Opportunities For The African Diaspora In The West To Invest In Africa
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Over the years, millions of Africans have left the shores of Africa for Europe and America, making the “West” somewhat a haven for African professionals as their need to migrate was driven by the economic hardship, war, and political instability in some of these African countries. However, these Africans have settled in the ‘West’ while sending money home in Africa. Global remittances from these funds to Sub-Saharan Africa increased by 10% to $46 billion in 2021, according to the World Bank. The majority of it was used for personal consumption. Remittances, or money sent home from family members in the West, were also reported to play a significant role in the economy
Almaz Nagash, a pretty typical diasporan, who founded the Africa Diaspora Network in 2010, founded with the vision of seeking ways to make better use of these monies through investment, was claimed to have fled Eritrea in 1984 during the country's conflict with Ethiopia. She later went to college in the United States. She earned a bachelor's degree in international business and an MBA as a result of her studies. For ten years, the Africa Diaspora Network has built networks through its symposiums and other events while sparking interest in the hearts of African diasporans and other friends of Africa.
Another is the founder of Xavier Africa, Tavonga Muchuchuti Using Artificial Intelligence and Machine Learning, this Botswana-based custom software development firm detects and eliminates inefficiencies in African businesses. Despite the fact that returning to his motherland of Botswana to start a business was a difficult decision, Taronga felt it had to be made. He'd always considered returning to Africa to help solve problems.
Lamin Darboe, a Gambia native, co-founded Bantaba with a group of four students in Sweden in April 2020, just a few months after the Covid19 Corona Pandemic broke out. This digital matching network established in Sweden allows African companies to connect with experts in the Diaspora, allowing them to gain access to essential cash and resources.
Like Nagash, Tavonga, and Darboe, you might be seeking paths to take in giving back to your home community in Africa while investing.
Sectors You Can Invest In Africa
Here’s a list of Sectors you should look at while considering investing in the African Continent:
- The real estate industry
- Agriculture
- Technology
- Insurance
- Energy
In this blog we will discuss the first three sectors.
The Real Estate Industry
The Real Estate Industry in Africa is an immensely growing one, with comprehensive and exciting benefits. While this is because of her ever-increasing population, with increased migration between cities, the need for renting house properties is unending.
There are quite several paths in the real estate industry. You might choose to go through the Long term residential path, real estate investment trust, or even the contract flipping path. Commercial real estate could be an option, too, as well as lease options and short sales.
Different Paths In Real Estate
With the long-term residential path, you have a waxing population always in need of shelter, thus making it lucrative. At the same time, with a real estate investment trust, you don't have to own actual property to invest in real estate. Investing in stocks, as opposed to tangible properties, is quite synonymous with this. However, the downside is people who invest in REITs are usually taxed on their dividends at a higher rate than people who invest in other types of investments, though you continue to have a consistent inflow of income.
Modeled after mutual funds, REITs aggregate the capital of many investors," according to Investopedia. Individual investors can now earn dividends from real estate investments without having to buy, manage, or finance any of the properties themselves.
In Contract flipping, the wholesaler relinquishes the right to buy a property to the buyer. You don't need a lot of money to get started on this route. The negative is that the investor may have to devote a significant amount of effort to finding the right buyer for the property.
Commercial real estate is defined as property used purely for monetary uses or provide a place of employment, as contrast to residential real estate, which is defined as land utilized for residential purposes.
These properties could be purchased as homes and later converted into commercial assets such as offices, hotels, malls, and health care facilities.
Lease Option: The real estate sector offers enormous prospects, particularly through lease options. Many investors earn profits in real estate without having to invest a large sum of money through leasing options.
Short Sales: Short sales are good for people who can't pay their mortgage. Often times, short sales happen when a person who can't afford to pay back their mortgage agrees to let the mortgage lender help them sell their home.
Challenges Of Investing In Real Estate
Despite the mouth-watering benefits of investing in real estate in Africa, there are several challenges you might face while investing from Diaspora. You might want to take note of them before deciding on investing in the real estate industry in Africa:
- Difficulties in finding the right property: While this is an important factor because making a profit is dependent on it, it can be a herculean task for Africans in Diaspora, leaving them with the option of relying on colleagues, friends, and relatives in Africa to help them.
- Difficulties in verifying a property's ownership before investing.
- Difficulties in negotiating the price of a property before investing.
A scarcity of information on reputable real estate firms: A scarcity of information on reputable firms with which to partner could pose a challenge to diasporans looking to invest.
Things To Consider Before Investing In Real Estate In Africa
Also, before investing in real estate in Africa, there are however several things you should do:
- Do thorough research: While the info provided here is more of an overview, it is essential that you do an in-depth study about the path you have chosen: the laws of the land, useful information about the property – zoning, centrality to the town, accessibility to light and water, closeness to schools, markets, among others.
- Decide on the path you have decided to go with – long-term residential, real estate investment trust, or whatever sector you decide.
- Speculate. Think long term while investing. While what you are investing in might not look juicy, don't because of the present, fail to see the big picture.
The Technology Industry
According to Bloomberg, Africa's technology firms raised a sum of $5 billion from investors in 2021 as investors poured money into companies attempting to solve the continent's most pressing issues.
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Africa’s tech industry is one that has been generating a lot of buzz from investors in recent times, especially with the introduction of the internet on the continent. With more Africans in Diaspora and friends of Africa collaborating together, there has been an increase in the number of tech start-ups in Africa in recent times. And amazingly, with a divert from just fintech but to solve other problems in the continent. Of course, great profit to the founders and investors.
That being said, quite a lot has been said about the tech space in the opening section of this piece.
The Agricultural Industry
Another booming industry you should look into is Agriculture, which has become more attractive to investors in recent times.
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At a conference in 2021, Karima Babangida, Director of the Federal Ministry of Agriculture of Nigeria, stated that the sector received $490 million in foreign direct investment in 2019, up from $290 million in 2018. This is mostly due to the inventive tech push of young and energetic entrepreneurs who have raised large sums of money from both foreign and domestic investors.
While this is a valid reason to invest in the agricultural sector, investing in the farm sector will have you combating poverty even while enhancing food security. Besides this, the risk of investing in Agriculture is relatively lesser compared to other industries as most products are protected by insurance.
Also, the stability of the agricultural industry is another reason you should consider investing in the farming sector. Compared to other sectors hugely affected by the economy, the Agricultural sector is scarcely so. Should there be an economic depression, people will still have to eat with the agricultural industry booming.
The essentiality of agriculture is another reason you should look into the agricultural sector. As long as there are people on earth, agriculture products will always be demanded. And with a more mechanized way of farming in Africa, Agriculture is close to being the oil of Africa.
The Diaspora Investment in Agriculture (DIA) project was launched by the US Department of State and the International Fund for Agricultural Development in order to invest in agriculture in Africa (IFAD). This collaboration aims to help migrants in their quest to invest in agriculture and contribute to the continent's economic development.
Conclusion
So, should it be by creating start-ups or finding some way to cut a part of the global remittances to investment? We all have a role to play in contributing to the development of our continent.