Investing in Africa: 2 Areas That Investors Should Watch

In 2012, the Obama administration lunched the Doing Business in Africa Campaign . Through the Campaign, the US government aims to strengthen its commercial relationship with Africa. Following the recent US-Africa business forum, this initiative finally seems to be taking off.

During the summit, Obama announced that its administration has secured $14 billion in commitments from US companies for investments in Africa. General Electric GE and International Business Machines IBM are two notable companies that have pledged to the initiative.

GE said it would invest $2 billion in Africa over the next four years. It plans to direct its investments towards supplying gas turbines to meet electricity demand in Algeria and in Nigerian National Petroleum Corp's state oil refinery. It also plans to build rail lines in Angola, as well as a biogas project in South Africa.

IBM, on the other hand, plans to provide technology services to Ghana’s Fidelity Bank. However, the question is that is are US companies targeting the areas that would enable them compete with China, which is already Africa’s biggest business partner.

Judging from trends in Africa, investors want to pay close attention to these two areas, as they present some of the biggest opportunities in Africa at the moment.

Infrastructure

By and large, the biggest problem to development in Africa is infrastructure – or the lack thereof. Simply put, African countries lack good road (network). Energy is a problem. Even telecommunication is still behind compared with developed countries.

A basic understanding of economics gives the understanding that investing in infrastructure could fuel economic growth. Besides, starting with investments in other areas when infrastructure still suffers could lead to the failure of those investments.

Therefore, companies that will benefit the most from Africa over the next few decades are companies that invest in building Africa’s infrastructure. Here, majority of the focus will be on energy and transportation.

General Electric is one of the companies that will benefit from the growth in Africa. With its latest investment pledge in Africa, it aims to help improve energy in various places around the continent.

In addition, adding to PricewaterhouseCoopers, Africa lacks a standard transportation system. However, it also says that the impending growth in the African countries means that transportation and logistics infrastructure in Africa is seeing a growth in investment potential.

Consumer goods

The consumer goods sector is another sector that is positioned to see real growth. Research has shown that about 200 million people are between the ages of 15 and 24 in Africa, and Africa is expected to have the largest workforce in the world by 2040.  According to Kanwal Masood, portfolio specialist for T. Rowe Price's Africa and Middle East fund and frontier markets, this figure will benefit consumer goods companies going forward.

There are already over 70 percent of the world’s biggest consumer goods companies in Africa. So investors might want to keep tabs on the companies – like The Coca-Cola Company KO that are most invested in this region, as they will usually be the biggest winners.

As education is also a big challenge in Africa, companies investing in African education are also worth considering. IBM is one of the companies that are investing in African education.