The Africa Investment Conference held on 20th January 2021 highlighted both differences and continuity between the landscape of UK investment into Africa, particularly when compared with the 2020 event which had taken place 12 months earlier. The most obvious difference was that the 2021 event was held remotely, with both speakers and attendees logging in, for the most part, from home, with the world having gone through a global pandemic which has placed different levels of strain on governments in both mature and emerging economies.
The key similarities remain as follows: the UK, having left the European Union (the end of the transition process having taken place on 31st December 2020), is searching for new trading opportunities and seeking to position itself as the partner of choice for investment into Africa. Through a mix of new agreements and rolling over previous arrangements implemented by the EU, the UK now has 6 trade deals in place covering a total of 14 countries, with an Economic Partnership Agreement being signed between the UK and Kenya on 8th December 2020 as the most recent such deal. The UK’s current trade with Africa currently represents around 2.5% of its total trade. Having grown at 7% over the past two years, there is ample opportunity for growth.
Africa and the pandemic
The continent, while recording far lower official case and death rates, continues to suffer to consequences of coronavirus. The African Development Bank estimates that Africa has lost 20 years’ worth of economic growth as a result of the pandemic. Business sectors that support large numbers of jobs, such as tourism, have suffered significant retrenchment as travel has shrunk. The United Nations Conference on Trade and Development in June 2020 reported that Foreign Direct Investment into Africa was likely to have contracted between 25 – 45% in 2020.
Despite the ongoing challenges, there was cause for cautious optimism and there remains scope for significant growth in African economies. We have considered some of the key themes.
Urbanisation: Current trends indicate that more people will move to urban areas in Africa between now and 2050 than in China and India combined. This will drive continuing growth in demand for infrastructure.
Growth in data consumption: Data consumption across Africa is growing very fast, being estimated at 35% in 2020. Investment in fibre and “last-mile” infrastructure, as well as telecoms towers, is likely to see continued growth.
Partnerships rather than aid: There was broad agreement that the bilateral aid model is outdated, and a better approach is to foster private sector growth in key sectors such as technology, energy, manufacturing and infrastructure. The UK can be part of this journey through government-backed agencies such as UK Export Finance which can help mobilise private sector capital to help business growth in Africa. The UK was recently the subject of criticism both domestically and internationally for cutting its aid commitment from 0.7% of GDP to 0.5%. This followed the merger of the Department for International Development into the Foreign and Commonwealth Office (forming the FCDO), with speculation that the UK’s approach to international development is likely to be more closely aligned with the UK’s foreign policy and commercial goals than may previously have been the case.
Energy: The continued growth of demand for electricity (predicted to grow by 150% in the next 20 years, together with the increased penetration of renewables into the energy mix, poses both challenges and opportunities for the public and private sector. A growing population and industry will need access to reliable electricity, and both governments and the private sector are under pressure to achieve ambitious greening targets. Africa’s solar energy resources can help bridge some of the gap, with distributed energy solutions increasingly becoming an option for both non-grid connected communities and commercial and industrial customers. This helps avoid bottlenecks in the energy value chain that have hampered many grid-connected large-scale baseload projects in the past.
Technology: Tech initiatives are often not eligible for traditional funding immediately so the role of development finance is crucial.
The private sector is uniquely placed to drive the transfer of knowledge and technology within Africa and from abroad. Proven solutions such as pay as you go solar are also attractive to the debt capital market.
There are opportunities to roll out technologies from one part of the continent to others, such as the movement of pay as you go solar from southern and East Africa into West Africa. There are opportunities to develop technology specific to local demands, such as electric motorcycles.
Manufacturing: There needs to be a focus on use of local resources. For example agriculture needs to move away from being a primary industry, stepping instead into the manufacturing chain e.g. cotton no longer to be exported but instead to be fed into a textile industry within Africa.
Infrastructure: Poor infrastructure puts brakes on growth, as does poor access to finance. Investment in infrastructure makes business sense and helps countries take opportunities and use their economic bases to grow, rather than relying on aid.
Key takeaways
The pandemic continues to buffet economies worldwide, and its consequences will not be known for some time yet. The challenges remain the same for the UK as they have been for the past few years: with Brexit, the UK needs to forge new trade relationships. As the conference showed, Africa continues to represent an exciting opportunity for businesses, with (until 2020) a track record of fast economic growth, and a young and growing population (the youth population of the continent is estimated at 250 million). Africa’s need for better energy and infrastructure presents significant opportunities.
The conference showed that the UK government remains keen to be the partner of choice for investment into Africa. The success of such support will, however, depend on local actions, the participation of development finance institutions and support both by agencies such as UKEF and the network of UK trade missions and embassies on the ground.
About the author(s)
As a Projects lawyer, Carrie helps her clients to deliver challenging and complex projects in various jurisdictions. Carrie's experience belies her years of PQE, having had a considerable amount of commercial experience before deciding to become a lawyer.
Robert Currall has broad experience in advising on projects in the UK, Europe, Middle East and Africa. He has advised a wide range of clients in the private and public sector on projects, including project sponsors, commercial banks, development finance institutions, state utilities, oil majors, government ministries and local authorities.
Sarah Gray is an associate in the UK commercial litigation team.