How Wealth Hubs Can Drive African Business Growth and Profit
The robust and constant growth in the tech sector in Africa, along with the gradual increase in demand for top skills, is paving the way for new wealth hubs on the African continent.
The robust and constant growth in the tech sector in Africa, along with the gradual increase in demand for top skills, is paving the way for new wealth hubs on the African continent. According to Africa Wealth Report 2022, smaller economies are expected to benefit from the fast growth in private wealth over the coming years. Experts also expect high-net-worth individuals to seek residence or citizenship through dedicated investment. But what does it mean for businesses in smaller economies? Essentially wealth hubs can help attract substantial capital to support emerging business activities and drive sustainable growth. Yet, African businesses and governments must prepare to attract and manage these financial opportunities.
African startups are growing fast, and they continue to attract investors. In 2021, African startups managed to raise $5B, smashing the previous record of $4.3B. The fintech sector is leading the way, accounting for 53% up to 63% of funding, depending on the reports provided by different deal-tracking publications. Education, logistics, retails, and health technology are close behind, attracting both the monetary and marketing support of investors all around the world.
International entrepreneurs are also keen to support African startups in the hope of establishing their future presence in Africa’s market, using the startups as an international office for their existing operations.
Yet, startups are not the only companies that receive investors’ interest. Investors are looking for existing and already established African companies, seeking growth financing through bonds and mergers. Business know-how and objectives determine whether the company should opt for a bond strategy or a merger. Bonds can prove highly effective in managing business debts, essentially helping regain stability after sudden growth or market fluctuations.
Research and development investments
African businesses are behind their peers when it comes to securing international funds for research and development. In an open letter to funders, experts appeal to support a more equitable ecosystem for African R&D. The African Union members agreed in 2006 to commit 1% of their GDP to research investments. Unfortunately, Africa’s research and development funding reached only 0.42% of GDP by 2019. The pandemic has considerably affected the African economy, making it hard for the African Union to increase R&D funding.
Therefore, wealth hubs could play a significant role in opening direct access to international funders who have relocated to Africa and establishing connections with other funders who still operate abroad.
African companies can find renewed financial support by joining the stock market. There could be many reasons to sell shares. For African companies that are often overlooked, the stock market can give international investors an indirect way to finance growth without needing to create a business pitch deck. Stock market presence can dramatically increase the credibility of otherwise unknown African brands, therefore increasing brand awareness toward new customers and potential lenders. Additionally, businesses typically issue shares when they need to raise money and finance their ambition for growth. As demonstrated by startup investment records, some sectors appeal to investors more than others. Fintech, education, and health tech stocks are likely to drive more share purchases than other sectors.
In conclusion, it makes no doubt that African businesses can start leaning on localised wealth hubs to fund and support their future growth. While there is no denying these are going to be challenging times for entrepreneurs and investors, Africa has already demonstrated its ability to rapidly adapt to changing situations and adopt new technologies and methodologies.