Whether they are making recycled plastic goods that are stronger and of higher quality than those made with virgin plastic, or an online retailer eliminating large amounts of waste from its operations, all are making a difference in vital ways. 

Critically, these existing businesses are also typically committed to the communities they operate in and serve. That not only means they understand what is and is not possible, even with significant amounts of funding, they also understand that matters such as gender equity and staff upliftment have an effect on sustainability too. By backing these already viable companies that are willing to be changemakers, investors can help push sustainability while also netting returns.  

Change begets change 

While one-off megaprojects have their place and can be incredibly exciting, it is crucial that the existing, functional parts of the economy are made sustainable too. There are plenty of companies across Africa that meet these criteria. With the right investment they can drive a wave of sustainability while still ensuring that the continent meets its development and growth goals. 

In other words, the next investment frontier might not be some new form of technology that creates whole new industries, but ensuring that the continent’s existing businesses and industries become as sustainable as possible. 

• Soderberg is partner at Spear Capital.