The payback time and return of investments on the African continent is similar to that in Europe

Alibaba Group, an e-commerce holding company worth half a billion dollars, has just changed the location of the regional distribution center from Kenya to Rwanda. The largest global players are entering the hot continent, counting on high returns on investment. Polish businessmen also see an opportunity, but under certain conditions.

In Africa, Poland is associated with the European Union. And in the Black Continent the EU means the highest quality. In addition, as a state, we use the immediate vicinity of Germany, which by African states is considered to be an economic power. As a result, some of the German splendor flows toward us.

Tomasz Nowowieyski, creator of Mutalo Group, produces Kabisa Energy Drink. The drink manufactured entirely on the Vistula, transported to the black continent, was considered the best brand among new energy drinks during the SIAL Paris international food exhibition. It has been present in Africa for several years.

- The payback time and return of investments on the African continent is similar to that in Europe. It all depends on the industry and the scale of initial investment. It is difficult to compare private investments to those of state-owned companies. From my experience, investments based on political relations are the least stable – says the head of Mutalo Group.

He admits that due to the wide use of dollar and euro in trade and dependence on imported goods, the economies of sub-Saharan African countries (49 countries out of 54 located on the continent down from the Sahara) are involved in the global financial market than Poland. For this reason, if speculations about the upcoming inverse yield curve prove to be true, the markets in Africa will experience a slowdown.

It turns out that the two biggest problems of Sub-Saharan African countries interfering in investments are still weak state institutions and poor infrastructure. However, both problems are supposed to be soon solved... by China. The Middle Kingdom's presence on African markets continues to increase year by year. Chinese influence can be seen in almost every African country. The Chinese (every white man in Africa is referred to as a Chinese) are building roads, railways, skyscrapers. Chinese boards can be seen on construction sites, and Chinese builders on scaffoldings.

In immigration offices, hundreds of Chinese citizens are waiting to extend their visa, amazing officials with the lack of a basic knowledge of the English language. That is why Chinese translators and Chinese companies are coming to Africa to provide services for workers who find it difficult to find themselves in a foreign world. The weakness of local institutions is a challenge for these companies.

This can be seen on the example of a recent move made by Alibaba. The holding has decided to change the location of the regional distribution center. It moves from Kenya to Rwanda. It is the third, most popular country in Africa in terms of organization of international meetings planned by the International Congress and Convention Association (ICCA). Poland is also a member of the Association. In Rwanda, the long-term development strategy is carried out as part of the Second Economic Development and Poverty Reduction Strategy (EDPRS II).

Within its framework, the country has modernized the conference and hotel infrastructures, as well as transport networks and tourist attractions. The most important goal of the program is to promote economic growth and reduce poverty through the transformation of rural areas, youth employment and responsible management. The EDPRS II assumes an increase in the gross domestic product per capita to 1000 dollars. The World Bank suggests that in the future the private sector will have to play a greater role in ensuring economic growth. The main limitations of private investment are bad infrastructure and inadequate access to electricity. They are based on external assistance. Their stable inflow is of key importance for maintaining the current investment rate at the level of around 25 proc. of the GDP.

Changing laws

- Ambitious leaders will eventually have to succumb to Chinese pressure to stabilize the law and reduce corruption. Corruption is everywhere. Policemen stop cars to extort 5 zlotys from drivers, local officials enforce undue parking fees, companies are harassed by officials who look for changes in regulations and enforce 10 zlotys for the lack of a license that came into force one week earlier – says Tomasz Nowowieyski.

He reminds that Poland experienced a similar situation in the nineties. But Western capital entering Poland markets forced profound changes on politicians and nowadays an average citizen or entrepreneur does not see corruption every day.

- The case will be similar in Africa. Yet instead of Germans and French, the changes will be forced by the Chinese – adds the head of Mutalo Group.

Anna Maslon-Oracz from the Warsaw School of Economics, specializing in economic policy and development economics of Sub-Saharan African countries, admits that apart from former colonial powers, countries such as the PRC strongly mark their presence on the African continent.

- In the last decade, Chinese trade with Africa has increased by more than 5.5 times. This continent has been given a priority rank by the EU. The Alliance for Sustainable Investment, proposed on 2 September 2018 by President Jean-Claude Juncker, aims to increase economic and trade cooperation due to investments and job creation - says Professor from the Warsaw School of Economics.

She adds that since 2013 Poland has also been encouraging the search for possible forms of development in Africa through the implementation of the Go Africa program. The program promotes and encourages Polish entrepreneurs to expand their activities. In the assumptions of Polish foreign policy for 2017–2021, it was emphasized that Poland will be in favor of the geographical diversification of Polish economic activity in the world, with emphasis on cooperation with, among others, African countries.

- In my experience, African countries can be divided into 3 baskets. The first basket is a stable economy, where one can invest, it includes: Ghana, Rwanda, Kenya, Cote d'Ivoire, Mauritius, Zambia, Senegal, Namibia. The second basket includes unstable economies where it is possible to invest: Burkina Faso, Mozambique, Tanzania, Malawi, Cameroon, Ethiopia. The last basket includes countries where one cannot invest: Nigeria, Togo, Benin, Guinea, Congo DRC, Republic of the Congo, Central African Republic, Chad, Niger, Mauritania, Mali, Angola, Liberia, Sierra Leone, South Sudan. Hence, the answer to the question “Is it worth to invest in Africa?” depends on the person and the industry.

If someone has a stable business in Poland that brings profits and thinks about expansion to foreign markets, then Ukraine or Germany will probably be a better choice due to geographical proximity. Polish investors who plan to expand into African markets should remember that apart from two charter flights to Mombasa and Mauritius, there are currently no direct connections between Poland and any country of Sub-Saharan Africa – admits Tomasz Nowowieyski.

Cultural melting pots

- African countries could just as easily be on a different planet than Europe. Many of these countries are cultural melting pots. Apart from dozens of tribes, numerous ethnic minorities dominate the business: resourceful Lebanese, clever Indians, aggressive Nigerians, ascetic Mauritanians, Malis, Somalis and Chinese. The Poles raised in a homogeneous society find it difficult to understand that people of one country can live in different worlds – adds the founder of Mutalo Group.

Nevertheless, 2019 is the year of further economic and social development on the African continent. Deepening transformation brings fundamental changes in the perception of this continent.

According to the latest forecasts of the World Bank, Africa is the most dynamic continent in terms of economic development. It follows a similar path as China and Singapore did in the past. In the coming years, the economic growth of Sub-Saharan African countries should exceed the global average of this indicator. Since 2013, the economy of one in four African countries has achieved a 5 or 6 percent annual growth rate. Data on consumption growth and the number and value of foreign direct investment are favorable for Africa.


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