This article sets out the main reasons why family office investors need to take Africa seriously.

The following article, which makes the case as to why family offices should consider investing in Africa, comes from Matthew McLean of Endsight Consulting. It is the first of a series of three articles.

This is a fascinating topic – Africa holds much promise but, in the past, has come with significant challenges, such as protecting property rights, corruption and corporate transparency. Given its demographics, it is easy to see why investors hold out hope for Africa’s ascent. 

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In this three-part series, we discuss the basics of African economies, examine the top 20 African destinations for investment, and assess project viability. 

Investing in African ventures – from entrepreneurs and startups to medium-sized companies to large infrastructure projects – can be both financially profitable and personally fulfilling, often a nice fit for family offices. However, it’s a little like driving a Formula One car: exciting, fast, and edgy but requiring steady nerves and a keen feel for the road. 

To dip your toe into the waters of the continent, let me share a “starter pack” of nine basic tenets to prick your curiosity whether Africa might be a productive addition to your portfolio.

High risk, high returns
Private equity and venture capital returns in Africa often outperform many developed and emerging markets. The continent’s low correlation with traditional asset classes also offers valuable diversification options. Growing disposable income in most African population centers has elevated demand for various goods and services, such as infrastructure, industrial centers, business and personal IT, healthcare, consumer goods, retail, real estate, agriculture, food and beverage, and hospitality, etc. The challenge is less about finding off-takers and customers and more about navigating the nonsense to get up and operating effectively. Africa is an ideal place to mitigate risks while keeping high returns. 

It’s huge… and diverse
Not only can the US fit three times inside the African continent, but it’s home to 1.5 billion people, with the fastest growing and youngest population globally. Africa’s slice of the world is expected to expand to 28 per cent by 2050 and 40 per cent by 2100 – a demographic dividend that is fueling urbanization, rising consumer demand, and a burgeoning middle class. Okay, okay, Africa is a continent not a country and its 54 independent nations provide a widely assorted tapestry of economies, cultures, and opportunities. Lots of apples and oranges here.

Richest and poorest
Africa is by far the richest continent on the planet … below the ground. The continent boasts petroleum, huge fresh-water systems, extensive fertile and arable land, and massive reserves of critical and rare earth minerals essential for technology supply chains. Above ground it’s unfortunately a region with lingering poverty. Some say it is the “resource curse.” Well, how is that “resource curse” working out for the United Arab Emirates, that only has oil? Turning natural assets into broad-based prosperity is Job One.

Systems and structures
In some cases, African economies and public services lack organization and coherence, which heightens the emphasis on local relationships. In other cases, onerous and nonsensical bureaucracy stifles action and constrains operations – also heightening the emphasis on local relationships. Navigation is critical but not always intuitive. A trusted Sherpa is golden.

Bankability gap
People with projects cry they can’t find money, and people with money complain they can’t find projects. What gives? Most people don’t have a project, they have an idea (which usually involves a brother-in-law or cousin who is a minister of something). Capital doesn’t like the pre-pre-pre-seed stage. Finding $100 million for a well-baked project is easier than finding $1 million to move a good idea to viability. There is a big, untapped opportunity to put limited capital into feasibility and project development to make them bankable, then take a significant equity stake when it matures at a higher valuation. The “finding” part is the key.

Entrepreneurship and talent base
Africa’s entrepreneurial ecosystem is vibrant with the continent witnessing a surge in fintech, renewables, and digital services startups. Statistics may have African countries trailing in education standards in the aggregate, but there are plenty of highly talented and capable professionals for partnerships and to fill your needs. Smart organization, incentives, and leadership to ensure workforce productivity are as effective in Nairobi and Lagos as they are in Memphis or Pittsburgh. Careful recruitment is vital.

IT savvy
Did you know that the cellphone penetration per 100 people in Ghana (113) is higher than that of the US (110)? Okay, so lots of folks are walking around with two to three phones clipped on their belt, but you get the picture. Many ventures in Africa are leapfrogging legacy infrastructure (like it did with landline telecom), providing scalability to high-growth businesses. Combined with a massive youth population and (now) affordable call plans, not only does Africa far outpace the US in its use of mobile money but is a society that floats on a sea of wireless activity, particularly in urban areas. America may run on Dunkin’ but Africa runs on Whatsapp. 

Value add
When wealth is pulled out of the ground, they give most of it away. How? Raw materials are loaded on a boat to be processed and refined in China, Europe, the US, and elsewhere. Metal ores, petroleum, agricultural goods (especially cocoa, cashews, and coffee), you name it, are exported for someone else to capture the value-added wealth. This is an existential challenge for African economies and presents significant opportunities for value addition, local processing, and downstream investment – even if only for the first few stages of refining.

Making a difference
Africa is the prime location for those who want to “invest with purpose” and align their capital with positive social and environmental impact. Target sectors may include healthcare, education, infrastructure, and agriculture. If done smartly, impact and angel investing at the small and medium scale, and infrastructure and commercial centers at the large scale, will have outsized influence to unlock economic growth and wealth creation on the ground. Market-based enablers (more than aid) spur employment, business ownership, and skills development, which are the drivers of local prosperity as well as sustainable returns for the investor. 

Africa is ideal for patient (and creative) capital within a diversified portfolio if accompanied by caution, careful due diligence, local knowledge, and trusted partners to turn thorny dysfunction into navigable pathways. Its cash-poor/resource-rich circumstance bolsters the importance of the Golden Rule (he who has the gold makes the rules) where investors can negotiate fair terms from a position of strength. With 54 different options, you have plenty of avenues to pivot to find the best-fit deals for you. Who’s up for a little Formula One?

About the author
Matthew McLean is the founder (2011) and president of Endsight Consulting, where he advises African leaders at the highest levels to increase the attractiveness of their countries to business and investment. He also guides US and Western businesses and investors seeking new business in frontier and emerging markets. 

Endsight produces an annual report that measures and ranks the business environment of all 54 African countries. The Country Performance Index (CPI) uses 36 indicators to assess business conditions, financial factors, and governance. 

Prior to creating Endsight, McLean served 20 years in senior positions in the US government. He was a White House staff advisor on international development for Presidents Clinton and Bush, including as Director of African Affairs. He was Chief of Staff and Vice President at the Millennium Challenge Corporation, which placed large grants in developing countries for infrastructure. He was an advisor to the USAID Administrator and a profession staff member in the US Congress overseeing US foreign assistance. 

McLean has served on several boards, including the Advisory Committee for the US Trade Representative, the Advisory Committee for the US Export-Import Bank, and the Society for International Development.