U.K. Government has not been shy about its interest in Africa, announcing an ambition to be the top G7 investor in the continent by 2022. With existing FDI largely concentrated in extractives (51%) and financial services (31%) – as well as geographically in South Africa (30%) – the U.K. is seeking to diversify its portfolio by branching out into manufacturing, infrastructure development and other key industries. For its part, CDC Group – the U.K.’s development finance institution – recently announced a commitment of one billion dollars in African investments in 2021, with a view to driving inclusive growth of small- and medium-sized enterprises and stimulating job creation across priority sectors, including infrastructure and finance. This – along with the 27 trade and investment deals worth over $8.9 billion signed at last year’s U.K.-Africa Investment Summit – indicates a ramp-up in commercial engagements between the two partners. Africa’s infrastructure deficit inhibits economic growth by two percent every year and cuts business productivity by as much as 40%. Approximately $93 billion in investment is needed annually over the next decade to develop sub-Saharan African infrastructure – buildings, roads, power supplies and so on. Historically, African governments have funded a sizeable share of infrastructure development via their balance sheets, meaning that development is slowed when budgets are tight, as is currently the case with COVID-19. In this context, G20 countries like the U.K. can represent heavyweight partners of choice for Africa by marrying extended financial resources with an active investment drive.
U.K.’s growing interest in Africa is not unique – in fact, major players like the U.S., Germany, China and Japan have been examining investment opportunities on the continent with an ever-watchful eye. According to Olusola Lawson, Co-Managing Director of African Infrastructure Investment Managers, African infrastructure provides critical avenues along which investors can focus their investments, including in the realm of digitalization. With data consumption growing faster in Africa than anywhere else in the world – accelerated further by the COVID-19 pandemic – investment in technological infrastructure is considered a promising outlet. Additionally, investment in power generation infrastructure that corresponds with government electrification objectives has the potential to yield high returns, with 600 million people in Africa still lacking access to electricity. By partnering with the U.K. and other G20 countries, Africa can boost electrification as a means of achieving economic growth and industrialization, while the U.K. stands to gain from high-impact investments. While investment in infrastructure is essential, the prioritization of investment with a social impact is equally critical. As Africa aims to expand its infrastructure and facilitate economic and sectoral growth, investment in physical assets is not enough; what is needed is an investment in community growth, local content and skills transfer. The U.K., therefore, must prioritize investments that go beyond capital injection and simultaneously enable local participation and sustainability in ownership through employment and partnerships.