Potential Investments in Africa - Essay Example

Do you think that Canadian investors (individuals, investment funds, pension funds, businesses etc should be looking to increase their investmentsin Africa, and if so, what precautions or limits should they place on these investments and why? Be careful to discuss both the opportunities and threats associated with any potential investments in Africa. The economical potential has just opened up in the African continent that was once known as the hopeless continent. A significant gap remains between the stereotyped perspective of Africa as a place and what originally Africa has to offer to the various businessmen and investors. The region has attracted the attention of many foreign investors who have recognized it and are trying to utilize this to their advantage. This is not only beneficial for the investors but is also beneficial for the African people as it is providing them with work, economic growth, financial solidity to the various African countries and wealth and success over the land. Africa is full of resources that are still to be exploited by companies so as to derive the most out of the resources. Investment in this area has the power to change the landscape of the continent. The ability of entrepreneurship has already demonstrated itself over the globe with businessmen across the continents gaining from the opportunities provided by it. All it needs is a brilliant idea or plan to jump start a business and entrepreneurs all over the world are utilizing their resources to set up their businesses. Also, after globalization of the world economy, entrepreneurs have enlarged their range to the global market. Furthermore, entrepreneurship paired with the ability of globalization is altering the conditions of various regions. In the same way entrepreneurship can work in the interest of Africa as it is further enhanced by a globalized economy. Africa is already charming a significant amount of investment from foreign investors in the region. In fact, a study conducted by the AfDB (African Development Bank) approximates that the continent will fascinate investments of about $85 billion exceeding the figures for the previous year (Blas, 2014). This is a good sign for people looking to invest in this particular area. This includes investors from Canada who might be interested in becoming part of a growing economy in the world. Even though Africa is a growing economy has not yet counterbalanced the level of poverty in the region, investors are becoming growingly interested in investing in the region. There has also been a change in the point of view of Africa from being a provider of raw materials such as coffee beans to a region with a great demand for manufactured goods and services (Blas, 2014). Africa has a very big population and has a very great proportion of emerging people belonging to the middle class who are a highly qualified and an educated generation but do not have jobs available or accessible for themselves. The amount of middle class people in Africa has raised to a large extent from 115 million in 1980 to 325 million in the past 3 decades or so (Blas, 2014). With such an enormous rise in the amount of educated people and very few job opportunities, this can act in a beneficial way for the foreign investors. Foreign investors will be looking for inexpensive and cost effective labor while the African population will be looking for a job opportunity. Hence putting up an industry or business in the African continent can be beneficial for the Canadian investors as they will have the raw material as well as the labor and human resources available at low priced rates in Africa only along with employees who are ready to work for lesser wages as compared to the people in other continents. These African people are just not a labor force but are also educated which means that high profile jobs can also be provided by these people while the income rates for them will not be as high as compared to the other countries. With the rise in job availability the middle class people will have more money to utilize and along with the industrial investors other people who are investing in service providing can also benefit. They can open up banks, leisure sites likes clubs, shopping malls and shopping markets. The manufacturing industries can benefit to a very big extent as cheap labor and cheap raw materials are available in Africa. With the rising economic growth in the area, chances have also opened for various kinds of businesses like the pharmaceutical companies as the African continent is full of extended varieties of plants and herbs that are used for producing medicine. Hence, all of these things combine up making Africa a place with great opportunity for Canadians to invest. While the African continent is able to provide various opportunities for Canadian investors, there are also some uncertainties to consider. Like any other business environment, there are many environmental challenges that intimidate to negatively impact the business thereby damaging its investors. Africa is a continent that is still continuously facing a lot of setbacks that possibly can be very dangerous for new businesses which are being set in the country and hence can effect in the new investors to be frightened regarding their investments and even consequently making those investors to pull back their investments out of the country. The outcome of this can result in the people who are investing as well as the African population to suffer. The investor because his or her investment became useless, and that considerable amount of time and various other superior opportunities might also have been wasted. The African people as they will lose their jobs, unemployment will rise which will result in a decrease of economic growth which is bad for the country as well as its economy. Looking at such things various other investors will also pull back their investments from the region and future investors will not or will be very reluctant to invest in the country. The basic challenge of the African continent and its instability is that corruption still remains unrestrained and governments are taking very small measures to introduce organizations that are meant to last for long periods of time. In many countries of Africa, the political parties are only worried about the illegal extension of their mandates and are trying every trick and way in their arsenal to make it possible. They really do not care about the country’s economic welfare or about safeguarding the foreign investments that are made in their countries. In few African countries internal disturbances are at their peaks which can be dangerous for the foreign investors as during the riots their investments and businesses can be damaged. Few major threats to businesses have been discovered about opening businesses in Africa. First is the growing social malfunction amongst the citizens of Africa. The African people have burst out due to the constant disappointment with the deliverance of the various services which now has resulted in extensive and brutal protests against the whole system that is the government. The African people along with the rise of Africa are getting more eager and more impatient. This increasing impatience regarding the society’s prevailing organizations and procedures seems to be growing and these are really troubling signs that even the middle class, on whose shoulders the society’s success and solidity eventually depends are also losing their trust and faith in the basic concepts that are being provided by the governments. The utmost obsession that has been raise by the under way e-toll story in Gauteng is a clear example of this trend. Such types of feelings usually interpret in the hearts of the middle classed people the unwillingness to pay tax which is disastrous for the government itself and can result in the weakening of the state. Second is the financial volatility of Africa and the global economic conditions. The financial crisis that came in 2008 was very extensive and intense than that was first being expected. The various markets and economies were unable to recover an even base. The flipside is a growing administrative burden as the governments and other state organizations try to rein in unrestrained capitalism and try to protect the foreign investors. The chief corresponding risks that can be a problem for foreign investors in Africa are the unpredictability of the commodity prices, considerable competition inside Africa and in the export market and the instability of the currency. Third are the risks from the environment. If unpredictability is the new economic normal, then there is every sign that the climatic and environmental unpredictability is also becoming an attribute of life. Climatic variations can be expected to raise the chances of water shortage and even food shortage due to massive plant destruction due to the climatic changes. Up till yet, worldwide and national environmental plans and schemes are obtaining grip way too slowly, and seems like that these plans and schemes are going to add up to the costs of doing business in short term time periods in Africa which will give rise to the problem that how to correspond short term as well as long term risks. Fourth are the risks from the infrastructure of Africa. A common risk of doing business in Africa is the insufficient and badly conserved infrastructure. Electrical power and water supply are two evident reasons that threaten businesses in Africa, but the rail tracks and road networks also bring out challenges for the businesses. The efforts that are being put in by the government to resolve these challenges are being affected by the concept of interconnectedness (Job and Phitidis, n.pag.). Many African businesses are taking remarkable steps to reduce these infrastructural problems by taking responsibility for all or some of the infrastructure that is required for their businesses. Property creators are often providing themselves with roads and sewerage pipeline while factories provide a little amount of their own electrical supply (Job and Phitidis, n.pag). Fifth are the risks that are to the business due to the loss of data. In present days with the advancement in the business procedures data is becoming more significant for the business firms to evaluate their risks and to compete more constructively. In Africa, data privacy rules have already leapt up to safeguard the personal information, making a set of problems for data safety. The increasing problems that are created by cybercrime are one of the reasons. Another problem is that the firms are trying to protect their data while being forced to keep the costs low (Job and Phitidis, n.pag.). Last are the risks that come from the question that whether the business can continue or not. As the conditions of Africa are very uncertain and the fact that widespread riots can out break anytime and that usually infrastructures get damaged during these riots is also an issue for the people who are investing in Africa. These riots do not only damage the building but also the railways, the roads and anything and everything they can get there hand on to which creates a lot of menace for the businesses. References Blas, Javier. 'Inequalities Mar Africa’S Rise'. Financial Times. N.p., 2014. Web. 23 Oct. 2014. Job, Alison, and Pavlo Phitidis. '6 Threats To Business In 2013'. Entrepreneur. N.p., 2013. Web. 23 Oct. 2014. Read More